Court File and Parties

COURT FILE NO.: CV-18-183 DATE: 20181010 CORRIGENDA: 20181011

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Parker Lee Plaintiff – and – Feng Qing He and Jie He Defendants

Counsel: Derek Ketelaars for the Plaintiff Ford W. Wong for the Defendants

HEARD: August 31 and September 27, 2018

REVISED reasons for judgment

The text of the original ruling has been corrected with the text of the corrigendum (released today’s date)

Boswell J.

Overview

[1] Mr. Lee advanced Mr. and Mrs. He the sum of $700,000, secured by a mortgage registered against their personal residence and against a rental property they own, both in Markham.

[2] The mortgage bore interest at the rate of 12.99% and was for a one year term. It was to be paid in full on or before August 15, 2017. It wasn’t.

[3] Mr. Lee sues for the balance he says is owing to him on account of principal, interest, costs and miscellaneous administrative fees. Mr. and Mrs. He dispute most of those claimed fees. They say the fees are illegal, grossly unreasonable, that Mr. Lee has failed to act in good faith and that he has effectively prevented them from obtaining new financing on more favourable terms. They counter-claim for the interest costs they say they could have avoided had Mr. Lee treated them in a commercially reasonable way.

[4] The Hes brought an application under s. 12 of the Mortgages Act, R.S.O. 1990, c. M.40, to obtain a discharge of Mr. Lee’s mortgage upon payment of a sum to be determined by the court. Their position was that the amount owing on the mortgage was no more than $745,465 as of February 15, 2018.

[5] On June 13, 2018, Edwards J. ordered that the Hes pay $745,465 to Mr. Lee within fifteen days, plus interest at the rate of 12.99% from and after March 6, 2018 to the date of payment. Subsequently, the Hes paid $775,974.93 to Mr. Lee’s lawyers in trust on June 28, 2018. Upon payment of that sum, Mr. Lee’s mortgage was to be postponed to a new second mortgage for no more than the sum paid by the Hes.

[6] Edwards J. further ordered that there would be a one-day, mini trial of the issues remaining between the parties.

The Issues

[7] The mini trial in fact required two full days to complete. Over that time, the following issues were presented for resolution by the court:

(a) Is an increased interest rate imposed by Mr. Lee after maturity of the mortgage invalid by reason of s. 8 of the Interest Act, R.S.C. 1985 c. I-15? (b) Is Mr. Lee entitled to a bonus of three months’ interest pursuant to s. 17 of the Mortgages Act? (c) Is Mr. Lee entitled to reimbursement for the following costs and expenses: (i) A Mortgage Administration fee of $21,300.14? (ii) Statement fees of $2,250? (iii) The cost of a private investigator in the amount of $9,593.98? (iv) Rent attornment fees of $6,215? (v) Property management fees in relation to the rental home of $16,950? (vi) Legal fees of $11,300? (d) Did Mr. Lee owe the Hes a duty of fairness and/or reasonableness in preparing his mortgage discharge statements? (e) Has Mr. Lee breached any such duty? (f) Have the Hes established damages as a result of a breach by Mr. Lee of any legally recognized duty owed to them?

Discussion

[8] It is unnecessary, in my view, to encumber this ruling with a long recitation of the facts. The basic facts I have already set out: there was a mortgage, it went into default and the court is now called upon to determine what fees may reasonably be levied by the mortgagee. Where necessary, I will supplement these basic facts with further details, on an issue by issue basis.

[9] I will proceed to analyze the issues presented by the parties in the order set out above.

(a) The Increased Interest Rate

[10] The mortgage generally bore interest at the rate of 12.99%, but it also included the following provision regarding a bump up in that rate:

A.12 INTEREST ON PAST DUE: The Borrowers hereby agree that upon maturity of this mortgage and in the event the outstanding principal and accrued interest is not repaid on the balance due date, interest at that (sic) rate of 20% per annum will be charged from the maturity date until repayment in full, unless otherwise agreed upon by the lender.

[11] At issue is whether this provision for increased interest upon maturity runs afoul of s. 8 of the Interest Act, which provides as follows:

8 (1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.

[12] If one set out to draft a clause attempting to do exactly what s. 8 of the Interest Act prohibits, one could do a lot worse than s. A.12 of the mortgage in this case.

[13] Despite the plain wording of s. A.12, Mr. Lee’s counsel argued that it does not have the effect of increasing the interest rate payable on arrears beyond 12.99%.

