Court File and Parties

2020 ONSC 1294 COURT FILE NO.: CV-15-123503 DATE: 20200227 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Aluminum Window Design Installations Inc. Plaintiff – and – Grandview Living Inc., John Matas and Gord Matas Defendants

COUNSEL: Gregory Hemsworth, for the Plaintiff Mark Strychar-Bodnar, for the Defendants

HEARD: February 13, 2020

REASONS FOR DECISION

CHARNEY J.:

Introduction

[1] This motion is brought by the defendants for an order pursuant to Rule 37.14 of the Rules of Civil Procedure to set aside the April 20, 2017 order striking out the defendants’ Statement of Defence and Counterclaim, and pursuant to Rule 19.08 to set aside the November 14, 2017 order for default judgment against the defendants.

Facts

[2] The motion arises from an unfortunate sequence of events related to the defendants’ former counsel.

[3] The case arises from a condominium construction project in Oakville, Ontario in which Grandview Living Inc. (Grandview) contracted with Aluminum Window Design Installations Inc. (AWD) for the manufacturing, supply and installation of windows for 33 residential and 3 commercial units. Grandview is the property owner and acted as the construction manager. In August of 2010 Grandview and AWD entered into a contract of the work AWD was to complete.

[4] The value of the contract was for $475,000.

[5] Grandview paid AWD $398,734 for work performed on the contract, but a dispute between the parties arose as to the quality and timing of AWD’s work, and Grandview took the position that nothing more was owed.

[6] AWD commenced this action with a Statement of Claim issued in July 2015. AWD alleges that it is owed $159,722.51 plus interest. AWD also named John Matas and Gord Matas as defendants, alleging that, as the directors and officers of Grandview, they caused Grandview to commit a breach of trust by diverting alleged trust funds.

[7] The defendants retained the law firm Yachetti Lanza & Restive LLP (YLR) to defend the action. Ivan Marini, a lawyer with YLR, had carriage of the action. Mr. Marini had acted for the defendants and affiliated corporations for approximately 20 years.

[8] A Notice of Intent to Defend was served on September 9, 2015. A Statement of Defence and Counterclaim was issued that same month.

[9] In the Statement of Defence and Counterclaim, the defendants deny diverting any trust funds and allege that it was AWD that breached the contract by performing its work negligently and not in the time required by the contract.

[10] The plaintiff served a defence to the counterclaim in October 2015.

[11] During this period Mr. Marini was suffering from serious mental health issues. He had a history of major depressive disorder, and his depression at this time was very severe. Since he intended to go on medical leave, Mr. Yachetti of YLR was listed as counsel of record for the defendants.

[12] Shortly after the pleadings were filed Mr. Marini went on disability leave as a result of his depression, and Mr. Yachetti agreed to take over the file until Mr. Marini returned to practice.

[13] The defendants became aware of Mr. Marini’s mental health issues around September of 2015, and understood that another lawyer from YLR would take care of the matter while Mr. Marini was on leave.

[14] In the spring of 2016, Mr. Marini received clearance from his family doctor to return to the practice of law, and returned in May 2016 subject to a two year probationary period imposed by the Law Society of Upper Canada. Mr. Marini decided to start his own firm and practice as a sole practitioner. He began communicating with Mr. Yachetti about taking over the files he had left with the firm while on leave. They agreed that all of the files related to John and Gord Matas would be transferred to Mr. Marini.

[15] The files were transferred to Mr. Marini on a piecemeal basis as issues arose on the file, rather than all at one time.

[16] The defendants knew that Mr. Marini had returned to practice on his own in May of 2016, and asked him to resume carriage of the AWD action and other matters. They paid him a $5,000 retainer. Mr. Marini advised YLR of this, and while certain documents related to the AWD action were transferred to Mr. Marini from YLR, the complete file was “inadvertently” not transferred. In addition, Mr. Marini failed to file a Notice of Change of Lawyer, which left YLR as the counsel of record in the action.

[17] As of May 2016, Mr. Marini, Mr. Yachetti and the defendants were operating under the assumption that Mr. Marini had carriage of the action. Unfortunately, no one communicated this information to the plaintiff.

