2022 ONSC 2036

COURT FILE NO.: CV-18-00135521-0000 DATE: 20220401

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SUGATEC CONSTRUCTION LIMITED, Plaintiff AND: GREENVILLA HOMES (THICKSON) LIMITED, ANCHELLE - THICKSON HOLDINGS INC., GREENVILLA DEVELOPMENT GROUP INC., and ALAN LAM, Defendants

BEFORE: Kimmel J.

COUNSEL: Eric Turkienicz, Acting as Agent for the lawyers for the plaintiff Email: eturkienicz@mccagueborlack.com Robert S. Choi, for Alan Lam and Greenvilla Development Group Inc. Email: rchoi@owenswright.com

HEARD: March 15, 2022

Endorsement

[1] This is a motion by Greenvilla Development Group Inc. and Alan Lam (the “moving defendants”) to set aside a default judgment rendered in this proceeding on July 25, 2018 (the “default judgment”).

The Default Judgment

[2] The default judgment was rendered against the defendants, Greenvilla Homes (Thickson) Limited, Anchelle - Thickson Holdings Inc., Greenvilla Development Group Inc., and Alan Lam (the “defendants”) on a motion made in writing, without notice, by the plaintiff Sugatec Construction Limited (“Sugatec”). The default judgment is for damages for breach of contract in the amount of $504,589.53. The default judgment also ordered the defendants to pay prejudgment interest from March 31, 2016 to the date of judgment, and post-judgment interest thereafter, calculated monthly at the contractual rate of 2% (specified to be 24% per annum in the default judgment), plus $5,000 in costs.

The Underlying Debt

[3] The default judgment was rendered based on an unpaid amount of $100,000 claimed to be owing under a dissolution and settlement agreement dated January 1, 2010 (the “Dissolution Agreement”). That agreement required the corporate defendants (or their predecessors) to pay $300,000 in three installments of $100,000 each on April 20, 2010; October 20, 2010; and April 20, 2011. These payments were guaranteed by the defendant Alan Lam (“Lam”) personally. One of the three installment payments was not made, and various deferrals of the arrears and interest were agreed to in 2011.

[4] The remaining payment obligation was assigned to Sugatec effective December 15, 2011. The assignment and the outstanding debt were acknowledged in writing by the parties at that time to be $113,084.93 (including accrued interest on unpaid amounts at the contractual rate of 2% per month).

[5] Upon the defendants’ acknowledgment of their breaches of the Dissolution Agreement and the previous two deferral agreements, the parties entered into a 3rd Deferral Agreement dated September 19, 2012 that required the defendants to pay the sum of $150,702.33 on February 28, 2013 (inclusive of interest calculated at the contractual rate of 2% per month and accrued to February 27, 2013).

[6] Between February 2013 and March 2015, the parties exchanged various emails about the accrual and calculation of interest at the contractual rate of 2% per month with updated loan balances as at various stated maturity dates (the “confirmation emails”).

[7] Starting on March 26, 2015, the parties signed a series of written confirmations (the “confirmation and extension agreements”) each indicating new loan maturity dates with attached interest calculations (at the contractual rate of 2% per annum). The record discloses that there were confirmation agreements signed on March 26, 2015 (extending the final maturity date to June 30, 2015); October 27, 2015 (extending the final maturity date to May 2, 2016); October 19, 2016 (extending the final maturity date to December 31, 2016); January 11, 2017 (extending the final maturity date to April 3, 2017); August 16, 2017 (extending the final maturity date to September 30, 2017); and December 6, 2017 (extending the final maturity date to March 31, 2018).

[8] It is the last of these confirmation and extension agreements that the default judgment was based on. It specified that the sum of $504,859.53 (inclusive of interest calculated and accrued at the contractual rate of 2%) would be due and payable on the last agreed upon maturity date of March 31, 2018.

[9] The moving defendants point out that the default judgment, on its face, contains an error in that much of the prejudgment interest ordered payable from March 31, 2016 to June 25, 2018 was already incorporated into the $504,859.53 in damages that was ordered payable. This is said to have resulted in double counting of interest, which at 2% per month totalled in excess of $800,000.

