Court File and Parties

Court of Appeal for Ontario Date: 20230629 Docket: COA-22-CV-0166

Doherty, Hoy and Favreau JJ.A.

Between

10720143 Canada Corp. and Shaun Hendricks Plaintiffs (Respondents)

and

2698874 Ontario Inc., 2708257 Ontario Inc., Verdant Prime Corp., Sean Hedmann, Agozzino Law Professional Corporation, Antonino Agozzino and 2682638 Ontario Inc. Defendants (Appellants)

Counsel: Solomon Ross Fischhoff, for the appellants Judy Hamilton, for the respondents

Heard: June 7, 2023

On appeal from the judgment of Justice William D. Black of the Superior Court of Justice, dated August 16, 2022, with reasons reported at 2022 ONSC 4732.

Doherty J.A.:

Overview

[1] Shaun Hendricks (“Mr. Hendricks”) advanced funds to the defendant, Sean Hedmann (“Mr. Hedmann”), as a consequence of numerous misrepresentations made to Mr. Hendricks by Mr. Hedmann. Mr. Hendricks and his company, 10720143 Canada Corp. (the “respondents”), sued Mr. Hedmann and his companies, 2698874 Ontario Inc., 2708257 Ontario Inc., and Verdant Prime Corp., for fraud and fraudulent breach of contract. The defendant, Antonino Agozzino, and his professional corporation, Agozzino Law Professional Corporation, acted for Mr. Hedmann and his companies. The respondents sued Mr. Agozzino and his professional corporation, alleging that they were parties to the fraud perpetrated by their client, Mr. Hedmann.

[2] The respondents successfully obtained default judgment against Mr. Hedmann, his companies, Mr. Agozzino and Mr. Agozzino’s professional corporation. The motion was dismissed against another company, 2682638 Ontario Inc.

[3] Mr. Agozzino and his professional corporation appeal from this judgment. Mr. Hedmann and his companies do not appeal. In these reasons, a reference to the defendants is a reference to the defendants at trial. A reference to the appellants is a reference to Mr. Agozzino and his professional corporation. A reference to the respondents is a reference to Mr. Hendricks and his company, the plaintiffs at trial.

Issues

[4] There are three issues on the appeal:

• Does this court have jurisdiction to hear the appeal?
• Did the motion judge err in refusing to set aside the noting in default of Mr. Agozzino and Agozzino Law Professional Corporation?
• Did the motion judge err in granting default judgment against Mr. Agozzino and the Agozzino law firm?

[5] I would dismiss the appeal.

Facts

[6] It is unnecessary to review the facts in great detail. Mr. Hendricks met Mr. Hedmann at a local gym. Over time, they discussed the possibility of Mr. Hendricks investing in Mr. Hedmann’s cannabis growing business. Mr. Hendricks eventually advanced $386,000 to Mr. Hedmann and his related companies. Most of the money was supposedly for the purchase of a valuable farm property referred to as the “Keele property”.

[7] As it turned out, Mr. Hedmann is a liar and a fraudster. The proposed investment never transpired and Mr. Hendricks lost all of the money he had given to Mr. Hedmann. The motion judge gave judgment against Mr. Hedmann and his companies in the amount of $428,319.15. He also awarded punitive damages against Mr. Hedmann in the amount of $20,000.

[8] Mr. Hendricks alleged that Mr. Agozzino and his law firm knowingly assisted their client, Mr. Hedmann, in his deceiving and defrauding of Mr. Hendricks. According to the respondents’ allegations, Mr. Hendricks had, on the initiative of Mr. Hedmann, deposited $300,000 into Mr. Agozzino’s trust account ostensibly to fund the purchase of the Keele property. The purchase was repeatedly delayed and Mr. Hedmann offered various excuses. In the meantime, Mr. Hendricks advanced additional funds to Mr. Hedmann.

