Last reviewed: July 2026

This article provides general information only and is not legal advice. The deadline and strategy in any lawsuit can depend on the documents served, the method and location of service, the court, and the specific facts.

Being served with a lawsuit in Ontario can feel stressful, especially if the claim is unexpected, exaggerated, or wrong. But ignoring the claim can create serious procedural and financial consequences. 

If you do not defend a lawsuit in Ontario, the plaintiff may ask the court registrar to note you in default. Once that happens, you are generally deemed to admit the truth of the factual allegations in the statement of claim. You will lose the right to deliver a defence or take other steps in the action unless the plaintiff consents or the court gives permission.

After default is noted, the plaintiff may seek default judgment. Depending on the claim, judgment may be signed administratively or granted by a judge on a motion. A default judgment can include damages, legal costs, and interest. Once judgment is entered, the plaintiff can pursue enforcement steps such as garnishments, writs of seizure and sale and/or an examination in aid of execution.

How Long Do You Have to Defend a Lawsuit in Ontario?

The deadline to deliver a statement of defence in Ontario Superior Court actions depends on where the defendant was served with the statement of claim. Under Rule 18.01 of the Rules of Civil Procedure, the basic defence deadlines are: 

A defendant who intends to defend may also deliver a Notice of Intent to Defend within the applicable defence period. This is not the defence itself. If delivered on time, it gives the defendant 10 additional days to deliver a statement of defence. 

These deadlines matter because a defendant may deliver a defence at any time before being noted in default. After default is noted, the defendant will need the plaintiff’s consent or a court order setting aside the noting of default before taking further steps in the action. This can make the litigation process more expensive, more urgent, and less predictable. 

What Does “Noted in Default” Mean?

Being noted in default is a formal court step available to a plaintiff when a defendant has not delivered a statement of defence on time. The plaintiff files proof with the court that the statement of claim was served and asks the registrar to record the defendant in default (of the obligation to defend). 

The consequences are serious. A defendant noted in default is generally deemed to admit the truth of the factual allegations in the statement of claim. For default purposes, the court will treat the pleaded facts as true unless the default is later set aside. 

A defendant noted in default also loses the right to deliver a defence or take other steps in the action, except to move to set aside the noting in default or a judgment obtained because of the default. The defendant will also stop receiving notice of steps taken in the proceeding, which means the case will continue without the defendant being involved. 

What Rights Can You Lose by Not Defending?

The statement of defence is where a defendant formally responds to the statement of claim. It tells the court which allegations are admitted, which are denied, what context is missing, and what legal defences may apply. Without a defence, the defendant’s version of events may never be put to the court for consideration.

A defendant in default will also lose the ordinary ability to participate in motions, discovery and trial. In commercial disputes, discovery can be especially important because it is where contracts, invoices, payment records, emails, corporate records, and admissions are tested. 

Not defending is not a neutral strategy. It may mean giving up procedural tools that could help challenge liability, dispute damages, raise set-off, rely on limitation periods, involve an insurer or negotiate from a stronger position. 

What Is a Default Judgment?

A default judgment is a final court order obtained after a defendant has been noted in default. It is a court document that grants the relief sought by the Plaintiff in the statement of claim. 

The process of obtaining default judgment will depend on the type of claim. Some claims are for fixed or readily calculable amounts, such as unpaid invoices, loans, rent arrears, or contract debts. Default judgment for these types of claim can be obtained by from the court registrar without intervention by a judge. Other claims require a judge to assess damages, such as fraud, negligence, defamation, personal injury or complex business-loss claims. 

A default judgment should not be treated as less serious because it was obtained without a contested trial. Once entered, it is still a court judgment. It can expose your bank accounts, receivables, business operations, property and credit. It will also lower your settlement leverage. 

Liquidated Claims: When Judgment May Be Signed Administratively

A liquidated claim is a claim for a fixed or readily calculable amount of money. Common examples include unpaid invoices, unpaid loans, promissory notes, rent arrears, contract balances, guarantees and other debts where the amount can be calculated from relevant and available documents. 

