Valente et al. v. The Personal Insurance Company, 2011 ONSC 516

CITATION: Valente et al. v. The Personal Insurance Company, 2011 ONSC 516

DIVISIONAL COURT FILE NO.: 202/10

COURT FILE NO.: CV-08-00361632

DATE: 20110314

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

FERRIER, SWINTON and LEDERER JJ.

BETWEEN:

RUI VALENTE and ANGIE VALENTE Plaintiffs/Respondents

– and –

THE PERSONAL INSURANCE COMPANY Defendant/Appellant

COUNSEL:

Vanessa A. Tanner, for the Plaintiffs/Respondents

Ryan Naimark, for the Defendant/Appellant

HEARD at Toronto: January 7, 2011

REASONS FOR JUDGMENT

Ferrier J.:

[1] The defendant, The Personal Insurance Company, (“the appellant”), was noted in default for failure to file a statement of defence; default judgment was granted against it in favour of the plaintiffs, Rui and Angie Valente (“the respondents”), for the sum of $23,529.40 plus pre-judgment interest and costs, for a total sum of $28,513.18.

[2] The appellants moved before Madam Justice Allen, the motions judge, for an order to set aside the noting in default and to set aside the default judgment. The motions judge dismissed the appellant’s motion; the appellant appeals to this court.

Background

[3] The respondents’ home in Mississauga was damaged in August 2007 by a flooding incident. They were insured by the appellant under a home insurance policy. Under the policy, the respondents had the option of taking the replacement cost for the damages to make the necessary repairs and to replace damaged goods, or the cash value based on the depreciated value of the damaged goods immediately before the loss. They chose the replacement cost option.

[4] The appellant retained two restoration companies to provide estimates of damage and repair, one of which was Burke’s Restoration Inc. (“Burke’s”).

[5] Burke’s was ultimately retained to undertake the repair and restoration of the home. Burke’s work was unsatisfactory. The respondents’ residence was not restored to an adequate and suitable condition.

[6] The respondents sought compensation from the appellant without success, and on August 29, 2008, commenced an action under the simplified procedure rules, against the appellant, for damages.

Decision of the Motions Judge

[7] As found by the motions judge, the following was the sequence of events:

(i) August 30, 2007 – flood damage occurred

(ii) August 29, 2008 – plaintiffs commenced action

(iii) September 2, 2008 – defendant served with plaintiffs’ claim

(iv) September 12, 2008 – parties started settlement negotiations

(v) November 24, 2008 – settlement negotiations failed and waiver of defence offered by plaintiffs until December 5, 2008

(vi) December 3, 2008 – defendant retained counsel and plaintiffs, on request of defendant, gave a further 30-days waiver of defence

(vii) December 30, 2008 – by letter, defendant requested a further two-week waiver which the plaintiffs granted

(viii) January 12, 2009 – plaintiffs receive from the Registrar a Notice of Action Dismissal advising that their action would be dismissed as abandoned on March 9, 2009

(ix) January 13, 2009 – plaintiffs’ letter advising defendant that waiver of defence was revoked effective that date

(x) January 23, 2009 – no statement of defence delivered, defendant noted in default

(xi) February 27, 2009 – plaintiffs wrote notifying defendant of noting in default; that Notice of Action Dismissal was issued; and that plaintiffs were taking steps to move for judgment

(xii) March 5, 2009 – no communication from defendant; plaintiffs brought ex parte motion and obtained default judgment, four days before action to be dismissed, for damages of $23,529.40; pre-judgment interest of $368.33 and costs of $4,615.45

(xiii) March 9, 2009 – defendant received service of default judgment

(xiv) March 10, 2009 – parties exchange correspondence; plaintiffs request payment on the judgment and, on request, default motion materials forwarded by plaintiffs to the defendant; defendant advised it will bring a motion to set aside default judgment; further attempt at settlement; defendant confirmed its understanding the period of settlement negotiations would not prejudice its arguments on delay on motion to set aside

(xv) March 27, 2009 – plaintiffs contacted defendant to inquire about motion to set aside and to request payment of the costs ordered on motion for judgment; no dates for motion to set aside suggested

(xvi) April 22, 2009 – no steps by defendant to bring motion; plaintiffs demand payment of judgment and costs by April 30, 2009

(xvii) June 2, 2009 – by letter, plaintiffs demand payment on the judgment and costs by June 8, 2009

(xviii) June 9, 2009 – defendant confirms it will move to set aside default judgment

(xix) July 3 and July 6, 2009 – parties discuss dates for motion

(xx) October 19, 2009 – defendant write a letter to plaintiffs providing its available dates in January 2010 for motion to set aside

(xxi) October 30, 2009 – defendant advises plaintiffs by letter that the motion to set aside default judgment is set for February 2, 2010.

