COURT FILE NO.: CV-14-5713-00
DATE: 2015-11-25
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
8355266 CANADA INC. and JASWINDERPAL DHILLON
John Gray, for the Plaintiffs
Plaintiffs
- and -
S.W. HOSPITALITY INC. and RICK SMICIKLAS
Doug LaFramboise, for the Defendants
Defendants
HEARD: September 15, 2015,
at Brampton, Ontario
Justice David Price
Reasons For Decision
NATURE OF MOTION
[1] When S.W. Hospitality Inc. (“SWH”), the franchisor and owner of the Wild Wing Restaurant franchise, had a falling out with its Master Franchisor, 8355266 Canada Inc. (“835”) and its owner, Jaswinderpal Dhillon, over their agreement to give 835 the exclusive rights to market the Wild Wing Restaurant concept in British Columbia, 835’s lawyer prepared a Claim and hired a process server, John Hastings, to serve it on SWH and its sole shareholder, Rick Smiciklas. Mr. Hastings later informed 835’s lawyer that he had served Mr. Smiciklas and SWH on June 12, 2014. When those defendants did not deliver a statement of defence, 835’s lawyer relied on Mr. Hastings’ affidavits of service to note them in default and obtain a default judgment against them.
[2] When Mr. Smiciklas received a Notice of Examination in April 2015, to enforce the default judgment granted to 835 and Mr. Dhillon by Justice Fairburn on March 5, 2015, he moved to set the judgment aside, stating that he had no knowledge of the Claim until he received the Notice of Examination. For the reasons that follow, I find that Mr. Hastings’ affidavits of service are unreliable, that the defendants were not properly served, and that the default judgment must be set aside.
BACKGROUND FACTS
[3] On December 10, 2012, SWH, the franchisor and owner of the Wild Wing Restaurant franchise, entered into an agreement with 835 and its owner, Jaswinderpal Dhillon, granting 835 and Mr. Dhillon, as Master Franchisee, the exclusive rights to market the “Wild Wing” Restaurant concept in British Columbia.
[4] On December 17, 2014, John Gray, the lawyer for 835 and Mr. Dhillon, caused a statement of claim to be issued in this court, in which 835 and Mr. Dhillon claimed that in December 2012 and January 2013, they had paid $35,000 to SWH, and that in December 2013, SWH and its owner, Rick Smiciklas, had opened a new Wild Wing Restaurant in Whistler, B.C., in an area over which SWH had given 835 and Mr. Dhillon exclusive rights to market the “Wild Wing” Restaurant concept.
[5] Justice Fairburn granted a default judgment on March 5, 2015.
[6] SWH and Mr. Smiciklas moved to set aside the noting in default and the default judgment.
POSITIONS OF THE PARTIES
[7] SWH and Mr. Smiciklas say that the claim was not properly served on them and that they are therefore entitled, as of right, to have the default judgment and noting in default set aside. In the alternative, they ask the court to exercise its discretion to set the judgment and noting in default aside because they have a meritorious defence, have a plausible excuse for failing to respond to the claim, moved promptly to set aside the judgment when they learned of it, and would suffer greater prejudice by a refusal to set the judgment aside than the plaintiffs would suffer from an order setting the judgment aside.
[8] 835 and Mr. Dhillon say that the claim was properly served on both SWH and Mr. Smiciklas, who failed to move promptly to set the judgment aside, have not advanced a plausible excuse for not defending, and have failed to demonstrate that they have a meritorious defence.
