The Effort Trust Company v. Sabaratnam

CITATION: The Effort Trust Company v. Sabaratnam 2017 ONSC 5594

COURT FILE NO.: CV-15-531154

DATE: 20170920

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: THE EFFORT TRUST COMPANY, Plaintiff

AND:

SIVARAJAN SABARATNAM, Defendant

COUNSEL: Sharoon J. Gill, for the Plaintiff

Norman Epstein, for the Defendant

BEFORE: P. J. Monahan, J.

HEARD: September 13, 2017

ENDORSEMENT

[1] The Plaintiff, The Effort Trust Company (“Effort”) seeks summary judgment in an action it has commenced against the Defendant, Sivarajan Sabaratnam (“Defendant”), for default on a mortgage secured against title to the Defendant’s residential property. Effort alleges that the Defendant has failed to make any payments due under the mortgage. The Defendant opposes the motion, primarily on the ground that Effort advanced the mortgage funds to a third party, 2173573 Ontario Inc., (“217 Ontario”), rather than to the Defendant directly.

[2] For the reasons set out below, I would grant summary judgment in favour of Effort for the amount outstanding under the mortgage loan, an order for possession of the relevant property, plus costs.

Background Facts

[3] On March 12, 2015, Effort loaned $180,000 to the Defendant for a term of one year at an interest rate of 15 percent per annum. The loan was secured by a second mortgage registered against the residence owned by the Defendant, property municipally known as 51 West Burton Court, Scarborough, Ontario.

[4] Pursuant to the terms of the mortgage, the Defendant agreed to make monthly payments for interest only, in the amount of $2,250, starting on April 12, 2015 and ending on March 12, 2016. However the Defendant defaulted on the first payment and has not made any payments since the mortgage loan was advanced. Following demands made by Effort to remedy the default, and the failure of the Defendant to do so, the current action was commenced on June 25, 2015.

[5] The Defendant served a Statement of Defence and Counterclaim on July 20, 2015, in which he advanced a variety of arguments, including that he did not owe any money to Effort because some of the mortgage documentation was allegedly filled out inaccurately or incorrectly, that Effort improperly deducted a lender fee of $9,000 from the mortgage proceeds, and that he never agreed to pay interest on the loan.

[6] However in cross-examination on his affidavit the Defendant admitted signing the mortgage documentation. Moreover it is clear from the record that the mortgage documents were properly filled out and executed by the Defendant, including the stated interest rate of 15 percent per annum. The fact that the transaction was completed in the normal course is confirmed in an affidavit filed by Sanka Wijeratne (“Wijeratne”), who acted as counsel for Effort and for the Defendant on the transaction, who attests that she met with Defendant on a number of occasions, that she explained the transaction and the relevant documentation to him, and that he signed all the necessary documentation in her presence at meetings that took place in her office on March 11 & 12, 2015.

[7] Counsel for the Defendant did not file a factum on the motion. However in oral argument, counsel for the Defendant did not take issue with the validity of the mortgage, nor did he dispute that it constituted a valid charge on the Defendant’s property for $180,000. Counsel for the Defendant focused his submissions on the fact that the funds were advanced by Effort to 217 Ontario and/or to Sundeep Saggu (Saggu”) a principal of 217 Ontario, (the “Third Parties”), rather than to the Defendant directly.

[8] The Defendant has claimed against the Third Parties the amount outstanding under the loan from Effort. He claims that he never received the monies advanced from Effort to the Third Parties. Counsel for the Defendant argued that he should be able to set off against the amount owing to Effort any amounts that are found to be owing to him by the Third Parties, and which the Defendant is unable to collect from them. Alternatively, counsel argued that any judgment issued in favour of Effort should be stayed for a period of time sufficient to permit the Defendant to pursue his claim against the Third Parties.

Advance of Funds to Third Parties

[9] As the Defendant relies on the fact that mortgage funds were advanced to the Third Parties rather than to him directly, it is necessary to outline the circumstances which led to such advance being made.

[10] The mortgage was arranged for the Defendant by a Mortgage Brokerage known as Verico The Mortgage Wizards (“Verico”) and by Saggu, a mortgage agent. The mortgage application to Effort was prepared by Verico and Saggu and approved by the Defendant. In order to complete the transaction, it was agreed that Wijeratne would be jointly retained to act on behalf of Effort and the Defendant. The Defendant signed a consent acknowledging and agreeing that Wijeratne was acting on behalf of both himself and Effort.

[11] Although the Defendant stated in his affidavit that he only attended at Wijeratne’s office on a single occasion, in cross-examination he acknowledged that he in fact attended on at least two occasions in connection with the transaction. The Defendant further acknowledged in cross-examination that at the second of those meetings, on March 12, 2015, he instructed Wijeratne to advance the funds to 217 Ontario rather than to him directly.

