SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-09-390497
DATES HEARD: December 1 and 2, 2011; April 30, June 7, August 7 and September 3, 2013

RE: 1309395 Ontario Ltd. v. Pronesti Investments Inc., Vincenzo Pronesti, Francesca Pronesti and Dominic Pronesti

BEFORE: MASTER R.A. MUIR

COUNSEL: Sidney Klotz for the plaintiff
Paul Feldman and Eric Turkienicz for defendants

REASONS FOR DECISION

[1] These reasons for decision are being delivered in connection with a reference hearing held over a period of six days between December 2011 and September 2013.

[2] This action involves a dispute between a mortgagor and a mortgagee. The disagreement arose during the spring of 2009. The plaintiff, who is the mortgagor, commenced this action on November 3, 2009.

[3] As part of its action, the plaintiff seeks an order for relief from forfeiture and relief from any breaches of the terms and conditions of seven separate mortgages held by the defendants.[^1] The plaintiff also seeks an order staying certain mortgage enforcement proceedings that had been initiated by the defendants, along with other related relief.

BACKGROUND TO THE REFERENCE

[4] On February 10, 2010, the Honourable Justice Pollak made an order directing a reference to the master. On May 6, 2010 Master Glustein made an order appointing me as reference master for the purposes of carrying out Justice Pollak’s order. A first hearing for directions was then held before me on June 23, 2010.

[5] In accordance with the order of Pollak J., the scope of the reference was limited to an accounting with respect to the amounts owing on the various mortgages and a determination of whether there were any acts of default by the mortgagor under the terms of the mortgages. Although Justice Pollak’s order makes reference to six mortgages, it is common ground among the parties that there are actually seven mortgages in issue covering seven separate properties.

[6] At various times during the course of the hearing, and in written submissions, the plaintiff made reference to various claims it is pursuing for damages flowing from the defendants’ alleged misconduct in connection with the enforcement of the mortgages. These claims involve the defendants allegedly making threatening comments to the plaintiff’s representatives and interfering with the plaintiff’s tenants. However, those issues were not included as part of Justice Pollak’s order and are not properly before me. The only issues for me to determine on this reference are: 1) whether there were any acts of default by the mortgagor at the time of the notices of sale;[^2] and 2) an accounting with respect to the amounts owing on the mortgages. I have not considered or taken into account any of these other claims as part of this reference. They remain extant and are to be determined at another time.

[7] The seven properties involved can be described as follows:

• 83 Marmora Street, Trenton (“Marmora”)
• 111-129 Front Street, Trenton (“129 Front”)
• 16 Wilby Crescent, Toronto (“Wilby”)
• 136 Highway 33, Trenton (“Highway 33”)
• 1766 Weston Road, Toronto (“Weston”)
• 265 Front Street, Trenton (“265 Front”)
• 65 Dundas Street Trenton (“Dundas”)

[8] The Marmora and 129 Front mortgages remain outstanding and registered against title. The other five mortgages have been discharged although the parties disagree as to whether the proper amounts were paid by the plaintiff to the defendants in order to obtain the discharges. The payments on those mortgages were made by the plaintiff under protest.

GENERAL OBSERVATIONS

[9] I will deal with the default and accounting issues for each mortgage separately. However, I wish to make a few general observations about the evidence and the conduct of the reference in general.[^3]

[10] Much of the evidence tendered on this reference was unsatisfactory, unclear, confusing and irrelevant. None of the witnesses who gave oral evidence appeared to have been properly prepared. The evidence was not presented in an organized or coherent fashion. The parties’ affidavits of documents and productions were simply placed into evidence with little effort having been made to organize the documents and weed out the many documents that were simply irrelevant to this reference. In particular, Vincenzo Pronesti’s evidence was unhelpful. It became very clear during the course of his examination in chief and his lengthy (and mostly irrelevant) cross-examination that he was completely unfamiliar with the issues on the reference, other than in a very general way. At times his evidence was contradictory and on a number of occasions he even disputed the authenticity of his own documents. On many occasions he stubbornly refused to concede obvious and non-contentious points. Part of this may be a result of translation issues but much of it, in my view, must be assigned to his general lack of knowledge and level of preparation. In my view, the oral evidence given by Vincenzo Pronesti is simply unreliable. It will not be considered.