ANALYSIS AND EVIDENCE
[9] Rules 19.03(1) and 19.08(1) govern the setting aside of a noting in default and a default judgment, respectively. Both give the court discretion to set aside the default “on such terms as are just”. The tests are not identical.[^1] When exercising its discretion as to whether to set aside a noting in default, the court assesses “the content and factual situation”.[^2] It considers, among other factors, the conduct of the parties, the length of the defendant’s delay, the reasons for the delay, and the complexity and value of the claim.[^3] Only in extreme circumstances does the court require the defendant to demonstrate a meritorious defence.[^4]
[10] When exercising its discretion as to whether to set aside a default judgment, the court considers whether the motion was brought promptly after the defendant learned of the judgment, whether the defendant has shown a plausible explanation for the default, whether the defendant has an arguable defence on the merits, the prejudice that an order dismissing the motion will cause the defendant and the prejudice that an order setting aside the judgment will have on the plaintiff, and the effect of any order on the interest of the administration of justice.[^5] These factors are not rigid rules, and the court must ultimately decide whether, in the particular circumstances, it is just to relieve the defendants of the consequences of default.[^6]
[11] SWH and Mr. Smiciklas argue that they are entitled to have the judgment set aside as of right because it was irregularly obtained, as they were deprived of their right to defend through no fault of their own.[^7] Consequently, an irregularly obtained judgment is not really a separate category, but an instance where the interest of justice requires the judgment to be set aside. Other decisions have held that an irregularly obtained judgment, particularly one obtained following improper service of the Claim should be set aside as of right.[^8]
[12] In any event, however, an irregularly obtained judgment does not afford a defendant an unlimited and unconditional remedy. The defendant must still act diligently to set the judgment aside or risk delay shifting the equities against it.[^9]
[13] In the present case, the Statement of Claim was issued on December 17, 2014. On December 19, 2014, the lawyer for 835 and Mr. Dhillon, Mr. Gray, sent the Claim in an email to Mr. LaFramboise, the lawyer for SWH and Mr. Smiciklas, asking him to accept service. Mr. LaFramboise did not reply.
[14] 835 and Mr. Dhillon say that they then served the claim on SWH and Mr. Smiciklas on January 17, 2015. Robert Hastings, a process server, swore an affidavit of service on January 17, 2015, stating:
On January 12, 2015 at 7:55 p.m., I served S.W Hospitality, Inc. with the Statement of Claim by leaving said Documents (sic) with Joe Falzon, the Manager at 14785 Yonge Street, Aurora, Ontario L4G 1N1. I was able to identify the person by means of verbal acknowledgement.
[15] In a further affidavit of service sworn January 17, 2015, Mr. Hastings states:
On January 12, 2015, at 8:00 p.m. I served Rick Smiciklas with a Statement of Claim by leaving said Documents [sic] in a sealed envelope addressed to Rick Smiciklas, at 40 Connaught Avenue, Aurora, Ontario L46 1C6, with Steven Cerricos an adult residing in the same residence as Rick Smiciklas, at 40 Connaught Avenue, Aurora, Ontario L46 1C6, and by sending him a copy by pre-paid first class mail to Rick Smiciklas at the same address on January 1, 2015. Before serving the documents in this manner, I made an unsuccessful attempt to serve Rick Smiciklas personally on January 12, 2015 at 8 pm at the same address. I was able to identify the person by means of verbal acknowledgment.
[16] SWH and Mr. Smiciklas have tendered an affidavit from Joseph Falzon. Mr. Falzon states that he was not the manager of SWH and did not know what that company was until he was shown the affidavit of service. He states that he is a contract painter who was hired to restore the property at 14785 Yonge St. to its original state on behalf the landlord, Beswick Investments. He acknowledged, when cross-examined on his affidavit, that he was working at the address in January 2012, having been contracted by Rick Smiciklas to do painting and installation of drywall.
[17] Mr. Falzon further stated the following:
a) There was another person also working there named Raj, whom Mr. Falzon believed was an employee of another contractor.
b) On January 12, 2015, between 5:00 and 8:00 pm, Mr. Hastings, whom Mr. Falzon identified in a photograph, asked if Mr. Smiciklas was around and Mr. Falzon replied that he was not.
c) Mr. Hastings gave Mr. Falzon an envelope for Mr. Smiciklas, which Mr. Falzon says he gave to Raj, telling him that it was for Smiciklas.
d) Raj told Mr. Falzon that he would take care of it. Mr. Falzon has no knowledge of what Raj did with the envelope.
[18] Raj now lives in B.C and no affidavit from him was tendered.
[19] Mr. Smiciklas tendered his own affidavit stating that he received no documents from Mr. Falzon and only found out about the Statement of Claim when the default judgment and Notice of Examination were served on him at his home at 68 Yorkville Avenue in April.
