COURT FILE NO.: 61476

DATE: 2012/09/18

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

LINDA WAYNE, GLENN KIFF and JASON KIFF o/a EAST VILLAGE COFFEEHOUSE

Joel G. Belisle, for the Plaintiffs

Plaintiffs

• and -

1690416 ONTARIO INC.

Bassam Lazar, for the Defendant

Defendant

HEARD: August 24, 2012

LEACH, J.

[1] In this litigation stemming from a commercial tenancy, the defendant corporation moves under Rule 37.14(1)(a) to set aside an order striking out its statement of defence with prejudice, and without leave to deliver a further statement of defence or counterclaim.

[2] By way of supplemental notice of motion, the defendant also seeks to set aside its having been noted in default.

OVERVIEW OF DISPUTE

[3] The disagreement between the parties centres on a London commercial property, at which the plaintiffs have been operating a coffeehouse business.

[4] Beyond apparent consensus that there was some form of lease agreement between the parties commencing on or about April 1, 2008, most aspects of the parties’ dealings with each other are disputed in the pleadings.

[5] For their part, the plaintiffs allege that the parties entered into a commercial tenancy agreement, (eventually reduced to writing in whole or part), that included commitments by the defendant corporation to complete numerous substantial repairs and improvements to the premises within a specified period of time. The plaintiffs say much of the allegedly required work was not done, done late, or done poorly, thereby necessitating efforts by the plaintiffs and others to address or correct deficiencies. The plaintiffs also allege numerous instances of further misconduct by the defendant, including repeated interference with their quiet enjoyment of the premises, and sustained improper efforts by the defendant to deny or terminate the lease, evict the plaintiffs and seize/appropriate their equipment.

[6] All of this, the plaintiffs say, has resulted in substantial interference with operation of the plaintiffs’ business, with resulting damages they now seek to recover through the litigation. They also claim injunctive relief to restrain specified further conduct of the defendant without prior written consent of the plaintiffs or leave of the court.

[7] In response, the defendant formally denies almost all of the plaintiffs’ allegations. It says a verbal lease agreement was reached but never reduced to writing, and goes so far as to say the written lease relied upon by the plaintiffs, and purportedly signed by the defendant’s representative, is a forgery. It says the parties’ failure to arrive at a written lease agreement, and the plaintiffs’ alleged subsequent failure to pay rent, have resulted in the plaintiffs’ wrongful occupation of the property.

[8] By way of counterclaim, the defendant seeks damages, (for the plaintiffs’ alleged non-payment of rent, wrongful occupation, trespass, forgery and fraud), as well as a declaration that the alleged written lease is invalid.

[9] All of this is formally denied by the plaintiffs.

BACKGROUND TO MOTION

[10] The litigation has a history dating back to the plaintiffs issuing their original statement of claim on March 16, 2009, but the more immediate and documented events giving rise to the defendant’s current motion are as follows:

• On December 8, 2011, during an oral discovery examination, the defendant’s principal, Salim Mikhael, (“Mikhael”), acknowledged that the defendant had not disclosed all relevant documentation, gave a number of undertakings on behalf of the defendant corporation, and indicated that the required material and information would be forthcoming by December 16, 2011.

• On March 1, 2012, following numerous unsatisfied requests for satisfaction of the defendant’s undertakings, the plaintiffs served a motion, initially returnable March 6, 2012, seeking an order forcing the defendant to comply with its obligations. The motion was adjourned on consent to March 13, 2012, peremptory on the defendant. Prior to return of the motion, correspondence was exchanged between counsel. This resulted, in response to a suggestion by the defendant’s counsel, in the plaintiffs’ willingness to agree on disposition of the motion by way of a consent order, a draft of which the plaintiffs prepared and forwarded for consideration. However, the defendant then failed to consent to the proposed draft order.

• On or about March 12, 2012, counsel for the defendant advised plaintiff counsel that he had been instructed by the defendant to take no further action in the proceeding, that the defendant had been advised of the ramifications of no one attending at return of the pending motion, and that he expected to be removed as the defendant’s lawyer of record.

• On March 13, 2012, counsel for the plaintiffs attended at the return of the pending motion and advised the court of the communication from the defendant’s counsel. Noting the peremptory nature of the motion’s previous adjournment, Justice Morissette made an order directing the defendant to satisfy its undertakings within fifteen days, failing which the plaintiffs would be permitted to move, without notice, to strike the corporation’s statement of defence and dismiss its counterclaim. Justice Morissette also ordered the defendant to pay the plaintiffs’ costs of the motion, fixed at $1,000, payable within 30 days. Later that day, counsel for the plaintiffs sent a copy of the order to the defendant’s lawyer, who remained counsel of record. It is common ground that no steps ever were taken to appeal the order made by Justice Morissette.

• On April 2, 2012, having received nothing from the defendant in satisfaction of its undertakings, the plaintiffs filed a motion record returnable the following day, moving for an order including provisions to strike the corporation’s statement of defence and dismiss its counterclaim, with prejudice to the defendant and without leave to deliver a further statement of defence or counterclaim. Relying on the order of Justice Morissette, the plaintiffs brought the motion without serving any additional notice on the defendant or its lawyer of record.

• On April 3, 2012, Justice Grace made an endorsement indicating his review of the plaintiffs’ motion material, (including the previous order of Justice Morissette granted on March 13, 2012), and his satisfaction that the order requested by the plaintiffs should issue. In addition to striking the corporation’s statement of defence and dismissing its counterclaim, (with prejudice to the defendant and without leave to deliver a further statement of defence or counterclaim), the order signed by Justice Grace expressly confirmed that the plaintiffs’ motion was properly returnable that day “on a without notice basis”, and ordered the defendant to pay the plaintiffs, within 30 days, a further $750 in costs. Apart from a provision directing service of the order forthwith on the defendant’s lawyer of record, the order also indicated that the defendant was not entitled to receive notice of further steps in the proceeding. Later that day, counsel for the plaintiffs served the defendant’s lawyer of record with a copy of the order.

• On April 5, 2012, in response to a requisition filed by the plaintiffs, the Registrar noted the defendant in default.

• On April 20, 2012, the defendant served a “Notice of Change of Solicitors” (sic), formally replacing its former lawyer of record and appointing its current counsel.

• On April 24, 2012, the defendant delivered its original motion record for the relief now requested; i.e., to “set aside, amend or vary” the order made by Justice Grace on April 3, 2012, pursuant to Rule 37.14 of the Rules of Civil Procedure. In that regard, the defendant’s notice of motion indicated reliance on Rule 37.14(1)(a), as an alleged party “affected by an order obtained on motion without notice”, and reliance on Rule 37.14(1)(b), as an alleged party who “fails to appear on a motion through accident, mistake or insufficient notice”. That motion record, initially returnable on May 1, 2012, was adjourned on consent to May 15, 2012.

• On May 15, 2012, the motion record originally filed by the defendant did not proceed to a hearing. Formally, this occurred because defendant filed no confirmation in relation to the motion. However, for reasons unknown, the defendant delivered a replacement motion record the same day. The replacement motion record, (which in fact seems identical to the original record apart from the return date and the tabbed order of material attached to the notice of motion), initially was returnable on May 22, 2012. On consent, it was adjourned to a special appointment hearing scheduled for July 13, 2012.

• On May 23, 2012, the defendant’s former lawyer, Mr Refcio (“Refcio”), was examined under oath by the plaintiffs’ counsel and by the defendant’s new counsel, pursuant to Rule 39.02. (At the hearing of the defendant’s motion, counsel for all parties advised that the examination proceeded by way of consent, prior to the plaintiffs’ delivery of a responding motion record. For purposes of Refcio’s examination, the defendant also had agreed to waiver of any otherwise applicable solicitor-client privilege.)

• On July 9, 2012, the plaintiffs delivered and filed a responding motion record, and also filed a transcript of Refcio’s examination.

• On July 12, 2012, the plaintiffs also filed a brief of exhibits from Refcio’s examination.

• On July 13, 2012, the parties appeared before me for the scheduled special appointment hearing of the defendant’s motion. However, the parties at that time shared the view that hearing of the motion should not proceed without additional steps first being taken by the plaintiff to supplement its motion material with a formal request for the noting in default to be set aside pursuant to Rule 19.03. In that regard, both sides wished to file further facta and authorities. In the result, and on consent of the parties, I adjourned hearing of the defendant’s motion to a special appointment before me on August 24, 2012, set a timetable for the intervening service and filing of additional material limited to the contemplated Rule 19.03 request, and directed that no further evidentiary material was to be filed.

• The parties complied with the timetable relating to additional filings, and argument of the defendant’s motion proceeded before me on August 24, 2012. At the return of the motion, it was acknowledged and agreed that the defendant still had not yet supplied the plaintiffs with any material to satisfy any of the defendant’s outstanding undertakings. It was also acknowledged and agreed that the defendant had not yet made any payment of the costs awarded by Justice Morissette or Justice Grace.

