COURT OF APPEAL FOR ONTARIO
CITATION: Paul’s Transport Inc. v. Immediate Logistics Limited, 2022 ONCA 573
DATE: 20220805
DOCKET: C69833
Gillese, van Rensburg, Paciocco, Harvison Young and Copeland JJ.A.
BETWEEN
Paul’s Transport Inc.
Plaintiff (Respondent)
and
Immediate Logistics Limited, William “Bill” O’Connor and Catherine Ann O’Connor
Defendants (Appellants)
James S.G. Macdonald, Rida Anmol and Melisa Rupoli, for the appellants
Gordon Hearn and Conal Calvert, for the respondent
Heard: May 17, 2022
On appeal from the order of Regional Senior Justice Leonard Ricchetti of the Superior Court of Justice, dated August 4, 2021.
Gillese J.A.:
[1] This appeal requires the court to decide a number of questions, including whether Umlauf v. Umlauf (2001), 2001 CanLII 24068 (ON CA), 53 O.R. (3d) 355 (C.A.), is good law.
I. THE FACTUAL BACKGROUND
[2] Until 2015, Immediate Logistics Limited (“Immediate”) was a common carrier and logistics services provider operating out of Brampton, Ontario. William O’Connor and Catherine Ann O’Connor (together, the “O’Connors”) were Immediate’s sole principals. Mr. O’Connor was a director and officer, and Ms. O’Connor was an officer. By the time of this appeal, Ms. O’Connor was no longer involved in the proceeding, leaving Immediate and Mr. O’Connor as the appellants.
[3] The respondent, Paul’s Transport Inc. (“Paul’s Transport”), is a common carrier for hire providing transportation services in the Greater Toronto Area.
[4] In February 2015, the parties verbally agreed to a freight brokerage arrangement under which: Immediate was the freight broker and would schedule delivery of goods for its clients (the “shippers”); Immediate would dispatch Paul’s Transport to transport the goods on Immediate’s behalf; Paul’s Transport would ship goods for the shippers and then invoice Immediate for the carrier services it had provided; Immediate would then invoice the shippers; and, when Immediate received payment from the shippers, it would remit payment to Paul’s Transport (the “Verbal Agreement”).
[5] The Verbal Agreement was “restated” in writing on May 1, 2015 and amended on July 17, 2015.
[6] Paul’s Transport made deliveries for Immediate from February 2015 to September 2015. The invoices it sent to Immediate had a statement printed on the bottom that “Past Due Accounts will be Charged Interest at 2% per Month”.
[7] Some time around August 2015, Immediate fell into arrears. When Paul’s Transport re-issued invoices directly to the shippers, it learned that the shippers had already paid Immediate and would not pay again.
[8] In late 2015, Immediate ceased to operate, closed its bank accounts, and vacated its business premises.
II. THE RELEVANT LEGISLATIVE PROVISIONS
[9] The procedural history of this appeal is critical to its resolution. To understand that history, it is helpful to review the following legislative provisions.
(1) Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”):
19.01 (1) Where a defendant fails to deliver a statement of defence within the prescribed time, the plaintiff may, on filing proof of service of the statement of claim, or of deemed service under subrule 16.01 (2), require the registrar to note the defendant in default.
19.02 (1) A defendant who has been noted in default,
(a) is deemed to admit the truth of all allegations of fact made in the statement of claim; and
(b) shall not deliver a statement of defence or take any other step in the action, other than a motion to set aside the noting of default or any judgment obtained by reason of the default, except with leave of the court or the consent of the plaintiff.
19.02 (3) Despite any other rule, a defendant who has been noted in default is not entitled to notice of any step in the action and need not be served with any document in the action, except where the court orders otherwise or where a party requires the personal attendance of the defendant, and except as provided in [certain specific subrules.]
19.05 (1) Where a defendant has been noted in default, the plaintiff may move before a judge for judgment against the defendant on the statement of claim in respect of any claim for which default judgment has not been signed.
19.06 A plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment.
19.08 (2) A judgment against a defendant who has been noted in default that is obtained on a motion for judgment on the statement of claim under rule 19.05 or that is obtained after trial may be set aside or varied by a judge on such terms as are just.
37.10 (1) Where a motion is made on notice, the moving party shall, unless the court orders otherwise before or at the hearing of the motion, serve a motion record on every other party to the motion and file it, with proof of service, in the court office where the motion is to be heard, at least seven days before the hearing, and the court file shall not be placed before the judge or associate judge hearing the motion unless he or she requests it or a party requisitions it.
(2) The motion record shall contain, in consecutively numbered pages arranged in the following order,
(a) a table of contents describing each document, including each exhibit, by its nature and date and, in the case of an exhibit, by exhibit number or letter;
(b) a copy of the notice of motion;
(c) a copy of all affidavits and other material served by any party for use on the motion;
(d) a list of all relevant transcripts of evidence in chronological order, but not necessarily the transcripts themselves; and
(e) a copy of any other material in the court file that is necessary for the hearing of the motion.
(2) Interest Act, R.S.C. 1985, c. I-15 (the “Interest Act”)
4 Except as to mortgages on real property or hypothecs on immovables, whenever any interest is, by the terms of any written or printed contract, whether under seal or not, made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable, payable or recoverable on any part of the principal money unless the contract contains an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent.
(3) Highway Traffic Act, R.S.O. 1990, c. H.8 (the “HTA”)
191.0.1 (3) A person who arranges with an operator to carry the goods of another person, for compensation and by commercial motor vehicle, shall hold any money received from the consignor or consignee of the goods in respect of the compensation owed to the operator in a trust account in trust for the operator until the money is paid to the operator.
