Court File No.: CV-09-383437

Date: 2019-04-01

Superior Court of Justice - Ontario

Re: Slawomir Ozugowski, Plaintiff

And:

Lake Stars Corp. and Ewa A. Krawczyk, Litigation Representative of the Estate of Jerzy Krawczyk, Defendants

And Between

Lake Stars Corp. and Ewa A. Krawczyk, Litigation Representative of the Estate of Jerzy Krawczyk, Plaintiffs by Counterclaim

And:

Slawomir Ozugowski, Defendant by Counterclaim

Before: Sossin J.

Counsel: Ritchie J. Linton, Counsel for the Plaintiff and Defendant by Counterclaim Marek Tufman, Counsel for the Defendants and Plaintiffs by Counterclaim

Heard: March 14, 2019

Endorsement

Overview

[1] The plaintiff and defendant by counterclaim, Slawomir Ozugowski (“Ozugowski”), brings this motion under Rule 19.08(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules of Civil Procedure”) to set aside the default judgment entered against him for $264,686.57, on January 10, 2017.

[2] This action began in 2009. Ozugowski and Jerzy Krawczyk (“Krawczyk”) were friends who emigrated to Canada from Poland and who had a series of business relationships. One of those ventures led to the incorporation of Lake Stars Corp. (“Lake Stars”).

[3] A dispute arose relating to a leased tow truck leading to a statement of claim which expanded into a counterclaim relating to unpaid income and expenses incurred at a cottage property. Further claims, counterclaims and cross-claims followed.

[4] Ozugowski abandoned his claim in 2010.

[5] Subsequently, in 2012, Krawczyk and Lake Stars launched a counterclaim against Ozugowski alleging that Ozugowski, through Lake Star, misappropriated funds in the amount of $146,633.08. Krawczyk and Lake Stars also sought $100,000.00 in punitive or exemplary damages.

[6] Ozugowski did not defend this counterclaim.

[7] On February 19, 2014, by Order of Master Muir, the time for service and filing of motion materials if necessary was abridged, extending to June 30, 2014 the time to set down the matter. Ozugowski was served materials but did not appear before Master Muir.

[8] On June 4, 2014, Ozugowski was noted in default.

[9] On November 4, 2014, Ozugowski’s original action was dismissed for delay under Rule 48.14 of the Rules of Civil Procedure.

[10] On November 11, 2014, Krawczyk served a Notice of Election on Ozugowski, confirming that the defendants/plaintiffs by counterclaim elected to proceed with their counterclaim.

[11] In December of 2016, Krawczyk passed away, in Poland. His spouse, Ewa Krawczyk, who was also at the time the sole officer of Lake Stars, continued default proceedings against Ozugowski.

[12] On January 10, 2017, Justice Glustein granted default judgment to Krawczyk and Lake Stars on the counterclaim in the amount of $264,686.57.

[13] On January 16, 2017, counsel for Krawczyk sent by mail a copy of the default judgment signed by Justice Glustein to Ozugowski.

[14] On October 3, 2017, counsel for Krawczyk sent a follow up letter by mail to Ozugowski indicating that the judgment had not been paid, and that counsel had instructions to have a Writ of Seizure and Sale issued to satisfy the judgment if payment was not forthcoming.

[15] On January 22, 2018, a further note was sent again indicating a Write of Seizure and Sale would be sought, in addition to garnishment, if payment was not made. The letter stated, “Please do not ignore this correspondence, as your failure to respond and make arrangements for payment will compel us to take steps that may affect your economic interests.”

[16] On February 5, 2018, counsel for Krawczyk wrote to Ozugowski to confirm a telephone conversation between them, in which Ozugowski said he received the letter of January 22, 2018 but had not received the default judgment of January 10, 2017. The letter enclosed a copy of the default judgment.

[17] On August 13, 2018, Justice Chiappetta made an order appointing Ewa Krawczyk, the widow of Krawczyk, as the Estate Trustee in her husband’s estate, nunc pro tunc.

Analysis

[18] This motion raises a single issue of whether Ozugowski has met the test under Rule 19 of the Rules of Civil Procedure, to set aside the default judgment on the counterclaim.

[19] For the reasons set out below, this motion to set aside the default judgment is granted.

Rule 11 and the Effect of Krawczyk’s Death

[20] It is undisputed that at the time of the granting of default judgment on January 10, 2017, Krawczyk had already passed away, in Poland, in December of 2016. As of that moment, Ewa Krawczyk took over the litigation.

[21] In the event of a transfer of carriage of litigation because of a death or for other reasons, the provisions of Rule 11 must be followed.

[22] Rule 11 provides:

EFFECT OF TRANSFER OR TRANSMISSION

11.01 Where at any stage of a proceeding the interest or liability of a party is transferred or transmitted to another person by assignment, bankruptcy, death or other means, the proceeding shall be stayed with respect to the party whose interest or liability has been transferred or transmitted until an order to continue the proceeding by or against the other person has been obtained. R.R.O. 1990, Reg. 194, r. 11.01; O. Reg. 14/04, s. 9.

