Dew Point Insulation Systems Incorporated v. JV Mechanical Limited, 2009 CanLII 71721 (ON SCDC)

COURT FILE NO. 184/08

DATE: 20091221

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BELLAMY J.

B E T W E E N:

DEW POINT INSULATION SYSTEMS INCORPORATED

Ms. Lori Marzinotto for the Respondent

Plaintiff (Respondent)

• and -

JV MECHANICAL LIMITED and JOHN VRBANIC

Mr. Roy Wise for the Appellants

Defendants (Appellants)

HEARD at Toronto: August 12, 2009

On appeal from the decision of Master Joan Haberman of the Superior Court of Justice dated April 7, 2008, with reasons reported at [2008] O.J. No. 1312.

Bellamy J.

Introduction & Conclusion

1JV Mechanical and its principal, John Vrbanic, appeal to a single judge of the Divisional Court from the decision of Master Joan Haberman, dated April 7, 2008, in which she struck out the appellants’ statement of defence. In support of their appeal, the appellants also seek leave to introduce fresh evidence.

2The Divisional Court has jurisdiction to admit fresh evidence when conducting an appeal pursuant to s. 134(4)(b) of the Courts of Justice Act, R.S.O. 1990, c. C-43 which states:

Unless otherwise provided, a court to which an appeal is taken may, in a proper case…receive further evidence by affidavit, transcript of oral examination, oral examination before the court or in such other manner as the court directs…to enable the court to determine the appeal.

3I have decided to exercise my discretion to allow the introduction of fresh evidence. I have also concluded that the master’s order of April 7, 2008, should be set aside.

Background

4In February 2006, Dew Point as plaintiff, respondent in this appeal, commenced an action under the Simplified Rules, Rules of Civil Procedure, R.R.O. 1990, Reg. 194, s. 76. against JV Mechanical Limited (JV) and John Vrbanic seeking payment of about $80,000 for breach of trust under the Construction Lien Act, R.S.O. 1990, c. C-30. Dew Point alleged that JV owed it payment for its services on four construction projects.

5In November 2006, John Vrbanic, a non-lawyer and the principal of JV, was granted leave by Brown J. to represent JV in more than a dozen actions, including the Dew Point action. In some of the actions, JV is the plaintiff; in others, it is the defendant.

6Dew Point served its affidavit of documents on May 27, 2007. After not receiving an affidavit of documents from the defendants, the plaintiff moved for an order striking out the statement of defence. In August 2007, in an unopposed motion, Master Haberman ordered JV to deliver its affidavit within fifteen days and pay costs of $300. JV paid the costs after the deadline and delivered an affidavit of documents.

7Dew Point moved for an order to compel JV to produce a further and better affidavit of documents. On February 11, 2008, Master Haberman made a detailed production order with a thirty day turn-around period. She ordered costs of $500 payable within fifteen days. The defendants did pay the costs but not within the time allotted and did not deliver any further documents before the motion was heard on April 3, 2008. Mr. Vrbanic did consult the bank about providing cancelled cheques to fulfill a term of the February order but did not do so until April 2, 2008.

8In March 2008 Dew Point moved once again to strike the statement of defence and on April 7, 2008, Master Haberman ordered that the statement of defence be struck out.

9On April 11, 2008, the defendants appealed the master’s order. Subsequently, they retained counsel who sent the plaintiff a supplementary affidavit of documents. In early July 2009, now represented by different counsel, the defendants moved to introduce fresh evidence on the appeal.

The Test to Introduce Fresh Evidence on Appeal:

10As discussed by the Ontario Court of Appeal in Chiang (Trustee of) v. Chiang (2009), 2009 ONCA 3, 93 O.R. (3d) 483 (C.A.) at paras. 73-77, there are two possible tests the court can apply to determine whether fresh evidence should be allowed: the three-part test in Sengmueller v. Sengmeuller (1994), 1994 8711 (ON CA), 17 O.R. (3d) 208 (C.A.) or the four-part test in R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759.

