COURT OF APPEAL FOR ONTARIO DATE: 20220630 DOCKET: C69108

Gillese, Miller and Coroza JJ.A.

BETWEEN

Leaf Homes Limited Plaintiff (Respondent)

and

Farrukh Shahzad Khan and Nadia Parveen Khan Defendants (Appellants)

Counsel: Anser Farooq and Shivani Balcharan, for the appellants Matthew Kersten, for the respondent

Heard: April 14, 2022

On appeal from the order of Justice Jill C. Cameron of the Superior Court of Justice, dated January 15, 2021, with reasons at 2021 ONSC 360, and the costs endorsement, dated March 16, 2021, with reasons at 2021 ONSC 1993.

Gillese J.A.:

I. OVERVIEW

[1] The appellants are people of modest means. They entered into an agreement of purchase and sale with the respondent to buy a home to be built in a new residential community in Whitchurch-Stouffville (the “Property”) for $1,518,888 (the “Agreement”). The deal was to close on October 4, 2018.

[2] When the appellants could not get mortgage approval, they told the respondent they would be unable to close on the purchase and sale. The respondent kept the appellants’ $180,000 down payment, sold the Property a few months after the closing date for less than two-thirds of the purchase price that the appellants had agreed to pay, and obtained default judgment against the appellants for over $400,000. The respondent then began to take steps to realize on the judgment.

[3] On learning that their bank account had been garnisheed by the respondent, the appellants retained counsel. Counsel moved to set aside the default judgment and be permitted to enter a defence and counterclaim.

[4] The motion judge ordered that the default judgment be set aside but only to the extent that the appellants could litigate the quantum of damages. Despite their partial – but significant – success on the motion, the appellants were ordered to pay costs on a substantial indemnity basis, and a personal costs order was made against counsel for the appellants. On this appeal, the appellants challenge the validity of all those orders.

[5] For the reasons that follow, I would allow the appeal in full.

[6] In an attempt to redress the harm caused to counsel by the personal costs order, I point out now that the personal costs order was wrongly made: the mandatory process that must be followed before such an order is made was not followed. And, in addition to the process being marred by procedural unfairness, the factual findings that underlie the order are the result of palpable and overriding errors.

II. BACKGROUND

[7] The following summary describes what led to this appeal. More detailed information can be found in the relevant sections of these reasons.

[8] The respondent, Leaf Homes Limited, is a corporation that carries on business as a homebuilder in Ontario.

[9] The appellants, Farrukh Shahzad Khan and Nadia Parveen Khan, are a married couple with five children who live in Stouffville, Ontario. They are immigrants from Pakistan who moved to Canada in 2003 and 2004, respectively. At the relevant time, their children ranged in age from five to twenty. Mr. Khan had been employed as a process operator for approximately 15 years when the motion which underlies this appeal was heard. He was the sole income earner for the family, making approximately $60,000 per year. By the time the motion had been decided and costs submissions were made, Mr. Khan had been laid off work and was unemployed. Ms. Khan is a homemaker. Her mother language is Urdu and she speaks little English.

[10] The appellants learned of a new housing development that was to be built in Whitchurch-Stouffville by the respondent, in collaboration with other home development companies. They wanted to learn more about the development, so they pre-registered with the respondent. When the respondent subsequently contacted them to schedule a sales appointment, the appellants agreed. They met with the respondent on June 3, 2017. According to the appellants, they had never before purchased a property from a home development company or attended a sales appointment.

[11] Before the sales appointment, the respondent sent the appellants an email that included a sample 32-page agreement of purchase and sale and said that the appellants should bring with them, to the appointment, a mortgage pre-approval, post-dated cheques, and photo identification.

[12] The appellants thought that at the sales appointment, they would be given information about the project, a description of the different types of houses that could be built, and the prices for the various houses. Accordingly, they went to the appointment without having sought mortgage pre-approval and without cheques. They were shown around the project and asked to choose a lot from a paper with various lots marked on it. They chose Lot 67.

[13] The appellants then met with a sales associate. What they were told in that brief meeting is disputed. However, at the end of it, the appellants signed the Agreement. The appellants then went home and returned with six cheques – five of which were post-dated – each for $30,000.

[14] Mr. Khan attempted to secure financing but was unsuccessful. The mortgage brokers with whom Mr. Khan spoke told him the appraisal value of the Property was approximately $1.1 to $1.2 million, not the $1.5 million purchase price in the Agreement. Mr. Khan learned he could secure mortgage financing from a bank but only if he paid the difference between the appraisal value and the purchase price. The appellants did not have sufficient funds to do that. Mr. Khan repeatedly attempted to contact the respondent to resolve the financing difficulties, but his phone calls and voicemail messages were not returned. On August 29, 2018, Mr. Khan told the respondent that he and his wife would be unable to close on the Agreement.

[15] In anticipation of a breach of the Agreement, the respondent issued a statement of claim against the appellants on September 13, 2018 (the “Statement of Claim”), in which it sought, among other things, damages for the anticipated breach and costs.

[16] On October 17, 2018, the respondent noted the appellants in default.

[17] On February 18, 2019, the respondent sold the Property to a third party for $998,000.

[18] On April 18, 2019, the respondent obtained default judgment against the appellants for $407,903.92 in damages and $7,000 in costs. Shortly thereafter, it issued a notice of garnishment to garnish the appellants’ bank accounts and filed a writ of seizure and sale to sell the appellants’ family home to satisfy the judgment.

[19] On May 15, 2019, when Mr. Khan attempted to withdraw money from his bank, the teller told him there was a garnishment notice on his account.

[20] On May 16, 2019, Mr. Khan found two envelopes in his mailbox. The documents included a notice of examination, a copy of a default judgment against him and his wife, and the notice of garnishment. He tried to read the documents but could not understand them. He immediately sought assistance from Anser Law Professional Corporation (“Anser Law”).

[21] On May 24, 2019, Anser Law wrote to counsel for the respondent, advising they had been retained to investigate the circumstances surrounding the respondent’s obtaining the default judgment and asking for an explanation as to how the Property was sold for an amount so far below the initial purchase price.

[22] Counsel for the parties communicated on a number of occasions thereafter. One exchange related to examinations in aid of execution, which the respondent had scheduled before Anser Law was retained. In correspondence on June 12, 2019, the respondent’s counsel indicated, among other things, he would proceed with the examinations in aid of execution scheduled for June 17, 2019.

[23] On June 13, 2019, Anser Law told the respondent’s counsel that they had been retained to seek to set aside the default judgment and asked that the examinations in aid of execution be adjourned pending the resolution of that motion. The respondent did not accede to that request.

[24] On June 17, 2019, the appellants did not attend the examinations in aid of execution, only telling the respondent they could not attend because of illness late that morning.

[25] On July 17, 2019, the appellants served the notice of motion to set aside the default judgment and be allowed to file a statement of defence and counterclaim (the “Motion”).

[26] The parties dispute whether the Statement of Claim was ever served on the appellants. This dispute led to many legal wranglings, delayed the hearing of the Motion, and played a significant role in the determination of the Motion. The parties’ positions on service can be summarized as follows.

