COURT FILE NO.: 09-CV-387686
MOTION HEARD: 20161012
REASONS RELEASED: 20170203
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
Steve Smith and TNT.CA Inc.
Plaintiffs
- and -
Duca Financial Services Credit Union Ltd.
Defendant
BEFORE: MASTER D. E. SHORT
COUNSEL: R. Trent Morris Fax: (416) 366-6837
- for the Moving Plaintiffs
A. E. Bak Fax: (905) 451-5058
- for the Defendants
REASONS RELEASED: February 3, 2017
Reasons for Decision
I. Overview
[1] This is an action commenced by TNT.CA Inc. and Steve Smith against Duca Financial Services Credit Union Ltd (“Duca”) in September 2009 seeking damages as subsequent encumbrancers for an alleged improvident sale made pursuant to a Power of Sale exercised by Duca under its first mortgage. As well, the plaintiffs seek an accounting of monies paid to Duca Financial out of the proceeds arising from the exercise of that Power of Sale, and a payment of funds claimed to due to the Plaintiffs out of those proceeds.
[2] The Plaintiffs’ action was administratively dismissed by the Registrar in February 2013 (the "Dismissal Order").This motion to set aside that dismissal was originally scheduled to be argued before me a number of months ago. On a previous return date, counsel for the defendant requested an order recusing myself from dealing with this matter further. I declined to make the order requested, and adjourned the matter to permit an appeal from that decision to be brought.
II. Recusal Motion
[3] Justice F. Kristjanson heard that appeal and released a decision found at Duca Financial Services Credit Union Ltd. v. Smith, [2016] O.J. No. 5202; 2016 ONSC 6289, upholding my refusal to recuse myself. As a consequence a further full day hearing dealing with the substance of the Registrar’s dismissal matter took place which lead to the present reasons.
[4] What ought to have been a relatively straightforward matter has now resulted in a pile materials over one foot high. Notwithstanding my quest for greater proportionality in motion practice, I am obliged to add to the pile with these reasons.
III. Background Facts
[5] In her reasons of September, 20, 2016, Justice Kristjanson summarized previous developments in this litigation following the Registrar’s dismissal:
3 TNT.CA did not take steps to set aside the Dismissal Order, but instead commenced an action in Small Claims Court in Richmond Hill in July 2015, to recover their costs of the Superior Court action. TNT.CA obtained judgment on September 22, 2015. Duca Financial then took two further steps. Duca Financial brought a separate application to the Superior Court of Justice in Newmarket seeking to stay the Small Claims Court action on the grounds of abuse of process. By reasons dated July 7, 2016, Healey, J. granted the application, noting that the remedy was to move to set aside the Dismissal Order.
4 Master Short first dealt with the matter when Duca Financial brought a motion to the Superior Court of Justice in Toronto, returnable December 16, 2015, for its costs in the Superior Court action connected with the Dismissal Order. TNT.CA filed no materials in response to the motion. Master Short adjourned the motion returnable on December 16, 2015 to his list on February 22, 2016, with costs to Duca Financial. That order was never appealed.
5 In a teleconference with Master Short on January 14, 2016, Mr. Smith informed the Master that he would be bringing a motion to set aside the Registrar's Dismissal Order. Counsel for Duca Financial informed the Master that Duca Financial was in the process of putting together an accounting. The Master ordered Duca Financial to provide a full accounting by February 8, 2016, and that TNT.CA respond by February 17, 2016. No appeal was taken from the Master's January 14, 2016 order. Duca Financial did not provide an accounting by February 8, 2016 as ordered, and has not provided an accounting to date.
6 The Master set a case conference for March 10, 2016 to set a timetable for the motion to set aside the Dismissal Order. On March 9, 2016 Duca Financial served a notice of abandonment of its motion for costs. On March 10, 2016 the Master set the timetable for TNT.CA's motion to set aside the Dismissal Order. The entirety of the March 10 Order reads: "Moving Party April 1, Responding by April 22". The March 10 order was not appealed. On April 1, TNT.CA served their materials on the motion to set aside the 2013 Dismissal Order. Responding materials were filed.
7 On April 19, 2016 Duca Financial proposed a timetable for argument of TNT.CA's motion to set aside the Dismissal Order. The timetable was consented to by all parties; it proposed a full day motion before the Master July 20, 2016. No appeal was taken from that order.
8 Although the July 20 motion date was set in April, the recusal motion, which relied solely on actions taken March 10 and earlier, was not brought until July 14, 2016.
[6] Justice Kristjanson’s decision was not appealed and thus I turn again to an endeavor to address the substance of the plaintiffs’ claim and the status of this action
IV. Abstract of Title
[7] This case has potential relevance to any mortgage sale made under a Power of Sale contained in any charge or mortgage in Ontario. As a consequence I am describing some of the entries (with their registration number) as appear on the property parcel relating to the subject property and feel it is appropriate to provide some analysis of what they appear to disclose.
