Court File and Parties

COURT FILE NO.: CV-16-544475 DATE: 20160928 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sheldon Rakowsky and Sheldon Rakowsky Professional Corporation, Plaintiffs AND: Fazlollah Seyedali Lavasani, Defendant

BEFORE: Mr. Justice H.J. Wilton-Siegel

COUNSEL: Ian A. Cantor, for the Applicant/Defendant Michael A. Katzman, for the Respondents/Plaintiffs

HEARD: July 12, 2016

Endorsement

1The applicant, Fazlollah Seyedali Lavasani (the “applicant”), seeks an order setting aside the default judgment of Lederman J. dated April 21, 2016 (the “Order”) and any enforcement steps taken thereunder by the respondents, Sheldon Rakowsky (“Rakowsky”) and Sheldon Rakowsky Professional Corporation (collectively, the “respondents”). The applicant also seeks an order granting leave to deliver a statement of defence in that action within thirty days.

Background

2In February 2010, shortly after they emigrated from Iran, the applicant and his wife (“Manijeh”) acquired a condominium having the municipal address of 38 Avenue Road, Toronto, apartment 704 (the “Condo”). It was initially registered in Manijeh’s name but was transferred into the applicant’s name on September 23, 2011 for no consideration.

3As the applicant and his wife spent a considerable amount of time in Iran, the applicant granted a power of attorney dated August 26, 2010 (the “POA”) to his niece Sepideh Moazzani (“Sepideh”), a real estate agent in Toronto, to assist him in his affairs during his absences from Canada, including paying the expenses of the Condo. Manijeh also executed a power of attorney on the same terms in favour of Sepideh on November 15, 2010. The POA was registered in the Land Titles system and was used to transfer the title to the Condo from Manijeh to the applicant as described above.

4The applicant and his wife resided in Iran from September 2011 until January 2015 with short stretches of two to three months in Toronto in 2012, 2013, and 2014. Sepideh resided in the Condo throughout this period, apart from two occasions when the applicant and his wife lived there. On the third occasion on which they came to Toronto, the applicant and Manijeh stayed in a hotel while Sepideh remained in the Condo.

5In January 2015, the applicant and his wife returned to Canada and lived in the Condo for a longer stretch of time, until July 2015, with their then five-year old daughter who was enrolled in a local public school. They then returned to Iran. Manijeh and their daughter returned to Toronto from Iran in February 2016 and took up residence again in the Condo, at which time the daughter resumed attendance at the local public school. The applicant came later, but the timing of his arrival in Canada is not clear. They have resided in the Condo since, although the applicant has continued to spend time in Iran.

6In the applicant’s absence, using the POA, Sepideh executed a mortgage in favour of The Toronto-Dominion Bank (the “T-D”) in the principal amount of $573,750 on September 23, 2011. This mortgage replaced an earlier mortgage granted by the applicant to the Bank of Nova Scotia, apparently in connection with the purchase of the Condo. That mortgage was initially in the amount of $419,000 and was subsequently increased to $468,000. Using the POA, Sepideh later executed a further mortgage in favour of Computershare in the principal amount of $646,400 dated September 13, 2012 to replace the T-D mortgage (which apparently had a one-year term). The Computershare mortgage remains outstanding and is not at issue in this proceeding.

7More significantly, Sepideh also used the POA to obtain two further mortgage loans, from the respondents (the “Mortgages”). The Mortgages were registered on the title to the Condo. The first mortgage for $80,000 was advanced by the corporate respondent on or about August 28, 2013 and was subsequently refinanced in the amount of $161,500 on December 9, 2013. The second mortgage for $25,250 was advanced by Rakowsky on or about November 13, 2014. It was subsequently increased five times between February 27, 2015 and October 5, 2015 to reach $153,750.

8The Mortgages went into default in the autumn of 2015. Notices of default were sent by registered mail to the applicant and Sepideh at the Condo on or about November 19, 2015. Notices of sale were sent by registered mail to the same parties at the same address on November 30, 2015. This action on the mortgage debt was commenced by a statement of claim issued on January 14, 2016 (the “Statement of Claim”). The history of service of the Statement of Claim is described below.

9The applicant failed to file a statement of defence and was noted in default. The respondents moved for default judgment. A copy of the notice of motion was sent by regular mail to the attention of the applicant at the Condo address on March 21, 2016. The applicant did not appear on the hearing of the motion on April 21, 2016, at which time the Order was granted. On April 27, 2016, notices to vacate were served on Manijeh at the Condo. The applicant was in Iran at the time.