If the defendant is noted in default in a liquidated claim, the plaintiff may be able to ask the registrar to sign default judgment without a full hearing. The plaintiff must still file the required paperwork and show that the claim fits within the rules, but the process can move faster than many defendants expect. 

This is especially important in debt collection cases. A defendant may have defences related to payments, credits, set-offs, interest, the identity of the debtor, the scope of a guarantee or whether the amount claimed is actually owing. Those issues must be raised before default steps are taken. Waiting until after default judgment may make the dispute mor complicated and more expensive. 

Unliquidated Claims: When the Court Must Assess Damages

Unliquidated claims are claims where the amount of damages is not fixed in advance. The court may need evidence to determine the value of the loss. Examples include personal injury, professional negligence, fraud, defamation, and complex commercial damages. 

For example, if a plaintiff alleges injury, lost income, reputational harm, fraud-related loss, or business interruption, the amount of damages may not be obvious from the statement of claim alone. The court may need affidavit evidence, documents or other proof before deciding how much (if anything) should be awarded. 

Default still creates a major problem for the defendant. Liability may be treated as conceded because the pleaded facts are deemed admitted. The remaining hearing may focus mainly on the amount of damages and any legal issues the court still needs to decide. By that point, the defendant may be too late to contest the facts that matter most. 

Costs, Interest and Enforcement After Default Judgment 

Default can expose a defendant to more than the original debt or damages claim. If the plaintiff obtains judgment, the judgment may include legal costs for the steps taken to obtain it. Those costs may not cover every dollar spent by the plaintiff, but they can still increase the judgment amount. 

Interest may also be added. Depending on the claim, this may include prejudgment interest and postjudgment interest. Often, prejudgment and postjudgment interest is at a contractual rate. If a written agreement sets a specific interest rate, that agreed-upon rate will likely apply. If there is no agreed rate, statutory interest will apply. 

Once judgment is obtained, the plaintiff will be entitled to commence enforcement of the judgment. Enforcement may include garnishment of wages, bank accounts or debts owing to the defendant. It may also include writs of seizure and sale against personal property or land, or an examination in aid of execution where the judgment debtor is questioned about income, assets, and financial circumstances. 

Can You Set Aside a Noting in Default or Default Judgment?

Sometimes, yes. A defendant may ask the plaintiff to consent to setting aside the noting in default or default judgment. If the plaintiff does not consent, the defendant will have to bring a motion asking the court to set it aside. 

Asking the court to set aside a noting in default or default judgment is not a mere formality. The defendant will be required to present evidence showing why the defence was not delivered on time, how quickly the defendant acted after learning of the default, whether there is a possible defence on the merits and that the setting aside the default would not prejudice the plaintiff. The facts required to be shown will depend on the history of the case and the order being requested. 

The practical point is that delay can make the problem worse and potentially insurmountable. If you learn that you have been noted in default or that default judgment has already been entered, enforcement may begin, interest may continue to accrue and the court may question why you did not act sooner. 

What Should You Do After Being Served With a Lawsuit in Ontario? 

If you are served with a lawsuit in Ontario, start by recording the date, time, place, and method of service. Keep every document you received, including the statement of claim, notices, envelopes, emails, attachments and any proof of service. 

Next, identify the court, claim number, parties, relief sought, and deadline to respond. Gather relevant contracts, invoices, payment records, corporate documents, emails, text messages, insurance policies and witness information. If the claim may be covered by insurance, notify the insurer immediately. 

Then get legal advice well in advance of the expiry of the deadline. A Toronto commercial litigation lawyer can help assess whether to deliver a statement of defence, serve a Notice of Intent to Defend, challenge service, forum or jurisdiction, request further particulars of the claim, notify an insurer, explore settlement or bring another procedural motion. If the dispute involves a company, shareholder issue, contract debt, unpaid invoice or guarantee, an Ontario business litigation lawyer can help determine the right response strategy. 

