Court File and Parties

COURT FILE NO.: CV-22-79505-0000 MOTION HEARD: 2023-10-17 REASONS RELEASED: 2024-02-05

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

MADEERO LENDING MANAGEMENT INC. Plaintiff

• and-

CRYSTAL LYNN OLIVEIRA and PHILIP EARL PEPPIATT Defendants

BEFORE: ASSOCIATE JUSTICE McGRAW

COUNSEL: J. Postnikoff E-mail: jarvis@postnikofflawfirm.com -for the Defendants

J. Levitt E-mail: jelevitt@fryerlevitt.com -for the Plaintiff

REASONS RELEASED: February 2, 2024

Reasons For Endorsement

I. Introduction

[1] This is a motion by the Defendants to set aside the default Judgment granted by the Registrar dated March 9, 2023 (the “Judgment”) for possession of the property at 236 Wilmot Street North in New Hamburg, Ontario (the “Property”).

II. Background

[2] The Defendants are common law spouses who purchased the Property in June 2018. The Plaintiff registered a Mortgage against the Property on December 20, 2021 in the principal amount of $60,000 with interest at 14% per annum (the “Mortgage”). The Mortgage is subordinate to a first mortgage in favour of Riverrock Mortgage Investment Company (“Riverrock”) in the principal amount of $550,000 with interest at 7.5% per annum (the “First Mortgage”) entered into contemporaneously with the Mortgage. The Defendants renewed the First Mortgage on December 20, 2022 with a renewal fee of $5,000 and an interest rate of 9.49%.

[3] The Mortgage required the Defendants to pay interest of $700 per month prepaid during the initial term of the Mortgage with any balance due and payable at maturity on December 20, 2022. The Defendants have not made any payments on the Mortgage since December 2022. The Defendants have also not made any of the required monthly interest payments on the First Mortgage since June 2022. Default in payments under the First Mortgage constitutes a default under the Mortgage and occurred for the first time on May 8, 2022. The Plaintiff has been making monthly payments under the First Mortgage since June 2022 currently in the amount of $4,349.58.

[4] The Plaintiff commenced this action by Statement of Claim issued on August 25, 2022 claiming $75,594.89 plus interest and possession of the Property under the Mortgage. Affidavits of Service filed by the Plaintiff indicate that the Defendants were served with the Statement of Claim by personal service and an alternative to personal service.

[5] On December 6, 2022, the Plaintiff filed a Requisition For Default Judgment requesting that the Defendants be noted in default and default Judgment for possession of the Property. The Plaintiff’s request was rejected by the court office on January 13, 2023. The Plaintiff’s materials were re-filed in early March 2023 and the Registrar granted the Judgment on March 9, 2023.

[6] On March 23, 2023, the Defendants entered into an Agreement of Purchase and Sale to sell the Property for $650,000 with a closing date of April 26, 2023. The Defendants claim that while they were preparing to sell the Property, they were advised by their real estate agent in February 2023 that they owed over $700,000 and would be unable to complete the sale. The Defendants further allege that they were not aware of any claim against the Property until they received a Notice Demanding Possession by mail on March 22, 2023. The Plaintiff became aware of the proposed sale on March 24, 2023.

[7] This motion first came before me on May 16, 2023. Only 10 minutes were scheduled, no Factums were filed and the Defendants wished to file a Reply Motion Record therefore, the motion was adjourned to July 18, 2023. Significant discussions and case management took place on the July 18 attendance and the motion was adjourned to September 12, 2023 to permit further settlement discussions. The motion was later moved to October 17, 2023.

III. The Law and Analysis

[8] For the reasons that follow, I dismiss the Defendants’ motion.

[9] The parties agree that the applicable law on a motion to set aside a noting in default and default judgment is set out in the Court of Appeal’s decision in Intact Insurance Company v. Kisel, 2015 ONCA 25:

“[12] Rules 19.03(1) and 19.08(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provide the basis for setting aside a noting of default and a default judgment, respectively. Both rules give the court discretion to set aside the default "on such terms as are just". This court has held that the tests to be met under these rules are not identical. See Metropolitan Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd. (1991), 3 O.R. (3d) 278, [1991] O.J. No. 717 (C.A.), at pp. 284-85 O.R.

