COURT OF APPEAL FOR ONTARIO
Hoy A.C.J.O., Epstein and Huscroft JJ.A.
BETWEEN
Raymond I. Ravazzolo and Magdalene Ravazzolo
Plaintiffs (Respondents)
and
Dwayne F. Romaniuk, Bank of Montreal c.o.b. as BMO, Lorne Bayne, Toronto-Dominion Bank c.o.b. as TD Canada Trust and Manulife Securities Incorporated
Defendants (Appellant)
J. Ross Macfarlane, for the appellant
Angelo Fazari, for the respondents
Heard: July 10, 2015
On appeal from the order of Justice Theresa Maddalena of the Superior Court of Justice, dated December 30, 2014.
1On August 2, 2013, the motion judge, among other things, granted default judgment against the appellant, Dwayne F. Romaniuk, in favour of the respondents, Raymond I. and Magdalene Ravazzolo, for $101,347.87, together with prejudgment interest from September 1, 2012 to the date of judgment, and post-judgment interest thereafter.
2The appellant appeals the same motion judge’s December 30, 2014 order dismissing his motion to set aside the default judgment. He argues that the motion judge erred by refusing to set aside the default judgment. In support of his argument, he seeks to introduce fresh evidence. We agree that the motion judge erred in dismissing the appellant’s motion to set aside the default judgment. We come to this conclusion without reference to the fresh evidence.
3For the reasons that follow, we set aside the default judgment and substitute default judgment against the appellant for $13,877.36, plus prejudgment interest from September 1, 2012 to August 2, 2013, and post-judgment interest thereafter.
The Background
4Briefly, the relevant facts are as follows.
5In 2001, the appellant, an investment and wealth management advisor, wanted to buy a co-worker's book of clients. He needed a loan to complete the transaction. His wife, together with her parents, the respondents, co-signed the appellant’s loan agreement. His wife and the respondents pledged jointly-owned investments as security for the loan.
6In 2007, the appellant moved the loan to Bank of Montreal ("BMO") to obtain more favourable interest rates. The appellant's wife and the respondents co-signed new loan documents. They pledged more investments as security for the loan.
7The appellant and his wife separated in April 2009.
8On June 28, 2012, BMO demanded from the respondents an overdue amount of $2,775.52. On September 19, 2012, the respondents received a notice of repossession and intent to sell the pledged securities. The respondents paid BMO loan installments totaling $13,877.36 to protect their securities. BMO did not sell the securities.
9The respondents sued the appellant. They alleged that the appellant was their personal investment and wealth management advisor, and thereby knew of their modest holdings and limited understanding of financial and investment matters. They said he did not explain the risk in the loan transaction. They alleged that, in agreeing to transfer the loan to BMO, they did not know they were pledging additional securities. They also said the appellant negligently and/or fraudulently represented to them that BMO would release them from liability and release the pledged securities in 2011. They also asserted that the appellant breached his fiduciary duty to them, breached contractual obligations, and breached a duty to act in good faith. They claimed damages in the amount of $75,000, plus punitive damages.
10The respondents' Statement of Claim was served on the appellant on March 25, 2013. He served a Notice of Intent to Defend on April 5, 2013 but was noted in default on May 14, 2013 after failing to serve a Statement of Defence. Despite a letter from the respondents' lawyer advising that the respondents would move for default judgment if the appellant did not serve and file a Statement of Defence by June 20, 2013, the appellant did not file a Statement of Defence.
11The respondents brought an ex parte motion for default judgment. In support of their motion, Raymond Ravazzolo filed an affidavit.
12On August 2, 2013, the motion judge granted default judgment in favour of the respondents for the $101,347.87 they sought, together with prejudgment interest from September 1, 2012 to the date of judgment, and post-judgment interest thereafter. In his affidavit in support of the motion for default judgment, Mr. Ravazzolo broke down the $101,347.87 amount as follows:
Payments made by the respondents $13,877.36
Monies claimed by BMO $46,317.64
Punitive damages $30,000.00
Costs to date $11,152.87
13The order granting default judgment also declared that the appellant was in “breach of contract, breach of fiduciary duty, breach of his duty to act in good faith, fraud and fraudulent misrepresentation”. The motion judge also ordered that the judgment shall survive any order of discharge from bankruptcy pursuant to ss. 178(1)(d) and (e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. The motion judge did not provide reasons for granting judgment against the appellant.
