Court File and Parties
Citation: Khan v. Khan, 2017 ONSC 6089 Newmarket Court File No.: CV-16-127549-00 Date: 2017-10-11 Superior Court of Justice - Ontario
Re: Iqbal Alam Khan, Applicant And: Nasar Khan, Defendant
Before: The Honourable Justice S.E. Healey
Counsel: M. McKee, Counsel, for the Applicant M. El Rashidy, Counsel, for the Defendant
Heard: October 11, 2017
Endorsement on Motion
Nature of the Motion
[1] This is a motion to set aside default judgment of an application for sale under the Partition Act, R.S.O., 1990, c. P.4, granted on December 22, 2016.
The Applicable Principles
[2] Rule 19.08(2) provides the court with the authority to set aside or vary a judgment obtained against the defendant on a motion for judgment, on such terms as are just. In Intact Insurance Co. v. Kisel (2015), 2015 ONCA 205, 383 D.L.R. (4th) 130 (Ont. C.A.), the five major factors to be considered by the court when asked to set aside a default judgment were outlined as follows: (1) whether the motion was brought promptly after the defendant learned of the default judgment; (2) whether the defendant has a plausible excuse or explanation for the default; (3) whether the defendant has an arguable defence on the merits; (4) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff should the motion be allowed; and (5) the effect of any order the court might make on the overall integrity of the administration of justice. In Kisel the Court held that the default judgment should be set aside, where the defendant, relying on a hold harmless agreement, did not defend the action. The Court found that such reliance was a reasonable explanation or excuse for not delivering a statement of defence.
[3] In Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, the Court of Appeal made clear that the commonly accepted categories governing the exercise of discretion do not all have to be satisfied in order to grant a motion to set aside a default judgment. The primary question for the court to consider is whether the interests of justice favor an order setting aside the default judgment, having regard to the potential prejudice to both parties, and the effect of any order on the integrity of the administration of justice.
[4] In terms of evaluating whether the defendant has shown an arguable defence on the merits, the moving party must demonstrate with supporting evidence that there is a genuine issue for trial, rather than resting on mere allegations or denials: Bayview Financial, L.P v. Spartan Collision Corporation and Peter Aliferis 2007 ONSC 14304, [2007] O.J. No. 1609 (ON SC), aff’d 2007 ONCA 683. The test for determining whether there is a defence on the merits is a similar test to that under Rule 20.04.
[5] Provided that the defendant demonstrates a good defence on the merits, and brings the motion within a reasonable time, the fact that the defendant does not have a satisfactory explanation for the default will not necessarily be fatal: Chitel v. Rothbart (1988), 29 C.P.C. (2d) 136 (Ont. C.A.).
[6] Counsel for the respondent submits that Rule 38.11 also applies on the facts of this case. A party or affected person against whom judgment is obtained on an application may move to set aside the judgment where such party or person failed to attend at the hearing through accident, mistake or insufficient notice. Because the respondent never filed a Notice of Appearance or responding evidence, it appears most appropriate to deal with this matter under Rule 19.08(2).
The Evidence
[7] The property in question was purchased on October 31, 2007 based upon, according to the respondent, an agreement among eight family members to purchase a property for the family to live in. This arrangement had been discussed by the family members beginning in June of that year, and the subject property was chosen. According to the respondent, it was decided that the family would live together in the property and that the property would be owned in equal shares by each family member, with each member making a contribution toward payment of the purchase price, utilities and maintenance. It was further decided by the family that title to the property would be taken in the name of the applicant and the respondent for and on behalf of the family. The applicant, on the other hand, disputes that there was ever an agreement that the home would be a "family home" owned by numerous family members.
[8] Title to the property was registered in the name of the applicant and the respondent on October 31, 2007. There is no written trust agreement, and no ownership documents other than the deed.
[9] The family has lived in the residence continuously to this date, with the exception of the applicant. The applicant was required to vacate the property in August 2009 following criminal charges for assault and mischief arising from the assault of the parties' mother, and breaking some windows. The applicant does not dispute these facts.
[10] From the time of the purchase, the family has made all payments incidental to ownership of the property, including the down payment toward the purchase price, monthly mortgage payments, annual property taxes, insurance remands, utility bills, necessary maintenance and renovations. The applicant does not dispute this evidence. He states that he also contributed monies to the purchase of the house.
[11] The applicant has made no contribution to the expenses since the August 2009 criminal prosecution. The family's relationship with the applicant has been fractured since the incident. The applicant does not dispute these facts. He submits that it is to be expected that the other family members, who have had the benefit of living in the property since that date, should pay the carrying costs, rather than being evidence of any trust agreement.
[12] In addition to the allegation of a constructive trust agreement, the respondent's material alleges a second oral agreement. It is alleged that the applicant agreed that he would forfeit all right he might have had to an interest in the property in exchange for payment of approximately $8,000, plus being provided with rent-free premises for approximately 24 months. No further evidence of such agreement is contained in the motion record, including any evidence of whether such agreement was documented or its terms fulfilled. The applicant, significantly, does not dispute this allegation in his affidavit.
