1995 SBW 3096 IN THE SUPREME COURT OF NOVA SCOTIA BETWEEN: LEI-VALLI DUNHAM-THOMPSON and THE TOWN OF MAHONE BAY and THE ATTORNEY GENERAL OF NOVA SCOTIA REPRESENTING HER MAJESTY THE QUEEN IN RIGHTS OF THE PROVINCE OF NOVA SCOTIA DECISION HEARD: before the Honourable Chief Justice Constance R. Glube in Chambers, Halifax, Nova Scotia, August 28 and September 3, 1996 DECISION: Dated the 6th day of September, A.D., 1996. COUNSEL: M. Dunphy and R. Niedermayer for the Applicant, Town Blair Mitchell for the Respondent/Plaintiff Glube, C.J. This application pursuant to Civil Procedure Rule 12.06, is for an order setting aside the default judgment entered against the Town of Mahone Bay on February 7, 1996. As result of filing the default judgment, the application to assess damages has been set down for hearing in Bridgewater, Nova Scotia on October 26, 1996. The applicant filed the affidavits of Peter A. Flett, insurance adjuster for the Town employed by Lombard Canada Limited; Kyle R. Hiltz, the Town Clerk of the Town of Mahone Bay; and Richard S. Niedermayer, an associate with the law firm Cox Downie, solicitors for the Town in this application. The plaintiff/respondent filed the affidavit of her former counsel, Andrea Smillie. At the commencement of the hearing, counsel for the plaintiff advised the court the plaintiff is making no argument or objection to any delay in the Town bringing this application. accept the position of counsel. By letter dated July 18, 1996, counsel advised the Attorney General would not be making representations on this application. In 1989 or 1990, the Town hired CBCL Ltd., consulting engineers, to do study of the Town's sewer and water systems. CBCL was subsequently hired by the Town as consulting engineers to proceed with tenders for the work. Woodlawn Construction Co. was the successful bidder and entered into formal contract with the Town to do Phase 3. They commenced the work in August of 1993 and completed it in September, 1994. As part of Phase 3, an access road was constructed along side the plaintiff's property leading to the sewage treatment lagoon installed on hill adjacent to the plaintiff's property. The road work started in the fall of 1993, stopped for the winter, resumed on June 6, 1994, and was completed on July 18, 1994, when the road was paved. The plaintiff claims mudslide occurred during the road construction causing extensive damage to her property. She further claims general, special and exemplary damages, pre-judgment interest and costs on solicitor and client basis. The claim is for negligence and nuisance and there are additional claims for lost rentals, emotional upset and anxiety. The history of the pleadings and some of the relevant correspondence and contacts are as follows: October 5, 1994, the Town received notice of intended action. This was forwarded by the Town Clerk, to the Town's insurance agent, Mahone Insurance Agency. November 21, 1994, Mr. Baker, solicitor for the Town, received notice of change of solicitor for the plaintiff to Ms. Andrea Smillie. This was sent to the insurer by the Town Clerk. January 19, 1995, Ms. Smillie sent Mr. Baker draft statement of claim. Mr. Baker replied on the same date specifically stating the Town reserved the right to defend the claim fully and that it would raise all available defences. The draft statement of claim and Mr. Baker's reply were sent to the Insurer. January 26, 1995, Mr. Peter Flett of Continental Canada (the predecessor of Lombard) requested from the Town, copy of the contract and the tender to determine who was the proper insurer. May 16, 1995, the Town was served with the originating notice and statement of claim. May 18, 1995, Mr. Flett received copy of the statement of claim. He contacted Ms. Smillie on the telephone and advised he was trying to find out who the correct insurer was. He requested an indefinite waiver of the need to file defence pending his further efforts. May 19, 1995, Mr. Baker sent the affidavit of service confirming service on the Town to Ms. Smillie. By letter, Ms. Smillie confirmed to Mr. Flett the plaintiff would not proceed to judgment except on 10 days written notice. June 8, 1995, the Prothonotary of the County of Lunenburg informed Ms. Smillie and the Town, the Attorney General of Nova Scotia had filed defence. June 20, 1995, Ms. Smillie received certified copy of the Attorney General's defence. October 23,1995, Ms. Smillie wrote the Town Clerk concerning the matter and about any anticipated difficulties arising from the matters at issue. November 27, 1995, Mr. Flett received letter from Ms. Smillie confirming she would provide 10 days notice before filing default judgment. She also wanted the matter to proceed. At that point Mr. Flett spoke to his supervisor, and since he had received no response from Woodlawn's insurer, suggested and it was agreed, Mr. Flett would refer the file to Cox Downie to file defence on behalf of the Town. December 13, 1995, Mr. Flett spoke to Ms. Smillie on the telephone. She again said she wanted the litigation to move forward, at which time he told her he was forwarding the file to lawyers to have defence filed. December 14, 1995, Mr. Flett again asked for and received from the Town Clerk copy of the Woodlawn contract with the Town. December 18, 1995, Ms. Smillie wrote to Mr. Flett indicating defence must be filed by January 15, 