CITATION: 1056949 Ontario v. City View Platers, 2016 ONSC 269
COURT FILE NO.: CV-09-4992-SR
DATE: 2016 01 29
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1056949 ONTARIO LTD. v. CITY VIEW PLATERS INC. AND CVPI HOLDINGS INC.
BEFORE: EMERY J.
COUNSEL: S. Werbowyj, for the Plaintiff
J. Kulathungam, for the added party on motion, Kamal Bharadwaj
S. Rasul, for the Corporate Defendants (moving parties)
HEARD: September 4 and October 9, 2015
REASONS FOR DECISION
[1] The plaintiff 1056949 Ontario Ltd. (“1056949”) obtained default judgment against each of the defendant corporations for $1,251,182.96 plus costs in the amount of $1,166.75 in this action on December 2, 2009. In another action commenced by the plaintiff against the defendant corporations in Court File No. CV-11-669, the plaintiff obtained default judgment on April 6, 2011 in the amount of $275,834.77 and $1,274.20 for costs.
[2] The defendant corporations bring this motion to set aside both default judgments under Rule 19.08. The motion was argued by Mr. Saeid Rasul, a shareholder and director of each defendant corporation. Mr. Rasul brought this motion on behalf of the defendant corporations pursuant to leave granted by Justice Price on January 23, 2014.
[3] The history of the motion since it was first brought in March of 2012 is particularly relevant to the application of the test to set aside the default judgments. It has taken over three years since the motion for this relief was first brought to have it heard. It’s complicated and it will soon become apparent that the applicable test to set aside a default judgement in this motion must also take into account terms set by the court from time to time since the motion was first brought.
BACKGROUND
Nature of the Plaintiff’s Claims
[4] Saied Rasul and Kamal Bharadwaj each hold 50 percent of the common shares in both City View Platers Inc. and CVPI Holdings Inc. Mr. Rasul and Mr. Bharadwaj were also the officers and directors of each corporation until March 5, 2012. Since that date, Mr. Rasul has been the only officer and director of those corporations.
[5] On January 1, 2006, City View Platers Inc. and CVPI Holdings Inc. entered into a written lease with 1056949, which owned lands and premises at 121 City View Drive in Toronto. 121 City View Drive consists of a building having an area of 12,877 square feet. Pursuant to this written lease, City View Platers Inc. and CVPI Holdings Inc. agreed as the tenants to lease the premises from 1056949, and to pay rent for a five-year term pursuant to a rent schedule commencing on January 1, 2006 and ending on December 31, 2010 on a monthly basis, plus GST.
[6] There were three material terms of the written lease that I find significant:
In paragraph 1(1), the tenants would pay the rent on the days and times and in the manner mentioned by post-dated cheques for the first year’s rent, delivered to the landlord at the commencement of the term and for subsequent years one month prior to each anniversary date;
In paragraph 1(7), the tenants were to indemnify the landlord against all actions, suits, claims, damages, costs and liability arising out of any breach, violation or non-performance of the tenants under the lease, damages to property occasioned by the tenants’ use of the premises, injury to or death of any person resulting from the tenants’ use of the premises, and at the expiration of the term to peaceably surrender and yield up to the landlord the premises in good and substantial repair and condition;
In paragraph 1(13), the tenants would, during the whole of the term, maintain third party liability insurance of at least $2,000,000 to insure and to keep insured at the tenants’ expense all buildings on the premises under a policy in the names of the landlord and the tenants. This insurance would provide coverage for the full replacement costs against loss or damage by fire and other damages as are customarily covered with respect to buildings similar in construction, general location, use and occupancy. The tenants were to deliver all policies of insurance or certificates thereof to the landlord, together with evidence of payment of premiums, as soon as those premiums were payable.
[7] The lease also provided that if the tenants failed to insure the premises as required by the lease, the landlord had the right to arrange insurance and charge the cost as additional rent payable on demand.
[8] The officers and directors of the landlord 1056949 are Shiv Datt Bharadwaj and Raj Kumari Bharadwaj, who are also its shareholders. They are also the parents of Kamal Bharadwaj.
[9] The defendant corporations were in the business of electroplating goods and materials. This process involved the industrial application of chemicals to the surface of certain products.
[10] In late December 2007, the tenants’ business equipment and the landlord’s premises were damaged and destroyed in part by fire. Another fire swept through the premises on December 27, 2008. The defendant corporations suffered a total loss of equipment during these fires that deprived them of the ability to carry on business.
[11] It is conceded as a fact that the defendant corporations had ceased paying rent to 1056949 by mid-2008.
[12] Mr. Rasul completed a proof of claim form in the amount of $2,125,000 for the loss allegedly suffered by the defendant corporations, and submitted the claim to the insurance company from which the tenants had purchased an insurance policy.
Events after the Action is Commenced
[13] 1056949 commenced this action against City View Platers Inc., and CVPI Holdings Inc., on November 3, 2009. In the statement of claim, 1056949 claimed that $1,250,737.50 for arrears of rent and for damages to the premises under the lease was owed by the defendant corporations up to August 30, 2009.
[14] The plaintiff itemized its claim for amounts owed by the defendant corporations under various parts of the lease in paragraph 7 of the statement of claim. The amounts claimed in this action against the defendant corporations include arrears in rent, and damages for other breaches of the written lease such as damage caused to, and failure to repair dsthe premises while the defendant corporations were in possession.
[15] The plaintiff took default judgment against the defendant corporations after noting them in default on December 2, 2009 for failure to serve a statement of defence. The default judgment ordered the defendant corporations to pay the plaintiff the sum of $1,251,181.96 and the sum of $1,166.75 for the costs of the action.
