Court File and Parties

COURT FILE NO.: CV-16-559600 DATE: 2020 02 13

SUPERIOR COURT OF JUSTICE - ONTARIO

IN THE MATTER OF the Construction Act, RSO 1990, c. C.30, as amended

RE: M.R. ELECTRIC 2426566 ONTARIO CORPORATION, Plaintiff - and - BIDHU BHUSHAN CHANDA, NEXT LEVEL BUILDER & DEVELOPER LTD. and ROYAL BANK OF CANADA, Defendants

BEFORE: Master Todd Robinson

APPEARING: J. Anisman, counsel for the defendants, Bidhu Bhushan Chanda and Next Level Builder & Developer Ltd. M. Shilpi, representative of the plaintiff (shareholder) L. Kung, former counsel for the plaintiff

HEARD: December 6, 2019

REASONS FOR DECISION

[1] On December 6, 2019, I heard a motion by the defendants, Bidhu Bhushan Chanda (“Chanda”) and Next Level Builder & Developer Ltd. (“Next Level”), for an order setting aside all of the order of Master Albert dated October 3, 2018 striking their statement of defence, their noting in default, and the default judgment of Master Wiebe dated October 29, 2018. Also returnable on the same date was a motion by the lawyers for the plaintiff, M.R. Electric 2426566 Ontario Corporation (“MR Electric”), for an order removing them from the record, which proceeded on consent.

[2] Ms. Shilpi, who is the spouse of MR Electric’s principal, identified as “Rahim”, attended the hearings of both motions on behalf of MR Electric. Ms. Shilpi advised that Rahim was sick and thereby unable to attend himself. Ms. Shilpi confirmed she is not an officer or director of MR Electric, but is a shareholder. MR Electric sought an adjournment of the defendants’ motion, which was opposed by the defendants. I ultimately granted leave for Ms. Shilpi to argue the adjournment, but without displacing the requirement for MR Electric to appoint new counsel or seek leave to be represented by a non-lawyer in accordance with my order dated December 6, 2019 and Rule 15.04(6) of the Rules of Civil Procedure, RRO 1990, Reg 194. Notwithstanding the removal order, MR Electric’s former counsel remained and provided assistance to Ms. Shilpi, which was appreciated by the court.

[3] After hearing submissions, I declined MR Electric’s adjournment request. As noted in my endorsement at the time of the hearing, I was not satisfied with the explanation provided for MR Electric’s failure to deliver responding materials, nor was I advised regarding what responding evidence was necessary for a proper adjudication of the motion. In particular, MR Electric’s only explanation for not having delivered responding materials was that MR Electric’s counsel had not received instructions since a planned Rule 39.03 examination fell through and was then instructed not to represent MR Electric further. Ms. Shilpi argued that she lacked any knowledge about the case and that the principal of MR Electric was in the best position to both explain the circumstances and argue opposition to the motion.

[4] In opposing the adjournment, the defendants submitted that the motion was originally returnable in June 2019, but was adjourned to October 2019 for MR Electric to conduct a Rule 39.03 examination, which did not proceed. The motion was then further adjourned to my list on December 6, 2019 for responding materials, cross-examinations and facta to be completed, as I endorsed on October 11, 2019. The defendants further submitted that the issue of MR Electric’s counsel seeking removal from the record was first raised in November 2019, culminating in a removal motion that I found was improperly brought in ex parte court and that I adjourned to the same date as the defendants’ motion. The defendants argued that MR Electric was represented throughout the motion, had the opportunity to file responding materials, and did not, despite the prior adjournments.

[5] In the absence of an adequate explanation for why responding materials were not or could not have been filed and what responding evidence was necessary to oppose the motion, I agreed there was no basis for a further adjournment. MR Electric’s principal was stated to be the person in the best position to represent MR Electric in opposing the motion (in the absence of counsel), and was stated to be ill, but there was no evidence to substantiate that illness or the extent of illness. In my view, his purported inability to appear that day was thereby also not a sufficient basis upon which to adjourn, particularly when the motion had been previously adjourned twice to facilitate responding steps by MR Electric that it had failed to take.

[6] Although denying the adjournment, I granted leave for Ms. Shilpi or MR Electric’s principal to represent MR Electric for the limited purpose of advancing MR Electric’s opposition to the motion. The motion was held down until the afternoon, in part to allow an opportunity for MR Electric’s principal to attend if he could. He did not attend, but MR Electric’s former counsel remained and provided further assistance to Ms. Shilpi.

