Court File and Parties

COURT FILE NO.: CV-17-842 DATE: 2019-07-08 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Lucilla Henry and The Estate of Norman Mitchell Plaintiffs – and – Bruce Radford, Rosemary Theresa Radford, Robert Brown a.k.a. Bob Brown and Timothy J. Hilborn Defendants

Counsel: Eric K. Gillespie - Counsel for the Plaintiffs Edward D’Agostino - Counsel for the Radford Defendants

HEARD: June 19 & 24, 2019

The Honourable Justice James W. Sloan

Reasons for Judgment

[1] The Radford defendants bring this motion to set aside the noting of pleadings closed. If unsuccessful, the plaintiffs bring a motion for default judgment.

[2] The facts of the case are not overly complicated and for the most part are not contested.

[3] On December 9, 2009, Mitchell and the Radfords entered into an agreement of purchase and sale. One term of the agreement was that the Radfords would remove an oil tank if one existed, and rectify the soil.

[4] On December 23, 2009, Waterline Environmental Inc. published a Fuel Oil Tank Decommissioning Assessment.

[5] On January 2, 2010, the agreement of purchase and sale was amended. The amendment deleted the clause in the original agreement of purchase and sale with respect to the possibility of an oil tank and inserted the following clause:

The Buyer acknowledges that there is an underground fuel tank on the property. The Sellers state that it is been removed. The Seller agrees, at the Sellers own expense, to provide the buyer, prior to closing written documentation that a qualified contractor registered under the Technical Standards and Safety Act, 2002, and/or Ministry of the Environment (if applicable) and any regulations thereto as amended from time to time, has removed the said fuel tank and submitted the soil surrounding the underground fuel tank for assessment of any contamination. The Seller warrants that the completion of any removal of contamination will be completed at the earliest opportunity, and the Buyer acknowledges that the said removal may be post closing. The Seller warrants that any damage to the sidewalk or structure as a result of the removal of the tank or any contaminated soil will be repaired in a good and workmanlike manner.

This transaction is now firm and binding and may proceed to close.

[6] On January 18, 2010, Mitchell sought advice from a lawyer named Hilborn with respect to the oil contamination. Based on affidavit evidence, it is alleged that Hilborn would be requesting a holdback of funds to cover the cost of remediation.

[7] To slightly complicate matters, one real estate agent acted on behalf of both the seller and the buyer.

[8] On February 5, 2010, Waterline produced a Draft Phase II Environmental Site Assessment of the property. It recommended that “additional exploratory work be undertaken to delineate the contaminant plume in order to determine the scope of required remediation”.

[9] On February 24, 2010, Mitchell made “Discussion Notes” regarding the following points:

a) The spokesperson for the license contractor confirmed that no authorization had been given to complete the work, b) Bio-remediation was proposed around the garage and side of the house to avoid damage to the foundation. This was also not been authorized, leading to further delays. c) The contractor had not received any payment. d) The contractor advised that a holdback of $50,000 would probably cover the cost to finish the work. e) As of the close of business on February 24, 2010, Mitchell had not received documentation regarding removal of the contamination.

[10] Also on February 24, 2010, Mr. Amos the real estate lawyer for the Radfords wrote to Hilborn as follows:

I attach copies of the documentation provided by Mr. Radford which confirms that the oil tank and contaminated soil have been removed in so far as possible. To assure that all of the contamination is removed microbes will be introduced to eat any residual oil in the soil. It is anticipated that this process will take 6 to 12 months. My clients are prepared to allow the costs of the microbes, etc.

