Comfort Capital Inc. et al. v. Yeretsian et al.
[Indexed as: Comfort Capital Inc. v. Yeretsian]
Ontario Reports
Ontario Superior Court of Justice
Dunphy J.
August 24, 2018
143 O.R. (3d) 314 | 2018 ONSC 5040
Case Summary
Mortgages — Interest — Mortgagees not entitled to payment of three months' interest under s. 17 of Mortgages Act where mortgaged property was sold by court-appointed receiver — Mortgages Act, R.S.O. 1990, c. M.40, s. 17.
The applicants held first mortgage security over six properties, securing a number of loans that had not been repaid when they became due. They applied successfully for the appointment of a receiver pursuant to s. 243(1) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 and s. 101 of the Courts of Justice Act , R.S.O. 1990, c. C.43. The court approved the sale of four of the properties. After the properties were sold, the applicants brought an application for an order for the payment of three months' interest pursuant to s. 17 of the Mortgages Act or, alternatively, under the terms of their mortgages.
Held, the application should be dismissed.
Section 17 of the Mortgages Act does not apply to a payment of proceeds of sale to an entitled secured creditor by a court-appointed receiver. A receiver is not a "person entitled to make such payment" under s. 17. A court-appointed receiver is not the agent of the debtor or any subsequent mortgagee. The applicants were not entitled to payment of three months' interest under s. 17 of the Mortgages Act.
58 Cardill Inc. v. Rathcliffe Holdings Ltd., [2018] O.J. No. 4108, 2018 ONCA 672, 62 C.B.R. (6th) 173, 93 R.P.R. (5th) 1, 294 A.C.W.S. (3d) 852, affg [2017] O.J. No. 5900, 2017 ONSC 6828, 84 R.P.R. (5th) 44, 55 C.B.R. (6th) 230, 285 A.C.W.S. (3d) 635 (S.C.J.); O'Shanter Development Co. v. Gentra Canada Investments Inc. (1995), 25 O.R. (3d) 188, [1995] O.J. No. 2546, 84 O.A.C. 334, 47 R.P.R. (2d) 24, 57 A.C.W.S. (3d) 355 (Div. Ct.), consd
Other cases referred to
Statutes referred to
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 243(1) [page315] Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101 [as am.] Mortgages Act, R.S.O. 1990, c. M.40, s. 17
Counsel:
Lisa S. Corne, for applicants. Eric Golden, for receiver Rosen Goldenberg Inc. Caitlin Fell, for moving parties Canada Investment Corporation, Canada Capital Corporation Inc., 2399029 Ontario Inc., 2457674 Ontario Inc. and Terry Wilson.
[1] DUNPHY J.: — The applicants seek an order for the payment of three months' interest pursuant to s. 17 of the Mortgages Act, R.S.O. 1990, c. M.40 or, in the alternative, under the terms of their mortgages with the respondents. They are opposed in this by Canada Capital Corporation, 2457647 Ontario Inc., Canada Investment Corporation and Terry Wilson as holders of subsequent mortgages.
[2] For the reasons that follow, I find that the applicants are not entitled to the three months interest they have claimed on either ground. There is no general right granted to secured creditors holding mortgagees to claim three months interest post-default. Section 17 of the Mortgages Act was intended as to provide mortgagors with a beneficial option to limit their obligations in obtaining relief from forfeiture when compared to the former, harsher rule of equity. By its terms, s. 17 applies only to "persons entitled to make payment" in respect of a mortgage default. A receiver -- whether creditor-appointed or court-appointed -- is not such a person. Were the claimed distinction between private receivers and court-appointed receivers to be acknowledged, potentially beneficial court supervision of receivership proceedings could be unnecessarily discouraged by reason of the potential diminution of the unsecured estate that might follow.
Background Facts
[3] There are no facts in dispute and the issue is a narrow legal one.
[4] The applicants held first mortgage security over six properties of the respondents securing a number of loans that had not been repaid when they became due. The applicants did not elect to commence any private enforcement proceedings such as power of sale proceedings or the appointment of a private receiver. They brought this application seeking the appointment of a receiver pursuant to s. 243(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 and s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The application was successful and McEwen J. appointed Rosen Goldberg as receiver in an order dated February 18, 2018. [page316]
[5] On June 1, 2018, I approved the sale of four of the properties over which the receiver had been appointed and over which the applicants held first mortgage security. My approval order included the usual language vesting title in the purchasers, discharging all charges (including mortgages) on the subject properties and providing that the proceeds of the sale would stand in place of the interests being vested out. The sales of the four properties were completed soon afterwards pursuant to the sale approval and vesting orders I granted.
[6] The receivership order and the sale approval and vesting orders contain no variations from the template orders published by the Commercial List material to this motion.
