Court File and Parties
COURT FILE NO.: C-434-17 (Kitchener) DATE: 20210303
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
CLAIRE ROSS and RYAN CAMPBELL Plaintiffs – and – ANDREJ FILIP, ELENA FILIPOVA, LAWYERS' PROFESSIONAL INDEMNITY COMPANY OPERATING AS TITLEPLUS TITLE INSURANCE, THE CORPORATION OF THE TOWNSHIP OF MAPLETON, PATTY WRIGHT, Chief Building Official, Township of Mapleton and DANIEL SWEDLO, Building Inspector, Township of Mapleton Defendants
Counsel: Patrick J. Kraemer, for the Plaintiffs (Responding Parties) David Silver (as agent), Patrick Snelling and David Constant, for the Defendants Andrej Filip and Elena Filipova (Moving Parties)
HEARD: January 20-21, 2021, by video conference
R. A. LOcoco J.
Reasons for Decision
I. Introduction
[1] The plaintiffs Claire Ross and Ryan Campbell purchased a rural residential property from the defendants Andrej Filip and Elena Filipova (the “Filips”) in June 2014 for $280,000. Their next contact was in May 2017, when the Filips were served with the plaintiffs’ Statement of Claim, seeking damages of $1,000,000 from them and other defendants. In the interim, the century home on the property was demolished after municipal building officials found the house to be unsafe and prohibited its occupancy.
[2] The Filips defended the action but their pleadings were later struck for nonpayment of a costs award of $4,278.28, following a previous failure to provide an affidavit of documents until a motion was brought to compel compliance. The plaintiffs subsequently noted the Filips in default and obtained a default judgment dated April 2, 2019, in the amount of $617,209.59 plus prejudgment interest and costs.
[3] The Filips have brought a motion for an order setting aside the default judgment and granting related relief, including a stay of enforcement.
[4] The Filips submit that the plaintiffs failed to make full and frank disclosure in their ex parte motion for default judgment by failing to disclose material facts within their knowledge on the issue of damages. The Filips say that on that basis alone the default judgment should be set aside.
[5] The Filips also say that during the relevant period, their legal counsel was experiencing a “perfect storm” of significant personal issues that, together with other client matters requiring his urgent attention, impeded his ability to attend to the needs of his practice, including the plaintiffs’ action against the Filips. As a result, the Filips pleadings were struck and other steps taken against them without their knowledge. The Filips say that it would be in the interests of justice to set aside the default judgment and permit the action to proceed on its merits, applying the criteria set out by the Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, and other cases.
[6] The plaintiffs do not agree. They say they made full and frank disclosure of all material facts in their ex parte motion for default judgment. They also say that the Filips have not adequately explained their failure to comply with procedural rules or otherwise satisfied the requirements for setting aside a default judgment. In the alternative, if the default judgment is set aside, the plaintiffs submit that remedial terms should be imposed to protect the plaintiffs’ interests.
[7] Accordingly, the matters to be determined are as follows:
a. Full and frank disclosure: Should the default judgment be set aside based on the plaintiffs’ failure to make full and frank disclosure of all material facts in their ex parte motion for default judgment?
b. Is it just to grant relief? Would it otherwise be just to relieve the Filips from the consequences of their default by setting aside the default judgment?
c. Remedial directions: If the default judgment is set aside, what remedial terms should be imposed?
[8] For the reasons that follow, I have concluded that the default judgment should be set aside and other relief granted on both bases the Filips advanced, upon the terms set out below.
[9] In the balance of these Reasons for Decision, I will first set out in some detail the factual background and sequence of events leading up to the motion hearing, followed by a review of the legal principles that apply. I will then address in turn each of the questions listed above.
II. Factual background
[10] In August 2007, the Filips acquired a rural residential property in the Township of Mapleton. The Mapleton property included a century home on five acres of land. The Filips used the property as a summer residence. Renovations to the Mapleton house occurred the same year, including electrical work and removing the basement floor to replace it at a lower level.
[11] The Filips sold the Mapleton property to the plaintiffs in June 2014 for $280,000. Upon acquiring the property, the plaintiffs purchased a title insurance policy with TitlePLUS.
[12] As a result of issues the plaintiffs encountered with the house after its purchase, they submitted an insurance claim to TitlePLUS in March 2015. Initially, TitlePLUS denied coverage.
[13] The plaintiffs subsequently obtained an inspection report relating to electrical deficiencies as well as engineering reports relating to significant structural issues. After receiving the engineering reports, Mapleton’s Chief Building Official issued the following orders (dated January 7, 2016) relating to the Mapleton house: (i) Order to Remedy an Unsafe Building, and (ii) Order Prohibiting the Use of Occupancy of an Unsafe Building. The plaintiffs vacated the Mapleton house.
[14] The plaintiffs then submitted a second insurance claim to TitlePLUS. In processing the claim, TitlePLUS and the plaintiffs disagreed on the replacement cost of the property. To support its position, TitlePLUS provided the plaintiffs with a report dated August 29, 2016, from Bosley Farr Associates Ltd., a real estate appraisal firm (the “Bosley report”), which provided an estimate of the replacement cost of the residence.
[15] On September 20, 2016, the plaintiffs advised TitlePLUS that they were disputing the Bosley report. To support their position, they retained Ryan Parker of Valco Consultants Inc., a real estate appraisal firm, who provided an appraisal report dated October 12, 2016 (the “Parker report”). As discussed further below, the Bosley report provided a materially lower replacement cost for the property than the Parker report.
[16] The original Mapleton house was demolished in April 2017. The plaintiffs subsequently built a new home on the Mapleton property.
[17] The plaintiffs commenced the current action by Statement of Claim dated May 9, 2017, claiming damages of $1,000,000. The claim against the Filips was based on breach of the purchase agreement and negligent misrepresentation. Other defendants were TitlePLUS, the Township of Mapleton and Mapleton’s building officials.
[18] On June 2, 2017, the Filips provided a Notice of Intent to Defend through their then lawyer, Michael Carey. A few days later, they transferred real properties they owned in Ottawa to their son, Rene Filip. Mr. Carey acted for them on those transactions.
[19] On July 21, 2017, the Filips provided a Statement of Defence and Crossclaim in the current action through a different lawyer, Ken Dunham, who became counsel of record. A few days later, the Filips made a third party claim against BCG Home, the contractor who carried out the 2007 renovations to the Mapleton residence.
[20] In the period from December 2017 to March 2018, the parties (through counsel) engaged in settlement discussions that ultimately led to a consent order dated September 21, 2018, dismissing the claims against the Township of Mapleton and its building officials. On March 21, 2018 (before the Mapleton defendants were let out of the action), the plaintiffs’ then counsel (David Steele) wrote to the various defence counsel, proposing that discoveries be held in July 2018 and providing a draft discovery plan. By letter dated April 18, 2018, Mr. Steele served the plaintiffs’ Affidavit of Documents on counsel for the various defendants, asking them to provide their clients’ Affidavits of Documents as soon as possible, noting that the Mapleton defendants had already done so. TitlePLUS subsequently provided its Affidavit of Documents through counsel on July 18, 2018.
[21] By email dated April 27, 2018, Mr. Dunham advised that the Filips’ Affidavit of Documents would be ready the following week and generally described what it would contain. He also advised of the Filips’ (and his own) availability for discoveries over the summer, indicating that the Filips were prepared to travel from Ottawa to Kitchener for the discoveries.
[22] In May and June 2018, there were further communications between counsel about the intended discoveries. However, plaintiffs’ counsel heard nothing further from Mr. Dunham, despite repeated attempts to reach him, nor had Mr. Dunham provided an Affidavit of Documents as promised.
