ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
OWEN ROGERS, TRUSTEE
Plaintiff
- and -
PRIYANCE HOSPITLAITY INC., HARPREET SINGH SETHI and JASWINDER KAUR SETHI.
Defendants
David Ward and Jonathan Wansbrough
for the Plaintiff
Anser Farooq
for the Defendants
HEARD: August 4, 2015
F.L. MYERS J.
REASONS FOR decision
Background
[1] The defendants move to set aside the consent judgment granted by Himel J. on February 2, 2015. They rely on Rule 59.06(2)(a) that authorizes a party to bring a motion to seek to set aside an order on the ground of fraud.
[2] The defendants initially launched an appeal from the consent judgment. Apparently, that appeal has been withdrawn. However, on this motion, the defendants adopted a scattergun approach raising a number of factual and legal arguments concerning the correctness of the consent judgment. For the most part, none of those issues was properly before me. In exercising its jurisdiction under Rule 59.06, the court is not sitting on appeal from itself or a coordinate judge. The burden on the moving parties is to establish that the impugned judgment was obtained by fraud. Other errors of law or fact alleged may be of some relevancy to the court’s remedial discretion only once the jurisdictional requisites of intervention are established. Otherwise, they were, at most, issues that might have been for the Court of Appeal in the abandoned appeal.
[3] For example, the defendants allege that the default interest rate in the mortgage violated s.8 of the Interest Act, R.S.C. 1985, c. I-15. A number of issues are raised, such as whether the default interest rate runs afoul of s.8, when it is drafted so that it expressly does not apply to arrears of principal or interest, but applies prospectively only. There could also be a question as to whether the quantum of interest was calculated correctly as an issue of fact or mixed fact and law. However, counsel for the defendants conceded at the hearing that even if these issues could be proven, none established or was relevant to an allegation that the plaintiff obtained the consent judgment by fraud.
[4] At the conclusion of the hearing, I endorsed the record dismissing the motion. These are my reasons for doing so.
The Facts
[5] The corporate defendant owns real estate from which it operates a hotel. The corporate defendant is owned by the defendant Harpreet Singh Sethi. The defendant Jaswinder Kaur Sethi is Mr. Sethi’s spouse. Together, they own their residence in Toronto.
[6] In April, 2011, the corporate defendant borrowed $3 million from Business Development Bank of Canada. The corporation provided security to the mortgagee by way of a second mortgage on the hotel. In addition, the individual defendants granted a collateral second mortgage to BDBC against their residence.
[7] In 2012, the plaintiff, as trustee for a group of investors, refinanced the first mortgage on the hotel in the principal amount of $14 million. At the same time, the plaintiff purchased the second mortgage on the hotel and the individual defendants’ residence on behalf of a different group of investors.
[8] The defendants do not dispute that they fell into default of their mortgage commitments both prior to and after the most recent refinancing. In November, 2013, the plaintiff commenced an application for the appointment of a receiver over the hotel.
[9] On May 1, 2014, the second mortgage on the individual defendants’ residence matured and became due and payable in full. The plaintiff commenced this action seeking payment of the mortgage debt and possession of the residence property by statement of claim dated May 30, 2014. He also commenced a private power of sale proceeding some weeks later.
[10] The defendants have been represented by counsel in this litigation throughout. On June 24, 2014, counsel delivered a Notice of Intent to Defend on behalf of all of the defendants.
[11] On July 9, 2014, a bailiff attended at the hotel and commenced seizing chattels in respect of outstanding municipal taxes. The defendants communicated with the plaintiff and arranged an urgent further advance from the plaintiff of $590,000 to satisfy the hotel’s municipal tax arrears.
[12] The terms under which the plaintiff agreed to make the further advance for urgent realty tax arrears were documented by counsel for the parties by agreement dated as of July 18, 2014. The recitals to that agreement record the defendants’ defaults and the plaintiff’s cooperation by allowing the corporate defendant time to try to raise funds to pay its indebtedness in full. Among the terms agreed upon by the defendants in return for the urgent realty tax advance was that Mr. and Mrs. Sethi would consent to judgment in these proceedings. Moreover, again at the defendants’ request, the plaintiff, agreed to adjourn the receivership proceeding and to hold the consent to judgment in these proceedings for a further two weeks to allow the defendants yet more time to try to raise funds as they requested.
[13] The form of consent and judgment to be delivered by the defendants was subject to negotiation among counsel over the weekend of July 18 – 20, 2014. The individual defendants claim that they never saw the draft judgment to which they consented. It plainly was forwarded to their counsel. Moreover, the form of consent that was ultimately delivered by the defendants’ counsel, that did not contain a copy of the draft judgment, was not the document used by the plaintiff on the consent hearing before Justice Himel. Rather, the plaintiff used an additional original consent document that he obtained from Mr. Sethi personally that includes the judgment. Moreover, it seems to me that given the explicitness of the consent in the written agreement signed by the parties, the defendants cannot say that they did not know that their house was at risk. They had already given a second mortgage on their house. It had come due several months earlier. They were being sued on the mortgage against their house. They may be unhappy now that they agreed to consent to the enforcement of the mortgage against the house as a term for obtaining the further advance that they so urgently needed, but it is clear on the documentation and communication between the parties that the defendants knew that they were consenting to the enforcement of the plaintiff’s second mortgage against their residence, regardless of when and whether they saw the draft judgment in the consent forms that they provided. There was certainly no fraud upon them.
