Court File and Parties

COURT FILE NO.: CV-18-594590-00CL DATE: 20181127 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

IN THE MATTER OF SECTION 243(1) OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, C. B-3, AS AMENDED AND SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O, 1990, C. C.43 AS AMENDED

RE: B&M Handelman Investments Limited, Flordale Holdings Limited, M. Himel Holdings Inc. 1530468 Ontario Ltd., Maxoren Investments and Sheilaco Investments Inc., Applicants AND: Christine Drotos, Respondent

BEFORE: S.F. Dunphy J.

COUNSEL: David P. Preger and Dylan Augruso for the Applicants Eric Golden for the Receiver Rosen Goldberg Inc. L. Lesslie Dizgun and Justin Anisman, for the Respondent on the motion, Pillar Capital Corporation (Cayman) Eli Karp for Pillar Capital Corporation (Ontario)

HEARD at Toronto: November 26, 2018

REASONS FOR DECISION

[1] This was a motion brought by a court-appointed receiver for directions regarding the distribution of proceeds realized upon the sale of a property located at 4 Birchmount Road in Scarborough. I ordered the property sold on June 1, 2018 and this motion was scheduled to resolve competing claims to the proceeds.

[2] The Applicants claimed the right to be paid in priority to the first mortgage on title on the basis that the first mortgage had in fact been paid in full. At the conclusion of the hearing of this motion, I ruled in favour of the Applicants with reasons to follow. These are those reasons.

Background facts

(a) Procedural background

[3] McEwen J. appointed Rosen Goldberg Inc. as receiver and manager of a property known as 4 Birchmount Road, Toronto on April 13, 2018. The order was made on the application of the second mortgagee of the property, the Applicants B&M Handelman Investments Limited et al. (“Handelman”).

[4] On June 1, 2018 and following a contested hearing I granted a Sale Approval and Vesting Order approving the sale of the property, directing the proceeds of sale to be held by the Receiver pending further order. That order was opposed by the apparent first mortgagee, Pillar Capital Corporation and the holder of 69.9% of the apparent third mortgage, World Finance Corporation. An application to stay my order was dismissed by the Court of Appeal on June 13, 2018.

[5] The sale of the property closed shortly thereafter. The sale price was $3.45 million. There was significant dispute as to the amounts owing under the 1st and 3rd mortgages that was apparent in the various appearances before me. No dispute had been raised in regard to the validity of or amount secured by the second mortgage (to the Applicant Handelman).

[6] On August 3, 2018 I approved a timetable aimed at having the within motion for directions heard on October 9, 2018. The purpose of the motion(s) was to provide the receiver with directions regarding the distribution of the sale proceeds. In order to accomplish this, two motions were scheduled – the first for October 9, 2018 was to deal with the amounts if any owing under the first mortgage while the second (October 12) was to deal with a dispute regarding which Pillar Capital Corporation [1] was the actual first mortgagee, among other issues [2]. The schedule called for examinations to be completed September 4-5 and undertakings to be completed two days later (September 7, 2018) and for the factum of Pillar Capital Corporation to be completed by September 24, nine days prior to the hearing.

[7] On August 31, 2018, Conway J. ordered the Receiver to distribute $350,000 of the proceeds of the sale of the Birchmount property to Handelman. This amount was premised on the undisputed nature of the 2nd mortgagee’s debt, the lack of any challenges to its validity and the Receiver’s receipt of favourable legal opinions regarding validity. The amount distributed was intended to stop the interest clock running while leaving the receiver with a sufficient reserve of proceeds to repay the full amount of the alleged first mortgage should that claim be validated at the motion before me. The Receiver currently holds proceeds of $2,749,492 of which $2,603,915 would be available to repay the first or second mortgage depending upon the directions to be given by me at this motion. The remainder represents a reserve held by the receiver for the time being.

[8] Conway J. also ordered minor changes to the case timetable on consent of the parties. The deadline for responding to undertakings was pushed back by two days only.

[9] A few days prior to the original October 9 hearing date, the motion was adjourned. The reasons for that adjournment are not before me, but there is no suggestion it was opposed. The matter was rescheduled to November 26, 2018 without alteration to the case timetable.

