2018 ONSC 3387
COURT FILE NO.: CV-17-577671
MOTION HEARD: May 30, 2018
COUNSEL: A. Sanche for the defendant M. Mauer for the plaintiff
ENDORSEMENT
Master R. A. Muir –
This is a motion brought by the defendant pursuant to Rule 19.03 of the Rules of Civil Procedure, RRO 1990, Reg. 194 (the “Rules”). The defendant seeks an order setting aside its noting in default along with leave to deliver a statement of defence. The plaintiff is opposed to the relief sought.
This is a commercial lease dispute. The plaintiff is the former landlord of the defendant. The plaintiff seeks damages from the defendant for arrears of rent and for unpaid rent from January 2017 through to the end of the term of the lease in June 2018. These damages allegedly amount to more than $240,000.00.
The statement of claim was issued on June 23, 2017. It was served on Paul Devillis on June 28, 2017. Mr. Devillis was at the time an officer and director of the defendant. Service of the statement of claim was made in accordance with the Rules.
The defendant did not defend this action. It was noted in default on or about July 24, 2017. In December 2017 the plaintiff brought a motion for default judgment. Copies of the plaintiff’s motion materials may have been served on Mr. Devillis in February 2018 by email. They were served in March of 2018 by personal service. It appears that Mr. Devillis then forwarded the plaintiff’s materials to his former business partner Gino Tomaro who saw the statement of claim and the default judgment materials for the first time in March 2018.
The defendant then retained counsel and the defendant’s notice of motion was served on or about March 21, 2018.
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 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.
These are the factors and principles I have considered and applied in determining the issues on this motion. In my view, it is in the interest of justice that the noting in default be set aside.
In my view, the defendant has explained its failure to defend. After the defendant closed its business in January 2017, Mr. Devillis moved on and began working on his other businesses rather than dealing with the business of the defendant. It was not until Mr. Tomaro saw the plaintiff’s motion materials in March 2018 that the defendant realized the extent of the claim against it and determined that the claim had to be defended. The defendant then moved promptly to bring this motion.
I am therefore not satisfied on the evidence that there was an intentional or conscious decision on the part of the defendant not to defend as argued by the plaintiff and as found in the cases relied upon by the plaintiff. See Edwards Builders Hardware (Toronto) Ltd. v. Aventura Properties Inc., [2007] OJ No. 3445 (SCJ) at paragraphs 47 and 48 and Volvo Rents v. ABCO One Corp., 2014 ONSC 1045 (Master) at paragraph 8.
In any event, it is my view that those decisions must be read in the context of the later decision of the Court of Appeal in Intact which emphasizes the discretionary role of the court on motions of this nature in order to make the order that is just in the circumstances of each particular case. A rigid rule that establishes a complete bar to an order setting aside a noting in default is simply not consistent with that approach.
Finally, I note that there will be no prejudice to the plaintiff if the noting in default is set aside that cannot be compensated for by way of a costs order. There is no suggestion that witnesses are unavailable or documents have been destroyed. A draft defence has been prepared and can be served immediately. The prejudice to the defendant is obvious if it is not permitted to defend this action on its merits.
I must make one further observation about the merits of the proposed defence. I see nothing exceptional or unique about this proceeding that would require an assessment of the merits. The delay from the service of the statement of claim to the notice of motion was not unduly lengthy. The plaintiff has not demonstrated reliance on the noting in default. It will be perfectly capable of advancing its claim. Only in extreme circumstances should a defendant who has been noted in default be required to demonstrate an arguable defence on the merits. See Intact at paragraph 13. For this reason, I am not prepared to add any conditions to my order with respect to payment of a portion of the plaintiff’s claim, although the limited evidence on this motion would seem to suggest that the arrears remain owing at the very least.
However, I am prepared to make an order for costs thrown away. The plaintiff’s default judgment materials are now mostly a wasted expense because an officer and director of the defendant apparently chose to ignore the service of the statement of claim.
The plaintiff submits that these costs are approximately $12,000.00. I do not agree with the plaintiff’s suggestion that the court must simply accept this number when dealing with costs thrown away. Costs thrown away should be subject to the court’s discretion in the same manner as any other costs order. In my view, costs of $12,000.00 are excessive for a simple without notice default judgment motion on a straightforward commercial lease dispute. As well, some of the work product may be useful at discovery, trial or perhaps a summary judgment motion. In my view, costs thrown away of $7,000.00 are fair and reasonable in the circumstances.
For these reasons, I have concluded that it is just in the circumstance of this action that the noting in default of the defendant on July 24, 2017 be set aside. The defendant shall deliver its statement of defence by June 8, 2018. The defendant shall pay the plaintiff’s costs thrown away in the amount of $7,000.00, inclusive of HST and disbursements, by June 29, 2018.
The defendant has been successful. However, the defendant has been afforded an indulgence. It was reasonable for the plaintiff to test the defendant’s position and the plaintiff was also successful in obtaining an order for costs thrown away. I do not, however, view this motion as a situation where the unsuccessful party should be awarded costs. There was nothing improper about the defendant’s conduct. It simply appears that someone failed to act diligently in responding to the claim. In my view, it is fair and reasonable that there be no order for the costs of this motion.
May 30, 2018
Master R. A. Muir