McFlow Capital Corp. v. Carter, 2016 ONSC 2325

CITATION: McFlow Capital Corp. v. Carter, 2016 ONSC 2325

COURT FILE NO.: CV-09-381151

DATE: 20160422

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

MCFLOW CAPITAL CORP.

Plaintiff

– and –

LEON B. CARTER AND STEWART TITLE GUARANTY COMPANY

Defendants

Hilary Book and Nadia Chiesa, for the Plaintiff

R. Leigh Youd, for the Defendants

HEARD: March 21 - March 24, 2016

LEDERER J.:

1The plaintiff is a mortgage lender. On July 15, 2008, it loaned $385,000 to Loresa Veronica Lazar. The loan was to bear interest at the rate of 6.75%. It was to be secured by a first mortgage over 42 Allview Crescent, in Toronto. There were three pre-existing charges registered against the property. The first and the second were to be paid out using the funds being loaned by the plaintiff. As a condition of the loan, the third charge was to be postponed in favour of the mortgage being given to the plaintiff.

2The solicitor acting for the plaintiff received a written undertaken from the counsel acting for Loresa Veronica Lazar which, in part, confirmed his personal undertaking to obtain the required postponement. On this basis, the transaction closed. The funds were advanced and the mortgage was registered. On August 11, 2008, the solicitor for the plaintiff sent a reporting letter certifying that the plaintiff had a good and marketable first mortgage.

3The mortgage went into default. On October 15, 2008, the solicitor for the plaintiff was instructed to commence a Power of Sale action against the mortgagor. At that time, the plaintiff understood that it was the holder of a first mortgage. On January 9, 2009, the plaintiff obtained judgment granting it, among other things, possession of the property. On March 9, 2009, the sheriff executed a writ of possession and delivered possession to the plaintiff. On March 13, 2009, the plaintiff issued a Notice of Sale Under Mortgage.

4Around this time, it became apparent that the plaintiff was not, in fact, a first mortgagee. The first two mortgages were discharged but no postponement of the third mortgage had been registered. On April 3, 2009, counsel acting for the plaintiff wrote to the defendant, Stewart Title Guarantee Limited, which had insured the title to the property. The letter was sent to notify Stewart Title of the potential loss.

5By April 15, 2009, Stewart Title had completed its investigation and wrote to the plaintiff confirming that the loss it suffered would be covered under the terms of its policy. In the same letter, Stewart Title advised the plaintiff that it had retained a lawyer, Chris Papadopoulos, to act on behalf of the plaintiff, as its insured. Steward Title understood that the plaintiff had hired a law firm on its own. It sought to make clear that it was unprepared to pay for that lawyer:

Stewart Title will be responsible for legal fees only if we retain the lawyer for professional services in connection with the resolution of the claim.

6Chris Papadopolous contacted the lawyer then acting for the mortgagor. Why had they not begun an application to compel the holder of the mortgage, that was supposed to have been postponed, to do so? A proceeding was commenced but was never brought before any court. At about the same time, counsel for the plaintiff was contacted by a solicitor representing a third party who ostensibly wished to assist the mortgagee in bringing the mortgage into good standing. This required some attention but, in the end, nothing substantive materialized from it. In the meantime, the plaintiff continued in its efforts to sell the property. It investigated similar sales in the area and posted the property for sale on a number of appropriate web sites. It received inquiries. It negotiated a price with a potential buyer. In the meantime, the mortgage that was supposed to have been but was not postponed had gone into default. The plaintiff suggested that the buyer negotiate and complete the sale with that mortgagee. On June 16, 2009, the plaintiff commenced this action suing its lawyer (the defendant, Leon B. Carter) and Stewart Title for a variety of remedies, each of which would result in the resolution of the dispute.

7The sale was completed. As a result, the pre-existing mortgage under which the property had been sold was paid out. There were funds remaining to be paid to the plaintiff on account of the debt it was owed. There was not enough to pay off the full amount. As calculated by Stewart Title, $203,855.61 remained to be paid under the insurance policy held by the plaintiff.

8The plaintiff was unprepared to accept this amount. In its view, more remained owing. Pursuant to the policy, there were costs associated with keeping the property up to date and free of charges (for example, taxes, heating, upkeep and repairs) as well as costs, charges and legal fees associated with taking and recovering it. These are referred to in the Set of Standard Charge Terms (Land Registration Reform Act), at paragraphs 8 and 17, which were included as part of the insurance policy. The costs properly incurred under these provisions may be added to the principal owing under the debt. In a letter, dated December 22, 2009, counsel for the plaintiff indicated that the total amount that remained owing after the sale was $264,172.64. Thus, the amount in dispute was ($264,172.64 minus $203,855.61) $55,316.97. By the end of the evidence, when counsel began their final submissions, this had been reduced to approximately $40,000.

