Court File and Parties

COURT FILE NO.: CV-15-528952 DATE: 20180522 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: ROMAN SERBINSKI, Plaintiff AND: FCT INSURANCE COMPANY LTD. and ROYAL BANK OF CANADA, Defendants

BEFORE: Justice W. Matheson

COUNSEL: Lubomir Poliacik, for the Plaintiff Amanda Jackson, for the Defendant FCT Insurance Company Ltd.

HEARD: May 10, 2018

ENDORSEMENT

W. MATHESON J.

[1] The plaintiff moves for summary judgment, seeking payment of amounts due under his insurance policy with the defendant FCT Insurance Company Ltd. This action has already been dismissed as against the Royal Bank of Canada on the first return of this motion.

[2] The main coverage dispute between the plaintiff and FCT is no longer at issue; they now agree that some amount is owing under the insurance policy. The only question is how much is owing. The plaintiff and FCT also agree that what remains of this motion is appropriately addressed on a summary judgment motion. I too conclude that this matter can be fairly and justly decided now, and does not require a trial.

Events giving rise to dispute

[3] In 2014, the plaintiff entered into an agreement to provide a mortgage loan, secured by a mortgage on a real property in Richmond Hill, Ontario. The mortgage was registered on May 29, 2014. It had a principal amount of $470,000 and bore interest at the rate of 11% per annum, calculated monthly.

[4] Prior to registering the mortgage, the plaintiff obtained title insurance from the FCT, specifically Policy No. ONGLT140526002878 (the "Policy").

[5] The plaintiff advanced $449,214.28, which was less than the $470,000 amount due to a $20,000 "lender's fee" and an interest adjustment.

[6] Before the first scheduled monthly payment under the mortgage came due, the plaintiff was notified by the Royal Bank that there were suspicious circumstances regarding attempts to negotiate the certified cheque for the net mortgage proceeds drawn on the trust account of the lawyer representing the mortgagors. Fortunately, those funds, in the amount of $445,168.51, were frozen by the Royal Bank.

[7] In due course, the registered owners of the real property in Richmond Hill advised that they had never entered into the mortgage. The plaintiff did not receive any payments under the mortgage, which went into default. The plaintiff commenced power of sale proceedings and made a claim under the Policy.

[8] The Royal Bank was not prepared to release the funds it held to the plaintiff until the mortgage was deleted from the title to the property.

[9] The registered owners took the matter to a hearing before the Director of Titles under the Land Titles Act, R.S.O. 1990, c. L.5. On December 10, 2014, the Director ruled that the mortgage was a fraudulent instrument and ordered that the mortgage be deleted from the title to the property. The real identity of the individuals who fraudulently executed the mortgage documents as mortgagors remains unknown.

[10] The Royal Bank then wrote asking the plaintiff to sign a release in connection with the release of the funds it held, upon which it would pay the funds to the plaintiff. Plaintiff's counsel wrote to FCT seeking its consent, which was required under the Policy, but no consent was forthcoming.

[11] It was not until the first return of this motion in 2016 that a consent court order was agreed to under which the funds held by the Royal Bank were returned to the plaintiff. That order was made on June 15, 2016. The action against the Royal Bank was dismissed. The plaintiff was ordered to pay the Royal Bank $3,500 for costs. The costs were deducted and the Royal Bank therefore returned $441,668.51 to the plaintiff.

[12] There then remained the question of payment under the Policy for amounts for which there was coverage, beyond the amount returned by the Royal Bank. At the first return of this motion in June 2016, FCT took the position that the motion against it was premature because the plaintiff, although not a suspect in the fraud, was a person of interest. FCT took the position that it remained to be seen whether there was an exemption from coverage altogether as a result. The motion, as against it, was adjourned sine die.

[13] The police officer whose evidence FCT relied on was cross-examined on March 27, 2017. At that time, he attested that the plaintiff was no longer a person of interest. FCT accepts this change in status and does not deny coverage entirely.

