COURT FILE NO.: CV-14-3363-00
DATE: 2015 12 17
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Claire SMIT
Plaintiff
Paul Mand, Counsel for the Plaintiff
- and -
Hazel May PLUIM and
John PLUIM
Defendants
James Clark, Counsel for the Defendants
HEARD: December 15, 2015
REASONS FOR JUDGMENT
Woollcombe J.
A. Introduction
[1] The plaintiff, Claire Smit, brings a motion for summary judgment against the defendants Hazel May Pluim and John Pluim in the amount of $127,288.04. The defendants acknowledged their debt to the plaintiff and that summary judgment should be granted, but argue that on equitable grounds and pursuant to the Unconscionable Transactions Relief Act, R.S.O. 1990, c. U.2, their debt should be reduced. For the reasons that follow, I grant judgment in favour of the plaintiff in the amount of $127,288.04.
B. Background
i) The Mortgage in Favour of Lexxco
[2] By way of background, in June 2006, the defendants granted a mortgage of $70,000 over their Stoney Creek property in favour of Lexxco Mortgage Corporation. Mr. Pluim explains that they were unable to obtain a mortgage from a “regular” lender.
[3] The mortgage had a one-year term and was due on June 28, 2007. It had an interest rate of 13%, and monthly payments were $758.33. It appears that the defendants renewed the mortgage with Lexxco three times after the initial mortgage matured. On each occasion, the mortgage was renewed on the same terms. The defendants made all payments on their mortgage regularly. Their last payment was made on May 26, 2011.
[4] In his affidavit, Mr. Pluim explains that an individual named Andre Lewis was their mortgage broker. He was President of Lexxco and the only person with whom they dealt in relation to the mortgage. Mr. Pluim says that the mortgage was to expire in June 2011 and that prior to that, he began to negotiate a new mortgage with Mr. Lewis. He says that Mr. Lewis stalled and eventually became impossible to reach by telephone.
[5] In November 2011, the Pluims learned that Mr. Lewis had been arrested and charged with 25 counts of fraud over $25,000.
[6] There is no evidence before me of the Pluims making any payments or taking any steps to have their mortgage discharged after it came due in June 2011. At that point, the amount owing was $70,000.00. Mr. Pluim says, by way of explanation, that there was no one for him to talk to about the mortgage until May 2014. Accordingly, it is his position that the delay in enforcing the mortgage until May 2014 was not his fault.
ii) The Seizure of the Lexxco Charge over the Pluim’s Property by the Plaintiff
[7] In 2009 and 2010, the plaintiff, Claire Smit, made several loans to Lexxco for the purpose of investing funds in mortgages. In April 2013, Lexxco defaulted on these loans. Ms. Smit commenced an action and, on June 19, 2013, she obtained judgment against Lexxco in the amount of $236,152.83 plus costs.
[8] It appears that Lexxco was carrying on its operations by way of multiple corporations. A court order made on April 3, 2014 provided that all of the Lexxco Corporations were one and the same and that the judgment of June 19, 2013 could be enforced against all Lexxco corporations.
[9] On April 3, 2014, Ms. Smit directed the Sherriff of the Region of Hamilton-Wentworth to seize the Lexxco charge over the Pluim’s property. The Sherriff seized the charge and registered it against the Pluim’s property. Ms. Smit then made a demand under the seized charge to the Pluims and they did not respond.
[10] On June 6, 2014, Ms. Smit had a notice of sale under the seized charge issued. This document was provided to the Pluims. By this point, the amount owing by the Pluims included the principal of $70,000.00, interest of $34,289.74, and legal fees of $2,000.00.
[11] On July 23, 2014, Ms. Smit commenced an action to enforce the seized charge. The statement of claim pleads that the Pluims owed $105,968.03 as of that date. The Pluims have filed a statement of defence but have not argued before me that there is any genuine issue requiring a trial with respect to the plaintiff’s claim.
C. Positions of the Parties
[12] On this motion, the Pluims do not take issue with the validity or seizure of the charge by Ms. Smit. Nor do they dispute that they owed $70,000 to Lexxco as of June 2011. They accept that there are no issues requiring a trial and that summary judgment ought to be granted. As I understand their position, it is that I should grant to them some relief of the accrued interest charges under s. 2 of the Unconscionable Transactions Relief Act.
