ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 2426/14
DATE: 20140121
B E T W E E N:
Paccar Financial Services Ltd.
Plaintiff
- and -
2026125 Ontario Limited and Ultimino Alfano
Defendants
K. Daniel Reason, for the Plaintiff
Not given notice
HEARD: January 14 and 17, 2014
Grace J.
[1] Without notice the plaintiff moves for an order directing the defendant 2016125 Ontario Limited (“125”) to deliver up possession of two leased 2009 Kenworth model T800 trucks to a bailiff the plaintiff has retained.
[2] On other occasions, I have seen and expressed – both orally and in handwritten endorsements – concerns about the approach adopted on matters such as these. Since this motion follows the same path, I am hopeful a more formal endorsement may have the effect a less forceful approach did not.
[3] It is alleged that 125 leased the trucks from Paccar Financial Services Ltd. (“Paccar”) for a term of 49 months. Paccar alleges that Ultimino Alfano guaranteed 125’s obligations.
[4] According to the material filed by Paccar, the monthly payments are in default, demands for payment have been ignored and the ten day period specified in a notice served under s. 244 of the Bankruptcy and Insolvency Act has expired.
[5] A notice of action was issued on January 6, 2014. It has not yet been served.
[6] An affidavit of Paccar’s solicitor was filed in support of the notice of motion. He deposed that service of Paccar’s motion record was not undertaken because of fears that 125 will dismantle, damage, move or hide the leased equipment if made aware of this proceeding.
[7] Concerns arise whenever relief is sought without notice. Although rule 39.01(6) of the Rules of Civil Procedure (“Rules”) obligates the moving party to make full and frank disclosure of all material facts, including ones that may be unfavourable, the adverse party is deprived of its opportunity to present evidence of its choosing and to make submissions.
[8] The court must be vigilant to ensure that orders are not made without notice easily. The moving party must satisfy the court that all procedural and substantive requirements have been met. Even then, the terms of the order should be carefully tailored to ensure that rights are not trampled. Its terms and duration should be no more than is required to ensure that the court can effectively and fairly adjudicate the ultimate dispute.
[9] This case provides a useful example of one requiring caution.
[10] At the outset, I asked Paccar’s counsel to provide a copy of the order the plaintiff seeks and the rule and/or statutory provision relied upon. Counsel relied on Rule 44 of the Rules of Civil Procedure.[^1] That came as no surprise since Rule 44 was specifically mentioned in Paccar’s notice of motion.
[11] That provision sets forth rules relating to motions seeking interim possession of personal property. It carries into effect s. 104(1) of the Courts of Justice Act, R.S.O. 1990, c. C. 43 (the “CJA”). That subsection provides:
In an action in which the recovery of possession of personal property is claimed and it is alleged that the property,
(a) was unlawfully taken from the possession of the plaintiff; or
(b) is unlawfully detained by the defendant,
the court, on motion, may make an interim order for recovery of possession of the property.
[12] Rule 44 establishes a number of requirements. For example, an affidavit filed in support of a motion for interim recovery of personal property must contain listed information. Rule 44.01(2) addresses the issue of service in these terms:
The notice of motion shall be served on the defendant unless the court is satisfied that there is reason to believe that the defendant may improperly attempt to prevent recovery of possession of the property or that, for any other sufficient reason, the order should be made without notice.
[13] If a motion is made under Rule 44 without notice, the court may make an interim order. Rule 44.03(2) provides in part:
On a motion for an interim order for the recovery of possession of personal property made without notice to the defendant, the court may,
(a)…direct the sheriff to take and detain the property for a period of ten days after service of the interim order on the defendant before giving it to the plaintiff… [Italics added]
[14] I noted that the draft order provided by Paccar’s counsel contained no temporal limitation. It did not comply with Rule 44 and importantly if signed, completely obliterated the rights of a party given no voice.
[15] Furthermore, rule 44.03(2) clearly contemplates that an order for interim recovery of personal property will be enforced by the sheriff.[^2] That comes as no surprise. Section 141(1) of the CJA provides that the court’s orders arising out of a civil proceeding shall be directed to the sheriff for enforcement in Ontario unless a statute provides otherwise.
[16] The draft order contemplated enforcement by a bailiff retained by Paccar. That, too, is not in accordance with the CJA or rule 44.
[17] Counsel then suggested that Paccar relied on s. 67 of the Personal Property Security Act, R.S.O. 1990, c. P.10 (“PPSA”).[^3] That statute was also mentioned in the notice of motion.
