Court File and Parties

COURT FILE NO.: CV-22-00691633-0000 DATE: 20230224 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CRYSTAL LAKES DEVELOPMENTS INC., ACCU II DEVELOPMENT CORPORATION and RIVERWOOD HILL FARMS INC., Plaintiffs – AND – 291171 ONTARIO INC., DONGAB CO. INC. and NETWORK SEWER AND WATERMAIN LTD., Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Keith Guerts, Ellen Snow, and Wietske Felmore, for the Plaintiffs Maria Konyukhova, Lee Nicholson, and Philip Yang, for the Defendants, Dongab Co. Inc. and Network Sewer and Watermain Ltd.

HEARD: February 21, 2023

Injunction Motion

I. The motion

[1] The Plaintiffs move for an interlocutory injunction prohibiting the Defendant, Dongab Co. Inc. (“Dongab”), from exercising its power of sale in respect of two mortgages that it holds that are secured on title to the Plaintiffs’ property.

[2] The Plaintiff, Crystal Lakes Developments Inc. (“Crystal Lakes”), owns the property legally described as LT 15 BLK 8 PL 905; PT LT 1 BLK 1 PL 905; PT LT 1-11 BLK 8 PL 905; PT LT 13-14 CON 13 WALPOLE; PT 3 18R5607; HALDIMAND COUNTY, being all of PIN 38190-0244 (LT) (the “Property”). The Plaintiff, Riverwood Hills Farms Inc., carries on business as a property development company, and the Plaintiff, Accu II Development Corporation, carries on business as a property developer and specializes in developing properties for builders in small towns across Ontario. All three Plaintiffs are affiliated companies and share a common director and President, Donald Bezemer (“Bezemer”).

[3] Dongab and the Defendant, Network Sewer and Watermain Ltd. (“Network”), are also affiliated companies that share the same owner. Part of the mortgage funds at issue were advanced by Dongab to the Plaintiff in the form of payments made by Dongab to Network for work that Network performed on the Property.

[4] A third Defendant, 291171 Ontario Inc. (“291”), is named in the style of cause and was an integral part of the factual background as one of the Plaintiffs’ mortgagees. That said, Dongab bought out 291’s interest in the mortgage pursuant to a Mortgage Assignment Agreement dated January 31, 2202. There is nothing in the record to indicate that the assignment of 291’s interest to Dongab is not valid. 291 therefore has not participated in this motion and takes no position on the issues considered herein.

[5] Plaintiffs say that two preconditions to repayment of the mortgages have not occurred – a pre-services agreement was not obtained and the relevant authorities have never approved a plan of subdivision. Plaintiffs also contend that there are serious deficiencies with the Defendants’ Notice of Sale – e.g. it was not served on a necessary party with an interest in the Property, it is calculated with compound rather than simple interest, and it uses the wrong interest rate.

[6] The Defendants deny that these defects exist or are material to Crystal Lakes’ liability under the two mortgages. They also submit that there are no preconditions to repayment of the mortgages now that the due date for repayment has already passed. It is the Defendants’ view that this entire action is an exercise in attempting to stall the payments which the Plaintiffs themselves know are due and payable.

[7] Dongab delivered a Notice of Sale pursuant to the Mortgages Act on October 28, 2022. The total amount required to redeem the two mortgages as of October 28, 2022 was $4,482,721.46. The redemption period expired on December 14, 2022. The balance owing on the two mortgages has not been paid. The Defendants submit that the mortgages are valid, due and payable, and must be enforced in accordance with their terms.

[8] The Plaintiffs submit that their challenges to the mortgages and to the validity of the Notice of Sale contain triable issues, and that they will suffer irreparable harm if Dongab sells the mortgaged property thereunder. The Plaintiffs further assert that the balance of convenience in the circumstances lies with them.

II. The 291 Mortgage

[9] On March 16, 2018, the Plaintiff, Crystal Lakes Developments Inc. (“Crystal Lakes”), and 291 entered into a mortgage commitment. That commitment contains a number of conditions precedent for 291 advancing the mortgage funds. Those conditions are not for the repayment of funds that were then not yet advanced, as the Plaintiffs now contend; they were conditions that applied to the advancement of funds at the outset of the mortgage loan. Nothing in the mortgage commitment indicates that the conditions were anything but conditions for advancing the funds.

