COURT FILE NO.: CV-10-400641
DATE: 2019-12-12
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: BERNICE MCKENZIE, Plaintiff
AND:
LIDA ZHANG, AND 6927360 CANADA INC. AND 1680908 ONTARIO INC., Defendants
BEFORE: Schabas J.
COUNSEL: Christopher Thiesenhausen, Counsel for the Defendant Lida Zhang
William Scott, Counsel for the Plaintiff
John Friendly, Counsel for the Ministry of Finance
HEARD: November 26, 2019
REASONS ON MOTION
INTRODUCTION
[1] The Motor Vehicle Accident Claims Fund (the “Fund”), which exists pursuant to the Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.41 (the “Act”), provides compensation for death, injury or damage caused by uninsured vehicles. It was established by the Legislature in 1947. In Ontario (Minister of Consumer & Commercial Relations) v. Employers Mutual Liability Insurance Corp. of Wisconsin (1980), 1980 1798 (ON CA), 28 O.R. (2d) 397 (C.A.) at para. 7, Blair J.A. noted the Fund’s purposes as follows:
The courts have from the beginning emphasized the dual purpose of the Act. The Fund was created to avoid hardship and, as a result, the Act has been liberally and beneficially interpreted to ensure payment to persons injured by uninsured vehicles. At the same time, the courts have been vigilant to ensure that no profit is made at the expense of this public fund. McRuer, C.J.H.C., in Re Telfer and Telfer v. Kerr and Seager, 1949 85 (ON SC), [1949] O.R. 232 at p. 234 stated the twin aims of the Act in a frequently cited passage:
In Re MacBeth v. Curran, 1948 84 (ON SC), [1948] O.R. 444, Mr. Justice Gale considered the purpose of the statute here in question and laid down some principles to be applied in the exercise of the discretion vested in the Court under s. 93b(4). With the principles there outlined I entirely agree, but there are other principles of a converse nature that I would add. While this legislation is beneficial in character and "the rights created are not to be frittered way by narrow judicial interpretation", it is at the same time to be remembered that the object of the legislation is to relieve against hardship and not to provide a fund in the nature of a free reinsurance scheme for insurers of those who have suffered damage as the result of the operation of motor vehicles, or any means by which insured persons may be twice compensated for injuries sustained.
[2] To this it may be added that the Fund, as a responsible custodian of public funds, also seeks reimbursement from those responsible for operating vehicles without insurance.
[3] The Fund, in fulfilling its role, is permitted to take carriage of litigation where, among other things, there have been certain failures to defend by a defendant in the action and, when it does so, the Fund may conduct the action as it sees fit. As stated in the legislation, at s. 8(2) of the Act, the Fund may act as it “considers appropriate on behalf and in the name of the defendant, and may thereupon, on behalf and in the name of the defendant, conduct the defence, and may, where [it] considers it advisable to do so, consent to judgment in such amount as [the Fund] may consider proper in all the circumstances, and all acts done in accordance therewith shall be deemed to be the acts of such defendant.”
[4] The Fund, therefore, stands in the place of the defendant and provides a defence. Although the Fund’s purpose is to be compensatory, its interests are aligned with the uninsured defendants in ensuring that plaintiffs are not inappropriately, or over-generously, compensated. However, where the Fund makes a payment to a plaintiff pursuant to a judgment (whether following a trial or as settled), the interests cease being aligned, as the judgment must be assigned to the Fund so that it may seek reimbursement for the payment from the uninsured defendants (Act, s. 9). Furthermore, once the Fund has made payment to the plaintiff, the driver’s licenses of the uninsured defendants shall be suspended until repayment, or the entering into a repayment agreement between the defendants and the Fund, subject to the Fund negotiating a settlement (Act, ss. 10, 11 and 11.1). In this way, the Fund compensates victims of accidents, but also holds those who own uninsured vehicles accountable for their violation of the legal requirement to be insured: Compulsory Automobile Insurance Act, R.S.O. 1990, c C.25, s. 2.
[5] Despite the ability to seek reimbursement, the Fund is largely funded by a levy received as part of the fee all Ontarians pay when they renew their driver’s licences. The Fund also steps in where the identity of a motor vehicle and its driver is unknown. In these ways, the Fund effectively operates as a form of publicly-funded insurance plan for uninsured motorists and victims of accidents where insurance is not available.
