CITATION: 30724453 Nova Scotia Company v. 1623242 Ontario Inc., 2015 ONSC 2105
COURT FILE NO.: 640-13
DATE: 2015-04-24
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
3072453 NOVA SCOTIA COMPANY
Plaintiff
- and -
1623242 ONTARIO INC. and KRISHAN JUDGE
Milton A. Davis and , Robert Macdonald for the Plaintiff and for the Defendants by Counterclaim
- and -
1623242 ONTARIO INC. and KRISHAN JUDGE
Gregory Govedaris, for the Defendants/Plaintiffs by Counterclaim
Defendants
A N D B E T W E E N:
1623242 ONTARIO INC. and KRISHAN JUDGE
Plaintiffs by Counterclaim
- and -
3072453 NOVA SCOTIA COMPANY and GREAT LAKES COPPER INC.
Defendants by Counterclaim
HEARD: December 12, 2014,
at Brampton, Ontario
Price J.
Corrected Reasons For Order
Correction Notice: The text of the original judgment was corrected on June 2, 2015 at para. [88] a) and b), and [132] a), corrections noted as underlined.
NATURE OF MOTION
[1] After Wolverine Tube (Canada) Inc. (“Wolverine”) assigned a mortgage to 3072453 Nova Scotia Company (“307”) on a property in Fergus, Ontario, that Wolverine had sold to 1623242 Ontario Inc. (“162”), the Ministry of the Environment (“the Ministry”) informed 162 that the property was contaminated with PCB’s and ordered both Great Lakes Copper Inc. (“GLC”), a company associated with Wolverine, that was also Wolverine’s successor in title to the Fergus property, and 162 to remove the contamination. When 162 refused, GLC performed the work and filed construction liens against the property for the remediation work it had done (Court files 216/11 and 502/12, “the Construction Lien Act actions”).
[2] 162 sued Wolverine and its American parent company, as well as GLC and 307 (collectively, “the Great Lakes companies”) for fraud (court file no. 571/12, “the fraud action”). In that action, 162 alleges that the defendants conspired to (1) sell the property to 162 without disclosing the contamination, (2) cause 162 to pay for the clean-up, and then (3) re-possess the property.
[3] 162 stopped making payments on its mortgage, whereupon 307 sued 162 for foreclosure (court file no. 640-13, “the foreclosure action”).
[4] At the request of 162, this Court ordered that the fraud action be tried with the foreclosure action and the Construction Lien Act actions, all of which relate to the Fergus property, and this judge is now case managing all four actions.
[5] 162 and its owner, Krisham Judge (“Mr. Judge”) now move for leave to pay/redeem the mortgage in the foreclosure action, and to have it assigned to another company. 307 seeks to require 162, as a condition of redeeming the mortgage, to pay the costs of all four actions.
BACKGROUND FACTS
Relationship of the Parties
[6] GLC is the successor corporation to Wolverine, the original Canadian subsidiary that was an earlier owner of the Fergus property. Wolverine held a vendor take-back mortgage (“the mortgage”) on the Fergus property, following the sale of the property to 162 in 2005. Wolverine assigned the Mortgage to 307 in 2008.
[7] On July 24, 2014, this Court ordered GLC to serve a fresh as amended affidavit of documents, including documents requested by 162, including documents/records evidencing the relationship(s) of the GLC companies, ownership/subsidiary change(s), and evidence of payments/apportionment of environmental liabilities.
[8] Based on the diagram and statements that the Great Lakes companies have produced, it appears that GLC is the majority shareholder in what was formerly the American parent corporation of Wolverine, of which 307 and GLC are/were subsidiaries. The Great Lakes companies disclosed this pursuant to the court order, but have not yet produced documentary evidence of the corporate interrelationship.
Events Leading to the Actions
(a) Wolverine sold the Fergus property to 162
[9] In 2005, Wolverine sold the Fergus Property, a 25.3 acre industrial manufacturing site located at 865 Gartshore Street in Fergus, Ontario, to 162. The Great Lakes companies assert that it was no secret that the property was environmentally contaminated at the time of the sale, based on the following:
a) The property was a publicly registered PCB storage facility.
b) Five unused transformers were located on the property, all of which contained PCBs and were visibly labelled as such.
[10] The Great Lakes companies further assert that it was in recognition of the environmental problems that Wolverine sold the Fergus Property to 162 on an “as is” basis for $1,350,000, a price they say reflected the contaminated condition of the property. They note that the Agreement of Purchase and Sale made it clear that:
a) The purchaser was buying the property in an “as is” condition; and,
b) All environmental liabilities, “whether in existence or whether arising following completion of this transaction, shall remain the responsibility of the Buyer”.
[11] The following pertinent terms were contained in the Agreement of Purchase and Sale between Wolverine and 162:
Article 13 of the Agreement of Purchase and Sale states:
INSPECTION: Buyer acknowledges having had the opportunity to inspect the property and understands that upon acceptance of this Offer there shall be a binding agreement of purchase and sale between the Buyer and Seller. [emphasis added]
Schedule "A" to the Agreement of Purchase and Sale states:
The Buyer acknowledges that it shall pledge the property as collateral for the mortgage loan. Furthermore, the Buyer acknowledges that this first mortgage shall be guaranteed personally by Krishan Judge. The Seller acknowledges herewith that it shall consent to an evaluation of the personal guarantee provided by Krishan Judge on an annual basis. Based on the scope and magnitude of any environmental remediation performed by the Buyer (at the Buyer's sole expense), the Seller, at its sole discretion, shall consider removing the requirement that Krishan Judge shall personally guarantee the mortgage. [emphasis added]
[12] Schedule "B" to the Agreement of Purchase and Sale contained the following material terms, among others:
This Agreement is conditional until 5:00 p.m. on the fifteenth (15th) day following acceptance upon the Buyer, at its own expense, inspecting and accepting the condition of the building.
If the Buyer is unable to satisfy itself with this condition, the Buyer shall notify the Seller in writing of its intention to terminate this transaction, then this Agreement shall be null and void, and the deposit shall be returned in full to the Buyer with interest and without deduction, and neither the Buyer nor the Agent shall be liable to the Seller.
If the Buyer does not notify the Seller of its intention to terminate this Agreement, this transaction shall proceed to closing.
This condition is inserted for the benefit of the Buyer and may be waived by the Buyer at its sole option.
… Buyer agrees and acknowledges herewith that upon the waiver of the condition set out above in Paragraph 1 of this Schedule "B", the Buyer shall be deemed to have accepted the existing condition of the property, and shall purchase the property in its existing condition on an "as is, where is" basis as at the closing date.
… The Buyer acknowledges herewith that it has received and has reviewed all of the environmental information that is in the possession of the Seller, and that it has satisfied itself with the contents thereof.
The Buyer further agrees and acknowledges herewith that any and all environmental matters, liabilities and/or contingent liabilities pertaining to the subject property, whether already in existence or whether arising following completion of this transaction, shall remain the responsibility of the Buyer. [emphasis added]
[13] 162 claims that the environmental contamination was not disclosed on the sale, and that it was defrauded by the Great Lakes companies by reason of the non-disclosure. The Great Lakes companies deny this, and submit that 162’s allegation of fraud is belied by the fact that 162 now seeks to redeem the mortgage it says was "procured by fraud".
[14] On closing, 162 paid $337,500 in cash for the Property. Wolverine took back a mortgage on the sale in the amount of $1,012,500. The mortgage was subject to the following terms:
Calculation Period: half yearly and not in advance
Balance Due Date: 2010/05/03
Interest Rate: 6.0%
Payments: $11,203.41
Interest Adjustment Date: 3rd day monthly
First Payment Date: 2005 06 03
Last Payment Date: 2010 05 03
Standard Charge Terms: 200033
Insurance Amount: Full insurable value
Guarantor: Krishan Judge
(b) Wolverine transferred 162’s mortgage to 307
[15] On July 8, 2008, Wolverine transferred its mortgage to 307, who registered it on title as Instrument Number WC216067.
(c) The Ministry Investigated the Fergus property
[16] In April, 2010, the Ministry contacted 162 regarding a complaint that it had received concerning the storage of environmental contaminants (PCBs) on the Fergus property. On April 22, 2010, the Ministry conducted a site inspection, and on April 27, 2010, it sent 162’s principal, Mr. Judge, a list of steps 162 was required to take in order to remediate the contamination. The Ministry imposed a deadline of May 31, 2010 for compliance with these steps, and 162 did not meet that deadline.
[17] A Provincial Officer’s Report dated August 12, 2010 notes the original investigative steps taken by the Ministry and 162’s awareness of the PCBs on the site:
Toronto Inspection reported that “Mr. Judge identified five transformers which were labelled as containing PCBs. According to Mr. Judge, the transformers were no longer in use and arrangements are being made to have them decommissioned in the immediate future”.
[18] As a result of 162’s failure to take steps to remediate the property, the Ministry issued Provincial Officer's Order Number 2501-887QMU, in 2010, ordering 162 to submit a written plan, with timelines, to the Ministry, to address the removal of environmental waste from the property, among other steps. 162 did not appeal that order.
[19] 162 failed to comply with the Provincial Officer's Order. It did not submit a written plan to the Ministry or take steps to clean up the property. 162 pleaded guilty to failure to comply with the Ministry's Order, and was fined.
