ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
LANDMARK HOME SOLUTIONS INC.
Marjan Delavar and Peter Danson, for the
o/a LANDMARK HOME SOLUTIONS
Plaintiff/Responding Party
Plaintiff
- and -
BINNJ, INC.
Robert Gain, for the Defendant/Moving
Party
Defendant
DECISION
D.L. Corbett J.:
[1] The defendant moves to set aside two default judgments in this action.
[2] These default judgments are a product of the defendant’s solicitor’s inattention because she was exceptionally busy at the time. She asked for, and received, professional courtesies from the plaintiff’s solicitor. But the dictates of professional courtesy are not endless, and there comes a point when a solicitor must attend to her client’s issues or refer the client elsewhere because she is too busy.
[3] Here the solicitor’s inattention was such, and the justice of the case is such, that the first default judgment, for the liquidated portion of the claim, should stand. The final judgment, on the unliquidated portion of the claim, should be set aside, but on condition that the defendant pay the first judgment and all costs awards, and then is subject to a schedule to bring this matter to a conclusion on the merits in a reasonable period of time.
Background
[4] The defendant, Binnj, is a software company. The plaintiff, Landmark, manufactures and sells vinyl replacement windows. In May 2012, Binnj contracted to provide Landmark with technology for point-of-sale transactions.
[5] The parties fell into conflict over whether Binnj provided what was required under its contract with Landmark. Landmark terminated the agreement and in May 2013 commenced these proceedings claiming breach of contract, detrimental reliance and unjust enrichment.
Discussions Between Counsel
[6] On June 6, 2013, Binnj’s counsel, Karen McKay, sought to schedule a conversation with Landmark’s counsel, Peter Danson. On June 11, 2013, Danson advised McKay that Landmark waived the requirement for a statement of defence so that the parties could explore settlement. This waiver was made expressly without prejudice to Landmark subsequently demanding a statement of defence if settlement discussions failed.
[7] McKay responded to Danson’s message two weeks later, on June 25, 2013. She apologized for having “dropped the ball” in their discussions, but indicated that Binnj was interested in trying to resolve matters.
[8] On July 8, 2013, Danson advised McKay that “too much time was passing” and that Landmark required that the matter be resolved sooner rather than later.
[9] On July 16, 2013, Danson advised McKay that Binnj had until July 26th to resolve matters, failing which a statement of defence would be required by July 31, 2013, failing which Landmark would pursue immediate default proceedings.
[10] Danson did not hear anything further from McKay by July 26th.
[11] On August 1st, still having heard nothing further from McKay, Danson called McKay’s office. He was advised by McKay’s assistant that McKay was tied up on another matter. Danson then wrote to McKay that, even though he had heard nothing further, and even though his client had been more than patient, Landmark would give Binnj one last chance before taking default proceedings. Danson gave McKay a further week, until August 8, 2013, to contact him, failing which Binnj would be noted in default.
[12] On August 13, 2013, having heard nothing further from McKay, Danson made arrangements to have Binnj noted in default. This was done the following day, on August 14, 2013.
[13] Danson obtained dates for motions for judgment (a) on September 3, 2013 on the liquidated portion of Landmark’s claim; and (b) on January 24, 2014 before a judge for the unliquidated portion of Landmark’s damages claim.
[14] On September 3, 2013, partial default judgment was granted effective August 16, 2013, on the liquidated portion of Landmark’s claim, in the amount of $47,755.97, plus $1,150 for costs.
[15] Danson did not hear from McKay after August 1, 2013 prior to September 23, 2013, when he sent a copy of the partial default judgment to McKay and demanded payment.
[16] McKay then contacted Danson. She said that she had understood that the parties had negotiated a settlement. She complained that there had been an agreement to give her notice if Landmark was going to pursue default proceedings. Danson responded that he had set out his client’s position in writing and re-sent the relevant emails to McKay.
[17] On September 24, 2013, McKay got back to Danson. She apologized, saying that she had been tied up on a large closing and had been away when emails of July 8 and 16 had been sent. She said that she had not seen the August 1st email.
[18] Danson told McKay that Landmark insisted that the partial default judgment be paid, and that the remaining unliquidated claim would go before a judge if it could not be resolved between the parties. McKay responded that she would speak with her client and a litigation colleague and get back to Danson.
[19] Nothing further was heard by Danson from McKay for three weeks. Then on October 16, 2013, Danson emailed McKay to ask what was going on. McKay responded on October 17th that she was going to meet with her client.
[20] Danson heard nothing further and on October 22, 2013 emailed McKay to advise that enforcement measures would be taken if the partial summary judgment was not paid by October 25, 2013. He also reminded Ms McKay that the balance of the claim also had to be addressed.
