OSHAWA COURT FILE NO.: CV-16-97182
DATE: 20180302
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Ginkgo Mortgage Investment Corporation
Plaintiff
– and –
CDM Real Estate Development Inc. and Eaton Chen
Defendants
Jordan N. Potasky, for the Plaintiff
Charles Wagman, for the Defendants
HEARD: January 12, 2018
REASONS FOR DECISION
DE SA J.:
Overview
[1] This is a motion made by the Plaintiff for summary judgment. The Defendant defaulted on a mortgage advanced by the Plaintiff to develop an investment property. The Plaintiff obtained judgment against the Defendant and sold the investment property. The Plaintiff now seeks possession of the Defendant’s home to satisfy the remaining balance. The Plaintiff takes the position that there is no genuine issue for trial. The amounts owing are clear. The penalties and renewal fees were either specified in the mortgage or the commitment letters. Summary judgment is warranted.
[2] The Defendant takes the position that the investment property was sold by the Plaintiff for well below the market value, and accordingly any shortfall on the mortgage has been occasioned by the Plaintiff. The Defendant has counterclaimed against the Plaintiff for improvident sale. The Defendant also contests various penalties and renewal fees charged beyond those listed in the original mortgage agreement. According to the Defendant, there are genuine issues requiring a trial.
[3] On a motion for summary judgment, the onus is on the moving party to establish that there is no genuine issue for trial. Having regard to the evidence filed by the both parties on the motion, the record leaves open the possibility of an improvident sale. I am not satisfied that there is no genuine issue for trial. Accordingly, I dismiss the Plaintiff’s motion for summary judgment. My reasons are outlined below.
Facts
The Loan and Mortgages
[4] The Plaintiff, Ginkgo Mortgage Investment Corporation (“Ginkgo” or the “Plaintiff”), is a mortgage investment corporation incorporated pursuant to the laws of the Province of Ontario. The Defendant, CDM Real Estate Development Inc. (“CDM” or the “Defendant”) is a company also incorporated in Ontario, with its registered office located in the City of Toronto. The Defendant, Eaton Chen, was at all material times, an officer, director and sole shareholder of CDM.
[5] The Plaintiff advanced a mortgage loan to the Defendants in the amount of $3,800,000 pursuant to the terms of a commitment letter dated November 10, 2014 and a charge/mortgage registered against a property located in Scugog, Ontario (the “Scugog Property”), and a charge/mortgage registered against a second property municipally known as 72 Crestwood Road, Vaughan, ON L4J 1A5 (the “Property”). This second property is the residential address of the Defendant, Eaton Chen.
[6] The loan in question was for the purpose of paying out a previous mortgage loan made to the Defendants which was in default. That mortgage was for the purpose of purchasing the Scugog Property for subsequent development.
[7] These mortgages (the “Mortgages”) provided that the Defendants pay all charges incurred with respect to any action to collect or otherwise enforce the Mortgage from time to time fall due and remain unpaid with respect to the mortgaged properties which payments, with interest at a rate provided for in the mortgage, shall be a charge upon the properties in favour of the Plaintiff and that all amounts paid by the Plaintiff as aforesaid shall be added to the principal amount secured by the mortgage in favour of the Plaintiff.
[8] The Mortgages further provide that upon default of any obligation thereunder, the Plaintiff is entitled to possession of the mortgaged properties and that the principal amount secured by the Mortgage shall, at the option of the Plaintiff, immediately become due and payable.
[9] The Mortgages bore interest at the rate of 13% per annum and required payment of interest monthly in the amount of $41,166.67 on the first day of each month, commencing January 1, 2015 and ending on April 1, 2015.
[10] The parties subsequently entered into an agreement amending the Mortgage dated April 23, 2015 (the “Amending Agreement”), wherein the parties agreed to increase the registered principal amount to $4,148,929.03, amend the maturity date to July 1, 2015, and increase the monthly payment to $43,506.16. A new mortgage commitment letter was issued and executed by the parties at the same time reflecting the new arrangement. Notices of the new arrangements were registered as against the Scugog Property and the Property on April 30, 2015.