[20] In an Agreed Statement of Facts filed with the Court, 162 and Mr. Judge admitted the following:
Industrial manufacturing had historically occurred at the Property and the previous owners of the Property produced heavy-gauge and light-gauge copper and copper allow strip used primarily by automotive, hardware and electrical equipment manufacturers. The plant consisted of an integrated mill with its own casting, rolling, annealing and slitting operations. The manufacturing reportedly ceased at or about the beginning of 2002. The Property was transferred to 1623242 Ontario Inc. on May 4, 2005.
On April 13, 2010, the Ministry of the Environment ("MOE") received a complaint. An inspection was conducted by a Provincial Offences Officer (PO) on April 26, 2010. During this inspection the PO observed various unmarked drums with unknown waste throughout the building, trenches filled with water and an unknown oily substance, large totes filled with liquid waste and fresh absorbent material placed on a large leak. There were also tanks located on the west side of the building.
The PO attempted to have the Property cleaned up through voluntary means. Although 1623242 Ontario Inc., through a consultant, provided a report that detailed waste inside the building, it did not provide written timelines for the removal of the waste. [Emphasis added]
[21] As a result of 162's failure to clean-up the Fergus property, the Ministry contacted GLC, as the sole successor of Wolverine, and informed it that an order would issue requiring GLC, in its capacity as former owner, to clean up the property. GLC voluntarily undertook a clean-up of the property, obviating the need for an order to be issued.
[22] GLC spent $638,112.09 to clean-up the environmental contaminants on the Fergus property, in accordance with the Ministry's requirements. 162 did not contribute to the clean-up.
[23] The Great Lakes companies submit that 162's current motion is an attempt by 162 to profit unjustly from the clean-up that GLC undertook and the remediation costs it incurred, which are the subject of its Construction Lien Act actions.
(d) 162 and 307 signed Mortgage Extension Agreements
[24] The Mortgage provided that the balance outstanding on the Mortgage was to become due and payable in full on May 3, 2010. Prior to the Mortgage's maturity, 162 requested, and 307 agreed to, the following extensions of the Mortgage:
a) Extension #1: by Mortgage Extension Agreement dated March 30, 2010, the maturity date of the mortgage was extended from May 3, 2010 to August 3, 2010, at which time the entire balance of $555,398.02 due under the mortgage would be paid to 307.
b) Extension #2: by Mortgage Extension Agreement dated August 20, 2010, the maturity date of the mortgage was extended from August 3, 2010 to October 3, 2010, at which time the entire balance of $538,435.22 due under the mortgage would be paid to 307.
c) Extension #3: by Mortgage Extension Agreement dated November 5, 2010, the maturity date of the mortgage was extended from October 3, 2010 to January 3, 2011, at which time the entire balance $512,675.58 due and owing under the mortgage would be paid to 307.
[25] The Great Lakes companies assert that 162 was aware of the contamination on the Fergus property when they entered into the Mortgage Extension Agreements. Apart from the specific terms in the Agreement of Purchase and Sale which referenced the condition of the property, two of the three Mortgage Extension Agreements were entered into after the Ministry initiated its investigation of the contamination. The Great Lakes companies argue that, in the face of the Ministry’s involvement prior to the latter two Mortgage Extension Agreements, 162 must be deemed to have waived any complaint regarding the contamination of the property.
[26] 162 defaulted on its payment obligations under the mortgage in November, 2010. No further payments have been made under the Mortgage.
(a) The sequence of actions
[27] On March 23, 2011, GLC began the first of two Construction Lien Act actions against 162, claiming a lien against the Fergus property, and seeking the recovery of $290,191.93 which it says it spent in remediating the property. On July 4, 2012, GLC began the second of the actions, claiming a further lien against the property, and seeking the recovery of a further $347,920.16 spent in remediating the property. Both actions also contain claims for unjust enrichment and quantum meruit.
[28] GLC, which is apparently related to or affiliated with 307, and is a shareholder and/or subsidiary of 307, claims priority over 307’s mortgage interest in the Construction Lien Act actions.
[29] On July 26, 2012, 162 issued a Notice of Action against the Great Lakes companies in the fraud action, claiming that it was defrauded when it bought the Fergus property in 2005 by the non-disclosure of the environmental contamination of the property. In support of its allegations, 162 claimed that it discovered the contamination less than two years earlier. The Great Lakes companies rely on the following facts which they say bely 162’s assertion, and demonstrate that 162's claims of fraud are statute-barred by operation of the Limitations Act, 2002:
a) The terms of the Agreement of Purchase and Sale reflect the disclosure of the environmental contamination.
b) The property was publicly registered as a PCB storage facility.
c) Transformers on the property were visibly labelled as containing PCBs.
d) The Ministry's April, 2010 investigation required a plan to clean up environmental contamination on the property.
[30] On October 24, 2012, 307 began the foreclosure action, in which it claimed foreclosure and possession of the Fergus property as a result of 162's continuing default under the mortgage. 307 did not, in its Statement of Claim, originally claim any cost(s) of the Construction Lien Act actions, or of the fraud action. It did not mention those actions.
[31] 162 delivered a Statement of Defence and Counterclaim in the foreclosure action, in which it attacked the validity of the Mortgage and claimed that the Mortgage was "procured by fraud". The original Statement of Claim in the fraud action and the Counterclaim in the foreclosure action are nearly identical.
(b) The Court ordered that the actions be tried together
[32] 162 obtained an Order from this Court dated April 30, 2013, directing that the foreclosure action, the fraud action and the Construction Lien Act actions be tried together or one following the other. The reasons accompanying the Order stated:
- As for [162’s] continuing failure to make payments, there may be some injustice arising from 162's refusal, on the one hand, to pay its mortgage, on the ground that the Property was contaminated, and its refusal, on the other, to pay for the clean-up which has now been completed. If the contaminants have indeed been removed, it is arguable that the payments on the mortgage should be resumed.[^1]
[33] In the same Order, the Court directed that:
- Action 8475-12 (the foreclosure action) shall be traversed from London to Guelph. Enforcement of any order for foreclosure shall be stayed, pending resolution of the fraud action in Guelph (Court File No. 571/12) or further Order of this Court, without prejudice to the right of the plaintiff in that action to assert its claims by way of counterclaim in the fraud action. This Order is without prejudice to 307's right to apply, if so advised, with further evidence, for an Order requiring 162 to resume mortgage payments, to be paid into court to the credit of the foreclosure action, pending the disposition of the fraud action.[^2]
(c) 162 and Mr. Judge requested the discharge statement
[34] On July 11, 2014, 162 requested leave to pay into court the outstanding principal on the Mortgage, plus interest, on a “without prejudice” basis.
[35] On July 24, 2014, on consent, this Court ordered 307 to “…produce to 1623242 Ontario Inc. a comprehensive discharge statement with a breakdown of amounts it says should be paid into court.” On 08 August 2014, 162 received a “comprehensive mortgage statement” (the “First Mortgage Discharge Statement”) containing the following claims:
Mortgage Amounts:
Principal Balance as of November 03, 2010
$529,890.94
Accrued interest (6%) from November 03, 2010 to September 03, 2014 (1400 days)
$134,841.80
Cost to Date:
Environmental costs incurred prior to December 31, 2010
$257,203.42
Environmental costs incurred subsequent to December 31, 2010
$351,079.28
Legal costs paid by WTI to December 31, 2011
$32,128.93
Legal costs paid by GLC from 2011 – 2014
$264,048.95
Legal costs paid by WTI to 2014
$182,780.79
Anticipated Future Costs:
Legal costs re: Examinations for Discovery
$95,000.00
Legal costs re: Consolidated Trial
$300,000.00
Miscellaneous Costs
$50,000.00
TOTAL:
$2,296,974.11
[36] In the First Mortgage Discharge Statement, “WTI” appears to represent 307. 307 claims legal costs including costs incurred on behalf of GLC, the lien claimant in the Construction Lien Act Actions.
[37] On August 15, 2014, on consent, 307 was ordered to: “…by Aug 22/14, either confirm in writing that the “comprehensive mortgage statement” which Mr. Rob Macdonald sent to Mr. Govedaris by fax on Aug 8, 2014, is its mortgage discharge statement pursuant to the Mortgages Act or shall, by that date, deliver its mortgage discharge statement pursuant to the Act.”
[38] On August 22, 2014, 162 received the following mortgage discharge statement (the “Second Mortgage Discharge Statement”) from 307. It claimed an entitlement to the costs of the fraud action and the unpaid legal costs incurred in an unsuccessful motion by 162 to have Mr. Davis and his former firm removed from the record. It stated:
Mortgage Amounts:
Principal Balance as of November 03, 2010
$529,890.94
Accrued interest (6%) from November 03, 2010 to September 03, 2014 (1400 days)
$134,841.80
Cost to Date:
Legal costs to December 31, 2011
$32,128.93
Legal costs from 2011-2014
$264,048.95
Legal costs to 2014
$182,780.79
Discharge fee
$300.00
Unbilled anticipated legal costs
$15,000.00
TOTAL:
$1,158,991.41
[39] The major difference between the First Mortgage Discharge Statement and the Second Mortgage Discharge Statement, in respect of prior legal costs, appears to be that in the Second Mortgage Discharge Statement, the identification of the entity bearing the legal cost(s) (“WTI” or “GLC”) has been removed.