[27] The respondent says its process server attended the appellants’ residence on September 17, 2018, at 6:36 p.m., left copies of the Statement of Claim with “Nadia Parveen Khan, an adult female who appeared to be a member of the same household” as Mr. Khan, and later mailed a copy of the Statement of Claim to the residence.

[28] The appellants maintain they were never served with the Statement of Claim. Ms. Khan says she did not receive material from a process server on the evening of September 17, 2018, which was a Monday. In an initial affidavit, sworn August 8, 2019, she explained she is not home on Monday evenings because that is when she does the grocery shopping. In a later affidavit, sworn September 8, 2020, she explained that she is a devout Muslim and would never answer the door without her religious face covering.

[29] Cross-examinations of the appellants and a cross-examination of the respondent’s process server were scheduled for February 25, 2020. Mr. Khan was out of the country at that time, a matter made known to counsel for the respondent only the evening before. Counsel from Anser Law, Mr. Farooq, attended and cross‑examined the process server.

[30] The appellants’ non-attendance for cross-examinations played a big part in the motion judge’s resolution of the Motion and costs orders. Information on when and how Anser Law learned of the appellants’ unavailability was tendered by way of a fresh evidence motion brought by the appellants on this appeal.

[31] In reasons for decision dated January 15, 2021 (the “Reasons”), the motion judge concluded that the default judgment should be set aside in part, to the extent that the parties could litigate the quantum of damages. She otherwise dismissed the Motion. She later made a personal costs order against counsel for the appellants and ordered that the appellants pay costs of the Motion on a substantial indemnity basis.

III. THE PROPOSED STATEMENT OF DEFENCE AND COUNTERCLAIM

[32] In the proposed statement of defence and counterclaim, the appellants give their version of what occurred at the sales appointment on June 3, 2017.

[33] After being shown around the project by various individuals, the appellants were shown a piece of paper with various lots marked on it and asked to select a lot. They selected Lot 67.

[34] A sales associate of the respondent then asked the appellants to sit down with her to discuss the next steps in the process. Mr. Khan told the sales associate that they did not have a mortgage pre-approval or come prepared with any mortgage financing options. The sales associate stated that the appellants did not require mortgage pre-approval and that as long as they could pay the 20% down payment, they would be able to secure mortgage financing. The sales associate also stated that the respondent had a mortgage agent on-site who would assist them in securing mortgage financing.

[35] Mr. Khan told the sales associate they could secure the 20% down payment and asked to meet with the on-site mortgage agent. He was told the agent was not present at the office that day. Ms. Khan did not participate in the conversation because she did not understand what the sales associate was talking about and there was no Urdu interpreter present.

[36] The sales associate then presented the Agreement to the appellants and directed them to sign and initial various pages of it. Mr. Khan told the sales associate that they had not brought post-dated cheques with them, and the sales associate said once they signed the Agreement, they could go home and return with the cheques. She said they should not wait to sign the Agreement because they might lose the opportunity to purchase the Property.

[37] Mr. Khan believed and understood from the conversation with the sales associate that the appellants would be able to obtain mortgage financing and that the respondent would help them to obtain it. The appellants allege that, under the influence of the sales associate’s promises and misrepresentations, Mr. Khan signed the Agreement, and Ms. Khan followed suit at the direction of the sales associate and Mr. Khan. She had no idea what she was signing, what the document stated, or her potential liability in signing it.

[38] As soon as the Agreement was signed, the sales associate asked the appellants to return with the post-dated cheques, which they did. When they left the sales appointment, they were not given a copy of the Agreement but were told they could pick it up two or three days later.

[39] Around April 2018, Mr. Khan learned that the appraisal value of the Property was approximately $1.1 to $1.2 million. He was told he could secure mortgage financing from a bank but only if he could pay the difference between the appraisal value and the purchase price, as well as 20% of the appraisal value. The appellants were financially unable to pay that amount of money.

[40] Based on the sales associate’s representations, Mr. Khan contacted the respondent to get help from the on-site mortgage agent. Over the following four or five months, he repeatedly tried to talk to someone at the respondent’s office to find possible solutions to the situation. He was unable to talk to anyone – his calls kept getting transferred and the numerous voicemail messages he left were not returned.

[41] In the counterclaim, the appellants seek to recover their $180,000 down payment plus $7,016.15 that they paid for upgrades. They allege that the respondent is vicariously liable for the misrepresentations of its sales associate that induced them to enter into the Agreement. They further plead that the respondent failed to mitigate its damages. The appellants claim that the respondent knew as early as May 2018 that they could not complete the transaction but only sold the Property in February 2019 for almost $600,000 less than the purchase price in the Agreement.

IV. THE RELEVANT RULES OF CIVIL PROCEDURE

[42] Rules 19.08 and 57.07(1) and (2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) play critical roles in this appeal so are set out below.

[43] Rule 19.08 reads as follows:

19.08 (1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rule 19.04 may be set aside or varied by the court on such terms as are just.

(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 or that is obtained after trial may be set aside or varied by a judge on such terms as are just.

(3) On setting aside a judgment under subrule (1) or (2) the court or judge may also set aside the noting of default under rule 19.03.

[44] Rules 57.07(1) and (2) read as follows:

57.07 (1) Where a lawyer for a party has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default, the court may make an order,

(a) disallowing costs between the lawyer and client or directing the lawyer to repay to the client money paid on account of costs;

(b) directing the lawyer to reimburse the client for any costs that the client has been ordered to pay to any other party; and

(c) requiring the lawyer personally to pay the costs of any party.

(2) An order under subrule (1) may be made by the court on its own initiative or on the motion of any party to the proceeding, but no such order shall be made unless the lawyer is given a reasonable opportunity to make representations to the court.

V. THE DECISION BELOW

[45] In her Reasons, the motion judge observed that r. 19.08 gives the court jurisdiction to set aside the noting in default on such terms as are just. Relying on Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, at paras. 47-49, among other authorities, she said that the test to set aside a default judgment includes an assessment of the following factors:

(a) whether the motion to set aside the default judgment was brought promptly after the [appellants] learned of it;

(b) whether there is a plausible excuse or explanation for the [appellants’] default in complying with the Rules;

(c) whether the facts establish that the [appellants] have an arguable defence on the merits;

(d) the potential prejudice to the [appellants] 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 court might make on the overall integrity of the administration of justice.

[46] Her consideration of these factors, summarized below, led her to set aside the default judgment but only to the extent that the appellants could litigate the quantum of damages.

a) Was the Motion brought promptly after the appellants learned of the default judgment?

[47] The motion judge acknowledged the appellants’ position that they first learned of the default judgment on May 15, 2019, when Mr. Khan was told by his bank that there was a garnishment notice on his account. She also acknowledged that: Mr. Khan quickly retained counsel; in turn, his counsel quickly reached out to counsel for the respondent; and, by June 12, 2019, counsel for the respondent was aware the appellants were in the process of preparing motion materials to set aside the default judgment.

