1705371 Ontario Ltd. v. Leeds Contracting Restoration Inc., 2018 ONSC 7423

Court File and Parties

COURT FILE NO.: CV-17-583838 DATE: 20181211

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1705371 ONTARIO LTD. carrying on business as B & A MASONRY, Plaintiff AND: LEEDS CONTRACTING RESTORATION INC. and PETER DURIC Defendants

BEFORE: Cavanagh J.

COUNSEL: William Ribeiro, for the Plaintiff Sakina Babwani, for the Defendants

HEARD: November 23, 2018

Endorsement

Introduction

1The plaintiff noted the defendants in default on November 28, 2017 and obtained default judgment from the registrar against the defendant Leeds Contracting Restoration Inc. (“Leeds”). The plaintiff then moved for default judgment against the defendant Peter Duric. The defendants were served with the motion materials at the direction of McArthur J.

2Following receipt of the motion materials, the defendants brought a cross-motion to set aside the default judgment against Leeds and the noting in default against both defendants.

3The plaintiff’s motion for default judgment against Mr. Duric was also before me.

4For the following reasons, the defendants’ motions to set aside the default judgment against Leeds and the noting in default against both defendants is dismissed. The plaintiff’s motion for default judgment against Mr. Duric is granted.

Procedural Background

5The plaintiff commenced this action by statement of claim issued on October 3, 2017. The plaintiff claims payment of the sum of $64,497.03 from the defendants representing the balance owing on an invoice that was sent under a verbal agreement whereby the plaintiff agreed to supply labour for installation of brick masonry to Leeds for construction of new subdivision homes on three lots in Kitchener, Ontario. The plaintiff also claims a declaration that all amounts paid to Leeds and all amounts owing to or received by Leeds on account of these contracts constitute a trust fund for the benefit of the plaintiff pursuant to s. 7, 8, and 9 of the Construction Lien Act, R.S.O. 1990 c. C.30 (“CLA”). The plaintiff claims a declaration that Leeds is a trustee for the said fund for the benefit of the plaintiff and that the individual defendant, Peter Duric, is liable for any breach of trust committed by Leeds, pursuant to sections 7, 8, 9, and 13 of the CLA. The plaintiff claims damages for breach of trust against Leeds and Mr. Duric for the full amount of $64,497.03.

6The plaintiff’s evidence is that Mr. Duric and Leeds were served with the statement of claim in accordance with the Rules of Civil Procedure on October 16 and 31, 2017.

7A process server, Carl Schiefer, swore an affidavit of service that states that Mr. Duric was served on October 16, 2017 by leaving a copy of the statement of claim with an adult Caucasian male in his mid-40’s with short hair who refused to provide his name at 4263 Torino Crescent, Mississauga. According to Mr. Schiefer’s affidavit of service, the adult person verbally admitted that he was a member of the same household in which Mr. Duric resides. The affidavit of service states that an unsuccessful attempt was made to serve Mr. Duric personally at the same address on October 16, 2017. The affidavit of service states that Mr. Schiefer sent a copy of the statement of claim by prepaid first class mail on the 16th of October, 2017 to Mr. Duric at the same address.

8The evidence is that Michael Duric, Peter Duric’s brother, resides at the Torino address with their mother. Peter Duric’s evidence is that he and his brother were estranged at the time of service of the statement of claim and continue to be estranged to date.

9The plaintiff also relies upon a separate affidavit of service of Mr. Schiefer in which he states that on October 31, 2017 he served Leeds with the statement of claim by leaving a copy with Juliana Duric, an agent of the corporation, at 4263 Torino Crescent, Mississauga, Ontario. Juliana Duric is the daughter of Michael Duric.

10The Ministry of Government Services Corporation Profile Report for Leeds shows that its registered office address is 1270 Finch Avenue West, Suite 1, Toronto and that Peter Duric is the sole director.

11The defendants did not file a statement of defence. Both defendants were noted in default on November 28, 2017. On November 28, 2017 the registrar issued judgment against Leeds for the amount claimed of $64,497.03 plus prejudgment interest and costs.

12Then, the plaintiff brought a motion for default judgment against Mr. Duric, without notice, in the amount of $64,497.03 for breach of the trust provisions under the CLA. By endorsement dated May 18, 2018, McArthur J. required the plaintiff to serve its motion materials on Mr. Duric together with a copy of her endorsement. The plaintiff was granted leave to bring its motion again with notice to Mr. Duric.

