COURT OF APPEAL FOR ONTARIO

CITATION: 2257573 Ontario Inc. v. Furney, 2020 ONCA 742

DATE: 20201119

DOCKET: M51878 (C68734)

Jamal J.A. (Motions Judge)

BETWEEN

2257573 Ontario Inc.

Plaintiff/Defendant by Counterclaim (Respondent/Responding Party)

and

Alex Aiden Fitzgerald Furney also known as Alex Furney, Maryam Furney and Hassan Hashemi

Defendants/Plaintiffs by Counterclaim (Appellants/Moving Parties)

Richard K. Watson, for the moving parties

Howard W. Reininger, for the responding party

Heard: November 10, 2020 by video conference

REASONS FOR DECISION

Introduction

[1] The appellants move to stay pending appeal parts of the orders of Turnbull J. ("motion judge"), dated October 14, 2020. The motion judge granted the respondent, a mortgage lender, summary judgment under several mortgages on the appellants' properties found to be in default.

[2] The motion judge ordered the appellants to pay the respondent $880,642.98 plus interest under the mortgage agreements. He also granted the respondent, as mortgagee, possession of two investment properties owned by the appellant Maryam Furney at 253 Four Mile Creek Road and 419 Progressive Avenue in Niagara-on-the-Lake, Ontario ("Properties").

[3] This stay motion relates only to the orders for possession of the Properties. It is not disputed that the orders to pay money were stayed by the appeal to this court: r. 63.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[4] It is also not disputed that the appellants' mortgage loans have all been in default for several years. The motion judge found the appellants "have paid absolutely nothing on the mortgages for over three and one-half years … nor offered to do so … not one cent has been paid on any of these mortgages since the funds were advanced over three years ago." That remains true today.

[5] For the reasons that follow, the motion to stay the orders for possession is dismissed.

Background Facts

[6] The motion judge set out the background facts about the parties' mortgage financing transactions in two detailed rulings: an initial ruling ordering viva voce evidence on the summary judgment motions (2257573 Ontario Inc. v. Furney et al., 2020 ONSC 781), and a later ruling granting summary judgment (2257573 Ontario Inc. v. Furney et al., 2020 ONSC 6002). The essential facts are as follows.

[7] The appellant Maryam Furney, a licensed mortgage agent and an experienced real estate investor, is the registered owner of the Properties. Her husband, the appellant Alex Furney, was the registered owner of a third property in Niagara-on-the-Lake. The appellant Hassan Hashemi is an acquaintance of the Furneys and was the registered owner of a property in Woodstock, Ontario.

[8] In early 2017, the Furneys were having financial difficulties and wanted to refinance the mortgages on their properties. Hashemi, who was interested in investing in one of the Properties, introduced the Furneys to Anil Kingrani, the principal of the respondent, a mortgage lender, to obtain short-term financing.

[9] In February and March 2017, the Furneys, Hashemi, and Kingrani negotiated several high-interest, short-term loans from the respondent — totalling almost $900,000 — secured by mortgages on the appellants' properties, to allow the Furneys to seek alternative financing on a longer-term basis. The appellants were represented by counsel in these transactions.

[10] Unfortunately, the Furneys could not obtain longer-term financing. This led to the accumulation of interest, other charges, and penalties on the mortgage loans with the respondent. The appellants defaulted on their mortgage agreements from the outset. As the motion judge found, the appellants have neither paid nor offered to pay anything towards these mortgage loans since they were concluded in early 2017.

The Claims and Counterclaims

[11] In late 2017, the respondent sued the appellants for defaulting under the mortgage agreements. It then moved for summary judgment, seeking orders for possession of all the properties and repayment of the principal advanced, accrued interest, and other penalties, fees, and charges under the agreements.

[12] In response, the appellants claimed the respondent had breached an alleged oral agreement, forming part of the refinancing arrangements, under which the respondent agreed to discharge three executions against the Properties. They also claimed the respondent failed to provide them with timely and accurate mortgage discharge statements and that, once the penalties, fees, and charges were included in the calculation of the effective annual interest rate, the mortgage loans involved a criminal rate of interest contrary to s. 347 of the Criminal Code, R.S.C. 1985, c. C.46. Finally, the appellants counterclaimed against the respondent, alleging that they suffered damages when the respondent unreasonably refused to discharge the executions against the Properties under the oral agreement and provided them with inflated mortgage statements.

