Court of Appeal for Ontario

DATE: 20230717 DOCKET: COA-22-CV-0212

Miller, Paciocco and Coroza JJ.A.

BETWEEN

Rocco Sebastiano Plaintiff (Respondent)

and

Brunello Imports Inc., James Savona and Marina Savona Defendants (Appellants)

Counsel: Emilio Bisceglia, for the appellants Stephen Schwartz and Darren Marr, for the respondent

Heard: June 12, 2023

On appeal from the judgment of Justice Frederick L. Myers of the Superior Court of Justice, dated September 16, 2022, with reasons reported at 2022 ONSC 5272.

Reasons for Decision

[1] This appeal arises from an order that funds paid into court by the appellants be paid out to the respondent to the credit of the appellants’ loan, which was secured by a mortgage against two properties. The two properties are the former matrimonial home of the appellants and a condominium owned by the appellant’s corporation, which is now bankrupt.

[2] For the reasons given below, we are of the view that this court does not have jurisdiction to hear the appeal, and accordingly the appeal must be quashed.

Background

[3] The appellants obtained a loan from the respondent, which was secured by a mortgage against the appellants’ matrimonial home and a condominium owned by the appellants’ corporation. The appellants defaulted on the loan in November 2019, and in 2020 the mortgage matured. In July 2020, the respondent took possession of the condominium. He has not sold it and has instead leased it out for a monthly rent that is significantly less than the interest accruing each month on the appellants’ debt. Under the respondent’s stewardship, the appellants’ indebtedness to him increases each month. The respondent’s course of action with respect to the condominium is unexplained in these proceedings and a source of significant grievance to the appellants.

Procedural History

[4] The respondent commenced an action for the debt, seeking possession of the matrimonial home and the condominium. The appellants did not file a statement of defence and on April 26, 2021 the respondent obtained default judgment granting possession of the matrimonial home. That default judgment has not been set aside.

[5] Subsequently, the appellants sought court approval to sell the matrimonial home themselves. To facilitate the sale, they filed an application on June 21, 2021 for an order discharging the respondent’s mortgage against the matrimonial home on terms, and seeking a declaration that the respondent had foreclosed on the condominium in satisfaction of the mortgage.

[6] The appellants appeared before Sharma J. on July 23, 2021 to have the application scheduled for an oral hearing. Justice Sharma refused to schedule the hearing on the basis that the application constituted a collateral attack on the default judgment and was therefore an abuse of process. Justice Sharma held that the application could not be scheduled until the default judgment was first set aside.

[7] Accordingly, the appellants filed a motion to set aside the default judgment. That motion was never heard, however, as the parties negotiated a consent order dated September 15, 2021, that – among other terms – ordered that the motion was abandoned. The consent order also provided that:

(1) the appellants were “permitted to issue an application for relief concerning [the condominium]”;

(2) the matrimonial home could be sold pursuant to an agreement of purchase and sale dated June 29, 2021, and the home would remain in possession and control of the appellants until that sale;

(3) the net proceeds of sale would be “paid into Court to the credit of the within action until further court order”;

(4) upon payment of the net sale proceeds into court, the respondent would discharge the mortgage against the matrimonial home; and

(5) the mortgage would remain a charge over the condominium and over the net proceeds of sale paid into court, “subject to further Order of the Court”.

[8] The appellants have not taken any further steps to schedule the hearing of the application contemplated in the consent order.

[9] A year after the consent order, the respondent brought a motion for an order directing that the funds paid into court to the credit of his action be paid out to him.

[10] The appellants contested the motion. Given the default judgment, the appellants have not filed a statement of defence or other pleading, nor could they have done so. At the hearing before the motion judge, they raised four arguments as to why the order sought should not be granted:

1. The respondent was not entitled to the funds under the default judgment as the relief provided in the default judgment was only for possession of the matrimonial home and not for a money judgment;
2. The respondent had released his claim to the matrimonial home in exchange for foreclosing against the condominium;
3. The respondent violated his duty as mortgagee to providently realize on the condominium, and release of the funds should await quantification of his liability to the appellants; and
4. The respondent violated his duty of good faith.

[11] Each of these arguments was advanced below as a reason why the motion judge should not order the release of funds to the respondent. The motion judge considered them in this context only. He did not purport to adjudicate the appellants’ claims that the respondent violated duties towards the appellants, particularly the duty to providentially realize on his security. We understand those claims to be the subject of the appellants’ application, which is not before us on this appeal and remains unscheduled. [1]

[12] The motion judge ordered the funds released.

[13] The appellants appeal this order to this court.