[11] While the above chronology summarizes some of the undisputed events immediately connected with the defendant’s motions, the parties respectively relied on additional evidence filed in relation to the motion.

[12] Before addressing that evidence, mention nevertheless also should be made of information provided by the parties concerning appeal proceedings. In that regard:

i. Counsel for all parties agreed and confirmed that no appeal proceedings ever were initiated in relation to Justice Morissette’s order of March 13, 2012.

ii. Counsel also indicated and confirmed that, while the defendant had initiated appeal proceedings in the Divisional Court, in relation to the order made by Justice Grace on April 3, 2012, those proceedings were terminated by an administrative dismissal order issued by the Registrar of the Divisional Court on July 26, 2012, pursuant to Rule 61.13 of the Rules of Civil Procedure. Pursuant to Rule 68.13.1(2), that dismissal order included a provision ordering the defendant corporation to pay the plaintiffs a further $750 in costs, which also remain unpaid.

EVIDENCE

[13] In support of its motion, the defendant relied for the most part on a relatively brief affidavit sworn by its principal Mikhael on April 23, 2012. (The affidavit indicates 2009, but the context makes it clear this was a clerical error.)

[14] In his affidavit, (which attached no supporting exhibits apart from the orders made herein by Justice Morissette and Justice Grace), Mikhael:

a. acknowledges having given undertakings during his oral discovery examination on December 8, 2011;

b. claims he has made efforts since the examination to satisfy the undertakings, (by collecting information and supplying it to the defendant’s former lawyer);

c. claims he was not advised or made aware of the plaintiffs’ motion leading to the order made by Justice Morissette on March 13, 2012;

d. indicates the defendant terminated the retainer of its former lawyer on March 9, 2012, because the defendant “was not satisfied with his services”;

e. claims that he was never told about the order made by Justice Morissette on March 13, 2012;

f. says he made abortive attempts to deal with the matter personally by attending at the Court House on March 16, 2011, attempting to meet with plaintiff counsel “to discuss the motion before speaking to it” outside what was actually an Assignment Court sitting, and was subsequently informed by the Assignment Court judge and clerk that “the plaintiffs’ motion was now returnable on April 20, 2012”;

g. says he contacted new counsel during the week of March 26, 2012, seeking representation to deal with “a motion” supposedly returnable on April 20, 2012;

h. acknowledges that the defendant’s former lawyer provided him, on April 3, 2012, with a copy of the order made that day by Justice Grace; and

i. indicates that he subsequently met with new counsel on two occasions before their formal retention and delivery of their Notice of Change of Solicitors (sic) on April 20, 2012.

[15] Even before consideration of other evidence, Mikhael’s evidence seems somewhat self-contradictory and confusing, or at least incomplete in material respects.

[16] In particular, Mikhael’s claim that he was not advised of or made aware of the plaintiffs’ motion, (leading to the order made by Justice Morissette on March 13, 2012), seems inconsistent with his indicated personal efforts to address “the motion” following termination of Mr Refcio’s retainer on March 9, 2012. Nor does Mikhael indicate how or why he expected plaintiff counsel to be attending court on March 16, 2012, or the basis of his stated belief that the matter, and a motion in particular, would be before the court to be spoken to that day.

[17] In responding to the defendant’s motion, the plaintiffs have filed somewhat detailed evidence suggesting that Mikhael and the defendant are being less than candid with the court, and that recent events are the culmination of a pattern of reprehensible litigation behavior by the defendant.

[18] In that regard, an affidavit sworn by the plaintiff Ms Wayne (“Wayne”), on July 9, 2012, describes a series of additional failings by the defendant, (prior to those noted above), during the course of the litigation. While I have regard to all of that evidence, it includes indications of the following:

a) the defendant’s allegedly unsatisfactory response to a demand for particulars and request to inspect documents served by the plaintiffs following receipt of the defendant’s pleading;

b) the defendant’s refusal over the course of several months to co-operate in the scheduling of Mikhael’s oral discovery examination, necessitating the repeated cancellation of tentatively scheduled dates and eventual service of a notice of examination on a date unilaterally selected by the plaintiffs;

c) the subsequent failure of Mikhael to attend on that date or a rescheduled date owing to purported severe illness allegedly requiring hospitalization and rendering Mikhael bed-ridden, (although requests for confirming medical documentation subsequently generated only a vague note confirming Mikhael’s attendance at a walk-in clinic for unspecified “medical reasons”, and Mikhael was seen by Wayne and others performing outdoor building renovations at the time of at least one of the scheduled examination dates while plaintiff counsel waited for his attendance);

d) the necessity of a court order, (granted by Justice Hockin on November 29, 2011), compelling Mikhael to attend for his oral discovery examination on December 8, 2011;

e) the defendant’s belated delivery of a sworn affidavit of documents, (in response to demands by plaintiff counsel and the aforesaid order of Justice Hockin), which was not provided by the defendant until sometime after December 7, 2011, and then listed only four documents;

f) the defendant’s subsequent (and ongoing) failure to deliver documents in support of its allegations, or indeed any relevant documents whatsoever beyond the four documents disclosed in its affidavit of documents, notwithstanding the undertakings by Mikhael on December 8, 2011, and Mikhael’s own indication during the examination that the undertakings could and would be satisfied by December 16, 2011; and

g) communications from the defendant’s former counsel, prior to return of the plaintiffs’ motion on March 13, 2012, indicating that the defendant had refused to co-operate with the making of a consent order suggested by its counsel, and that the defendant had expressly instructed its counsel not attend at the return of the plaintiffs’ motion or take any further action in the matter.

[19] The defendant filed no evidence in reply to challenge or contradict any of this damning evidence from Wayne, which therefore stands undisputed for purposes of the motion.

[20] In that regard, I note that the Wayne affidavit does appear to have been delivered just four days prior to the originally scheduled special appointment hearing on July 13, 2012. However, at no time has the defendant requested any opportunity to file further evidence in reply. In particular, counsel for the defendant did not request such an opportunity at the initial return of the motion before me on July 13, 2012, when I adjourned the motion on terms agreeable to both parties for the sole purpose of addressing the Rule 19.03 issue.

[21] In any case, as noted above, the plaintiffs did not rely on the Wayne affidavit alone. They also responded to the defendant’s motion by taking the unusual step of examining the defendant’s former lawyer under oath, (with the defendant’s solicitor-client privilege having been waived for purposes of the examination).

[22] I have reviewed the resulting transcript of that examination in its entirety, but note for present purposes that it includes sworn evidence from Refcio to the following effect:

a. Mikhael is the sole shareholder, owner and operator of the defendant corporation, and the only person who provided instructions to Refcio on behalf of the defendant. Refcio described Mikhael as a “very savvy business person”, who was “very competent”, and in respect of whom he “never had a language barrier” despite English being Mikhael’s second language.

b. Despite any concerns Mikhael may have had when he gave the undertakings, Mikhael felt they could be satisfied as indicated.

c. For approximately three months following the oral discovery examination on December 8, 2012, Refcio tried repeatedly but unsuccessfully to reach Mikhael directly by email and telephone, in order follow up on satisfaction of the defendant’s undertakings. In that regard, Refcio was able to produce copies of numerous emails, (e.g., dated December 19, 2011, January 11, 2012, January 21, 2012, February 29, 2012, and March 1, 2012), none of which had “bounced back” as undelivered. He also swore that these emails, the importance of which had been marked “high”, had been supplemented by numerous contemporaneous telephone calls and messages. The messages sent to and left for Mikhael indicated, in progressively more urgent and detailed terms, that it was necessary for the defendant to address and satisfy the undertakings. In particular, the messages in late February and early March noted that the plaintiffs had threatened and then served a motion, and that the defendant could face “some serious cost consequences and other ramifications” if the defendant did not act soon. However, all of these email and telephone messages went unanswered until Mikhael finally contacted Refcio shortly before March 7 or 8, 2012, and agreed to meet.

d. On March 7 or 8, 2012, Refcio and Mikhael met to discuss the undertakings for the first time since the examination.

e. Prior to the meeting on March 7 or 8, 2012, Mikhael had not supplied any information or documentation to Refcio to satisfy the outstanding undertakings. At the meeting, Mikhael provided Refcio with “some documentary evidence” sufficient to satisfy “maybe 20%” of the undertakings. Refcio advised Mikhael that “wasn’t sufficient”. In response, Mikhael told Refcio he was still trying to track down people and invoices, but that record keeping “wasn’t his strong point” and four years had gone by since the majority of documentation “should have been created”.

f. At the meeting on March 7 or 8, 2012, Refcio also discussed the plaintiffs’ motion, returnable on March 13, 2012, after an initial one week adjournment. Refcio gave Mikhael a copy of the plaintiffs’ motion record. Refcio specifically advised Mikhael that the motion now was returnable on a peremptory basis. Refcio asked whether they should indicate that obtaining the required documents and complying was just not possible. However, Mikhael was still indicating that he “might be able” to get the required documentation. In response, Refcio made it “very clear” that “the time was up”, that Mikhael “needed to deal with this”, (as three months had gone by since the examination), that “the time for working on it was over”, that “the motion was going to be argued on the 13th”, and that the defendant “had no other option”.

