COURT FILE NO.: CV-18-00598464-0000 DATE: 20210305
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
elle mortgage corporation Applicant – and – manjit sihota and parmjeet sihota Respondents
Counsel: Glenn E. Cohen, for the Applicant Amanpreet Singh Nagpal, for the Respondents
HEARD at Toronto: February 24, 2021
Application Under Rule 14.05(3) (d), (e), (g) and (h)
Reasons for judgment
S.F. Dunphy J.
[1] This case considers whether terms in a mortgage that deem an “automatic renewal” at substantially higher cost in the sole discretion of the mortgagee are enforceable. For the reasons that follow, I have concluded that the clause in this case is unenforceable and the mortgagee is entitled to interest at the original mortgage rate only.
Background facts
[2] The applicant Elle Mortgage Corporation advanced funds in September 2016 to the respondents Manjit and Parmjeet Sihota on the security of an investment property they owned in Brampton. The respondents are spouses of each other and joint owners of the property.
[3] By oversight, it appears that neither side filed in evidence the registered mortgage from which I might learn its actual date. The requisite mortgage documents were signed by the respondents in their lawyer’s office on August 29, 2016 and stipulated a mortgage term of one year but also a due date of September 2, 2017. Trust cheques paying out prior mortgages appear to have been sent on September 7, 2016. I infer the advance occurred somewhere between August 29, 2016 and September 7, 2016. Nothing appears to turn on this minor lacuna in the evidentiary record since the due date of the mortgage is clear.
[4] As between the two respondents, Mr. Manjit Sihota is the one who conducted the negotiations with the applicant’s agent. It is evident that Mr. Sihota has a certain degree of experience in borrowing money secured by mortgages for investment purposes.
[5] The subject mortgage was in the face amount of $800,000. Interest only at the rate of 7.5% per annum was payable on the 2nd of the month with the last payment and balance due date being September 2, 2017. No payments of principal were required until the end of the term with prepayments being permitted without penalty.
[6] The automatic renewal clause has been the focus of this application. The clause in question is included as part of a six-page Schedule attached to the mortgage registration form. The clause headed “Automatic Renewal” on pages 3 and 4 of the Schedule reads as follows:
Provided that should the mortgage loan not be repaid in full on the maturity date, then and at the sole option of the Chargee/Mortgagee, the Chargor(s)/Mortgagor(s) … shall be deemed to have accepted and the mortgage shall be automatically extended for a further period of six (6) months, at a rate of interest, commencing on the first day of the extended term, equal to the rate of interest of the immediately previous term plus 3.0%, per annum, calculated and payable interest only monthly, together with a renewal fee equivalent to 5.0% of the then outstanding balance, said renewal fee to be due and payable on the first day of the extended term failing which same shall, at the sole option of the Chargee/Mortgagee, automatically be added to the then outstanding balance of the mortgage loan, as principal.
[7] The following is a brief chronology of how this mortgage came to be extended:
a. The mortgagors had an existing first mortgage that needed to be repaid as well as significant environmental remediation work that needed to be completed for this investment property. It had once been a grow-op and extensive repair work was required to make it habitable. Mr. Sihota was introduced to Mr. Walman by a broker to discuss a possible mortgage loan for these purposes.
b. The two met in Mr. Walman’s office on July 7, 2016 to discuss the proposed mortgage. There was no discussion in this meeting about automatic renewal or the terms thereof.
c. There were no further meetings with Mr. Walman or any representative of the lender prior to closing where the topic of automatic renewal was discussed with Mr. Sihota.
d. Mr. Walman, agent of the unidentified (at that time) lender but also a lawyer, provided Mr. Sihota with a form entitled “Acknowledgment – Non-Representation” to sign during this meeting where Mr. Sihota acknowledged that Mr. Walman was not advising him and that he would obtain his own counsel and be advised by such counsel only. Mr. Sihota signed the acknowledgment.
e. Mr. Sihota also filled in and signed a Statutory Declaration prepared by Mr. Walman containing, among other details, his home address and a statement that he did not occupy the property over which the mortgage was to be placed.
