COURT FILE NO.: CV-13-4895-00 DATE: 2016-04-25
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
KULDIP JHAWER Plaintiff (Defendant by Counterclaim)
Paul H. Mand, for the plaintiff (defendants by counterclaim)
- and -
HARINDER SINGH and RAJWINDER AUJLA Defendants (Plaintiffs by Counterclaim)
Daria Krysik, for the defendants (plaintiffs by counterclaim)
HEARD: January 20, 2016, at Brampton, Ontario
Price J.
Reasons For Order
"There are two sure ways to lose a friend, one is to borrow, the other to lend.” Patrick Rothfuss, The Name of the Wind
Nature of Motion
[1] The plaintiff, Kuldip Jhawer, brought this action against the defendants, Harinder Singh and his spouse, Rajwinder Aujla, to enforce a mortgage he says they gave him to secure a promissory note. He claims they had given him the promissory note to replace two cheques which they had given him earlier to repay a $130,000 loan, which loan their bank would not process because there were insufficient funds in Mr. Singh’s account to cover them.
[2] In their Statement of Defence, Mr. Singh and Ms. Aujla deny the validity of the mortgage on the ground that the money was never advanced. Additionally, they counter-claim for a set-off in the following amounts which they claim Mr. Jhawer owes Mr. Singh:
a) $85,000, for Mr. Singh’s share of a property at 385 Prince of Wales, unit 3602, Mississauga, which Mr. Jhawer sold to his daughter;
b) $25,000 for the purchase of a gas station property at 110 Talbot Street W. in Aylmer, Ontario;
c) $4,000 for an appraisal and legal fees on the sale of 110 Talbot Street W., Aylmer.
[3] Mr. Jhawer now moves for summary judgment on his claim and to strike out Mr. Singh’s Statement of Defence and Counter-claim. This motion requires the court to determine whether there is a genuine issue for trial.
Background Facts
[4] Mr. Jhawer says that he loaned $130,000 to Harinder Singh (“Mr. Singh”) and Rajwinder Aujla (“Ms. Aujla”), who are spouses of one another. The loan was to enable Mr. Singh’s company, 2211096 Ontario Inc., to purchase an investment property at 1718 Forks Road East in Port Colborne. Mr. Singh’s company bought that property on August 7, 2009, for $325,000.
[5] 2211096 Ontario Inc. financed a portion of the purchase price with a mortgage of $100,000 which it gave to another of Mr. Singh’s companies, H.B. Holding Inc. (018491580 Ontario Inc.). The term of that mortgage was from August 31, 2009, to July 31, 2011.
[6] Mr. Singh gave Mr. Jhawer a series of 11 post-dated interest cheques. The cheques were dated from March 10, 2010, to February 10, 2011, and were drawn by Mr. Singh on the account of another of his companies, 2079681 Ontario Inc., at the National Bank. The cheques were for $1,061 each, being the interest payable on Mr. Jhawer’s $130,000 loan at 10% ($1,083.33), less $22.33, being a 5% fee which Mr. Jhawer says Mr. Singh charged as his mortgage broker’s fee. On the memo line of each of the cheques is written the words “1718 Forks Rd. Pt. Colborne loan”.
[7] Mr. Singh paid no further interest to Mr. Jhawer after February 2011. On November 15, 2011, the Forks Road mortgage was discharged.
[8] In February 2012, Mr. Jhawer says that he made an oral demand to Mr. Singh for re-payment of his loan. On February 15, 2012, Mr. Singh gave Mr. Jhawer a cheque for $65,000, and on February 25, 2012, he gave him a further cheque for $65,000, for a total of $130,000, being the principal amount of the loan. The memo lines of the cheques read “Sultan and Shaban loan”, for which neither party has offered an explanation, other than the fact that Mr. Jhawer asserts that the word “loan” is a reference to his loan of $130,000 to Mr. Singh.
[9] Mr. Jhawer says that in March 2012, he attempted to deposit the two cheques, but the bank refused to negotiate them, as there were insufficient funds in Mr. Singh’s bank account to cover them. Mr. Jhawer states that he advised Mr. Singh and Ms. Aujla that the cheques had been dishonoured, and asked them to replace the cheques or repay the amount he had loaned to them. He states that Mr. Singh advised him that he was unable to repay the money at that time but would give Mr. Jhawer a promissory note. Mr. Jhawer insisted that Mr. Singh give him security for the note in the form of a mortgage on Mr. Singh’s property.