g. On March 9, 2012, Mikhael contacted Refcio by telephone, instructed him to “take no further action going forward”, and terminated Refcio’s retainer. Refcio specifically indicated that he did not forward any documentary evidence to plaintiff counsel, in satisfaction of undertakings, because Mikhael advised him not to do so.

h. Refcio denied that the retainer was terminated because of any defendant dissatisfaction with his services. Rather, Mikhael had expressed inability to satisfy Refcio’s request for a monetary retainer, and indicated a desire to act in person. Refcio explained the need to obtain court permission in that regard, and suggested that might provide a basis for asking the court for an adjournment of the motion.

i. Refcio specifically advised Mikhael that someone, (e.g., Mikhael personally if that was his choice), needed to attend motions court on the Tuesday, (March 13th), and Assignment Court on the Friday, (March 16th).

j. On March 12, 2012, (the day before return of the plaintiffs’ motion before Justice Morissette), Refcio telephoned Mikhael about a draft consent order forwarded by plaintiff counsel in an attempt to resolve the pending motion. Refcio was able to speak with Mikhael directly. Refcio indicated that, despite Mikhael’s instructions to take no further action, something needed to be done about the motion as the defendant would “have problems” if neither Refcio nor Mikhael attended at the hearing. (Mikhael had asked him what would happen if Mikhael did not “show up on Tuesday”.) Refcio also followed up with an email to Mikhael later that evening, forwarding the proposed consent order and requesting instructions to resolve the motion before Refcio ceased to be counsel of record. Mikhael responded by repeating that Refcio was not to do anything, and by indicating that Mikhael would “take care of it”.

k. On March 21 or 22, 2012, Mikhael again attended at Refcio’s office and was given a copy of the order dated March 13, 2012. Refcio says he emphasized, to Mikhael, the need to “get on this right away”, (“to get another lawyer or do something”), given the short time for compliance indicated in the order.

l. By April 3, 2012, Refcio had returned “certain parts” of the defendant’s file documentation to facilitate its retention of new counsel. By April 13, 2012, he had provided the client with copies of “all pertinent information”. After service of the notice of change of lawyer, (on April 20, 2012), he delivered the “majority of the file” to the defendant’s new lawyer. When cross-examined on this point by the defendant’s new lawyer, Refcio repeated his belief that he had provided the “entire file” to the new lawyer, apart from some solicitor-client correspondence not produced earlier because he felt that its disclosure might damage the defendant’s position.

[23] I also have reviewed the brief of exhibits from Refcio’s examinations, which includes copies of the emails described during the examination. On their face, at least, they seem to provide contemporaneous documents confirming much of Refcio’s evidence concerning his communication or attempted communication with Mikhael.

[24] Although Refcio’s examination took place on May 23, 2012, (over seven months prior to the originally scheduled special appointment hearing on July 13, 2012), the defendant filed no evidence in reply to address or challenge Refcio’s evidence, or the email documentation he supplied. Nor did the defendant ever request such an opportunity.

[25] For purposes of the motion, Refcio’s evidence also therefore is not contradicted, except to the extent it conflicts with some of the bald assertions of Mikhael in his original affidavit.

ANALYSIS

Interaction of Rule 37.14 and Rule 19.03

[26] Although the parties argued the Rule 37.14 and Rule 19.03 issues in a sequential and somewhat separate manner, (making reference to authorities decided in cases, quite unlike this one, where the defendant had failed to enter a defence prior to being noted in default, as opposed to having its defence struck out), it seemed and seems to me that the defendant’s requests for relief pursuant to Rule 37.14 and Rule 19.03 necessarily move in lockstep, and stand or fall together.

[27] In particular:

a) if I find that Justice Grace’s order should be amended, set aside or varied pursuant to Rule 37.14, resulting in the defendant’s pleading being reinstated nunc pro tunc, then the noting in default should not have occurred, and should be set aside, because the defendant will be regarded as having had a defence in place when the noting in default therefore unjustifiably took place; but

b) if I find that relief pursuant to Rule 37.14 should be denied, then it obviously makes little or no sense to set aside the earlier noting in default pursuant to Rule 19.03 only to have the plaintiff necessarily repeat the process when the defendant inevitably proves unable to enter a further defence, (because of the undisturbed order of Justice Grace).

Rule 37.14 - Introduction

[28] With the above in mind, I therefore turn first to the defendant’s request for an order “to set aside, amend or vary the Order of the Honourable Justice Grace dated April 3, 2012”, pursuant to Rule 37.14. (It should be noted that this is the only order in respect of which the defendant seeks relief. In particular, the defendant does not challenge, in any way, the order of Justice Morissette made on March 13, 2012.)

[29] As noted above, in seeking to set aside, amend or vary the order of Justice Grace, the defendant’s notice of motion indicates reliance on subrules 37.14(1)(a) and 37.14(1)(b), which read as follows:

37.14 (1) A party or other person who,

(a) is affected by an order obtained on a motion without notice; [or]

(b) fails to appear on a motion through accident, mistake or insufficient notice; …

may move to set aside or vary the order, by a notice of motion that is served forthwith after the order comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion.

[Emphasis added.]

Rule 37.14 – Compliance with Time Requirement

[30] Mikhael effectively acknowledges in his affidavit that the order of Justice Grace came to the defendant’s attention on April 3, 2012, (i.e., the day it was made). Three weeks later, on April 24, 2012, the defendant served a notice of motion seeking the relief requested herein. (As noted above, for some reason the defendant replaced its original motion record with another one seeking the same relief. The “substitute” motion record was not delivered until May 15, 2012, but nothing seems to turn on this as the notices of motion, putting the plaintiffs on notice of the relief sought by the defendant, appear to be identical in all substantive respects.)

[31] Although the plaintiffs emphasized in their motion material that they heard nothing whatsoever from the defendant or any lawyer on its behalf between March 13, 2012, and April 20, 2012, they did not seriously challenge the defendant’s argument that it had moved with reasonable dispatch pursuant to Rule 37.14 after the order made by Justice Grace came to its attention on April 3, 2012.

[32] In any event, I am willing to accept, for purposes of the defendant’s motion, that it satisfied the timing requirements of Rule 37.14 and served its notice of motion “forthwith” in the circumstances, (having particular regard to its apparent contemporaneous efforts to retain new counsel).

Rule 37.14(1)(b)

[33] I am not able to accept, based on the evidence and arguments before me, that the circumstances fall within the description of those contemplated by Rule 37.14(1)(b). In that regard, it must be remembered that:

a. the focus is on the order made by Justice Grace on April 3, 2012, and therefore on the motion and hearing before Justice Grace that led to the making of that order;

b. the evidence and arguments of the defendant were premised entirely on the position that it knew nothing whatsoever about that order, motion or hearing until it was served with a copy of the resulting order after the fact; and

c. the defendant, according to its position, accordingly had no knowledge or awareness of the hearing in respect of which it was capable of making an “accident” or “mistake”.

[34] This is not, for example, a case in which the defendant knew of a pending motion but “accidentally” or “mistakenly” went to the wrong venue at the right time, attended the right venue at the wrong time, or let the particular hour of an intended appearance pass by through inattention or inadvertence.

[35] Nor would it be consistent with the defendant’s position to suggest that it received “insufficient notice” of the motion before Justice Grace, within the meaning of Rule 37.14(1)(b). Such a conclusion would be possible only if the reference to “insufficient notice” in Rule 37.14(1)(b) was intended to include situations where a motion was made with no notice at all; i.e., without notice. However, the disjunctive structure of the clauses in Rule 37.14(1) makes it clear that the Rule regards a “motion without notice” and a motion brought on “insufficient notice” as two conceptually different situations.

Rule 37.14(1)(a) – Order Obtained on Motion Without Notice?

[36] In this case, the defendant’s request for relief therefore turns on the interpretation and possible application of Rule 37.14(1)(a), dealing with orders “obtained on motion without notice”.

[37] This in turn raises a threshold question as to whether the order made by Justice Grace was such an order; i.e., an order “obtained on motion without notice” within the meaning of the rule.

[38] More generally: is an order obtained without notice, pursuant to a previous order made with notice and expressly permitting such a step, a true “without notice” order within the meaning of Rule 37.14(1)(a)? If not, Rule 37.14(1)(a) does not apply in the circumstances before me, in which case I have no jurisdiction in the circumstances to grant the relief requested by the defendant.

[39] Unfortunately, although the question has been considered by the Ontario courts on numerous occasions, the answer is not entirely clear.

