supreme court of nova scotia citation: canadian imperial...

SUPREME COURT OF NOVA SCOTIA Citation: Canadian Imperial Bank of Commerce v. Partners Management

Development Inc., 2016 NSSC 2

Date: 2015-01-05 Docket: Ken. No. 414040

Registry: Kentville

Between: Canadian Imperial Bank of Commerce, a body corporate

Plaintiff v.

Partners Management Development Inc., a body corporate Defendant

and

John T. Early Defendant

Judge: The Honourable Justice Patrick J. Duncan

Heard: November 2, 3 and 4, 2015 in Kentville; November 16, 2015in Halifax

Counsel: Lisa M. Wight, counsel for the plaintiff (defendant by Counterclaim) Partners Management Development Inc., defendant (plaintiff by Counterclaim), represented by John T Early III John T. Early III, Self-represented defendant (plaintiff by Counterclaim)

By the Court:

Introduction [1] The plaintiff CIBC granted the defendant John Early III a personal line of credit in the amount of $320,000. The lending was conditioned on Mr. Early arranging a collateral mortgage on real property as security for the debt. [2] The defendant Partners Management Development Inc. (PMD) is a company of which Mr. Early is the sole officer and shareholder. PMD is the titleholder of real property located in Wolfville, Nova Scotia. Mr. Early, acting in his capacity as the sole Director and President of PMD, executed a corporate resolution permitting the company to pledge the property as security for Mr. Early’s personal line of credit, and also executed a collateral mortgage as security. Mr. Early was also required to and he did, in his personal capacity, execute the mortgage as the guarantor of the company’s obligations. [3] No payment has been made on the line of credit balance since November 2012. As a result the plaintiff declared the loan to be in default and demanded payment in full. The plaintiff filed this action on April 2, 2013, in which it pleads that “Under the terms of the Personal Line of Credit and the collateral mortgage the debt was payable on demand.” [4] The claim seeks payment from the defendants of the principal amount borrowed together with other “…charges and expenses incurred in connection with the lands and the mortgage, together with interest on these amounts…” and in default of payment an order for foreclosure, sale and possession of the property pledged in the collateral mortgage by PMD. The plaintiff also seeks judgement against Mr. Early as the guarantor of the mortgage; and finally it seeks costs of the action. [5] PMD challenges the liability of the company for the debt and, in the alternative, challenges the quantum of its liability on the outstanding amounts claimed. [6] Both defendants have counterclaimed against the plaintiff alleging that Plamen Petkov, CIBC’s former legal counsel in this action, improperly took out a default judgement against each of the defendants and later unreasonably refused to

consent to an order to set aside the default judgments. The default judgments were set aside by order of this Court after a motions hearing before Associate Chief Justice Deborah Smith. The defendants seek damages arising from the conduct of Mr. Petkov, alleging tortious abuse of process, defamation and slander of title, and intentional infliction of mental harm, all of which are said to be causative of compensable financial loss and mental distress. [7] There was documentary and vive voce evidence adduced in the trial. Robert Aitkens for CIBC and Mr. Early for the defendants both offered opinions on the legal interpretation to be applied to the various lending documents tendered in evidence. I advised counsel for the plaintiff and Mr. Early, acting on his own and the co-defendant’s behalf, that testimony that amounted to expert opinion evidence would not form part of my consideration as it did not comply with Civil Procedure Rule 55, and that neither witness was qualified to give legal opinion evidence. Issues in the Claim

1. Is the personal line of credit agreement as between the plaintiff and the defendant John T Early III a valid and enforceable contract?

2. If yes, on what date did Mr. Early default on the agreement? 3. What is the quantum of the indebtedness? 4. Is the collateral mortgage a binding contract as between the

plaintiff and the defendant PMD? Is Mr. Early’s guarantee of the mortgage binding?

5. If yes, what is the extent of PMD’s liability to the plaintiff arising from Mr. Early’s default on the PLC?

6. Is PMD liable to CIBC for any other costs or charges that arise independently of the PLC default?

7. If so, what is the formula for calculation of indebtedness? 8. Costs

Issues in the Counterclaim

1. Are the causes of action in the counterclaim estopped by the legal process taken under Civil Procedure Rule 8 (setting aside the default judgement)?

2. If not, then have the defendants (plaintiffs by counter claim) met the burden of proof in relation to the elements of the alleged causes of action?

3. If yes, then what, if any, are the damages of each of the defendants?

4. Costs

Analysis Claim Issues 1, 2 and 3 Claim Issue 1: Is the personal line of credit agreement as between the plaintiff and the defendant John T Early III a valid and enforceable contract? [8] John T Early III is a businessman, one who is trained as a lawyer and who practiced in the United States until moving to Canada on a full time basis in 2001. His evidence demonstrates him to have a sophisticated understanding of borrowing instruments. While he regularly presented himself as unfamiliar with Canadian law, and Canadian court procedures it was self-evident that he is intelligent, able in the law and was at no particular disadvantage in his conduct of the case for the co-defendants. [9] Mr. Early first established a banking relationship with the plaintiff in or around 2003. Robert Aitkens, then a Senior Business Advisor for the plaintiff, arranged business banking products for clients. He assisted Mr. Early from that time onward as Mr. Early pursued personal and business interests that required bank financing. [10] In or shortly before September 2009 Mr. Early met with Mr. Aitkens to request that the Bank grant a personal line of credit. It was approved upon certain terms and conditions, one of which was that the loan had to be secured. Documentary evidence of the Line of Credit Agreement are the CIBC Personal Borrowing Application (PBApp) (Exhibit 1;Tab 1), the CIBC Line of Credit Statement of Disclosure (SD) (Exhibit 1;Tab 2) and the Personal Borrowing Agreement (PBAg) (Exhibit 2).

[11] The Personal Borrowing Application is a two page document dated September 2, 2009 and is signed by Mr. Early as the “borrower”, and by Mr. Aitkens as the Bank’s agent. It has the following Parts:

(i) Consent to disclose personal information and to authorize a credit report;

(ii) Personal Information;

(iii) Credit Requested;

(iv) Security;

(v) Acknowledgement; and

(vi) Additional Terms.

[12] In the “Acknowledgement” the borrower, John Early, acknowledges:

(i) having received a copy of the Personal Borrowing Application, and agrees to the terms in it;

(ii) the borrower “…received and read the booklet ‘Personal Borrowing Agreement’ and agree[s] to be bound by the terms contained in it”; and

(iii) “the terms on the reverse of this page and included in the enclosed Statement of Disclosure (which forms an integral part of this Application)…”.

[13] The material terms which are set out in the Personal Borrowing Application include:

(i) The Credit Limit was set at $320,000;

(ii) Amounts advanced and payments received would be transacted through an account ending in number “335”;

(iii) The interest rate was agreed to be “Prime +1.000% per year”;

(iv) Payments on the account would be deducted from an account number ending in “636”;

(v) An agreement by the Borrower to “pay the total amount owing under the line of credit to CIBC on demand, and until demand is made, to make the Minimum Payment each month required by the terms of this Application.”;

(vi) Minimum Payment was set at “Interest plus insurance premiums, if any, owing on your last Statement Date”;

(vii) “Security” is described: You agree to grant us security in the following collateral: Real Estate: Lot 296A PID# 55278386 Book 1285 pg. 309 102 Main St. Wolfville, NS B4P 1C1 in the name(s) of Early, John T; Early, Lydia”

[14] The Statement of Disclosure includes the credit limit, nature of non-interest charges and particulars of the customer. Of particular relevance to the arguments in this case is the following excerpt from the Statement:

CIBC will send you a statement each month… The statement will show your daily PLC/ELC transactions, Credit Limit, interest charges and rates, service charges (if any), insurance premiums (if applicable) and your payment summary, including the Minimum Payment Due and Payment Due Date. If monthly payments are to come from your account number CIBC will automatically withdraw from that account, on the Payment Due Date each month, the Minimum Payment Due on your PLC/ELC account.

