Palin v. Duxbury, 2010 ABQB 833

Court of Queen ’ s Bench of Alberta Citation: Palin v. Duxbury, 2010 ABQB 833 Date: 20101230 Docket: 1001 08470 Registry: Calgary Between: Kimberley Ann Palin Plaintiff - and - Debrah Duxbury and 714061 Alberta Ltd., Operating As Beautify Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice G.H.

Poelman _______________________________________________________ The Proceedings [ 1 ] The Defendants, Debrah Duxbury and 714061 Alberta Ltd., operating as Beautify, apply to set aside a default judgment issued in favour of the Plaintiff, Kimberley Ann Palin, on June 28, 2010. [ 2 ] The allegations in the statement of claim, issued on June 8, 2010, may be summarized as follows: (a) 714061 Alberta Ltd. (the “numbered company”) operated a beauty salon in Okotoks under the name “Beautify.” Duxbury was a director and owned fifty percent of the numbered company’s shares.

(

b) In December, 2009, the Plaintiff and the Defendants made an oral contract pursuant to which: (

i) the Plaintiff would establish a laser hair removal business in the Defendants’ salon; (ii) the Defendants would provide space to the Plaintiff within their salon, commencing in or about February, 2010; (iii) the Plaintiff would take a course to acquire the necessary skills; (iv) the Plaintiff would fund the purchase of all necessary equipment and furniture; and (

v) the Defendants would act as a liason between the Plaintiff and overseas manufacturers of laser hair removal machines and take reasonable steps to ensure the reliability of the manufacturers and quality of the machines before their purchase. (

c) The Plaintiff completed a course costing $10,000.00; provided payments totalling $48,902.50 to the Defendants for three laser machines ($13,767.00 for an “IPL,” $12,930.50 for a “Q-Switch,” and $22,205.00 for a “Sciton”); and purchased additional equipment and furniture costing $800.00. (

d) The IPL and Q-Switch were received but were defective. The Sciton was never delivered. (

e) The Defendants represented that the machines would be in good working order and could be returned if the Plaintiff was not satisfied. The Defendants later advised that the machines could not be returned. [ 3 ] Duxbury and the numbered company were personally served with the statement of claim and notice to defendant on June 10, 2010. Default judgment was granted on June 28, 2010, for $59,810.50 (including interest) with costs to be taxed. [ 4 ] A notice of motion and affidavit of Duxbury, seeking to set aside the default judgment, were filed on October 21, 2010.

The Plaintiff responded with her affidavit on November 12, 2010. Duxbury was questioned on her affidavit on November 22, 2010. This application was heard on December 1, 2010. Evidence [ 5 ] Duxbury’s explanation for not defending is that “I mistakenly believed that I had 30 days to file a defence and proceeded to pass the statement of claim on to my previous counsel for handling on approximately June 26, 2010.” When questioned on her affidavit she acknowledged having read the statement of claim.

In addition, Duxbury stated that she held off filing a statement of defence because she was negotiating with the Plaintiff by emails “throughout this period” (although the emails do not begin until July 8, well after the default judgment). [ 6 ] In

summary, by way of explaining her failure to defend, Duxbury deposed as follows: At no time did I intentionally allow a judgment to go against Beautify or myself personally.

My failure to deliver a defence was due solely to my misunderstanding of the legal system, my ongoing negotiations with the Plaintiff, and my difficulties in retaining proper legal counsel. [ 7 ] Duxbury explained the apparent delay from the default judgment to her notice of motion (June 28 to October 21, 2010) by stating that she did not realize the default judgment had gone against her until July 27 and (again) was negotiating with the Plaintiff by email during this period; her change of counsel (no date was given of first contact with present counsel); and her information and belief that her new counsel was discussing with the Plaintiff’s counsel the possibility of setting aside the default judgment.