[18] On September 14, 2016, the plaintiff brought a motion before Master Muir, who ordered the parties to abide by a discovery plan and awarded costs against the defendants, who failed to appear. The motion record was served on YLR.

[19] Since the defendants did not comply with the discovery plan, the plaintiff brought a motion to strike the defendants’ defence and counterclaim, returnable on April 20, 2017, in Newmarket. Again, counsel of record, YLR, was served, and no one appeared on behalf of the defendants. The motion was granted (the strike order) with costs against the defendants.

[20] On the morning of April 20, 2017, Mr. Marini received a telephone call from an associate at YLR advising him of a motion returnable that same day with respect to the AWD action. Mr. Marini’s affidavit states that this was the first that he had ever heard of the motion. Mr. Marini asked the associate where the motion was being heard, and states that the associate told him that it was being heard in Hamilton.

[21] Mr. Marini then called the office of the defendants, advising them that they had to attend at the Hamilton courthouse to request an adjournment of the motion because he was not available. Gord Matas and an employee of Grandview attended the Hamilton Superior Court, and were advised that the motion was being heard in Newmarket. By the time they arrived in Newmarket, the motion had been heard as unopposed, and the defendants’ defence and counterclaim were struck out.

[22] The appropriate response in these circumstances is to bring a motion under Rule 37.14, which authorizes a court to set aside an order if the defendant failed to appear at a motion “through accident, mistake or insufficient notice”.

[23] The defendants wanted to challenge the order striking out their defence and counterclaim, and turned to Mr. Marini for advice. Mr. Marini was unaware of Rule 37.14, and advised the defendants that they should appeal the order to the Ontario Court of Appeal. The defendants paid the costs of the strike order, and Mr. Marini drafted a Notice of Appeal, which was served and filed on May 19, 2017.

[24] Gord Matas attended at the court to file the Notice of Appeal, and was advised by the clerk that the defendants should be bringing a motion in the Superior Court to set aside the default judgment. Mr. Matas relayed this information to Mr. Marini, who told Mr. Matas that he had the matter in hand.

[25] Mr. Marini took no action to perfect the appeal, and on July 17, 2017 he received an order from the Court of Appeal dismissing the appeal for delay. Mr. Marini did not advise the defendants that the appeal had been dismissed.

[26] On November 14, 2017, the plaintiff was granted default judgment for $214,123 (the principle amount plus prejudgment interest) plus costs of $12,000.

[27] The affidavit evidence filed by John Matas and Gord Matas indicates that Gord Matas emailed Mr. Marini on May 23, 2017, August 11, 2017, November 20, 2017, and December 15, 2017, asking about the next steps for the appeal. There is another email dated February 5, 2018, which indicates that on that date Gord Matas discovered - for the first time - that Mr. Marini had not perfected the appeal because “we have to do it on Motion. He said we will take care of that tomorrow.”

[28] On February 7, 2018, Gord Matas emailed Mr. Marini, stating: “Can you please update us where you’re at. We’re all a little on edge. Is there anything more that we can do to help to move this along?” A series of similarly anxious emails were sent by Gord Matas to Mr. Marini throughout February, March, April, May and June 2018 to inquire into the status of the AWD motion.

[29] On March 14, 2018, counsel for the plaintiff emailed Mr. Marini, requesting Mr. Marini provide dates for the examination in aid of execution for the defendants. Mr. Marini simply ignored the email, and did not provide a copy of the email to the defendants.

[30] On June 2, 2018, Gord Matas emailed Mr. Marini asking for the date for the AWD motion so that he could diarize it.

[31] On June 5, 2018, the defendants learned that AWD had registered the judgment against them when a credit check revealed the judgment. On June 6, 2018, John Matas wrote to Mr. Marini:

I understand that there is a meeting next week regarding the motion to set aside the AWD motion of last April 2017.

I have a feeling that we just got screwed.

