Mack v Datzoff, 2023 ABKB 343

Court of King’s Bench of Alberta Citation: Mack v Datzoff, 2023 ABKB 343 Date: 20230614 Docket: FL03 61961 Registry: Edmonton Between: Marcia Lynn Mack Plaintiff - and - Richard Stacey Datzoff Defendant Corrected judgment: A corrigendum was issued on June 14, 2023; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Decision of the Honourable Justice L.K. Harris _______________________________________________________ [ 1 ] The parties are former adult interdependent partners. Ms.

Mack began a civil action for unjust enrichment and a division of property. She purported to serve Mr. Datzoff with the Statement of Claim. When Mr. Datzoff failed to defend, Ms. Mack noted him in

default. [ 2 ] Mr. Datzoff now applies to set aside the Default Notice and for an order permitting him to file a Statement of Defence. His Application rests on the argument that he was never properly served with the Statement of Claim as required by Rule 11.5 of the Alberta Rules of Court , A/R 124/2010. Alternatively, if he was properly served, then he says that the Default Notice ought to be set aside based upon the criteria set out in Palin v Duxbury , 2010 ABQB 833 . [ 3 ] Ms. Mack opposes the application on the basis that Mr.

Datzoff was properly served, and says that in any event, he cannot satisfy the criteria for setting aside a Default Notice. I. Background [ 4 ] Ms. Mack issued her Statement of Claim on March 16, 2020. She arranged to serve her Statement of Claim on Mr. Datzoff via recorded mail. On April 21, 2020, the recorded mail sent on behalf of Ms. Mack addressed to Mr. Datzoff was signed for by Mr. Datzoff’s new partner, Jennifer Jones. Ms. Jones has sworn an Affidavit in support of Ms. Mack’s position stating that she hand delivered the sealed envelope containing the Statement of Claim to Mr.

Datzoff the same day, and she observed him open it. [ 5 ] Ms. Mack has produced a text message sent by Mr. Datzoff to herself on April 21, 2020, in which he states, “I find it funny that you think you are going after half of this house, that you have not contributed to ever, good luck.” [ 6 ] Ms. Mack filed an Affidavit of Service sworn by Donna Fortune on April 23, 2020, in which Ms. Fortune swears that she served Mr. Datzoff with the Statement of Claim via recorded mail and attaching as an exhibit the signature card signed by Ms. Jones. [ 7 ] On April 30, 2020, Ms.

Mack’s counsel received a letter from another law firm indicating that they had been retained to act for Mr. Datzoff on a limited scope retainer with respect to “the Plaintiff’s claim for unjust enrichment and property”. They also advised that Mr. Datzoff was in the process of obtaining an appraisal of the home. The letter concludes with: “I assume that you arranged to serve the Statement of Claim on my client to preserve your client’s limitation period, and that there is no requirement from your perspective that a defence be filed so long as we are able to move this matter ahead by negotiation.

As a result, I request that you confirm in writing that you will not note my client in default without reasonable advance notice to me in writing.” [ 8 ] That law firm’s retainer ended by May 15, 2020. [ 9 ] On May 21, 2020, Mr. Datzoff sent Ms. Mack’s counsel an email referencing the Statement of Claim. [ 10 ] Mr. Datzoff was noted in default on July 8, 2020, not having filed a Statement of Defence or Demand of Notice. [ 11 ] Mr. Datzoff retained his second counsel in August 2020 in response to Ms. Mack’s application for child support. He says that he learned of the Default Notice at that time.

His second counsel contacted Ms. Mack’s counsel and discussed the Noting in Default. Ms. Mack’s counsel agreed to take no further steps without giving reasonable notice pending settlement discussions. Some further correspondence was exchanged but no progress was made, and in October 2022, Ms. Mack’s counsel advised she had instructions to proceed with the litigation. Mr. Datzoff’s second lawyer then withdrew. [ 12 ] Some further discussions occurred, and ultimately, Mr. Datzoff retained new counsel and brought this Application.

He says that he had assumed his second counsel had addressed the issue of the Default Notice. II. The Law [ 13 ] Rule 11.5(1) outlines how a party must be served with a commencement document such as a Statement of Claim: Service on individuals 11.5(1) A commencement document may be served on an individual who is not required to be served by another method under this Division (

a) being left with the individual, or (

b) being sent by recorded mail addressed to the individual.

(2) Service is effected under this rule (

a) if the document is left with the individual, on the date it is left, or (

b) if the document is sent by recorded mail, on the date acknowledgment of receipt is signed by the individual to whom it is addressed. [ 14 ] When a defendant does not file a Statement of Defence or Demand of Notice, having been properly served with a Statement of Claim, the Defendant may be noted in default pursuant to Rule 3.36(1): Judgment in default of defence and noting in default 3.36(1) Subject to subrule (2) and

