11346 (Nfld) Limited First Plaintiff And: Project Management v. Design Limited, 2018 NLSC 255

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : 11346 (Nfld) Limited v. Hynes Construction , 2018 NLSC 255 Date : December 14, 2018 Docket : 201701G7380 Between: 11346 (Nfld) Limited First Plaintiff And: Project Management and Design Limited Second Plaintiff And: Record Holdings Limited Third Plaintiff And: Hynes Construction Company Limited, Garry Hynes and Barbara Hynes First Defendant And: Garry Hynes and Gerard Hynes Second Defendant Before: Justice Rosalie McGrath Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: November 20 and 29, 2018

Summary: The Court denied the application of two defendants to set aside a default order on the basis that the applicants had failed to demonstrate apotentially good defence on the merits. Appearances: Cletus E. Flaherty Appearing on behalf of the Plaintiffs Daniel W. Bennett Appearing on behalf of Garry Hynes and Barbara Hynes Jillian A. Hewitt Appearing on behalf of Gerard Hynes Authorities Cited: CASES CONSIDERED: Langor v. Spurrell (1997), (NL CA), 157 Nfld. & P.E.I.R. 301, 75 A.C.W.S. (3d) 823(Nfld. C.A.); Canadian Broadcasting Corp. v.

Ontario (Attorney General), (SCC), [1959] S.C.R. 188; Celtic BusinessDevelopment Corp. v. Arsenault, 2010 NLTD(G) 121; RoyNat Inc. v. Lester (1999), (NL SC), 129 Nfld. & P.E.I.R.271, 54 A.C.W.S. (3d) 382 (Nfld. S.C. (T.D.)); Parker and Monroe Ltd. v. Buckley (1998), 82 A.C.W.S. (3d) 375, [1998] N.J. No. 221(S.C. (T.D.)); Trinity Conception Community Business Development Corp. v. Surprise Bag Co., 2016 NLTD(G) 62 STATUTES CONSIDERED: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3; Judgment Enforcement Act, S.N.L. 1996, c. J-1.1;Conveyancing Act, R.S.N.L. 1990, c.

C-34 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D TEXTS CONSIDERED: Bruce Ziff, Principles of Property Law, 2nd ed. (Scarborough: Thomson Canada Limited, 1996) REASONS FOR JUDGMENT McGrath, J.: INTRODUCTION [1] Garry Hynes and Barbara Hynes (the “Applicants”) have applied to set aside a default judgment entered against them in theseproceedings. They were both named as First Defendants in their capacity as co-mortgagors of three mortgages while Garry Hynes wasalso named as a Second Defendant is his capacity as guarantor under the same mortgages.

The three mortgagee Plaintiffs (referred to aseither the “Plaintiffs” or the “Respondents”) oppose the Application on the basis that the Applicants have not demonstrated a potentiallygood defence on the merits. Alternatively, the Respondents state that, considering all the circumstances, I should exercise my discretionand decline to set aside the default judgment. background [2] In a Statement of Claim filed on November 3, 2017, the Plaintiffs allege that they each loaned the First Defendants the sumof $200,000.00 between April and September, 2014.

Each of the three $200,000.00 loans was secured by a mortgage against elevenproperties, ten of which were owned by the corporate First Defendant, Hynes Construction Company Limited (the “Company”), and one

of which was owned jointly by the Applicants. The mortgage did not identify ownership of each property but simply named all threeFirst Defendants as mortgagors. The Plaintiffs also secured the loans provided to the First Defendants by joint and several personalguarantees provided by the Second Defendants under the mortgages. [3] The Statement of Claim alleges that the loans were in default and, despite demands for payment of the arrears and principal,no payment had been forthcoming.

Despite being served with the Statement of Claim, none of the parties filed Defences within the timerequired by the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D (the “Rules”). As a result, the Plaintiffs sought and weregranted a default order as against the individual First Defendants and the Second Defendants. No such order was sought as against theCompany as it had been placed into receivership with all proceedings against it stayed pursuant to the provisions of the Bankruptcy andInsolvency Act, R.S.C. 1985, c. B-3.

