3S Resources Inc v Improvisions Inc, 2014 ABQB 746

Court of Queen’s Bench of Alberta Citation: 3S Resources Inc v Improvisions Inc, 2014 ABQB 746 Date: 20141208 Docket: 1203 17870 Registry: Edmonton Between: 3S Resources Inc., Nick Sandu, Terezia Sandu and Nickolletta Sandie Applicants - and - Improvisions Inc. and Len Gibeault Respondents _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice S.J. Greckol _______________________________________________________ I. Introduction [ 1 ] The Plaintiffs are homeowners who hired the Defendants Improvisions Inc. and Len Gibeault to renovate their home.

The Plaintiffs were disappointed with the work and sued the Defendants for the deficiencies they perceived in the fulfilment of contractual obligations. The statement of defence of Gibeault was struck for failure to serve an affidavit of records, and of Improvisions for failure to produce documents. Both Defendants were noted in default under Rule 3.36.

The Plaintiffs applied for and obtained judgment against both Defendants under Rule 3.37, based on the facts alleged in the statement of claim and affidavit evidence. [ 2 ] The Defendants then consulted new counsel and applied under Rule 9.15(3) for an order setting aside, varying or discharging the judgment and permitting statements of defence to be filed. The Defendants maintain that they always intended to participate in and fully defend the lawsuit, and were unaware of the procedural failings that led to judgment being granted against them. They say they have defences on the merits.

They say their lawyer failed them. [ 3 ] The Plaintiffs seek entry of the judgment roll on the terms granted at the application for judgment, as well as interest and

costs. Since these are cross applications with multiple parties, for convenience, I refer to the parties as the Plaintiffs and the Defendants. II. Legislation [ 4 ] The Alberta Rules of Court , Rule 3.36 provides the process for noting a defendant in default: 3.36(1) Subject to subrule (2), if a defendant does not file a statement of defence or demand for notice, or if the defendant’s statement of defence is struck out, the plaintiff may, on filing an affidavit of service of the statement of claim, (

a) enter judgment against the defendant under rule 3.38 or 3.39 , or (

b) require the court clerk to enter in the court file of the action, in Form 14, a note to the effect that the defendant has not filed a statement of defence and consequently is noted in default. ... [ 5 ] Rule 3.37 provides the process for application for judgment against a Defendant noted in default: 3.37(1) The plaintiff may, without notice to any other party, on proof of the plaintiff’s claim, apply to the Court for judgment in respect of a claim for which default judgment has not been entered if (

a) one or more defendants are noted in default, or (

b) the defendant’s statement of defence is struck out.

(2) In the circumstances described in subrule (1) the plaintiff is entitled to a costs award.

(3) The Court may do one or more of the following: (

a) pronounce judgment; (

b) make any necessary order; (

c) direct a determination of damages; (

d) adjourn the application and order additional evidence to be provided; (

e) dismiss the claim or a part of it; (

f) direct that the claim proceed to trial and that notice be served on every other defendant; (

g) make a costs award in favour of the plaintiff. [ 6 ] Rule 9.15 sets out the authority of the Court to deal with an application to set aside a judgment or order: 9.15 Setting aside, varying and discharging judgments and orders … 9.15(3) The Court may, on any terms the Court considers just, (

a) permit a defence to be filed by a party who has been noted in default, (

b) set aside, vary or discharge a judgment granted upon application against a defendant who was noted in default, or whose statement of defence was struck out under rule 3.37 … ... [ 7 ] This Court has further authority under Rule 1.3: 1.3(1) The Court may do either or both of the following: (

a) give any relief or remedy described or referred to in the Judicature Act ; (

b) give any relief or remedy described or referred to in or under these rules or any enactment. 1.3(2) A remedy may be granted by the Court whether or not it is claimed or sought in an action. [ 8 ]

Section 8 of the Judicature Act , RSA 2000, c J-2 reads: The Court in the exercise of its jurisdiction in every proceeding pending before it has power to grant and shall grant, either absolutely or on any reasonable terms and conditions that seem just to the Court, all remedies whatsoever to which any of the parties to the proceeding may appear to be entitled in respect of any and every legal or equitable claim properly brought forward by them in the proceeding, so that as far as possible all matters in controversy between the parties can be completely determined and all multiplicity of legal

proceedings concerning those matters avoided. III. Issues [ 9 ] Should the alleged inattention and neglect of the Defendants’ prior counsel, implicated in the striking of their statements of defence, noting in default and default judgment, be remedied by setting aside the default judgment under Rule 9.15(3)? IV. Facts [ 10 ] The Plaintiffs filed a statement of claim on December 3, 2012 alleging that though the Defendants were paid, they did not complete renovation work to their home as required by the construction contract.

