Court of Appeal for Ontario

Date: 2019-04-09 Docket: C65632

Judges: van Rensburg, Hourigan and Huscroft JJ.A.

Between

Seyed Razi Rokhsefat and Nasibe Kazemzadeh-Khorasgha Applicants (Respondents)

and

8758603 Canada Corp. (formerly known as Ascend Mortgage Investment Corp.) Respondent (Appellant)

Counsel

Zoltan M. Kaslik, for the appellant

Benjamin Salsberg, for the respondents

Heard: March 28, 2019

On Appeal

On appeal from the judgment of Justice Joseph Di Luca of the Superior Court of Justice, dated July 19, 2018, with reasons reported at 2018 ONSC 3615 and 2018 ONSC 4457.

Reasons for Decision

[1] The respondents granted a second mortgage on their home in Richmond Hill, to secure a loan of $120,000 from the appellant. The mortgage was for a term ending August 1, 2017, and until then interest only was payable monthly at the rate of 10.99% per annum.

[2] On the day before the mortgage matured, July 31, 2017, the respondents received a discharge statement, dated July 25, 2017, by email. Included in the amount required to be paid ($128,604.30) were late payment fees and a fee for two demand letters. The statement provided that legal enforcement would commence after 15 calendar days, but it did not state when the 15 days would begin to run.

[3] Two days later, the respondents received a registered letter from the appellant's counsel, dated August 2, 2017, which indicated that the mortgage was in default by reason of the failure to pay the amount due on the redemption date of August 1, 2017. The letter enclosed a Notice of Sale under Mortgage. The letter and notice specified a discharge amount of $153,285.10, inclusive of additional late payment fees, charges for professional and lender administration fees, and various interest amounts. Although the Notice of Sale referred to a payment due date of September 8, 2017, the letter demanded payment by August 2, 2017, failing which enforcement proceedings would be commenced without further notice.

[4] The respondents challenged the amounts claimed by the appellant and the premature Notice of Sale. Ultimately they brought an application in the Superior Court seeking, among other things, an order under s. 12 of the Mortgages Act, R.S.O. 1990, c. M.40, for a discharge of the mortgage upon payment into court of an amount to be determined by the court and a declaration that the Notice of Sale was of no force and effect.

[5] The application judge considered the affidavit evidence and determined that the amount owing on the mortgage as of June 27, 2018 was $144,886.05 (including legal costs already awarded against the respondents), with a per diem interest amount of $42.85 for each day thereafter. He concluded that the default relied on by the appellant was the August default in payment of principal (and not other delays in payment of monthly interest that were alleged in the appellant's materials). He allowed certain expenses claimed by the appellant (including fees for late payments and a discharge fee) and disallowed others (including an illegal interest penalty, three months' interest, and professional and administrative fees that were not supported by any explanation). He ordered that if the amount due and owing was not paid within 30 days, an interlocutory injunction that had been imposed in September 2017 prohibiting enforcement of the mortgage would be lifted, and the mortgagee would be free to enforce the mortgage as it deemed appropriate.

[6] The mortgagee appeals. The mortgagee seeks an order setting aside the order of the application judge, so that a new proceeding can be commenced before an assessment officer under s. 43 of the Mortgages Act. The mortgagee also contends that the application judge ought to have directed the trial of an issue, as there were material facts in dispute. In the alternative, the mortgagee challenges the application judge's disallowance of certain specific charges.

[7] The appellant's principal argument is that the application judge ought not to have determined the application. It argues that the proper procedure for determining the issues was to have the disputed amounts assessed by an assessment officer under s. 43 of the Mortgages Act after tender to the mortgagee or payment into court of the amount demanded, or at least of the principal amount owing. The appellant contends that the respondents had no bona fide intention to redeem, as they had no available funds, and that their application was intended simply to delay the mortgagee's remedies.

[8] The appellant relies on the procedure recognized in the case of Royal Trust Corp. of Canada v. E.R. Kwinch Investments Ltd., 44 O.R. (2d) 593 for the assessment of the mortgagee's costs and other expenses incidental to the exercise of a power of sale, where a mortgagor seeks to redeem and discharge a mortgage, and for the assessment of legal costs other than those incidental to the power of sale under the Solicitors Act, R.S.O. 1990, c. S.15. See also The Manufacturers Life Insurance Company v. 1008522 Ontario Limited, [2006] O.J. No. 787, at para. 18. The appellant contends that the s. 43 procedure before an assessment officer was the only recourse available to the respondents, and that therefore the application judge lacked jurisdiction to determine the issues in dispute. It holds, further, that proceeding under s. 12(3) would have required the prior tender to the mortgagee or payment into court of the full amount owing and claimed together with an amount for future legal costs and interest, or at a minimum the principal amount.

