Executive Summary: Key Legal and Evidentiary Issues

• Appeal from a Supreme Court order setting aside a default judgment of $97,565.70 (plus costs) in a commercial lease dispute concerning an alleged oral agreement.
• Application of the three-factor Miracle Feeds test, with the first and third factors (wilful default and meritorious defence/defence worthy of investigation) being the live issues.
• Whether affidavit evidence consisting partly of denials, without corroborating documentary exhibits, can establish a defence worthy of investigation.
• Procedural fairness challenge premised on a reasonable apprehension of bias arising from the chambers judge's questioning and case management during submissions.
• Attempted introduction of a new issue on appeal characterized as "abuse of process by maintenance" based on the Lawyers Indemnity Fund's appointment of outside counsel.
• Admissibility of fresh evidence on appeal, particularly where the proposed evidence primarily relates to a new issue not raised in the court below.

Facts of the case

The dispute arises from an alleged oral agreement to lease commercial premises in 100 Mile House, British Columbia. The appellants, Crazy Greek Chick Foods Limited and Zoe Caverly, claim that the agreement provided for a one-year lease at a defined monthly rate commencing December 1, 2023, and obliged the respondent, Shounak Chakroborty (also known as Roop Chakroborty), to convert the premises into a takeout kitchen and storefront. The appellants paid $60,000 for the improvements. When the improvements were not completed by the agreed deadline, the respondent allegedly agreed to pay a daily fee for each subsequent day for which the restaurant could not operate. In late 2023 or early 2024, the appellants agreed to pay for a natural gas connection and were billed a monthly amount for that service. By January 2024, the appellants had spent approximately $4,500 on cookware, equipment, and other items in anticipation of opening, and Ms. Caverly had left her employment in anticipation of the start date.

In February 2024, the appellants learned that the respondent did not own the premises. The premises were owned by other individuals named as defendants—Marcel Schmitt, Sabrina Schmitt, and Monika Schmitt—who live in Germany, claim that Mr. Chakroborty had no authority to lease the premises, and did not participate in either the application below or the appeal. After the respondent asked for an additional $60,000 to complete the improvements, the appellants considered the oral agreement repudiated.

The appellants filed a notice of civil claim on October 10, 2024, and an amended notice of civil claim on October 28, 2024. Mr. Chakroborty was served on January 13, 2025, and retained Kenneth Smith to defend the claim on January 15, 2025. Due to an inadvertent error on Mr. Smith's part, no response to civil claim was filed within the 21 days required under R. 3-3(3) of the Supreme Court Civil Rules. Mr. Smith mistakenly believed he had requested a waiver of default without notice from opposing counsel and, following a family emergency, did not discover the mistake until later. On February 11, 2025, Mr. Smith wrote to Peter Loewen, original counsel for the appellants, to advise of his retainer and request that default judgment not be taken without reasonable notice. On February 12, 2025, Mr. Smith received an email from Justin Klassen of Linley Welwood LLP, who had replaced Mr. Loewen, advising that default judgment had already been obtained on February 11, 2025. Mr. Smith then reported the matter to the Lawyers Indemnity Fund ("LIF"), and outside counsel was retained.

On April 8, 2025, outside counsel appointed by LIF brought an application on behalf of Mr. Chakroborty to set aside the default judgment. Mr. Smith swore an affidavit confirming that the failure to file a response in time was solely attributable to his error and could not be attributed to Mr. Chakroborty. Mr. Chakroborty also swore an affidavit confirming that he always intended to defend the claim and had relied on Mr. Smith to take appropriate steps.

The chambers judgment

The chambers judge applied the test from Miracle Feeds v. D. & H. Enterprises Ltd. (1979), 10 B.C.L.R. 58 (Co. Ct.), under which an applicant must establish through affidavit evidence that: (a) the failure to enter an appearance or file a defence was not wilful or deliberate; (b) the application was made as soon as reasonably possible after obtaining knowledge of the default judgment, or there were reasons for the delay; and (c) the applicant has a meritorious defence or, at least, a defence worthy of investigation. The parties agreed that the application was made as soon as reasonably possible, leaving only the first and third factors in issue. The chambers judge was satisfied that Mr. Chakroborty's failure was not wilful or deliberate, accepting that he intended to defend the claim, engaged counsel, and that the default was solely attributable to counsel's mistake. She was also satisfied that he had a defence worthy of investigation. The default judgment was set aside, with leave to file a response to civil claim within 14 days.

The chambers application before Justice Horsman (2026 BCCA 31)

Following the appellants' filing of their factum on August 1, 2025, two applications came before Justice Horsman in chambers: the respondent's application to strike part of the appellants' factum, and the appellants' application to adduce fresh evidence on appeal. In their factum, the appellants advanced four grounds of appeal, three of which related to errors in the application of the Miracle Feeds test and an alleged breach of procedural fairness. The fourth ground—and the subject of the strike application—was framed as an alleged "abuse of process by maintenance," based on the contention that the application to set aside the default judgment had been brought at the funding, instruction, and direction of LIF, a non-party, rather than at the instruction or in the interest of Mr. Chakroborty. The appellants characterized LIF's involvement as "officious intermeddling" and argued that LIF's failure to disclose its role led the chambers judge into error. The proposed fresh evidence consisted of the affidavit of Justin Klassen, sworn July 16, 2025, which included emails between Mr. Klassen and LIF's claim counsel, correspondence from Guild Yule LLP, an invitation to LIF to intervene in the appeal, a draft response to civil claim, and the response and counterclaim subsequently filed.