[9] According to Mr. Hendricks, by October 2019, he was concerned about the status of his investment. Inquiries of Mr. Agozzino proved fruitless. In early October, he received a letter authored by Mr. Agozzino (the “comfort letter”) which indicated that the purchase of the Keele property remained imminent and that a meeting would occur in the near future. Nothing in the comfort letter suggested that the $300,000 earmarked for that purchase was not still in Mr. Agozzino’s trust account, or that the property no longer belonged to the putative vendor. Subsequent investigations revealed that the Keele property had been sold several months before the comfort letter was sent to Mr. Hendricks, and that Mr. Agozzino had acted for the purchaser.

[10] Mr. Agozzino also acted for Mr. Hedmann in respect of the purchase of other properties after the deposit of the $300,000. Mr. Hendricks eventually learned that Mr. Agozzino’s wife, who was also his office manager, had indicated that the $300,000 was gone.

[11] Mr. Hendricks maintained that Mr. Agozzino’s deception with respect to the Keele property supported an inference that Mr. Agozzino was a party to Mr. Hedmann’s fraud and had knowingly assisted in the perpetration of that fraud.

Analysis

A. Jurisdiction to Hear the Appeal

[12] The respondents did not raise any challenge to this court’s jurisdiction in their factum. This court, in correspondence from the Executive Legal Officer, raised with the parties the possibility that this court did not have jurisdiction to hear the appeal. In oral argument, counsel for both parties confirmed, that in their view, this court did have jurisdiction. The argument proceeded on the merits.

[13] In my view, this court’s jurisdiction to hear this appeal is a matter of legitimate debate. Consequently, it is helpful for the court to address that issue. I am satisfied that this court does have jurisdiction.

[14] The appellants purport to challenge both the order refusing to set aside the noting in default of the defendants [1] and the order granting default judgment. An order refusing to set aside a noting in default is not, standing on its own, a final order.

[15] However, a purposive and practical approach should be taken to the characterization of the order. In this proceeding, the motions to set aside the noting in default and the default judgment were heard together. The challenge to the noting in default is, in reality, one of the arguments put up against the granting of default judgment. The motion judge’s decision to grant default judgment was premised, in part, on the validity of the order noting the appellants in default. In this circumstance, it would place form over substance when determining the appropriate appellate jurisdiction to treat the noting in default as a separate and distinct order from the order granting default judgment. In determining this court’s jurisdiction, the focus should be on the order granting default judgment.

[16] This court has held that an order granting default judgment is not a final order appealable to this court: National Bank of Canada v. Royal Bank of Canada (1999), 44 O.R. (3d) 533 (C.A.). In National Bank, this court held that r. 19.08 provides a specific remedy to those who are subject to a default judgment. Those persons may move in the Superior Court of Justice to set aside the default judgment. As the court observed, default judgments are not uncommon. A motion to set aside a default judgment under r. 19.08 provides an efficient and relatively inexpensive means by which a party can challenge a default judgment. In most cases, the default judgment will be set aside and the proceeding will be back on track toward a determination on the merits.

[17] Treating a default judgment as a final order requiring an appeal to the Court of Appeal would cause considerable delay and added expense. In the vast majority of challenges to default judgments, the defendant will seek to put before the court information that was not before the court on the default judgment motion. Default judgment motions are almost always heard ex parte. An appeal on the record to this court from an order made ex parte granting default judgment would not, in the vast majority of cases, provide a suitable means for the defendant to put before the court material relied on in support of the motion to set aside the default judgment.

[18] I see no reason to depart from the holding in National Bank.

[19] This motion for a default judgment was not, however, a typical default judgment motion. The defendants participated in the motion and had a full opportunity to put before the motion judge whatever they deemed relevant to their position on the motion. As the motion judge noted, at paras. 93 and 101, the motion before him took on the characteristics of a motion to set aside a default judgment. An order refusing to set aside a default judgment is a final order: Laurentian Bank of Canada v. Goldshmidt, 2013 ONCA 122, at paras. 3-4; National Bank, at pp. 534-35; Laurentian Plaza Corp. v. Martin (1992), 7 O.R. (3d) 111 (C.A.), at p. 113; and Roblin v. Drake, [1938] O.R. 711 (C.A.), at p. 712.

