OSHAWA
COURT FILE NO.: 56732/08SR and 60717/09 SR
DATE: 20151125
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Alan J. McMackin Professional Corporation and Alan J. McMackin
Plaintiffs/Responding Party
– and –
Stephen Agh
Defendant
Richard J. Mazar, for the Plaintiffs/Responding Party
No one appearing, for the Defendant
Jeremy J. Lum-Danson for the Moving/Non-Party, 1592096 Ontario Inc.
HEARD: November 16, 2015
RULING ON MOTION
CHARNEY j.:
Introduction
[1] The moving party, 1592096 Ontario Inc. (159 Inc.), brings this motion for an order that the default judgments issued against the defendant Stephen Agh on November 14, 2008 and June 23, 2009, be set aside. These default judgments ordered Mr. Agh to pay to the plaintiffs, Mr. McMackin and McMackin Professional Corporation, the sums of $44,713.04 and $15,940.17. These payments were for unpaid legal fees. What makes this motion peculiar is that Mr. Agh is not involved in this motion and has not been heard from for over five years. The moving party was not a party to the original proceedings, but claims to be an interested party with standing to bring this motion.
Facts
The Default Judgments
[2] Mr. McMackin is a lawyer in Ontario. In 2008 and 2009 he provided legal services with respect to a corporation called 2128059 Ontario Ltd. (212 Inc.). The subject of the dispute was 212 Inc.’s failure to have a quarry licence underlying a quarry contract. The fees for these services went unpaid, and Mr. McMackin and his professional corporation issued a statement of claim on August 6, 2008, against Mr. Agh to recover these fees. Mr. Agh was the director, officer and sole shareholder of 212 Inc. The statement of claim pled that Mr. Agh retained the services of Mr. McMackin in August 2007 and McMackin “was instructed to commence an action to terminate a contract and to defend an application seeking to refer the issues to arbitration.” The claim pled that “the Solicitor issued the Statement of Claim and resisted the arbitration application including arguing same on the merits.”
[3] The statement of claim alleged that “the Solicitor then delivered unpaid legal accounts for services rendered totalling $43,812.70…” and that “as of the date hereof the Client has failed to pay the outstanding legal accounts.”
[4] A second statement of claim, with identical parties and virtually identical wording, but relating to the appeal of the decision in the above, was issued on April 27, 2009. This claim was for $15,940.17 of unpaid legal fees.
[5] 212 Inc. was not named as a defendant in either of those two actions.
[6] Mr. Agh did not file a statement of defence in either action and was noted in default.
[7] On November 14, 2008, the plaintiffs obtained default judgment against Mr. Agh in relation to the first claim in the sum of $44,713.04, plus pre-judgment interest and costs. On June 23, 2009, the plaintiffs obtained default judgment against Mr. Agh in relation to the second claim in the sum of $15,940.17, plus pre-judgment interest and costs.
The Mortgage Litigation
[8] In August 2009, Mr. Agh, on behalf of another corporation, 517082 Ontario Ltd. (OwnerCo.), which was the owner of the quarry property, granted a mortgage in favour of 736979 Ontario Ltd. (LawyersCo) to secure unpaid legal fees owed to Mr. McMackin and two other lawyers. LawyersCo. holds the mortgage in trust for the three lawyers owed fees by Mr. Agh. LawyersCo. is now involved in litigation against OwnersCo. for enforcement of this mortgage.
[9] The property over which LawyersCo. has a mortgage was sold and the sum of $100,000 of proceeds was held back pending a determination of whether or not LawyerCo has a valid mortgage.
[10] In July 2010, during the course of the litigation, OwnerCo.’s interest in the $100,000 was transferred to 159 Inc. By order dated September 21, 2010, the title of that proceeding was changed to substitute 159 Inc. as the defendant instead of OwnerCo. As the defendant in that proceeding, 159 Inc. challenges the validity of the mortgage on two grounds. The first ground is an allegation that OwnerCo. did not receive any consideration for the mortgage. The second is an allegation that when Mr. Agh executed the mortgage he was not a director or officer of OwnerCo. and had no authority to execute a valid mortgage on its behalf. As I understand 159 Inc.’s argument (it is not expressly set out in 159 Inc.’s statement of defence in the mortgage litigation), the validity of the default judgments goes to the issue of consideration. If the default judgments were invalid, then, the argument goes, there was no consideration given for the mortgage because no legal fees were owed. In other words, 159 Inc. argues that if the default judgments are invalid, then the mortgage is invalid and it does not have to pay $100,000 to LawyerCo[^1]. I am not being asked to consider the merits of this argument, only that it gives 159 Inc. an interest for the purposes of challenging the validity of the default judgments.