[10] Mr. Jhawer states that on March 27, 2012, Mr. Singh signed a promissory note to Mr. Jhawer, and authorized him to register a mortgage on the home of Mr. Singh and Ms. Aujla at 7 Grouse Lane, Brampton. When Mr. Jhawer attended at the office of his lawyer, Monish Sangani, on June 5, 2012, to cause the mortgage to be registered, Mr. Sangani advised him that the promissory note did not authorize the registration of the mortgage, as Mr. Singh had signed the note on behalf of his company, H.B. Holdings Inc., but that he and Ms. Aujla held title to the property at 7 Grouse Lane in their own names.
[11] On June 5, 2012, Mr. Singh and Mr. Jhawer instructed Mr. Sangani to prepare a revised promissory note, this one in Mr. Singh’s own name, which permitted a mortgage to be registered against the property at 7 Grouse Lane in favour of Mr. Jhawer. Mr. Sangani prepared the revised promissory note on June 6, 2012, and on June 12, 2012, Mr. Singh, Ms. Aujla and Mr. Jhawer signed the revised note in the presence of Mr. Sangani. Two days later, the three of them attended again at Mr. Sangani’s office and signed the Charge and related documents (“the mortgage”).
[12] On June 14, 2012, Mr. Singh and Ms. Aujla signed the following documents requiring for the registration of the mortgage in favour of Mr. Jhawer:
a) Acknowledgement and Direction; b) Acknowledgement re Standard Charge Terms; c) Acknowledgement re not providing legal advice; and d) Statutory Declaration re related persons.
Later the same day, Mr. Sangani registered the mortgage, for the principal amount of $130,000, with interest at 10 percent per year. The mortgage was for a term of one year, being due June 6, 2013.
[13] Mr. Singh and Ms. Aujla made no payments on the mortgage. Mr. Jhawer says that he contacted them to request payments under the mortgage, and that they advised him that they were unable to make payments at the time, but would be receiving money shortly from investments, which they would use to discharge the mortgage. It is not disputed that no payments were made.
[14] Mr. Jhawer states that because of his past friendship with Mr. Singh and the fact that they had been involved in several transactions together, he did not take action on the mortgage immediately. However, when the mortgage became due in June 2013, he issued a Notice of Sale dated September 19, 2013. The Notice set out the amount of $157,724.49, being the principal amount of the loan ($130,000), and the interest accrued from the date of registration of the mortgage. On November 4, 2013, after the redemption period expired, Mr. Jhawer caused a Statement of Claim to be issued.
[15] On December 18, 2013, Mr. Singh and Ms. Aujla delivered a Statement of Defence and Counterclaim. On May 7, 2014, Mr. Singh attended a cross-examination on his affidavit of documents, and was examined by Mr. Jhawer’s lawyer.
[16] Ms. Aujla failed on two occasions to attend for examination pursuant to Notices of Examination that Mr. Jhawer says were served on her. She also failed to serve an affidavit of documents. On August 28, 2014, Justice Fitzpatrick made an order striking her pleading, and the Registrar later noted Ms. Aujla in default. In a later order dated August 25, 2015, Justice Van Melle set aside the noting in default, set aside Justice Fitzpatrick’s order striking Ms. Aujla’s pleading, and reinstated her Statement of Defence and Counterclaim.
[17] At his examination for discovery, Mr. Singh:
a) acknowledged that he is sophisticated in real estate transactions and knowledgeable about mortgages; b) denied owing $130,000 to Mr. Jhawer; c) acknowledged giving the two cheques for $65,000 to Mr. Jhawer; d) acknowledged his signature on the promissory note, but stated that he did not recall signing it; e) denied signing, or having any knowledge of, the mortgage documents for 7 Grouse Lane, Brampton, or authorizing Mr. Sangani to register the mortgage. However, he stated that he was unsure whether the mortgage is fraudulent; and f) admitted to making no payments on the mortgage to Mr. Jhawer.
[18] Monish Sangani provided an affidavit sworn April 28, 2013, in support of Mr. Jhawer’s motion. In his affidavit, he confirms that on June 14, 2012, Mr. Singh, Ms. Aujla, and Mr. Jhawer attended at his law office, where Mr. Singh and Ms. Aujla signed the revised promissory note for repayment of his $130,000 loan and, in furtherance of the note, Mr. Singh and Ms. Aujla signed the Charge documents, and instructed Mr. Sangani to register the Charge, which he did later that day.
[19] In his affidavit, Mr. Sangani states that he understands Mr. Singh to be a real estate and mortgage agent, who possesses advanced knowledge and understanding of the process of registering a mortgage or charge. He further states that the following answers given by Mr. Singh at his examination were completely false:
a) Mr. Singh was not aware that the Charge was being registered on the property at 7 Grouse Lane; b) Mr. Singh was not aware of Ms. Aujla’s signing of the acknowledgment; c) The acknowledgment was not signed at Mr. Sangani’s office, and Ms. Aujla never attended at his office; d) Mr. Singh never authorized Mr. Sangani to register the Charge; e) Mr. Singh and Ms. Aujla were never advised to seek independent Legal Advice; and f) Mr. Singh is unaware of Mr. Sangani witnessing Ms. Aujla’s signature on the revised promissory note.