[10] On November 6, 2018 one of the alleged owners of the third mortgage (Money Gate Mortgage Investment Corp.) was itself placed into receivership and its receiver, Grant Thornton needed time to review its position. Among the allegations leading to the appointment of the receiver were allegations relating to the alleged diversion of funds by the principals of MGMIC arising from the purchase of an interest in the Birchmount property third mortgage from World Finance.

[11] On November 14, 2018, the parties appeared on a scheduling appointment before Penny J. with counsel for the new Receiver of Money Gate. Pillar Capital did not appear although its counsel signed the consent form requesting the hearing. Money Gate’s receiver did not ask to adjourn the November 26, 2018 hearing but asked for and received an extension of time to file its own factum. Penny J. noted that failure of Pillar Capital to file its factum and responses to undertakings as required and noted the reluctance of the Commercial List to grant adjournments in such circumstances. The timetable was amended only in favour of the receiver for Money Gate.

[12] Notwithstanding the timetable signed by the parties and ordered by me, Pillar Capital Corporation prepared a volume of purported answers to undertakings that was delivered on November 20, 2018 – more than two months after the examination of its only witness, Mr. Ara Missaghi. Those responses were filed in court at the outset of the hearing before me. This chronology is mentioned because the Applicant Handelman takes issue with the admissibility of this late-assembled and late-filed materials. I shall deal with those objections below.

(b) The mortgages

[13] This dispute concerns a property located in Scarborough at 4 Birchmount Road. The property was originally owned by Ms. Christine Drotos. Ms. Drotos assigned herself into bankruptcy on May 17, 2010. According to the decision of Master Jean of October 20, 2015 upon her discharge from bankruptcy, Ms. Drotos had intended to build her “dream home” on the property but ran out of money to complete the project.

[14] The dispute in this case concerns three mortgages that were placed on the property before her bankruptcy:

(i) Home Trust

[15] Home Trust registered a charge on title on September 27, 2006 securing $1,425,000. The charge document indicates that the initial term of the mortgage expired on October 10, 2008 and that interest was charged at the rate of 7.5%.

(ii) B&M Handelman et al.

[16] On May 27, 2008 the Applicant’s registered their second mortgage in the amount of $900,000 bearing interest at 12% per year. The mortgage had not been discharged or amended (prior to the sale ordered by me). There is no dispute as to the amount it secures. After the interim payment made, the balance due under this mortgage stood at $860,753.39 as of August 31, 2018 plus interest and fees accrued since then.

(iii) World Finance

[17] On October 7, 2008, DMS Inc. registered a charge in the amount of $35,000. This charge was transferred to 2176506 Ontario Inc. on December 2, 2012. On April 27, 20012, this charge was again transferred to World Finance Corporation. The charge was then transferred – or at least partially transferred – to Money Gate Investment Corporation on December 1, 2017.

[18] The most recent mortgage statement from World Finance Corporation and/or Money Gate Corporation suggests that this mortgage currently stands at over $6 million and is still growing. Given the sale proceeds, there is no prospect of the third mortgage being repaid in full under any scenario, making the precise calculation of the debt somewhat academic.

[19] The growth of this mortgage debt from $35,000 to more than $6 million over a span of ten years is said by Mr. Missaghi to be due to 2176506 and then World Finance making payments to the first and second mortgages, allegedly to keep the $35,000 third mortgage from being “blown out” (in the words of Mr. Missaghi). The amounts paid per month for most of this period – approximately $25,000 – were very nearly equal to the full amount of the original $35,000 third mortgage.

[20] The amount allegedly expended to “protect” $35,000 bears no relation to commercial reality and is perhaps better explained by the fact that the 3rd mortgage bears interest at 18.99% (according to the registered Charge) and the economic logic of advancing “protective” disbursements at such a high rate of interest does not seem as hard to explain. Whether such disbursements so qualify, particularly after bankruptcy intervened in 2010 remains to be seen. That question has not been addressed before me.

(c) Repayment of Home Trust Mortgage August 15, 2014

[21] On August 15, 2014, a lawyer named Anita Verma hand delivered a letter to Home Trust enclosing a cheque in the amount of $1,372,368.70. The cheque contained Ms. Verma’s file number and the word “discharge” on the subject line. The letter was directed to the “Discharge Department” of Home Trust and specifically directed Home Trust to forward a copy of the registered discharge to the writer’s attention and a release of Home Trust’s interest in the mortgagor’s interest policy. The amount tendered represented the full amount of the indebtedness of Ms. Drotos under the Home Trust mortgage.

