CITATION: C.M.T. Financial Corporation v. David McGee, 2015 ONSC 3595

COURT FILE NO.: 4212/14

DATE: 2015 06 03

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

C.M.T. FINANCIAL CORPORATION

Respondent

– and –

DAVID ALLEN MCGEE

Applicant

R. Macdonald

Self-represented

HEARD: May 12, 2015

REASONS FOR JUDGMENT

LEMAY J.

[1] The action in this case involves a claim by C.M.T. Financial Corporation (hereinafter “the Plaintiff” or “CMT”) against Mr. David Allen McGee (hereinafter “the Defendant” or “Mr. McGee”) as a result of a second mortgage on Mr. McGee’s personal residence in Scarborough.

[2] Out of this motion, the Plaintiff is seeking to have the terms of the mortgage enforced, and is seeking a judgment against the Defendant, permitting them to pursue a writ of possession.

[3] The Defendant is seeking to have the mortgage set aside on the basis that it was unconscionable. In the alternative, he is seeking a dismissal of the Plaintiff’s claim without costs upon payment of the principal due under the mortgage together with any accumulated interest.

[4] It is useful to set out the background facts as well as the positions of the parties in more detail in the sections that follow.

The Background Facts

(a) The Mortgage and the Property

[5] The Plaintiff has a mortgage on the Defendant’s property, which is in Scarborough. I understand that it is the Defendant’s residence. It is clear to me that the Defendant is a mortgage specialist, who has a sophisticated understanding of how mortgages work. He has worked in the mortgages field for a significant portion of his career.

[6] The Plaintiff is a company that, inter alia, lends money for what are called high ratio mortgages. These are mortgages that are provided to people who have borrowed against more than 80% of the value of the property. Mr. Dennis Saxon (“Mr. Saxon”) is an officer and director of CMT who was heavily involved in this mortgage transaction and who provided affidavit evidence on this motion. He was also cross-examined.

[7] The mortgage in this case was a second mortgage for $64,000.00. The parties had originally agreed on $104,500.00 as the principal amount. However, as part of the original agreement with CMT, Mr. McGee was limited to obtaining a first mortgage on the property of $516,000.00. Mr. McGee ultimately obtained a first mortgage of $584,000.00, but CMT was still prepared to loan him the money. In the end, between the first mortgage and CMT’s mortgage, Mr. McGee obtained more money than he had originally negotiated for. By my calculations, he obtained funds of approximately $38,500.00 more than the original mortgages would have yielded for him.

[8] It is also clear that Mr. McGee had independent legal advice about this transaction prior to entering into it.

[9] In any event, the funds were advanced to Mr. McGee at the end of July 2013. He was to pay interest only for a year, and was then to pay back the principal amount on August 1, 2014.

(b) The Defaults

[10] CMT points to a number of defaults that occurred in this case after the funds had been advanced:

a) Under the terms of the mortgage, Mr. McGee was to provide 12 post-dated cheques. He only provided 11, in spite of several requests for the twelfth cheque from CMT. I agree that this is a default, but CMT did not attempt to foreclose as a result of this default. CMT did ask Mr. McGee to remedy the default on two occasions, but Mr. McGee did not reply.

b) Mr. McGee’s cheques for December and January were dishonoured. On this issue, Mr. McGee states that CMT cashed both cheques at once at the end of January, which caused the default. He remedied this default by paying the money directly into CMT’s bank account, and CMT did not attempt to foreclose as a result of this default.

c) In May of 2014, CMT cashed the Plaintiff’s cheque for the payment due June 1, 2014. Although the payment was not due until June 1, 2014, the cheque was dated May 22, 2014 and the cheque was cashed. Mr. McGee advised CMT that his bank account had changed, and deposited money directly into CMT’s account for the June payment prior to it becoming due. This is not a default.

d) Mr. McGee has not made the July or August payments, and is in default of both of those payments. He was well aware of CMT’s banking information, as it was provided to him at the end of May, 2014. He has taken no steps to make these payments, or any other subsequent payments. This is a default, and is of concern to the Court.