[23] On July 13, 2018, after warning he would do so if there was no response, plaintiffs’ counsel brought a motion to strike the Filips’ defence for failure to file an Affidavit of Documents. Mr. Dunham did not provide responding material. On the motion return’s on August 9, 2018, Braid J. adjourned the motion and ordered Mr. Dunham to attend personally on August 23, 2018 to explain his failure to respond to plaintiffs’ counsel.
[24] After that order was served on Mr. Dunham, Mr. Steele and Mr. Dunham spoke by telephone and agreed that the motion to strike would not proceed if counsel were able to agree on a discovery timetable. In an email dated August 22, 2018, Mr. Dunham apologized to all counsel for the situation, assuring them that it was unintentional, providing the explanation of a “perfect storm” … for a variety of unforeseen reasons”.
[25] In a subsequent email dated August 27, 2018, Mr. Steele acknowledged receipt of a letter from Mr. Dunham “covering his clients’ affidavit of documents.”
[26] By order dated August 30, 2018, Sloan J. set a timetable for discoveries to occur in January 2019, requiring Affidavits of Documents to be provided by September 7, 2018. The order also required the Filips to pay the plaintiffs’ costs of $4,278.28.
[27] By letter dated September 7, 2018, Mr. Steele advised Mr. Dunham that if the costs ordered by Sloan J. were not paid by October 1, 2018, the plaintiffs would again bring a motion to strike the Filips’ defence. Mr. Dunham failed to respond to that letter or further letters dated September 28 and October 2, 2018, in which Mr. Steele confirmed the plaintiffs’ intention to proceed with the motion. However, there were other email exchanges between the legal assistants for plaintiffs’ counsel and for Mr. Dunham in September and early October with respect to the availability of Mr. Dunham and the Filips for discoveries in December 2018 and January 2019.
[28] On October 10, 2018, the plaintiffs brought a second motion to strike the Filips’ defence, returnable November 1, 2018. The grounds for the motion were the Filips’ failure to pay the costs ordered by Sloan J. and the fact that they had “previously failed to comply with the Rules of Civil Procedure until a motion was brought to compel compliance”, a reference to the plaintiffs’ previous motion to strike based on the Filips’ failure to file their Affidavit of Documents.
[29] As with the first motion to strike, Mr. Dunham failed to provide responding material. By email to Mr. Dunham dated October 29, 2018, Mr. Steele advised that the plaintiffs would be proceeding with the motion on an unopposed basis, noting that the non-payment of costs was the Filips’ second default, “building upon their initial delay in making documentary disclosure (which you were able to correct in the face of the first motion).” He also provided the Filips with a final opportunity to pay the costs award to avoid the plaintiffs’ proceeding with the motion.
[30] In the absence of a response, the plaintiffs proceeded with the motion to strike. By order dated November 1, 2018, Harper J. struck the Filips’ Statement of Defence and Crossclaim. The Filips were also ordered to pay substantial indemnity costs of $3,128.18.
[31] On December 7, 2018, the plaintiffs commenced a separate action against the Filips and their son, Rene Filip, alleging fraudulent conveyance of their Ottawa properties to Rene Filip. The plaintiffs subsequently obtained a default judgment against the Filips dated August 23, 2019, voiding the Filips’ transfer of the Ottawa properties to their son and awarding costs of $7,157 to the plaintiffs.
[32] By the plaintiffs’ Requisition dated March 21, 2019, the Filips were noted in default in the current action for failure to deliver their statement of defence within the required time.
[33] On March 28, 2019, the plaintiffs brought a motion without notice for a default judgment against the Filips. In support of their motion, the plaintiffs provided an affidavit of the plaintiff Claire Ross. Attached as an exhibit was the Parker report, which estimated the replacement cost of the Mapleton house as $470,000 (which with H.S.T. would amount to $531,100). The plaintiffs relied on that opinion (together with a one-page building estimate from a construction firm) to support their calculation of damages totaling $617,209.59, which included $520,195.50 as the estimated replacement cost of the house. The affidavit did not include any reference to the Bosley report, which was not consistent with the conclusions in the Parker report (as noted further below).
[34] The plaintiffs’ default judgment motion proceeded in writing. On April 2, 2019, Gordon J. ordered the Filips to pay damages to the plaintiffs of $617,209.59, plus pre-judgment interest of $9,202.33 and costs of $20,687.94.
[35] On April 23, 2019, the plaintiffs obtained Notices of Garnishment against the Filips, which were served on them in early May 2019, together with supporting material that included the default judgment. Mr. Filip provided the Notices of Garnishment and the default judgment to Mr. Dunham, who assured Mr. Filip that he would take care of it. As explained further below, Mr. Dunham and the Filips say they were not aware of the default judgment against the Filips until they were served with the Notices of Garnishment.
[36] Mr. Filip followed up with Mr. Dunham on June 24, 2019. Mr. Dunham advised him that his professional liability insurer would be involved, and that Mr. Filip would be hearing from the insurer’s representative.
[37] Mr. Dunham contacted LawPRO on July 2, 2019. On August 6, 2019, LawPRO retained David Silver to investigate and ultimately take carriage of a motion to set aside the default judgment. Mr. Silver obtained and reviewed Mr. Dunham’s file and advised Mr. Filip of his involvement.
[38] By letter dated September 12, 2019 to Patrick Kraemer (then with the law firm previously representing the plaintiffs), Mr. Silver advised that LawPRO had retained him (on behalf of Mr. Dunham) to bring a motion to set aside the default judgment and stay enforcement proceedings. Mr. Silver asked whether the plaintiffs would be willing to consent to the motion, also stating that it would be improper to continue any enforcement actions pending determination by the court. Mr. Silver followed up with requests for copies of certain material not immediately available from the court, including the ex parte motion record for the default motion.
[39] In a letter to Mr. Silver dated October 8, 2019, Mr. Kraemer advised as follows: “Our clients will not rely upon any delay by Mr. Filip and Ms. Filipova in bringing their motion after September 12, 2019, should we receive instructions to oppose the motion". In that letter, Mr. Kraemer also acknowledged that on August 24, 2018, “we received Mr. Filip and Ms. Filipova’s joint affidavit of documents sworn April 27, 2018, under cover of Mr. Dunham’s letter of the previous day.” In a letter dated October 18, 2019 (transmitted by email), Mr. Kraemer states that the ex parte motion record is attached. However, Mr. Silver’s legal assistant deposed that the motion record was not in fact attached to the email.
[40] Resolution communications between Mr. Silver and Mr. Kraemer continued in the period from November 2019 to January 2020. By email dated February 26, 2020, Mr. Kraemer asked Mr. Silver for an update on his position. Mr. Silver responded on March 6, 2020, indicating that he expected to be able to respond by the following week.
[41] In March 2020, Mr. Silver suggested to the Filips that they obtain independent legal advice relating to the resolution discussions. The Filips initially consulted Michael Carey, who had acted for them as their initial counsel for this action prior to Mr. Dunham. Mr. Silver communicated with Mr. Carey on March 9 and 17, 2020, but the Filips then decided to retain new independent counsel, Patrick Snelling.
[42] On March 17, 2020, regular Ontario court operations were suspended by reason of the COVID-19 health emergency.
[43] On March 25, 2020, Mr. Snelling advised Mr. Silver of his retainer, and indicated that he was in the process of obtaining instructions and bringing himself up to speed. Mr. Silver followed up with Mr. Snelling by email on April 20, 2020 for an update.
