ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 06-CV-36734
DATE: 2012/01/27

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

1202600 ONTARIO INC. Applicant – and – ANTHONETTE INDRITH HUNTE JACOB, and SEAN McCORMICK Respondents

John J. Cardill, counsel for the Applicant

Thomas W. Curran, counsel for the Respondent, Sean McCormick

HEARD: December 13, 2011

REASONS FOR DECISION

Annis J.

Introduction

[1] The respondent, Mr. Sean McCormick (“Mr. McCormick” or “the respondent”) seeks an order setting aside the default judgment of Sedgwick J. dated April 25, 2007.

[2] In what may be described as a “basket application”, Sedgwick J. granted default judgment against Mr. McCormick for monies and interest claimed by the applicant, 1202600 Ontario Inc. (“1202600”) pursuant to a guarantee on a promissory note of the co‑respondent Anthonette Jacob (“Ms. Jacob”).

[3] Mr. McCormick claims that the Judgment should be set aside because the notice of application did not provide proper notice. He further alleges that 1202600’s lawyer, Mr. Daniel Dunlap (“Mr. Dunlap”) was in a conflict of interest because he acted for all parties on the initial transaction.

[4] Additionally, when served with the notice of application, Mr. McCormick claims that Mr. Dunlap advised him that 1202600 did not intend to enforce the claim against him. In reliance upon this representation, he says that he delayed moving to set aside the Default Judgment.

[5] Finally, Mr. McCormick argues that Mr. Dunlap did not properly instruct him concerning the guarantee, and had he done so, he would not have agreed to act as guarantor.

[6] In reply, 1202600 contends that the Application Record was served on Mr. McCormick in accordance with the Order of Cosgrove J. and that Mr. McCormick fully understood the consequences of any failure to defend.

[7] Mr. Dunlap denies that he advised Mr. McCormick that 1202600 would not seek payment from him, particularly when his guarantee was required for the loan to be granted.

[8] 1202600 also argues that Mr. McCormick is seriously out of time in bringing his motion to set aside Sedgwick J.’s order. Furthermore, it submits that Mr. McCormick has no valid defence to the action on the merits.

[9] I agree with Mr. McCormick that the notice of application was defective. As a result, he may have concluded that judgment had already been obtained against him when he was served with the notice of application.

[10] However, I conclude that Mr. Dunlap did not advise Mr. McCormick that 1202600 would not enforce the guarantee and that the delay in prosecuting the motion was significant. I also find that Mr. McCormick’s case holds little chance of success on the merits.

[11] Accordingly, it would not be in the interests of justice to set aside the Order of Sedgwick J. I dismiss the motion with costs. My reasons follow.

Background Facts

[12] This application arose out of a loan transaction entered into by Ms. Jacob and 1202600. The loan was for $35,000 with interest payable at the rate of 15 per cent before default and 25 per cent after default. A mortgage dated November 1, 2004 against certain real property owned by Ms. Jacob was given as collateral security for the loan, being a second mortgage against the property.

[13] Mr. McCormick, who was an experienced mortgage broker, acted as the broker on the transaction. He and John Steenbakkers (“Mr. Steenbakkers”), the signing officer of 1202600, had been involved in numerous mortgage transactions in the past.

[14] 1202600 initially refused the loan application by Ms. Jacob. Based on Mr. McCormick’s undertaking to sign as guarantor, it agreed to the loan.

[15] As part of the consideration, a Promissory Note was given by Ms. Jacob, which Mr. McCormick signed as guarantor. The Note contained the following “consent to judgment” clause:

In the event that payment is not made in accordance with the terms of this Promissory Note then I/We Consent to Judgment in the Ontario Superior Court of Justice or other Court of competent jurisdiction against me/us for the Principal amount together with interest, until payment. [Emphasis in original]

[16] Mr. Dunlap, who was initially 1202600’s lawyer, acted for all parties on the transaction. On November 1, 2004, all the parties signed an “Acknowledgment” which included a clause indicating that they had declined their rights to obtain separate independent counsel.

[17] It also contained a clause whereby Mr. Dunlap advised that he could not act for any party should a dispute arise between them.

[18] Sometime thereafter, Ms. Jacob defaulted on the mortgage. Mr. McCormick paid outstanding monies on the debt, $2,350 on May 13, 2005, and $2,723 on January 4, 2006. Mr. McCormick denies that the first payment of $2,350 was made by him.

[19] The mortgage again fell into arrears and 1202600 refused to renew. Repayment was demanded, which payment neither Ms. Jacob nor Mr. McCormick made.

