Court File and Parties

Court File No.: CV-15-527301 Date: 20180921 Superior Court of Justice - Ontario

Re: John Maxwell and Jonathan Warren, Plaintiffs And: 8580162 Canada Corp. cob as Fresh Home Innovations, 8580192 Canada Corp. cob as Regal Design+ Build, Mahdi Ramezanostovan and Ramin Afnani, Defendants

Before: Carole J. Brown, J.

Counsel: Goode J, Pantel A for the plaintiffs Green D, Linden J for the defendants

Heard: September 12, 2018

Amended Endorsement

[1] The defendants bring this motion pursuant to Rule 19.08 of the Rules of Civil Procedure to set aside the default judgment entered on November 21, 2017 on the ground that the motion was brought promptly after the defendants learned of the default judgment; that they have a plausible explanation for the default and that they have an arguable defence on the merits. They further seek an order returning the funds seized from their accounts pursuant to the outstanding judgment against them.

[2] It is the position of the defendants that the lawyer they had retained as regards this action did not properly represent them, had been suspended by the Law Society of Upper Canada (as it then was) without their knowledge, did not disclose his suspension to the defendants, did not keep them informed of proceedings in the action, but rather simply advised that he had followed up with plaintiffs’ counsel, did not satisfy various court orders, did not examine the plaintiff’s for discovery and did not appear at motions on the defendants’ behalf, but rather agreed to orders and costs without obtaining his clients’ instructions, and did not inform them of these orders and costs awards against them. Without their knowledge, they were noted in default and default judgment was ordered against them.

[3] It is the position of the plaintiffs that the defendants were or should have been aware of the circumstances of their lawyer, leading to the default and that they had no arguable defence on the merits.

The Facts

[4] The plaintiff’s retained the defendants in or about June 2014 to undertake significant renovations on their home. Mahdi Ramezanostovan is the sole officer and director of Regal and Ramin Afnani is the sole officer and director of Fresh Homes.

[5] The parties differ as regards the ensuing events that led up to termination of the contract. It is the position of the defendants that the plaintiffs changed their mind many times as regards renovations to be done necessitating numerous changes to the drawings regarding the renovations to be done throughout the time that they were working on the home, restricted access to the premises and also interfered with subcontractors work by giving direct orders in contradiction to the orders given by the defendants to them. It is the position of the plaintiffs that the defendants wanted a payment schedule, that they were not amenable to the schedule proposed and that they would not return to continue working on the renovations until the payment schedule was finalized. It is the position of the defendants that counsel for the plaintiffs wrote indicating that the defendants had abandoned the premises and threatened to terminate the contract if they did not return within five business days. Defendants’ counsel suggested that all parties discuss a mutually agreeable plan to complete the project. However, the plaintiffs thereafter terminated the contract.

[6] The plaintiffs commenced an action against the defendants on May 1, 2015. On May 25, 2015, the defendants retained Kevin Klayman to defend the claim and commence a counterclaim.

[7] Pleadings closed as of July 7, 2015. Pursuant to an order of Master Brott, a discovery plan was imposed on April 27, 2016 and the defendants were ordered to attend examinations for discovery. Examinations of the defendants were completed on April 20, 2016. No examinations have been conducted of the plaintiffs. As regards examinations of the defendants, the plaintiffs brought a motion to compel answers to undertakings on October 13, 2016 and Master Brott ordered the defendants to attend a mediation on November 14, 2016.

[8] On March 20, 2017, plaintiffs’ counsel brought a motion before Master Suganasiri to strike the statement of defence, and to dismiss the counterclaim on the basis of the defendants’ failure to comply with numerous orders of the court, which order was granted. Pursuant to said order, the defendants were to answer all undertakings and pay the outstanding costs awards within 30 days, failing which the plaintiffs would be entitled to move ex parte to strike the statement of defence and dismiss the counterclaim, without further notice to the defendants.

[9] On April 25, 2017, Master Abrams ordered the statement of defence of each of the defendants be struck out and dismissed the counterclaim. On April 27, 2017, the plaintiff’s brought a motion in writing to note the defendants in default and obtain default judgment. On May 2, 2017, Justice Pollock ordered that they proceed to an undefended trial to prove their damages. The defendants’ counsel, Mr. Klayman, did not appear at the hearing of the motion.

[10] On November 21, 2017, the plaintiffs attended at trial to establish damages and Cavanaugh J awarded judgment in the amount of $74,192 plus costs and interest. The defendants evidence was that they first became aware of the default judgment when they went to the bank and found that their bank account had been garnished. This occurred on November 28, 2017. The following day, the defendants attended the court office to obtain material filed in relation to the lawsuit and discovered that there was an outstanding judgment against them and that a notice of garnishment had been filed. In a sworn affidavit, Mahdi Ramezanostovan stated that he thereafter contacted Mr. Klayman by text message and was advised that Mr. Klayman had given carriage of the file to Brian Diamond. Mr. Ramezanostovan went to Mr. Klayman’s offices, met with Mr. Diamond and was advised that Mr. Klayman had left the firm, that his license had been suspended and that he had abandoned other files as well. The defendants state that they immediately retained their current law firm on December 1, 2017 and were advised of the situation.

[11] The notice of motion to set aside default judgment was served and filed February 28, 2018.