[11] In March of 2014, CMT advised Mr. McGee that it would not be renewing the mortgage in August of 2014 when it came due. However, the mortgage was not paid off when it became due and has still not been paid off. As a result, CMT has issued a Notice of Sale and Mr. McGee has not paid back the principal on this mortgage. Interest is continuing to accrue on the principal and has also not been paid.

[12] As noted above, Mr. McGee advised CMT that he had changed bank accounts in May of 2014. On May 27, 2014, CMT wrote a letter to Mr. McGee confirming that they would not cash the cheques from his old account and asking him to forward the funds on to CMT for June, July and August. Mr. McGee claims that he did not receive this letter and seems to advance this as a reason for his failure to make the July and August payments.

[13] I do not need to determine whether Mr. McGee actually received this May 27, 2014 letter. He was well aware that payments were required for July and August and he took no steps to make them. This is, as noted above, a clear default and there is no good explanation for it.

(c) The Events of July and August 2014

[14] On or about July 24, 2014, Mr. McGee wrote to CMT and stated that “I think our mortgage is due to be paid off now, but we might be a few weeks late in paying it off. Is it possible to make whatever payments/interest is due now until August and then pay off at that time?” Mr. McGee did not receive a reply to this e-mail. He did not follow up with CMT at all until he received the Statement of Claim, and he took no steps to make any payments to CMT.

[15] Mr. McGee argued that this e-mail was simply a request for a delay in the repayment date, and that mortgages are often not paid off on the due date. On reviewing the e-mail, Mr. McGee was not nearly as explicit as he should have been about his intentions. Indeed, based on this e-mail it was not unreasonable for CMT to assume that Mr. McGee was not in a position to pay the mortgage off.

[16] CMT, for its part, did not respond to the e-mail of July 24, 2014 and took no steps between the end of May and when it served its Statement of Claim to attempt to contact Mr. McGee and inquire as to the status of the matter. In any event, litigation was commenced in August of 2014.

[17] One of the other issues that CMT raised was the fact that it received a Requirement to Pay notice from Revenue Canada. This notice advised CMT that it was obligated to pay any money that it owed to Mr. McGee directly to the Receiver General of Canada on account of tax arrears.

[18] In the cross-examination on his Affidavit, Mr. Saxon stated that this document was part of the reason why they had decided to commence this litigation. However, it was clear from the record as a whole that CMT was not aware of the CRA issue prior to commencing this litigation and this was not a reason for CMT to commence its litigation.

[19] Mr. McGee pointed to this evidence as an indication that CMT was looking for any reason to try and exercise its rights to foreclose under the mortgage agreement. Although Mr. McGee is probably right in his assertion, I make two observations about it. First, Mr. McGee was not a model debtor, so it is entirely understandable why CMT was interested in realizing on its security. Second, given that Mr. McGee had failed to pay the mortgage off and had made no payments since June 1, CMT was well within its rights to enforce its covenant.

[20] I would also note that the lack of meaningful communication between the parties at the end of July and early August does not reflect well on either of them. However, in resolving this dispute, I do not have to consider that issue any further.

(d) The Litigation

[21] Mr. McGee was served with the Statement of Claim on August 11, 2014 and the notice of sale shortly afterwards. In the Notice of Sale there are a number of charges that are listed, as follows:

a) Accumulated Interest $1,496.32

b) Administration fees- returned items and/or payments not received $2,700.00

c) Administration Fees- Collection Letters $800.00

d) Three months interest bonus - $1,964.93

e) Admin Fee Power of Sale $4,500.00

f) Legal Fees- S/C $1,692.76

g) Legal Fees Power of Sale $2,200.00

h) Mortgage Statement Fee July 28, 2014- $375.00

i) Mortgage Statement Fee August 8, 2014 $375.00

[22] Mr. McGee challenged all of these charges, while CMT took the position that they were all authorized under the terms of the mortgage. I will deal with each of these charges below.

