Court File and Parties

COURT FILE NO.: CV-14-118465-00 DATE: 20170621 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Amber Lighting Limited and Alka Bhargava, Plaintiffs AND: Rosa Petrozza, Vito Petrozza and Dalia Osman, Defendants

BEFORE: Justice J. Di Luca

COUNSEL: Mark A. Klaiman, Counsel, for the Plaintiffs Dominic Saverino, Counsel, for the Defendants Rosa Petrozza and Vito Petrozza

HEARD: May 17, 2017

Endorsement

[1] The Plaintiffs, Amber Lighting Limited (“Amber Lighting”) and Alka Bhargava, bring a motion for summary judgment against the Defendants Rosa Petrozza and Vito Petrozza (“the Petrozzas”) for $123,500 plus interest (“the additional funds”). The action against Dalia Osman was discontinued on September 30, 2014.

[2] This action arises out of a mortgage dispute between two mortgagees who each advanced money to Radika Mahadeo, who subsequently defaulted on the mortgages. The core issue in the action is whether the Petrozzas are entitled to the additional funds in priority to Amber Lighting.

[3] For the reasons that follow, I am not satisfied that this is an appropriate case for summary judgment in favour of the Plaintiffs.

Factual Background

[4] The factual background to this dispute is complex.

[5] Ms. Mahadeo was the owner of the premises located at 380 Velmar Drive in Vaughan, Ontario. She granted a first mortgage to Maple Trust in the amount of $400,000. This first mortgage is not in issue in these proceedings.

[6] On April 17, 2009, Ms. Mahadeo granted a second mortgage to the Petrozzas in the amount of $110,000. A collateral second mortgage for $110,000 was also registered on 5 Bethridge Road, another property owned by Ms. Mahadeo.

[7] The mortgage agreement between Ms. Mahadeo and the Petrozzas provided that in the event the mortgagees were called upon to make payments, including but not limited to the payment of taxes, insurance payments principal, interest or costs under a prior mortgage, in order to protect their security interest, any amounts paid would be added to the principal amounts secured by the mortgage and subject to interest in accordance with the terms of the agreement.

[8] The Petrozzas claim they made a number of payments in order to protect their interests. Ms. Mahadeo acknowledges receipt of the additional funds totalling $123,500. In the evidence before me, the specific details of these payments is unclear. Vito Petrozza claims the payments were made to protect the security interest of the mortgagees and that the payments were used for “expenses, principal and interest on prior mortgages and costs”. Neither his affidavit nor the transcript of his cross-examination reveal the specific purpose of these payments or, indeed, who they were made to. Ms. Mahadeo signed a “Confirmation and Acknowledgment of Balance Owing” which confirms receipt of funds over and above the amount of the mortgage but provides no particulars.

[9] On April 11, 2013, Ms. Mahadeo granted a third mortgage to Amber Lighting in the amount of $1,200,000. This mortgage was a collateral mortgage securing a number of properties owned by Ms. Mahadeo, including a property at 1521 Queen Street West in Toronto. Although the mortgage was for $1,200,000, only $850,000 was advanced. The balance of the money was to be advanced once Ms. Mahadeo obtained building permits in relation to one of the properties. This never happened.

[10] Ms. Mahadeo defaulted on the mortgage. Amber Lighting sold the 1521 Queen Street property under power of sale. After paying all debts in relation to the property, Amber Lighting received $25,343.24. There was a shortfall owing to Amber Lighting of $535,389.22.

[11] Ms. Mahadeo and Amber Lighting had other issues between them, including the third mortgage. They reached a resolution of all their disputes with Ms. Mahadeo, agreeing to pay $500,000 to Amber Lighting. Ms. Mahadeo paid $60,000 of this amount but further defaulted on the balance. On January 28, 2015, the Plaintiffs entered into a further memorandum of settlement with Ms. Mahadeo resolving all of their disputes in exchange for the payment of $60,000. It is unclear whether this $60,000 was in addition to the $60,000 paid earlier, or simply a reflection of that payment.

