COURT FILE NO.: CV-18-0240-00

DATE: February 5, 2020

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CANADIAN WESTERN TRUST COMPANY (IN TRUST FOR RRSP PLAN #10084189 AND PLAN #10084190) Plaintiff

– and –

1324789 ONTARIO INC., 1073650 ONTARIO INC., JOHNATHAN GARY BEACH AND MARTHA LORRAINE BEACH Defendants

Charles L. Merovitz, for the Plaintiff Charles Hammond, for the Defendants

HEARD: December 9 and 10, 2019

HURLEY, J.

REASONS FOR DECISION

Introduction

[1] The plaintiff, Canadian Western Trust Company (In Trust for RRSP Plan #10084189 and Plan #10084190), seeks summary judgment on two mortgages granted to, respectively, the defendants 1324789 Ontario Inc. (“132 Ontario”) and 1073650 Ontario Inc. (“107 Ontario”). The defendants Jonathan Gary Beach and Martha Lorraine Beach are the personal guarantors of both mortgages.

[2] I also heard two summary judgment motions that involved two more mortgages granted by Canadian Western and one by Heliotrope Investment Corporation to the same defendants. Although there are some factual differences, the three motions raise the same legal issues. As a result, these reasons will address all the motions.

[3] It is not disputed that the plaintiffs advanced the monies secured by the mortgages and that they have been in default for several years. The defendants contend that there are genuine issues for trial because of pre-contractual representations and a subsequent oral agreement that altered the terms of the mortgages. They also dispute the amounts currently due and owing. In the alternative, they submit that summary judgment ought not to be granted because the mortgage actions are entwined with other outstanding litigation involving the same parties and a final determination of these claims at this stage would constitute an improper partial summary judgment. Finally, if summary judgment is granted, I should stay the enforcement of the judgments under rule 20.08 pending the final determination of the litigation.

Background

[4] Many of the relevant facts with respect to the underlying litigation are set out in my decision 1324789 Ontario Inc. v. Marshall, 2019 ONSC 517.[^1] The findings of fact which I made in that decision will also apply to these motions.

[5] Gavin Marshall and Gary Beach, who are the principals of the various companies that are also parties to the litigation, have been involved together in four residential land development projects since 2014. Three are subject to written agreements that were entered into on February 6 and July 9, 2014. The first one covers properties known as Applewood Lane (“AWL”) and Johnson Point (“JP”) and the second a property called Pine Point (“PP”). The parties to these agreements are 132 Ontario and Magenta Waterfront Development Corporation (“MWDC”). I will refer to these agreements, each entitled “Joint Venture Agreement (Land Development)”, as the JVAs. The fourth property, known as Cranberry Cove was purchased by one of Mr. Marshall’s companies; Mr. Beach asserts that it was to be treated in the same way as the other properties but Mr. Marshall denies this.

[6] Mr. Marshall provided the financing and Mr. Beach was the project manager. There were significant cost overruns and delays. The relationship between Mr. Marshall and Mr. Beach deteriorated over time. Matters came to a head in 2018 and the lawsuits started in May of that year. With one exception, they are over the loans made by companies controlled by Mr. Marshall to the Beaches and their companies. Most of these were secured by mortgages. The majority of the funds went to the land development costs but there were also substantial amounts advanced to the Beaches to pay personal debt and liabilities in relation to properties owned by them or their companies.

[7] Heliotrope commenced an action on May 11, 2018 against 132 Ontario and the Beaches for about $1.1 million on account of demand loans made by way of unsecured promissory notes. On May 22, 132 Ontario sued Mr. Marshall, his spouse, MWDC and associated entities which had loaned money to the company and the Beaches. In this lawsuit, the plaintiff seeks damages of $5,000,000 and an injunction restraining the defendants from commencing or continuing any enforcement proceedings in relation to the notes and the mortgages.

[8] I dismissed the plaintiff’s motion for an interlocutory injunction and the appointment of a receiver. In my decision, I made specific findings about the claims made in the lawsuit.

[9] One of the plaintiff’s major complaints was that it had suffered significant financial harm as a result of Mr. Marshall’s alleged failure to obtain third party financing at lower interest rates. I described this claim as weak, referring to the provisions in JVAs that governed Mr. Marshall’s obligations about this financing, the evidence led by him about the efforts made to obtain it and the plaintiff’s failure to adduce any evidence that cheaper financing was available.

[10] I also found that the plaintiff would have an uphill battle in establishing a fiduciary duty that was in addition to or superseded the terms of JVAs because of the Court of Appeal’s decision in Visagie v. TVX Gold Inc., 2000 CanLII 5749.