III. THE PROCEDURAL HISTORY
[10] On January 11, 2017, Paul’s Transport issued a statement of claim seeking $100,000 in damages for unpaid invoices, breach of contract, breach of statutory trust obligation, unjust enrichment, and/or quantum meruit (the “Claim”). Although it was owed just over $104,000 for unpaid services, Paul’s Transport waived the amount in excess of $100,000 so it could bring the Claim under the simplified procedure set out in r. 76 of the Rules.[^1]
[11] The Claim stated that Immediate’s failure to remit monies paid by the shippers was a breach of the requirement in s. 191.0.1(3) of the HTA to hold such monies in trust until they had been paid to Paul’s Transport. The Claim alleged that the O’Connors were Immediate’s controlling minds and had consented to, acquiesced, or directed Immediate to breach its statutory trust obligations. The Claim pleaded that it was an implied term that amounts payable to Paul’s Transport were subject to an interest rate of 2% per month and this had been explicitly stated on each invoice that Paul’s Transport sent to Immediate.
[12] Paul’s Transport served Immediate by mailing a copy of the Claim to its corporate address on record. After many unsuccessful attempts to serve the Claim on the O’Connors, Paul’s Transport obtained an order for substituted service by regular mail and served them accordingly.
[13] The appellants were noted in default. The Registrar signed a default judgment against Immediate on July 7, 2017, for $141,482.33. On August 10, 2017, the Registrar signed a default judgment against the O’Connors for $148,089.92. The Registrar’s default judgments were issued by requisition and without evidence.
[14] In October 2017, Paul’s Transport sought to enforce the default judgments through writs of seizure and sale. A sale of one of the O’Connors’ cottages was to proceed on May 23, 2019. However, on April 30, 2019, the appellants retained counsel who advised that they would seek to set aside the default judgments. The sale was aborted to permit the appellants’ motion to proceed.
[15] Three motions followed. The first two motions were heard by the same motion judge, but the third was heard by a different judge. The order that flowed from the third motion is the subject of this appeal.
(1) The First Motion
[16] Immediate and the O’Connors moved to lift the noting in default and set aside the default judgments (the “First Motion”). In support, they filed affidavits of Mr. O’Connor and Ms. O’Connor. Both were cross-examined under oath. Paul’s Transport’s representatives, including Shannon Whidden, its bookkeeper, were also examined under oath. The motion judge summarized the O’Connors’ position on the First Motion as: the O’Connors were not aware of the default judgments until they received a notice of sale from the Sheriff; the default judgments were irregularly obtained and for unliquidated sums; and they had a triable defence on the merits.
[17] At the hearing of the First Motion on July 8, 2020, the parties agreed that the Claim relates exclusively to services that Paul’s Transport rendered to Immediate pursuant to the Verbal Agreement.
[18] For reasons dated July 14, 2020, the motion judge granted the First Motion in part: she set aside the default judgments but not the noting in default. She also ordered Paul’s Transport to bring a motion for default judgment under r. 19.05 of the Rules.
[19] The motion judge set aside the default judgments because the Claim did not plead the facts necessary for the Registrar to sign the default judgments: there was no factual basis on which the Registrar could fix the amount owing or determine whether interest was payable. As well, the claim against the O’Connors was for breach of trust, unjust enrichment, and quantum meruit, which are unliquidated demands. Because the default judgments were obtained irregularly and additional evidence beyond the facts pleaded in the Claim was required to fix the amount owing, the default judgments had to be set aside.
[20] However, the motion judge declined to set aside the noting in default. She did not accept the O’Connors’ assertion that they had no knowledge of the proceedings against them until they received a Sheriff’s notice. She accepted the “ample evidence” of Paul’s Transport’s “dogged efforts” to ensure the O’Connors were aware of the proceedings. She found the O’Connors had ample notice and time to defend the action but failed to do so. She concluded that “[h]aving actively chosen to ignore this litigation for so long, the O’Connors cannot reasonably expect the court to now grant them the opportunity to defend it.”
(2) The Second Motion
[21] Paul’s Transport then brought a motion for default judgment under r. 19.05(1), without notice, against only Immediate and Mr. O’Connor (the “Second Motion”).
[22] The appellants’ counsel appeared on the Second Motion, heard on October 1, 2020, and requested leave to make submissions. In support of that request, counsel relied on Doldo v. 1497601 Ontario Ltd., 2012 ONSC 4833.
[23] After hearing submissions on whether leave should be granted, the motion judge observed that Doldo was not binding on the court. She then declined to grant the appellants leave to make submissions (the “Ruling”). She observed that r. 19.02(1)(b) prohibits a defendant noted in default from “tak[ing] any other step in the action” other than a motion to set aside the noting in default or default judgment and concluded that it would be unfair to grant leave for two reasons. First, the appellants had already had the opportunity to challenge the noting in default and the default judgments at the First Motion. Second, it would be unfair to Paul’s Transport to have to respond to the appellants’ submissions without appropriate notice.
[24] The motion judge made the following findings on the Second Motion, among others: Mr. O’Connor, as director, officer, and manager of Immediate, was its controlling mind; Paul’s Transport had rendered services to Immediate, pursuant to the Verbal Agreement, for which it was never paid; those services were valued at over $100,000; Immediate was advised that balances due to Paul’s Transport were subject to 2% interest per month; the shippers paid Immediate for the services rendered by Paul’s Transport but Immediate held the money in its general account, not a trust account; Mr. O’Connor depleted Immediate’s general account as of June 2016; Paul’s Transport did not recover any of the amounts owing from the shippers; and, the interest payable on the past due accounts was $120,000.
[25] In finding that Mr. O’Connor was Immediate’s controlling mind, the motion judge relied on Mr. O’Connor’s admission in cross-examination that he personally sent the Immediate invoices to the shippers, received payment of the invoices from the shippers, and placed those payments in Immediate’s general account, not a trust account.
[26] Based on her findings, the motion judge concluded that Immediate was liable for breach of statutory trust under s. 191.0.1(3) of the HTA. That provision required Immediate to hold the money it received from the shippers, for services rendered by Paul’s Transport, in a trust account until Paul’s Transport was paid. Because Immediate failed to do that, it was liable for breach of statutory trust.
