Court File and Parties
Court File No.: CV-21-1988 Date: 2023-04-05 Ontario Superior Court of Justice
Between: SAAND INC., Plaintiff – and – CANDO ALUMINUM MFG SYSTEMS INC., MANDEEP KOONER and RAJWANT KOONER, Defendants
Counsel: Charles B. Holder, for the Plaintiff Radoslav Nikolov, for the Defendants
Heard: January 27, 2023
Judgment
J. Speyer J.
A. Introduction
[1] The defendants did not file a statement of defence and default judgment was granted against them on motion before Charney J. The defendants seek an order under Rule 19.08 setting aside the default judgment and the noting in default.
[2] Saand Inc. is a glass fabrication company. Saand supplied glass products to Cando Aluminum MFG Systems. Cando installed those products in three building projects. Cando was paid for the majority of the work it invoiced in relation to those projects. Cando did not pay Saand for the products it supplied to Cando. Saand sued Cando for the monies owed by a statement of claim issued on June 1, 2021. Saand also claimed against Mandeep Kooner and Rajwant Kooner, who are both officers and directors of Cando. Rajwant is Mandeep’s mother. Because they share the same last name, for clarity, I will refer to them by their first names.
[3] The defendants did not file a statement of defence. Cando was noted in default on July 2, 2021. Saand experienced difficulties in serving the individual defendants with the statement of claim and obtained an order for substituted service. They were served in accordance with that order. The individual defendants were noted in default on November 22, 2021. Saand obtained default judgment against all defendants on May 16, 2022.
B. Legal Framework
[4] The default judgment of Charney J. may be set aside under r. 19.08(2) of the Rules of Civil Procedure, which provides as follows:
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 … may be set aside or varied by a judge on such terms as are just.
[5] The principles that govern a motion to set aside a default judgment are well known and not in dispute. They were established by the Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 47-51:
[47] The court's ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order. The approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, [2012] O.J. No. 2971, 2012 ONSC 3836 (S.C.J.), at paras. 19-20 and 23-24.
[48] The court must consider the following three factors: (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; and (c) whether the facts establish that the defendant has an arguable defence on the merits.
[49] To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. (2007), 87 O.R. (3d) 479, [2007] O.J. No. 1685, 2007 ONCA 333, at para. 2: (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."
[50] These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.
[51] For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.
See also: Intact Insurance Co. v. Kisel, 2015 ONCA 205, 125 O.R. (3d) 365, at para. 14.
C. Analysis
[6] I will address each of the five criteria, and then consider their effect cumulatively, to determine whether the interests of justice favour granting the order sought.
(a) Was the motion brought promptly after the defendants learned of the default judgment?
[7] Saand concedes that the motion was brought promptly after the defendants learned of the default judgment.
[8] The default judgment was issued on May 16, 2022. On May 25, 2022, counsel for the defendants emailed counsel for the plaintiff and stated that a motion to set aside the default judgment would be brought. The motion was filed promptly.
(b) Is there is a plausible excuse or explanation for the defendant's default in complying with the Rules?
[9] The defendants submit that they were not aware of the action because the statement of claim did not come to their attention.
[10] The defendants say that the corporate defendant, Cando, was not properly served because the statement of claim did not come to the attention of Mandeep Kooner, the person authorized to receive documents on behalf of Cando. In his affidavit, Mandeep Kooner states: “I am responsible for any claims on behalf of Cando, however, the Statement of Claim was not served personally on me and never came to my attention at that time. Rather, it was served at Cando’s office to an individual named “Robert” and was never received by me”.
[11] Cando was served with the statement of claim in a manner that complied with Rule 16.02(1)(c) of the Rules of Civil Procedure. It was served on June 8, 2021 by a process server who left a copy of the statement of claim with a shop employee who appeared to be in control of Cando at its business premises and who identified himself as “Robert”.