[23] Mr. McGee then brought a motion for an injunction to prevent CMT from enforcing its security, and for the ability to pay costs into Court. This motion was returnable in September of 2014. CMT brought a cross-motion seeking summary judgment on the Statement of Claim on the basis that there was no genuine issue requiring a trial.

[24] Mr. McGee then sought to amend his Statement of Defence, and also retained the services of an expert. This expert opined that the rate of interest being charged by CMT was in excess of 60% and was, therefore, a criminal rate of interest. CMT’s expert disagreed with these findings.

[25] I should note that both parties filed “expert” evidence. As will be seen below, assessing the arguments on the criminal interest issue did not require me to determine whether either of them were actually experts within the meaning of Rule 53.

[26] Mr. McGee then conducted cross-examinations of both Mr. Saxon and CMT’s expert, including a lengthy cross-examination of Mr. Saxon.

[27] One other issue that should be addressed is that Mr. McGee included copy of a bank draft for the principal amount of the mortgage in his materials. This draft was dated September 18, 2014, and Mr. McGee assured me that he was prepared to pay off the monies owing on the mortgage and could do so within a couple of days. However, Mr. McGee made no efforts that I am aware of to pay the money into Court.

[28] Eventually, this motion was scheduled before me in Milton on May 12, 2015. This is the third Court appearance in this case.

The Positions of the Parties

[29] Mr. McGee, the moving party on this motion, is seeking to have the interest rate of the mortgage set aside, on the basis that it is a criminal interest rate and/or that it was an unconscionable transaction. In the alternative, he is seeking to have the additional administrative costs cancelled. He advised me in argument that he was able to pay off the principal and the interest owing within a couple of days.

[30] Mr. McGee also asserts that there should be a permanent injunction restraining CMT from enforcing its notice of sale.

[31] CMT brought a cross motion for summary judgment. CMT’s counsel argued that the Defendant had not pled any genuine issue requiring a trial in its Statement of Defence, and that I should grant summary judgment. CMT’s counsel further argued that I had no jurisdiction to do anything other than allow CMT to exercise its rights under a Power of Sale as the Defendant had not exercised the appropriate relief of paying the monies demanded by CMT into Court and then seeking an assessment.

The Issues and Their Resolution

[32] There is a motion on the part of Mr. McGee and a cross-motion on the part of CMT. Mr. McGee’s motion is not specifically pled as a motion for summary judgment, while CMT’s is. On reviewing Mr. McGee’s Notice of Motion, it is clear that he is asking the Court to make findings about costs, charges and fees under the Mortgages Act and the Rules of Civil Procedure. Resolving either motion necessarily requires me to resolve the entire dispute, so I will resolve the issues that present themselves. I view this as both the most efficient and the most equitable way for the Court to address this dispute.

[33] I pause to note three points on the issue of summary judgment. First, I reject CMT’s claim that the Defendant’s pleadings do not raise any genuine issues. Indeed, as will be seen below, I am granting judgment to the Defendant on several of these issues. Second, Rule 20 of the Rules of Civil Procedure give me discretion to consider and resolve the issues on a summary judgment motion.

[34] Finally, the decision in Hyrnaik v. Mauldin (2014 SCC 7, [2014 S.C.J. No. 7) makes it clear that the summary judgment rules should be interpreted broadly (see paragraph 7), and that there will be no genuine issue requiring a trial when the judge can reach a fair and just determination on the merits of a motion for summary judgment.

[35] In this case, I am of the view that I can reach a fair and just determination on the merits, as I have all of the information necessary to resolve the issues that the parties have presented.

[36] The issues that present themselves are:

a) Was the original mortgage an unconscionable transaction?

b) Was the interest rate charged in this case a criminal interest rate?

c) Are the charges that the mortgagee has included in the discharge

statement permissible at law?