[6] This case raises the unusual circumstance in which the moving party, Mr. Lida Zhang (“Zhang”), learned over five years after an accident in which he was driving a tour bus owned by his employer, that not only had he been sued, but that the vehicle was uninsured, and that due to defaults he was unaware of the Fund had stepped in, defended and ultimately settled the action by paying the plaintiff, an injured pedestrian, $231,068.00 ($190,000 plus $41,068 in costs). Zhang learned this after he discovered his driver’s license had been suspended. Because Zhang was not served with the statement of claim, was unaware that he was a defendant, and did not have the opportunity to defend the action, crossclaim or seek indemnification from his employer – who specifically withheld the fact that the bus was uninsured - he now seeks an order setting aside or staying the judgment against him so that the Fund cannot seek to enforce it against him.
[7] For the reasons that follow, I dismiss the motion to set aside the judgment but stay execution of the judgment against Zhang. Although the Fund acted in accordance with its mandate under the Act, in the unusual circumstances of this case I conclude that it is unjust to hold Zhang liable for a judgment arising from litigation which he never knew about and for an accident that occurred while driving a vehicle owned by his employer which he had every reason to expect was insured. The Fund, on the other hand, is entitled to pursue enforcement of the full amount of the judgment against the co-defendants and, perhaps, its principal, who are the parties responsible for the lack of insurance.
BACKGROUND
[8] Zhang is a Canadian citizen, from China. He speaks fluent Mandarin but his understanding of English is limited. From 2008 to 2015, he worked in the summers for Elo Tours driving tour buses, primarily for tourists visiting Canada from China. He has had an Ontario driver’s license since 1997 and has had personal motor vehicle insurance since that time. He has also been diligent in keeping the Ministry of Transportation (“MTO”) up to date on his addresses, as he has moved several times over the years.
[9] On November 17, 2009 (just over 10 years before this motion was heard), while driving a tour bus for Elo Tours, Zhang struck a pedestrian, Bernice McKenzie (“McKenzie”), who was attempting to cross Warden Avenue, a wide and busy street in Toronto. The accident took place in the late afternoon. Zhang braked hard when he saw her but was unable to avoid hitting her. She suffered serious injuries and was taken to hospital by ambulance.
[10] Zhang stayed at the scene and was not charged with any offence. Ms. McKenzie, however, was charged with failing to keep to the edge of the road under s. 179 of the Highway Traffic Act, R.S.O. 1990, c. H.8. It is not known what became of that charge.
[11] On February 10, 2010, a notice of claim was sent by McKenzie’s lawyers to Zhang at his home address on St. George St. in Toronto, but he says he did not receive it. A statement of claim naming Zhang and 6927360 Canada Inc. as defendants was issued on April 8, 2010. It was served on the corporate defendant on April 19, 2010, which promptly, through its principal, Mr. Yandong “Allan” Liu (“Liu”), retained counsel, Mr. Garth Low (“Low”).
[12] The tour bus was owned by either or both of the corporate defendants, 6927360 Canada Inc. and 1680908 Ontario Inc., which operated under the Elo Tours business name. Elo Tours is also the business name for Yandong Liu Canada Inc., which I infer is a company controlled by Liu.
[13] On April 22, 2010, Low advised McKenzie’s counsel that his client’s employee, Zhang, was out of the country until the end of May and sought an indulgence in serving a defence, which was granted. Nevertheless, a process server apparently served the claim on someone at Zhang’s home address on April 24, 2010, and swore an affidavit of service that he had personally served Zhang. However, it is undisputed that Zhang was in China at that time and was not served. It remains a mystery as to who received the claim.
[14] Later in May, the company’s insurer, Aviva Insurance Company, confirmed to Liu that the tour bus had been removed from the insurance policy on August 23, 2009, and therefore there was no coverage for the November 17, 2009 accident.
[15] Upon Zhang’s return from China, on June 1, 2010, Liu took Zhang to meet with Low. The meeting took about 30 minutes. Low made only sparse handwritten notes on one page, consisting of basic identifying information about Zhang. Liu acted as an interpreter.