[20] Mr. Sangani further states:
Even though I prepared and witnessed all necessary documents as a courtesy to all relevant parties due to a pre-existing relationship and that all parties were aware that I was not providing any legal advice whatsoever, in addressing the above-noted responses of Singh, I can advise this honourable Court the following:
(i) Singh and Jhawer instructed me to prepare the Charge documents; (ii) I verily believe that at all times both Singh and Aujla were aware of the intentions of the documents being signed and of the Charge being registered against the Property; (iii) I verily believe it was the intent of Singh and Aujla to have the Charge registered so that Jhawer would have security for the monies he had previously loaned to Singh and Aujla; (iv) I verily believe Singh was aware of Aujla’s execution of the Charge documents as both Singh and Aujla attended my office together and executed the acknowledgment in the presence of one another and myself; (v) All Charge documents were executed by the parties in my presence; (vi) I verily believe I was given full authority by Singh, Aujla and Jhawer to register the Charge against the Property.
[21] As of June 11, 2015, there was $179,973.99 due and payable under the mortgage.
Issues
[22] The court must determine whether Mr. Singh’s Statement of Defence and Counterclaim raises a genuine issue requiring a trial.
Parties’ Positions
[23] Mr. Jhawer submits that Mr. Singh has not pleaded a defence to the mortgage, and that his counterclaim is without substance or supporting evidence.
[24] Mr. Singh submits, in his Statement of Defence and Counterclaim, that Mr. Jhawer did not advance funds to him under the mortgage, with the result that the mortgage is invalid on the ground of a failure of consideration, as well as fraud. He further counterclaims against Mr. Jhawer for the following amounts, which he says are owing to him, and for which he claims a set-off:
a) $85,000 as his share of the sale price of a property at 385 Prince of Wales, Unit 3602, Mississauga, to Mr. Jhawer’s daughter, Hina Jhawer; b) $25,000 that Mr. Singh paid to Mr. Jhawer’s lawyer, Gord Mohan, for the purchase of a gas station property at 110 Talbot Street W., Aylmer; and c) $4,000 for an appraisal fee and legal fees for the closing of Mr. Jhawer’s purchase of 110 Talbot Street W., Aylmer.
[25] In an affidavit sworn August 21, 2015, in response to Mr. Jhawer’s motion, Mr. Singh states that on February 14, 2011, he entered into an Agreement of Purchase and Sale for the purchase of an investment property at 8 Carlaw Avenue, in Toronto, for $1.1 million. He states that he and two other investors were each to own one-third of that property. He states that his own contribution to the purchase price was to be $130,000. He states that he paid $16,000, and that Mr. Jhawer initially paid $30,000 toward Mr. Singh’s share, and later agreed to buy out Mr. Singh’s share for another $100,000, to be used to fund Mr. Singh’s obligation upon closing. This was the explanation for the $130,000 amount of the “loan”. He states that he and Mr. Jhawer agreed that Mr. Singh would remain on title to the Carlaw Property, because he was named in the Agreement of Purchase and Sale, and that he gave Mr. Jhawer the two cheques for $65,000 each, to hold “in escrow as a token of our agreement and would not cash them.”
[26] In a responding affidavit sworn January 10, 2016, Mr. Jhawer points out that Mr. Singh did not give him the two cheques for $65,000 until February 15, 2012, and did not give him the promissory note and mortgage on 7 Grouse Lane, Brampton, until June 12 and 14, 2012. That was more than a year after March 31, 2011, when the Agreement of Purchase and Sale for the Carlaw property was to close. He further notes that the vendors of 7 Carlaw Avenue began an action on April 28, 2011, arising from the purchasers’ failure to close that transaction.
[27] When Mr. Jhawer pointed out the flaws in Mr. Singh’s explanation, Mr. Singh reversed himself in a further affidavit, in which he offers an altogether different explanation for the two cheques and mortgage he gave to Mr. Jhawer. In his new affidavit, sworn January 14, 2016, he states, “While I apologize for the confusion I may have caused in my previous affidavit, the fact is that the mortgage which is the subject matter of this action was signed solely as a result of the negotiations which Jhawer and I had in relation to the 110 Talbot Street property in Aylmer, Ontario.”
Analysis and Evidence
a) General principles applying to motions for summary judgment
[28] Rule 20.04 provides that where there is no genuine issue for trial with respect to a claim or defence, the Court shall grant summary judgment accordingly. Rule 20.04(1) states:
20.04(1) The Plaintiff may, after the Defendant has delivered a Statement of Defence, move with supporting affidavit material or other evidence for summary judgment on all or part of the Statement of Claim.
