SUPERIOR COURT OF JUSTICE – ONTARIO
OSHAWA COURT FILE NO.: 81991/13
DATE: 20131104
RE: Stormy Daze Investments Ltd., Plaintiff /Responding Party
and
Kathleen Emma Bolus, Defendant/Moving Party
BEFORE: The Honourable Madam Justice Gilmore
COUNSEL: Jack Zwicker, for the Plaintiff/Responding Party
Osborne G. Barnwell, for the Defendant/Moving Party
HEARD: October 25, 2013
ENDORSEMENT
Overview
[1] This is the defendant/moving party’s motion to set aside a judgment and writ of possession obtained by the plaintiff on April 23, 2013, or in the alternative, (a) an order staying the implementation of the order for judgment until such time as the counterclaim and third party claims are determined; (b) an order allowing the defendant to file a defence; and (c) an order allowing the issuance of a third party claim.
Background
[2] The defendant, Kathleen Bolus, is the owner of a home on property located in Port Carling, Ontario, and municipally known as 3568 Muskoka Road 169, Port Carling, Ontario. The defendant has owned the home since 1996. The defendant had a home equity line of credit with the Toronto-Dominion Bank (“TD”) in the amount of $630,000 registered against her home. In addition, she had a $155,000 second mortgage. The defendant sought additional financing as she needed to borrow a further $70,000. She approached TD who advised her that her debt equity ratio was too high. TD referred her to an outside broker.
[3] Accordingly, the defendant, with the assistance of TD mobile mortgage specialist, Jacqueline Semkow, signed an alternative funding authorization form on January 20, 2011. In accordance with the terms of that authorization, TD would retain a referral fee of five per cent of the principal amount of the mortgage if the mortgage loan application was accepted, approved and funded as a result of the referral.
[4] The defendant was referred to Crescent Mortgage Corporation (“Crescent”), a mortgage broker carrying on business at 6758 Kingston Road, Unit 1, Toronto, Ontario. A new mortgage loan commitment in the amount of $220,000 was obtained with Stormy Daze Investments, with a closing date of March 15, 2011. The term of the mortgage was six months with monthly interest only payments in the amount of $1,833.33.
[5] The second mortgage transaction was completed on March 18, 2011, with a maturity date of September 18, 2011. According to the loan application, the defendant’s solicitor was David Berney of the law firm of Burgar Rowe. Upon closing, the plaintiff issued its cheque to the plaintiff’s solicitor, John Savaglio, in the amount of $217,500 on March 18, 2011. Thereafter, the sum of $211,230.16 was deposited to the trust account of Mr. Berney on March 18, 2011.
[6] The defendant subsequently defaulted on both her first and second mortgage. On July 30, 2013 the defendant was cross-examined on her affidavit, sworn June 19, 2013, in support of her motion. The defendant admitted in the course of cross-examination that she had stopped paying both her first and second mortgage. The second mortgage is now more than two years overdue. As a result of the defendant’s default, the plaintiff issued a statement of claim on January 17, 2013, for judgment and possession. TD has started an action against the defendant with respect to the first mortgage. The defendant has filed a statement of defence in that action and it is proceeding in the normal course.
[7] According to the affidavit of the process server, Steve Mitchell, sworn July 2, 2013, the defendant was served with the statement of claim and two copies of the plaintiff’s notice of motion and the affidavit of Robert Lacroix on March 19, 2013. The defendant’s evidence was that she does not remember being served because her memory is not great[^1]. The defendant’s testimony on cross examination was that she did recall a man giving her an envelope. She told him that if the envelope was from Stormy Daze her lawyer was dealing with it.
[8] In an undated letter with a fax headline of April 17, 2013, the solicitor for the defendant wrote to the plaintiff’s solicitor requesting that the motion for judgment and possession set for April 23, 2013 be adjourned to a date in May or June as he was unavailable on the 23rd. He advised the plaintiff’s counsel that he would be moving to vacate the judgment given that his client was not served.
