Court File and Parties

COURT FILE NO.: CV-17-2799-00 DATE: 2018-12-07 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

BHL CAPITAL, A DIVISION OF BERNER HOLDINGS LTD. Alexander Soutter, for the Plaintiff Plaintiff

- and -

2281165 ONTARIO LTD. and JANAKI JEYATHEVAN Ralph F.D. Swaine, for the Defendants Defendants

HEARD: May 30, 2018, at Brampton, Ontario

Price J.

Reasons For Order

OVERVIEW

[1] On September 14, 2017, 1.5 months after BHL Capital, a lessor of trucks and trailers, obtained a default judgment dated July 26, 2017, against its lessee, 2281165 Ontario Ltd. (“228”) and 228’s principal, Janaki Jeyathevan (“Ms. Jeyathevan”) for the amount owing on four of its leases, 228 and Ms. Jeyathevan moved to set aside the judgment and for leave to deliver a Statement of Defence. After the motion was heard on May 30, 2018, judgment was reserved. These reasons will address the issues raised in motion.

BACKGROUND FACTS

[2] BHL Capital, a division of Berner Holdings Ltd. (“BHL”), is a British Columbia corporation that engages in the leasing and financing of vehicles to members of the trucking industry, among others. BHL conducts business across Canada by relying on various brokers to connect it with persons who are looking for financing. One such broker is Trademark Capital Finance Corporation (“Trademark”).

[3] BHL’s main contact at Trademark was its Vice-President, David Perri (“Mr. Perri”).

[4] 228 and Ms. Jeyathevan operated a trucking business using trucks and trailers leased through AJA Trucking Inc., whose director, Jeyathevan Murugesu, also known as “Steve”, is Ms. Jeyathevan’s husband. For this purpose, 228 and Ms. Jeyathevan entered into several lease agreements, though Trademark, with BHL for the lease of trucks and trailers. BHL’s representatives often dealt with Ms. Jeyathevan’s husband, Steve, who acted as agent for her and 228 with respect to their obligations under the leases.

[5] The parties agree that they entered into the following three leases:

(a) Lease 100478a, being a lease of a 2005 Peterbilt 387 truck (the “2005 Peterbilt”), which required 228 and Ms. Jeyathevan to make 18 monthly payments of $1,439.90 each, inclusive of tax.

(b) Lease 100558, being a lease of a 2005 Freightliner Conventional truck (the “2005 Freightliner”), which required 228 and Ms. Jeyathevan to make one payment of $2,768.50, and 29 monthly payments of $1,175.57, inclusive of tax. Ms. Jeyathevan asserts that she paid this lease in full.

(c) Lease 100578, being a lease of a 2013 Volvo 670 truck (the “2013 Volvo”) (“Lease no. 100578”). BHL asserts that this lease required one payment of $4,520.00, and 53 monthly payments of $2,398.13. Ms. Jeyathevan asserts that this lease does not set out any monthly payment amount, only that there were 54 payments to be made.

[6] BHL asserts that the parties entered into the following two additional leases, which Ms. Jeyathevan denies:

(a) Lease 100582, being a lease of a 2004 Utility Trailer YS2 (the “2004 Utility”), which provided for one payment of $1,067.62, and 35 monthly payments of $1,079.79.

(b) Lease 100501A, being a lease of a 2009 International 4400 truck, with attached 24 foot Van Body and mounted Thermoking Reefer Unit (the “2009 International”), which provided for 48 monthly payments of $1,252.36.

[7] While admitting that she entered into three of the leases, Ms. Jeyathevan denies that she signed the other two. She states that she made payments on the leases she did sign from a Bank of Nova Scotia account (the “BNS Account”). She has not offered any evidence of payments she made from other bank accounts.

[8] From time to time, 228 and Ms. Jeyathevan made payments towards their leases by pre-authorized debits from three other bank accounts.

Lease 100578

[9] Before entering into Lease 100578 for the 2013 Volvo truck, the parties discussed varying its payment terms. A draft lease that provided for 55 payments, was initially signed by 228 and Ms. Jeyathevan but had not yet been accepted by BHL when Ms. Jeyathevan asked that a new lease be prepared providing for one payment of $4,520.00 and 53 payments of $2,398 each, which all parties accepted and signed.