[29] Rule 20.04(2) provides that the court may grant summary judgment in the following circumstances:
- Where the parties agree;
- Where the claim is without merit;
- Where the motions judge is able to dispose of the matter and where the trial process is not required in the “interest of justice.” [Combined Air Mechanical Services Inc. v. Flesch, 2001 ONCA 764, at paras. 41-44] [Emphasis added]
[30] The Supreme Court of Canada, in Hryniak v. Mauldin, 2014 SCC 7, and Bruno Appliances and Furniture Inc. v. Hryniak, 2014 SCC 8, in 2014, reinterpreted Rule 20 of the Rules of Civil Procedure, taking into account the need for the court to preserve the public’s access to justice. The Supreme Court held that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely, and just adjudication of claims. It held that a trial is not required if the court hearing a summary judgment motion can make a fair and just adjudication, by making the necessary findings of fact, and applying the law to those facts, and if the process is a proportionate, more expeditious, and less expensive means of achieving a just result than a trial.
[31] The Supreme Court observed that the summary judgment motion judge must assess the interests of justice that would be served by summary judgment, by considering the relative efficiencies that would be served by that process and those that would be served by a trial, including the cost and speed of each procedure, the evidence that is available on the motion versus the evidence that would be available at trial, and the opportunity to evaluate such evidence fairly. As the Supreme Court stated, there will be no genuine issue requiring a trial if the summary judgment process gives the motion judge the evidence required to fairly and justly adjudicate the dispute on its merits, and is a proportionate, more expeditious, and less expensive means to achieve a just result.
[32] In Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200, in 2014, Corbett J. described the current approach to summary judgment motions following the Supreme Court of Canada’s decision in Hryniak v. Mauldin, as follows:
Summary judgment motions come in all shapes and sizes, and this is recognized in the Supreme Court of Canada’s emphasis on “proportionality” as a controlling principle for summary judgment motions. This principle does not mean that large, complicated cases must go to trial, while small, single-issue cases should not. Nor does it mean that the “best foot forward” principle has been displaced; quite the reverse. If anything, this principle is even more important after Hryniak, because on an unsuccessful motion for summary judgment, the court will now rely on the record before it to decide what further steps will be necessary to bring the matter to a conclusion. To do this properly, the court will need to have the parties’ cases before it. [Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200, para. 32]
[33] The Supreme Court of Canada, in Hryniak v. Mauldin, gave guidance as to how Rule 20 should be applied to promote timely and affordable access to the civil justice system. Justice Karakatsanis, on behalf of the court, noted that such motions are an opportunity to simplify pre-trial procedures and move the emphasis away from the conventional trial, in favour of proportional procedures tailored to the needs of the particular case. She stated:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. [Hryniak v. Mauldin, 2014 SCC 7, para. 49] (Emphasis added)
[34] Justice Karakatsanis held that the judge hearing a motion for summary judgment must compare the procedures available in such a motion, supplemented, if necessary, by the fact-finding tools provided by Rules 20.04(2.1) and (2.2), with those available at trial, to determine whether the court can make the necessary findings of fact and apply the principles of law to those facts in a proportionate, most expeditious, and least expensive manner to achieve a just result:
This inquiry into the interest of justice is, by its nature, comparative. Proportionality is assessed in relation to the full trial. It may require the motion judge to assess the relative efficiencies of proceeding by way of summary judgment, as opposed to trial. This would involve a comparison of, among other things, the cost and speed of both procedures. (Although summary judgment may be expensive and time consuming, as in this case, a trial may be even more expensive and slower.) It may also involve a comparison of the evidence that will be available at trial and on the motion as well as the opportunity to fairly evaluate it. (Even if the evidence available on the motion is limited, there may be no reason to think better evidence would be available at trial.) [Hryniak v. Mauldin, 2014 SCC 7, para. 58] (Emphasis added)
[35] Based on the guidelines set out in Hryniak v. Mauldin, I must first determine, based on the evidence before me, and without using the new fact-finding powers under Rule 20.04, whether there is a genuine issue requiring trial, whether I can fairly and justly adjudicate the dispute, and whether the motion is a timely, affordable, and proportionate procedure under Rule 20.04(2)(a). If there is no genuine issue requiring a trial, I must grant summary judgment. [Hryniak v. Mauldin, 2014 SCC 7, para. 66]
[36] If there appears to be a genuine issue requiring a trial, I must exercise my discretion to determine whether the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2), provided their use will not be contrary to the interests of justice and will lead to a fair and just result, and serve the goals of timeliness, affordability, and proportionality in light of the litigation as a whole. [Hryniak v. Mauldin, 2014 SCC 7, para. 66]
[37] The party moving for summary judgment has the onus of establishing that there is no genuine issue of material fact requiring a trial. Once that onus is met, the burden shifts to the responding party, opposing summary judgment, to demonstrate that the claim has a “real chance of success”. [Hamilton Kilty Hockey Club Inc. v. Ontario (Attorney General), (2003) 64 O.R. (3d) 328 at para. 20]. A self-serving affidavit is not sufficient to create a triable issue in the absence of detailed facts and supporting evidence.