[16] The plaintiff commenced a second action against City View Platers Inc., and CVPI Holdings Inc., under court file number CV-11-0669-00 on February 15, 2011. In the statement of claim, the plaintiff claimed the sum of $273,071.81 for arrears of rent and damages for breach of lease owing by the defendants to December 31, 2010. The plaintiff itemized its claim in this action for amounts owed by the defendant corporations under various parts of the lease in paragraph 7 of the statement of claim.
[17] The plaintiffs took default judgment against the defendant corporations in the action commenced under court file number CV-11-669-00 on April 6, 2011. Under the default judgment, the defendants were ordered to pay the plaintiff the sum of $273,834.74 and the sum of $1,274.20 for the costs of the action.
[18] It is clear from the affidavits of service filed with the court that the statement of claim in each action was served on Kamal Bharadwaj, as president of each defendant corporation.
[19] On the evidence given by Mr. Rasul and as conceded by Mr. Kulathungam, counsel for Mr. Bharadwaj, it would appear that Mr. Bharadwaj never told Mr. Rasul about the service of each statement of claim.
[20] After the fires occurred in each of December 2007 and December 2008, the defendants instructed their corporate lawyer, Joel Levitt, to commence legal proceedings against the defendant’s insurer. Mr. Levitt commenced the action against the insurer under court file No. 9754/09 in Milton on December 23, 2009 (the “insurance action”). I will be describing the claim made by the defendant corporations in the insurance action and the positions allegedly taken by the corporations and 1056949 as they relate to their obligations under the written lease at the time the insurance action was settled as Mr. Rasul argues those events are relevant to the motion.
[21] On August 26, 2010, Mr. Bharadwaj and Mr. Rasul met with Mr. Levitt to prepare for settlement negotiations with the insurer. At that time, Mr. Bharadwaj and Mr. Rasul advised Mr. Levitt that the corporations owed approximately $60,000 to Canada Revenue Agency, and that the Business Development Bank and Royal Bank of Canada had each commenced legal proceedings against the corporations for money owing. They advised Mr. Levitt that the corporations had been served with Notices of Garnishment naming the insurer as garnishee. The Notices of Garnishment showed $276,886.33 owing to BDC, and $174,667.41 owing to Royal Bank of Canada.
[22] Mr. Rasul has deposed in his affidavit sworn on March 28, 2012, that the following sequence of events took place with respect to a purported settlement of the landlord’s claim against the defendant corporations for amounts owing under the lease for $350,000:
Mr. Levitt asked whether the Landlord was owed any monies in respect of its lease with the Tenants and whether it had sued the Tenants. In response, KB advised that the Landlord had not sued the Tenants and that he had come to an agreement with his parents that from in or about the middle of 2008 until such time as the Tenants began again to operate, the Landlord would not require the payment of rent, and that all that they were seeking at that time was payment of back realty taxes owing to date of the first fire which were in the approximate amount of $250,000.00, plus the cost of clean up of the facility which they were estimating at about $100,000.00. KB’s advice to Mr. Levitt was consistent with what he had already told me somewhat earlier. I had no reason to doubt the veracity of KB’s advice to me at the time.
The August 26th meeting did not result in a settlement, with the result that negotiations continued and on or about October 26, 2010 the insurer forwarded a formal offer to settle to our lawyer.
After receiving a formal offer to settle from the insurer, I began to press KB to secure a settlement with the Landlord (i.e. his parents) with respect to its claims against the Tenants. Shortly thereafter, KB advised me that the Landlord had agreed to settle its claims against the Tenants for the sum of $350,000.00 to be paid from the insurance proceeds expected to be recovered. I prepared a document that was meant to document the settlement reached between the Tenants and the Landlord. Attached hereto and marked as Exhibit “K” to this my affidavit is a copy of that document. I called it a promissory note but the intention was that it reflect the settlement reached. I signed on behalf of CVPI and KB signed on behalf of the Landlord. KB had always said that he had authority to sign on behalf of the Landlord and did so (on the original lease dated January 1, 2005). (Attached hereto and marked as Exhibit “L” to this my affidavit is a copy of that earlier lease.)
On November 18, 2010, I met with Mr. Levitt, who was then formulating a methodology to convince the insurer to increase its offer. During that meeting, I advised Mr. Levitt that a formal agreement had been reached between the Tenants and the Landlord to resolve all matters between them on payment of $350,000.00 to the Landlord from the insurance proceeds expected to be recovered. I did not have the “promissory note” document with me that day for Mr. Levitt to review.
[23] The substantive parts of the promissory note to which Mr. Rasul referred in the above paragraphs of his affidavit read as follows:
November 17, 2010
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, City View Platers Inc., whose address is 121 City View Drive, Etobicoke, registered to do business in Ontario, whose principal place of business is 121 City View Drive, Etobicoke, by and through their Directors, Saeid Rasul and Kamal Bharadwaj, promise to pay 1056949 Ontario Limited, the sum of Three Hundred and fifty thousand dollars ($350,000). This Note shall be paid in full without penalty.
City View Platers Inc. agree and acknowledge that Kamal Bharadwaj is an authorized agent of 1056949 Ontario Ltd., and that he has full power and authority to bind the corporations to the terms of the Promissory Note. Furthermore, City View Platers Inc. acknowledges that the execution of the Promissory Note is pursuant to the legitimate business purposes of the corporations.
This note shall be construed and enforced according to the laws of the Province of Ontario.
