BARRIE COURT FILE NO.: 09-1592

DATE: 20120118

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: FRED PICAVET , Plaintiff

AND:
807947 ONTARIO LIMITED, MARIA MACKOVIC and STEFAN MACKOVIC , Defendants

BEFORE: M. P. EBERHARD

COUNSEL:
S. Fairley, Counsel, for the Plaintiff
C. Jaglowitz, Counsel, for the Defendants

HEARD: January 17, 2012

ENDORSEMENT

[ 1 ] The Defendants move to set aside default judgment, on a mortgage action, granted by me on August 24, 2010.

[ 2 ] As a preliminary issue I ruled that no amendment would be permitted in this motion to request the setting aside of an order for substitutional service, not because it may not be ultimately arguable, but because it is not necessary for a consideration of whether default judgment should be set aside. That question will turn on the application of the three tests on the circumstances following upon discovery of a judgment against them.

[ 3 ] The Defendants depose that they were unaware of the judgment until the sheriff posted notice of enforcement for possession in November 2010.

[ 4 ] The Defendants have raised a doubt whether they ever received actual notice though substitutional service was properly made. For the purposes of this motion I find they had notice of the judgment in November 2010.

[ 5 ] The law is not in dispute as expressed in case law: [1]

21 The motion Judge’s discretionary decision whether to set aside a default judgment pursuant to rule 19.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 , was governed by the following three-part test:

a) Whether the motion was brought without delay after the defendant learned of the default judgment;

b) Whether the circumstances giving rise to the default were adequately explained; and

(c) Whether the defendant has an arguable defence on the merits.

[ 6 ] There is further helpful commentary referred to by both counsel:

In Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. (2007), 2007 ONCA 333 , 87 O.R. (3d) 479 (Ont. C.A.), at para. 2 , this court indicated that on a motion to set aside a default judgment, the motion judge will be guided by the principles established by the authorities but must ultimately determine whether the interests of justice favour granting the order. The motion judge should consider the potential prejudice to the moving party if the motion were dismissed, the potential prejudice to the respondent if the motion were allowed, and the effect of any order on the overall integrity of the administration of justice.

[ 7 ] All of this is based in Rule 19.08 :

19.08 (1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rule 19.04 may be set aside or varied by the court on such terms as are just.

(2) A judgment against a defendant who has been noted in default that is obtained on a motion for judgment on the statement of claim under rule 19.05 that is obtained after trial may be set aside or varied by a judge on such terms as are just.

(3) On setting aside a judgment under subrule (1) or (2) the court or judge may I also set aside the noting of default under rule 19.03.

[ 8 ] My response to argument turns on whether the Defendant has demonstrated an arguable defence on the merits.

[ 9 ] The circumstances giving rise to default are adequately explained in the ambiguity around actual notice. Although the substitutional service order allowed mail to the home, there was no mail service to that location. It is not clear that there was a return address on the envelops sent to confidently conclude the lack of return of the mail indicated delivery and there was a post office box repeatedly and effectively used for mail between the parties that was not used for service.

[ 10 ] The motion to set aside was not brought immediately upon learning of the judgment but counsel for the Defendants made immediate contact with counsel for the Plaintiff. They began the negotiations one might have expected at the commencement of litigation which broke down and then a long process of arranging a convenient date for the hearing of the motion commenced. This was slow: negotiation from November to February, disclosure facilitation from February to August and date exploration from August to December, the typical adjournments, then finally the hearing today on an open motions list specifically permitting 1 hour motions which this, patently, was not. This passage of time is the passage of lawyer time. Like the calculation in dog years, it simply isn’t the same as ordinary human experience. I am not going to hang a justice issue on the basis of passage of time without recognizing this reality.

[ 11 ] The further assertion is that the motion was delayed by the Defendants to keep relations good between the parties while they completed other litigation relating to neighbouring lots connected to this dispute by common financing and construction issues on which litigation these parties were on the same side. This delay benefited both Fred Picavet and Maria and Stefan Mackovic and had an impact on the quantum of the debt owed by Defendants to Plaintiff.

[ 12 ] This delay does not fit neatly into the above referenced tests for setting aside but it segues into the defence on the merits argument. Delay, like the merits, is much impacted by relationship in the circumstances of these parties. The subject judgment was not a mortgage on a one off debt. The parties have significant relationship and many tangents in their interactions. What financing and what repayments go to what tangent is a complex web which was not apparent in the material upon which I granted judgment in 2010.

[ 13 ] The interests of justice demand opportunity to explore this tangled web. The prejudice to the Defendants of refusing to set aside judgment is that the apportionment both pre and post judgment would never be scrutinized. The prejudice to the Plaintiff is that the Defendants remain in a residence, with no payment on the mortgage, such that the interest as it becomes due reduces the equity and the Plaintiff’s potential for full recovery if the ultimate result is sale.

[ 14 ] I find no defence on the merits to the fact of the debt based on the terms of the registered mortgage calling for 3% interest and payment on demand. Demand was made. I am not persuaded by arguments that there were oral agreements that no interest was to be payable and credit to be given for labour and effort.

[ 15 ] I find that the assertion by the Defendants that the mortgage was not intended to be demanded until payment of the whole project (relating to 5 lots – 2 owned by the Defendants and 3 by the Plaintiff’s nominee, former girlfriend Hun, if it ever had merit, cannot be supported indefinitely. All but one of several prosecutions and claims are now finalized. Demand was made long ago. No interest is being paid.

[ 16 ] I decline to set aside the judgment on default based on the mortgage by its registered terms. However I direct a trial of an issue in the nature of a reference under a mortgage upon the following terms:

(a) Defendants to commence monthly interest payments as they come due with the first payment due February 15, 2015 and each and every month thereafter until the reference is heard;

(b) The parties to schedule such events as may be necessary to prepare for the reference all to be complete by June 15, 2012;

(c) The parties to forthwith attend upon the trial co-ordinator to secure a date for the hearing of the reference before October 15, 2012. A trial record is to be passed containing the Statement of Claim and a statement of position by each part on the apportionment issues. If there is no agreement on a date for hearing, the parties are to arrange to appear before me at the February 22, 2012 Trial Scheduling Court;

(d) All these dates are peremptory upon the Defendants absent obstruction by the Plaintiff.

[ 17 ] The parties may address the issue of costs by written submissions of no more than 2 pages delivered to the judicial secretary in Barrie by February 1, 2012 or, convey an agreement that the costs may be reserved to the trial of an issue in the nature of a reference on a mortgage.

EBERHARD J.

Date: January 18, 2012

[^1]: HSBC Securities (Canada) Inc. v. Firestar Capital Management Com . 2008 CarswellOnt 7956, 2008 ONCA 894 , 245 O.A.C. 47 at 21