[12] The plaintiff’s efforts to personally serve the individual defendants with the statement of claim were not successful. The plaintiff sought and obtained an order for substituted service of the statement of claim on Mandeep Kooner and Rajwant Kooner from Edwards, R.S.J. on September 21, 2021. The order permitted service on each of them to be effected by sending the statement of claim by registered mail and by ordinary mail to three residential addresses in which either of them had an ownership interest.
[13] The defendants’ position is that they did not receive the documents that were mailed to them pursuant to the order of Edwards R.S.J. The evidence does not support that position. I reject the affidavit evidence of Mandeep Kooner that he and Rajwant Kooner were not aware of the statement of claim. I find that evidence to be not credible for a number of reasons.
[14] First, Mandeep’s affidavit is materially misleading. The affidavit states that the order of Edwards R.S.J. permitted service “by regular lettermail”. As I have noted, the order required service also by registered mail. Mandeep’s affidavit states that the plaintiff sent a copy of the statement of claim and order by regular mail to Mandeep at an address on Turney Drive in Mississauga, an address at which he did not reside. That is so, but this is materially incomplete. Similarly, Mandeep’s affidavit states that a copy of the statement of claim was sent to Rajwant Kooner at an address on Cresthaven Road in Brampton, an address at which she did not reside. This too is materially incomplete. The statement of claim was sent to those two addresses, but also to another address, 95 Letty Avenue in Brampton, by both regular and registered mail. Both Mandeep and Rajwant live at 95 Letty Avenue, according to Mandeep’s affidavit.
[15] Second, the affidavit fails to disclose that Rajwant signed a receipt acknowledging her receipt of the package containing the statement of claim sent to her at the Letty Avenue address by registered mail. Mandeep’s affidavit does not disclose the fact that the statement of claim was sent to the Letty Avenue address pursuant to the order of Edwards R.S.J. and that his mother, and co-defendant, acknowledged receipt of that registered mail. This cannot have been a mere oversight. That non-disclosure of a material fact reflects a deliberate attempt to mislead the court.
[16] Third, Mandeep’s affidavit also states that “I was unable to turn my mind to the defence of the herein litigation and properly retain a solicitor to file a defence due to personal circumstances, which include litigation with the previous owner of Cando, Neville Permaul, as well as my change of residence”. If Mandeep was unaware of the statement of claim, there would be no question about his turning his mind to the defence of action. His vague reasons for not turning his mind to the defence of the litigation are inconsistent with his position that he was not aware of the litigation.
[17] Fourth, on March 28, 2022, Dawe J. ordered the plaintiff to serve the defendants with a copy of the motion record in relation to the plaintiff’s motion for default judgment. Copies of the motion record were sent by mail to Cando’s corporate address, and to the Turney Drive address to the attention of Mandeep, and to the Cresthaven Road and Letty Avenue addresses to the attention of Rajwant. It is reasonable to conclude that Rajwant and Mandeep, who both live at 95 Letty Avenue, received that motion record. Mandeep does not deny in his affidavit that he and his mother received the motion record relating to the motion for default judgment. His affidavit is silent about that.
[18] Rajwant Koomer has not filed an affidavit in support of this motion. The evidence that she signed a receipt acknowledging her receipt of the statement of claim sent to her at her address by registered mail is not disputed by her. Similarly, there is no evidence from her to refute the reasonable inference that she received the motion record that was mailed to her at the place where she and her son Mandeep reside.
[19] I reject Mandeep Koomer’s assertion that he and Rajwant “remained unaware of this action until May 17, 2022”.
[20] Having rejected Mandeep Koomer’s assertion that he and Rajwant “remained unaware of this action until May 17, 2022”, it follows that there is no plausible excuse or explanation for the defendants’ default in complying with the Rules.
(c) Do the facts establish that the defendants have an arguable defence on the merits?
[21] The defendants are not required to show that their defence will inevitably succeed. They need to show that their defence has an air of reality: Mountain View, at para. 51. It is not my role to make findings of fact, or to assess whether the defence will succeed: Zeifman Partners Inc. v. Aiello, 2020 ONCA 33, 442 D.L.R. (4th) 299, at para. 34.
