ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 25207/10

DATE: 2014-10-01

BETWEEN:

BIRCHLAND PLYWOOD-VENEER LIMITED
Plaintiff

– and –

ACTIVA TRADING CO. LTD. and MLS MACHINERY INCORPORATED
Defendants

Paul R. Cassan, Counsel for the Plaintiff

Jerome H. Stanleigh, Counsel for the Defendants

HEARD: May 22 and September 22, 2014

Varpio J.

REASONS FOR RULING

[1] This is a motion brought by the defendant, Activa Trading Co. Ltd. (“Activa”), to set aside default Judgment in this matter. An Order was obtained (granting default Judgment in the sum of $222,300.09 plus $1,254.48 in costs) after a damages hearing was conducted by McMillan J. on February 22, 2011.

[2] For the reasons that follow, the motion is dismissed.

[3] At its heart, the Claim has to do with the procurement by the defendants of allegedly faulty woodworking equipment to the plaintiff. It should be noted that both corporate defendants appear to be related companies and have the same principal, Mr. Peter Sommer.

[4] It should also be noted that one of Birchland Plywood-Veneer Limited (“Birchland”)’s principals, Mr. Eric Morgan, has recently passed away.

POSITION OF THE PARTIES

[5] In support of its motion, Activa submits as follows:

1. That service of the Statement of Claim was never properly effectuated on the defendants even though Mr. Sommers provided the plaintiffs with his correct business address (51 Esna Park Drive, Unit A, Markham, Ontario) in a September 1, 2010 email;

2. That the defendants only became aware of the default Judgment when Mr. Sommer was notified by a bank manager in April 2011 about the bank’s receipt of a Notice of Garnishment granted as a result of the default Judgment;

3. That it retained counsel on April 7, 2011 to have the default Judgment set aside. Activa’s retainer with that counsel lasted for a period of a few months and nothing was done. Activa then retained a second lawyer in August 2011. Activa claims that the instant motion was not served or filed until September 2013 because Activa was awaiting the results of Law Society claims it make against its former solicitors sometime in late 2011. Motion materials and a Statement of Defence had been in the first lawyer’s possession at all material times.

4. Activa claims that Mr. Somers attempted to advance this litigation although Activa concedes that, from January 2012 until early 2013 (when Mr. Steinleigh was retained), Mr. Sommer, on behalf of Activa, did not push the litigation as the defendants waited for the results of the Law Society investigations. Activa submits that waiting 15-odd months for resolution of the Law Society complaints was a reasonable position for Mr. Sommer to take given that he is not trained as a lawyer, although he is admittedly a sophisticated business person;

5. Activa has been prejudiced by the Notice of Garnishment since it has been forced to cease operations. Setting aside default judgment will, per Mr. Sommer, allow Activa to operate and thus allow the Plaintiff to recover damages if the latter is successful at trial;

6. Activa indicates that it has an arguable case as evidenced by its statement of Defence; and

7. Activa claims that Mr. Morgan’s passing is not an issue since Mr. Morgan had virtually no involvement in the claim, as per Mr. Sommer’s affidavit evidence.

[6] Birchland submits that the default Judgment should not be set aside since:

1. The Statement of Claim was properly served by a veteran process server upon an individual in charge of Activa’s business premises named Mr. Watson. On August 13, 2010, the process server served MLS Machinery Inc. (“MLS”) with the instant Statement of Claim at 51 Esna Park Drive, Unit A, Markham, Ontario. [^1] At that time, the process server had a telephone conversation with Mr. Sommer. The process server indicated that Mr. Sommer had a “British accent”. The process server had never before met Mr. Sommer. It is conceded that Mr. Sommer in fact hails from South Africa and has a South African accent. Accordingly, Activa and its principal were at all times aware of the claim.

2. During cross-examination on his affidavit, Mr. Sommer and/or his counsel undertook to provide certain documents in the defendants’ control. The defendants failed to provide sufficient documentation. Birchland submits that the Court ought to draw adverse inferences against the defendants as a result of the unfulfilled undertakings.