[11] The Mortgages were renewed on a number of occasions with an ultimate maturity date of June 30, 2016.
Default and Demand
[12] The Defendants eventually defaulted on their payment obligations under the Mortgage, the Amending Agreement and the commitment letters. Demand was made on the Defendants for the sum then outstanding by the solicitors for the Plaintiff dated May 27, 2016.
[13] Subsequently the Plaintiff, by way of its solicitor, issued a Notice of Sale under Mortgage pursuant to the Mortgages Act, R.S.O. 1990 c. M 40, dated July 20, 2016.
[14] The Notice of Sale expired without any payment being made. The Plaintiff took possession of the Scugog Property, and on April 18, 2017, the Scugog Property was sold for $4.8 million.
[15] The Plaintiff now seeks to take possession of the second Property which is the residential home of Eaton Chen. According to the Plaintiff, the total amount outstanding as of April 19, 2017 is $978,482.10.
Appraisals and Market Value of the Scugog Property
[16] The Defendants obtained an appraisal report for the Scugog Property, dated February 28, 2017, which appraised the market value of the Scugog Property at $12,600,000.
[17] The Plaintiff has obtained two appraisal reports of the Scugog Property. The first appraised the market value of the Scugog Property at $4,300,000. This report is dated August 27, 2016. The second report dated October 5, 2016 appraised the market value of the Scugog Property at $4,000,000.
[18] At the time of advancing the loans, the Plaintiff obtained an appraisal of the Property, according to which the market value of the Scugog Property was $9,470,000. This report is dated October 12, 2014.
[19] The Plaintiff’s 2016 appraisal reports make no reference to the prior appraisal and do not explain the decrease in the market value. Moreover, none of the reports suggest that in general, the prices in the real estate market had gone down.
Alleged Breach of Contract to Sell for 7.1 Million
[20] On October 3, 2016, Mr. Chen approached the Plaintiff to look for a buyer for the Scugog Property so that he could repay the Mortgages and avoid losing his house. The Plaintiff and the Defendant signed an agreement to list the Scugog Property at $7.1 million with a maximum 5% commission.
[21] On October 4, 2016, the Plaintiff listed the Scugog Property at 7.1 million with a 3% (instead of 5%) commission with Century 21 New Star Realty Inc. The Scugog Property was listed on the Multi-Listing Service. The listing agent selected was not from the area of the Scugog Property. With respect to the listing agent’s experience, he had been an agent for only six years. According to the Plaintiff, the agent was selected because of his connection with developers and buyers both domestically and abroad.
[22] On October 13, 2016, the Plaintiff received an offer at $7,175,000 with a condition of a satisfactory due diligence report within 90 days. The first offer was verbally communicated to Mr. Chen. On December 5, 2016, the offer was withdrawn due to an unsatisfactory due diligence report as to the land value.
[23] On that same day, the Plaintiff increased the listing commission from 3%-5% hoping that it would give more incentive for realtors to look for a potential buyer. On December 8, 2016, after receiving feedback from the initial buyer that the land requires costly soil infill in order to fulfill the zoning condition, the Plaintiff lowered the asking price to 6.1 million. This price was communicated to Mr. Chen.
[24] On December 16, 2016, the Plaintiff received another offer at $5,900,000 with a condition of a satisfactory due diligence report within 30 days and closing within 90 days. The second offer was also verbally communicated to Mr. Chen.
[25] On January 19, 2017 the second offer was withdrawn citing the same reason given in relation to the first offer, namely costly soil infill requirements. The costly infill requirements are estimated by the Defendant to be somewhere in the range of 1 million dollars.
[26] On January 26, 2017, the Plaintiff further lowered the listing price to $5,500,000 with a short due diligence period and closing date. This new listing price was again verbally communicated to Mr. Chen. Mr. Chen expressed concerns with respect to the revised listing price. In Mr. Chen’s view, the listing price was far too low.
