CITATION: Royal Bank of Canada v. Korman, 2009 ONCA 590
DATE: 20090723
DOCKET: M37752 (C50433)
COURT OF APPEAL FOR ONTARIO
Weiler J.A. (in chambers)
BETWEEN
Royal Bank of Canada
Plaintiff (Respondent/Moving Party)
and
Futurecom Inc., Ian Korman aka Ian Israel Korman and Jeffrey Essebag
Defendant (Appellant/Responding Party)
Shawna M. Sosnovich, for the moving party
Avrum D. Slodovnick, for the responding party
Heard: July 17, 2009
On appeal from the order of Justice Michael G. Quigley of the Superior Court of Justice dated April 2, 2009 and on a motion for security for costs.
Weiler J.A. (in chambers)
[1] The Royal Bank (the “Bank”) brings this motion for security for costs pursuant to rule 61.06(1). Mr. Korman has made a consumer proposal in bankruptcy in which he states that his assets are estimated at $5,202, his earnings are approximately $10,000 a month, and he has unsecured liabilities estimated at $417,518.
[2] An appreciation of this motion requires consideration of the history of the litigation. The Bank obtained default judgment against Korman in the amount of $52,730.85 plus interest and costs based on his personal guarantee of a loan it had made to his company, Futurecom Inc.
[3] The Bank then examined Korman in aid of execution of the judgment. In his examination, Korman admitted to filling out a false personal statement of affairs. As a result, the Bank brought a motion to convert its default judgment into a judgment in fraud pursuant to rule 59.06(2)(a). That rule enables a party to bring a motion to vary an order “on the ground of fraud or of facts arising or discovered after it was made”. Korman consented to the motion with the advice of his counsel, Mr. Horowitz. The Bank obtained the consent order on February 27, 2008. The effect of the order is that the Bank’s judgment will survive Korman’s bankruptcy and become a judgment against Korman personally. After Korman made his proposal in bankruptcy, he moved to set aside the consent order. Horowitz filed an affidavit in support of the motion.
[4] Horowitz’s affidavit states that the Bank’s motion record to amend the default judgment was served on him, and that he did not meet with Korman in person to discuss the motion but instead spoke with him about it on the telephone. Horowitz told Korman the Bank’s motion was to add to the default judgment the name “Israel Ian Korman” on the basis that Korman had fraudulently provided the name “Ian Israel Korman” instead. Horowitz says that he told Korman that he did not believe that Korman would experience any prejudice if the Bank’s order was granted, and advised him to consent to it so as to avoid the prospect of an adverse cost award. It appears that Korman did not see the Bank’s motion record. Horowitz received a copy of the consent order on about March 13, 2008, but did not provide Korman with a copy of it.
[5] After receiving the consent order, Horowitz realized that the name change was only part of the Bank’s motion. His affidavit says that he misunderstood the motion and did not fully communicate to Korman either the nature of the order sought or the consequence that a judgment for fraud survives bankruptcy and remains a personal debt of Korman. Horowitz wrote to the Bank indicating that Korman had “never abandoned his legal right to take action to set aside the judgment.” The Bank replied that Korman had signed a consent to the order sought, and that “amongst other obstacles in his way to having the judgment set aside, there is now his Consent to the money owing under the Bank’s judgment as being monies owed in fraud.” Horowitz did not advise Korman of the situation until approximately July 2008.
[6] Korman’s motion to set aside the consent judgment was dismissed. He has appealed and it is that appeal that has triggered the Bank’s motion for security for costs.
[7] The Bank’s submissions in support of its motion for security for costs of the appeal may be summarized as follows. First, pursuant to rule 61.06(1)(a), Korman’s appeal is frivolous and vexatious. The Bank did nothing to induce Korman’s mistake and is not responsible for it. Further, Korman has insufficient assets in Ontario to pay the costs of the appeal. Second, security for costs should be ordered pursuant to rule 61.06(1)(b) on the basis that Korman has two orders for costs in favour of the Bank outstanding against him in the combined amount of approximately $4,000 dating back to April 2007 and April 2008 that remain unpaid. Third, fraud is an “other good reason” for making an order for security for costs pursuant to rule 61.06(1)(c): see Hall-Chem Inc. v. Vulcan Packaging Inc. (1994), 27 C.P.C. (3d) 104 (Ont. C.A.), at para. 25.
[8] Korman’s counsel on this motion acknowledges Korman’s impecuniosity. However, he submits that justice demands that Korman be permitted to continue with his appeal, and that he meets the high threshold required to satisfy the court of his appeal’s chances of success.
[9] Korman submits that, as fraud was never pleaded in the Bank’s statement of claim, the Bank cannot avail itself of rule 59.06(2)(a). There is some support for this proposition in Russell v. Brown, 1948 CanLII 109 (ON CA), [1948] O.R. 835 (C.A.). However, the effect of any rule changes subsequent to this authority would need to be considered.
