Court File and Parties

COURT FILE NO.: CV-17-572329 MOTION HEARD: 12082018 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NRG Lites Inc., Plaintiff

AND:

Robert Mattacchione, carrying on business as Beyond Oz Productions Inc., Gabriel Mattacchione, carrying on business as Beyond Oz Productions Inc., Gabriel Petricca, carrying on business as Beyond Oz Productions Inc., Renascence Club Corporation, carrying on business as Beyond Oz Productions Inc., Satya Agarwal, carrying on business as Beyond Oz Productions Inc., Harish Bajaj, carrying on business as Beyond Oz Productions Inc. and Tony Hyland, Defendants

BEFORE: Master P.T. Sugunasiri

COUNSEL: A. Flesias and N. Kotnala, Counsel for the Defendants/Moving Parties A. Dick and D. Hamson, Counsel for the Plaintiff, Responding Party

HEARD: September 12, 2018

Reasons for Decision

Overview

[1] The Defendants bring a motion to set aside partial default judgments granted by the Registrar on July 21, 2017 and December 15, 2017. The Registrar lacked jurisdiction to grant judgment and I set aside the partial judgments and any writs of seizure and sale filed. I explain my decision below.

Facts

The Contract

[2] NRG Lites Inc. (“NRG”) provides lighting, sound and staging support services to entertainment and sporting events. The company boasts of prominent clients like the NBA, flagging its high level of experience in the industry.

[3] In the present case, NRG was hired to provide lighting, sound and staging services to an outdoor music festival in Kitchener called “Ever After Music Fest”. The festival was to take place June 3 to 5, 2016. The contract was with “Beyond Oz Productions Inc.”, described therein as an “Ontario Corporation” and the “Producer”. The contract is signed by Gabriel Mattacchione as President. The principal contact person for the contract was Robert Mattacchione, Gabriel’s father. The other named Defendants are all individuals that identified themselves as being organizers of the festival with the authority to direct NRG Lites’ activities. None of them appear in the contract and nothing in the record indicates that they were involved in its negotiation. The total contract price was $395,000.

[4] On June 10, 2016, NRG began making demand for final payment under the contract. These demands were always sent to Robert and Gabriel Mattacchione, and Tony Hyland. NRG made a final demand to Robert, Gabriel and Tony by email on November 25, 2016 for the sum of $95,000 plus additional costs incurred. As early as July 27, 2016, Gabriel had raised the issue that NRG had not completed the contract to specification.

The Demand for Payment

[5] On January 11, 2017, NRG’s counsel sent a demand letter to each of the named Defendants for payment of the outstanding amounts under the contract. Notably the letter addresses the basis upon which NRG believed the individuals to be liable for payment:

At present, our client is owed $108,500.00 for its work at the festival including for authorized extras.

Our client intended to contract with the owner, producer and operator of the festival. It received payments from Trade Funding Corp. as well as the Renascence Club Corporation which is the owner of the registered trademark associated with the festival.

We have determined that Beyond Oz Productions, Inc. although stated to be an Ontario corporation in the agreement, is not in fact an incorporated entity.

In the circumstances, our client contracted with each of you to provide its services and is entitled to collect the amounts due it from each of you, jointly and severally, as owners, producers and operators of the festival…

[6] By this time, NRG had conducted a NUANS corporate and business style search which turned up no results for “Oz Production” and “Beyond Oz”. As far as NRG was concerned, the corporation that signed the agreement did not exist.

[7] Counsel for Robert, Gabriel and an entity called ICC Global Property Development Inc. o/a Beyond Oz Productions responded by letter of February 9, 2017. In that letter, Mr. Flesias advised again of the deficiencies in performance of the contract. He also indicated that he had been instructed to accept service of any claim that is brought and that counsel for NRG was not to communicate directly with Robert or Gabriel.

Service of the Statement of Claim

[8] On March 29, Mr. Dick emailed Mr. Flesias the issued Statement of Claim (“Claim”) with a request to return a copy of the Claim with an acceptance of service stamp. The Claim sought payment of the outstanding balance on the contract (paragraph 1(a)) and other relief not relevant to the within motion. Having received no response, Mr. Dick’s assistant called Mr. Flesias on April 27, 2017 and left him a voicemail. She noted that Mr. Flesias’s voicemail message indicated that he was away and returning on April 24, 2017.

[9] In the absence of any response from Mr. Flesias, and without any further follow up knowing that Mr. Flesias had been away, Mr. Dick caused NRG’s Claim to be personally served on Robert, Gabriel, Renascence Club Corporation, Satya Agarwal and Harish Bajaj on May 3, 2017.