[13] The Pluims argue that the accrued interest arrears are not their fault. I am reminded of the fact that Mr. Pluim is 66 years old and has significant health issues. The Pluims say that they made payments regularly until June 2011 and that after that they had no one to pay. They argue that it is harsh and unconscionable for interest to continue to accrue when they had no option of paying anyone once Mr. Andre effectively disappeared from Lexxco. They say that the lender bears some responsibility for their arrears. Further it is the Pluims’ position that 13% is too high a rate of interest, particularly when it compounded, and that Ms. Smit had no risk. They ask me to reduce the interest that they owe.
[14] Ms. Smit claims that the amount due and payable under the seized charge as of December 15, 2015 is $127.288.04. Ms. Smit says that the Pluims chose to enter into the mortgage that they did and that they sought out Lexxco to lend them money when they could not obtain a loan elsewhere. The terms of the loan from Lexxco, including the fact that the interest rate was 13%, were well known to them, and they appear to have had legal advice. They made regular payments on the loan between 2006 and 2011 and they renewed their mortgage annually on the same terms. Ms. Smit says that the mortgage was not harsh or unconscionable.
[15] In terms of the effect of non-payment of the loan since June 2011, Ms. Smit says that the Pluims could and should have applied to the court to pay the amount owing under the mortgage into court, and then to have their mortgage discharged. She says that it was part of the Set of Standard Charge Terms that if the borrowers defaulted on payments, interest owing would be compounded at the rate set out in the charge (in this case 13%).
D. Applicable Legal Principals
[16] The Unconscionable Transactions Relief Act R.S.O. 1990, c. U.2 (“UTRA”) gives the court fairly broad powers relating to annulment or reformation of a contract in circumstances in which the court finds that, having regard to the risk and all of the circumstances, the cost of the loan is excessive and that the transaction is harsh and excessive.
[17] The purpose of this UTRA is to relieve a party to a contract from his obligation where the contract was made absent his informed consent or in circumstances of unequal bargaining power. The legislation exists to protect those in need of money, but not skilled in borrowing it and who are thereby in the hands of lenders who seek to take advantage of them. The legislation affords an ability to give relief where it is “obvious that an unfair advantage has been taken of the borrower (Milani v. Banks (1997), 145 D.L.R. (4th) 55 at pp. 61-62; (1997), 32 O.R (3d) 557 (C.A.)).
[18] It is important to recognize the words of Justice Judson in Ontario (Attorney General) v. Barfried Enterprises Ltd., [1963] S.C.R. 570, 42 D.L.R. (2d) 137 who observed at para. 12 that:
The wording of the statute indicates that it is not the rate or amount of interest which is the concern of the legislation but whether the transaction as a whole is one which would be proper to maintain as having been freely consented to by the debtor…
[19] In his decision in Ekstein v. Jones, [2005] O.J. No. 3497 (S.C.J.), Justice Ferguson reviewed that the prerequisites of s. 2 of the UTRA are that (1) the cost of the loan is excessive and (2) that the transaction is harsh and unconscionable. In assessing whether these requirements have been established, both the risk in respect of the money lent and all of the circumstances must be considered.
[20] Justice Ferguson went on at paras. 48-52 to find that there are two ways to establish that the loan is excessive: by showing that the cost constitutes a criminal rate of interest, or by showing that the cost of the loan is excessive having regard to the risk and all of the circumstances.
[21] In assessing whether a loan is “harsh and unconscionable”, Justice Ferguson concluded, at paras. 53-60, that it must be established that either the terms are very unfair or that the consideration is grossly inadequate, or that there was an inequality of bargaining power between the parties and that one of the parties took advantage of this.
E. Analysis
[22] It is clear that 13% interest is well below the 60% criminal rate of interest. Accordingly, I begin my analysis of whether relief should be granted under s. 2 of the UTRA by considering whether the cost of the loan is excessive having regard to the risk and all of the circumstances.
[23] Lexxco made the initial loan to the Pluims after they sought out Lexxco, a private mortgage company. The Pluims had a Canada Revenue Agency lien on their home. They were unable to obtain a loan from a commercial lender. They were desperate to borrow money to finance their home. The Pluims entered into a one year loan, a relatively short period. They appear to have been in a position of some urgency. In these circumstances, it seems to me that Lexxco took on some obvious risk in making this loan (Milani at p. 62). It is the risk to Lexxco that led to the higher rate of interest.
