COURT FILE NO.: 18-66019
DATE: 2019/10/02
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Judith McCann and Paul Tyers, in their capacities as Estate Trustees in the Estate of Stephen Tyers, Plaintiffs
A N D:
Noor Yalda, 1837915 Ontario Inc. o/a Keller Williams Edge Realty, Brokerage and Milad Yalda, Defendants
BEFORE: The Honourable Justice A.J. Goodman
COUNSEL: Rosemary A. Fisher, for the Plaintiffs
Andrew L. Tam, for the Defendants, Noor Yalda and Milad Yalda
HEARD: September 30, 2019
E N D O R S E M E N T
[1] This is a motion brought by the defendants Noor Yalda (“Noor”) and Milad Yalda (“Milad”) seeking an order to set aside the noting in default and default judgment entered by the plaintiffs against them, along with all relief granted by Skarica J. on November 13, 2018.
[2] At the conclusion of the hearing, I dismissed the defendants’ motion to set aside the default judgment with reasons to follow. These are my Reasons.
Background:
[3] The plaintiffs commenced a claim in July 2018 regarding a failed real estate transaction respecting a purchase of a property located at 427 Belvenia Drive in the City of Burlington. Noor purported to purchase the subject property.
[4] The plaintiffs also sought relief against Noor’s brother, Milad, on the basis that he, (Milad) used Noor as a “strawman” purchaser.
[5] On July 8, 2018, the plaintiffs served Milad by leaving a copy of the Statement of Claim document in a sealed envelope addressed to Milad with an adult person identified as Ashan Yalda, (“Ashan”) at 121 Preston Meadow Avenue, in the City of Mississauga. The plaintiffs also sent a copy by regular letter mail on July 9, 2018 to the same address.
[6] The plaintiffs served Noor by leaving a copy of the Statement of Claim document in a sealed envelope addressed to Noor on July 8, 2018 with an adult female named Brandy Lynn Almud, (“Brandy”) who was residing at 9773 Sideroad 10, Erin, Ontario. The plaintiffs also sent a copy by regular letter mail on July 9, 2018 to the same address.
[7] No statement of defence was filed. The defendants were noted in default on August 3, 2018. In August 2008, Noor retained a lawyer, Sean Zeitz, with a view to resolving the matter. However, there was no resolution of the case. After plaintiffs’ counsel sent a letter to Mr. Zeitz on August 28, 2018, she was advised the next day by Mr. Zeitz that he was no longer retained.
[8] On November 13, 2018, the plaintiffs obtained default judgment without notice, which provided for damages against the moving defendants in the amount of $264,180.00 for breach of contract in connection with the Agreement of Purchase and Sale in respect of the property; damages against the moving defendants in the amount of $7,034.14 for carrying costs related to the property; release of the $40,000 purchase deposit held by the defendant brokerage; costs against the moving defendants in the amount of $14,707.22; prejudgment and post-judgment interest; and various declarations.
Positions of the Parties:
[9] The defendants submit that the setting aside of the judgment ought to be granted on either of two grounds. Principally, the plaintiffs did not serve the claim personally on the defendants. The plaintiffs therefore did not serve the defendants in accordance with the Rules of Civil Procedure. On that basis alone, default judgment ought to be set aside. The plaintiffs attempted service of the claim by way of alternative to personal service on each defendant. The defendants argue that the service of the Statement of Claim was not effected properly in accordance with the rules, either personally or by an alternative to personal service and without leave of the court.
[10] The defendants argue that the plaintiffs did not bring any motion for substituted service, motion dispensing with service, or make any efforts to obtain an order nunc pro tunc to remedy this irregularity.
[11] Further, the defendants submit that the plaintiffs noted the defendants in default on August 3, 2018, without written warning to the defendants. In that regard, the noting in default was completed one day earlier than permitted by the Rules of Civil Procedure.
[12] The defendants submit that following the noting in default the plaintiffs did not advise the defendants that they had been so noted and would be proceeding to schedule a default judgment hearing on November 13, 2018. In the Notice of Motion, the defendants assert that they first learned about the noting in default and the default judgment on or about November 28, 2018.
[13] The defendants say that it would be more prejudicial to them should the noting in default and default judgment remain in effect. The defendants have not had a fair opportunity to defend the merits of the plaintiffs’ claim or the propriety of the damages. The defendants face a considerable judgment, while the plaintiffs have already been compensated for out-of-pocket losses and legal expenses to date as the defendants have forfeited the deposit of $40,000.00.