[27] The motion judge found the evidence established that Mr. O’Connor was Immediate’s controlling mind and had consented to, acquiesced, or directed Immediate to violate its statutory trust obligation by diverting funds that should have been held in trust for Paul’s Transport to other purposes. Those funds were diverted even though Mr. O’Connor knew, or ought to have known, there were outstanding payments due to Paul’s Transport. Relying on Air Canada v. M & L Travel Ltd., 1993 CanLII 33 (SCC), [1993] 3 S.C.R. 787, at pp. 808-12, 818-19, the motion judge observed that the controlling mind of a corporate trustee can be personally liable for knowingly assisting in the breach of a statutory trust absent proof of fraud and dishonesty. Accordingly, she found Mr. O’Connor was personally liable to Paul’s Transport for knowingly assisting Immediate in the breach of a statutory trust.
[28] The motion judge found there was no evidence to suggest that Ms. O’Connor should be held personally liable because she was a director in name only.
[29] The motion judge concluded that Immediate and Mr. O’Connor were jointly and severally liable for damages in the amount of $220,000, comprised of $100,000 plus pre-judgment interest in the amount of $120,000.
[30] Default judgment was issued on October 1, 2020 (the “October 2020 Default Judgment”).
IV. THE ORDER UNDER APPEAL
[31] The appellants brought the third motion, under r. 19.08(2), to set aside or vary the October 2020 Default Judgment (the “Third Motion”). By order dated August 4, 2021 (the “Order”), the Third Motion was dismissed, except to the extent that the October 2020 Default Judgment was varied (on consent) so that it was against Immediate and Mr. O’Connor only, and not against Ms. O’Connor. To distinguish the motion judge who heard the Third Motion from the motion judge who heard the First and Second Motions, I will refer to the former as the “Motion Judge”.
[32] The Motion Judge began by emphasizing that, in the Third Motion, the appellants were not seeking to set aside the noting in default – they sought only to set aside (or vary) the October 2020 Default Judgment. He summarized the Claim’s procedural history and set out the key factual findings made on the First Motion. He observed that, on the Second Motion, Paul’s Transport filed a ten‑volume motion record containing affidavits, transcripts, invoices, and documents. The Motion Judge then summarized the key findings and determinations made on the Second Motion.
[33] The Motion Judge listed the contents of the record that was before him on the Third Motion: the affidavit of Mr. O’Connor dated March 25, 2021; the affidavit of Ms. Whidden dated June 9, 2021; a reply affidavit of Mr. O’Connor dated June 15, 2021; and transcripts of Mr. O’Connor’s examination for discovery on August 26, 2019 (the “Record”).
[34] The Motion Judge then explained that the court faced a serious difficulty because the appellants had not filed the record on the First Motion and had filed only a portion of the record on the Second Motion. As a result, the court could not know whether the appellants had raised the same or different issues on the earlier motions, nor could it determine what and why the motion judge made the findings and rulings that she did on those motions. He stated that a r. 19.08 motion to set aside or vary a r. 19.05 judgment must include the records that were before the motion judge in the prior motions because, without a full record, the appellants could challenge the October 2020 Default Judgment on multiple occasions, bringing new and different evidence and raising the same, new, or different issues. He concluded that permitting the appellants to proceed as they had on the Third Motion “strained” the principle of finality of judicial decisions.
[35] The Motion Judge then said that, even if he were wrong that it was inappropriate to deal with the appellants’ motion on the Record, the appellants had failed to discharge their burden of demonstrating that the October 2020 Default Judgment, or portions of it, should not have been granted.
[36] He explained that the motion judge did not err in granting pre- and post‑judgment interest of 2% per month on the basis that this rate of interest was contrary to s. 4 of the Interest Act. Section 4 applies to written contracts. However, on the First Motion, the parties agreed and the motion judge found that the parties conducted themselves based on the Verbal Agreement. Therefore, s. 4 did not apply.
[37] The Motion Judge stated that the motion judge was clearly satisfied, on the Second Motion, that there was a verbal agreement and that the course of conduct established that interest would be chargeable at 2% per month. He found there was no different evidence or basis on which to come to a different conclusion.
[38] Next, the Motion Judge dealt with the appellants’ submissions relating to the breach of trust findings in respect of Mr. O’Connor. He noted that there was no dispute that Immediate owed Paul’s Transport an amount in excess of $100,000 or that the statutory trust provision in the HTA applied. As for the appellants’ submission that there was a lack of detail on the amount of the claim as against Mr. O’Connor, he observed that this was one reason given by the court on the First Motion for setting aside the Registrar’s default judgments and requiring Paul’s Transport to adduce further evidence before it could obtain judgment. Although the Motion Judge did not have the ten volumes of evidence that Paul’s Transport had adduced on the Second Motion, he said that it was clear that it included “considerably more evidence” on the amounts owed to Paul’s Transport and the amounts paid to Immediate by the shippers.
[39] The Motion Judge then considered the appellants’ submission that the court on the Second Motion was required to find fraud or dishonesty before it could impose liability on Mr. O’Connor for breach of trust. The Motion Judge rejected this submission based on the motion judge’s findings on the Second Motion that Mr. O’Connor received the monies from the shippers, did not put them into a trust account, and was the person responsible for payment out of those monies. He said that Mr. O’Connor’s admitted participation in the breach of the statutory trust provisions was sufficient to support personal liability.
[40] Thus, the Motion Judge concluded, there was no legal or evidentiary basis on which to vary or set aside the October 2020 Default Judgment in respect of Mr. O’Connor.
[41] The Motion Judge then dismissed the Motion, apart from varying the October 2020 Default Judgment to exclude Ms. O’Connor, which went on consent.
V. THE APPEAL
[42] On this appeal, the appellants seek to set aside the pre-judgment interest award of $120,000. They also seek to set aside judgment as against Mr. O’Connor or, alternatively, to vary the principal amount awarded against him to be $59,455.75, rather than $100,000.
[43] Before the appeal was scheduled to be heard, the appellants successfully asked that a five-judge panel be struck so that the court hearing the appeal could reconsider Umlauf. The appellants made their Umlauf arguments as part of their submission that the Motion Judge erred by failing to apply the correct legal test when determining whether to set aside the October 2020 Default Judgment. Accordingly, the Umlauf arguments are addressed on Issue #2, below.