[48] The motion judge agreed with the respondent that the appellants did not move promptly to set aside the default judgment. She said that although they contacted a lawyer after discovering their bank account had been garnisheed, they “continually frustrated the process by failing to attend scheduled examinations”. She accepted that the process server had served the appellants with the Statement of Claim in September 2018, relying on the process server’s “contemporary notes of her actions on the day in question”. She further said that the appellants deliberately avoided their obligations to address this matter, saying that they did not attend at the examinations in aid of execution, without notice to the respondent, and they did not attend the scheduled cross-examinations on February 25, 2020, “claiming to have had to leave the country unexpectedly which is demonstrably false”.

b) Is there a plausible excuse or explanation for the appellants’ default in failing to comply with the Rules?

[49] The motion judge found that two copies of the Statement of Claim were personally served on Ms. Khan on September 17, 2018. In making this finding, the motion judge said that the process server “indicated in her contemporaneous notes that when she attended the [appellants’] address, that a woman in her late thirties or forties answered the door.” Having found that through personal service, substituted service, and a mailed copy, the Statement of Claim came to Mr. Khan’s attention, the motion judge said “there is no plausible explanation for the delay other than the clear attempt by the [appellants] to ignore this problem hoping it would go away.”

c) Do the facts establish that the appellants have an arguable defence on the merits?

[50] The motion judge described the appellants’ defence as follows: misrepresentations were made by an employee of the respondent as to the respondent’s willingness to assist the appellants in obtaining financing for the Property should they otherwise be unable to do so.

[51] The motion judge said that she did not accept this because there was no reference to it in the email correspondence between the parties. She added that, although the appellants had been provided with the Agreement days prior to the meeting in which it was signed, they claimed they did not read it. Ms. Khan said she did not understand what she was signing because she doesn’t speak English. The motion judge said that was not an arguable defence on the merits. She also said that taking their evidence at its highest, the appellants entered into an agreement to buy a house for over $1.5 million without bothering to ensure they had adequate financing or taking the time to read and understand the terms of the Agreement they signed. She said there was no allegation they were pressured in any way by representatives of the respondent.

[52] The motion judge acknowledged the appellants’ submission that the respondent did not adequately mitigate damages by failing to put the Property on the market promptly after the breach of the Agreement, which resulted in it being sold for approximately $520,000 below the original purchase price. She found that it was unclear on the record before her what, if any, attempts the respondent made to sell the Property before February 18, 2019. She agreed that an approximate $520,000 drop in the market value of the Property in less than two years was “difficult to comprehend”, especially since that represented over a third of the price that the appellants had agreed to pay for the Property. Accordingly, she found that the appellants had an arguable defence on the quantum of damages awarded in the default judgment.

d) What is the potential prejudice to the appellants if the Motion is Dismissed and to the respondent if it is allowed?

[53] The motion judge recognized that the appellants would suffer significant prejudice if the Motion were dismissed because their bank accounts had been garnisheed and their current home was subject to a writ of seizure and sale. She said that “although the circumstances were of their own making”, the prejudice was significant.

[54] The respondent said that if the Motion were allowed, a trial would cause it to incur further costs and it might never be able to collect damages. The respondent also argued that because of the passage of time, memories of witnesses would have faded.

[55] The motion judge agreed that the respondent would be prejudiced but said that prejudice would be limited if she set aside the default judgment only partially. She then made an order permitting the appellants to litigate only the quantum of damages.

e) What is the effect of the order on the overall integrity of the administration of justice?

[56] The motion judge said that the appellants had “admittedly” entered into the Agreement without satisfying themselves that they could fulfill its terms. When it became apparent they had breached the terms of the Agreement by failing to close, they failed to respond to the Statement of Claim. She said their approach had been “to delay and avoid” the litigation. She concluded that only allowing the Motion in part would not affect the overall integrity of the administration of justice.

[57] The motion judge ordered that the garnishment and writ of seizure and sale should remain in place until the matter was completed.

VI. THE COSTS ORDERS

[58] At para. 30 of her Reasons, the motion judge invited the parties to provide written submissions on costs, giving the appellants fifteen days from the date of the release of the Reasons to provide their submissions and the respondent ten days thereafter to respond. There was no oral hearing on the matter of costs, and the appellants were not given a right of reply to the respondent’s costs submissions.

[59] The motion judge released her costs endorsement on March 16, 2021 (the “Costs Endorsement”). No costs order was taken out because the parties could not agree on its terms. In the Costs Endorsement, the motion judge made two costs orders.

[60] The first was a personal costs order against Mr. Farooq, counsel for the appellants (the “Personal Costs Order”). The Personal Costs Order required Mr. Farooq to personally pay the respondent $1,575 in costs, within 30 days, for costs the respondent said it incurred on February 25, 2020, when the appellants failed to appear for the scheduled cross-examinations.

[61] The second was an order requiring the appellants to pay costs of the Motion on a substantial indemnity basis in the amount of $33,088.03 (the “Costs Order”).

[62] The motion judge’s reasons for both orders are summarized below.

A. The Personal Costs Order

[63] The motion judge made the Personal Costs Order pursuant to r. 57.07(1)(c) of the Rules and in response to the respondent’s request, in its costs submissions, that such an order be made against Mr. Farooq. The respondent asserted that counsel knew that the appellants would not appear at the cross-examinations earlier than represented and had “direct involvement in misleading opposing counsel thereby causing costs to be incurred unnecessarily in preparing for the cross-examinations”.

[64] At para. 14 of the Costs Endorsement, the motion judge said that “[c]ounsel for the [appellants] knew that they were not going to attend the cross-examinations at least a week before they were to occur.” She also said that the appellants had asked their counsel, via email, if they could leave the country and “he agreed”. However, she said, this information was only given to counsel for the respondent the night before the cross-examinations were to occur.

B. The Costs Order

[65] The motion judge gave many reasons for ordering the appellants to pay costs on a substantial indemnity basis including: the respondent was “mostly successful” and entitled to recover costs even though the appellants had “very limited success”; the appellants did not move promptly to set aside the default judgment; there was no arguable defence on the merits with respect to liability; the matter had to be adjourned in the first instance because the appellants, for “strategic” reasons, served supplementary affidavits in contravention of the Rules; and, on two occasions, the appellants failed to attend cross-examinations with little or no advance warning.

VII. THE FRESH EVIDENCE MOTION

[66] The appellants move to introduce fresh evidence to address their non‑attendance at the cross-examinations on February 25, 2020. Before addressing the main issues on appeal, the appellants’ fresh evidence motion must be resolved.

[67] I have no hesitation in admitting the fresh evidence. Among other things, it is vital to fairly deciding the validity of the Personal Costs Order and to the due administration of justice.

A. The Fresh Evidence

[68] The fresh evidence consists of: the statutory declaration of Sanjay Patel dated March 23, 2021; the affidavit of Shivani Balcharan sworn April 12, 2021; and, the affidavit of Mr. Khan sworn April 12, 2021.

[69] Mr. Patel is a lawyer and, at the relevant time, was practising at Anser Law. Ms. Balcharan was a lawyer at Anser Law at the relevant time and continues to practise there. She has been licensed to practise in Ontario since 2019. She is also a licensed lawyer in Georgetown, Guyana, since 2009, where she was a state prosecutor for a number of years.

