Court File and Parties

COURT FILE NO.: 16-70049 DATE: 2018-10-25 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: Daly Square Inc. Plaintiff – and – 1786097 Ontario Inc. and Camille Mikhael Defendants

Counsel: Jonathan Richardson, counsel for the plaintiff/defendant by counterclaim Pierre Champagne and Ginger Warner, counsel for defendants/plaintiffs by counterclaim

HEARD: January 11, 2018 and August 13, 2018 with additional written submissions February, 2018

Reasons for Decision

Motion for Summary Judgment

JUSTICE H.J. WILLIAMS

The motion:

[1] This is a motion for summary judgment under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] The plaintiff requests summary judgment in a mortgage action in which it is asking for judgment in the amount of approximately $130,000.00 plus interest and possession of the mortgaged property.

[3] The plaintiff also requests judgment dismissing the defendants’ counterclaim on the basis that the counterclaim is statute-barred.

[4] In their counterclaim, the defendants are asking for $500,000.00 in damages. The basis for the counterclaim is that the plaintiff is alleged to have damaged the mortgaged property when it demolished and replaced a building on an adjacent property.

Background:

[5] The plaintiff and the defendant 1786097 Ontario Inc. own buildings on lots that are beside each other on King Edward Avenue in Ottawa.

[6] At one time, the two lots were portions of one large lot and the building now owned by 1786097, 460 King Edward, was attached to another building. In 2009, the plaintiff severed the large lot. It sold 460 King Edward to 1786097 and retained the other lot. The building that had been attached to 460 King Edward was located on the lot retained by the plaintiff. The plaintiff demolished that building and built a new five-story condominium in its place.

[7] When 1786097 agreed to buy 460 King Edward from the plaintiff, the parties recognized the possibility that 460 King Edward would be damaged by the demolition and construction on the plaintiff’s lot. The agreement of purchase and sale included a clause that provided that the plaintiff would indemnify 1786097 for any damage to 460 King Edward:

The Buyer [1786097] acknowledges that the Seller’s [the plaintiff’s] redevelopment of the adjoining land may entail new structure foundations directly adjoining the existing foundations of the Rectory building [460 King Edward] subject to City’s approval and allows this condition. The Seller undertakes to follow best construction practices relative to shoring of the existing Rectory foundations as not to cause damage to same during the course of the Seller’s redevelopment of the adjacent land. The cost of any damage caused shall be the responsibility of the Seller and shall be repaired to the satisfaction of the Buyer; and this provision shall survive closing.

The mortgage

[8] When the plaintiff sold 460 King Edward to 1786097, it took back a mortgage for $650,000.00.

[9] The defendant Camille Mikhael personally guaranteed the mortgage.

[10] In June, 2014, the plaintiff took the position that the mortgage was in default.

[11] The defendants argued that the parties agreed to postpone mortgage payments and also to reduce the amount owing under the mortgage to compensate 1786097 for damage to 460 King Edward caused by the demolition and construction on the plaintiff’s property.

[12] On January 16, 2015, 1786097 paid the plaintiff $482,551.27. The amount represented the balance 1786097 had calculated it owed under the mortgage, less certain amounts 1786097 argued the plaintiff had agreed to pay 1786097 and an additional amount on account of damage to 460 King Edward.

[13] At the time it made the payment, 1786097 did not request a discharge of the mortgage.

[14] The plaintiff accepted 1786097’s payment.

[15] About 10 days after making the payment, Mr. Mikhael asked the plaintiff to confirm its acceptance of the amount paid and to discharge the mortgage.

[16] In 2015 and 2016, the parties exchanged some emails and had some discussions about their respective positions.

[17] On September 26, 2016, the plaintiff issued its statement of claim.

[18] The plaintiff argues that 1786097 wrongfully deducted amounts from the amount owed under the mortgage and that it also understated the interest owing.