Preliminary Matter

10The applicant and Sepideh have testified under oath to entirely contradictory positions regarding the applicant’s knowledge, and authorization, of the Mortgages.

11In his affidavit dated May 20, 2016, the applicant says that, prior to delivery of the notices to vacate, he had never heard of the respondents, had no knowledge of the Mortgages, and had no notice of the respondents’ action or the enforcement steps described above. He also says that he did not receive any of the proceeds of the Mortgages.

12Sepideh is not a party to these proceedings. However, she was examined by the parties pursuant to Rule 39.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. In that examination, Sepideh testified that the applicant authorized her to obtain the Mortgages, although it is unclear whether he knew the identities of the lenders. Sepideh testified that she used the monies advanced under the Mortgages to pay expenses related to the Condo, including the debt service on all of the mortgages on the property, and to make other payments on behalf of the applicant on his oral directions. As discussed below, Sepideh received a copy of the Statement of Claim and of the notice of motion for the default judgment. She testified that the applicant and Manijeh were aware that she was having difficulty making the required payments in respect of the Condo, but that they did not know of the action or the enforcement proceedings. Sepideh says that she did not tell the applicant about the action because she thought the respondents would give her a little more time and would not enforce the Mortgages. She says that she intended to discuss it with the applicant when he came to Canada.

13Accordingly, both the applicant and Sepideh testified that the applicant was unaware of this action and the related enforcement proceedings. They differ on the more important issue of whether the applicant authorized the Mortgages. On this issue, it appears that at least one of the applicant and Sepideh is not telling the truth, although it is also possible that the truth lies somewhere in between and that each is providing less than a complete description of the relevant facts. It is not possible to make a determination on this issue based on the record before the Court. In view of the absence of any documentation regarding the applicant’s involvement in Sepideh’s execution of the Mortgages, and the inadequate banking documentation discussed further below, any such determination would, in my opinion, require a trial with viva voce evidence and cross-examination.

14There are, however, several considerations which cast doubt on the applicant’s position, including the following.

15First, and most significantly, the Condo-related expenses are estimated to have been approximately $5,000 per month, including approximately $3,100 in respect of the Computershare mortgage. It would be easy for the applicant to disprove Sepideh’s story by providing evidence that such expenses were paid out of a bank account that he funded, or by providing evidence of payments from the applicant to Sepideh that he says he sent to her for such expenses. The banking records provided by the applicant do not evidence either the deposits that he alleges he sent to Sepideh for the Condo-related expenses or the direct payment of anything approaching all of the Condo-related expenses. The expenses paid out of the applicant’s bank accounts for which records were provided cannot represent the totality of the Condo-related expenses. Clearly, such expenses were also paid out of one or more other bank accounts, or some other payment system, for which the relevant records have been withheld.

16Second, as a related matter, the circumstances surrounding an agreement of purchase and sale dated November 2, 2014 between a third party and Sepideh (the “APS”) provide some support for Sepideh’s position. The APS contemplated a closing date of June 4, 2015. Apparently, the transaction did not close for reasons that are not in the record. In several places, the APS contemplates renovations to the Condo.

17The applicant acknowledges that they listed the Condo for sale with Sepideh during this period as they wanted to purchase a larger condominium. The correspondence in the record between Sepideh and Rakowsky appears to be consistent with the APS insofar as, during the spring of 2015, Sepideh referred to the existence of an agreement to sell the Condo and a need to complete renovations to the Condo for that purpose. Sepideh told Rakowsky that at least some of the draws under the second of the Mortgages were for the purpose of paying for renovations to the Condo. Of note, the applicant and Manijeh were residing in the Condo during this period in 2015. They were therefore in a position to explain to the Court whether such renovations were made and, if so, the source of the funding of such renovations. However, the applicant’s materials are entirely silent on all of these matters, including the extent of his knowledge of the APS and the renovations.

18Third, more generally, there is no evidence of the financial ability of the applicant and his wife to pay the Condo-related expenses. The applicant’s evidence from his cross-examination appears to be that he is a salesman, but is looking for business at the present time rather than earning an income. There is no evidence that the applicant otherwise had any income or assets in Canada. The applicant’s business in Iran and his income, to the extent he has any, is also not in evidence. There is also an air of reality to Sepideh’s evidence that the Iran embargo made transfers of funds to Canada difficult and that exchange rate fluctuations made such transfers otherwise undesirable.

