Ontario

Superior Court of Justice

Court File No.: 11-51871
Date: 2014-03-12

BETWEEN:

SANDRA McDONALD
Plaintiff/Respondent

– and –

THE UNITED STATES OF AMERICA incorrectly styled the EMBASSY OF THE UNITED STATES OF AMERICA
Defendant/Applicant

Bijon Roy, for the Plaintiff/Respondent

George Vuicic, for the Defendant/Applicant

Heard: February 25,2014

T.D.RAY, J

Reasons for Judgment

[1] The defendant seeks to set aside a default judgement in the amount of approximately $250,000.00 dated July 17, 2012 on the grounds that it has an arguable defence on the merits, and that its failure to address the claim in a timely manner to prevent a default was because of internal miscommunication. It claims in its notice of motion as follows: that the action was not properly served initially with the originating process, and then misdirected or misplaced following diplomatic notes concerning the matter in 2012, that it learned in August 2012 that the action was still alive from a reporter, and finally the legal office of its Department of State finally received notice of the judgement in September, 2012 via a diplomatic note. It then notified the plaintiff of its intention on December 11, 2012 of its intention to bring this motion, and launched this motion May 27, 2013. It takes the position it has an arguable defence on the merits.

[2] A motion to set aside a default judgement must respond to a four step test as follows:

a. Did the defendant move as soon as possible after becoming aware of the judgement?;

b. What are the circumstances under which the default arose, is it a plausible explanation?;

c. Are there sufficient facts to show an arguable defence on the merits?;

d. And finally, after considering the answers to the three tests as a whole, does justice on balance require the judgement be set aside?[^1]

[3] This action is for damages arising from the termination of the plaintiff’s employment, on one month’s notice from the U.S. embassy in Ottawa during a period of absence from her employment for medical reasons where she had been employed for some 30 years. A brief chronology is as follows:

January 11, 1982 – plaintiff commenced her employment with the Embassy

June 17, 2009 – plaintiff’s last day of actual work- commenced sick leave

November 4, 2009 – Long term disability benefits by Great West Life began.

April 14, 2010 – GWL says the plaintiff is not returning to work.

2010 – The defendant instituted a sick leave policy that if an employee was on LTD, their position would be held open a further 12 months, subject to review.

December 29, 2010 – the defendant gave notice of termination effective January 31, 2011.

July 14, 2011 – Statement of Claim issued by the plaintiff.

July 20, 2011 – Statement of Claim was served on the defendant by process server, however it took the position that service was defective since it had not been in accord with the State Immunity Act (SIA)[^2]; and returned the court documents via diplomatic note 521 to the Department of Foreign Affairs and International Trade (DFAIT).It made no contact with the plaintiff.

August 11, 2011 - DFAIT acknowledged receipt.

January 31, 2012 – DFAIT confirmed pursuant to the SIA that it had served the defendant through the Canadian Embassy in Washington. Its certificate is conclusive that service had been effected[^3]. The defendant embassy sent a diplomatic note to the US State Department concerning the action. This reached the department but was lost and never reached the legal department. The same diplomatic note was sent to the Department of State by the Canadian Embassy in Washington, but it got lost or mislaid and was not sent to the correct department within State.

April 13, 2012 – plaintiff wrote to the defendant State Department with another copy of the Statement of Claim and advised it was in the position to take default proceedings. There was no response from the defendant.

May 28, 2012 – plaintiff followed up with another letter to the defendant which was transmitted by diplomatic note via DFAIT. Again there was no response from the defendant.

July 17, 2012 – The plaintiff moved for judgement before Polowin, J. who granted judgement against the defendant.

August 27, 2012 – DFAIT confirmed by certificate that it had transmitted the default judgement to the defendant State Department.

September 11, 2012 – The plaintiff’s case was published in the Ottawa Citizen on its front page, with the headline “Ottawa woman wins wrongful dismissal case against US Embassy”.

November 8, 2012 – plaintiff wrote to the Deputy Chief of Mission at the US Embassy in Ottawa enclosing a copy of the judgement.

November 26, 2012 – plaintiff received a letter dated November 16, 2012 from the Assistant Legal Advisor for Diplomatic Law and Litigation, State Department, saying it intended to respond to the action, and that the delays had been through inadvertence.

December, 2012 – the defendant’s solicitors wrote to the plaintiff’s solicitors advising they had been retained and intended to move to set aside the default judgement.

May 27, 2013 – Current motion to set aside was launched. There was some delay in getting a date for the motion before the motion could be launched.

[4] The defendant’s position is that the delays were explicable and plausible. The defendant’s reasons for its failure to respond are several and include: it lost the documentation; it could not open the email attachment; the documentation was inadvertently directed to the wrong office at the State Department; the documentation was not indexed correctly; and the State Department is a large department with numerous offices and agencies. No explanation was provided for the delay from November, 2012 to May 27, 2013 except for the delay in getting a motions date.

[5] The defendant contends that it has a good defence on the merits and that there exists a genuine issue for trial. For example it argues the amount of the judgement is excessive because the notice period supporting the damages was excessive, there was no deduction for the plaintiff’s LTD receipts nor her CPP disability after she was found disabled, and there was no foundation for a human rights breach award of damages. Alternatively it contends that by reason of her disability, and her inability to return to work while being in receipt of LTD, that she had frustrated her employment contract disentitling her to damages.

[6] The plaintiff’s position is the defendant failed to move to set aside the judgement in accordance with the mandatory provisions of the SIA and therefore its motion must be dismissed. In the alternative it contends that the defendant failed to move to set aside the judgement as soon as it became aware of it, has not provided a plausible explanation for the delays giving rise to the default, and has failed to establish that it has an arguable case on the merits.

