Test to Set-Aside a Default Judgement

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Date Retrieved:	2024-05-19
CLNP Page ID:	1869
Page Categories:	[Rule 11 - Default Proceedings (SCSM Rules)]
Citation:	Test to Set-Aside a Default Judgement, CLNP 1869, <https://rvt.link/4g>, retrieved on 2024-05-19
Editor:	Sharvey
Last Updated:	2023/02/20

O. Reg. 258/98: RULES OF THE SMALL CLAIMS COURT

11.06 The court may set aside the noting in default or default judgment against a party and any step that has been taken to enforce the judgment, on such terms as are just, if the party makes a motion to set aside and the court is satisfied that,

(a) the party has a meritorious defence and a reasonable explanation for the default; and

(b) the motion is made as soon as is reasonably possible in all the circumstances. O. Reg. 78/06, s. 24.

Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 (CanLII)

[47] The court's 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] O.J. No. 2971, 2012 ONSC 3836 (S.C.J.), 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; [page568]

(b) whether there is a plausible excuse or explanation for the defendant's 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), 87 O.R. (3d) 479, [2007] O.J. No. 1685, 2007 ONCA 333, 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 motion judge may 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 cent per annum.

...

[55] A motion judge's 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 Corp., [2008] O.J. No. 5345, 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

Adam Macarthur Electrical Contracting Ltd. v Lamb Development Corporation, 2017 CanLII 37773 (ON SCSM)

11. The test for setting aside a default judgment in Small Claims Court is set out in Rule 11.06, as follows:

11.06 The court may set aside the noting in default or default judgment against a party and any step that has been taken to enforce the judgment, on such terms as are just, if the party makes a motion to set aside and the court is satisfied that,

(a) the party has a meritorious defence and a reasonable explanation for the default; and

(b) the motion is made as soon as is reasonably possible in all the circumstances.

...

20. At the hearing, neither party presented case law as to the interpretation of the meaning of “meritorious defence.” In Shamar, supra, I stated:

On at least a simple reading of the claim and defence together, the defence appears to me to be reasonably coherent and plausible….

21. I accept that the plaintiff here may have a strong case such that the defence (in particular, that the wrong entity is being sued) will not prevail at trial. But I respectfully do not see that a judge on a motion to set aside a default is called upon in effect to determine whether the defence will prevail at trial: the test must be less onerous than that. See Heasman v Mac’s Convenience Store Inc., 2015 ONSC 2290 (CanLII), (2015) O.J. No. 1746, 252 A.C.W.S. (3d) 576 (Div. Ct.).

22. As in Shamar, supra, I have read the draft defence along with the claim and the affidavit material, and in that context the defence appears to me to be reasonably coherent and plausible. I would therefore find that the test of “meritorious defence” is met.

...

25. As noted, I invited the parties to make post-hearing submissions, in particular on the issue of whether the motion had been brought “as soon as is reasonably possible in all the circumstances.”

26. Neither party provided cases applying the applicable Small Claims Court rule, Rule 11.06.

27. Defendant’s counsel did provide cases applying the analogous Superior Court rule, which is worded more broadly. Rule 19.08(1) of the Rules of Civil Procedure reads simply:

19.08 (1) A judgment against a defendant who has been noted in default…may be set aside or varied by the court on such terms as are just.

28. In Mountain View Farms Ltd. v McQueen, 2014 ONCA 194 (CanLII), (2014) O.J. No. 1197, the motion to set aside default judgment was not brought until over six years after the date of the judgment. Although it is not clear from the decision on what date the judgment had come to the attention of the defendant, it was clearly at least over a year before the motion. In the decision of the Court of Appeal, Gillese J.A. set out five “factors” that had been developed in the case law for the court to consider in the application of Rule 19.08, including three that are substantially similar to what is set out in Rule 11.06 of the Small Claims Court. She wrote, at para. 51, “…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.”

Hiley v. Hill, 2018 ONSC 5315 (CanLII)

[11] In the majority of cases, the most important factor on a typical motion will be the requirement to establish that the moving defendant has “a meritorious defence”. Morgan v. Toronto (Municipality) Police Services Board, 2003 CarswellOnt 1105 (Ont. C.A.) at paras. 25-26. If the record makes clear that the defendant has no defence, there is little point in setting aside the default judgment as the net effect of doing so may simply be to increase the defendant’s liability by exposing him or her to the risk of a representation fee at trial. However, if there is a meritorious defence, the system favours a determination on the merits so both parties have a full opportunity to present their respective sides of the story.

[12] A “meritorious defence” means an arguable defence. It does not require the moving defendant to establish that the defence is likely to succeed at trial. (Coombs v. Curran, 2010 ONSC 1312 (Ont. Div. Ct.) (CanLII)