Citation: HS & Partners LLP v. Merker, 2016 ONSC 7215

COURT FILE NO.: CV-13-487938

MOTION HEARD: November 18, 2016

COUNSEL: Ann A. Hatsios for the defendants Pavle Masic for the plaintiffs

ENDORSEMENT

Master R. A. Muir –

[1] This is a motion brought by the defendants pursuant to Rule 19.08(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). The defendants seek an order setting aside their noting of default and the related default judgment. They also seek leave to deliver a statement of defence along with other relief related to enforcement steps taken by the plaintiffs and an order to continue in the name of the defendant Karen Merker’s estate trustee. The plaintiffs are opposed to the relief sought.

[2] The plaintiffs are chartered accountants. They allege in the statement of claim that they provided accounting services to or on behalf of the defendants and the defendants have failed to pay the amounts owing to the plaintiffs for those services.

[3] At the outset, the defendants objected to the filing of answers to undertakings from the cross-examinations. I advised counsel for the defendants that I was prepared to accept the additional material but would grant an adjournment of the motion is she wished to conduct any follow-up examination arising from the answers. She advised that she was prepared to proceed with argument of the motion today. In any event, nothing in this decision turns on these additional materials.

[4] The test on a motion such as this can be found in the decision of the Court of Appeal in Intact Insurance Company v. Kisel, 2015 ONCA 205. The court states as follows at paragraphs 12 to 14 of that decision:

12 Rules 19.03(1) and 19.08(1) provide the basis for setting aside a noting of default and a default judgment, respectively. Both rules give the court discretion to set aside the default "on such terms as are just." This court has held that the tests to be met under these rules are not identical. See Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd. (1991), 1991 CanLII 7095 (ON CA), 3 O.R. (3d) 278 (Ont. C.A.), at pp. 284-85.

13 When exercising its discretion to set aside a noting of default, a court should assess "the context and factual situation" of the case: Bardmore, at p. 285. It should particularly consider such factors as the behaviour of the plaintiff and the defendant; the length of the defendant's delay; the reasons for the delay; and the complexity and value of the claim. These factors are not exhaustive. See Nobosoft Corp. v. No Borders Inc., 2007 ONCA 444, 225 O.A.C. 36, at para. 3; Flintoff v. von Anhalt, 2010 ONCA 786, [2010] O.J. No. 4963, at para. 7. Some decisions have also considered whether setting aside the noting of default would prejudice a party relying on it: see e.g. Enbridge Gas Distribution Inc. v. 135 Marlee Holdings Inc., [2005] O.J. No. 4327, at para. 8. Only in extreme circumstances, however, should the court require a defendant who has been noted in default to demonstrate an arguable defence on the merits: Bardmore, at p. 285.

14 On a motion to set aside a default judgment, on the other hand, the court considers five major factors, one of which is whether the defendant has an arguable defence on the merits. The five factors are:

(a) whether the motion was brought promptly after the defendant learned of the default judgment;

(b) whether the defendant has a plausible excuse or explanation for the default;

(c) whether the defendant has an arguable defence on the merits;

(d) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff 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.

Again, these factors are not rigid rules. The court has to decide whether, in the particular circumstances of the case, it is just to relieve a defendant from the consequences of default: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 372 D.L.R. (4th) 526, at paras. 48-50.

[5] These are the factors and principles I have considered and applied in determining the issues on this motion.

[6] I am not satisfied that the defendants have met the first two elements of the test. There is ample evidence to demonstrate that the defendants knew in April and May of 2014 that a defence was required and the plaintiffs were taking default proceedings. In particular, this evidence comes from the defendants’ former lawyer in an affidavit filed in support of a motion to be removed as lawyer of record. That affidavit makes it clear that a defence was required and the plaintiffs were taking default proceedings. The defendants were on notice of this. They ultimately consented to the removal order on the basis of the evidence filed by their former lawyer. The defendant Melvyn Merker (who is also the estate trustee for Karen Merker) has been involved in litigation before. He knows what needs to be done to defend a claim. In these circumstances, it is not sufficient for the defendants to simply assign blame to their former lawyers. The defendants have not provided a plausible explanation for the default.

[7] This motion was brought shortly after the defendants learned of the garnishment. However, the defendants must have known that judgment was pending given the communications from their lawyer in April and May of 2014. In particular, the letter sent to Mr. Merker on May 26, 2014 which clearly stated the defendants had been noted in default. A date for this motion was not scheduled until April 2015. This motion has not been brought promptly.

