ONSC 7449
COURT FILE NO.: 90-CU-399680
DATE: 20161212
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
APOLLO REAL ESTATE LIMITED
Plaintiff
– and –
STREAMBANK FUNDING INC. O/A THE EQUITY CENTRE, GARY M. CULLEN and IRWIN BELITSKY
Defendants
William Malamas, in person, on behalf of Apollo Real Estate Limited
Andi Mackay, for the Defendant Gary Cullen
HEARD: September 28, 2016
MR. JUSTICE T. MCEWEN
REASONS FOR DECISION
[1] The defendant, Gary M. Cullen (“Cullen”), brings this motion seeking the following:
a) an order setting aside the judgment of Justice Cameron dated December 22, 2003, (the “judgment”) as against Cullen;
b) an order setting aside the noting in default;
c) alternatively, a declaration that Cullen is released from any liability as result of payments made by the co-defendant Irwin Belitzky (“Belitzky”) to the plaintiff Apollo Real Estate Limited (“Apollo”); and
d) in the further alternative, an order varying Justice Cameron’s order to dispense with the requirement that Cullen pay pre-judgment interest, post-judgment interest, or costs.
[2] Cullen’s primary submissions are that the Statement of Claim never came to his attention and that Justice Cameron erred in applying a contractual rate of interest as opposed to pre-judgment interest pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43 in circumstances where Apollo did not claim for contractual interest in the Statement of Claim.
[3] For the reasons below I am setting aside the noting of default and the judgment.
Introduction
[4] In the late 1980s Cullen and Belitzky went into business together operating Streambank Funding Inc. (“Streambank”). Streambank was in the business of providing online mortgage approvals.
[5] Thereafter, Streambank entered into a five-year commercial lease agreement with Apollo. The lease commenced January 1, 1990. The first three years of the lease were guaranteed by Cullen and Belitzky. Streambank’s business soon proved to be unsuccessful and Streambank was unable to make the lease payments. As a result, Apollo commenced this action against Streambank, Cullen and Belitzky on June 12, 1990.
[6] Ultimately, Streambank, Cullen and Belitzky were noted in default. On December 22, 2003, Justice Cameron awarded judgment in the amount of $160,708 plus pre-judgment interest in the amount of $570,741[^1] against Streambank, Cullen and Belitzky. Justice Cameron also awarded additional damages against Streambank which are not germane to this motion.
[7] The total judgment against Cullen totalled $731,449 plus costs fixed at $12,834.88.
[8] In 2005, Apollo registered the judgment against Belitzky in Quebec. In 2008, Apollo and Belitzky settled the action against Belitzky for the all-inclusive amount of $275,000. The settlement was comprised of $160,000 for damages (essentially the entire amount of the principal awarded against Belitzky and Cullen) plus pre-judgment interest of $115,000.
[9] It was not until September 2011 that Apollo registered the judgment against Cullen in British Columbia pursuant to the provisions of the Enforcement of Canadian Judgment and Decrees Act, S.B.C. 2003, c.29.
[10] In January 2012, Cullen brought an application before the Supreme Court of British Columbia to set aside the registration of the judgment on the basis that the Ontario proceedings were commenced before the Act came into force; therefore, the Act could not apply since Cullen had not “taken part” in the Ontario action. Justice Punnett stayed the registration and ordered that Mr. Cullen would have to apply to the Ontario courts to obtain a factual determination as to whether or not he participated in the Ontario proceedings. Cullen appealed and the appeal has been adjourned.
[11] When the matter returned to Toronto, Justice Newbould began extensive case management of the action along with several other actions involving William Malamas (“Malamas”) who is the CEO of Apollo. Malamas was ultimately found to be a vexatious litigant and a number of actions were stayed. This action, however, was carved out by Justice Newbould because Apollo had secured the judgment against Cullen and the other defendants. Justice Newbould case managed it for approximately three years, after which I assumed case management. As the case management judge, I scheduled the hearing of this motion.
