OSHAWA

COURT FILE NO.: 61034/09

DATE: 20131216

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Les MacPherson, Plaintiff /Defendant by Counterclaim

and

1087178 Ontario Inc. carrying on business as Bay Marine, Defendant

BEFORE: The Honourable Madam Justice C.A. Gilmore

COUNSEL: R. Leigh Youd, for the Plaintiff/Defendant by Counterclaim

John Mastorakos for the Defendant/Plaintiff by Counterclaim

HEARD: December 3, 2013

ENDORSEMENT

Overview

[1] This is the plaintiff’s (“MacPherson”) motion to set aside the default judgment of Ferguson J., dated June 10, 2010, in favour of the defendant, plaintiff by counterclaim, 1087178 Ontario Inc. carrying on business as Bay Marine (“Bay Marine”) against MacPherson on such terms as are just. In addition, MacPherson seeks leave to file a response to Bay Marine’s request to admit and the deemed admissions that have resulted from the lack of response.

[2] MacPherson takes the position that he has a good defence on the merits to the counterclaim and that he failed to deliver a defence through inadvertence and/or error in the expectation that no steps would be taken without reasonable notice. As well, Bay Marine has taken no steps to enforce the default judgment and will not suffer any prejudice which cannot be compensated by costs thrown away for Bay Marine having to obtain the default judgment.

[3] Bay Marine resists both motions on the grounds that MacPherson is attempting to blame Bay Marine’s counsel for their own failure to manage the file in a timely fashion given that MacPherson has done nothing in his action against Bay Marine since May 2009. Bay Marine takes the position that the evidence does not support the setting aside of the default judgment and there is clearly prejudice to Bay Marine given the amount of time that has transpired since the contract was executed over seven years ago.

Background Facts

[4] On April 27, 2006, MacPherson and Bay Marine entered into a contract (the “contract”) which stipulated that MacPherson would purchase a 2006 Rinker 390 motor yacht from Bay Marine. Bay Marine was to perform certain modifications and the contract price was $381,957.

[5] Between May and December 2006, MacPherson paid $120,000 to Bay Marine on account of the purchase price. In addition, MacPherson provided a boat and trailer to Bay Marine as a trade-in which was accounted for by way of a $20,000 reduction in the purchase price. MacPherson has never received anything in return from Bay Marine.

[6] It is disputed as to whether or not Bay Marine agreed to wait for final payment until MacPherson had sold his house and the modifications were complete.

[7] On June 29, 2007, Bay Marine’s counsel, Richard Wright, sent a letter to MacPherson demanding payment of the balance of the purchase price, being $261,957 by July 13, 2007, failing which Bay Marine would sell the boat to mitigate its losses. Bay Marine takes the position that this was in response to MacPherson attending at their premises on June 21, 2007 indicating he was unable to pay the balance.

[8] Between August 2007 and April 2009, no action was taken by either party. In April 2009, MacPherson directed his then counsel, Nigel Schilling, to issue a statement of claim. The claim was issued on May 14, 2009 and served on Mr. Wright on May 25, 2009. On June 24, 2009, Mr. Wright issued and served Bay Marine’s statement of defence and counterclaim.

[9] While MacPherson’s affidavit evidence was that he instructed Mr. Schilling to defend Bay Marine’s counterclaim, Mr. Schilling does not acknowledge that he received such instruction. In July 2009, Mr. Wright served Bay Marine’s sworn affidavit of documents and a request to admit. It is not disputed by MacPherson that the affidavit of documents was received and Mr. Schilling deposed in his affidavit that, although he did not recall the exact date on which he received the request to admit, he believes it was on July 10, 2009, as alleged by Mr. Wright in his affidavit. Mr. Schilling deposed that he did not recall seeking instructions from MacPherson with respect to the request to admit.

[10] In the summer of 2009, Mr. Schilling had a heart attack and subsequently an angioplasty on August 11, 2009. His evidence was that during the summer of 2009 and the period leading up to and following his angioplasty, his practice suffered as a result of his personal illness. He conceded that his failure to respond to the request to admit, or to seek instructions in relation to it, was as a result of the personal medical conditions he was facing. Mr. Schilling deposed that he did not receive any contact from Mr. Wright with respect to a response to the request to admit.

[11] In December 2009, Mr. Wright received instructions to proceed with obtaining default judgment on the counterclaim. In April 2010, Mr. Wright noted the plaintiff in default on the counterclaim and a motion for judgment on the counterclaim was filed in May 2010. Bay Marine obtained default judgment on its counterclaim on June 22, 2010 and filed writs of execution in July 2010.