[40] In Warger v. Nudel, [1989] O.J. No. 1880 (Master), an order obtained on notice directed a plaintiff to re-attend for further discovery and provided that, upon the plaintiff’s failure to re-attend, the defendants could move without notice to dismiss the action. There was complete non-compliance with the first order. Relying on the first order, the defendants moved without notice and obtained a second order dismissing the action. In the course of his reasons dismissing the plaintiff’s motion to set aside the dismissal, Master Sandler opined, at paragraphs 39-41, that an order made without notice and expressly permitting such a step was not a true without notice order, within the meaning of Rule 37.14(1)(a):

Rule 37.14(1)(a), (person affected by an order obtained without notice), also does not apply. The November 3 order was not an order obtained “without notice”. …

As to the order of December 4, 1987, it was not a true order without notice, but, rather, flowed from the “on-notice” order of November 3. In Atkins v. Holubeshen (1984), 43 C.P.C. 166 (Ont.H.C.), aff’d (1985), 50 C.P.C. 94 (Ont.Div.Ct.), aff’d 23 C.P.C. (2d) 192 (C.A.), which I will discuss in much greater detail below, Henry J., at 170, holds that the ex parte order of Judge Sullivan of August 16, 1981, dismissing the action, made in furtherance of a consent order of August 10, 1981, was “not a true ex parte order” but flowed from the agreement of the solicitors and the consent order of August 10. Again, in Brown v. Peppall, [(1911), 23 O.L.R. 630 (C.A.)], the Court of Appeal held that the order in question in that case was “not an ex parte order in the true sense or in the sense of the Rule”. I could have, on November 3, dismissed the plaintiff’s action then and there without giving him a further chance. Such order would clearly not be one without notice since someone was served and appeared. The plaintiff cannot be in a better position because I gave him a further chance but provided in my order that if he did not take it, the defendants could move without further notice to dismiss his action. …

The plaintiff, in the guise of moving to set aside the December 4th order, as being one made without notice, could not attack the provisions of the November 3rd order. If the December 4th order had been based on erroneous or misleading or incomplete evidence that had been put before the court making it, then it could be set aside under rule 37.14(1)(a). And so, for example, if Warger had, in fact, attended on discovery on December 3rd, or if both solicitors, by consent, had arranged a different date for him to attend than December 3rd, and this was then not disclosed in the evidence used on the without notice motion, then such order could be set aside under rule 37.14(1)(1). But this is not what the plaintiff is arguing about. …

Rule 37.14(1)(a) allows a court not only to consider whether an order should have been made, but whether having been made, it should, in view of any change in the state of affairs or position of the parties, be rescinded. But this broad inquiry, by subsequent motion rather than by appeal, is only available if the order was on truly without notice.

[Emphasis added.]

Justice Trainor, sitting as a single judge of the Divisional Court, then dismissed an appeal from Master Sandler’s decision, saying: “I cannot improve on the careful, thorough, and logical reasoning of the Master, and I adopt his reasons”. See Warger v. Nudel, [1990] O.J. No. 3124 (Div.Ct.), at paragraph 1.

[41] However, as the merits of the Warger v. Nudel decision have been questioned in subsequent decisions by judges at concurrent levels of authority, I pause to note the following:

a. As Master Sandler himself remarks, at paragraphs 3 and 41 of his reasons, the moving plaintiff in that case did not move pursuant to Rule 37.14(1)(a), and did not rely on that subrule in the course of argument. Rather, the plaintiff was moving pursuant to Rule 59.06. Master Sandler took it upon himself to raise and offer comments about Rule 37.14, saying: “I have dealt with Rule 37.14(1)(b) and (1)(a) in case it is thought that just because plaintiff’s counsel did not deal with it, I therefore did not consider this possible approach.” His comments in that regard therefore arguably were obiter.

b. With respect, a review of the particular authorities cited by Master Sandler in support of his above comments suggests they do not offer particularly strong support for the proposition that an order made without actual notice, pursuant to an earlier order obtained on notice permitting such a step, should not be regarded as a true order obtained without notice for the purposes of Rule 37.14(1)(a). While Atkins v. Holubeshen did involve such a situation, the first court order was obtained on consent, and the court at first instance simply accepted, without any detailed reasons, a party submission that the subsequent order was not obtained ex parte but pursuant to the parties’ earlier consent. In upholding the decision, neither the Divisional Court nor the Court of Appeal focused on that aspect of the case. As for Brown v. Peppall, that matter apparently did not involve an order obtained without notice pursuant to an earlier order obtained on notice, but an order obtained without notice from the Registrar using a consent executed by the parties. In any event, it is obvious that neither decision approached such issues in the context of determining the proper interpretative approach to Rule 37.14.

c. Justice Trainor’s dismissal of the appeal from Master Sandler’s decision did not contain any specific consideration or particular endorsement of the Master’s comments concerning Rule 37.14(1)(a).

[42] The views expressed in Warger v. Nudel were specifically considered and rejected in Rolling Stone Haulage Ltd. v. Wilkinson, Tyrell, McKay Insurance Brokers & Consultants Ltd., [1997] O.J. No. 4018 (Div.Ct). In that case, (as in Warger v. Nudel), an order obtained on notice had directed attendance at an examination and provided that, in the event of default, a motion could be brought without notice to strike the defendant’s statement of defence. There effectively was complete non-compliance with the order obtained on notice, and the subsequent dismissal order then was obtained without notice pursuant to the earlier order. In allowing an appeal from the Master’s refusal to set aside the order pursuant to Rule 37.14, Justice Matlow, sitting as a single judge of the Divisional Court, considered Warger v. Nugel and said this:

With respect, I disagree with the holding of the learned Master and that of the judge of concurrent jurisdiction with me who upheld it. In my view, an order made on a motion without notice pursuant to leave granted by an order made on a motion with notice is still an “order obtained on a motion without notice” as contemplated by Rule 37.14(1). I arrive at this conclusion from the plain language of rule 37.14(1).

The practice of granting leave to move for substantial relief without notice which is now commonplace should, in my view, be exercised sparingly. The suspension of the adversary process which it authorizes even in limited circumstances can lead to unjust results which we should strive to avoid. The avoidance of such unjust results is the underlying rationale of rule 37.14(1) which confers a much wider basis for attacking such orders than would be permitted only by way of appeal.

If the basis for attack ought to be narrowed so as to protect such orders, that should be done in my view by amendment to the Rules of Civil Procedure rather than by a principled interpretation of rule 37.14(1) which strains its plain meaning. …

If it were necessary, I would invoke my inherent jurisdiction to achieve the same result as that achieved by my interpretation of the applicable law.

[Emphasis added.]

In his reasons, Justice Matlow therefore focused on the wording of rule 37.14(1) and on the Warger decision, without contemplation of the earlier appellate authority relied upon in the latter. As far as the suggestion of inherent jurisdiction is concerned, it is worth noting that, while this was rejected in Warger v. Nudel, the rejection there was based expressly on a recognition that Masters, unlike judges, lack such jurisdiction.

[43] In Vesely v. Dietrich (1998), 1998 CanLII 18871 (ON SC), 39 O.R. (3d) 541 (Div.Ct.), a full panel of the Divisional Court noted the apparent conflict between the Warger and Rolling Stone decisions, but effectively stopped short of resolving it.

[44] The underlying facts of Vesely involved an order obtained on notice that obliged the plaintiff to answer undertakings and, in the event of non-compliance, permitted the defendants to move without notice for an order dismissing the action. Although the plaintiff delivered material in attempted compliance, the defendants considered the material inadequate and moved ex parte to obtain a dismissal order. The judge hearing the plaintiff’s subsequent motion pursuant to Rule 37.14(1) motion dismissed the preliminary objection by the defendants, (relying on Warger), that the court lacked jurisdiction in the circumstances because the second order was not a true order obtained on motion without notice. The defendant appealed.

[45] In dismissing the appeal, the Divisional Court panel clearly shared the concerns expressed by Justice Matlow in Rolling Stone about the practice of granting leave to move for substantial relief without notice. (Its decision opens with a reference to “the pitfalls inherent in without notice motions”, and concludes with an “admittedly obiter” repetition and endorsement of Justice Matlow’s comments suggesting the practice should be used sparingly.)

[46] Yet the panel stopped short of rejecting the rationale of Warger and endorsing that of Rolling Stone. Instead, the panel was content to assume (without deciding) that the principle in Warger was correct, but capable of distinction based on the different underlying fact situations. In particular, whereas the situation in Warger (and Rolling Stone) involved complete non-compliance with the order obtained on notice, the situation in Vesely was said to be different:

To take advantage of rule 37.14 the plaintiff must show that he is “a party affected by an order made without notice”. The defendants submitted that the plaintiff was not such a party and therefore rule 37.14 was not available and the plaintiffs only recourse would be to appeal.

The rationale for this position is the case of Warger v. Nugel, a decision of Master Sandler … upheld on appeal by Trainor J. …

Master Sandler held that an order made without notice, pursuant to a previous order made with notice and expressly permitting such a step, was not a true without notice order. This was so, he said, because the second order flowed from the original order and the original order must be regarded as a sufficient notice of the second order.

That decision has since been criticized by Matlow J. in the as yet unreported case of Rolling Stone Haulage Ltd. v. Wilkinson, Tyrell, McKay Insurance Brokers & Consultants Ltd. …

Assuming, however, that the principle in Warger is correct, it is our view that it cannot assist the appellant in the facts of this case.