The Bankruptcy Petition and Motion to Set Aside the Default Judgment

[10] A year after the default judgment, in or about July of 2019, Sugatec applied to petition Greenvilla Development Group Inc. into bankruptcy based on the unpaid debt under the default judgment. The bankruptcy petition was opposed on various grounds by notice dated August 1, 2019. The moving defendants asserted in the bankruptcy proceeding that they disputed the validity of the default judgment and served a notice of motion to set aside the default judgment dated August 1, 2019.

[11] Although Sugatec confirmed service of the original statement of claim upon the defendants prior to the default judgment rendered in July 2018, the moving defendants claim to have been unaware of the default judgment until they received the application for a bankruptcy order in July of 2019. Additionally, Lam testified initially that he did not recall being personally served and later supplemented that testimony to say that if he was served, the statement of claim got misplaced because the defendants were in the process of moving at the time the plaintiff says they were served. After receiving the bankruptcy application in July 2019, the moving defendants instructed their lawyers to move to set it aside.

[12] The initial return of the bankruptcy application that was scheduled for August 5, 2019 was adjourned sine die. The moving defendants say that this adjournment was, at least in part, to enable the parties to engage in settlement discussions, but none ensued. The global COVID-19 pandemic was declared in March 2020.

[13] The plaintiff’s application for a bankruptcy order against Greenvilla Development Group Inc. was next scheduled to return to court in March 2021, at which time the moving defendants reiterated their opposition to the bankruptcy and their intention to move to set aside the default judgment in an affidavit of Lam dated February 26, 2021. On March 1, 2021, the bankruptcy petition was adjourned to a scheduling appointment.

[14] At a May 14, 2021 case conference, Conway J. made the following endorsement:

This CC proceeded before me today by Zoom. It is a disputed bankruptcy application brought by a single creditor. It is based on a default judgment that the respondent is seeking to set aside. He has delivered a notice of motion hut no supporting materials yet. Whether he is successful in setting aside the judgment will obviously impact the bankruptcy application.

After discussion with counsel, I have decided to schedule the bankruptcy application for October 26, 2021 at 10 a.m. (3 hours, any judge, confirmed with the CL office). That will give the respondent time to move to set aside the judgment. Mr. Choi will deliver his supporting materials on the set aside motion by June 4, 2021 and will be proceeding forthwith to have it heard on the civil list.

This arrangement gives the applicant a fixed date for the bankruptcy application but also gives the respondent an opportunity to seek to set aside the judgment, which is already underway. Depending on the outcome of that motion, further directions may be required. Counsel can set another 9:30 before me through the CL office for further directions and scheduling as this plays out.

[15] Although the moving defendants indicated through their counsel that they were working on their motion materials in late June 2021, and despite follow up from counsel for the plaintiff in August, September, and October 2021, the moving defendants did not deliver their affidavit in support of the motion to set aside the default judgment until the day before the scheduled bankruptcy petition date of October 26, 2021 (and not in accordance with the timetabled date of June 4, 2021).

[16] By an endorsement dated November 4, 2021 after the October 26, 2021 hearing, Dietrich J. stayed the bankruptcy application pending the hearing of the moving parties’ motion for an order setting aside the default judgment. The endorsement included the following determinations:

[9] The respondent indicated that he would take steps to set aside the Default Judgment. However, in the more than 18 months between July 2019 and February 26, 2021, the respondent took no steps to do so.

[10] By May 14, 2021, the respondent had filed a Notice of Motion to set aside the Default Judgment, but he had filed no supporting materials. Justice Conway ordered him to deliver his supporting materials by June 24, 2021, and she set the hearing dale for this application for October 26, 2021, noting that this would give the respondent ample time to have his motion to set aside the Default Judgment heard before the applicant's application.