19Fourth, the applicant’s evidence regarding the T-D mortgage in 2011 and the Computershare mortgage in 2012 is confusing in several respects. He says that Sepideh had his authority to obtain such mortgages only in the context of doing what was necessary in connection with the transfer of title to the Condo in 2011, as described above. The applicant says that he only learned of the T-D mortgage and the Computershare mortgage during this litigation. He implies that he was not aware that the principal amounts under these mortgages had increased from the amount of the Scotiabank mortgage.

20On the other hand, there is no evidence that the T-D mortgage and the Computershare mortgage were not serviced on a monthly basis. The applicant does not deny the validity of the Computershare mortgage notwithstanding that the principal amount is greater than the amount of the Scotiabank mortgage. How the T-D mortgage was serviced is not in evidence. The evidence regarding the Computershare mortgage is more complicated. Initially, in 2013, it appears to have been serviced from an account in Sepideh’s name or to which she had access. There is no evidence of payment of the Computershare mortgage in 2014. In 2015, there were monthly automatic withdrawals from an account with BMO. These latter payments are consistent with the applicant’s testimony that he paid for the Condo-related expenses himself and, arranged for payment by direct debit of the mortgage on the property of which he was aware. However, significantly, the applicant testified that Sepideh did not have access to the BMO account. The applicant must, therefore, have personally established the direct debit arrangements. The applicant would, therefore, have been personally aware that the institutional mortgagee had been changed to Computershare and, from the amount of the monthly mortgage payments, would also have known that the principal amount of the mortgage had also increased from the amount of the original Scotiabank mortgage.

21Fifth, the outstanding amounts of the mortgages on the Condo to the traditional lenders reflect increasing principal amounts from the Scotiabank mortgage, which itself was increased, to the T-D mortgage to the Computershare mortgage. This suggests that the increased loans were required to pay the Condo-related expenses. There is, therefore, some reason to believe that, in obtaining the Mortgages, Sepideh was further leveraging the equity in the Condo for the same purpose with the applicant’s consent.

22Collectively, these considerations suggest that Sepideh required most of the monies from the Mortgages for Condo-related expenses and that, without such monies, the Condo-related expenses would not have been paid. They also suggest that the applicant may not have paid close attention to the manner in which Sepideh funded such expenses, preferring to believe that the Condo-related expenses were less than they actually were or that he had more money from the sale of another condominium on Yorkville Avenue available for such purpose than he actually had. As mentioned above, I do not make any such finding in this Endorsement. However, the fact that the foregoing scenario is a real possibility, given the facts before the Court, raises a real doubt regarding the applicant’s credibility. This doubt is a relevant factor in assessing his motion to set aside the default judgment, as discussed below.

Analysis and Conclusions

23The defendant makes two arguments, which I will address in turn.

Lack of Notice

24The applicant’s first argument is that he is entitled, as a matter of right, to have the default judgment set aside on the basis that he had no notice of the Statement of Claim.

25The applicant submits that the respondents have the onus of proving that he had notice of the Statement of Claim. He says the respondents have failed to satisfy that onus and argues that, on this ground alone, he is entitled to have the default judgment set aside as of right. The applicant relies on four decisions for this purpose: Ivan’s Films Inc. v. Kostelac (1988), 29 C.P.C. (2d) 20 (Ont. S.C.); Don Bodkin Leasing Ltd. v. Rayzak, [1993] O.J. No. 503 (Ont. C.J. (Gen. Div.)); Royal Trust Corp. of Canada v. Dunn (1991), 6 O.R. (3d) 468 (Ont. C.J. (Gen. Div.)); and Canada Mortgage & Housing Corp. v. Canplex Corp. (2004), 60 C.P.C. (6th) 43.

Factual Background

26The respondents’ process server attempted to serve a copy of the Statement of Claim at the Condo on January 18, 2016 without success. Sepideh had previously advised the process server by telephone that she would attend at the Condo to receive it. On January 22, a copy of the Statement of Claim was left with the concierge in the condominium building and a copy was mailed to the applicant at the Condo address on the same day. On January 26, 2016, the respondents also emailed a copy of the Statement of Claim to Sepideh. She acknowledged receipt of the email. She also acknowledged having picked up the copy of the Statement of Claim that was left for her with the concierge on January 22, 2016.