f. Mr. Walman made notes during the course of this meeting on the face of a form he had prepared beforehand containing the name of the referring broker, the name of the proposed borrowers and other similar details. The handwritten notes on the face of the document indicate that Mr. Walman received a non-refundable fee of $500 for the interview process and that subject to appraisals and due diligence a one-year $800,000 loan at 7.5% interest, interest only payable monthly with a lender fee of $30,000, a broker fee of $6,000 and legal fees of $2,500 payable was being offered. Mr. Sihota’s lawyer’s name was added to the form and the form was signed by Mr. Sihota (but not by Mr. Walman). There is no mention of automatic renewal in the notes as signed by Mr. Sihota at that time. These notes contain the details that might be found in a commitment letter but do not actually contain any commitment of any kind from Mr. Walman or his un-named principal.
g. The next day (July 8, 2016), Mr. Walman sent a package of closing documents via fax to Mr. Sidhu, the lawyer identified by Mr. Sihota as acting on behalf of the borrowers pre-filled out by him or by his office with other parts left to be completed by Mr Sidhu and the respondents. These closing documents included:
i. An acknowledgement and direction authorizing the registration of the mortgage;
ii. The form of mortgage to be registered on title including attached six-page schedule of terms;
iii. An acknowledgment of receipts and disbursements regarding payment of the various fees described therein including fees for the lender or broker exceeding $40,000; and
iv. A certificate of independent legal representation to be signed by the borrowers’ counsel.
h. The mortgage terms in the schedule sent at that time contained the automatic renewal clause referenced by me above.
i. On August 16, 2016, Mr. Sidhu wrote to Mr. Walman explaining that the borrowers had been delayed in proceeding to close in July 2016 but were now prepared to do so, requesting fresh documents for execution. If fresh documents were sent, they do not appear to have been used.
j. On August 29, 2016, the respondents executed and initialled the various closing documents sent by fax on July 8, 2016 with some handwritten additions. The documents were witnessed where required by Mr. Sidhu their lawyer. Among the documents signed was the “Certificate of Independent Legal Representation” signed by Mr. Sidhu certifying that the documents were executed without coercion and, prior to execution, had been read in their entirety and signed with full knowledge of the contents thereof. The listed documents included “Charge/Mortgage of Land and Standard Charge Terms #200033”. The document entitled “Charge/Mortgage of Land” references both the attached Schedule and the standard charge terms and, as noted earlier, the “automatic renewal” clause is found in the attached Schedule.
[8] The mortgage was advanced somewhere between August 29, 2016 and September 7, 2016. Payments were made thereunder as required in the usual course.
[9] Mr. Sihota’s affidavit acknowledges that he “did sign and initial the 6-page schedule in the stack of papers at my lawyer’s office” but denies having been made aware of the automatic renewal terms contained therein nor anything else that was outside of the scope of what had been discussed with Mr. Walman.
[10] On August 22, 2017, Mr. Walman sent a letter addressed to the respondents by registered and regular mail to the mortgaged property address. The letter states that “your mortgage loan matures on September 2, 2017 and will be automatically renewed for Six (6) months as per mortgage terms” [emphasis added]. The letter went on to refer to a renewal fee of $40,000 and requested six post-dated cheques reflecting the increased monthly interest payments based on 10.50% per year interest.
[11] The letter was never received by the respondents and in the circumstances, I infer that this fact was known or ought to have been known to the applicant as well when he sent it. The address to which the letter was sent was not the work or residential address of the respondents. Mr. Walman had this information in hand from his meeting with Mr. Sihota on July 7, 2016 when he recorded the particulars of the borrowers including their residential address. The purpose of the loan was to provide additional time to renovate the property and satisfy certain environmental remediation orders that were outstanding that made it uninhabitable. There is nothing to indicate that Mr. Walman had any reason to believe that Mr. Sihota or indeed anyone else would actually be living at the address to which the notice was sent when he sent it by registered and regular mail. Nevertheless, the form of mortgage that Mr. Walman or his office prepared and sent to the respondents on July 8, 2016 – the day after his meeting with Mr. Sihota – referred to the mortgaged property address as the address for service of the mortgagors as well. There is no indication that anyone noticed this at the time.