[13] When exercising its discretion to set aside a noting of default, a court should assess "the context and factual situation" of the case: Bardmore, at p. 284 O.R. It should particularly consider such factors as the behaviour of the plaintiff and the defendant; the length of the defendant's delay; the reasons for the delay; and the complexity and value of the claim. These factors are not exhaustive. See Nobosoft Corp. v. No Borders Inc., [2007] O.J. No. 2378, 2007 ONCA 444, 225 O.A.C. 36, at para. 3; Flintoff v. von Anhalt, [2010] O.J. No. 4963, 2010 ONCA 786, at para. 7. Some decisions have also considered whether setting aside the noting of default would prejudice a party relying on it: see, e.g., Enbridge Gas Distribution Inc. v. 135 Marlee Holdings Inc., [2005] O.J. No. 4327, [2005] O.T.C. 891 (S.C.J.), at para. 8. Only in extreme circumstances, however, should the court require a defendant who has been noted in default to demonstrate an arguable defence on the merits: Bardmore, at p. 285 O.R.

[14] On a motion to set aside a default judgment, on the other hand, the court considers five major factors, one of which is whether the defendant has an arguable defence on the merits. The five factors are

(a) whether the motion was brought promptly after the defendant learned of the default judgment; [page370]

(b) whether the defendant has a plausible excuse or explanation for the default;

(c) whether the defendant has an arguable defence on the merits;

(d) the potential prejudice to the defendant should the motion be dismissed, and the potential prejudice to the plaintiff 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.

Again, these factors are not rigid rules. The court has to decide whether, in the particular circumstances of the case, it is just to relieve a defendant from the consequences of default: Mountain View Farms Ltd. v. McQueen (2014), 119 O.R. (3d) 561, [2014] O.J. No. 1197, 2014 ONCA 194, 372 D.L.R. (4th) 526, at paras. 48-50.”

[10] The Plaintiff does not dispute that this motion was brought promptly.

[11] I am not satisfied that the Defendants have provided a plausible excuse or explanation for the default. The Defendants allege that they were not aware of any claim until the Defendant Philip Earl Peppiatt received the Plaintiff’s Notice of Possession by regular mail on March 22, 2023. However, in his Affidavit of Service sworn September 1, 2022, the Plaintiff’s process server Dwight Gordon states that he attended at the Property on August 31, 2022 and personally served the Statement of Claim on the Defendant Crystal Lynn Oliveira who identified herself. He also provided her with a copy of the Statement of Claim in a sealed envelope for Mr. Peppiatt, who was not present, as an adult member of the household in which Mr. Peppiatt resides. The Statement of Claim was sent by regular mail to Mr. Peppiatt on September 1, 2023 and was not returned.

[12] None of Mr. Gordon, Ms. Oliveira or Mr. Peppiatt were cross-examined on their affidavits. Mr. Gordon’s Affidavit of Service has not been directly challenged. The Defendants’ best evidence is Ms. Oliveira’s statement in her affidavit sworn April 5, 2023 that she does not “recall” being personally served with the Statement of Claim or receiving the envelope. Notably, she does not deny that this occurred, only that she cannot recall. Mr. Peppiatt denies receiving the Statement of Claim. In the circumstances, I accept Mr. Gordon’s evidence regarding service sworn the day after he attended at the Property and find that the Defendants were properly served. I further reject the Defendants’ submission that because Mr. Peppiatt was served by an alternative to personal service is somehow a plausible excuse or explanation for the default. Pursuant to Rule 16.03(5)(a), service in the manner effected by the Plaintiff on Mr. Peppiatt constitutes proper service.