(d) 162 sought to substitute security for the Mortgage
[40] On September 24, 2014, 162's counsel, Gregory Govedaris, wrote to the Great Lakes companies’ counsel, Milton Davis, asking that the Great Lakes companies consent to an order allowing 162 to pay the sum of $529,890.94 into Court. In his covering letter, Mr. Govedaris stated:
Your client will absolutely suffer no prejudice if the principal and accrued interest are paid into Court because it is being done on a strictly without prejudice basis subject to further order of the Court.[^3]
[41] The Great Lakes companies did not consent to Mr. Govedaris' proposed order. They state that:
a) The proposed order made no provision for the payment of costs owing to 307 under the Mortgage as a result of the outstanding litigation.
b) The proposed order made no provision for what would happen to 307's mortgage upon payment of the amount contemplated by 162.
c) The proposed order made no provision for what would happen to the Fraud Action if 307's mortgage were discharged or assigned.
[42] On September 24, 2014, 162 served its Notice of Motion for, among other remedies, leave to redeem the Mortgage. 307 advised 162 that it would not accept $746,154.06 + accrued interest to the date of assignment of the Mortgage, and a reasonable assignment fee, in exchange for redemption of, and assignment of, the mortgage to a third party.
[43] On October 01, 2014, 307 was ordered, on consent, to: “…by October 21, 2014, produce a Bill of Costs for its mortgage foreclosure action segregating the costs pertaining to that action from those that pertain to the Construction Lien actions and fraud action and apportioning time spent simultaneously on multiple actions so as to eliminate duplication of time and disbursements.”
[44] On October 24, 2014, Mr. Govedaris, on behalf of 162, sent a letter to Mr. Davis, enclosing a Request to Redeem, and seeking to obtain an assignment of the mortgage in return for a payment of $745,512.34. This amount included only $75,516.48 for costs, substantially less than the $325,058.43 claimed by 307.
[45] On October 28, 2014, Mr. Davis responded to Mr. Govedaris' October 24, 2014, letter setting out the basis upon which 307 calculated its costs, stating, among other things:
On two occasions, we have provided your client with a discharge statement pursuant to the Mortgages Act, setting out the amount your client is required to pay in order to obtain a discharge, or take an assignment of our client's mortgage. Subject to the comments below, absent payment of the amount set out our client's discharge statement (which continues to accrue interest, and costs) your client is not entitled to a discharge of the mortgage.
As we have previously stated, our client is entitled to collect all of its costs associated with the mortgage from the equity in the property. Those costs included, for example, all of the fees incurred by the Lenczner Slaght law firm and all of the costs associated with the defence of the Fraud Action, which serves to attack the validity of our client's mortgage. To this end, we draw your attention to paragraphs 8 and 20 of Standard Charge Terms 200033. We further draw your attention to the body of law dealing with costs of Mortgagees, and the broad interpretation given to clauses worded like paragraph 8 of the Standard Charge Terms. One example is the Court's decision in Manufacturers Life Insurance Co. v. 1008522 Ontario Inc. in which Justice Stewart held that a costs clause, using similar working to paragraph 8 of the same standard charge terms "is extremely broadly drawn and should be interpreted in light of its purpose to ensure that [the Mortgagee] is not left out-of-pocket". Aside from your client's desire to not have to pay for the litigation it initiated, there does not appear to be any basis for your client's position that our client's costs are not recoverable through the mortgage.[^4]
[46] On October 29, 2014, 307 was ordered, on consent, to: “…Provide a letter to the defendant 1623242 Ontario Inc. setting out the breakdown of the amounts claimed in the Foreclosure Action, distinguishing the amounts claimed for principal, interest, and costs, exclusive of costs of the Construction Lien Actions and the Fraud Action.”
[47] On October 30, 2014, 307 provided the following breakdown:
Mortgage principal
$529,890.94
Accrued interest to October 30, 2014
$140,947.64
Costs of Foreclosure Action
$75,315.48
TOTAL:
$746,154.06
[48] 307 acknowledges that it will discharge and/or assign the mortgage upon receipt of the amount specified in its October 30, 2014, breakdown, namely, $746,154.06, plus an additional $299,321.46, being all legal costs, plus accrued interest to the date of assignment, and a reasonable assignment fee.
[49] 307 moves, by cross-motion, for leave to discontinue the foreclosure claim in the face of the Mortgagor’s attempt to redeem. It asserts that it would be prejudiced by the proposed order, in part because, if the mortgage were redeemed, substantial legal costs, as well as remediation costs exceeding $600,000 would remain unpaid.
The Notices of Motion
[50] 162 has delivered three Notices of Motion relating to its desire to satisfy part of the debt owing under the mortgage, as follows:
a) First Notice of Motion
[51] On July 17, 2014, 162 delivered a Notice of Motion seeking a discharge or assignment of 307's mortgage on a "without prejudice" basis, and without paying the amount charged by 307 under the Mortgage. In that motion, 162 sought (and obtained, on consent) an order permitting it to increase its claim for damages from $10 million to $110 million.
[52] The Great Lakes companies asserts that, considering that 162 bought the Fergus property for $1.35 million and paid only $337,500 on closing, they do not understand how 162’s claim for amended damages of $110 million was calculated. When Mr. Judge was asked on cross examination, the following exchange took place:
BY MR. DAVIS:
- Q. So we're clear, you're pursuing that claim for $110 million?
MR. GOVEDARIS: Yes, of course.
THE DEPONENT: A. Yes.
MR. DAVIS: Please let the witness answer.
BY MR. DAVIS:
- Q. You're pursuing the claim for $110 million?
A. Yes.
- Q. Can you give me particulars as to how you came up with that number?
R/F A. It's not relevant.
- Q. I'm sorry?
A. It's not relevant right now.
- Q. I'm inviting you to tell me how it's made up or I'm going to ask the court to draw an inference that there's no factual basis for the $110 million claim; do you understand that?
MR. GOVEDARIS: It's not relevant, he said. If you want us to give particulars, we can do it after discovery. It's in your productions.
It was in a motion record. It should be clear to you.
b) Second Notice of Motion
[53] On August 13, 2014, 162 delivered an Amended Notice of Motion[^5], seeking to pay the sum of $664,732.74 in exchange for a discharge or assignment of the mortgage. This amount, also, represented significantly less than the amount 307 claims under the Mortgage.
[54] 162 later took the position, through its counsel, that this motion was "spent" prior to any determination of the discharge issue by the Court.
c) Third Notice of Motion
[55] On September 19, 2014, Mr. Govedaris delivered a fresh Notice of Motion and motion record, seeking leave to pay $529,890.94 into Court or, alternatively, to 307, on a "strictly without prejudice basis", in exchange for the assignment of the mortgage.
[56] The Great Lakes companies assert that the entitlement to a Court-ordered discharge or assignment of the Mortgage is governed by the Mortgages Act. Under that Act, they argue, there is no jurisdiction to compel a discharge or assignment of mortgage on a “without prejudice” basis.
d) Fourth Notice of Motion
[57] On November 4, 2014, 162 delivered a revised draft of the September 19, 2014 Notice of Motion, with several items of relief in the motion removed. That Notice of Motion was not formally served at that time. Rather, it was appended as an exhibit to a paralegal's affidavit.
[58] On November 26, 2014, Mr. Govedaris delivered a further Motion Record, containing the third Notice of Motion, and compiling all of the affidavits 162 had previously served, including those that had been relied on in response to the cross-motion by the Great Lakes companies.
[59] The Great Lakes companies assert that 162 has changed its position in its third Notice of Motion. Rather than seeking to redeem the mortgage “without prejudice”, it now seeks to do so on a “with prejudice basis”, but still without prejudice to its ability to prosecute the fraud action.
(e) 307 sought leave to discontinue its claim for foreclosure
[60] In the foreclosure action (Court File No. 640-13), 307’s prayer for relief seeks foreclosure, as well as payment of the mortgage balance, and possession of the property. In its cross-motion, 307 seeks leave to discontinue only its claim for foreclosure on a without costs basis. The claims for payment and possession would continue.
ISSUES
[61] These motions raise the following issues:
a) Does this Court have jurisdiction to award a discharge of a Mortgage?
b) Are these motions the appropriate forum for assessing the costs owing under 307's mortgage?
c) If so, what amount is 162 required to pay in order to obtain a discharge or assignment of the Mortgage?
d) Should leave be granted to 307 to discontinue its claim for foreclosure, without costs?
POSITIONS OF THE PARTIES
[62] 307 says that:
a) It has incurred significant legal costs in defending against 162's fraud allegations, which it says were unfounded and may be statute-barred pursuant to the Limitations Act, 2002[^6].
b) Before 162 receives a discharge or assignment of its Mortgage, it should be required to pay the principal and interest it owes on the Mortgage, in addition to all legal costs of all four actions.
c) If there is a dispute as to the amount owing, there is a statutory procedure prescribed by the Mortgages Act[^7], which ought to be followed before an assignment or discharge of the mortgage is ordered.
[63] 307 notes that before moving for leave to redeem the mortgage, 162 sought to compel an assignment of the Mortgage on a "without prejudice" basis, meaning, without affecting its allegations that the Mortgage was void on the ground that it was procured by fraud.
