Court File and Parties

CITATION: Snell v. SUGI Financial Services Inc., 2022 ONSC 2201 DIVISIONAL COURT FILE NO.: 200/21 DATE: 2022-04-08

SUPERIOR COURT OF JUSTICE – ONTARIO DIVISIONAL COURT

RE: SNELL v. SUGI FinancialSERVICES INC.

BEFORE: D.L. Corbett J.

COUNSEL: Esmaeil Mehrabi, for the Appellants D. Jared Brown, for the respondents / plaintiffs

HEARD: June 30, 2021, by ZOOM videoconference, at Toronto

REASONS FOR DECISION

[1] This is an appeal from the final order of Master Short made February 19, 2021 (2021 ONSC 9), dismissing a motion to set aside a default judgment granted in January 2019 against the defendants Sugi Financial Services Inc. and Jose Suguitan (aka Joe Suguitan).

[2] The Master correctly set out the test to be applied on a motion to set aside a default judgment, citing Peterbilt of Ontario Inc. v. 156627 Ontario Ltd. (2007), 2007 ONCA 333, 87 OR (3d) 479 (CA) and HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., 2008 ONCA 894, and applying the framework used by D.M. Brown J. (as he then was) in Hanratty v. Woods, 2009 43649 (Ont. SCJ):

(a) did the moving parties move forthwith to set aside the default judgment when it came to their attention?

(b) is there a valid explanation from the moving parties for their default?

(c) have the moving parties shown a triable defence to the claims?

(d) do the interests of justice favour setting aside the default judgment?

This is the correct test to apply, and the appellant does not take issue with it.

[3] The Master did not, however, apply the test. He used the test to frame the headings in his endorsement, but his reasons do not follow the headings that he used. While reasons should be read with some liberality, it is not possible for me to conclude that the Master actually made findings in respect to the first two aspects of the test.

[4] The Master did put his mind to the merits of the proposed defence. His reasons do not disclose the basis of his conclusion that the corporate appellant has no defence to the action. Instead, the Master focused on the personal liability of Mr Suguitan, which he found was beyond dispute in light of assurances given by Mr Suguitan that are set out in email communications: it is clear from those messages that Mr Suguitan personally guaranteed that the respondents would be repaid, and further assured them that he had the authority and control of events to ensure that this happened. On this basis the Master found that there was no triable defence for Mr Suguitan.

[5] The task of this court, on appeal, is to assess the decision below on the basis of the facts and the law. It is clear on the face of the decision that the Master’s reasons do not justify the order he made. There are no findings on the first two branches of the test, and the findings on the third branch are set out more as a visceral reaction to certain evidence than a dispassionate analysis of the legal claims on the face of the proposed pleading.

[6] The record below is in writing. This court does not usually undertake the task of the court below, where the court below has failed to apply the applicable test. However, in this case the analysis is straightforward, the delay in the case has been substantial, further substantial delay would ensue if the motion was sent back for re-hearing below, and so the overall interests of justice favour this court assessing the record in light of the applicable test to set aside a default judgment. As I shall explain, this is not a close call on the merits of this motion. Thus, for the reasons that follow, I would not set aside the default judgment and so would dismiss the appeal.

Application of the Law to the Facts of the Case

[7] I find that the legal proceedings came to the attention of the appellants no later than August 26, 2018, when the statement of claim and other documents were personally served on the individual appellant. These documents included certificates of pending litigation obtained against three of the properties involved in the underlying transactions.

[8] Default judgment was signed on January 22, 2019.

[9] On May 10, 2019, counsel for the appellants, Mr Mehrabi, advised by email (a) that he had been retained; (b) that the file had previously been “with” a paralegal (Hildyard); and (c) that he was not sure if a statement of defence had been served. The appellants’ argument is that they engaged Mr Hildyard to protect their interests and they did not become aware that this had not been done until around the time Mr Mehrabi was retained. This account is not borne out by the evidence including:

(a) Mr Suguitan learned in January 2019 that Mr Hildyard had been arrested. No reasonable explanation is provided as to why Mr Suguitan did nothing to put the case in the hands of a new representative prior to May 2019.

