Court File and Parties

Citation: Flintoff v. Anhalt, 2010 ONCA 786 Date: 2010-11-19 Docket: C52097 Court of Appeal for Ontario Before: Rosenberg, Moldaver and Karakatsanis JJ.A.

Between: Kevin Flintoff, Ken Parish, Marie Parish, Stan Parish, Lois Parish, Connie Parkinson, Brian Parkinson, Paul Alexander Parkinson, George Edward Parkinson, Ines Primc, Tari Rinder, Craig Robinson, Ronald Vale, Maya Varma and Frank Workman (Respondents)

and

Emilia von Anhalt (Appellant)

Counsel: Alistair Crawley and Clarke Tedesco, for the appellant David Milosevic, for the respondents

Heard: November 16, 2010

On appeal from the judgment of Justice James M. Spence of the Superior Court of Justice dated April 22, 2010.

Endorsement

[1] The appellant, Emilia von Anhalt, appeals from the orders of Spence J. refusing to set aside the noting in default and granting default judgment in the amount of $776,710.74. For the following reasons the appeal is dismissed, except that the amount of prejudgment interest is reduced to 3.3 percent.

The Noting in Default

[2] The appellant was formerly an officer and director of Lydia Diamond Exploration of Canada Ltd. In November 2002, the Ontario Securities Commission made an order against her and her late husband under s. 127 of the Securities Act inter alia limiting the circumstances in which they could trade in the securities of Lydia Diamond. In October 2004, the OSC received information that the appellant and her husband were continuing to sell Lydia Diamond securities in breach of the 2002 order. As a result, the OSC commenced a quasi-criminal prosecution of the appellant and her husband in late 2005. While the appellant’s husband attended the trial, the appellant left the jurisdiction and was therefore tried in absentia. She was eventually convicted and sentenced in 2007 to a term of imprisonment. There is also a warrant for the appellant’s arrest for charges of forgery and fraud allegedly committed in Toronto in 2005. The appellant has apparently not been in Canada since 2005.

[3] In November 2007, Pepall J. heard an application by the OSC which led to the granting of a security interest in the von Anhalts’ shares in Lydia Diamond to named victims from the quasi-criminal proceedings. Days before the hearing the appellant’s husband sold his securities to certain investors. As a condition of obtaining court approval of the sale, these investors paid the bulk of the approximately $1.4 million purchase price into court. Ultimately, these funds were distributed to various persons, including five of the victims. The appellant did not provide any restitution and she has retained her shareholdings in Lydia Diamond.

[4] In July 2008, the respondents commenced an action against the appellant alleging breach of contract, fraud, and fraudulent misrepresentation as a result of agreements the appellant had entered into with them but failed to honour. While the respondents did not know where the appellant lived, they had an e-mail address for her and served her with the statement of claim by e-mail on July 3, 2008. An order for substituted served by e-mail was subsequently made on September 3, 2008. On that date, the respondents’ counsel served the appellant with a copy of the order for substituted served and advised her that the respondents would be seeking default judgment. The appellant did not respond or take any other steps and was noted in default on January 26, 2009.

[5] In an order of December 21, 2009, Pepall J. allowed the appellant to exercise her dissent rights under s. 185 of the Business Corporations Act and provided for a payment into court by the new owners of Lydia Diamond of funds for the purchase of the appellant’s Lydia Diamond securities. $400,000 has now been paid into court. The respondents then brought their motion for default judgment, which was returnable on January 26, 2010. The respondents, having learned that the appellant had retained Ontario counsel, served him with a motion record in support of the motion for default judgment. The motion for default judgment was adjourned to allow the appellant to move to set aside the noting in default. The appellant filed an affidavit in an attempt to explain her default and some of the circumstances under which she took money from the respondents. She was cross-examined on her affidavit. She did not cross-examine any of the respondents on their affidavits.

[6] In brief reasons, the motions judge referred to the correct test for setting aside default judgment. He noted that she was a fugitive from justice and did not file a defence in the action for a year and half even though she was aware of the action from the time it was commenced. He found that she had put forward no credible evidence for her failure to defend the action. He also took the view that the appellant did not dispute that she owed money to the respondents, she only disputed the quantum. Therefore, it was not necessary to set aside the noting in default to deal with the question of quantum.

