COURT FILE NO.: CV-16-3874-00 DATE: 2018 12 12 SUPERIOR COURT OF JUSTICE – ONTARIO
RE: JUDITH WIEBE and BRADLEY PROUDFOOT, Plaintiffs AND: COLIN SMITH, DUNMAR HOMES LTD., DUNMAR FINANCIAL SERVICES CORP., Defendants
BEFORE: Justice Irving André
COUNSEL: Ron Sleightholm, for the Plaintiffs John Gray, for the Defendants
HEARD: October 18, 2018
Endorsement
[1] The defendants move to vacate the noting of default and default judgment against them, on December 30, 2016 and September 14, 2017 respectively. The judgment ordered the defendants to pay the plaintiffs a total of $275,238.36 with respect to promissory notes given by Dunmar Homes Ltd. to the plaintiffs.
Background Facts
[2] The plaintiffs were persuaded by the defendants to invest in a real estate investment project in Oakville, Ontario. The defendant Mr. Smith was the principal and directing mind of the defendant companies. His wife Mary Loretta Howard was co-director of the companies.
[3] On or about June 2013, Mr. Smith and Ms. Howard invited the plaintiffs to invest in the purchase, redevelopment, and sale of two residential properties in Oakville. Mr. Smith promised that the plaintiffs would be repaid their investment, in addition to a 20% return on their investment and a share of the profits.
[4] The plaintiffs invested in the financing of the project based on the representations made to them by Mr. Smith and Ms. Howard. They initially invested $640,000 in the projects in September 2013. Mr. Smith gave the plaintiffs Promissory Notes signed by Holdings in favour of a company he had setup.
[5] In July 2015, Mr. Smith asked the plaintiffs for an additional sum of money to complete the project. The plaintiffs loaned an additional $35,000 and received an additional Promissory Note from the defendant Dunmar Homes Ltd.
[6] Between September 2, 2015 and February 16, 2016, the plaintiffs loaned the defendants an additional $165,000 and received three Promissory Notes from Mr. Smith, all of which provided for an interest of 20% per year and a full repayment within a stipulated period following the sale of the two properties.
[7] Following the sale of the properties in March 2016, the plaintiffs requested payment of their investment along with interest and their share of the profits. Mr. Smith advised them that there were no proceeds of sale with which to repay them. The plaintiffs later found out, after initiating an action against the defendants, that there were eight to ten other investors in the project.
[8] The plaintiffs served Mr. Smith’s spouse and the corporate defendants with a Statement of Claim on August 31, 2016. Tzimas J. made an order for substituted service of the Statement of Claim on the defendants on November 17, 2016.
[9] A Statement of Defence was filed on behalf of Ms. Howard and her companies on October 11, 2016. The defendants did not file a Notice of Intent to Defend or a Statement of Defence and were noted in default on December 30, 2016.
[10] On September 14, 2017, Harris J. granted default judgment with respect to the Promissory Notes issued by Dunmar Homes Ltd. to the plaintiffs. The defendants have not made any payment to the plaintiffs with respect to this judgment.
Issue
[11] This motion raises the following issue: should the noting of default and default judgment be set aside?
The Law
[12] In Intact Insurance Company v. Kisel, 2015 ONCA 205, 125 O.R. (3d) 365, the Court of Appeal, at para. 13, set out the following test for the setting aside of a default judgment:
When exercising its discretion to set aside a noting of default, a court should assess “the context and factual situation” of the case: Bardmore, at p. 285. It should particularly consider such factors as the behaviour of the plaintiff and the defendant; the length of the defendant’s delay; the reasons for the delay; and the complexity and value of the claim. These factors are not exhaustive. See Nobosoft Corp. v. No Borders Inc., 2007 ONCA 444, 225 O.A.C. 36, at para. 3; Flintoff v. von Anhalt, 2010 ONCA 786, [2010] O.J. No. 4963, at para. 7. Some decisions have also considered whether setting aside the noting of default would prejudice a party relying on it: see e.g. Enbridge Gas Distribution Inc. v. 135 Marlee Holdings Inc., [2005] O.J. No. 4327, at para. 8. Only in extreme circumstances, however, should the court require a defendant who has been noted in default to demonstrate an arguable defence on the merits: Bardmore, at p. 285.
[13] In Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 48-50, the Ontario Court of Appeal listed the following five major factors to be considered in the setting aside of a default judgment:
(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; (c) whether the facts establish that the defendant has an arguable defence on the merits; (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.
Analysis
(a) Was the motion to set aside the noting in default brought promptly after the defendant learned of the default judgment?