[11] Against that backdrop, I turn now to the mortgages at issue in these motions.

Canadian Western mortgages dated April 4, 2013

[12] Mr. Beach started out developing AWL and JP with another individual named Jeff McEwen. In early 2013, Mr. Beach contacted Magenta Investment Corporation, which is a mortgage lending business owned by Mr. Marshall, for the purpose of securing a loan to buy out Mr. McEwen’s interest in the properties. In March that year, Mr. McEwen commenced power of sale proceedings over a mortgage his company held on JP.

[13] Negotiations between Mr. Beach and Mr. Marshall culminated in an agreement that Mr. Marshall and his spouse Susan would loan money to 132 Ontario through RRSPs they held with Canadian Western. The loan was for $801,443 and secured by two mortgages collateral to one another. One mortgage was granted by 107 Ontario and guaranteed by 132 Ontario and the Beaches. The other was granted by 132 Ontario and guaranteed by 107 Ontario and the Beaches.

[14] The mortgages were registered on April 4, 2013 as, respectively, instrument nos. FC156484 and FC156485 in the Land Registry Office for the Land Titles Division of Frontenac (No. 13). The term of both mortgages was one year and the interest rate was 9.99%.

[15] The mortgages included standard terms, the most important of which for these motions are:

2. Sales Clause

IN THE EVENT of default under this Charge, at the option of the Chargee, the full principal balance together with interest and costs on a solicitor and his/her own client basis in relation thereto, shall become immediately due and payable.

12. Possession Upon Default

UPON DEFAULT in payment of principal or interest under this Charge or in performance of any of the terms and conditions hereof, the Chargee may enter into and take possession of the Land hereby charged, free of all manner of former conveyances, mortgages, charges or encumbrances without the let, suit, hindrance, interruption or denial of the Chargor or any other person whatsoever.

17. Extension of Time

No extension of time given by the Lender to the Chargor or anyone claiming under him, or any other dealing by the Lender with the owner of the Property, shall in any way affect or prejudice the rights of the Lender against the Chargor or any other person liable for payment of the indebtedness.

18. Guarantors

Without prejudice to or in any way limiting or lessening the Guarantor’s liability and without obtaining the consent of or giving notice to the Guarantor, the Lender may discontinue, reduce, increase or otherwise vary the credit of the Borrower, may grant time, renewals, extensions, indulgences, releases and discharges to and accept compositions from or otherwise deal with the Borrower and others, including the Guarantor and any other guarantor as the Lender may see fit, and the Lender may take, abstain from taking or perfecting, vary, exchange, renew, discharge, give up, realize on or otherwise deal with securities and guarantees in such manner as the Lender may apply all monies received from the borrower or others or from securities or guarantees upon such parts of the guaranteed liabilities as the Lender may see fit and change any such application in whole or in part from time to time.

[16] It is not disputed that the plaintiff advanced $801,443 on April 4, 2013. There was a further advance of $8,847 on October 17, 2014.

[17] From these funds, the Beaches used $500,000 to discharge a mortgage held by Shelley McEwen on property known as “Sweetfern” where their principal residence was located and another $75,000 to discharge a mortgage held by Marko Golic on the same property. The balance of the funds were used for other personal debts as was the second advance.

[18] The mortgages matured on April 3, 2014. It is not disputed that the defendants are in default under these mortgages. According to the plaintiff, the amount due and owing under these mortgages as of September 4, 2019 was $780,853.74.

[19] The defendants do not challenge the arithmetical calculation of principal and accrued interest. Rather, they dispute the enforceability of the mortgages for reasons that I will review in detail below and also take issue with the allocation of proceeds from the sale of lots at AWL and PP which they say should have been applied to the mortgages but were instead credited to other indebtedness of the defendants.

Heliotrope mortgage dated December 31, 2013

[20] On December 31, 2013, Heliotrope, a company owned by Mr. Marshall, loaned $300,000 to 132 Ontario secured by a mortgage. The guarantors were 107 Ontario and the Beaches. This mortgage was registered as instrument no. FC173154 in the Land Registry Office for the Land Titles Division of Frontenac (No. 13). The mortgage had a maturity date of January 20, 2014 which was extended to October 31, 2015. It carried an interest rate of 10%.

[21] The defendants used this money to pay down a $750,000 mortgage which Mr McEwen’s company held on JP.

[22] The mortgage had the same standard terms as those of the Canadian Western mortgages. It is not disputed that the funds were advanced on December 31, 2013 and that the mortgage is in default.