[16] Although Low claims he obtained details of the accident and reviewed the claim with Zhang, including advising him of the lack of insurance and the potential conflict of interest with representing both defendants, and he claims that Zhang retained him at that meeting, this is not supported by the notes and is contradicted by other contemporaneous records and conduct. There is no retainer agreement, Low never telephoned or reported to Zhang, nor send him any bills, and his correspondence with McKenzie’s counsel over the period in which he acted on the matter always referred to his “client” as 6927360 Canada Inc, never clients. No file was opened in Zhang’s name. Nevertheless, on June 1, 2011, the same day he met with Zhang, Low served a statement of defence on behalf of both the numbered company and Zhang.
[17] On June 4, 2010, just a few days after the meeting and the filing of a defence, Low emailed Liu stating, among other things: “We need to discuss this matter. Mr. Zhang does not know that you do not have insurance and does not need to know.” This demonstrates a lack of candour by Low and Liu toward Zhang. Further, when cross-examined, Low said he could not recall ever advising Zhang about potential claims against his employer or Liu.
[18] Zhang’s evidence, which I must prefer over Low’s, is that he was never told that he was sued, or that there was no insurance, or that Low was acting on his behalf, or was given any other advice by Low. Zhang left the meeting on June 1 thinking, not unreasonably, that Elo Tours and its insurance company would protect him.
[19] As Zhang was driving a large commercial vehicle his own personal insurance policy did not apply.
[20] Examinations for discovery were scheduled and cancelled during 2010 and 2011. Low asserts that he met Zhang again on September 8, 2011, with Liu, but has no notes of the meeting. Zhang does not recall any such meeting. Not long after, in November 2011 Low brought a motion to be removed from the record. Low said he mailed the record to Zhang’s former address on St. George St., but Zhang had moved in May 2011and Low did not update Zhang’s address or conduct an MTO address search. Zhang did not receive the motion record, or anything else at any time from Low, and remained unaware of the litigation.
[21] It should be noted that although Zhang has moved a number of times in the ten years since the accident, in addition to promptly notifying the MTO of his changes of address, his cell phone number has been unchanged since 2008.
[22] Meanwhile, McKenzie’s counsel learned of the insurance problem and sued Aviva in November 2011. Following Zhang’s and the numbered company’s failure to appear at an examination for discovery in June 2012 and being noted in default, about which Zhang was also unaware, the Fund was notified and took carriage of the action as it was entitled to do pursuant to s. 8 of the Act.
[23] The Fund had the noting in default set aside and retained counsel, Mr. J.C. Rioux (“Rioux), who delivered an amended statement of defence on behalf of the defendants, including Zhang. Rioux also sought a declaration that Aviva insured the bus, but this was dismissed, as was McKenzie’s action against Aviva, and so the Fund then defended the action pursuant to s. 8(2) of the Act.
[24] Rioux obtained medical reports on McKenzie’s injuries and examined her for discovery. He had the Motor Vehicle Accident Report which had been completed by officers at the scene. It included diagrams and statements by Zhang and the tour guide on the bus, who also witnessed the accident. However, Rioux did not contact or interview Zhang or the tour guide.
[25] In March 2014, on Rioux’s advice, minutes of settlement were executed providing for a payment of $190,000 to McKenzie, plus costs of $41,068. Judgment was entered on consent in January 2015.
[26] In recommending this settlement, Rioux was of the view that “there was no realistic possibility of Mr. Zhang avoiding liability”, having regard to McKenzie’s evidence and her injuries, the circumstances of the accident, and the reverse onus placed on a defendant under s. 193 of the Highway Traffic Act where a pedestrian is struck by a vehicle. Although he had no specific recollection, Rioux believed he would have asked McKenzie what happened to the charge against her, and that the charges were either not prosecuted or she was not convicted. In his view, a jury might well have awarded McKenzie over $200,000, which is the limit paid by the fund, subject to obtaining reimbursement from the uninsured defendants.
[27] Following the entry of the judgment in January 2015, it was assigned to the Minister of Finance (which, through the Financial Services Commission of Ontario (“FSCO”) administers the Fund), and the Fund paid McKenzie $231,068.00 .
