ONTARIO

SUPERIOR COURT OF JUSTICE

NEWMARKET COURT FILE NO.: CV-11-106169-SR
DATE: 20120905

B E T W E E N:

DONALD HODGSON Plaintiff

Doug LaFramboise, for the Plaintiff

• and -

ALIAMISSE MUNDULAI, QUE HIM WONG, WAI CHUN WONG and VICTOR WONG Defendants

David Silver, for the Defendant Aliamisse Mundulai

HEARD: August 27, 2012

REASONS FOR DECISION

LAUWERS J.:

[ 1 ] This is a motion by the defendant Aliamisse Mundulai to set aside default judgment against him rendered on January 20, 2012, to lift or vacate the Writ of Execution Number 12-0001592 filed on June 6, 2012, and to extend the time for service in filing the Statement of Defence.

[ 2 ] Mr. Mundulai was a lawyer in relation to the transaction at issue in this lawsuit. He has since had his licence to practise revoked by the Law Society of Upper Canada but is appealing that revocation. He is not currently practising law.

[ 3 ] When this matter first came before me on July 24, 2012, Mr. Mundulai asserted that he had never been served with the Statement of Claim. I directed the trial of an issue on whether Mr. Mundulai had been properly served. I directed that will-say statements be prepared and provided to each party concerning witnesses to be called. I heard the evidence and then argument on the motion.

The basic transaction

[ 4 ] Mr. Hodgson is a licensed mortgage broker. Que Him Wong and Wai Chun Wong wanted to borrow money and to restructure the mortgages on their residential property located at 36 Richmond Park Boulevard in Toronto.

[ 5 ] Mr. Hodgson had found a conventional lender for the Wongs who, upon due diligence, did not wish to proceed. Mr. Hodgson then brokered a deal under which Benito Consiglio and his numbered company would loan money to the Wongs to be secured by a mortgage on the residence. The intention was that the loan made by Mr. Consiglio would be repaid out of the proceeds of the later conventional mortgage. This was to be a bridge loan of short duration to allow the Wongs to transition to a conventional mortgage.

[ 6 ] From the Affidavits filed and the oral evidence of Mr. Hodgson and Mr. Mundulai the following sequence of events appears.

[ 7 ] According to Mr. Mundulai, on July 27, 2009, the Wongs retained him to do the legal work related to the new mortgage. On July 29, 2009, Mr. Hodgson wrote to Mr. Mundulai:

I am contacting you with regard to a mortgage for Que Wong at the present time we require a title search showing all charges on the property as well as a letter detailing your responsibilities to this client. We also require a letter stating your actions to remove existing paid mortgages on the property [ sic ].

[ 8 ] On July 31, 2009, Mr. Mundulai sent a letter to Mr. Hodgson indicating that he had been approached by Que Wong to do the legal work. His fee for services would be $8,000.00 and Que Wong was to get back to him with instructions and the retainer funds. He noted that there were two dormant 1989 mortgages on the property that would need to be discharged. Mr. Hodgson testified that he was aware that there was an execution registered against Que Wong by Easybank Inc. in the amount of $444,290.94. Mr. Mundulai had been made aware of the execution in early August by letter from counsel for a prospective lender.

[ 9 ] By fax dated August 13, 2009, Mr. Hodgson’s partner, mortgage agent Eulalia Valentim, wrote to Mr. Mundulai:

The lender is still in the position to fund, and would very much like to. However, the conditions to be met are the following:

1. Correct the writs that were attached to the parcel when the transfer of title was done (the non-matching names);

2. Have the court “vacate the writ” against Que Wong for $444K? The order must say “this writ (number) shall be removed from the sheriff’s office.

If we can get this completed then we can deal with Discharges at a later date.

And have funds to cover everyone’s expenses [ sic ].

[ 10 ] Despite the facts set out above, which come from the testimony of Mr. Mundulai and Mr. Hodgson, in the Statement of Claim in this action Mr. Hodgson asserts that:

On or about September 24, 2009, the Plaintiff retained the Defendant, Mundulai with respect to placing a mortgage on the subject property.

The Plaintiff at that time, was a mortgage broker and personally gave the Defendant, Mundulai a certified money order from the Bank of Montreal in the amount of $8,000.00 as requested by the Defendant, Mundulai, with respect to removing two dormant mortgages on title. The Defendant represented that there would be no problem in vacating the two mortgages on title as they were very old and formed a lien on a property that was to be the subject matter of a new first mortgage, once the two dormant mortgages were vacated by the court Order.