VI. THE ISSUES
[44] The appellants submit that the Motion Judge erred by:
dismissing the Third Motion on the basis that the appellants had not filed the necessary evidence;
failing to apply the correct legal test when determining whether to set aside the October 2020 Default Judgment;
upholding the order making Mr. O’Connor personally liable for knowingly assisting in a breach of statutory trust; and
not properly considering the prejudice to the appellants and the integrity of the administration of justice.
ISSUE #1: The motion judge made no error in respect of the inadequacy of the Record
[45] The appellants submit that the motion judge erred by dismissing the Third Motion on the grounds that they failed to provide the court with the material filed on the Second Motion. They make several arguments in support of this submission, including: they had no onus to provide that material because they had been prevented from presenting evidence or making submissions on the Second Motion; if the Motion judge needed the material filed on the Second Motion, he could have sought and obtained it; they provided the court with only the first volume of the record filed on the Second Motion because it contained the sole affidavit relied on by Paul’s Transport – the other nine volumes were simply exhibits to the affidavit; r. 19.08 is silent on what material must be filed on such a motion; if Paul’s Transport was concerned about the adequacy of the record on the Third Motion, it could have submitted the material it filed on the Second Motion; and, the role of the Motion Judge was not to “determine what and why [the motion judge] made her findings” on the Second Motion but to determine whether it was in the interests of justice to set aside or vary the October 2020 Default Judgment.
[46] I do not accept this submission or any of the arguments advanced in support of it. The appellants had the burden to file the material necessary for the hearing of the Third Motion and the Motion Judge made no error in finding that they failed to discharge that burden.
[47] Rule 37.10(1) provides that where a motion is made on notice, it is the moving party who must file and serve the motion record. Rule 37.10(2)(e) requires the motion record to contain “a copy of any other material in the court file that is necessary for the hearing of the motion”. Accordingly, as the moving parties, the appellants had the burden of filing the material necessary for the hearing of the Third Motion. As the responding party, Paul’s Transport had no obligation to redress any inadequacies in the material the appellants filed on the Third Motion.
[48] Further, the appellants are wholly misguided in suggesting that if the Motion Judge felt material was missing, he could have gone through the court’s records and found it. His role was to decide the Third Motion on the Record that was before him. If the Motion Judge had done as the appellants suggest, it would have been an egregious procedural error on his part – effectively, the Motion Judge would have abandoned his role as independent arbiter and assumed the mantle of an advocate.
[49] In terms of the sufficiency of the material that the appellants filed on the Third Motion, I say two things.
[50] First, the appellants are incorrect when they say that the Motion Judge found the Record inadequate because they failed to file the full record on the Second Motion. The Motion Judge found the Record inadequate because the appellants failed to file the record on the First Motion and only provided part of the record on the Second Motion. The Motion Judge made no error in finding that those materials were necessary for the hearing of the Third Motion. The findings and determinations made in the First Motion were the foundation on which the Second Motion rested. This can be seen most clearly by the motion judge’s reliance, in the Second Motion, on factual findings made in the First Motion. One example of this is the finding on the First Motion that the Claim related exclusively to services that Paul’s Transport rendered pursuant to the Verbal Agreement, not the later written agreement. Further, the material missing from the Second Motion record appeared to be directly relevant to the issues that the appellants raised on the Third Motion.
[51] Second, I wholly agree with the reasons given by the Motion Judge for his determination that the Record was inadequate for him to decide the issues the appellants raised on the Third Motion. As those reasons are summarized above, I will not repeat them again.
[52] Thus, in my view, the Motion Judge made no error in concluding that the appellants had failed to adduce sufficient evidence to warrant interference with the October 2020 Default Judgment.
ISSUE #2: The motion judge made no error in the applicable legal test or its application
[53] The appellants submit that, on the Third Motion, the Motion Judge failed to apply the legal test for setting aside default judgment set out in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, and, instead, treated the Third Motion as an appeal. They contend that the Motion Judge did not address the ultimate question on a motion to set aside a default judgment, which is “to determine whether the interests of justice favour granting the order” (Mountain View, at para. 47), or consider the factors set out in Mountain View, at paras. 48‑49:
(a) whether the motion was brought promptly after the defendant learned of the default judgment;
(b) whether there is a plausible excuse or explanation for the defendant’s default in complying with the Rules;
(c) whether the facts establish that the defendant has an arguable defence on the merits;
(d) the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the respondent should the motion be allowed; and
(e) the effect of any order the motion judge may make on the overall integrity of the administration of justice.
[54] Many of the appellants’ complaints on this issue focus on the order in the October 2020 Default Judgment that the appellants pay Paul’s Transport pre‑judgment interest of $120,000 on the unpaid Paul’s Transport invoices (the “Interest Order”). They contend the Motion Judge failed to grapple with their arguments that: the motion judge on the Second Motion found they agreed to pay interest at the rate of 2% per month in the absence of any positive evidence of an agreement or implied agreement on that matter; the interest rate could not be implied from Paul’s Transport’s invoices that showed interest would be charged at the rate of 2% per month; and, although the Claim said there was an implied interest rate of 2% per month, that could not be deemed to be admitted. On the last argument, the appellants contend that whether conclusions of mixed fact and law – such as implying terms in a contract – are taken to be true on default judgment motions is a matter that has not been conclusively determined by this court. It is in this context that they make their Umlaufarguments.
[55] Alternatively, the appellants argue that the wording on Paul’s Transport invoices stating that interest would be charged at 2% per month does not comply with s. 4 of the Interest Act. Section 4 mandates that, for written contracts, unless a yearly rate of interest is specified, interest cannot be charged at a rate exceeding 5% per year. Consequently, the appellants say that s. 4 operates to limit interest on the unpaid invoices to 5% annually.
[56] I will deal with the appellants’ arguments on this issue by first addressing whether the Motion Judge applied the correct legal test and then whether he erred in refusing to set aside or vary the Interest Order.
(1) Did the Motion Judge apply the correct legal test on the Third Motion?
