SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-452134
DATE: 20130116

RE: HSBC Bank Canada v. Elena Salvatore et al.

BEFORE: Master Glustein

COUNSEL:
Peter J. Cavanagh for the plaintiff

Alan S. Price for the defendants

HEARD: January 9, 2013

REASONS FOR DECISION

Nature of the motion and overview

[1] The plaintiff, HSBC Bank Canada (“HSBC”) brings this motion under Rule 20.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for summary judgment in favour of HSBC against the defendants Elena Salvatore (“Elena”), Vincent Salvatore (“Vincent”), Vincorp Financial Ltd. (“Vincorp”), Arnach Inc. (“Arnach”) and Bostion Inc. (“Bostion”) (collectively, “the defendants”):

(i) for the amounts claimed in the Statement of Claim (subject to minor adjustments in respect of interest as described in the affidavit of John Borch (“Borch”) sworn June 15, 2012 in support of the motion (the “First Borch Affidavit”)); and

(ii) dismissing the counterclaim of the defendants.

[2] At the hearing, the parties agreed that the reasonableness of the legal fees incurred by HSBC with respect to the loans and security of the defendants would be determined at an assessment under the Solicitors Act, R.S.O. 1990, c. S. 15. HSBC agreed that the defendants could seek the assessment even though more than twelve months have passed since HSBC delivered the account. Consequently, I direct that such an assessment take place. If a request for an assessment is required, I order the defendants to request the assessment no later than 30 days from the date of this order.

[3] The principal amount of legal fees in dispute is $304,972.82 consisting of:

(i) $269,308.74 applied by HSBC to the “Commercial Debt” of Vincorp under Schedule “A” of the Settlement Agreement Made and Effective as of November 1, 2011 (the “Settlement Agreement”). The Settlement Agreement was signed by HSBC and all of the defendants; and

(ii) $35,664.08 claimed by HSBC from Elena as legal fees incurred by HSBC. This claim is set out in the First Borch Affidavit.

[4] Consequently, I exclude these amounts for legal fees in my determination of whether HSBC is entitled to summary judgment against the defendants.

[5] I find that there is no genuine issue requiring trial for any other matter raised in either the defence or counterclaim.[^1] There is no dispute as to the principal amounts or interest owing from the credit facilities and credit cards, except to the extent principal amounts of legal fees and interest thereon are to be determined once the assessment officer determines reasonable legal fees.

[6] For the reasons I discuss below I find no genuine issue requiring trial with respect to the only other defence relied upon by the defendants at the hearing, i.e. that HSBC’s discharge of a mortgage held by Bostion registered on property located at 282 Monarch Avenue, Ajax, Ontario (the “Bostion Mortgage”) constitutes repayment of indebtedness owed by the defendants.

[7] Consequently, there is a minimum outstanding principal and interest owing by the defendants to HSBC regardless of the results of the assessment.

[8] I order summary judgment as follows:

(i) the defendants will pay the amount of $661,878.71 (the “Minimum Outstanding Principal”) plus interest thereon at the rate set out in the First Borch Affidavit[^2] to HSBC within 30 days of this order, which reflects the undisputed principal and interest amounts owed less the amounts for legal fees and interest thereon to be determined upon assessment[^3];

(ii) once the assessment officer determines a reasonable amount for legal fees incurred by HSBC, the defendants will be required to pay that amount (the “Additional Outstanding Principal”) plus interest thereon at the rate set out in the First Borch Affidavit[^4] to HSBC within 30 days of the assessment order; and

(iii) I dismiss the counterclaim.

[9] Collectively, payment of the Minimum Outstanding Principal, the Additional Outstanding Principal, and the interest upon both amounts will total all of the debt owed by the defendants to HSBC. There is no genuine issue requiring trial raised in the defence or counterclaim.

Analysis

(a) The debts and guarantees

[10] There is no dispute that Elena and Vincent borrowed money from HSBC for credit facilities and credit cards and that those debts were guaranteed (i) directly by Vincorp for both Elena and Vincent’s debts, (ii) directly by Vincent for Elena’s debts, and (iii) indirectly for both Elena and Vincent’s debts by both Arnach and Bostion through guarantees of any Vincorp debt whether as principal or surety.

