Court File and Parties
COURT FILE NO.: CV-16-547435 DATE: 20240124 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: NORMAN WONG, Plaintiff AND: SHANE SMITH, NADINE SMITH, JOSEPH SEREDA and SEREDA & SEREDA, Defendants
BEFORE: VERMETTE J.
COUNSEL: Charles Haworth, for the Plaintiff Shawn McNamara, for the Defendants Shane Smith and Nadine Smith
HEARD: November 10, 2023
Endorsement
[1] After the Plaintiff brought a motion for default judgment, the Defendants Shane Smith and Nadine Smith (together, the “Smiths”) advised that they wanted to respond to the motion. A case conference was held and the Plaintiff’s motion for default judgment and the Smiths’ motion to set aside the noting in default were scheduled to be heard together.
[2] This matter came before me on November 10, 2023. I granted the motion to set aside the noting in default of the Smiths with reasons to follow.
[3] My reasons for granting the motion are set out below.
A. FACTUAL BACKGROUND
1. The action and the motion for leave to issue a certificate of pending litigation and to amend the Statement of Claim
[4] In 2009, the Plaintiff commenced an action against Synergy Group (2000) Inc., Shane Smith and Jean Breau. On July 4, 2014, he obtained a default judgment in that action as against these three defendants in the amount of $134,966.74, plus costs in the amount of $5,438.65 and postjudgment interest.
[5] This action was commenced on February 25, 2016, after the Plaintiff had started to take steps to enforce his default judgment dated July 4, 2014. The main allegations against the Smiths, who are husband and wife, are allegations of fraudulent conveyance with respect to the transfer of two properties and the registration of a mortgage against one of the properties. The allegations regarding the mortgage were added by way of an amendment on June 23, 2017.
[6] On February 26, 2016, i.e., the day after the issuance of the Statement of Claim, the Plaintiff brought a motion for leave to issue a certificate of pending litigation (“CPL Motion”) on an urgent basis but on notice. The Smiths were represented by Joseph Sereda of Sereda & Sereda on the return of the motion. [1] While waiting to be heard, counsel had discussions and the parties ultimately agreed to an order that the Smiths not encumber or sell the properties in issue pending the hearing of the CPL Motion. The Order of Master McAfee (as her title was then known) dated February 26, 2016 reads, in part:
ON READING the Notice of Motion and the affidavit of Norman Wong sworn February 3, 2016 and exhibits thereto filed, and on hearing the submissions of the lawyer [sic] for the paries [sic], and on being advised that this motion is adjourned sine die on consent, on the following terms.
THIS COURT ORDERS that the defendants shall not sell, transfer, or otherwise encumber the properties legally described at schedule “A” of this Order pending the hearing of the motion for a Certificate of Pending Litgation [sic], or the agreement of the parties and/or further Court order.
THIS COURT ORDERS that this order is without prejudice to the rights of the parties.
[7] On the same day, i.e., on February 26, 2016, a mortgage in the amount of $750,000.00 was registered on title to one of the properties in issue in favour of Sereda & Sereda.
[8] On March 1, 2016, after finding out about the registration of the mortgage, counsel for the Plaintiff served a supplementary motion record on Mr. Sereda, counsel for the Smiths, for a motion returnable on March 2, 2016. In addition to seeking leave to issue a certificate of pending litigation, the supplementary notice of motion sought other relief, including leave to amend the Statement of Claim in order to allege facts and seek relief regarding the mortgage registered on February 26, 2016. The supplementary motion record included a copy of the Statement of Claim issued on February 25, 2016.
[9] On March 2, 2016, Master McAfee adjourned the CPL Motion to May 20, 2016. However, as a term of the motion not proceeding on that day, she granted the requested certificate of pending litigation on an interim and without prejudice basis. Mr. Sereda was in attendance for the Smiths before Master McAfee.