[57] I do not accept that the Motion Judge applied the wrong legal test in deciding the Third Motion or that he treated it as an appeal. He correctly understood the nature of the Third Motion and the test that was to be applied.
[58] At para. 52 of his reasons, the Motion Judge described the Third Motion as a “Rule 19.08 motion to set aside or vary a Rule 19.05 judgment”. He was correct: Paul’s Transport brought the Second Motion under r. 19.05(1), and the appellants brought the Third Motion under r. 19.08(2). In short, the Motion Judge clearly understood that, on the Third Motion, he was to decide whether the October 2020 Default Judgment should be set aside or varied.
[59] At para. 57 of his reasons, the Motion Judge stated that he was to apply the “well-known factors” set out at para. 8 of Ken Jackson Construction Ltd. v. Macklin, 2017 ONCA 324, 64 C.L.R. (4th) 1. The factors set out at para. 8 of Ken Jackson are the Mountain View factors.
[60] It is true that para. 8 of Ken Jackson does not refer to the statement at para. 47 of Mountain View that the “ultimate” question to be answered on such motions is whether the interests of justice favour granting the order. That may explain why the Motion Judge did not expressly address that question. However, as I explain in my analysis of Issue #4 below, the Motion Judge made no error in dismissing the Third Motion. His findings make it clear that the interests of justice did not favour granting the order that the appellants sought.
[61] In my view, the Motion Judge applied the Mountain View factors that were relevant in the circumstances of this case. However, as he said, those factors did not have an easy application to the case before him. This can be seen by considering the first and second Mountain View factors. Those matters had been considered on the First Motion and decided against the appellants. It will be recalled that the first factor is whether the motion was brought promptly after the defendant learned of the default judgment and the second factor is whether there was a plausible excuse or explanation for the defendant’s default in complying with the Rules. On the First Motion, the motion judge found that the appellants had knowledge of the Claim and simply chose to ignore it, only taking steps to set aside the noting in default and the default judgments when the Sheriff was about to sell one of their cottages as part of Paul’s Transport’s enforcement proceedings. On the unchallenged findings made in the First Motion, it had not been brought promptly and there was no plausible excuse or explanation for the appellants’ default in complying with the Rules. Because of those findings on the First Motion (which remained binding), it was unnecessary for the Motion Judge to expressly consider the first two Mountain View factors on the Third Motion. Indeed, it would have been inappropriate for the appellants to seek to re-argue those points which had already been determined against them. In any event, the findings on the First Motion (which remained operative) resulted in the first two factors weighing against setting aside or varying the October 2020 Default Judgment.
[62] The third Mountain View factor required the Motion Judge to consider whether the facts established that the appellants had an arguable defence on the merits. The Motion Judge did address the appellants’ arguments relating to the validity of the Interest Order, discussed below, and those relating to Mr. O’Connor’s personal liability, discussed in Issue #3. As will be evident from the discussion of those matters below, the appellants offered no new evidence or legal arguments to support their contention that they had an arguable defence. Because the Third Motion was not an appeal, it was inappropriate for the appellants to essentially simply re-argue those matters.
[63] The Motion Judge did not expressly address the fourth and fifth Mountain View factors. However, as I explain in my analysis of Issue #4, the absence of an express determination on those factors does not derogate from the validity of the Motion Judge’s dismissal of the Motion.
(2) Did the Motion Judge err in refusing to vary or set aside the Interest Order?
[64] The Interest Order flowed from the motion judge’s finding on the Second Motion that Immediate “was advised that balances due to Paul’s Transport were subject to 2% interest per month”. The motion judge made this finding, among others, based on Ms. Whidden’s affidavit and Mr. O’Connor’s evidence on cross‑examination.
[65] The Motion Judge gave two reasons for refusing to vary or set aside the Interest Order. First, after observing that the motion judge had been satisfied when granting the October 2020 Default Judgment that there was a verbal agreement and that the course of conduct established that interest would be chargeable at 2% per month, he said: “I have no different evidence or basis to come to a different conclusion”. Second, he rejected the appellants’ argument that s. 4 of the Interest Act governed because s. 4 applies only to written contracts and the agreement in this case was verbal.
[66] I see no error in the Motion Judge’s reasons or result on this matter.
[67] The first reason given by the Motion Judge must be understood in context. The appellant bore the onus of demonstrating that the October 2020 Default Judgment (or some part of it) should not have been granted. But the appellants failed to provide the Motion Judge with a complete record. It was evident from the motion judge’s decision on the Second Motion to grant the October 2020 Default Judgment that she was satisfied on the evidence before her that the parties had agreed that balances owed were subject to interest of 2% per month. Although the appellants placed an affidavit before the Motion Judge on the Third Motion denying that there was any such agreement, they had made the same claim by affidavit before the motion judge on the Second Motion. It was therefore accurate for the Motion Judge on the Third Motion to observe that he had no different evidence and, therefore, no basis to come to a different conclusion than that of the motion judge.
[68] In respect of the second reason, the Motion Judge correctly stated that s. 4 of the Interest Act did not apply because the agreement between the parties was verbal, not written. The unchallenged finding on the First Motion – and acknowledged by both parties on that motion – was that the Claim relates exclusively to services rendered by Paul’s Transport pursuant to the Verbal Agreement. The invoices that Paul’s Transport sent to Immediate were sent pursuant to the Verbal Agreement. Therefore, s. 4 is not triggered by virtue of the invoices sent by Paul’s Transport to Immediate.
[69] Thus, the appellants are not correct when they say the Motion Judge failed to address the defences they wished to raise in respect of the Interest Order. He did. He explained why there was no basis on which to interfere with the Interest Order and why s. 4 of the Interest Act did not apply.
[70] The appellants are also incorrect when they assert that the motion judge on the Second Motion found that Immediate agreed to pay interest at the rate of 2% per month “in the absence of any positive evidence”, on the strength of the statement to that effect on the Paul’s Transport invoices, or by treating the statement in the Claim that there was an implied interest rate of 2% per month as a deemed admission. On the record, none of those assertions are borne out.
