COURT FILE NO.: CV-17-73095
DATE: 2022/12/16
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: R & K CLARK ENTERPRISES LTD. and ROBERT D. CLARK, Plaintiffs
-and-
I & T MCNAUGHTON HOLDINGS INC. and IAN MCNAUGHTON, Defendants (Moving Parties)
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Andrew Paterson, for the Plaintiff (Responding Party)
Robert B. Burns, for the Defendant (Moving Parties)
HEARD: October 26, 2022
DECISION AND REASONS
[1] The fundamental question raised by this motion is whether a client whose lawyer was given notice of a proceeding but did not advise the client or attend himself should be bound by the result. The defendants failed to attend an assessment of costs and consequently find themselves indebted to the plaintiffs for $83,273.75.
Background
[2] By way of background, the dispute between the parties was related to the purchase and sale of a business in Gravenhurst, Ontario. That agreement contained an arbitration clause. An arbitration was commenced in 2012, converted to an action in 2017 and settled in 2019. Under the agreement, the defendant was to pay $200,000.00 plus costs in an amount to be agreed upon or assessed. The $200,000.00 has been paid but there was never any agreement on costs.
[3] Counsel for the plaintiff attempted to resolve the question of costs with former defence counsel but was unable to do so. On February 3, 2022, plaintiff’s counsel advised that in the absence of agreement, he was proceeding to schedule a hearing before the Assessment Officer. Defence counsel responded that he would no longer be representing the defendant and intended to get off the record.
[4] Nothing was done about removing defence counsel from the record. Defence counsel was advised on at least four occasions that the hearing had been scheduled. Defence counsel was also notified by the Court that the assessment hearing was scheduled for July 19, 2022. Throughout this time, defence counsel remained the lawyer of record. Nothing was done either by defence counsel or by the defendant to replace him or to file a notice of intention to act in person. No motion was brought by either. No response was provided when plaintiff’s counsel asked defence counsel to authorize him to contact the defendant directly.
[5] On the appointed day, July 19, 2022, the plaintiff’s counsel appeared before the Assessment Officer. No one appeared for the Defendant. The Assessment Officer proceeded with the assessment on a default basis and fixed the costs at $83,273.75. It appears that this is the full amount of costs set out by counsel for the plaintiff under the “Substantial Indemnity” heading on his bill of costs.
[6] It was when the Plaintiff obtained a notice of garnishment and attempted to enforce the judgment that the Defendant became aware of the judgment and moved to set aside the results of the Assessment. The motion was launched on August 24, 2022. The defendants have also paid the amount of the judgment into trust as a condition of lifting the garnishment.
[7] It is undisputed that the Defendant’s lawyer of record was aware of the date of the assessment and had been served. It is also undisputed that the lawyer did not advise his client of the date. No explanation is given for this failure but it is not disputed that the defendant himself was not aware of the date. It is the defendant’s evidence that he had heard nothing from his counsel after January of 2020 and assumed the plaintiff was no longer pursuing the matter.
[8] In the face of these facts, there is no question that the former lawyer remained the lawyer of record. No question that the lawyer of record knew of the date for the hearing and did nothing. There is no question that the lawyer did not advise his client and the defendant was in ignorance about the hearing. The question is what to do about it?
Analysis and Conclusion
[9] On a strict reading of the rules and on basic principles of agency law, notice to the lawyer of record is notice to the client.[^1] It is open to either the lawyer of record or the client to take steps to get off the record or to end the designation and the party who effects service appropriately should not be prejudiced by an internal failure of communication.
[10] In the case before the court, the lawyer had indicated that he intended to get off the record but took no steps to do so and he did not respond when plaintiff’s counsel asked for permission to contact the defendants directly. A strict approach would be to find that in these circumstances the lawyer warrants that he will advise the client of dates of hearings and if that is not done, the client has a remedy against counsel but should be bound by the result.
[11] A contrary approach would be to relieve the client of the consequences of default since the presumption that the lawyer would advise the client of the date can be shown to be false. Since the client did not have actual notice of the date, fairness would dictate that the result of the hearing be set aside and the defendant be allowed to argue the proper amount of costs before the Assessment Officer. Any prejudice to the plaintiff could be addressed in costs or other terms.
[12] To be clear, the matter before me is not an appeal from the Assessment Officer. No one is suggesting the Assessment Officer erred in proceeding as she did. Rather, it is a motion under Rule 16.07 to set aside the consequences of default because a document served in accordance with the rules did not come to the attention of the defendant. By analogy to Rule 19.08 and Rule 37.14, the court may set aside the Certificate of Assessment and the resulting judgment on such terms as are just.[^2]
[13] I adopt the test described by Justice Engelking in Dennis v. Spears[^3] as follows:
a. Was the motion brought promptly after the moving party learned of the default judgment (i.e., timeliness of motion to set aside)?
b. Is there a plausible excuse or explanation for the moving party’s default in complying with the
Rules?
c. Has the moving party set out facts that support the conclusion that there is at least an arguable defence on the merits?
d. What is the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the party obtaining the order should the motion be allowed?
e. What is the effect of any order the court might make on the overall integrity of the administration of justice?
