SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: CV-12-465837
DATE: 2014/04/30

RE: Wendy Ann Hardy v. Paul Hylton

BEFORE: MASTER GRAHAM

HEARD: March 19, 2014; decision released April 30, 2014

COUNSEL:
H. Mandel for the plaintiff

P. Hylton, defendant in person (moving party)

REASONS FOR DECISION

(Defendant’s motion to set aside default judgment)

[1] This action arises out of a mortgage given by the plaintiff to the defendant on June 6, 2012. The principal amount of the mortgage was $10,000.00. The mortgage was for a term of three months, with the last payment due September 6, 2012. The maturity date of the mortgage was subsequently extended to September 28, 2012. The plaintiff alleges that the defendant is in default on the mortgage, having failed to make any of the monthly payments or repay the principal, and issued a statement of claim on October 18, 2012 to recover the total amount owing for principal, unpaid interest, costs payable on default and legal fees.

[2] The defendant was served with the statement of claim by mail pursuant to the substituted service order of Master Abrams dated November 13, 2012. The defendant failed to defend the action within the time prescribed by the Rules of Civil Procedure and on December 14, 2012, the plaintiff obtained a default judgment for $13,116.72 for claims and interest and $1,533.00 for costs.

[3] The defendant now moves to set aside the default judgment.

[4] The test to be applied by the court on a motion to set aside a default judgment is stated by the Court of Appeal in HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., 2008 ONCA 894, [2008] O.J. No. 5345 (C.A.), at paragraph 21 as follows:

(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.

[5] With respect to the third part of the test, an arguable defence on the merits is one that would be sufficient to raise a genuine issue requiring a trial on a summary judgment motion.

Was the motion brought without delay?

[6] On the issue of whether the motion was brought without delay after the defendant learned of the default judgment, the following dates are relevant:

1. December 18, 2012: Mr. Hylton informed plaintiff’s counsel by email that he received the statement of claim and would be “seeking an attorney to file a Statement of Defence”.

2. January 17, 2013: Plaintiff’s counsel informed Mr. Hylton that judgment had been signed against him and that in order to file a defence, he must bring a motion to set aside the judgment.

3. January 30, 2013: Mr. Hylton stated by email that he would bring a motion to set aside the judgment.

4. February 11, 2013: Mr. Hylton informed plaintiff’s counsel that he had scheduled the motion to proceed on May 31, 2013. The following day, plaintiff’s counsel informed Mr. Hylton that he saw no problem with the date and requested that he file his material by the beginning of March, 2013.

5. March 15, 2013: Mr. Hylton informed plaintiff’s counsel that he had attempted to file material at the courts but “they did not receive the May 31, 2013 dates”. He then proposed dates in August, 2013.

6. April 5, 2013: Mr. Hylton followed up with plaintiff’s counsel regarding a mutually convenient date and plaintiff’s counsel replied that Mr. Hylton could pick a date.

7. April 9, 2013: Mr. Hylton informed plaintiff’s counsel that the motion would proceed on October 30, 2013, which was the first date on which the motion came before the court.

[7] To summarize, upon learning of the default judgment on January 17, 2013, Mr. Hylton attempted to select a date for the return of his motion within four weeks and, after further consultation with plaintiff’s counsel, had scheduled a firm date as of April 9, 2013. I am satisfied that Mr. Hylton acted sufficiently promptly to meet the first part of the test.

Has the default been adequately explained?

[8] On the issue of whether the circumstances of the default have been adequately explained, the only correspondence that Mr. Hylton refers to prior to his email dated December 18, 2012 acknowledging receipt of the statement of claim (see paragraph [6]1. above) is as follows:

1. October 18, 2012: Mr. Gevantschniter, who acted for both Mr. Hylton and the plaintiff on the mortgage, wrote to him by email to inform him that “the Lender’s lawyer” would be proceeding with legal action against him by the end of the day. As stated above, the statement of claim was issued that day.

2. October 24, 2012: Mr. Gevantschniter wrote to Mr. Hylton by email stating that he forwarded a document that he had sent to the mortgagee lawyer, informing him that if Mr. Hylton wanted him to help he would need to retain him and providing contact information for the mortgagee lawyer (also plaintiff’s counsel).