[23] The plaintiff states that $488,359.80 was owing on this mortgage as of September 4, 2019. The defendants’ position is the same as the one taken with the Canadian Western mortgages dated April 4, 2013.

Canadian Western mortgages dated February 14, 2014

[24] During the course of 2013, Mr. Beach and Mr. Marshall discussed the latter’s participation in the development of AWL and JP as a joint venture partner rather than simply a lender. These negotiations reached fruition with the execution of the first JVA on February 6, 2014.

[25] On February 14, 2014, the same parties as before entered into another two mortgages, one collateral to the other. The mortgages were registered on that date as, respectively, instrument nos. FC175159 and FC175160 in the Land Registry Office for the Land Titles Division of Frontenac (No. 13). Both mortgages were for a term of one year, securing the sum of $1,900,000 with interest at the rate of the greater of Toronto Dominion Bank’s prime rate plus 7% and 10% per annum, compounded monthly.

[26] These mortgages had the same standard terms as the others.

[27] It is not disputed that the plaintiff advanced $1,087,616 under these mortgages on February 14, 2014 and another $240,779 on October 17, 2014 and that the mortgages are in default.

[28] The money was used to discharge two mortgages owed to Mr. McEwen’s company totalling 1 million dollars. The balance of the funds went to personal debts of the Beaches, some joint venture expenses and another small mortgage payment owed to Mr. McEwen.

[29] The plaintiff calculates the amount due under these mortgages to be $2,171,265.71 as of July 9, 2019. The defendants take the same position with these mortgages as the others.

The joint venture agreements

[30] The JVAs contain the same terms. MWDC is referred to as JV1 and 132 Ontario as JV2 in them. The provisions that are relevant to these motions are:

1 (4) “Loan” means monies loaned to or for the benefit of JV2 by JV1 or parties related to JV1 pursuant to paragraph 4(5) of this agreement.

1 (5) “Pre-Existing Loans” means the $1,387,616.00 loaned to or for the benefit of JV2 and parties related to JV2 by parties related to JV1 to assist JV2 and parties related to JV2 in effecting repayment of liabilities of JV2 and parties related to JV2 existing as at the date of this Agreement, which loans are partially secured by a charge over JV2’s undivided interest in the Lands, as prescribed in the charges registered in respect to said loans as at the date hereof.[^2]

4(2) JV1 shall on a reasonable efforts basis endeavor to obtain third party financing for the Joint Venture for the Project, in an amount sufficient to fund the planning and servicing related work required to obtain registration and approval of the Project as a vacant land condominium as per budgets prepared by JV2 and Fotenn Planning and Urban Design, including interim, bridge and permanent financing, consistent with sound business judgment and with the loan rate, terms and conditions prevailing. Any financing shall minimize to the extent possible direct contributions by the Joint Venturers. JV2 shall do everything necessary to facilitate the advancement of third party financing as prescribed above, including the provision of personal guarantees by Gary Beach and Martha Beach if required by a third party lender.

4(3) Any financing shall, wherever possible, be on the basis of several, not joint, liability so that each Joint Venturer shall be liable only to the extent of its Proportionate Share. In the case of joint and several liability, the Joint Venturers, as between themselves, shall only be liable in the same ratio as their respective Proportionate Shares and each shall be indemnified by the other for any amount exceeding its Proportionate Share.

4(4) When any portion of the funds required to meet the obligations of the Joint Venture cannot be obtained from a third party in a manner satisfactory to JV1, each Joint Venturer shall advance its Proportionate Share of the funds required to the Joint Venture so that obligations may be paid as they fall due. Any advance shall be without interest.

In such event JV1 agrees to advance a maximum of $205,000 to assist JV2 in financing its Proportionate Share of the funds then required by the Joint Venture, exclusive of funds required to service third party debt, and additional funds, to a maximum of $35,000, to assist JV2 in funding its Proportionate Share of third party debt repayment. The loan advanced to JV2 hereunder will be incremental to the amount of Pre-Existing Loans.

4(5) Any loan as advanced, from time to time, will be secured by a charge over JV2’s undivided interest in the Lands and will be subject to an interest rate equivalent to the TD Prime Rate plus 5.00%. Any loan may be advanced in instalments, as required.

4(8) Nothing in this agreement shall serve to limit in any way the ability of JV1 or parties related to JV1 to enforce repayment of the Pre-Existing loans and Loan by employing any and all of the remedies available to mortgagees as provided by law.

6(1) When surplus funds from receipts of the joint venture are available which are not required for the normal operation of the Joint Venture shall be applied in the following order:

(a) first, to pay any expenses or charges due in respect of the Lands;

(b) secondly, to repay any advances made to the Joint Venture by the Joint Venturers;

(c) thirdly, to distribute any balance remaining between the Joint Venturers in accordance with their Proportionate Shares.

