Grand Ridge Estates et al v. Breadner Holdings Inc. et al

CITATION: GRAND RIDGE ESTATES et al v. BREADNER HOLDINGS INC. et al, 2016 ONSC 7962

COURT FILE NO.: C-375-16 and 259-16

DATE: 2016/12/19

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GRAND RIDGE ESTATES LIMITED, PRIMELAND DEVELOPMENTS (2003) LIMITED and 1291105 ONTARIO LIMITED, Applicants

AND:

BREADNER HOLDINGS INC. and BREADNER TRAILER SALES AMALGAMATED LIMITED, Respondents

AND RE: BREADNER HOLDINGS INC., Applicant

AND:

GRAND RIDGE ESTATES LIMITED, Respondent

BEFORE: The Honourable Justice D.A. Broad

COUNSEL: Sherry A. Kettle and Stephen R. Cameron for Grand Ridge Estates Limited, Primeland Developments (2003) Limited and 1291105 Ontario Limited

P. Shea, for Breadner Holdings Inc. and Breadner Trailer Sales Amalgamated Limited

HEARD: September 27, 2016

ENDORSEMENT

[1] The applicants in file C-375-16 Grand Ridge Estates Limited, Primeland Developments (2003) Limited and 1291105 Ontario Limited (collectively referred to as the "mortgagors") have brought this motion for an order granting them leave pursuant to r. 39.02(2) of the Rules of Civil Procedure to deliver additional evidence, following cross-examinations, consisting of an expert opinion regarding the calculation of the effective annual rate of interest under s. 347 of the Criminal Code in accordance with generally accepted actuarial practices.

[2] The respondents in file C-375-16 Breadner Holdings Inc. and Breadner Trailer Sales Amalgamated Limited (together referred to as the "mortgagees") oppose the mortgagors' motion and have brought a cross-motion for an order requiring the mortgagors to pay into court an additional sum of $175,000 to the credit of the applications in files C-375-16 and C-259-16.

[3] I was directed by the Regional Senior Justice to hear all motions in these proceedings pursuant to r. 37.15(1) of the Rules of Civil Procedure. The parties have also consented, pursuant to r. 37.15(2) that I preside at the hearing of the applications.

[4] At the conclusion of submissions I made a brief Endorsement, with reasons to follow, granting leave to the mortgagors to file the expert evidence as requested, on terms that they pay into court, by October 31, 2016, the further sum of $106,500 as additional replacement security for the discharged mortgage security in respect of the additional incremental interest and costs to be incurred by the mortgagees. I also directed that the applications be heard by me on December 19 and 20, 2016 and that the costs of these motions be reserved for my determination following argument of the applications.

[5] The following are the fuller reasons for my Endorsement on September 27, 2016.

Background

[6] Breadner Holdings Inc, one of the mortgagees, commenced a proceeding against Grand Ridge Estates Limited, one of the mortgagors, for the appointment of a receiver by application issued March 8, 2016 in Court file C-259-16.

[7] By application issued on March 31, 2016 in Court file C-375-16 under s. 12 of the Mortgages Act, R.S.O. 1990, c. M. 40 the mortgagors sought an order directing the mortgagees to discharge certain mortgages and related instruments upon payment by the mortgagors of the undisputed amounts outstanding on the underlying loans secured by various charges and guarantees and for a determination that the disputed amount (referred to as the "Participation Amount") was not payable by the mortgagors. One of the bases asserted for this is that payment of the Participation Amount would result in the mortgagors paying a criminal rate of interest under the Criminal Code of Canada.

[8] The applications were returnable on the running list for the week of April 25, 2016, and the parties exchanged various materials within a short timeframe to provide for the hearing of the applications at that time.

[9] Mr. Breadner was examined on behalf of the mortgagees on April 18, 2016 and further examination of him on his answers to undertakings was conducted on June 29, 2016.

[10] At the time of argument of these motions the mortgagees have not conducted any cross-examinations in respect to the Mortgages Act application itself.

[11] On April 27, 2016 the Mortgages Act application of the mortgagors was adjourned to a pre-trial conference on May 9, 2016.

[12] Pursuant to a consent order of Justice Gordon dated May 5, 2016 the mortgagors paid the following amounts:

(a) $13,809,779.06 plus per diem interest from May 3, 2016 to the date of payment to the mortgagee's as full payment of the undisputed amounts owing under certain mortgages (the "Undisputed Amount");

(b) $4,365,952.79 into court to the credit of the two applications, as a disputed amount representing the Participation Amount of $4,250,000, plus interest thereon to May 2, 2016, plus per diem interest from May 3, 2016 to the date of payment into court; and

(c) $300,000 into court as a disputed amount, representing estimated future interest on the Participation Amount in the amount of $100,000, plus estimated current and future legal costs on certain mortgages in the amount of $200,000 (the "Estimated Interest and Costs" and together with the Participation Amount, referred to as the "Disputed Amount").