[14] The defendants submit that the justice would not be upheld by allowing the plaintiffs to enforce the existing default judgment without having the opportunity to defend the claims as alleged. The quantum of damages awarded in the judgment are excessive and the allegations of civil fraud and/or fraudulent misrepresentation which formed the basis of the judgment against Milad are unfounded. The administration of justice would be in disrepute to allow the plaintiffs to enjoy a windfall of this judgment without permitting the defendants a fair opportunity to defend the claims.
[15] The plaintiffs submit that the claim was served upon Noor at an address which is noted on a property transfer of March 25, 2018 as his address for service. The plaintiffs acknowledge that Noor was served pursuant to Rule 16.03(5) being an alternative to personal service. Milad was served at 121 Preston Meadow Avenue, Mississauga, which is the registered head office of his corporation, Luxury Renovators Ltd. and an address found on a property sub-search of 121 Preston Meadow Avenue which shows Milad as the registered owner. Moreover, the initial deposit cheque, which Noor admits he obtained from his brother, Milad, was drawn on "Gold Star Exterior Trim Ltd.". The address on the cheque is 121 Preston Meadow Avenue, Mississauga.
[16] The plaintiffs submit that the defendants had notice of the claim against them. The defendants did not demonstrate any prejudice with respect to any of the grounds advanced in this motion. Further there is no merit to the defence.
Legal Principles:
[17] The test to set aside default judgment comprises a contextual analysis of five factors:
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.
[18] 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 his or her default. For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part.
Discussion:
Service of originating pleadings:
[19] In support of their position, the defendants rely on several cases that discuss service of originating documents. This includes the recent case of Graf v. Periyathamby, 2018 ONSC 1757, which the defendants submit is analogous with the case at bar and is dispositive of the issue. In Graf, the plaintiffs obtained default judgment against the defendants arising out of the breach of an agreement of purchase and sale. The defendants moved to set aside the default judgment. Justice Broad held that:
... a default judgment may be set aside on two bases - as of right where the judgment was irregularly obtained or, where the judgment has been obtained in a regular manner, by the exercise of the court's discretion to set aside the judgment. Where defendant was not properly served in accordance with the rules, the judgment may be set aside as of right without the requirement that the defendant establish a defence to the claim on the merits.
[20] With regard to Milad, the plaintiffs rely on the affidavit of service of process server Ron Boers (“Boers"). Boers swears that he served Milad with the statement of claim in the morning of July 8, 2018 by leaving the document with “Ashan Yalda”. Boers swears that he had also made an unsuccessful attempt that same day.
[21] The defendants submit that this is insufficient to show an unsuccessful attempt to serve an individual personally. The only reasonable inference that can be drawn is that Boers' attempt to serve Milad personally took place at the same time that he left the copy with Ashan. The defendants say that this is analogous to the circumstances in Graf, where Broad J. found that such service did not demonstrate compliance with the rules respecting service of an originating process and, accordingly, there was no effective service of the claim.
[22] The defendants learned of the action after they had already been noted in default on August 3, 2018. Steps were taken to address the court proceedings as soon as they were made aware of the claim, including retaining a lawyer. Given the lack of notice with regard to default proceedings, the moving defendants did not have the opportunity to bring these irregularities to the attention of the court at the relevant time.
[23] I accept that the plaintiffs did not serve the defendants in accordance with Rule 16.01. There was no personal service effected on them. I reject the plaintiff’s arguments supporting service and regarding any procedural irregularity. The law is very clear on this point.
[24] On its face, the defendants would be entitled to a remedy for this important and crucial procedural deficiency. However, that does not exhaust the analysis.
[25] It is well-known that a plaintiff’s onus of proving service of the statement of claim may be discharged through a review of a sworn affidavit of service confirming service complied with the Rules of Civil Procedure.
[26] On August 17, 2018, correspondence was received from Mr. Zeitz, a lawyer with Lipman Zener Waxman LLP, wherein he stated that he understood "that the defendants had been noted in default''. Mr. Zeitz requested and received the Affidavits of Service. In Noor’s affidavit, (which I note to be internally inconsistent with a subsequent affidavit), he admits he was informed of the noting in default by Zeitz. This suggests that Noor was aware of the claim by August 17, 2018.
[27] Consequent to a telephone conversation held on August 16, 2018, Ms. Fisher, plaintiffs’ counsel, and Mr. Zeitz agreed that Ms. Fisher would seek further instructions in an attempt to resolve the matter. It was also agreed that Ms. Fisher would take no further steps relative to obtaining a judgment arising from the noting in default while the discussions were ongoing. In fact, Ms. Fisher took no further steps during this period. This is referenced in a letter from Ms. Fisher to Mr. Zeitz dated August 20, 2018 and his email response of August 21.