[64] 307 acknowledges that orders discharging mortgages are discretionary, and governed by section 12 of the Mortgages Act. It argues that in the circumstances of this case, the exercise of this Court’s discretion ought to take into account the following:
a) The legal costs it has incurred in the foreclosure action, as well as the defence of 162's fraud action, and the costs incurred in relation to the Construction Lien Act Actions, which are to be tried with it; and,
b) The remediation expenses incurred by GLC, amounting to over $600,000, from which it says 162 unjustly seeks to derive the benefit, as 162 does not deny that, upon taking assignment of 307's mortgage, 162 will foreclose out the construction liens filed in relation to the remediation work. To prevent this, 307 seeks leave to discontinue its claim for disclosure, without costs.
[65] 307 further argues that the proposed payment of the Mortgage (with interest and costs) is at odds with 162’s Statement of Defence and Counterclaim, which asserts that the Mortgage was fraudulently obtained and is void ab initio.
[66] When cross-examined on this, 162’s counsel interjected and, 307 argues, was evasive. The following exchange took place:
- Q. I'm trying to find out what your intention is. Do you want to continue to maintain the allegation that the mortgage was obtained by fraud and it was void, or do you not want to maintain that allegation?
MR. GOVEDARIS: He wants to pay the mortgage.
MR. DAVIS: Can you let him answer the question?
THE DEPONENT: I told you I want --
MR. GOVEDARIS: You've asked him three times. He's not answering --
BY MR. DAVIS:
- Q. So you're prepared to drop the allegation that the mortgage was obtained by fraud?
MR. GOVEDARIS: That's a legal question.
MR. DAVIS: No, it's not.
BY MR. DAVIS:
- Q. Do you want to drop the allegation that the mortgage was obtained by fraud?
MR. GOVEDARIS: He's answered the question.
MR. DAVIS: No, he has not.
THE DEPONENT: A. I'd like to pay the mortgage off and that's it. That's my answer.
[67] 307 and the other Great Lakes companies assert that if the Mortgage is redeemed, the payment made would be "with prejudice" to 162's rights. Satisfaction of the mortgage debt would be an admission that the mortgage was, and is, valid.
[68] 307 asserts that 162 wishes to take an assignment of the mortgage for the following reasons:
a) It seeks to avoid paying costs that 307 will incur in the future, associated with the Mortgage, as a result of this litigation;
b) It wishes to take the benefit of the amounts incurred by Great Lakes Copper in remediating the environmental contamination of the property, without paying for that remediation at all;
c) It intends to foreclose the lien claims by Great Lakes Copper, in Court File Nos. 216/11 and 502/12.[^8]
[69] 307 further argues that if the proposed Order is made, 162 would be:
a) unjustly enriched by avoiding payment for the remediation work that it ought to have performed pursuant to the Ministry's Order, but didn’t; and,
b) immune from the costs of the past and future litigation arising from its default in making the payments under the Mortgage and the subsequent unsubstantiated Fraud Action, which costs form part of the mortgage debt.
[70] 162 submits that, in order to avoid its attempt to assign the mortgage on a non-arm’s length basis, and then seek to foreclose out the remediation liens and avoid paying future costs, 307 now seeks leave to discontinue (only) its claim for foreclosure. The claims for payment of the mortgage balance in default would remain.
[71] 307 undertakes to wait until 162's Fraud Action has been disposed of before exercising its rights under Part III of the Mortgages Act.
ANALYSIS AND EVIDENCE
The Court's jurisdiction to award a discharge of a mortgage
[72] Section 12 of the Mortgages Act provides the jurisdictional basis for a Court to order a discharge of a mortgage. Subsection 12(3) states:
(3) When a mortgagor or any person entitled to pay off a mortgage desires to do so and the mortgagee, or one of several mortgagees, cannot be found or when a sole mortgagee or the last surviving mortgagee is dead and no probate of his or her will has been granted or letters of administration issued, or where from any other cause a proper discharge cannot be obtained, or cannot be obtained without undue delay, the court may permit payment into court of the amount due upon the mortgage and may make an order discharging the mortgage. (emphasis added)
[73] In circumstances where a dispute exists as to the proper amount required for the mortgagor to redeem the mortgage, subsection 12(6) is triggered, which states:
When amount offered questioned
(6) When the amount admitted to be due upon the mortgage appears to be open to question the court may as a condition of making the order require payment into court of a sum in excess of the amount admitted to be due and in such case the additional sum is subject to the further order of the court. (emphasis added)
[74] Section 12(7) of the Mortgages Act provides that:
The court may require payment into court of an additional sum to answer any claim by the mortgagee for subsequent interest and costs.
[75] Section 2(1) of the Mortgages Act provides that:
Despite any stipulation to the contrary, where a mortgagor is entitled to redeem the mortgagor may require the mortgagee, instead of giving a certificate of payment or reconveying and on the terms on which the mortgagee would be bound to reconvey, to assign the mortgage debt and convey the mortgaged property to any third person as the mortgagor directs, and the mortgagee is bound to assign and convey accordingly. (Emphasis added)
[76] In circumstances where the mortgagor seeks a discharge or assignment of the mortgage, and acknowledges that payment under the mortgage is due, but the amount due upon the mortgage is disputed or cannot be determined, subsections 12(3) and 12(6)[^9] allow the mortgagor to apply to the Court for an order discharging the mortgage, in exchange for the payment of the disputed amount into Court.[^10]
[77] While subsections 12(3) and 12(6) give the mortgagor the ability to substitute the mortgagee's security, it must be a true substitute of security. Typically, the Court will only grant relief under section 12 where it is satisfied that the amount paid into Court secures the mortgagee's claim, provided that the amount claimed is within reason.[^11] Accordingly, a mortgagor who obtains an order for the discharge of a mortgage under section 12 will be required to pay into Court an amount sufficient to cover the disputed amount, as well as:
a) any interest that will accrue on that amount; and,
b) the lender's future costs under the mortgage.
[78] In Re Botiuk and Hurowitz,[^12] the Divisional Court held that a judge hearing an application for relief under s. 11(3) (now section 12(3)) possesses a discretion, which must be exercised judicially.
[79] In Garnet Lane Developments Ltd. v. Webster[^13] the Divisional Court, cited Re Botiuk, supra, with approval. The lower Court decision in that case was set aside when the Application judge declined to permit cross-examination on an affidavit. In overturning that decision, the Divisional Court held:
…in order to exercise his discretion judicially, the judge hearing such an application should be in a position to, and should, consider all relevant evidence.
[80] In Garnet Lane, supra, Sutherland J., speaking for the Divisional Court, and referencing the lower Court decision in Re Botiuk, stated:
As mentioned above, I found nothing in the brief reasons of Kent D.C.J. to dispel the suggestion, in his reasons with respect to another s. 11(3) application apparently dealt with at the same time, that a mortgagee who has paid the amount owing under the mortgage has a right to a discharge, or to suggest an awareness that it was proper for him to look beyond the mortgage document itself when exercising his discretion. That does not in my opinion mean that a judge who considered all the equities here present might not have decided to grant the discharge order, but, as I understand the decision in Botiuk, that is not the issue. An awareness of the discretionary nature of the remedy and of the right and duty to consider the equities might have led, if not to a refusal of the order, to the imposition of terms. (emphasis added)
[81] In Mishev v. Shah, supra, Perrell J. stated:
An order under s.12 is discretionary, and the court must consider the relative equities of the mortgagor and of the mortgagee. The court's discretion must be exercised judicially in the circumstances of each case…[^14]
[82] In the evidence filed before me, it is not disputed that 162 seeks to avoid paying for the environmental remediation costs incurred by GLC, and 307's future legal costs in defending against 162's allegations of fraud. GLC and 307 argue that this Court ought not to exercise its discretion in a manner that would prejudice them, or provide 162 with a windfall for the environmental costs, if those costs are ultimately found to be 162’s obligation, and an opportunity to continue its Fraud Action without payment of costs incurred as required by the mortgage, and immune from future costs consequences.
The procedure for disputing a mortgagee’s costs
[83] In Royal Trust v. E.R. Kwinch Investments Ltd.[^15], Master Sandler considered the proper procedure for a mortgagor who contests a lender’s legal costs, and whether payment of those costs is required prior to an assessment of those costs. The mortgagor contested the legal costs charged by the lender's lawyer, and objected to making any payment toward the legal costs charged before the costs were assessed by the Court. In setting out a code of procedure, Master Sandler stated:
I should also add that if the mortgagee incurs legal costs other than those incidental to the exercise of a power of sale, then these would not be taxable under s. 41(4) but might well be payable under the terms of the mortgage. In this event, before action, an account should be sent by the mortgagee's solicitors to the mortgagee, who can pass the same on to the mortgagor, for payment, who can either pay the account or have it referred for taxation under s. 8 of the Solicitors Act. Here, the onus would be on the mortgagor to move expeditiously after receiving the legal account to have it taxed if he disputed same. An order can be made by a Master under s. 8: Re Peel Terminal Warehouses Ltd. and Wootten, Rinaldo & Rosenfeld (1978), 1978 1655 (ON CA), 21 O.R. (2d) 857, 10 C.P.C. 160 (Ont. C.A.).
