Court File and Parties

COURT FILE NO.: CV-16-557615 MOTION HEARD: 20180409 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ronald Schindler, Plaintiff AND: Maple Investments, Carole Farah also known as Oumalker Farah, Dean Jessop and Anthony Roberts, Defendants

BEFORE: Master P.T. Sugunasiri

COUNSEL: Lokshin, A., Counsel for the Defendant Carole Farah/Moving Party Peat, D., Counsel for the Plaintiff/Responding Party

HEARD: April 9, 2018

Reasons for Decision

[1] Ms. Farah (“Farah”) brings a motion to set aside default judgment and a noting in default such that she may have this matter determined on its merits. She also seeks to set aside a Writ of Seizure and Sale and any other enforcement proceedings taken against her. For the reasons set out below, I allow the motion with costs.

Facts:

[2] The action arises as a result of a promissory note flowing from Maple Investments to the Plaintiff (“note”).

[3] Between 2014 and 2017, the defendants Farah and Jessop worked as mortgage agents at the Mortgage Boutique, a franchise of the Mortgage Alliance. The defendant Roberts was the principal broker. The offices of the Mortgage Boutique were at 60 Norelco Drive in North York.

[4] Though not pleaded in the Statement of Claim, the defendant “Maple Investments” is the business name for federal corporation 7943393 Canada Inc. According to Farah, Jessop was the sole owner of Maple Investments. According to a corporate search, Farah and Roberts were directors of it.

[5] On November 4, 2014, the Plaintiff loaned Maple Investments $170,000 in exchange for the note. The note was in the name of “Maple Investments” and signed by the Plaintiff and “per: Carole Farah C.O.O.” The loan was to be repaid by November 30, 2014 and was apparently obtained to assist Jessop in making a deposit for the purchase of a property in Bradford. Farah states that Roberts drafted the note on her insistence because she wanted the Plaintiff to have a documentary record of the loan.

[6] On January 13, 2016, the Plaintiff emailed the defendants Roberts and Jessop indicating that he required payment of the amount outstanding on the note. He copied Farah on the email at her personal email address cfarh@yahoo.ca.

[7] On July 13, 2016, counsel for the Plaintiff emailed a demand letter to Roberts, Jessop and Farah at their maple investments email addresses. Farah claims to have never received the letter from Plaintiff’s counsel.

[8] On July 28, 2016 the Plaintiff commenced the within action for breach of the note. According to the Statement of Claim (“Claim”), Farah, Jessop and Roberts carried on business as “Maple Investments”. As such, the Plaintiff alleges in his Claim that he loaned funds to all of the defendants. It appears that the Plaintiff was under the impression that Maple Investments was not a corporation.

[9] On August 18, 2016, Farah and Roberts met with the Plaintiff about repayment of the loan having heard from Roberts that the Plaintiff had been calling him about the loan. At this time Farah insists that she knew nothing of the demand letter and nothing about any attempts by a process server to serve the Claim. She worked primarily at home and only when into the office for meetings. Roberts and Jessop were there more often and were in charge of distributing mail. Farah testified on cross-examination that she never checked her Maple Investments email that was set up for her by Roberts.

[10] After that meeting, there were multiple service attempts at the 60 Norelco address. In particular, it appears that the process server was able to reach Roberts by telephone but could not serve them.

[11] From November 21, 2016 to December 17, 2016 Farah was in Africa. She spoke to Roberts during her absence and states that Roberts did not tell her about the claim or further attempts to serve him.

[12] On January 19, 2017, Master Pope extended the time for the Plaintiff to serve the Claim on the defendants and granted an order of substituted service of the claim by regular mail to the last known address of Maple Investments head office. Master Pope also ordered for the claim to be served by email on all three individually named defendants to their Maple Investment email addresses. At the time of the motion, Master Pope was not advised of Farah’s personal email address that the Plaintiff had been using to communicate with her before.

[13] On the same day, Ms. Lucia Tedesco swore that she served the defendants in accordance with Master Pope’s order. During this time, Farah was in the country. She claims, however, that she never received either the hard copy or emailed copy of the Claim.

[14] On February 22, 2017, the Plaintiff obtained default judgment in the amount of $156,282.75 plus costs on the basis that the registrar could grant judgment in actions seeking the recovery of a liquidated debt.

[15] On May 25, 2017 the Plaintiff obtained three writs of seizure and sale against the defendants in Brampton, Newmarket and Toronto. The Toronto writ is against Farah and encumbers her personal residence.

[16] Farah attests that she only learned of the claim in January of 2018 when a litigation search was done in the context of another action she is involved in. Prior to that, neither Roberts nor Jessop had advised her of the claim.

[17] Upon learning of the judgment, she retained current counsel. She then filed a requisition dated February 1, 2018 with the Civil Scheduling Unit to request motions dates for April, having discussed dates with opposing counsel.

