COURT FILE NO.: 11-51660

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

SCOTIA MORTGAGE CORPORATION

Eric M. Appotive, for the Plaintiff

Plaintiff

• and -

MIAN JAVAID HAKIM, YASMIN JAVAID and KHURSHID ANWAR DOST

Mian Javaid Hakim, and Yasmin Javaid, Self-Represented

Lloyd R. St. Amand, for Khurshid Anwar Dost

Defendants

• and –

BASSEM HAJJAR, CHESTERFIELD CANADA INC., SCOTTISH & YORK, AVIVA INSURANCE, AXA INSURANCE CANADA, LLOYD’S UNDERWRITERS A100380, LLOYD’S UNDERWRITERS A100384, JAVOCO INSURANCE COMPANY and OMEGA GENERAL INSURANCE COMPANY

Charles M. Merovitz and Kathleen McDormand, for Bassem Hajjar

Third Parties

HEARD: May 2-3, 2012

REASONS FOR JUDGMENT

Aitken J.

Nature of Proceedings

[1] Scotia Mortgage Corporation (“Scotia”) seeks summary judgment against the Defendants, Mian Javaid Hakim (“Hakim”), Yasmin Javaid (“Javaid”), and Khurshid Anwar Dost (“Dost”), jointly and severally, in regard to all sums owing under a mortgage for $562,500 dated June 8, 2006 and registered the same day at the Land Registry Office in Ottawa as instrument number OC600688 (“the first mortgage”). Hakim and Javaid were the mortgagors and Dost was the guarantor under this mortgage. The property is also subject to a second mortgage for $148,000 (“the second mortgage”) in favour of Bassem Hajjar (“Hajjar”) registered January 25, 2008. Hajjar seeks summary judgment dismissing all third party claims against him.

[2] The property is located at 1678 Regional Road 174, Cumberland, Ontario (“the property”). The house on this property was the home of Hakim and Javaid. It was completely destroyed by fire on December 3, 2010. At the time, there was a policy of insurance on the property with Chesterfield Canada Inc. (“Chesterfield”) in the amount of $780,000, with Scotia indicated as the first payee and Hajjar as the second payee. The Chesterfield policy had been arranged by Hajjar when he learned that, due to financial difficulties, Hakim and Javaid had not been able to secure insurance on the property. Following the fire, Chesterfield paid Scotia only $342,500 because the policy contained a rebuilding provision to the effect that Chesterfield only had to pay 50% of the market value of the cost to replace the building, which had been appraised at $695,000, with the remaining 50% being payable only once the home was rebuilt. That has not happened.

[3] Hakim and Javaid have not paid instalments under the first mortgage since December 2009, and are not in a financial position to do so. After the mortgagors’ default, Hajjar paid all instalments owing under the first mortgage until October 2010. Since November 2010, the first mortgage has been in default. For a variety of reasons, Dost, the guarantor, has refused to make any payments under the first mortgage. The primary reason he offers for this refusal is that Scotia misled him into believing that the property was fully insured.

[4] Scotia has sued Hakim, Javaid, and Dost due to their default under the first mortgage.

[5] Hakim and Javaid admit the existence, outstanding principal, term, and interest rate of the first mortgage in favour of Scotia. They admit the first mortgage fell into default on November 1, 2010 and that the default continues. Hakim and Javaid have commenced third party proceedings against Hajjar, Chesterfield, and other implicated insurance companies, claiming full indemnity for all amounts payable under the first and second mortgages. The substance of their claim against Hajjar is that he was negligent in arranging for insurance with a rebuilding clause. The substance of their claim against Chesterfield and the insurance companies is that they have no right to withhold the balance of the insurance proceeds in circumstances where Chesterfield issued an insurance binder on December 2, 2010 stating the policy contained a standard mortgage clause and then the actual Chesterfield policy issued on December 10, 2010 – following the fire – contained a rebuilding clause.

[6] Dost defends Scotia’s action on the following basis: (1) he did not understand the specific terms and conditions of the first mortgage; (2) he understood that his guarantee would apply for only four to six months; (3) Scotia, Hakim, and Javaid altered the maturity date and the interest rate on the first mortgage without his knowledge or consent; (4) Scotia, Hakim, and Javaid altered the terms of the first mortgage, without his knowledge or consent, when Hakim and Javaid gave up possession of the premises to the second mortgagee, Hajjar, thereby changing the risk associated with Dost’s guarantee; and (5) Scotia, Hakim, and Javaid altered the terms of the first mortgage, without his knowledge or consent, when they accepted an insurance policy which limited the insurer’s obligation to 50% of the loss payable less deductible under a rebuilding clause. Dost alleges that Scotia owed him a duty of care, it breached that duty of care, and Dost suffered damages as a result. Dost is counterclaiming against Scotia for damages for negligence in the same amount as Scotia’s claim against Dost. Dost also seeks an order that he be subrogated to Scotia’s right and that any judgment against Hakim and Javaid be assigned and transferred to him, together with all the available remedies. Dost crossclaims against Hakim and Javaid for indemnification in regard to any amounts which he may be liable to pay to Scotia.