[10] According to Robert, he always intended to defend any claim as noted in Mr. Flesias’s letter of February to Mr. Dick. He further attests that he was under the impression that Mr. Flesias would formally accept service on his behalf. With respect to the other Defendants, the only evidence comes from Robert that they too were assuming that counsel was handling it. There is no clear evidence at what point Mr. Flesias came to act for the other Defendants.

The First Partial Default Judgment

[11] On July 21, 2017, NRG obtained partial default judgment from the Registrar in the amount of $108,500 against Robert, Gabriel, Renascence, Satya and Harish.

[12] By letter dated September 7, 2017, Mr. Dick then wrote to them (despite Robert and Gabriel being represented by Mr. Flesias), notifying them of the partial default judgment and writs of seizure and sale filed against them.

[13] On September 29, 2017, Mr. Flesias wrote to Mr. Dick indicating his surprise that partial judgment had been obtained. Mr. Dick had not given Mr. Flesias any notice of an impending noting in default nor the partial judgment as is customary when counsel are involved. Mr. Flesias also stated that his clients took no steps to respond to the Claim because they were of the understanding that he was handling it. At this stage Mr. Flesias’ listed clients were Robert, Gabriel and the non-party ICC operating as Beyond Oz Productions. However, in the same letter, he attached a Statement of Defence which speaks on behalf of all of the named Defendants, three of whom had not been served until September of 2017 (Hyland, Petricca and Nyilas) and had not yet been noted in default.

[14] On October 4, 2017, Mr. Dick declined Mr. Flesias’ invitation to a consent order setting aside partial default judgment. On October 16, 2017 Mr. Flesias advised that he had no record of the voicemail left for him by Mr. Dick’s assistant and asked again to resolve the matter on consent, with the payment of reasonable costs thrown away.

[15] Ultimately, NRG continued its opposition and was still unclear as to who Mr. Flesias represented.

The Second Partial Default Judgment

[16] Notwithstanding discussions between counsel as described above and the delivery of a draft defence on behalf of all Defendants, NRG continued its pursuit of Hyland, Petricca and Nyilas and noted them in default on November 10, 2017. The Registrar granted default judgment on December 15, 2017. It appears that NRG was continuing to hang its hat on the fact that Mr. Flesias had not positively confirmed that he acted for these Defendants, that they were parties to the contract as a result of their association with Beyond Oz Productions, and had failed to defend.

[17] By the time the motion materials were served including an Amended Notice of Motion, it was clear that Mr. Flesias was acting for all Defendants and was moving to aside both partial default judgments. It was open to NRG at this point to consent to the motion and try to negotiate reasonable costs. Instead, NRG soldiered on with its opposition to the motion.

Law and Analysis

[18] The Defendants move under Rule 19.08 of the Rules of Civil Procedure to set aside default judgment signed by a Registrar under Rule 19.04(1)(a):

19.04 (1) Where a defendant has been noted in default, the plaintiff may require the registrar to sign judgment against the defendant in respect of a claim for, (a) a debt of liquidated demand in money, including interest if claimed in the statement of claim (Form 19A).

[19] The Defendants argues that default judgment should be set aside as of right because the Registrar lacked the jurisdiction to grant judgment. Where a Registrar has exceeded his or her jurisdiction, the Court has no choice but to set aside partial judgment without consideration of the common law test that might otherwise apply. [1]

[20] I agree with the Defendants for two main reasons. First, the Plaintiff should never have certified in the required Form 19D that paragraph 1(a) of the Claim was a demand for payment of a liquidated debt. Second, the Registrar did not have sufficient particulars in the Claim to grant judgment.

The Plaintiff should not have certified the debt as being liquidated

[21] A demand is liquidated if:

a. It is ascertainable by calculation or by referring to a fixed scale of charges; b. It can be calculated by reference to the agreement between the parties or by implication of the agreement between the parties; c. The price or method of calculation of the price is agreed upon by the parties; d. The defendant obliged him/herself to pay a specific sum; or e. There is a reasonable estimated costs established by the parties. [2]

[22] I would add that implicit in the above list of definitions is that it must be clear and unequivocal that the Defendants are parties to the agreement under which the debt is alleged to be owing.

