The Defendant, Silver Gold Bull Inc. (“SGB”), applied under Rule 9.15 to set aside a Default Judgment obtained by the Plaintiff, Pino Bros. Commercial Inc. (“Pino Bros”). Pino Bros contracted with SBG for the supply and delivery of six “monster boxes” of silver bullion for the purchase price of $101,310. SGB retained Fedex Ground Package System Ltd. (“Fedex”) to make an initial test delivery of one box. The delivery was successfully made to the delivery address given by Pino Bros. SGB retained then Fedex to deliver the five remaining boxes. Fedex attempted to deliver the bullion to the delivery address but there was nobody present to accept delivery. A sign at the delivery address directed deliveries to an adjacent address. Fedex attempted to make delivery to the adjacent address, but again there was nobody present to accept delivery. Fedex then tried a nearby commercial address and the delivery was accepted. The shipment went missing after it was delivered and signed for. A representative of Pino Bros attempted to discuss the situation with a representative of SGB but to no avail. On April 8, 2013, counsel for Pino Bros sent a demand letter to SGB at its registered office address, the registered address for Silver Spoon Holdings Ltd (the majority shareholder in SGB), and the address listed for wire transfers to SGB on its website. SGB acknowledged receipt of a demand letter but did not respond because it had no intention of paying any money to Pino Bros.

Pino Bros filed a Statement of Claim and purported to serve it by registered mail at SGB’s registered office on May 13, 2013. The recorded mail was signed for by “M. Belandis”, who was a director of SGB. On June 11, 2013, Pino Bros filed an Amended Statement of Claim, pursuant to Rule 3.62, changing the name of the other Defendant to Fedex but making no additional claims against SGB. There was no evidence that the Amended Statement of Claim was served on SGB. On June 28, 2013, Pino Bros noted SGB in Default pursuant to the original Statement of Claim, and subsequently entered Default Judgment and filed a Bill of Costs. Pino Bros then garnisheed $86,040.07 from SGB’s bank account, which amount was held in Court.

SGB took the position that the first notice it had of the Action or Default Judgment was when its managing partner, Nikolas Morianos, noticed the funds missing from the SGB account on July 25, 2013. Counsel for SGB sent correspondence on the same day to Pino Bro’s counsel objecting to the garnishee and advising that it would likely receive instructions to seek to set aside the Default Judgment. An Application to set aside the Default Judgment was filed by SGB on August 9, 2013, to be heard August 13, 2013, and was then adjourned indefinitely by consent. It was brought back on November 26, 2013 and adjourned for submission of briefs by the parties. Fedex was aware of the proceedings but made no submissions.

The issues were whether Pino Bros could proceed to Default Judgment upon service of the Statement of Claim when the Amended Statement of Claim had not been served, and whether the Default Judgment should be set aside.

SGB argued that it was not properly served with either the Statement of Claim or Amended Statement of Claim. After reviewing and referring to Rule 11.4 and s. 256 of the Business Corporations Act, RSA 2000, c B-9 (“BCA”), Master Schulz summarized that service on a corporation is deemed to be effected by recorded mail sent to the registered office, and deemed effective on the date that the acknowledgment of receipt is signed. Master Schulz added that the deeming provision can be set aside if there are reasonable grounds for believing that the corporation did not receive the document.

An Affidavit of Service was filed showing service of the Statement of Claim on SGB by recorded mail at the registered office on file with the corporate registry pursuant to s. 20 of the BCA. Receipt was recorded by “M. Belandis”, a director on the corporate registry search. SGB said it did not receive the Statement of Claim. Nikolas Morianos, the managing partner of SGB, deposed that the registered office address for SGB is that of Peter Crossley Law Office, and that Mr. Crossley told SGB’s lawyer (Mr. Averbach), who told Mr. Morianos, that he had no record of receiving the Statement of Claim. Mr. Morianos further deposed that he did not recognize the signature as his own or as one of his employees. There was no evidence before the Court from Mr. Belandis or from Mr. Crossley, nor was there any explanation for the absence of evidence. Master Schulz stated that the failure of someone with personal knowledge to give evidence and the lack of explanation for that failure leaves an adverse inference.