[ 11 ] Mr. Mundulai did not succeed in having the dormant mortgages discharged, in having the Writ of Execution lifted, or in preparing and registering a mortgage securing the lender’s interest. Mr. Hodgson nonetheless advanced funds on September 25, 2009. He advanced $8,000.00 to Mr. Mundulai for legal fees and funds to Maria Dias, a creditor of Que Wong. As I understand it, in all about $102,000.00 was advanced to creditors of Mr. Wong. In the related Toronto action described below, the plaintiffs assert that they advanced $110,000.00 to Mr. Hodgson to finance the Wong transaction.

[ 12 ] Mr. Mundulai succeeded in having one of the dormant mortgages removed by order of Stewart J. on July 8, 2010. There is no evidence on what happened with the other dormant mortgage.

The lawsuits

[ 13 ] On December 8, 2010, Mr. Consiglio and his numbered company 2172886 Ontario Ltd. started an action against Mr. Hodgson and the Wongs in Toronto. They sued Donald Hodgson, the plaintiff in this case, 1744247 Ontario Inc. carrying on business under the firm name and style of “Dominion Lending Centres Central,” Que Him Wong and Wai Chun Wong. Mr. Hodgson filed a Statement of Defence on February 1, 2011. On September 22, 2011, Mr. Hodgson issued the Statement of Claim in this action. It is not clear to me why the plaintiff chose to start a new action in Newmarket rather than to defend in the Toronto action and issue third-party proceedings against Mr. Mundulai and the Wongs.

[ 14 ] On January 20, 2012, the plaintiff had default judgment signed in this action without forewarning Mr. Mundulai. The requisition was signed by David Pomer. It asserted a debt in the principal sum of $100,000.00 with prejudgment interest at ten per cent from September 24, 2009 to January 9, 2012 in the amount of $22,931.50 for a total judgment of $122,931.50. The requisition asserted that the basis for the default judgment is “a debt or liquidated demand in money.”

[ 15 ] Mr. Mundulai swears that the default judgment only came to his attention in July 2012. He was looking to borrow on his residential property by way of a second mortgage and the title search revealed the Writ of Execution. Mr. Mundulai immediately wrote to the plaintiff’s solicitor on July 5, 2012, and also wrote to the Lawyers’ Professional Indemnity Company (LAWPRO). He pursued plaintiff’s counsel on July 7 and July 9. The Notice of Motion to set aside the judgment was dated July 19, 2012.

What the fight is about

[ 16 ] Mr. Mundulai’s evidence is that he owns a house worth about $700,000.00. It has a mortgage on it of about $450,000.00. He was seeking a new mortgage for $150,000.00 that would have raised his borrowing to $600,000.00 on the house. This would have left a maximum equity of about $100,000.00. The plaintiff fears that lifting the Writ of Execution in this case would prejudice Mr. Hodgson by allowing Mr. Mundulai to scoop the value of the equity in his house and deny the plaintiff financial relief if he is successful in this action.

Issues

[ 17 ] The facts raise the following issues for disposition:

1. Should the default judgment be set aside and are terms appropriate?

2. Should the noting in default be set aside, and should there be terms?

3. Should the Writ of Execution be maintained in any event?

I address each issue in turn.

Issue 1: Should the default judgment be set aside and are terms appropriate?

[ 18 ] The Statement of Claim claims that Mr. Mundulai “failed to exercise the skill and diligence of a reasonably competent lawyer. As a result, the said defendant breached the terms of the retainer with the plaintiff or in the alternative, breached the duty of care to the plaintiff and was negligent in the service he provided.”

[ 19 ] Morden & Perell note in The Law of Civil Procedure in Ontario , 1 st ed., (Markham: LexisNexis Canada Inc., 2010) at page 407, “[c]laims for damages for breach of contract, negligence, misrepresentation or breach of fiduciary duty…are not liquidated claims.”