A trustee in bankruptcy in respect of the Company was eventually appointed in July of 2018. [4] The default order of November 30, 2017 entered judgment against the individual First Defendants and the Second Defendantsin the following amounts together with pre and post-judgment interest and costs to be taxed: 1. Judgment for 11346 (Nfld) Limited in the amount of $210,282.50. 2. Judgment for Project Management and Design Limited in the amount of $211,762.64. 3.

Judgment for Record Holdings Limited in the amount of $213,450.00. [5] The Plaintiffs sought to enforce their judgments through the Office of the High Sheriff of Newfoundland and Labrador. Inaccordance with the Judgment Enforcement Act, S.N.L. 1996, c. J-1.1, Notices of Examination were served on Gerard Hynes, GarryHynes and Barbara Hynes with examinations to take place in the summer of 2018. [6] The individual guarantor, Gerard Hynes, then made Application to this Court to set aside the default judgment as against himpursuant to Rule 16.06 of the Rules. That Application was heard by Stack, J. on August 30, 2018.

Gerard Hynes’ proposed defence wasthat Garry Hynes had fraudulently misrepresented to him the state of the Company’s finances in order to induce him to sign theguarantee. Stack, J. dismissed the Application finding that the proposed defence was not a potentially good defence on the merits asagainst the Plaintiff mortgagees[1]. [7] Garry and Barbara Hynes then brought their own Application to set aside the default judgment as against them.

TheApplicants explained that their failure to file a defence arose from their unfamiliarity with the procedures of the Court, mixed with thefact that Garry Hynes had taken steps to have the Company placed into receivership. They state it was only after being summoned to ajudgment debtor examination and retaining legal counsel that they fully realized the need to file a defence and the full extent of thejeopardy they were in. They made this application shortly thereafter. [8] In their Application, Garry and Barbara Hynes identified a proposed defence of statutory illegality.

In particular, they allegedthat it is contrary to the provisions of the Conveyancing Act, R.S.N.L. 1990, c. C-34 (the “Act”) to obtain a default judgment on the fullamount of a debt secured by a mortgage before carrying out the power of sale process set out in the Act. The Application also allegedthat, as against Barbara Hynes, the mortgages were unenforceable as she had limited knowledge of the mortgage documentation prior tosigning them and she had not been advised to seek independent legal advice.

She also alleged that she did not have ownership of ten ofthe eleven properties listed in the mortgage and had received no personal financial benefit or payment from the proceeds providedpursuant to the mortgages. Prior to the hearing of this Application those defences particular to Barbara Hynes were abandoned. [9] The Applicants did not file a draft defence when they filed their Application. However, upon receipt of the Respondent’sMemorandum of Fact and Law taking issue with the failure to file a draft defence, the Applicants provided the Court with a proposeddefence.

This draft defence identified yet another proposed ground of defence: i.e. the Plaintiffs’ failure to plead the breach of a specificcovenant or provision in the mortgages that would allow them to obtain a monetary judgment prior to completion of the power of saleprocess. [10] Against this background, I must therefore consider whether to grant the Applicants’ request to set aside the default orders. issue [11] Should this Court set aside the default order entered as against Garry Hynes as mortgagor and guarantor and Barbara Hynes asmortgagor?

LAW AND ANALYSIS [12] Rule 16.06 of the Rules provides that the Court may, on such terms as it thinks just, set aside or vary any judgment entered bydefault pursuant of Rule 16. [13] The leading Newfoundland and Labrador decision with respect to Rule 16.06 is a decision of Green, J.A. in Langor v. Spurrell(1997), (NL CA), 157 Nfld. & P.E.I.R. 301, 75 A.C.W.S. (3d) 823 (Nfld. C.A.). At paragraph 44 of that decision,Green, J.A. identified the following considerations a judge must take into account when determining whether to set aside a defaultjudgment: 1.