[13] The applicant states that he attempted to negotiate with the respondent, who has refused to consider a refinancing of the home to buy out his interest in the property. The applicant submits that he is a 50% owner as tenants in common, as shown on the deed. He did not indicate the time frame in which these negotiations took place.
History of the Preceding
[14] On August 28, 2016 the respondent was served with the application.
[15] The respondent learned of the default judgment on January 17, 2017 when he was advised of same by correspondence from the applicant's lawyer.
[16] The respondent retained his current counsel on March 15, 2017. The motion record to set aside the judgment was prepared on or about March 21, 2017. The respondent’s affidavit was sworn on March 18, 2017. Affidavits from six of the other family members are also contained in the motion record, and were sworn on March 21 or 22, 2017. It is undisputed that the respondent's current solicitor obtained the motion date of October 11, 2017 on March 21, 2017, which was the first long motion date available in Newmarket at the time.
[17] Between January 17 and March 15 the respondent's evidence was that he first had to wait for his parents, who were out of the country at the time, to return to discuss this matter with them because he needed their financial assistance and because they are co-owners of the property. They returned on January 31, 2017. On February 20, 2017 they had a meeting with their initial lawyer and provided him with the retainer. That lawyer took no steps to prepare motion material for setting aside the default judgment even though the respondent indicated that it was his intention to resist the application and deliver responding materials to the application for partition. On February 23, 2017 the former lawyer advised that he was no longer able to assist with the matter.
[18] The respondent then contacted his current lawyer of record and had an initial appointment on March 11, 2017. He retained him four days later. The motion to set aside the default judgment was prepared quickly thereafter.
[19] As earlier indicated, default judgment was granted in this matter by Di Luca, J. on December 22, 2016. The endorsement indicates that at 10:45 a.m. the respondent, having been paged, had still not appeared. As no response had been filed to the application, the endorsement states that "in the circumstances and in view of the submissions of counsel, I am prepared to grant the application".
[20] At issue on this motion is why the respondent was not present in court on December 22, 2016. His affidavit states that he was unaware of such date, believing that the court had scheduled an alternative date for the hearing, being February 24, 2017.
[21] According to the respondent, at the first appearance date of September 28, 2016 (possibly September 20, 2016 based upon the face of the Notice of Application), both he and his father appeared. This is not disputed by the applicant. The respondent did not have counsel at that first appearance. The respondent states that he did not speak with either the applicant's lawyer, nor was the matter addressed by the judge. Court was interrupted that day, which is not disputed by the applicant, by a fire drill that required everyone to exit the courthouse. On his return, the respondent was informed by a person whom he believed to be a clerk of the court that the matter had been postponed to February 24, 2017. In response to this, the applicant has provided a copy of correspondence dated November 22, 2016 sent by his lawyer to the respondent advising him that this matter had been adjourned to December 22, 2016 at Newmarket. The respondent has not provided any explanation for why that correspondence did not come to his attention, but deposed that the first time he became aware that the matter had proceeded in his absence on December 22, 2016 was when he received notice on or about January 17, 2017 that default judgment had been granted against him.
[22] The respondent states that he did not act quickly to retain a lawyer or prepare responding material for several reasons. First, he did not believe that the applicant would proceed with the Application because of what, according to the respondent, the entire family knew was an agreement to hold the property in trust for the family. The second reason was his own lack of money to retain counsel, and not wanting to incur what he perceived to be unwarranted legal costs. This attitude appears to have been reinforced at the first appearance of this matter in September, when the applicant indicated to the respondent that he was only interested in obtaining a reasonable payment and that he would contact him to resolve the matter amicably. Based on his understanding that the next court date was February 24, 2017, he believed that he would have sufficient time, if required, to take the necessary steps to retain counsel and prepare responding material if no resolution was achieved. The applicant has not denied that he made such comments or settlement overtures toward the respondent. Again, his affidavit indicates that he attempted to negotiate with the respondent, although does not say when those discussions occurred.
Analysis
Moved Expeditiously
[23] The facts that are not in dispute show that the respondent did not simply ignore this matter once he learned of the default judgment. There is some plausible explanation for why he waited until the end of January before taking any steps at all, given his need for his parents’ financial backing and consultation. Although there was some delay before his first appointment with a lawyer, it is not excessive delay of the type that should stand in the way of granting such a motion. After meeting with his current lawyer he moved expeditiously to provide a retainer to ensure that the necessary motion material could be prepared.
Explanation for Default
[24] The first plausible explanation for the default is the respondent's belief that the applicant did not intend to "go all the way" with having the house sold, in the face of the parties’ understanding that the title documents do not reflect the true ownership of the property. There is no basis for disbelieving, in the absence of any denial from the applicant, that comments were made by the applicant which led the respondent to believe that the applicant was willing to negotiate a payout of a lesser amount than 50% of the equity to have his name removed from title.
