COURT FILE NO.: CV-21-00657838-0000
MOTION HEARD: 20210629
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MANSOOR BROTHERS ENTERPRISES INC., Plaintiff/Responding Party
AND:
CHATTHA, Defendant/Moving Party
BEFORE: MASTER R. FRANK
COUNSEL: O. Hoque, Counsel for the Defendant/Moving Party
N. Razvi, Counsel for the Plaintiff/Responding Party
HEARD: 29 JUNE 2021
REASONS FOR DECISION
[1] This is a motion by the defendant to set aside the noting in default and default judgment against him and for other relief. The plaintiff opposes this motion.
[2] At the outset of the motion, plaintiff’s counsel requested an adjournment of the motion to allow for a longer hearing. Counsel for the defendant opposed the adjournment request. He submitted that the matter should proceed given the prejudice to his client that could result from the default judgment and the writ of seizure and sale that the plaintiff has obtained, and he undertook to make his submissions brief to allow additional time for the plaintiff’s responding submissions. I did not grant the adjournment and allowed plaintiff’s counsel the time she required for her submissions.
[3] With respect to the materials before the Court, counsel for the plaintiff objected to the late service of the defendant’s factum and a supplementary affidavit from the defendant sworn June 28, 2021 (the “Chattha Affidavit”). Defendant’s counsel acknowledged the late service but sought leave to file those materials. I note that the plaintiff had uploaded a responding factum to Caselines which was not filed with the Court and was also served late. I accept both parties’ factums for filing and for the purposes of this motion. With respect to the Chattha Affidavit, I accept it for the purpose only of confirming the statements based on information and belief (from Mr. Chattha) that are in the affidavit of Cezara Chesu, sworn June18, 2021 (the “Chesu Affidavit”). Plaintiff’s counsel did not object to the Chesu Affidavit which is found in the defendant’s motion record filed in support of this motion. In the Chattha Affidavit, the defendant confirms that he was the source of the information attributed to him in the Chesu Affidavit, and that he stands by those statements. As a result, there is nothing in the Chattha affidavit that would take the plaintiff by surprise. Further, as outlined in the reasons that follow, the importance of the Chattha affidavit is minimized because the key events upon which this motion turns are found in: (1) correspondence between plaintiff’s and defendant’s counsel (which speaks for itself and is found as exhibits to the Chesu Affidavit and the plaintiff’s responding affidavit); (2) statements by the plaintiff in his responding affidavit; and (3) the plaintiff’s own court filings and correspondence from plaintiff’s counsel to the court, described below.
FACTS
[4] The key facts can be summarized as follows:
a) The statement of claim was issued on February 26, 2021. It was served on the defendant on March 1, 2021. The claim is for breach of contract to recover a debt alleged to be owing under a forbearance agreement.
b) On April 11, 2021, defendant’s counsel wrote to plaintiff’s counsel advising her that he had been retained by the defendant and asking her not to note the defendant in default without reasonable advanced notice.[^1] He also asked to discuss the matter with her by phone.
c) On April 12, 2021, counsel spoke about the matter. A letter dated April 13, 2021 from defendant’s counsel to plaintiff’s counsel confirms the April 12, 2021 discussion and that plaintiff’s counsel had advised that the plaintiff had taken steps to note the defendant in default “sometime last week”. Defendant’s counsel reiterated an intention to deliver a defence, which was expected to be served by April 19, 2021 and explained the delay in doing so included counsel’s unavailability. In the letter, defendant’s counsel requested the plaintiff’s consent to file the defence.
d) On April 27, 2021, defendant’s counsel sent a copy of the statement of defence and counterclaim by fax and email to plaintiff’s counsel, and once again requested consent to file it.
e) On April 30, 2021, plaintiff’s counsel advised that the plaintiff would not consent to the filing of the defence.
f) On April 30, 2021, defendant’s counsel asked plaintiff’s counsel to “Please confirm whether my client has been noted in default and/or a default judgment was obtained. If yes, on which dates did those events occur.” He then added: “Please advise as soon as possible, as I will be preparing our motion record shortly.”