[10] BHL’s claim is based, in part, on Lease 100578. Ms. Jeyathevan admits entering into Lease 100578, but states that the version that she signed “does not set out the monthly payment amounts, only that there were 55 payments”. She attaches her version of Lease 100578 as Exhibit “B” to her affidavit. BHL states that Ms. Jeyathevan’s version is only a part of the initial draft of Lease 100578, which it never accepted or signed. This is important because Ms. Jeyathevan states that all of her payments, including those for amounts provided for in the other leases, were made solely on Lease 100578.

Leases 100582 and 100501A

[11] Ms. Jeyathevan denies that she signed Lease 100582 or Lease 100501A, which comprise the majority of BHL’s claim. The signature that purports to be that of Ms. Jeyathevan on those leases is noticeably different than her signature on Lease 100578. Ms. Jeyathevan states that she does not know how BHL obtained the leases 100582 and 100501A with what purports to be her signature on them.

[12] After BHL’s bailiff repossessed the 2004 Utility, the 2013 Volvo, and the 2005 Freightliner, he returned the plates that were attached to them to Ms. Jeyathevan, who signed a letter acknowledging her ownership of the plates.

[13] 228 and Ms. Jeyathevan made the first payment towards Lease 100582 in the amount of $1,067.62, from the BNS Account. Ms. Jeyathevan does not include this payment among the list of payments that she says she made towards Lease 100582. 228 and Ms. Jeyathevan made other payments, which BHL applied to the amounts owing on Leases 100582 and 100501A from other bank accounts. Ms. Jeyathevan does not include bank statements from those accounts in her Affidavit.

[14] Ms. Jeyathevan’s husband, Steve, of AJA Trucking Inc., acknowledged when BHL was pressing for payments on all four leases, and threatening to repossess the trucks, that BHL was owed payments for all four leases.

ISSUES

[15] The Court is asked to determine the following issues in this motion:

(a) Was there an irregularity in obtaining the default judgment that entitles the defendants as of right to an Order setting the judgment aside?

(b) If there was no irregularity, have the defendants met the test for setting aside the default judgment?

PARTIES’ POSITIONS

228 and Ms. Jeyathevan’s Position

[16] 228 and Ms. Jeyathevan submit that the statement of claim was served by leaving it with a family member at Ms. Jeyathevan’s home on July 10, 2017, and that pursuant to Rule 16.03(5) service was thus effective on July 15, 2017, which gave the defendants until August 4, 2017, to file a notice of intent to defend. On this basis, they argue that the default judgment was improperly obtained before the deadline. They further contend that there are issues to be determined, and the criteria for default judgment must not be applied rigidly, but must ensure that justice is done.

BHL’s Position

[17] BHL submits that Ms. Jeyathevan’s evidence is so lacking in credibility that it cannot support a finding that she has a plausible explanation for her default, or an air of reality to her defence.

[18] BHL relies on the Court of Appeal for Ontario’s decision in Intact Insurance Co. v. Kisel, 2015 ONCA 205, (2015), and argues that the defendants have not satisfied the five factor test to be applied in a motion to set aside default judgment. [1] BHL submits that the judgment was not obtained irregularly and Ms. Jeyathevan’s explanation for failing to defend is not plausible.

[19] BHL submits that Ms. Jeyathevan’s defence on the merits does not have an air of reality, and she cannot be believed for the following reasons:

(a) She has alleged that payments were made to BHL when they were plainly returned “NSF” (Not Sufficient Funds), were made to other people.

(b) She has alleged that all of the payments were for a single lease despite the fact that she later admitted entering into two leases with BHL.

(c) She admitted that she paid the first installment toward one of the leases on the date when her own bank statements disclose that she did.

(d) The version of one of the leases attached to her affidavit is missing a key page with payment terms and signatures of the parties. Therefore, Ms. Jeyathevan’s evidence cannot support a finding that she has met the test to set aside default judgment.

ANALYSIS AND LAW

Legislative framework

[20] Rules 19.03(1) and 19.08(1) of the Rules of Civil Procedure govern the court’s exercise of discretion as to whether to set aside a default judgment “on such terms as are just.” Section 19.08(1) provides:

19.08(1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rules 19.04 may be set aside or varied by the court on such terms as are just.

[21] The manner of service of a Statement of Claim is governed by Rule 16. That rule provides, in part:

16.01(1) An originating process shall be served personally as provided in rule 16.02 or by an alternative to personal service as provided in rule 16.03.