[11] Elena’s debts are guaranteed:

(i) directly by Vincorp and Vincent through a joint and several guarantee dated January 27, 2011.[^5] That guarantee is for an unlimited amount, and

(ii) indirectly by Arnach and Bostion through separate guarantees dated July 30, 2008. Those guarantees are for Vincorp’s debts whether as principal or surety and are limited to $1,000,000 and interest thereon calculated from the date demand is made on the guarantee.

[12] Vincent’s debts are guaranteed:

(i) directly by Vincorp through a guarantee on March 1, 2010, with the guarantee limited to $1,200,000 and interest thereon as calculated from the date demand is made under the guarantee, and

(ii) indirectly by Arnach and Bostion through the same guarantees described at paragraph 11(ii) above.

[13] HSBC made a demand for payment from Vincorp under its guarantee by letter dated July 4, 2011, and made demands for payment from Vincent, Arnach, and Bostion under their guarantees by letters dated April 4, 2012.

(b) The amounts at issue

[14] There is no dispute as to the principal and interest amounts owed by Elena and Vincent to HSBC as of December 16, 2011, subject to the defendants’ argument that HSBC’s legal fees were not reasonable, which will be addressed at the assessment and which I take into account below by removing those amounts from the principal amount owing, leaving a minimum amount which there is no dispute is owed by the defendants.[^6]

[15] HSBC calculated Elena’s debt up to December 16, 2011 at $891,425.75 consisting of $806,160.30 for principal amounts for credit facility and credit card debt, $35,664.08 for HSBC’s legal fees[^7] and $49,601.37 in interest on the above amounts at the HSBC prime rate of interest plus 2 per cent. HSBC calculated the per diem interest amount on Elena’s outstanding debt as of December 17, 2011 at $118.45.

[16] The defendants do not dispute any of the calculations or the interest rate with respect to Elena, but submit that the principal amounts (whether of Elena or Vincent) should have been reduced[^8] by any excess legal fees which were attributed to the “Commercial Debt” of Vincorp pursuant to Schedule A of the Settlement Agreement.

[17] HSBC calculated Vincent’s debt up to December 16, 2011 at $169,435.29 consisting of $160,691.23 for principal amounts for credit facility and credit card debt, and $8,744.06 in interest on the above amounts at the HSBC prime rate of interest plus 2 per cent for some debt and at a rate of 19.90 per cent for Vincent’s MasterCard debt. HSBC calculated the per diem interest amount on Vincent’s outstanding debt as of December 17, 2011 at $44.33.

[18] The defendants do not dispute any of the calculations or the interest rate with respect to Vincent, but submit that the principal amounts (whether of Elena or Vincent) should have been reduced[^9] by any excess legal fees which were attributed to the “Commercial Debt” of Vincorp pursuant to Schedule A of the Settlement Agreement.[^10]

[19] Consequently, the most the defendants could collectively owe HSBC in principal and interest up to December 16, 2011 is $1,060,861.04 ($891,425.75 for Elena and $169,435.29 for Vincent) plus the per diem amounts as of December 17, 2011 on each of the respective debts of Elena and Vincent. This would be the case if there was no adjustment made to the legal fees at the assessment.

[20] If the assessment officer finds that none of the legal fees incurred were reasonable, then:

(i) the amounts of $269,308.74 applied to the Commercial Debt ought to have been applied to reduce Elena’s or Vincent’s debt and as such would result in a lower principal amount to be paid as well as lower interest up to December 16, 2011 and a lower per diem amount; and

(ii) the amount charged to Elena of $35,664.08 for HSBC legal fees would not be owing.

[21] The assessment officer could find that some of the legal fees were reasonable. If so:

(i) the excess amounts applied to the Commercial Debt ought to have been applied to reduce Elena’s or Vincent’s debt and as such would result in a lower principal amount to be paid as well as lower interest up to December 16, 2011 and a lower per diem amount; and

(ii) the amount charged to Elena of $35,664.08 (or a portion thereof) may or may not be owing.

[22] Given that the parties agree that the reasonableness of the legal fees will be determined at the assessment, I cannot determine at this point the final principal or interest amounts owed by Elena and Vincent and by their respective guarantor defendants.