(b) No documents have been provided to show any basis on which Mr Suguitan could have believed that a statement of defence had been filed or even that Mr Hildyard was instructed to and reported that he had taken steps to respond to the claim.

(c) In his sworn evidence, Mr Suguitan said that he learned in March 2019 that the respondents had moved for default judgment and that no defence had been filed.

I find that the record establishes that the appellants knew that they had failed to defend and that default judgment had been granted against them by March 2019. I also find that the appellants have failed to meet the onus on them to establish that they ever had reasonable grounds to believe that a defence was filed on their behalf. The absence of any corroborating communications with Hildyard, including draft pleadings, an account for services to prepare and file the pleadings, or anything at all to substantiate the claim that the defendants believed that Hildyard had defended on their behalf, is insufficient to discharge the appellants’ onus to explain their failure to file a defence in a timely way.

[10] The appellants then failed to move promptly to set aside the default judgment. The affidavit in support of the motion was not served until January 28, 2020, and the motion record for the motion to set aside the default judgment was not served until August 27, 2020. A default judgment is a “litigation emergency”. The motion to set aside the default judgment should be served within days or weeks of discovering the default judgment. There is no reasonable explanation for the appellant’s long delay in taking these steps.

[11] Mr Suguitan says in his affidavit that delay was attributable to personal illness. This evidence is unsupported by independent medical evidence. It is inconsistent with other aspects of the record showing Mr Suguitan retaining counsel and giving instructions. Far more would be required to meet the burden of showing a reasonable explanation for such a long delay than bald claims of incapacity arising from illness. In particular, Mr Suguitan states that he had a stroke and was recovering from it. The court can take judicial notice that the impact of a stroke – both permanently and temporarily – can vary widely, and the bald statement of having suffered such an event does not, alone, explain the very extensive delay in this case.

[12] In his assessment of the merits, the Master relied on the failure of the appellants to provide a draft statement of defence included in their motion materials. The draft defence was not provided until the eve of the motion (and hence was not available for the purposes of cross examination before the motion). While I would not refuse to consider the pleaded defences, I note that this late delivery of a draft pleading is a continuation of the lack of diligence that has characterized these defendants’ response to the claim.

[13] On the merits, the draft statement of defence fails to disclose any defence to the core claims against the corporate defendant for the claims of the plaintiff Betty Snell – it is admitted that the corporate defendant was a party to loan agreements with Betty Snell.

[14] The defence of Mr Suguitan is, in essence, that the course of conduct did not give rise to a personal guarantee or personal liability. The Master reviewed the course of conduct and concluded – on the basis of uncontested evidence – that the defence could not succeed. In my view the Master erred in going this far and gave conclusory reasons on important aspects of the defence. For example, the assurances upon which the Master relied were given after-the-fact, and although the Master found that the respondents relied on these assurances to their detriment, it is not clear how they did so, or what consideration was provided for the assurances. This said, the language relied upon by the Master for his finding that there was, in law, a personal guarantee, was very strong, and there are paths available to make findings of detrimental reliance and consideration. I would not go so far as to conclude that the defence on the merits was doomed to failure; I assess the merits of the defence as “weak” on the record filed.

[15] Taking all of this into account, I conclude that the default judgment should not be set aside. The defence on the merits of the claim appears to be weak. The “justice of the case” does not warrant turning the clock back now for the defendants: their dilatory failure to defend or to seek to set aside the default judgment promptly justifies foreclosing the opportunity to mount a weak defence to the claims now.

[16] In the result the appeal is dismissed, with costs to the responding parties fixed at $5,000, inclusive.

“D.L. Corbett J.”

April 8, 2022