ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 11-31827
DATE: 2014-08-07
B E T W E E N:
JANET LOUISE HILSON
Mr. Howard W. Reininger, for the Plaintiff
Plaintiff
- and -
1336365 ALBERTA LTD., 1336367 ALBERT LTD., 1336364 ALBERTA LTD., 1320950 ALBERTA LTD., 1336366 ALBERTA LTD., ROSS CHARLES LIGHTLE and BARBARA LIGHTLE
Mr. Jonathan Rosenstein, for the Defendants
Defendants
HEARD: June 23, 2014
REASONS FOR JUDGMENT
LOFCHIK, J.
[1] This is a motion brought by the defendants to set aside the default judgment of The Honourable Justice Lafreniere dated July 26, 2012, setting aside the noting in default, and permitting the defendants to serve amended statements of defence as proposed, or in the alternative serving defences in the form of their June 28, 2012 statements of defence.
FACTS
[2] The individual defendants (the “Lightles”), through the defendant Alberta Corporations they controlled (the “corporations”), invested in 25 co-ownership units (the “units”) in a residential development located on Godstone Road in Toronto, Ontario.
[3] The investments turned out to be bogus: the funds which were to have been used to purchase, renovate and refinance the units have disappeared. In the result the Lightles themselves have lost a $400,000 cash investment.
[4] The majority of the purchased units were financed by:
(1) loans from DUCA Financial Services Credit Union Ltd. (which in each case were secured by a first mortgage in favour of DUCA) and
(2) additional loans from the plaintiff Janet Hilson (“Hilson”). Both DUCA and Hilson have mortgages to secure their loans.
[5] The defendants had been told that their units in the Godstone Development would be self-supporting through rents. In fact they were not. As a result, the first and second mortgages on the defendants’ units quickly went into default.
[6] The plaintiff’s claim in this action is for payment of the amount due under 25 separate charges, five charges from each corporation and for payment from the individual defendants as guarantors of all 25 charges.
[7] The 25 separate charges (the “mortgages”), are each registered against one of the units. Those charges required payment by the corporate owners. Each mortgage also contains terms providing for the personal guarantees of the Lightles.
[8] The five separate guarantees are executed by the Lightles each guaranteeing five of the mortgages.
[9] The defendants Lightle retained counsel, Christopher Cosgriffe (“Cosgriffe”) as counsel to defend this matter and filed a statement of defence on or about February 23, 2012.
[10] In June 2012 the defendants ended their relationship with Cosgriffe and proceeded to act for themselves. They served the appropriate notice on plaintiff’s counsel on or about June 7, 2012. At that time they were living in British Columbia.
[11] Counsel for the corporate defendants obtained an order removing themselves as lawyers of record for the corporate defendants on or about June 21, 2012.
[12] Prior to the individual defendants choosing to represent themselves and prior to the corporate defendants’ lawyers removing themselves as lawyers of record for the corporations, counsel for the plaintiff and counsel for the defendants had agreed to a discovery plan requiring delivery of affidavits of documents by June 8, 2012.
[13] The defendants failed to deliver an affidavit of documents within the time agreed upon and a motion was brought by the plaintiff to strike out the statement of defence of all of the defendants.
[14] The motion to strike out the statement of defence was served on the individual defendants and on the lawyers for the corporate defendants who were still lawyers of record on the date the motion was served.
[15] The defendants have acknowledged that they received the plaintiff’s motion to strike out their statement of defence but they had made a deliberate decision not to respond to the motion.
[16] As a result no one appeared on the motion to strike out the statement of defence and on June 28, 2013 an order was obtained striking out the statement of defence and ordering the plaintiffs to pay costs of the motion in the sum of $1,533.73.
[17] After the defence was struck out the defendants were noted in default and on motion supported by affidavit evidence, the plaintiff obtained judgment against the defendants on July 26, 2013.
[18] The plaintiff subsequently took steps to register the judgment in British Columbia where the individual defendants reside and obtained and filed a writ of seizure and sale in British Columbia in order to begin enforcement proceedings in British Columbia.
[19] The defendants say that they did not appreciate that as a direct result of failing to deal with the motion to strike their defence they would receive no further notice of any additional steps in the action.
[20] The defendants say that in October, 2012 they learned that it was possible that a default judgment had already been granted against them. They say they took immediate steps to have it set aside:
(a) they retained their own lawyer to investigate the matter and take the necessary steps to have the judgment set aside;
(b) when their previous lawyer withdrew, they made a diligent search for new counsel;
(c) this motion was launched immediately after they retained their new counsel.