[12] There is some difference of opinion with respect to the explanation the Defendant provided to Wijeratne at their March 12, 2015 meeting as to why he wished the money to be paid to 217 Ontario. Wijeratne states in her affidavit that she advised the Defendant of the inherent risks involved in transferring the mortgage proceeds to a numbered company rather than to his own account. Wijeratne states that the Defendant insisted that he wanted to use the mortgage proceeds to fund a property investment through 217 Ontario. However, in cross-examination on his affidavit, Defendant took the position that he wanted the money to be paid to 217 Ontario so that it could be used to sponsor his wife, who lives in Sri Lanka, to immigrate to Canada.[^1]

[13] Notwithstanding the different accounts offered by the Defendant as what was said in March of 2015 regarding why he wanted the funds advanced to 217 Ontario, it is not disputed that the Defendant expressly instructed Wijeratne to advance the mortgage funds to 217 Ontario. Nor does the Defendant plead or allege any error or negligence on the part of Effort in advancing the funds to the Third Parties. Wijeratne prepared, and the Defendant signed, an Acknowledgement and Direction, which instructed Wijeratne as follows:

“This is to direct you [Wijeratne] and shall constitute your good and sufficient and irrevocable authority to make your cheque for the balance of the mortgage proceeds payable to 2173573 Ontario Inc.

I, the undersigned, being the mortgagor in the above transaction, hereby acknowledge that we have not obtained the above-noted mortgage for any third party or for the benefit of 2173573 Ontario Inc. I am using the proceeds of this mortgage to purchase a land.”

[14] The Acknowledgement and Direction was dated March 12, 2015 and signed by the Defendant. Based on the Defendant’s oral instructions, as well as the written Acknowledgement and Direction, Wijeratne (on behalf of Effort) advanced the balance of the mortgage proceeds to 217 Ontario. After deducting amounts representing various fees and expenses, none of which is now in dispute, the amount paid to 217 Ontario Inc. was $169,726.86

[15] As discussed above, the Defendant claims that he never received any of the funds that were advanced to 217 Ontario Inc. In his Statement of Defence and Counterclaim he named the Third Parties as “Defendants by Counterclaim” and, on September 9, 2015, they were noted in default. However the Defendant has taken no further steps to pursue his claim against the Third Parties since September 9, 2015. Nor has the Defendant tendered any evidence indicating what happened to the funds that were advanced to 217 Ontario at his direction.

Summary Judgment

[16] As the Supreme Court of Canada has explained in Hryniak v. Mauldin,[^2] there is no genuine issue for trial when the motions judge is able to reach a fair and just determination on the merits. This will be the case when the process: (i) allows the judge to make the necessary findings of fact; (ii) allows the judge to apply the law to the facts; and (iii) is a proportionate, more expeditious and less expensive means to achieve a just result.

[17] Here, while there are certain facts that remain in dispute, the facts necessary to resolve the legal issues raised by this motion are no longer in dispute. Moreover the relevant and applicable law can be applied to these undisputed facts in a relatively straightforward manner. Thus in my view this matter is ripe for summary judgment, in accordance with the principles laid down in Hryniak.

Analysis

[18] The following facts are undisputed:

(a) Effort loaned $180,000 to the Defendant at his request, to be secured by a second mortgage on his home;

(b) The transaction was completed in the normal course, with the Defendant signing all the necessary documentation in the presence of Wijeratne, counsel who was acting jointly for the Defendant and Effort on the transaction;

(c) The loan was secured by a valid mortgage in the amount of $180,000 in favour of Effort against the Defendant’s residential property;

(d) The Defendant has defaulted on the mortgage loan and, in fact, has never made any payments to Effort; and

(e) The Defendant instructed counsel acting on his behalf and on behalf of Effort to advance the mortgage funds to 217 Ontario Inc.

[19] Since it is common ground that the mortgage is legally valid, and that the Defendant has defaulted by failing to make any payments as required, it follows that Effort is prima facie entitled to judgment in its favour. In particular, the fact that the funds were advanced to 217 Ontario rather than to the Defendant personally cannot impair the validity of Effort’s mortgage, since such payment was made on the express instructions of the Defendant.

[20] However the Defendant seeks to avoid summary judgment on two bases: first, that he should be entitled to set off against the amounts owing to Effort any amounts that he is entitled to recover from the Third Parties, and which he is unable to collect from them; and second, in the alternative, any judgment in favour of Effort should be stayed until such time as the Defendant is able to pursue his claim against the Third Parties for the funds that were advanced to 217 Ontario.

[21] Dealing with the first argument, the pleadings and the facts as set out above do not give rise to any claim of set-off. What the Defendant is actually asserting is a third party claim, rather than a claim of set-off. While a mortgagor has the obvious right to assert a third party claim in the context of a mortgage enforcement proceeding, he or she cannot rely on the potential existence of such a claim as a basis to defeat an otherwise valid claim against him by a mortgagee. Otherwise a mortgagee’s right to recover under a valid mortgage would be subordinated to the mortgagor’s right or ability to recover amounts due to him from third parties. This would lead to the absurd result that a mortgagor could default under a mortgage, then seek to limit or reduce liability to the innocent mortgagee on the basis that the mortgagor may have a valid claim against others but has been unable to recover on such claim.

