SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-11-3255-SR
DATE: 2012-09-14
RE: PHILLIP H. DOHERTY and MARY A. COLLINS, Plaintiffs
- and -
CLARKSON MANORS INC. and MICHAEL MOLDENHAUER,
Defendants
BEFORE: Price J.
COUNSEL: Brian P. Pilley, for the Plaintiffs
Alan S. Price, for the Defendants
HEARD: September 14, 2012
E N D O R S E M E N T
NATURE OF PROCEEDING
[ 1 ] The plaintiffs move for an order striking out the Statement of Defence of the defendant Michael Moldenhauer on the ground that he failed to pay the costs in the amount of $2,000.00 ordered by Fitzpatrick J. on April 13, 2012, when he ordered the defendants, on a motion, to deliver a further and better affidavit of documents. Mr. Moldenhauer opposes the motion, arguing that the defendants have substantially complied with Justice Fitzpatrick’s Order by delivering a further and better affidavit of documents but that he is financially unable to pay the costs he was ordered to pay.
THE APPLICABLE RULE
[ 2 ] Rule 57.03(2) of The Rules of Civil Procedure provides that “Where a party fails to pay the costs of a motion as required under sub-rule (1), the court may dismiss or stay the party’s proceeding, strike out the party’s defence or make such other order as is just.”
BACKGROUND FACTS
[ 3 ] The corporate defendant was the developer of a 32 unit project in respect of which the plaintiffs entered into an Agreement of Purchase and Sale to purchase one of the townhouses. In addition to the purchase deposit, the plaintiffs say they contracted to purchase various extra items for which they paid a deposit of $46,670.00. Only 16 of the 32 units were sold, construction did not begin on any of the 16 units, and the corporate defendants refused to return the deposit which the plaintiffs paid for the extra items.
[ 4 ] The plaintiffs delivered their Claim on September 15, 2011, the corporate defendant did not deliver a defence, and Mr. Moldenhauer, against whom the plaintiffs claimed damages for breach of trust, delivered his Statement of Defence on October 5, 2011.
[ 5 ] After Justice Fitzpatrick ordered Mr. Moldenhauer to pay costs of $2,000.00 to the plaintiffs on April 13, 2012, their lawyer wrote to Mr. Moldenhauer on May 15, 2012 requesting payment. Follow-up letters were sent on May 24, May 30, and June 13, 2012, and no response was received to any of the letters.
POSITIONS OF THE PARTIES
[ 6 ] Mr. Moldenhauer asserts that the corporate defendant is no longer carrying on business, and is without asses, and has no financial ability to pay the costs order. He further states that he himself has no personal income and no personal ability to pay the costs order. He says that his lawyer has performed an execution search which has disclosed approximately 15 writs of execution against Mr. Moldenhauer totalling many millions of dollars. He says that he had as many as 15 development projects active in 2008 which all became inactive after the global financial crisis in 2009. He says that he has filed a 2010 tax return showing no income and that his 2011 income tax return, when filed, will also indicate no income. He states that he has had to rely on family and friends for financial support.
[ 7 ] The plaintiff Mr. Doherty asserts that Mr. Moldenhauer is not as impecunious as he states. He asserts that Mr. Moldenhauer is married to Lori Smith, who he believes to be unemployed and they reside together at 1778 Fellen Place in Mississauga which Mr. Moldenhauer bought in his own name on March 23, 2000, located in an affluent area and having a value that Mr. Phillips estimates at $1.5 million. Mr. Moldenhauer transferred title to the property to Ms. Smith by granting a third mortgage to Mr. Charles Orenstein in trust; in the amount of $2 million, whereupon Mr. Orenstein delivered a Notice of Sale on November 23, 2010, alleging default, after which Mr. Orenstein assigned the mortgage to a numbered corporation, which sold the property to Ms. Smith on May 19, 2011, pursuant to an Order of Patillo J. dated October 14, 2011, which does not refer to the purchaser of the property as being Ms. Smith. Mr. Moldenhauer still lives in the property.
[ 8 ] Mr. Phillips has tendered a Statement of Net Worth as of November 2007 issued by Mr. Moldenhauer in which he claimed a total equity of more than $32 million and projected profits of $97 million. Mr. Phillips also tenders a photograph of the home Mr. Moldenhauer shares with Ms. Smith, which shows two automobiles, a 2011 Cadillac Escalade and a 2011 Chevrolet Cruz parked in the driveway, both registered to Mr. Moldenhauer’s 80 year old mother, who resides at a townhome that Mr. Moldenhauer constructed five years ago.
[ 9 ] Mr. Phillips notes that Mr. Moldenhauer’s home has two mortgages on it which state that the property is not a matrimonial home and that another property is the matrimonial home.
[ 10 ] Based on the above evidence, Mr. Phillips does not believe that Mr. Moldenhauer is impecunious as alleged in his affidavit. He notes that Mr. Moldenhauer has not tendered his Notices of Assessment, banking records, statements of net worth or evidence with respect to his matrimonial home.
ANALYSIS AND LAW
[ 11 ] Striking out is a severe remedy and ought not be the one of first resort, at least without providing the defendant an opportunity to cure the default. See: Bell Express Vu Limited Partnership v. Torroni , (2009), 2009 ONCA 85 , 304 D.L.R. (4th) 431, 94 O.R. (3d) 614 (C.A.).