g) The May 3, 2021 response from plaintiff’s counsel said that “The default proceedings were initiated after the defendant failed to serve the defence within the prescribed time.” Defendant’s counsel then wrote back to say “I thought you would receive a filed requisition from the Court. Don’t you have anything of that sort?” There is no evidence of a response to this question.
h) On May 10, 2021, defendant’s counsel wrote to say “Please also confirm that you did not requisition default judgment.”
i) Defendant’s counsel wrote again on May 11, saying “Also, as I asked you before, please confirm that you have not requisitioned a default judgment or taken any other default proceeding without notice to me.” Plaintiff’s counsel responded the same day to say “As to the default proceedings, I had told you previously that after the defendant failed to serve the statement of defence within prescribed time under the Rules of Civil Procedure, we initiated the default proceedings, which as you know includes requisitioning the default judgment.”
j) Defendant’s counsel wrote back, again on May 11, 2021, to say:
“I am rather confused as to why you cannot advise me clearly whether you requisitioned a default judgment and if you received a default judgment.
Please be frank. I shouldn’t have to write you multiple emails to learn of these straightforward facts. You ought to have provided me with this information when I asked for the same several weeks ago.
At this time, I am assuming that a default judgment has not been issued, and hence our motion is only for setting aside the noting in default. Please advise if I have to add a relief for setting aside a default judgment as well.”
k) On May 12, 2021, plaintiff’s counsel wrote to say “and as to default proceedings, I have told you right from the beginning that we initiated the default proceedings after the defendant failed to file and serve the defence as per the Rules. and you as an Ontario practicing lawyer should know that the proceedings include the requisitioning default judgment. I told you the full and frank information with me. and it is your responsibility to protect your client's interest. As and when I receive a default judgment, you will be notified. I do not control the court's time that it takes to note the party in default or issue a default judgment.” [emphasis added]
l) Defendant’s counsel wrote again on May 12, 2021 to say:
“It appears that your current position is that you requisitioned to (a) note my client in default and (b) for a default judgment, and that you have not yet received the Registrar's response.
Despite my request to advise when you filed these requisitions, you still have not advised as to the date(s) when you made those requests.” [emphasis added]
m) On May 17, 2021, defendant’s counsel wrote to plaintiff’s counsel to say “Please be advised that a motion before a Judge, seeking an Order setting aside the noting in default of the Defendant has been booked for June 29, 2021”
[5] The default judgment is dated May 31, 2021. Based on the default judgment, a writ of seizure and sale of the defendant’s personal property was filed by the plaintiff on June 10, 2021.
[6] The affidavits in the record do not disclose when the plaintiff commenced the default proceedings seeking a default judgment. In the correspondence between counsel noted above, plaintiff’s counsel makes vague reference to default proceedings having been commenced prior to the April 12, 2021 phone conversation between counsel. The plaintiff’s affidavit states at paragraph 11 that “default proceedings were initiated in the first week of April 2021 and the default judgment was issued on May 31, 2021”.
[7] The plaintiff’s court filings and correspondence with the court provide a more complete chronology of events, which is summarized as follows:
a) Plaintiff’s counsel submitted a requisition for default judgment to the court through the electronic filing system on April 1, 2021.
b) On April 7, 2021, plaintiff’s counsel received notice by email that the court did not accept the documents submitted on April 1, 2021 for filing.
c) On April 12, 2021, plaintiff’s counsel made a second attempt to file documentation requisitioning default judgment.
d) Again, the court did not accept those documents for filing. Plaintiff’s counsel received an email notice of this on April 14, 2021.
e) Plaintiff’s counsel made a third attempt to file documentation requisitioning default judgment on April 14, 2021. This April 14, 2021 requisition for default judgment was accepted by the court for filing.
f) On May 28, 2021, counsel for the plaintiff received notice by email that the default judgment was rejected by the Registrar.
g) Plaintiff’s counsel resubmitted a redrafted default judgment on May 31, 2021.
h) On June 7, 2021 plaintiff’s counsel wrote to the Registrar requesting that default judgment be signed urgently.
