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Default Judgment - Setting Aside

. Ken Jackson Construction Limited v. Macklin

In Ken Jackson Construction Limited v. Macklin (Ont CA, 2017) the Court of Appeal allows an appeal from the denial of a motion to set aside a default judgment issued by the court registrar:
[2] We agree that the motion judge erred and that his decision should be set aside, for the following reasons.

[3] Firstly, the Registrar signed judgment against the individual appellants for the amounts of the invoices billed to the corporate appellant. The claims pleaded by the respondent against the individual appellants were for breach of trust and conversion. There was no basis pleaded that would make the individual appellants liable for invoices billed to the corporation. The respondent did not seek to pierce the corporate veil: see Mitchell v. Lewis 2016 ONCA 903. In any event, personal liability like this would not amount to a “debt or liquidated demand in money” within the judgment signing jurisdiction of the Registrar: see Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 19.04(1).

[4] Secondly, the Registrar had no jurisdiction to grant judgment against the individual appellants on the claim against them for breach of trust and conversion, as this was also not for “a debt or liquidated demand in money.”

[5] Specifically, in its statement of claim, the respondent sought unspecified damages for breach of trust and conversion. It did not plead any facts which would have allowed a court to conclude that the appellants had misapplied trust funds or the amount of any wrongful use of trust funds. Moreover, it is clear from the statement of claim that the claim against the individual appellants is merely contingent; it is only in the event that they have failed to retain sufficient trust funds that the claim is made. To that end, the respondent sought an accounting.

[6] Further, the Registrar erred in awarding interest on the judgment against the appellants at the rate of 2 per cent per month when the statement of claim failed to plead the respondent's entitlement to such a rate. There was no basis pleaded in the statement of claim that would allow interest to be awarded at a rate other than in accordance with ss. 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

[7] In summary, where, as here, with respect to the liability of the individual appellants and the rate of interest claimed, the statement of claim did not contain the particulars required to sign default judgment for a debt or liquidated demand of money, the default judgment is granted without jurisdiction. The appellants were entitled to have the judgment set aside as of right in the interests of justice. See Schill & Benninger Plumbing and Heating v. Gallagher Estate, 2001 CanLII 24134 (ON CA), [2001] O.J. No. 260 (C.A.), paras. 8-10. The motion judge erred in not doing so.

[8] Where a Registrar has jurisdiction to sign default judgment, a motion judge has discretion to set aside a default judgment after weighing and balancing the following five factors, which were set out in Intact Insurance Co v. Kisel, 2015 ONCA 205, 125 O.R. (3d) 365, at para. 14:
(a) whether the motion was brought promptly after the defendant learned of the default judgment;

(b) whether the defendant has a plausible excuse or explanation for the default;

(c) whether the defendant has an arguable defence on the merits;

(d) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff 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.
[9] Here, the Registrar had jurisdiction to sign judgment against the corporate appellant for the amounts invoiced to it by the respondent. Although the motion judge enumerated the five well-known criteria from Kisel, he applied them too rigidly and erred in failing to consider the overarching factor of whether the justice of the case required him to allow the action to be adjudicated on its merits.

[10] The appellants' evidence met the air of reality test and demonstrated an arguable defence on the merits in relation to the issues of whether the respondent’s action was statute-barred, whether the rate of interest claimed was sustainable and whether there was any claim for breach of trust against the individual appellants. Further, the respondent filed no evidence that it would suffer any prejudice if the noting in default and default judgment were set aside.

[11] Having regard to the arguable defences on the merits and absence of prejudice, as well as the relatively short delay of about four months between the service of the statement of claim and the appellants' retaining counsel to deal with the claim, together with the appellants' explanation for the delay, the criteria to set aside the noting in default and default judgment are satisfied.

[12] The motion judge erred in principle, and his exercise of discretion refusing to set aside the noting in default and default judgment was unreasonable.
. Intact Insurance Company v. Kisel

In Intact Insurance Company v. Kisel (Ont CA, 2015) the Court of Appeal conveniently set out the different tests for setting aside a noting in default, and a default judgment:
[12] Rules 19.03(1) and 19.08(1) provide the basis for setting aside a noting of default and a default judgment, respectively. Both rules give the court discretion to set aside the default “on such terms as are just.” This court has held that the tests to be met under these rules are not identical. See Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd. (1991), 1991 CanLII 7095 (ON CA), 3 O.R. (3d) 278 (Ont. C.A.), at pp. 284-85.

[13] When exercising its discretion to set aside a noting of default, a court should assess “the context and factual situation” of the case: Bardmore, at p. 285. It should particularly consider such factors as the behaviour of the plaintiff and the defendant; the length of the defendant’s delay; the reasons for the delay; and the complexity and value of the claim. These factors are not exhaustive. See Nobosoft Corp. v. No Borders Inc., 2007 ONCA 444 (CanLII), 225 O.A.C. 36, at para. 3; Flintoff v. von Anhalt, 2010 ONCA 786 (CanLII), [2010] O.J. No. 4963, at para. 7. Some decisions have also considered whether setting aside the noting of default would prejudice a party relying on it: see e.g. Enbridge Gas Distribution Inc. v. 135 Marlee Holdings Inc., [2005] O.J. No. 4327, at para. 8. Only in extreme circumstances, however, should the court require a defendant who has been noted in default to demonstrate an arguable defence on the merits: Bardmore, at p. 285.

[14] On a motion to set aside a default judgment, on the other hand, the court considers five major factors, one of which is whether the defendant has an arguable defence on the merits. The five factors are:
(a) whether the motion was brought promptly after the defendant learned of the default judgment;

(b) whether the defendant has a plausible excuse or explanation for the default;

(c) whether the defendant has an arguable defence on the merits;

(d) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff 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.
Again, these factors are not rigid rules. The court has to decide whether, in the particular circumstances of the case, it is just to relieve a defendant from the consequences of default: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 (CanLII), 372 D.L.R. (4th) 526, at paras. 48-50.
. Mountain View Farms Ltd. v McQueen

In Mountain View Farms Ltd. v McQueen (Ont CA, 2014) the Court of Appeal re-stated the law on setting aside default judgments, as follows:
[47] The court’s ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order. The approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, 2012 ONSC 3836 (CanLII), 2012 ONSC 3836, at paras. 19-20 and 23-24.

[48] The court must consider the following three 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; and

(c) whether the facts establish that the defendant has an arguable defence on the merits.
[49] To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. 2007 ONCA 333 (CanLII), 2007 ONCA 333, 87 O.R. (3d) 479 (C.A.), at para. 2:
(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.
[50] These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.

[51] For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.
. Zeifman Partners Inc. v. Aiello

In Zeifman Partners Inc. v. Aiello (Ont CA, 2020) the Court of Appeal set out the test for setting aside a default judgment:
[21] In her reasons, the motion judge correctly identified the factors that a court must take into account in deciding whether to set aside a default judgment. Those factors are set out in this court’s decision in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 48, 49. They are:

1. whether the motion was brought promptly after the defendant learned of the default judgment;

2. whether there is a plausible excuse or explanation for the defendant's default in complying with the Rules;

3. whether the facts establish that the defendant has an arguable defence on the merits;

4. 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

5. the effect of any order the court might make on the overall integrity of the administration of justice.


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