3. October 31, 2012: Plaintiff’s counsel Mr. Mandel wrote to Mr. Hylton by email saying “Thank you for the information. When can you pay off this mortgage? It is now due.” This message makes no reference to the statement of claim having been issued or to the fact that the plaintiff would be seeking an order for substituted service.

[9] In his affidavit in support of the motion, Mr. Hylton deposes that he, Mr. Gevantschniter and plaintiff’s counsel Mr. Mandel were “in constant communication” via email and telephone before and after the statement of claim was filed but neither one of them informed him of the statement of claim. As indicated, on October 18, 2012, Mr. Gevantschniter told Mr. Hylton that the lender’s lawyer would be proceeding with legal action.

[10] Mr. Hylton deposes that he was in constant communication with the lawyers because the mortgage broker CityCan Financial (“CityCan”) said that it did not receive any payments, Mr. Hylton wanted to renew the loan and the lawyers said that they were going to sell the house. Mr. Hylton also deposes that he had proof that no payment was withdrawn from his account and relies on a letter of October 19, 2012 from the Bank of Montreal saying that there have been no NSF cheques on his BMO chequing account from January 2012 through to September 2012.

[11] I accept Mr. Hylton’s submission that in his communications with plaintiff’s counsel, and in particular Mr. Mandel’s email of October 31, 2012, Mr. Mandel, whose name is on the statement of claim as the plaintiff’s solicitor of record, never informed him of the fact that a statement of claim had been issued. However, I also note that although Mr. Hylton acknowledges receipt of the statement of claim as of December 18, 2012, he has provided no evidence of when and how he received it.

[12] The plaintiff served the statement of claim by mail on November 13, 2012 and obtained default judgment 31 days later on December 14, 2012. Allowing five days for service of the statement of claim by regular mail, two days for an intervening weekend and 20 days in which to defend the action, means that the judgment was obtained four days after the end of the 20 day period. The defendant then expressed an intention to defend the action four days following the date of the judgment.

[13] Although Mr. Hylton has not stated when he received the statement of claim, given that he attempted to respond to it approximately a week after the earliest date on which he could have been noted in default, I accept that he has a reasonable explanation for the default.

Does the defendant have an arguable defence on the merits?

[14] The defendant Mr. Hylton admits giving a mortgage as security for a loan of $10,000.00 and receiving funds of $6,506.75 pursuant to that mortgage but submits that he has the following defences to the action:

1. The plaintiff’s business is illegal and the plaintiff is attempting to use an illegal company to take possession of his house and sell it.

2. The mortgage contract that he entered into was with CityCan and not the plaintiff Wendy Hardy.

3. He was not informed that the mortgage was for a limited term of three months and that there was any deadline for repayment of the mortgage.

4. He was initially informed that the net funds to be advanced to him for his use, from the total mortgage funds of $10,000.00, were $9,005.00 and the net amount that was actually advanced was $6,506.75.

5. He denies that his monthly payments of $59.84 were made by N.S.F. cheques.

[15] The issue on the motion is whether any of these defences raise a genuine issue requiring a trial. I will address the proposed defences as follows.

1. The plaintiff’s business is illegal and 2. The defendant’s mortgage was with CityCan and not the plaintiff.

[16] Mr. Hylton’s argument with respect to the alleged illegality of the plaintiff’s business is difficult to follow. He appears to be saying that the mortgage broker CityCan misled him into believing that it would be the lender and mortgagee. He further submits that Wendy Ann Hardy, the plaintiff suing for recovery under the mortgage, was acting as an unauthorized representative of CityCan.

[17] On the evidence, the plaintiff is mistaken as to the status of both CityCan and Wendy Ann Hardy. CityCan is a licensed mortgage broker and Wendy Ann Hardy is an investor, not a mortgage administrator. The mortgage came into being by way of a conventional transaction between Mr. Hylton as borrower, CityCan as mortgage broker and Ms. Hardy as lender. The defendant does not have a tenable defence based on the manner in which the mortgage was arranged.

[18] Mr. Hylton’s second proposed defence appears to be that, as he thought that he was receiving his loan from CityCan, the named plaintiff Wendy Ann Hardy has no standing to bring an action on the mortgage.

