Court File and Parties

COURT FILE NO.: 21-CV-655514 MOTION HEARD: 20220127 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Tech Forest Cabinetry Co. Ltd. Plaintiff -AND- Cowry Cabinets Inc. Defendant

BEFORE: Associate Justice Abrams

COUNSEL: P.H. Starkman/C. Zhang, for the plaintiff L.E. Lung/L. Sun, for the defendant S. Fridlyand, for the garnishee, RONA Inc.

Reasons for Decision

[1] The defendant moves to set aside an April 7, 2021 default judgment (and noting in default) and an April 20, 2021 notice of garnishment, with all amounts paid to the Sheriff by RONA Inc., pursuant to the notice of garnishment, to be released to it.

[2] The defendant is a wholesale distributor of prefabricated kitchen cabinetry products, with a main office and warehouse in British Columbia and a leased distribution centre and warehouse in Ontario (where it is registered as an extra-provincial corporation). It sells to retailers and dealers across Canada.

[3] The plaintiff is a company based in China that, in 2019, approached the defendant with an offer to supply packaged cabinetry products to it. In January 2020, the defendant entered into a manufacturing agreement with the plaintiff, which agreement provided that the defendant would pay a $25,000.00 (U.S.) deposit (upon placing its first order). The $25,000.00 deposit was in fact paid.

[4] The agreement also provided that, for its first two orders, the defendant would be permitted to generate a quality assurance report within 30 days and payment would be made after the 30 days “if all products [were] in good condition”. The plaintiff points out that there is no extended warranty established by the agreement and damages for breach of contract are capped. More will be said on these issues, below.

[5] The defendant’s address in the manufacturing agreement was noted as being 120-3971 No. 6 Road, Richmond, British Columbia. That of the plaintiff was noted as being in Jiangsu, China. No reference is made in the agreement to an address in Ontario.

[6] The first order received by the defendant from the plaintiff was comprised of five containers. They were received in May and June of 2020. Of the five, three were shipped to the defendant in British Columbia and two to the defendant in Ontario.

[7] The defendant opened one container in British Columbia on May 13, 2020, upon receipt. It noted what it identified as significant damage to the boxes housing the plaintiff’s cabinetry products and, in some cases, the contents of the boxes. The defendant says that, given that the cabinetry products were intended to be sold to end-users in the cardboard boxes that housed them, even damage to the boxes, only, made them unsaleable. Further, and as relates to the contents of the boxes, there were problems—including cabinet door hinges that protruded from the packaging, and seal strips (between the glass and wood frame of the cabinetry) that did not fit properly as being too short.

[8] On the same day that these problems were discovered (and on the following day), defects were identified for the plaintiff — with photos. The plaintiff accepted responsibility for the damaged product, committed to providing replacement product and promised to improve on future orders (“It is we who did not think about it thoroughly. Will pay attention in the future.”: per : Daniel Du, an officer and director of the plaintiff).

[9] The defendant submits that it could not open and inspect each cardboard box (as doing so would render the product inside unsaleable). The plaintiff told the defendant, it says, that any issues reported by the defendant’s customers should be shared with the plaintiff’s after-sale service department.

[10] In June 2020, two more containers from the plaintiff were received by the defendant. There were problems, again, with the manner in which the containers were packed and, as such, there were more damaged products.

[11] On June 11, 2020, the defendant determined that there were also potential safety concerns with the plaintiff’s products, particularly as relate to improperly sealed glass doors. It advised that it would no longer ship the plaintiff’s products to its customers, and neither would it pay for them.

[12] In the days that followed, the defendant began receiving complaints from distributors and retailers, including the garnishee RONA Inc., about the quality of the plaintiff’s products. The problems included improperly sized screws, warped cabinet panels, improperly sealed glass, uneven colouring, scratches, chips and broken pieces. These problems, also, the defendant shared with the plaintiff.

