CITATION: 2021 ONSC 4653
COURT FILE NO.: CV-20-00642177
MOTION HEARD: 20210622
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: On Deck Capital Canada, ULC, Plaintiff
AND:
Northern Protocol Inc. and Aaron Weston, Defendants
BEFORE: Master La Horey
COUNSEL: S. Martinez, Counsel for the Moving Parties Northern Protocol and Aaron Weston
J. Hewlett, Counsel for the Responding Party On Deck Capital Canada, ULC
HEARD: June 22, 2021
REASONS FOR DECISION
MASTER LA HOREY:
Introduction
[1] The defendants bring this motion to set aside their noting in default and for leave to deliver a statement of defence within 30 days of this decision.
[2] In this action the plaintiff seeks damages in the sum of $70,974.32 for breach of a loan agreement in which Northern Protocol Inc. (“Northern Protocol”) was the borrower and the defendant Aaron Weston was the guarantor. The defendants have provided a draft statement of defence. Mr. Weston alleges that he is not liable, inter alia, by reason of a settlement agreement entered into in February 2019 pursuant to which it was agreed that he would no longer personally guarantee the debts of the corporate defendant. The draft defence also pleads unconscionability and excessive interest rates.
[3] In my view, it is in the interests of justice that the noting in default of the defendants be set aside and leave be given to the defendants to deliver a statement of defence within 30 days of this decision for the reasons that follow.
Litigation Chronology
[4] The statement of claim was issued on June 6, 2020.
[5] On June 17, 2020 the plaintiff’s process server left a copy of the statement of claim with Alex Tremblay, an employee of the company at the place of business and registered head office of the company. The defendants assert that service was not proper on the basis that Mr. Tremblay was a technician and was not a person who appeared to be in control or management of the place of business as required by Rule 16.02(1)(c). However, it is clear that the statement of claim came to the attention of Mr. Weston who is the director and sole officer of Northern Protocol.
[6] The same day the plaintiff’s process server attempted to serve Mr. Weston at his former residence but was advised that Mr. Weston no longer resided at that address and had sold the home in November 2019.
[7] It is clear that the statement of claim came to the attention of Mr. Weston by June 17, 2020. Plaintiff’s counsel and Mr. Weston exchanged emails between June 17, 2020 and July 2, 2020. On June 17, 2020 Mr. Weston advised that he was going to retain counsel at once. In this series of correspondence, the parties discussed potential settlement, the possibility of Mr. Weston initiating insolvency proceedings and the potential for a counterclaim. These emails have been produced in the motion record with the settlement discussions redacted. Plaintiff’s counsel encouraged Mr. Weston to retain counsel and advised by email dated June 18, 2020 that the defence was due no later than July 8, 2020. Mr. Weston responded on July 1, 2020 indicating a potential problem with the validity of service on the corporation and requesting extra time to file a defence which he trusted would not be an issue given that limitations had been suspended due to the pandemic.
[8] On July 2, 2020 Mr. Katzman, senior plaintiff’s counsel asked Mr. Weston to file a defence by July 10, 2020, failing which he was instructed to the defendants in default. Mr. Weston replied the same day stating that plaintiff’s counsel’s reference to timelines was misleading in view of the suspension of timelines due to COVID and referenced the COVID notices issued by the Superior Court.
[9] On November 23, 2020 plaintiff’s counsel delivered a requisition for the noting in default of Northern Protocol and it was noted in default on November 25, 2020.
[10] It is not in dispute that plaintiff’s counsel did not write to Mr. Weston in the time period between the government announcement that limitation periods and litigation timelines were to be resumed[^1] and before noting Northern Protocol in default. Specifically, plaintiff’s counsel did not write to Mr. Weston to advise of the lifting of the suspension and did not demand a statement of defence within a certain point in time.
[11] On December 7, 2020 plaintiff’s counsel advised Mr. Weston of the noting in default of Northern Protocol and asked him whether he would accept service of the statement of claim in his personal capacity, otherwise the plaintiff would serve the statement of claim in the ordinary course. Mr. Weston responded the same day saying service on Northern Protocol was improper. He advised that a defence had not been delivered because he said, both defendants must be properly served within the six months before the action could proceed under the Rules. He also stated that he was now living in Mexico, provided his address there and said that he ought to be served in accordance with the Rules. There was a further exchange of emails on that day and the next with plaintiff’s counsel encouraging Mr. Weston to retain counsel.
[12] On December 16, 2020 Mr. Weston wrote to advise that he was retaining the services of a trustee and that proceedings would be stayed once filed.