[37] Once these questions are answered, I can then address CMT’s issue of its rights to exercise a power of sale. Based on that analysis, I can then determine what Orders should be issued in this case. I start from the premise, however, that the mortgagee is entitled to have its money back, with interest, and that any remedy that I fashion must take this into account.

(a) An Unconscionable Transaction?

[38] One of the arguments that Mr. McGee made is that the entire interest rate on the mortgage should be set aside as unconscionable because of the circumstances of the transaction. I did not call on CMT’s counsel on this point as this argument is utterly devoid of merit.

[39] Mr. McGee claimed that the whole transaction was unconscionable because CMT had advanced him less money than they had originally promised, and he was forced to accept their terms at the last minute or lose a deposit he had put on another property. This assertion is, at best, disingenuous.

[40] Between the first mortgage and the CMT mortgage, Mr. McGee received more money than he had originally sought. As a result, this was an even higher ratio mortgage than CMT had originally been prepared to accept. As noted in Milani v. Banks ((1997) 1997 1765 (ON CA), 32 O.R. (3d) 557 (C.A.), per McKinlay J.A.), in deciding whether a transaction is subject to the Unconscionable Transactions Relief Act, RSO 1990 c. U.2, the judge must look at the risk and the circumstances of the particular case.

[41] In this case, CMT was prepared to advance the money at the same rate of interest even though the mortgage had more risk for CMT than they originally agreed to. This clearly supports a finding that this is not an unconscionable transaction. I see no reason why this transaction should be set aside, other than Mr. McGee would like to pay a lower interest rate.

[42] As I noted above, Mr. McGee’s argument on this point is utterly devoid of any merit and I dismiss it.

(b) A Criminal Interest Rate?

[43] I was provided with two expert reports on the question of whether the interest rate in this case violated the Criminal Code. Section 347(1) and (2) of the Criminal Code state, in part:

Despite any other Act of Parliament, ever one who enters into an agreement or arrangement to receive interest at a criminal rate, or receives a payment or partial payment of interest at a criminal rate is,

(a) guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or

(b) guilty of an offence punishable on summary conviction and liable to a fine not exceeding $25,000 or to imprisonment for a term not exceeding six months or to both.

“interest” means the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge or expense or in any other form, paid or payable for the advancing of credit under an agreement or arrangement, by or on behalf of the person to whom the credit is or is to be advanced, irrespective of the person to whom any such charges and expenses are or are to be paid or payable, but does not include any repayment of credit advanced or any insurance charge, official fee, overdraft charge, required deposit balance or, in the case of a mortgage transaction, any amount required to be paid on account of property taxes.

[44] Mr. McGee relies on the report of Peter Gorham, who is an actuary. Mr. Gorham calculated that the effective rate of interest as of August 11, 2014 was either 60.40% or 60.06%, depending on whether the fee for filing the Statement of Claim is included in the calculation. The fee for filing the Statement of Claim should not be included as it is not a “cost of borrowing”. Instead, it is a cost that CMT was required to incur because of the fact that it had not been paid back its monies in a timely way.

[45] In his report Mr. Gorham includes $3,892.76 in legal fees as part of the interest that he uses to calculate the interest rate on this mortgage. However, at least some portion of these fees must have been charged on account of legal fees incurred in enforcing the mortgage. Someone had to draft the Statement of Claim. As a result, the interest charge clearly drops below 60%, even if the legal fees for the Statement of Claim were only $500.00, and this section is not engaged in this case either.

[46] I note that the definition of interest in the Criminal Code is quite broad. I should comment briefly on why I am of the view that it is not broad enough to cover legal fees associated with enforcement proceedings. This case provides a good illustration as to why costs should not be included in the calculation of the rate of interest.

[47] This was a mortgage of $64,000.00 that lasted for a year. The parties have each retained expert witnesses to advance their position on the question of the effective interest rate. CMT has also incurred significant legal costs, as it has had three Court appearances and has been required to produce two witnesses for cross-examinations, including one quite lengthy cross-examination.

