Court File and Parties

COURT FILE NO.: CV-20-647946 DATE: 2022 04 05

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SYMMBAN STROUD INC., Plaintiff - and - 2384359 ONTARIO INC. and SUKHDEEP SINGH SANDU, Defendants

BEFORE: Associate Justice Todd Robinson

COUNSEL: S. Chhina, counsel for defendants (moving parties) P. Smiley, counsel for plaintiff

HEARD: March 31, 2022 (by videoconference)

REASONS FOR DECISION

[1] The defendants, 2384359 Ontario Inc. and Sukhdeep Singh Sandhu (incorrectly named in the style of cause), seek an order setting aside their noting in default. They were noted in default following substituted service by mail, which was authorized by an order obtained ex parte on the basis that Mr. Sandhu, who is also the principal of 2384359 Ontario Inc., was evading service.

[2] The plaintiff takes no position on the substantive relief to set aside the noting in default. Its counsel confirmed that it is for the court to determine if the defendants’ materials meet the requisite test. What the plaintiff does oppose is any award of costs against it. The plaintiff actually seeks its own costs thrown away from its prior substituted service motion on a substantial indemnity basis. The defendants were willing to pay some costs to avoid having to bring this motion, but not substantial indemnity costs. The defendants now seek their costs of the motion.

[3] I advised counsel at the hearing that I would be setting aside the noting in default and providing the defendants until April 8, 2022 to deliver their statement of defence. I did not provide reasons for that decision at the time, because I was reserving my decision on costs.

[4] The crux of the parties’ costs dispute is whether it was reasonable for the plaintiff to withhold consent to set aside the noting in default until and unless the defendants agreed to pay substantial indemnity costs of the prior ex parte motion. In my view, it was not. This motion ought not to have been necessary. In the circumstances of this case, I do not find it a just term of setting aside the noting in default to award the plaintiff costs of its prior motion. I am instead awarding partial indemnity costs of this motion against it.

Analysis

Set aside of noting in default

[5] I did not require defendants’ counsel to make submissions on the substantive relief at the hearing. The plaintiff did not oppose and, although materials were not uploaded to CaseLines and available to me until the morning of the hearing, I was satisfied that the noting in default should be set aside based on the defendants’ motion record and factum.

[6] Rule 19.03(1) of the Rules of Civil Procedure, RRO 1990, Reg 194 provides that a noting of default may be set aside by the court on such terms as are just. The defendants cite Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 as outlining the requisite test. However, that case involved setting aside a default judgment, which has not been obtained here. In my view, the test for setting aside a noting in default is less rigorous.

[7] In the recent case of Franchetti v. Huggins, 2022 ONCA 111, at paras. 5-10, the Court of Appeal addressed applicable considerations on a motion to set aside a noting in default. Whether to set aside a noting of default is a discretionary decision. As stated by the Court of Appeal, there is a strong preference for deciding civil actions on their merits, and a desire to construe rules and procedural orders non-technically and in a way that gets the parties to the real merits.

[8] Relevant factors to be considered when deciding whether to set aside a noting in default include the parties’ behaviour; the length of the defendant’s delay; the reasons for the delay; the complexity and value of the claim; whether setting aside the noting of default would prejudice a party relying on it; the balance of prejudice as between the parties; and whether the defendant has an arguable defence on the merits (although courts will rarely require a defendant who has been noted in default to show an arguable defence on the merits if the motion is brought early in the litigation process). Those factors are not exhaustive.

[9] I am satisfied that the defendants’ materials support set aside. Mr. Sandhu’s affidavit supports that service by mail (as authorized in the substituted service order) did not actually come to his attention. Mr. Sandhu had sold and transferred the residential property to which the statement of claim was mailed years before the substituted service motion was brought, as reflected in the title abstract filed. It is unclear why the plaintiff failed to conduct a Teraview search prior to bringing the substituted motion, which would have allowed it to determine that service at the address would be practically meaningless.

