



COURT OF APPEAL
    FOR ONTARIO

CITATION: Zeifman Partners Inc. v. Aiello, 2020 ONCA 33

DATE: 20200121

DOCKET: C66999

Juriansz, Trotter and Nordheimer JJ.A.

BETWEEN

Zeifman Partners Inc.,
    in its capacity as receiver of the property known municipally as 40 Park Lane
    Circle

Plaintiff (Respondent)

and

David Aiello

Defendant (Appellant)

Brian Diamond, for the appellant

Margaret R. Sims and Stephanie De Caria, for the respondent

Heard: January 9, 2020

On appeal from the order of Justice Bernadette Dietrich of
    the Superior Court of Justice, dated March 15, 2019, with reasons reported at 2019
    ONSC 1321.

Nordheimer J.A.:

A.

OVERVIEW

[1]

The motion judge dismissed the appellants motion to set aside the
    default judgment and the noting in default. For the following reasons, I
    conclude that the motion judge made reviewable errors in her assessment of whether
    the default judgment should be set aside. In the circumstances of this case,
    the just result is to relieve the appellant from default. I would therefore
    allow the appeal.

B.

BACKGROUND

(1)

The Agreement of Purchase and Sale

[2]

In November of 2013, the appellant entered into an agreement to purchase
    a residential property on Park Lane Circle in Toronto (the property). The
    previous owner had run out of funds in the midst of carrying out renovations.
    The first mortgagee appointed the respondent as receiver of the property, who had
    put the property up for sale by way of auction. The appellant was successful in
    that auction with a bid of $12.2 million. The agreement of purchase and sale
    (the APS) provided, among other things, that:

a)

The transaction
    would be completed on February 14, 2014, however the appellant could extend the
    closing date for a period not exceeding eight weeks. He was required to pay
    $100,000 to the respondents lawyers for each one-week extension. Monies so
    paid were to be credited against the balance due on closing.

b)

The property was
    sold on an as is, where is basis.

c)

The property
    remained at the respondents risk pending completion. In the event of
    substantial damage to the property pending completion, the purchaser could
    either terminate the agreement and have all deposit money returned or take the
    proceeds of any insurance and complete the transaction.

d)

If the
    transaction failed to close as a result of the purchasers default, the deposit
    would be forfeited and the seller would have all of its rights and remedies
    against the buyer.

e)

If the
    transaction was not completed for any reason other than default of the purchaser,
    the deposit would be returned to the purchaser forthwith without deduction.

[3]

The appellant also agreed to pay a buyers premium to the auctioneer.
    This amount was payable unless the transaction failed to close because the
    vendor defaulted in its obligations under the agreement of purchase and sale
[1]
.

(2)

Extension of Closing

[4]

In January 2014, the appellant learned that there was water damage to
    the property as a result of two unrelated occurrences. One was a leak from the
    roof of the Property and another was from burst pipes in the pool area. The
    appellant learned of the damage and arranged for a home inspection on January
    31, 2014, two weeks before the date fixed for closing. According to the
    inspector, a roof leak resulted in extensive water damage to the second-floor
    finished space and significant damage to the engineered walnut floor on the
    second floor. In addition to this leak, several pipes froze and cracked in the
    pool/spa area, resulting in water damage to the basement apartment. The
    inspector recommended that the cause of the roof leak be determined to ensure
    it was properly repaired, and that the property be tested for mould.

[5]

On February 7, 2014, one week before the date fixed for closing, the
    appellants lawyer shared the inspectors report with the respondents lawyer.
    The appellants lawyer advised that there was concern over the extent of the
    damages and requested that there be a postponement of the closing date to April
    15, 2014, without the requirement to pay any additional amounts.

