COURT FILE NO.: 2886/17
DATE: 2021 01 26
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 401 Weston Centre Limited and Calloway REIT (Weston-401) Inc., Plaintiffs
AND:
1734252 Ontario Inc. o/a Family Afhair, The Estate of Alex Bartholomey a.k.a. Alexander Bartholomey and Anthony Bartholomey, Defendants
BEFORE: Doi J.
COUNSEL: Brian P. Pilley, for the Moving Defendant, Estate of Alex Bartholomey Shawna Sosnovich, for the Responding Plaintiffs
HEARD: December 11, 2020
ENDORSEMENT
Overview
[1] The Estate of Alex Bartholomey (the “Estate”) brought two (2) motions. The first motion was to appoint Maria Anania, the deceased’s daughter, as the Estate’s litigation administrator. The Plaintiffs did not oppose her appointment but sought an order for Ms. Anania and the Estate to be jointly and severally liable for any costs awarded to the Plaintiffs in the action. The second was an opposed motion to set aside the default judgment granted on May 15, 2019 (the “Default Judgment”) against the deceased.
[2] After hearing submissions, I granted the motion for Ms. Anania to be appointed as the Estate’s litigation administrator. As a term of her appointment, I made Ms. Anania and the Estate jointly and severally liable for costs awarded to the Plaintiffs in this action. My reasons for that order are set out below. I subsequently heard the Estate’s motion to set aside the Default Judgment. For the reasons that follow, I find that the Estate’s motion should be dismissed.
Background
a. The Proceedings
[3] In this main action (CV-17-2886-00), the landlord Plaintiffs brought a claim against 1734252 Ontario Inc. o/a Family Afhair (“173”), Alex Bartholomey a.k.a. Alexander Bartholomey (“Alex”), and his son, Anthony Bartholomey (“Anthony”), for the breach of a commercial lease agreement to which Alex and Anthony were indemnifiers.[^1]
[4] The Plaintiffs later brought a second action (CV-19-2538-00) against Alex and Ms. Anania over an alleged fraudulent conveyance of Alex’s residential property on Barford Road in Toronto (the “Barford Property”) to Ms. Anania without consideration after the main action was brought. The parties have not advanced this second action beyond the pleadings stage, as it will be affected by the outcome of this motion to set aside.
b. The Parties
[5] The Plaintiffs, 401 Weston Centre Limited and Calloway REIT (Weston-401) Inc., are the landlords of a commercial property in Toronto.
[6] 173 was a commercial tenant under a lease with the Plaintiffs. The other co-Defendants, Alex and Anthony, were officers and directors of 173 and indemnifiers for the lease. Alex was almost 87 years old when he passed away on April 3, 2018.
[7] Alex named Ms. Anania as an estate trustee in his will dated September 19, 2014.[^2] Acting in this capacity, Ms. Anania took steps on behalf of the Estate to bring this motion to set aside the Default Judgment against the deceased. However, she did not obtain a certificate of appointment of estate trustee with a will despite making an application.[^3] As a result, Ms. Anania moved to be appointed as the litigation administrator for the Estate in order to argue the motion to set aside.
c. Chronology of Events
[8] On May 14, 2007, the landlord Plaintiffs entered into a lease agreement with 1350054 Ontario Inc. (“135”) as the corporate tenant, with a third-party indemnifier to the lease.
[9] The lease with 135 was assigned to 173 under a lease assignment agreement dated May 15, 2007 (the “Lease Assignment Agreement”) between the Plaintiffs, 135 as the assignor, 173 as the assignee, and Alex and Anthony as the indemnifiers. The Lease Assignment Agreement included an extension and amendment term that extended the term of the lease to January 31, 2015.
[10] Alex signed the Lease Assignment Agreement for 173 as its president, and in his personal capacity as an indemnifier. Anthony personally executed the agreement as an indemnifier. Gary Posesorski, a lawyer who acted for Alex and Anthony on the lease transaction, confirmed that he witnessed Alex and Anthony sign the Lease Assignment Agreement and the indemnity agreement dated May 15, 2007 (the “Indemnity Agreement”) after they both had agreed to be indemnifiers.
[11] The Estate does not dispute the above-mentioned facts.
[12] Before the lease was assigned, the Plaintiffs obtained due diligence from Alex in the form of a statement of his assets and liabilities (i.e., certifying his net equity as being $905,000.00 on May 8, 2007), a letter from his banking institution confirming his good payment history on credit products, and his notices of assessment for 2005 and 2006 from the Canada Revenue Agency.
[13] The Plaintiffs claim that they executed a 5-year lease extension agreement dated January 16, 2015 (the “Lease Extension Agreement”) with 173 as the corporate tenant, for which Alex and Anthony were indemnifiers to the lease.
[14] In or around March 2016, the Plaintiffs terminated the lease as a result of defaults under the lease that were not cured.
[15] On July 18, 2017, the Plaintiffs commenced this action for rent arrears and other damages. They served Alex with the statement of claim by leaving a copy at the Barford Property with Anthony after he confirmed being a member of the same household. The Barford Property was the registered address for 173, Alex and Anthony, and was owned by Alex and his wife (who is now deceased) at the time of service.
[16] Under correspondence dated August 2, 2017, a lawyer advised the Plaintiffs that he was counsel for all of the Defendants and served a notice of intent to defend them all.
[17] On August 9, 2017, the Defendants served a request to inspect the various lease documents as pleaded in the claim. The Plaintiffs produced the documents the next day.
[18] On August 23, 2017, the Defendants served their statement of defence.
