Court File and Parties

COURT FILE NO.: CV-20-00639748-00CL

DATE: 2020-08-03

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: THRIVE CAPITAL MANAGEMENT LTD., THRIVE UPLANDS LTD., 2699010 ONTARIO INC. and 2699011 ONTARIO INC., Plaintiffs

AND:

NOBLE 1324 QUEEN INC., MICHAEL HYMAN, GIUSEPPE ANASTASIO, DAVID BOWEN, NOBLE DEVELOPMENTS CORPORATION, HAMPSHIRE AND ASSOCIATES INCORPORATED, LISA SUSAN ANASTASIO, RAJEREE ETWAROO and CON-STRADA CONSTRUCTION GROUP INC, Defendants

BEFORE: Koehnen, J.

COUNSEL: Brian Radnoff, Joshua Suttner and Nathan Lean, Counsel for the plaintiffs Ray Thapar on his own behalf Spyros Bekaris and Niki Manwani, Counsel for the Mortgagee and Trilend, Michael Donsky, Counsel for Michael Hyman and Hampshire Justin Necpal, Counsel, for Giuseppe Anastasio

HEARD: July 29, 2020

ENDORSEMENT

[1] This is a motion by TriLend as administrator on behalf of 1801501 Ontario Ltd., C.P.M.C Marquez Holdings Inc., 2494789 Ontario Inc., Ontario North Landscaping Inc., Giuseppe Luongo, E.L.C.R.M. Holdings Inc. and Gabrielle Fischer who are the first mortgagees with respect to a mortgage in the face amount of $8,700,000.00 on properties municipally known as 1324, 1328 and 1342 Queen Street West, Brampton, Ontario (the “Property”).

[2] The motion arises in the context of a complex fraud action in respect of which I have granted a significant number of orders against the principals of the corporate owner of the mortgaged property. The gist of the fraud action is that the defendants took approximately $9,000,000 from the plaintiffs on account of investments into real estate properties over which the plaintiffs would have substantial control. The plaintiffs allege that the defendants materially breached their obligations towards the plaintiffs with the result that the plaintiffs appear to have lost their $9,000,000 investment. I have granted Mareva injunctions against a number of the defendants.

[3] At the plaintiffs’ request I also granted an order that the Property be sold to a purchaser presented by the plaintiffs.

[4] In the context of that sale, the First Mortgagees have brought a motion seeking payment of three months interest under the mortgage to be paid out of the proceeds of sale.

[5] At the close of the hearing by indicated that I would dismiss the First Mortgagees’ motion with reasons to follow. These are those reasons.

The First Mortgagees Are Estopped from Bringing the Motion

[6] I find that the First Mortgagees are estopped from bringing this motion by principles of estoppel, collateral attack and issue estoppel. This requires some brief factual background.

[7] The mortgage was issued in February 2020 and matured July 1, 2020. Interest was prepaid for the full term at the rate of 9.5%.

[8] On July 13, 2020 I issued an order allowing the Property to be sold to a purchaser that the plaintiffs had presented. The amount owing on the First Mortgage was an issue on that motion. The plaintiffs had filed materials the thrust of which was to indicate that the mortgage had matured, the sale was important to avoid the risk of the mortgagees taking enforcement proceedings which might result in a variety of higher fees. The plaintiffs pointed out quite clearly that the First Mortgagees had not taken any enforcement proceedings and had not claimed any additional fees. The entire concept of the plaintiffs wishing to sell the property was based on a financial analysis under which the First Mortgagees would be paid principal and interest owing but no additional fees given that no such claim had been made to date.

[9] The plaintiffs served the First Mortgagees with their materials.

[10] The defendants objected to the sale. They also filed materials. The materials the defendants filed indicated that the First Mortgagees supported the defendants efforts to retain the property, to resist the sale and to continue to develop the property. The defendants’ materials did not speak of any additional claims that the First Mortgagees had made. The defendants’ materials were also served on the First Mortgagees.

[11] Although the First Mortgagees had notice of the understanding of the first mortgage that the parties had given the court, the First Mortgagees did not attend on the motion and did not otherwise present any contrary information. I approved the sale based on the information that I had in front of me on July 13, 2020.