[12] I will now turn to the central issues in the motion. First, was Cullen made aware of the Statement of Claim at the time it was served? If not, can service be set aside as of right or must Cullen satisfy the discretionary factors set out by the Court of Appeal in Mountain View Farms Ltd. v. McQueen 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 48-50? Should the judgment be set aside on the basis that the contractual rate of interest was awarded rather than interest in accordance with the Courts of Justice Act?
[13] I will deal with each issue in turn.
Was Cullen Aware of the Service of the Claim?
Evidence Surrounding Service
[14] I accept Cullen’s position that he was not made aware of the fact that service had been effected upon him by means of an alternative to personal service.
[15] This action has a long and convoluted history. This action remained dormant over protracted periods of time, and at other times moved at a snail’s pace. As a result, documents have been lost, key witnesses have passed away or did not provide evidence, and memories have faded.
[16] Without repeating every bit of evidence or every factual dispute, generally speaking, it appears as though the facts surrounding service are as follows.
[17] The Statement of Claim was issued on June 12, 1990.
[18] On that same day, according to the affidavit of service of the process server William Keith (“Keith”), he served Cullen by way of an alternative to personal service provided for in Rule 16.03(5) of the Rules of Civil Procedure, R.R.O. 1990 Reg. 194. Keith deposed that he served a copy of the Statement of Claim upon Cullen’s wife (“Mrs. Cullen”) at their home in Mississauga. The next day he sent a copy, by prepaid first class mail, to Cullen at the same address. Although this constitutes proper service, it bears noting that service was very rushed. The Statement of Claim was served by an alternative to personal service on the day it was issued. Further, Keith deposed that he attempted to previously serve Cullen at this same address, also on June 12, 1990. Obviously, a minimal effort was made to personally serve Cullen before Keith resorted to the alternative method of service.
[19] Interestingly, the next day Keith attended again at the Cullen residence. As he deposed in his second affidavit of service, Keith served Cullen with a copy of the Statement of Claim, but only with respect to his capacity as an officer and director of Streambank. Keith’s stated goal was only to serve Streambank. For reasons that are unknown, and puzzling to say the least, Keith did not simply serve Cullen in his personal capacity. Had Keith done so, Cullen obviously could not seek to set aside the judgment on the basis that the claim did not come to his attention.
[20] Cullen, however, deposes that he was never made aware that he was served with the Statement of Claim in his personal capacity. He further deposes that Mrs. Cullen, now deceased, never advised him that she was served with a copy of the Statement of Claim, nor did the mailed copy come to his attention. Cullen surmises that, given the financial distress he was experiencing, his wife did not want to further exacerbate his anxiety. Mrs. Cullen therefore suppressed the fact that he was being personally sued by Apollo. Cullen further asserts that the fact that he was served on behalf of Streambank confirmed this belief that Apollo was not pursuing an action against him.
[21] Of note is the fact that a lawyer, Brian Morris (“Morris”) was retained to defend the action. The factual matrix surrounding this retainer is confusing and controversial. Cullen maintains that Morris was retained only to defend Belitzky and Streambank.
[22] On June 21, 1990, however, Morris delivered a Notice of Intent to Defend on behalf of all three defendants. Apollo submits that this is proof-positive that Cullen was aware of the claim against him. Cullen deposes, however, that this was done in error and that he never retained Morris to act on his behalf. Morris has also provided two affidavits for this motion. He deposes that he acted for Belitzky and perhaps Streambank. He does not, however, have any recollection of being retained by Cullen, agreeing to act for him, speaking with him, or meeting with him. He deposes that he does not know what Cullen “looks like”. Further, Morris never provided Cullen with any form of legal account, there was no retainer agreement, and no file can be located.
[23] Nevertheless, Morris also subsequently delivered a Statement of Defence on behalf of all three defendants on July 4, 1990. Notwithstanding this act, there was confusion from the outset between the parties as to whom Morris represented in the litigation. Apollo’s then-lawyers made inquiries of Morris in this regard. It does not appear that a definitive answer was given.