[20] Ms. Jacob’s home was sold pursuant to power of sale proceedings. However, no surplus monies were available to satisfy 1202600’s mortgage.

[21] On December 8, 2006, 1202600 brought an ex parte application to recover on the loan. The notice of application indicated that the hearing date was December 8, 2006.

[22] Despite the provision in the Acknowledgment that he not act for either party, Mr. Dunlap represented 1202600 on the application.

[23] The form 14E, Notice of Application, was amended by adding “ON CONSENT” to the title. As well, “ON CONSENT” was added in bold where the “TO THE RESPONDENTS” and “TO” are indicated on the form, presumably to designate that the application was being brought without notice.

[24] The application record included an affidavit of Mr. Steenbakkers briefly describing a liquidated claim based on the Promissory Note and guarantee of $41,441.82 plus costs of $2,500.

[25] A draft judgment, and what was described as a “Consent to Judgment” were included in the record. The latter document consisted of the Promissory Note with the default clause described above, highlighted.

[26] On December 13, 2006, the application came before Cosgrove J., in writing, without an oral hearing. Without reasons, he endorsed the application record with the “Application to be served on Respondents”.

[27] On February 5, 2007, Mr. Dunlap personally served Mr. McCormick with the Application Record in the form described above along with a copy of the endorsement of Cosgrove J. He also served the applicant with a letter dated January 29, 2007, indicating that he or his representative could contact him with respect to the matter.

[28] Mr. McCormick has deposed that when he was served with these materials, Mr. Dunlap advised him that Mr. Steenbakkers “did not intend to pursue me for the monies”.

[29] In a later affidavit, Mr. McCormick deposed that on the basis of those comments, he “was led to understand that the application had already been heard and judgment granted, and that it was not going to affect me”.

[30] Mr. Dunlap denies this conversation, deposing that he told Mr. McCormick that the plaintiff would first attempt to recover from Ms. Jacob before seeking payment from Mr. McCormick.

[31] On March 1, 2007, Mr. Dunlap filed a “Requisition” requesting that “the Defendants” Ms. Jacob and Mr. McCormick “be noted in default in this action (sic) on the grounds that neither has filed a notice of appearance within the prescribed time.” It included affidavits of service on the respondents of the application record and the endorsement of Cosgrove J.

[32] On April 19, 2007, the application came before Sedgwick J. to be heard without oral argument. Apparently the materials evidencing service filed March 1, 2007, were not included. His endorsement stipulated: “No evidence that the application had been served on the Resp(ondent)s as ordered…”.

[33] He also amended the application by deleting the words “ON CONSENT” which had been inserted in the notice of application on consent after the “TO” and “TO RESPONDENTS” lines on the form where the respondents would normally be named, noting in his endorsement: “The Respondents are entitled to an opportunity to defend”.

[34] On April 25, 2007, indicating that “proof of service on February 13, 2007 on the Respondents having been filed”, and “the Respondents not having responded”, Sedgwick J. issued the Default Judgment in accordance with the signed judgment for $41,441.82, plus interest and costs of $2500.00.

[35] There is no indication where the date of service of February 13, 2007, originated from. Nor is there evidence that further materials, besides those filed on March 1, 2007, were before Sedgwick J. when the judgment was signed. The signed Order had stricken from it any reference to the application being on consent.

[36] On June 1, 2007, further to a letter addressed to him by Mr. Dunlap, Sedgwick J. amended his order of April 25, 2007, to increase the amount of his judgment from $41,441.82 to $42,441.82.

[37] Sedgwick J. noted that there had been an accidental arithmetic slip inasmuch as the aggregate amount of the claim set out in the affidavit materials used for Default Judgment was the amended amount as opposed to that in his original judgment. No notice was provided to the respondents of the request to amend the judgment.

[38] On June 18, 2007, the amended judgment of Sedgwick J. was served on Mr. McCormick.

[39] On or around October 23, 2007, Mr. Dunlap demanded payment by Mr. McCormick of the outstanding total judgment amount, as of October 15, 2007, of $51,959.63, plus per diem interest.

[40] By facsimile transmission dated November 7, 2007 to Mr. Dunlap and Mr. Steenbakkers, Mr. McCormick advised that he had only received Mr. Dunlap’s letter on November 5, 2007. He also indicated that he would be sending a proposed settlement offer after obtaining legal advice. On December 13, 2007, Mr. McCormick made an offer to settle the claim which was refused.

