Court of Appeal for Ontario

Date: 2025-06-16
Docket: COA-24-CV-1118
Coram: Paul Rouleau, K. van Rensburg, S. Gomery

Between:
Thomas McIlwain
Plaintiff (Respondent)

and

Len’s Cove Marina Ltd.
Defendant (Appellant)

Appearances:
David M. Adams, for the appellant
Rene Larson, for the respondent

Heard: April 30, 2025

On appeal from the order of Justice Stephen J. Wojciechowski of the Superior Court of Justice, dated September 18, 2024, with reasons reported at 2024 ONSC 5166.

Reasons for Decision

Introduction

[1] This is an appeal of an order refusing to set aside a default judgment. For the reasons that follow we allow the appeal.

Facts

[2] The facts can be stated briefly. The respondent, Thomas McIlwain, purchased a new boat and trailer from the appellant, Len’s Cove Marina Ltd. (the “Marina”), in 2022. After using the boat in the 2022 season and then putting it in storage, Mr. McIlwain complained to the Marina about its condition, in particular structural issues in its hull, including cracks and pitting. Efforts to deal with the issues were unsuccessful. The Marina consulted with the boat manufacturer, NauticStar, which was of the opinion the defects were cosmetic. Based on advice that Mr. McIlwain received, he took the position that the problems were structural and that the boat was possibly beyond repair. The Marina proposed various options, including the assessment of the boat by NauticStar, and the repair of the boat under warranty. This proposal was rejected by Mr. McIlwain, who was unwilling to assume the cost of transporting the boat from Thunder Bay, where he lived, to the Marina in Portland, Ontario (a condition of the warranty).

[3] On August 1, 2023, Mr. McIlwain commenced an action in the Superior Court seeking damages in relation to the allegedly defective boat. The statement of claim asserted that Mr. McIlwain had purchased the boat from the Marina with a $20,000 down payment and had financed the balance of the purchase price. The claim pleaded that, while Mr. McIlwain had operated the boat during the first season, he identified structural defects after the boat was put in storage for the winter. He sought damages for the Marina having sold him a structurally defective boat in the amount of $196,311.24 consisting of the downpayment, the balance owed to the financing company, the costs of delivery and return of the boat, and general damages.

[4] The statement of claim was served on the Marina on August 5, 2023. No defence was delivered and there were no communications between the parties. Without notice to the Marina, Mr. McIlwain’s counsel had the Marina noted in default on September 8, 2023, and then, by motion, obtained a default judgment without notice on December 21, 2023. The amount of the judgment, including legal costs, is $138,852.26, and requires Mr. McIlwain to return the boat to the Marina upon payment of the full amount of the judgment.

[5] The judgment was served on the Marina on January 17, 2024. Mr. McIlwain’s counsel took steps to enforce the judgment, filing a writ of seizure and sale, and directing the sheriff with jurisdiction in the region to enforce the writ. On April 15, 2024, Mr. McIlwain’s counsel contacted the Marina to schedule an examination in aid of execution. On May 1, 2024, the Marina’s counsel filed a motion seeking to set aside the default judgment. The motion was supported by an affidavit of the principal of the Marina, Sean Horsfall, and attached a draft statement of defence. Mr. McIlwain provided an affidavit in response, opposing the relief sought in the motion.

The Motion Judge’s Decision

[6] In his reasons for dismissing the motion, the motion judge considered the relevant factors in a r. 19.08(1) motion, citing to this court’s decision in Intact Insurance Company v. Kisel, 2015 ONCA 205, 125 O.R. (3d) 365, which in turn relied on the leading case of Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561. The Mountain View factors were set out in Intact Insurance, at para. 14, as:

(a) whether the motion was brought promptly after the defendant learned of the default judgment;
(b) whether the defendant has a plausible excuse or explanation for the default;
(c) whether the defendant has an arguable defence on the merits;
(d) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff 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.