[18] Section 67(1) of the PPSA allows the Superior Court of Justice to grant a range of orders at the request of, among others, a secured party “[u]pon application”. They include “binding declarations of right” and “any order necessary to ensure protection of the interests of any person in the collateral”.[^4]
[19] By reason of the length of the lease, Paccar is a secured party within the meaning of the PPSA.[^5]
[20] While the word “application” is not defined in that statute, it is defined in s. 1(1) of the CJA as “a civil proceeding that is commenced by notice of application or by application”. The Rules narrow the definition to a proceeding commenced by notice of application.
[21] As noted, this proceeding was not commenced in that fashion. It was commenced by notice of action. Rule 14.02 provides that every proceeding is to be by action, except where a statute or the rules provide otherwise. In my view, the PPSA is such a statute.
[22] Some may question why it matters. A proceeding comes before the court whether commenced by action or application. Each is an originating process.
[23] Rule 2.01(1) provides that a failure to comply with a rule “is an irregularity and does not render a proceeding or a step…a nullity”. Rule 2.01(2) provides that an originating process is not to be set aside on the ground than another one should have been employed.
[24] However, it does matter. Curative rules of civil procedure are not a license to ignore a statute’s requirements. Lukezic v. Royal Bank of Canada, 2012 ONCA 350, illustrates the point. In that case, an order declaring a person to be a vexatious litigant was set aside when made on motion rather than by application as s. 140 of the CJA mandated.
[25] The fact that the plaintiff’s access to justice was curtailed clearly played an
important role in Lukezic, supra. However, I do not read the decision as one limited to that topic. Goudge J.A. noted that a notice of application is “clearly different from an interlocutory motion”.
[26] Those differences are not cosmetic. By way of example only, an affidavit filed in support of a motion may contain statements of the deponent’s information and belief. An affidavit filed in support of an application must confine such statements “to facts that are not contentious”: see rules 39.01(4) and (5). Much of the solicitor’s affidavit in this case is based on information and belief. In paragraph 11 of his affidavit, the solicitor deposed:
I do verily believe that the acts of each of the Defendants are intentional and designed to deprive the Plaintiff of the Equipment and convert same to their own use.
[27] The affidavit strays beyond issues which can be termed “not contentious”.
[28] On a motion under Rule 44, the general rule applicable to facta applies. A party may file a factum but is not obligated to do so: rule 37.10(6). On an application, a factum is required: rule 38.09(1) (a). While, in my view, even on motions counsel should file copies of provisions of statutes that are not included within publications containing the Rules, the importance of a factum in a case like this should be obvious. The PPSA is not referenced on a daily basis on dockets in this region. I suspect that is so elsewhere in Ontario with the possible exception of the Commercial List.
[29] In this case, Paccar seeks to deprive 125 of the leased equipment without notice of the court proceeding and pursuant to an order that is immediately effective and without any limitation as to time. On the first attendance, the plaintiff had not filed any part of the PPSA or a single case.
[30] After raising my concerns on January 14, 2014 and hearing from counsel, I adjourned the motion. Paccar’s solicitors filed a statement of law and appeared again on January 17, 2014.
[31] Before turning to Paccar’s submissions on the law I pause to address a troubling development.
[32] During the first attendance I asked counsel whether 125 had counsel. Paccar’s lawyer told me he did not know and would have to check.
[33] Paccar had included in its motion material an order made against 125 by another Justice on November 5, 2013 in favour of CLE Leasing Enterprise Ltd (“CLE”). CLE and Paccar are represented by the same lawyer. That order appeared to have been made without notice but in the first line indicated that the motion was “made with notice”.
[34] In the course of preparing for counsel’s further attendance, I reviewed the CLE file. The November 5, 2013 order was, in fact, made without notice.
[35] Within that file was a further motion record which is returnable on January 21, 2014. A solicitor’s affidavit has been filed in support of that motion. I was surprised to read that the affidavit not only identified a lawyer for 125 by name but attached an e-mail Paccar’s lawyer had written to 125’s lawyer on January 7, 2014 – seven days before telling me that he would have to check whether 125 had counsel or not.
[36] I raised the issue with counsel at the outset of his submissions on his return and asked for an explanation for the response I received three days earlier. I was told that there was uncertainty whether the lawyer for 125 acted on the Paccar matter or not.
[37] One would have thought that an inquiry would have been made before a motion was brought without notice. One would have thought that the duty to provide full and frank disclosure necessitated disclosure of the existence of a lawyer who was believed to represent 125 in a piece of litigation raised by Paccar in support of its position before me.[^6] One would have thought that, out of an abundance of caution if nothing else, that lawyer would have been given notice – even if abridged – of the January 14, 2014 attendance. One would have thought that full and accurate information would have been volunteered to the court.
