Ontario Court Of Appeal Summaries (November 27 – December, 1 2017)

Below are this week's summaries of the civil decisions of the Court of Appeal.

Topics this week included personal injury, family law, employment law, property law, mortgages, bankruptcy and insolvency and extensions of time to appeal.

Krates Keswick Inc. v. Crate, 2017 ONCA 915

[Sharpe, van Rensburg and Brown JJ.A.]

Counsel:

Gregory Sidlofsky, for the appellant

Mark Dunn and Kirby Cohen, for the respondent

Keywords: Contracts, Debtor-Creditor, Guarantees, Mortgages, Civil Procedure, Judgments, Enforcement, Stay Pending Appeal, Bankruptcy and Insolvency, Receiverships, Resulting Trusts

Facts: The respondent, Krates Keswick Inc., purchased and took assignments of three loans made to the appellants and some Crate family companies, which went into receivership. Loan 1 was guaranteed by the appellants. Loan 2 was made to the appellants as borrowers; it was not secured. Loan 3 was guaranteed by the appellant, Marko. The guarantors provided collateral security for their guarantees, which included mortgages on 210 Wynhurst and the Marko Lands. The Respondent sought and obtained judgment against the appellants on the loans. The motion judge also granted the respondent possession of the Marko Lands. The motion judge dismissed the appellants' counterclaim and refused to stay the enforcement of the Judgment. The appellants appeal.

Issues:

(1) Did the motion judge err in granting judgment in the amounts specified for Loans 1, 2 and 3?

(2) Did the motion judge err in granting possession of the Marko Lands to KKI and dismissing the counterclaim?

(3) Should the enforcement of Loans 1, 2 and 3 be stayed?

Holding: Appeal allowed in part.

Reasoning:

(1) No. The motion judge made no error in granting judgment in the amounts specified for Loans 1, 2 and 3.

(2) No. There was no error in the Judgment granting possession of the Marko Lands to KKI and dismissing the counterclaim.

(3) Yes. Important facts concerning the lands that stand as security for Loans 1 and 3 emerged in two recent decisions of Myers J. This information was not before the motion judge.

By reasons dated November 17, 2017, Myers J. vested in the respondent title to 210 Wynhurst, one of the properties that stands as security for Loan 1. The resulting net value of 210 Wynhurst reduced the amount outstanding under Loan 1. By reasons dated October 17, 2017, Myers J. held that beneficial title to the Marko Lands was held by the appellants on resulting trust for one of their family companies and, as a result of the receivership proceedings, is now held in resulting trust for the respondent. A further proceeding is required to determine whether the appellants will be able to establish any credit against the amount of the judgment in respect of Loans 1 and 3 for the value of the Marko Lands. Given this new information, it is just and reasonable to stay the enforcement relating to the secured Loans 1 and 3 until it is determined what, if any, reduction in the amounts payable under the judgment the appellants may be entitled to by reason of the value of the Marko Lands. Consequently, the enforcement is stayed until such determination has been made. Since Loan 2 was unsecured, the court did not interfere with the motion judge's refusal to grant a stay of enforcement of the amount of that loan. There were no costs of the appeal.

Winters v. Hunking, 2017 ONCA 909

[Sharpe, Blair and Epstein JJ.A.]

Counsel:

John A. Tamming, for the appellant, Ray Harvey Hunking

Tim Gleason and Rebecca Glass, for the respondents, John David Winters and Margaret Louise Winters

Keywords: Contracts, Debtor-Creditor, Real Property Law, Mortgages, Enforcement, Judgments for Foreclosure, Setting Aside, Judicial Sale, Rules of Civil Procedure, Rule 64.03(22)

Facts:

Ray Hunking, the appellant, defaulted on the mortgage payments for his family homestead farm near Dundalk, Ontario. The mortgagees subsequently obtained a default judgment for foreclosure. The appellant appeals his unsuccessful motion to set aside the judgment.

Mr. Hunking is a low-income, illiterate, and physically disabled 61 year-old man, clinging unrealistically to his heritage and life as a farmer. According to medical information on the record, he is also severely mentally challenged and on daily doses of morphine for the chronic pain he endures, something that affects his reaction time and ability to respond to circumstances. He has lived on the mortgaged family homestead his entire life, acquiring it from his parents who, in turn, acquired it from his grandparents. His doctor strongly suggested that he move into assisted living.