6(2) Provided and notwithstanding the foregoing JV2 does hereby irrevocably direct and authorize the payment of any moneys payable to JV2 hereunder, except for Project management fees, to be applied, firstly, to the repayment of the Loans and Pre-Existing Loans. JV1 shall be entitled to apply or direct repayments of the Loans and/or Pre-Existing Loans in such manner and in such amounts as from time to time in its sole and unfettered discretion it may so determine.

[31] The “Proportionate Share” in the JVAs was, respectively, 57/43% and 50/50%. Although both agreements contemplated the parties contributing to the development costs in accordance with these percentages, 132 Ontario chose to borrow money from MWDC and related entities to make its financial contribution to the three development projects.

The Issues

[32] The plaintiffs’ position is straightforward. They loaned money secured by mortgages and the mortgages are in default. Absent redemption of the mortgages, the plaintiffs are entitled to enforce their rights under them which include possession of the mortgaged lands and judgment for the amount due and owing on the loans. The JVAs clearly affirm these rights in clause 4(8).

[33] The defendants submit that the following constitute genuine issues for trial:

(i) Mr. Marshall represented to Mr. Beach before they entered into the JVAs that he would not enforce the mortgages and that the loans would only have to be repaid from the sale of lots once the development was completed. He also subsequently agreed to proceed in this manner after the agreements were executed.

(ii) If the mortgages are enforceable, a trial is required in order to determine the amount due and owing under them because there have been 11 lot sales and the proceeds, if allocated in accordance with the JVAs, would significantly reduce the amounts owed on the mortgages.

[34] Should I find that the plaintiffs are entitled to summary judgment, the defendants submit that I should decline to grant this relief because it would, in effect, constitute partial summary judgment. Alternatively, I should exercise my discretion under Rule 20.08 and stay the enforcement of the judgments pending the determination of the action commenced by 132 Ontario and the counterclaims made by it, 107 Ontario and the Beaches in these three mortgage actions and in the other lawsuits commenced against them by companies controlled by Mr. Marshall.

The enforceability of the mortgages

[35] Mr. Beach’s position is encapsulated in paragraph 53 of his affidavit sworn October 11, 2019 where he deposed:

It was always intended and agreed to between the parties that the debt owed to the Magenta Parties would be replaced with the third party financing secured by Mr. Marshall and then ultimately re-paid from Joint Venture lot sales. It does not make business or practical sense that the Magenta Parties would be able to enforce these debts during the course of the Joint Venture. All parties were keenly aware that the Beach Parties would not be able to re-pay these debts until the lot sales occurred. I left a significantly higher paying position to take on the role as Project Manager which provided me with a salary which was not commensurate with the work or skill required for this position. The Project Manager salary was always intended to be a nominal draw until the proceeds from lot sales were available. It is not practical to expect 132 to the pay back these mortgages or promissory notes based on my Project Manager salary (nor would any prudent lender lend that money on the basis of my salary). Moreover, I entered into these mortgages and continued working tirelessly on the joint venture on this basis. As such, clearly the parties were keenly aware that the arrangement was that the mortgages and promissory notes were to be replaced with third party financing and then re-paid from lot sales.

[36] In support of his contention, Mr. Beach pointed to emails that Mr. Marshall sent in 2014 in which he agreed that mortgage payments could be suspended.

[37] He also relied on testimony that Mr. Marshall gave at his cross-examination on July 31, 2019, asserting that Mr. Marshall admitted that this was the arrangement between them:

Q. I put it to you, sir, that in fact the debt that you provided generously was not meant to be paid in monthly instalments or at all until the sales started to generate revenue, correct?

A. Well, I note that after 15 months you provided no evidence to that effect, so no, that is absolutely not the case whatsoever. We entered into….

Q. Sorry, can I stop you there? I provided no evidence of what? I don’t understand your answer.

A. What you just said that I had agreed that as per Mr. Beach’s affidavit that he specifically says I think that it was always agreed and understood that all of the debt, not just the joint venture specific debt, but all of the debt would not be repaid until I obtained third party financing and, in turn, that third party financing would be repaid from joint venture lot sales. There was no evidence whatsoever support that allegation.