[41] By letter dated January 10, 2008, Mr. Dunlap advised Mr. McCormick that he was required to pay amounts claimed no later than January 18, 2008, failing which steps would be taken to enforce the judgment. It would appear that this letter was sent on January 25, 2008, although Mr. McCormick deposes in two different affidavits that he only received it on February 25, 2008. The transmission date on the facsimile is January 25, 2008. Moreover, the facsimile transmittal sheet also indicates that it was signed on January 25, 2008, in Mr. McCormick’s handwriting.

[42] On April 15, 2008, Mr. McCormick brought a motion returnable on May 16, 2008, to set aside Sedgwick J.’s order of April 25, 2008. 1202600 replied by filing responding materials consisting of three affidavits, being those of Mr. Dunlap, Mr. Steenbakkers and his spouse, Rose Steenbakkers. Mr. Dunlap was no longer acting for 1202600.

[43] When the matter came before Kershman J. on May 16, 2008, he adjourned the motion to August 5, 2008, to allow Mr. McCormick to file further materials to which 1202600 could respond. On August 6, 2008, Kershman J. further adjourned the motion sine die returnable on five days notice, apparently to allow for cross‑examination on the affidavits.

[44] No information has been provided to the court about any steps by the parties to advance the motion to set aside until the spring of 2009.

[45] Starting in the spring of 2009, several e-mails were exchanged to set up cross‑examinations on affidavits. None of these were successful due to the unavailability of the different counsel on several days proposed. Mr. Dunlap was represented by counsel for the purpose of the cross‑examinations.

[46] By an e-mail dated August 19, 2009, a series of dates were proposed by 1202600 for the examinations throughout the fall of 2009. No reply was received from Mr. McCormick’s counsel, nor was any explanation provided for his failure to respond.

[47] Given the difficulties being experienced in arranging the examinations with no response from Mr. McCormick, 1202600 served a notice of examination dated September 2, 2009, on Mr. McCormick’s counsel to be conducted on October 29, 2009.

[48] When Mr. McCormick’s counsel was contacted shortly before the examination date, he indicated that he had no record of receiving the notice of examination. 1202600’s counsel indicates that it had facsimile confirmation that the service of the notice had been received by the office of Mr. McCormick’s counsel.

[49] The examinations scheduled for October 29, 2009, were rescheduled to December 9, 2009.

[50] On November 13, 2009, Mr. McCormick made a new written offer to settle the proposal. Exchanges of Offers to Settle were made by both Mr. McCormick and 1202600 using facsimile transmissions. The last written exchange was made by 1202600 on November 24, 2009.

[51] On the eve of the Examinations for Discovery scheduled for December 9, 2009, Mr. McCormick’s counsel advised the other parties that his client was proceeding with a motion for judgment on the basis that an agreement to settle the matter had been achieved in the recent exchange of Offers.

[52] Mr. McCormick filed his motion materials seeking a declaration that the matter had been settled on May 27, 2010.

[53] By order dated August 6, 2010, Parfett J. dismissed Mr. McCormick’s Summary Judgment Application with costs, providing oral reasons.

[54] On September 10, 2011, Mr. McCormick filed a return of his motion of May 16, 2008 to set aside the Order of Sedgwick J. dated April 25, 2007. No cross-examinations on the affidavits had occurred in the interval.

[55] No evidence has been filed with the court describing any steps taken between the date of the Order of Parfett J. of August 6, 2010, and the filing of the return of motion to set aside on October 13, 2011.

The Law

[56] Mr. McCormick originally brought this motion pursuant to rule 19.08 of the Rules of Civil Procedure (“ Rules ”) , R.R.O. 1990, Reg. 194, which concerns setting aside default proceedings in an action.

[57] However, in his Factum he argued that rule 38.11 should be the governing provision. Relevant portions of this rule read as follows:

38.11(1) A party or other person who is affected by an order obtained on an application made without notice or who fails to appear at the hearing of an application through accident, mistake or insufficient notice may move to set aside or vary the judgment, by a notice of motion that is served forthwith after the judgment comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion.

(3) On a motion under sub rule (1), the judgment may be set aside or varied on such terms as are just.

[58] Nevertheless, as Sedgwick J.’s judgment was made in default, the respondent submitted that the court should give consideration to the extensive jurisprudence interpreting rule 19.08(2) concerning setting aside a Default Judgment obtained in an action.