[7] Hajjar defends the third party claims of Hakim, Javaid, and Dost on the basis that he was never a mortgagee in possession of the property and he had no obligation to obtain insurance on the property. The obligation to insure the property rested throughout with Hakim and Javaid. Hajjar counterclaims against Hakim and Javaid for indemnification in regard to any amounts he is liable to pay to Dost. Hajjar has brought a motion for summary judgment seeking a dismissal of the third party claims of Hakim, Javaid, and Dost.

[8] The third party insurers defend the third party claim by Hakim, Javaid, and Dost on the basis that there was no contractual relationship between them and these parties and they did not owe these parties any duty of care. The third party insurers state that the policy was negotiated through the insurance broker of Hajjar, and if Hajjar was not properly informed of the terms of the policy (something that is denied), this was the fault of that insurance broker – not the third party insurers. The third party insurers deny that the standard mortgage clause referenced in the binder letter took precedence over the rebuilding clause referenced in the policy itself.

Chronology of Events

[9] Hakim, Javaid, and Dost signed “Credit Application” documents with Scotia dated May 2, 2006, in which the mortgage sought was for $475,000 for a term of three years with an interest rate of 6.45%. The mortgage application was subsequently approved with the term being extended to five years and the interest rate being reduced to 5.1%. Hakim, Javaid, and Dost all signed the “Approval of Mortgage Loan” document.

[10] Subsequently, Hakim, Javaid, and Dost signed an “Amendment of Mortgage Terms Prior to Funding” document increasing the principal amount of the mortgage to $562,500, a “Payment Change” document in regard to the amended monthly payments of principal of interest, and additional documents relating to property taxes and the interest adjustment amount. Hakim and Javaid signed these documents in Ottawa. Scotia’s Ottawa office sent these documents to their Brantford office for signature by Dost. There is documentary evidence to the effect that Dost’s lawyer in Cambridge, Claude Isaacksz (“Isaacksz”), provided independent legal advice to Dost in regard to his role as guarantor under the first mortgage, the terms of the first mortgage, the terms of the guarantee, and the Standard Charge Terms.

[11] The Charge in favour of Scotia with a principal amount of $562,500, an interest rate of 5.1%, an interest adjustment date of November 1, 2006, and an ultimate payment date of November 1, 2011 was registered on title to the property on June 8, 2006. Hakim and Javaid were listed as the chargors and Dost as the guarantor. The chargors acknowledged receipt of the Charge and Standard Charge Terms. The Charge stated that the insurance amount on the property was the full insurable value.

[12] The first mortgage fell into arrears on August 1, 2009 and remained in arrears through to December 1, 2009. On November 18, 2009, Scotia’s lawyers sent a letter to Hakim, Javaid, and Dost advising of the arrears which, by December 1, 2009, totalled $17,059.90 inclusive of legal fees. The letter stated: “As a condition of reinstatement, your insurance agent is asked to provide us a copy of the fire insurance currently in place on the property, noting the interest of our client as first mortgagee.” In December, 2009, the first mortgage was brought into good standing. At the same time, Scotia was provided with confirmation that insurance was in place on the property through Wawanesa Insurance with a policy period of October 1, 2009 to October 1, 2010. The policy was said to contain the standard IBC Mortgage Clause, with loss payable to Scotia and Hajjar. The policy was cancelled in February 2010 due to non-payment of premiums by Hakim and Javaid.

[13] From January to August 2010, Hakim and Javaid tried unsuccessfully to arrange for alternate financing for the property so that both the first and second mortgages could be discharged.

[14] Meanwhile, the first mortgage had fallen into arrears again in January, 2010. On May 26, 2010, Scotia’s lawyers sent a letter to Hakim, Javaid, and Dost advising of the arrears which, by June 1, 2010, totalled $20,363.52 inclusive of legal fees. The letter contained the same precondition regarding proof of insurance coverage prior to the mortgage being reinstated. Hajjar, the second mortgagee, became aware of the default. In June, Hajjar, brought the first mortgage into good standing. On June 10, 2010, Scotia placed corporate risk insurance on the property because it had not been provided with proof of insurance by Hakim, Javaid, or Dost.