[23] In the present case, it is clear from the record and from the Claim that the Defendants are not parties to the contract under which the debt is owed. The parties to the contract are NRG and Beyond Oz Productions Inc. The Plaintiff needs to pierce the corporate veil or at the very least have a legal determination of whether or not the Defendants are responsible for the obligations under the contract as individuals “operating as Beyond Oz Productions, Inc.”. The Claim raises this as a triable issue in paragraphs 5, 8 and 9 of the Claim:

5. … the plaintiff entered into a written agreement dated April 25, 2016 with Beyond Oz Productions, Inc …
6. Each of the individual defendants are residents of the Province of Ontario.
7. Despite its name, Beyond Oz Productions, Inc. is not a corporation. It is the trade name under which the individual defendants and Renascence, except Hyland, produced and operated the subject EverAfter Music Fest.

[24] Such a determination could only be made by a judge in a motion for judgment brought under Rule 19.05 of the Rules of Civil Procedure. It is not the type of claim that can be adjudged by a Registrar performing a purely administrative function. In fact, it is exactly the type of claim that must be adjudicated as demonstrated by the Pellicione v John F Hughes Contracting and Development Co case provided by NRG. In that case, the Plaintiff made a claim under a contract against the principal of what was alleged to be a non-existent corporation. In order to rule, the judge had to make findings of fact and law before he could decide whether or not individuals were liable for a contract made by a non-existent corporation. [3]

[25] Further, as early as July of 2016, the Plaintiff knew that Gabriel Mattacchione had raised the issue of deficiencies in performance of the contract, thereby putting payment under the contract in issue. Armed with this knowledge, the Plaintiff should not have certified that the 1(a) of the Claim was for a liquidated debt.

The Claim lacks particulars for the Registrar to grant judgment

[26] Second, once the requisition was in the hands of the Registrar, the Registrar did not have sufficient information about the alleged debt to grant judgment. There is nothing in the Claim setting out a schedule of payments or listing payments already made. In fact the issue of payment is murky in the Claim as it states that the only payments made were by Renascence and a non-party that is controlled by Robert and Gabriel. There is nothing about the quantum or timing of amounts paid, and the Claim is silent about the method of calculation of the outstanding debt. In short, this is not a liquidated debt as contemplated by Rule 19.04(1)(a) of the Rules.

[27] My comments are heightened in the case of Tony Hyland. NRG makes no claim whatsoever against Tony for the $108,500 said to be owing under the contract. The claims against him sound in breach of copyright interest and conversion. The Registrar had absolutely no jurisdiction to grant partial judgment as against him.

A caution against sharp practice

[28] There is no doubt that these Defendants were in default of their obligations under the Rules to file a defence. NRG was well within its rights to note the Defendants in default. However, at the time Robert and Gabriel were noted in default, Mr. Dick had been actively in touch with Mr. Flesias and knew that they had retained him to address any litigation fallout from non-payment of the contract. It is common courtesy to alert opposing counsel to the fact that one has received instructions to pursue default proceedings. As the Ontario Court of Appeal noted in Male v Business Solutions Group, 2013 ONCA 382 at para 19, the Principles of Civility for Advocates provides that advocates should not cause any default to be entered without first notifying opposing counsel. Even if, as NRG asserts, it was unclear if Mr. Flesias was acting for all Defendants, it knew at the very least that he was acting for Robert and Gabrielle Mattacchione and should have contacted him before taking steps against them. In Male, supra, this alone was enough for the Court of Appeal to set aside default judgment as a matter of justice.

[29] Of greater concern is the fact that NRG took default proceedings against Petricca, Nyilas and Hyland AFTER Mr. Flesias delivered a draft Statement of Defence on their behalf. The defence clearly includes these Defendants as evident from paragraphs 6, 10, 11 and the use of the word “Defendants” throughout the defence.

[30] While NRG was well within its formal right to take default proceedings, not all rights need to be exercised, or should be. Ontario’s goal of improving access to justice for all litigants will not prevail if common sense and civility do not inform every position a litigant takes.

Disposition

[31] For the reasons set out above, I grant the Defendants’ motion and set aside partial default judgments made July 21, 2017 and December 15, 2017. As a matter of justice I also set aside the notings in default and vacate any writs of seizure and sale that were issued and filed as a result of these judgments. Writs that are predicated on improperly obtained default judgments cannot stand. The Defendants shall deliver their Statement of Defence within 10 days of today’s date.

Costs

[32] I strongly urge the parties to agree on costs, the general rule being that costs follow the event. If they cannot, they may provide me with their costs outlines and brief submissions of no more than three-pages, double-spaced by January 7, 2019. Submissions can be emailed to my Assistant Trial Coordinator, Christine.Meditskos@ontario.ca.

Original signed Master P. Tamara Sugunasiri Date: December 12, 2018