SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-46448
DATE: 20130115

RE: Kamran Jaffer and Shugufta Kamran, Plaintiffs

– AND –

Xpert Credit Control Solutions Inc., Defendant

BEFORE: Justice E.M. Morgan

COUNSEL:
S. Goswami, for the Plaintiffs

G. Cohen, for the Defendant

HEARD: January 14, 2013

ENDORSEMENT

[1] The Plaintiffs are mortgagors and the Defendant is mortgagee under a third mortgage. The mortgage is secured against a residential property that is the Plaintiffs’ family home.

[2] The Plaintiffs seek a number of heads of interlocutory relief. Chief among them is a request to enjoin execution of a default judgment obtained by the Defendant (or, more properly, by the assignor of the third mortgage to the Defendant) in a mortgage enforcement action regarding this very mortgage: Jorlee Holdings Limited v Jaffer and Kamran, Court File No. CV-11-436771 (now continued as Xpert Credit Control Solutions Inc. v Jaffer and Kamran). The Plaintiffs submit that they will need at least a month or two in order to exercise their right to redeem the mortgage.

[3] The Plaintiffs argue that they were not properly served with the Statement of Claim that led to the default judgment in Court File No CV-11-436771. However, they have not brought a motion to set aside that judgment, nor have they sought in Court File No. CV-11-436771 a stay of execution or, indeed, any other relief or appeal. Instead, they have brought the present action as an altogether new proceeding and have sought in this motion an injunction halting the post-judgment processes already underway in Court File No. CV-11-436771.

[4] The relief sought here appears to me to be a collateral attack on an existing judgment that has not itself been challenged. Such collateral attack raises problems of res judicata, and is generally prohibited by the doctrines of cause of action estoppel and/or issue estoppel where, as here, the parties and the issues are the same in both actions. As this court has commented elsewhere, “even if a party fails to plead matters in default proceedings, cause of action estoppel may prevent subsequent litigation of issues which ‘properly belonged’ to the previous litigation. Miel Abitemis v Buckhorn and Honey, 2011 ONSC 5124, at para 20. Cromwell J.A. (as he then was) reiterated this point in Hoque v. Montreal Trust Co., 1997 NSCA 153, [1997] NSJ No 430 (NS CA), where he applied the res judicata thinking specifically to a default judgment in a mortgage enforcement proceeding. He held, at para 68, that default judgments “are conclusive as to all of the essential findings necessary to support them.”

[5] The proper place for a stay of execution of the judgment in Court File No. CV-11-436771 is a motion brought in that action, not a motion brought in an altogether separate action. If the Plaintiffs have grounds to set aside and/or stay the judgment in Court File No. CV-11-436771, they ought to challenge that judgment directly and not attack it collaterally through the current proceeding.

[6] Separate from the stay of execution in Court File No. CV-11-436771, the Plaintiffs also seek injunctive relief preventing any self-help or other form of enforcement of the third mortgage held by the Defendant. If I were to grant that relief, the parties would be faced with contradictory judgments of this court – one enforcing the mortgage (in Court File No. CV-11-436771) and the other enjoining its enforcement (in the present action). I am not in that awkward position, however, as I am of the view that the Plaintiffs have failed to identify a serious issue to be tried in this action.

[7] There are seven allegedly triable issues raised by the Plaintiffs, which I will discuss in sequence below.

[8] First, the Plaintiffs and their lawyer attended at the office of the Defendant’s former solicitor, Terry Walman, on November 5, 2012, and tendered the amount due under the third mortgage. This tender was not accepted by Mr. Walman, and the Plaintiffs contend that their rights were violated by this refusal.

[9] In my view, the November 5th tender was not a legally enforceable tender such that the Defendant cannot now enforce the mortgage. The Plaintiffs did tender the funds to Mr. Walman, but in return they demanded an assignment of the mortgage. The record makes it clear that the Plaintiffs had arranged to borrow the funds needed to pay out the Defendant’s mortgage; indeed, they attended at Mr. Walman’s office together with a representative of the new lender. That new lender required an assignment of the mortgage so that it would not lose its place in priority to other encumbrancers. A discharge of the mortgage, and then the granting of a new mortgage to the new lender, would have disadvantaged the new lender in terms of its priority over encumbrancers and execution creditors that had come along subsequent to the original grant of the third mortgage.

[10] The Plaintiffs’ tender on November 5, 2012, therefore, was not an unconditional tender. They were, and still are, entitled to tender the entire amount owing under the mortgage in accordance with the statement they received on the Notice of Sale Under Mortgage issued to them by the Defendant, but they were only entitled to receive a discharge in return for that redemption of the mortgage. They could request, but were not entitled as of right to receive, an assignment of the mortgage to a new lender. See, Hallman v. Brierdale Ltd., 1979 1992 (ON SC), 25 OR (2d) 509 (HCJ); and J. Roach, The Canadian Law of Mortgages (Toronto: Butterworths, 1993), at pp. 480-483.

[11] As it happens, the Defendant was also an execution creditor of the Plaintiffs and had purchased the first, second, and third mortgages in order to protect its position as execution creditor. Accordingly, it had its own valid reasons for not wanting to assign the third mortgage that it had recently purchased. The Defendant could not avoid granting a discharge of the third mortgage if it was redeemed by the Plaintiffs (or other encumbrancer), but it was not obliged to grant an assignment of the third mortgage.

