Court of Appeal for Ontario

DATE: 20210727 DOCKET: M52657 (C69657)

Thorburn J.A. (Motions Judge)

BETWEEN

Ivylin Ricketts Hume and Weston Rodney Hume Applicants (Respondents/Responding Parties)

and

11534599 Canada Corp. Respondent (Appellant/Moving Party)

Counsel: Paul Robson, for the moving party Elaine S. Peritz, for the responding parties

Heard: July 19, 2021 by videoconference

Endorsement

The order sought

[1] The moving party-appellant, 11534599 Canada Corp., seeks an order granting a stay pending appeal of the order of Justice Kendra D. Coats (“the Order”), dated June 28, 2021.

[2] The Order requires the appellant to forthwith provide possession of 7047 Dalewood Drive, Mississauga (“the property”) to the respondents, Mr. and Ms. Hume. The Order requires the respondents to redeem the appellant’s mortgage and the appellant to assign the mortgage debt and convey the property to a third-party lender, pursuant to s. 2 of the Mortgages Act, R.S.O. 1990, c. M.40.

Background

[3] In September 2019, the appellant provided a second mortgage to the respondents in the amount of $215,000. The first mortgage is held by CIBC in the approximate amount of $480,000. The second mortgage was due on September 1, 2020 and “automatically renewed” on September 2.

[4] The appellant says that the respondents defaulted on the interest payments due on the loan on October 1. Total arrears amounted to $4,044.50.

[5] The appellant sent out a demand letter on October 2 but did not receive a response.

[6] On October 28, 2020, upon conducting a routine check of the property, the appellant found the property to be unoccupied and severely damaged by a fire earlier that month.

[7] Without warning or notification to the respondents, the appellant retained a property manager to change the locks and post notices to secure control and possession of the property. Possession of the property was secured on October 28, 2020.

[8] On November 4, 2020, Mr. and Ms. Hume’s counsel accused the appellant of “breaking and entering” and claimed that the possession was illegal as the property was not vacant. The respondents claimed entitlement to pay the arrears and demanded an assignment of the mortgage.

[9] On December 30, 2020, a Notice of Sale was sent to the address set out in the mortgage (i.e. the property), although the respondents no longer resided there, as well as to the respondents’ lawyer. After receiving the Notice of Sale in January 2021, the respondents again requested a payout statement and were given a mortgage discharge statement.

[10] The respondents’ lawyer and a new third-party lender then demanded that the mortgage be assigned to a third-party lender on the basis of s. 2(1) of the Mortgages Act. The appellant refused on the basis of the exception in s. 2(3), which provides that the obligation of a mortgagee to transfer is not applicable where the mortgagee “is or has been” in possession of the mortgaged property.

The test to be met for a stay pending appeal

[11] In deciding whether to stay an order being appealed, the test is the same as that for an interlocutory injunction. The overarching consideration is the interests of justice: Zafar v. Saiyid, 2017 ONCA 919, at para. 18; Circuit World Corp. v. Lesperance (1997), , 33 O.R. (3d) 674 (C.A.), at para. 8.

[12] The factors to be considered are whether:

i. there is a serious issue to be tried, based on a preliminary assessment of the merits of the case; ii. the applicant would suffer irreparable harm if the application were refused; and, iii. the balance of convenience, that is, which parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits: see M & M Homes Inc. v. 2088556 Ontario Inc., 2020 ONCA 134, 51 C.P.C. (8th) 253, at para. 29; RJR-MacDonald Inc. v. Canada (Attorney General), , [1994] 1 S.C.R. 311, at p. 334.

[13] The strength of one factor may compensate for the weakness of another: Zafar, at para. 18.

The application judge’s decision

[14] In this case, the application judge ruled that the appellant was entitled to quiet or “peaceable” possession of the property. The issue was whether it took “peaceable” possession of the property.

[15] The application judge noted the respondents were in default.

[16] However, in her endorsement at paras. 48-50, the application judge found that the property was not vacant; the respondents had not abandoned the property and their possessions remained there; the appellant could expect resistance to the taking of possession; the property was locked; and the respondents’ lawyer challenged the taking of possession within days.

[17] She therefore held that the appellant did not take quiet possession but, rather, took illegal possession of the property contrary to the Mortgages Act. Accordingly, the appellant could not rely on s. 2(3) of the Mortgages Act to refuse assignment of the mortgage to the new third-party lender.

Whether there is a serious issue to be tried

[18] The appellant claims there is a serious issue to be tried. The appellant claims that not granting a stay would trammel the appellant’s contractual and statutory entitlement to quiet possession upon the mortgagor’s default. The appellant further submits that there is no basis in law for the determination that the appellant took “unlawful possession of the property” as the respondents were in default, they were not occupying the premises as the property was damaged by fire, and the appellant did no more than any prudent mortgagee would do to effect control of the premises in these circumstances.

