ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-13-474303
DATE: 20140708
BETWEEN:
1250294 ONTARIO LTD.
Plaintiff
– and –
2141065 ONTARIO INC. and 1218939 ONTARIO LTD.
Defendants
Fred A. Platt, for the Plaintiff
HEARD: In Writing
PERELL, J.
REASONS FOR DECISION - COSTS
[1] The Plaintiff first mortgagee, 1250294 Ontario Ltd., which is owned by Ben Martin, (“Mr. Martin’s Corporation”) brought a motion for a summary judgment for foreclosure and possession of a property used for a Sikh Temple in Brampton, Ontario. There was no claim for repayment.
[2] Mr. Martin’s Corporation also sought summary judgment dismissing the counterclaim brought by the Defendant owner and mortgagor, 2141065 Ontario Inc. (“the Congregation’s Corporation”). The Defendant 1218939 Ontario Ltd., the second mortgagee (“Dr. Malhotra’s Corporation”), did not defend the motion.
[3] I granted Mr. Martin’s Corporation’s motion, and I dismissed the counterclaim. See 1250294 Ontario Ltd. v. 2141065 Ontario Inc., 2014 ONSC 2918, which details the factual background, which I will not repeat here.
[4] I directed that if the parties could not agree about the matter of costs, they may make submissions in writing beginning with Mr. Martin’s Corporation’s submissions within 20 days of the release of the Reasons for Decision followed by the Congregation’s Corporation’s submissions within a further 20 days.
[5] Mr. Martin’s Corporation delivered costs submissions. It seeks costs on a substantial indemnity basis of $79,021.50, all inclusive, to be paid by the Congregation’s Corporation and by Doug LaFramboise, the lawyer who acted for the Congregation’s Corporation.
[6] I did not receive any responding costs submissions from the Congregation’s Corporation perhaps because it is judgment proof in any event.
[7] I also did not receive any responding costs submissions from Mr. LaFramboise, notwithstanding that costs were being claimed against him personally and he was given notice of this claim.
[8] In its costs submissions, Mr. Martin’s Corporation concedes that costs are not normally awarded to a mortgagee who obtains a foreclosure judgment. See Ruhl v. Royal Bank (1993), 1993 8452 (ON SC), 13 O.R. (3d) 58 (Gen. Div.). See also: Bart v. Phoenix Farms Ltd., [1997] S.J. No. 339 (Q.B.); Sinfield v. Sweet, [1967] 3 All. E.R. 479 (Ch. Div.); Fleck v. Whitehead, [1924] 3 W.W.R. 470 (Sask. C.A.), 1924 158 (SK CA).
[9] This principle about costs in a foreclosure action is a matter of the theory of mortgage law. When a mortgagee forecloses the equity of redemption in lieu of repayment of the debt, it becomes the owner of the property and the debt, which includes the costs incurred to enforce the mortgage, is discharged.
[10] In contrast, when there is a power of sale or a judicial sale of the property, the debt is not discharged and the mortgagee may sue for the deficiency or it must account for any surplus. If there is a judicial sale or a power of sale, the mortgagee is entitled to claim its costs, typically on a substantial indemnity basis (solicitor and client basis) pursuant to the mortgage contract.
[11] Mr. Martin’s Corporation submits that notwithstanding the principle against costs in foreclosure actions, there is an exception when the mortgagor raises an untenable defence, including an unfounded allegation of fraud, as occurred in the immediate case where serious allegations of impropriety were made against Mr. Martin, who is a lawyer.
[12] There is support for this submission. In Esson v. Cook (1914), 1914 442 (BC SC), 18 D.L.R. 51 (B.C.S.C.), Justice Macdonald stated at para. 2 that the general rule is that in an order for foreclosure there is no judgment against the defendant(s) personally for costs but an exception arises where the validity of the security has been unsuccessfully disputed.
[13] Justice Macdonald relied on Tildesley v. Lodge (1857), 3 Jur. N.S. 1000 and Guardian Assurance Co. v. Lord Avonmore (1873), 7 Ir. R. Eq. 496. In Guardian Assurance Co. the Vice-Chancellor stated:
The only question I have to decide is as to the costs. The general rule in foreclosure suite is, that the costs should come out of the estate with the demand. But there is an exception to that rule where the mortgagor raises a defence which is untenable, in which case the costs so occasioned may be ordered to be paid by him personally - and that, whether there be fraud or not on his part. In the present case there is no doubt that Lord Avonmore did raise a defence which was untenable, and which caused a great deal of the litigation in the case.
[14] In my opinion, the circumstances of the case at bar, as described in my Reasons for Decision, come within the exception to the general principle and substantial indemnity costs of $79,021.50 should be awarded and made payable by the Congregation’s Corporation.
[15] In my opinion, those costs should also be jointly or severally payable by Mr. LaFramboise personally.
[16] Rule 57.07 permits the court to make an order for costs against a lawyer where the lawyer has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default.
[17] The test for an order under rule 57.07 is set out in Galganov v. Russell (Township), 2012 ONCA 410 at paragraphs 17-22. The court must first determine whether the lawyer's conduct falls within the general ambit of the rule in the sense that the costs were incurred or wasted unnecessarily and without reasonable cause. Second, the court must determine as a matter of discretion whether the personal costs order is warranted in the circumstances of each particular case.
[18] The record for the motion establishes that it was Mr. LaFramboise who was the mastermind of the Congregation’s Corporation’s factual and legally untenable defence strategy that included serious and ultimately unfounded allegations of fraud and impropriety by Mr. Martin, including an allegation that Mr. Martin, who is an officer of this court, had misled and deceived the court.
[19] On the summary judgment motion, it was alleged on information and belief that Mr. Martin did not bring an Agreement to Refinance to the attention of the court and committed a fraud on the court. As I noted in my Reasons for Decision, this allegation was palpably false because it was clear from Justice MacKenzie’s endorsement that he was aware of the Agreements, since he refers to them three times in his endorsement and, indeed, his decision is based on the terms of the Agreements.
[20] In Bailey v. Barbour, 2014 ONSC 3698, a lawyer who had knowingly called an expert witness who lacked independence and impartiality and who had become a partisan for the client was ordered to pay costs personally. The court in Bailey v. Barbour made the lawyer personally responsible for the presentation of his client’s case that the lawyer knew was improper.
[21] In the case at bar, Mr. LaFramboise fashioned a defence for his client that was untenable and that falsely maligned the professional reputation of Mr. Martin. Absent an explanation from Mr. LaFramboise, this is an appropriate case to make him personally responsible for the costs of the proceedings in the amount of $79,021.50, all inclusive.
[22] Order accordingly.
Perell, J.
Released: July 8, 2014
COURT FILE NO.: CV-13-474303
DATE: 20140708
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1250294 ONTARIO LTD.
Plaintiff
– and –
2141065 ONTARIO INC. and 1218939 ONTARIO LTD.
Defendants
REASONS FOR DECISION - COSTS
PERELL J.
Released: July 8, 2014