Court File and Parties

COURT FILE NO.: CV-16-558059 DATE: 20170620 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Elizabeth Hartman, Plaintiff AND: 2504886 Ontario Inc. and Royal Bank of Canada, 2450534 Ontario Limited and Payam Katabian, Defendants

BEFORE: Carole J. Brown, J.

COUNSEL: M. Reinhart, for the Plaintiff D. Brooker, for the Defendants

HEARD: May 31, 2017

Endorsement

[1] The moving party plaintiff seeks partial summary judgment as against the defendants 2504886 Ontario Inc. (“250”) and 2450534 Ontario Limited (“245”) (referred to jointly as the responding defendants”) in the amount of $180,054.08.

[2] The plaintiff brings this action as against the defendants for conversion and fraud in the amount of $280,000, and punitive damages in the amount of $100,000.

[3] The plaintiff claims that she is entitled to the amount of $235,000 by way of payout to her from proceeds from a power of sale conducted by 250 as administrator for a first mortgage syndicate that had four first co-mortgagees.

[4] The plaintiff held the second mortgage on the subject property which was taken by way of an assignment for which the plaintiff paid $440,549.08. On May 12, 2015, the assignor of the mortgage, Global Investment Holdings Inc. (“Global”), obtained judgment as against the mortgagor and guarantors of the second mortgage in the amount of $385,000 plus interest and costs, which judgment was on consent of all the parties including the mortgagor and guarantors.

[5] The defendant, 250, was one of the four investors that took an assignment of the first mortgage on the property on November 23, 2016. It held an undivided 52.10% interest in the first mortgage and was authorized to act on behalf of the other members of the syndicate.

[6] The property was sold under power of sale on July 18, 2016 in the total amount of $1,850,000. The individual defendant, Payam Katabian (“Katabian”), sole officer and director of 250, as administrator for the first mortgage syndicate of four first co-mortgagees, who conducted the power of sale, prepared the mortgage discharge statement dated July 18, 2016, which calculated the total amount to discharge the first mortgage at $1,407,277.79.

[7] The plaintiff was paid $272,550.51 from the proceeds of sale of the property. She claims, in this action, a shortfall of approximately $235,000 on her second mortgage.

[8] On the first mortgage, the discharge amount was paid into the account of 245, another corporation of which Katabian was sole officer and director and held in its bank account with Royal Bank of Canada (“RBC”). These monies were thereafter frozen by RBC, before any of the the co-first mortgagees were paid by the defendants.

[9] On motion by the plaintiff, the funds were paid into court to the credit of this action, after deducting $5000 for RBC’s costs.

[10] The action as against RBC has been dismissed.

[11] At this juncture in this action, pleadings are closed and the motion for payment into court was brought. No examinations for discovery have been held.

[12] This motion was originally made returnable for a date in March, but was not reached. Thereafter, the plaintiff brought a motion before the Master, seeking to bring additional evidence to address the amount secured by the mortgage, which motion was dismissed.

The Positions of the Parties

The Position of the Plaintiff, Moving Party

[13] It is the position of the moving party that she has established, in this motion, based on the evidence presented, that there are sufficient amounts of money to pay all of the co-first mortgagees and herself.

[14] It is her position that Katabian acknowledged he had made errors in preparing the discharge statement resulting in the discharge amount being increased by $105,000, which amount was received by 245. It maintains that, as a result, once the investors in the first mortgage are paid the monies owed to them, an additional $105,000 will be available to pay any shortfall owed to the plaintiff as second mortgagee.

[15] The moving party maintains that the defendants have also held a surplus of $75,000 in some undisclosed location, which have not been paid into court and that they are being held for “protective disbursements” intended to pay legal costs that may be incurred by the first mortgagees should they face litigation from the plaintiff or any other party involved in the property. It is the position of the plaintiff that the holding of such “protective disbursements” should only be done upon application to the court and is improper.

[16] The moving party maintains that one co-mortgagee, 1940859 Ontario Inc. (“194”) commenced an action against the defendants, among others, for the amounts owed to it under the first mortgage, which were not paid out to it due to the fact that amounts were frozen by RBC and subsequently paid into court. That action was settled on the basis that the parties would consent to an order that the sum of $274,767 for principal interest and costs would be paid to 194 from the amounts held in court. The plaintiff had been brought into the action and had consented to the proposed order.