However, from her questioning and the Plaintiff’s affidavit it is clear that Duxbury became aware of the default judgment some time before June 30, 2010. On that date, the Plaintiff’s previous counsel wrote to the Defendants’ previous counsel as follows:

Further to your telephone message dated June 28, 2010, I have now spoken to my client with respect to the Default Judgment. You have asked us to voluntarily withdraw the Default Judgment. Unfortunately my client has instructed me not to do so at this time. In light of the above, if your client wishes to set aside the Default Judgment, I look forward to your Notice of Motion and supporting Affidavit shortly. [ 8 ] Finally, the following summarizes Duxbury’s evidence on her belief in a meritorious defence: (

a) All her dealings with the Plaintiff were in her capacity as a director of the numbered company. (

b) In December, 2009, the numbered company made an agreement with the Plaintiff to purchase two laser machines from China for $26,697.50. (

c) After the Plaintiff took her course, she advised that she was no longer interested in the two laser machines but wanted to order another one made by a different manufacturer. (

d) Duxbury advised that a laser machine matching the Plaintiff’s request could be obtained from Indonesia. Duxbury advised of risks associated with ordering from an unknown source; the Plaintiff said that she was willing to “accept all the risks”. Duxbury, in her capacity as director of the numbered company, completed the purchase. (

e) Despite obtaining default judgment, the Plaintiff has retained possession of the two laser machines. (

f) Duxbury made no representations in her personal capacity, and does not believe the Plaintiff relied on any representations. [ 9 ] In her questioning, Duxbury acknowledged that before the statement of claim was served, she had received demand letters from the Plaintiff and knew that the Plaintiff had retained a lawyer. [ 10 ] The Plaintiff’s affidavit shows that there was considerable notice of a likely claim, beginning in April, 2010, before the statement of claim was issued on June 8, 2010. In addition, the Plaintiff deposed that “Ms.

Duxbury informed me in May, 2010 that she had consulted counsel with respect to this dispute and the possibility of a lawsuit arising from it.” The Plaintiff deposed, as quoted above, that her lawyer had advised the Defendants’ lawyer that the default judgment would not be set aside by consent and requested an affidavit and notice of motion. The Plaintiff further deposed that no pleadings, draft or otherwise, were forwarded and neither the Plaintiff nor her previous lawyer were advised that the Defendants would be retaining new counsel.

Further, the Plaintiff deposed: No action with respect to an application to set aside the Judgment was taken until after Ms. Chan [the Plaintiff’s former lawyer] had commenced enforcement proceedings. The first semi-formal step taken by the Defendants to set aside the Judgment was the forwarding by the Defendants’ present solicitor, Mr. Navid Nikou, of a draft, unsworn affidavit, which was sent via email on September 22, 2010. [ 11 ] The Plaintiff disputes the assertion of a meritorious defence. Her position, as set out in her affidavit, can be summarized as follows: (

a) The IPL and Q-Switch did not comply with Health Canada licensing requirements, and were therefore unacceptable. (

b) Duxbury had represented to the Plaintiff that the IPL and Q-Switch would be returnable if not satisfactory, and that was untrue.

(

c) The Sciton was paid for but not received. (

d) The Plaintiff is in possession of the IPL and Q-Switch because “Ms. Duxbury telephoned me and demanded that I remove them from her premises.” (

e) Finally, the Plaintiff states that she has been prejudiced. She relied upon the finality of the judgment and having to go through the process again would be prejudicial. She has deferred an investment opportunity because of the uncertainty of knowing whether she will need funds for this legal action. [ 12 ] The Plaintiff was not questioned on her affidavit. Principles for Setting Aside a Default Judgment (

a) Alberta Rules of Court [ 13 ] When the Defendants’ application was filed, rule 158 of the Alberta Rules of Court , Alta. Reg. 390/68, provided as follows: The court may, upon such terms as it thinks just, set aside or vary any judgment entered upon default of defence or in pursuance of an order obtained ex parte or permit a defence to be filed by a party who has been noted in default. When the application was heard on December 1, 2010, it was governed by the new rule 9.15 of the Alberta Rules of Court , Alta. Reg. 124/10, which provides as follows: 9.15(1) On application, the Court may set aside, vary or discharge a judgment or an order, whether final or interlocutory, that was made (

a) without notice to one or more parties, or (

b) following a trial or hearing at which a party did not appear because of an accident or mistake or because of insufficient notice of the trial or hearing.