[84] Kwinch established that a mortgagor can tender the amount owing under the mortgage, exclusive of costs, and require the lender to have its costs assessed. Under the Kwinch procedure, the mortgagor does not have to tender any amount for costs until after those costs have been assessed.
[85] However, the mortgagor is not relieved of the consequences of its default until the lender's legal costs have been paid. Under the Kwinch procedure, the mortgage will not be discharged until after the legal costs have been assessed and paid by the mortgagor, thus ensuring that the mortgagee's costs of the assessment process are secured through the mortgage.
Is this the appropriate forum for an assessment of costs?
[86] The record does not disclose why 162 has proceeded by way of its motion, and has not sought relief under section 12 of the Mortgages Act, or relief in accordance with the procedure set out in Kwinch, supra.
[87] The Great Lakes companies submit that this is not the proper forum for a determination of the costs payable under the mortgage. While a Judge of the Superior Court of Justice undoubtedly has jurisdiction to assess and fix costs, a motion is not the proper procedure to be followed and the record before the Court does not allow for a proper assessment to be completed.
What amount is 162 required to pay to obtain a discharge, or take an assignment, of the mortgage?
[88] 307 claims an entitlement to the following amounts under the Mortgage:
a) Principal Balance as of November 3, 2014: $529,890.94
b) Interest to November 3, 2014: $140,947.64
c) Costs: $325,058.43
TOTAL: $995,897.01[^16]
[89] 162 does not dispute the amounts owing for principal and interest (assuming the Mortgage is not rendered invalid by fraud). Its dispute, with regard to the money to be paid into court, is with the amount claimed for costs under the Mortgage. 162 claims that it should only be required to pay $75,316.48, the amount identified by the Great Lakes companies as having being incurred strictly in relation to the Foreclosure Action.
[90] The difference of $249,741.95 represents the amount 307 says it has incurred in relation to 162’s Fraud Action, in which 307 is a defendant, and in which 162 attacks the validity of the Mortgage.
[91] 307 submits that these costs can properly be charged under the Mortgage. Specific reference is made to the allegations relating to the validity of the Mortgage, which 307 has had to respond to, and the Standard Charge Terms[^17] associated with the Mortgage, which contain the following material term:
Article 8
The Chargee may pay all premiums of insurance and all taxes, rates, levies, charges, assessments, utility and heating charges which shall from time to time fall due and be unpaid in respect of the land, and that such payments, together with costs, charges, legal fees (as between solicitor and client) and expenses which may be incurred in taking, recovering and keeping possession of the land and of negotiating the Charge, investigating title, and registering the Charge and other necessary deeds, and generally in any other proceedings taken in connection with or to realize upon the security given in the Charge (including legal fees and real estate commissions and other costs incurred in leasing or selling the land or in exercising the power of entering, lease and sale contained in the Charge) shall be, with interest at the rate provided for in the Charge, a charge upon the land in favour of the Chargee pursuant to the terms of the Charge and the Chargee may pay or satisfy any lien, charge or encumbrance now existing or hereafter created or claimed upon the land, which payments with interest at the rate provided for in the Charge shall likewise be a charge upon the land in favour of the Chargee. Provided, and it is hereby further agreed, that all amounts paid by the Chargee as aforesaid shall be added to the principal amount secured by the Charge and shall be payable forthwith with interest at the rate provided for in the charge, and on default all sums secured by the Charge shall immediately become due and payable at the option of the Chargee, and all powers in the Charge conferred shall become exercisable. (Emphasis added)
[92] 307 argues that 162's position with respect to the costs incurred under the Mortgage is an attempt to avoid paying costs as agreed to in the mortgage contract, and costs incurred as a result of its prosecution of its Fraud Action. 307 argues that 162 ought not to be able to obtain a discharge without paying those costs. It submits that but for 162’s attempt to invalidate the Mortgage, 307 would not have incurred those costs.
Should 307 be granted leave to discontinue its claim for foreclosure?
[93] Rule 23.01(b) of the Rules of Civil Procedure grants the Court jurisdiction to allow a plaintiff to discontinue all or part of an action against a defendant after pleadings have closed.
[94] The court has discretion to depart from the general rule that a defendant is entitled to costs where the plaintiff discontinues. In Provincial Crane Inc. v. AMCA International Ltd.[^18], that discretion was exercised where the plaintiff had brought an action bona fide by reason of the defendants' conduct, but the subject-matter of the action had subsequently become moot.[^19]
[95] In Woolrich v. Woolrich[^20], the Court granted leave to discontinue a claim where the defendant's conduct rendered the action untenable against him.
[96] In the circumstances of this case, 307 seeks to discontinue its claim for foreclosure, (but not the concurrent claims in the Foreclosure Statement of Claim for payment under the mortgage and possession of the property) solely in response to 162's apparent intention to redeem the mortgage. GLC says that this is an attempt to obtain the benefit of over $600,000 in environmental remediation costs without paying for any portion of that clean up. GLC submits that it would be prejudiced by such a result, and that an order permitting 307 to discontinue its claim for foreclosure on a without costs basis would be just, and would not prejudice 162 in any way. 307 is prepared to consent to an order restraining it from selling the property under power of sale until 162's Fraud Action has been disposed of by Court order, or otherwise.
[97] The Supreme Court of Canada defined the concept of a mortgage in Smith v National Trust Co. In that case, the Court reviewed the nature of a mortgage under Manitoba’s Real Property Act. The Court’s definition of a mortgage applies equally to the concept of a mortgage in Ontario. The Court stated:
The mortgage contemplated and provided for by the Act is a real security which primarily derives its efficacy as a security of that character from the statute itself…. It is quite clear, moreover, that the registration of a mortgage under the Act is not intended to vest in the mortgagee any registered “interest” in the mortgagor’s land as that term is used in the Act… The Act does not, in a word, treat the mortgage authorized by it as an instrument immediately effecting any dismemberment of the mortgagor’s registered title. The operation of the statute is rather this: When a registered owner wishes to charge his registered title as security for a debt, he is to execute an instrument by which he declares that he “mortgages” his land and that instrument being registered the mortgagee becomes invested with such rights in respect of the possession of the land and its profits and the registered title becomes (for the benefit of the mortgagee) subject to such powers of disposition as the statute expressly or by implication declares. [^21] (Emphasis added)
[98] The security granted by way of a mortgage does not trump the owner of the land’s protected right to his equity of redemption. The Supreme Court of Canada in Petranik v Dale stated that the mortgagor’s equitable right to redeem is more than a mere equity but, is indeed, an interest in the mortgaged land which is “not lightly to be put aside and which is enforceable by courts of Equity.” Dickson J, concurring with the majority, stated:
Mrs. Petranik’s (the Mortgagor’s) equity of redemption in the subject property was not extinguished by either the foreclosure proceedings commenced by Ms. Dale but not completed, or by the purported exercise of the power of sale contained in the mortgage. An equity of redemption is a right of property.[^22] (Emphasis Added).
[99] Marriot and Dunn: Practice in Mortgage Remedies in Ontario, 5th edition, states the following with respect to the triggering of a mortgage held by the Mortgagor:
By commencing an action, the plaintiff is bound to accept payment of the whole mortgage debt…Therefore a defendant may redeem prior to judgment…Where redemption is sought prior to judgment, the amount required to redeem is usually tendered to the plaintiff. If this is refused the defendant may pay it into court, together with the costs demanded in the statement of claim, and move for an order dismissing the action and directing the plaintiff to a give a discharge or the mortgage or an assignment thereof if the defendant is entitled to an assignment.[^23] (Emphasis added)
[100] In North American Life Assurance Company v Beckhuson, the Alberta Court of Queen’s Bench explained in detail whether a mortgagee, by bringing an action, triggers the mortgage and allows the mortgagor to exercise the equity of redemption. After reviewing the jurisprudence concerning when the action of a mortgagee will trigger the mortgagor’s right to exercise the equity of redemption, the Court stated:
These cases stand for the principle that if a mortgagee takes steps to compel payment of the mortgage debt or realize on the security to satisfy the mortgage debt, then the mortgagee cannot be heard to complain when he is paid out. The basis of these decisions is that they were actions expressly to, or deemed to, compel payment of the mortgage debt or to realize the security to satisfy the mortgage debt. In Tytler v. Genung (1914), 1914 390 (MB CA), 24 Man. R. 148,6 W.W.R. 191, 16 D.L.R. 581 (C.A.), Perdue J.A. states at p. 163:
"Where therefore he takes proceedings to recover all the moneys due or payable under the mortgage, or takes proceedings which are interpreted as having that effect, payment of principal, interest and costs may be made by the mortgagor and this the mortgagee must accept in satisfaction of his claim."[^24] (Emphasis added)
[101] In Cruso v Bond, the Ontario Court of Appeal held that once a party starts an action for foreclosure or sale, the mortgagor can pay the full amount of the mortgage outstanding.[^25]
[102] In Toronto-Dominion Bank v 1200382 Ontario Inc. Pitt J., applying Sections 22 and 23 of the Mortgages Act, stated:
The sections of the Mortgages Act quoted above indicate that a mortgagor should not lose its right of redemption for failure only to pay unassessed costs, and the jurisprudence suggests that where there is willingness and apparent capacity to redeem, mortgagors ought to be granted an opportunity to do so.[^26] (Emphasis added)
[103] The Rules of Civil Procedure explicitly permit a mortgagor to redeem his mortgage during foreclosure proceedings. Rule 64(6-8) states:
64 (6) A defendant in a foreclosure action who wishes to redeem the mortgaged property shall serve on the plaintiff, and file with proof of service, a request to redeem (Form 64A) within the time prescribed by rule 18.01 for delivery of a statement of defence, or at any time before being noted in default, whether the defendant delivers a statement of defence or not. R.R.O. 1990, Reg. 194, r. 64.03 (6); O. Reg. 534/95, s. 8 (1).