27By order dated February 2, 2016, Master Abrams validated service of the Statement of Claim in the form of hand delivery and regular mail on January 22, 2016 and email to Sepideh dated January 26, 2016 (the “Abrams Order”). No appeal has been instituted with respect to this order. A copy of the Abrams Order was sent to the applicant and Sepideh by mail to the Condo address on February 2, 2016.

28As mentioned, after the applicant was noted in default for failure to file a statement of defence, the respondents brought a motion for default judgment by notice of motion dated March 21, 2016. On that date, the notice of motion was mailed to the applicant and Sepideh at the address of the Condo. It is my understanding that a copy of the notice of motion was also emailed to Sepideh who, in turn, emailed counsel for the respondents on March 24, 2016 indicating that she was in receipt of the notice of motion.

29Accordingly, there is no dispute that Sepideh received a copy of the Statement of Claim in January 2016 and a copy of the notice of motion for the default judgment in March 2016. There is also no evidence to contradict the applicants’ evidence that copies of the Statement of Claim, the Abrams Order and the notice of motion for default judgment were mailed to the Condo address after Sepideh moved out of the Condo in January 2016.

Analysis and Conclusions

The Onus of Proof

30The applicant’s submission on onus, in reliance on the cases above, conflates two very different issues respecting the onus of proof. These are the onus of proving service, including in particular proving the requirements of alternative service, and the onus of proving notice, or lack of notice, of a document that was served in accordance with the Rules of Civil Procedure.

31The cases cited above stand for the proposition that the onus of proving service of a statement of claim in accordance with the Rules of Civil Procedure rests with the plaintiff and that, in the absence of proof of service, a defendant is entitled to have default judgment against him set aside as of right. Ivan’s Films Inc. v. Kostelac and Don Bodkin Leasing Ltd. v. Rayzak deal with personal service. Royal Trust Corp. of Canada v. Dunn and Canada Mortgage & Housing Corp. v. Canplex Corp. deal with alternative service on a solicitor.

32In the present circumstances, however, service of the Statement of Claim was made in accordance with the Rules of Civil Procedure. Service was validated by the Abrams Order. In addition, there is no dispute that Sepideh received a copy of the Statement of Claim by email and also picked up the copy left by the respondents’ process server with the concierge in the Condo building.

33The issue in the present case is, therefore, whether, notwithstanding valid service, the applicant had no notice of the action (in particular, the Statement of Claim) and the consequences if such lack of notice is demonstrated.

34Rule 16.07 of the Rules of Civil Procedure provides that, in circumstances where service has been effected in accordance with the Rules, “the person may show on a motion to set aside the consequences of default…that the document, (a) did not come to the person’s notice…” The purpose of Rule 16.07, as I understand it, is to confirm for greater certainty that valid service of a document in respect of a party is not an absolute bar to demonstration by such party that he or she did not, in fact, receive the document.

35However, in any proceeding brought by a party alleging a lack of notice of a document notwithstanding valid service of the document, the onus of proof rests with the party alleging the lack of notice. This is reflected in the language of Rule 16.07 (i.e. “the person may show”). The right of a party to show that he or she did not receive a document implies that the onus of demonstrating the lack of notice lies with the person bringing the motion.

36Accordingly, I conclude that, on this motion, the applicant bears the onus of establishing, on a balance of probabilities, that he had no notice of the action, and in particular of the Statement of Claim, notwithstanding valid service in the form of the mailing of a copy to the Condo address and delivery of a copy to Sepideh pursuant to the Abrams Order.

Disposition of the Motion

37Even if it is accepted for present purposes that Sepideh did not provide the applicant with a copy of the Statement of Claim, I find that the applicant is not entitled to an order setting aside the default judgment as of right for the following two alternative reasons.

38First, I find that delivery of the Statement of Claim to Sepideh, and notice to her of the respondents’ action, was constructive delivery to the applicant. Accordingly, the applicant had constructive notice of the respondents’ action, including the Statement of Claim. For the reasons set out below, I conclude that constructive notice should exclude any right that the applicant would otherwise have to require that the default judgment be set aside as of right.

[39] The POA provided as follows: I AUTHORIZE my attorney for property to do on my behalf anything in respect of property that I could do if capable of managing property, except make a will, subject to the law and any conditions or restrictions contained in this document. I confirm that he may do so even if I am mentally incapable. This broad scope of authority is consistent with the provisions of section 7(2) of the Substitute Decisions Act, S.O. 1992, c. 30, which provides that “[a] continuing power of attorney may authorize the person named as attorney to do on the grantor’s behalf anything in respect of property that the grantor could do if capable, except make a will”.

