CITATION: Oxy Teknologies Inc. v. Du-Mor Construction Limited ONSC 1185
COURT FILE NO.: CV-12-460986
DATE: 2013/02/22
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Oxy Teknologies Inc. v. Du-Mor Construction Limited
BEFORE: MASTER WIEBE
HEARD: February 21, 2013
COUNSEL: I. Pichini for the defendant (moving party)
A. MacColl for the plaintiff (responding party)
ENDORSEMENT
(Motion to set aside a default judgment)
The defendant, Du-Mor Construction Limited (“Du-Mor”) brings this motion to set aside the noting of Du-Mor in default and the default judgment against Du-Mor. The default judgment resulted in a Notice of Garnishment that was served on Du-Mor’s bank. The motion was originally returnable on January 7, 2013, but was adjourned to February 21, 2013. The action is a construction lien action, and the subject claim for lien of Oxy Teknologies Inc. (“Oxy”) was for environmental remediation work.
Counsel advised at the beginning of argument that the parties had reached an agreement as to the test to be met on such a motion. After some discussion on this point, it was agreed, and it is the ruling of this court, that the applicable test is as described in paragraph 29 of the decision in Metaldoor Hardware & Installation Ltd. v. York Region District School Board, 2012 CarswellOnt 7143 (Ont. S.C.J.), where McDermot J. quoted from Master Polika’s decision in M.J. Dixon Construction Ltd. v. Hakim Optical Laboratory Ltd. 2009 CarswellOnt 1671 (Ont. Master) as follows:
“. . . I find that on a motion to set aside both a default judgment and a noting in default in this action under the Construction Lien Act the onus is on the moving defendants to satisfy the following three requirements:
(i) they must show they have moved promptly once becoming aware of the default judgment;
(ii) they must show that there is an explanation for the default; and
(iii) they must show that there is evidence to support a defence.
Further if the third condition is satisfied and there is a failure to satisfy either the first or second condition the court is obligated to consider the potential prejudice to the parties, whether any such prejudice is compensable by appropriate terms and the effect of any order on the overall integrity of the administration of justice.”
- Counsel further advised that the parties had agreed that Du-Mor, the moving party, had met the first and third tests as stated above. The motion then proceeded with an argument about the second test, namely the test as to whether there was an “explanation for the default.”
Explanation for the default
- Ms. Pichini relied upon two explanations for the default:
• that the default resulted from a failure by Oxy to give fair notice that it intended to take default proceedings against Du-Mor in light of Du-Mor’s clear and consistent statements that it would not deliver a Statement of Defence until it had brought a motion challenging the lienability of the Oxy claim for lien and extending the time for delivery of a defence, and that Du-Mor intended to cross-examine Oxy on its claim for lien in support of such a motion; and
• that the default resulted from a “misunderstanding” between counsel as to whether Oxy had withdrawn its threat to note Du-Mor in default and obtain a default judgment when Oxy’s lawyer engaged in correspondence with Du-Mor’s counsel as to dates for the aforesaid cross-examinations.
- Based on the evidence in this motion, I do not accept either of these explanations. The affidavits filed by the parties, reveal the following events and correspondence:
• The Oxy claim for lien in the amount of $385,857.22 was registered on July 26, 2012. By letter dated August 7, 2012, counsel for Du-Mor, Enzo Di Iorio, advised counsel for Oxy, Mr. MacColl, inter alia that Du-Mor challenged the lienability of the Oxy claim for lien and that if this matter was not resolved, he would get instructions to “bring the appropriate court proceedings.”
• In response, by letter dated August 8, 2012, Mr. MacColl advised Mr. Di Iorio that his instructions were to move the lien action forward. He asked Mr. Di Ioria whether he would accept service of the Statement of Claim, a courtesy commonly given counsel essentially allowing them additional time with their client to prepare a defence. Mr. Di Iorio did not respond to that invitation.
• Service of the Statement of Claim was therefore performed directly on the principal of Du-Mor, Paul Lanzarini, on September 12, 2012. After becoming aware of the Statement of Claim, Mr. Di Iorio wrote Mr. MacColl a letter on September 21, 2012, nine days later and eleven days before the deadline under the Rules for delivery of a defence, advising that he had “strict instructions” to move for an order removing the Oxy lien on the basis that it pertained to work that was not lienable, and that he intended to cross-examine Oxy on its claim for lien in support of that motion. He asked for available dates for the cross-examination, and threatened to pick dates unilaterally if there was no response. He ended by stating that he would not be filing a defence until this motion was heard.
