Court File and Parties

Court File No.: FS-17-21818 and CV-18-607821 Date: 2020-09-25 Superior Court of Justice - Ontario

Re: T.O.E., Applicant And: I.S., Respondent

Before: E.L. Nakonechny, J.

Counsel: Sean Zeitz, for the Applicant T.O.E. Noreen Mukhtar Aleem, for the Respondent I.S. Martine Ordon, for the Applicant, M.S. in FS-17-21818

Heard: September 22, 2020

Endorsement

[1] T.O.E. brings this motion for a mandatory Order compelling I.S. to redeem T.O.E.’s mortgage registered on title to the property known municipally as 121 Neville Park Boulevard, Toronto for payment of the sum of $791,325.42 within 30 days on the following terms:

a. T.O.E. shall postpone its mortgage in the principal amount of $1,187,000 in favour of I.S.’s new lender;

b. T.O.E. will not enforce the balance of the mortgage pending the decision in the trial in this matter scheduled to commence October 19, 2020 and any subsequent appeals; and,

c. T.O.E. shall pay the costs of preparation and registering of the postponement and shall not seek to recover those costs in the litigation between it and I.S.

[2] If I.S. fails or refuses to redeem the mortgage on the above terms, T.O.E. seeks the immediate sale of Neville Park on terms including vacant possession, payment to T.O.E. of $791,325.42 from the net proceeds of sale and the balance of the net proceeds paid into court pending the disposition of the trial and any appeals.

[3] I.S. opposes the motion and asks that the issue be left to the upcoming trial. In the alternative, I.S. asks that the date to redeem be extended to 90 days after the date of this decision, that T.O.E.’s mortgage be discharged, not postponed, and that T.O.E. not pursue any litigation against the property to secure its financing.

[4] The issue I must determine is whether I.S. should be compelled to redeem T.O.E.’s mortgage registered on title to Neville Park by payment of $791,325.42 and, if so, on what terms?

Background

[5] M.S. and I.S. had a four year relationship from 2010 to 2014.

[6] M.S. controls T.O.E., an Ontario corporation.

[7] In 2013 I.S. purchased Neville Park in her name alone for a purchase price of $1,187,000. T.O.E. provided 100% of the funding for the purchase by way of an interest free mortgage. The mortgage was originally to be repaid in full on December 19, 2015.

[8] In January, 2014, I.S. advised M.S. she was pregnant. The parties separated shortly thereafter. Their child was born in August, 2014.

[9] The parties negotiated Minutes of Settlement which settled the issues of custody, access, child support, s.7 expenses and property arising from the breakdown of their relationship. The Minutes were signed on October 2, 2015. The Minutes provide that I.S. shall have sole custody of the child, J., and that he shall reside primarily with her.

[10] The Minutes specify that I.S. has exclusive possession of Neville Park. M.S. agreed to cause T.O.E. to extend its mortgage, interest free, to June 30, 2018.

[11] The Minutes give I.S. the following options relating to Neville Park:

62(c) The parties agree that on or before June 30, 2018, I. shall have the right to deal with the property on one of the two following manners, at her sole discretion:

i. Should I. not wish to retain the property beyond June 30, 2018, then the property shall be listed for sale at a price mutually agreed to by the parties. In the event that there is any disagreement between the parties in connection with any of the terms relating to the sale, then the parties agree to accept the recommendations of the real estate agent chosen by I. to list the property. Upon the sale of the property, I. shall be entitled to retain one third of the net sale proceeds and M. 2/3 of the net sale proceeds, less all proper and reasonable costs of disposition, including, real estate commissions, legal fees incurred to close the transaction and all other necessary disbursements to close the transaction. The mortgagee will arrange for the discharge of the aforementioned mortgage at the time of the sale. For the sake of clarity, there will be no reduction for the mortgage amount when calculating I.’s one-third share of the net sale proceeds. For example, if the home sells for $1,500,000 gross, the amounts deducted from the gross will be agent’s commission, outstanding taxes, utilities, etc., if any. Assuming those costs, for illustrative purposes only, equal $100,000, the remainder amount of $1,400,000 would be apportioned 2/3rds ($933,333 in this example) to M. and 1/3 ($466,667 in this example) to I. I. would have no obligation or liability in respect of the redemption of the existing mortgage. Any reasonable and agreed upon costs for marketing and staging of the property, as recommended by the real estate agent, shall be paid off the top of the sale proceeds and shall be reimbursed to the payor of such expenses; or