[9] The solicitor for the plaintiff responded on April 18, 2013, attaching a motion confirmation form and indicating that the defendant had had one month to provide responding materials and had not done so. The plaintiff’s counsel took the position that proper service had been effected by way of personal service of originating documents and the motion material. The solicitor for the defendant responded on April 18, 2013, advising that he was not available, as previously indicated, and did not have an agent who could attend on his behalf.
[10] On April 30, 2013, the solicitor for the plaintiff wrote to the defendant’s solicitor advising that he had attended court on April 23, 2013 and presented to the motions judge the motions confirmation form in which the defendant’s solicitor had indicated he would not be appearing and had no agent to speak to an adjournment. As such, judgment was granted by Justice Vallee on April 23, 2013 for the sum of $229,247.28 plus prejudgment interest of $17,584 and partial indemnity costs of $1,681.
[11] On April 30, 2013, the defendant’s solicitor wrote to the plaintiff’s solicitor requesting a copy of the statement of claim and indicating that he intended to move to set aside the default judgment. He explained that his client was elderly, gets confused easily and could not accurately recall whether she was served or whether she had dropped the court documents off at her lawyer’s office. Counsel for the defendant was concerned because his client is over seventy years old and, as he described her, is “constantly depressed and under psychiatric care.”
Position of the Moving Party/Defendant
[12] The defendant submits that normally cases involving mortgage default are a simple debtor/creditor relationship; however, the fact that the defendant signed an alternate funding authorization with TD changes the relationship from a debtor/creditor into one in which TD owes her a fiduciary duty. The defendant submits that she did not know what she was signing when she signed the alternative funding authorization form, nor was it properly explained to her.
[13] The crux of the issue for the defendant is that she is on a fixed income and the combination of the first and second mortgage payments exceeded her income. She was under a great deal of stress as she was the sole caregiver of her disabled son and accordingly she became depressed and sick. As such, both mortgages fell into default. According to the defendant’s affidavit, she does not recall receiving a copy of the statement of claim and therefore never sent it to her lawyer. As such, there was no statement of defence served and filed, and no response to the motion. In contrast, in the action in which the defendant is being sued by TD the defendant immediately filed a defence because the claim was properly served on her.
[14] In terms of the test for setting aside the default judgment, the defendant argues that she moved as promptly as she could, given that she did not receive a copy of the source documents until July 2013. They scheduled the motion as soon as they could, given scheduling protocol in Oshawa.
[15] With respect to their reason for not defending, the defendant points to a psychiatric report filed as exhibit A to her June 19, 2013 affidavit. This is a letter from Dr. Elizabeth Chapman, a psychiatry resident for the Centre for Addiction and Mental Health (“CAMH”). The letter confirms that the defendant has been an outpatient in the geriatric outpatient psychiatry clinic of CAMH since February 13, 2013. She was referred by her family doctor due to concerns related to anxiety and depression. She is seventy-three years of age, has undergone many hardships in her life and is currently the full time caregiver to her adult son, who is autistic. The working diagnosis of Dr. Chapman was “Major Depressive Episode with Psychotic features.” She is being treated with antidepressants and antipsychotic medications, and has social work supports. As such, the defendant takes the position that there were valid reasons why she either did not receive the documents, or received them and did not know what they were and did not pass them on to her lawyer, as she should have.
[16] The third part of the test to set aside default judgment is whether the facts establish an arguable defence. The defendant refers to Raso v. Colacci[^2] in this regard. In the Raso case, the court noted that in demonstrating a defence on the merits, “the defendant need not show that the defence will inevitably succeed. Rather, the principles applied on a motion for summary judgment should be considered. To set aside the default judgment, the defendant should show that his or her defence has an air of reality…”.
[17] The defendant submits that the change in the relationship from debtor/creditor to fiduciary between the defendant and TD impresses the defence with an air of reality. The defendant had a long standing relationship with TD and she trusted them when they facilitated a new relationship. They did so without reference to the fact that payments would be well beyond what the defendant could afford, and then took a referral fee. This changes the landscape with respect to the debtor/creditor relationship.
[18] The defendant also seeks to bring a counterclaim against TD because of the agency relationship established through Ms. Semkow, the mobile mortgage specialist with TD. The issues are not frivolous and the defendant should have an opportunity to file her statement of defence. Since the defendant has shown that there is at least an arguable defence with an air of reality, the judgment and writ of possession should be set aside.
