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On Deck Capital Canada, ULC v. Northern Protocol Inc., 2022 ONSC 2335

Should a defendant who has evaded formal service be able to set aside default judgment?

Northern Protocol and its principal, Aaron Weston, were the parties to several loan agreements with On Deck Capital. Northern Protocol was the borrower, and Weston provided a personal guarantee of the loan indebtedness. There was a default in loan repayments. Save for one payment after litigation was commenced, all payments stopped on November 16, 2019. On June 6, 2020, On Deck commenced an action to collect the outstanding indebtedness, claiming that the amount outstanding on the loan was $70,974.32.

On June 17, 2020, On Deck properly served the Statement of Claim on Northern Protocol at its place of business and registered head office. Weston was not personally served with the Statement of Claim. Nevertheless, later in the day, Weston wrote to On Deck’s counsel and advised that the Defendants would be taking steps to retain counsel. Counsel responded the next day and asked that a Statement of Defence be filed by July 8, 2020. Between June 17th and July 2, 2020, On Deck’s counsel repeatedly requested that Weston file a Statement of Defence, failing which the defendants would be noted in default.

In September 2020, Weston moved to Mexico. From time to time thereafter, he took the position that he must be served in Mexico. In the meantime, neither Northern Protocol nor Weston delivered a Statement of Defence. On November 25, 2020, Northern Protocol was noted in default. On December 7, 2020, On Deck’s counsel advised Weston that Northern Protocol had been noted in default, and inquired whether Weston would accept service in his personal capacity. Weston responded by mocking the Statement of Claim, incorrectly claiming that both defendants had to be served in order for the action to proceed against either of them, and suggesting that On Deck was throwing good money away for which there would be no return.

On January 14, 2021, a copy of the Statement of Claim was served at the residence of Weston’s brother. Weston may have been in Canada at the time, and he almost immediately received a copy of the Statement of Claim. Accordingly, there was valid and effective service on Weston. On February 16, 2021, Weston was noted in default. On February 24, 2021, Weston’s counsel advised that he would be bringing a motion to have the noting in defaults set aside. The motion judge granted the defendants’ motion to set aside their noting in default, and ordered On Deck to pay costs of $4,500 in the cause.

Although they are not exhaustive and the overriding factor is the interests of justice, for setting aside a noting in default, the major relevant factors are: (a) whether the defendant brought his or her motion without undue delay; and, (b) whether he or she explains why there was a default.

For eight months, Weston did nothing to defend himself or his company notwithstanding his assertions about defending and his protests about or threats about staying proceedings by a petition into bankruptcy. A third relevant factor is whether the defendant can show a defence on the merits. Motions to set aside a noting of default are frequently granted because it is typically not in the interest of justice to grant judgments based solely on technical defaults, and courts prefer to dispose of proceedings on their merits whenever possible. Only in extreme circumstances, however, should the court require a defendant who has been noted in default to demonstrate an arguable defence on the merits.

On appeal, the appellate court held that the motion judge misapprehended the facts and misapplied the factors. Notwithstanding that he was not personally served at the time, Weston had a copy of the Statement of Claim in June 2020, knew the claim’s substantive contents, and had committed to retaining lawyers to defend the action in June 2020. Northern Protocol had been advised that it had been noted in default in November 2020. Northern Protocol might have moved in December 2020 to challenge the noting in default, but it did not. Further, Weston’s counsel did not deliver a draft pleading until March 2021 as part of a motion to set aside the noting in defaults of two defendants.

Accordingly, the appellate court granted On Deck’s appeal.

Judge: Justice Perell

CounselJessica Hewlett of Katzman & Associates for the plaintiff; Siddharth Joshi of Powell Litigation for the defendant

Fullcase:ttps://canlii.ca/t/jnsmw

By Matilda Lici