[44] By letter from Patrick Kraemer dated May 11, 2020, the parties were served with a Notice of Change of Lawyer, stating that Patrick Kraemer of Kraemer LLP had been appointed as the plaintiffs’ counsel of record. As noted above, Mr. Kraemer was one of lawyers representing the plaintiffs at his previous law firm.
[45] On May 13, 2020, Mr. Silver spoke with Mr. Kraemer by telephone and advised him that further resolution discussions could proceed once Mr. Snelling was in a position to provide the Filips’ settlement instructions. Mr. Kraemer raised no complaints in response.
[46] On June 2, 2020, the Filips were served with Notices of Examination in aid of execution dated June 2, 2020, returnable June 12, 2020. Mr. Snelling brought the notices to Mr. Silver’s attention.
[47] By letter dated June 10, 2020, Mr. Silver advised Mr. Kraemer that they were now in a position to provide a resolution proposal (redacted from the letter in the motion material). Mr. Silver also requested cancelation of the Filips’ examinations in aid of execution, stating his view that taking this enforcement step without notifying him was improper in the circumstances, including that Mr. Kraemer was aware that LawPRO had retained Mr. Silver to bring a motion to set aside the default judgment absent resolution.
[48] By further letter dated June 11, 2020, Mr. Silver provided Mr. Kraemer with a Notice of Motion to set aside the default judgment and stay enforcement steps, confirming his intention to pursue the motion absent resolution. If the motion were necessary, Mr. Silver also requested the full motion record the plaintiffs filed in support of the motion for default judgment (in electronic form in light of COVID-19). The same request was made in Mr. Silver’s emails to Mr. Kraemer on June 15, 17 and 29, 2020, but there was no response. Mr. Snelling made the same request in a letter to Mr. Kraemer dated July 2, 2020 (after Mr. Snelling became the Filips’ counsel of record), noting that he was unable to obtain the documents from the court given the COVID-19 emergency. Once again, Mr. Kraemer did not respond.
[49] On June 22, 2020, Mr. Kraemer served Mr. Dunham (who at that time was still the Filips’ counsel of record) with a motion for an order finding the Filips in contempt for non-attendance at examinations in aid of execution, returnable July 9 (later amended to July 15), 2020. On July 30, 2020, the contempt motion came before Sloan J. at a case conference, with Messrs. Kraemer, Snelling and Silver in attendance. Sloan J. adjourned the contempt motion to September 15, 2020, to be heard following the Filips’ intended motion to set aside the default judgment. Sloan J. also set a timetable for motion material and cross examinations for the latter motion.
[50] By letter dated July 30, 2020, Mr. Silver couriered a LawPRO cheque to Mr. Kraemer for $7,822.03 in payment of the costs that the Filips were ordered to pay to the plaintiffs by Sloan J. (in his August 30, 2018 order upon return of the plaintiffs’ first motion to strike the Filips’ defence) and Harper J. (in his November 1, 2018 order striking the Filips’ defence upon return of the plaintiffs’ second motion to strike).
[51] On August 14, 2020, the plaintiffs brought an ex parte motion, returnable August 26, 2020, for a Writ of Possession against the Filips’ real property. That motion came to Mr. Snelling’s attention as a result of an email to Mr. Kraemer from court staff, copying Mr. Snelling. By emails to Mr. Kraemer from David Contant (Mr. Snelling’s associate) and Mr. Silver (both dated August 20, 2020), Mr. Contant and Mr. Silver expressed surprise that Mr. Kraemer would proceed without notice in the circumstances, including that a motion to set aside the default judgment was set to be heard on September 15, 2020. Mr. Contant also gave notice of his intention to contact the court to request a case conference. On August 21, 2020, Gordon J. directed that the ex parte motion proceed on notice to the Filips, returnable September 15, 2020.
[52] In the course of arranging for the affiants’ oral examinations prior to the September 15, 2020 motion hearing, a dispute arose as to whether the Filips should be examined by videoconference (as they requested) or in person (Mr. Kraemer’s position). As a result, the examinations did not occur prior to the hearing date. The plaintiffs then brought a motion (returnable September 15, 2020) to strike the affidavits and the entire motion record for the motion to set aside the default judgment.
[53] On September 15, 2020, five motions came before Henderson J., including the following:
a. The plaintiffs’ contempt motion against the Filips for non-attendance for examinations in aid of execution;
b. The plaintiffs’ motion (previously ex parte) for a Writ of Possession;
c. The Filips’ motion to set aside the default judgment and other relief, including a stay of enforcement; and
d. The plaintiffs’ motion to strike the affidavits and the entire motion record for the motion to set aside the default judgment.
[54] Henderson J. determined to hear and decide the latter motion before the other motions were heard. As indicated in his Reasons for Decision dated September 21, 2020 (reported at 2020 ONSC 5683), he refused to strike the affidavits or the entire motion record for the Filips’ motion to set aside the default judgment.
[55] In his decision, Henderson J. found that the Filips were justified in seeking to be examined by videoconference, given that they were elderly and at greater risk of contracting COVID19 or suffering serious consequences if they did. He also rejected the plaintiffs’ argument that the entire motion record should be struck because it was prepared by Mr. Silver who was retained by non-parties, LawPRO on behalf of Mr. Dunham. Henderson J. agreed that the motion record was confusing in the description of Mr. Silver’s role but he was satisfied that Mr. Silver was entitled to act for the Filips on the motion, with the approval of the Filips and their counsel of record.
[56] Henderson J. also provided directions with respect to the conduct examinations for the setting aside motion. He then adjourned the other three motions without a date, to be brought back on five days notice. As well, he dismissed a fifth motion (for directions relating to costs) that Filips’ counsel of record brought in responding material.
[57] The three remaining motions came before me by Zoom videoconference on January 21 and 22, 2021. Consistent with Sloan J.’s directions on July 30, 2020, I heard submissions relating to the motion to set aside the default judgment, and then reserved my decision.
III. Legal principles – setting aside default judgment
[58] Where a judge has granted default judgment against a defendant who has been noted in default, the court may set aside the judgment on such terms as are just: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 19.08. The court may also set aside the noting in default, again on such terms as are just: rr. 19.08(3) and 19.03.
[59] When considering whether a judge properly exercised his or her discretion in deciding whether to relieve against a procedural default, previous Ontario appellate decisions have recognized the tension between two principles. The first is that civil actions should be decided on their merits, reflected in r. 1.04(1). The second principle, reflected in various time limits mandated by procedural rules, is that civil actions should be resolved within a reasonable time frame in order to maintain confidence in the administration of the civil justice system: see Hamilton (City) v. Svedas Koyanagi Architects Inc., 2010 ONCA 887, 104 O.R. (3d) 689, at paras. 20-21, a decision relating to a motion to set aside a Registrar’s dismissal order.
[60] Consistent with both principles, the Court of Appeal has also recognized that motions to relieve against procedural defaults are often determined on a consensual basis, upon appropriate terms where warranted to ensure fairness to the parties. In Nobosoft Corp. v. No Borders Inc., 2007 ONCA 444, 225 O.A.C. 36 (relating to a motion to set aside a noting in default), the Court of Appeal (at para. 7) expressed the agreement with the following passage from a previous Superior Court decision: [^1]
Motions to extend the time for delivery of pleadings and to relieve against defaults are frequently made and are typically granted on an almost routine basis. Usually opposing counsel will consent to such relief as a matter of professional courtesy. Where there is opposition to a motion of this kind, it is usually related to additional terms which are sought as a condition to the indulgence being granted or to issues of costs ... It is not in the interests of justice to strike pleadings or grant judgments based solely on technical defaults. Rather, the Court will always strive to see that issues between litigants are resolved on their merits whenever that can be done with fairness to the parties.