[20] Although the cases agree that an order refusing to set aside a default judgment is a final order, there is some disagreement as to the proper forum on appeal. Some authorities take the position that a refusal to set aside a judgment awarding damages is itself not a money judgment and is, therefore, appealable in all cases as a final order to the Court of Appeal: Marcus Direct Marketing Inc. v. M & K Plastic Products Ltd., [1989] O.J. No. 467 (C.A.); Paul M. Perell and John W. Morden, The Law of Civil Procedure in Ontario, 4th ed. (Canada: LexisNexis Canada Inc., 2020), at para. 12.103. Other authorities take the view that an order refusing to set aside a judgment awarding damages is, like the judgment awarding damages, an order for the payment of money, meaning the appropriate appellate forum depends on the quantum of the award: see e.g. Laredo Construction Inc. v. Sinnadurai (2005), 78 O.R. (3d) 321 (C.A.), at para. 19.

[21] While I am inclined to the view that an order dismissing a motion to set aside a judgment awarding damages is itself a money judgment, I need not decide that issue here. On the facts of this case, this appeal is properly brought to the Court of Appeal on either interpretation. If the order is not a money order, the appeal lies to this court. If the order setting aside the default judgment is a money order, it is an amount in excess of $50,000, the Divisional Court limit, and is therefore properly appealable to this court: see Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 6(1)(b), 19(1)(a) and (1.2).

[22] The policy considerations identified in National Bank, which favour treating a motion to set aside a default judgment as the appropriate remedy, do not apply in the circumstances of this case. An appeal to this court on the record does give the appellants a full opportunity to challenge the merits of the motion judge’s decision. Unlike a r. 19.08 motion to set aside a default judgment, the appellants here do not offer evidence that was not before the motion judge on the motion for default judgment. Instead, the appellants maintain that the motion judge erred on the record before him in granting default judgment and seek appellate review of that alleged error.

[23] A purposive interpretation of this court’s jurisdiction dictates that the decision of the motion judge in the present circumstances should be treated as the equivalent of a refusal to set aside a default judgment properly appealable as a final order to this court. That was the position taken by both the appellants and the respondents on this appeal. Their positions suggest to me that an appeal to this court is consistent with the efficient and fair determination of the appellants’ challenge to the motion judge’s decision.

B. Refusal to Set Aside Noting in Default

[24] The respondents commenced the lawsuit in February 2020. Counsel, who was acting for all of the defendants, quickly filed a Notice of Intention to Defend. No Statement of Defence was forthcoming. In October 2020, counsel for the respondents advised counsel for the defendants that she would give them one more chance to serve their Statement of Defence before noting the defendants in default. Counsel for the respondents set an October 16, 2020 deadline. Further delay followed. Counsel for the respondents granted the defendants a further indulgence. No Statement of Defence was filed. On November 20, 2020, counsel for the respondents noted all of the defendants in default. The defendants moved to set aside the noting in default five months later.

[25] Only Mr. Agozzino filed an affidavit on the motion to set aside the noting in default. That affidavit did not address the merits of the claim. The defendants have not, at any time, provided any affidavit evidence setting out any potential defence to the allegations. [2]

[26] The appellants submit that they clearly demonstrated an intention to defend by serving the Notice of Intention to Defend shortly after the claim was issued. They further contend that they moved with reasonable diligence to set aside the noting in default once they were aware of it.

[27] Counsel is critical of the respondents for not advising the defendants that they had noted them in default. This criticism rings hollow in the face of the respondents’ repeated requests for a Statement of Defence and the setting of two deadlines for the filing of a Statement of Defence, both of which were ignored by the defendants. The defendants certainly ought to have known that they would be noted in default after their repeated failure to meet the respondents’ reasonable deadlines. The defendants’ decision to refrain from making any inquiry as to whether the respondents had moved to note them in default, as promised, amounts to wilful blindness.

[28] Nor can the appellants invite this court to ignore the delay in providing a Statement of Defence by simply asserting that settlement discussions were underway. The bona fides of those discussions is very much in dispute. Even if there were genuine settlement discussions underway, that does not change the fact that the respondents were demanding a Statement of Defence and had set two deadlines for that Statement of Defence, both of which had been ignored by the appellants.