[23] However, there is a minimum principal amount that the defendants will owe regardless of the assessment (previously defined as the “Minimum Outstanding Principal”). By considering only the principal amounts claimed, and reducing from those principal amounts all legal fees at issue in the assessment, I arrive at this amount (plus interest thereon) which is due forthwith since I find that there is no genuine issue requiring trial on any of the other defences discussed below.

[24] Consequently, at a minimum, Elena and Vincent and the guarantor defendants owe HSBC $661,878.71 (the Minimum Outstanding Principal), being $966,851.53 in principal for credit facility and credit card debt less $304,972.82 claimed for legal fees. Elena and Vincent and the guarantor defendants also owe interest on the Minimum Outstanding Principal at the rate set out in the First Borch Affidavit. Once the assessment officer determines the appropriate legal fees, the defendants will pay those amounts (previously defined as the Additional Outstanding Principal and consisting of those reasonable legal fees from all or part of the $269,308.74 applied to the Commercial Debt or the $35,664.08 charged to Elena) plus interest thereon at the rate set out in the First Borch Affidavit.[^11]

(c) The defences raised by the defendants that there is a genuine issue requiring trial

[25] In their written submissions, the defendants raised five arguments in response to the motion for summary judgment. The evidence in support of each of those submissions was filed in the responding affidavit of Vincent sworn August 20, 2012. I address each of those submissions below.

1. The reasonableness of the legal fees

[26] As discussed above, the defendants submitted that there was a genuine issue requiring trial based on their objection to the reasonableness of the legal fees. Those amounts are now not part of the amount ordered for summary judgment since they will be assessed and paid by the defendants to HSBC in the amount ordered at assessment (as the Additional Outstanding Principal). Further, the amount of the interest owing on the Additional Outstanding Principal, calculated as set out in the First Borch Affidavit, will also be determined after assessment for the reasons I discuss above. Consequently, the issue of the appropriateness of legal fees is not a defence to payment of the Minimum Outstanding Principal amount of $661,878.71 plus interest thereon based on the First Borch Affidavit, since I have removed the legal fees and interest from the amounts owing forthwith as set out above.

2. The amount of the Vincorp indebtedness set out in the HSBC February 9, 2011 letter

[27] At the hearing, the defendants did not pursue their second submission that the amount of the Vincorp indebtedness set out by HSBC in its loan payout statement letter dated February 9, 2011 demonstrated that there was a genuine issue requiring trial that the amount of indebtedness sought on summary judgment was incorrect.

[28] The uncontested evidence[^12] was that the amount in the HSBC letter referred only to the direct indebtedness Vincorp owed to HSBC and did not include the indirect indebtedness Vincorp owed to HSBC in Vincorp’s capacity as guarantor. There was no dispute that Vincorp guaranteed all debts of Elena and Vincent, so the statement in a loan payout letter about Vincorp’s direct indebtedness to HSBC does not change the uncontested evidence that Vincorp was liable as guarantor for Elena and Vincent’s outstanding debts.

3. Whether HSBC properly calculated and charged interest

[29] The defendants did not pursue their third submission that there was a genuine issue requiring trial that HSBC used the wrong interest rate.

[30] In any event, Borch set out his evidence in both the First and Second Borch Affidavits as to why the correct rate was used. There is no genuine issue requiring trial on this point since the Borch evidence governing the loans supports HSBC’s position.

[31] Finally, the defendants advised the court that since any difference amounting from this submission would be minimal they would not pursue the submission in any event.

4. Whether HSBC properly allocated interest

[32] The defendants did not pursue their fourth submission that there was a genuine issue requiring trial that HSBC ought to have allocated payment received under the Settlement Agreement first to Vincent’s credit card debt which had a higher interest rate than the other debt. As with the third submission, the defendants advised the court that since any difference arising from this submission would be minimal they would not pursue the submission. This position was reasonable given that Vincent’s credit card debt was approximately $20,000, a minimal percentage of the total debt at issue.

[33] In any event, there was no evidence of any requirement that HSBC allocate funds received in any particular manner.