[15] In July, Hajjar’s lawyers provided Scotia with a faxed copy of a letter from Baizana Insurance Brokers (“Baizana”) addressed to Hakim and Javaid which stated that the property was insured with Coachman General Insurance Company (“Coachman”) effective July 7, 2010, with coverage of $852,600, the estimated rebuilding cost of the house. The letter specifically stated that the policy would expire on July 7, 2011. Scotia was noted as the first mortgagee. Hajjar was noted as the second mortgagee. The letter stated that a copy of the policy “will be sent to them” once processed by the insurance company. In reliance on this insurance binder letter from Baizana, Scotia cancelled its corporate risk insurance on the property.

[16] On August 9, 2010, Hajjar issued a Notice of Sale Under Mortgage advising that the property would be sold if all amounts owing under the second mortgage (including amounts Hajjar had paid to put the first mortgage into good standing) had not been paid on or before September 16, 2010. Hakim and Javaid proceeded to list the property for sale. On September 22, 2010, Hajjar commenced an action under the second mortgage against Hakim and Javaid.

[17] On September 1, 2010, Scotia’s lawyers sent a letter to Hakim, Javaid, and Dost advising that the first mortgage was once again in arrears. As of September 1, 2010, the arrears were $7,190.32 inclusive of legal fees. The same condition relating to insurance prior to reinstatement was included in the letter. Hajjar paid the arrears. Scotia reinstated the mortgage, relying at the time on the insurance binder letter received from Baizana. Hajjar paid an additional amount to Scotia on November 19, 2010 to bring the first mortgage into good standing as of October 2010.

[18] Hakim and Javaid entered an Agreement of Purchase and Sale for the property on October 21, 2010 for a sale price of $780,000 with a closing date of November 23, 2010. The sale did not close due to the presence of two liens against the property in addition to the first and second mortgages.

[19] On October 28, 2010, Hajjar obtained judgment against Hakim and Javaid for vacant possession of the property and payment of $203,552.58 plus costs, the judgment bearing interest at 24%.

[20] Hajjar’s evidence is that, on October 29, 2010, he learned that the property was not in fact insured. He learned from Coachman that its insurance policy had been for only one month. During the month of November 2010, there were conversations between Hajjar and Hakim about possession of the property and insurance coverage for the property. More will be said of this shortly. Suffice it to say that by December 2, 2010, Hajjar had arranged for insurance for the property.

[21] On December 2, 2010, Hajjar, obtained written confirmation of insurance on the property through Trigon Insurance Brokers Ltd. (“Trigon”). Trigon’s insurance binder letter addressed to Hajjar stated that the property was insured through Chesterfield effective December 2, 2010 in the amount of $780,000, Scotia was the first payee and Hajjar the second payee, and the policy contained a standard mortgage clause. No reference was made in the binder letter to the policy containing any further conditions, such as a rebuilding clause.

[22] On December 3, 2010, there was a fire on the property and the residence was completely destroyed. The police and the fire department considered the fire suspicious; however, they were unable to determine the cause of the fire.

[23] It was only on December 16, 2010, pursuant to a request to Baizana from Scotia’s lawyers, that Scotia learned that the Coachman policy was for one month from July 7, 2010 to August 7, 2010. Prior to this, neither Scotia nor Hajjar had ever received a copy of the Coachman policy, as promised in the binder letter from Baizana.

[24] On January 4, 2011, Scotia’s lawyers sent Hakim, Javaid, and Dost a further demand letter – identical to all of the earlier such letters – with the mortgage arrears inclusive of legal fees then being $10,493.94.

Amendment of Pleadings

[25] Scotia seeks to amend the pleadings so that the guarantor’s name is correctly shown as “Dost” and not “Dorst”. All parties represented at the hearing consented to this change being made. All pleadings shall be considered amended to reflect the guarantor’s name as being “Dost”.

Law Regarding Summary Judgment Motions

[26] Scotia brings its motion for summary judgment under r. 20.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which reads:

20.01(1) A plaintiff may, after the defendant has delivered a statement of defence or served a notice of motion, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim.

[27] Hajjar brings his motion for summary judgment under r. 20.01(3), which reads:

20.01(1) A defendant may, after delivering a statement of defence, move with supporting affidavit material or other evidence for summary judgment dismissing all or part of the claim in the statement of claim.