11Under the Sengmueller test, the party seeking to adduce fresh evidence must show that

1. the evidence is credible;

2. the evidence could not through due diligence have been adduced at trial; and

3. the evidence, if admitted, will likely be conclusive of an issue in the appeal.

12Under the Palmer test, the party seeking to adduce fresh evidence must show that

1. the evidence could not through due diligence have been adduced at trial;

2. the evidence is relevant in that it bears on a decisive or potentially decisive issue;

3. the evidence is credible; and

4. the evidence, if believed and taken with the other evidence, could be expected to affect the result.

13In para. 77 of Chiang, the Court of Appeal pointed out that “the last branch of the Sengmueller test may be more stringent than the last branch of the Palmer test.” The less stringent Palmer test was developed as the basic test to admit fresh evidence for a criminal matter, whereas the Sengmueller test had its genesis in a civil matter. The effect of excluding new evidence of a defendant would generally be more prejudicial to that individual in a criminal matter as compared to a civil matter. Regardless of their genesis, both tests have been used by civil courts in Canada, and, in Chiang, the Court of Appeal in this province applied both, and showed no preference for either. The Divisional Court adopted the Palmer test in Monteiro v. Toronto Dominion Bank, [2005] O.J. No. 4749 (Div. Ct.).

14In Chiang, the appellants had been found to be in deliberate contempt of six court orders and were given a chance to purge their contempt by complying with an undertaking to disclose financial information. After warnings regarding the severe consequences of non-compliance, and after an extension of the time to comply, the appellants were incarcerated. The appellants appealed from the order that they had not purged their contempt and from their sentence. The Court of Appeal referred to Chiang as “one of the worst cases of civil contempt to come before this court.” Despite the severity of the contempt in Chiang, and the flagrant disobedience of the court orders, the court applied the less stringent Palmer test to determine whether fresh evidence should be adduced.

15Although one could argue that the court applied the less stringent test because of the severity of the consequences, the court articulated no such distinction. It merely stated that “on this appeal, it is unnecessary to decide which is the proper test.” Even if the consequences to an appellant of the failure to admit new evidence were a factor in accepting the less stringent test, the Palmer test has been applied by the Court of Appeal in a number of civil matters in which there were no incarceration consequences: Oakwell Engineering Ltd. v. Enernorth Industries Inc. (2006), 2006 31809 (ON CA), 82 O.R. (3d) 500 (CA); Leader Media Productions Ltd. v. Sentinel Hill Alliance Atlantis Equicap Ltd. Partnership (2008), 2008 ONCA 463, 90 O.R. (3d) 561 (C.A.); Country Style Food Services Inc. v. 1304271 Ontario Ltd., 2005 23214 (ON CA), [2005] O.J. No. 2730 (C.A.); Zesta Engineering v. Cloutier, 2002 45084 (ON CA), [2002] O.J. No. 3738 (C.A.); and Visage v. TVX Gold Inc. (2000), 2000 5749 (ON CA), 49 O.R. (3d) 198 (C.A.).

16Given the adoption of the Palmer test in civil matters by both the Court of Appeal and the Divisional Court, I believe the Palmer test is the appropriate and preferable test for the matter before me.

Application of the Palmer test

17The appellants move to introduce fresh evidence on the grounds that the new evidence could not have been obtained by the exercise of reasonable diligence prior to the hearing on April 3, 2008; that the new evidence is credible; that it pertains to matters that were raised by the master in her reasons, thereby bearing on a decisive or potentially decisive issue; and that it could likely have affected the decision. The appellants submit the evidence could not have been obtained sooner by the exercise of reasonable diligence because 1) they were self-represented and did not have the assistance of counsel with respect to how to properly collect and submit evidence; and 2) the master raised issues in the hearing and in her reasons that were not part of the motion material, which would generally not have been considered relevant on such a motion, and were such that the appellants could not have anticipated or prepared for them.