[28] Even then, however, Zhang remained unaware of these events for at least another nine months. On June 4, 2015, FSCO sent Zhang a letter notifying him of the judgment and that his license would be suspended shortly, but this letter was also not sent to Zhang’s current address, which he had provided to the MTO, and he did not receive it. It was only in September 2015, when Zhang went to an MTO office to get his driver abstract for a new part-time driving job, that he learned his license was suspended. In December 2015, after attending at a FSCO office in North York with his wife, he learned there was a judgment against him, and on January 8, 2016, over six years after the accident, he received copies of the pleadings and judgment against him from FSCO.
[29] Zhang sought legal help. He entered into an agreement with FSCO to make monthly payments of $50 towards the judgment, without prejudice to his right to challenge the judgment. This allowed him to get his driver’s licence back. Elo Tours has ceased operations and the corporate defendants appear to have no assets. Although Zhang found Liu in December 2015, he has been unable to reach him since that time.
[30] Despite the repayment agreement, it is open to the Fund to enforce the judgment against Zhang at any time. The Fund has also indicated that, should the motion to set aside the judgment be granted, it may seek reimbursement of the payment from McKenzie.
ISSUES
[31] The issues to be determined are:
(a) Whether the judgment should be set aside as against the defendant Zhang; and
(b) Whether the judgment should be stayed as against Zhang.
ANALYSIS
Should the Judgment be set aside?
[32] I have concluded that the judgment should not be set aside for several reasons, discussed below.
[33] First, although Zhang was not personally served with the statement of claim, this is not a basis to set aside a judgment. It is now clear that failure to comply with the rules, including service, is an irregularity, not a nullity: Rule 2.01(1) of the Rules of Civil Procedure. In this case, when Low delivered a defence on Zhang’s behalf, the failure to serve was effectively cured, as Rule 16.01(2) provides that when a party who has not been served with an originating process delivers a defence, the party is “deemed to have been served … as of the date of delivery.”
[34] Further, regardless of whether there was a retainer or not, Low represented to McKenzie’s counsel that he was acting for Zhang, which McKenzie’s lawyer was entitled to accept and rely on without further inquiry: Srajeldin v. Ramsumeer, 2015 ONSC 6697 at para. 21.
[35] Secondly, the fact that Zhang was unaware of Low filing a defence on his behalf, and that Low’s actions were taken without Zhang’s authority, is not a sufficient basis to set the judgment aside. Counsel for Zhang relies on Royal Trust Corp. of Canada v. Dunn (1991), 1991 7227 (ON SC), 6 O.R. (3d) 468 (Gen. Div.), in which Borins J. (as he then was) set aside a default judgment on the basis of lack of service where a lawyer had purported to accept service for a defendant without authority to do so. Justice Borins stated, at para. 20:
The cases are numerous that where the setting aside of a default is a matter of right and not dependent on the exercise of discretion, there is no need for a defendant to provide evidence to establish a defence because it was through no default of the defendant that he or she was deprived of the right to defend. No better example of such a situation can be found than in a case like this in which the defendant had no notice of the action because he did not receive the statement of claim. This principle is stated in Williston and Rolls, The Law of Civil Procedure (Toronto: Butterworth, 1970) at p. 515:
Where a judgment has been obtained irregularly the defendant is entitled to have it set aside ex debito justitiae, in which case he does not have to show a defence on the merits or explain any delay, and terms should not be imposed.
[36] However, Dunn dealt with a default judgment, where typically the case has not progressed very far and there is usually little prejudice to setting it aside. Other cases cited by Zhang in support of setting aside a judgment because of a lack of knowledge or authority also arose in circumstances of default judgment, such as Luu v. Thai, 2008 CarswellOnt 9116, and Toronto Hydro-Electric System Ltd. v. Charleston, 2002 CarswellOnt 76. In this case, the action was defended, albeit without authority, by Low, but the plaintiff was entitled to believe that service had been effected pursuant to Rule 16 and that Low was properly acting for Zhang.
[37] In my view, the issue of whether the judgment should be set aside must be considered in the context of a judgment that followed several years of litigation in which the plaintiff had been given no reason to think that Low was not properly retained and, subsequently, the Fund properly took over defence of the action following the failure of the defendants to appear for discovery.