ISSUES AND THE LAW
[21] The sole issue before me is whether or not it would be just to set aside the default judgment so that the defendants can defend the action on the merits.
[22] Rule 19.08(2) provides that:
“A judgment against the defendant who has been noted in default that is obtained on a motion for judgment on the statement of claim under Rule 19.05 or that is obtained after trial may be set aside or varied by a judge on such terms as are just.”
R. 19.08(2) Rules of Civil Procedure
[23] On a motion to set aside a default judgment, the court’s task is to decide whether or not it is in the interests of justice to do so.
Hanratty v. Woods, [2009] O.J. No. 3448 (S.C.J.) para 2.
[24] In making that determination the court is guided by a three-part test:
(a) how promptly did the defendant bring the motion to set aside a default judgment after learning of the judgment;
(b) how adequate is the explanation for the default; and
(c) does the defendant have at least an arguable defence?
Business Development Bank of Canada v. Vincent, [2008] O.J. No. 3871 (S.C.J.) para 2.
[25] That three part test is not applied rigidly. Instead, the motions judge uses the test as a guide towards a just result in the circumstances:
“On a motion to set aside a default judgment the motion judge will be guided by the principles identified in the authorities. The motion judge must, however, ultimately determine whether the interests of justice favour an order setting aside the default judgment.”
Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, [2007] O.J. No. 1685 (C.A.) para 2.
[26] Moreover, the guidance provided by the parts of that test are not applied equally. Of the three parts, the existence of an arguable case on the merits is the most important, and frequently dispositive factor:
“ (a) The factors should not be applied rigidly. A failure to satisfy the factors such as an adequate explanation for the default, may not prevent relief if there is an arguable case on the merits and the motion is brought promptly;
(b) Where it is apparent that there exists a strong defence…failure to satisfy the two other factors may not prevent relief;
(c) Clearly the merits issue is the most significant factor. If a party can be made whole in costs and is not prejudiced, the merits issue will often carry the day for the defaulting party. But that is not necessarily so.”
Valente v. Personal Insurance Co., 2011 ONSC 516, [2011] O.J. No. 1396 (Div.Ct.) para 42.
[27] In showing a defence on the merits, the principle applied on a motion for summary judgment shall be considered, and the defendants shall also show that the defence has an air of reality. A motion judge in considering whether or not to set aside the default judgment must take a good hard look at the merits” and assess whether the moving parties have established an arguable defence.
Raso v. Colacci [2013] O.J. 801
ANALYIS
[28] I am satisfied on the material before me that the first two branches of the test to set aside a default judgment have been satisfied. This is not a case where the defendants deliberately decided not to defend the action and merely ignore the claim. Here they did defend but they failed to observe their obligation to serve an affidavit of documents. I am satisfied that when served with the notice of motion to strike their defence they did not appreciate the full significance of what was happening. The notice of motion said nothing about a judgment going against them but it merely mentioned that the defence would be struck. I am satisfied that the defendants did not appreciate that the failure to file an affidavit of documents would be fatal to their ability to defend the claim and that they would not be able to receive any notice whatsoever of steps to take a judgment against them. They received no notice that the default judgment was being sought against them and although permitted under the Rules that failure to receive notice lulled the Lightles in a false sense of security.
[29] I am satisfied as soon as they became aware that default judgment might have been registered against them, they immediately took steps to retain counsel to investigate the situation and were reasonably expeditious in acting to set aside the default judgment.
[30] Counsel for the defendants submits that there is an arguable defence on the merits.
[31] Defence counsel seeks an amendment to the statement of defence to clarify the statement in paragraph 19 of the Statement of Defence that the Lightles executed guarantees in favour of the plaintiff guaranteeing the indebtedness of the of the defendant corporations. The amendment to the Statement of Defence would provide that they did not in their capacity as guarantors, execute the second mortgages nor were they executed on their behalf but that they did execute as separate and independent instruments, (the guarantees) but that the guarantees are not indentures of mortgage or any other instrument to repay the whole or part of any money secured by the mortgage.
[32] The plaintiff argues that this amendment should not be allowed because it is effectively the withdrawal of an admission. I disagree and accept the defendant’s argument that the amendment is in fact a clarification of the plaintiff’s position, namely that they did sign the individual guarantees but that they did not execute or authorize the execution on their behalf of the mortgage documents.
