Court File and Parties

COURT FILE NO.: CV-18-599171 MOTION HEARD: 20191016 REASONS RELEASED: 20200127

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

BROOKSTREET MIC II INC. Plaintiff

• and -

JULETH DAWSON Defendant

BEFORE: MASTER D. E. SHORT

COUNSEL: J.D. Martin fax: 647-947-2787 -for the Defendants (Moving Party) jdmartin.law@gmail.com

Sean Butt, fax: 416-225-2593 -for the Plaintiff (Responding Party) sbutt@krmc-law.cm

REASONS RELEASED: January 27, 2020

Endorsement

I. Overview

[1] The plaintiff was the mortgagee and Ms. Dawson was the sole mortgagor with respect to a one year mortgage entered into dated February 23, 2017, that was registered on title to a residential property in Toronto.

[2] The mortgage provided that upon maturity, the full balance would become due and owing. The mortgage matured on March 1, 2018. The mortgage balance was not paid by that date, and the plaintiff commenced an action against Ms. Dawson. Upon serving the Statement of Claim upon Ms. Dawson, an occupancy check was done, which apparently revealed that, Rod Dawson, resided in the property along with Ms. Dawson.

[3] At the time the mortgage was taken out, Ms. Dawson had signed a statutory declaration indicating that she was the registered owner of the property and that, “Within the meaning of the Family Law Act (Ontario): My spouse has released all rights under the Family Law Act by a separation agreement.”

[4] The mortgagee, based on the new information learned from the occupancy check at the time that the Statement of Claim was served, determined to issue a new claim adding an individual ultimately does described as “Rod Dawson”, rather than incur the cost of a motion to amend the original claim.

[5] Their rationale for commencing such an action was that, given his potential possessory rights pursuant to the Family Law Act, in the event of repossession of the matrimonial home by the mortgagee, it was appropriate at an early stage to include him in the proceeding.

[6] In response the new defendant brought a motion to dismiss the action, as against him.

[7] In her reasons, which can be found at Brookstreet MIC II Inc v. Dawson, 2018 ONSC 5777, Justice C.J. Brown observes:

7. It is clear from a reading of the statement of claim that there are no allegations or claims against Mr. Byrnes (improperly named "Dawson" in the statement of claim and hereafter referred to as Rod Byrnes). It is the evidence of Tony Nero, the president of the plaintiff, that Mr. Byrnes was added to the statement of claim out of an abundance of caution and for his benefit as required by law, so that he has notice of this proceeding in order for him to assert any rights he may have pursuant to the Family Law Act, including the right to redeem the mortgage and possessory rights.

8. Counsel for Mr. Byrnes submits that this matter should have been dealt with between the parties by dismissing the action against him. He vigorously opposes being continued in the action and indicates that he had relinquished all rights and entitlements as regards the matrimonial home in an earlier settlement agreement which is still in force. In correspondence that he sent to counsel for the plaintiff on August 26, 2018, he indicates that his matrimonial status has not changed and that his renunciation of all possessory rights pursuant to the Family Law Act is permanent.

[8] The disposition of the motion by Justice Brown continues:

11. In all of the circumstances, and based on all of the evidence before the Court, this Court orders that the action brought by the plaintiff mortgagee, which had added Mr. Byrnes (incorrectly named as Rod Dawson) out of an abundance of caution given his potential possessory rights under the Family Law Act should, at his insistence, as witnessed by the motion and the documentation in it, be dismissed.

[9] “Mr. Byrnes” sought his costs of that motion on the basis that he should not have to pay for costs that should not have been incurred and submits that the plaintiff was negligent or acted in bad faith. He sought his costs in the amount of $1,885.75 on a partial indemnity basis, or $2563.75 on a substantial indemnity basis.

[10] The mortgagee’s position was that it was clear from the evidence that the plaintiff was not acting negligently, in bad faith, nor in a frivolous and vexatious manner. Counsel for the plaintiff submitted that Mr. Byrnes name was only added in order to preserve any potential rights or entitlements that he may have to the matrimonial home given the action against Ms. Dawson regarding the mortgage and the possibility that the mortgage had been registered against a matrimonial home.

[11] Her Honour concluded:

I do not find that the plaintiff acted negligently, in bad faith or proceeded with an action that was frivolous or vexatious. I am satisfied that they added Mr. Byrnes for the reason they stipulated.