[28] As a result of unsuccessful discussions, by August 30, Ms. Fisher was advised by Mr. Zeitz by email that he was no longer acting for Noor. At no time did Mr. Zeitz request that the noting be set aside in order to serve and file a statement of defence. In fact, neither did Noor nor Milad. As an aside, I note that there is no claim of professional negligence raised by the defendants against Mr. Zeitz.
[29] I accept that Noor subsequently contacted Ms. Fisher with a view to attempt to resolve the matter. No resolution was reached. On September 12, 2018, Ms. Fisher forwarded an Offer to Settle to Noor at 9773 Sideroad 10, Erin, Ontario and to Milad at 121 Preston Meadow Avenue, Mississauga, and as well, by email to Noor at na-na@live.ca, being the email address given to her by Noor. Ms. Fisher received no response and, after several weeks, obtained judgment.
[30] Turning back to the instructive case of Graf, I am persuaded that it is distinguishable. Nowhere in the decision was there an underlying factual basis or any discussion of the potential application of Rule 16.08 in addressing deficiencies in the service of originating documents.
[31] Indeed, a court may resort to Rule 16.08 to validate service. The Rule states:
16.08 Where a document has been served in a manner other than one authorized by these rules or an order, the court may make an order validating the service where the court is satisfied that,
(a) the document came to the notice of the person to be served; or
(b) the document was served in such a manner that it would have come to the notice of the person to be served, except for the person's own attempts to evade service. R.R.O. 1990, Reg. 194, r. 16.08.
[32] Based on Noor’s actions and the timely, albeit limited retainer of Mr. Zeitz to enable resolution discussion with plaintiffs’ counsel, there is no doubt in my mind that the Statement of Claim came to Noor’s attention. This is also borne out in his affidavit (of July 17, 2019 at para.10). Further, Noor’s evidence as to when he spoke with Ms. Fisher and when he actually received a copy of the Statement of Claim from Brandy (affidavit of February 14, 2019 at para. 18) is vague and equivocal. I reject his “understanding” that he was going to be notified by Ms. Fisher about any further “developments”. Ms. Fischer was under no obligation to do so. What I prefer and accept is reliable evidence provided by Ms. Hines regarding the events post August 3, 2019 with supporting documentation as to their chronology.
[33] As for Milad, I expressed to counsel that it is troubling that there is no direct evidence from this defendant for this motion. Mr. Tam could not provide any sound reasoning why Milad did not furnish this Court with any direct evidence in an affidavit or otherwise; or why other information from Brandy was in the form of an unsworn will-say statement. Albeit through no fault of counsel, I would have expected that Milad provide some direct, first-hand evidence in relation to the litigation and in support of his position for this motion.
[34] I do not accept Noor’s affidavit evidence regarding issues of improper service, Milan’s intentions, including any reference that Milad was not properly aware of the claim or any intent to defend. Notwithstanding any issues arising about personal service of the originating documents, for the same reasons that Noor because aware in retaining and engaging counsel along with the steps taken to effect service; I accept that Milad was served, or more importantly, had notice of the claim.
[35] Even if no personal service was effected and no order for substitutional service was obtained, pursuant to Rule 16.08(a) a court may exercise its discretion to validate service of a statement of claim where it has come to the attention of the defendant: Matton v. Yarlasky, 2007 ONCA 134 at para. 3.
[36] From the foregoing, it is crystal clear that the defendants were placed on notice of the Statement of Claim and the ensuing noting in default.
[37] I also agree with the plaintiffs that in these circumstances, where the claim came to the attention of the defendants nearly four months before default judgment was obtained, there is no legal prejudice.
[38] Having determined that a court would exercise its discretion under Rule 16.08 in favour of the plaintiffs in this case, the underlying foundation for this part of the motion to set aside default judgment is unsubstantiated. There is no basis upon which to set aside default judgment on this ground.
Early Noting in Default by One Day:
[39] In the Notice of Motion, the defendants say that Rule 16.03(1)(5) states that service in this manner is effective on the fifth day after the document is mailed. Service therefore would have been effective by this means on July 14, 2018 (five days following the date the claim was mailed on July 9, 2018). Rule 18.01(a) states that a statement of defence must be delivered within twenty days after service of the statement of claim. Therefore, a defendant has until the end of the 20th day to deliver the statement of defence. Twenty days after July 14, 2018 was August 3, 2018. In this case, the defendants had until August 3, 2018 to deliver a statement of defence. The plaintiff, however, noted the defendants in default on August 3, 2018.