[10] Mr. Sandhu’s evidence is also that the registered office address for 2384359 Ontario Inc. was its address at the time of incorporation, but was not used “in any significant way after 2018.” On the other addresses at which service attempts were made, Mr. Sandhu’s evidence is that he has never resided at them and does not know why the plaintiff thought he would be present at them. Most importantly, his unchallenged and unequivocal evidence is that he did not receive any mailed copies of the statement of claim.

[11] Any delay in defending has been adequately explained. Mr. Sandhu only learned of the claim from the Vice President/Broker of Royal LePage, who was provided with a letter from plaintiff’s counsel dated August 9, 2021 sent to Royal LePage’s Don Mills location. The letter states that the defendants had been noted in default and a motion for default judgment was being brought. Mr. Sandhu was emailed about the letter on September 2, 2021. Mr. Sandhu immediately retained counsel, who shortly thereafter contacted plaintiff’s counsel to discuss setting aside the noting in default. When consent was ultimately refused, the defendants promptly brought this motion.

[12] This a significant claim seeking $1 million in damages for negligence, negligent and fraudulent misrepresentation, deceit, and breach of good faith contractual performance, plus a further $1 million in aggravated, punitive and exemplary damages, arising from the plaintiff’s intent to purchase a commercial shopping plaza owned by 2384359 Ontario Inc. Based on the statement of claim, there are a number of legal and factual complexities. I am satisfied that the defendants have arguable defences on the merits per the draft statement of defence included in the materials and, accordingly, there would be significant prejudice to the defendants if they were not permitted to contest liability and damages. Conversely, there appears no real prejudice to the plaintiff from permitting them to defend.

Entitlement to costs of prior motion

[13] The plaintiff argues that it should be awarded substantial indemnity costs thrown away from its prior substituted service motion, which is argued to have been needed solely because of Mr. Sandhu’s evasion of service. I am not awarding any costs thrown away.

[14] Consent to this motion was withheld by the plaintiff because the defendants would not pay substantial indemnity costs of the prior motion. Defendants’ counsel submitted that the plaintiff initially sought $7,000 (undisputed by plaintiff’s counsel), but ultimately offered consent to set aside the noting in default on payment of $5,000, including HST and disbursements (the amount sought before me and the amount in a formal offer to settle served after this motion was brought). The defendants initially offered $500, but increased their offer to $1,000. Had the plaintiffs accepted that amount, or had the defendants paid the substantial indemnity costs sought by the plaintiff, this motion would have been avoided. In my view, though, the plaintiff’s insistence on payment of substantial indemnity costs was unreasonable.

[15] I am not awarding the plaintiff any costs thrown away from the prior motion for three reasons.

[16] First, even if Mr. Sandhu was actually evading service as alleged, a motion for substituted service was still necessary to effect valid service. If service by mail had come to Mr. Sandhu’s attention and a statement of defence had been delivered prior to the defendants being noted in default, no motion would have been brought. The plaintiff would likely then have had no proper venue to seek costs of the substituted service motion before trial.

[17] Second, I agree with the defendants that the plaintiff had better options for substituted service, but failed to seek them on the prior motion. Mr. Sandhu’s undisputed evidence is that the plaintiff’s principal, Muhammad Shakir, has had Mr. Sandhu’s email address for years. Moreover, Mr. Sandhu’s evidence supports that the plaintiff was aware of defendants’ current counsel being retained to defend Mr. Sandhu in disciplinary proceedings before the Real Estate Council of Ontario (RECO), which were triggered by a complaint made by Muhammad Shakir. That complaint dealt with the same allegations advanced in this action. The plaintiff does not dispute that it was involved in those proceedings nor does it dispute Mr. Sandhu’s evidence that, during the course of the RECO proceedings (including a trial in August 2021 at which a representative of the plaintiff is said to have been in attendance), neither Mr. Sandhu nor his lawyer were made aware of this related action.

[18] It is not the defendants’ fault that the mode of substituted service selected by the plaintiff was ineffective, particularly when an apparently better option of service by email was available and not sought in lieu of or in conjunction with other service options. No explanation has been given for why substituted service by email was not sought.