Gord did everything he could to file the appeal under your direction and instructions. It looks to me that a year has gone by without anyone touching the file…

[32] Consistent with the Matas’ affidavits, Mr. Marini’s affidavit filed in support of this motion indicates that he had “a number of meetings with the defendants” and assured them that he was handling the AWD action. Once the appeal was dismissed, he decided to bring a Rule 37.14 motion to set aside the strike order, but neglected to do so. The defendants asked him a number of times when he was going to bring the motion, and he continued to assure the defendants that he was “taking care of it”.

[33] Following their final meeting with Mr. Marini, at the end of June 2018, the defendants decided to retain new counsel, and retained Mr. Corsianos of the law firm Corsianos Lee LLP. On June 26, 2018, Mr. Corsianos wrote to YLR and Mr. Marini to advise that he had been retained.

[34] Mr. Corsianos asked YLR and Mr. Marini to contact LawPro, the professional liability insurer for Ontario lawyers.

[35] Since the appeal had been dismissed by the Court of Appeal, Mr. Corsianos was of the view that the first step was to move to have that dismissal order set aside and to extend the time for perfecting the appeal, and in July 2018, he served and filed a notice of motion for this relief.

[36] In September of 2018, counsel was retained by LawPro on behalf of Mr. Marini to review the file. LawPro counsel determined that the proper course of action was to bring a motion to set aside the strike order under Rule 37.14. However, since Mr. Corsianos had already brought the motion to have the dismissal of the appeal set aside, it was determined that the best course of action was to proceed to the next step after the motion to have the dismissal set aside was dealt with by the Court of Appeal.

[37] The motion at the Court of Appeal was heard on October 5, 2018. On October 18, 2018, Benotto J.A. released her reasons dismissing the motion. In her reasons she noted that there were two reasons why the motion must fail. The first reason was that the motion was in the wrong court. The required procedure was to move in the Superior Court to set aside the strike order on or immediately after April 20, 2017 pursuant to Rule 37.14. In addition, since default judgment had been granted, the defendants also had to move under Rule 19.08 to set aside the judgment that was ultimately obtained. 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.

(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.

[38] Benotto J. held, at paras. 14-15:

Instead of applying under rr. 37 or 19, the appellants sought to appeal without exhausting their remedies in the court below. This court does not have jurisdiction to hear the appeal.

On this basis alone the appellants’ motion fails.

[39] Benotto J. A. went on, however, to hold that the defendants had not met the test set out for setting aside a dismissal for delay and extending the time for bringing the appeal. Of particular relevance to the motion before me, she found (at para. 17):

The delay of a year to perfect the appeal is long and largely unexplained. Essentially, the appellants allege that they left the action and the appeal in the hands of their then lawyer and should not be responsible for their lawyer’s conduct of the file. However, the email exchange on February 5, 2018 shows that the appellants were aware of the need to perfect.

[40] In addition, she concluded, at para. 19, that the delay had prejudiced the respondent which has been attempting to execute on the judgment.

[41] On November 30, 2018, LawPro counsel served a motion under Rule 37.14 to set aside the strike order. An Amended Notice of Motion was served on December 27, 2018, with a return date of May 13, 2019. The motion record was finalized and served on March 11, 2019.

[42] The plaintiff requested that the May 13, 2019 motion date be adjourned to allow the plaintiff to cross-examine John Matas. A new date of July 25, 2019 was agreed upon.

[43] Cross-examinations of the defendants’ affidavits in support of the motion were conducted in April and June of 2019. A further adjournment was sought by the plaintiff to allow for additional cross-examination of John Matas, and the additional cross-examinations of John Matas took place on December 6, 2019.

[44] The motion was adjourned to February 13, 2020.

Rule 37.14

[45] Rule 37.14 provides:

37.14 (1) A party or other person who,

(a) is affected by an order obtained on motion without notice;

(b) fails to appear on a motion through accident, mistake or insufficient notice; or

(c) is affected by an order of a registrar,

may move to set aside or vary the order, by a notice of motion that is served forthwith after the order comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion.

(2) On a motion under subrule (1), the court may set aside or vary the order on such terms as are just.