[7] After hearing the parties’ submissions, I granted the defendants’ motion with reasons to follow. These are those reasons.

Background

[8] Chanda is the owner of the subject premises, 152 Harewood Avenue, Toronto. In 2014, Chanda contracted with Next Level for the construction of a single-family house at the premises. Next Level obtained a written quotation from MR Electric for electrical work, sump pumps, pot lights and other items, which was accepted by Chanda and signed back. The evidence filed on the motion supports that the approved work was for a contract price of $16,850 plus HST.

[9] Chanda’s evidence is that MR Electric performed various work, for which payments totalling $15,398 were purportedly made by Chanda and Next Level.

[10] On June 28, 2016, MR Electric liened the premises for $34,917 in unpaid services and materials, claiming supply to both Chanda and Next Level between July 18, 2014 and June 2, 2016. A statement of claim was subsequent issued on August 30, 2016.

[11] Chanda and Next Level jointly retained Michael J. Panacci to represent them and prepare their statement of defence and counterclaim, which was ultimately filed on August 22, 2017 (although is dated October 28, 2016). Chanda’s evidence on the motion is that all meaningful communications with Mr. Panacci ceased in late 2017, and that Mr. Panacci told them “not to call or write him” and that “he would contact [them], if required”.

[12] On October 13, 2017, Justice Pollack granted a judgment of reference in the action, referring the matter to be determined by a construction lien master. My order of Master Muir dated February 28, 2018, a first hearing for directions was ordered for May 7, 2018. Three hearings for directions thereafter proceeded before now-retired Master Albert on May 7, July 23, and October 3, 2018. Chanda’s evidence is that neither Chanda nor Next Level had any knowledge of these hearings for directions.

[13] On October 3, 2018, Master Albert ordered that the statement of defence and counterclaim of Chanda and Next Level be struck for ongoing breaches of court orders, with costs, and granted leave for MR Electric to move for judgment. Master Albert also ordered a means by which Chanda and Next Level could cure their defaults, namely by payment of all unpaid costs awards, delivery of their affidavit of documents and Schedule A productions, delivery of their Scott Schedule, and delivery of their list of proposed witnesses.

[14] On October 29, 2018, after Chanda and Next Level had been noted in default, MR Electric moved before Master Wiebe for default judgment. Master Wiebe granted judgment in the amount of $51,735, plus costs of $13,500, declared MR Electric’s lien valid in the amount of $34,917, and directed that the Accountant of the Superior Court of Justice pay to MR Electric all funds, plus accrued interest, that had been previously posted to vacate the lien.

[15] Chanda’s evidence is that he became aware of the default judgment shortly after having heard in the community, around the end of March 2019, that the principal of MR Electric was saying he had been successful in this litigation. While the particulars of how the default judgment came to Chanda’s attention are not provided, the evidence is uncontested that he had no prior notice. There is no evidence that the default judgment was served by MR Electric after it was obtained, or that MR Electric gave any other notice of judgment to Chanda or Next Level.

[16] Current defendants’ counsel was thereafter retained in late March 2019, after which a copy of the court file was obtained and a notice of potential claim was sent to defendants’ former counsel and the Lawyers’ Professional Indemnity Company. Chanda’s evidence is that his former counsel had failed to deliver his file to the new counsel as of the date of the affidavit being sworn.

[17] Per the case history for this action, on April 16, 2019, current defendants’ counsel filed a notice of change of lawyer and this motion was subsequently booked and brought by notice of motion filed May 6, 2019.

Analysis

Relevant Legal Framework

[18] Section 67(3) of the now-former Construction Lien Act, RSO 1990, c. C.30 (the “CLA”) (the provisions of which remain applicable to this proceeding by operation of section 87.3 of the current Construction Act, hence references in this decision are to the now-former CLA) provides that the Rules of Civil Procedure apply to construction lien proceedings, except where inconsistent with the CLA. The CLA has no prescribed process for a motion to set aside a noting in default and default judgment, or to set aside an order striking a defence. Accordingly, Rules 19.08 and 59.06(2) are pertinent on this motion.

[19] Rule 19.08 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.

(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.

[20] Rule 59.06(2) deals with setting aside a prior order of the court, and provides as follows:

59.06 (2) A party who seeks to,

(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;

(b) suspend the operation of an order;

(c) carry an order into operation; or

(d) obtain other relief than that originally awarded,

may make a motion in the proceeding for the relief claimed.

