DATE: 20050718

DOCKET: C39625

COURT OF APPEAL FOR ONTARIO

ROSENBERG, SIMMONS and GILLESE JJ.A.

B E T W E E N :

ROYAL TRUST CORPORATION OF CANADA

M. James O’Grady Q.C.

Barry W. Kwasniewski

for the appellant

Plaintiff (Respondent)

• and -

IAN VERNER MACDONALD AND SCOTT MACDONALD

I. H. Fraser

for the respondent

Defendant (Appellant)

Heard: June 1, 2005

On appeal from the judgment of Justice B. J. Manton of the Superior Court of Justice dated January 27, 2003 and May 7, 2003.

BY THE COURT:

[1] The appellant appeals from a decision of Manton J. awarding judgment to Royal Trust for the deficiency owing on several mortgages following power of sale proceedings and dismissing the appellant’s counterclaim.

Background

[2] Between 1987 and 1992, the appellant mortgaged eight Ottawa properties to Royal Trust by way of seven mortgages. In 1993, the mortgages were renewed and the renewal agreements contained cross-collateralization clauses permitting Royal Trust to treat a default under one of the mortgages as a default under all of the mortgages.

[3] On April 20, 1995, Royal Trust claimed that four of the mortgages were in default; on May 26, 1995, it took possession of several properties by attorning the rents; on July 18, 1995, it issued notices of sale under mortgage demanding payment of $2,981,862.22, which included maintenance, repair, and appraisal costs relating to the properties.

[4] During the ensuing one-and-one-half years, Royal Trust sold all of the properties under power of sale. At trial, Royal Trust claimed $1,135,159.90 on account of the deficiency owing on the mortgages, including maintenance, repair and appraisal costs. The appellant counterclaimed for damages, asserting that the sales were improvident and that Royal Trust acted in bad faith.

[5] Following a trial held over eleven days, the trial judge found that Royal Trust had not proven its claims for maintenance and repair costs. He awarded judgment to Royal Trust for $62,959.46 on account of the deficiency owing under the mortgages and $13,456.37 on account of appraisal fees (for a total of $76,415.83); plus $43,803.65 on account of pre-judgment interest; and $177,027.11 on account of costs. He dismissed the appellant’s counterclaim.

Issues and Analysis

[6] The appellant raises four issues on appeal.

[7] First, the appellant claims that, in the absence of evidence that Royal Trust took reasonable steps to bring the properties to the attention of the market, the trial judge erred by failing to find that the sales were improvident. We disagree. The trial judge made an explicit finding that Royal Trust took reasonable precautions to obtain the true market value of the various properties at the time they were sold. He based his conclusion on findings that Royal Trust’s appraisals were fair and, although less than their appraised value, that the sale prices of the properties were reasonable. We see no error in the trial judge’s findings or in his approach.

[8] The trial judge noted that Royal Trust’s appraisals were prepared by an experienced Ottawa appraiser who visited the properties and inspected the inside and outside of each of them. Although the appellant led evidence from a qualified appraiser indicating a higher global value for the properties, the trial judge observed that Royal Trust’s global valuation was only 10% less than the global figure asserted by the appellant’s appraiser. The trial judge held that 10% was a fair margin of difference. Moreover, he noted that the appellant’s appraiser had not actually inspected the properties but rather had relied on the information and comparables reported by Royal Trust’s appraiser.

[9] The trial judge expressly adverted to the fact that the properties sold for $2,882,500, which was about 90% of the appraised value ascribed to them by Royal Trust’s appraiser ($3,220,000). However, he noted that Royal Trust’s appraiser provided several reasons why the properties sold for less than their appraised value. These reasons related to the nature of the properties (some were residential, some commercial and one was commercial/residential), vacancy rates in the commercial properties, and economic and market conditions. The trial judge found that the difference in sale prices as compared to appraised values was “reasonable because of the economic conditions that existed in Ottawa in 1995-96 at the time of the sales.”

[10] The trial of this matter took place in 2002, approximately six years after the last property was sold. There was evidence at the trial that some of the documents relating to the property sales were likely lost during a file transfer from Toronto to Montreal. However, the documents that were available indicated that all but one of the properties had been listed with an agent and it was unclear whether the remaining property had been listed.

[11] Particularly in these circumstances, we see no error in the trial judge relying on valuation evidence to determine whether Royal Trust took reasonable steps to obtain the true market value of the properties. Accordingly, we would not give effect to the first ground of appeal.

[12] Second, the appellant claims that the trial judge erred in failing to find that Royal Trust acted in bad faith, or at least in breach of its implied obligation of good faith. In particular, the appellant submits that the following actions on the part of Royal Trust evidence bad faith:

• exaggerating and misstating amounts allegedly in default;

• unreasonably refusing to accept payments tendered by the appellant;

• unreasonably attorning the rents on properties when it was unnecessary to do so and without commencing the required action for possession;

• exercising the cross-collateralization clauses unfairly;

• claiming incorrect amounts in the notices of sale;

• selling two of the properties to persons with whom Royal Trust had a conflict of interest and the remaining properties to first bidders;

• disposing of the properties at a time when real estate prices were depressed,

• failing to take the usual or any steps to properly market the properties; and

• generally failing or refusing to conduct itself reasonably.