[11] As I have indicated above, the documentary evidence was presented to the court in a haphazard and disorganized fashion. No effort was made to assemble joint production books limited to the issues on this reference. Instead, the parties’ productions were simply placed into evidence in a wholesale fashion without regard to relevance. In addition, many of the documents provided to the court were illegible and incomplete.

[12] This approach to the tendering of evidence is consistent with the parties’ record keeping in general. Large amounts of money were loaned to the plaintiff in connection with numerous properties. Neither the plaintiff nor the defendants appear to have maintained any kind of organized bookkeeping in connection with the loans and the properties. It appears that no general ledgers were maintained. No computer based software was utilized to record various advances, payments and charges. All of the accounting had to be recreated through cancelled cheques and bank statements, many of which cannot even be read.

[13] The defendants acknowledged errors in calculating the amount owing on the mortgages from time to time. Incorrect notices of sale were issued. Erroneous pay-out statements were provided. Charges were added to the mortgages to which the defendants were not entitled. The defendants made allegations of missed payments only to later concede the fact that the payments actually had been made.

[14] The plaintiff was unable to make payments on a regular basis. Many cheques were returned by the plaintiff’s bank for reason of insufficient funds and had to be replaced in a haphazard manner, sometimes by attempting to lump payments for more than one property into the same cheque or bank draft. The plaintiff failed keep property tax payments current and in some cases failed to pay utilities owing in connection with the properties. The plaintiff also failed to maintain insurance on some of the properties.

[15] All of this makes the accounting exercise similarly imprecise. For many of the issues before the court, I am simply unable to draw any clear conclusions. The best that can be done is for the court to arrive at a general finding, on a balance of probabilities.

[16] I find that on several occasions prior to June 2009, the plaintiff failed to make timely and full monthly payments. However, I have concluded that there is evidence in the documents tendered by the parties to show, on balance, that most of these missed payments were ultimately replaced by the plaintiff and cashed and accepted by the defendants. On some occasions, the defendant chose not to immediately cash certain replacement cheques. Given the state of the record keeping on both sides, it is more likely than not that almost all monthly payments were eventually made by the plaintiff in respect of all mortgages up until April 2009. Indeed, the defendants have generally conceded this point for the purposes of the reference. However, I find that no monthly payments were made and accepted in respect of any of the mortgages after April 2009.

MARMORA

[17] I find that this mortgage was in default as of the date of the notice of sale. The evidence clearly shows that property taxes were in arrears and utilities had been disconnected. Both of these findings constitute acts of default based on the terms set out in the mortgage document and the standard charge terms. Counsel for the plaintiff emphasized the fact that the defendants had not actually paid the tax arrears on behalf of the plaintiff. In my view, this fact is irrelevant to the question of whether the unpaid tax arrears constitute an act of default. The mortgage requires them to be kept current. The plaintiff did not do so.

[18] I accept the defendants’ accounting[^4] with respect to this property except for the following items. As I indicated above, I am satisfied, on a balance of probabilities, that all missed payments on this property up to April 2009 were ultimately made by the plaintiff. The defendants maintain that one payment in the amount of $3,537.49 in respect of February or March 2009 was not replaced. The evidence is somewhat confusing and difficult to follow given the timing and frequency of the replacement cheques. However, I am nevertheless satisfied that this missed payment was ultimately replaced by the plaintiff and accepted by the defendant. This missed payment shall be deducted from the defendants’ accounting.