[24] The promissory note was signed by Mr. Rasul on behalf of City View Platers Inc., and by Mr. Kamal Bharadwaj as agent for 1056949 Ontario Ltd.
[25] The insurance action of the corporations against their insurer was settled at mediation on January 27, 2012. The minutes provided for a total settlement of $2,125,000, including $250,000 that had already been advanced. The remaining $1,875,000 would be paid in two instalments, with $500,000 payable by February 3, 2012, and the balance of $1,375,000 payable within 45 days. The minutes of settlement provided that the second installment would be subject to deductions for the garnishments of BDC and Royal Bank of Canada, and the indebtedness of the corporations to Canada Revenue Agency.
[26] In the course of drafting the Minutes of Settlement, Mr. Bharadwaj and Mr. Rasul advised Mr. Levitt about the promissory note to evidence the intentions of the corporations to pay $350,000 to 1056949.
[27] In the course of the settlement negotiations, counsel for the insurer advised counsel for the corporations that the insurer required that 1056949 as the landlord execute the release in favour of the insurer as a condition of the settlement.
[28] According to Mr. Rasul, Mr. Kamal Bharadwaj informed him that his parents were content to receive the $350,000 out of the first instalment the insurer was to pay towards the settlement. Mr. Bharadwaj and Mr. Rasul were to divide the remaining $150,000 between them. Mr. Rasul also deposes that he was to receive more than Mr. Bharadwaj from the $150,000 balance to reflect the difference in cash contributions they had made to the corporations. Mr. Rasul stated that he made cash contributions totaling $132,000 to the defendant corporations.
[29] Mr. Rasul was not involved in the arrangements for the insurer to pay $350,000 to 1056949 from the insurance proceeds. The corporation’s solicitor, Mr. Levitt made those arrangements. Further to receipt of that payment, Raj Bharadwaj, as an officer or director of 1056949, signed an acknowledgement of receipt to Mr. Levitt’s firm. This acknowledgment reflected the receipt of $350,000 as “now paid to the undersigned in relation to a lease between the undersigned as landlord and the above named corporations of tenants of 121 City View Drive, dated January 1, 2006.”
[30] Further to the terms of settlement with the insurer, Raj Bharadwaj and Shiv Datt Bharadwaj signed a final release, indemnity and direction as the officers of 1056949 in favour of the insurers on February 22, 2012. This final release contains the following clause:
Notwithstanding any provision to the contrary as contained herein, this release shall not operate to affect any claim which the releaser may have as against City View Platers Inc., and CVPI Holdings Inc.
[31] In order to obtain a $75,000 payment from the $500,000 advanced as the first installment under the insurance settlement, Kamal Bharadwaj and his wife, Preeya Handa gave a written indemnity to Mr. Rasul on February 23, 2012. Mr. Rasul required a written indemnity from them to protect himself in the event that the landlord made a claim against him as a director and a shareholder of the corporations for permitting this payment from the insurance proceeds. This indemnity read, in part:
“And whereas the corporations have agreed to pay the sum of $350,000 to 1056949 Ontario Inc. “the landlord”, in respect of monies owing under a lease between the landlord and the corporations dated January 1, 2006, with respect to premises municipality known as 121 City View Drive;
And whereas the landlord is a corporation controlled by the parents of Kamal Bharadwaj, and the landlord has refused to provide the corporations with an acknowledgment that the sum stated above is being accepted in full satisfaction of amounts due to it under the said lease;
And whereas Saied Rasul, being a director of and shareholder of the corporations unrelated to the landlord requires some form of protection against any further action by the landlord as against him;
Now therefore in exchange for good and valuable consideration including the settlement of the corporation’s claims against its insurer and the benefits that will therefore flow to Kamal Bharadwaj and Preeya Handa as a result thereof, Kamal Bharadwaj and Preeya Handa do therefore covenant, promise and agree to indemnify and save harmless Saied Rasul against and from all claims, demands, losses, damages, costs and expenses which Saied Rasul may sustain, incur or become liable to as a result of any action or demand made upon him by the landlord.”
[32] Mr. Levitt ultimately released $350,000 to the plaintiff, and $75,000 to Kamal Bharadwaj from the insurance proceeds.
[33] Mr. Rasul has given evidence that the plaintiff served a Notice of Garnishment on the insurer after the proceeds from the first installment under the settlement had been distributed. The Notice of Garnishment was Mr. Rasul’s first indication that the plaintiff had brought legal proceedings against the defendant corporations. Mr. Rasul subsequently obtained a copy of the statement of claim, default judgment, and affidavit of service in each action from the court office in Brampton.
[34] Mr. Rasul retained a lawyer, Garth Low, to prepare a draft statement of defence to each action on behalf of the defendant corporations. The draft statement of defence in this action is attached to the motion materials and essentially pleads three defences. The first defence is that the settlement of $350,000 purportedly reached between Kamal Bharadwaj as agent for the plaintiff and Mr. Rasul on behalf of the defendant corporations is a complete defence to the action. This is a defence based either on estoppel, waiver or satisfaction and accord. The second defence is that the defendant corporations deny that they are liable to the plaintiffs for the indebtedness or damages alleged in the statement of claim. The third defence is that the defendant corporations deny they failed to maintain the roof and office of the building as required by the lease, and that they deny the allegation that they failed to remove the damaged equipment from the premises. There was evidence from Mr. Rasul that damage to the premises was caused by a previous tenant. There is other evidence, including not limited to the insurance claim itself, that the damage occurred during the fires of 2007 and 2008.