3. With respect to the former counsel’s responsibility for the delay in bringing the instant motion, counsel for Birchland submits that Activa’s position is unsupported by the facts. On May 27, 2014, the hearing of this motion was adjourned in order for Activa to obtain materials in possession of the Law Society. Activa consented to said procurement. The Law Society dismissed any claim against Activa’s first solicitor and does not appear to have found any wrongdoing by the second solicitor (although it provided the second solicitor with guidelines for best practices). Accordingly, the documents demonstrate that the delay in bringing the instant motion was not the lawyers’ doing.

4. Mr. Sommer cannot be found to be credible given disparities between his affidavits and other documents. For example, in his affidavit, dated October 21, 2013, Mr. Sommer states at paragraph 25 to 33:

5. Upon receiving Notice of Garnishment on or about the beginning of April 2011 from our bank, TD Canada Trust, who advised us that the business accounts were frozen, we sought out and retained counsel [R.B.] on or about April 7, 2011.

6. We signed a Retainer Agreement with [R.B.] immediately to Motion the Court to have the Notice of Garnishment set aside. As well, we were advised that a Default Judgment had been filed and entered. We instructed our solicitor to have the Default Judgment set aside and the proceedings transferred to Toronto.

7. We paid [R.B.] a substantial Retainer and he advised that he was drafting the appropriate documentation to have the Default Judgment set aside. To this end, he advised us that it was necessary to also retain counsel in Sue [sic] Ste. Marie, which we did, a Mr. John Walker, Barrister and Solicitor

8. For reasons, which are unclear to me, [R.B.] dragged this matter on for several months until the end of June 2011. I continuously expressed my concern over the delay as the Defendant Corporations were basically out of business because of the Garnishment proceedings of the Corporate Defendants’ bank accounts. Only a setting aside of the Default Judgment and staying of Garnishment proceedings would change our desperate situation.

9. [R.B.] told me from time to time that he was attempting to settle this matter out of Court and hoped that he would be able to get a Consent to the setting aside of the Default Judgment.

10. To my surprise and only when I complained to the Law Socity was I informed that the Plaintiff’s Solicitor had in fact offered to allow the Default Judgment to be set aside if the Defendant Corporations would pay some legal fees. Had I known of this fact, I would have attempted to negotiate a settlement along these lines, with the only question being the quantum of throwaway costs requested by the Plaintiff.

11. The breakdown of communications between myself and [R.B.] came about when [R.B.] asked for an additional Retainer which I refused to pay until he outlined his time docketing for the original Retainer of $7,500 especially given I had not seen any Motion material and no Court date for the Motion had been set. Unfortunately, [R.B.] held me ransom and the Defendant Corporations could not proceed unless we paid [R.B.] an additional Retainer. I told [R.B.] we were willing to pay an additional Retainer on his presenting to us a proper accounting of his time spent on this matter.

12. [R.B.] was well aware of our desperate situation and the need to expedite matters but he kept on emphasizing the issue of continued Retainer and de-emphasizing the preparation of the Motion material. In July 2011, [R..B.] notified us that he would not continue to represent us in these proceedings, notwithstanding he knew of our desperate situation and the terrible losses and inability of the Defendant Corporations to earn any income.

13. [R.B.] refused to hand over the Motion material that he was to have prepared and it is only recently, having complained to the Law Society, that he did so.

In a reporting letter to the Law Society, Mr. Sommer’s first solicitor described the dispute between solicitor and Mr. Sommer as follows:

Our client’s instructions were followed and we served him competently and without delay having regard to the fact that we commenced our work prior to the agreed upon commencement date. We received material from Peter Sommer on April 23, 2011 and additional information was required on April 27, 2011. That information was received on April 28, 2011, and a draft was delivered to Mr. Sommer on April 29, 2011. Two draft affidavits were delivered on May 3, 2011 and our documents were finalized and executed on May 5, 2011. Drafts were delivered to Mr. Walker that day and triplicate executed copies were couriered to Mr. Walker on May 12, 2011, forthwith after receipt of his advice that he was content to argue the documens as drafted. Our account dated May 12, 2011 describes the services that we rendered in detail. Pursuant to the terms of our Retainer/Terms of Engagement those services commanded a block fee of $7,500.00 plus disbursements and HST exclusive of the account of counsel in Sault Ste. Marie. It became necessary to call off counsel in Sault Ste. Marie, when Mr. Sommer made it clear that the monies required to pay counsel’s account would not be advanced. Additional services that we rendered are referenced in our second detailed account dated July 13, 2011. That was not paid and we paid Mr. Walker personally.