[19] In addition, I am not satisfied that the defendant is entitled to the legal fees set out in its accounting for this property or for any of the other properties. The invoices received by the defendants from their former lawyers were not put into evidence. No documentary proof of payment was tendered. The defendants’ former lawyers were not called as witnesses. Vincenzo Pronesti appeared to give evidence that he paid at least some of the amounts set out for legal fees in the defendants’ accounting. However, for the reasons set out above, I am not prepared to accept Vincenzo Pronesti’s oral evidence on that point. He was unable to recognize or identify the invoices for legal fees. His evidence in this regard is simply unreliable.

[20] The terms of the mortgage do include the right of the mortgagee to recover its legal fees incurred in connection with the notice of sale and enforcement proceedings generally. However, in the absence of any evidence of payment, I am not prepared to allow those charges as part of the accounting on this reference.[^5]

[21] The evidence does support the claim relating to the $200.00 charge for the February 11, 2009 returned cheque. The cheque was returned. A copy of the returned cheque was placed in evidence. The charge of $200.00 is reasonable in the circumstances. It is specifically referenced in the mortgage. That amount will be allowed.

[22] I therefore conclude that the amounts owing on Marmora are properly set out in the defendants’ accounting other than the necessary deletion of the $3,537.49 allegedly missed payment and the legal fees of $4,486.20. The amount owing on this mortgage as of April 12, 2009 was therefore $413,100.00. Simple interest is payable on that amount at the rate of 8.5% per year ($96.20 per day) to the date of payment.[^6]

129 FRONT

[23] I find that this mortgage was in default as of the date of the notice of sale. The evidence clearly shows that property taxes were in arrears. This is an act of default under the terms of the mortgage and the applicable standard charge terms. In addition, this property was uninsured in breach of the terms of the mortgage and the applicable standard charge terms. Finally, this mortgage had already matured as of the date of the notice of sale. The full amount was due and owing regardless of whether it was in default.

[24] I accept the defendants’ accounting with respect to this property except for the charges for legal fees. Those charges are unsupported by the evidence. They will not be allowed for the same reasons I have set out in respect of Marmora, above.

[25] The documentary evidence supports the claim relating to the $200.00 charge for the September 1, 2008 returned cheque. The cheque was obviously returned by the bank. A copy of the returned cheque was placed in evidence. The charge of $200.00 is reasonable in the circumstances. It is specifically referenced in the mortgage. That amount will be allowed.

[26] I therefore conclude that the amounts owing on 129 Front are properly set out in the defendants’ accounting other than the necessary deletion of the legal fees of $4,931.20. The amount owing as of April 2, 2009 was therefore $215,200.00. Simple interest is payable on that amount at the rate of 10% per year ($58.96 per day) to the date of payment.[^7]

WILBY

[27] I find that this mortgage was in default as of the date of the notice of sale. The evidence clearly shows that property taxes were in arrears. This is an act of default under the terms of the mortgage and the applicable standard charge terms.

[28] I accept the defendants’ accounting with respect to this property except for the following items. The appraisal invoices for this property total $3,150.00 and not the $5,355.00 set out in the defendants’ accounting. I find that it was reasonable for the defendants to have incurred these appraisal charges. The mortgage was in default. Any prudent mortgagee would routinely obtain appraisals as part of the necessary enforcement steps.

[29] In my view, the terms of the mortgage and the standard charge terms do not provide a sufficient basis for the arbitrary “administration charge” of $900.00. Unlike the charge for returned cheques, the amount of this fee is not specifically referenced in the mortgage documents. This amount will not be allowed.

[30] The legal fees charged are unsupported by the evidence. They will not be allowed for the same reasons I have set out in respect of Marmora, above.

[31] The documentary evidence supports the claim relating to the $800.00 charge for the August 19, 2008, September 19, 2008, January 19, 2009 and February 19, 2009 returned cheques. Those cheques were obviously returned by the bank. Copies of the returned cheques were placed in evidence. The charge of $200.00 per returned cheque is reasonable in the circumstances. It is specifically referenced in the mortgage. This charge will be allowed.