[11] The respondent breached Justice Conway's order. No materials were filed on or before June 24, 2021. Counsel for the applicant wrote to counsel for the respondent at least seven times between June 7, 2021 and October 13, 2021 regarding the delivery of the motion materials.

[12] The respondent has included in his responding materials for this hearing an affidavit sworn by him on October 25, 2021, the day before this hearing, in support of his motion to set aside the Default Judgment.

[13] In his October 25, 2021 affidavit, the respondent attested that he has now arranged for Owens Wright LLP to bring a motion to set aside the Default Judgment. As of the date of this hearing, no motion date has been scheduled.

[27] Notwithstanding the many months of threatening to bring a motion to set aside the Default Judgement, it was only on the eve of this hearing that the respondent finally filed materials in support of his motion.

[28] A stay of the applicant's application is appropriate in this case in which the legitimacy of the applicant's Default Judgment is a disputed fact. This fact will be determined in the context of the respondent's motion to set aside the Default Judgment, subject to any rights of appeal.

[17] The parties attended various further conferences in November 2021 that eventually led to the scheduling of the motion to set aside the default judgment on March 15, 2022.

[18] The moving defendants were again late in delivering their further affidavit material on this motion. They provided what they described as a reply affidavit on February 28, 2022, which was over seven weeks past the deadline that had been imposed under the schedule set in the endorsement of Dietrich J., and one day prior to the scheduled cross-examinations.

[19] The plaintiff asked the court to deny the moving defendants leave to rely on this last affidavit but did not ask for an adjournment of the motion if the court decided to grant leave to the moving defendants to rely upon the affidavit. The plaintiff sought leave to file a late affidavit of its own on this motion, albeit one that addressed a factual point that had only recently occurred. These affidavits are not on the same footing, in that the late filed affidavit of the moving defendants addressed historic factual matters that could have been addressed in a timely affidavit. However, the court prefers to have the evidence and leave is thus granted to both the moving defendants and the plaintiff to file their late affidavits on this motion.

Summary of Outcome

[20] The total time that has elapsed between the service of the statement of claim in 2018 and the hearing of this motion to set aside the default judgment (over 3 years and 8 months) gives the court cause for concern. This time period includes interim periods of delay that are only accounted for in general terms by the “prospect” of settlement discussions that did not transpire and difficulties said to have been experienced by the moving defendants as a result of the COVID-19 pandemic and other litigation and family demands. The moving defendants apparent unwillingness to comply with court ordered deadlines for the delivery of their materials is also cause for concern.

[21] However, having established an “air of reality” to their limitations defence (which is predicated on a more fulsome documentary record than what was before the court when the default judgment was granted), the relative prejudice to the parties and the interest of justice ultimately favour setting aside the default judgment and allowing the moving defendants to defend the plaintiff’s claims on their merits.

[22] The motion to set aside the default judgment is granted, on terms that include the payment by the moving defendants of costs to the plaintiff fixed in the amount of $15,500 and payable within 30 days of this endorsement. These costs are ordered to be paid as a condition of the moving defendants being granted leave to deliver a statement of defence. Procedural directions are also given at the end of this endorsement regarding a summary process for the adjudication of the claims on their merits.

Analysis

[23] The parties agree that when hearing a motion to set aside a default judgment under Rule 19.08, the Court must consider the following five factors:

a. whether the motion was brought promptly after the defendant learned of the default judgment; b. whether there is a plausible excuse or explanation for the defendant's default in complying with the Rules; c. whether the facts establish that the defendant has an arguable defence on the merits; d. the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the respondent 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.

See Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 48 – 49.

[24] These factors are not rigid. The court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant for the consequences of his or her default: see Mountain View Farms, at para. 50.

[25] I will address each of these factors in turn.

a) Was the motion to set aside the default judgment brought promptly?

[26] The moving defendants learned of the default judgment in July 2019 in the context of the bankruptcy application.