In Warger v. Nugel, the defaulting party, Warger, was ordered to appear for discovery and it was provided that if he failed to do so the defendants could move without notice to dismiss the action. He failed to appear and on motion without notice his action was indeed dismissed.

There was in that case no question of purported but faulty compliance, but total non-compliance - - as Master Sandler said at p.303 of his reasons, “no one showed up”. A motion was brought to set aside the dismissal of the action. Master Sandler held that the motion for dismissal had not been a “true without notice motion” because it flowed from the previous order which had been made on notice. Thus, it could not be dealt with under rule 37.14.

By contrast, in the case at bar the facts are quite different. Here the appellant had missed the December deadline but before the without notice motion was brought he delivered material in purported compliance. The respondent nevertheless [moved] without notice and asserted that the compliance was … unsatisfactory.

There is, in our view, a very material distinction between these situations. A party delivering material in purported compliance with an order of the court is in principle entitled to be present to make his case that his purported compliance is sufficient.

… In view of the principle that a party is entitled to make his case, it is our view that unless the moving party is precisely within the four corners of that order allowing the without notice motion, the reasoning in Warger can not apply. The consequences of such a motion are too drastic to permit any but the strictest of approaches.

The order before us permitting a without notice motion in the event that the plaintiff did not obey the order does not expressly address the issue of a challenge to purported compliance. Accordingly it did not justify the bringing of a without notice motion, where there had been purported compliance. Accordingly, notice of that motion ought to have been given. No notice having been given when it was required, rule 37.14 applies.

[Emphasis added.]

[47] Some later decisions have rejected a differential approach to Rule 37.14(1) application based on distinctions such as those relied upon by the Divisional Court in Vesely. However, in my opinion, the comments above make it clear the panel there made such distinctions as part of its ratio decidendi, while deliberately setting to one side the apparent conflict between Warger and Rolling Stone in cases of complete non-compliance with the original order obtained on notice.

[48] Unfortunately, there seems to have been no later authoritative resolution of that apparent conflict.

[49] In Rosen v. Homelife/St. Andrews Realty Inc., [1998] O.J. No. 2473 (Gen.Div.), at para. 14, Warger seems to have been accepted and applied to a situation of complete non-compliance, but without analysis and without mention or consideration of the criticisms in Rolling Stone.

[50] In Paglione v. 860804 Ontario Ltd., [1998] O.J. No. 4980 (Gen.Div.), the motions judge clearly and expressly rejected Warger, and proceeded to entertain a motion pursuant to Rule 37.14(1) in similar circumstances, but did so simply because Warger had been decided by a Master “not clothed with the authority of a judge”. (The judge apparently was not advised that Warger had been upheld on appeal.)

[51] The question came before the court again in Big A Amusement Co. v. Erin Agricultural Society, [2000] O.J. No. 293 (S.C.J.). Moving on notice, the defendant in that case obtained an order requiring the plaintiff’s delivery of expert reports within 45 days, in default of which the defendant was permitted to move without notice for an order dismissing the claim. The plaintiff was unable to deliver the reports within 45 days, and brought a motion to extend the deadline. Relying on the earlier order, the defendant nevertheless moved without notice to obtain an order dismissing the plaintiff’s claim and, relying on Warger v. Nudel, disputed the court’s jurisdiction to then entertain a subsequent motion by the plaintiff pursuant to Rule 37.14(1) to set aside the order of dismissal. After noting the apparent failure of the defendant to comply with Rule 39.01(6), requiring a moving party or applicant proceeding without notice to make full and fair disclosure of all material facts, Justice Lane went on to consider the basis of the court’s jurisdiction to entertain the plaintiff’s motion for relief:

It was submitted that the motion before Stayshyn J. was not a “true without notice” motion and therefore this Court did not have jurisdiction under Rule 37.14 because that motion flowed from the order of Borkovich J. which authorized it. Reliance was place on the case of Warger v. Nudel (1989), 39 C.P.C. (2d) 290, (Ont.Master), aff’d C.P.C. (2d) 126, where the Master adopted that analysis. Trainor J. on appeal adopted the Master’s reasons. But that case did not involve the concealment of material facts. Indeed, at p.308, the Master expressly noted that if the subsequent order, i.e., the equivalent of the order of Stayshyn J., had been made on erroneous or misleading or incomplete evidence, it could be set aside under rule 37.14. While that statement is obiter, it was part of what was adopted by Trainor J. Far from giving comfort to the defendant/third parties, the case assists the plaintiff.

As well, in my opinion, whether or not there is a Rule specifically authorizing the Court to intervene, the inherent jurisdiction of the Superior Court to control its own process is basis enough in facts like this. No technical analysis of the Rules should ever be allowed to detract from the fundamental principle that parties may not obtain relief by deceit. This is particularly so where the opposite party is not present, whatever may be the reason for that absence. The order of Stayshyn J. was obtained by concealing from him a very material fact. It would be a scandal if the Court did not intervene to set it aside.

[Emphasis added.]

While Justice Lane apparently was not directed to the earlier decisions in Rolling Stone and Vesely, he therefore independently seems to have formed similar opinions concerning the possibility of supervening inherent discretion, (to address any jurisdictional impediment that otherwise might prevent application of Rule 37.14 to ex parte orders obtained pursuant to previous orders obtained on notice), and distinguishing Warger in situations where a subsequent ex parte order is obtained without the court being advised of intervening developments. (Despite Justice Lane’s apparent reliance on comments in Warger concerning possible application of Rule 37.14 to ex parte orders obtained without full disclosure, I note Master Sandler’s express indication, consistent with his earlier comments, that such an inquiry nevertheless “is available only if the order was one truly without notice”.)

[52] The apparent conflict between the Warger and Rolling Stone decisions received express consideration in Freedman v. Armantrout, [2000] O.J. No. 3724 (Div.Ct). The underlying fact situation resembled that in Warger and Rolling Stone, in that there had been complete failure to comply with the earlier order obtained on notice from a Master, and the defendant then had obtained an ex parte order of dismissal from the Master pursuant to provisions of the order obtained on notice. However, matters then took a different procedural turn from the Warger and Rolling Stone situations, as the plaintiff in Freedman v. Armantrout did not attempt to address the ex parte dismissal by moving before a Master pursuant to Rule 37.14, (thereby generating a Rule 37.14 decision by a Master that was then appealed to a Superior Court judge sitting as a single judge of the Divisional Court). Rather, the plaintiff appealed the Master’s ex parte dismissal order directly to a Superior Court judge sitting as a single judge of the Divisional Court. The defendant challenged the propriety of that procedure, arguing that the plaintiff should have moved first pursuant to Rule 37.14, which in turn would have required consideration of the apparent conflict between the Warger and Rolling Stone decisions. In dismissing the plaintiff’s appeal, Justice O’Driscoll summarized the apparently conflicting views expressed in the two earlier Divisional Court decisions and expressed a clear preference for the approach to Rule 37.14 adopted in Warger. He nevertheless also expressly indicated that his view in that regard was obiter, as he had arrived at the same result (upholding dismissal of the plaintiff’s claim) via the direct appeal from the ex parte order:

In this case, I need not adopt one view or the other. I need not decide whether the conflict procedure in this case was an appeal or an application to set aside the order of Master Garfield. However, I find the reasoning in Warger v. Nudel (supra) more persuasive for two reasons:

1. As pointed out in Warger a motion such as the one in this case to set aside the April 15, 1998 order would be a prohibited collateral attack on the earlier order given, on consent, by Beaulieu J., on January 15, 1998.

2. Moreover, Master Sandler in Warger v. Nudel pointed out that in Brown v. Peppall (1911), 23 O.L.R. 630, 634, the Court of Appeal for Ontario held that an ex parte order is only one where “a party obtains without the attendance of the other, without his consent, and solely on his (the Applicant’s) shewing”.

After reviewing the material filed and the submissions heard, I cannot find any error in the order of Master Cork. Moreover, if this was an application to set aside the order of Master Cork, I could not find any reason to set it aside.

In the result, Justice O’Driscoll formally dismissed the appeal, with costs.

[53] The proper approach to Rule 37.14(1) in such circumstances was also considered in Pesah v. Grosz, [2001] O.J. No. 3766 (S.C.J.). The facts once again involved complete non-compliance with an order obtained on notice (from a Master), followed by an ex parte dismissal order obtained (from a Master) pursuant to the earlier order. The plaintiff brought an application before Justice LaForme to set aside the Master’s ex parte order of dismissal. (Quare whether the decision therefore properly should be cited as one of the Divisional Court.) Noting that his decision in that regard turned on “a consideration of R.37.14 and perhaps the court’s inherent jurisdiction”, Justice LaForme considered the Warger, Rolling Stone and Vesely decisions, embraced the “compliance v. non-compliance” distinction emphasized by Vesely, and also seemed to accept a further residual discretion of the court to set aside ex parte orders producing an “unjust result”:

It seems therefore that the distinction is this: Where there is “purported compliance” with the previous order, then the principle in Warger does not apply. However, where there is “non-compliance” with the previous order, as there was in Warger, then the principle can apply. I leave for the moment the fact that there was non-compliance with the prior order in both Warger and Rolling Stone.

