SUPERIOR COURT OF JUSTICE – ONTARIO
COURT FILE NO.: CV-06-01070-SR
DATE: 2014-04-15
RE: Wall 2 Wall Construction v. McConnell Contract Interiors
BEFORE: Barnes, J
COUNSEL:
John M. Gray, for the Plaintiff
Q. Ryan Hanna, for the Defendant
HEARD: October 23, 2013
E N D O R S E M E N T
INTRODUCTION
[1] Upon reading materials filed and considering the submissions of counsel I ordered the following on February 7, 2014:
The Defendants’ motion to set aside the judgment of Bielby J., dated July 29, 2010, is dismissed;
The Defendants’ motion for an order withdrawing the writ of seizure and sale and any other writs filed pursuant to the July 29, 2010, judgment is dismissed;
The Defendants motion for an order to allow for 30 days to file a statement of defence is dismissed;
The Plaintiff and Defendant shall schedule and complete an examination in aid of execution by March 31, 2014; and
Should the Defendants fail to participate in and complete the examination in aid of execution by March 31, 2014, the Defendants shall provide the Plaintiff with a Mortgage Discharge Statement within 15 days after March 31, 2014.
[2] These are my reasons. All evidence put before the court was by affidavit; I have considered all evidence and the submissions of counsel but only refer to such as is necessary to provide context and explain my decision in this case.
BACKGROUND FACTS – THE PLAINTIFF
[3] The plaintiff, Wall 2 Wall Construction Ltd. (“Wall 2 Wall”) and the Defendant, McConnell Contract Interiors Ltd., (“MCIL”), Douglas McConnell, Adam Marshall (“Marshall”) and Jason Skinner entered into a contract in 2004 and 2005.
[4] Under the contract Wall 2 Wall, a subcontractor, provided renovation services to MCIL, a general contractor, MCIL was to pay Wall 2 Wall for services rendered.
[5] Wall 2 Wall claims that it delivered invoices which MCIL failed to pay despite MCIL’s receipt of payment for services rendered. Wall 2 Wall filed a Statement of Claim on March 24, 2006. MCIL refutes these allegations and filed a Statement of Defence and Counter Claim on May 4, 2006.
[6] On November 20, 2006, Goodmans LLP were in Assignment Court as counsel for Marshall. A pre-trial was scheduled for February 14, 2008, and a trial scheduled for June 15, 2009. Marshall was notified in writing of these dates by his counsel.
[7] A pre-trial was heard in this matter on February 14, 2008. No change was made to the trial date or the pre-trial date. Marshall attended the pre-trial.
[8] Less than one week after the pre-trial, on February 22, 2008, Marshall and Douglas McConnell (“McConnell”) incorporated McConnell Contract Inc. (“MCI”).
[9] On June 15, 2009, the trial commenced before Bielby J. None of the defendants attended. On July 29, 2010, Bielby J. ordered the defence struck and granted judgment in favour of Wall 2 Wall against the defendants including against Marshall personally. On August 17, 2010, a writ of seizure and sale was issued against the defendants.
ISSUES
[10] Marshall seeks an order to set aside the judgment of Bielby J., dated July 29, 2010; an order withdrawing the writ of seizure and sale and any other writs filed pursuant to the July 29, 2010, judgment; an order allowing for 30 days from the date of the order for Marshall to serve and file a defence.
[11] Wall 2 Wall seeks an order dismissing Marshall’s motion, and an order requiring the defendant Marshall to provide a Mortgage Discharge Statement.
[12] There are four issues:
Is there a plausible excuse for the defendant Marshall’s failure to attend the trial?
Has there been a delay in seeking relief?
Has Marshall established a valid defence on the merits?
Should the defendant Marshall be ordered to provide a Mortgage Discharge Statement?
LAW
[13] Three factors must be considered on a motion to set aside a default judgment: See Waite v. Gershung (2005), 194 O.A.C. 326 (Div. Ct.) para 9-10; Nelligan v. Lindsay [1945] O.J. No. 91.
a) Is there a plausible excuse or explanation for the defendant’s failure to comply with the rules?
b) Was the motion to set aside the default judgment brought promptly?
c) Do the facts establish that the defendant has an arguable case?
[14] Rule 52.01(3) states that:
“A judge may set aside or vary, on such terms as are just, a judgment obtained against a party who failed to attend at trial.”
a) Is there a plausible excuse for the defendant Marshall’s failure to attend trial?
[15] I have concluded that there is no plausible excuse for Marshall’s failure to attend the trial. According to Mr. Marshall he did not receive a copy of the Statement of Claim until the pre-trial because it was only served personally on McConnell and Jason Skinner (“Skinner”). Marshall explains that McConnell advised him that McConnell had retained the firm Goodmans LLP on behalf of all the defendants. Marshall said he relied on McConnell to coordinate the case.
[16] Goodmans LLP brought a number of motions to be removed as counsel of record, between June to October 2008. The basis of these motions was that Goodmans LLP was having difficulties getting instructions from the defendants. Marshall explained that he did not receive any of Goodman LLP’s attempts by fax, telephone, regular mail and courier to reach him because the address utilized was the address for MCIL and not his proper mailing address. Marshall, in his affidavit evidence, says that he was thus unaware that Goodmans LLP no longer represented the defendants and that the trial was going to proceed on June 15, 2009.