[20] 835 and Mr. Dhillon rely on rule 16.02 of the Rules of Civil Procedure in support of their argument that they served SWH with the Statement of Claim. Rule 16.02 (1)(c) provides:
16.02(1) Where a document is to be served personally, the service shall be made:
(c) on any other corporation (meaning other than a municipality) by leaving a copy with an officer, director or agent of the corporation, or with any person at any place of business of the corporation also appears to be in control or management of the place of business.
[21] I find, based on the evidence of Mr. Falzon and of Mr. Smiciklas, that Mr. Falzon was not, in fact, an officer, director or agent of SWH and did not appear to be in control or management of the business.
[22] I reject Mr. Hasting’s evidence that Mr. Falzon was the Manager at 14785 Yonge St., and accept Mr. Falzon’s evidence that the told Mr. Hastings that he was a contract painter. The strength of Mr. Hastings’ evidence as to the person who he says identified Mr. Falzon is diminished by the following:
a) Mr. Hastings does not identify the person who he says came out of 14785 Yonge Street, Aurora, on January 12, 2014, and who he says told Mr. Hastings that it was the location for SWH and that Joe Falzon was the manager.
b) Mr. Hastings’ description of the person lacks any particularity, other than he says that the person was a male.
c) Mr. Hastings does not indicate that he asked the person who he was, or that he made any effort, by following the person, or observing whether he entered a vehicle with a licence plate, or by asking Mr. Falzon who the person was.
[23] For the foregoing reasons, I find that The Statement of Claim was not served on SWH.
[24] 835 and Mr. Dhillon rely on the fact that the action was brought to the attention of SWH by means of the demand letters that were sent to SWH and the correspondence which the lawyer for 835 and Mr. Dhillon later had with Mr. LaFramboise. In Amexon Property Management Inc. v. P Rehabilitation Solutions Inc. et al, in 2011, Gilmore J. stated:
Even if Elita did have knowledge of the action being commenced against her, that would not validate service of the claim or her in accordance with the Rules of Civil Procedure.[^10]
[25] Counsel for 835 and Mr. Dhillon were unable to refer me to any authority for the proposition that knowledge of a claim is a substitute for service of the claim on the defendant.
[26] 835 and Mr. Dhillon rely on the evidence of Mr. Hastings in support of their argument that the Claim was served on Mr. Smiciklas on June 12, 2015. Mr. Hastings states:
I then went to 40 Connaught Avenue, Aurora, L4G 1C6, and upon arrival, knocked on the side door and a man answered who identified himself as Steven Cerricos. I asked if Rick Smiciklas was home and he said he was not home right now. I then asked if he lived there and he said yes. He accepted the envelope addressed to Rick Smiciklas and he said he would give it to him when he got home. I then asked him to spell his last name which he did and told him to tell Rick he would receive another envelope in the mail as he was not there when this one was delivered. Steve said he would tell that to Rick.
[27] Mr. Smiciklas tendered an affidavit by Steve Cerricos, who states:
a) He has never lived at 40 Connaught Drive in Aurora.
b) He worked, on occasion, in the basement of that property, but he lived at 5793 Yonge Street, Suite 1203, Toronto, and produced his driver’s licence to substantiate this.
c) He does not remember receiving any documents from anyone at 40 Connaught Drive in Aurora.
[28] When crossed-examined, Mr. Cerritos additionally offered to produce his lease of unit 1203 at 5793 Yonge St., where he said he had lived since December 2014.
[29] Mr. Cerritos acknowledged that 40 Connaught Avenue, Aurora, was a home, and that Mr. Smiciklas was living there. He stated that he produced films and television programs for a corporation that employs Mr. Smiciklas as director, that he was probably at 40 Connaught Avenue sometime on Monday, January 12, 2015, with the editors of a reality TV program they were working on, or drafting something. He denied that he had ever seen Mr. Hastings, whose photograph was shown to him, and who was described by reference to his deformed hand.
[30] Mr. Cerritos stated that no one gave him an envelope for Mr. Smiciklas or told him to tell Mr. Smiciklas that he would receive an envelope in the mail.
[31] 835 and Mr. Dhillon rely on Rules 16.01(1) and 16.03(1) of the Rules of Civil Procedure, which permits service by an alternative to personal service in the the following terms:
16.01(1) An originating process shall be served personally, as provided in rule 16.02, or by an alternative to personal service, as provided in rule 16.03.
