Trez Capital Limited Partnership v. Morrison, 2020 ONSC 8208

Court File and Parties

COURT FILE NO.: CV-18-609876-CL DATE: 20200331 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

TREZ CAPITAL LIMITED PARTNERSHIP, TREZ CAPITAL (2011) CORPORATION and COMPUTERSHARE TRUST COMPANY OF CANADA Plaintiffs – and – MARIO MORRISON, 2140090 ONTARIOS INC. and 275 WINDMILL LTD. Defendants

COUNSEL: Dominique Michaud for the Plaintiffs Crawford Smith and Philip Underwood for the Defendants

HEARD: December 4, 2019

BEFORE: Penny J.

ADDENDUM TO JUDGMENT OF DECEMBER 4, 2019

Background

1In Reasons reported at 2019 ONSC 7115, I granted summary judgment in this matter granting relief from forfeiture in favour of the defendants, on terms. This Addendum must be read together with those Reasons.

2In a subsequent endorsement on costs, I also ordered the defendants to pay the plaintiff’s full indemnity costs of the motion and the action, fixed in the amount of $125,000. These costs have just recently been paid.

3The terms upon which I granted relief from forfeiture required the defendants to pay the full amount outstanding under the terms of a settlement agreement between the parties dated May 3, 2018. Because the evidentiary record filed on the motion for summary judgment did not contain all the details required to determine the precise amount outstanding under the terms of the settlement, I provided the plaintiff with time to provide an accounting specifying the amount owing and time for the defendants to enquire into and assess this accounting.

4The parties have undertaken this exercise but a disagreement remains about the amount still owing under the settlement. The plaintiff says it is owed $252,053.67. The defendants say they owe no more than $61,000.

5The parties have each submitted written memorandums outlining the support for their position and their reasoning against the position of the other side. During a telephone case conference with Mr. Michaud and Mr. Underwood on March 24, 2020, counsel agreed that there are no factual issues in dispute – the disagreement is over questions of interpretation. They also agreed that, subject to questions from the Court, the memoranda provide a sufficient basis for determination of the final outstanding balance owing, the payment of which is required to fulfill the terms of the grant of relief from forfeit. I had one follow up request for a document referred to in one of the submissions that was not attached; the document was subsequently provided.

The Issues

6There are two substantive issues:

(1) a two-part claim related to default administration fees of $4,000 per month: (a) interest calculated on default administration fees levied before June 14, 2018 dating back to March 2015; and (b) default administration fees levied after June 14, 2018 (and related interest); and

(2) legal fees for services rendered to the plaintiff relating to the settlement, receivership proceedings in Nova Scotia and other matters, which were incurred before November 2018.

7The plaintiff also seeks an order for a date certain by which the outstanding amounts found to be owing shall be paid, failing which the terms upon which relief from forfeiture was granted would be deemed not to have been performed, the order for relief from forfeiture would lapse and judgment would issue in the form sought on the plaintiff’s original motion for summary judgment.

Analysis

1. Default Administration Fees

The Claim for Interest Arrears

8Under the terms of the settlement agreement, the defendants were clearly required to pay default administration fees of $4,000 per month, from March 15, 2015 to June 14, 2018. The language of the settlement agreement defines the full amount owing under the mortgages to include interest at the “standard” rate, legal fees, receiver’s fees, default administration fees and other incidental costs in respect of the loans to the defendants. The plaintiff’s final payout statement was provided on May 31, 2018, just weeks after the settlement agreement was concluded and following the defendant’s refinancing with Centurion Capital. That statement stipulated that the balance owing included a “Default Admin Fee” for March 15, 2015 to June 14, 2018 of $156,000 ($4,000/month x 39 months). That amount, together with the additional shortfall from the refinancing of $462,982.72, produced a total amount owing on June 1, 2018 of $618,982.72.

9It was this shortfall that engaged the provisions of the settlement agreement relating to the sale by the receiver of property in Sydney Mines, Nova Scotia and the dispute over that sale which resulted in the alleged breach of the settlement agreement and the plaintiff’s claim for millions of dollars owing because of an elevated contractual rate of interest of 25%. As detailed in my reasons on the motion for summary judgment, the property was sold for $675,000, resulting in a net distribution to the plaintiff of $608,000 on October 3, 2018, and some $10,985.23 being held by the receiver in cash.

10Conspicuously absent from the language of the settlement agreement and from the May 31, 2018 payout statement is any claim for, or even hint at, accumulated interest on the $4,000 per month default administration fee.