Master Schulz did not accept the double hearsay evidence of Mr. Morianos as reasonable grounds for believing that the corporation did not receive the Statement of Claim. Master Schulz found that service of the Statement of Claim was made in accordance with the legislation and was therefore deemed to be effective on the date receipt was acknowledged.

SGB argued that the Amended Statement of Claim replaced the original Statement of Claim such that it could no longer be relied upon to establish service in support of Default Judgment. Master Schulz noted that the amendments corrected the misnomer of another Defendant and did not affect the claim against SGB. The Statement of Claim was amended pursuant to Rule 3.62, which allows amendments without court order before pleadings close. Master Schulz emphasized the salient points of the Rule: that a party may amend its pleading, including an amendment to add, remove, substitute or correct the name of a party before pleadings close, any number of times without the court’s permission, and an amended pleading must be served on each of the other parties within 10 days after the date on which it is filed. The Rule does not dictate a consequence to the failure to serve within the specified 10 days. Master Schulz opined that the drafters of the Rules of Court must have meant there to be some consequence associated with the time limitation otherwise it would not have been included. Master Schulz looked to Rule 3.65(3) for guidance, which provides that an order giving permission to amend a pleading under the Rule ceases to have effect unless the amended pleading is filed and served within the time specified by the court. From this, Master Schulz deduced that, if the court order ceases to have effect, then the amendments allowed by the court order also cease to have effect and the amended pleading is then a nullity. Presumably the affected party would have to re-apply for an order to amend the pleading. In the meantime, the original pleading is operative. Master Schulz commented that, if the drafters wanted the same consequences to apply to non-service under Rule 3.62, then the Rule would have said so, and silence on that point must mean that something different should result. However, it makes sense that the Rules of Court would address the situation where there is an apparent conflict between the Rules and an extant court order, but be silent and allow the Rules to govern when there is no court order. Master Schulz determined that the consequence set out in Rule 3.65 is consistent with the plain reading of 3.62, and found that that the Amended Statement of Claim filed by Pino Bros ceased to have any effect because it was not served on SGB. The original Statement of Claim was the operating pleading and it was properly served.

Master Schulz repeated the test to set aside a default judgment as set out by Justice Poelman in Palin v Duxbury, 2010 ABQB 833, at para 21:

…the Defendants must show that:

(a)        they have an arguable defence;

(b)        they did not deliberately let judgment go by default and have some excuse for the default, such as illness or a solicitor’s inadvertence; and

(c)        after learning of the default judgment, they moved promptly to open it up.

Master Schulz added that the three part test must be tempered by the overarching principle of fairness, and the answers to the three questions of delay, excuse or inadvertence, and arguable defence, provide guidance to the Court in the overall exercise of judicial discretion to promote fairness between the parties.

Master Schulz commented that, while there was no adequate reason given for SGB’s failure to file a Statement of Defence, there was no delay in moving to set aside Default Judgment and there were arguable defences raised by SGB. There was no evidence of prejudice to Pino Bros if the Default Judgment was opened up that could not be remedied by a monetary award. Fairness dictated that SGB should be allowed to litigate the “possibly reasonably meritorious defences”.

Master Schulz noted the evidence that Pino Bros approached SGB in advance of commencing the Action in an attempt to resolve the matter, an attempt that SGB ignored. SGB had demonstrated that it was prepared to ignore the matter and became motivated to deal with it only when serious enforcement measures were undertaken by Pino Bros. Further, SGB did not provide a draft Statement of Defence in support of a genuine intention and readiness to defend. Master Schulz found that, given SGB’s approach to the claim, fairness dictated that the money paid into Court should remain in Court during the litigation until further Order of the Court or agreement of all parties, in order to provide incentive to SGB to address the matter and bring it to resolution. Master Schulz set aside the Default Judgment and directed SGB to file and serve its Statement of Defence on Pino Bros within 5 days of the filing and service of the Order. Master Schulz awarded Pino Bros thrown away Costs and the Costs of the Application on a solicitor and client basis, payable forthwith and in any event of the cause.