SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-10-395081
DATE: 20131004

RE: Hazan Brothers Holding Company Inc. also known as 1690668 Ontario Inc. v. Shnaw Rashid et al.

BEFORE: Master Glustein

COUNSEL:
Peter Danson for the plaintiff

Allen C. Gerstl for the defendants

HEARD: October 3, 2013

REASONS FOR DECISION

Nature of the motion and overview

[1] The defendants bring a motion to set aside (i) the default judgment of the registrar dated May 12, 2010 (the “Default Judgment”) and (ii) the noting in default in this action. The defendants sought to rely on three arguments:

(i) the Default Judgment was a nullity because the registrar granted it for unliquidated demands contrary to Rule 19.04(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”);

(ii) the Default Judgment was a nullity because the defendant Shnaw Rashid was under a disability at the date of the Default Judgment; and

(iii) even if the Default Judgment was not a nullity, the court should exercise its discretion to set aside the Default Judgment in the interests of justice and taking into account the relevant factors in the case law.

[2] At this hearing, I only considered issue (i) above. The defendants served a supplementary affidavit on the plaintiff by email on October 1, 2013 and delivered it to the court on October 2, 2013. The new affidavit would have been relevant to issues (ii) and (iii) above, and the plaintiff properly would have required an adjournment to respond to the affidavit or conduct cross-examination.

[3] However, since issue (i) above addressed solely a question of law based on the pleadings and the Default Judgment, counsel accepted the court’s offer to conduct the hearing only on issue (i) since both counsel were prepared to argue the issue in any event, and a determination on that issue in favour of the defendants would prevent the parties from incurring unnecessary additional costs for further affidavits or cross-examinations.

[4] For the reasons I discuss below I find that the Default Judgment was a nullity because the registrar granted it for unliquidated demands contrary to Rule 19.04(1)(a).

Applicable law

[5] I rely on the following legal principles:

(i) “A judgment signed by the registrar is regular only if it is both substantively correct and procedurally without deficiency. Because a judgment is the ultimate adverse consequence to the defendant and because a judgment signed by a registrar confers the benefit of judgment to the plaintiff without the plaintiff having to show any proof by way of evidence that he is entitled to the relief, the judgment must be substantively and procedurally unimpeachable to be regular” (CJSC”Sanokr-Moskva” v. Tradeoil Management Inc., 2010 ONSC 3073 (S.C.J.) (“Sanokr”) as per Low J. at para. 13);

(ii) “It is well established that there are two situations in which the court is able to set aside a default judgment. One of the leading authorities on the subject is Anlaby v. Praetorius (1888), 20 Q.B. 765 (C.A.), per Fry L.J. at p. 769. The first is when a defendant is able to establish that the judgment was irregularly obtained. If the defendant can establish that correct procedures have not been followed either in obtaining the judgment or in relation to some step taken by the plaintiff in the commencement of the proceedings, such as in failing to serve the statement of claim in a proper manner, then normally the defendant can have the judgment set aside as of right without the requirement of establishing a defence to the plaintiff's claim” (Royal Trust Corp. of Canada v. Dunn (1991), 1991 7227 (ON SC), 6 O.R. (3d) 468 (Gen. Div.) (“Royal Trust”) as per Borins J. (as he then was) at pp. 478-79);

(iii) “[W]here a defendant is entitled as of right to have a default judgment vacated on the ground that it was obtained irregularly, the court which vacates the judgment has no power to impose terms on the defendant other than terms for the payment of costs. Where, as in this case, the defendant has been deprived of his opportunity to defend through no fault of his own, in my view it would be wrong and contrary to principle to require him to disclose a defence or to impose any terms upon him as a condition of setting aside the default judgment and giving him the opportunity to defend the plaintiff's claim” (Royal Trust, at pp. 479-80);

(iv) A claim for damages for loss of future rent without an acceleration clause[^1] is not a liquidated demand since “the Plaintiff's claim, except for rent unpaid at the date of the repudiation or commencement of the action, could only be for damages in which the Court would investigate the present value of the unexpired period of the lease, the actual value of the premises for that period, and other questions affecting the assessment of damages. The action for future loss in the Highway Properties case was not for the rent reserved, but for damages. The Plaintiff's damages may be equal to the rent reserved in the lease, but they might be quite different. If it were otherwise the Plaintiff in this case could recover judgment for the full rent reserved in the lease, and then re-let the premises for the same or a larger amount” (1595 Properties Ltd. v. Sunshine Photo Finishing Ltd. et al., 1983 3617 (BC SC), [1983] B.C.J. No. 1724 (S.C.) (“1595 Properties”) as per McEachern C.J. (as he then was) at para. 12; cited with approval in Crombie Developments Limited v. Goguen, 2007 NBQB 288 (Q.B.) at paras. 41 and 44);

(v) “The test of a liquidated demand is whether the amount to which the plaintiff is entitled (if he is entitled to anything) can be ascertained from the contract itself or by calculation or fixed by a scale of charges agreed upon by the contract or implied by it” (Cantalia Sod Co. Ltd. v. Patrick Harrison & Co. Ltd., 1967 210 (ON SC), [1968] 1 O.R. 169 (H.C.J.) as per Ferguson J. at 171);

(vi) The basis for the liquidated claim for damages must be pleaded in the statement of claim (Sanokr, at para. 20); and

(vii) “It would appear that the case law, text book and law dictionary sources indicate that whether a claim can be identified as a ‘liquidated demand’ will depend on the answers to several questions:

1. Is it ascertainable by calculation or by referring to a fixed scale of charges?
2. Can the calculation be made by reference to the agreement between the parties itself, or, at least, implied by the agreement?
3. Was the price or method of calculation of the price agreed upon by the parties?
4. Has the defendant obliged him/herself to pay a specific sum of money? and,
5. Was a reasonable estimated cost established by the parties?” (Holden Day Wilson v. Ashton (1993), 1993 8513 (ON SC), 14 O.R. (3d) 306 (Div. Ct.) as per White J. at p. 317).