[22] The defendants take the position that they have an arguable defence on the merits. They submit that the orders from Saand for which Saand was not paid were placed by the previous owner of Cando, Neville Permaul. Mandeep’s affidavit states that he acquired Cando on July 1, 2020, and that Neville failed to tell Saand of the change in ownership. Mandeep states that Cando did not open a new account with Saand after the change of Cando’s ownership until March 11, 2021, and that no orders were placed with Saand using the new account. The defendants take the position that payment of the Saand invoices was the responsibility of Mr. Permaul, and that the plaintiff should be suing Mr. Permaul, not Mandeep or Rajwant.
[23] The defendants did not file a draft Statement of Defence to provide the court with a clear sense of what specific allegations would be advanced should the default judgment be set aside. Their anticipated defence, based entirely on the affidavit of Mandeep Koomer, as set out in their factum is as follows:
The Defendants submit that the amounts claimed by the Plaintiff are for contracts that were acquired before Mandeep acquired Cando from Neville. These contracts in question were all signed and agreed upon by Neville. Thus, the payment of these invoices was the responsibility of Neville.
Although Mandeep acquired Cando Aluminum MFG Systems Inc. on July 1, 2020, Neville failed to advise the Plaintiff of the change in ownership, and therefore a change in account, until February 4, 2021. Once Mandeep learned of the required change in account from the Plaintiff, he acted swiftly and executed the change on March 11, 2021. No orders were placed under this new account.
Neville, who had previously owned and operated Cando, had been found in default of payments to the Plaintiff before the aforementioned acquisition, which resulted in the Plaintiff being unwilling to supply Cando for subsequent contracts. This refusal to supply resulted in loss of revenue and loss of contracts for the Defendants.
The Defendants therefore plead that Neville Permaul should be included as a defendant in this Action, as the breach of payments occurred as a result of orders made under Neville Permaul’s account prior to the acquisition of Cando by Mandeep and Rajwant Kooner.
[24] In order to assess whether the facts establish that the defendants have an arguable defence on the merits, it is necessary to understand the nature of the plaintiff’s claims, and the default judgment that has issued.
[25] Saand claimed that monies received by Cando for the installation of glass products fabricated by Saand at each of three projects are funds held in trust by Cando for Saand, which Cando failed to remit to Saand, contrary to s. 8 of the Construction Act, R.S.O. 1990, c. C.30. Saand further claimed that Mandeep and Rajwant, officers and directors having effective control and management of Cando, directed Cando not to disburse those trust funds to pay Saand’s outstanding invoices. By doing so they assented to and/or acquiesced in conduct they knew or ought to have known amounted to a breach of trust by Cando. They are therefore personally indebted to Saand for those trust funds, pursuant to s. 13 of the Construction Act. The default judgment issued by Charney J. declared that the monies received by Cando for the installation of glass products fabricated by Saand at each of the three projects are funds held in trust by Cando for Saand, that Cando breached each of the trusts pursuant to s. 8 of the Construction Act, that the individual defendants are liable for those breaches pursuant to s. 13 of the Construction Act, and ordered all defendants, jointly and severally, to pay $141,568.94 to the plaintiff, plus interest and costs.
[26] Saand also pleaded that Mandeep and Rajwant executed personal and unconditional guarantees for the full payment of all monies due and owing by Cando to Saand when they obtained an account with Saand on March 11, 2021. The terms of the guarantee provide that Manjeep and Rajwant are jointly and severally liable for outstanding amounts owed by Cando to Saand. The defendants do not deny this. Nothing in the materials submitted by the defendants, or in the oral submissions made on the hearing of the motion advanced any defence to this claim.
[27] The defendants provided no evidence on this motion about how their purchase of Cando was structured. Mandeep’s bald assertion that payment of the plaintiff’s invoices is the responsibility of Neville Permaul is an entirely insufficient basis on which I could conclude that there is an air of reality to the proposed defence.
