CITATION: Bank of Montreal v. Karrys, 2017 ONSC 6047
COURT FILE NO.: CV-14-4017-SR
DATE: 2017 10 10
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Bank of Montreal
Plaintiff
Peter J. Karrys also known as Peter J Karrys also known as Peter Karrys
Defendant
BEFORE: Bloom, J.
COUNSEL: Sean Butt, for the Plaintiff
Peter Karrys, self-represented
HEARD: August 8 and September 27, 2017
E N D O R S E M E N T
I. INTRODUCTION
[1] The Defendant moves to set aside the default judgement signed by the Local Registrar at Brampton on January 19, 2015.
II. FACTUAL AND PROCUDURAL BACKGROUND
[2] The Defendant’s personal credit card account with the Plaintiff was opened in January of 1987. By a letter dated June 26, 2014 from its lawyers to the Defendant, the Plaintiff demanded payment of the balance owed on the account which was asserted as being $ 78,632.95 as of June 20, 2014.
[3] The Plaintiff in approximately June of 2013 had agreed to provide financing to Karrys Bros. Limited (KBL), a corporation owned by the Defendant and his cousin, Steven Karrys. The Plaintiff was KBL’s first ranking secured creditor pursuant to the financing arrangements.
[4] After years of ongoing litigation, a settlement agreement dated February 5, 2014 was reached relating to disputes between the two cousins involving KBL. That agreement called for a $300,000 payment by KBL to the Defendant immediately, with a further payment by KBL of either (a) $450,000 if KBL were sold or (b) $ 300,000 by July 2014 (if KBL were not sold).
[5] By approximately February of 2014 the first $ 300,000 was being held in trust by KBL’s lawyers after payment by the company. That sum had not been paid to the Defendant by June 25, 2014 according to the affidavit of Joel Kissack sworn June 16, 2017; Mr Kissack was a solicitor who represented the Defendant.
[6] Although there is a significant difference between the parties as to how early negotiations took place, it is clear that during late June of 2014, counsel for the Plaintiff and counsel for KBL were working on a new Financing Agreement. The nature of the negotiations and agreements reached is set out in the affidavit of Joel Kissack. I accept the evidence of Mr. Kissack that the Plaintiff attempted to restrict payments to the Defendant under the settlement agreement in the financing agreements struck; and that those agreements, including at least one signed by the Defendant, reflected this intent. The Plaintiff does not contest this evidence; it argues that it was simply enforcing its rights as a first secured creditor of KBL, not targeting the Defendant among other unsecured creditors.
[7] In December of 2014 an agreement in the sequence of financing arrangements was signed which prohibited any payments to the Defendant under the settlement agreement until the Plaintiff was paid its full debt by KBL; that payment was contemplated as being when the sale of KBL’s assets took place.
[8] On September 3, 2014 the Plaintiff had issued a Statement of Claim for the credit card debt.
[9] On January 19, 2015 the Local Registrar in Brampton signed default judgement in that action for $ 83,418.98 plus $ 1213.94 in costs. The record before me contains no explanation for the default of the Defendant.
[10] On February 18, 2015 the Defendant served a Statement of Defense and Counterclaim on the lawyers for the Plaintiff. On April 7, 2015 the Defendant was unsuccessful in filing that pleading because default judgement had been signed. On June 30, 2015 the Defendant filed a Statement of Claim against the Plaintiff in the Milton office of this court; that pleading in substance repeated the allegations in the counterclaim.
[11] On October 22, 2015 Justice Edwards of this court heard and dismissed a motion by the Plaintiff for a stay of execution of the default judgement and in the alternative for an opportunity to file a motion to set aside the default judgement.
[12] On May 2, 2016 the Ontario Court of Appeal heard the Defendant’s appeal from that order. On May 4, 2016 that court delivered judgement. The Court set aside the order of Justice Edwards, and allowed the Defendant 15 days to deliver a motion to set aside the default judgement. The Court also ordered that “[c]osts of the appeal are in the cause of the motion to set aside the default judgment to be determined by the motion judge.” The motion at bar is the one brought pursuant to the order of the Court of Appeal.
III. GOVERNING PRINCIPLES
[13] Rules 19.04(1) and 19.08(1) and (3) provide:
BY SIGNING DEFAULT JUDGMENT
Where Available
19.04 (1) Where a defendant has been noted in default, the plaintiff may require the registrar to sign judgment against the defendant in respect of a claim for,
(a) a debt or liquidated demand in money, including interest if claimed in the statement of claim (Form 19A);
(b) the recovery of possession of land (Form 19B);
(c) the recovery of possession of personal property (Form 19C); or
(d) foreclosure, sale or redemption of a mortgage (Forms 64B to 64D, 64G to 64K and 64M). R.R.O. 1990, Reg. 194, r. 19.04 (1).