[12] It may well be that nothing turns on whether this particular notice was in fact received. The “automatic renewal” clause is silent on the subject of notice and at all events does not permit the mortgagee to cause a renewal prior to the due date of the mortgage and then could only do so on the condition that it was not repaid at that time. At all events, Mr. Sihota was out of the country on August 22, 2017 and remained out of the country for several months.
[13] The mortgage was not repaid on September 2, 2017 when it was due, and the mortgagors took no steps to deal with the mortgage at that time. Mr. Sihota’s affidavit states that he simply forgot about it. He states that he did not discover that the loan was due and had not been repaid until early October 2017 when checking his bank statements and finding no payment of interest being made that month.
[14] A significant portion of the legal energies devoted to preparing this application for a hearing were expended in detailing the back and forth of the negotiations that ensued. I can see no relevance to most of it beyond a very high level summary. The parties attempted to negotiate a consensual renewal with Mr. Sihota objecting to various aspects of the automatic renewal that he found offensive. No arrangement was reached. Some payments on account were made, but none under circumstances that amounted to an acceptance of the alleged automatic renewal. The discussions continued until May 2018 when it was agreed to disagree regarding some of the mortgagee’s claims by repaying the mortgage and placing the disputed amounts into a lawyer’s trust account to await a court order.
[15] On May 17, 2018, the respondents paid $800,000 to the applicant and a further $100,000 was paid into escrow to await the outcome of this application. The parties have sought direction on this application regarding the disposition of the $100,000 held in trust. The evidence regarding the terms governing that sum was stated by the applicant as follows:
The $100,000 represents security for the disputed renewal fee, the interest increase, the 3 month’s compensation for non-payment at maturity, further ongoing interest, statement fee, and discharge/legal fee as per the statement. It also includes an amount for legal fees for the further enforcement by application against the mortgagor.
[16] One last fact forming part of the factual matrix should be referenced here if only to dispose of it. Mr. Sihota’s affidavit referenced a “commitment letter” dated July 11, 2016 that contained no reference to automatic renewal. He attached a copy of that commitment to his affidavit.
[17] The commitment letter he attached referenced the same property and to all appearances contains substantially all of the same terms as the applicant’s mortgage loan. There is one significant difference: the mortgagee named is “Greater Toronto Mortgages & Financial Services Corp.” a company that no evidence other than Mr. Sihota’s comment connects to the applicant. There is, for example, no email trial connecting it to Mr. Walman or the applicant. Little turns on the point, but I cannot accept this document as being relevant to the issues I must determine.
Issues to be decided
[18] The parties have raised the following issues on this application:
a. Can the respondents avoid the application of the “automatic renewal” clause by reason of their alleged lack of actual knowledge of its presence in the mortgage documents?
b. Does s. 8 of the Interest Act, R.S.C. 1985, c. I-15 apply to the automatic renewal clause?
c. Is the applicant entitled to three months interest pursuant to s. 17 of the Mortgages Act, R.S.O. 1990, c. M.40?
d. What payments if any is the applicant entitled to receive from the $100,000 held in trust since May 17, 2018?
Discussion and analysis
(a) Can the respondents avoid the application of the “automatic renewal” clause by reason of their alleged lack of knowledge of its presence in the mortgage documents?
[19] The respondents sought to argue that the lack of warning about the mortgagee’s intention to insert an automatic renewal clause into the mortgage when the terms of the proposed mortgage were being negotiated coupled with the evidence of Mr. Sihota that he signed the “stack” of papers without reading them provides a basis to disallow the automatic renewal clause which is onerous and unusual. They cite in support of that proposition the decision of Justice Morgan in Cheung v Moskowitz Capital Mortgage, 2018 ONSC 1322 and the earlier decision of Sloan J. in Romano v Sills, 2017 ONSC 6367.
[20] In the two cited cases, there were existing signed commitment letters containing no reference to the automatic renewal clause. That is not the case here – there is relevant no commitment letter in evidence. The commitment letter produced appears to emanate from a third party with no connection to the applicant. There are notes of the meeting of July 7, 2016 that contain the principal mortgage terms and fees without reference to automatic renewal or the fees associated therewith that are analogous to a degree. However, on the facts of this case the fundamental principles of contract law re-iterated in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 preclude the attempt to prove terms of the contract by extrinsic evidence that contradict the express provisions thereof.
