



COURT OF APPEAL FOR ONTARIO

CITATION: Male v. The Business Solutions Group, 2013 ONCA 382

DATE: 20130610

DOCKET: C56675

MacPherson, Sharpe and Lauwers JJ.A.

BETWEEN

Stephen Male

Plaintiffs

(Respondent)

and

The Business Solutions
    Group, Sam Ibrahim, Shaemin Ukani, Mark Zielinski and
    Gabriel Fanous

Defendants (Appellants)

Ryder L. Gilliland, for the appellants

Marc Munro, for the respondent

Heard: May 29, 2013

On appeal from the judgment of Justice Alan C.R. Whitten of
    the Superior Court of Justice, dated February 9, 2012.

By
    the Court:

[1]

The appellants seek to have the respondents default judgment against
    them, which was sustained by the motion judge, set aside.

[2]

The individual parties are partners in The Business Solutions Group,
    under a written partnership agreement.

[3]

The plaintiff (respondent) asserted in the statement of claim issued on
    November 22, 2011, that on October 28, 2011, the plaintiff was bodily ejected
    from the premises of the partnership by the four individual defendants and two
    employees.  His expulsion amounted to a violation of s. 25 of the
Partnerships
    Act
[R.S.O. 1990 c.P.5]
. 
    He claimed continuing payment of his share of the partnership profits. In
    support of that claim he moved on November 22, 2011 for an interim injunction
    obliging the partnership to continue to pay him.

[4]

On November 30, 2011, the defendants (appellants) moved for an order
    transferring the action to the Small Claims Court, for a stay under s. 7 of the
Arbitration Act,
S.O. 1991, c. 17
so that the matter could proceed to arbitration, and for an order transferring
    the action to Toronto where the business was located.

[5]

On December 14, 2011, Ramsay J. dismissed the respondents motion for an
    injunction requiring ongoing payments under the Partnership Agreement. He also
    dismissed the appellants motion to transfer the action to the Small Claims
    Court, to stay the action under the
Arbitration Act
and to move the
    action to Toronto.

[6]

Mere hours after the decision of Ramsay J. and without notice to counsel
    for the appellants, counsel for the respondent noted the defendants in default.
    He advised the defendants that he had done so on December 16, 2011.

[7]

On December 21, 2011, the appellants moved for leave to appeal the
    decision of Ramsay J. on his refusal to stay the action under the
Arbitration
    Act
and to transfer the action to Toronto.  The notice of motion was
    served on December 22, 2011.

[8]

On January 10, 2012, Crane J. signed default judgment against the
    appellants. Counsel for the respondent did not notify counsel for the
    appellants that he would seek default judgment, despite the appellants service
    of the motion for leave to appeal. On January 13, 2012, the appellants moved to
    set aside default judgment.

[9]

The motion for leave to appeal the decision of Ramsay J. and the motion
    to set aside default judgment both came before Whitten J. on February 9, 2012. 
    He refused to grant leave to appeal and also refused to set aside default
    judgment.  His refusal to set aside the default judgment is before us on this
    appeal.

The Decision Under Appeal

[10]

The
    motion judge refused to set aside the default judgment for two reasons. First,
    he found that the appellants did not intend to defend the action on the merits,
    noting that: counsel for the defendant reiterated to counsel for the plaintiff
    after the hearing before Ramsay J.  December 14, 2011  that he would not be
    filing a Statement of Defence.

[11]

Second,
    the motion judge concluded that the appellants did not have a defence: One
    also infers that there is no evidentiary basis of a defence to the original
    action.  The defendants appear to be quite content to repeat their mantra of
    the applicability of the arbitration clause without doing anything to advance
    or address the resolution between the partners. This approach is an example of
    technical approach without substance.

Positions of the Parties

[12]

The
    statement of claim is very narrowly drafted and claims solely the remedy of
    continuing payment of partnership profits.  It makes no effort to deal with the
    substantive issues among the partners.  Such an effort would be expected to
    come out in the statement of defence and inevitable counterclaim.  Counsel for
    the appellants asserts that there is a defence, and that his clients never had
    any intention of simply submitting to judgment, as their vigorous defence
    shows.

[13]

The
    appellants submit that the default judgment should be set aside as a matter of
    right, since the respondent undertook both the noting in default and the
    default judgment without notice to counsel with whom he was actively engaged,,
    at a time when the appellants were actively defending.

