Court File and Parties

COURT FILE NO.: CV-18-138104 DATE: 20220314 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ARISTA HOMES (KLEINBURG) INC. Plaintiff – and – NELLI GRIU Defendant

Counsel: Sukhdeep Gill, Counsel for Plaintiff (Respondent) Nelli Griu, Self-Represented, Defendant (Moving Party)

– and – SWIPE GROUP INC. and 10589365 CANADA INC. Third Parties No one appearing for the Third Parties

HEARD: March 2, 2022

REASONS FOR DECISION

CHARNEY J.:

[1] The defendant, Nelli Griu, brings this motion for an order setting aside the default judgment of Di Luca J. dated June 3, 2020. The defendant also seeks an order permitting her to deliver a Statement of Defence within 10 days of the order setting aside the default judgment.

Facts

[2] The parties entered into an agreement of purchase and sale (APS) on February 14, 2017. The defendant agreed to purchase a home built by the plaintiff, Arista Homes (Kleinburg) Inc. (“Arista Homes”) for $1,728,109. The defendant had paid deposits totaling $134,738 toward the purchase price. On June 7, 2018 the defendant failed to close.

[3] Arista Homes advised the defendant that she was in breach of the APS and that pursuant to the terms of the APS she had forfeited the deposit.

[4] As a result of this breach, the plaintiff alleges that it sustained damages, and issued its Statement of Claim on November 14, 2018.

[5] The defendant was served with the Statement of Claim by substituted service pursuant to the Order of Mullins J. dated May 16, 2019. It is undisputed that the defendant was served with the Statement of Claim in May 2019. The plaintiff has provided, by way of affidavit, a copy of a voice mail message received from the defendant on May 29, 2019, in which she acknowledges receipt of the Statement of Claim.

[6] The defendant did not file a Statement of Defence, and was noted in default on June 25, 2019.

[7] The plaintiff moved for default judgment on September 20, 2019.

[8] In its motion for default judgment the plaintiff provided evidence that following the defendant’s failure to close on June 7, 2018, the plaintiff re-sold the house for $1,250,000 to a different purchaser. It therefore suffered damages of $478,109. Arista Homes also sued for incidental carrying expenses of $41,293 caused by the delayed closing, including utility expenses, municipal taxes and sales commission, plus pre-judgment interest. Their total damages came to $599,661. Arista Homes did not deduct the forfeited deposit from the damages claimed.

[9] The plaintiff’s motion for summary judgment was dismissed by Leibovich J. on September 27, 2019, on the basis that the following additional information was required: the difference between the original listing price and the new listing price, why the plaintiff should be able to claim for the total damages plus the forfeited deposit, and why the commission costs were so much greater in the second sale.

[10] Arista Homes refiled its motion for default judgement with a Supplementary Affidavit dated March 3, 2020. Arista Homes explained how the drop in market price when the home was resold resulted in a reduced sales price, and how the original sale was conducted by their new homes sales staff which was paid a negotiated flat fee for each sale. For the resale Arista Homes retained an outside real estate agent to list the property on MLS.

[11] In this Supplementary Affidavit, Arista Homes acknowledged that the defendant’s deposit should be deducted from the damages claimed. But Arista Homes miscalculated the amount of the deposit, alleging that the defendant had paid only $120,000 in total deposits, notwithstanding the admission in the Statement of Claim that the defendant had paid $134,738 in deposits. They therefore reduced the total damages claimed to $482,784.97, rather than the $599,661 claimed in the original motion for default judgment (the pre-judgment interest was also increased due to the later judgment date).

[12] The revised motion came before Di Luca J., who indicated that he was satisfied that the concerns raised by Leibovich J. had been satisfactorily addressed by the additional material filed and granted judgment on June 3, 2020.

[13] At some point, the error in the deposit appears to have been caught by someone, because the final judgment signed by Di Luca J. is for $464,970, which is the correct amount when the full $134,738 deposit is deducted from the damages claimed.

[14] In her Notice of Motion, the defendant states that she became aware of the Default Judgment in February 2021.