[46] In Ontario (Attorney General) v. 15 Johnswood Crescent, Strathy J. (as he then was) outlined the purpose of Rule 37.14 (at para. 29):

…to prevent unfairness or, worse, a miscarriage of justice, where a party’s inadvertence or the absence of sufficient notice has resulted in an order being obtained without that party being afforded an opportunity to present his or her case. A party who does not appear in these circumstances will usually be given a chance to present evidence and to argue the motion on its merits, assuming he or she moves promptly and provided there are no countervailing considerations.

[47] Strathy J. set out the following factors to be considered in the court’s exercise of its discretion in the application of Rule 37.14 (at para. 34):

(1) Proof of accident or mistake: The moving party must establish a failure to appear on the original motion through accident, mistake or insufficient notice. This is a precondition to relief under the rule. A party who has simply chosen not to appear on a motion cannot complain later if he or she does not like the outcome.

(2) The party must move forthwith after the order comes to his or her attention: This is also a precondition to relief under the rule, but there is room for flexibility in the interpretation of “forthwith”, depending on the circumstances…

(3) The length of the delay and the reasons for it: In considering whether to set aside an order, the court will consider whether there has been delay in bringing the motion and the reason for it. All other things being equal, the longer an order has been in effect, particularly where parties have acquired rights or changed their positions as a result of the order, the less likely it will be that the court will set it aside.

(4) The presence or absence of prejudice: The court should consider whether a party will be prejudiced by setting aside the order or by failing to set aside the order. There will always be prejudice if an order is made against a party without sufficient notice and there will always be some kind of prejudice to the other party if the order is set aside. Nevertheless, the exercise of the court’s discretion may require an examination of the relative prejudice to the parties.

(5) The underlying merits of the moving party’s case: It may be necessary to consider the underlying merits of the moving party’s case in weighing the various factors, balancing the interests of the parties, and determining what is just in the circumstances. Lengthy delay in bringing the motion may be more readily forgiven if the moving party has a very strong case on the merits. It will be less readily forgiven if the party’s case appears frivolous.

[48] See also: Battistella v. Italian Home Bakery, 2011 ONSC 4964, at para. 34.

[49] Where failure to appear on the motions was not the result of “accident, mistake or insufficient notice” Rule 37.14 has no application. That is why Strathy J. refers to “proof of accident or mistake” as a “precondition” to relief under the rule.

[50] In the present case, all of the motions were served on the defendants’ counsel of record. As such, this is not a case of insufficient notice. The issue is whether the defendants’ failure to appear was the result of an accident or mistake.

Accident or Mistake

[51] The defendants rely on “the often applied principle that the sins of the lawyer should not be visited upon the client”: Graham v. Vandersloot, 2012 ONCA 60, at para. 10.

[52] This principle was enunciated by the Court of Appeal in Halton Community Credit Union Ltd. v. ICL Computers Canada Ltd., [1985] O.J. No. 101, 8 O.A.C. 369 (C.A.), at para. 11:

Undoubtedly counsel is the agent of the client for many purposes . . . but it is a principle of very long standing that the client is not to be placed irrevocably in jeopardy by reason of the neglect or inattention of his solicitor, if relief to the client can be given on terms that protect his innocent adversary as to costs thrown away and as to the security of the legal position he has gained. There may be cases where the plaintiff has so changed his position that this is impossible.

[53] I also adopt the words of Laskin J.A. in Finlay v. Van Paassen, 2010 ONCA 204, at para 33:

In my view, on a motion to set aside a dismissal order, the court should be concerned primarily with the rights of the litigants, not with the conduct of their counsel. As Sharpe J.A. noted in Marché, at para. 28, “The law will not ordinarily allow an innocent client to suffer the irrevocable loss of the right to proceed by reason of the inadvertence of his or her solicitor.”

[54] The affidavit evidence provided by the defendants indicate that their failure to appear was the result of their lawyer’s negligence, which appears to have been exacerbated by his mental health issues. In this regard, it appears that both YLR and Mr. Marini dropped the ball with respect to these proceedings.