[19] Third, the plaintiff’s entitlement to recover costs of the prior motion is unclear. Costs generally follow the event. Neither the endorsement nor substituted service order was before me, although a copy of the signed order was available to me from the court file. The signed order is silent as to costs. Plaintiff’s counsel acknowledged that no order as to costs was made at the time of the motion. Since the notice of motion is not before me, it is unclear if costs were even sought. I thereby asked plaintiff’s counsel to explain the basis of the plaintiff’s entitlement to seek and recover costs. I was directed only to my general jurisdiction to determine and award costs.

[20] Although not specifically argued by plaintiff’s counsel, Rule 19.03 does provide that I may set aside a noting in default “on such terms as are just.” However, the plaintiff seeks substantial indemnity costs of its prior motion without any case law supporting its position. I have thereby been provided with no case in which a plaintiff was awarded costs (on any scale) of a prior ex parte motion as a term of setting aside a noting in default.

[21] The Court of Appeal has held that an endorsement or order that is silent as to costs is, in effect, an order for no costs with respect to the motion: Delrina Corp. v. Triolet Systems Inc., [2002] OJ No 3729 (CA) at para. 36. Since that decision was not raised or argued by either side, I am not prepared to foreclose the plaintiff from arguing for recovery of its costs of the motion at trial. However, in the circumstances of this case, my view is that costs of the substituted service motion (if still recoverable) are only properly recoverable as costs in the cause.

[22] For these reasons, I do not find it a just term of setting aside the noting in default to require the plaintiff to pay costs of the prior motion at all, let alone on a substantial indemnity basis.

Costs of this motion

[23] The defendants seek their partial indemnity costs of the motion in the amount of $3,000.00. The plaintiff’s position is that there is no basis to award costs against it, since it had no obligation to consent and, accordingly, this motion had to be brought. That may be true in some cases. It is not true here.

[24] This is not a case where the plaintiff genuinely or reasonably felt that the defendants should have to satisfy the court on the circumstances of default before being entitled to defend, or where the plaintiff reasonably first required evidence explaining the default before it could consider its position. In this case, although plaintiff’s counsel made various submissions on Mr. Sandhu’s alleged evasion of service, the plaintiff was willing to consent to setting aside the noting in default prior to this motion being brought, so long as the defendants paid substantial indemnity costs of the substituted service motion. That willingness to consent is significant.

[25] I generally agree that a plaintiff is under no strict obligation to consent to setting aside a noting in default. However, a plaintiff is not insulated from an adverse costs award where its consent is unreasonably withheld. That is the case here.

[26] The plaintiff has failed to provide any justification for why, as a precondition to consent, it was reasonable to require payment of substantial indemnity costs from a prior substituted service motion brought without notice to the defendants. It appears to me that, when the defendants refused to pay the requested costs, the plaintiff was content for this motion to be brought to have a venue to seek costs of the prior motion. The plaintiff’s conduct during the motion is consistent with such an intention. Forcing an otherwise unnecessary motion to be brought purely for a collateral purpose is, in my view, an abuse of process.

[27] Notably, although no responding materials were served, the plaintiff conducted a half-day cross-examination focused on challenging Mr. Sandhu’s evidence to support that he had, in fact, been evading service. Plaintiff’s counsel expressly confirmed during argument that the purpose of the cross-examination was not to oppose the motion, but rather was to support the plaintiff’s entitlement to costs. Plaintiff’s counsel further came to the hearing with only one document prepared: a costs outline for the prior motion.

[28] I agree with the plaintiff that there appears to be a conflict between the process server’s affidavit of attempted service and Mr. Sandhu’s evidence that he never spoke to the process server. The process server’s affidavit states that he spoke with Mr. Sandhu, who is said to have agreed to various meetings for service and failed to attend them. Mr. Sandhu unequivocally denies any discussions or communications with the process server, albeit that the telephone number identified in the process server’s affidavit is acknowledged to be Mr. Sandhu’s number. I also accept the plaintiff’s argument that the process server had no reason to lie about speaking to someone who identified himself as the defendant. Nevertheless, on the record before me, I find no basis to hold or reasonably infer that Mr. Sandhu has sworn a false affidavit or given false testimony. Mr. Sandhu’s evidence has not been successfully impeached.