[8] The motions judge correctly set out the factors to be considered in the exercise of discretion in determining whether to set aside a default judgment. As she correctly noted, on the authority of Lenskis v. Roncaioli, [1992] O.J. No. 1713 (Ont. Ct. (Gen. Div.)), the moving party is required to:

(a) move as soon as possible to set aside the default judgment after becoming aware of the judgment;

(b) set out the circumstances under which the default arose that give a plausible explanation for the default; and

(c) set forth facts to support the conclusion that there is at least an arguable case to present on the merits.

Delay in moving to set aside

[9] The motions judge carefully analyzed the progression of events from the time of service of the default judgment on March 9, 2009. She rejected the submission of the appellant that the waivers provided by the respondents before default judgment was obtained should be considered as a reason for any delay in bringing the motion to set aside the judgment.

[10] She also analyzed and rejected the appellant’s submission that between March 10 and June 9, 2009 there were settlement discussions. She rejected the appellant’s position that there was a further waiver from March 10 forward through to June 2009.

[11] In this respect the motions judge said this:

9 I am inclined to accept the plaintiffs’ position as the plaintiffs had obtained a judgment in their favour and I find it reasonable they might have little motivation for prolonged negotiations. Moreover, the defendant has provided no proof that settlement talks extended over three months. I do not accept the defendant’s argument that I should accept settlement negotiations during this period as a reason for delay.

10 The record reveals between March 9, 2009 when the defendant received notice of the default and October 30, 2009 when the date was set for the motion, the plaintiffs communicated numerous times with the defendant attempting to move the matter along -- inquiring about the defendant’s intentions with respect to the motion to set aside, demanding payment on the judgment and costs and indicating its intention to challenge the motion.

[12] The motions judge also rejected the submission by the appellant that scheduling difficulties prevented the matter being advanced from June until September.

[13] The motions judge concluded that there was no reasonable explanation for the delay in launching the motion to set aside the default judgment.

Explanation of the circumstances of the default

[14] The appellant filed two affidavits in support of its motion to set aside the default judgment. One was that of Philip Kraynick, an adjuster for the appellant, concerning the merits of the claim. The other, that of Marni E. Miller, dealt with all three aspects of the test to set aside the default judgment. Ms. Miller is an associate with the law firm acting for the appellant.

[15] Ms. Miller’s affidavit indicates that “as such I have knowledge of the matters to which I depose in this my affidavit, except for that which is specified to be based on my belief in which case I verily believe the same to be true.” Throughout her affidavit, she deposes that “I am advised by a review of this file and verily believe”, and follows with a recitation of facts.

[16] The affidavit does not disclose which lawyer in the firm had carriage of the file at the relevant times. Ms. Miller does not indicate in her affidavit that she worked on the file or performed any services in connection with it. One would expect in these circumstances to see an affidavit from the lawyer who had carriage of the file or was intimately involved with it. This seriously imperils the appellant’s position on the motion.

[17] Furthermore, concerning an explanation for the default in failing to file a defence within time, Ms. Miller deposed simply that the default was through “administrative inadvertence” and due to “inadvertence of this firm”. No explanation is given concerning what happened with the file in the office at the relevant points in time. No explanation is given concerning what is meant by the words “administrative inadvertence” and “inadvertence of this firm”.

[18] Was the file lost? Was the file misfiled? Was there an error in communication concerning responsibility for the file? Was the lawyer who had carriage ill? Was there miscommunication between the appellant and the law firm? Shortly put, the explanation is so vague as to be meaningless.

[19] Although expressed differently, this is the finding of the motions judge, revealed in the following passage from paragraph 17 of her reasons:

However, the defendant in the case before me has failed to provide any facts detailing its inadvertence….I find its bare assertion as to inadvertence without establishing the facts of the inadvertence is not sufficient. Generic comments as to inadvertence are of no assistance when few details are provided.

[20] Thus, the motions judge found that the appellant had failed to meet the second test of providing a satisfactory explanation for the default.

Arguable defence on the merits

[21] The essence of Ms. Miller’s affidavit on the merits issue is to the effect that it is her belief that the appellant was never privy to the contract for repair. This belief arises from her review of the file.

[22] Ms. Miller’s affidavit contains no evidence concerning who paid Burke’s for the work it did; there are no invoices or documentary evidence of any contract by any party with Burke’s.