Part 11, Division 8, 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 or demand for notice and consequently is noted in default. [ 15 ] A Default Notice may be set aside upon application to the Court pursuant to Rule 9.15(3): Setting aside, varying and discharging judgments and orders 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 affected persons, or (

b) following a trial or hearing at which an affected person 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, 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 , or (

c) set aside, vary or discharge a judgment entered in default of defence by the plaintiff for the recovery of property under rule 3.38 , or for a debt or liquidated demand under rule 3.39 . [ 16 ] In Kraushar v Kraushar , 2019 ABCA 186 , at para 5 , the Court of Appeal has said that there generally are two circumstances in which applications to set aside a Default Notice are made: • Where there is a non-trivial flaw in the process leading up to the default judgment, the defendant, acting promptly, has a right to have it set aside: Anstar Enterprises Ltd v Transamerica Life Canada, 2009 ABCA 196 at para 13 , 457 AR 68; Yehya v Thomas , 2019 ABCA 164 at para 11 ; and • Where the procedure leading up to the noting in default is regular, the courts habitually refer to three criteria, which are summarized in Palin v Duxbury , 2010 ABQB 833 at para 21 , 15 CPC (7th) 191: (

i) an arguable defence; (ii) that the defendant did not intend to allow the judgment to go by default and offers some reasonable excuse for the default such as illness or a solicitor’s inadvertence; and, (iii) that once the noting in default came to the defendant’s attention, they promptly applied to set it aside. [ 17 ] A judge hearing the application to set aside retains discretion to do so where fairness requires it to be granted: Kraushar at para 6 . III. The Parties’ Positions [ 18 ] Mr.

Datzoff says that first, there has been no service of the Statement of Claim in accordance with Rule 11.5 because there was a “non-trivial flaw” in service. He points to the fact that the affiant of the Affidavit of Service swears that Statement of Claim was served upon him via recorded mail and yet, the receipt was not signed by Mr. Datzoff. As such, service did not comply with the requirement under Rule 11.5(2) that the receipt be signed by the individual to whom it is addressed (i.e., Mr. Datzoff). Ms. Mack could have applied to have service upon Mr.

Datzoff validated pursuant to Rule 11.27, because he had been given the Statement of Claim by Ms. Jones, but she did not, and so we are left with flawed service which does not meet the requirements of Rule 11.5. [ 19 ] Mr. Datzoff also says that he has acted promptly. He says that he retained his second counsel shortly after he was noted in default. He swears an Affidavit stating that he understood that his second counsel dealt with having the Default Notice set aside and filing a Statement of Defence.

He was surprised to learn much later that, in fact, those things had not been dealt with. [ 20 ] Alternatively, Mr. Datzoff says that the Default Notice should be set aside because he meets the three criteria set out in Palin . He says that Ms. Mack’s claim for unjust enrichment and division of property is not strong because he was the sole owner of the parties’ home, having purchased it using funds from the sale of a home he owned prior to their relationship, and thus he has an arguable defence.

He swears that he had no intention to be in default, as evidenced by his first counsel’s request not to note him in default, and his prompt retainer of his second counsel once he had been noted in default. He has a reasonable excuse for the default and any delay as he has understood that his second counsel had dealt with the issue appropriately. [ 21 ] Ms. Mack says that even though Mr. Datzoff did not sign for the recorded mail, there has been good service because Ms.

Jones physically handed the envelope with the Statement of Claim to him. It is abundantly clear that Mr. Datzoff was made aware of theClaim because he texted Ms. Mack the same day about it, and there were further communications from his lawyer on April 30, 2020. She also says that Mr. Datzoff has not acted promptly. The communications between her counsel and Mr. Datzoff and his counseldemonstrate Mr. Datzoff’s hope that the litigation would simply “go away” if he did nothing. The failure to act promptly is fatal to Mr.Datzoff’s Application. IV. Analysis [22] I will first consider whether Mr.

Datzoff has been properly served or whether there is a non-trivial flaw in service. [23] The Rules of Court set out a complete code for service in

Part 11, Rules 11.1-11.32. The “General Provisions” are set out inDivision 1, Rules 11.1-11.2. The subsequent provisions are the more specific. Division 2, Rules 11.3-11.19 deal with the service ofcommencement documents. A Statement of Claim is a commencement document, as defined in the Appendix of the Rules of Court. [24] Rule 11.5 provides for two methods of service of a commencement document: personal service (i.e., the commencementdocument being left with the defendant) or service via recorded mail. Ms. Mack opted for service via recorded mail, one of the twopermitted methods.

As things would have it, service did not go exactly as planned, through no fault of Ms. Mack, because the letter wasnot signed for by Mr. Datzoff as required by Rule 11.5(2)(b). [25] Service by recorded mail is only effective under this Rule if the mail is signed for by the addressee: Al-Ghamdi v Alberta,2017 ABQB 684, at para 308. Service of a statement of claim on a defendant who did not sign the receipt for recorded mail can be setaside: Al-Ghamdi at para 325. Thus, Ms.

Mack does not have good service via recorded mail, despite what the filed Affidavit of Servicesays. [26] However, based upon the evidence of Ms. Jones, Mr. Datzoff still received the Statement of Claim on April 21, 2020, becausehe was given it directly by Ms. Jones. He was also aware that his rights were engaged as evidenced by his subsequent text message toMs. Mack as required by Sandhu v MEG Place LP Investment Corp., 2012 ABCA 266. I conclude that this constitutes good serviceunder Rule 11.5(1)(a).