[70] As noted above, the appellants were scheduled to be cross-examined on their affidavits on February 25, 2020. However, Mr. Khan had to leave Canada and go to Pakistan, on February 12, 2020, for personal family reasons so could not be present on that date. The fresh evidence shows how and when Anser Law learned of his unavailability for the scheduled cross-examinations.

[71] In his statutory declaration, Mr. Patel declared that on February 24, 2020, he called Mr. Khan to remind him that the appellants were required to attend the upcoming cross-examinations and to tell them that Mr. Farooq would be attending. Ms. Khan answered the phone and told him that Mr. Khan was in Pakistan. That was the first time Mr. Patel learned of Mr. Khan’s unavailability.

[72] When Mr. Patel told Mr. Farooq, on February 24, 2020, that Mr. Khan was out of the country, Mr. Farooq called Mr. Khan to confirm this.

[73] At 5:24 p.m. on February 24, Mr. Khan emailed Mr. Patel, saying that he had previously sent an email to Mr. Rick Deol, another lawyer who had formerly practised at Anser Law, telling Mr. Deol he would be out of town and unavailable for the scheduled cross-examinations.

[74] Mr. Khan’s email of February 24 reads as follows:

I e mail to Mr. Rick already that I will be out of town during this time. I will forward that email to you. Please let me know what to do?

[75] The email to which Mr. Khan was referring was sent by him to Mr. Deol on February 10, 2020 (the “Deol email”). On the Deol email, Ms. Balcharan is shown as having been copied on it. The Deol email reads as follows:

Hi Rick

Please ask Mr Anser that do we have to attend this or not

Reason I have to reschedule my trip.

And will not be available in town on Feb 25.

I will be back on March 01.

Sorry for inconvenience

Farrukh Khan

[76] Mr. Deol left Anser Law on January 21, 2020, weeks before when the Deol email was sent to him.

[77] At 8:07 p.m. on February 24, 2020, Mr. Patel sent an urgent email to counsel for the respondent, explaining that his firm learned only that day that Mr. Khan was out of the country and not expected to return until March 1, 2020. He apologized for the late notice and asked that the cross-examinations be rescheduled. He gave the following dates of the appellants’ availability for cross-examination: March 13, 23, and 31, and April 13, 16, 17, 27, 28, 29, and 30. Mr. Patel also stated in the email that his clients undertook to pay any rescheduling fees that might be incurred and advised that, due to her religious beliefs, Ms. Khan was uncomfortable meeting with counsel and attending the cross-examinations without her husband being present.

[78] In her affidavit on the fresh evidence motion, Ms. Balcharan swore that she learned from Mr. Patel for the first time, on February 24, 2020, that Mr. Khan was unable to attend the cross-examinations. Ms. Balcharan had never seen the Deol email even though Mr. Khan appeared to have copied her on it.

[79] Ms. Balcharan searched her email inbox but could not locate the Deol email. According to Ms. Balcharan’s records, the last email she had from Mr. Khan prior to the evening of February 24, 2020 was from December 11, 2019. A screenshot of her email inbox verified this.

[80] In Mr. Khan’s affidavit, he swore that he had never received directions, confirmation, or permission, in writing or orally, from any of his lawyers at Anser Law that he could leave for Pakistan before or after leaving for Pakistan in early 2020.

B. The Test for Admission of Fresh Evidence

[81] The test governing the admission of fresh evidence is set out in Palmer v. The Queen, [1980] 1 S.C.R. 759, at p. 775. It requires the court to consider whether the fresh evidence:

1. could have been adduced at trial by due diligence;
2. is relevant, in that it bears on a decisive, or potentially decisive, issue in the trial;
3. is credible, in that it is reasonably capable of belief; and,
4. if believed, and when taken with the other evidence adduced at trial, could reasonably be expected to have affected the result.

C. Application of the Test

[82] As it is clear that the fresh evidence should be admitted, I will address each element of the test only briefly.

(1) The Fresh Evidence Could Not Have Been Adduced Below with Due Diligence

[83] The fresh evidence could not have been adduced below because Mr Farooq had no opportunity to respond to the respondent’s assertions, in its costs submissions, that he knew the appellants would not appear for the cross‑examinations and deliberately waited until the evening before to tell counsel for the respondent. Because the respondent’s costs submissions followed those of the appellants, and the appellants were given no right of reply, Mr. Farooq was unable to respond to those allegations.

[84] Moreover, in breach of the express requirements of r. 57.07(2), that counsel be given “a reasonable opportunity to make representations” before a personal costs order can be made, Mr. Farooq was given no opportunity to make such representations before the Personal Costs Order was made.

[85] In these circumstances, it is clear that the fresh evidence could not have been adduced on the Motion by due diligence.

(2) The Fresh Evidence is Relevant

[86] The motion judge made the Personal Costs Order on the basis that counsel knew “at least a week before” the scheduled date for cross-examinations that the appellants were not going to attend and had “agreed” to that. The fresh evidence speaks directly to both those matters. It is, therefore, relevant to the validity of the Personal Costs Order, an important issue on this appeal.

(3) The Fresh Evidence is Credible

[87] Mr. Sanjay and Ms. Balcharan are lawyers. There is no reason to doubt the veracity of the former’s statutory declaration and the latter’s affidavit, particularly as they are supported by contemporaneous documents. The information given to this court in the fresh evidence is compelling, and I accept it without reservation.

[88] Among other things, Mr. Khan’s email of February 24, 2020, to Mr. Patel, shows that the latter only learned Mr. Khan would be unavailable for cross‑examination that day. The rest of the fresh evidence shows that neither Mr. Farooq nor Ms. Balcharan knew of Mr. Khan’s unavailability until Mr. Patel told them of that on February 24, 2020.

[89] I do not doubt the truthfulness of Mr. Khan’s unequivocal statement that he never received from any of his lawyers at Anser Law direction, confirmation, or permission, in writing or orally, that he could leave for Pakistan before or after leaving for Pakistan in early 2020.

[90] When considered with the other evidence adduced on the Motion, it is beyond question that the fresh evidence could reasonably be expected to have affected the result on the Personal Costs Order.

[91] Therefore, I would grant the fresh evidence motion and admit the evidence.

VIII. THE ISSUES

[92] The appellants submit that the motion judge erred in:

(1) misapplying r. 19.08; (2) validating service of the Statement of Claim; (3) making palpable and overriding errors of fact; (4) demonstrating a reasonable apprehension of bias; (5) making the Personal Costs Order; and (6) ordering costs of the Motion against the appellants on a substantial indemnity basis.

IX. The Default Judgment Must be Set Aside

[93] The first four issues raised on appeal all go to the validity of the decision rendered on the Motion and are intertwined. Consequently, I analyze them together in this section. I begin by setting out the relevant legal principles.

A. The Relevant Legal Principles

[94] Because a motion judge’s decision to set aside a default judgment is a discretionary one, it attracts deference on appeal. The decision should not be interfered with absent an error in law or principle, a palpable and overriding error of fact, or unless the decision is so clearly wrong as to amount to an injustice: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, at para. 55; HSBC Securities (Canada) Inc. v. Firestar Capital Management Corporation, 2008 ONCA 894, 245 O.A.C. 47, at para. 22, leave to appeal refused, [2009] S.C.C.A. No. 81.