[61] When it is necessary for the court to adjudicate a motion to set aside a default judgment, the motion judge considers five major factors (as set out in Mountain View Farms, at paras. 48-49):
a. Whether the motion was brought promptly after the defendant learned of the default judgment;
b. Whether there is a plausible excuse or explanation for the defendant’s default in complying with procedural rules;
c. Whether the facts establish that the defendant has an arguable defence on the merits;
d. The potential prejudice to the moving party should the motion be dismissed and the potential prejudice to the respondent should the motion be allowed; and
e. The effect of any order the court might make on the overall integrity of the administration of justice: see also Intact Insurance Co v. Kisel, 2015 ONCA 205, 125 O.R. (3d) 365, at para. 14.
[62] The above factors are not to be treated as rigid rules. The court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of default: Mountain View Farms, at para. 50; Kisel, at para. 14.
[63] Rule 39.01(6) provides a further basis for setting aside an order obtained on a motion made without notice, as follows:
Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application.
[64] In Misir v. Misir, 2017 ONCA 675, the Court of Appeal set aside the dismissal of a motion to set aside a default judgment as a result of inaccurate evidence that the plaintiff provided to the motion judge. In doing so, the court noted as follows (at para. 17):
A party who seeks relief from the court in proceedings without notice is obliged to make full and fair disclosure of all material facts. This is a common law rule that is enshrined in rule 39.01(6)…. It is unnecessary to find that the court was deliberately misled before a court will set aside such an order. The basis of the rule is fairness. As the rule confirms, the failure to make such disclosure is a reason, in itself, to set aside the order made…. [Citations omitted.]
[65] In Fox v. Fox, 2014 ONSC 1135 (Div. Ct.), at paras. 11-13, the Divisional Court clarified that “all material facts” in this context should be interpreted to mean all facts known to the moving party that “might reasonably affect the outcome of the motion”: see also B.K. v. York Region Standard Condominium Corp. No. 1253, 2019 ONSC 4552, at paras. 37-38.
IV. Full and frank disclosure
[66] Should the default judgment be set aside based on the plaintiffs’ alleged failure to make full and frank disclosure of all material facts in their ex parte motion for default judgment?
[67] The Filips submit that in the plaintiffs’ ex parte motion for default judgment, they did not make full and frank disclosure by failing to disclose material facts within their knowledge on the issue of damages. The alleged omission was the plaintiffs’ failure to disclose material facts relating to the replacement cost for the Mapleton house, which was demolished following the orders of Mapleton’s Chief Building Officer, who found the house to be unsafe and prohibited its occupancy.
[68] As previously noted, Claire Ross’ affidavit filed in support of the ex parte motion indicated that the amount of damages claimed and ultimately awarded (being $617,209.59 plus pre-judgment interest and costs), included $520,195.50 as the “lower replacement estimate” for the Mapleton house. The evidence to support that replacement cost estimate was attached in two exhibits to the affidavit. The “lower replacement estimate” of $520,195.50 was derived from an a one-page “Estimate” in that amount from a construction firm, which provided a breakdown of the estimated material and labour costs to replace the Mapleton house. Also attached to the affidavit was the Parker report, an appraisal report prepared by a real estate appraisal firm, which estimated the replacement cost at $470,000. As noted in Ms. Ross’s affidavit, the replacement cost estimated in the Parker report, when HST is added, would be $531,100.
[69] The Filips say that the plaintiffs failed to place before the court conflicting evidence known to them with respect to the replacement cost of the house, as they were required to do to comply with their obligation to make full and frank disclosure. As a result of a disagreement between the plaintiffs and TitlePLUS in the summer of 2016 about the methodology for calculating the house’ replacement cost, TitlePLUS retained a real estate appraisal firm to prepare the Bosley report. That report estimated the total construction cost to replace the house at $341,331, before taking into account “Physical Deprecation” of 75 per cent for the existing century home. Taking depreciation into account, the estimated replacement cost would be $85,333, according to the Bosley report. The Filips say that the failure to disclose the contents of the Bosley report (and the dispute about calculation of the replacement cost that it discloses) was by itself sufficient grounds to set aside the default judgment.
[70] The plaintiffs disagree. Among other things, they submit that the replacement cost estimate set out in the Bosley report is an opinion that does not rise to the level of a “material fact”. They also point out that the Filips do not come before the court with clean hands, given their unsuccessful attempt to defeat enforcement of the plaintiffs’ claim by the fraudulent conveyance of their Ottawa properties to their son. On that basis, setting aside the default judgment would not be a just result, according to the plaintiffs.
[71] Having considered the parties’ submissions, I have concluded that on the ex parte motion for default judgment, (i) the plaintiffs failed to make full and frank disclosure of all material facts on the issue of damages, and (ii) that failure by itself is sufficient grounds for setting aside the default judgment. As well, as indicated in the next section of these Reasons, I have also concluded that setting aside the default judgment is justified based on the criteria in Mountain View Farms.
[72] As indicated in the damages calculation in Claire Ross’ supporting affidavit, the amount the plaintiffs claimed for the house’s estimated replacement cost (being $520,195.50) made up a substantial portion of the amount of damages claimed and awarded (being $617,209.59 plus pre-judgment interest and costs). The plaintiffs failed to place before the court evidence known to them that called into question the methodology used to calculate the house’s replacement cost. That evidence, if accepted, would result in the significantly lower amount for the house’s replacement cost (in the $85,000 range, as opposed to the plaintiffs’ estimated claimed amount of over $520,000). In these circumstances, the omitted evidence more than meets the required standard that it “might reasonably affect the outcome of the motion”: see Fox, at paras. 11-13.
[73] I see no merit in the plaintiffs’ submission that the Bosley report is an opinion that does not rise to the level of a “material fact” that required disclosure. Like the Parker report (as well as the one-page construction estimate) that the plaintiffs included in the ex parte motion record, the Bosley report is unsworn opinion evidence that does not meet the requirements set out in the Rules of Civil Procedure. At least in contested proceedings, such evidence would not normally be sufficient to support a determination of the house’s replacement cost. However, if the plaintiffs had placed the Bosley report (and the context of its preparation) before the court on the ex parte motion, the motion judge would have been on notice that further scrutiny of the plaintiffs’ supporting evidence was required to determine whether their proposed calculation of the house’s replacement cost should be accepted. In those circumstances, I am confident that the outcome of the motion would have been affected if the evidence relating to the Bosley report had been before the court.
[74] As well, I do not accept the plaintiffs’ submission that the default judgment should not be set aside based on the Filips’ conveyance of their Ottawa properties to their son to defeat enforcement of the plaintiffs’ claim. As indicated in the next section of the Reasons, I agree that their conduct in doing should be taken into account when considering the effect of the court’s order on the overall integrity of the administration of justice, including the extent to which it may be appropriate to include remedial terms if the dismissal order is set aside. However, in the all circumstances, I do not agree that their conduct in doing so would justify dismissal of the motion to set aside the default judgment.
[75] Accordingly, I have concluded that the plaintiffs’ failure to provide full and frank disclosure of all material facts on the issues of damages provides sufficient grounds for setting aside the default judgment.
V. Is it just to grant relief?
[76] Is it otherwise just to relieve the Filips from the consequences of their default by setting aside the default judgment?