[19] On September 1, 2017, the Plaintiffs served a request to inspect documents and a demand for particulars. The Defendants did not respond to the request or demand, even after the Plaintiffs made a number of follow-up inquiries.
[20] On March 13, 2018, the Plaintiffs served a reply and gave notice of their wish to exchange affidavits of documents shortly thereafter.
[21] On April 3, 2018, and unbeknownst to the Plaintiffs, Alex passed away.
[22] On June 26, 2018, the Plaintiffs served their sworn affidavit of documents and requested the Defendants’ affidavit of documents. The Defendants did not deliver an affidavit of documents.
[23] On September 27, 2018, the Plaintiffs requested the Defendants’ affidavit of documents by October 4, 2018, failing which they advised of their intention to move to compel its delivery.
[24] On November 2, 2018, the Plaintiffs delivered materials for a motion to strike the defence or, in the alternative, to compel the delivery of the Defendants’ affidavit of documents.
[25] On December 6, 2018, the Plaintiffs’ motion returned to court. No one appeared for the Defendants. Fitzpatrick J. ordered the Defendants to deliver an affidavit of documents within 20 days, failing which the Plaintiffs could move without notice to strike the defence of any Defendant in default. The Plaintiffs served the Defendants with Fitzpatrick J.’s order and endorsement.
[26] The Defendants did not deliver an affidavit of documents, or otherwise respond. There is no indication that their lawyer took steps to be removed from the record.
[27] Thereafter, the Plaintiffs brought a motion in writing without notice for an order to strike the statement of defence and for partial default judgment. On May 15, 2019, Master Mills awarded partial default judgment to the Plaintiffs by striking out the statement of defence and granting $383,631.41 for unpaid rent and future losses of rent (the “Default Judgment”). The Plaintiffs did not seek judgment on the balance of their claim in this main action.[^4]
[28] On or about May 28, 2019, the Plaintiffs made inquiries to enforce the judgment and discovered that Alex had conveyed his 100% interest in the Barford Property without consideration to his daughter, Ms. Anania. The transfer registered on title stated that she was, “getting the home as a gift from her father.”
[29] On June 12, 2019, the Plaintiffs brought the second fraudulent conveyance action to set aside Alex’s transfer of the Barford Property to Ms. Anania. When the Plaintiffs tried to serve the statement of claim for the second action along with motion materials for leave to issue a certificate of pending litigation (“CPL”) on the property, they learned through their process server that Alex had passed away and that Ms. Anania did not reside at the property.
[30] On requisition by the Plaintiffs, an order to continue against the Estate was granted by the court registrar on June 24, 2019 in this main action (the “Order to Continue”).
[31] Under correspondence dated July 2, 2019, the Plaintiffs served the Defendants with the Default Judgment dated May 15, 2019 and the Order to Continue dated June 24, 2019, and asked who had been appointed as the estate trustee for Alex. No response was provided.
[32] Based on internet searches, the Plaintiffs learned that the Barford Property had been listed for sale from about June 1 to 12, 2019. On July 10, 2019, the Plaintiffs successfully moved without notice for leave to issue a CPL for the Barford Property in the fraudulent conveyancing action. The Plaintiffs also obtained leave to amend the statement of claim in that action to reflect Alex’s passing and to name his Estate. On July 18, 2019, the Plaintiffs served the Defendants with the amended statement of claim for the second action, the Order dated July 10, 2019 granting leave to issue the CPL, and the supporting materials for the motion without notice.
[33] On August 21, 2019, the Estate and Ms. Anania delivered a statement of defence in the fraudulent conveyancing action. Among other things, their defence alleges that Alex: a) was not an indemnifier of the lease; b) did not sign the Lease Extension Agreement; and c) was not liable as an indemnifier when the Barford Property was transferred to Ms. Anania.
[34] On October 25, 2019, the Estate served its motion record to set aside the Default Judgment.
[35] The Plaintiffs did not re-let the demised premises at issue before January 31, 2020, which is the date when the lease for the demised premises would have expired.
Litigation Administrator
[36] For the reasons that follow, I appointed Ms. Anania as the litigation administrator for the Estate. I also held that she and the Estate should be jointly and severally liable for any costs that may be awarded to the Plaintiffs in this action.
[37] Rule 9.02 provides for the discretionary appointment of a litigation administrator for an estate that has no executor or administrator. It states the following:
9.02 (1) Where it is sought to commence or continue a proceeding against the estate of a deceased person who has no executor or administrator, the court on motion may appoint a litigation administrator to represent the estate for the purposes of the proceeding.
(2) An order in a proceeding to which a litigation administrator is a party binds or benefits the estate of the deceased person, but has no effect on the litigation administrator in a personal capacity, unless a judge orders otherwise. [Emphasis added]
[38] Pursuant to ss. 131(1) (Costs) of the Courts of Justice Act, RSO 1990, c. C.43, the court may broadly determine the matter of costs, including who shall pay them:
131(1) Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid. [Emphasis added]
[39] In submissions, both sides agreed that the court may direct a litigation administrator to bear liability for costs in a personal capacity, having regard to ss. 131(1) and Rule 9.02(2): Gray Estate v. Winkfield, [1992] OJ No 2599 (Gen Div) at paras 40-43.
[40] Alex was predeceased by his wife, and is survived by his daughter, Ms. Anania, and her three (3) brothers, Anthony Nickolas Bartholomey, Michael Alexander Bartholomey and Nickolas Julian Bartholomey. In his will, Alex named Ms. Anania and her son, Anthony Alexander Anania, as his estate trustees. Ms. Anania’s brothers and her son all consent to her appointment as litigation administrator in this proceeding.