[12] Significantly for my present purposes she then made this direction with respect to costs:

“In all of the circumstances, I make no award as to costs. Each party will bear their own costs of this motion.”

II. A Misunderstanding

[13] Subsequently the parties appeared before me with respect to the appropriate cost to be paid, the property had been refinanced by Ms. Dawson and the principal amount owing under the mortgage had been paid in full.

[14] Unfortunately, at the first attendance, I misunderstood the nature of the plaintiff’s action. I wrongly assumed that Rule 64, dealing with Mortgage Actions applied to this action. As a consequence, I referred the issue of the appropriate costs to a hearing before an assessment officer.

[15] Thus, regrettably I did not appreciate that this motion was in fact brought as a normal action seeking payment of a debt owing. In particular, at that time, I did not appreciate the need for a review and determination of the appropriate interest rate payable under the mortgage, following the date of default.

[16] In hindsight, I now realize this matter has unusual complexities which require a further description of the elements raised on the present motion. My further consideration has led as well to my consideration of the appropriate, applicable legislation together with the content of the Assessment Officer’s report.

III. Report of Hearings Officer

[17] As a result of my initial order, this matter made its way to Hearings Officer, Alan G. Smith of the Ontario Superior Court of Justice. His July 12, 2019 Endorsement read in part:

This matter came before me today pursuant to an Endorsement of Master D.E. Short for an Assessment Hearing in accordance with the Ontario Mortgages Act, R.S.O. 1990, c. M.40, s. 43 ("the Act ). The parties have two disputes. One is with respect to the quantum of legal fees and disbursements claimed by the Mortgagee. The other concerns the rate of interest charged on the mortgage principal.

Master Short's Endorsement states, inter alia :

“ Section 43 of the Mortgages Act provides the route to have costs other than the principal amount assessed. I am therefore adjourning the substance of this motion to be addressed by an assessment officer in the usual way .... Bill of Costs to be delivered for assessment within 60 days”

The Act provides jurisdiction for me to assess "costs".

The Ontario Court of Appeal in P.A.R.C.E.L. v. Acquaviva, 2015 ONCA 331, characterizes such costs as, “real costs legitimately incurred ...for the recovery of the debt, in the form of actual administrative costs or otherwise ... ”

[18] Assessment Officer Smith then continues:

“It is unclear whether the Master has decided that interest on the mortgage principal should also be characterized as costs pursuant to the Act , thus vesting me with jurisdiction to decide with respect to that aspect of the dispute. Accordingly, I require direction from the Court regarding the scope of my jurisdiction in this matter.

I also note that the Mortgagor is appealing the decision of Master Short.”

[19] In the result, the Assessment Hearing was adjourned sine die pending directions from this Court. Costs with respect to that Hearing were reserved to the Court hearing the appeal with Mr. Smith remaining seized of the assessment, if that remains necessary.

[20] In coming to my directions, at this stage, I considered some of the applicable legislation.

IV, Land Registration Reform Act

[21] In part my approach to the present issues is guided by the Land Registration Reform Act, R.S.O. 1990, Ch. L.4 (“the Act”). My understanding is that Ontario’s land registry system avoids the need to include in every charge or mortgage, all the terms applicable to the loan. Instead a lender may either establish its own terms or may adopt another set of registered terms, in their entirety, by simply referring in the mortgage documentation to the applicable registration number for the applicable registered terms.

[22] The Act provides in section 4 for the “Incorporation of schedules”:

4 (1) A document attached as a schedule to a document whose form is prescribed shall be deemed to be part of the document whose form is prescribed.

Prescribed form governs

(2) Where there is a conflict between the contents of a document whose form is prescribed and the contents of a document attached to it as a schedule, the document whose form is prescribed prevails. Then:

[23] In Particular the Act addresses the “Filing of standard charge terms” and their application:

8 (1) A person may file with the Director, in the prescribed manner and form, a set of standard charge terms and, with the consent of the Director, may file a set of standard charge terms in a form other than the prescribed form. :

9 (1) A charge shall be deemed to include a set of standard charge terms filed under subsection 8 (1) if the set is referred to in the charge by its filing number. …

[24] The original mortgage in this case, referred to such terms and insignificantly provided for interest at 5.99% per annum.

[25] Exhibit “A” to the plaintiffs October 2018 Motion Record, is the complete two-page Standard Charge of Mortgage document that was filed with the Land Registration Office it provides that the principal amount was $1,050,000 with an interest rate of “5.99% per annum”. That document also indicated that the last payment date was: “2018 03 01”.