[28] On a motion for summary judgment, the Rules provide the following guidance regarding the evidence to be tendered:

20.02(1) An affidavit for use on a motion for summary judgment may be made on information and belief as provided in subrule 39.01 (4), but, on the hearing of the motion, the court may, if appropriate, draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of contested facts.

(2) In response to affidavit material or other evidence supporting a motion for summary judgment, a responding party may not rest solely on the allegations or denials in the party’s pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial.

[29] The court’s function on a motion for summary judgment is described in r. 20.04:

20.04(2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or

(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.

(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation.

(4) Where the court is satisfied that the only genuine issue is a question of law, the court may determine the question and grant judgment accordingly, but where the motion is made to a master, it shall be adjourned to be heard by a judge.

[30] In Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, the Ontario Court of Appeal introduced “a fresh approach” to the interpretation and application of r. 20 to reflect the rule’s underlying objective of making litigation more accessible and affordable while not undermining the pursuit of just and fair resolutions. As the Court stated at paras. 37-38:

37 ...the amended rule permits the motion judge to decide the action where he or she is satisfied that by exercising the powers that are now available on a motion for summary judgment, there is no factual or legal issue raised by the parties that requires a trial for its fair and just resolution.

38 ...the purpose of the new rule is to eliminate unnecessary trials, not to eliminate all trials. The guiding consideration is whether the summary judgment process, in the circumstances of a given case, will provide an appropriate means for effecting a fair and just resolution of the dispute before the court.

[31] The Court of Appeal identified three types of cases that are amenable to summary judgment:

• where the parties agree that it is appropriate to determine an action by way of a motion for summary judgment (r. 20.04(2)(b));

• where claims or defences are shown to be without merit; and

• where the trial process is not required in the “interest of justice”.

[32] In considering the last two types of cases, before exercising any of the increased powers under r. 20.04(2.1) and (2.2), a judge on a summary judgment motion must ask the following question: “can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?” Before using the powers in r. 20.04(2.1) to weigh evidence, evaluate credibility, and draw reasonable inferences, the motion judge must apply the “full appreciation test” and be satisfied that the interest of justice does not require that these powers be exercised only a trial.

51 ... In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the "interest of justice" requires a trial.

52 In contrast, in document-driven cases with limited testimonial evidence, a motion judge would be able to achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Similarly, the full appreciation test may be met in cases with limited contentious factual issues. The full appreciation test may also be met in cases where the record can be supplemented to the requisite degree at the motion judge’s direction by hearing oral evidence on discrete issues.

54 ... a motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to fully appreciate the evidence and the issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examines the record in chambers.

Motion for Summary Judgment by Scotia Against Hakim, Javaid, and Dost

[33] Scotia is seeking summary judgment under the first mortgage as against the mortgagors, Hakim and Javaid, and the guarantor, Dost.

Claim Against Hakim and Javaid

[34] Hakim and Javaid do not dispute the existence of the first mortgage, the principal amount secured under the mortgage, the interest rate payable under the mortgage, the fact that the mortgage fell into default, the insurance proceeds received by Scotia following the fire, Scotia’s calculation of the principal sum now owing, and the mortgagors’ liability to pay Scotia the amounts it is seeking in its Statement of Claim. As well, the mortgagors make no claim to possession of the property.

[35] The only issues which Hakim and Javaid identify as being live issues are those relating to the third parties.

[36] Consequently, summary judgment is granted against Hakim and Javaid in favour of Scotia for the relief sought in paragraph 1(a), (b), (c), and (d) of Scotia’s Statement of Claim.

Claim Against Dost

[37] Dost’s position in regard to Scotia’s claim against Dost under the guarantee contained in the first mortgage is that there are genuine issues requiring a trial. I will review the issues that Dost identifies.

(a) Non es factum

[38] Dost states that he did not have a clear understanding of the term of the mortgage to give his valid consent to the guarantee. His evidence is that his friend, Hakim, whom Dost knew as a very respectable and successful executive with Pakistan International Airlines in the U.S., asked him to act as guarantor on a building mortgage to enable him to build a home on land he had purchased in Cumberland. Hakim and Javaid had been unable to arrange a mortgage on their own because, as newcomers to Canada, they lacked a credit standing in this country. According to Dost, Hakim and Javaid advised him that he was needed as a guarantor only for a limited term of four to six months during construction of the home. Once the home was built and appraised, Hakim and Javaid would obtain their own mortgage and the mortgage Dost guaranteed would be discharged. Dost’s evidence is that he signed the Credit Application based on these verbal representations and assurances as to the limited term of the guarantee.