[7] On June 22, 2018, Hainey J. approved a distribution of funds to the applicants from the proceeds of the sale in the hands of the receiver. The amount approved was sufficient funds to repay all amounts due under the subject mortgages subject to holding back an amount in respect of the disputed claim of the applicants to receive an additional three months interest under the terms of their mortgages or s. 17 of the Mortgages Act. That question was raised before me on this motion.
[8] Two of the applicants' mortgages covering the subject properties (High Point and Caldwell) contain no explicit provisions providing for the claimed three months interest. In those cases, the applicants' claim relies solely upon s. 17 of the Mortgages Act. Two of the mortgages (Bridge and Loyalist) have language in the mortgage terms that substantially duplicates the language of s. 17 of the Mortgages Act. In those two cases, the applicants potentially have two strings to their bow being able to rely either on the statutory or the contractual language should one be more favourable to their cause than the other. However, during the course of argument it was conceded that there was no material difference to be drawn between the statutory and contractual language the one intentionally duplicating the effect of the other in substantially identical terms.
Issues to be Decided
[9] The sole issue to be decided is whether the applicants are entitled to three months interest over and above the ordinary contract interest accrued pursuant to s. 17 of the Mortgages Act.
Discussion and Analysis
[10] The issue is a narrow one. The starting point for the discussion is s. 17 of the Mortgages Act, which provides as follows: [page317]
Payment of principal upon default
17(1) Despite any agreement to the contrary, where default has been made in the payment of any principal money secured by a mortgage of freehold or leasehold property, the mortgagor or person entitled to make such payment may at any time, upon payment of three months interest on the principal money so in arrear, pay the same, or the mortgagor or person entitled to make such payment may give the mortgagee at least three months notice, in writing, of the intention to make such payment at a time named in the notice, and in the event of making such payment on the day so named is entitled to make the same without any further payment of interest except to the date of payment.
Exception
(2) If the mortgagor or person entitled to make such payment fails to make the same at the time mentioned in the notice, the mortgagor or person is thereafter entitled to make such payment only on paying the principal money so in arrear and interest thereon to the date of payment together with three months interest in advance.
[11] Some fairly straightforward observations regarding s. 17 of the Mortgages Act can be made without controversy:
(a) the provision is designed primarily as a protection for mortgagors (and subsequent encumbrances entitled to redeem) by reducing what had historically been an equitable rule requiring a mortgagor to pay six months interest to claim a right to relief to payment of only three months interest: O'Shanter Development Co. v. Gentra Canada Investments Inc. (1995), 25 O.R. (3d) 188, [1995] O.J. No. 2546 (Div. Ct.), at para. 12;
(b) the rule has no application where the secured creditor mortgagee seeks to realize on his or her security by way of power of sale proceedings: O'Shanter, at para. 13.
[12] There has been a simmering dispute over a number of years as to where between those two points the line is to be drawn between allowing and disallowing s. 17 claims by mortgagees.
[13] In 58 Cardill Inc. v. Rathcliffe Holdings Ltd., [2017] O.J. No. 5900, 2017 ONSC 6828 (S.C.J.), Sanfillippo J. recently had the occasion to consider the case of a creditor who enforced its mortgage security by way of privately appointed receiver. It was claimed that such a receiver, although appointed by the secured creditor, could be distinguished from a creditor invoking power of sale proceedings. Sanfillippo J. held that the creditor in that case was not entitled to claim three months of interest and there was distinction to be drawn between a creditor acting under power of sale or through a private receiver. This decision was recently upheld by the Court of Appeal (at 2018 O.J. No. 4108, 2018 ONCA 672). In upholding the decision, the court referred to the well-known "two hats" dictum of Houlden J.A. in Peat Marwick Ltd. v. Consumers' Gas Co. (1980), 29 O.R. (2d) 336, [1980] O.J. No. 3669, at p. 344 O.R., holding that even if a privately appointed receiver manager acts as the debtor's agent in operating a business in receivership, the receiver is acting as agent of the appointing creditor when realizing upon the security and selling the property free of the appointing creditor's mortgage.
[14] This case addresses the one remaining question where the law has not yet been settled. Unlike a privately appointed receiver or receiver manager, a court-appointed receiver is neither the agent of the creditor nor of the debtor. While this particular claim for s. 17 interest is advanced by the very creditor who sought the appointment of the receiver by the court, this case also illustrates the multi-faceted nature of court-appointed receiverships. Each of the debtors' properties was subject to multiple mortgages the holders of which might also have been advancing similar interest claims even if they did not append their name to the notice of application. Other stakeholders as well have emerged, including unsecured creditors and creditors claiming to be victims of fraud. This case has generated a large number of court appearances most of which have seen courtrooms overflowing with lawyers and interested parties. The distinction between the "two hats" agency analysis applying to private receivers and the broader, more all-encompassing multi-stakeholder analysis appropriate to a court-appointed receiver is not mere theory.