13The evidence given by Mr. Delgado on behalf of the plaintiff is that on May 25, 2018, Mr. Duric was served with the motion materials and the endorsement of McArthur J. by leaving a copy of the materials with him personally at 4263 Torino Crescent, Mississauga, Ontario. According to the affidavit of service, the process server was able to identify Mr. Duric by means of verbal admission. Mr. Duric’s evidence is that he was not personally served on May 25, 2018, and that he received a package containing the motion materials in or around the weekend of May 26, 2018 when he visited his mother at the Mississauga address.

14The defendants brought their cross motion for an order setting aside the noting in default of Leeds and Mr. Duric and setting aside the default judgment against Leeds by a cross motion record that was served by courier on June 27, 2018.

Analysis

Should the noting in default of Mr. Duric be set aside?

15In Intact Insurance Company v. Kisel, 2015 ONCA 205 Laskin J.A. set out at paras. 12-13 the factors that the court should consider when exercising its discretion to set aside a noting in default:

12Rules 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), 3 O.R. (3d) 278 (Ont. C.A.), at pp. 284-85.

13When 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.

16Rule 16.01(a) of the Rules of Civil Procedure provides that 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.

17The onus of proving service of the statement of claim is on the plaintiff. The affidavit of service of Mr. Schiefer sworn November 8, 2017 is proof of service of the statement of claim on Mr. Duric by an alternative to personal service in accordance with rules 16.01(a) and 16.03(5).

18Rule 16.07 of the Rules of Civil Procedure provides that even though a person has been served with the document in accordance with these rules, the person may show on a motion to set aside the consequences of default that the document (a) did not come to the person’s notice; or (b) came to the person’s notice only sometime later than when it was served or is deemed to have been served.

19On this motion, Mr. Duric’s submission is that he always had a bona fide intention to defend any action brought by the plaintiff, as shown by his email sent on August 29, 2017 in response to the plaintiff’s request for payment of the invoice where he wrote “[y]ou cost me a contract and are in breach of contract. I will gladly welcome a lien and a lawyers letter from you so we can sue you for a false lien and for breach of contract and lost revenue”.

20Mr. Duric submits that the statement of claim did not come to his notice on or soon after October 16, 2017, when it was served in accordance with the Rules. Mr. Duric’s evidence is that he discovered in or around the weekend of May 26, 2018, for the first time, that he and Leeds had been sued. According to Mr. Duric’s evidence, he retained a lawyer within the next two business days to defend the action. Mr. Duric’s lawyer wrote to the plaintiff’s lawyer on May 30, 2018, advised that Mr. Duric intends to defend the action, and requested whether the plaintiff will consent to the setting aside of the noting of Mr. Duric in default. This motion was brought on June 26, 2018.

21In order to decide whether the noting in default of Mr. Duric should be set aside, I must first consider whether Mr. Duric has shown that the statement of claim did not come to his notice in October 2017 when it was served according to the Rules, but only on or about May 26, 2018. If Mr. Duric has discharged this onus under rule 16.07, he is entitled to an order setting aside the noting in default because, in my view, if Mr. Duric only received notice of the statement of claim on or about May 26, 2018, the steps that he took after May 26, 2018 were reasonable.

22In Mr. Duric’s affidavit sworn in support of his motion to set aside the noting in default against him (and the default judgment and noting in default against Leeds) he gave the following evidence:

4. I believe that B&A Masonry may have served the Statement of Claim by regular mail to the address at 4263 Torino Crescent, Mississauga, Ontario, L4W 3T4 (“Mississauga address”) as this is the address listed on my driver’s license.
5. I do not reside at the Mississauga address. The Mississauga address is my mother’s home. I visit my mother at her home only occasionally.
6. In or about October, 2017 when the Statement of Claim was purportedly served, I was extremely busy with several projects of Leeds, and was out of the province for several weeks. I did not visit my mother during this time.
7. Several weeks later, when I did visit my mother, she did not inform me that I was served with a Statement of Claim. My mother has no knowledge of court documents and may not have understood the consequences of a Statement of Claim.
8. If the Statement of Claim was served at the Leeds office in Toronto, it was never brought to my attention.
9. I, therefore, did not know that Leeds and I had been sued.
10. In or around the weekend of May 26, 2018, I visited my mother at the Mississauga address. My mother informed me that a package that appeared to be a book had arrived for me. Upon opening the package, I discovered for the first time that Leeds and I had been sued.

23The plaintiff does not accept the truth of these statements. The plaintiff submits that the evidence given by Mr. Duric under cross-examination shows that his affidavit evidence that he does not reside at the Torino address and that he visits his mother there “only occasionally” was not correct. The plaintiff submits that Mr. Duric has failed to show that the statement of claim did not come to his notice on or about October 16, 2017, when it was served by the process server, or when it was received at that address by mail.

