Setting aside default judgment

Traditionally setting aside a default judgment has required fulfilling a three-part test. The Defendant must establish: (1) there was a reasonable explanation for the failure to file the Statement of Defence; (2) there is a prima facie defence on the merits of the claim and (3) the Defendant promptly moved to set aside the Default Judgment.

 Recent caselaw has made the test somewhat less rigid and more equity based. So the decision in B2B Trust v. Pearce, 2013 ONSC 2305 holds:

 [2] The defendant, as co-mortgagor with her husband and co-defendant, gave a mortgage to the plaintiff to secure a $50,000 loan that the husband used for his own business purposes. The defendant got no direct benefit. The defendants subsequently separated. The husband agreed to pay off the loan and have the mortgage discharged. He did not do so. Instead he went bankrupt.

[3] The plaintiff filed the action on December 15, 2012. On January 31, 2013 he noted the defendant in default. The defendant misread the notice about filing a statement of defence, but she made efforts to hire a lawyer and she communicated directly with the plaintiff. On February 6, 2013, having been notified of the default, the defendant hired a lawyer. The lawyer wrote to the plaintiff’s lawyer on February 11, 2013 to ask for consent to set aside the default. The next day the plaintiff’s lawyer wrote back inquiring as to the grounds for setting aside the order. The defendant filed the present motion, which first returned on March 7, 2013. In these circumstances I think that the defendant has explained the default and established that she moved promptly to set it aside.

[4] In order to succeed, she also has to establish that she has a defence. She does not need to prove her defence. It is enough if the defence has an air of reality and requires a trial: Watkins v. Sosnowski, 2012 ONSC 3836 (CanLII), 2012 ONSC 3836, per Perell J. at ¶24. This requirement is not meant to be enforced rigidly. I have to take into account the interests of justice as a whole and whether the opposite party will suffer prejudice: Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd, 2007 ONCA 333 (CanLII), 2007 ONCA 333. The Court of Appeal in Peterbilt and in Nobosoft Corp. v. No Borders Inc.,2007 ONCA 444 (CanLII), 2007 ONCA 444 has made it quite clear that default judgments should normally be set aside whether or not the defaulting party has strictly met the traditional three part test, as long as it would be consistent with the interests of justice to do so. An example of a case in which setting aside the default judgment was not considered to be consistent with the interests of justice may be found in 1067609 Ontario Inc. (Turner's Garage) v. Schell,2012 ONCA 310 (CanLII), 2012 ONCA 310. In that case the defendants took a year to ask for relief, and then made their motion on the eve of the scheduled uncontested trial, after having been warned repeatedly that they had to take steps or face the consequences.