[24] The Pluims do not argue that the interest rate and cost of the loan were excessive having regard to the risk and all of the circumstances at the point at which they entered into the first mortgage agreement in 2006. Rather, they argue that it only became excessive when, after the default, the interest continued to accrue on a compounded basis. They say that at that point, the circumstances were such that they did not have anyone to whom they could continue to make payments, and so the loan became excessive and thus unconscionable.
[25] I am not persuaded by the Pluims’ submissions.
[26] First, I do not accept that the Pluims were without a remedy because there was no one to whom they could make payments. Section 12(3) of the Mortgages Act, R.S.O. 1990, c. M.40 provides the following for circumstances in which a mortgagee cannot be found:
12(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.
[27] The Pluims chose not to avail themselves of the remedy that was available to them under the Mortgages Act. While they may have been unaware that this option was available (although there is no evidence before me to this effect), it is my view that it was incumbent upon them to take steps to ascertain what could be done when they were unable to contact Mr. Lewis. They did nothing.
[28] Second, I observe that by 2011, the Pluims were experienced borrowers. They had managed multiple mortgages over several years. They knew that they had a debt owing to Lexxco. They were aware of the terms of their mortgage, which provided that in default, compounding interest would continue to accrue. They chose to do nothing beyond trying to contact Mr. Lewis and, when they knew that he had been arrested in the fall of 2011, to do absolutely nothing further. They knew that they had a growing debt and yet seem to have decided to ignore it. There is no evidence before me that Ms. Pluim was incapable of taking steps to deal with the debt. Indeed, there is no evidence that because of his illness, Mr. Pluim was unable to take any steps to deal with the debt. In my opinion, the Pluims’ decision to do nothing is what has prolonged the proceedings and allowed the debt to continue to increase. Their inaction in these circumstances cannot, in my view, transform what they agree was fair loan into an unconscionable one, just because the debt has grown as it has.
[29] In reaching the conclusion that I do, I am well aware that Mr. Pluim is now 66 years old and retired. He suffers from a rare chronic autoimmune disease. It was this illness that prevented him from working in 2006 and meant that he needed to approach a private lender to borrow money for his home. I am sympathetic to the unfortunate position that he and his wife are now in. However, I cannot conclude that Mr. Pluim’s illness is an appropriate reason to find the transaction harsh and excessive.
[30] On the evidence before me, the Pluims entered into the agreement that they did with Lexxco freely. It appears from the documents before me that counsel assisted them. At a minimum, the documents make clear that the Pluims were encouraged to seek legal advice before signing the mortgage documents. They chose to renew the mortgage on the same terms several times. They knew that there would be serious consequences of defaulting on the mortgage. This is not a situation in which there was any inequality in bargaining power or in which one of the parties was taken advantage of. Had they ever been of the view that their situation was unfair, and that they could obtain a better interest rate or better terms elsewhere, surely they would have chosen to go elsewhere, rather than renewing with Lexxco.
[31] Further, in my view, the fact that the rate of interest has been 13%, which has been compounding on the overdue amount since the default in June 2011, does not make this an arrangement that has become unconscionable. I recognize that my obligation is look at the transaction as a whole to determine whether the Pluims properly and fairly consented to it. I find that they did, and do not think it is unfair to give effect to terms that they knowingly agreed to.
F. Conclusion
[32] The plaintiff’s motion is granted and judgment is granted in favour of the plaintiff in the amount of $127,288.04.
[33] The plaintiff may take immediate possession of the property municipally known as 47 Loring Crescent, Stoney Creek, Ontario, L8E 3X2 and legally described as PCL 219-1, SEC M205; LT 219 PL M205; Stoney Creek City of Hamilton in the City of Stoney Creek, PIN 17343-0147, registered in Land Registry Office for the Land Registry Division of Wentworth.
[34] As the successful party, the plaintiff is entitled to costs. She may make written submissions of not more than three pages within twenty-one days of the release of this judgment. The defendants may make written submissions in response, of not more than three pages, to be filed within fourteen days of receipt of the plaintiff’s submissions. There will be no reply without leave of the court.
Woollcombe J.
Date: December 17, 2015
COURT FILE NO.: CV-14-3363-00
DATE: 2015 12 17
SUPERIOR COURT OF JUSTICE - ONTARIO
BETWEEN:
Claire SMIT, Plaintiff
AND:
Hazel May PLUIM and
John PLUIM, Defendants
REASONS FOR JUDGMENT
WOOLLCOMBE J.
DATE: December 17, 2015