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BC Court of Appeal Confirms Tests for Setting Aside Default Judgment and for Special Costs Awards, in Case Where Pleadings Named the Wrong Party

In Malik v. Eagle Mountain Farms (A Partnership),[1] the British Columbia Court of Appeal (the “BCCA”) allowed an appeal to set aside a default judgment, while dismissing a cross-appeal seeking reversal of a special costs award. Malik highlights the importance of ensuring pleadings are accurately drafted, and showcases the principle of deference as to a discretionary award for special costs.

Background

Malik involved a dispute about a loan agreement between Eagle Mountain Farm Ltd. (“Eagle Mountain”), Jasbir Banwait, and Manmohan Heer (Messrs. Banwait and Heer collectively, the “Appellants”), and Raminder Kaur Malik (“Ms. Malik”). Ms. Malik made a personal loan to Eagle Mountain, which the Appellants, as directors for Eagle Mountain, signed as guarantors.[2]

After Eagle Mountain defaulted on the loan, Ms. Malik filed a Notice of Civil Claim in the British Columbia Supreme Court (the “BCSC”) seeking monetary judgment. But critically, Ms. Malik named the wrong defendant: she alleged the loan was taken out by Eagle Mountain Farms (A Partnership), an entity in which the Appellants were also involved (the “Partnership”).[3] The Appellants did not file a Response to Civil Claim.

Ms. Malik obtained default judgments against the Appellants and the Partnership, and a garnishing order was executed against an account in the Partnership’s name.[4] The Appellants applied in the BCSC for an order setting aside the default judgments and the garnishing order. Ms. Malik consented to having the default judgment against the Partnership set aside, and applied to substitute “Eagle Mountain Farm Ltd.” for the Partnership.[5]

The Chambers Judge’s Decision

Under Rule 3‑8(11) of the Supreme Court Civil Rules, the court has discretion to set aside judgments given in default of a Response to Civil Claim. In considering this issue in Malik, the chambers judge (Armstrong J.) applied the test set out in Miracle Feeds v. D & H Enterprises Ltd.[6] He concluded the Appellants did not meet the test and dismissed the Ms. Malik’s application.[7] He also dismissed Ms. Malik’s application for a retroactive amendment of the pleadings (i.e., nunc pro tunc).[8]

The Appellants sought special costs due to Ms. Malik’s error in naming the Partnership as a defendant. Armstrong J. granted it, finding that Ms. Malik’s approach to the litigation was “sufficiently cavalier to warrant a rebuke”.[9]

The Appeal Decision

The Issues

The BCCA considered whether Armstrong J. erred:

  • by failing to consider factors beyond those in Miracle Feeds and applying those factors as though they were a rigid test;
  • in the exercise of his discretion in declining to set aside the default judgment, including by failing to consider prejudice to the Appellants; and
  • in principle in awarding the Partnership special costs.

Analysis and Application

Setting Aside Default Judgment

At the BCCA, Bauman C.J.A. considered Armstrong J.’s application of the Miracle Feeds test. The test holds that for a defendant to succeed on an application to set aside a default judgement, it must show through affidavit material:

  • it did not wilfully or deliberately fail to enter an appearance or file a defence to the plaintiff’s claim;
  • it made the application to set aside the default judgment as soon as reasonably possible after learning of the default judgment, or give an explanation for any delay; and
  • it has a meritorious defence or at least a defence worthy of investigation.

Bauman C.J.A. held that Armstrong J. erred in applying the test against the backdrop of the amended pleadings. Instead, the test should have been applied against the pleadings to which the Appellants defaulted: the claim against the Partnership. This finding was supported by Armstrong J.’s refusal to make the pleadings amendment order nunc pro tunc. As Bauman C.J.A. explained, the decision not to amend the pleadings to retroactively cure Ms. Malik’s mistake favoured the view that the test should have been applied against the pleadings to which the Appellants defaulted. Because the Partnership itself owed nothing under the loan agreement, the Appellants had a complete defence. [10]

Bauman C.J.A. found this case was not a simple misnomer. He noted that while it may be clear the “litigating finger” was pointed at the Appellants, the nature of their liability was not clear. Meanwhile, Ms. Malik was always able to amend the pleadings, name the correct party, and pursue a summary disposition of the action.[11]

Finally, Bauman C.J.A. noted that because the Miracle Feeds factors are neither mandatory nor exhaustive,[12] the Appellant’s complete defence was sufficient to set aside the default judgment made against them. Armstrong J. had not erred in considering only one of the Miracle Feeds factors.

Discretionary Awards of Special Costs

Special costs awards are discretionary. They are granted for “reprehensible conduct” in litigation “deserving of reproof or rebuke”, which can include conduct that is scandalous or outrageous, as well as milder forms of misconduct.[13]

In Malik, Bauman C.J.A. found Armstrong J.’s award of special costs was warranted. He confirmed that an award of special costs is discretionary, and calls for deference. It should be set aside only if the judge misdirected herself on the law, made an error in principle, made a palpable and overriding error on a factual matter, or if the award was clearly wrong.[14] Bauman C.J.A. found that Armstrong J. did not award special costs merely because the claim was meritless. Rather, Armstrong J. considered factors including:

  • Malik’s and her counsel’s reckless behaviour, compounded by Ms. Malik’s having sworn her affidavit without ensuring its accuracy;[15]
  • Malik obtained a garnishing order after judgment against the wrong party, and caused substantial interference to the Partnership;[16] and
  • the entire situation could have been avoided with minimal care.[17]

While Ms. Malik’s error may have been inadvertent, Bauman C.J.A. found the authorities relied on by Armstrong J. supported granting an award of special costs where a meritless claim is advanced recklessly. [18]

Takeaways

Malik reminds litigants and counsel to be careful when drafting pleadings, specifically when it concerns something as critical as a party’s name.

Further, Malik shows that a court’s decision on one application (i.e., the application for retroactive amendment of the pleadings) can drive its decision on another application (i.e., the application to set aside default judgment).

Finally, Malik confirms that a special costs award is owed substantial deference. It is appropriate in circumstances where a meritless claim is advanced recklessly.

Case Information

Malik v. Eagle Mountain Farms (A Partnership), 2021 BCCA 379

Docket: CA46963

Date of Decision: October 12, 2021

_______________________________________________

[1] Malik v. Eagle Mountain Farms (A Partnership), 2021 BCCA 379 [Malik].

[2] Malik at para 3.

[3] Malik at para 5.

[4] Malik at para 6.

[5] Malik at para 6.

[6] Miracle Feeds v. D & H Enterprises Ltd. (1979), 10 B.C.L.R. 58, [1979] B.C.J. No. 1965 (Co. Ct.) [Miracle Feeds].

[7] Malik  at para 12.

[8] Malik at para 7.

[9] Malik at para 13.

[10] Malik at para 18-19.

[11] Malik at para 21.

[12] Malik at para 22.

[13] Smithies Holdings Inc. v. RCV Holdings Ltd., 2017 BCCA 177 at para 57.

[14] Malik at para 26.

[15] Malik  at para 29.

[16] Malik at para 29.

[17] Malik at para 29.

[18] Malik at para 31.

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