Further, the statement of claim alleges that the Defendants, as suppliers, engaged in a consumer transaction and engaged in unfair trading practices contrary to the Fair Trading Act , RSA 2000, c F-2. [ 11 ] The Defendants filed statements of defence on December 18, 2012. [ 12 ] Improvisions swore an affidavit of records on April 24, 2013.

Shortly after, the Defendants’ original solicitor left the law firm and another solicitor in the law firm assumed conduct of the file. [ 13 ] On October 2, 2013, the Master issued an order requiring, among other things, that Gibeault serve a sworn affidavit of records and that both Defendants produce the records listed in their affidavits of records. [ 14 ] On November 5, 2013, the Plaintiff filed an application to strike Gibeault’s statement of defence and to require Improvisions to produce records. [ 15 ] On November 12, 2013, the Master issued an order directing that Gibeault’s statement of defence be struck for a failure to serve an affidavit of records.

On November 26, 2013, Gibeault was noted in default. The order of November 12 also required Improvisions to provide copies of the producible records. Improvisions failed to comply and consequently, its statement of defence was struck. On December 3, 2013, Improvisions was noted in default. [ 16 ] On April 23, 2014, the Plaintiffs applied in justice chambers for judgment against the Defendants under Rule 3.37. Browne J directed the matter to Special Chambers. [ 17 ] On September 5, 2014, the Rule 3.37 application for judgment was argued before me.

The Plaintiffs sought judgment based on the averments in the pleadings and affidavit evidence while the Defendants asked that there be a direction for a trial of the issue of damages with viva voce evidence. [ 18 ] Counsel for the Defendants acknowledged that the Defendants were bound by the facts alleged in the statement of claim, but sought a full hearing as to damages.

I declined to do so and instead, proceeded to assess damages based on the allegations of fact in the statement of claim and the affidavit evidence. [ 19 ] Judgment was granted for general damages in the sum of $6,000.00 and special damages in the sum of $53,856.71. [ 20 ] On October 16, 2014, the Plaintiffs brought application to settle the terms of the judgment, asking that their proposed form of judgment be signed and entered, with interest pursuant to the Judgment Interest Act , RSA 2000, c J-1, and costs. [ 21 ] On October 20, 2014, the Defendants brought application under Rule 9.15 requesting that the Court: a. set aside the noting in default of the Defendant Improvisions filed December 3, 2013; and of the Defendant Gibeault filed November 26, 2013; b. set aside the judgment for damages granted on September 5, 2014 against the Defendants Improvisions and Gibeault; c. reinstate the statements of defence of the Defendants; or alternatively, d. grant leave to the Defendants to file statements of defence. [ 22 ] These applications were heard on November 20, 2014.

V. Analysis A. Arguments of the parties [ 23 ] The Defendants attest that they were never made aware of the following steps: a. the Plaintiff’s September 25, 2013 application to strike the statement of defence; b. the Master’s October 2, 2013 order requiring, among other things, that the Defendant Gibeault serve a sworn affidavit of records

and that both Defendants produce the records listed in their affidavits of records; c. the Plaintiff’s November 5, 2013 application to strike the Defendant Gibeault’s statement of defence and to require Improvisions toproduce records; d. the Master’s November 12, 2013 order striking Gibeault’s statement of defence and requiring Improvisions to produce itsdocuments or its statement of defence would be struck; e. the Plaintiff’s noting the Defendant Gibeault in default on November 26, 2013; f. the Plaintiff’s noting the Defendant Improvisions in default on December 3, 2013. [24] The Defendants argue that they have been denied the opportunity to defend the action due to the inattention and neglect oftheir prior solicitor.