[27] On February 7, 2017, the Plaintiff received another offer at 4.8 million with a condition of arranging financing within 30 days and to be closed within 60 days. The third offer was verbally communicated to Mr. Chen. Shortly thereafter, the buyer came back and asked if the Plaintiff would accept 3 million because of the soil conditions. According to the buyer’s agent: “Every lender has come back and placed the value in the $2.5-2.8 million range (we’ve put this in front of 7 different lenders) given all of the other expenses that it’s going to take to get these products online and given the absorption rate in the area, we are looking at a 4-5 year turnaround before all the homes are sold/built”. Despite the claims made by the buyer, the Plaintiff did not lower the price.
[28] On March 1, 2017, the financing condition was removed and the closing date was extended to April 18, 2017. The Scugog Property was sold on April 18, 2017 for 4.8 million.
The Renewal fees and Late Penalty
[29] While the interest rate for the Mortgages was set at 13%, the effective rate of borrowing given the costs of renewing the Mortgages was much higher (20-26%). There is no dispute that the renewal charge and late penalties were specified in the commitment letters. However, the Respondent (Mr. Chen) takes the position that he was unaware that these amounts would be charged. He believed that the rate was 13%. While the documents were in English, Mr. Chen requires a translator to understand the documents as he speaks Mandarin. At the time of signing the documents, Mr. Chen did not have a translator. See Marvco Colour Research Ltd. v. Harris, [1982] 2 SCR 774, 1982 CanLII 63 (SCC).
[30] The terms provided that the Defendants would be charged for a default, and then again for a renewal. The Defendants were charged a total of $340,081 in renewal fees over a 15 month period. In addition, the Defendants were charged a penalty of $153,810 for failing to pay on the maturity date. In total, the late fees and renewals amount to close to $500,000 for the 15 month period.
Position of the Parties
[31] The Plaintiff takes the position that there is no genuine issue requiring a trial. According to the Plaintiff, the mortgage terms are clear and the amounts owed by the Defendants are evident. Moreover, there is no basis for the Defendants’ counterclaim of improvident sale. The Plaintiff submits that the appraisals referenced by the Defendants are inadmissible hearsay and are not properly considered by this Court in its assessment of the merits of the motion.
[32] The Defendants take the position that the matter should proceed to trial. The value of the Scugog Property is seminal to the assessment of what’s owed to the Plaintiff, and the issue cannot be determined on the basis of the existing record. Moreover, the Plaintiff disputes the renewal fees and penalties charged. The Defendants argue the amounts charged are unconscionable, and were never meaningfully consented to Mr. Chen. The Defendants seek to have the application dismissed.
Analysis
Is there a Genuine Issue Requiring a Trial?
[33] Pursuant to Rule 20.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the court shall grant summary judgment if it is satisfied there is no genuine issue requiring a trial. Animating the interpretation of 20.04(1) is rule 1.04 which requires that the rule be liberally construed to secure the just, most expeditious and least expensive determination of a proceeding on its merits having regard to the complexity of the issues and the amounts involved.
[34] Rule 20.04 aims to avoid protracted litigation in circumstances where such litigation is unnecessary to achieve a just result. The judge in deciding whether to grant summary judgment must ask: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of trial?
[35] A trial is not required if the judge on the motion can 1) achieve a fair and just adjudication; 2) make the necessary findings of fact; 3) apply the law to those facts; and 4) the motion is a proportionate, more expeditious and less expensive means to achieve a just result rather than going to trial. As the Supreme Court explained in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87, at para. 50:
These principals are interconnected and all speak to whether summary judgment will provide a fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principals so as to resolve the dispute. [Emphasis added]
[36] The assessment, by its nature, is necessarily contextual. It involves a balancing of the various interests at play. Indeed, if the process ultimately employed to resolve the issues is disproportionate to the nature of the dispute and the amounts involved, then it will not achieve a fair and just result. (See Hryniak at para. 29). What is fair and just turns on the nature of the issues, the nature of the evidence required to resolve those issues and what is the proportionate procedure having regard to the amounts involved. As the Supreme Court of Canada explained at paras. 27-29:
A proper balance requires simplified and proportionate procedures for adjudication, and impacts the role of counsel and judges. This balance must recognize that a process can be fair and just, without the expense and delay of a trial and that alternative models of adjudication are no less legitimate than the conventional trial.