[21] First, the documents containing the proposed automatic renewal terms were in the hands of the respondents or their lawyer for almost two months before they were signed. This was not a case of documents signed by unsophisticated parties without opportunity to read them. The respondents had borrowing experience and more than enough time to read and re-read the documents to their heart’s content.
[22] Second, the respondents had independent legal advice and both they and their lawyer certified that they had read and understood all of the documents they signed. They knew the documents had legal significance and had a responsibility to inform themselves of the contents of them before signing them.
[23] There is no basis on these facts to invalidate their voluntary agreement to the terms of this contract whether or not they took the time to inform themselves of the full extent of their commitments. The answer to the first question must be in the negative.
(b) Does s. 8 of the [Interest Act, R.S.C. 1985, c. I-15](https://laws-lois.justice.gc.ca/eng/acts/i-15/) apply to the automatic renewal clause?
[24] My finding that the respondents are bound to the terms of the contract that they signed does not extend to any provisions thereof that are unenforceable by operation of law. The respondents submit that the automatic renewal provisions – providing as they do for a 5% fee for a six-month renewal plus a 3% increase in the interest rate – operate as a penalty upon non-payment of principal that violates s. 8 of the Interest Act and cannot be enforced.
[25] Section 8 of the Interest Act reads as follows:
8(1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.
[26] The applicant submits that the automatic renewal clause is no penalty but represents a bona fide agreement allowing a simple means of renewing the mortgage at predictable cost. The applicant further submits that because of the automatic renewal clause, there is no principal amount “in arrears” at any time. The trigger for the obligation to pay the fee and higher interest is not the non-payment of principal in arrears but the exercise of the automatic renewal right by the mortgagee and therefor s. 8 of the Interest Act simply does not apply.
[27] The remedial object of Parliament in enacting s. 8 of the Interest Act is not so easily frustrated by examining form to the exclusion of the true substance of the matter. As it turns out, a close reading of the form of the mortgage does not support the argument in any event.
[28] The right to renew the mortgage in this case is one vested solely in the mortgagee. It does not in any way depend upon the assent or even the knowledge of the mortgagors at the time of renewal. The trigger that gives rise to the mortgagee’s renewal right is the existence of arrears of principal. The mortgagors had the undoubted right to repay the mortgage up until the last instant provided for payment and until the expiry of that instant, the mortgagee had no right to compel renewal. Since the right to renew does not exist unless the mortgage is not repaid and repayment can occur until the last instant payment is both due and permitted to be made, the mortgagee’s renewal right does not come into being until payment has not been made in the requisite time and the mortgage is – for that instant at least – in arrears. The fact that the mortgage deems extension to have occurred at that point of time does not detract from the fact that a condition precedent to renewal and the obligation to pay higher fees was the existence of unpaid arrears of principal.
[29] There can be no question that the decision of the mortgagee to exercise the right of automatic renewal and thereby to claim the additional 3% interest plus 5% fee amounts to exacting an increased charge beyond the rate of interest payable on principal money in arrears. The fees do not become due as a result of the mere passage of time but as a result of non-payment of the principal due at term by the mortgagee. The fact that the mortgagee can unilaterally deem a different outcome and thereby exact additional fees does not alter that fundamental fact. The clause creates a penalty – and a significant one at that – payable if and only if the principal amount of the mortgage is not repaid at term.
[30] While I have concluded that a close reading of the automatic renewal clause does not support the applicant’s position as a matter of form, I do not wish to be taken as endorsing that approach to the application of s. 8 of the Interest Act. Section 8 of the Interest Act is entitled to receive the broad and liberal construction that best secures the attainment of its objects. As consumer protection legislation, it must be examined with a view to those objects and having regard to the substance of the transaction.
[31] At the end of the day, this mortgage provides that non-payment of principal results in the ability of the mortgagee to choose to exact a penalty in the form of fees and higher interest. A clause granting the mortgagee the unilateral right to exact such a penalty on that event is precisely what Parliament intended to invalidate.