[24] Meanwhile, in the summer of 1990, Cullen and his family moved to a farmhouse at RR #5 Bowmanville, Ontario, L1C 3K6. They did not own the farmhouse and stayed there for approximately five months before moving to British Columbia in late 1990 or early 1991 where Cullen has resided ever since.
[25] Later, in March 1992, Morris served a motion to remove his firm as solicitors of record. In support of that motion he deposed that he had been retained by Cullen. Morris also deposes that in late 1990 and early 1991 examinations for discovery for Cullen were scheduled, but not completed. It is unclear from the affidavit whether Cullen was to be examined in his own capacity or on behalf of Streambank. In support of the within motion, Cullen has testified that he was not aware of the examinations. Accordingly, he never asked for an adjournment. Morris’ motion record was served on Cullen at the Bowmanville address which was problematic for two reasons: first, RR #5 Bowmanville, Ontario, L1C 3K6, is not a proper municipal address that could receive mail and second, Cullen had not lived there for over a year. Not surprisingly, Cullen deposes that the motion record never reached him. Apollo submits that Cullen must have provided a false address in Bowmanville to avoid any form of service of documents. Cullen denies this and there is no evidence to support Apollo’s assertion.
[26] Ultimately, Morris’ motion to get off the record was not pursued at that time. The confusion, however, surrounding Morris’ retainer continued. Counsel for Apollo continued to write to Morris to confirm whom he represented. On one occasion Morris advised Apollo’s counsel that he was only representing Streambank and Belitzky.
[27] Aside from the above, the action largely remained dormant until June 2000, when Apollo’s counsel brought a motion to be removed as solicitor of record. Thereafter, on September 25, 2000, Malamas obtained an order allowing him to act on behalf of Apollo. He then began to write to Morris concerning the issue of representation. The correspondence contained in the record discloses that Morris provided contradictory information to Malamas. This issue remained unresolved.
[28] The action then languished again for some time. Cullen deposes that he still had no idea that the action was being pursued against him in his personal capacity throughout this time period. More than ten years later, Morris brought another motion in October 2003 to remove himself as solicitor of record. He obtained an order at that time. Once again, he served the motion record on Cullen in Bowmanville, even though Cullen had now not lived at that address (or indeed in the province of Ontario) for over 13 years.
[29] The Statement of Defence was struck in November 2003. In December, the defendants were noted in default and, as noted, Justice Cameron granted judgment on December 22, 2003.[^2]
[30] After obtaining judgment, Malamas continued to try to locate Cullen. Malamas travelled to Bowmanville to determine if he could locate Cullen. Malamas did not locate Cullen there, which is not surprising.
[31] In October 2008, Malamas, as noted, entered into a settlement with Belitzky with respect to all claims against him in the amount of $275,000. According to Malamas, the settlement was comprised of a payment for the entire principal owed of $160,000, plus $115,000 in interest.
[32] It appears the matter, once again, remained mostly dormant until 2011 when Malamas located Cullen and the judgment was registered in British Columbia. This triggered the aforementioned events which lead us to this motion. It bears noting, however, that once Cullen moved to British Columbia he began practicing law and it would not have been difficult for either Morris or Malamas to locate him.
Analysis
[33] Given all of the above, Apollo submits that Cullen’s assertion that he was not aware he had been served in his personal capacity and that a claim was being pursued against him is not credible.
[34] In this regard, Apollo further submits that Cullen’s explanation that Mrs. Cullen did not tell him about service and he did not receive a copy of the Statement of Claim by prepaid first class mail is simply not credible. I, however, accept Cullen’s explanation. It is evident from his filed materials that, at the time the Statement of Claim was served on Mrs. Cullen and sent to his home, Cullen’s personal and business life were in disarray. Streambank had failed and Cullen deposes that he was in the process of losing his home and the family’s life savings.[^3] In these circumstances, it is not surprising that Mrs. Cullen did not bring this claim to his attention as he alleges. Sadly, Mrs. Cullen, having passed away in 2009, cannot speak to the issue. The consequences of this unfortunate event certainly cannot be visited upon Cullen given the glacial pace at which this matter has proceeded.