[12] Second, the Plaintiffs contend that they made many requests for mortgage statements but were rebuffed by Mr. Walman. I sympathize with counsel for the Plaintiffs, as Mr. Walman’s correspondence with him at times took a dismissive and, frankly, disrespectful tone. However, the record shows that the Plaintiffs did receive mortgage statements from the solicitor for the original third mortgagee, Sheldon Barris, on Sept 4, 2012 and Sept 12, 2012. On Sept 12, 2012, they also received notice from Mr. Barris that the mortgage had been assigned.

[13] What is beyond dispute is that on Sept 28, 2012, the Plaintiffs were served by the Defendant with a Notice of Sale Under Mortgage. While the Plaintiffs have several complaints about certain details of this Notice which are discussed below, it contains on its face an up-to-date mortgage statement. If the Plaintiffs had tendered the amount shown as owing on the Notice without demanding an assignment, they would have been entitled to redeem the mortgage and obtain its discharge. As indicated above, however, that is not what they did.

[14] Third, the Plaintiffs argue that the Notice of Sale Under Mortgage contained a clerical error in that it showed the wrong name for the Defendant as assignee. The record shows, in fact, that the Notice of Sale Under Mortgage is correct. What is incorrect is the registered Notice of Transfer that appears on the abstract of title. The Defendant’s corporate name as registered assignee of the third mortgage on the abstract of title does not quite match the way its corporate name appears on the Notice of Sale. The error in the registry was remedied by the Defendant’s registration of a name change shortly after the initial registration of the assignment of the third mortgage.

[15] There does not appear to be any substantive harm caused by the clerical error. In 1175945 Ontario Ltd. v. Michael Wade Construction Co., 2010 ONSC 3732, [2010] OJ No 3070, this court held that one must take a functional approach to such matters and that courts ought not block a Notice of Sale Under Mortgage for purely technical or clerical reasons as long as the error is not misleading in substance. Lauwers, J. (as he then was) noted at para 30 of Michael Wade Construction that to hold otherwise would be to endorse the “triumph of form over substance”.

[16] Fourth, the Plaintiffs put forward an argument that the Notice of Sale Under Mortgage for the third mortgage was inadequate because the original first and second mortgagee, the TD Bank, was not served with the Notice. The Defendant points out, however, that a mortgagee issuing a Notice of Sale must serve subsequent encumbrancers as they have a right to redeem, but need not serve prior encumbrancers. The first and second mortgages are not affected by the enforcement of the rights of the third mortgagee, and so they do not have to receive notice of such enforcement.

[17] Fifth, the Plaintiffs maintain that the Mortgage Brokers, Lenders and Administrators Act (the “MBLA”) prohibits an execution creditor who is not licensed as a mortgage broker from taking assignment of a mortgage. With respect, that is not how the legislation works. In 1737402 Ontario Inc. v. Luxury Properties Inc., 2012 ONSC 1581, para. 16, the Divisional Court specifically stated that the MBLA may well contain a licensing requirement, but a breach of that requirement does not render the underlying contract a nullity.

[18] If the Defendant is required to be licensed (which is not at all certain given that it took an assignment of an existing mortgage and was not engaged in creating or brokering a new mortgage), it would be prohibited under the MBLA from charging fees for that task. However, the assignment of the third mortgage is still valid and the enforcement of that mortgage is unaffected by the provisions of the MBLA cited by the Plaintiffs.

[19] Sixth, the Plaintiffs are concerned that the Defendant has taken assignment of the first and second mortgages from TD Bank. They submit that when demanding payment under the third mortgage the Defendant should have given the Plaintiffs mortgage statements for the first two mortgages as well. I can find no legal basis for this position.

[20] As Defendant points out, there has been no demand made by the Defendant under the first and second mortgages. Those mortgages are in arrears, but there has been no enforcement attempt, no demand for payment, no notice of sale issued, etc. There is no obligation for a third mortgagee to provide mortgage statements for the first and second mortgage, even if they are owned by the same lender.

[21] Seventh, the Plaintiffs complain that Mr. Walman’s legal fees are too high and that they have been built into the mortgage statement contained in the Notice of Sale Under Mortgage. The law is clear, however, that disputes about legal costs of enforcement are properly the subject of an accounting under s. 27 of the Mortgages Act. This is not an issue that goes to the enforceability of the third mortgage itself.

[22] In all of this, there I am unable put to find any serious issue to be tried. The first step in the test for an interlocutory injunction has not been met. RJR MacDonald Inc. v. Canada, 1994 117 (SCC), [1994] 1 SCR 311, at para. 43.

[23] The Plaintiffs’ motion is therefore dismissed. This is, of course, without prejudice to the Plaintiffs’ right to move in Court File No. CV-11-436771 for some form of relief in that action, if grounds for relief exist.

[24] The Defendant points out that it has obtained in Court File No. CV-11-436771 a judgment for possession of the mortgaged property and payment of the third mortgage, but that it has not yet sought leave to obtain a Writ of Possession. Effectively, therefore, there remains some time – possibly as much as the very 30 to 45 days that the Plaintiffs say that they need to redeem the mortgage in issue – before the judgment in that action can be enforced. As a practical matter, the Plaintiffs may be able to salvage the situation without any intervention by this court.

[25] The Defendant shall have its costs of this motion. Counsel for the Defendant has submitted a costs outline indicating $7,500.00 on a partial indemnity basis prior to the full day’s court appearance to argue the motion. Taking the hearing day into account, Plaintiffs shall pay costs to the Defendant in the amount of $9,000.00, inclusive of disbursements and HST.

Morgan J.

Date: January 15, 2013