[26] On the form the next item is identified as “Standard Charge Terms 200727” I note that the registered document makes no reference to any different mortgage interest rate being applicable following default.

[27] The affidavit filed in October 2018 by the plaintiff mortgagee, provides:

7. On October 12, 2018, Juleth Dawson paid the mortgage in full. The following business day, October 15, 2018, Brookstreet, by its lawyers, registered a discharge of the mortgage and sent a copy of same to Juleth Dawson's lawyer. A copy of the registered discharge of the mortgage and a copy of my email to Juleth Dawson's lawyer attaching a copy of the registered discharge are attached hereto as Exhibits "A" and "B" respectively.

8. As the mortgage has been paid in full Brookstreet is no longer prosecuting this action. Upon receiving payment in full KRMC cancelled an October 19, 2018, appointment at Civil Practice Court that had been scheduled for the purpose of setting a date for a motion for summary judgment.

[28] Clarification of the Plaintiff’s approach was set out in that affidavit as well:

5. This is not a foreclosure action pursuant to Rule 64 of the Rules of Civil Procedure. The action was commenced on the general Statement of Claim Form 14A because Brookstreet proceeded on the terms of the mortgage, as pled. As this is not a foreclosure action, the action was not commenced using Form 14B, and does not contain any of the provisions particular to foreclosure actions found in Form 14B as they are not applicable.

[29] Against that background I return to an examination of the justification of plaintiff to its requiring and retaining interest on the full principal amount, following default, at a rate other than that identified in the original mortgage.

V. Preamble to Present Motion

[30] The plaintiff, Brookstreet, originally commenced action CV -18 - 00598639 solely against Juleth Dawson. There, as in the present Claim, the mortgagee sought in excess of $1 million for the outstanding mortgage principal, as well as interest from May 24th, 2018 at the rate of 6.59% per year and similarly post judgment interest at that rate.

[31] As well, the Statement of Claim sought possession of the mortgaged property. The claim indicated that the mortgage incorporated by reference “standard charge terms no. 200727”.

[32] The salient portion of the terms, thus agreed between the parties, is set out in the Statement of Claim:

“9. The Mortgage provides that costs, expenses and other amounts incurred or paid by the Mortgagee as more particularly described in the Mortgage be added to the original principal amount and bear interest at the Mortgage rate, including but not limited to:

(a ) costs resulting from default including legal costs on this list and client basis;

(b) reasonable allowance for administrative time and expenses;

(c) any liens claims and/or other encumbrances which may have priority over the Mortgage, including but not limited to property taxes and/or condominium or strata maintenance fees.”

[33] The claim further provides that the mortgage provides that upon default, the mortgagee “shall have quiet possession of the property without any interference.”

[34] What I find somewhat unusual is that this action is that the plaintiff in this action is neither seeking foreclosure nor “seizure and sale.” In the normal course, an action may be brought to enforce a power of sale included in a mortgage and in that case various provisions in the Rules of Civil Procedure come into force as contemplated by Rule 64.

[35] At this point I turned to the specific application of the applicable legislation to this specific mortgage.

VI. The Applicable Terms

[36] Here the document selected by the lender was identified as “Land Registration Reform Act Filing No. 200727: filed by - Home Trust Company” However, any lender can choose to adopt any set of registered terms.

[37] The mortgage documentation agreed between the parties specifically noted as well:

it “These STANDARD CHARGE TERMS shall be deemed to be included in every Charge/Mortgage which refers to them by their filing number, as provided in section 9 of the above Act .”

[38] Within No. 200727 are the following provisions (my emphasis added throughout):

2.3 Changing the mortgage - renewals and amendments including automatic renewals

(a) We may, at our option and by agreement with you, change any part of the mortgage. This change could include renewing or amending the initial loan or increasing the principal amount or other term of the mortgage.

(b) The initial loan may also be automatically renewed where before the balance due date we send to you a notice offering to renew the outstanding loan amount at certain rates and terms and you do not respond in writing accepting one of the renewal terms offered, or you do not pay the loan amount in full or you have not made other arrangements for payment or extension with us on or before the balance due date. In that circumstance, you agree the initial loan will be renewed for the term and at the rate for automatic renewal we set out in the renewal notice we send you. We may in the same way automatically renew any other fixed term loan you may have with us.

(c) We do not have to register any such agreement with you on the title to your property to retain our rights under the mortgage against you or any other person including our priority over any other mortgage.

