Reasons for Decision

COURT FILE NO.: CV-22-688439
DATE: 2025-07-11
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Shamsul Alam MD, Plaintiff
- and -
Azam Khan a.k.a. MD Azam Khan, Defendant
BEFORE: Associate Justice Todd Robinson
COUNSEL: F. Otto, for the plaintiff
P. Di Monte, for the defendant
HEARD: 2025-02-04 (by videoconference)

Introduction

REASONS FOR DECISION (Motion for Default Judgment and Motion to Set Aside Noting in Default)

[1] The plaintiff, Shamsul Alam MD, moves for default judgment on his claim against the defendant, Azam Khan a.k.a. MD Azam Khan. At the first return of the plaintiff’s motion, I required that notice be given to the defendant. The defendant appeared at the next return and expressed his intention to oppose judgment and to seek that his noting in default be set aside. A special hearing was convened to hear the parties’ competing motions.

[2] The underlying action involves alleged loans by the plaintiff to the defendant for the purpose of construction at eight properties. The parties dispute the nature of their relationship. The plaintiff’s position is that he was only loaning funds for the projects. The defendant’s position is that the two were involved in a joint venture business arrangement.

[3] The evidentiary record before me on both motions is far less than I would like. That has made deciding what to do with the two motions difficult, to say the least. I came close to dismissing both motions, but have not done so.

[4] On the motion for default judgment, the plaintiff has the evidentiary burden. However, there is a paucity of evidence on the relationship between the parties. Based on the record as filed, the nature and extent of their relationship is murky at best. It is an open question whether there was a loan or an investment or a joint venture between the parties. In my view, that dispute cannot be fairly or justly resolved without further evidence. I am unable to grant default judgment on the record before me.

[5] Conversely, though, the defendant has failed to properly address a core requirement when seeking an order setting aside a noting in default: explaining the delay in defending the action. There is absolutely no evidence before me explaining why nothing was done for over two years after serving a notice of intent to defend, despite advising plaintiff’s counsel that a statement of defence would be served. That has been a serious impediment in deciding whether to set aside the noting in default.

[6] Ultimately, though, I have decided that the justness of this case requires that both parties be engaged in the process and that there be a trial on the merits. There are too many questions raised by the plaintiff’s own materials, including inconsistencies within that evidence, to deny the defendant an opportunity to respond. I am accordingly granting the defendant’s motion to set aside the noting in default, despite my reservations on the lack of explanation for delay, and am dismissing the plaintiff’s motion for default judgment.

Analysis

Overview

[7] Given the nature of the competing motions, it would make sense to deal first with the defendant’s motion. If successful, it would vitiate the plaintiff’s default judgment motion. However, I think it may assist both parties to understand why I feel that default judgment is not supported by the record before me. It is also relevant to why I am granting the defendant’s motion despite the lack of any explanation for the delay.

Motion for Default Judgment

[8] An associate judge’s jurisdiction to grant default judgment is found in subrule 19.04(3.1)(b) of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”). It permits a motion for default judgment to be brought to “the court” (i.e., an associate judge), subject to two preconditions. First, the registrar must have declined to grant default judgment. Second, the claim must be one of the claims outlined in subrule 19.04(1), which include a debt or liquidated demand in money, recovery of possession of land, recovery of possession of personal property, and foreclosure, sale or redemption of a mortgage.

[9] At the first return of the plaintiff’s motion, I was satisfied that the motion was properly before me. The plaintiff’s claim is seeking judgment for an alleged loan debt. That is a claim captured by subrule 19.04(1). Default judgment was requisitioned from the registrar and rejected. Subrule 19.01(3) provides the registrar with discretion to decline to sign default judgment if uncertain whether the claim falls within the class of cases for which the registrar may sign default judgment or if uncertain of the amount or rate properly recoverable for interest. In this case, the registrar cited two primary bases for rejecting default judgment, namely that the registrar could not sign a judgment seeking late fees or penalties and could only fix costs for less than $2,000 or allow for an assessment.

[10] In considering the plaintiff’s motion for default judgment, rule 19.06 is also significant. That rule provides that a plaintiff is not entitled to judgment merely because the facts alleged in the statement of claim are deemed to be admitted. Those facts must entitle the plaintiff to judgment.

