COURT FILE NO.: CV-22-90322
DATE: [2023-09-26](https://www.canlii.org/en/ca/laws/regu/2023-09-26/latest/2023-09-26.html)
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: TAILLEFER PLUMBING & HEATING INC., Plaintiff
AND
232298 CANADA INC. o/a TRICREST ROOFING AND WATERPROOFING and STEVEN GUENETTE
Defendants
BEFORE: A. Kaufman J.
COUNSEL: Camille Ligier, for the Plaintiff
Rohoma Zakir, for the Defendants
HEARD: September 19, 2023
E N D O R S E M E N T
On January 11, 2023, Taillefer Plumbing & Heating Inc. ("Taillefer") obtained a default judgment in the amount of $27,293.40, plus $1,586.85 for costs, against the defendants 3232298 Canada Inc. operating as Tricrest Roofing and Waterproofing ("Tricrest") and Steven Guenette ("Mr. Guenette"). Tricrest and Mr. Guenette are seeking to have the default judgment set aside and to strike the claim against Mr. Guenette personally.
This motion raises three issues. First, whether the judgment was irregularly obtained; Second, whether the Court should set aside the default judgment; and finally, whether the claim against Mr. Guenette should be struck.
I. Proper Service on the Corporate Defendant
The defendants argue that a default judgment can be set aside as a matter of right if it was irregularly obtained. They contend that Tricrest was not properly served with the claim because "no one was served with a copy of the Statement of Claim addressed to the Corporate Defendant." I am not convinced by this argument.
According to the Rules of Civil Procedure,[^1] a corporation can be served by delivering a copy of the document to an officer, director, or agent of the corporation.[^2] Mr. Guenette serves as Tricrest’s sole director. He has acknowledged that a process server visited his residence and provided a copy of the Statement of Claim to his spouse. Mr. Guenette has also admitted to receiving it. This constitutes proper service in accordance with the Rules. Demanding a separate Statement of Claim specifically addressed to the corporation would prioritize formalities over substance. Mr. Guenette was well aware, from reading the Statement of Claim, that the plaintiff was making claims against him personally and against Tricrest.
Additionally, the plaintiff served Tricrest through an alternative method of personal service by mailing a copy of the claim to the corporation's last registered address.
Based on the foregoing, the Court concludes that Tricrest was served properly.
II. Setting Aside the Default Judgment
- Both parties concur that the relevant criteria for setting aside a default judgment were outlined in Mountain View Farms Ltd. v. McQueen.[^3] The Court must assess 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.[^4]
These factors are not to be regarded as strict rules, and each case must be evaluated based on its unique circumstances.[^5]
The plaintiff concedes that the defendants satisfy the first criterion, as this motion was brought promptly after the defendants learned of the default judgment. The remaining four criteria will now be considered.
Whether there is a plausible excuse or explanation for the defendant’s default
The defendants argue that they did not defend the claim because they genuinely believed that the dispute had been settled. I find this argument unpersuasive.
The litigation arises from a construction contract in which Tricrest was contracted by Ottawa Community Housing to replace a roof at one of its housing developments. Tricrest subcontracted with the plaintiff to install roof drains at that property. The plaintiff invoiced Tricrest a total of $61,554.46, inclusive of HST, for its work.
It is undisputed that the project experienced delays. The contract's completion date was December 31, 2021, but the project was not completed until March 2022.
The defendants blame the plaintiff for the delays. They allege that the plaintiff incorrectly installed the roof drains, failed to obtain requisite approvals from the project engineers, and did not comply with the drawings. The defendants contend that they had to operate for an additional three months and incurred additional expenses of $39,824.07 due to the plaintiff's delays, breach of contract, and negligence.
Messrs. Guenette and Taillefer met on June 23, 2022, to discuss the plaintiff's invoice. It is undisputed that Mr. Guenette claimed that Tricrest had incurred additional costs due to the delays it attributed to the plaintiff, and proposed to set off these costs against the amounts due to the plaintiff. Mr. Guenette claims that he informed Mr. Taillefer that Tricrest was "willing to settle the breach of contract issue by making a full and final payment [...] that accounted for [Tricrest's] unexpected costs" and that it was his "honest belief that the Plaintiff was in agreement with this compromise”.
Mr. Guenette states that after being served with the Statement of Claim, he mailed a cheque in the amount of $34,500 to the plaintiff. According to Mr. Guenette's bank records, the cheque was cashed on October 24, 2022. The plaintiff acknowledges receiving the cheque without any accompanying letter.
The parties did not engage in further communication after Mr. Guenette sent this cheque. When moving for default judgment, the plaintiff appropriately deducted the $34,500 payment from the amount claimed, resulting in a judgment of $27,293.40.
I conclude that the defendants do not have a reasonable or plausible explanation for their default. Mr. Guenette conceded in cross-examination that the parties had not reached an agreement on any amount to be deducted from the plaintiff's invoice due to its alleged delays. Mr. Guenette alleges that he told the plaintiff that he would be "more than fair" in unilaterally determining a set-off amount.
A settlement agreement, like all contracts, necessitates an offer and an acceptance. While Mr. Guenette is not a lawyer, he is a contractor and a businessman. The suggestion that he believed a settlement was reached in the absence of any agreement regarding the amount of Tricrest’s payment is neither plausible nor reasonable.