(7) A request to redeem filed by a defendant who is a subsequent encumbrancer shall contain particulars, verified by affidavit, of the claim and the amount owing. R.R.O. 1990, Reg. 194, r. 64.03 (7).
(8) A defendant who has filed a request to redeem is entitled to,
(a) seven days notice of the taking of the account of the amount due to the plaintiff; and
(b) sixty days after the taking of the account of the amount due to the plaintiff, to redeem the mortgaged property,
PROCEDURE ON MORTGAGE REFERENCES GENERALLY
64.06(27) Despite subrule (26), the court may, on motion of any party, extend or abridge the time for redemption for such time and on such terms as are just.[^27](Emphasis added)
[104] The Ontario Court of Appeal in Shankman v Mutual Life Assurance Co of Canada dealt with a case of a mortgage that was for a fixed term. The mortgage fell into default and the mortgagee commenced an action for possession and to recover arrears. The Mortgagee did not seek to accelerate payment of the principal amount. The Mortgagor sought to redeem the mortgage by tendering a check that was rejected by the Mortgagee. The Court of Appeal upheld the finding of the Application Judge that the mortgagee had not triggered the mortgage. In finding for the Mortgagee, the Court held the Mortgagee had not resorted to the security of the mortgage but was merely trying to protect his security. The Court in disallowing the mortgagor’s right to pay off the mortgage stated:
The mortgagee has taken no steps whatever by way of demand, or otherwise, to foreclose upon its mortgage and clearly has not gone into possession in the manner necessary to give rise to the right of the mortgagor of equitable redemption of the mortgaged premises.[^28]
[105] In this case, 307, as the assignee of the Mortgagee, has attempted to foreclose upon its mortgage. That the Mortgagee now attempts to resile from this position does not change the fact that the mortgage has been triggered and that the Mortgagor can exercise its equity of redemption. As in Shankman, the Mortgagee could have protected its interest by taking possession of the property and commencing an action for arrears, but it went further in seeking to foreclose.
Mortgagee’s right to be indemnified
[106] A mortgagee is entitled to indemnification of all its costs and expenses reasonably and properly incurred in ascertaining, asserting and defending its rights in connection with a mortgage debt.[^29]
[107] The jurisprudence makes it clear that the costs claimed by a mortgagee cannot be frivolous, and must have been properly and reasonably incurred. Tzimas J. stated, in this regard:
A mortgagee must be able to ascertain, assert, and finally defend its right to the legal fees in connection with the mortgage debt.[^30]
[108] Where the mortgagee has demanded a sum in excess of the amount due under the mortgage, such misconduct will not deprive the mortgagee of his costs for enforcing his rights under a mortgage. However, a mortgagor can protect himself by “making a tender of the amount due for principal and interest,” as 162 seeks to do here.[^31]
[109] Where the litigation is due to the acts of the Mortgagee, and does not result from the default of the mortgagor, or the Mortgagee makes claims that are not established, the mortgagee may be deprived of its costs.[^32] It seems reasonable to infer from the jurisprudence that where the costs incurred by the Mortgagor are not connected to the enforcement of the Mortgage, those costs should not form the amount that the mortgagor must pay to the mortgagee to redeem his mortgage.
Referring a matter to an assessment officer under the Mortgages Act
[110] 43(1) and 43(2) of the Mortgages Act state:
(1) Where such demand or notice requires payment of all money secured by or under a mortgage, the person making such demand or giving such notice is bound to accept and receive payment of the same if made as required by the terms of such demand or notice.
(2) If there is a dispute as to the costs payable by the person by or on whose behalf such payment is either made or tendered, such costs shall, on three clear days notice to such person by the person claiming the same, be assessed and ascertained by an assessment officer.
[111] 162 argues that since the Foreclosure Action was transferred from London to Guelph, 307 has taken no steps to advance the Foreclosure Action and obtain judgment and that the court should therefore conclude that there would be no prejudice to 307 in permitting 162 to redeem the mortgage, other than to draw out the mortgage proceedings, thus accruing interest and costs. I do not accept this argument, having regard to the fact that the court, on 162’s motion, made an order that the Foreclosure Action be tried with the Fraud action and the Construction Lien actions, which tied the pace of the Foreclosure Action to that of the other actions.
[112] Nevertheless, I do not find any basis for depriving 162 of its right to redeem its equity of redemption upon paying the amounts properly owing to 307 under its Mortgage.
[113] In the First Mortgage Discharge Statement, 307 argued that it was entitled to the costs of the Fraud Action, as well as the costs of the Construction Lien Actions. In its later Mortgage Discharge Statements and at the hearing of the motion, it abandoned its claim for the costs of the latter actions.[^33]
[114] In 1427814 Ontario Ltd v. 3697584 Canada Inc., the court was asked to determine whether a mortgagee, after selling a property under power of sale, could withhold payment of the surplus funds to the mortgagor and instead hold the funds as security for the costs it would incur in further litigation with the mortgagor. Karakatsanis J., as she then was, held that the mortgagee was not entitled to hold the funds as security for future costs. She stated:
I accept the general principle that the mortgagee is entitled to indemnification of all its costs and expenses reasonably and properly incurred in ascertaining, asserting and defending its rights in connection with the mortgage debt. See Gomba Holdings (UK) Ltd and others v. Minories Finance Ltd and others (No2), [1992] 4 All E.R. 588 (Eng. C.A.) The express terms in section 8 of the charge terms are broad and it may be that reasonable costs and expenses in relation to the assessment of expenses and the action for improvident sale may be costs incurred in a “proceedings taken in connection with or to realize upon the security given in the charge” under clause 8 in the charge terms. If the future costs in relation to the outstanding proceedings are added to the principal under the mortgage pursuant to section 8, the mortgagor will not be entitled to a discharge of the mortgage until all principal is paid. The trial judge determining costs in those proceedings will determine if they are payable under section 8 of the charge terms. That is not an issue that I must decide, given my interpretation of section 27 of the Mortgages Act and sections 8 and 9 of the charge terms.
The issue before me is whether the mortgagee is entitled to hold residual funds after power of sale to satisfy any future additions to the principal amount under section 8.
Section 27 of the Mortgages Act provides that the mortgagee may apply the funds in payment of all the expenses incident to the sale, the interest and costs then due and the principal money then due in respect of the mortgage. The Mortgages Act does not provide for the payment from the proceeds of sale of amounts of interest and costs or principal not yet due. It clearly does not contemplate that the surplus can be held as security for costs or principal that arises after the sale.
Nor does the language in sections 8 or 9 of the charge terms override the provisions of section 27 of the Mortgages Act. Section 9 of the standard charge terms deals with payment of costs and principal upon power of sale with the surplus to be paid as required by law after the claims of the Chargee are fully satisfied. But section 9 does not explicitly provide that the monies may be held for future costs or future principal. Even if section 8 is broad enough to capture the costs arising after the sale, it contemplates that they will be a charge upon the land and added to the principal. The costs cannot be secured as a charge on the land after the mortgagee has sold the land. Nor is there any language to suggest that the costs will be a charge upon the proceeds of sale if the mortgagee has proceeded with power of sale. The sections do not provide that the proceeds from the sale of the land must be retained as security for future costs or principal that will arise.
To interpret the terms as providing the mortgagee with the right to retain the surplus indefinitely until outstanding or future proceedings are determined is contrary to section 27 of the Mortgages Act and is not provided for in the language of the charge terms. On the contrary, the language in section 8 of the charge terms states that costs become a charge upon the land. Neither section 8 nor section 9 provide that the costs are a charge upon the proceeds of the sale of the land under power of sale. Explicit language would be necessary to override the provisions of the Mortgages Act and to permit a mortgagee to hold a significant amount of money for an indeterminate and likely lengthy period of time while the legal proceedings are resolved. If the mortgagee wishes to seek security for costs, it must rely upon the rules of practice and not its mortgage.[^34]
[115] As noted above, article 8 of the Standard Charge Terms, in relation to actions for foreclosure, provides, in part:
all amounts paid by the Chargee as aforesaid shall be added to the principal amount secured by the Charge and shall be payable forthwith with interest at the rate provided for in the charge, and on default all sums secured by the Charge shall immediately become due and payable at the option of the Chargee, and all powers in the Charge conferred shall become exercisable.
[116] I find no valid basis for distinguishing between the costs to be held as security in the case of a request to redeem a mortgage from those to be held as security from the surplus in a power of sale proceeding. The scope of protection given to a mortgagee in such circumstances should be the same under either remedy. The costs to be held by the mortgagee, in the case of a power of sale proceeding, or paid to the mortgagee or into court, in the case of a mortgage foreclosure, are the costs then due, not future costs.