[39] The terms also include numerous possible enforcement steps:

8.5 Enforcing our rights

If any of the events set out in section 10.4 occurs, we may, with or without declaring the loan immediately payable enforce our rights by taking certain actions, which include:

(i) Sue you . We may take any action that is necessary to recover payment of all or any part of the indebtedness and to make you perform any of your other obligations under the mortgage or agreements.

(ii) Foreclosure or sale. We may take court proceedings to foreclose your right, title and equity of redemption to your property. If we obtain a final order of foreclosure from the court, your property will belong to us. We may also ask the court to order the sale of your property under the court's supervision. If the amount we receive from the sale of your property is less than the indebtedness, you must pay us the difference.

(iv) Power of sale . We may, where permitted by law and on the minimum period of written notice to you required by law, sell your property or any part of your property. We may sell your property for cash or on credit, or partly for cash and partly on credit. We may sell your property by private sale or public auction and on whatever terms we can obtain. If we think it is reasonable to do so, we may cancel or amend any contract of sale, or postpone any sale, without being responsible for any resulting loss. We may apply the money from any sale, after paying all costs and expenses, to reduce any part of the indebtedness. We will only be responsible for the money remaining after we pay all costs and expenses when we actually receive it. If the money remaining, after paying all costs and expenses, does not pay the indebtedness in full, you must pay us the difference.

[40] In particular, the default provisions provided:

(d) You must pay all of our fees and expenses related to our enforcing our rights (including legal fees in any court proceedings on a solicitor and its client or substantial indemnity basis). You must pay these amounts immediately when we ask for them. You must also pay all other costs we have to pay to protect our interests and to enforce any of our rights under the mortgage, as well as a reasonable allowance for the time and services of our employees.

[41] Having created these problems with respect to my decision, I now must assess what is a “reasonable allowance” in the circumstances of this case.

[42] I take it that as a condition of obtaining a discharge of the mortgage, Ms. Dawson effectively paid the full sum of $ 1,057,573.29 on account of principal and interest at the higher rate together with $13,793.24, being the full amount incurred for legal and administrative fees, including the costs incurred with respect to the spouses motion, where the motion judge held that each side on that motion should bear the costs.

[43] What was not specified was whether those costs incurred by the lender, could be now sought from the borrower.

[44] In my view, the most “reasonable” interpretation to be made of Justice Brown’s decision was not that the defendant Judith Dawson would then be 100% responsible for those costs pursuant to the terms of her mortgage.

[45] Moreover, I am troubled by an apparent carte blanche right being given to the lender to seek any interest rate in its offer to renew a mortgage made under form No. 200727 and would thereby be entitled to insist on such an amount being paid as a condition to the discharge of the mortgage.

[46] Since 1677 it has been a requirement by virtue of the Statute of Frauds that provisions dealing with rights to land be in writing.

[47] Here, if the plaintiff’s interpretation is correct, the mortgagee could offer to renew at a 20% annual rate and, if the borrower failed to respond, the rights of subsequent encumbrances as well as the Bora would be impacted by an apparent priority for a rate not provided for at the time the original loan was negotiated.

[48] The amount in issue before me is within the small Claims Court jurisdiction range. This matter has had at least four substantial hearings, and another is scheduled for next month.

[49] As a consequence, I have determined not to base my decision on an analysis of the these potentially far-reaching considerations regarding the determination of an appropriate interest rate.

[50] Instead I intend to apply Rule 1.04 with a view to seeking the most just and expeditious result. As well I believe by doing so will minimize the cost of the present determination of this proceeding on its merits. In my view this includes the determination of the meaning of reasonable allowances under section 8.50 form 200727.

[51] As well I adopt the guidance, noted by my colleague, from Court of Appeal’s decision in P.A.R.C.E.L. v. Acquaviva in determining a net overall adjustment amount should take into account all expenses incurred by the lender which fall within this the characteristics of :

“real costs legitimately incurred… For the recovery of the debt…”

VII. Quantum

[52] The establishment of the ultimate appropriate rate turns on the interpretation of the terms incorporated the mortgage at the outset having regard to the foregoing provisions.

[53] The parties argued a number of points before me. The first issue was whether or not an increase in the interest being charged, following the expiry of the one year mortgage term, should be permitted.

[54] The defendant Juleth Dawson sought to renegotiate her mortgage for an additional time period, but the two sides could not agree on a mutually acceptable interest rate.