40The POA expressly provided that the continuing power of attorney for property was not subject to any conditions or restrictions. Accordingly, the POA granted Sepideh the authority to mortgage the Condo without qualification or restriction. It also gave her the authority to defend any actions for enforcement of any such mortgage. Such authority must include the authority to accept service of any enforcement documentation unless it is specifically provided to the contrary.

41In this respect, the present circumstances differ fundamentally from the circumstances in Harris v. Mitchell (1867), 12 N.B.R. 2 (N.B. Sup. Ct.), upon which the applicant relies. In Harris v. Mitchell, the authority given to the attorney was very specifically limited to certain actions. The court construed the scope of that authority to exclude the acceptance of service. That case does not, however, stand for the more general proposition that a specific authority to accept service must be expressed in every power of attorney, including a power of attorney to manage property which is otherwise unqualified. Insofar as the applicant relies on Royal Trust Corp. of Canada v. Dunn and Canada Mortgage & Housing Corp. v. Canplex Corp., these decisions address a very different issue. The issue in those cases was the authority of a solicitor to accept service as a factual matter, rather than the legal authority of an attorney for property under a power of attorney.

42Second, in addition, as mentioned, the applicant has the onus of demonstrating that he did not receive the Statement of Claim, or notice of the action, in some other way. In my opinion, he has failed to satisfy this onus. The evidence establishes that it is equally plausible that he received a copy of one or more of the Statement of Claim, the Abrams Order and the notice of motion for default judgment at the Condo in the spring of 2015, i.e. prior to the hearing of the respondents’ motion for default. I base this conclusion on the following considerations.

43The respondents say that they left a copy of the Statement of Claim with the concierge at the Condo on January 22, 2016 and mailed a second copy to the applicant at the Condo on the same date. There is no reason to doubt this evidence. It appears from an email dated January 29, 2016 from Sepideh to the respondents’ counsel that Sepideh picked up the copy that had been left with the concierge. There is no reason to believe, however, that the copy that was mailed to the Condo was not received at that address. Sepideh does not say that she also picked up this document when it was delivered to the Condo address. There is also no evidence that Sepideh arranged to have mail addressed to the applicant forwarded elsewhere after she moved out of the Condo or that she otherwise intercepted mail addressed to the applicant at the Condo after her departure.

44The only contrary evidence of the applicant is a statement that Sepideh’s brother told him that no such package was received. This evidence is, however, inadmissible as it is hearsay. The applicant could have provided an affidavit of Sepideh’s brother. There is no explanation for his failure to do so. The applicant could also have provided evidence of the concierge of the Condo building regarding the practice pertaining to mail deliveries at the Condo building, if relevant. The fact that he chose not to answer questions regarding these matters because of his view that the onus of proof rested with the respondents is not relevant.

45In the absence of any evidence that would suggest otherwise, I infer that the copy of the Statement of Claim that was mailed to the applicant at the Condo was received at that address and was left in the mailbox for the Condo. For the same reasons, I reach the same conclusion regarding the copies of the Abrams Order and the notice of motion for default judgment that were mailed to the applicant and Sepideh at the Condo.

46Given this finding, there is also no basis in the record for finding that the Statement of Claim did not come to the applicant’s attention. The applicant has not provided any details of his travel in the spring of 2015 that would indicate that he arrived after the hearing of the default judgment motion, even accepting that he probably did not arrive with Manijeh in February 2016. The only evidence of the applicant that he did not receive any of this documentation is his bald denial, along with that of Manijeh. There is no evidence that either Manijeh or the applicant actually emptied the contents of the mailbox when they arrived in Toronto and failed to find the Statement of Claim. The only evidence pertaining to the contents of the mailbox prior to their arrival in Toronto is, as mentioned, inadmissible. Similarly, there is also no evidence that would explain why the applicant did not receive the copies of the Abrams Order and the notice of motion for default judgment that were mailed to the applicant and Sepideh at the Condo. I would add that it is possible that the applicant or Manijeh received but did not understand the document given their level of facility in English. That is, however, another issue that was not raised on this motion.

47On balance, I think it is at least as likely as not that the applicant found the Statement of Claim and the copy of the Abrams Order in the mailbox when he arrived in Canada prior to the hearing of the motion for default judgment and that he or Manijeh received the copy of the notice of motion for the default judgment in March 2016. Accordingly, given the onus of proof on the applicant, he has failed to establish on the evidence before the Court, on a balance of probabilities, that he had no actual notice of the Statement of Claim.