[95] As the motion judge correctly noted, the test for setting aside a default judgment requires the court to consider the following five factors:

(a) whether the motion to set aside the default judgment was brought promptly after the [appellants] learned of it;

(b) whether there is a plausible excuse or explanation for the [appellants’] default in complying with the Rules;

(c) whether the facts establish that the [appellants] have an arguable defence on the merits;

(d) the potential prejudice to the [appellants] 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 court might make on the overall integrity of the administration of justice.

[96] Two other principles enunciated in Mountain View Farms Ltd. v. McQueen are also relevant to the proper consideration and disposition of a motion to set aside a default judgment. First, 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: at para. 47. Second, 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: at para. 51. To show a defence on the merits, the appellants need not show that the defence will inevitably succeed but only that it has an “air of reality”: at para. 51.

B. Analysis

[97] In my view, the motion judge made reversible errors in her assessment of the merits of the appellants’ defence. Consequently, this court owes no deference to her determination of this factor. As noted above, an arguable defence on the merits alone may justify the court in exercising its discretion to set aside the default judgment. In this case, on the basis of the appellants’ defence alone, I would set aside the default judgment and permit the appellants to file their statement of defence and counterclaim. Because of this, it is unnecessary to deal in depth with the motion judge’s determination of the other factors. I will do so only to remedy errors in law and principle and factual findings that are the result of palpable and overriding errors.

1. The appellants have an arguable defence on the merits

[98] The motion judge described the appellants’ defence as follows: misrepresentations were made to them by an employee of the respondent as to its willingness to assist the appellants in obtaining financing for the Property should they otherwise be unable to do so. She said that she did not accept the defence because the appellants had not referred to this in their email correspondence with the respondent. She also said the appellants had signed the Agreement without taking the time to read and understand it and that there was no pressure on them to sign it.

[99] Respectfully, this fundamentally misunderstands the appellants’ defence. The appellants’ defence and counterclaim are intertwined so both must be considered when assessing this factor. Nowhere in her Reasons does the motion judge mention or consider the counterclaim. Had she done so, she would have understood the defence to be to the following effect.

[100] The appellants had no experience in buying a property from a developer. They went to the sales appointment to get information about the project, the various houses that could be built on lots in the development, and the costs of such houses. They had been sent copies of a draft agreement of purchase and sale before the sales appointment and, at the same time, been told to bring with them mortgage pre-approval and cheques. They did not attempt to read or understand the terms of the draft agreement; they did not attempt to get mortgage pre‑approval; nor did they take cheques with them to the sales appointment, all for the same reason: because they thought they were going to the sales appointment to get information about the project, not to enter into an agreement of purchase and sale. In the approximately 15-minute sales appointment in which the Agreement was discussed, the appellants told the sales associate they had not reviewed the draft agreement, had taken no steps to obtain mortgage financing, and had not brought cheques with them. The sales associate pressured them into signing the Agreement, saying that if they did not sign then, they would likely lose the Property they wanted. The sales associate also misrepresented to them that because they were able to secure 20% of the purchase price, they would get mortgage financing and that the respondent had an on-site agent who would help them obtain it.

[101] In short, the appellants’ defence alleges pressure tactics and various misrepresentations that induced them to enter into the Agreement and not, as the motion judge stated, simply an offer to help obtain financing.

[102] The motion judge also erred in law in her approach to determining whether the arguable defence factor had been satisfied. The appellants did not need to show that their defence will inevitably succeed; they only had to show that it had an air of reality: Mountain View Farms Ltd. v. McQueen, at para. 51. The motion judge decided that the defence failed because there was no mention of the offer to help obtain financing in the email correspondence between the appellants and the respondent. Even if the motion judge had properly understood the appellants’ defence, it was not for her to decide it on the merits. This factor requires the court to determine only if there is an air of reality to the proposed defence.

[103] In my view, there is an air of reality to the defence. If nothing else, the fact that the appellants went to the sales appointment without cheques and without pre-approval of mortgage financing, when they were told that they had to have both in order to enter into an agreement of purchase and sale, supports their version of what transpired at that appointment.

[104] A final point needs to be made on this factor.

[105] I agree with the motion judge that the record is “unclear” on what attempts the respondent made to sell the house prior to February 2019 and how the market value of the Property could drop from $1,518,888 to $988,000 between the time the appellants entered into the Agreement in June 2017 and when it was sold in February 2019. I agree that the issue of mitigation must be litigated. However, the circumstances of this case make it highly problematic to hive off the issue of mitigation from the issues raised in the statement of defence and counterclaim. What representations were made and when, as well as the credibility of the parties, goes to both the defence and counterclaim as well as to the issue of mitigation.

2. The Motion was brought promptly after the appellants learned of the default judgment

[106] In concluding that the appellants had not acted promptly after learning of the default judgment, the motion judge both relied on a factual finding that is the result of a palpable and overriding error and erred in principle.

[107] The motion judge found that the appellants received copies of the Statement of Claim in September of 2018 based on the “contemporary notes of [the process server’s] actions taken on the day in question”. The process server made no such contemporary notes. In her affidavit dated December 4, 2019, filed for the Motion, the process server swore that the form below is a copy of her “personal notes from the service of [the appellants] on September 17, 2018”:

[108] It is clear that this document contains no information that could meaningfully be construed as “contemporary notes” about personally serving Ms. Khan on September 17, 2018. It does not contain any description of the person with whom the process server left the documents or how she knew that this person was Ms. Khan: see BHL Capital v. 2281165 Ontario Ltd., 2018 ONSC 7289, at para. 34. Such details are also absent from her affidavit of service, dated September 18, 2018. The affidavit of service with respect to Ms. Khan only states that the process server was “able to identify the person served by means of verbal admission”, without providing any further details. The affidavit of service with respect to Mr. Khan describes the recipient of the documents only as “an adult female” who appeared to live at the same residence as Mr. Khan.

[109] In addition to this palpable and overriding factual error about the process server’s “contemporary notes”, the motion judge erred in principle on this factor in two ways. First, the relevant period of delay is the delay that occurs after default judgment is granted. The history of the proceeding has nothing to do with this factor: see Zeifman Partners Inc. v. Aiello, 2020 ONCA 33, 442 D.L.R. (4th) 299, at paras. 26, 28. Instead of considering the period after default judgment was granted, the motion judge considered the appellants’ actions from the point that the Statement of Claim was allegedly served. That is an error in principle.

[110] To the extent that the motion judge considered the relevant period, she agreed with the respondent that, although the appellants took action promptly to set aside the default judgment after learning their bank account had been garnisheed, thereafter they “continually frustrated the process by failing to attend scheduled examinations”. Non-attendance at examinations may be considered as part of the fifth Mountain View factor, but it is not a relevant consideration for the purpose of this factor. Accordingly, it was an error in principle to take non‑attendance at examinations into consideration when deciding whether the Motion was brought promptly after learning of the default judgment.