[10] Korman further submits that he did not commit a fraud in that his admitted lie on his personal statement of affairs had no bearing on the Bank’s decision to lend money to Futurecom. All of the money had already been advanced to Futurecom before Korman’s personal guarantee was given. In addition, Korman argues that the personal statement of affairs was submitted for the purpose of the Bank assisting him to obtain money from an outside lender, and was not a representation to the Bank.
[11] The motion judge dismissed both of these arguments. On the second issue, the affidavit evidence of Korman and the Bank’s representative, Cutone, is in conflict as to the purpose of the statement of affairs. The motion judge held that he did not need to make findings of credibility “because the records themselves show that funds were advanced to Mr. Korman on the accounts.” Korman submits that, at the very least, the motion judge ought to have ordered a trial on this issue.
[12] Korman also submits that, in dismissing his motion, the motion judge appears to have misapprehended the evidence. The motion judge held, at para. 10 of his endorsement, that:
Mr. Korman says that his solicitor, Mr. Horowitz, misconstrued the Bank’s motion. He says it was a mistake, but there was no reliable evidence before the Court that it was. Mr. Korman has refused to permit a waiver of the privilege that might shed any light on what actually transpired between himself and the solicitor. Neither is Mr. Korman willing to permit any insight into the basis of a claim he has apparently made against Law Pro regarding the solicitor. Most importantly here, however, is that Mr. Korman’s protestations that the solicitor has admitted his mistake are of little value when there is no corroborative evidence before the Court that would add any reliability or weight to Mr. Korman’s assertion and complaint.
[13] The motion judge’s comments do not reference the affidavit filed by Horowitz in support of Korman’s motion, and thus appear to be a misapprehension of the evidence.
[14] Inasmuch as the motion judge appears to have misapprehended the evidence, the next question I must address is the effect of this error. If, notwithstanding the motion judge’s error, the motion appears to have no chance of succeeding, it would be appropriate to order security for costs.
[15] A consent judgment is not a judicial determination on the merits of the case, but an agreement elevated to the status of an order on consent. The basis of the order is the parties’ agreement and not a judicial determination of what is fair and reasonable in the circumstances. A consent order may be set aside on the same basis for setting aside a contract: Teitelbaum v. Dyson (2000), 7 CPC (5th) 356 (Ont. S.C.), at para. 38, aff’d (2001) 2001 CanLII 32771 (ON CA), 151 O.A.C. 399 (C.A.). A self-induced unilateral mistake is not ordinarily a basis for setting aside a contract.
[16] The recent decision of the Supreme Court of Canada in Rick v. Brandsema, 2009 SCC 10, [2009] S.C.J. No. 10, dealt with the setting aside of a consent order incorporating the terms of a separation agreement. Abella J., writing on behalf of the court, held that decisions about what constitutes an acceptable bargain can only be made if both parties come to the table with the information needed to consider what concessions to accept or offer. Where an agreement is based on misinformation, it cannot be a true bargain entitled to judicial deference. In that case, Abella J. held that the husband had a duty to make full disclosure to the wife of his financial condition when negotiating the settlement agreement, and that his failure to do so constituted exploitation of her. Abella J. held, at para. 61, “exploitation is not rendered anodyne merely because a spouse has access to professional advice”.
[17] Korman does not, however, allege misconduct on the part of the Bank. He does not allege that the Bank owed a duty of good faith and fair dealing to tell Korman that the effect of its motion would mean that he would remain personally liable to pay the debt owed to the Bank, notwithstanding any proposal in bankruptcy. Rather, in his appeal factum, Korman submits that a client is not to be placed irrevocably in jeopardy by reason of the negligence of his solicitor, and relies on Halton Community Credit Union Ltd. v. ICL Computers Canada (1985), 1 C.P.C. (2d) 24 (Ont. C.A.), at p. 27, as support for this proposition.
[18] Despite the value that the law places on finality, there will be situations in which other legitimate interests outweigh finality concerns. In Larabie v. Montfils (2004), 2004 CanLII 11299 (ON CA), 44 C.P.C. (5th) 66 (Ont. C.A.), Blair J.A. refused to order security for costs despite the fact that the respondent was impecunious and had failed to pay previous costs awards. He refused because a "worthy but impecunious litigant" should not be deprived of the opportunity to have his claim adjudicated "when it is not plainly devoid of merit". Blair J.A. was satisfied that ordering security for costs would prevent the appellant from continuing with the appeal. I am satisfied that this case presents a similar situation.
[19] In the circumstances, I hold that Korman should be permitted to continue with his appeal notwithstanding his impecuniosity. The Bank’s motion for security for costs is dismissed.
[20] Costs of this motion are reserved to the panel that hears the appeal.
“Karen M. Weiler J.A.”