[29] The process server’s affidavit of attempted service makes clear that he never actually met Mr. Sandhu. No affidavit evidence was tendered from the process server in response to Mr. Sandhu’s affidavit evidence. During cross-examination, Mr. Sandhu maintained denials of speaking with, hanging up on, or in any way communicating with the process server. The process server was not examined. Plaintiff’s counsel says that the process server’s cell records have been obtained to dispute Mr. Sandhu’s evidence, but they are not in evidence and were not put to Mr. Sandhu. There is thereby insufficient evidence to make a finding that Mr. Sandhu has sworn a false affidavit or given false testimony.

[30] In my view, irrespective of any actual or perceived evasion of service, it was unreasonable for the plaintiff to withhold consent until the defendants paid substantial indemnity costs of the prior ex parte motion. Significantly, the defendants made several reasonable offers to pay costs thrown away: first $500, then $1,000 (which was formalized into a Rule 49 offer on this motion), then $2,000 before this motion was argued. The plaintiff rejected each of these offers and maintained its position that the defendants should pay $5,000.

[31] I have reviewed the plaintiff’s costs outline for the prior motion. In my view, the total hours spent and costs incurred by the plaintiff (while no doubt spent and incurred) are well beyond the reasonable expectations of any party for an ex parte motion for substituted service. I also note that full indemnity costs are only $5,559.80, much less than the $7,000 initially requested by the plaintiff’s for costs thrown away.

[32] The plaintiff’s position is that it did not oppose the motion. However, it used tools only available to an opposing party for the collateral purpose of challenging Mr. Sandhu’s credibility to support its claim for costs thrown away. For example, Rule 39.02(1) provides the right to “cross-examine the deponent of any affidavit served by a party who is adverse in interest on the motion”. I do not accept that a party unopposed to a motion is properly viewed as “adverse in interest on the motion ”. In any event, Rule 39.02(4)(b) makes the plaintiff presumptively liable to the defendants for their partial indemnity costs of the half-day cross-examination, regardless of the outcome of this motion.

[33] As set out in Rule 1.04, the Rules of Civil Procedure are intended to facilitate the just, expeditious, and least expensive determination of civil proceedings on their merits. The plaintiff’s conduct has done the opposite. The plaintiff unreasonably refused consent in an effort to compel payment of costs in an amount that would likely never have been awarded for a substituted service motion. It then drove up the defendants’ costs of the set aside motion by conducting a cross-examination solely for collateral purposes. It further rejected reasonable offers by the defendants to pay costs thrown away in circumstances where the plaintiff’s entitlement to even recover costs of the prior motion is legally questionable.

[34] In my view, the plaintiff has wasted both judicial resources and court time by forcing this unnecessary motion to be brought. It is not conduct that the court should condone. This is a case where the plaintiff ought to pay the defendants’ costs of the motion.

[35] The defendants’ requested partial indemnity costs are less than the partial indemnity costs supported by their costs outline and, in my view, are within the reasonable expectations of the unsuccessful plaintiff in all the circumstances. Although some time listed on the costs outline, such as reviewing pleadings, are more properly costs of the action, no further reduction is reasonably necessary given the reduction already proposed by the defendants. The issues on the motion were important to the defendants, who could not defend the claim without this motion, necessitated solely by the plaintiff’s decision to reject reasonable offers and withhold consent on unreasonable terms.

[36] I am accordingly awarding the defendants their requested partial indemnity costs of this motion fixed in the amount of $3,000.00, including HST, plus the motion fee disbursement of $320.00, for a total of $3,320.00.

Disposition

[37] I accordingly order as follows:

(a) The noting in default of the defendants is hereby set aside.

(b) The defendants shall deliver their statement of defence by April 8, 2022.

(c) The plaintiffs shall pay to the defendants their costs of this motion fixed in the amount of $3,320.00, including HST and disbursements, payable within thirty (30) days.

[38] Order to go in an amended form of draft order submitted, as amended electronically prior to signing.

ASSOCIATE JUSTICE TODD ROBINSON DATE: April 5, 2022