FAQ: Default, Defence Deadlines, and Lawsuits in Ontario 

Does Ignoring a Lawsuit Mean I Automatically Lose?

Not immediately. But ignoring a lawsuit can put you on the path to losing by default. If you do not deliver a defence on time, the plaintiff may have you noted in default and then seek default judgment. Once judgment is entered, enforcement steps can follow. 

Can I File a Defence Late?

You may be able to deliver a defence late if you have not yet been noted in default. After default is noted, you generally need the plaintiff’s consent or the court’s permission before delivering a defence or taking other steps in the action. 

What Is the Difference Between Noting in Default and Default Judgment? 

Noting in default records that the defendant failed to defend on time and triggers procedural consequences, including deemed admissions of the pleaded facts. Default judgment is the judgment the plaintiff may seek after the defendant has been noted in default. 

What if I Were Never Properly Served?

Improper service may be a serious issue, but you should not ignore the claim once you know about it. A lawyer can assess whether to challenge service, seek an extension, set aside default steps or respond in another way. The right step may depend on how you learned about the claim and what has already happened in the court file. 

Can Default Judgment Be Enforced Against My Business?

Yes. If the judgment is against the business or another liable party, enforcement may target available assets, bank accounts, receivables, land or other property. Business defendants should treat lawsuit deadlines as urgent because default judgment can affect cash flow, operations, credit and settlement leverage. 

Can a Debt Collection Lawyer Help If I Have Already Been Noted in Default? 

Yes. If the claim involves unpaid invoices, loans, guarantees, contract balances or another debt, a debt collection lawyer or commercial litigation lawyer can assess whether default has been properly noted, whether default judgment has been entered, whether enforcement has started and whether there may be grounds to set aside the default or negotiate payment terms. 

What Defendants Should Remember 

Missing the defence deadline can quickly change the defendant’s position in the lawsuit. A defendant may be deemed to admit the factual allegations in the claim, lose the ordinary right to participate, face default judgment and pay costs and interest. Furthermore, a defendant will have to deal with enforcement steps, such as garnishment or writs of seizure and sale. 

If you have been served with a statement of claim, do not assume the lawsuit will go away or that everything can be fixed later. Protecting your position usually starts with confirming the response deadline, preserving evidence, checking for insurance coverage and getting advice before default steps are taken. 

Need Advice About a Lawsuit in Ontario? 

Ruzbeh Hosseini assists clients with litigation strategy, commercial disputes, business litigation, debt claims, default judgment issues, and judgment enforcement in Ontario. If you have been served with a lawsuit in Ontario, have been noted in default, or need advice about responding to a statement of claim, contact Ruzbeh Hosseini to discuss your options. 

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On July 16, 2026, the Law Society Tribunal suspended a sole practitioner for six months and ordered
$10,000 in costs after she filed a motion factum drafted with ChatGPT. Three of the four authorities
she cited did not exist. The fourth was real but stood for the opposite of the proposition she
advanced.

That is the headline. It is not the holding worth remembering.

The Tribunal said plainly that using AI to help prepare a factum is not professional misconduct, and
that competent use of these tools will often benefit lawyers, clients, and the courts. The competence
failure lay in a single omission: nobody verified the authorities. On its own, that would not have
produced a six-month suspension. What produced it was everything that happened afterward.

The Sequence That Mattered

– May 1, 2025 — Justice Myers, unable to locate any of the four cases cited by the lawyer, asked
counsel directly whether she had used ChatGPT. She said she had not. Asked whether anyone in
her office had, she said she could not say.
– May 9, 2025 — In a letter to the court she wrote that she had made inquiries of her staff and
confirmed that an AI tool had been used. She had made no such discovery; she had used the tool
herself.
– May 16, 2025 — At a case conference she told the court a law student had prepared the factum
with ChatGPT without instruction, and that she had been shocked to learn of it. She had not he
had not employed an associate since 2020 or a law student since the summer of 2024.
– June to July 2025 — She repeated the staff-member account to the Law Society, then refused
a request for the staff member’s contact information. She admitted the truth only on July 30,
after being advised that s. 49.3(c) of the Law Society Act compelled her to answer.
– September 30, 2025 — She wrote to correct the record with the court, more than four
months after the first false answer, and only after the investigator asked what she intended to
do about it.