…

Payments

If CIBC requires you to do so, you will pay CIBC the total amount owing on your PLC or ELC (including amounts accruing but not yet charged to your account) on demand. Otherwise, you, on or before the Payment Due Date shown on the monthly statement, make a payment at least equal to: Interest plus insurance premiums (if any) owing on your PLC account as of the Statement Date.

(emphasis added)

[15] The Personal Borrowing Agreement consists of 21 pages, divided into 5 Parts and containing 54 paragraphs together with a number of subparagraphs and clauses. It is in this agreement that the plaintiff sets out its rights and the borrower’s obligations in respect of, among other things, the requirements for making payments

on the Line of Credit, and the bank’s remedies in the event of default by reason of non-payment. (see, Part I: paras. 6, 8, 14; Part III: para. 9; Part V: para. 1) [16] Paragraph 1 in Part V states:

Entire Agreement. The terms of this document and of your Line of Credit agreement… and the applicable Statement(s) of Disclosure we provide you, each as amended from time to time (collectively “the agreement”) shall, unless otherwise stated in this agreement, constitute… the entire agreement between you and CIBC regarding your PLC…

[17] Mr. Early does not take issue with the allegation that he and the plaintiff entered into a valid and enforceable contract under which he received monies from time to time and upon which debt he made regular payments. He acknowledges that he has not made payments on the debt since November 2012. [18] In consequence of his position and relying upon the evidence adduced I conclude that the answer to Issue 1 is that the Personal Borrowing Application, the Statement of Disclosure and the Personal Borrowing Agreement together form a valid and enforceable contract of lending as between John Early and the plaintiff. I will, from time to time, refer to these documents collectively as “the lending agreement”. Claim Issue 2: If yes, on what date did Mr. Early default on the agreement? Claim Issue 3: What is the quantum of the indebtedness? [19] Mr. Early challenges the interpretation of the lending agreement, in particular as to what constituted a default and when a default occurred. In the defendants’ theory of the case, these questions impact on whether or to what extent the obligations under the collateral mortgage can be enforced against PMD. Relying on their interpretation of the lending agreement and the collateral mortgage the defendants argue that the written agreements fail to accurately describe the terms and conditions of lending and leave the plaintiff without a remedy against PMD. [20] Both of Mr. Aitkens and Mr. Early testified as to the intention of the lending agreement and offered their views of what facts supported or undermined their respective opinions as to what constituted a default and when it occurred. For the

reasons that follow I have carefully measured the weight which I am prepared to ascribe to their the testimony. I am also alert to distinguishing that evidence which is properly admissible in the interpretation of the contracts and that which is not. [21] Mr. Aitkens’ evidence was provided in a balanced and straightforward manner. He showed no bias in favor of his employer nor against the defendants. The quality of his evidence was diminished somewhat by the passage of time and his lack of personal involvement in the loan management after taking the initial Application from Mr. Early. [22] When asked to recall details of a transaction that took place six years before trial Mr. Aitkens’ was often reliant on expectations based on the ordinary course of business in the execution and management of loan agreements. Having said that Mr. Early’s testimony and documentary evidence generally supported Mr. Aitkens’ suppositions. [23] Mr. Early presented as a witness who was clearly looking for any way possible to save the PMD property from foreclosure, or to at least minimize the financial consequences arising from the non-payment of his debt. As a result he tended to maximize that evidence which was favorable to the defendants’ position and minimize that which was unfavorable. [24] His recollections of events and his interpretations of documents sometimes strained credibility. He showed a willingness to shift position when he saw greater advantage or greater damage arising from the first tack taken. When confronted with contradictions in his positions he deflected. He was, at times, “artful” in his interpretation of his legal obligations. [25] The principles applicable to interpretation of contracts were discussed in Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53, where the court held:

47 Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used

their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:

No contracts are made in a vacuum: there is always a setting in which they have to be placed... . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

(Reardon Smith Line, at p. 574, per Lord Wilberforce)

48 The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.):

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115]

…

50 … Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.

55 … As mentioned above, the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. ….

(b) The Role and Nature of the "Surrounding Circumstances"

56 I now turn to the role of the surrounding circumstances in contractual interpretation and the nature of the evidence that can be considered. …

57 While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-

32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).

58 The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man" (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.

(c) Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule

59 It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing (King, at para. 35; and Hall, at p. 53). To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J.). The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party's ability to use fabricated or unreliable evidence to attack a written contract (United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, at pp. 341-42, per Sopinka J.).

60 The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

[26] In Canada (Attorney General) v. Rostrust Investments Inc. 2010 ONSC 3986 Polowin J., reviewed some general legal principles to follow in the interpretation of contracts:

[39] I turn now to the general legal principles applicable when interpreting a contract. These principles were summarized in the decision of the Ontario Court of Appeal in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, [2007] O.J. No. 1083 (Ont. C.A.). The Court of Appeal held at paragraph 24, that a commercial contract is to be interpreted as follows:

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.

[40] Thus, to the extent that it is possible to do so, a contract should be construed as a whole and effect should be given to all of its provisions. Further, its provisions should be read, not as standing alone, but in light of the contract as a whole and the other provisions thereof (see Scanlon v. Castlepoint Development Corp. [1992] O.J. No. 2692 (Ont. C.A.) at para. 89. In addition, it is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole (see B.C. Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12 (S.C.C.) at para. 9). The court’s aim is to advance the intention of the parties at the time they entered into the contract. (See Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888 (S.C.C.) at page 10). There should not be an ex post facto reconstruction of intention.

[27] The issue of intention was considered in the case of Toronto-Dominion Bank v. Leigh Instruments Limited (Trustee of), [1998] O.J. No. 2637 (Ont. Gen. Div.); aff’d 1999 CanLII 3778 (ON CA), (1999), 45 O.R. (3d) 417 (C.A.). Winkler J., as he then was, stated the following at paragraphs 403-405, and 407-410:

PRINCIPLES OF CONTRACTUAL INTERPRETATION

403 The aim of the court, in construing a written agreement, is to determine the intentions of the parties to the agreement, and in this regard, the cardinal presumption is that the parties have intended what they have said. Their words

must be construed as they stand. See: Chitty on Contracts Volume 1, General Principles, 27th ed. (1994) at 580.

404 Where the agreement has been reduced to writing, the parol evidence rule operates to prohibit the introduction of extrinsic evidence to vary the written contract. This rule of interpretation is enunciated in G.H.L. Fridman, The Law of Contract in Canada, 3rd ed. (Toronto: Carswell, 1994) at app. 455-456:

The fundamental rule is that if the language of the written contract is clear and unambiguous, then no extrinsic parol evidence may be admitted to alter, vary, or interpret in any way the words used in the writing.

See also: Hawrish v. Bank of Montreal, 1969 CanLII 2 (SCC), [1969] S.C.R. 515 per Judson J.

405 This is consistent with the principle that where a document purports on its face to be the final and conclusive expression of the parties’ agreement, the document will be taken to be a reliable record of the parties’ latest agreement, and evidence of the negotiations leading up to it will not be admissible …

407 The court need not be confined to a strict, literal interpretation of the language of the document however, and may admit evidence of the “factual matrix” or circumstances surrounding the conclusion of the agreement as an aid in interpretation. …

408 The Supreme Court of Canada has adopted the notion that a court may look at evidence of the surrounding circumstances when construing a document. In Hill v. Nova Scotia (Attorney General), 1997 CanLII 401 (SCC), [1997] 1 S.C.R. 69, the court cited with approval the dicta of LaForest J. (as he then was), in White, Fluhman and Eddy v. Central Trust co. and Smith Estate (1984), 54 N.B.R. (2d) 293 at 310-311:

What the statement quoted means is that in determining what was contemplated by the parties, the words used in a document need not be looked at in a vacuum. The specific context in which a document was executed may well assist in understanding the words used. It is perfectly proper, and indeed may be necessary, to look at the surrounding circumstances in order to ascertain what the parties were really contracting about.