16.03(1) Where these rules or an order of the court permit service by an alternative to personal service, service shall be made in accordance with this rule.

(5) Where an attempt is made to effect personal service at a person’s place of residence and for any reason personal service cannot be effected, the document may be serviced by,

(a) leaving a copy, in a sealed envelope addressed to the person, at the place of residence with anyone who appears to be an adult member of the same household; and

(b) on the same day or the following day, mailing another copy of the document to the person at the place of residence,

and service in this manner is effective on the fifth day after the document is mailed.

[22] Rule 18 governs the time within which a Statement of Defence or Notice of Intent to Defend must be delivered. It provides, in part:

18.01 Except as provided in rule 18.02 or subrule 10.01(5) (late delivery of defence) or 27.04(2) (counterclaim against plaintiff and non-arty), a statement of defence (Form 18A) shall be delivered,

(a) within twenty days after service of the statement of claim, where the defendant is served in Ontario.

18.02 (1) A defendant who is served with a statement of claim and intends to defend the action may deliver a notice of intent to defend (Form 18B) within the time prescribed for delivery of a statement of defence.

Jurisprudence

[23] If there is a procedural irregularity in obtaining a default judgment, then absent compelling circumstances, the judgment should be set aside without condition and without consideration of the reasons for delay or whether a meritorious defence was demonstrated.

[24] In TD Bank v. Beninato, (1981), the High Court stated:

I found the decision in Hegedus v. Luciani et al. (unreported, released Jan. 27, 1981) a decision of the Honourable Mr. Justice Grange to be of great assistance in my consideration in the present case. The decision itself contains the following statements which I adopt:

If the plaintiff was within his rights in signing judgment then as a condition of setting it aside the Master can allow the execution to stand; but if the action of the plaintiff in signing default judgment was a nullity or even merely irregular then as I understand the law Judge Griffiths had no discretion; he was bound to set it aside without condition.

Giving the matter the best consideration that I can I have come to the conclusion that the Writ of Summons in this case was irregular and that being the case the learned local Judge had no discretion but was bound to set it aside without condition. In making the order therefore that he did it appears to me that he exercised his discretion on what might be referred to as a wrong principle of law and in the result therefore this application by way of appeal must succeed and the second paragraph of the Order dated September 24th, 1981 must be varied and that the Writs of Execution against the defendants Joseph Deninato and Pamela Beninato be lifted. [2]

[Citations omitted.]

[25] In Don Bodkin Leasing Ltd. v. Rayzak, (1993), Justice Hoilett concluded that the onus of establishing service was on the plaintiff. The court determined the plaintiff had failed to meet the onus and, as a result, the court determined it did not have to go on to consider whether to exercise its discretion to set aside the default judgment. [3] Default judgment was set aside and the writ of execution lifted.

[26] In Tesky v. Peraan, (1999), the Master made the following comment:

There is clear authority that if service has not been effected, a default judgment may be set aside without the need for explaining delay or demonstrating a meritorious defence. See for example, Royal Trust Corporation of Canada v. Dunn et al. (1991), 6 O.R. (3d) 468 (Gen. Div.). Tomazio v. Rutale et al. (1995), 26 O.R. (3d) 191 (Gen. Div.) and Miller v. Muthulingam [1998] O.J. No. 4467 (Gen. Div.) although not cited at the hearing are to the same effect. The basis for these decisions is that default judgment obtained by way of a procedural irregularity should be set aside and the defendant put back in the position he or she would have been in after service was duly effected. The following appears in the decision of Borins, J. (as he then was) in the Royal Trust decision at p. 479:

It is well established that there are two situations in which the court is able to set aside a default judgment. One of the leading authorities on the subject is Anlaby v. Praetorius (1888), 20 Q.B. 765 (C.A.), per Fry, L.J., at p. 769. The first is when a defendant is able to establish that the judgment was irregularly obtained. If the defendant can establish that the correct procedures have not been followed either in obtaining the judgment or in relation to some step taken by the plaintiff in the commencement of the proceedings, such as in failing to serve the statement of claim in a proper manner, then normally the defendant can have the judgment set aside as of right without the requirement of establishing a defence to the plaintiff's claim. The second is when the judgment has been regularly obtained and where the defendant asks the court to exercise its discretion to set aside the default judgment and to permit him or her to defend the claim. It is in the second situation that the defendant is required to satisfy a number of conditions, including establishing a defence to the action on the merits, before the court will exercise its discretion in the defendant's favour, and then usually on the imposition of terms, such as payment into court of the amount claimed and the costs thrown away.