Stephen Agh
[11] The evidence before me on this motion is that no one has heard from Mr. Agh since 2009 and there are rumours that he is dead.
Motion to Set Aside Default Judgment
[12] 159 Inc. argues that the default judgment should be set aside for the following reasons:
(a) The first is that Mr. McMackin’s motion for default judgment and his supporting affidavit material state that he was retained by Mr. Agh to provide legal services, yet Mr. Agh was not a party to the action on which Mr. McMackin was acting. Mr. McMackin was acting for 212 Inc., which was the only plaintiff in the legal proceedings. 159 Inc. argues that there was no evidence on Mr. McMackin’s motion for default judgment as to how Mr. Agh was the client in his personal capacity, or that Mr. Agh agreed to guarantee the legal fees incurred on behalf of 212 Inc. How, 159 Inc. asks, is Mr. McMackin “claiming legal fees against Agh personally for work performed for 212 Ontario”?
(b) Secondly, Mr. McMackin’s affidavit in support of the motion for default judgment stated that Mr. Agh was exposed to more than one million dollars in damages. This, they argue, was not true; Mr. Agh had no personal liability for the contracts entered into by 212 Inc.
(c) The third reason is that Mr. McMackin had no written retainer to prove that Mr. Agh was the client or had agreed to be personally liable to pay for the legal services provided by Mr. McMackin to 212 Inc.
(d) The fourth reason is that the facts set out in Mr. McMackin’s statement of claim, even if taken as admitted, were insufficient to entitle Mr. McMackin to judgment.
(e) Finally, they argue that Mr. McMackin failed to make full disclosure of who his client was and his retainer in the motion material filed in support of his motion for default judgment. His affidavit filed in support of the motion refers only to Mr. Agh, and does not mention 212 Inc., even though 212 Inc. was the real litigant.
Legal Analysis
[13] Pursuant to rule 19.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (herein after the Rules), a defendant who fails to deliver a statement of defence within the prescribed time may be noted in default. Rule 19.02 provides that a defendant who has been noted in default “is deemed to admit the truth of all allegations of fact made in the statement of claim” and “is not entitled to notice of any step in the action and need not be served with any document in the action…”
[14] Motions for default judgment are brought pursuant to rules 19.05 and 19.06, which provide:
19.05 (1) Where a defendant has been noted in default, the plaintiff may move before a judge for judgment against the defendant on the statement of claim in respect of any claim for which default judgment has not been signed.
(2) A motion for judgment under subrule (1) shall be supported by evidence given by affidavit if the claim is for unliquidated damages.
(3) On a motion for judgment under subrule (1), the judge may grant judgment, dismiss the action or order that the action proceed to trial and that oral evidence be presented.
(4) Where an action proceeds to trial, a motion for judgment on the statement of claim against a defendant noted in default may be made at the trial.
19.06 A plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment.
[15] It is to be noted that affidavit evidence is required only if the claim is for unliquidated damages.
[16] Rule 19.08 relates to setting aside default judgment:
19.08 (1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rule 19.04 may be set aside or varied by the court on such terms as are just.
(2) A judgment against a defendant who has been noted in default that is obtained on a motion for judgment on the statement of claim under rule 19.05 or that is obtained after trial may be set aside or varied by a judge on such terms as are just.
(3) On setting aside a judgment under subrule (1) or (2) the court or judge may also set aside the noting of default under rule 19.03.
[17] On a motion to set aside default judgment, the court will consider:
(a) whether the motion to set aside the judgment was brought promptly;
(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 at least an arguable defence (Watkins v. Sosnowski 2012 ONSC 3836 at para. 18 and Morgan v. Toronto Police Services Board, 2003 14993 (ON CA), [2003] O.J. No. 1106 (C.A.)).
[18] Other cases have directed the court to consider the potential prejudice to the moving parties should the motion be dismissed and the potential prejudice to the respondent should the motion be allowed (Peterbilt of Ontario Inc. v. 156527 Ontario Ltd., 2007 ONCA 333, 87 O.R. (3d) 479 (C.A.) and there is often a relationship between delay and prejudice. The courts have indicated that these factors are not treated as rigid rules and 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 (Watkins v. Sosnowski, supra, at para. 20).
