SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-10-412179
DATE HEARD: April 19, 2012
ENDORSEMENT RELEASED: April 26, 2012
RE: FIMAX INVESTMENTS GROUP LTD. v. ALLAN GROSSMAN and JANINE GROSSMAN
BEFORE: Master R. Dash
COUNSEL:
Bruce Baron, for the plaintiff
Ian Roher, for the defendants
REASONS FOR DECISION
[ 1 ] This is a motion brought by the defendants under rule 37.14(1)(a) to set aside the order of Master Graham dated April 5, 2011 in which he granted the plaintiff on an ex-parte motion an extension of time for the service of the statement of claim. The statement of claim was issued on October 12, 2010 and pursuant to rule 14.08 service was required to be made by April 12, 2010. Master Graham granted an extension of six months from the date of his order to effect service. The defendants were served with the statement of claim and order of Master Graham on July 21, 2011. The defendants claim that the plaintiff failed to make full and fair disclosure of all material facts and made material misstatements of fact in the motion material before Master Graham. In reliance on rule 39.01(6) the defendants argue that the material non-disclosure is by itself sufficient grounds to set aside the ex-parte order.
[ 2 ] The action is a claim on a promissory note and a guarantee of a loan to ASG Acquisition Corp. (“ASG”) signed on August 14, 2008. It appears that ASG defaulted on its loan obligations on September 14, 2008 and on August 13, 2010 the plaintiff delivered a demand for payment on the guarantee to the defendants. The statement of claim was issued on October 12, 2010, but the defendants were unaware of the lawsuit until they were served on July 21, 2011.
[ 3 ] A statement of claim is to be served within six months after it is issued in accordance with rule 14.08. Pursuant to rule 3.02(1) the court may extend any time prescribed by the rules, including the deadline to serve a statement of claim. The test to be applied on a motion to extend the time for service of a statement of claim has been set out by the court of appeal in Chiarelli v. Wiens as follows:
The basic consideration is whether the extension of time for service will advance the just resolution of the dispute, without prejudice or unfairness to the parties. And, the plaintiff has the onus to prove that extending the time for service will not prejudice the defence. [1]
[ 4 ] With respect to the onus the court in Chiarelli held:
Although the onus remains on the plaintiffs to show that the defendant will not be prejudiced by an extension…the plaintiffs cannot be expected to speculate on what witnesses or records might be relevant to the defence and then attempt to show that these witnesses and records are still available or that their unavailability will not cause prejudice. It seems to me that if the defence is seriously claiming that it will be prejudiced by an extension it has at least an evidentiary obligation to provide some details. [2]
[ 5 ] Further, the “ prejudice that will defeat an extension of time for service must be caused by the delay”. [3]
[ 6 ] In support of the ex-parte motion before Master Graham, the plaintiff provided the affidavit of Arie Gaertner (“Gaertner”) sworn March 28, 2011. In that affidavit Gaertner describes himself as a “partner with the law firm” that are “the lawyers for the plaintiff...and as such have knowledge of the matters contained in this affidavit.” There is no indication that there is any source of information in that affidavit except Gaertner’s personal knowledge.
[ 7 ] The affidavit is very short. Gaertner states a demand for payment was made on August 13, 2010 and that the statement of claim was issued on October 12, 2010. The remainder of the affidavit, consisting of two paragraphs sets out what the defendants describe as misrepresenting material facts and are set out verbatim as follows:
The parties have engaged in meaningful settlement discussions since the delivery of the demand letter.
Service of the statement of claim at this juncture may prejudice the settlement discussions between the parties.
[ 8 ] The defendants also allege that the plaintiff failed to disclose to Master Graham that the defendant Allan Grossman became a bankrupt on November 18, 2010 and this was known to the plaintiff.
[ 9 ] Rule 39.01(6) provides as follows:
Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application.
[ 10 ] The test under rule 39.01(6) to set aside an ex-parte order obtained where there has been failure to make full and fair disclosure is not whether the order would or would not have issued had proper disclosure been made but rather whether or not disclosure to the Master of the omitted or misstated information “ might have had an impact on the original granting of the order” in that it could be said that “the order may well not have been made if proper disclosure had been given.” [4]
[ 11 ] It would have seemed obvious to Master Graham that Gaertner’s reference to settlement discussions meant that there were ongoing discussions aimed at resolving the action for which the extension was sought. Indeed it is not uncommon to see ongoing negotiations to settle an action as a reason to extend the time for service. Such settlement discussions would clearly “advance the just resolution of the dispute” as stated in Chiarelli .
[ 12 ] I have reviewed the extensive evidence presented through affidavits and cross-examinations thereon and have concluded that even on a generous reading it could not be said that there had been “meaningful settlement discussions” being engaged in as set out in paragraph 4 of the Gaertner affidavit, nor was the real reason for the requested extension to avoid prejudicing those “settlement discussions” as set out in paragraph 5 of the affidavit.
[ 13 ] Allan Grossman (“Grossman”) is the principal of ASG and guarantor of the loan. Dan Kowalchuk (“Kowalchuk”) was Allan’s C.F.O. of ASG Financial. Danny Kim (“Kim”) is the principal of the plaintiff Fimax. Fimax lent money to ASG on four projects. Lou Piccioni (“Piccioni”) has worked with Kim on many of the ASG projects. Each of Grossman, Kowalchuk, Kim and Piccioni swore affidavits on this motion and each was cross-examined on their affidavits, as was Gaertner. The following factual matrix emerges from that evidence as it relates to the matters in issue on this motion.
[14] ... (continues verbatim exactly as provided through paragraph [37] and the footnotes)
Master R. Dash
DATE: April 26, 2012