Executive Summary: Key Legal and Evidentiary Issues

• Propriety of refusing an adjournment sought by Frew to examine former counsel, Ted Kalnins, before the motion to set aside default was heard.
• Allocation of responsibility for lengthy procedural delay between the clients (Kidd Fuels and Mr. Mansueto) and their former lawyer, and whether solicitor neglect should be visited on “innocent” clients.
• Application of Rule 19.03 and the Franchetti/Wescott line of authorities on setting aside a noting in default, including assessment of delay, prejudice, and the low threshold for relief.
• Evaluation of credibility and sophistication of Mr. Mansueto as a directing mind, including whether he should have recognized red flags in the conduct of the litigation.
• Impact of the size and complexity of Frew’s multi-million-dollar counterclaim (including business tort allegations) on the need to decide the dispute on its merits rather than by technical default.
• Determination of the appropriate costs consequence where default is set aside due largely to former counsel’s misconduct, including whether costs should follow the cause and in what quantum.

Background facts and commercial relationship

R. Kidd Fuels Corp. is an Ontario company engaged in marketing and distributing petroleum fuels and lubricants. Its principal, Manuele Mansueto, is a director, officer and majority shareholder, and also serves as President of related entities R. Kidd Fuels Maintenance Corp. and Fuelux Inc., which are also defendants to Frew’s counterclaim. Kidd Fuels historically operated as a wholesale marketer and distributor for Petro-Canada, later Suncor. When Suncor terminated the agreement in August 2018, Kidd Fuels was required to sell certain business assets, which it did pursuant to an Agreement of Purchase and Sale (APS) with Frew Energy Limited. Under this APS, Frew purchased substantially all of Kidd Fuels’ accounts receivable, with $250,000 of the purchase price held back in escrow pending Frew’s collection of the receivables. This $250,000 holdback mechanism became the focal contractual term underlying the main action and the ensuing litigation.

Commencement of the main action and the counterclaim

In May 2019, Kidd Fuels, represented by lawyer Ted Kalnins (then of Dickinson Wright LLP), commenced an action against Frew seeking release of the $250,000 holdback under the APS. Frew responded in July 2019 with a Statement of Defence and Counterclaim alleging serious post-transaction misconduct by Kidd Fuels’ principal, Mr. Mansueto. Frew’s counterclaim pleaded that Mansueto had diverted business away from Frew, withheld material information, disparaged Frew and interfered with its operations by enticing customers to leave. On the strength of these allegations of business interference and related commercial wrongs, Frew claimed damages totaling $5 million. Kidd Fuels and Mansueto delivered a Reply and Defence to Counterclaim around March 18, 2020, thereby putting the counterclaim in issue and indicating an intention to defend. However, the procedural steps that should have followed—most importantly, the exchange of Affidavits of Documents and the conduct of examinations for discovery—were not completed. Emails in the record show that between December 2019 and December 2020, Frew’s counsel repeatedly requested an Affidavit of Documents from Mr. Kalnins, which he never provided. Examinations for discovery were scheduled and repeatedly rescheduled over 2022–2023, moving from July 2022 to fall 2022 and then to March 2023, but they, too, were not completed.

Court-imposed timetables and early procedural orders

As the litigation stalled, the court intervened through case-management style orders. In April 2022, after Mr. Kalnins left Dickinson Wright to start his own practice (Kalnins Law), Associate Judge Robinson issued a consent order setting out a timetable covering Affidavits of Documents, discoveries and mediation. That order also imposed costs “thrown away” for a prior motion abandoned by Kidd Fuels, plus costs of the motion itself. According to Mr. Mansueto, he was not consulted on or informed of this consent timetable, including the associated costs order. The pattern recurred in October 2022, when Associate Judge Josefo issued a second consent order with a revised timetable. That order again required Kidd Fuels to pay costs of the motion and of prior costs orders, and it carried an explicit warning: failure to comply with the timetable could result in the striking of pleadings. The costs were paid, but, according to the motion record, the obligations related to documentary disclosure and other steps were not met. Throughout this period, Mr. Mansueto says he trusted his lawyer’s assurances that delays were normal and that the matter was “moving forward,” even as the record shows continuing non-compliance with procedural requirements.

Collapse of the solicitor-client relationship and the default

By Mansueto’s account, from roughly late 2022 to early 2023, communications with Mr. Kalnins became sporadic and then ceased. He deposed that between 2022 and 2025 he attempted to contact his lawyer six to eight times, and that whenever they did speak, he was assured that the litigation was progressing normally, without being told of any failures to comply with court orders or the risk of default. His last contact with Kalnins was sometime between December 2022 and February 2023. In reality, the litigation was not advancing. On November 27, 2024, Associate Justice Jolley struck the defendants’ Statement of Defence for failure to comply with the Josefo order. On January 14, 2025, Kidd Fuels and Mansueto were formally noted in default on the counterclaim. Shortly thereafter, on January 21, 2025, Frew moved for default judgment, seeking $4,017,281.57. Justice Dow directed that Mansueto be personally served and that the default judgment motion proceed in writing. According to Mansueto, he first learned that he and Kidd Fuels were in default when he was personally served with the default and motion materials on March 4, 2025. Up to that time, he says, he had no idea that his defence had been struck or that the counterclaim was on the cusp of proceeding to default judgment for several million dollars.