The Tribunal made findings under Rule 3.1-2 (competence), Rule 5.1-2(e) (knowingly deceiving a
tribunal), and Rule 2.1-1 (honour and integrity, covering both the court and the regulator). It
described the May 9 and May 16 statements as premeditated, because by then she had had time to
reflect and an opportunity to explain honestly what had occurred.

The line from Justice Myers’ endorsement that the panel adopted is the one that will be quoted for
years: it is the litigation lawyer’s most fundamental duty not to mislead the court.

Why Six Months, and Why Not Longer

The parties jointly proposed a six-month suspension. The panel reserved, disclosed that it was
considering a longer suspension, permission to resign, or revocation, and called for post-hearing
submissions on whether R v Anthony-Cook, 2016 SCC 43, even applied — the matter had proceeded
on a response to a request to admit rather than an agreed statement of facts, with the misconduct
admission arriving two business days before the hearing and the penalty joinder on the eve of it.

The tribunal concluded that it was bound. Deference to a joint submission does not depend on the
tidiness of the package or the timing of the agreement; the admissions had dispensed with witnesses
and materially shortened the hearing, which was benefit enough. A panel may ask about the
circumstances of a joint submission and the concessions exchanged, but it should not reopen the
negotiation itself.

On proportionality, the panel weighed thirty years at the bar without discipline, an altruistic pro
bono retainer continued after Legal Aid funding ended, genuine ignorance of how the technology
behaves, sole practice near the end of a career, accepted remorse, adverse press coverage and a
contempt proceeding still pending before the Attorney General.

Then it added a warning that every Ontario litigator should read. This was a novel case. Later
matters involving misrepresentations of this seriousness to the court or the Law Society may merit
a longer suspension, or revocation.

Five Practical Takeaways

1. Rule 4.06.1 is not boilerplate. The signed certification that counsel is satisfied of the
authenticity of every authority cited is a substantive undertaking. Treat it as a sign-off gate that
nobody passes until each case has been retrieved and each proposition checked against the
paragraph relied on.
2. A working hyperlink proves nothing. Two of the four links in this particular case resolved
to real but unrelated decisions. Pull every authority independently from CanLII, Westlaw, or
Lexis.
3. Citation checking is not enough — read the case. The one real and relevant authority
cited by the lawyer held the opposite of what the factum claimed. Only pinpoint citation
verification catches that.
4. Decide now what you say if you make an error. Challenged on an authority you cannot
vouch for, the safe answer is that: 1) you cannot confirm it on your feet, 2) you will verify and
report back, and 3) you will withdraw anything unsupported. Justice Myers dismissed the
contempt proceeding on the strength of accountability and withdrawal of the factum. Candour
was available, and it would have worked had candour been used.
5. Never attribute your own work to staff. Two deceptions of the court and the false
statement to the regulator all consisted of shifting responsibility to a subordinate. It was easily
disproved and, even if true, would have raised a supervision problem.

The profession’s tolerance for a competence failure is considerably greater than its tolerance for
the instinct to conceal one. While Lee is the first Ontario decision on AI in a court filing, it will
be cited far more often for what it says about the duty of candour.

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Case: IMAX Corporation v. Guzzo et al., 2026 ONSC 621 (Schabas J.)

Court File No.: CV-25-00740258  ·  Heard January 19, 2026  ·  Released February 2, 2026

Few procedural questions arise as often in commercial litigation as this one: a respondent swears to a version of events that the applicant flatly denies, then argues that the resulting “conflict in the evidence” can only be sorted out at a trial where the judge can look the witnesses in the eye. In IMAX Corporation v. Guzzo, the Superior Court gives that argument short shrift — and in doing so clarifies how the 2018 amendment to Rule 14.05(3)(h) reshaped the application process.

