Court File and Parties

COURT FILE NO.: CV-18-00591498 MOTION HEARD: 20190503 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kastely Inc., Plaintiff AND: Sports Crawler Ltd. and Sub-Prime Mortgage Corporation, Defendants

BEFORE: Master B. McAfee

COUNSEL: Trent Morris, Lawyer for the Moving Party, the Non-Party Dennis Cibulka Glenn Cohen, Lawyer for the Responding Party, the Plaintiff Kastely Inc.

HEARD: May 3, 2019

Reasons for Decision

[1] The non-party Dennis Cibulka (Mr. Cibulka), brings this motion seeking an order setting aside default judgment dated June 27, 2018, and an order adding Mr. Cibulka as a defendant. Mr. Cibulka’s lawyer confirmed that a certificate of pending litigation was not being sought at this time. The alternative relief at paragraph (e) of the notice of motion was not pursued. Mr. Cibulka’s lawyer confirmed that there is no issue of lack of capacity.

[2] The plaintiff Kastely Inc. (Kastely) opposes the motion. Kastely cross-examined Mr. Cibulka on his affidavit sworn October 5, 2018. Kastely did not serve a responding affidavit.

[3] Further to my endorsement dated April 11, 2019, Mr. Cibulka’s lawyer did attempt to personally serve the defendant Sports Crawler Ltd. (Sports Crawler) with the motion record at the law office of Brian Taran (Mr. Taran), who acts for Sports Crawler in a separate proceeding and who was an administrator of Sports Crawler. Mr. Taran confirmed that Sports Crawler is no longer in business and he no longer acts for Sports Crawler. An attempt was made to personally serve Sports Crawler at the mailing address listed in the corporate profile report which lists Adam Taran as an officer and director. A copy of the motion record and factum were then mailed to the corporate address on April 24, 2019. Mr. Cibulka’s lawyer and Kastely’s lawyer confirmed that the defendant Sub-Prime Mortgage Corporation (Sub-Prime) has actual notice of this motion and that the Kastely and Sub-Prime are both represented by the same lawyer, Terry Walman (Mr. Walman). Mr Walman is also an officer and director of Sub-Prime.

[4] I am satisfied that the interests of justice favour granting the relief sought.

[5] Mr. Cibulka is sixty-eight years of age. Mr. Cibulka has resided at the residential property in question on Manor Road, Toronto (the property), since his parents purchased the property in 1959. He currently lives on or around the front porch of the property.

[6] Mr. Cibulka is not married and has no dependents. He has an adult sister, Elaine Mary Reynolds (Ms. Reynolds), but they have not had contact for many years, except through lawyers.

[7] Mr. Cibulka graduated from grade 13 in 1969 or 1970. He spent the majority of his working career as a clerk at various Loblaws locations until in or about 2000 when he stopped working.

[8] Mr. Cibulka’s parents purchased the property in 1959 as joint tenants with a right of survivorship. Mr. Cibulka’s father passed away in 1993. Mr. Cibulka’s mother passed away in 2014. Mr. Cibulka and Ms. Reynolds were co-executors of their mother’s estate. Following their mother’s death, Mr. Cibulka and Ms. Reynolds resolved their mother’s estate. Mr. Cibulka purchased Ms. Reynolds’ interest in the property for $250,000.00. The property was not transferred into Mr. Cibulka’s name at that time, although the estate agreed to do so.

[9] In or about early November 2015, Mr. Cibulka learned from a real estate agent, Pon Sivakumar, who attended at the property with an offer to purchase, that the property was to be auctioned at a tax sale on November 19, 2015. Prior to this attendance, Mr. Cibulka was not aware of an impending tax sale.

[10] Mr. Cibulka had approached a number of potential lenders to deal with the taxes owing. The consistent advice he received was that he would have to be on title in order to obtain a loan. Mr. Cibulka met with William Parker (Mr. Parker), a lawyer who practices in the vicinity of the property. Mr. Cibulka also met with Brian Taran (Mr. Taran), a lawyer who also practices in the vicinity of the property. There were also discussions between Mr. Parker and Mr. Taran concerning a loan to Mr. Cibulka to avoid the tax sale.

[11] On November 19, 2015, the day of the auction, Mr. Parker obtained a vesting order on Mr. Cibulka’s behalf. Mr. Taran attended at his bank and arranged for certified funds in the amount of $72,436.30, payable to the City of Toronto for the tax arrears and obtained the further amount of $10,000.00 for payment of Mr. Parker’s legal fees.