24On his cross-examination, Mr. Duric was asked to provide his personal address for the last ten years. He responded that one of several such addresses was 4263 Torino Crescent, Mississauga. Mr. Duric was asked for the time frames during which he lived at the addresses that he had identified. He answered that from 2014 or 2015, his address is the Torino Crescent address, his mother’s home, although he has stayed at other places and does not stay at this address all the time. Mr. Duric answered that he spends several days a week at the Torino Crescent address (he also separately answered that he sleeps there “a couple of times a week”), and that he stays with friends a couple of days a week. Mr. Duric was asked to provide the names and contact information for the friends with whom he stays and his counsel refused to allow Mr. Duric to answer and took the question “under advisement”.

25Counsel for the defendants responded to this question taken under advisement by letter dated August 27, 2018 and confirmed the refusal to answer the question on the ground that it is irrelevant. Counsel for the defendants explained her position:

Mr. Duric stated that he resides with his mother “couple of days a week” and with friends the rest of the time.

You state that your process server served at Mr. Duric’s mother’s home at 4263 Torino Crescent in Mississauga. You have not claimed that service was effected at any other place. Accordingly, information regarding Mr. Duric’s friends is irrelevant to the motion.

26The plaintiff was not required to accept Mr. Duric’s evidence with respect to his place of residence and whether he stays with friends a couple of days a week. The plaintiff was entitled to test this evidence through cross-examination. The plaintiff was entitled to receive answers to questions asked on the cross-examination of Mr. Duric for the names and contact information for the friends with whom Mr. Duric stays for the purpose of testing whether this evidence is true. The relevance of the questions that were taken under advisement was explained on the record. If the true state of affairs was that Mr. Duric does not stay with friends several nights a week, the credibility of his evidence that he did not receive the statement of claim until May 26, 2018 would be significantly undermined. The questions that were refused were clearly proper, and the decision to maintain the refusals, even after taking them “under advisement”, was unjustified.

27Rule 34.15(1) of the Rules of Civil Procedure provides that where a person refuses to answer any proper question on a cross-examination, the court may (a) require the person to re-attend and answer the question, (b) where the person is a party, dismiss the party’s proceeding or strike out the party’s defence, (c) strike out all or part of the person’s evidence, including any affidavit made by the person, and (d) make such other order as is just.

28The plaintiff submits that I should draw an adverse inference from the refusal by Mr. Duric to answer this question.

29The defendants submit that no adverse inference should be drawn. The defendants rely upon the fact that the plaintiff requested an adjournment of these motions in order to bring a motion to compel answers to refusals on the cross-examination of Mr. Duric, and that the plaintiff’s counsel advised on September 10, 2018 that the plaintiff would not go forward with a motion to compel answers to undertakings and refusals. Counsel for the defendants submitted that, having decided not to proceed with a motion to compel answers to refusals, the plaintiff is precluded from asking the court to draw an adverse inference from the refusals to answer proper questions.

30I disagree with the defendants’ submissions. The questions that were asked and taken under advisement were clearly proper and directed to a relevant matter, that Mr. Duric had put into issue in his affidavit. The plaintiff had no obligation to move to compel answers to proper questions that were refused. In this regard, see Snelgrove v. Steinberg Inc., 1995 CarswellOnt 1222 (C.A.) at para. 53. By choosing not to so move, the plaintiff did not acknowledge that the refusals were justified.

31In 236523 Ontario Inc. v. Nowack, (2013), 235 Brown J. (as he then was) held at para. 28 that a court, on motion, may draw adverse inferences against a party who fails to comply with production and discovery obligations. The same reasoning applies where a proper question asked during cross-examination on an affidavit is refused. I am entitled to draw an adverse inference from Mr. Duric’s refusal to answer proper questions on his cross-examination.

32In the circumstances of this case, I draw an adverse inference against Mr. Duric because of his refusal to answer proper questions when he was cross-examined and when he refused to answer the questions that were taken under advisement. The evidence to which the questions were directed was given to support Mr. Duric’s evidence that he did not receive the statement of claim on or about October 16, 2017. This evidence was necessary to explain Mr. Duric’s conduct in support of the defendants’ motion to set aside the consequences of their default. I infer that the answers would have exposed facts that are unfavourable to the merits of the defendants’ motion.

33Mr. Duric also refused to answer other questions on his cross-examination. In his affidavit, Mr. Duric stated that in or about October 2017 when the statement of claim was purportedly served, he was extremely busy with several projects of Leeds, and was out of the province for several weeks. He stated that he did not visit his mother during this time.

