SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-466645
MOTION HEARD: AUGUST 13, 2014

RE: Victor Le

v.

Chao Yun Zhou also known as Chow Yun Zhou and Yun Chou Zhou and Yuan Ying Huang

BEFORE: MASTER R.A. MUIR

COUNSEL:
Jason Huang for the defendants

Julie Amourgis for the plaintiff

REASONS FOR DECISION

[1] The defendants bring this motion pursuant to Rule 19.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) for an order setting aside their noting in default and the default judgment signed against them by the registrar on December 2, 2013 (although the judgment is dated December 31, 2012).

[2] This action arises from a loan made by the plaintiff to the defendant Chao Yun Zhou (“Zhou”) in the fall of 2010. The total amount loaned by the plaintiff was apparently $222,800.00. It is important to note that the loan was made in Canadian dollars.

[3] The purpose of the loan was to assist the defendants in paying off certain forfeiture orders issued by the Crown in Right of Ontario and registered against title to two separate properties owned by the defendants.

[4] The plaintiff alleges that it was a term of the loan that the monies were to be repaid within one month. The loan was not repaid within one month. However, the defendants allege, as their primary defence, that the loan was fully repaid by June 2011. In fact, the defendant Zhou alleges that she made a loan to the plaintiff in the amount of approximately $125,000.00 in Canadian funds which has not been repaid. Zhou intends to pursue a counterclaim for repayment of that alleged loan to the plaintiff.

[5] The plaintiff takes the position that only $44,000.00 has been repaid by the defendant Zhou. The plaintiff argues that all of the other payments Zhou relies on as evidence of re-payment were actually payments made on account of certain amounts owing by Zhou’s husband in connection with business dealings between the plaintiff and a company controlled by Zhou’s husband.

[6] The statement of claim was issued on October 30, 2012. Certificates of pending litigation (“CPL”) were obtained on November 16, 2012 on the basis of a without notice motion brought before Master Hawkins. The defendants were then served with the statement of claim and the CPL motion materials shortly thereafter.

[7] Zhou acknowledges that she received these materials but has given evidence that she did not understand that they were related to the plaintiff’s loan. Zhou believed that they were related to previous litigation in which she had been involved. Her confusion was exacerbated by what she describes as her poor English skills.

[8] Nevertheless, the importance of these documents did come to Zhou’s attention a short time later. Zhou was in the process of selling one of the properties. Zhou’s real estate lawyer was advised by the purchaser’s lawyer of the existence of the CPL on title. On December 19, 2012, Zhou’s lawyer wrote to the plaintiff’s lawyer and advised of the pending sale. The real estate lawyer also stated that she had urged her client to “retain a litigation lawyer immediately to negotiate a settlement or provide a defence”. The plaintiff’s lawyer acknowledged receipt of this letter by way of a letter dated December 21, 2012. She advised that she would seek instructions from her client.

[9] Despite the fact that the plaintiff’s lawyer had been informed of the fact that Zhou had been advised to “retain a litigation lawyer immediately to negotiate a settlement or provide a defence”, she nevertheless proceeded to have the defendants noted in default on December 21, 2012.

[10] The sale was ultimately completed on January 7, 2013. The net proceeds are being held by Zhou’s real estate lawyer in trust. The funds being held exceed the amount of the plaintiff’s claim.

[11] A notice of intent to defend on behalf of the defendant Zhou was served on January 6, 2013. It could not be filed due to the noting in default. On January 8, 2013, the plaintiff’s lawyer advised the lawyer then acting for Zhou that Zhou had been noted in default. Zhou’s lawyer asked for the plaintiff’s consent to an order setting aside the noting in default. The plaintiff declined to provide his consent without seeing a draft defence and supporting affidavit. These materials were not provided until early 2014.

[12] Between January 2013 and January 2014, the parties exchanged a great deal of correspondence regarding the merits of the claim and the defendants’ proposed motion to set aside the noting in default. The defendants’ lawyer booked and re-booked motion dates. What the defendants did not do, however, was actually serve a notice of motion and a supporting affidavit. That step took more than a year to accomplish. Zhou’s evidence is that she was unable to respond to this matter because she was in China for much of the time and was experiencing certain health and personal problems. There is no evidence from the defendant Yuan Ying Huang (“Huang”) as to why she failed to defend this action or bring this motion in a timely fashion.

[13] During this time period, the court issued a dismissal notice pursuant to Rule 48.15. The plaintiff then obtained an extension order from Master Peterson on June 6, 2013. The dismissal date was extended to December 15, 2013. As of the beginning of December 2013, the defendants had still not served their motion materials. Consequently, the plaintiff asked the registrar to sign judgment against the defendants.

[14] The test governing a motion to set aside a default judgment is well settled. It is concisely set out in the recent decision of the Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194. The court states as follows beginning at paragraph 47 of Mountain View:

[47] The court’s ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order. The approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, 2012 ONSC 3836, at paras. 19-20 and 23-24.