[38] Rule 59.06 provides circumstances in which an order may be set aside, none of which apply here. While the Court has a broad discretion to set aside a judgment in the interests of justice, lack of authority by counsel does not necessitate it. For example, in Thomson v. Gough (1977), 1977 1341 (ON SC), 17 O.R. (2d) 420 (H.C.J.), Parker J. (as he then was) declined to set aside a settlement following an assertion that the solicitor had acted without authority in agreeing to the settlement, but in circumstances where the judgment had already been paid.
[39] Recent cases involving lack of service and the subsequent settlement of actions by the Fund also do not support setting aside the judgment. For example, in Hall v. Shearer, 2018 ONSC 5837, Hood J. declined to set aside a judgment paid by the Fund in which the defendant claimed she was never served and now wished to defend the action. As Hood J. stated in a context relevant to this case, at para. 12: “It is not a question of whether or not Ms. Shearer received service, but a question of whether Ms. Shearer had insurance. She admits that she did not. Nor did the car owner.” A similar result was reached by Chalmers J. in MA Teresa David v. Ingram Grappie, unreported, March 27, 2019, CV-15-538507.
[40] This gets to the nub of the issue. Even though Zhang was not served and did not defend the case himself, the Fund did so for him. It stepped into Zhang’s shoes and defended his interests without charge to him, discovering the plaintiff, assessing the case, and negotiating a resolution.
[41] Although Fund counsel did not contact Zhang during the course of the proceedings, Zhang has not put forward evidence that the result would have been different had he defended, although his counsel identified several issues which might have been raised. In Bank of Montreal v Chu, (1994), 1994 7246 (ON SC), 17 O.R. (3d) 691 (Gen. Div.), Wilson J. suggested that summary judgment principles ought to be considered on a motion to set aside a judgment, and that a party must at least raise a genuine issue for trial that has an air of reality. Here, the evidence is that Rioux carefully considered the risks associated with going to trial and the Fund achieved what Rioux believed was an appropriate result and in the Fund’s interests.
[42] Further, to set aside the judgment would cause serious prejudice to the plaintiff. The Fund has indicated it may seek repayment from McKenzie. This would hardly be just to her, having compromised her claim after enduring several years of litigation.
[43] Setting aside the judgment only against Zhang would raise other legal problems for the Fund which, pursuant to s. 7(3) of the Act, is only able to make a payment if judgment is “given in an action brought against all persons against whom the applicant might reasonably be considered as having a cause of action in respect of the damages in question and prosecuted against every such person to judgment or dismissal.” [emphasis added] If judgment against Zhang is set aside permitting him to defend the action, a mandatory pre-requisite for payment by the Fund to McKenzie is no longer met, which may require the Fund to seek repayment from her.
[44] Counsel for the Fund quite fairly drew my attention to a decision of the Alberta Court of Appeal which raised similar issues in the context of the similar Alberta fund. In Alberta (Motor Vehicle Accident Claims Act) v. Gray, 1986 ABCA 122, the Court dealt with two cases, one of which involved a defendant who was never served with the claim. Kerans J.A. observed at para. 8 that it was “not the object or scheme of the Act to deprive a defendant who has committed no default of a right to trial on the merits.” However, there the defendant turned out to have insurance and the insurer was able to repay the Fund, and so the judgment was not set aside. In considering the other case, the Court noted the complicating prejudicial impact on a plaintiff if a judgment must be set aside and repayment sought against him or her. This would, the Court noted, “undermine the scheme of the Act.”
[45] Further, in Peterbilt of Ontario Inc. v. 1565672 Ontario Inc. (2007), 2007 ONCA 333, 87 O.R. (3d) 479 at para. 2, the Ontario Court of Appeal noted that in considering a motion to set aside a default judgment the court must “have regard to the potential prejudice to the moving party should the motion be dismissed, the potential prejudice to the respondent should the motion be allowed, and the effect of any order the motion judge may make on the overall integrity of the administration of justice.” [emphasis added]
[46] As in Hall v. Shearer and MA Teresa David, therefore, and having regard to the prejudice to McKenzie and the overall integrity of the administration of justice, I conclude that the judgment should not be set aside.
Should the Judgment be stayed against Zhang?
[47] This brings me to the request for a stay.