34When he was cross-examined, Mr. Duric was asked what projects outside of Ontario he was working on in October 2017. He answered that he would have to get back with that information which he did not have handy and that he would have to look at his calendar. An undertaking was given to provide a list of the projects. Additional questions asking Mr. Duric to provide the names of the contracting parties with which Leeds contracted, copies of contracts, copies of the invoices on those projects, and information concerning what Leeds was doing on these projects were taken under advisement. Mr. Duric gave evidence that he probably travelled out of the province using his own vehicle, a Buick, and a request for gas receipts from out of province in October 2017 was taken under advisement.

35In response to these questions, counsel for the defendants responded that they were refused on the ground of proportionality. Counsel advised that Mr. Duric had checked his calendar and is able to confirm that he travelled out of province to evaluate potential projects, but he does not recall specific details of the potential projects. The request for names of the parties, copies of contracts, contemporaneous invoices and what Leeds was doing on these projects was refused as being excessive and disproportionate to the motion, pursuant to rule 29.2 of the Rules of Civil Procedure. Counsel advised that Mr. Duric does not have gas receipts of his Buick automobile and, in any event, the request is excessive and disproportionate to the motion at hand, pursuant to Rule 29.2 of the Rules of Civil Procedure.

36Rule 29.2 of the Rules of Civil Procedure applies to, among other things, whether a person must answer a question or produce a document on an examination under rule 34, which would include a cross-examination on an affidavit. Rule 29.2.03(1) of the Rules of Civil Procedure provides that in making a determination as to whether a person must answer a question or produce a document, the court shall consider whether (a) the time required for the person to answer the question or produce the document would be unreasonable; (b) the expenses associated with answering the question or producing the document would be unjustified; (c) requiring the person to answer the question or produce the document would cause him or her undue prejudice; (d) requiring the person to answer the question or produce the document would unduly interfere with the orderly progress of the action; and (e) the information or the document is readily available to the party requesting it from another source.

37Mr. Duric’s affidavit evidence that he was out of the province for several weeks in October 2017 when the statement of claim was given to an adult person at the Mississauga address is important to the defendants’ motion because, if true, it would help to explain why Mr. Duric did not receive the statement of claim on or about October 16, 2017. The plaintiff was not required to accept Mr. Duric’s affidavit evidence on its face, and was entitled to test this evidence through cross-examination.

38The questions requesting documents to substantiate the fact that Mr. Duric was out of the province for several weeks in October 2017 were clearly proper. If, in fact, Mr. Duric was not out of the province during this period of time, the defendants’ position on this motion would be significantly undermined. I take note of the fact that Mr. Duric did not respond that he does not have any documents of the type requested. Instead, Mr. Duric refused to look for and produce these documents on the ground that the request for production is excessive and disproportionate.

39Mr. Duric did not provide any information to show that the time required to produce the documents would be unreasonable, that the expense of producing the documents would be unjustified, or that production of the documents would cause Mr. Duric undue prejudice or unduly interfere with the orderly progress of the action. The documents are not readily available to the plaintiff from another source. In the absence of such evidence, I do not accept the position taken by the defendants that the questions asking for production of these documents are improper because they would call for Mr. Duric to take steps that are excessive and disproportionate. The questions asked were proper ones, and they were refused unjustifiably.

40I draw an adverse inference from Mr. Duric’s refusal to answer these proper questions that had these questions been answered, the answers would have exposed facts unfavourable to the defendants in relation to whether Mr. Duric was outside of the province for several weeks during October 2017.

41Under rule 16.07 of the Rules of Civil Procedure, where a person has been served with a document in accordance with the rules and the person moves to set aside the consequences of default, the onus is on this person to show that the document did not come to the person’s notice or came to the person’s notice only at some time later than when it was served or is deemed to have been served. What is required to satisfy this onus will depend on the circumstances of each particular case.

42I do not agree with the defendants’ submission that Mr. Duric’s affidavit remains consistent with his oral testimony at his cross-examination with respect to his place of residence. The cross-examination established that contrary to his affidavit evidence, Mr. Duric’s personal address is his mother’s house, the Mississauga address, at which he stays several days a week (or as he also separately said on his cross-examination, “a couple of times a week”). The Mississauga address is not just the address listed on Mr. Duric’s driver’s licence. Mr. Duric does not visit his mother at her home “only occasionally”, as he stated in his affidavit. The admissions made under cross-examination materially undermine the statements made in Mr. Duric’s affidavit to explain why the statement of claim did not come to his notice.

43This evidence, combined with the adverse inferences that I have drawn, lead me to conclude that I cannot rely upon the statements in paragraphs 5, 6 and 7 of Mr. Duric’s affidavit. This is the just approach to take to these paragraphs of Mr. Duric’s affidavit in the circumstances, given the refusals. As a result, Mr. Duric has failed to discharge his onus under rule 16.07 to show that the statement of claim did not come to his notice on or about October 16, 2017 when a copy was delivered to an adult person at the Mississauga address where Mr. Duric resides or within a few days of this date when the copy that was mailed would have been delivered.