[7] In respect of the first factor, whether the motion was brought promptly after the defendant learned of the default judgment, the motion judge observed that the motion was brought three and a half months after the Marina knew of the default judgment, which he characterized as “arguably not an unreasonable amount of time”. He concluded however that the motion had not been brought promptly because the Marina had delayed in retaining legal counsel and had made no efforts to contact Mr. McIlwain’s counsel in the interim.

[8] The motion judge then considered whether the Marina had provided a plausible excuse or explanation for the default. While he noted Mr. Horsfall’s evidence about other matters that occupied his attention in August and September 2023, including a busy retail season, his son’s serious workplace accident, and the drowning of a Marina customer on the lake, engaging a full rescue operation involving many of the staff at the Marina, the motion judge considered this evidence insufficient because it lacked relevant details and because it did not address the Marina’s failure to deal with the claim for the remainder of the calendar year. The motion judge was also critical of Mr. Horsfall’s evidence that he contacted NauticStar, that they offered to take care of the claim, and that they would be contacting Mr. McIlwain to discuss issues surrounding the boat. He characterized the evidence to support the statement as minimal, he considered the email communications attached as exhibits to Mr. Horsfall’s affidavit to be insufficient, and he observed that there was no evidence of communications after August 18, 2023, to confirm that NauticStar was actually dealing directly with Mr. McIlwain. He concluded that the Marina had provided no plausible explanation for its failure to defend the claim.

[9] As for the third factor, whether the Marina had shown there was an arguable defence on the merits, the motion judge noted that the draft statement of defence raised two main defences. The first was that there were no defects or deficiencies in the boat. While acknowledging that this defence had potential merit, the motion judge ultimately concluded that this was not an arguable defence because it was contradicted by Mr. McIlwain’s evidence about the problems with the boat. The motion judge determined that the second defence, which relied on the NauticStar warranty, had no chance of success because, in his view, the availability of a warranty provided by the manufacturer would not provide the Marina with a valid defence to Mr. McIlwain’s claim.

[10] In considering the fourth factor, the relative prejudice to the parties, the motion judge rejected the Marina’s submission that it would be prejudiced if it were not permitted to defend the claim on the merits. He was also not persuaded that Mr. McIlwain would be unjustly enriched by a judgment for an amount that was more than what he had paid for the boat and its trailer because the damages had been reviewed by the judge hearing the motion for default judgment, who had accepted Mr. McIlwain’s evidence with respect to the appropriate quantum. The motion judge concluded that Mr. McIlwain would suffer prejudice because of the additional delay if the judgment were set aside, during which time he was without the use of the boat. Accordingly, the motion judge found that the balance of prejudice to the parties favoured upholding the judgment.

[11] Finally, in considering the fifth factor, the effect of any order the court might make on the overall integrity of the administration of justice, the motion judge concluded that the Marina’s conduct was unreasonable, and that to further delay the process by setting aside the default judgment would do nothing to preserve the overall integrity of the administration of justice.

Discussion

[12] A decision whether or not to set aside a default judgment is discretionary and will attract deference on appeal. It will not be interfered with absent an error in law or principle, a palpable and overriding error of fact, or unless it is so clearly wrong as to amount to an injustice: Mountain View, at para. 55.

[13] We agree with the Marina that there were reversible errors in this case.

[14] We begin by observing that the motion judge erred in his articulation of the test on a r. 19.08(1) motion. The central issue is whether the interests of justice favour granting the order: Mountain View, at para. 47. While the motion judge correctly identified the relevant factors, he went on to observe that “all factors are to be given equal consideration and weight, without one being more decisive than the others”. At the conclusion of his reasons, he confirmed that he had weighed each factor equally. Whether to set aside a default judgment is an exercise in discretion that is informed by the relevant factors and does not require that each factor be weighed equally. Justice Gillese stated in Mountain View, at paras. 50 and 51: “[The] factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default. For instance, the presence of 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” (emphasis added). The weight to be given to a specific Mountain View factor in determining whether it is just to set aside a default judgment will depend on the circumstances of the particular case.

