The Ontario Court of Appeal has upheld a Superior
Court Judge's decision to set aside a default judgment obtained
by the plaintiff and allow the defendant the opportunity to enter a
The plaintiff provided various crop services to the defendant
for a number of years. The defendant would routinely pay the
plaintiff's invoices late. This was not necessarily problematic
since the plaintiff trusted the defendant and its invoices were
usually paid, albeit late.
As the defendant got older, his son took a more active
involvement in the defendant's operations. While the plaintiff
trusted the defendant, it did not trust his son.
In 2005, the defendant was indebted to the plaintiff for nearly
$50,000 for services rendered. The plaintiff had the defendant sign
an invoice acknowledging the indebtedness. The invoice also
stipulated that interest would accrue at a rate of 24% per
The invoice was never paid. The plaintiff sued and obtained
default judgment in 2005 for the principal amount plus interest at
24% per year.
The plaintiff then filed writs against the defendant's
properties and took no further steps to enforce its judgment.
The defendant's properties were transferred by the defendant
to his son in 2010. The properties were transferred subject to the
writs. In other words, both the defendant and his son were aware of
the writs, and the judgment, in 2010.
It was not until the son wished to refinance the properties in
2011 that things came to a head.
The defendant brought a motion to set aside the judgment and
enter a defence. By the time the motion was heard the defendant had
accepted that he owed the principal amount and, in fact, had paid
the principal plus costs. The issue was the interest. The defendant
argued that he had never agreed to 24% interest and sought to
defend that portion of the claim.
The motion judge found that there had been an "inexplicable
delay" in bringing the motion. Nevertheless, the motion judge
ruled, given the evidence from both sides that the defendant may
not have actually agreed to pay 24% interest, that it was in the
interest of justice to set aside the default judgment and change
the rate of interest from 24% to 5%.
The Court of Appeal held that the motion judge's decision
was entitled to deference and should not be interfered with absent
an error in law or principal, a palpable and overriding error of
fact, or unless the decision is so clearly wrong as to amount to an
However, the Court of Appeal did vary the motion judge's
decision in part. As stated above, the motion judge substituted the
24% interest rate for a 5% interest rate. The Court of Appeal held
that in doing so the motion judge essentially disposed of the case
on its merits as opposed to merely setting aside the default
judgment and allowing the case to proceed defended.
The Court of Appeal held that while it may have been just for
the motion judge to set aside the judgment and allow a defence, it
was not just for the motion judge to make a final determination and
substitute a new interest rate.
As such, the Court of Appeal ordered that both the 24% and 5%
rates be set aside and the matter proceed for an adjudication as to
the proper rate of interest.
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guide to the subject matter. Specialist advice should be sought
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