Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether default judgment should be set aside due to allegedly improper service of legal documents.

• Assessment of whether failure to respond to the statement of claim was excusable under the circumstances.

• Determination of whether the corporate defendant and its CEO had arguable defences on the merits.

• Consideration of whether an email acknowledging debt constituted personal liability for the CEO.

• Application of the Mountain View Farms test to weigh interests of justice and fairness.

• Court’s decision to impose costs as a condition of permitting a defence to be filed.

Facts of the case

In Welch LLP v. iHealthOx Inc., the plaintiff, Welch LLP, a professional accounting firm, provided accounting and tax advisory services to the defendant corporation, iHealthOx Inc., primarily related to a Scientific Research and Experimental Development (SR&ED) tax credit. Welch claimed $87,944.71 for these services under a contingency agreement, in which payment was due upon issuance of a favourable tax assessment. The notice of assessment was issued in April 2023, and Welch invoiced the company shortly thereafter.

Welch later obtained default judgment against both iHealthOx and its CEO, Terri Storey, after the defendants failed to respond to the claim. The judgment totalled $91,067.35 plus post-judgment interest. Service of the documents had been attempted by leaving them with Ms. Storey’s spouse at her residence, and copies were also mailed. Ms. Storey claimed she was unaware of the action until informed by her mortgage broker in October 2024.

The motion to set aside default judgment

The defendants moved to set aside the default judgment. They did not deny that services were provided or that payment was due but argued that service was improper and that Ms. Storey did not personally guarantee the debt. The court evaluated their request using the five-factor test established in Mountain View Farms Ltd. v. McQueen, which includes considerations of timeliness, explanation for default, potential defences, prejudice, and the interests of justice.

Court’s analysis of the parties' arguments

Justice Mew found that the motion had been brought promptly once the defendants became aware of the judgment. However, the explanation offered—failing to open mail—was deemed weak. The court ruled that service had been validly effected under Rule 16 of the Ontario Rules of Civil Procedure, including service at a residence on an adult household member and by mail to a corporate registered address.

On the merits, iHealthOx admitted liability but claimed inability to pay. The court held that financial incapacity is not a valid defence. As for Ms. Storey, Welch argued that she personally guaranteed the debt or acknowledged it via email. The court was not convinced. Although Ms. Storey had signed documents on behalf of the corporation, there was no clear contractual language establishing a personal guarantee. An email sent post-judgment stating “I will pay my debt, owed” was found insufficient to prove personal liability.

Despite the lack of a draft statement of defence, the court found that Ms. Storey raised an arguable defence sufficient to justify setting aside the judgment against her. The court emphasized that failure to open mail is not a valid excuse, but the potential for an arguable defence on the merits outweighed the procedural default.

Outcome and costs

The court refused to set aside the judgment against iHealthOx Inc., which remained enforceable. However, it granted the motion to set aside the judgment against Ms. Storey, on the condition that she file a statement of defence within 30 days. Costs of $9,300 were awarded against both defendants jointly and severally, payable before Ms. Storey could file her defence.

This case illustrates the court’s willingness to balance procedural rigor with fairness, especially when there is a genuine possibility of a meritorious defence, but also its insistence on accountability for neglecting legal processes.