[48] For a borrower such as Mr. McGee to then argue that the costs of enforcement are part of the borrowing costs and should be included in determining whether the lender has violated the Criminal Code defies logic. A party is entitled to seek to enforce its security and, if successful, is entitled to be indemnified for its costs by the unsuccessful party. It is the borrower who, by their default, has caused the lender to have resort to the Courts. The borrower should not then be entitled to rely on the costs occasioned by their default to claim that the lender is in violation of the Criminal Code and to have the transaction set aside. This is particularly true in a case such as this where the borrower has caused the costs to escalate significantly by raising additional legal issues of dubious merit.

[49] In addition, it is important to note that lenders who advance relatively modest amounts, such as the mortgage here, would quickly run afoul of this provision of the Criminal Code if enforcement costs were included in calculating the interest rate. No matter how broadly the Criminal Code’s definition of interest is, it does not encompass these types of expenses in my view.

[50] Borrowers have protections from unreasonable enforcement costs outside of this section. As noted below, the provisions of the Mortgage Act allow borrowers to pay a reasonable amount into Court and then challenge the lenders charges. The Courts, and not the lender, make the final determination in assessing the reasonableness of costs.

[51] I dismiss Mr. McGee’s argument on this point.

(c) The Fees and Add-Ons

[52] As I noted above, there are a number of different fees and add-ons that CMT has charged Mr. McGee on its mortgage statement. In support of those charges, CMT points to the terms of the agreement. I agree with counsel for CMT that these charges are generally within the terms of the mortgage. However, that does not end the matter.

[53] Section 8 of the Interest Act R.S.C. 1985, C I-15, states:

(1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovable that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.

(2) Nothing in this section has the effect of prohibiting a contract for the payment of interest on arrears of interest or principal at any rate not greater than the rate payable on principal money not in arrears.

[54] In other words, this section prevents a mortgagor from using fees and penalties to increase the rate of interest. As noted in Beauchamp v. Timberland Investments ((1983) 1983 1816 (ON CA), 44 O.R. (2d) 512 (C.A.)) by Goodman J.A (at page 516):

It seems clear to me that s. 8(1) was intended to provide a remedy against provisions in a mortgage which have the effect of, directly, by way of increased interest charges, or, indirectly, by way of penalty, increasing the rate of interest charged on payments in default over that which is chargeable pursuant to the terms in a mortgage on principal money which is not in default. On any fair and liberal construction of s.8(1) I can see no justification for providing relief with respect to penalties imposed on payments in default before maturity and not providing similar relief for payments in default after maturity. If a penalty is not permissible in the first case, it would seem illogical not to provide similar protection to the second case. The default is equally blameworthy in so far as the mortgagor is concerned in each case. Parliament has clearly seen fit by s.8(1) to provide that notwithstanding such default a mortgagee cannot exact a penalty. In my opinion it would require clear and compelling language in the statute to make a distinction between default occurring before maturity and default after maturity.

[55] This brings me to a consideration of the various fees and charges that CMT has attempted to charge Mr. McGee in this case.

[56] First, there is the accumulated interest. It is clearly allowable at the rate set out in the mortgage, and remains payable up to the date at which the mortgage is paid off, either through Mr. McGee putting funds into Court in accordance with this decision or with CMT obtaining a writ of possession and obtaining funds through a power of sale in accordance with this decision.

[57] Then there are the administrative fees for returned items (which are NSF cheques) and collection letters that were written. On the NSF cheques, CMT has charged $450.00 per NSF cheque, including on my calculation, cheques that were not actually cashed. CMT’s position is that these charges are set out in the mortgage, but CMT has not provided any other evidence to show that it actually incurred these charges.