b) Applying the principles to the present case
[38] Having regard to the evidence submitted by Mr. Jhawer in support of his claim, and the absence of consistent evidence from Mr. Singh in support of his defence, a motion for summary judgment is a proportionate process for dealing with Mr. Jhawer’s action. Although there is a genuine issue raised by the Claim and Statement of Defence, the defence has no “real chance of success”, and the issue it raises can best be resolved based on the affidavits and the transcript of Mr. Singh’s cross-examination on his affidavit of documents.
[39] Mr. Singh’s counterclaim is based on transactions unrelated to the mortgage. Mr. Jhawer has responded to the counterclaim in his Reply, but the evidence tendered by the parties does not enable the court, at this motion, to fairly and justly adjudicate the dispute, even using its fact-finding powers under Rule 20.04(2.1) and (2.2). After giving reasons for the disposition of the main action, I will address the procedure to be followed in relation to the counterclaim.
(i) Mr. Jhawer’s motion for summary judgment on the mortgage
[40] A mortgagee has the right to sell or dispose of a property over which he holds a mortgage where the mortgagors have defaulted in their obligations under the mortgage. The [Mortgages Act, R.S.O. 1990, c. M. 40, s. 24(1)] provides, in s. 24(1):
24(1) Where any principal money is secured by mortgage of land, the mortgagee, at any time after the expiration of three months from the time of default in the payment of any money due under the mortgage or after any omission to pay any premium of insurance that by the terms of the mortgage ought to be paid by the mortgagor, has the following powers to the like extent as if they had been in terms conferred by the mortgage:
Power of sale
- A power to sell, or to concur with any other person in selling, the whole or any part of the mortgaged property by public auction or private contract, subject to any reasonable conditions the mortgagee may think fit to make, and to buy in at an auction and to rescind or vary contracts for sale, and to resell the land, from time to time, in like manner without being answerable for any loss occasioned thereby.
[41] Mr. Singh acknowledges giving Mr. Jhawer two cheques totaling the amount of the loan that Mr. Jhawer says he made to Mr. Singh. Mr. Singh was unable to offer a plausible reason, other than re-payment of the loan, that he gave Mr. Jhawer those cheques.
[42] Mr. Jhawer states that when the cheques failed to clear, Mr. Singh drafted a promissory note in his favour for the total amount of the loan, which allowed Mr. Jhawer to register the mortgage against the property at 7 Grouse Lane, Brampton, as security for the note.
[43] Mr. Singh, at his cross-examination on his affidavit of documents on May 7, 2014, acknowledged, at questions 237 and 238, that he was sophisticated in real estate transactions and knowledgeable about mortgages. He acknowledged, at questions 156 and 157, his signature on the revised promissory note, but stated that he did not recall signing it. At questions 164 and 165, he denied authorizing Mr. Sangani to register the mortgage, but would not say that the mortgage was fraudulent.
[44] Mr. Singh, in providing the cheques, effectively acknowledged Mr. Jhawer’s loan to him. In acknowledging his signature on the revised promissory note and mortgage, he effectively acknowledged the validity of the debt upon which the mortgage was based, and of the mortgage itself.
[45] Ms. Aujla filed a Statement of Defence, but failed to deliver an affidavit of documents or attend examinations on two occasions. This resulted in her Statement of Defence and Counterclaim being struck and her being noted in default in August 2014. This noting in default has since been set aside by order of Justice Van Melle. Mr. Jhawer’s claim against Ms. Aujla and her counterclaim against him are not at issue in this motion.
[46] In his response to Mr. Jhawer’s motion, Mr. Singh relies on the decision of the Court of Appeal in [Cunningham v. Kelly (1918), 14 O.W.N. 183 (Ont. C.A.)], in 1918, in which promissory notes and a mortgage were given before funds were advanced, and the Court held the mortgage to be invalid on the ground of a failure of consideration. Mr. Singh submits that Mr. Jhawer made no advances on the mortgage. He states that the parties agreed that Mr. Singh would be granted an interest in the Talbot Street property in the amount secured by the mortgage, but that Mr. Jhawer failed to transfer title to the Talbot Street property to him. He therefore argues that the mortgage on the property at 7 Grouse Lane in Brampton was void. Mr. Singh states that while Mr. Jhawer would be entitled to enforce the mortgage if he were acting in good faith, a mortgage based on fraud is invalid and Mr. Singh is entitled to an injunction staying enforcement of it. Duffin v. Norina Holdings Inc., 2011 ONSC 6431
[47] While there is a genuine issue as to whether Mr. Jhawer advanced the $130,000 to Mr. Singh, it is an issue that I can determine, with the fact-finding tools provided in Rules 20.04(2.1) and (2.2), by making the necessary findings of fact and applying the principles of law to those facts, in a proportionate, expeditious, and least expensive manner to achieve a just result.