[14] Counsel attempted to fit this case into a line of authority reflected in the Supreme Court’s decision in Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18.

[15] In Krayzel, the Supreme Court held that a rate increase triggered by the passage of time alone does not infringe s. 8 of the Interest Act. On the other hand, a rate increase triggered by default does.

[16] Krayzel involved a $27 million mortgage which bore interest at the lender’s prime rate plus 2.875% per annum. On maturity, the parties entered into a renewal agreement for seven months that provided the interest rate in the last month would increase to 25%. Subsequently, a second renewal was entered into. This time, the interest rate was set at 25% but the borrower was in fact required to pay monthly interest at the greater of 7.5% or at the prime rate plus 5.25%. The difference between the rate paid and 25% was to be added to the principal, but would be forgiven if the borrower did not default on the loan. In other words, the rate was 25% but a discounted rate would apply if the mortgage remained in good standing at all times.

[17] A majority of the Supreme Court concluded that the first renewal complied with the Interest Act, but the second did not, as it had the effect of charging a different interest rate on arrears than on principal not in arrears. The majority found that the interest rate applicable to the first renewal was triggered only by the passage of time and not by default.

[18] Mr. Lee’s counsel submitted that this case is, similarly, one where the increased interest rate is triggered by the simple passage of time, rather than default. He argued that the mortgage matured on August 15, 2017. At that moment, the increased interest rate applied. The mortgage was not actually in default until the Hes failed to repay it in full on that date. In other words, one could not say the mortgage was in default until the clock struck 12:01 a.m. on August 16, 2017.

[19] In effect, counsel argues that the lender intended for the interest rate to rise to 20% on the very last day of the term. The increased rate would incidentally apply to arrears remaining after that date simply due to the passage of time.

[20] I am not persuaded by counsel’s argument. Section A.12 was not designed to impose an increased rate of interest for one day. It was designed as a penalty to impose an increased rate of interest if the mortgage was not repaid in full on maturity.

[21] Section A.12 specifically refers to interest on “past due” amounts. In other words, interest on arrears. It specifically provides that interest on arrears will be 20%, charged from the maturity date forward. That is a different rate than the 12.99% charged before maturity on principal not in arrears. This clause clearly has the effect of charging an increased rate on arrears. It violates s. 8.

(b) The three months bonus interest

[22] Section 17(1) of the Mortgages Act provides as follows:

17 (1) Despite any agreement to the contrary, where default has been made in the payment of any principal money secured by a mortgage of freehold or leasehold property, the mortgagor or person entitled to make such payment may at any time, upon payment of three months interest on the principal money so in arrear, pay the same, or the mortgagor or person entitled to make such payment may give the mortgagee at least three months notice, in writing, of the intention to make such payment at a time named in the notice, and in the event of making such payment on the day so named is entitled to make the same without any further payment of interest except to the date of payment.

[23] The mortgage in this instance is clearly in default. Mr. Lee’s position is that he is now entitled to either three months notice of the Hes’ intent to repay it, or to three months interest by way of bonus.

[24] Section 17 is incorporated into every mortgage in Ontario. Its purpose was discussed by the Court of Appeal in Mastercraft Properties Ltd. v. EL EF Investments Inc., 1993 CarswellOnt 614. There, McKinlay J.A. said as follows, at para. 21:

…The provision protects the mortgagor by permitting payment of arrears without penalty, or by permitting early redemption at a price. It protects the mortgagee by giving him a three-month period during which to arrange for reinvestment of his principal, or monies to compensate for lack of that notice. The option is that of the mortgagor. (Emphasis mine).

[25] Mortgages are secured loans. Loans are contractual agreements. Pursuant to the loan agreement, the borrower is entitled to the use of the lender’s capital for some stipulated period of time. The lender, in return, is entitled to a stream of interest income, in addition to the ultimate repayment of its capital. When a borrower goes into default, the lender is theoretically entitled not only to repayment of its capital, but also to the present value of the lost income it would have received by way of interest had the breach not occurred. The lender’s damages are, of course, subject to the requirement that it take steps to reasonably mitigate its losses through the reinvestment of its capital.

[26] Providing that a mortgagor in default may redeem the mortgage on the payment of three months interest, or on the provision of three months notice, serves to cap the damages payable for the mortgagee’s lost income stream, while concurrently fixing the mortgagee’s responsibility to mitigate its losses. In effect, it is afforded three months to reinvest its capital.