[14] In this case the motion was brought promptly and there is an explanation for the moving party’s default. The defendants state that they would have opposed the costs being fixed on a substantial indemnity scale, would have challenged the quantum, would have challenged any costs relating to the arbitration and would have been alert to any duplication of costs incurred because the plaintiff changed counsel on more than one occasion.
[15] The prejudice to the defendants if the order is not set aside is the liability to pay more than might have been awarded had these defences been advanced. The prejudice to the plaintiff if the motion is granted is that a final determination will be delayed and the costs relating to the first assessment will be wasted. In this case, however, the defendants have paid the judgment into trust and they agree that the plaintiff is entitled to be compensated for wasted costs.
[16] The motion really turns on the integrity of the administration of justice. Is the integrity of the justice system undermined if the default hearing is set aside and the matter remitted to the Assessment Officer to be determined on the merits? Or is the integrity of the system undermined by allowing this motion when the lawyer was properly served and when there is no evidence that the failure to serve the client was due to mere neglect or inattention?[^4] In at least one case, the failure to prove inadvertence was fatal to a motion to set aside dismissal of an action at least when combined with an inexplicable delay in bringing the motion to set it aside.[^5]
[17] In that case, however, the plaintiff who sought to set aside the default order for dismissal had delayed for five years. In the case at bar, the motion was launched as soon as the defendants became aware of the judgment and within two months of the hearing. The principle of finality is not engaged and any prejudice to the plaintiff is readily addressed by the fact that the defendants have paid the amount of the judgment into court and agree to pay the costs thrown away. This indicates that the motion is brought in good faith.
[18] In these circumstances, in my view, having regard to the overarching principles of the Rules of Civil Procedure, the court should err on the side of determination on the merits and against a rigid procedural approach.[^6] It is just to set aside the default decision and to remit the matter back to the Assessment Officer for determination on the merits pursuant to Rule 58.
[19] Bearing in mind that there is no doubt the defendants are liable to the plaintiff for costs under the terms of their settlement and bearing in mind the defendants undertaking to pay the costs thrown away as agreed or assessed, the issues to be determined by the Assessment Officer will be as follows:
a. The scale and amount of the costs owed to the plaintiff by the defendants pursuant to their settlement;
b. The costs thrown away by the plaintiff in scheduling and proceeding with the original assessment and in obtaining and lifting the notice of garnishment;
c. The costs of the assessment itself pursuant to Rule 58.05 (6).
[20] The defendants seek the costs of this motion but in my view no costs should be awarded. The position taken by the plaintiff was not unreasonable and the defendants were obliged to bring this motion in order to obtain a new hearing. Although the defendants were successful, costs are discretionary. There will be no costs of the motion.
Summary and Resulting Order
[21] In conclusion, there will be an order setting aside the Certificate of Assessment and the resulting judgment on condition that the amount of the judgment continues to be held in trust pending the final decision. The net amount owed by the defendants to the plaintiffs pursuant to the minutes of settlement as found by the Assessment Officer together with the costs thrown away as found by the Assessment Officer and the costs of the assessment (if any) shall be paid out of the trust funds and the balance (if any) may be released to the defendants.
[22] The issues set out in paragraph 17 above are remitted to the Assessment Officer for determination.
[23] It may be obvious but nothing in this decision precludes the parties from negotiating the amounts owed. Considering the amount in dispute and the principle of proportionality, they are encouraged to do so.
[24] There will be no costs of this motion.
Justice C. MacLeod
Date: December 16, 2022
COURT FILE NO.: CV-17-73095
DATE: 2022/12/16
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: R & K CLARK ENTERPRISES LTD. and ROBERT D. CLARK, Plaintiffs
-and-
I & T MCNAUGHTON HOLDINGS INC. and IAN MCNAUGHTON, Defendants (Moving Parties)
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Andrew Paterson, for the Plaintiff (Responding Party)
Robert B. Burns, for the Defendant (Moving Parties)
Decision and reasons
Regional Senior Justice C. MacLeod
Released: December 16, 2022
[^1]: There is no doubt that a lawyer is the agent of the client and notice to the agent falling within the scope of the lawyer’s appointment is notice to the principal. See Fridman, GHL, Canadian Law of Agency, 3d Edition, LexisNexis Canada, 2017 @ para. 1.34, 10.6 and 10.9 [^2]: See Gatling-Coquelet v. Allan, 2018 ONSC 2889 and Nelligan, O’Brien, Payne LLP v. Fontaine, 2006 CarswellOnt 3637 (SCJ) [^3]: 2020 ONSC 6585 [^4]: Halton Community Credit Union Ltd. v. ICL Computers Canada Ltd. 1985 CarswellOnt 357, [1985] O.J. No. 101, 1 C.P.C. (2d) 24 (Ont. C.A.) @ para. 11 speaks to inadvertence or neglect. [^5]: See Marché d'Alimentation Denis Thériault Ltée v. Giant Tiger Stores Ltd., 2007 ONCA 695 at paras 26 - 33 [^6]: Rule 1.04