CITATION: Manangan v. Shanmugam, 2017 ONSC 4596
COURT FILE NO.: CV-17-0206-00
DATE: 20170728
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MENNIE MANANGAN, Plaintiff
VIJAYATHAZA SHANMUGAM, ETHIRNAYAGAN RASONAYAGAM and 2166729 ONTARIO INC., Defendants
AND BETWEEN:
2166729 ONTARIO INC., Plaintiff by Counterclaim
MENNIE MANANGAN, Defendant by Counterclaim
BEFORE: André J.
COUNSEL: G. Cadogan, for the Plaintiff
A. Sidhu, for the Defendants/Plaintiff in the Counterclaim
HEARD: June 30, 2017
ENDORSEMENT
[1] Ms. Mennie Manangan brings a motion to set aside a default judgment in the amount of $189,016.95 made by Barnes J. on May 10, 2017.
[2] Ms. Manangan’s counsel submits that it would be in the interests of justice to set aside the default judgment. The defendants, however, insist that Ms. Manangan’s motion should be dismissed.
Background Facts
[3] On May 13, 2013, the defendant 2166729 Ontario Inc. (“216”), the vendor, and 2377530 Ontario Limited (“237”), the purchaser, entered into an agreement of purchase and sale of the assets of a restaurant (“the Property”), with which Ms. Manangan, who is the sole director of 237 intended to start her own restaurant. Ms. Manangan acted as a guarantor in the transaction. The agreed upon selling price of the Property was $215,000.
[4] Ms. Manangan could only raise $60,000 towards the purchase of the Property. Thereupon, 216 agreed to give Ms. Manangan three vendor take back (“VTB”) mortgages in the aggregate amount of $155,000. All three mortgages were secured against Ms. Manangan’s residential home.
[5] In addition to these three mortgages, another company, Home Trust Company, had a mortgage registered against Ms. Manangan’s home. This mortgage had priority over 216’s three mortgages. Mr. Shanmugam and Mr. Rasonayagam, who were the sole officers and directors of 216, claim that pursuant to the VTB agreement, 216 duly advanced Ms. Manangan the funds they had agreed to lend her. Ms. Manangan however, claims that 216 never advanced her any money and fraudulently seeks compensation for money they never advanced to her.
[6] In 2015, Ms. Manangan attempted to refinance her property and asked the defendants to remove their mortgages from her home to enable her to do so. Ms. Manangan claimed that she made this request because the VTB had been subject to a Readjustment Agreement signed by the defendants, in which they had agreed to adjust the loan amounts partly as a result of income they received from the operation of the restaurant.
[7] On or about December 15, 2015, Home Trust Company noted Ms. Manangan in default. The company subsequently sold Ms. Manangan’s home for $560,000. There was a balance of $121,759.80 from the net proceeds of sale. Home Trust commenced an application in Hamilton, Ontario and pursuant to a court order dated May 10, 2016, paid the full balance from the net proceeds of sale into court.
[8] Thereupon, 216 brought a motion on January 3, 2017 in Hamilton for the release of the $121,759.80 paid into court by Home Trust Company, to recover a portion of the approximately $189,016.95 which it claimed Ms. Manangan owed.
[9] On January 16, 2017, Ms. Manangan issued a statement of claim against the defendants seeking damages for breach of contract and fraud on account of their refusal to consent to her request to refinance her property.
[10] On February 10, 2017, the defendants served and filed their statement of defence and counterclaim to enforce the mortgage debt which they claimed Ms. Manangan owed.
[11] On March 6, 2017, Mr. Sidhu, counsel for the defendants, cautioned Mr. Cadogan, Ms. Manangan’s counsel, that if he did not file a defence to the counterclaim, the defendants would seek to have Ms. Manangan noted in default. Ms. Manangan’s counsel did not file a response and, on March 10, 2017, the defendants noted her in default.
[12] On the same day, Mr. Cadogan sent a letter to Mr. Sidhu asking him to consent to the lifting of the noting in default or, alternatively, to provide him with dates for the hearing of a motion to set aside the noting in default.
[13] Mr. Cadogan contemplated bringing a motion to set aside the default judgment on or about April 28, 2017. He advised Mr. Sidhu on April 10, 2017 that he would be serving and filing his motion materials on April 14, 2017. The motion was not brought as contemplated. Mr. Cadogan advised Mr. Sidhu that he could not proceed on April 14, 2017 because he could not locate several documents related to the motion. Mr. Sidhu then brought a basket motion seeking judgment with respect to his clients’ counterclaim. On May 10, 2017, Barnes J. granted the defendants’ judgment in their counterclaim against Ms. Manangan in the amount of $189,016.95.