[15] In an attempt to realize on its Default Judgment, Arista Homes’ counsel scheduled an examination in aid of execution on May 28, 2021. A copy of the notice of examination was served on Ms. Griu on April 27, 2021.

[16] The defendant attended the examination for discovery on May 28, 2021.

[17] On August 25, 2021, the defendant served this motion to set aside the default judgment.

Defendant’s grounds to set aside default judgment

[18] The defendant argues that default judgment should be set aside because she did not defend the action because she could not afford legal assistance and hoped to negotiate a settlement with the plaintiff. The defendant also asserts that she has a credible defence.

[19] The defendant’s defence is that she tried to obtain financing for the home, but because the value of the home had decreased dramatically since she agreed to buy it, she could not get a bank mortgage or a private mortgage. She then tried to negotiate a lower price for the house with the plaintiff, but the plaintiff refused to reduce the sale price.

[20] The defendant has appended a proposed Statement of Defence to her motion record. In it, she argues that the reduction of value in the house since she agreed to purchase it “was a supervening event that altered the Agreement to such an extent that compelling the Defendant to perform the Agreement would cause the Defendant to do something that was radically different than what the parties had contemplated and agreed to”.

[21] She also alleges that the plaintiff failed in its duty to mitigate damages. Finally, she alleges that the plaintiff is not entitled to retain the deposits and claim damages “which would be a penalty”.

Analysis

[22] Rule 19.08 of the Rules of Civil Procedure provides:

Setting Aside Default Judgment

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.

[23] The law on a motion to set aside default judgment was summarized by the Ontario Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, at paras. 47-51 (citations omitted):

The court’s ultimate task on a motion to set aside a default judgment is to determine whether the interests of justice favour granting the order…

The court must consider the following three 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; and

(c) whether the facts establish that the defendant has an arguable defence on the merits.

To this list, I would add the following two factors the court should have regard to…:

(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 motion judge may make on the overall integrity of the administration of justice.”

These factors are not to be treated as rigid rules; 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. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.

[24] In this case the defendant learned of the default judgment in February, 2021, but did not bring her motion for default judgment until six months later, in August 2021. This is not the longest delay on record, and in the circumstances does not qualify as inordinate delay.

[25] Given the fact that the plaintiff has had the benefit of the forfeited deposit of $134,738 since the APS failed to close in June 2018, I do not see there being any great prejudice to the plaintiff if the defendant were permitted to defend this action on the merits.

[26] If the defendant could demonstrate that she had an arguable defence, I would have no hesitation in setting aside the default judgment and permitting the defendant to file a Statement of Defence and defend the action on its merits.

[27] Unfortunately, the facts that she sets out in her proposed Statement of Defence do not establish an arguable defence. The proposed Statement of Defence raises legal defences that have already been rejected by the Ontario Court of Appeal or are otherwise without legal foundation.

[28] In this case the defence has three prongs:

a) Frustration of Contract. The defendant argues that the dramatic reduction of value in the house after she agreed to purchase it “was a supervening event that altered the Agreement to such an extent that compelling the Defendant to perform the Agreement would cause the Defendant to do something that was radically different than what the parties had contemplated and agreed to”.

b) Mitigation of damages. The defendant argues that the plaintiff failed to mitigate its damages because it refused to negotiate a lower price with the defendant.

c) Relief from forfeiture. The defendant argues that the plaintiff is not entitled to retain the deposits and claim damages “which would be a penalty”.

[29] In my view each of these proposed defences are legally untenable even assuming the truth of the statements in the proposed Statement of Defence.

