Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20230801 DOCKET: C70856

Miller, Harvison Young and Favreau JJ.A.

BETWEEN

Anojan Thangavel and Rokulan Thangavel Applicants (Appellants)

and

Bowmanville Lakebreeze West Village Ltd. Respondent (Respondent)

Counsel: Ian J. Perry, for the appellants Ankush Sondhi and Ryan Louis Cons, for the respondent

Heard: July 20, 2023

On appeal from the order of Justice Chris de Sa of the Superior Court of Justice, dated June 9, 2022, with reasons at 2022 ONSC 3492.

Reasons for Decision

[1] The appellants, who are brothers, purchased a custom built home from the respondent developer. The appellants were unable to obtain sufficient bank financing for the purchase and the shortfall was supplied by way of vendor takeback (“VTB”) mortgage financing. The VTB mortgage was in the amount of $500,000 with an interest rate of 9.99% per annum.

[2] The appellants made one and a half payments on the VTB mortgage before defaulting in April 2020. The respondent delivered a Notice of Sale on December 23, 2020, which set out the total amount due as $561,965.19 as of that date, and stated that the interest rate “on the principal and interest...from the 21st day of December, to the date of payment” was 18% per annum. The respondent later commenced a mortgage action on the outstanding balance on February 26, 2021 and obtained default judgment on October 28, 2021. The appellants have responded with a motion to set aside the default judgment, which remains outstanding and has not yet been scheduled.

[3] The appellants were unsuccessful in their attempts to obtain financing to redeem the VTB mortgage. In March 2022, they requested a copy of the original Notice of Sale (they disputed having been validly served originally) and received an updated mortgage statement claiming an outstanding balance of $783,241.79. On its face, the increase in amount owing is due not only to accrued interest, but in large measure due to additional charges, predominantly realtor commissions for multiple sales of the property that were cancelled as a result of the appellants registering cautions on title which blocked the sales.

[4] The appellants brought an application in May 2022 to set aside the Notice of Sale and to stay a pending sale to allow them a reasonable opportunity to redeem the mortgage. They contested the amounts stated on the updated mortgage statement, which they claim were inflated (particularly because arrears were calculated using an illegal rate of interest that contravened s. 8 of the Interest Act, R.S.C. 1985, c. I-15), which prejudiced their ability to redeem the mortgage.

[5] The application judge found there was a “sound basis” for the complaint about the violation of the Interest Act – without making a definitive finding in that regard – and required the respondent to provide a mortgage statement removing all of the charges the appellants contest and with interest calculated at 9.99%. That mortgage statement provided an amount owing of $619,011.22. The application judge noted that the reduced amount was still greater than the mortgage commitments the appellants had been able to obtain, so there was no realistic possibility that the appellants could redeem on even the most favourable of assumptions. He therefore dismissed the application.

[6] Although the appellants appealed, they did not seek a stay of the order pending appeal and the respondent sold the home. The sale was at a price substantially lower than the respondent would have obtained had either of the previous two sales been concluded. The application judge ordered that $561,965.19 of the proceeds of sale (the amount referenced in the original Notice of Sale) be paid directly to the respondent, with the remaining balance paid into court to the credit of the mortgage action. Those funds remain held in court.

[7] The appellants appeal on the basis that the Notice of Sale ought to have been set aside because the respondent intentionally inflated the redemption amount by claiming unjustified charges including interest on arrears at nearly double the contracted rate, in violation of the Interest Act. The application judge erred, they argue, because he did not make a finding that the respondent intentionally and materially miscalculated the amount to redeem stated in the Notice of Sale, and in not finding that this prejudiced the appellants’ ability to obtain mortgage financing.

Analysis

[8] This appeal is beset with evidentiary problems. Most significantly, it is unclear from the record whether the respondent in fact charged interest at an increased rate on default or merely stated that it would. The application judge did not make a finding on this point. The mortgage amortization schedule included in the respondent’s compendium for oral argument is not attached to an affidavit and it is unclear whether it was before the application judge. Neither is it clear from the face of the document what interest rate is being charged.

[9] The respondent sought to introduce fresh evidence without bringing the necessary motion and on short notice to the appellants, who objected to its admission. The fresh evidence largely responded to collateral issues raised by the appellants alleging that deficiencies in the build of the home – particularly roof leaks resulting in mould – necessitated that the appellants move out of the home and incur carrying costs of two homes, causing their default under the VTB. The evidence is not relevant to any matter put in issue by the Notice of Application and is not admissible under the test set out in Palmer v. The Queen, [1980] 1 S.C.R. 759.

[10] As noted above, the application judge did not make a finding on the central factual question of whether the amount claimed under the Notice of Sale was based on an illegal rate of interest. He instead assumed that it did, but noted that even assuming the rate most favourable to the appellants, they had not managed to obtain a mortgage commitment sufficient to redeem the VTB mortgage. It was therefore pointless to set aside the Notice of Sale as the only possible result would be further deterioration of the appellants’ financial position.

[11] On appeal, the relief sought by the appellants was limited to setting aside the Notice of Sale and disallowing the realtor commissions added to the VTB mortgage for the three sales. (At one point in oral argument, counsel also requested as a remedy that the sale to the third party purchaser be annulled, but rightly resiled from this suggestion on reflection that the purchaser is not a party to these proceedings and was not provided with notice of the appeal.)

[12] However, the purpose of the Notice of Sale is to give the mortgagor an opportunity to redeem the mortgage and preserve ownership of the home. That is no longer a live option for the appellants. The home has been sold and the appellants made no effort to obtain a stay pending appeal so as to preserve their position. The appellants are, essentially, seeking an award of damages to credit against the amount owing under the VTB mortgage. The issue on appeal, however, was whether the application judge erred in failing to set aside the Notice of Sale. That issue is moot. The questions of the amounts owing under the VTB mortgage and the basis on which such amounts may be owing are more suitable for adjudication in the outstanding mortgage action, particularly given the deficiencies in the application record.

Disposition

[13] The appeal is dismissed. The respondent is awarded costs of the appeal in the amount of $20,000, inclusive of HST and disbursements, as agreed between the parties.

“B.W. Miller J.A.”

“A. Harvison Young J.A.”

“L. Favreau J.A.”