The counterclaim

[19] In their counterclaim, the defendants allege that vibrations during the plaintiff’s redevelopment of the property next door to 460 King Edward caused damage to 460 King Edward. The defendants allege that the damage included cracks and shifting in the walls and floors, water leaks, broken radiators, and damage to pipes, floors and walls. The defendants also allege that the plaintiff or its contractors disconnected drainage on the roof above 460 King Edward which caused leakage which damaged ceiling tiles and drywall, that the plaintiff installed a sign which damaged a balcony, ceiling and wall and that on two separate occasions, the plaintiff or its contractors cut internet service to 460 King Edward. The defendants allege that, as a result, 1786097 was unable to lease several units over various periods of time and that tenants either refused to pay rent or left the property before their leases expired.

[20] The defendants’ statement of defence and counterclaim was served on January 6, 2017 and filed on January 17, 2017.

The parties’ positions

[21] The plaintiff argues that the defendants owe $123,168.16 plus interest from September 6, 2016 at 4.75 per cent. The plaintiff argues that the defendants cannot claim a set off against the amount owing under the mortgage because set off is precluded by the following mortgage term:

The Chargor will pay or cause to be paid to the Chargee the full principal amount and interest secured by the Charge in the manner of payment provided by the Charge, without any deduction or abatement…

[22] The plaintiff also argues that by June 17, 2014, at the very latest, 1786097 was aware that the plaintiff had rejected its claims for compensation. As the defendants’ counterclaim was not commenced until January, 2017, well over two years later, the plaintiff argues that the counterclaim is statute-barred.

[23] The defendants argue that their ability to claim a set off and the application of the limitation period are genuine issues requiring a trial.

[24] The defendants argue that the plaintiff’s motion should be dismissed or, if summary judgment is granted only in respect of the plaintiff’s action on the mortgage, the judgment should be stayed until the counterclaim has been adjudicated.

[25] Rule 20.04(2) of the Rules of Civil Procedure provides that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. A trial is not required if a summary judgment motion can achieve a fair and just adjudication, if the process allows the judge to make the necessary findings of fact and apply the law to those facts and if the motion is a proportionate, more expeditious and less expensive means to achieve a just result. (Hryniak v. Mauldin, 2014 SCC 7 at para. 4.)

Analysis and conclusions:

[26] For the reasons below, I find that the plaintiff is not entitled to summary judgment either in respect of its action or in respect of the defendants’ counterclaim.

The plaintiff’s action and the set off issue

The plaintiff’s position

[27] The plaintiff argues that the defendants are not entitled to claim set off against the amount they owe under the plaintiff’s mortgage and that the defence of set off does not raise a genuine issue requiring a trial.

Analysis

Equitable set off

[28] While legal set off requires mutual debts, equitable set off does not. Equitable set off may apply where a defendant makes a claim against a plaintiff in relation to the same contract or series of events that gave rise to the plaintiff’s claim. Five principles are relevant to the availability of equitable set off: 1) The party claiming set off must show that it has an equitable basis for being protected from the opposite party’s claim; 2) the equitable basis must go to the very root of the plaintiff’s claim; 3) the counterclaim must be so clearly connected with the plaintiff’s demand that it would be manifestly unjust to allow the plaintiff to enforce payment without taking the counterclaim into consideration; 4) the claim and the counterclaim do not have to arise out of the same contract; and 5) unliquidated claims are on the same footing as liquidated claims. (Canaccord Genuity Corp. v. Pilot, 2015 ONCA 716 at paras. 56-57).

[29] The plaintiff’s mortgage includes a term that it is to be paid “without deduction or abatement”. The plaintiff argues that equitable set off is not available when a mortgage includes this term.

[30] I agree with the defendants that the law the plaintiff relies on is not as clear as the plaintiff suggests.

[31] The cases Shirley Marshall Holdings Inc. v. FMAS Investments Inc., 2004 CarswellOnt 2538 (Ont. S.C.J.) ; 7895 Tranmere Drive Management Inc. v. Helter Investments Ltd. the plaintiff relies on accept that a 1970 case, Arnold v. Bronstein, decided that there is no right of equitable set off against a liquidated claim under a mortgage which is to be paid “without deduction or abatement”, provided the mortgagee acts in good faith and without fraud. Arnold v. Bronstein is not, however, a case in which equitable set off was sought against a liquidated claim against a mortgage but rather a case in which an injunction was brought to stop a power of sale. There was also no reference in Arnold v. Bronstein to the phrase “without deduction or abatement”.