[11] On February 26, 2010, the transaction closed and Mr. Amos signed the following undertaking to the plaintiffs on behalf of the Radfords;

In consideration of the receipt of monies payable on closing in connection with the above referenced transaction, the undersigned hereby undertakes to pay Waterline Environmental Inc. invoices numbered 2684 and 2698 in the total amount of $20,727.06 and to hold the sum of $13,000 in trust to cover the cost of repairs to the sidewalk, lawn repair introduction of bio fluids and/or other steps necessary to rectify soil contamination and testing to confirm that all contaminants have been removed in accordance with the Ministry of the Environmental standards and to pay from that sum invoices therefore forthwith upon receipt of confirmation that the work has been completed to the satisfaction of Norman Hume Mitchell and Lucilla Henry.

[12] Shortly after closing, Hilborn on behalf of the plaintiffs wrote to Amos, insisting that either he or the Radfords authorize Waterline to proceed to apply the biological process.

[13] Neither the plaintiffs nor the Radfords ever authorized Waterline to do anything further, and therefore as of today, no biological process has ever been undertaken.

[14] On August 19, 2015, Mitchell died and on April 30, 2016, Amos died.

[15] Upon Mr. Amos’s death the Law Society of Upper Canada (LSUC) as it then was, took over control of Mr. Amos’ trust accounts including the subject $13,000.

[16] On July 6, 2016, the LSUC engaged a real estate lawyer by the name of Richard Cooper to deal with the issue. He wrote to the plaintiffs asking for confirmation that the Waterline work had been completed and asking if the LSUC could release the trust funds.

[17] Both parties agree that Cooper was the Radford’s lawyer.

[18] The surviving plaintiff, Henry replied on September 6, 2016, saying, she wanted her property free of contamination.

[19] On August 17, 2017, the plaintiffs issued their statement of claim, but never advised Mr. Cooper of their action.

[20] The plaintiffs had difficulty serving the Radfords and they eventually obtained an order to serve the claim substitutionly which was affected on December 7, 2017. The Radfords were noted in default shortly after December 27, 2017.

The Radfords’ Position

[21] It is their position that it would be “just” to set aside the “noting in default” and allow them to defend the action. For this proposition they rely on Rules 1.04, 19.03 and 19.08 which read as follows:

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

19.03 (1) The noting a default may be set aside by the court on such terms as are just.

19.08 (1) A judgment against the 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.

[22] They raise the following potential issues with respect to their liability including the right to claim over against their lawyer and/or real estate agent.

a) From a contractual point of view only Mitchell and not Henry signed the agreement of purchase and sale. Does it make any difference that the deed was taken in the names of both the plaintiffs? b) Does the Doctrine of Merger apply, so that all obligations under the agreement of purchase and sale merged when the deed was registered? c) What contractual rights do the plaintiffs derive from the undertaking signed by Amos? d) Does the undertaking limit the Radfords exposure to the $13,000 holdback which is referred to in the undertaking? e) Was there fresh consideration given for the undertaking? f) Does the two-year limitation period apply to whatever rights the plaintiffs may have had under the agreement of purchase and sale or the undertaking or to their claim in negligence? g) Can the plaintiffs claim damages, where they have failed to mitigate their damages by at least authorizing Waterline to introduce biological agents into the soil in an attempt to remediate the property as was proposed by the environmental experts? h) They also have a potential claim against their lawyer and the real estate agent.

[23] Essentially, on the day of closing February 26, 2010, the plaintiffs had two options, one was not to close because the remediation was not complete or alternatively they could close on terms, which they did.

[24] Therefore, the plaintiffs’ rights under the agreement of purchase and sale merged and their continuing rights flow from the undertaking which limits the Radford’s exposure to $13,000.

[25] Mitchell had information from some unknown source prior to accepting the undertaking, that the environmental cleanup may cost $50,000.

[26] If it was the Radfords’ obligation to do or authorize the work, the plaintiffs were aware as of March 15, 2010, that the Radfords refused to authorize any work and therefore the limitation period would commence running on that date.

[27] Even if there was confusion about who was to authorize of the work, it was clear in 2010 if not in March 2010 that the Radfords were not going to do it.

