CITATION: Foremost Cranberry Mews v. Ferreri et al. 2015 ONSC 2827

COURT FILE NO.: CV-11-433182

DATE: 20150430

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

FOREMOST CRANBERRY MEWS LIMITED PARTNERSHIP

Plaintiff

– and –

CHRIS FERRERI aka CHRISTOPHER FERRERI aka CHRISTOPHER DUNN FERRERI and 1783081 ONTARIO INC. aka ROAD READIE PAVING

Defendants

Geoffrey A.R. Pollock, for the Plaintiff

Sabrina Lucenti, for the Defendants

HEARD: April 28, 2015

FAIETA, j

REASONS FOR DECISION

[1] The defendants bring this motion for an Order to: (1) set aside the Noting in Default dated November 1, 2011; (2) set aside the undated Default Judgment; (3) stay the Notice of Garnishment issued on October 2, 2014; (4) direct the Sheriff for the County of Simcoe to release all garnished funds it received from Blue Mountain Resorts Ltd. in relation to this action to the corporate defendant.

Background

[2] The plaintiff owns a commercial retail plaza in Collingwood, Ontario.

[3] The defendant Ferreri is an officer, director and part owner of the corporate defendant.

[4] By agreement dated October 14, 2009, Cranberry Mews Inc., by its receiver and manager, hired the corporate defendant to install unilock paving stones at the plaza at a price of $140,000.00 (the “agreement”). The work was completed by RRPL’s subcontractors in November 2009.

[5] All rights and interests in the plaza were transferred from Cranberry Mews Inc. to the plaintiff pursuant to an Order of this court dated December 21, 2010.

[6] An action was commenced on August 18, 2011 by the plaintiff against “Chris Ferreri and 1783081 Ontario Inc.” for breach of contract and negligence. The plaintiff claims $200,000.00 for the cost of removing and re-installing the paving stones as it alleges that many areas began heaving during the winter of 2010-2011 as a result of improper installation.

[7] The defendants were served with the Claim on August 29, 2011.

[8] The Claim was sent by the defendant corporation’s bookkeeper to Economical’s broker or about August 31, 2011.

[9] In September 2011 Economical assigned an independent claims adjuster, Crawford & Company, to this matter. The defendants provided materials to this adjuster in September 2011.

[10] The solicitor for the plaintiff received the following email from a claims adjuster for Economical Insurance Group on September 20, 2011:

Further to our telephone conversation on today’s date, you have agreed to extend the waiver for a defence as we complete our investigation. As discussed, we are currently operating under a Non-Waiver Agreement with our insured as the pleadings alleged may be excluded under the “your work” exclusion of the CGL.

In the meantime, I would ask that you provide us with your damage documentation on a without prejudice basis. … [emphasis added]

[11] None of the evidentiary materials provided by the defendants reference the above-noted Non-Waiver Agreement or otherwise indicate that they were aware that Economical had reserved their right to deny the claim pending their investigation of the claim.

[12] The defendants were noted in default on November 1, 2011.

[13] A Notice of Abandonment, dated February 15, 2012, was sent to the parties. It stated that the action would be dismissed as abandoned unless, within 45 days, one of the following things occurred: 1) a defence was filed; 2) the action was disposed of by final order or judgment, or 3) the action was set down for trial.

[14] John Ferreri’s evidence is that that he believes that the Notice of Abandonment was sent by the corporate defendant’s former bookkeeper to Economical Mutual on or about March 9, 2012. However, there is nothing in the email, the attachment or elsewhere to corroborate his belief. Further, the former bookkeeper does not recall the content of the email or the attachment.

[15] A letter dated May 16, 2012 was sent by Economical Mutual to the attention of “Road Readie Paving Ltd., 80 Bradford Street, Unit 608, Barrie, Ontario, M9W 5N1.” It states:

As you are aware, Geoffrey A.R. Pollock has reported to The Economical Mutual Insurance Group … an occurrence … that allegedly happened on … [October 14, 2009] … .

Initial investigation indicates that the Insurer may decide to deny indemnification to you under the policy, and that the Insurer may decide to deny any obligation to provide a defence to you under the policy.

As you are aware, Economical Insurance Group were not on risk at the time of the loss and as such, you have referred this matter onto your insurer at that time.