[41] As mentioned earlier, Ms. Anania filed an application for a certificate of appointment of estate trustee with a will. However, that application likely will be delayed for some time until a further application to court for directions is brought to address certain alterations made to Alex’s will after it was executed.
[42] The Plaintiffs did not oppose having Ms. Anania appointed as the litigation administrator for the Estate. However, as a term of her appointment, they sought to have Ms. Anania and the Estate jointly and severally liable for any costs that are awarded to the Plaintiffs in this action.
[43] Ms. Anania opposed being held jointly and severally liable with the Estate for costs in the litigation. She claimed that she had not instituted these proceedings and, therefore, should not be personally liable for costs: Gray at paras 4 and 26 et seq. However, Ms. Anania took it upon herself as a named estate trustee in the will to bring about this motion to set aside the Default Judgment as against the Estate. In doing so, I am satisfied that she effectively instituted this motion to revive the action against the Estate and triggered the matter of costs.
[44] Ms. Anania is not a disinterested participant in this matter. She is named personally as a defendant in the fraudulent conveyance action that the Plaintiffs brought to set aside the transfer of Alex’s former home, which was conveyed without consideration after this main action was brought against him. Ms. Anania has a personal interest at stake, and may benefit from the Estate’s effort to set aside the Default Judgment and defend the main action. On this basis, I find that requiring her to bear some personal responsibility for costs is appropriate given her interest in the outcome of this matter: Gray at para 39, citing Assaf v. Koury (1980), 16 CPC 202 (HCJ).
[45] There is no evidence as to the current value of the Estate. When Ms. Anania applied for a certificate of appointment of estate trustee with a will on January 23, 2019, the Estate’s stated value was $200,000.00. But her recent affidavit sworn December 4, 2020 states that the Estate’s only assets as of June 2018 (i.e., when she apparently last inquired) were banking and investment accounts totaling about $160,000.00. As the Plaintiffs’ claim for unpaid and lost rent (i.e., which does not include their full claim in this main action) is $383,631.41 before interest, it appears that the Estate likely has insufficient funds to satisfy an adverse costs award. As such, I am satisfied that Ms. Anania should bear some personal responsibility for costs: Gray at para 6. In these circumstances, it would be prejudicial for the Plaintiffs to be left without meaningful recourse to recover costs should any be awarded in their favour.
[46] Accordingly, Ms. Anania was appointed as the litigation administrator with joint and several liability with the Estate for any costs awarded to the Plaintiffs in this action.
Setting Aside Default Judgment
[47] The Estate submits that the Default Judgment against the deceased should be set aside because: a) the Default Judgment is a nullity as the Order to Continue was issued without nunc pro tunc effect only after the judgment was granted; and b) the test under Rule 19.08 to set aside the Default Judgment is satisfied.
a. Order to Continue
[48] Rules 11.01 and 11.02 provide as follows:
Effect of transfer or transmission
11.01 Where at any stage of a proceeding the interest or liability of a party is transferred or transmitted to another person by assignment, bankruptcy, death or other means, the proceeding shall be stayed with respect to the party whose interest or liability has been transferred or transmitted until an order to continue the proceeding by or against the other person has been obtained.
Order to continue
11.02 (1) Where a transfer or transmission of the interest or liability of a party takes place while a proceeding is pending, any interested person may, on filling an affidavit verifying the transfer or transmission of interest or liability, obtain on requisition from the registrar an order to continue (Form 11A), without notice to any other party.
(2) An order to continue shall be served forthwith on every other party. [Emphasis added]
[49] By operation of Rule 11.01, the Estate submits that Alex’s death on April 3, 2018 stayed the action against it until an order to continue was obtained. On May 15, 2019, the court granted Default Judgment. Thereafter, the Order to Continue was issued on June 24, 2019 without nunc pro tunc effect. As such, the Estate submits that the judgment against it is a nullity.
[50] The Plaintiffs submit that the Estate’s position that the Default Judgment is a nullity is misconceived because an order of the Superior Court is never a nullity, even when it may be wrong. They also submit that any irregularities with the Default Judgment should be cured.
[51] Shortly after learning that Alex had passed away, the Plaintiffs filed a requisition under Rule 11.02(1) for an order to continue, which the registrar issued on June 24, 2019. On July 2, 2019, the Plaintiffs served the Defendants with the Order to Continue pursuant to Rule 11.02(2). They also asked for the estate trustee to be identified, but received no response.
[52] Respectfully, I am not persuaded by the Estate’s submission that the Default Judgment should be set aside. The Estate’s characterization of the Default Judgment as being a nullity is problematic in view of the well-established principle that a Superior Court order is never a nullity even if it was improperly obtained: Capital One, National Association v. Solehdin, 2019 BCSC 1593 at para 36, affirmed 2020 BCCA 182; Virani v. Virani, 2006 BCCA 63 at para 37; Ascani v. Robert, 2014 ONSC 450 at para 29. On this point, the Supreme Court of Canada in Wilson v. The Queen, 1983 35 (SCC), [1983] 2 S.C.R. 594 at 600-601 approved the following from Canadian Transport (U.K.) Ltd. v. Alsbury, 1952 218 (BC CA), [1953] 1 D.L.R. 385 (BCCA) at 406:
[T]he order of a Superior Court is never a nullity; but, however wrong or irregular, still binds, cannot be questioned collaterally, and has full force until reversed on appeal.