[32] However, even on the plaintiff’s reading of its cases, a mortgagee must act in good faith and without fraud before a claim of equitable set off would be prohibited. On the motion before me, the defendants argue that the plaintiff acted in bad faith by leading 1786097 to believe that, in accordance with the terms of the agreement of purchase and sale, the plaintiff would compensate 1786097 for damage to 460 King Edward, by denying that there had been any agreements to compensate 1786097 and also by refusing to produce monitoring probe data and other documents that would have enabled 1786097 and its engineer to determine whether damage to 460 King Edward had in fact been caused by the plaintiff.

[33] The monitoring probe data and other documents were requested by the defendants on several occasions in 2014. In June, 2014, the plaintiff’s lawyers advised the defendants that there was “no good reason” for the plaintiff to produce the documents and that the plaintiff would not do so.

[34] The parties did not exchange affidavits of documents before the hearing of this motion. On December 12, 2017, in the lead-up to the hearing of the motion, the defendants repeated their request for the monitoring probe data. It was not produced before the hearing.

[35] In an affidavit, the defendants’ engineer confirmed that he requires the data and documents to determine whether the plaintiff caused damage to 460 King Edward.

[36] I find that neither the issue of whether the plaintiff acted in bad faith as alleged by the defendants nor whether the defendants can show an equitable basis for being protected from the plaintiff’s claim under the mortgage can be determined before the plaintiff produces at least the monitoring probe data and possibly also the other documents requested by the defendants which the plaintiff has, to date, refused to produce.

[37] I am not satisfied that I can fairly determine the issue of whether equitable set off is available to the defendants before the parties have exchanged affidavits of documents and their Schedule A productions. It is true, as the plaintiff submitted, that the defendants could have forced the document production issue, presumably by bringing an independent motion or a cross-motion. The defendants’ failure to have taken these steps does not level the playing field. It would not be fair or appropriate to resolve this issue in favour of the plaintiff when the plaintiff has refused to produce documents the defendants specifically requested and which appear to be highly relevant to the defendants’ ability to put their best foot forward in response to the plaintiff’s motion.

Legal set off

[38] I am satisfied on the record before me that the defendants have no entitlement to claim legal set off against the plaintiff’s mortgage claim.

[39] Legal set off applies to mutual debts. (Courts of Justice Act, R.S.O. 1990, c. C. 43, s. 111). “Mutual debts” are debts due from either party to the other for liquidated sums or money demands which can be ascertained with certainty at the time of pleading. (Telford v. Holt, [1987] 2 S.C.R. 193 at para. 26, citing [Bennett v. White, [1910] 2 K.B. 648, 79 L.J.K.B. 1133](Bennett v. White, [1910] 2 K.B. 648, 79 L.J.K.B. 1133)).

[40] The only claim of the defendants that might qualify is the claim for $16,294.92 in property taxes paid by 1786097. Although the defendants argue that they should have received credit for this payment earlier than they did, it is clear from the spreadsheet marked as Exhibit A on the motion that when the plaintiff calculated the amount of its claim, it gave 1786097 credit for the payment.

[41] The other amounts the defendants seek to set off, which relate to the cost of fire retrofitting, lost rental income and repair costs, are more properly characterized as claims for damages than as debts. I note that none of these amounts is specifically pleaded in the defendants’ statement of defence.

Conclusion with respect to the plaintiff’s action and the set off issue

[42] The plaintiff’s motion for summary judgment on its claim is dismissed.

[43] The issue of the availability of equitable set off cannot be determined before the parties have exchanged affidavits of documents and their Schedule A productions.

[44] As I have found that the defendants have no right to claim legal set off against the plaintiff’s mortgage claim, I find, under Rule 20.05(1) that this is not an issue to be tried.

The defendants’ counterclaim and the limitation period issue

[45] As noted above, the plaintiff argues that the defendants’ counterclaim is statute-barred.

