Court File and Parties

COURT FILE NO.: CV-19-2581 DATE: 20200107

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Alyange Holdings Inc., Applicant AND: Dewdney Mountain Farms Ltd., Fragin Holdings Limited, Her Majesty the Queen in the Right of Canada as represented by the Minister of National Revenue, Cynthia Ritchie and Paul Ritchie, Respondents

BEFORE: Di Luca J.

COUNSEL: Eric Turkienicz, Counsel, for the Applicant Richard J. Mazar, Counsel, for the Respondents, Dewdney Mountain Farms Ltd., Cynthia Ritchie and Paul Ritchie

HEARD: December 6, 2019

ENDORSEMENT

[1] The Applicant holds a mortgage on a property located at 2418 Ledge Road (“the property”) in Bobcaygeon that is occupied by Cynthia and Paul Ritchie. The property is comprised of two parcels. One parcel of the property is used as a hunting camp and the second parcel is in the process of being developed into a quarry.

[2] Dewdney Mountain Farms Ltd. (“Dewdney”) is the registered owner and mortgagor of the property. Cynthia and Paul Ritchie are personal guarantors of the mortgage and principals of Dewdney. They also reside at the hunting camp.

[3] In this application, the Applicant seeks a declaration that it is entitled to immediate vacant possession of the property. It also seeks leave to obtain a writ of possession. The Applicant does not, at this time, seek a determination of what it is owed under the terms of the mortgage.

[4] The Respondents’ main position is that this is not a matter that should be decided by way of application. The Respondents argue that this case requires key factual determinations and credibility findings that can only be done at a trial of an action.

[5] For the reasons that follow, I agree with the Respondents and order that the application be converted into an action pursuant to rule 38.10(1)(b) of the Rules of Civil Procedure.

Background Facts

[6] On July 17, 2012, Dewdney entered into a mortgage agreement with Fragin Holdings Limited (“Fragin”) in relation to the property. The principal amount of the loan was $700,000, and the mortgage agreement was subject to an oral agreement between Dewdney and Fragin that allowed Dewdney to make no payments on the mortgage until the land was re-zoned and licensed to operate as a quarry. Mr. Fraser Berrill, a principal of Fragin, disputes the existence of this agreement and indicates that Fragin never agreed to waive payments due under the mortgage pending development of the quarry.

[7] On July 25, 2012, Dewdney entered into a mortgage agreement with B2B Bank also in relation to the property. The principal amount of the loan was $300,000, with monthly payments of $2,750. The mortgage was guaranteed by Cynthia and Paul Ritchie. While this mortgage was obtained through B2B Bank, it is accepted that the B2B Bank essentially advanced funds that had been invested by the Applicant, Alyange Holdings (“Alyange”).

[8] On January 16, 2014, the land was divided into two parcels with Dewdney’s intention being to develop one parcel into an operating quarry.

[9] In the summer of 2014, Paul Ritchie met with Don Jerry, who is a principal of Alyange. They discussed Mr. Ritchie’s plans to develop one parcel of land into a quarry. Mr. Ritchie indicated that he needed more financing in order to complete the project and Mr. Jerry agreed to assist. On July 21, 2014, the mortgage with B2B Bank was transferred to Alyange. Almost a year later, on July 9, 2015, Alyange advanced a further $150,000 and the mortgage agreement was amended. The amendment included a higher rate of interest as well as some different terms and conditions.

[10] No payments were ever made on the mortgage and amended mortgage held by Alyange. In addition, no payments had been made when the mortgage was held by B2B Bank.

[11] According to Mr. Ritchie, when he initially met with Mr. Jerry in the summer of 2014, they reached an agreement which mirrored the agreement that Mr. Ritchie had with Fragin, the holder of the first mortgage on the property, namely that no payments would be made until the quarry was up and running.

[12] Also, according to Mr. Ritchie, when additional funds were advanced by Alyange in July of 2015, they were used in part to bring the second mortgage up to date. The remaining portion, approximately $65,000, was put towards funding the quarry which required re-zoning and licensing approvals. Mr. Ritchie claims that he kept Mr. Jerry apprised of the various steps he was taking to develop the quarry and obtaining required zoning and approvals. Regrettably, the process was more complicated and time consuming than had been anticipated.

