DATE: 2003-04-02

DOCKET: C37424

COURT OF APPEAL FOR ONTARIO

LASKIN, MacPHERSON AND ARMSTRONG, JJ.A.

B E T W E E N :

ALTON EARL MORGAN

Boris Bytensky, for the Plaintiff/Respondent Alton Earl Morgan

Plaintiff/Respondent

• and -

MUNICIPALITY OF TORONTO POLICE SERVICES BOARD, DETECTIVE VINCENT PANDOLFI (Badge No. 3675), P.C. CHILDON (Badge No. 6601) and DAVID RYDYGIER

Jonathan Strug, for the Defendants/Appellant David Rydygier

Defendants/Appellant

Heard: September 3, 2002

On appeal from the order of Justice Arthur M. Gans dated November 8, 2001.

ARMSTRONG J.A.:

[1] Alton Earl Morgan obtained a default judgment against David Rydygier in the amount of nearly $50,000 after an assessment of damages before John Macdonald J. on September 5, 2000. A motion by Mr. Rydygier before Gans J. (“the motion judge”) to set aside the default judgment was dismissed. Mr. Rydygier appealed the order of the motion judge. For the reasons which follow, I would allow the appeal.

THE FACTS

[2] On February 18, 1998, Mr. Rydygier was crossing Jackman Avenue at the intersection of Danforth Avenue in Toronto. He claimed that he was bumped and knocked off balance by a car driven by Mr. Morgan. Mr. Morgan denied that he struck Mr. Rydygier. In any event, there followed a confrontation between Mr. Rydygier and Mr. Morgan, the facts of which are very much in dispute between the two of them. Mr. Rydygier claimed that he told Mr. Morgan to call the police and then Mr. Morgan got out of the car in a rage and grabbed him by the collar – all the time swearing at him. Mr. Rydygier left to call the police and when he returned, Mr. Morgan had left the scene. Mr. Rydygier claims that he twisted his back during the encounter and developed back pain that required medical attention and physiotherapy.

[3] A police investigation was conducted and Mr. Morgan was ultimately charged with assault under the Criminal Code and a number of other offences under the Highway Traffic Act.

[4] In October 1998, Mr. Rydygier was advised by the police to attend provincial court as a witness against Mr. Morgan on December 2, 1998. He was the only witness in the case to attend the court. To his surprise, the charges were withdrawn against Mr. Morgan. A police officer explained to Mr. Rydygier that the Crown Attorney withdrew the charges because she did not think she could obtain a conviction.

[5] Although counsel for Mr. Rydygier stated in his factum that his client was served with the Notice of Action in these proceedings on December 4, 1998 and the Statement of Claim on January 3, 1999, he was in error. The Affidavit of Service establishes that both documents were served on Mr. Rydygier on March 10, 1999. In addition to Mr. Rydygier, the Toronto Police Services and three individual police officers were included as defendants.

[6] Mr. Rydygier did not defend the action. He does not have a clear recollection of having been served with the Notice of Action and Statement of Claim. In his Affidavit in support of the application to set aside the judgment obtained against him he deposed:

I recall that about four months after the withdrawal of the criminal charge against Morgan, I felt I was being harassed by a lawyer acting for him. My perception of harassment may have included the delivery of the Notice of Action and Statement of Claim.

[7] Although the material filed on this appeal does not contain the court record of when Mr. Rydygier was noted in default, counsel for Mr. Morgan indicates in his factum that Mr. Rydygier was noted in default on March 31, 1999.

[8] Counsel for Mr. Morgan apparently took no steps in the action for another 14 months. On May 9, 2000, he appeared before a Case Management Master with counsel for the police defendants and obtained on consent an order staying the action against the police defendants. He also obtained an appointment with the Trial Scheduling Court in order to proceed with an assessment of damages against Mr. Rydygier. Mr. Rydygier was unaware of this proceeding as he received no notice of it. In making the aforesaid order, the Master included the following preamble:

Mr. Bytensky has been advised he can only get a viva voce assessment for damages by going through TSC (trial scheduling court). He does not want to proceed against Metro at this time, as Rydygier is the target defendant and investigation reveals that he has assets. It is hoped that judgments can be obtained and execution completed with no further involvement of Metro and its officers.

