Court File and Parties

COURT FILE NO.: 16-CV-553774 Motion heard: April 26, 2017 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CVC ARDELLINI INVESTMENTS INC., Applicant AND DIVERSIFIED CAPITAL INC., Respondent

BEFORE: Master Lou Ann M. Pope

COUNSEL: Counsel for applicant: Liliana Ferreira, FIJ Law LLP Fax: 416-763-3772 Counsel for respondent: Dominique Michaud, Robins Appleby LLP Fax: 416-868-0306

Reasons for Endorsement

[1] The applicant seeks leave of the court to file a Second Supplementary Application Record, or in the alternative, leave to file the Affidavit of Robert A. Izsak sworn February 28, 2017. The applicant relies on Rule 39.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”).

[2] In this application the applicant seeks an order assigning the mortgage held by the respondent (“respondent’s mortgage”) to the applicant on the basis that the mortgage was in default.

[3] The applicant, CVC Ardellini Investments Inc. (“CVC”), holds the second mortgage registered on title to property on Boulton Drive in Toronto. CVC obtained judgment on the mortgage against the registered owner of the property, Del Terrelonge (“Terrelonge”), on August 26, 2015, in an amount in excess of $8,000,000.

[4] The respondent, Diversified Capital Inc. (“Diversified”), holds the first mortgage registered on title to the Boulton property. Diversified took an assignment of that mortgage from MCAP Service Corporation on April 28, 2016 after MCAP had obtained judgment for payment and possession of the property from Mr. Terrelonge in January 2016.

[5] Immediately following the assignment, CVC sought an assignment of the Diversified mortgage from Diversified pursuant to section 2 of the Mortgages Act, R.S.O. 1990, c. M. 40. Diversified refused to give the assignment.

[6] Therefore, CVC brought an application on May 31, 2016 seeking an order that Diversified assign its mortgage to CVC on the basis that the mortgage was in default, as set out in paragraph 4 above. In particular, CVC relies on standard charge term number 9 a. 8) which states:

A default occurs under this mortgage if the borrower does not discharge any judgement registered in the Land Registry Office against the land within 30 days after receiving notice of its registration.

[7] Essentially, the law permits a second mortgagee to seek and obtain an assignment of a first mortgage that is in default. However, if the mortgage is not in default, a second mortgagee is not entitled to obtain an assignment of same without the consent of the first mortgagee.

[8] Diversified alleges that their mortgage was not in default given an agreement entered into by Diversified and Mr. Terrelonge (“amending agreement”).

[9] In support of the application, CVC filed two affidavit of Robert Izsak sworn May 31, 2016 and June 14, 2016. In response, Diversified filed the affidavit of Russ Giannotta sworn July 18, 2016.

[10] When CVC served its application material, it requested information regarding the Diversified mortgage. Diversified provided a mortgage status statement which stated the amount owing on the mortgage as of June 30, 2016 and advised that the mortgage was in good standing such that CVC was not entitled to an assignment of the Diversified mortgage. Diversified also advised that it was not authorized to disclose any further information on the basis of the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 (“PIPEDA”).

[11] On July 25, 2016, one day before the cross-examination of Mr. Giannotta on behalf of Diversified, CVC registered its judgment on title to the Terrelonge property.

[12] CVC cross-examined Mr. Giannotta on his affidavit on July 26, 2016. Mr. Giannotta refused to answer any questions regarding the amending agreement between Diversified and Terrelonge including questions as to whether the agreement altered the default terms in the standard charge terms of the mortgage. He also refused to produce a copy of the amending agreement. All of these questions were refused on the grounds of PIPEDA.

[13] However, on November 17, 2016, the Supreme Court of Canada in Royal Bank of Canada v. Trang, 2016 SCC 50, reversed the Ontario Court of Appeal’s decision regarding the proper interpretation of PIPEDA. Thereafter, on December 9, 2016, Diversified produced the amending agreement to CVC.

[14] On January 4, 2017, CVC gave notice to Diversified and Terrelonge that it had registered its judgment on title to the Terrelonge property on July 25, 2016. The letter stated further that pursuant to the default provisions of the standard charge terms of the Diversified mortgage, if the judgment was not discharged within 30 days of notice being given as to the registration on title to the property, this would constitute another act of default under the Diversified mortgage.

[15] CVC submits that until production of the amending agreement on December 9, 2016, it was unknown which terms of the mortgage had been amended, if any. Notably, the amending agreement did not change the default provisions of the standard charge terms of the Diversified mortgage.

[16] Diversified is not opposed to CVC filing a supplementary affidavit on the application that attaches the amending agreement as it submits that the said agreement is relevant to the issues on the motion. However, it opposes the balance of the contents of Mr. Izsak’s proposed supplementary affidavit and the affidavit of Elio Monaco sworn February 28, 2017 on numerous grounds.

[17] The proposed second supplementary application record contains the supplementary affidavit of Robert Izsak, including exhibits, and the affidavit of Elio Monaco, including exhibits, both sworn February 28, 2017.

Law

[18] Rule 39.02(2) provides that a party who has cross-examined on an affidavit shall not subsequently deliver an affidavit for use at the hearing without leave of the court or consent. The rule also states that leave shall be granted, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on cross-examination, with evidence in the form of an affidavit.