[6]

On February 10, 2014, the respondents lawyer advised that the roof had
    been repaired and that the affected drywall had been repaired and painted. The
    respondents lawyer also stated: We are advised that there is no evidence of
    any mould issues with reference to the property. In fact, an inspection was
    conducted today by a qualified environmental engineer who confirmed the
    foregoing. The respondents lawyer said that the respondent was prepared to permit
    the appellant to inspect the property to confirm all of this. He concluded by
    saying that the respondent expected the closing to occur as scheduled on
    February 14, unless the appellant availed himself of his rights under the APS
    to extend the closing.

[7]

In light of the respondents position, the appellant availed himself of
    his right under the APS to extend the closing. He paid a series of additional deposits
    to extend the closing date to April 4, 2014.

[8]

On April 3, 2014, the appellants lawyer requested a further extension
    to allow the parties to obtain a comprehensive report and properly assess the
    extent of the damages at the property. He pointed out that the appellant had
    advanced additional deposits after the damage had occurred. He advised that the
    appellant was concerned about warped doors, damage to drywall and flooring, and
    possible mould damage. He sought a four-week extension so that a comprehensive
    report could be prepared and in order for the parties to be able to properly
    resolve the issues.

[9]

In his response on April 4, the respondents lawyer advised that the
    respondent was taking the position that the appellant was in breach of the APS,
    that the deposits were forfeited, and that an action would be commenced for
    damages.

(3)

Remediation and Second Sale

[10]

The respondent then brought a motion for an order authorizing it to
    retain the deposits. While that motion was pending, two orders were made. One
    directed that any interested party be given access to the property for the
    purpose of inspecting it. The other directed the respondent to engage a mould
    detection and remediation expert to undertake testing at the property.

[11]

The appellant retained his own environmental expert to do an inspection.
    That expert found that there was visible mould growth at the property as well
    as mould growth and settled mould spores in six locations.

[12]

The respondents expert also conducted an inspection. He identified moderate
    mould growth in the attic, and heavy mould growth in the staff quarters in the
    basement. He also identified mould in the basement laundry room and one of the
    cold storage rooms. The respondent eventually had mould remediation work
    undertaken at the property at a cost of $26,781. The respondent had earlier
    advised the appellant that it was prepared to allow a credit of $32,000 against
    the purchase price for the cost of having to replace the walnut flooring on the
    second floor.

[13]

On May 25, 2015, the respondent sold the property to another purchaser
    for $9.5 million.

(4)

The Action

[14]

This action was commenced on October 20, 2015. The statement of claim
    was subsequently amended on January 20, 2016. It claims $6,067,360 in damages.
    A statement of defence was delivered on March 2, 2016.

[15]

The action proceeded in what can only be described as a less than
    satisfactory manner. There were a number of defaults by the appellant and a
    number of orders made against him as a consequence. At one point, the
    appellants first counsel was removed from the record. Later, the appellants
    second counsel was also removed from the record. There were problems arranging
    the examinations for discovery and there were problems in obtaining answers to
    undertakings from the appellant arising from those discoveries. There were also
    problems in obtaining expert reports. These issues led to a number of orders
    being made against the appellant. The appellant also failed to comply with timetables
    that the court set for the progress of the action.

[16]

Of more significance for the purpose of this motion is the fact that the
    appellants third lawyer was also removed from the record. It was this event
    that ultimately led to the default judgment being obtained. However, in this
    instance, the triggering event that led to the lawyer being removed resulted
    from the fact that the lawyer may have missed a court imposed deadline. The
    Lawyers Professional Indemnity Company (LawPro) became involved as a
    consequence, and LawPro insisted that the lawyer had to remove himself from the
    case.

[17]

It was this occurrence that led to an order being made against the
    appellant, on July 20, 2018, that required him either to retain new counsel
    within 30 days or serve a notice of intention to act in person. The appellant
    failed to do either. As a result, on September 18, 2018, on motion by the
    respondent, the appellants statement of defence was struck out.

[18]

On December 14, 2018, the respondents motion for default judgment was
    granted. The judgment ordered the appellant to pay $5,313,377, plus costs of
    $145,351, and declared that the deposits paid by the appellant totaling
    $1,310,000 were forfeited to the respondent.

