SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-12-4986-SR
DATE: 2015-07-28
RE: ASIMA MIRZA and HUZAIFA FAROOQ and
2185198 ONTARIO INC., ARTISTIK BOLD & CREATIVE INC.,
ZAKA KHOKHAR and SHAFIQ KHOKHAR
BEFORE: LEMON J.
COUNSEL:
Amandeep Sidhu, for the Defendants
Allan Rasheed Mohammed, for the Plaintiffs
HEARD: July 16, 2015
ENDORSEMENT
The Issue
[1] The defendants, 2185198 Ontario Inc. and Shafiq Khokhar move to set aside the default judgment of O’Connor, J. dated December 14, 2014.
Legal Principles
[2] In Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, at paras. 47 - 51, Gillese J.A. set out the test for setting aside a default judgment as:
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.
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.
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.
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.
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.
ANALYSIS
Plausible Excuse
[3] The Statement of Claim in this matter was issued December 5, 2012. In support of the motion, the defendants’ affidavit says the following in explanation of why they failed to respond to the Claim.
After being served with the Claim for this action (which is the only Claim that 218 and I are parties to) 218 and I immediately sought to retain legal counsel.
Zaka and I had always used a lawyer by the name of Salma Sheikh. Also, Ms. Sheikh had represented both Zaka and I (along with our companies) in various other matters. As such, both Zaka and I were past clients of Ms. Sheikh and we felt comfortable using her.
On or around January 17, 2013, I attended Ms. Sheikh’s office and provided her with a copy of the Statement of Claim (for this action) and a cheque payable to her law firm, namely, Sheikh Law Office, in the amount of $1,500.00. Attached hereto and marked as Exhibit “E” is a true copy of the said cheque along with proof of deposit.
Also, the said cheque was executed by me in Ms. Sheikh’s office with Zaka present.
On January 17, 2013, Zaka and I met with Ms. Sheikh at her office. The meeting was short as Ms. Sheikh was familiar with the action and the defence which would be put forth by all Defendants.
After January 17, 2013, 218 and I were under the impression that Ms. Sheikh had defended the action on our behalf (as she was instructed and paid to do).
[4] In the normal course, this would likely explain the reason for a default. However, the plaintiffs, in their responding material have filed an affidavit of service showing that the defendants were served June 5, 2013. Accordingly, the events and documents of January 2013, do not explain the reason for default.
[5] Although the defendants filed reply affidavits, those affidavits did not respond to this significant discrepancy.
[6] There was no denial of the service in June. There was no explanation of the significant difference in dates.
[7] Accordingly, there is no explanation for the reason for default after being served in June of 2013. The motion is silent on that point.
Moved Promptly
[8] With respect to moving promptly, the defendants’ affidavit sets out:
On or around December 14, 2014, I received a telephone call from Zaka advising that Judgment had been issued against all Defendants. Attached hereto and marked as Exhibit “F” is a true copy of the Judgment of Justice O’Connor, dated October 21, 2014. On or around December 14, 2014 was the first time I was informed that Judgment had been issued against all Defendants, including 218 and I.
This obviously came to a shock to 218 and I as we instructed and paid Ms. Sheikh to file a Defence on our behalf.
I was advised by Zak that he was in discussions with Ms. Sheikh and that she would straighten this out with the Plaintiff’s counsel.
I did not feel comfortable proceeding with Ms. Sheikh as I was always assured that there was no progress in this matter and made to believe the matter was going through its natural course as litigation often does.
Immediately upon notice of the Judgment, I contacted a few different law firms to seek alternative counsel and advice on this matter. I knew of Usman Bhatti of RZCD Law Firm and wished to engage him and his firm in a retainer. It was the intention of 218 and I to retain Mr. Bhatti for this action.
Mr. Bhatti had advised me that given the holiday season was coming up, he would be out of the office and asked that I contact him in mid-January 2015 to discuss my matter and schedule a meeting.. As such, in mid-January 2015, I contacted Mr. Bhatti’s office and we scheduled an appointment for Monday, February 2, 2015 at 10:00 a.m. at his office.
On February 2, 2015 at approximately 10:00 a.m., I attended Mr. Bhatti’s office. However, given the severe snow storm that day, Mr. Bhatti did not attend work. Attached hereto and marked as Exhibit “G” is a true print out from The Weather Network confirming the severe weather of February 2, 2015.
As such, Mr. Bhatti’s receptionist advised me that Mr. Bhatti will not be coming into the office that day due to the severe weather. Mr. Bhatti’s receptionist asked that I contact him the next day (being February 3, 2015) to re-schedule our appointment.