[14] Mr. Sethi swears however, that in a subsequent conversation with the plaintiff, Mr. Sethi, “was told the Consent would be held by [the plaintiff] in escrow and would not be use it [sic] to obtain Judgment in the manner it was at the motion returnable on February 2, 2015.” There is no documentation of any request for an extension or further forbearance concerning the consent to judgment. There is no written indication of a meeting at which any further forbearance would be discussed or was discussed. Moreover, the plaintiff’s counsel gave notice to the defendants’ counsel in early December, 2014 that the plaintiff was moving to enforce the second mortgage on consent order at a motion returnable February 2, 2015. Counsel for the defendants made no complaint. Moreover, the Mr. Sethi did not call the plaintiff to complain or to question how the plaintiff could be using the consent that he allegedly agreed not to use.
[15] I note as well that the indication that the consent would continue to be held in escrow is inconsistent with an allegation that the consent was somehow discharged or invalid. There was some discussion in September, 2014 concerning the grant of further security by the defendants in return for a further adjournment of the receivership proceedings. Even if the defendants believed that the consent to judgment was included in that extension (which is denied by the plaintiff) that extension expired in late September, 2014. The receivership motion was heard on November 3, 2014. Justice Penny granted the receivership order as sought at that time. If there was some form of representation concerning a temporary forbearance, and there is no evidence that this is the case, the notice of motion provided to the defendants’ counsel in early December, 2014 gave two months’ notice of the return of the motion for consent judgment on February 2, 2014. That was more than ample notice to withdraw any estoppel.
[16] The defendants are apparently currently suing the lawyer who acted for them at the relevant time. He has provided an affidavit in relation to this proceeding. At paragraph 12 of his affidavit, counsel indicated that on August 6, 2014 he was not provided with the terms of the draft judgment. However, he does not make any reference to the fact that that it was provided to him by email dated July 18, 2014 during the weekend in which the terms of the urgent advance were agreed upon. Counsel also swears that upon being contacted by the plaintiff’s counsel in early December concerning the motion to enforce the consent judgment, he called Mr. Sethi, “regarding his previous advice to me that [the plaintiff] would not be proceeding on the consent.” He says that Mr. Sethi told him that he had made a “gentleman’s handshake” with the plaintiff. Yet neither of them wrote back to the plaintiff’s counsel or in any way raised this alleged agreement with the plaintiff.
[17] The defendants accept that as the moving parties they bear the burden of establishing that the consent judgment was obtained by fraud on the balance of probabilities. Finck v. Henry, 1999 CarswellOnt 2259. There is no enhanced burden in cases of fraud as compared to other common law causes of action.
[18] In all, I cannot find that the defendants have satisfied the burden of proving on balance that the plaintiff agreed to permanently refrain from enforcing the defendants’ consent. It is inconsistent with the terms of the parties’ agreement as set out in writing by counsel and signed by the parties. It is inconsistent with Mr. Sethi’s own evidence that despite the plaintiff’s agreement, he would continue to hold the consent “in escrow.” It is inconsistent with the temporary nature of all prior forbearance by the plaintiff. It is inconsistent with the plaintiff’s clear evidence and conduct. It is inconsistent with the defendants’ silence in face of the plaintiff’s actions. By November, 2014, the plaintiff had ran out of patience with the defendants continued promises of payment - as good faith as they may well have been. Having been given month after month after month to try to raise money, the defendants had no basis left to object.
[19] These parties documented their agreements through counsel. Something as significant as a change to the written terms of July 18, 2014 would have been in writing. Moreover, changes to written agreements should be in writing. Absent an agreement to permanently withhold the consent, the plaintiff was at liberty to rely upon it on notice as he did.
[20] The defendants also suggested that they might have a defence of commercial duress which, as a defence to a contract, could be a defence to the enforcement of a consent judgment. However, when faced with the government’s seizure of the hotel’s chattels nothing compelled the defendants to borrow a further $590,000 from the plaintiff or to consent to judgment in this matter. They could have thrown their keys on the table and allowed the creditors to realize on their security. If any equity remained, it would have been available to the corporate defendant. The defendants chose to try to continue to fight the good fight, and take on further debt and contractual terms to their prejudice rather than allowing a creditor enforcement. No doubt they feared that creditor enforcement might not yield the best recovery on the secured collateral. But this is a business choice made by sophisticated parties represented by counsel. The defendants provided no evidence to suggest that there was any pressure put upon them to borrow more and consent to judgment other than by their own sense of what was in their economic best interest at the time.
[21] Counsel for the defendants went further and submitted that the court should act so as to prevent a miscarriage of justice from being committed. I am unable to see how enforcement of mortgage debt that has long since matured can be so characterized. What is indeed unfortunate is that borrowers faced with the day of reckoning will make all manner of allegations against their lenders who, in this case in particular, came to their aid at some business risk. While, of course, lenders are compensated for the risk at agreed-upon rates, it is not fair game to deny one’s own agreements or to make allegations of fraud in court proceedings as tactics to try to minimize losses.
[22] In the circumstances, after hearing submissions, I granted an order for costs in favour of the plaintiff on a substantial indemnity basis in the amount of $51,500 all-in both because the mortgage provides for it, and due to the unsubstantiated nature of the serious allegations made by the defendants.
Result
[23] As indicated the handwritten endorsement, the motion is dismissed. Accordingly, the stay of the consent judgment dated February 2 and the corresponding writ of possession are lifted. Both are fully enforceable at this time.
F.L. Myers, J.
DATE: August 5, 2015
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
OWEN ROGERS, TRUSTEE
Plaintiff
- and -
PRIYANCE HOSPITLAITY INC., HARPREET SINGH SETHI and JASWINDER KAUR SETHI.
Defendants
REASONS FOR DECISION
F.L. MYERS J.
Released: August 5, 2015