[117] It is implicit in Karakatsanis J.’s reasons that the court should give a broad interpretation to the words in clause 8 of the charge terms: “proceedings taken in connection with or to realize upon the security given in the charge.” In 1427814 Ontario Ltd v. 3697584 Canada Inc., Karakatsanis J. concluded that such costs reasonably include the mortgagee’s costs of defending an action by the mortgagor for damages for negligence in an improvident sale. In the present case, I find that they reasonably include the mortgagee’s costs of defending 162’s Fraud Action in which the validity of the Mortgage is called into question. They do not reasonably include the costs of the Construction Lien Action. Those costs are properly the costs of GLC, not 307. Clause 8 permits the “Chargee” to recover certain costs under the Mortgage.[^35] This does not entitle 307 to recover GLC’s costs of the Construction Lien actions.
[118] I find no justification for permitting 307 to discontinue its foreclosure action for the sole purpose of defeating 162’s right, as mortgagor, to redeem its title by paying the amount now due under the mortgage. 307 has not articulated any prejudice it will suffer if the foreclosure claim is not discontinued and 162 is allowed to redeem.[^36] Under cross-examination, Don Wellington, the President of 307 and GLC, admitted that he does not know whether 307 would be prejudiced.[^37]
[119] 307 will receive the value of its charge, notwithstanding its position that the Fergus property had a negative value to 162, having regard to the costs of remediation.[^38] In any event, 307 took no steps to discontinue the Foreclosure Action for more than 18 months after the action was transferred to Guelph. It should not be permitted to do so now, in response to 162’s request to redeem. The court’s exercise of discretion to permit 307 to discontinue the Foreclosure Action would prejudice 162’s right to redeem, especially if 307 were permitted to continue its claim for payment, and for possession and sale of the Fergus Property.
[120] The court has expressed concern about the effect on a mortgagor’s right to redeem in situations where the mortgagee has sought leave to discontinue a foreclosure action prior to judgment. Where this results in a wholly different procedure with different time periods under which the action must be taken, the Court has held that discontinuance would be prejudicial to the mortgagor. In Solnicki et al. v. Redruth Investments Ltd. et al, Keith J. stated:
It has been argued before me that the defendants have done nothing and therefore the withdrawal of the action is not prejudicial to them. It is decidedly prejudicial to them because the whole procedure becomes entirely different with different periods under which action must be taken by the defendants or any of them.[^39]
[121] In my order dated April 30, 2013, I directed that no foreclosure order (if obtained) can be enforced pending the resolution of the Fraud Action. This should protect GLC from prejudice by 162’s redemption, in the event the construction liens were not disputed and foreclosure by a new assignee to the Mortgage was a legitimate concern.[^40]
[122] To support its claim for the recovery of GLC’s legal costs in the Fraud Action, 307 has given evidence that prior to Mr. Davis’ retainer, when GLC was represented by Fogler Rubinoff, and 307 was represented by McKenzie Lake, the legal costs paid to Fogler Rubinoff in the Fraud Action were on behalf of both 307 and GLC:[^41]
- Q. So when you're saying the costs incurred, are you saying that from the time of the fraud
action, even though they had separate counsel, counsel, all the costs incurred that were spent by Fogler, Rubinoff, that those was incurred on behalf of 307 or those costs were incurred on behalf of Great Lakes?
A. They would be incurred on behalf of Great
Lakes and 307, because the lawyers worked together back and forth. [^42]
155 Q. But 307 had their own lawyers in that action?
A. Yes, they did.[^43]
[123] The costs of 307 and GLC, who commenced separate actions against 162 based for foreclosure and construction liens, respectively, are not interchangeable, and 307 is not entitled to claim GLC’s costs, even for the period when both were represented by the same law firm. If the costs taken on behalf of each party overlap, they must be segregated. If the parties are unable to agree on the allocation of costs, it will be determined by an assessment officer on a reference.
[124] 162 has noted that 307, in support of its claim to GLC’s costs of the Fraud Action, has provided redacted statements of account to GLC in the Fraud Action which from the period when the both parties were represented by the same law firm, fail to specify the lawyer who was billing and the number of hours attributable to each lawyer.[^44] It further notes that 307 has so far not adduced evidence, and has refused to answer questions under cross-examination as to which party was billed for the legal costs being claimed and which party paid those amounts.[^45] 307 was unable to particularize the extent to which GLC’s costs were incurred on behalf of 307 – other than to characterize it was “very limited”:
- Q. But part of the costs of Great Lakes were incurred on behalf were incurred on behalf of 307 prior to Mr. Davis’ involvement?
A. It would be very limited.
- Q. Limited. Can you particularize and give me that amount, please?
A. No, I can't.
- Q. Why not?
A. I don't know it.
- Q. Can you use your best efforts to give it to me?
A. No, I can't.
- Q. Why not?
A. I don't know how much.
- Q. You can ask your lawyers.
R/F MR. DAVIS: He's not going to do it. [^46]
[125] 162 argues that if M. Wellington, the President of 307 and GLC, cannot particularize which costs were incurred on behalf of 307 and which costs were incurred on behalf of GLC, it would be impossible for the Court to ascertain it. I do not agree. Mr. Wellington’s knowledge is only one source of evidence that would be relevant to this determination. The un-redacted accounts and, if necessary, the testimony of the lawyers who performed the work for 307 and GLC could also be considered. If work was performed for both parties, an equal or unequal apportionment may have to be made. Again, these are determinations best left to the assessment officer, if the parties are unable to agree.
[126] A mortgagee may claim certain costs as just allowances on the mortgage.[^47] The mortgagee is entitled to be indemnified for the costs that it reasonably incurs to respond to a default by a mortgagor, and to preserve its security. The costs claimed must, of course, be reasonably and properly incurred.[^48] Mortgage jurisprudence has recognized that the standard charge terms of mortgage agreements are not a “carte blanche” for a mortgagee to incur and charge fees. The mortgagee does not have an unfettered right to incur expenses of a legal nature and to pass them on to the mortgagor simply because it is related to the mortgage.[^49] To be recovered, such expenses must be reasonably incurred to preserve the mortgaged property or to protect the security, and they must be just to all parties.[^50] They must be “necessarily incurred”. Otherwise, mortgagees or their solicitors could abuse the mortgagor’s right by demanding large amounts of legal fees which could only be recovered at a later stage through assessment.[^51] As noted above, these costs may include the mortgagee’s costs of defending the mortgagor’s attack on the validity of the mortgage in a related action. If disputed, the reasonableness and necessity of the costs may be proven at the stage where the mortgagor seeks to redeem the property, by evidence given before the assessment officer.
[127] A mortgagee is entitled to his general costs in a foreclosure action unless he has forfeited them by an improper claim or inequitable conduct.[^52] If the mortgagee has engaged in misconduct, it may disentitle itself to the expenses it has incurred and that otherwise would be recoverable.[^53] In Mayhew v. Adams, Martin J.A., for the Saskatchewan Court of Appeal, stated:
The general rule in foreclosure and redemption actions is that the mortgagee is entitled to all his costs; he is to get the money secured by the mortgage free of all costs and expenses, and that although he has not succeeded in establishing the full amount of the claim he has contended for. A mortgagee, however, who has been guilty of vexatious or oppressive misconduct, may be deprived of his costs or some part of them. The rule is stated in Seton on Decrees, 6th ed., vol. 3, 1j. 1947, as follows:
Apart from the question of what costs have been properly incurred by the mortgagee, his right to the costs of a foreclosure or redemption action can only be lost by positive misconduct of a vexatious, oppressive, or fraudulent character, or by improper resistance to the right of the mortgagor to redeem.
This is substantially the rule set forth by Lord Selborne in Cotterell v. Stratton (1873) L.R. 8 Ch. 295, at 302, 42 L.J. Ch. 417, and which has been followed without exception by judicial authority since that time.[^54] (Emphasis added)
[128] 162 argues that 307, by over-reaching and claiming the costs of GLC, especially if those parties are not adverse to each other, or by other misconduct, has disentitled itself to its costs. The mere fact that a mortgagee claims more than its due is not such misconduct as will deprive it of its costs. In Loftus v. Swift, Lord Redesdale said:
A mortgagee is always entitled to his costs unless there is something of positive misconduct. Merely exceeding his claim beyond what the court finally decides that he is entitled to, is no ground for refusing him his costs.[^55]
[129] In any event, evidence of misconduct by the mortgagee is relevant to the recoverability of the costs, which will be determined, in the present case, by the judge at the trial of the Fraud Action. It should not affect the payment into court as security for the amounts to which the mortgagee may be entitled.
[130] 162 argues that it should not be required to pay the costs of its unsuccessful motion to remove Davis Moldaver as 307’s solicitor of record, beyond the amount that the parties agreed upon, and that was incorporated into the order made disposing of that motion. I do not agree. In Merry v. Wright, D.S. Ferguson J., in awarding the plaintiff his costs of a proceeding on a substantial indemnity scale, held that he was not precluded from seeking additional costs of a motion in relation to which an award of costs on a partial indemnity scale had been ordered by the motion judge. He stated:
I see nothing wrong with the trial judge awarding additional costs relating to a motion which on its merits warranted only partial indemnity costs. The issue before the trial judge concerning substantial indemnity costs is much broader and involves considering many matters which are not relevant to the fixing of costs at the time of the motion.[^56]
[131] The same principle applies here. 307, if successful, could be entitled, pursuant to the standard charge clause of the Mortgage, to recover its costs of the proceedings on a full indemnity scale. It should not be limited to the amount the parties agreed upon as in settlement of costs that would, in the normal course, have been awarded on a partial indemnity scale. Conversely, if 162 is successful in its Fraud Action, it could recover additional costs of its motion for a trial of the actions together on a substantial indemnity scale, in an amount exceeding the amount awarded to it at the time of the motion on a partial indemnity scale.