1996. Although this letter is date stamped as received by Continental Canada on December 21, 1995, it does not bear Mr. Flett's initials and he has no recollection of being aware of the date the defence had to be filed. It was his usual practise to put his initials near the date stamp. In his affidavit sworn July 4, 1996, he states in paragraph 20, "I cannot say for certain if reviewed it when received." February 7, 1996, default judgment signed by the Prothonotary was entered against the Town. February 13, 1996, by letter from Ms. Smillie to Mr. Baker and copied to Mr. Flett, they learned of the default judgment being entered. This letter was received on February 16. Mr. Flett immediately phoned Mr. Dunphy of Cox Downie, with instructions for him to take action to have the default judgment set aside. According to Ms. Smillie, Mr. Flett only initiated one call to her, but Guardian Insurance, insurer of the contractor, Woodlawn, was in touch with her by telephone, meeting was held in August and there was an exchange of correspondence to and including October 12, 1995. Mr. Flett who learned Guardian insured the Town from December 1993 to April 1995, wrote to them about the matter in July of 1995, but received no reply and did not follow up with them. Effectively Mr. Flett did little work on this file from January 1995 until default judgement was filed in February 1996. Although Mr. Flett claims he was putting the material together in December 1995 and early January 1996, he did not complete and forward letter to Cox Downie before the default judgment was filed and entered in February. Following the filing of the defence by the Attorney General on June 8, 1995, the only new filing was list of documents by the Town on July 30, 1996. As of June 18, 1996, the plaintiff had not filed notice of intention to proceed. The current application was filed on July 17, 1996. The applicant raises the following issues: Should the default judgment be set aside because:1. there was no notice of intention to proceed filed prior to entering the default order; and/or 2. the court should exercise its discretion under Civil Procedure Rule 12.06; and/or 3. it was granted by the Prothonotary and not by the court contrary to Civil Procedure Rule 12.03. 1. Notice of Intention to Proceed. Civil Procedure Rule 3.04 is requirement for one month's notice of intention to proceed where six months or more have elapsed since the last step in proceeding: "3.04 Where six months or more have elapsed since the last step in a proceeding, the party who desires to proceed shall, unless the court otherwise orders, give to the Prothonotary and every other party not less than one month's notice of his intention to proceed, and a notice on which no order was made is not a step for the purpose of rule 3.04. Neither discontinuance nor an application to dismiss for want of prosecution is step in proceeding." The originating notice and statement of claim were issued on May 4, 1995, served on May 16, and defended by the Province of Nova Scotia on June 8, 1995. The default judgment was filed on February 7, 1996. There had been no intervening step in the proceedings. There is no evidence in the court file of a notice of intention to proceed. No evidence was filed whether or not any notice went to the Attorney General. The applicant submits the decision in Canada v. Kulyk (1994), 88 FTR 211 (FCTD) confirms an application for judgment in default is step in the proceeding requiring notice of intention to proceed if six months or more has elapsed from the last step. It further confirms correspondence between solicitors or the parties without formal notice does not constitute valid notice of intention to proceed. Similarly in Pinard et al. v. Bushell et al (1975), 20 N.S.R. (2d) 317, where default judgment was entered with damages to be assessed and the plaintiff gave the applicant notice of hearing for the assessment of damages more than six months later without having given one month's prior notice of intention to proceed, Cowan, C.J.T.D. held the assessment of damages was "step in the proceeding" and the previous step was the default judgment. Failure to give notice was held to be fatal defect. The plaintiff submits her counsel continuously pressed the Town, directly or indirectly, to file defence which would allow her to get on with the matter. The Court agrees with this allegation. However, sending a letter to an insurer does not satisfy the requirement of the Rule. Mr. Flett denies receiving any verbal indication on the 13th of December of the deadline which, even if given, would also not satisfy the requirement according to Civil Procedure Rule 3.04. do not accept the argument that by not specifically using the word "filing" in Rule 3.04 that filing is not required. The Rule does say the prothonotary is to be given one month's notice. If that occurs, have no doubt in my mind upon receipt of notice of intention to proceed if in written form, it would be automatically filed in the court file for the case. acknowledge Civil Procedure Rule 3.04 does not require the notice to be in writing or in any particular form, although the Nova Scotia practise is formal document. The important aspect is notice to the prothonotary and every other party. The fact the Prothonotary did not object to the request for default judgment without the notice of intention to proceed is