[19] A preliminary issue raised in this case is the standing of 159 Inc. to bring this motion to set aside the default judgment against Mr. Agh. “A non-party to an action may have status to apply to set aside a default judgment if is injuriously affected by the judgment and intends to defend the action whether with the defendant’s agreement or by leave of the court.” (Lin v. Tang [1998] BCJ no. 843 at para. 12; 1317621 Ontario Inc. v. Krauss 2008 39224 (ON SC), [2008] O.J. No. 3054 at para. 19). For example, it is always open to an insurer to apply to the court to have the default judgment against an insured set aside if it intends to defend the case (Sedam v. Simcoe & Erie General Ins. Co., (1983) 392 (BC SC), 147 DLR (3d) 159 at para. 17). A party seeking to set aside such an order must establish that the order “directly affects the rights of the moving party in respect to the proprietary or economic interests of the party” (Ivandaeva Total Image Salon Inc. v. Hlembizky, (2003) 43168 (ON CA), 63 O.R. (3d) 769, at para. 27 and 44).
[20] Dealing with the preliminary issue of standing, I am of the view that 159 Inc. does not have standing to move to set aside the default judgment against Mr. Agh. There are three reasons for this. The first is that 159 Inc. has never had any direct relationship with Mr. Agh. The default judgment is against Mr. Agh personally, not against OwnerCo. and so the order only indirectly affects the rights of 159 Inc. Standing on its own, the order against Mr. Agh imposed no liability of any kind on either OwnerCo. or 159 Inc. This is not a case, like an insurer, where the relationship between the moving party and the defendant is such that the order against the defendant imposes liability directly on the moving party which has agreed to indemnify the defendant for the judgment. 159 Inc. is simply another creditor, and a non-party does not have the right to challenge a default judgment simply by virtue of being a creditor of the defendant (or in this case the creditor of a corporation formerly owned by the defendant). 1317621 Ontario Inc. v. Krauss, 2008 39224 (ON SC), [2008] O.J. no. 3054, at paras. 21 and 22: “If it were otherwise it would open the floodgates to allowing any competing execution creditor to intrude in an action in which they are not a party and contest any motion that might result in a judgment or execution against a common debtor…The economic rights of the competing creditor may be affected, but they are affected indirectly as a result of a competing judgment of execution.
[21] The second related reason is that at the date the default judgments were ordered in 2008 and 2009, the orders had no effect on 159 Inc. whatsoever, either direct or indirect. 159 Inc. was not affected by the orders until July 2010, when the interests of OwnerCo. in the $100,000 were transferred to 159 Inc. As a general proposition, the interest of the moving party must be considered at the time that the default judgment is granted. This is because the plaintiff is entitled to some finality on the basis of his legal rights at the time that the default judgment is made (Nu-Fish Import Export Ltd. V. Sunsea Import Export Ltd (1997), 1997 12270 (ON SC), 35 O.R. (3d) 153 at p. 7). Since 159 Inc. clearly had no standing to impugn the default judgments when they were issued, it cannot rely on events years later to reach back and give itself standing nunc pro tunc.
[22] An additional consideration is that 159 Inc. has provided no indication that it “intends to defend the action whether with the defendant’s agreement or by leave of the court” (Lin v. Tang, supra). 159 Inc. did not, on this motion, seek leave to defend the action on behalf of Mr. Agh, and it acknowledges that it has never had any communication with Mr. Agh of any kind. This leaves the question of who will defend the action if the default judgment is set aside? The purpose of setting aside a default judgment is to enable the defendant (or his proxy) to defend the action, and the court should not set aside a default judgment unless there is an intention to defend the action.
[23] Even if 159 Inc. had standing to impugn the order for default judgment I would dismiss the motion. In the first place, the motion was not brought promptly. Even putting aside the original 2008 and 2009 dates for the impugned orders, 159 Inc. has known of the default judgment orders against Mr. Agh since as early as July 13, 2010 and no later than August 10, 2012. The motions to set aside the default judgments were not brought until April 2015. While a delay of three years, or even eight years, is not necessarily a bar to setting aside an order for default judgment (Nu-Fish Import Export Ltd. v. Sunsea Import Export Ltd, supra) there would be significant prejudice to the respondent in this case if the motion were allowed. I will address the issue of prejudice below, but the unexplained delay coupled with the prejudice to the respondent is another reason for dismissing this motion.
[24] Second, 159 Inc. has provided no plausible excuse or explanation for Mr. Agh’s default in complying with the Rules.
[25] With respect to the third issue of “whether the facts establish at least an arguable defence”, I agree that if this motion to set aside the default judgments had been brought by Mr. Agh, there would be an arguable defence to the claim. The five points made by counsel for 159 Inc. (see para. 12 above) would present a serious issue for trial, particularly if Mr. Agh took the position that he had not personally retained Mr. McMackin or had not agreed to be personally liable for 212 Inc.’s legal fees to Mr. McMackin. For example, in Rye and Partners v. 1041977 Ontario Inc. [2002] O.J. No. 4518 at para. 11, Justice Hoilett summarizes the law as follows:
It is trite law that where a solicitor fails to reduce to writing the terms of his or her retainer, and a dispute arises, there is a heavy onus on the solicitor to satisfy the court that his/her version of those terms is the correct one. The rationale underlying that principle is quite simple. The solicitor by virtue of his/her training, is in a better position to protect his or her interests[^2].
