Male v. The Business Solutions Group et al.

[Indexed as: Male v. Business Solutions Group]

Ontario Reports

Court of Appeal for Ontario,

MacPherson, Sharpe and Lauwers JJ.A.

June 10, 2013

115 O.R. (3d) 359 | 2013 ONCA 382

Case Summary

Civil procedure — Default judgment — Setting aside — Plaintiff noting defendants in default without notice and obtaining default judgment at time when defendants were actively defending case — Motion judge erring in refusing to set aside default judgment on grounds that defendant did not intend to defend action on merits and did not have defence on merits — Counsel for plaintiff acting unreasonably in pursuing default judgment without notice when he was actively engaged with counsel for defendants and knew that defendants were defending case.

The plaintiff sued for a remedy for an alleged breach of the Partnerships Act, R.S.O. 1990, c. P.5. The defendants moved unsuccessfully for an order transferring the action to the Small Claims Court, for a stay so that the matter could proceed to arbitration, and for an order transferring the action to Toronto. Mere hours after that motion was dismissed, and without notice to counsel for the defendants, counsel for the plaintiff noted the defendants in default. The defendants moved for leave to appeal the refusal to stay the action and to transfer it to Toronto. Without notice to counsel for the defendants, counsel for the plaintiff obtained default judgment. The defendants' motion to set aside the default judgment was dismissed on the grounds that the defendants did not intend to defend the action on the merits and did not have a defence on the merits. The defendants appealed.

Held, the appeal should be allowed.

The default judgment ought to have been set aside as a matter of justice without an inquiry into the merits of a defence. The motion judge erred in principle by failing to take into account the fact that the defendants were actively defending the case at the time that the noting in default occurred and at the time the default judgment was taken out. Moreover, it was unreasonable for counsel for the plaintiff to have noted the defendants in default and to have pursued default judgment without notice to the defendants' counsel, with whom he was actively engaged, when he knew that the defendants were defending.

Cases referred to

HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., [2008] O.J. No. 5345, 2008 ONCA 894; LeBlanc v. York Catholic District School Board (2002), 61 O.R. (3d) 686, [2002] O.J. No. 4641, [2002] O.T.C. 933, 28 C.P.C. (5th) 380, 118 A.C.W.S. (3d) 349 (S.C.J.)

Statutes referred to

Arbitration Act, 1991, S.O. 1991, c. 17, s. 7

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194

Authorities referred to

Advocates' Society, The Principles of Civility for Advocates (Toronto: Advocates' Society, 2009) [page360]

APPEAL from the order of Whitten J. of the Superior Court of Justice dated February 9, 2012 dismissing a motion to set aside a default judgment.

Adam Lazier, for appellants.

Marc Munro, for respondent.

[1] BY THE COURT: -- The appellants seek to have the respondent's default judgment against them, which was sustained by the motion judge, set aside.

[2] The individual parties are partners in the Business Solutions Group, under a written partnership agreement.

[3] The plaintiff (respondent) asserted in the statement of claim issued on November 22, 2011, that on October 28, 2011, "the plaintiff was bodily ejected from the premises of the partnership by the four individual defendants and two employees. His expulsion amounted to a violation of s. 25 of the Partnerships Act [R.S.O. 1990, c. P.5]." He claimed continuing payment of his share of the partnership profits. In support of that claim, he moved on November 22, 2011 for an interim injunction obliging the partnership to continue to pay him.

[4] On November 30, 2011, the defendants (appellants) moved for an order transferring the action to the Small Claims Court, for a stay under s. 7 of the Arbitration Act, 1991, S.O. 1991, c. 17 so that the matter could proceed to arbitration, and for an order transferring the action to Toronto, where the business was located.

[5] On December 14, 2011, Ramsay J. dismissed the respondent's motion for an injunction requiring ongoing payments under the partnership agreement. He also dismissed the appellants' motion to transfer the action to the Small Claims Court, to stay the action under the Arbitration Act and to move the action to Toronto.

[6] Mere hours after the decision of Ramsay J. and without notice to counsel for the appellants, counsel for the respondent noted the defendants in default. He advised the defendants that he had done so on December 16, 2011.

[7] On December 21, 2011, the appellants moved for leave to appeal the decision of Ramsay J. on his refusal to stay the action under the Arbitration Act and to transfer the action to Toronto. The notice of motion was served on December 22, 2011.

[8] On January 10, 2012, Crane J. signed default judgment against the appellants. Counsel for the respondent did not notify counsel for the appellants that he would seek default judgment, despite the appellants' service of the motion for leave to appeal. [page361] On January 13, 2012, the appellants moved to set aside default judgment.

[9] The motion for leave to appeal the decision of Ramsay J. and the motion to set aside default judgment both came before Whitten J. on February 9, 2012. He refused to grant leave to appeal and also refused to set aside default judgment. His refusal to set aside the default judgment is before us on this appeal.