immaterial. In granting the order, the prothonotary would generally rely upon counsel and would not necessarily review the whole file before signing the order. The order was in form which the prothonotary was apparently authorized to sign (Civil Procedure Rule 51.05(1)(d)). If the prothonotary's filing systems were automated, the failure to file or notify the prothonotary under Rule 3.04 would be readily apparent. The system is not automated. Should the doctrine of estoppel or waiver apply as was argued by the plaintiff. She relies on Marchischuk v. Dominion Industrial Supplies Ltd. (1991), 1991 CanLII 59 (SCC), 50 C.P.C. (2d) 231, (S.C.C.) at p. 235. '...equitable estoppel, finds its origin in the early case of Central London Property Trust Limited v. High Trees House Limited, [1947] K.B. 130, which determined essentially that where representation is made by one party and relied upon by another to that person's detriment, the party making the representation will be estopped from following contrary course of action. This concept has been modified to mean basic sense of fairness and equity. One should not be able to say one thing, have it acted upon, and then behave differently than first represented.' [Emphasis original.] ... 'The second issue of waiver comes into effect when party knowingly acts in manner where he waives or foregoes reliance upon some known right or defect. It is important that the right or defect, as the case may be, be known, since one should not be able to waive rights of which he was not fully aware or apprised.' In Marchischuk, although liability was admitted during negotiations which carried on past the limitation period and money offer was sent, eventually the insurer denied the claim based upon the Limitation of Actions Act, R.S.M. 1987, c. L150. The Supreme Court found the insurer was not estopped nor had there been waiver. It also held, waiver must relate to known right, but the facts found the parties never discussed whether the statement of claim had been filed. There was no evidence of any promise not to rely on limitation period. In the case at bar, the plaintiff submits the applicant is estopped from raising procedural issue when it had the benefit of not having to file defence in timely fashion on condition the Town would receive 10 days notice which was sent. It is submitted the insurer accepted this condition by its conduct and thus the court can apply Civil Procedure Rule 2.01. Mr. Flett, during cross-examination on his affidavit, denied any knowledge of the purpose of notice of intention to proceed. Thus, there was no "known right" waived by Mr. Flett as expressed by Justice Sopinka in Marchischuk. Also, there is no evidence that former counsel for the plaintiff did not file notice of intention to proceed because she was relying on something said to her by Mr. Flett. In the present case, am unable to find there is any estoppel or waiver. Turning in any event to Civil Procedure Rule 2.01, in Maynard v. Irving Oil Ltd. et al. (1990), 96 N.S.R. (2d) 253 A.P.R. 86, the defendant did not file notice of intention to proceed before filing notice of trial. It was held the failure to file notice was merely an irregularity and there was no prejudice to the plaintiff. In the present case the facts are quite different. Although relying on Civil Procedure Rule 2.01 would be in accord with the Court's view if the facts were as in Maynard, in the case at bar, filing default judgment against the defendant Town causes the Town possible serious injustice. It ends its possibility of filing defence and contesting liability. It also verifies the plaintiff's claims including exemplary damages and solicitor and client costs. In Pick O'Sea Fisheries Ltd. V. National Utility Service (Canada) Ltd. (1995), 146 N.S.R. (2d) 422 A.P.R. 203 (C.A.), the prothonotary had no authority to grant default judgment. Flinn, J.J.A. at p. 214 states: The Rules are an attempt to streamline the process which leads to the ultimate determination of the issues in dispute between the parties. If, in that process, Rules are not complied with, in most cases through inadvertence, the court will invariably allow the noncompliance to be corrected, provided the correction does not cause an injustice to the other party, in order to get on with the determination of the real issues in dispute between the parties. In this case the failure to comply with rule 12.03 is much more serious than an error, or irregularity, in the process leading to the ultimate determination of the real issues in dispute between the appellant and the respondent. The granting of the order for judgment by the prothonotary which the prothonotary had no authority to grant (and to which the respondent was not, at that time, otherwise entitled) was determinative of the proceeding." [Emphasis in the original]. The applicant submits where default judgment is filed, if Civil Procedure Rule 3.04 is not complied with, then there is no discretion in the court and as of right, the default judgment must be set aside. Although Civil Procedure Rule 3.04 is permissive, that is, the court could order otherwise, find the failure to file notice of intention to proceed is not mere technicality in this case. However, in my opinion, this does lead me to examine whether or not there is fairly arguable defence. Without that, setting aside the default judgment would be meaningless and costly exercise. do not read Pick O'Sea Fisheries Ltd. as automatically requiring in every case the default judgment be set aside. 