44On this motion, the reasonableness of Mr. Duric’s actions after May 26, 2018 to retain counsel, contact the lawyers for the plaintiff, and bring a motion to set aside the consequences of the defendants’ default depends upon the court accepting his evidence that he discovered for the first time that he and Leeds had been sued in or around the weekend of May 26, 2018. For the reasons I have given, I am unable to do so. Accordingly, Mr. Duric has failed to show that he acted reasonably in taking the steps that he did beginning on or about May 26, 2018, many months after the statement of claim was served in accordance with the Rules.

45In Intact v. Kisel, the Court of Appeal confirmed that only in extreme circumstances should the court require a defendant who has been noted in default to demonstrate an arguable defence on the merits. On this motion, the defendants addressed the merits of their defence in Mr. Duric’s affidavit. In Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, the Court of Appeal held, in relation to a motion to set aside a default judgment, that 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. The presence of an arguable defence on the merits would also be a factor that may justify the court in exercising its discretion to set aside the noting in default of a defendant, even if the other factors are unsatisfied.

46The judgment against Leeds is for payment of the balance of $64,497.03 outstanding of the plaintiff’s invoice dated July 19, 2017 for the supply of masonry services to Leeds for the construction of new homes on lots 231, 259 and 262 at a subdivision project in Kitchener Ontario. The evidence of Mr. Delgado is that the invoice is in the total amount of $77,857.90, and that the amount owing was reduced by payment received from Activa of $13,360.87. A copy of the invoice and Activa’s cheque are attached as exhibits to Mr. Delgado’s affidavit.

47The claim against Mr. Duric is that he is a director and a person with effective control of Leeds and that he assented to, or acquiesced in, conduct that he reasonably ought to know amounted to a breach of trust by Leeds. The plaintiff claims that Mr. Duric is liable for breach of breach of trust pursuant to s. 13(1) of the CLA because of non-payment by Leeds of the amount invoiced by the plaintiff and breach of trust by Leeds under section 8 of the CLA.

48The evidence tendered on behalf of the defendants with respect to the merits of their defence consists of the following statements made by Mr. Duric in his affidavit:

Leeds and I have a defence based on the merits. Leeds has already paid B & A Masonry the sum of $77,857.90 for the work done on three lots. Accordingly, Leeds and I do not owe B & A Masonry the sum of $64,497.03 as claimed. Attached and marked hereto as Exhibit “B” is a true copy of my draft Statement of Defence and Counterclaim that I intend to deliver if this Honourable Court sets aside the Noting in Default of myself and Leeds, and the Default Judgment against Leeds.

49The plaintiff submits that this evidence is insufficient to show that the defendants have a defence that has an air of reality. The plaintiff submits that the defendants have simply asserted that Leeds paid the sum of $77,857.90 for work done on the three lots without providing any evidence to support this assertion by proving facts showing how and when the alleged payment was made.

50The plaintiff also points to the email that was sent by Mr. Duric dated August 29, 2017 in response to a demand for payment in which Mr. Duric responded “[y]ou cost me a contract and are in breach of contract. I will gladly welcome a lien and a lawyers letter from you so we can sue you for a false lien and for breach of contract and lost revenue”. The plaintiff points out that Mr. Duric does not state in this email that Leeds had already paid the plaintiff’s invoice, and the plaintiff submits that he would have been expected to do so if, in fact, the invoice had been paid.

51In response, the defendants submit that the test to set aside a default judgment does not require the defendant to put forward actual evidence in support of their defence. They submit that to require the defendant to do so would make the motion to set aside a default judgment akin to a summary judgment motion that requires the responding party to put its best foot forward. The defendants submit that, in any event, Mr. Duric was cross-examined on his affidavit and he was not asked questions about the proposed statement of defence and counterclaim. The defendants submit that, as a result, the statement of defence and counterclaim stands uncontested and the court must accept it as an arguable defence.

52The defendants are incorrect in their submission that they are not required to put forward evidence to prove facts that establish that the defendant has an arguable defence on the merits. In Watkins v. Sosnowski, 2012 ONSC 3836, Perell J. held at para. 24:

In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. Rather, the principles applied on a motion for summary judgment should be considered. To set aside a default judgment, the defendant must show that his or her defence has an air of reality and that there is a genuine issue requiring a trial: [citations omitted].

53As the Court of Appeal held in Mountain View at para. 48, the question is whether the facts establish that the defendant has an arguable defence on the merits. The facts must be proven by evidence.

