ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 07-CV-335007PD3
DATE: 20140429

B E T W E E N :

B.A. CONSTRUCTION & RESTORATION INC.
Plaintiff

– and –

2012221 ONTARIO LTD. carrying on business as “Argyle Authentic Lofts”, DONALD DESROCHERS and STANLEY WISE
Defendants

Robert Harason
for the Plaintiff

Heather R. Weir
for the Defendant

Heard: April 17, 2014

CHAPNIK J.:

[1] On March 12, 2013 Justice Chiappetta granted judgment against the defendant, Donald Desrochers (“Desrochers”), for the sum of $80,361.25 plus substantial indemnity costs of $37,643.07. Desrochers did not attend the hearing before Chiappetta J.. He later discovered in early 2014 that his co-defendant, Stanley Wise (“Wise”), had settled the action with the plaintiff in May 2012 and the action against Wise was dismissed on consent on May 15, 2012. Desrochers also learned that the settlement with Wise was for the all-inclusive sum of $60,000. This information was not before Chiappetta J. and the particulars of the settlement were not recorded in the court file. Moreover, the entire claim brought by the plaintiff against the defendants jointly, in 2007 was for the sum of $64,092.70 in unpaid invoices.

[2] Accordingly, Desrochers contends that, in his absence, the plaintiff obtained double recovery and withheld important information from the court. In addition, Desrochers submits he was not properly served with court documents. He now moves pursuant to rule 19.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to set aside the noting in default, the default judgment, and the costs award against him.

[3] In light of what may be termed a rather bizarre set of circumstances, the plaintiff’s lawyers have written to the Sheriff to lift the writ of seizure and sale and the plaintiff has consented to an order setting aside the judgment. However, the plaintiff does not agree to set aside the order for costs or the noting of default. In my view, both of these orders should be set aside in the particular circumstances of this case.

the facts

[4] Pursuant to an agreement dated July 26, 2004, the defendant company 2012221 Ontario Ltd. carrying on business as Argyle Authentic Lofts (“201”), of which Desrochers and Wise were part owners, retained the services of the plaintiff to perform exterior restoration work on a condominium improvement project that 201 was involved with.

[5] The plaintiff issued its statement of claim on June 19, 2007 claiming unpaid invoices for materials and services in the sum of $64,092.70. In his statement of defence dated December 4, 2007, Desrochers maintains that the plaintiff was paid in full for its work under the agreement and the amounts claimed were not legitimate extras pursuant to the contract.

[6] In 2009, the action was administratively dismissed and then reinstated by the plaintiff in May 2011. Thus, it appears that no actions were taken by either party until 2011. On May 9, 2011, Master Abrams set a timetable for the interlocutory steps in the action including, inter alia, examinations for discovery to be completed on or before July 15, 2011.

[7] As both parties had counsel at the time, Desrochers’ examination for discovery was scheduled for July 6, 2011. Desrochers did not attend the examination. He puts forth several explanations for this and for what occurred thereafter, which are summarized below. Suffice it to say that the ensuing events followed quickly upon his non-attendance at the discovery.

[8] In particular, the defendant’s lawyers were removed from the record on October 26, 2011. Prior to this, in September 2011, the plaintiff had brought a motion for an order striking out Desrochers’ statement of defence for failure to attend on discovery. By order dated November 16, 2011, Master Abrams struck out the defence. On March 26, 2012, Desrochers was noted in default, and in December, 2012 the plaintiff brought a motion for judgment, which was adjourned by Pollack J. to effect service. Desrochers was then served with the motion materials returnable March 12, 2013 by regular mail sent to his last known address.

[9] As Desrochers did not appear on March 12, 2013, Chiappetta J. awarded the plaintiff judgment for the full amount of its claim which was, as noted, $80,361.25, including interest from 2007. Chiappetta J. also awarded costs of $37,643.07 on a substantial indemnity scale pursuant to the plaintiff’s claim that Desrochers breached the trust provisions in the Construction Lien Act, R.S.O. 1990, c. C.30.

[10] During this period, Desrochers was involved in an unrelated action with the plaintiff; and at the mediation in that action on May 30, 2013, Desrochers was served with a notice of examination in aid of execution. On June 10, 2013, about ten days later, his counsel advised plaintiff’s counsel of Desrochers’ intention to bring a motion to set aside the judgment of Chiappetta J.. Notwithstanding this, a delay occurred in preparing and serving motion materials.