[ 20 ] As such, as against Mr. Mundulai, the default judgment is irregular. An irregular judgment must be set aside and terms should not be imposed: Royal Trust Corp. of Canada v. Dunn , (1991) 1991 7227 (ON SC) , 6 O.R. (3d) 468 (Ont. Ct. (Gen. Div.)) per Borins J. at paras. 19-20; Hegedus v. Luciani , (1981), 23 C.P.C. 282 (H.C.J.) per Grange J. at para. 5; and Bodzan v. 1226619 Ontario Inc. 2010 ONSC 103 per van Rensburg J at paras 23-24. But for the next issue, the law would provide that the default judgment against Mr. Mundulai should be set aside along with the Writ of Execution.

[ 21 ] For reasons that are not clear to me, Mr. Silver argued that the default judgment against the Wongs as the debtors should also be set aside. The Wongs have not brought a motion to set aside the judgment and Mr. Silver did not represent them so I decline to make any order in relation to default judgment against the Wongs.

[ 22 ] Mr. Silver raised a number of other concerns that would, in his view, lead to a setting aside of the default judgment including whether only the Wongs were Mr. Mundulai’s clients and not Mr. Hodgson. In my view, it would be prudent to base my decision on the narrowest possible basis because this matter will go forward in some form and the assessment of credibility should proceed in a more fulsome context than this brief trial of an issue has established.

Issue 2: Should the noting in default be set aside, and should there be terms?

[ 23 ] I accept the premise of Mr. LaFramboise’s argument that a default judgment is a different administrative step than noting a party in default.

[ 24 ] Morden & Perell note at page 412

For setting aside a noting in default, the major relevant factors are whether the defendant brought his or her motion without undue delay and whether he or she explains why there was a default. Where there is no default judgment, satisfying just these two factors is usually sufficient to justify setting aside the noting of a defendant in default. A third relevant factor is whether the defendant can show a defence on the merits. However, to set aside just the noting in default, only in extreme circumstances of default and delay is a defendant required to show a defence on the merits. Thus, the test that the defendant must meet to set aside the noting in default is lower than the test for setting aside a properly obtained default judgment, which test requires the defendant to show a defence on the merits. [Internal footnotes omitted.]

[ 25 ] In Nobosoft Corp. v. No Borders Inc ., 2007 ONCA 444 , the court observed in paragraph 3

3 On the authority of this court's decision in Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd. (1991), 1991 7095 (ON CA) , 3 O.R. (3d) 278 at para. 18 , the full context and factual matrix in which the court is requested to exercise its remedial discretion to set aside a noting in default are controlling factors. In particular, as noted by the court at para. 18 of Bardmore , such factors as the behaviour of the plaintiff and of the defendant, the length of the defendant's delay in seeking to respond to the plaintiff's claim, the reasons for the delay and the complexity and value of the claim involved, are all relevant matters to be taken into consideration.

[ 26 ] There is no doubt that as soon as Mr. Mundulai became aware of the Writ of Execution he moved promptly. It is worth pointing out that mere months have passed since the noting of default and the filing of the Writ of Execution. This is not a case in which there has been a delay of any significance.

[ 27 ] That said, Mr. Mundulai’s explanation for the default is that he was not served with the Statement of Claim. He denied that he was served at the first appearance before me and he maintained that denial throughout the hearing of the issue. In his evidence he said that he was not in his office on the day in question but was meeting elsewhere with an individual named Mr. Bhatia. He did not, however, call Mr. Bhatia as a witness.

[ 28 ] Mr. Hodgson’s Affidavit of Service states that:

On December 14, 2011 at approximately 12:15 p.m., I personally served Aliamisse Mundulai with a Statement of Claim by leaving a copy with him at 1280 Finch Avenue West, Suite 601, Toronto, Ontario, M3J 3K6. I was able to identify him by his verbal admission to me that he is Aliamisse Mundulai.

[ 29 ] I accept Mr. Hodgson’s evidence about the way that he served Que Wong. On the face of it, Mr. Hodgson would have known that the Wongs had no money and that the real target in the lawsuit was Mr. Mundulai. The action is framed around a solicitor and client relationship with Mr. Mundulai. It therefore seems inherently implausible that Mr. Hodgson would not have served Mr. Mundulai.

[ 30 ] On the balance of probabilities, I find that Mr. Hodgson did serve Mr. Mundulai with the Statement of Claim on December 14, 2011, even though I acknowledge Mr. Mundulai’s evidence that there would have been no good reason for him not to have taken all the steps that he eventually took in relation to the Writ of Execution if he had been served.