The plaintiff’s position

[46] In its amended notice of motion, the plaintiff states that the defendants had knowledge of “any potential counterclaim” as early as 2010 and “had full knowledge that all claims were being denied in their entirety by the plaintiff as early as June, 2014, yet did not take any steps with respect to their claims until January, 2017.”

[47] The counterclaim was served January 6, 2017 and filed January 17, 2017.

[48] In the affidavit relied on by the plaintiff, the plaintiff’s chief financial officer, Alan Halpren, stated that the defendant Mr. Mikhael made allegations in or before May, 2014 that the plaintiff had damaged 460 King Edward during the course of the construction project and that, since that time and for that reason, Mr. Mikhael had repeatedly requested a reduction in the balance owing under the plaintiff’s mortgage.

[49] Mr. Halpren referred to and attached to his affidavit the letter dated June 17, 2014 from the plaintiff’s lawyers to Mr. Mikhael, referred to above, which stated that the plaintiff rejected all of 1786097’s claims and demanded payment of the complete balance owing under the mortgage.

[50] In its factum, the plaintiff states that, taking the defendants’ case at its absolute highest, as of June 17, 2014, “the defendants had notice that the plaintiff was accepting no responsibility for any losses alleged by the defendants and would be producing no documents”.

Analysis

[51] Under Rule 14.01(2) of the Rules of Civil Procedure, a counterclaim is commenced by the “delivery” of the pleading containing the counterclaim. Under Rule 1.03(1), “‘deliver’ means serve and file with proof of service, and ‘delivery’ has a corresponding meaning.”

[52] The defendants’ counterclaim was, therefore, commenced on January 17, 2017, having been served on January 6, 2017 but not having been filed until January 17, 2017.

[53] Under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, there is a two-year limitation period for commencing an action once a claim has been “discovered”. More specifically, a claim may not be commenced after the second anniversary of the day on which it was discovered.

[54] Section 5(1) of the Limitations Act, 2002 says that a claim is “discovered” on the earlier of,

(a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[55] The effect of s. 5(1)(b) is that if a person reasonably should have known of the facts in s. 5(1)(a) earlier than they did, the claim is considered to have been discovered on the day it reasonably should have been discovered and not on the day the person actually discovered it.

[56] In this case, the key date is January 17, 2015. The defendants’ counterclaim is statute-barred if it was or should have been discovered by the defendants before January 17, 2015, which was two years before January 17, 2017, the date the counterclaim was commenced.

[57] The counterclaim is for damage the defendants allege was caused to 460 King Edward by the demolition and construction on the plaintiff’s lot next door. The defendants have obtained an expert’s report estimating the cost of repair to be $135,000.00.

[58] While I agree with the plaintiff that, as of June 17, 2014, the defendants were or should have been aware that the plaintiff was accepting no responsibility for any of the defendants’ alleged losses, it does not follow that the defendants had “discovered” their counterclaim by June 17, 2014.

[59] It is clear that, as of June 17, 2014, and, therefore, also before the key date of January 17, 2015, the defendants had knowledge of the fact in s. 5(1)(a)(i) of the Limitations Act, 2002, that “injury, loss or damage had occurred”. The defendants had complained to the plaintiff well before January 17, 2015 about damage and losses. For example, in an email dated March 18, 2014, Mr. Mikhael had referred to “the contentious issue of the instability of the foundation” and to a proposal he had made that $80,000.00 might address the issue.

[60] What is less clear is on what day the defendants first knew or should have known that “the injury, loss or damage was caused by or contributed to by an act or omission” under s. 5(1)(a)(ii) of the Limitations Act, 2002, that “the act or omission was that of [the plaintiff]” under s. 5(1)(a)(iii) and that “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it” under s. 5(1)(a)(iv).

[61] In November or December, 2013, the defendants had contacted an engineer and requested a quote for assessing the cause of damage to 460 King Edward and providing a preliminary opinion. The engineer informed the defendants that he would require information about the demolition and construction on the plaintiff’s property next door to 460 King Edward, including data relating to field inspection and monitoring and “any information recorded during the construction activity.”

