COURT FILE NO.: CV-19-4852 (Milton)

DATE: 20210322

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ELLI-FIN CONSTRUCTION LIMITED

Plaintiffs

-and-

ARCA CANADA INC., JANONE INC., ARCA RECYCLING, INC. and APPLIANCESMART, INC.

Defendants

Aaron Hershtal, for the Plaintiffs

Evelyn Perez Youssoufian, for the Defendants

Heard: March 18, 2021 by video conference

Chown J.

REASONS FOR DECISION

[1] This is a motion to set aside the noting of default of the defendants.

Background

[2] The plaintiff landlord sues the defendant tenant (ARCA Canada Inc.) and related companies claiming unpaid rent, damage to and failure to maintain the rented premises, environmental clean-up costs, and unpaid utilities and other costs. The related companies are not parties to the lease but are alleged to be vicariously liable, in control of the tenant, the alter ego of the tenant or the de facto tenant.

[3] The motion record incorrectly indicates that the motion is brought by only three of the four defendants and that counsel only represents three of the four defendants. It was intended to be brought by all defendants. With consent, the motion record is deemed to be amended accordingly.

[4] In point form, the history is as follows:

August 1, 2007 to March 30, 2011 – Lease agreement initial term.

April 1, 2011 to March 30, 2012 – Lease extension term.

August 28, 2012 – Lease extension agreement signed providing for a rental on a month to month basis with 60 days notice of termination.

December 5, 2017 – Plaintiff landlord sends notice of default.

May 14, 2019 – By this date, counsel for the plaintiff, Mr. Niedzviecki, had been retained. He sent further notification of default.

June 11, 2019 –Mr. Rosenstein, counsel for the defendants, leaves a voice message and sends a follow up email message to Mr. Niedzviecki advising he is ARCA’s lawyer. Mr. Rosenstein and Mr. Niedzviecki have had matters together in the past.

June 13, 2019 - Mr. Niedzviecki and Mr. Rosenstein discuss the matter. Mr. Rosenstein requests documents.

August 22, 2019 – Mr. Niedzviecki provides a “preliminary document brief” of supporting documentation related to the claim to Mr. Rosenstein.

November 22, 2019 – Statement of claim issued.

November 28, 2019 – Statement of claim amended.

December 9 to December 12, 2019 – Amended statement of claim served on all defendants. Mr. Niedzviecki did not provide a courtesy copy of the claim to Mr. Rosenstein or ask Mr. Rosenstein to accept service of the claim.

January 6, 2020 – The defendants or Mr. Rosenstein form the intention to bring a motion to strike the claim as against ARCA Recycling and JanOne on the grounds that the plaintiff has not pleaded material facts to support piercing the corporate veil and, therefore, the claim discloses no reasonable cause of action against ARCA Recycling and JanOne. By January 6, 2020, a notice of motion has been drafted by Mr. Rosenstein, but it is not served. In fact, Mr. Niedzviecki is not advised of Mr. Rosenstein’s intention to bring this motion or even contacted by Mr. Rosenstein.

January 28, 2020 – Having had no contact whatsoever – from Mr. Rosenstein, from the defendants, or from anyone else on their behalf – but without any effort to notify Mr. Rosenstein, Mr. Niedzviecki has the defendants noted in default.

March 2020 – Pandemic declared.

August 31, 2020 – Mr. Niedzviecki’s clerk asks the Milton trial office for dates when they may bring a motion for default judgment.

September 10, 2020 – Unaware that his clients have been noted in default, Mr. Rosenstein has his clerk notify Mr. Niedzviecki of his intention to bring the motion to strike. She asks for dates when Mr. Niedzviecki would be available for the motion. Upon learning that the defendants had been noted in default, Mr. Rosenstein immediately requested Mr. Niedzviecki to seek instructions from the plaintiff to set aside the noting of default.

November 2020 – After efforts to resolve this issue are not successful, the parties set a timetable for this motion.