[27] The plaintiff concedes that the “best practice” enunciated by Brown J. (as he then was) in the case of Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at para. 10, of serving the defendants who had been noted in default with notice of the motion for default judgment was not followed. The moving defendants were not given notice of that motion nor served with the default judgment after it was signed. As was noted in the Elekta case, the reason for adopting this practice, notwithstanding r. 19.05, is that “[b]y serving the default judgment motion record on the responding party and filing proof of such service, a court can satisfy itself that the person against whom default judgment is sought knew about the claim, knew about the motion for default judgment yet, nevertheless, elected not to defend or respond.”

[28] Having not served the moving defendants with the motion for default judgment or the default judgment itself once rendered, the time from June 2018 to July 2019 should not be considered in the determination of whether the moving defendants moved promptly to set the default judgment aside, as they were unaware of it.

[29] After learning of the default judgment in July 2019, they did serve a notice of motion to set it aside in August of 2019. Technically, the motion to set aside the default judgment was brought promptly, within a month of the moving defendants having learned of it. This does demonstrate the intention to set the default judgment aside, even if it was in the context of the bankruptcy application.

[30] However, the moving defendants did not serve any supporting material for that motion until October 26, 2021, when the bankruptcy application was scheduled to be heard the second time. The moving defendants had also missed the June 4, 2021 deadline that had been set for the delivery of their motion material when the bankruptcy application was before the court in March 2021.

[31] The moving defendants attempt to explain the two (plus) years that it took to serve the supporting affidavit through a combination of a possible misunderstanding about potential settlement discussions (that neither side initiated), the COVID-19 pandemic, and other litigation and family issues being contended with. These excuses are weak (and the plaintiff says they were tactical and have not been sufficiently particularized or supported) but they cannot be entirely discounted.

[32] The delays after October of 2021 until the hearing of this motion on March 15, 2022 are due to court scheduling and the moving defendants cannot be faulted for them.

[33] I am satisfied, with the various periods of time accounted for, that the motion to set aside the default judgment was initiated promptly, and the delay in its prosecution has been sufficiently explained for purposes of r. 19.08. Even if each of the periods of delay had not been found to be sufficiently explained, because the “best practice” was not followed by the plaintiff (which might have resulted in an earlier adjudication of the issues now before the court) and the defendants have put forward at least one possible defence that has an air of reality (discussed later in this endorsement), the motion should not be denied based upon “weakness” in the explanations that the moving defendants provided regarding their delay in bringing this motion forward to a hearing.

b) Is there a plausible excuse or explanation for the defendants’ default?

[34] The moving defendants initially stated that personal service had not been effected. However, in a more recent affidavit (to which the plaintiff objected because it was filed late, and they noted that it puts the credibility of the moving defendants into question), Lam further explains that if they were served the statement of claim was likely “lost in the shuffle” because they were in the midst of a move at the time. The plaintiff wants the court to disregard the second part of the explanation on the basis that the reply affidavit in which it is contained was delivered late (which it was).

[35] This is the type of situation that could have been avoided if the defendants had been given notice of the motion for default judgment. The defendants’ excuse or explanation for their default is tied to the need for the court to “satisfy itself that the person against whom default judgment is sought knew about the claim, knew about the motion for default judgment yet, nevertheless, elected not to defend or respond:” Elekta, at para. 10. Here, it has been suggested, albeit not on the strongest of evidence, that the moving defendants did not advert to the statement of claim and thus did not “elect” not to defend or respond.

[36] The plaintiff asks the court to infer that the moving defendants did “elect” not to respond, and that it is not plausible that Lam was unaware that his former friend and business associate was suing him. But that inference could go either way. One might ask, why would someone not respond to and defend such a claim if they were aware of it?

[37] The evidentiary bar for the excuse or explanation for the default is lower in a situation such as this where there remains some question as to whether the default of the moving defendants (failure to defend or respond to the statement of claim prior to the default judgment) was intentional or inadvertent. I am prepared to give the moving defendants the benefit of the doubt and find that it was inadvertent, even though they were served with the statement of claim.

c) Do the moving defendants have an arguable defence on the merits?

