COURT FILE NO.: CV-18-593568-0000
DATE: 20191018
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MILNER INVESTORS INC.
Applicant
– and –
MELVYN EISEN, KYLE BUTLER, KAMALJIT (aka TONY) SANDHU, JASDEEP SANDHU, 2550816 ONTARIO INC., 2558992 ONTARIO INC., KARL REICHERT, 2565212 ONTARIO INC., JOHN PAUL FLETCHER, MARPOLE 88 (ONTARIO) HOLDINGS LTD., COMMUNITY TRUST and TELB MORTGAGE HOLDING CORPORATION
Respondents
Ronald G. Chapman, for the Applicant
Melvyn L. Solmon, for the Respondents, Kamaljit (aka Tony) Sandhu, Jasdeep Sandhu, 2550816 Ontario Inc. and 2565212 Ontario Inc.; Rob Winterstein, for the Respondent Melvyn Eisen; Matthew Karabus, for the Respondents 2558992 Ontario Inc. and Karl Reichert.
HEARD: August 13, 2019
koehnen j.
The Application
[1] This application arises out of a third mortgage that the applicant held on a property known as 189-195 Milner Ave. in Toronto.
[2] The respondent Melvin Eisen held a first charge on the property. After default occurred on the mortgage, he issued a notice of sale on March 16, 2016. Mr. Eisen then transferred the mortgage to 2550816 Ontario Inc. (“816 Co.”). 816 Co. sold the property to 2558992 Ontario Inc.
[3] The sole basis of the application is that 816 Co. did not issue a new notice of sale after it received an assignment of the mortgage. The applicant submits that 816 Co. was obliged to do so, failing which the sale is void.
[4] Two issues arise on this hearing. The applicant moves to convert the application into an action and the respondents move to dismiss the application.
I. The Motion to Convert the Application to an Action
[5] The applicant moves to convert the application into an action based on what the applicant submits is newly acquired information that raises questions of fact and credibility. The applicant has attached its proposed statement of claim to its motion record.
[6] The respondents oppose the motion. They submit that this is not a question of converting an application into an action but of commencing an entirely new proceeding outside of the limitation period.
[7] The respondents point first to the style of cause. The original application was commenced by Olympia Trust Company and was continued under the name Milner Investors Inc. The new statement of claim lists 85 individual plaintiffs. While that is the case, the individual plaintiffs’ names follow the first plaintiff which is listed as “Milner Investors Inc., Trustee for…” followed by the names of 85 individuals who are investors in one or more syndicated mortgages through Milner. Under the Rules that does not, strictly speaking, change the identity of the plaintiffs. Rule 9.01 provides that a proceeding may be brought by a trustee as a representative of the trust without joining the beneficiaries as parties. There is nothing that precludes the pleading from naming the beneficiaries as plaintiffs.
[8] The respondents then compare the claims in the application and the proposed statement of claim. As set out above, the Notice of Application relies on a single ground; that 816 Co. did not issue a fresh notice of sale after it took an assignment of the mortgage and before it sold the property. The proposed statement of claim changes the nature of the action materially. While it maintains the complaint that 816 Co. did not issue a fresh notice of sale, the bulk of the statement of claim makes allegations of fraud against the various participants in the assignment of the mortgage and subsequent sale of the property.
[9] The respondents submit that the Notice of Application is not being converted into an action but that a completely new action is being permitted. That is true in a technical sense. There would, however, be nothing to prevent the applicant from filing an Amended Notice of Application setting out the new allegations and converting the amended notice of application into an action. That would not, however, be consistent with the animating spirit of the Rules which is to ensure that matters are dealt with in the most efficient and cost-effective way possible.
[10] The respondents submit that the proposed statement of claim is barred by virtue of the Limitations Act, 2002, S.O. 2002, c 24, Sch B because more than two years have passed since the sale of the property.
[11] The fact that two years have passed does not necessarily speak to discoverability. I make no findings about limitations periods here because the record before me does not provide a sufficient basis for deciding one way or the other. To be clear, any issues concerning limitations must be resolved in the action and nothing I say in these reasons should be taken as expressing any view about limitations.
[12] The respondents also submit that the conversion to an action should not be permitted because a previous proceeding had been brought by the former mortgagee, Metro Zen (Canada) Inc. against some of the respondents. That action was ultimately dismissed by Horkins J. because the plaintiff had failed to post security for costs after having been given ample time and numerous extensions to do so: Metro Zen (Canada) Inc. v. Eisen, 2018 ONSC 6536. The respondents note that a number of investors appeared at some of the court hearings in the Metro Zen action. One of those who appeared was John Reid, one of the plaintiffs in the proposed statement of claim. It appears that Mr. Chapman appeared on Mr. Reid’s behalf in that proceeding. Mr. Chapman is counsel for the applicant in this proceeding and counsel for the plaintiffs in the proposed action. It appears from the reasons of Horkins J. that Mr. Reid was trying to raise money to post security for costs, but security was never posted Metro Zen: at paras. 33, 34 – 37, 43 – 46.
[13] While I can understand the respondents’ frustration with this turn of events, I do not have a sufficient record before me to allow me to conclude that this application should not be converted to an action. While Mr. Reid had some type of involvement in the previous proceeding, I have no information about the precise nature of his involvement nor do I have any information to suggest what, if any, involvement Milner or any of the other investors on whose behalf it acts had in that proceeding.
[14] Precluding someone from bringing a claim is a serious step and should only be done on the clearest of records. The record before me is not so clear that I am prepared to deny a large number of investors the ability to pursue a claim.