It is a pre-condition to setting aside a default judgment that the applicant demonstrate a potentially good defence on the merits; 2. Once a potentially good defence is shown, the defendant should then prima facie be entitled to have the judgment set aside so as tohave a trial on the merits unless, considering all the other circumstances, the court concludes that to set aside the judgment would not bea fair exercise of its discretion. [14] In respect of the first issue, i.e. whether there is a potentially good defence on the merits, Green, J.A. noted that this has also

been referred to as a “triable issue”, “a good defence on the merits”, “a substantive issue to be tried”, “an arguable case” or simply “a defence on the merits”. The primary concern of the court is to ensure that the reopening of the case will not be a waste of time and that there is a real issue in controversy requiring adjudication on the facts or the law. [ 15 ] At paragraph 47 of Langor , it is noted that the application must, as a general rule, be supported by an affidavit deposing to facts which, if accepted, disclose a potential defence on the merits.

Further, at paragraph 56, Green, J.A. stated that the application must also contain a draft of the defence that the defendant proposes to file if the judgment is set aside. [ 16 ] The Respondents took issue with the fact that the Applicants did not file a draft defence until after the Respondents had filed their Memorandum of Fact and Law. Further, counsel for the Respondents noted that the proposed defence of a failure to identify a particular covenant or provision that was breached was only raised in the draft defence and not in the initial Application.

As such, he suggested that I should disregard this proposed defence. [ 17 ] It certainly would have been preferable, and in accordance with the requirements set out in Langor , to have the draft defence accompany the Application. However, I note that counsel for the Respondents had sufficient time to consider and respond to both proposed defences prior to the hearing. Further, the defence relating to the failure to identify the specific covenant that was breached is a defence based in law, not fact.

As such, it does not require any affidavit evidence from the Applicants or any affidavit in response from the Respondents. I am therefore prepared to consider both proposed defences. [ 18 ] Dealing with the first proposed defence of statutory illegality, the Applicants allege that the Respondents have taken the unusual step of obtaining judgment against the mortgagors and guarantors when the properties secured by the subject mortgages still have not been sold through the power of sale process.

The Application also states that, as far as the Applicants are aware, none of the real properties subject to the mortgages have been sold, and therefore the Plaintiff mortgagees’ actions in obtaining judgment against the Applicants were premature and contrary to the provisions of the Act .

At paragraph 6 of their proposed defence, the Applicants specifically state that the Respondents have commenced power of sale proceedings on the properties secured by the mortgages. [ 19 ] However, when this matter was first called for a hearing, counsel for the Respondents advised it was his understanding that the Respondents had not taken any steps to exercise a power of sale on any of the properties. It was the trustee in bankruptcy of the Company who had listed certain properties for sale.

At the request of the Applicants, the matter was therefore postponed to allow the parties to confirm the manner in which the properties were listed for sale, if at all. [ 20 ] Garry Hynes then filed a supplementary affidavit confirming that he had been mistaken on how the properties were listed for sale. The properties owned by the Company had, in fact, been listed for sale by the trustee in bankruptcy.

He explained he had mistakenly thought they were being listed for sale under power of sale proceedings as he had received correspondence from the Respondents’ former lawyer a few days after the Statement of Claim was issued advising that, if payment was not made, the mortgagees would take steps to take possession of the properties and offer them for sale.

However, it is apparent that the Respondents did not take any such steps. [ 21 ] While it is now acknowledged that the Respondents have not taken steps to sell any of the properties, the Applicants note that the Respondents still remain as secured creditors and could seek to enforce their power of sale rights, even in respect of properties of the bankrupt Company.