[13] On January 14, 2021 the plaintiff’s process server left a copy of the statement of claim with Mr. Weston’s brother at his brother’s residence. The address of this residence was on Mr. Weston’s driver’s licence. Mr. Weston’s evidence was that he used his brother’s address on his driver’s licence as a temporary measure, after he had moved out of his own house, and before he left for Mexico. Is it is not in dispute that Mr. Weston was not living at that address on January 14, 2021; he was living in Mexico under a temporary VISA (he left moved to Mexico in September 2020). It is not in dispute that Mr. Weston received the statement of claim shortly thereafter from his brother.
[14] There followed a series of emails between Mr. Weston and plaintiff’s counsel regarding potential settlement, bankruptcy and a partial payment on account of the debt from the proceeds of a liquidation of the company. At this juncture Mr. Weston involved lawyer Graham Knight.
[15] On February 10, 2021 at 1:27 pm Mr. Katzman sent an email to Mr. Knight which said that Mr. Weston had been served in his personal capacity by way of an alternative to personal service and stated that the pleading was accepted by his brother. He stated that he did not believe that Mr. Weston had moved to Mexico. He said that they would be proceeding to note Mr. Weston in default. He then stated: “In any event, if he does intend to Defend the Action, it is very important that he file a Defence without delay so we can get on with it. If Mr. Weston needs an indulgence to file a Defence please advise immediately so it can be considered. In the absence of hearing from you or from Mr. Weston or from anyone else on his behalf, we will be proceeding as outlined herein.”
[16] At 1:32 pm on February 10, 2021 Mr. Knight replied to Mr. Katzman advising that he had previously acted for Mr. Weston but was not presently retained. Mr. Katzman responded at 1:49 pm that he had presumed that Mr. Knight had forwarded his email to Mr. Weston but in any event would be sending his email directly to him given Mr. Knight’s advice that he was not currently retained.
[17] Notwithstanding Mr. Katzman’s email of 1:27 pm to Mr. Knight in which he asks Mr. Knight to advise if Mr. Weston needed an indulgence to file a defence so it could be considered, just ten minutes later, on February 10, 2021 at 1:37 pm, plaintiff’s counsel submitted a requisition to note Mr. Weston in default.
[18] Mr. Weston was noted in default on February 16, 2021.
[19] On February 17, 2021 plaintiff’s counsel wrote to Mr. Weston and asked for his input on the plaintiff’s requisition form to obtain a motion for default judgment.
[20] On February 24, 2021 (less than a week after Mr. Weston was advised of the noting in default) defendants’ counsel on this motion wrote to plaintiff’s counsel questioning service and said that they would bring a motion to set aside the noting in default.
[21] A motion date was booked shortly thereafter. Mr. Weston swore an affidavit (in Mexico) in support of the motion on March 18, 2021 in which he takes issue with service of the statement of claim on both defendants and asserts that he has a valid defence on the merits. In particular he states that the terms of the loan were unconscionable and the interest rates were excessive. In a supplementary affidavit Mr. Weston deposes that there was a settlement agreement as a result of which he was no longer liable for the debts of Northern Protocol.
Analysis
[22] The parties agree that the test for setting aside a noting in default is set out in Intact v Kisel 2015 ONCA 205. At paragraphs 12 and 13 the court states as follows:
Rules 19.03(1) and Rule 19.08(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provide the basis for setting aside a noting of default and a default judgment, respectively. Both rules give the court discretion to set aside the default “on such terms as are just”. This court has held that the tests to be met under these rules are not identical. See Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd. (1991) 1991 CanLII 7095 (ON CA), 3 O.R. (3d) 278, [1991] O.J. No. 717 (C.A.), at pp. 24-285 O.R.
When exercising its discretion to set aside a noting of default, a court should assess “the context and factual situation” of the case: Bardmore, at page 284 O.R. 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. See Nobosoft Corp. v. No Borders Inc. [2007] O.J. No. 2378, 2007 ONCA 444, 225 O.A.C. 36 at para. 3; Flintoff v. vonAnhalt [2010] O.J. No. 4963, 2010 ONCA 786, at para. 7. Some decisions have also considered whether setting aside the noting of default would prejudice a party relying on it: see, e.g., Enbridge Gas Distribution Inc. v. 135 Marlee Holdings Inc. [2005] O.J. No. 4327, [2005] O.T.C. 891 (S.C.J.), at para. 9. 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: Bardmore, at p. 285 O.R.
[23] The plaintiff takes the position that Mr. Weston was aware of the statement of claim from June 2020 onwards and that this factor favours the plaintiff’s position on the motion. However, the plaintiff was aware that Mr. Weston was taking issue with service on the corporate defendant and was insisting on service of both defendants in accordance with the Rules. Given the issues with service raised by Mr. Weston and his unwillingness to accept service of the claim, the plaintiff could have brought a motion for substituted service or a motion to validate service by email, relying on the multiple exchanges of emails with Mr. Weston. It chose not to do so.