[35] The statement of defence in the action commenced in court file number CV-11-0669-00 was also attached to the motion materials. That statement of defense raises only the defence based on the alleged agreement surrounding the payment of $350,000 from the insurance proceeds to the plaintiff.
[36] Mr. Rasul instructed Mr. Low to bring a motion on behalf of the defendant corporations to set aside the default judgments in early 2012. The motion was first returnable before this court on April 12, 2012. Mr. Rasul and Mr. Levitt each swore an affidavit in support of the motion.
[37] The plaintiff filed an affidavit sworn by Raj Bharadwaj on April 16, 2012 in response to the motion. Raj Bharadwaj, also known as Rose Bharadwaj, is the mother of Kamal Bharadwaj and an officer of the plaintiff.
[38] On April 25, 2012, all of the parties, represented by counsel, gave their consent to an order that:
a) The defendant’s motion and a cross-motion brought by Kamal Bharadwaj seeking intervener status and a preservation order was adjourned to a two hour special appointment;
b) That the insurance settlement proceeds of the defendants currently held by Borden Ladner Gervais and/or Joel Levitt be paid out in accordance with that consent, including a payment of $75,000 to Mr. Rasul upon satisfying certain conditions. The consent provided that the remaining settlement funds held by BLG and/or Fryer Levitt be paid into court to the credit of this action (in court file No. CV-09-4992-SR) and paid out only upon further order of the court.
[39] After those payments specified in the consent of April 25, 2012 were made, the balance of $607,886.45 was paid to the Accountant for the (Ontario) Superior Court of Justice to the credit of this action.
[40] In or around November 2013, Mr. Rasul changed counsel from Mr. Low to Shana Dale of the firm Dale Streiman and Kurz LLP to represent the defendant corporations.
[41] On November 14, 2013, the defendant’s motion was heard by Justice Donohue in Brampton. The operative parts of Justice Donohue’s endorsement states that the parties have agreed that the motion should be split and heard, with facta, in two parts. The first motion would determine whether Mr. Rasul can bring a derivative action. The second motion would concern whether the default judgments should be set aside.
[42] Justice Donohue stated in her endorsement that on consent, the issue regarding the motion to set aside the default judgments was adjourned sine die. Her Honour’s order required that the second motion be brought back by the moving party within 60 days of the disposition of the first motion, failing which it is considered dismissed. The parties could then make submissions on costs and regarding the funds in court.
[43] Justice Donohue further ordered that the first motion would be heard on Thursday, January 23, 2014, and set out a timetable for the parties to exchange and file materials.
[44] The first motion came before Justice Price on January 23, 2014. For the reasons set out in his endorsement, Justice Price granted the following orders:
1.THIS COURT ORDERS that Saeid Rasul, officer and director of the Defendants, be permitted pursuant to section 246(1) of the Ontario Business Corporations Act and/or under the court’s inherent jurisdiction, to bring a motion to set aside the default judgments and any enforcement measures taken in relation to the judgments obtained in court file numbers CV-09-4992-00 SR, dated December 2, 2009, and CV-11-0669-00 dated April 6, 2011, in favour of the Plaintiff 1056949 Ontario Ltd against the Defendant Corporations.
2.THIS COURT ORDERS that Saeid Rasul, director and officer of the Defendants be permitted to bring a motion for an Order:
a. Setting aside the default judgment dated December 2, 2009 in favour of the Plaintiff, in the sum of $1,251,182.96 in the action number CV-09-4992-SR; and,
b. An Order setting aside the default judgment dated April 6, 2011 in favour of the Plaintiff, in the sum of $273,834.77 in the action number CV-11-0669-00; and,
c. An Order setting aside and/or staying any enforcement pursuant to the default judgments mentioned above.
[45] Ms. Dale subsequently appeared before Justice Lemon on March 21, 2014, being a date within 60 days of the order for leave granted by Justice Price. Justice Lemon made an order on that occasion to extend the time to bring the second motion. Justice Lemon ordered all counsel to arrange a conference call with his offices during the week of March 31, 2014 to fix a date for argument of that motion.
[46] On April 4, 2014 counsel appeared before Justice Price further to his endorsement made on January 23, 2014. Justice Price made an order to allow Kamal Bharadwaj to make submissions on the second motion. This was the relief Mr. Bharadwaj sought on his cross-claim.
[47] On the motion before Justice Price, Mr. Bharadwaj relied on an affidavit in which he explained why he did not make Mr. Rasul aware of the claims in the landlord actions at paragraph 6:
- The reason why I did not make Mr. Rasul aware of the claims of the Landlord’s okay actions is because I have known Mr. Rasul to take positions, in other matters in the past, which are untenable in law which only serves to increase costs. There is and was no defence to the Landlord’s action. I did not want Mr. Rasul to waste the corporate assets on a defence that was doomed to fail.
[48] In response to the evidence given by Mr. Rasul and Mr. Levitt in support of the defendants’ motion to set aside both default judgments returnable in 2012, Mr. Bharadwaj gave further evidence in his affidavit that:
- Given the time constraints that I am currently facing, I have not been able to thoroughly review the Affidavit of Mr. Rasul and respond to each and every allegation. However, I can state the following:
(a) At no time, did I ever take the position or advise Mr. Rasul or Mr. Levitt that I was acting as the agent for the Landlord.
(b) I never had the authority to act as the agent for the Landlord; and
(c) I did not sign any documents as agent for the Landlord.
I am not an officer, director, shareholder, employee or agent of the Landlord. I do not have authority to bind the Landlord and I have never had such authority. At no time, did the Landlord give me any such authority either directly or indirectly. At no time did I represent that I had such authority.