Section 69.3(2) of the Bankruptcy and Insolvency Act states that the bankruptcy of a debtor does not prevent a secured creditor from realizing or otherwise dealing with his or her security in the same manner as he or she would have been entitled to realize or deal with it if the stay of proceedings imposed by

section 69.3(1) had not occurred, unless the court otherwise orders. If a court did order a secured creditor not to realize or otherwise deal with his or her security, the court can only postpone the right of the secured creditor to realize or otherwise deal with his or her security for no more than six months from the date of bankruptcy in a case where the debt was due at the date of bankruptcy. There is no evidence before me that any order was made in the bankruptcy proceedings postponing the Respondents’ rights to realize or otherwise deal with their security.

As such, the Applicants state that the Respondents still have control over the properties and could exercise their right to sell the properties by way of power of sale. As such, the defence of statutory illegality remains a valid defence. [ 22 ] The essence of this proposed defence is that the Respondents are not permitted to obtain judgment on the debt unless and until they have completed power of sale proceedings in respect of the mortgaged properties. In particular, the Applicants assert that the Act prohibits mortgagees from obtaining judgment on a mortgage debt unless:

a) The power of sale process is carried out in accordance with sections 6 to 11 of the Act ; and

b) Once the power of sale process is completed and there is a deficiency resulting from the sale, mortgagees can only obtain monetary judgment against the mortgagors and guarantors for the amount of the deficiency if there is compliance with sections 6 through 11 (

section 12 of the Act ). [ 23 ] The Applicants submit that allowing the Respondents to obtain judgment on the full mortgage debt without going through the statutory power of sale process would circumvent the intent of the Act and is therefore contrary to law. They also assert that, by operation of

section 13 of the Act , the Respondents cannot rely on any contractual provisions in the mortgages that would allow them to do so. The Applicants therefore request that they be allowed to file a defence seeking to have the Respondents’ claim dismissed with costs or, in the alternative, that the matter be stayed until the mortgaged properties are sold under a power of sale process in accordance with the Act . [ 24 ] The Respondents do not contest that sections 6 to 12 of the Act are binding on all mortgagees who seek to exercise their power of sale right under a mortgage.

However, they refer to the right to sell the land as being only one of an array of remedies ordinarily available to a mortgagee at common law once default has occurred. They state that the Act does not purport to take away these other rights. At common law, the five main remedies available to a mortgagee on default are as follows: 1. The right to bring an action against the mortgagor on the personal covenant;

2. The right to take possession; 3. The right to appoint a receiver; 4. The right of foreclosure; and 5. The right to sell the land. [25] These five rights are referred to by author Bruce Ziff in the text Principles of Property Law, 2nd ed. (Scarborough: ThomsonCanada Limited, 1996) at pages 380-381. However, the author notes that in some jurisdictions, or in a specific mortgage relationship,those rights may not all be available.

Much depends on the mortgage itself or the idiosyncrasies of the laws of each jurisdiction. [26] The Applicants refer to the above comments by Professor Ziff in support of their position that both the laws of the Province ofNewfoundland and the wording of the mortgage itself prohibit the Respondents from seeking the judgment they obtained against themortgagors and guarantors for the full mortgage debt. [27] In support of its position that the laws of this Province have altered the common law remedies on default, the Applicants statethat sections 6 through 11 of the Act place mandatory obligations on all mortgagees when exercising a power of sale.

These sectionsmandate minimum notice provisions, require mortgagees to obtain a written appraisal or a statement of fair market value, and place otherobligations on mortgagees with respect to sale by public auction or public tender. A mortgagee must also prepare an accounting of thesale of a mortgaged property with a mortgagor or other registered encumbrancer or guarantor having the right to apply to court for reliefif dissatisfied with the accounting.

Section 12 of the Act then goes on to state that a mortgagor or another registered encumbrancer orguarantor shall not be liable for a deficiency resulting from the sale of mortgaged property where the mortgagee fails to comply with arequirement of sections 6 to 11. [28] However, the Respondents submit that these sections must be placed in context, noting these sections merely contain specificprovisions setting out how a mortgagee is required to carry out a power of sale proceeding if the mortgagee elects to pursue this remedy.