[17] I reject Marshall’s explanations. Marshall was present at the pre-trial, he knew that the case was not resolved and that the trial was the next step. The trial date was set at the pre-trial which he was present for. For this reason alone I find his explanations incredible and reject them. In addition, in a letter dated May 6, 2008, to McConnell and Marshall, Goodmans LLP referred to the scheduled trial date.
[18] Marshall failed to participate in the trial even though he was aware of the trial date and intended to defend it. I have specifically found that he was aware of the trial date. At the very minimum if he had any doubt that the trial date was tentative he should have taken steps to inquire: See also MCAP Leasing Limited Partnership v. Whiltshire, 2011 ONSC 5111.
[19] This case is different from Guerriero v. Paul, (1990) 1990 6690 (ON SC), 73 O.R.(2d) 25 (H.C.) where Potts J., set aside a default judgment because the defendant had relied entirely on his counsel’s assurances that he would get the matter adjourned in order to retain other counsel, as a result, the defendant did not attend for trial.
[20] This case is also distinguished from Ben-Zvi v. Majestic Import Ltd., 2003, 42 C.P.C. (5th) 242, where the defendant’s former and present solicitors and the court administration were all to blame for the defendant’s failure to attend court. In this case there is no one to blame but Marshall himself for his failure to attend the trial.
b) Has there been a delay in seeking relief?
[21] The trial in this matter took place on June 15, 2009. The default judgment was granted on July 29, 2010. According to Marshall he became aware of the July 29, 2010, judgment in or about late August to early September 2011, when he received a letter to his residence from the counsel for Wall 2 Wall.
[22] Marshall retained new counsel, Fluxgold Izsak Jaeger (“FIJ”). Ms. Patterson, a law clerk at FIJ stated that in a letter dated July 12, 2012, counsel for Marshall, wrote to counsel for Wall 2 Wall in an attempt to discuss the default judgment. In the letter counsel for Marshall referred to “three occasions over the past couple of months” where he had attempted to contact counsel for Wall 2 Wall by phone.
[23] Marshall asserts that his new counsel contacted counsel for Wall 2 Wall in March or April 2012. Mark Lucacks, manager of Wall 2 Wall, claims that Marshall’s counsel contacted Wall 2 Wall’s counsel for the first time on May 15, 2012. Wall 2 Wall was served with a motion to set aside the default judgment on either July 20, 2012, or July 23, 2012.
[24] I conclude that if I accept that Marshall became aware of the default judgment in September 2011, then the ten month delay in serving the motion to set aside the default judgment was due to scheduling and work load pressures of his counsel and should not be attributed to him.
[25] However, I do not accept Marshall’s evidence that he only became aware of the default judgment in September 2011. Marshall was aware of the trial date of June 15, 2009; he worked at MCIL from 2005 to 2008; and at MCI from 2008 onwards under all these circumstances his evidence that he was not aware of the judgment until September 2011, almost 13 months later is untenable and rejected by the court. I am satisfied that under all of the circumstances Marshall would have become aware of the default judgment at a much earlier date in 2010. Therefore there has been unreasonable delay in seeking relief.
c) Has Marshall established a valid defence on the merits?
[26] I have concluded that Marshall has no valid defence on the merits.
[27] Section 8 of the Construction Lien Act states that all amounts received on a contract, for work performed by a subcontractor, constitutes a trust fund for the benefit of the subcontractor. A general contractor is liable to a subcontractor to the extent to which it appropriates or converts any part of the fund for its own use or for a use inconsistent with the trust.
[28] According to s. 13 of the Construction Lien Act, officers, directors and persons in effective control of a corporation are liable for breach of trust if they acquiesce in conduct that they know or should have known amounted to breach of trust.
[29] Wall 2 Wall’s position is that a trust fund was established for its benefit. Wall 2 Wall submits that it performed the services, according to the contract and sent the invoices to MCIL. MCIL invoiced the clients and was paid in full for Wall 2 Wall’s work. Wall 2 Wall claims that MCIL failed to pay Wall 2 Wall’s invoices. Instead, MCIL paid its overhead expenses and its shareholders (including Marshall) with funds, from MCIL’s only bank account, before paying Wall 2 Wall. I agree that such conduct will constitute a breach of trust according to the Act.
[30] Marshall submits that the default judgment should be set aside because he was never an officer or director of MCIL; he never held himself out as such to Wall 2 Wall or any other third party and he was not a director, officer or person with effective control of MCIL and therefore cannot be held personally liable under the Construction Lien Act.
[31] Marshall described his involvement with MCIL to be that of a creditor. He lent Skinner and McConnell a $135,000 loan (or investment for MCIL’s ongoing development and operation; he co-signed a lease for certain machinery; in exchange Skinner and McConnell agreed to keep him apprised of the business and the timeline for repaying the loan.
[32] Marshall also claimed that he was hired as a consultant to consult with MCIL on its financial position and management. Marshall explained that he incorporated the new company MCI after he learned that MCIL could no longer operate. He said he feared he would lose his investment loan.