[19]

The appellant had retained a new lawyer just a few days before the
    motion for default judgment was heard. On December 24, 2018, that lawyer served
    materials for the motion below to set aside the default judgment. The motion
    was argued on February 22, 2019 and was dismissed on March 15, 2019.

[20]

It is of some importance to the issues in this motion to add certain
    additional facts. One is that, in 2016, the appellant moved to Israel with his
    wife and the couple's five children. Another is that the appellant suffers from
    certain health problems that affect him physically. Yet another is that three of
    the appellants children require special medical care and supervision. Indeed,
    two were hospitalized, while this litigation was ongoing, for various surgeries
    and other health related issues.

C.

DECISION BELOW

[21]

In her reasons, the motion judge correctly identified the factors that a
    court must take into account in deciding whether to set aside a default
    judgment. Those factors are set out in this courts decision in
Mountain
    View Farms Ltd. v. McQueen
, 2014 ONCA 194, 119 O.R. (3d) 561, at paras.
    48, 49. They are:

1.

whether the motion was brought promptly after the defendant learned of
    the default judgment;

2.

whether there is a plausible excuse or explanation for the defendant's
    default in complying with the
Rules
;

3.

whether the facts establish that the defendant has an arguable defence
    on the merits;

4.

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

5.

the effect of any order the court might make on the overall integrity of
    the administration of justice.

[22]

Beginning with the first factor, the motion judge found that the
    appellant had moved promptly once the default judgment was granted. On the
    second factor, the motion judge found that the appellant had no excuse or
    plausible explanation for what she described as the appellants breach of 13
    court orders. The motion judge found, on the third factor, that the appellant
    did not have an arguable defence on the merits and that the allegations made in
    his statement of defence did not have an air of reality to them.

[23]

On the fourth factor, the motion judge found that there would be
    prejudice to any person against whom a default judgment is granted but, at the
    same time, found that the appellant was the author of his own misfortune. The
    motion judge also found that the respondent had suffered prejudice arising from
    the delays and costs to the creditors in the receivership proceeding. Finally,
    on the fifth factor, the motion judge said that the appellant showed a blatant
    disregard for the court process and that it was the just result to allow the
    default judgment to stand.

D.

ANALYSIS

[24]

The decision to set aside a default judgment is discretionary and
    entitled to deference:
Mountain View
, at para. 55. This court may
    interfere to correct an error in law, principle or a palpable and overriding
    error of fact, or if the decision is so clearly wrong as to amount to an
    injustice. In this case the motion judge made a number of errors in her
    analysis, both errors in principle and palpable and overriding errors of fact,
    such that her conclusion is not entitled to deference. In the particular
    circumstances of this case, I conclude the default judgment and the noting in
    default should be set aside and I therefore would allow the appeal.

(1)

The Errors of the Motion Judge

(a)

The Motion Judge Erred in Her Consideration of the History of the
    Proceeding

[25]

The motion judge erred in principle in considering the entire history of
    the proceeding under both the first and second factors of the
Mountain View
analysis.

[26]

The history of the proceeding clearly has nothing to do with the first
    factor, which relates only to delay after the default judgment has been
    granted, not before.

[27]

It is also not properly considered under the second factor, which is
    focused on the default that led to the default judgment being granted. In this
    case, that was the failure of the appellant to appoint new counsel within the
    30-day requirement established by the July 20, 2018 order.

[28]

Any consideration of the history of the appellants conduct during the proceeding
    properly falls only under the fifth factor. In misinterpreting the first and
    second factors in this way, the motion judge overemphasized the appellants
    earlier failures and thereby erred in principle.