The order under review is that of a Superior Court of Record, and is binding and conclusive on all the world until it is set aside, or varied on appeal. No such order may be treated as a nullity. [Emphasis added]
[53] An order to continue under Rule 11.01 is fundamentally an administrative order that does not affect the substantive rights or obligations of the parties: Outfront Media Canada LP v. Clarity Outdoor Media Inc., 2017 ONSC 2136 (Div Ct) at para 73; 1467736 Ontario Ltd. v. Galli, [2003] OJ No 4186 (Master) at paras 8-9.[^5] This is apparent from the procedure for obtaining an order to continue. Where a transfer or transmission occurs, Rule 11.02(1) provides that any interested person may, on filing an affidavit verifying the transfer or transmission of interest or liability, obtain on requisition from the registrar an order to continue without notice to any other party. Once issued, the order to continue is to be served on the other parties pursuant to Rule 11.02(2).
[54] The requisition process under Rule 11.02 “envisages an administrative act on the part of the registrar” and does “not contemplate a refusal of a requisition by the registrar on substantive grounds”: Outfront Media at paras 75 and 77; Capital One, National Assn. v. Solehdin, 2020 BCCA 182 at para 52. An order to continue merely verifies the transfer or transmission of interest or liability: Outfront Media at para 76. This is intended to ensure that the proper parties are identified before the action proceeds further, without impacting the substantive rights of parties: Outfront Media at paras 74-76; 1467736 Ontario at para 9; Lasalle Bank National v. Mundi, [2007] OJ No 3671 (Master) at paras 25-27; Bjornsson v. Smith, 2016 MBCA 91 at paras 84-85.
[55] The standard order to continue made under Rule 11.02 (Form 11A) states that a party who wishes to set aside or vary the order must move to do so forthwith after it comes to the party’s attention. A motion to vary or set aside an order to continue may be appropriate to ensure that the new party fairly stands in the same position as the former party in the action. However, neither Rule 11.02 nor Form 11A contemplate the dismissal of an action based solely on the transfer of the original party’s interest: Outfront Media at paras 78-80. In this case, the Estate does not claim that it had any basis to set aside the Order to Continue that was issued.
[56] I am satisfied that the interests of justice would not be served by setting aside the Default Judgment due to the stay under Rule 11.01. In my view, the Estate should not be permitted to take advantage of a technical slip that did not affect its substantive rights or obligations. Through no fault of their own, the Plaintiffs were unaware of Alex’s death until they tried to serve him with the fraudulent conveyance claim and the CPL motion materials on June 15, 2019. Upon learning that he had passed away, they promptly took appropriate steps under Rule 11.02 to regularize the proceeding by seeking an order to continue against the Estate, which was granted on June 24, 2019. The Estate is not suggesting that it was prejudiced this irregularity. Rule 2.01 expressly provides that a failure to comply with a rule is an irregularity and does not render an order a nullity.[^6]
[57] Accordingly, to do justice in this case, I find that discretionary relief should be granted under Rule 2.01(1)(a) to validate the Order to Continue nunc pro tunc to relieve the Plaintiffs from the operation of the stay under Rule 11.01 upon Alex’s death on April 3, 2018, and to uphold the Default Judgment that was awarded on May 15, 2019.
b. The Test Under Mountain-View Farms
[58] Rule 19.08 provides as follows:
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 by the court on such terms as are just.
(2) A judgment against a defendant who has been noted in default that is obtained on a motion for judgment on the statement of claim under rule 19.05 or that is obtained after trial may be set aside or varied by a judge on such terms as are just.
(3) On setting aside a judgment under subrule (1) or (2) the court or judge may also set aside the noting of default under rule 19.03.
[59] On a motion to set aside a default judgment, the court must consider whether the interests of justice favour granting the order based on the following 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.
Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194 at paras. 47-49
[60] The above-mentioned criteria are pertinent factors to consider, but are not rigid rules. The particular circumstances of each case are considered in determining whether it is just to relieve the defendant from the consequences of his or her default: Mountain View at para. 50. 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: Mountain View at para. 51. The court’s ultimate task on a motion to set aside a default judgment is to decide whether the interests of justice favour granting the order: Mountain View at para 47.
a. Motion brought promptly
[61] I am satisfied that Ms. Anania promptly brought this motion for the Estate after she learned of the Default Judgment. According to her unchallenged evidence, Ms. Anania first became aware of the companion fraudulent conveyancing action on July 20, 2019 when tenants at the Barford Property in Toronto, almost as an afterthought, turned over legal documents to her for that action which the Plaintiffs had served at the property. Later that day, Ms. Anania contacted her estates lawyer for advice on the conveyancing action. Following a referral, she retained her current litigation counsel who learned of the Default Judgment before writing to the Plaintiffs on August 6, 2019 to ask whether an order to continue had been issued in this action, and to address other matters in the conveyancing action.
[62] On August 8, 2019, the Plaintiffs sent Ms. Anania a copy of the Order to Continue dated June 24, 2019, and explained that it had been obtained once they learned that Alex had passed away. On August 21, 2019, Ms. Anania asked the Plaintiffs to consent to setting aside the noting of default and the Default Judgment against the Estate. On September 10, 2019, the Plaintiffs declined to give their consent.
[63] On September 29, 2019, Ms. Anania served her materials for this motion to set aside, which initially was to return on March 24, 2020. After court operations were disrupted by the ongoing COVID-19 pandemic, the motion was adjourned to November 9, 2020. It then was adjourned to December 11, 2020 to allow Ms. Anania to bring her motion to be appointed as the litigation administrator for the Estate.