[33] Phil Hicks is a former employee of MCIL, he understood Marshall to be an owner of MCIL. Mr. Hicks was an employee of MCIL from 2005-2008. He reported to Marshall and Marshall gave him direction and signed his cheques from time to time.
[34] Mark Lukacko, is manager of Wall 2 Wall. He states that Marshall was introduced to him and a Mr. Eser as the new owner of MCIL.
[35] Mr. Lukako explained that prior to Marshall’s arrival, he dealt McConnell with respect to financial matters. According to Mr. Lukacko he was instructed by McConnell to deal with Marshall after Marshall joined MCIL.
[36] Mr. Lukacko’s negotiations regarding Wall 2 Wall’s outstanding invoices were with Marshall only. Mr. Hicks and Mr. Lukacko were not cross examined on their evidence and their evidence is unchallenged.
[37] I accept their evidence and conclude that Marshall was in effective control of MCIL and was a director and shareholder of MCIL.
[38] There is additional evidence in support of this: less than one week after the pre-trial Marshall attended, he incorporated a new company called McConnell Contract Inc. (“MCI”). MCIL now ceased to exist. MCI had a similar name as MCIL and carries on the same business as MCIL.
[39] The “MCIL”, general ledger makes reference to Marshall as a shareholder.
[40] The cumulative effect of all of the circumstances leads this court to conclude that Marshall was the signing officer on MCIL’s bank account; he made deposits to the bank account, assisted MCIL with their finances and management; and assented or acquiesced in non-payment of Wall 2 Wall’s invoices.
[41] Marshall also submits that the default judgment should be set aside because Wall 2 Wall did not accurately account for all the monies it received from MCIL in its Statement of Claim.
[42] I am satisfied, upon reading the responding affidavit of Mark Lukacko dated October 19, 2013, that Marshall does not have a defence on the merits on this basis, however, if I am wrong in my conclusion, I conclude, after balancing the three considerations for settling aside a default judgment, that it is not appropriate to set aside the default judgment under these circumstances.
[43] These circumstances include: the court has concluded that Marshall deliberately chose not to attend his trial; did not take steps to set aside the default judgment promptly; and has no defence on the merits on what had been his primary defence i.e. no effective control of the operations of MCIL.
[44] To conclude otherwise will mean that in circumstances where a party chooses to ignore a default judgement that party can, in the future, simply assert that there was an error in the relief granted, at the first instance and have the judgment set aside. Litigants who have been diligent in proceeding with the litigation are entitled to expect finality in the proceedings. To set aside the default judgement, under the circumstances articulated by the defendant, will make a mockery of the administration of justice.
Should the defendant Marshall be ordered to provide a Mortgage Discharge Statement?
[45] The applicant seeks an order requiring Marshall to provide a mortgage statement. It appears that the applicant wishes to file a writ of seizure and sale and seeks to have the Sheriff sell property owned by Marshall in satisfaction of the amount awarded in the default judgment. The Sheriff seeks a mortgage statement before taking any such action.
[46] The defendant submits that the applicants should be required to pursue alternative remedies before seeking to obtain a mortgage statement. The defendant relies on Citi Cards Canada Inc. v. Pleasance at al. 2011 ONCA 3, as authority for this proposition.
[47] In Citi Cards the application judge dismissed, pursuant to s.7 of the Personal Information Protection and Electronic Documents Act, S.C. 2000, c.5 (PIPEDA), the judgment creditor’s application seeking the debtor’s mortgage statement from an unrelated third party creditor. The application judge also ruled that the applicant had an alternative remedy available under rule 60.18(6) of the Rules of Civil Procedure to examine the wife of the judgment debtor. Rule 60.18(6) (a) says:
Where any difficulty arises concerning the enforcement of an order, the court may,
a) make an order for the examination of any person who the court is satisfied may have knowledge of the matters set out in sub rule(2);
and
b) make such order for the examination of any other person as is just.
[48] In Citi Cards the Ontario Court of Appeal held that PIPEDA prohibited an unrelated third party creditor of a debtor from providing a mortgage statement of the debtor to the judgment creditor. The judgment creditor had sought the mortgage statement for the purposes of enforcing the judgment.
[49] The court in Citi Cards also observed that “there is considerable support for the proposition that a creditor should exhaust all other reasonable means available before a rule 60.18(6) (a) order is made”: Citi Cards at paragraph 37. The exhaust “all reasonable means” principle articulated in Citi Cards will equally apply under rule 60.18(6) (b).
[50] As per my Order issued December 7, 2014, the Plaintiff and Defendant shall schedule and complete an examination in aid of execution by March 31, 2014. Therefore, the plaintiff has taken steps to pursue the other reasonable means available.
[51] Should the Defendants fail to participate in and complete the examination in aid of execution by March 31, 2014, the Defendants shall provide the Plaintiff with a Mortgage Discharge Statement within 15 days after March 31, 2014.
[52] The parties shall submit any cost outlines by May 15, 2014. These submissions may be no more than two pages long.
Barnes, J
DATE: April 15, 2014