Justice Borins does not go so far as to say that the defendant can always have the default judgment set aside as of right in the first class of cases. Nor does he say that the court may not impose conditions in such cases. Nevertheless, having found that the claim was not served at the time the default judgment was obtained, it is clear that this case falls into the class of cases in which judgment should normally be set aside unconditionally. I conclude that the judgment must be set aside together with the notice of default but I am not persuaded that in the facts of this case, it should be set aside unconditionally. I am required by the rule which empowers me to set aside the default to consider what terms, if any, should be imposed in order to meet the requirements of justice.

On the basis of Justice Borins decision in Royal Trust v. Dunn the defendant is not required to show a good defence on the merits where there has been an irregularity. Accordingly, I do not have to engage in an analysis of the proposed statement of defence. It follows that the defendant should not be limited to the defences set out in the draft but should have a reasonable time to serve and file a defence. [4]

[Emphasis added.]

[27] As described in Tesky, there may continue to be room for the exercise of judicial discretion in a motion to set aside a default judgment where the default judgment was obtained in an irregular manner. For example, where a defendant upon the receipt of knowledge of the existence of the default judgment does nothing for some time, there remains an obligation on the defendant to move reasonably expeditiously to set aside the default judgment. That does not apply in this case. In this case, there was no issue that the defendants tried to file a Notice of Intent to Defend within days after the default judgment was signed, and moved promptly to set the default judgment aside when they learned of it.

[28] For the court to exercise its discretion not to set aside default judgment even where it has been obtained in an irregular manner, or to impose conditions upon setting the default judgment aside, would be exceptional. Where the court does so, the facts should demonstrate that it is in the interests of justice that the defendants should be deprived of the full extent of their right to defend, or that such conditions imposed are reasonable and equitable in the circumstances to both parties. In this case, the record does not disclose any basis for doing so.

[29] In cases where there is no irregularity in service of the Statement of Claim or in signing default judgment, the test is sometimes characterized as a three-part test:

(a) Whether the motion was brought without delay after the defendant learned of the default judgment;

(b) Whether the circumstances giving rise to the default were adequately explained; and

(c) Whether the defendant has an arguable defence on the merits. [5]

[30] The Court of Appeal in HSBC Securities adjusted the test to effectively expand the analysis to five steps. The Court added a consideration of prejudice and effect on the administration of justice. [6] Thus, the five-step analysis in determining whether a default judgment should be set aside is:

(a) Whether the defendant brought its motion promptly after learning of the default judgment;

(b) Whether the defendant has a plausible explanation for its failure to respond to the claim;

(c) Whether the defendant has an arguable defence of the merits;

(d) The prejudice that would result to the plaintiff from setting aside the default judgment and the prejudice that would result to the defendant from not setting it aside;

(e) The effect that the order would have on the administration of justice.

[31] In the present case, the first and second factors are virtually indistinguishable. In any event, these factors are not rigid rules. In each case, the court must determine whether, in the particular circumstances of the case, it is just to relieve a defendant of the consequences of default. If there is any reason the judgment ought not to stand, any and all reasons must be diligently and properly placed before the court.

Applying the legal principles to the present case

a) Was there an irregularity in obtaining the default judgment that entitles the defendants as of right to an Order setting the judgment aside?

[32] BHL caused the Registrar to sign default judgment in the present case on July 26, 2017. It argues that there was no irregularity in service because the Statement of Claim was delivered personally to Ms. Jeyathevan on July 4, 2017, and 20 days passed before it obtained the default judgment.

[33] Ms. Jeyathevan argues that the Statement of Claim was delivered to an adult member of her household on or about July 10, 2017, with the result that it was not deemed to have been served until 5 days later, on July 15, 2017. She submits that she was entitled to deliver a Notice of Intent to Defend until August 4, 2017, but the default judgment was obtained in an irregular manner on July 26, 2017. She therefore argues that she is entitled to have the default judgment set aside as of right, without being required to demonstrate the reasons for delay or a meritorious defence.