[22] The word “assignment” is mentioned nowhere on the document nor in any written documents from August 15, 2014.

[23] It is the position of the respondent on this motion (Pillar Capital) that this payment was in fact made in consideration of an assignment of the subject mortgage and not, as stated on the face of the certified cheque and in the letter that delivered it, in consideration of the requested discharge of the mortgage.

[24] Ms. Verma gave no evidence at this hearing and there is no acceptable evidence of who her actual client was. She has not claimed that an error was made and has not alleged a contemporary written or oral agreement to assign the mortgage. She has given no evidence at all. I shall return to that question below.

(d) Assignment of Mortgage May 5, 2015

[25] I shall review in further detail below the chain of email correspondence that culminated in Home Trust authorizing the electronic filing of a transfer of Charge on May 5, 2015. The document as registered named Pillar Capital Corporation c/o Ms. Verma as the transferee and includes the following statement:

The charge transfers the selected charge for $1,372,368.70 received on August 15, 2014. The registration is not prohibited by registration AT2439382 registered on 2010/07/07.

[26] The document referred to is a caution registered on title by the trustee in bankruptcy of the mortgagor, Ms. Drotos. The “statement” does not allege the existence of a consent by the Trustee in Bankruptcy and none has been produced.

(e) Mr. Missaghi and late responses to undertakings

[27] The only evidence produced by Pillar Capital on this motion was in the form of an affidavit of Mr. Ara Missaghi dated September 5, 2018. Mr. Missaghi was cross-examined on that affidavit.

[28] Mr. Missaghi is neither an officer, employee nor director of any of the companies on whose behalf he purported to provide information by way of affidavit, including the alleged first mortgagee Pillar Capital. He claimed to be “mortgage consultant and fund manager” of Pillar Capital but could identify no fund that it managed. There is little doubt that Mr. Missaghi’s fingerprints are to be found throughout this matter. Ms. Verma – the lawyer who repaid Home Capital and arranged later for the assignment to be registered – corresponded with him as the contact for her un-named client. The various iterations of Pillar Capital appear connected to him via registered office (his home) or officers (his spouse). However, the precise basis of his legal authority to speak on behalf of any entity or to bind them appears murky at best.

[29] Mr. Missaghi also produced an affidavit in the parallel proceedings (as part of the now adjourned motion between the two Pillar Capital Corporations) sworn November 15, 2018 between the groups claiming to speak for the “real” Pillar Capital. That affidavit was not part of this motion and no request for leave to refer to it was made by Pillar Capital on this motion.

[30] Having read both affidavits and the lengthy cross-examination transcript of Mr. Missaghi, the most charitable comment I can make regarding the quality of his evidence is that he is careless with his words and consequently unreliable. In a large number of cases, factual assertions by Mr. Missaghi were simply wrong or tended towards generalizations that were not supported by the documents attached or only partially so.

[31] I am mindful of the serious challenges to this gentleman’s credibility advanced by the Applicants by reason of a number of allegations of fraud relating to his activities in the mortgage sphere. The Applicants also point to a number of conflicting mortgage statements – particularly in regard to the amount alleged to be due under the 3rd mortgage – so suggest there is good reason to be cautious when accepting the authenticity of documents proffered by Mr. Missaghi.

[32] There is at least one document in the file that is clearly forged. A second mortgage statement attributed to Mr. Handelman from November 2017 (misspelled “Handleman”) bears a signature that is clearly not his but there is no conclusive evidence before me as to the author of it. It was however attached to an email originating from Mr. Missaghi.

[33] I do not propose to dive into such collateral matters. Neither Mr. Missaghi’s other legal problems nor the amount due under the 3rd mortgage are issues before me today. However, I do think that, in the circumstances, it is fair for the Applicants to ask me to be circumspect as to the authenticity or completeness of the volume of documents deposited into the court record long after the agreed deadline for doing so and without affording an opportunity for them to be examined or tested.