[55] Ms. Dawson asserts that she made numerous attempts to try and obtain a better rate from this lender. However, the lender had no obligation to alter the rates and it was clear what they would intend to charge, in the event that there was an over holding or failure to pay the full amount due on the mortgage on the agreed date upon which it became payable.

[56] In order to obtain a discharge of her mortgage, the defendant paid what she believed to be $3423 more than was payable based upon the rate agreed to, under the terms of the mortgage entered into in 2018.

[57] The real issue that needs to be addressed is the claim for the additional amount asserted and received as a condition of the discharge of the plaintiffs first mortgage with respect to the costs of enforcing the security.

[58] It would seem to be trite mortgage law that the lender, assuming it makes appropriate disclosure in the original mortgage document, is entitled to its costs by way of a full indemnity regarding proper expenses incurred in seeking to enforce the security.

[59] The problem here is that there was not one, but two action started, and the second action was against an individual who ultimately obtained an order from the court removing him from the action and determining that there would be no order as to costs of that motion.

[60] Counsel for the mortgagee asserts that Justice Brown’s order addressed costs payable with respect to the style of cause motion on an interlocutory basis. However, inasmuch as it brought to an end the involvement of Mr. Dawson, this may well have been a final order.

[61] Difficulty that is raised by the mortgagee is that, in effect it takes the position that interlocutory costs incurred in the second action can be passed onto the original borrower.

[62] While I can see the basis of this argument, I have real difficulty in finding an entitlement to full indemnity of all costs incurred in the situation and circumstances of this case.

[63] I acknowledge that there are a number of cases which have addressed similar issues in the past, but circumstances alter cases.

[64] In my view, it is inappropriate to grant on a full indemnity basis the costs of preparing for, and the arguing of a motion that was lost by the lender.

[65] In this age of proportionality, taking the guidance of the overriding direction of Rule 1.04, I am satisfied that, in this case, both cost of starting a second action and the costs related to the motion to remove the husband ought not to be recoverable in a case such as this.

[66] The mortgagee managed to recover its full principal and more than the originally specified rate of interest; all within six months from the date of default.

[67] In the result, as well, I have determined that there was divided success on the present motion and the fairest thing to do, particularly where the amount in issue on an overall basis falls within the jurisdiction of a Small Claims Court, is to award no order as to costs with respect to the present motion and any prior attendances.

[68] I am charged with liberally construing the Rules to secure the just, most expedious and least expensive result. What I now must do is assess what is a “reasonable allowance” in the circumstances of this case

[69] I assume that as a condition of obtaining a discharge of the original mortgage, Ms. Dawson effectively paid the full sum of the account of principal (in excess of one million dollars) and interest at the higher rate claimed, together with $13,793.24 , being the full amount incurred for legal and administrative fees, including the steps taken with regard to the claim brought against her spouse.

[70] Admittedly the judge hearing the spouse’s motion did not deal with any possible entitlement of the lender to seek its full indemnity costs against the remaining defendant.

[71] My view the most “reasonable” written interpretation to be made justice Brown’s decision was not that the defendant Judith Dawson would then be 100% responsible for the cost of that motion.

[72] My interpretation of the bill of costs provided by the lender is that they sought the sum of $4542.50 with regard to services described as :

To all steps associated with the Byrnes motion to dismiss including: to receiving and reviewing the Notice of Motion, the moving Motion Record, to taking instructions, to delivering responding materials, and to attending at the motion.

[73] As well, given the confusion arising from the first motion before me, I am effectively rescinding my cost award of $2750 against Juleth Dawson, by making an allowance for the situation in coming to a net amount at this stage.

[74] Moreover, the Assessment Officer deferred to the judge hearing the appeal for my earlier order with respect any costs before him. If the appeal does not proceed those costs will also potentially evaporate.

[75] As well it would appear that there is at least a possible argument is approximately $2500 was overpaid, if the higher was not enforceable.

VIII. Disposition

[76] There is no doubt in my mind that the defendant defaulted on its obligation to pay the mortgage but that proportionality, particularly in light of these unique factual situation in this case dictates a somewhat Solomonic solution.

[77] I am therefore fixing the overall net credit to be given to Juleth Dawson and thus repaid to her at $6500.

[78] It is my hope that, taking into account proportionality, this result will now bring this matter to a complete conclusion.

Released: January 27, 2020 (corrected)

Master D. E. Short

R. 295/DS