409 From these authorities can be gleaned certain principles which should guide the court in interpreting an agreement. The document should be looked at as a whole, with each contractual term considered in the context of the entire document. See: G.H.L. Fridman, The Law of Contract in Canada, 3rd ed. (Toronto: Carswell, 1994) at 469. The court should make every effort to construe the document on its face, without regard to extrinsic evidence.

410 Where an agreement is clear and unambiguous on its face, the parol evidence rule operates to prohibit admission of evidence to alter or vary the written terms of the contract. However, the court may admit evidence of the surrounding

circumstances, including evidence of the commercial purpose of the contract, the genesis of the transaction, the background, the context, and the market in which the parties were operating. In this regard, evidence to be admitted must be objective in the sense of what reasonable persons in the position of the parties would have had in mind, rather than subjective evidence of the parties’ actual intentions.

[28] The plaintiff’s amended Claim seeks judgment for the amount owing at March 19, 2013 of $322,160.98 plus taxes owed by PMD on the secured property together with interest. The claim is founded on the allegation that the loan was payable on demand, that demand for payment was made but no payment was received. As a result, the Personal Line of Credit was in default which in turn triggered a default on the collateral mortgage. [29] The Claim says that a written demand for payment was made on January 2 and an “updated” amount owing was set out in further correspondence of February 6, 2013. The original Claim was filed April 2, 2013. [30] Mr. Early focused considerable energy on the plaintiff’s alleged errors in determining the date of default. This effort was misplaced. The Claim does not allege a specific date for default, and taking Mr. Early’s most optimistic interpretation of the evidence the loan was in default by November 2012. This is well in advance of the demand letters and the initiation of the Claim. Having said that I will respond to Mr. Early’s arguments. [31] The PLC statement dated September 6, 2012 specified that the “Minimum Payment Due” on October 1, 2012 ( the “Payment Due Date”) was $984.09. This represented interest on the loan for the period August 10 to September 6, 2012. [32] The Statement dated October 10, 2012 shows that the October 1st payment had not been received and that a further amount of $1194.91 was owing as interest charged for the period September 7 to October 10, 2012. The “Minimum Payment Due” on November 1, 2012 (the Payment Due Date) was $2179.00. [33] The Statement dated November 8, 2012 shows a payment made November 1, 2012 in the amount of $1200. Interest charged for the period October 11 to November 8 was $1,022.18 resulting in a Minimum Payment Due of $2001.18 payable by December 3, 2012.

[34] Mr. Early maintains that payments were not due on the 1st of the month. Mr. Aitkens testified that the payment due date was selected by Mr. Early. I accept Mr. Aitkens’ evidence. The payment due date was accurately set out in the Statements. [35] Mr. Early says that even if payments were due on the 1st of the month, that the plaintiff had, by its course of conduct over the three years of the loan administration accepted payments made after the first of the month and without declaring a default. He is accurate in this. The plaintiff says that his failure to pay on the 1st of each month was evidence of a default even before the Bank closed the PLC and that, in any event, the Bank could have demanded payment at any time. This is also accurate. [36] I add to this that paragraph 8.7 of Schedule B to the Collateral Mortgage (to be discussed in more detail later) says:

In some cases, we may not enforce our rights on a particular default by you. However, by doing so, we are not forgiving any other existing default by you, or any other defaults by you in the future.

[37] The course of the Bank’s conduct in accepting payments after the due date did not change the fundamental terms of the contract: that payments were due on the first of the month, that failure to pay constituted a breach of the loan agreement, and that the Bank had the contractual right to make demand for payment in full even if the loan payments were made in accordance with the agreement. see, PBApp; see also, PBAg, Part 1, para. 8 [38] In this case, the loan was clearly in default by November 2012. No payment was made on the PLC account in the month of October. No matter whether the payment due date was the 1st (the Bank’s position) or the 8th to the10th ( historical dates on which Mr. Early made payments) there was no legal excuse for failing to make a payment in that month. The payment made on November 1 could not “cure” (to use Mr. Early’s word) his default. The amount paid was only enough to cover the amount owing as of October 1. He was in default for the month of November when he failed to pay the full amount owing. No further payments were made on the account. [39] The plaintiff issued a final Statement on November 20, 2012 indicating that the PLC was closed as of November 20. The balance outstanding at that date was

set at $322,160.98 which was showing as being due on November 20, that is, forthwith. [40] Mr. Early says that he attempted to make a payment (a monthly payment , not the full amount outstanding) in November but that it was refused. Mr. Aitkens testified, and I accept, that the Bank would accept payment until the account was sent to Collections after which time any payments would have to be made to Collections. Mr. Early made no effort to make payment to the Bank before his debt went to Collections, and he made no payments to Collections. [41] As to Issues 2 and 3, I conclude that Mr. Early was in default of payment as of October 2, 2012 when he failed to pay the “Minimum Payment Due” on October 1, 2012, which I find to be the “Payment Due Date”. Notwithstanding his payment of November 1, the account continued to be in default from October 2, 2012 onward as Mr. Early did not make sufficient payments to bring the account current in any month after September 2012. As such he was in breach of his contractual obligations to the plaintiff. [42] The plaintiff is entitled to the principal amount of $320,000 plus interest as claimed. Claim Issues 4, 5 and 6 [43] The defendants submit that the collateral mortgage is not enforceable as claimed by the plaintiff because:

1) the language of the lending agreement and the collateral mortgage is ambiguous leaving it unenforceable;

2) that there is a failure of consideration, that is, PMD received no consideration for its promise; and

3) that, in the alternative, the amount owed by PMD cannot exceed $320,000.

Issue 4: Is the collateral mortgage a binding contract as between the plaintiff and the defendant PMD? Is Mr. Early’s guarantee of the mortgage binding?

[44] The plaintiff says, and Mr. Early admits, that a condition of granting him the PLC was that it be secured by real property. Without that security, the Bank would not have advanced the credit line to Mr. Early. The Security to be pledged is described in the PBApp as the Wolfville address described in the Collateral Mortgage. [45] For reasons that are unclear, the property owners in the PBApp were stated to be John and Lydia Early. Had that been true the borrower, Mr. Early, would be both the borrower in his personal capacity, and a mortgagor. Mr. Early obviously knew at the time that he signed the Application that the property ownership information in the Application was incorrect and that in fact PMD was the owner of the Wolfville property. CIBC would have become aware of this fact no later than the execution of the Collateral Mortgage and probably before. It proceeded to advance the funds on this basis over the following 3 years without seeking to change the security in place. [46] The Collateral Mortgage is on a standard form document prepared by CIBC. The signature page has CIBC letterhead on it. [47] The signature page of the collateral mortgage describes the parties. PMD is the “mortgagor” and CIBC is the “mortgagee”. Mr. Early is a “guarantor”. He executed the mortgage on behalf of himself and for PMD. [48] In the text of that page PMD granted CIBC a charge on property described in Schedule “A” which in turn describes the encumbered property as PID 55278386, being the same property described as the “Security” in the PBApp. [49] Conditions and terms of the mortgage are incorporated by reference from Schedule “B” attached. That Schedule is also on CIBC letterhead. [50] The amount secured by the mortgage is described as:

… the debt, the aggregate balance of which (exclusive interest and any other charges payable under this mortgage at any given time shall not exceed $320,000 in relation to this mortgage.”

It is self-evident that there are errors in the drafting of this provision. I will discuss this later in consideration of the argument as to the quantum of PMD’s possible liability.