[8] The subject property is in Land Titles and appears to have been transferred to a company called 2045558 Ontario Ltd. (“204”) in August 2004. Subsequently, a charge in favor of Jayendra Singh and Kiran Singh was registered on February 25, 2005 (the “2005 Mortgage”).
[9] Then on May 12, 2006 the Singhs are shown to have transferred a portion ownership of that charge to one of the plaintiffs, TNT.CA Inc. As a consequence, at that point, the 2005 Mortgage was held by TNT with Jayendra Singh ( DC 60408).
[10] A month later the defendant Duca placed a charge on the property on June 13, 2006. That mortgage was in the amount of $350,000 (DC 61611).
[11] Next, 14 days later on June 27 2006, it appears that the individual plaintiff, Mr. Smith granted a further loan in his personal capacity, to the owner 2045558 Ontario Ltd., coincidentally also in the amount of $350,000 (DC 62223)
[12] One of the enigmas of the fact situation presented in this case is how or why, as a result of an apparent conveyancing error, instead of transferring the 2005 Mortgage it was discharged and a new charge solely in favor of TNT was registered for the amount secured by the 2005 Mortgage. I avoid describing a number of somewhat odd registrations that will undoubtedly be analyzed in detail if the matter reaches a trial. For my purposes, I simply note that the plaintiffs ended up with mortgage securities, then ranking behind the Duca charge.
V. Charge Terms
[13] It would appear that the registered document with respect to the placing of the Duca charge incorporates the standard charge terms filed by Dye and Durham as bearing registration number 200033.
[14] The Duca registration incorporated in the listed “Provisions” applicable to the mortgage, the “standard charge terms” filed by Dye & Durham bearing filing number 200033.
[15] The provisions incorporated by reference in the Duca charge thus included Paragraph 9 dealing with “Power of Sale” which with my emphasis added, reads in part:
- The Chargee on default of payment for at least fifteen (15) days
may, on at least thirty-five (35) days' notice in writing given to the Charger, enter on and lease the land or sell the land. ….
lt is hereby further agreed that the whole or any part or parts of the land may be sold by public auction or private contract, or partly one or partly the other: and that the proceeds of any sale hereunder may be applied
first in payment of any costs, charges and expenses incurred ln taking, recovering or keeping possession of the land or by reason of non-payment or procuring payment of monies, secured by the Charge or otherwise, and
secondly in payment of all amounts of principal and interest owing under the Charge; and if any surplus shall remain after fully satisfying the claims of the Chargee as aforesaid same shall be paid as required by law.
[16] What is required by law requires further analysis. However first the determination of what is “surplus” and when needs to be considered. Paragraph 9 continues:
The Chargee may sell any of the land on such terms as to credit and otherwise as shall appear to him mast advantageous and for such prices as can reasonably be obtained therefor and may make any stipulations as to title or evidence or commencement of title or otherwise which he shall deem proper, and may buy in or rescind or vary any contract for the sale of the whole or any part of the land and resell without being answerable for loss occasioned thereby, and in the case of a sale on credit the Chargee shall be bound to pay the Charger only such monies as have been actually received from purchasers after the satisfaction of the claims of the Chargee and for any of said purposes may make and execute all agreements and assurances as he shall think fit.
[17] It would seem based on the facts that I will set out below, that there is an issue as to the meaning of “monies as have been actually received from purchasers”in the apparent factual situation of this case where there seems to have been funds paid to Duca well in excess of the mortgage amount at the time of closing.
VI. Exercise of Power of Sale
[18] Based on the state of Title it would seem that any mortgage that was prior to the Duca mortgage was discharged with the result the Duca was in first place and Mr. Smith and TNT were in second and third place at the time the power of sale was issued.
[19] Mr. Smith asserts that he had offers for the property for substantially higher amounts than it was sold for. Those issues can be addressed at trial. If the action is restored.
[20] On July 30, 2008, a transfer pursuant to a power of sale by Duca to a company called 285 Broadway Ltd. was made, for what is shown on the title abstract as a consideration of $527,500. (DC89664)
[21] The same day, a new charge was placed by Duca against the interest of of 285 Broadway in the amount of $395,520, which is what I understand to a been approximately the actual debt owing by the defaulting debtor 204 at the time of the sale. (DC89665)
[22] In November 2010 (i.e. two years later) the credit union placed afurther charge on the property by instrument, DC 115702. In the amount of $100,000 and that would seem to be where the title stood as at September 21 2015, which is the title search filed before me.
[23] In particular I note the absence of any dealings being reflected on the title abstract regarding any activity involving the credit union and 285 Broadway the July 2008 charge in favor of Duca. One would have thought that a five-year mortgage would have come due in 2013, with the mortgage being expected to be paid out by August 1, 2013.
