ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-10-620
DATE: 2013/07/26

BETWEEN:

ROBERT JEFFERY KELLY and KELLY-ANNE MARGARET THOMPSON

M. Stanton, for the Plaintiffs

Plaintiffs

• and -

MANUEL PIRES and AURORA NEVES PIRES

M. Abradjian, for the Defendants

Defendants

HEARD: July 24, 2013

The Honourable Mr. Justice Nightingale

1The defendants bring this motion to set aside the default judgment of Arrell J. against the defendants dated November 22, 2012 and for other ancillary relief. The plaintiffs oppose the motion.

Background Facts

2The plaintiff’s action commenced in October 2010 was for damages incurred when they purchased their house from the defendants in May 2010. The plaintiffs allege that the defendants failed to disclose, fraudulently or otherwise, and covered up the significant mould conditions in the basement by doing renovations to it shortly before the purchases.

3The statement of defence was delivered in early December 2010. The plaintiffs were examined for discovery in September 2011 and the defendants in December 2011 after affidavits of documents were exchanged. The plaintiffs insisted throughout that the defendants strictly comply with the timelines under the rules in this litigation which was made clear to their counsel.

The plaintiffs brought a motion to compel the defendants to comply with their undertakings from the examinations for discovery which order was granted on consent by Arrell J. on May 25, 2012. That order provided that if the defendants did not comply with their undertakings within 30 days, the plaintiffs could move without notice to the defendants to strike out their statement of defence.

4The plaintiffs proceeded with their motion to strike out the statement of defence because of the defendants’ noncompliance and obtained the order of Parayeski J. on July 18, 2012. They notified the defendants counsel of that order shortly after that. No steps were taken by the defendants to set aside that order although there was discussion between counsel about the setting aside of the order once the undertakings were completed but no agreement was reached.

5Plaintiffs’ counsel advised the defendants’ counsel in October 2012 that he would be proceeding with default judgment against the defendants. Defendants’ counsel asked for one month’s time to comply with the undertakings. Plaintiffs’ counsel proceeded with preparation of voluminous and detailed motion material and subsequently attended at a hearing before Arrell J. for an assessment of their damages on November 22, 2012. Defendants’ counsel was immediately advised of that decision.

6It is that decision of Justice Arrell which the defendants wish to set aside under Rule 19 of the Rules of Civil Procedure.

Applicable Test

7In a motion to set aside a default judgment under rule 19.08, the court, in exercising its discretion, should consider:

a) whether the motion to set aside the judgment was brought promptly after the party learned of the default;

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

c) whether the motioning party has established an arguable defence on the merits.

8The Ontario Court of Appeal in Peterbilt of Ontario Inc. v. 1565727 Ontario Ltd. (2007) 2007 ONCA 333, 87 O.R.(3rd) 479 held that these factors are not rigid preconditions to the exercise of the court’s discretion and that failure to satisfy any one of these factors does not require the dismissal of the motion to set aside the default judgment. The motion judge must determine whether the interests of justice favour an order setting aside the default judgment having regard to the potential prejudice to the moving party if the motion was dismissed, the potential prejudice to the respondent if it was allowed and the effect of any order the motion judge may make on the overall integrity of the administration of justice.

Analysis

Timeliness of Motion

9The defendants were advised of Justice Parayeski’s order striking out their statement of defence dated July 18, 2012 on July 20.The plaintiffs’ lawyer Mr. Simmons indicated he was surprised as he was awaiting the plaintiffs taking the steps to proceed with an examination of Mr. Neves, a brother-in-law, of the defendant. Simmons understood only one single undertaking was outstanding being a request to produce documents from the Royal Bank regarding payments allegedly made by the defendants to Mr. Neves for his work.