[51] Schedule B is where problems arise for the plaintiff. It is drafted as if the mortgagor is also the “borrower” under the PLC. PMD, of course, did not borrow money, but rather was pledging its property as security for the monies advanced to Mr. Early who was the borrower. The defendants say this error undermines the application of many of the terms and conditions in the agreement and is fatal to the validity of the mortgage as against PMD. [52] The plaintiff says that the difficulties created by this drafting problem are overcome by language in the document that makes the interpretation of the contract clear and unambiguous once read as a whole and in context. [53] The Schedule speaks to the respective obligations of the parties to the mortgage. It defines “You” and “Your” as “…each person, corporation and any other entity who has signed the registered document as a borrower.” PMD was not, in the literal sense of the word, signing as a “borrower”. As such, terms and conditions that delineate “your” obligations are, in the defendants’ submissions, not applicable to PMD. If true, this would effectively render the essential terms of the mortgage meaningless. [54] Many of the mortgage terms are tied to the obligations to pay “the debt” and rights of the mortgagee to realize on the “debt” as against the borrower. For example, in paragraph 5.6 it states:

We may require you to repay the total debt immediately if one of the following events occurs:

you do not make any payment as required by this mortgage or any agreement;

you do not meet one of your obligations under this mortgage or any agreement;…

[55] In paragraph 5.1 it states that:

You will pay us the debt when we demand that it be paid. We will not demand repayment of the debt unless:

we have the right to demand repayment under this mortgage or any agreement; or

you are in default on this mortgage or any agreement.

[56] Mr. Early points out that the collateral mortgage was drafted by the plaintiff for the plaintiff’s benefit and that therefore any ambiguity should be resolved in favor of the defendants. He raises a valid point, however it remains the task of a decision maker to interpret the contract by reading “…the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.” (see, Sattva Capital Corp. v. Creston Moly Corp., supra). Those surrounding circumstances may include “… evidence of the commercial purpose of the contract, the genesis of the transaction, the background, the context, and the market in which the parties were operating. In this regard, evidence to be admitted must be objective in the sense of what reasonable persons in the position of the parties would have had in mind, rather than subjective evidence of the parties’ actual intentions.” (per Winkler J. in Toronto-Dominion Bank v. Leigh Instruments, supra.) [57] The “debt” is defined in Schedule B as:

The amount you owe us at any given time, regardless of when or how that obligation occurred. It includes all amounts of money you either owe us now or will owe us in the future. You can be liable for debt in many ways, including:

dealing directly with us, such as signing an agreement with us or borrowing money from us;

through your agreements with others where we become your creditor;

as borrower of the principal amount of another loan; or

as guarantor of any loan.

The debt can include unpaid principal, interest on unpaid principal, defaulted payments, interest on defaulted payments, other costs and interest on other costs.

[58] An “Agreement” is defined in Schedule B as “…any agreement, note, guarantee or other document between you and us that relates to the debt.” [59] In order to obtain the PLC, the plaintiff required that PMD pass and provide to the Bank a Resolution authorizing the borrowing, and encumbering its real property. That Resolution (Exhibit 1, Tab 4) is dated September 3, 2009 and signed by Mr. Early as the “Sole Director and President” of PMD. It provides:

Be it resolved that Partners Management Development Inc. (the company) borrow from Canadian Imperial Bank of Commerce up to $320,000 and give a mortgage on property of the Company located at 152 Main Street, Wolfville, Nova Scotia (PID 55278386) as security therefore.

Be it further resolved that the sole Director and President be and is hereby authorized for and on behalf of the Company to execute any and all documentation including mortgage documentation to give effect to this resolution and comply with the terms of a mortgage commitment in this regard. The resolution shall be retroactive and ratifies whatsoever has been done prior to the date hereof.

(emphasis added)

[60] Exhibit 1 Tab 3 is an “Acknowledgement and Guarantee” dated September 3, 2009, signed by Mr. Early as guarantor and Mr. Early for PMD as mortgagor. It states:

I/We confirm that Canadian Imperial Bank of Commerce is providing me/ us with a mortgage registered against my/our home in the principal amount of Three Hundred and Twenty Thousand dollars ($320,000) and acknowledge that I/we are receiving the benefits/proceeds of such loan.

[61] Under cross examination Mr. Early admitted that monies borrowed against the PLC were used to pay out two earlier mortgages registered against the company’s property. (see, Property Online printout at Exhibit 1 Tab19, at last 2 pages) [62] On the signature page of the Collateral Mortgage it says that “You grant the mortgagee a charge on your property… as security for the payment of the debt.” It continues that “each person who signs this mortgage is bound” to the terms in Schedule B. These provisions only make sense when PMD, being described as the owner and mortgagor of the real property is the “You” who is acting as the grantor of the charge and who is agreeing to be bound by the terms and conditions in Schedule B. [63] There are a number of instances in the mortgage where the terms “You” and “Your” can only be interpreted as meaning PMD. The following are some examples:

Paragraph 2 : What this mortgage does – By signing the registered document you charge your entire interest in your property, both present

and future to us…. You agree to pay the debt as required by this mortgage and all agreements…

Paragraph 2.2.: Who is obligated by this mortgage – The obligations under this mortgage are the collective and individual responsibility of each person, corporation and any other entity who signed it…

Paragraph 4: Costs – You must pay us, when we demand, all of our costs related to this mortgage, your property, or any agreement….

Paragraph 6: Your obligations related to your property – You will take any necessary action to protect your title to your property. You also agree not to interfere with our interest in your property…

Paragraph 8.5: Enforcing our rights – If you do not make one or more payments when required under this mortgage or any agreement, or if you do not meet one or more of your other obligations under the mortgage or any agreement, we may enforce our rights by….

[64] The defendants urge a highly restrictive interpretation of the Collateral Mortgage on the basis of the definition of “you” and “your” as “borrower”, the effect of which would render the terms and conditions of Schedule B largely meaningless. I reject this argument for the following reasons:

(i) The Mortgage when read as a whole makes it clear that PMD is, in fact, included in the ‘you” that the mortgage intends to bind;

(ii) The objective intention of the parties, as drawn from the totality of the documentary evidence, as well as the vive voce evidence of Mssrs. Aitkens and Early, is consistent with the interpretation that PMD is the “you” that the mortgage refers to;

(iii) The contents of the Corporate Resolution, the Acknowledgement, and the signature page of the mortgage, as well as the evidence that PLC funds were applied to the benefit of PMD support the conclusion that PMD was in fact a “borrower”, notwithstanding that the flow of the funds went from CIBC to Mr. Early and then back to CIBC to pay out PMD’s earlier mortgages;

(iv) The commercial purpose of the contract would be defeated by the interpretation urged by Mr. Early.

[65] The defendants argue that no consideration passed to PMD for its promise to pay out the PLC and to grant a mortgage to secure the loan. This argument has no merit. [66] PMD received the benefit of the discharge of two earlier mortgages on its property which were paid out by funds borrowed in the PLC. [67] PMD also acknowledged in writing that it was receiving up to $320,000 under the terms of the “agreement”. [68] CIBC also paid arrears of property taxes owed by PMD to the Municipality in which the Wolfville property was located. [69] Finally, PMD provided security to CIBC in return for CIBC granting Mr. Early credit in the form of the PLC. The legal obligations incurred by PMD in doing so are set out in the discussion of “Guarantees in the Form of Security” found in The Law of Guarantee 3rd ed., (McGuinness)(Markham: Lexis Nexis, 2013) at page 50, paragraphs 3.22 and 3.23. [70] Together or individually, these facts support the conclusion that consideration did pass to PMD for its promise. [71] As to Mr. Early’s personal guarantee of the mortgage - he does not contest the validity of that guarantee. [72] In relation to Issue 4, I conclude that the collateral mortgage forms a binding contract as between the plaintiff and the defendant PMD. I conclude that Mr. Early is bound by the terms of his guarantee provided in the collateral mortgage. I conclude that Mr. Early is personally responsible for any monies owing under the PLC, as well as for any monies that are owed by PMD under the mortgage upon which he acted as a guarantor. Issue 5: What is the extent of PMD’s liability to the plaintiff arising from Mr. Early’s default on the PLC? Issue 6: Is PMD liable to CIBC for any other costs or charges that arise independently of the PLC default?

