Court File and Parties

Court File No.: CV-17-574064 Motion Heard: 2018 07 11

Counsel: Nathan Lean, for the defendants James Herbert, for the plaintiff

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, RRO 1990, Reg. 194 (the “Rules”). The defendants seek an order setting aside their noting in default and the related default judgment. The plaintiff is opposed to the relief sought.

[2] The plaintiff supplied printing services to the defendants. The plaintiff’s claim is for payment from the corporate defendants for services supplied from time to time. Both of the individual defendants executed personal guarantees in connection with the indebtedness of the corporate defendants to the plaintiff.

[3] The parties agree on the test to be applied on a motion such as this. It can be found in the decision of the Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194. The court states as follows beginning at paragraph 47 of Mountain View:

[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, 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 OR (3d) 479 (CA), 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.

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

[5] I am not satisfied that the defendants have met the first two elements of the test. This motion has not been brought promptly. The defendants learned of the default judgment in October 2017 at the very latest. They subsequently failed to attend at an examination in aid of execution despite proper service. Mr. Jiang appeared on a motion before me on January 2, 2018 at which he agreed to attend an examination in aid of execution. He failed to comply with my order and ultimately a contempt order was made. The defendants ultimately attended these examinations but still failed to bring this motion until June 2018. The defendants have known about the judgment for many months. They are fully aware of its serious consequences. Nevertheless, the bringing of this motion was delayed for many months.

[6] I am not satisfied with the defendants’ explanation for not defending in the first place. They argue that they are not fully fluent in English and are unfamiliar with the Canadian legal system. They also point to the friendly and informal business relationship they have with the plaintiff. In fact, the plaintiff and the defendants continue to do business with each other despite this dispute. I am unable to accept these submissions. The defendants appear to be sophisticated business people with several ongoing business ventures. The evidence shows that they have retained lawyers in recent years to assist with real estate and corporate matters. I see no reason why they would not also immediately retain a litigation lawyer to respond to this claim. They simply chose not to. The transcripts from the defendants’ examinations in aid of execution show a reasonable familiarity with the English language. The plaintiff’s evidence is that the principal of the plaintiff communicates with the defendants in English. Ms. Qian sent English correspondence to the plaintiff in March 2018.

[7] I also do not find the fact of the informal and friendly relationship with the plaintiff as persuasive in explaining the defendants’ default. The plaintiff was serious about collecting this debt. The plaintiff’s position is made clear by letters sent by the plaintiff and his lawyer both before and after the statement of claim was issued. The plaintiff wanted a repayment plan in place. It felt it had no option but to proceed with legal action. The plaintiff’s lawyer provided an initial indulgence but ultimately insisted on a defence. No defence was forthcoming.

[8] I do agree with the defendants that an arguable defence on the merits exists with respect to a portion of the debt. The court has no accounting or invoices from the plaintiff to support its claim. However, the amount the defendants say was owing as of the date the statement of claim was issued is very close to the amount the plaintiff is claiming. By the time the default judgment was signed, however, the amount the defendants say was owing was about $65,000.00 less than the amount of the judgment. In my view, the materials submitted with the default judgment should have accounted for payments made and changes to the state of accounts after the statement of claim was issued. If there was no change, it was incumbent on the plaintiff to show some evidence supporting the quantum of its judgment as part of this motion. Given that the only evidence on this motion as to the quantum owing is the defendants’ calculations, it would not be just to allow the judgment to stand in its present amount. There is simply no evidence before the court to support the full amount set out in the judgment.

[9] I appreciate that the defendants have not responded to this proceeding in a diligent fashion. The court has had to make very serious rulings in order to get their attention. However, the defendants have been making some effort to pay the plaintiff and have made settlement proposals. For these reasons, I do not view an order varying the judgment as affecting the integrity of the administration of justice.

[10] Finally, the prejudice to the plaintiff will be minimal. The judgment will be reduced by $65,000.00. I appreciate that there may be other creditors of the defendants. However, the plaintiff could have filed the evidence to support the amount of its judgment if the amount really was correct as of August 2017. The prejudice to the defendants is obvious if they have to pay more than they owe.

[11] I am therefore ordering that the judgment of the registrar of August 14, 2017 be varied. The principal sum in paragraph 1 of the judgment shall be varied to read “$382,622.24”.

[12] The noting in default of the defendants is set aside. The defendants shall have leave to deliver a statement of defence with respect to the balance of the amount claimed in the statement of claim, which shall be delivered by July 31, 2018. The balance of the relief on this motion is dismissed.

[13] The plaintiff has been mostly successful but not entirely so. In my view, the plaintiff is entitled to costs on a partial indemnity basis for a portion of the amount claimed. I note that the defendants have been given an indulgence in view of the delay in bringing this motion and their failure to defend in the first place. For these reasons, it is fair and reasonable for the defendants to pay the plaintiff’s costs of this motion fixed in the amount of $3,500.00 inclusive of HST and disbursements. These costs shall be paid by August 10, 2018.

Released: 2018 07 11 Master R. A. Muir