[28] In his email of March 10, 2010, to Amos, Radford plainly states that he did not want to prejudice the deal he already had with plaintiffs which was to limit his liability to $13,000 by authorizing Waterline to do anything.

[29] The Radfords have a palatable excuse for not defending the action. While in hindsight they should have obtained legal advice, they were convinced that their liability was limited to the $13,000 being held in trust, and that therefore, the excess claims must be against the other defendants who were named in the title of proceedings.

[30] This mistaken, but reasonable belief of the Radfords was caused by Amos.

[31] With respect to the Ontario Court of Appeal decision in Nobosoft Corp. v No Borders Inc. 2007 ONCA 444, [2007] O.J. No. 2378, relied on by the plaintiffs, the Radfords submit, that they did form an intent to defend the claim in excess of $13,000, which is different from Nobosoft where they formed an intent not to defend.

[32] In the Nobosoft case the defendant formed an intent not to defend because it feared that to do so, would result in its attorning to the jurisdiction of Ontario. Notwithstanding this, the court set aside the noting in default stating in part at paragraph 6 that there was:

6 … no evidence that No Borders sought to flout or abuse the Rules of Civil Procedure. It moved relatively promptly to set aside the noting of default. At the very least, it’s delay in seeking relief was not inordinate. Moreover, there is nothing in the record establishing prejudice to the respondent if the requested relief was granted.

[33] The Radfords also submit that the facts in the case of 1316845 Ontario Ltd. V. Es-Lea Holdings Ltd., [2008] O.J. No. 0905 are entirely different from the case at bar. That action was for an alleged improper mortgage sale. In choosing not to exercise its discretion to grant the relief, the court noted at paragraph 17 that the moving party failed to comply with earlier court orders, failed to explain the delay in any meaningful way and failed to demonstrate a credible and continuing bona fide intent to defend the action.

[34] The court still analyzed if the intent to defend was there and found that it was not.

[35] Not complying with any one of the four considerations set out in paragraph 30 of the Turner’s Garage case is not fatal to a defendants request to set aside the noting of pleadings closed. Paragraph 31 makes it abundantly clear that the court must consider the full context and factual matrix of the matter before it.

[36] If the noting of pleadings closed is set aside, the plaintiffs will be in exactly the same position it thought it would be in when they issued the statement of claim.

The Plaintiffs’ Position

[37] Like the Radfords, the plaintiffs’ submissions encompassed a lot of the factual matrix between the parties.

[38] They submit that the most important document between the parties is the amendment to the agreement of purchase and sale dated December 21 and 22nd, 2009, and set forth at Tab 2-C & paragraphs 37 and 38 of the motion record.

[39] They also submit that the doctrine of merger does not apply, because the amendment to the agreement of purchase and sale dated the 2nd day of January 2010 acknowledges that the removal of the contamination “may be post closing”. Therefore the law is black and white and the doctrine of merger is not a defence.

[40] The email from Mitchell to himself dated February 24, 2010, (V2 TI P62) is not a contract.

[41] Waterline was the Radfords’ contractor and it was up to Radford to authorize Waterline to complete the work. Therefore any delay in the remediation is at the feet of Radfords.

[42] On a balance of probabilities the $50,000 price tag, set out in Mitchell’s email to himself, would have been known to the Radfords. It defies logic that Mitchell would know and the Radfords would not. Therefore the Radfords knew that the liability for the cleanup might be in excess of $13,000

[43] A February 24, 2010, email from Amos to Hilborn reads:

I attach copies of the documentation provided by Mr. Radford which confirms that the oil tank and contaminated soil have been removed insofar as possible. To assure that all of the contamination is removed microbes will be introduced to eat any residual oil in the soil. It is anticipated that this process will take 6 to 12 months. My clients are prepared to allow the costs of the microbes, etc.

[44] The Plaintiffs submit that this email is simply an offer by Amos which offer was not accepted and therefore there was no contract.