2. Civil Procedure Rule 12.06. Should the Court exercise its discretion under Civil Procedure Rule.12.06. "12.06 The court may, on such terms as it thinks just, set aside or vary any default judgment entered in pursuance of Rule 12. [E. 13/91 ]" From the case law, the two requirements to strike out default judgment are well established. First, the applicant must show the court there is fairly arguable defence or serious issue to be tried and second, there is reasonable excuse for not filing the defence. The position of the applicant is contained in the affidavit of the Town Clerk. the plaintiff submits the applicant has failed to provide the necessary facts on which determination can be made as to whether or not there is fairly arguable defence. First, the plaintiff argues the role of CBCL Ltd., the consultants, as between the Town and the contractor, is missing, and with this lack of evidence, should not find the applicant has fairly arguable defence. In response, the applicant says the whole thrust of the statement of claim relates to the performance and effect of the construction work and in his affidavit, Mr. Hiltz denies there were any servants or employees of the Town who supervised the work. Second, the plaintiff says there is no evidence of an arguable defence on the claim of nuisance. In The City of St. John v. Donald, 1926 CanLII 66 (SCC), [1926] S.C.R. 371, Anglin, C.J.C., discusses the role of contractor who was hired by the City to deepen brook crossing street in the City. Dynamite was stored in shed which also housed tools. There was an explosion and the jury found the contractor was negligent. The judge in turn found the City liable as well. This was upheld by the Supreme Court of Canada. It was found the City had wide powers to interfere and control the contractor, but their mere existence does not make the contractor, or his workmen servants of the City. The person who employs an independent contractor to do work, which generally is not of nature resulting in injurious consequences, is not responsible for the negligence of the contractor or his servants in performing the contract. The case further held, vicarious responsibility will occur where the danger of injurious consequences is so inherent the likelihood of the consequences occurring would be obvious to any reasonably well-informed person unless precautions were taken. That duty cannot be delegated, whether to servant or to contractor, to escape liability for the consequences of failure to discharge it (p.383). On reviewing the affidavit of the defendant, it would appear the Town has fairly arguable defence on the basis that respondeat superior does not apply. On the issue of nuisance, find this will depend upon the facts of the case. It is not my function to decide the case at this stage. The determination of the facts are for the trial judge and whether or not the defendant will be successful depends upon the finding of facts. find the applicant has provided sufficient evidence to show fairly arguable defence. Therefore, the first requirement for setting aside default judgment has been met. Although the applicant, in its written brief, put forward two other possible defences, no submissions were made as the Town determined they were not properly supported by the statement of claim. On the issue of reasonable excuse, although the applicant's submission was that whether or not Mr. Flett was inactive is immaterial, find the main thrust should be whether or not the Town at all times intended to file defence. There is evidence of this fact and that it was known to counsel for the plaintiff as early as January 19, 1995, in letter to Ms. Smillie from the Town solicitor Mr. Baker. Other correspondence and conversations with Ms. Smillie reiterate that position. The Town, through Mr. Baker, and at times through Mr. Flett, always indicated to the plaintiff an intention to defend and this was communicated to Ms. Smillie, counsel for the plaintiff at the time. (See Lewis-Choi Co. Ltd. V. Western Glove Works Ltd. (1990), 1990 CanLII 4098 (NS SC), 98 N.S.R. (2d) 282.) It is my opinion that Mr. Flett's actions or inactions were not necessarily reasonable, and his oversight or inadvertence in failing to read the December 18th letter was not reasonable, but the court should exercise its discretion and not deprive the Town of its right to defend as result of any default by the insurer. Any laxness does not appear to have been on the part of the Town. (See Marissink v. Kold-Pac Inc. et al. (1993), 1993 CanLII 3225 (NS CA), 125 N.S.R. (2d) 203 (C.A.), mistake by counsel and turmoil in solicitors office; Atlantic Rentals Ltd. v. Marine Oil Services Ltd. (1988), 85 N.S.R. (2d) 395 (N.S.S.C.A.D.) laxness of counsel, not of the client; Szczesniak v. Farocan Inc. (1992), 1992 CanLII 4533 (NS SC), 115 N.S.R. (2d) 292 (N.S.S.C.T.D.) difficulties in communication between defendant and counsel.) I find there is a fairly arguable defence and a reasonable excuse for not filing the defence. 