[29] In any event, the motion judge did not refuse to set aside the noting in default because the defendants had not moved with reasonable diligence to set aside the noting in default. The motion judge had more serious problems with the conduct of the defendants. He was satisfied that the defendants had not acted in good faith in their conduct of the litigation. Instead, he found that they were deliberately delaying the progress of the litigation in an attempt to avoid a merits-based determination, thereby thwarting the respondents’ ability to recover their damages.

[30] The motion judge, at paras. 77, 92 and 100, was blunt in his description of the conduct of the defendants in the litigation:

I find that the defendants are using various tactics to avoid and delay any adjudication of this matter on the merits, and have succeeded in doing so for many months already.

I am very concerned that the defendants, using [their counsel] as their puppet, are continuing their effort to manipulate these proceedings to obfuscate and delay. I will not allow that charade to continue.

To add insult to injury, in repeatedly delaying the proceedings, the defendants have reduced the chances of recovery and thereby compounded the prejudice to the plaintiffs with each passing day. Through the efforts and obfuscation of [counsel for the defendants] they have now strung out these proceedings well beyond what is acceptable. [Counsel for the defendants] is employing mechanisms available within the Rules, such as the latitude given for motions for removal of counsel of record, and therefore he is not technically acting improperly. However, I am not prepared to reward him and his clients for this behaviour which seems calculated to exploit the potential for delay and avoidance of a merits-based hearing.

[31] The record before the motion judge supports his assessment of the defendants’ litigation conduct and strategy. As he observed, it is particularly noteworthy that in the two-and-one-half-years between the filing of the Statement of Claim and the order granting default judgment, none of the defendants offered any substantive answer, in any form, to the respondents’ claims. The motion judge, at para. 109, accurately observed:

Here, there has been no effort to meet that obligation and no evidence to suggest any meritorious defence will be forthcoming. To the contrary, the conduct of the defendants reflects an ongoing, concerted, and to date successful effort to avoid addressing the merits of the case.

[32] According to the defendants’ strategy, the merits had to be avoided at all costs. Delay provided the best shield against an adjudication on the merits. The motion judge properly refused to reward the defendants’ “rag the puck” tactics. He did not err in refusing to set aside the noting in default.

C. Granting of Default Judgment

[33] On a motion for default judgment on an unliquidated claim, the respondents were required to show, based on a combination of the deemed admissions of fact as pleaded in the claim, and the facts as found, based on the evidence filed on the motion for default judgment, that they were entitled to judgment on the claim as pleaded: r. 19.02(1); Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at paras. 13-14.

[34] The appellants submit that the motion judge erred in holding that they were liable, both in fraud and in negligence. They contend that, the facts as pleaded and the evidence, only supported a finding that Mr. Agozzino acted for Mr. Hedmann in certain matters that, as it turns out, facilitated Mr. Hedmann’s fraud on Mr. Hendricks. The appellants argue that there was no evidence that Mr. Agozzino made any representations to the respondents, much less misrepresentations, concerning the investments that had been proposed by Mr. Hedmann or the status of those investments. Nor, maintain the appellants, was there any evidence that Mr. Agozzino caused the respondents to advance funds to Mr. Hedmann or his companies.

[35] In respect of the negligence claim, the appellants submit first, that negligence, while mentioned in the prayer for relief in the Statement of Claim, was not properly pleaded in the claim and, second, that the elements of negligence were not made out either in the facts as pleaded, or the evidence adduced by the respondents. Specifically, the appellants say that there was no basis upon which Mr. Agozzino could be found to have owed any duty of care to the respondents.

[36] I agree with the appellants’ submissions in respect of the negligence claim. Negligence was not properly pleaded, and the elements of a proper negligence claim were not made out on the facts as pleaded, or as found in the material filed on the motion for default judgment. The appellants should not have been found liable in negligence.

[37] I am satisfied, however, that the finding of liability in negligence was redundant and that the finding that the appellants knowingly assisted in the fraud perpetrated by Mr. Hedmann is enough to support the judgment granted by the motion judge.

