Court of Appeal for Ontario

Date: July 9, 2019

Docket: C66391 and C66392

Judges: Feldman, Hourigan and Brown JJ.A.

Docket: C66391

Between

Sub-Prime Mortgage Corporation Appellant

and

1219076 Ontario Limited Respondent

And Between

Docket: C66392

Sub-Prime Mortgage Corporation Appellant

and

1219076 Ontario Limited Respondent

Counsel

Glenn E. Cohen and Balpreet S. Lailna, for the appellant

Vladimira M. Ivanov, for the respondent

Heard: July 2, 2019

On appeal from: The orders of Justice Sandra Nishikawa of the Superior Court of Justice, dated December 4, 2018, and the costs endorsement dated January 8, 2019.

Reasons for Decision

Introduction

[1] These appeals arise from a dispute about the calculation of balances owing on two mortgages for discharge purposes. The respondent is the first mortgagee of the properties subject to the mortgages. The appellant, as second mortgagee, filed applications in the Superior Court of Justice seeking orders permitting it to obtain an immediate discharge of the respondent's mortgage on each property by paying money into court, pending further court orders or the resolution of the parties' dispute.

[2] The application judge denied both applications and ordered costs payable by the appellant on a substantial indemnity basis. The appellant appeals the dismissal of its applications and seeks leave to appeal the costs order. For the reasons that follow, we dismiss the appeals on the substantive issues, direct the parties to amend their application materials and argue the disputed items in the mortgage discharge statements in the Superior Court, and refer the issue of the costs below to the judge hearing those amended applications.

Facts

[3] In relation to the first property, 355 Oakwood Avenue, Toronto, the respondent provided the appellant with three different calculations of the balance owing under the mortgage. The appellant did not tender any of these amounts. In relation to the second property, 29 Yeoman's Road, Toronto, the respondent initially issued a mortgage discharge statement dated June 6, 2018, indicating a balance of $675,937.73. The appellant takes the position that it lawfully tendered this amount in full. The respondent contends that its calculation was incorrect and that it therefore issued a revised discharge statement dated June 18, 2018 with a balance of $683,133.76.

[4] The appellant disputed an unspecified number of entries in the discharge statements for both properties. It filed two applications on an urgent basis with the Superior Court of Justice, relying on: ss. 12(3), 12(9), 17, and 22 of the Mortgages Act, R.S.O. 1990, c M.40; s. 8 of the Interest Act, R.S.C. 1985, c. I-15; and rr. 14.05(a), (d) and (e) of Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[5] The applications did not specifically seek an order determining the balance owing for each mortgage. The affidavit supporting the application regarding the first property indicated that the appellant took issue with an open-ended list of items including charges for non-sufficient funds or missed payments, a three-month interest charge, and an automatic renewal fee. There was no detailed recitation of all of the disputed amounts. Instead, the notices of application contemplate those issues being dealt with subsequently. The appellant also took the position that the respondent was obliged to accept its tender for the discharge of the mortgage on the second property.

[6] The application judge found that s. 12(3) of the Mortgages Act did not apply in the circumstances of this case. According to her, the language of s. 12(3) refers to situations where a mortgagee cannot be found, and the section "is not engaged automatically any time there is a dispute with respect to the amount owing on a mortgage".

[7] Even if s. 12(3) did apply, the application judge held that she would not exercise her discretion to grant the relief sought because there was no compelling reason based on the available record to do so. In addition, the application judge was not satisfied that there was sufficient evidence of tender with respect to the second property.

[8] In her costs endorsement, the application judge found that the urgent applications were unnecessary. In her view, the appellant should have paid the mortgage balances under protest and subsequently brought a proceeding to dispute any charges it viewed as excessive. The application judge considered it appropriate to award costs on a substantial indemnity basis in the amount of $12,000.

Analysis

[9] There is an issue regarding whether this court has jurisdiction to hear these appeals, because pursuant to s. 12(10) of the Mortgages Act, "an appeal lies to the Divisional Court from any order made under [s.12 of the act]."

[10] Even if the appeals of the dismissal of the s. 12 relief should be in the Divisional Court, the applicants relied on other statutory grounds and r. 14 and therefore the appeals are otherwise properly before this court. Pursuant to s. 6(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43, we elect to hear the appeals on all issues.

[11] The appellant argues that the application judge failed to exercise her discretion judicially and erred in law in declining to grant a discharge under s. 12(3) of the Mortgages Act. It submits that the procedure it chose was not improper, but expeditious and efficient. The appellant also argues that, even if s. 12(3) was not applicable, the application judge should have dealt with the substantive issues in dispute rather than dismissing the application, as it was properly brought under r. 14.