[38] The presence of an arguable defence on the merits is often the pivotal factor in the court’s determination of whether or not to set aside a default judgment under r. 19.08, even if the other factors are unsatisfied in whole or in part: see Mountain View Farms, at para. 51. What the moving defendants must demonstrate is a defence that is "viable, [...] not outlandish or implausible" and will carry an "air of reality:" see Alcantara v. Tulsiani, 2021 ONSC 85, at para. 35.

[39] The primary defence raised on the merits by the moving defendants is a limitations defence under s. 4 of the Limitations Act, 2022, S.O. 2002, c. 24, Sched. B, that forbids the commencement of a proceeding after the second anniversary of the day on which the claim is discovered. [^1]

[40] It is acknowledged that the debt originated under the Dissolution Agreement signed in January of 2010. There were agreements signed by the parties up to the third deferral agreement dated September 19, 2012, which specified a final maturity date of February 27, 2013. The moving defendants rely upon the admission of the plaintiff’s representative that a failure to pay on that date would constitute a default. The limitation period for commencing a claim under that agreement would have been February 27, 2015. No action was commenced prior to that date.

[41] The statement of claim (and default judgment) is predicated on a default under, and breach of, the last confirmation and extension agreement dated December 6, 2017 that specified that the sum of $504,859.53 (inclusive of interest calculated and accrued at the contractual rate of 2%) would be due and payable on the final agreed upon maturity date of March 31, 2018. The claim pleads that the defendants failed to pay on that date or afterwards when demand was made, after which the litigation was commenced well within the two years of that last maturity date.

[42] The plaintiff relies upon s. 13 of the Limitations Act, 2022, which permits the extension of the two-year limitation period upon the acknowledgment by a debtor of a liquidated debt. That section provides that, even though claims must be brought within two years of the discovery of the cause of action (e.g., the failure to pay a debt when due), upon the acknowledgment of the debt the two-year period begins to run anew.

[43] The moving defendants argue that there was more than a two-year break in the continuity of the written acknowledgments and debt deferrals (between February of 2013 and March of 2015) that broke the chain and that the debt could not have been resurrected or revived by later agreements or acknowledgments made after the two-year period, including the December 6, 2017 extension agreement that is pleaded in the statement of claim, on the basis of two subsections of the Limitations Act, 2022:

a. Section 13(9) of the Limitations Act, 2022 states: “This section does not apply unless the acknowledgment is made to the person with the claim, the person's agent or an official receiver or trustee acting under the Bankruptcy and Insolvency Act (Canada) before the expiry of the limitation period applicable to the claim.” b. Section 13(10) of the Limitations Act, 2022 provides that a claim cannot be revived even by an acknowledgment of liability "unless the acknowledgment is in writing and signed by the person making it or the person's agent.”

[44] An acknowledgment must be clear and unequivocal regarding the debt claimed: see Middleton v. Aboutown Enterprises Inc., 2009 ONCA 466, at para. 1; 1702108 Ontario Inc. v. 3283313 Canada Inc., 2016 ONCA 420, 132 O.R. (3d) 237, at para. 5. In this case, the parties adopted a practice of formal agreements and acknowledgments being signed to extend the maturity date up to and including September 19, 2012, and again from and after March 26, 2015. But in between those two dates the acknowledgments and extensions are referenced only in emails between the parties. The 3rd Deferral Agreement states that it “may not be amended or modified in any respect except by written instrument signed by the parties hereto.”

[45] This means that after September 19, 2012, there was a gap of more than two years during which there were no signed agreements or acknowledgments of the debt until the March 26, 2015 signed extension agreement. The defendants contend that this lapse of time gives them at least an arguable limitations defence and that it is not cured by the signing of the March 26, 2015 and subsequent confirmation and extension agreements for which no fresh consideration was given.

[46] This is a somewhat technical argument, but the merits bar is low on a r. 19.08 motion. All the moving defendants must establish is that there is an “air of reality” to their limitations defence, and I am satisfied that they have done so.

