Court File and Parties

COURT FILE NO.: CV-20-00646635 DATE: 2020-09-15 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: DONALD DESROCHERS, Applicant AND: WORLD FINANCIAL SOLUTIONS INC., SANEH BHARDWAJ and SUNIL BHARDWAJ, Respondents

BEFORE: Paul B. Schabas J.

COUNSEL: Samir Chhina, for the Applicants Monica Peters, for the Respondents

HEARD: September 14, 2020

Reasons for Judgment

[1] This urgent application arises from a falling out between two business partners who engage in buying and developing properties. The applicant, Donald Desrochers (“Don”), is a contractor and builder, and the respondents Sunil Bhardwaj (“Sunil”) and his wife Saneh Bhardwaj (“Saneh”), provide financing.

[2] One of the properties the parties co-own is a house at 60 Manning Ave. in Toronto, which they purchased in 2010 and which was rebuilt by Don in 2012. As they could not sell the property for a profit, Don and Sunil decided to rent it out. Don was responsible for dealing with all aspects of the property, including obtaining a tenant, collecting rent, maintenance, paying property taxes, the mortgage, and insurance. Until recently, it was rented to tenants. Don claims that he was to receive a management fee and reimbursement for any repairs and maintenance needed, which would be paid when the property was sold, although this is disputed by Sunil. There is a first mortgage on the property from CIBC.

[3] There is also a second mortgage, which was placed on the property in 2016. It was used largely by Don to finance another project he was involved in with Sunil. This mortgage became the sole responsibility of Don, and went into default. In 2018 the mortgagee of the second mortgage initiated power of sale proceedings, following which, in July 2019, Sunil purchased an assignment of the mortgage through his corporation, the defendant World Financial Solutions Inc. (“WFS”). Nevertheless, the mortgage remained in default.

[4] Don alleges that Sunil did not disclose that WFS is his corporation and claims that the assignment was part of scheme to defeat Don’s interest in the property. The evidence filed thus far does not support this allegation. In any event, Don has admitted he is liable for the principal and interest owing on the mortgage, currently about $330,000.

[5] Prior to the mortgage assignment, in the spring of 2019, Sunil discovered that the property taxes and other fees owing to the City had not been paid by Don since 2014. The arrears were approximately $85,000. As a result, Don and Sunil attended together at City Hall and each provided cheques for $37,500 payable to the City of Toronto, and Sunil arranged for an additional $10,000 payment from a joint bank account relating to 60 Manning Ave. Apparently Don’s cheque bounced, and there is still an outstanding balance of about $48,000 owing to the City for which Don is responsible, in default of both mortgages.

[6] In about June 2019 the tenant at the property stopped paying rent, allegedly due to Don failing to comply with a repair order. To prevent the first mortgage, to CIBC, going into default due to lack of rental income, WFS began to make those payments. The tenant was eventually evicted in February or March 2020.

[7] In February 2020, the property was relisted for sale but the COVID-19 pandemic made a sale difficult. In August, without prior warning, WFS provided Notice of Sale to Don unless the mortgage was paid by September 5, 2020. This led to this court application by Don to stay the power of sale. The notice of application also seeks an order declaring the amount due to WFS, and for an accounting from the respondents of all amounts due to WFC.

[8] Don does not dispute that he is liable under the mortgage, and is willing to pay the full amount owing into court pending the outcome of the application. His argument for doing so, which has evolved in his affidavit and supplementary affidavit, is that the parties have a number of business ventures and that any payment by Don should await a full accounting of what is owed by Sunil and Saneh to him arising from their investment in 60 Manning Ave. and other projects on which they collaborated. Don argues that the projects are all related, noting that the second mortgage was obtained in order to provide financing for those other projects. Don also claims that he is owed for his management and maintenance of 60 Manning Ave., which he says is “substantial,” but he has only produced evidence of about $18,000 of expenses, although he acknowledges this is only owing when the property is sold.

[9] On August 25, 2020, I set this application down for a hearing on September 14, 2020., following the respondents’ assurances that they would take no steps to sell the property pending the hearing. Similarly, as I undertook to provide reasons promptly at the conclusion of the September 14 hearing, the respondents advised the court that WFS will not take power of sale steps pending my decision.

[10] In my view, the application should be dismissed.