[62] On December 20, 2013, Mr. Mikhael provided the plaintiff with a copy of the engineer’s quote and the list of documents and information the engineer said he required.

[63] On February 10, 2014, Mr. Mikhael informed Mr. Halpren in an email that two engineering companies had “suggested that the north west corner of the building has indeed dropped due to the construction of the underground garage.” Mr. Mikheal said that he could request formal studies from the engineers but that having the plaintiff’s reports would make the job quicker and less costly.

[64] On March 20, 2014, Bill Ellerington of one of the plaintiff’s affiliated companies told Mr. Mikhael that there had been no damage to the footings or foundation of 460 King Edward caused by the plaintiff’s construction. Mr. Ellerington said that the monitoring of 460 King Edward during the construction had revealed only minimal settlement to the north wall of the building. He also said that no movement was expected in the future. Mr. Ellerington reminded Mr. Mikhael that the City of Ottawa had done extensive work on King Edward and said that the engineer who had conducted the building monitoring had told him that trees could have affected the building’s foundation.

[65] On May 21, 2014, Mr. Mikhael wrote to the plaintiff’s Cuckoo Kochar and confirmed that the plaintiff had refused to share “the north wall monitoring data.”

[66] The June 17, 2014 letter from the plaintiff’s lawyers to Mr. Mikhael, referred to previously, included the following paragraphs which pointed to the two alternative causes of the damage to 460 King Edward raised by Mr. Ellerington in March and confirmed that the plaintiff would not be producing the documents the defendants had requested:

…You have produced no proof of any material amount of damage to your foundation. My client therefore denies that you have suffered any real damage. Even if you could prove such damage, my client has told you that its position is that such damage would have been caused by other forces. Two such possibilities are the City’s work on King Edward and the trees along the south and east sides of your building.

You keep asking my client to produce their private and confidential expert reports to you. They are not going to do that. Not only would that cause a problem with their experts, but more importantly, there is no good reason for them to do so, especially when you are advancing all manner of unfounded claims against them. It is your obligation to prove any claims you choose to make. You have to hire your own experts and pay them for their opinion and reports. You have to bear the cost of obtaining proof of your claims and you risk paying my client’s legal costs if you lose.

[67] Discovery of a claim requires knowledge of the identity of a potential defendant but it is not necessary for a person to know with certainty a potential defendant’s responsibility for an act or omission. All that is required is that the plaintiff has prima facie grounds to infer that the acts or omissions were caused by the identified parties. The establishment of prima facie grounds may or may not necessitate obtaining an expert’s report. (Longo v. MacLaren Art Centre, 2014 ONCA 526 at para. 44).

[68] In late 2013 and early 2014, the defendants obviously suspected that the plaintiff may have been responsible for damage to 460 King Edward. However, they also had information that reasonably could have suggested otherwise, including the following:

• The plaintiff, which was an experienced developer and which had access to monitoring probe data the defendants did not have, told the defendants the plaintiff was not responsible for the damage;
• The plaintiff pointed to two possible alternative causes of the damage and said that its engineer had identified one of those causes;
• In the agreement of purchase and sale, the plaintiff had undertaken to use best construction practices in order to avoid causing damage to the 460 King Edward and it was in the plaintiff’s best interest to have been careful because it had agreed to compensate 1786097 for any damage; and
• The parties had worked cooperatively since 2009.

[69] The defendants argue that, to this day, they do not know whether the damage was caused by the plaintiff because, to this day, the plaintiff has not produced the monitoring probe data or other information the defendants’ engineer requires to provide an opinion about the cause of the damage. I note that even when the defendants’ lawyer wrote to the plaintiff’s lawyers on December 12, 2017, after this motion had been scheduled, and wrote, “[t]o be clear, we are not asking for any expert opinion, we are asking for the data so that our client may obtain his/its own expert opinion,” the data was not produced prior to the hearing of the motion.

[70] I am satisfied, on the record before me, that given the particular circumstances and faced with the plaintiff’s denial that it had caused damage to 460 King Edward, as of June 17, 2014, the defendants did not have prima facie grounds to infer that the plaintiff had caused the damage. I note that as June 17, 2014, the plaintiff’s lawyers, in their letter, were telling the defendants that the defendants would be required to hire their own experts to prove their claims, which the plaintiff’s lawyers described as “unfounded”.