[47] The plaintiff has concerns about not only the timeliness of the evidence of the moving defendants, but inconsistencies in certain explanations, lack of particularity in the evidence by affidavit and on cross-examination, counsel answering for Lam, and refusals given on his cross-examination. These may all be legitimate concerns that will go to the weight of the evidence, but they do not detract from the “air of reality” of the limitations defence that has been established based on the documents and statutory analysis for purposes of this motion. The granting of this motion does not foreclose a closer examination of evidentiary concerns when it comes time to decide the case on its merits.

[48] The moving defendants have also raised a concern about the plaintiff’s failure to include in the record on the motion for default judgment all the intervening email confirmations and confirmation and extension agreements between the 3rd Deferral Agreement dated September 19, 2012 and the last confirmation agreement dated December 6, 2017. The moving defendants say that this goes to the heart of their limitations defence, which they accuse the plaintiff of “glossing over” in the motion for default judgment.

[49] There is a further suggestion made by the moving defendants that, whether intentionally or inadvertently, the plaintiff also attached the wrong interest calculation schedule to the 3rd Deferral Agreement, and (incorrectly) asserted in their statement of claim that the 3rd Deferral Agreement had calculated interest all the way out to March of 2018, whereas the actual schedule appended to the 3rd Deferral Agreement only calculated interest payments to February 2013.

[50] The moving defendants argue that this failure to provide the complete record to account for the entire timeline of the dealings between the parties regarding this loan, only providing the bookends, and the incorrect interest schedule, did not meet the standard for full and transparent disclosure on an ex parte motion. They contend that this alone would be grounds to grant the relief they seek and set aside the default judgment: see Misir v. Misir, 2017 ONCA 675, at para. 17.

[51] I have not decided this motion based upon the moving defendants’ assertion that the default judgment was improperly obtained. The pleading, taken as true for purposes of the default judgment that was rendered, asserts the contractual obligation was aligned with the last extended maturity date of March 31, 2018. However, the missing documentation has been determined to give at least an “air of reality” to the limitations defence.

[52] There is a further technical defence on the merits regarding the amount of the judgment, which was calculated to include interest for the entire period leading up to the judgment. Yet the default judgment also allows for prejudgment interest calculated at the contractual rate of 2% per month (24% per annum) from March 2016 to the date of the default judgment. The plaintiff does not dispute that there may have been a double counting of interest but maintains that if this were the only challenge to the “merits” of the judgment, it could be addressed through an order under r. 59.06 as an accidental slip or error.

[53] The moving defendants also challenge whether the contractual interest rate can be charged when it was specified as 2% per month and never written into the contract at a per annum rate, as s. 4 of the Interest Act, R.S.C., 1985, c. I-15, requires. Section 4 provides that:

Except as to mortgages on real property or hypothecs on immovables, whenever any interest is, by the terms of any written or printed contract, whether under seal or not, made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable, payable or recoverable on any part of the principal money unless the contract contains an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent.

[54] The moving defendants argue that the court has the discretion to order a lower rate of interest than the contract provides for, even if it was compliant with the Interest Act, and that this would be an appropriate case in which to exercise that discretion given how much of the claim is comprised of interest (a debt of $113,000 that now translates into a claim of over $2 million).

[55] The plaintiff counters that the moving defendants cannot rely on this section of the Interest Act when they acknowledged on cross-examination that they understood 2% per month meant 24% per year when they signed. The moving defendants also repeatedly confirmed the interest calculations and accrued interest owing each time the maturity date was extended by the email confirmations and confirmation agreements.

[56] The plaintiff further argues that this interest issue could be determined by a trial of an issue with a correction to the calculated amount of the default judgment, but this issue alone would not in and of itself be a reason to set aside the entirety of the default judgment.

[57] Since I am granting the motion of the moving defendants and they will be given the opportunity to advance all of their defences on the merits, the relative strength of each does not need to be determined at this time. Nothing further need be said about these latter defences (relating to the calculation of damages and interest) for purposes of this motion.

d) What is the relative prejudice to the parties in granting or denying the motion?

