SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-11-00438655-0000
DATE: 20120820

RE: Bank of Nova Scotia

and

Technoplast Packaging Inc. and Kristin Gudmundsdottir

BEFORE: Justice E.M. Morgan

COUNSEL:
Max Khan, for the Plaintiff

Robyrt Regan, for the Defendant

DATE HEARD: August 13, 2012

S U P P L E M E N T A R Y E N D O R S E M E N T

[ 1 ] This endorsement supplements the endorsement I made on the contempt of court motion brought by the Plaintiff against the Defendants on August 13, 2012. The present motion is brought by the Defendants to set aside the default judgment against them and to permit them to file a Statement of Defense.

[ 2 ] At the outset of the motion, Defendants’ counsel submitted a Certificate of Appointment under section 49 of the Bankruptcy Act stating that the Defendant Kristin Gudmundsdottir is bankrupt as of May 1, 2012. Accordingly, any action for or against Ms. Gudmundsdottir (with the exception of the contempt of court motion, which has already been dismissed) is automatically stayed. The motion to set aside the default judgment in this action will therefore proceed on behalf of the corporate Defendant alone.

[ 3 ] As I indicated in my endorsement on the contempt motion, the Defendants have placed the blame for the delays in responding to this action on their former solicitor and his assistant. Until recently, the Defendants were represented by a disbarred lawyer, Mr. Barna, working in conjunction with their lawyer of record, Mr. John Weisdorf, Q.C. Their new counsel, Mr. Regan, argues that the Defendants were not only ill advised but that they were misled into believing that Mr. Barna and Mr. Weisdorf had filed a defense on their behalf.

[ 4 ] As it turns out, a Statement of Defense and Counterclaim had been drafted and sent to the Plaintiff’s lawyers, but it was never finalized and filed with the court. The Defendants were therefore noted in default and now have a default judgment to deal with.

[ 5 ] Mr. Regan argues that the draft Statement of Defense and Counterclaim, although not particularly well drafted, does demonstrate that there is a serious defense to be considered. The motion record contains an affidavit of Benny Clausen, the general manager of the corporate Defendant, which fleshes out the proposed defense. In short, the Mr. Clausen asserts that the loan agreement between the Defendant and the Plaintiff did not prohibit the Defendant from sending out the machines that were secured by the loan for service, even if this necessitated sending them out of the country. The Bank, however, did not permit the Defendant to send the machines to be serviced abroad, which, Mr. Clausen goes on to allege, caused the Defendant to stop production in its factory and, ultimately, to default on the loan. Mr. Regan submits that given the existence of an arguable defense on the merits, the default judgment should be set aside.

[ 6 ] The authority to set aside a default judgment is contained in Rule 19.08(2) and (3). In Nelligan v. Lindsay , [1945] OWN 295 (Ont HC) , the court pronounced three factors for setting aside default judgment: 1) whether the motion was brought promptly; 2) whether there is a plausible excuse or explanation for the default; and 3) whether facts establish an arguable defense. This 3-part test has been reiterated for modern purposes by the Court of Appeal in Morgan v. Toronto Police Services Board , 2003 CarswellOnt 1105, at para. 19 (Ont CA) . In my view, all three of the relevant factors have been established by the Defendant here.

[ 7 ] The present motion has been brought expeditiously. Although the Defendant delayed matters by failing to file its defense and by bringing an ill-conceived motion and appeal, the argument is that Mr. Barna and Mr. Weisdorf were to blame for that conduct. Mr. Regan, who has recently come on board for the Defendants, acted promptly in bringing the present motion; indeed, he has had to do so without the benefit of having Mr. Weisdorf’s file as Mr. Regan’s requests for the file have apparently gone unheeded by Mr. Weisdorf. This explanation put forward by the Defendant satisfies part 1 as well as part 2 of the three-part test, in that it not only counters the Plaintiff’s argument of undue delay but it also provides a plausible explanation for the Defendant’s default. This case has much in common with Hunt v. Brantford (City) , [1994] OJ No 1867 , where it was stated, at para. 32, that, “while default was intentional, it was the default of the solicitor not the party now moving for relief under Rule 19.”