[111] On the record, the Motion was brought promptly after the appellants learned of the default judgment on or around May 15, 2019. The appellants quickly retained Anser Law after learning of the default judgment and, in turn, Anser Law acted promptly.

[112] On May 24, 2019, Anser Law wrote to counsel for the respondent to say it was investigating the circumstances surrounding the default judgment and asking for information on the steps the respondent took in selling the Property for such a reduced price. On June 21, 2019, at the direction of counsel, Mr. Khan attended the Newmarket courthouse to obtain copies of the affidavits of service for the alleged service of the Statement of Claim. In early July 2019, Anser Law began canvassing dates for the Motion with respondent’s counsel. And, on July 17, 2019, it served the notice of Motion in this matter.

3. A plausible excuse or explanation for the appellants having failed to comply with the Rules

[113] In finding against the appellants on this factor, the motion judge relied heavily on her finding that the appellants had been personally served with the Statement of Claim in September 2018. As I have explained, that finding is infected by palpable and overriding error. Consequently, the motion judge’s determination of this factor warrants no deference.

[114] Because I would grant the Motion based on the appellants having an arguable defence on the merits, I need not determine this factor. However, I would observe that if, as the appellants contend, they were unaware of the proceeding until the respondent began taking enforcement steps, they have a plausible explanation for why they did not take steps to defend the Statement of Claim.

4. The potential prejudice to each of the parties

[115] The motion judge found that the appellants would suffer real prejudice because if the Motion were dismissed, they stood to lose their family home through the respondent’s enforcement process. I agree that is very serious prejudice. On the record, if the appellants lose their home, they and their five children would have nowhere to live.

[116] To this prejudice, I add that the motion judge failed to consider that by permitting the appellants to only litigate the quantum of damages, she prevented them from pursuing their counterclaim. That would result in further prejudice to the appellants as they would be barred from seeking to recover the approximately $190,000 they had paid the respondent ($180,000 by way of down payments plus over $7,000 for upgrades).

[117] The motion judge erred in two ways in finding that the respondent would suffer prejudice if the Motion were granted.

[118] First, the motion judge accepted that the respondent would suffer because it would incur further costs. That is an error in principle. For the purposes of this factor, prejudice is something that is not compensable in costs: Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, 87 O.R. (3d) 479, at para. 5; Techlantic v. Modellista, 2021 ONSC 746, at para. 66. It is self-evident that a claim of incurring further costs is one that is compensable by a costs order.

[119] Second, the motion judge accepted the respondent’s bald assertion that witnesses’ memories would have faded by the passage of time. This, too, is an error in principle. Prejudice must be real and not merely speculative: Dentons Canada LLP v. Khan, 2021 ONSC 5261, at para. 32. There is nothing in the record to support the statement that the passage of time had led to problems with witnesses’ memories. There must be something more than a bald assertion that witnesses’ memories will have faded: Ross v. Filip, 2021 ONSC 1496, at para. 108.

5. The effect on the overall integrity of the administration of justice

[120] This factor required the motion judge to consider the global effect of the other factors. Because the motion judge erred in her assessment of the other factors, her decision on this matter warrants no deference.

[121] This factor also reminds us of the court’s ultimate task on a motion to set aside a default judgment: to determine whether the interests of justice favour granting the order: Mountain View Farms Ltd. v. McQueen, at para. 47. When the factors are considered as a whole, in my view, the integrity of the administration of justice strongly favours setting aside the default judgment. The appellants offer an arguable defence to the Statement of Claim and a compelling reason for judicial examination of the respondent’s actions, both at the time the Agreement was signed and in its sale of the Property at a significantly discounted price. A consideration of the prejudice that each of the parties will suffer reinforces the conclusion that the overall integrity of the administration of justice requires that the default judgment be set aside and the appellants permitted to file their statement of defence and counterclaim.

C. The Allegation of a Reasonable Apprehension of Bias

[122] There is a strong presumption of judicial impartiality that is not easily displaced. The presumption will be rebutted only where there is a real likelihood or probability of bias: Yukon Francophone School Board, Education Area #23 v. Yukon (Attorney General), 2015 SCC 25, [2015] 2 S.C.R. 282, at para. 25.

[123] The appellants submit that the cumulative effect of the motion judge’s “problematic decisions” and her comments about them and their counsel overcome this presumption. They point to the various errors they say she made, including her failure to give their counsel a reasonable opportunity to make representations before making the Personal Costs order pursuant to r. 57.07(2).

[124] I would not accept this submission. While the motion judge made a number of errors, in my view, an objective and informed observer would not conclude there was a real likelihood or probability of bias.

X. The Personal Costs Order Must Be Set Aside

[125] The Personal Costs Order cannot stand. In making it, the motion judge purported to act under r. 57.07 of the Rules. However, she breached the procedural requirements in r. 57.07(2) and, as a result, was without jurisdiction to make the order. Further, she made the order based on palpable and overriding errors of fact.

A. The Breach of Rule 57.07(2)

[126] Rule 57.07(1) empowers the court to order a lawyer to personally pay a party’s costs if the lawyer “caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default”. However, r. 57.07(2) imposes a mandatory requirement on the court: “no such order shall be made unless the lawyer is given a reasonable opportunity to make representations to the court.” Rule 57.07 is not concerned with the discipline or punishment of a lawyer but only with compensation for conduct that caused unreasonable costs to be incurred: Galganov v. Russell (Township), 2012 ONCA 410, 350 D.L.R. (4th) 679, at para. 16, leave to appeal requested but appeal discontinued, [2012] S.C.C.A. No. 382.

[127] A two-part test must be followed to determine the liability of a lawyer for costs under r. 57.07(1). First, the court must consider whether the lawyer’s conduct falls within r. 57.07(1), in the sense that it caused costs to be incurred unnecessarily. Second, as a matter of discretion and applying extreme caution, the court must consider whether the imposition of costs against the lawyer personally is warranted. Such awards are to be “made sparingly, with care and discretion, only in clear cases, and not simply because the conduct of a lawyer may appear to fall within the circumstances described in [r]ule 57.07(1)”: Galganov, at paras. 18, 22.

[128] While the motion judge referred to r. 57.07(1) in making the Personal Costs Order, unfortunately, she failed to refer to r. 57.07(2) or abide by its requirement: she gave Mr. Farooq no opportunity to make representations before she made the Personal Costs Order.

[129] It will be recalled that, at para. 30 of the Reasons, the motion judge gave the appellants fifteen days to file their written costs submissions and the respondent ten days thereafter to respond. The parties filed their costs submissions accordingly.

[130] At para. 6 of its costs submissions, the respondent asked that costs thrown away for the February 25, 2020 attendance in the amount of $1,575 be ordered against counsel personally. It said that such a costs order was “warranted in this instance against counsel personally given their direct involvement in misleading opposing counsel thereby causing costs to be incurred unnecessarily in preparing for the said cross-examinations.” The respondent described counsel’s behaviour as “egregious” and that the explanation given for the non-attendance was “demonstrably false”.

[131] Because Mr. Farooq had been given no right of reply to the respondent’s costs submissions, he could not respond to these allegations or the respondent’s request for a personal costs order against him.