[24] The Registrar’s dismissal took place on Feb 1, 2013.
[25] Now in 2017 I understand that no monies have yet been paid by Duca to the Plaintiffs with respect to the 2008 sale of the subject property.
[26] Is this in accord with the contractual requirement to make payments “as required by law”?
[27] I do however note that Justice Kristjanson did observe in her reasons:
44 It is important to note that Duca Financial, in its Statement of Defence contained in its Motion Record on its December 16 costs motion, had specifically pleaded paragraph 9 of the Standard Charge Terms as follows:
Duca further relies on paragraph 9 of Standard Charge Terms No. 200033 incorporated by reference in the Mortgage. Until the original mortgage debt is paid in full, Duca is not obligated to provide any funds or to further account for same to the plaintiffs. Duca is not obliged to pay out money to the plaintiffs that have not been paid to Duca.
[28] That issue is to be resolved elsewhere but has a bearing on my contextual analysis in this case.
[29] For now I turn to the case law interpreting provisions such as that relied upon by Duca
VII. Mortgage Law
[30] In 1982, the Ontario Court of Appeal decided Smith and Shurtleff Inc. v. Parks,[1982] O.J. No. 159; 43 C.B.R. (N.S.) 287; 26 R.P.R. 78. In relatively brief reasons Justice Grange determined:
1 This is an appeal from the order of Judge O'Flynn determining the rights of the parties under Rule 124.
2 The agreed facts are that the defendant Parks as first mortgagee sold, under Power of Sale, the property in question to one Prince, taking back a mortgage as part of the purchase price. Prince defaulted and Parks and his assignee co-defendant Bank of Montreal sold under the Prince mortgage to one Smyth, again taking back a mortgage as part of the purchase price….
4 The question posed to the judge of first instance was as follows:
Where the defendants sell under a Power of Sale contained in Mortgage 'A' and secure part of the sale price by Mortgage 'B', are the defendants liable to account under Mortgage 'A' when they realize Mortgage 'B' by exercising the Power of Sale contained therein?
and the answer given by him was "no", or more fully:
…that the defendants are not liable to account under Mortgage 'A' to the plaintiff except for money which the defendants actually receive pursuant to the sale under Power of Sale in Mortgage 'B', and the action is accordingly dismissed.
5 It is conceded by the parties that a mortgagee at cornmon law could not sell for credit without express provision in the mortgage entitling him to do so, else he would be required to account as though he had received all cash. However, there is contained in this mortgage the following clause:
The Mortgagee may sell any of the said lands on such terms as to credit and/or otherwise as shall appear to him most advantageous ... and may buy in or rescind or vary any contract for the sale of the whole or any part of the said lands and resell without being answerable for loss occasioned thereby, and in a case of a sale on credit the Mortgagee shall be bound to pay the Mortgagor only such moneys as have been actually received from purchasers after the satisfaction of the claims of the Mortgagee ...
6 It is argued before us that the sale on terms of credit once made is exhausted and if a further sale took place to realize upon the mortgage taken back as part of the purchase price the clause would be of no avail and the mortgagee would be required to account.
7 Whatever may be the result if the mortgagee, in realizing upon his security, forecloses or takes a release of the equity of redemption, we are all of the opinion that this case is governed by the final words of the clause quoted, namely, "in the case of a sale on credit the Mortgagee shall be bound to pay the Mortgagor only such moneys as have been actually received from the purchasers ...". The mortgagee has received only such moneys as have been paid under the two sales and he is not required to account for the face amount of the mortgage taken back until such time as the moneys payable thereon are received.
8 It is our opinion that this result is in the interest not only of the mortgagee but of subsequent encumbrancers as well. Were the mortgagee required to sell only for cash it might work to the serious disadvantage of subsequent encumbrancers in that the best terms of sale might not be obtained.” [my emphasis]
[31] Can such mortgages be renewed in perpetuity? When are monies “received”?
[32] Here are additional funds were loaned to the new owner by in the form of $100,000 loan by Duca in November 2010.(DC115702). This would seem to suggest that there was limited risk of “non-recovery” on the still continuing 2008 mortgage.
[33] It in my view, the continuing refusal by Duca to provide a meaningful accounting with respect to the proceeds from that mortgage and the 2008 sale creates a context which justifies the restoration of this action to permit the real issues between the parties to be adjudicated on the merits.
VIII. “Follow the Money
[34] An additional element of the context of this case which causes me concern is addressed in the affidavit evidence filed by Mr. Smith:
- On July 30, 2008, Duca registered a transfer under power of sale for $527,500 to 285 Broadway Limited and a vendor take back charge for $395,520. …
67 In its productions in this action, Duca would produce a cheque for $477,435.62 noted as "balance of sale." Attached hereto and marked as Exhibit "48" to this, my affidavit, is a copy of this cheque.
