MOTION HEARD: August 7, 2019
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Sirron Systems Incorporated
Plaintiff/Responding Party
AND:
Parsons Inc.
Defendant/Moving Party
BEFORE: Master J. Josefo
Counsel: Peter J. Mitchell, Counsel for the Moving Party Defendant,
Fax: (416) 361-1992
Paul H. Starkman, Counsel for the Responding Party Plaintiff,
Fax: (905) 477-3210
Reasons for Decision and Order
Background—whither Civility?
1The plaintiff, Sirron Systems Incorporated, was, inter alia, ostensibly a sub-contractor to the defendant, Parsons Inc., providing services to and for defendant. Defendant ended the relationship for various reasons. Plaintiff, through its counsel Mr. Starkman, issued a claim on January 29, 2019.
2On March 14, 2019, Mr. Starkman noted the defendant in default. Also, on March 14, 2019, he obtained from the Registrar Default Judgment in the amount of $33,308.58, plus costs of $1,317.90. The judgment ostensibly only came to the attention of the defendant shortly before May 17, 2019, when its outside counsel, Mr. Mitchell, wrote counsel for plaintiff seeking consent to set aside the judgment.
3As consent was not forthcoming, defendant brought this within motion. Originally returnable June 6, 2019, it was adjourned on consent to August 7, 2019. Only the defendant filed materials, including a Motion Record, Factum, and Book of Authorities.
Contested Adjournment:
4This matter was listed to be a contested adjournment, with the plaintiff, responding party on this motion, seeking the adjournment. Mr. Starkman submitted that since July 18, 2019 he has been unable to obtain instructions from his client. Thus, on August 15, 2019 he has a motion scheduled, seeking removal from the record. He urged that the matter be adjourned to allow plaintiff to obtain new counsel or to seek leave to act in person.
5Mr. Mitchell opposed the adjournment. He asserted that the defendant has suffered genuine prejudice, noting that the existence of a judgment against any corporation can cause much concern. He also noted that allowing the motion to proceed would be far less prejudicial to the plaintiff. Mr. Mitchell observed that if he was successful, my decision would not decide the merits of the overall case. Rather, it would simply restore the plaintiff to the position of a litigant without default judgment.
6Mr. Starkman rejected the option that the Judgment be temporarily set aside during the period of adjournment, with the proviso that judgment would be restored if the defendant was ultimately unsuccessful with its motion. Ultimately, I ruled at the hearing that the motion would proceed.
7I denied the adjournment request for these reasons:
a. assuming that Mr. Starkman was unable to obtain instructions from his client starting July 18, 2019 as he submitted, that means that he had from June 6, the original return date, to July 18, 2019, a period of more than one month, to obtain necessary instructions. During that time Mr. Starkman could also have filed material as he saw fit.
b. Generally, from the original motion date to the hearing day was two months. A two-month indulgence in this matter is, I find, more than enough, even accepting that difficulties between Mr. Starkman and his client eventually arose.
c. As for Mr. Starkman’s pending motion for removal from the record, Mr. Mitchell confirmed that he had not received the Notice of Motion in that regard. Mr. Starkman acknowledged that he had not served a Notice of Motion on defendant. Yet he claimed that defendant still had notice of the motion. Rule 15.04 (1) (1.1) provides that a removal motion “shall be on notice to every other party”. That fairly recent amendment to Rule 15 means, in usual practice, that the Notice of Motion for removal (possibly with redactions to protect privilege), yet not the Motion Record, is served on all parties opposite. While asserting that “they knew”, Mr. Starkman was unable to point to any evidence that this defendant had knowledge of his pending motion, including specifically when and how the defendant obtained such notice, or that defendant had notice of the actual date when the removal motion is scheduled to be heard.
d. In this matter, balancing the prejudice, I find that defendant would likely be subject to greater prejudice if the motion was delayed, than would be the plaintiff if it went ahead. I could have compelled both sides to accept a compromise such as was floated during argument, and as described above, as part of a term of adjournment. Yet, as will become clear when discussing the matter on its merits, putting off the likely inevitable does nobody any good, including the administration of justice with a multitude of fresh cases pending daily. There is no sense in putting off until tomorrow what can be done today, after all.
e. Leaving this matter to continue hanging over the defendant, especially after it was already adjourned once last June, would not be just. Nor would it be an efficient use of court resources.
Accordingly, I denied the plaintiff’s request to adjourn the motion. Instead, I heard submissions from counsel on the merits of the matter.