[38] The motion judge was satisfied on the evidence that the appellants knowingly assisted their client, Mr. Hedmann, in his deliberate and continuous misleading of Mr. Hendricks in respect of the investments Mr. Hedmann had persuaded Mr. Hendricks to make. In this context, the motion judge relied heavily on the comfort letter of October 5, 2019. That letter was signed by Mr. Agozzino and it was provided to Mr. Hendricks by Mr. Hedmann at a time when Mr. Hendricks was raising serious questions about the status of his investments. The comfort letter stated that, pursuant to Mr. Hedmann’s instructions, Mr. Agozzino was negotiating the completion of the purchase of the Keele property. According to the comfort letter, Mr. Agozzino and Mr. Hedmann were meeting with the vendor of the property in a few days. In reality, and to Mr. Agozzino’s knowledge, the Keele property had been sold months earlier to a purchaser for whom Mr. Agozzino had acted.

[39] The motion judge could infer from all of the circumstances that the comfort letter provided by Mr. Agozzino was a knowing falsehood intended for Mr. Hendricks, and further that he intended to mislead Mr. Hendricks about the status of his investments. In short, the comfort letter supported the inference that Mr. Agozzino was an active participant in Mr. Hedmann’s fraudulent activities.

[40] The trial judge also found that the $300,000 that came from Mr. Hendricks and was deposited into Mr. Agozzino’s trust account was released to Mr. Hedmann and used by companies controlled by him on other projects. The motion judge determined that Mr. Agozzino was aware that the funds had been dispersed.

[41] It was open to the trial judge to draw inferences from the evidence relating to Mr. Agozzino’s knowledge of the source of the $300,000 and the disbursement of the $300,000. The motion judge’s inferences were no doubt drawn, in part, because Mr. Agozzino offered no evidence supporting any contrary inferences. Mr. Agozzino was the lawyer on the transactions. It was his trust account. He was particularly well-positioned to offer an innocent explanation, if one existed, for the comfort letter and the flow of funds in and out of his trust account. He offered none.

[42] The findings of the motion judge, at para. 84, justified his ultimate conclusion:

Mr. Agozzino was a knowing or at least a deliberately blind participant in Mr. Hedmann’s schemes. More particularly, I find that the plaintiffs’ evidence provides a basis for judgment on the basis of fraudulent and/or negligence misrepresentation.

[43] The findings on which the motion judge based his conclusion speak to fraud and not to negligence. Read in the context of those findings, the motion judge’s reasons clearly show that he found the appellants liable as knowing participants in Mr. Hedmann’s fraud upon Mr. Hendricks and his company. His mistaken alternate description of that liability as sounding in negligence, is of no moment.

[44] The motion judge properly granted default judgment on the terms set out by him.

Conclusion

[45] The appeal is dismissed.

[46] The parties will provide submissions on costs not exceeding three pages each. The respondents’ submissions shall be served and filed within 15 days of the release of these reasons. The appellants’ submissions will be served and filed within ten days after the receipt of the respondents’ submissions.

Released: “June 29, 2023 DD”

“Doherty J.A.”

“I agree. Alexandra Hoy J.A.”

“I agree. L. Favreau J.A.”

[1] The remedy when a defendant is noted in default is a motion under r. 19.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to set aside the noting in default: see e.g. Siivonen v. Halow (2002), 59 O.R. (3d) 211 (C.A.), at para. 7. This court has heard appeals from orders noting a defendant in default: see e.g. Nobosoft Corporation v. No Borders Inc., 2007 ONCA 444, 225 O.A.C. 36. In those cases, however, the jurisdiction of the court to hear the appeal was not addressed. Those cases cannot be taken as authoritative on the jurisdictional question: see e.g. Singh v. Heft, 2022 ONCA 135, at para. 15.

[2] The absence of any affidavit material on the motion from Mr. Hedmann or his related companies, and the absence of any appeal by Mr. Hedmann and his companies from the order granting judgment, strongly suggests Mr. Hedmann has no defence to the allegations.