14On November 7, 2013, BMO obtained a default judgment against the appellant for $47,043.44 – the balance owing on the loan – with interest from the date of the judgment.
15The appellant became aware of the respondents' default judgment in January 2014 and brought his motion in April 2014, after the respondents refused to consent to setting aside the judgment.
16The appellant acknowledges his obligation to repay the respondents the $13,877.36 they paid to BMO and consents to judgment against him in that amount. He also acknowledges his obligation to pay BMO the remaining debt of $47,043.44.
The test for setting aside a default judgment
17In Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 48-49, this court set out five factors that a court should consider in determining whether to set aside a default judgment:
Whether the motion was brought promptly after the defendant learned of the default judgment;
Whether there is a plausible excuse or explanation for the defendant's default in complying with the Rules of Civil Procedure;
Whether the facts establish that the defendant has an arguable defence on the merits;
The potential prejudice to the moving party should the motion be dismissed and the potential prejudice to the respondent should the motion be allowed; and
The effect of any order the court might make on the overall integrity of the administration of justice.
18As stated in Mountain View, at paras. 50 and 51:
These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.
For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part.
The motion judge’s reasons
19The motion judge concluded that the appellant failed to meet the test in Mountain View. She wrote, at paras. 55 and 59:
I find the delay of Romaniuk unexplained, inexplicable, inexcusable, and unjustified. Romaniuk's defence has no "air of reality". In spite of being aware as early as May 15, 2013 that his Statement of Defence was due, and in spite of having an offer that the Statement of Defence must be filed by June 20, 2013 and paying $500 plus HST, he deliberately chose to do nothing. This was a deliberate, calculated and conscious act. He acted only when he realized that a garnishment of his wages was to occur. Except for this action he would have continued to do nothing.
The setting aside of the judgment would be at great prejudice to the plaintiffs who are elderly and whose securities are still pledged with BMO, and remain indebted to BMO as a result of Romaniuk.
Analysis
20The motion judge made several errors.
21She failed to consider the first Mountain View factor, namely whether the appellant had moved promptly to set the default judgment aside. Once he learned of the default judgment, the appellant moved reasonably promptly to set it aside.
22Most importantly, the motion judge erred in concluding that the appellant did not have an arguable defence on the merits. The respondents did not advance a simple, liquidated claim. The motion judge failed to consider whether the Statement of Claim and the evidence led by the respondents on their motion for default judgment entitled them to the damages awarded
23The appellant clearly has a defence to the extent the motion judge ordered the appellant to pay the respondents amounts that the respondents have not paid to BMO. The appellant does not contest the BMO judgment against him. The respondents have a judgment for damages that they have not suffered and may never suffer.
24Significantly, the respondents did not claim the declaratory relief or an order that the judgment shall survive any order of discharge from bankruptcy, that the motion judge granted. Moreover, the motion judge, on the motion for default judgment, failed to analyze whether the facts alleged in the Statement of Claim entitled the respondents to the declaratory relief or to the punitive damages they sought.
25Finally, the motion judge failed to consider the prejudice to the appellant of refusing to set aside the default judgment and misapprehended the prejudice to the respondents of setting aside the default judgment. The substantial prejudice to the appellant, an investment and wealth management advisor, of declarations that he has committed breach of fiduciary duty, fraud and fraudulent misrepresentation is obvious. The default judgment does not provide any assurance to the respondents that BMO will not proceed against them or will release their securities. Setting aside the default judgment would not have seriously prejudiced the respondents.
26In our view, in these circumstances, it is just to relieve the appellant from the majority of the consequences of his default. We come to this conclusion without considering the appellant's additional argument that the respondents failed to fully disclose all material facts on their ex parte motion for default judgment.
Disposition
27The appeal is therefore allowed. The August 2, 2013 order granting default judgment against the appellant is set aside. In its stead, judgment is granted against the appellant for the amount of $13,877.36, plus prejudgment interest = from September 1, 2012 to August 2, 2013, and post-judgment interest thereafter.
28The appellant is entitled to his costs of the appeal in the amount of $10,000, inclusive of HST and disbursements. The substituted judgment may be satisfied to the amount of $10,000 by way of set off of these costs. The motion judge's order on costs of the motion below is set aside. In the circumstances, there shall be no costs on the motion below.
Released: “AH” “JUL 21 2015”
“Alexandra Hoy A.C.J.O.”
“Gloria Epstein J.A.”
“Grant Huscroft J.A.”