[32] I therefore conclude that the amounts owing on Wilby are properly set out in the defendants’ accounting other than the necessary deletion of the legal fees of $8,647.51, the administration charge of $900.00 and a reduction of the amounts charged for appraisals to $3,150.00. The amount owing as of April 20, 2009 was therefore $495,950.00 plus simple interest at the rate of 8.5% per year to the date of payment. Payment was made by the plaintiff under protest in the amount of $538,549.74 on or about January 8, 2010 (264 days later). Based on my findings above, the amount actually owing on that date was $526,442.00, including all interest. I have therefore concluded that the plaintiff made an overpayment on Wilby in the amount of $12,107.74.

HIGHWAY 33

[33] I find that this mortgage was in default as of the date of the notice of sale. A tax arrears certificate was placed on the property by the municipality. This is an act of default under the terms of the mortgage and the applicable standard charge terms. In addition, this property was uninsured in breach of the terms of the mortgage and the applicable standard charge terms. Finally, as I discuss below, the March 2009 payment was missed and I find that no replacement funds were provided by the plaintiff and accepted by the defendants. This is also an act of default.

[34] I accept the defendants’ accounting with respect to this property except for the following items. The principal amount owing as of May 2, 2009 is incorrect based on the amortization schedule relied upon by the defendants. The defendants’ accounting references $299,824.60 as owing as of May 2, 2009. However, the amortization schedule indicates a figure of $298,065.18. This is the figure I accept as owing. The number suggested by the defendants does not make sense even if the missed March 2009 payment (discussed below) is considered.

[35] The legal fees charged are unsupported by the evidence. They will not be allowed for the same reasons I have set out in respect of Marmora, above.

[36] I am satisfied, on balance, that the March 2009 payment in the amount of $3,344.79 was missed and not replaced. I am unable to locate sufficient documentary evidence to support the plaintiff’s position that this missed payment was ultimately replaced and accepted. This amount will be included in the calculation of the amount owing under the mortgage.

[37] The documentary evidence supports the claim relating to the $1,000.00 charge for the May 1, 2006, June 1, 2006, October 1, 2006, January 1, 2009 and March 1, 2009 returned cheques. Those cheques were obviously returned by the bank. Copies of the returned cheques were placed in evidence. The charge of $200.00 per returned cheque is reasonable in the circumstances. It is specifically referenced in the mortgage. This charge will be allowed.

[38] I therefore conclude that the amounts owing on Highway 33 are properly set out in the defendants’ accounting other than the necessary adjustment to the principal amount owing and the deletion of the legal fees of $4,486.20. The amount owing as of May 2, 2009 was therefore $302,409.97 plus simple interest at the rate of 8% per year to the date of payment. Payment was made by the plaintiff under protest in the amount of $314,596.49 on or about July 30, 2009 (90 days later). Based on my findings above, the amount actually owing on that date was $308,375.17, including all interest. I have therefore concluded that the plaintiff made an overpayment on Highway 33 in the amount of $6,221.32.

WESTON

[39] I find that this mortgage was in default as of the date of the notice of sale. I am satisfied, on balance, that the March 2009 payment in the amount of $3,696.07 was missed and not replaced. I am unable to locate sufficient documentary evidence to support the plaintiff’s position that this missed payment was ultimately replaced and accepted by the defendants. This missed payment is an act of default under the terms of the mortgage.

[40] I accept the defendants’ accounting with respect to this property except for the legal fees. Those charges are unsupported by the evidence. They will not be allowed for the same reasons I have set out in respect of Marmora, above.

[41] As set out above, I am satisfied, on balance, that the March 2009 payment in the amount of $3,696.07 was missed and not replaced and accepted. This amount will be included in the calculation of the amount owing under this mortgage.

[42] The documentary evidence supports the claim relating to the $600.00 charge for the January 3, 2008, January 1, 2009 and March 1, 2009 returned cheques. Those cheques were obviously returned by the bank. Copies of the returned cheques were placed in evidence. The charge of $200.00 per returned cheque is reasonable in the circumstances. It is specifically referenced in the mortgage. This charge will be allowed.

