



COURT OF APPEAL FOR ONTARIO

CITATION: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194

DATE: 20140314

DOCKET: C56832

Gillese, Rouleau and Tulloch JJ.A.

BETWEEN

Mountain View Farms Ltd.

Plaintiff (Appellant)



and

George Donald McQueen

Defendant (
Respondent
)

M.A. Cummings, for the appellant

V.L. Vandergust, for the respondent

Heard: February 13, 2014

On appeal from the judgment of Justice Alfred J. Stong of
the Superior Court of Justice, dated March 7, 2013, with reasons reported at
2013 ONSC 1440.

Gillese J.A.:

[1]

This appeal concerns the scope of a motion judges power to vary a
default judgment under rule 19.08 of the
Rules of Civil Procedure
,
R.R.O. 1990, Reg. 194.





OVERVIEW

[2]

Mountain View Farms Ltd. (the appellant) provided crop services to George
Donald McQueen (the respondent) for a number of years.  When the respondent
failed to fully pay for the services, the appellant had him sign an invoice to
acknowledge the outstanding amount of just under $50,000.  Pre-printed words on
the bottom of the invoice stated that interest would be charged on overdue
accounts at the rate of 24% per year.

[3]

The appellant later sued the respondent for the unpaid amount plus interest
at an annual rate of 24%.  The respondent did not respond to the appellants suit
and the appellant obtained default judgment against him.

[4]

Six years later, the respondent moved to have the default judgment set
aside.  By that time, interest calculated at 24% per annum had accumulated to
over $75,000.  The respondent acknowledged that he owed the principal amount but
maintained that he had never agreed to pay the appellant interest at the rate of
24% per year.

[5]

The appellant opposed the motion on a number of bases, including that the
invoice with the respondents signature on it was an agreement to pay interest
at the annual rate of 24%.

[6]

The motion judge was unable to find, on the evidence before him, that
the respondent had agreed to pay the 24% interest rate.  Thus, he concluded,
the respondent had an arguable defence on the merits of the applicable interest
rate.

[7]

The motion judge did not set aside the default judgment, however.  Instead,
by order dated March 7, 2013 (the Order), acting pursuant to rule 19.08, the
motion judge varied the default judgment by substituting an annual interest
rate of 5%.

[8]

The appellant submits that the motion judge erred in a number of ways
and asks this court to set aside the Order.

[9]

As I explain below, in my view, the motion judge erred.  Consequently, I
would allow the appeal.

FACTS

[10]

The respondent is a farmer in his late eighties. For
two decades, he traded equipment and services with his neighbours, Roger and
Bill McLeod. During the period relevant to these proceedings, the McLeods
provided crop services to the respondent through their corporation, the
appellant.

[11]

In February 2002, the appellant issued an invoice to
the respondent for $28,273.68.  The amounts shown on the invoice were for
baling hay in 1999, 2000 and 2001.  On the invoice, below the pre-printed
heading Work Performed, the appellant had handwritten in the amounts owing
and the years in which the services had been performed.  Although the services
had been provided over a three-year period, the invoice showed no interest charges. 
However, the following pre-printed interest provision was in the bottom left
hand corner of the invoice:

Please
Pay By Invoice

No
statements issued

Terms:
Net 30 days

2%
Service charge per month (24% per annum)

will be charged on overdue accounts.

[12]

The respondent paid $10,000 of the amount claimed in
this invoice.

[13]

In December 2003, the appellant sent the respondent an
invoice for $39,685.52.  This amount reflected the outstanding balance from the
prior invoice (for the period from 1999 to 2001) and new charges for hay
baling, snow blowing, and swathing performed after 2001.  Again, the invoice
showed no charges for interest.  And, again, the pre-printed interest provision
was on this invoice.

[14]

The McLeods acknowledged that they neither asked nor
expected the respondent to pay interest on outstanding amounts. They testified
that they trusted the respondent to pay what he owed.

[15]

The McLeods did not, however, trust the respondents
son, who was taking an ever greater role in managing the respondents affairs
as the respondents age advanced. They did not want to deal with the
respondents son with respect to the account. They wanted to close the account
as soon as possible.

