Court File and Parties

COURT FILE NO.: C-15-0001 DATE: 20160629 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

APEA INVESTMENT GROUP INC. Plaintiff – and – 917488 ONTARIO INC. Defendant

Counsel: Peter Diavolitsis, counsel for the Plaintiff. Laura Pinkerton, Agent for the Defendant.

HEARD: June 24, 2016

BEFORE: R. D. Gordon, R.S.J.

Overview

[1] Apea Investment Group Inc. is the mortgagee under a mortgage dated July 17, 2013 made between it and 917488 Ontario Inc. The mortgage was for the original sum of $1,155,000 plus interest at the rate of 10% per annum secured by the property known municipally as 1 Water Street, Gore Bay, Ontario. Monthly payments were to be $9,625. The maturity date is August 1, 2016.

[2] On April 1, 2015 the Defendant defaulted in payment and no payments have been made since. On March 3, 2016 the Plaintiff obtained default judgment for the balance owing and for possession of the mortgaged property. On April 8, 2016 a writ of possession issued. The Sheriff subsequently served the Defendant with a Notice to Vacate requiring the mortgaged property to be vacated by June 22, 2016.

[3] When the Defendant received the Notice to Vacate it undertook several steps in an effort to obtain relief. On June 8, 2016 it moved before Justice Cornell to have the Notice to Vacate set aside. That motion was dismissed. The Defendant filed an appeal of that decision in the Ontario Court of Appeal and moved before me to have Justice Cornell’s order stayed. On the initial return of that motion I indicated a preliminary concern that the appeal may have been filed in the wrong court. The Defendant subsequently filed a motion for leave to appeal the decision of Cornell J. to the Divisional Court returnable on July 8.

[4] The Defendant also moved promptly to set aside the default judgment upon which the Plaintiff acted in obtaining its writ of possession. That motion was before me today and heard in concert with the Defendant’s motion for a stay of the order of Justice Cornell pending disposition of the appeal therefrom (whether before the Ontario Court of Appeal or the Divisional Court).

The Defendant’s Motion to Set Aside Default Judgment

[5] Rule 19.08(1) of the Rules of Civil Procedure provides that judgment against a defendant who has been noted in default may be set aside or varied by the court on such terms as are just. As explained in Intact Insurance Co. v. Kisel, 2015 ONCA 205, 125 O.R. 365 (Ont. C.A.), on a motion to set aside default judgment, the court is to consider five factors:

(1) Whether the motion was brought promptly after the defendant learned of the default judgment. (2) Whether the defendant has a plausible explanation for the default. (3) Whether the defendant has an arguable defence on the merits. (4) The potential prejudice to the defendant should the motion be dismissed and the potential prejudice to the plaintiff should the motion be allowed; and (5) The effect of any order the court might make on the overall integrity of the administration of justice.

[6] These factors do not constitute rigid rules. Rather, on a motion to set aside default judgment, a court must decide whether, in the particular circumstances of the case, it is just to relieve a defendant from the consequences of default. My consideration of these factors is as follows.

[7] The Defendant has moved promptly to set aside default judgment.

[8] The Defendant’s explanation for the default is that it did not receive notice of the claim. The evidence indicates that after several attempts to serve the Statement of Claim personally on one of the directors or officers of the corporation (Mr. and Mrs. Pinkerton) it became apparent that they were evading service. The Claim was then served on the corporation by prepaid first class mail on October 20, 2015 at the same address as listed in these proceedings. The mail was not returned to the sender. This service was subsequently validated by court order. The lawyer acting for the Plaintiff has sworn in his affidavit that he had a telephone conversation with Mrs. Pinkerton in 2015 and that she was aware at that time that the action had been commenced. This statement was not denied by Mrs. Pinkerton. I have little difficulty concluding that this action had in fact come to the attention of the Defendant long before it was noted in default. There is no plausible explanation for being in default.

[9] The Defendant claims that it has two arguable grounds of defence to the claim. The first is that Mr. and Mrs. Pinkerton are in fact the first mortgagees of the property with priority to the claim of the Plaintiff due to: (a) a general security agreement entered into prior to the Plaintiff’s mortgage; (b) judgment for possession signed in their favour in June of 2015; and (c) unregistered transfers by which the Defendant purports to transfer the mortgaged property first to Mr. and Mrs. Pinkerton and then to a second corporation which they control. The second ground is that the Plaintiff’s mortgage is void ab initio for want of compliance with the Planning Act.

[10] It is not sufficient for the Defendant to merely state that it has a good defence on the merits. The Defendant must establish the nature of the defence and set forth facts which will enable the court to decide whether or not there is a meritorious defence to the action. See Royal Bank v. Cirillo, 1996 CarswellOnt 162 (Ont. Gen Div.) and Bayview Financial L.P. v. Spartan Collision Corp., 2007 CarswellOnt 2569 (Ont. S.C.J.).