[43] I have therefore concluded that the amounts owing on Weston are properly set out in the defendants’ accounting other than the deletion of the legal fees of $4,871.20. The amount owing as of May 2, 2009 was therefore $180,176.97 plus simple interest at the rate of 8.5% per year to the date of payment. Payment was made by the plaintiff under protest in the amount of $178,156.83 on or about June 30, 2009 (60 days later). Based on my findings above, the amount actually owing on that date was $182,694.57, including all interest. I have therefore concluded that the plaintiff made an underpayment on Weston in the amount of $4,537.74.

265 FRONT

[44] I find that this mortgage was in default as of the date of the notice of sale. The evidence shows that property taxes were in arrears. This is an act of default under the terms of the mortgage and the applicable standard charge terms. In addition, this property was uninsured in breach of the terms of the mortgage and the applicable standard charge terms.

[45] I accept the defendants’ accounting with respect to this property except for the legal fees. Those charges are unsupported by the evidence. They will not be allowed for the same reasons I have set out in respect of Marmora, above.

[46] The documentary evidence supports the claim relating to the $400.00 charge for the February 20, 2005 and January 3, 2008 returned cheques. Those cheques were obviously returned by the bank. Copies of the returned cheques were placed in evidence. The charge of $200.00 per returned cheque is reasonable in the circumstances. It is specifically referenced in the mortgage. This charge will be allowed.

[47] I have therefore concluded that the amounts owing on 265 Front are properly set out in the defendants’ accounting other than the deletion of the legal fees of $5,207.67. The amount owing as of February 23, 2009 was therefore $81,923.94 plus simple interest at the rate of 7.5% per year to the date of payment. Payment was made by the plaintiff under protest in the amount of $87,990.07 on or about June 30, 2009 (128 days later). Based on my findings above, the amount actually owing on that date was $84,078.18, including all interest. I have therefore concluded that the plaintiff made an overpayment on 265 Front in the amount of $3,911.89.

DUNDAS

[48] I find that this mortgage was in default as of the date of the notice of sale. The evidence shows that property taxes were in arrears. This is an act of default under the terms of the mortgage and the applicable standard charge terms. In addition, gas service to the property had been shut off in December 2005 and thereafter due to non-payment of utility charges. This is also an act of default under the terms of the mortgage.

[49] I accept the defendants’ accounting with respect to this property except for the following items. The arbitrary “administration charge” of $2,500.00 is not sufficiently supported by the terms of the mortgage. Unlike the charges applicable to returned cheques, there is no specific reference to the amount of this charge in the mortgage documents. In addition, I find the amount of this charge to be unreasonable in the circumstances of a simple mortgage default. This charge will not be allowed.

[50] There does not appear to be any supporting documentation in connection with the locksmith charge of $300.00. This amount will not be allowed.

[51] The legal fees charged are unsupported by the evidence. They will not be allowed for the same reasons I have set out in respect of Marmora, above.

[52] The appraisal fees totalling $3,465.00 are supported by invoices placed in evidence. Those fees will be allowed for the same reasons set out above in connection with the Wilby property.

[53] The documentary evidence supports the claim relating to the $800.00 charge for the January 1, 2006, October 1, 2006, January 3, 2008 and March 1, 2009 returned cheques. Those cheques were obviously returned by the bank. Copies of the returned cheques were placed in evidence. The charge of $200.00 per returned cheque is reasonable in the circumstances. It is specifically referenced in the mortgage documents. This charge will be allowed.

[54] I am satisfied, on balance, that the March 2009 payment in the amount of $2,412.50 was missed and not replaced. I am unable to locate sufficient documentary evidence to support the plaintiff’s position that this missed payment was ultimately replaced and accepted. This amount will be included in the calculation of the amount owing under the mortgage.