[58] In 2088300 Ontario Ltd. V. 2184592 Ontario Limited (2011 ONSC 2986), Master Graham stated (at paragraph 22):

Essentially, if there is an actual cost to the mortgagee arising out of a dishonoured cheque or a failure to pay, then a non-payment charge can be identified. However, if there is no such cost, then the payment stipulated in the mortgage can only be a penalty as described in s. 8 of the Interest Act, which has the effect of increasing the charge on the arrears beyond the rate of interest payable.

[59] In coming to his conclusion, Master Graham relies on a number of previous decisions of this Court. In addition, Master Graham’s characterization of NSF and other fees has been adopted in many other decisions. See, for example Bhanwadia et a. v. Clarity Financial Corp (2012 ONSC 6393, Price J.) at paragraph 44 and 45, and Chong & Dadd v. Kaur (2013 ONSC 6252, Tzimas J.) at 54. I also adopt this approach.

[60] The NSF fees are not permitted in this case for the reasons stated by Master Graham. There is no evidence before the Court to justify these charges.

[61] Similarly, the administrative fees for the collection letters (which are form letters that could have been written in ten minutes), are disallowed.

[62] This brings me to the “interest bonus” that has been charged. This is a charge for three months extra interest that was levied because Mr. McGee had defaulted. Counsel for CMT argued that this was the same as an interest bonus that was chargeable if the mortgage was paid off early, and it should be allowed to stand. I disagree.

[63] This charge is not the same as an interest bonus, which is a payment that a mortgagee is entitled if the mortgagor pays off the mortgage early. These interest bonuses are designed to compensate the mortgagee for the loss of the opportunity to earn the agreed upon rate of interest for the entire mortgage period. The “interest bonus” in this case is a penalty. As such, it contravenes section 8 of the Interest Act, and must also be disallowed. For a discussion on this point, see Mastercraft Properties Ltd. V. El Ef Investments Inc. ((1993) 1993 8545 (ON CA), 14 O.R. (3d) 519 (C.A.)) and Bhanwadia, supra at 42.

[64] This brings me to the administration fee for the power of sale. This fee surprises me for two reasons. First, the property hasn’t actually been sold, so it is difficult to see how CMT can charge a fee for something that has not yet been done. Second, CMT is also charging legal fees, which presumably cover most (if not all) of the administration costs associated with the power of sale. In light of these facts, I also find that this administration fee violates section 8 of the Interest Act, and it is disallowed.

[65] Finally, there are the fees for the mortgage statement. I accept that it is reasonable to have prepared a mortgage statement, or perhaps two, and that there would be administrative work associated with this exercise. As a result, I am prepared to allow this charge for a maximum of two mortgage statements.

[66] Finally, there are the legal fees. As noted in Chong & Dadd, supra at paragraph 40:

The general principle is that that a mortagee is entitled to be indemnified for the costs that are incurred to respond to a default by a mortgagee. But it is also accepted that the costs claimed must be reasonably and properly incurred. A mortgagee must be able to ascertain, assert and finally defend its right to the legal fees in connection with the mortgage debt. See 1427814 Ontario Ltd. v. 3697584 Canada Inc., 2004 16681 (ON SC) and Gomba Holdings (UK) Ltd and others v. Minories Finance Ltd and others (No2), [1992] 4 ALL E.R. 588 (Eng. C.A.).

[67] In this case, the Plaintiff is not simply entitled to collect its legal fees by saying to the Defendant here is our bill, you are obligated to pay it. Instead, legal fees can be set in one of a number of ways, including an assessment flowing out of section 43 of the Mortgages Act. Given that I have heard this motion, and am going to dispose of all of the issues that arise in this case, it is appropriate for me to fix the legal costs. It is also appropriate for me to require Mr. McGee to pay monies into Court to cover a significant portion of what I might possibly fix as costs, in the event that I find that the Plaintiff is entitled to costs.

[68] Deferring the costs to an assessment would be contrary to the spirit of Hyrniak, and would be a waste of judicial resources as well as the resources of the parties. It would also take some months to arrange for the assessment, whereas I can resolve the costs matter within a couple of weeks.

