



COURT OF APPEAL FOR ONTARIO

CITATION: 992548 Ontario Inc. v. 8657181 Canada Inc., 2018
    ONCA 416

DATE: 20180502

DOCKET: C64379

MacFarland, LaForme and Epstein JJ.A.

BETWEEN

992548 Ontario Inc.

Plaintiff (Respondent)

and

8657181 Canada Inc.

Defendant (Appellant)

Paul H. Starkman, for the appellant

Johanna McNulty, for the respondent

Jack Masterman, for LH Golf Group Inc.

Heard: April 12, 2018

On appeal from the order of Justice Theresa Maddalena of
    the Superior Court of Justice, dated September 19, 2017.

Epstein J.A.:

[1]

The appellant, 8657181 Canada Inc., mortgaged property it owned to the
    respondent, 992548 Ontario Inc. The appellant defaulted on the mortgage and the
    respondent obtained a default judgment for foreclosure. This is an appeal from
    the dismissal of the appellants motion to set aside the judgment and for
    relief from forfeiture with respect to the default on the mortgage.

BACKGROUND

[2]

The respondent acquired four parcels of land and converted them into a
    golf course. In August 2014, the appellant purchased the golf course and
    related assets, including goodwill, for $5,500,000. On closing, the respondent
    took back a mortgage in the amount of $2,700,000. The terms of the mortgage
    required the appellant to make a $500,000 payment on account of principal on or
    before September 1, 2014 and monthly interest payments thereafter until August
    12, 2016. The appellant made these payments. The mortgage also required the
    appellant to pay the respondent, on August 12, 2016, the outstanding amount
    under the mortgage of $2,200,000 plus accrued interest. The appellant did not
    make this payment.

[3]

The respondent demanded payment. The demand included a notice to enforce
    security. The appellant did not respond. As a result the respondent instituted
    two separate actions.

[4]

On December 16, 2016, the respondent commenced power of sale
    proceedings, requesting payment. The appellants counsel said his client would
    address the claim. This, however, did not happen. On January 27, 2017 a notice
    of sale under mortgage was served on the appellant. Again, the appellant did
    not respond. On March 22, 2017 default judgment was issued against the
    appellant for $2,200,000 together with possession of the property.

[5]

The respondent did not enforce the judgment. Rather, on March 30, 2017,
    the respondent initiated foreclosure proceedings. Again, the appellant did not
    defend. On May 17, 2017 default judgment was obtained in the foreclosure
    action. On May 19, 2017 the respondent took possession of the property.

[6]

On May 26, 2017, the respondent accepted an offer to purchase the
    property from LH Golf Group Inc. for $3,100,000. The sale has not closed due to
    this proceeding.

[7]

The first communication from the appellant disputing the foreclosure and
    the possession was by letter of May 30, 2017. On June 8, 2017 the appellant
    moved to set aside default judgment and for relief from forfeiture. On the day
    the motion was heard the appellant filed a document purporting to be a commitment
    letter for a mortgage in the amount of $3,200,000.

ANALYSIS

(1)

The Applicable Principles

[8]

The court has a broad jurisdiction to set aside a default judgment and
    grant relief against foreclosure wherever the equities in the mortgagors
    favour outweigh all that are against him or her. Walter M. Traub,
Falconbridge
    on Mortgages
, loose-leaf, 5
th
ed. (Toronto: Thomson Reuters,
    2017).

[9]

The factors to be considered in the exercise of the courts discretion
    include:

(i) whether the motion to set aside was made with
    reasonable promptness;

(ii) whether there is a reasonable prospect of
    payment at once or within a short period of time;

(iii) whether the applicant has been active in
    endeavouring to raise the money necessary;

(iv) whether the applicant has a substantial interest
    in the property or the property has some special intrinsic value to him or her;
    and

(v) where the property has been sold after
    foreclosure (not the case here), whether the rights of the purchaser will be
    unduly prejudiced.

[10]

In
    addition, relief such as the appellant requested may be granted where there are
    special circumstances justifying the reopening of the foreclosure or, more
    generally, whether the equities in favour of reopening the foreclosure order
    outweigh the equities against doing so. In
Winters v. Hunking
,
2017 ONCA 909, Blair J.A. added that a
    weighing of the equities cannot be done without taking into account the
    relative prejudice to the respective parties in making or not making the order.

[11]

In
    these fact-based cases the ultimate task is to determine whether the interests
    of justice favour granting the order:
Mountain View Farms Ltd. v. McQueen
,
    2014 ONCA 194, 317 O.A.C. 255, at paras. 47-51.

[12]

The
    decision to set aside a default judgment for foreclosure is discretionary. As
    such, it is entitled to deference in the absence of an error in law or
    principle, a palpable and overriding error of fact, or unless the decision is
    so clearly wrong as to amount to an injustice: see
HSBC Securities (Canada)
    Inc. v. Firestar Capital Management Corporation
, 2008 ONCA 894, 245 O.A.C.
    47, at para. 22;
Ontario Housing Corp. v. Ong
, (1988) 63 O.R. (2d) 799
    (Ont. C.A.).