[34] The respondent Pillar Capital through its counsel signed a case timetable that was approved by me in an order that was amended – slightly – on consent. That case timetable called for responses to undertakings to be delivered swiftly after the examinations were completed and for a factum to be delivered far in advance of the hearing. None of this had been done by November 14, 2018 when the matter came on for the scheduling hearing before Penny J. and where he made a point of noting in his endorsement that adjournments should not be expected in these circumstances (and none was requested before me).

[35] My review of the volume of purported answers to undertakings given by Mr. Missaghi on behalf of Pillar Capital Cayman leads me to conclude that the documents produced and answers given are largely non-responsive to the actual questions asked. Late-answered undertakings are not to be used as a Trojan horse by which all manner of information a party might wish had been given in an affidavit can be slid under the transom at the 11th hour without being tested nor do the interests of justice require such behaviour to be rewarded with an adjournment (particularly where none is requested) absent a compelling explanation. This is all the more so where, as here, the party is clearly on notice that the credibility of the deponent who gave the undertakings is very clearly and substantially challenged by the adverse party.

[36] I attach no weight to such documents and answers.

(f) Pillar Capital Corporation

[37] There is a motion – originally scheduled for tomorrow and now adjourned – that will deal with “which” Pillar Capital allegedly acquired the Home Trust mortgage. This motion has been argued on the basis that it was Pillar Capital “Cayman” who acquired the assignment, but I have not been asked to make an express finding to that effect (and do not). Mr. Missaghi was involved with the incorporation of both and, for the purposes of this motion, I make no distinction between them. That is a matter for another day.

Issues to be argued

[38] Was the Home Trust Mortgage paid in full on August 15, 2014?

[39] If not, what amounts are due under the first mortgage?

[40] If not, can the second mortgage cause the subordination of the first by reason of promissory estoppel?

Discussion and analysis

(a) Was the Home Trust Mortgage paid in full?

[41] In my view, the simple answer to this question is “yes”.

[42] Having made a demand on its secured loan on June 6, 2014, Home Trust had retained counsel (Mr. Walker) by July 2014. Mr. Walker was contacted by Mr. Rasik Mehta of Meridian Law Professional Corporation. Mr. Missaghi stated on cross-examination that the third mortgagee World Finance had retained Mr. Mehta to “initiate contact to get the matter going”. There is no evidence of how Mr. Mehta contacted Mr. Walker or, if in writing, what he represented to Home Trust. There is no evidence that Mr. Mehta had ever heard of Pillar Capital Corporation or of the intention of any person to cause Pillar Capital to be incorporated at some point. I can only infer from this evidence that Mr. Mehta contacted Mr. Walker on behalf of his client, the third mortgagee World Finance.

[43] Mr. Walker’s responding letter of July 23, 2014 made it clear that Home Trust would discharge the first mortgage upon payment in full of the amount claimed in the statement provided. It also made it clear that Mr. Mehta’s request for “an assignment in lieu of discharge” would not be proceeded with except pursuant to a valid direction given pursuant to s. 2 of the Mortgages Act R.S.O. 1990, c. M.40 coming from an identified party.

[44] Mr. Walker re-iterated this point on July 25, 2014 responding to an email from Mr. Mehta which has not been produced.

[45] At some point in early August 2014, Ms. Verma became involved. None of her contemporary letters or emails – at least none produced by Pillar Capital - contain any express indication as to the name of her client. As shall be seen, she made no mention of Pillar Capital until November 2014 and Pillar Capital itself was not incorporated until October 2014.

[46] Mr. Walker sent her a letter dated August 1, 2014 (not produced) and a further letter dated August 7, 2014 enclosing a copy of the “discharge statement” with the added statement “should your client wish an assignment of the Charge in lieu of a discharge, you must address the concerns raised in” the letter of July 23, 2014. On August 8, 2014, Mr. Walker responded to a letter of Ms. Verma (not produced) by extending the time for receipt of the funds to August 14, 2014.

[47] Ms. Verma sent a letter to Mr. Walker dated August 13, 2014 that has not been produced.