[13] In the Summer of 2020, the parties discussed how the quality issues might be resolved. The plaintiff acknowledged responsibility and asked for ‘another chance’. “We are willing to assume responsibility”, its sales manager said. “As for the issues in manufacturing, we do not evade or deny…” (July 8, 2020 email from Mr. Du). An agreement in principle was reached by the parties. A further two containers with “improved products” were to be shipped; and, according to the defendant, the parties settled on new/different pricing and payment terms for the first order about which complaint had been made. The defendant advanced a further $10,000.00 U.S. to the plaintiff on account of the second order and awaited receipt of a signed copy of an agreement memorializing the settled terms.

[14] No such agreement was signed and sent. Instead, there was an October 28, 2020 demand made for payment in respect of the first order. The defendant responded on the very same day by reiterating the problems it experienced with the first order and reminding the plaintiff of the agreement in principle that had been reached (to resolve those problems) and the fact that, in accordance with that agreement in principle, it had advanced a further $10,000 U.S. to the plaintiff.

[15] On November 24, 2020, a lawyer’s letter was sent to the defendant demanding payment of the amount said to be owing to the plaintiff. The letter was sent by the plaintiff’s lawyer of record. The defendant addressed the letter without delay, retaining a Richmond, British Columbia lawyer to respond on its behalf. On December 10, 2020, British Columbia lawyer, Kathy Ducey, wrote to plaintiff’s counsel advising of her retainer, setting out the problems that the defendant had experienced with the first order and its position with respect to payment, and alerting him to the fact that the defendant would oppose any proceeding commenced in Ontario on jurisdictional grounds in that the parties’ dispute “has no Ontario connection”.

[16] On December 23, 2020, counsel for the plaintiff responded by requesting details of the product problems/deficiencies identified by the defendant. The defendant addressed the request. Documentation was assembled, including photos earlier provided by the defendant to the plaintiff directly, and was uploaded to a Google Drive folder. This was done, within one week after the request was made (i.e., on December 29, 2020).

[17] Plaintiff’s counsel experienced difficulty opening the folder sent to him. Two emails were sent by plaintiff’s counsel’s law clerk in early January, 2021 (i.e., January 5, 2021 and January 7, 2021) advising that plaintiff’s counsel was unable to access the documents. On January 11, 2021, plaintiff’s counsel advised in writing (no call was made) that, unless the documentation was re-sent in accessible form within three days, an action would be commenced. On this motion, evidence was proffered by the plaintiff that “it appeared that Ms. Ducey was no longer retained by the defendant to deal with this matter”. There was/is no foundation for that suggestion. It was supposition only.

[18] Ms. Ducey acknowledges that she failed to respond to the January 5, 7 and 11, 2021 correspondence from plaintiff’s counsel when sent. But, notwithstanding that she had indicated that she had been retained by the defendant, no further follow-up was made by the plaintiff or its counsel, in writing or by telephone—either to her or to her staff. In the circumstances, it ought to have been. Instead, a claim was commenced, in Ontario, on January 25, 2021. A copy of the statement of claim (or, even, the fact that a claim had been commenced) was not shared with Ms. Ducey or anyone at the defendant’s head office in British Columbia.

[19] What did the plaintiff do with the claim? It provided a copy to someone named ‘Paul Orinez’ at the Toronto building leased by the defendant and sublet (from October, 2020 to June, 2021) to an independent distributor of the defendant’s products (and other companies’ products), Renaissance Home Design Centre. While the affidavit of service for the statement of claim identifies Mr. Orinez as a person “who appeared to be in care and control or management of business [stet]”, that there were two businesses at the address at which he was served would have been evident to anyone attending there. The defendant had some, limited, signage on the building at the site, but the windows and doors of the building were clearly marked ‘Renaissance Home Design Centre’.

[20] And the affidavit of service identifies Mr. Orinez as a ‘Renovator/Contractor’. The nexus between ‘renovating’ and ‘contracting’ with ‘distributing prefabricated products’ is not clear and how/why the process server thought Mr. Orinez to be in care and control or management of the defendant’s business (v. that of the home design centre) is not directly addressed. No evidence from Mr. Orinez or the process server (save for the original affidavit of service) has been proffered.