Accordingly, I could not have entered into any agreement to bind the Landlord whether it was with the Defendants herein or otherwise. In any event, I never entered into any such agreements and could not do so since I do not have any authority to bind the Landlord.
I specifically deny the allegation in paragraph 20 of Mr. Levitt’s affidavit. At no time, had I come to an agreement with the Landlord in or about the middle of 2008. At no time did I advise Mr. Levitt that I had come to any such agreement.
With respect to paragraph 38 of Mr. Levitt’s affidavit, I did not sign the “promissory note” dated November 17, 2010 stating, inter alia, that I am an “authorized agent of 1056949 Ontario Ltd.
[49] The affidavit of Kamal Bharadwaj in the Motion Record containing his cross-motion for leave to intervene was part of the materials before me on the motion of the defendant corporations to set aside the default judgments.
[50] A telephone conference was arranged by counsel for April 2, 2014. This conference call was adjourned to April 14, 2014 at 1:30 p.m. to speak to arranging a motions date. On April 14, 2014, Justice Lemon convened the second conference call, as scheduled. His Honour’s endorsement indicates that it appeared counsel could not agree on what remained to be done before argument of the motion. Justice Lemon further observed that it appeared counsel had not been working together to move the matter forward. His Honour stated that he was not prepared to reward that conduct with a date in his schedule. Justice Lemon concluded his endorsement with the words “counsel are free to bring the motions that they think appropriate.”
[51] There was no evidence before me that Mr. Rasul or the defendant corporations brought a further motion, or took any steps between April 14, 2014 and July 9, 2015 to schedule a hearing date. On July 9, 2015, the plaintiff brought a motion in this action for an order that the $607,886.45 paid into court on April 26, 2012 be paid out to the plaintiff 1056949 by the Accountant of the (Ontario) Superior Court of Justice. After hearing submissions of counsel for the plaintiff and reading the affidavit of Raj (Rose) Bharadwaj sworn on June 16, 2015, and upon hearing Mr. Rasul appearing in person, Justice Lemon ordered the Accountant to pay those funds out to the plaintiff, plus accrued interest.
[52] It was only after Justice Lemon made the order made on July 9, 2015 that Mr. Rasul served the motion record containing a notice of motion returnable in August 7, 2015 that is now before the court. That motion requested an order setting aside both default judgments, any and all notices of garnishment, and to stay any enforcement measures along with other relief.
[53] The motion also requested orders dismissing the default judgment (a remedy that was not explained on the motion), and an order reversing the court’s decision on July 9, 2015. The motion also requested the court’s permission to sue Kamal Bharadwaj for breach of his fiduciary duties and his wife Preeya Bharadwaj, to whom he directed funds. Those orders were not argued on the motion I heard on October 9, 2015. Therefore, I have only considered the motion to set aside one or both default judgments against the defendant corporations in these reasons as the only relief argued at the motion.
[54] I have no evidence before me, and I heard no submissions that the defendant corporations have ever appealed Justice Lemon’s order made on July 9, 2016.
Position of the Defendants/Moving Parties
[55] Mr. Rasul takes the position that he was not notified by Mr. Bharadwaj when each statement of claim was served upon the defendant corporations. He argues that he caused the defendant corporations to bring a motion without delay upon learning of the default judgments. In the material filed on the motion, he explains why each action was not defended in time.
[56] Mr. Rasul takes the position that Mr. Bharadwaj represented that he had authority to bind his parents’ company. He states that Mr. Bharadwaj was exercising this authority when he represented that an agreement had been reached in February 2012 that the landlord would accept $350,000 in full satisfaction of all claims it may have had against either defendant under the lease. Mr. Rasul also takes the position that he filed the proof of loss claim with the insurer after the fire in December 2008 and that the insurance proceeds were properly payable to the defendant corporations. Mr. Rasul asserts these facts on behalf of the defendant corporations to argue they have a triable defence on the merits.
[57] Mr. Rasul takes the position that he has complied with Justice Donohue’s order dated November 14, 2013. He obtained leave from Justice Price on January 23, 2014 to bring this motion on behalf of the defendant corporations, and he coordinated the appearance on March 21, 2014 before Justice Lemon within 60 days of obtaining that order from Justice Price to obtain an order to extend the time to bring the motion to set aside the default judgments.
[58] Mr. Rasul therefore considers himself and the defendant corporations to have satisfied the test under Rule 19.08 to set aside the default judgments obtained by the plaintiff.
Position of the Parties Responding
[59] The plaintiff takes the position that the motion should be dismissed for delay. After Justice Lemon would not schedule a hearing date for the defendant corporation’s motion on April 14, 2014 and expressly left it open for any party to bring motions, Mr. Rasul and the defendant corporations took no further steps to obtain a hearing date. Mr. Rasul did not serve a notice of return of motion or bring a further motion to resurrect the motion he had brought to set aside the default judgments until after the plaintiff obtained the order for payment out of court on July 9, 2015.
[60] The plaintiff also takes the position that the defendant corporations have not complied with the order made by Justice Donohue. The plaintiff maintains that the motion was not set down for hearing within 60 days after Justice Price granted leave on January 23, 2014 or within a reasonable time after the time period was extended. The plaintiff argues that the motion is therefore to be considered dismissed by operation of Justice Donohue’s order dated November 14, 2013. In any event, the plaintiff takes the position that the defendant corporations have not met the test under Rule 19.08 to set aside the default judgments, and the motion cannot otherwise be saved.