[11] In support of his default judgment motion, the plaintiff has sworn two affidavits. In response to it, the defendant has tendered his own affidavit. Their evidence directly conflicts on their relationship. Moreover, the plaintiff’s own evidence is internally inconsistent. I have numerous concerns about the actual nature of the parties’ relationship and whether the default judgment sought is supported by the evidentiary record. In my view, default judgment cannot be granted without oral evidence at a trial.

[12] The materials before me raise more questions than they answer about the dealings between the parties. Inconsistencies, lack of explanation, and even conflicts in the evidence have been significant in reaching my decision. Although there are many, I will discuss only a few of the key concerns to highlight the point.

[13] First, the plaintiff’s two affidavits provide conflicting versions of how the alleged loan debt is calculated. In his first affidavit, the plaintiff does not set out the amount advanced to the defendant, when it was advanced, or how it was advanced. It states only that he “was to” loan $263,000 “with an additional investment return”, and in return was to be repaid $322,265 “as profit”. The judgment calculation is based on the full amount of the loan agreement repayment ($322,265), less $147,000 paid in January 2022 and less a further $20,000 for an unclear and unparticularized liability of the plaintiff allegedly assumed by the defendant. The implication from the plaintiff’s affidavit is that $263,000 was advanced. That dovetails with paras. 11-12 of the statement of claim, which set out that a $140,000 cheque was given to the defendant and that “further cheques and cash were given totalling the amount of $263,000.00.”

[14] However, the plaintiff’s second affidavit states that the plaintiff advanced only $240,399.46. He states that the “rest of the money to be advanced as per the contract was deemed to be profit to arrive at the amount of $263,000.” That is inconsistent with paras. 11-12 of the statement of claim and the implication in his first affidavit. There is no explanation in either affidavit about the “profit” component of the loan amount that was raised for the first time in the second affidavit. I am unclear on the evidence before me how “profit” was agreed to constitute part of a loan advance or otherwise factors into the loan.

[15] Second, the evidence before me from the plaintiff and the defendant on what funds were actually advanced is in direct conflict. Although the defendant acknowledges that he borrowed the $140,000 noted in para. 11 of the statement of claim, he states he has no “proof or records” of other advances above that amount. The $147,000 payment acknowledged by the plaintiff is said to be a repayment of the $140,000 loan amount, plus agreed interest.

[16] In response to that evidence, the plaintiff served his second affidavit, which in addition to confirming that only $240,399.46 was advanced, quantified the amounts advanced into three categories: $219,000.00 in bank drafts; $8,670.66 in credit card payments; and $12,728.80 in “miscellaneous” amounts. I have the following concerns with the evidence tendered in support of each of those categories:

(a) Only one of the bank drafts in evidence is payable to the defendant. A few, including the $140,000 advance, were payable to an individual in trust. Importantly, though, all of the other individuals and corporations to whom drafts were made payable are not identified in the materials. The affidavit is silent on their involvement in the projects beyond describing them as the defendant’s “associates”. There is also no evidence on why funds were paid to them instead of the defendant. I am not prepared to draw inferences about who the payees may be and to what the payments relate based on unexplained notations on the drafts. Despite attempts by plaintiff’s counsel during oral submissions to correlate the drafts to text messages in evidence, the relationship of these payments to the properties and dealings between the plaintiff and defendant has not been clearly set out in the plaintiff’s evidence. There is also no cogent evidence on how and when these amounts were agreed to form part of the alleged loan.

(b) The plaintiff asserts that he spent $8,670.66 on his credit card to purchase items for the properties, which “were considered as contributions per the contract.” It is unclear what precisely was purchased and how these purchases relate to the projects. They are not explained by theplaintiff at all. Some expenses were incurred as much as eight months before the loan agreement was signed. The plaintiff also does not explain why he paid for these items, which include what seem to be things like restaurant charges, vehicle gas purchases, maid services, and even dollar store purchases.