[12] A significant amount of material has been filed on this motion.

The Law

[13] Where judgment was properly obtained, the court may exercise its discretion to set aside the default judgment and permit the party to defend the claim where a number of conditions are satisfied. The traditional Chitel test for the court to exercise its discretion to set aside default judgment is as follows:

Where the motion was brought without delay after the defendant learned of the default judgment; the circumstances giving rise to the default have been adequately explained and the defendant has an arguable defence on the merits.

Was the motion brought without delay?

[14] In this case, I am satisfied, based on the above chronology that the motion was brought without delay after the defendants learned of the default judgment, namely after they attended at court and obtained the materials filed with respect to the default judgment and garnishment order.

[15] I am satisfied that the first notice that the defendants had of the default was when they went to the bank and subsequently went to the court to obtain the relevant documents. I am satisfied that until that time, they believed that their lawyer was dealing with the proceedings.

Were circumstances giving rise to the default adequately explained?

[16] Based on the evidence before this Court, it appears that the default judgment was due to the negligence of their lawyer, who had been suspended without the defendants having been apprised of his suspension, or of his failure to respond to correspondence and notices of motion. The evidence obtained from the LSUC website indicates that Mr. Klayman received administrative suspensions on July 8, 2016, January 26, 2017, February 24, 2017, September 29, 2017 and October 17, 2017. There is no evidence to indicate the circumstances that led to the suspensions, or for how long the circumstances were ongoing prior to the suspensions. Based on the evidence, neither Mr. Klayman nor his firm advised the defendants of these suspensions, nor of any difficulties in his practice. Further, based on the evidence, Mr. Klayman did not respond to correspondence, telephone calls and did not attend at motions on behalf of the defendants, in other words, he failed to protect his clients’ interests. He did not appear at several interlocutory motions in this proceeding, and did not appear at the final motion to note in default.

[17] I do not accept the plaintiffs’ submissions that the defendants should have known that something was wrong as regards their lawyer, or that they should have answered undertakings on their own. The evidence indicates that Mr. Klayman did not keep them apprised as regards the proceedings other than to give them general assurances, nor did he follow up with examinations for discovery or answering any outstanding undertakings. I do not accept the plaintiffs’ arguments that they should have known to do this on their own.

[18] Pursuant to the jurisprudence, the client is not to be placed irrevocably in jeopardy by reason of the neglect or inattention of counsel: Halton Community Credit Union Ltd. v ICL Computers Canada (Ont CA) [1985] O. J. No. 101; Graham v Vandersloot, 2012 ONCA 60; Hunt v Brantford (City), [1994] O. J. No. 1867; DM Hopper Electric v Kucera, [2006] O. J. No. 5089; 407 ETR Concession Ltd. v Min [2007] O. J. No. 1086; Whittman Canada Inc. v Uniglobe (Canada) Inc. (cob S & Q Plastic), [2011] O. J. No. 1565.

Do the defendants have an arguable defence on the merits?

[19] As regards an arguable defence on the merits, I am satisfied, based on all of the evidence before me that there is a legitimate dispute as regards the contract, alleged breaches of the contract, alleged changes to the contract and interference by the plaintiffs as regards the work being done, the work completed, the quality of or deficiencies in that work and the amounts to be paid. I am satisfied that the defendants should be given the opportunity to present a defence on the merits.

[20] While it is the position of the plaintiffs that the defendants have failed to tender expert evidence to rebut the evidence of their expert on damages, have failed to produce specific evidence to substantiate their alleged damages and have not produced evidence regarding lost future profits or opportunities, I am of the view that this is not necessary for purposes of setting aside default judgment pursuant to Rule 19. The defendants have met the tests for setting aside a default judgment, as set forth above.

[21] I am satisfied that there would be significant prejudice to the defendants should the motion be dismissed, as they will have lost an opportunity to defend their actions, their business dealings, their financial position and their reputations in the community, all of which are raised in this action. They are business people and the present situation did not give them the opportunity to defend themselves and their reputation vis-à-vis their clientele and the community. I am satisfied that the prejudice will be greater to the defendants than to any prejudice that may be occasioned by the plaintiffs.

[22] I am further of the view that allowing the default judgment to stand, in all of the circumstances of this case, would bring the administration of justice into disrepute. The defendants entrusted their legal affairs to a lawyer, who, during the course of the proceedings was suspended, without their knowledge. As a result, and without their knowledge, they were without a lawyer to protect their interests, resulting in the noting in default and ultimately the default judgment.

[23] I am satisfied, based on the foregoing, that the default judgment dated November 21, 2017 should be set aside. I further order that the Order of Master Abrams dated April 25, 2017 be set aside.

[24] Where default judgment is set aside, any garnished funds are to be returned to the defendant unless “exceptional circumstances” justify a freezing order: see Foremost Cranberry Mews Limited Partnership v Ferreri [2015] O. J. No. 2198. A freezing order is only warranted where there is evidence that there is a “real risk” of the defendant removing or dissipating its assets to avoid judgment or to render them untraceable: Chitel v Rothbart (1983), 39 O. R. (2d). There is no evidence of such a risk in this case. Accordingly, the garnisheed funds, which are currently being held by the plaintiffs’ lawyers in their trust account are to be returned to the defendants.

Carole J. Brown, J. Date: September 21, 2018