[10] Despite the conditions to the 291 Mortgage commitment not being satisfied, 291 waived its rights and on March 16, 2018 advanced $1,945,000 to Crystal Lakes. On July 24, 2019, 291 advanced a further $55,000 to Crystal Lakes, with was added to the principal owing under the 291 Mortgage. Crystal Lakes has acknowledged that the mortgage funds were advanced by 291 and received by Crystal Lakes.

[11] The advance of funds was secured by a first charge on the Plaintiffs’ property (the “291 Mortgage”). Once in place, the terms of that mortgage, as usual, superseded the terms of the 291 Mortgage commitment. For present purposes, the key provisions of the 291 Mortgage are: (a) the stated balance due date on the 291 Mortgage is March 15, 2020; (b) the repayment of the 291 Mortgage on the stated due date is not conditional on sale of lots, servicing, or any other step in the development of the Property; and (c) the 291 Mortgage contains no restriction 291’s assignment of its interest thereunder.

[12] On March 18, 2020, 291 and Crystal Lakes entered into a mortgage extension agreement (the “291 Mortgage Extension”). In accordance with that arrangement, Crystal Lakes agreed: (a) to pay a minimum payment of $200,000 every three months out of sale proceeds or other sources; (b) that the maturity date was extended to March 15, 2021; and (c) that accrued interest and extension fees as at March 16, 2020 came to $493,667.

[13] Defendants’ counsel point out that that the only reason to enter into a mortgage extension agreement is because the funds become due and payable. This self-evident fact was specifically acknowledged by Bezemer on cross-examination. Bezemer further acknowledged on cross-examination that the 291 Mortgage became due and payable on the stated balance due date. That acknowledgment, however obvious the point sounded, was contrary to the unsupportable position that Bezemer expressed in his sworn affidavit, where he asserted that the 291 Mortgage “expired” in March 2020 and thus was not due and payable.

[14] In fact, Bezemer could not have credibly answered in any other way when asked point blank whether the mortgage funds were due and payable on the date they were documented to be due and payable. The theory that the 291 Mortgage had somehow “expired” is, in my assessment, a fanciful one put forward as a hollow legal tactic. The 291 Mortgage states its own due date right on the face of the registered document.

[15] Bezemer also acknowledged that the interest rate of the 291 Mortgage Extension is 12%. He affirmed that he had signed his initials next to the cross-out of “10%” and the handwritten “12%” shown on Schedule “A” to the 291 Mortgage Extension. Schedule “A” contains the Standard Charge Terms that form part of the 291 Mortgage Extension. These acknowledgments, also seemingly straightforward in the face of the written documentation that they confirm, were likewise contrary to the position that Crystal Lakes has taken in this litigation. Here they contend that the Defendants have got the interest rate on the 291 Mortgage wrong, and that the power of sale they seek to exercise is therefore invalid.

[16] Any controversy that has now arisen over the interest rate of the 291 Mortgage is, again, manufactured by the Defendants as a litigation tactic. In July 2021, Bezemer confirmed in writing that interest accrues on the 291 Mortgage at the rate of 12% per annum retroactively to March 16, 2018 and that per diem interest on the 291 Mortgage would be $658. He also confirmed that Crystal Lakes would pay the 291 Mortgage in full on or before October 29, 2021. In a note dated July 28, 2021, Bezemer also confirmed that Crystal Lakes would pay the balance outstanding on the 291 Mortgage by October 29, 2021, and that neither he nor Crystal Lakes would withhold their consent to any assignment of the 291 Mortgage.

[17] Crystal Lakes never made a single one of its obligatory quarterly payments of $200,000 under the 291 Mortgage. It made no payment toward the outstanding balance on the 291 Mortgage on the maturity date, nor has it done so at anytime since.

[18] On January 31, 2022, Dongab and 291 Ontario entered into a mortgage assignment agreement under which 291 assigned and conveyed all of its rights, title, and interest in the 291 Mortgage to Dongab. On February 4, 2022, this assignment was registered on title to the Property as a transfer of charge. Accordingly, Dongab now stands in 291’s shoes as mortgagee under the 291 Mortgage and as creditor of Crystal Lakes.

[19] In my view, there is no serious issue to be tried as to whether the 291 Mortgage is due and payable to Dongab or as to the amount that is due and payable thereunder.