[12] We agree that the motion judge erred in law in finding that the process under s. 12(3) was unavailable to the appellant because it is a second mortgagee and not a mortgagor. In s. 1 of the Mortgages Act, a mortgagor is defined to include "any person deriving title under the original mortgagor or entitled to redeem a mortgage…" Thus, the appellant was a mortgagor under the act. However, that error was immaterial to her decision.

[13] In considering the appellant's submission regarding s. 12(3) of the Mortgages Act, it is important to look at the wording of that section, which provides:

When a mortgagor or any person entitled to pay off a mortgage desires to do so and the mortgagee, or one of several mortgagees, cannot be found or when a sole mortgagee or the last surviving mortgagee is dead and no probate of his or her will has been granted or letters of administration issued, or where from any other cause a proper discharge cannot be obtained, or cannot be obtained without undue delay, the court may permit payment into court of the amount due upon the mortgage and may make an order discharging the mortgage.

[14] There is case law that suggests that s. 12(3) applies more broadly than situations where a mortgagee is unavailable or a proper discharge cannot be obtained: Fernicola (In Trust) v. Creview Development Inc., 75 R.P.R. (4th) 226 (Ont. S.C.), leave to appeal refused 80 R.P.R. (4th) 178 (On. Div. Ct.); and Metroview Investment Corp. v. Araujo, [2000] O.J. No. 2403 (S.C.). However, even that line of authority recognizes that s. 12(3) applies in limited circumstances and not in every case where there is a dispute over what is owing on a mortgage. In addition, there is an acknowledgment in that case law that the use of s. 12(3) is a matter of discretion to be applied to the individual facts of each case.

[15] We need not determine whether this jurisprudence represents an accurate interpretation of s. 12(3) because in the present case the application judge went on to decide that even if s. 12(3) could be interpreted in this way, she would not make the order requested. That was a discretionary decision and we are not satisfied her discretion was wrongly exercised. The procedural route for resolving disputed costs and charges in a discharge statement is not entirely clear. It is important that mortgagors have a clear understanding about how to contest items in a discharge statement because, as this court stated in Rokhsefat v. 8758603 Canada Corp., 2019 ONCA 273, at para. 10: "the standard charge terms of mortgage agreements are not a 'carte blanche' for a mortgagee to incur and charge fees."

[16] If a mortgagor has legitimate concerns about the amount claimed to discharge a mortgage, an application should be brought under r.14.05(3)(e). The application judge will determine what is owing and may even make an interim order for the payment of monies into court: see Rokhsefat at para. 12. What is crucial in such an application is that the applicant seek a judicial determination of all of the disputed items and provide evidence in support of its position.

[17] That is not what happened in the case at bar. The relief sought before the application judge was not an assessment of disputed costs and charges, which the appellant never fully particularized. Rather, the appellant requested that such costs and charges be assessed at a later date, but that the mortgages be discharged immediately without any payment to the respondent. The application judge cannot be faulted for not making a finding on the validity of the amounts claimed by the respondent, as that relief was never requested and was largely unsupported by evidence.

[18] We are of the view that the appropriate course is that this matter should be remitted back to the Superior Court. The parties shall file amended application materials so that the court can determine, pursuant to r. 14.05(3)(e), whether the disputed costs and charges should be allowed. To be clear, it is open to the court to make such interim order as it sees fit.

[19] In addition, we are of the view that the respondent was not bound by the errors in its discharge statement with respect to the second property. The appellant was not prejudiced by the correction, and could have paid the updated amount to discharge the mortgage. However, the appellant is at liberty to argue in the Superior Court, as it appears it wants to do, that the failure to accept tender reduces the interest that can be charged or otherwise impacts the amount owing.

[20] The appellant also seeks leave to appeal the costs award, arguing that its conduct did not warrant the imposition of substantial indemnity costs. In light of our direction that the applications be remitted to the Superior Court, we order that the application judge's costs order is quashed and a new costs assessment is to be conducted by the judge hearing the amended applications.

Disposition

[21] We dismiss the appeals on the substantive issues, direct the parties to amend their application materials and argue the disputed items in the Superior Court, and refer the issue of the costs below to the judge hearing those amended applications.

[22] The respondent was the more successful party on the appeals and is entitled to its costs of the appeals payable by the appellant, which we fix in the all-inclusive sum of $10,000.

K. Feldman J.A.

C.W. Hourigan J.A.

David Brown J.A.