[48] I find that Mr. Jhawer advanced the $130,000 to Mr. Singh, and that Mr. Singh used the funds to invest, through H.B. Holdings, in the mortgage of the property at 1718 Forks Road, Port Colborne, and that he failed to re-pay the loan when the mortgage on that property was repaid. The interest cheques that Mr. Singh gave to Mr. Jhawer, marked “1718 Forks Road loan”, together with the reference to the loan in the two cheques for $65,000, in the same total amount as the principal upon which the interest was calculated, and for which the mortgage was later given, are conclusive evidence that the funds were advanced.
(ii) Mr. Jhawer’s motion to strike out Mr. Singh’s counterclaim
[49] The evidence the parties have tendered in this motion does not enable the court to determine Mr. Singh’s counterclaim, even by recourse to the fact-finding tools provided by Rules 20.04(2.1) and (2.2). For the reasons that follow, it would not be in the interests of justice to delay determination of Mr. Jhawer’s action, or to stay judgment upon it, pending a trial of the counterclaim.
[50] In his Reply and Defence to Counterclaim, Mr. Jhawer sets out his position in relation to the counterclaim. He admits that he and Mr. Singh jointly purchased the property at 385 Prince of Wales, Unit 3602, Mississauga, as an investment property, but states that they transferred the property to Mr. Jhawer’s daughter, Hiwa Jhawer, in trust for both of them, to secure more favourable financing. He states that Hiwa continues to hold the property in trust for them until it is sold, at which time he and Mr. Singh will share the profits equally.
[51] With regard to the property at 110 Talbot Street W., Aylmer, Mr. Jhawer admits that he used Mr. Singh’s services as a real estate agent for a real estate commission that was initially $40,000, but that Mr. Singh discounted his commission by $25,000, and that Mr. Jhawer paid the balance in full. He denies that he owes any amount for an appraisal fee or legal fees associated with the purchase of 110 Talbot Street W.
[52] Mr. Singh’s claim against Mr. Jhawer for investments the two of them made in the service station property at 110 Talbot Street W. in Aylmer, and in the property at 385 Prince of Wales, Unit 3602, Mississauga, has no relation to the subject matter of Mr. Jhawer’s action on the mortgage. I therefore turn to the issue of whether the court should delay a determination of Mr. Jhawer’s claim pending a trial of the counterclaim, or whether it should stay judgment on the claim until the issues in the counterclaim are determined.
[53] Where two litigants each claim liquidated debts against the other, it is open to the parties to claim the benefit of the doctrine of legal set-off (as opposed to equitable set-off) to off-set any amounts that one may owe to the other. The Courts of Justice Act, R.S.O. 1990, c.C.43 provides, in this regard:
111 (1) In an action for payment of a debt, the defendant may, by way of defence, claim the right to set off against the plaintiff’s claim a debt owed by the plaintiff to the defendant. (2) Mutual debts may be set off against each other even if they are of a different nature. Telford v. Holt, [1987] 2 S.C.R. 193
[54] The debts referred to in s. 111 have been interpreted to mean liquidated debts. Telford v. Holt, [1987] 2 S.C.R. 193 Unliquidated damages do not qualify for a legal set off under s. 111. The essence of liquidated damages is a genuine covenanted pre-estimate of damage. Canadian General Electric Co. v. Canadian Rubber Co., [1915] S.C.J. No. 58, 52 S.C.R. 349, para. 3 That is not present here. The amounts owing to Mr. Singh in relation to 385 Prince of Wales, Unit 3602, Mississauga, and 110 Talbot Street W. in Aylmer, are disputed, and his claim is, in effect, for unliquidated damages.
[55] With regard to 385 Prince of Wales, Mr. Singh claims, in effect, that Mr. Jhawer breached their contract by failing to pay him his share of the profit on the sale of the property. Mr. Jhawer states that the property has not been sold, and that his daughter is holding the property in trust for Mr. Jhawer and Mr. Singh. Whether the property was sold or not, the amount of Mr. Singh’s share of the profit must be determined. Mr. Singh’s claim is for unliquidated damages.