[27] The rationale behind s. 17 ceases to make sense when a mortgage goes into default after maturity. In that circumstance, the lender has already received (or is entitle to receive) the whole of the income stream contracted for. The three months bonus interest would, in such circumstances, be nothing more than a penalty, something it was not intended to be: see Mastercraft Properties at para 4.

[28] I appreciate that s. 17 does not distinguish between defaults occurring before and after maturity. To the contrary, it would appear to treat them both the same way. Having said that, I make two observations.

[29] First, the maturity date is a contractually agreed upon date for repayment. Lenders are, therefore, expecting payment on that date. The mortgagor, in signing the mortgage agreement, has in effect, given notice of an intention to repay the mortgage on the maturity date.

[30] Second, as a practical matter, when mortgages go into default after maturity, lenders typically institute enforcement proceedings quickly. There is jurisprudence to support the position that a mortgagee who takes steps to enforce its security after maturity is not entitled to “tack on” an extra three months bonus interest: see Ialongo v. Serm Investments Ltd., 2007 CarswellOnt 1246 (S.C.J.) and 2468390 Ontario Inc. v. 5F Investment Group Inc., 2017 ONSC 4641. These authorities essentially provide that once the mortgagee takes enforcement proceedings, it has taken the option of redemption out of the hands of the mortgagor. The mortgagee cannot then convert a mortgagor’s option into an obligation. I agree with these authorities.

[31] In this case, the mortgage went into default after maturity. Thereafter, Mr. Lee understandably took steps to enforce the mortgage. He is not able to convert the Hes’ option to redeem into an obligation to pay a bonus of three months’ interest.

[32] If I am wrong about this, I find that, in any event, the Hes have provided more than three months notice of their intention to repay the mortgage. I find that they effectively gave that notice on February 15, 2018. On that date, their counsel wrote to Mr. Lee’s counsel with a payout proposal. It was not accepted and the parties thereafter litigated the amount owing. Nevertheless, the Hes had given notice of their intention to redeem. The mortgage was ultimately paid out on June 28, 2018, subject to the resolution of the issues in this action.

(c) The Impugned Fees

[33] At this point, some additional background information will be helpful.

[34] Mr. Lee advanced the sum of $700,000 on the strength of a mortgage secured against the Hes’ personal residence at 30 Pilgrim Drive, Markham and against a rental house the Hes own at 141 Kenborough Court, Markham. The mortgage came due on August 15, 2017. It was not paid. Mr. Lee, and/or agents on his behalf, made a number of attempts to contact the Hes to address repayment of the outstanding balance commencing August 14, 2017.

[35] On September 6, 2017, a solicitor acting on behalf of the Hes finally contacted Mr. Lee’s solicitor. The Hes requested a renewal of the mortgage. Negotiations then proceeded over a period of about six weeks. On October 20, 2017, the Hes’ solicitor advised that they were accepting terms offered by Mr. Lee for a six month renewal of the mortgage.

[36] After October 20, 2017 however, the Hes had no further communication with Mr. Lee and/or his agents until February of 2018. A mortgage renewal agreement was forwarded to them on November 6, 2017 but not returned.

[37] Mr. He deposed in an affidavit sworn July 31, 2018 that there was a “preliminary understanding” about the mortgage renewal, but when he and his wife received the renewal documents they did not agree with the terms. He went on to explain that, at the time, he and his wife were embroiled in insolvency litigation with the Royal Bank of Canada. He had to devote his full attention to that proceeding, which purportedly explains the absence of communication with Mr. Lee.

[38] The RBC litigation was apparently resolved in early February 2018. By that point, Mr. Lee had commenced an action to recover the balance owing on his mortgage, together with possession of the mortgaged premises.

[39] Between February 13 and 16, 2018 Mr. Lee and his representatives attempted, unsuccessfully, to attorn the rents payable by the Hes’ tenant at the Kenborough property.

[40] On February 15, 2018, the Hes’ lawyer wrote to Mr. Lee’s counsel and asked for particulars in relation to the statement of claim. In addition, the Hes offered to pay $745,465 to redeem the mortgage. Their offer reflected the amount they considered due and payable as of February 15, 2018.