[6] Counsel for the plaintiff submitted that the above principles relating to (i) the unliquidated nature of a claim for future rent, or (ii) the definition of a liquidated claim as requiring it to be set out in the contract or calculated or fixed by a scale of charges agreed upon in the contract or implied by the contract, did not apply in the case of arson when the property is destroyed, as the parties could not have put their minds to damages arising from alleged arson and destruction of the property. I do not agree that the test for liquidated damages ought to depend on the intention to cause damage or the extent of damage.

[7] A prerequisite for default judgment based on a liquidated demand is that the court can be satisfied that the parties agreed to a fixed or calculable amount of damages if the contract is breached. Whether the loss is caused by arson or whether the property is destroyed, a claim for damages that requires evidence to determine the actual damages when the parties have not agreed to a contractual amount (or a method of calculation in or implied by the contract) is not a liquidated demand.

[8] As Justice Low stated in Sanokr, since a default judgment is “the ultimate adverse consequence to the defendant and because a judgment signed by a registrar confers the benefit of judgment to the plaintiff without the plaintiff having to show any proof by way of evidence that he is entitled to the relief, the judgment must be substantively and procedurally unimpeachable to be regular” (Sanokr, at para. 13). Consequently, if evidence outside the contract is required to establish damages, the claim is not liquidated.

Application to the facts of this case

[9] In the present case, several of the plaintiff’s claims on which it obtained the Default Judgment were not liquidated.

[10] First, the plaintiff claimed damages for the loss of its chattels (para. 1(a) of the statement of claim). However, in the statement of claim, the plaintiff pleaded that certain of the chattels that the defendants did not want to purchase were “valued” at $50,000 and that there were chattels which the defendants prevented the plaintiff from removing which “included two showcases, a refrigerator, a coffee grinder and shelving, valued at $22,800” (para. 14 of the statement of claim). There was no pleading that these “values” were agreed upon in the contract or that there was any way to determine the value from the contract. Consequently, this portion of the claim for the loss of chattels, for which judgment was ordered in the Default Judgment, required evidence outside of the contract as to value and was not a liquidated demand.

[11] Second, the claim for “costs incurred in demolishing the remains of the plaintiff’s building in the amount of $9,400” (para. 1(d) of the statement of claim) was not a liquidated demand and as such Default Judgment by the registrar was improper. The plaintiff pleaded that the demolition “cost $9,400.00 to effect” (para. 22 of the statement of claim), which was not an amount agreed upon in the contract nor could it be determined by the contract. Consequently, this claim for the cost of demolition, for which judgment was ordered in the Default Judgment, required evidence outside of the contract as to the cost and was not a liquidated demand.

[12] Third, the plaintiff’s claim for loss of future rent in the amount of $386,703.50 (para. 1(e) of the statement of claim) was not a liquidated demand and as such Default Judgment by the registrar was improper. There was no acceleration clause in the lease.[^2] While the amounts that remained for the future rent were set out in the contract and pleaded (at paragraph 9 of the statement of claim), the claim at paragraphs 20 and 21 of the statement of claim is for damages from the alleged arson which the plaintiff assesses at the value of the unpaid rent. However, it is not a liquidated demand since “the Court would investigate the present value of the unexpired period of the lease, the actual value of the premises for that period, and other questions affecting the assessment of damages arising out of the arson” (1595 Properties, at para. 12).

[13] Further, on the uncontested evidence in the present case, the plaintiff has operated a parking lot on the site of the restaurant and has earned monies which are not accounted for in the Default Judgment, which raises a “question affecting the assessment of damages arising out of the arson” and reflects the concern of the McEachern C.J. in 1595 Properties that “the Plaintiff in this case could recover judgment for the full rent reserved in the lease” even though those damages were mitigated (or even eliminated) by re-use of the property (1595 Properties, at para. 12).

[14] Without at a minimum the existence of an acceleration clause[^3], the claim for damages from the arson for which judgment was ordered in the Default Judgment required evidence outside of the contract and was not a liquidated demand.

[15] Consequently, the Default Judgment is not “regular” since it is not “both substantively correct and procedurally without deficiency”, and as such, must be set aside (Sanokr, at para. 13).

Order and costs

[16] For the reasons I discuss above, I grant the motion and set aside the noting in default and Default Judgment. I order no terms as the Default Judgment was a nullity (Royal Trust, at pp. 479-80), except that I order the defendants to serve their statement of defence within 30 days from this order.

[17] I order no costs of this motion as the defendants only raised the issue of the nullity of the Default Judgment before the court at the initial hearing of this motion on July 17, 2013, which I adjourned so that the defendants could provide the plaintiff and the court with written submissions and a brief of authorities (which were not before the court prior to the initial hearing) so that the court could consider the issue and properly address it at the return date.

Master Benjamin Glustein

DATE: October 4, 2013

[^1]: While the nature of a claim based on an acceleration clause was raised in some of the case law relied upon by the parties, I do not decide the issue of whether a claim on an acceleration clause could be a liquidated demand as that issue does not arise in the present motion.

[^2]: (see footnote 1 above)

[^3]: (see footnote 1 above)