[13] We reject the appellant’s submissions. On appeal, the appellant was unable to demonstrate that the trial judge made any error in his findings concerning amounts that were in default or concerning payments that were tendered during April and May 1995. We see no error in the trial judge’s conclusions that Royal Trust was not obligated to accept less than the full amount of arrears due on any of its mortgages or to release any one of the properties from the cross-collateralization clauses. Moreover, we are not aware of any authority indicating that it is necessary to commence an action for possession before attorning rents.

[14] The trial judge considered and rejected the appellant’s claims that Royal Trust acted improperly by selling two properties to persons with whom it was in a conflict of interest, by disposing of the properties at a time when the real estate market was depressed and by disposing of the properties without taking reasonable precautions to obtain their true value. We see no error in the trial judge’s conclusions on these issues. There was little, if any, evidence that the respondent was in conflict of interest. The appellant did not lead any evidence to substantiate this claim. Further, the respondent was not required to hold on to the properties in a declining market in the hope that the market might soon recover.

[15] As for the appellant’s assertion that Royal Trust claimed incorrect amounts in its notices of sale, the only errors that the appellant was able to demonstrate on appeal were Royal Trust’s claims for the expenses that were eventually disallowed by the trial judge. Since the notice of sale forming part of the appeal record itemizes the amounts in question, in our view, the fact that Royal Trust advanced these claims in no way establishes bad faith.

[16] Further, while we agree that one important purpose of a notice of sale is to provide the mortgagor and subsequent encumbrancers with an accurate statement of the amount required to redeem the mortgage, in our view, no prejudice arises from the expense claims advanced by Royal Trust in this case. All of the mortgages had matured as of July 15, 1995. Following the maturity of the mortgages, the appellant took no steps to attempt to redeem. It was open to the appellant or any other person entitled to redeem, to challenge the validity of the expenses Royal Trust was claiming in the notices of sale, either by seeking an injunction restraining the exercise of the power of sale[^1] or by applying for a discharge of the mortgage under s. 12 of the Mortgages Act, R.S.O. 1990,

c. M. 40[^2]. Moreover, we observe that Royal Trust would have been in a better position to substantiate its expenses, had they been challenged when the notices of sale were issued.

[17] We have considered the line of authorities holding that a notice of sale is invalid and must be set aside where the amount claimed in the notice is incorrect: see, for example, Grenville Goodwin Ltd. v. MacDonald (1988), 65 O.R. (2d) 381 (C.A.). In our view, these authorities apply to situations where, prior to the sale of the property, a mortgagor or other person entitled to redeem demonstrates at least some interest redemption. Where, as in this case, no such interest is shown, the issue of whether the amounts claimed in the Notices of Sale were accurate can properly be dealt with by way of an accounting between the mortgagor and mortgagee.[^3]

[18] Accordingly, we would not give effect to this ground of appeal.

[19] The third issue raised by the appellant relates to the calculation of the appellant’s damages. In light of our disposition of the first and second issues, it is unnecessary that we address this point.

[20] Fourth, the appellant claims that success at trial was divided and that the trial judge therefore erred by failing to disallow, or at the very least substantially discount, Royal Trust’s claim for costs. The appellant points out that Royal Trust claimed $1,135,159.90 but recovered only $76,415.83.

[21] We do not accept the appellant’s submission. The trial judge disallowed Royal Trust’s expense claim because Royal Trust failed to call a witness from its property management company to substantiate the expenses shown in various statements. The issues at trial requiring oral evidence were whether the sales were improvident and whether Royal Trust had acted in bad faith. The appellant lost on those issues. Further, in

October 2000, Royal Trust offered to settle on the basis that the claim and counterclaim would be dismissed without costs. Given the totality of these circumstances, we see no basis for interfering with the trial judge’s exercise of discretion in relation to costs.

[22] Based on the foregoing reasons, the appeal is dismissed with costs to Royal Trust on a partial indemnity basis fixed at $15,000 inclusive of disbursements and applicable G.S.T.

RELEASED:

“JUL 18 2005” “Marc Rosenberg J.A.”

“MR” “Janet Simmons J.A.”

“E.E. Gillese J.A.”

[^1]: For example, see Munro v. Pago Developments Ltd. (1979), 26 O.R. (2d) 37 (H.C.).

[^2]: Section 12(3) of the Mortgages Act, permits any person entitled to pay off a mortgage to apply to the court for an order discharging the mortgage in circumstances “where from any other cause a proper discharge cannot be obtained”. Under s. 12(6) of the Mortgages Act, where the amount admitted to be due “appears to be open to question the court may as a condition of making the [discharge] order require payment into court of a sum in excess of the amount admitted to be due and in such case the additional sum is subject to the further order of the court.”

[^3]: By way of analogy, see Double D Developments Ltd. v. Green (1979), 24 O.R. (2d) 391 (H.C.J.). In that case, a mortgagor applied under the predecessor to s. 22(3) of the Mortgages Act for an order suspending a mortgagee’s rights to proceed with enforcement of a mortgage. The application was based on an alleged error in a mortgage statement delivered in response to a demand under s. 22(1) of the Mortgages Act. Eberle J. noted that there was no suggestion that the mortgagor intended to redeem and said, “The position taken by the plaintiff is to stall the defendant from proceeding with his rights under his mortgage … If the mortgagee proceeds with the sale of the property under the power of sale, he must, of course, account for the proceeds of sale. At that stage there may be room for a dispute over the amount properly owing under the mortgage in question and it can be resolved at that time.”