COURT FILE NO.: CV-18-26538
DATE: 20191023
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Grossi Corporation
Plaintiff
– and –
Harbourview Residences Inc.
Defendant
Stephen Marentette, for the Plaintiff
Jeffrey J. Hewitt, for the Defendant
HEARD: April 15, 2019
RULING ON MOTION
hebner j.
[1] This is the defendant’s motion for summary judgment dismissing the plaintiff’s claim. The plaintiff agrees that a summary judgment motion is the proper forum to determine the issue before the court. The issue before the court is a focused one. It is articulated by the parties as follows:
Is the plaintiff entitled to interest, in particular prejudgment interest, on any mortgage amounts that have been outstanding from 2008 to 2018 or is the plaintiff precluded from claiming any such interest on the basis of either contract or its own delay in prosecuting its action?
Background Facts
[2] Boblo Island was primarily used for an amusement park in the 1980’s. It was purchased by Mr. Oram, through his company (“the developer”), who wished to build an upscale residential community. He constructed houses and a condominium complex. The plaintiff, Grossi Corporation (“Grossi”), provided services in the course of the development. Grossi wasn’t paid for its services and registered claims for lien. The developer went into receivership under the Companies’ Creditors Arrangement Act, R.S.C 1985 c. C.36. The defendant (“Harbourview”) obtained the properties and by order of Quinn J. dated November 25, 2004, the lands were vested in the defendant. Harborview acquired title to its properties subject to the right of Grossi to prosecute its claims under the then Construction Lien Act of Ontario. Grossi’s claims remained outstanding.
[3] The plaintiff and the defendant entered into a settlement agreement on November 18, 2005. In the agreement, Grossi agreed to discharge all its claims for lien. The salient portions of the agreement provided as follows:
“ 2.2 In consideration of Grossi discharging the Grossi Lien and the Claims, Harborview shall pay to Grossi, on the terms set out in section 2.3 hereof, and Grossi has agreed to accept the sum of three million (CDN $3,000,000) Canadian dollars plus goods and services tax (“GST”) promulgated under the Excise Tax Act of Canada (collectively, the “settlement amount”) without interest, in full satisfaction of all claims, obligations and liability of Harborview to Grossi.
2.3 The settlement amount shall be paid and satisfied as follows:
a) The sum of five hundred thousand (CDN $500,000) Canadian dollars plus GST in the amount of thirty-five thousand (CDN $35,000) Canadian dollars shall be paid by certified cheque to Grossi on the date that Harborview receives its first draw pursuant to the first mortgage (the “building mortgage”)……;
b) The payment of the balance of settlement amount shall be secured by a second mortgage on the lands (the “Grossi mortgage”) containing the following provisions:
(i) the entire principal sum secured shall be due and payable, without interest, on or before the earlier of June 30, 2008 and the date of transfer of the legal title on which the thirty-sixth (36th) unit is sold or transferred or leased to a bona fide arm’s length third party;….”
(ii) the entire principal sum secured may be prepaid without notice, bonus or prepayment penalties;
(iii) subject to the terms of this agreement, Grossi shall, initially and continuously, unconditionally subordinate and postpone the Grossi mortgage to the building mortgage and replacement first building mortgages in favour of the lender as and when progress mortgage draws are made to Harborview;
[4] The required payment of $500,000 was paid in accordance with the terms of the settlement agreement. In addition to the initial cash payment, and in accordance with the terms of the settlement agreement, Harborview secured the balance due to Grossi by a second mortgage on the lands (the “Grossi mortgage”) in the amount of $2,675,000. The Grossi mortgage was registered on title. Also registered on title was a mortgage in favour of the Canadian Imperial Bank of commerce (“CIBC”) securing the sum of $5,890,000.
[5] The Grossi mortgage was postponed in favour of the CIBC mortgage. The postponement agreement obligated Grossi to the CIBC directly to facilitate the sale of each condominium unit by providing partial discharges such that 100 % of the net proceeds of each sale was remitted to the CIBC.
[6] Pursuant to the settlement agreement, the Grossi mortgage, and the postponement agreement in favour of CIBC, when each unit was sold and net sale proceeds were paid pursuant to the CIBC charge, Grossi’s security position improved. Units were sold over the years with the net proceeds being paid firstly to the CIBC and, once that mortgage was paid, to Grossi.
[7] Grossi commenced this action by Statement of Claim on June 20, 2018, presumably due to the looming limitation period. Grossi claimed the principal owing at the time of the commencement of its action was $1,326,800, with $1,348,200 having been paid before the claim was issued. Subsequent to the commencement of the action, Harborview sold two more units and paid to Grossi the amount of $242,265.52, inclusive of HST. Pursuant to an agreement between Harborview and Grossi, on or about August 30, 2018, Harborview paid to Grossi the balance owing to fully discharge the Grossi mortgage, being $1,090,184.48, inclusive of HST. Grossi provided the necessary final partial discharge of the Grossi mortgage.