Position of the Plaintiff
[19] The plaintiff submits that its mortgage has nothing to do with TD. A referral came from Crescent and they advanced a $220,000 second mortgage, which is now two years past due. The defendant has admitted that she is the owner of the property and that she owes money on the mortgage. She acknowledged in her cross-examination that she wrote out post dated cheques to the plaintiff, that she subsequently stopped paying both the first and second mortgage and that her last payment on the second mortgage was September 18, 2011. The plaintiff points to the comments made by the defendant’s solicitor during the course of cross-examination, in which he concedes that the plaintiff has loaned money to the defendant and that it should be paid[^3].
[20] The defendant had her own lawyer for both the TD and Stormy Daze mortgages. The referral by TD to Crescent, and subsequently by Crescent to the plaintiff, does not change the nature of the debtor/creditor relationship between the defendant and the plaintiff.
[21] The defendant admitted during the course of her cross-examination that within three to four months of the mortgage being registered, she knew she could no longer afford it. She was unable to provide an answer to the question as to why she simply did not sell the property and pay out both the first and second mortgagees[^4].
[22] With respect to the issue of service of the claim and motion material, there are inconsistencies with respect to the evidence of the defendant and the process server, Mr. Mitchell. During the course of her cross-examination, the defendant deposed that she could not recall being served with the documents[^5]. Conversely, the affidavit of Mr. Mitchell says that the defendant identified herself to him after taking the envelope containing the court documents and invited him to have a sandwich, which she offered to make for him. He declined. He also deposed that he was accompanied by his spouse at the time and taped the service of the documents. Service of the motion material on March 18, 2013 was more than sufficient time to respond for the scheduled motion date of April 23, 2013.
[23] The response of the defendant’s counsel was by way of an undated letter (with a fax headline of April 17, 2013) asking for an adjournment because his client was not served. However, the question must be posed as to how defendant’s counsel knew about the motion if he did not have the documents. Further, defendant’s counsel advised that he was not available for the motion and had no intention of sending an agent in his place.
[24] The plaintiff submits that the defendant has not met the test to set aside default judgment as there was no diligence and in fact, there is evidence to support an intention to stall on the part of the defendant. Mr. Mitchell was not cross-examined and therefore his evidence is not refuted. Further, the plaintiff submits that no matter what psychiatric problems the defendant may suffer from, she knew what was going on, took the money from the second mortgage, spent it and is now not paying it back. In terms of the relationships between the parties, it was Crescent who contacted the plaintiff. A representative of the plaintiff never met the defendant, nor did Mr. Lacroix communicate with TD. The referral to the plaintiff came directly from Crescent and not from TD.
Analysis and Ruling
[25] In the circumstances, I do not find that the defendant has met the test to set aside the default judgment for the following reasons:
(a) With respect to whether the motion to set aside the judgment was brought promptly, I find that it could have been brought more promptly, but do not rely on this branch of the test as the main reason for refusing to set aside the judgment and writ.
(b) With respect the excuse or explanation for the defendant’s default, I find that the defendant’s evidence on this point is inconsistent and unreliable. I note the following in coming to that conclusion:
(i) The defendant, in her affidavit, sworn June 19, 2013, deposes as follows: “I am shown a statement of claim (marked herein as Exhibit “D”) which Stormy Daze claimed they sent to me. However, although my memory is not the greatest, I cannot recall ever getting such a document. I believe that if I did and had opened it, I would have taken it to Mr. Barnwell my lawyer. In discussion with Mr. Barnwell, he advised me and I believe that his office never received the statement of claim. As a result, I could not defend the claim.”
(ii) The cross-examination she stated at page 38, lines 3 to 6,
A: Well, he did give me, I don’t remember if it was a big envelope or -- he gave me an envelope. That was his purpose. I said to him, “If that’s from Stormy Daze, Stormy Daze is dealing with my lawyer, so they’ll have that.”
Q: Okay. But do you remember being handed something? An envelope?