54A pleading is not evidence and, in his affidavit, Mr. Duric does not swear that the statements made in the proposed statement of defence and counterclaim are true. Even so, the pleading does not include any allegations of fact that go beyond the assertion made by Mr. Duric in paragraph 14 of his affidavit. Paragraphs 7-10 of the proposed statement of defence and counterclaim state:

7. Leeds asked B & A Masonry to perform work on the fourth lot in an attempt to salvage the project. B & A Masonry agreed to work on the fourth lot.
8. Thereafter, Leeds paid B & A Masonry the sum of $77,857.90 for the work done on the aforementioned three lots.
9. However, B & A Masonry refuse to work on the fourth lot after receiving the payment of $77,857.90.
10. Leeds and Peter Duric do not owe B & A Masonry the sum of $64,497.03, as Leeds has already paid the sum of $77,857.90 in full.

Even if Mr. Duric had sworn that the statements in the proposed pleading are true, the defendants proposed pleading does not plead facts that show how and when the payment of $77,857.90 was made.

55In this case, the claim is a simple one for payment of the balance due on an invoice for the supply of services. If the invoiced amount had been paid, Mr. Duric would have been able to provide evidence of facts that show that Leeds has already paid the plaintiff the sum of $77,857.90 or that it had arguably done so (although this fact is not likely to be one that would be arguable; either the payment was made or it was not). If this payment was, in fact, made, the defendants could readily have provided evidence of cancelled cheques payable to the plaintiff, records showing payments to the plaintiff by electronic transfer from Leeds’ bank account, or records of bank statements for Leeds’ bank account showing a withdrawal of $77,857.90. Leeds could have tendered evidence of its accounts payable journal or other accounting record in which the payment of the plaintiff’s invoice would have been recorded as a business expense. No evidence of this sort was tendered by the defendants.

56I do not accept that it was incumbent on the plaintiff to elicit evidence on Mr. Duric’s cross-examination with respect to payments alleged to have been made by Leeds to the plaintiff. The defendants have the onus of satisfying the court that the noting in default and default judgment should be set aside. The plaintiff was entitled to respond to the motion on the basis of the evidence given on behalf of the defendants and argue, as it has, that the evidence is insufficient.

57The statement in paragraph 14 of Mr. Duric’s affidavit that Leeds has already paid B & A Masonry the sum of $77,857.90 for the work done on the three lots is a bald, conclusory, statement that, without additional evidence of facts that show how and when this payment was made, is not sufficient to show that the defendants have an arguable defence to the plaintiff’s claim. If Leeds paid $77,857.90 to the plaintiff, the records that would show how and when the payment was made would be in the possession of the defendants, but such records were not tendered into evidence.

58I conclude that the defendants have not tendered evidence of facts that establish that they have an arguable defence, one that has an “air of reality”, on the merits of the plaintiff’s claim.

59Given this conclusion, in my view, if Mr. Duric were able obtain an order setting aside the consequences of default following service of an originating process in accordance with the Rules of Civil Procedure by tendering affidavit evidence that the originating process did not come to his notice when it was served and explaining why the document did not come to his notice and, when the explanation is challenged on cross-examination, materially changing his evidence in relation to a key factual statement and then unjustifiably refusing to answer proper questions directed to testing the truthfulness of the explanation, the overall integrity of the administration of justice would be impaired.

60For these reasons, I exercise my discretion to decline to set aside the noting in default against Mr. Duric.

Should the default judgment and the noting in default against Leeds be set aside?

61Leeds relies on the affidavit of Mr. Duric in support of its motion to set aside the default judgment and noting in default against it. Leeds also relies upon the evidence that Juliana Duric who is the daughter of Michael Duric, Peter Duric’s brother who lives at the Torino address, is not an agent of Leeds. Leeds also relies on Mr. Duric’s evidence that he did not receive notice of the statement of claim until on or about May 26, 2018.

62Rule 19.01(1) of the Rules of Civil Procedure provides that where a defendant fails to deliver a statement of defence within the prescribed time, the plaintiff may, on filing proof of service of the statement of claim, or of deemed service under subrule 16.01(2), require the registrar to note the defendant in default. The plaintiff acted under this rule when, on November 28, 2018, it filed a requisition to note Leeds in default and a requisition for default judgment. As I have noted, the affidavit of service that the plaintiff filed to prove service of the statement of claim on Leeds states that the process server served Leeds with the statement of claim by leaving a true copy with Juliana Duric, an agent of the corporation, at 4263 Torino Crescent, Mississauga, Ontario. The plaintiff has not shown that Juliana Duric is an agent of Leeds and, therefore, the purported service on Leeds on October 31, 2017 is not service on Leeds pursuant to rule 16.02(1)(c).