[48] The court must consider the following three factors:

(a) whether the motion was brought promptly after the defendant learned of the default judgment;

(b) whether there is a plausible excuse or explanation for the defendant’s default in complying with the Rules; and

(c) whether the facts establish that the defendant has an arguable defence on the merits.

[49] To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. 2007 ONCA 333, 87 O.R. (3d) 479 (C.A.), at para. 2:

(d) the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the respondent should the motion be allowed; and

(e) the effect of any order the court might make on the overall integrity of the administration of justice.

[50] These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.

[51] For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.

[15] These are the factors and principles I have applied and considered in determining the issues on this motion. My analysis leads me to the conclusion that it is in the interest of justice that the noting in default and the default judgment be set aside.

[16] I am satisfied that the defendant Zhou has provided a plausible explanation for her failure to immediately defend this action. I accept that her poor English skills coupled with her confusion over the nature of the materials served upon her led to her initial inaction. No other explanation makes sense. If she had appreciated the true nature of the documents, she would have known that they would impair her ability to complete the pending sale of her property. Moreover, she very quickly retained a lawyer over the holiday season and instructed him to serve a notice of intent to defend. At no time before the service of the notice of intent to defend did the plaintiff’s lawyer inform Zhou’s real estate lawyer that the defendants had been noted in default.

[17] However, I am not satisfied that this motion was brought promptly. A delay of one year is simply not acceptable in the circumstances of this action. The fact that Zhou was in China for extended periods of time is not a compelling explanation. Communication between Canada and China in 2014 is simple and commonplace. Documents can be exchanged electronically with ease. Zhou’s lawyer could have communicated with her sending her an email or by picking up the phone. Furthermore, Zhou was in Canada for at least part of 2013. She simply should have made this matter a priority.

[18] Although Zhou argues that her health and personal issues affected her ability to deal with this matter, I note that no medical evidence has been provided to support these assertions.

[19] In my view, the defendant Huang has not met either of these elements of the test. She has provided no evidence whatsoever explaining why she did not initially defend this action or bring this motion in a timely manner.

[20] I am, however, satisfied that the defendants have established an arguable defence on the merits. Their proposed defence meets the “air of reality” test. The plaintiff acknowledges that one payment of $44,000.00 was made in connection with the loan. That payment was made in December 2010 in U.S. dollars and payable to the plaintiff’s business, Empire Trading Co. (“Empire”), apparently at the request of the plaintiff. Around the same time a larger payment was made in U.S. dollars to Empire originating from a TD Canada Trust account apparently controlled by Zhou. In June 2011 a further U.S. dollar payment was made to Empire originating from the same account.

[21] The plaintiff alleges that the two larger payments were made to Empire in respect of amounts owing by Zhou’s husband to Empire. The only documentary evidence the plaintiff has produced in support of this assertion is a spreadsheet and invoices purporting to show the application of some of those funds to Zhou’s husband’s account. However, the amounts on the spreadsheet and the invoices do not precisely match the amounts of the alleged payments. The spreadsheet stops in early 2011 but one of the payments the plaintiff refers to is dated June 9, 2011. It is also noteworthy that the plaintiff’s allegations regarding these payments are not consistent with allegations he made in a separate claim against Zhou’s husband. In that statement of claim, the plaintiff alleges that the only payment he received from Zhou’s husband on account of goods sold and delivered was on June 14, 2012 in the amount of $100,000.00.

[22] In view of these facts, the defendants’ assertion that the loans have been re-paid does have an air of reality. I am simply unable to determine from the evidence before me which story is true and which one is false. That will have to be left to the trier of fact.

[23] I see nothing in the relief requested that would have an effect on the overall integrity of the administration of justice. I note that in Mountain View, the court set aside a default judgment despite a six year delay in bringing the motion. See Mountain View at paragraph 4.

[24] Finally, the plaintiff will not be prejudiced in any way by an order setting aside the noting in default and the default judgment. Zhou’s real estate lawyer is holding approximately $225,000.00 in trust pending the outcome of this action. If the plaintiff is ultimately successful he will be able to satisfy his judgment with ease. As for delay, I note that it took the plaintiff exactly two years to issue this claim after the loan went into default.

[25] Although I am not satisfied that this motion was brought promptly and the defendant Huang has not explained her default, I am satisfied that the defendants have established an arguable defence on the merits. This fact, coupled with the lack of prejudice to the plaintiff, leads me to conclude that it is in the interest of justice to make an order setting aside the noting in default and the default judgment.

[26] I therefore order as follows:

(a) the noting in default of the defendants and the default judgment are hereby set aside;

(b) any writs of seizure and sale issued pursuant to the default judgment are hereby set aside and to the extent that they have been filed they shall be withdrawn;

(c) the funds being held by Diana Young Professional Corporation from the sale of Zhou’s property shall not be disbursed without further order of the court;

(d) the defendants shall serve and file their statement of defence and counterclaim by no later than September 5, 2014; and,

(e) the registrar shall not dismiss this action as abandoned without further order of the court.

[27] If the parties are unable to agree on the issue of costs, they may make brief written submissions by no later than September 12, 2014.

Master R.A. Muir

DATE: August 15, 2014