[34] BHL tendered an affidavit of service sworn by Nana Barima, a process server, on July 5, 2017. Ms. Barima swears that she served the Statement of Claim personally on the defendant Mr. Jeyathevan on July 4, 2017, at 9:06 p.m. by leaving a copy with her at 2 Makeena Street, Brampton. She states that she was able to identify the person “by means of verbal identification”. She provides no description of the person she left the document to, or how that person gave “verbal identification” or any evidence other than the verbal identification that would support her statement that she delivered the document to Ms. Jeyathevan.

[35] Ms. Jeyathevan, for her part, states in her affidavit sworn August 23, 2017, that the Statement of Claim was left with “a family member” at her home “on or about” July 10, 2017. She does not identify the family member by name, or state the source of her knowledge that the family member received the document, or provide an affidavit from the family member, or state when or by what means the document came to her own attention.

[36] Rule 39.01 governs evidence at a motion. Rule 39.01(4) provides:

An affidavit for use on a motion may contain statements of the deponent’s information and belief, if the source of the information and the fact of the belief are specified in the affidavit.

[37] It is evident from the nature of Ms. Jeyathevan’s assertion in her affidavit that it is not based on her personal knowledge but on information she has received from another, presumably the family member to whom the claim was delivered. Ms. Jeyathevan does not identify the source of her information or the fact that she believes the information to be true. Accordingly, her assertion is not proper evidence. The court is not entitled to rely on in its disposition of the motion.

[38] Ms. Barima’s affidavit is of little weight because she has failed to state the nature of the “verbal identification” that she says she relies on. However, it is some evidence of personal service and, in the absence of evidence to the contrary, I accept it and find that the claim was served on July 4, 2017, and that default judgment was therefore properly obtained on July 26, 2017. I now turn to consider whether Ms. Jeyathevan has met the five-fold test for setting aside default judgment.

b) Have 228 and Ms. Jeyathevan discharged the onus upon a defendant to have a default judgment against it set aside?

i. Did Ms. Jeyathevan move to set aside the default judgment promptly after learning of the default judgment?

[39] Ms. Jeyathevan moved on September 14, 2017, to set aside the default judgment. That was:

• 43 days after August 2, 2017, when she tried to file her Notice of Intent to Defend;
• 50 days after July 26, 2017, when default judgment was signed;
• 72 days after July 4, 2017, when the Statement of Claim was served on Ms. Jeyathevan;

[40] Ms. Jeyathevan states that she is of limited financial means and needed time to raise the retainer to hire a lawyer. She states that she was not able to schedule an appointment to see and retain her present lawyer until July 31, 2017.

[41] BHL disputes that Ms. Jeyathevan is of limited financial means. Harold Berner attached to his affidavit abstracts and photographs of properties at 2 Makeena Street, Brampton, and 37 Mosley Crescent, Brampton, of which Ms. Jeyathevan is the sole owner. Ms. Jeyathevan’s ownership of the two properties, without more context, does not prove that she was able to retain a lawyer immediately after being served with the claim. There is no evidence as to her equity in the properties, or as to her liquidity, and I am not prepared to reject altogether her statement that she was unable to see and retain her lawyer until July 31, 2017.

[42] Ms. Jeyathevan tried to file a Notice of Intent to Defend on August 2, 2017. When she learned that default judgment had been signed a week earlier, she moved 50 days later to set the default judgment aside. Her lawyer states in his factum, although not in affidavit form, that “It is the difficulty in scheduling a long motion date in this jurisdiction which is responsible for the delay in hearing this motion.” I take judicial notice of the fact that there is a significant delay in scheduling a long motion.

[43] Ms. Jeyathevan’s delay was not so long as to suggest that it was deliberate or calculated to gain a strategic advantage in the action. In all of the circumstances, I am satisfied that Ms. Jeyathevan has given adequate reasons for her delay.

[44] 228 and Ms. Jeyathevan submit that there is a valid defence to this action since Ms. Jeyathevan denies signing two of the truck leases and there is a dispute as to the amount owing on the leases and how the amount was calculated.

ii. Do 228 and Ms. Jeyathevan have a plausible explanation as to why they failed to respond to the Statement of Claim?

[45] For the same reasons stated above, I find that 228 and Ms. Jeyathevan have shown that they have a plausible explanation as to why they failed to respond immediately to the Statement of Claim.

iii. Do the defendants have an arguable defence of the merits?