[15] In this case, there are two factors that weigh most heavily in favour of setting aside the default judgment. Both were the source of additional errors on the part of the motion judge.

[16] The motion judge’s central error, in our view, was in relation to the third Mountain View factor. To put forward an arguable defence on the merits, a defendant need not show that the defence will inevitably succeed, but only that it has an “air of reality”: Mountain View, at para. 51. It is not the role of the motion judge to make findings of fact and to assess the merits of the defence: Zeifman Partners Inc. v. Aiello, 2020 ONCA 33, at para. 34. See also Mountain View, at paras. 61-63.

[17] In considering whether the Marina had an arguable defence, the motion judge made the same error as the court in Zeifman Partners. Although the motion judge observed at paras. 67 and 69 of his reasons that whether the boat was repairable would be something to be determined on a full evidentiary record, he went on to review the evidence, and then made findings of fact, in particular finding that the damage to the boat was not cosmetic and that the boat may not have even been repairable. He concluded that this was the only proposed defence having potential merit, but that it was not supported by the evidence on the motion. In drawing this conclusion the motion judge weighed the evidence of the parties with respect to the extent of the alleged problems with the boat.

[18] We also disagree with the motion judge’s wholesale rejection of any defence based on the NauticStar warranty (whether it was the warranty Mr. McIlwain attached to his affidavit, or the version tendered by the Marina). The motion judge concluded that reliance on the warranty was not a viable defence because Mr. McIlwain was suing the Marina for the return of monies he paid for a materially deficient boat, and he was not suing NauticStar. The action claims damages for the sale of a defective boat; as such, the existence of a manufacturer’s warranty (including its requirement for the return of the boat to the Marina) and the parties’ dealings with NauticStar both before and after the commencement of the action may well be relevant to the Marina’s liability and Mr. McIlwain’s damages, whether or not NauticStar is a party to the action.

[19] In our view the Marina’s draft statement of defence and the evidence on the motion disclose an arguable defence in respect of both the nature and extent of the deficiencies in the boat and whether they were properly covered by and could be addressed in accordance with the manufacturer’s warranty, rather than treating the boat as worthless – the approach taken in the motion for default judgment that resulted in the judgment at issue.

[20] We are also of the view that the motion judge erred in his approach to the evidence with respect to the second Mountain View factor by failing to consider and to give effect to the whole of the evidence when he concluded that the Marina had not provided a plausible explanation for its failure to defend the action.

[21] Although the motion judge accepted that Mr. Horsfall was preoccupied by various concerns in August and September 2023, he stated at para. 48 that specific evidence relevant to the remainder of the calendar year 2023 was absent, and at para. 55 that “there was no reason provided as to why [Mr. Horsfall] thought he could simply ignore the Statement of Claim for the remainder of 2023.”

[22] In fact, Mr. Horsfall did provide a reason for not defending the claim, which confirmed he had not simply ignored the statement of claim. The evidence that was put forward, and that the motion judge reviewed, showed that, on August 17 and 18, 2023, a few days after the statement of claim was served, Mr. Horsfall had an email exchange with Jack Kowalczyk, a representative of NauticStar. After Mr. Horsfall sent Mr. Kowalczyk what was likely a copy of the statement of claim, Mr. Kowalczyk replied on August 18, and advised that he would consult with others to “develop a plan of action to settle this outside of court.” Later that day, Mr. Kowalczyk advised that they would be taking the boat back to the factory to replace the damaged hull on January 22, 2024, so the boat would be repaired and ready to go for “next spring”. Mr. Kowalczyk agreed to Mr. Horsfall’s suggestion that NauticStar contact the customer, and at their request Mr. Horsfall provided Mr. McIlwain’s email address and phone number. Mr. Horsfall deposed that from September to December 2023, he had been “in frequent communication with NauticStar representatives about the ongoing warranty issue” with the boat and that he was “under the impression that a solution was forthcoming”.