[8] Plaintiff’s counsel provided the court with the plaintiff’s filings and other communications with the court regarding the default proceedings. She also acknowledged at the hearing that the above steps were taken on behalf of the plaintiff between April 1, 2021 and June 7, 2021 to obtain the default judgment that is dated May 31, 2021.
THE LAW
[9] The applicable principles for setting aside a noting in default and for setting aside a default judgment are well known and are summarized in Intact Insurance Co. v. Kisel, 2015 ONCA 205. Writing for the court, Laskin J.A. outlined the following principles that are to be applied:
[12] Rules 19.03(1) and 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. 284-85 O.R.
[13] 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 p. 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. von Anhalt, [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. 8. 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.
[14] On a motion to set aside a default judgment, on the other hand, the court considers five major factors, one of which is whether the defendant has an arguable defence on the merits. The five factors are
(a) whether the motion was brought promptly after the defendant learned of the default judgment; [page370]
(b) whether the defendant has a plausible excuse or explanation for the default;
(c) whether the defendant has an arguable defence on the merits;
(d) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff 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.
Again, these factors are not rigid rules. The court has to decide whether, in the particular circumstances of the case, it is just to relieve a defendant from the consequences of default: Mountain View Farms Ltd. v. McQueen (2014), 119 O.R. (3d) 561, [2014] O.J. No. 1197, 2014 ONCA 194, 372 D.L.R. (4th) 526, at paras. 48-50.
[10] In addition to these general principles, as this is an action governed by the simplified procedure, the court should not set aside default judgment unless the issues cannot be decided upon without cross-examination or it would otherwise be unjust to decide the issues on the motion (Dunay Enterprises Inc. v. Goodish, 2005 CarswellOnt 1160 (Ont. S.C.J.) at para. 9).
APPLICATION OF THE LAW TO THE FACTS
[11] Before I turn to the test outlined in Intact for setting aside a default judgment, I note that this is not a typical situation where a plaintiff has obtained default judgment and then, after-the-fact, a defendant seeks to have it set aside. As is clear from the chronology of events set out above, the plaintiff took numerous steps to obtain the default judgment after counsel for the defendant first contacted plaintiff’s counsel. This was done without notice to the defendant’s lawyer and despite: (1) his request for information about the status of the default proceedings, which information was not provided; (2) his request that the plaintiff not take any further steps with respect to any default proceedings without notice; and (3) the clear notice of the defendant’s intention to deliver a statement of defence.
[12] Counsel for the plaintiff submitted that it was appropriate to continue to take steps to obtain the default judgment even though she had been contacted by defendant’s counsel. In support of this position, she pointed to correspondence from defendant’s counsel indicating that a statement of defence would be forthcoming sooner than it was ultimately served. I do not accept this submission. The April 13, 2021 letter from defendant’s counsel indicated that he expected to deliver the defence by April 19, 2021, and it was ultimately served on April 27, 2021. At no point did plaintiff’s counsel notify defendant’s counsel that the defence was required by a specific date or that the plaintiff would take further steps with respect to the default proceedings if the defence was not served by a specific date. As noted above, the plaintiff continued to take such steps both before and after defendant’s counsel contacted plaintiff’s counsel requesting the plaintiff’s consent to file the statement of defence and asked that the plaintiff take no further steps without notice.
[13] Importantly, from the time of the first contacts on April 11 and 12, 2021, the responses by plaintiff’s counsel to the inquiries by defendant’s counsel about the timing and status of the default proceedings were less than forthcoming, if not misleading. The communications from plaintiff’s counsel created the misimpression that the default proceedings had already been undertaken and completed, i.e. that the defendant had been noted in default and that the plaintiff was merely waiting for the Registrar to sign the default judgment.