[132] There was no oral hearing on the matter of costs – the motion judge issued her Costs Endorsement solely on the basis of the parties’ written submissions. She made the Personal Costs Order as the respondent had requested and ordered Mr. Farooq to personally pay the respondent costs of $1,575.

[133] The language of r. 57.07(2) is mandatory: no personal costs order shall be made unless the lawyer is first given a reasonable opportunity to make representations to the court. Because the motion judge did not give Mr. Farooq such an opportunity, she did not have the right or power to make the Personal Costs Order.

[134] Had the motion judge followed the dictates of r. 57.07(2), Mr. Farooq would have had the opportunity to file the fresh evidence that is now before this court. That evidence shows that none of Mr. Farooq, Mr. Sanjay, or Ms. Balcharan knew, before February 24, 2020, of the appellants’ unavailability for cross-examinations the following day.

[135] On the basis of the breach of r. 57.07(2) alone, the Personal Costs Order must be set aside.

B. The Personal Costs Order is Based on Palpable and Overriding Errors of Fact

[136] In addition, the fresh evidence demonstrates that the Personal Costs Order is based on two palpable and overriding factual errors.

[137] At para. 14 of the Costs Endorsement, the motion judge stated that: (1) Mr. Farooq knew the appellants were not going to attend the cross-examinations “at least a week before they were to occur” and (2) he “agreed” to the appellants request to leave the country for an unspecified reason.

[138] The fresh evidence, described above, shows that both of those reasons for making the Personal Costs Order are the result of palpable and overriding factual errors. It makes clear that Mr. Farooq did not know until February 24, 2020, the day before the cross-examinations were to take place, that the appellants would not be in attendance at them. It also makes clear that Mr. Farooq never agreed that the appellants did not need to attend the cross-examinations.

[139] It is important to place the motion judge’s misapprehension about Mr. Farooq’s knowledge of his clients’ unavailability for cross-examination in context.

[140] On the Motion, counsel for the respondent made submissions about the appellants’ non-attendance at the February 25, 2020 cross-examinations. He said that Mr. Khan’s evidence about why he did not attend and when he notified his counsel about his non-attendance was inconsistent, and that this inconsistency impacted Mr. Khan’s credibility.

[141] In the course of making this submission, the respondent’s counsel made the following comments about Mr. Farooq:

So Anser [Mr. Farooq] knew that Mr. Khan wasn’t – or at least says that he wasn’t going to be in the country.

But what we have here is clear evidence that Anser Law – and it brings me no satisfaction to say this, was aware of Mr. Farrukh [Khan] was intending to go on this trip and Mr. – sorry, and Mr. Khan was aware that he was questioning whether did he need to come and attend or not. And the only inference is that Mr. Farooq or his office advised him, no, he didn’t have to.

And then when notifying Counsel the day before that they had just found out and act surprised. It’s this type of conduct, Your Honour, that frustrates me when Mr. Farooq makes a reference to compliance with the rules and how rules need to be followed.

[142] Mr. Farooq attempted to address these comments and had the following exchange with the motion judge:

MR. FAROOQ: There’s certain things, Your Honour – you know, there are a lot of red herrings, I respectfully say my friend raised. One of them was with respect to the examination, the emails to my client and this and that. I mean, the initial examination was scheduled February 25, 2020. The email was sent to one of the junior lawyers, Mr. Patel, he’s not with the firm and once it – whatever transpired there. Bottom line is he gave them March 13, 2020, the next – two weeks later. You can examine them at that point.

THE COURT: What – I think his point was more with respect to credibility, not...

MR. FAROOQ: Right.

THE COURT: ...with respect to the length of time that transpired between the scheduled discovery and then the, the, you know, first available date of your client. I think the issue was that your client had, had sworn an affidavit saying he was out of the country – a supplemental affidavit he was out of the country because of the family emergency and when you read that email to Counsel, I appreciate, you know, it would have been Counsel’s job to then convey to, to the plaintiff’s lawyer but when you read that email again, you know, for what it’s worth, it doesn’t really sound like, oh my gosh, I have to leave because I have a family emergency.

It’s more like, it’s kind of not convenient and I would have to reschedule my trip so could you please ask if we can reschedule it and then the night before it’s, oh, there was this emergency. So it’s more it goes to his credibility, I think.

MR. FAROOQ: I get that – I mean, that part is a valid one and I could address that but what I – I wasn’t quite – I’ll be candid, happy about my friend’s represent – that what frustrates me is he goes, lawyers not notifying and so on.

Like, there’s no issue about lawyers notifying, there’s no advantage for our law firm or a client to have an examination that was scheduled for February 25th then saying to counsel, look, we’re ready to go March 13th, two weeks later.

So that part about, you know, law firm and lawyers, that’s – I would respectfully say it has – it’s not valuable to the court’s assessment. It’s a red herring especially when you’ve got two weeks later examination being proposed…

THE COURT: Well, no, I think you’re missing his point...

MR. FAROOQ: No, I get the point, Your Honour, with respect to...

THE COURT: But that was his point, it’s not...

MR. FAROOQ: Yeah.

THE COURT: ...I mean – the point that a law firm – I mean, I may think that, he may think that, you may think that...

MR. FAROOQ: But I think it’s...

THE COURT: ...the reality that he wasn’t there and that he made himself available shortly thereafter, that’s not the point. The point is this is, this – I, I’m meant to find credibility – make credibility findings with respect to your clients and, you know, I’m to look at the whole picture when making that assessment. And I’m not, you know, saying I’m – I’ve made this decision yet but let’s say I were to find that, you know, collectively it looks like there had been some untruths along the way, what does that do to my assessment of your clients, plural, credibility, and that’s the point he’s making.

It’s not – he’s not, you know – it may in making the point, pass dispersions [cast aspersions] on your law firm but that, but that’s neither here nor there, I don't worry about that, I... [Emphasis added.]

MR. FAROOQ: Yeah.

THE COURT: ... my assessment is with respect to credibility and the substantive facts may matter in a different context but what the context your friend has raised is just with respect to credibility so you don’t need to convince me that... [Emphasis added.]

MR. FAROOQ: Certainly.

THE COURT: ...your client made himself available on that day and that he was in fact out of the country on that day, that’s not the point that your friend is making.

[143] I have set out the exchange to make this point. Mr. Khan’s credibility was in question. Mr. Farooq conceded that counsel for the respondent was entitled to raise inconsistencies in Mr. Khan’s testimony to argue that Mr. Khan was not credible. However, when Mr. Farooq attempted to address the respondent counsel’s allegations that he and his firm knew, before February 24, 2020, that the appellants would not attend for the scheduled cross-examinations, the motion judge told Mr. Farooq that was “neither here nor there” and he did not have to “convince” her of that. She reiterated several times, in the exchange, that she understood the respondent’s submissions to be directed at Mr. Khan’s credibility and not at the conduct of counsel at Anser Law. Accordingly, Mr. Farooq was directed to not address the aspersions that had been cast against him and his law firm about the appellants’ non-attendance on February 25, 2020.