[46] In Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., (2007), the Court of Appeal for Ontario set aside a motion judge’s dismissal of a motion to set aside default judgment, where the motion judge had found that the failure to defend had resulted from miscommunication between the defendant and its counsel, but concluded that the defendant had not set out a triable defence with sufficient particularity. The Court of Appeal, in setting aside the default judgment, stated:

On a motion to set aside a default judgment, the motion judge will be guided by the principles identified in the authorities. The motion judge must, however, ultimately determine whether the interests of justice favour an order setting aside the default judgment. In doing so, the motion judge will have regard to the potential prejudice to the moving party should the motion be dismissed, the potential prejudice to the respondent should the motion be allowed, and the effect of any order the motion judge may make on the overall integrity of the administration of justice. [7]

[Emphasis added.]

[47] The Court of Appeal’s reasons in Peterbilt offer guidance as to how exacting the court should be in scrutinizing the merits of a potential defence when hearing a motion to set aside default judgment, and how much emphasis to give to the goal of determining the issues on the merits. The Court stated:

We think the affidavit of the appellants, while perhaps deficient, was sufficient to put the detailed defence set out in the statement of defence "in play" on the motion to set aside the default judgment. We cannot agree that there was nothing before the motion judge suggesting that the appellants had an arguable defence. The statement of defence had been served and filed in a timely fashion and contained detailed and full defences to the claims. The motion judge erred in these circumstances in discounting entirely the defence alleged in the statement of defence.

The motion judge also failed to consider the potential prejudice to the parties. There was no prejudice to the respondent that could not be compensated for by appropriate terms had the motion judge allowed the motion and set aside the default judgment. The prejudice to the appellants flowing from refusing the motion is obvious. They were denied any opportunity to present a defence on the merits. [8]

[Emphasis added]

[48] In the present case, Ms. Jeyathevan has advanced her proposed defence explicitly, denying that she entered into the two disputed leases, denying the authenticity of her signature on those leases, and asserting that she understood the payments she made were being applied to the balances owing on the leases she admits entering into. She is not advancing a boilerplate defence consisting of general denials. She states:

5. I have only signed 2 equipment leases with the Plaintiff, being lease Nos. 100558 and 100578. I have no knowledge of the other two leases (100582 and 10051A) which comprise the bulk of the claim in this action. The equipment referred to in the claim for those 2 leases were never leased by me nor by any company controlled by me. I have no idea why the Plaintiff would have these leases with my name on them, when I was never the Lessee of that equipment.

[Emphasis added.]

[49] BHL challenges the defence that Ms. Jeyathevan seeks to assert, based on evidence that is what the court might expect at a trial. It argues that the proposed defence lacks an “air of reality”. I disagree. While the fact that Ms. Jeyathevan relies on a document that appears to be an early draft of Lease 100558, which lists the number of payments but not the amounts of each payment, may ultimately be rejected as an ingenious ploy to explain all of the payments Ms. Jeyathevan made without admitting knowledge of the disputed leases, it is an explanation that needs to be addressed through cross-examination of both Ms. Jeyathevan and her husband as to who negotiated the leases and who made the payments. Ms. Jeyathevan’s explanation simply hasn’t been tested in the evidence before me in this motion.

[50] BHL’s case may ultimately rest on the assertion, set out in its factum but not explicitly in its supporting affidavit from Mr. Berner, that:

4. The Plaintiff’s representatives frequently dealt with [Ms. Jeyerathan]’s husband, Steve, as the Defendants’ agent with respect to their obligations under the various leases. Steve is the director of AJA Trucking Inc. The Defendants carried on business using the leased trucks through AJA Trucking Inc. and another company J.B. Lynx Trucking Solutions Inc. or by contracting with these companies.

[51] The factum references paragraphs 7 and 8 of Mr. Berner’s affidavit. In those paragraphs, Mr. Berner states:

7. Frequently, on behalf of the Plaintiff, I communicated with Steve of AJA Trucking Inc. with respect to the Defendants’ obligations under their various leases with the Plaintiff. Steve is a director of AJA Trucking Inc. …

8. Based on my history of dealing with Steve, I believe that his legal name is Jeyathevan Murugesu, and that he is the husband of the Defendant Janaki Jeyathevan (“Janaki”).

[52] Mr. Berner does not set out facts that sufficiently support an inference that Steve was authorized by Ms. Jeyathevan to act as her agent and agent for her company. Mr. Berner often refers to “the Defendants” when he appears to be referring to actions taken by Steve. On a close examination of Mr. Berner’s affidavit, his communications appear to have been entirely with his broker, “David”, and the negotiations with David of the leases appear to have been conducted by Steve.