10Mr. Simmons indicated that in October 12, 2012 he wrote to Mr. Ion, plaintiffs’ counsel, stating he had the authorization from his clients to access the Royal Bank records and once he was in receipt of those, he would immediately forward them to him. Mr. Ion stated at that time his clients would not consent to setting aside the striking order and that it was his clients’ position that any motion of the defendants to reopen the pleadings should only be granted after the defendants had fulfilled their undertakings and provided the documents required by the May 2012 order of Justice Arrell. He further advised he would be filing a motion on October 18 for default judgment.

11Mr. Simmons immediately requested a period of one month so that he could provide the RBC banking information pursuant to his undertakings. Mr. Ion proceeded with his motion for judgment which eventually resulted in an oral hearing before Justice Arrell on November 22, 2012 and his judgment. The defendants were immediately notified of that on November 30.

Mr. Simmons responded promptly with a letter December 5 confirming that he needed to move immediately to have the default judgment set aside on terms, obtained available dates on January 3, 2013 and set the date for this motion on consent of the plaintiff’s lawyer for March 22, 2013 which was adjourned on consent until July 24.

12On this evidence, I find that there was no undue delay in the bringing of this motion to set aside the default judgment of Arrell J which would include the ancillary relief of setting aside the order striking out the statement of defence of the defendants of Justice Parayeski.

Explanation of Circumstances Giving Rise to the Default

13As indicated above, Mr. Simmons’ evidence in his affidavit, when advised of the order of Justice Parayeski striking out his clients’ statement of defence, was that he promptly telephoned Mr. Ion to discuss setting it aside. Mr. Ion advised that the plaintiffs would consider setting it aside on completion of the defendants’ undertakings. Simmons understood that the single undertaking outstanding was the Royal Bank undertaking given regarding documents that were not in the defendants’ possession. He understood that all other information of the documents were within the possession and control of the Mr. Neves who he assumed was going to be examined by Mr. Ion. He was not advised by Mr. Ion why he had not examined Neves pursuant to the rule 31.10 order of Justice Arrell of May 25, 2012.

14Mr. Simmons asked that Mr. Ion delay his motion for default judgment to November 17, 2012 to allow his clients time to answer the Royal Bank undertaking. Mr. Ion confirmed he was proceeding with his motion for judgment filed with the court that morning.

Mr. Simmons deposed that the defendants were not sophisticated people who had trouble with English and did not understand complicated legal proceedings. He pointed out that they had other significant personal problems in their lives at the time including the allegations of Mr. Pires need to tend to his wife’s serious quadriplegic medical condition. He said that at no time did the defendant Manuel Pires believe his noncompliance with the one RBC undertaking would have led to this matter i.e. the defence being struck.

15Although Mr. Ion made it clear in his letter of October 15th that his clients would not be consenting to an order reinstating defendants’ statement of defence, he also advised that it was the plaintiffs’ position that relief should only be granted by the court if the defendants had fulfilled all undertakings and provided all documents as ordered by Justice Arrell. Simmons accordingly believing that there was only the RBC undertaking outstanding, sent his letter of October 17 requesting time to provide the banking information undertaking. (That undertaking has since the judgment of Arrell J of November 25 been complied with, the Royal Bank advising they had no cheques payable to Mr. Neves on the defendants’ accounts). His letter confirmed that Mr. Neves would not respond to his request for meetings or return his telephone calls and that he was the person who had the information actually needed by the plaintiffs.

16Although in hindsight it would have been most prudent for the defendants to move more promptly to set aside the initial order of Justice Parayeski, there is my view at least a plausible explanation for their not doing so believing that their attempts to obtain the RBC information would satisfy the plaintiffs lawyers to set the order aside.

17Even if there is not a sufficient explanation of the circumstances of the delay, the failure of the defendants to meet that one test does not mean they are not entitled to the relief requested based on the Peterbilt decision.

Arguable Defence on the Merits

18Mr Simmons’ affidavit evidence was that his clients denied any allegations that there was any mould problems in the property when they resided there for approximately 20 years and that they had sworn under oath that they had never had any mould issues. Mr. Pires continually denied any attempt to mask or hide mould issues that were alleged to have existed at that property by the plaintiff.