[10] On May 20, 2016, Master McAfee adjourned the CPL Motion to August 25, 2016 as a result of health issues of Mr. Sereda. While Mr. Sereda was not present in Court, an agent for Mr. Sereda attended before Master McAfee.
[11] On August 25, 2016, given that Mr. Sereda’s health issues were continuing, Master McAfee adjourned the CPL Motion to February 28, 2017. An agent for Mr. Sereda attended before Master McAfee.
[12] On January 31, 2017, Mr. Sereda advised counsel for the Plaintiff that he was no longer acting for the Smiths in this matter.
[13] On February 28, 2017, Master McAfee adjourned the CPL Motion again because the Plaintiff had recently circulated a new proposed Amended Statement of Claim and the Defendants needed an opportunity to consider it and respond. Shane Smith attended the motion in person. The motion was adjourned to April 5, 2017.
[14] While the parties were in court on February 28, 2017, Mr. Smith spoke to counsel for the Plaintiff and asked to be served via e-mail. He wrote his e-mail address on a piece of paper that he gave to counsel for the Plaintiff. On March 2, 2017, counsel for the Plaintiff sent a letter to the Smiths in which he confirmed having been advised that the Smiths could be contacted at the e-mail address provided on February 28, 2017.
[15] The CPL Motion finally proceeded on April 5, 2017. The Smiths were not represented by counsel and attended in person. Master McAfee released her decision on May 19, 2017. She granted leave to amend the Statement of Claim and to add Mr. Sereda and his firm as Defendants. She also granted leave to issue a certificate of pending litigation with respect to the two properties in issue.
[16] The Amended Statement of Claim was filed on June 23, 2017 and served on the Smiths by e-mail on June 26, 2017.
[17] There is evidence before me that Mr. Smith received e-mails sent at the e-mail address that he provided to the Plaintiff’s counsel on February 28, 2017, and that he used that e-mail address to send e-mails relating to this litigation, notably in August 2018.
2. 2022 events and motion for default judgment
[18] On January 24, 2022, the Smiths served a Notice of Appointment of Lawyer appointing their current counsel as their lawyer of record in this action.
[19] On February 11, 2022, Associate Justice McGraw heard a motion in writing brought by the Plaintiff for an order that the action not be dismissed for delay pursuant to Rule 48.14 of the Rules of Civil Procedure. Associate Justice McGraw made the following order on consent:
THIS COURT ORDERS that this action shall not be dismissed for delay pursuant to Rule 48.14 of the Rules of Civil Procedure.
THIS COURT ORDERS that there be a timetable for the remaining steps in the proceeding as follows: (a) Affidavits of documents shall be exchanged by March 25, 2022. (b) Examinations for discovery to be completed by May 20, 2022. (c) Provision of answers to undertakings/under advisement and refusals on or before July 1, 2022. (d) Discovery-related motions, if required, commenced on or before August 19, 2022. (e) The parties to participate in mediation, which costs to be shared equally on or before October 3, 2022. (f) The action to be set down for trial on or before February 3, 2023.
[20] I note that the timetable ordered by Associate Justice McGraw does not include a date for the delivery of a Statement of Defence.
[21] In early April 2022, the Plaintiff and the Smiths had settlement discussions. On April 21, 2022, the Plaintiff served his affidavit of documents. This was almost one month after the deadline set out in the Order of Associate Justice McGraw. The Plaintiff’s counsel also provided dates for examinations for discovery and asked counsel for the Smiths to advise of the dates that worked for him.
[22] On June 9, 2022, counsel for the Smiths sent the following e-mail to counsel for the Plaintiff:
Please accept my apologies for the delay in replying to you. There has been a number of mis-communications between me and my client, due mostly to my other commitments. I am endeavouring to put together the affidavit of documents and will have it to you as soon ass [sic] possible.
[23] On June 16, 2022, counsel for the Plaintiff responded as follows:
Thank you for your email below.
If we do not receive your clients’ defence and affidavit of documents by July 4, 2022, I will note your clients in default and seek default judgement without further notice to you.