[59] In particular, he submitted that the court should apply Royal Trust Corporation of Canada v. Dunn (1991), 6 O.R. (3d) 468 (Gen. Div.) (“ Royal Trust ”). In that decision, Borins J., describes two distinct situations where a court is able to set aside a Default Judgment depending on whether it was irregularly obtained or not. I cite from his judgment at page 478 as follows:

It is well-established that there are two situations in which the court is able to set aside a default judgment. One of the leading authorities on the subject is Anlaby v. Praetorius (1888), 20 Q.B. 765 (C.A.), per Fry L.J. at p. 769. The first is when the defendant is able to establish that the judgment was irregularly obtained. If the defendant can establish that correct procedures have not been followed either in obtaining the judgment or in relation to some step taken by the plaintiff in the commencement of the proceedings, such as failing to serve the statement of claim in a proper manner, then normally the defendant can have the judgment set aside as of right without the requirement of establishing a defence to the plaintiff's claim .

The second is when the judgment has been regularly obtained and where the defendant asks the court to exercise its discretion to set aside the default judgment and to permit him or her to defend a claim. It is in the second situation that the defendant is required to satisfy a number of conditions, including establishing a defence to the action on the merits, before the court will exercise its discretion in the defendant's favour, and then usually on the position of terms such as payment into court of the amount claimed and the costs thrown away. (Emphasis added)

[60] Borins J. also stated that the factors to be considered in the second situation where judgment had been regularly obtained were those approved by the Court of Appeal in Chitel v. Rothbart (1987), 20 C.P.C. (2d) 46 (Ont. H.C.J.), (1988), 29 C.P.C. (2D) 136 (Ont. C.A.), (although reversed because the trial judge had been too rigid in their application). These factors were:

(a) that the default was unintentional and the defendant provide a valid reason for default;

(b) that the Motion to set aside the Judgment was served forthwith after the judgment came to her attention; and,

(c) that a valid defence on the merits exists.

[61] The wording of rule 19.08 stipulates that a judgment obtained on a motion for judgment may “be set aside or varied by a judge on such terms as are just”. This wording is similar to that in rule 38.11(3), but does not include the specific grounds to move to set aside in rule 38.11(1).

[62] This is an important distinction. Timeliness in bringing the motion to set aside is required to be considered as a factor in all motions seeking relief by virtue of rule 38.11.

[63] It is difficult therefore, to reconcile the wording of rule 38.11 with the analysis in Royal Trust, supra, where timeliness was not a factor if the judgment was irregularly obtained.

[64] If timeliness may be considered a factor in upholding an irregularly obtained Default Judgment in an application, what logic would prevent consideration of the merit of the defence to the same end?

[65] Rule 38.11 may also be distinguished from rule 19.08 in that under the latter provision a Default Judgment may be obtained without the intervention of a judge. When applying the Royal Trust decision, Low J. in Sanokr-Moskva v. Tradeoil Management Inc., 2010 ONSC 3073, [2010] O.J. No. 2204 at para.13 highlighted the significance of a Default Judgment being signed by a registrar as a factor in requiring that the procedure be unimpeachable.

13 A judgment signed by the registrar is regular only if it is both substantively correct and procedurally without deficiency. Because a judgment is the ultimate adverse consequence to the defendant and because a judgment signed by a registrar confers the benefit of judgment to the plaintiff without the plaintiff having to show any proof by way of evidence that he is entitled to the relief, the judgment must be substantively and procedurally unimpeachable to be regular.

[66] These distinctions aside, my view is that the better reason not to apply the analysis in Royal Trust is that it does not properly reflect rule 1.04(1) which reads as follows:

1.04(1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

[67] Rule 1.04(1) has been described as the “interpretation rule” and the “philosophy rule”, in addition to being called “the single most important Rule of Civil Procedure”. See 419212 Ontario Ltd. v. Astrochrome Crankshaft Toronto Ltd. (1991), 3 O.R. (3d) 116 at 121 (Ont. Master); Naumovich v. Naumovich, [1996] O.J. No. 30 at p. 6, 1996 CarswellOnt 15 (Ont. Gen. Div.); Griffioen v. Liao (2003), 68 O.R. (3d) 535 at 539-40 (Ont. S.C.J.). See generally Poulous, William J., The Interpretation Rule: A history and where do we go from here?, (2007) 46 C.P.C. (6th) 12.

[68] The rule emphasizes that the Rules should be interpreted liberally in a fashion that will best determine proceedings on their merits in a just fashion.

[69] I am of the view that rule 1.04(1) emphasizes a “common sense” approach to civil procedure which does not lose sight of the importance of the (final) determination of the matter.

[70] A motion to set aside is but one step in the process to determine a matter on its merits. If a case obviously lacks merit, it would be contrary to the direction given by rule 1.04(1) to set the judgment aside.