[23] The motions judge was critical of Ms. Miller in the context of the Rules of Professional Conduct, for expressing her personal opinion or belief concerning something that is properly subject to legal proof, cross-examination and challenge, namely the merits of the claim. She held that the affidavit crossed the line as to what can properly be provided in an affidavit by a lawyer.

[24] As well, the motions judge held that because the solicitor did not have first-hand knowledge of the facts and had mainly relied on what the appellant had told her, she was not in a position to attest to the truth of the allegations in the pleadings “as is reasonably expected of an affiant in a motion to set aside a default judgment” (para. 24).

[25] In his affidavit, the adjuster Mr. Kraynick deposes that he took over carriage of the file from a former adjuster for the company and after it had been passed on to the law firm. The balance of his affidavit is based on his review of the file. His affidavit sets out the course of events as reflected by the file and he deposes that he believes that the appellant was never privy to the contract for repair. Accordingly, the adjuster deposed that the appellant would not be responsible for any damages caused by or contributed to by Burke’s. He offers the opinion that the appellant therefore has a meritorious defence based on the contractual agreement between the respondents and the appellant and the subsequent contract between the respondents and Burke’s.

[26] The motions judge held at para. 25 that there

are no particulars in [Mr. Kraynick’s] affidavit as to the period of his involvement with the plaintiffs’ claims or as to the role if any he had in adjusting the plaintiffs’ claims. It appears from his affidavit the adjuster also lacked first-hand knowledge of the material facts with respect to the contract with Burke’s and rather provides his beliefs on contentious issues and what he learned through reviewing the file. I find this is not sufficient to establish a genuine issue for trial. The Court of Appeal held self-serving affidavits that merely assert defences without providing some detail or supporting evidence are not sufficient to create a genuine issue for trial. [Rozin (c.o.b. Grinfall Canada Co.) v. IIitchev, 2003 21313 (ON CA), [2003] O.J. No. 3158 (S.C.J.) at para. 8].

[27] Accordingly, the motions judge held that the appellant had failed to provide affidavit evidence from persons in a position to address the issue of the merits, and had failed to satisfy the test of showing a valid defence on the merits.

[28] In conclusion the motions judge held that the appellant had failed to satisfy all three elements of the test for setting aside a default judgment.

Analysis

The Standard of Review

[29] On findings of fact, an appellate court will not interfere unless the court below has made a palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at 256.

[30] An appellate court will not lightly interfere with a judge’s exercise of judicial discretion, and will only do so if the judge proceeds on some wrong principle, misdirects himself or herself, or arrives at a decision so clearly wrong as to amount to an injustice: See, e.g. Housen, supra; Waxman v. Waxman, 2004 39040 (ON CA), [2004] O.J. No. 1765 (C.A.).

Delay in moving to set aside

[31] There is no basis upon which this court should interfere with the motions judge’s assessment of the evidence and findings of fact on this issue. Her findings were amply supported by the evidence or lack thereof. Her conclusion that the appellant had not satisfied the onus upon it to show that it had moved as soon as possible to set aside the default judgment is amply supported by the material before her.

[32] I note particularly that in early July the respondents wrote to the appellant and told the appellant to “pick any date” for the return of their motion.

Explanation of the circumstances of the default

[33] For the same reason, there is no basis upon which this court should interfere with the motion judge’s conclusion that the appellant had failed to satisfy this test – her conclusion is amply supported by the evidence.

Arguable defence on the merits

[34] Without commenting on the motion judge’s observations concerning the Rules of Professional Conduct, she correctly assessed the insufficiency of the evidence in the affidavit of Ms. Miller. As noted above, her affidavit does not indicate that she had carriage of the file or that she had anything to do with the file during the relevant period, and it sets forth little evidence other than her belief that the appellant has a valid defence. The conclusion of the motions judge that the affidavit does not support the setting aside of the default judgment was within the discretion of the motions judge and her discretion was not exercised on a wrong principle.

[35] However, the motions judge fell into error in her assessment of the affidavit of the adjuster. While it is true that the adjuster does not indicate how long he has been associated with the file, it is apparent that the former adjuster is no longer with the appellant and was unavailable to assist by deposing an affidavit. In the circumstances, the appellant was compelled to look to another person to swear the necessary affidavit. It would be unrealistic to expect that an officer, director or manager of the appellant would provide such an affidavit. The person on the ground dealing with the matter would be the adjuster. If the original adjuster was no longer available, then another adjuster who had taken over the file would be the obvious choice to depose an affidavit. That was Mr. Kraynick. Furthermore, in these circumstances, evidence on information and belief would be the only way the appellant could put its position forward in an affidavit.