[12] There is no evidence that Mr. Wright contacted Mr. Schilling with respect to either his noting MacPherson in default or a response to the request to admit.

[13] MacPherson did not find out about the default judgment until March 2013, when he attempted to co-sign a loan. On June 24, 2013, Wright received a letter from MacPherson’s new counsel regarding the action.

[14] MacPherson argues he never received the boat or any tangible benefit for the $140,000 that he provided to Bay Marine. As such, he commenced an action to recover his deposit, as well as the $20,000 trade-in for his boat and trailer. Bay Marine’s defence and counterclaim alleges that they had completed the modifications in the manner required pursuant to the contract and claimed damages as a result of MacPherson’s alleged breach of contract as well as 24 per cent interest per annum for the damages.

[15] In his motion material MacPherson provided a draft defence to the counterclaim, as well as a response to the request to admit, which he undertakes to immediately serve and file in the event that the relief sought is granted.

Position of the Plaintiff/Moving Party

[16] The plaintiff submits that it has met the three established principals in Re Estate of Assunta Marino[^1]. A plaintiff must satisfy the court that

(a) their motion was brought without delay after learning of the judgment;

(b) that the circumstances giving rise to the default have been adequately explained; and

(c) there is an arguable case on the merits.

In addition, the court must consider the potential prejudice to the moving party if the motion were dismissed and the potential prejudice to the respondent if the motion is allowed and the effect of any order on the overall integrity of the administration of justice[^2].

[17] With respect to the first part of the test the plaintiff submits that, despite the fact that default judgment was obtained in June 2010, their motion should not be considered to have been brought three years later. The court must advert to the fact that neither party moved with alacrity or enforced their rights. The plaintiff was not given any notice of the motion for default judgment. Contrary to the civility guidelines of the Advocates Society for lawyers practicing in Ontario, counsel for Bay Marine did not provide any notice of its intention to move forward and obtain default. Further, after default was obtained in June 2010, a copy of the default judgment was not provided to either Mr. Schilling or MacPherson, notwithstanding that at all times, Bay Marine was aware that MacPherson was represented by counsel. After obtaining the judgment, Bay Marine then filed writs of execution and did nothing. There were no judgment debtor exams and the defendant took no steps to enforce. MacPherson submits that the obtaining of judgment was simply a type of insurance policy on the part of Bay Marine in the event that MacPherson attempted to obtain the return of his deposit.

[18] MacPherson submits that the only real delay is between March 2013 and June 2013, being a period of three months before MacPherson retained counsel who wrote to Bay Marine’s counsel. Once counsel was retained by MacPherson, he moved as quickly as he could, given scheduling requirements for motions in Oshawa.

[19] With respect to the second part of the test, this is not a case where the plaintiff never received a statement of defence or any response from the other side. MacPherson had counsel, as did Bay Marine, and counsel were communicating. There is a serious question as to why, given this knowledge, Bay Marine’s counsel did not advise MacPherson’s counsel that they intended to take steps, or provide a deadline by which the plaintiff was required to file its defence to the counterclaim.

[20] While MacPherson concedes that the defendant, strictly speaking, was not required to give any warning, there is a level of expected civility between counsel. The plaintiff relies on Xpressview Inc. v. Daco Manufacturing Ltd.[^3]. In that case, there was a single demand made by the plaintiff’s solicitor for the delivery of a pleading without any follow up letter or telephone call when the defence was not received. In that case, Nordheimer J. stated as follows,

Plaintiff’s counsel ought to have realized the potential for a slip or error and should, in my view, have had further contact with the defendant’s solicitor before taking default steps.

[21] MacPherson argued that in the case at bar, defendant’s counsel ought to have realized the potential for error. In the Xpressview case, there was one demand for a pleading. In the instant case there was none. There is nothing in Mr. Wright’s affidavit that indicates that he wrote or called Mr. Schilling, nor does he say that he was too busy to follow up. While Bay Marine is entitled to strictly rely on the rules, it must do so in the context of all of the circumstances.

[22] The plaintiffs also rely on Male v. The Business Solutions Group[^4]. In that case, the appellant appealed the decision of the motions judge, who refused to set aside the respondent’s default judgment. Counsel for the respondent did not notify counsel for the appellants, and obtained default judgment despite the appellant’s service of a motion for leave to appeal on a previous injunction motion. The court in that case adverts specifically to rule 19 of the Principles of Civility for Advocates. The court endorses those principles, as does the Superior Court of Justice. Section 19 of those principles sets out as follows:

19. Subject to the rules of practice, advocates should not cause any default or dismissal to be entered without first notifying opposing counsel, assuming the identity of opposing counsel is known.