[9] The matter then proceeded to an assessment of damages before Macdonald J. on September 5, 2000. Only Mr. Morgan and his counsel appeared on the assessment of damages. Mr. Rydygier, having been noted in default, would not have received any notice of the assessment. On such a proceeding, Mr. Rydygier was deemed to have admitted the allegations of fact in the Statement of Claim. In the result, the Court found that Mr. Rydygier falsely alleged to the police that Mr. Morgan had struck Mr. Rydygier with a motor vehicle and subsequently assaulted him. There was also a finding that he falsely reported Mr. Morgan had left the scene of the alleged accident. After referring to the charges that were brought against Mr. Morgan, the trial judge stated:

I find that these charges by police were a reasonably foreseeable consequence of the defendant Rydygier’s repeated false allegations to police about the plaintiff. I infer and find that the defendant Rydygier intended by his false allegations to inflict emotional and other harm or distress on the plaintiff, and in fact did so. I find that Rydygier’s statements also slandered the plaintiff.

The trial judge’s assessment of damages (including punitive damages and costs) totalled $47,408.38.

[10] In January 2001, garnishment proceedings were taken against Mr. Rydygier’s bank accounts and wages. As a result of this action, he learned of the outstanding judgment of nearly $50,000 against him and he then retained counsel.

[11] There was some initial difficulty in sorting out exactly what had transpired. In any event, counsel for Mr. Rydygier brought a motion on June 15, 2001 before Doherty J.A. for an order extending the time for appealing the judgment of the trial judge. Doherty J.A. declined to hear the motion and instead adjourned it to permit counsel for Mr. Rydygier to move before a Superior Court judge under rule 19.08(2) of the Rules of Civil Procedure to set aside the default judgment. This led to the motion before the motion judge.

[12] Although counsel for Mr. Rydygier brought his motion under rule 19.08(2), the main focus of his attention appears to have been the application of rule 7.07(1), which provides:

A party under disability may not be noted in default under rule 19.01 without leave of a judge.

Disability is defined in rule 1.03(b) as meaning “mentally incapable within the meaning of s. 6 or s. 45 of the Substitute Decisions Act, 1992…”. Only s. 6 of that Act is relevant in this case. Section 6 provides:

A person is incapable of managing property if the person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.

[13] Counsel for Mr. Rydygier took the position that his client was suffering under a disability at the time he was served with the Notice of Application and Statement of Claim. He submitted that rule 7.07(1) should be liberally construed in order to provide the court with the basis for concluding that Mr. Rydygier should not have been noted in default without the leave of the court.

[14] In support of its position, counsel for Mr. Rydygier filed an affidavit of his client’s psychiatrist, Dr. Donald Payne, which provided in part:

(14) Mr. Rydygier advised me, and I truly believe, that he had not realized he was being sued. He had a vague recollection of seeing legal papers but said he did not understand them, did not know what to do with them, and did not act on them. He advised me that, based on a preliminary investigation by a lawyer he had retained, the legal papers in the action probably were served on him in late 1998 or early in 1999.

(15) In my opinion, at both times, Mr. Rydygier’s ability to function was seriously impaired by his psychiatric condition and the side effects of the medication he was taking. It was my opinion then, and it remains my opinion at the time of swearing this, my affidavit, that because of his inability to concentrate at that time, David Rydygier had difficulty attending to important matters affecting his well-being and that in his impaired state of mind, he would not have been able to appreciate the need to file a statement of defence.

(16) As a psychiatrist, I am aware of the statement included in section 6 of the Substitute Decisions Act, 1992, that a “person is incapable of managing property if the person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.”

(17) In my opinion, the above description is consistent with and describes the state of mind and ability to comprehend of David Rydygier in late 1998 and early 1999. If David Rydygier was served with legal documents commencing a lawsuit during that period, in my opinion he would not have been able to understand the information, make a decision in his interest based on the information, nor appreciate the consequences of not making a decision to defend himself. If, as I am advised by legal counsel, the quoted description constitutes a legal definition of “a person under [disability]”, then in my opinion David Rydygier was “a person under disability” during the time I am advised he would have received the legal documents commencing this legal action.”