Whether the Facts Support an Arguable Defense on the Merits
The defendants may have an arguable defence. The plaintiff denies responsibility for the delays, asserting that they were caused by Ottawa Community Housing, Tricrest itself, and the Covid pandemic. The plaintiff further contends that many of the defendant's claimed costs, such as insurance, would have been incurred regardless, as the defendant was engaged in another project until May 2022. Additionally, the plaintiff argues that some of the claimed expenses were unrelated to this project.
In the context of this short motion to set aside a default judgment, it is difficult to make definitive determinations about the merits of the defendant's set-off defense. However, it is undisputed that the project was completed roughly three months behind schedule. Consequently, the Court concludes that the defendant may indeed have an arguable defense.
The Potential Prejudice to Both Parties
The defendants contend that not setting aside the default judgment would preclude them from defending against this claim. Such prejudice arises in all cases where a default judgment remains unaltered.
The plaintiff, for its part, argues that if the default judgment is set-aside, it will have incurred legal costs in seeking the default judgment and will have an accounts receivable of $27,054.46, which represents an amount that is not “insignificant” for a small local company in the construction industry.
Neither party has sufficiently demonstrated that it would suffer significant prejudice, regardless of the outcome of this motion. Consequently, this factor is deemed neutral.
The Impact of the Court's Decision on the Overall Integrity of the Administration of Justice
The defendants argue that denying them the opportunity to defend themselves would undermine the administration of justice. This argument does not persuade the Court.
In 10313033 Canada Inc. v. Kechichian, I observed that, if the merits of a case always had to be determined before foreclosing a party’s position, there would be little room for the effective application of the rules.[^6]
The defendants were validly served with the Statement of Claim and disregarded an originating process, putting themselves in a position to be noted in default. Refusing to set aside the default judgment would not bring the administration of justice into disrepute, nor would it adversely affect the overall integrity of the administration of justice.
Conclusion on the Motion to Set Aside Default Judgment
As previously mentioned, the criteria should not be rigidly applied, with each case evaluated based on its unique circumstances. The Court has determined that the defendants promptly initiated the motion to set aside the default judgment and that their defence may have merit, which weighs in their favor. However, it was also found that the defendants lacked a reasonable or plausible explanation for the default, that neither party would suffer significant prejudice, and that setting aside the default judgment would not adversely impact the overall administration of justice.
Based on the aforementioned factors and considering Rule 1.04's mandate to interpret the Rules in a manner that ensures the just, expedient, and cost-effective resolution of civil proceedings on their merits, the Court exercises its authority to set aside the default judgment.
Both parties concur that if the Court sets aside the default judgment, the matter should be transferred to the Small Claims Court.
III. Should the Claim Against Mr. Guenette Be Struck?
In their amended notice of motion, the defendants request the dismissal of the action against Mr. Guenette personally. This request relies on r. 21.01(1)(b), which grants the Court authority to strike pleadings that do not disclose a reasonable cause of action.
The claim against Mr. Guenette personally is centered on breach of trust. Under sections 8 of the Construction Act,[^7] any funds received by any party within the construction hierarchy are deemed to enter a statutory trust. Section 13 of the Construction Act establishes a direct personal cause of action against officers and directors who consent to or accept behavior that they should reasonably know constitutes a breach of trust.
The defendants argue that there is no direct contractual relationship between Mr. Guenette and the plaintiff and that there are no grounds to pierce the "corporate veil." Contrary to the defendants' position, I concur with the plaintiff that their claim against Mr. Guenette does not rely on piercing the corporate veil. Paragraph 9 of the Statement of Claim asserts that Mr. Guenette violated section 13 of the Construction Act, breached the trust, and is therefore personally liable. The plaintiff has adequately pleaded a reasonable cause of action, and the defendant's motion to strike is dismissed.
COSTS
The defendants were unsuccessful in their motion to strike the allegations against Mr. Guenette. While they succeeded in setting aside the default judgment, I nonetheless conclude that the plaintiff should be awarded the costs of this motion.
It has been established that the defendants were properly served with the claim, and their argument that they had a plausible or reasonable explanation for their default was rejected. They disregarded the court's proceedings until they were informed that a default judgment had been granted. Given these circumstances, it was reasonable for the plaintiff to oppose the defendants' motion. By setting aside the default judgment, the Court is granting the defendants an indulgence.
In Lake Avenue Resort v. Korpela,[^8] Master Hawkins, after ordering that a registrar’s dismissal order be set aside, awarded costs of the motion to the defendants, stating (at para. 66):
I have granted the plaintiff a significant indulgence. The price of an indulgence is the payment of the costs of those who have sought, unsuccessfully, to prevent its being granted.
- Costs to the plaintiff are hereby fixed at $10,000, payable by the defendants within 30 days.
DISPOSITON
For the foregoing reasons, this Court orders that:
The default judgment dated January 11, 2023 is hereby set-aside;
The defendants’ motion to strike the allegations against Mr. Guenette is dismissed.
This action is hereby transferred to the Small Claims Court;
The plaintiffs shall have their costs of this motion, fixed at $10,000, payable within 30 days.
Alexandre Kaufman
Justice A. Kaufman
[^1]: Rules of Civil Procedure, R.R.O. 1990 Reg. 194., (“the Rules”). [^2]: Ibid., r. 16.02(1)(c). [^3]: 2014 ONCA 194. [^4]: Ibid, at paras 48-49. [^5]: Ibid, at para 50. [^6]: 2021 ONSC 7606, at para. 12. [^7]: R.S.O. 1990 c C.30. [^8]: 2014 ONSC 2299, (Ont. Master).