Court File and Parties
COURT FILE NO.: CV-17-00569677
MOTION HEARD: 20180606
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Staples Canada Inc., Plaintiff
AND:
Virtualink Canada Ltd. o/a Intelligent Office Canada, Defendants
BEFORE: Master B. McAfee
COUNSEL: H. Chung, Counsel for the Moving Party, the Defendant
A. Habas, Counsel for the Responding Party, the Plaintiff
HEARD: June 6, 2018
REASONS FOR DECISION
[1] This is a motion brought by the defendant Virtualink Canada Ltd. o/a Intelligent Office Canada for an order pursuant to Rule 19.08(1) of the Rules of Civil Procedure setting aside default judgment dated March 16, 2017, and setting aside noting in default.
[2] The plaintiff Staples Canada Inc. opposes the motion.
[3] As a preliminary issue, the defendant sought to rely on various correspondence between the parties that was not contained in the record. The plaintiff objected. Notice of the defendant’s intention to rely on this correspondence was not given until the morning of the motion. I did not permit the defendant to rely on correspondence not properly in the record in the circumstances.
[4] This action arises from a marketing agreement entered into by the plaintiff and defendant in 2012. In the statement of claim the plaintiff alleges that monies are owing by the defendant pursuant to the terms of the agreement.
[5] On March 16, 2017, the Registrar signed default judgment to the plaintiff in the amount of $54,199.23 together with costs in the amount of $1,130.00.
[6] The applicable test on a motion to set aside default judgment is set out in the decision of the Court of Appeal of Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 at paragraphs 47 to 51:
47 The court’s ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order. The approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, 2012 ONSC 3836 (Ont. S.C.J.), at paras. 19-20 and 23-24.
48 The court must consider the following three factors:
(a) whether the motion was brought promptly after the defendant learned of the default judgment;
(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 that the defendant has an arguable defence on the merits.
49 To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, 87 O.R. (3d) 479 (Ont.C.A.), at para. 2:
(d) the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the respondent 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.
50 These factors are not to be treated as rigid rules; 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.
51 For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.
[7] As this is an action governed by the simplified procedure, the court should not set aside default judgment unless the issues cannot be decided upon without cross-examination or it would otherwise be unjust to decide the issues on the motion (Dunay Enterprises Inc. v. Goodish, 2005 CarswellOnt 1160 (S.C.J.) at para. 9).
[8] I am satisfied that the defendant has provided a plausible explanation for his failure to immediately defend the action. The defendant was not operating from the location where the statement of claim had been served. The defendant failed to update its registered office and mailing addresses in its corporate profile. The statement of claim never came to the attention of the president of the defendant, Mr. Monteith, in the circumstances.
[9] I am not satisfied that the motion was brought promptly. The judgment came to the plaintiff’s attention in July 2017. Upon learning of the judgment, the plaintiff contacted counsel and requested that the necessary steps be taken to set aside default judgment. In August 2017, counsel exchanged of email. On November 17, 2017, the plaintiff served a notice of motion returnable January 10, 2018. No supporting motion material was served and the January 10, 201, motion date did not proceed. The within motion material was served on February 14, 2018, returnable April 5, 2018. On consent, the time from the April 5, 2018, return date to the hearing of the motion on June 6, 2018, was not to be counted as delay against the defendant. There was a delay of approximately nine months in bringing the motion. Although the motion was not brought promptly, this is not determinative in the circumstances of this case.
[10] I am satisfied that the defendant has established an arguable defence on the merits. Pursuant to the marketing agreement, the defendant ran its office space franchise in one of the plaintiff’s stores in Guelph, Ontario in exchange for payment of a monthly licence fee. The agreement provided that there would be a mutual promotion of each other’s products and services. In addition, there would be a sharing of the construction and deconstruction costs relating to the office space. While the defendant concedes that some licence fees may be payable, the defendant raises the defence of set-off against the amounts claimed by the plaintiff.
[11] The defendant alleges that the plaintiff breached the marketing agreement by failing to perform its marketing obligations in good faith. The defendant alleges that the plaintiff was obligated to provide monthly email campaigns, quarterly reward and credit statements, flyers in the first two weeks of launch, in-store brochures and social media/blog advertisements and failed to fulfil most of these obligations contrary to paragraph 6.1 of the marketing agreement. The defendant has provided evidence in this regard at paragraph 11 of the affidavit of B. Monteith.
[12] The defendant also alleges that the plaintiff launched a Learning Centre that was similar to the business model of the defendant in the same store, contrary to paragraph 2.4 of the marketing agreement. Exhibit “4” to the affidavit of B. Monteith is the plaintiff’s announcement regarding the launch.
[13] The defendant also alleges that the plaintiff failed to consult on any of the construction or deconstruction costs.
[14] It is the defendant’s position that the defendant made honest and good faith efforts to operate a successful business venture with the plaintiff. The defendant has produced the defendant’s accounting for the business venture totalling over $200,000.
[15] To the extent that the defendant relied on paragraph 9 of the marketing agreement in oral argument, it is not clear that paragraph 9 would bar a defence of set off.
[16] In these circumstances, the defendant has an arguable defence of set off, meeting the “air of reality” test. I am also satisfied that in these circumstances, the issues in this action can only be decided after oral testimony is given and cross-examination takes place.
[17] I am satisfied that there is nothing in the relief requested that would have an effect on the overall integrity of the administration of justice. In Mountain View, default judgment was set aside notwithstanding a delay of six years in bringing the motion.
[18] I am satisfied that the plaintiff would not be prejudiced by an order setting aside default judgment. If default judgment is not set aside, the defendant would be denied the opportunity to have the matter determined on its merits.
[19] In all of these circumstances, I am satisfied that it is in the interests of justice that the relief sought is granted.
[20] I agree with the submission of the plaintiff that there should be no costs of this motion. Although the defendant was successful on the motion, the present circumstances could have been avoided if the address on the defendant’s corporate profile was up to date.
[21] Order to go as follows:
The noting in default and the default judgment dated March 16, 2017, are set aside;
The defendant shall serve and file its statement of defence within 30 days of today’s date; and,
There shall be no costs of the motion.
Master B. McAfee
Date: June 12, 2018