[19] It is true that the original mortgage disclosure document signed by Mr. Hylton on May 23, 2012 does not identify Ms. Hardy as the lender. Regardless, the Acknowledgment and Direction signed by Mr. Hylton on June 5, 2012 states that Wendy Ann Hardy is the “Lender” and the mortgage document prepared on the same date indicates that the “Chargee” is “Wendy Ann Hardy Acting as an individual”. Further, Mr. Hylton signed another Acknowledgment on June 5, 2012 directed to Ms. Hardy and acknowledging receipt of the Standard Charge Terms. Finally, Mr. Hylton signed a Declaration on June 5, 2012 referring to “a mortgage (charge) from Paul Hylton in favour of Wendy Ann [sic]” on the subject premises. I can only conclude that it is disingenuous of Mr. Hylton to suggest that he did not know that Wendy Ann Hardy was the mortgagee.

[20] My view in this regard is further supported by the fact that on June 5, 2012, Mr. Hylton provided three post-dated cheques dated July 6, August 6 and September 6, 2012, payable to Wendy Ann Hardy. He therefore knew no later than June 5, 2012 that she was the mortgagee. There is no evidence of Mr. Hylton taking issue with the identity of the mortgagee until the delivery of his motion record in October, 2013, sixteen months later.

[21] Quite apart from the fact that it was clear that Ms. Hardy was the lender and mortgagee, it is also difficult to accept that it could have made any difference to Mr. Hylton whether the funds that he was borrowing were CityCan’s or Ms. Hardy’s. There is no genuine issue requiring a trial arising from the fact that the named plaintiff is Wendy Ann Hardy and not CityCan Financial.

3. Mr. Hylton was not informed that the mortgage was for a limited term of three months and that there was a fixed deadline for repaying it.

[22] Mr. Hylton submits that he did not know when he gave the mortgage that it was for a three month term and stated that he did not know when he learned of the three month term.

[23] His evidence in this regard is contained in paragraph number 4 on page 6 of his October 21, 2013 affidavit (there are two other paragraphs numbered “4” in the same affidavit) where he deposes that the loan can be renewed according to the contract signed with CityCan Financial at Tab 7 of the original motion record and in the statement of claim, schedule B.

[24] These documents do not assist Mr. Hylton. First, the Disclosure to Borrower document at Tab 7, which was signed by Mr. Hylton on May 23, 2012, states that the mortgage is “to expire September 1st, 2012”. Second, schedule B to the statement of claim simply states that “this mortgage shall be fully open . . . thereby granting the Chargors/Mortgagors (the owners of the property) the option of increasing the payments or of paying the balance in full, without notice or bonus”. The fact that the mortgage is an open mortgage, which allows the mortgagor to pay it off at any time during the term of the mortgage, does not change the term of the mortgage, which was stated to expire on September 1, 2012.

[25] Mr. Hylton’s evidence in paragraph 12 of his supplementary affidavit sworn December 12, 2013 is that the mortgage maturity date of September 1, 2012 was not a fixed date and was changed on two occasions. However, the first such change was at the plaintiff mortgagee’s initiative and extended the term of the mortgage to September 28, 2012. The second extension alleged by Mr. Hylton was not an extension of the term of the mortgage but rather was notice to Mr. Hylton of the deadline of October 15, 2014 for redemption of the mortgage as part of the mortgagee’s power of sale proceeding.

[26] Although not referred to in Mr. Hylton’s affidavits, the letter of May 23, 2012 from CityCan Financial to Mr. Hylton, found at tab 8 of his first affidavit, includes the proposed term “6.99% fixed rate to Sept. 1st, 2012”.

[27] It is clear from the evidence that the mortgage was stated to be for a fixed term and there is no genuine issue requiring a trial arising from any failure to communicate this fact to Mr. Hylton.

4. Mr. Hylton was initially informed that the net funds to be advanced to him for his use, from the total mortgage funds of $10,000.00, were $9,005.00 and the net amount that was actually advanced was $6,506.75.

[28] Mr. Hylton deposes, in paragraph 7 on page 7 of his first affidavit, that before June 5, 2012, he thought that he would receive $10,000.00. He was “saddened” to learn on May 29, 2012 that he would not get $10,000.00 from Citycan because there was a cost of $995.00 associated with the loan. He was then “shocked, frightened and disturbed” when he went to pick up $9,005.00 and learned that he would only receive $6,506.75 owing to other fees charged. He then deposes: “I had given up on other options and was stuck in this position to take the $6,506.75. A $6,506.75 loan is now $14,649.72 as of December 14, 2012 which is Loan Shark” [sic].