[35] In this regard, I have carefully reviewed Cullen’s affidavit evidence and the relevant excerpts from his cross-examination. His explanation further seems sensible when one considers that, the day after Mrs. Cullen was served, Cullen was served on behalf of Streambank at his home (where his wife had been served the day before). It begs the imagination as to why Keith did not serve him personally at the time to ensure Cullen was aware the action was being pursued against him, but he did not.
[36] It bears noting that Cullen’s affidavit is silent about the subsequent service by mail but Cullen has generally deposed that he never received notice of the claim in any way. I accept that this would include a service by mail at his home which he was in the process of leaving.
[37] Furthermore, as noted, the record is very confusing as to whether Cullen later defended the action as alleged by Apollo. Although the Statement of Defence was delivered on behalf of all defendants, I accept Cullen’s explanation that he never did instruct Morris to defend him and the record generally supports this contention: specifically, there is no evidence of any retainer, fee accounts or communications between Morris and Cullen. Morris cannot even recall Cullen. Significantly, the conversation between Apollo and Morris as to whether Morris represented Cullen continued for years. I also accept Cullen’s evidence that he was unaware of the scheduling of examinations for discovery. This is hardly surprising given the confusion surrounding the retainer and the fact Morris did not know Cullen was in the process of moving to British Columbia.
[38] Last, with respect to the issue of delivery of the Statement of Defence on Cullen’s behalf, I acknowledge that Rule 16.01(2) provides that if a party is not served with an originating process but delivers a defence he will be deemed to have been served with the originating process. In my view, however, based on the above, Cullen has established that he did not deliver a defence since Morris did not have authority to defend on Cullen’s behalf.
[39] In all of these circumstances I accept Cullen’s submission that he was not made aware of the service of the Statement of Claim upon him in his personal capacity until the judgment was registered in British Columbia.
Can Service Be Set Aside “As of Right” If Cullen Was Not Made Aware Of Service?
[40] Having made this finding, the second issue is whether the default judgment can be set aside as of right as asserted by Cullen. He submits that since the Statement of Claim did not come to his attention the default judgment can be set aside as of right. In this regard, he relies upon Rule 16.07 of the Rules of Civil Procedure which states as follows:
Even though a person has been served with a document in accordance with these rules, the person may show on a motion to set aside the consequences of default, for an extension of time or in support of a request for an adjournment, that the document,
(a) did not come to the person’s notice; or
(b) came to the person’s notice only at some time later than when it was served or is deemed to have been served.
[41] Cullen concedes, however, that he was properly served by way of an alternative to personal service prescribed pursuant to Rule 16.03(5).
[42] Cullen relies primarily upon the decision of the Court of Appeal in Royal Trust Corp. of Canada v. Dunn, 1991 CanLII 7227 (ON SC), 6 O.R. (3d) 468, at para. 19, wherein the Court stated:
It is well established that there are two situations in which the court is able to set aside a default judgment. … The first is when a defendant is able to establish that the judgment was irregularly obtained. If the defendant can establish that correct procedures have not been followed either in obtaining the judgment or in relation to some step taken by the plaintiff in the commencement of the proceedings, such as in failing to serve the statement of claim in a proper manner, then normally the defendant can have the judgment set aside as of right without the requirement of establishing a defence to the plaintiff’s claim. The second is when the judgment has been regularly obtained and where the defendant asks the court to exercise its discretion to set aside the default judgment and to permit him or her to defend the claim. It is in the second situation that the defendant is required to satisfy a number of conditions, including establishing a defence to the action on the merits, before the court will exercise its discretion in the defendant’s favour, and then usually on the imposition of terms, such as payment into court of the amount claimed and the costs thrown away.
[43] The difficulty with Cullen’s submission is that Cullen was properly served by way of an alternative to personal service. As noted above in Royal Trust where judgment has been regularly obtained, as it was here, Cullen is required to satisfy a number of conditions before the Court will exercise its discretion. The default judgment therefore cannot be set aside as of right and Cullen must satisfy the five discretionary factors set out by the Court of Appeal in Mountain View Farms Ltd., at paras. 48-50.