18On their motion to introduce fresh evidence, the appellants relied on additional material that was intended to address issues and questions raised by the master at the hearing and in her reasons. To address the master’s questions as to why the appellants had not complied with her earlier orders, the appellants seek to introduce copies of two letters from the appellants to respondent’s counsel so as to put in proper perspective the two other letters that were before the master, albeit not in affidavit form. Had all these letters been before the master, it is my view that she would have seen that the appellants were, in fact, being reasonable and cooperative with respondent’s counsel. Generally, the letters demonstrate the appellants’ willingness to consent to various matters, including paying costs for motions the respondent was bringing. These four letters together show how they wanted to comply exactly with the earlier court orders and were seeking information from the respondent on how to go about doing so. At no point do the appellants appear to be obstinately disobedient or demonstrating utter disregard for the master’s earlier orders, nor do they seem to be deliberately trying to obstruct the process or hide documents from the respondent.

19The appellants have also submitted an affidavit to address the master’s concern regarding the fifty to seventy boxes, and have confirmed that no relevant materials were found within the boxes.

20The master questioned why the appellants were not pursuing third party claims to recover monies owing to them. She also questioned whether the appellants were contractors or subcontractors. The new evidence also answers these questions.

Decision with respect to fresh evidence

21The respondent legitimately argues that the evidence was physically available before the motion date. However, the appellants would have had no way of knowing until the master started questioning Mr. Vrbanic at the hearing that they were expected to provide evidence to the respondent or to the court of what they were doing to recover their losses from the project owners. This was not required in order to answer the matters raised in the notice of motion, which was directed only to alleged non-compliance of the master’s February 2008 order.

22Although this evidence was not directly relevant to the motion before the master, it is credible evidence that bears on a potentially decisive issue because it appears to have played a role in her decision and, taken with other evidence, could have affected the result at the hearing. The fresh evidence also demonstrates that JV was a subcontractor to a general contractor on all the four projects. Had Mr. Vrbanic appreciated the effect of the master’s questions at the April 2008 hearing, he may have had the wherewithal to seek an adjournment to address her concerns and provide the documentation that was indeed available.

23I would, therefore, allow the fresh evidence.

The appeal

Standard of review

24The order of a master striking the statement of defence is a final discretionary order. The Divisional Court had occasion to state the test in Starland Contracting Inc. v. 1581518 Ontario Ltd., [2009] O. J. No. 2480 (Div. Ct.), at para. 7:

On appeal, the decision of a master is entitled to the same level of deference with respect to findings of fact and the exercise of discretion as would be accorded to the decision of a judge. The standard of review of an order, whether final or interlocutory, is correctness with respect to questions of law. Where the master exercises discretion, the Court on appeal must determine whether the correct principles were applied and whether the master misapprehended the evidence such that there is a palpable and overriding error (Zeitoun v. The Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.), aff'd 2009 ONCA 415).

25If the principles of natural justice are engaged because the appearance of fairness has been undermined, the decision cannot stand on any standard: See Shoppers Mortgage & Loan Corp. v. Health First Wellington Square Ltd. (1995), 1995 1069 (ON CA), 23 O.R. (3d) 362 (C.A.) and London (City) v. Ayerswood Development Corp. (2002), 2002 3225 (ON CA), 167 O.A.C. 120 (C.A.). In Ontario (Commissioner, Provincial Police) v. MacDonald, 2009 ONCA 805, [2009] O.J. No. 4834, the Court of Appeal at para. 37 reaffirmed that “procedural fairness does not require an assessment of the appropriate standard of review. The proper approach is to ask whether the requirements of procedural fairness and natural justice in the particular circumstances have been met: Forestall v. Toronto Services Board (2007), 2007 31785 (ON SCDC), 228 O.A.C. 202 (Div. Ct.) at para. 38.”

Issues

26In their factum and in their oral argument, the appellants argue that the master erred in a number of different ways. In the view I take of this appeal, I would reduce it to one issue and frame it more broadly: were the self-represented appellants denied procedural fairness when they appeared before the master? In my view, they were, and I allow the appeal.