Justice Horsman applied the three-part inquiry from 1193652 B.C. Ltd. v. New Westminster (City), 2021 BCCA 176: whether the issue is truly new; whether the existing evidentiary record is sufficient; and whether the interests of justice support an exception to the general rule against new issues on appeal. She concluded the abuse of process by maintenance issue was clearly new, as it had not been raised before the chambers judge despite the appellants' awareness of LIF's role. The existing evidentiary record was insufficient, and even the fresh evidence would not allow full adjudication, as the appellants' arguments depended on an interpretation of LIF's Indemnification Policy that had never been before the court below. The interests of justice did not support permitting the new issue, given the absence of explanation for its omission below, the need for original fact-finding by the appellate court, and the issue's general importance to all lawyers indemnified by LIF. Justice Horsman further commented on the appellants' argument that LIF-appointed counsel must prove their authority to act, observing that counsel are officers of the court whose representations of authority may be presumed, and noted the potential mischief of an argument requiring counsel's representations to be disbelieved until proved with evidence. The application to strike portions of the factum was allowed, with the specified paragraphs in the Opening Statement, Parts 1, 2, and 3 struck. The application to adduce Mr. Klassen's affidavit as 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 timeline for the response factum was varied accordingly.

The appeal on the merits (2026 BCCA 204)

The appeal was heard on May 5, 2026, before Justices Harris, DeWitt-Van Oosten, and Winteringham, with judgment delivered the following day. The appellants advanced three grounds of appeal: that the chambers judge misapplied the Miracle Feeds test by relying on bare assertions and denials; that there was insufficient evidence of a meritorious defence or a defence worthy of investigation; and that the application hearing was procedurally unfair due to a reasonable apprehension of bias.

Standard of review

The Court confirmed, citing 1163499 B.C. Ltd. v. Yao, 2025 BCCA 443, that an order setting aside a default judgment attracts a deferential standard of review, requiring a palpable and overriding error absent an extricable error of law. Complaints of procedural unfairness are generally assessed on a correctness standard, though discretionary judicial conduct may attract deference. Where, as here, the unfairness complaint alleges a reasonable apprehension of bias, a strong presumption of impartiality applies, and the question is whether an informed person, viewing the matter realistically and practically, would find it more likely than not that the judge would not decide the case fairly.

Misapplication of the legal test and insufficient evidence

Justice DeWitt-Van Oosten, writing for the Court, found no merit in the first two grounds of appeal, either individually or cumulatively. The appellants accepted that the chambers judge correctly instructed herself on the Miracle Feeds test but argued she misapplied it by failing to grapple meaningfully with the respondent's evidence and by allowing bare assertions to inform her analysis. The Court reviewed the chambers judge's reasons, which expressly addressed the first and third factors. The Court noted that the appellants relied on Andrews v. Clay, 2018 BCCA 50, but distinguished that case on the basis that Andrews involved "no evidence" supporting the asserted defence, whereas Mr. Chakroborty had provided substantive affidavit evidence. The Court observed that while Andrews held that an applicant cannot establish a meritorious defence "simply by asserting it," the threshold for a defence worthy of investigation is not onerous, as affirmed in Forgotten Treasures International Inc. v. Lloyd's Underwriters, 2020 BCCA 341. The respondent's affidavit went beyond bare denials: he acknowledged contracting with Ms. Caverly for construction services, denied representing that he owned the premises, asserted that the appellants knew his spouse's company was leasing the premises and understood their lease would be a sublease, deposed that the construction delay resulted from the appellants' failure to obtain necessary permits, and stated that the appellants refused to pay for some of the construction and unilaterally repudiated the agreement. The Court held that it was open to the chambers judge to make the findings she did, the weight assigned to the affidavit lay within her discretion, and the appellants had not displaced the deferential standard of review.

Procedural unfairness

The third ground, not pressed as a stand-alone ground at the hearing, alleged a reasonable apprehension of bias based on the chambers judge's comments about time use, the number of questions she posed during the appellants' counsel's submissions, and her characterization of the appellants' position. The appellants provided a mathematical assessment indicating their counsel was permitted to speak only 58 percent of the allotted time. The Court reviewed the transcript and found the questions appropriate and understandable, predominantly aimed at clarifying the appellants' submissions, particularly regarding their complaint about the respondent's factual assertions and the judge's reliance on those assertions without corroborative evidence. Citing Speckling v. Communications, Energy and Paperworkers' Union of Canada, Local 76, 2025 BCCA 24, and Yukon Francophone School Board, Education Area #23 v. Yukon (Attorney General), 2015 SCC 25, the Court reiterated the strong presumption of judicial impartiality and the heavy burden on a party alleging bias. The reasonable apprehension of bias claim fell far short of the threshold for appellate intervention, and the appellants' characterization of having been deprived of the opportunity to make full answer and defence was rejected, the Court noting this was not a criminal proceeding.

Disposition

The Court of Appeal dismissed the appeal, with Harris J.A. and Winteringham J.A. concurring with the reasons of DeWitt-Van Oosten J.A. The successful party in both decisions was the respondent, Shounak Chakroborty. The default judgment of $97,565.70 (plus costs) that had been obtained against the respondent was set aside by the chambers judge below, and this disposition was upheld on appeal. The total monetary award or costs award in favour of the successful respondent on the appellate decisions themselves cannot be determined from the text of either judgment, as no specific costs figure is set out in the reasons.