(c) The miscellaneous amounts totalling $12,728.80 are outlined in a spreadsheet with descriptions that are not explained in evidence. They include alleged cash advances to the defendant, an appraisal, and other expenses. There are several references to “Refer to Notebook” in a comments field. That presumably correlates to the copies of a notebook also appended as an exhibit, but the plaintiff’s affidavits do not explain the notebook entries.

[17] Importantly, none of the evidence discussed above was included in the plaintiff’s primary supporting affidavit on his motion. The plaintiff’s second affidavit was sworn in reply to the defendant’s affidavit. It put forward new evidence on how funds were advanced that is clearly material to understanding the parties’ relationship and what amounts and advances allegedly formed the “loan” discussed in the signed loan agreement. Apart from the second affidavit being improper reply, the omission of evidence from the primary supporting affidavit on what amounts were actually advanced and how the loan was calculated is quite concerning, particularly when the statement of claim and the first affidavit were both drafted to imply that a total of $263,000 in funds had been advanced. The plaintiff’s second affidavit confirms that is not what occurred.

[18] Third, despite the plaintiff’s position that there was no joint business venture, the loan agreement itself suggests an atypical loan arrangement between the parties that has not been explained by the plaintiff’s affidavits. Notably, the preamble to the loan agreement describes the parties’ arrangement as follows:

WHEREAS the 1st Party has agreed to receive loan for equivalent in the amount of CAD $263,000.00 from the 2nd Party with no interest, BUT PROFIT for a business purpose;

WHEREAS the 1st Party has agreed to repay to the 2nd Party for equivalent CAD of $322,265.00 on or before October 31, 2021;

[19] At para. 9 of the statement of claim, the plaintiff expressly pleads that the “purpose of the loan was so that the funds could be invested in the construction of various properties” and lists eight addresses. The term “profit” is used several times in the agreement. In that context, the plaintiff has not explained what a loan “with no interest, but profit for a business purpose” was supposed to mean. When I asked plaintiff’s counsel during oral submissions, he conceded that he did not know.

[20] I am unconvinced that the evidence before me supports default judgment on the loan agreement. In my view, factual findings must be made on the actual relationship between the parties and the nature and purpose of the payments made by the plaintiff before any judgment may fairly and justly be granted against the defendant. The written record before me is insufficient to do so.

Motion to Set Aside Noting in Default

(a) Relevant Legal Framework

[21] Subrule 19.03(1) of the Rules of Civil Procedure provides that a noting of default may be set aside by the court on such terms as are just. The relevant legal framework for the defendant’s motion to set aside the noting in default is set out in Franchetti v. Huggins, 2022 ONCA 111. In that case, the Court of Appeal has reiterated the discretionary nature of whether to set aside a noting in default. Whether or not to exercise that discretion requires the court to look at the facts of the case at hand.

[22] In Franchetti, the Court of Appeal sets out a non-exhaustive list of relevant factors that may be considered when deciding whether to set aside a noting in default. They 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: Franchetti v. Huggins, supra at paras. 9-10.

[23] The Court of Appeal has also confirmed that there is a strong preference for deciding civil actions on their merits, as well as a desire to construe rules and procedural orders non-technically and in a way that gets the parties to the real merits: Franchetti, supra at para. 8.

[24] These are the principles that I have applied in deciding the defendant’s motion, as discussed below.

(b) The Parties’ Behaviour and Length of Delay

[25] The defendant has been quite dilatory in dealing with this claim. The relevant chronology is as follows:

(a) In November 2022, after being served with the statement of claim, the defendant served (but did not file) a notice of intention to act in person.

(b) A statement of defence was not delivered and the plaintiff had the defendant noted in default in late December 2022.

(c) Following the noting in default, on February 2, 2023, plaintiff’s counsel wrote to the defendant to confirm the noting in default and to request a statement of defence by February 17, 2023, failing which the plaintiff would move for default judgment.

(d) On February 22, 2023, the defendant acknowledged receipt of the letter and advised that his “defense submission” would be received that week. No statement of defence was served.

(e) The plaintiff sought to schedule a motion for default judgment before a judge and, on May 26, 2023, Ramsay J. directed the plaintiff to seek default judgment from the registrar and, if not signed by the registrar, then default judgment in this case was within the jurisdiction of an associate judge.