[9] We do not accept this argument. The respondents brought their application in order to challenge the conduct of the appellant, and to determine the proper discharge amount. Because the Notice of Sale followed only two days after the discharge statement and yet demanded payment of an additional sum of nearly $25,000, there was a real question about the legality of a number of the charges. Indeed, the application judge, at paras. 13 and 32 of his June 12 reasons, characterized the August 2, 2017 letter and notice as "remarkable" and the approach of the appellant to the anticipated default of the mortgage principal as "aggressive, perhaps abusive". He noted that the mortgagee's counsel obviously had inflated the mortgage account and gave the impression that unless the inflated amount was paid in one day legal remedies would be exercised. Counsel also gave the impression that sale proceedings had already begun.

[10] A mortgagee must be able to ascertain, assert, and finally defend its right to the legal fees in connection with the mortgage debt. The standard charge terms of mortgage agreements are not a "carte blanche" for a mortgagee to incur and charge fees: Chong & Dadd v. Kaur, 2013 ONSC 6252, at paras. 40 and 43. In the particular circumstances of this case, the respondents' court application was a justifiable response to the appellant's unreasonable conduct, in refusing to explain the additional charges and its issuance of a premature Notice of Sale.

[11] We need not determine in this appeal whether any or all of the various issues that were raised in this application could have been addressed in an assessment under s. 43. It is sufficient to say that the application judge had jurisdiction in this case to address all of the issues that were before him: see e.g. C.M.T. Financial Corporation v. David McGee, 2015 ONSC 3595, 57 R.P.R. (5th) 259, at paras. 67-68.

[12] The application judge might well have concluded that the appropriate procedure was to require the respondents to pay money into court, and then to direct an assessment of the additional amounts at issue. Indeed, at the time the application was first before the court, an order could have been made requiring at least the principal that was admitted to be owing, or some other amount, to be paid into court as a term of the adjournment and interlocutory injunction. The parties are not in agreement as to their respective positions, and what exactly happened at this time, when the mortgagor was represented by other counsel, who was later removed because of a conflict of interest.

[13] What ultimately occurred in this case was that by the time the matter came on for a hearing before the application judge, the parties had provided affidavit evidence, and the application judge was in a position to decide all of the issues before him. Even if some of what he determined in relation to the dispute about the amount that was owing for a discharge of the mortgage could have been addressed before an assessment officer, the matter has been determined. The matter was before a justice of the Superior Court who had jurisdiction to deal with it.

[14] We also see no merit in the appellant's argument that the application judge ought to have directed a trial of the issue because there were disputed facts. The application judge noted, at para. 6 of his June 12 reasons, that the material filed on the application was not subject to cross-examination and that the evidence of each side was diametrically opposed on key issues, but that "[n]onetheless, the parties maintain that this application can and should be decided on the record that is before me." In the circumstances, it was appropriate for the application judge to proceed and to make findings on the evidence that was available.

[15] Finally, we reject the appellant's argument that the application judge erred in his treatment of the various contested amounts that were claimed by the appellant. Specifically, in disallowing the mortgagee's claim for a three-month interest penalty, the application judge indicated that he was not satisfied that there was any prepayment penalty payable under this mortgage, either on default or the failure to pay on the maturity date. Contrary to the appellant's submission, s. 17 of the Mortgages Act does not provide to the mortgagee any unconditional right to claim such a payment based on maturity alone. See 58 Cardill Inc. v. Rathcliffe Holdings Ltd., 2018 ONCA 672, 62 C.B.R. (6th) 173, at para. 9; Ialongo v. Serm Investments Ltd., 54 R.P.R. (4th) 310, at paras. 30-1; and 2468390 Ontario Inc. v. 5F Investment Group Inc., 2017 ONSC 4641, 140 O.R. (3d) 233, at para. 24. With respect to the other items in dispute, the application judge allowed for certain amounts claimed by the appellant, including late payment charges, where there was substantiation for such claims and where they did not offend the Mortgages Act or the Interest Act, R.S.C. 1985, c. I-15.

[16] Accordingly, the appeal is dismissed. Costs of the appeal are payable by the appellant to the respondents in the amount agreed between the parties, $17,500 inclusive of disbursements and HST.

K. van Rensburg J.A.

C.W. Hourigan J.A.

Grant Huscroft J.A.