After borrowing $350,000 from the Winters on the security of the farm, Mr. Hunking failed to make payments on the mortgage and did not pay all the taxes as he had agreed. When the Winters commenced the foreclosure action, he did not defend or file a request to redeem or a request for sale. When the Winters afforded him time to sell or find re-financing, he took no steps to pursue the latter and, on his own admission, "stubbornly" resisted a sale. Although Mr. Hunking received an oral offer to purchase the farm, he declined to pursue the offer because he felt it was too low. When served with a final order of foreclosure, obtained after he was noted in default, he did not move immediately for relief. Instead, he waited another 12 months before bringing a motion to set aside the default judgment, requesting, at that time, the right to redeem or to convert the foreclosure process to a judicial sale. His motion was dismissed.

The evidence shows that a sale of the farm would generate a net equity (after payment of the mortgage in full, including interest and all costs) of approximately $250,000 to $337,000.

Issues:

(1) Should the mortgagees or Mr. Hunking receive the benefit of the net equity on sale of the farm?

Holding: Appeal allowed.

Reasoning:

(1) Mr. Hunking should receive the benefit of the net equity on sale of the farm. The main factor regarding whether to set aside a default judgment for foreclosure is whether the decision to set aside the order leads to a just result in all the circumstances. The court held that the motion judge's decision does not lead to a just result.

The court has a broad jurisdiction to set aside a default judgment and grant relief against foreclosure wherever the equities in the mortgagor's favour outweigh all that are against him or her.

Citing Royal Bank of Canada v. Swan, 1979 CarswellOnt 3420 (Master), aff'd 1980

CarswellOnt 3624 (Div. Ct.), and several other decisions, the court set out the well-established factors that are to be considered in the exercise of the court's discretion, which 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.

The court found that the motion judge made four errors that, taken together, tainted his reasoning and warranted the granting of the appeal.

First, the motion judge mischaracterized the nature of the appellant's mental frailties in his analysis, treating them as simply a matter of his mental competence to participate in the proceeding. As a result, he gave little, if any, consideration to whether those mental frailties, together with the appellant's obvious physical limitations and the effect of his medications, could have provided some explanation for the appellant's relative inaction and failure to respond to the foreclosure process. Instead, the motion judge fastened on Mr. Hunking's admitted "stubbornness".

Secondly, the motion judge erred in his consideration of the "substantial interest" factor. Although he accepted that the appellant had a substantial interest in the farm, the motion judge appeared to have viewed that substantial interest solely as a matter of the appellant's "sentimental attachment" to the property, rather than focussing on the appellant's interest in the form of the substantial equity that remained in the property after all mortgage payments and costs are paid.

Third, the motion judge erred in confining his analysis of the "reasonable prospect of repayment" factor to Mr. Hunking's inability, or unwillingness, to refinance the mortgage, when the record shows that, on a sale of the farm, the mortgagees would be fully repaid.

Finally, the motion judge failed to analyse the true nature and significance of the magnitude of the windfall to the respondents in the context of the appellant's circumstances and the prejudice to him of not setting aside the default judgment for foreclosure, and to weigh it against the virtual lack of prejudice to the respondents, who would be completely reimbursed and paid in full had a sale of the property been ordered.

For the aforementioned reasons, the court allowed the appeal and ordered that the foreclosure proceedings be converted to an immediate judicial sale pursuant to rule 64.03(22) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

6443923 Canada Inc. (Zesty Market) v. Kablou, 2017 ONCA 916

[Sharpe, Epstein and van Rensburg JJ.A.]

Counsel:

E Lay, for the appellant

I B McBride, for the respondents

Keywords: Civil Procedure, Stay of Proceedings, Abuse of Process, Collateral Attack, Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63

Facts:

These civil proceedings follow a 2011 criminal trial in which a jury found Mr. Karimi, a principal of the numbered company appellant in each action, guilty of extortion and criminal harassment. The respondents and a third individual, Mr. Alireza Khodabandeh, were the victims of Mr. Karimi's crimes. Mr. Karimi defended the criminal charges...