[53] While the leases themselves are alleged to have been signed by Ms. Jeyathevan, the signatures on the disputed leases differ noticeably from those on the leases Ms. Jeyathevan admits having signed, and Steve appears to have taken an active role, on his own account, in the discussions that followed the signing of the leases. For example, Mr. Berner states:

56. On May 18, 2016, Steve, on behalf of AJA Trucking Inc., executed an agreement whereby he agreed that AJA Trucking Inc. would be added to Lease 100501A [one of the disputed leases] as an additional lessee, and that it unconditionally and absolutely guaranteed the full and prompt performance of all obligations under Lease 100501A. A copy of this agreement is attached as Exhibit “AA”.

[54] It is also “Steve” who BHL’s factum says promised payment on all of the leases, although the emails attached to Mr. Berner’s affidavit do not appear to me to say that. What is missing from Mr. Berner’s affidavit is any evidence beyond his bald assertion that Steve was acting as the Defendants’ agent, that Ms. Jeyathevan had knowledge, much less authorized, what Steve at AJA Trucking Inc. and David at Trademark were doing in their dealings with each other. We have moved beyond the day when a husband is presumed to be the agent of a wife, with authority, without evidence of such, to bind her with his actions.

[55] In Bertolo v. Bank of Montreal, (1986), the Court of Appeal stated:

In Chaplin & Co., Ltd. v. Brammall, [1908] 1 K.B. 233 (C.A.), the plaintiff company agreed to supply goods to the defendant's husband on credit if his wife would guarantee payment. The company sent the husband a form of guarantee in order that he might obtain his wife's signature to it, leaving the matter entirely to him. The husband obtained his wife's signature without sufficiently explaining the nature of the document which she did not understand. In these circumstances the plaintiff’s action failed. Vaughan Williams L.J. said at pp. 237-8:

It is unfortunate that the plaintiffs did not take care to see that the defendant had independent advice in the matter. But the result is that the plaintiffs, who, through their agents, were undoubtedly aware that the execution of this guarantee was to be procured through the guarantor's husband, who was living with his wife at the time, and would presumably have the influence of a husband over her, fail to show that the document was properly explained to her…

... here the plaintiffs left everything to the defendant's husband; they furnished him with the document that he might get his wife's signature to it, and they must take the consequences of his having obtained it without explaining to her or her understanding what she was signing.

That decision was applied in E. & R. Distributors v. Atlas Drywall Ltd. et al. (1980), 118 D.L.R. (3d) 339, 25 B.C.L.R. 394, where the British Columbia Court of Appeal held a wife's guarantee of the debts of her husband's company unenforceable in the absence of proof of a proper explanation to her before signature. At p. 341, the court observed:

... the appellant in the case on appeal, like the creditor in Chaplin, must, having regard to the circumstances, be in a position to prove that the respondent received a proper explanation of the instrument before she was asked to sign it.

The appellant has been unable to prove that any proper explanation of the promissory note which the respondent was requested to sign was given to her before she signed it. [9]

[56] For these reasons, I find that the defendants have put forward an arguable defence to the action.

iv. The prejudice that would result to the plaintiff from setting aside the default judgment and the prejudice that would result to the defendant from not setting it aside;

[57] A motion judge must ultimately determine whether the interests of justice favour granting the order. This over-arching analysis requires a motion judge to “consider the potential prejudice to the moving party if the motion were dismissed, the potential prejudice to the respondent if the motion were allowed, and the effect of any order on the overall integrity of the administration of justice.” [10]

[58] In the present case, the potential prejudice to 228 and Ms. Jeyathevan if their motion is dismissed is greater than the potential prejudice to BHL if it is allowed. If the motion is dismissed, 228 and Ms. Jeyathevan will certainly remain liable for the judgment, whereas if the motion is allowed, BHL will not be prevented by the delay from successfully proving its claim. However, that it not the end of the matter.

v. The effect that the order would have on the administration of justice.