[12] On September 23, 2013, the Petrozzas started an action against Ms. Mahadeo in relation to the defaulted mortgage. A Notice of Sale was issued by the Petrozzas on October 11, 2013.

[13] It appears that Amber Lighting also listed the property for sale under a Power of Sale dated November 20, 2013. In this regard, it appears that an agreement of purchase and sale was reached between Ms. Mahadeo and Ms. Alka Bhargava. Ms. Bhargava is married to Sundeep Bhargava, who is an officer and director of Amber Lighting.

[14] On December 11, 2013, the Petrozzas obtained a Judgment from Gray J. against Ms. Mahadeo in the amount of $276,273.93. The action was not defended by Ms. Mahadeo. While I have not been provided with a copy of the statement of claim or the materials used to obtain the default judgment, I understand that the Judgment relates entirely to amounts owed pursuant to the mortgage agreement. The Judgment also orders the Defendant to forthwith deliver vacant possession of the mortgaged land to the Plaintiffs and grants the Plaintiffs a writ of possession.

[15] The property was ultimately sold to Dalia Osman for $910,000. Prior to closing, Amber Lighting brought an application against the Petrozzas seeking payment into court of $270,940.55, plus reasonable costs pending a determination of the amounts owed to the Petrozzas under the terms of the mortgage with Ms. Mahadeo.

[16] On January 10, 2014, Skarica J. dealt with the application seeking payment into court of $270,940.55. In addressing the issue, Skarica J. noted as follows:

In the present situation, there has already been a judicial determination of the amount owing under the second mortgage. The second mortgagee obtained judgment in Milton on a motion before Justice Gray in the amount of $276,273.93 plus costs of $3,000. The parties involved were the second mortgagee and the owner Radika Mahadeo. However, the applicant 3 rd mortgagee shortly thereafter became aware of this judgment. On December 26, 2013, the lawyer for the applicant was informed by counsel for the second mortgagee that they had obtained a judgment and would not consent to any payments into court. The third mortgagee does not dispute the fact that the second mortgagee has a claim in the property but disputes the amount is for less than the judgment amount and seeks a payment into court for the deficiency.

Were I to order payments into court for a trial on issues regarding disputed amounts, I would in effect be going behind Justice Gray’s judgment made on Dec. 11/2013.

And further on:

In my opinion, the applicant, being aware of Justice Gray’s judgment in Milton should have applied to (1) set aside the judgment and (2) if the judgment was set aside, consider bringing a motion for payment into court of disputed amounts at that time.

Accordingly, I refuse to exercise my discretion to order payments into court for any disputed (disputed by the third mortgagee) amounts under the second mortgage.

[17] Skarica J.’s Endorsement indicates that his Order is without prejudice to the 3 rd mortgagee’s right to bring a motion to set aside Justice Gray’s Judgment and/or seek further relief in Milton.

[18] Following the sale, the Petrozzas received $290,402.05. Surplus funds of $74, 781.25 were ordered to be paid into court by the Order of Mossip J. dated May 13, 2014, to be dealt with in relation to the mortgage between Amber Lighting and Ms. Mahadeo. The surplus funds were eventually paid to Amber Lighting.

The Positions of the Parties

[19] The Plaintiffs argue that there is no genuine issue requiring a trial in this case. In their submission, the $123,500 in additional funds advanced by the Petrozzas to Ms. Mahadeo do not fall within the mortgage agreement that was registered on title which permits that funds paid in relation to expenses, principal and interest in order to secure the mortgage, can be added to the principal amount of the mortgage. Therefore, the additional funds are not funds secured in priority to the funds advanced by Amber Lighting as third mortgagee.

[20] The Plaintiffs submit that in the context of a summary judgment motion where the parties are required to “put their best foot forward”, the Petrozzas have merely provided a bald assertion that the additional funds were paid to secure the mortgage. In the absence of detailed and particularized evidence supporting their claim that the additional funds were indeed advanced in order to secure the mortgage, as contemplated by the terms of the mortgage agreement, a trial is not required to decide the action.