SETTING ASIDE DEFAULT JUDGMENT
19.08 (1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rule 19.04 may be set aside or varied by the court on such terms as are just. R.R.O. 1990, Reg. 194, r. 19.08 (1).
(3) On setting aside a judgment under subrule (1) or (2) the court or judge may also set aside the noting of default under rule 19.03. R.R.O. 1990, Reg. 194, r. 19.08 (3).
[14] In a leading textbook on civil procedure, Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 2d ed (Markham, Ontario: LexisNexis Canada Inc., 2014) at paras. 6.60 to 6.64 the learned authors set out the following principles relative to setting aside a default judgement:
On a motion to set aside a default judgement, the court will consider the following three factors: (a) whether the motion to set aside the judgment was brought promptly; (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 at least an arguable defence. 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….The motions judge…must ultimately determine whether the interests of justice favour setting aside the default judgment.
In circumstances where the plaintiff has obtained default judgment, the factor of showing a defence on the merits is particularly important because it may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. Conversely, the motion to set aside the judgment may be dismissed, if the defendant cannot show a reasonable defence. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed….To set aside a default judgment, the defendant should show that his or her defence has an air of reality and that there is a genuine issue requiring a trial.
Where the default judgment is not set aside but there is a legitimate counterclaim arising out of the same circumstances, the court may stay enforcement of the default judgment on terms which may include an obligation on the defendant to pay moneys into court pending determination of the counterclaim.
IV. ANALYSIS
[15] The Defendant argues that the default judgement should be set aside. He argues in his factum that “delays in this matter have been caused by…[his] lack of knowledge of the law and its procedures, and the fact that he is self-represented in complicated legal matters and made mistakes in his first motion believing …[the Plaintiff] obtained a summary judgment.” He further argues orally that the claims of “intentional interference in economic relations and intentional interference with contractual relations” in his counterclaim (repeated in the Statement of Claim filed in Milton) based on the Plaintiff’s restriction of the payment of funds to him under the settlement agreement involving KBL, create a set-off defense which he ought to be permitted to pursue in the action before me.
[16] The Plaintiff argues that the motion at bar ought to be dismissed because it was not brought promptly; because the Defendant has not offered an excuse for his default; and because he has no arguable defence. In respect of the last point, the Plaintiff argues that neither legal nor equitable set-off applies based on evidence in the record. The Plaintiff also argues that the Defendant’s counterclaim is baseless, since the Plaintiff was simply pursuing its rights as a first secured creditor when it sought successfully to restrict payments to the Defendant under the settlement agreement with KBL.
[17] The principles of legal and equitable set-off are important to an analysis of whether there is an arguable defense. I will now address them.
[18] In Agwary Metals Inc. v. Dufferin Roofing Ltd., [1991] O.J. No. 9 (Ont. Sup.Ct.) at pages 3-4 Justice Then discussed the elements of legal set-off:
Legal Set-off
The requirements of a legal set-off are set out in Canadian Imperial Bank of Commerce v. Tucker Industries Inc.; Benyan & Co., Claimant (1983), 1983 CanLII 302 (BC CA), 149 D.L.R. (3d) 172 at p. 174, [1983] 5 W.W.R. 602 at 604, 46 B.C.L.R. 8, as cited in Telford v. Holt 1987 CanLII 18 (SCC), 41 D.L.R. (4th) 385 at 393 (S.C.C.) as follows:
... statutory set-off (or set-off at law) requires the fulfilment of two conditions. The first is that both obligations must be debts. The second is that both debts must be mutual cross obligations.
... 'mutual debts' means practically debts due from either party to the other for liquidated sums, or money demands which can be ascertained with certainty at the time of pleading.
[19] In Trentfab Inc. (Receiver of) v.X-Act Systems Inc., 2015 ONSC 3692 at para. 14, Justice Corbett states:
The principles that apply to equitable set-off are:
(a) The party relying on a set-off must show some equitable ground for being protected against the adversary's demands.
(b) The equitable ground must go to the very root of the Plaintiff's claim.
(c) A cross-claim must be so clearly connected with the demand of the Plaintiff that it would be manifestly unjust to allow the Plaintiff to enforce payment without taking into consideration the cross-claim.