[41] Mr. Lee was not agreeable to the payment proposed by the Hes. Mr. Lee claims that he is entitled to be reimbursed for a range of expenses that he incurred in pursuing the Hes following August 15, 2017 in an attempt to collect the outstanding balance on the mortgage. The Hes submit that the fees claimed are unreasonable and improper.

[42] The mortgage contained the following terms relevant to the reimbursement of the mortgagee’s costs:

A.10. STATEMENT FEE: The Borrowers covenant and agree to pay to the Lender the fee of $250 for each and every statement given by the Lender with respect to this mortgage requested on behalf of the Borrowers and such amount, at the Lender’s option, shall be paid in advance or be charged on the Properties and shall bear interest at the rate aforesaid.

A.13. COLLECTION COSTS: The Lender may pay all of its expenses of collecting any payments not received from the Borrower when due. These expenses will include all of the Lender’s legal expenses on a solicitor and client basis. The Borrower agrees that immediately upon request the Borrower will pay as reimbursement all such expenses of the Lender. Until paid, the payments will be added to the outstanding principal hereunder and will be a charge against the Properties. Interest is payable by the Borrower on the payment made by the Lender at the interest rate payable on the mortgage amount (past due) until the payments are made to the Lender in full.

Standard Charge Terms 200433, section 8: The Chargee may pay all premiums of insurance and all taxes, rates, levies, charges, assessments, utility and heating charges which shall from time to time fall due and be unpaid in respect of the land, and that such payments, together with all costs, charges, legal fees (as between solicitor and client) and expenses which may be incurred in taking, recovering and keeping possession of the land and of negotiating the Charge, investigating title, and registering the Charge and other necessary deeds, and generally in any other proceedings taken in connection with or to realize upon the security given in the Charge (including legal fees and real estate commissions and other costs incurred in leasing or selling the land or in exercising the power of entering, lease and sale contained in the Charge) shall be, with interest at the rate provided for in the Charge, a charge upon the land in favor of the Chargee pursuant to the terms of the Charge and the Chargee may pay or satisfy any lien, charge or encumbrance now existing or hereafter created or claimed upon the land, which payments with interest at the rate provided for in the Charge shall likewise be a charge upon the land in favor of the Chargee. Provided, and it is hereby further agreed, that all amounts paid by the Chargee as aforesaid shall be added to the principal amount secured by the Charge and shall be payable forthwith with interest at the rate provided for in the Charge, and on default all sums secured by the Charge shall immediately become due and payable at the option of the Chargee, and all powers in the Charge conferred shall become exercisable.

[43] In addition to the foregoing provisions, the common law supports the proposition that a mortgagee is generally entitled to be indemnified for the costs that are incurred to respond to a default by a mortgagee. The costs claimed must, however, be reasonable and properly incurred: see Chong v. Kaur, 2013 ONSC 6252 at para. 40.

[44] Within about ten months of default, the balance owing on the mortgage had, according to Mr. Lee, ballooned from the principal sum of $700,000, to a figure in excess of $925,000. At times, Mr. Lee had insisted that $950,000 or more was owing to him, but by the time this case came on for trial, the balance sought was $926,236.13.

[45] In the circumstances, it is easy to understand why the Hes might be concerned about the reasonableness of the fees and costs being sought. I will break down the contentious fees one by one.

(i) Mortgage Administration

[46] Mr. Lee has charged roughly $21,000 for mortgage administration fees; what he describes loosely as litigation and enforcement services.

[47] The Hes have two complaints about this figure. First, it is inflated. Second, it is essentially Mr. Lee charging for his own time.

[48] Mr. Lee has a property management company called Ever Young Realty Inc. He retained his own company to assist him with enforcing the mortgage in this instance.

[49] I take no issue with Mr. Lee utilizing his own firm for enforcement purposes. So long as the fees charged are reasonable and properly incurred, I see nothing improper about Mr. Lee using his own forces to collect on the amount due to him.

[50] Having said that, I do take issue with the amounts charged. First off, an hourly rate of $85.00 has been applied for all of Mr. Lee’s work. I have no idea where that number comes from, nor whether it is consistent with industry standards. Even if I assume, for the sake of argument, that it is a reasonable hourly rate, my grievance is more with the hours charged. They are set out on a detailed invoice dated July 11, 2018 and filed as an exhibit to Mr. Lee’s affidavit.