What is particularly clear from Matlow J.’s decision in Rolling Stone is that he did not mean that relief on motions without notice could or would never be granted. He merely stated his view, and it is one which the court in Vesely agreed with as do I, namely; that relief granted without notice “should be exercised sparingly” (p.192). The purpose for this approach he maintained, and again I agree, was to avoid unjust results.

Thus, it seems to me that when dealing with a situation where an order was made without notice, pursuant to a previous order made with notice, the court is obliged to consider two principles. They evolve, in my opinion, when one attempts to reconcile the above stated principles found in Warger, Rolling Stone, and Vesely, which in my view leaves us with the following: Rule 37.14 may be relied upon to set aside the motion made without notice if,

(i) It can be established that there has been “purported compliance” with the previous order made with notice; or

(ii) It would eventuate an unjust result not to set it aside.

In the case before him, Justice LaForme confirmed that the situation involved one of complete non-compliance with the order obtained on notice, and that the ex parte order would not eventuate any unjust result in the circumstances.

[54] The Warger, Rolling Stone and Vesely authorities were considered again in Zesta Engineering v. Thermal Energetics Ltd., [2002] O.J. No. 4523 (S.C.J.). The plaintiff in that case obtained an order on notice compelling the defendants to produce certain documents within a specified period, failing which the plaintiff was given to move ex parte for an order striking out the statement of defence. Prior to the deadline, the defendants made certain admissions that arguably rendered the productions unnecessary, and also offered to make other documents available for inspection. Relying on the defendants’ failure to comply with all provisions of the order obtained on notice, the plaintiff nevertheless moved ex parte to obtain an order striking the defence. Justice Mossip noted the apparent conflict between the Warger and Rolling Stone decisions, and seemed inclined to prefer the latter, but found the situation before him was instead governed by Vesely as it was “not one of total non-compliance by the moving party defendants”. In such “analogous” circumstances, Justice Mossip felt able to apply Rule 37.14(1)(a) on that basis, and set aside the ex parte order striking the statement of defence.

[55] A similar approach was adopted by the court in Sgro-Di Giosaffatte v. Di Giosaffate, [2001] O.J. No. 5165 (S.C.J.), where the wife in matrimonial litigation obtained an order on notice requiring productions within a certain number of days, and permitting an ex parte motion to strike the husband’s answer if he failed to comply. Although the husband had provided a substantial number of documents one day after the court ordered deadline, the wife relied on the technical default to then obtain the contemplated ex parte order. In setting aside the ex parte order pursuant to Rule 37.14(1)(a), Justice Goodman found that the situation involved one of “purported compliance”, thereby bringing it within the binding authority of Vesely.

[56] To similar effect is the court’s decision in Sajjan v. Sajjan, [2004] O.J. No. 1154 (Div.Ct.). At an earlier hearing brought on notice, (but at which the applicants failed to appear), the respondent obtained an order that included an award of costs payable within 10 days, failing which the respondent was permitted to move ex parte to obtain relief sought in her counter-application. Notwithstanding the applicants’ indication that they were appealing the original order, (with a corresponding delay in their payment of the cost award therein), the respondent moved ex parte to obtain the contemplated order. In setting aside that order pursuant to Rule 37.14(1)(a), Justice Wein noted that “the case law is not entirely clear concerning the scope of Rule 37.14(1)” in such situations, and specifically noted the Warger and Rolling Stone decisions in that regard. However, it was not necessary for her to resolve that conflict, as she found the situation before her was governed instead by the principles and approach in Vesely and Zesta Engineering. In particular, there were events subsequent to the original order obtained on notice that took the situation “outside the parameters of Warger, assuming Warger to be correctly decided on the particular facts of that case”.

[57] Finally, one must consider the more extended judicial consideration of this Rule 37.14 jurisdictional issue in Liu v. Daniel Executive (Canada) Holdings Corp., [2009] O.J. No. 4124 (Master), aff’d [2010] O.J. No. 6252 (S.C.J.), leave to appeal denied, [2011] O.J. No. 355 (Div.Ct.). The defendant in that case obtained an order on notice that required the plaintiffs to post $300,000 as security for costs before a certain date, failing which the defendants were permitted to move without notice for an order dismissing the claim. The plaintiffs believed they satisfied the order by having property they controlled in British Columbia made available as security for costs. (The situation therefore arguably was one of purported or attempted compliance with the order obtained on notice, rather than one of complete non-compliance.) However, apparently relying on the plaintiffs’ failure to post security in the specified manner, the defendants moved ex parte and obtained an order of dismissal.

[58] In considering the plaintiffs’ subsequent motion pursuant to Rule 37.14(1) to set aside the ex parte dismissal, the Master expressly considered the apparent conflict between Warger and Rolling Stone, preferred the reasoning in the latter, and rejected a suggestion that Vesely somehow had endorsed the approach in Warger. Indeed, the Master went further and also rejected arguments that application of Rule 37.14(1) should turn on questions of compliance with the order obtained on notice:

The Keelson plaintiffs attempt to reconcile the cases by submitting that when there is partial (or attempted compliance) with an order, the Rolling Stone and Zesta analysis should apply, and when there is no compliance, the Warger and Freedman analysis should apply. The Keelson plaintiffs rely on the decision of the Divisional Court in Vesely v. Dietrich … for that that submission.

However, the court in Vesely did not state that the legal analysis of whether a dismissal order made without notice arising from an order made with notice would depend on whether there was no or partial (or attempted) compliance with the underlying order. The court specifically noted that the decision in Warger had been criticized by Matlow J. in Rolling Stone and simply assumed, for the purposed (sic) of its analysis, that the principle in Warger was correct. The issue of the applicable legal test was irrelevant since the court concluded that the principles in Warger could not apply if a party engaged in partial (or attempted) compliance. The court did not state which test would apply if there was no compliance.

Further, it would not be logical for the legal issue of whether a dismissal order made without notice arising from an order made with notice depends on whether there was no compliance or partial (or attempted) compliance with the underlying order. Neither Warger nor Rolling Stone suggest such an analysis as a basis for the conclusions reached therein. Rather, the courts have different views based on the reading and interpretation of Rule 37.14(1)(a).

Consequently, I apply the reasons in Rolling Stone and Zesta and I find that the Dismissal Motion was made without notice and as such I have the jurisdiction to set aside the Dismissal Order under Rule 37.14(1)(a).

In the result, the Master granted relief pursuant to Rule 37.14(1), and set aside the ex parte order dismissing the plaintiffs’ claim.

[59] In dismissing the defendants’ appeal from the Master’s order, [2010] O.J. No. 6252 (S.C.J.), Justice Wilton-Siegel expressly agreed that the dismissal order fell with Rule 37.14(1)(a) “for the reasons set out in the [Master’s] endorsement”, and added the following comments of his own:

Under the Rules, a party may challenge an ex parte order in two ways. If the party does not seek to introduce its own responding materials with respect to the ex parte motion, it will typically appeal the order. If, however, a party wishes to introduce responding materials and it can satisfy the requirements of Rule 37.14(1), that Rule provides that the party may proceed by way of a hearing before a judge of this Court to set aside the earlier order. Such a hearing would involve a new decision at first instance.

I see no distinction between an order granted on an ex parte basis and an order granted on a “without notice” motion. If a party affected by a “without notice” order issued on such a motion wishes to challenge the order by introducing responding materials addressing its noncompliance, the proper proceeding is, therefore, a Rule 37.14 motion, for which the party must satisfy the requirements of such Rule.

I also agree with Master Glustein that it would be illogical for the legal position of a party affected by such an order to depend on whether there was compliance or partial compliance with the underlying order as the appellants argue based on Warger v. Nudel. … As the present proceeding and several of the cases cited to the Court demonstrate, even if there were no compliance, it is possible that the reasons for such non-compliance would be a relevant consideration for the motions judge in refusing to exercise the Court’s discretion to grant the requested relief … In my opinion, justice and practical common sense compel the simple rule articulated above.

I do not agree with the appellants that such a result is unfair to the non-defaulting party and renders a “without notice” order meaningless, although I agree with Matlow J. in Rolling Stone … that such orders should be granted sparingly. “Without notice” orders are of value in circumstances in which there is no likelihood that the defaulting party will comply with the prior order because it has abandoned an action. On the other hand, for the reason set out above, if it transpires that a party has not abandoned an action and there is a dispute as to compliance with an earlier order with respect to which the defaulting party seeks to introduce responding materials, the dispute regarding the significance of the alleged non-compliance should be resolved on a motion back before the Master rather than on an appeal.

[Emphasis added.]