Governing Principles
[14] In Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, the Court of Appeal noted the following:
[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 principles in those cases of 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.
[50] These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.
[15] In Watkins v. Sosnowski, 2012 ONSC 3836, at paras. 19 and 20, Perell J. noted that:
[19] On a motion to set aside a default judgment, the court will consider: (a) whether the motion to set aside the judgment was brought promptly; (b) where there is a plausible excuse or explanation for the defendant’s default in complying with the Rules; and, (c) whether the facts establish at least an arguable defence. See: Nelligan v. Lindsay, [1945] O.W.N. 295 (H.C.J.); Laredo Construction Inc. v. Sinnadurai (2005), 2005 CanLII 46934 (ON CA), 78 O.R. (3d) 321 (C.A.); and Morgan v. Toronto (Municipality) Police Services Board, 2003 CanLII 14993 (ON CA), [2003] O.J. No. 1106 (C.A.).
[20] The factors, however, are not treated as rigid rules, and the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default: Morgan v. Toronto (Municipality) Police Services Board, supra; Chitel v. Rothbart, [1988] O.J. No. 1197, 29 C.P.C. (2d) 136 (C.A.), leave to appeal refused [1988] S.C.C.A. No. 427, 98 N.R. 132n (S.C.C.). The motions judge or master must ultimately determine whether the interests of justice favour setting aside the default judgment: Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. (2007), 2007 ONCA 333, 87 O.R. (3d) 479 (C.A.).
Analysis
[16] The overarching factor in determining whether to set aside a default judgment is whether the interests of justice favour granting the order. A determination of this issue necessarily involves an assessment of the factors enumerated by the Court of Appeal in Mountain View Farms. These factors can be made into the following questions:
(a) Was the motion brought promptly after the plaintiff learned of the default judgment?
(b) Was there a plausible excuse or explanation for the plaintiff’s failure to comply with the Rules?
(c) Does Ms. Manangan have an arguable defence on the merits?
(d) What is the potential prejudice to the plaintiff if the motion is dismissed and the potential prejudice to the defendants if the motion is allowed?
(e) What is the effect of an order which I may make on the overall integrity of the administration of justice?
Was the motion brought promptly after the plaintiff learned of the default judgment?
[17] While Mr. Cadogan advised his counterpart of his client’s intention to set aside the default judgment, he undoubtedly delayed in preparing, serving and filing his motion documents. Furthermore, it appears that he was somewhat less than diligent in filing his motion documents.
[18] On the other hand, Mr. Cadogan notified Mr. Sidhu in April that he was having some difficulty obtaining the relevant materials to perfect his motion. Mr. Sidhu was well aware of Mr. Cadogan’s intention to bring a motion to set aside, yet nevertheless proceeded to seek default judgment on May 10, 2017.
[19] In my view, the delay was not such as should justify the dismissal of the motion to set aside Justice Barnes’ May 10, 2017 order and the noting in default on March 10, 2017. Additionally, Ms. Manangan should not be penalized on account of her counsel’s tardiness in filing the motion to set aside the noting in default.
Was there a plausible excuse or explanation for the plaintiff’s failure to comply with the Rules?
[20] Mr. Cadogan sent an email to Mr. Sidhu on March 10, 2017, the day that his client was noted in default. The email indicated that Mr. Cadogan had not completed his defence to the counterclaim and that he expected to do so by the next day. After being advised of the court’s decision earlier that day, Mr. Cadogan replied by email on the same day that, if necessary, he would be bringing a motion to set aside the noting in default.
[21] On April 14, 2017, Mr. Sidhu sent an email to Mr. Cadogan indicating that he may require an adjournment of the motion to set aside, presumably because he had not received the motion materials from Mr. Cadogan. Mr. Cadogan replied that Mr. Sidhu would receive the materials the following Tuesday. Mr. Sidhu never received the materials.
[22] There was no reason for Mr. Sidhu to have proceeded to seek a default judgment without any specific indication that Ms. Manangan had abandoned her intention to bring a motion to set aside the court’s March 10, 2017 order. To the contrary, Mr. Cadogan had advised Mr. Sidhu on or about April 14, 2017 that he was having difficulty obtaining the materials to perfect his motion.
[23] In my view, this factor should not weigh against Ms. Manangan in her motion to set aside the default judgment.
Does Ms. Manangan have an arguable defence on its merits?
[24] The essence of Ms. Manangan’s defence to the defendants’ counterclaim is that they never advanced her any money pursuant to the VTBs which they gave her. Ms. Manangan’s counsel submits that the defendants do not have any proof by way of certified cheques, bank drafts, money transfers or any bank records to confirm that 216 advanced the mortgage amounts claimed.