[14] Mr. Smith’s counsel sent an email to the plaintiffs’ counsel on February 24, 2017, indicating that he understood that the defendants “may have been noted in default”. In an email the following day, the plaintiffs’ counsel replied that he had “advised Mr. Smith in early January [2017] that he and his companies had been noted in default”. He further advised that: “[w]e do not consent to setting aside the default and will oppose a motion to do so and will bring a motion for judgement (sic).”
[15] In an email dated April 13, 2017, the plaintiffs’ counsel sent an email to Mr. Smith’s counsel noting that he had heard nothing from Mr. Smith since his January 25, 2017 email.
[16] Mr. Smith’s counsel replied that his client was having problems obtaining documentation in support of his motion as a result of a dispute with his wife. He reaffirmed Mr. Smith’s intention to bring a motion to set aside the noting in default.
[17] On December 1, 2017, the plaintiff’s counsel sent a letter to the defendants’ counsel asking for the defendants “to deliver their Affidavits of Documents”. He received no response.
[18] Mr. Smith filed his motion to set aside the noting in default in September 2018.
[19] On September 21, 2018, Baltman J. ordered the defendants to serve and file their materials for their motion to set aside the noting in default on or before October 5, 2018.
[20] Mr. Smith has offered an explanation for the delay in filing his motion. He has filed a letter from a Dr. Salesh Budhoo, dated September 19, 2018, indicating that since his separation from Ms. Howard in 2016, Mr. Smith “has found it very difficult to cope” and “has poor concentration and reduced ability to focus for sustained periods of time”. The letter advises that Mr. Smith was diagnosed with “major depressive disorder” and that he “continues to remain depressed as a consequence of his social situation”.
[21] In my view, this explanation does not adequately address the reason for the delay in bringing a motion to set aside the default judgment. Mr. Smith was able to file his motion in September 2018, even while, according to Dr. Budhoo, he continued to be depressed. Surely, he could have filed his motion much earlier given that he was advised of the noting in default as early as January 2017. For this reason, this explanation does not warrant setting aside the default judgment.
(b) Does Mr. Smith have a plausible excuse or explanation for the default?
[22] Based on the above conclusion, I find that Mr. Smith does not have a plausible excuse or explanation for the default.
(c) Does Mr. Smith have an arguable defence on the merits?
[23] Mr. Smith does not deny receiving $800,000 from the plaintiffs. Rather, he maintains in his affidavit that there was no guarantee that they would receive a return on their investment. He deposed that the proceeds of sale of the property were used to pay off the mortgage, real estate commission, closing costs and the trades. He maintains that he also lost $305,000 he had invested in the properties.
[24] Mr. Smith has failed to provide documents as requested by the plaintiffs. To that extent, there is no evidence confirming his assertions regarding the disposition of the net proceeds of sale, the money invested by the plaintiffs, the money he claimed he invested in the project, or other investors who financially contributed to the development of the properties. He claims that his wife has denied him access to accounting documents, yet has not initiated any action against her to obtain those documents. Significantly, the plaintiff Ms. Wiebe deposed that Ms. Howard claims that she left documents for Mr. Smith.
[25] In my view, Mr. Smith should not benefit from his failure to provide documents or from his failure to take reasonable steps to obtain them.
[26] This factor therefore favours the denial of Mr. Smith’s motion to set aside the noting in default.
(d) What is the Potential Prejudice?
[27] A dismissal of Mr. Smith’s motion would result in the hearing of the plaintiffs’ motion for summary judgment. Mr. Smith would be fully able to respond to that motion. To that extent, he would not be irreparably prejudiced if his motion is dismissed.
[28] The plaintiffs have a right to know what happened to their investment. They have tried, without success, to obtain documents from Mr. Smith to obtain an account of their $800,000 investment and proceeds of sale. Having the default judgment set aside would prejudice them by adding another layer of delay and expense in this matter.
[29] For this reason, this factor favours dismissal of the motion to set aside.
(e) What is the effect of any court order on the overall administration of justice
[30] In my view, denial of the motion to set aside the default judgment would be more consistent with maintaining integrity in the administration of justice than dismissal of the default judgment. There is no dispute regarding the money loaned by the plaintiffs to the defendants. The loans remain outstanding. Mr. Smith has delayed in providing relevant information to the plaintiffs. This factor favours dismissal of Mr. Smith’s motion.
Conclusion
[31] The motion to set aside the default judgment is dismissed.
Costs
[32] Costs are reserved to the judge hearing the motion for summary judgment.
André J. Date: December 12, 2018