Birchland claims that the disparity in the two recitations of fact is such that Mr. Sommer was less than candid with the Court in that he attempted to leave the Court with a false perception that the first solicitor was charging too much whereas the first solicitor’s correspondence makes clear that the dispute was over money to be paid to a Sault Ste. Marie lawyer.

6. Birchland’s counsel also directed the Court to Mr. Sommer’s evidence with respect to the role played by Mr. Morgan in the lawsuit. In a supplementary affidavit, sworn April 29, 2014, Birchland’s Vice-President stated:

2. On Friday, April 11th, 2014, Eric Morgan, the President of Birchland Plywood-Veneer Limited, passed away at the young age of 36. Unfortunately Mr. Morgan was involved with the transaction between Birchland and the Defendants in this action. Attached hereto as Exhibit A is a copy of the death announcement relating to Mr. Morgan.

3. Mr. Morgan was also directly and personally involved with the problems with both the press and the glue spreader and the attempts to rectify same prior to determining that neither piece of equipment could be made useable.

4. Due to Mr. Morgan’s death, there is no way for the Plaintiff to put this evidence forward.

In response, Mr. Sommer deposed on May 12, 2014:

2. In response to Mr. George L. Vanoyen’s Affidavit sworn April 29, 2014, the Deponent advises as follows:

3. I have searched for all of the e-mails and other correspondences with respect to my business dealings with the Plaintiff Corporation. The total number of correspondences and e-mails amounted to 464 separate items.

4. I attach hereto a list of the hard drive folders that I reviewed personally to obtain the latter mentioned figures as Exhibit “A”. I was the recipient of most of the items. I did have a salesperson and a technician who had dealings with the Plaintiff who also wrote and received some e-mails.

5. The only email I was able to find either written to Eric Morgan or from Eric was one dated January 28, 2010. I attach hereto the said email as Exhibit “B”. You will note in Mr. Morgan’s e-mail of January 28, 2010 that his reference was only with respect to the press and not with respect to the glue spreader.

6. The Court should note that the glue spreader was not referred to in the Claim and only the Activa hot press was referred to in the Claim. The cost of the hot press was $45,243.00 after discounts.

7. In my dealings with the Plaintiff Corporation, I dealt exclusively with George Vanoyen who as Vice President of Operations was in charge of all general aspects including production at the factory. It was Mr. Vanoyen who attended at the cross-examinations as a representative of the Plaintiff Corporation when I was examined on January 10, 2014. At that time no one ever referred or indicated that Eric Morgan had any role in the allegations in the Claim or that his evidence was crucial in pursuing this Claim.

8. It should be noted that Eric Morgan’s name has not been referred to in any Affidavit material that has been filed by the Plaintiff in these proceedings prior to today’s date.

9. As a matter of record it should be noted that the Defendant Activa replaced the glue spreader machine when complaints were made by the Plaintiff concerning the same [sic]. The Defendants have never been advised that there was a problem with the newly replaced glue spreader machine after delivery of same until cross-examinations on January 10, 2014.

10. I clearly sympathize with the family on the untimely demise of Mr. Eric Morgan but his involvement with the Deponent regarding this matter was non-existent. [Emphasis added.]

Birchland submits that Mr. Sommer’s own correspondence belies the position described above. The Law Society documents include correspondence from Mr. Sommer to his first solicitor dated April 13, 2011, which state that:

Back in September 2007 we were approached by Birchland Plywood Limited (Birchland) that they were looking for a new press and a new glue spreader. Correspondence went back and forth to try and settle on a final deal as per, Mr. Eric Morgan’s (Eric) email on October 31st, 2007. (see exhibit 1)...

On January 28th, 2010 we receive the absolute final threatening correspondence from Eric about the press and a pending lawsuit (see exhibit 34). This was not a response to a problem but was a comment added by him to an advertising email broadcast he received. It was obvious that the entire matter was not important enough to Eric to warrant a dedicated letter but was a “by the way” 2 line note in response to an ad.