[32] In my view, the automatic renewal clause is of no force or effect. The consequence of that is that the mortgage was not renewed on September 2, 2017 at a higher rate or at all. It would be illogical to strike out the clause from the perspective of the fees alone while holding the mortgagee to an extension on terms it did not agree to. The mortgage was due and payable on September 2, 2017 and thereafter interest continued to accrue at the original contract rate until paid in full on May 17, 2018.
(c) Is the applicant entitled to three months interest pursuant to s. 17 of the [Mortgages Act, R.S.O. 1990, c. M.40](https://www.ontario.ca/laws/statute/90m40/)?
[33] In addition to locking horns on the issue of fees and interest arising on automatic renewal, the parties are disputing the application of s. 17 of the Mortgages Act in this case.
[34] I have found that this mortgage was due and payable on September 2, 2017 and continued to be due and payable thereafter until it was finally repaid in full on May 17, 2018. Nevertheless, the analysis of the Mortgages Act issues does not really depend upon whether the mortgage was extended to March 2, 2018. The loan was not repaid on March 2, 2018 either and I have no basis to find that the mortgagors were ready, willing and able to pay the full amount on that date but/for the unjustified claims I have found to be an unlawful penalty under s. 8 of the Interest Act.
[35] Section 17 of the Mortgages Act provides as follows:
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.
[36] This particular provision of the Mortgages Act has generated more than its weight in litigation over the years. Section 8 of the Interest Act at the Federal level renders invalid any provision in a mortgage that would exact a penalty or increased interest rate as a result of default in payment of principal. Section 17 of the Mortgages Act at the provincial level then permits the exaction of just such a penalty in the event of default in the payment of principal – essentially the same trigger as s. 8 of the Interest Act.
[37] The Court of Appeal considered the potential conflict between these two provisions in Mastercraft Properties Ltd. v. El Ef Investments Inc. and concluded that the two provisions can indeed be read in harmony with each other and consistent with the mortgagor-protection objects intended by both. This was achieved by interpreting s. 17 of the Mortgages Act as granting a right to the borrower to give at least three months’ notice of its intention to repay the mortgage without interest penalty or the obligation to pay three months’ interest in advance where such notice is not given.
[38] Left undecided in Mastercraft was the question of what happens if it is the mortgagee exacting payment rather than the mortgagor seeking to pay without notice. The right to repay the mortgage post-default without penalty would be a hollow one if it could be circumvented by the simple device of the mortgagor asserting its self-help remedies or turning to the court to the same end. Cases subsequent to Mastercraft have confirmed that the three-month interest payment cannot be required when the creditor is enforcing: 58 Cardill Inc. v. Rathcliffe Holdings Limited, 2018 ONCA 672 at para. 6 and my own decision in Comfort Capital Inc. v. Yeretsian, 2018 ONSC 5040.
[39] Section 17 is thus confined to the narrow circumstance where it is the mortgagor who is seeking to repay the mortgage post-default. In such cases, the mortgagor may either give the required notice and repay the mortgage and interest three months later without penalty or, giving no notice, repay it all at any time but with the three month’s interest payment as well. While there is no explicit stay of enforcement proceedings that comes into effect upon giving the notice, the combination of the time required to conduct enforcement proceedings, the availability of relief from forfeiture and the fact that the penalty cannot be exacted if payment is in response to enforcement proceedings all provide a practical level of protection that a mortgagor who is able to repay the mortgage post-default has a means to do so and without increased interest cost by giving the requisite notice.
[40] In the present case, the mortgagors failed to give notice pursuant to s. 17 of the Mortgages Act. The payment made on May 17, 2018 was not the result of private or court-supervised enforcement proceedings. On its face, the requirements of s. 17 are satisfied and the payment of three months’ interest was required on May 17, 2018 when the mortgagors repaid the mortgage – then in default – in full.
