COURT FILE AND PARTIES

COURT FILE NO.: 05-CV-290404PD1
DATE: 20130926

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: HOUSHANG BOUZARI, FERESHTEH YOUSEFI, SHERVIN BOUZARI, AND NARVAN BOUZARI, Plaintiffs

AND:

MAHDI HASHEMI BAHRAMANI aka RAFSANJANI, AKBAR HASHEMI BAHRAMANI aka RAFSANJANI, ALI FALLAHIAN NAJAF ABADI, GHOLEM HOSSEIN MOHENSI EJEI, JOHN DOE aka SIYADATI, BILL DOE aka AKBARI RAD MASSOUDI, TOM DOE aka MOHAMMAD SAEEDI aka ASGHAR SAEEDIA aka "MR. 99", Defendants

BEFORE: Low J.

COUNSEL:
Mark H. Arnold, for the plaintiffs

David W. Foulds and Brandon Barnes, for the defendants

HEARD: June 25, 2013

COSTS ENDORSEMENT

[1] On June 25, the motion of the defendant Mahdi Hashemi Bahramani Rafsanjani to set aside the default judgment came on before me. The motion to set aside was consented to. I heard submissions as to terms and made a ruling. I did not award costs of the motion to the plaintiffs; nor did I award costs of the motion to the moving party defendant.

[2] On August 29, counsel appeared before me to settle the order. Counsel for the plaintiffs asked that I give reasons for declining to award to the plaintiffs the costs of the defendants' motion to set aside the default judgment. These are those reasons.

[3] It is said that it is usual for a plaintiff to be awarded both the costs of a motion to set aside a default judgment as well as costs thrown away.

[4] To the extent that a motion to set aside a default judgment has been occasioned by the failure of the defendant to defend although served with originating process, such an award of costs is usual. It is not the usual disposition, however, where the obtaining of the default judgment is irregular.

[5] Where the obtaining of a default judgment is irregular, it is to be set aside ex debito justiciae. The defendant is entitled to have the default judgment set aside as of right rather than at the discretion of the court. In such cases, the conditions that the defendant must satisfy to warrant the setting aside as set out in Chitel v. Rothbart (1987), 20 C.P.C. (2d) 46 rev’d on terms (1988), 29 C.P.C. (2d) 136 (C.A.) [leave to appeal to S.C.C. refused, Doc. No. 21165 Feb.9, 1989] are not engaged.

[6] Where the default judgment is irregularly obtained, the defendant is not at fault. Accordingly, it would be anomalous to require him to pay the costs to correct a state of affairs of which he is not the author.

[7] In the case at bar, there was formal regularity only. The claim did not come to the attention of the moving party defendant. There was no personal service of the statement of claim on him. Instead, the plaintiffs obtained an order of the master validating service and it was on the basis of that order that the plaintiffs were able to note default and obtain a default judgment.

[8] The judgment was obtained in formal compliance with the rules, but the fundamental purpose of service of process to bring the proceeding to the attention of the defendant was not fulfilled. The evidence of the moving party filed on the motion made this known to the plaintiffs at the outset and the plaintiffs were not able to discredit this evidence.

[9] In my view, that the default judgment would be set aside in the circumstances was a virtual foregone conclusion. This situation is in every significant respect similar to that in Royal Trust Corp. of Canada v. Dunn, 1991 7227 (ON SC), [1991] O.J. No 2231; 6 O.R. (3d) 468 where there was formal regularity in that there had been an acceptance of service by solicitor for the defendant, but no substantive regularity in that the solicitor had no instructions to do so and notice of the claim had never reached the defendant.

[10] Where the defendant is entitled to a setting aside of the judgment as of right, he ought not to be required to pay costs.

[11] There is a second reason why the moving party ought not to pay costs in these circumstances.

[12] The plaintiffs had no evidence that the statement of claim had ever been delivered into the possession of the defendant. Once the evidence of the defendant was delivered in support of the motion to set aside, it either was or ought to have been clear that the judgment would be set aside as of right. The motion therefore ought not to have been opposed.

[13] The plaintiffs contested the motion until the eleventh hour at which time they disclosed to the court the contents of offers to settle and consented to setting aside the judgment but argued for terms which were not granted.

[14] In the circumstances, the plaintiff is not entitled to costs.

[15] At the same time, I do not award costs in favour of the defendant.

[16] The defendant Rafsanjani’s motion to set aside the default judgment and his motion for a stay on grounds of forum non conveniens were launched contemporaneously and were contained within one motion record. Although the defendant was technically not in a position to bring a motion to challenge jurisdiction until the default judgment was set aside, the motions were permitted to be processed together in the interests of economy of resources and of time. The interlocutory activity that has taken place is not readily divisible as between that attributable to the motion to set aside the default judgment and that attributable to the motion challenging the forum. The motion for a stay on grounds of forum non conveniens is yet to be heard. The costs of the motion will be dealt with in due course. If the defendant is successful on that motion, he will in the ordinary course have the costs of the motion.

[17] I turn now to the issue of costs thrown away.

[18] My endorsement dated June 15, 2013 provided “Costs thrown away are to be subject of a Bill of Costs and are to the plaintiffs. Such costs to be fixed after written submissions of no more than 3 pages from each side.”

[19] Plaintiffs made written submissions but did not comply with the endorsement. The submission comprised six pages of argument and ten appendices, none of which were germane to the issue of costs thrown away. The plaintiffs’ submission was to urge the court to award them costs of the motion, seeking $110,361 on a substantial indemnity scale or $83,179 on a partial indemnity scale.

[20] The plaintiffs did not address the issue of costs thrown away, but I am able to infer that they would have been negligible. Only the costs of noting default and the appearance to obtain judgment were thrown away. The other activity detailed in the costs outline was necessary for purposes of pursuing the action.

[21] Subsequent to making the endorsement of June 25, 2013 and in the course of preparing these reasons, I have concluded that I erred in determining that the plaintiffs should have their costs thrown away.

[22] As noted above, in a case where a default judgment is obtained regularly after an effective service of process on the defendant, it is usual for costs of the motion and costs thrown away to be awarded against the defaulting defendant. Here, however, there is no actual default by the defendant because there has been no service upon him. There was only a deemed service which the evidence shows was ineffective. Where the defendant has not failed to do anything which he was legally required to do, not having had notice of the proceeding, it would in my view be illogical to require him to pay thrown away costs of which he was not the author.

Low J.

Date: September 26, 2013