[51] I do not intend to comment upon every entry in the invoice. I think a sampling of entries will be sufficient to give the flavor of it:

(a) On August 24, 2017 Mr. Lee has billed $425 for purportedly spending five hours reviewing the case with a lawyer. This is a simple mortgage default. I cannot imagine what Mr. Lee and any lawyer would have talked about for five hours. It is a preposterous amount of time; (b) On August 28, 2017 he purports to have taken three hours to review two pieces of correspondence; (c) On September 6, 2017, another five hours were spent discussing this simple mortgage default with a lawyer; (d) On September 17, 2017, yet another five hour meeting with a lawyer to discuss the case; (e) On September 25, 2017, two more hours of discussions with a lawyer in order to instruct the lawyer to issue a demand letter; (f) On October 18, 2017, another five hours was purportedly spent on email communications with lawyers; (g) On October 31, 2017, five hours were spent preparing a statement of account; (h) On November 6, 2017, another five hour discussion with the lawyer, this time about sending a registered letter to the borrowers.

[52] The statement goes on and on with what I can only describe as outrageous claims for time purportedly spent.

[53] I have no doubt that Mr. Lee spent time on the collection of this mortgage that went into default. His time is worth something. But his evidence is neither credible nor reliable on what his time and costs actually were. I find his claims to be inflated, wholly unsupportable and, frankly, an attempt to deceive the court. I reject his evidence about these costs entirely. Without a reliable basis for concluding what his reasonable costs actually were, I am in a position where I am unable to award anything for administrative costs.

(ii) Statements

[54] The mortgage provided that Mr. Lee was entitled to be paid $250 when requested to provide a mortgage statement for discharge purposes. In this case, it appears that nine separate statements were delivered to the Hes.

[55] The following is a summary of the statements provided:

Date	Amount
August 25, 2017	$716,598.53
October 19, 2017	$776,271.63
January 18, 2018	$881,043.00
February 12, 2018	$946,988.51
March 5, 2018	$948,264.83
March 6, 2018	$956,345.15
April 24, 2018	$918,995.28
June 11, 2018	$959,600.77
June 22, 2018	$952,600.77

[56] For the most part the statements provided are patently absurd. They include invalid claims for increased interest, bonus interest and inflated costs. How the balance went up some $65,000 in about three weeks between January 18, 2018 and February 12, 2018 is almost incomprehensible. They also generally include an accrual, at the rate of $7,000 per month, of a purported administrative fee provided for in the mortgage. Specifically the mortgage provided for a fee of 1% of the principal, per month, to be paid while the mortgage was in default. Any claim for this fee was abandoned at trial, without explanation. I think it obvious, however, that this purported charge offends s. 8 of the Interest Act.

[57] The Hes went into default. They asked for a payout statement. They have to pay for the first one. They were not in a position to repay the mortgage, but went through with some attempts at negotiating a renewal in the fall of 2017. They sought an additional statement in October and have to pay for that. They were not in a position to repay the mortgage until at least mid-February, 2018 when they asked for another statement. They have to pay for that one too. Beyond that, the statements provided were not reasonable and included unsupportable claims. They should not have to pay for them.

[58] I award Mr. Lee $750 for mortgage statements provided at the request of the Hes.

(iii) Private Investigation

[59] Mr. Lee hired a private investigation firm for what he described as two reasons. First, to locate the Hes. Second, to conduct some sort of financial profile of them. They were charged, and seek reimbursement for, the sum of $9,593.98 plus interest on that sum from February 12, 2018.

[60] A copy of the investigation report has not been produced.

[61] I am of the view that this expense was entirely unnecessary. The mortgage was secured against two properties. There is no evidence that the Hes had left town. They and their children continued to reside in one of the mortgaged properties. If they were evading service, Mr. Lee could have sought an order for substituted service. Any Notice of Sale Under Mortgage could simply have been delivered to the mortgaged premises.

[62] The financial profile was, in my view, not directed at recovery of the outstanding balance, but at whether Mr. Lee wanted to renew the mortgage and continue to do business with the Hes. If I am right about that, then the expense is not related to mortgage enforcement, but rather to future business. If I am wrong, then the expense is simply unreasonable. This mortgage was secured over two properties. Any reasonable mortgagee would simply proceed to realize on its security, not pay $10,000 to try to figure out what was going on in the borrowers’ lives.