The Discretionary Factors
[44] I will now turn to the discretionary factors and thereafter analyse whether the judgment can be set aside with respect to the issue of pre-judgment interest.
[45] The Court of Appeal established the following five discretionary factors in Mountain View Farms to determine whether a default judgment ought to be set aside:
a) whether the motion was brought promptly after the defendant learned of the default judgment;
b) whether the defendant has a plausible excuse or explanation for the default;
c) whether the defendant has an arguable defence on the merits;
d) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff 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.
[46] Further, as stated in Mountain View Farms, at para. 50, these factors are not rigid rules and 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.
[47] In my view, Cullen has satisfied the five discretionary factors and that in the particular circumstances of this case it would be just to relieve Cullen from the consequences of the judgment.
[48] I will deal with each of the five factors in turn.
[49] First, the motion was brought promptly. Even though significant time has passed from when Cullen learned of the noting of default (2011) to today’s date, that time was largely spent first trying to have the orders stayed in British Columbia and, second, dealing with procedural issues before Justice Newbould and myself. There is certainly no reasonable argument to suggest delay in these circumstances. It was reasonable for Cullen to first pursue the matter in British Columbia; thereafter, the matter became complicated by virtue of the fact it was swept up with a number of other actions before Justice Newbould. The action was subsequently case managed.
[50] Second, as I have noted above, Cullen has a plausible excuse for the default. He has deposed that service of the claim did not come to his attention and that he believed that the action was only being pursued against his company, Streambank, based on the fact that he was only served with the Statement of Claim as a representative of Streambank. I have accepted his explanation. As I have noted above, Cullen thereafter moved to British Columbia and the action did not come to his attention until he learned of the noting in default in 2011.
[51] Third, Cullen has arguable defences on the merits. As I will analyze further below, I accept that Apollo did not claim a contractual rate of interest in the Statement of Claim and the contractual rate ought not to have been granted. Further, while I do not necessarily accept that Cullen has a defence with respect to Apollo’s calculation of the amount due under the personal guarantee he executed, there are the other defences. Cullen plans to raise the defence of the plaintiff’s failure to mitigate (that Apollo failed to take reasonable steps to re-let the commercial premises). The defences of delay and a reduction in pre-judgment interest are also available to Cullen given the length of time that Apollo took to obtain judgment. It is my view that in the interests of justice he should be allowed to raise all defences including a reduction with respect with the amount paid by Belitzky.
[52] Fourth, I accept that there is prejudice to Cullen if the motion is dismissed. The amount of pre-judgment interest is significant: $570,741 on a damages award of $160,708. Further, the judgment was delivered on December 22, 2003. Post-judgment interest would also be considerable. Again, a fact that must also be considered is that Apollo received almost the entirety of the principal amount, plus pre-judgment interest, from Belitzky in 2005, which will have to be considered in the action against Cullen. This significantly reduces any potential prejudice to Apollo. Notwithstanding the passage of time, there do not appear to be significant evidentiary issues given the rather straightforward nature of the action against Cullen which would cause Apollo prejudice. Even if such issues arise, the delay cannot be visited upon Cullen considering the enormous amount of time that has passed since the issuance of the Statement of Claim, very little of which has to do with Cullen. Last, Apollo submits, due to the age and health of Malamas and Cullen, the matter should come to an end now and not be allowed to continue. While it is unfortunate the action has lingered on this long, the age or health of the primary players cannot prejudice Cullen’s right to a fair process.
[53] Fifth, when one considers the overall integrity of the administration of justice it is reasonable to set aside the default judgment. Apollo has essentially been paid the principal and considerable interest by Belitzky. Where Cullen was not made aware of the service of the claim and in the specific and unusual circumstances of this case, it is reasonable to allow Cullen the opportunity of a full defence both with respect to liability and damages.