Did the defendant move as soon as possible?

[7] No, it is clear that the defendant did not move as soon as possible after it became aware of the default judgement.

[8] Service of the default judgement was conclusive notice to the defendant according to the DFAIT certificate August 27, 2012, according to the SIA. However, it claims it did not have actual notice. Its embassy apparently failed to see the front page of the Ottawa Citizen September 11, 2012. I remind myself that the defendant’s embassy is a significant presence in Ottawa. One would expect a press reporting service would be part of the defendant’s presence in order for it to be kept abreast of matters of interest, including a front page article reporting a judgement against it. Even after a copy of the judgement was sent to the embassy November 8, 2012, it still took almost two weeks for a reply; and then another six months before this motion was launched.

[9] The defendant contends that the SIA provides that the defendant was required to move within 60 days of the certificate from DFAIT to set aside the judgement, and that its failure is fatal to its motion to set aside[^4]. I accept that the use of ‘may’ is usually permissive and that the permissive ‘may’ is an odd choice in a statute that is intended to carve out a code for dealing with the usual rule for state immunity. The inference that a motion to set aside brought ‘after’ 60 days is therefore impermissible does not therefore follow. This provision on its plain reading is intended to set out a procedural guideline for states against whom a default judgement had been obtained. It would be strange if a foreign state were given more limited rights than would be available to a domestic defendant against whom a default judgement had been obtained. The Ontario rules permit evidence to be adduced to explain delay without a mandatory time limit. The use of ‘may’ in its permissive sense is consistent with the these rules, and the inference that it is to be given a mandatory meaning fails. I do not accept the defendant’s argument on this point.

Is the defendant’s explanation for the default plausible?

[10] While I accept that the defendant was not properly served with the originating process until January 31, 2012 when in accordance with the provisions of the SIA, the Department of Foreign Affairs provided the plaintiff with its certificate,(which pursuant to the SIA is conclusive evidence of service), the defendant was in receipt of the originating process July 20, 2011. While service was not proper, the defendant certainly had notice of the statement of claim issued on behalf of the plaintiff on that date. The fact that it rejected service in no way affected the efficacy of the action. The defendant accepts that the misnomer would have been corrected without order if it had delivered a statement of defence, so that the action was valid. It just needed to be served. Under the SIA, the certificate from DFAIT was conclusive of service.

[11] The circumstances of the default are quite extraordinary, and defy belief. By that I do not mean to imply that the defendant intentionally allowed the default. Lawsuits would not be unknown to the defendant. For the State Department to treat this action in the cavalier manner that it did in what has been reported to be the most litigious society on earth raises serious issues concerning those in the department that were at the time charged with the responsibility of dealing with its lawsuits. The plaintiff identified multiple instances of inadvertence/incompetence while the defendant contends that the plaintiff has ‘double counted’ to make a better argument. The defendant’s explanation is plausible in the sense that the delay was not intentional, but implausible in the sense that the multiple delays are incomprehensible.

Does the defendant have an arguable case on the merits?

[12] I am satisfied that the defendant has demonstrated an arguable defence on the merits. The length of the notice period of 30 months may be found to be excessive given the responsibilities of the plaintiff over her lengthy period of service. The plaintiff is in receipt of long term disability benefits and CPP disability that arguably should have been deducted from the plaintiff’s severance allowance. There is a body of law that might support the defendant’s contention that by virtue of the plaintiff’s long term disability combined with the benefits to which she is entitled by virtue of her disability that there was a frustration by the plaintiff of her employment contract, thereby disentitling her to damages[^5]. Finally the defendant has an arguable case concerning the award of damages for the claimed human rights breach.

[13] The defendant’s critical submissions concerning the judgement of Polowin J on its face have no merit since it apparently took no steps to obtain a transcript of the proceeding before her, nor did it obtain copies of any evidence filed with her.

[14] While each of the defences is not terribly strong, in combination they are sufficient to make out a defence on the merits for the purpose of this part of the test.

Balancing and a look at a just result

[15] As has been noted, the factors must not be applied in a rigid fashion. The exercise of discretion requires that the court stand back and look at the case in its totality to arrive at a just result.[^6] While the defendant fails on the first two parts of the test, it has successfully raised a defence on the merits. I am satisfied that by imposing terms on the defendant as a condition of setting aside the judgement, prejudice to the plaintiff can be limited while giving the defendant an opportunity to raise its defences.

[16] Firstly, the plaintiff must be made whole insofar as her costs thrown away including her costs of this motion.

[17] Secondly, the defendant must pay into court the full amount of the judgement of Polowin J. While the defendant submitted in argument that such an order is unnecessary, its conduct in defending this action would suggest otherwise. Having in mind the 60 day provision in the SIA, if the defendant has not complied with these terms within 60 days of my decision on costs in paragraph 14, then the judgement is to stand.

[18] The plaintiff may make brief written submissions concerning paragraph 14 above within 14 days; the defendant may then have 5 days for reply. These times may be extended on the consent of the parties.

Honourable Justice Timothy Ray

Released: March 12, 2014

Footnotes

[^1]: Lenskis v Roncaioli, [1992] OJ No. 713, (Ont Gen Div)
[^2]: State Immunity Act, RSC, 1985, c.S-18
[^3]: Note 2, ss. 9(2), (5), 14 (2)
[^4]: Note 2, s. 10(4) which provides that a defendant may move to set aside the judgement within 60 days.
[^5]: Fraser v UBS Global Asset Management, 2011 ONSC 5448.
[^6]: Valente v The Personal Insurance Company, 2011 ONSC 516 @paragraph 43.