(iv) Rent Attornment

[63] Mr. Lee had a valid right to enforce the mortgage. One of his rights was to attorn the rents of the Hes’ tenants. Neither the Hes nor the tenants co-operated. Mr. Lee incurred legitimate expenses in attempting to attorn rents. I accept his figure of $6,215.00.

[64] The Hes submitted that Mr. Lee harassed the tenants, but I find that complaint unsubstantiated.

(v) Property Management

[65] According to Mr. Lee, he spent $16,950 on managing the Hes’ rental property at 141 Kenborough. This service was again provided by Ever Young Realty. Invoices of $2,500 per month, plus HST were rendered by Ever Young Realty to Mr. Lee. There is no evidence that the invoices were paid. There is no evidence of what services were actually provided and the costs incurred in the provision of those services. Each of the invoices, from February to July 2018 contained the following description of the services provided:

• Attend to ensure property is secured, snow is removed if applicable
• Attend for tenant related matter and as requested by mortgagee client
• Attend for special weather – windstorm, hailstorm

[66] The Court of Appeal made it very clear, in Aquaviva v. P.A.R.C.E.L. Inc., 2015 ONCA 331, “that in the absence of evidence that the charges in question reflect real costs legitimately incurred by the [mortgagee] in the recovery of the debt, in the form of actual administrative costs or otherwise,” then the costs are nothing more than an additional penalty or fine, imposed contrary to s. 8 of the Interest Act and are not recoverable.

[67] I am not satisfied that any of the property management fees with respect to the Kenborough property reflect actual costs incurred. They are nothing more than a penalty – though I might characterize them as a gouging – sought to be imposed upon the Hes. I disallow them entirely.

(vi) Legal Fees

[68] Any mortgagee seeking to recover its loan and realize on its security is going to incur legal fees. The fees charged in this case are $11,300. The bill submitted by Mr. Lee’s counsel, Diana Young, is not sufficiently detailed to permit me to properly assess it. Having said that, the figure is not, prima facie, unreasonable and I find it to be a recoverable charge.

(d) Mr. Lee owed a duty of reasonableness to the Hes

[69] The Hes assert that Mr. Lee was unreasonable in the demands that he made for repayment. Their inability to obtain a discharge of their mortgage on reasonable terms meant that they were unable to refinance their mortgage with another lender on more favourable interest terms. They counterclaim for damages they say represent the difference between the interest they paid at 12.99% from February 15, 2018 onwards and the interest rate they could have paid had they been able to refinance the mortgage. That rate, they submit, is 3.45%

[70] The counterclaim provides as follows:

25. The Defendants claim against the Plaintiff for: (g) an Order for damages for the difference between the interest rate charged by the Plaintiff and the market interest rate of a similar mortgage in an amount to be determined by the Court calculated from February 15, 2018.

26. To date, the Plaintiffs have refused to provide a reasonable discharge statement to the Defendants. As a result, the Defendants have not been able to obtain refinancing to repay the mortgage.

27. The Defendants are being forced to pay an interest rate of 12.99% annually when the market mortgage rate is only approximately 3% annually for a one year fixed mortgage.

[71] I raised with counsel during submissions that the counterclaim is not entirely clear about what actionable wrong Mr. Lee has allegedly committed. There can be no damages, of course, without an actionable wrong.

[72] Mr. Wong submitted that he was relying on the lender’s implied duty to act reasonably. If given a generous reading, the counter claim may support that interpretation.

[73] Mr. Wong was unable to provide me with any case law establishing the contours of the lender’s implied duty of reasonableness. I am prepared to find that a duty of fairness and reasonableness exists, however, based on the following three factors:

(a) First, pursuant to the applicable Standard Charge Terms, the Hes were entitled to a discharge of the mortgage within a reasonable time after payment in full of the amounts secured by the charge. The phrase “amounts secured by the charge” must be read to mean the amounts lawfully secured by the charge. In other words, a mortgagee cannot demand payment of fees and charges it is not lawfully entitled to; (b) Second, as I have noted, when a mortgagee is entitled under a charge to reimbursement for its costs and expenses associated with enforcement of the mortgage, any such expenses must be properly incurred and reasonable: see Chong v. Kaur, 2013 ONSC 6252 at para. 40; (c) Finally, the Supreme Court has recognized a general organizing principle of good faith in contracts law. Contracting parties must generally conduct themselves honestly and reasonably and not capriciously or arbitrarily. See Bhasin v. Hrynew, 2014 SCC 71.