[16]

In June 2005, the McLeods decided to take a different
approach. The appellant prepared another invoice for services rendered to the
respondent.  The total amount claimed was $49,862.82 (the Invoice).  Like the
previous invoices, the Invoice did not claim an amount for interest but the pre-printed
interest provision was on it.

[17]

Roger McLeod walked up to the respondent, who was
sitting in his truck, and handed him the Invoice. He asked the respondent to
sign a copy of the Invoice, explaining that we want a bill signed so if
something happens [to you] we know we have a bill signed because right now its
just between you and us that the work was done. The respondent replied, Yeah,
I'll sign the damn thing.

[18]

Roger McLeod says he asked the respondent to sign down
by the [pre-printed interest provision].  However, the respondent actually
signed below the amounts shown as owing, and not next to the pre-printed interest
provision.

[19]

The respondent has a Grade 3 education.  His ability
to read and write is poor.

[20]

The Invoice was not paid and later in the summer of
2005, the appellant issued and served a statement of claim for the amount of
the Invoice plus interest at the rate of 24% per annum.

[21]

The respondent did not file a statement of defence or
notice of intent to defend.  He was noted in default and default judgment was
signed against him in August 2005 for the principal amount plus interest at the
rate of 24% per annum.

[22]

In November 2005, the appellant registered a writ of seizure
and sale against lands the respondent owned.  The writ was to expire six years
later, in November 2011.

[23]

The appellant took no further steps to enforce the default
judgment.

[24]

In 2010, the respondent transferred three of his four properties
to his son. All three properties were subject to the writ of seizure and sale. 
The transfers were each stamped as being subject to the writ.

[25]

In May 2011, the respondents son wanted to refinance
his properties. To do so, because he and his father have the same name, he
needed to confirm that he was not the same person as his father.

[26]

In November 2011, the appellant renewed the writ.

[27]

In April 2012, the respondent brought a motion seeking,
among other things, to have the default judgment set aside, leave to file a
Statement of Defence, and such further relief as the court deemed just.

[28]

By the time the motion was argued, the respondent had accepted
that he owed the principal amount set out in the default judgment and, in fact,
had paid it plus assessed costs.  He continued to maintain that he had never
agreed to pay interest at the rate of 24% per year.

[29]

The appellant opposed the motion on a number of
bases.  It contended that it was the respondents son and not the respondent
who had brought the motion.  As a non-party, the respondents son lacked
standing to bring the motion.  Moreover, it submitted that the respondent
failed to meet the test for setting aside a default judgment and that he came
to the court without clean hands.  It also argued that the respondents
affidavit evidence should be struck for lack of reliability.

THE DECISION BELOW

[30]

The motion judge set out the three-part test for
determining whether to set aside the default judgment.  (The test is set out
later in these reasons.)

[31]

He found that there had been inexplicable delay in
the respondents bringing of the motion to set aside the default judgment.  The
respondent must have been aware of the writ (and, therefore, the default
judgment) no later than June 2010, when he transferred his properties to his
son.  No reasonable explanation had been given for the delay between then and when
he brought the motion in 2012.

[32]

The motion judge noted that while it had been argued
that the respondent was growing more forgetful over time owing to his advanced
age, no evidence of medical incapacity had been presented on the motion. He
added that the respondent was still driving in 2010 and had managed to transfer
his properties to his son that year without requiring a power of attorney.

[33]

The motion judge acknowledged that the appellant would
suffer prejudice from the respondents delay in seeking to set aside the
default judgment.  The prejudice consisted of the following: the process server
who served the statement of claim on the respondent had died; many of the
original invoices had been destroyed; the respondents mental competence was
now in issue; and, at least three of the respondents properties had been
conveyed since the default judgment was obtained. But, in the motion judges view,
the prejudice could be addressed in costs.

[34]

The motion judge then considered whether the
respondent had an arguable defence with respect to the matter of interest. He
noted that there was no evidence of any agreement to pay interest at 24% per year
except for the respondents signature on the Invoice  evidence that, in his
view, was not determinative. He also noted that Bill McLeod had testified that
he, his brother and the appellant had not charged the respondent interest in
their dealings with him prior to the lawsuit.