[73] There are two points of contention as to the quantum of the liability of the defendants; first, whether PMD’s liability is limited to a maximum of $320,000; and second, whether PMD is liable for “other costs” than the principal and interest arising from the PLC indebtedness. [74] The Amended Statement of Claim, at Paragraph 2(a) specifies that the “amount secured” is “$320,000 (exclusive of interest or other charges payable under the mortgage)”. It claims the principal amount owing plus interest thereon see, paras. 2(g) and 4, 6(a) (c) ); unpaid property taxes (para. 4), and “charges and expenses incurred in connection with the lands and mortgage, together with interest on these amounts…” at para. 6(b). [75] The defendants submit that the Borrowing Resolution authorized by PMD set a limit of liability in the event of default, not exceeding $320,000. I do not agree with this interpretation. The Resolution says that the Company will:

borrow from Canadian Imperial Bank of Commerce up to $320,000 and give a mortgage on property of the Company located at 152 Main Street, Wolfville, Nova Scotia… as security therefore.

This speaks only to the maximum amount of principal that can be borrowed. It does not limit the overall indebtedness. This view is reinforced by the second paragraph of the Resolution which authorizes the execution of the mortgage and other documentation to “…comply with the terms of a mortgage commitment in this regard”. It clearly contemplates that PMD would be bound by the terms of the mortgage which in turn sets out the additional liabilities created by the lending agreement. To suggest, as the defendants do, that PMD can limit its liability to the principal amount loaned is not tenable – such a conclusion is inconsistent with the intention of the parties as evidenced by the totality of the contents of the lending agreement documents and the collateral mortgage. [76] I conclude that PMD’s liability on the indebtedness is not limited by the borrowing resolution. The amount of its liability is to be determined by looking to the collateral mortgage as it sets out the terms that PMD resolved to “comply with”. [77] The amount secured by the mortgage is described as “… the debt, the aggregate balance of which (exclusive interest and any other charges payable under this mortgage at any given time shall not exceed $320,000 in relation to this

mortgage.” (sic) This clause is flawed in that it opens parentheses but does not close them; and by appearing to omit the word “of” between “exclusive” and “interest”. [78] The drafting is careless, but it is, in the context of a reading of the entirety of the documentary evidence, and in particular the terms of the mortgage, easily decipherable. The amount secured is the original amount of $320,000 exclusive of interest and costs. The company’s obligations, if any, to pay interest and charges must be established by the terms of the mortgage. [79] Paragraph 1 of Schedule B defines “Costs” as:

all amounts, in addition to the principal amount and interest on the principal amount, that you must pay under this mortgage or under any agreement. Costs include any interest on these amounts that you owe us.

[80] “Debt” is defined to include:

…unpaid principal, defaulted payments, Interest on defaulted payments, other costs and interest on other costs.

[81] Paragraph 2 stipulates that the charge on the property is:

… security … for repayment of the debt and your performance of all your obligations under this mortgage or agreement.

You agree to pay the debt as required by this mortgage and all agreements, and to meet all of your obligations under this mortgage and under all agreements.

[82] Paragraph 2.2 - Who is obligated by this mortgage- makes it clear that PMD and Mr. Early are “collectively and individually” responsible for “paying the entire debt”. [83] There are a number of other provisions in the mortgage that support the conclusion that in signing the mortgage the defendants agreed to pay amounts that exceeded the principal amount of $320,000. The defendants have presented no compelling argument to counter the conclusion that both of PMD and Mr. Early are

required to pay amounts that they are contractually bound to pay even though they may bring the total owing to an amount greater than the principal amount borrowed. What are those amounts? [84] Interest is recoverable by the plaintiff in accordance with paragraph 3 which sets out the means of calculating the rate payable and the relevant time periods for calculation. [85] “Other costs” are described in paragraph 4, which includes the right of the mortgagee to claim amounts incurred in “protecting” the property. For the legal position of a mortagee in claiming “protective disbursements” see Bank of Nova Scotia v. Allen, 2010 NSCA 47 [86] I am satisfied that real property taxes when paid by the mortgagee are chargeable to the mortgagor by paragraphs 6.1 and 6.5 of Schedule B. The mortgagor is also obligated to pay interest thereon. [87] If the mortgage is found to be in default by reason of the failure by the mortgagor to meet its obligations, then Paragraph 8.5 of Schedule B gives the mortgagee the right to enter, to take possession, to take proceedings to foreclose and to sell the property. Costs attendant on taking of these actions are payable by the mortgagor on the terms set out in that paragraph. [88] I conclude in response to Issues 5 and 6 of the Claim that PMD, and Mr. Early as guarantor, are liable to pay all amounts incurred by the plaintiff and authorized by the mortgage. Those charges are typical to foreclosure actions. [89] The flaws, such as they might be, in the drafting of the mortgage do not provide a legal basis upon which the defendants can avoid their contractual obligations to pay the plaintiff that which it has claimed: principal, property taxes, interest, and associated costs incurred by the plaintiff in seeking to enforce its rights under the lending agreement and the collateral mortgage. [90] The plaintiff has proven its case and will have judgement against the defendants for a sum to be calculated and also an order for foreclosure, sale and possession as requested.

Claim Issue 7: What is the formula for calculation of indebtedness? [91] The plaintiff is directed to prepare and submit a draft order that includes a calculation of the amounts owing to the date of this decision, supported by a brief showing the basis of the calculations of amounts claimed. Claim Issue 8: Costs [92] The issue of costs of the claim is addressed at the end of the discussion of the counterclaim. COUNTERCLAIM Introduction [93] Both defendants have counterclaimed against the plaintiff. They seek damages arising from alleged:

1. Tortious abuse of process;

2. Defamation and slander of title; and

3. Intentional infliction of emotional distress.

For the reasons that follow these claims are dismissed. Facts [94] The plaintiff filed its Notice of Action on April 2, 2013. Default judgements were entered against the defendants on July 2, 2014. They were set aside following contested motions brought by the defendants pursuant to Rule 8.09. Associate Chief Justice Smith heard the matters and her decisions were delivered orally on October 1 and November 6, 2014. [95] The counterclaim is largely founded on actions taken by plaintiff’s counsel in obtaining the default judgements and in refusing to consent to an order setting the judgments aside. Relevant to this counterclaim are certain of the facts as found by A.C.J. Smith in her October 1st Decision (Exhibit 1 at Tab 17):

May 29, 2013: John Early was served personally with the claim;

June 12, 2013: A process server attempted to serve the defendant Partners Management Development Inc. by effecting service on Mr. Early. He refused to accept service;

June 14, 2013: Mr. Early sent an email to Plamen Petkov, then solicitor for CIBC, confirming that he was not the “agent for service” of process upon PMD. He also emailed that he, in his personal capacity, “intends to defend the lawsuit”. This was further confirmed in writing by a letter faxed to Mr. Petkov in which he says that “…John T. Early III will defend the lawsuit brought by CIBC…”;

October 30, 2013: The claim against PMD was served on the Secretary of State for Delaware in accordance with the law of that jurisdiction;

February 11, 2014: Plaintiff filed an ex-parte motion for foreclosure, sale and possession. The matter was put before Warner J. for his consideration in Chambers; submissions from counsel for the plaintiff advised that no defences had been filed. The Court was not advised that Mr. Early had indicated an intention to defend the claim;

Between February 17 and July 2, 2014 the court submitted written inquiries to Mr. Petkov seeking further information in relation to the motion. He responded in letters dated June 5 and 23, 2014;

July 2, 2014: Order issued for Foreclosure, Sale and Possession;

July 10, 2014: Amended order for Foreclosure, Sale and Possession issued that included Mr. Early as the guarantor;

July 14, 2014: Notice of the judgement was given to Mr. Early with notice of the pending sale of the property.

[96] Civil Procedure Rule 8.10 states:

8.10 (1) It is an abuse of process to obtain a default judgment without giving reasonable warning to a party who does any of the following:

(a) in writing, advises the party making the claim that the party intends to defend it;

(b) to the knowledge of the party making the claim, makes or defends another claim in the same action;

(c) in writing, advises that counsel has been retained in respect of the claim and gives information by which counsel may be contacted.