[39] Dost does not recall the specific circumstances under which he signed the Approval of Mortgage Loan, the Amendment of Mortgage Terms Prior to Funding, and the Payment Change all dated May 12, 2006, or the Acknowledgement for Tax Receipts, Interest Adjustment Letter and Acknowledgement for the Administration of Taxes all dated May 17, 2006. Dost’s evidence is that he signed all of these documents without independent legal advice and on the specific understanding that the mortgage was for a limited duration of four to six months. Dost’s evidence is that he does not have copies of these documents.

[40] Dost’s evidence is that subsequently, on June 7, 2006, his own real estate lawyer, Isaacksz, attended at his place of business and obtained his signature on documents relating to the Scotia mortgage. He states that this meeting lasted approximately five minutes, during which time they went through and signed the mortgage documents. According to Dost, Isaacksz and he did not read through, review, or discuss the terms and conditions of the Scotia first mortgage, nor was he ever given a copy of the Standard Charge Terms or discuss them with Isaacksz.

[41] Is a trial required to afford me a full appreciation of this issue? I think not. There are numerous documents to which I can refer in considering the non es factum issue. As well, Dost’s allegations regarding representations that were made to him about the term of his guarantee all relate to communications between himself, Hakim, and Javaid. He makes no allegations to the effect that Scotia represented to him that the term of his guarantee would be between four and six months. He provides no evidence regarding any representations made to him by Scotia that would differ from the terms set out in all of the documents he signed relating to the first mortgage. The motion for summary judgment relates to Scotia’s claim against Dost. It does not deal with any claim Dost may have against Hakim and Javaid.

[42] Although the first Credit Application signed by Dost spoke of a term of three years, the Approval of Mortgage Loan which he subsequently signed clearly referred to a five-year term. According to Evan, from the Scotia’s Brantford branch, he met with Dost at his place of business and had him sign the documents relating to Scotia’s first mortgage, including the Approval of Mortgage Loan showing the five-year term, and Dost insisted on keeping a copy of these documents. Dost does not specifically contradict this. As well, on June 7, 2006, Dost signed an Acknowledgement and Direction from Guarantor to which was attached a draft Charge containing the same terms as the Charge eventually registered on title in favour of Scotia. That Charge provides that the last payment date is November 1, 2011. The Acknowledgement and Direction from Guarantor states:

The nature and effect of the electronic document(s) described in the attached Document Preparation Report (in preparation Charge/Mortgage) have been fully explained to me/us and I/we understand that I/we are parties to and bound by the terms and provisions of these electronic document(s) to the same extent as if I/we had signed these document(s).

[43] As well, on June 7, 2006, Dost signed an Acknowledgement to the effect that he was the guarantor in regard to the Hakim/Javaid first mortgage to Scotia, he had received a copy of the Standard Charge Terms before signing the mortgage, and he understood that the Standard Charge Terms were incorporated by reference into the mortgage.

[44] Finally, on or about June 7, 2006, Isaacksz signed a Certificate of Independent Advice addressed to Hakim and Javaid’s real estate lawyer. That Certificate reads:

On the day of , 2006, I was consulted by Kurshid Anwar Dost in his presence alone as to the effect of him acting as guarantor on a first mortgage in favor of SCOTIA MORTGAGE CORPORATION in the principal amount of $562,500.00 for a Construction Mortgage advanced to Yasmin Javaid and Mian Javaid Hakim and against the property known municipally as 1678 Regional Road 174, Cumberland, Ontario ... I advised him regarding the nature of documents attached thereto, including a guarantee, mortgage as described above, and the Standard Charge Terms No.: 200412. A copy of the Mortgage is attached hereto.

I explained to Kurshid Anwar Dost the nature of the documents described above. He informed me and I am satisfied that he fully understands the nature and effect of him executing the mortgage as guarantor. Further, that he did act freely and voluntarily in the execution of the above described mortgage documents and were not under any undue influence exercised by or any other person. He informed me and I am satisfied that he fully understands that by executing the said mortgage as guarantor he undertakes to answer for the debt or default in the event the principal debtor does not satisfy his obligations pursuant to the mortgage.

I have given this advice to Kurshid Anwar Dost as his solicitor and in his interest only and without regard to or consideration for the interest of Yasmin Javaid and Mian Javaid Hakim or any other person. I am not acting on behalf of Yasmin Javaid or Mian Javaid Hakim, or any other person in this matter.