[56] In relation to 110 Talbot Street W., Mr. Singh claims, in effect, that Mr. Jhawer breached their contract by failing to pay him $25,000 of his real estate commission, and an appraisal fee and legal fees, which he does not particularize, in the amount of $4,000. Mr. Jhawer asserts that Mr. Singh discounted his real estate commission from $40,000 to $15,000 and that he paid the net amount. Additionally, he says that he paid the appraisal fee and legal fees. It must be determined whether Mr. Jhawer breached the parties’ agreement and, if so, the amount, if any, that is owing to Mr. Singh. Mr. Singh’s counterclaim is for damages in an unliquidated amount.
[57] A claim for unliquidated damages may, in some circumstances, be set off against a claim for liquidated debt under the principles of equitable set-off, where the competing claims arise out of the same relationship. Courts of Justice Act, R.S.O. 1990, c.C.43; Telford v. Holt, [1987] 2 S.C.R. 193 However, in the present case, the Standard Charge Terms in the mortgage, on their face, preclude such a claim. They include the following wording:
The Chargor will pay or cause to be paid to the Chargee the full principal amount and interest secured by the Charge in the manner of payment provided by the Charge, without any deduction or abatement, and shall do, observe, perform, fulfill and keep all the provisions, covenants, agreements, and stipulations contained in the Charge and shall pay as they fall due all taxes, etc. [Emphasis added]
[58] Justice Cameron, in Shirley Marshall Holdings Inc. v. FMAS Investments Inc., para. 4, in 2004, held that the phrase “without any deduction or abatement” does not preclude a mortgagor from relying on fraud in support of a claim of equitable set-off. He stated:
Arnold v. Bronstein et al is authority that there is no right of equitable set-off against a liquidated claim under a mortgage which is to be paid “without deduction or abatement”. However, this is based on the mortgagee acting in good faith and without fraud. See, [1971] 1 O.R. 467 (H.C.J.) at 468. [Emphasis added]
[59] The Court of Appeal, in Algoma Steel Inc. v. Union Gas Ltd., 63 O.R. (3d) 78, in 2003, set out the principles to be applied in determining whether a party is entitled to an equitable set-off against a claim for liquidated damages. They are:
- The party relying on a set-off must show some equitable ground for being protected against his adversary's demands.
- The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed.
- A cross claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross claim.
- The plaintiff's claim and the cross claim need not arise out of the same contract.
- Unliquidated claims are on the same footing as liquidated claims. Algoma Steel Inc. v. Union Gas Ltd., 63 O.R. (3d) 78; Chiarotto v. S. Parks Investments Ltd., [1995] O.J. No. 3003 (Gen. Div.), para. 12
[60] Mr. Singh’s claims, based on the parties’ investments in the properties at 110 Talbot Street W. in Aylmer and 385 Prince of Wales, Unit 3602, Mississauga, do not go to the root of Mr. Jhawer’s claim on the mortgage, and is not so clearly connected with Mr. Jhawer’s claim that it would be manifestly unjust to allow him to enforce payment without taking into consideration the counterclaim. In Chiarotto v. S. Parks Investments Ltd., [1995] O.J. No. 3003 (Gen. Div.), Justice Somers stated:
[the]…claim is on the mortgage transaction which, though part of the Agreement of Purchase and Sale, is a separate document separately negotiated and which contains specific provisions which I am now in effect bring asked to disregard. Chiarotto v. S. Parks Investments Ltd., [1995] O.J. No. 3003 (Gen. Div.), para. 14
[61] It would not be appropriate to delay determination of Mr. Jhawer’s claim on the mortgage until Mr. Singh’s counterclaim based on the other transactions has been tried. Justice Potts, in an application for set-off in [5 Fairview Mall Drive Ltd. v. Lehndorff Canadian Pension Properties Ltd., (1989) 4 R.P.R (2d) 148 (Ont. H.C.)], in 1989, stated:
This strikes me as a situation, not of set-off, but one where the mortgagor is attempting to get a Mareva-type injunction under the Mortgages Act. What the mortgagor seems to want is to have the amount of its claim for damages held in court so that payment is readily available should it obtain judgment at trial.
[62] Mr. Singh has asserted his counterclaim on the basis that it is intrinsically related to Mr. Jhawer’s mortgage. I find that it is not so related. He has not requested a stay of judgment on the mortgage action pending determination of the counterclaim. However, because Mr. Jhawer has not moved for summary judgment on the counterclaim, but rather, an order striking out the Defence and Counterclaim, and has not advanced grounds under rule 34.15, or otherwise, for doing so, the issue arises as to what procedure should be followed in relation to the counterclaim. I therefore turn to consider whether judgment on the mortgage should be stayed pending determination of the counterclaim.
[63] To obtain a stay, Mr. Singh would be required to meet the three-part test in RJR-Macdonald Inc. v. Canada (Attorney-General), [1994] 1 S.C.R. 311, as follows:
a. A serious issue must be said to exist; b. It must be shown that irreparable harm would result if the stay is not granted; c. The balance of convenience must favour the granting of the stay.