Overview of the Applicable Law:
8Before reviewing the salient facts, it is helpful to briefly review the applicable law, even though it is likely well understood. Rule 19.08 (1) provides that a judgment such as what the plaintiff in this case obtained “may be set aside or varied by the court on such terms as are just”. Rule 19.08 (3) provides the Court additional discretion to set aside the noting of default under Rule 19.03.
9Generally, if the judgment was irregularly obtained, such that correct procedures in obtaining it were not followed, then the defendant is usually granted the relief sought without having to demonstrate an arguable defence to the claim. If, however, the judgment was obtained regularly, and it is at the discretion of the Court to set it aside so the claim can be defended, various factors must typically be established by the moving party.
10Factors are applied at the discretion of the Court rather than rigidly. As described by the Court of Appeal in Kisel v. Intact Insurance Co 2015 ONCA 205, [2015] O.J. No 1473, the over-arching question is if, in all the circumstances of the particular case, it is just to grant the relief sought. Factors can include but are not limited to a consideration of the following:
Was the motion brought promptly once defendant became aware of the default judgment?
Was there a reasonable excuse, in the circumstances of the particular case, for the default having occurred?
Is there an arguable defence on the merits? Expanding on this point, “arguable” is, it has been held, a lower threshold to meet than that of a “meritorious” defence. To establish that the defence is arguable, can it be concluded that the defence raises at least a genuine issue(s) for trial? Is there an “air of reality” about it? If, on a fair assessment of the draft pleading, those questions can be answered affirmatively, then the defendant has an arguable defence.
What of the prejudice to both plaintiff and defendant? Who will suffer or, will either party suffer, one more than the other?
What of the integrity of the administration of justice generally?
I apply and weigh these factors in my consideration of the evidence in this matter.
Discussion of the Facts/Evidence as such applies to the Law:
11The only evidence before me is the unchallenged affidavit sworn May 31, 2019 by David Tucker, the in-house counsel of the defendant at the relevant time. I find the affidavit of in-house counsel, who dealt with Mr. Starkman when these matters unfolded, to be relevant. It is properly sworn, and Mr. Tucker was not sought to be cross-examined. Moreover, he is an Officer of the Court. I thus place great weight on his affidavit evidence.
12Mr. Tucker deposes at paragraph three of his affidavit that he first became aware of “the existence of the within action” when he received a letter dated January 31, 2019 from Mr. Starkman, which letter was sent to him by email and by fax. That letter, part of the record, is indeed headed, “Via Email [e-address omitted] and Facsimile [number omitted]”. The letter states the following: “Please find enclosed the Statement of Claim issued on January 29, 2019, which is served upon you pursuant to the Rules of Civil Procedure” [my emphasis].
13Mr. Starkman, a long-time barrister, knows that one cannot serve originating process by either email or fax. Purporting to do so, absent an unequivocal agreement on the part of the recipient to accept service in that irregular fashion, means that one has not served the claim. Yet in fact, this claim was properly served personally. While a copy was not in the Record, with Mr. Mitchell’s consent Mr. Starkman showed me the affidavits of service which prove that the claim was personally served twice: on January 30 and again on February 6, 2019.
14If, in his letter of January 31st, Mr. Starkman used the language he used in argument before me, regarding providing counsel with a “courtesy copy” by email and fax, that may have avoided some of the confusion which I find his letter led to on the part of the defendant.
15While not disputing that the claim was served on defendant, Mr. Mitchell relies on paragraphs 12 and 13 of Mr. Tucker’s affidavit to show that in-house counsel was never aware of it being served. Per his affidavit, Mr. Tucker only saw the copy received under cover of Mr. Starkman’s letter of January 31, 2019. Mr. Tucker specifically swears (at paragraph 12) that he was “operating under the belief that proper service had not yet been effected”. That mistaken belief, due to what appears to be faulty processes at the defendant’s reception area, led to the claim not being defended within the strict deadline unilaterally imposed by Mr. Starkman.
16On February 13, 2019, Mr. Tucker acknowledged the January 31, 2019 letter of Mr. Starkman, and confirmed he was both reviewing the claim and “in the process of securing Defence Counsel”. He also sought, in my view, a reasonable indulgence. Moreover, as in-house counsel stated he was to hire outside litigation counsel, it is impossible to dispute that Mr. Starkman knew at that point that, if the matter could not otherwise be resolved, the defendant would defend the action.
17On February 14, 2019, Mr. Starkman responded by arguing the plaintiff’s case on the merits (inter alia asserting that Parsons had previously raised no issues with Sirron’s work). He then demanded the statement of defence by March 7, 2019, failing which he stated that he would take steps to obtain default judgment “without further notice to you”.