[71] Thresholds, while helpful in some circumstances in eliminating unnecessary procedures and providing predictability to the law, are generally not in harmony with the expansive interpretive approach described by rule 1.04 that focuses on just, final outcomes achieved in a timely way and at the least cost to the parties.

[72] I am not saying that proper notice, which is an important aspect of natural justice, is not a significant factor in determining whether an outcome is just. However, an interpretation of rules 19.08 or 38.11 that is in harmony with rule 1.04(1) should not limit the court to consideration of a single threshold factor concerning the regularity of notice.

[73] If, perhaps, a party is brought into court as a result of irregular service, I see no reason why the court should not take the opportunity, when the parties are before it, with the time and expense that this entails, to take a look - not a hard look - but a very practical look, to see whether there is any merit to the defendant’s case when a plaintiff advances this argument.

[74] Consideration of the merit of the defence in setting aside judgments occasions no prejudice to the defendant. Prejudice only arises if the result of allowing the procedural step is something that cannot be compensated for by costs. Prejudice does not include a substantive conclusion that the defendant has no triable issue that merits the court’s time.

[75] It is perhaps noteworthy that the bifurcated approach to setting aside orders based on the regularity of the plaintiff’s actions described in Royal Trust, supra, originated in the19th century. This was an era given to more linear and formalistic procedures and before litigants could benefit from Ontario’s sophisticated cost regime that can both compensate and penalize parties for unnecessary or abusive procedures.

[76] It is my view that rule 1.04 directs me to interpret rule 38.11 so as to consider all relevant factors that, on mature reflection, will secure the most just, most expeditious and least expensive determination of this proceeding on its merits. These include:

a. the regularity of the procedures followed to obtain Default Judgment, including whether it is made on notice, or other factors affecting notice;

b. if regularly obtained, an explanation of the circumstances that led to Default Judgment, including accident, mistake or other personal circumstances of the defendant;

c. the timeliness of the procedures to set aside the judgment; and

d. the triable merits of the defence.

[77] The latter three factors have been reformulated somewhat from how they were described in Chitel, supra, to reflect the more recent pronouncement of the Court of Appeal in Morgan v. Toronto (City) Police Services Board, 2003 14993 (ON CA), [2003] O.J. No. 1106 at para. 36.

Analysis

a) Failure to Provide Notice or Sufficient Notice

[78] Mr. McCormick submits that he was not provided with notice or sufficient notice of the application leading to the Default Judgment of Sedgwick J. of April 25, 2007.

[79] There seems little doubt that the process followed to obtain default judgment was irregular.

[80] Although not raised in argument, I am of the view that this matter should never have been brought as an application. It is a garden variety debt collection case which is perfectly suited and normally prosecuted by way of an action.

[81] Given Mr. Dunlap’s very obvious conflict of interest, to the point that he had the parties sign an acknowledgment that he could not act for any of them if a dispute arose, he should have anticipated that his role in the factual matrix would have been raised as an issue.

[82] The more obvious procedural irregularity was that the hearing date on the notice of application was the date the application was issued. This occurred because the applicant initiated the proceeding with the intention that it would be disposed of on consent and without oral argument, i.e. as a “basket motion.”

[83] This was not, however, a basket motion brought pursuant to rule 37.12.1. Rather, in its present form it is better described as a “basket application”.

[84] There are no decisions that I am aware of concerning the appropriateness of applications being disposed of in writing. However, instances of this procedure being used are frequent and well known to the profession. Generally, they proceed on consent or unopposed, thereby avoiding most problems. Unfortunately, there are no rules or practice directions providing advice on the procedure to be followed.

[85] This matter was further complicated by the decision of the applicant to proceed ex parte on the erroneous assumption that the consent to default clause allowed it to do so. However, even proceeding on notice, there are problems with hearing dates, if the parties wish to proceed in writing.

[86] In retrospect, the application should not have contained any date for the hearing. It should also have included a request for permission to proceed without oral argument. Perhaps the procedure most compliant with the Rules would have been for the applicant to file a notice of motion in writing pursuant to rule 37.12.1 along with the notice of application requesting an order that the matter proceed without oral argument.

[87] To some extent however, any failure to indicate that the application was proceeding in writing may have been dealt with by the Order of Cosgrove J. requiring the application materials to be served on the respondents.

[88] By that I mean that the Order of Cosgrove J. could be interpreted as a determination by him that service of the application materials was sufficient to provide notice to the respondents that they were parties to pending proceedings.

[89] My jurisdiction does not include authority to overrule a judgment of another judge of this court. See Karas v. Iegios, [2001] O.J. 732 (S.C.) at para. 10.