[55] The defendants’ failure to appear on the strike motion of April 20, 2017 was clearly the result of the “accident or mistake” of YLR and Marini. The evidence indicates that the defendants, once advised of the April 20, 2017 motion, made every effort to attend and request an adjournment, but were told by Mr. Marini to go to Hamilton rather than Newmarket. That qualifies as an “accident or mistake” under Rule 37.14.

[56] In this regard, this case is similar to the facts in Gerling Global General Insurance Co. v. Siskind, Cromarty, Ivey & Dowler, where the plaintiff’s solicitor failed to respond to summary judgment motion as result of serious mental health problems. Nordheimer J. (as he then was) stated at para. 8:

Dealing first with the issue of whether the summary judgment should be set aside, the medical evidence regarding the illness of the plaintiff's former solicitor makes it clear that the solicitor was incapable of properly dealing with the affairs of his client. It is equally clear that the plaintiff's former solicitor failed to respond to the summary judgment motion as a consequence of the illness under which he was labouring and not through any informed or conscious decision not to attend. In fairness, the defendants do not dispute this fact. In my view, those circumstances would constitute a failure to appear through “accident or mistake” as those terms are used in rule 37.14(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and provide sufficient grounds to set aside the summary judgment that was granted.

Moving Forthwith to Set Aside the Strike Order

[57] The moving party must move as soon as possible in the circumstances and without any unreasonable delay to set aside the order under Rule 37.14.

[58] In this case, the Rule 37.14 motion was not brought until November 30, 2018, more than 18 months after the April 20, 2017 strike order. Under normal circumstances, a delay of 18 months would be fatal to a Rule 37.14 motion.

[59] In this case, however, the defendants have demonstrated an intention to defend this action and challenge the strike order throughout the proceedings, and their failure to bring a Rule 37.14 motion “forthwith” was solely the result of bad legal advice.

[60] The evidence indicates that the defendants at all times intended to challenge the strike order, instructed their lawyer to do so immediately, and indeed, were under the misapprehension that their lawyer was actively doing so. The defendants did not simply sit on their hands, but repeatedly and regularly communicated with their lawyer to move the proceeding along, only to be misled by their lawyer, who assured them that he was “taking care of it.”

[61] While Mr. Marini commenced the wrong process to challenge the strike order, he did move “forthwith” to serve the notice of appeal. His failure to perfect the appeal or bring a Rule 37.14 motion when the appeal was dismissed cannot be visited upon his clients, who simply accepted the legal advice and repeated assurances received from their lawyer.

Explanation for Delay

[62] In her dismissal of the motion to extend the time for the perfection of the appeal, Benotto J.A. concluded that “the delay of a year to perfect the appeal is long and largely unexplained”. With respect, the record filed on the motion before me has provided an explanation for the long delay in this case: the defendants’ lawyer suffered from mental illness and repeatedly lied to his clients about the progress of the case.

[63] There is no question that Gord and John Matas were aware that the appeal had to be perfected – this knowledge is reflected in their anxious emails throughout February to June of 2018. As counsel for LawPro state in their factum: “The faith the Defendants placed in Marini up to June 2018, while in hindsight regrettable, was not unreasonable”.

[64] This is not a case where the defendants themselves engaged in any conduct to delay or frustrate the plaintiff’s action, or failed to monitor their lawyer to ensure that he was moving forward with some process to set aside the strike order.

Prejudice to the Plaintiff

[65] There is always some element of prejudice to the plaintiff when a civil proceeding is unjustifiably delayed. Life is short, and money today is worth more than the same money eighteen months from now. The principle of finality also plays a role here. That said, the question is whether the plaintiff’s action will suffer actual prejudice by, for example, the loss of witnesses or other evidence, which cannot be compensated through an award of costs.

[66] In this case, the plaintiff has already provided its Affidavit of Documents, and there is no suggestion that the relevant evidence will not be available for trial. The defendants have also filed much of the evidence that they will rely on in the action as part of the Motion Record on this motion.