[38] After raising the issue, I was told that a copy of Paccar’s motion record had been
sent to 125’s lawyer after the first attendance. At my request, counsel filed a copy of the January 16, 2014 e-mail enclosing same and advising 125’s lawyer of the January 17, 2014 return date.
[39] For now I will go no further than expressing my profound disappointment. Advocacy has boundaries. They were not respected. Some notice could and should have been provided. The solicitor’s affidavit on this motion was sworn on January 7, 2014, the very day that the same lawyer was writing to 125’s lawyer in respect of the CLE matter.
[40] While my concerns with the lack of notice have overtaken my concerns with the procedure Paccar adopted, I will address the procedural issues too.
[41] No mention is made of Rule 44 in the statement of law Paccar filed on January 17, 2014. All of the submissions were devoted to s. 67 of the PPSA. Seemingly, Paccar has no present interest in an interim order under rule 44.03(2).
[42] With respect to s. 67 of the PPSA, Paccar submits that Lukezic, supra does not apply to this situation. Its solicitor relies on Canada (Attorney General) v. National Indian & Inuit Community Health Representatives Organization (2000), 2000 15773 (FC), 185 F.T.R. 290 (Fed. Ct.). In that case, Pelletier J. concluded that the phrase “on application” in the Canada Human Rights Act, R.S.C. 1985, c. H-6 meant “on request” and that issues under the applicable section of that Act could be raised by motion.
[43] That decision does not assist Paccar. I do not question the soundness of Pelletier J.’s analysis. However, it is impossible to apply it to this situation. The word “application” is defined in the CJA. It was not defined in any statute to which Pelletier J. referred. The Federal Court Rules are worded differently than the comparable Rules in Ontario. Furthermore, Lukezic, supra is binding authority which has, in my view, ramifications beyond an application to declare a person a vexatious litigant. If a statute requires a party to proceed by application, that statute applies. The statutory requirement cannot be overridden by the curative provisions of the Rules – a regulation.
[44] Paccar relies on Chrysler Financial Services Canada Inc. v. Misner, 2012 CarswellOnt 9805 (S.C.J.). At para. 42, Healey J. concluded that the Small Claims Court has jurisdiction to hear applications under s. 67 of the PPSA. Paccar maintains that the Small Claims Court Rules do not allow the use of an “application” and that my interpretation would conflict with Healey J.’s.
[45] With respect, I disagree. It is not necessary or advisable for me to consider the jurisdiction of the Small Claims Court on this motion. My concern is with proceedings in this court – not the Small Claims Court. I am of the view that Legislature chose the word “application” in s. 67 (1) of the PPSA carefully. It has the same meaning as in s. 1 of the CJA. That conclusion follows inescapably from section 1(2) of the CJA. It reads:
Application to other Acts – This section applies to all other Acts affecting or relating to the courts and the administration of justice.
[46] Those statutes are not listed. However, the PPSA contains several provisions which authorize proceedings in the courts and which delineate powers that may be exercised. In my opinion, it is an Act that is captured by s. 1(2) of the CJA.
[47] This proceeding should have been commenced by application and not by way of action.
[48] That does not end the matter. A motion may be brought “in a proceeding”.[^7] A proceeding includes an action or application.[^8]
[49] Paccar could have brought a motion for interim relief. Paccar’s notice of motion included a reference to s. 62 of the PPSA. That section is found in Part V of the PPSA.
that part deals with rights and remedies upon default.
[50] Section 62(1)(a) gives a secured party “the right to take possession of the collateral by any method permitted by law”. Bailiffs are often retained by secured parties to assist in the exercise of that right. If satisfied that Paccar was entitled to enjoy the benefit of that section, my concern that the draft order was not directed to the sheriff would have evaporated. However, that aspect of the matter is also unclear.
[51] Paccar’s notice of motion does not mention s. 57.1 of the PPSA. It provides:
Unless otherwise provided in this Part, this Part applies to a security interest only if it secures payment or performance of an obligation.
[52] Section 62 does not appear to provide otherwise. It is not clear from the material filed so far whether Paccar’s lease is a “true” lease or one which secures payment or performance of an obligation.[^9]
[53] Not surprisingly, the Rules address the issue of notice even if Paccar is entitled to an order for interim possession of the leased items independent of Rule 44. Rule 37.07(1) sets forth the general rule that notice of the motion “shall be served on any party or other person who will be affected by the order sought”.