The Test

[5] In Intact Insurance Company v. Kisel, 2015 ONCA 205 at para. 13, the Court of Appeal said:

When exercising its discretion to set aside a noting of default, a court should assess “the context and factual situation” of the case. It should particularly consider such factors as the behaviour of the plaintiff and the defendant; the length of the defendant’s delay; the reasons for the delay; and the complexity and value of the claim. These factors are not exhaustive. Some decisions have also considered whether setting aside the noting of default would prejudice a party relying on it. Only in extreme circumstances, however, should the court require a defendant who has been noted in default to demonstrate an arguable defence on the merits. [Citations omitted.]

The Behaviour of the Defendant

[6] Upon being served with the claim, the defendants provided a copy to Mr. Rosenstein. As such, I accept that the defendants always intended to defend this action. Mr. Rosenstein prepared a motion in response to the claim in January of 2020. However, he did nothing further. He did not write to acknowledge that the claim had been received, to advise that he was still acting for the defendants in respect of the claim, or to ask that his clients not be noted in default without notice.

The Behaviour of the Plaintiff

[7] The plaintiff did not provide a courtesy copy of the claim to counsel, despite being aware that counsel was retained in respect of the matter. The plaintiff did not follow up with the defendant’s lawyer to see if the claim had been received or would be defended.

The Length of the Delay

[8] The plaintiff noted the defendants in default approximately 48 days after service of the claim on the last-served defendant. After noting default, the plaintiff did nothing for over eight months. This is in part explained by the pandemic as for some time in the intervening period, the court was only hearing emergency motions.

[9] The defendants delayed in any effort to schedule the intended motion for over eight months. Despite the fact that his clients had been served with a statement of claim, by the time Mr. Rosenstein got around to contacting Mr. Niedzviecki, it had been over a year since any communication from Mr. Niedzviecki about the matter and over 14 months since any communication to Mr. Niedzviecki. Again, the pandemic intervened in this time period.

[10] The defendants immediately requested the plaintiff’s consent to set aside the noting of default upon learning of it. When this was not forthcoming, the defendants brought this motion without delay.

The Reasons for the Delay

[11] The reasons for the delay provided by the defendants are: (1) inadvertence by counsel; and (2) the pandemic. Neither reason is a good reason.

The Complexity and Value of the Claim

[12] This is not a straightforward claim for unpaid rent in a commercial tenancy. Rather, there are issues relating to other aspects of the damages and relating to piercing the corporate veil for defendants that did not sign the lease. There is a jurisdictional issue as only ARCA Canada Inc. is based in Canada, with the other defendants based in the U.S.

[13] The claim is for approximately $350,000. According to the affidavit of Yousef Elsohemy sworn March 12, 2021, $35,500 of this amount is for unpaid rent arrears. The balance is for other claims.

Prejudice

[14] The plaintiff will not suffer any prejudice if this matter is allowed to proceed on its merits.

[15] The defendants will suffer prejudice if the noting of default is not set aside as they will not be able to advance their intended defences.

Analysis

[16] Under the heading “General Principle,” Rule 1.04 states: “These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.” The courts take this general principle very seriously because it grates against any reasonable person’s sense of fairness when, without strong reasons, cases are decided based on procedural issues rather than their merits.

[17] In Castracane v. St. Demetrius, 2016 ONSC 964 at para 20, Master Pope said:

Courts have consistently noted that motions to set aside a noting of default, as well as motions to extend the time for delivery of pleadings and relieve against defaults are typically and frequently granted as it is not in the interest of justice to strike pleadings or grant judgments based solely on technical defaults. In most cases opposing counsel will consent to such relief as a matter of professional courtesy. Courts prefer to dispose of proceedings on their merits whenever possible rather than the matter being struck out based on a technicality. [Citations omitted.]

[18] In 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), 1998 CanLII 17693 (ON CA), Justice Molloy said:

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. [Emphasis added.]

[19] This passage was cited with approval in Nobosoft Corporation v. No Borders, Inc., 2007 ONCA 444 at para 7.