[24] On July 4, 2022, the Smiths served their affidavit of documents. The affidavit of documents did not list any documents in Schedule “A”. They did not serve a Statement of Defence.
[25] Counsel for the Plaintiff did not ask again for the Smiths’ Statement of Defence. The only written request for a Statement of Defence in the record before me is the e-mail dated June 16, 2022 from counsel for the Plaintiff.
[26] On August 16, 2022, counsel for the Plaintiff filed a requisition asking that the Smiths be noted in default in the action on the ground that they had failed to file a Statement of Defence within the time required by the Rules of Civil Procedure.
[27] On October 27, 2022, the Plaintiff brought a motion for default judgment against the Smiths to be heard in writing during the week of December 5, 2022, pursuant to an endorsement of Justice Centa dated October 25, 2022. The motion did not proceed on December 5, 2022, presumably because the Smiths advised that they wanted to respond to the motion after they were served with the Plaintiff’s motion materials.
3. Case conference before Justice Dineen and this motion
[28] A case conference took place before Justice Dineen on January 30, 2023. Justice Dineen wrote the following endorsement:
The motion for default judgment and motion to set aside the noting in default will be heard together in a two-hour hearing on November 10, 2023. The record of the defendant is due May 31 and the plaintiff’s reply record will be due on June 28. Cross-examinations shall be completed by July 31. The defendant will file its factum by September 30 and the plaintiff by October 15. The motion confirmation is due November 3.
[29] Despite Justice Dineen’s endorsement, the Smiths did not bring a formal motion to set aside the noting in default. However, they filed a motion record and a factum. The Plaintiff relied on his motion materials filed for the motion for default judgment and did not file any additional materials.
[30] The motions scheduled by Justice Dineen came before me on November 10, 2023. While the Smiths did not serve a formal Notice of Motion asking that the noting in default be set aside, I was of the view that the issue of the setting aside of the noting in default was clearly before this Court because, among other things:
a. Justice Dineen’s endorsement stated that the motion for default judgment and motion to set aside the noting in default would be heard together.
b. It was clear from the Smiths’ motion materials that they were opposing the Plaintiff’s motion and asking that the action continue. For example, the last sentence of the Smiths’ joint affidavit states: “There is no prejudice to Mr Wong if this matter is allowed to move forward to discoveries and trial.” The Smiths also prepared a Statement of Defence, which is attached to their affidavit. In order for the action to continue and for the Smiths to be able to take any step in the action, the Smiths first needed to have the noting in default set aside: see Rule 19.02 of the Rules of Civil Procedure.
c. The factum delivered by the Smiths referred to case law dealing with the setting aside of a noting in default.
[31] At the hearing, I directed counsel to make submissions first on the preliminary issue of whether the noting in default should be set aside. The Plaintiff’s counsel was prepared to proceed and argue that issue despite the absence of a formal Notice of Motion by the Smiths. After hearing counsel’s submissions, I ordered that the noting in default of the Smiths be set aside, with reasons to follow. I also ordered a timetable for the next steps in the litigation, including the delivery of the Smiths’ Statement of Defence and supplementary affidavit of documents.
B. DISCUSSION
1. Applicable legal principles
[32] Under Rule 19.03(1) of the Rules of Civil Procedure, a noting in default may be set aside by the court on such terms as are just. The following factors are relevant in considering whether a noting in default should be set aside:
a. the parties’ behaviour; b. the length of the defendant’s delay; c. the reasons for the delay; d. the complexity and value of the claim; e. whether setting aside the noting in default would prejudice a party relying on it; f. the balance of prejudice as between the parties; and g. whether the defendant has an arguable defence on the merit.
See Franchetti v. Huggins, 2022 ONCA 111 at para. 9 (“Franchetti”) and Trayanov v. Icetrading Inc., 2023 ONCA 322 at para. 20 (“Trayanov”).
