Court of Appeal for Ontario

Citation: 2017 ONCA 808 Date: 2017-10-24 Docket: C63526

Panel: MacPherson, van Rensburg and Roberts JJ.A.

Parties

Between

Redabe Holdings Inc. Plaintiff (Respondent)

and

I.C.I. Construction Corporation, Glenn Steven Abugov and Luc Stang Defendants (Appellant)

Counsel

Rahul Shastri, for the appellant

Robert W. Scriven, for the respondent

Hearing and Appeal

Heard: October 16, 2017

On appeal from: the order of Justice Patrick J. Flynn of the Superior Court of Justice, dated March 7, 2017.

Reasons for Decision

[1] Overview of the Appeal

The appellant appeals from the order of the motion judge dismissing his motion to set aside a default judgment dated July 4, 2016, and garnishment orders and writs of seizure and sale.

[2] Factual Background

To give some necessary context to this appeal, the recitation of a few brief facts is required. The appellant introduced his co-defendant, Glenn Steven Abugov, to the respondent's principal for the purpose of obtaining financing for Abugov's company, ICI Construction Corporation. The respondent alleges that the appellant provided an oral personal guarantee for $50,000 on the first loan agreement between ICI and the respondent. ICI subsequently defaulted on that loan and the respondent looked to the appellant to honour his guarantee.

[3] Procedural History

The respondent commenced an action to recover the outstanding debt against ICI and the $50,000 pledged under the appellant's personal guarantee. Although served personally with the statement of claim in May 2016, the appellant took no steps to defend the action, other than to obtain Abugov's assurance that he would take care of the matter. Abugov failed to do so. As reflected in his June 2016 communications with the respondent, the appellant unsuccessfully attempted to resolve the dispute but did not defend the action. The respondent subsequently noted the appellant in default and then obtained default judgment in July 2016 on motion without notice to the appellant.

[4] Discovery of Motion Materials

The preamble to the default judgment makes no reference to any motion or affidavit material. However, in response to questions from the panel, respondent's counsel revealed that, unknown to the appellant, or to the motion judge whose order is under appeal, the respondent had brought a motion for default judgment supported by an affidavit that appended and referenced the communications between the appellant and the respondent in June 2016, regarding the debt owed to the appellant and a payment plan proposed by the respondent.

[5] Motion Judge's Analysis

The motion judge applied well-established criteria for determining whether the justice of the case required him to order that the default judgment be set aside: see, for example, Intact Insurance Co. v. Kisel, 2015 ONCA 205, 125 O.R. (3d) 365, at para. 14; and Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 372 D.L.R. (4th) 526, at paras. 48 to 50. While allowing that the appellant had an arguable defence and that he (and his company) would suffer prejudice, the motion judge found that the appellant's June 2016 communications with the respondent (over which the appellant does not assert any privilege), demonstrated that the appellant had acknowledged his debt to the respondent under a personal guarantee. Further, the motion judge concluded that the appellant had deliberately failed to respond to the respondent's statement of claim until he became aware of the garnishment and realized that his assets were at risk. After weighing all of these factors, the motion judge determined that the justice of the case did not warrant setting aside the default judgment and that, "to grant the motion would have a more adverse effect on the overall integrity of the administration of justice than to deny it" (para. 21).

[6] Appellant's Primary Argument: Irregular Judgment

The appellant's primary argument on appeal is that the motion judge erred in failing to set aside the default judgment because it was irregularly obtained. The appellant asserts that the motion judge failed to appreciate that pursuant to r. 19.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the statement of claim did not permit judgment to be granted. Rule 19.06 provides that: "A plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment." The appellant asserts that the statement of claim pleads only that the appellant is liable to the respondent on the basis of his oral guarantee; no facts are pleaded to take the matter outside the scope of s. 4 of the Statute of Frauds, R.S.O. 1990, c. S.19, which precludes action on a guarantee unless in writing.

[7] Irregular Judgment Doctrine

The appellant framed his argument on the reasonable understanding that, as reflected in the order, default judgment was irregularly obtained as a result of a requisition submitted without evidence. If it had been obtained in this way, the appellant's argument would have had merit because, in accordance with r. 19.06, on the face of the statement of claim, the pleading of an oral guarantee alone would not have entitled the respondent to judgment. If a default judgment is irregularly obtained, as a general rule, a defendant is entitled to an order, as of right, setting it aside, without the requirement of establishing a defence to the plaintiff's claim, and without the imposition of terms, other than possibly costs: Tomazio v. Rutale, 26 O.R. (3d) 191, at paras. 9 and 10; Royal Trust Corp. of Canada v. Dunn, 6 O.R. (3d) 468, at para. 19.

[8] Proper Procedure and Discretionary Factors

However, unknown to the appellant, the order for default judgment was obtained on a motion under r. 19.05, supported by affidavit evidence from which the motion judge could infer that the appellant had acknowledged his debt to the respondent and properly grant default judgment. This inference was equally open for adoption by the motion judge hearing the motion to set aside the default judgment in assessing the merits of the appellant's defence to the respondent's action. The appellant's acknowledgment of his debt under his guarantee, coupled with what the motion judge found to be unreasonable and deliberate delay in responding to the statement of claim, tipped the balance of the factors that the motion judge had to consider and resulted in the dismissal of the appellant's motion to set aside the respondent's default judgment against him.

[9] Standard of Review

It is common ground that the determination of the appellant's motion to set aside the default required an exercise of the motion judge's discretion in accordance with the well-known criteria that he applied: Hill v. Forbes, 2007 ONCA 443, at para. 4. Absent overriding and palpable error, or error of law, we cannot interfere with the outcome. We discern no such error here.

[10] Disposition

Accordingly, the appeal is dismissed.

[11] Costs and Procedural Concerns

We are of the view that the circumstances warrant no order as to costs. The default judgment order was incorrectly drafted and should have included a reference to the default judgment motion materials, rather than reciting only the statement of claim, proof of service of the statement of claim, and the noting of the appellant in default. In these circumstances, the respondent should have placed those materials before the motion judge in response to the appellant's motion. If the respondent had done so, the appellant and the motion judge would have been made aware of the context in which the respondent obtained default judgment, which was relevant to the appellant's motion and appeal.

J.C. MacPherson J.A.

K van Rensburg J.A.

L.B. Roberts J.A.