[45] The plaintiffs submit, that the February 26, 2010 undertaking signed by Amos is a unilateral document not signed by either party and that the court cannot infer it was accepted by the plaintiffs.

[46] On March 10, 2010, Radford emailed Amos seeking answers as to why the undertaking did not mention them and why it does not refer to the $13,000. The plaintiffs submit, that this shows there was confusion and that nobody really agreed that microbes would be used to remediate the property.

[47] Radford went on at paragraph 2 of the email to state he did not want to authorize Waterline to do anything because that might put them on a hook to pay Waterline in excess of $13,000. Therefore the plaintiffs submit the Radfords had doubts about whether or not the $13,000 was a limit of their liability.

[48] If Mr. Amos responded at all, he did not do so by email. The plaintiffs submit, based on their March 10, 2010, email, that the Radfords were not convinced that their liability was capped at $13,000.

[49] The Radfords cannot claim that the undertaking is the new deal expressing the legal rights of the parties in one breath, and in paragraph 5 of their notice of motion state that the Amos did not have the direction or authority from the Radfords to sign such an undertaking.

[50] In an email dated March 10, 2010, the Radfords lawyer Amos asks them to authorize Waterline to proceed with the microbe process.

[51] The Radfords approached the plaintiffs on Monday, March 15, 2010, proposing that they simply keep $13,000 in trust and spend it any way they want and that would be the end of the matter. The plaintiffs submit that this shows that the Radfords did not think $13,000 was all that was necessary to complete the cleanup.

[52] On March 22, 2010, Hilborn, on behalf of the plaintiffs, sent an email insisting that Amos’s office or the Radfords authorize waterline to take the next step. This never happened.

[53] On or about July 6, 2016, Cooper, at the request of the LSUC took over for Amos as the Radfords lawyer, and wrote to Parsons, the lawyer for the plaintiffs, with a financial offer which was rejected by the plaintiffs.

[54] After some back and forth between the lawyers, the plaintiffs approached Waterline and got a quote dated March 29, 2017, to complete the remediation which came in at $73,500 plus HST. The plaintiffs submit the Radfords have not challenged this quote and it was up to them to do so if they felt it was improper.

[55] This quote was sent by Parsons to Cooper, who was the Radfords lawyer requesting, a reply by June 15, 2017, failing which “Ms. Henry will take legal action to enforce the agreement of purchase and sale and its amendments.” There is no mention in any correspondence from Cooper suggesting that there is a limitation defence to any action Ms. Henry might bring.

[56] The statement of claim was served sometime in December 2017. Notwithstanding that the first page of the Statement of Claim form, informs defendants in bold capital letters that they must file a defence within 20 days, failing which judgment may be given against them without further notice to them, the Radfords did nothing.

[57] The Radfords simply had to file a statement of defence saying their liability was capped at $13,000. Ignorance of the law is no excuse and it is further not an excuse to say they did not want to hire a lawyer, when Mr. Cooper was their lawyer at that time.

[58] There is no evidence that the Radfords contacted Mr. Cooper, however the Radfords were also in email contact with the lawyers for the other defendants Brown and Hilborn, although it appears this correspondence basically referred to correcting their mailing address and there does not appear to have been any discussion about the merits of the case.

[59] In this action there are cross claims by Brown and Hilborn against the Radfords.

[60] From a prejudice point of view, the plaintiff Henry is a widow and retired and based on her affidavit suffers mental distress over this court action. The plaintiffs suggested that Radford is a millionaire and that from a proportionality point of view, this case is only worth $62,000 when the $13,000 currently held in trust, is taken into account.

[61] The limitation period defence referred to by the Radfords does not appear in their motion material and the plaintiffs submit it does not appear, because if there is a limitation period defence they would not be able to sue Amos.

[62] From a legal point of view, the Radfords who have the onus on this motion only filed two cases. The case of Berky v. Cruz, [2016] O.J. No. 3213, deals with the merits of that case but does not deal with the test before the court.