Not one word was heard from Birchland until someone showed up at 51 Esna Park on or around August 13th, 2010 stating to Kevin Watson our technician that he was there for an appointment with me and that I knew he was coming to meet with him. Kevin called to tell me that someone was at the warehouse waiting for me. I had no appointments scheduled with anyone that day and asked Kevin to find out who he was and where he came from. The person mentioned that he was from Birchland and Kevin told me that he had an envelope. I emphatically told Kevin not to accept anything from this person and told Kevin that if he wanted to see me he could make an appointment. The person left, envelope in hand. (see exhibit 35) This was seven months after the last correpondence from Eric. ... [Emphasis added.]

Birchland submits that the Court cannot find Mr. Sommer’s evidence to be credible given the discrepancy regarding Mr. Morgan’s evidence. His own correspondence makes it clear that Mr. Morgan played a much larger role in the transaction than was portrayed in Mr. Sommer’s affidavit evidence. Birchland submits that it will be prejudiced if the motion is granted given the fact that a key witness has passed away. Further, when Mr. Sommer’s submits that the three year delay in serving the motion to set aside default judgment is not his fault, the Court should reject that position given Mr. Sommer’s evidential frailties on these other issues.

THE LAW

[7] Rule 19.08(2) sets out the bases for setting aside default Judgment:

SETTING ASIDE DEFAULT JUDGMENT

19.08 (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. R.R.O. 1990, Reg. 194, r. 19.08 (1).

(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. R.R.O. 1990, Reg. 194, r. 19.08 (2).

(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. R.R.O. 1990, Reg. 194, r. 19.08 (3).

[8] The test for setting aside a default Judgment was well-described by Lax J. in Skendos v Igbinosun, [1998] O.J. No. 657 at para 3:

It is well-established that in order to set aside a default Judgment, the moving party must bring the motion without undue delay, explain the circumstances which led to the default and present a triable defence on the merits: Nelligan v. Lindsay, [1945] O.W.N. 295 (H.C.J.). The requirements are not to be viewed as rigid rules, but factors to be considered in the overall exercise of judicial discretion: Chitel v. Rothbart (1988), 29 C.P.C. (2d) 136 (C.A.). There is an obligation to look at all the circumstances and to be satisfied that no injustice is done to the innocent party. On the other hand, the Court must be concerned that no one suffer judgment except after full hearing and a careful determination on the merits: (1987), 22 C.P.C. (2d) 257 (Ont. Dist. Ct.) at p.263. Dealers Supply v. Tweed Farm

[9] The Court must consider the “full context and factual matrix” of the motion prior to determining whether to set aside summary judgment: 1067600 Ontario Inc. v. Schell, [2011] O.J. No. 5759 (S.C.J.) at para 31.

[10] In Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, [2007] O.J. No. 1685 at para 2, the Ontario Court of Appeal stated that the above-noted analysis should not be considered as:

“Rigid preconditions to the exercise of the exercise of discretion” but that “the motion judge must, however, ultimately determine whether the interests of justice favour an order setting aside the default judgment. In doing so, the motion judge will have regard to the potential prejudice to the moving party should the motion be dismissed, the potential prejudice to the respondent should the motion be allowed, and the effect of any order the motion judge may make on the overall integrity of the administration of justice.

[11] Despite the fact that prejudice to the plaintiff is a factor to be considered if a default Judgment is to be set aside (Peterbilt, supra), I accept that the Courts traditionally give considerable weight to the notion that arguable defences ought to be given every reasonable opportunity to be advanced in Court. In Xpressview Inc. V. Daco Mfg Ltd., [2002] O.J. No 478, Nordheimer J. stated (at para 11) that:

The plaintiff asserts that the proposed defences do not raise any triable issues. I do not agree with that assertion. First, the defendant does not have to show it will succeed in its defence. Rather it must show there are issues that require a trial for their determination. A motion under Rule 19 cannot be used as some form of surrogate summary judgment motion. To do otherwise, would effectively mean that a motion to set aside a default judgment would itself end the litigation because the defendant would have to show that it would succeed in its defence in order to be allowed to file its defence. I also do not accept the court should, on a motion under Rule 19, engage in a detailed examination of the merits of the defence proposed. That again only serves to turn a motion to set aside a default judgment into a motion for summary judgment.