[25] The assertion by the respondent that the parties hold the property in trust for the other family members has an air of reality on the basis of the evidence provided on this motion. The applicant, along with six other family members, have provided evidence that each of them has contributed to all payments incidental to the ownership of the property, since the time of its purchase. This evidence has not been refuted by the applicant. The applicant has not provided any basis upon which the court could find reason for other family members paying the carrying costs from the outset, including the mortgage payments, to the benefit of only two family members. For example, the court might be able to conclude that this is justified on the basis of a significant down payment or financial contribution made by the applicant during the period of time that he lived there. But although the applicant states that he contributed to the down payment, he provided no evidence of the amount, or how much others may have contributed proportionately at the time of purchase. Further, the respondent provided evidence that the applicant was frequently out of work or earning nominal income during the time that he lived at the property. Again, the applicant has not disputed that evidence. There is also the evidence of a former financial payout to the applicant, again which he does not dispute. Taking all of that into consideration, there appears to be some justification for the respondent not moving quickly to spend money on legal fees, or giving this matter the seriousness it obviously required.
[26] The second plausible explanation for the default surrounds the circumstances of the adjournment. I accept the respondent's evidence that no order or announcement was made from the bench at the first appearance that notified him of the adjournment date. This is supported by the application record itself, which does not contain an endorsement from the first attendance in September. The submissions of Mr. McKee, who was in attendance that date, leave the impression that the fire drill created some chaos and interruption with the normal court proceedings, such that the list could not be completed by the sitting motion court judge. Although there has been no explanation provided for why the respondent either did not receive, or heed, Mr. McKee's correspondence of November 22, 2016, I also accept that the respondent would not have simply pulled the February date out of thin air. Given that the respondent and his father were both present at the first appearance, they have demonstrated that they have been engaged in the litigation, and were not simply ignoring it. Accordingly, I do find that on the date that judgment was granted, the respondent missed the hearing as a result of an error or oversight brought about in part by the disruption experienced on the date of the first appearance.
Defence on the Merits
[27] As the foregoing discussion indicates, the respondent has presented evidence of an arguable defence. As Mr. El Rashidy argued, there is evidence of part performance of the trust agreement through the evidence of the family taking possession of the home and the payment of carrying costs by each one of them. If that is accepted, this is a situation in which the oral agreement, by virtue of its part performance, may exempt the matter from the operation of the Statute of Frauds: Kramaruk v. Kushnir, 1956 ONCA 159.
[28] There is also the evidence of a second contract, by which the applicant accepted compensation in return for a release of any interest in the property. He has not disputed that agreement in any way, other than to allege that he continues to hold a 50% interest in the property as a result of the deed.
[29] Both of these alleged agreements and the evidence provided by the respondent in support of them raise triable issues. This is not a situation in which the respondent is simply making unsupported, spurious allegations in order to "buy time" to prevent a judgment being rendered against him. The respondent appears to have at least two meritorious defences.
Prejudice
[30] A weighing of the prejudice to each of the parties and the persons affected by the judgment clearly results in a far greater disadvantage to the respondent and his other family members if the judgment is permitted to stand. Seven individuals will be without a home if the sale is permitted, and an individual who may not be entitled to 50% of the net proceeds would otherwise receive those proceeds. Since leaving the house, the plaintiff waited seven years to commence this application. No explanation was provided for his delay. In the intervening seven years, his family members have been making the mortgage payments and paying other carrying costs, which undoubtedly has permitted the equity in the property to increase, perhaps dramatically with rising real estate values in Markham, Ontario. The plaintiff will suffer the great inconvenience of delay in the litigation, but not prejudice of any kind that will prevent him from presenting the merits of his application.
Effect on the Administration of Justice
[31] The administration of justice would be undermined if the respondent was prevented from presenting his defence in the circumstances. Given all of the circumstances, to permit the sale of this home and equal division of the sale proceeds, without allowing the respondent to put forward his case, would work a great injustice.
[32] For the foregoing reasons, the motion is granted.
Costs
[33] Based on the submissions of counsel, there appears to be consensus that a reasonable sum for partial indemnity costs of this motion would be in the range of $5,300-$6,500. The respondent's counsel did not, however attend with a Costs Outline as mandated by the practice direction, and therefore it is difficult for the court to do more to analyze the costs claimed. Under the circumstances the award of costs will be at the lower end of the spectrum submitted by counsel.
Disposition
[34] This court orders:
The default judgment of Di Luca, J. and the noting in default are set aside.
The respondent shall file a Notice of Appearance forthwith, and any responding material within 30 days of this order.
Each party shall move expeditiously thereafter to arrange and complete cross-examinations if that party intends to conduct cross-examinations.
This matter should be subject to a pretrial conference prior to argument. The parties shall take steps within 6 months of this order to schedule a pretrial conference pursuant to Rule 50.03.
The applicant shall pay the costs of this motion fixed in the sum of $5,300 inclusive to the respondent within 30 days.
HEALEY J.
Date: October 11, 2017