The dispute in brief

IMAX leased projection systems and films to Cinémas Guzzo Inc. in exchange for lease payments, film charges, and a share of box-office revenue. After Cinémas Guzzo repeatedly defaulted, IMAX deferred enforcement in exchange for a personal guarantee from Vincenzo Guzzo — the company’s CEO and co-owner — signed on July 22, 2024, covering all amounts then or thereafter owing.

Cinémas Guzzo kept defaulting. IMAX demanded payment on the guarantee, then brought an application for judgment against both the company and Guzzo personally. By the date of judgment the outstanding balance stood at roughly $2.09 million. Critically, neither the amount owing nor the fact that Guzzo signed the guarantee was in dispute.

The defence: an alleged off-the-books assurance

Guzzo’s answer was a single, late-breaking allegation. In an affidavit filed roughly nine months into the enforcement process, he swore that IMAX’s Global President, Mark Welton, had told him the guarantee existed only to reassure IMAX’s auditors and “had no real enforceability.”

The court catalogued the problems with that account. There were no contemporaneous emails, texts, or records supporting it; Guzzo offered no detail of when or how the supposed side deal was struck; and he had never raised it — not when IMAX moved to enforce, not when counsel sent a demand, not when he was served, and not in his own text exchanges with Welton. Welton categorically denied the conversation, on affidavit and on cross-examination. And the guarantee itself contained an entire-agreement clause (Article 8.1) confirming that no representations affecting the guarantor’s liability had been made outside the document.

The procedural battleground: trial or application?

Faced with that record, Guzzo’s counsel argued the conflict between his evidence and Welton’s raised a genuine credibility contest that could only be resolved at a one-day trial. Schabas J. noted the awkward timing of that submission: at a September 2025 case conference, the respondents had agreed the matter could proceed by way of application and recorded no objection to that procedure.

More importantly, the court rejected the premise. Rule 14.05(3)(h) permits the application procedure where it is “unlikely that there will be any material facts in dispute requiring a trial.” Schabas J. emphasized the operative words — requiring a trial — added by amendment in 2018, which replaced the older language barring applications wherever there were “material facts in dispute.”

The Hryniak parallel

This is the decision’s central contribution. Schabas J. drew a direct line to Hryniak v. Mauldin, where the 2010 summary-judgment reforms shifted the test from “a genuine issue for trial” to “a genuine issue requiring a trial.” The 2018 amendment to Rule 14, the court held, serves the same purpose for applications. The rule no longer bars determination of an application merely because a material fact is contested.

The court was careful about the limits of the analogy. An application judge does not inherit the enhanced fact-finding powers in Rule 20.04(2.1) reserved for summary-judgment motions. But following the staged approach in Hryniak, a judge can ask whether the record permits a fair and just determination — including the resolution of a disputed material fact — without a trial. Where it does, that route is preferable in service of the just, most expeditious, and least expensive determination of the proceeding under Rule 1.04(1).

Credibility can be decided on the paper record

On the merits of the swearing contest, the court reaffirmed that demeanour is an unreliable guide to credibility. Drawing on Faryna v. Chorny and the Court of Appeal’s treatment of it in R. v. Kiss, Schabas J. held that the real test is whether a witness’s account is in harmony with the preponderance of probabilities a practical, informed person would recognize as reasonable.

Guzzo’s account failed that test. It was uncorroborated, raised only after a nine-month delay with no explanation, and inherently implausible — there was no rational reason Welton would have given an assurance contrary to IMAX’s interests and damaging to its own position. The court characterized it as a bald allegation lacking credibility and reliability that could be rejected without a trial. And in any event, because of the entire-agreement clause, even a proven representation would not have been a material fact affecting enforceability.