[25] Mr. Cadogan also presents documents to show that the purchase and sale agreement was subject to readjustments on the closing date of the transaction. She relies on an “Undertaking to Readjust” (“the Undertaking”) executed by the individual defendants on July 18, 2013 as proof that the sale price of $215,000 had to be adjusted to reflect retail profits received by 216 between June and September 2013, monies taken by the individual defendants from the business during the period, and a $20,000 reduction in the sale price “because the defendant did not have a security deposit of $20,000 held by the landlord” of the restaurant.
[26] The defendants submit that Ms. Manangan has no arguable defence for the following reasons:
(a) She did not commence her action until January 16, 2017, nearly three and a half years after the undertaking was executed;
(b) The defendants refused to postpone their mortgages on Ms. Manangan’s house on August 25, 2014. Her action, which was commenced in excess of two years after the cause of action arose on August 25, 2014, is therefore statute-barred.
[27] The defendants submit that Ms. Manangan’s claim for relief is statute-barred pursuant to s. 5(3) of the Limitations Act, R.S.O. 2002, c.24, Sched. B. It may well be the case that Ms. Manangan’s claim for damages and other relief from the defendants may be statute-barred. That said, she cannot be prevented from claiming, as a defence to the counterclaim, that the respondents did not advance any funds to her and that, even if they did, it amounted to a figure that was significantly less than the amount they now claim from her. The defendants have given no response to Ms. Manangan’s contention that she did not receive any funds from them; rather, they insist that her claim is statute-barred. To that extent, Ms. Manangan has an arguable defence on its merits and this weighs in favour of setting aside the default judgment.
What is the potential prejudice to Ms. Manangan if the motion to set aside is dismissed and the prejudice to the defendants if the motion is allowed?
[28] If Ms. Manangan’s motion to set aside is dismissed, she stands to lose the $121,759.80 paid into the Court as the remainder of the net proceeds of sale of her home. Furthermore, if her affidavit is correct that the defendants never advanced her $155,000 as they claim, then she would be required, if the default judgment stands, to “repay” a significant sum of money to the defendants which she never received.
[29] Similarly, there is some prejudice to the defendants if Ms. Manangan’s motion is allowed. They will have to wait for judgment in their counterclaim and incur additional expense to collect money allegedly owed to them. On the other hand, a significant portion of the debt which may be owed to them is being held in court, pending the outcome of this litigation. There is no risk that, if the litigation is allowed to proceed, these funds will be depleted or disposed of in the interim.
[30] In my view, the potential prejudice to Ms. Manangan, if her motion to set aside the default judgment fails, outweighs the potential prejudice which the defendants will suffer if the motion succeeds. To that extent, this factor weighs in favour of setting aside the default judgment.
What is the effect of an order which I may make on the overall integrity of the administration of justice?
[31] Quite clearly, the interests of both parties diverge significantly in this case. The defendants wish to recoup, as soon as possible, money that is alleged to be owed to them. Ms. Manangan wishes, on the other hand, to set aside a judgment that effectively deprives her of an opportunity to seek legal redress against the defendants, whom she maintains are seeking to be unjustly enriched at her expense.
[32] In my view, the interests of justice favour the setting aside the default judgment.
Conclusion
[33] I order that the default judgment of Justice Barnes dated May 10, 2017, is set aside and the order noting her in default. Ms. Manangan may deliver her defence to the defendants’ counterclaim within twenty (20) days.
Costs
[34] The plaintiff seeks costs in the amount of $3,000, inclusive, while the defendants seek costs in the main action and in the motion to set aside, in the amount of $9,605.80 on a substantial indemnity basis.
[35] In determining the quantum of costs that are fair and reasonable in this matter, I take the following factors into consideration:
The plaintiff has been substantially successful in this motion;
The issues were moderately complex and required a fair amount of preparation; and
The plaintiff unsuccessfully sought to have the defendants consent to set aside the default judgment.
[36] In my view the costs sought by the plaintiff are fair and reasonable.
[37] The defendants are ordered to pay costs fixed in the amount of $3,000 inclusive, to the plaintiff forthwith.
André J.
DATE: July 28, 2017
CITATION: Manangan v. Shanmugam, 2017 ONSC 4596
COURT FILE NO.: CV-17-0206-00
DATE: 20170728
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MENNIE MANANGAN, Plaintiff
VIJAYATHAZA SHANMUGAM, ETHIRNAYAGAN RASONAYAGAM and 2166729 ONTARIO INC., Defendants
BEFORE: André J.
COUNSEL: G. Cadogan, for the Plaintiff
A. Sidhu, for the Defendants/ Plaintiff in the Counterclaim
ENDORSEMENT
André J.
DATE: July 28, 2017