[23] In the circumstances, neither party moved their action along with any particular alacrity. The claim is still outstanding and counsel have agreed in the event that the default judgment is set aside, to move matters along expeditiously. It should be a brief trial and any further delay would be minimal.

[24] With respect to the third part of the test, the plaintiff submits that there are several defences on the merits as follows:

(a) Of the $252,055.96 obtained by way of judgment, a large portion of this amount is consumed with interest at 2 per cent per month. MacPherson submits that the charge of 2 per cent on outstanding accounts is applicable only where a boat has been delivered. In this case, the boat was never delivered, and as such, Bay Marine is not entitled to charge 24 per cent per annum. There is nothing in the contract between the parties that says that the buyer is responsible for interest when Bay Marine deems the boat is ready for delivery. There is also no affidavit evidence that the boat was ready in October 2006. In fact, it is MacPherson’s position that the modifications were never finished, the boat was never delivered, nor was it ever ready to be delivered.

(b) Bay Marine prepared the contract, so any ambiguity in it must be construed against them.

(c) According to Bay Marine, MacPherson should have picked up his boat in October 2006, but did not. However, Bay Marine did not commence an action against MacPherson. Only when MacPherson started an action did it respond in counterclaim. In a little under three years, after saying they are entitled to charge interest, Bay Marine took no steps to enforce those alleged rights to payment of interest.

[25] On the issue of prejudice, it is obvious that in the event the judgment is not set aside, MacPherson will lose his opportunity to pursue his claim and pay a counterclaim based in large part on interest to which MacPherson says Bay Marine is not entitled.

[26] While Bay Marine argues that there was a fire that destroyed their records, there is nothing to indicate that Bay Marine’s records were not previously given to its counsel, as those records are listed in their affidavit of documents. In any event, the fire was two years prior to the date of the default judgment, and prejudice must be examined after the date of the default judgment. MacPherson’s position is that the only prejudice that Bay Marine has suffered is the cost to obtain the default judgment, which MacPherson is clearly willing to pay.

Position of the Defendant/Responding Party

[27] Bay Marine’s counsel argues that the focus on this case must be on inadvertence and the fact that MacPherson and his counsel did not take action on the case for over three years. That delay cannot be interpreted as inadvertence. Further, counsel reminds the court that the cases provided by MacPherson are all cases in which a period of only one to a maximum of three months passed until the default became known and the moving party took steps. In this case, the lapse of time exceeded three years.

[28] The defence and counterclaim were served on June 24, 2009 and the request to admit served in July 2009. Mr. Schilling’s affidavit does not say that he was in the hospital. In fact, it gives very little evidence of the actual effect of his health problems on his practice.

[29] Further, Mr. Schilling was experienced counsel. Once he received the affidavit of documents and the request to admit within one month of the statement of defence, he had an obligation to contact the other counsel to discuss a timetable for the case, since it was clear that Bay Marine intended to move forward.

[30] It is incorrect to infer that counsel for Bay Marine did anything wrong. It followed the Rules of Civil Procedure and did nothing that could be considered either sharp practice or improper.

[31] The affidavit evidence demonstrates that Mr. Schilling gave a copy of the statement of defence and counterclaim to MacPherson and MacPherson says that he saw it. MacPherson testified that he assumed Mr. Schilling was looking after it and directed him to defend the counterclaim. MacPherson does not say anything about what happened after giving his instructions, and why he did not follow up with his own counsel. Bay Marine submits that neither MacPherson nor Mr. Schilling have adequately explained the delay. Further, the delay between March and June 2013 should not be ignored. Bay Marine calculates that it was twelve hundred days from when the defence and request to admit were served before MacPherson took action. It is not the job of Bay Marine to inquire of MacPherson as to why he was not taking steps to move matters along, nor is Bay Marine required to take the initiative to commence litigation against MacPherson.

[32] Bay Marine submits that once it had default judgment, it was not required to enforce or take any steps. In this case, Bay Marine knew that MacPherson’s position was that he could not pay the balance of the contract until his house had sold. Therefore, Bay Marine was perfectly within its rights to file a writ of execution and let that sit until MacPherson’s house sold.