Q. So you deny that allegation?

A. Absolutely.

Q. So how did you anticipate those payments were going to occur then?

A. As I said….

Q. You knew Mr. Beach couldn’t afford it, right, can we agree with that?

A. I agreed to forbear enforcement of repayment certainly in a spirit of partnership and friendship with a view towards assisting Mr. Beach and based on his ongoing representations that lots would be created, the lots would be sold and that’s how repayment would occur, but reality is though the situation and I expressed concern about the cost overruns and…

Q. Let me stop you there because you just confirmed to me what I put to you and that is the fact that the debt you provided generously was not meant to be paid in monthly instalments or at all until the sales started to generate revenue.

A. No….

Q. You indicated to me in the spirit of friendship that that’s what you were providing.

A. There’s a difference here, you say meant, so did I ever agree as Mr. Beach asserts in his affidavit that it was agreed that repayment would only come from third party financing that I was somehow obliged to arrange and that subsequently the third party financing would be repaid with joint venture lot sales, I never, ever agreed to that. We had mortgages.

Q. Yes.

A. We had demand loans.

Q. Sure.

A. Every one of them starting with the first one in June of ‘14 and the last one in April of ‘18 is clearly due on demand. Did I agree to voluntarily forbear in the exercise of my legal rights to enforce repayment, yes.

Q. And that forbearance agreement is not in writing, is it?

A. No.

Q. And it’s outside the terms of the strict terms of the joint venture agreement, correct?

A. I voluntarily – I mean we never even discussed it.

Q. Let me come back to the question I asked you before, how did you think he was going to pay that debt?

Ms. Sayer: He’s already answered that.

Mr. Edwards: No, I haven’t got an answer for that, counsel.

Ms. Sayer: I disagree.

Q. Was it any other way other than through the sale of lot proceeds, sir?

A. I was prepared to forbear in the enforcement of repayment as per my rights under both the demand loans and the mortgages in anticipation that at some point, the lots would be sold and repayment could be effected from that purpose.

[38] The same assertion about the legal effect of the emails was made by Mr. Beach and the other defendants in Canadian Western Trust Company v. 1324789 Ontario Inc., 2019 ONSC 4789. In rejecting their argument, Ryan Bell, J. stated at paras. 26 – 27:

All agreements relating to an interest in land, or any variations relating to such agreements, must be in writing (Statute of Frauds, R.S.O. 1990, c. S.19, s. 4; Bravar Custom Builders Ltd. v. Long Island Homes Inc., 2015 ONSC 6627, at paras. 24-25). As Kellock J. stated in Shook v. Munro, 1948 CanLII 8 (SCC), [1948] S.C.R. 539, at p. 543:

Assuming that the parties to the mortgage verbally agree to extend the time of payment until the mortgagor should be able to pay, that agreement cannot, by reason of the Statute of Frauds, be permitted to be proved for the purpose of varying the terms of the mortgage.

Even if I were to accept that the Marshall parties’ alleged agreement not to enforce the mortgages raises an issue regarding an interest in land, there is no evidence in the record that the alleged agreement was reduced to writing. Counsel for the Beach parties pointed to an email exchange which he maintained constituted an agreement in writing not to enforce the mortgages. In the first email, Mr. Marshall “authorized and directed [Canadian Western] to suspend future payments.” In the second email, Mr. Beach thanked Mr. Marshall for having done so. Whatever else this email exchange may be, it is not “an agreement…memorandum or note thereof…in writing and signed by the party to be charged therewith” as required by s. 4 of the Statute of Frauds.

[39] I agree with her conclusion.

[40] Mr. Marshall did not admit during his cross-examination that he had reached an oral agreement with Mr. Beach that replaced or varied their written agreements. Rather, it was an explanation for why he did not require ongoing payments from Mr. Beach. His agreement to forbear payment of the mortgages does not preclude him from enforcing them now or excuse the defendants from repaying the loans: M. Bravar Custom Builders Ltd v. Long Island Homes Inc., 2015 ONSC 6627 at paras. 24 to 26; SK Properties & Development Inc. v. The Equitable Trust Co., 2003 CanLII 20477 (ON SC) at pp. 4-5; Fleischhacker v. Dekaneas, 2006 CanLII 9966 (ON SC) at p. 2, aff’d 2006 CanLII 31196 (ON CA); Kooner v. Augustin, 2018 ONSC 7064 at paras. 22-33; and Magenta Mortgage Investment Corporation v. Ashlar Construction Ltd., 2017 ONSC 6621 at paras. 39 – 41.

[41] Mr. Beach contends that the Statute of Frauds does not apply due to the doctrine of part performance as outlined in Erie Sand & Gravel Limited v. Tri-B Acres Inc., 2009 ONCA 709. His acts of part performance were his decision to leave his former employment to become the project manager for the development projects; the extra work he did for no remuneration other than the salary specified in the JVAs; and the debt he incurred in order to fund 132 Ontario’s share of the development costs.