[14]

The
    respondent reiterates the finding of the motion judge, that the appellants counsel
    stated that they would not defend the case. Counsel asserts that there is no
    defence on the merits; the record shows that the appellants are gaming the
    system  something that the motion judge took into account in refusing to set
    aside the default judgment.

Discussion

[15]

This
    courts approach to setting aside default judgment on appeal is set out in
HSBC
    Securities (Canada) Inc. v. Firestar Capital Management Corporation
, 2008
    ONCA 894 at paras. 21, 22 and 30.

[16]

We
    find that the default judgment ought to have been set aside as a matter of
    justice without an inquiry into the merits of a defence, and the defendants
    ought to have been permitted to file a statement of defence and a counterclaim,
    if so advised, with the action proceeding in the normal course.

[17]

We
    say this for two reasons. First, the motion judge erred in principle by failing
    to take into account the fact that the defendants were actively defending the
    case at the time that the noting in default occurred and at the time the
    default judgment was taken out.  The point is captured by R.S.J. Blair in
LeBlanc
    v. York Catholic District School Board
(2002), 61 O.R. (3d) 686 and 698 at
    paras. 21: 
It is well accepted that
    the bringing of a motion before the court to obtain a stay or the dismissal of
    an action is recognized as a step in the defence of the proceeding: see

Cafissi
    v. Vana
,
[1973] 1 O.R.
    654

at p.
    655 (Master). We agree.

[18]

Second,
    in our view, in the circumstances of this case, it was unreasonable for counsel
    for the respondent to have noted the appellants in default and to have pursued
    default judgment without notice to appellants counsel, with whom he was
    actively engaged, when he knew that the appellants were defending.

[19]

The
    publication issued by the Advocates Society, entitled
The Principles of
    Civility for Advocates
, has been endorsed by this court on a number of
    occasions.  Section 19 provides:

19. Subject to the Rules of Practice, advocates should not
    cause any default or dismissal to be entered without first notifying opposing
    counsel, assuming the identity of opposing counsel is known.

[20]

We
    note the exchange in the argument before Ramsay J. mere hours before respondents
    counsel noted the appellants in default, when counsel said: I have told him
    that I intended to sign, note them in default and move for judgment, but in the
    meantime, like, I expect he is going to defend on  at some point, on some
    basis.  And I dont want to take advantage of the defendants lawyers
    mistake.

[21]

The
    respondent submits that counsel was effectively released from this
    quasi-undertaking by the motion judges statement: counsel for the defendant reiterated
    to counsel for the plaintiff after the hearing before Ramsay J.  December 14,
    2011  that he would not be filing a statement of defence. We disagree.

[22]

We
    are unable to interpret these words in the manner suggested by counsel for the
    respondent as stating that the appellants did not intend to defend the action. 
    The motion judges endorsement explains the position of counsel for the
    respondents: The reason counsel states is that he considered such a step an
    attornment to this action pursuant to the
Partnerships Act
.  The
    motion judge added that he disagreed with counsels position, but it only
    ceased to be a live issue when the motion judge dismissed the motion for leave
    to appeal on February 9, 2012.

[23]

The
    position of the appellants as defendants before the Superior Court was that the
    plaintiff respondent was obliged to arbitrate issues instead of going to court;
    this position was consistent with the Partnership Agreement and would have
    provided a plausible avenue for the resolution of substantive partnership
    issues.  It was therefore somewhat unfair of the motion judge to suggest that
    the appellants were unwilling to engage on the partnership issues. These were
    and are unavoidably alive in the context of this ongoing business. The issue
    was whether the forum should be the court or an arbitration.

[24]

We
    therefore allow the appeal, set aside the default judgment and set aside the
    noting of the defendants in default.  For purposes of determining time limits
    under the
Rules of Civil Procedure
, the date of this decision will be
    deemed to be the date that the statement of claim was served on the defendants.

[25]

The
    appellants are entitled to the costs of this appeal and the proceedings below,
    which we fix at $15,000.00 all-inclusive.

Released: June 10, 2013 (J.C.M.)

J.C. MacPherson J.A.

Robert J. Sharpe J.A.

P. Lauwers J.A.