ORDER TO CONTINUE

11.02 (1) Where a transfer or transmission of the interest or liability of a party takes place while a proceeding is pending, any interested person may, on filing an affidavit verifying the transfer or transmission of interest or liability, obtain on requisition from the registrar an order to continue (Form 11A), without notice to any other party. R.R.O. 1990, Reg. 194, r. 11.02 (1).

(2) An order to continue shall be served forthwith on every other party. R.R.O. 1990, Reg. 194, r. 11.02 (2).

FAILURE TO OBTAIN ORDER TO CONTINUE ACTION

11.03 Where a transfer or transmission of the interest of a plaintiff takes place while an action is pending and no order to continue is obtained within a reasonable time, a defendant may move to have the action dismissed for delay, and rules 24.02 to 24.05 apply, with necessary modifications. R.R.O. 1990, Reg. 194, r. 11.03.

[23] Ozugowski argues that at the time of the default judgment of Glustein J., on January 10, 2017, Krawczyk had passed away, and Ewa Krawczyk had no authority under Rule 11 to continue the counterclaim against Ozugowski.

[24] The Order of Chiappetta J., dated August 13, 2018, appointing Ewa Krawczyk as trustee of her husband’s estate, had effect nunc pro tunc, and therefore was intended to operate retroactively to the time of Krawczyk’s death.

[25] Ozugowski argues that according to Rule 11, a matter is stayed where an interest is transferred by reason of a party’s death, pending an order to continue it. While Chiappetta J.’s Order may have retroactive effect, it did not specifically include any reference to continuing the litigation in which the default judgment was issued.

[26] Ewa Krawczyk submits that since the default judgment was part of the motion record before Chiappetta J., it must be assumed that her Order was intended to permit the continuance of the litigation against Ozugowski and enforcement of the default judgment.

[27] I agree. I find that Rule 11 is not a bar to Ewa Krawczyk enforcing the default judgment in light of the Order of Chiappetta J.

Application of the Test to Set-Aside the Default Judgment

[28] Rule 19 of the Rules of Civil Procedure provides as follows:

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 rule 19.04 may be set aside or varied by the court on such terms as are just.

(2) A judgment against a defendant who has been noted in default that is obtained on a motion for judgment on the statement of claim under rule 19.05 or that is obtained after trial may be set aside or varied by a judge on such terms as are just.

(3) On setting aside a judgment under subrule (1) or (2) the court or judge may also set aside the noting of default under rule 19.03. R.R.O. 1990, Reg. 194, r. 19.08 (3).

[29] The decision on a motion to set aside a default judgment under Rule 19.08 of the Rules of Civil Procedure is a matter of discretion. In exercising this discretion, it is well-accepted that a defendant must satisfy three requirements. The defendant must:

(a) show that they have moved forthwith or promptly once becoming aware of the judgment;

(b) show that there is an explanation for the default; and,

(c) show that there is at least an arguable defence on the merits.

(see e.g.: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194; and Canadian Pacific Railway Company v. Cobra Drain & Development Corp. 2007 15795 (ON S.C.)).

[30] Additionally, a court may consider the potential prejudice to the moving party should the motion be dismissed and the potential prejudice to the respondents should the motion be allowed, as well as the effect of any order a court might make on the overall integrity of the administration of justice (Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. 2007 ONCA 333, at para. 2).

[31] The materials filed by Ewa Krawczyk make clear that Ozugowski was served with a number of materials between 2011-2016 relating to the intent of Krawczyk to pursue the counterclaim after the main action by Ozugowski was abandoned.

[32] On May 30, 2012, Krawczyk signed a letter to Lukas Ozugowski, Ozugowski’s son, stating:

In exchange for you releasing the lien on the cottage property and with no interest paid to you just principal I Jerzy Krawczyk and Lake Stars Corp. agree not to further pursue any legal actions against yourself Sherry, Teresa or Slawomir Ozugowski.

[33] Ozugowski does not dispute receiving some materials relating to the case over this period, but indicates his record of such documents is “spotty.” He assumed any claim against him by Krawczyk and Lake Stars Corp. had ended as a result of the release contained in the May 30, 2012 letter to his son. He states in his affidavit:

I have learned that Jerzy Krawczyk somehow managed to continue his proceedings in the legal action against me through the application of some technical provision of the Court rules, notwithstanding the dismissal of the original lawsuit and contrary to the provisions of his written acknowledgment to my son. I thought the matter was at an end and did not understand why I still occasionally received documents from the lawyer for Jerzy Krawczyk, and I thus did not pay any attention to them.

[34] Ozugowski was not represented by counsel over this period.

