Margana Inc. v. Mackay, 2018 ONSC 904

COURT FILE NO.: 10972/16

DATE: 2018-02-06

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Margana Inc. and 3825892 Canada Inc., plaintiffs

AND: John Mackay, Diane Gordon, Lorraine Mackay, Michael Mackay, Jim Mackay, Living Legacy’s Inc., Lifetime Settlements Inc. and Lifetime Legacies Incorporated

BEFORE: Mr Justice Ramsay

COUNSEL: Gary Enskat for the plaintiffs; Richard C. Corbett for the defendant Diane Gordon

HEARD: February 6, 2018 at Welland

ENDORSEMENT

[1] The defendant Diane Gordon moves to set aside default judgment.

The subject matter of the action

[2] The corporate defendants are investment brokers. Through the defendants the plaintiffs bought eight life insurance policies held by American citizens and gave cash settlements to the insured persons. The plaintiffs were named the irrevocable beneficiaries of the policies. Through the defendants the plaintiffs were required to maintain the premiums and were entitled to be paid out on the death of the insured or another agreed upon event.

[3] John Mackay and Diane Gordon were officers and directors of the corporate defendants. John’s wife, Lorraine Mackay was an officer and director of one of the corporations. His son Michael was director of another.

[4] Five of the six policies that are the subject matter of the action were bought by the plaintiff Margana Inc. in 2008. The sixth was bought by the numbered company plaintiff in 2013. That policy was involved in legal proceedings in Florida as a result of which the plaintiffs began to investigate. On March 16, 2016 the plaintiffs filed the action, claiming misconduct on the part of the defendants collectively, such as misleading them as to the purchase price of the policy, failing to notify them of changes in premium and failing to make premium payments with money entrusted to them for that purpose.

[5] Ms Gordon deposes that she was hired by John Mackay essentially to do secretarial work. She says that he was the controlling mind of the corporations and she had no involvement beyond preparing paperwork. She also said that she resigned from the corporations in 2009. She told John Mackay to remove her from the corporate documents. He did not. She removed herself in 2017. In cross-examination, however, she admitted:

a. She was paid very little for secretarial work. She expected a one third share of the corporations’ profits when the insurance policies were paid out.

b. A friend of hers invested money with the corporation and got it back.

c. Her mother invested $100,000 with the corporation and her estate was paid back.

[6] There is also evidence that at the time of Ms Gordon’s divorce proceedings in 2009, her husband thought that she owned something of value in the business.

The proceedings in the action

[7] The statement of claim was filed on March 17, 2016.

[8] The statement of claim was served on Lorraine Mackay and Lifetime Legacies Incorporated on March 26, 2016. It was served on John Mackay and Living Legacy’s Inc. on March 28, 2016. It was served on Diane Gordon on April 11, 2016.

[9] None of them responded. They were all noted in default in April of 2016, except for Diane Gordon, who was noted in default on May 16, 2016. Counsel for the plaintiffs told John Mackay on April 28, 2016 that he had been noted in default. None of the defendants took any steps to defend the action or to communicate with counsel for the plaintiffs.

[10] On September 12, 2016 Edwards J., after hearing evidence, granted default judgment for the equivalent of about six million Canadian dollars.

[11] On November 9, 2016 the plaintiffs’ law clerk served a notice of garnishment on Diane Gordon by ordinary mail to her residence in St David’s. On November 14, 2016 the plaintiffs’ process server spoke to Diane Gordon at her residence and gave her a notice of examination in aid of execution. Ms Gordon did not attend the appointment.

[12] Ms Gordon deposes that upon being served with the statement of claim she contacted John Mackay, who told her that he would take care of it and that she did not need to take further action. She says that she did not know about the default judgment until July of 2017 when she ran into a mutual acquaintance of the plaintiff’s principal, who told her about it. I do not believe her. I do not find it plausible that the notice of garnishment would go missing in the mail and that the process server would be wrong about serving her in person at the same address, both in the same week.

[13] In July of 2017 Ms Gordon hired a lawyer, who promptly brought this motion.

The test for setting aside default judgment

[14] The Court of Appeal set out the test in Mountainview Farms Ltd v. McQueen, 2014 ONCA 194:

47 The court's ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order. The approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, 2012 ONSC 3836, at paras. 19-20 and 23-24.