[12] On July 21, 2020, the First Mortgagees delivered a Notice of Sale dated July 16, 2020 which claim to the following amounts:

Principal Balance $8,700,000.00 Accrued Interest to July 16, 2020 $36,230.08 Outstanding Fees Re: Servicing and Access Agreement $435,000.00 Default Fees (equal to three-months’ interest) $206,625.00 Administration Fees $1,000.00 Costs (Plus HST) $5,800.00 Total $9,384,655.08

[13] During the First Mortgagees’ motion before me, they indicated they were no longer claiming the outstanding fees under the Servicing and Access Agreement in the amount of $435,000 but were claiming the remaining fees and in particular, the default fees equal to three months interest in the amount of $206,625.

[14] At first blush it would appear that the Notice of Sale was issued in response to my sale order of July 13, 2020 that the First Mortgagees appeared not to be happy with.

[15] The First Mortgagees suggest this is not the case because they had allegedly issued a demand letter and a notice of intention to enforce security under the Bankruptcy and Insolvency Act, both dated June 9, 2020, as well as a statement of claim in respect of the Property issued on June 22, 2020.

[16] Both documents are particularly troubling. On June 10, 2020 I had issued an order requiring TriLend, the administrator of the First Mortgage to make nonparty production of all documents relating to the Property to the plaintiffs. None of the demand letter, the notice of intention or the statement of claim were included in the response to that order.

[17] These issues are particularly troubling because the proceeding has been marred by the defendants’ failure to produce documents they have been ordered to produce, by their statements to this court that blatantly contradict contemporaneous documents and by outright refusals to comply with court orders.

[18] The failure of the First Mortgagees to produce documents in response to a court order on which the First Mortgagees now rely to demonstrate the legitimacy of their claim, continues this troubling trend. Their failure to appear on July 13 to set the record straight about their position only exacerbates that troubling trend. The First Mortgagees have offered no explanation for their failure to produce relevant documents or for their failure to attend on July 13, 2020.

[19] I would dismiss the First Mortgagees’ motion for those reasons alone.

[20] Their failure to attend on July 13 constitutes a collateral attack on the sale order I made on that day. Their motion before me today is, in effect, a motion that reverses, varies or nullifies the financial effect of the order I made on July 13. That amounts to a collateral attack on the July 13 order: Sabre Inc. v. International Air Transport Association, 2009 71004 (Ont SCJ Commercial List) at para 13.

[21] Their motion is also barred by the concept of issue estoppel. Issue estoppel prevents litigation of matters previously considered by the court. The subject matter of issue estoppel includes conclusions of law, as well as facts and conclusions that were “fundamental to the decision arrived at” or were “necessarily bound up” with an earlier determination: Danyluk v Ainsworth Technologies, 2001 SCC 44 at para 24; The Catalyst Capital Group Inc. v. VimpelCom Ltd., 2019 ONCA 354, at para 27. Whether the First Mortgagees had made claims against the property beyond principal and simple interest owing on maturity was an issue on July 13. The First Mortgagees had notice of that issue and should not now be allowed to relitigate it. The issue was also one that could have been answered by the First Mortgagees’ proper compliance with the production order that was made against them. Having failed, without any explanation, to abide by a court order they should not at this late date be permitted to raise an issue that they should have raised in response to the production order back in June.

Statutory Provisions

[22] The First Mortgagees also rely on section 17 (1) of the Mortgages Act, R.S.O. 1990, c. M.40 which provides:

Payment of principal upon default

17 (1) Despite any agreement to the contrary, where default has been made in the payment of any principal money secured by a mortgage of freehold or leasehold property, the mortgagor or person entitled to make such payment may at any time, upon payment of three months interest on the principal money so in arrear, pay the same, or the mortgagor or person entitled to make such payment may give the mortgagee at least three months notice, in writing, of the intention to make such payment at a time named in the notice, and in the event of making such payment on the day so named is entitled to make the same without any further payment of interest except to the date of payment.

[23] That provision is of no assistance to the First Mortgagees. The first portion of section 17 (1) speaks of an obligation of a mortgagee to pay three months interest on the amount in arrears. There has been no claim by the mortgagee for the payment of any amount in arrears. Indeed, interest was fully prepaid for the term of the mortgage.