[13] The total amount paid into court on May 6, 2016 in respect of the Disputed Amount was $4,669,706.83.

[14] The parties agreed at the pretrial that it should not proceed. Counsel for the mortgagors indicated at the pre-trial conference that they intended to introduce expert evidence to address the determination of the criminal rate of interest.

[15] Following payment of the Undisputed Amount to the mortgagees and payment of the Disputed Amount into court, the relevant mortgages and related instruments were discharged.

[16] Prior to the attendance before Justice Flynn on April 27, 2016, the mortgagees reminded the mortgagors, through counsel, that if they proceeded to conduct cross-examinations they would be barred from filing further materials in connection with the applications.

[17] The mortgagors did not engage an expert with respect to the interest rate issue until June 14, 2016, and did not serve their motion seeking to introduce the expert report until July 14, 2016.

[18] Interest on the Participation Amount accrues at $938 per day, or about $28,000 per month.

Issues

[19] The issues on the motions are as follows:

(a) whether the mortgagors should be granted leave, following cross examination of a representative of the mortgagees, to file an affidavit containing an expert opinion regarding the calculation of the effective annual rate of interest under section 347 of the criminal code, in accordance with generally accepted actuarial practices; and

(b) in the event that leave is granted, what terms should be imposed to eliminate or reduce any prejudice occasioned thereby to the mortgagees.

Test for Leave to File Additional Evidence After Cross-Examination

[20] Rule 39.03(2) of the Rules of Civil Procedure provides as follows:

(2) a party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under r. 39.03 without leave or consent, and the Court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit or a transcript of an examination conducted under r. 39.03.

Analysis

[21] The mortgagees, in their Factum, state that they are prepared to agree to the filing by the mortgagors of their expert report on terms that "reflect the facts of this case and that ensure that they are not prejudiced." At para. 31 of their Factum they repeat that, if the prejudice to them is fully addressed by the terms of an order granting leave to file the expert report, they do not object.

[22] It is clear that the filing of an expert's report by the mortgagors will result in delay in bringing the applications on for hearing, and increased costs being incurred by the mortgagees beyond what was contemplated at the time the agreement was struck providing for payment of the Disputed Amount into court and the discharge of the security against the land. In my view the applications could very well have been heard by the return date of these motions on September 27, 2016 had not the question of the filing of an expert's report been raised by the mortgagors. I also find that the prospect of having to respond to an expert's report was not made known to the mortgagees until after the agreement was entered into providing for payment into court and the discharge of the security.

[23] The fundamental underpinning of the agreement between the parties was that the amount to be paid into court by the mortgagors to obtain the discharge of the mortgages and related instruments would stand as replacement cash security for the stated obligations of the mortgagors in those instruments, including the costs of the mortgagees "as between solicitor and client" (as provided in the Standard Charge Terms to the mortgages).

[24] The delay in bringing the applications on for hearing and the increased costs to the mortgagees in having to respond to the late-filed expert's report will cause prejudice to them. However, I am of the view that this prejudice is capable of being adequately mitigated by the imposition of a term requiring the mortgagors to pay into court an additional amount which would provide reasonable and adequate security for the estimated interest on the Participation Amount during the projected delay period and the legal and expert's costs which would be reasonably incurred by the mortgagees in responding to the mortgagors' expert's report.

[25] The mortgagees propose an additional payment into court by the mortgagors of $150,000 (reduced from the sum of $175,000 sought in their Notice of Motion). They estimate the additional interest on the Participation Amount for the delay period at $50,000 (roughly $25,000 per month for two months) and legal and expert's fees at $100,000.

[26] The mortgagors do not dispute the calculation of the additional interest of $50,000 for the two-month delay period.

[27] It is noteworthy that no evidence was offered by the mortgagees to support the proposed professional fees of $100,000. In particular, no estimate from an expert proposed to be engaged to prepare a responding report was provided, and no pro forma Bill of Costs was presented in respect of projected additional legal costs. No evidence respecting the hourly rates to be utilized by the proposed expert and legal counsel was led. Without this evidence the court is left to do the best it can, with no evidentiary support, to craft a reasonable estimate of the amount which would provide sufficient security to the mortgagees in respect of professional fees to be incurred in responding to the expert's report in the circumstances

[28] I am of the view that $50,000, plus HST thereon in the sum of $6,500 would provide such reasonable security. Assuming average hourly rates of $400, this would provide 125 hours in the aggregate. Based upon hourly rates of $600 this amount would provide 83 hours. The court must assume that higher hourly rates would be reflective of the work being done in less time, based on the greater experience of the professionals involved.

[29] It was therefore ordered in my Endorsement of September 27, 2016 that, as a condition of the granting of leave to file an expert's report, the mortgagors pay into court the additional amount of $106,500.

D.A. Broad, J.

Date: December 19, 2016