[33] The procedure in Ontario is for the parties to an instrument to be registered on title to sign an Acknowledgement instructing the solicitor to register the instrument because of electronic registration. The parties no longer sign the actual document, they sign the authorization. This is how the mortgages in question were executed and registered.
[34] The defendants raised two defences in connection with the acknowledgement and directions executed with respect to the mortgages containing the guarantee. Firstly, they argue that they did not sign this document in their personal capacity but as officers and directors of the relevant Alberta companies. The signing pages of all the acknowledgements and directions with respect to the mortgages from the numbered company to the plaintiff are as follows:
1336364 Alberta Ltd. per
_____________(signature)
Ross Lightle ASCO
_______________(signature)
Barb Lightle
[35] I find on this basis that there is an arguable defence that the Lightles were signing the Acknowledgement and Direction which allowed for registration of the mortgage as representatives of the companies taking title to the various units rather than in their individual capacity.
[36] A second defence raised by the Lightles is that while some of the Acknowledgement and Direction documents bear their signature as set out above under the company name, the plaintiff has also produced Acknowledgement and Direction documents where above the signing line for Ross Lightle and Barb Lightle the initials “RA” appear. It is argued that these initials are the initials of Russell Allegra which amounts to Russell Allegra authorizing the plaintiff’s agent Terrance Reiber to sign the mortgages on their behalf. The defendants argue that the only authorization signed by them were in favour of Russell Allegra who acted as their real estate lawyers in the transactions and that the defendants did not sign authorizations in favour of Reiber nor did they authorize Allegra to do so.
[37] With respect to the individual guarantees, the defendants argue that they lived in Alberta when they executed the guarantees and that the guarantees were executed in Alberta. The Guarantees Acknowledgement Act (Alberta) provides that a guarantee to be validly executed in Alberta must be signed and notarized in order to be effective. The guarantees are not notarized.
[38] The plaintiff argues that the guarantee documents at paragraph 17 provide that the guarantors submit themselves and attorn to the jurisdiction of the courts of the Province of Ontario. While this may give the Ontario courts jurisdiction to deal with the litigation on the guarantee and perhaps even to provide that Ontario law applies, it still leaves open the issue as to whether the guarantee document executed in Alberta, to be valid must comply with Alberta law, namely the Guarantees Acknowledgement Act.
[39] The defendants also argue that the claim on the guarantee is statute barred because it was brought outside the two year limitation period provided for by the Limitations Act, 2002 (Ontario).
[40] The plaintiff argues that the situation is governed by the Real Property Limitations Act, RSO 1990, c. L. 15 which provides at s. 43 that:
- No action upon a convenant contained in an indenture of mortgage or any other instrument made on or after July 1, 1894 to repay the whole or part of any money secured by a mortgage shall be commenced after the later of,
a) the expiry of 10 years after the day on which the cause of action arose;
b) the expiry of 10 years after the day on which the interest of the person liable on the
covenant in the mortgage land was conveyed or transferred.
[41] The Ontario Court of Appeal in Equitable Trust Co. v. 2062277 Ontario Inc., 2012 ONCA 235, 109 OR 3d 561 held that if the guarantee is contained in an indenture of mortgage then the Real Property Limitation Act applies. The court specifically stated that it expressed no opinion as to what would be the proper conclusion if the guarantee were contained in a separate collateral document. I find that that there is an arguable issue as to whether the plaintiff’s claim herein on the guarantee which is a separate document is barred by the two year limitation period in the Limitations Act.
[42] In the result an order will issue setting aside the noting in default of the defendants herein and the default judgment and allowing the amendment to the statement of defence. It follows that any writs of execution issued as a result of the default judgment are also set aside.
[43] The parties have indicated the desire to address the issue of costs and any terms to be imposed in connection with this order once the results of the motion have become known. The matter is therefore adjourned to a date to be set by the trial coordinator at Hamilton for submissions with respect to costs and the terms to be associated with this order.
LOFCHIK, J.
Released: August 7th, 2014
COURT FILE NO.: 11-31827
DATE: 2014-08-07
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
JANET LOUISE HILSON
Plaintiff
- and –
1336365 ALBERTA LTD., 1336367 ALBERT LTD., 1336364 ALBERTA LTD., 1320950 ALBERTA LTD., 1336366 ALBERTA LTD., ROSS CHARLES LIGHTLE and BARBARA LIGHTLE
Defendants
REASONS FOR JUDGMENT
TRL:mw
Released: August 7th, 2014