18Accordingly, Mr. Starkman gave what I find is a short extension, since the claim was served January 30th, warning that if his unilateral deadline was not met, he would not provide further notice but would obtain default judgment. Pausing at this juncture, is it enough that a litigant gives that type of singular, unilateral warning? Is default judgment appropriate in these circumstances, where counsel is aware that the other side has in-house counsel or someone responding and, intends to retain litigation counsel, so clearly has the intention to defend the action?
19In my view, when a plaintiff knows that a defendant has or is in process of obtaining counsel, and intends to defend, a singular warning, such as was given in this matter, is insufficient. Plaintiffs also should be cognizant of the nature of the defendant. In this case, the defendant is an established and large multi-jurisdictional entity. A plaintiff, or his or her counsel, should thus be aware that a default in such circumstances of a likely solvent defendant, which has clearly expressed an intent to defend the claim and who is not ignoring the matter, would be exceedingly rare.
20Default situations require more. A defendant which simply (and repeatedly) ignores the plaintiff, never responding despite service of the claim and a clear warning(s) of the consequences of “putting ones head in the sand”, would arguably be an example of circumstances of true default. After all, if a defendant repeatedly fails to respond despite service of the claim and, perhaps, several warnings thereafter, what else can a plaintiff do, but note pleadings closed? Yet this is a fairly extreme example, for the equally fairly extreme remedy of default proceedings. Moreover, as discussed ahead, a plaintiff may well have other options, depending on the jurisdiction.
21In modern litigation, a trial remains anything but a tea party, even with the increased and early disclosure now mandated. Courtesy and civility in practice, however, even while still putting ones best foot forward on the merits rather than abusing procedural weaponry, is required. Before noting a party in default, in most if not all cases the party intending to do so should at least provide a further clear warning of that intention, as well as allow the purportedly delinquent party a reasonable opportunity to avoid default.
22In this matter, if there had been no further correspondence after the February 14th letter of Mr. Starkman and his stated intention to obtain default judgment, in those circumstances a further and final warning to Mr. Tucker along the lines of, “deliver your pleading in 72 hours or I will note pleadings closed” would have been at least somewhat defensible. Yet, even then, before finally noting pleadings closed, counsel should know that there may be nowadays other options available, including attending at Civil Practice Court (“CPC”) or “To Be Spoken To” (“TBST”) Court, either of which may assist a matter return to the rails, if a party believes that it has gone off the rails.
23In this case, however, there was further correspondence after February 14, 2019. On March 12, 2019, Mr. Tucker sent a very detailed email to Mr. Starkman. In addition to candidly discussing the merits of the case, and offering cordially to discuss the matter further, Mr. Tucker at the outset of his message stated that “we will be filing a Statement of Defence this week”. On the same day Mr. Starkman responded by asserting that what Mr. Tucker wrote are new allegations (unsurprisingly these were new, as litigation had only just developed). In his March 12, 2019 letter, Mr. Starkman also demanded that Mr. Tucker deliver a plethora of items to allow him to subsequently comment on what Mr. Tucker had alleged in his prior email.
24Yet, in my view unreasonably, Mr. Starkman insisted that all these items, including a list of contracts and invoices, be delivered to him by close of business March 13th, meaning, the following day. On March 13th, Mr. Tucker’s email to Mr. Starkman confirmed that he was not able to deliver the items by that day, but will respond the next week. Importantly, Mr. Tucker reiterated that “we will be filing a Statement of Defence this week”. Again, there is no doubt of this defendant’s intention to defend.
25That is why it is inexplicable to me that, on the very next day, March 14, 2019, Mr. Starkman, without further notice or warning, noted pleadings closed (noted in default) and submitted a Requisition for Default Judgment. With service of the claim on January 30th, Mr. Starkman allowed a bare six weeks to elapse before taking this draconian step. When Mr. Mitchell emailed Mr. Starkman on March 15th, Mr. Starkman further did not acknowledge this correspondence. He also at no point disclosed to outside counsel that he has obtained Default Judgment.
26It appears that defendant concluded that, given what it assumed was a lack of proper service of the claim, defendant could await plaintiff acknowledging the correspondence from Mr. Mitchell, as Mr. Tucker deposes (paragraph 12) in his affidavit. In hindsight, it would have been pro-active for defendant to follow up sooner. This is especially since the defendant was wrong; the claim had been properly served.
