Defendant Permitted to Defend Action Six Years After Plaintiff Obtains Default Judgment

The Ontario Court of Appeal has upheld a Superior Court Judge’s decision to set aside a default judgment obtained by the plaintiff and allow the defendant the opportunity to enter a defence.

The plaintiff provided various crop services to the defendant for a number of years. The defendant would routinely pay the plaintiff’s invoices late. This was not necessarily problematic since the plaintiff trusted the defendant and its invoices were usually paid, albeit late.

As the defendant got older, his son took a more active involvement in the defendant’s operations. While the plaintiff trusted the defendant, it did not trust his son.

In 2005, the defendant was indebted to the plaintiff for nearly $50,000 for services rendered. The plaintiff had the defendant sign an invoice acknowledging the indebtedness. The invoice also stipulated that interest would accrue at a rate of 24% per year.

The invoice was never paid. The plaintiff sued and obtained default judgment in 2005 for the principal amount plus interest at 24% per year.

The plaintiff then filed writs against the defendant’s properties and took no further steps to enforce its judgment.

The defendant’s properties were transferred by the defendant to his son in 2010. The properties were transferred subject to the writs. In other words, both the defendant and his son were aware of the writs, and the judgment, in 2010.

It was not until the son wished to refinance the properties in 2011 that things came to a head.

The defendant brought a motion to set aside the judgment and enter a defence. By the time the motion was heard the defendant had accepted that he owed the principal amount and, in fact, had paid the principal plus costs. The issue was the interest. The defendant argued that he had never agreed to 24% interest and sought to defend that portion of the claim.

The motion judge found that there had been an “inexplicable delay” in bringing the motion. Nevertheless, the motion judge ruled, given the evidence from both sides that the defendant may not have actually agreed to pay 24% interest, that it was in the interest of justice to set aside the default judgment and change the rate of interest from 24% to 5%.

The Court of Appeal held that the motion judge’s decision was entitled to deference and should not be interfered with absent an error in law or principal, a palpable and overriding error of fact, or unless the decision is so clearly wrong as to amount to an injustice.

However, the Court of Appeal did vary the motion judge’s decision in part. As stated above, the motion judge substituted the 24% interest rate for a 5% interest rate. The Court of Appeal held that in doing so the motion judge essentially disposed of the case on its merits as opposed to merely setting aside the default judgment and allowing the case to proceed defended.

The Court of Appeal held that while it may have been just for the motion judge to set aside the judgment and allow a defence, it was not just for the motion judge to make a final determination and substitute a new interest rate.

As such, the Court of Appeal ordered that both the 24% and 5% rates be set aside and the matter proceed for an adjudication as to the proper rate of interest.

 

 

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