11The burden of the terms imposed upon the defendants in my judgment of December 19, 2019 as a condition of the grant of relief from forfeiture was that there should be an accounting of whatever amount was properly outstanding under the settlement agreement and that that amount should be paid. The evidence establishes that it was not a term of the settlement agreement that interest would accrue on the default administration fees. Accordingly, I find that there is no obligation on the defendants to pay interest on these fees.

The Claim for Default Administration Fees Accruing After May 31, 2018 (and Interest)

12The settlement agreement contemplated, in general, the payment of default administration fees as part of the settlement. The May 31, 2018 payout statement expressly provided for the payment of $156,000 on account of default administration fees covering the period of March 15, 2015 to June 14, 2018.

13As noted earlier, the settlement agreement also contemplated the possibility of a shortfall after the refinancing and provided for the continuation of an existing receivership over the Sydney Mines property, and the consensual sale of that property, as a means of satisfying any shortfall. The settlement agreement did not address, one way or another, the potential for additional default administration fees in respect of any period after June 14, 2018 until realization on the Sydney Mines property.

14Based on the terms of the settlement agreement it was a reasonable expectation of the parties that, if there was a shortfall, the means of realizing on the Sydney Mines property was largely within the plaintiff’s control, given the existing receivership and the defendants’ consent to the sale. That being the case, it would have been a reasonable expectation of the parties that, even in the event of a shortfall and the continuation of the Sydney Mines receivership, no further default administration fees would be payable. Further, it must be remembered that the Centurion refinancing enabled the defendants to pay down well over $6 million of indebtedness. In the result, therefore, by May 31, 2018, the “default” being administered had shrunk to the shortfall amount of $618,982.72 (with per diem interest at $113.35).

15What was not contemplated, however, was that the defendants would oppose the sale of the Sydney Mines property. This opposition had the effect of causing increased costs and the accumulation of addition interest charges, for which the plaintiff is entitled to be compensated. The neat question raised by the current accounting exercise is whether this also had the effect of continuing the period for which default administration fees would accrue and, if so, for how long? I have, as stated above, already rejected the plaintiff’s claim for interest on any default administration fees payable.

16On the plaintiff’s theory of the accounting, as long as there is $1.00 outstanding on the amount owing under the settlement agreement, $4,000 per month accumulates on account of default administration fees. Since some amount remains outstanding (at least $61,000, according to the defendants), the plaintiff submits that $4,000 per month has and will continue to accrue until full and final payment.

17I cannot agree with the plaintiff’s argument on this point. The reality is that the plaintiff asserted its right to sell the Sydney Mines property and did so, receiving a distribution on October 3, 2018 of $608,000. On the basis of the evidence presented at the time (and even later during the motion for summary judgment), this distribution, together with retained cash of $10,985.23, appeared to be sufficient to cover, fully, the outstanding indebtedness under the settlement agreement. Further, the plaintiff refused to provide any accounting to the defendants at the time on the basis that the defendants had breached the settlement agreement and thereby waived the right to rely upon and enjoy any benefit from it.

18Thus, as of October 2018, the available evidence indicated on its face that there was no outstanding obligation under the settlement agreement and the plaintiff refused to provide any up to date accounting. From at least October 3, 2018, therefore, any “default” of full payment under the settlement agreement was a problem of the plaintiff’s own making. The plaintiff cannot rely on its own intransigence in refusing to provide any evidence of any unfulfilled obligation under the settlement agreement to impose unilaterally a “default” penalty on the defendants of $4,000 per month.

19This leaves the final, even narrower, question of whether the settlement agreement provided for the payment of default administration fees for the months of July, August and September 2018; that is, for the period of delay occasioned by the defendants’ obstruction of the prompt sale of the Sydney Mines property. I have concluded that it does.

20No objection has been taken to the default administration fees on the basis that they are unenforceable as penalties, rather than pre-estimates of damage or cost. Although the size of the debt, and therefore the amount in “default”, had shrunk dramatically by the end of May 2018 as a result of the refinancing, there was still a material shortfall. There is no evidence that the plaintiff’s cost of maintaining an open “default” file varied materially on the basis of the amount outstanding. It was reasonably within the defendants’ contemplation, in all of the circumstances, that if they obstructed the prompt sale (to which they had already, as part of the settlement agreement, consented) of the Sydney Mines property, part of the cost of doing so might well include the continuation of default administration fees while the shortfall remained outstanding.