[55] I have therefore concluded that the amounts owing on Dundas are properly set out in the defendants’ accounting other than the deletion of the legal fees of $8,822.51, the administration charge of $2,500.00 and the locksmith fee of $300.00. The amount owing as of May 2, 2009 was therefore $144,791.39 plus simple interest at the rate of 8% per year to the date of payment. Payment was made by the plaintiff under protest in the amount of $163,889.94 on or about January 8, 2010 (252 days later). Based on my findings above, the amount actually owing on that date was $152,789.87, including all interest. I have therefore concluded that the plaintiff made an overpayment on Dundas in the amount of $11,100.07.

CONCLUSION

[56] I have therefore concluded that there was a technical default (to use the language of Justice Pollak’s order) on all seven mortgages at the time the notices of sale were issued.

[57] With respect to the accounting, I have concluded as follows:

• Marmora: $413,100.00 is outstanding along with simple interest at the rate of 8.5% per year ($96.20 per day) from April 12, 2009 to the date of payment;

• 129 Front: $215,200.00 is outstanding along with simple interest at the rate of 10% per year ($58.96 per day) from April 2, 2009 to the date of payment;

• Wilby: the plaintiff has overpaid this mortgage in the amount of $12,107.74 and is entitled to a credit for that amount plus interest from January 8, 2010 at the rate of 8.5% per year ($2.82 per day);

• Highway 33: the plaintiff has overpaid this mortgage in the amount of $6,221.32 and is entitled to a credit for that amount plus interest from July 30, 2009 at the rate of 8% per year ($1.36 per day);

• Weston: the plaintiff has underpaid this mortgage in the amount of $4,537.74 and the defendants are entitled to payment of that amount plus interest from June 30, 2009 at the rate of 8.5% per year ($1.06 per day);

• 265 Front: the plaintiff has overpaid this mortgage in the amount of $3,911.89 and is entitled to a credit for that amount plus interest from June 30, 2009 at the rate of 7.5% per year ($0.80 per day);

• Dundas: the plaintiff has overpaid this mortgage in the amount of $11,100.07 and is entitled to a credit for that amount plus interest from January 8, 2010 at the rate of 8% per year ($2.43 per day).

COSTS

[58] If the parties are unable to agree on the issue of the costs of this reference, they shall provide the court with submission in writing by no later than January 17, 2014.

[59] Once the issue of costs has been determined, the parties shall prepare a formal report for my approval and signature.

Master R.A. Muir

DATE: December 9, 2013

[^1]: Five of the mortgages were given by the defendant Pronesti Investments Inc. One other mortgage was given by the defendant Vincenzo Pronesti and another was given by the defendants Vincenzo Pronesti and Francesca Pronesti jointly. Six of the mortgages listed the plaintiff as mortgagor. One of the mortgages listed a related corporation known as Weston Caribbean Supermarket Ltd. as mortgagor. This corporation is not a party to this proceeding which is obviously an issue the parties will need to address going forward. For the sake of simplicity, I will refer to the mortgagor as the plaintiff and the mortgagee as the defendants collectively for all of the properties.

[^2]: The plaintiff made much of the fact that the defendants had issued two sets of notices of sale in the spring of 2009. However, the defendants made it very clear during the course of this reference that they were only relying on the notices of sale dated June 16, 2009. This is the relevant date for the purposes of this reference.

[^3]: In fairness, I should note that the defendants’ current lawyers were only retained after two hearing days had already been completed.

[^4]: Any references in these reasons to the defendants’ accounting are a reference to the defendants’ document entitled “Summaries of Issues” and dated May 27, 2013.

[^5]: This is not to say that the defendants may not be entitled to a portion of the legal fees claimed as part of the costs of this reference or of the action generally. Rather, I have concluded that there is simply no evidence that would allow me to add the legal fees to the mortgage accounts at this time.

[^6]: The defendants are seeking payment of simple interest only in respect of all seven mortgages.

[^7]: The plaintiff’s written argument makes reference to the defendants unilaterally increasing the interest rate on this mortgage from 10% to 13% after it matured in October 2008. However, it is clear from the defendants’ accounting that they are not now seeking interest at 13%. They are requesting interest at the rate of 10% per year in accordance with the mortgage documents. This is the rate I have determined is applicable to this unpaid mortgage.