[41] There is one circumstance that gives me pause in this regard. The mortgagors were seeking an accurate discharge statement from the mortgagee on a continual basis from at least November 2017 whether in the context of negotiating a possible extension of the mortgage by the applicant or a refinancing from another source. The mortgagee continued to demand payments of fees and interest that I have held violated s. 8 of the Interest Act.
[42] If the goal of s. 17 of the Mortgages Act was to provide the mortgagors with the opportunity of a window to arrange financing to repay the mortgage without an interest premium upon giving the prescribed notice, the refusal of the mortgagee to provide an accurate discharge statement served to frustrate that right of the mortgagors. The delta between the amount payable and the amount claimed was not minor – the claimed renewal fee alone was $40,000. There can be no question that the uncertainty created by the mortgagee’s continued but unjustified demands adversely impacted upon the ability of the mortgagors to arrange financing even if they were ultimately successful in doing so.
[43] There is considerable attraction to this argument. Permitting the mortgagee to throw sand in the gears of the mortgagors’ attempts to refinance this mortgage with unjustified demands and then to be rewarded for this by the payment of three months’ interest would appear to turn the objects of the Legislature on its head. What was designed as a shield to protect the mortgagors is instead wielded as a sword against them by the mortgagee to exact what in these circumstances amounts to a penalty.
[44] As meritorious as the argument appears to me to be, I cannot see that the statute leaves me any discretion to ignore its express terms. Certainty in the law is a value that is not lightly to be sacrificed to the equities of a particular situation.
[45] In the result, I find that the applicant is entitled to payment of three months’ simple interest at the mortgage rate of 7.5% on the principal amount outstanding by the terms of the mortgage (without regard to automatic renewal) on May 17, 2018 when the mortgage was repaid.
(d) What payments if any is the applicant entitled to receive from the $100,000 held in trust since May 17, 2018?
[46] The parties have advised that the $100,000 paid into escrow on May 17, 2018 is held as security for the following amounts:
a. the disputed renewal fee,
b. the disputed renewal interest increase,
c. the 3 month’s compensation for non-payment at maturity,
d. further ongoing interest,
e. statement fee,
f. discharge/legal fee as per the statement; and
g. “an amount for legal fees for the further enforcement by application against the mortgagor”.
[47] It follows from my conclusions above that no amount is payable to the applicant in respect of (a) and (b) while the applicant is entitled under (c) to receive the equivalent of three months’ simple interest on the principal amount outstanding on May 17, 2018 when the mortgage was discharged.
[48] The Schedule to the mortgage stipulates a fee of $200 for a discharge statement and an unspecified amount for providing an actual mortgage discharge. Exhibit “M” to Mr. Walman’s affidavit encloses a discharge statement for which a $200 fee might be exigible were it an accurate statement. I see no basis to allow the applicant to charge fees for providing statements demanding amounts materially in excess of the amounts that it is legally permitted to charge. The statement in question continued to demand payment of the $40,000 renewal fee and the higher interest rate both of which I have found to be unjustified. Preparing a piece of paper and putting the word “statement” on top does not make it so. The document prepared could not be used for the purpose intended – to assemble and pay over the funds legally required to discharge the mortgage. This claim is accordingly disallowed.
[49] Some amount ought in fairness to be allowed for provision of a mortgage discharge in registrable form. The claimed amount - $1,636.50 inclusive of HST – is made without any details to justify it. The discharge form is a simple document normally prepared by a legal secretary or real estate clerk in a few minutes. The amount claimed is excessive and without any evidentiary basis to justify it. I will allow a fee of $500 plus HST as a reasonable fee to prepare the discharge for a total of $565.
[50] The applicant has been unsuccessful on the most significant part of this application. The record before me indicates that the respondents offered to pay $820,000 as a comprehensive settlement to discharge the mortgage before this litigation was commenced. This amount would have more than paid the amount attributed to the s. 17 Mortgages Act issue and all amounts I have found to be properly due under the mortgage at that time. While not a formal offer to settle, that correspondence confirms the common-sense conclusion from a review of the entire span of discussions from November 2017 to May 2018 that the automatic renewal penalty claims made by the applicant was the issue that stood in the way of a consensual resolution of this dispute. Characterizing the actions of the mortgagee as “enforcement” would also provide grounds to disallow the claim that I have allowed under s. 17 of the Mortgages Act. I can see no basis to award the applicant fees for its pursuit of unjustified claims as against the mortgagors. This claim under (g) above is disallowed.
