COURT FILE NO.: CV-19-623409
DATE: 20211116
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: STRATHMILLAN FINANCIAL LIMITED, Plaintiff
-and-
VINCENZO TETI and GIOVANNI AGOZZINO, Defendants
BEFORE: FL Myers J
COUNSEL: Peter J. Mitchell, for the plaintiff
Adam Wainstock, for defendants
HEARD: November 15, 2021
ENDORSEMENT
It is Improper to Note in Default a Represented Defendant who is Defending
[1] Default proceedings under Rule 19 are not to be used for tactical purposes. Nobosoft Corporation v. No Borders, Inc., 2007 ONCA 444 at para. 7 citing with approval para. 2 of the leading decision of Molloy J. in McNeill Electronics Ltd. v. American Sensors Electronics Inc. (1996), 5 C.P.C. (4th) 266 (Ont. Gen. Div.), reversed on other grounds, 1998 17693 (ON CA).
[2] Default proceedings lie when a defendant does not participate in the lawsuit or when his pleadings have been struck out.
[3] When counsel are involved for both sides and are having a disagreement about pleadings, timing, or otherwise, it is not appropriate to take default proceedings to enforce the plaintiff’s position. There may be a technical default as described in the Rule. But the Rule is inapplicable in the circumstances.
[4] If counsel have a disagreement on process matters that they cannot sort out themselves despite reasonable efforts and compromise, a case conference is available under Rule 50.13 (1). This rule promotes settlement of issues in the interests of an efficient and affordable resolution of the action on its merits.
[5] Using the default judgment rules for tactual advantage just sets the parties down the path of unnecessary motions to set aside the default. This is the opposite of ensuring the efficient, affordable, and fair resolution of the civil dispute on the merits.
[6] The Plaintiff’s Motion for Leave to Appeal
[7] The plaintiff moves for leave to appeal from the costs decision of Case Management Master Short. The Case Management Master set aside the noting in default and exercised his discretion to award costs to the successful defendants in the amount of $7,500 all-inclusive.
[8] The plaintiff submits that the Case Management Master erred in principle by not awarding costs to it because in setting aside the noting in default he granted an indulgence to the defendants. The plaintiff submits that when a court grants an indulgence to a party, costs are presumptively awarded against that party unless the court makes express findings of some form of wrongdoing by her, him, or, in this case, them.
[9] The plaintiff does not appeal the order setting aside the noting in default. It just wishes to appeal the costs order. Therefore it needs leave to appeal under s. 133 (b) of the Courts of Justice Act, RSO 1990, c C.43.
Brief Procedural Facts
[10] The plaintiff sues for fees owing for services rendered.
[11] The plaintiff served the statement of claim on the defendants on July 15, 2019.
[12] The defendants’ counsel Mr. Wainstock served a Notice of Intent to Defend on July 29, 2019. He did not ask for an extension of time within which to deliver the statement of defence. Therefore, the defendants’ pleading was due August 14, 2019.
[13] Nine days later, the plaintiff’s counsel asked for the statement of defence to be delivered on time. He warned that if the defendants did not deliver their statement of defence on time, the plaintiff would note the defendants in default.
[14] Although he had not asked for more time, Mr. Wainstock took offence at the tone of the demand. But he asked for an extra two weeks to allow him to finalize his pleading with the defendants. The plaintiff’s counsel agreed to allow two extra weeks for the delivery of the statement of defence. He required “delivery” of the pleading by August 30, 2019.
[15] Under Rule 1.03 (1), “delivery” of a document requires that the document be both served and filed with the court.
[16] On the day that his clients’ statement of defence was due, August 30, 2019, Mr. Wainstock asked for a further week in which to deliver the pleading. He said that he had sent a draft to the defendants for review and he was not certain that he would have the finalized pleading ready that day.