[21] McKay responded on October 29, 2013, advising that she was just back from holidays and would speak with her client.
[22] Also on October 29, 2013, litigation counsel in McKay’s firm, Ian Wallace, contacted Danson. Wallace provided a settlement offer on November 12, 2013 to which Danson replied promptly. On November 15, 2013, Wallace advised that if the matter could not be resolved promptly, Binnj would bring a motion to set aside the partial default judgment.
[23] On November 18 and 23, 2013, further efforts were made to settle the case. These were not successful.
[24] On November 20, 2013, Danson received an administrative notice from the court of the court’s intention to dismiss the proceeding administratively. Danson wrote to the local registrar to point out that the notice was in error since the defendant had been noted in default, partial judgment had been granted already, and a motion for default judgment on the balance of the claim was scheduled for January 24, 2014. Danson requested confirmation from the registrar that the action would not be dismissed administratively.
[25] On November 28, 2013, Wallace advised Danson that he was awaiting instructions. He did not mention the notice of pending administrative dismissal or claim reliance upon it.
[26] On December 4, 2013, Danson contacted Wallace to find out “what was up”. Wallace responded that he was awaiting instructions from his client and would get back to Danson later that day. Wallace did not mention the notice of pending administrative dismissal.
[27] There was a similar exchange between Danson and Wallace on December 6th: Wallace reported that he was still waiting on instructions and hoped to respond the next day; Wallace made no mention of the notice of pending administrative dismissal.
[28] On December 11th, Binnj delivered a written settlement proposal. On December 18th, Landmark delivered a counter-proposal. Nothing was heard from Binnj in response.
[29] On January 10th, Landmark put Binnj on notice that “this CANNOT wait”. There was no response.
[30] January 16th, the court issued an administrative dismissal in error. The following day Landmark advised the court of its error, and the error is immediately corrected. There is no evidence that Binnj was advised that the court set aside its own dismissal notice on January 17th. Landmark did not advise Binnj of the dismissal order or the order countermanding the dismissal order.
[31] On January 20th, Landmark filed its evidence for the second motion for default judgment. On January 24th this second motion was heard and decided by Firestone J.
[32] I do not find it necessary to recount the history after the date of this judgment. I am satisfied that, if the response was not lightening-fast, it was reasonable in respect to bringing a motion to set aside the second default judgment. As I explain below, the “ship had already sailed” in respect to the first default judgment.
The Test to Set Aside Default Judgment
[33] A default judgment may be set aside or varied by the court on such terms as are just.[^1] The factors to be considered in deciding whether to set aside or vary a default judgment are:
(i) the motion to set aside must be brought without undue delay;
(ii) the circumstances which led to the default must be explained; and
(iii) the defendant must present a triable defence on the merits.[^2]
[34] The factors are not conjunctive conditions, but principles by which the court assesses whether it would be just to set aside the default judgment:
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 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.[^3]
[35] I take the most charitable view of the facts available to the moving party. Even with this view in mind, it is hard to fathom the degree of disregard by defendant’s solicitors, even when they were aware that summary judgment had been granted as a result of their inattention to the file. With respect, even in a case of modest financial consequence, one would have thought that this would represent a litigation emergency to be addressed with the utmost diligence. It was not.
Motion to Set Aside Must be Brought Without Undue Delay
(a) In Respect to the Partial Summary Judgment for the Liquidated Portion of the Claim
[36] Defendant’s solicitor learned of the partial summary judgment on September 23rd. In written argument, the defendant takes the position that the parties were in settlement negotiations from September 23rd until January 10, 2014. That is not a fair characterization of what happened. The plaintiff took the position that it would negotiate the unliquidated portion of the claim provided the judgment on the liquidated claim was paid. This position was stated clearly by plaintiff’s counsel throughout. It was met by silence between September 23 and October 29, 2013. This long delay is not explained by defendant’s counsel’s repeated statement that was going to speak with her client. In my view it was necessary for the defendant to bring a motion to set aside the default judgment immediately, or obtain a clear waiver from the plaintiff of its need to do so, confirmed in writing between counsel. Defendant’s counsel seems to have considered that by stating that she was going to speak with her client that she received, implicitly, an unbounded further indulgence from the plaintiff.
[37] I conclude that the motion to set aside the partial summary judgment on the liquidated portion of the claim was not brought without undue delay because of the failure to respond to plaintiff counsel’s reasonable demands between September 23 and October 29, 2013.
(b) In Respect to the Summary Judgment of the Unliquidated Portion of the Claim
[38] There is no issue of undue delay in bringing this motion following the summary judgment of the unliquidated portion of the claim. The defendant has satisfied this factor.