[23] Absent documentary evidence to support Mr. Horsfall’s evidence, the motion judge was not persuaded that the communications from September to December 2023 had occurred, and consequently he held that the appellant had not provided a plausible explanation or reason for failing to file a statement of defence in the time leading up to the default judgment.

[24] In our view, in addressing the second Mountain View factor the motion judge focussed on deficiencies in the Marina’s evidence and conduct, without considering the whole of the evidence. First, Mr. Horsfall’s evidence to explain why he believed that the matter was being addressed by NauticStar was uncontradicted: Mr. Horsfall was not cross-examined on his affidavit (there were in fact no cross-examinations on the motion), and Mr. McIlwain’s affidavit did not deny that NauticStar contacted him or otherwise address Mr. Horsfall’s evidence about NauticStar’s intended plan to settle the action out of court. Second, the evidence (including the account provided in Mr. McIlwain’s affidavit) confirmed that the action was started after months of dealings between the parties, in which NauticStar, as the manufacturer of the allegedly defective boat, was involved. In these circumstances it would not have been surprising for NauticStar to have been part of a solution once legal proceedings were commenced. Third, neither Mr. McIlwain nor his counsel contacted Mr. Horsfall before noting the Marina in default or obtaining a default judgment. While not required by the Rules, it is “by far the better practice” to serve default judgment motion materials on a defendant: Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at para. 10.

[25] Although it may have been better for Mr. Horsfall to have included in his affidavit additional evidence of his communications with NauticStar, or to have reached out to Mr. McIlwain to confirm that no defence was required, the question is whether the Marina offered a plausible explanation or excuse for not having defended the action before it was noted in default and default judgment was obtained. In our view, considering the circumstances of the particular case, the Marina provided a plausible explanation for not defending the action: the belief, rightly or wrongly, that NauticStar was undertaking a plan of action directly with Mr. McIlwain to settle the claim. The plan outlined in the August 18 email was specific – to take the boat back to the factory, and to replace the hull of the boat on a specific date.

[26] As for the other Mountain View factors, it appears that the motion judge’s conclusions about relative prejudice to the parties and the effect on the overall integrity of the administration of justice, and his resulting view that the fourth and fifth factors favoured Mr. McIlwain, were informed by the errors we have identified. The motion judge faulted the Marina for having a clear intention to ignore the claim and the litigation process (which in our view is not supported by the evidence), identifying as prejudice to Mr. McIlwain the resulting wasted time and delay. He also concluded that, because the Marina’s conduct was unreasonable, further delay in the process by setting aside the default judgment would do nothing to preserve the overall integrity of the administration of justice. Consistent with the view that there was no arguable defence to the action, the motion judge did not weigh in the balance the prejudice to the Marina if it was unable to challenge the significant default judgment, nor did he consider the value to the administration of justice in having actions determined on their merits.

[27] The most compelling factors in this case are the presence of an arguable defence on the merits, and the Marina’s plausible explanation for not having defended the action. The litigation was commenced in the context of a dispute between the parties about the nature and extent of the problems with the boat, and whether it was repairable under warranty. This is not a case of a defendant deliberately causing delay by refusing to respond to legal proceedings or seeking to avoid the enforcement of a judgment by advancing a weak or spurious defence. Rather, the Marina believed that NauticStar was responding with a solution pursuant to its warranty, and when it learned of the judgment, the Marina sought to advance a defence, which at this stage is arguable.

[28] In our view it is in the interests of justice to have this action determined on its merits. Considering all of the circumstances, we allow the appeal and set aside the default judgment and noting in default.

Conclusion

[29] For these reasons the appeal is allowed. The default judgment and any execution thereon are set aside, as is the noting in default. The Marina shall have 30 days to deliver its statement of defence. Costs of the appeal are fixed in the agreed inclusive amount of $10,000. The costs order of the motion judge is set aside and there will be no costs of the motion in the court below.

“Paul Rouleau J.A.”
“K. van Rensburg J.A.”
“S. Gomery J.A.”