The Award of Contractual Interest
[54] Even if I am in error with respect to the application of the discretionary factors I would set aside judgment of Justice Cameron based on the award of contractual interest.
[55] Justice Cameron awarded interest on the contractual rate set out in the lease, which was 5% above the Bank of Canada rate on a simple annual basis.
[56] The salient paragraphs of the Statement of Claim read as follows:
a) damages for breach of a Lease Agreement dated September 30, 1989 in the amount of $12,672.50;
b) continuing damages for breach of a Lease Agreement in an amount yet to be determined;
c) a declaration that the Lease Agreement is still in effect;
d) all expenses incurred by the plaintiff in attempting to obtain replacement tenants;
e) special damages in the amount of $3,150.00
f) costs to remove the lease hold improvements on the premises;
g) pre-judgment and post-judgment interest in accordance with the Courts of Justice Act, 1984, S.O. 1984, c.11;
h) costs of this action.
The plaintiff further states that the defendants are liable for breach of a Lease in an amount yet to be ascertained with respect to further rent and expenses owing pursuant to its terms.
[57] Apollo submits that paragraphs 1(b) and 11 should be interpreted so they could include any claim for contractual interest. I disagree.
[58] In paragraph 1, there is a clear claim for pre-judgment interest in accordance with the Court of Justice Act. Further, a plain reading of paragraph 11 demonstrates that those claims relate to rent and other damages and not pre-judgment interest. That being the case, no claim for contractual interest is pleaded.
[59] Having come to this conclusion, it is my view that the judgment is substantively incorrect with respect to the issue of pre-judgment interest. Accordingly, it would be reasonable to set aside the judgment with respect to pre-judgment interest.
[60] I am prepared to go further, however, and set aside the entire judgment. Belitzky has paid Apollo virtually all of the principal judgment. It would therefore be just in the circumstances to set aside the entire amount and leave both principal and interest open to dispute.[^4]
Other Issues
[61] In addition to the above, Malamas claims that the motion should be dismissed since Cullen had engaged in an abuse of process by litigating in both Ontario and British Columbia. I disagree. Based on my analysis above, it was reasonable for Cullen to proceed as he has in the circumstances, particularly in light of the order of Justice Punnett. There has been no abuse of process.
[62] Malamas also submits that Cullen has engaged in a collateral attack on previous orders of this Court by now seeking to set aside the default. Once again, I disagree. Cullen is simply trying to set aside the noting in default and the judgment as provided for in the Rules of Civil Procedures. And, he has succeeded.
[63] Last, given my findings, I do not need to deal with Cullen’s alternative argument that he ought to be released from any liability as a result of payments made by Belitzky to Apollo. This argument can be raised in the action that Cullen will now be defending. It would be premature to determine the issue on this motion.
Disposition
[64] For the reasons above, the noting of default and the judgment are set aside. Cullen is permitted to file a Statement of Defence in the action within 30 days of the delivery of these Reasons for Decision.
[65] If the parties cannot determine the issue of costs, I will entertain written submissions. Cullen is to provide me with written submissions not exceeding three pages with the exception of his bill of costs within 14 days. Apollo shall respond within 14 days with similar restrictions.
Mr. Justice T. McEwen
Released: December 12, 2016
ONSC 7449
COURT FILE NO.: 90-CU-399680
DATE: 20161212
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
APOLLO REAL ESTATE LIMITED
Plaintiff
– and –
STREAMBANK FUNDING INC. O/A THE EQUITY CENTRE, GARY M. CULLEN and IRWIN BELITSKY
Defendants
REASONS FOR DECISION
MR. JUSTICE T. MCEWEN
Released: December 12, 2016
[^1]: Pre-judgment interest was calculated at the contractual rate which was 5% above the Bank of Canada rate. [^2]: At this point in time Apollo was again represented by counsel. [^3]: Apollo also disputes this but, in my view, Cullen’s assertions in this regard are supported by the record. [^4]: This is particularly so where, as I outline in para [63], Cullen also sought a declaration at this motion releasing him from any liability as a result of payments made by Belitzky.