[64] This chronology is not seriously disputed. In the circumstances, I accept that the Estate’s motion to set aside was brought promptly and with adequate diligence to meet the first arm of the Mountain View test.
b. No plausible excuse or explanation for default
[65] In my view, the Estate has not given a plausible excuse or explanation for Alex’s default in this action. Its only explanation is that Alex was unaware of the claim against him, which is based solely on Ms. Anania’s apparent belief. Alex lived with Ms. Anania and her family at their home on Garthwood Road in Mississauga from December 2016 until his death on April 3, 2018. While he resided with her, Ms. Anania claims that she never saw any letters about the action or knew of any phone calls between Alex and the lawyer acting for him. Based on this, she apparently believes that Alex never knew that he was named in the action and had a lawyer defending him. For reasons that are unclear, she believes that Alex was not served with the statement of claim. Instead, she states that the claim was served on her brother, Anthony, who retained counsel to defend himself, Alex, and 173, apparently without informing Alex. It is unclear how she came to know this. She also claims that Anthony told her “in the autumn of 2017, that this court action had been resolved or settled in some fashion.”
[66] The only evidence supporting the Estate is from Ms. Anania. Anthony did not provide an affidavit for this motion. Although the Estate’s lawyer advised that Anthony apparently now lives overseas in the Philippines, the record does not show whether the Estate tried to obtain evidence from him, or from others, to support its position.
[67] Respectfully, I am unpersuaded by Ms. Anania’s evidence. Her apparent belief that Alex was unaware of this litigation is impressionistic, and her claim that Anthony retained counsel to defend Alex without informing him is vague. She states that Anthony told her that the litigation had resolved in 2017, but this hearsay is factually incorrect.
[68] In considering Ms. Anania’s evidence, I must have regard to s. 13 (Actions by or against heirs, etc.) of the Evidence Act, which provides:
In an action by or against the heirs, next of kin, executors, administrators or assigns of a deceased person, an opposite or interested party shall not obtain a verdict, judgment or decision on his or her own evidence in respect of any matter occurring before the death of the deceased person, unless such evidence is corroborated by some other material evidence. [Emphasis added]
This requirement for corroboration exists to address the obvious issues that arise when the dead cannot tell their side of a story or respond to a living person’s version of events: Burns Estate v. Mellon, 2000 5739 (ONCA) at para 5. It follows that Ms. Anania’s evidence must be corroborated with some other independent evidence that appreciably helps the court to accept one or more of her material facts by enhancing the probability of the truth of her statements: Botnick v. The Samuel and Bessie Orfus Family Foundation et al., 2011 ONSC 3043 at para 16, affirmed 2013 ONCA 225.
[69] The Estate has given no independent evidence to corroborate any of the material facts that Ms. Anania has raised. Given its uncorroborated nature, I find that the Estate has not adduced a satisfactory evidentiary record that conforms with s. 13 of the Evidence Act to allow it to obtain a decision on this motion. In any event, the vague and limited nature of her evidence causes me to question its reliability. Accordingly, I am satisfied that the Estate has not provided a plausible excuse or explanation for the deceased’s default.
c. No arguable defence on the merits
[70] In my view, the Estate has not established an arguable defence on the merits. While it agrees that Alex signed the Indemnity Agreement in 2007, the Estate claims that Alex did not sign the Lease Extension Agreement in 2015 and, therefore, should not be liable for damages during the extended term of the lease. The Estate’s only evidence on this point is from Ms. Anania. As discussed further below, there are several concerns with her evidence.
[71] The Plaintiffs claim that the standard for demonstrating a defence on the merits under the third arm of the Mountain View test is similar to the test for summary judgment under Rule 20 by requiring the moving defendant to put its “best foot forward” with specific, substantial and hard evidence of a genuine issue requiring a trial. Respectfully, however, this proposed approach is not supported by appellate jurisprudence that has rejected a summary judgment approach on a motion to set aside a default judgment: Zeifman Partners Inc. v. Aiello, 2020 ONCA 33 at paras 33-34. Instead, the issue to determine at this stage of the analysis to set aside is whether the defence has an air of reality: Zeifman at para. 32-34; Mountain View at para. 51.
[72] According to Ms. Anania, her brother Anthony told her that it was him, and not Alex, who had signed the Lease Extension Agreement on the signature line with Alex’s name. Based on this, the Estate claims to have a good defence to the Plaintiffs’ indemnification claim against Alex. However, Ms. Anania’s evidence on this point is uncorroborated. There is no other evidence in the record on this issue. Without independent corroboration, Ms. Anania’s evidence cannot satisfy the reliability criterion under s. 13 of the Evidence Act and raise an arguable defence on the merits. Given the inadequacy of its record, I find that the Estate has not established an arguable defence.
[73] In any event, I am unpersuaded by Ms. Anania’s evidence. She describes her conversation with Anthony with scant hearsay, and explains the matter of Alex’s signature in relatively brief and superficial terms. Her account lacks any context as to when or why she discussed Alex’s signature with Anthony. Importantly, she does not explain why Anthony had signed the Lease Extension Agreement for Alex, whether Alex knew of this, or whether Alex had asked Anthony to sign on his behalf. Moreover, she does not address the fact that a witness apparently confirmed Alex’s signature by signing beside it. These are all significant omissions. For all of these reasons, I find that the Estate’s defence lacks an air of reality: Zeifman at para 34.
[74] Regardless of whether Alex signed the 2015 Lease Extension Agreement, I find that he was liable as an indemnifier during the extended lease terms under the 2007 Indemnity Agreement. As Alex had executed the Indemnity Agreement, which is not disputed, I am satisfied that his consent for the Lease Extension Agreement was not needed for his liability to continue throughout the extension of the lease term. As set out below, the Indemnity Agreement clearly and explicitly states that his liability as an indemnifier is absolute, unconditional and ongoing during the term of the lease and any extension of the lease term.