[12] Daley J. made similar comments in TD Canada Trust v. Chapel Hill Pet Studio Inc., [2008] O.J. No. 3901 at paragraph 33:

Further, as stated by the Court of Appeal in Peterbilt of Ontario Inc. v. 1565627 Ontario Limited (2007), 2007 ONCA 333, 87 O.R. (3d) 479, a motion judge considering a motion to set aside a default judgment, in addition to considering the traditional three-part test referenced above, must also consider the potential prejudice to the parties. Clearly denying the defendants Tremblay the opportunity to present a defence on the merits represents a significant prejudice to them. [Emphasis added.]

ANALYSIS

[13] I find that Mr. Sommer was aware of Birchland’s service of the Statement of Claim as early as August 2010. I accept the process server’s affidavit in its entirety, especially since Mr. Sommer, in his cross-examination, admitted that he received a phone call at the time the process server was serving the Markham address. Buttressing this position is the fact that the process server knew that Mr. Sommer had an accent – although the process server mistook the South African accent for a “British” one. This combination of factors is such that there is no doubt that Mr. Sommer knew that MLS and Activa were being served with the instant Statements of Claim when he spoke with the process server. Any other conclusion would defy common sense given the phone call and the process server’s knowledge of Mr. Sommer’s accent.

[14] It is also clear that Mr. Sommer has been, at the very least, somewhat disingenuous in his affidavits to the Court. Even if I am uncertain that his affidavit regarding his solicitors’ alleged delay is inconsistent with his Law Society documentation, I am certain that Mr. Sommer attempted to leave the Court with the clear impression that Mr. Morgan was not an important witness. The Law Society materials, however, clearly demonstrate that Mr. Morgan had, according to Mr. Sommer’s own correspondence, a meaningful role in the acquisition of the impugned equipment. This deception is of grave concern given the nature of these proceedings and leaves the Court in no doubt that Mr. Sommer’s credibility with respect to his affidavit representations is deeply flawed. Accordingly, it is clear that the defendants, through their principal, have attempted to manipulate the litigation to their own end and thwart the fact-finding process. This finding augers heavily against the granting of the motion in so far as the defendant should not profit from its own malfeasance.

[15] With respect to prejudice, while I accept that the defendants have an arguable case and that the defendants will be prejudiced by the failure to set aside default Judgment, it must also be stated that the plaintiffs will be prejudiced by an Order setting default Judgment aside since Mr. Sommer’s own correspondence makes clear that Mr. Morgan was involved in the sale of the machinery and, as such, the Court will only be left with Mr. Sommer’s testimony regarding any interactions between Mr. Morgan and Mr. Sommer. Such evidence is important per Mr. Vanoyen’s evidence and failure to adduce same will undoubtedly prejudice the plaintiff.

[16] Finally, I cannot accept that Mr. Sommer – given his admitted sophistication – has adequately explained the delay in bringing the instant motion. His prior lawyers were not sanctioned for their failure to advance the file at a critical time. Mr. Sommer’s lack of credibility compounds the illogic of Activa’s failure to move to set aside default Judgment. Simply put, its sophisticated principal could easily have brought this motion while awaiting the Law Society decision. Accordingly, I find that Activa delayed bringing the instant motion for strategic reasons that are not apparent to me given the evidence before the Court.

[17] Thus, when balancing all the factors described above (the defendants’ actions, the actions of its principal, the length of the delay and the prejudice suffered by the plaintiff as a result of Mr. Morgan’s unfortunate passing), the equities of the situation demand that the motion be dismissed despite the prejudice that would flow to the defendants from failure to set aside default Judgment and the obvious and meaningful weight that Courts often accord this final consideration.

CONCLUSION

[18] For the foregoing reasons, the instant motion is dismissed. The parties may seek an appointment with the trial coordinator in order to schedule a costs hearing before me.

Varpio J.

Released: October 1, 2014

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

BIRCHLAND PLYWOOD-VENEER LIMITED

• and -

ACTIVA TRADING CO. LTD. AND MLS MACHINERY INCORPORATED

REASONS FOR RULING

Varpio J.

Released: October 1, 2014

[^1]: I note that the address where MLS was served is the same address provided by Mr. Sommer for service upon Activa in his September 1, 2010 email.