[21] The test for setting aside a default judgment requires satisfying three criteria: (i) that the motion to set aside was brought without delay after learning of the default order; (ii) that there is an adequate explanation for the default; and (iii) there is an arguable defence on the merits: Lenskis v. Roncaioli, [1992] OJ No 1713 (Gen Div). In assessing these criteria, the court must determine whether the interests of justice favour an order setting aside the default judgment having regard to the potential prejudice to the moving party if the motion is dismissed, the potential prejudice to the responding party if the motion is allowed, and the effect of any order the court may make on the overall integrity of the administration of justice: Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 33 at para. 2. The defendants argued that the same test should be applied to setting aside the order striking their defence.

[22] Chanda’s evidence on this motion was tendered by way of sworn, translated affidavit. Both the English and Bengali versions of the affidavit were submitted, together with a certificate of translation from Multi-Languages Corporation. The translation was notarized. MR Electric had sought to pursue an examination of the defendants’ former lawyer pursuant to Rule 39.03, but ultimately did not proceed with it. Chanda was not cross-examined on his affidavit. Accordingly, Chanda’s evidence is uncontested.

Promptness in Bringing the Motion

[23] I am satisfied that the motion was brought promptly. While the evidence is not as clear as it might be on the precise timing of when Chanda came into possession of the default judgment, and there is no direct evidence from Next Level, there is also no evidence supporting that either defendant was aware of the default judgment before the end of March or early April 2019. While MR Electric argues that the default judgment was served on the defendants’ then-counsel, who purportedly confirmed in letters that a set aside motion would be brought, there is no such evidence before the court. I accordingly gave no weight to those submissions.

[24] In my view, based on the evidence before me, the timing of retaining new counsel and bringing this motion after becoming aware of the default judgment shows no undue delay on the part of Chanda or Next Level.

Explanation for Default

[25] The uncontested evidence of Chanda is that neither he nor Next Level had any knowledge of the steps being taken in the action. Chanda’s evidence is that, when requests were made regarding the status of the action, former counsel reassured Chanda and Next Level that he was handling the file and there was nothing to be concerned about. For example, Chanda’s affidavit states as follows:

Next Level and I attempted to contact Panacci on occasion by telephone to determine the status of the Action. Any communications we had with him or his office after this point, served to reassure us that Panacci was handling the file and that there was noting to be concerned with and no steps to be taken. Panacci advised us not to call or write him. He told us that he would contact us, if required.

[26] MR Electric argues it is “convenient” to blame former counsel, and that the defendants have not tendered an affidavit from their former counsel. Given the notice of claim sent to Mr. Panacci and his insurer, and the nature of alleged negligence, I do not find it particularly surprising that there is no affidavit from him. MR Electric’s planned Rule 39.03 examination of Mr. Panacci did not proceed and Chanda was not cross-examined. MR Electric’s only evidentiary basis for challenging Chanda’s evidence is statements made by Master Albert in her trial directions, including the following:

(a) On July 23, 2018, Master Albert commented on statements by defendants’ then-counsel that “Mr. Chanda has been out of the country” which precluded completing ordered steps and that, “Counsel has advised the court that his client will be available forward going to complete these steps”; and

(b) On October 3, 2018, Master Albert commented, “[The defendants’] counsel could not explain the breaches other than that he has not been able to communicate with Mr. Chandra [sic] and that Next Level was busy picking up his children.”

[27] MR Electric sought to tender these statements by Master Albert for the truth of their contents, which is a hearsay use. In any event, even if Master Albert’s statements accurately reflect the representations made by Mr. Panacci in court, they are contradicted by Chanda’s sworn evidence.

[28] I am satisfied on the evidence that there is an adequate explanation for the various defaults by Chanda and Next Level that resulted in ongoing breaches of court orders and, ultimately, the order striking their defence and subsequent default judgment, namely that they were not apprised by their lawyer regarding the status of the action and, accordingly, had no knowledge of the hearings for directions, the orders made, or their default of those orders.

[29] I also find that these are facts discovered after the order striking the defence was made, and support that it should being set aside.

Defence on the Merits

[30] I am satisfied from the evidence that there is an arguable defence on the merits. Chanda’s affidavit outlines the contractual agreement, scope of work, payments made and deficiencies alleged, with some supporting evidence. The evidence filed on this motion demonstrates support for the pleaded positions and, in my view, is sufficient to satisfy the defendants’ onus on this motion.