[11] According to Desrochers, this was due to the loss of the court file which was not obtained from Cooksville until on or about January 30, 2014. It was only after obtaining the file and pursuant to information contained in the file, that Desrochers learned the action against his co-defendant, Wise, had been dismissed on consent on May 15, 2012. Upon further inquiry, the plaintiff advised Desrochers by letter dated March 12, 2014 that the settlement with Wise was for the all-inclusive sum of $60,000. Given that the initial claim against all defendants was for the sum of $64,092.70, Desrochers contends that this changed the entire landscape of the case and this motion now before the court.

[12] The plaintiff urges that Desrochers still owes it a minimum amount of $26,637.01, including prejudgment interest, plus the costs of the action as previously fixed on a substantial indemnity basis at $37,643.07.

the RELEVANT law

[13] Rule 19.08 provides as follows:

(1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rule 19.04 may be set aside or varied by the court on such terms as are just.

(2) A judgment against a defendant who has been noted in default that is obtained on a motion for judgment on the statement of claim under rule 19.05 or that is obtained after trial may be set aside or varied by a judge on such terms as are just.

(3) On setting aside a judgment under subrule (1) or (2) the court or judge may also set aside the noting of default under rule 19.03.

[14] It is well settled law that, on a motion to set aside a default judgment, the court will consider the following three factors:

1. whether the motion was brought promptly after the defendant learned of the judgment;

2. whether there is a plausible excuse or explanation for the defendant’s default; and

3. whether the facts establish that the defendant has an arguable defence on the merits.

Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, at para. 48, citing Watkins v. Sosnowski, 2012 ONSC 3836 at paras. 19-20 and 23-24; and Nelligan v. Lindsay, [1945] O.W.N. 295 (H.C.J.).

[15] The above factors are not to be viewed as rigid rules. The court must consider the particular circumstances of the case and decide whether it is in the interests of justice to relieve the defendant from the consequences of the default: see e.g. Chitel v. Rothbart (1988), 29 C.P.C. (2d) 136 (Ont. C.A.), leave to appeal to S.C.C. refused, [1988] S.C.C.A. No. 427; and Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. (2007), 2007 ONCA 333, 87 O.R. (3d) 479 (C.A.), at para. 2.

discussion

(a) Did Desrochers Act Promptly

[16] It is undisputed that Desrochers was personally served with the notice of examination in aid of execution on May 30, 2013. According to Desrochers, this was the first time the judgment came to his attention, and shortly thereafter on June 10, 2013 he advised the plaintiff, through counsel, of his intention to bring a motion to set aside the judgment. Although the motion was brought promptly, the plaintiff notes and it is not disputed, that there was an eight month delay until the motion record was served on February 5, 2014.

[17] The delay ensued when the court was unable to locate the file until the end of January 2014. Prior to this, on June 13, 2013, approximately two weeks after Desrochers received notice of the judgment personally, his counsel received confirmation from the court that the motion to set aside the default judgment had been booked for November 18, 2013, which was “the earliest date that both parties were available”.

[18] I am satisfied that the delay in serving the motion record hinged upon the systemic delay in obtaining the court file from Cooksville and once the file was obtained on or about January 30, 2014, the motion was brought promptly. There was also an adjournment on consent at the request of the plaintiff, and the discovery of the Wise settlement changed “the entire landscape of the case”.

[19] In my view, this element of the test has been sufficiently satisfied by Desrochers, that is, Desrochers acted promptly to set aside the judgment once it came to his attention.

(b) Explanation for Non-compliance with Rules

[20] There is no question that Desrochers failed to attend the scheduled examination for discovery in July 2011 and failed to accept service of court documents at other times. His explanations for this included as follows:

1. The 2007 action sat idle for a number of years and had been administratively dismissed for delay in 2009 and again on April 21, 2011.

2. In the interim, Desrochers experienced several losses, including the death of his wife from cancer in the fall of 2009 and the death of his 21-year-old son who was killed in a car accident in January 2010.

3. He and the plaintiff were involved in two unrelated actions at the time, and he did not expect this one to move forward as quickly. Moreover, there had been a motion in the fall of 2011 to stay this action (which never progressed).

4. He was never made aware of the order striking out his statement of defence or of the motion for default judgment. He certainly had no notice of the dismissal of the action against Wise on May 15, 2012.

5. In respect of the discovery set for July 6, 2011, he stated that he failed to attend as he “was not represented at the time and was in the process of trying to find new counsel.” Moreover, there were no other attempts by the plaintiff to set up discoveries before moving successfully to have Desrochers’ pleading struck.

