COURT FILE NO.: CV-19-00631599
DATE: 20200721
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2701988 Ontario Inc.
Applicant
– and –
Ok-Shim Jeong also known as Ok-Shim (Jade) Jeong, 2313067 Ontario Inc. also known as 2313067 Ontario Incorporated,
Jikwon Jung, Park & Jung LLP, and Park & Jung LLP, In Trust
Respondents
C. Goldson for Applicant
R. Choi and J. Careen for Respondents, Ok-Shim Jeong and 2313067 Ontario Inc.
A. Melfi for Respondents, Jikwon Jung, Park & Jung LLP and Park & Jung LLP, in Trust
HEARD: July 3, 2020
O’BRIEN, J.
REASONS FOR DECISION
Overview
[1] This is a motion to set aside an order granted to the Applicant corporation on April 28, 2020, during the suspension of the court’s regular operations due to the COVID-19 pandemic. At a telephone case conference, the court ordered the release of $350,000 to the Applicant. The Respondents, Ms. Jeong and the 2313067 Ontario Inc. (of which she is the principal) were not in attendance for the case conference. They submit that the order should be set aside pursuant to r. 38.11 of the Rules of Civil Procedure, R.R.O. 1990 Reg. 194 on the basis that they failed to attend the hearing of the application due to accident, mistake or insufficient notice.
[2] I will refer to Ms. Jeong and the Respondent, 2313067 Ontario Inc. as “the Respondents”. The Respondents, Jikwon Jung, Park & Jung LLP, and Park & Jung LLP, in Trust hold the disputed funds in trust. The application has been dismissed against them and they do not take any position on the merits of the motion or application.
[3] The underlying dispute between the parties relates to an agreement to sub-lease premises. On July 11, 2019, the Applicant and Respondent numbered company entered into an agreement to sub-lease premises located on the ground floor of a building on Yonge Street in Toronto. The Applicant intended to sublet the premises for use as a restaurant. The central term in dispute required the Applicant to make payment of $350,000, described in the agreement as a “payment in lieu of renovations.” This payment was to be made by July 15, 2019. As further set out below, the payment would only be returned in two circumstances: (1) if the sub-landlord could not obtain the written consent of the landlord to the sub-tenancy and (2) if the committee of adjustment denied the leased premises being used as a restaurant.
[4] A dispute ensued between these parties. The Applicant’s position was that the Respondents never obtained the landlord’s written consent to the sub-tenancy. As a result, the Applicant claims that it was entitled to the return of the $350,000 and the agreement to sub-lease was null and void. The Respondents’ position was that the Applicant did not provide required information to obtain the landlord’s consent and, therefore, the Respondents were unable to obtain that consent. The Applicant eventually commenced an application seeking the return of the $350,000. The Respondents now advise that the matter may need to be converted into an action and that they intend to bring a crossclaim or cross-application for the damages they have suffered.
[5] The Application was scheduled to be heard on February 12, 2020. The Applicant had difficulty serving the application record on the Respondents. The Applicant ultimately obtained an order for substituted service, permitting it to send the application materials to Ms. Jeong and the Respondent company by regular mail. Both packages were specifically refused by Ms. Jeong and were returned to the sender.
[6] On February 12, 2020, Ms. Jeong attended in court and requested an adjournment. Dow, J. adjourned the application until April 28, 2020 to permit Ms. Jeong to retain counsel. He stated specifically in his endorsement that he “advised Ms. Jeong of the need to deal with retaining counsel and serving responding material on or before March 27, 2020.”
[7] However, due to the court’s suspension of regular operations in response to the COVID-19 pandemic, all civil matters scheduled to be heard on or after March 17, 2020 were adjourned.[^1] On April 22, 2020, the Applicant wrote to the court according to the court’s procedure for hearing only urgent matters during the pandemic, requesting that this matter be heard on the previously-scheduled April 28 date on an urgent basis. By triage endorsement, Myers, J. then scheduled the matter for a case conference on April 28, 2020.
[8] Neither Ms. Jeong nor her counsel participated in the case conference on April 28, 2020. Dow, J. made an order requiring the $350,000 to be released to the Applicant based on his finding that the absence of consent by the landlord to the proposed sub-lease rendered the sub-lease null and void (the “April 2020 Order”).
[9] The Respondents now move to set aside that Order. The only issue for me to decide is whether the April 2020 Order should be set aside on the basis of the factors to be considered under r. 38.11. Considering those factors, I conclude that the April 2020 Order should be set aside.
Test pursuant to r. 38.11
[10] Rule 38.11(1) provides that a judgment on an application may be set aside for lack of or - insufficient notice. It reads:
38.11(1) A party or other person who is affected by a judgment on an application made without notice or who fails to appear at the hearing of an application through accident, mistake or insufficient notice may move to set aside or vary the judgment, by a notice of motion that is served forthwith after the judgment 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.
