Bank of Montreal v. Cochrane, 2012 ABQB 297

Court of Queen ’ s Bench of Alberta Citation: Bank of Montreal v. Cochrane, 2012 ABQB 297 Date: 20120507 Docket: 0901 07347 Registry: Calgary Between: Bank of Montreal Plaintiff - and - Kenneth Robert Cochrane et al Defendants _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice G.C.

Hawco _______________________________________________________ Introduction [ 1 ] The Plaintiffs sued the Defendants Housni Ibrahim El-Chmoury and Imad Ali Al Chmoury, among many other defendants (“the Defendants”) alleging that they participated in a fraudulent scheme to obtain money from the Plaintiff under false pretenses. They were served by way of substitutional service. Each Defendant failed to file a Statement of Defence and has been noted in default. [ 2 ] The Defendants now seek to have the default judgments against them set aside and seek to be permitted to file Statements of Defence.

[ 3 ] By way of brief background, the Plaintiff alleges that a large number of people, including a group referred to as the “El- Hawi Group” (of which the Defendants are alleged to be a part) were involved in obtaining over 68 fraudulent mortgages on which the Plaintiff suffered losses in excess of $8.7 million. The key figure in the El-Hawi Group is alleged to be Rony El-Chmoury, who is the Defendant Housni El-Chmoury’s son. The Plaintiff maintains that $2.5 million have been traced from fraudulent Bank of Montreal (“BMO”) mortgages to Rony El-Chmoury. The Defendant Imad Al Chmoury is Housni El-Chmoury’s cousin.

Of the $2.5 million traced to Rony El-Chmoury, approximately $1 million was wired on behalf of Rony to Housni and another half million dollars was wired by or on behalf of Rony to Imad. In both cases the money was wired to the Defendants in Lebanon. Both Defendants have not been particularly forthright in explaining where the money came from and where it went when they did receive it in Lebanon. Some of the monies were used to purchase properties in Lebanon which were sold and then invested in other properties.

BMO alleges that the Defendants presently own approximately nine properties in Lebanon, with an estimated value of at least $675,000 US. [ 4 ] The Plaintiff began taking steps to attach the Defendants’ properties in Lebanon which it believed had been purchased with the fraudulent mortgage funds. It did succeed in obtaining what has been described as a “Precautionary Attachment” against the nine properties referred to above. The Defendants hired Lebanese counsel to challenge the Precautionary Attachment.

That challenge has, to date, not been successful. [ 5 ] While that step was being taken in Lebanon, BMO had obtained an order for substitutional service of its Statement of Claim, allowing it to serve the Defendants’ Lebanese counsel. [ 6 ] On September 23, 2010, a partial default judgment was entered against the Defendants, both of whom had failed to file a Statement of Defence. [ 7 ] To convert its partial judgment into a judgment which may be enforced in Lebanon, BMO requires an order from the Alberta Court of Queen’s Bench that the judgment was final and is no longer subject to an appeal. [ 8 ] As this step was being taken, in Alberta during October and November 2010, the Defendants filed the application with which I am now concerned – to set aside the default judgment on the grounds that they had not been aware of the Plaintiff’s claim against them until late October 2010.

They say that they were not aware of the default judgment having been entered until October 28, 2010. [ 9 ] Difficulties occurred in obtaining affidavits from the Defendants and having cross-examinations take place on those documents, but that did occur, in Lebanon, after the Plaintiff had obtained an order from me directing that the Defendants present themselves for questioning. [ 10 ] The questioning has taken place, but there is a dearth of information as to what monies were received, where it went, what happened to them, and what assets the Defendants presently own in Lebanon.

A number of takings have been given. Some have been replied to, but, at the time of this hearing, only in Arabic and had not been translated as of the date of this hearing. [ 11 ] The Defendants now seek to set aside the default judgment and file Statements of Defence. They do so on the grounds that there was not an inordinate delay and that there was substantial confusion with respect to whether they were served through their Lebanese counsel and if so how and what they knew at the time.

Their affidavits in support of the Application state that had they been aware of the Plaintiff’s claim, they would have taken steps to defend themselves from the outset. They claim that neither of them were made aware of the Statement of Claim, nor that they were served substitutionally, nor that they had been notice in default until October 28, 2010, after which they applied promptly to set the default judgment aside.