[36] Although the evidence provided by the adjuster is based upon his review of the file, it provides sufficient evidence of a defence on the merits. Shortly put, that defence is that the respondents retained Burke’s, the appellant was not involved in any contractual arrangements with Burke’s for the restoration, the appellant has no privity of contract with Burke’s, and there is no privity of contract between the respondents and the appellant for the repairs.

[37] Thus, on the basis of the adjuster’s affidavit, there was evidence of an arguable defence on the merits.

Conclusion on the three-part test

[38] To summarize, the appellant has not satisfied the first two factors in the test, but has satisfied the third – an arguable case on the merits.

Discretion in this court

[39] In holding that the affidavit of the adjuster is insufficient to support a finding that there is an arguable defence on the merits, the motions judge erred in law. That led directly to her finding that the appellant had not satisfied the third element of the test. This was at the heart of the exercise of discretion of the motions judge’s discretion, and it led to an improper exercise of discretion in dismissing the motion.

[40] If a motions judge errs in the exercise of discretion, it is open to an appellate court to substitute its discretion for that of the motions judge: See, e.g. Bellenden (formerly Satterthwaite) v. Satterthwaite, [1948] 1 All E.R. 343 at 345 (C.A.); Silver v. Silver (1985), 1985 2075 (ON CA), 54 O.R. (2d) 591, at 591 (C.A.); R.B. v. Children’s Aid Society of Metropolitan Toronto, 1995 115 (SCC), [1995] 1 S.C.R. 315, at paras. 143-154; Friends of Oldman River Society v. Canada (Minister of Transport), 1992 110 (SCC), [1992] 1 S.C.R. 3, at para. 104.

[41] In doing so, this court is obliged to weigh the three factors discussed above.

Weighing the factors

[42] The following principles emerge from the cases:

(1) the factors should not be applied rigidly. A failure to satisfy a factor, such as an adequate explanation for the default, may not prevent relief if there is an arguable case on the merits and the motion is brought promptly: See Chitel v. Rothbart (1988), 29 C.P.C. (2d) 136 (Ont. C.A.).

(2) where it is apparent that there exists a strong defence, such as one based on the Statute of Frauds, failure to satisfy the two other factors may not prevent relief: See 441612 Ontario Ltd. v. Albert (1995), 36 C.P.C. (3d) 198 (Ont. Ct. J. (Gen. Div.)).

(3) clearly, the merits issue is the most significant factor. If a party can be made whole in costs, and is not prejudiced, the merits issue will often carry the day for the defaulting party. But, that is not necessarily so.

[43] The exercise of discretion requires the court to stand back and take a look at the whole picture in order to arrive at a just result. That result, in given circumstances, may deny relief to a defendant even where there is an arguable defence on the merits.

[44] Here, we have two homeowners who undeniably suffered loss. Following deficient repairs by Burke’s, they unsuccessfully sought relief from the appellant. They issued their claims under the simplified rules in late August 2008.

[45] Three months later settlement discussions ended. Three times the appellant requested and was given indulgences by the respondents in extending the time for filing a defence.

[46] The appellant defaulted with no reasonable explanation. The appellant was noted in default but did nothing. The appellant was then warned about the respondents’ intention to move for judgment ex parte, but did nothing. Judgment was granted.

[47] The appellant delayed several months before moving to set aside the judgment despite being invited by the respondents to “pick any date” for the return of the appellant’s motion.

[48] This appeal was argued two years and four months from the first due date for the statement of defence.

[49] The fault for the delay lies entirely with the appellant – a litigant who can well endure the cost consequences of its delay. Furthermore, the appellant has no personal interest in the outcome, whereas the delay and the outcome directly and personally affect the respondents in their daily lives.

[50] In the circumstances above described, even if the appellant has a good defence, it is too late for the appellant.

[51] This result is not based on sympathy for the respondents. It is based on what the justice of the case requires in the circumstances.

[52] Accordingly, the appeal is dismissed with costs fixed at $8,000.00 including disbursements and H.S.T.

Ferrier J.

Swinton J.

Lederer J.

Released: March 14, 2011

CITATION: Valente et al. v. The Personal Insurance Company, 2011 ONSC 516

DIVISIONAL COURT FILE NO.: 202/10

COURT FILE NO.: CV-08-00361632

DATE: 20110314

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

FERRIER, SWINTON and LEDERER JJ.

BETWEEN:

RUI VALENTE and ANGIE VALENTE Plaintiffs/Respondents

– and –

THE PERSONAL INSURANCE COMPANY Defendant/Appellant

REASONS FOR JUDGMENT

Ferrier J.

Released: March 14, 2011