16.03(1) Where these rules or an order in the court permits service by an alternative to personal service, service shall be made in accordance with this rule.
(5) Where an attempt is made to effect personal service at a person’s place of residence and for any reason personal service cannot be effected, the document may be served by,
(a) leaving a copy, in a sealed envelope addressed to the person, at the place of residence with anyone who appears to be an adult member of the same household; and
(b) on the same day or the following day mailing another copy of the document to the person at the place of residence, and service in this manner is effective on the fifth day after the document is mailed.
[32] 835 and Mr. Dhillon argue that, “Mr. Hastings had nothing to gain or lose in this litigation, he was not cross-examined, and his evidence is unchallenged. Smiciklas and Cerritos have no other explanation as to how Mr. Hastings got Cerritos’ name. I find that Mr. Hastings, a process server employed by 835 and Mr. Dhillon’s lawyer, has as much to gain or lose by providing evidence helpful to his employer as Mr. Cerritos, a producer and consultant employed from time to time by Mr. Smiciklas’ corporation has to gain by providing evidence helpful to Mr. Smiciklas.
[33] While Mr. Hastings was not cross-examined, Mr. Cerritos was cross-examined, and gave answers that are credible. He acknowledged that some facts helpful to 835 and Mr. Dhillon, such as the fact that 40 Connaught Avenue is a residence and that Mr. Smiciklas lived there, and that he (Mr. Cerritos) was probably at the address at some time on Monday June 12, 2015. These admissions make his denial of the other facts more credible. Additionally, he was able to substantiate the fact that he resided elsewhere, by providing his driver’s licence and offering to produce his lease (although the lawyer for SWH and Mr. Smiciklas refused, during the cross-examination, to permit him to undertake to do so). This fact, which I accept, is inconsistent with Mr. Hasting’s evidence that Mr. Cerritos was residing at 40 Connaught Avenue, which makes Mr. Hastings evidence in this and other respects less credible.
[34] I have found Mr. Hastings’ evidence regarding the service of the Claim on SWH to be untruthful and I am, on this basis also, not prepared to accept his evidence concerning his alleged service of the Claim on Mr. Smiciklas. Although neither Mr. Smiciklas nor Mr. Cerritos explained how Mr. Hastings could have obtained Mr. Cerritos’ name, this question is speculative and invites the response that Mr. Hastings could have identified the occupants of the house by searching the licence plates of the cars outside with the records of the Ministry of Transportation. I do not find the inability of Mr. Smiciklas and Mr. Cerritos to explain how a process server identified Mr. Cerritos to be a compelling argument in support of Mr. Hastings’ evidence.
[35] For the foregoing reasons, I do not accept Mr. Hastings’ evidence that he served Mr. Smiciklas.
[36] 835 and Mr. Dhillon rely on the alleged service of the Claim on Mr. Smiciklas as proof of service on SWH, of which Mr. Smiciklas was the sole officer and director. As noted above, rule 16.02(1)(c) directs that an originating process, such as a Statement of Claim, shall be served on a corporation by leaving a copy with an officer, director or agent of the corporation. It is not disputed that Mr. Smiciklas was an officer and director of SWH. If I were satisfied that the Claim had, in fact, been served on Mr. Smiciklas, this would constitute proper service on SWH.
[37] In the event that I am wrong in finding that the Claim was not properly served on Mr. Smiciklas or SWH, I will consider the factors listed above in determining whether I would exercise the court’s discretion in setting aside the default judgment.
[38] Mr. Smiciklas does not dispute that he received a Notice of Examination in Aid of Execution and, with it, notice of the default judgment, on April 1, 2015. He and SWH wrote to the lawyer for 835 and Mr. Dhillon on April 24, 2015, asking, in effect, that they consent to setting aside the default judgment and lifting the noting in default. 835 and Mr. Dhillon refused to do so, and SWH and Mr. Smiciklas served their motion on June 26, 2015. I find that SWH and Mr. Smiciklas moved with reasonable dispatch to set aside the default judgment.
