Mountain View Farms Ltd. v. McQueen
2014 ONCA 194
Mountain View Farms Ltd. v. McQueen
2014 ONCA 194
Court of Appeal for Ontario — Gillese, Rouleau and Tulloch JJ.A. | March 14, 2014
Background
Mountain View Farms provided crop services to George Donald McQueen, an elderly farmer in his late eighties, for about two decades. When McQueen failed to pay his bills totaling just under $50,000, the company had him sign an invoice in June 2005 to acknowledge the debt. The invoice contained pre-printed language stating that overdue accounts would be charged interest at 24% per year.
When McQueen still didn't pay, Mountain View Farms sued him in 2005, claiming the principal amount plus 24% annual interest. McQueen never responded to the lawsuit, so the company obtained a default judgment against him. Six years later, with interest calculated at 24% per year, the debt had ballooned to over $125,000 — with more than $75,000 being accumulated interest alone.
Issues
- Whether McQueen had an arguable defence regarding the 24% interest rate that would justify setting aside the default judgment
- Whether the motion judge had the power under Rule 19.08 to vary the default judgment by substituting a 5% interest rate instead of the claimed 24%
The Motion Judge's Controversial Decision
When McQueen finally brought a motion to set aside the default judgment in 2012, he acknowledged owing the principal amount but argued he never agreed to pay 24% interest. The motion judge found this was an "arguable defence" — meaning there was enough evidence to question whether McQueen actually agreed to such a high interest rate. The McLeods themselves testified they had never previously charged McQueen interest and trusted him to pay what he owed.
But instead of simply setting aside the default judgment and letting the case proceed to trial on the interest issue, the motion judge did something unusual: he used Rule 19.08 to vary the default judgment, substituting a 5% annual interest rate for the 24% rate. Essentially, he made a final determination on the merits of the interest dispute without giving both parties a proper opportunity to argue the issue fully.
The Appeal Court's Rebuke
The Court of Appeal found this was a clear error. Justice Gillese explained that when a defendant seeks to set aside a default judgment, the court's job is to determine whether the interests of justice favour setting aside the judgment — not to make final determinations on the merits of defences. The test only requires an "arguable defence," meaning the defence has "an air of reality," not that it will inevitably succeed.
The motion judge had crossed the line from finding an arguable defence to making a final ruling on that defence. This was unfair because the appellant was responding to a motion about whether there was an arguable defence, not defending a summary judgment motion on the applicable interest rate. The parties hadn't had a proper opportunity to present evidence and arguments on what the correct interest rate should be.
Key Takeaway
When seeking to set aside a default judgment, courts can only determine if you have an arguable defence — they can't decide who wins on the merits of that defence.
If you're facing a default judgment motion, focus on showing your defence has an "air of reality," not on proving you'll definitely win. The court should set aside the judgment and let your case proceed to trial, where both sides can properly argue the issues.