[24] The second portion of section 17 (1) gives a mortgagor an option to prepay a mortgage by paying three months interest. It does not, however, give a mortgagee a right to charge three months interest on an alleged default or on maturity of the mortgage: Rokhsefat v. 8758603 Canada Corp., 2019 ONCA 273 at paragraph 15; Benson Custodian Corporation v. Situ, 2019 ONSC 3077, para 11-16.

[25] While the First Mortgagees did not rely on it in their factum, during argument a term of the mortgage agreement arose that could possibly give rise to a claim to three months interest. The Mortgage Agreement provides, among other things that:

“The Chargor /Mortgagor agrees that should TriLend Inc. issue either a Notice of Sale or Statement of Claim, TriLend, at its option, shall be entitled to charge an additional fee equivalent to three (3) months interest. The Chargor/Mortgagor agree that should the mortgage not be renewed or discharged on the maturity date that TriLend, at its option shall be entitled to charge an additional fee equivalent to three (3) months interest.

[26] section 8 (1) of the Interest Act, R.S.C., 1985, c. I-15 provides:

8 (1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.

[27] While the circumstances of this case do not require me to interpret section 8 (1) of the Interest Act in connection with a clause like the one quoted in paragraph 25 above more broadly, the application of the three month charge in this case amounts to a penalty. The charge is clearly discretionary on the part of TriLend. TriLend had the opportunity to lay claim to that charge when they produced documents in response to the production order. They failed to do so. They had the opportunity to claim that charge when they received the plaintiffs’ motion materials for the July 13 motion. They failed to do so. They had the opportunity to claim that charge in response to the defendants materials for the July 13 motion. They failed to do so. Finally they had the opportunity to claim the charge by appearing on July 13. They failed to do so.

[28] In those circumstances I can only infer that the charge is motivated by dissatisfaction with the order of July 13. Dissatisfaction with court orders is no basis for charging additional interest. Doing so in effect amounts to a penalty for having obtained a court order.

[29] To the extent I am incorrect in my interpretation and application of section 8 (1), I rely on section 98 of the Courts of Justice Act, RSO 1990, c C.43 which provides:

A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

[30] Section 98 provides an equitable and discretionary remedy: Scicluna v. Solstice Two Limited, 2018 ONCA 176 (Ont. C.A.), at para. 28. In the circumstances of this case I would exercise my discretion to relieve the mortgagors and others of the obligation to pay the three months interest that the First Mortgagees claim. The factors that go into the exercise of that discretion are the fact that, as noted above, the sum was never claimed until after the court issued a sale order, interest was fully prepaid, the mortgagee will be paid interest for the month of July and the mortgagee is already earning an interest rate of 9.5%, a high rate for a first mortgage in the current interest environment.

[31] For the foregoing reasons, I dismiss the First Mortgagees’ motion to claim three months interest arising on the sale of the property.

Costs

[32] The plaintiffs claim substantial indemnity costs of $16,000 on the motion. The First Mortgagees submit that costs should be assessed on a partial indemnity scale in an amount no higher than $7500.

[33] I fix costs on a substantial indemnity basis in the amount of $16,000 payable by the First Mortgagees to the plaintiffs. Substantial indemnity costs are available when, among other things, the conduct of any party tended to lengthen unnecessarily the duration of the proceeding and whether any step in the proceeding was improper, vexatious or unnecessary.

[34] As noted for my reasons set out above, this motion was improper, unnecessary and unnecessarily lengthened the duration of the proceedings.

[35] The motion was a collateral attack on an order I made on July 13. Had the First Mortgagees attended to make submissions on July 13, the attendance on this motion would have been unnecessary.

[36] In addition, the issue arose because the First Mortgagees failed to comply with court ordered production. They have offered no explanation for the failure to comply. A failure to comply with court orders which causes an opposing party additional costs should not be countenanced and should be met with substantial indemnity costs.

[37] I am satisfied that the amount of $16,000 is reasonable for the amount of work and time required for the motion.

Koehnen, J.

Date: August 3, 2020