Application of the Common Law Test for Setting Aside A Default Judgment

48Alternately, the defendant argues that the Order should be set aside on the basis that he has satisfied the requirements set out by the Court of Appeal in Mountain View Farms v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561 [Mountain View].

Applicable Test

49Mountain View sets out, at paras. 48-49, the following five factors to be considered on a motion to set aside a default judgment:

(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;

(c) whether the facts establish that the defendant has an arguable defence on the merits;

(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.

The Court of Appeal stated, however, that these factors are not to be treated as rigid rules. A court must consider the particular circumstances of each case to decide whether it is just to relieve a defendant from the consequences of his or her default.

Analysis of the Mountain View Factors

50I will address in turn the application of each of these factors in the circumstances of this case.

51First, it is unclear whether the motion was brought promptly after the applicant learned of the Order. The extent to which this is true turns on the credibility of the applicant and, in particular, his statement that he did not know anything of the action until the notices to vacate were served on Manijeh. As set out above, there is reason to doubt the credibility of the applicant on this issue, although I have not made a finding to such effect. Given the more fundamental issues engaged by this test that follow, I will proceed on the basis that this requirement is satisfied for present purposes.

52Second, the applicant failed to comply with the Rules of Civil Procedure, in particular in failing to file a statement of defence in the action. The extent to which the applicant has a plausible excuse or explanation for his failure to do so also depends upon whether or not he had notice of the action and, in particular, of the Statement of Claim. However, the Court has held that the applicant had constructive notice of the Statement of Claim by virtue of service upon Sepideh. It follows from this conclusion that the applicant has failed to provide a plausible excuse or explanation for his failure to comply with the Rules. The fact that he may not have received actual notice from his attorney is not an adequate explanation. I note that this consideration runs through the application of a number of the Mountain View factors in this case.

53Third, the applicant says he has an arguable defence on the merits. In fact, he asserts six possible defences which I will address in turn. In assessing these defences, I am mindful of the statement of the Court of Appeal in Mountain View at para. 51 that the defendant need not show that a proposed defence will inevitably succeed, but must demonstrate that his or her defence has an air of reality.

54The applicant’s first defence is that the respondents knew or should have known that Sepideh was acting dishonestly and fraudulently. The applicant argues that, given that Sepideh was a fiduciary as the applicant’s attorney, the applicant can assert a defence in the form of a tort claim against the respondents for knowing assistance in a breach of fiduciary duty.

55The applicant does not suggest that the respondents had actual knowledge of Sepideh’s alleged breach of fiduciary duty. He says, however, that the respondents were wilfully blind to Sepideh’s alleged breach. This argument is based on the following three considerations: (1) Sepideh was acting pursuant to a power of attorney; (2) Sepideh requested a number of advances over a relatively short period of time, as set out above; and (3) Rakowsky required a guarantee from Sepideh of the Mortgages. None of these facts, either individually or collectively, is sufficient to support a finding that the respondents were willfully blind to the possibility of a breach of fiduciary duty.

56The fact that Sepideh held a power of attorney required that the respondents satisfy themselves as to the validity of the POA. They did so through their lawyers. In any event, the applicant acknowledges that the POA was valid and that, whatever his alleged intentions in 2012, he did not revoke the POA. On the facts before the Court, there was no obligation on the respondents to contact the applicant to verify the applicant’s intention to obtain the Mortgages. Indeed, such a rule would defeat the purpose of a power of attorney.

57The fact that Sepideh requested a number of advances over a two-year period is also not sufficient to support a finding of wilful blindness. The respondents were asset-based lenders. The use of equity in a property to fund improvements to a property or other personal expenses is very common in the current economic environment. The mortgage loan arrangements functioned, in substance, in the same manner as would a secured line of credit from a chartered bank. On the facts before the Court, there was no obligation on the respondents to ensure that the mortgage proceeds were used in accordance with the intended use as described to them by Sepideh. In addition, in this case, in respect of a number of the draws, Sepideh provided the respondents with a proposed use of the funds related to renovations to the property. There is, in fact, no evidence that the funds were not used in those cases for such renovations. I would also add that, on the facts before the Court, there was also no obligation on the respondents to verify that the applicant had the ability to repay the Mortgages or to verify the applicant’s business or his income, as the applicant argues.