[29] In paragraph 6 of his second affidavit, Mr. Hylton contradicts his initial statement that before June 5, 2012 he thought that he would receive $10,000.00 by deposing: “On or about May 23, 2012 when I first negotiated this loan I thought that I would received [sic] $10,000.00 less the fee of $995.00.” This statement is consistent with CityCan’s letter of May 23, 2012 in which it informs Mr. Hylton of the terms of the mortgage and states that the “Home Equity Loan Program fee premium of $995.00 is included in the mortgage”. This letter makes no reference to any other deductions from the $10,000.00 principal that would reduce the net amount advanced to Mr. Hylton.

[30] The Disclosure to Borrower statement signed on May 23, 2012, under “Fees and Costs Payable by Borrower”, also refers to the brokerage fee of $995.00. This section of the statement also refers to “Legal Fees & Disbursements Payable by borrower” and “Appraisal/Inspection Payable by borrower”. However, no amounts are fixed for these items and the “Total Costs” specified are limited to the $995.00 for the brokerage fee.

[31] In his second affidavit, Mr. Hylton reiterates that on June 5, 2012 when he first learned that he would “only get about 50% of the $10,000.00” (the amount received was actually 65% of the total), he was “shocked, frightened and disturbed”. He further states at paragraph 15 of that affidavit that: “They knew that if I took almost half of the money that I borrowed that I was desperate. It is not fair that interest and fees account for almost 50% of the money I borrowed.”

[32] Mr. Hylton’s evidence in both affidavits is consistent that it was not until June 5, 2012 that he learned that he would only be receiving $6,506.75 of the total mortgage funds of $10,000.00.

[33] This evidence is consistent with the Direction Re Funds that Mr. Hylton signed on June 5, 2012 authorizing the funds to be paid as follows:

Leo Falkovsky $1,000.00

Eran Gevantschniter $1,200.00

Wendy Ann Hardy $1,293.25

Paul Hylton $6,506.75

[34] The amount payable to Wendy Ann Hardy includes the mortgage fee of $995.00 and $298.25 for the appraisal of the property, resulting in the total payable to her of $1,293.25. The $1,200.00 payable to Eran Gevantschniter would be for legal fees. Counsel for the plaintiff could not identify what the $1,000.00 paid to Leo Falkovsky was for.

[35] On June 5, 2012, Mr. Hylton also signed the Declaration referred to above, stating: “I am aware that this mortgage transaction is costly and expensive but wishes [sic] to proceed with it without duress or pressure from any party”.

[36] The issue with respect to the plaintiff’s failure to disclose the amounts of the additional fees and costs above the brokerage fee of $995.00 is whether there is a genuine issue for trial of unconscionability or duress.

[37] Mr. Hylton’s evidence on the issues of duress and unconscionability can be summarized as follows:

• Before June 5, 2012 he thought that he would have at his disposal $9,005.00 of the total mortgage funds of $10,000.00 but was “shocked, frightened and disturbed” to learn on that date that the net funds advanced to him were $6,506.75.

• He had given up on other options and was “stuck” with taking the $6,506.75.

• The mortgagee and her husband knew that he was desperate.

• It was not fair that interest and fees account for almost 50% (more accurately 35%) of the money he borrowed.

[38] In response to Mr. Hylton’s evidence on this issue, the plaintiff deposes in her affidavit of December 27, 2013 that she had never met Mr. Hylton, she has no influence over his actions and she and her husband Richard Hardy on behalf of CityCan did not place Mr. Hylton under any duress to force him to take the funds.

[39] Mr. Gevantschniter, in his affidavit of October 23, 2013, deposes that he was retained by both the mortgagor and mortgagee to act on the mortgage in light of the small amount of the mortgage. (Although there was no motion brought by Mr. Hylton to strike this affidavit, I would question why Mr. Gevantschniter, who was also Mr. Hylton’s lawyer on the mortgage and who met with him when he executed various documents, would voluntarily swear an affidavit on a motion against his own former client.) He further deposes that he does not recall Mr. Hylton being shocked, frightened or disturbed when he picked up his cheque and that he did not apply any pressure on him to sign the documents.