[14] Counsel for the plaintiff also submitted that because the first attempt to obtain default judgment was made on April 1, 2021, the steps taken following April 1, 2021 were merely a continuation of that process. I do not agree. Even accepting plaintiff’s counsel statement that the April 12, 2021 filing of the requisition for default judgment occurred before she saw the April 11, 2021 fax from defendant’s counsel and before she spoke with him on April 12, 2021, the plaintiff took several other active steps to obtain the default judgment at a time when plaintiff’s counsel had been asked not to take any further steps without notice to defendant’s counsel. Specifically, plaintiff’s counsel made two further filings of default materials: first on April 14, 2021 and then on May 31, 2021. She also wrote to the court on June 7, 2021 asking for the judgment to be signed “urgently”. These actions were taken without notice to defendant’s counsel, and they are inconsistent with the statement in her May 12, 2021 email that she was providing “full and frank information” and the statement in the same email that “[she does] not control the court's time that it takes to note the party in default or issue a default judgment”. Rather, the plaintiff took active steps after April 12, 2021 to obtain the default judgment and to have it issued urgently. Without those steps, the default judgment would not have been granted.
[15] Given the particular circumstance of how and when the default judgment was obtained, it would be just to relieve the defendant from the consequences of default for these reasons alone. In this regard, I find that granting the relief sought by the defendant is consistent with the overall integrity of the administration of justice and that declining the order requested would have a negative effect on its overall integrity.
[16] In the event that I am wrong in finding that the above reasons are a sufficient basis to set aside the default judgment, outlined below is my analysis of the five major factors typically applied on a motion to set aside a default judgment.
Was the motion brought promptly after the defendant learned of the default judgment?
[17] Once notified that the plaintiff would not consent to the filing of the statement of defence, defendant’s counsel immediately notified plaintiff’s counsel of the defendant’s intention to bring a motion to have the default set aside. Despite the defendant’s efforts to proceed with the motion, the correspondence between counsel shows that plaintiff’s counsel continued to give evasive or non-answers to questions about the status of the default proceedings. This conduct by the plaintiff hindered the defendant’s efforts to bring this motion. I find that the defendant moved promptly in the circumstances. In fact, initial steps were taken before the default judgment was signed.
Does the defendant have a plausible excuse or explanation for the default?
[18] The evidence is that the defendant always had the intention to defend the action. The explanation for the defendant’s delay in doing so is that he had little knowledge of the court process or how to defend the claim, and on March 9, 2021 he reached out to a lawyer who had previously assisted him with legal service. When he was advised that this lawyer was unable to assist because he no longer practiced civil litigation, he reached out to current defence counsel on or around March 12, 2021. There was some difficulty setting a time for a meeting as counsel was occupied with certain other urgent matters and it was more difficult to meet due to COVID-19 pandemic restrictions. The defendant met with defence counsel on or around March 15, 2021 to discuss the matter, but the retainer was not finalized until on or around April 6, 2021. There is no explanation why it took so long to have the retainer finalized in circumstances where a statement of claim had already been served, and I find the explanation for the default somewhat vague. As a result, I am not satisfied that the defendant has provided a plausible explanation for his failure to defend the action immediately.
[19] However, this factor, like all of the applicable the factors, should not to be treated as a rigid rule. Rather, the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default; see Intact at para. 14 and Mountain View, para. 50. In this regard, I note that although there was a default that is not well explained, the plaintiff had moved extremely quickly to commence default proceedings and the default was only for a very short period. Further, as noted above, although the defendant was technically in default, he was actively taking steps to retain counsel to defend the matter in the period before the default occurred, and he began disputing the default proceedings before the default judgment was signed. In these circumstances, I would give this factor less weight than in a situation where there had been a longer period before the plaintiff commenced default proceedings, or where the defendant had taken no steps whatsoever toward defending the claim during the period preceding the default.
Does the defendant have an arguable defence on the merits?