[35]

The motion judge found that the respondent had an
arguable defence on the merits of the claimed interest rate, saying that he was
not satisfied that the respondent had even impliedly agreed to pay interest at
the rate of 24% per annum.

[36]

The motion judge then explained that he would impose a
different annual interest rate, saying:

In these circumstances, it would be inappropriate to have
interest accrue at the rate claimed by the [appellant]. Certainly however,
reasonable parties to a commercial transaction would expect that monies left
unpaid would attract interest at some rate. In the absence of any evidence
before me to establish the credit costs of the [appellant] or the rate of
return it might reasonably have expected for investment of the amount of the
unpaid accounts, interest on the unpaid accounts, including prejudgment
interest, should properly be charged at the [postjudgment interest] rate
prescribed by the
Courts of Justice Act
, plus the 1% submitted by
concession of the [respondent], from August 25, 2005.

[37]

He ordered that the default judgment be varied only in
respect of the rate of interest, with an annual rate of 5% being substituted
for 24%.

THE ISSUES

[38]

The
appellant submits that the motion judge erred in:

1. allowing the respondents son to bring
the motion, when he had no standing;



2. admitting the respondents affidavit evidence;



3. his application of the test for setting
aside a default judgment; and



4. varying the interest rate in the default
judgment, pursuant to rule 19.08.



ANALYSIS

1.

Standing to bring the motion

[39]

The
appellant submits that the motion judge should not have heard the motion.  It
says that the motion to set aside the default judgment was brought and argued
by the respondents son and because the respondents son was not a party to the
default judgment, he had no standing to contest the default judgment.

[40]

Mr.
Vandergust is the lawyer who brought and argued the motion.  He told the motion
judge that he represented the respondent.  Furthermore, the materials filed in
support of the motion describe Mr. Vandergust as solicitor for the respondent.

[41]

Mr.
Vandergust is also the respondents sons lawyer.

[42]

While
the motion judge did not expressly deal with the issue of standing, it is implicit
that he accepted that the respondent brought the motion and that Mr. Vandergust
was acting on behalf of the respondent.  This is evident from the motion
judges reasons in which he lists Mr. Vandergust as counsel for the respondent.

[43]

I
see no basis for interfering with the motion judges implicit determination that
it was the respondent who brought the motion, and not the respondents son.  Accordingly,
I would dismiss this ground of appeal.

2.

The respondents affidavit evidence

[44]

The
appellant submits that the motion judge erred in admitting into evidence an
affidavit signed by the respondent. It submits that the affidavit was not
reliable because on cross-examination the respondent could not recall having signed
it and because his memory is unreliable.

[45]

I
see no error in the motion judges admission of the affidavit.  The problems identified
by the appellant go to weight rather than admissibility.  Furthermore, the
motion judges reasons show that he gave the affidavit little to no weight. He found
that the respondent had an arguable defence on the question of the interest
rate based on other evidence, particularly that of Bill McLeod who testified
that the appellant had a history of not charging the respondent interest on
overdue accounts.

[46]

I
would dismiss this ground of appeal.

3.  Application of the test for setting aside
default judgment

[47]

The
courts 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, 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 defendants 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, 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.

[52]

The
motion judge considered the relevant factors.  In respect of the first and
second factors, he found inexplicable delay on the part of the respondent. 
He also found that the delay had caused prejudice to the appellant.

[53]

However,
the motion judge was satisfied that the respondent had raised an arguable
defence in respect of the interest rate that applied to the principal debt. 
There was evidence before him, including evidence led by the appellant, which
called into question whether the respondent had agreed to pay interest at the
rate of 24% per annum.

[54]

Having
found that there was an arguable defence, it was open to the motion judge to
find that the interests of justice favoured setting aside the default judgment. 
It is not, as the appellant would have it, that the motion judge failed to give
adequate weight to the unexplained delay and prejudice to the appellant. 
Rather, in the exercise of his discretion, after duly considering the factors, the
motion judge concluded that the respondents arguable defence on the matter of
the applicable interest rate weighed most heavily and caused the interests of
justice to favour setting aside.