[45] Dost signed the bottom of the Certificate of Independent Advice following this statement: “I hereby acknowledge that all of the statements made in this certificate are true and that Claude Isaacksz in advising me herein was consulted by me as my personal solicitor and in my interest only.” Isaacksz witnessed Dost’s signature.

[46] Dost has provided no evidence denying that the signature on the various documents is his signature. He has provided no explanation as to why he would have signed these documents attesting to his receipt of independent legal advice regarding his obligations under the first mortgage and confirming his receipt of a copy of the Standard Charge Terms, if that had not been the case. Dost has provided no evidence as to why he would have signed all of these documents referring to a mortgage with a five-year term if his understanding had been that his obligations would run for only four to six months.

[47] In these circumstances, I conclude that no injustice will be done if I weigh the evidence, evaluate the credibility of Dost, and draw reasonable inferences from the documentary evidence provided.

[48] I find that, regardless of whatever oral communications took place between Hakim and Javaid as mortgagors and Dost as guarantor prior to Dost agreeing to guarantee the Scotia first mortgage, Dost was aware that the Scotia first mortgage registered on title, with himself as guarantor, had a term of five years, and he was bound as a guarantor during the entire five-year period. I find that Dost received a copy of the Charge, the Standard Charge Terms, and the other documentation he signed in regard to the first mortgage – and he received these documents before the Charge was registered on title and the money was advanced to Hakim and Javaid under the mortgage. I find that, as between Dost and Scotia, Dost knew what he was getting into when he agreed to be guarantor of the Scotia first mortgage. Therefore, his defence of non es factum fails.

(b) Material Alteration of the Mortgage/Negligence

[49] Dost takes the position that, prior to the first mortgage falling into default the last time, the terms of the mortgage had been materially altered by Scotia and, as a result, Scotia released Dost from any further liability under the guarantee. Dost states that Scotia materially altered the terms of the mortgage in three ways:

• Scotia failed to require insurance and/or fresh proof of insurance on the property before reinstating the mortgage in September 2010;

• Scotia accepted the Chesterfield replacement insurance subject to a rebuilding clause which limited recovery to less than the full replacement value; and

• Scotia allowed the property to be vacant.

[50] Dost has provided no evidence, or law, to support these defences. They are entirely without merit.

[51] The evidence is that, in September 2010, Scotia reinstated the mortgage upon payment of all arrears by the second mortgagee, Hajjar. At that time, Scotia had on file a copy of an insurance binder from Baizana dated July 9, 2010 stating that the property had coverage of $852,600 under a policy with Coachman covering the period from July 7, 2010 to July 7, 2011 with Scotia noted as first mortgagee. No evidence has been tendered to the effect that Scotia knew, or should have known, at any time prior to reinstating the mortgage that this policy was in fact only for one month and had expired on August 7, 2010. No law has been presented to the effect that Scotia was not entitled to rely on the insurance binder provided to it by Baizana. In short, no evidence or law has been presented to support Dost’s defence that, by accepting the Baizana insurance binder and reinstating the mortgage upon payment of arrears, Scotia materially altered the mortgage and released Dost.

[52] The same can be said in regard to Dost’s argument regarding the Chesterfield policy. There is no evidence that Scotia ever “accepted” the Chesterfield policy, as alleged by Dost. Hajjar arranged for the Chesterfield policy on December 2, 2010. The fire occurred on December 3, 2010. The evidence is that Scotia found out about the existence of the Chesterfield policy on December 16, 2010, when Hajjar’s lawyer wrote to Scotia’s lawyer attaching a copy of the Insurance Coverage Confirmation issued on December 2, 2010 by Trigon, showing Scotia as the first payee. There is no evidence to suggest that, prior to the fire, Scotia had any knowledge of the existence of this policy or the fact that the Coachman policy was no longer in effect. Scotia cannot be held to have materially altered the terms of the first mortgage through acceptance of insurance coverage in regard to which it had no knowledge and had never provided its consent.

[53] In the same vein, Dost’s argument that Scotia breached its duty of care to Dost by failing to advise Dost that coverage under the Chesterfield policy was limited by the rebuilding clause has no merit. There is no evidence that Scotia was even aware of the Chesterfield policy at any point prior to the fire.

[54] Further, it must be emphasized that, under the Standard Charge Terms, the obligation to have insurance on the property for its full insurable amount is an obligation of the mortgagors and, by virtue of the terms of the guarantee, of the guarantor as well; it is not an obligation of the mortgagee.