They seek to have the judgment set aside as it was granted on the basis that they had been noted in default. They askthat the noting in default be set aside so they are permitted to fully defend the action. [25] The Defendants rely on David M Gottlieb Professional Corp v Nathal, 2011 ABQB 355, 2011 CarswellAlta 906, aff’d 2012ABCA 88, for the test to set aside a noting in default; and Palin v Duxbury, 2010 ABQB 833, 2010 CarswellAlta 2517 at para 21 for thetest to set aside a judgment under Rule 9.15(3).

They note that the difference between the two tests is that to set aside a noting in default,a meritorious defence must be shown; while to set aside a default judgment, the threshold is higher: the applicant must demonstrate thedefence is arguable. [26] The Defendants say they have an arguable defence to the action. They rely on the decision of Don Reid Upholstery v Patrie, (AB KB), 173 AR 233, 1995 CarswellAlta 357 where Veit J upheld the decision of the Master to set aside a defaultjudgment granted after seven years.

She stated that the three criteria in the test to set aside a default judgment are a means to ensurefairness; that the only real rule is that the court’s discretion must be exercised judicially (at paras 28 and 30). [27] The Defendants also note that mere delay is not a bar, relying on the decision in Gottlieb, at para 69-73, particularly theprinciple that the key time to assess the timeliness of this application is when the Defendants learned their counsel had failed them; andalso, the principle that the neglect of the solicitor should not be visited upon the client. [28] The Defendants rely on Halton Community Credit Union Ltd v ICL Computers Canada Ltd, 8 OAC 369, 1985 CarswellOnt357 at paras 11-12 to argue that default judgment will be set aside to ensure a client is not placed irrevocably in jeopardy by the neglector inattention of the solicitor.

They also rely on Graham v Vandersloot, 2012 ONCA 60, 2012 CarswellOnt 815 at paras 11-12, wherethe Ontario Court of Appeal affirmed the principles in Halton, ruling that at the end of the day in that case, the interests of justicefavoured the Defendant having her day in Court. [29] The Plaintiffs offer a formalistic view to oppose the application: the Defendants at all times were represented by counsel andare therefore deemed to have notice of all that occurred; their lawyer employed a strategy that failed and they are not entitled to take thebenefit of hindsight to pursue a new strategy.

To grant the application would be to visit an injustice upon the Plaintiffs who have at alltimes employed the Rules to advance their interests in the lawsuit, as they were entitled to do. [30] The Plaintiffs say the application to set aside the judgment and permit defences to be filed should be dismissed, and theproposed judgment roll approved, including presumptive interest under the Judgement Interest Act, and costs according to the Rules. [31] The Plaintiffs advance an alternative argument in the event of the Defendant’s success: the Court should exercise its discretionunder Rule 9.15 (and Rule 4.22) to order the security for costs for the full amount of the judgment, plus legal costs, pending ultimateresolution.

They rely on Aero Aviation Inc v Dac Aviation International Ltée, 2010 ABQB 577 at paras 20-26, 2010 CarswellAlta2007, and Vaccaro v Twin Cities Power-Canada ULC, 2013 ABCA 252 at paras 7-13, 2013 CarswellAlta 1177. B. Setting aside a Rule 3.37 Judgment against a Defendant Noted in Default: Rule9.15 [32] The test the Defendants must meet to set aside a default judgment under Rule 9.15(3) is aptly summarized in Palin, at para 21: The parties had no dispute about the test to be applied. It is helpfully set out in Alberta v. Fjeld, from which I paraphrase that theDefendants 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. [33] In my view, the Defendants have demonstrated that they have an arguable defence. In response to para 24(

a) of the statementof claim, that they failed to complete work on time, they say that while the renovation was underway, Mr. Sandu developed a heartcondition and the family insisted that work stop. In response to para 24(

b) of the claim, that the laundry room was improperly designedand the appliances didn’t fit, they say that the design for the laundry room was approved by Mr. Sandu, and the work completedaccording to the specifications, but Mrs. Sandu decided upon commercial grade appliances that did not fit the space. In response to para24(

c) of the claim, that the painting was of poor quality, they say they were prevented from finishing the paint job. [34] In response to para 24(