(2) An abusively obtained default judgment may be set aside under Rule 88 - Abuse of Process.

[97] Smith A.C.J. held that Rule 8.10 is:

…clear. It is an abuse of process to obtain a default judgement without giving reasonable warning to a party who has advised in writing of an intention to defend.

[98] She held that Mr. Petkov knew that he had received the email and fax from Mr. Early indicating an intention to defend the claim and that he proceeded to obtain the default judgement anyway, without notice to Mr. Early and without advising the court of Mr. Early’s correspondence. She ruled that “proceeding with an ex parte Motion without warning Mr. Early of the intention to do so was an abuse of process”. An order was issued to set aside the default judgement as against Mr. Early on this basis. In the result, it was not necessary for Mr. Early to establish that he had an arguable defence to the claim. [99] The position of the defendant PMD was distinguished by the court. PMD failed to file a Defence within the time provided for by the Rules, following the service effected upon it on October 30, 2013. PMD gave no notice to the plaintiff of an intention to defend. A.C.J. Smith held that PMD was treated by Mr. Early as a separate and independent entity and that PMD could not rely upon Mr. Early’s fax and emails to say that it too intended to defend the claim. PMD was put to the proof of showing that it had a reasonable excuse for failing to file a defence and that it had an arguable defence. [100] In her November 6 decision, Smith A.C.J. ordered that the default judgement entered against PMD be set aside. The Court held that the company had a reasonable excuse for failing to file its defence. [101] The court also determined that it was “…unable to conclude that the Defendant company does not have an arguable Defence”. In reaching this conclusion A.C.J. Smith stated:

…the Defendants’ position that the amount secured by the mortgage was to a maximum amount of $320,000 not the $361,639.34 claimed by the Plaintiff is arguable in light of the fact that the Plaintiff’s Statement of Claim says that the amount secured by the mortgage was to a maximum of $320,000.

[102] When it came to the matter of costs on the motions, A.C.J. Smith held that Rule 77 governed. [103] In relation to the Motions by the two defendants to set aside the default judgements she concluded that they were entitled to their costs, noting that she had found that Mr. Petkov engaged in “sharp practice” (pp 285 and 291) and that:

Mr. Early raises in my view a valid point which was, I think, if somebody had taken an objective look at this file and looked at the Rule, which in my mind was very clear, there would have been a lot of merit to the suggestion that you should just step back and say ‘look we’ll ask the Court to vacate the judgement and we’ll proceed as we otherwise would have.’

[104] A further motion brought by the defendants that challenged the default judgment on the basis of a jurisdictional argument was dismissed. In this matter costs were awarded to CIBC. [105] The overall result was that each party was ordered to bear his or its own costs of the motions. Defendants (Plaintiffs by counterclaim) Position [106] Mr. Early’s complaints are that Mr. Petkov:

actively chose to pursue a default judgement ignoring the requirements of Rule 8;

was guilty of sharp practice by failing to advise Justice Warner that Mr. Early had given written notice of an intention to defend the claim;

presented some misleading written legal representations to Justice Warner when responding to Justice Warner’s inquiries made prior to granting the orders;

displayed an unwarranted dismissive and rude attitude toward Mr. Early;

after advising Mr. Early in July 2014 that he would not speak to Mr. Early, and that future correspondence would have to be in writing, failed to respond to Mr. Early’s written communications;

refused to acknowledge that he had made an error thus causing Mr. Early to incur stress and cost while preparing for and presenting motions to the court to set aside the judgements; and did so after Mr. Early had informed Mr. Petkov that damages would flow from the delay and costs associated

with having to proceed to a contested hearing instead of by Consent Order.

[107] In addition, Mr. Early has argued that the conduct of CIBC was objectionable when shortly after A.C.J. Smith’s November 1 decision it filed an amended claim to respond to her expressed view that the language in the pleadings appeared to cap the claim at $320,000 which suggested an arguable defence. The Amended Notice of Action and Claim was filed on November 10, 2014. It differed in three particulars:

1. To note a change of solicitor from Mr. Petkov to Ms. Wight;

2. To amend the “Particulars of the mortgage” to uncap the previously

claimed maximum amount of $320,000. The amended clause reads:

“amount secured: a maximum of $320,000 (exclusive of interest or other

charges payable under the mortgage); and

3. It adds that the plaintiff “…provided an updated payout amount to the

defendant, through his solicitor, on February 6, 2013…”.

[108] Mr. Early submits that he is entitled to damages amounting to $13,567 for lost income, together with damages to compensate him for the stress he says was caused by Mr. Petkov’s “hurtful” conduct. He submits that CIBC’s position was particularly aggravated by Mr. Petkov’s status as a lawyer who was conducting himself unprofessionally and in particular toward another lawyer. i.e. Mr. Early. Mr. Early’s claim is also intended to discourage future conduct of this type by lawyers. [109] PMD is also a plaintiff by counterclaim, but little evidence or argument was offered on its behalf in this claim. Plaintiff’s (Defendant by Counterclaim) Position [110] CIBC takes the position that the decision of A.C.J. Smith renders this claim res judicata, that is, that the defendants (plaintiffs by counterclaim) are estopped

from bringing this cause of action because it has been previously decided by the court. [111] If the counterclaim is to be dealt with on its merits, then CIBC does not contest the point that if Mr. Petkov’s actions amount to compensable tortious conduct then it is liable for those actions. It has not joined Mr. Petkov personally, nor sought to disavow his actions in any way, other than to acknowledge the findings of A.C.J. Smith, and to point to the evidence of Mr. Petkov by way of explanation in defence of his conduct. [112] CIBC submits that Mr. Early and PMD have failed to meet the burden of proving any of the alleged torts and seeks dismissal of the counterclaim. Analysis Res Judicata [113] In Hoque v. Montreal Trust Co. of Canada 1997 NSCA 153, Cromwell J.A. writing on behalf of the court described the plea of res judicata:

19 This appeal involves the interplay between two fundamental legal principles: first, that the courts should be reluctant to deprive a litigant of the opportunity to have his or her case adjudicated on the merits; and, second, that a party should not, to use the language of some of the older authorities, be twice vexed for the same cause. …

20 Res judicata has two main branches: cause of action estoppel and issue estoppel. They were explained by Dickson, J. (as he then was) in Angle v. Minister of National Revenue (1974), 47 D.L.R. (3d) 544 (S.C.C.) at 555:

.... The first, “cause of action estoppel”, precludes a person from bringing an action against another when that same cause of action has been determined in earlier proceedings by a Court of competent jurisdiction. ..... The second species of estoppel per rem judicatam is known as “issue estoppel”, a phrase coined by Higgins, J., of the High Court of Australia in Hoysted et al. v. Federal Commissioner of Taxation (1921), 29 C.L.R. 537 at pp. 560-1:

I fully recognize the distinction between the doctrine of res judicata where another action is brought for the same cause of action as has been the subject of previous adjudication, and the doctrine of estoppel where, the cause of action being different, some point or

issue of fact has already been decided (I may call it “issue-estoppel”).

21 Res judicata is mainly concerned with two principles. First, there is a principle that “... prevents the contradiction of that which was determined in the previous litigation, by prohibiting the relitigation of issues already actually addressed.”: see Sopinka, Lederman and Bryant, The Law of Evidence in Canada (1991) at p. 997. The second principle is that parties must bring forward all of the claims and defences with respect to the cause of action at issue in the first proceeding and that, if they fail to do so, they will be barred from asserting them in a subsequent action. This “…prevents fragmentation of litigation by prohibiting the litigation of matters that were never actually addressed in the previous litigation, but which properly belonged to it.”: ibid at 998. Cause of action estoppel is usually concerned with the application of this second principle because its operation bars all of the issues properly belonging to the earlier litigation.

…

30 The submission that all claims that could have been dealt with in the main action are barred is not borne out by the Canadian cases. With respect to matters not actually raised and decided, the test appears to me to be that the party should have raised the matter and, in deciding whether the party should have done so, a number of factors are considered.