5. The Bostion Mortgage

[34] The defendants’ counsel fairly acknowledged at the hearing that he was only relying on his fifth submission (other than the legal fees issue) to establish a genuine issue requiring trial. The defendants submitted that there was a genuine issue requiring trial that because HSBC discharged the Bostion Mortgage, HSBC lost its right to pursue any outstanding indebtedness.[^13]

[35] The defendants submitted that under the Settlement Agreement, they retained their rights to argue at law that HSBC’s discharge of the Bostion Mortgage, which was a third mortgage on the Monarch Avenue property, constituted discharge of the underlying debt obligation. However, the following excerpts from the Settlement Agreement demonstrate that there is no genuine issue requiring trial on that point:

(i) Bostion acknowledged in the preamble to the Settlement Agreement that it had “guaranteed the Vincorp Indebtedness[^14] to a maximum principal amount of $1 million”; and

(ii) Bostion acknowledged in the Settlement Agreement that its guarantee would continue to stand as security for HSBC for the personal debt. At paragraph 5 of the Settlement Agreement, the parties stated: “As security for the unpaid balance of the Vincorp Indebtedness, Bostion hereby confirms that each of (i) the guarantee of the obligations of Vincorp to HSBC, both direct and indirect, executed by Bostion in favour of HSBC dated July 30, 2008 … remains in full force and effect and has not been amended”.

[36] Consequently, I find that there is no genuine issue requiring trial that the indebtedness was extinguished by HSBC’s discharge of the Bostion Mortgage.

[37] Further:

(i) The evidence is uncontested that the defendants agreed after negotiations that HSBC was required to discharge the Bostion Mortgage, and the parties incorporated that requirement into the Settlement Agreement;

(ii) The defendants submitted no evidence of any loss arising from the fact that HSBC discharged the Bostion Mortgage; and

(iii) To the extent that the argument that indebtedness is extinguished through discharge of a security is based solely on law, the defendants submitted no case law to support an argument that there was a genuine issue of law that a discharge of one security (in this case a third mortgage) could constitute a discharge of the underlying debt.

[38] I rely on the above points as well to support my conclusion that there is no genuine issue requiring trial with respect to the Bostion Mortgage.

[39] For the above reasons, I reject the defendants’ submission[^15] that there is a genuine issue requiring trial that HSBC’s discharge of the Bostion Mortgage constituted discharge of the unpaid indebtedness. For the same reasons, I dismiss the counterclaim which is based on HSBC’s discharge of the Bostion Mortgage, both for the defendants (at paragraph 16 of the statement of defence and counterclaim) and for Bostion (at paragraph 21 of the statement of defence and counterclaim).[^16]

Order and costs

[40] I grant summary judgment as follows:

(i) I order the defendants to pay the amount of $661,851.53 to HSBC (the Minimum Outstanding Principal) plus interest thereon at the rate set out in the First Borch Affidavit[^17], within 30 days of this order, which reflects the undisputed principal amounts and interest owed less the amounts for legal fees to be determined upon assessment;

(ii) I direct that an assessment of legal fees take place. If a request for an assessment is required, I order the defendants to request the assessment no later than 30 days from the date of this order;

(iii) I order that once the assessment officer determines a reasonable amount for legal fees incurred by HSBC, the defendants will pay to HSBC within 30 days of the assessment order that amount for legal fees (the Additional Outstanding Principal) plus interest thereon at the rate set out in the First Borch Affidavit;[^18] and

(iv) I dismiss the counterclaim.

[41] I order the defendants to pay costs to HSBC in the amount of $12,500 (including taxes and disbursements) within 30 days of this order. Counsel agreed on the amount of costs at the hearing and I find that the amount is reasonable given the importance of the motion and the nature of the material filed with the court, including motion records, cross-examination transcripts, factums, and briefs of authorities.

[42] I thank counsel for their tremendous assistance to the court in their written and oral submissions as well for as their courtesy and professionalism towards each other and the court.

Master Benjamin Glustein

DATE: January 16, 2013

[^1]: I make no finding as to whether there is a genuine issue requiring trial with respect to the reasonableness of the legal fees, as the quantum of reasonable legal fees will be determined at the assessment as agreed by the parties.

[^2]: If the parties cannot agree on the interest calculation, I will hear further submissions to determine that amount no later than February 28, 2013, to be scheduled with my assistant trial coordinator on any of my regular motions lists even if indicated to be full.