[42] None of these acts, either individually or cumulatively, fall within the doctrine of part performance. Mr. Beach left his former employment but the reduction in his compensation was not substantial.[^3] His remuneration as project manager was based on what he agreed to under the JVAs. He could have left at any time upon written notice but chose to stay. He and his spouse borrowed money from the plaintiffs not just for the development costs but also to pay personal debt and expenses.

[43] There was no detrimental reliance because Mr. Beach did the work he agreed to do for the salary that he agreed to do it for. The loans were clearly a benefit at the time because they allowed the Beaches to maintain ownership of both their own and the joint venture properties plus continue with their development. There were no unconscionable dealings between the parties: they were both knowledgeable real estate investors and the Beaches confirmed in writing that they had received independent legal advice before executing the mortgage commitments. The Statute of Frauds is not being employed as an “engine of fraud”; it is being relied upon to enforce a common and important legal transaction.[^4] I adopt the comment made by Archibald, J. in SK Properties: “In my view, the public policy behind that principle is obvious. Parties must be able to conduct their business on an orderly basis. Mortgage agreements such as the one before the court must be reduced to writing so that there can be clarity and certainty in business negotiations. Any extensions or renewals must also be in writing for that sound policy reason.” [^5]

The amount due and owing on the mortgages

[44] There have been 11 lot sales at the AWL and PP properties. Three occurred after the parties’ relationship had turned adversarial and the sale proceeds are being held in trust by the vendor’s lawyer. With respect to the other sales, the funds were applied to pay off loans made by Mr. Marshall’s companies to the Beaches and their companies and, in one case, a loan made by MWDC to a builder involved in litigation over construction of a home at one of the lots. There were some other funds from the sales that went into the joint venture’s bank account but Mr. Beach claims that he does not know how they were disbursed.

[45] The defendants rely on the decision in 603938 Ontario Inc. v. Muskoka House Ltd., 2009 CanLII 55373 (ONSC) to argue that, if there is a dispute over the amount owed on the mortgage, summary judgment should not be granted. This decision is distinguishable for two reasons. The first is that the mortgagee in that case did not provide an accounting or calculation of the amount owing. Here, the plaintiffs did. The second is that the decision predates Hryniak v. Maudlin, 2014 SCC 7 and there is no reference to the expanded fact-finding powers in rule 20.04(2.1) or the authority of the court under rule 20.04 (3) to grant judgment with a reference to determine the amount.

[46] The defendants contend that s.6(1) of the JVAs, properly construed, obliged Mr. Marshall to pay 132 Ontario its proportionate share of the revenue generated from the lot sales. Alternatively, they argue that s. 6(2) required the proceeds to be applied to the outstanding “Loans” and “Pre-Existing Loans” which are the mortgage loans at issue in these motions. If that had been done, the amounts owing on these mortgages would be “vastly reduced”, although the defendants do not quantify this abatement.

[47] I disagree with the defendants’ proposed interpretation of s. 6. I find that it was the intention of the parties that any debt incurred in relation to the development be paid before any revenue from lot sales was shared by MWDC and 132 Ontario. This is the only sensible interpretation of the JVAs. Accordingly, the sale proceeds could be used to pay down debt as happened in this case.

[48] I also find that the broad wording used in s. 6(1) permitted Mr. Marshall to apply the proceeds as he did because those loans would constitute either “expenses or charges due in respect of the lands” or repayment of “advances made to the joint venture”. S. 6(2) gave him a discretionary authority to apply the funds in repayment of the “Loans” and “Pre-existing Loans” but did not require him to do so.

[49] These conclusions are sufficient to dispose of the defendants’ objections to the allocation of the sales proceeds but there is one additional issue raised by them that I will address. They assert that Mr. Marshall was “incentivized” to use the funds to pay down other loans made by Heliotrope because they were unsecured. Whether he was or not, there was no unfairness to the defendants – all the loans are in default and there is a negligible difference in the interest rates.

[50] The defendants’ final argument is that summary judgment should not be granted because the plaintiffs have not given a complete accounting of how the sale proceeds have been disbursed. Because of this gap in the evidence, the amounts owing on the mortgages cannot be determined.