(2) Unless the Court otherwise orders, the application must be made within 20 days after the earlier of (

a) the service of the judgment or order on the applicant, and (

b) the date the judgment or order first came to the applicant ’ s attention.

(3) The Court may set aside, vary or discharge a judgment in default of defence on any terms the Court considers just.

(4) The Court may set aside, vary or discharge an interlocutory order (

a) because information arose or was discovered after the order was made, (

b) with the agreement of every party, or (

c) on other grounds that the Court considers just. [ 14 ] Sub-rule (3) is most directly applicable, and is not materially different from the former rule 158. However, the Plaintiff also relies on rule 9.15(2), containing a requirement that an application must be made within 20 days of when a judgment came to an applicant’s attention, unless the court orders otherwise.

[ 15 ] This application was brought well after 20 days following the Defendants’ awareness of the default judgment. As indicated above, correspondence makes it clear that June 30 would be the latest possible date on which the Defendants (or their counsel) were aware of the default judgment. There is evidence of some communications subsequently, but they were intermittent and not suggestive of a “standstill” agreement. [ 16 ] The question thus arises whether the 20-day reference in rule 9.15(2) applies to an application under rule 9.15(3).

The words “the application” in rule 9.15(2) clearly refer to an application under rule 9.15(1) “to set aside, vary or discharge a judgment or an order, whether final or interlocutory, that was made .... without notice to one or more parties....” [ 17 ] In my view, the application referred to in rules 9.15(1) and (2) does not include an application to set aside a default judgment under rule 9.15(3). First, a default judgment is not made “without notice.” The notice to defendant that was on the statement of claim read by the Defendants states, in part: You have been sued. ....

You have only 15 days to file and serve a Statement of Defence ..... You or your lawyer must file your Statement of Defence ..... You or your lawyer must also leave a copy of your Statement of Defence ... at the address for service for the Plaintiff named in this Statement of Claim. WARNING: If you do not do both things within 15 days you may automatically lose the lawsuit. The Plaintiff may get a Court Judgment against you if you do not file, or do not give give a copy to the Plaintiff, or do either thing late.

Thus, a default judgment is given under very different circumstances than, for example, an ex parte order where a party is not even aware of the application to which it might wish to respond. [ 18 ] Second, the structure of rule 9.15 indicates that sub-rule (1) deals with judgments and orders where a party did not appear because of lack of or insufficient notice or an accident or mistake, and sub-rule (2) then requires prompt application when the party becomes aware of the judgment or order.

Sub-rules (3) and (4) deal with different circumstances: (3), the specific case of default judgment, and (4), the case of new information or agreement of all parties. Neither of those situations is contemplated by rule 9.15(1). [ 19 ] Thus, this application must be determined under rule 9.15(3), with no specific deadline for an application to set aside. (

b) Authorities [ 20 ] As noted above, there is no material difference between the former rule 158 and the new rule 9.15(3). Thus, the guidelines established under the former rule should inform the determination of this application. [ 21 ] The parties had no dispute about the test to be applied. It is helpfully set out in Alberta v. Fjeld , [1] from which I paraphrase that the Defendants must show that: (

a) they have an arguable defence; and (

b) they did not deliberately let judgment go by default and have some excuse for the default, such as illness or a solicitor’s inadvertence; and (

c) after learning of the default judgment, they moved promptly to open it up. [ 22 ] A defendant must do more than merely assert an arguable or triable defence. Watson J. (as he then was) expressed the requirement as follows:

Moreover, the simple assertion of a claim of a defence is insufficient, and does not relieve the Court from evaluating whether there is a triable defence. [2] [ 23 ] Slatter J. (as he then was) observed that “usually if a defendant deliberately allows a default judgment to go against him, knowing the effect of failing to defend, he will not be allowed to set aside the default judgment.” [3] [ 24 ] Finally, it has been suggested that “mere delay will not be a bar to the application unless an irreparable injury will be done to the Plaintiff, or the delay has been wilful.” [4] Arguable Defence [ 25 ] The Plaintiff alleges that the Defendant breached a contract by failing to deliver laser machines that were either satisfactory or returnable for a refund.