[33] The factors listed above are not exhaustive and are not to be applied as rigid rules: see Trayanov at para. 20. While an arguable defence on the merits may justify the court exercising its discretion to set aside a default judgment, courts will rarely require a defendant who has been noted in default to show an arguable defence on the merits. However, in cases involving a significant delay, the moving party is required to show an arguable case on the merits. For that purpose, it is sufficient for the defence to have an “air of reality”. See Franchetti at para. 10.
[34] In addition to the factors set out above, the following guiding principles are also relevant: the strong preference for deciding civil actions on their merits, the desire to construe rules and procedural orders non-technically and in a way that gets the parties to the real merits, and whether there is non-compensable prejudice to either party. See Franchetti at para. 8.
2. Application to this case
[35] I will now discuss the relevant factors.
[36] The parties’ behaviour, the length of the Defendants’ delay and the reasons for the delay. The Smiths have not been ignoring this action. They participated in the CPL Motion, which was brought at the same time as the action was commenced. The delay in having the CPL Motion determined is not attributable to them. Most of the delay was caused by their former lawyer’s health issues. When it became clear that they were no longer represented by Mr. Sereda, Mr. Smith attended in person before Master McAfee.
[37] It does not appear that the Plaintiff requested that a Statement of Defence be served while the CPL Motion was outstanding, probably because the Plaintiff was also seeking to amend his Statement of Claim. There is no evidence before me that the Plaintiff asked the Smiths to deliver a Statement of Defence after the Amended Statement of Claim was served in late June 2017, although I acknowledge that the Smiths had an obligation to do so under the Rules of Civil Procedure, even in the absence of a request. However, I note that the Smiths were self-represented at that time, and it appears from the record that they were never served personally with the Statement of Claim.
[38] For all intents and purposes, there is no evidence before me as to what happened in the action between June 2017 and January 2022. It does not appear that the Plaintiff made any serious effort to move the action forward during that time, and there is no evidence before me that the Plaintiff asked the Smiths to deliver a Statement of Defence during that period.
[39] When activity resumed in the action in 2022 and steps were taken to avoid the dismissal of the action for delay, it appears that the parties were under the impression that a Statement of Defence had been delivered because their discussions were focused on the service of affidavits of documents. Further, as noted above, the timetable ordered by Associate Justice McGraw did not include a deadline for the delivery of a Statement of Defence. In their joint affidavit, the Smiths refer to the motion brought by the Plaintiff to avoid the dismissal of the action for delay and state the following:
Despite this, we the defendants in this action, instructed our counsel to agree to the continuation of the action, despite the Plaintiff’s failure to move the matter forward.
As a result, we agreed to a time-line for the matter to proceed. We did not realize at the time that we had never been [sic] served or filed a statement of defense, the plaintiff not having noted us in defense [sic] over a period of five years. We wonder how the matter could proceed to a Rule 46 [sic] hearing, when no statement of defense had been served and filed.
The only step that we believed that ever had to take place was to serve an affidavit of documents. We did so.
[40] The first and only request for a Statement of Defence in the record before me was made on June 16, 2022. The request was for both a Statement of Defence and an affidavit of documents. The Smiths served an affidavit of documents by the date requested by the Plaintiff, [2] but not a Statement of Defence. At that time, the Smiths had new counsel who had only been retained in January 2022 and had not been previously involved in the action. Given that the action had been outstanding for six years and that counsel had been discussing the service of affidavits of documents for some months, it appears very likely that counsel for the Smiths would have thought that the pleadings were closed and a Statement of Defence had already been delivered. This would be consistent with the affidavit evidence of the Smiths reproduced above. The service of the Smiths’ affidavit of documents by July 4, 2022, i.e., the deadline set out in the June 16, 2022 e-mail of counsel for the Plaintiff, shows that the Smiths were not ignoring the Plaintiff or the action. Given that there is no apparent reason for serving an affidavit of documents but not a Statement of Defence, the failure to serve a Statement of Defence on July 4, 2022 appears to be the result of confusion.