[61] The plaintiff submits that the defendants have no defence on the merits to the claims made in either action. The plaintiff relies upon the evidence given by Kamal Bharadwaj, the cross-examination of Joel Levitt and Mr. Rasul, as well as the language of the documents executed at the time of the insurance settlement. The plaintiff argues that these documents contain no language about the settlement of all claims as between the plaintiff as landlord and the defendant corporations as the tenants for $350,000.
[62] Counsel for Kamal Bharadwaj agrees with those positions taken by the plaintiff.
ANALYSIS
[63] The authority to set aside a default judgment is found in Rule 19.08(1), which reads as follows:
19.08 (1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rule 19.04 may be set aside or varied by the court on such terms as are just. R.R.O. 1990, Reg. 194, r. 19.08 (1).
[64] In days gone by, the court would apply the same three factors to set aside a default judgment found in cases such as Nu-Fish Import Export Ltd. v. Sunsea Import Export Ltd., 1997 12270 (ONSC), to which the parties made reference on the motion. These factors required evidence to address the presence or absence of delay in bringing the motion after learning of the default judgment, whether the circumstances giving rise to the default were adequately explained, and if there was a triable defence to the claim on the merits.
[65] The factors for the court to consider have been expanded over the recent past. The development of the law is captured in paragraphs 47, 48 and 49 of the decision of the Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194:
[47] The court’s ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order. The approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, 2012 ONSC 3836, at paras. 19-20 and 23-24.
[48] The court must consider the following three factors:
(a) whether the motion was brought promptly after the defendant learned of the default judgment;
(b) whether there is a plausible excuse or explanation for the defendant’s default in complying with the Rules; and
(c) whether the facts establish that the defendant has an arguable defence on the merits.
[49] To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. 2007 ONCA 333, 87 O.R. (3d) 479 (C.A.), at para. 2:
(d) the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the respondent should the motion be allowed; and
(e) the effect of any order the court might make on the overall integrity of the administration of justice.
[66] The Court of Appeal reaffirmed these factors in Intact Insurance Company v. Kisel, 2015 ONCA 205, adding that:
[14] ... Again, these factors are not rigid rules. The court has to decide whether, in the particular circumstances of the case, it is just to relieve a defendant from the consequences of default: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 372 D.L.R. (4th) 526, at paras. 48-50.
[67] In 122164 Canada Limited (New York Fries) v C.M. Takacs Holding Corporation, 2015 ONSC 3007, Justice Perell provided further guidance with the following:
[4] ... Standing alone, either the absence of prejudice or a reasonable explanation for not delivering a defence may justify setting aside a noting of default or a default judgment: Intact Insurance Company v. Kisel, supra.
[68] The most efficient way to determine the outcome of this motion is to consider the evidence filed and arguments made in relation to the factors set out in the current authorities, along with the requirements of Justice Donohue’s order. I propose to do this within the structure of the factors set out in Mountain View Farms Ltd. v. McQueen.
- Whether the Motion was Brought Promptly
[69] I accept the evidence of Mr. Rasul that Mr. Bharadwaj did not inform Mr. Rasul when he was served with each statement of claim on behalf of the defendant corporations. Mr. Bharadwaj has as much as conceded this fact. I further accept Mr. Rasul’s evidence that he only learned of the default judgments when he was informed that the insurer had been served with a notice of garnishment after the first instalment of $500,000 had been received in 2012, with $350,000 going to the plaintiff.
[70] I further accept Mr. Rasul’s evidence that he retained Mr. Low to bring the first motion in 2012 after learning of the default judgments. He has satisfied me on the evidence that the motion was brought promptly.
[71] Mr. Rasul has also provided evidence that he acted expeditiously to comply with Justice Donohue’s order made on November 14, 2013. The motion required by that order was heard by Justice Price on January 23, 2014. Mr. Rasul then had 60 days to bring the motion back for the court to determine whether to set aside the default judgments.
[72] Section 246 provides that, subject to subsection (2), a complainant may apply to the court for leave to bring an action in the name and on behalf of the corporation, or to intervene in any action in which the corporation is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the body corporate. Although the order made by Justice Price did not refer to the term “derivative” or reflect that the conditions set out in subsection (2) had been met, his order states that the order is made under Section 246(1).
[73] I find that Section 246 allows a complainant to defend an action on behalf of a corporation. Although Mr. Rasul was not identified in the order as the “complainant”, for the purposes of this motion I am prepared to accept that Justice Price considered Mr. Rasul to be a complainant for the purpose of obtaining leave to bring or continue the motions to set aside the default judgments.
[74] On March 21, 2014, Justice Lemon granted an order extending the time prescribed by Justice Donohue’s order in November 2013 to set the motion down for hearing. However, as the time for bringing back the motion required by Justice Donohue’s order was extended to no fixed date, I draw the inference that Justice Lemon intended for the motion to be scheduled for hearing before him. When Justice Lemon could not or would not provide a hearing date for the motion, Mr. Rasul resumed the obligation of the moving party to bring the motion promptly.
[75] I am of the view that it was Mr. Rasul’s duty to the defendant corporations, once he had been empowered by the leave granted by Justice Price to continue that motion, to obtain a new hearing date within 60 days. This would be an appropriate measurement of what would be a reasonable time to set the motion down for hearing, consistent with the spirit of Justice Donohue’s order and the intent behind the first part of the test to set aside a default judgment.
[76] I therefore conclude that the defendant corporations have not brought this motion promptly in that they did not reinstate the motion after April 14, 2014 within a reasonable time. A motion must be brought to determine promptly to enable the plaintiff obtaining the judgment and the defendant seeking to set it aside to know the ultimate outcome of the motion as soon as reasonably possible. Any delay only creates or increases prejudice to the plaintiff who had obtained the order. If a corporate defendant sleeps on its rights, it is at risk of losing those rights.