Dispositon

[69] There is one last issue that must be addressed before I set out the Order in this case. It is CMT’s position that I do not have the jurisdiction to interfere in its exercise of a power of sale.

[70] As I noted in questioning of counsel for CMT, I am concerned with CMT’s position that the Defendant would have to pay all of the charges sought by CMT into Court and then seek an assessment. In support of this proposition, counsel pointed me to section 43 of the Mortgages Act to support this proposition. That section states:

(1) Payment made in terms of notice

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) Payment or tender of costs

If there is a dispute as to the costs payable by the person by or on whose behalf such maybe 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.

(3) Compliance with demand

Where the time limited by the demand or notice requiring payment expires before the assessment of the costs has been completed, the amount due apart from the costs claimed may be pad, and payment of the amount allowed for costs within ten days after the issue of a certificate of assessment shall be deemed a compliance with the demand or notice. R.S.O. 1990, c. M.40, s. 43 (1-3).

(4) Costs, taxation

A mortgagee’s costs of an incidental to the exercise of a power of sale, whether under this Part or otherwise, may, without an order, be assessed by an assessment officer at the instance of any person interested. R.S.O. 1990, c. M.40, s. 43 (4); 1993, c 27, Sched.

(5) Discretion as to costs

The costs of the assessment shall be in the discretion of the assessment officer. R.S.O. 1990, c. M40, s. 43 (5).

[71] Counsel also relied on the seminal decision of Arnold v. Bronstein et al. (1970 245 (ON SC), [1971] 1 O.R. 467). In that case, Lacourciere J. (as he then was) stated:

It appears that Courts have refused to interfere with the proper exercise of a power of sale in all but the most extreme and exceptional cases. In fact, the learned author of Kerr on Injunctions, 5th ed., p. 538, in a chapter dealing with injunctions between mortgagor and mortgagee, goes so far as to assert that:

The Court has no jurisdiction to restrain a mortgagee from selling under a power of sale, provided he keep within the terms of the power and no case of fraud be made out.

[72] However, Lacourciere J. went on to note that this general rule was subject to the statutory relief contained in the Mortgages Act. This brings me to section 23, which states:

Relief after action commenced

(1) Despite any agreement to the contrary, where default has occurred in making any payment of principal or interest due under a mortgage or in the observance of any covenant in a mortgage and under the terms of the mortgage, by reason of such default, the whole principal and interest secured thereby has become due and payable, in an action for enforcement of the rights of the mortgagee or of any person claiming through or under the mortgagee, the mortgagor, upon payment into court of the sum of $100 to the credit of the action as security for costs, may apply to the court and, conditional upon performance of such convenant or upon payment of the money due under the mortgage, exclusive of the money not payable by reason merely of lapse of time, and upon payment of the costs of the action, the court,

(a) shall dismiss the action if judgment has not been recovered; or

(b) may stay proceedings in the action, if judgment has been recovered and if no sale or recovery of possession of the land or final foreclosure of the equity of redemption has taken place.

Idem

(2) Despite clause (1) (b), where judgment has been recovered and recovery of possession of the land has taken place, the court may stay proceedings in the action upon the application of a person added as a party in the master’s office, made under subsection (1) within ten days after service of notice of the judgment has been made upon the person.

Subsequent default

(3) Where proceedings have been stayed under clause (1) (b) or under subsection (2) and default again occurs under the mortgage, the court upon application may remove the stay. R.S.O. 1990, c. M.40, s. 23.

[73] While I appreciate CMT’s desire to move promptly with this matter, they are seeking to have Mr. McGee pay amounts into Court that they are clearly not entitled to. Given this fact, and given the powers that I have under Rule 20, it is open to me to fashion an alternative remedy that takes into account the wording of both of the sections that I have produced above.

[74] Section 43 is designed to ensure that mortgagees can recover the legitimate costs of enforcing their security. This, when combined with the ratio in Arnold, supra, gives mortgagees the right to enforce their security without significant interference from the Courts.