[55] Dost’s argument that Scotia materially altered the mortgage by allowing the property to remain vacant is equally without merit. No evidence has been tendered to the effect that Scotia knew or should have known that the property was vacant. In any event, there is no requirement in the Standard Charge Terms that the property not be vacant. Nor have I been referred to any other document or legal authority to the effect that either the mortgagors or the mortgagee was under any obligation to ensure that the property was not vacant or that the property becoming vacant amounted to a material alteration of the mortgage so as to eliminate the obligations of any guarantor under that mortgage.

(c) Novation

[56] Dost’s next argument is that novation occurred through Scotia allowing Hajjar to bring the first mortgage into good standing. Again, this argument is without merit and can be summarily dismissed. There is no evidence that Scotia agreed to accept Hajjar as the primary debtor under the first mortgage in replacement of Hakim and Javaid. Hajjar simply did what many second mortgagees would do when faced with a default under the first mortgage – pay the arrears under the first mortgage to protect his rights under the second mortgage. All demand letters issued by Scotia were addressed to Hakim, Javaid, and Dost. That Hajjar as second mortgagee chose to intervene, pay the arrears, and arrange for mortgage coverage is not, without more, evidence of novation. No other evidence has been proffered.

(d) Obligations of Hajjar as Mortgagee in Possession

[57] Whether Hajjar was a mortgagee in possession and had any obligations toward Hakim, Javaid, and Dost, are issues raised in the third party claims. I have not been pointed to any law which would support the conclusion that Hajjar had any direct liability to Scotia. In any event, Scotia is entitled to pursue the claims it has in the order and manner it chooses. One defendant cannot force Scotia to sue another potential defendant at the same time.

(e) Conclusion

[58] None of the defences raised by Dost requires a trial for the interest of justice to be served. All defences raised are clearly without merit. Consequently, summary judgment is granted against Dost in favour of Scotia for the relief sought in paragraph 1(a), (b), (c), and (d) of Scotia’s Statement of Claim. Hakim, Javaid, and Dost’s obligations under the Judgment are joint and several.

Motion for Summary Judgment by Hajjar Against Hakim, Javaid, and Dost

[59] Hajjar, the second mortgagee, is seeking summary judgment dismissing the Third Party Claims brought against him by Hakim and Javaid, the first mortgagors, and Dost, the guarantor under the first mortgage. The third party claims are based on Hajjar becoming a mortgagee in possession and not living up to his concomitant obligations. Hajjar defends those claims on the basis of his not being a mortgagee in possession.

[60] The issue as to whether Hajjar was a mortgagee in possession is very much a live issue.

[61] Hajjar served a Notice of Sale under Mortgage on August 9, 2010. Hajjar asked Hakim and Javaid for possession of the property by no later than September 30, 2010 so that he could sell it. On August 1, 2010, Hakim and Javaid rented a home at 165 Argola Private and started to move their personal belongings to that new residence. There is no evidence that, on September 16, 2010, Hajjar told a representative of Dost that he would by taking over the property by the end of September and would be selling it to recover the sums owing under the second mortgage. Hakim and Javaid then refused to hand over possession of the property to Hajjar at the end of September and advised him that the property was listed for sale through Coldwell Banker. On September 22, 2010, Hajjar initiated an action against Hakim and Javaid under the second mortgage. On October 21, 2010, Hakim and Javaid received an offer to purchase the property through Coldwell Banker. On October 28, 2010, Hajjar received judgment against Hakim and Javaid. In November, the sale fell through due to the presence of liens against the property in addition to the two mortgages. According to Hakim, Hajjar again asked Hakim and Javaid for possession of the property. According to Hajjar, he began the process of investigating whether he should sell the property under the power of sale provisions in the mortgage; however, he did not want to take possession of the property until insurance was in place. He learned on October 29, 2010 that the Coachman policy was no longer in place because Hakim and Javaid had arranged it for only one month. No notice of cancellation of insurance had been issued by Coachman to advise the mortgagees that the property was no longer covered.

[62] According to Hajjar, on November 1, 2010, Hakim and Javaid were asked to provide access to the property so that an appraisal could be done, and they refused. On November 11, 2010, Hakim and Javaid, through their lawyer, delivered the keys to the property to Hajjar’s lawyer and advised him that the property was vacant. On November 12, 2010, Hajjar’s lawyer wrote to Hakim and Javaid’s lawyer saying that he had tried to reach his client, that his client was on his honeymoon, and the lawyer did not believe he would be back until the following week. He went on to state: “As such, although I have received the key from you, I would ask you to note that my client has not taken possession of the property. The responsibility for ensuring that the property is looked after remains with your client, until such time as my client secures the property by changing the locks.” The lawyer went on to ask if Hakim and Javaid had reinstituted fire insurance coverage and said that his client’s ability to do so was quite limited and the policies extremely expensive.