[41] Instead of following up on his request for a Statement of Defence, counsel for the Plaintiff proceeded to note the Smiths in default approximately one month and a half after they served an affidavit of documents.
[42] The delay that followed the noting in default is mostly attributable to the delay in obtaining motion dates in Toronto.
[43] In light of the foregoing, I find that the factors of the parties’ behaviour, the length of the Defendants’ delay and the reasons for the delay favour the setting aside of the noting in default. In my view, it is very likely that had counsel for the Plaintiff sent a follow-up request for a Statement of Defence shortly after July 4, 2022, a Statement of Defence would have been served shortly thereafter.
[44] The complexity and value of the claim. The value of the Plaintiff’s claim is approximately $140,000.00 plus postjudgment interest since July 2014. The claim is not very complex, although establishing the required intent on the part of the Smiths to prove a fraudulent conveyance may require evidence that is factually complex. This factor is neutral.
[45] Whether setting aside the noting in default would prejudice the Plaintiff and the balance of prejudice as between the parties. The Plaintiff has not filed any evidence that he would be prejudiced should the noting in default be set aside. Given the Plaintiff’s failure to move this action forward for many years, I cannot infer prejudice. In contrast, the Smiths would be prejudiced if they were not allowed to defend this action, especially since they could lose their home if the Plaintiff were to be successful. These two factors favour the setting aside of the noting in default.
[46] Whether the Smiths have an arguable defence on the merits. There are issues with the Smiths’ proposed Statement of Defence, some of which were noted in my endorsement dated November 10, 2023 and in the Plaintiff’s oral argument. However, I cannot conclude that the Smiths’ defence has no air of reality. The main issue in the action will be whether the conveyance of the only property that remains in issue was made by the Smiths with the intent to defeat, hinder, delay or defraud creditors (present or future). The Smiths deny that they had such an intent. While the Plaintiff may well have good arguments based on evidence that the Court should not accept the Smiths’ evidence on this point, this is not a matter that it would be appropriate to determine at this stage of the action given that it raises credibility issues, among other things. This factor favours the setting aside of the noting in default.
[47] In light of the foregoing, I conclude that the noting in default of the Smiths should be set aside. This conclusion is supported by the guiding principles identified above, i.e., the Court’s strong preference for deciding civil actions on their merits, the desire to construe rules non-technically and in a way that gets the parties to the real merits, and the absence of non-compensable prejudice to the Plaintiff.
C. CONCLUSION
[48] The noting in default of the Smiths is set aside.
[49] The timetable that I ordered on November 10, 2023 continues. [3]
[50] I urge the parties to try to agree on costs. If costs cannot be agreed upon, the Smiths shall deliver submissions of not more than three pages (double-spaced), excluding the costs outline, by February 7, 2024. The Plaintiff shall deliver his responding submissions (with the same page limit) by February 21, 2024. The Smiths may deliver reply submissions of not more than one page (double-spaced) by February 28, 2024. The submissions of all parties shall also be sent to my assistant by e-mail and uploaded onto CaseLines.
Vermette J. Date: January 24, 2024
Footnotes
[1] At that time, Mr. Sereda and Sereda & Sereda were not parties to this action.
[2] While the affidavit of documents served by the Smiths did not include any documents and, in my view, did not comply with the scope of their production obligations, it does not change the fact that a signed affidavit of documents was served. The Smiths’ explanation as to why their affidavit of documents did not include any documents is based on a misapprehension of the scope of this action, not on a refusal to participate in the action. In my endorsement dated November 10, 2023, I ordered the Smiths to serve a supplementary affidavit of documents and I mentioned areas of relevance that they did not appear to have considered.
[3] I ordered the following: (1) Statement of Defence of the Smiths to be delivered by December 1, 2023; (2) Supplementary Affidavit of Documents of the Smiths to be served by January 19, 2024; and (3) examinations for discovery of all parties to be completed by April 30, 2024, subject to undertakings and refusals.