[48] On August 15, 2014, Ms. Verma hand delivered a letter to Home Trust to the attention of the “Discharge Department”. The letter enclosed a certified cheque in the amount of $1,372,368.70 and indicated that “you have advised that upon receipt of the [the funds], you would attend to the registration of the discharge of the mortgage”. It closed requesting Home Trust forward to the author “a copy of the registered Discharge of Charge/Mortgage”. The memo line of the certified cheque made specific reference to Ms. Verma’s file number and added the word “discharge”.

Ms. Verma also corresponded with a clerk inside Home Trust named Chheat Srel in this time frame via email. She corresponded with Ms. Srel directly although Home Trust had legal counsel on the matter as she knew. In two emails of August 13, 2014, Ms. Verma made passing reference to “the mortgage assignment” or the “assignment amount”. There was no discussion of compliance with s. 2 of the Mortgages Act nor of Home Trust changing its position refusing to entertain a voluntary assignment of its claim (i.e. not via s. 2 of the Mortgages Act). Ms. Srel never picked up on the “assignment references” in Ms. Verma’s emails and there is no evidence that Ms. Verma did so with Mr. Walker either. The emails exchanged on August 15 (the date payment was made) make no mention of the word “assignment”.

[49] Mr. Missaghi has confirmed that there is no written agreement by which Home Trust agreed to assign the first mortgage apart from the May 5, 2015 document registered on title.

[50] On the basis of this paper trail, there is simply no basis to conclude anything other than that Ms. Verma tendered the amount requested by Home Trust to discharge the mortgage and did so for the express purpose of discharging in full the indebtedness secured thereby. There is no written agreement of any kind in existence to negative those express instructions given by Ms. Verma.

[51] There is no evidence – I discount in so finding the uncorroborated oral evidence of Mr. Missaghi – of any mistake on her part. That is not the sort of mistake a lawyer could make. Ms. Verma has not admitted to having made one nor ever been asked to do so (at least not on the record before me).

[52] Home Trust through its lawyer was quite clear in writing that Home Trust would do one of only two things: accept payment in full of the mortgage (i.e. discharge) or accept a mandatory assignment under s. 2 of the Mortgages Act. At no time did Home Trust indicate a willingness to entertain a voluntary assignment of its claim and charge.

[53] Ms. Verma was not asked to testify or provide an affidavit. There is no evidence from her that might call into question her August 15, 2014 letter. She delivered her final account along with her trust ledger in assembling the trust funds needed to repay the mortgage on August 15, 2014, at least suggesting that she expected her involvement was at an end that day. She has not even confirmed who her client was at that time. Pillar Capital Corporation – for whom Mr. Missaghi alleges she was acting – was not yet incorporated.

[54] What then is the basis of Pillar Capital Corporation’s claim that the August 15, 2014 letter and payment nevertheless left a debt outstanding to be assigned?

[55] There is no evidence of any communications whatsoever between Ms. Verma or any other person connected to Mr. Missaghi with Home Trust or its counsel between August 15, 2014 and November 24, 2014.

[56] In the interim, two Pillar Capital Corporations were incorporated in circumstances I do not propose to review here. One was in the Cayman Islands (on October 20, 2014) and the other in Ontario (on October 16, 2014). The Ontario corporation was established with Mr. Missaghi’s house as its head office and with his (allegedly separated) wife as President. Mr. Missaghi alleges that she was the shareholder of the Cayman corporation as well. The officers and directors of that corporation have not been confirmed.

[57] On November 5, 2014, Mr. Missaghi forwarded an email to Ms. Verma attaching the October 20, 2014 “Certificate of Incorporation” of Pillar Capital Corporation in the Cayman Islands. The email instructed Ms. Verma to “have the assignment of the First mortgage that was paid to Home Trust to be assigned to Pillar Capital Corporation”.

[58] On November 24, 2014, Ms. Verma wrote to Home Trust’s clerk Ms. Srel rather than to its counsel. She simply announced that she had “handled the payout of the Mortgage Assignment” and that she was now “in the process of preparing the Assignment to a named company”. She did not name the company.

[59] On November 27, 2014, Ms. Srel gave Ms. Verma the name of another person at Home Trust (Ms. Ibasco) for Ms. Verma to contact. No further correspondence involving Home Trust between November 27, 2014 and April 10, 2015 has been produced.