This requires a shift in culture. The principal goal remains the same: a fair process that results in a just adjudication of disputes. A fair and just process must permit a judge to find the facts necessary to resolve the dispute and to apply the relevant legal principles to the facts as found. However, that process is illusory unless it is also accessible—proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure.
There is, of course, always some tension between accessibility and the truth-seeking function but, much as one would not expect a jury trial over a contested parking ticket, the procedures used to adjudicate civil dispute must fit the nature of the claim. If the process is disproportionate to the nature of the dispute and the interests involved, then it will not achieve a fair and just result. [Emphasis added]
[37] In this case, the question of the amount owed to the Plaintiff is inextricably linked to the Defendants’ counterclaim of improvident sale. The Plaintiff is seeking possession of Mr. Chen’s home to satisfy the amounts owing under the Mortgages. However, if the Defendants can establish an improvident sale of the Scugog Property, there may be nothing owed to the Plaintiff in relation to the Mortgage.
[38] The Plaintiff takes the position that there is absolutely no admissible or reliable evidence to support the Defendants’ claim of improvident sale. The appraisal filed by the Defendants is merely appended to an affidavit from an assistant. The Plaintiff takes the position that the Defendants’ appraisal is inadmissible hearsay, and I am not entitled to rely on it in making my assessment of the evidence. According to the Plaintiff, the “best foot forward” rule requires that the Defendants establish their case for improvident sale through a proper affidavit sworn by the appraiser.
[39] Contrary to the Plaintiff’s submission, an affidavit on a motion for summary judgment may be made on information and belief (Rule 20.02 (1).[^1] The reviewing judge is entitled to weigh the evidence filed and determine its significance having regard to the record as a whole. It may be that the information is ultimately given no weight. However, this assessment is left to the reviewing judge having regard to the issue to be determined on the motion.
[40] In any event, the “best foot forward” rule does not impose on the responding party a positive obligation to file “affidavit material or other evidence”. Each side must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried. The Court is entitled to assume that the record contains all the evidence which the parties will present if there is a trial: See New Solutions Extrusion Corp. v. Gauthier, 2010 ONSC 1037 at para. 12. In other words, the responding party is not given a pass for failing to file relevant evidence. It cannot rest solely on its pleadings.
[41] That being said, even if the responding party files no evidence on the motion, the onus remains on the moving party to demonstrate there is no genuine issue for trial. Where the issues are sufficiently clear, and the evidentiary record is straightforward, it will be easy for a Court to make such a finding. However, if the record itself has ambiguities which require further elaboration, a court may not be in a position to grant summary judgment even in the absence of any evidence from the responding party.
[42] It must be remembered that it is only after the moving party has discharged its evidentiary burden of proving that there is no genuine issue that the burden shifts to the responding party to prove that its claim or defence has a real chance of success.^2 As explained in Toronto-Dominion Bank v. Hylton, 2012 ONCA 614 at para. 5:
A party moving for summary judgment has the evidentiary burden of showing there is no genuine issue for trial. Once this burden is discharged the responding party must prove that its defence has a real chance of success. Each party must put its best foot forward to establish whether or not there is an issue for trial. The court is entitled to assume that the record contains all the evidence the parties would present at trial.
[43] The question of whether the evidence available to the court on a summary judgment motion allows for a “full appreciation” of the matter is highly fact dependant and varies on a case by case basis. As the Court of Appeal observed in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, at para. 39:
Although both the summary judgment motion and a full trial are processes by which actions may be adjudicated in the “interest of justice”, the procedural fairness of each of these two processes depends on the nature of the issues posed and the evidence led by the parties. In some cases, it is safe to determine the matter on a motion for summary judgment because the motion record is sufficient to ensure that a just result can be achieved without the need for a full trial. In other cases, the record will not be adequate for this purpose, nor can it be made so regardless of the specific tools that are now available to the motion judge. In such cases, a just result can only be achieved through the trial process. This pivotal determination must be made on a case-by-case basis. [Emphasis added]
[44] The Court in Combined Air also offered this caution in relation to the “best foot forward” concept, at para. 57:
However, we add an important caveat to the “best foot forward” principle in cases where a motion for summary judgment is brought early in the litigation process. It will not be in the interest of justice to exercise rule 20.04(2.1) powers in cases where the nature and complexity of the issues demand that the normal process of production of documents and oral discovery be completed before a party is required to respond to a summary judgment motion. In such a case, forcing a responding party to build a record through affidavits and cross-examinations will only anticipate and replicate what should happen in a more orderly and efficient way through the usual discovery process.