The Respondents submit that in no way do these sections take away any other rights that mortgagees may have at common law or in themortgage deed itself. [29] The Respondents state that, if the legislature had intended to impact or override the common law, it would and should haveexpressly, clearly and definitively so stated. Reference is made to paragraph 15 of the Supreme Court of Canada decision in CanadianBroadcasting Corp. v.

Ontario (Attorney General), (SCC), [1959] S.C.R. 188 in which the court stated the following: 15 No one, of course, will challenge these propositions, and I fully agree with the appellant's contention that what is deep-seated inthe common law of the country can only be overturned by a clear, definite and positive enactment, and not by some ambiguous referenceto other statutes (Leach v.

Rex supra), but when the enactment is clear, the statute overrides the common law, and may even, in somecases, affect the prerogatives of the Crown. [30] In considering the effect of the statutory provisions cited by the Applicants, I have taken a broad look at the Act as a whole. Inote that the sections at issue follow

section 5 of the Act, which has the effect of creating a statutory power of a mortgagee to sell andinsure mortgaged property or a part thereof where the mortgage money has become due to the same extent as if that right had beenconferred by the mortgage (section 5(1)) unless there is a contrary intention expressed in the mortgage (section 5(3)). Section 5(2)further provides that the provisions of the Act regulating that statutory power of sale can be varied or extended by the mortgage deedwith those variations or extensions having the same incidents, effects and consequences as if contained in the Act. [31] However,

section 13 also provides that the provisions of sections 6 through 12 apply to a sale of mortgaged property,notwithstanding a provision to the contrary contained in a mortgage deed. As such, read together, the effect of these sections 5 and 13 isthat a mortgagee must comply with the requirements of sections 6 through 12 when it sells mortgaged property. However, a mortgageeand mortgagor can vary or extend those statutory requirements without agreeing to a provision that is contrary to sections 6 through 12. Further, by virtue of section 5(3), the parties can contractually agree in the mortgage deed that the mortgagee cannot rely on its statutorypower to sell and insure as set forth in

section 5 of the Act. [32] With respect to

section 12, the cases relied upon by the Applicants dealing with that

section all involve situations in which themortgagee had already exercised its power of sale rights and was taking action against the guarantor on a deficiency after the power ofsale process had been concluded. (Ref. Celtic Business Development Corp. v. Arsenault, 2010 NLTD(G) 121 and RoyNat Inc. v. Lester(1999), (NL SC), 129 Nfld. & P.E.I.R. 271, 54 A.C.W.S. (3d) 382 (Nfld. S.C. (T.D.)). [33] In such cases,

section 12 of the Act is clear that failure to comply with sections 6 through 11 of the Act provide a completedefence on any deficiency claim. The effect of

section 12 is to provide statutory protection to mortgagors, registered encumbrancers andguarantors after a mortgagee exercised its power of sale either under a power given to it contractually in the mortgage deed or inpursuance of the statutory right to sell provided for in

section 5 of the Act. However, what is at issue here is the right to take an action onthe loan debt as opposed to the right to claim a deficiency after a power of sale.

Section 12 does not have the effect of only allowing amortgagee to sue on a debt owing after mortgaged property has been sold. [34] Read in the context of the preceding and subsequent sections, I find that the intent of sections 6 through 11 is to placeconditions and obligations on those mortgagees who choose to exercise the power of sale conferred by the Act.

However, there is noprovision in the Act stating that the mortgagee must elect to initiate and conclude power of sale proceedings prior to taking action toobtain judgment on the mortgage debt against a mortgagor or guarantor. [35] There is also no indication that the legislature intended for the Act to be a complete and stand-alone codification of the rightsand obligations of mortgagees, mortgagors, encumbrancers and guarantors. On the contrary, the Act recognizes that parties can concludetheir own contracts with respect to the sale and mortgage of real property.

This is particularly notable in section 5(2) which allowsparties to vary or extend provisions of the Act relating to powers of sale in the mortgage deed.

Section 13 of the Act also only states that

the parties may not opt out of the minimum requirements contained in sections 6 through 12 in the mortgage deed.