[ 31 ] I did not get the impression during Mr. Mundulai’s cross-examination that he was attempting to deceive or mislead the court. He was apparently candid about his financial circumstances. Mr. LaFramboise did not press him on his personal circumstances at the time that he was served, nor was he asked questions about the circumstances in his examination in-chief by Mr. Silver. I am therefore at a loss to explain why Mr. Mundulai did not respond to the Statement of Claim. I am satisfied that he did not fail to respond in any deliberate fashion. Perhaps he did not open the envelope that Mr. Hodgson gave him. In any event, I am satisfied that Mr. Mundulai did respond promptly when he learned about the situation.

[ 32 ] While I accept the observations of Karakatsanis J. in Cuthbert v. T.D. Canada Trust 2010 ONSC 830 at paragraph 42 that demeanor can be misleading, the context and the inherent probabilities in this case do not point inevitably to the conclusion that Mr. Mundulai is not telling the truth. I am not able to draw the conclusion from the evidence that his default was intentional. If I could conclude that his default was intentional, I would have little difficulty in refusing to set aside the noting in default by analogy to the decision of Adams J. in Toronto-Dominion Bank v. 718699 Ontario Inc ., [1993] O.J. No. 260 , 62 O.A.C. 158 (Div. Ct.) ; Nu-Fish Import Export Ltd. v. Sunsea Import Export Ltd ., (1997) 1997 12270 (ON SC) , 35 O.R. (3d) 153 (S.C.) per Wilkins J. at paras. 15-18.

[ 33 ] According to the criteria in Morden & Perell, the merits ought to be explored briefly. The claim is that Mr. Hodgson was Mr. Mundulai’s client. Mr. Mundulai’s defence is that he was the lawyer for the Wongs and not Mr. Hodgson. Mr. Wong’s Affidavit supports Mr. Mundulai. It is, of course, possible that he was the lawyer for both the Wongs and Mr. Hodgson. Mr. Mundulai’s defence is more than plausible.

[ 34 ] I set aside the noting in default. Mr. Mundalai shall serve and file a statement of defence within 14 days.

Issue 3: Should the Writ of Execution be maintained in any event?

[ 35 ] Mr. LaFramboise urges the court to leave the Writ of Execution in place to prevent Mr. Mundulai from dissipating his assets in rendering a judgment in the plaintiff’s favour useless, even if the noting in default is set aside.

[ 36 ] Pre-judgment execution is generally not available except in certain specific circumstances, none of which apply here. This is known as the Lister principle, after Lister & Co. v. Stubbs , [1886-90] All E.R. 797: Aetna Financial Services Ltd. v. Feigelman , 1985 55 (SCC) , [1985] 1 S.C.R. 2, [1985] S.C.J. No. 1 at pp. 10-14 ( Aetna cited to S.C.R.).

[ 37 ] Mr. Justice Sharpe, in his text on Injunctions and Specific Performance, 3rd ed., looseleaf(Aurora, ON: Canada Law Book, 2000), identifies the competing policy thrusts at section 2.760:

Clearly, pre-trial execution of any kind poses definite problems. Attachment of assets or interference with this position of assets will often constitute a serious interference with the defendant's affairs. That interference may be more readily justified where the plaintiff's right is specifically related to the asset in question. However, where the plaintiff asserts a general claim and looks to the assets only as a means of satisfying a likely or possible monetary judgment against the defendant, interference with the defendant's assets is more difficult to justify. Unless strictly limited to cases where the plaintiff's prospect of ultimate success is strong and to cases where the defendant is bent on flouting the court's process, restraining defendant's freedom to deal with his or her property upon the filing of an unsecured claim could well produce serious injustice.

[ 38 ] The plaintiff is effectively asking for a Mareva injunction. To be eligible for such relief, the plaintiff must establish that he has a strong prima facie case. The plaintiff has not satisfied me that this is a case in which a Mareva injunction would be appropriate. Assuming without deciding that I have authority to leave the Writ of Execution in place in the context of making an order setting aside the noting in default, I decline to do so. The Writ of Execution is vacated.

[ 39 ] Mr. Mundulai has been successful in obtaining an indulgence. My preliminary view is that there should be no costs awarded, but if the parties do not concur, I will accept written costs submissions on a 10-day turnaround basis starting with Mr. Mundulai and ending with his reply submissions.

[ 40 ] Order accordingly.

P.D. Lauwers J.

Released: September 5, 2012