[22] Set off involves a quite different situation, where a defendant, in response to a claim made against him by a plaintiff, asserts a cross claim against the plaintiff which “goes to the very root of the plaintiff’s claim.”[^3] Moreover, the 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.”[^4]

[23] Here the Defendant has no cross-claim against Effort, much less a cross-claim that would go “to the root” of Effort’s claim. In advancing the funds to 217 Ontario, Effort acted in accordance with the instructions provided by the Defendant himself. The Defendant’s claim is against the Third Parties, not Effort. On these facts, and as pleaded, there is no cross-claim against Effort, by the Defendant or otherwise, and thus no claim of set-off can or does arise.

[24] With respect to the Defendant’s second argument - that any judgment in favour of Effort be stayed pending pursuit of the Third Party claim - as a general proposition, a successful plaintiff is entitled to the fruits of his or her judgment and should not be deprived of them unless the interests of justice require: Voth Brothers Construction (1974) Ltd. v. National Bank of Canada.[^5] A party seeking a stay must satisfy the three-part test for interlocutory relief as set out in Metropolitan Stores (MTS) Ltd. v. Manitoba Food and Commercial Workers,[^6] as well as RJR MacDonald Inc. v. Canada (Attorney General).[^7]

[25] The first element of the test requires that there be a serious question to be tried. It is plain and obvious that here, as between Effort and the Defendant, there is no serious question remaining at issue. To the contrary, for the reasons discussed above, Effort is entitled to summary judgment in enforcing its mortgage, which is in default. The fact that the Defendant may potentially have a valid claim against the Third Parties does affect the validity of Effort’s claim against the Defendant. There is no serious question to be tried with respect to Effort’s claim against the Defendant.

[26] With respect to the second and third elements of the test for a stay, the Defendant has had over two years to pursue his claim against the Third Parties. Apart from noting the Third Parties in default in September 2015, the Defendant has taken no action to crystallize or enforce his Third Party claim. Nor has the Defendant provided a timeframe within which he intends to pursue his Third Party claim. Moreover, the Defendant has tendered no evidence explaining how or for what purpose the funds advanced to 217 Ontario were utilized, and whether he derived any direct or indirect benefit. He simply asserts that he never received the funds from the Third Parties. In the absence of any further explanation or evidence, there is no basis for assessing the strength of the Defendant’s claim against the Third Parties.

[27] In effect, the Defendant seeks an indefinite stay of execution to allow him to pursue a potential claim of indeterminate validity against Third Parties. In the meantime, interest on the outstanding mortgage will continue to accrue at the rate of 15 percent per annum, which may result in the amount payable to Effort exceeding the equity in the property, thereby depriving Effort of its practical ability to recover on a judgment to which it is otherwise entitled.

[28] On this basis, it is evident that the Defendant fails both the second and third elements of the test for a stay. Effort, rather than the Defendant, risks suffering irreparable harm if a stay were granted. Moreover, the balance of convenience favours enforcement of the judgment now, when there may well be sufficient equity in the property to satisfy the judgment, rather than postponing the day of reckoning to some unidentified future date.

Conclusion

[29] Effort is entitled to summary judgment for the principal amount of the loan, $180,000, plus interest accruing from March 12, 2015 until the date of repayment at the rate of 15 percent per annum. The mortgage also provided for a default administration fee of $2,000. The calculation provided by counsel for Effort at the hearing of this matter, which was not disputed by counsel for the Defendant, indicates that as of September 13, 2017, the total interest accrued was $67,683.32, resulting in judgment in favour of Effort as of that date for $249,683.32.

[30] Effort is further entitled to an order granting leave to issue a writ of possession, as well as an order granting possession of the Property, in accordance with standard charge terms incorporated into the mortgage and Rule 60.10 of the Rules of Civil Procedure.

[31] With respect to costs, the standard charge terms provide for the payment of Effort’s costs on a full indemnity basis. Counsel for Effort provided a Bill of Costs indicating that Effort’s costs on a full indemnity basis, including H.S.T. and disbursements, amounted to $15,029.42. I find these costs to be entirely reasonable, particularly given the range of issues raised by the Defendant, the fact that this action took over two years to bring to conclusion, and the extensive documentary material filed by counsel for Effort. I therefore award costs in favour of Effort at the full indemnity scale of $15,029.42, payable within 30 days.

P. J. Monahan .J.

Date: September 20, 2017

[^1]: At the closing of the transaction in March of 2015, the Defendant executed a Statutory Declaration affirming that he was not a spouse within the meaning of the Family Law Act (Ontario). Further, Ms. Wijeratne stated in her affidavit that in her meetings with the Defendant she specifically raised the issue of the Defendant’s marital status, and he confirmed that he was not married. However in cross-examination on his affidavit, the Defendant stated that he was in fact married and that his wife resided in Sri Lanka. At the same time, he indicated that she had never resided at his home in Scarborough. On this motion the Defendant has not claimed that the property is a matrimonial home as defined in the Family Law Act. [^2]: 2014 SCC 7, [2014] 1 S.C.R. 87. [^3]: Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 (“Telford”) at para. 35. [^4]: Telford, at para. 35. [^5]: [1987] B.C.J. No. 197 (B.C.C.A.) at para. 4. [^6]: [1987] 1 S.C.R. [^7]: 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311.