Setting Aside Default Involves Undoing a Previous Noting In Default and Any Further Steps

Setting Aside Noting of Default by Court on Motion

11.06 The court may set aside the noting in default or default judgment against a party and any step that has been taken to enforce the judgment, on such terms as are just, if the party makes a motion to set aside and the court is satisfied that,

(a)  the party has a meritorious defence and a reasonable explanation for the default; and

(b)  the motion is made as soon as is reasonably possible in all the circumstances.

[6]  Rule 19.03(1) of the Rules of Civil Procedure, RRO 1990, Reg 194 provides that a noting of default may be set aside by the court on such terms as are just.  The defendants cite Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 as outlining the requisite test.  However, that case involved setting aside a default judgment, which has not been obtained here.  In my view, the test for setting aside a noting in default is less rigorous.

[7]  In the recent case of Franchetti v. Huggins, 2022 ONCA 111, at paras. 5-10, the Court of Appeal addressed applicable considerations on a motion to set aside a noting in default.  Whether to set aside a noting of default is a discretionary decision.  As stated by the Court of Appeal, there is a strong preference for deciding civil actions on their merits, and a desire to construe rules and procedural orders non-technically and in a way that gets the parties to the real merits.

[8]  Relevant factors to be considered when deciding whether to set aside a noting in default include the parties’ behaviour; the length of the defendant’s delay; the reasons for the delay; the complexity and value of the claim; whether setting aside the noting of default would prejudice a party relying on it; the balance of prejudice as between the parties; and whether the defendant has an arguable defence on the merits (although courts will rarely require a defendant who has been noted in default to show an arguable defence on the merits if the motion is brought early in the litigation process).  Those factors are not exhaustive.

[8]  Under r. 19.03, a defendant noted in default may move to have the noting of default set aside, and this may be ordered “on such terms as are just.” In the context of an action that had been dismissed for delay, Weiler J.A. discussed several guiding principles that are also relevant to setting aside a noting of default: H.B. Fuller Company v. Rogers, 2015 ONCA 173, 386 D.L.R. (4th) 262, at paras. 25-29. These include the strong preference for deciding civil actions on their merits, the desire to construe rules and procedural orders non-technically and in a way that gets the parties to the real merits, and whether there is non-compensable prejudice to either party.

[9]  There are many cases discussing the criteria for setting aside a noting of default. See particularly Laskin J.A.’s detailed exposition in Kisel, at para. 13. To summarize the jurisprudence, the following factors have been found to be relevant in considering whether a noting of default should be set aside:

(1) The parties’ behaviour;

(2) The length of the defendant’s delay;

(3) The reasons for the delay;

(4) The complexity and value of the claim;

(5) Whether setting aside the noting of default would prejudice a party relying on it;

(6) The balance of prejudice as between the parties; and

(7) Whether the defendant has an arguable defence on the merits.

[10] These factors are not exhaustive nor are they to be applied as rigid rules. An arguable defence on the merits may justify the court in exercising its discretion to set aside a default judgment, and for that purpose it is sufficient for the defence to have an “air of reality”: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at para. 51. However, perhaps because requests to set aside noting in default usually occur early in the litigation process, unlike this case, courts will rarely require a defendant who has been noted in default to show an arguable defence on the merits. In a case such as this one involving a significant delay, the moving party is required to show an arguable case on the merits.

[47] The court's ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order. The approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, [2012] O.J. No. 2971, 2012 ONSC 3836 (S.C.J.), at paras. 19-20 and 23-24.

[48] The court must consider the following three factors:

(a)   whether the motion was brought promptly after the defendant learned of the default judgment;

(b)   whether there is a plausible excuse or explanation for the defendant's default in complying with the Rules; and

(c)   whether the facts establish that the defendant has an arguable defence on the merits.

[49] To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd.  (2007), 87 O.R. (3d) 479, [2007] O.J. No. 1685, 2007 ONCA 333, at para. 2:

(d)   "the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the respondent should the motion be allowed"; and

(e)   "the effect of any order the motion judge may make on the overall integrity of the administration of justice."

[50] These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.

[51] For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.