[21] The Plaintiffs argue that they were effectively not provided with notice of the additional loans, nor was the second mortgage amount amended before the third mortgage was registered. As a result, the Plaintiffs argue that they should be entitled to claim the $123,500 in priority to the Petrozzas. They cite Elle Mortgage Corp v. Adalath, 2012 ONSC 7061 and Reynolds Extrusion Co. v. Cooper (1978), 21 O.R. (2d) 416 (Ont. H.C.J.) in support of this submission.

[22] The Petrozzas argue that the Judgment of Gray J. has determined the issue of the amount owing under the second mortgage and that as a result, as noted by Skarica J., any attempt to argue otherwise is effectively a collateral attack on the Judgment. The Petrozzas point out that Skarica J. found that the Plaintiffs were aware of the Judgment against Ms. Mahadeo and could have brought a motion to have it set aside. Skarica J. left open the possibility of doing so on a without prejudice basis. The Plaintiffs did not avail themselves of the opportunity and, as such, remain bound by the determination made by Gray J.

Analysis

[23] Under Rule 20.04(2)(a) of the Rules of Civil Procedure, the court shall grant a summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. In accordance with Hyrniak v. Mauldin, 2014 SCC 7, there will be no genuine issue requiring a trial if the summary judgment process provides the motion judge with the evidence required to fairly and justly determine the dispute on its merits and summary judgment is a proportionate, more expeditious and less expensive means to achieve a just result.

[24] In my view, this is a matter that can be disposed of very briefly. I agree with Skarica J., that there has already been a judicial determination that the additional funds advanced by the Petrozzas were advanced under the terms of the mortgage agreement between the Petrozzas and Ms. Mahadeo. The argument to the contrary advanced here is a collateral attack on the Judgment of Gray J.

[25] The Plaintiffs were invited to bring a motion to set aside the Judgment of Gray J. and have chosen, for whatever reason, not to do so. As a result, they are bound by the determination made therein.

[26] Accepting that Gray J. determined, albeit by default, that the amount claimed was owed in relation to the second mortgage, the Petrozzas have a claim to the additional funds in priority to the Plaintiffs. Indeed, the effect of the Judgment by Gray J. is to place the advance of the additional funds within the mortgage agreement between the Petrozzas and Ms. Mahadeo, subject to the right of Amber Lighting to seek to set it aside as an interested party.

[27] I pause to note two issues. First, assuming the Defendants are correct and the issue has been determined in their favour by Gray J., it would appear that the case could have been readily determined in their favour on a summary judgment motion, though none was brought. I raised this question in colloquy with counsel and was advised that this was an oversight.

[28] Second, in the absence of Gray J.’s Judgment, I would have agreed with the Plaintiffs that the Petrozzas have advanced a bald claim that the additional funds paid were required in order to secure the mortgage as set out in the mortgage agreement. In my view, in order to defeat the summary judgment motion, the Defendants would have been required to provide a proper evidentiary basis setting out what the additional funds were for and why they were required in order to secure the mortgage. Viewed in the context of a summary judgment motion and the “best foot forward” principle, the Defendants cannot suggest that a trial is required because they choose to keep their evidentiary “powder dry.” If evidence exists that supports the defence position, it should be forthcoming in response to the summary judgment motion.

[29] In the circumstances, this may have been a proper case in which to direct a mini trial in accordance with Rule 20.04(2.2) of the Rules, to assess the evidence of Vito Petrozza and to determine on a more complete record whether the additional funds paid were in fact paid in accordance with the terms of the mortgage agreement. However, in view of the Judgment of Gray J. and the Endorsement of Skarica J., it is not.

[30] The motion for summary judgment is dismissed.

[31] If the parties are unable to agree on costs, they can file brief written submissions no longer than three pages in length within 14 days of the release of this Endorsement. If no submissions are received within that time period, there will be no order of costs.

Justice J. Di Luca Date: June 21, 2017