[63] The case of Singh v. Trump 2016 ONCA 747, [2016] O.J. No. 5285, deals with limitation periods, which the plaintiffs submit are not even in the pleadings with respect to this motion.

[64] The plaintiffs submit that the test before the court is set out in Turner’s Garage v. Shell, [2011] O.J. No. 5759 which was upheld by the Court of Appeal. Paragraphs 30 and 31 of the trial decision states the following:

30 The case law also makes clear that on a motion by a party seeking this discretionary relief, the Court must consider: a) whether there is believable evidence that the defendant had an intention to defend in the time permitted for responding to the statement of claim or counterclaim; b) evidence from the defendant explaining what prevented the defendant from responding to the statement of claim in a timely fashion; c) whether the motion has been brought with reasonable dispatch; and d) whether there is any prejudice that would be caused to the party relying on the noting in default caused by setting it aside.

31 The Court, when exercising its discretion, is to consider “the full context and factual matrix” and factors such as the behaviour of the parties, the length of the defendant’s delay in seeking to respond to the claim, the reasons for delay and the complexity and value of the claim.

[65] The plaintiffs submit:

a) The Radfords had over a year and did not defend, they had no intent to defend and therefore the court should stop right there and dismiss the motion. b) The explanation that the Radfords thought their liability was limited to $13,000, is an error in law and ignorance of the law is no excuse, c) Although the Radfords moved with reasonable dispatch it was not until they found out they could be on the hook for $75,000, d) The prejudice to the plaintiff Ms. Henry is medical, not a legal one.

[66] The plaintiffs submit that the Nobosoft case is no longer good law Ontario and that the law of Ontario is set out in the Turner’s Garage case.

[67] They rely on the Es-Lea case which was upheld by the Ontario Court of Appeal.

Findings

[68] On the facts of this case, I am satisfied that the Radfords always had an intention to defend the action for the amount claimed in excess of $13,000. Although with hindsight the decision not to obtain legal advice on the matter may be referred to as extremely foolish.

[69] I am satisfied of their intention for several reasons including:

a) the undertaking of February 26, 2010, can, from a lay persons point of view, certainly be interpreted as limiting their liability to the $13,000 holdback, b) from their perspective the cleanup had already cost them $33,727.06 inclusive of the holdback, c) the fact that the Radfords refused to authorize Waterline to do anything further because it might jeopardize their liability, which they thought was capped at $13,000, lends credibility to their interpretation, d) once they finally realized they were being asked to pay $75,000 they moved with reasonable dispatch to set aside the noting of pleadings closed.

[70] In this case the Radfords have several arguable defences not the least of which pertains to the Limitations Act.

[71] Rule 1.04(1) favours the Radfords on this motion.

[72] In addition there does not appear to be any prejudice to the plaintiffs in allowing the matter to proceed to a resolution on its merits. They will be in exactly the same position they were in at the time the statement of claim was issued.

[73] Therefore I set aside the noting of pleadings closed. The Radfords shall have 20 days to serve their statement of defence and any cross-claims or third-party claims they deem necessary.

[74] If the parties are unable to agree on costs, Mr. Gillespie shall forward his brief submissions on costs to me by July 12, 2019. Mr. D’Agostino shall forward his brief response to me by July 18, 2019. Mr. Gillespie shall then forward his reply, if any, to me by July 24, 2019. Cost submissions may be sent to my attention by email, care of Kitchener.Superior.Court@ontario.ca. Cost submissions, excluding bills of costs shall be limited to 5 pages using spacing of 1.5 and 12 pitch font.

[75] At this stage the court does not know why the alleged price to remediate the property rose from $13,000 to something closer to $75,000, however, all parties may be well advised before proceeding beyond the drafting and service of the appropriate pleadings, to agree on a without prejudice basis to introduce the microbes into the soil and wait for the appropriate period of time to see if that remedies the situation.

James W. Sloan

Released: July 08, 2019