Executive Summary: Key Legal and Evidentiary Issues

• Defendant Stephen Brown applied to set aside a default judgment ($4,262,369.40 in damages) over three years after it was entered, claiming ignorance of his legal right to do so.

• Application of the Miracle Feeds test was central, requiring a holistic assessment of wilfulness, timeliness, meritorious defence, and the overall interests of justice.

• Evidence conflicted on whether the defendant buyer waived subject clauses on an $18 million real estate purchase agreement, with the plaintiff seller's signature notably absent from the addendum purporting to document the waiver.

• Plaintiff argued the defendant had the financial means to retain counsel earlier and that his delay was deliberate, but the court declined to make conclusive credibility findings on this point.

• The BCCA's recent decision in Yao clarified that the same Miracle Feeds test applies whether or not damages have already been assessed, replacing the stricter "prevent a miscarriage of justice" standard.

• Failure to mitigate was raised as a plausible defence, as the plaintiff allegedly declined a higher offer of $14.8 million before eventually selling for $14.3 million.

The underlying real estate dispute

On April 17, 2021, plaintiff Rakesh Dhunna and defendant Stephen Brown entered into a contract of purchase and sale for a home with a sale price of $18 million. The plaintiff alleged that the defendant wrongfully breached and repudiated the Purchase Agreement by failing to complete the sale and purchase of the property. A notice of civil claim was filed on September 16, 2021, and served on the defendant on September 21, 2021. When the defendant failed to file a response to civil claim within the required 21-day period, the plaintiff obtained a default judgment on November 18, 2021, approximately eight weeks after service. A subsequent damages assessment hearing on July 18, 2023, which the defendant did not attend, resulted in a Damages Order of $4,262,369.40.

The defendant's inaction and eventual application

The defendant was self-represented throughout the proceedings until April 2025. He deposed that when he was served, he briefly read the claim but did not appreciate the consequences of not filing a formal response, and believed the transaction was no longer active. He cited personal hardship, lack of legal knowledge, and extreme financial distress as reasons for not engaging earlier. It was not until he retained counsel in April 2025 — more than three years after the Default Judgment and approximately two years after the Damages Order — that the Set Aside Application was filed on June 30, 2025. During the intervening period, execution proceedings had advanced, including two examinations in aid of execution conducted in September 2023 and September 2024, and the plaintiff had also filed a contempt application alleging the defendant intentionally refused to pay money to the plaintiff pursuant to the Damages Order when he had the ability to pay.

The applicable legal test

The court applied the Miracle Feeds test, as recently clarified by the BC Court of Appeal in 1163499 B.C. Ltd. v. Yao, 2025 BCCA 443. The Yao decision confirmed that Rule 3-8(11) authorizes an application to set aside a default judgment before or after damages have been assessed, and that in either scenario the Miracle Feeds test governs — not the more stringent "prevent a miscarriage of justice" standard previously applied in some cases. The test examines whether the defendant wilfully or deliberately failed to respond, whether the application was brought as soon as reasonably possible, and whether there is a defence worthy of investigation, all assessed holistically in the interests of justice.

Whether the defendant wilfully failed to respond

On the first factor, the court found that the Default Judgment was sought and obtained less than two months after service of the notice of civil claim, and about five weeks after the 21-day filing deadline. The plaintiff's counsel had sent a letter dated October 8, 2021, insisting on strict compliance with the Supreme Court Civil Rules but had not expressly given notice that if a response to civil claim was not filed by a certain date, the plaintiff would apply for default judgment against the defendant. The court concluded this was not an inordinate amount of time for a defendant to not have yet filed a response to civil claim, and that the evidence fell short of establishing a deliberate decision by the defendant not to defend the action. The defendant was found not to have been blameworthy in his failure to file a response during this period.

Whether the defendant acted promptly after learning of the default judgment

The court found the defendant did not satisfy the second factor. The Default Judgment came to the defendant's attention two or three days after December 13, 2021, yet he did not retain counsel until April 4, 2025 — approximately three years and five months later. While the defendant cited significant personal tragedies, including the passing of his father in Saskatchewan and the death of his wife's niece in Oregon in 2024, and claimed he did not have the means or the knowledge to obtain legal advice until recently, the court was not persuaded that these circumstances excused the entirety of his delay. The court also noted that the defendant and his wife had retained legal counsel to defend them in a different proceeding around the same time the Default Judgment was obtained, yet the defendant apparently chose not to seek counsel regarding the plaintiff's claim. The court rejected as justification the defendant's assertion that he only recently became aware he had the right to apply to set aside the Default Judgment, and placed no weight on this evidence in the defendant's favour.

Whether there is a defence worthy of investigation

On the third factor, the court found there were defences worthy of investigation. First, the defendant denied agreeing to waive the subject clauses on the Purchase Agreement. Although the plaintiff relied on a contract of purchase and sale addendum dated April 23, 2021, stating the parties "HEREBY AGREE AS FOLLOWS: TO REMOVE THE FOLLOWING SUBJECTS…", the defendant acknowledged his signature on that document but testified he did not recall it, and unequivocally denied signing it. The plaintiff seller's own signature was absent next to his name on the addendum — a document that had a place for both buyer and seller signatures. The court noted that if the subject clauses for the benefit of the defendant purchaser were not waived or removed, this could have suspended the obligation of the parties to complete the transaction. Second, the defendant raised a failure to mitigate argument, contending that the plaintiff declined another offer in February 2022 to sell the property at $14.8 million — $500,000 more than the ultimate sale price of $14.3 million in April 2023. The defendant also challenged a component of approximately $562,369 for the plaintiff's carrying costs of the property until the date of sale, submitting that amount was excessive since the plaintiff could have sold the property earlier, and for more, with less or no carrying costs.

The ruling and outcome

Justice Stephens acknowledged the defendant's application to set aside the Default Judgment was "close to the line." Nevertheless, the court was satisfied that the interests of justice merited setting aside both the Default Judgment and the Damages Order. The court weighed the defendant's severe delay — contrary to the proper administration of justice — against the fact that the defendant satisfied the first and third branches of the Miracle Feeds test, the significant quantum of damages at issue, the absence of prior notice from the plaintiff of an intent to take default judgment, and the overarching aim of the court to do justice between the parties. The court ordered that the Default Judgment of November 18, 2021, and the Damages Order of $4,262,369.40 be set aside, and the defendant was granted leave to file a response to civil claim within 30 days. No specific monetary award was granted in favour of either party at this stage; the matter will proceed to be determined on its merits. If the parties cannot agree on costs, they may within 30 days submit a request to Supreme Court Scheduling for a court appearance before Justice Stephens to make submissions on the matter.