Court File and Parties

COURT FILE NO.: CV-20-636740 DATE: 20210224 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2495940 Ontario Inc. Applicant/Responding Party

AND:

2633346 Ontario Inc. Respondent/Moving Party

BEFORE: VELLA J.

COUNSEL: Stefanija Savic, for the Applicant/Responding Party Scott Turton, for the Respondent/Moving Party

HEARD: February 24, 2021

Endorsement – ruling under SUBSECTION 12(7) OF THE MORTGAGES ACT AND RULE 56.01

[1] The Respondent brings this motion seeking payment into court by the Applicant of the sum of $115,000 pursuant to subsection 12(7) of the Mortgages Act, R.S.O. 1990, c M. 44, and rule 56.01(1)(d) of the Rules of Civil Procedure.

[2] This motion is brought with respect to an application within which I have directed a trial of an issue, scheduled to proceed on March 30 and 31, 2021.

[3] The application arises out of a dispute between the Respondent (under its first (renewed) mortgage) and the Applicant (under its second mortgage) over certain charges claimed by the Respondent in priority to the claim of the Applicant. See my reasons issued December 18, 2020 for further particulars.

Claim for Payment into Court of Accrued and Future Interest Payable under the Mortgages Act

[4] Subsection 12(7) of the Mortgages Act provides that, “The court may require payment into court of an additional sum to answer any claim by the mortgagee for subsequent interest and costs.” This provision vests discretion in the court to make such an order if it is warranted.

[5] Neither party found any jurisprudence providing any guidance concerning the court’s exercise of discretion under this provision.

[6] Section 12 of the Mortgages Act deals generally with the disposition of monies payable under mortgages under various circumstances, as set out.

[7] Subsection 12(4) of the Mortgages Act provides that where money is to be paid out of court to one or more mortgagees, it shall be paid together with any accrued interest, subject to court order.

[8] Subsection 12(6) of the Mortgages Act recognizes that where there is a dispute as to how much is owing under a mortgage, the mortgagee is able to request a sum in excess of that which is admitted to be due by the mortgagor to be paid into court, pending resolution, in order to protect the mortgagee’s position. When read together with subsection 12(7) of the Mortgages Act, it is apparent that the Legislature intended for the mortgagee to have the ability to have its entire claim protected, subject to the overriding discretion of the court.

[9] With this in mind, I have determined that my discretion must be guided by the intent of subsections 12(4), (6) and (7) read together in harmony, subject to any factors arising from the facts of the case that may influence the exercise of discretion in favour, or against, the mortgagee. This provides a flexible approach that accounts for a court’s determination of what is just in the particular circumstances before it.

[10] The Respondent claims that the funds currently paid into court as a consequence of the sale of the mortgaged property and pursuant to the consent order of Justice Lavine (the “Lavine Order”) is no longer sufficient to cover its shortfall in accrued interest under the renewed first mortgage, should the Application ultimately be resolved in its favour.

[11] The sum paid into court from the proceeds of sale, on consent of these parties, was $600,000 but with accrued interest now stands at $610,014.89 as of December 31, 2020.

[12] The Respondent calculated the outstanding sum allegedly due under the renewed first mortgage, inclusive of accrued interest at the rate prescribed by the renewed first mortgage (but excluding legal costs), for the period November 22, 2019 to January 31, 2021 to be $615,647.59, leaving a shortfall on the interest in the sum of $5,632.70. The Respondent also calculated interest for the period February 1, 2021 to December 31, 2021 in the sum of $49,983.10 (being 334 days at $149.65 per day). The total shortfall calculated by the Respondent, for interest only, is $55,615.80.

[13] The Applicant concedes that the court has jurisdiction to make an order requiring it to pay the additional interest sought under subsection 12(7) of the Mortgages Act and does not dispute the calculation put forth by the Respondent.

[14] However, the Applicant submits that I should decline making this order because the Lavine Order requiring it to pay $600,000 into court, as a condition of releasing the first mortgage as a charge against the property to facilitate its sale (but not otherwise discharging the debt obligations under the renewed first mortgage), was made on consent.

[15] The Applicant submitted, in the alternative, that if this court finds that any further amount should be paid into court by it, the amount should be restricted to the shortfall in interest calculated by the Respondent to December 31, 2021.