Circumstances Leading to Default Must Be Explained
(a) In Respect to the Partial Summary Judgment for the Liquidated Portion of the Claim
[39] This aspect of the test for setting aside or varying a default judgment calls for more than a narrative of cause and effect. The issue is not whether there is a narrative that explains how the default came to happen, but rather whether there is some reasonable explanation for the default. Some explanations will establish that a defaulting party is entirely blameless for the default, such as a failure to receive notice of the proceedings through no fault of its own. Some explanations will establish a degree of advertence that the court may be prepared to excuse in all the circumstances of the case, such as illness or infirmity, or miscommunication between solicitor and client.
[40] Here, in respect to the initial default, the fault rests entirely on the defendant or its solicitor. The plaintiff’s solicitor was proactive in discussions, in providing reasonable indulgences, in giving notice that the period of indulgence had expired, giving repeated warnings that he would take default proceedings, and then in reporting that he had done so before taking further steps in reliance on those default proceedings.
[41] In response, the defendant can offer no more of an explanation than that its solicitor was very busy, and “dropped the ball” repeatedly. One expects lawyers to extend professional courtesy to colleagues facing onerous demands, and not to take advantage of small slips. But this case goes well beyond this situation. Quite simply, it was defendant’s solicitor’s responsibility to deal with this matter in a reasonably timely and professional manner, or to refer the matter to a colleague who did have time to deal with it. She did neither.
[42] This is not a good explanation for the default. From the client’s perspective, it may be that its “reasonable explanation” is its own solicitor’s mistakes. In some situations, that would be a basis to undo the default judgment but to impose the process costs on the defaulting solicitor. However, unpacking the solicitor-client relationship may be a fraught exercise. For example, on the evidence before me, on September 23rd, defendant’s solicitor told plaintiff’s solicitor that she had understood that the case had been settled between the parties. This evidence is not contradicted or explained by the defendant or its solicitor. It may be that the solicitor had been misadvised by her client, thus explaining her inattention from July to September. It may be that she was in error in so advising her opposing counsel. Without knowing the underlying facts between solicitor and client it is not possible to attribute blame as between them. On the record before me it is clear that there was no such settlement, and so as between the plaintiff and the defendant, this explanation – that the solicitor believed the case had been settled – is not reasonable.
(b) In Respect to Summary Judgment for the Unliquidated Portion of the Claim
[43] I am not impressed with defendant’s counsel’s explanation on this point. Plaintiff’s counsel went out of his way to extend courtesies to defendant’s counsel, including giving notice of his intention to proceed by default. Defendant’s counsel received notice that the court intended to dismiss the action administratively for delay. He did not advise plaintiff’s counsel that he had received this notice, or that he would rely upon that notice in taking no steps to defend the unliquidated portion of the claim until he heard something further about the pending dismissal.
[44] That said, this evidence affords some explanation as to why the defendant did nothing to forestall the second motion for summary judgment. And, while I am not impressed by the failure to raise this with plaintiff’s counsel, I find that this was not a rationalization for wilfully failing to defend the motion. I accept that defendant’s counsel honestly believed that the case was caught up in the process of administrative dismissal. This interpretation is borne out by the defendant’s swift response to set aside the second default judgment once it received notice of it. So, although the explanation is unimpressive, it is an explanation that places this default outside the realm of dilatory inattention or deliberate failure to act. I accept it, albeit reluctantly.
There Must Be A Triable Issue on the Merits
(a) In Respect to the Judgment for the Liquidated Portion of the Claim
[45] The defendant has filed a draft statement of defence attached to a solicitor’s affidavit. There is no evidence from anyone that they believe the substance of the statement of defence to be true. This amounts to precisely no evidence in respect to the merits of the claim.[^4]
[46] A great deal of ink has been spilled on the extent of the obligation to provide evidence of the merits on a motion to set aside a default judgment. Here I proceed on the basis of common sense. The plaintiff’s liquidated claim is for return of money paid for goods never delivered. The money was paid; the goods were never delivered. These facts are not controverted. Given this history of the case I draw an adverse inference against the defendant for failing to adduce evidence on the motion of the merits of its substantive defence to the liquidated portion of the claim.