[75] However, a mortgagee cannot simply say to the mortgagor pay us what we have put in our demand or notice. Section 42(2) allows a Judge of the Superior Court to require proof that it would be “reasonable and equitable” to permit the proposed action.

[76] I take that section, and the general principles that I have gleaned from the cases provided, to mean that I have the jurisdiction to consider what is equitable in this case.

[77] In the end, neither party comes to Court with completely clean hands so awarding either party all of what they are seeking would be inequitable. Mr. McGee does not have clean hands because he has advanced meritless claims, and failed to pay either the interest or the principal into Court in that time period. CMT does not have clean hands because they have sought to enforce provisions that are clearly contrary to section 8 of the Interest Act. On balance, Mr. McGee’s conduct is the more concerning to the Court.

[78] However, this matter must be resolved in way that is in accordance with the terms of the mortgage, the principles of equity and the Court’s need to resolve disputes in an efficient way. In particular, I am gravely concerned about Mr. McGee’s delay in providing CMT with either its principal or its interest. He has made no payments for nearly a year, and I heard no good reason why this was so.

[79] Taking all of that into consideration, I order the following:

a) The Defendant will be entitled to a discharge of the Plaintiff’s mortgage under section 23 of the Mortgages Act if he pays the sum of $110,000.00 into Court within seven (7) days of the issuance of these reasons. This amount is very high because of the significant legal costs expended in this matter and the fact that interest has not been paid in ten months. The Plaintiff is entitled to some protection in the event that I order costs against the Defendant.

b) If Mr. McGee does not pay the amount in paragraph (a) into Court within seven (7) days, then CMT will be entitled to summary judgment in the following terms:

i) Judgment will issue for CMT for the amounts of the mortgage, as well as the interest owing to the date of judgment.

ii) Judgment will also issue for the costs of issuing two mortgage statements.

iii) The judgment will bear interest at the same rate of interest as was set out in the mortgage.

iv) CMT shall be entitled to obtain and enforce a writ of possession in the usual course, except that I retain jurisdiction to fix any additional costs incurred by CMT in the obtaining and enforcement of its writ and I also retain jurisdiction to address any other issue that may arise in CMT’s attempts to realize on its security.

v) If moving for default judgment, CMT will be entitled to take any and all steps without any consents being necessary from Mr. McGee, except with respect to the costs of this motion.

c) In order to assist in resolving this matter in an expeditious way, CMT is directed, again within seven days of the release of these reasons, to provide its calculation of the interest to date, and it is to provide this calculation before it shall be entitled to judgment. Mr. McGee will have seven days in which to challenge the calculation of interest as set out by CMT. I will make any and all determinations as necessary on this point. Those determinations will be consistent with these reasons.

d) There will be no extensions of the time period for Mr. McGee to pay the money into Court without CMT’s consent unless there are extraordinary circumstances. An inability to obtain the funds is not an extraordinary circumstance. I make this Order to ensure that there is no further delay on the part of Mr. McGee in paying the amounts he owes.

e) Once it has been determined whether Mr. McGee has paid the monies into Court, I will then fix the costs of this matter. The costs submissions should address the question of whether Mr. McGee paid the money into Court or not, as it is a factor that the Court can consider in fixing costs.

f) CMT will provide its costs submissions first, twenty-one days from the date that these reasons are released. Mr. McGee will have fourteen days from the day when CMT provides its submissions to file his responding submissions.

g) There will be no Reply submissions on costs without leave of the Court.

LeMay J.

Released: June 3, 2015

CITATION: C.M.T. Financial Corporation v. David McGee, 2015 ONSC 3595

COURT FILE NO.: 4212/14

DATE: 2015 06 03

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

C.M.T. FINANCIAL CORPORATION

Respondent

– and –

DAVID ALLEN MCGEE

Applicant

REASONS FOR JUDGMENT

LeMay J.

Released: June 3, 2015