[20] The plaintiff’s claim is made with respect to a brokerage agreement dating back to 2013. The debt under the agreement is alleged to have been assigned to the plaintiff in 2018, and the defendant’s payment obligations with respect to the debt are alleged to be governed by the terms of a forbearance agreement. The plaintiff alleges that the defendant breached the forbearance agreement in 2019 and makes a claim for repayment of a debt based on a breach of contract.
[21] The defences alleged in the statement of defence and counterclaim include the following:
a) The claim is statute barred.
b) The alleged forbearance agreement is not valid and/or unenforceable as a result of the plaintiff’s breach of an essential term of that agreement.
c) Even if any amount is found to be owing under the forbearance agreement, it would be subject to set off arising from the illegal actions of the plaintiff.
[22] The pleadings conflict not only with respect to the interpretation and application of the forbearance agreement, but also as to its terms. The defendant alleges that it contains a handwritten addendum on which he relies. The plaintiff’s position is that the agreement does not contain any handwritten clause.
[23] Counsel for the plaintiff submitted that the plaintiff’s position about the form and content of the forbearance agreement should be accepted for the purposes of this motion. I disagree. This issue, and other issues in dispute in the pleadings, cannot be decided upon without cross-examination. I am satisfied that the defendant has established an arguable defence on the merits meeting the "air of reality" test, and it would be unjust to decide the issues on this motion.
What is the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff should the motion be allowed?
[24] If the defendant is granted the relief sought, the plaintiff will be deprived of a judgment in its favour, at least for the time being, and will need to prove a defended claim. Further, the plaintiff asserts in his affidavit that he is at risk of prejudice or loss if the default judgment is set aside. He states that it is his belief that the defendant is preparing to leave the country and that in doing so he will “escape justice”. I find these to be bald allegations that do not include any information suggesting a dissipation of assets or a transfer of assets out of the jurisdiction, nor an explanation as to why travel by the defendant is a real risk to enforcement of any future judgment, should one be obtained on the merits. There is no evidence of what assets the defendant has (if any). Further, if the defendant in fact had notice of these proceedings as the plaintiff contends, then he has had the opportunity to deal with his assets since the plaintiff’s first demand for payment. (See Bridgepoint Financial Services v. Nead, 2017 ONSC 2548 at paras. 20-21)
[25] However, if default judgment is not set aside, the defendant would be denied the opportunity to have the plaintiff’s claim determined on its merits and the plaintiff will have the opportunity to enforce the writ of seizure and sale and take other enforcement proceedings. Further, the shortness of the period between the delivery of the statement of claim and the default judgment is a consideration on the question of prejudice; Intact, para 26. In this case, the defendant commenced his dispute of the default proceedings before the default judgment was signed, such that the plaintiff would not have changed his position to his detriment in reliance on the default judgment. In any event, given the chronology of events, it would not have been reasonable for the plaintiff to have done so.
[26] In summary on this point, I am satisfied that the plaintiff would not be prejudiced by an order setting aside default judgment. If default judgment is not set aside, the defendant would be denied the opportunity to have the matter determined on its merits and would be prejudiced.
What would be the effect of any order the court might make on the overall integrity of the administration of justice?
[27] For the reasons outlined above, I am satisfied that there is nothing in the relief requested that would have a negative effect on the overall integrity of the administration of justice. Rather, given the manner in which the plaintiff obtained the default judgment, denial of the requested relief would negatively impact the overall integrity of the administration of justice.
CONCLUSION
[28] For the reasons set out above, I am satisfied that, in these circumstances, it is just to relieve the defendant from the consequences of default. The defendant’s motion is granted and the default judgment is set aside together with the noting in default and the writ of seizure and sale issued pursuant to the default judgment.
[29] The defendant shall file his statement of defence and counterclaim within 10 days of this decision, substantially in the form of the statement of defence and counterclaim at Exhibit “E” to the affidavit of Cezara Chesu sworn June 18, 2021.
[30] If the parties cannot agree on costs, they may provide the court with submissions of no more than 3 pages in length by July 23, 2021.
Master Robert Frank
DATE: July 8, 2021
[^1]: A summary of the steps taken by the defendant to retain counsel is outlined below.