As such, on February 3, 2015, I contacted Mr. Bhatti and we re-scheduled our meeting for February 24, 2015, 10:00 a.m., as this was his first available date to meet.
On February 24, 2015 I met with Mr. Bhatti and discussed this action with him. Mr. Bhatti’s first advice was that this motion has to be brought immediately. He requested I collect any and all documents related to this matter and related matter for his review.
I instructed Ms. Sheikh to forward all documents, pleadings etc. related to this matter to Mr. Bhatti immediately.
I have been advised and verily believe that Mr. Bhatti received correspondence from Ms. Sheikh including some of the documents on March 4, 2015.
On March 24, 2015, a letter was delivered from Mr. Bhatti’s office to the Plaintiff’s counsel, Allan Mohammed. Attached hereto and marked as Exhibit “H” is a true copy of Mr. Bhatti’s said letter.
On April 27, 2015, a follow-up letter was sent by Mr. Bhatti’s office to Plaintiff’s counsel, Allan Mohammed requesting a response to the letter of March 24, 2015. Attached hereto and marked as Exhibit “I” is a true copy of Mr. Bhatti’s said letter.
Mr. Bhatti did not receive a response from Mr. Mohammed until April 28, 2015.
I have been advised by Mr. Bhatti and verily believe that Mr. Bhatti was overseas for a funeral in early March 2015. Mr. Bhatti had returned from overseas some time towards the end of March 2015. Upon his return, Mr. Bhatti was hospitalized. Due to Mr. Bhatti’s illness, he was unable to take carriage of my and 218’s matter.
As such, Mr. Bhatti referred 218 and I to Amandeep Sidhu of Keyser Mason Ball LLP, who is our current lawyer. On May 7, 2015, Mr. Sidhu wrote to Mr. Mohammed and Ms. Sheikh advising that he has been retained by 218 and I and will be seeking to set aside the Judgment of Justice O’Connor, dated October 21, 2014. Attached hereto and marked as Exhibit “J” is a true copy of Mr. Sidhu’s said correspondence.
On or around May 26, 2015, Mr. Sidhu served a Notice of Appointment of Lawyer and the Notice of Motion, returnable July 3, 2015, in which 218 and I seek to set aside the Judgment of Justice O’Connor, dated October 21, 2014. Attached hereto and marked as Exhibit “K” is a true copy of Mr. Sidhu’s said correspondence along with the enclosures.
I had been advised by Mr. Bhatti and verily believe that at Notice of Intent was served and filed; however, it was only served and filed on behalf of Zaka and Artistik (and not 218 and I). As such, I have also been advised by Mr. Bhatti and verily believe that the Plaintiffs have consented to setting aside the Judgment as against Zaka and Artistik (and not 218 and I).
218 and I have always had an intention of defending this action. In fact, 218 and I initially retained and paid Ms. Sheikh to file a Defence on our behalf. Furthermore, when 218 and I became aware of the Judgment, we took immediate steps to retain counsel, seeking legal advice, and move to set aside the said Judgment.
[9] Mr. Bhatti filed an affidavit. It supports the defendants’ evidence but goes on to state that:
On February 24, 2015 I met with Shafiq and discussed this action with him. My first advice was that this motion has to be brought immediately. I requested Shafiq to collect any and all documents related to this matter and related matter for my review. [Emphasis mine]
I received correspondence from Salma Sheikh including some of the documents on March 4, 2015.
On March 24, 2015, a letter was delivered from my office to the Plaintiff’s counsel, Allan Mohammed. Attached hereto and marked as Exhibit “A” is a true copy of my said letter. I was not in the office at this time; however, the correspondence was sent from my office at my request.
On April 27, 2015, a follow-up letter was sent by my office to Mr. Mohammed requesting a response to my letter of March 24, 2015. Attached hereto and marked as Exhibit “B” is a true copy of my said letter.
I did not receive a response from Mr. Mohammed until April 28, 2015.
I was overseas for a funeral in early March 2015. I had returned from overseas some time towards the end of March 2015. Upon my return, I was hospitalized. Due to my health, I was unable to take carriage of this matter on behalf of Shafiq and 218.
As such, I referred Shafiq and 218 to Amandeep Sidhu of Keyser Mason Ball LLP.
[10] It is trite law that the faults of counsel should not be visited on the party. However, there is no similar affidavit in support of the defendants’ position from Ms. Sheikh.
[11] Indeed, Ms. Sheikh appeared at the return of the motion seeking an opportunity to file material in defence of allegations made against her. Both parties to this motion advised that they were ready to proceed and neither sought an adjournment to obtain the evidence of Ms. Sheikh. Accordingly, the motion went ahead without her involvement or her ability to respond. Given that she wished to respond but the defendants did not seek to obtain her evidence, I can draw the inference that her evidence would not have assisted the moving parties.