III. The Dongab Mortgage

[20] On March 16, 2018, Dongab, Network, and Crystal Lakes entered into a servicing agreement, pursuant to which Network was to do site-servicing work at the Property (the “Servicing Agreement”). The work on the project included installing sanitary systems and watermains. Under the Servicing Agreement, Network’s work was to commence on or before April 15, 2018 and was to be completed by December 31, 2018. There are no further conditions precedent for Network commencing work under the Servicing Agreement.

[21] Crystal Lakes now asserts that the Servicing Agreement was conditional on it obtaining a pre-servicing agreement and various permits and licenses. However, nowhere in the Servicing Agreement does this obligation fall on Network. Rather, it simply states that Network is to commence the work on or about the specified date. Moreover, section 5.2 of the Servicing Agreement provides that Network does not have responsibility for obtaining and paying for permits, licenses, and other certificates that may be necessary for the project.

[22] Under the Servicing Agreement, each invoice rendered by Network for the work on the Property is to be treated as an advance to Crystal Lakes, with the invoiced amount added to the principal amount of Dongab’s second-ranking charge on the Property (the “Dongab Mortgage”). Each advance is considered effective as of the date of the invoice, with interest accruing from that date. Section 11.6 of the Servicing Agreement provides that the term of the Dongab Mortgage is 24 months.

[23] Other important aspects of the Dongab Mortgage include: (a) the balance due date for repayment of the loan is March 15, 2020; and (b) the Standard Charge Terms, including the term that provides for compound interest being payable at the specified mortgage rate after default, form part of the Dongab Mortgage.

[24] Given the position that Crystal Lake now takes with respect to the maturity and repayment of the Dongab Mortgage, it is also worth noting that nowhere in the mortgage documentation is the repayment of the Dongab Mortgage made conditional on Crystal Lake’s sale of lots, servicing of the Property, or any other step in the development of the Property. Rather, the Dongab Mortgage contains a specified due date and repayment of the mortgage is made payable on that date. Again, Crystal Lake’s litigation position that the Dongab Mortgage never came due because their development plans are stalled appears to be a tactical position not based on anything that can be found in the Dongab Mortgage documentation.

[25] The Dongab Mortgage matured on March 15, 2020. It was not repaid on the maturity date, nor has it been repaid at anytime since that date.

[26] Bezemer has sworn an affidavit on behalf of Crystal Lakes that asserts, unconvincingly in my view, that he was not aware that Network had commenced works on the Property in May 2018. Bezemer contends in his affidavit that had he been aware that work had begun without a pre-service agreement in place, he would have insisted that Network stop work immediately.

[27] In cross-examination, Bezemer tried to walk this assertion back by saying that what he meant in his affidavit was that he did not realize that Network had commenced “in ground” works, as opposed any work at all on the Property. But emails from April-May 2018 show that Crystal Lakes and Network were in contact with each other regarding the work and that Crystal Lakes was well apprised of Network’s progress under the Servicing Agreement.

[28] Affidavit evidence also establishes that Crystal Lake’s own engineering consultants and agents, J.H. Cohoon Engineering Limited (“J.H. Cohoon”), directly communicated with Network regarding Network’s commencement of work on the Property. Likewise, Crystal Lake’s construction layout contractor visited the Property in May-June 2018 and reported that Network was to proceed with its preliminary earthworks; and Crystal Lakes’ land surveyor was also in direct communication with Network about starting work during the same time frame.

[29] Email correspondence dated June 12, 2018 shows Network making Bezemer and Crystal Lakes aware that its personnel would be on the Property beginning to install watermains on June 14, 2018, and that it would be installing the sanitary systems and stormwater drains following that. More specifically, on June 14, 2018, a Network employee wrote to Bezemer, Crystal Lakes, and J.H. Cohoon, advising them that, “[W]e will be starting water main installation tomorrow. We will require inspection as necessary.”

[30] When confronted with this evidence in cross-examination, Bezemer had nothing in the way of a cogent explanation. He even denied corresponding with the Network employee whose correspondence with him is in the record. Similarly, he denied knowing that Network had excavated the Property enough to make contact with rock, although a series of emails in the record shows Network personnel writing to him directly on June 22, 2018 stating: “As you know, we hit rock on the site, installing the water main.”

[31] Bezemer also swore in his first affidavit that the County in which the Property is located had issued a “stop work” order against Network, requiring it to cease construction work until the pre-servicing agreement was in place. However, he was unable to produce any such “stop work” order. In cross-examination, he conceded that he had been mistaken, as there was no stop work order, or anything similar, ever issued in respect of Network’s work on the Property.