[51] The plaintiffs have provided evidence of the payments made by the defendants on account of the mortgages. In a summary judgment motion, both sides have an obligation to “put their best foot forward”. There have been extensive cross examinations and the record now fills more than ten banker’s boxes. In these circumstances, it is not sufficient for the defendants to make a general allegation of an incomplete or inaccurate accounting. There is no evidence that the plaintiffs did not produce relevant documents or refused to answer relevant questions. It was incumbent on the defendants to identify the specific monies allegedly received by the plaintiffs which should have been credited to the mortgages. They did not do so when they could have easily traced the alleged funds by cross-examination and the production of documents through undertakings. As Di Luca, J. stated in Amber Lighting Limited v. Petrozza, 2017 ONSC 3816 at para. 28: “Viewed in the context of a summary judgment motion and the “best foot forward” principle, the defendants cannot suggest that a trial is required because they choose to keep their evidentiary “powder dry”. If evidence exists that supports the defence position, it should be forthcoming in response to the summary judgment motion.”

Partial summary judgment

[52] In Butera v. Chown, Cairns LLP, 2017 ONCA 783, Pepall, J.A. stated at para. 34:

A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner. Such an approach is consistent with the objectives described by the Supreme Court in Hryniak and with the direction that the Rules be liberally construed to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits.

[53] The defendants argue that granting summary judgment in these three motions would be akin to partial summary judgment because the issues are significantly intertwined with those raised in the lawsuit commenced by 132 Ontario and there is a real risk of inconsistent findings and substantive injustice.

[54] Although the debt enforcement actions are connected to the lawsuit because they involve the same parties and relate to loans made to the Beaches, the legal issues are distinct. There is no serious dispute that the mortgages and promissory notes are valid, that the money was loaned and the defendants have defaulted in payment of all the loans. They are claims that can be easily determined. The litigation as a whole will be advanced by dealing with them separately as the factual and legal issues can be summarily determined without the need to make any credibility findings. There is no risk of inconsistent findings of fact. There would also be no substantive injustice because 132 Ontario can still pursue its claim for damages based on Mr. Marshall’s alleged wrongful conduct.

The request for a stay

[55] Rule 20.08 provides:

Where it appears that the enforcement of a summary judgment ought to be stayed pending the determination of any other issue in the action or counterclaim, cross-claim or third party claim, the court may so order on such terms as are just.

[56] In 1652620 Ontario Inc. v. Cornerstone Builders Ltd., 2018 ONCA 973, the Court overturned the motion court’s decision to not stay the execution of a partial summary judgment, citing with approval the decision in Jones Collombin Investment Counsel Inc. v. Fickel, 2016 ONSC 6536. In that case, Penny, J. stated at para. 59:

Rule 20.08 provides that the enforcement of a summary judgment may be stayed pending the determination of any other issue in the action or counterclaim, cross-claim or third party claim, on such terms as are just. The stay of execution involves the exercise of discretion, taking into account the nature of the defendant’s claims and the equities between the parties.

[57] In Zucchetti Rubinetteria S. P.A. v. Natphil Inc., 2011 ONSC 2275, appeal dism’d 2011 ONCA 726, Mr. Justice Perell stated at para. 15:

The jurisdiction to grant a stay is discretionary and depends on the facts of the case: Cuddy Food Products v. Puddy Brothers Ltd, supra, at para.24; Comtract Air Compressors Inc. v. A.W. Service Industries Inc., 2000 CanLII 22763 (ON SC), [2000] O.J. No. 1867 at para. 28 (Ont. S.C.J.). In exercising its discretion, the court will consider such factors as: (a) whether the plaintiff resides out of the jurisdiction or is impecunious and potentially unable to satisfy a judgment on the defendant's counterclaim; (b) whether factually the claim and the counterclaim are closely connected; (c) whether the counterclaim appears to be meritorious; (d) whether the counterclaim was tardy or appears to be an afterthought to the plaintiff’s claim; and (e) whether the counterclaim appears to have been brought for delay or for tactical reasons: Univar Canada Ltd. v. Pax-All Manufacturing Inc. [2008] O.J. No. 3462 at paras. 28-36 (Ont. S.C.J.); Lui v. Wong 2010 ONSC 5896.

[58] The defendants submit that I should exercise my discretion in their favour because their counterclaim is not without merit; absent a stay, the defendants will not be able to continue the litigation and will be forced into bankruptcy; this result would be highly unfair given the work that Mr. Beach has done and the unencumbered equity he brought into the project because of his ownership interest in AWL and JP; the mortgages are also on properties not included in the joint venture and a judgment at this stage would be a “substantial windfall” for the plaintiffs; and there would be no prejudice to the plaintiffs because the value of the properties exceeds the debt owed to the plaintiffs.

[59] In considering this issue, I begin with the observation that the debt instruments and the JVAs were negotiated at arm’s length with the benefit of independent legal counsel. Both sides could be described as legally sophisticated. Although Mr. Marshall was obviously more experienced in commercial lending, Mr. Beach had accumulated a substantial real estate portfolio and would be well aware of the consequences of defaulting on a mortgage.