[8] In its Statement of Claim, Grossi claimed prejudgment interest from June 30, 2008 pursuant to the Courts of Justice Act on two bases: firstly on the amounts owing at the time the Statement of Claim was issued, $1,326,800, and; secondly on amounts owing from time to time and paid over the years from June 30, 2008 until the Statement of Claim was issued ($1,348,200). The total of the two amounts is approximately $298,000. The first amount alone is approximately $198,000.
Positions of the Parties
[9] The moving party defendant takes the position that the plaintiff is not entitled to any prejudgment interest. The defendant points out that the parties are both sophisticated business entities. They entered into an agreement that provided for a payment without interest. The Grossi mortgage was provided as security for the settlement – it was a nontraditional mortgage. The settlement agreement clearly contemplated that there would be no interest and there is no evidence as to whether the parties turned their minds to interest after June 30, 2008.
[10] The moving party defendant also points to the passage of time. The plaintiff waited until almost 10 years to commence its action and its conduct was dilatory. The defendant takes the position that Grossi’s delay in the commencement of its action disentitles it to interest.
[11] The plaintiff claims post judgment interest at the Courts of Justice Act rate of 1.5%. The plaintiff points out that the CIBC didn’t receive payment of its mortgage in full until the summer of 2018. The plaintiff states that if it were to enforce its mortgage before it did, it would be behind the CIBC in security in any event. The plaintiff claims it is entitled to interest under section 128 of the Courts of Justice Act. The plaintiff points out that it had 10 years to bring its action and there was no prejudice to the defendant. The plaintiff points out that for 10 years it was without money it ought to have received pursuant to the terms of the settlement agreement.
The Law
[12] The Courts of Justice Act, section 128 (1), reads:
128 (1) A person who is entitled to an order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the prejudgment interest rate, calculated from the date the cause of action arose to the date of the order.
[13] The court has the discretion to disallow prejudgment interest under section 130 of the Courts of Justice Act, which reads as follows:
130(1) The court may, where it considers it just to do so, in respect of the whole or any part of the amount on which interest is payable under section 128 or 129,
(a) disallow interest under either section;
(b) allow interest at a rate higher or lower than that provided in
either section;
(c) allow interest for a period other than that provided in either
section.
(2) For the purpose of subsection (1) the court shall take into account,
(a) changes in market interest rates;
(b) the circumstances of the case;
(c) the fact that an advance payment was made;
(d) the circumstances of medical disclosure by the plaintiff;
(e) the amount claimed, and the amount recovered in the
proceeding;
(f) the conduct of any party that tended to shorten or to lengthen
unnecessarily the duration of the proceeding; and
(g) any other relevant consideration.
[14] In the case of Somers v. Fournier, 2002 CanLII 45001 (ON CA), 60 OR (3d) 225, the Court of Appeal provides some assistance on the issue of prejudgment interest. That case involved a motor vehicle accident and one of the issues was whether prejudgment interest is a matter of substantive or procedural law. The Court of Appeal found that prejudgment interest is a matter of substantive law. I take the following from that case:
There is a presumptive right to prejudgment interest where an order for the payment of money is made (paragraph 21).
Entitlement to prejudgment interest is not absolute given section 130 of the Courts of Justice Act (paragraph 22).
Awards of prejudgment interest are designed to recognize the impact of inflation and to provide relief to successful litigants against the declining value of money between the date of entitlement to damages to a time when damages are awarded. (Paragraph 23)
The presumptive entitlement to prejudgment interest of the successful litigant may be displaced, varied or reduced in the discretion of the court, based on conduct which adversely affected the progress of the litigation. In that respect, the courts may utilize their discretionary power to award, deny or vary a prejudgment interest award as a mechanism to control the progress of the litigation and, in proper cases, sanction litigants. (Paragraph 25)
Prejudgment interest can be withheld to mark the court’s disapproval of excessive delay by the plaintiff in prosecuting the claim. (Paragraph 26)
[15] In King Line Investments Inc. v. 973976 Ontario Limited, 2010 ONCA 345, the trial judge found that the plaintiff was entitled to the readjustment of a purchase price of approximately $433,000. The trial judge denied the plaintiff prejudgment interest from the date of closing (July 25, 2005) to the date the statement of claim was issued (September 19, 2006). He did so because both parties had agreed to delay the commencement of the litigation. The Court of Appeal agreed with the plaintiff that the trial judge erred in denying it prejudgment interest.