ii. In the alternative, and if I. wishes to retain the property, then, on or before June 30, 2018, I. shall pay to the mortgagee two-thirds of the principal amount then owing on the mortgage and M. shall cause the mortgagee to discharge the mortgage upon receipt of the said funds. M. and the mortgagee will, thereafter, have no further claim against the property whatsoever.

[12] The Minutes state that if I.S. does not either redeem the mortgage or sell the property by June 30, 2018 then M.S. may do so and I.S. must give him vacant possession.

[13] The Minutes contain a spousal support release. I.S. argues that she negotiated the options relating to Neville Park in lieu of spousal support and that they are consideration for her waiving her claims to spousal support. M.S. disagrees and says I.S. had no entitlement to spousal support.

[14] On October 22, 2017, M.S. commenced an Application to set aside the Minutes. He claims that I.S. never had any intention of honouring the Minutes and has fundamentally breached the terms of the Minutes, essentially since the document was signed.

The Motion before Gilmore, J. on November 21, 2017

[15] On November, 21, 2017, I.S. brought a motion seeking to enforce the Minutes and discharge the mortgage pursuant to paragraph 62(c)(ii). She had obtained financing which expired on November 28, 2017 in the amount of $800,000 with a co-mortgagor. I.S. gave notice of her intention to redeem the mortgage on September 20, 2017 by email to M.S.’s counsel. T.O.E. was a party on the motion.

[16] I.S. argued before Gilmore, J. that the Minutes were valid, fair and enforceable as a domestic contract. The parties entered into the Minutes with independent legal advice and full financial disclosure. She argued that she and the child would suffer significant prejudice if she were not permitted to redeem the mortgage pursuant to the terms of the Minutes.

[17] M.S. argued that there was significant evidence that the parties were not ad idem when they entered into the Minutes and that I.S. had fundamentally breached its terms. I.S. should not be permitted to enforce the Minutes she is in breach of.

[18] M.S. also argued that the court cannot enforce the Minutes because there were factual disputes regarding its validity which could only be determined by a trial. He stated that it was substantively and procedurally unfair to deny him the opportunity of having the validity of the Minutes determined at trial. If the court granted I.S.’s motion, M.S.’s Application to set aside the Minutes would be moot and he would have no security in Neville Park.

[19] T.O.E. argued that I.S. was in breach of the Standard Charge Terms of the mortgage because she did not allow an inspection or appraisal of Neville Park which T.O.E. had requested since July 27, 2017. I.S. stated that she complied with the terms and had provided dates for an inspection.

[20] Gilmore, J. dismissed I.S.’s motion to enforce the Minutes. Gilmore, J. held there were significant and ongoing factual disputes between the parties regarding the validity of the Minutes which could only be determined by a trial: Bayerische Landesbank Girozentrale v. R.S.W.H. Vegetable Farmers Inc. (2001), 53 O.R. (3d) 374 (S.C.J.).

[21] In her Reasons for Decision, Gilmore, J. noted that dismissing the motion did not expose I.S. to significant prejudice. I.S. earned income from employment and received child support from M.S. If M.S. was unsuccessful at trial and the Minutes were upheld, he has the means to compensate I.S. in damages. If M.S. was successful and the Minutes were aside, the parties would have to negotiate a new agreement.

The Law and the positions of the parties

[22] Section 101(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, gives the Court jurisdiction to grant mandatory orders where it finds it is just and convenient. The Court may order such terms as are just: s.101(2).

[23] In determining whether to grant a mandatory order, I must consider the test set out by the Supreme Court of Canada in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at 334:

(i) is there a serious question to be tried?

(ii) will the applicant suffer irreparable harm if the injunction/mandatory order is not granted?

(iii) which of the two parties will suffer greater harm from the granting or refusal of the remedy pending a decision on the merits?