- Is There a Plausible Excuse or Explanation for the Defendants Default?
[77] Mr. Rasul has explained why the defendant corporations did not file a statement of defence within 20 days after Mr. Bharadwaj was served with the statement of claim in each instance. However, he has not explained the delay in setting down the motion for hearing after Justice Lemon declined to set a motion date on April 14, 2014. Justice Lemon expressly gave the parties the opportunity to bring any motions they saw fit. Mr. Rasul knew that he could serve a notice of motion returnable on a specific day. He had served the initial notice of motion returnable on April 12, 2012. He subsequently served the final motion that was made returnable on August 7, 2015. Mr. Rasul also had the opportunity to call any of the lawyers who had previously represented him, or to retain new counsel to obtain a hearing date.
[78] The delay with moving the motion forward was acknowledged by Mr. Rasul himself on July 9, 2015 at the plaintiff’s motion for payment out of court. Mr. Rasul’s acknowledgement is reflected in Justice Lemon’s endorsement that reads:
Jul 09 2015: Mr. Rasul disputes the order requested. He has requested an (adjournment) but acknowledges that he has not moved forward with his motion to set aside the default judgement. On that basis he will likely be unsuccessful. If he wishes, he can still do so. Until that time, the funds should be paid out to the plaintiff. On consent, costs of today to be left to the judge hearing the default motion (noon) [sic] or as assessed. Mr. Rasul confirms that he will bring his motion to set aside his default judgement within a month. Approval waived. Lemon J.
[79] I am not satisfied on the evidence that Mr. Rasul took steps at any time after April 14, 2014 to have the motion determined within a reasonable period of time. There is no evidence to explain the delay to serve another motion or to take steps to bring the initial motion back for a hearing between April 14, 2014 and August 7, 2015.
- Whether There is an Arguable Defence on the Merits
[80] The defendant corporations rely on the defence that the landlord agreed to accept $350,000 in full and final settlement of all claims. In my view, the evidence filed on the motion does not support the defence of estoppel, waiver or of satisfaction and accord as a triable issue. There is no evidence of any agreement to this effect made between the landlord and either of the defendant corporations. Mr. Rasul describes how he was advised by Kamal Bharadwaj that he had the authority to act as agent for the landlord when this agreement was reached. However, Mr. Bharadwaj has sworn an affidavit denying that he made that agreement completely, or that he acted as agent for the plaintiff to enter an agreement of this nature.
[81] Even if there is an outward appearance of agency extended by Kamal Bharadwaj on behalf of the plaintiff, Mr. Rasul’s own evidence in his affidavit sworn on March 28, 2012 defines the time and purpose for the payment of $350,000 to the landlord. Mr. Rasul deposes that Mr. Bharadwaj told him that he had come to an agreement with his parents in or about the middle of 2008 that the landlord would not require the payment of rent “until such time as the tenants began again to operate”. Mr. Rasul alleges that “all that they were seeking at that time was payment of back realty taxes owing to the first date of the fire which were in the approximate amount of $250,000, plus the clean-up of the facility which they were estimating at about $100,000.” This evidence does not disclose that Mr. Rasul himself had come to an agreement on behalf of the defendant corporations with Mr. Bharadwaj as agent for his parents or the plaintiff corporation. In any event, there is no evidence of reliance by the defendant corporations on any statement made by Mr. Bharadwaj, which is an essential ingredient of any estoppel defence.
[82] Mr. Rasul’s evidence of the alleged representations made by the plaintiff as of mid-2008, in addition to being hearsay, is that all Mr. Bharadwaj’s parents “were seeking at that time” was the payment of back realty taxes and cleanup costs. There was no indication of what the defendant corporations would owe for arrears in rent or for damages to the premises under the written lease if the defendant corporations never operated again, or how the rent and realty taxes for which the defendant corporations were responsible under the lease would be paid going forward.
[83] The affidavits that Mr. Rasul has filed in support of the motion to set aside the default judgments have tied the insurance action and its subsequent settlement to the evidence under consideration for this motion. In my view, the claims made by the plaintiff against the defendant corporations in each action for which default judgment was granted were based on the rights and obligations of a commercial landlord and its tenants under a written lease. Those claims are separate and apart from any insurance claim made under insurance policy for fire damage, and the proceeds of any settlement under that policy. The distribution of any settlement where both are named as insured parties under a policy is a different matter to be determined between a commercial landlord and its tenants. In this case, the defendant corporations purchased a policy of insurance where they were required to name the landlord as an additional insured as a term of the lease.
[84] The language used in the promissory note dated November 17, 2010, given by the defendant corporations to the landlord, does not assist the defendant corporations. The promissory note does not contain any term to limit further claims the landlord may have had against the defendant corporations for the payment of $350,000. Therefore, the promissory note does not support any argument made on behalf of the defendant corporations based on the $350,000 payment.
[85] When the insurance claim was settled with the insurer, both defendant corporations were represented by counsel. Each counsel had a direct role in advising his or her client, and in negotiating and drafting the terms of the minutes of settlement. Nowhere in those minutes of settlement can there be found language limiting the landlord’s rights to claim over against the defendant corporations, or limiting its rights of recovery to $350,000.
[86] The insurer also required the plaintiff to sign a release. This release contained and inserted paragraph saving the rights of the landlord as against the defendant corporations that may not have been in the draft form provided by the insurer. However, upon receiving $350,000 from the insurance proceeds, Mr. Levitt obtained a written acknowledgment from the plaintiff that did not contain any language limiting its rights to pursue the defendant corporations under the lease.