d) of the claim, that substandard cabinets were installed, the Defendants say that the cabinets exceeded

industry standards and were selected by Mr. Sandhu. With respect to para 24(

e) of the claim, that the kitchen appliances did not fit, they say that Mr. Sandu provided the measurements for the cabinets and they were wrong, so modifications were required. With respect to para 24(

f) of the claim, that the wiring was done improperly and without valid permits, they say that Mr. Sandhu refused to approve the required upgrades, and that an outside contractor was hired. In all respects, the Defendants say they met industry standards. [ 35 ] The Defendants similarly attest to facts contrary to the alleged unfair practices as listed in the Fair Trading Act . In response to para 25(

a) of the statement of claim, that the Defendants misrepresented the quality of goods and services, they say the cabinets were industry standard. In response to para 25(

b) of the claim, that they did not have required approvals and permits, they say the Plaintiffs themselves instructed the third party electrical contractors. [ 36 ] In response to para 25(

c) of the claim, that the Defendants charged prices for goods that “grossly” exceeded market value, the Defendants say the Plaintiffs ultimately purchased a new kitchen of similar quality at a higher price. [ 37 ] The Defendants say they always intended to dispute the contentions of the Plaintiffs. They say that if the judgment stands, the Plaintiffs will benefit from the work that was done, but they will not pay for that work, since the damages awarded repay the amount of the deposit paid by the Plaintiffs.

In other words, the judgment represents a windfall to the Plaintiffs. [ 38 ] In my view, the Defendants did not deliberately let judgment go by default and have a credible excuse for what has happened: they rely on their solicitor’s inadvertence or neglect in failing to take the steps necessary to defend the claim on its merits.

On the evidence before me, I accept that the Defendants always intended to fully defend the action against them, but were not advised by their solicitor of the various steps taken by the Plaintiffs that led to the application for judgment where they were bound by the allegations of fact in the statement of claim. [ 39 ] On the evidence before me, I must also conclude that neither Defendant was advised that they were to appear in Court for a judgment application on April 3, 2013, nor that a possible application to set aside the default judgments could be made.

They did not understand the trajectory of the civil process either procedurally or substantively.

It was only after the special chambers hearing before me on September 5, 2014 that the Defendants changed counsel and learned of the deficiencies in the processes while the file was in the hands of their former solicitor. [ 40 ] After learning of the default judgment at the September 5th hearing, the Defendants retained new counsel and took action promptly to bring this application to set aside the judgment. [ 41 ] In Gottlieb , the Alberta Court of Appeal approved the dicta that holds it is appropriate to set aside a default judgment when the failure to act is that of counsel rather than a party, at para 71: Even if not "mere", the delay prior to the possible defence coming to Nahal's attention also was attributable to his counsel, not Nahal.

In Noble Moving Services Inc. v. Kohn , 2008 BCSC 434 , Ross J. remitted a matter to Provincial Court on an application to set aside default judgment. The judge found that the delay was due to the neglect of counsel retained by the petitioner and stated, at para. 25: There are a number of decisions in which courts have concluded that it is appropriate to set aside a default judgment when it appears that the failure to act may be that of counsel rather than the party: see Johnston, Ross & Cheng Ltd. v. Taipan Holdings Ltd ., [1996] B.C.J. No. 286 . In Gill v.

Radio India, et al. , 2005 BCSC 1298 , Madam Justice Russell notes at para. 14 that "[t]he key time to assess the timeliness of the defendants' action was once they learned their counsel had failed them". In this case, once Nahal learned of the potential failure of counsel he acted without delay. [ 42 ] The Gottlieb decision is compelling authority in favour of the Defendants’ application.

So too is the decision in Halton Community Credit Union , a case where the Court set aside default judgment on the basis that a client not be placed irrevocably in jeopardy by the neglect or inattention of the solicitor, if relief can be granted on terms that protect the thrown away costs and the security of the adversary’s legal position. This sentiment was echoed in Vandersloot , where the Court ultimately ruled that the interests of justice favoured the Defendant having her day in Court.

This decision of the Ontario Court of Appeal endorses the view that such matters be approached liberally because it is in the public interest that, whatever the outcome, a litigant should perceive that she had her day in Court and a fair chance to make out her case. [ 43 ] The Defendants are prima facie entitled to have the default judgment set aside. C.