[12] In any event, there is nothing before me to allow me to make any finding of any inappropriate behaviour on her part. If there is any complaint against her, it was that she failed to respond in January of 2013, to a Statement of Claim that was not served until June of 2013. The evidence of the defendants cannot be accepted on this point.
[13] The defendants, in essence, submit that they have been let down by Ms. Sheikh and Mr. Bhatti. Despite the advice from Mr. Bhatti that they should move as quickly as possible, they apparently were content to wait from February 24, 2015, until this motion was first brought in June.
[14] All things being equal, I would not dismiss the motion on this basis. However, it is stretching the requirement to move expeditiously to the very outside edge.
Good Defence
[15] The defendants submit that they have a good defence based on the Limitations Act and that there was no privity of contract between the two of them and the plaintiff. No other defence is disclosed in the materials
[16] The judgment of O’Connor, J. specifically sets out that:
This Court declares that the conduct of the defendants have been oppressive, unfairly prejudicial to, and has unfairly disregarded the interest of the plaintiffs as creditors of Artistik Bold & Creative Inc. and 2185198 Ontario Inc., and as such, an order against the directors of the defendant corporation, Zaka Khokhar and Shafiq Khokhar, is appropriate.
[17] Further the Statement of Claim pleads that the plaintiffs were first aware of the involvement of 2185198 and Shafiq Khokhar on October 2, 2012. The Statement of Claim was issued December 5, 2012.
[18] The Statement of Claim goes on to plead fraud, conspiracy, oppression, breach of fiduciary duty and fraudulent misrepresentation by the moving defendants. The allegations are detailed in their factual allegations.
[19] In the supporting affidavit to the motion, the moving defendants do not set out any evidence contrary to the allegations in that part of the Statement of Claim.
[20] Although the proposed draft Statement of Defence denies various specific paragraphs in the Statement of Claim, with respect to these allegations, it simply denies “each of the remaining allegations contained in the Claim unless here and after expressly admitted”. The draft Statement of Defence is silent with respect to the defendants’ version of those alleged facts.
[21] There is no response to this part of the Claim in the reply affidavit.
[22] There is no response to this part of the Claim in the moving parties’ factum.
[23] In short, there is nothing in this motion that provides a defence to the claim upon which the judgment was based. I have nothing to find that there is a good defence to the claim.
Prejudice
[24] The moving parties rely specifically on the case of Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. There the court said:
[1] The motion judge erred in treating the principles identified in the case law governing the exercise of discretion on a motion to set aside a default judgment as rigid preconditions to the exercise of that discretion, such that the failure to satisfy any one of those supposed preconditions necessitated the dismissal of the motion to set aside the default judgment.
[2] On a motion to set aside a default judgment, the motion judge will be guided by the principles identified in the authorities. 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.
[5] The motion judge also failed to consider the potential prejudice to the parties. There was no prejudice to the respondent that could not be compensated for by appropriate terms had the motion judge allowed the motion and set aside the default judgment. The prejudice to the appellants flowing from refusing the motion is obvious. They were denied any opportunity to present a defence on the merits.
[25] I agree that simply because the moving parties abjectly failed to provide evidence to support two of the preconditions and barely complied with the third, I ought not to simply dismiss the motion. No court should be quick to deny the defendant an opportunity to present a defence on the merits. Here, however, there has been no defence to the real issues in the claim. Without a defence, the prejudice to the plaintiffs, who have patiently waited for the process of justice to provide them with their judgment and the proceeds of that judgment, is obvious.
Administration of Justice
[26] The defendants have not explained their default. The defendants have not shown that they have a defence if allowed to proceed. It would not reflect well on the administration of justice if they were allowed to file a defence at this point.
Result
[27] Accordingly, the motion is dismissed.
[28] If the parties cannot agree on costs, written submissions may be made to me. The plaintiffs shall make their submissions within the next 15 days and the defendants shall provide their submissions 15 days thereafter. Both submissions shall be in writing. Each submission shall be no more than three pages in length, not including any offers to settle or bills of costs.
Lemon J.
DATE: July 28, 2015
COURT FILE NO.: CV-12-4986-SR
DATE: 2015-07-28
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: ASIMA MIRZA and HUZAIFA FAROOQ v.
2185198 ONTARIO INC., ARTISTIK BOLD &
CREATIVE INC.,
ZAKA KHOKHAR and
SHAFIQ KHOKHAR
BEFORE: LEMON J.
COUNSEL: Amandeep Sidhu, for the Defendants
Allan Rasheed Mohammed, for the Plaintiffs
ENDORSEMENT
LEMON J.
DATE: July 28, 2015