ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 12-55347
DATE: 2012-08-29
BETWEEN:
NLG 2011 INC. formerly ISLAND VIEW SUITES LIMITED Applicant – and – CENTRAL 1 CREDIT UNION Respondent
Ron Peterson, for the Applicant
Gordon Douglas, for the Respondent
HEARD: August 29, 2012
T.D.RAY, J
[ 1 ] This is an urgent motion by NLG 2011 (mortgagor) for an order under Mortgages Act [1] for an order for payment into court for security for lost interest to the Central 1 (mortgagee) by reason of the prepayment of the mortgage and penalties by NLG 2011 to obtain a discharge of the mortgage in anticipation of a sale of the property which is to close on August 30, 2012; and for an order for payment into court of security under the Personal Property Security Act. [2]
[ 2 ] The parties are in agreement that the sum of $12,050,194.99 is payable at a minimum as follows:
a. Principal as at August 23, 2012: $11,821,121.87
b. Interest rate as at August 23, 2012: 6.25%
c. Accrued interest as at August 30, 2012: $43,901.81
d. 3 months penalty: $ 185,021.31
e. Discharge fee as requested: $150.00
[ 3 ] The parties also agree that costs of $25,000 should be added in as additional security for the costs of the anticipated motion to determine the final amount.
[ 4 ] The disagreement as to the final amount payable by NLG 2011 is in the terms of the mortgage which incorporate the commitment letter, the terms of which are as follows:
Prepayment: The borrower may prepay at any time, the whole of the principal amount then outstanding, upon payment of the greater of:
i. 3 months interest on the interest rate chargeable hereunder, upon the principal amount prepaid; or
ii. The amount, if any, by which interest at the interest rate chargeable under the Credit Facility exceeds interest at the prevailing rate as defined below calculated on the principal amount prepaid, for a term commencing on the date of prepayment and expiring on the balance due date of the Credit Facility.
Provision 1.(I)
“The ‘*prevailing rate” at the time of prepayment means the rate at which the Lender would then lend to the Borrower on the security of the Real Property, for a term commencing on the date of prepaying and expiring on the balance due date of the Credit Facility.
[ 5 ] The parties are in agreement that the amount under paragraph ii exceeds the amount under paragraph i; and therefore the issue revolves around the correct calculation of the amount by which paragraph ii exceeds paragraph i for the purpose of the security.
[ 6 ] The NLG 2011’s position is that the correct amount is $324,000 (minus $185,021.31), using the Government of Canada Bond Rate as the base. Central 1’s position is that the correct amount is $705,849.30 (minus $185,021.31). The difference is based on Central 1’s calculation as to what it would lend to NLG 2011 today and its loss over the term of the mortgage by granting the discharge. The language of paragraph ii above is far from clear and will require evidence and full argument for a judicial determination.
[ 7 ] The purpose of this motion is described by Rosenberg, J. as follows:
The legislature cannot intend that the mortgagee demand any amount that he wishes and that the only way a mortgagor can obtain a discharge is to pay that amount and to later sue for the overpayment. The section is in my view, for the purpose of allowing a mortgagor who disputes the amount claimed to pay the amount claimed plus some reasonable amount to cover costs into court and obtain a discharge pending adjudication as to the proper amount due . [3]
[ 8 ] Having in mind that the stipulated amount that I must order is not the final amount but for security pending final determination; and that while the amount should be sufficient it should not constitute an unfair burden on either of the parties, I consider $540,000 inclusive of the costs of $25,000 to be the appropriate amount. In making this order I am mindful of the positions of the parties and their methods of calculation. I am also mindful of the lack of clarity in the term of the commitment letter which provides for this calculation.
[ 9 ] The parties have agreed that NLG 2011 will pay the amount in paragraph 2 above directly. The parties also agree that the additional sum need not be paid into court but may be paid into one of the solicitors trust accounts pending final determination.
[ 10 ] Accordingly, it is ordered that upon payment of the amount described in paragraph 2, plus the amount in paragraph 8 above to Gowlings in trust, in accordance with paragraph 9, Central 1 is to provide NLG 2011 with a discharge of the mortgage and personal property security in registerable form.
[ 11 ] If clarification of this order is required, the trial coordinator may be contacted on short notice.
Honourable Justice Timothy Ray
Released: August 29, 2012
COURT FILE NO.: 12-55347
DATE: 2012-08-29
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: NLG 2011 INC. formerly ISLAND VIEW SUITES LIMITED Applicant – and – CENTRAL 1 CREDIT UNION Respondent REASONS FOR JUDGeMENT Honourable Justice Timothy Ray
Released: August 29, 2012
[1] R.S.0.1990, c. M40 s. 12
[2] RSO 1990, Chapter P.IO, s. 56
[3] Schrittwieser v. Morris (1987). 62 O.R. (2 nd ) I77(Ont. H.C.), cited in Mishev v. Shah , 2011 ONSC 1672 ,(a very different case on the facts from the case at bar and involving a residential mortgage rather than as here a commercial mortgage)