[75] Under the Lease Assignment Agreement, Alex agreed to indemnify 173’s lease and signed the Indemnity Agreement.[^7] The Estate accepts that Alex signed both agreements.[^8] Paragraphs (a) and (b) of the Indemnity Agreement state:
(a) The Indemnifier as direct and primary obligor, hereby agrees with the Landlord that at all times during the Term of the Lease and any extension or renewal of the Lease and during any period that the Tenant is in possession of the Demised Premises, it will be bound to the Landlord for the performance of all obligations of the Tenant under the Lease and it will (a) make the due and punctual payment of all Rent, monies, charges and other amounts of any kind whatsoever payable under the Lease by the Tenant whether to the Landlord or otherwise and whether the Lease has been terminated, surrendered, disaffirmed or disclaimed; (b) effect prompt and complete performance of all and singular the terms, covenants and conditions contained in the Lease on the part of the Tenant to be kept, observed and performed; and (c) indemnify and save harmless the Landlord from any loss, costs or damages arising out of any failure by the Tenant to pay the aforesaid Rent, monies, charges and other amounts of any kind due under the Lease or resulting from any failure by the Tenant to observe or perform any of the terms, covenants, provisos and conditions contained in the Lease.
(b) This Indemnity is effective as of the 1st day of June, 2007, absolute and unconditional and the obligations of the Indemnifier shall not be released, discharged, mitigated, impaired or affected by (a) any extension of time, indulgences or modifications which the Landlord extends to or makes with the Tenant in respect of the performance of any of the obligations of the Tenant under the Lease; (b) any waiver by or failure of the landlord to enforce any of the terms, agreements, stipulations, provisos, Rules and Regulations, covenants and conditions contained in the Lease; (c) any assignments of the Lease by the Tenant or by any trustee, receiver, or liquidator, any transfer of all or any part of the Demised Premises, or any change in control of the Tenant or any transferee approved by the Landlord; (d) any consent which the Landlord gives to any such assignment or subletting; (e) any amendment to the Lease or any waiver by the Tenant of any of its rights under the Lease; (f) the expiration of the Term; (g) any alternation to the Demised Premises, or any part thereof; (h) any surrender, disclaimer, repudiation or termination of the Lease, by operation of law or otherwise; (i) any renewal or extension of the Lease pursuant to any option of the Tenant or otherwise, or any overholding by the Tenant of the Demised Premises, or any part thereof, the Indemnifier hereby agreeing that its obligations under this Indemnity shall extend throughout the term, as renewed or extended; (j) any loss of or in respect of security received by the Landlord from the Tenant or any other person, firm, corporation or other legal entity, whether or not occasioned by or contributed to by or through any act, omission, default or neglect of the Landlord, or those in law for whom it is liable; (k) any act or omission of the Landlord or any other party whereby the Indemnifier would or otherwise might be released or have its obligations hereunder discharged, mitigated, impaired or otherwise affected in any manner whatsoever; and/or (l) any present or future statute or any existing or future common law under which the Tenant or the Indemnifier is otherwise released or has its obligations under the Lease or the Indemnity, as the case may be, discharged, mitigated, impaired or affected in any way or manner whatsoever, and nothing but payment and satisfaction in full of all Rent and due performance and observance of all terms, covenants and conditions on the part of the Tenant to be paid and performed shall cause the Indemnifier to be relieved of its obligations hereunder. [Emphasis added]
[76] The parties regard the Indemnity Agreement in slightly different fashion. The Estate likens the Indemnity Agreement to a guarantee, while the Plaintiffs disagree with this characterization.[^9] The Supreme Court has cautioned that the distinction between a contract of guarantee and of indemnity should not be overemphasized, as the resolution of a given case turns on the correct interpretation of the contract and the intention of the parties: Communities Economic Development Fund v. Canadian Pickles Corp., 1991 48 (SCC), [1991] 3 SCR 388 at para 50. To this end, the Plaintiffs submit that even if the Indemnity Agreement is construed as a guarantee, caselaw is settled that there is no obligation for a guarantor to be informed of, or consent to, future credit facilities over which a guarantee is continuing, absolute and unconditional. Similarly, where an indemnity is continuing, as in this case, the Plaintiffs submit that there is no need for the indemnifier to agree to an extension already contemplated and agreed upon in a contract of indemnity.
[77] The court’s approach to interpreting contracts, including contracts of guarantee, is to give effect to the clearly expressed intention of the parties in their written agreement. Where that intention is plainly expressed in the agreement, the court should not stray beyond the four corners of the agreement: KPMG Inc. v. Canadian Imperial Bank of Commerce, 1998 1908 (ON CA), [1998] OJ No 4746 (CA) at para 5, leave to appeal refused [1999] SCCA No 36.
[78] As guarantors are held to be favoured creditors, their obligations are strictly construed and strictly enforced: Manulife Bank of Canada v. Conlin, 1996 182 (SCC), [1996] 3 SCR 415 at para 10. That said, it is open for contracting parties to make their own arrangements. Guarantors may contract out of the protections afforded at common law or in equity where any contracting out is clear: Manulife at para 4; First City Capital Ltd. v. Hall (1993), 1993 8595 (ON CA), 11 OR (3d) 792 (CA) at 796. Where the language of a guarantee and the circumstances make it clear that a guarantor has waived the protections of common law and equity, those protections will be found to have been waived: Geoff R. Hall, Canadian Contractual Interpretation Law (3rd) (Toronto: LexisNexis Canada, 2016) at 239.