[58] The amount at issue can be a relevant consideration. In this case, applying the contractual interest rate of 2% per month (24% per annum) turned what was a $113,000 debt when originally acknowledged at the time of the assignment to the plaintiff in 2011 to now, according to the plaintiff, a debt for more than $2,069,687.07. This judgment will, in turn, inform the bankruptcy application against Greenvilla Development Group Inc. and is significant personal exposure for Lam.

[59] The inevitable prejudice to the defendant against whom judgment has been rendered that exists in every case is not enough: Baron Finance Incorporated v. Marchuk, 2018 ONSC 6832, at paras. 58 – 60. At the same time, a significant claim against a personal defendant is a serious factor to weigh in the analysis of relative prejudice to the parties: see Alcantara v. Tulsiani, 2021 ONSC 85, at para. 36.

[60] Much of the debt in this case has accumulated by way of interest since the default judgment was first discovered by the defendant in July 2019. The plaintiff argues that the ensuring interest accrual was within the defendants’ control to manage. But, having determined that the delay has been sufficiently explained, it is difficult to accept the plaintiff’s argument that the prejudice arising from the amount of the judgment should be entirely discounted. The amount of the default judgment is significant. The moving defendants further point out that the double-counting of interest alone accounts for more than $800,000 of the current value of the default judgment. To the extent that there is a challenge on the merits to, among other things, the interest rate, it would be prejudicial to the moving defendants to be deprived of the opportunity to advance that challenge.

[61] The moving defendants point to other cases in which the court has preferred, in the ultimate weighing of interests, to allow for a determination of the disputes on the merits even where the ability of the defendants to establish other factors, such as how promptly they moved to set aside the default judgment or their explanation for the default, was lacking: see 2355305 Ontario Inc. v. Savannah Wells Holdings Inc., 2019 ONSC 1220, at paras. 9 and 11; Mountain View Farms, at paras. 4 and 52 – 54; Nu-Fish Import Export Ltd. v. Sunsea Import Export Ltd., 1997 CarswellOnt 3114 (S.C.), at paras. 16 – 17; Stoughton Trailers v. James Expedite, 2013 ONSC 424, at paras. 14 – 15.

[62] The plaintiff is concerned about prejudice to its ability to execute and enforce a judgment later obtained. If it had been established that the moving defendants were just “gaming the system” or taking a “calculated risk” and were intentionally stalling or delaying, then there might be some sympathy to that argument, as there was in the case of Canadian Imperial Bank of Commerce v. Petten, 2010 ONSC 6726, at paras. 7 – 10. While the moving defendants could have acted more quickly in the August 2019 to October 2021 timeframe, they did serve their motion and consistently declared their intention to seek to have the default judgment set aside. It is not uncommon for defendants in default to miss deadlines. This can be frustrating for the other litigants and the court, and will carry consequences, but not necessarily to the extreme of being denied the opportunity to defend.

[63] If the plaintiff was concerned that the moving defendants did not hold a genuine intention to move forward with a r. 19.08 motion after the COVID-19 shutdowns were lifted, it could have taken steps to request a scheduling appointment. These were unusual times. There are no doubt litigants who were “gaming the system” and trying to take advantage of delays that were experienced due to the initial court shut down and gradual return through virtual hearings, but the evidence in this case does not support such an inference or finding.

[64] The prejudice to the moving defendants in not being able to defend the case against them on the merits is significant and will in many cases outweigh any prejudice to the plaintiff, particularly where that prejudice is primarily one of delay and/or costs thrown away. There has been no suggestion in this case that there is a known risk of the loss of potential witnesses or documents needed to determine the plaintiff’s claim on its merits. The moving defendants have prepared a statement of defence and are ready to deliver it if their motion is granted. They have also offered to allow the case to proceed by way of a summary procedure, if approved by the court, to alleviate the plaintiff’s concerns about further delays.