[71] I am not satisfied that I can determine, on the record before me, on what day after June 17, 2014, the defendants had or should have had prima facie grounds to infer that the damage to 460 King Edward was caused by an act or omission of the plaintiff or, more to the point, whether they knew or should have known this fact before the key date of January 17, 2015. Such a determination would require an analysis of whether, after receiving the plaintiff’s lawyers’ letter of June 17, 2014, the defendants should have taken steps to compel production of the monitoring probe data and other documents the plaintiff had refused to produce, whether the defendants should have pressed their engineer to try to provide them with a causation opinion even without this information and, if the defendants should have followed either course of action, how quickly they should have done so.

[72] I have concluded, however, that determining when the defendants knew or should have known that the plaintiff caused damage to 460 King Edward is unnecessary. This is because, to discover a claim, a person must or should know all four facts under s. 5(1)(a) of the Limitations Act, 2002 and, for the reasons below, I find that before January 17, 2015, the defendants did not know, and should not have known, the fact in s. 5(1)(a)(iv) of the Limitations Act, 2002, “that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it.”

[73] In Gillham v. Lake of Bays (Township), 2018 ONCA 667 at paras. 35-36, the Ontario Court of Appeal confirmed that when an action is “appropriate” under s. 5(1)(a)(iv) of the Limitations Act, 2002 will depend on the specific factual or statutory setting of each case, that case law applying s. 5(1)(a)(iv) is of limited assistance because each case will turn on its own facts and that one of the reasons that s. 5(1)(a)(iv) was added to the Limitations Act, 2002 was so that unnecessary litigation would be discouraged.

[74] I find that both before and after the key date January 17, 2015, there is evidence not only that the defendants did not know that a proceeding would be an appropriate means to remedy their loss but that they believed that a proceeding would be counter-productive and hoped that a proceeding would not ultimately be necessary. I find that a reasonable person in the defendants’ position would have come to the same conclusion.

[75] The defendants’ response to the plaintiff’s lawyers’ June 17, 2014 letter, which had demanded payment in full under the mortgage, was to attempt to negotiate an agreement with the plaintiff about the amount owing under the mortgage. When, on November 18, 2014, the plaintiff’s Mr. Halpren informed the defendant Mr. Mikhael that enforcement proceedings would be commenced imminently unless payment was made in full, Mr. Mikhael provided Mr. Halpren with additional cheques and requested an extension of time until a settlement could be negotiated. In an email to Mr. Halpren dated November 22, 2014, Mr. Mikhael wrote: “This situation has the potential to get much more involved and complicated should we both choose to go to court over it or we can move back towards open good faith communication as we enjoyed for several years and reach a fair settlement. I look forward to your feedback and welcome a meeting at your earliest opportunity to get us back on track as soon as possible.”

[76] As of November 22, 2014, Mr. Mikhael was hoping to persuade the plaintiff not to commence a proceeding and was expressing the opinion that taking the parties’ differences to court would not be good for either of them.

[77] On January 16, 2015, 1786097 provided its $482,551.27 cheque to the plaintiff. This cheque representing the amount 1786097 believed was owing under the plaintiff’s mortgage, minus certain amounts the defendants claimed the plaintiff had agreed to pay them and minus a $25,000.00 “retainer” relating to damage to 460 King Edward.

[78] On January 27, 2015, Mr. Mikhael wrote to Mr. Halpren and confirmed that the cheque and a financial summary breakdown had been provided to the plaintiff. Mr. Mikhael said that he wished to conclude his business with the plaintiff and to proceed with alternative financing. Mr. Mikhael requested confirmation that the amount paid was accepted and that the plaintiff would discharge its mortgage.

[79] On March 26, 2015, Mr. Halpren replied to Mr. Mikhael’s email of January 27, 2015, saying that he agreed that the issue had to be dealt with. Mr. Halpren requested a breakdown of the amounts 1786097 had withheld and said he would discuss the matter with Mr. Kochar and get back to Mr. Mikhael.