[^3]: This is the minimum amount owing to HSBC as per my analysis at paragraph 24 below, subject to further submissions if required as per my comments at footnote 11 below.

[^4]: If the parties cannot agree on the interest calculation, I will hear further submissions to determine that amount no later than 45 days after the assessment order, to be scheduled with my assistant trial coordinator on any of my regular motions lists even if indicated to be full.

[^5]: Vincorp also signed an earlier guarantee on March 1, 2010 for Elena’s debts, with the guarantee limited to $1,200,000 and interest thereon as calculated from the date demand is made under the guarantee. However, the subsequent joint and several guarantee signed by Vincorp and Vincent on January 27, 2011 provides for no limit on Vincorp’s guarantee for Elena’s debts.

[^6]: (since I find no genuine issue requiring trial with respect to the defendants’ submissions based on HSBC’s discharge of the Bostion Mortgage, as I discuss below)

[^7]: These legal fees are referenced at paragraph 4(d) of the First Borch Affidavit, as part of the total principal amounts owed by Elena. The “Total Indebtedness” set out in Exhibit E of the First Borch Affidavit of $1,060,861.04 is also consistent with the conclusion that the $35,664.08 for legal fees were part of the total principal amounts owed by Elena. To the extent Borch then refers to this same amount as a sum for which Elena is “also indebted to HSBC” at paragraph 6 of the First Borch Affidavit, HSBC appears to be double-counting this amount. For the purposes of these reasons, I use the total amount of principal debt as set out at paragraph 4 of the First Borch Affidavit, without prejudice to HSBC making additional submissions as per my comments at footnote 11 below.

[^8]: (and as such the interest and per diem rates would also be accordingly reduced)

[^9]: (and as such the interest and per diem rates would also be accordingly reduced)

[^10]: As I discuss below, the defendants submitted in their responding affidavit and factum that there was a genuine issue requiring trial that HSBC ought to have applied funds received in the Settlement Agreement first to Vincent’s MasterCard debt which incurred a higher interest rate, but the defendants’ counsel advised at the hearing that any amount arising from such a position would be minimal and as such he was not pursuing the submission. In any event, there was no evidence of any requirement that HSBC apply moneys received first to a debt with a higher interest rate.

[^11]: Given that the agreement to determine the reasonableness of legal fees at an assessment was reached at the hearing, counsel did not address all of the consequences that could arise with respect to determining the amount to be paid on summary judgment as opposed to after assessment. If I have made any errors in calculation or in the process I order in these reasons, I will hear additional submissions on those points by no later than February 28, 2013 on any of my regular motions list regardless of whether the list is indicated to be full, on a date scheduled with my assistant trial coordinator.

[^12]: (as set out in the reply affidavit of Borch sworn on September 5, 2012 (the “Second Borch Affidavit”))

[^13]: While the defendants submitted in their affidavit material that (i) HSBC did not have the right to discharge the Bostion Mortgage and (ii) HSBC should have reassigned the Bostion Mortgage to Bostion, the defendants acknowledged at the hearing that paragraph 2 of the Settlement Agreement permitted HSBC to discharge the Bostion Mortgage since paragraph 2 provided that upon receipt of the settlement funds, “HSBC agrees to discharge the Existing Charges” which included the Bostion Mortgage that Bostion had assigned to HSBC.

[^14]: The Vincorp Indebtedness is defined in the Settlement Agreement by reference to Schedule “A” to include the personal debt obligations of Elena and Vincent.

[^15]: There is some confusion as to whether only Bostion was making this submission or whether all of the defendants were making this submission. Counsel for the defendants at the hearing limited the submission to Bostion, and advised the court that the other defendants would not be able to rely on the defence in any event (and as such under my analysis above the other defendants would have to pay the Minimum Outstanding Principal plus interest thereon at the rate set out in the First Borch Affidavit). However, the defendants collectively rely on this defence in the statement of defence and counterclaim (see footnote 16 below). For the purposes of these reasons, I consider the submissions as being made on behalf of all of the defendants.

[^16]: The numbering of the paragraphs in the statement of defence and counterclaim appears to be a typographical error as paragraph 21 of the statement of defence and counterclaim immediately follows paragraph 16 of the statement of defence and counterclaim.

[^17]: See footnote 2 above.

[^18]: See footnote 4 above.