COURT FILE NO.: CV-20-2563
DATE: 20221202
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Mohamed Sulaiman Saleh Alsalah, Plaintiff
AND:
Basel Al Salah, Defendant
BEFORE: The Honourable Justice Van Melle
COUNSEL: Daniel Litsos, for the Plaintiff
Rajiv Joshi, for the Defendant
HEARD: November 30, 2022
E N D O R S E M E N T
[1] This is a motion by the defendant to set aside the default judgment obtained against him by the plaintiff. The default judgment, dated February 16, 2021, is for $1,352,218.80 plus prejudgment interest of $2,371 plus costs of $2,500.
[2] The defendant asks that the default judgment be set aside because:
He was not served with the Statement of Claim
He has an arguable defence on the merits
No prejudice will be suffered by the plaintiff that cannot be compensated for in costs.
[3] The plaintiff resists the motion on the basis that:
The defendant was personally served with the Statement of Claim and served by mail with the default judgment motion record
There is no arguable defence on the merits
Was the Statement of Claim served on the defendant?
[4] The plaintiff says that the defendant was personally served with the claim on July 21, 2020. He says that the proof of personal service is found in the affidavit of Malik Umer Farooq. Mr. Farooq is a process server who swore an affidavit on August 5, 2020 stating simply:
On July 21, 2020 at 11:54 a.m. I served Basel Al Salah with the Statement of Claim, by giving a copy to him at 5075 Creditview Road, Mississauga, Ontario, Canada L5V 1R8. I was able to identify the said person by means of verbal admission.
[5] The defendant says he was travelling that day. He says that his friend, Ghyth Al Baldawi was driving him to Buffalo where the defendant was planning to buy a ticket for a flight to California. He says that when they arrived at the border, they were unable to cross as his friend would have had to quarantine in the US before returning to Canada. Mr. Al Baldawi did not want to have to quarantine so they turned around and went back to Mississauga.
[6] Mr. Zafir Khan, the plaintiff’s lawyer when the default judgment was obtained, deposed that he served via regular mail, a Motion Record for the noting in default and default judgment. The affidavit of service is sworn December 2, 2020 although the date of the actual mailing does not appear in the affidavit. The defendant says that he was out of Canada from November 26, 2020 returning on January 22, 2021 and again from March 9 to April 22, 2021 and did not receive the Motion Record.
[7] The defendant says that he first found out about the default judgment when he received documents from the Trustee in Bankruptcy as the defendant was trying to petition him into bankruptcy. (Bankruptcy Order dated March 21, 2022). The bankruptcy documents were served on him pursuant to an Order for Substituted Service allowing service by mail at the defendant’s residence in Florida. The order also stipulated that a copy of the documents was to be sent to the defendant by e-mail.
[8] The defendant says that he received the bankruptcy documents at his address in Florida and as soon as he found out about the judgment in March of 2022 he retained counsel and moved promptly to have the judgment set aside.
[9] The evidence of Mr. Farooq does not persuade me that he did in fact personally serve the defendant. The affidavit is void of detail and “verbal admission” is not sufficient to identify the defendant. He gave much more detail when he was cross-examined, but given the time that has passed since the affidavit was sworn, I cannot be sure that the Statement of Claim was in fact served.
[10] The fact that an order for substituted service was obtained with respect to the bankruptcy documents signifies that the plaintiff was concerned that the defendant was not receiving the documents that were sent to the Creditview address in Mississauga. This supports the defendant’s claim that he was not served with the Statement of Claim.
The default judgment
[11] The Notice of Motion in support of the request for default judgment says that the motion is to be heard in writing and then later on the same page says orally. The grounds for the motion include: “Default on the mortgage occurred on June 10, 2016.”
[12] During the argument of the motion, it became apparent that the amount of the default judgment was not correct. The defendant admits to having received $990,000 from the plaintiff in Canadian funds. He takes issue with the characterization of the funds as a loan. The affidavit in support of the default judgment (sworn by the plaintiff’s lawyer and not by the plaintiff himself) misstates the advances as being in US funds instead of Canadian. The $990,000 was then converted to Canadian funds to arrive at the 1.3 million dollars claimed by default.
[13] Paragraph 4 of Mr. Zafir’s affidavit in support of the default judgment includes: “The plaintiff agreed to loan these funds at a rate of four percent calculated annually.”
[14] At paragraph 17 Mr. Zafir states that the plaintiff is seeing an order for $1,352,218.80 together with four percent interest.
[15] At paragraph 18 Mr. Zafir states: “I make this affidavit in support of a motion to note the Defendant, John Jarvis, in default.” [emphasis added] Is there an arguable defence on the merits?