[60] Justice Ferrier then dismissed the defendants’ motion for leave to appeal Justice Wilton-Siegel’s ruling upholding Master Glustein; see [2011] O.J. No. 355 (Div.Ct.). As for Rule 62.02(4)(a), Justice Ferrier acknowledged the conflict in the case law but did not feel it was desirable to have the issue resolved by granting leave to appeal in the case before him:

The reasons of the master reflect a thorough and careful analysis of the issues. He exercised his discretion and set aside the dismissal order. He did so pursuant to rule 37.14(1)(a). After reviewing the conflicting case law, he preferred the reasoning in Rolling Stone … to that in Warger ,,,, and the cases flowing from them respectively.

On appeal to Mr Justice Wilton-Siegel, the learned judge, in an equally thorough and carefully reasoned decision, dismissed the appeal. He too recognized the conflict in the cases and preferred the Rolling Stone line of authority.

Thus, the Master clearly exercised his discretion correctly, without error in principle, unless rule 37.14(1)(a), and on that question there are conflicting decisions.

Thus the first branch of rule 62.02(4)(a) is satisfied, and the question becomes whether it is “desirable that leave to appeal be granted”.

In my view the answer to that question is no. …

To be sure, the argument that the conflict in the cases should be cleared up has considerable merit, but in my view this is not the case which should go forward on the issue. The circumstances here are peculiar to this case. …

[Emphasis added.]

As for Rule 62.02(4)(b), Justice Ferrier felt unable to conclude that there was “good reason to doubt” the correctness of the approach taken by Master Glustein and Justice Wilton-Siegel:

Notwithstanding the conflict case law, I am not of the view that the matter is open to serious debate. A “motion without notice” is such whether it is permitted by the rules or by leave granted in an order. I agree with the analyses of the master and the judge below. Furthermore, in Warger, supra, the motion was brought pursuant to rule 59.06(2)(a) and the comments of Master Sandler concerning rule 37.14 and the ex parte motion in that case would appear to be obiter. In Vesely, … the court did not take the principle in Warger, supra, to be correct. The other authorities cited by the plaintiffs and referred to in the decisions below, are clearly distinguishable on their facts.

I am reinforced in this view by the provisions of rule 1.04(1), that the rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. …

Even if I am wrong on the first branch of this sub-rule, for the reasons expressed above – the particular circumstances of this case – I am of the view that this is not the case which will advance the administration of justice in reference to the issue.

The motion for leave therefore was dismissed.

[61] This extended review of authorities dealing with the threshold Rule 37.14(1)(a) jurisdiction issue justifies, I think, the following general observations and conclusions:

a. To the extent there is any doubt as to whether courts will exercise Rule 37.14(1)(a) jurisdiction in relation to orders obtained without notice pursuant to earlier orders obtained on notice, such doubt does not extend to situations of purported or partial compliance, or non-disclosure of similar material facts. Courts definitely regard themselves as having jurisdiction to deal with such situations pursuant to Rule 37.14(1)(a). (See Vesely, Pesah, Zesta Engineering, Sgro-Di Giosaffatte and Sajjan, supra.) Although the Liu case disparages a compliance-based approach to Rule 37.14(1)(a), it apparently does so only in support of the position that Rule 37.14(1)(a) jurisdiction should exist in cases of non-compliance as well. In any event, it seems to me that the full panel Divisional Court decision in Vesely remains binding authority in cases of purported or partial compliance.

b. In situations of complete non-compliance with the order obtained on notice, the ostensible conflict in the case law, (between the Warger and Rolling Stone lines of authority), is more apparent than real. As noted above, the relevant comments in Warger arguably were obiter, (a view supported by Justice Ferrier’s comments in Liu). Moreover, subsequent authority expressing support with Warger either fails to note and consider the conflicting position, (e.g., Rosen), or is itself expressly obiter, (e.g., Freedman). In distinguishing situations of complete non-compliance from the case before it, Vesely expressly assumed (without deciding) that Warger was correct in those other situations. In the result, there actually seems to be no case in which a reasoned preference for Warger over Rolling Stone forms part of the decision’s ratio decidendi. In contrast, there are many decisions whose operative comments reject the Warger approach in favour of that advocated in Rolling Stone.

c. Substantively, the position in Warger relies primarily on cases, decided prior to enactment of Rule 37.14, involving underlying facts capable of distinction and/or propositions adopted without any detailed consideration, argument or rationale. (Freedman suggests an additional concern for the prevention of prohibited collateral attacks on earlier orders obtained on notice, but that arguably can be addressed if and when the need arises when courts are asked to exercise their discretion pursuant to Rule 37.14.) In contrast, Rolling Stone and the authorities supporting its approach generally involve detailed and purposive interpretations in the specific context of Rule 37.14

d. No case seems to contradict or reject those asserting the existence of a judge’s inherent jurisdiction to entertain a motion to set aside an order obtained without notice, even if Rule 37.14(1)(a) is not technically available. (See Rolling Stone and Big A Amusement Co., supra.) If such a jurisdiction does exist, it arguably renders the entire debate about the limits of Rule 37.14(1)(a) largely academic.

[62] In the result, I believe binding Divisional court authority confirms my jurisdiction to review and set aside orders obtained without actual notice, (regardless of whether there has been any compliance or attempted compliance with an earlier order, obtained on notice, permitting ex parte proceedings), and that there actually is no conflicting binding authority to the contrary.

[63] To the extent it is necessary and open for me to decide between the two ostensibly diverging lines of authority canvassed above, (as the case before me involves a situation of complete non-compliance with the order obtained on notice), I would endorse the Rolling Stone approach for the reasons set out therein and in the authorities endorsing it, (although my preference would be the exercise of such jurisdiction through a structured rule rather than an amorphous inherent jurisdiction).

[64] In any event, for purposes of the motion before me, I regard the order of Justice Grace as one “obtained on motion without notice” for the purpose of Rule 37.14(1)(a).

Rule 37.14(1)(a) – Application

[65] Where Rule 37.14(1)(a) applies, the granting of relief is discretionary, requires balancing of the interests of the parties involved, and depends on the evidence in each particular case: John Wheelwright Ltd. (Trustee of) v. Central Transport Inc., [1996] O.J. No. 3128 (Div.Ct.), and Liu v. Daniel Executive (Canada) Holdings Corp., supra.

[66] In the particular circumstances of this case, I am not persuaded that the order striking out the statement of defence should be set aside. In support of that conclusion, I have regard to all of the evidence outlined above, but note in particular the following considerations.

[67] First, I think it important to bear in mind that the defendant seeks relief pursuant to a rule which, as noted above, inherently is designed to address and remedy possible injustice resulting from temporary suspension of the normal adversarial process; see Rolling Stone, Vesely and Liu, supra. In other words, a party moving pursuant to rule 37.14(1)(a) inherently takes the position that, because it did not receive notice of a hearing that led to an order affecting its interests, it was prevented from attending, filing responding material and/or making submissions that might have led to a different result than that embodied in the ex parte order the party seeks to vary or set aside.

[68] But can the defendant seriously advance that position on the facts of this case? I think not.

[69] When the matter came before Justice Morissette on March 13, 2012, (at a hearing unquestionably brought on proper notice to the defendant), the defendant had failed to comply with outstanding undertakings given months before, in the context of a litigation history suggesting defendant reluctance to address the case properly as required by the rules. In the circumstances, Justice Morissette felt it appropriate to give the defendant one further chance to satisfy the undertakings, within a specified time period.

[70] When the matter came back on for hearing before Justice Grace on April 3, 2012, had the defendant received notice and appeared personally or through counsel, what possibly would or could have been said on its behalf to persuade Justice Grace that the order striking its defence should not have been granted? At that point, the relevant undertakings still remained entirely unsatisfied. Moreover, based on the evidence before me, proper and full disclosure on April 3rd would have included indications to Justice Grace:

a. that the defendant, over the three month period following its discovery examination, had failed to respond in any way to repeated calls and email correspondence from its counsel underscoring the pressing need for efforts to address and satisfy the undertakings;

b. that the defendant did not meet with its counsel in relation to the undertakings or provide its counsel with any material whatsoever to satisfy the undertakings until March 7 or 8, 2012, at which time it supplied its counsel with material sufficient to address no more than 20% of the undertakings;

c. that the defendant was indeed made aware of the motion returnable on March 13th but made a deliberate decision not to participate either through counsel or by personal appearance;

d. that the defendant also expressly instructed its counsel to not take any steps towards even partial satisfaction of the undertakings, (e.g., by turning over the documentation supplied to its solicitor on March 7 or 8, 2012);

e. that the defendant also had been provided with a copy of the March 13th order on March 21st or 23rd, but still had taken no steps prior to April 3rd to satisfy its undertakings or comply with the March 13th order, in terms of satisfying its undertakings; and

f. that, to the extent the defendant temporarily lacked counsel, that situation resulted from the defendant’s deliberate termination of its counsel’s retainer on March 9th, prior to hearing of the plaintiffs’ motion on March 13th, and the defendant’s subsequent failure to then take any steps whatsoever to secure new counsel for at least several weeks.