[15] As a result of the foregoing I am prepared to convert the application into an action and grant leave to have the statement of claim appended to the applicant’s motion record issued as a continuation of the original application, albeit with new claims added.
II. The Motion to Dismiss the Application
[16] As noted earlier, the Notice of Application is based on the allegation that 816 Co. should have issued a fresh notice of sale before proceeding to sell the property. The plaintiffs propose to pursue that allegation in their statement of claim.
[17] Given that the parties have spent considerable time and effort arguing the point, that it is a pure question of law and that the respondents have brought a Rule 21 motion to determine the issue, I will address that issue in the hope that it might somewhat narrow the scope of and reduce the costs of the action that I have allowed to proceed.
[18] In support of its argument that 816 Co. was obliged to issue a fresh notice of sale, the applicant relies on section 31 (1) of the Mortgages Act, R.S.O. 1990, c. M.40 and the definition of mortgagee under the Act. Section 31 (1) provides:
“A mortgagee shall not exercise a power of sale unless a notice of exercising the power of sale in the Form to this Act has been given by the mortgagee to the following persons…”
[19] The definition of mortgagee is contained within the definition of mortgage in section 1 of the Act and reads as follows:
“mortgage” includes any charge on any property for securing money or money’s worth; “mortgage money” means money or money’s worth secured by a mortgage; “mortgagor” includes any person deriving title under the original mortgagor or entitled to redeem a mortgage, according to the person’s estate, interest or right in the mortgaged property; and “mortgagee” includes any person deriving title under the original mortgagee. (emphasis added).
[20] The applicant combines the definition of mortgagee with section 31 (1) of the Act so as to, in effect, read section 31 (1) as reading that an assignee shall not exercise a power of sale unless notice has been given.
[21] The applicant submits that both Emedi v. McMaster, [1982] O.J. No. 2304 and Lee v. Korea Exchange Bank of Canada, 1999 CanLII 14800 (ON SC), [1999] O.J. No. 2296 stand for the proposition that an assignee of a mortgage is precluded from relying on a power of sale issued by the original mortgagee but is required to issue a new power of sale notice.
[22] Both cases are distinguishable. In both cases, the mortgagor had not received notice of the assignment: see Emedi, at para. 1; Lee, at para. 10.
[23] It is not disputed here that the applicant and others received written notice of the assignment. Indeed, the notice of assignment made it clear that 816 Co. would continue to sell the property pursuant to the original notice of sale.
[24] The policy reason behind the decisions in Emedi and Lee was that the mortgagor had to know who was exercising the power of sale so that the mortgagor would know who to deal with to avoid the sale: Lee at para. 14. That is not an issue here. The applicant knew at all times with whom it had to deal to address the power of sale.
[25] The Ontario Court of Appeal pointed out in 1173928 Ontario Inc. v. 1463096 Ontario Inc., [2018] O.J. No. 3979 that the Mortgages Act should be construed purposively and that courts should not seek pretexts to invalidate a mortgage sale: at paras. 36 – 37.
[26] The purposes of the Act have been fulfilled by delivery of a valid notice of sale and a notice of assignment to the interested parties. To require the assignee to issue a fresh notice of sale, presumably with new time limits running from the notice date, would amount to a judicial pretext to invalidate a mortgage sale.
[27] In 2272045 Ontario Inc. [2011] O. J. No. 4547, Pattillo J. declined to follow Emedi and Lee where the mortgagor had received notice of the assignment. In addition, Pattillo J noted at para. 29 that the standard charge terms applicable to the mortgage before him gave the assignee “all rights, advantages, privileges, immunities, powers and things” held by the mortgagee. That included rights under any previously issued power of sale. The standard charge terms associated with the mortgage before me contain a similar provision and stipulate:
“…all rights, advantages, privileges, immunities, powers and things hereby secured to the Chargor or Chargors, Chargee or Chargees, shall be equally secured to and exercisable by his, her, their or its heirs, executors, administrators and assigns, or successors and assigns as the case may be.”
[28] In other words, the notice of sale issued by the mortgagee could be exercised by the assignee, 816 Co.
Disposition
[29] For the reasons set out above I grant the applicant’s motion to continue the application by way of the statement of claim attached as exhibit H to its Motion Record subject to revising the proposed claim to take into account my ruling on the absence, in this case, of any obligation on the assignee to issue a fresh notice of sale. Mr. Chapman should serve respondents’ counsel with an amended draft claim within 10 days of these reasons. If respondents’ counsel cannot agree within five days that the amendments comply with these reasons, any one of the parties’ counsel can approach me through Judges’ Reception for a short case conference to resolve the issue.
[30] Given the divided success, I order that costs be awarded to the party that is successful in the cause.
Koehnen J.
Released: October 18, 2019
COURT FILE NO.: CV-18-593568-0000
DATE: 20191018
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MILNER INVESTORS INC.
Applicant
– and –
MELVYN EISEN, KYLE BUTLER, KAMALJIT (aka TONY) SANDHU, JASDEEP SANDHU, 2550816 ONTARIO INC., 2558992 ONTARIO INC., KARL REICHERT, 2565212 ONTARIO INC., JOHN PAUL FLETCHER, MARPOLE 88 (ONTARIO) HOLDINGS LTD., COMMUNITY TRUST and TELB MORTGAGE HOLDING CORPORATION
Respondents
REASONS FOR JUDGMENT
Koehnen J.
Released: October 18, 2019