We have now closed our file. …

[16] The defendants did not receive the letter dated May 16, 2012 until it was provided to their lawyer in November 2014. Given that the defendants’ address is in Barrie and that the postal code on the letter commences with the letter ‘M’ which is used for addresses in Toronto rather than in Barrie, this may explain why the letter was not received by the defendants.

[17] An Order dismissing the action as abandoned, dated June 18, 2012, was received by the defendants on or near June 18, 2012 (“Dismissal Order”). The Dismissal Order was made in error as a motion for judgment had been previously scheduled for September 13, 2012. The defendants did not receive notice that the Dismissal Order had been set aside or that this action was now proceeding. John Ferreri’s evidence is that he assumed that the insurer was “… doing a good job because I got a dismissal from the court.”

[18] The motion for default judgment was adjourned, on various occasions, for over one year. A default judgment was issued on October 25, 2013 in the amount of $119,030.41, plus costs and interest. The Order also amended the name of the personal defendant so that it reads as it does now.

[19] A Notice of Garnishment was issued on October 2, 2014 and was served upon the Garnishee, Blue Mountain Resort, as well as the defendants.

[20] John Ferreri states that he was unaware that the Dismissal Order was set aside until he received a copy of the Notice of Garnishment on or about October 20, 2014. The sum of $128,200.17 was delivered to the Sheriff for the County of Simcoe pursuant to the Notice of Garnishment. The Sheriff agreed to hold these funds pending the resolution of this motion.

[21] John Ferreri states that he contacted his former broker after receiving the Notice of Garnishment and was advised that Dominion, not Economical Mutual, was the insurer in respect of this action. Mr. Ferreri then contacted his current broker who advised him that he would look into the matter.

Discussion

[22] Rule 19.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, provides that a noting in default may be set aside on such terms as are just.

[23] The following factors must be considered on a motion to set aside a noting in default:

a. The context and the factual situation

b. The behavior of the plaintiff and the defendant

c. The length of the defendant’s delay

d. The reasons for the delay

e. The complexity and the value of the claim.[^1]

[24] Rule 19.08 provides that a judgment against a defendant who has been noted in default that is signed by the registrar may be set aside or varied by the Court on such terms as are just. On setting aside a judgment the Court may also set aside the noting of default.

[25] The following factors must be considered on a motion to set aside a default judgment:

a. Was the motion brought promptly after the defendant learned of the default judgment?

b. Is there a plausible excuse or explanation for the defendant’s default in complying with the Rules?

c. Do the facts establish that the defendant has an arguable defence on the merits? In other words, does the defence have an “air of reality”?

d. Does the potential prejudice to the moving party if the motion is dismissed outweigh the potential prejudice to the respondent should the motion be granted?

e. What is the effect of any order that the court might make on the overall integrity of the administration of justice?[^2]

[26] The above factors are not rigid rules. The Court’s ultimate task is to determine whether the interests of justice favour granting the Order. Accordingly, the particular circumstances of each case must be considered to determine whether it is just to relieve the defendant from the consequences of its default even if not all of the factors are satisfied.[^3]

Was the motion brought promptly after the defendants learned of the default judgment?

[27] The plaintiff does not dispute that the defendants brought this motion without delay.

Is there a plausible excuse or explanation for the defendants’ default in complying with the Rules?

[28] The plaintiff submits that the defendants were wilfully blind to the fact that Economical Mutual had not filed a Statement of Defence given that the Notice of Abandonment sent by the court in February 2012 indicated that a Statement of Defence had not been filed.

[29] However, I accept the defendants’ submission that the defendants reasonably expected that Economical Mutual was defending the Claim given that: 1) the defendants had reported the claim to their insurer; 2) the insurer was investigating and defending the matter pursuant to a non-waiver agreement; and 3) the defendants had not been advised that the insurer (or the plaintiff) that the insurer would not defend the claim. I also accept the defendants’ submission that it was reasonable for them to rely on the Dismissal Order as an indication that the Claim had been defended and successfully resolved.

Is there an arguable defence?

[30] The defendants submit that:

a. The plaintiff does not have standing to bring the action against the defendant as the plaintiff did not enter into the agreement;

b. The alleged damages occurred outside the one year warranty provided in the agreement;

c. The plaintiff did not suffer any damages as a result of the work performed under the agreement.