19The defendants did not personally provide any sworn affidavit material but the plaintiffs’ lawyers filed as part of their responding material transcripts of the examinations for discovery of the defendants. Both parties agreed that it was appropriate for the court on hearing this motion to consider that sworn evidence of the defendants as their evidence on this motion.

20The statement of defence states that they did not know of the alleged defects and denied that they purposely concealed the defects in order to sell the premises. They also denied that the defects alleged by the plaintiffs latent were defects that could not be disclosed with reasonable due diligence. They also denied that their conduct had been deceitful and dishonest or that they exercised reckless disregard of the truth or falsity of any representations made by them.

The sworn evidence of the defendant Manuals Pires was clear that he never saw any moisture or flooding in the basement when he lived at the premises before moving out, that he was not there when Neves was there doing the work, that he was not told that they were going to remove some of the drywall, that he had no idea if they in fact removed any drywall and that he understood that there was painting work done. His evidence was that Neves was doing the painting and fixing up the basement as his plans were for his daughter to live there when they moved out in December 2008. Other than painting and installation of the laminate flooring in 2009, he knew nothing of any drywall work.

21He also swore that he never saw Mr. Neves’ workman Gomez remove baseboard, drywall or vapour barrier in the basement and knew nothing about installation of spray foam insulation. He admitted that he was in the basement apparently on a regular basis but never had any flooding of the basement from the exterior wall during his ownership. He admitted there was a plumbing repair to a ceiling water pipe at one time but that was all.

22The sworn evidence of his wife Aurora Pires from her transcript is that when she lived there, she was regularly in the basement watching TV in those rooms but never saw any humidity or wetness there. Neves never told her that he removed drywall and Mr. Gomez never discussed with her the work he did.

23The Plaintiffs attempted to rely on an unsworn written statement of Gomez which stated that he removed some damp drywall and may have told Mr. Pires about it. However, he also said Mr. Pires was not aware of any mould or mildew problems and he was not present or told about his use of spray foam on the wall. He also said there was no indication of water problems or moisture and that some drywall was slightly damp to touch. Notwithstanding that unsworn statement, the sworn evidence of the Pires is that they knew nothing of any mould or water problems in the basement prior to sale of the property.

24The defendants need not show that their defence will inevitably succeed at trial. Rather, it is sufficient if they establish that they have an arguable defence. Although their evidence may have been more comprehensive, given the nature of their evidence it is unlikely that there would be any supporting documents they could have provided to confirm their position.

25Moreover, it is significant to note that in two conversations the plaintiffs had with the defendants in the summer of 2009 after they took possession of the property and discovered the issues in their basement, at no time did the defendants concede or admit that they knew of the mould problems prior to the sale. The defendants’ credibility as to what they knew of the mould problems, if at all, will obviously be an issue at trial after assessment of all the evidence including potentially that of Mr. Gomez but at least they have an arguable defence on the merits based on their sworn testimony.

Prejudice

26The potential prejudice to the defendants if the motion is not allowed to set aside the order of Arrell J. is obvious; the plaintiffs will have a judgment against them for a substantial amount of money without their having had the opportunity to present all of their evidence at trial and have the case heard on the merits of all the evidence.

27On the other hand, the plaintiffs have been attempting to proceed expeditiously with their claims including incurring significant legal expenses to obtain a judgment by default and now have to deal with the consequence of potentially having that judgment set aside. They have not been paid anything on the judgment and obviously have concerns of this matter not being disposed of by way a final decision.

28However, any prejudice that they may suffer in my view can be compensated by the appropriate strict terms to ensure that their interests are also protected. In this way, the administration of justice would reflect fairness to both parties. Furthermore, on checking with the trial schedule, the plaintiffs can have this matter added to the August 2013 trial list, approximately one month away so that they will suffer no undue delay in having this matter heard. Plaintiffs’ counsel suggested the matter rather should go to the October 2013 list which in any event is still a quick trial date to resolve this case.