[15] While the two types of receivership are quite distinct in their foundation, there is in my view no material distinction to be drawn between a privately appointed receiver and a court-appointed receiver for the purposes of s. 17 of the Mortgages Act. I reach this conclusion for two reasons.
[16] First, the history and context of this legislative reform suggests a very limited legislative intent that does not extend to either of the two types of receiver.
[17] Saunders J. in O'Shanter found that s. 17 of the Mortgages Act arose as a reform of the prior, somewhat harsher rule of equity that required a defaulting debtor who "seeks equity [to] do equity" by paying six months interest if seeking relief from a forfeiture. In O'Shanter, a subsequent mortgagee wanted to repay the first mortgage (without payment of extra interest) after the time to redeem under a power of sale notice had expired. It is for this reason that equitable relief was required. The principle underlying the original rule of equity and the milder statutory rule that reformed it was said to be to provide the affected secured creditor with time to seek a new investment.
[18] The reason relief from forfeiture was required in the first place has to do with the nature of the title conferred by a mortgage [page319] (at least prior to more recent reforms). Originally, a mortgage was, in form, a legal conveyance of title that was subject to an equitable right to the return of title on certain conditions (timely payment of the debt). Default in the payment of the debt when due gave rise to two possible enforcement routes by the creditor: sale or foreclosure. Both of these consequences of mortgage default have long since been heavily circumscribed by statute, but the original equitable rules were designed to provide the debtor with relief from the harshness of those rules at a time where statutory reforms in the area were in their infancy. Viewed in this light, it might be considered that the payment of extra interest was intended to compensate for the loss of the accrued right to foreclose as much as it was intended to reflect the time necessary to find a new mortgage to invest in.
[19] A distribution of proceeds by a receiver to entitled parties arising from a court-ordered sale of land does not involve any party seeking relief from anything. It falls completely outside of the range of circumstances contemplated by s. 17.
[20] Second, the language employed by the legislature does not compel a distinction between the two types of receivers. Section 17 confers a right upon a defined, limited set of persons being "the mortgagor or person entitled to make such payment" (emphasis added). The right conferred is the right "at any time, upon payment of three months interest on the principal money so in arrear, [to] pay the same" (emphasis added).
[21] The secured creditor selling the land or his or her appointed agent is certainly not a "mortgagor or person entitled to make such payment", a court-appointed receiver is not either. The court-appointed receiver is not the agent of the appointing creditor as the applicant correctly argued. However, such a receiver is not the agent of the debtor or any subsequent mortgagee either. The receiver is not "entitled" to pay a sum of money. The receiver has no beneficial interest in the money nor did it have an interest in the land being sold.
[22] The mortgage was not discharged, it was vested off title. The proceeds were held by the receiver pending further order and were then distributed by court order. The receiver was not a person "entitled" to pay the arrears, the receiver was directed to pay the proceeds after the owner thereof was identified. In directing the receiver to pay over proceeds of a sale, the court is making a determination of the secured creditor's entitlement to receive the funds, not a determination of the receiver's entitlement to pay.
[23] The statute does not apply to a payment of proceeds of sale to an entitled secured creditor by a court-appointed receiver [page320] on a plain reading of the text nor does a purposive reading of the statute lead to the conclusion that it was intended so to apply.
[24] There are advantages to court-appointed receiverships when contrasted with private receiverships in terms of the benefits of court supervision generally and in terms of the window given to a broader group of stakeholders upon a process that may vitally impact their interests. It would be regrettable if courts should be dissuaded from allowing receivership applications for fear that an undue benefit might be conferred thereby on a single class of creditor to the detriment of others. In my view, no such advantage exists under s. 17 of the Mortgages Act at least.
Disposition
[25] I find that the applicants are not entitled to the claimed three months interest pursuant to s. 17 of the Mortgages Act or pursuant to the terms of their mortgage contracts with the respondents.
[26] Cost outlines were exchanged following the hearing. Canada Capital Corporation et al. have been successful on this motion and are entitled to their costs. Their outline claimed partial indemnity costs of $10,500.42, substantial indemnity costs of $13,968.92 and actual costs of $17,437.42 (in each case, "all inclusive"). These figures included an estimate for the hearing that was on the high side.
[27] The unsuccessful applicant provided a costs outline evidencing partial indemnity costs of $16,859.05 (with a similarly high estimate for the hearing) and full indemnity costs of $28,097.95.
[28] I can see no basis to depart from the scale of partial indemnity costs in this case. The moving party bore the load of making the argument that was ultimately successful and should be compensated for their costs in doing so. The amount claimed is substantially below the costs incurred by the applicant. I would reduce the amount claimed to $16,500 to reflect the slightly high estimate for the hearing.
[29] The applicants shall pay the costs of Canada Capital Corporation et al. their partial indemnity costs of this motion fixed at $16,500.
[30] Order accordingly.
Application dismissed.
End of Document