(f) In November 2023, the plaintiff requisitioned default judgment from the registrar, which was rejected (as discussed earlier in these reasons).

(g) This motion was thereafter booked and brought, with notice of motion submitted in December 2023 and the motion materials submitted in November 2024 before the first return of the motion.

[26] Two years after serving a notice of intention to act in person, the defendant had still not served a statement of defence or taken steps to address the noting in default. That delay is significant.

(c) Reasons for the Delay

[27] The defendant’s affidavit in support of his motion to set aside the noting in default is two pages and seven paragraphs. It provides no explanation for why the defendant failed to serve a statement of defence at any point within the two years after serving a notice of intention to act in person before this motion was brought and ultimately served on him at my direction. In oral submissions, defendant’s counsel pointed out repeatedly that the defendant was self-represented. That reality is not lost on me, but it does not change the fact that the defendant has put forward no explanation for what happened between serving a notice of intent to defend and finally engaging in this litigation in response to the plaintiff’s motion for default judgment.

[28] In my view, it is highly problematic that I have no explanation whatsoever for the significant delay in defending this action, including why the defendant said that he would serve a defence in February 2023, but then did not do so.

(d) Arguable Defence on the Merits

[29] Before considering the complexity of the claim and the balance of prejudice, I have considered the defendant’s responding evidence and his position on defences, including the draft statement of defence included in the motion record. It is open to me to consider whether the defendant does have an arguable defence on the merits. However, the Court of Appeal has made clear that, unlike in a motion to set aside a default judgment, it is only in an extreme circumstance that a defendant is required to demonstrate an arguable defence on the merits, particularly where the motion is brought early in the litigation process: Franchetti, supra at para. 10.

[30] In this case, given the defendant’s significant delay, I find it relevant to consider the merits of the proposed defences. They are as follows: (i) the sum of $263,000 contemplated by the parties’ agreement was not advanced; (ii) the agreement is unenforceable because it provides for past consideration and a pre-condition to commencing this action was mediation; (iii) the parties agreement was a joint venture agreement; and (iv) the properties identified in the statement of claim were all lost under power of sale and the defendant is entitled to contribution and indemnity for his liability arising from that loss.

[31] I have insufficient evidence to provide any fulsome assessment of each of the proposed defences. Nevertheless, I am satisfied that there appear to be at least three triable issues: (a) whether the plaintiff advanced the $263,000 contemplated by the agreement and, if so, when and in what form, (b) whether the advances were past consideration and, if so, the impact on enforceability of the loan agreement, and (c) whether there was a joint venture.

[32] As discussed above, in my view, the plaintiff’s two affidavits are inconsistent, which gives me pause for concern. I have already discussed my view that the plaintiff’s first affidavit implies that he did advance $263,000 in funds as contemplated by the loan agreement, whereas his second affidavit confirms that the total of the “advances” was only $240,399.46. The plaintiff self-servingly asserts that the difference to $263,000 “was deemed to be profit”, but has tendered no evidence and advanced no cogent argument for why “profit” should properly be considered a loan advance. The premise of the claim and judgment sought, namely that $263,000 was advanced on the terms outlined in the agreement, is in question.

[33] In addition, and importantly, all of the advanced amounts as outlined in the plaintiff’s supplementary affidavit pre-date the parties’ signed agreement. There is thereby an evidentiary basis for the defendant’s argument on past consideration.

[34] The plaintiff’s own evidence also provides evidence that could be argued to support the defendant’s position that there was a joint venture. As noted above, the agreement refers to the loan bearing “no interest, BUT PROFIT for a business purpose”. Both the agreement and the plaintiff’s supplementary affidavit refer to “profit”. The relationship of “profit” to the alleged loan has not been explained. Moreover, many of the credit card purchases and miscellaneous advances appear to be for purchasing or transferring materials for the construction projects or for costs directly associated with those projects, some for less than $20. It is an unusual way for a lender to advance funds, but is behaviour consistent with being a business partner.

[35] Based on the record before me, I am convinced that there are triable defences on the merits. In my view, that bears directly on assessing the complexity of the claim and the balance of prejudice.