[71] At para. 7 of her endorsement of October 1, 2020, the motion judge found that Immediate was advised that interest would be charged at the rate of 2% per month based on Ms. Whidden’s affidavit evidence and Mr. O’Connor’s cross‑examination evidence. The basis for the finding refutes the appellants’ assertions: it is positive evidence, and that evidence does not include treating the matters in the Claim as deemed admissions. It may be that the invoices factored into the motion judge’s assessment of both Ms. Whidden’s affidavit evidence and Mr. O’Connor’s cross-examination, but that does not assist the appellants. The motion judge was entitled to consider the evidence before the court in making her legal and factual determinations.
[72] This analysis disposes of the appellants’ arguments that they have an arguable defence on the Interest Order. However, because the appellants’ request to challenge the validity of Umlauf was granted and the parties have fully argued that matter, I will address it now.
(3) Is Umlauf good law?
[73] The appellants’ Umlaufargument flows from the following paragraphs in the Claim:
The plaintiff pleads that it was an implied term of the Agreement that the amount due and payable to the plaintiff is subject to an interest rate of 2% per month as explicitly stated on each invoice.
The plaintiff accordingly states that it is entitled to pre‑judgment interest of 2% per month on the outstanding Invoices calculated from the due date of each invoice.
[74] The appellants say that the motion judge on the Second Motion treated those paragraphs as deemed admissions of the applicable interest rate under r. 19.02 after they had been noted in default. They contend that was an error because it involved implying a term in the agreement between the parties, which is a conclusion of mixed fact and law, and such conclusions cannot form the basis of deemed admissions. They acknowledge that Umlauf stands for the proposition that not only are the facts pleaded in a statement of claim to be taken as true but so too are the conclusions of law pleaded in it (the “Umlauf Proposition”). However, they say that the Umlauf Proposition is incompatible with Segraves (otherwise Fralick) v. Fralick, 1951 CanLII 97 (ON CA), [1951] O.R. 871 (C.A.), in which this court held that although facts are deemed admitted on default, the court must nevertheless determine whether the plaintiff is entitled to judgment as a matter of law. They also point to cases such as Salimijazi v. Pakjou (2009), 2009 CanLII 17354 (ON SC), 58 B.L.R. 4th 113 (Ont. S.C.), and Nikore v. Jarmain Investment Management Inc. (2009), 2009 CanLII 46655 (ON SC), 97 O.R. (3d) 132 (S.C.), which depart from the Umlauf Proposition.[^2] They invite this court to follow the Segraves, Salimijazi,and Nikoreapproach instead of the Umlauf Proposition.
[75] Paul’s Transport submits that the principles raised in these cases are irrelevant because the impugned admissions are purely factual in nature. They say that the allegation in paragraph 27 of the Claim is one of fact and that paragraph 28 is simply the legal conclusion that flows from the factual allegation in paragraph 27.
[76] I do not accept Paul’s Transport’s submission. Paragraph 27 of the Claim pleads that interest at the rate of 2% per month was an “implied term” of the agreement between the parties. Whether to imply a term in a contract is a question of mixed fact and law: Energy Fundamentals Group Inc. v. Veresen Inc., 2015 ONCA 514, 388 D.L.R. (4th) 672, at para. 29. Thus, whether a term can be implied into the contractual arrangement between the parties is not purely a question of fact.
[77] Accordingly, I return to the question of whether the Umlauf Proposition is good law. In my view, it is not, and the approach articulated in Segraves, Salimijazi, and Nikore should be followed. Conclusions of law, and of mixed law and fact, are not to be deemed admitted under r. 19.02(1) where a defendant has been noted in default. If the facts pleaded do not support the conclusion of law pleaded, the motion judge may decline to grant judgment despite the failure of the defendant to defend the action: Salimijazi, at para. 19. The motion judge is entitled to scrutinize both the deemed admissions in the pleading and any evidence tendered by the plaintiff to see whether the plaintiff is entitled to judgment: Salimijazi, at para. 28.
[78] This approach is compatible with a plain and harmonious reading of rr. 19.02(1)(a) and 19.06, whereas the Umlauf Proposition is not.
[79] For ease of reference, I reproduce those provisions here:
19.02 (1) A defendant who has been noted in default,
(a) is deemed to admit the truth of all allegations of fact made in the statement of claim[.]
19.06 A plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment. [Emphasis added.]
[80] On a plain reading of r. 19.02(1)(a), it applies to allegations of fact made in the statement of claim, not to conclusions of law or mixed law and fact. Rule 19.02(1)(a) does not deem everything in a statement of claim admitted, only allegations of fact. Rule 19.06 provides that a plaintiff is not entitled to judgment merely because the “facts alleged in the statement of claim” are deemed to be admitted. Again, there is no reference to conclusions of law or mixed law and fact. And, significantly, under r. 19.06, judgment is not to be granted unless the facts deemed to be admitted “entitle the plaintiff to judgment”. Giving effect to the two rules harmoniously requires distinguishing between allegations of fact and conclusions of law. The court must determine whether the deemed factual admissions in the pleading and any evidence tendered by the plaintiff entitle the plaintiff to judgment.
[81] Accordingly, I accept the appellants’ argument that the pleadings alone in paragraphs 27 and 28 of the Claim are not sufficient to warrant the Interest Order. However, as I have explained, the Interest Order was based on factual findings of the motion judge in the Second Motion and not on paragraphs 27 and 28 alone.
ISSUE #3: The motion judge made no error in upholding judgment against Mr. O’Connor
[82] Judgment against Mr. O’Connor was based on his having been found to have knowingly assisted Immediate in its breach of trust. The appellants submit that the Motion Judge erred in failing to set aside that judgment because liability for knowing assistance in breach of trust required proof that (1) Mr. O’Connor had actual knowledge of the underlying breach, and (2) the underlying breach was part of a fraudulent and dishonest design on the part of Immediate. They accept that Immediate acted in breach of trust when it failed to remit money received from the shippers to Paul’s Transport but contend there is no evidence that Immediate’s breach was fraudulent or dishonest. Therefore, they say, Mr. O’Connor could not be liable for knowingly assisting Immediate in the breach of trust.