[60] On April 10, 2015, Ms. Verma again wrote to Ms. Srel and, in her absence, was put on to the same Ms. Ibasco that Ms. Srel had originally directed her to. Correspondence between Ms. Srel and Ms. Ibasco never raised the question of whether an assignment had ever been agreed upon in August 2014. It was simply premised on the assumption that an assignment had to be documented at that time. Ms. Verma insisted on the name of a lawyer to sign off on the transfer on Teraview. She was eventually given the name of a different lawyer (not Mr. Walker). On May 4, 2015, Ms. Verma delivered an ultimatum that the assignment had to be registered by the next day or else the matter would be handed to litigation counsel. The transfer was registered the next day.

[61] Nothing in this correspondence chain explains – or refers to – the unequivocal representations regarding discharge made by Home Trust and Ms. Verma in the correspondence exchanged between them. There is no evidence of an agreement in existence on August 15, 2014 to conduct a voluntary assignment, still less a voluntary assignment to unknown persons to be named later. There is no corroborated evidence as to the source of the funds used to pay Home Trust and the larger of the two cheques received by Ms. Verma came from the law firm for World Finance. There is no direct evidence from Ms. Verma of something as basic as the name of her client in August 2014 almost three months before Pillar Capital was incorporated. There is no direct evidence from Mr. Walker as to any agreement to assign being confirmed prior to receipt of payment on August 15, 2014. There are numerous letters and emails that have clearly not been produced, at least some of which ought to have been available to Pillar Corporation or Mr. Missaghi. There is no benefit of the doubt to be accorded.

[62] It has been suggested that Ms. Verma has declined to provide any assistance. I don’t see evidence of that. She was asked by the respondents lawyers for certain documents in connection with this motion and produced them. Whoever was in fact her client had every right to obtain necessary information from her file or to subpoena her and to waive privilege if need be.

[63] I am not prepared to infer an agreement to assign a mortgage emerging from email correspondence months after the fact involving increasingly aggressive demands made on clerks inside Home Trust – circumventing counsel – resulting in a lawyer apparently agreeing to register a transfer months after the fact under a litigation ultimatum. At that point, Home Trust simply had no interest remaining in the matter and a decision to bend rather than incur litigation expenses for no benefit is explainable if not excusable.

[64] Pillar Capital asks what possible reason could explain the payment on August 15, 2014 if not an assignment? The answer to that question is twofold.

[65] First, it is neither my place nor that of the Applicants to answer the question. There is no contemporary evidence of mistake, there is unequivocal evidence of intent to obtain a discharge. The unexplained questions are for the person claiming the assignment to answer – starting with the absent direct evidence from those directly involved.

[66] Second, the presence of Mr. Mehta on behalf of World Finance in this transaction and the evidence of the third mortgage paying the first and second mortgages over multiple years to keep either from enforcing supplies a ready explanation. The third mortgage had an 18.99% interest rate. This is more than double the rate charged by Home Trust on the first. The rationale of having the same funds earn interest at the rate of 18.99% as a protective disbursement in lieu of 7.5% as an assigned first mortgage does not seem at all hard to imagine when Mr. Missaghi’s common role as “mortgage advisor” for all of the involved entities is factored in.

[67] A debt once discharged cannot be revived by the creditor and assigned to a third party. Other parties, including the second mortgagee Applicants, acquired rights in the interim. The transfer of the Charge under the Land Titles system is always subject to the account between the parties and, in this case, that account stood at $0.00.

[68] I find that the indebtedness of Ms. Drotos to Home Trust secured by the first mortgage was fully paid on August 15, 2014. At the time of payment, there was no existing agreement to assign the mortgage in lieu of a discharge. The May 5, 2015 transfer of charge is a nullity because there was no outstanding obligation to transfer.

(b) If not, what amounts are due under the first mortgage?

[69] The claim of Pillar Capital is set forth in a Mortgage Statement signed by Ms. Alizadeh dated June 14, 2018. The claim in that statement was for a total of $2,360,003.25 plus per diem interest thereafter at the rate of $484.93 per day.

[70] At the hearing, counsel for Pillar Capital withdrew the claim for s. 17 Mortgage Act interest ($41,277.31) and “NSF/Late Fees” ($12,750.00).