[144] Had the motion judge followed the dictates of r. 57.07(2), Mr. Farooq would have had the opportunity to file the affidavits and statutory declaration that are before this court on the fresh evidence motion – evidence that clearly shows that none of Mr. Farooq, Mr. Patel, nor Ms. Balcharan knew of Mr. Khan’s unavailability for the cross-examinations until February 24, 2020, the day before the cross‑examinations were to take place. It also shows that once they learned of it, they advised counsel for the respondent and took reasonable steps to address the situation. They explained why the appellants were unavailable, undertook to pay any rescheduling fees, and gave ten dates (close to the scheduled date) on which the cross-examinations could be rescheduled.

[145] No doubt respondent’s counsel wasted time preparing for the cross‑examinations before he was made aware that the appellants would not be available on the scheduled date. However, the fresh evidence shows that was not due to delay, negligence, or default on the part of Mr. Farooq.

[146] From the fresh evidence, it is clear that the motion judge’s findings that Mr. Farooq knew the appellants were not going to attend the scheduled cross‑examinations “at least a week before” the scheduled cross-examinations and that Mr. Farooq agreed Mr. Khan could leave the country are palpable and overriding errors of fact. The fresh evidence shows that the Deol email Mr. Khan sent, informing counsel he was going to be out of town at the time of the cross‑examinations, was not sent to Mr. Farooq. While the Deol email was (apparently) sent to two other lawyers at Anser Law, one (Mr. Deol) was not working at Anser Law at the time Mr. Khan sent the email to him, and the other (Ms. Balcharan) never received the Deol email. All of Mr. Farooq, Mr. Patel, and Ms. Balcharan learned for the first time on February 24, 2020 that the appellants would be unavailable to be cross-examined the following day. And Mr. Khan swore that no counsel at Anser Law ever directed, confirmed, or permitted him (in writing or orally) to go to Pakistan at a time that conflicted with the scheduled cross examinations.

C. Conclusion on the Personal Costs Order Issue

[147] This case is an object lesson in why the procedural dictates of r. 57.07(2) must be followed. The Personal Costs Order has damaged Mr. Farooq’s most important qualifications: his character and his professionalism. The dictates of r. 57.07(2) must be heeded, not only to ensure procedural fairness but also to guard against unfairly tarnishing a lawyer’s reputation.

XI. The Costs Order Must be Set Aside

[148] Because I would allow the appeal and order the default judgment set aside, the appellants are fully successful on the Motion. Thus, the Costs Order against them necessarily falls and it becomes unnecessary to address the alleged errors in the making of the Costs Order. However, two points must be made.

[149] First, nothing in these reasons is to be taken as approval of the motion judge’s findings, analysis, or conclusions in respect of the Costs Order.

[150] Second, in light of the foregoing analysis, which demonstrates that many of the factual findings below were the result of palpable and overriding errors, the adverse credibility findings against the appellants made at various junctures in the Reasons and that underpinned the substantial indemnity costs award are not justified. It is for the judge who hears the trial of this matter to make all credibility findings afresh, without regard to those made in the Reasons.

XII. Costs of the Appeal

[151] Costs of an appeal generally follow the event, on a partial indemnity basis. They are not awarded on a substantial indemnity basis unless there is something in a party’s conduct of the appeal itself that warrants sanction: Kent v. Kent, 2020 ONCA 483, at para. 3; Rutman v. Rabinowitz, 2018 ONCA 279, at para. 3.

[152] In my view, the conduct of the respondent in this appeal warrants a costs award in favour of the appellants on a substantial indemnity basis. The Personal Costs Order is of the utmost importance to Mr. Farooq’s personal and professional reputation. The respondent’s interest in professionalism and the due administration of justice should have led it to consent to the admission of the fresh evidence. This is particularly true because the Personal Costs Order was made at the respondent’s urging and based on factual assertions that the fresh evidence shows are incorrect.

[153] By the time this appeal was filed, the respondent was fully aware that the Personal Costs Order had been made in breach of the requirements in r. 57.07(2). It knew that Mr. Farooq had been wrongly denied the opportunity to make representations before the Personal Costs Order was made. There was no question about the admissibility of the fresh evidence for two reasons. First, through the fresh evidence motion, Mr. Farooq was given the opportunity to make representations that he had been wrongly denied below. Second, it had to be admitted so this court could fairly adjudicate on the validity of the Personal Costs Order. In the circumstances, the respondent should have consented to the admission of the fresh evidence. However, it did not. Instead, counsel for the respondent vigorously opposed its admission.

[154] Typically, this court does not consider settlement offers when deciding costs of the appeal: see Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd. (1987), 58 O.R. (2d) 773 (C.A.). However, in this case, the court admitted the appellants’ offer to settle the fresh evidence motion because it was relevant to the respondent’s conduct of the appeal. The offer to settle provided that if the respondent consented to the admission of the fresh evidence before the fresh evidence motion was heard, the appellants would not seek costs of that motion. The respondent did not avail itself of this offer. Consequently, the appellants had to fully prepare for the fresh evidence motion. They also had to prepare for the appeal and argue it, not knowing whether the court would admit the fresh evidence. In short, in these circumstances, the respondent’s lack of consent was not only unreasonable, it also needlessly caused the appellants to incur additional costs on this appeal.

[155] It is for these reasons that, in my view, the respondent should pay costs of the fresh evidence motion and the appeal on a substantial indemnity basis.

XIII. ADDITIONAL RELIEF SOUGHT BY THE RESPONDENT

[156] The respondent submits that even if this court allows the appeal in whole or in part, the writ on title of the appellants’ family home should remain, pending determination of the trial, and the appellants should be required to pay the respondent’s costs of enforcement steps taken to date “in any event”.

[157] I do not accept this submission. Asking this court to leave in place the writ, after ordering that default judgment is set aside, is asking for the enforcement of a judgment that does not exist. It is axiomatic that the respondent is not entitled to relief to which it is not entitled. The same reasoning applies to the respondent’s request that the appellants pay its costs of enforcement. I would set aside the default judgment. Consequently, until a trial of this matter takes place, it cannot be known whether the respondent was entitled to take the enforcement steps that it did, so it would be wrong to order payment of those costs now.

XIV. DISPOSITION

[158] Accordingly, I would allow the appeal and set aside the Order, the Personal Costs Order, and the Costs Order.

[159] I would order that: the default judgment against the appellants dated April 18, 2019, and the noting in default of the appellants, be set aside; and the appellants be permitted to file and serve a statement of defence and counterclaim within ten days of the date of the release of this judgment.

[160] Factoring in the result on appeal, the appellants have been fully successful on the Motion and are entitled to their costs. If the parties are unable to resolve the matter of costs of the Motion, they may file written submissions on the same to a maximum of four typewritten pages no later than seven days from the date of the release of this judgment.

[161] I would order the respondent to pay the appellants’ costs of the fresh evidence motion and the appeal on a substantial indemnity basis, fixed at $25,000, all inclusive.

Released: June 30, 2022 “E.E.G.” “E.E. Gillese J.A.” “I agree. B.W. Miller J.A.” “I agree. Coroza J.A.”