[77] When considering whether a default judgment should be set aside under r. 19.08 (rather than r. 39.01(6)), it is common ground that the motion judge considers the five major factors set out in Mountain View Farms, at paras. 48-49, in order to determine whether in the particular circumstances it is just to relieve the defendants from the consequences of default. The Filips say that upon consideration of those factors, the evidence supports the conclusion that it would be just to set aside the default judgment in this case.
[78] The Filips say that when considering those factors (including in particular the second factor, whether there is a plausible explanation for the default), it is relevant to take into account the failure of their counsel Mr. Dunham to take the necessary procedural steps in the action on their behalf and to keep them apprised of what was happening. In their submission, it would not be in the interests of justice to visit on them the consequences of their lawyers’ default, thereby depriving them of the opportunity to have their defence to the claim determined on its merits.
[79] In particular, the Filips say that the evidence establishes that Mr. Dunham was experiencing a “perfect storm” of significant personal issues that, together other client matters requiring his urgent attention, impeded his ability to attend to the needs of his practice, including the plaintiffs’ action against the Filips. Mr. Dunham’s evidence indicates that the personal and professional pressures on him included the following:
a. Father’s terminal illness: In July 2018, Mr. Dunham was informed by his parents (who lived in rural Vancouver Island) that his father had been diagnosed with terminal lung cancer. His father declined active treatment and was adamant that he wanted to live out his remaining days at home rather than in hospital. Mr. Dunham was inundated with calls from his mother during the summer of 2018 with questions and concerns regarding end-of-life matters, financial planning, etc. His father's terminal health issues took a massive toll on Mr. Dunham's personal well-being, including feeling depressed, which impaired his ability to focus and maintain his practice. As well there were several other family deaths during the summer and fall of 2018 (an uncle and three cousins), contributing to additional stress and distraction from his practice.
b. Lack of administrative support: During this time, Mr. Dunham was also operating without an effective legal assistant. He hired a new assistant in early 2018, after his previous assistant’s retirement. It later became apparent that she was having difficulty fulfilling her duties competently. By May 2018, Mr. Dunham stopped assigning her work, as he could not rely on her for the simplest of tasks. During this difficult period, and given his personal challenges, he found it difficult to keep up with his practice demands. He hired a new assistant on a part-time basis in September 2018.
c. Marital issues: Beginning in approximately May 2018, Mr, Dunham was having significant marital issues. His relationship with his partner further deteriorated over the summer, with Mr. Dunham missing a long-planned overseas vacation in August, due to Braid J.’s order that he personally attend in court on August 23, 2018, to clarify why he had not been responding to counsel's communications. His partner’s father was also ill during this period, causing additional stress on his marital relationship. Mr. Dunham’s issues with his partner continued through the balance of 2018, leading to their separation in early 2019.
d. Other client obligations: During 2018, Mr. Dunham was retained on several complex civil and criminal cases that required immediate attention, including crisis situations involving domestic and sexual violence and guardianship applications in the context of elder abuse. From September to the end of October 2018, he was heavily involved in two criminal trials in Kingston and Ottawa. He was therefore out of the office for significant periods of time, during which time communications received from plaintiffs' counsel went unanswered.
e. Father’s death and further professional pressures: Mr. Dunham returned to his office on October 30, 2018 (two days before the November 1 return of the motion before Harper J, at which the Filips’ defence was struck), only to learn that his father’s condition had further deteriorated. He left the next day for British Columbia to be with his parents. His father died on November 5, 2018. Upon his return to his office, Mr. Dunham felt totally overwhelmed by the work backlog. He did not become aware of Harper J.’s order striking the Filips’ defence until May 2019, after the Filips were served with Notices of Garnishment. In December 2018, he also spent significant time dealing with an unexpected criminal matter that required three court attendances the week after Christmas 2018.
[80] With that background, the Filips says that upon consideration of the factors set out in Mountain View Farms, the evidence justifies the conclusion that it would be just to set aside the default judgment. The plaintiffs do not agree. They say that the Filips have not adequately explained their default in complying with the procedural rules or otherwise satisfied the requirements for setting aside a default judgment.
[81] On the evidence before me, I have concluded that it would be just to set aside the default judgment, applying the criteria set out in Mountain View Farms. As set out in that decision, the major factors to be considered are as follows:
a. Motion brought promptly: Whether the motion was brought promptly after the defendant learned of the default judgment;
b. Explanation for default: Whether there is a plausible excuse or explanation for the defendant’s default in complying with procedural rules;
c. Arguable defence on the merits: Whether the facts establish that the defendant has an arguable defence on the merits;
d. Prejudice: The potential prejudice to the moving party should the motion be dismissed and the potential prejudice to the respondent should the motion be allowed; and
e. Effect on the administration of justice: The effect of any order the court might make on the overall integrity of the administration of justice.
[82] Those factors are addressed in turn below.
A. Motion brought promptly
[83] Was the motion to set aside the default judgment brought promptly after the Filips learned of the judgment?
[84] In early May 2019, the Filips learned of the default judgment (dated April 2, 2019) when they were served with Notices of Garnishment, together with supporting material that included a copy of the default judgment. The Filips’ motion to set aside the default judgment was brought in mid-August 2020 by Notice of Motion returnable September 15, 2020 (amending a previous Notice of Motion without a return date that Mr. Silver provided to Mr. Kraemer on June 11, 2020). The plaintiffs say that given the delay of over 15 months between the Filips’ learning of the default judgment and the date the motion to set aside was brought, it cannot be said that the motion to set aside the default judgment was brought promptly.
[85] I disagree. The plaintiffs’ position does not take into account what happened in the intervening period.
[86] As previously indicated, after being served with the Notice of Garnishment and default judgment, Mr. Filip brought it to the attention of Mr. Dunham, who assured Mr. Filip he would take care of it. The following month, Mr. Filip followed up with Mr. Dunham, who advised Mr. Filip that his professional liability insurer would be involved, and that Mr. Filip would be hearing from the insurer’s representative. Mr. Dunham in fact notified LawPRO on July 2, 2019, who in turn retained Mr. Silver in August 2019 to investigate and ultimately take carriage of a motion to set aside the default judgment.
[87] On September 12, 2019, Mr. Silver notified Mr. Kraemer that he had been retained by LawPRO to bring a motion for an order aside the default judgment, absent the plaintiffs’ consent to such an order. In the communications between counsel that followed, Mr. Kraemer advised Mr. Silver as follows: “Our clients will not rely upon any delay by Mr. Filip and Ms. Filipova in bringing their motion after September 12, 2019, should we receive instructions to oppose the motion." Giving such an assurance was usual and appropriate in the circumstances, consistent with counsel’s professional obligations and the public interest in resolving legal disputes on consent when feasible to do so. By now seeking to rely on delay that occurred after that date, the plaintiffs’ position is not consistent with Mr. Kraemer’s previous assurance. As noted further below, I consider that assurance to be binding on him and his clients.
[88] Accordingly, best case for the plaintiffs’ position, the delay in question was about four months from service on the Filips in May 2019 until September 12, 2019, a relatively short period of time. About half of that four-month period was the time Mr. Dunham took to notify LawPRO. While there was no specific explanation for Mr. Dunham’s delay in doing so, I see no basis for visiting that delay on the Filips, who notified Mr. Dunham of the default judgment and then followed up with him in short order. The balance of the four-month period was time for LawPRO’s counsel to be retained and to investigate, prior to contacting plaintiffs’ counsel. I consider that time period to be reasonable in the circumstances.