58The applicant suggests that the fact that Rakowsky required a guarantee from Sepideh evidences a concern on his part for a possible breach of trust by Sepideh. The fact that Rakowsky required a guarantee from Sepideh of the Mortgages can hardly constitute a basis for a finding of wilful blindness. Rakowsky required the guarantee as additional protection, rather than as a matter of the basic credit which, as mentioned, was based on the equity in the Condo. More significantly, it is unreasonable to argue that a lender would require a guarantee from a party where the lender was put on notice of facts indicating that the party was acting fraudulently. In such circumstances, a lender would not lend, rather than take comfort in a guarantee of the fraudulent party.

59I accept that the facts surrounding the third mortgage obtained by Sepideh on or about November 30, 2015, secured against the Condo in the amount of $30,000, might be found to have put the respondents on notice of a potential breach of fiduciary duty on the part of Sepideh as of that time. The purpose of this third mortgage was to provide monies to Sepideh’s husband. However, I make no finding on this issue as it is not necessary to do so. More significantly for present purposes, all of the monies that were advanced under the Mortgages, and are the subject of this action, were advanced prior to the date of this third mortgage. There is no basis in the factual record for applying any notice to the respondents arising from this transaction on a retroactive basis to the dates of the advances under the Mortgages.

60The applicant’s second, related, defence is that the facts also support a tort claim for knowing receipt of trust property. This claim, or defence, must fail for lack of any evidence that the respondents received any property from Sepideh in breach of her fiduciary obligations to the applicant. There is no evidence that Sepideh paid any of the monies advanced under the Mortgages back to the respondents as part of the mortgage transactions, other than customary fees and other expenses associated with the Mortgages that were deducted at the time of the mortgage advances.

61The defendant’s third defence is that he is entitled to rely on the principle of deferred indefeasibility as described in Reviczky v. Meleknia (2007), 88 O.R. (3d) 699 (S.C.) [Reviczky]. I disagree.

62In the present case, the applicant gave an unqualified and unlimited power of attorney to Sepideh, who the applicant alleges abused her authority. Whatever the case, the applicant had a much clearer opportunity to avoid the fraud than the respondents in Reviczky or the respondents in the present case. The applicant could have taken a number of actions including, for example, limiting Sepideh’s authority to the incurring of liabilities not exceeding a defined limit, or limiting the scope of her authority to defined activities. He did not do so and must bear the consequences. If indeed Sepideh acted fraudulently, the applicant will have an action against her if he chooses to pursue it.

63The fourth defence is that the Condo is a matrimonial home to which section 21 of the Family Law Act, R.S.O. 1990, c. F.3 applies. Section 21(2) of that Act allows for the setting aside, on application, of a disposition or an encumbrance of an interest in a matrimonial home where the other spouse has not joined in or consented to the transaction, or in other circumstances that are not applicable in this proceeding. However, section 21(2) also provides that such relief is not available where the transferee or encumbrancer acquired his interest in the property for value, in good faith, and without notice that the property was a matrimonial home at the time of acquisition of such interest:

(2) If a spouse disposes of or encumbers an interest in a matrimonial home in contravention of subsection (1), the transaction may be set aside on an application under section 23, unless the person holding the interest or encumbrance at the time of the application acquired it for value, in good faith and without notice, at the time of acquiring it or making an agreement to acquire it, that the property was a matrimonial home.

64For this purpose, section 21(3)(b) provides, among other things, that a statement of the transferor or encumbrancer verifying that the person is a spouse who is not separated from his or her spouse and that the property is not ordinarily occupied by the spouses as their family residence is sufficient proof that the property is not a matrimonial home unless the transferee or encumbrancer had notice to the contrary. The relevant provisions of section 21(3) read as follows:

(3) For the purpose of subsection (2), a statement by the person making the disposition or encumbrance,...

(b) verifying that the person is a spouse who is not separated from his or her spouse and that the property is not ordinarily occupied by the spouses as their family residence;

shall, unless the person to whom the disposition or encumbrance is made had notice to the contrary, be deemed to be sufficient proof that the property is not a matrimonial home.