Also in its documents in this action, Duca would produce a cheque from the purchaser in the amount of approximately $505,000. Attached hereto and marked as Exhibit "49" to this, my affidavit, is a copy of this cheque.
I do not have an understanding as to why there would be a vendor take back mortgage for $395,520 and a closing cheque of $ 477,435.62.
[35] For whatever reason. Duca has refused to produce the full original statement of adjustments with respect to the transaction of purchase and sale under the power of sale.
[36] What seems clear from the exhibits, is that the lawyers for the purchaser Carters Professional Corporation delivered a certified cheque drawn on the CIBC in the amount of $505,652.91. The cheque notes on its face that this is the “Balance Due on Closing”.
[37] There is been no indication that Carters were involved in placing the Duca mortgage that was registered after the conveyance.
[38] The same day another cheque, was made payable to the Lawrence firm and deposited into the Orangeville Royal Bank which seems to have been issued by Lawrence firm to Duca in the amount of 477,435.62.
IX. Dealing with Appraisals
[39] I am satisfied that there is a genuine issue with respect to the value of the property at the date of sale under the power of sale. This would go to the issue of improvident sale.
[40] Clearly there are issues with respect to credibility which are best resolved at a trial.
[41] Apparently to appraisals were obtained by Duca. Mr. Smith alleged that the lower of the two appraisals was provided by the real estate agent who was acting for the purchaser,who ultimately bought the property for 590,000?
[42] Mr. Smith says that he had not one but two buyers who are interested in the property and that he obtained signed offers from both of them. One was from an individual who he alleges was prepared to pay in excess of $1 million for the property and a cash deposit was apparently in hand.
X. Should Dismissal be Set Aside?
[43] I have dealt with numerous motions to set aside Registrar’s dismissals and in this instance have considered the numerous factors identified by Justice Archibald and his co-authors in the notes to Rule 48.14 in Ontario Superior Court Practice 2016 .Referring to Deutsche Rentenvericherung Nord v. Branicky, [2015] 0.J. No. 761 (S.C.J.) and also 744142 Ontario ltd. v. Ticknor Estate; 2012 ONSC 1640, 2012 ONSC 1640 they consolidate the appropriate considerations:
“An alternative formulation of the principles relating to motions seeking an order setting aside an administrative dismissal order are as follows:
• the court must consider and weigh all relevant factors, including the four Reid factors which are likely to be of central importance in most cases;
• P need not satisfy all four of the Reid factors but rather a contextual approach is required; the key point is that the court is to consider and weigh all relevant factors to determine -the order that is just in the circumstances of each particular case;
• all factors are important but prejudice is the key consideration;
• prejudice to D may be presumed, particularly if a lengthy period of time has passed since the order was made or a limitation period has expired, in which case P must lead evidence to rebut the presumption;
• once P has rebutted the presumption of prejudice, the onus shifts to the defendant to establish actual prejudice;
• prejudice to D is not prejudice inherent in facing an action in the first place but prejudice in reviving the action after it has been dismissed as a result of P's delay or as a result of steps taken following the dismissal of the action;
• the party who commences the litigation bears the primary responsibility under the Rules for the progress of the action;
• in weighing the relevant factors, the court should not ordinarily engage in speculation concerning the rights of action P may have against his or her lawyer but it may be a factor in certain circumstances, particularly where a lawyer's conduct has been deliberate. The primary focus should be on the rights of the litigants and not with the conduct of their counsel.”
[44] In my view it is clear this action should be restored.
XI. Disposition
[45] The Court of Appeal in Mader v. Hunter, 2004 CanLII 17834 (ON CA), [2004] O.J. No. 748; 183 O.A.C. 294; 44 C.P.C. (5th) 83 reiterated the observation that the court “is always reluctant to dismiss a potentially meritorious claim on grounds that do not address its merits.” Their decision indicated that unless the defendant can demonstrate prejudice in the sense that to grant the plaintiff the indulgence he or she seeks will prejudice the defendant's ability to defend the claim, the indulgence will usually be granted on appropriate terms.
[46] I am satisfied the Plaintiffs never intended to abandon their claims to payment of monies owing under the mortgages they registered.
[47] There is a plausible explanation for their failure to avoid the administrative dismissal.
[48] This result complies with the direction of Rule 1.04 to allow this matter to be determined “on its merits.”
[49] I am therefore setting aside the Registrar’s dismissal and returning this case to an “Active” status.
[50] The new set down date shall be February1, 2018.
XII. Costs
[51] The plaintiffs have been successful on this motion, but they were certainly partly responsible for the situation that gave rise to this motion. The court is granting an indulgence.
[52] However, the matter has been quite protracted and I think the fairest resolution of these interlocutory costs will be to leave the costs of this motion to be in cause of the main action.
Released: February 3, 2017
Master D. E. Short
DS/ R.160