[11] The parties agree that the analytical framework to be applied under r. 38.11 is the same as for a motion to set aside a default judgment under r. 19.08. As set out in 1493201 Ontario Ltd. v. Giannoylis, 2016 ONSC 1210, at para. 12, the factors to consider are:
(a) Was the application made without notice or did the Respondent fail to appear at the hearing of the application through accident, mistake or insufficient notice?
(b) Was the Respondent’s motion to set aside the judgment brought forthwith after the judgment came to her attention?
(c) Did the Respondent’s motion name the first available hearing date that was at least three days after service of the notice of motion?
(d) Does the Respondent have an arguable defence on the merits?
(e) What is the potential prejudice to the Respondent should the motion be dismissed and what is the potential prejudice to the Applicant should the motion be allowed?
(f) What would be the effect of any order the Court might make on the overall integrity of the administration of justice?
[12] These factors are not to be considered as rigid rules. Instead, the court must consider the particular circumstances of each case to determine whether the judgment should be set aside: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, at para. 50; Natural Energy Systems Inc. v. Hallett, 2019 ONSC 1372, at paras 39-40.
Application of Factors to this Case
[13] Applying the factors to the circumstances of this case, I conclude that the April 2020 Order should be set aside.
Was the application made without notice or did the Respondent fail to appear at the hearing of the application through accident, mistake or insufficient notice?
[14] I am satisfied that the Respondents failed to attend at the case conference through accident, mistake or insufficient notice. The COVID-19 pandemic significantly impacted the circumstances of this case. Although the Applicant took appropriate steps to serve the Respondents with the request for the urgent hearing and related information, it did not ensure the Respondents were aware of the case conference. Further, the Respondents did not actually become aware of the case conference and the order arising from it until mid-May.
[15] I do not dispute that the Applicant took appropriate steps to serve the Respondents with their materials in the context of the COVID-19 pandemic. When Applicant’s counsel wrote to the court requesting that the matter be heard on April 28, he copied the Respondents at an e-mail address that Ms. Jeong had provided during the court attendance on February 12, 2020. The court’s e-mail providing the endorsement of Myers, J. also copied Ms. Jeong’s e-mail. Further, pursuant to Schedule A terms attached to the endorsement of Myers, J., the Applicant was permitted to provide its materials for the case conference to the Respondents by e-mail.
[16] However, the Respondents did not receive actual notice of the case conference. Ms. Jeong is a 61-year-old woman originally from Korea. She has limited proficiency in English. She does not check her e-mail regularly and particularly did not check it regularly during the COVID-19 pandemic. She did not become aware of the April 28, 2020 judgment until May 13, 2020, at which time she instructed her lawyers to take immediate steps to have it set aside.
[17] Further, although the Applicant took appropriate steps to serve the Respondents with its materials prior to the April 28 case conference, it did not take any steps to ensure that the Respondents were aware of the case conference. For example, when initially e-mailing the court to request the urgent hearing, counsel for the Applicant attached a motion confirmation form. On the form, he checked the box “I have been unable to confirm with opposing counsel/self-represented party because _____” but did not provide an explanation regarding why he was unable to confirm with the Respondents. The Applicant did not attempt to call Ms. Jeong to ensure she was aware of the attempts to have the application scheduled and of the case conference, in spite of having her phone number. The Applicant also did not send her a text message, although that was a common form of communication between Ms. Jeong and the principal of the Applicant when they were negotiating the issues regarding the sub-lease.
[18] In addition to not having actual notice of the case conference, Ms. Jeong did not have actual notice that the case conference might proceed as a substantive hearing of the application. If Ms. Jeong had received the e-mails provided by the Applicant and the court, the court’s endorsement emphasized that a case conference had been scheduled, not that the application would be heard on its merits.
[19] Rule 50.13 outlines the powers of a judge at a case conference. Although r. 50.13(6) does permit a judge to, among other things, make an order for interlocutory relief or convene a hearing, those powers may be exercised only “if notice has been given and it is appropriate to do so or on the consent of the parties.” Rule 50.13(6) provides:
50.13(6) At the case conference, the judge or case management master may, if notice has been given and it is appropriate to do so or on consent of the parties,
(a) make a procedural order;
(b) convene a pre-trial conference;
(c) give directions; and
(d) in the case of a judge,
(i) make an order for interlocutory relief, or
(ii) convene a hearing.