[48] Section 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43, gives the Court broad powers to grant stays of proceedings, and this has been held to include staying the enforcement of a final judgment, albeit in “very rare circumstances.” In 1247902 Ontario Inc. v. Carlisle Power Systems Ltd., 2003 CarswellOnt 6433, aff’d 2005 CarswellOnt 132 (C.A.), the Divisional Court adopted the test stated by Epstein J. (as she then was) in Gruner v. McCormack (2000), 45 C.P.C. (4th) 273 (Ont. S.C.J.), at 281:
To justify a stay, the defendant must satisfy the Court that a continuance of the action would work an injustice because it would be oppressive or vexatious or an abuse of the process of the Court and that the stay would not cause an injustice to the plaintiff.
[49] The Divisional Court noted that this was a stringent test, observing, at para. 9:
There is good reason for the bar to have been set so high. As the earlier authorities have so often stated, judgments ought to be considered final and creditors should have unencumbered rights of enforcement. For a defendant to be able to raise equitable grounds at that stage would derogate from the notion of finality. It would frustrate commercial enterprise and needless to say would encourage a whole new area of litigation. Moreover, a stay could result in real unfairness to a particular creditor as it would not prevent the emergence of other legitimate creditors who are not stayed. Furthermore, there would always be the potential that under a stay the value of an asset might be affected and indeed diminished by way of mortgaging or tax arrears.
[50] This case raises unusual facts. Unlike in Hall v. Shearer and MA Teresa, cited above, where the drivers were in personal vehicles and both knew that they had no insurance, Zhang was driving a commercial vehicle for his employer and had good reason to believe it was properly insured. Moreover, his employer, the co-defendant, deliberately withheld from him the fact that the vehicle was not insured and kept Zhang in the dark about the lawsuit. Zhang was not aware of the proceedings involving him and was not responsible for the lack of insurance; his employer was the party which ought to have had insurance.
[51] Even when the Fund took over the case, it made no effort to contact Zhang in conducting the defence. While it may not have made a difference to the judgment, Zhang’s counsel has raised questions about the circumstances of the accident, such as whether it was dark, how fast (or slowly) Zhang was going, what McKenzie was wearing and where she was struck on the road. The case might have been viewed differently had Zhang, or even the tour guide, been interviewed. Also, contacting Zhang would, at the very least, have put him on notice that he was a defendant, that there was no insurance, and he would then have had an opportunity to cross-claim pursuant to s.1 of the Negligence Act, R.S.O. 1990 c.N.1, and/or seek some kind of protection or indemnity from Liu.
[52] In these circumstances, it is unjust to hold Zhang liable for the judgment.
[53] On the other hand, I see limited prejudice to the Fund if the judgment is stayed against Zhang. As reviewed at the outset of these Reasons, the Fund is given the power to seek repayment from those who are uninsured in order to hold them to account, and there is no obligation on the Fund to show that defendants are at fault in failing to have insurance. However, this case involves rare, if not unique, circumstances in which Zhang believed he was insured, and had no knowledge of his employer’s failure to have insurance following that accident, and had no knowledge of the litigation, including during the years when the Fund had carriage of the matter.
[54] By staying the action against Zhang in these unusual circumstances I do not suggest that there is, or should be, an obligation on the Fund to show fault in being an uninsured driver or owner. This decision is driven by the facts of this case which, in my view, raise those “very rare circumstances” in which the judgment should be stayed to avoid an injustice to Zhang, and does not cause an injustice to the Fund.
[55] I recognize that the Fund may have difficulty collecting from the numbered companies or Liu; however, this is not uncommon, and will not have implications for other creditors or the ability of the Fund to carry out its functions and legislative objectives. Further, granting a stay of execution does not raise the complications of compliance with s. 7(3) of the Act, nor would it put the Fund in the position that it must seek repayment from McKenzie.
CONCLUSION
[56] Accordingly, having regard to the purpose of the Fund and its goals of providing compensation while not letting insurers and uninsured owners and drivers avoid liability, and while respecting the importance of final judgments of the Court, in the rare and unusual circumstances of this case I order that the judgment against Zhang be stayed.
[57] If the parties cannot agree on costs, then counsel for Zhang may, within three weeks of the date of these Reasons, submit written submissions to me not exceeding three pages (not including supporting documents), and counsel for the Fund and McKenzie may provide similarly limited responding submissions two weeks later.
Schabas J.
Date: December 12, 2019