[71] In such circumstances, and having regard to the previous litigation history, it is difficult to see how or why Justice Grace would have declined to grant the order made on April 3rd, even if the defendant had received notice of that hearing and actively participated. On the facts of this case, there accordingly seems to be little or no injustice flowing from a suspension of the adversarial process.

[72] Second, to the extent the defendant argues it would be unjust in the circumstances to deny it “one last chance” at this point to satisfy its undertakings, (drawing analogies to other cases in which the granting of a further opportunity for compliance was considered appropriate), it seems to me that this represents a collateral attack on the order made by Justice Morissette on March 13th. In that regard:

a. The hearing before Justice Morissette unquestionably took place on proper notice to the defendant, (although the defendant apparently made a deliberate decision not to participate).

b. As far as the defendant’s underlying failure to satisfy undertakings is concerned, the situation that prevailed in this case on March 13th when Justice Morissette made her order had not changed by April 3rd, and in fact still has not changed. (Again, it was not disputed that, at the time of the hearing before me on August 24th, the defendant still had not provided the plaintiff with any material whatsoever in satisfaction of its undertakings, either in whole or in part.)

c. On March 13th, Justice Morissette held that the appropriate remedy in such circumstances was to give the defendant, at that point, one last chance to satisfy its undertakings, within fifteen days.

d. No appeal was taken in relation to the March 13th order of Justice Morissette. Nor did the defendant’s motion pursuant to Rule 37.14 in any way seek relief as far as the order of March 13th is concerned.

On these facts, it seems to me that Justice Morissette’s order must be taken as the court’s formal determination as to the curative opportunity appropriate to the same unchanged circumstances, and that it is not appropriate for me to now make an order that effectively undermines and disregards that earlier ruling.

[73] Finally, to the extent Rule 37.14(1)(a) provides a wide residual discretion to revisit ex parte orders of first instance if they produce an “unjust result”, (see Pesah v. Gross, supra), I am not persuaded that the ex parte order made by Justice Grace leads to such a result in this case. To the contrary, the undisputed litigation history reveals a defendant that repeatedly has demonstrated a reluctance to address the litigation in a prompt and proper way, and whose conduct even now does not instill faith that the situation is likely to change.

[74] In that regard, I note in particular the defendant’s ongoing failure to supply anything whatsoever to the plaintiffs in satisfaction of its undertakings – notwithstanding the undisputed evidence that it definitely has at least some documentation in that regard. The defendant provided no explanation for its ongoing failure or refusal, apart from vague suggestions that its previous counsel might still have some unspecified documentation relevant to satisfaction of the undertakings, and/or that plaintiff counsel had “refused to co-operate” while the defendant’s Rule 37.14(1) motion was outstanding. However, even if its former counsel still possessed documents needed to satisfy the undertakings, (which seems contrary to the evidence before me), this provides no justification for the defendant’s failure to provide the plaintiffs with documents it has. Nor is there anything whatsoever in the evidence before me to suggest that satisfaction of the undertakings in question was in any way dependent on something to be done by the plaintiff, or that there was any kind of impediment preventing the defendant from unilaterally providing the plaintiff with material in satisfaction - or at least partial satisfaction - of those undertakings. Moreover, as rule 31.07(4) makes clear “for greater certainty”, nothing in the rules “relieves a party … who undertakes to answer a question from the obligation to honour the undertaking”.

[75] The defendant therefore should have taken steps long before now to provide the plaintiff with something to satisfy its outstanding undertakings, either in whole or in part.

[76] I also note the defendant’s ongoing failure to pay, at the very least, the outstanding costs awarded by Justice Morissette back on March 13th. Again, no appeal was taken in relation to that order, (a copy of which was provided to the defendant on March 20th or 21st), and it also was not the subject of any requested relief pursuant to Rule 37.14. Yet that cost award on March 13th, directing payment within 30 days, still remained unpaid at the time of the hearing before me on August 24th, over five months later. The defendant also provided no explanation for that failure, apart from another vague suggestion that any and all costs would be worked out at some later date, after resolution of the defendant’s rule 37.14 motion. To me, this is neither satisfactory nor appropriate. Unless appealed, a court order directing the payment of costs within a specified time means what it says and is binding, and payment/compliance should not be delayed in the hope of some possible later offsetting obligation.

[77] The defendant relies on numerous authorities emphasizing the importance of having disputes adjudicated on their merits, and the general reluctance of courts to impose the drastic remedy of denying a litigant its day in court, (e.g., by dismissing a claim or striking a defence).

[78] There obviously is much truth in this.

[79] However, as emphasized by the Court of Appeal in the recent case of 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544, [2012] O.J. No. 3877, at paragraphs 17-20, it is also true that such concerns must be balanced with others underscoring the need for prevention of delay and the promotion of fairness in civil litigation:

The civil justice system aims to resolve disputes fairly, on the merits and in a timely and efficient manner. The Rules of Civil Procedure provide that the rules are to be “liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”: rule 1.04(1).

Achieving that goal in cases involving dismissal for delay requires a careful balance of two fundamental principles. The first is that civil actions should, if possible, be decided on their merits and procedural rules should be interpreted accordingly. The second is that the procedural rules that aim to resolve disputes in a timely and efficient manner can only achieve their goal if they are respected and enforced.

Time lines prescribed by the Rules of Civil Procedure or imposed by judicial orders should be complied with. Failure to enforce rules and orders undermines public confidence in the capacity of the justice system to process disputes fairly and efficiently. On the other hand, procedural rules are the servants of justice not its master. We must allow some latitude for unexpected and unusual contingencies that make it difficult or impossible for a party to comply. We should strive to avoid a purely formalistic and mechanical application of time lines that would penalize parties for technical non-compliance and frustrate the fundamental goal of resolving disputes on their merits. As Laskin J.A. stated in Finlay v. Paassen, 2010 ONCA 204, 101 O.R. (3d) 390, at para. 14: “the Rules and procedural orders are construed in a way that advances the interests of justice, and ordinarily permits the parties to get to the real merits of their dispute”.

The challenge posed in cases involving dismissal for delay is to find the right balance between, on the one hand, the need to ensure that the rules are enforced to ensure timely and efficient justice and, on the other, the need to ensure sufficient flexibility to allow parties able to provide a reasonable explanation for failing to comply with the rules to have their disputes decided on the merits.

[Emphasis added.]

[80] In the case before me, I am not presented with a defendant guilty of “technical non-compliance”, offering a “reasonable explanation” for failure to abide by obligations in the rules and court orders, based on “unexpected or unusual contingencies”. (While the defendant tried to suggest in argument that its former counsel deprived it of legal services at a crucial time in the litigation, this simply is not supported by the evidence before me. To the contrary, the sworn evidence and contemporaneous email communications provided by Refcio confirms the defendant terminated his retainer and rebuffed his proactive efforts to address and resolve the undertakings dispute before his formal removal as lawyer of record. In any event, the defendant unquestionably has had new counsel since April 20, 2012, and the uncontradicted evidence indicates that previous counsel provided his entire file to new counsel months ago apart from some possible solicitor-client correspondence. Yet the defendant’s complete non-compliance with its undertakings and the cost order of Justice Morissette inexplicably continues.)

[81] I am instead presented with a defendant that has wholly failed to comply with specific obligations arising pursuant to the Rules and a court order, provides no real explanation for the ongoing non-compliance, (let alone a reasonable one), and gives no indication as to when compliance might be expected. Moreover, all this takes place against the backdrop of a litigation history suggesting the defendant’s current failings are consistent with behavior demonstrated in the past, as far as its approach to this litigation is concerned.

[82] In such circumstances, I think the balancing exercise described by the Court of Appeal requires denial of the rule 37.14 relief requested by the defendant.

[83] Pursuant to Rules 19.05 and 19.06, the plaintiffs still will be obliged to satisfy the court that the pleaded facts and evidence of damages support granting the relief requested. However, they should no longer be obstructed by the defendant’s failure to address its litigation obligations in a timely way.

Conclusion

[84] For the above reasons, I therefore decline to set aside, vary or amend the order made by Justice Grace on April 3, 2012, striking out the defendant corporation’s defence and dismissing the defendant’s counterclaim, with prejudice and without leave to file any further statement of defence or counterclaim. The defendant’s motion in that regard is dismissed.

[85] It follows that the defendant’s supplemental notice of motion requesting a setting aside of the noting in default also should be rejected.

COSTS

[86] Because my decision was reserved, the parties were unable to make any submissions regarding costs of the defendant’s motion. If the parties are unable to reach an agreement on costs in that regard:

a. the plaintiffs may serve and file written cost submissions, not to exceed four pages in length, (not including any bill of costs), within two weeks of the release of this decision;

b. the defendant then may serve and file responding written cost submissions, also not to exceed four pages in length, within two weeks of service of the Respondent’s written cost submissions; and

c. the plaintiff then may serve and file, within one week of receiving any responding cost submissions from the defendant, reply cost submissions not exceeding two pages in length.

[87] If no written cost submissions are received within two weeks of the release of this decision, there shall be no costs of the motion.

“Justice I. F. Leach”

Justice I. F. Leach

Released: September 18, 2012