The Summary Judgment Decision

[13] The motion judge ruled that it was essential to hear viva voce evidence from Kingrani, Maryam Furney, and Hashemi. After hearing that evidence, the motion judge granted summary judgment for the amounts owing under the mortgage loans. He also granted orders for possession of the Properties and for those of Alex Furney and Hashemi.

[14] The properties of Alex Furney and Hashemi were sold under powers of sale by prior mortgagees. The only remaining properties are the Properties of Maryam Furney.

[15] The motion judge rejected the appellants' claim that the respondent orally committed to discharge three executions against the Properties as part of the refinancing arrangements. He found it was "inconceivable that a mortgagee would agree to refinance properties for amounts and upon terms which had not been specified". He also noted the appellants' lawyer on the transactions did not file an affidavit on the summary judgment motion to support the claimed oral commitment, which he would have expected in the circumstances.

[16] The motion judge accepted that if the other penalties, fees, and charges set out in the respondent's discharge statements were included in the calculation of the effective annual interest rate, that rate would exceed the criminal rate of interest under s. 347 of the Criminal Code. He noted, however, that the respondent was now seeking repayment of only the principal and interest under the mortgage loans. In the circumstances, the motion judge was prepared to order severance of each of the mortgage loan agreements to allow the respondent judgment on only the principal advanced, with interest at the rates agreed to, which while high (24% and 18%) were below the criminal rate (exceeding 60%). He found that "[t]his was a risky commercial transaction. The parties bargained for the interest rates reflected in the registered mortgages."

[17] The motion judge allowed the counterclaims to proceed because the respondent did not seek their dismissal. He observed, however, there was no evidence before the court of any the damages alleged and the pleadings were "sadly deficient of particulars".

[18] The motion judge suggested the appellants might have avoided the orders for possession by paying the disputed amounts into court, as the respondent had proposed, subject to an accounting and the court's decision. But they never did so.

The Test for a Stay Pending Appeal

[19] To obtain a stay of a judgment pending appeal, a moving party must meet the three-part test for an interlocutory injunction: (1) there is a serious question to be determined on the appeal; (2) the moving party will suffer irreparable harm if the stay is denied; and (3) the balance of convenience favours granting the stay: RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, at p. 334; Wilfert v. McCallum, 2017 ONCA 895, 54 C.B.R. (6th) 249, at para. 6; and Starkman v. Home Trust Company, 2015 ONCA 436, at para. 7.

[20] In applying this test, the court is mindful that "[t]hese three criteria are not watertight compartments. The strength of one may compensate for the weakness of another. Generally, the court must decide whether the interests of justice call for a stay": Circuit World Corporation v. Lesperance (1997), 1997 CanLII 1385 (ON CA), 33 O.R. (3d) 674 (C.A.), at p. 677.

Application to This Case

[21] The appellants meet none of the criteria for a stay.

(1) Serious question to be determined on the appeal

[22] The threshold to establish a serious question on the appeal is low. The court must make a preliminary assessment of the merits of the case and determine whether the issue on appeal is neither frivolous nor vexatious: RJR-MacDonald, at p. 337; Circuit World Corporation, at p. 677.

[23] Here, the appellants allege the motion judge erred in law and fact by: (1) failing to find an oral contract for the respondent to discharge executions against the Properties; (2) failing to apply the doctrine of good faith and honest performance to a contract; (3) failing to properly consider the legal consequences of the respondent's prolonged and unlawful attempt to collect more than the criminal rate of interest; (4) misapplying the doctrine of severance by awarding the respondent a grossly excessive amount of interest; (5) failing to give the appellants a reasonable period of time to pay the amounts ordered; and (6) risking inconsistent results and substantial injustice by granting the respondent immediate possession before adjudicating the counterclaims.

[24] All the appellants' grounds of appeal address whether the motion judge erred in determining the total amount due under the mortgage loans. They do not dispute that the mortgage loans are in default and have been for several years. Even if the appellants succeed on appeal in reducing the interest payable, their mortgage loans will still be in default. That default triggers the respondent's right to possession. There is thus no serious question on the appeal about the respondent's right to possession of the Properties: see Starkman, at para. 9.