[28] The materials filed by the defendants in support of their motion do not address the bases on which the judgment against them was made. Nothing in the defendants’ materials addresses the plaintiffs claim under the Construction Act, or the plaintiff’s claim for liquidated damages.
[29] In support of its position that Mr. Permaul is responsible for the monies owed to Saand, the defendants rely on the affidavit of Mandeep. At paragraph 17 of his affidavit, he states that “the amounts claimed by the Plaintiff are for contracts that were acquired before I acquired Cando from Neville [Permaul]. These contracts in question were all signed and agreed upon by Neville. Attached hereto and marked as Exhibit “D” are copies of the Request for Quotes, Construction Contracts, and General Contract Purchase Orders from Neville to the Plaintiff, which outdate my acquisition of Cando”. These statements are another example of the incomplete and misleading nature of Mandeep’s affidavit. The documents attached to his affidavit as Exhibit “D” are documents between Mr. Permaul as sub-contractor and the contractors of the three projects in which the product supplied by Saand was eventually to be installed. None of these are documents between the defendants and Saand. The documents do not include any orders placed by Cando for Saand products, or any invoices sent by Saand to Cando. Even if the defendant’s position has any basis in law, it has no basis in the evidence adduced by the defendants to support their position that they have an arguable defence on the merits.
[30] The plaintiffs filed a responding motion record. It includes the affidavit of Janet Podmore, sworn February 21, 2022, and filed originally in support of the motion for default judgment. In her affidavit, Ms. Podmore swears that the fabricated glass products supplied by Saand to Cando were installed in the three projects by Cando between July 9, 2020, and December 7, 2020. Cando was paid by the contractors for the three projects This evidence that the debt owing by Cando to Saand that is the subject of this action was incurred after Manjeep and Rajwant bought Cando from Mr. Permaul, and that Cando was paid by the project contractors for installing the product supplied by Saand after Manjeep and Rajwant bought Cando from Mr. Permaul, is not contradicted by any evidence filed by the defendants on the motion to set aside the default judgment.
(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
[31] Saand will be prejudiced if the motion is allowed. Saand is entitled to be paid for the product it supplied to Cando. I can discern no arguable defence available to Cando and the individual defendants, based on the materials they have filed on the motion to set aside the default judgment. If Cando and the individual defendants have any meritorious claim against the previous owner of Cando that has not been disclosed in the present motion, they can pursue that claim in a separate action.
[32] If Saand is not permitted to enforce its judgment forthwith, there is a real risk that the defendants will dissipate their assets.
[33] The potential prejudice to Saand if the motion is allowed is substantial. The potential prejudice to Cando if the motion is dismissed is not apparent on the evidence before me.
(e) The effect of any order the motion judge may make on the overall integrity of the administration of justice
[34] The integrity of the administration of justice is best served when cases are decided on their merits. Although the judgment against the defendants was obtained by default, the defendants having not filed a statement of defence, it would be wrong to permit the defendants to defend the claim on the basis of the materials filed in support of this motion – materials that are incomplete, misleading and in some respects, false. The position of the defendants that they have an arguable defence to the claim has no basis. The integrity of the administration of justice would be undermined by allowing the motion to set aside the default judgment.
D. Conclusion
[35] It remains to consider the cumulative effect of the foregoing to answer the question whether the interests of justice favour setting aside the default judgment. The only factor that weighs in favour of granting the motion is that it was brought expeditiously after the defendants became aware of the default judgment. All other factors weigh strongly in favour of dismissing the motion. The interests of justice do not favour setting aside the default judgment.
[36] The motion is dismissed.
[37] If the parties are unable to agree as to costs, I will receive submissions in writing, not to exceed three pages in addition to any bill of costs. Any written submissions are to be sent to my assistant at Joanna.Skalko@ontario.ca by the plaintiff by April 21, 2023, and by the defendants by April 28, 2023. If no submissions are received by then, it will be assumed that the parties have reached an agreement on costs.
The Honourable Madam Justice Jocelyn Speyer Released: April 5, 2023