Court Reviews Requirements for Default Judgment
In the recent decision in John Howard Society of Peel-Halton-Dufferin v. Pennock et al, 2023 ONSC 2839, released on May 11, 2023, the Ontario Superior Court of Justice ruled on a motion for default judgment by the plaintiffs, and in the alternative, seeking judgment on the terms of a settlement agreement previously reached with the defendants.
The defendant, Pennock, was the Executive Director of the plaintiff organization beginning in 2012. In relation to alleged fraudulent activities while in this role, the defendant, Pennock, was charged with (a) fraud over $5000; (b) breach of trust; and (c) six counts of uttering of forged documents, on October 19, 2021. There was no evidence before the court on this motion as to the outcome of those charges.
Interestingly, pursuant to a consent order dated November 1, 2020, two of the defendants’ statements of defence were both struck, and those defendants were ordered to pay costs in connection with that issue. The reasons behind this consent order were not specifically noted in this decision.
There were two individual defendants in this case, as well as three law firms named as defendants. The two individuals are the defendant Pennock, and the defendant, Parker. The role of the law firms is not specifically discussed in this decision.
In September 2022, the individual defendants entered into a settlement agreement with the plaintiff whereby both defendants agreed to pay to the plaintiff the sum of $352,045.00, with at least the sum of $150,000 of that amount to be paid to the plaintiff on November 30, 2022. However, the defendants paid only $100,000 towards the settlement and thus they were in breach of the terms of the settlement agreement.
The Court determined whether the test for default judgment was met, and whether punitive damages were warranted in the circumstances. At the outset, the court noted that, “given the nature of the claims being asserted, it must still be proven that the breaches alleged as against the Defendants formed a [sic] evidentiary foundation for the legal relief sought by the plaintiff”.
Outcome and Reasoning
The Court relied on the 2012 Ontario Superior Court of Justice decision of Brown J in Elekta v Rodkin, 2012 ONSC 2062, which is a case that also deals with a default judgment motion in the context of theft of corporate funds. Elekta sets out at paragraph 14 that the inquiry undertaken by the Court on a motion for default judgment is as follows:
- What deemed admissions of fact flow from the facts pleaded in the statement of claim?
- Do those deemed admissions of fact entitled the plaintiffs, as a matter of law, to judgment on the claim?
- If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim?
In this case, the court provided an overview of the evidence, but did not complete a detailed summary or reproduce the specific allegations in the amended statement of claim that were deemed to be admitted. This decision also does not specifically detail the full spectrum of torts alleged in the amended statement of claim.
At paragraph 28, the court decided:
Having considered the very detailed, substantial and uncontradicted evidence as to the conduct of the Defendants, the deemed admissions and the details of the loss occasioned by their breaches, I have concluded that the plaintiff is entitled to recover judgment in accordance with the amended statement of claim for damages from the Defendants as set out in the draft judgment filed in respect of the principal amount of $327,045.00, which after the payment of $100,000 made is deducted, and prejudgment interest is added at the appropriate rates, in a total judgment amount of $239,388.50 inclusive of prejudgment interest up to and including April 20, 2023.
With regard to the defendant, Parker, the findings of liability against her included: (1) knowing assistance of a breach of trust and fiduciary duty; (2) by way of willful blindness as to the fiduciary’s fraudulent and dishonest conduct; and (3) unjust enrichment.
In the context of the defendant, Parker, the court reviewed the relevant test for knowing assistance, as detailed in Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Obregon, 2020 ONCA 412, which requires that there must be:
- an existing fiduciary duty;
- a fraudulent and dishonest breach of the fiduciary duty;
- actual knowledge of the fiduciary’s fraudulent and dishonest conduct; and
- participation by or assistance of the “stranger” in the fiduciary’s fraudulent and dishonest conduct
The court also reviewed the elements of willful blindness, which were delineated as follows:
Willful blindness can be used to establish actual knowledge of the fiduciary’s fraudulent and dishonest conduct in circumstances where:
(a) the circumstances are such that they would arouse the suspicions of a reasonable and honest person such that they are sufficient to raise a duty to inquire; and
(b) someone in that person’s position chose to remain deliberately ignorant to the knowledge that the inquiry would reveal.
In addition to findings of knowing assistance and willful blindness, the court also made a finding of unjust enrichment on the basis that the defendant, “received the personal benefit of funds misappropriated from the plaintiff. There was no juristic reason for this benefit, which deprived plaintiff of resources necessary to fund its programs”.
In the context of making a determination regarding punitive damages, the court reviewed the test for breach of fiduciary duty as set out in Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, at paras. 30 – 36 and 6071376 Canada Inc. v. 3966305 Canada Inc. 2019 ONSC 3947, and found that the plaintiffs had satisfied it in relation to the defendant, Pennock. The elements as stated were as follows:
(a) There must be an undertaking by the fiduciary, express or implied, to act in accordance with the duty of loyalty imposed on him or her. That undertaking may be found in the relationship between the parties.
(b) The duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciary has a discretionary power over them.
(c) The claimant must show that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary.
The Court found that Pennock did owe a fiduciary duty to the plaintiff, and that this had been breached. In accordance with the factors outlined by Justice Binnie in Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII),  1 SCR 595 at para 94, the court found that Pennock’s conduct was “was high-handed, malicious, and highly reprehensible,” and that punitive damages were accordingly an appropriate remedy.
This appears to be a fairly unique case in terms of the relevant facts, and certainly in terms of the procedural history. This decision arises in the context of both a default judgment and a violation of settlement agreement.
The decision in this case is notable in that the court granted default judgment, but did not necessarily undertake a painstaking weighing of the evidence adduced by the plaintiff or the allegations deemed admitted in the statement of claim. According to this decision, “the very detailed, substantial and uncontradicted evidence” and the “deemed admissions and the details of the loss occasioned by their breaches” was sufficient for success in obtaining default judgment.
Parties bringing a default judgment motion will take note of the fact that the deemed admission of the components of the Statement of Claim are not necessarily sufficient to succeed on the motion. Therefore, moving parties must consider not only the test for default judgment, but the elements of the tort for which they hope to obtain default judgment on, and the evidence needed to satisfy them.
The plaintiff must adduce admissible evidence which, combined with the deemed admissions, forms a sufficient evidentiary foundation for the legal relief sought.