[19] The appellant suggests the application judge made the following errors which raise serious issues to be determined:

i. Although she noted that neither notice nor vacant possession is required before taking possession of the property, the appellant’s right to possess was “seriously challenged” after it received the letter from the respondents’ counsel, such that there was no “peaceable possession”; ii. The application judge further determined that the appellant did not have the statutory right, pursuant to s. 2(3) of the Mortgages Act, to refuse to assign the mortgage but cited no legal authority for why s. 2(3) was not applicable where the mortgagee is in de facto possession; iii. The application judge placed too high a threshold for the determination of whether the appellant established that it had acquired “peaceable” possession by invoking the definition in s. 41 of the Criminal Code; and, iv. Notwithstanding the requirement to pay litigation fees and property management fees, the respondents were not obligated to pay them on the grounds that the appellant’s possession of the property was not legal.

[20] In Royal Trust Corp. of Canada v. Gupta, 1997 CarswellOnt 571, 24 O.T.C. 27 (Gen. Div.), at paras. 35-37, the court observed:

If “peaceably” is interpreted literally, i.e., no conflict arose, then Royal Trust took possession peaceably. However, if “peaceably” is interpreted to mean with knowledge and consent of the mortgagors, or “voluntarily” as described by the Court of Appeal [in Lee v. Guettler (1975), , 10 O.R. (2d) 257 (C.A.)], then Royal Trust did not take possession peaceably.

Although the mortgagee has the right to immediate possession upon default, the mortgagee usually does not exercise that right unless the mortgagor consents to giving up possession, or if the premises are abandoned.

[21] The appellant relies on Royal Trust Corp. of Canada v. 880185 Ontario Ltd. (2005), , 198 O.A.C. 235 (C.A.). The appellant says that this case stands for the proposition that the mortgagee is entitled to unilaterally take possession immediately upon the mortgagor’s default, so long as possession is exercised peaceably.

[22] The appellant also relies on the decision in Lusk v. Perrin, [1920] O.J. No. 201 (Ont. H.C.) where the court held that… “the lands being vacant [as Lusk had been away from the property for a month], Perrin was able to enter peaceably.” The appellant submits that this case stands for the proposition that, on default, the mortgagee is entitled to remain in possession even if possession was not taken peaceably.

[23] The respondents submit that the application judge was correct to find that the appellant did not take quiet possession of the property and that appellant’s unilateral changing of the locks was unlawful. The respondents argue that the law and the findings of fact relied upon by the application judge are consistent with the principles set out in the cases relied upon by the appellant below and on appeal.

[24] I agree that this case appears to be distinguishable from the cases cited by the appellant as in this case:

i. The property was not vacant because the respondents chose to leave. The respondents were forced to leave after the fire; ii. They left the property locked to prevent others from entering and their possessions remained there. iii. There was no abandonment of the property; and, iv. The appellant could reasonably expect that the respondents would not consent to taking possession without notice, which resistance took place within days of the appellant taking possession.

[25] I find that, while the respondents have raised a serious argument that the appellant did not effect “peaceable” possession, the interpretation of “peaceable” possession remains a serious issue on the appeal.

Irreparable harm and where the balance of convenience lies

[26] The appellant claims that if the stay is not granted it will suffer irreparable harm to its ability to enforce this and other like mortgages given the finding that it took “unlawful possession”. The appellant may forfeit its entitlement to quiet possession; and lose the security of its litigation costs, property management expenses and other charges the respondents are contractually obligated to pay. Moreover, the appellant claims that there would be nothing prohibiting the respondents, or the new third-party lender, from selling the property and prohibiting the appellant from collecting the full amount owed.

[27] The respondents claim the appellant will suffer no irreparable harm as the respondents undertake not to sell the property, the appellant will be entitled to seek damages, there is equity in the property and, to the extent that not all funds may be recovered, this was a risk assumed by the appellant in giving a second mortgage.

[28] The respondents point out that in Dhatt v. Beer, 2020 ONCA 545, the Dhatts provided an undertaking “not to deal with the property pending disposition of the appeal”. Zarnett J.A., as motion judge, denied the Beers’ requested stay of an order transferring ownership of a property, holding that “the right to effective relief as a result of a successful appeal will not be lost” given this undertaking.

[29] I find that, while the appellant may not recover all funds owing, the appellant will not suffer irreparable harm if there is no stay pending this expedited appeal. There is equity in the property, the appellant may pursue a claim for relief, and the respondents have undertaken not to sell the property in the interim. I note that Mr. and Ms. Hume, on the other hand, would suffer significant hardship if they lost their principal residence which they only vacated as a result of the fire.

Conclusion

[30] For the above reasons, I find that, while there is a serious issue to be resolved on appeal, the appellant will not suffer irreparable harm in the absence of the proposed stay. If a stay were granted, however, the respondents would suffer significant hardship as they would lose their home. As such, the balance of convenience favours the respondents.

[31] The motion to stay the order of the application judge pending appeal is therefore dismissed.

[32] The issue of costs is reserved for the panel hearing the appeal.

“J.A. Thorburn J.A.”