[60] The counterclaims in these three actions mirror those made in the lawsuit commenced by 132 Ontario. As I noted at the outset of these reasons, I concluded in my earlier decision that the claims made in that lawsuit were not strong ones. The defendants did not adduce any evidence in these motions that would cause me to change my opinion. Despite the passage of almost two years, the defendants have still not provided any evidence that there was third party financing available at lower interest rates. Nor have they even attempted to do so – for example, by identifying financial institutions or other lenders that might have provided such financing but were not solicited by Mr. Marshall. The lawsuit rests on alleged breaches of fiduciary duty which, as I noted before, is a steep road to climb in this type of commercial dispute and an amorphous bad faith allegation.

[61] There is also no evidence that Mr. Marshall engaged in a “fraudulent scheme” aimed at depriving the defendants of their potential profit from the joint venture. Although not labelled as fraudulent, 132 Ontario made, in substance, the same allegation in the statement of claim and the motion for an interlocutory injunction. I made a finding on this issue in my previous decision, stating that it was an unsupportable grievance. There were voluminous affidavits filed in these motions and the other ones I heard in December of last year and also extensive cross-examinations. The defendants did not present any new evidence in the motions that would change my conclusion.

[62] Both parties expected things to work out much better than they did. Unfortunately, as can happen in commercial land development, the project was beset by cost overruns and unexpected delays. The business relationship deteriorated, Mr Marshall invoked his rights under the debt instruments and JVAs and this litigation ensued. The parties had the good sense to retain lawyers at the outset and negotiate agreements that governed their rights and obligations. There is nothing unfair in holding them to the bargain they made. This is especially the case where, as here, the debtors greatly benefited from the loans when they were made.

[63] There is no risk that the defendants, if they succeed on their counterclaims, would not recover any award of damages made against the plaintiffs. The same is true in 132 Ontario’s lawsuit. The defendants avow that if enforcement of the judgments is not stayed, they will be forced into bankruptcy or otherwise unable to continue the litigation. However, they have not made comprehensive disclosure of their financial position and to date have been able to fully engage in costly litigation.[^6] Although the defendants claim that the plaintiffs will not be prejudiced by a stay because the value of the lands upon completion of the development will exceed the current debt owed to them, the expert opinion which they rely upon is explicitly subject to a number of qualifications and the eventual value is speculative at best.[^7] In contrast, the prejudice to the plaintiffs is certain: if a stay is granted, they will not be repaid the millions of dollars they loaned to the defendants until years down the road.

[64] Balancing all of these factors, I have concluded that a stay of the enforcement of the judgments should not be granted.

Conclusion

[65] In accordance with the principles articulated in Hyrniak, I can fairly and justly determine the dispute on the evidence before me and summary judgment is a proportionate, more expeditious and less expensive means to achieve a just result. I grant summary judgment to the plaintiffs in the three motions for the amounts due and owing under the mortgages and possession of the mortgaged lands. If the parties cannot agree on the specific amounts of the judgments as of the date of this decision, they can arrange a telephone conference through the Belleville trial coordinator for the purpose of settling the orders under rule 59.04(12). As the successful parties, the plaintiffs are presumptively entitled to their costs of the motions. As with the other motions that I heard in December 2019, I will fix the costs after I have decided all the motions.

______________________________ Hurley, J

Date: February 5, 2020

[^1]: The defendants motion for leave to appeal this decision was dismissed by the Divisional Court on November 29, 2019.

[^2]: The “Lands” in the first JVA are AWL and JP and in the second is PP.

[^3]: According to a financial statement he prepared in 2013, Mr. Beach’s annual income at Corning Glass was $98,000 and under the JVAs he received management fees of $72,000 annually plus employment related expenses.

[^4]: See Erie Sand at para. 49.

[^5]: At p. 7

[^6]: The litigation has been hard-fought on both sides and the Beaches have brought multiple interlocutory motions. With respect to one of them, Ryan Bell, J. found the motion to be “reprehensible litigation conduct” and awarded substantial indemnity costs: Canadian Western Trust Company v. 1324789 Ontario Inc., 2019 ONSC 5948 at para. 9.

[^7]: These are found at p. 2 of the report where Mr. Cotman notes that the values are “approximate only”, strongly recommends that re-inspections of each property be carried out, that his report should not be interpreted as a full appraisal report but a “preliminary high-level overview” of past appraisals and significant changes to the properties may have occurred since those appraisals which could materially affect their current value.