[14] In summary, the plaintiff has already been repaid a substantial sum as a result of a mortgage fraud being caught at an early stage. The claim under the Policy is therefore much more limited. Further, FCT now agrees that there is some coverage. There is, however, a dispute about the amounts claimed under the Policy.

Issues

[15] The remaining issues are as follows:

(i) the basis upon which the claim for interest should be quantified; and,

(ii) whether certain fees are covered.

[16] The general legal principles applicable to interpretation of insurance policies are not in dispute. They are summarized at paras. 43-46 of Nodel v. Stewart Title Guaranty Company, 2017 ONSC 890, aff'd, 2018 ONCA 341.

The Policy

[17] The Policy provides that, subject to its exclusions, exceptions, conditions and stipulations, FCT has insured against "loss or damage" not exceeding 125% of the Amount of Insurance, sustained or incurred for certain listed reasons. Here the relevant reason is #5: "The invalidity or unenforceability of the Insured Mortgage upon the title". Given the fortunate actions of the Royal Bank, the 125% limit does not create an issue.

[18] With respect to "loss or damage", the Policy provides insurance for actual loss in relation to the unpaid principal indebtedness together with interest thereon. As set out in clause 7, in relevant part, the Policy,

is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured Claimant...

(a) The liability ... shall not exceed the least of...

(ii) the amount of the unpaid principal indebtedness as defined in 2(c)(ii) secured by the Insured Mortgage as limited or provided under Section 8 of these Conditions and Stipulations or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy occurs, together with interest thereon; [Emphasis added.]

[19] In accordance with the above, there is coverage for unpaid principal indebtedness together with interest thereon.

[20] The Policy also provides that FCT will pay certain "costs, legal fees and expenses" "but only to the extent provided in the Conditions and Stipulations" in the Policy. In that regard, s. 7(c) of the Conditions and Stipulations provides that FCT will only pay costs, legal fees and expenses that are incurred in accordance with section 4 of the Conditions and Stipulations. Section 4 contains terms with respect to the defence and prosecution of actions by FCT, and at FCT's cost.

Amounts due under Policy

[21] With respect to the outstanding principal amount, $449,214.28 was advanced less $445,168.51, which is the amount returned by the Royal Bank and the amount the Royal Bank used to pay the costs order against the plaintiff in favour of the Bank. The outstanding principal amount is therefore $4,045.77.

[22] With respect to interest, the plaintiff seeks compound interest. Counsel to FCT submitted that the mortgage agreement only required simple interest because the mortgage gives the interest rate "per annum". However, the terms also expressly state that the interest is calculated monthly and provide for compound interest after default. I conclude that the mortgage does provide for compound interest.

[23] Counsel to FCT also raised a new argument regarding interest at the oral hearing before me. It does not arise from the terms of the Policy or the mortgage agreement. Counsel submitted that I should exercise my discretion under s. 130 of the Courts of Justice Act, R.S.O. 1990, c. C.43, and substitute the Courts of Justice Act default pre-judgment interest for the contract interest under the mortgage. That interest would be simple interest at the rate of 1.3%.

[24] Counsel to FCT relies upon Bank of America v. Mutual Trust Co., [2002] 2 S.C.R. 601, 2002 SCC 43. As counsel acknowledges, that case supports an award of contract interest, not Courts of Justice Act default interest, absent exceptional circumstances. FCT submits that there are exceptional circumstances such that I should exercise my discretion to deny contractual interest in this case. Counsel submits that the plaintiff was not sufficiently diligent in his pre-mortgage inquiries, based upon which he made the loan, and criticizes his response to the news of the potential fraud as well.

[25] Leaving aside the issue of late notice of this argument, I would not exercise whatever discretion I have in the circumstances of this case. Even if it were possible to avoid coverage in this way, which is problematic, the evidence before me falls short of what would be required to show exceptional circumstances based on the steps the plaintiff did take before making the loan, as set out in his unchallenged evidence. As for the steps he took after the potential fraud was discovered, again there are not the exceptional circumstances that would justify denying contractual interest even if that was permissible.