[12] Shortly before the 3:00 p.m. auction, discussions took place between Mr. Parker, Mr. Taran, and Mr. Cibulka concerning the terms of the loan. The discussions took place from at or about 1:30 p.m. or 2:00 p.m. for a few minutes.

[13] According to Mr. Cibulka’s affidavit, during these discussions Mr. Taran told Mr. Cibulka that Mr. Taran wanted to double the amount being advanced in three months. Mr. Taran then stated that Mr. Taran required to be on title to the property. Mr. Cibulka asked how he would be able to raise double the money without being on title and then asked if Mr. Taran would take title and give Mr. Cibulka a life interest. Mr. Taran refused. Mr. Taran and Mr. Cibulka then discussed a period of six months to repay the loan. Mr. Parker then left.

[14] According to Mr. Cibulka’s affidavit, Mr. Parker returned a few minutes later with a document for Mr. Cibulka to sign. Mr. Taran made it clear that the cheque would not be released if Mr. Cibulka did not sign the document. Mr. Cibulka’s evidence is that Mr. Taran then told Mr. Cibulka that the auction was at 3:00 p.m. and that Mr. Taran did not know if there was sufficient time to make it to the auction. Mr. Cibulka signed the document without reading it. Mr. Parker told Mr. Cibulka to return to Mr. Parker’s office the next morning to sign more papers. Mr. Cibulka was not given a copy of what he signed.

[15] The document Mr. Cibulka signed on November 19, 2015, is an acknowledgement that states:

To William Parker From Dennis Cibulka Date November 19, 2015

I, Dennis Cibulka, acknowledge and appreciate the following:

I have caused Mr. Parker to obtain a Vesting Order vesting title to 313 Manner [sic] Road East, Toronto into my name alone.

I acknowledge that Mr. Parker has, with my instructions, contacted potential institutional lenders, including Homequity Bank, who referred me to him, as well as private lenders that have approached me and Stephen Jacobs.

I confirm that I approached Brian Taran, with respect to a loan, and he refused. I confirm that I have offered to gift him the property if he would pay my municipal tax arrears to stop the tax sale scheduled for November 19, 2015 and let me live in the property for the rest of my life. He refused.

Instead, he offered to pay the tax arrears of a [sic] approximately seventy-three thousand dollars plus ten thousand dollars towards my legal costs payable to my lawyers in trust, and allow me to live in the property for a further six months, by which time I am to pay him back double the amount that he advanced or failing which I am to leave the property and he was a liberty to sell it and pay all of the encumbrances and execution creditors and any other debts relating to the property and pay the surplus, if any, to Parker and present Company in trust for my benefit.

I confirm that I initially expressed reservations, but when asked by Mr. Parker, I was able to confirm the foregoing, and I fully understand and appreciate it and I instructed him to proceed with the above-noted deal, including the registration of the Vesting Order and the transfer to Brian Taran or as he may direct, on the above-noted terms.

[16] On November 19, 2015, at 14:43, by instrument no. AT4071298, the application for vesting order was registered. Mr. Parker is listed as the lawyer submitting the document.

[17] On November 19, 2015, at 14:45, by instrument no. AT4071311, the property was transferred from Mr. Cibulka to Taberna Holdings Limited (Taberna) in Trust for Sports Crawler, for consideration of $82,436.30. Mr. Taran signed the transfer on behalf of the transferor and transferee. Mr. Taran was an officer and director of Taberna.

[18] On December 10, 2015, Mr. Parker wrote to Mr. Taran confirming the understanding reached on November 19, 2015, and providing details in addition to those set out in the acknowledgement dated November 19, 2015. The letter confirms the requirement to repay double the amount advanced within six months of November 19, 2015. Mr. Taran confirmed the contents of the December 10, 2015, letter by signature at the bottom of the letter.

[19] At some point thereafter, officials at the City of Toronto raised concerns about the transfer of the property with Mr. Cibulka and Mr. Cibulka was put in touch with his present lawyer, Trent Morris.

[20] On the motion, Mr. Cibulka’s lawyer confirmed that there is no issue that Mr. Taran advanced $72,436.30 to avoid the tax sale and paid $10,000.00 to Mr. Parker.

[21] Mr. Cibulka did not make any payments to Mr. Taran.

[22] On May 19, 2016, Mr. Cibulka commenced action no. CV-16-553148 against Taberna and Sports Crawler (the Cibulka action). In the Cibulka action Mr. Cibulka seeks inter alia a declaration that the property is held in trust for Mr. Cibulka’s benefit, an order setting aside the transfer to Taberna on the basis that the agreement is harsh and unconscionable including allegations that the interest rate exceeds the maximum allowable interest rate permitted by the Criminal Code of Canada, R.S.C., 1985, c.C-46 and a certificate of pending litigation.