[ 12 ] The Divisional Court in Starland Contracting Inc. v. 1581518 Ontario Ltd. , 2009 30449 (ON SCDC) , in allowing an appeal from a decision of the Master striking a statement of defence for failure to comply with court orders, and in particular a “last chance” order requiring the fulfilment of undertakings, referred to the objectives to be balanced by the Court when exercising its discretion as to whether to strike a statement of defence for breach of a procedural rule. It cited with approval the following statement of Gray J. in Broniek-Harren v. Osborne , [2008] O.J. No. 1690 (SCJ) :
The Rules reflect a balance. The litigant does not have an untrammelled right to have his or her case heard. In order to be heard, a case must be processed in accordance with the Rules. By the same token, adherence to the Rules must not be slavish in all circumstances. They are, after all, designed to ensure that cases are heard. Throughout the Rules, the principle is reflected that strict compliance may be dispensed with where the interests of justice require it: see for example, Rule 1.04(1), 2.01, 2.03, 3.02, and 26.01. The difficult issue, in any particular case, is to determine when non-compliance reaches the point that it can no longer be excused. The Court, and society as a whole, have an interest in ensuring that the system remains viable. If the Rules can be ignored with impunity, they might as well not exist.
[ 13 ] The Divisional Court, at paragraph 29, also cited Master Dash’s decision in Eloro Resources Ltd. v. Sovereign Capital Group (Ont.) Ltd. , 2004 14047 (ON SC) , 2004 Carswell Ont 544, at paragraph 6 , where Master Dash describes the exercise of discretion as follows:
The court clearly has a discretion to strike a defence in appropriate cases for repeated procedural breaches, particularly when the breaches are in violation of court orders, since the rules otherwise become meaningless and the court becomes a paper tiger. However, striking a defence is an extreme remedy and a last resort. It should only be ordered when the defence of the action is no longer viable and appropriate because the defendant has by its failure or refusal to be bound by the rules and orders of the court effectively abandoned its right to participate in the court process or when the breaches have become contumelious such as to demonstrate an utter disregard by the defaulting party for the court’s orders or when the moving party can demonstrate prejudice.
[ 14 ] In the present case, Mr. Moldenhauer has submitted that he is unable to pay the costs ordered by Justice Fitzpatrick because he is impecunious. Mr. Phillips has produced a credible basis for doubting this submission. Even if Mr. Moldenhauer is impecunious, however, this will not justify or excuse a continued failure to obey the Order. Master Dash stated the following in Baksh v. Sun Media (Toronto) Corp. , 2003 64288 (ONSC) at paragraph 19 ; in striking out a plaintiff’s claim:
The plaintiff’s breaches have in my view now become contumelious. The final indulgence granted in my order of July 25, 2002, spoke of no ambiguity as to its mandatory nature: “If the costs and security for costs are paid by October 31, 2002, the action will be dismissed by Motion on Notice.” For orders of the court to have any meaning, they must be enforced. I am not satisfied by cogent evidence that the plaintiff is impecunious. Even if I were so satisfied, a party should not be able to set up his own impecuniosity as a shield against costs sanctions. To allow that would mean that a plaintiff could bring, resist, or appeal motions with no fear of consequences, and would emasculate the powers provided in Rules 57.03(2) and 60.12. In my view, there is no other order in the circumstances of this case that is “more just” than a dismissal of the action.
[ 15 ] Master Dash, in that case, imposed the ultimate sanction of dismissing the plaintiff’s action only after giving the plaintiff one final chance of paying the costs ordered within three months. I am prepared to give Mr. Moldenhauer a similar last chance. His counsel has proposed between ninety and one hundred and twenty days. Ninety days is appropriate, being the same period that Master Dash permitted in Baksh v. Sun Media (Toronto) Corp. , above. There will be terms that will allow Mr. Phillips to test his belief that Mr. Moldenhauer is not, in fact, impecunious.
CONCLUSION AND ORDER
[ 16 ] For the above-mentioned reasons, it is ordered that:
- Mr. Moldenhauer shall, by October 14, 2012, produce to the plaintiffs the following:
a) His complete income tax returns with all schedules and attachments and his Notices of Assessment from the Canada Revenue Agency for the years 2009, 2010, and 2011;
b) All monthly statements from January 1, 2009, to the present for all bank accounts and credit cards operated by him, alone or with others, both personal and corporate, in Canada or elsewhere, at any time during that period;
c) All applications for credit he has made in any form, whether for credit cards, mortgages, lines of credit or otherwise, at any time from January 1, 2009, to the present;
d) All monthly or quarterly statements from January 1, 2009 to the present, for any RRSP or investment accounts he has operated at any time during that period.
If Mr. Moldenhauer is unable to produce any of the documents listed in paragraph 1 by October 14, 2012, he shall, by that date, produce a sworn affidavit setting out in detail the steps he has taken to obtain the documents, the reasons they were not produced and a signed direction to anyone who may be in possession of them authorizing and directing them to produce them, at Mr. Moldenhauer’s expense, directly to Mr. Phillips’ solicitor;
Mr. Phillips has leave, by November 14, 2012 to cross-examine Mr. Moldenhauer on his affidavit sworn August 2, 2012, and on the documents produced pursuant to paragraph 1.
Mr. Moldenhauer shall pay the costs ordered by Justice Fitzpatrick on April 13, 2012, in the amount of $2,000.00, the costs of this motion, fixed at $500.00 by Justice Donahue for the adjournment on July 17, 2012, and $2,500.00 today, for a total of $5,000.00 by December 14, 2012. If the said costs are not paid by December 14, 2012, the Statement of Defence of Mr. Moldenhauer will be struck by motion on notice.
Price J.
DATE: September 14, 2012
COURT FILE NO.: CV-11-3255-SR
DATE: 2012-09-14
SUPERIOR COURT OF JUSTICE - ONTARIO RE: PHILLIP H. DOHERTY and MARY A. COLLINS - and - CLARKSON MANORS INC. and MICHAEL MOLDENHAUER BEFORE: Price J. COUNSEL: Brian P. Pilley, for the Plaintiffs Alan S. Price, for the Defendants ENDORSEMENT Price J.
DATE: September 14, 2012