[ 8 ] I am of the view that the court should not add to the problems that the Defendant’s former solicitor has caused it by refusing it a remedy. This is especially the case since, as indicated above, there is at least an arguable defense on the merits.

[ 9 ] The Court of Appeal has indicated that a motion judge must have regard to the potential prejudice to the moving party if default judgment is preserved, and then must weigh that against the potential prejudice to the respondent if default judgment is set aside. Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd ., 2007 ONCA 333 , [2007] OJ No 1685, at para. 2 . In the present case, the prejudice to the Respondent/Plaintiff is simply that it will have to pursue its claim on the merits; any other prejudice to it can be compensated in costs. The potential prejudice to the Defendant, on the other hand, is severe; Mr. Regan contends that the consequences of default judgment have already been personal bankruptcy for the individual Defendant and will undoubtedly be financial ruin for the corporate Defendant.

[ 10 ] Mr. Regan indicated at the hearing that the Defendant has not brought a claim against its former lawyer, but that may be more a question of timing and of the Defendant conserving its resources than anything else. In evaluating the picture that the Defendant has painted of its former solicitor, I can do no better than to repeat the words of E. MacDonald J. in Hunt , supra , at para. 20: “In this case, the attitude of the solicitor towards this important matter is shocking… [H]e chose to idly promise a statement of defence in circumstances where no effort was being made on his part to comply with his promise.” In the present case, the fact that Mr. Weisdorf worked in conjunction with Mr. Barna, a disbarred lawyer, exacerbated the situation.

[ 11 ] I order that the default judgment against the corporate Defendant and the noting in default of the corporate Defendant be set aside.

[ 12 ] In Rand Estate v. Lenton , 2007 6906 (Ont SC) , the court found that the “ unprofessional conduct of [the solicitor for the Respondent] resulted in the Applicants incurring wasted legal costs...” The court then awarded the costs of the motion before it in order to “address the costs thrown away by the Applicants as a result of the misconduct of [the solicitor for the Respondent].” The solicitor’s conduct described in Rand Estate is remarkably similar to the conduct that the Defendant ascribes to Mr. Weisdorf here, including being responsible for inordinate and unnecessary delays, bringing unnecessary motions and failing to appear at an appeal, being inadequately prepared in various aspects of the case. Here the problem is augmented by Mr. Weisdorf’s failure to file a Statement of Defense on behalf of his clients and, as Mr. Regan contends, his failure to communicate with the Defendant’s new solicitor and to facilitate that transition.

[ 13 ] I will follow the approach adopted in Rand Estate , and will use the costs incurred in the present motion as a way of addressing the costs thrown away by the Plaintiff as a result of the actions of the former solicitor for the Defendant. I am aware that costs awarded against a non-party are quite rare. See Re 1730960 Ontario Ltd. , 2009 ONCA 720 (Ont CA). However, I am also mindful of the discretion of the court under Rule 57.07(1)(c) to require a lawyer to personally pay the costs of any party. Although Mr. Weisberg is not now lawyer of record for the Defendants, he is also not a stranger to the litigation the way a non-party would be. In my view, the court has discretion to award costs against a former solicitor for a party where, to use the opening words of Rule 57.07(1), that solicitor “has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default…” That is precisely what the Defendant here submits its former solicitor has done.

[ 14 ] Having reviewed the costs outline submitted by the Plaintiff, I award costs to the Plaintiff, payable by Mr. John Weisdorf, former solicitor for the Defendants, in the amount of

$10,191.29, inclusive of disbursements and HST. These costs are to be paid by Mr. Weisberg within 30 days of the date of this endorsement.

Morgan J.

DATE: August 20, 2012