[23] A copy of a notice of intent to defend dated June 13, 2016, in the Cibulka action is in the material filed for the within motion but does not appear to have been filed separately with the court.

[24] On November 25, 2016, instead of delivering a statement of defence in the Cibulka action, Taberna and Sports Crawler commenced application no. CV-16-564870 against Mr. Cibulka (the Taberna/Sports Crawler application). In the Taberna/Sports Crawler application Taberna and Sports Crawler seek inter alia a declaration that they are mortgagees, a declaration that they are not trustees for Mr. Cibulka except to re-convey title upon payment of $198,366.83, and judgment in the amount of $198,366.83.

[25] In the material filed in the Taberna/Sports Crawler application Mr. Taran deposes in his affidavit sworn November 30, 2016, that “Taberna is not a trustee but does hold the reversionary interest of Cibulka after payment of all encumbrances.” It was the stated position of Taberna/Sports Crawler that the agreement with Mr. Cibulka is properly characterized as a loan agreement and mortgage and that Taberna took title as security for the loan.

[26] On January 20, 2017, the Taberna/Sports Crawler application proceeded before Justice Pollak. On that date, on consent, the Taberna/Sports Crawler application was withdrawn without prejudice to either party as to merit and costs, and a timetable was ordered for any summary judgment motion brought by Taberna and Sports Crawler in the Cibulka action. Taberna and Sports Crawler were ordered to defend the Cibulka action before March 31, 2017, and any moving summary judgment material was to be served by April 28, 2017.

[27] On January 27, 2017, without notice to Mr. Cibulka, Taberna transferred its interest in the property to Sports Crawler.

[28] On or about March 15, 2017, Taberna and Sports Crawler served a statement of defence and counterclaim in the Cibulka action. Mr. Taran is the lawyer for Taberna and Sports Crawler listed on the pleading. The pleading is contained in the motion material before me but does not appear to have been separately filed with the court. In the counterclaim Taberna and Sports Crawler seek payment in the sum of $166,000.00 for repayment of principal and for costs of defending title and sale.

[29] Following service of their statement of defence and counterclaim, the lawyer acting for Taberna and Sports Crawler advised that they would not be moving for summary judgment.

[30] On or about April 4, 2017, Mr. Cibulka served a reply and defence to counterclaim in the Cibulka action.

[31] On October 26, 2017, unknown to Mr. Cibulka, Sports Crawler mortgaged the property to Kastely for the sum of $180,000.00, registered as instrument no. AT4717327.

[32] On October 26, 2017, unknown to Mr. Cibulka, Sports Crawler also mortgaged the property to Sub-Prime for $70,000.00, registered as instrument no. AT4717328.

[33] Sports Crawler made no payments on the mortgages.

[34] On February 5, 2018, without notice to Mr. Cibulka, Kastely commenced the within action no. CV-18-591498 (the within action) against Sports Crawler and Sub-Prime seeking foreclosure on the property.

[35] On June 27, 2018, default judgment was granted in the within action.

[36] In or about mid to late September 2018, Zoltan Fekete of the Office of the Public Guardian and Trustee contacted Mr. Cibulka’s present lawyer and provided information that the property had been mortgaged further and said mortgages had gone into default.

[37] On September 28, 2018, Mr. Cibulka received a letter dated September 27, 2018, addressed to him and others from Mr. Walman advising that Kastely had obtained judgment in the within action and was demanding possession.

[38] On October 9, 2018, Mr. Cibulka served Kastely’s lawyer, Mr. Walman, with the within notice of motion originally returnable November 1, 2018, before a Judge. On October 23, 2018, Mr. Cibulka served a motion record and factum.

[39] On November 1, 2018, on consent, Justice C. Brown adjourned the motion to January 30, 2019. On consent, the motion was adjourned further to March 18, 2019. On March 18, 2019, on consent, Justice Nakatsuru adjourned the motion further and indicated that the motion can be brought back on before a Master. The within motion was adjourned further on consent. The parties then scheduled the motion before a Master returnable April 11, 2019. The motion came before me on April 11, 2019. There were issues with the material before me due in part to the motion having been previously adjourned without a new return date and issues of service. The motion was adjourned to proceed before me on May 3, 2019, on terms set out in my endorsement of April 11, 2019.

[40] Rule 1.04(1) of the Rules of Civil Procedure provides:

These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

[41] Rule 5.02(2)(e) of the Rules of Civil Procedure provides:

(2) Two or more persons may be joined as defendants or respondents where,

(e) it appears that their being joined in the same proceeding may promote the convenient administration of justice.