[7] Whether to set aside a noting in default is a discretionary decision. The court will look at the non-exhaustive list of factors including the behaviour of the plaintiff and of the defendant, the length of the defendant’s delay, the reasons for the delay and the complexity and value of the claim. See Metropolitan Toronto Condominium Corporation No. 706 v. Bardmore Developments Ltd. (1991), 3 O.R. (3d) 278 (C.A.). We have not been persuaded that the motions judge erred in dismissing the appellant’s motion to set aside the noting in default. The appellant claimed that she did not defend the action because of lack of funds. It was open to the motions judge to reject this claim given the evidence that she had access to funds which she used for other purposes. The more probable explanation for her failure to defend and the lengthy delay is that the appellant had no intention to defend the action until she saw there was a possibility her Lydia Diamond securities might have some value following Pepall J.’s December 2009 order.

The Default Judgment

[8] The appellant submits that the default judgment should be set aside because there is an inconsistency between some of the facts pleaded in the statement of claim and the evidence provided in the respondents’ affidavits. She also submits that the evidence provided in the affidavits does not support the amounts claimed. Finally, she submits that there may be a Limitations Act defence to the claim by Tari Rinder. Given all of these concerns with the evidence, the appellant submits that the motions judge should have exercised his discretion under rule 19.05(3) and ordered that the action proceed to trial.

[9] We would not give effect to any of these arguments. While the respondents’ affidavits claimed for various sums they gave to the appellant, the motions judge limited judgment to amounts related to the shares in Lydia Diamond that the appellant promised to give to the respondents and which she never delivered. In cross-examination, she admitted that she received the funds and that those funds went into a bank account over which she had sole control. For example, in relation to the Parkinsons’ claim, she admitted that she did not dispute that funds were advanced; she only disputed the quantum.

[10] A review of the affidavit evidence indicates that the respondents, some of whom were elderly and had lost their life savings, attempted to gather as much documentary evidence as possible to support their claims. They were not able to provide documents for all of the claims but the motions judge had their sworn testimony as to the amounts they provided to the appellant. He was fully entitled to act upon that evidence. In the case of Brian Parkinson, the motions judge, having reviewed the evidence, substantially reduced the amount originally claimed.

[11] The appellant points out an apparent inconsistency between the promissory note attached to Mr. Parkinson’s affidavit and the amount claimed in the affidavit. Admittedly, the affidavit is somewhat confusing. However, the explanation for some of the confusion is due to the fact that, as explained by Mr. Parkinson, part of the promissory note is missing.

[12] We are also not persuaded that there is a material inconsistency between the facts pleaded in the statement of claim and the affidavit evidence. The facts in the statement of claim indicate that the appellant induced the respondents to enter into share subscription and option agreements pursuant to which she purported to sell shares in Lydia Diamond. She did so at a time when she had no authority to engage in sales of Lydia Diamond and when there was no prospect that the shares would be traded on a recognized exchange. She never delivered the shares nor did she pay back the amounts provided by the respondents. The affidavit evidence is consistent with those facts. The fact that some of the funds may have originally been provided as loans to the appellant is not material to the appellant’s liability for the amounts advanced by the respondents. And, as we have noted above, the appellant does not dispute that she owed some amount to the respondents.

[13] Finally, assuming a Limitations Act defence was available, there is evidence as to when the respondents discovered their claim which would defeat any such defence.

Prejudgment interest

[14] The respondents concede that the rate of prejudgment interest should be reduced from 5 percent to 3.3 percent.

DISPOSITION

[15] Accordingly, except for an amendment to paragraph 3 of the Judgment to reduce the rate of prejudgment interest to 3.3 percent, the appeal is dismissed with costs fixed at $12,500 inclusive of disbursements and applicable taxes.

Signed: "M. Rosenberg J.A." "M. J. Moldaver J.A." "Karakatsanis J.A."