Under the Rules of Civil Procedure in Prince Edward Island, whether a default judgment can be set aside is a discretionary decision which the court may grant on such terms as are just. The circumstances in which a default judgment may need to be set aside are relatively rare but may arise through inadvertence or failure of an insured to report a claim in a timely manner. Alternately, the insurer may be the respondent in a motion to lift default judgment that was obtained by way of subrogated claim. City of Summerside v Total Machine Works Inc., 2016 PESC 41 [Total Machine Works], is the most recent in a line of PEI cases in which the Court may be progressively marginalizing the role of the guidelines for lifting default judgment established by the case law.
Background
Collins was the principal shareholder in two closely held corporations, Total Machine Works Inc. and Advanced Arc Welding Ltd. (the "Companies"). The Companies had performed work for the City of Summerside (the "City") for which they were overpaid $77,141.00 due to an accounting error. Collins and the Companies had made partial repayments but the City filed a Statement of Claim for the outstanding balance to which no Statement of Defence was filed in response. The City subsequently sought and obtained default judgment. The Companies brought this motion to lift default judgment arguing they hadn't signed any agreement to return the funds.
The Decision
The decision is interesting for its evolution in the Court's treatment of the established guidelines for setting aside default judgment. Those established guidelines are: 1) timeliness of the set aside motion; 2) a plausible explanation for the default; and, 3) an arguable defence on the merits. Although the Court relied on the established guidelines in its analysis, it emphasized the discretionary nature of the decision and downplayed the role of the guidelines. In the result, the Court denied the motion and rested its decision on its finding that the Companies' defence was not an arguable defence on the merits and had no possibility of success at trial.
A very brief background of the case law in PEI is necessary to contextualize the obiter comments in Total Machine Works. In a 2003 decision, Dockendorff v Bank of Montreal, 2003 PESCTD 19, the court referred to the guidelines as "requirements" that the moving party "must" demonstrate. Subsequently in a 2007 decision, Jorand Holdings v Pecoskie, 2007 PESCTD 17, the Court opined that the established guidelines were "so-called requirements" and that the test was not rigid. It was recognized that, given the right case, a judge may grant the motion whether or not all three requirements are met.
In Total Machine Works, the Court has now opined that the guidelines are "not requirements or rules – they are at most suggestions". It appears that in PEI the guidelines for setting aside default judgment have evolved (some might say devolved) from a mandatory test to possible considerations.
Lessons for Insurers
The effect of the Court's decision is that counsel's ability to rely on the certainty provided by the guidelines has been diminished. Although the guidelines have never been binding and the decision has always been a discretionary one, the Court has now signaled its willingness to depart from the established guidelines and consider other factors in determining a just result. Each case will depend on its facts but it may become more difficult for counsel (and insurers) to predict the outcome of a motion to set aside default judgment, both in cases where the insurer is the moving party and in cases where they are the respondent.
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