…

38 Although many of these authorities cite with approval the broad language of Henderson v. Henderson, supra, to the effect that any matter which the parties had the opportunity to raise will be barred, I think, however, that this language is somewhat too wide. The better principle is that those issues which the parties had the opportunity to raise and, in all the circumstances, should have raised, will be barred. In determining whether the matter should have been raised, a court will consider whether the proceeding constitutes a collateral attack on the earlier findings, whether it simply asserts a new legal conception of facts previously litigated, whether it relies on “new” evidence that could have been discovered in the earlier proceeding with reasonable diligence, whether the two proceedings relate to separate and distinct causes of action and whether, in all the circumstances, the second proceeding constitutes an abuse of process.

…

65 My review of these authorities shows that while there are some very broad statements that all matters which could have been raised are barred under the principle of cause of action estoppel, none of the cases actually demonstrates this broad principle. In each case, the issue was whether the party should have raised the point now asserted in the second action. That turns on a number of considerations, including whether the new allegations are inconsistent with matters actually decided in the earlier case, whether it relates to the same or a distinct cause of action, whether there is an attempt to rely on new facts which could have been

discovered with reasonable diligence in the earlier case, whether the second action is simply an attempt to impose a new legal conception on the same facts or whether the present action constitutes an abuse of process.

69 At the core of cause of action estoppel is the notion that final judgments are conclusive as to all of the essential findings necessary to support them. This is seen in the cases concerned with collateral attack, supra, and is reflected in the restrictive approach to res judicata founded on default judgments.

[114] Hoque, supra has been cited with approval repeatedly. See, Can-Euro Investments Ltd. v. Industrial Alliance Insurance and Financial Services Inc., 2013 NSCA 76; Ross v. Bank of Montreal, 2013 NSCA 70; Kameka v. Williams, 2009 NSCA 107, at para 18 (and para 90, concurring reasons); Saulnier v. Bain, 2009 NSCA 51, para 6. See also, Danyluk v. Ainsworth Technologies Inc., [2001] 2 S.C.R. 460, at paras 20-24, per Binnie, J. for the Court. [115] “Cause of action estoppel” precludes a person from bringing an action against another when that same cause of action has been determined in earlier proceedings by a court of competent jurisdiction. [116] Bryant, Lederman and Fuerst, in their text The Law of Evidence in Canada (3rd. ed.) (LexisNexis, 2009) list the constituent elements of estoppel by res judicata in civil cases, at page 1285:

(i) that the alleged judicial decision was what in law is deemed such;

(ii) that the particular judicial decision relied upon was in fact pronounced, as alleged;

(iii) that the judicial tribunal pronouncing the decision had competent jurisdiction in that behalf;

(iv) that the judicial decision was final;

(vi) that the judicial decision was, or involved, a determination of the same question as that sought to be controverted in the litigation in which the estoppel is raised;

(vii) that the parties to the judicial decision, or their privies, were the same persons as the parties to the proceeding in which the estoppel is raised, or their privies, or that the decision was conclusive in rem.

[117] Having regard to these legal principles, I conclude that the decisions of A.C.J. Smith setting aside the default judgements give rise to issue estoppel, but that CIBC’s submission that cause of action estoppel prohibits this counterclaim is not made out. [118] The Associate Chief Justice’s findings of fact that speak to the circumstances under which the default judgements were obtained, and the basis upon which they were set aside, are not subject to re-litigation. There is some additional evidence in this trial that fills out the factual matrix in the context of the legal issues presented by the counterclaim. That evidence is consistent with the earlier decisions of this court. [119] The motions under Rule 8, while addressing the same factual matrix, presented discrete legal issues from those presented in this counterclaim. Mr. Petkov’s conduct, except as it might influence the Rule 77 order for costs, was not before the court. Those hearings could not have been utilized to obtain all of the remedies sought in this counterclaim. Costs were the only remedy available to compensate the defendants, when setting aside the default judgements. Should the claim have been pleaded at the previous hearing? [120] A.C.J. Smith was considering Motions in an existing action. This claim represents a different cause of action and engages different legal considerations. The defendants’ counterclaim is the appropriate mechanism to resolve any possible legal consequences in tort of Mr. Petkov’s conduct. [121] CIBC’s argument that the counterclaim is estopped by application of the principles of res judicata fails. Tortious abuse of process [122] Bourgeois J. (as she then was) writing in Body Shop Canada Ltd. v. Dawn Carson Enterprises Ltd. 2010 NSSC 25 described the legal elements necessary for the proof of a tortious abuse of process:

33 "Abuse of process" is a term utilized in several fashions, by way of example, as in the present case, as a tortious act, or alternately, as a defence where a proceeding has been commenced which is contrary to the principles of fundamental justice - most often in criminal or quasi-criminal settings. This distinction has been

concisely articulated by the Federal Court of Appeal in Levi Strauss & Co. v. Roadrunner Apparel Inc., [1997] F.C.J. No. 1432 (Fed. C.A.), where Letourneau, J.A., writes:

9 The concept of abuse of process has developed both in substantive and procedural law. It is well settled law, from the point of view of substantive law, that an abuse of process is an actionable tort. As Henry J. stated in Tsiopoulous v. Commercial Union Assurance Co. when dealing with a counterclaim for damages for abuse of process:

This cause of action arises when the processes of law are used for an ulterior or collateral purpose. It is defined as the misusing of the process of the courts to coerce someone in some way entirely outside the ambit of the legal claim upon which the court is asked to adjudicate. It occurs when the process of the court is used for an improper purpose and where there is a definite act or threat in furtherance of such purpose.

10 In Fleming's The Law of Torts, the learned author distinguishes between certain forms of abuse of legal procedure such as malicious arrest and execution and the concept of abuse of process:

Quite distinct, however, are cases where a legal process, not itself devoid of foundation, has been perverted for some extraneous purpose, such as extortion or oppression. Here an action will lie at the suit of the injured party for what has come to be called "abuse of process"."

11 A review of the authorities shows that the essential element of the tort of abuse of process is that the abuser must have used the legal process for a purpose other than that which it was designed to serve, in other words for a collateral, extraneous, ulterior, improper or illicit purpose. The gist of the tort is the misuse or perversion of the Court's process and there is no abuse when a litigant employs regular legal process to its proper conclusion, even with bad intentions.

12 Abuse of process has also been invoked as a procedural defence, especially in criminal law when the proceedings were oppressive or vexatious or offensive to the principles of fundamental justice and fair play. When successful, the defence has resulted in a stay of the proceedings.

34 What constitutes tortious abuse of process? There does appear to be consensus regarding the required elements. As set out in Amirault v. Westminer Canada Ltd. (1994), 127 N.S.R. (2d) 241 (N.S. C.A.) the Court of Appeal quotes the trial judge at paragraph 123 as follows:

Though the tort of abuse of process is also alleged it is unnecessary for me to deal with it other than to say it is a separate tort distinct from the tort of malicious prosecution with its own list of essential requirements, namely:

1. The Defendant must have used the legal process;

2. He must have done so for a purpose other than that which the process in question was designed to serve, that is, for a collateral and illicit purpose;

3. He must have done some definite act or made some definite threat in furtherance of the purpose; and

4. Some measure of special damages must be shown.

[123] Mr. Early, in his closing submissions characterized the case as one in which there were “bad documents, “bad pleadings” and “bad evidence”. There is some justification for his views. [124] The lending documents were drafted carelessly, relying on documents that were not specific to the circumstances of these defendants or the terms of the lending thus leaving open the challenges to liability presented by the defendants. Any defects in the lending documents, however, are irrelevant to the counterclaim, in that they were prepared by different counsel a number of years ago and are not material to the decision to pursue default judgement nor the alleged misconduct by Mr. Petkov. [125] The evidence shows that the plaintiff committed what I would characterize as “unforced errors” in their prosecution of the collection of the debt. These included:

Sending the defendants a demand letter on January 2, 2013 stating the amount of the claim as $233,496.71, an amount approximately $100,000 less than what would be claimed. (This was corrected in a letter of February 6, 2013)