[33] In terms of other delays, it should be noted that Bay Marine did not note MacPherson in default until April 2010, which was nine months after the affidavit of documents and request to admit were served. Therefore, MacPherson had another window of nine months to follow up, but did nothing before Bay Marine got default judgment. Mr. Wright has an obligation to his client, not to MacPherson, and does not have to follow up with MacPherson. Setting the default judgment aside now would create a great deal of prejudice for Bay Marine and condone what is a lack of acceptance of responsibility on the part of MacPherson and his counsel, as opposed to any inadvertence.

[34] Bay Marine’s counsel relies on Machacek v Ontario Cycling Association[^5]. In that case, the appellants appealed an order which dismissed their motion to set aside the registrar’s dismissal of an action for negligence arising from a bicycle accident. The appellant met with his lawyer six times and urged him to deal with the dismissal of the action and had to resort to communicating with his lawyer by registered mail, due to the failure of the lawyer to respond to his inquiries between meetings. The court held that the delay between September 2006 and March 2010 was attributable to the failure of counsel for the appellants to move the action along and take the appropriate steps to set aside the registrar’s order. The court cited Marche d’Alimentation Denis Theriault Ltee v Giant Tiger Stores Limited[^6] at paragraph 31, where the court said,

The nature of the delay in the solicitor’s conduct in this case amounts to more than that kind of lapse or inadvertent mistake that the legal system can countenance. We should opt for a resolution that discourages this type of conduct, which undermines the important value of having disputes resolved in a timely fashion. The decision of the master sends the right message and provides appropriate incentives to those involved in the civil justice system.

[35] Further, at paragraph 32 of Marche, the court cited as follows:

Moreover, excusing a delay of this magnitude and gravity risks undermining public confidence in the administration of justice. Lawyers who fail to serve their clients threaten public confidence in the administration of justice…excusing a delay of this kind would throw into question the willingness of the courts to live up to the stated goal of timely justice.

[36] In Machacek, the court also considered actual prejudice in the case and found that while that was an important factor, it was to be balanced by consideration of the finality principle and the court found that the delay and the conduct of counsel tipped the balance towards the latter[^7].

[37] Counsel for Bay Marine urges the court to consider that even where the Plaintiff Machacek was interested in moving the litigation along and constantly urging his lawyer to do so, the court felt that the public confidence in the administration of justice and timely justice was more important. The court adverted to recourse by way of an action in solicitor’s negligence.

[38] Bay Marine’s counsel also referred to the case of Wellwood v. Ontario Provincial Police et al[^8]. In that case, the court referenced the responsibilities of a party who commences a proceeding and viewed those responsibilities as follows; “the party who commences a proceeding bears primary responsibility for its progress. For this reason, the initiating litigant generally suffers the consequences of a dilatory regard for the pace of the litigation.”[^9]

[39] On the issue of the passage of time, the court stated as follows, “nonetheless, as the memories of witnesses fade over time, the passage of an inordinate length of time after a cause of action arises or after an applicable limitation period expires gives rise to trial fairness concerns. In my view, this is so even when timely notice of the claim has been provided.”[^10]

[40] Bay Marine submits that the contract was entered into in April 2006 and the case is now seven and a half years post contract. The last time that MacPherson saw the boat was in June 2007, six and a half years ago. Prejudice increases with the passage of time and the excuse of such delay may also undermine public confidence in the administration of justice. Counsel submits that the finality principle grows stronger as the years pass.

[41] On the issue of the request to admit, Bay Marine submits that that motion should be dismissed as well. The purpose of serving a request to admit is to ensure an expeditious determination and a marshalling of all agreed upon and disputed facts. The delay is inexcusable and MacPherson had ample notice of the request to admit and ample time to obtain legal advice upon it.

Analysis and Ruling

[42] I find that the default judgment and deemed admissions should be set aside in this matter for the following reasons.

[43] With respect to the common law test in relation to default judgment, I find as follows:

(a) On the first part of the test, the issue here is whether the delay commences after the service of the statement of defence and counterclaim or after the default judgment came to the attention of MacPherson in March 2013. In the circumstances, I find that both parties must bear some responsibility for this unfortunate series of events. First, I accept the arguments of counsel for MacPherson, that while MacPherson and his counsel likely should have taken steps, they had no reason to believe that any action was being taken by Bay Marine. On the other hand, Bay Marine, being aware that they had not heard anything from MacPherson after service of the affidavit of documents and request to admit, proceeded to obtain default judgment without notice.

