Executive Summary: Key Legal and Evidentiary Issues

• Appellants sought to raise a new "abuse of process by maintenance" argument on appeal regarding the Lawyers Indemnity Fund's (LIF) involvement in funding the respondent's legal representation.

• The issue of LIF's role was never raised before the chambers judge despite the appellants having knowledge of it at the time.

• Fresh evidence proposed by the appellants primarily related to the new maintenance issue and was deemed insufficient to allow full adjudication.

• An evidentiary record sufficient to address the new issue did not exist, as the chambers judge was never asked to interpret LIF's Indemnification Policy.

• Permitting the new issue would require original fact-finding by the appellate court without findings from the court below.

• Counsel's authority to act on behalf of a party is presumed; there is no legal basis requiring proof of authority when LIF appoints counsel.

Background of the commercial tenancy dispute

The underlying litigation arose from a dispute over an oral contract between Crazy Greek Chick Food Limited and Zoe Caverly (appellants) and Shounak Chakroborty (respondent) relating to a commercial tenancy. The appellants filed a notice of civil claim on October 10, 2024, and an amended notice of civil claim on October 28, 2024, alleging that Mr. Chakroborty had breached the oral contract by failing to provide tenant improvements to the property within the agreed-upon time. Mr. Chakroborty was served with the claim on January 13, 2025, and retained lawyer Kenneth Smith on January 15, 2025, to defend against the claim.

The default judgment and lawyer's error

Due to an inadvertent error, Mr. Smith did not file a response to the civil claim on Mr. Chakroborty's behalf within the 21-day deadline set out in R. 3-3(3) of the Supreme Court Civil Rules. On February 11, 2025, Mr. Smith realized his mistake and sent correspondence to Peter Loewen, counsel of record for the plaintiffs, requesting that default judgment not be taken without reasonable notice. On February 12, 2025, Mr. Smith received an email from Justin Klassen at Linley Welwood LLP advising that he was representing the plaintiffs rather than Mr. Loewen, and that he had already applied for and obtained default judgment against Mr. Chakroborty on February 11, 2025. Mr. Smith then promptly took steps to report the circumstances to LIF, and outside counsel was retained in relation to the plaintiffs' default judgment.

The application to set aside the default judgment

On April 8, 2025, the outside counsel appointed by LIF brought an application on behalf of Mr. Chakroborty to set aside the default judgment. The chambers judge applied the well-established test from Miracle Feeds v. D. & H. Enterprises Ltd., which requires the applicant to establish: (a) he did not wilfully or deliberately fail to enter an appearance or file a defence to the Claim; (b) the application to set aside the default judgment was made as soon as reasonably possible after obtaining knowledge of the default judgment or there were reasons for the delay; and (c) he has a meritorious defence or, at least, a defence worthy of investigation. There was no dispute that the application was made as soon as reasonably possible. The chambers judge was satisfied that Mr. Chakroborty's failure to file a response was not wilful and deliberate, as it was solely attributable to counsel's mistake, and that he had a defence worthy of investigation. The default judgment was set aside with leave to Mr. Chakroborty to file a response to civil claim within 14 days.

The appeal and the new maintenance issue

The appellants filed a notice of appeal on May 7, 2025, and subsequently filed their factum on August 1, 2025. In addition to two grounds of appeal relating to alleged errors of law or fact in the chambers judge's analysis of the third limb of the Miracle Feeds test and a third ground relating to an alleged breach of procedural fairness arising from the chambers judge's interruptions of counsel's submissions, the appellants raised an entirely new fourth ground: "abuse of process by maintenance" arising from LIF's involvement in the application below. The appellants characterized LIF as a non-party who injected themselves into private litigation for the sole purpose of minimizing their potential future liability for Mr. Smith's error. On August 5, 2025, the appellants filed an application to adduce fresh evidence on appeal, consisting of an affidavit of Justin Klassen that included correspondence demonstrating LIF's involvement.

The court's analysis of the new issue

Justice Horsman applied the three inquiries for determining whether to permit a party to raise a new issue on appeal: (i) is the issue truly new; (ii) is the existing evidentiary record sufficient for the Court to address the new issue; and (iii) do the interests of justice support making an exception to the general rule. The court found that the maintenance issue was clearly new, as the appellants were, on their own evidence, aware of LIF's role in appointing counsel but did not raise the issue with the chambers judge. The existing evidentiary record was not sufficient to address the new issue—the appellants conceded as much by bringing a fresh evidence application, and even that application was not sufficient to allow for full adjudication. The appellants' arguments would require this Court to interpret the Indemnification Policy for the first time on appeal in the absence of findings by the judge below or evidence of the relevant context.

Ruling and outcome

The Court of Appeal allowed the respondent's application to strike portions of the appellants' factum related to the abuse of process by maintenance argument and dismissed the appellants' application to adduce Mr. Klassen's affidavit as fresh evidence on appeal. Justice Horsman concluded it was clearly not in the interests of justice to permit a party to raise a new issue on appeal that: (1) was not raised in the court below for reasons that are unexplained; (2) would require the receipt of new evidence and original fact finding by this Court to resolve; and (3) is of general importance to all lawyers in the Province of British Columbia who pay for, and receive, indemnification coverage from LIF. The court ordered that the appellants have 14 days to file an amended factum that deletes the struck portions and adds no new issues, with the respondent to file a response factum within five days of the filing of the amended factum. The application to adduce fresh evidence was dismissed without prejudice to the appellants' ability to bring another fresh evidence application in relation to the remaining issues on appeal. The appeal on the remaining three grounds may still proceed. No monetary award was determined at this stage, as these rulings addressed procedural matters rather than the substantive merits of the underlying dispute.