Two machines were not satisfactory and not refundable; the third was never received. The Plaintiff paid for all of them. [ 26 ] The contracts were oral, although written receipts for purchase were issued on “Beautify” letterhead, referencing “items sold to Kim Palin” with dates, and particulars of the equipment and the prices. No other terms were specified on the receipts. The Defendants have not, as is customary in these applications, put forward a draft statement of defence.

Thus, whatever meritorious defence may exist must be found in Duxbury’s affidavit and the questioning thereon. [ 27 ] Duxbury agrees that oral contracts were made for the purchase of laser machines and does not dispute that she was paid. Her defence, as gleaned from her evidence, is that: (

a) All her dealings with the Plaintiff were in her capacity as director of the numbered company. (

b) She made no representations in her personal capacity, and if she did, the Plaintiff did not reasonably rely on them. (

c) The Plaintiff has two of the laser machines despite getting a judgment for their price. (

d) The Plaintiff said she would accept the risks associated with purchasing the third machine. [ 28 ] Notably, Duxbury is silent on whether the Plaintiff had the right to reject and return the first two machines. She gave an undertaking “to provide evidence that the lasers are in use in Canada by another company” but that undertaking was not answered. [ 29 ] There is no evidence, other than Duxbury’s bare assertion, that the dealings were only between the Plaintiff and the numbered company. The emails, all of which postdated the transactions, involved Duxbury personally. They contain no reference to her company.

The receipts (attached to the Plaintiff’s affidavit) are on “Beautify” letterhead. Beautify is not a corporation, although the statement of claim alleges it to be operated by the numbered company. There is no evidence on whether “Beautify” is a registered trade name and, if so, to whom it is registered. Finally, Duxbury’s salon was operated out of her home. [ 30 ] I find that the evidence does not establish a triable issue that Duxbury has no personal liability. Merely asserting that she acted only in her capacity as a director does not make it so.

There are no facts to show that she made her contract with the Plaintiff under circumstances that would reasonably indicate that the numbered company was the counterparty. Indeed, the circumstances suggest that a contrary conclusion would be reasonable unless it was expressly negatived. [ 31 ] Similarly, I find no arguable issue regarding the Defendants’ liability for the IPL and Q-Switch machines. The Defendants have put forward no evidence to contradict the Plaintiff’s testimony on her right to a refund if she was not satisfied, or the reasonableness of her dissatisfaction.

It is possible to speculate on grounds for a defence to the Plaintiff’s claim, but they have not been put forward

either in proposed pleadings or evidence. [ 32 ] The merits of the claim regarding the Sciton are less clear. Duxbury testified that the purchase of this machine was more risky because the supplier was unknown to her, and that the Plaintiff accepted the risks of this purchase going bad. There is no contrary evidence from the Plaintiff. The extent of her evidence is that the Defendants received her money, which included a profit mark-up, and the Plaintiff has not received the machines.

That does not answer Duxbury’s testimony that the Plaintiff accepted the risk. [ 33 ] In addition, it may be questioned on what basis the Plaintiff was entitled to a default judgment that included amounts for the laser hair removal course ($10,000.00) and additional equipment and furniture ($800.00). However, the Defendants have put forward no evidence to raise arguable issues with respect to those matters. [ 34 ] In the result, I find that a triable issue is raised by the Defendants only with respect to the purchase price paid for the Sciton laser machine.