[8] However, it is my view that the defendants have a defence to a portion of the claim. This is a breach of contract claim. The defendants signed engagement agreements with the plaintiffs for work to be done on behalf of various corporations controlled by the defendants. Those agreements made the defendants personally liable for payment of the plaintiffs’ fees along with interest at the rate of 18% per year. However, their personal liability was agreed to on a corporation by corporation basis only. They are not jointly and severally liable for the fees charged to all of the corporations they controlled. This is the only basis for liability set out in the statement of claim. There is more than an arguable defence to the claim that both defendants are liable for all of the fees for all of the corporate entities.

[9] There also exists an arguable limitation defence in respect of several of the invoices which appear to have been delivered more than two years before this claim was issued.

[10] I see no arguable merit to the balance of the proposed defences and I accept the submissions of counsel for the plaintiffs with respect to the calculation of the amounts owing based on the engagement agreements and omitting the invoices in respect of which a potential limitation defence is available.

[11] In my view, the claim for payment of the amounts each of the defendants owes pursuant to the engagement agreements is a liquidated claim based on invoices rendered for services provided. The registrar’s judgment is proper to that extent.

[12] The defendants’ allegations that the plaintiffs delayed in rendering invoices, double billed and over-charged for the work that was done are nothing more than vague and general statements based on the practices and cost of similar work done by the defendants’ accountant in prior years when he was not working with the plaintiffs. Some factual basis is required to advance such a defence even on a motion to set aside a default judgment.

[13] I see nothing improper about the manner in which judgment was obtained. The defendants’ lawyers were warned what would happen if no defence was served. The plaintiffs granted the defendants a considerable indulgence. The defendants may have concerns about the quality of their former lawyers’ representation but that is certainly not the responsibility of the plaintiffs.

[14] I see no prejudice to the defendants in requiring them to pay for services they clearly agreed to pay for under the terms of the engagement agreements. I do, however, see prejudice in requiring the defendants to honour the judgment as it now stands. The current judgment would make the defendants liable for the payment of accounts they may very well have no obligation to pay based on the statement of claim and the evidence on this motion.

[15] Finally, I do not view an order varying the default judgment as having any impact on the integrity of the administration of justice. The plaintiffs are getting the judgment they are entitled to based on the statement of claim and the engagement agreements. The defendants are simply being held to their limited promise in respect of which they have advanced no arguable defence. Varying the judgment accordingly is the just order in the circumstances of this motion.

[16] Given the divided success, it is my view that it is fair and reasonable for there to be no order for the costs of this motion. However, it is also my view that given the plaintiffs’ partial success thus far, they are entitled to a portion of their costs associated with the claim and the enforcement steps. However, the amounts requested are excessive in my view. This claim was commenced as a simplified procedure action. The amount of the judgment as it now stands is close to the monetary jurisdiction of the Small Claims Court. In my view, it is fair and reasonable for the defendants to pay the plaintiffs’ costs of the claim and the enforcement proceedings fixed in the amount of $2,000.00, inclusive of HST and disbursements. These costs shall be paid by December 19, 2016.

[17] I therefore order as follows:

(a) the default judgment of the registrar dated May 12, 2014 is hereby varied to provide that the defendant Melvyn Merker shall pay to the plaintiffs the sum of $27,281.00 plus interest at the rate of 18% per year from the respective due dates of the various invoices and the Estate of Karen Merker shall pay to the plaintiffs the sum of $10,116.00 plus interest at the rate of 18% per year from the respective due dates of the various invoices;

(b) the noting in default of the defendants is hereby set aside and the defendants are hereby granted leave to deliver statements of defence to the plaintiffs’ remaining claims by December 31, 2016;

(c) any existing writs of seizure and sale are hereby set aside upon the issuing and filing of amended writs of seizure and sale consistent with this endorsement;

(d) the funds being held by the sheriff for the Regional Municipality of York pursuant to the notice of garnishment issued April 7, 2015 shall be distributed in accordance with the provisions of the Creditors’ Relief Act, 2010, SO 2010, c 16, Sch 4;

(e) an order to continue shall issue in accordance with paragraph (h) of the amended notice of motion;

(f) there shall be no order for the costs of this motion;

(g) the defendants shall pay the plaintiffs’ costs of the claim and the enforcement proceedings fixed in the amount of $2,000.00, inclusive of HST and disbursements, by December 19, 2016; and,

(h) the formal order from this motion may be submitted to me for signing once approved as to form and content.

November 18, 2016

Master R. A. Muir