Whether there is service is a question of fact: Thompson v Procrane Inc, 2016 ABCA 71, at para 12, and requiresmore than a defendant simply having notice of the claim: Al-Ghamdi at paras 319-320. I find that service was affected in compliancewith Rule 11.5(1)(

a) when Ms. Jones gave the envelope with the Statement of Claim personally to Mr. Datzoff, even though this was notMs. Mack’s intended method of service. [27] Having concluded that there is good service of Ms. Mack’s Statement of Claim upon Mr. Datzoff, I will next address whetherthe Default Notice filed by Ms. Mack against Mr. Datzoff ought to be set aside and Mr.

Datzoff ought to be permitted to file a Statementof Defence. [28] The common law test for setting aside a default judgment or to permit a defence to be filed by a party noted in default is statedin Poloma Investments Ltd v Yuen, 2016 ABCA 93, at para 4: ...This has been interpreted to require courts to exercise their discretion to achieve fairness by considering, among other things, whetherthere was a reasonable explanation advanced for the failure to file a timely defence, the absence of delay in moving to set aside thedefault judgment and an arguable defence on the merits as set out in Don Reid Upholstery Ltd v Patrie (1995) (ABKB), 173 AR 233, as endorsed by Justice Rowbotham of this Court in a single judge chambers decision Settlement Lenders Inc vBlicharz 2016 ABCA 33 at paras 8, 19 and 21. [29] With respect to the question of whether Mr.

Datzoff has a reasonable explanation for the failure to file a timely defence andthe issue of whether there was delay in moving to set the Default Notice aside, I find that he has displayed a certain amount of casualnesswith respect to his obligations to attend to Ms. Mack’s claim. Some of that may have been as a result of information received from his counsel. The April 30th letter from Mr. Datzoff’s first counsel references a request to not note Mr. Datzoff in default without furthernotice. There is no evidence about what Ms.

Mack’s response was to that request – either agreement or any indication that she would notagree to that request. Mr. Datzoff has not provided much in the way of evidence as to what his explanation was for the delay in filing adefence during this time, although it can be inferred that he and his first counsel simply assumed that Ms. Mack would not take furthersteps against him. That assumption, it turns out, was in error. [30] Further, once second counsel was retained in August, there was discussion about the Default Notice. Mr. Datzoff has givenevidence that he understood his counsel had dealt with the issue.

Again, he was incorrect. [31] However, inadvertence of counsel and an honest belief that either counsel had an agreement that Ms. Mack would take nofurther steps and that the Default Notice had been dealt with by counsel can be a reasonable explanation for the delay. [32] Finally, there is the issue of whether Mr. Datzoff has an arguable defence on the merits. While Ms. Mack may be correct thatshe has a cause of action against Mr. Datzoff, her success will depend upon many factors, including an assessment of whether Mr.Datzoff was unjustly enriched because Ms.

Mack stayed at home, whether the home was joint property or whether it belonged to Mr.Datzoff alone, and if the home has increased or decreased in value. A determination of these issues in Ms. Mack’s favour is not aforegone conclusion. I therefore conclude that Mr. Datzoff does have an arguable defence. [33] Mr. Datzoff has made assumptions as to the status of the litigation which were erroneous but may result in him meeting thetest set out in Poloma and Palin. However, even in the face of the delays, I find that the issue of fairness is a concern.

Like inKraushar, the consequences of allowing a Default Judgment to go against Mr. Datzoff would be the loss of half of the equity in hishome. In comparison, if the Default Notice is set aside, Ms. Mack is in no worse position than the position she was in at the outset;having to establish her entitlement. I therefore exercise my discretion to set aside Ms. Mack’s Default Notice and to permit Mr. Datzoffto file a Statement of Defence. Any delay or expense that Ms. Mack has been put to as a result of Mr. Datzoff’s delay can be

compensated for in costs. V. Conclusion [ 34 ] I conclude that Mr. Datzoff was personally served with the Statement of Claim on April 21, 2020. [ 35 ] Given all the circumstances, I conclude that Mr. Datzoff is entitled to have the Default Notice set aside. Mr. Datzoff shall file his Statement of Defence no later than seven days from the date of this Decision. [ 36 ] Ms. Mack should be compensated for her time and expense she has expended in order to gain Mr. Datzoff’s engagement in this litigation. I therefore award her thrown away costs of $1,500 to be paid by Mr.

Datzoff forthwith. [ 37 ] I further direct the parties to enter into a Litigation Plan providing for deadlines for the steps needed in this matter leading to and including setting the matter for trial within 30 days. If the parties cannot agree on a Litigation Plan, they shall submit their proposals for a Procedural Order to me in writing for further direction. Heard on the 30 th day of May, 2023. Dated at the City of Edmonton, Alberta this 8 th day of June, 2023. L.K. Harris J.C.K.B.A.

Appearances: Lisa Chieduch Verhaeghe Law for the Plaintiff Jordan Bienert Capital City Law for the Defendant _______________________________________________________ Corrigendum of the Reasons for Decision of The Honourable Justice L.K. Harris _______________________________________________________

In paragraph 34, the month of August was changed to April.