27Yet that error of the defendant does not in my view explain why Mr. Starkman could not have provided a reasonable warning and final opportunity to defendant before noting pleadings closed. It also does not explain why Mr. Starkman did not seek to attend CPC or TBST Court, if he believed that defendant was foot-dragging. This also does not explain why Mr. Starkman did not ever respond to Mr. Mitchell, whose March 15, 2019 email makes clear is known to Mr. Starkman from other files in which they have been on opposite sides. In any event, after two months of silence, Mr. Tucker’s then superior, the Assistant General Counsel of the defendant, investigated to see if any default steps were taken. It was discovered that, indeed, these were, which led to the May 17, 2019 demand from Mr. Mitchell that the default be set aside to allow a Statement of Defence to be delivered.
28Applying the law discussed above, there is clearly an arguable defence in this matter. The draft Statement of Defence is in the motion record. Moreover, Mr. Tucker, in his afore-mentioned email of March 12, 2019, also then well explained the basis for the defence. In my view, notwithstanding Mr. Starkman’s submissions to the contrary, I find that the defence has an air of reality. Again, all that needs be provided at this stage is an arguable defence. That standard is clearly met.
29This within motion was also brought, I find, with sufficient promptness, as has been thoroughly explained in the affidavit of Mr. Tucker. The reason for the default was also well explained. Defendant wrongly maintained when Mr. Tucker had carriage of this matter that the claim was not properly served. Again, while defendant must be responsible for its errors in that regard, part of the confusion also lies with Mr. Starkman, given the wording of his January 31st letter discussed above.
30Moreover, Mr. Starkman, by demanding production of documents in the face of the March 12th emailed explanation of Mr. Tucker (albeit with what I find was a demand for an unreasonable turn-around of one day), seemingly was content to review such information in lieu of a pleading at that stage. This constituted a “mixed message”. Mr. Mitchell, the then retained outside counsel, also communicated with Mr. Starkman. The Defendant waiting in these circumstances was not unreasonable.
31Considering the integrity of the administration of justice, it is long established that deciding claims on their merits is far preferred over procedural “Technical Knock Outs”. A party may win or lose but should have its case decided on the facts and law. Such is far preferable to “gotcha!”, the outcome from improperly obtained default proceedings.
32Finally, the balance of prejudice clearly favours the defendant. The absence of evidence tendered by the plaintiff does not allow it to claim prejudice. In any event, on a common-sense basis, not allowing the defendant to assert its defences on the merits would be highly prejudicial to defendant. Yet allowing the case to proceed in the normal course does not prejudice the plaintiff—other than dashing any unrealistic hopes of an easy and quick resolution.
33Accordingly, for all these reasons, answering the question posed above when discussing the applicable law, I find that it is just on these facts to set aside the default judgment. I thus set aside the default judgment and the noting in default, as well as any writ of execution obtained by the plaintiff. I have signed the Order in that regard, which counsel for defendant provided to me.
Costs:
34In my view, some costs should be awarded to the defendant in this matter, even though the defendant seeks an indulgence from the Court. This motion should not have been required. Mr. Starkman should have consented to the relief sought. Indeed, the noting in default should not have happened at all in the way that it did in this case. Applying Rule 57.01, I find that the noting in default and the obtention of default judgment were, in these circumstances, improper, as well as was the refusal to set these aside, if not when asked, at least when defendant delivered its motion record. If issue was taken with the evidence, Mr. Tucker could have been cross-examined. If no issue was taken, the latest excusable time for plaintiff to abandon its position was once it was in receipt of the motion record from the defendant.
35The defendant, too, must bear its responsibility for this matter. After all, the obviously defective processes it had in place (hopefully since improved upon) allowed a claim to be served on it, not once but twice, yet still not find its way to the legal department. Nevertheless, I find that the defendant acted in the spirit of attempting to resolve a claim, including with open communication, albeit treating the matter a little casually.
36The combination of a quite aggressive approach by plaintiff, with a defendant with defective processes, who also in hindsight could have acted with greater alacrity in this matter, all combine to have led to this motion.
37I have reviewed the Bill of Costs of the defendant. The Partial Indemnity costs are claimed at $6,642.72, while $9,058.51 is claimed as substantial indemnity. The actual rate is $9,985.95. Mr. Mitchell spent 17.2 hours on this matter. One wonders if some of the preparation could have been delegated to, for example, a junior or student.
38On reflection, despite my concerns that the plaintiff, in this case and on these facts, was quite aggressive, again, the defendant has responsibility for failing to realize it had been served. On all the facts, I find that this is accordingly not a case for Substantial Indemnity costs.
39Applying all the relevant factors and my discretion, the plaintiff shall pay to the defendant the sum of $3,321.00, which is, in essence, half of the partial indemnity amount sought. Such payment shall be made within 30 days of receipt of these reasons.
Master J. Josefo
Date: August 8, 2019