[16] The defendant acknowledges having received the equivalent of $990,000 Canadian from the plaintiff. He acknowledges using $600,000 to purchase a property in Mississauga. The balance was advanced in three installments totalling approximately $390,000 Cdn. The defendant says that he was a 25% shareholder in a company (Safa Company Ltd.) set up by the plaintiff. The other shareholders were his mother and two brothers. One of the defendant’s arguments is that the $390,000 advanced to him was related to his 25% interest in Safa Company.
[17] The plaintiff is CPA and holds a university degree in Accounting. Despite his background as a CPA the plaintiff has no documents signed by the parties to corroborate the loan. There is nothing to establish an interest rate. The plaintiff testified on cross-examination that when he was not being repaid the money that he advanced, he added 4% interest calculated monthly. He acknowledges that the 4% interest rate is something that he came up with unilaterally.
[18] The defendant has submitted a draft Statement of Defence. The defendant has established an arguable defence to the claim.
[19] The parties acknowledge that there is no prejudice to the plaintiff that cannot be compensated in costs.
Law
[20] Both sides rely on Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194. The test is set out by Gillese, J.A. starting at paragraph 47:
[47] 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 approach to be taken to this determination has been considered numerous times by this court. The following draws heavily on the summary of the principles in those cases by Perell J. in Watkins v. Sosnowski, [2012] O.J. No. 2971, 2012 ONSC 3836 (S.C.J.), at paras. 19-20 and 23-24.
[48] The court must consider the following three factors:
(a) whether the motion was brought promptly after the defendant learned of the default judgment; [page568]
(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.
[49] To this list, I would add the following two factors the court should have regard to, as set out in Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. (2007), 87 O.R. (3d) 479, [2007] O.J. No. 1685, 2007 ONCA 333, at para. 2:
(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."
[50] 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.
[51] 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.
[21] In applying the law to the present case, I accept that there is doubt as to whether or not the defendant was served with the Statement of Claim. It is entirely possible that he was not.
[22] I do accept however that the defendant has an arguable defence. Given the lack of documentation especially regarding the $600,000, the defendant’s interpretation of the events is plausible. The $390,000 is a different matter but there are different interpretations of events around the advancement of funds.
[23] However, the real problem concerns the documentation that was used to secure the default judgment. The Notice of Motion, used to secure the default judgment contained misinformation regarding the way that the motion would proceed as the Notice of Motion was contradictory in that one part said “in writing” and in another part “orally”. The grounds for the motion referenced a mortgage, when it is clear there is no mortgage in this case. The last line of Mr. Zafir’s affidavit refers to a John Jarvis and not to the defendant herein. It is readily apparent that John Jarvis is not a defendant in this case.
[24] These could all be considered minor issues but when considered as a whole, demonstrates that the approach taken was careless.
[25] Most troubling is the errors in the evidence supporting the request for the default judgment. The plaintiff acknowledges on this motion, that the $990,000 Cdn. claim was improperly converted to US currency so that with prejudgment interest, the amount of the default judgment was in excess of $1.4 million. The plaintiff acknowledges unilaterally imposing a monthly interest rate of 4%. The plaintiff is relying on this judgment to try to petition the defendant into bankruptcy.
[26] I find that the defendant has an arguable defence but more importantly, given the problems with the material supporting the claim for the default judgment, to let this default judgment stand would affect the integrity of the administration of justice. When moving for default judgment it is critical that the moving party is scrupulously honest with the court.
[27] An order will issue that the noting of default and the default judgment against the defendant is set aside. The defendant will serve and file the Statement of Defence within 20 days. The plaintiff will have 30 days thereafter to serve and file a Reply.
[28] The defendant is entitled to his costs. He claims $32,665.74 on a substantial indemnity basis and $23,519.63 on a partial indemnity basis. These amounts would have been in the reasonable expectation of the parties as the plaintiff’s substantial indemnity costs are $31,882 and partial indemnity costs are $21,271.
[29] The plaintiff will pay the defendant $20,000 in costs forthwith.
Van Melle J.
DATE: December 2, 2022
COURT FILE NO.: CV-20-2563
DATE: 20221202
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Mohamed Sulaiman Saleh Alsalah, Plaintiff
AND
Basel Al Salah, Defendant
BEFORE: The Honourable Justice Van Melle
COUNSEL: Daniel Litsos, for the Plaintiff
Rajiv Joshi, for the Defendant
ENDORSEMENT
Van Melle J.
DATE: December 02, 2022