6. As for the matter of service upon him of the motion for judgment, Desrochers maintains that the motion record did not come to his attention even though it was served upon him by regular mail. This is because he resides in an apartment building and the motion record and package would have been “too large” to fit in his mailbox. He maintains that his cleaning lady would likely have put the package inside his apartment without drawing his attention to it. Moreover, being a real estate developer involved in a considerable number of construction projects at the time, he did not see or open the package. The plaintiff does not accept these statements as realistic and argues that Desrochers made a conscious decision to refuse to open his mail or to attend the examination for discovery and that he attempted to evade service having advised a process server on one occasion that he should “get a court order” in lieu of cooperating. The situation in which Desrochers finds himself, argues the plaintiff, has been occasioned by his wilful action and inaction in attempting to “avoid, deflect and ignore the fact that due process was being taken against him.”

[21] The facts do not, in my view, support that argument. The plaintiff has failed to show any wilful default or intentional disregard of court documents by the defendant.

[22] The case of Royal Trust Corp. of Canada v. Dunn (1991), 1991 7227 (ON SC), 6 O.R. (3d) 468 (Gen. Div.), provides some guidance with respect to service of court documents effected by an alternative to personal service. In that case, where a defendant was served with a statement of claim sent to his previous solicitor and the plaintiff obtained default judgment, the court set it aside on the basis of ineffective service. The court stated as follows, at p. 473-474:

Although the alternatives to personal service are provided as a convenience, a plaintiff who uses an alternative to personal service takes the risk, which is recognized by subrule 16.07(a), that the statement of claim will not come to the defendant’s notice, in which case any step taken as a result of the default of the defendant will in all probability be set aside due to the absence of due process.

[23] I am satisfied that, in these particular circumstances, there was a plausible explanation for Desrochers’ default and that he intended all along to defend the action.

[24] In the Royal Trust case, since the judgment had been irregularly obtained, the court set it aside without requiring the defendants to establish a defence on the merits. Nevertheless, I will briefly discuss the third element in this matter.

(c) Does the Defence have Merit

[25] The plaintiff claims in its statement of claim that it performed work for 201 having a value of $280,151.68; that it was paid $216,058.19 by 201; and that the balance due and owing to the plaintiff (prior to the Wise settlement) was $64,098.70.

[26] In his defence, Desrochers takes the position that the plaintiff was paid in full for the work done pursuant to the agreement and that the sums claimed do not represent “legitimate extras”. In doing so, he relies on Article 7 of the agreement between the parties, which provides as follows:

The Subcontractor shall not undertake any changes or extra work without a written order from the Developer through its Project Manager or otherwise, stating the amount, or basis for calculating the costs of any extra work.

[27] Desrochers also disputes the efficacy of the costs order made on the motion for judgment on a substantial indemnity basis. The plaintiff’s argument, based on an allegation of breach of trust against Desrochers, was not contained in the motion materials before the court in March 2013. Desrochers denies that this was a situation of trust or that the matter involved him personally. I make no comment on the merits of the case. However, in my view, Desrochers has at the very least an arguable defence on the merits, particularly in view of the above terms as set out in the agreement between the parties. His defence has an air of reality. The allegations in the pleadings are subject to proof and there are genuine issues to be tried including as to whether the claim against Desrochers is subject to trust provisions.

conclusion

[28] In my view, Desrochers has satisfied all three factors in support of his motion to set aside the default judgment. But there is more. I agree with Desrochers that the plaintiff’s failure to disclose the existence of the settlement with Wise at the motion for judgment would, in itself, constitute grounds to set aside the judgment, the noting in default, and the costs award. Indeed, had the motions judge been aware of the settlement, it is doubtful whether she would have awarded the plaintiff the amounts she did, not only on the claim, but also for costs.

[29] In a similar case to this, Nu-Fish Import Export Ltd v. Sunsea Import Export Ltd, (1997), 1997 12270 (ON SC), 35 O.R. (3d) 153 (Gen. Div.), a judgment obtained seven years previously was set aside where the plaintiff failed to report many thousands of dollars of partial payments. In doing so, the court stated, at p. 160:

Rule 19 is not intended to provide plaintiffs with windfall awards bearing no reasonable relationship to the actual loss suffered. Here, precisely that spectre exists. If true, it would amount to a grave abuse of the court’s process, bordering on fraud. Such a default judgment cannot stand.

[30] In Nu-Fish, the court set aside the judgment despite finding, at p. 159, that the default of the moving parties was “neither inadvertence on the part of either the plaintiffs themselves or their solicitors, but rather a deliberate decision to take a calculated risk”. Accordingly, Wilkins J. set aside the default judgment on terms. That does not reflect the situation here. As noted, the evidence before me displays an intention to defend throughout.