[16] At the time that the Lavine Order was made, on October 29, 2019, the sum of $600,000 was seen to be adequate to secure whatever sum the court ultimately finds may be owing to the Respondent in priority to the sum owing under the second mortgage to the Applicant. Since that time, the court has determined that there must be a trial of an issue owing to the raising of fraud allegations made by the Applicant, tainting the renewal terms of the first mortgage.

[17] Furthermore, the Applicant has not demonstrated any prejudice that it will suffer in the event the order requested is made. The affidavit sworn by Mr. Ghovanloo filed in response to this motion does not address prejudice.

[18] In the circumstances, it is fair and reasonable that the calculated shortfall in interest be ordered to be paid by the Applicant into court pursuant to subsection 12(7) of the Mortgages Act in the sum of $55,615.80. There is agreement that should the Respondent ultimately be wholly successful in this proceeding there will be accrued interest payable by the Applicant.

[19] If the Applicant is ultimately successful at the pending trial of an issue, then these funds will be released back to it.

Security for Costs

[20] According to its factum, the Respondent seeks security for costs in the following amounts:

(a) $12,000 for the costs of the Respondent in Application CV-19-1838, commenced in the Superior Court in Barrie (before Justice Lavine who ordered that costs of that proceeding were reserved to the judge hearing this application);

(b) $25,000 for the costs of the Respondent in these proceedings up to December 18, 2020 [being the date of release of the decision in this proceeding directing a trial of an issue]; and

(c) and $24,206.90 for the anticipated costs of the Respondent for the pending trial of an issue.

[21] The costs in relation to the first two items are claimed on a substantial indemnity scale. The anticipated costs relating to the pending trial of an issue are on the partial indemnity scale. During oral argument and according to the affidavit filed in support, the Respondent appears to have intended to claim the anticipated costs of the pending trial of an issue on a substantial indemnity scale which is listed at $35,925.00. The Respondent also provided alternative calculations for all these costs on a partial indemnity scale in its affidavit evidence.

[22] The Applicant does not take issue with the quantification of the costs sought by the Respondent. However, the Applicant does take issue with the scale of costs sought in the event that this court finds that security for costs are payable by it. The Applicant also opposes any order as to security for costs.

[23] Rule 56.01(1) of the Rules of Civil Procedure sets out five separate grounds upon which an order for security for costs may be ordered. The Respondent relies on rule 56.01(1)(d) which provides that an order for security for costs may be made where “the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent”.

[24] The Court of Appeal in Yaiguaje v. Chevron Corp., 2017 ONCA 827 (acknowledged by both parties to be the leading authority concerning security for costs) has re-focused the law on the justness of the security for costs order. The Court of Appeal acknowledged that while courts have attempted to articulate the factors to be considered in making these types of orders, each case must be considered on its own facts. There is no static list of factors to be used in all cases.

[25] Further, in Yaiguaje at para. 25, the Court stated: “The correct approach is for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made.”

[26] It is trite law that the initial onus is on the Respondent to show that the Applicant falls within one of the enumerated categories set out in rule 56.01. This initial onus requires the Respondent to satisfy the court that there “appears” to be good reason to believe that the matter comes within one of the factors set out in rule 56.01; see Coastline Corp. v. Canaccord Capital Corp, 2009 ONSC 21758 at para. 7.

[27] Once the initial onus is satisfied, it falls to the Applicant to rebut that onus by, in this case, demonstrating that it has sufficient assets in Ontario or in a reciprocating jurisdiction to satisfy any order of costs made in the litigation.

[28] The Respondent has discharged its initial onus in demonstrating that it appears that the Applicant falls within rule 56.01(1)(d). The Respondent has adduced evidence demonstrating that whatever assets the Applicant may have is secured by way of the general security agreement with its bank. Furthermore, the Applicant is a closely held corporation with a lawyer, Mr. Christopher Alexander Bota McNamara, as its sole officer and director. As well the Respondent points to the Applicant’s affidavit evidence in which it deposes that it owns no real estate. The affidavit also fails to set out with any degree of particularity its assets and liabilities.

[29] Accordingly, it falls to the Applicant to demonstrate through evidence that it has sufficient assets within this jurisdiction or a reciprocating jurisdiction to satisfy any order of costs against it that may be made in this proceeding.

[30] In rebutting this onus, the Applicant must provide a robust, full and frank financial disclosure: Rayman Tiger Inc. v. Unger Tiger Inc., 2020 ONSC 691.

[31] The Applicant submits that it is not impecunious and has sufficient assets to satisfy any potential cost award made against it. Accordingly, no concern has been raised to the effect that an order for security for costs, if made, would prevent the Applicant from proceeding with the pending trial of an issue.