The Decision Under Appeal

[10] The motion judge refused to set aside the default judgment for two reasons. First, he found that the appellants did not intend to defend the action on the merits, noting that "counsel for the defendant reiterated to counsel for the plaintiff after the hearing before Ramsay J. -- December 14, 2011 -- that he would not be filing a Statement of Defence".

[11] Second, the motion judge concluded that the appellants did not have a defence: "One also infers that there is no evidentiary basis of a defence to the original action. The defendants appear to be quite content to repeat their mantra of the applicability of the arbitration clause without doing anything to advance or address the resolution between the partners. This approach is an example of technical approach without substance."

Positions of the Parties

[12] The statement of claim is very narrowly drafted and claims solely the remedy of continuing payment of partnership profits. It makes no effort to deal with the substantive issues among the partners. Such an effort would be expected to come out in the statement of defence and inevitable counterclaim. Counsel for the appellants asserts that there is a defence, and that his clients never had any intention of simply submitting to judgment, as their vigorous defence shows.

[13] The appellants submit that the default judgment should be set aside as a matter of right, since the respondent undertook both the noting in default and the default judgment without notice to counsel with whom he was actively engaged, at a time when the appellants were actively defending.

[14] The respondent reiterates the finding of the motion judge that the appellants' counsel stated that they would not defend the case. Counsel asserts that there is no defence on the merits; the record shows that the appellants are "gaming the system" -- something that the motion judge took into account in refusing to set aside the default judgment. [page362]

Discussion

[15] This court's approach to setting aside default judgment on appeal is set out in HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., [2008] O.J. No. 5345, 2008 ONCA 894, at paras. 21, 22 and 30.

[16] We find that the default judgment ought to have been set aside as a matter of justice without an inquiry into the merits of a defence, and the defendants ought to have been permitted to file a statement of defence and a counterclaim, if so advised, with the action proceeding in the normal course.

[17] We say this for two reasons. First, the motion judge erred in principle by failing to take into account the fact that the defendants were actively defending the case at the time that the noting in default occurred and at the time the default judgment was taken out. The point is captured by R.S.J. Blair in LeBlanc v. York Catholic District School Board (2002), 2002 CanLII 37923 (ON SC), 61 O.R. (3d) 686, [2002] O.J. No. 4641 (S.C.J.), at para. 21: "It is well accepted that the bringing of a motion before the court to obtain a stay or the dismissal of an action is recognized as a step in the defence of the proceeding: see Cafissi v. Vana, 1973 CanLII 534 (ON SC), [1973] 1 O.R. 654 at p. 655 (Master)." We agree.

[18] Second, in our view, in the circumstances of this case, it was unreasonable for counsel for the respondent to have noted the appellants in default and to have pursued default judgment without notice to appellants' counsel, with whom he was actively engaged, when he knew that the appellants were defending.

[19] The publication issued by the Advocates' Society, entitled The Principles of Civility for Advocates (Toronto: Advocates' Society, 2009), has been endorsed by this court on a number of occasions. Section 19 provides:

19. Subject to the Rules of Practice, advocates should not cause any default or dismissal to be entered without first notifying opposing counsel, assuming the identity of opposing counsel is known.

[20] We note the exchange in the argument before Ramsay J. mere hours before respondent's counsel noted the appellants in default, when counsel said: "I have told him that I intended to sign, note them in default and move for judgment, but in the meantime, like, I expect he is going to defend on -- at some point, on some basis. And I don't want to take advantage of the defendants' lawyer's mistake."

[21] The respondent submits that counsel was effectively released from this quasi-undertaking by the motion judge's statement: "counsel for the defendant reiterated to counsel for the plaintiff after the hearing before Ramsay J. -- December 14, 2011 [page363] -- that he would not be filing a statement of defence". We disagree.

[22] We are unable to interpret these words in the manner suggested by counsel for the respondent as stating that the appellants did not intend to defend the action. The motion judge's endorsement explains the position of counsel for the respondents: "The reason counsel states is that he considered such a step an attornment to this action pursuant to the Partnerships Act." The motion judge added that he disagreed with counsel's position, but it only ceased to be a live issue when the motion judge dismissed the motion for leave to appeal on February 9, 2012.

[23] The position of the appellants as defendants before the Superior Court was that the plaintiff respondent was obliged to arbitrate issues instead of going to court; this position was consistent with the Partnership Agreement and would have provided a plausible avenue for the resolution of substantive partnership issues. It was therefore somewhat unfair of the motion judge to suggest that the appellants were unwilling to engage on the partnership issues. These were and are unavoidably alive in the context of this ongoing business. The issue was whether the forum should be the court or an arbitration.

[24] We therefore allow the appeal, set aside the default judgment and set aside the noting of the defendants in default. For purposes of determining time limits under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the date of this decision will be deemed to be the date that the statement of claim was served on the defendants.

[25] The appellants are entitled to the costs of this appeal and the proceedings below, which we fix at $15,000, all inclusive.

Appeal allowed.