[20] In this case, the Schedule A terms attached to the endorsement of Myers, J. adverted to the possibility of orders for interlocutory relief or convening a hearing. The parties were given notice that the case conference judge could make orders deemed appropriate under Rule 50.13(6)(d) for the efficient hearing of the motion (here, application). However, the terms of the endorsement did not specifically indicate that the application could be determined on its merits at the case conference. I do not need to determine whether this would have been sufficient notice of a hearing of the application because it is now clear that Ms. Jeong did not receive the e-mails. The Respondents were not aware of the case conference nor of the possibility that their application could be heard on the merits.
[21] In short, although the Applicant appropriately served the Respondents by e-mail with the material seeking an urgent hearing, Ms. Jeong did not receive the e-mail in time to participate in the case conference. She did not have actual notice of the case conference and failed to participate in the case conference because of this. Moreover, she did not have actual notice that the court might make a final determination on any part of the application on April 28.
Was the Respondents’ motion to set aside the judgment brought forthwith after the judgment came to their attention and did the notice of motion name the first available hearing date?
[22] The Applicant did not make submissions in-writing or orally on this aspect of the test so I assume does not take issue that the Respondents have satisfied it. Counsel for the Respondents wrote to the Applicant on May 13, 2020 immediately upon the Respondents becoming aware of the April 28, 2020 order to advise they considered the order to contravene r. 50.13 and that they would take steps to have it set aside. They also filed a Notice of Appeal on the same date. The Respondents subsequently filed their notice of motion for this motion, naming June 1 as the first available hearing date. A case conference was then scheduled for June 1, 2020. I am satisfied that the Respondents brought their motion forthwith and met this aspect of the test.
Do the Respondents have an arguable defence on the merits?
[23] The test for determining whether the Respondents have an arguable defence on the merits is not stringent. The question is whether the Respondents have shown that their defence has an air of reality. The Court of Appeal has expressly stated in Zeifman Partners Inc. v. Aiello, 2020 ONCA 33 at paras. 33-34 that the approach is “not comparable to the approach taken to summary judgment.” Specifically: “In determining whether a defence has an air of reality, it is not the role of the motion judge to make findings of fact and assess whether the defence will succeed.”
[24] I conclude that the Respondents’ defence has an air of reality. The position of the Applicant is that its payment of $350,000 must be returned to it, as the Respondents did not meet one of the preconditions to their agreement to sub-lease, which was obtaining the written consent from the landlord to the sub-lease agreement.
[25] The relevant provision of the agreement, found in Schedule A, provides:
The sub-tenant agrees to pay the payment in lieu of renovations already completed by the sub-landlord in the amount of Three Hundred and Fifty Thousand ($350,000.00) by bank draft to the sub-landlord’s lawyer (Park and Jung LLP in trust) by Monday, July 15, 2019. This payment does not include HST. This payment will be returned under only the following circumstances:
(i) The government’s committee of adjustment denies the leased premises being used as a restaurant. If the payment is to be returned to the sub-landlord, the payment will be returned without any abatement, deduction or penalty. The sub-tenant acknowledges that there will not be any further renovations to be performed by the sub-landlord; and
(ii) The sub-landlord cannot obtain the written consent from the landlord to this sublease agreement. In this case, this offer shall become null and void and the payment shall be returned to the sub-tenant in full without any abatement, deduction or penalty. In all other circumstances, this payment will not be returned.
[26] There is no dispute that the Respondents did not obtain the landlord’s consent to the sub-lease agreement. However, the Respondents’ defence is that they were not able to obtain the landlord’s consent due to the Applicant’s failure to co-operate. Specifically, the Respondents submit that the Applicant was required to provide information that the landlord would need in order to determine whether to consent to the sub-lease. The most important information was the drawings of the proposed renovations for the new restaurant.
[27] In my view, there is an air of reality to this defence. I have reviewed the text messages between Ms. Jeong and the principal of the Applicant, Yanli Fang in which Ms. Jeong repeatedly asked for the Applicant’s drawings of the proposed renovations for the sub-leased space. In correspondence between the lawyers, counsel for the Respondents also repeatedly raised the need to obtain appropriate drawings for the landlord’s review.
[28] There is an air of reality to the submission that the terms agreed to between the parties required the Applicant to provide drawings and other information to the Respondents in order to obtain the landlord’s consent to the sublease. The sublease provided that it was subject to and in accordance with the terms of the head lease. Further, both the sub-landlord and sub-tenant agreed to fully comply with the terms and conditions of the head lease. The head lease, which the Respondents provided to the Applicant after the execution of the sublease agreement, provided that the tenant was not permitted to renovate the premises “without first submitting drawing and specifications to Landlord and obtaining Landlord’s prior written consent….” The head lease also provided that a request for the landlord’s consent to a sublease was required to be in writing and that the tenant (Respondent corporation) was required to “provide such additional information pertaining to the Transferee as Landlord may reasonably require.”