[90] Nevertheless, I accept that the notice of application was defective because it provided a past date for the hearing and failed to indicate that the matter was proceeding in writing.

[91] This was compounded by Mr. Dunlap’s conclusion that consent obviated the requirement to provide notice, without even questioning the proposal that the consent to judgment clause in the Promissory Note could be accepted as a consent for the purpose of the motion.

[92] Had it just been the misstatement of the date, I would not be able to conclude that Mr. McCormick believed that the court had already ruled on the matter. He was being served with a notice of application, not a decision, and it was by order of Cosgrove J.

[93] Nevertheless, the fact that the application was said to be brought on consent in combination with a hearing date two months before the date of service is sufficient for me to conclude, with admittedly some lingering doubts, that the service was confusing to the point that Mr. McCormick was justified in believing that judgment had already been obtained against him.

[94] I am also of the opinion that the confusion in the mind of Mr. McCormick could likely have been amplified by Mr. Dunlap acting for the applicant and his serving the application record on the respondent.

[95] Given his conflicted situation, I would have thought that Mr. Dunlap would have conducted himself to remove all doubts of partiality. I certainly would have thought that a more fulsome letter should have been provided to him. For example, he should have explained that the matter had been brought in writing without notice before Cosgrove J. The judge had required that Mr. McCormick be given an opportunity to respond, thus requiring service on him of the application record.

[96] I would also think most lawyers would accept that basket motions are not well known by the public. It is why putting in a hearing date that has already occurred is the source of the confusion in this case. This, in combination with the unusual procedure of an ex parte application, without an explanation on his part in writing to Mr. McCormick, raises concerns in my mind that Mr. Dunlap was not being fully forthright with Mr. McCormick.

[97] I am also uncomfortable with Mr. Dunlap’s decision to personally serve the application on Mr. McCormick. Having acted for him on the transaction, Mr. McCormick might well have felt more confident that his interests were somehow being considered or that settlement possibilities could be more readily worked out with a lawyer who had acted for him and the plaintiff.

[98] Considering all of this evidence together, I conclude that there was “insufficient notice”, as those words are used in rule 38.11 leading Mr. McCormick to believe that judgment had already been obtained.

[99] Conversely there are a number of collateral factors suggesting that Mr. McCormick contributed to his own misunderstandings. His failure to read or act on the notice of application which warned him to take measures to protect his interests, as well as his knowledge that the application was being served pursuant to an order of a judge, should have led him to be more diligent in making inquiries.

[100] As such, I am not satisfied that the inadequacies of notice are sufficient to conclude that it is in the interests of justice to set aside the judgment on this basis alone, were this the applicable test, which I do not believe to be the case for rule 38.11.

b) An explanation of the circumstances that led to the Default Judgment

[101] As I have found that notice provided to Mr. McCormick was defective, this would explain the circumstances that led to the Default Judgment.

c) Timeliness of the procedures to set aside the Judgment

[102] At first blush, the evidence would indicate that an initial ten-month delay occurred between the time Mr. McCormick learned of the default judgment in June 2007 and moved in April-May 2008 to set the judgment aside.

[103] I say at first blush because, despite concerns about his credibility discussed below, I accept Mr. McCormick’s statement that he believed, when served with the notice of application on February 5, 2007, that judgment had already been obtained against him.

[104] However, accepting the truth of Mr. McCormick’s statement means that, in his own mind at least, he learned that judgment had been obtained against him on February 5, 2007, and not when he received Mr. Dunlap’s letter dated June 18, 2007.

[105] Mr. McCormick submits that up until he was advised in November that he was required to pay the judgment, his failure to take steps to challenge the order was due to his reliance on the representation of Mr. Dunlap, who he alleges led him to believe that his guarantee would not be enforced.

[106] Thereafter, he attributes his delay to legal advice provided to him that he did not have the right to have the judgment set aside. He deposes that this caused him to forgo any thought of setting aside the judgment and instead to expend his time in attempting to settle the claim. Once properly advised, he submits that he proceeded with alacrity to set the motion down for hearing.

[107] With respect to the initial delay, I simply cannot accept Mr. McCormick’s evidence that Mr. Dunlap told him on February 5, 2007, that 1202600 would not enforce its claim against him, which of course Mr. Dunlap denies.

[108] The proposition that the court should accept that 1202600, which is in the business of lending funds secured by mortgages and guarantees, and which initially refused to make the loan to Ms. Jacob without Mr. McCormick’s guarantee, would not insist on payment by Mr. McCormick, after initiating legal proceedings to obtain judgment against him, is simply not believable.