A: Yeah, and I remember telling him though, to give it to Stormy Daze, or to my lawyer, I should say.
Question 133: I understand. But you --
A: They also, Stormy Daze, she’s aware that I’m ill. And the only one at my house is me and a severely disabled son. And you allowed this jerk to come to my door. And he was. He was rude.
Question 144: Well, that’s what he’s sworn. And what you swore is, is you couldn’t even remember being served. Now, you say, yeah, I remember this dirty man.
A: No. I didn’t look at anything. He gave me something.
Question 146: Okay,
A: And I don’t know what I did with -- I wasn’t worried about it, because I assumed that my lawyer had it.
(c) This is to be contrasted with the affidavit of Steve Mitchell, sworn July 2, 2013. Mr. Mitchell was not cross-examined on his affidavit. He deposes that he served the defendant with two copies of the statement of claim and two copies of the plaintiff’s notice of motion and affidavit of Robert Lacroix on March 19, 2013. Specifically in paragraph 3 of his affidavit, he sets out as follows:
The Defendant identified herself to me at that time and after taking the envelope containing the aforementioned court documents invited me to have a sandwich which she offered to make for me. I declined. I was accompanied by my spouse at that time and taped the service of these documents.
(d) The letter from Mr. Barnwell’s office with a fax header of April 17, 2013, reflects that he had the motion materials, as he requested an adjournment to a date in May or June 2013.
(e) The defendant’s solicitor, while being aware of the motion date and also having communicated that he was not available on that date, made it clear that he would not be appearing, nor sending an agent. The plaintiff’s solicitor also made it clear that he intended to proceed and that the defendant’s solicitor should arrange for an agent.
[26] Given all of the above, I do not find that there is a plausible excuse or explanation for the defendant’s default. The defendant’s evidence appears to be that she knew she had been given court documents, but assumed her lawyer had them and would take care of them. It also appears that her lawyer had the documents as they were served at the same time and he clearly had the notice of motion as he contacted the plaintiff’s lawyer to request and adjournment of the motion date.
[27] I also find that in circumstances where it was clear that default judgment would be sought at the motion, that the defendant’s lawyer had an obligation to ensure that an agent attended to protect the rights of his client. His explanation that he did not have anyone in his office who could attend is insufficient in my view. Therefore, I do not find that there is a plausible excuse or explanation for the defendant’s default, both in relation to service and attendance on the motion.
[28] With respect to whether or not the defence has an air of reality, I find that the motion also fails in this branch of the test. Whether or not there is a fiduciary relationship between the defendant and TD relates solely to the action between the defendant and TD, which is ongoing. I find that the referral to Crescent and subsequent referral to the plaintiff is such that the relationship is a simple debtor/creditor relationship between the plaintiff and defendant in which the plaintiff, in the face of significant default, has appropriately moved to enforce on its security and obtain possession.
[29] In the course of her cross-examination, the defendant could not adequately explain why she never attempted to consolidate both the first and second mortgage when it became clear to her that she could not afford the payments, nor why she had not attempted to sell the property in order to satisfy the outstanding claims by both the TD and the plaintiff. As such, there can be no other conclusion than the defendant’s actions are delay tactics which, in this court’s view, can no longer be tolerated.
[30] Given all of the above, the defendant’s motion is dismissed and the judgment of Vallee J. remains intact.
[31] If the parties cannot agree on costs, I will receive written submissions on a seven day turnaround, commencing with the plaintiff, followed by responding submissions, then reply submissions, if any, commencing fourteen days from the date of release of this endorsement. Cost submissions shall be no more than two pages in length, exclusive of any costs outline or offers to settle. All costs submissions shall be delivered via email through my assistant at jennifer.beattie@ontario.ca.
Justice C.A. Gilmore
Released: November 4, 2013
[^1]: Transcript of the cross-examination of Kathleen Emma Bolus, July 30, 2013, page 37, line 6 and 7.
[^2]: [2013] O.J. No.801 (OSCJ), para. 24.
[^3]: Supra p.13, lines 23 and 24.
[^4]: ibid, page 27, lines 18 to 20.
[^5]: ibid, page 37, lines 6 to 11.