The unconscionability argument

Guzzo’s fallback — that the guarantee was unconscionable — was dismissed on the two-part test from Uber Technologies Inc. v. Heller: inequality of bargaining power and a resulting improvident bargain. Guzzo, a well-educated and sophisticated businessman with access to legal advice, who was invited to comment on the guarantee and whose own counsel returned the signed document, came nowhere near establishing the first element. Nor was the bargain improvident: it was offered as an alternative to immediate large payments and allowed Cinémas Guzzo to keep receiving films and earning revenue. Improvidence, the court reiterated, is measured at formation — not by reference to later hardship.

Result

IMAX obtained judgment against both Cinémas Guzzo and Guzzo personally for the full outstanding amount, with pre-judgment interest under the lease agreement and post-judgment interest under the Courts of Justice Act. Costs submissions were directed if the parties could not agree.

Takeaways for litigators

1. A swearing contest is not an automatic trial. Post-2018, an application judge may resolve a disputed material fact on the record where a fair and just determination is possible. Plan your application materials — and your responses — as if the merits will be decided then and there.
2. Put your best foot forward. As with summary judgment, parties are expected to lead their full evidentiary case. A respondent who holds back a key allegation, or surfaces it late, invites the inference that it is an afterthought.
3. Entire-agreement clauses carry real weight. Article 8.1 meant that even a proven oral assurance would not have been a material fact. A well-drafted no-representations clause can take an entire defence off the table before credibility is ever reached.
4. Demeanour is overrated; probability is not. Faryna v. Chorny and Kiss remain the touchstones. Frame credibility submissions around the inherent plausibility of the account and its consistency with the documentary and digital record — not the witness’s presence in the box.
5. Mind the case-conference record. Agreeing that a matter may proceed by application, then arguing for a trial, undercuts credibility on the procedural question. Take a consistent position from the first appearance.
6. Unconscionability is a high bar for sophisticated parties. Uber’s two-part test rarely assists a well-advised commercial actor, and improvidence is judged at the moment of contracting.

Citation: IMAX Corporation v. Guzzo et al., 2026 ONSC 621 (CanLII).

This post is a summary for general information and does not constitute legal advice.

If your business is involved in a commercial dispute, enforcement issue, or application proceeding, speaking with a Toronto commercial litigation lawyer early can help you assess the strongest procedural path before costs escalate.

Contact Ruzbeh Hosseini to discuss your litigation options.

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Johl v. Lingard et al, 2025 ONSC 5923

A recent endorsement from the Ontario Superior Court of Justice serves as a clear warning to parties involved in litigation: if you want the video recording of an examination for discovery to be available for use at trial, you must secure consent or a court order before the examination – not after.

The Motion

In Johl v. Lingard, the plaintiff brought a motion under Rule 30.10 to compel a non-party court reporting service to produce the audio-visual files of two Zoom discoveries. The motion was brought after the examinations were conducted and the plaintiff had not obtained consent or a prior order under Rule 34.19. The plaintiff’s intention was to use the recordings at trial to impeach the witnesses based on their demeanour — including an alleged emotional reaction from one defendant and a nervous laugh from another.

The Court’s Reasoning

The Court dismissed the motion on several grounds.

The first is that the plaintiff used the wrong rule. A video recording of a discovery is not a “document” within the meaning of Rule 30.10. It is a record of evidence, not a contemporaneous record of the events underlying the litigation. The court expressed concern that treating such files as ordinary non-party documents would neutralize Rule 34.19.

The second is a matter of timing, which is built into Rule 34.19. Rule 34.19 exists as a means to produce a video or other recording of an examination into evidence. An order under Rule 34.19 is uncommon and is typically sought and obtained when there is a demonstrated need to preserve a witness’s evidence for possible use at trial – for instance, if the witness is elderly, in poor health, or unlikely to be available to testify in person. The consent-or-order for the use of a recording at trial must be sought before the examination and not afterwards as was done by the plaintiff in this case.