[15] The full transcript of the cross-examination of Dr. Payne was not provided to us. However, in his Compendium, counsel for Mr. Morgan filed a number of excerpts of the cross-examination which demonstrated that Dr. Payne qualified his opinion. What emerged from these excerpts is that Mr. Rydygier was able to function at a level which, in my view, would certainly not bring him within the definition of incapacity in s. 6 of the Substitute Decisions Act.

The Motion Judge’s Decision

[16] In dealing with the argument related to rule 7.07, the motion judge held that the prohibition against noting a party under a disability in default without leave of a judge depended upon a finding that the party suffered the disability at the time of the noting in default, not at the time of service. He concluded that Mr. Rydygier was not a person under a disability at the time he was noted in default.

[17] The motion judge also considered very briefly whether there was a basis for setting aside the default judgment under rule 19.08(2). He stated:

(5) The cases provided by counsel for the plaintiff set out the factors that must be considered before I may exercise my discretion to set aside the noting of pleadings closed and the consequences that flow therefrom.

(6) In my view, the first two factors expressed in the decision of Mr. Justice Nordheimer in Karas v. Gegios, [2001] O.J. 732 at paras. 6-8 have not been met, even assuming a triable issue on the merits were established, absent a draft statement of defence.

Analysis

[18] I agree with the motion judge’s interpretation of rule 7.07. The plain language of the rule, in my view, can lead to no conclusion other than that the relevant time to consider disability is when the party is noted in default. I also agree with the motion judge’s conclusion that the evidence was insufficient to support a finding that Mr. Rydygier was under a disability at the relevant time.

[19] However, I disagree with the motion judge’s failure to exercise his discretion under rule 19.08(2) which enables the court to set aside a judgment against a defendant who has been noted in default. The motion judge referred to the judgment of Nordheimer J. in Karas v. Geigos, supra. The Karas case refers to the factors the court should consider in exercising its discretion to set aside a default judgment:

(a) the motion must be brought without undue delay;

(b) the circumstances which led to the default must be explained; and

(c) the defendant must present a triable defence on the merits.

As indicated above, the motion judge held that the first two factors had not been satisfied. However, he gave no reasons for this conclusion

[20] With all due deference to the motion judge, the record before the Court indicates that once Mr. Rydygier learned of the default judgment, he took steps to retain counsel and deal with the matter. While it may be that if Mr. Rydygier and his counsel had first contacted counsel for the plaintiff, rather than attempting on their own to piece together what happened, the motion would have been brought on more promptly. However, I see nothing in the record which would suggest that they did not move with reasonable dispatch. There is certainly nothing in the record which would suggest that there was any undue or deliberate delay on their part.

[21] I am also satisfied that the circumstances of the default are reasonably explained. Although Mr. Rydygier was not under a disability in the sense that leave was required to note him in default, his medical condition at the time provides sufficient evidence to permit the court to exercise its discretion in his favour under rule 19.08(2). I am satisfied that a review of the evidence of the psychiatrist together with the evidence of Mr. Rydygier discloses a person who, at the relevant time, was sufficiently distracted by his medical condition that he failed to take the appropriate steps to defend this action brought against him.

[22] Dr. Payne was treating Mr. Rydygier for chronic anxiety disorder and fatigue. The doctor referred to his inability to concentrate. On May 12, 1999, about two months after being served with the Notice of Action and Statement of Claim, Dr. Payne signed a medical certificate for the University of Toronto, which stated that Mr. Rydygier had been suffering from recurrent anxiety and fatigue since 1994. The certificate also stated that although he was doing better in the fall of 1998, he became less energetic in November 1998 with problems of memory and concentration. The doctor certified that Mr. Rydygier was not able to complete academic work and was unable to concentrate on reading or assignments.

[23] The motion judge focused his attention on the medical evidence in the context of the narrow issue of disability raised by rule 7.07. This is perhaps understandable because much of the argument of counsel appears to have been directed to the application of this sub-rule. However, on the motion before him for an order extending the time for filing a notice of appeal, Doherty J.A. quite properly suggested that the matter should be dealt with under rule 19.08(2). While the motion judge did consider the applicability of rule 19.08(2), it appears to have been very much a secondary consideration.

