CITATION: Taylor v. Sage Electric Limited, 2015 ONSC 2684

OSHAWA COURT FILE NO.: 69967/10SR

DATE: 20150423

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Doug Taylor and Gloria Taylor, Plaintiffs

AND:

Sage Electric Limited, Healthquotes.ca Inc. and Craig Baker, Defendants

BEFORE: THE HON. MR. JUSTICE G.M. MULLIGAN

COUNSEL: R. Zochodne, Counsel for the Plaintiffs, Doug Taylor and Gloria Taylor

T. Walker, Counsel for the Defendants, Healthquotes.ca Inc. and Craig Baker, Moving Party

D. Himelfarb, Counsel for Sage Electric Limited, Responding Party

HEARD: April 7, 2015

ENDORSEMENT

[1] The defendants, Healthquotes.ca Inc. and Craig Baker (the Baker defendants) bring a motion to set aside a noting in default against them. Sage Electric Limited brings a cross-motion for default judgment against the Baker defendants, arising from its cross-claim.

[2] The plaintiffs, Doug Taylor and Gloria Taylor (Taylors) originally brought a claim against the three defendants, Sage and the Baker defendants in connection with an invoice they received as a result of Ms. Taylor’s hospitalization while travelling out of the country. The plaintiffs were previous shareholders of Sage, and upon agreeing to sell their shares, contracted with Sage to receive continuing health care benefits. In order to provide for a continuation of this coverage, Sage contacted Healthquotes.ca Inc. through its employee and broker, Mr. Baker. Both Sage and the Baker defendants filed statements of defence and cross-claimed against each other.

[3] Sage settled with the plaintiffs and now seeks to obtain a default judgment against the Baker defendants for the amount of its settlement, $75,000 USD.

[4] Prior to the settlement, the Baker defendants’ then counsel, after having filed a Statement of Defence, moved to get off the record on notice to his clients, the Baker defendants. An Order was granted by Justice Edwards, removing counsel of record and putting the Baker defendants on notice. I will discuss more fully that Order later in these reasons. The Baker defendants were served with the Order in accordance with the Rules, but took no steps thereafter. Numerous pieces of correspondence by Sage to the Baker defendants went unanswered. Based on the Baker defendants’ failure to comply with the Order of Justice Edwards, the plaintiffs noted the Baker defendants in default for a second time.

[5] After a period of time, Sage, having settled the main action, served and filed a motion to obtain default judgment against the Baker defendants. The Baker defendants immediately obtained new counsel and brought this motion to set aside the noting in default previously referred to.

[6] It should be noted that this was not the first time that the Baker defendants were noted in default. They were originally noted in default by the plaintiffs for failure to file a Statement of Defence. Counsel for the plaintiffs notified them of this noting in default. The Baker defendants then retained counsel. The default was then cured by the plaintiff consenting to the defendants filing a Statement of Defence.

[7] The Baker defendants’ counsel brought a motion on April 2, 2012, to be removed as counsel of record on notice to his clients, the Baker defendants. Rule 15.04 pursuant to the Rules of Civil Procedure provides a complete code for the procedure to be followed when a lawyer wishes to be removed as counsel of record. The rule provides for service on the client, and for the contents of the Order which may result from such a motion. Rule 15.04 provides that:

(4) The order removing a lawyer from the record shall include,

(d) if the client is a corporation, the text of subrules (6) and (7); and

(e) if the client is not a corporation, the text of subrules (8) and (9).

[8] Subrule (7) provides:

If the corporation fails to comply with subrule (6) [appointing a new lawyer of record],

(a) the court may dismiss its proceeding or strike out its defence; [Emphasis added.]

[9] Subrule (9) provides:

If the client fails to comply with subrule (8) [appointing a new lawyer or serving notice of intention to act in person],

(a) the court may dismiss the client’s proceeding or strike out his or her defence; [Emphasis added.]

[10] The Order of Justice Edwards did not mirror the wording of Rule 15.04. Instead of the word “may” as required in rule 15.04(7), paragraph 3 of the Order set out, “This court further orders that if the defendant Healthquote.ca Inc. fails to comply with paragraph 2 of this order, the court shall strike out its pleading (emphasis added). Further, paragraph 5 of the Order provided, “This court further orders that if the defendant, Craig Baker fails to comply with paragraph 4 of this order, the court shall strike out his pleading (emphasis added). These provisions did not comply with subrule 15.04(8) or 15.04(9).

Jurisdiction of a Registrar

[11] In my view, the Order of Justice Edwards was irregular. On its face, it gave the court, not the registrar, power to dismiss the proceedings or strike out the defence. No steps were taken by the plaintiff to obtain such an order. Instead, the matter was dealt with by the registrar noting the defendant in default. The relative jurisdiction of a registrar or a judge is discussed in The Law of Civil Procedure in Ontario[^1]. As the authors state at p.554:

The Rules distribute the power to make an order on a motion. The Rules employ the definition of the word “court” to signify that a motion may be heard by a judge or a master. Where only a judge may hear a motion, the Rules will specify that the motion is to be made to a judge. Certain motions may be decided by a registrar.