[40] On its face, the defendants are entirely correct. The noting in default was one day early. However, I accept that the miscalculation of the noting of default was inadvertent on the part of the plaintiffs and as well the Registrar. Nonetheless, it would not have effected the result as the plaintiffs did not take any reasonable steps to protect their litigation interests. Even in spite of some brief, albeit unsuccessful discussions between counsel.
[41] Further, the defendants failed to communicate their intention to contest the noting in default and neglected to file a notice of motion to that effect until January 10, 2019, some five months after the default. Noor did not swear an affidavit in support of this underlying motion until February 14, 2019. The defendants had ample time between August 16, 2018, when they clearly knew of the noting in default with the failed resolution discussions, and November 13, 2018, when judgment was obtained.
[42] I find that the statements found in paras. 24 through 29 of Noor's first affidavit claiming "inadvertence" are disingenuous and lack credibility.
[43] Contrary to their stated intentions in the defendants’ Notice of Motion, I agree with the plaintiffs that no timely, reasonable attempts were made to request that the noting be set aside or delivery of any proposed defence. I am not persuaded that there was an intention to defend. As the defendants have not suffered any legal prejudice, the issue regarding the timing of the noting in default being premature does not give rise to a remedy for this motion.
Overall application of the relevant considerations:
[44] The Rules of Civil Procedure provide for an orderly framework whereby plaintiffs can obtain default judgment. It is trite law that courts should not set aside default judgments lightly. A court will also consider the potential prejudice to the parties should the motion be allowed, and the effect of any order the court might make on the overall integrity of the administration of justice.
[45] A party who fails to act with diligence to set aside a noting or a judgment should not assume that this debt of justice can be relied upon without limit. Rule 19. 08 provides the court with discretion in such matters, and such discretion to set aside or not should be applied using a principled approach as opposed to strict application of criteria.
[46] With some discussions ongoing in late 2018, for the purposes of the test for setting aside default judgment, I am satisfied that the defendants have established a reasonable explanation for the six-month delay in initiating this motion despite knowledge of the default in August 2018.
[47] However, a segment of the appropriate test provides that a motion to set aside a default judgment may be dismissed if the defendant cannot show a reasonable defence.
[48] The moving party must provide detailed facts and supporting evidence to satisfy this element of the analysis. The court will not set aside default judgment for the purpose of allowing a flimsy defence devoid of factual or legal foundation or worse, a defence which flies in the faces of clear evidence.
[49] Aside from some bald assertions, Noor alleges a failure to mitigate by the plaintiffs without adducing any evidence in support. Mr. Joao supports the second sale price as reasonable in the market at that time. Milad gives no direct evidence relative to this motion or the impugned defence.
[50] The plaintiffs' motion for judgment before Skarica J. contained a high level of detail to support the claim that Milad and Noor engaged in a strawman purchaser arrangement. A summary of that evidence, along with references to all of the exhibits is attached to this motion. This includes but is not limited to the evidence of Judith McCann and Mr. Christopher, the latter providing sworn evidence of the fact that he was contacted by Milad regarding the status of the re-listing of the Belvenia property. The defendants have not addressed it in the statement of defence or in response to this motion.
[51] In my opinion, the defendants have failed to provide any evidence other than the Noor affidavit in support of the underlying motion, which simply denies the allegations raised in the statement of claim. The assertions made in the proposed statement of defence are not accompanied by evidence which support the tenability of the pleadings or the reasons for the defendants’ failure to close the transaction, nor do they provide a meritorious defence other than a blanket denial of the plaintiff's claim.
Conclusion:
[52] Based on the defendants' unexplained failure to act promptly in either their response to the Statement of Claim, of which they were placed on notice; or to set aside the noting of default of which they were aware, and their failure to forward a tenable defence, the interests of justice require the court to enforce the judgment rendered.
[53] In my opinion, the defendants have failed to satisfy me that there is a basis upon which I ought to set aside default judgment. The defendants’ motion is dismissed.
[54] As mentioned to the parties at the conclusion of this motion, in the exercise of my discretion under Rule 57.01, costs to the plaintiffs payable by the defendants are fixed in the amount of $10,000 all inclusive, payable forthwith.
A.J. Goodman J.
DATE: October 2, 2019