[55]

A motion judges decision to set aside a default
judgment is a discretionary one that will attract deference on appeal. It
should not be interfered with absent an error in law or principle, a palpable
and overriding error of fact, or unless the decision is so clearly wrong as to
amount to an injustice:
HSBC Securities (Canada) Inc. v. Firestar
Capital Management Corporation
, 2008 ONCA 894, 245 O.A.C. 47, at para.
22.


[56]

I see no such error and the decision is not clearly
wrong.  Accordingly, I would dismiss this ground of appeal.

4.

Rule
19.08  setting aside or varying a default judgment

[57]

Rule
19.08 gives the court the power to set aside or vary a default judgment on
such terms as are just.  It reads as follows:

19.08 (1)  A judgment against a defendant who has
been noted in default that is signed by the registrar or granted by the court
on motion under rule 19.04 may be set aside or varied by the court on such
terms as are just.

(2)  A judgment against a
defendant who has been noted in default that is obtained on a motion for
judgment on the statement of claim under rule 19.05 or that is obtained after
trial may be set aside or varied by a judge on such terms as are just.

[58]

The
appellant says that the motion judge erred when he used his power under rule
19.08 to substitute an annual interest rate of 5% for the 24% rate in the
default judgment.

[59]

The
respondent contends that the Order was a valid exercise of the power under rule
19.08 to vary a default judgment on such terms as are just.  He says that the
parties were aware that the motion would focus on the issue of the interest
rate, and that the motion judge had sufficient evidence before him to decide
that issue on the merits. A rule 19.08 motion, in his submission, is akin to a
summary judgment motion, where the motion judge is entitled to reach a fair and
just adjudication of substantive issues in the interests of minimizing
unnecessary process.

[60]

I
would accept the appellants submission on this issue.

[61]

In
my view, the motion judge erred in making a final determination of the merits
of the respondents defence.  The respondents motion sought to set aside the
default judgment. Therefore, the courts task was to determine whether the
interests of justice favoured setting aside the default judgment.  As we have
seen, one factor in that determination is whether there is an
arguable

defence on the merits.  The materials filed on the motion did not seek
a determination of whether, if there were an arguable defence, that defence should
succeed.

[62]

Yet,
that is precisely what the motion judge did in the present case.  The effect of
the Order is to find in favour of the respondent, that is, to find that the
respondent is not bound to pay interest at the annual rate of 24%.  Indeed, the
motion judge went further and established the rate of interest that was payable,
despite his own observation that he lacked the requisite evidence.

[63]

To
move from finding an arguable defence to a final determination is not, as the
respondent contends, a just result.  A just result presupposes that both sides
had the opportunity to be fairly heard on the two issues of (1) whether the
respondent was bound to pay interest at an annual rate of 24%; and (2) if not,
what the appropriate rate of interest was.  That did not occur in the motion. 
This is not surprising, given that the motion was to set aside a default
judgment.  Although both parties knew that the interest rate issue was to be a
central focus on the motion, the appellant was responding to a motion in which
the question was whether the respondent had an arguable defence in respect of
the 24% rate of interest contained in the default judgment.  The appellant was not
responding to a motion for summary judgment on the matter of the applicable
interest rate.

[64]

In
conclusion, the appropriate course was to set aside the default judgment in
part, and order that the matter proceed on the interest issue.

DISPOSITION

[65]

Accordingly,
I would allow the appeal, set aside para. 1 of the Order (which varies the rate
of interest in the default judgment), order that the 24% interest provision in
the default judgment be set aside, permit the respondent to file a defence, and
allow the matter to proceed on the rate of interest.

[66]

I
would order costs of the appeal in favour of the appellant fixed at $12,000,
all inclusive.  In light of the result on appeal, costs of the motion must be
revisited.  If the parties are unable to agree on that matter, they shall
return to the motion judge to have those costs decided.

Released: March 14, 2014 (E.E.G.)

E.E. Gillese
J.A.

I agree. Paul Rouleau J.A.

I agree. M. Tulloch J.A.