Frustration of Contract

[30] The defendant alleges that she was unable to close the transaction because she could not obtain financing. Ontario cases have uniformly rejected this argument as a basis for claiming frustration of contract. For example, in the case of Bang v. Sebastian, 2018 ONSC 6226, (aff’d on appeal, 2019 ONCA 501) the defaulting purchaser had claimed that the fall in the market and her inability to qualify for financing amounted to unforeseen and supervening events, i.e. frustration. This argument was rejected. Sanfilippo J. held that even had the purchaser adduced evidence of the fall in the market, it would not have been enough to establish frustration. He stated, at para. 36:

However, even if the purchaser defendant had established a fall in real estate values in Mississauga in the period from May to August 2017, this would still not have constituted an “unforeseen supervening event” of the nature required to invoke the doctrine of frustration in this case. Ms. Sebastian was the owner of real estate at the time that she offered to purchase the Glasshill Grove property. She had listed her property for sale in order to have sufficient capital on hand to purchase the Glasshill Grove property. She timed the sale of her property with the acquisition of a new property. She knew that property values could go up, and from this she knew that property values could go down. Ms. Sebastian deposed that the decrease in values was beyond her control and not what she expected would occur, but this does not make it “unforeseen”.

[31] See also: Paradise Homes North West Inc. v. Sidhu, 2019 ONSC 1600; FSC (Annex) Limited Partnership v. ADI 64 Prince Arthur L.P, 2020 ONSC 5055, at para. 29; Forest Hill Homes v. Ou, 2019 ONSC 4332, at paras. 5-6; Perkins v. Sheikhtavi, 2019 ONCA 925.

[32] These cases make it clear that fluctuations in the real estate market are to be expected, and fluctuations in value do not alter the obligations of either party unless there is specific language in the contract to address the issue (eg. Making the contract conditional on financing).

Mitigation of Damages

[33] Nor does the plaintiff’s refusal to negotiate a lower price for the defendant constitute a failure to mitigate damages.

[34] The Court of Appeal dealt with a similar situation in Azzarello v. Shawqi, 2019 ONCA 820, where the Court held that it was not a failure to mitigate when an innocent vendor refuses the defaulting purchaser’s revised terms to purchase the property at a lower price. The Court of Appeal stated at paras. 37-40:

However, even if the appellant had made an offer to pay 10% less for the property and not be released from his obligation under the agreement of purchase and sale, I would reject the suggestion that the duty to mitigate obliges a vendor to accept an offer from the defaulting purchaser for less than the agreed price and then to have to sue the purchaser for the difference from the original agreed price.

While a vendor may choose to accept such an offer, for example in a declining market, the vendor cannot be obliged to do so.

The duty to mitigate is derived from the proposition that the wronged party cannot recover from the defaulting party for losses that could reasonably have been avoided: S.M. Waddams, The Law of Contracts, 7th ed. (Toronto: Thomson Reuters, 2017), at p. 529. It cannot be reasonable for a vendor to be obliged to reduce the loss it claims from the defaulting party by reselling the property to that party, then suing him or her for the difference. This would offer no financial advantage to the defaulting party as that party would be obliged to pay the same amount, either way. Yet the defaulting party would secure a significant tactical and procedural advantage over the innocent vendor.

The effect of endorsing the proposition advanced by the appellant would be to undermine the sanctity of the bargain by encouraging purchasers to default, particularly in a falling market, and to offer a lower price for the same property, leaving vendors with the risk and expense of recovering the balance of the original contract price in an action. The duty to mitigate does not go that far.

[35] See also: Deco Homes (Richmond Hill) Inc. v. Serikov, 2021 ONSC 2079, at para. 11: Bang v. Sebastian, 2019 ONCA 501, at para. 5; Malatinszky v. Miri, 2020 ONSC 16, at para. 83; Dantonbury Developments Inc. v Lian, 2021 ONSC 1333, at para. 16.

Relief from Forfeiture

[36] Finally, the defendant’s claim for relief from forfeiture is not applicable in a case where the plaintiff has suffered damages and the deposit is deducted from the damages claimed: Bang; Azzarello at paras. 42-54. The judgment granted did not give the plaintiff damages in addition to the deposit, rather the full amount of the deposit was deducted from the damages claimed.

[37] In any event, the proposed pleading provides no explanation or particulars as to why relief from forfeiture should apply in this case.

Conclusion

[38] I conclude that this is not an appropriate case for setting aside default judgment, and the motion is therefore dismissed.

[39] Costs are fixed at $1,000, payable by the Defendant (Moving Party) to the Plaintiff (Respondent).

Justice R.E. Charney Released: March 14, 2022