[59] Justice Corbett, in Canadian Imperial Bank of Commerce v. Petten, (2010), stated:

The analysis of relative “prejudice”, then, is seen in the context of the overall goal of orderly and efficient processing of cases, and not just the immediate impact on the parties to the dispute. An atomistic analysis of the “prejudice” to the moving party and to the responding party will almost always favour the moving party: if the motion is dismissed, the moving party will have lost the case and be liable for the claim. If the motion is allowed, the responding party will be delayed but may yet obtain and enforce its judgment, if it succeeds on the merits. Where it can be shown that a responding party’s position may deteriorate if the motion is allowed, this may be addressed by terms, for example: expediting the trial, securing a potential judgment, or preserving evidence. Thus, if the over-arching principle under Rule 19.08 is “relative prejudice”, the “principles established by the authorities”, the three-part test, would be rendered largely nugatory ….

Civil litigation is slow. The Rules of Civil Procedure are the framework within which a plaintiff may bring its action and move that action forward to eventual judgment. This process is an essential feature of an ordered society under the Rule of Law. Those fundamental principles are compromised if the process for obtaining judgment is too slow and too costly. And those fundamental principles are compromised if defendants may defy the process for months or years, thereby delaying a just resolution, on the merits.

Thus it is that a default judgment resulting from a defendant “gaming the system” or taking a “calculated risk” in not defending will not be set aside:

While debtors have rights, so too do creditors. It is not open to an alleged debtor to turn his back deliberately on a claim initiated against him and then, when it suits his purposes (and his pocket book) seek to do that which he should have done a good year before. Such conduct, in my view, is simply an attempt by a debtor to game the system and no interest of justice is served by rewarding such conduct. [Harnratty v. Woods, 2009 ONSC 43649, per D.M. Brown J., at para. 18]

Certainly where the court can conclude that there is an oblique motive by a defendant in failing to defend a claim, then a motion to set aside a default is unlikely to succeed. But there does not have to be an oblique motive. Indeed, the court may pile insult on top of misery in making such a finding where, as is often the case, debtors fail to defend because of stress and anxiety. There is an objective standard of reasonableness to be applied to the totality of circumstances giving rise to the default, and any delay in moving to set the default aside. Where a defendant has not acted reasonably, the court should not set aside the default, even if the court cannot determine why the defendant has proceeded as he did. [11]

[Emphasis added.]

[60] The evidence before me does not support a conclusion that Ms. Jeyathevan is “gaming the system” by seeking to advance a defence on behalf of the defendants. On all of the evidence, I find that allowing the defendants to put forward their defence is in the interests of the administration of justice.

COSTS

[61] The defendants were successful in the outcome of this motion but there is insufficient evidence before me to assess the reasonableness of the positions they took on the motion and, in particular, of their position that they have an arguable defence. The trial judge will be better situated to assess that factor based on the evidence that emerges at the trial in support of the defence. Accordingly, the costs of the motion shall be reserved to the trial judge.

CONCLUSION AND ORDER

[62] For the foregoing reasons, it is ordered that:

1. The defendants’ motion is allowed.
2. The default judgment dated July 26, 2017, is set aside.
3. The defendants shall deliver their defence by December 31, 2018.
4. Costs of the motion are reserved to the trial judge.

Price J.

Released: December 7, 2018

Footnotes:

[1] Intact Insurance Co. v. Kisel, 2015 ONCA 205, at para. 14. [2] TD Bank v. Beninato, [1981] O.J. No. 1018 (Ont. H.C.), at paras 8, 11. [3] Don Bodkin Leasing Ltd. v. Rayzak, [1993] O.J. No. 503 (Gen. Div.). [4] Tesky v. Peraan, [1999] O.J. No. 1801, 34 C.P.C. (4th) 333 (Sup. Ct.), at paras. 28-30. [5] HSBC Securities (Canada) Inc. v. Firestar Capital Management Corporation, 2008 ONCA 894 [HSBC Securities], at para. 21; Canadian Imperial Bank of Commerce v. Petten, 2010 ONSC 6726 [Petten], at para. 3; Boufford v. Globe Span Capital Inc. et al., 2010 ONSC 1211, at para. 6. [6] HSBC Securities, at para. 30. [7] Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, 87 O.R. (3d) 479, at para. 2. [8] Peterbilt, at paras. 4-5. [9] Bertolo v. Bank of Montreal, [1986] 57 O.R. (2d) 577; 33 D.L.R. (4th) 610, at pp. 618-619 of D.L.R. [10] HSBC Securities, at para. 30. [11] Petten, at paras. 6-9.