63The plaintiff filed a separate affidavit of service to prove service on Mr. Duric. Mr. Duric is the sole director of Leeds, and service of the statement of claim on him would be notice to Leeds of the statement of claim. I have held that Mr. Duric has failed to show that the statement of claim did not come to his notice when it was served by an alternative to personal service under rule 16.03(5) effective five days after October 16, 2017. I am satisfied that the statement of claim came to the notice of Mr. Duric through service on him by an alternative to personal service. In my view, it would be unfair and unjust to set aside the default judgment against Leeds because service on Juliana Duric was not effective, in circumstances where the plaintiff separately served Mr. Duric, Leeds’ sole director, and I have found that Mr. Duric has failed to show that the statement of claim did not come to his notice when it was served. Accordingly, in my view, it is necessary in the interests of justice to make an order pursuant to rule 16.08 of the Rules of Civil Procedure validating service on Leeds effective five days after October 16, 2016 when the statement of claim was served on Mr. Duric pursuant to rule 16.03(5).

64In Mountain View, the Court of Appeal set out the test for determining whether to set aside a default judgment at paras. 47-51:

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.

48The 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.

49To 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 (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.

50These 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.

51For 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.

65Leeds’ position is that it did not learn of the default judgment against it until on or about May 26, 2018. The plaintiff’s evidence is that a letter dated January 15, 2018 was sent by plaintiff’s counsel to Mr. Duric at the Torino address and at the office address for Leeds that enclosed the default judgment against Leeds, and that this letter was not returned. Mr. Duric’s evidence is that he did not receive this letter at either address. I accept that Leeds’ motion was brought reasonably promptly after May 26, 2018.

66For the reasons I have given in relation to Mr. Duric’s motion, I do not accept that Leeds has shown that it has a plausible excuse for its default in not defending the action after service of the statement of claim on Mr. Duric in October 2017.

67I have held that the defendants have failed to tender evidence of facts that establish that they have an arguable defence on the merits.

68In Canadian Imperial Bank of Commerce v. Petten, 2010 ONSC 6726, Corbett J. made the following comments, with which I agree, with respect to the analysis of relative prejudice:

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 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.

69For the reasons given by Corbett J. in Petten, I do not regard the “relative prejudice” factor to be a significant one on this motion.

70When I consider the factors identified by the Court of Appeal in Mountainview including, most importantly in my view, the failure of the defendants to tender evidence of facts that establish an arguable defence on the merits, I conclude that the interests of justice do not favour an order setting aside the default judgment against Leeds.

Is the plaintiff entitled to default judgment against Mr. Duric?

71In the statement of claim, the plaintiff pleads the following allegations of fact, the truth of which Leeds is deemed to admit pursuant to rule 19.02(1)(a) of the Rules of Civil Procedure:

a. The plaintiff carries on business as a masonry construction contractor. (para. 2) b. The defendant Leeds carries on business as a general construction contractor. (para. 3) c. The defendant, Duric, at all material times, was a director and president of Leeds, and had effective control of its relevant activities. d. The plaintiff supplied masonry services to Leeds for the construction of new homes on three lots in a subdivision project in Kitchener, Ontario. The plaintiff rendered one invoice number J195 to Leeds dated July 19, 2017 for which there remains outstanding the amount of $64,497.03. (paras. 6, 7 and 8) e. The masonry services supplied at the lots by the plaintiff were supplied at the request of Leeds, and were used by Leeds for the construction of the homes on the same lots, pursuant to three purchase orders entered into by Leeds with the developer of the subdivision, a company known as Activa Holdings Inc. (“Activa”). (para. 12) f. Activa has provided evidence that it paid Leeds the amount of $133,608.67 for the masonry services supplied to the three lots. Leeds did not account or remit any of these trust funds to the plaintiff. Leeds has been paid in full with respect to its prime contract with Activa as its own invoices rendered to Activa were paid in full. (para. 15) g. The plaintiff registered a construction lien against title to one of the lots and received a payment in the amount of $13,360.87 from Activa as its holdback obligation to the plaintiff. This payment was the only amount received on the plaintiff’s invoice number J195, thereby reducing the principal amount outstanding to $64,497.03. (para. 17)

72In support of this motion, the plaintiff also provided the affidavit of Alexandre Delgado, a director of the plaintiff. Mr. Delgado states that Activa provided the plaintiff with copies of Leeds’ three invoices whereby Leeds invoiced Activa for amounts totalling $133,608.67 for masonry services for the three lots. Copies of these invoices were attached as exhibits to Mr. Delgado’s affidavit.