[89] As previously indicated, I do not consider any delay after September 12, 2019 to be relevant to consideration of whether the motion to set aside was brought promptly. After that date, counsel were in discussions about a possible consent resolution of the motion. In one sense, I can understand why the plaintiffs may have become frustrated by that process, which evidently became more protracted than they would have liked. However, the Filips understandably required independent legal advice, leading to their retaining current counsel of record, Mr. Snelling, in the latter part of March 2020. Mr. Snelling required time to get up to speed and obtain instructions as the COVID-19 health emergency unfolded, hampering access to court documents.
[90] On May 13, 2020 (after Mr. Kraemer served the plaintiffs’ Notice of Change of Lawyers), Mr. Silver advised Mr. Kraemer that further resolution discussions could proceed once Mr. Snelling was able to provide instructions. Without objecting or providing notice of his intention to do so, Mr. Kraemer took steps in June 2020 to enforce the default judgment by serving Notices of Examinations in aid of execution. After the hearing for a motion to set aside the default judgment had already been scheduled by Sloan J. on July 30, 2020, the plaintiffs sought to obtain a writ of possession by way of an ex parte motion, which the court then directed to be heard on notice.
[91] Mr. Kraemer provided no plausible explanation as to why he considered it appropriate to do so without prior notice, given the following circumstances: (i) he was aware that LawPRO had retained Mr. Silver to bring a motion to set aside the default judgment, absent resolution; (ii) Mr. Kraemer provided assurance that the plaintiffs would not rely upon any delay after September 12, 2019 in bringing the motion, should he receive instructions to oppose the motion; (iii) he had not provided notice that he had instructions to oppose the motion – resolution discussions, although protracted, were still outstanding, without notice from the plaintiffs that they would no longer participate.
[92] In all the circumstances, I am satisfied that the motion to set aside the default motion was brought promptly.
B. Explanation for default
[93] Is there is a plausible excuse or explanation for the Filips’ default in complying with procedural rules?
[94] As previously indicated, the explanation that the Filips provide for their default is that their counsel Mr. Dunham was experiencing a “perfect storm” of significant personal issues (as outlined above) that, together with other client matters requiring his urgent attention, impeded his ability to attend to the needs of his practice, including the plaintiffs’ action against the Filips. As a result, their pleadings were struck and other steps taken against them without their knowledge. In their submission, it would not be in the interests of justice to visit on them the consequences of their lawyer’s default, thereby depriving them of the opportunity to have their defence to the claim determined on its merits: see H.B. Fuller Co. v. Rogers (Rogers Law Office), 2015 ONCA 173, 386 D.L.R. (4th) 262, at para. 27.
[95] The plaintiffs dispute that the Filips have provided a plausible explanation for their default. The plaintiffs challenge the adequacy of Mr. Dunham’s explanation for his inaction, including his failure to explain why he did not have other lawyers cover his files during the periods he was absent from the office or was otherwise unable to attend to client responsibilities. They also challenge as implausible Mr. Dunham’s evidence that he did not advise the Filips of the default proceedings, especially given the costs awards against them. The plaintiffs also say that Mr. Dunham’s default provides only a partial and inadequate explanation. Among other things, it does not explain why the Filips failed to follow up with Mr. Dunham when they had not heard from him for extended periods of time nor why they did not contact Mr. Carey or another lawyer for assistance. They also say that when determining whether justice would be served by accepting their (and Mr. Dunham’s) explanation for the default, their fraudulent conduct in conveying their Ottawa properties to their son should also be taken into account: see 8697469 Canada Inc. (c.o.b. Rev Install 360) v. Kimberley Medica (c.o.b. BBK Enterprises), 2018 ONSC 1876, at paras. 24-27.
[96] Based on Mr. Dunham’s evidence and that of Mr. Filip (as outlined previously), I am satisfied that that the defence has provided a plausible explanation for the Filips’ default in this case. I find that the Filips relied on their lawyer to take the necessary steps in the action on their behalf. For the reasons outlined above, Mr. Dunham failed to take those steps or to otherwise keep the Filips’ advised of what was happening. As a result, the Filips’ defence was struck, they were noted in default and default judgment entered against them. They and Mr. Dunham only became aware of the judgment when steps were taken to enforce the judgment by way of garnishment.
[97] I agree with the plaintiffs that when determining whether justice would be served by accepting the explanation provided, it is appropriate to take into account the Filips’ conduct, including the conveyance of their Ottawa properties to their son. That issue is addressed below as part of the balancing exercise when considering the fifth factor in Mount View Farms, the effect on the integrity of the justice system.
C. Arguable defence on the merits
[98] Do the facts establish that the Filips have an arguable defence on the merits?
[99] Defence counsel submits that the Filips have an arguable defence on the merits with respect to both liability and damages.
[100] As set out in the Statement of Claim, the plaintiffs’ claim against the Filips is based on breach of contract (the 2014 real estate purchase agreement) and negligent misrepresentation relating to alleged defects in the Mapleton house. The Filips say there is no viable claim for breach of contract, since the purchase agreement contained no warranties or guarantees as to the fitness of the property or construction of the house. Therefore, in order to succeed, the purchasers must prove on a balance of probabilities that (i) there were latent defects within the subject property, and (ii) the vendors knew about and purposely concealed the defects or there was reckless disregard for the truth or falsity of any representations regarding any defects known to the vendors: see Cotton v. Monahan, 2010 ONSC 1644, 93 R.P.R. (4th) 212, at para. 50; aff’d 2011 ONCA 697. Among other things, the Filips say there is no credible evidence that they knew about the defects. The Filips also say that there is a viable limitation defence, based on cross-examinations of Claire Ross and her father Donald Ross, which indicate the plaintiffs’ knowledge of their claims as early as December 2014, more than two years before the action was commenced. As previously noted, the Filips also contest the plaintiffs’ methodology in calculating the replacement cost of the Mapleton house, the most significant component of the damages claimed (and awarded in the default judgment), relying on the Bosley report.
[101] In their responding material, the plaintiffs provided evidence relating to extensive structural and electrical defects to the Mapleton house that they say are attributable to renovations carried out in or about 2007, after the Filips acquired the Mapleton property. The plaintiffs say that the renovations did not comply with Building Code [^2] requirements and demonstrate an intention to conceal the substandard nature of the construction. The Filips deny knowledge of (or attempts to conceal) any defects or Building Code non-compliance, but the plaintiffs say that their denials are not credible, given (among other things) the extensive nature of the defects and the fact that the Filips have not provided documentary or other independent evidence to the contrary. On the issue of damages, the plaintiffs say that the Filips have not provided cogent evidence that calls into question the damages the plaintiffs say they have suffered (as set out in the default judgment).
[102] The case law makes it clear that in order to determine whether a defendant has an arguable defence on the merits, the bar is set relatively low. The defendant need not show that the defence will inevitably succeed. The defendant must show that the defence has “an air of reality”: see Mountain View Farms, at para. 51.
[103] Dealing first with the issues of damages, I have already found that the plaintiffs failed to provide full and fair disclosure on that issue in their motion for default judgment, providing grounds to set aside the judgment on that basis alone. The evidence the plaintiffs failed to provide to the motion judge included the Bosley report, which called into question the methodology used to calculate the estimated replacement cost of the house. I have already acknowledged that such unsworn opinion evidence would not normally be sufficient to support a determination of the house’s replacement cost. However, the quality of the evidence was no different than the evidence the plaintiffs relied on to support their calculation of damages (which the motion judge accepted). Given the “air of reality” guidance the court provided in Mountain View Farms when considering this factor, I find that the Filips have demonstrated an arguable defence of the merits relating to determination of damages, obviating the need to consider the liability issue in this context.