(b) In Respect to the Judgment for the Unliquidated Portion of the Claim
[47] The defence to this aspect of the plaintiff’s claims falls into two general categories: the need for the plaintiff to prove its damages for non-restitutionary remedies, and the appropriateness of granting equitable relief in all the circumstances of the case. The extent of the damages could well be affected by the defendant’s efforts to challenge the plaintiff’s evidence on these points. Even in the absence of affirmative evidence of the defence of the claim, I am prepared to assume that the overall result could well be affected by the defendant’s evidence and its cross-examination of the plaintiff’s evidence. Thus, even without evidence on the merits of the defence, I am prepared to accept that the defendant has a defence on the merits as to the quantum of the unliquidated claim for damages and the plaintiff’s claim for equitable relief.
The Overall Justice of the Situation
[48] It will almost always be the case that the prejudice to a plaintiff on a motion such as this is primarily delay and costs. If the motion is granted, the plaintiff may yet prevail another day. If the motion is denied, the defendant never gets its day in court on the merits.
[49] However there are important process values that must come into play on these motions. This is not a large claim, in the overall scheme of civil litigation. A plaintiff is entitled to have his case proceed with reasonable speed to a decision on the merits. Where, as here, counsel extends reasonable courtesies to an opposing lawyer, the client may well become impatient with the process. Counsel must advise his client that reasonable courtesies are necessary for the system to function properly. But there comes a point at which the lawyer must insist that the other side respond to the action or face the consequences of default proceedings. Plaintiff’s counsel struck an appropriate balance between courtesy towards an opposing lawyer and insisting that his client’s claim be addressed. Defendant’s counsel failed to respond appropriately, and the extensive delay should not be tolerated by the court system. Taking everything into account, I conclude that it would be inimical to the interests of justice to set aside the judgment on the liquidated claim.
[50] I come to a different conclusion on the unliquidated portion of the claim. I consider that there is a defence on the merits in respect to the quantum and availability of remedies additional to the judgment for liquidated damages, and that there is an explanation for the defendant’s failure to defend the second motion for summary judgment. However, I am not prepared to set aside the second judgment without conditions. The defendant has showed a degree of indifference to the claim and the court process that it should pay the liquidated judgment and outstanding costs orders before being permitted to put the plaintiff to further expense in respect to the unliquidated portion of the claim.
Order
[51] At the conclusion of argument of the motion I directed the defendant to comply with paragraphs 3, 4 and 5 of the final order of Firestone J., and gave directions for delivery of materials to their counsel for safekeeping, and payment of $50,000 into court. Satisfaction of the payment directions required by my order, below, may be made, in part, by an order for payment of funds out of court. If any issues arise concerning implementation of this order, in light of my direction at the conclusion of argument of the motion, counsel may address the issue in writing: but to be clear, it is not my intention that the payment order for the first judgment be in addition to the order to pay funds into court.
[52] For these reasons, order to go as follows:
(a) dismissing the motion to set aside the first partial default judgment granted in September 2013;
(b) subject to the conditions that by November 30, 2015, the defendant pay the first default judgment and all other amounts ordered against it as a result of this decision within sixty days, or, if an appeal is taken from this decision, pay this money into court to the credit of this proceeding pending final determination of any such appeal, the default judgment granted in January 2014 be set aside;
(c) provided the condition stipulated in paragraph (b) is satisfied and consequently the January 2014 summary judgment is set aside, (i) the defendant shall deliver its statement of defence by December 23, 2015; (ii) the plaintiff shall deliver any reply by January 22, 2016; and (iii) the parties shall exchange affidavits of documents by February 26, 2016.
(d) The defendant shall pay costs of this motion and costs thrown away on the second motion for summary judgment on a substantial indemnity basis, in an amount to be agreed between the parties or fixed by this court.
(e) If the parties have not agreed on costs issues by September 30, 2015 then the plaintiff shall provide its costs submissions by October 14, 2015, and the defendant shall provide its responding submissions by October 28, 2015.
D.L. Corbett J.
Released: 20150918
COURT FILE NO.: CV-13-480878
DATE: 20150918
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
LANDMARK HOME SOLUTIONS INC.
Plaintiff/Responding Party
- and –
BINNJ, INC.
Defendant/Moving Party
DECISION
D.L. Corbett J.
Released: 20150918
[^1]: Rules of Civil Procedure, R.19.08.
[^2]: Dunay Enterprises Inc. v. Goodish, 2005 CarswellOnt 1160 (S.C.J.).
[^3]: Peterbilt of Ontario Inc. v. 156627 Ontario Ltd., 2007 CarswellOnt 2713 (C.A.), paras. 1 and 2. See also Watkins v. Sosnowski, 2012 CarswellOnt 8083 (S.C.J.), para. 20.
[^4]: The defendant served materials on the merits roughly two weeks before return of the motion, after the motion had been outstanding for months, and long after the deadline for these materials. At the return of the motion, I declined to permit the defendant to shore up this aspect of the evidence at the last minute.