[40] On the basis of the disclosure that Mr. Hylton received prior to June 5, 2012, he could reasonably have thought that the net funds to which he would have access from the total mortgage funds would be $9,005.00 because he was never informed of any other specific deductions from the total funds of $10,000.00. However, he was or ought to have been aware that he would be required to pay legal fees and an appraisal although he was never informed that any such amounts would be taken from the mortgage funds and therefore subject to interest under the terms of the mortgage. There was no notification of any costs of $1,000.00 payable to Mr. Falovsky.

[41] The funds deducted from the mortgage funds of $10,000.00, not including the disclosed brokerage fee of $995.00, total $2,498.25. I accept that the last minute notice to the defendant that the mortgage funds available for his use would be reduced by essentially 25%, when he no longer had the ability to look elsewhere for funds, and when on his evidence he was desperate for the funds, could give rise to a defence of duress and at least raises a genuine issue for trial in that regard. In addition, the fact that the $10,000.00 mortgage was reduced by $1,000.00 for an amount paid to Leo Falkovsky for reasons that even plaintiff’s counsel cannot explain could provide the plaintiff with another defence in respect of those funds.

[42] Mr. Hylton does acknowledge receiving the funds and in correspondence of April 23, 2013 says that “I would love to pay off the debt”. However, this admission does not constitute a waiver of a possible defence that there were amounts deducted from the funds that he expected to receive at a time when it was too late for him to object.

[43] Mr. Hylton has raised a genuine issue for trial with respect to the plaintiff’s entitlement to recover the $2,498.25 that was not included in the disclosure statement provided to him as amounts to be subject to the terms of the mortgage.

5. Mr. Hylton’s three payments of $59.84 were not in default as a result of N.S. F. cheques.

[44] As indicated above, on June 5, 2012, Mr. Hylton provided CityCan Financial with three post-dated Bank of Montreal cheques for $59.84 each dated July 6, August 6 and September 6, 2012. The plaintiff’s responding material includes copies of each of these cheques with the words “item dishonoured” stamped on them.

[45] Mr. Hylton’s evidence is that no money was withdrawn from his account and includes a letter dated October 19, 2012 from the same Bank of Montreal branch from which his cheques were written stating that Mr. Hylton has held a chequing account at that branch since August 2009 and that “there has been 0 NSF’s from January 2012 – September 2012”.

[46] The evidence of Wendy Ann Hardy in her affidavit of October 23, 2013 is that she attempted to cash all three of the cheques provided to her during the term of the mortgage and “all three cheques were returned for some reason”. Copies of the dishonoured cheques referred to above are included. Next to the heading “Reason for Return” are written the words “Unable to Locate”.

[47] Despite Mr. Hylton’s evidence provided by way of the Bank of Montreal letter of October 19, 2012 that he has had no NSF cheques during the period that the three post-dated cheques were written, the cheques that he provided were all noted as having been dishonoured. I also note that Mr. Hylton has not provided copies of cheques that cleared his bank account as evidence that he made the required monthly payments on the mortgage.

[48] Separate and apart from the issue of whether or not the cheques cleared Mr. Hylton’s bank account is the fact that when the mortgage came due as of September 28, 2012, Mr. Hylton failed to repay the principal. As noted by the plaintiff, Mr. Hylton stated in an email of April 23, 2013 that “I would love to pay off the debt. But I don’t have the full amount right now.” In addition, in paragraph 8 of his affidavit of October 21, 2013, Mr. Hylton deposes “ . . . I am not disputing that I owe money”.

[49] Given that the three post-dated cheques written by Mr. Hylton all failed to clear his account, his defence that his payments were not in default fails, particularly considering his ultimate failure to repay the principal once it came due at the end of the term of the mortgage.

[50] I conclude that the only arguable defence on the merits put forward by Mr. Hylton is in respect of the $2,498.25 that he had no expectation would be included in the mortgage principal. Accordingly, the portion of the judgment for $2,498.25 in principal is hereby set aside together with the interest on that amount.

[51] If the parties cannot agree to the costs of the motion, the plaintiff may provide written submissions within 30 days, and the defendant may provide his written submissions within 15 days thereafter. Written submissions are not to exceed three pages.

MASTER GRAHAM

DATE: April 30, 2014