• In response, Mr. MacColl delivered a letter to Mr. Di Iorio dated September 27, 2012, fifteen days after service of the Statement of Claim and five dates before the deadline for delivery of a Statement of Defence. In this letter Mr. MacColl took issue with the merits of Mr. Di Iorio’s threatened motion in light of the authoritative case of 310 Waste Ltd. v. Casboro Industries Ltd. 18360 (ON SCDC), and advised that in any event the threatened motion should be brought after close of pleadings. He closed by stating the following: “Furthermore, it is my present intention (which has not been completely thought out) to move for Summary Judgment with respect to my client’s lien; in order to do so, a Defence must be delivered. I am putting you on notice that should I not receive a timely defence, I will note pleadings closed and sign a default judgment. I mean no disrespect to you, but my obligation is to my client and I have firm instructions to move this action along without delay.”
• In response, Mr. Di Iorio wrote a letter to Mr. MacColl on October 2, 2012, the day the Statement of Defence was due under the Rules, advising that pleadings did not have to be closed before he, Mr. Di Iorio, brought his motion, that his motion would also seek to extend the time for delivery of a defence, and that Mr. MacColl’s threatened motion for summary judgment was premature. Mr. Di Iorio asked for available dates for the cross-examination of Oxy. There was no reference to or request for an extension of the deadline for the delivery of a defence.
• Mr. MacColl wrote a letter to Mr. Di Orio dated October 4, 2012 advising that he, Mr. Di Orio, had only partially responded to the September 27, 2012 letter. He offered dates for the cross-examination of Oxy.
• In response, Mr. Di Iorio wrote a letter to Mr. MacColl dated October 5, 2012 advising that the offered dates were not available to him and suggesting other dates for the cross-examination. Mr. MacColl did not respond to this letter. Mr. Di Iorio took no steps to effect the cross-examination unilaterally, as he had threatened to do in his letter of September 21, 2012, or the motion he had threatened.
• On October 19, 2012, 37 days after the service of the Statement of Claim and 17 days after the deadline for the delivery of a defence, Oxy obtained default judgment from the Registrar on the breach of contract remedy in the Statement of Claim as against Du-Mor in the amount of $334,360.83.
• On November 23 and 26, 2012, Mr. Di Orio’s office emailed Mr. MacColl’s office seeking dates for the cross-examination, without response.
• Mr. MacColl’s office obtained a Notice of Garnishment on November 26, 2012 and served it on Du-Mor’s bank, which responded with a Garnishee’s Statement dated November 29, 2012 advising that no funds were available for collection.
I find that on September 27, 2012 Mr. MacColl gave a clear and unequivocal notice in writing to Mr. Di Iorio that he, Mr. MacColl, would note Du-Mor in default and obtain a default judgment against Du-Mor unless “a timely defence” was received. This was done after and despite Mr. Di Iorio’s letter of September 21, 2012 wherein he, Mr. Di Iori, stated that he would not deliver a defence until his threatened motion was heard. Mr. MacColl’s letter should have put Mr. Di Iorio on alert that a timely defence was required despite his own intention to bring a motion.
In response to the MacColl letter of September 27, 2012, however, Mr. Di Iorio advised that his threatened motion would be expanded to include a motion to extend the time for delivery of a defence. He did not ask for any indulgence from Mr. MacColl, nor did he apparently do any work at that time in preparing a Statement of Defence. The motions that Mr. Di Iorio threatened at that time were not brought. He ignored Mr. MacColl’s warning and simply moved forward with the course of action he had unilaterally chosen.
I would be more sympathetic to Du-Mor’s position in this motion had there been merit to Mr. Di Iorio’s position that his threatened motion challenging the Oxy claim for lien was necessary to plead a defence. This is not the case. The lien is just one remedy raised in the Statement of Claim, and a resolution of that issue would not have resolved the breach of contract claim. Furthermore, the merits of the threatened challenge of the Oxy claim for lien was doubtful in light of the 310 Waste Ltd. decision, a fact that Mr. MacColl pointed out to Mr. Di Iorio in his September 27, 2012 letter and to which Mr. Di Iorio did not respond. Finally, I note that the draft Statement of Defence and Counterclaim that was made a part of the Du-Mor motion material contained material facts that appear to have been known to Du-Mor as of late September, 2012. That pleading could have been drafted at that time.