48 The court must consider the following three factors:

(a) whether the motion was brought promptly after the defendant learned of the default judgment;

(b) whether there is a plausible excuse or explanation for the defendant's default in complying with the Rules; and

(c) whether the facts establish that the defendant has an arguable defence on the merits.

49 To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. 2007 ONCA 333, at para. 2:

(d) the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the respondent should the motion be allowed; and

(e) the effect of any order the court might make on the overall integrity of the administration of justice.

50 These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.

51 For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.

The explanation for the delay and the promptness of the motion

[15] The defendant’s explanation is that she was relying on John Mackay and that after she learned of the default she brought the motion promptly. I find, however, that she learned of the default in November of 2016. It was no longer reasonable for her to rely on Mackay at that point. She did nothing for eight more months. I can think of no reason for this other than the natural tendency to avoid the unpleasant. Once execution was filed on her residence, she could no longer avoid the problem and she dealt with it. From that point, the motion was brought promptly, but in the context of the proceedings as a whole, it was not.

An arguable defence

[16] A plaintiff is not necessarily entitled to judgment against a director or officer of a corporation that has committed a tort or breach of contract. As a rule, a corporation is treated as a distinct legal person. That rule is followed unless to do so would be flagrantly unjust: 642947 Ontario Ltd v. Fleischer, 2001 CanLII 8623 (ON CA), [2001] O.J. No. 4771 (CA), per Laskin JA at para. 67. Lifting the corporate veil is exceptional. Absent allegations of fraud, deceit, dishonesty or want of authority, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own: ScotiaMcLeod v. Peoples Jewellers Limited, 1995 CanLII 1301 (ON CA), [1995] O.J. No. 3556 (CA), paragraph 25.

[17] I have a draft statement of defence, but it is not evidence. The essence of the defence evidence that I do have is that the defendant did not personally misconduct herself or involve herself with Mackay’s misconduct, even with respect to the five contracts that were entered into before she allegedly left the company. The contention that Ms Gordon was only engaged for stenographic work is inconsistent with her admitted status as a one-third partner. In addition, her credibility is fairly open to challenge and in fact with respect to when she first learned of the default judgement it was successfully challenged on this motion. But the evidence does not have to convince me. It only has to have an air of reality: Mountain View Farms Ltd., paragraph 51. I think that the evidence meets this test.

Application of the test

[18] The parties have focused on the first three factors mentioned in Mountain View Farms Ltd. The defendant’s motion is deficient in two important respects – the explanation for the default and promptness in bringing the motion. However, in the context of a six million dollar claim with an arguable defence, it strikes me that on balance the interests of justice require that the judgement be set aside in spite of an unjustified eight-month delay. In addition, there is no prejudice to the plaintiffs that cannot be repaired with suitable terms.

[19] These terms should involve payment of costs thrown away and a timetable for filing the notice of defence. I think the defendant, although successful, should pay costs of this motion as a term of the indulgence. The motion would not have been necessary but for her default. Furthermore, her affidavit was deficient enough to be misleading, and that made cross-examination necessary.

[20] Since the plaintiffs were within their rights to sign judgment it is open to me to allow the writ of execution to stand: CIBC v. Sheahen (1978), 1978 CanLII 2169 (ON SCDC), 22 OR (2d) 686 (Div. Ct); Hegedus v. Luciani, (1981) 23 CPC 282 (HCJ); 33113 Ontario Ltd v. Grantham, [1987] O.J. No. 866 (Master Donkin). In view of Ms Gordon’s conduct on the motion, the lack of a good excuse for her default and my estimation of the merits of her case, I exercise my discretion in favour of letting the execution stand. It will not be enforced without further order of the court.

[21] In summary I order as follows:

a. The default judgment is set aside with respect to Diane Gordon only.

b. Diane Gordon shall file a statement of defence within 30 days.

c. Within 30 days Diane Gordon shall pay the plaintiffs their costs thrown away fixed at $1,750 and their costs of this motion, fixed at $5,000.

d. The writ of execution is not set aside. It shall remain on title but it shall not be enforced without further court order.

J.A. Ramsay J.

Date: 2018-02-06