An Ontario judge has set aside an order requiring former prime minister Brian Mulroney to pay $470,000 to ex-business partner Karlheinz Schreiber. 

"The actions taken to obtain the default judgment were egregious and wrong," Justice Frank Newbould wrote in his ruling.

"I regret to say that counsel for Mr. Schreiber breached his obligations to the court and to counsel for Mr. Mulroney. No litigant deserves to be treated in the way that Mr. Mulroney was treated that led to the default judgment."

Schreiber, who lives in Toronto and Ottawa, sued Mulroney earlier in the year to recoup $300,000, plus interest, that he alleges Mulroney owes him.

In a statement of claim, the German-Canadian businessman argued he gave Mulroney the cash as an advance in the early '90s, but that Mulroney never followed through with his business commitments to help build a production facility for light-armoured vehicles in Quebec, and establish a pasta business in Ontario.

Mulroney's legal team claims to have a letter from Schreiber that can prove Mulroney did not break his end of the business deal.

An Ontario court ordered Mulroney on July 24 to pay Schreiber in a default ruling, since Mulroney failed to file a statement of defence in time.

But last week, Mulroney's lawyers tabled an emergency motion in the Superior Court of Justice, arguing that they did not respond to Schreiber's lawsuit because there was a motion pending on whether the case should be argued in Quebec, rather than Ontario.

Mulroney's lawyers argued the judgment should therefore be set aside.

Newbould said that Schreiber's lawyer, Richard Anka, failed to notify Mulroney's team that they were seeking a default judgment. He said he also breached an agreement with Mulroney's lawyer Kenneth Prehogan not to pursue such a judgment.

"It was an egregious breach that Mr. Anka had no right to commit and Mr. Schreiber had no right to instruct his solicitor to commit," Newbould wrote.

Schreiber's lawyers have argued that they had to take action because Mulroney was attempting to delay the case until Schreiber was extradited to Germany. But there is nothing in the record to back that up, Newbould wrote.

Schreiber is currently fighting extradition to Germany on charges of bribery, fraud and tax evasion.

With files from the Canadian Press