(e) Complexity and Value of the Claim

[36] The defendant made no submissions on this factor. The plaintiff characterizes the claim as one of “moderate complexity”. The claim is certainly not insignificant. The plaintiff seeks judgment for $155,265.00 plus a $125.00 per diem penalty fee from October 15, 2021, relying on para. 6 of the loan agreement. As of the date that this motion was argued, the penalty fee totalled more than $150,000. The amounts in play are significant to both parties.

[37] For reasons already discussed, the factual relationship between the parties is unclear on the record before me. It is undisputed that the plaintiff was advancing money in relation to the eight projects, but the parties disagree on the characterization of their relationship and those advances. Based on the record before me, unravelling the parties’ relationship and the legal ramifications of their dealings will be more complex than a typical loan default case.

[38] I agree with the defendant that setting aside the noting in default will allow the parties, on a proper evidentiary record or otherwise, to get to bottom of their dispute. In my view, there is sufficient factual complexity here to warrant a need for the defendant’s direct involvement in the action, which he is now seeking.

(f) Balance of Prejudice

[39] I am satisfied that maintaining the noting in default is significantly more prejudicial to the defendant than requiring the plaintiff to hit “reset” on the litigation more than two years after serving the claim. I disagree with the plaintiff that the defendant has no real defence, for reasons already discussed above. I have found inconsistencies and gaps in the plaintiff’s position and evidence that have given me serious pause for concern at the justness of letting him proceed to prove his claim on an undefended basis as a pure loan agreement. That is particularly so when the defendant’s position that there was a joint venture appears to have some evidentiary support in the dealings between the parties, namely the way in which the plaintiff advanced funds and was directly purchasing services and materials for the projects.

[40] In my view, there is significant prejudice to the defendant in denying him an opportunity to put forward evidence and provide an explanation on what transpired between the parties, why he feels there was a joint venture agreement and not purely a loan agreement, and thereby giving the court sufficient evidence to ground a fair and just determination of the parties’ dispute on its merits. Conversely, there is no prejudice to the plaintiff from requiring him to prove his claim at trial, which he would already be required to do given my dismissal of his motion for default judgment. Undoubtedly costs have been incurred advancing the default proceedings, but that is compensable prejudice.

[41] I am also concerned that, given the evidentiary concerns that I have identified, denying the defendant an opportunity to engage when he has now finally expressed an active intention to do so could lead to an unjust decision that is divorced from the reality of the parties’ actual agreement and dealings. The court must always be cautious and concerned about ensuring that those to whom it grants judgment are factually and legally entitled to it.

[42] For these reasons, despite the extremely dilatory conduct of the defendant in pursuing his defence and the complete lack of any explanation for his delay in engaging in this litigation, I find that the overall justness of the case nevertheless warrants setting aside the noting in default.

Disposition

[43] For the foregoing reasons, I order as follows:

(a) The plaintiff’s motion for default judgment is hereby dismissed.

(b) The defendant’s motion is hereby granted and the defendant’s noting in default on December 21, 2022, is hereby set aside.

(c) The defendant shall deliver his statement of defence within twenty (20) days of the date of these reasons.

(d) This order is effective without further formality.

Costs

[44] Given the result, I am inclined to award no costs of the motions to either party. However, I am prepared to entertain costs submissions. Costs outlines have been exchanged. I encourage the parties to settle costs of the motion. If they cannot agree, then written costs submissions shall be exchanged. If either party seeks costs, then they shall serve written costs submissions in support of their costs claim by August 1, 2025. The party against whom costs are sought shall serve responding costs submissions by August 15, 2025. There shall be no reply costs submissions. Both parties shall set out in their submissions the specific scale and quantum of costs sought against the other. Costs submissions shall not exceed four (4) pages for primary submissions and two (2) pages for reply (if any), excluding any offers to settle and case law.

[45] Once served, all costs submissions shall be submitted by email directly to my Assistant Trial Coordinator, Christine Meditskos, with proof of service. Unless exchanged and submitted in accordance with the above, the parties shall be deemed to have agreed on costs.

Todd Robinson
Dated: July 11, 2025