I also find that Mr. MacColl never resiled from the warning that he gave in September 27, 2012 letter. Engaging in discussion of possible dates for the cross-examination on the Oxy claim for lien is a matter that is quite separate from the default proceedings that Mr. MacColl gave notice of and eventually embarked upon, which concerned the breach of contract claim. In fact, when Mr. MacColl offered dates for cross-examination in his letter of October 4, 2012, he expressly advised Mr. Di Iorio that he, Mr. Di Iorio, had not responded to the entirety of Mr. MacColl’s September 27, 2012 letter.
No authority was put before me that accepted a deliberate decision not to prepare a timely defence in the face of a clear and unequivocal notice to do so, such as this, as an acceptable explanation of the default. The cases placed before me found an inadvertence of counsel (Glasstech Inc. v. Belle View Construction Corp. 2008 CarswellOnt 5189, Ont.S.C.J.), a miscommunication between counsel (Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333), a misunderstanding between counsel after indulgences had been granted (TD Canada Trust v. Chapel Hill Pet Studio Inc. 2008 CarswellOnt 5865, Ont.S.C.J), and a breach by a party of an agreement as to when defences were due (Schreiber v. Mulroney 2007 CarswellOnt 5033, Ont. S.C.J.) as acceptable explanations for the default. None of these are the case here. I, therefore, find that there is no acceptable explanation for the default in this case.
Prejudice
That is not the end of the matter, however. As noted by Master Polike in M.J. Dixon Construction Ltd. v. Hakim Optical Laboratory Ltd, where there is an unsatisfactory explanation for the default, the court must still consider the potential prejudice of granting or not granting the requested order on the parties, and whether such potential prejudice can or cannot be compensated by costs. This is a balancing process (see Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, para. 2).
In this case, the affidavit filed by Oxy indicates that enforcement proceedings pursuant to its default judgment have not garnered any recovery to date. Its only loss to date is the costs it has incurred in getting and enforcing the default judgment. These costs can be recovered under an award of wasted costs to which a respondent is normally entitled on such a motion.
The only other prejudice Mr. MacColl could point to for Oxy if I set aside the default was the delay in recovery on its claims in this case. This is not the kind of “prejudice” that the court recognizes. If the plaintiff’s claim has merit, the legal expenses and delay that it has to endure to get judgment will be addressed by the trial judge.
On the other hand, there would appear to be considerable prejudice to Du-Mor if I do not grant the requested order. The affidavit of Paul Lanzarini in the Du-Mor Supplementary Motion Record provides evidence of a defence that Du-Mor would not be able to prosecute if I deny the motion. In fact, it is conceded by Oxy that there is such evidence. Furthermore, the affidavit of Stephanie Freedman indicates that the garnishment process has resulted in Du-Mor’s business account being frozen.
Order
I, therefore, order that the default judgment and the noting of Du-Mor in default are set aside, that the Notice of Garnishment issued on November 26, 2012 is stayed, and that Du-Mor is given leave to deliver its Statement of Defence and Counterclaim within 10 days of this order.
As to costs, I received cost outlines from counsel at the conclusion of argument. If the parties cannot agree as to the appropriate disposition on costs, I require written costs submissions within 20 days of the date of the order, and any responding costs submissions in writing within 10 days thereafter.
If the plaintiff is successful in being awarded costs, I invite counsel to address the issue of which person or entity should be required to pay the costs.
MASTER C. WIEBE
DATE: February 22, 2013
COURT FILE NO.: CV-12-460986
DATE: 2013/02/22
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Oxy Teknologies Inc. (Plaintiff/ Respondent) v. Du-Mor Construction Limited (Defendant/Moving Party
BEFORE: MASTER C. WIEBE
COUNSEL: I. Pichini for the Moving Party
A. MacColl for the Respondent
ENDORSEMENT
MASTER C. Wiebe
DATE: February 22, 103