(e) Mr. Lee breached his duty to act reasonably

[74] Earlier in these reasons, I made a number of conclusions. They are not flattering to Mr. Lee. In particular, I found that he sought to impose an increased interest rate contrary to s. 8 of the Interest Act; he submitted grossly inflated statements of administrative fees to the Hes and to the court; he claimed management fees for a property he frankly did little, if anything, to manage; and he delivered inconsistent and unreasonable payout statements to the Hes.

[75] I conclude, in the result, that Mr. Lee has not acted reasonably, nor in good faith, in breach of his duty to do so.

(f) The Damages Issue

[76] Despite my conclusion that Mr. Lee has breached his obligation of good faith and reasonableness, I am not persuaded to award the Hes any damages. I reach this conclusion for two reasons.

[77] First, I am not satisfied that the Hes were ready, willing and able to pay out the mortgage at any time prior to the 28th day of June, 2018. Though they have submitted evidence that they had financing commitments at various times, each of the commitments was conditional. I am not satisfied that the Hes were in a position to satisfy the conditions at any time prior to the date when a payment was made pursuant to the Order of Edwards J.

[78] Recall that the motion before Edwards J. was argued on May 17, 2018. In his ruling dated June 13, 2018, he expressed similar concerns about the Hes’ ability to obtain refinancing. At para. 16 of his ruling, he said the following:

The Defendants have had since May 17, 2018 to obtain refinancing. When the matter was argued before me, I specifically advised counsel that my Reasons in this matter would be delayed for at least a few weeks given my involvement in other trials that I knew I would have to address prior to my release of any reasons in this matter. It was clear to counsel for the Defendants that this period of time was a period during which the court would be expecting the Defendants to obtain refinancing. Counsel for the Plaintiff advised that while this matter was under reserve, the Plaintiff would not take any steps to enforce the mortgage through power of sale proceedings.

[79] Edwards J. went on to observe that the Hes had not, in fact, been able to arrange refinancing and he indicated a lack of confidence that they would ever be able to do so.

[80] Second, I find that the Hes’ calculated damages depend on a number of unsupported assumptions. Mr. He set out the formula by which he calculated his damages, at Exhibit AA of his affidavit. His damage calculation includes the following assumptions:

(a) That they would have been able to pay out the amount owing to Mr. Lee and the amount owing on the first mortgage on their personal residence as of February 15, 2018; (b) That they could have refinanced the amount owing on the first mortgage on their rental property within 30 days of February 15, 2018; (c) That they could have avoided any lender’s fee to obtain new financing.

[81] In my view, the foregoing assumptions are not sufficiently supported by the evidentiary record and do not rise above speculation.

[82] Given the speculative nature of the proposed refinancing and the events surrounding the order of Justice Edwards, I am not prepared to accept that the Hes were in any position to refinance at a lower rate of interest until they actually did so.

[83] The counterclaim is, in the result, dismissed.

The Balance Outstanding

[84] In conclusion, I find that the sum of $22,033.98 remains outstanding on the mortgage, calculated as follows:

Item	Amount
Principal	$700,000.00
Interest from August 15, 2017 to June 28, 2018 @ 12.99%	$78,972.08
Statement Fees	$750.00
Attornment Fees	$6,215.00
Legal Fees	$11,300.00
Subtotal 1	$797,237.08
Less amount paid per order of Edwards J.	($775,974.93)
Subtotal 2	$21,262.15
Interest from June 29, 2018 to October 9, 2018 @12.99%	$771.83
Total	$22,033.98

Costs

[85] If the parties are unable to agree on the issue of costs, they may make written submissions in writing, not to exceed three pages in length, not including cost outlines. The submissions are to be submitted on a 14 day turnaround. Mr. Lee’s submissions shall be served and filed by October 24, 2018 and the Hes’ submissions served and filed by November 7, 2018. They are to be filed electronically with my assistant at Diane.Massey@Ontario.ca.

Boswell J.

Released: October 11, 2018

Corrigendum

1. Paragraph [84] has been amended to correct a mathematical error in the original judgment. In particular, the calculation of the plaintiff’s damages in paragraph [84] of the original judgment failed to include the sum of $6,215 determined as owing to the plaintiff for fees incurred in attempting to attorn rents, as provided for in paragraph [63] of the judgment.