[13] On May 13, 2019, Mr. Ritchie was served with a demand letter and two Notices of Sale Under Mortgage in relation to the monies advanced by Alyange. According to Mr. Ritchie, the service of the demand letter and Notices of Sale took him completely by surprise.

[14] At the time of the demand letter, the quarry had not yet commenced operations and indeed, it appears that it remains non-operational to date.

[15] According to Mr. Jerry, he never agreed to waive the payments on the mortgage pending zoning and licensing of the quarry. Instead, he maintains that during the time period between the transfer of the mortgage from B2B Bank to Alyange and the service of the Notices of Sale, he simply refrained from taking enforcement steps in the hope that Mr. Ritchie would secure a purchaser for the property, as according to Mr. Jerry, Mr. Ritchie said he was going to do so. Once the default had continued for a lengthy period of time, Mr. Jerry decided that the delays were no longer acceptable and he decided to enforce the mortgage.

Analysis

[16] The Applicant argues that this matter can readily be determined by way of an application as provided under rule 14.05(3) of the Rules of Civil Procedure. The Applicant notes that it is simply seeking a declaration that it has an interest in the property by virtue of the default on the mortgage agreement and that it is, therefore, entitled to a writ of possession. The Applicant cites Bank of Montreal v. Silvera, 2010 ONCA 454, in support of the proposition that this issue can be determined within an application.

[17] As I read this rule and the decision of the Court of Appeal, an application may be used to obtain a declaration in circumstances such as this one. However, neither the rule nor the Court of Appeal’s decision require or direct that an application be used to obtain the declaration sought in this case. While an application may, in certain circumstances, be an appropriate vehicle for resolving a mortgage dispute, that is not the ordinary course. More commonly, mortgage enforcement proceedings are commenced by way of action. This makes sense, especially where the relief sought depends on disputed facts which require credibility findings.

[18] In this case, there is a key factual dispute that underlies the sought-after declaration. On the Applicant’s version of events, it advanced an initial mortgage for $300,000, then despite not receiving a single payment advanced a further $150,000, and then without receiving a single payment it waited a number of years before deciding to enforce the mortgage.

[19] On the Respondent Mr. Ritchie’s version of events, he obtained an initial mortgage from Fragin and then a further mortgage comprised of two loans from Alyange, and he obtained an agreement from both lenders to waive payment of the mortgages until a planned quarry was up and running, with no agreed upon drop dead date.

[20] To be blunt, both versions of events raise significant questions of credibility. It does not make sense that the Applicant would simply agree to waive payment of amounts due in perpetuity if the quarry did not come into existence in a timely fashion. Similarly, it does not make sense that the Applicant would advance $300,000 and a further $150,000 without a single payment being made, and then wait for a number of years before commencing enforcement proceedings.

[21] One obvious inference is that there was some sort of additional agreement in place that is not reflected in the relatively standard mortgage documents. If that agreement involved waiving payments until an event such as the development of the quarry occurred, the agreement would potentially dictate the availability of the sought-after declaration. Any such agreement, and more specifically the terms of any such agreement, if it is found to exist, would ultimately shed light on whether there was an actual default on the mortgage.

[22] This is not a matter that can fairly be decided on bare bones affidavits and transcribed cross-examination. In my view, given the centrality of the factual issues that must be determined and the related credibility issues, it is not appropriate to decide this case as an application. In these circumstances, I direct that the application be converted into an action. The Notice of Application can be treated as the statement of claim. The defendants shall have 30 days from the release of this Endorsement, within which they can serve and file a statement of defence.

[23] In terms of costs, if the parties are unable to reach an agreement, they are invited to file written submissions within 14 days of the release of this Endorsement. The submissions shall be no more than three pages in length, and shall address whether costs should be in the cause and if not, the quantum of costs that are appropriate at this stage of the proceedings.

Justice J. Di Luca

Date: January 7, 2020