Prejudice

[31] Prejudice to Chanda and Next Level is clear. Given the defences, if the order striking their defence, noting in default and default judgment are allowed to stand, they are subject to a judgment far greater than any amount they may actually owe. The defendants argue that MR Electric has been paid more than double the amount to which it was entitled for its work between what was paid during the project and what has been received from payment out of court. In my view, the defendants are also denied any opportunity to have the matter decided on its merits. MR Electric argues that an action against their former lawyer is a full and proper remedy for the defendants, since MR Electric was not the party in default during the litigation. The defendants’ dispute the relevance of a potential remedy against their former lawyer in considering prejudice.

[32] MR Electric argues that it is prejudiced because it closed the matter more than a year before the motion was heard. Funds paid out of court have been spent on material costs and employees. MR Electric argues that the cash payments alleged by Chanda in his affidavit are false statements, so MR Electric has not received any kind of windfall as argued. However, since no responding materials were filed (and no adequate explanation for failing to do so was provided), and Chanda was not cross-examined, there is no evidence substantiating any of those positions. There is also no evidence supporting any hardship to MR Electric from the action continuing to a trial on its merits.

[33] I am concerned with the impact that declining a set aside order in these circumstances may have on the integrity of the justice system. On the evidence, Chanda and Next Level had no knowledge that their lawyer was attending court, that orders were being made, that costs sanctions were being imposed, or that their defence had been struck. Default judgment was obtained, and there is no evidence of the judgment-debtor, MR Electric, providing any notice of the judgment. There is nothing before me to suggest that Chanda and Next Level were complicit in the defaults, or that they acted improperly.

Return of Security

[34] During the hearing, I asked for submissions on what should happen with the security for the lien that was paid out to MR Electric pursuant to the default judgment in the event that judgment was set aside. The defendants’ submitted that MR Electric should be required to repay the security into court, but that they were prepared to afford as much time as needed to do so. MR Electric argued, as outlined above, that those funds have been paid out for material costs and employees. There is no evidence supporting any inability of MR Electric to repay the lien security or any hardship to MR Electric from having to do so. In my view, if the default judgment is set aside, the basis upon which the security was paid out of court is also set aside and, accordingly, security should be repaid into court.

Disposition

[35] Taking into account the prejudice to both sides, the broader implications of declining to set aside in the circumstances of this case, and in the absence of any clear prejudice to MR Electric, I reached the determination that the matter should be heard on its merits. I accordingly held that the default judgment and order striking the defence be set aside and that the security be repaid into court. Allowing these orders to stand when the evidence filed supports that the defendants had no knowledge of or complicity in the breaches or court orders could, in my view, harm the integrity of the justice system and the administration of justice.

[36] However, Chanda and Next Level had not complied with Master Albert’s orders for serving an affidavit of documents and Schedule A productions, Scott Schedule or list of proposed trial witnesses. I accordingly found it appropriate to require that those steps be satisfied prior to the order striking the defence being set aside or MR Electric being required to repay the security for the lien into court.

Orders

[37] I accordingly made the following orders on the date of the hearing, as reflected in my endorsement that day:

(1) The default judgment of Master Wiebe dated October 29, 2018 is hereby set aside, together with the related noting in default of the defendants.

(2) The defendants shall comply with Master Albert’s orders to serve an affidavit of documents and Schedule A productions, serve a Scott Schedule, and deliver a list of proposed witnesses by January 10, 2020.

(3) Following compliance with paragraph 2 above, Master Albert’s order dated October 3, 2018 striking the defence shall be set aside, to be addressed at the next hearing for directions.

(4) A hearing for directions shall proceed before me on March 10, 2020 at 10:00 a.m. for the purpose of confirming compliance with this order, fixing a trial date and duration, and other matters to ensure trial readiness.

(5) Following compliance with paragraph 2 above, the plaintiff shall repay the security posted pursuant to the order of Master Muir dated May 26, 2017 in CV-16-559600 and paid out by the default judgment. If not paid back into court by the next hearing for directions, the timing for doing so may be addressed at that time.

[38] At the outset of motion argument, the court was advised regarding an agreement reached for costs of the motion to be payable in the amount of $2,750 in the event of the defendants’ success, to be set-off against the outstanding costs orders of Master Albert, such that there would be no outstanding costs orders. Ms. Shilpi confirmed that agreement. I accordingly also made that order as set out in my endorsement.

MASTER TODD ROBINSON DATE: February 13, 2020