[29] I do not need to determine on this motion whether this defence will succeed. I am not tasked with reaching a final interpretation of the agreement between the parties. Further, the Respondents were not required to put their best foot forward on this motion as is required on a motion for summary judgment: Zeifman Partners, at para. 33. Therefore, the Respondents do not need to prove on this motion that the drawings provided by the Applicant were unsatisfactory, nor that the landlord had insisted on drawings as necessary to provide its consent. However, on the evidence provided, I am satisfied that there is at least an air of reality to this defence.
[30] There is also an air of reality to the defence that the individual Respondent, Ms. Jeong does not face any liability in this application. Although she is the principal of the Respondent corporation, she is not a party to the lease. The April 28, 2020 endorsement in this matter ordered that the payment of $350,000 held by the Respondents’ law firm in trust be released to the Applicant, but also ordered costs in the amount of $3,000 payable by Ms. Jeong and/or 2313007 Ontario Inc.. There is an air of reality to the defence that Ms. Jeong should not face personal costs when she is not a party to the sublease agreement.
What is the potential prejudice to the Respondents should the motion be dismissed and what is the potential prejudice to the Applicant should the motion be allowed?
[31] The Applicant will suffer prejudice if this motion is allowed. The Applicant’s affiant states that the Applicant urgently needs funds in order to pay for other restaurant properties and ongoing business operations, as well as to pay for other expenses during the COVID-19 crisis. The Respondents point out that the funds are not needed for the Applicant itself, which was incorporated solely for the purpose of the sublease agreement. However, the same shareholder group that incorporated the Applicant corporation requires the funds for the other named expenses.
[32] On the other hand, the Respondents will suffer prejudice if the motion is dismissed. They will be subject to a determination of their rights and liability with respect to the $350,000 payment without having had the chance to provide a defence on the merits of the application.
What would be the effect of any order the Court might make on the overall integrity of the administration of justice?
[33] I consider this to be the most important factor in the circumstances of this case. In my view, the integrity of the administration of justice weighs in favour of allowing this motion.
[34] An order was made against the Respondents on a few days’ notice during the extraordinary circumstances of the COVID-19 pandemic, when the application otherwise had been adjourned. Ms. Jeong did not check her e-mail regularly and did not become aware of the case conference during the brief period between the Applicant contacting the court by e-mail and the case conference being held. The Applicant also did not take additional steps to ensure Ms. Jeong was aware of the case conference.
[35] The Respondents submit that, given the limited powers of the case conference judge, he did not have the jurisdiction to make a final determination on the application. The Applicant’s position is that the order was not a final determination and, in any event, the case conference judge was permitted to “convene a hearing.”
[36] I conclude that the order was a final determination of the primary relief sought on the application. The case conference judge stated that he was satisfied on review of the application record, supplementary application record and second supplementary application record “that the absence of consent by the landlord to the proposed sublease renders that sublease null and void.” The case conference judge stated that he varied his February 12, 2020 order to provide for the $350,000 held in trust by Jung & Park LLP to be paid to the Applicant’s counsel’s firm, to be released to the Applicant.
[37] By declaring the sublease “null and void” and ordering the release of the $350,000, I conclude that the case conference judge made a final determination of the relief sought. The declaration that the sublease was null and void was a finding on that issue. The endorsement was not styled as an order to release the funds pending a further hearing.
[38] Further, as set out above, although case conference judges are permitted in appropriate circumstances to convene a hearing, the key point in this case is that the Respondents did not have actual notice that the hearing would be convened.
[39] In the extraordinary circumstances of the pandemic, where the date of the application was officially adjourned, and where it now is clear the Respondents did not receive actual notice of the case conference nor that an order would be made on the application, I conclude that the overall integrity of the administration of justice requires the order to be set aside.
Disposition
[40] The motion is allowed. The Order dated April 28, 2020 is set aside. I encourage the parties to reach an agreement with respect to the costs of the motion. If they are unable to do so, the Respondents may provide me with their costs submissions, not to exceed 4 pages, within 14 days of the date of this decision. The Applicant will then have 7 days to provide responding submissions. The costs submissions may be sent by e-mail to my judicial assistant, Anna Maria Tiberio.
_______________________ O’Brien, J.
Released: July 21, 2020
COURT FILE NO.: CV-19-00631599
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2701988 Ontario Inc.
Applicant
– and –
Ok-Shim Jeong also known as Ok-Shim (Jade) Jeong, 2313067 Ontario Inc. also known as 2313067 Ontario Incorporated, Jikwon Jung, Park & Jung LLP, and Park & Jung LLP, In Trust
Respondents
REASONS FOR DECISION
O’Brien, J.
Released: July 21, 2020
[^1]: Court’s Notice to the Profession - COVID-19 Preparedness dated March 15, 2020.