[87] It would appear from the minutes of settlement, the promissory note and the acknowledgment that no agreement in writing was entered by or on behalf of the landlord and the defendant corporations to give effect to the assertion that Kamal Bharadwaj was acting as agent for the landlord, or that the landlord agreed to accept $350,000 in full satisfaction of all claims under the lease. I therefore find there to be no evidence that would support a finding of fact capable of raising a triable issue in this respect in either action.
- Potential Prejudice to Either Party
[88] The defendant corporations are no longer viable business entities. There is nothing but Mr. Rasul’s personal claim at stake, and he is not a party to this action. The defendant corporations would be entitled to a credit against the judgment debt for the $350,000 paid from the insurance proceeds in any event as it was characterized as a payment for back taxes and cleanup costs in mid-2008.
[89] The affidavit material does not refer to any claim the defendant corporations intend to make against the plaintiff if the default judgments are set aside. I further note that the draft statement of defense in each action does not assert a claim for set off, or include a counterclaim. Therefore, no prejudice has been shown on the motion material to either defendant corporation. If there was a claim to be made, it is the claim of the defendant corporation to make against the landlord: Foss v. Harbottle, (1843) 2 Hare 461, 67 E.R. 189; and, Rea v. Wildeboer, 2015 ONCA 373. This would require further leave under section 246 of the (Ontario) Business Corporations Act as it would be a claim for relief beyond the leave granted by Justice Price on January 23, 2014.
[90] The plaintiff has now obtained payment of the balance of the insurance proceeds out of court
[91] pursuant to Justice Lemon’s order on July 9, 2015. This payment out was permitted by an order of the court after waiting six-and-a-half years since the lease was first breached in 2008. This order for payment out of court was made over three years from the date Mr. Rasul first brought the motion on behalf of the defendant corporations to set aside the default judgments. I therefore conclude that it is the plaintiff who would suffer the prejudice if an order was granted setting the default judgments aside. This would have the effect of opening up litigation that Mr. Rasul has allowed to lay dormant since April 2014. The time has now passed for revisiting those claims.
- The Effect of Any Order on the Administration of Justice
[92] Mr. Rasul does not have an argument that the defendant corporations shall denied their day in court or an opportunity to have the case heard on the merits because of the passage of time. In addition to the delay for which he is responsible in setting down this motion, I have also considered the following factors:
a) Mr. Rasul has not given evidence that he has commenced any proceeding against either defendant corporation to obtain payment or compensation from them. He may find that if he brought any legal proceeding now that he may be faced with a limitation defence that would have to be adjudicated in that proceeding.
b) Mr. Rasul offered no evidence on the motion that he has brought an action against Mr. Bharadwaj or Ms. Handa under the indemnity agreement.
c) If Mr. Rasul were to succeed to having the default judgments set aside on behalf of the defendant corporations and then took steps to obtain relief against the defendant corporations, he would find himself in a conflict of interest.
[93] I have come to the conclusion that Mr. Rasul has an ulterior motive beyond his stated purpose of fulfilling his fiduciary duty to the defendant corporations to bring this motion. I draw an inference from the evidence that Mr. Rasul intends to make a counterclaim on behalf of the defendant corporations should he be successful in setting the default judgments aside. I therefore conclude that Mr. Rasul has a personal interest in this litigation that he has not expressly disclosed to the court.
[94] In view of all factors considered on the evidence filed, I find that it would be in the interests of justice to dismiss this motion. This finding stands in stark contrast to the injustice the plaintiff would suffer if the default judgments were set aside and the actions reopened. I also find that Mr. Rasul has not proceeded within the time limits prescribed by Justice Donohue’s order in November 2013, which resumed after the last conference call with Justice Lemon to discuss setting a hearing date on April 14, 2014. The motion was to be considered dismissed if Mr. Rasul did not meet the deadline set by that order. The dismissal of the motion would reflect the result contemplated under Justice Donohue’s order for unacceptable delay. The administration of justice is served when the stated consequence for non-compliance with an order of the court is enforced.
[95] The motion of City View Platers Inc. and CVPI Holdings Inc. to set aside the default judgment obtained by 1056949 in Court File No. CV-09-4992-00 SR dated December 2, 2009, and the default judgment obtained by 1056949 in CV-11-0669-00 dated April 6, 2011 is hereby dismissed.
[96] The plaintiff may file written submissions if costs are requested. Those written submissions shall be limited to 3 pages, not including a bill of costs or dockets, and supporting material for disbursements, and must be received by February 15, 2016. Mr. Kamal Bharadwaj may also file written submissions in this regard if he seeks costs. Mr. Rasul and the defendant corporations shall then have until February 29, 2016 to file responding submissions in writing, limited to the same length. All written submissions may be made to my judicial assistant, Mr. Christopher Charles, by fax to 905-456-4834.
Emery J
DATE: January 29, 2016
CITATION: 1056949 Ontario v. City View Platers, 2016 ONSC 269
COURT FILE NO.: CV-09-4992-SR
DATE: 2016 01 29
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1056949 ONTARIO LTD. v. CITY VIEW PLATERS INC. AND CVPI HOLDINGS INC.
COUNSEL: S. Werbowyj, for the Plaintiff
J. Kulathungam, for the added party on motion, Kamal Bharadwaj
S. Rasul, for the Corporate Defendants (moving parties)
REASONS FOR DECISION
EMERY J.
DATE: January 29, 2016