(b)

The Motion Judge Ignored Facts Relevant to the Appellants Default

[29]

Another error is that the motion judge appears to have ignored the fact
    that the appellants loss of his counsel that led to the order that in turn led
    to the default, was not the result of anything that the appellant did. In other
    words, it was not the conduct of the appellant that led to the problem.
    Further, the motion judge also appears to have ignored, in considering this
    factor, the reality that the appellant was living in Israel with the obvious attendant
    difficulties that the distance and time changes would cause in speaking to
    prospective lawyers. Still further, the motion judge was dismissive of the
    appellants efforts to retain new counsel by saying that the only evidence of
    those efforts was from the appellant. It is difficult to see from whom else the
    motion judge would have expected that evidence to come. The appellant explained
    what he had done, including contacting three lawyers, one of whom eventually came
    to his assistance.

(c)

The Motion Judge Erred in Finding No Arguable Defence on the Merits

[30]

The motion judge erred in concluding that there was no air of reality to
    the appellants defence, under the third
Mountain View
factor.

[31]

First, the motion judge erred in principle by applying too high a
    standard in her analysis. She quoted with approval the following statement by
    Dunphy J. in
Marina Bay Sands Pte. Ltd. v. Jian Tu aka Tu Jian
, 2015
    ONSC 5011, 48 B.L.R. (5th) 48, at para. 1:

When bringing a motion to set aside default judgment, the
    moving party bears an important onus not dissimilar to the onus faced by a
    party facing a summary judgment motion  the defendant must put its best foot
    forward.

[32]

With respect, that statement does not find any support in the existing
    authorities. Indeed, it is contrary to what this court said in
Mountain
    View
and in other subsequent cases. For example, in
Mountain View
,
    Gillese J.A. said, at para. 51:

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.

[33]

That approach is not comparable to the approach taken to summary
    judgment. Frankly, it is unhelpful to the analysis established for setting
    aside a default judgment to add such a gloss to it. It only serves to confuse
    the proper approach to two entirely different types of motions.

[34]

In determining whether a defence has an air of reality, it is not the
    role of the motion judge to make findings of fact and assess whether the
    defence will succeed. Yet this is what the motion judge appears to have done
    here. She appeared to conclude on some of the central controversies between the
    parties, for example by concluding that the damage to the property was minor,
    rather than substantial, and that the mould found at the property was there from
    the time the receiver was appointed.

[35]

There is no evidence in the record that would sustain this latter conclusion.
    At most, there is some speculation offered by one expert as to when the mould
    was created and an unsubstantiated belief by the respondent that that is the
    case. Of more importance is the fact that the motion judges conclusion on this
    point is directly contrary to the statement made by the respondents lawyer, in
    his February 10, 2014, letter, that there [was] no evidence of any mould issues
    with reference to the property following an inspection conducted by an
    environmental engineer. I note that this statement is not qualified or limited
    in any way. And, significantly, we know that mould was found on the property as
    a result of the subsequent inspections  all of which were conducted after the
    respondent had taken the position that the appellant had breached the APS. The
    motion judges conclusion on this point is a palpable and overriding error.

[36]

In considering the issue of the viability of the appellants defence,
    the motion judge also erred in principle by not addressing the issue of the
    damages claimed. In addition to defending the merits of the claim, the
    appellant is, of course, entitled to challenge the amount of damages claimed
    and this can constitute an arguable defence on the merits. The motion judge was
    clearly aware of the appellants arguments concerning the quantum of damages as
    she summarizes these submissions in her reasons. Yet, her analysis evidences no
    consideration of whether these arguments could constitute an arguable defence
    on the merits.

[37]

In this case, one component of the damages was $2.7 million relating to
    the reduced sale price for the home. I believe it would come as surprise to
    just about anyone that in 2014/2015, when the price of homes were steadily
    increasing in Toronto, a home of this type would have dropped more than 20
    percent in value. I also note, on this point, that the appellant expressly
    pleaded in his statement of defence that the drop in value was the result of
    the respondents failure to maintain the property during the relevant time.