[71] I was not asked to verify the principal claim ($1,827,855.67). This amount was represented to be the amount paid to assign/discharge the mortgage on August 15, 2014 rolled forward with compound interest at the contract rate of 7.5% to June 14, 2018. I express no views on the accuracy of the math and expect that, should it become material, the parties will swiftly resolve any issues in that regard.

[72] The following amounts claimed by Pillar Capital were disputed before me: (i) tax paid to City of Toronto plus interest thereon ($373,600.77); (ii) “Property Management Fees” of $19,379.50; (iii) “Property Maintenance CMDF” of $81,360.00; and (iv) legal fees ($3,780 plus unspecified additional amounts).

[73] I make the following findings in respect of such claims should a higher court disagree with my disposition of the assignment question.

[74] The tax claim is evidenced by a document signed by the City of Toronto and registered on title as against the Birchmount property on December 21, 2015 pursuant to s. 345 of the City of Toronto Act, 2006, S.O. 2006, c. 11. The document evidences payment on November 30, 2015 of the sum of $307,981.81 by “Pillar Capital Corporation c/o Meridian Law, Professional Corporation”. The amount was paid to discharge a tax arrears certificate dated December 23, 2014 that had been registered on title as against the Birchmount property.

[75] Only a person entitled to notice under s. 345(1) of the City of Toronto Act or an assignee is entitled to receive notice of the filing of a tax arrears certificate: s. 345(1) City of Toronto Act.

[76] Section 346(3) of the same Act provides that if “the cancellation price is paid by a person entitled to receive notice under subsection 345 (1) or an assignee of that person, other than the owner of the land or the spouse of the owner, the person has a lien on the land concerned for the amount paid, or, upon payment of the cancellation amount, to become assignee of the resulting lien” (emphasis added).

[77] When the lien was registered (December 23, 2014), Pillar Capital did not appear on title as an assignee of the Home Trust mortgage. It was accordingly not entitled to notice under s. 345(1) of the City of Toronto Act. However, by November 30, 2015, Pillar Capital was registered on title as assignee of Home Trust. Home Trust was entitled to receive notice under s. 345(1) of the City of Toronto Act when the original certificate was filed in 2014 as it continued to appear on the Land Titles register as holder of a charge even though that obligation had been discharged through payment on August 15, 2014.

[78] I have found that Pillar Capital is not in fact an assignee of Home Trust even though the Home Trust mortgage continued to appear on title when notice was required to be given under s. 345(1) of the City of Toronto Act. As such, it is not entitled to the statutory lien prescribed by s. 346(3) of the City of Toronto Act. Should a higher court determine that the assignment was valid, then it stands to reason that Pillar Capital is entitled to the statutory lien of $307,981.81.

[79] I have not been provided with any authority to justify a claim for interest on such sum although the Interest Act, R.S.C., 1985, c. I-15 or the Courts of Justice Act, R.S.O. 1990, c. C.43 may potentially provide a basis to do so. If there is a basis to do so under the allegedly assigned mortgage contract, Pillar Capital has failed to produce the documents upon which such claim would be based.

[80] The claim for “Property Management Fees” in the amount of $19,379.50 and “Property Maintenance CMDF” in the amount of $81,360.00 are both quite unproved. No particulars of either claim were provided in the supporting affidavit of Mr. Missaghi which mentions only that “these fees were properly incurred to maintain snow shoveling and grass cutting on the Birchmount property over the past five-year period and were not incurred to maintain the house dwelling itself”.

[81] There is good reason to doubt that any such payments were ever made and no proof that they were paid by or on behalf of Pillar Capital.

[82] Mr. Missaghi was asked for proof of payment of these amounts by or on behalf of Pillar Capital. Those undertakings were not answered for more than two months despite agreement to do so within days. The answers given (that I have ruled may not be relied upon) include CIBC bank statements addressed to “CMDF Landscaping and Property Maintenance Inc” without address and carrying the legend:

The names shown are based on our current records, as of October 29, 2018. The statement does not reflect any changes in account holders and account holder names that may have occurred prior to this date.

The statements include a variety of deposits, some of which are highlighted and none of which reference the payee or reason for payment.