[17] The plaintiff’s counsel Mr. Mitchell delivered evidence through his litigation assistant. She characterizes the defendants’ timing of this request as a test of Mr. Mitchell’s resolve. She swore:
Despite having been provided with clear notice of the adverse consequences of late delivery of a SOD, Mr. Wainstock subsequently decided to test Mr. Mitchell's resolve by waiting until the afternoon of deadline day before requesting a further seven day extension. The only explanation provided by Mr. Wainstock for his failure to comply with the already extended deadline was that "a draft pleading is with my client for review" but "I am not certain I will have it back today".
Although fully entitled to instruct counsel to deny any further delivery extension, I am advised by [the] principal of the Plaintiff, that the Plaintiff instead reluctantly instructed Mr. Mitchell to grant a further extension to Mr. Wainstock, I am also advised by [the plaintiff] that, because Mr. Wainstock offered no explanation for why the SOD hadn't been approved earlier and his email suggested that client approval was expected soon. the Plaintiff would only agree to a four day extension.
In advising Mr. Wainstock by email that only a four day extension would be granted. Mr. Mitchell invited Mr. Wainstock to justify a longer extension by asking why a full week was needed and telling him that enforcement of the four day extension would not happen if there was a "compelling excuse" for a failure to comply.
[18] There is so much wrong with this evidence. While Mr. Wainstock could have been more open and collegial in his communication, there is no reason for counsel to personalize litigation. I suggest that because Mr. Mitchell sees this tactical back-and-forth as a “test of his resolve” he wholly missed the bigger picture. The statement of claim was served July 14, 2019. The defendants sought three weeks beyond the minimum provided in the Rules of Civil Procedure. Instead of considering it a personal affront to counsel, perhaps the plaintiff ought to have considered whether agreeing to a minimal extension of time did anything at all to prejudice its claim.
[19] In addition, the plaintiff would not have been entitled to refuse the extension request as asserted by Mr. Mitchell’s litigation assistant. The decision to grant or withhold an accommodation to a colleague opposite is a decision for counsel. Section 47 of The Advocates’ Society’s Principles of Civility and Professionalism for Advocates makes this clear:
- Advocates, and not the client, have the sole discretion to determine the accommodations to be granted to opposing counsel and litigants in all matters not directly affecting the merits of the cause or prejudicing the client’s rights. Advocates should not accede to a client’s demands that the advocate act in a discourteous or uncooperative manner.
[20] Had the plaintiff sought to instruct counsel to refuse the request for a few more days to serve the statement of defence, Mr. Mitchell would have been duty-bound to refuse that instruction absent actual prejudice to the client’s case on its merits. Instead, the proper response would be to help the client recognize that “there but of the grace of G-d go I”. That is, counsel routinely grant each other brief extensions if for no other reasons than that no one knows when they will be finding themselves needing one later.
[21] Moreover, taking Mr. Wainstock at his word, which counsel is also duty-bound to do absent a valid reason to do otherwise, a draft pleading was already in the defendants’ hands. All that was required was to get it finalized and served.
[22] The plaintiff granted a four day extension over the Labour Day weekend. In other words, it insisted that the pleading be delivered the next business day. By what right did the plaintiff set itself up as judge of whether the defendants’ counsel had a sufficiently “compelling excuse” to ask for another few days? What harm would it have caused the plaintiff even if Mr. Wainstock had just wanted to take the Labour Day weekend off with his family?
[23] IN any event, the plaintiff did agree to extend the time for delivery of the defendants’ statement of defence to September 3, 2019. Mr. Mitchell gave clear warning that if the pleading was not delivered in time, the plaintiff would note the defendants in default.
[24] The defendants’ served their statement of defence on the plaintiff’s counsel at 2:09 p.m. on September 3, 2019. They met the deadline imposed for service.
[25] The next day, the defendants filed their statement of defence with the court.
[26] However, despite receiving the statement of defence, the plaintiff noted the defendants in default the next morning before the defendants’ process server reached the courthouse to file the pleading. The court accepted the statement of defence for filing because the noting in default had not been entered into the court’s computer by the time the defendants’ process server attended at the counter. It has since been rejected by the registrar because the plaintiff noted the defendants in default before the pleading was filed.