[19] The Divisional Court in First Capital Realty Inc. v. Centrecorp Management Services Ltd., [2009] O.J. No. 4492, at para. 13, affirmed that the case law under rule 39.02(2) confirms the following criteria to consider in determining whether a party should be granted leave to respond to a matter raised on cross-examination:

1. Is the evidence relevant?
2. Does the evidence respond to a matter raised on the cross-examination, not necessarily raised for the first time?
3. Would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs, terms, or an adjournment?
4. Did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?

[20] The Divisional Court also held at paragraph 14:

A flexible, contextual approach is to be taken in assessing the criteria relevant to rule 39.02(2), having regard to the overriding principle outlined in rule 1.04 of the Rules of Civil Procedure that the rules are to be interpreted liberally to ensure a just, timely resolution of the dispute. An overly rigid interpretation can lead to unfairness by punishing a litigant for an oversight of counsel.

[21] In addition, at paragraph 27, the court stated:

The Rules of Civil Procedure are meant to promote both fairness and the search for truth. They are not meant to encourage the adversarial game of cat and mouse, with technical but impractical arguments.

[22] Respectfully, I disagree with CVC that the test under rule 39.02(2) includes a fifth consideration; namely, whether it is in the interests of justice to do so even where these criteria are not met. This was a consideration held by the court in Nolan v. Canada (Attorney General) (1998), 38 O.R. (3d), which was not accepted by subsequent courts and ultimately not accepted by the Divisional Court in First Capital Realty.

Disposition

Affidavit of Robert A. Izsak sworn February 28, 2017

[23] In my view and for the following reasons, the only paragraph of Mr. Izsak’s supplementary affidavit that is permissible is paragraph 8; however, it is not permissible under rule 39.02 for the following reason. I agree with Diversified’s submissions that the mortgage amending agreement is admissible as evidence at the hearing of the application as the information contained in those paragraphs are answers to the questions that Mr. Giannotta refused to answer on cross-examination. Item 4 on Mr. Giannotta’s refusals chart sets out that he refused to produce the amending agreement on the grounds of PIPEDA, which he subsequently produced in December 2016 given the Supreme Court of Canada’s decision in First Capital Realty.

[24] Further, CVC has not amended its notice of application to include the allegation that the Diversified mortgage was in default a second time as a result of Terrelonge failing to discharge the CVC judgment within 30 days after notice of its registration on January 4, 2017. Had the pleading been so amended prior to cross-examination, the issue of the alleged second default would have been relevant. However, the default relied on by CVC in its application is the alleged default due to MCAP having obtained judgment for payment and possession of the property from Mr. Terrelonge in January 2016, as set out in paragraph 4 above.

[25] In particular, I find that the information set out in paragraphs 2, 3, 4, 5, 6, 7, 9, 11 and 12 was all within CVC’s knowledge prior to cross-examinations held on July 26, 2016 and within CVC’s ability to either amend the notice of application or deliver a reply to Diversified’s responding material filed on the application prior to cross-examinations.

[26] I find further that the information contained in all paragraphs of Mr. Izsak’s affidavit sworn February 28, 2017, except paragraph 8, are either not relevant to the issues in the action or it is information that was within CVC’s knowledge prior to cross-examinations and not included in the application material.

[27] I find further that CVC has not adequately explained why this information was not included in its application material prior to cross-examinations. Despite Diversified having produced a copy of the amending agreement in early December 2016, I find that none of the information contained in Mr. Izsak’s affidavit arises out of the amending agreement, except paragraph 8.

[28] Further, it is my view that the said information, except paragraph 8, does not respond to issues raised on the cross-examination of Mr. Giannotta.

[29] Lastly, if CVC were granted leave to file Mr. Izsak’s affidavit, the effect would be that CVC would be permitted to add another ground for relief based on a second default when it was not plead in the application and when it was within CVC’s ability to have registered its judgment shortly after it was granted on August 26, 2015 rather than waiting to do so for almost a year later on July 25, 2016.

[30] Further, if leave were granted, essentially it would be permitting CVC to amend its application to put forth evidence after cross-examinations that was within its knowledge prior to cross-examinations which it failed to include. This, in my view, is in direct contravention of rule 39.02(2) and ought not to be permitted. To do so would, in my view, result in non-compensable prejudice to Diversified that could not be addressed by imposing costs, terms, or an adjournment.

Affidavit of Elio Monaco

[31] Mr. Monaco is an execution creditor of Terrelonge. He obtained judgment against Terrelonge in his personal capacity and on behalf of a numbered company.

[32] I find that none of the information contained in Mr. Monaco’s affidavit is relevant to this application. In particular, the number and amounts of executions registered against Terrelonge, the percentage of the total debts owed to Mr. Monaco and CVC, and Mr. Monaco’s opinion and concerns regarding Diversified’s actions are, frankly, of no relevance whatsoever to the issues in this application.

Conclusion

[33] For the above reasons, the applicant’s motion is dismissed in part. CVC is permitted to file a supplementary affidavit of Robert A. Izsak that includes only paragraph 8 of his affidavit sworn February 28, 2017 including the exhibit of the amending argument, within 10 days of the date of this endorsement.

[34] Diversified shall be entitled to its costs of this motion. While I have permitted CVC to file a supplementary affidavit that includes the amending agreement, I found that the production of same by Diversified was, in fact, an answer to a refused question which CVC would be entitled to enter into evidence at the hearing of the application.

[35] Diversified made an offer to settle this motion on April 10, 2017. The results of this motion are essentially the same or better than Diversified’s offer; therefore, Diversified shall be entitled to substantial indemnity costs fixed in the amount of $7,000, payable within 30 days.

May 2, 2017 (original signed)________ Master Lou Ann M. Pope