[35] It is not entirely clear why Ozugowski would not have received all the correspondence in the record from counsel for Ewa Krawczyk alerting him to the default judgment of January, 2017, and its consequences. Further, assuming all the correspondence was received, it is not clear why Ozugowski treated the demand letter of January 22, 2018 more seriously than the earlier demand letter on October 3, 2017. Both letters indicated impending steps for a Writ of Seizure and Sale of Ozugowski’s assets (though the January 22, 2018 letter also indicated a notice of garnishment would ensue as well).

[36] While Ozugowski’s explanation for the period between these two demand letters is less plausible, this delay amounts to less than three months. Further, once Ozugowski received the demand letter in January, 2018, he took immediate steps to retain counsel and indicate his intent to set aside the January, 2017 default judgment of Glustein J., and to defend the counterclaim.

[37] Based on this record, and the surrounding circumstances, I find Ozugowski moved promptly once becoming aware of the default judgment and has provided a satisfactory explanation overall for the default.

[38] I further find that based on the May 30, 2012 document purporting to release Ozugowski from all claims by Krawczyk, among other possible defences to the original claims in the counterclaim, that he has an arguable defence to the counterclaim on the merits.

[39] Finally, I find that denying Ozugowski the chance to defend the counterclaim, which alleges misappropriation of funds in the context of a complicated personal and business relationship, and significant punitive or exemplary damages, would give rise to significant prejudice for Ozugowski. By contrast, permitting Ozugowski to defend the counterclaim, leading to an adjudication on the merits, would not prejudice Ewa Krawczyk.

Does Setting Aside the Default Judgment also include Setting Aside the Noting in Default?

[40] Ewa Krawczyk asserts that this situation is analogous to that in A1 Equipment Rental Ltd. v. Borkowski, 2008 13358 (ON SC) (“A1 Equipment Rental Ltd.”), in which Lederer J. set aside a default judgment as having been improperly issued by a Master, but was not prepared to set aside the noting in default, as the defendant in that case had wilfully turned a blind eye to the various correspondence from the plaintiff on the litigation. Lederer J. held (at paras. 58-59):

[58] The motion to set aside the noting in default is dismissed. It has taken too long to get here. The defendants’ counsel has been aware of this judgment since January 2007. As a result of his failure to communicate with them, the defendants took no steps to deal with it. The defendant, Allen Gramsch, says he learned of the judgment during June 2007 (see para. [19], above). During that month, a step toward settlement was taken but withdrawn. In July 2007, the defendants made a further effort that was turned down by the plaintiff. In November, they promised a third party that the necessary order would be obtained within sixty days “of closing”. It was more than two months later that the notice of the motion was properly served.

[59] The obligation to be prompt requires that the motion be brought expeditiously in response to the advice that judgment had been entered. In this case, even if measured from June 2007 when the defendants did know of the judgment, that obligation was not met. Moreover, the motion is to be brought because of the judgment not because it has been raised by a mortgagee and may, on that account, become a concern for the defendants.

[41] In my view, such an approach is not warranted in this case. The unexplained period in this case (between the default judgment in January, 2017 and the demand letter of January 2018 that appeared to spur Ozugowski into action) may be distinguished from cases such as A1 Equipment Rental Ltd.. Ozugowski’s claim that he did not pay attention to correspondence about the action since he understood it to be over with respect to him is plausible in light of the May, 2012 letter from Krawczyk to his son, which he asserts to be a release covering this action.

[42] The fact that Ozugowski’s motion to set aside the default judgment does not specifically refer to the relief of setting aside the noting in default as well also is not fatal.

[43] Rule 19.03(1) of the Rules of Civil Procedure provides that “The noting of default may be set aside by the court on such terms as are just,” and Rule 19.08(3) provides that, “On setting aside a judgment under subrule (1) or (2) the court or judge may also set aside the noting of default under rule 19.03. R.R.O. 1990, Reg. 194, r. 19.08 (3).”

[44] The threshold for setting aside a noting of default is less onerous than setting aside a default judgment under Rule 19.08 (see e.g. Toronto Dominion Bank v. Radiancy Canada Inc., 2006 33694 (ON SC), at para. 15).

[45] Little would be served at this stage by requiring Ozugowski to take the additional step of a separate motion to set aside the noting of default in these circumstances.

[46] For these reasons, I find the default judgment should be set aside and that Ozugowski will have the opportunity to pursue a defence to the counterclaim. The motion to set aside the default judgment and the noting of default under Rule 19.08, therefore, is granted.

Costs

[47] As this is a motion to set aside a default judgment, even if successful, costs to the defendant are rarely warranted. Rather, the “costs thrown away” of the plaintiff are usually at issue. In this case, Ozugowski submits that thrown away costs of $1,500.00 are appropriate, and I agree.

[48] Ozugowski is ordered to pay $1,500.00 in all-inclusive costs to Ewa Krawczyk, within 30 days.

[49] Ozugowski will have 20 days thereafter to file his defence.

Sossin J.

Released: April 1, 2019