[13] I also do not accept the Defendants’ claim that the Judgment was not properly granted by the Registrar. Mr. Peppiatt alleges that he attended at the Hamilton court office on March 22, 2023 and was advised by a court staff member that the Registrar should not have granted the Judgment because there was no noting in default. Other than to allege that this conversation took place, the Defendants have provided any further evidence or information and made no substantive submissions on this issue. In the absence of anything more, I accept and rely on the wording of the Judgment which states that the Defendants were noted in default as requested by the Plaintiff.

[14] I also conclude that the Defendants have not demonstrated that they have an arguable defence on the merits. The Defendants did not file a draft Defence. While a draft Defence is not required, one is typically filed in support of a defendant’s submission that they have an arguable defence. The only potential defence raised by the Defendants on the record is that the amount advanced under the Mortgage was substantially less than $60,000. This is not disputed by the Plaintiff and is consistent with the terms of the Mortgage and the Commitment Letter signed by the Defendants on December 9, 2021. As provided in the Trust Ledger dated December 13, 2021, $41,566.87 was advanced to the Defendants’ counsel upon closing. The Defendants had independent legal advice, initialed every page and the amounts in the Trust Ledger, including for holdbacks, are consistent with the Commitment Letter. Notably, the Defendants do not dispute that the Mortgage is in default, that payments have not been made for a significant period of time or that the Plaintiff is entitled to possession of the Property. The Defendants also submit that had the proposed sale closed in April 2023 the Plaintiff would have been paid the amounts owing under the Mortgage. Any issues with respect to the amount owing may be brought back to the court after the Property is sold and the proceeds accounted for.

[15] The Defendants further submit that the Judgment should be set aside because it is a partial default judgment which orders possession of the Property but not the amounts claimed in the Statement of Claim. The Defendants were unable to refer me to any case law which considers the concept of a partial default judgment. The Defendants submit that this situation is analogous to a partial summary judgment which the Court of Appeal has held should only be granted in very rare cases given the risk of duplicative proceedings, inconsistent findings, delay and increased cost (Service Mold & Aerospace Inc. v. Khalaf, 2019 ONCA 369). In my view, there is no basis to apply the same principle to default judgments or in these circumstances. The Plaintiff has confirmed that it is content with the Judgment granting possession only and does not intend to ask the court to adjudicate any further issues. Even accepting the concept of a partial default judgment, unlike a partial summary judgment where there are remaining issues which the court must determine, in the present case there is only the possibility of further court involvement. Further, there is no risk of inconsistent findings given the differing remedies of possession and amounts claimed.

[16] I am also satisfied that the balance of prejudice favours the Plaintiff. While the Defendants would lose possession of the Property if the Judgment is not set aside, they already entered into an agreement to sell and vacate the Property by April 23, 2023. In his affidavit, Mr. Peppiatt submits that the sale should have been allowed to proceed and that the Plaintiff would have been paid in full from the proceeds. The Plaintiff is entitled to possession yet still incurring expenses, not all of which may be recoverable. Meanwhile, the Defendants continue to occupy the Property without making any payments. It is in all parties’ interests that the Property be sold so that proceeds can be generated to pay the outstanding amounts owing under the Mortgage.

[17] As no payments have been made for a significant period of time, the only potential dispute is over quantum not possession as ordered in the Judgment and the Plaintiff intends to sell the Property as the Defendants already attempted to do (7084421 Canada Inc. v. Vinczer, 2020 ONSC 217), I conclude that it is just in all of the circumstances to dismiss the Defendants’ motion. In my view, setting aside the Judgment would only serve to add unnecessary delay and costs to these proceedings.

III. Disposition and Costs

[18] Order to go dismissing the Defendants’ motion. If the parties cannot agree on the terms and timing of possession of the Property or any related issues, they may schedule a telephone case conference or attendance before me.

[19] If the parties cannot agree on the costs of this motion, they may file written costs submissions not to exceed 4 pages (excluding Costs Outlines) with me on a timetable to be agreed upon by counsel.

Released: February 5, 2024

Associate Justice McGraw