[54] Rule 37.07(3) addresses Paccar’s concern that 125 would deal inappropriately with the trucks if given notice. It provides:
Where the delay necessary to effect service might entail serious consequences, the court may make an interim order without notice.
[55] Concerns do emerge from the solicitor’s affidavit. However, more information is now in hand which suggests that the affidavit told an incomplete story. It should not have.
[56] Furthermore and as noted, Paccar did not seek interim relief. It sought a final order: an order which gave it possession of the leased items and authorized Paccar’s bailiff to seize them wherever they were located. The addition of a “comeback” clause in the most recent version, on seven days’ notice to Paccar, does not change the nature of what Paccar seeks.[^10] Under the guise of a motion, Paccar seeks a final disposition without any notice before the first attendance and insufficient notice thereafter. This motion overreaches procedurally and substantively.
[57] It also ignores, entirely, third party rights. The PPSA subordinates an unperfected security interest to a variety of competing interests. I do not know whether Paccar registered a financing statement as the PPSA requires. I do not know whether third party rights are involved because the solicitor’s affidavit does not address them. There may be, in other words, other persons affected who have better rights than Paccar even if it continues to be the “owner” of the leased items.
[58] The suggestion of Paccar’s solicitor that those rights be considered later is wide of the mark. Section 67(1)(e) of the PPSA speaks of an order protecting the interests of any person in collateral “but only on terms that are just for all parties concerned”. How can the court make such an order when those persons have not even been identified, let alone notified? That issue should have been addressed up front. It should not have been left to the court to identify it.
[59] It should be clear from this endorsement that my concerns with Paccar’s motion abound. The bar on a motion without notice is a high one. Paccar’s material falls far below the required – and expected – standard.
[60] In the context of an application pursuant to s. 67 of the PPSA, if satisfied with the materials, I would have considered granting an interim order on motion:
a) on proper notice to 125 and any third party known by Paccar to have an interest in the leased items;
b) alternatively and if satisfied that the applicable test was met, on abridged or perhaps even no notice to one, some or all of the persons mentioned in the preceding subparagraph;[^11]
c) that complied with Rule 44 unless satisfied that Paccar was entitled, on an interim basis, to the court’s assistance in exercising the self-help remedy it seeks;
d) if made without notice, that required Paccar to immediately serve the order and all of the materials filed on the motion on all affected persons as rule 37.07(5) requires;
e) if made without notice, that provided for a specified return date ideally before me. Knowing that the justice who made the
initial order will remain seized on the subsequent return date should serve as additional encouragement to the moving party to
make full and frank disclosure of all material facts as rule 39.01(6) requires; and
f) that preserved the leased items pending that further return date.
[61] This is not such a case. Whirlwind justice is rarely just. Paccar’s current motion is flawed in every respect. It is dismissed without prejudice to the right of Paccar to start afresh.
“Justice A. D. Grace”
Grace J.
Released: January 21, 2014
COURT FILE NO.: 2426/14
DATE: 20140121
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Paccar Financial Services Ltd.
- and -
2026125 Ontario Limited and Ultimino Alfano
REASONS FOR JUDGMENT
Grace J.
Released: January 21, 2014
[^1]: Another lawyer from Paccar’s lawyer’s office appeared at first instance.
[^2]: Other sub rules do too. See, for example, rules 44.03(1), 44.07 and 44.08.
[^3]: This became the principal submission of counsel for Paccar.
[^4]: PPSA, s. 67(1) (a) and (e).
[^5]: The PPSA applies to a lease of goods for a term of more than one year even if the lease does not secure payment or performance of an obligation: s. 2(1) (c). A lessor under such a lease holds a “security interest”. The holder of a security interest is a “secured party”.
[^6]: One would have thought the Law Society of Upper Canada’s rules of professional conduct do too.
[^7]: Rule 1.03
[^8]: Ibid.
[^9]: See, for example, Crop & Soil Service Inc. v. Oxford Leaseway Ltd. (2000), 2000 1838 (ON CA), 48 O.R. (3d) 291 (C.A.).
[^10]: The clause would have allowed an affected person to bring a motion to vary or amend the order or to seek damages “in the event that the Defendants prove that the Plaintiff was not entitled to possession of the Equipment and the Plaintiff suffered damages as a result of compliance with this Order.”
[^11]: As mentioned rule 44.01(2) addresses the issue of notice expressly if a motion is brought for interim recovery of personal property. If that rule is inapplicable, the test is set forth in rule 37.07.