[67] In Graham, the Court of Appeal stated, at para. 12:

Apart from the understandable frustrations experienced by presiding judicial officials and opposing parties over delays in the processing of civil cases, it is the overall interests of justice that, at the end of the day, must govern. Perell J. expressed this sentiment well in Ariston Realty Corp. v. Elcarim Inc., [2007] O.J. No. 1497, at para. 38:

In my opinion, a concern for the principles of natural justice and the appearance of justice being done explains why, perhaps to the chagrin of those opposing adjournments and indulgences, courts should tend to be generous rather than overly strict in granting indulgences, particularly where the request would promote a decision on the merits. This liberality follows because it is in the public interest that whatever the outcome, a litigant should perceive that he or she had their day in court and a fair chance to make out their case.

Merits of the Defendants’ Case

[68] The defendants have demonstrated an intention to defend this case from the outset, and properly filed a Statement of Defence and Counterclaim in September 2015. I am satisfied that the defence and counterclaim are not frivolous. The defendants have provided some evidence on this motion to meet the low threshold that their defence and counterclaim “have an air of reality”: 2289878 Ontario v. Gourmet Gringos, 2016 ONSC 6204, at para. 58; Merchant Advance Capital Ltd. v. 2200816 Ontario Inc. et al, 2019 ONSC 2477, at para. 11; Long Term Recovery Ltd. v. Bolden, 2018 ONSC 4918, at para. 27: “To meet the “air of reality” test, the defence must be tenable in law and the defendant must lead some evidence to demonstrate that it is not devoid of factual and/or legal foundation.”

[69] Given the other factors discussed above, this factor militates in favour of permitting the action to proceed on its merits.

Conclusion

[70] Based on the foregoing, I am satisfied that the interests of justice favour the setting aside of the April 20, 2017 order striking out the defence and counterclaim, and that the Statement of Defence and Counterclaim be restored, subject to para. 76 below.

[71] For the same reasons, the default judgment dated November 14, 2017, should also be set aside under Rule 19.08, subject to para. 76 below. The test under Rule 19.08 is similar to the test under Rule 37.14, and counsel for the plaintiff fairly acknowledged that, in this case, if the April 20, 2017 strike order is set aside, the default judgment should also be set aside.

[72] I am advised that the defendants have paid all costs orders against them with respect to the proceedings to the date of this motion, including the costs orders from the Court of Appeal. Otherwise, payment of all costs orders would be a condition precedent to the setting aside of the order and judgment at issue in this motion.

[73] The plaintiff should also be compensated for having to respond to this motion. The principle that “the sins of the lawyer should not be visited upon the client” applies with even greater force to the innocent plaintiff in this case. While the defendants were successful on this motion, they have been granted an indulgence, and I do not fault the plaintiff for resisting the motion in the unusual circumstances of this case.

[74] In my view, the plaintiff should be awarded costs on a substantial indemnity basis. The plaintiff claims $28,070.42 for costs on a substantial indemnity basis. This is in keeping with the costs outline filed by counsel for the defendants ($23,613 on a partial indemnity basis), indicating that the parties had similar expectations with respect to the costs of this motion.

[75] Accordingly, costs are fixed at $28,070.42, payable by the defendants to the plaintiff forthwith.

[76] Payment of these costs is a condition precedent to the setting aside of the impugned order and judgment.

[77] The plaintiff also requested an order that the defendants post security in the amount of the default judgment. While the court has the authority to make such an order under Rule 19.08, I am not persuaded that this is an appropriate case for the posting of security. See: Egredzija v. Gullett, 2019 ONSC 6475, at paras. 34 and 35.

[78] The plaintiff has also requested that the defendants be ordered to meet strict timelines for production and discovery, and counsel for the defendants agree that the defendants “should be ordered to proceed with this case forthwith on such terms as this Court deems just”.

[79] Accordingly, this court orders that the defendants deliver their affidavit of documents within 30 days of the release of this decision, and, subject to the availability of counsel for the plaintiff, that discovery of all parties be completed within a further 30 days.

Justice R.E. Charney

Released: February 27, 2020