[32] In support of its position, the Applicant filed an affidavit from Mr. Hootan Ghovanloo. Mr. Ghovanloo is described as “an independent contractor of the applicant”. No affidavit from the sole officer and director or any shareholder or senior management of the Applicant was filed.

[33] Aside from his bald assertions that the Applicant has “a significant amount of assets, including a large sum of funds in the corporation’s bank account” and “sufficient assets in the Province of Ontario to pay the costs of the respondent” in the various proceedings, Mr. Ghovanloo attaches two documents in support of the Applicant’s position: a bank statement for the month ending January 27, 2021, and a letter from the Applicant’s accountant dated February 4, 2021.

[34] I find the evidence offered by Mr. Ghovanloo to be woefully short of what is required in these circumstances.

[35] First, there is no indication in the affidavit as to how it is that Mr. Ghovanloo, an independent contractor, has the requisite knowledge of the financial affairs of the Applicant. The Applicant’s lawyer pointed to the fact that Mr. Ghovanloo obtained the bank statement and accountant’s letter attached as exhibits, but there is nothing on those documents or in his affidavit to show that it was he who asked for and received those documents.

[36] Second, the letter attached as an exhibit from the Applicant’s accountant is hearsay. It is purporting to address facts which are highly contentious. Accordingly, I give it no weight.

[37] Third, the bank statement is heavily redacted and only shows the outstanding balance in the bank account for each transaction. On its own, the bank statement shows a snapshot of the Applicant’s banking transactions for one month but without the benefit of any context such as competing obligations or any track record beyond the month.

[38] Mr. Ghovanloo deposes that the Applicant is in the business of providing private mortgages to borrowers throughout the Province of Ontario. However, he provides no details or particulars with respect to the financial status of this business; including the estimated value of the Applicant’s portfolio of private mortgages. Furthermore Mr. Ghovanloo does not provide any indication as to the outstanding and contingent liabilities of the Applicant. This notwithstanding the fact that the Respondent’s lawyer sent a detailed letter to the Applicant’s lawyer asking for further specific details concerning the financial status of the Respondent. The Applicant’s response was a complete refusal to provide any additional particulars on the basis that the request was overbroad.

[39] The Applicant’s lawyer candidly conceded that the Applicant had not made a robust, full and frank financial disclosure to the court. The Applicant’s lawyer stated that the reason for the Applicant’s unwillingness to do so is because of its concern that the Respondent is involved with alleged fraudsters (which is the subject of the pending trial of an issue). However, there is nothing in the evidence filed in this motion to support that submission.

[40] Further, if there was a concern on the part of the Applicant that its confidential information could be disclosed to the alleged nonparty fraudsters, it could have sought an undertaking from the Respondent to agree not divulge this information to any nonparties, requested an order sealing the affidavit and/or undertaken other cautionary measures. This was not done.

[41] The Applicant further submitted that the request for security for costs is a late request and therefore should be denied on that basis alone. The Applicant states that at the initial hearing of this application on August 21, 2020 it became apparent that this proceeding would become bifurcated and the Respondent should have brought its motion shortly thereafter. However, the only prejudice that the Applicant could point to in terms of the ostensible delay was that it would have to divert funds from its business in order to pay any sum required to be paid into court.

[42] Taking a holistic approach to this matter, and considering the evidence filed and the circumstances of this case, I find that the justness of this proceeding requires that the Applicant pay security for costs in this matter. However, I am not prepared to order that the security for costs be paid on a substantial indemnity basis. While the fraud allegations, if dismissed, could attract substantial indemnity costs in favour of the Respondent, I am not prepared to make that assumption at this stage of the proceedings.

[43] Accordingly, I order the following:

(a) the Applicant will pay into court to the credit of this Application the sum of $55,615.80 to be credited against any shortfall on interest that may ultimately be found to be due to the Respondent for the period up to and including December 31, 2021;

(b) the Applicant will further pay into court to the credit of this Application the sum of $48,000.00 by way of security for costs;

(c) the sums ordered under subparagraphs (a) and (b) may be satisfied by payment of money or the posting of a letter of credit or bond from an accredited financial institution with the court; and

(d) the sums ordered to be paid into court will be paid by no later than March 15, 2021.

[44] Costs of this motion are reserved to the trial of an issue.

Justice Vella Date: February 24, 2021