[11] Don admits that he is liable for the principal and interest owing on the second mortgage, and he has the funds to pay it. He seeks to avoid payment by making generalized allegations, with few particulars, that Sunil and Saneh are trying to eliminate his interest in the property. Don is concerned that if he pays WFS now he will not have any security for claims he has against the Sunil and Saneh arising from their business dealings which includes, he claims, compensation for his management of 60 Manning Ave over the past 8 years and repairs he made to it.

[12] Part of Don’s concern may arise from the fact that a sale of the property may result in a shortfall to him. The respondent has obtained two appraisals suggesting that the market value of the property is $1.5M. Following the payment from the proceeds of a sale for 1.5M, including paying off the first mortgage, the second mortgage from Don’s 50% share, and the other amounts Don owes in property tax arrears and an earlier admitted shortfall that Don owes Sunil, Don will still owe Sunil about $25,000. Even accepting that Don is to obtain a credit for his management and maintenance of the property, Don would be unlikely to recover anything from a sale at $1.5M. Accordingly, Don wishes to delay the sale or try to seek a higher sale price himself in order that he may recover his investment and make a profit from 60 Manning Ave.

[13] The problem with Don’s position is that he is effectively seeking a Mareva injunction freezing funds that he has acknowledged are owing to WFS on the ground that, when a full accounting is completed between him and Sunil, he may be owed money by Sunil or, at least, he owes Sunil less than what is owing on the WFS mortgage.

[14] There is insufficient evidence on which to justify such an order, nor is it properly pleaded in this application.

[15] First, he has admitted that his debt is owing to WFS, which is a separate legal entity from Sunil and Saneh, and with which he has no other agreements. While Don claims he did not know WFS was Sunil’s company, this is both unlikely and irrelevant. WFS stepped in and took over a mortgage that was in default in 2018 and allowed it to remain in default until now. This was arranged by Sunil, with Don’s knowledge. I do not accept, therefore, that it was a secret or fraudulent scheme to defeat Don’s interest in the property.

[16] Secondly, Don has provided little evidence to establish his claims against Sunil and Saneh, saying he needs more time to put together an accounting of all of his dealings with Sunil, which is why payment should be delayed. But the application does not even seek a broad accounting, it is just an application respecting the second mortgage. Applying the three-part test for an injunction set out in RJR-MacDonald Inc. v. Canada (Attorney General) (1994), 1994 117 (SCC), 111 D.L.R. (4th) 385 (S.C.C.), Don has not established the first branch of the test, which is to show a serious issue to be tried.

[17] Don has also not led evidence that he will not be able to recover from Sunil and Saneh such that he would suffer irreparable harm by being required to pay the mortgage now, nor does the balance of convenience favour Don when the funds are owed to a separate entity and the investment is in jeopardy having regard to the outstanding taxes and the fact that the property is not producing income to pay for the first mortgage. Further, Don hardly comes to the court with “clean hands” given his failure to pay property taxes to the City.

[18] While Don also argues bad conduct by the respondents, asserting that WFS breached ss. 31 and 32 of the Mortgages Act, R.S.O. 1990, c. M.40 by taking possession of the property before the redemption period has ended, I am not satisfied that is the case, nor has it caused any prejudice to Don: Royal Trust Corp. of Canada v. Gupta, 1997 CarswellOnt 571 at para 40 (Ont. Gen. Div.). This is also not an appropriate case to apply s. 12 of the Mortgages Act to have the money paid into court. As was held in 5 Fairview Mall Drive Ltd. v. Lehndorff Canadian Pension Properties Ltd., [1989] O.J. No. 1005 (Ont. H.C.), s. 12 is not to be used as, effectively, a way to achieve Mareva-type relief. When there is no dispute, as here, that the monies are owing, the mortgagor must first pay off the mortgage, and can sue for damages separately: see also Vine v. Iwasykiw (1992), 1992 7472 (ON SC), 11 O.R. (3d) 34 (Ont. Gen. Div.); Mishev v. Shah, 2011 ONSC 1672 at para 47.

[19] If Don wishes to stop the power of sale and take things back into his own hands to manage and or sell the property on his own terms, he must first pay off the second mortgage, as it is open to him to do now. If he wishes to seek an accounting of what Sunil and Saneh owe him, he can bring an action or application to that end. However, there is no basis to grant the relief he seeks in this application.

[20] The application is dismissed. Should the parties be unable to agree on costs, the respondent may provide me with written submissions not exceeding 2 pages double-spaced, not including supporting materials, within 14 days of the release of these reasons, and the applicant may respond in similarly limited submissions 7 days after the receipt of the respondent’s submissions.

Paul B. Schabas J.

Date: September 15, 2020