There is nothing inthe language of the Act to suggest that the legislature intended those sections to have any further effect on the parties’ rights to contractunder a mortgage or their rights in respect of the common law. [36] Having carefully reviewed the provisions of the Act and, in particular, the effect of sections 5 through 13 noted above, as wellas the submissions of the parties, I agree with the position taken by the Respondents there is no clear, definite or positive enactmentaltering the common law which allows for five main remedies upon default. [37] While there was no case from this Province directly on this point, the position I have taken is supported by the obitercomments of Puddester, J., at paragraph 187 of Parker and Monroe Ltd. v.

Buckley (1998), 82 A.C.W.S. (3d) 375, [1998] N.J. No. 221(S.C. (T.D.)), as follows: …Generally the authorities also establish that the mortgagee may sue on the covenant for payment of the mortgage debt either before orafter exercise of power of sale. (See for example Huron & Erie Mortgage Corp. v. Longo, (ON CA), [1944] O.R. 627(Ont. C.A.) ( (ON SC), [1944] O.R. 424 (Ont. H.C.) at trial.) [38] Counsel for the Respondents also referred me to a decision of Paquette, J. of this Court in Trinity Conception CommunityBusiness Development Corp. v. Surprise Bag Co., 2016 NLTD(G) 62.

While Paquette, J. did not have to decide the issue now beforeme, she noted at paragraph 4 that the mortgagee in the matter before her had already sued a corporate debtor/mortgagor and personalguarantor on the debt secured by the mortgage with judgment being entered by consent. No release of mortgage security was given.

Assuch, this Court has previously granted such orders. [39] I therefore find that the defence of statutory illegality as put forward by the Applicants is not a potentially good defence on themerits on these facts where the mortgagees have claimed amounts due under loans that are subject to mortgages without having firsttaken and concluded powers of sale proceedings.

Further, with respect to the Applicants’ request in its proposed defence for a stay of thematter pending completion of power of sale proceedings, the evidence on this Application establishes that the mortgagees have not infact taken any steps to sell the mortgaged properties. [40] The second proposed defence is that the Statement of Claim does not identify the specific covenant or provision that wasbreached by the mortgagors.

The Applicants submit that this defence has merit as, on a plain reading of the mortgages, the mortgageesdo not have the right to obtain a judgment prior to a power of sale where the default is in respect of payments on the loan. [41] The Applicants refer to the comments of Professor Ziff in Principles of Property Law referred to in paragraph 27 above to theeffect that not all remedies may be available to a mortgagee.

In particular, the right to sue may depend upon the wording of the mortgageitself and the idiosyncrasies of legislation in each jurisdiction. [42] With respect to legislation, the Applicants refer to section 4(3) of the Act which sets out covenants that are considered to beincluded in conveyances by way of mortgage. The Applicants note that section 4(3)(

b) provides that a conveyance by way of mortgageshall be considered to include a covenant that, where default is made in payment of money or interest thereon intended to be secured bythe conveyance, the mortgagee may enter upon and take possession of the property without lawful interruption or disturbance by themortgagor. The Applicants note that this

section does not state that the mortgagee has a right to obtain judgment for the monies dueunder the mortgage prior to the carrying out of a power of sale. [43] However, I have already found that the Act does not contain a full and comprehensive code that overrides parties’ contractualand common law rights. In fact, section 4(3) contains only four covenants that are to be considered to be included in a conveyance byway of mortgage. Certainly it cannot be suggested that a mortgage deed cannot contain any further covenants.

As such, the failure toinclude such a covenant in statute does not mean there is no such right. [44] It is necessary then to look at the terms of the mortgages themselves to determine what the parties have contractually agreed.

In doing so, I note that, while the dates and identities of the mortgagees are different, the terms of all three mortgages are otherwiseidentical. [45] Counsel for the Applicants referred me to specific provisions of the mortgages that contain obligations of the mortgagorsdescribed as “covenants” and which give rise to the right of the mortgagee to seek payment in full of all monies secured together withaccrued interest. The Applicants note that nowhere in the mortgage deed is the obligation to the pay principal and interest described as acovenant.