(d) The Plaintiff's claim and the cross-claim need not arise out of the same contract.
(e) Unliquidated claims are on the same footing as liquidated claims.
[20] In Algoma Steel Inc. v. Union Gas Limited, 2003 CanLII 30833 (ON CA), 63 O.R. (3d) 78 (Ont. C.A.) at para. 29 Justice Rosenberg for the Court stated:
[29] It seems to me that a very helpful test is set out in a passage from the reasons of Lord Denning in Federal Commerce at p. 1078 All E.R. and which was quoted with apparent approval by Wilson J. in Telford at pp. 213-14 S.C.R., p. 400 D.L.R.:
We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties? . . . This question must be asked in each case as it arises for decision; and then, from case to case, we shall build up a series of precedents to guide those who come after us. But one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff's demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.
(Emphasis added)
[21] In CIBC World Markets Inc. (CIBC Wood Gundy) v. Burgess, [2009] O.J. 1724 (Ont. Sup. Ct.) at paras. 29 to 31 Justice D.M. Brown as he then was stated:
29 In considering the requisite degree of connectedness required to support a claim of equitable set-off Lane J. referred to the decisions of this Court in Agway Metals Inc. v. Dufferin Roofing Ltd.(1991), 46 C.P.C. (2d) 133 and Fasco Motors Ltd. v. General Refrigeration, [1998] O.J. No. 1751:
14 [In Agway Metals Inc. v. Dufferin Roofing (1990) 46 C.P.C. (2d) 133] [p]laintiff's motion for summary judgment in an action for such payment was allowed by Then J. and the defendant's claim for equitable set-off for further weight deficiencies in other shipments, but not in the unpaid shipments, was refused. The shipments were separate transactions and the defendant's claim had not been brought about by, contributed to, or otherwise so closely connected with the plaintiff's claim as to make it unconscionable to allow the plaintiff's claim to succeed. On appeal, the Court of Appeal agreed with the reasons of Then J. and dismissed the appeal, [1994] O.J. No. 3671.
15 Finally, in Fasco Motors Ltd. v. General Refrigeration Inc., [1998] O.J. No. 1751 (O.C.G.D.), Ground J. said at paragraph 8:
... it is settled law that a party may not maintain a set-off claim based upon rights it may have arising from a contract to purchase different goods, under a different contract, at a different time, from the same vendor.
He then referred to Agway and to a passage from Spry: Equitable Remedies, 3rd edition at p. 137:
What generally must be established is a relationship between the respective claims of the parties which is such that the claim of the defendant has been brought about by, or has been contributed to by, or is otherwise closely bound up with, the rights that are relied on by the plaintiff and which is such that it would be unconscionable that he should be able to proceed without permitting a set-off.
30 Applying those principles to the present case, in my view no connection exists between the claim of the CIBC on its loan and the claim of Ms. Burgess for constructive dismissal. Although the loan claim and constructive dismissal claim both relate to the employment relationship that existed between the CIBC and Ms. Burgess, it cannot be said that her claim was "brought about by, or has been contributed to by, or is otherwise closely bound up with, the rights that are relied upon by the" CIBC. The loan was created three years prior to Ms. Burgess' resignation. By its terms the loan contemplated that it would be repayable upon the ending of her employment "for any reason whatsoever". In my view no connection exists between the circumstances that gave rise to Ms. Burgess' indebtedness under the loan and the conditions which brought her employment to an end.
31 I conclude that the CIBC has demonstrated that no genuine issue for trial exists with respect to Ms. Burgess' claim for set-off.
[22] The parties agree that there is no evidence in the record explaining the default of the Defendant in complying with the Rules.
[23] Assuming that the Defendant did not learn of the default judgement until April 7, 2015 when he was unable to file his Statement of Defense and Counterclaim because default judgement had been signed, he has still not demonstrated that he moved promptly to set aside that judgement. He did not serve a motion to set aside the default judgement until September 21, 2015. There is no explanation for this delay of over five months to serve this motion; clearly the Defendant did not move promptly to set aside the default judgement.
[24] The third element of the test in determining whether to set aside a default judgement is whether the Defendant has established an arguable defense. In that regard the question is whether the Defendant’s proposed Counterclaim establishes an arguable defense of set-off. Since there is no debt in existence owed to him by the Plaintiff, there is no arguable defense of legal set-off.