[21] The evidence of the defendant is that it has only two employees at the Toronto location, both women, and neither is proficient in the English language. There is nothing before me to suggest that either received a copy of the statement of claim or that inquiries were made as to of which of the two businesses, at the location in question, Mr. Orinez appeared to be in care and control or management.

[22] On April 7, 2021, default judgment was signed by the registrar. Two weeks later, a notice of garnishment issued and was served on the garnishee, RONA Inc. The plaintiff says that it was served on the garnishee on May 4, 2021 and on the defendant on May 6, 2021. In this regard, I note that it was sent to the garnishee in Ontario at an address where the garnishee was not carrying on business at the time and, as well, to its head office in Quebec—this in respect of goods delivered by the defendant’s British Columbia warehouse to RONA stores in British Columbia and Saskatchewan. The evidence before me is that the defendant does not do business with RONA Inc. in Ontario or from Ontario.

[23] Service on the defendant was made by mailing the notice of garnishment to the same Ontario address at which the statement of claim was said to have been served. The defendant denies having received the notice of garnishment, when sent or until specifically requested.

[24] Indeed, it was only when invoices rendered by it were not paid by RONA Inc. and the defendant made inquiries of its customer that the defendant says it learned of the claim/judgment/garnishment. This was on July 20, 2021. Only two days later, Ms. Ducey wrote to plaintiff’s counsel requesting a copy of the statement of claim and proof of service on the defendant. Counsel for the plaintiff declined her request.

[25] The defendant then acted with alacrity. By August 9, 2021, the defendant had retained Ontario counsel to move to set aside the default judgment. Within three weeks thereafter, a request to attend in CPC court was made; and, within approximately three weeks after that, a notice of motion was served. On October 27, 2021, this motion was scheduled by one of my colleagues and a stay of enforcement of the judgment was consented to by the parties.

[26] Having regard to Rule 19.08 of the Rules of Civil Procedure and the factors identified by the Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 (which factors are not to be treated as “rigid rules”, see para. 50), the defendant says that the default judgment and the noting in default and garnishment should here be set aside. For the reasons that follow, I agree. It is in the interests of justice that this action be tried on its merits.

[27] Why do I say this?

Analysis

1. Promptness of Motion

The defendant moved promptly after learning of the default judgment. Within days, Ms. Ducey wrote to plaintiff’s counsel and, within weeks (when it became clear that nothing could be accomplished by Ms. Ducey, in British Columbia, on the defendant’s behalf), Ontario counsel was retained. While the plaintiff says that it is not credible that the defendant first learned of the default judgment in July, 2021 given that its notice of garnishment was served in May, 2021, that is what Ms. Ducey says in her July, 2021 letter to plaintiff’s counsel. The evidence of Tianfang Han in this regard, with which the plaintiff takes issue, is not without foundation. Then too, at every stage of the parties’ dealings, the defendant has been at once assertive and responsive. A defendant who retained counsel in British Columbia as early as December 2020, the same counsel who addressed the fact and timing of the default judgment immediately after she said she learned of it, is a defendant who has shown itself to be interested in addressing the issues raised, without delay. And while this motion was not heard until January of 2022, there is no question but that efforts to schedule it were made long before. The timing of the motion was not the fault of the defendant (or, indeed, the plaintiff).

2. Plausible Explanation for Default

The defendant has a plausible explanation for the default. The defendant failed to deliver a statement of defence in a timely fashion because it says that it was never served with the statement of claim and did not learn of its existence until July, 2021. While the claim may have been left with ‘Paul Orinez’, as the plaintiff’s process server has deposed, the defendant does not know him. Mr. Orinez was not an employee of the defendant; and, the subtenant with which he may have been associated has since abandoned the premises identified in the affidavit of service. The statement of claim was not served on the defendant in British Columbia or shared, even by way of courtesy copy or a note as to its issuance/service, with the lawyer who had self-identified as having been retained by it, Ms. Ducey. Further, the defendant was not notified that default judgment was being sought.