[79] For analytical clarity, the issue of contracting out of common law and equitable protections calls for a two-part analysis. The first part is to consider whether a material change was made to the guarantor’s risk (i.e., quite apart from any possible authority to do so under the guarantee), and the second calls for a determination of whether the language of the guarantee permits the material alteration: Royal Bank of Canada v. Samson Management & Solutions Ltd., 2013 ONCA 313 at para 52, leave to appeal refused [2013] SCCA No 301. The context of the entire transaction, including the underlying obligation that is guaranteed and any dealings regarding that obligation, is relevant to the interpretation of a guarantee clause: Hall at 241; Manulife at para 16.
[80] As set out earlier, 173’s lease was extended in 2015 for a further five (5) year term by the Lease Extension Agreement. Alex’s risk as a guarantor was materially changed by this.
[81] Having regard to the Indemnity Agreement against the factual circumstances in this case, I find that the agreement clearly and unequivocally provides that Alex’s indemnity is to continue throughout the term of the lease and all renewals. Paragraph (a) of the Indemnity Agreement is clear that the indemnifiers, Alex and Anthony, are direct and primary obligors who are bound to the landlord Plaintiffs for 173’s tenant obligations under the lease for its term “and any extension or renewal of the Lease.” This is reinforced by paragraph (b)(i) of the Indemnity Agreement which states that the liability of the indemnifiers shall not be released, discharged mitigated, impaired or affected by “any renewal or extension of the Lease pursuant to any option of the Tenant or otherwise,” and confirms that the obligations of the indemnifiers under the Indemnity Agreement, “shall extend throughout the term, as renewed or extended.”
[82] I am satisfied that the Indemnity Agreement is broadly drafted to plainly contract out of any common law and equitable protections. Paragraph (b)(l) of the agreement expressly states that the parties waive and contract out of “any existing or future common law under which the Tenant or the Indemnifier is otherwise released or has its obligations under the Lease or the Indemnity, as the case may be, discharged, mitigated, impaired or affected in any way or manner whatsoever, and nothing but payment and satisfaction in full of all Rent and due performance and observances of all terms, covenants and conditions on the part of the Tenant to be paid and performed shall cause the Indemnifier to be relieved of its obligations hereunder.”
[83] In my view, Alex clearly and unambiguously remained liable as an indemnifier under the Indemnity Agreement for payments owed by 173 to the Plaintiffs throughout any extensions of the lease. The language of the Indemnity Agreement indicates that it was intended to be a continuing indemnity for 173’s liability under the lease, that would include any subsequent obligations to the Plaintiffs through any extensions of the lease which were considered to be future liabilities under the indemnity. Although the lease extension under the Lease Extension Agreement was a material alteration, I am satisfied that lease extensions were expressly contemplated by the parties, were permitted by clear and unambiguous language in the Indemnity Agreement, and were inherent to the indemnity which contemplated that lease extensions would increase the value of the underlying indebtedness. I would add that Alex, as well as Anthony and 173, had counsel to advise them on the transaction, including the implications of any extensions and indemnities for the lease.
[84] As parties are entitled to make their own arrangements, the court will usually respect a decision to contract out of the protections provided by the common law or equity so long as the contracting-out language is clear and unambiguous: Manulife at para 4; Samson at para 61. While the Indemnity Agreement is typical of many indemnities prepared by lenders on standard forms that often are not open for meaningful negotiations, I am satisfied that the indemnity in this case conforms to the requirement for clear and unambiguous language needed to enforce its terms. This is not a case where it is alleged that the lease extension was never contemplated, or that the landlord gave the indemnifier misleading advice, or otherwise overreached in respect of the transaction. From the record on this motion, I see no basis to apply the common law or equity in this matter. Accordingly, I find that Alex’s personal indemnification is enforceable in light of the clear language in the Indemnity Agreement and the factual context of this particular case.
d) Potential prejudice
[85] In balancing the potential prejudice that either side will face, I am satisfied that this factor weighs in favour of not setting aside the Default Judgment in this case. On the evidentiary record before the court, I find that the Estate has not given an explanation for Alex’s default under the Rules and has not established an arguable defence on the merits. In light of this, I see no prejudice to the Estate in denying the motion. That said, I am satisfied that setting aside the Default Judgment would be prejudicial to the Plaintiffs, who would face additional delay and expense in continuing the action. As set out earlier, the Defendants were inactive throughout most of the litigation. Before he died, and despite being represented by counsel of record, neither Alex nor the other Defendants took steps to actively defend the claim beyond delivering a statement of defence. This caused the Plaintiffs to incur undue delay and unnecessary expense in their efforts to advance the litigation, and ultimately led to Default Judgment being granted against the Defendants. I also accept that the Plaintiffs may well be prejudiced to some degree by the unavailability of Alex’s evidence, although the actual extent of this prejudice is unclear at this time. The other unavailable witness with first-hand knowledge of this matter is Anthony, who is both a co-defendant and a beneficiary of the Estate. It appears that Anthony, who apparently now resides in the Philippines, has shown a virtual disregard for this litigation by his own purported actions. In the circumstances, I find that this arm of the Mountain View analysis favours preserving the Default Judgment against the deceased.
e) Overall integrity of the administration of justice
[86] Having regard to the overall integrity of the administration of justice, I find that the interests of justice would not be served by setting aside the Default Judgment against Alex or the Estate in this case. I recognize that a determination on the merits is an overarching goal of our civil process, and that outcomes based on technical failings are exceptions to this general principle: Rule 1.04(1); Zeifman at para. 47. However, from the evidentiary record on this motion, the Estate has been unable to give a plausible explanation for Alex’s default or show an arguable defence on the merits to establish some prospect of success at trial. In the circumstances, and to uphold the integrity of the administration of justice, I am satisfied that the Default Judgment should not be set aside.
