SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 12-35772

DATE: 2013-04-10

RE: NRB Inc., plaintiff

AND: Tencor Systems Inc., J. Harry Lewis, Ken McReynolds and Paul Kerkhof, defendants

BEFORE: Mr Justice Ramsay

COUNSEL:
Mr Erik Savas for the plaintiff, responding party

Mr Benjamin Blay for the defendant Tencor Systems Inc., moving party

HEARD: 2013-04-09 at Hamilton

ENDORSEMENT

[1] The defendant Tencor Systems Inc. moves to set aside default judgment.

[2] On July 4, 2012 the plaintiff sued Tencor and three of its directors for breach of contract and other causes of action, claiming that the plaintiff had advanced almost $800,000 for gaol cells to be installed in several northern communities, but that the Tencor had not delivered, and that the directors were personally liable for various stated reasons.

[3] According to the responding affidavits, the defendant Ken McReynolds is the director who is most knowledgeable about the affairs of Tencor. Having been served with the statement of claim, McReynolds and his co-defendant Lewis spoke to their lawyer on September 11, 2012. After a brief discussion it was decided that a statement of defence would be filed on behalf of McReynolds and Lewis, but not Tencor. McReynolds deposes, “based on the information we provided to [the lawyer], it appeared that Tencor was a non-operational entity on whose behalf Lewis and I had no interest in advancing a defence. Additionally, there were complexities arising from confusion as to who had control of Tencor since the co-defendant, Paul Kerkhof, had taken a general security agreement over the assets of Tencor.”

[4] McReynolds and Lewis, then, made a considered decision that Tencor would not defend the action because they did not think that it would be worthwhile to do so.

[5] McReynolds then left on a trip to Africa. When he returned, his lawyer was on vacation. By the time they met it was early December 2012. After speaking in more detail, they decided that there was a counterclaim and that Tencor had to make it.

[6] McReynolds’ and Lewis’ statement of defence denies the allegations and pleads in essence that Tencor’s inability to complete the work was the fault of the plaintiffs for not advancing agreed funds. The proposed statement of defence and counterclaim of Tencor adds that Tencor is entitled to equitable set-off of amounts owed to it, and contains a counterclaim for breach of contract and breach of trust on the part of the plaintiff. The claims are supported by McReynolds’ affidavit, but only in the most general way. Some of the allegations are prima facie out of time. None of them has much specificity. Many of them might be struck out or dismissed summarily for one reason or another in due time.

[7] The governing principles were set out by the Court of Appeal in Nobosoft Corp. v. No Borders Inc., 2007 ONCA 444. The court said:

[2] In our view, the motion judge erred by inquiring only as to whether there was an intent to defend formed by No Borders prior to the expiry of the time for delivery of its defence set by Ontario’s Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[3] On the authority of this court’s decision in Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd. (1991), 1991 7095 (ON CA), 3 O.R. (3d) 278 at para. 18, the full context and factual matrix in which the court is requested to exercise its remedial discretion to set aside a noting in default are controlling factors. In particular, as noted by the court at paragraph 18 of Bardmore, such factors as the behaviour of the plaintiff and of the defendant, the length of the defendant’s delay in seeking to respond to the plaintiff’s claim, the reasons for the delay and the complexity and value of the claim involved, are all relevant matters to be taken into consideration.

[4] In this case, there was no evidence that No Borders formed an intent to defend within the requisite time period. Indeed, to the contrary, the evidence indicated that No Borders formed an intent not to defend in Ontario because it feared that to do so would result in attornment to this jurisdiction. It was the uncontradicted sworn evidence of No Borders’ representative that it did not defend the action “to avoid attorning to the jurisdiction”. Although the appellant’s representative was cross-examined on his affidavit, this part of his evidence was unchallenged.

[5] The motion judge made no assessment of this explanation for No Borders’ conduct. Nor does he appear to have considered whether, on the evidence before him, No Borders has an arguable defence on the merits to the respondent’s claim.

[6] There is no evidence here that No Borders sought to flout or abuse the Rules of Civil Procedure. It moved relatively promptly to set aside the noting in default. At the very least, its delay in seeking relief was not inordinate. Moreover, there is nothing on this record establishing prejudice to the respondent if the requested relief was granted.

[7] We agree with the observations of Molloy J. of the Superior Court of Justice at para. 2 of McNeill Electronics Ltd. v. American Sensors Electronics Inc. (1996), 5 C.P.C. (4th) 266 (Ont. Gen. Div.), reversed on other grounds (1998), 1998 17693 (ON CA), 108 O.A.C. 257 (C.A.):

Motions to extend the time for delivery of pleadings and to relieve against defaults are frequently made and are typically granted on an almost routine basis. Usually opposing counsel will consent to such relief as a matter of professional courtesy. Where there is opposition to a motion of this kind, it is usually related to additional terms which are sought as a condition to the indulgence being granted or to issues of costs…It is not in the interests of justice to strike pleadings or grant judgments based solely on technical defaults. Rather, the Court will always strive to see that issues between litigants are resolved on their merits whenever that can be done with fairness to the parties.

[8] Accordingly, the appeal with respect to the noting in default is allowed and the noting in default of No Borders is set aside. No Borders shall serve and file its statement of defence in this action within thirty days from the date of this decision.

[8] I find it difficult to distinguish Nobosoft from the case at bar. Tencor did not intend to defend within the time given by the Rules for filing a statement of defence, but the reason for that decision has been given. The present motion results from a change of mind, not an attempt to flout the rules. The delay in asking for relief was not long in the context of a claim for $800,000 for five construction projects and the principals’ other affairs. I do not see any prejudice to the defendants. The defence does not strike me as strong on the merits, but at this point I cannot say that there is no arguable defence. In this context and factual matrix I feel obliged to set aside the default judgment.

[9] The plaintiff’s alternative argument, however, strikes me as well founded. Tencor is admittedly a corporation without assets, certainly without assets that its directors can control. As a term of setting aside the default, Tencor should post security for the costs of the counterclaim. At this point I order under Rule 56.09 that Tencor post $20,000. This amount is intended to take the parties to the end of examinations for discovery. After discovery, the plaintiff (defendant by counterclaim) can then make a further motion under Rule 56.01 if it thinks fit.

[10] In summary, the default judgment is set aside on the following terms:

a. Tencor shall file its statement of defence and counterclaim within 30 days;

b. Before doing so, Tencor shall post $20,000 security for costs;

c. Tencor will pay the plaintiff’s costs of this motion on a partial indemnity basis within 30 days. If the parties cannot agree on quantum, they may make written submissions within 15 days.

J.A. Ramsay J.

Date: 2013-04-10