CONCLUSION AND ORDER
[132] For the foregoing reasons, it is ordered that:
a) 1623242 Ontario Inc. and/or Krishan Judge has leave in action no. 640/13, to pay/redeem its title to Fergus Property by paying the amount of $529,890.94, being the principal balance claimed by 3072453 Nova Scotia Company as of November 3, 2014, $140,947.64, being the interest claimed as of October 30, 2014, and any legal costs and further interest and legal costs incurred to date of payment in the foreclosure action, and in its defence to the Fraud Action, to be assessed by an assessment officer, in exchange for an assignment of the mortgage debt and a conveyance of the mortgaged property to any third party as 1623242 Ontario Inc. and/or Krishan Judge directs, and 3072453 Nova Scotia Company is bound to assign and convey accordingly.
b) The cross-motion by 3072453 Nova Scotia Company for leave to discontinue its Foreclosure Action is dismissed.
c) If the parties are unable to agree on the costs of the motion and cross-motion, they may make written submissions, not to exceed four pages, accompanied by a Costs Outline, by April 15, 2015.
Price J.
Released: April 24, 2015
[^1]: 1623242 Ontario Inc. v. Great Lakes Copper Inc, 2013 ONSC 2548, para. 60 [^2]: 1623242 Ontario Inc. v. Great Lakes Copper Inc., above, at para. 109 [^3]: Wellington Affidavit, para. 3 and Exhibit 1 [^4]: Garbig Affidavit, para. 10 and Exhibit 10 [^5]: Garbig Affidavit, para. 17 and Exhibit 17 [^6]: S.O. 2002, c 24, Sch B, sections 4 and 5 ("Limitations Act, 2002") [^7]: R.S.O. 1990, C M.40 ("Mortgages Act") [^8]: Wellington Affidavit, para. 6 [^9]: These subsections are often relied on interchangeably. See: 5 Fairview Mall Drive Ltd. v. Lehndorff Canadian Pension Properties Ltd., 1989 CarswellOnt 573, Mishev v. Shah, 2011 ONSC 1672 and 2247267 Ontario Inc. v. 2038697 Ontario Ltd., 2014 ONSC 2717 [^10]: Mishev v. Shah, 2011 ONSC 1672, paras. 35 – 37 [^11]: See: Schrittwieser v. Morris, (1987), 1987 4174 (ON SC), 62 O.R. (2d) 177 (Ont. H.C.) [^12]: (1975), 1975 556 (ON SC), 9 O.R. (2d) 299 ("Re Botiuk") [^13]: 20 O.A.C. 291 ("Garnet Lane") [^14]: Mishev, supra, at para. 38, citing Fernicola (In Trust) v. Creview Development Inc., [2008] O.J. No. 4112, 75 R.P.R. (4th) 226 (S.C.J.) and Metroview Investment Corp. v. Araujo [2000] O.J. No. 2403 [^15]: 1984 1837 (ON SC), 44 O.R. (2d) 593 ("Kwinch") [^16]: Interest continues to accrue on the amounts outstanding, and legal costs continue to be incurred. 307 reserve its right to amend this figure if 162 wishes to redeem the mortgage. [^17]: Wellington Affidavit, Exhibit 6. [^18]: (1990), 44 C.P.C. (2d) 46 (Ont. H.C.) [^19]: See also: Golda Developments Inc. v. Dawe (2008), 64 C.P.C. (6th) 128. [^20]: [1961] O.W.N. 323 (Master) [^21]: Smith v National Trust Co.(1912), 45 S.C.R. 618 at pp. 639-640, 1912 56 (SCC) [^22]: Petranik v Dale, 1976 34 (SCC), [1977] 2 SCR 959 at pp. 969, 986 [^23]: Marriott and Dunn: Practice in Mortgage Remedies in Ontario, 5th edition (Publishers note Release number 6, 2013, Carswell, Toronto) at p. 14-7 para: 14.5). [^24]: North American Life Assurance Company v Beckhuson, [1981] 2 WWR 446 at para 21 [^25]: Cruso v Bond, 9 P.R. 111, [1881] O.J. No. 321 (CA) [^26]: Toronto-Dominion Bank v 1200382 Ontario Inc., [2006] O.J. No. 3983 (ONSC) at para 33. [^27]: Rules of Civil Procedure, Rule 64.06(27) [^28]: Re Shankman and Mutual Life Assurance Co. of Canada (1985), 52 O.R. (2d) 65. [^29]: 1427814 Ontario Ltd. v 3697584 Canada Inc., 35 R.P.R. (4th) 182 at para 12, [2004] O.J. No. 607 (Karakatsanis J.) [^30]: Chong & Dadd v. Kaur, 2013 ONSC 6252 at para 40. [^31]: Dianeau v Dagenais, 5 O.L.R. 265, [1903] O.J. No. 65 at paras. 5,8 and 10. [^32]: Stephens v Taylor (1921), 21 O.W.N. 107 (H.C.). [^33]: Exhibit L to the Affidavit of Joseph Palma, sworn 11 November 2014, Consolidated Motion Record of the Moving Parties at Tab 34, at pg. 171-172 [^34]: 1427814 Ontario Ltd v. 3697584 Canada Inc., 2004 16681 (ON SC), paras. 12 to 16 [^35]: Exhibit B to the Affidavit of Krishan Judge, sworn 19 September 2014, Consolidated Motion Record of the Moving Parties at Tab 4, pg.19 [^36]: Cross-examination of Don Wellington, at Q.123, P.28 [^37]: Cross-examination of Don Wellington, at Q.123, P.28 [^38]: Affidavit of Joseph Palma, Consolidated Motion Record of the Moving Parties, at Tab 18 at par. 15-22 [^39]: Solnicki et al. v. Redruth Investments Ltd. et al. [1977] O.J. No. 2261, para. 14-15; see also Halsbury’s Laws of Canada – Mortgages, at § III.5.(2), Book of Authorities of the Moving Party at Tab 30 [^40]: 1623242 Ontario Inc. v. Great Lakes Copper Inc. 2013 ONSC 2548, [2013] O.J. No. 2490, par. 109 [^41]: Cross-examination of Don Wellington, at Q. 153-163, P.35-36 [^42]: Cross-examination of Don Wellington, at Q. 153-163, P.35-36 [^43]: Cross-examination of Don Wellington, at Q. 153-163, P.35-36 [^44]: Exhibits 14-18 to the Affidavit of Don Wellington, sworn October 10, 2014, at Tabs 14-18 to the Cross-Motion Record of 307 and LC, and in particular Tab 15 [^45]: Correspondence passing between counsel, dated 15 September 2014, Exhibit N to the Affidavit of Krishan Judge, sworn 19 September 2014, Consolidated Motion Record of the Moving Parties at Tab N, at pg. 60-63; also see Cross-examination of Don Wellington at Q. 130-131, P. 29-30 [^46]: Cross-examination of Don Wellington, at Q.160-165, P. 36-37 [^47]: Generally, Marriott & Dunn, supra. at §10.9-10.10, 20.8, Book of Authorities of the Moving Parties at Tab 29 [^48]: Chong v Kaur 2013 ONSC 6252, [2013] O.J. No. 4531, Book of Authorities of the Moving Parties at Tab 15 at par. 40 [^49]: Coast-to-Coast Industrial Development Co. v 1657483 Ontario Inc. [2010] O.J. No. 1403, at para. 25; Chong supra., at para. 43 [^50]: Coast-to-Coast Industrial Development Co. v 1657483 Ontario Inc. [2010] O.J. No. 1403, at para. 25; 2088300 Ontario Ltd. v 2184592 Ontario Ltd. 2011 ONSC 2986, [2011] O.J. No. 2178, at para. 30 [^51]: Royal Trust Corp. of Canada v E.R. Kwinch investments Ltd. [1984] 44. O.R. (2d) 593, at pg. 9 [^52]: Guaranty Trust Co. of Canada v Celenza 1967 244 (ON SC), [1967] 2 O.R. 236, at pg. 5, citing Cotterell v Stratton [1872] L.R. 8 Ch. 295, at p. 302, and Falconbridge, Law of Mortgages 3rd ed., pg 654; Canada Permanent Trust Co. v. Bernhardt [1978] B.C.J. No. 829, at paras. 16-23; Bank of Montreal v. Cerniuk [1997] A.J. No. 205, at paras. 7-9 [^53]: Cornwall v Brown [1852] O.J. No. 249, at para. 4 [^54]: Mayhew v. Adams, 1930 114 (SK CA), at para. 9 to 11 [^55]: Loftus v. Swift(1806) 2 Sch. & L. 642; Little v. Brunker (1880) 28 Gr. 191, per Chancellor Spragge [^56]: Merry v. Wright, 2004 27360 (ON SC), at para. 15