[39] I find that SWH and Mr. Smiciklas have offered a plausible explanation for not defending against the Claim at an earlier time, in that they were either not properly served, or believed that they had not been properly served.
[40] Mr. Smickilas has offered an arguably meritorious defence based on the fact that the contract giving rise to the claim was between the corporate entities and that he has no personal liability in connection with their contract.
[41] SWH has offered an arguably meritorious defence based on the alleged breach by 835 and Mr. Dhillon of their obligation under the contract to sign up 10 new franchises in British Columbia within 5 years. SWH relies on the breach as a defence to the action against it, and in support of a counter-claim and, presumably, a claim for set-off.
[42] 835 and Mr. Dhillon have not demonstrated any prejudice that would result to them from setting aside the default judgment other than a delay in being able to execute on their judgment. SWH and Mr. Smiciklas would suffer greater prejudice by a refusal to set aside the judgment and permit them to deliver a defence and have the action heard on its merits.
[43] I find that while there may be some negative impact on the administration of justice by permitting SWH and Mr. Smiciklas to defend against the action in spite of their refusal of the reasonable request by 835 and Mr. Dhillon that Mr. LaFramboise accept service of the Claim on their behalf, a refusal to set aside the judgment would do more harm, by permitting the aggressive litigation and questionable affidavits of service tendered by 835 and Mr. Dhillon to deprive SWH and Mr. Smiciklas of their right to a trial of the action on its merits, especially as 835 and Mr. Dhillon have offered no basis for a finding of personal liability against Mr. Smiciklas arising from a contract between the corporate entitles.
CONCLUSION AND ORDER
[44] For the foregoing reasons, it is ordered that:
- The default judgment dated March 5, 2015 is set aside and the noting in default is lifted.
- The defendants shall deliver their Statement of Defence and Counterclaim, if any, by December 11, 2015.
- The plaintiffs shall deliver their Defence to Counterclaim, if any, by December 18, 2015.
- The defendants shall deliver their Reply, if any, by December 31, 2016.
- The parties shall produce their respective Affidavits of Documents, and all Schedule A documents, by January 15, 2016.
- Examination for Discovery shall be conducted by January 31, 2016.
- Undertakings shall be complied with by February 15, 2016.
- Motions for compliance and for answers to questions refused shall be brought and heard by February 29, 2016.
- The plaintiffs shall deliver their Trial Record by March 24, 2016.
- The defendants shall deliver their Supplementary Trial Record, if any, by April 8, 2016.
- The trial shall be held at the blitz sitting beginning May 9, 2016.
- If the parties are unable to resolve the issue of costs, they may submit written arguments, not to exceed 4 pages, and a Costs Outline, and any relevant Offers to Settle, by December 11, 2015.
Justice David Price
Released: November 25, 2015
COURT FILE NO.: CV-14-5713-00
DATE: 2015-11-25
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
8355266 CANADA INC. and JASWINDERPAL DHILLON
Plaintiffs
- and –
S.W. HOSPITALITY INC. and RICK SMICIKLAS
Defendants
REASONS FOR DECISION
Price, J.
Released: November 25, 2015
[^1]: Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd. (1991), 1991 7095 (ON CA), 3 O.R. (3d) 278 (ONCA) at pp. 284-285
[^2]: Bardmore, at p. 285
[^3]: Nobosoft Inc. v. No Borders Inc., 2007 ONCA 444, at para. 7; Flintoff v. Anhalt, 2010 ONCA 786, at para. 7
[^4]: Bardmore, p. 285
[^5]: Intact Insurance Company v. Kisel, 2015 ONCA 205, at para. 14
[^6]: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, at paras. 48-50
[^7]: Dawson’s Marine Limited v. Telfer, 2005 ONSC 56205; Royal Trust Corp. of Canada v. Dunn et al., 1991 ONSC 7227
[^8]: Amexon Property Management Inc. v. Paramedical Rehabilitation Solutions Inc. et al., 2011 ONSC 4783, para. 31
[^9]: Marina Bay Sands Pte. Ltd. v. Jian Tu aka Tu Jian, 2015 ONSC 5011, at paras. 30-31
[^10]: Amexon Property Management Inc. v. P Rehabilitation Solutions Inc. et al., 2011 ONSC 4783, at para. 26