[38]

Another component of the damages is a claim by the respondent that the additional
    costs of administering the estate amounted to over $2.1 million over the time
    period between the failed sale to the appellant and the actual sale to the new
    purchaser, a period of a little more than a year. I note that, at the time of
    the default judgment, the respondent sought under $1 million under this heading
    of damages. In any event, on the surface, it is not immediately apparent how
    the failure to sell this property could, on its own, give rise to such a
    significant expense.

[39]

The motion judges assessment of the merits of the defence was afflicted
    by these errors and it led her to the wrong conclusion. There is an arguable
    defence on the merits here.

(2)

The Appellant Should be Relieved From Default

[40]

Given that the motion judges conclusion is tainted by reviewable error,
    I turn to consider whether, in light of the factors in
Mountain View
,
    the appellant should be relieved of his default.

[41]

First, I note that there is no dispute that the appellant moved promptly
    to set aside the default judgment.

[42]

Second, I note that the default which resulted in the default judgment
    occurred because the involvement of LawPro led to the removal of the
    appellants third counsel. This triggered the deadline to retain new counsel,
    the breach of which constituted the relevant default. The appellant was living
    in Israel which would present some difficulty in retaining a new lawyer to
    defend this action. The appellants evidence is that he reached out to three
    lawyers, and one of these lawyers eventually came to his assistance.

[43]

Third, as I have discussed above, the appellant has an arguable defence
    on the merits, at least when it comes to the quantum of damages.

[44]

Fourth, the prejudice to the appellant is significant. He is facing a multi-
    million dollar judgment. This must be weighed against the prejudice to a
    receivership facing some potential increased interest accumulation through
    delay. I note, on that point, that if the respondent is ultimately successful
    in its claim, there would normally be an amount for interest added to the
    judgment amount.

[45]

On the fifth factor, I do not quarrel with the motion judges evident
    concern regarding the conduct of the appellant during the course of this
    litigation. As I have already said, it is under this factor that that conduct
    falls to be considered. The appellants conduct did not evidence the type of
    diligence to the proper progress of the proceeding that the court has the right
    to expect from all parties. However, I am mindful that there are some
    mitigating factors regarding the appellants conduct. For one, the
    presumptively negative reference to 13 breaches of court orders is somewhat
    misleading. Some of those asserted breaches are overlapping or duplicative.
    Further, at least two of the defaults involved missing deadlines by only a
    single day. More importantly, however, is the acknowledged fact that the
    appellant has paid all of the costs awards that were made against him arising
    from his defaults and he is not, at this point, in breach of any court orders.

[46]

As this court said in
Mountain View
, 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: at para. 50.

[47]

One of the overarching principles in the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194, is reflected in r. 1.04(1) which provides that the
    objective of our civil process is to ensure the just, most expeditious and
    least expensive determination of every civil proceeding
on
    its merits
 (emphasis added). Determining the result of civil
    proceedings on technical failings is, and must remain, the exception to the
    general principle reflected in r. 1.04(1).

[48]

In my view, it would be unjust in these circumstances to prevent the
    appellant from having his day in court. I note on that final point that this
    action is ready for trial. It can be brought to its proper conclusion in short
    order.

E.

Conclusion

[49]

I would allow the appeal, set aside the order below, set aside the
    default judgment, set aside the noting in default, and restore the statement of
    defence. I would also order the parties to immediately proceed to obtain a new
    trial date at the earliest opportunity that the Superior Court of Justice can
    accommodate.

[50]

The appellant is entitled to his costs of the appeal fixed in the amount
    of $10,000 inclusive of disbursements and HST. I would not make any order of costs
    for the underlying motion.

Released: I.V.B.N January 21, 2020

I.V.B. Nordheimer J.A.

I agree. R.G. Juriansz J.A.

I agree. Gary Trotter J.A.





[1]

Ultimately, because of the alleged breach of the APS, the respondent
    settled the auctioneers claim and took an assignment of that claim.