Analysis

27As Carnwath J. noted in Tran v. Financial Debt Recovery Ltd., [2001] O.J. No. 4103 (Div. Ct.) at para. 2, “As long as the rules permit parties to represent themselves, trial judges will face a delicate exercise of discretion.” More recently, the Divisional Court again commented on the challenges posed by self-represented litigants in the courts: Cicciarella v. Cicciarella, 2009 34988 (ON SCDC), [2009] O.J. No. 2906 (Div. Ct.) at para. 36: “The increase in the number of litigants who appear without legal representation can pose special challenges for busy trial judges.”

28It goes without saying that the challenges presented by self-represented litigants apply equally to the extremely busy masters in the Superior Court of Justice. On the one hand, the masters must try to accommodate the self-represented litigant’s unfamiliarity with the court process; on the other hand, they must also respect the rights of the represented party and not become an advocate for the self-represented litigant: See for example, Davids v. Davids (1999), 1999 9289 (ON CA), 125 O.A.C. 375 at para. 36 (C.A.). Often they find themselves conducting this balancing act in the context of very busy dockets.

29The dramatic increase in self-represented litigants is a great challenge to the administration of justice. Partly to address this, in 2006 the Canadian Judicial Council adopted a “Statement of Principles on Self-Represented Litigants and Accused Persons.” This is not a code of conduct. It is an advisory statement aimed at providing guidance to participants in the administration of justice including judges and self-represented individuals, among others.

30In her reasons, the master referred to Mr. Vrbanic and JV as not being “litigation-shy.” That may or may not be so, but the twenty-one page transcript of the motion before the master suggests that Mr. Vrbanic was not all that familiar with the process before a master. For example, he did not seem to know when to stand, when to sit, how to address the master or when to speak. He did not have a supporting affidavit. He did not keep or attach fax transmittal documents to pages he said he had faxed to the other side. On an earlier court date, he had not waited for the court clerk to make him a copy of the master’s order, relying on an erroneous expectation that respondent’s counsel would fax it to him. This was apparently the norm in his other litigation matters when lawyers were representing the other party. This mistaken impression led to the problems he faced in this motion before the master. Finally, he misguidedly thought respondent’s counsel would inform him in advance if they were going to serve him with a notice of motion. In conclusion, then, it would appear that Mr. Vrbanic may not have been “litigation shy,” but he does appear not to have been litigation procedure savvy.

31The motion was an extremely important one for Mr. Vrbanic. The repercussions were serious. The plaintiff was asking that the statement of defence be struck. The master recognized the implications when she told counsel for the respondent, “I want to write something, because what you’re asking me to do is the most extreme form of relief in this case.” Yet, at no time did she explain the significance to Mr. Vrbanic, nor did she invite him to make any submissions on this specific issue, and no leeway was allowed for him as it related to procedural matters: See Cicciarella at para. 36 and the cases cited.

32It could be argued that the master also did not invite submissions of counsel for the respondent, but in my view that does not provide the appellants with procedural fairness. When it seemed as though the master was going to reserve her decision without inviting anyone to make submissions, counsel for the respondent (not counsel who appeared at the appeal) suggested an alternative. Right after the master commented on striking the statement of defence as being the most extreme form of relief, counsel said the following, at page 17:

Well, on that point, Master, I mean, I don't know what your inclination is at this point, and I know you probably need to give it some thought. If you weren’t willing to strike the defence, I’m trusting that you’re willing to make a further Order for productions. If you’re unwilling to strike the defence, then you may be willing to make a further order for productions, and perhaps in that instance include a provision that we can move without notice to strike his defence if he doesn’t comply.

33There is nothing on the transcript indicating that the master responded to this alternative suggestion. Thereafter, she asked for counsel’s costs outline, and a discussion ensued regarding costs.

34Counsel’s suggestion would have been the most reasonable response. At no point before had any judicial officer handed down an ultimatum to the appellants that they must comply with the production order or have their statement of defence struck. Indeed, on August 2, 2007, in the first draft order prepared by the plaintiff for the motion before the same master, she struck out wording similar to that proposed by counsel here (“failing which, the Statement of Defence will be struck”). In the second order of February 11, 2008, the master signed a draft order prepared by the plaintiff that responded to the plaintiff’s motion for an order to compel the appellants to produce a further and better affidavit of documents. On that day, she specifically struck out paragraph 3 of the draft order which stated as follows: “THIS COURT ORDERS THAT if all, or any portion of this Order is not complied with by the Defendants, that the Plaintiff may move, without notice, to strike the Statement of Defence of the Defendants, and thereafter move for Default Judgment.”