[27] Mr. Mitchell’s litigation assistant explains:
- With no SOD having been received by mid-day on September 3, 2019. Mr. Mitchell sent a final warning to Mr. Wainstock at approximately 1:09 p.m. on September 3, 2019, which reminded him of the obvious: that delivery of a SOD (rather than mere service) would be required in order to "forestall a noting in default". A true copy of said email is attached hereto and marked as Exhibit O.
20 Again confirming his perceived right to ignore the twice extended deadline. Mr. Wainstock that he wished Mr. Mitchell "luck in trying to justify that position before a Master or a Judge.".
According to the filing fee receipt given to Mr. Wainstock's process server by the Civil Intake Office (being Exhibit K to Mr. Agozzino's March 20, 2020 affidavit), the process server attended at the Civil Intake Office and filed the SOD that Mr. Wainstock had served at 2:29 p.m. on September 4, 2019. For ease of reference, a true copy of said receipt is attached hereto and marked as Exhibit R.
Before Mr. Wainstock's process server had arrived, however, KAP Litigation Services Inc. ("KAP") had already requisitioned the noting in default of both Defendants on behalf of Mr. Mitchell in accordance with written instructions that I had given to KAP the previous day. [Emphasis added.]
[28] In my view this was an outrageous misuse of the default process under Rule 19. When it took default proceedings against the defendants, the plaintiff knew that the defendants were in fact defending the action on its merits.
[29] The plaintiff then opposed the motion to set aside the noting in default completely ignoring Justice Molloy’s words from McNeill Electronics:
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.:
[30] I asked Mr. Mitchell how the plaintiff’s insistence on the filing of the pleading in a court file on the day it was served and noting the defendants in default for not filing it with the court until the next day promoted the most efficient, affordable resolution of the claim on the merits. He responded that enforcement of a parties’ rights under the Rules does just that.
[31] I agree that the Rules, timetables, and schedules ought to be enforced. See K.J. v The Regional Municipality of Halton, 2021 ONSC 7055. But context matters. The plaintiff is not enforcing the Rules. The Rules try to promote the efficient, affordable, and fair resolution of actions on their merits. The plaintiff misused the Rules out of some sense of need for counsel to display his resoluteness. The proof of the pudding is that it is now late 2021 and this action remains mired in a pleadings motion over a $7,500 costs award. The cost of this motion approaches the amount in issue. An efficient, affordable process towards a fair resolution of the action would have seen discoveries completed and the action set down for trial by now.
[32] Mr. Mitchell submitted that sometimes counsel fail to file pleadings and that can lead to procedural problems down the road. That is true. An action cannot be set down for trial before pleadings are properly closed. That risk is hardly a basis to note a represented, defending defendant in default however. Once again, if counsel do not cooperate on process matters, such as filing their pleadings, a case conference can readily solve that issue. See for example: Innocon Inc. v. Daro Flooring Constructions Inc., 2021 ONSC 7558, at para. 86 (d).
[33] Mr. Mitchell required “delivery” of pleadings as a condition of the plaintiff granting an extension of time. But the plaintiff had no valid basis to note the defendants in default the day after the defence was delivered. Had the
plaintiff granted the extra week extension requested by Mr. Wainstock, the delivery would have been completed in time. Instead the plaintiff created a race to the registrar’s office for no purpose at all.
[34] Overall, there was a three week extension of time on the delivery of the defendants’ statement of defence. Practically speaking this is a very modest extension of time causing no prejudice at all to the plaintiff.
The Case Management Master’s Decisions
[35] The Case Management Master’s handwritten endorsements did not include detailed findings of fact. Nor are little handwritten endorsements on standard matters intended to do so. But the Case Management Master left no doubt as to his chain of reasoning. The salient piece of his Endorsement dated March 18, 2020 says:
I accept the bulk of the factum of counsel for the defendants. Rule 1.04 directs that the goal is generally to have matters resolved on the merits. I can see no justification for the approach taken by counsel for the plaintiff on this motion.