Retainer of new counsel and the setting-aside motion

After being personally served, Kidd Fuels and Mansueto moved quickly. They retained new counsel by March 13, 2025, served a Notice of Motion to set aside the default on April 10, 2025, and served their full motion record by June 10, 2025. Their motion sought to set aside the noting in default, along with related relief, under Rule 19.03 of the Rules of Civil Procedure, which allows the court to set aside a default “on such terms as are just.” In the supporting affidavits, Mansueto asserted that any default or delay flowed from the “inaction and misconduct” of former counsel, who became unresponsive and effectively abandoned the file without proper notice. An affidavit from Jared Brown, another lawyer who had previously acted for Kidd Fuels in numerous routine collection matters, was also filed to rebut Frew’s contention that Mansueto was a sophisticated, “litigation-happy” client. Brown deposed that in the many prior collection files, he rarely dealt with Mansueto directly, suggesting that the principal’s sophistication in complex litigation may have been overstated. Frew opposed the motion, arguing that the defendants could not hide behind counsel’s failings. It asserted that Mansueto was an experienced businessperson, a directing mind fully engaged in the litigation, and that he should be held to account for the long period of inactivity, especially as Kidd Fuels was the plaintiff who had initiated the proceeding. Frew also grounded its opposition in authorities such as Wellwood v. Ontario Provincial Police and Khan v. Mander, contending that this was not a case where the client’s “innocence” justified forgiving significant solicitor neglect.

Attempt to adjourn to examine former counsel

Before the motion came on for hearing, Frew applied at Civil Practice Court to adjourn the motion in order to examine former counsel, Ted Kalnins. At an earlier appearance before Justice Callaghan in December 2025, it was noted that Kalnins could not be located, that the matter had been ongoing since 2019, and that any attempt to examine him would further prolong the litigation. There was also the unresolved issue of solicitor-client privilege, which the defendants had not waived. Justice Callaghan declined to adjourn but left the issue for the eventual motion judge. By the time the motion reached Justice Mathen, Frew had taken additional steps. Relying on a news story about an amateur baseball league referencing Kalnins, Frew retained a private investigator, located him, and issued a summons requiring him to attend an examination on February 5, 2026. He did not appear. Frew then renewed its request before the motion judge, arguing that Kalnins could corroborate or contradict key aspects of Mansueto’s evidence and that the court should draw an adverse inference from the absence of any direct evidence from former counsel. The defendants countered that Frew had ample time to seek such an examination earlier, that it had not notified the court of this intention at earlier conferences, and that it had chosen not to cross-examine Mansueto on his affidavits, which was a more straightforward way to test his narrative.

Refusal of the adjournment request

Justice Mathen declined to adjourn the motion. She noted that two other judges had already emphasized the need to move the matter along and that Frew could have raised the examination issue earlier, rather than at a late stage of a long-running proceeding. She found there was no realistic indication that Kalnins would voluntarily co-operate, as evidenced by his failure to obey the summons. Allowing the matter to be side-tracked by further attempts to compel his appearance, while simultaneously wrestling with solicitor-client privilege constraints, would unduly bog down the litigation. Against this background, and given that the moving parties had already put forward substantial affidavit evidence, the court held that an adjournment was not warranted. The motion to set aside the noting in default would therefore proceed on the written and affidavit record already before the court.

Legal framework for setting aside default

Turning to the substantive relief, the court began with Rule 19.03, which gives the court discretion to set aside a noting in default “on such terms as are just.” Drawing on authorities such as Westcott v. Khan, Bridgepoint Financial Services v. Grillone and the Court of Appeal’s decision in Nobosoft Corporation v. No Borders, Inc., Justice Mathen reaffirmed that the threshold for setting aside a noting in default is low and that such motions are typically granted on a near-routine basis, given that it is generally not in the interests of justice to grant judgment on purely technical defaults. The court then enumerated the usual factors: the parties’ behaviour, the length of the delay, reasons for the delay, the complexity and value of the claim, prejudice to the party relying on the default, the overall balance of prejudice, and whether there is an arguable defence on the merits. The judge also noted the line of cases emphasizing that where default arises from counsel’s acts or omissions, innocent clients should not be punished, referencing decisions such as Bates v. Town of Atikokan and Alcantara v. Tulsiani. Frew argued that a stricter approach should apply because Kidd Fuels was the original plaintiff, relying on Wellwood and Khan to stress that those who initiate litigation bear a special responsibility to move it forward and can properly suffer the consequences of delay. Justice Mathen accepted that a plaintiff’s role in driving the litigation could be considered under the “parties’ behaviour” rubric, but she rejected the suggestion that this required a separate or more punitive standard. In her view, Kidd Fuels’ status as both plaintiff and defendant by counterclaim did not fundamentally change the analytic framework.