[104] That being said, I have also concluded that the defence has demonstrated an arguable defence on the issue of liability. As noted in Cotton, at para. 42: “In any discussion regarding the purchase of real estate one must start with the well-known legal maxim: ‘caveat emptor, qui ignorare non debuit quod jus alienum emit’ (Let the purchaser, who is not to be ignorant of the amount and nature of the interest, exercise proper caution).” In order to succeed in their action, the plaintiffs face a challenging task (as set out in Cotton, at para. 50). I find that there is an air of reality to the Filips’ liability defence, based on their affidavit and oral evidence. The credibility of their evidence is better dealt with in the trial context, if required. I have reached the same “air of reality” conclusion about a limitation defence, based on the cross-examinations of Claire Ross and her father.
D. Prejudice
[105] The fourth factor in Mountain View Farms requires the court to consider the potential prejudice to the moving parties should the motion to set aside the default judgment be dismissed and the potential prejudice to the respondents should the motion be allowed.
[106] If the motion is dismissed, the prejudice to the moving parties is obvious. The defendants would lose the opportunity to have the dispute determined on its merits, at variance with the principle set out in r. 1.04(1). If the default judgment is set aside, the plaintiffs would be subject to delay in determining their claim beyond the time frame that would have applied had the defendants complied with the procedural rules.
[107] The Filips say that the loss of the opportunity to have the dispute decided on its merits far outweighs any prejudice the plaintiffs may suffer if the motion is dismissed. The plaintiffs dispute that position. They say that they are prejudiced by the delay in having their claim adjudicated on a timely basis, including the fading of witnesses’ memories (including the Filips’, who are elderly) in the period since the plaintiffs’ purchase of the Mapleton property in 2014. The plaintiffs also point to the steps the Filips have taken to thwart the plaintiffs’ claim, notably the transfer of the Filips’ Ottawa properties to their son (since reversed by court order). The plaintiffs also dispute the extent of the Filips’ prejudice if the motion is dismissed, based on the plaintiffs’ assessment that the Filips have little prospect of a successful defence on the merits.
[108] As explained below, I have concluded that the prejudice to the Filips of losing the opportunity to have the dispute determined on its merits would far outweigh any prejudice to the plaintiffs if the default judgment is set aside. In particular:
a. As previously indicated, I have concluded that the Filips have an arguable defence on the merits with respect to both damages and liability. I am therefore not persuaded that that the Filips have little prospect of a successful defence, as the plaintiffs argue.
b. While there is no dispute that memories may fade with time, the relevant period of delay in this case is not since 2014 (when the cause of action arose) but rather some time in 2018 (when delays occasioned by defence procedural defaults commenced). Even if the delay since that time is placed entirely at the Filips’ feet (which is more than debatable in all the circumstances), I do not consider the delay long enough to give rise to any presumptive prejudice to the plaintiffs: see 2189126 Ontario Limited v. Toronto-Dominion Bank, 2017 ONSC 6943, at para. 19. [^3] The record before me does not indicate any significant actual prejudice to the plaintiffs. To the extent that the Filips’ memories have faded over time, I would consider that to be more to the detriment of the Filips rather than the plaintiffs. Given that the plaintiffs and the Filips have already delivered their Affidavits of Documents, I see no evidence of prejudice based on failure to preserve documentary evidence. [^4]
c. I consider it more appropriate to address the Filips’ transfer of their Ottawa properties in the next section of these Reasons under “Effect on the integrity of the administration of justice”. In any case, the transfer has been reversed by court order, ameliorating prejudice to the plaintiffs.
E. Effect on the administration of justice
[109] The fifth factor in Mountain View Farms requires the court to consider the effect of any order on the overall integrity of the administration of justice.
[110] The Filips argue that dismissing their request to set aside the default judgment would bring the administration of justice into disrepute, since it would excuse the plaintiffs’ improper conduct, including the following:
a. The plaintiffs failed to make full and frank disclosure of all material facts when making the ex parte motion for default judgment in March 2019. (I have already found that the plaintiffs failed to comply with this requirement).
b. Without prior notice, the plaintiffs took steps in June 2020 to enforce the default judgment by way of Notices of Examination of the Filips in aid of execution. The Filips say that doing so was improper in the circumstances, which include Mr. Kraemer’s prior assurance to Mr. Silver that the plaintiffs would not rely on any delay by the Filips after September 12, 2019 in bringing a motion to set aside the default judgment if he received instructions to oppose the motion. (I have already found that such assurance was binding on Mr. Kraemer and the plaintiffs, and that taking that enforcement step without prior notice was not consistent with that assurance or otherwise appropriate in the circumstances.)
c. On August 14, 2020, after Sloan J. had already scheduled the hearing of the Filips’ motion to set aside the default judgment (returnable September 15, 2020), the plaintiffs improperly took further steps without notice to enforce the default judgment by bringing an ex parte motion to enforce the writ of execution against the Filips, returnable August 26, 2020. (Gordon J. directed that the motion proceed on notice, returnable September 15, 2020, with the other motions.)
[111] From the plaintiffs’ perspective, they argue that shortly after they commenced their action, the Filips improperly attempted to defeat the plaintiffs’ claim by transferring the Filips’ Ottawa properties to their son. The plaintiffs subsequently commenced a fraudulent conveyance action against the Filips and their son and obtained a default judgment voiding the Filips’ transfer of the Ottawa properties to their son.
[112] The plaintiffs submit that setting aside the default judgment would bring the administration of justice into disrepute, taking into account the Filips’ fraudulent attempt to credit-proof themselves together with the delay occasioned by the Filips’ (and their counsel’s) compliance defaults. The plaintiffs say that in contrast, they have met the procedural timelines, which are mandated to promote resolution of civil actions within a reasonable time to maintain confidence in the administration of the civil justice system. They say this consideration weighs against setting aside the default judgment.
[113] Consideration of the fifth factor in Mountain View Farms (relating to the effect on the integrity of the administration of justice) is an integral part of the ultimate balancing exercise contemplated in that decision. As previously indicated, the various Mountain View Farms factors are not treated as rigid rules. The court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of default: see Mountain View Farms, at para. 50; Kisel, at para. 14.
[114] Balancing those factors in this case, I have concluded that the interests of justice would be served by setting aside the default judgment, on the terms set out in the next section of these Reasons. Failure to do so would deprive the Filips of the opportunity to have the dispute determined on the merits in circumstances in which they have an arguable defence. While setting aside the judgment will delay resolution of the action for the plaintiffs, no presumptive or significant actual prejudice is present on the evidence. While the Filips are not blameless for the defaults that occurred, the fault falls primarily on their counsel, on whom they relied. After unsuccessful resolution discussions, the motion to set aside the default judgment came before the court with reasonable dispatch. In these circumstances, failure to set aside the default judgment would be contrary to the interests of justice.
[115] In reaching that conclusion, I also took into account the Filips’ unsuccessful attempt to transfer their Ottawa properties to their son as a countervailing consideration relating to the order’s effect on the integrity of the administration of justice. However, I also took into account the plaintiffs’ defaults (in failing to provide full and fair disclosure and taking inappropriate ex parte enforcement steps), which weigh heavily against leaving the default judgment in place.
[116] Taking the foregoing into account, I concluded that justice was served by setting aside the default judgment, on the terms set out below.
VI. Remedial directions
[117] If the default judgment is set aside, what remedial terms should be imposed?