[31] For the reasons stated above, the motion of Desrochers is allowed. The noting in default, the judgment of Justice Chiappetta, and her costs award are set aside. This is a simplified Procedure matter commenced in 2007. I urge the parties to move this matter forward promptly to trial or resolution. The plaintiff’s assertion that the defendant must bring another motion for setting aside the noting in default is simply ludicrous. Likewise, if necessary, the order of Master Abrams of November 16, 2011 is set aside and the statement of defence is reinstated.

costs

[32] Desrochers has submitted a costs outline for the motion. He claims costs on a substantial and partial indemnity scale in the all-inclusive amounts of $39,791.80 and $25,364.07 respectively for fees, disbursements and HST. Given the plethora of materials filed, issues raised, and work performed, including a full day hearing, these amounts are reasonable and must have been within the reasonable expectation of the parties. The costs claimed by the plaintiff fall within the same range. In view of the above and in accordance with the factors set out in rule 57.01 of the Rules of Civil Procedure, I award Desrochers his costs of the motion in the all-inclusive sum of $25,000. I have considered but reject the defendant’s request for substantial indemnity costs.

[33] At the outset of these reasons, I referred to this matter as “bizarre”. The amount claimed in the statement of claim was $64,092.70. Yet, in an affidavit, sworn March 14, 2014, Paul Seidor on behalf of the plaintiff, opined that the defendants still owe the plaintiff the full amount claimed! Moreover, without bringing a cross-motion, the plaintiff at para. 99(e) of its factum, seeks an order, in the event the noting of default is set aside,

(e) … … requiring Mr. Desrochers to (i) pay the sum of $70,680.47, or in the alternative, an amount to be determined by the court, plus post-judgment interest at 3% per year from March 13, 2013, into court as security for the Plaintiff’s claim, (ii) pay the Plaintiff’s costs of the motion and costs thrown away on a substantial indemnity basis, or in the alternative on a partial indemnity basis, fixed and payable within thirty days, (iii) attend to be examined for discovery on service of a Notice of Examination on his lawyers, or if unrepresented, on himself personally, by regular mail or fax and (iv) comply with the Rules of Civil Procedure, failing any one of which the Plaintiff shall be entitled to move, ex parte, on the filing of an affidavit attesting to Mr. Desrochers’ default, to obtain judgment against him, as of March 12, 2013, in the sums of $33,037.40, or in the alternative, $24,030.50, or in the further alternative, $18,933.84, including pre-judgment interest to March 12, 2013, plus substantial indemnity costs in the sum of $37,643.07, or in the alternative, substantial indemnity costs in an amount to be determined by the court, plus post-judgement interest at 3% per year;

[34] All of the above ignores the plain, undisputed fact that in 2012 the plaintiff was paid $60,000 by Wise towards the amount that was claimed jointly against the defendants. This represents approximately 93% of the plaintiff’s entire claim; however, the settlement itself (including the dismissal) was not found in the court file and was only disclosed after several inquiries made by defendant’s counsel. Despite this, the plaintiff proceeded to vigorously argue this motion in what is a simplified procedure matter. Once the settlement with Wise was discovered, it is my view that this motion should have proceeded on consent. The plaintiff not only chose to argue the motion unsuccessfully, but it asserted claims that I find to be entirely unreasonable in the circumstances of this case.

[35] On the other hand, Desrochers did fail to attend the scheduled examination for discovery and did not respond to the attempted service of documents. Accordingly, the plaintiff is entitled to its reasonable costs thrown away in respect of those particular matters, which I assess in the sum of $1,200, the approximate amount of disbursements claimed by the plaintiff on the motion for judgment.

[36] This amount is to be set off against the costs of $25,000 awarded to the defendant such that the net result is an order for costs in favour of the defendant in the all-inclusive amount of $23,800 payable forthwith.

CHAPNIK J.

RELEASED: April 29, 2014

COURT FILE NO.: 07-CV-335007PD3
DATE: 20140429

ONTARIO
SUPERIOR COURT OF JUSTICE

B E T W E E N :

B.A. CONSTRUCTION & RESTORATION INC.
Plaintiff

– and –

2012221 ONTARIO LTD. carrying on business as “Argyle Authentic Lofts”, DONALD DESROCHERS and STANLEY WISE
Defendants

REASONS FOR JUDGMENT

CHAPNIK J.

RELEASED: April 29, 2014