(b) I find that some attention must be given to the principles of civility as published by the Advocates Society of Ontario. Without such principles, counsel would be discouraged from taking steps to advise opposing counsel about their intention to take such substantive steps as noting the other side in default. Failing to do so, in this case, I infer, resulted in this motion. While I do not go so far as to say that Bay Marine’s counsel was responsible for this motion, I find that if notice had been given to Mr. Schilling that he had a certain number of days in which to file his defence to counterclaim or he would be noted in default, the situation may have been very different. I find in the circumstances that MacPherson did not become aware of the default until March 2013 and the delay between March and June 2013 is not so significant in the course of any litigation as to give concern to the court. As such, I find that the first part of the test has been met.

(b) With respect to an explanation of the circumstances, while the explanation given is, at best, “thin”, there is evidence that Mr. Schilling had some personal health problems in the summer of 2009. There is evidence that his practice suffered as a result. Since he had no indication that Bay Marine intended to take steps in the case, and he had heard nothing from them, the file did not demand his attention. Again, had Bay Marine served a copy of its default judgment on Mr. Schilling or MacPherson, there is no doubt that things would have taken a different turn. Mr. Schilling should have made inquiries as to the status of the case, particularly after receiving the affidavit of documents and request to admit. Bay Marine’s counsel should have advised of their insistence on MacPherson filing a statement of defence to the counterclaim and insisting on a response to the request to admit within the required time.

(c) With respect to MacPherson having an arguable case on the merits, there is no doubt in my mind that such a case exists and Bay Marine did not strenuously argue against this. Clearly, there is an issue as to the amount of interest charged and the ability of Bay Marine to charge interest on a boat that had not been delivered. There is also the fact that MacPherson paid a considerable sum, in exchange for which he received nothing.

[44] With respect to the issue of prejudice, I accept that if a delay of three and a half years had been found by this court, it would have been much more difficult for MacPherson to succeed with respect to the common law test. The able arguments of counsel for Bay Marine with respect to finality and the public confidence in the administration of justice would have applied. However, given my finding with respect to the delay, I also find it would be extremely prejudicial in this case for the default judgment to stand where MacPherson clearly has significant claims on the merits. In my view, it would be inequitable for Bay Marine to succeed and obtain default judgment composed of a significant amount of interest when there is clearly an argument that they are not entitled to such interest.

[45] While it is true that memory may fade over time, that concern relates most often to cases where credibility is in issue. This case, however, deals with contract interpretation and in particular the interpretation of certain provisions relating to the charging of interest. I do not see that the passage of time will affect the court’s ability to make those determinations.

[46] With respect to the request to admit, I find that similar arguments apply with respect to the delay and reasons for the delay. Again, both parties must bear some responsibility, MacPherson and his counsel for not adverting to the timelines for the requirement of a response to the request to admit and Bay Marine for not advising MacPherson that they intended to take the position that the non-response would result in the facts in the request to admit as deemed admissions. Again, I do not intend for the result of this motion to be that opposing counsel are responsible for the other party’s obligations in the litigation. A simple warning of the intended step or steps would have been sufficient in this case.

[47] Given all of the above, I make the following orders:

(a) The default judgment of Bay Marine on the counterclaim, dated June 22, 2010 is hereby set aside;

(b) The deemed admissions in the request to admit served on MacPherson’s counsel in July 2009 are hereby withdrawn;

(c) MacPherson shall arrange to have his statement of defence to counterclaim and response to request to admit served and filed within seven days of the date of the release of this endorsement;

(d) The matter shall be scheduled for a pretrial through the civil trial coordinator in Oshawa as soon as possible, with a view to the matter being heard in the May 2014 trial sittings; and,

(e) If the parties cannot agree on costs, I will receive written submissions on a seven day turnaround, commencing with the moving party, followed by responding submissions, then reply submissions, if any, commencing fourteen days from the date of release of this endorsement. Cost submissions shall be no more than two pages in length, exclusive of any costs outline or offers to settle. All costs submissions shall be delivered via email through my assistant at jennifer.beattie@ontario.ca. If no submissions are received within thirty-five days of from date of release of this judgment, the issue of costs will be deemed to have been settled as between the parties.

Justice C.A. Gilmore

Released: December 16, 2013

[^1]: 2010 ONSC 5237 at paragraph 22.

[^2]: Ibid, paragraph 22 and 37.

[^3]: [2002] O.J. No. 478 at paragraph 17.

[^4]: 2013 ONCA 382 at paragraph 19.

[^5]: 2011 ONCA 410.

[^6]: 2007 ONCA 695 at paragraph 31.

[^7]: Ibid at paragraph 10.

[^8]: 2010 ONCA 386.

[^9]: Ibid at paragraph 48.

[^10]: Ibid at paragraph 72.