[32] Indeed, despite the bald and unqualified statements made on behalf of Crystal Lakes that Network was instructed not to commence or to stop its work on the Property, and/or that Network’s work on the Property was deficient, there is not a single document in the record evidencing this supposed instruction. As Defendants’ counsel puts it, there is “nothing from Crystal Lakes, the County, or J.H. Cohoon which (a) instructed Network to ‘cease and desist’ the Work; (b) stated that the Work commenced by Network had to be stopped; or (c) stated that there were any deficiencies in the Work.” The entire position of Crystal Lakes in respect of Network’s work on the Property is an exercise in obfuscating the facts, all of which are otherwise clear in the written record.

[33] Network provided invoices for its work on the Property from May through December 2018 totaling $814,990.65. Two years later, on September 30, 2020, Network issued a final invoice in the amount of $46,500 relating to additional crushing of rock on the Property that was at that time specifically requested by Crystal Lakes. Itemized draws for each of the invoices were also provided to Crystal Lakes. The record establishes that the total principal amount added to the Dongab Mortgage for work completed by Network is $861,490.65.

[34] On November 3, 2021, J.H. Cohoon delivered a letter which stated that it was on site when Network was carrying out the work on the Property. The letter confirmed that from June 29, 2018 to January 28, 2019 it had periodically inspected Network’s work. J.H. Cohoon went on to advise that the work performed by Network was done in accordance with Ontario Provincial Standard Specifications and was certified by J. H. Cohoon’s own staff. Further, on May 27, 2022, the County did a site inspection of the Property. The inspection report indicates that the County was satisfied that Network’s watermain and sanitary sewer installation was done in a satisfactory manner.

[35] Nothing in the reports from the County or from J. H. Cohoon raises any concerns about the quality of work completed by Network on the Property. Moreover, Crystal Lakes itself never disputed the amounts of Network’s invoices or the quality of Network’s work at any time from 2018 through 2020. The first time Crystal Lakes raised any issues with respect to the work performed by Network was in 2021, after the Dongab Mortgage matured and the balance was due and payable. These criticisms of Network’s performance under the Servicing Agreement lack credibility.

[36] Finally, Plaintiffs’ counsel submit that there is no evidence that funds were ever advanced pursuant to the Dongab Mortgage. What they mean, given the structure of the mortgage transaction under the Servicing Agreement, is that the record contains no actual cheques written from Dongab to Network in payment for Network’s services. Those cheques would, in effect, represent advances of funds to Crystal Lakes under the Dongab Mortgage.

[37] This seems to me to be an example of Crystal Lakes offering a strictly self-serving perspective on the payment method under the Servicing Agreement. As already indicated, Dongab and Network are sister companies, both owned by the same person. Whether cash changed hands between two companies’ bank accounts, or cheques were written, or accounting entries were simply made as a matter of internal bookkeeping, the flow of exchange between them is none of the Plaintiffs’ business.

[38] The fact is that Network did the work it was supposed to do, issued itemized invoices for that work, had the work inspected and provided reports that it was done properly, and provided the value of the mortgage loan to Crystal Lakes. Despite all of that, Crystal Lakes has never paid for the value that it received. For Crystal Lakes to now say that they need to see the mechanics of how Dongab settles accounts with Network is more of a deflection from the facts underlying the Dongab Mortgage than a quest for clarification of those facts. It is beyond controversy that Crystal Lake has taken value and has never repaid it as it is obliged to do.

[39] There is, in my view, no serious issue to be tried as to whether the Dongab Mortgage is due and payable or the amount that is due and payable thereunder.

IV. The Notice of Sale

[40] Separate from their position that the two mortgages are not due and payable, the Plaintiffs have put forward two explanations for their position that Dongab’s Notice of Sale should be held to be invalid. In the first place, they state that Clarence Boer Construction Limited (“Boer”), a company that had contracted for pre-sales of subdivision lots to be created on the Property, was required to have been served with the Notice of Sale. Secondly, they submit that interest on the 291 Mortgage is calculated incorrectly in the Notice of Sale.

[41] Turning first to the question of notice to Boer, section 31 of the Mortgages Act sets out who must be given notice of a sale in exercise of a mortgagee’s rights. The Plaintiffs rely on subsection 31(1)-(4), which require the mortgagee to give notice where the mortgagee itself has actual notice in writing of any other interest in the mortgaged property.