[24] In my view, if the motion judge had analyzed the medical and related evidence from the vantage point of whether it provided a reasonable explanation for the default in the context of rule 19.08(2), he would have been satisfied on the second branch of the test referred to in Karas. I conclude that his failure to do so was an error in principle. I am satisfied that although from time to time Mr. Rydygier was able to function rationally, the medical evidence reasonably explains his default in attending to the defence of this action.

[25] I am also satisfied that Mr. Rydygier has a triable defence on the merits. Although counsel has not filed a draft statement of defence, the material before the court, including Mr. Rydygier’s affidavit, discloses a basis upon which a triable defence can be pleaded. It would appear that this case will likely turn on the credibility of Mr. Morgan and Mr. Rydygier. Without offering any comment on the outcome, it is apparent that if Mr. Rydygier’s version of the events of February 18, 1998 is accepted, he is likely to succeed in his defence of the action.

[26] This court has previously held that the factors considered by a judge in setting aside a default judgment are not to be treated as if they were rigid rules. See Chitel v. Rothbart, [1988] O.J. No. 1197. The underlying premise of rule 19.08(2) is that a judge in exercising the court’s discretion will see that justice is done in the particular circumstances of the case before the court. The consequences of the default judgment for Mr. Rydygier are extremely serious. As a result of the default judgment, a person of relatively modest means faces the obligation to pay a judgment of close to $50,000. More importantly, the judgment includes an award of punitive damages and a finding by the court that Mr. Rydygier “intended by his false allegations to inflict emotional and other harm or distress on the plaintiff, and in fact, did so.” In my view, justice is best served by setting the judgment aside.

CONCLUSION

[27] In the result, I would allow the appeal and set aside the noting of pleadings in default and the judgment of Macdonald J. dated September 5, 2000. Mr. Rydygier shall have 30 days to deliver his Statement of Defence.

COSTS

[28] In view of the fact that Mr. Rydygier is being granted the indulgence of the Court, I make no order as to costs.

“Robert P. Armstrong J.A.”

“I agree John Laskin J.A.”

MACPHERSON J.A. (DISSENTING):

[29] I have had the opportunity to read the reasons prepared by my colleague, Armstrong J.A. Although I agree with substantial parts of his analysis, I disagree with crucial components of it as well. In the result, I disagree with my colleague’s proposed disposition of the appeal. I would dismiss the appeal.

[30] Because my colleague has set out the relevant facts and issues in a comprehensive and clear fashion, I can state my analysis and conclusions in relatively brief compass.

(1) The rule 7.07 issue

[31] My colleague agrees with the motion judge’s analysis and conclusion concerning the interpretation and application of rule 7.07. My colleague states:

The plain language of the rule, in my view, can lead to no conclusion other than that the relevant time to consider incapacity is when the party is noted in default. I also agree with the motion judge’s conclusion that the evidence was insufficient to support a finding that Mr. Rydygier was under a disability at the relevant time.

I agree with this analysis and conclusion.

(2) The rule 19.08(2) issue

[32] Rule 19.08(2) permits a judge to set aside a default judgment against a defendant who has been noted in default on such terms as are just.

[33] As a preliminary point, I note that the language of rule 19.08(2) is permissive – “may be set aside”. Accordingly, the judge hearing a motion brought pursuant to the rule has a discretion to grant or refuse the relief sought.

[34] The discretionary nature of the judge’s decision on a motion under rule 19.08(2) has important implications for the role of a court hearing an appeal from the judge’s decision. The Supreme Court of Canada and this court have consistently held that a judge’s exercise of discretion must be respected; an appellate court can interfere only if the judge misdirects himself on the law or makes a palpable and overriding error which “set[s] his assessment of the facts askew”: see R. v. Regan (2002), 2002 SCC 12, 161 C.C.C. (3d) 97 at 146‑47 (S.C.C.), and Wong v. Lee (2002), 2002 44916 (ON CA), 58 O.R. (3d) 398 at 406 (C.A.).

[35] Bearing in mind this high hurdle for the appellant, I turn to the motion judge’s reasons and disposition.