3. Arguable Defence on the Merits

The defendant has an arguable defence on the merits. While its defence may not succeed (and plaintiff’s counsel has argued that he does not believe that it will for the reasons referenced in paragraph 4, above, inter alia), it does have “an air of reality” (Zeifman Partners Inc. v. Aiello, 2020 ONCA 33, at paras. 32-34). The defendant has furnished evidence as to defective, damaged and/or otherwise unsaleable product and as to the damage and defects having been brought to the attention of the plaintiff (and to the defendant’s attention by customers), with due dispatch. And though the plaintiff may quarrel with the extent of the problems (and whether they were major or minor) or the appropriate manner of resolving them, there is evidence as to its acknowledgement of responsibility--even if the manner in which the problems would be addressed and the nature of the problems to be addressed might have been subject to further discussion. Mr. Du committed to “solv[ing] the problems that arose previously”. There were problems with the products supplied by the plaintiff to the defendant; those problems were acknowledged; and appropriate redress was promised (with the promise acted upon by the defendant). Then too, plaintiff takes issue with the way in which problems were reported, with no product reports having been generated. It also points to what it says are drafting flaws and a want of particulars in the statement of claim. These are issues to be addressed in the litigation, and not on a threshold motion such as this.

4. Prejudice to Parties

The plaintiff says that the defendant preferred another company, one of the plaintiff’s competitors, in deciding which supplier to pay first. And though it promised to make further payment, it failed to do so. That is too simplistic an analysis, in my view. The defendant did make some, not insubstantial, payments to the plaintiff; and, according to the defendant, it withheld further payment given the terms of the agreement that it says it struck with the plaintiff. The plaintiff posits that my granting the defendant’s motion will cause it to suffer prejudice. The plaintiff will have incurred some costs thrown away, and it will need to litigate/prosecute its claims, with the action now revived. That is true. But, if the status quo were to be maintained, the prejudice to the defendant would be real and non-compensable--i.e., the defendant would be denied its right of response in respect of those concerns as to defects and damage that it identified and the plaintiff acknowledged (even if not fully), before litigation was even threatened. The balance tips in favour of the defendant, in this regard. Any prejudice to the plaintiff is notional and compensable.

[28] Looking at the motion contextually and with a view to what here would be the more just result (and the administration of justice factor: Mountain View Farms, supra, at paras. 49 and 54), I note the following. Whatever shortcomings in response on the part of the defendant or Ms. Ducey exist in respect of the early January, 2021 period and whatever flaws the plaintiff now identifies in the defendant’s defence to its claims, the fact that the plaintiff and its counsel knew that Ms. Ducey had been retained and failed (or declined) to provide her with a courtesy copy of the claim (and later, and as requested, of the judgment) is troubling.

[29] When no statement of defence was served, the plaintiff did not seek to confirm with Ms. Ducey that the statement of claim had been received. It should have done so. When judgment was signed, no demand for payment was made. Demand should have been made. When a copy of the statement of claim and proof of service were requested by Ms. Ducey, they were not supplied. They ought to have been. And, in any event, the notice of garnishment was served in Quebec, not Ontario. There is no Order from a Quebec court recognizing and enforcing the judgment (and, on the record now before me, it does not seem that the dictates of R. 60.08(9) have been met).

[30] For the reasons stated above, and considering the overall integrity of the administration of justice, I am of the view that justice requires that the parties be restored to where they were before judgment was signed. I am setting aside the default judgment and noting in default; I am setting aside the April 20, 2021 notice of garnishment; and I am directing the Sheriff to remit any funds received, pursuant to the notice of garnishment, to the defendant.

[31] Failing agreement as to the issue of costs and/or the timetabling of next steps, I may be spoken to. Unless I am contacted by counsel, in this regard, by March 31, 2022, I will assume that the issues have been settled and that the court’s assistance is not required.

March 14, 2022 “Original Signed by Associate Justice Abrams”