[24] In Hud v. West Nipissing, 2017 ONSC 5984, Karam, J. held that where the moving party is seeking a mandatory order, the court must apply a more stringent test when considering the first factor in RJR: is there a serious question to be tried. In RJR the Supreme Court of Canada held that the first factor of the test is met where the moving party satisfies the low threshold of proving that the case is not frivolous or vexatious. In Hud, Karam, J. held that when seeking a mandatory order, the moving party must meet a higher threshold and show they have a prima facie case and are more likely to be successful: at para. 12.

Does T.O.E. have a prima facie case and is it likely to be successful?

[25] On questioning, I.S. confirmed that it was her intention to redeem the mortgage and continue to reside in Neville Park. She testified that she was ready and able to obtain financing and that she would do whatever it took to retain Neville Park as a home for her and the child. I.S. acknowledged on questioning that she will have to pay T.O.E. at least $791,325.42 to retain Neville Park.

[26] T.O.E. argues that the evidence of I.S.’s admissions prove it has a prima facie case. I.S. testified she will do whatever it takes to retain Neville Park. She acknowledges she will have to pay T.O.E. at least $791,325.42 regardless of the outcome of the trial. If the Minutes are upheld, I.S. will have to pay T.O.E. $791,325.42 to redeem the mortgage pursuant to s. 62(c)(ii) of the Minutes. If the Minutes are set aside, I.S. will have to pay the full value of the mortgage, $1,187,000.00 to retain Neville Park.

[27] I.S. argues that T.O.E.’s motion is frivolous and vexatious and was brought as a tactic to bully her. She states that M.S. is using T.O.E. (which he controls) to cause her and the child financial and emotional harm. This motion threatens the stability of I.S.’s home with the child. It forces I.S. to expend time and effort on the mortgage motion which diverts her time and resources away from preparing for trial which is less than one month away.

[28] I.S. argues that it is disingenuous for M.S. (under the veil of T.O.E.) to ask this court to enforce a term of the Minutes and then ask the trial judge to find the Minutes invalid and set them aside. M.S.’s position on the motion (under the veil of T.O.E.) is the direct opposite of what M.S. argued before Gilmore, J. when I.S. sought to enforce the same term of the Minutes.

Will T.O.E. suffer irreparable harm if the mandatory order is not granted?

[29] T.O.E. argues that, where the moving party proves it has a strong prima facie case, the court may place less emphasis on the second and third factors set out in RJR.: Polar Wireless Corp. v. Roberts, 2012 ONSC 6482 at paras. 21-23.

[30] T.O.E. maintains that it will suffer irreparable harm if the redemption of the mortgage is further delayed. The Toronto real estate market is experiencing volatility due to the COVID-19 pandemic and home values are dropping. The possible termination of government spending and income assistance programmes and the mortgage payment deferral option ending on September 30 may cause a further downturn in the housing market.

[31] T.O.E. cites reports in the media which say that a “second wave” of COVID-19 is imminent or already upon us. This could result in the Ontario government legislating a return to “lockdown”. This could delay the trial and a cause a further “plunge” in house prices.

[32] Even if the trial proceeds on October 19, T.O.E. states that the decision will likely be reserved and there may be an appeal by either side. This could delay the final outcome by a year or more. In that time, the value of the home could reduce to an amount less than the mortgage value. This would put T.O.E.’s mortgage security at risk.

[33] Irreparable harm is harm which either cannot be quantified in monetary terms or which can be quantified but not recovered if the applicant is successful: RJR at paras 64 and 79. Neville Park is the only substantial asset I.S. owns. If the value of Neville Park drops below the value of the mortgage, T.O.E. may not be able to recover its damages even if it is successful in its claim. This would cause irreparable harm to T.O.E.: Sunlogics Inc. v. Giesbrecht, 2012 ONSC 6904 at paras. 47-49.

[34] I.S. has produced an appraisal report from a designated residential appraiser which gives a value for Neville Park of $2,060,000 as at September 5, 2020. She has also produced opinion letters from two different real estate sales representatives which state the fair market value based on comparable properties to be $2.3m and $2.34 m, respectively. Based on this evidence, the value of the home has essentially doubled since it was purchased in 2013. The value would have to drop by more than 50% for T.O.E.’s mortgage security to be put at risk.