Application to Set Aside when Defendant is Noted in Default under Rule 9.15 [ 44 ] Similarly, the Defendants have met the criteria for setting aside the noting in default, as set out in Gottlieb , at para 68: For the Court to set aside a noting in default an applicant must show: 1. an adequate explanation as to why a statement of defence was not delivered; 2. whether there was any delay in applying to set aside the default and, if so, whether there was a satisfactory explanation accounting for that delay; and 3. whether the material discloses a meritorious defence, that is, a triable issue of fact or law. [ 45 ] My findings with respect to setting aside the default judgment apply with equal force to setting aside the noting in default of both Defendants.

VI. Conclusion

[ 46 ] In Don Reid Upholstery , Veit J wrote that fairness must always be done and “the only real rule on these motions is that the court’s discretion must be applied judicially” (at para 30). The Plaintiffs have demonstrated that they meet the criteria for a Rule 9.15 order setting aside the default judgment and setting aside the noting in default, so that they may file statements of defence. Where does a fair and judicious exercise of discretion lead in these circumstances? [ 47 ] The amount of money at stake is significant to both parties.

The Plaintiffs have vigorously pursued this lawsuit and taken all steps available to them under the Rules , as they are entitled to do.

They have been required to expend resources to advance this litigation and if the application to vary the judgement is granted, they will have to expend further financial and personal resources to continue when they thought they had achieved success. [ 48 ] The Defendants have demonstrated that they meet the criteria to set aside the judgment and are entitled to vigorously defend the lawsuits against them, though they say they do not have the financial resources to pay thrown away costs and provide security for costs, as well as to continue the defence. [ 49 ] In my view, the fundamental guiding principle in the exercise of my discretion is that it must be exercised fairly, in service to a balancing of the parties’ interests, but also the interests of the system itself.

A fundamental principle of our civil justice system is that people are entitled to their day in Court; they are entitled to hear the case against them according to the rules of evidence and respond fully to the allegations or claims; they are entitled to the benefit of a decision-maker who will weigh the evidence and law and consider it to arrive at a decision. [ 50 ] If I were to deny the application, the truth at issue in this lawsuit would never be determined, the dispute between the parties would not be truly resolved, and as a result, the system and the parties’ view of it would be commensurately impoverished.

A potential claim against the Defendants’ former solicitor does not provide solace or satisfaction for the failings of the justice system. It may only recompense the Defendants for the financial costs they must bear through no fault of their own that did not yield effective services for their cause. [ 51 ] In balancing the positions of the parties and what is at stake for each, I am mindful of the purposes of the Rules as set out at Rule 1.2.

Those purposes include to “facilitate the quickest means of resolving a claim at the least expense” and to provide “an effective, efficient, and credible system of remedies and sanctions.” However, the foremost purpose is stated in Rule 1.2(1): to “provide a means by which claims can be fairly and justly resolved.” The Courts’ power under

section 8 of the Judicature Act , RSA 2000, c J-2, is to grant all remedies, as far as possible, to completely determine matters in controversy and avoid multiplicity of proceedings. [ 52 ] I conclude that the Defendants’ application under Rule 9.15 must be granted. They are entitled to defend their actions, their business dealings, their financial position and their reputation in the community, all of which are impugned by this lawsuit that alleges they breached a renovation contract and the Fair Trade Act .

The default judgment is set aside, as is the noting in default, and the Defendants are permitted to file their statements of defence. [ 53 ] The Plaintiffs are entitled to their thrown away costs – costs for the various applications taken that culminated in the default judgment that has been set aside. If the parties are unable to agree on the amount of those costs, or the time for payment of those costs by the Defendants (including whether payment of thrown away costs should await final resolution), they may bring a further application before me for advice and directions.

Heard on the 20 th day of November, 2014. Dated at the City of Edmonton, Alberta this 5 th day of December, 2014. S.J. Greckol J.C.Q.B.A. Appearances: Ryan P. Krushelnitzky Field LLP for the Applicants/Plaintiffs

Phillip J. Prowse for the Respondents/Defendants