73Mr. Delgado also states that Activa provided the plaintiff with a copy of its cheque to Leeds whereby Activa paid Leeds the amount of $133,608.67 for the masonry services supplied to the three lots. A copy of the cheque was appended as an exhibit to Mr. Delgado’s affidavit.

74Section 8(1) of the CLA provides that all amounts owing to or received by a contractor or subcontractor on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.

75Section 8(2) of the CLA provides that the contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to its own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts owed to them in relation to the improvement.

76The purpose and intent of section 8 of the CLA is to impose a trust, for the benefit of the parties who supply services and materials to a job site, on money owing or received on account of a contract or subcontract for the services and materials supplied: Baltimore Aircole of Canada Inc. v. ESD Industries Inc., (2002), O.J. No. 2727 at para. 36.

77Section 8 of the CLA requires that a contractor or a subcontractor who receives money on account of its contract on a project must use those monies first to pay those who provided services or materials on the project. A failure to do so will constitute a breach of trust for which, in certain circumstances, the directors, officers or controlling minds of a corporate contractor may be personally liable: St. Mary’s Cement Corp. v. Construc Ltd. and p. 11.

78The party alleging breach of trust has the initial onus to prove the existence of a trust under s. 8 of the CLA. In order to discharge this onus, the party must show:

a. The contractor received monies on account of its contract or subcontract price for a particular project. b. The party alleging breach of trust supplied services and materials for that project. c. The contractor owes money to the party alleging breach of trust for those services and materials.

If these elements are proven, the trust provisions of section 8 are triggered, and the onus then shifts to the contractor to show that its payment out of the trust funds complied with s. 8 of the CLA.

79Section 13(1) of the CLA provides that every director, officer, or person with effective control of a corporation, or its relevant activities, who assents to, or acquiesces in, conduct that he or she knows, or reasonably ought to know, amounts to breach of trust by the corporation, is liable for the breach of trust. In Baltimore Aircole, Wilkins J. addressed the breach of trust provision in s. 13 of the CLA at para. 40:

Section 13, in my view, is not a restatement of the common law but rather the creation of a separate and independent statutory scheme for the imposition of liability on certain persons. Breach of trust referred to in s. 13(1) is the breach of trust on the part of the corporation. In order to vest that liability upon officers, directors or persons with effective control, the common law is such that it is necessary to demonstrate that those persons are constructive trustees. Under the statutory provisions of s. 13, however, it is unnecessary to make that level of proof and it is sufficient to demonstrate that persons are within the defined group, and that their conduct falls within the conduct contemplated. The legislature does not require constructive trusteeship to impose liability. The bare statutory statement that certain persons may be held liable for the conduct of others is sufficient.

80To be liable under s. 13 of the CLA, it is necessary to show that the personal defendant is a director, officer, or person with effective control of a corporation, or its relevant activities, who assents to, or acquiesces in, conduct that he or she knows, or reasonably ought to know, amounts to breach of trust by the corporation.

81The plaintiff has shown that Mr. Duric was a director of Leeds and that he actively participated in the day-to-day operations of Leeds. Mr. Duric was the operating mind of Leeds and he would have been in control of funds received and disbursed by Leeds.

82In St. Mary’s Cement, Molloy J. held that the intention of the legislation was to set up a trust with respect to moneys received from owners in favour of unpaid trades, and observed that it would be inconsistent with that intention if individuals who by their conduct defeat the trust were not liable for breach of trust in the same manner as the corporate vehicles they control.

83I am satisfied based upon the factual allegations in the statement of claim that are deemed to be true and the additional evidence provided by Mr. Delgado that Leeds breached the trust created by s. 8 of the CLA by refusing to pay the plaintiff for the supply of masonry services to the three lots out of the payments that it received from Activa, and that Mr. Duric is liable for the breach of trust by Leeds under s. 13 of the CLA.

Disposition

84For these reasons:

a. Mr. Duric’s motion to set aside the noting in default against him is dismissed. b. Service of the statement of claim on Leeds is validated pursuant to rule 16.08 of the Rules of Civil Procedure. c. Leeds motion to set aside the default judgment and the noting in default against it is dismissed. d. The plaintiff’s motion for default judgment against Mr. Duric is granted and Mr. Duric is ordered and adjudged to pay to the plaintiff the sum of $64,497.03 together with prejudgment and postjudgment interest at the rates prescribed by the Courts of Justice Act.

85The plaintiff may make written submissions with respect to costs within 20 days. The defendants may make written responding submissions within 20 days thereafter. The plaintiff may make brief reply submissions, if so advised, within 5 days thereafter.

Cavanagh J.