A judge has jurisdiction to hear any motion in a proceeding. The jurisdiction of a master is not as broad, and the jurisdiction of a registrar is narrow. A registrar’s motion jurisdiction largely depends on the parties consenting to the relief being sought or there being a party in default under the Rules. The registrar’s role is administrative and not judicial.

[12] As a result of the wording of the Order, the plaintiffs were able to have the registrar note the Baker defendants in default on June 6, 2012. The registrar’s note indicates, “Pursuant to the Order dated April 2, 2012, noted in default this 6th day of June 2012.”

[13] As counsel for the Baker defendants notes at para. 32 of the Factum:

Taylors were therefore able to dispense with the usual procedure, as created by rule 15.04(4), whereby a party seeking to take advantage of a default under an order removing counsel from the record is obligated to bring a motion, on notice to the defaulting party, to request that the court strike the pleading of the defaulting party.

[14] Sage takes a different view of the Baker defendants, noting that they did not object to the language of the Order served upon them by their former counsel, nor did they bring a motion to amend, vary, or set aside that order. Sage concludes at para. 58 of its Factum:

Healthquotes and Baker should not be entitled to rely on a minor discrepancy between the text of the order and the text of Rule 15.04 to escape the responsibility for complying with the order.

[15] Unlike the steps taken by the plaintiffs’ counsel previously, the Baker defendants were not advised that they were noted in default. They did not become aware of this until they were served with this motion seeking a default judgment against them by Sage. They then retained counsel and took immediate steps to move to set aside their default.

Analysis

[16] In my view, the difference between the required wording in Rule 15.04 and the wording used in the Order is significant. The word “shall” was substituted for the word “may”. The Canadian Dictionary of Canadian Law, 2d ed. Carswell, 1995, defines “may” as, “Commonly used to denote a discretion … permissive and empowering and conferring an area of discretion.” The word “shall” is defined as, “Intended that those sections be construed as mandatory or imperative in the sense that they must be obeyed …” The dictionary further provides: “The expression ‘shall’ is to be construed as imperative and the expression ‘may’ as permissive.” This mirrors the wording contained in the Interpretation Act, R.S.O. 1990, c.I.11, s. 29(2): “In the English version of an Act, the word ‘shall’ shall be construed as imperative, and the word ‘may’ is permissive.”

[17] In my view, the word “may” in the rule provides a judicial officer with discretion as to whether or not to note someone in default. That discretion must be judicially exercised. In the court’s exercise of its discretion, it may determine that the defendants are entitled to notice. By substituting the word “may” for the word “shall”, the exercise of discretion by a judicial officer was removed. Then the registrar noted the Baker defendants in default upon the request of the plaintiffs. This occurred notwithstanding that the Order specified “the court” not “the registrar”.

[18] Rule 19.03 gives the court discretion to set aside the noting in default. Rule 19.03(1) provides, “The noting of default may be set aside by the court on such terms as are just.” Based on a constellation of factors here, I am satisfied that the noting in default should be set aside. Those factors include the following:

• The Baker defendants filed a Statement of Defence when their first noting in default was brought to their attention.

• The second noting in default was not brought to their attention, although not strictly required, the Baker defendants had an expectation based on their previous dealings with the plaintiff and previously responded when notified.

• The Order of Justice Edwards served upon them, prepared by their former counsel, was not in strict compliance with Rule 15.04, and thus was at the very least, an irregularity. The word “shall” was substituted for “may”.

• No motion to the court was brought by the plaintiffs to dismiss the proceedings or strike out the defence against the Baker defendants for failure to comply with the Order of Edwards J., notwithstanding the clear wording of the Order which stated “the court shall”.

Conclusion

[19] It is ordered that the noting in default against the Baker defendants is set aside. Further, the Baker defendants have thirty days from today’s date to re-file their defence and cross-claim.

[20] I pause to note that Sage bore no responsibility for the Order of Justice Edwards or the subsequent noting in default by the plaintiffs, the Taylors.

[21] Because the Baker defendants were successful on their motion and are entitled to re-file their Statement of Defence and cross-claim, it follows that the Sage motion for default judgment should be dismissed as premature.

Costs

[22] The parties are encouraged to settle the costs. If costs are not settled, I will receive brief written submissions, not exceeding three pages, from the Baker defendants within twenty days of the release of this endorsement. The defendant, Sage will have a further fifteen days to respond with brief submissions.

MULLIGAN J.

Date: April 23, 2015

[^1]: 1st ed., Paul M. Perell and John W. Morden, LexisNexis Canada Inc. 2010, Markham, Ont.