[83] Alternatively, the appellants submit that the amount for which Mr. O’Connor is personally liable is $59,455.75, not $100,000. This submission is based on the evidence of Paul’s Transport’s bookkeeper, who testified that $59,455.75 was the amount that could be established to have been paid by the shippers to Immediate but not remitted to Paul’s Transport.
[84] I accept neither submission.
[85] On the first submission, as the motion judge on the Second Motion and the Motion Judge both held, Air Canadais a full answer.
[86] Pursuant to s. 191.0.1(3) of the HTA, Immediate was required to hold any money received from the shippers, in trust, until it paid the money to Paul’s Transport. Immediate did not do that. Instead, it placed the money into its general account and disbursed the money to persons other than Paul’s Transport. Contrary to the appellants’ submission, that conduct on the part of Immediate was fraudulent and dishonest, as those terms have been interpreted in the knowing assistance jurisprudence.
[87] In Air Canada,the Supreme Court settled the law governing when a person is liable for knowingly assisting a trustee in a breach of trust. On the question of what standard applies to the underlying breach of trust, the Court stated, at pp. 815, 825-26, that the trustee must have acted fraudulently and dishonestly but explained that the trustee acts fraudulently and dishonestly when it takes a risk to the prejudice of the beneficiary, knowing that it had no right to take the risk. This test for determining whether the trustee’s breach is fraudulent and dishonest has been repeatedly followed by this court: see, for example, DBDC Spadina Ltd. v. Walton, 2018 ONCA 60, 419 D.L.R. (4th) 409, at para. 40, rev’d on other grounds, 2019 SCC 30, [2019] 2 S.C.R. 530; Ernst & Young Inc. v. Chartis Insurance Company of Canada (AIG Commercial Insurance Company of Canada), 2014 ONCA 78, 118 O.R. (3d) 740, at paras. 58-59.
[88] Immediate knew when it paid the money received from the shippers to someone other than Paul’s Transport that it was taking a risk it would be unable to pay Paul’s Transport. Such a risk was an obvious prejudice to Paul’s Transport. Because it was statutorily obliged to hold the money for Paul’s Transport, Immediate also knew that it had no right to take that risk. Thus, Immediate’s conduct of paying money received from the shippers to persons other than Paul’s Transport was a fraudulent and dishonest breach of trust.
[89] Mr. O’Connor was Immediate’s controlling mind. On his own admissions and the findings on the Second Motion, he was directly responsible for Immediate depleting the general account before the money received for Paul’s Transport had been paid to it. A person is deemed to have knowledge of the trust when it is imposed by statute: Air Canada, at p. 812. In any event, Mr. O’Connor had actual knowledge of the underlying breach – that Immediate failed to hold the money in the statutorily mandated trust and diverted the trust funds to others. Indeed, on the findings in the Second Motion, Mr. O’Connor consented to, acquiesced in, or directed Immediate to divert the trust funds. Accordingly, Mr. O’Connor is liable for Immediate’s breach of the statutory trust because he knowingly assisted in that breach.
[90] As for the appellants’ second submission on this issue – that the evidence supported a judgment against Mr. O’Connor of only $59,455.75, not $100,000 – the Motion Judge rejected it because the appellants had not provided sufficient evidence to support it. He pointed out that Paul’s Transport had filed ten volumes of evidence on the Second Motion, of which only one had been filed on the Third Motion, and that there was “considerably more evidence” on the amounts owed to Paul’s Transport and paid by the shippers to Immediate. As I explained above when addressing Issue #1, there is no basis on which to interfere with the Motion Judge’s determination that the inadequacy of the Record precluded him from finding that the appellants had discharged their burden on this issue.
ISSUE #4: The motion judge made no error in terms of prejudice or the integrity of the administration of justice
[91] The appellants say the Ruling on the Second Motion was a breach of their right to be heard and that they suffered prejudice as a result of that breach. They submit that the Motion Judge erred in principle by failing to consider the breach and the resulting prejudice because they are relevant to the fourth Mountain View factor (prejudice flowing from the disposition of the motion) as well as the fifth factor (the effect of any order made on the integrity of the administration of justice).
[92] In support of their contention that they had a right to be heard on the Second Motion, the appellants rely on Ontario (Provincial Police) v. Mosher, 2015 ONCA 722, 340 O.A.C. 311, at para. 62, Park v. Park, 2011 ONSC 4234, 283 O.A.C. 229 (Div. Ct.), at paras. 21-25, and Doldo, at para. 5.
[93] In terms of the prejudice they allege they have suffered, the appellants point to the size of the judgment against them and maintain that their defences have not been considered on issues such as whether conclusions of law are presumed to be true, a 2% monthly interest rate had been proven, and the breach of trust was the result of dishonest and fraudulent conduct.
[94] I do not accept this submission for four reasons: (1) the Ruling is not a breach of the appellants’ right to be heard because they had no right to be heard on the Second Motion; (2) contrary to their assertions, the appellants have been heard on these issues; (3) the appellants have not suffered prejudice; and (4) the integrity of the administration of justice favoured dismissal of the Third Motion.
(1) The Ruling is not a breach of the appellants’ right to be heard
[95] The Ruling is not a breach of the appellants’ right to be heard on the Second Motion because they had no such right. The Ruling was made as a result of the appellants seeking leave of the court to be permitted to make submissions on the Second Motion. In seeking leave, the appellants were asking the court for an indulgence. Self-evidently, seeking an indulgence to be permitted to speak is fundamentally different than having a right to be heard. The granting of leave was a discretionary matter for the motion judge hearing the Second Motion and she made no error in the exercise of that discretion.
[96] That the appellants had no right to be heard on the Second Motion is also clear from the fact that Paul’s Transport brought the Second Motion, under r. 19.05(1), without notice to the appellants. Proceeding without notice is expressly authorized under r. 19.02(3), which provides that a defendant who has been noted in default “is not entitled to notice of any step in the action and need not be served with any document in the action”. Because the appellants were not required to be given notice, they did not have the right to be heard on the Second Motion. Indeed, the appellants must have recognized this because, at the outset of the Second Motion, they sought leave to make submissions. If they had the right to be heard, they would not have required leave to make submissions.