Finally, the court observed that demeanour is a fragile foundation. The plaintiff’s purpose of obtaining the recorded video of the examinations was to use the video at trial to proffer into evidence their non-verbal reactions to questions asked. Drawing on R. v. Norman, Faryna v. Chorny, R. v. S.(N.), and R. v. Rhayel, the Court emphasized that demeanour is only one — and an often unreliable — factor in assessing credibility. The transcripts already in the hands of the parties would assist in cross-examination and impeachment.

Conclusion

Rule 30.10 is not a workaround for Rule 34.19. The purpose of Rule 34.19 is to produce the audio-visual files of an examination in very limited circumstances – typically when a witness is elderly, in poor health, or unlikely to be available to testify in person. An audio-video recording of an examination is not to be used to determine credibility as facial expressions and reactions are unreliable indicators of credibility. Transcripts from examinations remain the workhorse for impeachment during a trial. A better strategy is to build a case around inconsistencies and reliability in the evidence, not emotional expressions or nervous laughter.

Considering Using Discovery Evidence at Trial? Get Legal Advice Early.

If your case may involve recorded discovery evidence, witness availability concerns, or impeachment at trial, early legal advice can help avoid procedural missteps. Cambridge LLP assists clients with civil and commercial litigation strategy across Ontario, including examinations for discovery, evidentiary issues, and trial preparation.

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This decision is a reminder that appellate courts will rarely disturb factual findings made at trial, especially where the appeal amounts to an attempt to reargue the case. In 12563789 Canada Inc. v. Tiki Tours International Corp., 2026 ONCA 269, the Ontario Court of Appeal confirmed that a failed business relationship does not become a joint venture simply because one party later claims that it was. The ruling also reinforces the legal risks of making public accusations during a commercial dispute, particularly where defamation and fiduciary issues are in play.

Cambridge LLP successfully defended a trial decision on appeal in a dispute arising from a failed business relationship involving two boats and competing claims about the legal structure of the parties’ dealings. The Court of Appeal upheld the trial decision in full, dismissed the appeal, confirmed punitive damages and awarded an additional $17,000 in appeal costs.

This case is directly relevant to businesses entering into asset purchases, informal arrangements, or partnership-style dealings where the legal structure of the relationship is not clearly defined from the outset.

Three Practical Lessons From This Decision

• Appellate courts defer heavily to trial judges on factual findings. Appeals are not an opportunity to relitigate the facts.
• An agreement, including a joint venture, requires agreement on essential terms. Agreements to agree and negotiations on draft agreements do not create binding rights.
• Public accusations made during a commercial dispute can generate serious defamation exposure, particularly where those statements go beyond asserting a legal position.

Background of the Dispute

The dispute arose from a failed business venture involving tiki-themed boat rentals in Wasaga Beach. The respondents sought to enter the market but initially lacked the necessary municipal approvals. They entered discussions with the appellants, contemplating an operator agreement.

Critically, no final operator agreement was ever executed. Despite that, the respondents purchased and took possession of two tiki boats from the appellants. The relationship broke down shortly afterward. The respondents moved forward independently, while the appellants asserted ongoing rights tied to the contemplated but never finalized agreement.

Why the Joint Venture Argument Failed

The appellants attempted to reframe the transaction as a joint venture rather than a contract for the sale of assets. The trial judge rejected that characterization and the Court of Appeal agreed.

The reason is straightforward: a joint venture requires agreement on essential terms. Drafts and negotiations do not create a binding agreement. The court found no enforceable agreement governing the parties’ relationship, which eliminated any contractual foundation for the appellants’ claims to control the respondents’ operations or reclaim the vessels that were sold to the respondents.

That finding also stripped away any justification for the certainty with which the appellants made their public statements about the respondents.

The Court of Appeal’s Approach to Trial Findings

The appellants asked the Court of Appeal to revisit the factual findings reached at trial. The court declined to do so.

Appellate courts apply a high standard of deference to trial judges on questions of fact. Absent a palpable and overriding error, findings made after a full trial will stand. This case illustrates that principle clearly. The attempt to relitigate the core factual dispute on appeal was unsuccessful across every ground. The Court upheld the trial judge’s findings on fiduciary breach and defamation, affirmed punitive damages, affirmed the dismissal of the counterclaim and declined to interfere with costs.