Issues on Appeal

[14] The appellants raise the following arguments on appeal:

1. The claim to receive the funds paid into court is procedurally unavailable, because the respondent already received possession of the matrimonial home as a remedy in the default judgment.
2. The respondent foreclosed on the condominium in satisfaction of the mortgage debt.
3. The respondent violated his duty to providently realize on the mortgage;
4. The respondent violated his duty of good faith to the appellants.

Analysis

[15] There is a preliminary issue of whether this court has jurisdiction to hear the appeal. This court does not have jurisdiction to hear appeals from interlocutory orders – orders that do not finally determine any substantive matter in issue between the parties: see Drywall Acoustic Lathing Insulation Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2020 ONCA 375, at para. 16.

[16] The respondent argued that the order under appeal is interlocutory. The default judgment he obtained was a determination of substantive rights: it was a final determination of a debt owing, and the entitlement to realize on security. The consent order may have had final and interlocutory aspects, but the order that funds were to be paid into court and stand in place of the property secured by the mortgage resolved no substantive issue in the litigation and was therefore interlocutory. The order that funds be paid out to the respondent, it was submitted, was similarly interlocutory. It resolved no substantive issue in the litigation. It was simply a step in the implementation of the default judgment.

[17] The appellants argued that the order under appeal is final. They submit that the substantive nature of the order is evident in that the motion judge made determinations about their substantive rights (and made errors in so doing).

[18] We do not agree that the order appealed from is final. Although the motion judge engaged with the substantive arguments raised by the appellants – arguments that are the subject of the appellant’s outstanding application – he did so for the limited purpose of assessing whether those arguments could provide a reason not to pay the funds out of court.

[19] An order to pay funds out of court is not, in these circumstances, a final order. The ultimate question of whether the respondent foreclosed on the condominium in satisfaction of the mortgage debt, or whether he is liable in damages to the appellants for improvident realization of the mortgage, has not been adjudicated. It is true that the motion judge – at the invitation of the appellants – considered and rejected the appellants’ arguments qua reasons not to order the payment of funds out of court, but this was not an adjudication of the appellants’ claims against the respondent. Those claims live to be adjudicated another day.

[20] Although the motion judge stated at several places in his reasons that the improvident realization claim was not before him, some of his comments appear to stray into opining on the subject matter of the appellant’s application. Nevertheless, and read as a whole, the reasons are clear that: (1) the motion judge was only considering these issues in the context of the argument that the funds ought not be paid out to the respondent, (2) these claims against the respondent were not before him for adjudication, and (3) the claims that the respondent had breached a deal he had with the appellants and was liable for improvident realization were still live claims in another proceeding. The appellants read paragraphs 45 and 46 of the decision below as disclosing that the motion judge believed, in error, that the appellant’s application had been abandoned and cannot now be argued. We do not read these paragraphs in this way.

[21] The procedure followed in this matter was complicated as a consequence of the appellants: (1) not defending the respondent’s action, (2) commencing a separate application to seek a remedy against the respondent, and (3) abandoning the motion to set aside the default judgment on terms that included permission to issue an application for relief “concerning the [condominium]”.

[22] The motion judge concluded at paragraph 47 that the appellants can no longer challenge the enforceability of the mortgage against the matrimonial home. That is true. The order that the funds be paid out of court to the respondent is an order that the respondent is entitled to those funds under the terms of the mortgage as a consequence of the appellants’ failure to pay the mortgage debt. That entitlement was determined when the default judgment was issued. The default judgment has not been set aside, and there is no outstanding motion to set it aside. There can be no collateral attack on that judgment in another proceeding. The order appealed from is interlocutory – it simply executes a determination made in an earlier proceeding.

[23] Parenthetically, because of the terms of the consent order, it would seem that the appellants are not precluded from pursuing their application against the respondent for allegedly breaching an agreement they say he made with them to foreclose on the condominium in satisfaction of the mortgage debt, for improvident realization, and for breaching a duty of good faith. If they are successful, they will be entitled to damages. But the potential success or failure of that proceeding, if it is eventually heard, has no bearing on the finality of the default judgment, nor the order to release the funds paid into court as security for the mortgage debt. The practical consequence of the decision below is that the appellants will not be able to look to the funds held in court to satisfy any judgment they receive on their application. But that has no bearing on the legal question of whether they are entitled to damages on any of the bases set out in their application.

Disposition

[24] The appeal is quashed for lack of jurisdiction. The respondent is awarded costs in the amount of $15,000 inclusive of disbursements and HST.

“B.W. Miller J.A.”

“David M. Paciocco J.A.”

“S. Coroza J.A.”

[1] The panel notes that, based on the submissions before us, it appears that an adjudication of the application would require a determination of disputed factual allegations. The panel expresses no opinion as to whether an application would be the correct form of proceeding.