[36] The appellant does not challenge the motion judge’s understanding or statement of the applicable law. The motion judge explicitly referred to the decision of Nordheimer J. in Karas v. Gegios, [2001] O.J. No. 732 (S.C.), aff’d [2002] O.J. No. 124 (C.A.), where he stated at paragraph 6:

The factors that are to be considered in deciding whether to exercise the discretion to set aside a default judgment are . . . :

(a) the motion to set aside must be brought without undue delay;

(b) the circumstances which lead to the default must be explained;

(c) the defendant must present a triable defence on the merits.

[37] The motion judge decided that the moving party had not established the first and second of these factors. He did not address the third question. Since the motion judge applied the correct legal principles, the only question on this appeal is whether he made a palpable and overriding error in his assessment of the facts.

(a) Timeliness of motion

[38] I agree with my colleague’s analysis and conclusion with respect to this factor. The requirement imposed on a moving party once he becomes aware of a default judgment against him is to move to set it aside “without undue delay”. The appellant’s steps in investigating the judgment against him, retaining counsel, proceeding first in this court (erroneously but understandably) with an appeal against the trial judgment of John MacDonald J., and then bringing his motion to set aside the default judgment in the superior court, did not, as my colleague concludes, “suggest that there was any undue or deliberate delay”.

(b) Explanation for the default

[39] The Statement of Claim was served on the appellant on March 4, 1999. The appellant set out his recollection of this event in his affidavit:

11. I recalled that about four months after the withdrawal of the criminal charge against Morgan [December 2, 1998], I felt I was being harassed by a lawyer acting for him. My perception of harassment may have included the delivery of the Notice of Action and Statement of Claim.

[40] The appellant’s explanation for not dealing with the Statement of Claim was that “[m]y mental state was such that I was incapable of making decisions affecting my well‑being.”

[41] The appellant’s explanation was supported by an affidavit from a psychiatrist who was treating him in 1998 and 1999. Referring to the period “late in 1998 or early in 1999”, Dr. Donald Payne stated:

15. In my opinion, at those times, Mr. Rydygier’s ability to function was seriously impaired by his psychiatric condition and the side effects of the medication he was taking. It was my opinion then, and it remains my opinion at the time of swearing this, my affidavit, that because of his inability to concentrate at that time, David Rydygier had difficulty attending to important matters affecting his well being and that in his impaired state of mind, he would not have been able to appreciate the need to file a statement of defence.

[42] Relying on the appellant’s explanation and Dr. Payne’s evidence, my colleague concludes that the motion judge erred in his consideration of the ‘reasonable explanation’ factor. With respect, and for several reasons, I disagree.

[43] First, there is no question that the appellant received the Statement of Claim in March 1999 and knew that it was an important document. Indeed, in an eight or nine page chronology he prepared to assist Dr. Payne, the appellant wrote with reference to March 1999: “The threat of a civil suit which resulted from an accident in February 1998 increased my mental fog and disorientation.”

[44] Second, the appellant had no difficulty responding to a subpoena in the late autumn of 1998 requiring him to attend for Morgan’s criminal trial. He obeyed the subpoena and attended at court on December 2, 1998. If he was able to understand and comply with legal documentation in late 1998 relating to the criminal charges against Morgan, it is difficult to see how he could be incapacitated from responding four months later to legal documents which essentially presented the flip side of the same litigation – namely, Morgan’s civil action against him. This is particularly so in light of Dr. Payne’s evidence when he was cross‑examined on his affidavit to the effect that the appellant’s medical condition in late 1998 and the spring of 1999 was essentially the same:

54. Q. Okay. Now, is it fair to say that his condition wasn’t appreciably worse in the spring of ’99 than it was in the fall of ’88 (sic)? It was roughly the same?

A. I think roughly the same, yes.

55. Q. Okay. So the things that he would or would not have been able to do during one period would have been roughly the same as the other period?

A. Yes.

[45] Third, when the appellant was cross‑examined on his affidavit, he admitted that he had consulted, or at least tried to consult, a lawyer shortly after he was served with the Statement of Claim:

A. I believe about two days after this came, I made a phone call to something like – oh, it could have been a lawyer’s office; I don’t – I can’t remember. Or Legal Aid, or a Legal Aid clinic, but . . .

In my view, this answer seriously undercuts his assertion that “I was incapable of making decisions affecting my well‑being.”

