ONTARIO SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-449866
DATE: 20120717
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RESIDENCES OF CLAIRLEA GARDENS INC., formerly known as Georgian Clairlea Inc. Applicant – and – KML ENGINEERED HOMES LTD. Respondent
H. Rosenberg , for the Applicant
James Arabia , leave to granted pursuant to rule 15.01(2)
HEARD: June 18, 2012
t. mcewen j.
reasons for decision
introduction
[ 1 ] There are two matters before the Court as follows:
The Respondent, KML Engineering Homes Ltd. (“KML”), brings a motion to permit James Arabia (“Arabia”), its Chairman of the Board, to appear on behalf of KML pursuant to rule 15.01(2) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194; and
The Applicant, Residences of Clairlea Gardens Inc., formerly known as Georgian Clairlea Inc. (“Georgian”), makes an application for:
(a) A declaration that Georgian, through its solicitors, is at liberty to register partial discharges of the KML mortgage (as described herein below) to facilitate the closings of the sale of freehold townhouses pursuant to the terms of the KML mortgage and the Minutes of Settlement between the applicant and the respondent, dated April 9, 2009 (herein referred to as “the Minutes”).
(b) An interpretation of the Minutes and the KML mortgage and a determination of the rights of the applicant pursuant to the Minutes and the KML mortgage, to register partial mortgage discharges to facilitate the closings of the sales of freehold townhouses.
(c) A declaration that the KML mortgage is subject to being partially discharged as against the freehold townhouses to facilitate the sale of the townhouses.
(d) An Interlocutory and Final Order that KML, is enjoined from withholding the authority given to the applicant’s solicitors to register partial discharges to facilitate the closings of the sale of freehold townhouses
(e) A reference to the Master at Toronto to determine the damages that have been suffered by the applicant resulting from KML’s breach of the Minutes and of the KML mortgage and an order for payment of same by KML to the applicant, plus interest and costs.
the motion
[ 2 ] The motion brought by KML to permit Arabia to act on its behalf was unopposed by Georgian. After reviewing KML’s Notice of Motion, affidavit and hearing submissions, I am satisfied that this is a proper case for relief to be granted so that Arabia can act on behalf of KML at the application.
The application
[ 3 ] Georgian is an Ontario corporation which is engaged in the construction of residential homes. The subject matter of this litigation involves a residential project located at Sinclair Avenue East in the City of Toronto (“the project”).
[ 4 ] KML is a contractor involved with the project. In 2009, KML registered a construction lien against the project. Subsequently, Georgian and KML entered into a settlement with respect to the construction lien dispute. The Minutes were entered into between the parties dated April 9, 2009.
[ 5 ] Georgian and KML, in the Minutes, amongst other things, agreed that:
(a) Georgian would pay the amount of $150,000.
(b) The sum of $432,908.14 would be secured by way of a mortgage, in favour of KML, against the project.
(c) KLM’s mortgage is postponed in favour of mortgages registered by Equitable Trust Company and Firm Capital Mortgage Fund Inc. (“Firm Capital”) (totalling $25,780,000) and Lombard General Insurance Company of Canada (totalling $5,400,000), including any refinancing thereof.
(d) The mortgage shall be fully open with interest accruing at the rate of 8 per cent per annum, which interest shall start to accrue from January 1, 2009; the mortgage shall be paid out of the proceeds of the closings of the units.
(e) KML shall execute any Subordination Agreements which may be stipulated by Firm Capital and/or any of the other mortgagees.
(f) KML shall execute and deliver such consents, waivers and/or partial discharges of its mortgage as may be required to facilitate registration of the condominiums, and KML’s mortgage shall continue to bind the remaining portion of the project (the “Freehold Townhouses”).
(g) KML shall execute and deliver such partial discharges of its mortgage to facilitate the closings of the sale of individual Freehold Townhouses until all financing has been fully repaid.
(h) The KML mortgage shall remain on title to the properties, and in particular, the Freehold Townhouses that have not been sold up to and including the date that all other mortgages and encumbrances in priority to the KML mortgage have been repaid in full. The KML mortgage shall remain on title to the unsold units as contemplated above and shall be discharged by way of partial discharges upon payment to KML of the amounts outstanding divided by the number of units that are remaining free and clear of the prior mortgages. Partial discharges will be provided on payment of a fee of $250 per discharge.
[ 6 ] Ultimately, KML registered its mortgage on title on April 15, 2009. The mortgage contains a schedule of additional provisions which includes the following clauses:
- The Chargee shall execute and deliver partial discharges to facilitate closing of the sale of units until the principal secured by the within charge is fully repaid. The Chargee shall provide the Chargor with partial discharges regarding units specified by the Chargee upon request and payment by the Chargor of the net proceeds of sale of any such units after payment of:
(a) the amounts required to obtain partial discharges of any prior encumbrances;
(b) realty taxes, GST and any other applicable taxes;
(c) real estate commission;
(d) legal fees.