[109] In addition to the complete irrationality of this allegation in the face of the situational circumstances described above, Mr. McCormick was an experienced mortgage broker. His work was to put borrowers and lenders together in a regime that secured the loans by means of various instruments, such as mortgages and guarantees, the very purpose of which was to ensure the recovery of any monies loaned.

[110] Moreover, Mr. McCormick’s conduct, both preceding and following the alleged conversation with Mr. Dunlap, belies any possible expectation that his guarantee was to be waived.

[111] Mr. McCormick had already made at least one payment on the mortgage to keep it up-to-date prior to the initiation of these proceedings, thereby acknowledging that he was bound by the guarantee and required to make up any shortfall in payment by Ms. Jacob.

[112] Thereafter, when called on to pay the outstanding debt, there was no mention by Mr. McCormick of 1202600 having abandoned its claim. Instead, his initial reaction was to make an offer to settle the claim.

[113] The first time that there is any claim that 1202600 had waived enforcement of the guarantee was in these proceedings.

[114] With respect to the period after November 7, 2007, Mr. McCormick states that, because his first unnamed lawyer advised that the judgment could not be set aside, he expended his time making an Offer to Settle.

[115] In response to this, I note that in his initial facsimile transmission of November 7, 2007, Mr. McCormick indicated, “I will be sending you a proposed settlement after obtaining legal advice from my lawyer, who is returning Thursday, November 8 th ”. [Emphasis added]

[116] This statement would appear to contradict his evidence that he made the Offer because his lawyer told him he had no right to set aside the judgment.

[117] In considering Mr. McCormick’s first lawyer’s conduct in this matter, the courts are willing to relieve against the mistakes and omissions of a solicitor in order to prevent a miscarriage of justice to the client. See for example, Halton Community Credit Union Ltd. v. ICL Computers Ltd. (1985), 1 CPC (2d) 24, 8 O.A.C. 369 (C.A.).

[118] However, I would not consider the substantive advice of a lawyer on chances of success as the type of conduct which the court would normally relieve against under rule 38.11.

[119] Moreover, Mr. Dunlap informed Mr. McCormick on January 25, 2007 that his offer was rejected and reiterated that the judgment should be paid or it would be enforced. If Mr. McCormick wished to obtain a second opinion, his obligation under rule 38.11 was to do so as quickly as possible without waiting a further two or three months as occurred here.

[120] Finally, it is noted that Mr. McCormick deposed that he consulted a second lawyer only after learning that a Writ of Seizure and Sale had been registered against his name.

[121] In view of the foregoing, I find little that would support a consistent intention to move to set aside the judgment or any basis to conclude that Mr. McCormick moved forthwith to do so.

[122] While unnecessary to support my decision on lack of timeliness, I think it should be stated in obiter that, for the purposes of rules 38.11, 37.14 and 19.08, significant delay attributed to the moving party during the period after setting the motion down may be relevant to the timeliness issue in motions to set aside.

[123] Any other interpretation would undermine the “forthwith” factor in these rules, which I understand is intended to eliminate as quickly as possible any conjecture concerning procedural issues affecting the validity of a judgment or order.

[124] In this matter, there was a very significant delay in the prosecution of this motion running from the adjournment sine die by the order of Kershman J. on August 6, 2008, until October 13, 2011, when the respondent filed the notice of return of motion.

[125] Most alarming was the period after Parfett J.’s order of August 6, 2010, until October 13, 2011, when it appears no other steps were taken on the motion.

[126] While I do not rely on the limited evidence suggesting that the respondent was not taking steps to have this motion heard, I would have been prepared to do so, if the issue had been raised and more evidence had been filed demonstrating that the respondent was not diligent in getting the matter to hearing.

d) Defence on the Merits

[127] As indicated above, in determining whether to set aside a judgment pursuant to rule 38.11, it is my view that the court is entitled to consider whether there is a defence on the merits, despite a conclusion that the judgment was irregularly procured.

[128] The standard of review is not rigorous and does not approach that used in a Summary Judgment Motion. The court is attempting to determine whether on the evidence before it there is any merit to the defence.

[129] Anderson J. in Chitel, supra at p. 52, expressed the test as follows:

The court on a motion such as this ought not to seek to determine the merits of the case. The facts as alleged by Chitel must generally be accepted as being susceptible of proof and regard in this connection must be had for her affidavit filed in these proceedings.