[63] On November 18, 2010, Hajjar had an appraiser attend at the property, without the knowledge or consent of Hakim or Javaid.

[64] During the month of November, Hajjar and Hakim had numerous discussions about insurance coverage for the property. Hakim and Javaid contacted a few insurance brokers for a quote. Only State Farm Insurance Brokers (“State Farm”) were interested in insuring the premises. State Farm wanted to take photographs of the property. Hakim advised them to contact Hajjar because he was in possession of the property. Hakim states that Hajjar advised State Farm that the property was vacant and, as a result, State Farm was no longer interested in providing a policy. Hajjar states that he was not contacted by State Farm.

[65] According to Hakim, during the conversations he and Hajjar had regarding insurance for the property, at no time did Hajjar advise Hakim that he was not in possession of the property. At no time did Hajjar return the keys to the residence. Hajjar’s evidence is that at no time did he tell Hakim that he was in possession of the property.

[66] On December 1, 2010, Hajjar visited the premises, without the knowledge or consent of Hakim or Javaid. His stated purpose for the visit was to make sure that the property was being maintained in good condition and that the heat was on. On December 2, 2010, Hajjar bought the Chesterfield policy on the property through Trigon. Prior to the fire on December 3, 2010, Hajjar had arranged to have the locks on the premises changed on December 4, 2010. Hajjar had also arranged for a transfer of utilities into his name effective December 4, 2010.

[67] On December 3, 2010, a fire broke out and the building burnt to the ground. The police and fire department considered the cause of the fire undetermined but the circumstances surrounding the fire suspicious. Of interest, the granite from the kitchen counter tops and the bathroom vanities was not observed during the removal of debris from the basement. As well, the fire department observed a sheen on the water in the basement consistent with the presence of an accelerant. Hakim’s evidence is that, following his visit to the premises on December 1, 2010, Hajjar made no mention to Hakim that the granite was missing from the kitchen or bathrooms.

[68] A mortgagee will be found to be in possession of the property where the mortgagee assumes control and management of the property ((1986), 32 Ch. D. 53 (C.A.)). The assessment as to when this occurs is nuanced and requires a careful review of all relevant evidence as to communications between the mortgagor and mortgagee and as to their actions, or inactions, vis-à-vis the property and any other creditors. Credibility issues come into play. The circumstances of this case – particularly in regard to timing issues, the fire, the missing granite, and the terms of the insurance policy – lead me to conclude that I would not have a full appreciation of the evidence and the issues without the benefit of hearing the witnesses speak in their own words and be cross-examined and having the assistance of counsel when assessing the significance of that evidence to the issues at hand. I note that no transcripts of any cross-examinations or examinations for discovery were referred to on the hearing of the summary judgment motions.

[69] The motion for summary judgment by Hajjar is dismissed.

Disposition

[70] Scotia’s motion for summary judgment is granted. Hajjar’s motion for summary judgment is dismissed. Scotia’s judgment is stayed pending reattendance before myself to determine: (1) whether enforcement of the judgment should be stayed pending the resolution of any crossclaims, counterclaims, or third party claims; (2) whether any orders are required under r. 20.05 in order to move the litigation forward in an organized and expeditious fashion; and (3) the issue of costs. Each party shall serve and file a concise statement of that party’s position in regard to these three issues prior to such reattendance and, if an order is sought under r. 20.05, a draft of the order being sought.

Aitken J.

Released: May 8, 2012

COURT FILE NO.: 11-51660

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

SCOTIA MORTGAGE CORPORATION

Plaintiff

• and –

MIAN JAVAID HAKIM, YASMIN JAVAID and KHURSHID ANWAR DOST

Defendants

• and –

BASSEM HAJJAR, CHESTERFIELD CANADA INC., SCOTTISH & YORK, AVIVA INSURANCE, AXA INSURANCE CANADA, LLOYD’S UNDERWRITERS A100380, LLOYD’S UNDERWRITERS A100384, JAVOCO INSURANCE COMPANY and OMEGA GENERAL INSURANCE COMPANY

Third Parties

REASONS FOR JUDGMENT

Aitken J.

Released: May 8, 2012