[25] With respect to equitable set-off, the issue as argued by the parties and according to my own analysis is whether the pressure by the Plaintiff to restrict payment of monies by KBL to the Defendant under the settlement agreement has been shown to be sufficiently connected to the credit card debt subject of the Plaintiff’s claim, to create an arguable defense of equitable set-off.
[26] In my view the requisite connection has been shown. The test at this point is whether the Defendant has established an air of reality to the defense, not whether he has discharged the burden of proof on the issue that he would carry at trial.
[27] The Plaintiff demanded payment of the credit card debt on June 26, 2014. However, exhibit D to the affidavit of Joel Kissick, specifically an e-mail from him dated July 3, 2014 at 2:37 pm of which a copy is sent to the lawyer for KBL, stated that “if the…[Plaintiff] is going to get in the way of the settlement payments—any of them--…[the Defendant] does not approve the bank agreement. The…[Plaintiff] has been sitting on this for months, knowing there was a settlement, knowing they were payments, seeing the $600K in the financials.”[emphasis added]
[28] In the context of the facts already set out, based on that document there is an air of reality to the defense contention that the Plaintiff, months before demanding payment of the credit card debt, was pressuring KBL not to make the payments pursuant to the settlement agreement to the Defendant. That would provide an explanation for the fact that the first $300,000, which had been paid into the trust account of KBL’s lawyers in approximately February of 2014, had not been paid to the Defendant by June 25 of that same year.
[29] There is thus sufficient evidence of connection between the Defendant’s inability to comply with the demand to pay the credit card debt and the Defendant’s contention of actionable interference with KBL’s payments to him under the settlement agreement, to establish an arguable defense of equitable set-off. In my view, the connection arguably would establish that it is unconscionable and unjust not to permit a set-off of any sum awarded to the Defendant pursuant to his Counterclaim against any sum awarded to the Plaintiff pursuant to its claim, it is clear from the affidavit of the Defendant sworn May 16, 2016 that restricting payment of monies under the settlement agreement would likely affect the Defendant’s ability to pay the credit card debt as demanded by the Plaintiff.
[30] I am mindful of the affidavit evidence of Hugh Devlin and Steven L. Graff. Mr Devlin, an official of the Plaintiff, in his affidavit sworn July 12, 2016 at paras. 14 and 16 did not deny the substance of the assertions made by Kissack in relation to the first $300,000. Devlin simply asserted that “[a]ny restrictions on the KBL credit facilities with BMO would have applied broadly; there were no specific restrictions on payments to any one KBL employee, shareholder or unsecured creditor.”
[31] Devlin also stated in his affidavit that the credit card account subject of the Plaintiff’s claim was opened in January of 1987, over 25 years before the Plaintiff extended credit to KBL.
[32] On this motion, unlike at trial, the Defendant’s burden in relation to the merits of his defense is simply to establish an arguable defense. As I have explained above, that issue became whether the necessary connection between the two claims had been shown to have an air of reality. As I noted, I have concluded that that burden has been discharged. It may be that at trial with a full evidentiary record the Defendant will not be able to make his counterclaim, and his defense of equitable set-off will fail. However, on the motion before me the Defendant has met his onus to demonstrate an arguable defense.
[33] Despite the Defendant’s failure to satisfy the other two elements of the test, I find it just to relieve him of the consequences of his default. I, therefore, order that the default judgement be set aside; that noting in default of the Defendant, if any, be set aside; that the Defendant have three weeks from the release of these reasons to serve and file his Statement of Defense and Counterclaim; and that the Rules will govern delivery of any subsequent pleadings.
V. COSTS
[34] If the parties are unable to agree on costs, they may serve and file written submissions on that issue. The submissions are to be no longer than 3 pages, excluding a bill of costs; there is to be no right of reply. The Defendant is to serve and file his submissions within 14 days of release of these reasons; and the Plaintiff is to serve and file its submissions within 14 days of service of the Defendant’s submissions. The parties in their submissions should address inter alia the costs issue spoken to be the Court of Appeal as discussed in paragraph 12 of this endorsement.
Bloom, J.
DATE: October 10, 2017
CITATION: Bank of Montreal v. Karrys, 2017 ONSC 6047
COURT FILE NO.: CV-14-4017-SR
DATE: 2017 10 10
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Bank of Montreal – and – Peter J. Karrys also known as Peter J Karrys also known as Peter Karrys
BEFORE: Bloom, J.
COUNSEL: Sean Butt, Counsel for the Plaintiff
Peter Karrys, Self-Represented
ENDORSEMENT
Bloom, J.
DATE: October 10, 2017