[46] Fourth, Dr. Payne’s opinion that the appellant “would not have been able to appreciate the need to file a statement of defence” was significantly qualified, perhaps contradicted, when he was cross‑examined on his affidavit:

74. Q. He would have been able to read that [the Statement of Claim]?

A. Yeah, he would have been able to read it and comprehend at the time of reading it.

75. Q. Okay. And, presumably, he would have been able to realize that this is significant, at the time he read it?

A. Yes.

76. Q. And he would have realized at the time that, since he himself is not a lawyer, he may need to get legal assistance to help him with a lawsuit that’s been started against him?

A. That’s correct.

[47] Moreover, Dr. Payne was prepared to acknowledge that there were reasons other than the appellant’s mental processes which could have explained his failure to deal with the Statement of Claim in March 1999:

35. Q. Is it fair to say that he may have simply taken some steps and then, for whatever reasons, failed to follow through?

A. Yes, it seems likely he took some steps and failed to follow through.

36. Q. Right.

A. For forgetfulness, or reasons of procrastination, or reasons because his mental functioning wasn’t sharp enough that he kept this on his agenda, something which was important for him to carry through with.

[48] Fifth, in the December 1998 to April 1999 period, the appellant appeared to function normally in many respects. He filed his income tax return, planned and took a vacation in Greenland, dealt with an insurance claim, and, I repeat, understood and acted on a subpoena compelling his attendance at Morgan’s criminal trial which his complaint had set in motion. He also attended various medical offices. One of those visits was to the Sleep Disorders Clinic at the Toronto Hospital on March 17, 1999, which was in the middle of the period the appellant had to deliver a Statement of Defence. On that day, Dr. Kristin Fraser recorded in a letter to the appellant’s physician:

In summary, Mr. Rydygier currently has mild sleep apnea which does not require treatment and his previous difficulties with sleep onset and maintenance have largely resolved with the use of good sleep hygiene and intermittent Lorazepam. At this point, I do not have anything further to offer this man.

[49] Based on these facts, I conclude that there was abundant evidence to support the motion judge’s conclusion that the appellant had failed to offer a reasonable explanation for not delivering a Statement of Defence within the time prescribed by the rules.

(c) Triable defence on the merits

[50] The motion judge did not consider this factor. My colleague acknowledges that the appellant did not file a draft Statement of Defence with his motion to set aside the default judgment. However, he is of the view that the material before the motion judge disclosed a basis upon which a triable defence could be pleaded, namely, the appellant’s probable testimony about the relevant events.

[51] With respect, I disagree. There is a good deal of evidence in the record that supports the respondent’s assertion in his factum that the appellant’s potential defence “is doomed to fail in any event.” Importantly, the Crown withdrew the criminal charge against the respondent. Moreover, there are significant allegations in the Statement of Claim which remain unchallenged by the appellant, including an assertion that an eyewitness at the scene told the police that there was no contact between the respondent or his car and the appellant. In the face of these and other factors, I cannot see how the ‘triable defence on the merits’ factor can simply be inferred. A draft Statement of Defence should have accompanied the appellant’s Notice of Motion.

Conclusion and Disposition

[52] My colleague concludes his reasons by observing that the consequences of the default judgment for Mr. Rydygier “extremely serious.” I agree. The default judgment against him is for almost $50,000, including punitive damages of $15,000. However, I would make two observations about these consequences.

[53] First, the consequences for Mr. Morgan of the events set in motion by the appellant’s phone call to the police also deserve the description “extremely serious.” The emotional and financial consequences of the criminal charges triggered by the appellant are well‑documented in MacDonald J.’s reasons for judgment.

[54] Second, the appellant is not without a remedy if he thinks the trial judge’s judgment, and especially his assessment of damages, was too harsh. Doherty J.A.’s order in this court, dated June 15, 2001, on the motion for an extension of time to appeal the judgment of MacDonald J. includes this provision:

2. THIS COURT ORDERS that the motion in this court be adjourned pending motion in the trial court under Rule 19.08(2);

[55] In conclusion, I can see no palpable and overriding error in the motion judge’s discretionary decision not to set aside the default judgment against the appellant. Accordingly, I would dismiss the appeal with costs.

RELEASED: “APR –2 2003” “J. C. MacPherson J.A.”

“JL”