3. Granting Order for Default Judgment by the Prothonotary. Should the default judgment be set aside because it was issued by the Prothonotary and not by the court. The applicant submits two possible grounds for claiming the Prothonotary did not have the jurisdiction to sign the order for default judgment. The first is based on the request in the statement of claim for prejudgment interest, and the second, on the claim for exemplary damages. Civil Procedure Rule 51.05(1)(d) allows Prothonotary to make an order where the order is interlocutory or final under Civil Procedure Rule 12.01 or 12.02. Dealing only with the portion which could apply to this case, the Prothonotary may issue the order for judgment if the claim is for unliquidated damages only, in which case the order of the Prothonotary is for damages to be assessed. If this does not apply, then the application for the order must be made to the court. The applicant submits prejudgment interest pursuant to the Judicature Act, S.N.S. 1972, did not exist when Civil Procedure Rule 12.01 came into force, therefore, it is not part of unliquidated damages and it cannot be claimed under 12.01. If it was necessary to decide this issue in my opinion claim for prejudgment interest is included in unliquidated damages. The Interpretation Act, R.S.N.S. 1989, c. 235, s. 9(1) states: "The law shall be considered as always speaking, and whenever any matter or thing is expressed in the present tense, it shall be applied to the circumstances as they arise, so that effect may be given to each enactment, and every part thereof, according to its spirit, true intent, and meaning." The applicant's second argument is whether exemplary damages are included in unliquidated damages. Liquidated damages are ones the parties have agreed upon at some time and are claimed in the action. Odgers' Principles of Pleading and Practice (22nd Ed.), at p. 46, defines liquidated damages as follows: "When the amount to which the plaintiff is entitled can be ascertained by calculation, or fixed by any scale of charges or other positive data, it is said to be "liquidated" or made clear ... But when the amount to be recovered depends upon the circumstances of the case and is fixed by opinion or by assessment or by what might be judged reasonable, the claim is generally unliquidated ... But if the claim is in its nature claim for damages at large, it is not in law treated as "liquidated demand" even if the plaintiff puts figure on the damages which he is claiming." As set out in Vorvis v. Insurance Corporation of British Columbia, 1989 CanLII 93 (SCC), [1989] S.C.R. 1085, punitive or exemplary damages are not compensating damages. There must be an actionable wrong causing injury to the plaintiff with malice, fraud, or cruelty involved by the defendant. There must be some harsh, vindictive, reprehensible conduct, requiring condemnation and punishment. Exemplary damages are fundamentally different from general or special damages. Although exemplary damages do not appear to me to fall within the definition of unliquidated damages, which would mean the Prothonotary had no authority to sign the default order, am not satisfied that have had sufficient research on this point and decline to make definite ruling. Since found the default judgment should be set aside based on Civil procedure Rule 3.04, and that there is fairly arguable defence and reasonable excuse for not filing the defence, it is unnecessary to decide whether or not exemplary damages (or solicitor client costs) fall under unliquidated damages. Conclusion As result of finding there is fairly arguable defence, find Civil Procedure Rule 2.01 cannot apply. The failure to file the notice of intention to proceed in these circumstances cannot be saved by Civil Procedure Rule. 2.01. The plaintiff should have taken the matter to court to seek default judgment. This finding is sufficient to set aside the default judgment. Even if am wrong on that issue, find the position of the defendant meets the test for the court to strike the default judgment under the provisions of Civil Procedure Rule 12.06. The application is granted. The defendant Town shall have 10 days in which to file its defence. The plaintiff is entitled to her "throw away" costs of obtaining the default judgment. (See Choi, supra, p. 287). These costs are fixed at $100.00. C. J. S. C. Halifax, Nova Scotia
This was an application by the defendants to set aside a default judgment entered against them by the plaintiff. Although a statement of claim was served on the defendant, it's insurer was advised by the plaintiff's counsel that she would not proceed to judgment except on 10 days written notice. More than six months later plaintiff's counsel sent a letter to the defendant's insurer giving 10 days notice. This letter was not seen by him although he was in the process of putting together material for a solicitor to file a defence. The defendant had always advised the plaintiff that it intended to defend. No Notice of Intention, required for default judgment if six or more months had elapsed since the last step in the proceeding, was ever given to the defendant before the filing of the default judgment. Allowing the application and setting aside the default judgment, that there was a fairly arguable defence and a reasonable excuse on the part of the defendant for not filing the defence. Sending a letter to the insurer does not satisfy the requirement of filing a Notice of Intention to proceed. The fact that the prothonotary did not object to the request for default judgment without the Notice is immaterial.