[35] I.S. argues that the court should not decide this matter based on “fear mongering articles” in the media. I.S. states that the information relied on by T.O.E. is speculative at best and cites other sources in the real estate industry which predict an increase in the average sale prices of homes in Toronto for the rest of 2020.

Which of T.O.E. or I.S. will suffer greater harm from the granting or refusal of the remedy pending a decision on the merits?

[36] T.O.E. argues that I.S. should be compelled to do now what she contracted to do in the Minutes by June 30, 2018. There is no prejudice to requiring her to do so. I.S. has acknowledged that she wishes to continue to reside in Neville Park and can obtain the financing necessary to redeem the mortgage.

[37] T.O.E. argues that it will suffer prejudice if the redemption is not ordered now. The second wave of the COVID-19 pandemic could cause a lengthy delay in the trial and a drop in the value of Neville Park. Even if successful at trial, T.O.E. could lose the benefit of its security if the value of the home declines significantly and it cannot collect any shortfall on the mortgage from I.S.

[38] I.S. argues that she will suffer the greater harm if she is required to redeem the mortgage now on the terms set out by T.O.E. I.S. says she may not continue to qualify for financing with Scotiabank if T.O.E.’s mortgage is postponed because of the change to the debt ratio. This may be the case even if no payments are required on the T.O.E. mortgage.

[39] The Minutes do not require I.S. to make monthly mortgage payments. However, I.S. consented to making monthly mortgage payments of $2,750 beginning in early 2019, increasing to $3,800 per month as at April 1, 2020. I.S. argues that T.O.E. (and its controlling shareholder M.S.) is in a better financial position to wait for the decision at trial. It will continue to receive mortgage payments and there is sufficient equity in the home to secure the mortgage in the full amount.

[40] I.S. says she is in a more difficult financial position and it will be a struggle for her to redeem the mortgage now on the terms requested by T.O.E. This puts the stability of the home for her and the child at risk.

[41] T.O.E. argues that I.S. has not shown that she has investigated any other sources of financing through secondary lenders. She also has not made any alternate proposals to T.O.E. for the redemption on other terms.

[42] T.O.E. says that I.S. argued that M.S. was bullying her financially when he opposed her motion to redeem the mortgage before Gilmore, J. It is disingenuous for her to argue he is bullying her financially now when T.O.E. is seeking the same relief she sought before Gilmore, J.

Analysis

[43] Applying the test in RJR and Hud to the evidence in this case, I decline to grant the mandatory order sought by T.O.E. for the following reasons.

[44] I am not satisfied that T.O.E. has proven it has a strong prima facie case and is likely to be successful. T.O.E. relies on its mortgage to make its argument but the terms of redemption of the mortgage are inextricably tied to the terms of the Minutes. M.S. (who controls T.O.E.) seeks to set aside the Minutes at the trial scheduled to commence October 19.

[45] While I am not bound by the decision of Gilmore, J., I adopt her reasoning that the terms of the Minutes should not be enforced while there are significant and ongoing factual disputes about its validity.

[46] I am also not persuaded that T.O.E. would suffer irreparable harm if the mandatory order is not granted.

[47] The COVID-19 pandemic has had a significant impact on the world economy. Its impact on different sectors of the economy, including the real estate market, is constantly evolving. There are experts and commentators with competing views. I am not in a position to determine which of these predictions is more likely to be correct at any future point in time.

[48] There is no reason that the trial will not proceed on October 19. The Ontario Superior Court has heard trials virtually for some months. The court is also hearing in person civil and criminal trials including family trials. There is nothing before me to suggest that the trial will be delayed or that T.O.E. will have to wait years for the outcome.

[49] On the evidence before me, I find there is significant equity in Neville Park to protect T.O.E.’s mortgage security. Neville Park is a large, well appointed home in a desirable Toronto neighbourhood. Even if there is some decline in the market pending the determination of the trial and any possible appeal, based on the market fluctuations during the pandemic in evidence before me, it is not likely the drop would be near to 50%.