[26] FCT also questioned the extent to which it should be liable for interest on the amount held by the Royal Bank. FCT submitted that it should not be liable for interest over the approximately two-year period prior to the funds being returned to the plaintiff because the funds could have been retrieved from the Royal Bank much sooner, limiting the interest claim. However, the main reasons for the delay in the return of those funds were the Royal Bank's position that the mortgage needed to first be deleted and then FCT's failure to consent to the Royal Bank's release. Further, after the funds were returned, FCT did not concede coverage. FCT took the position that the coverage issue was premature because the plaintiff remained a person of interest. But even after that was no longer the case, FCT did not proactively pay the amounts it agreed was owing. Interest therefore continued to mount. In these circumstances, I am therefore not prepared to shorten the period during which interest is due.

[27] I conclude that the interest claimed by the plaintiff is due, subject to the other issues regarding the fees claimed by the plaintiff on which the plaintiff has also claimed interest. As discussed at the oral hearing, I have incorporated the determination of the final amount of interest into my order below.

[28] The remaining issues relate to the claim for certain fees. The plaintiff had claimed for numerous fees, and most of those claims were properly withdrawn at the hearing before me by plaintiff's counsel. For example, the plaintiff claimed for about $14,000 in relation to a prepayment charge, where there was no entitlement to nor exercise of the prepayment terms of this mortgage. Fees for other items were also claimed where the fees were theoretical expenditures rather than costs actually incurred under the mortgage.

[29] Of all the fees set out in the plaintiff's mortgage statement that formed part of his claim, only the fee in relation to the notice of sale is still claimed. That amount is not separately stated but counsel submits that it can be discerned from the contemporaneous notice of sale and mortgage statements and is $6,145.

[30] Section 7(c) of the Conditions and Stipulations provides that FCT will pay costs, legal fees and expenses that are incurred in accordance with section 4 of the Conditions and Stipulations. The amount for the notice of sale was not incurred in accordance with section 4 and is therefore not due to the plaintiff under that provision. Instead, the plaintiff claims that under the terms of the mortgage, that amount becomes principal and should therefore be treated as principal under the Policy. Paragraph 8 of the Standard Charge Terms provides, in short, that costs shall be added to the principal amount secured by the mortgage and payable with interest. The plaintiff submits that "principal" under the Policy should be interpreted to include these fees. I am not persuaded to do so. The unambiguous terms of the Policy, reading the Policy as a whole, provide that only certain costs, legal fees and expenses are covered.

[31] There remains the issue of the $20,000 "lender's fee". FCT submits that because the amount of that fee was deducted from the mortgage amount, reducing the amount that the plaintiff advanced under the mortgage, there is no loss. The plaintiff submits that he expected to be paid this fee out of the mortgage proceeds in due course and has therefore suffered a loss. The plaintiff also relies on the above submission based on the Standard Charge Terms, submitting that this fee should be treated as principal. However, this amount did not form part of the principal that was advanced under the mortgage and it too does not fall within the costs and expenses that are covered under the Policy.

[32] The claims for fees are therefore dismissed. Other clauses in the Policy are also raised in defence of these claims for fees, which need not be addressed.

[33] This motion for summary judgment is therefore granted in part.

Order

[34] I order that FCT pay the plaintiff the following amounts: (1) the balance of the principal, in the amount of $4,045.77; and, (2) interest at the rate of 11%, compounded on the basis that it was payable monthly, on the principal that was advanced and was outstanding from time to time, including the funds held by the Royal Bank for the period until those funds were returned to the plaintiff.

[35] If the parties are unable to agree on the quantification of the interest or costs, they shall make their submissions in writing as follows: the plaintiff's brief written submissions plus a costs outline shall be delivered by June 4, 2018; FCT's brief written submissions plus a costs outline, if any, shall be delivered by June 11, 2018; and, a one page reply, if any, shall be delivered by June 12, 2018.

Justice W. Matheson

Dated: May 22, 2018