[42] The parcel register for the Property shows that Boer has no registered interest. What Boer has – or, more accurately, what it had – is an Agreement of Purchase and Sale with Crystal Lakes dated December 8, 2017 for subdivision lots to be created on the Property. That Agreement, by its own express terms, expired within one year of its signing date – i.e. on December 7, 2018. That expiry date was subsequently extended, but there is no evidence that Dongab ever had notice of the extension. The only document that the record establishes Dongab was aware of is the Agreement of Purchase and Sale itself, which had long expired by the time the Notice of Sale was issued.

[43] Accordingly, since there is no evidence in the record that Dongab or, for that matter, 291, were ever provided with extensions of the Boer Agreement, neither Dongab nor 291 had actual notice in writing of Boer’s alleged interest in the Property at the time the Notice of Sale was issued. Under the circumstances, section 31 of the Mortgages Act does not apply to Boer. Dongab, as the mortgagee issuing the Notice of Sale, had no notice of Boer’s interest, and so the Notice of Sale did not have to be served on Boer. There is no evidence to support the Plaintiffs’ argument on this account; the Notice of Sale was served on every party that needed to be served.

[44] Turning to the challenge to Dongab’s interest calculation, interest on the 291 Mortgage accrued at the rate of 12% per annum pursuant to the Schedule “A” to the 291 Mortgage Extension. As explained earlier in these reasons, Bezemer confirmed the 12% rate during cross-examination. The 291 Mortgage Extension was signed and initialed by Bezemer himself on behalf of Crystal Lakes.

[45] In any case, even if the dollar amounts in the Notice of Sale were misstated (which I do not believe to be the case), such amounts would be most appropriately addressed by means of an accounting under section 27 of the Mortgages Act. If an accounting takes place, or if Dongab concedes a calculation error, the Notice of Sale may be rectified through a revised payout statement: Toronto-Dominion Bank v. Pallet Developments Ltd. (1984), 47 OR (2d) 251, at 254 (Div Ct).

[46] Accounting errors of the kind alleged by the Plaintiffs do not invalidate a Notice of Sale: 1175945 Ontario Ltd. v. Michael Wade Construction Co., 2010 ONSC 3732, at para 33. As the Notice of Sale now stands, Crystal Lakes is able to intelligently assess its position with respect to redemption of both the 291 Mortgage and the Dongab Mortgage. The Notice is not misleading, nor is likely to fool or confuse anyone examining it: Taro Properties Inc. v. Henry Waks & Sons, [1990] O.J. No. 643 (Ont. H.C.).

[47] No useful purpose would be served by having Dongab re-issue another Notice of Sale. The Notice meets the applicable standard of commercial reasonableness: 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018 ONCA 699, at para 65.

[48] In any case, I find that there is no genuine issue for trial with respect to the validity of the Notice of Sale issued by Dongab.

V. Conclusion

[49] It is settled law that a mortgagee acting in good faith and without fraud will not be restrained from a proper exercise of the power of sale, except upon tender by the mortgagor of the principal, interest and costs: Hornstein v. Gardena Properties Inc., 2006 ONCA 548, at para 9 (Ont CA). Therefore, when a mortgagee seeks to enforce its rights in good faith through power of sale, there is no serious issue to be tried: 1943237 Ontario Corp. v. Kensington 35 Holding Ltd., 2016 ONSC 4134, at para 22.

[50] Crystal Lakes has never tendered the amounts owing under the 291 Mortgage or the Dongab Mortgage. The positions taken here by Crystal Lakes and the other Plaintiffs seem designed to defer the inevitable to a later date; they add up to little more than an artful dodging of liability under the two mortgages in issue.

[51] There is no serious issue to be tried with respect to liability under either the 291 Mortgage or the Dongab Mortgage. Both mortgages are due and payable by Crystal Lakes.

[52] There is also no serious issue to be tried with respect to the amounts payable under either of those mortgages. Similarly, there is no serious issue to be tried with respect to the validity of the Notice of Sale issued by Dongab.

[53] Without a serious issue to be tried, there can be no injunctive relief: RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, at para 48.

VI. Disposition

[54] The Plaintiffs’ motion is dismissed.

[55] The parties may make written submissions on costs. I would ask Defendants’ counsel to send by email their brief submissions to my assistant within two weeks of today’s date, and for Plaintiffs’ counsel to send to my assistant by email their equally brief submissions within two weeks thereafter.

Date: February 24, 2023 Morgan J.