[97] Furthermore, the caselaw on which the appellants rely does not support their contention that they had a right to be heard on the Second Motion. At paras. 62‑63 of Ontario (Provincial Police), Watt J.A., writing for this court, explains that the right to be heard by the decision-maker compels the decision-maker to allow the party to present his or her point of view. However, he goes on to explain that the right to be heard is linked to the right to “notice of the hearing sufficient in time and substance to enable the party to present his or her case on the issues to be decided”. Because r. 19.02(3) specifically permitted Paul’s Transport to move under r. 19.05(1) without notice to the appellants, the appellants could not have had a right to be heard on the Second Motion.
[98] Neither Park nor Doldo is authority for the proposition that the appellants had the right to be heard on the Second Motion. In Park, counsel for the defendants took the position that one of the plaintiffs might be under a disability, such that the appointment of a litigation guardian might be necessary. Until that issue was resolved, counsel for the defendants advised she could not properly deliver a notice of intention to defend or a statement of defence. Counsel for the plaintiffs took the view that the defendants had been (or would be) noted in default and moved for relief accordingly. At the hearing of the plaintiffs’ motion, the motion judge denied the defendants an opportunity to make submissions before he heard and decided the plaintiffs’ motion. That is not this case. Here, there was no confusion about the appellants having been noted in default, a matter affirmed on the First Motion. As a result, pursuant to r. 19.02(3), Paul’s Transport was entitled to bring the Second Motion without notice to the appellants. Further, unlike the situation in Park, the process the motion judge followed in the Second Motion in deciding whether to grant leave was procedurally sound. She heard from the parties on the issue of whether leave should be granted and ruled on it before hearing the Second Motion. She also gave reasons for exercising her discretion to not grant leave. In Park, the motion judge did not give the defendants the opportunity to make submissions before hearing the plaintiffs’ motion nor did he give reasons for his refusal to hear from the defendants.
[99] As for Doldo, it relied on Park for the proposition that r. 19.02 did not deprive a counsel for defendants who had been noted in default from making submissions in response to a motion brought against them. The motion judge on the Second Motion did not run afoul of that proposition. She allowed counsel for the appellants to make submissions on whether he should be allowed to make submissions on the live issues in the motion.
(2) The appellants have been heard
[100] The appellants have been heard on the issues they have raised. Over the course of these proceedings, the appellants have asked the court to address: the quantum of the principal debt; whether interest at the rate of 2% per month was payable on the principal debt; and, whether Mr. O’Connor is personally liable for having assisted Immediate in a breach of trust and, if so, the quantum of his liability.
[101] The appellants have twice fully participated in motions relating to these matters: on the First and the Third Motions. On the First Motion, the motion judge’s reasons show that she set aside the default judgments because she accepted the appellants’ contention that the amount of the Claim needed to be proven and so too did the validity of the claimed interest. On the Second Motion, the court established the quantum of the principal debt, determined the validity of the claimed interest rate, and found Mr. O’Connor liable for knowing assistance in Immediate’s breach of trust. On the Third Motion, the appellants challenged the validity of the interest rate and Mr. O’Connor’s personal liability, as determined on the Second Motion. The Motion Judge heard the parties on those matters and gave reasons for his decisions on them.
(3) The appellants have not suffered prejudice
[102] The prejudice that the appellants allege they have suffered is not prejudice – it is the lawful consequence of their own actions and inaction. On the First Motion, the motion judge found that the O’Connors were fully aware of the Claim and had “actively chosen to ignore [the] litigation” for a lengthy period. As a result of their inaction, the motion judge on the First Motion declined to set aside the noting in default. As a result of being noted in default, as I have explained, the appellants had no right to participate in the Second Motion. Thus, the appellants’ inability to make submissions on the Second Motion was not prejudice. Rather, it was the result of their earlier inaction in the proceeding.
[103] And, the appellants’ liability for a substantial damages award is not prejudice either. The appellants entered into an arrangement with Paul’s Transport knowing that they were obliged to hold money received from the shippers in trust for Paul’s Transport. Instead, they paid that money to others. Being legally required to compensate Paul’s Transport, the victim of the wrongdoing, is not prejudice – it is the lawful consequence of the appellants’ unlawful conduct.
(4) The integrity of the administration of justice favoured dismissal of the Third Motion
[104] A consideration of the integrity of the administration of justice favoured dismissal of the Third Motion. Paul’s Transport has suffered prejudice over the course of these proceedings. It has been over four years since the Claim was filed and the appellants noted in default. On the First Motion, the noting in default was not set aside and that decision has never been challenged. The ensuing proceedings have precluded Paul’s Transport from collecting on its judgment and caused it to expend resources responding to the appellants’ motions, which essentially relitigated the same matters before different courts in an attempt to get a different answer.
[105] Although the Motion Judge did not explicitly consider the appellants’ allegations of unfairness due to not being heard on the Second Motion or the prejudice they allegedly suffered as a result, he made no error in dismissing the Third Motion: dismissal upheld the integrity of the administration of justice, which includes the principle of finality of judicial decisions and the importance of compliance with the Rules.
[106] Accordingly, the interests of justice did not favour granting the order sought on the Third Motion.
VII. DISPOSITION
[107] For these reasons, I would dismiss the appeal with costs to Paul’s Transport fixed at $18,500, all inclusive.
Released: August 5, 2022 “E.E.G.”
“E.E. Gillese J.A.”
“I agree. K. van Rensburg J.A.”
“I agree. David M. Paciocco J.A.”
“I agree. Harvison Young J.A.”
“I agree. Copeland J.A.”
[^1]: The monetary jurisdiction for claims brought under r. 76 has since been increased from $100,000 to $200,000.
[^2]: See also Royal Bank of Canada v. Sears et al., 2018 NBCA 39, 426 D.L.R. (4th) 122, at para. 36, where the court declined to follow the Umlauf Proposition.