[18] Her proposed defence, among other things, is that she is not party to the note in her personal capacity and has no liability under it.

Law and Analysis:

[19] There are two issues to be decided. First, should default judgment and the noting in default be set aside? Second, if so, should the writs against Farah also be set aside? In my view, default judgment and the noting in default should be set aside as should the writs against Farah.

Setting Aside Default Judgment

[20] Rule 19.04(1)(a) of the Rules of Civil Procedure (“Rules”) allows a plaintiff to obtain default judgment from the Registrar for a “debt or liquidated demand in money.” Farah argues the preliminary point that the Registrar in this case did not have jurisdiction to grant judgment because she is not a signatory in her personal capacity to the note. That alone is reason to set aside default judgment. In obtaining such judgment from the Registrar, the Plaintiff would have had to certify that the action is a debt or liquidated demand against all of the defendants.

[21] I have no evidence in the record whether or not the Plaintiff was aware that Maple Investments is a corporation as opposed to a partnership or joint venture of Roberts, Jessop and Farah. If he was aware, then it would have been a material misrepresentation to the Registrar, and indeed a wilful misstatement in the Claim that the loan to Maple Investments amounted to a debt or liquidated demand for money as against all of the named defendants rather than just the corporation who enjoys a separate identity. Such misrepresentations would have warranted an immediate reversal of the judgment.

[22] Absent such information, I am unable to conclude that the Registrar lacked the jurisdiction to grant judgment. As pleaded, the Claim is a liquidated demand in money against all of the defendants.

[23] Assuming that the Registrar did have jurisdiction to grant judgment, I turn to the test for setting aside default judgment. Both parties agree that the test is as set out by the Court of Appeal in Mountain View Farms Ltd. v. McQueen . [1] The court’s ultimate task is to determine whether the interests of justice favour granting the order. In doing so, it should consider by the following factors:

a. Whether the motion was brought promptly after the defendant learned of the default judgment;

b. Whether there was a plausible excuse of explanation for the default in complying with the Rules;

c. Whether the facts establish that the defendant has an arguable defence on the merits in that there is an air of reality to it;

d. The conduct of the parties;

e. The potential prejudice to the defendant should the motion be dismissed;

f. The potential prejudice to the plaintiff should the motion be allowed; and

g. The effect of any order the court might make on the overall integrity of the administration of justice.

[24] The Court of Appeal cautions that these factors are not to be treated as rigid rules. Rather, the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of her default.

[25] In the circumstances of the present case, there is no doubt that Farah moved quickly to bring this motion after learning of the default judgment. I accept that she learned of it in January of 2018 and that in February took steps to schedule this motion.

[26] The more controversial issue is whether or not she has a plausible explanation for the default in complying with the rules. The Plaintiff argues that given her close working relationship with Roberts and Jessop, the fact that she and Roberts met with the Plaintiff after a demand letter had been sent, and that she was in touch with Roberts even when she was out of the country makes it implausible that she was not aware of the claim until she became aware of the judgment against her.

[27] I agree that it is difficult to believe that after meeting with the Plaintiff, that Roberts did not tell her about multiple service attempts of the claim and ultimate service by mail to Maple Investment’s head office in January of 2017 at the same address as the Mortgage Boutique where Roberts and Jessop regularly attended. On the other hand, the totality of the evidence suggests that Roberts was in control of the situation with the Plaintiff and may not have had Farah’s best interests in mind. While it was apparently Farah who reminded him that the Plaintiff should be given a note to reflect his loan, it was he who drafted the note and he who discussed payment of it at the August meeting. It was also apparently him who designated Farah as C.O.O. and asked her to sign the note on behalf of Maple Investments. It is unclear how Farah came to be listed as a Director of Maple Investments Inc. Perhaps it was better for Roberts not to advise Farah of the claim. Without having more information on the dynamics of the defendants, I conclude that it is possible that Farah was not aware of the claim and therefore did not take steps to defend herself.

[28] Even if I am incorrect in my analysis of the evidence on this point, this is not fatal to the motion. The Court of Appeal has expressly stated that the absence of any of the factors does not mean that judgment should not be set aside. [2] In my view, the other factors favour Farah and it is in the overall interest of justice to allow her to proceed with her defence.