[80] In his affidavit, Mr. Mikhael’s partner, Elie Khouri, said that from time to time throughout 2015, he tried to resolve issues between 1786097 and the plaintiff so that 1786097 would be able to refinance 460 King Edward. Mr. Khouri said that he met with Mr. Halpren and had settlement discussions with him throughout December, 2015 and February, 2016. In his affidavit, Mr. Khouri said, “[b]ased on representations made by the plaintiff, it was evident that the parties were still actively trying to resolve the issues and that proceeding to a court action was not an appropriate course of action at that time.”

[81] As noted above, the plaintiff issued its statement of claim on September 26, 2016. It was not until January 17, 2017 that the defendants commenced their counterclaim.

[82] I infer from the evidence that there were several reasons why the defendants did not and reasonably should not have known, before the key date of January 17, 2015, that a legal proceeding was an appropriate means to remedy their loss:

• The parties were not strangers. The plaintiff was the defendants’ mortgagee and, as such, had a degree of financial control over the defendants.
• Litigation against the plaintiff almost certainly would have triggered a counterclaim for the full amount owing under the mortgage.
• As of January 16, 2015, the day 786097 gave the plaintiff its cheque for $482,551.27, 1786097 expected or at least hoped to negotiate an agreement about how much the plaintiff owed 1786097 in respect of 460 King Edward, that the parties would subtract this amount from the balance 1786097 owed under the mortgage, that the mortgage would be discharged and that the parties could then walk away from each other.
• At that time, despite the plaintiff’s earlier threats of mortgage enforcement proceedings, there was no reason to believe that litigation ultimately would be necessary. 1786097 had just given the plaintiff a large cheque and the parties had a long history of working cooperatively and resolving their differences, dating back to 1786097’s purchase of 460 King Edward in 2009.

Conclusion with respect to the defendants’ counterclaim and limitation period issue

[83] I find that the defendants did not discover their counterclaim before January 17, 2015, more than two years before they commenced their counterclaim. I find that the defendants did not know nor should they have known at that time that a proceeding was an appropriate means of remedying their loss.

[84] I find that the counterclaim is not statute-barred.

[85] I find, therefore, that there is no genuine issue requiring a trial in respect of the plaintiff’s limitation period defence to the defendants’ counterclaim.

Orders and next steps:

[86] In summary, I find as follows: (a) The plaintiff’s motion for summary judgment on its claim is dismissed; (b) Whether the defendants are entitled to claim equitable set off against the plaintiff’s mortgage claim is an issue that cannot be resolved before the parties have exchanged affidavits of documents and Schedule A productions; (c) The defendants are not entitled to claim legal set off against the plaintiff’s mortgage claim; legal set off is not an issue to be tried; (d) The plaintiff’s motion for summary judgment dismissing the defendants’ counterclaim is dismissed; and (e) The defendants’ counterclaim is not statute-barred.

[87] I will remain seized of this matter.

[88] I make the following orders under Rule 20.05(2) of the Rules of Civil Procedure:

(a) Within 30 days, the parties shall exchange affidavits of documents plus copies of all Schedule A productions, in paper or electronic form at the option of the producing party; (b) Within 30 days of the date of service of the second of the two affidavits of documents, the parties shall contact the trial coordinator to request a case conference with me to discuss directions and a timetable under Rule 20.05(2).

Costs:

[89] The parties have exchanged bills of costs and filed them in sealed envelopes which I have not yet opened.

[90] If the parties cannot agree on the costs of this motion, (a) The defendants may deliver written costs submissions of no more than three pages in length within 14 days of the date of this decision; (b) The plaintiff may deliver written submissions in response of no more than three pages in length within 14 days of the date of receipt of the defendants’ submissions; (c) The defendants may deliver any reply submissions of no more than three pages in length within seven days of the date of receipt of the plaintiff’s submissions.

[91] In deciding the issue of costs, I will consider the bills of costs filed by the parties as well as their written costs submissions.

[92] The costs submissions may be filed by sending them to me, care of the trial coordinator.

H. J. Williams J.

Released: 2018/10/25