[31] The defendants also submit that they intend to file a Third Party Claim against the sub-contractors who performed the work for the defendants.

[32] The plaintiff submits that it does have standing to bring this action, as all rights and interests were transferred by order of Justice Di Tomaso on December 21, 2010. The Order of Justice Di Tomaso was not provided. The plaintiff submits that the one year warranty period is ineffective because it would deprive the plaintiff of substantially the whole benefit of the contract and because the deviations from specifications were not discoverable by the plaintiff.

[33] In my view, the defendants raise an arguable defence to this action.

Relative Prejudice

[34] The plaintiff submits that setting aside the default judgment would result in it having to incur additional legal costs to pursue this action. I agree with the defendants’ submission that such prejudice is compensable in the event that the action is successful. The plaintiff submits that there is a “risk of prejudice” in that the limitation period may have passed with respect to any claim that it may now have to bring against the sub-contractors who performed the work. In my view these persons were known to the plaintiff at the time that it commenced this action given that these sub-contractors undertook certain remedial work at the plaza prior to the expiry of the one year warranty. The plaintiff also submits that it will be difficult to obtain evidence. However, the defendants submit the various key individuals familiar with the circumstances of the work contemplated by the agreement and the work performed are available.

[35] In my view the prejudice of the defendants being held liable for damages and costs in excess of $120,000.00 based on an alleged breach of contract for which there is an arguable defence greatly outweighs the prejudice, if any, to the plaintiff.

Administration of Justice

[36] The plaintiff relies on HSBC Securities (Canada) Inc. v. Firestar Capital Management Corporation et al., 2008 ONCA 894, [2008] O.J. No. 5345, for the proposition that “inattention and inaction” is an inadequate explanation for the purpose of setting aside an default judgment. Unlike HSBC, this is not a case where the defendant “sat on his hands” after learning of the default judgment, either because he could not afford a lawyer or because his attention was focused on other matters. I am satisfied that the defendants acted reasonably in these unusual circumstances in responding to the Statement of Claim. Having learned that their insurer failed to defend this action, the defendants moved quickly to set aside this default judgment in order to defend this action.

Conclusions

[37] Having regard to the requirements of Rules 19.03 and 19.08 of the Rules of Civil Procedure I hereby order that the noting of default and the default judgment in this matter are set aside. The defendants have two weeks from today’s date to serve and file a Statement of Defence.

[38] The defendants ask that the Notice of Garnishment be stayed and the funds be returned to the defendant by the garnishee. The plaintiff submits that the funds should be held by the Sheriff pending the final disposition of this action. In my view, the relief sought by the defendants is appropriate given that default judgment has been set aside and given that where a plaintiff seeks to freeze the defendant’s assets before obtaining judgment it must do so on a proper legal foundation. The general rule is that a court has no jurisdiction to protect a creditor before it gets judgment, however a freezing order is available in exceptional circumstances. See Chitel v. Rothbart (1982), 1982 1956 (ON CA), 39 O.R. (2d) 513 (C.A.). In my view, there are no exceptional circumstances in this case to warrant a freezing order.

[39] Accordingly, I grant the Order sought by the defendants. The parties’ submissions on costs, maximum two pages in length, shall be delivered within two weeks of today’s date.

Mr. Justice M. Faieta

Released: April 30, 2015

CITATION: Foremost Cranberry Mews v. Ferreri et al. 2015 ONSC 2827

COURT FILE NO.: CV-11-433182

DATE: 20150430

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

FOREMOST CRANBERRY MEWS LIMITED PARTNERSHIP

Plaintiff

– and –

CHRIS FERRERI aka CHRISTOPHER FERRERI aka CHRISTOPHER DUNN FERRERI and 1783081 ONTARIO INC. aka ROAD READIE PAVING

Defendants

REASONS FOR JUDGMENT

Mr. Justice M. Faieta

Released: April 30, 2015

[^1]: Intact Insurance Company v Kisel & Bijelic, 2015 ONCA 205, [2015] O.J. NO. 1473, at paras.12-14.

[^2]: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 47-51.

[^3]: Mountain View, at paras. 47, 50-51.