- The Charge shall remain on title to the properties as described above and, in particular, the Freehold townhouses that have not been sold up to and including the date that all other charges and encumbrances, in priority to this charge, have been repaid in full. The said charge shall remain on title on the unsold units as contemplated above and shall be discharged by way of partial discharges upon payment to the Chargee by the Chargor of the amounts outstanding under this Charge divided by the number of units that are remaining free and clear of the prior Charges. For greater clarity, if at the time that the prior charges have been repaid in full there remain outstanding ten lots or units, then whatever amount is still outstanding and due owing to the Chargee under its charge shall be repaid on the basis of one tenth of the principal amount plus interest accruing to the date of payment for each partial discharge.
[ 7 ] Although there were ongoing difficulties between Georgian and KML which resulted in another construction lien being registered and resolved, the parties carried on with their relationship. KML did provide the partial discharges as agreed to in the Minutes.
[ 8 ] This changed in March of 2012 when KML advised Georgian that it would not be providing partial discharges of its mortgages to facilitate the closings of the sale of various homes involved in the project pursuant to paragraph (g) of the Minutes. As a result, Georgian brings this application seeking, amongst other things, a declaration that it is at liberty to register partial discharges of the KML mortgage to facilitate the closings of the homes involved in the project.
[ 9 ] KML submits that it no longer has to provide partial discharges to Georgian. Although KML’s factum outlines a number of issues, at the motion Arabia relied upon the following four grounds:
The Minutes are invalid as there was a lack of consideration by Georgian.
Georgian is in default with respect to its first mortgage that was granted to Firm Capital. This renders the KML mortgage invalid resulting in the full amount owing under the mortgage becoming due, and allows KML the ability to refuse to provide any further partial discharges.
Georgian is in violation of sections 3, 5, 14 and 15 of the Set of Standard Charge Terms, filing No. 200033.
Georgian has failed to establish that it should succeed on the application since this is a complicated question.
analysis
[ 10 ] With respect to the defences raised by KML to the application, I find as follows:
The argument that there was no consideration paid must fail. There was clearly consideration paid in the form of the $150,000, and the mortgage taken out by KML. I further accept the alternative submission of Georgian that even if there was no consideration, pursuant to Section 13 of the Land Registration Reform Act , R.S.O. 1990, c L.4 (“LRRA”) consideration becomes irrelevant in the context of this case: see Friedmann Equity Developments Inc. v. Final Note Ltd. , 2000 SCC 34 , [2000] 1 S.C.R. 842.
In my view, KML’s argument that since the first mortgage has gone into default the third mortgage must also be considered to be in default is unsupportable in law. KML provided no authority for its position in this regard. Furthermore, the third mortgage involving KML remains in good standing.
I have carefully reviewed sections 3, 5, 14 and 15 of the Set of Standard Charge Terms. I can see nothing in those sections that allows KML any defence to the relief sought by Georgian. In my view, KML’s submissions would result in the sections being taken out of context to the extent that they would not accord with commercial reality.
Lastly, I reject KML’s submission that Georgian has failed to adduce the necessary evidence to succeed on the application. KML, in this regard, did not argue that a trial of an issue is necessary but rather that Georgian simply did not make out its case. I disagree. The record before me was sufficient to allow me to make a decision on the application.
[ 11 ] Notwithstanding Arabia’s able submissions, in my view, this is a simple case whereby KML is now of the view that it entered into a poor deal by giving up its lien and accepting cash and a third mortgage in lieu thereof pursuant to the Minutes. KML is now operated by a new management team which includes Arabia. Although KML may be unhappy with the agreement that was entered into by Georgian, I can see no basis in law to disturb it in the circumstances of this case.
disposition
[ 12 ] Accordingly, Georgian is entitled to a declaration that the KML mortgage is subject to being partially discharged as against the Freehold Townhouses to facilitate the sale of the townhouses. There will also be a declaration that Georgian, through its solicitors, is at liberty to register partial discharges of the KML mortgage to facilitate the closings of the Freehold Townhouses pursuant to the terms of the mortgage and the Minutes.
[ 13 ] Further, it is ordered that KML is enjoined from withholding the authority given to the Georgian solicitors to register partial discharges to facilitate the closings of the sale of Freehold Townhouses pursuant to the terms of the mortgage and the Minutes.
[ 14 ] Georgian also seeks a reference to the Master to determine damages. In my view, such a reference would be premature since it has not been determined at this stage that Georgian has in fact sustained any damages. If desired, Georgian can bring a later application to the Court in this regard once it has been determined that damages, if any, have been suffered.
[ 15 ] Given its success in the application, Georgian is entitled to costs. The costs sought total $7,479.50, which was not objected to by KML, and I order that those costs be paid within 60 days.
T. McEwen J.
Released: July 17, 2012
COURT FILE NO.: CV-12-449866
DATE: 20120717
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
RESIDENCES OF CLAIRLEA GARDENS INC., formerly known as Georgian Clairlea Inc. Applicant – and – KML ENGINEERED HOMES LTD. Respondent
REASONS FOR DECISION
T. McEwen J.
Released: July 17, 2012