[36] While not appealing the decision, counsel for the plaintiff ignores the clear rebuke of his position by the Case Management Master.
[37] In assessing costs against the plaintiff, the Case Management Master wrote:
In these present times I continue to return to Rule 1.04 in dealing with cases involving Strict Adherence to time periods established by various sections of the Rules. This was such a case where I permitted the defendant to proceed with a defence even although the plaintiff was asserting a position based upon to [sic] defined times for filing . The defendant was granted an indulgence by me over the well defined opposition of the plaintiffs counsel. Both counsel asserted an entitlement to their costs…
Mr Wainstock’s reply to the plaintiffs submissions in this case, sets out the situations where the court has, notwithstanding that the noting in default is set aside, the plaintiff is nevertheless entitled to recovery of its costs.
Nevertheless the defendants are receiving an indulgence and, in my view that dictates a reduction from the quantum sought.
I find a fair compromise is to award $7,500 all in to the successful party payable within 30 days on the condition that, unless counsel agree otherwise, pleadings will be completed within 60 days so this matter can proceed
[38] The Case Management Master awarded costs of $7,500 all-inclusive to the defendants. He reduced the award from the $9,000 sought by Mr. Wainstock.
Costs appeals
[39] Costs awards are exercises of discretion under s. 131 of the Courts of Justice Act. They are notoriously difficult to appeal because they represent the trier’s exercise of judgment as to the overall justice of the situation that she or he saw unfolding before her or him.
[40] In Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, the Supreme Court of Canada noted the limits on cost appeals:
27 A court should set aside a costs award on appeal only if the trial judge has made an error in principle or if the costs award is plainly wrong (Duong v. NN Life Insurance Co. of Canada (2001), 2001 24151 (ON CA), 141 O.A.C. 307, at para. 14). In Wilkins J.’s costs order I find no such error of principle, nor can I conclude that the award is plainly wrong. In light of the privileged position of the trial judge to assess first-hand the credibility of witnesses, and given the highly fact‑driven nature of the analysis that was required here, the costs order made by Wilkins J. must be restored.
[41] The fact that leave to appeal is required to appeal costs awards is a further indication of the narrow scope for costs appeals.
The Leave to Appeal Motion
[42] When an appeal requires leave to appeal to this court, it is common practice for the court to hear the leave to appeal motion together with the appeal on its merits. This is the case in costs appeals under Rule 62 and appeals from arbitrations that require leave to appeal for example. Usually a single hearing on the merits is most efficient and least costly.
[43] This case was treated differently. When it first came for scheduling, Chalmers J. ordered the motion for leave to appeal to be heard separately and in writing.
[44] Counsel then applied to set a date for the written motion. Dunphy J. set the date but he allowed for 30 minutes of oral argument – just 15 minutes per side.
[45] It seems clear to me that both judges felt that the motion deserved very little resource allocation and would be efficiently dealt with by a very quick and limited hearing process.
The Plaintiff’s Submission
[46] The plaintiff submits that when the court granted an indulgence to the defendants the plaintiff was presumptively entitled to its costs. The Case Management Master therefore erred in principle, it argues, by awarding costs to the defendants without detailed findings of wrongdoing sufficient to overcome its presumptive entitlement.
[47] Even if this was a correct statement of the law (and I foreshadow that it is not) the Case Management Master found “no justification” for the plaintiff’s assertion of a filing deadline to justify noting the defendants in default after it had their statement of defence. This was ample basis for the Case Management Master to exercise discretion to overcome a presumptive costs entitlement.