Defamation and Fiduciary Duty Issues

Rather than keeping the dispute within legal channels, the appellants took a different approach. They published statements on their website and social media platforms alleging that the respondents:

1. were operating illegally.
2. lacked insurance.
3. had effectively stolen the boats or engaged in fraudulent conduct.

The trial judge had no difficulty finding those statements were prima facie defamatory. Allegations of illegality, lack of insurance and fraud plainly tend to lower a business’s reputation in the eyes of a reasonable person.

The appellants could not establish justification. The court drew a clear line between asserting a legal position in a dispute and publishing definitive public accusations of wrongdoing. The latter, without a solid evidentiary foundation, attracts liability.

On the fiduciary duty issue, the appellants took several unilateral steps to prevent the respondents from using the boats. In 2022, without notice to the respondents, the appellants directed Transport Canada to change the registered owner of the boats. In 2024, again without notice, the appellants sent several emails to Transport Canada falsely stating that the boats had been removed from service. The trial judge found that the appellants leveraged the power imbalance in the relationship in a manner inconsistent with the loyalty expected of them and, although this was not a classic fiduciary relationship, recognized an ad hoc fiduciary relationship on the facts.

The Court of Appeal upheld those findings, along with the award of punitive damages and the dismissal of the counterclaim.

Why This Decision Matters for Businesses

This case carries practical implications for any business entering into asset purchases, contemplated operator agreements, or partnership-style arrangements without first settling in writing the essential terms of the agreement.

Where the nature of the relationship is unclear, both parties are exposed. The party claiming a joint venture must prove agreement on essential terms. The party denying it must be prepared to demonstrate that clearly from the outset.

The case also highlights the risks created by a party’s conduct during a commercial dispute. Public statements made in the heat of a disagreement can have consequences that outlast the underlying transaction. Businesses and their advisors should treat reputational risk as a litigation risk from the earliest stages of a dispute. 

What Businesses Should Do Differently

• Document the legal structure of any business relationship clearly and in writing before proceeding.
• Negotiations and draft agreements do not create binding rights. The absence of an executed agreement matters.
• Appellate courts will not relitigate factual findings made at trial. A strong appeal requires more than disagreement with the outcome.
• Public statements made during a commercial dispute can result in defamation liability. The line between asserting a legal position and making unproven public accusations is a real one.
• Unilateral steps taken to undermine another party’s use of assets, particularly without notice, can give rise to fiduciary liability in certain circumstances.

Facing a Commercial Dispute? Get Early Legal Advice.

If your business is involved in a partnership, asset sale, or commercial dispute where the legal structure of the relationship is unclear, early legal advice can help reduce the risk of litigation and reputational harm. Cambridge LLP acts for businesses and corporations in commercial disputes across Ontario and beyond.

Frequently Asked Questions

What is required to prove a joint venture in Ontario?

A joint venture requires agreement on the essential terms. Drafts, negotiations, and informal dealings are not enough. The court looks for clear evidence that the parties actually agreed on how the arrangement will work.

When will an appellate court overturn a trial judge’s findings?

Only in limited circumstances. A party must show a palpable and overriding error, not simply a disagreement on the findings made by the trial judge.

Can defamatory statements made during a business dispute lead to damages?

Yes. Public accusations made during a business dispute can support a defamation claim if they are unproven and harmful to the opposing side’s reputation. A finding of defamation can lead compensatory and, in some cases, punitive damages.

What is an ad hoc fiduciary relationship?

An ad hoc fiduciary relationship is one where there is a duty of loyalty and care that arises in specific and non-traditional circumstances. The duty can arise where one party has discretionary power affecting another’s interests and is expected to act loyally in that context. The existence of an ad hoc fiduciary duty depends on the facts, including vulnerability, influence, and the nature of the undertaking given.

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