[118] In their responding material, the plaintiffs request that if the default judgment is set aside, remedial terms be imposed, requiring the following:
a. A schedule for the remaining steps in the action, to be imposed on a peremptory basis;
b. The writs of sale and seizure filed in Ottawa would remain in place;
c. The Filips would provide security for the full amount of the default judgment; and
d. If the Filips fail to comply with the terms of the order, their defence would be struck and the default judgment re-imposed.
[119] As discussed further below, there is no dispute that a schedule should be imposed for the balance of the action. As for some of the other more draconian terms the plaintiffs suggest, the factual basis for doing so cited in the plaintiffs’ submissions include failure to follow court orders (I accepted that the Filips did not know about them), a weak defence (I found an arguable defence on the merits) and significant unexplained delay (which has been explained). In addition, those suggested terms do not take into account my finding that the plaintiffs failed to make full and fair disclosure in their motion to set aside the default judgment, calling into question the quantum of damages awarded and negating any justification for the costs award to the plaintiffs on that motion. Therefore, except as indicated below, I do not propose to include those suggested additional terms in my order.
[120] With respect to the suggestion that the Ottawa writs of seizure and sale remain in place in the absence of an underlying judgment, doing so is the matter of some controversy in the case law. The plaintiffs rely on Canadian Imperial Bank of Commerce v. Sheahen (1978), , 22 O.R. (2d) 686 (Div. Ct.), in which the court declined to apply the reasoning in the earlier High Court decision of Jet Power Credit Union Ltd. v. McInally (1973), 17 O.R. (2d) 59 (H.C.). In Jet Power, the court held that there was no jurisdiction to impose a term leaving a writ of execution in place if the judgment is set aside. In a more recent Superior Court decision setting aside a default judgment, the motion judge declined to leave an execution in place and ordered it discharged, relying on the reasoning in Jet Power without referring to Sheahen: see Dunay Enterprises Inc. v. Goodish, [2005] O.J. No. 1132 (S.C.), at para. 17.
[121] In the present case, the Filips have requested a stay of any enforcement proceedings against them in this action (which I am prepared to include in my order) without specific reference to the Ottawa writs of seizure and sale. In these circumstances, my order will not make any reference to the writs. In my view, their fate would more appropriately be addressed in circumstances in which their efficacy is directly in issue, as it would be in the plaintiffs’ motion for a writ of possession (should circumstances arise where it becomes relevant to proceed with that motion). Since the latter motion (and the plaintiffs’ contempt motion) were before me but not addressed at the motion hearing, I am adjourning them both sine die, to return on seven days notice. I see no advantage in seizing myself of those motions or other proceedings relating to this action, which would be more likely to delay rather than expedite future proceedings.
[122] Turning now to a schedule for the action, rather than attempting to set the schedule’s terms in my order, I prefer the approach Henderson J. took in his September 2020 decision (at para. 39) in setting the schedule for this motion. I am therefore directing counsel to agree on a timetable for the action (setting reasonable timelines), failing which any party may bring a motion for directions. The schedule is to include a discovery plan as well as a timeline for setting the action down for trial. I do not agree that the timelines should be peremptory but the order will provide that a motion may be brought on notice to strike the Filips’ defence if they do not adhere to the schedule.
[123] On the issue of costs, I do not propose to determine that issue without further submissions but share the following observations. As is often the case on motions of this nature, nobody ends up covered with glory. The defence was successful in its motion to have the default judgment set aside, thereby receiving an indulgence from the court that would not have been necessary had they exercised the diligence they should have. The plaintiffs obtained the default judgment based on incomplete disclosure and then, once steps were being taken to set it aside, sought to enforce the judgment aside without notice, contrary to prior assurances. In all the circumstances, without deciding the issue, my preliminary view is that the parties should bear their own costs. However, if any party wishes to seek costs, my order makes provision for written submissions.
Disposition
[124] Accordingly, an order will issue as follows:
- The order of Gordon J. dated April 2, 2019, granting default judgment against the Filips, is set aside.
- The noting in default of the Filips is set aside.
- The order of Harper J. dated November 1, 2018, striking the Filips’ Amended Amended Statement of Defence and Crossclaim, is set aside.
- All enforcement proceedings against the Filips relating to this action (including any garnishments) are stayed.
- The parties (through their counsel) shall agree to a schedule for the action (setting reasonable timelines) that shall include a discovery plan and a deadline for setting the action down for trial. If the parties fail to agree on a schedule, any party may bring a motion for directions. If the Filips do not abide by the schedule, a motion may be brought on notice to strike their defence.
- The order of Sloan J. dated August 30, 2018 is varied to extend the deadline for completing examinations for discovery to accord with the schedule referred to in the previous paragraph.
- The plaintiffs’ contempt motion and their motion for writs of possession are adjourned sine die, to return on seven days notice. I am not seized of those motions or other proceedings relating to this action.
- Costs, if sought and not settled, will be determined following written submissions.
[125] If costs are sought and not settled, each side may serve and file brief written submissions (not to exceed three pages) together with a costs outline within 21 days. Each side may file brief reply submissions within a further seven days. Costs submissions are to be forwarded to the Trial Coordinator in Kitchener, with a copy to me, at 59 Church Street, St. Catharines ON L2R 7N8. If no submissions are received within the specified timeframe, the parties shall be deemed to have settled costs.
R. A. Lococo J.
Released: March 3, 2021
Footnotes
[^1]: McNeill Electronics Ltd. v. American Sensors Electronics Inc. (1996), 5 C.P.C. (4th) 266 (Ont. Gen. Div.), at para. 2; reversed on other grounds (1998), , 108 O.A.C. 257 (C.A.). [^2]: O. Reg. 332/12 under the Building Code Act, 1992, S.O. 1992, c. 23. [^3]: Counsel provided a hard copy of this decision of Heeney J., but the decision does not appear to be available in case reporters or from the court website. [^4]: The plaintiffs’ factum and supplemental factum incorrectly state a number of times that Mr. Dunham failed to deliver an Affidavit of Document on the Filips’ behalf. Mr. Kraemer affirmed that position during oral arguments. I see no viable basis for that position. The evidence before me indicates that Mr. Dunham provided Mr. Steele with the Filips’ Affidavit of Documents on August 24, 2018. While Mr. Dunham did so later than he said he would, receipt of the Affidavit of Documents was acknowledged by the plaintiffs or their counsel at least four times in communications previously referred to in these Reasons. Mr. Steele did so in emails to Mr. Dunham dated August 27 and October 29, 2018. The plaintiffs’ motion to strike dated October 10, 2018 stated that the Filips had previously failed to comply with the rules “until a motion was brought to compel compliance”, referring to the plaintiffs’ previous motion to strike the Filips’ defence for failure to provide an Affidavit of Documents. In Mr. Kraemer’s letter to Mr. Silver dated October 8, 2019, Mr. Kraemer himself states that his firm received the Filips’ Affidavit of Documents from Mr. Dunham on August 24, 2018. During Mr. Dunham’s cross-examination on his affidavit, Mr. Kraemer asked Mr. Dunham for an undertaking to provide the Affidavit of Documents that he produced when he acted for the Filips. While the examination’s table of contents lists that undertaking as having been given, the text of the examination clearly indicates that Mr. Silver (on Mr. Dunham’s behalf) took the question under advisement rather than undertaking to produce the document. In a subsequent letter, Mr. Silver provided what I consider to be an acceptable (albeit less than helpful) response that the Affidavit of Documents had already been provided. While Mr. Silver could have been more accommodating, Mr. Kraemer did not have licence to continue to submit incorrectly to the court that Mr. Dunham had not previously delivered the Affidavit of Documents. The evidence is clearly to the contrary, including from a letter Mr. Kraemer personally authored at his previous law firm.