[65] The prejudice to allowing the default judgment to stand against the moving defendants outweighs any prejudice or delay or inconvenience to the plaintiff, which can be compensated for by costs.

e) The integrity of the administration of justice

[66] There are no compelling arguments that would sway the outcome in this case, either way, based on concerns about the integrity of the administration of justice.

[67] As stated in Savannah Wells, at para. 14, "the preference in our system of civil justice is for a determination of disputes on their merits.” In the circumstances of this case, that is the overarching consideration once an “air of reality” has been established for the merits of a defence, and where none of the other factors overwhelm the analysis.

Costs and Further Directions

[68] The moving defendants seek their all-inclusive partial indemnity costs of $23,548.96 of this motion to set aside the default judgment. They rely upon their assertion that the default judgment was improperly obtained and defective to support their request for costs.

[69] The plaintiff’s bill of costs includes partial indemnity fees and taxes for the motion for default judgment ($3,106.60) and for the motion to set it aside ($17,287.31), plus disbursements not yet known because the transcripts costs for the plaintiff’s cross-examination of Lam have not yet been billed. The court notes that the transcript disbursement for the defendants’ cross-examinations of the plaintiff's representatives was $1,341.10.

[70] The court may impose such terms as are deemed just in exercising its discretion to set aside the default judgment. In this case, there has been considerable delay and resulting attendances to address this motion. Further, the moving defendants should be held accountable for their failure to adhere to the generous timetable that was afforded to them by the March 2021 endorsement of Conway J., which they did not adhere to. While they have been given yet another chance to defend the plaintiff’s claims, that does not come without a price.

[71] In the exercise of my discretion under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, and having regard to the applicable factors under r. 57 (including r. 57.01(2)), r. 37.13, and the considerations noted above, I find that the plaintiff is entitled to its partial indemnity costs of the default judgment (fixed in the all-inclusive amount of $2,500) and its costs “thrown away” of the motion to set aside the default judgment (fixed in the all-inclusive amount of $13,000). These costs are ordered to be paid by the moving defendants to the plaintiff as a condition of them being granted leave to deliver a statement of defence. To be clear, these costs must be paid by the moving defendants before the deadline for the delivery of their statement of defence.

[72] The remaining costs claimed by the plaintiff in its bill of costs and the as-of-yet unbilled disbursements for transcripts from cross-examinations are reserved to the judge hearing the merits of the action, with the expectation that some of the time and expense of this motion will be put towards the eventual adjudication of the plaintiff’s claims on their merits.

[73] The costs of the bankruptcy application are to be determined in that proceeding and shall not form part of the costs of the within proceeding.

[74] If the costs are paid, the default judgment shall be and is deemed to be set aside. The defendants are granted leave to file a statement of defence (and counterclaim and/or crossclaim if so advised) within 30 days of the date of this endorsement.

[75] Both sides agree that it would be appropriate for the adjudication on the merits to proceed by way of summary procedure. Based on the material before the court on this motion, that appears to be reasonable. Once the defendants have delivered their statement of defence, the parties are directed to confer about a timetable for remaining steps in the action, including the exchange of affidavits of documents and any further examinations that may be required (with the expectation that the cross-examinations to date will be treated as discovery if the matter proceeds by way of summary trial of an issue, or will be utilized if the matter proceeds by way of summary judgment, even if further limited examinations are required).

[76] The parties shall arrange to attend on a scheduling appointment before me to discuss either an agreed, or their competing, proposed timetables and proposed manner of summary procedure for the final adjudication on the merits. This appointment shall be arranged through the commercial list scheduling office to take place within 30 days after the delivery deadline for the defendants’ statement of defence.

[77] This endorsement and the orders and directions contained in it shall have immediate effect as a court order without the necessity of formal entry.

Kimmel J. Date: April 1, 2022

[^1]: Other defences about moral, as opposed to legal, obligations raised by the moving defendants will not be considered for purposes of this motion. The moving defendants cannot be foreclosed from raising these defences on the merits, but the record on this motion in support of them is not strong, in the face of the clear and documented contractual debtor/creditor relationship between the parties.