[25] The appellants say, however, that they are now ready, willing, and able to satisfy their monetary obligations. They provided evidence on this motion that they have a commitment of alternative financing on the Properties and are prepared to pay the principal and three months' interest into court. But the financing commitment letter they filed shows that their proposed new lender insists on a blanket first and second mortgage on the Properties as security. The respondent would therefore have to subordinate or relinquish its mortgages on the Properties. The respondent does not accept this proposal. In any event, the proposal does not detract from my conclusion that there is no serious issue on appeal as to the respondent's right to possession of the Properties.

(2) Irreparable harm

[26] I also do not accept the appellants' submission that they would suffer irreparable harm if the stay is denied.

[27] Irreparable harm is "harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other": RJR-MacDonald, at p. 341.

[28] The appellants posit three claims of irreparable harm if the stay is denied.

[29] First, they say the respondent would engage in an improvident sale of the Properties, destroying the appellants' equity and leaving them with a deficiency in what they owe the respondent and third-party judgment creditors. But in any sale, the respondent as mortgagee has a legal obligation to take reasonable precautions to obtain the true market value of the Properties as of the date of sale: Centurion Farms Ltd. v. Citifinancial Canada Inc., 2013 ONCA 79, at para. 4; Manufacturers Life Co. v. Granada Investments Ltd. (2001), 2001 CanLII 2708 (ON CA), 150 O.A.C. 253 (C.A.), at para. 67, leave to appeal refused, [2001] S.C.C.A. No. 637; Oak Orchard Developments Ltd. v. Iseman, [1987] O.J. No. 361 (H.C.), aff'd [1989] O.J. No. 2394 (C.A.); and Joseph E. Roach, The Canadian Law of Mortgages, 3rd ed. (Toronto: LexisNexis, 2018), at pp. 136-139. Nothing before the court suggests the respondent will breach this legal obligation.

[30] Second, the appellants say they will have no effective remedy against the respondent if they succeed on the appeal or counterclaims, because the respondent is a numbered company whose assets and financial condition are unknown. They fear Kingrani may deplete the respondent's assets between now and the final determination of the appeal or counterclaims. Again, however, there is no evidence before the court to justify this fear.

[31] Third, the appellants claim that if the stay is denied they will lose their right to redeem the mortgages and repurchase the Properties. I do not accept this submission. To date, the appellants have not sought to exercise their right to redeem the mortgages. Nor, on the evidence before the court, is there is any realistic prospect of them doing so in the foreseeable future. The evidence on this motion establishes that the appellants are heavily indebted: the Properties are encumbered with over $1.4 million in executions and liens by the Canada Revenue Agency, the Town of Niagara, and other judgment creditors. In the circumstances, I see no irreparable harm to the appellants in allowing the respondent to take possession of the Properties now, as permitted by the motion judge.

(3) Balance of convenience

[32] Finally, I do not accept the appellants' submission that the balance of convenience favours granting a stay.

[33] The balance of convenience involves a determination of who would suffer the greater harm from granting or refusing the stay, pending a decision on the merits of the appeal: RJR-MacDonald, at p. 342.

[34] This factor overwhelmingly favours the respondent. If the stay is denied, the appellants will lose their right to redeem the mortgages. But on the evidence before me I have concluded there is no realistic prospect of such redemption in the foreseeable future. The appellants have significant indebtedness under loans from the respondent that allowed them to continue to own and perhaps earn income from the Properties for three-and-a-half years. Yet they made no payments, even under protest, as they challenged the quantum of their indebtedness. The respondent lent money to the appellants in exchange for mortgage security it now seeks to realize upon, after an extended period of default, and after the motion judge has ruled in its favour. In these circumstances, the respondent would suffer greater harm if its right to possession is delayed any more.

[35] I therefore conclude the appellants have not met the test for a stay.

Disposition

[36] The appellants' motion to stay the orders for possession is dismissed.

[37] The respondent is entitled to costs on a substantial indemnity basis under the standard mortgage terms in the claimed amount of $12,309.94, inclusive of disbursements and HST, to be paid within 30 days of this order.

"M. Jamal J.A."