[17] The plaintiff states that Global obtained summary judgment against the mortgagors in the amount of $385,000 plus 15% per annum PJI on May 12, 2015, which amount had been secured by the plaintiff’s mortgage. Thus, as of August 14, 2015, the plaintiff’s mortgage amounted to $406,778.76.

[18] The plaintiff maintains that at least $187,000 remains owing to the plaintiff, even if the defendant’s position that there is no evidence that the entire amount paid by the plaintiff for the assignment of mortgage is secured by the mortgage is correct. It claims that, adding 15% interest from August 4, 2015 to July 18, 2016, the date of the discharge statement, to the $406,778.76 amounts to more than $460,000. Deducting the $272,550.51 from the funds already received by the plaintiff from the proceeds of sale of the property, there remains at least $187,000 owing to the plaintiff.

[19] The moving party plaintiff maintains that it is clear, from all of the above, and all of the evidence adduced, that there is no genuine issue for trial in this matter as regards its being owed $180,000 and that this order for partial summary judgment in the set amount should be granted.

The Position of the Defendants

[20] It is the position of the defendants that the plaintiffs have not established what portion of the amount she paid for assignment on the second mortgage was actually secured by the mortgage and is unable to establish that the entire sum paid for the mortgage is securable under its terms.

[21] It is the position of the responding party defendants that the plaintiff has failed to put forward any evidence to support her claim as to the quantum secured by the mortgage, but maintains that the full amount she paid for the assignment is owing.

[22] The defendant states that one of the co-first mortgagees commenced an action as against all of the defendants in the within action on the basis that it had not received payment, which was due to the fact that the funds in 245’s account had been frozen and were subsequently ordered paid into court. The claim was settled by way of a consent order for payment to the co-first mortgagee, with interest and costs. The defendants named the plaintiff in the within action as a party, such that her consent was also obtained as regards the settlement. To date, the defendants have been involved in two court actions regarding securing its security and those of the co-first mortgagees. The funds in court will be used to pay those co-first mortgagees.

[23] The defendants maintain that the plaintiff is attempting to claim priority over the first mortgagees of the funds paid into court by having a portion of those funds paid out to her at this juncture.

[24] The defendants maintain that there are genuine issues requiring a trial as regards the amounts payable to each of the co-first mortgagees and the second mortgagee which must be determined based on a full record. It seeks to have this motion dismissed.

The Law and Analysis

Summary Judgment

[25] In Hryniak v Mauldin, 2014 SCC 7, [2014] S.C.J. No. 7, the Supreme Court of Canada determined that there would be no genuine issue requiring a trial where a judge is able to reach a “fair and just determination on the merits” of the case. This will be the case when the process: (1) permits the judge to make the necessary findings of fact on the basis of the evidence adduced, (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.

[26] Pursuant to Hryniak, the motion judge should first determine if there is a genuine issue requiring a trial based only on the evidence before the court, without using the new fact-finding powers set forth in Rule 20.04 of the Rules of Civil Procedure. There will be no genuine issue requiring a trial if the summary judgment process provides the court with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportional procedure. If there appears to be a genuine issue requiring a trial, the motion judge should determine if a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). The judge may, at his or her discretion, use those powers, provided that doing so does not offend the interest of justice, i.e., that it will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[27] The moving party bears the onus of establishing that there is no triable issue. However, a responding party must “lead trump or risk losing”: 1061590 Ontario Limited v Ontario Jockey Club, [1995] O.J. No. 132, 21 O.R. (3d) 547 (Ont. C.A.). The responding party may not rest on the allegations or denials in the pleadings, but must present by way of affidavit or other evidence, specific facts and coherent, organized evidence demonstrating a genuine issue. The responding party is required to “put its best foot forward”: Curoe Construction Ltd. v Ottawa (City), 2015 ONCA 693 at paras. 26-27 (Ont. C.A.) The motions judge is entitled to assume that the record contains all evidence that the parties will present if there is a trial. It is not sufficient for the responding party to say that more and better evidence will be available at trial. The court must take a “hard look” at the evidence to determine whether there is a genuine issue for trial.