[24] The plaintiff relies on Cheung v Liu, 2021 ONSC 426, a case in which the defendant brought a motion to set aside the noting in default and the plaintiff brought a cross-motion for summary judgment. The court refused to set aside the noting in default and granted judgment. In that case, Justice Papageorgiou said that the fact of the courts being closed due to COVID (such that a motion scheduled for April 2020 did not proceed) did not explain why the defendant did not begin to prepare to set aside the noting in default (which had occurred in February 2020, pre-COVID) until late June 2020. The plaintiff takes the position that in this case the COVID situation does not excuse the defendants from preparing and filing a statement of defence. A difference is that in Cheung, the plaintiff had noted the defendant in default pre-COVID, whereas the plaintiff was precluded from noting the defendant in default during this period, absent a court order. Moreover, during this time period Mr. Weston had raised an issue with service on the corporate defendant which was outstanding.
[25] It is notable that in Cheung, the plaintiff was unable to effect personal service and so obtained an order for substituted service prior to noting the defendant in default. In the case at bar, the plaintiff did not move before the court for any relief with respect to service. In an email of December 7, 2020 (after Mr. Weston’s email insisting on proper service) Mr. Katzman instructs his colleague to have service attempted at the last known address, to get an affidavit of attempted service and then move for an order for substituted service before noting the individual debtor in default and proceeding with default judgment.
[26] Further, there were also other considerations unique to Cheung, that Justice Papageorgiou took into consideration in the exercise of her discretion, that are not present the case at bar.
[27] The plaintiff also relies on Flintoff v von Anhalt, 2010 ONCA 786, where the Court of Appeal upheld the orders of Spence J. refusing to set aside the noting in default and granting default judgment. This case is also distinguishable. In Flintoff, the plaintiff obtained an order for substituted service via email as they were unaware of the defendant’s residence. Further, the defendant did not file a statement of defence for a year and a half although aware of the action from the time it was commenced. The time period in the case at bar is significantly shorter, and Mr. Weston advised plaintiff’s counsel he was taking issue with service and was insisting on personal service of the statement of claim. In this case, the length of delay is not inordinate, particularly in respect of the individual defendant even setting aside the concerns about service.
[28] The plaintiff also refers to paragraph 6 of the Flintock case in support of the proposition that that a dispute as to quantum is not a reason to set aside the noting in default. However, while it appears that Northern Protocol agrees that some amount is owing, the draft statement of defence, despite being confusing, raises other issues and Mr. Weston is contesting that he is personally liable.
[29] The plaintiff also takes the position that the defendants made an explicit decision not defend the action. Having reviewed the evidence, I cannot make this finding.
[30] Another factor to be considered is the complexity and value of the claim. The claim is relatively straightforward, and the value of the claim is less than $100,000. This factor militates against setting aside the noting in default.
[31] As set out in Intact at paragraph 13, only in extreme circumstances will a defendant who has been noted in default be required to demonstrate an arguable defence on the merits. This is not one of those circumstances.
Decision
[32] Having regard to the “full context and factual matrix” I exercise my discretion to set aside the noting in default. The factors which favour the setting aside the noting default outweigh the factors against setting the noting in default. To summarize, the factors in favour of setting aside the noting in default include: a) serious issues with respect to service of the statement of claim; b) the plaintiff’s failure to seek an order for substituted service before noting the defendants in default; c) the noting in default of Northern Protocol without warning after the resumption of litigation timelines; d) the precipitous noting in default of Mr. Weston 10 minutes after Mr. Katzman’s email indicating that the plaintiff would consider granting an indulgence, and e) the relative promptness of the motion to set aside the noting in default.
Costs
[33] The defendants have been successful. Although the defendants have been afforded an indulgence and it is clear that Mr. Weston has been aware of the statement of claim since June 2020, this motion would likely not have been necessary had the plaintiff not acted precipitously in noting the personal defendant in default having just 10 minutes prior indicated the possibility of an indulgence in the delivery of a defence. I heard submissions on costs and have reviewed the cost outlines filed by the parties. The defendants have submitted an outline for partial indemnity costs in the sum of $6,233.78. The plaintiff’s costs outline is for $4,030.30 on a partial indemnity basis. In my view the all-inclusive sum of $4,500 is a fair and reasonable sum that the plaintiff could expect to pay for costs in all of the circumstances of the motion. In the circumstances of this case however, the costs shall be in the cause. The plaintiff shall pay to the defendants the costs of this motion in the cause, fixed in the sum of $4,500 all inclusive.
Disposition
[34] The noting in default of the defendants is set aside. The defendants have leave to deliver a statement of defence within 30 days of this decision. The plaintiff shall pay to the defendants the costs of this motion in the cause, fixed in the sum of $4,500 all inclusive.
Master L. La Horey
Date: 20210628
[^1]: Pursuant to O. Reg. 457/20, s. 1```