[64] The “serious issue” component of the test establishes a fairly low threshold. I proceed on the basis that there is a serious issue given the nature of Mr. Singh’s evidence and the fact that he does not appear to have been cross-examined on his assertions in relation to the purchase of 110 Talbot Street W. or the sale of 385 Prince of Wales, Unit 3602, Mississauga.
[65] As for the second component of the test, I do not believe that Mr. Singh will suffer irreparable harm if a stay is not granted. Mr. Jhawer has acknowledged that his daughter holds the property at 385 Prince of Wales, Unit 3602, Mississauga, in trust for her father and Mr. Singh. This would likely entitle Mr. Singh to a certificate of pending litigation if he requires one, and his claim in relation to that property represents the majority of his counterclaim.
[66] Turning to the balance of convenience, on one hand, Mr. Jhawer has a valid mortgage which came due in June 2013, and a clear legal entitlement to approximately $190,800 ($179,973.99 due June 2015, and 10% on $130,000 per year for the 10 months since then). On the other hand, Mr. Singh has counterclaimed based on $85,000 he says is owing to him on the sale of 385 Prince of Wales, Unit 3602, Mississauga, which is admittedly still held by Mr. Jhawer’s daughter and which Mr. Jhawer says she is holding in trust for him and for Mr. Singh. Additionally, Mr. Singh claims $25,000 in real estate commission and 4,000 for an appraisal and legal fees for the purchase of 110 Talbot Street W., Aylmer, which amounts Mr. Jhawer says were either waived or paid. There is no evidence before me that the two properties do not provide sufficient security for the counterclaim.
[67] In the absence of evidence from Mr. Singh detailing his counterclaim, I am unable to determine if his claim is substantial. In any event, there is no evidence that if he obtains a judgment for the counterclaim, he would be unable to recover the amount. In these circumstances, I find that the balance of convenience favours Mr. Jhawer and is against granting a stay.
[68] If Mr. Singh wishes to proceed with his counterclaim in the face of Mr. Jhawer’s response to it, the issues can best be determined in a separate trial. The rules make the following provision for an order for such trial:
27.08 (1) A counterclaim shall be tried at the trial of the main action, unless the court orders otherwise. (2) Where it appears that a counterclaim may unduly complicate or delay the trial of the main action, or cause undue prejudice to a party, the court may order separate trials or order that the counterclaim proceed as a separate action. [Emphasis added]
[69] The court employed a separate trial for determining the counterclaim in [Greisman v. Blake (1927), 33 O.W.N. 197], in 1927. In that case, the defendant in an action on a vendor-take-back mortgage advanced what amounted to a counterclaim for damages for breach of the mortgagee's covenant for title. It was held that, although there might be a valid claim, it was too doubtful to justify delaying the mortgagee in the enforcement of his rights under the mortgage. Judgment was given on a motion, based on admissions contained in the defendant's examination for discovery, without prejudice to his asserting in another action any claim he might have against the mortgagee for damages.
[70] In Hazlett v. Blueberry Point Ltd., in 1967, Stark J., of the Ontario High Court, dismissed an appeal from a Local Master who had granted judgment on a special endorsement in a writ of summons in an action for principal and interest owing on a mortgage, noting that the defence set out in the affidavit of merits was silent as to the claim itself. It raised only the fact that the defendant was unable to make his payments by reason of actions taken by the plaintiff’s solicitor, in preventing the defendant from registering the plan of subdivision of the land. Justice Stark stated, “This claim is of course more in the nature of a counterclaim than a defence to the action and if it has merit can more conveniently be tried and determined in a separate action.”
[71] For the reasons stated above, it is in the interests of justice that Mr. Jhawer recover the amount owing to him on his mortgage, in relation to which I have determined the issues raised by Mr. Singh’s defence, and that Mr. Singh’s counterclaim proceed to trial separately.
Conclusion and Order
[72] Based on the foregoing, it is ordered that:
- The plaintiff’s motion for summary judgment is allowed.
- The defendant, Mr. Singh, shall pay to the plaintiff, Mr. Jhawer, the sum of $179,973.99, plus interest on $130,000 from June 26, 2015, at the rate of 10% per year.
- Kuldip Jhawer may apply for possession of the property at 7 Grouse Lane, Brampton, upon filing the necessary affidavit regarding occupancy.
- Mr. Jhawer’s motion to strike out the Counterclaim is dismissed. The Counterclaim may proceed to a trial in the normal course.
- If the parties are unable to agree on costs, they may submit written arguments, not to exceed 4 pages, and a Costs Outline, by May 15, 2016.
Price J. Released: April 25, 2016