[20] There is no unfairness here in setting aside the default and allowing the case to proceed on its merits.

[21] Section 19 of The Principles of Civility for Advocates published by The Advocates Society states: “Subject to the Rules of Practice, advocates should not cause any default or dismissal to be entered without first notifying opposing counsel, assuming the identity of opposing counsel is known.” When Mr. Niedzviecki issued the claim, it had been less than four months since his last interaction with Mr. Rosenstein, but he did not send a courtesy copy of the claim to Mr. Rosenstein. He had no obligation to do so under the rules, but all parties would have been better served had he done so and followed up to set a timetable for the litigation.

[22] The plaintiff points to section 36 of The Principles of Civility, which state: “Advocates should respond promptly to correspondence and communications, including electronic communications, from opposing counsel.” Mr. Rosenstein never responded to the documents brief that Mr. Niedzviecki sent on August 22, 2019 email. Fair enough. But two wrongs don’t make a right. And this is a false equivalent. The discourtesy involved in noting default without notifying counsel far exceeds the discourtesy in failing to respond to correspondence promptly. It could be different if Mr. Niedzveiki had followed up for a response to the documents brief, but that did not occur.

[23] Instead of noting default, by far the better practice would have been to follow up with Mr. Rosenstein to demand a defence and to set a timetable and discovery plan.

[24] I have cribbed the phrase “by far the better practice” from Justice Brown who used it in Elekta Ltd. v. Rodkin, 2012 ONSC 2062 at para. 10, and from Justice Sanfilippo who emphasized it when he cited Elekta in Casa Manila Inc. v. Iannuccilli, 2018 ONSC 7083 at para. 11. They were dealing with motions for default judgment and in both cases exercised their discretion to require the plaintiffs to give notice of their motion to defendants who had already been noted in default. This approach is increasingly being used by this court in appropriate circumstances. See, for example: DCR v. Vector Card Services, 2013 ONSC 5881; Western Steel and Tube Ltd. v. Technoflange Inc., 2017 ONSC 2697; Roberts v. Santilli, 2019 ONSC 64; Natural Energy Systems Inc. v. Hallett, 2019 ONSC 1372; Grabenheimer v. Lala, 2019 ONSC 2811; Celik v. TD Bank, 2020 ONSC 1714; Advant Leasing Limited v. Kozicki, 2020 ONSC 4292; Alfonso Izzo v. Tonnina Ministro, 2020 ONSC 6703; and Strada Aggregates Inc. v. YSL Residences Inc., 2020 ONSC 7034.

[25] This may seem to some to be giving a second chance to defendants who have not followed their obligations under the rules. However, as stated by Justice Sanfilippo in Casa Manila at para. 17: “To a plaintiff seeking a judgment on default, notice is not a nuisance: it is key to the viability of the default judgment.”

[26] In this case, if this matter had proceeded to a motion for default judgment, it would have been incumbent on the plaintiff to advise the court that the defendants had counsel. It is likely that a judge hearing a motion for default judgment would have exercised the discretion available under rule 19.02(3) to require that notice of the motion be served on the defendants.

[27] When the plaintiff noted the defendants in default, it was predictable that this would accomplish little other than generate legal expense and delay resolution of this matter.

Disposition

[28] An order shall issue setting aside the noting of default.

[29] Each defendant shall, within 30 days, deliver either:

a. its defence; or

b. its jurisdiction motion. (For added clarity, the return date for the motion does not need to be within 30 days.)

Costs

[30] It would be within my discretion to award no costs given the defendant’s failure to file a defence and failure to take any steps for months. However, in my view, given how predictable the outcome of this motion was, costs should follow the event.

[31] I have reviewed both parties’ costs outlines, which are for similar amounts. The plaintiff shall, within 30 days, pay to the defendants the costs of this motion which I fix at $6,000 all-inclusive.

“Justice R. Chown”

Released: March 22, 2021

Typographical errors corrected July 2, 2021