[29] It is clear that Farah raises an arguable defence on the merits. It is peculiar that the Plaintiff commenced a claim against Maple Investments as a non-corporate entity thereby allowing him to place liability for the note on the shoulders of Roberts, Jessop and Farah. If, as the corporate search seems to suggest, Maple Investments is indeed a corporation, this raises many triable issues with respect to who the funds were loaned to and what the basis of liability is as against Farah who is a director of the corporation. It may even be that, as Farah suggests, she did not know that she was a director of Maple Investments. Certainly the the evidence reveals that these are live issues to be resolved on another day. Farah need not show that her defence will succeed. [3]

[30] With respect to prejudice to the parties, the Plaintiff has tendered no evidence nor raised any issue in his factum nor oral argument with respect to prejudice other than the extra steps he had to take to effect service and finally obtain judgment. On the other hand, Farah’s prejudice is that she has a judgment against her personally with respect to what appears may be a corporate debt. Such a result is wrong in law without proper adjudication of the issues on the merits. Farah also points out that the Plaintiff has judgment as against the other defendants. Farah asserts in her factum that at least one of the defendants owns property in Ontario but that statement is not supported by the evidence. I do agree with Farah, however, that being subject to a debt that may not be her responsibility is material prejudice that favours setting aside default judgment.

[31] I also take into account that on an ex parte motion before a master, the Plaintiff failed to advise the court that he had been corresponding with Farah on a personal email address prior to seeking an order for substituted service to her work address. This might have materially impacted on the order and might have ensured that Farah received the Claim. Certainly sending the Claim to her personal email would have made it more difficult for Farah to maintain that she never received it. This impacts on the justice of the case which the Court of Appeal urges is the overarching consideration.

[32] Finally, I agree with the Plaintiff that the integrity of the administration of justice is diminished when defendants flagrantly neglect their responsibilities under the Rules. On the other hand, it is in the interests of justice to allow matters to be determined on their merits. The Rules cannot be disregarded such that they become a “toothless tiger”, but at the same time injustice should not result from an overly strict application of them. In the circumstances of this case, there is a serious possibility that injustice would result if the untested judgment against Farah were allowed to stand. Excusing Farah for from her default, even if her default was negligent or reckless, is far less detrimental to the integrity of the administration of justice then letting judgment stand.

Setting Aside the Writ as Against Farah

[33] The Plaintiff relies on jurisprudence in Ontario and elsewhere that suggests that it is common practice to maintain writs even when default judgment is set aside. [4] There is no doubt that I have discretion to leave the writ against Farah in place. Rule 19.08(1) states that a judgment against a defendant who has been noted in default that is signed by the Registrar may be set aside or varied by the court on such terms as are just. However, I am not required to maintain the writ. In determining the appropriate order, I consider the overall interests of justice.

[34] In the present action, the manner in which the Plaintiff named the parties and characterized the relationship between the defendants is what lead to default judgment being signed by the Registrar against Farah. Unlike in the cases cited by the Plaintiff in which it is usual practice to maintain the writ while setting aside default judgment, none of those cases were in circumstances in which there is a serious issue as to the whether any of the defendants have been properly named. As such, it is just that the writ be removed and return the parties to the position they would have been in had Farah defended. This is not only because it is possible that Farah should never have been a named defendant in the first place, but also because Farah’s home is jointly held with her niece who is a non-party. In effect, maintaining the writ would unduly inhibit the niece’s ability to deal with her property. In other circumstances that may be warranted. It is not, in these. Further, the Plaintiff has judgment against the three other defendants (although it is yet to be seen if “Maple Investments” is a suable entity or one that has any assets) and is potentially protected in that way.

Disposition:

[35] I grant Farah’s motion and set aside default judgment, the noting in default and all executions against Farah in this action. To be clear, any writs filed with respect to the other defendants may be maintained.

Costs:

[36] The parties provided me with costs outlines that are similar in quantum. The issue is one of entitlement. The Plaintiff argues that Farah seeks an indulgence which precludes her from recovering her costs from him. At the very least the Plaintiff seeks its costs thrown away of obtaining default judgment and the writ. Farah submits that the Plaintiff should have consented to the motion and have taken an unreasonable position including cross-examining Farah.

[37] Pursuant to Rule 57.01, I award costs to Farah in the amount of $6,254.71 payable within 30 days of today’s date. Given the irregularity in the pleading and the clear issue about who it is that Plaintiff contracted with when receiving the promissory note, the Plaintiff should have consented to the motion. Further, these motions are less of an indulgence when the reason for the default is because the defendant did not receive the claim as opposed to receiving the claim and simply missing the deadline to deliver a defence. Finally, the Plaintiff did not provide any supporting documentation to discern what costs might have been thrown away from obtaining the default judgment.

[38] I have signed the original order and it is ready for pick up at the Masters’ Administration.

Original signed

Master P.T. Sugunasiri

Date: July 30, 2018

[1] Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 (“Mountain View”). [2] Mountain View, supra note 1 at para. 51. [3] Mountain View, ibid. [4] See Canadian Imperial Bank of Commerce v. Sheahan, [1979] 1 ACWS 38, 13 CPC 269; National Bank v. Campeau, [1994] OJ No 2842 at para. 3.