35Under the circumstances of this case, re-instating either of those deleted provisions would have been fairer in April 2008 than to exercise this remedy of last resort. As Lane J. said, when he was sitting on appeal of a decision of a master, in Breslin v. Breslin, (2006), 2006 50893 (ON SCDC), 223 O.A.C. 4 (Div. Ct.) at para. 9:

Deference is certainly owed to Masters, particularly in case-managed actions where they may be expected to be familiar with the case and, as the front-line troops, must have the ability to control the process of discovery without being second-guessed by judges. Nevertheless, in exercising their duties, the Masters must have regard to well-settled principles of law and practice. One of these is that interlocutory dismissal of an action is a remedy of last resort, to be invoked when the litigant has shown a cavalier disregard of his obligations. [Emphasis added.]

36I agree. This more appropriate remedy had been applied earlier by Master Dash in Eloro Resources Ltd. v. Sovereign Capital Group (One) Ltd., 2004 14047 (ON SC), [2004] O.J. No. 387 at paras. 6 and 9:

The court clearly has a discretion to strike a defence in appropriate cases for repeated procedural breaches, particularly when the breaches are in violation of court orders, since the rules otherwise become meaningless and the court becomes but a paper tiger. However, striking a defence is an extreme remedy and a last resort. It should only be ordered when the defence of the action is no longer viable and appropriate because the defendant has by its failure or refusal to be bound by the rules and orders of the court effectively abandoned its right to participate in the court process or when the breaches have become contumelious such as to demonstrate an utter disregard by the defaulting party for the court's orders or when the moving party can demonstrate prejudice….

I wish however to make it clear to the defendant that the court will not tolerate any further breaches of its orders or of timetables set nor will it tolerate any attempts to delay the progress of the actions. In the event of further breaches, the statements of defence will be struck or security for costs ordered. If the defendant fails to pay the outstanding $750 costs forthwith in accordance with the undertaking of its counsel I would be prepared to vary this order and order security ... [Emphasis added; citation omitted.]

37The learned master was clearly and perhaps understandably irritated by what she perceived as a deliberate attempt to frustrate the justice system. In my reading of the materials, there was no such attempt to flaunt court orders, and the fresh evidence confirms this. The appropriate remedy would have been to fashion an order similar to that ordered by Master Dash and to reimburse the respondent for its wasted costs, especially where there was no evidence that the plaintiff had suffered any prejudice. The master acknowledged this lack of prejudice at para. 22 of her decision: “Although there is no sworn evidence that Dew Point will suffer prejudice if the matter is permitted to proceed, there remains the issue of prejudice to the integrity of the administration of justice to consider.”

Decision

38In my view, the master exercised her discretion in a way that resulted in a denial of procedural fairness to the appellants. This is a case where the appellants were self-represented, where they did not appear to appreciate the significance of court procedures, where the master had not informed them of the important consequences of the finality of the motion, where the master did not provide them with an opportunity to make submissions, and where there was no evidence of prejudice to the plaintiff. It is also a case where the plaintiff offered a less drastic alternative remedy, but where the same master had removed that same less-drastic alternative from two earlier draft orders. In these circumstances, and especially when the striking of a defence is such an extreme remedy, I believe the appellants were denied procedural fairness.

39The appeal is allowed. Pursuant to the master’s earlier order of February 11, 2008, the appellants have paid the costs awarded and have supplied the required supplementary affidavit of documents. Therefore, there is no need for me to make any additional order, other than to make clear that my decision does not have the effect of overturning the master’s costs award, which has been paid in any event and which would still have been appropriate on the motion.

40If the appellants intend to amend the statement of defence as referenced in their appeal material, they will need to do so through the ordinary course. If there are any further motions, these should proceed before a different master.

Costs

41I have considered whether there should be an order as to costs and have decided that there should not.