[45] In this case, I am not satisfied that there is no genuine issue requiring a trial. The Defendants have obtained an appraisal report for the Scugog Property, dated February 28, 2017, which appraised the market value of the Scugog Property at $12,600,000. While the report is appended to an assistant’s affidavit, it is a thorough report that clearly pertains to the relevant issues, and accordingly warrants consideration.
[46] The Plaintiff obtained two appraisal reports of the Scugog Property which suggest that the market value of the Scugog Property was between $4,000,000 and $4,300,000. However, at the time of advancing the loans, the Plaintiff had obtained another appraisal which set the market value of the Scugog Property at $9,470,000.
[47] The Plaintiff’s 2016 appraisal reports make no reference to this prior appraisal and they do not explain the decrease in the market value. Moreover, none of the reports suggest that in general, the prices in the real estate market had gone down. While there is some indication in the evidence that the value of the property was impacted by the soil conditions, there is nothing to indicate how much it would cost to remedy this concern. Nor is there an indication that this is the basis for the decrease in the estimated value of the Scugog Property.
[48] On October 4, 2016, the Plaintiff entered into an agreement with the Defendant to list the Scugog Property at $7.1 million. By February 7, 2017 they ended up selling the Scugog Property for $4.8 million. While the Plaintiff suggests they relied on the feedback received from a potential buyer regarding the condition of the soil, there is no indication about what was done to verify the information. Or what steps were taken to obtain a proper valuation of the property in the face of this problem.
[49] I also find that the various fees and renewals charged beyond the interest rate specified in the Mortgage may be warranting further review. Beyond the issues raised regarding the Defendant’s comprehension of the penalties, there may be issues regarding their legal effect.[^3] This is a matter better left to the trial judge to be considered together with the claim of improvident sale.
[50] The onus is on the moving party to demonstrate that there is no genuine issue requiring a trial. The onus was on the Plaintiff to demonstrate, in the face of the conflicting appraisal reports, that there was no genuine issue requiring a trial. They were required to satisfy me that there are no issues regarding the renewals and other interest fees. They have failed to do so.
[51] The application is dismissed.
[52] I will entertain costs submissions from both parties no more than 2 pages in length, together with a bill of costs. The submissions are to be filed within 3 weeks.
[53] I thank counsel for their assistance.
Justice C.F. de Sa J.
Released: March 2, 2018
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Ginkgo Mortgage Investment Corporation
Plaintiff
– and –
CDM Real Estate Development Inc. and Eaton Chen
Defendants
REASONS FOR DECISION
Justice C.F. de Sa
Released: March 2, 2018
[^1]: On the hearing of the motion, the court may, if appropriate, draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of contested facts. While a responding party may not rest solely on the allegations or denials in the party’s pleadings, they can rely on affidavit material or other evidence, showing there is a genuine issue requiring a trial.” See Rule 20.02(2).
[^3]: In Reliant Capital Ltd. v. Silverdale Development Corp., 2006 BCCA 226, 52 B.C.L.R. (4th) 13, leave to appeal to S.C.C. refused, [2006] S.C.C.A. No. 265, the British Columbia Court of Appeal conducted a detailed review of the Interest Act and its judicial interpretation and considered the purpose of the prohibition contained in s. 8 is to “protect property owners against abusive lending practises. Section 8 creates an exception to the general rule that lenders and borrowers are free to negotiate and agree on any rate of interest on a loan.” See also P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331.