65In this case, each of the Mortgages contained such a statement made by Sepideh pursuant to the POA on behalf of the applicant and, to the extent it is relevant, pursuant to the power of attorney provided by Manijeh. There is no evidence that the respondents had actual notice to the contrary. In fact, the evidence is to the contrary. The respondents believed that Sepideh was living in the Condo and that the owners on whose behalf she exercised the POA resided in Iran. Accordingly, the respondents are entitled to rely on the provisions of section 21(3)(b) of the Family Law Act and the statements in the Mortgages by way of a defence to any application of the applicant pursuant to section 21(2) of the Family Law Act.

66The applicant also asserts a defence by way of challenging the quantum advanced by the respondents pursuant to the Mortgages. There is, however, no evidence whatsoever to contradict the respondents’ assertion that the full amount of the monies secured by the Mortgages was advanced, net of customary fees and other expenses agreed to by Sepideh on behalf of the applicant.

67The defendant’s last defence is that Sepideh may not have had independent counsel on behalf of the applicant in connection with the Mortgages and the advances thereunder. The evidence indicates, however, that she had independent counsel at the time of the initial advances under each of the Mortgages, being Sheldon Caplan. Sepideh’s evidence that she doesn’t believe that she had her own lawyer is contradicted by the documentary evidence. Her testimony on this issue may well be self-serving, or may refer to the question as to the extent to which she had independent counsel in respect of some or all of the subsequent advances under the Mortgages. However, the applicant has failed to identify how such facts, even if established, would provide a defence to the respondents’ claims in respect of the Mortgages. Simply alleging an absence of independent counsel in respect of subsequent advances is not sufficient to establish a meritorious claim for present purposes.

68Based on the foregoing, I conclude that the applicant has failed to establish any meritorious defence to the respondents’ action.

69The fifth consideration under Mountain View is the relative prejudice to the parties. In this case, this factor weighs in favour of the applicant. He and his wife will be evicted if the Order stands and enforcement proceedings are allowed to continue. Moreover, it is understood that the applicant and his wife will lose most of the equity in the Condo if the Mortgages are valid. On the other hand, the respondents made their loans on the strength of the equity in the Condo. It is unclear at what point the value of the respondents’ security would be eroded if the applicant were permitted to proceed with his defence to the respondents’ action, given the interest accruing under the Mortgages. There is no suggestion, however, that such circumstances are imminent.

70The last consideration under Mountain View is the impact on the administration of justice. The applicant says that this consideration favours allowing him to have an opportunity to present his case. However, the matter is not so easy. As mentioned above, at least one of the applicant and Sepideh is not telling the truth, and it is possible that neither has provided a complete explanation. Without knowing the facts, it is impossible to say whether granting the relief sought will further the integrity of the justice system by permitting an innocent party to present his defence, or call into question the administration of justice by permitting a mortgagor to frustrate the legitimate rights of mortgagees. In this regard, however, the Court should take into account the considerations set out above which cast doubt on the applicant’s position. In particular, the Court should take into account the applicant’s failure to provide evidence within his control that would have addressed these matters. In addition, the absence of any apparent meritorious defence suggests that the administration of justice would not be furthered by setting aside the default judgment.

Conclusion

71Taking into account the foregoing considerations, I find that the applicant’s motion should be denied. Fundamentally, the applicant has allowed Sepideh to have an unrestricted power of attorney to deal with his property in Canada, including the Condo. The respondents advanced monies on the security of the Condo based on that power of attorney. There is reason to believe that such monies were principally required, as Sepideh testified, to pay the expenses of the Condo. Even if that were not the case, as between the applicant and the respondents, the applicant had the greater ability to avoid the present circumstances. More generally, the applicant has failed to demonstrate that he has any meritorious defences to the respondents’ action. Ultimately, if the facts are as the applicant suggests, his claim lies against Sepideh.

Costs

72The respondents seek costs of $57,204.18 on a full indemnity basis on an all-inclusive basis. I am not persuaded, however, that the respondents are entitled to an award on such basis. The respondents say that the applicant took inappropriate positions respecting the matters at issue solely to frustrate the respondents’ ability to realize upon their security. The Court could only proceed on this basis after a finding that the applicant was acting fraudulently. The Court has not made such a finding. Moreover, the circumstances raise the novel issue of the extent to which the applicant is fixed with notice by virtue of delivery of the relevant documentation to his attorney for property.

73With respect to quantum, the facts were complex and the matters were important to both parties. The applicant’s bill of costs on a partial indemnity basis totaled $53,028.54, which I take to be an indication of his reasonable expectations regarding the respondents’ costs. Accordingly, I find reasonable costs to be $45,000 on an all-inclusive basis.

Wilton-Siegel J.