[130] Mr. McCormick’s principal defence on the merits is that Mr. Dunlap did not provide him with any advice concerning the nature and effect of a guarantee. In his affidavit of June 9, 2008, he deposes as follows:

55. Most important, it is clear that while I had some risk of losing $17,000 which I had provided as a third mortgage, by signing as a guarantor I realize now that I was putting myself at risk for the entirety of the mortgage and any legal costs - at least $40,000, and, as it turns out now, in fact in excess of $50,000.

56. It takes little to realize that if this had been fully set out for me, and if I had been given a chance to consider it carefully and logically, it made absolutely no sense to try to protect my existing investment by putting almost 3 times that much more at risk.

[131] It is clear from the above evidence, that Mr. McCormick is critical of Mr. Dunlap for not providing business advice, as opposed to legal advice, on the risks of guaranteeing the second mortgage in order to protect his third mortgage. Ironically, had Mr. Dunlap provided business advice, as opposed to legal advice, there could have been some merit to the defendant’s complaint.

[132] As with his allegation that Mr. Dunlap told him that 1202600 did not intend to enforce the guarantee, it is equally implausible to suggest that an experienced mortgage broker would not understand the basic risk concepts of first, second and third mortgages and the impact of guaranteeing one of the debts.

[133] Similarly, a mortgage broker must surely understand the elementary concept of a guarantee which enables a creditor to call upon the guarantor to make up any shortfall in payment by the principal debtor.

[134] No serious argument is made that the promissory note and guarantee is ambiguous, apart from the consent to Default Judgment clause, which I do not consider for the purposes of determining whether there is any merit to the defence.

[135] There is no suggestion of any misrepresentations or pressure by the Steenbakkers to guarantee the loan.

[136] Indeed, Mr. McCormick failed to deny in his reply affidavit to statements in the affidavits of both Mr. and Ms. Steenbakkers that they questioned him as to why he would take the risk of guaranteeing the loan.

[137] For example, he left unanswered Mr. Steenbakkers’ evidence in his affidavit of April 24, 2008, concerning the risk Mr. McCormick was incurring in acting as guarantor:

5 (xv) Given our working history with Sean McCormick, I was both shocked and surprised, and questioned Sean on why he would want to guarantee such a risk;

(xvi) Sean replied that he knew his risk, that he knew he would be held responsible if the borrower did not pay and that for his other reasons he was prepared to proceed with the transaction and sign as a Guarantor;

[138] With respect to allegations that he was rushed into making the decision to act as guarantor, Mr. McCormick originally deposed that he was first told by Mr. Dunlap on the day fixed for closing that his guarantee would be required to complete the loan, thus providing him insufficient time to reflect on the matter.

[139] However, after seeing the documentation filed with the Steenbakkers’ affidavits, he acknowledged that he had decided to act as guarantor by October 29, 2004, three days prior to the closing of November 1, 2004.

[140] Mr. McCormick makes other submissions such as that he received no consideration for acting as guarantor or that the Promissory Note and guarantee were drafted to protect the lender and not to assist him.

[141] These arguments are equally without merit. The consideration is obvious in Mr. McCormick’s agreement to act as guarantor in order for the loan to proceed as described in his own comments above. As for protecting the lender’s interests, a Promissory Note and guarantee is obviously drafted for the purpose of ensuring that the lender is repaid.

[142] Accordingly, I conclude that the evidence produced by Mr. McCormick does not demonstrate that he has any defence on the merits.

Conclusion

[143] While I find that the notice of application was defective and may have led Mr. McCormick to believe that judgment had already been obtained, I nevertheless dismiss the motion to set aside the Order of Sedgwick J. dated April 25, 2007.

[144] I do so on the grounds that Mr. McCormick did not proceed expeditiously to set the motion down as required by rule 38.11.

[145] In addition, I conclude that the materials filed by Mr. McCormick do not meet the low threshold I apply in this issue to demonstrate a defence on the merits such that it would be contrary to the interest of justice to set aside the Default Judgment.

[146] Accordingly, Mr. McCormick’s motion to set aside the Order of Sedgwick J. dated April 25, 2007, is dismissed.

Costs

[147] I make no award of costs. Normally the party succeeding on the motion would be indemnified for some of its costs. I am not prepared to award costs to the applicant however, because the default judgment was procured in an irregular manner as described above. In the circumstances, the most just solution is for the parties to absorb their own costs.

Order

[148] The motion to set aside the Order of Sedgwick J. dated April 25, 2007, granting judgment against the respondent Mr. Sean McCormick is dismissed without costs.

Mr. Justice Peter Annis

Released: January 27, 2012