(2)

The Motion Judges Decision

[13]

The
    motion judge reviewed the background facts and set out the correct legal
    outlined above. The motion judge found, at para. 39, that the appellant made a
    conscious decision not to defend either [proceeding] and did not show a prima
    facie case on the merits. The motion judge went on to find that with respect
    to the foreclosure action, there was no explanation for the default. She
    rejected the appellants assertion that it was confused by the two actions
    given it was served with all necessary documents and was represented by
    counsel, throughout. The motion judge found no evidence of an intent to defend
    and given the letter of commitment was not credible, no evidence of an ability
    to redeem the mortgage. Finally, the motion judge found that there was no
    defence on the merits.

[14]

The
    motion judge went on to consider the appellants request for an order granting
    relief from forfeiture pursuant to s. 98 of the
CJA
.

[15]

She
    set out the proper test, which is virtually the same as the test for setting
    aside a default judgment set out above, and added to her findings her conclusion
    that a new purchaser was in possession of the property that would be prejudiced
    if the foreclosure were set aside.

[16]

In
    the end the motion judge found no evidence that the appellant was able to
    redeem. The motion judge went on to find nothing special in the appellants
    situation on which to base an equitable intervention. She refused to set aside
    the foreclosure order.

[17]

The
    motion judge failed to analyse the nature and significance of the magnitude of
    the windfall to the respondent in the context of the appellants circumstances
    of not setting aside the default judgment for foreclosure.

(3)

The Principles Applied

[18]

The
    appellants primary argument is based on this courts recent decision in
Winters
v.
Hunking
, decided after the motion judges reasons
    were released. The appellant argues that the motion judge erred by not
    considering the importance of the windfall the respondent would realize in the
    context of the appellants circumstances if the default foreclosure judgment
    were to stand.

[19]

The
    appellant submits that it has equity in the property of at least $2,500,000 and
    that the respondent has sold the property for approximately $800,000 more than
    the mortgage debt.

[20]

The
    difficulty I have in applying the analysis in
Winters v. Hunking
to
    this case is as follows. In
Winters
,
the evidence supported Blair J.A.s conclusion that based on the appraisal
    evidence  there is every likelihood that, through a sale of the property, the
    respondent mortgagees will be completely reimbursed and thereby suffer no
    prejudice, other than a certain inconvenience. The property has not been sold,
    and there are no other third-party rights that may be adversely affected. On
    the other hand, the appellant will suffer severe prejudice. Respectfully,
    viewed together with the other factors outlined above, I do not accept that
    such a result is what the justice of the case requires.

[21]

This
    case is very different. First, there is no appraisal evidence. The appellant
    tendered no evidence of the value of the property. Further, no evidence of the appellants
    equity in the property was tendered, particularly none to support the
    appellants assertion that the appellant had $2,700,000 in equity given that
    the original purchase price included, as I indicated, other related assets. In
    addition, there is no evidence to support the appellants assertion that GL
    Golf underpaid for the property. The appellant did not provide any evidence
    relating to its investment, appraised value, or the portion of the purchase
    price allocated to the land in the original purchase. Its commitment was with
    non-arms length purchasers. No evidence of $2.7 million in equity was
    tendered.

[22]

There
    is no evidentiary foundation for the respondents claim that the property is
    undervalued. No consideration of windfall possible without evidence.

[23]

Second,
    the factual backdrop here does not attract the equities that animated the
    result in
Hunking
. Here, the party seeking equitable relief is a
    numbered company. In
Hunking
, it was an elderly disabled man in poor
    health. Here, the property in issue is investment property. In
Hunking
the property was the family homestead. Here, the only explanation for the delay
    is that the appellant  who was represented by counsel  was confused by the
    two actions. Mr. Hunkings personal circumstances were understood to explain
    his difficulty responding to the legal proceedings. Unlike in
Hunking
in this case there was no evidence that would support a conclusion that the
    respondent would be reimbursed and suffer no prejudice if the default were set
    aside. In
Hunking
there was no third party to worry about. Here, there
    is no evidence that would support the conclusion that no third-party rights may
    be adversely affected. Unlike in
Hunking
, here there is no evidence
    that the appellant would suffer severe prejudice if the order were allowed to
    stand.

[24]

It
    is important to emphasize that setting aside a default judgment for foreclosure
    is exceptional

relief, and the outcome in
Winters v. Hunking

turns on its facts. The motion judges decision was discretionary and
    entitled to deference. The issue is whether a decision whether to set aside a
    default judgment for foreclosure is whether the equities in favour of the
    mortgagor outweigh those in favour of the mortgagee or  to the same effect,
    adopting the language pertaining to setting aside default judgments, generally
     whether the decision to set aside the order leads to a just result in all the
    circumstances.

[25]

Here,
    the result the motion judge arrived at is, in my view, precisely what the
    justice of the case requires.

DISPOSITION

[26]

For
    the foregoing reasons, I would dismiss the appeal.

[27]	I would order costs in favour of the appellant, 992548 Ontario Inc., fixed in the amount of $25,000 inclusive of disbursements and HST.

Released: GE MAY 02 2018

Gloria Epstein J.A.

I agree. J.
    MacFarland J.A.

I agree. H.S.
    LaForme J.A.