9Of the approximately $40,000, approximately $10,000 were expenses incurred in relation to maintaining the property and selling it. This was made up of the following amounts:

Insurance: $1,335.96 + $454.68 =

$1,790.64

Locksmith:

$292.95

Sales (Internet Postings):

$300.00

Signs:

$77.84

General Repair:

$523.69

Trips to Property:

$851.58

Repair and Maintenance:

$126.00

Sale:

$5,302.50

ACTUAL TOTAL:

$9,265.20

10In the end, counsel for Stewart Title questioned only part of one invoice. This was the last of the listed invoices. This is the one showing a cost of $5,302.50. As a result of an error in addition, this was less than the actual face value of the invoice. It is the amount that was paid. There were three amounts that Stewart Title questioned. They concerned the cost of the sale: dealing with 53 inquiries ($2,782.50), dealing with 4 offers and counter-offers ($1,000) and negotiating the final sales agreement ($1,250). This was work that, for the most part, was undertaken by one person who was a principal of the plaintiff and associated companies under whose auspices some of this work had been done. He was not employed by any of them and was not paid a salary. The values used to calculate these amounts were arbitrary numbers that represented the plaintiff’s view of what would be appropriate in the circumstances. Counsel for Stewart Title submitted these amounts were too high. He suggested that these three amounts, which totalled $5,032.50, be reduced to $2,000 (which is to say, reduced by $3,072.50). This would reduce the value of the invoice as a whole to ($5,302.50 minus $3,032.50) $2,270. The total amount of this part of the claim would be reduced to ($9,265.20 minus $3,032.50) $6,232.70.

11The remaining $30,000 represents some of the legal fees charged by the lawyers retained directly by the plaintiff. At the outset, counsel for Stewart Title proposed that there should be no legal fees paid on account of the counsel retained independently by the plaintiff. From April 15, 2009 on, there was no need for the plaintiff to have counsel separate from the one hired by Stewart Title. As of April 15, 2009, Stewart Title had acknowledged that it would be required to pay the losses of the plaintiff that arose from the failure to obtain the postponement on which the loan was conditioned. Moreover, Steward Title had retained Chris Popadopoulos to do what could be done to see if the postponement could still be obtained. The principal of the plaintiff testified that, in part, the retaining of independent counsel arose because Chris Popadopolous was not doing anything. This was an error. No proceeding could be commenced by the plaintiff to compel the postponement. There was no privity of contract between the plaintiff and the holder of what was then the first mortgage. It was the mortgagor (the owner of the property) who had a legal relationship with the first mortgagee and, accordingly, could seek the needed order. There is evidence that it was Chris Popadopoulos who suggested it would be appropriate for the owner to commence such a proceeding. This was done although the matter never proceeded to a hearing (see para. [6], above).

12Nonetheless, there was reason for separate counsel to be retained. The plaintiff was still active and required assistance with the sale of the land. The witness called on behalf of Stewart Title, a lawyer employed by the company, acknowledged that there were matters for which the plaintiff should be compensated beyond the sale. He agreed that any effort to have the mortgage re-financed or put in good standing would also be appropriate for payment.

13Counsel for the plaintiff submitted that the entire $30,000 should be paid. She did not support this by reviewing each and every docket entry but, rather, listed the various issues dealt with by counsel and proposed that they were all valid and should be added to the principle and covered by the insurance. Counsel, subsequent to her submissions, did agree that there were charges that did not reflect on enforcement of the mortgage. Accordingly, the claim of $30,000 was reduced to $26,816.23. Counsel for Stewart Title, in his final submissions, suggested this number should be reduced to $7,500, but with a proper exercise of discretion, could go to $10,000.

14Both counsel agree this is not a matter of the trial judge dissecting and evaluating each of the individual dockets and charges. Ultimately, there is discretion to be applied in determining the correct amount for legal fees. In the end, Stewart Title agreed there were matters dealt with by the lawyers that should be recognized and paid for. It would not be easy to draw a precise line between what is or is not part of the sale or does not arise under the mortgage. On the other hand, the insurer should not have to pay twice when it has hired a lawyer to enforce the rights of the insured.

15In respect of the invoices paid, I agree with counsel for Stewart Title. It is open to question whether a principal, who is not otherwise to be paid for the time he or she spends on company business, should be allowed to charge for his or her time when the payer is an insurance company paying under a policy. The principal is not saved from this concern and limitation when he or she does the work under the mantle of another company in which he or she has an interest:

…When the mortgagee takes possession the mortgagee becomes quasi-owner of the mortgaged property and no allowance is made to the mortgagee directly or indirectly for personal trouble… Where a mortgagee seeks to charge the mortgaged property for work done or services performed by a company or partnership in which the mortgagee is interested, or by some other connection or relative, the practice is to require strict proof of the necessity for and cost of the items. Where it can be shown that the mortgagee benefits personally by such expenditure, the court will not allow the cost of such charges, or at least not to the extent to which the mortgagee personally benefits thereby...