[83] The respondent produced a number of invoices from “CMDF Landscaping And Property Maintenance Inc.” These refer to site visits some of which pre-date the alleged assignment. The invoices appear to have been issued quarterly. None have any address of the client beyond “Pillar Capital Corporation c/o Meridian Law” nor is there any indication of means of delivery. There is some obvious overlap. The “property maintenance and management” invoices ($4,800 plus HST quarterly) include “managing and maintaining property at 4 Birchmount” as well as “grass cutting, property cleaning, property visit”. The “weekly property visit” invoices ($2,232 plus HST quarterly) describe “a site visit to ensure property is locked up and monitor vandalism”. There is no evidence of any reports of such alleged site visits being prepared or delivered to anyone. There is no evidence that Pillar Capital ever entered into possession of the property. The photographs of the site reviewed by me at the time of the Sale Approval motion (and filed by the Applicants on this motion) show a property that had been abandoned, vandalized and left to the tender mercies of the local wildlife. The contractual ability to claim these amounts has not been demonstrated any more than the fact of the payments has.

[84] I reject those two claims in their entirety.

[85] The last claim was for legal fees. On cross-examination, Mr. Missaghi allowed that the legal fees of $3,780 particularized reflected the fees of Ms. Verma on the assignment transaction. Such fees are not part of the secured mortgage debt and cannot be claimed. No particulars of any other legal fees have been provided.

(c) If not, can the second mortgage cause the subordination of the first by reason of promissory estoppel

[86] Given my conclusions on the question of the payment of the first mortgage on August 15, 2014, it is not necessary for me to decide the promissory estoppel claim raised by the Applicant.

Disposition

[87] Accordingly, I ordered at the conclusion of the hearing that there shall be a declaration that the first mortgage in favour of Home Trust was paid in full on August 15, 2014 and that the assignment dated May 5, 2015 had no object as nothing was then owing. I also directed the Receiver to pay the Applicants the remaining amount due on the second mortgage out of the proceeds of sale of the Birchmount property, such direction being stayed until noon on November 30, 2018 in order to afford Pillar Capital an opportunity to seek a stay of such direction from the Court of Appeal if so advised.

[88] Pillar’s counsel requested a stay from me at the close of the hearing that I declined to grant for more than a reasonably brief period. Without in any way seeking to detract from or interfere with rights of appeal, it is in my view more appropriate in cases such as this that the appellate court control the process of an appeal as fully as possible and that implies both duration and conditions of a stay. I declined to exercise my jurisdiction to stay my own order longer than was necessary to avoid a pointless race to the courthouse so as to allow a free hand to any judge who may need to look at this to dispose of matters as appears best.

[89] The Applicants are entitled to their costs of this proceeding as a claim under their mortgage and will doubtless include same in its final statement to the Receiver for November 30, 2018. However, this is an appropriate case to direct award costs as against Pillar Capital. I award the Applicants their partial indemnity costs as against Pillar Capital. To the extent the Applicants have been reimbursed such costs under the mortgage from proceeds of sale, the amount of costs payable by Pillar Capital shall be held by the Receiver as proceeds of sale of the Birchmount property. To the extent Pillar Capital shall fail to pay such amount, the Receiver shall be entitled to offset such amount as against any moneys due Pillar Capital in respect of the tax lien.

[90] If the parties are unable to resolve the matter of costs, the usual order shall apply. Written submissions not exceeding five pages plus outline of costs to be submitted to me through my assistant by both parties within thirty days and a written ruling will be delivered.

[91] Orders accordingly. The form of order need be approved by the Receiver and counsel for Pillar and the Applicants only. Any disagreement to be resolved by the Receiver’s counsel providing me with a draft order along with a brief summary of the parties’ disagreement. I shall either sign or amend the draft order as is appropriate after considering such summary submissions.

S.F. Dunphy J.

Date: 27 November, 2018

These reasons have been corrected for clerical errors on November 28, 2018.

[1] As shall be seen, there are TWO Pillar Capital Corporations contending for ownership of the alleged first mortgage. Mr. Missaghi appears to have been connected to the incorporation of both – one in the Cayman Islands and one in Ontario, the Ontario corporation being the first in time.

[2] I have been advised this day that the second motion (between the two Pillar Capital Corporations) has been adjourned pending an appeal of this ruling.