Excuse for Not Defending [ 35 ] The Defendants’ evidence falls far short of establishing a reasonable explanation for not defending in a timely manner. [ 36 ] Duxbury was informed of the claim and the likelihood of the lawsuit well before it was commenced. Then, she personally received and read the statement of claim. Her questioning demonstrated that she had previous experience with another lawsuit.

It is not credible, or excusable even if credible, to assert that she misread the very clear notice to defendant as giving her 30 days to defend. [ 37 ] There is no evidence of a genuine, excusable mistake, or a desire to defend within a reasonable time of service of the statement of claim.

Explanation for Delay [ 38 ] The dates on the Court record show the following: · June 8, 2010: Statement of Claim issued. · June 10, 2010: Duxbury personally served as a Defendant and as the numbered company’s representative. · June 28, 2010: Default judgment granted. · July 16, 2010: Writ of Enforcement issued. · August 27, 2010: Garnishee Summons issued against the Royal Bank of Canada. · October 21, 2010: Notice of Motion and supporting Affidavit filed. [45] As stated above, the evidence establishes that Duxbury (through her counsel) was made aware by no later than June 30, 2010 that the default judgment would not be set aside by consent, and that a notice of motion and affidavit would be required.

The only explanation for subsequent delay (apart from some period before hearing of the motion, which was explained by scheduling between current counsel and is not considered as part of the period of potential delay) was reference to settlement negotiations carried out by email, and a change of counsel. [46] Those explanations are inadequate. The record of “negotiations” is very thin. Even granting some allowance for a change of counsel, the Defendants’ delay is extraordinary and fails to show any serious intention to defend the claim in a timely manner.

[47] Prejudice to the Plaintiff caused by delay is a factor which, on some authorities, it is proper to consider. The Plaintiff’s evidence does not show serious prejudice. However, I accept her testimony that some opportunities have been postponed because of her uncertainty about the status of this action. That prejudice would not justify the refusing the Defendants’ application were it not for the Defendants’ delay and lack of adequate explanation therefor. Conclusion [48] To succeed in setting aside the default judgment, the Defendants must do more than meet one of the three elements of the test.

They must satisfy them all. They have failed to do so in this case. [49] There is a useful reminder in Don Reid Upholstery Ltd. v. Patrie , [5] where Veit J. cautioned against the application of rigid rules.

She emphasized an overall duty on the Court to “do what is fair,” observing that the application of a test is a form of shorthand to say that fairness usually requires that these three things be proved. [6] That reminder of the existence of the Court’s discretion does not, however, lead to a different result in this case. [50] The evidentiary record, limited as it is, demonstrates that the Plaintiff approached the Defendants well before action was commenced with a comprehensive demand and explanation for why the demand was considered justified. The Defendants’ responses were sporadic and perfunctory.

Nothing indicates that the Defendants ever seriously contested the Plaintiff’s claims on their merits. Rather, a reasonable inference to be drawn is that the Defendants became motivated only after serious judgment enforcement measures were undertaken. [51] For these reasons, the Defendants’ application to set aside the default judgment is dismissed. Counsel have leave to speak to costs if they do not agree. Heard on the 1 st day of December, 2010. Dated at the City of Calgary, Alberta this 29 th day of December, 2010. G.H. Poelman J.C.Q.B.A. Appearances: Courtney McCarthy Schuettlaw for the Plaintiff

Navid Nikou Miles Davison LLP for the Defendants [1] Alberta v. Fjeld , 2008 ABQB 558 ; 459 A.R. 272, at para. 16. [2] Goulet v. da Silva , 2002 ABQB 369 , 313 A.R. 32 (QB), at para. 55 . [3] Edwards v. Ferris , 2001 ABQB 1125 , 316 A.R. 40, at para. 13 . [4] Goulet v. da Silva , supra , at para. 72 . [5] Don Reid Upholstery Ltd. v. Patrie (1995), 1995 CanLII 9147 (AB KB) , 173 A.R. 233, 32 Alta. L.R. (3d) 281 (QB). [6] Ibid., at 282, 286.