[28] In the circumstances of this case, I do not find partial summary judgment to be appropriate.

[29] Based on all of the evidence before me, I am not satisfied that there is sufficient evidence to determine the amounts owing to the plaintiff second mortgagee, nor the amount of her mortgage, taken on assignment, which was secured.

[30] An assignee of a mortgage is in no better position than the state of accounts which exist between the assignor and the mortgagor and takes the assignment of the mortgage subject to the equities that exist as between them. Further, if there are side agreements such as a separate set off agreement between the mortgagor and assignor, the assignee takes assignment subject to that agreement, even if it was not aware of said agreement: Toronto Dominion Bank v Block Brothers Contractors Ltd., 1980 Carswell Alta 496 at paras 28, 42 and 47.

[31] There is no evidence to indicate the entire amount paid for the second mortgage which is secured by the mortgage itself. Nor is the plaintiff able to indicate the amount secured by her mortgage or whether the amount paid for the assignment is secured in full. The assignee may hold the conveyance of the legal estate and the assignee may obtain the conveyance of a legal estate, but holds it as security only for what is properly owing by the mortgagor at the date of the assignment: McCormick v Cockburn (1900), 31 O.R. 436, para 9. The assignee of a mortgage is entitled to enforce only the amount secured by the said mortgage regardless of what may have been paid for the transfer. It is upon the party seeking to enforce payment of the mortgage to establish the amount so secured: Lang v Lang, 1948 CarswellOnt 264, paras 10, 11.

[32] In the circumstances of this case, with the evidence before me, I find that there is a genuine issue requiring a trial. I am unable to reach a fair and just determination on the merits of the case, based on the record before me. I am not able to make the necessary findings of fact as regards the amounts owing to the co-first mortgagees or the plaintiff as second mortgagee based on the evidence adduced, nor to apply the law to those facts. I do not find that summary judgment, in the circumstances of this case, is a proportionate, more expeditious and less expensive means to achieve a just result. I do not find that a trial could be avoided by using the new powers pursuant to Rules 20.04(2.1) and (2.2). I am of the view that the issues raised in this action can only be fully determined on the basis of a complete record, with a complete accounting of the amounts owing to each interested party, taking into consideration as well the priorities of the first and second mortgagees.

[33] I am advised by the parties that this action is at a preliminary stage. No examinations for discovery have occurred. There are other actions involving other mortgagees which may be sought to be consolidated with this action.

[34] Further, given the fact that the plaintiff only seeks a portion of her full claim as payment out from the funds held in court, partial summary judgment would not avoid a full trial in this action. The plaintiff will have to testify as regards the balance of the funds claimed.

[35] In this regard, I am cognizant of and have taken into consideration the findings of Karakatsanis J. addressing the “interest of justice” requirement in Hryniak v Maulden, supra., at paragraphs 48-51, as follows:

The “interest of justice” inquiry goes further and also considers the consequences of the motion in the context of the litigation as a whole. For example, if some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of negative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice. On the other hand, the resolution of an important claim against a party could significantly advance access to justice and be the most proportionate, timely and cost-effective approach.

[36] In this case, based on the dearth of evidence before this Court, I do not find that the summary judgment process provides the court with the evidence required to fairly and justly adjudicate the dispute between the plaintiff and defendants, nor would it be a timely, affordable and proportional procedure in the circumstances of this case. There appears to be a genuine issue requiring a trial. In this case, the court should determine if a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). The judge may, at his or her discretion, use those powers, provided that doing so does not offend the interest of justice, i.e., that it will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole. As indicated above, I find that the issues to be determined can only be determined on the basis of a complete record.

[37] Based on all of the evidence before me, I am satisfied that this matter must proceed to trial expeditiously, with all parties in attendance. Accordingly, I do not grant summary judgment.

Costs

[38] The parties have provided their bills of costs. The defendants, as successful parties, are entitled to their costs on a partial indemnity basis in the amount of $10,204.12 which is reasonable and proportionate given the plaintiff’s costs, which are slightly higher on a partial indemnity basis.

Carole J. Brown, J.

Date: June 20, 2017