[87] Accordingly, I find that the Estate’s motion to set aside the Default Judgment against the deceased should be dismissed.
Outcome
[88] Based on the foregoing:
a. Maria Anania was appointed as the litigation administrator for the Estate of Alex Bartholomey, and is jointly and severally liable with the Estate for costs awarded to the Plaintiffs in this action;
b. Pursuant to Rule 2.01(1)(a), the Order to Continue dated June 24, 2019 is validated nunc pro tunc to relieve the Plaintiffs from the operation of a stay under Rule 11.01 upon the death of the Defendant, Alex Bartholomey, on April 3, 2018; and
c. The Estate’s motion to set aside the Default Judgment is dismissed.
[89] Should the parties be unable to agree on costs for the motion, the Plaintiffs may deliver written costs submissions of up to three (3) pages (excluding any costs outline and offer to settle) within 15 days, and the Estate may deliver written costs submissions on the same terms within a further 15 days. Reply submissions shall not be delivered without leave.
Doi J.
Date: January 26, 2021
COURT FILE NO.: 2886/17
DATE: 2021 01 26
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 401 Weston Centre Limited and Calloway REIT (Weston-401) Inc., Plaintiffs
AND:
1734252 Ontario Inc. o/a Family Afhair, The Estate of Alex Bartholomey aka Alexander Bartholomey and Anthony Bartholomey, Defendants
BEFORE: DOI J.
COUNSEL: Brian P. Pilley, for the Moving Defendant, Estate of Alex Bartholomey
Shawna Sosnovich, for the Responding Plaintiffs
ENDORSEMENT
Doi J.
DATE: January 26, 2021
[^1]: For clarity, I shall refer to the individual Defendants by their first names to better distinguish them from each other. I intend no disrespect in doing so.
[^2]: In his will, Alex also named Ms. Anania’s adult son, Anthony Alexander Anania, as an estate trustee.
[^3]: By Endorsement dated November 19, 2019, Fowler Byrne J. ordered the proposed executors to apply to the court for directions, with notice to those having an interest in the estate, regarding handwritten alterations to Alex’s will made after its execution that did not conform with s.18 of the Succession Law Reform Act. However, for reasons that are unclear, Fowler Byrne J.’s endorsement did not come to the attention of the proposed executors. As a result, Ms. Anania’s application for a certificate of appointment of estate trustee has been delayed.
[^4]: The Plaintiffs’ motion did not seek judgment for the alleged fraudulent removal or conveyance of certain corporate business property from 173 to Alex and Anthony.
[^5]: The only provision under Rule 11 that contemplates any impact on a party’s substantive rights is found at Rule 11.03, which allows a defendant, after the transfer or transmission of a plaintiff’s interest while the action is pending, to move to have the action dismissed for delay if an order to continue is not obtained within a reasonable period of time. Rule 11.03 does not apply to the facts of this case.
[^6]: Rule 2.01 provides: 2.01 (1) A failure to comply with these rules is an irregularity and does not render a proceeding or a step, document or order in a proceeding a nullity, and the court, (a) may grant all necessary amendments or other relief, on such terms as are just, to secure the just determination of the real matters in dispute; or (b) only where and as necessary in the interest of justice, may set aside the proceeding or a step, document or order in the proceeding in whole or in part.
[^7]: Paragraph 9(b) (Indemnifier’s Covenants) of the Lease Assignment Agreement dated May 15, 2007 provides: (b) the Indemnifier hereby covenants and agrees that simultaneous with its executing this Agreement as Indemnifier, it will execute the Indemnity Agreement attached hereto as Schedule “A”, and all terms contained therein shall be the terms of indemnity referred to herein, with all blanks completed.
[^8]: As stated earlier, the Estate acknowledges that Alex signed the Indemnity Agreement in his personal capacity with Anthony to secure 173’s commercial lease with the landlord Plaintiffs. Alex also signed the Lease Assignment Agreement on behalf of 173 as the corporation’s president. The Estate accepts that Alex’s signature on these agreements was witnessed by the solicitor who had acted for him, 173 and Anthony on the lease transaction with the Plaintiffs in 2007.
[^9]: The distinction between a guarantee and an indemnity was explained in Communities Economic Development Fund v. Canadian Pickles Corp., [1991] 3 S.C.R. 388 at paras 49-50: [49] A guarantee is generally a contract between a guarantor and a lender. The subject of the guarantee is a debt owed to the lender by a debtor. In the contract of guarantee, the guarantor agrees to repay the lender if the debtor defaults. The exact nature of the obligation owed by the guarantor to the lender depends on the construction of the contract of guarantee, but the liability of the guarantor is usually made coterminous with that of the principal debtor. Generally speaking, if the principal debt is void or unenforceable, the contract of guarantee will likewise be void or unenforceable. See generally, J. O'Donovan and J. C. Phillips, The Modern Contract of Guarantee (1985), at pp. 183-93. [50] Contracts of guarantee are sometimes distinguished from contracts of indemnity. In a contract of indemnity, the indemnifier assumes a primary obligation to repay the debt, and is liable regardless of the liability of the principal debtor. An indemnifier will accordingly be liable even if the principal debt is void or other-wise unenforceable.```