Analysis of behaviour, delay, and responsibility

On the parties’ behaviour, the court accepted that the defendants had clearly intended to defend, as shown by their timely Reply and Defence to Counterclaim. However, it also found that they had been “lackadaisical” in moving the case forward. The persistent failure to deliver an Affidavit of Documents and the need for court endorsements on basic procedural steps suggested that the litigation was not handled with appropriate diligence, and Kidd Fuels had already been ordered to pay costs at earlier stages. As to delay, Justice Mathen rejected Frew’s attempt to measure it from the commencement of the action in 2019, noting that the parties were engaged at that early point and that Frew itself did not appear especially alarmed by early disclosure delays until late 2020. At the same time, the court also rejected Kidd Fuels’ argument that delay should be counted only from the time when they lost contact with their lawyer. Instead, Justice Mathen found that the relevant period began around April 2022, when Kalnins left his former firm and the first timetable order was made, and continued until April 10, 2025, when the motion to set aside default was brought. Within that window, the record showed unresponsiveness to routine litigation requests and multiple court appearances necessitated by inactivity and missed deadlines.

Role of former counsel’s neglect

The decisive factor for the court was the reason for the delay. Assessing the affidavits, emails between counsel and prior endorsements, Justice Mathen concluded, on a balance of probabilities, that the principal cause of the delay was former counsel’s failure to manage the file with basic diligence, not any deliberate inaction by the clients themselves. Although Mansueto’s evidence had not been tested by cross-examination, Frew had chosen not to cross-examine him, and the judge was entitled to weigh its plausibility against the broader record. The evidence pointed to a consistent pattern of non-responsiveness by Kalnins beginning at least as early as 2020, when he repeatedly failed to produce an Affidavit of Documents. The judge found it implausible that, given the scale of the $5 million counterclaim, Kidd Fuels and Mansueto would have been indifferent to the fate of the litigation. Instead, Mansueto appeared to have relied, in a manner consistent with ordinary solicitor-client relations, on his lawyer’s assurances that everything was proceeding normally. Jared Brown’s affidavit further undercut Frew’s portrayal of Mansueto as a sophisticated, hands-on litigant, indicating that in prior collection matters Mansueto had little involvement. The fact that Kalnins failed to respond even to a summons to be examined reinforced the impression that he was now indifferent to his clients’ predicament.

Complexity, value, prejudice and merits

Justice Mathen also emphasized the scale and nature of Frew’s counterclaim. It sought millions of dollars and raised complex issues of contractual reliance and intentional interference with business relations, among other business torts. In substance and size, the counterclaim was the type of dispute that ought to be resolved on the merits, rather than by default. When considering prejudice, the court acknowledged that the passage of time—seven years from the underlying transaction, plus at least two more years likely before trial—created some difficulties. However, there was no indication in the record that critical witnesses were unavailable or that key evidence had been lost or irretrievably compromised. The judge was therefore not persuaded that Frew’s reliance interest in the default was particularly strong, especially since the defendants moved promptly to set the default aside once they were personally served. On the other hand, if the default stood, Kidd Fuels and Mansueto faced potential multi-million-dollar liability without the opportunity to have their defences and factual narrative evaluated at trial. Drawing on cases such as Alcantara, the court treated this risk of very significant financial exposure without a merits hearing as a “serious factor” tilting the balance of prejudice in their favour. As for the merits, the court treated this factor lightly, consistent with appellate guidance that courts should avoid conducting a mini-trial on a setting-aside motion. It noted that Kidd Fuels had pleaded several defences to the counterclaim and that Frew did not seriously contest the existence of an arguable case. On that basis, the judge was satisfied that the defendants met the low threshold of showing a defence worthy of adjudication.

Outcome of the motion and costs orders

After weighing all the factors, Justice Mathen concluded that the low threshold for setting aside a noting in default had been met. The most important considerations were the reasons for the delay—largely attributable to former counsel’s neglect—and the balance of prejudice, which strongly favoured allowing the defendants to defend the counterclaim. The court therefore granted the motion and set aside the noting in default against Kidd Fuels and Mansueto. As part of the remedial structure, the judge endorsed the timetable attached to the moving parties’ draft order, noting that Frew had no serious objection to it. However, she stressed that Kidd Fuels and Mansueto were receiving an indulgence and warned that they must now comply strictly with the Rules and avoid any further delay. On costs, both sides invited the judge to fix an amount. Kidd Fuels sought substantial indemnity costs of $61,241.48, while Frew provided its own figure of $50,848.27. Justice Mathen applied the Rule 57 factors and held that costs should follow the cause, given that the moving parties were successful and that the delay had been traced primarily to their former lawyer. She declined, however, to award substantial indemnity, reasoning that while such motions are often granted and Frew’s stance did not warrant punitive cost treatment, Kidd Fuels’ own conduct in the litigation had not been flawless. Upon reviewing the bill of costs, the court fixed a partial indemnity costs award of $35,000, payable by Frew Energy Limited within 30 days. Accordingly, the successful parties on the motion were R. Kidd Fuels Corp. and Manuele Mansueto, who secured the setting aside of the default and obtained a monetary award in the form of $35,000 in costs ordered in their favour.