[26] The problem for 159 Inc. is that this principle applies only if “a dispute arises” between the solicitor and his client. In the present case there was no dispute. Mr. Agh did not file a statement of defence, and so was “deemed to admit the truth of all allegations of fact made in the statement of claim.” The allegations made in the statement of claim included the following paragraphs:
The defendant, Stephen Agh resides in the Town of Whitby, Province of Ontario (hereinafter referred to a “Client”)
The Client retained the services of the Solicitor on or about August 27, 2007
The Solicitor was instructed to commence an action to terminate a contract and to defend an application seeking to refer the issues to arbitration
The Solictor has issued the Statement of Claim and resisted the arbitration application including arguing same on the merits
The Solicitor then delivered unpaid legal accounts for services rendering $43, 812.70…
As of the date hereof the Client has failed to pay the outstanding legal accounts
[27] In my opinion, the facts as set out in the statement of claim are sufficient to meet the requirements of rule 19.06. These facts, which are deemed to have been admitted under Rule 19.02, entitled the plaintiff to judgment[^3].
[28] While Mr. Agh might have had a defence, he chose not to defend the claim. This is consistent with his conduct both before and after the claim. 212 Inc. was his personal corporation, a shell company without assets. Mr. McMackin has testified that he was retained by Mr. Agh and they had an oral agreement that all legal accounts would be issued to Mr. Agh personally and that Mr. Agh would be personally responsible for all legal fees relating to the retainer for the benefit of 212 Inc. In accordance with this agreement, all accounts were issued to Mr. Agh personally and sent to him at his home address, and Mr. Agh personally paid seven accounts for a total of $18,488.76 before he defaulted. This course of conduct is relevant in assessing whether there was an oral agreement for personal liability (Solmon Rothbart Goodman v. Ondrey, supra, at para. 19).
[29] Following the default judgment orders, Mr. Agh, through OwnerCo., granted Mr. McMackin and two other lawyers a $100,000 mortgage on the quarry to secure repayment of his indebtedness. The theory of 159 Inc.’s case (see para. 10, supra) is that this mortgage was granted to Mr. McMackin as security for the two default judgment orders. This theory is premised on Mr. Agh’s acknowledgment of his debt to Mr. McMackin, which is consistent with Mr. McMackin’s position that Mr. Agh accepted personal liability for the unpaid legal fees.
[30] And this brings me to the issue of prejudice. Mr. Agh’s whereabouts are unknown. The moving party indicates that Mr. Agh might be dead. If the default judgment were set aside and the case proceeded to trial (assuming that 159 Inc. requested and was given leave to defend on behalf of Mr. Agh), Mr. Agh’s evidence will not be available. Given Mr. Agh’s previous acknowledgments of his personal liability for the unpaid legal fees, Mr. Agh’s unavailability would prejudice Mr. McMackin, and make a fair hearing of this case impossible.
Conclusion
[31] For the reasons set out above, 159 Inc.’s motions for an order that the default judgments issued against the defendant Stephen Agh on November 14, 2008 and June 23, 2009, be set aside, is dismissed with costs to the respondents, Alan J. McMackin Professional Corporation and Alan J. McMackin. If the parties are unable to agree on the amount of costs the respondents may make submissions of no more than five pages plus their bill of costs and any offers to settle within thirty days of this decision, and the moving party has fifteen days from the receipt of those submissions to reply.
Mr. Justice R.E. Charney
Released: November 25, 2015
OSHAWA COURT FILE NO.: 56732/08SR and 60717/09 SR
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Alan J. McMackin Professional Corporation and Alan J. McMackin
Plaintiffs/Responding Party
– and –
Stephen Agh
Defendant
RULING ON MOTION
Mr. Justice R.E. Charney
Released: November 25, 2015
[^1]: Given that the default judgments related only to Mr. McMackin and his claim for approximately $65,000 in unpaid legal fees, it is not clear to me how this argument would apply to the balance of the mortgage debt, that is the approximately $35,000 allegedly owed to the other two lawyers, but that is an issue for another day.
[^2]: See also: Solmon Rothbart Goodman v. Ondrey [1995] O.J. No. 330.
[^3]: The second Statement of Claim contains virtually identical wording except it claims $15,940 for unpaid legal accounts in relation to the appeal of the same proceeding.