Setting Aside Default Judgments

Faced with the daunting task of applying to set aside a default judgment, the commonly cited authority is the decision of Mr. Justice Hinds in Miracle Feeds v. D. & H. Enterprises Ltd., [1979] B.C.J. No. 1965, 10 B.C.L.R. P 58.  It establishes a four part test … three really, since the fourth step simply addresses mode of proving the previous three: (1) That the applicant did not willfully or deliberately fail to enter an appearance or file a defence to the plaintiff’s claim, (2) That the application to set aside the default judgment was made as soon as reasonably possible after obtaining knowledge of it, or explain any delay in bringing the application, (3) That the applicant has a meritorious defence or at least a defence worthy of investigation, and (4) Establish the foregoing to the satisfaction of the court through affidavit material.  The court’s application of this test involves an exercise of discretion when assessing the weight given the test’s individual factors and reasonableness of the defendant’s explanation in each case.  This test has effectively been codified in the Small Claims Rules which address cancelling a dismissal or default order.

A different and stronger authority is available if a defendant can prove they were not served with the proceeding.  Where a defendant has not received notice, the granting of default judgment becomes a failure of natural justice.  The defendant has been deprived of their right to be heard and the default judgment is considered a nullity, which the defendant is entitled to have set aside as of right.  In Bache Halsey Stuart Shields Inc. v. Charles Estate [1982] B.C.J. No. 1757, 40 B.C.L.R. 103, Mr. Justice Spencer contrasted the different approach taken where natural justice was an issue, at paragraph 4:

    Inasmuch as the Rules of Court require notice to any person who has entered an appearance of any order which the court may be asked to make against him, the failure to give notice here would be an irregularity.  …  In this case it was the court which was asked to and which gave judgment, no notice having first been given to the defendant. Apart from being a breach of the Rules, however, there is in my opinion a broader basis upon which the impugned order may be attacked. It was a judgment given without notice to the defendant and therefore under circumstances where he was deprived of his right to be heard. Such a judgment is contrary to the rules of natural justice and is, in my opinion, capable of being declared a nullity for that reason rather than being treated merely as an irregularity for a breach of the rules. ….

This remedy was applied where a defendant had not been properly served with process, but was aware of the existence of the proceeding.  In Hudson’s Bay Co. c. Kallweit [1976] B.C.J. No. 71 (Co. Ct.) at paragraph 4:

    … I am prepared to find that she was aware of the existence of the writ before the default judgment was taken against her, but mere knowledge of the existence of the writ against her without service of the document upon her is, in my opinion, insufficient to found further proceedings in the action against her. Order 9, R. 3 requires that where husband and wife are both defendants to an action both shall be served unless otherwise ordered. No such order has been made in this case. Whilst the applicant could have been served by her husband handing her a copy of the writ there is no evidence that he did so. Since the applicant was not served with the writ she is entitled ex debito justitiae to have the purported service and the judgment flowing from it to be set aside. See Hagemeister v. Walters, [1925] 2 W.W.R. 682, and Hamp-Adams v. Hall, [1911] 2 K.B. 942.

It is worthy of note that Hudson’s Bay Co. involved consideration of conflicting affidavit evidence tendered by a process server and the defendant, which was ultimately resolved in favour of the defendant.  Counsel should make it part of their practice to obtain and review affidavits of service for adequacy.

This remedy was also applied where a defendant had notice of the proceeding, but did not receive notice of a hearing scheduled in the course of the action and their non-attendance resulted in a default judgment.  In Michalakis v. Nikolitsas [2002] B.C.J. No. 2808, 2002 BCSC 1708, the court considered an application for judicial review of the dismissal of the defendant’s application to set aside a Small Claims default judgment, issued because he failed to attend a Settlement Conference.  The Small Claims chambers judge accepted that the defendant had not received notice of the Settlement Conference, but declined to set aside the default judgment.  At paragraph 7 of his Reasons, Mr. Justice Rogers quoted Lord Greene M.R. in Craig v. Kanssen, [1943] 1 K.B. 256:

“In my opinion, it is beyond question that failure to serve process where service of process is required goes to the root of our conceptions of the proper procedure in litigation. Apart from proper ex parte proceedings, the idea that an order can validly be made against a man who has had no notification of any intention to apply for it has never been adopted in this country. It cannot be maintained that an order which has been made in those circumstances is to be treated as a mere irregularity and not as something which is affected by a fundamental vice.”

He went on to apply this principle to the case before him at paragraphs 9 and 10:

    This case is different from one where there is service of process in accord with the applicable procedural rules, but the defendant is culpably unaware of the proceeding. When the defendant does not attend to his business as he should, then ignorance of the proceeding resulting in default might not bottom his application to set aside the consequence of his default. It is in that situation that the court may consider the merit, equity, and justice of the defendant’s application and may exercise its discretion to confirm or cancel the default.

10     The fact that Mr. Michalakis did not have notice of the second settlement conference is the kind of flaw Lord Greene contemplated in Craig. Natural justice requires that a party not be found in default of a proceeding he does not know about. Where the court finds that process has been taken against a litigant without notice where notice was required, the principles of natural justice apply and the situation is one in which the court must set aside the default. That is not a situation that calls for an exercise of discretion. It seems to me that it was patently unreasonable for the learned chambers judge to have held on the one hand that the defendant had no notice of his jeopardy and on the other hand to confirm judgment against him. That result flies in the face of the rules of natural justice and cannot stand.

Faced with having to apply to set aside a default judgment, counsel would be well served by reviewing whether the defendant was properly served with process and received actual notice of the proceeding or step taken in the proceeding which led to the default judgment.  If evidence is available to show the defendant did not have notice, a stronger, non-discretionary test applies and the default judgment should be set aside as of right.

-John W. Bilawich