29In addition, the defendants are asking the considerable indulgence of this court to be given the opportunity to defend this action on the merits and on all the evidence notwithstanding the original consent order of May 22, 2012 and the subsequent orders of Parayeski J. and Arrell J. It is now three years since the plaintiffs purchased the defendants’ property and incurred considerable expense to conduct the repairs. In the circumstances, one of the ways of potential prejudice to the plaintiffs’ being avoided would be to require the defendants to pay into court the total amount of the damages and costs assessed by Arrell J in his judgment. The plaintiffs have waited since November 2012 on a judgment and they should not be required to wait any further to collect on their claims if they are subsequently successful at a trial against the defendants. Plaintiffs’ counsel agreed that it was within the court’s discretion to make such an order in this case.

30In addition, there is no doubt that the plaintiffs have incurred significant legal expenses for the default proceedings before Justices Parayeski and Arrell. Justice Arrell awarded costs of the default judgment proceedings totalling $65,000 plus disbursements of $2958.25 plus HST of $8745 for a total amount of costs of $76,703.25. This was in addition to the total damages found at $88,573.75.

31Plaintiffs’ counsel stated that more than half of his time in the file was spent preparing all of the appropriate motions for the default proceedings including significant affidavit material, legal briefs and factum which is obvious from the material filed. Defendants’ counsel did not dispute that a fair assessment for the costs thrown away the plaintiffs for the default proceedings would be in the area of $25,000. Plaintiffs’ counsel figure was $35,000. I assess the appropriate amount for costs thrown away that should be paid by the defendants now to the plaintiffs’ lawyers at $25,000 which would also help compensate the plaintiffs for any prejudice they may suffer if the default judgment is set aside.

32Lastly, this case would take 3 to 4 days at trial and possibly more if the defendants are not prepared to agree on the plaintiffs’ special damages so as to dispense with the need of the plaintiffs calling their witnesses at trial on those issues. Again to minimize the prejudice to the plaintiffs, it is appropriate that the defendants post some security for the plaintiffs legal costs of the now contested trial that they ask the court to grant them.

Conclusion

33Accordingly, the order of Arrell J. of November 22, 2012 and the order of Parayeski J. of July 18, 2012 are hereby set aside and the matter shall proceed to trial on the following conditions:

a) on or before the 23rd day of August 2013, the defendants shall pay the sum of $140,277 into court to the credit of this action to be paid out on further order of the Trial Judge or other court order on consent of the parties.

b) on or before the 23rd day of August 2013, the defendants shall pay to the plaintiffs the sum of $25,000 for their costs thrown away for the default proceedings before Justices Parayeski and Arrell.

c) on or before the 23rd day of August 2013, the defendants shall further pay into court as security for the plaintiffs’ costs of the trial of this action the amount of $20,000 to be paid out as directed by the Trial Judge or other court order on consent of the parties.

d) upon payment of the aforementioned sums, , the plaintiffs shall immediately withdraw any writ of seizure and sale filed with respect to the order of Arrell J. of November 22, 2012.

e) if the defendants fail to pay the monies referred to in subparagraphs a to c above by the due dates, the defendants’ motion will be dismissed effective August 26, 2013 on the filing by the plaintiffs of an affidavit, without notice to the defendants, confirming the defendants’ noncompliance with this order.

g) this matter is added to the trial list the sittings of this court commencing October 15, 2013. Counsel for the plaintiffs shall serve and file a trial record to include the defendants’ statement of defence.

34If either party wishes to claim costs of this motion, any written submissions can be made within one week of this order. Otherwise, there would be no order as to costs.

NIGHTINGALE, J.

Released: July 26, 2013

COURT FILE NO.: CV-10-620
DATE: 2013/07/26

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ROBERT JEFFERY KELLY and KELLY-ANNE MARGARET THOMPSON

Plaintiffs

• and -

MANUEL PIRES and AURORA NEVES PIRES

Defendants

REASONS FOR JUDGMENT