[42] Rule 5.03(1) of the Rules of Civil Procedure provides:

5.03(1) Every person whose presence is necessary to enable the court to adjudicate effectively and completely on the issues in a proceeding shall be joined as a party to the proceeding.

[43] Rule 5.04(2) of the Rules of Civil Procedure provides:

(2) At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[44] Kastely filed no evidence of prejudice on this motion.

[45] In Plante v. Industrial Alliance Life Insurance Co., [2003] O.J. No. 3034 (Ont. S.C.J. – Master), Master MacLeod, as he then was, stated at para. 25 that the discretion to add a party is based on principles of fairness and judicial efficiency.

[46] In his affidavit sworn October 5, 2018, Mr. Cibulka states that he believes that Taberna and Sports Crawler have perpetrated a fraud on him by mortgaging the property without notice and after conceding to the court in the Taberna/Sports Crawler application that they were effectively trustees and mortgagees. Mr. Cibulka’s evidence is that he has concerns that Kastely has colluded with Sports Crawler.

[47] The mortgage between Kastely and Sports Crawler was not before me. There is no evidence before me confirming that funds were advanced by Kastely. Sports Crawler failed to make a single payment on the mortgage. There is no evidence before me confirming what notice, if any, Kastely had of Mr. Cibulka’s interest in the property.

[48] In my view, Mr. Cibulka is a necessary party to the within action in these circumstances. It also appears that the adding of Mr. Cibulka may promote the convenient administration of justice in all of these circumstances.

[49] Although it is rare that a proposed pleading would not form part of the record on a motion to add a party, in the special circumstances of this case, I do not view the lack of a proposed pleading as fatal. Of course any pleading that Mr. Cibulka delivers will need to comply with the rules of pleading. Mr. Cibulka is being added as a defendant without prejudice to any motion that may be brought should Mr. Cibulka’s pleading be in non-compliance. Any motion in that regard that is within the jurisdiction of a Master shall be brought before me.

[50] With respect to the relief concerning the setting aside of default judgment, Rule 19.08(1) of the Rules of Civil Procedure provides:

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 on such terms as are just.

[51] The applicable principles on a motion to set aside default judgment for foreclosure are stated by Justice Epstein in 992548 Ontario Inc. v. 8657181 Canada Inc., 2018 ONCA 416 (Ont. C.A.) at paras. 8-12 (see also Winters v. Hunking, 2017 ONCA 909 (Ont. C.A.) at paras. 12-16):

[8] The court has a broad jurisdiction to set aside a default judgment and grant relief against foreclosure “wherever the equities in the mortgagor’s favour outweigh all that are against him or her”. Walter M. Traub, Falconbridge on Mortgages, loose-leaf, 5th ed. (Toronto: Thomson Reuters, 2017).

[9] The factors to be considered in the exercise of the court’s discretion include:

(i) whether the motion to set aside was made with reasonable promptness; (ii) whether there is a reasonable prospect of payment at once or within a short period of time; (iii) whether the applicant has been active in endeavouring to raise the money necessary; (iv) whether the applicant has a substantial interest in the property or the property has some intrinsic value to him or her; and (v) where the property has been sold after foreclosure (not the case here), whether the rights of the purchaser will be unduly prejudiced.

[10] In addition, relief such as the appellant requested may be granted where there are “special circumstances” justifying the reopening of the foreclosure or, more generally, whether the equities in favour of reopening the foreclosure order outweigh the equities against doing so. In Winters v. Hunking, 2017 ONCA 909, Blair J.A. added that “a weighing of the equities cannot be done without taking into account the relative prejudice to the respective parties in making or not making the order.”

[11] In these fact-based cases the ultimate task is “to determine whether the interests of justice favour granting the order”: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 317 O.A.C. 255, at paras. 47-51.

[12] The decision to set aside default judgment for foreclosure is discretionary. As such, it is entitled to deference in the absence of an error in law or principle, a palpable and overriding error of fact, or unless the decision is so clearly wrong as to amount to an injustice: see HSBC Securities (Canada) Inc. v. Firestar Capital Management Corporation, 2008 ONCA 894, 245 O.A.C. 47, at para. 22; Ontario Housing Corp. v. Ong, (1988), 63 O.R. (2d) 799 (Ont. C.A.).

[52] I am satisfied that that the equities in this case favour Mr. Cibulka and the setting aside of default judgment.

[53] The motion to set aside default judgment was made promptly upon Mr. Cibulka learning of the default judgment on September 28, 2018. The within notice of motion was served on October 9, 2018, originally returnable November 1, 2018.