Filing a claim that incorrectly, or incompletely, described in one paragraph the amount of the indebtedness, and not amending the claim until after the error was pointed out by A.C.J. Smith as an arguable defence in her November decision;

Filing an ex parte motion for default judgement against Mr. Early without advising him, or advising the court of his intention to defend the claim;

Filing a January 24, 2014 affidavit of the mortgagee’s Relationship Officer (Exhibit 4) in support of the motions for default judgement that identified the default date as December 2, 2012; then, after receiving questions from Justice Warner as to the calculation of the claim, the same

affiant swore a “Supplementary Affidavit” dated May 30, 2014 (Exhibit 5) alleging the default had actually occurred on October 1, 2012;

Providing a written submission dated June 23, 2014 to Justice Warner in which one paragraph was intended to provide the mortgage particulars which supported certain aspects of the claim for an amount in excess of the principal amount owing. Some of the information in the letter appeared as if it was directly quoted from one particular paragraph of the mortgage. In examination by Mr. Early, Mr. Petkov acknowledged that some of the quoted words came from other paragraphs within the mortgage document;

Advising Mr. Early in a letter of July 16, 2014 that future correspondence should be by mail, but then refusing to reply to his written correspondence.

[126] The entry of the default judgement against PMD was entirely proper. There is no basis upon which it could be found that CIBC is liable to PMD for a tortious abuse of process. [127] This Court has already decided that, for the reasons given by A.C.J. Smith, Mr. Petkov’s conduct in obtaining default judgement against Mr. Early constituted an abuse of process that merited the setting aside of that default judgement. However, the question of whether that also amounts, on its own, or in conjunction with the other conduct of the plaintiff, to a tortious abuse of process is a different question. [128] In my view, the determinative issue is whether the evidence establishes that CIBC pursued the default judgement for a purpose other than that which the process in question was designed to serve, that is, to engage the legal process for a collateral and illicit purpose. I conclude that the evidence does not establish that. [129] Mr. Early never renounced his desire to defend the claim, but neither did he file his defence in a timely manner. He says that he was waiting to know that PMD had been served. CIBC was entitled to take out default judgment against PMD without further notice to Mr. Early. Mr. Petkov was under no obligation to advise Mr. Early that service on PMD was effected. That was the risk that Mr. Early assumed when he refused to accept service of the claim for the company. [130] Mr. Petkov testified that he assumed that Mr. Early had, by his conduct, indicated that he abandoned his intention to defend. Eight months had passed from

the time Mr. Early sent the letter setting out his intention to defend and the filing of the ex parte motion. During that time no defence was filed. When asked to characterize his conduct, Mr. Petkov said that he did not intend to take advantage of any mistake or slip by Mr. Early. He did not intend to engage in sharp practice. In short, he acknowledged that his decision to seek judgement without notifying Mr. Early was a mistake. [131] He described what he did as “legally” wrong, but he does not believe that he was “ethically” wrong. [132] The decision to contest the motion to set aside the judgements was based on his legal opinion that there was “… a good argument to uphold the default judgement”. He is and has been strongly of the view that there is no merit to the defences filed by the defendants. [133] As to the suggestion that he misrepresented information submitted to Justice Warner, Mr. Petkov agreed that one part of his letter of June 23 might have been interpreted to suggest that quoted sections were from a single paragraph of the mortgage, when in fact he took them from different parts. Again, he says that it was not his intent to mislead nor to improperly pursue a legal remedy for a collateral or illicit purpose. He maintains that the legal argument, irrespective of whether he accurately cited the mortgage document, was unchanged by the manner in which the submission was constructed. [134] Finally, he felt that it was not relevant to Justice Warner’s deliberation to advise him that Mr. Early had, several months before, indicated that he intended to defend the motion. [135] Associate Chief Justice Smith’s findings are not flattering to Mr. Petkov. His evidence in this trial did not give me complete confidence that he fully accepts the findings that he engaged in sharp practice and thus committed an “abuse of process” as that term is interpreted for the purposes of Rules 8 and 88. [136] I infer that Mr. Petkov was frustrated by Mr. Early’s resistance to the plaintiff’s claims. A comparatively inordinate amount of time and expense was used in getting service effected on the company. He did not believe that the defendants had a valid defence and chose to assume that their failure to file defences was

sufficient to justify his pursuit of the default judgements. His assessment that it was not relevant to tell Justice Warner that Mr. Early intended to defend was wrong. [137] When, in July 2014, Mr. Early objected to the default judgements, Mr. Petkov elected to defend the judgements. If he had been successful the matter would be over. If the motions succeeded then the plaintiff was in no different position than if it had consented to set aside the judgement. Mr. Petkov’s assessment of the merits of Mr. Early’s legal position was ill-judged, but the opposition to the PMD motion to set aside the judgement was reasonable in its own right. There were litigable issues for the court to consider in that matter. [138] Despite the errors and omissions attributable to the plaintiff in its pursuit of the default judgement I do not find that the legal process was engaged by the plaintiff for a collateral and illicit purpose. I am not satisfied that the plaintiff or its counsel, Mr. Petkov, in the language of LeTourneau J.A., “used the legal process for a purpose other than that which it was designed to serve, in other words for a collateral, extraneous, ulterior, improper or illicit purpose. … [or] the misuse or perversion of the Court's process.” There is no abuse “when a litigant employs regular legal process to its proper conclusion, even with bad intentions”. [139] Errors in letters and documents, mistakes in submissions to a court, being uncommunicative to an opposing self-represented party are not evidence that, in the circumstances of this case, speaks to a collateral or illicit purpose in pursuing the legal process to obtain judgement against the defendants. [140] The claim of tortious abuse of process is dismissed. Defamation and slander of title [141] The defendant’s argument is stated in its pretrial brief:

The plaintiff obtained a judgment wrongly. It then published the results of its labors on the land records. While authorized to do so by the Order itself, the authority granted by the court of Justice Warner was based on a willing misrepresentation to the Court, that the Defendant John T Early III was disentitled to further notice in the lawsuit and as such a default judgement should be granted.”

[142] This argument is fatally flawed. The property is owned by the corporate defendant PMD, not Mr. Early. Therefore any defamation or slander to title can only

be claimed by PMD. The decision of Smith A.C.J. ruled that the default judgement was properly obtained as a result of the company’s failure to file a defence within the time permitted for that purpose. The subsequent setting aside of the judgement did not undermine the lawfulness of the initial order. [143] There is no merit to this claim and it is dismissed. Intentional infliction of emotional distress [144] The defendants (plaintiffs by counter-claim) briefed this issue as a factor in assessing damages arising from the alleged tortious abuse of process. It was not argued either before or after trial as a stand-alone cause of action. There is no evidence to support the elements of this alleged tortious conduct. [145] There is no merit to this claim and it is dismissed. Costs [146] The parties made submissions as to costs in their closing arguments. I have considered those arguments and the provisions of Rule 77 which governs. [147] The plaintiff has been successful throughout and is entitled to its costs which will be calculated in accordance with Tariff A. The main issues were monetary claims where the principal amount involved is $320,000. Adding additional costs will not bring the total claim to an amount in excess of $500,000. [148] The trial lasted 3.5 days. The central issues were interpretation of contract and resolution of counterclaims alleging tortious misconduct by counsel for the plaintiff. The case was not complex. The importance to PMD was most significant as it will be subject to the loss of real property which the courts recognize as a unique asset. [149] The defendants shall be jointly and severally liable to the plaintiff for costs in the amount of $33,063 plus disbursements. This is based on the Tariff amount of $26,063 in Scale 1 for an “amount involved” between $300,000 and $500,000, plus $7,000 calculated at 3.5 days for trial at $2,000 per trial day.

Form of Order [150] I direct counsel for the plaintiff to prepare the Order. If the defendants do not agree to the form of order, then it may be submitted to me in accordance with Rule 78.

Duncan, J.

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