(Marriot and Dunn: Practice in Mortgage Remedies in Ontario, Fifth Edition © 1995 Thomson Reuters Canada Limited, at page 10-24.1, para. 10.13 (entitled: “No Allowance for Personal Trouble”) citing first: Fisher and Lightwood’s Law of Mortgage, 10^th^ ed. (1988) p. 373 and second: Mathison v. Clarke (1854), 3 Drew. 3 (Eng.))

16In this case, there is no “strict proof” of either the necessity for or the cost of the items. There was no confirmation of the 53 inquiries and nothing to demonstrate the necessity of the time spent on the inquiries, the offers or the negotiation of the sale. The costs were just numbers that seemed appropriate.

17I accept as reasonable the position taken on behalf of Stewart Title. On the claim for $9,265.20 on the various invoices, I award $6,232.70.

18As for the claim of $30,000 (reduced to $26,816.23), I award $17,000. In Resolute Land Bank v. Sieber 2011 ONSC 46, 197 A.C.W.S. (3d) 252, the court dealt with the application of paragraph 8 of the “Standard Charge Terms”. This is the same para. 8 as appears in the Set of Standard Charge Terms that are part of the contract of insurance in this case. The decision demonstrates the discretion to which both counsel referred:

The inclusion of all costs, charges, fees and expenses incurred by the mortgagee does not give a mortgagee a complete free hand to include all costs, charges, fees and expenses. The costs, charges, fees and expenses must be with respect to the enforcement of the mortgage, must be reasonable in the context of commercially reasonable steps that were or needed to be taken and the quantum must be reasonable. If the amount sought to be included meets all these criteria, then prima facie such fees should be recovered on a full recovery basis as required in the Mortgage.

(Resolute Land Bank v. Sieber, supra, at para. 57)

19The insurer moved quickly. It told the plaintiff it was insured. There may still be cause for some fees to be charged, but the plaintiff cannot ignore the commitment to coverage and the fact that its losses were covered. Put differently, the criteria referred to in to the quotation are not met. Given that coverage was conceded, not all that was done was necessary. Neither counsel reviewed the individual elements of what was done to demonstrate whether each was or was not necessary. It is difficult for the court to separate and analyze each of the acts undertaken. It may be that the plaintiff wanted to retain counsel on its own and did so despite the fact that coverage was assured and the insurer had retained counsel to minimize any loss. The insured is free to do this, but when counsel becomes as directly and completely involved as appears to be the case here, it cannot be that the insurer has to pay the second lawyer for all the time that was spent. Some of what was done was not necessary and not “commercially reasonable”. It went beyond the sale of the property and the consideration of the supposed effort of a third party to put the mortgage in good standing. Part of these costs related to time spent proving the claim of the insured and confirming its right to coverage. Some of those charges were dated subsequent to April 15, 2009, when coverage was conceded. Some of the charges related to obtaining the postponement. This is what Chris Popadopoulos was retained to do and still others related to work on the sale after the agreement to sell had been made.

20Finally, there is the question of interest. The issue is at what rate and when it compounds. The parties accept that the insurance contract calls for 6.75 % per annum. The first page of the Charge indicates that interest is to be calculated “semi-annually, not in advance.” On the other hand, the “Additional Provisions” indicate that “Interest is calculated, compounded and payable Monthly”. The plaintiff relies on the latter expression. The interest is to be compounded monthly. This is inconsistent with the proposition that it be calculated semi-annually, but to the extent that there are two provisions which are uncertain and ambiguous insurance contracts are to be read to the benefit of the insured. On this basis, interest would be calculated monthly.

21I do not agree that these words are ambiguous. It depends how you read the word “and” in the phrase “...calculated, compounded and payable monthly”. If the word “and” is read conjunctively, it joins the words “compound” and “payable”. The three words “calculated,” “compounded” and “payable” modify the word “monthly”. But if the word “and” is read disjunctively, it separates “compounded” and “payable”. Each of the three words stands apart, one from the others. Interest is calculated, but to find out how or when, it is necessary to go back to the first page. The calculation of interest would be left to the initial description. It would happen “semi-annually”. Only “payable” describes what happens “monthly”. In the absence of any evidence explaining the context in which the charge was agreed to or operated, we must rely on the words. The words should be read in a manner that renders the contract internally consistent. There is nothing inherently wrong with reading the word “and” disjunctively. It means that the two expressions concerning when interest is to be calculated takes place are not ambiguous but work together in a consistent manner. Payments are a combination of both interest and principle. They are to be made monthly. Where there are arrears, the interest that gathers is to compound semi-annually, that would be part of the calculation of interest in such circumstances.

22I find the interest is to be calculated and compounded semi-annually.

23No submissions were made as to costs. If the parties are unable to agree, I will consider written submissions on the following terms:

1. From both sides, no later than 15 days after the release of these reasons. Such submissions are to be no more than 4 pages, double-spaced, not including any Bill of Costs, Costs Outline or case law that may be referred to.

2. From both sides, if necessary, reply to the submissions of the other side, such submissions to be no longer than 2 pages, double-spaced.