Their basic response to the Claim against them is that they had received money from Rony and had simply been advised that he was seeking to purchase real estate in Lebanon, which they had helped him to do. [ 12 ] The Plaintiff objects on the grounds that the Defendants have not given an adequate explanation of why they allowed the default judgments to be entered, and that the Defendants’ real motive is to allow them to succeed on their appeal in Lebanon.

If the default judgment is set aside, the Plaintiff alleges that it is quite likely that the Precautionary Attachment will be set aside in Lebanon. [ 13 ] An application to set aside a noting in default is brought under Rule 9.15(3) of the Alberta Rules of Court . A court faced with

such an application must consider: (

a) whether is adequate explanation as why a Statement of Defence was not delivered; (

b) whether there was any delay in applying to set aside the default and, if so, whether there was a satisfactory explanation, for the delay;and (

c) whether the material discloses a meritorious defence, that is, a triable issue of fact or law. See David M. Gottlieb ProfessionalCorporation v. Nahal, 2011 ABQB 355, at para. 68. [14] Madam Justice Veit in Don Reid Upholstery Ltd. v. Terry Patrie, (AB KB), 1995 CarswellAlta 357, atpara. 23-25, discusses these three requirements, and then goes on to say this, at para. 28: ... the British Court of Appeal reminds us that discretion, by definition, rejects rigid rules.

When judges say that an applicant must provethe three things set out above, they are merely using a form of shorthand: they are saying that fairness must always be done and thatusually fairness requires that these three things be proved. Under R. 158, the court has discretion to do what is just; the most that caselaw can do is to provide “general indications to help the Court in exercising the discretion”.

Decision [15] One of my concerns is that it appears quite clearly from the documents filed by the Defendants themselves in Lebanon that onJune 14, 2010, they were in fact aware of the Statement of Claim and the specific allegations against themselves. On his cross-examination on his affidavit, Housni admits that he knew in May 2010 that he had been sued by BMO.

Imad also admits that. [16] Notwithstanding these admissions, which are contrary to their statements in their affidavits filed in support of the application,it was not until late October that they began proceedings to set aside the default judgment. [17] It strikes me that it cannot be coincidental that these proceedings only began after the Defendant had been advised by theirLebanese Counsel that they had not been successful in challenging the Precautionary Attachment. [18] I am satisfied that the Defendants do not meet any of the “three things that must be proved”.

The explanation which they setforth in their affidavit was not correct. They were aware of the Statement of Claim very shortly after it was filed. They knew of theexistence and contents of the Statement of Claim. [19] They delayed taking any steps for another five months, without a satisfactory explanation. They took no steps to set aside thedefault judgment for a month after it was obtained. The first step taken to file a motion was not initially supported by an affidavit. Thatoccurred about two months later.

After that occurred, their actions to make themselves available for questioning were certainly notprompt. [20] Having observed the conduct of the Defendants as set forth in their affidavits and questioning, I am, quite frankly, notparticularly impressed by their efforts to act in good faith. Clearly, they were aware of the document and its contents. As stated by ourCourt of Appeal in Hansarj v. Ao, 2004 ABCA 223, at para. 32: To undo the consequences of not carrying out what an official document directs the recipient to do, it is not enough that he shows that thedocument was not served on him.

He must also show that he did not know of the document ... [21] Earlier, in para, 31, the Court stated:

The court will not set aside service of a document, or set aside a later step needing service, such as default judgment, if the intended recipient (defendant) later actually got the document, or notice of it ... [ 22 ] In this case, both the Defendants were aware of the Statement of Claim. They appear to have ignored what had occurred in this jurisdiction and attempted to seek protection through their judicial system in Lebanon.

When they failed, they re-directed their efforts in this province. [ 23 ] If the Defendants wish to show their good faith to this Court and if they wish the Court to exercise its discretion in their favour, then they may demonstrate that good faith by putting up irrevocable letter of credit in the amount of $700,000. Should they do so, in a period of one month from the date of this decision, they may have leave to file a Statement of Defence and the default judgments will be set aside. If they fail to do so within the time allotted, their application will be dismissed without further notice or application.

Heard on the 5 th day of March, 2012. Dated at the City of Calgary, Alberta this 7 th day of May, 2012. G.C. Hawco J.C.Q.B.A. Appearances: M. Mohamed and M.D. Mysak Bennett Jones LLP for the Plaintiff Norman D. Anderson Shea Nerland Calnan LLP for the Defendants