[48] However, there is no presumptive entitlement to costs when the court grants an indulgence as asserted by the plaintiff. The plaintiff relies upon the decision of M. Quigley J. in Mollicone v. Town of Caledon, 2011 ONSC 883 and his Honour’s holding in paras. 12 and 13:
[12] While I accept that generally a successful party is presumptively entitled to costs, the point is an important one because the decision of Hawkins D.C.J. of the District Court, as it then was, in Fox v. Bourget (1987), 17 C.P.C. (2d) 94 establishes that an unsuccessful party may nevertheless be entitled to have its costs paid in preference to the presumptive entitlement of the winning party. In that case, Justice Hawkins had initially granted costs in favour of the plaintiff on an ex parte basis, but he reversed himself after hearing the submissions of the unsuccessful party on the motion that was at issue there, which was to set aside that ex parte order that had been obtained by the plaintiffs. In reaching that conclusion he relied on the decision of Cory J.A ., as he then was, in Aliferis v. Parfeniuk, [1985] O.J. No. 120 (C.A.) where a writ of summons was renewed, but where the Court of Appeal imposed strict terms as conditions for that renewal, amongst them that the successful plaintiff whose writ was renewed pay the costs of the defendant and on a solicitor and client basis after taxation. Hawkins D.C.J. stated on the authority of that Court of Appeal decision that "the price of an indulgence is the payment of the costs of those who have sought, unsuccessfully, to prevent its being granted."
[13] So the question remains, what is an indulgence in this context and in granting the relief I did to Mrs. Mollicone from the Registrar's dismissal of her action, was I granting her an indulgence which gives the defendant the right to claim that its costs ought to be paid rather than hers? To my mind, it is clear that is what happened and that is what I did.
[49] In my view, M. Quigley J. did not assert a new presumptive rule entitling those who unsuccessfully resist indulgences to their costs. To the contrary, in para. 12, he began by reciting the normal presumption that the successful party is entitled to its costs. He then considered whether the “unsuccessful party may nevertheless be entitled to have its costs paid in preference to the presumptive entitlement of the winning party”. That is, he considered whether he ought to exercise his discretion in favour of the unsuccessful party to overcome the presumption that to the winner goes the spoils. He did not reverse the presumption at all.
[50] Sweeney J. (as he then was) made this very point in JPW Niagara Limited v. Sullivan Mahoney Lawyers et al., 2020 ONSC 6762 at para. 10:
[10] The general rule that costs are awarded to a successful party is not displaced because the plaintiff seeks to set aside an administrative dismissal order. A blanket assertion that a plaintiff (or indeed any party) is not entitled to costs if that party seeks the court's indulgence is not consistent with the general principles of costs. It does not discourage litigation. It does not encourage resolution. It allows responding parties to take unreasonable positions because there is no risk of costs being awarded against them. There is no general rule that a party seeking an indulgence is not entitled to costs; nor should there be. The issue of costs is an exercise of discretion. [Emphasis added.]
[51] RSJ Sweeney must have been thinking about this case. The plaintiff took a patently unreasonable position in noting the defendant in default. Then it refused to do the right thing by consenting to set aside the noting in default. It opposed the motion leading to a finding that there was “no justification” for its position. To award it costs would incentivize unreasonable behaviour.
[52] There is no realistic possibility that a judge of this court would find that the Case Management Master erred in principle or was clearly wrong in ordering costs in favour of the defendants in the circumstances. Nor is there any principle of law at issue. The defendants succeeded on the motion and costs followed the event. The Case Management Master granted a discount to reflect the indulgence. He could equally have decided to award costs on a substantial indemnity basis or to consider if Rule 57.07 ought to have applied. Such is the nature of discretion in a costs exercise. There is a wide range of reasonable outcomes and a high degree of subjective judgment involved. That is why the test for appellate intervention is so rigorous.
[53] The motion for leave to appeal is therefore dismissed.
Costs
[54] The defendants seek costs of $6,000 all-inclusive on a partial indemnity basis. I see no reasons to depart from their presumptive entitlement for costs to follow the event.
[55] The amount claimed by the defendants is reasonable. The plaintiff delivered evidence that required a response and then legal submissions were required. The plaintiff’s factum made no mention of RSJ Sweeney’s decision which stood directly against the proposition that it submitted.
[56] The plaintiff shall pay the defendants their costs of this motion on a partial indemnity basis fixed at $6,000 al-inclusive.
FL Myers J
Date: November 16, 2021