[51] This leaves the amount in (d) above for further on-going interest. I have found that the applicant is entitled to three months’ interest on the principal amount outstanding on May 17, 2018 (i.e. excluding accrued interest). The amount payable will be slightly less than $15,000 once the calculations are performed. The only other amount I have awarded the applicant on its claim is $565 for mortgage discharge. All other claims identified against the $100,000 escrow fund have been rejected.
[52] This litigation has seen $100,000 of the respondents’ funds tied up in a solicitor’s trust account paying little to no interest for almost three years. The greater part of that fund I have found that the respondents were entitled to all along. Bearing in mind this circumstance, the substantial success of the respondents on this application, the likelihood that this litigation would have been avoided entirely but/for the applicant’s pursuit of automatic renewal fees and the fact that the same pursuit substantially frustrated the mortgagors’ rights under s. 17 of the Mortgages Act, I view this as an appropriate case to exercise my discretion under s. 130 of the Courts of Justice Act, R.S.O. 1990, c. C.43 in regards to interest. In lieu of prejudgment interest or post-judgment interest, the applicant shall be entitled to its pro rata share of interest actually received on the $100,000 held in escrow up until the date of payment.
[53] I do not have before me a full accounting of any other amounts held in the trust account if there are any such amounts. I have ruled on the matters placed before me pursuant to the application and the evidence the parties filed. I am directing the parties to work out the payments from the escrow account consistent with my findings. In the event of any difficulty in working that out, I may be approached for directions if needed. If necessary, the parties should do so (i) in writing, even if requesting a viva voce hearing; and (ii) with a timetable for both sides to formulate and present their written submissions (not to dissuade the parties from preparing and exchanging those submissions before approaching me!).
Disposition
[54] In conclusion, I am ruling as follows (by reference this time to the prayer for relief set forth in the Notice of Application):
a. The declaration of enforceability of the renewal term sought in paragraph 1(a) of the Notice of Application is denied and the automatic renewal clause is declared to be unenforceable and of no effect;
b. In relation to paragraph 1(b) and (c) of the Notice of Application, I find that the applicant was entitled to receive payment of three months of simple interest at the rate of 7.5% per year on the principal amount (excluding accrued interest) outstanding immediately prior to the repayment of the mortgage on May 17, 2018;
c. In relation to paragraph 1(d) of the Notice of Application, the applicant is entitled to be paid $565 including HST for the mortgage discharge;
d. The applicant shall be entitled to interest as follows and no more: the sum of the amounts determined in (b) and (c) above divided by $100,000 multiplied by the total of all interest earned on the $100,000 escrow amount in the lawyer’s trust account;
e. In relation to paragraph 1(e) of the Notice of Application, the respondents have been substantially successful on this application. In all of the circumstances, I find that the respondents are entitled to their costs of this application with the scale and amount of such costs to be determined in the manner described below.
[55] I instructed the parties to exchange outlines of costs following the close of the oral hearing of this application. This helps fix as a data point the costs of both sides which in turn helps in establishing the reasonable expectations of the losing party. As advised, I am now directing the respondents to deliver their written submissions regarding costs (both as to scale and amount) within fourteen days of the date hereof (allowing the parties a week to discuss the matter first). The applicant shall have a further week to respond and the respondents three days to reply if necessary. Submissions shall not exceed five pages exclusive of an outline of costs or any applicable offer to settle. Cases may be provided by way of hyperlinked index. Materials should be uploaded to CaseLines when delivered.
[56] I have not made a specific order in relation to paragraph 2(a) of the Notice of Application only because it was unclear to me at the hearing that I had the full picture of what amounts were put into escrow and in respect of which claims. I have assumed the amount was $100,000 and the claims were only those that I have specifically dealt with. I have directed the parties to distribute the escrow fund consistent with my reasons and authorized them to seek directions if needed.
[57] Orders accordingly.
S.F. Dunphy J.
Released: March 5, 2021