21For these reasons, I find that the defendants are liable, as part of their final obligations to pay all amounts outstanding under the settlement agreement, for $12,000 on account of total default administration fees for the months of July, August and September 2018. No interest is exigible on these amounts, however, other than post-judgment interest under the Courts of Justice Act.

Legal Fees

22The settlement agreement provides for payment of legal fees incurred by the plaintiff in relation to the loans. The plaintiff has provided accounts from its counsel covering services in relation to the loans for the period from April 2018 to October 2018, totaling (with interest to February 5, 2020) $108,624.53. The accounts relate to legal services concerning:

(i) the refinancing of the defendants’ apartment building portfolio across three provinces; (ii) motions to discharge receivers in three provinces; (iii) the Sydney Mines sales approval process and contested proceedings before the Nova Scotia Superior Court in Halifax; (iv) miscellaneous other receivership related matters; and (v) initial analysis of the plaintiff’s legal rights and options flowing from the defendants’ opposition to the Nova Scotia sales approval motion, in advance of the decision to commence a claim (the costs of the claim itself have been dealt with in the context of my prior disposition of the costs of the motion for summary judgment and the action).

23The defendants submit that the costs are excessive for the work done. They also rely on an “off the top of my head” estimate of about $60,000 for outstanding fees received without prejudice from plaintiff’s counsel in October 2018.

24While I agree with the defendants that the contractual right to full indemnity recovery of legal fees is still subject to the scrutiny and discretion of the Court, I am not satisfied that the amounts claimed are excessive. This case involved large, complex, multi-property loans across multiple jurisdictions and three receivership proceedings. There is some evidence that the defendants incurred comparable costs in the same time frame. Having reviewed the accounts, I am not prepared to say that the fees fall outside the range of full indemnity costs seen in complex loan recovery and receivership proceedings of this kind. The plaintiff is not bound by an off the cuff, without prejudice estimate given by counsel without proper investigation or calculation.

25I find the amount of the fees properly owing under the terms of the settlement agreement is $108,624.53.

Conclusion on the Amount Owing Under the Settlement Agreement

26For the reasons outlined above, I have found that the following amounts are owing under the settlement agreement:

1. Default administration fees: $12,000.00
2. Legal fees: $108,624.53 Total: $120,624.53

27The receiver indicated, following the $608,000 distribution to the plaintiff in October 2018, that it retained cash on hand of $10,985.23. Subsequently, however, the receiver advised the plaintiff that it “expects there will be little to no funds available for distribution after the payment of professional and other costs.” Although no further explanation of this statement has been provided, I can well understand, in the circumstances, the plaintiff’s reluctance to incur additional professional fees in pursuit of a finely tuned accounting over such a small sum. Neither party during the current accounting exercise has raised whether this amount should or should not operate as a further credit against the outstanding debt owed. In the circumstances, I accept the receiver’s last statement as the best evidence of what, if anything, the receiver retains on hand, and will therefore disregard the amount of $10,985.23 in the final accounting.

The Date By Which Payment Shall Be Made

28The plaintiff argues that the defendants’ non-payment and non-performance of financial obligations has been an ongoing problem. As a result, the plaintiff seeks judgment on its motion for summary judgment if the required amount is not paid by a date certain.

29There is much to be said for the premise underlying this submission: the exercise of the Court’s discretion to grant the defendants relief from forfeiture was conditioned on the performance of a concomitant obligation – to pay the full amount owing under the settlement agreement. Thus, once the amount owed has been established, a failure to pay the required sum would constitute non-compliance with the terms upon which relief from forfeiture was granted. This, in turn, would vitiate, or render ineffective, the judgment granting relief from forfeiture.

30This is not quite the same, however, as granting the relief sought by the plaintiff on its motion for summary judgment pending payment of the outstanding amount under the settlement agreement.

31The formal judgment of the Court should provide that the defendants have been granted relief from forfeiture on the condition that they pay $120,624.53, failing which the grant of relief from forfeiture is null and void. I agree with the plaintiff however that there must be a fixed date by which payment of the final settlement amount owing must be made. I fix that date as 30 days following the release of this Addendum.

32If full payment of $120,624.53 is not made by that time, the grant of relief from forfeiture is no longer of any force or effect and the plaintiff may renew its motion for summary judgment on the full amount of its claim. Since I have already found that relief from forfeiture is the only possible defence to this motion, it seems likely that the plaintiff’s renewed motion would be granted.

Costs

33Neither party got what it was asking for. Given this result, there is no order as to the costs associated with this final accounting exercise. Given payment of my prior cost order on the action and the motion, there are, therefore, no outstanding cost obligations.

Penny J.