[50] As between the two parties, I find that I.S. would suffer the greater harm if the mandatory order was granted now and she was required to redeem the mortgage to retain Neville Park. If M.S. is successful in setting aside the Minutes, the parties will have to renegotiate the terms of all issues arising from the breakdown of their relationship including Neville Park. Depending on the terms of a new agreement, I.S. may not be able to retain Neville Park as she says she now wishes to do. I.S. may be put in a more difficult financial position then if she is required to commit to a new first mortgage to redeem T.O.E.’s mortgage now. That could create financial instability for the child in her primary care which is not in his best interests.

[51] T.O.E. will continue to receive the mortgage payments of $3,800 per month from I.S. until the validity of the Minutes is determined at trial. The mortgage continues to secure title to Neville Park until the validity of the Minutes is determined at trial. I find T.O.E. will not suffer significant prejudice if the mandatory order is not granted.

Costs

[52] At the hearing of the motion I invited the parties to discuss the issue of costs to see if they could agree upon an amount to be awarded to the successful party. If they could not agree, I asked if the parties were prepared to send me brief submissions with Bills of Costs and any offers to settle which I would review after writing my decision on the merits of the motion. They agreed to do so.

[53] The parties were not able to agree upon an award of costs. Subsequent to finalizing my decision on the merits of the motion I reviewed the materials the parties sent me.

[54] I.S. is the successful party on the motion. She seeks full indemnity costs of $37,544. She did not serve an offer to settle so the cost consequences of Rule 18(14) are not engaged.

[55] T.O.E. served an offer to settle in accordance with the Order of Goodman, J. made at the settlement conference. T.O.E. argues that, although I.S. was successful on the motion, she should not be entitled to full indemnity costs because she did not serve an offer to settle in accordance with Goodman, J.’s Order. I.S. argues that T.O.E.’s email setting out its position for settlement was not a Rule 18(4) offer. I do not agree. T.O.E. complied with Goodman, J.’s direction to serve an offer and I.S. did not.

[56] Modern family costs rules are designed to foster four fundamental purposes: to indemnify successful litigants for the cost of litigation, to encourage settlements, to discourage and sanction inappropriate behaviour by litigants, and to ensure that cases are dealt with justly: Mattina v. Mattina, 2018 ONCA 867, at para. 10. The touchstone considerations of costs awards are proportionality and reasonableness: Beaver v. Hill, 2018 ONCA 840, at para. 12. In Boucher v. Public Accountants Council (Ontario), at paras. 28-29, 37, the court held that costs must be fair and reasonable, and consistent with the reasonable expectations of the parties.

[57] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. By r. 24(10)(a) of the Family Law Rules, O. Reg. 114/99, the court is directed to make a decision on the costs of a step in the case promptly after dealing with the step, in a summary manner.

[58] Pursuant to r. 24 of the Family Law Rules, the successful party is presumptively entitled to costs, subject to the factors set out in r. 24: Beaver, at para. 10.

[59] The issue on this motion was relatively complex and very important to both of the parties. While there could have been negotiation on the terms, there was no compromise to be made on the redemption. The mortgage was either paid now or not. When that could not be settled, the motion was necessary.

[60] Goodman, J. granted leave for the motion to proceed. In my view T.O.E did not behave unreasonably or in act bad faith in seeking the mandatory order.

[61] I have reviewed the Bills of Costs of both parties. The full indemnity amounts claimed by both parties are not dissimilar: T.O.E. claims $33,298.84 and I.S. claims $37,544.25.

[62] In my view, I.S. is not entitled to full indemnity costs. The number of hours claimed in the Bill of Costs appears to be slightly excessive. Mindful of my obligation to consider what is fair and reasonable in fixing costs I order T.O.E. to pay I.S. her costs of the motion fixed in the all inclusive amount of $20,000 forthwith.

Decision

[63] In conclusion, I make the following orders:

a. T.O.E.’s motion is dismissed.

b. T.O.E. shall pay I.S. her costs of the motion fixed in the all inclusive amount of $20,000 forthwith.

c. This Endorsement is an order of the court, enforceable by law from the moment it is released.

E.L. Nakonechny, J.

Date: September 25, 2020