[11] The argument of a prior encumbrance in favour of Mr. and Mrs. Pinkerton is without merit. Including the real property in a general security agreement and registering it under the provisions of the Personal Property Security Act is not notice to a subsequent mortgagee of the real property. The Defendant’s contention to the contrary is simply a misstatement of the law. The Plaintiff’s mortgage, obtained in return for funds advanced and properly registered under the Land Titles Act without notice of Mr. and Mrs. Pinkerton’s security interest has priority to the interests of Mr. and Mrs. Pinkerton. The judgment of O’Neill J. granting Mr. and Mrs. Pinkerton default judgment against the corporation for possession does nothing to change that. The unregistered transfers do nothing to change that. Any interest alleged by Mr. and Mrs. Pinkerton or any person or corporation attaining any interest from them is subject to the Plaintiff’s mortgage.

[12] With respect to the second ground, there has not been sufficient evidence put before me by the Defendant to determine whether or not there is a real Planning Act issue. The allegation seems to be that there is abutting real property owned by the Defendant that has not yet been entered into the Land Titles system and therefore has not yet received a Property Identifier Number (“PIN”) and was not included in the Plaintiff’s mortgage. However, the affidavit of Mrs. Pinkerton dated May 31, 2016 does not touch upon this issue. The factum filed by Mrs. Pinkerton does not address the issue. The document filed by Mrs. Pinkerton and referred to as “Affidavit of Service” dated June 21, 2016 contains several emails and letters referencing a breach of the Planning Act, but no evidence in support of the allegation. The document filed by Mrs. Pinkerton and referred to as “Affidavit of Service” dated June 15, 2016 contains a transcript of the motion heard by Justice O’Neill on June 12, 2015 at which he granted the Pinkertons judgment for possession. Although the issue of pinned and unpinned lands was discussed and identified by the Judge, Mrs. Pinkerton indicated that the issue would have no impact on his decision that day (transcript, page 43, line 22).

[13] I acknowledge that the potential prejudice to the Defendant is significant. If default judgment is not set aside the Plaintiff will continue with its enforcement. The Defendant will be forced from the property. The property will be sold and lost to the Defendant. The potential prejudice to the Plaintiff is also significant. There is no dispute by the Defendant that it was advanced over $1 million by the Plaintiff repayable with interest at 10 percent and there is now owing more than $1.25 million. There is no dispute that payments have been in arrears since April of 2015. If default judgment is set aside the matter is likely to take several months, if not years, to come to trial. All without the promise of payment of any sort and with the potential for the Plaintiff’s debt to outgrow the value of the mortgaged property.

[14] The Defendant admits the debt, has no good defence on the merits and has no intention of repaying. To set aside default judgment and force the Plaintiff to delay further in its enforcement would not reflect well on the administration of justice.

[15] When I consider all of these factors together I must decline the Defendant’s motion to set aside default judgment and the writ of possession subsequently obtained. I appreciate how difficult this will be for Mr. and Mrs. Pinkerton. I understand they have much invested in “Gordon’s Lodge” not just financially but emotionally as well. However, the property was offered up as security for a loan of more than a million dollars. There has been no payment on that loan for over a year. It is time to face the consequences of that default.

The Defendant’s Motion to Stay the Order of Justice Cornell

[16] On June 8, 2016 Justice Cornell declined to set aside the Notice to Vacate obtained by the Plaintiff. The Defendant has appealed the decision and seeks a stay of his order pending disposition of the appeal. Essentially, what is sought is a stay of the Notice to Vacate and the Writ of Possession upon which it is based.

[17] Rule 63.02 of the Rules of Civil Procedure provides for the stay of an interlocutory order on such terms as are just. The criteria for the granting of a stay have been identified as: (1) The appeal raises a serious question; (2) the Appellant will suffer irreparable harm if the stay is not granted; and (3) on a balance of convenience it would suffer greater harm if the stay is not granted than the respondent would suffer if the stay is granted. The three components of the test are interrelated and the overriding question is whether granting the stay is in the interests of justice. See Warren Woods Land Corp. v. 163891 Ontario Inc., 2012 ONCA 12.

[18] The test is very similar to that outlined above for setting aside default judgment. For the same reasons I have indicated above it is not appropriate to order a stay of Justice Cornell’s order.

Impact of the Motion by Mr. and Mrs. Pinkerton in Action C-3903-15

[19] Mr. and Mrs. Pinkerton have a judgment against the Defendant herein for $1,574,000 and for possession of the mortgaged property. The Defendant has signed a transfer of the property to them but the transfer has yet to be registered. They, in turn, have signed a transfer of the property to a new numbered company controlled by them. That transfer has yet to be registered.

[20] Mr. and Mrs. Pinkerton have sought leave to issue a writ of possession based upon their judgment against the Defendant. In accordance with my endorsement in Action C-3903-15 leave to obtain the writ of possession is denied. Accordingly, their motion has no impact on these proceedings.

Other

[21] There remains outstanding the Defendant’s motion for leave to appeal the decision of Justice Cornell which is returnable on July 8, 2016 and the appeal it has filed with the Ontario Court of Appeal. As those matters are not before me I am without jurisdiction to dispose of them.

Costs

[22] If the parties are unable to agree on costs they may make written submissions to me, not to exceed three pages (double-spaced) along with attachments, within 45 days of this decision.

R. D. GORDON, R.S.J. Released: June 29, 2016