[16] In Kozar v. Kozar, ONSC, Oct 21, 2009, one sister, Olga, lent $30,000 to another sister, Irene and her husband Joseph. They orally agreed that the loan would be interest-free and was to be paid when Irene and Joseph sold their home. Olga died in October 1976. After Olga’s death, the Official Guardian (as it then was) became involved in her estate and it was decided that the loan would be secured by a mortgage for $30,000 without interest and due April 1, 1989. A signed mortgage to that effect was registered on title. Irene died on January 15, 2008, Joseph having predeceased her. On July 23, 2008, the solicitors for Irene’s estate advised Olga’s children that the house was sold with the closing scheduled for August 1, 2008 and there was a mortgage securing the $30,000 loan. After disposing of the limitation period defence, Newbould J. found that the plaintiff was entitled to prejudgment interest in accordance with the Courts of Justice Act from April 1, 1989, the date the mortgage debt was due and not repaid.
[17] Keeping these principles in mind I embark on an analysis of the issue in this case.
Analysis
[18] I have some difficulty with the argument that the plaintiff is entitled to prejudgment interest on that part of the debt that was paid before the Statement of Claim was issued. The Courts of Justice Act, section 128, provides that “a person who is entitled to an order for the payment of money” is presumptively entitled to interest. A claim for prejudgment interest is a derivative claim. Where a debt has been paid, the creditor is not entitled to an order for the payment of money. Here, Grossi was not entitled to an order for payment of that part of the debt that had been paid prior to the issuance of the Statement of Claim, namely $1,348,200. I am therefore not convinced that section 128 of the Courts of Justice Act applies. I am not convinced that the prejudgment interest entitlement in the Courts of Justice Act should apply to debts, or that portion of a debt, that had been paid prior to the issuance of the claim. This is not a case where damages are claimed for personal injury, a notice is given, and advance payments are made prior to the issuance of a claim. This is a case where a debt was payable, without interest, and half of the debt was paid before the claim was issued.
[19] In any event, I would use my discretion under section 130 of the Courts of Justice Act to decline an order for prejudgment interest on that portion of the debt paid before issuance of the Statement of Claim. I consider the fact that the parties agreed on an interest-free loan as “any other relevant consideration” in subsection 130(2)(g). I consider the unique circumstances of this case where the first mortgagee, CIBC, had not been paid its debt in full until the summer of 2018; where there was no notice that the plaintiff would be seeking prejudgment interest on monies paid; where the parties agreed on the manner in which the debt would be paid, and the defendant followed that agreement; where there is no evidence that the defendant did anything to prolong or purposely withhold payment of the debt.
[20] Turning then to the plaintiff’s claim for prejudgment interest on that portion of the debt that wasn’t paid at the time the statement of claim was issued. The facts in this case are very similar to the facts in Kozar. Both cases dealt with an unconventional mortgage without interest but with a firm due date when the debt was to be paid in full. Like Newbould J., I find that prejudgment interest ought to be paid from the due date forward. There is a presumptive right to prejudgment interest on that portion of the debt outstanding under section 128. The plaintiff has been deprived of its money for almost 10 years. A prejudgment interest award recognizes that and recognizes the time value of money. I see no reason to deprive the plaintiff of prejudgment interest on its claim for that portion of the debt that wasn’t paid at the time the statement of claim was issued. The defendant points to the plaintiff’s delay in making the claim. On my reading of the cases where prejudgment interest is declined because of delay, it has more to do with the conduct of a plaintiff that unnecessarily lengthened the duration of the proceedings. This claim was brought within the limitation period – that much was conceded by the defendant. I do not see delay in commencing the action as a reason, in this case, to deprive the plaintiff of its prejudgment interest.
[21] There are competing considerations at play in this case. On the one hand the plaintiff has a presumptive right to prejudgment interest on an amount claimed. On the other hand, the parties agreed to a zero-interest loan and a repayment plan, albeit with a due date that was not met. In my view, allowing prejudgment interest on a portion of the debt strikes the proper balance between these considerations.
Disposition
[22] For the foregoing reasons, I conclude that the defendant ought to pay prejudgment interest on that portion of the debt that was outstanding at the time of issuance of the Statement of Claim, namely $1,326,800, from the date the debt was due, June 30, 2008, until payment. If counsel cannot agree on the amount owed, they may make arrangements with trial coordination for a conference call with me to resolve the matter.
Original Signed by “Justice Pamela L. Hebner”
Pamela L. Hebner
Justice
Released: October 23, 2019
COURT FILE NO.: CV-18-26538
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Grossi Corporation
v.
Harbourview Residences Inc.
RULING ON MOTION
Hebner J.
Released: October 23, 2019