The Applicants say this is relevant as a provision in each mortgage allowing the mortgagee to demand payment of all principalmoney secured is tied to a breach of covenant. [46] However, it is not contested that each mortgage sets out that the principal amount secured is $200,000.00. Interest is payablethereon at the rate of 15% per annum, with payments during the term of the mortgage being interest only in the amount of $2,500.00 permonth. The entire balance of principal and interest is stated to be payable in full at the end of the term, subject to mutually agreeablerenewals.

The Applicants acknowledge in their draft defence that payments were not kept up to date. They further acknowledge theirindebtedness to the Respondents. [47] The Respondents take the position that these promises to pay constitute covenants even though the word “covenant” is notspecifically used to describe them.

The Respondents state a breach of the promise to pay is in fact a breach of a covenant that results ineach mortgagee being entitled to exercise all rights and remedies under the mortgage, including the right to seek judgment for all amountsthat are due and payable. [48] Counsel for the Respondents asks me to look to the substance of the mortgage deeds as opposed to form. The fact that theagreement to pay principal and interest in accordance with the terms of the mortgage is not referred to as a covenant does not change thesubstance of the contractual requirement.

Counsel for the Respondents refers to comments of Professor Ziff in Principles of PropertyLaw, at page 381, describing the promise to repay the loan as being the key term within the array of personal covenants.

[ 49 ] I agree that, despite the fact that the word ‘covenant’ is not used, an agreement by a mortgagor to pay interest and/or principal is clearly a personal covenant of the mortgagors. Also, in respect of Garry Hynes as guarantor, each mortgage contains wording that the Guarantors “do hereby covenant and agree with the Mortgagee that the Mortgagor will duly pay and satisfy all monies secured by this Mortgage and duly perform all covenants, provisos, warranties, agreements and obligations of the Mortgagor contained in this Charge.

The Guarantors further covenant and agree with the Mortgagee to be primarily liable to the Mortgagee, jointly and severally with the Mortgagor, as principal debtors and not as Surety.” As such, non-payment by the Guarantor of the principal and interest secured is specifically identified as a breach of covenant.

It is also notable that each mortgage specifically provides that the mortgagee shall not be bound to exercise its recourse against the mortgagor or against any security before exercising its rights against the guarantors. [ 50 ] In any event, whether the non-payment of principal or interest is described as a covenant or not, the failure to plead the breach of a particular covenant or provision of the mortgages does not provide a potentially good defence on the merits. [ 51 ] While the Statement of Claim does not identify a specific mortgage covenant or provision that was breached, paragraph 4 of the Statement of Claim identifies each Plaintiff as having “loaned” the sum of $200,000.00, which loans were secured by way of mortgage.

Paragraph 5 also describes the loans as being secured by joint and several personal guarantees of the Second Defendants. Paragraph 6 then defines the Plaintiffs’ “loans” as being now in default and refers to demands for payments of the arrears and principals having been made with no payment having been forthcoming. [ 52 ] It is therefore apparent from the Statement of Claim that the default pleaded was in respect of payment of the loans. It was the loans that were alleged to be in default as opposed to a breach of any other specific covenant or provision under the mortgages.

The Applicants have therefore not put forward any evidence to establish a potentially good defence to a claim for payment of the debts claimed by the Respondents. [ 53 ] In light of my findings that neither the first or second proposed defences are potentially good defences on the merits, it is not necessary to consider the second branch of the test for setting aside a default judgment; i.e. whether it would be a fair exercise of my discretion to refuse to set aside the judgment.

The application of the Applicants is therefore dismissed. [ 54 ] As the successful party, the Respondents shall be entitled to their costs of this Application on Column 3 of the Scale of Costs appended to Rule 55 of the Rules . _____________________________ Rosalie McGrath Justice