[54] If the mortgage is found to be enforceable, there is a reasonable prospect of payment within a reasonable period of time. Mr. Cibulka previously qualified for a mortgage in 2016 in the amount of $425,000.00.

[55] If there is to be a sale of the property, which is not Mr. Cibulka’s wish, there is no issue that the mortgage, if enforceable, would be paid. In 2016, Mr. Cibulka obtained an appraisal for the property in the amount of $750,000.00. In 2016, Mr. Taran obtained an appraisal in the range of $745,000.00 to $765,000.00 and a second appraisal in the range of $750,000.00 to $800,000.00. In 2016, Taberna received offers to purchase the property, on an as is basis, ranging from $780,000.00 to $976,800.00. Based on the valuations before me, the property value outweighs any amounts that may be found to be owing.

[56] The property has not been sold after foreclosure.

[57] There are special circumstances in this case. In the Cibulka action Mr. Cibulka attacks Sports Crawler’s title. Mr. Cibulka had no notice that Sports Crawler mortgaged the property. I was not referred to any provision of any agreement that would have permitted Sports Crawler to mortgage the property.

[58] The issue of net equity and windfall is an important factor to consider, although it is not in itself dispositive (see Winters at paras. 32-42). On the within motion current valuations and current amounts owing were not before me. It was Mr. Taran’s evidence in the Taberna/Sports Crawler application in 2016 that if the property was sold at that time, Mr. Cibulka’s net equity would be approximately $500,000.00, when considering the highest offer of $976,800.00. This was prior to the Kastely and Sub-Prime mortgages.

[59] Assuming the Kastely and Sub-Prime Mortgages are enforceable, a conservative calculation, using round numbers, and taking the lowest appraisal from 2016 of $745,000.00 would result in net equity in excess of $100,000.00. Kastely obtained default judgment for $192,261.13 plus costs in the amount of $1,005.60. The Sub-Prime mortgage is in the amount of $70,000.00. The terms of the Sub-Prime mortgage were not before me. There was no evidence before me confirming the amounts owing under the Sub-Prime mortgage. Allowing $300,000.00 for amounts owing under the mortgages, and the further amount of $300,000.00 inclusive of interest for the executions listed in Mr. Taran’s affidavit sworn November 30, 2016, at para. 61, and on the assumption that all executions remain, there would be a net equity of approximately $145,000.00. For the purposes of this motion, I have considered a net equity of approximately $100,000.00.

[60] In weighing the respective prejudice, Kastely provided no evidence of prejudice. There is every likelihood that the mortgage, if found to be enforceable, will be paid. The property, where Mr. Cibulka has lived since 1959, has not been sold. Similar to the circumstances in Winters, any equity in the home would provide a much-needed source of support for Mr. Cibulka. The net equity would fall as a complete windfall to Kastely who will have suffered no prejudice.

[61] If I am wrong in the estimation of net equity and there is no windfall to Kastely, I remain of the view that the equities in this case favour the setting aside of the default judgment.

[62] Kastely relies on the unreported decision of Justice Trimble in 2128839 Ont. Inc. v. Xpert, CV-16-5137-00, dated August 22, 2018. The facts are not similar. Xpert was a hearing of an application on its merits. The application was for an accounting of the proceeds of sale under a power of sale. Different considerations apply on the motion before me, which is not the ultimate determination of the proceeding on its merits.

[63] The relief pursued on the motion is granted.

Costs

[64] If successful, Mr. Cibulka sought costs of the motion in the amount of $4,100.04. Regardless of the outcome of the motion, Kastely sought costs of the motion in the amount of $12,893.61. I do not agree with Kastely’s submission that Mr. Cibulka is being granted an indulgence in the circumstances of this matter. Mr. Cibulka brought this motion as soon as he learned of the default judgment. He was given no prior notice of the proceedings giving rise to the default judgment. Mr. Cibulka was successful on the motion and is entitled to costs. The amount sought is a fair and reasonable amount that Kastely could expect to pay for costs of the motion. Costs of the motion are fixed in the all-inclusive amount of $4,100.04 payable by Kastely to Mr. Cibulka within 30 days.

Summary of Order

[65] Order to go as follows:

1. Dennis Cibulka shall be added as a defendant to the action;
2. Default judgment dated June 27, 2018, and noting in default, are set aside.
3. Dennis Cibulka shall have 30 days from today’s date to deliver a defence.
4. Costs of the motion are fixed in the all-inclusive sum of $4,100.04 payable by Kastely Inc. to Dennis Cibulka within 30 days.

Master B. McAfee Date: May 13, 2019