Court File and Parties
COURT FILE NO.: 19-68057 (Hamilton)
DATE: 2021/01/18
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: NHDG (Green Mountain) Inc., Plaintiff
AND:
The Hamilton Teleport Ltd., Defendant
BEFORE: Mr. Justice D.A. Broad
COUNSEL: Michael J. Valente, Counsel for the Plaintiff H. Keith Juriansz, Counsel for the Defendant
HEARD: In Writing
ENDORSEMENT
Background
[1] The Plaintiff ("NHDG") purchased property municipally known as 50 Green Mountain Road West, Stoney Creek, Ontario (the "Subject Property") from the defendant ("THTL") for the purchase price of $6,250,000 on November 28, 2016. The plaintiff purchased the subject property for the purpose of constructing thereon a 189-unit residential condominium development.
[2] The Agreement of Purchase and Sale for the transaction was dated October 27, 2016 and was amended by two amendment agreements, both dated November 4, 2016 (combined the "APS"). The APS provided for NHDG to pay the sum of $5,250,000 on account of the purchase price on closing with the balance to be paid by the grant of a vendor take-back Charge/Mortgage of Land in favour of THTL in the sum of $1,000,000 (the "VTB Mortgage").
[3] The VTB Mortgage provided for interest at 5% per annum calculated quarterly, payments of $12,500 commencing March 31, 2017 and a "balance due date" of May 28, 2018. It also contained the following provision (the "Mortgage Set-off Provision"):
The parties acknowledge that the site contains dense rock and if any additional servicing costs above what is normally expected to service clay, sandy loam or regular soil conditions (as determined by a qualified independent engineer to be agreed upon by Chargee and Chargor) are to be set-off against any principal and interest to be paid by the Chargor under this Charge to a maximum of the principal owing on this Charge."
[4] It is evident that the Mortgage Set-off Provision was intended to implement the following provision in the APS (the "APS Subsurface Conditions Provision"):
Both parties acknowledge being aware of the servicing status of the Development Site (dense rock) and agree that if any additional servicing costs above what is normally expected to service clay, sandy loam or regular soil conditions are to be drawn on the second vendor takeback/holdback mortgage. These additional servicing costs that may be incurred, will be peer reviewed by an engineer to be agreed upon by both the Buyer and the Seller. Said engineer will validate any additional costs as they relate to the servicing of the property and will authorize the reduction of the mortgage as a relates to any additional costs to service the property.
[5] The purchase transaction was completed on November 28, 2016 at which time the VTB Mortgage was registered on the title to the Subject Property.
[6] The parties entered into a lease as contemplated by the APS, to provide for the continued occupation by THTL of the subject property until September 30, 2017. The term of the lease was thereafter extended to October 30, 2017.
[7] The parties did not "agree upon" an engineer to "peer review" NHDG's additional servicing costs (as provided in the APS Sub-Surface Conditions Provision) or to "determine" such additional servicing costs (as provided in the Mortgage Set-Off Provision).
[8] On October 31, 2018 NHDG delivered to THTL a report prepared by Lanhack Consultants Inc., a firm of licensed professional engineers retained by NHDG (the "Lanhack Report"), which estimated the additional servicing costs of the Subject Property to be approximately $1,434,436.
[9] NHDG advised THTL that, pursuant to the Mortgage Set-off Provision, the balance of the VTB Mortgage would be set-off against the additional servicing costs on the basis that the Lanhack Report estimated those costs to exceed the amount due on the VTB Mortgage.
[10] THTL did not accept the position taken by NHDG and issued a Notice of Sale Under Mortgage on December 7, 2018.
[11] On January 10, 2019 NHDG commenced the within proceeding by a Notice of Application seeking, inter alia, an injunction restraining THTL from taking any steps to enforce the Notice of Sale, an order authorizing NHDG to pay into court the amount claimed by THTL to be due and owing on the VTB Mortgage and, upon such payment, the discharge of the VTB Mortgage, subject to a final determination by the court of the amount due and owing, if any, by NHDG to THTL in respect of the VTB Mortgage.
[12] The parties subsequently agreed that the VTB Mortgage should be discharged upon payment by NHDG to its lawyers Scarfone Hawkins LLP ("SHLLP") of the sum of $1,173,635.10 (the "Trust Amount") to be held in trust in the interest-bearing account pending disposition of NHDG's Application. They also agreed upon a timetable for the steps to be completed in the Application. The Trust Amount was agreed by the parties to represent the full amount that NHDG asserted was due under the VTB Mortgage together with interest calculated until June 30, 2019, being the date by which the Application was to be argued according to the agreed-upon timetable.
[13] The parties' agreement respecting the holding of the Trust Amount by SHLLP, the discharge of the VTB Mortgage from the title to the Subject Property and the timetable for proceedings in the Application was incorporated in the Order of Justice Parayeski, dated February 21, 2019 made on consent of the parties (the "Consent Order").
[14] Paragraph 1 of the Consent Order provided as follows:
- THIS COURT ORDERS that Scarfone Hawkins LLP ("SHLLP") shall continue to hold funds paid to it by the Applicant in the amount of $1,173,635.10 (the "Discharge Amount") in trust, for the benefit of the parties and in an interest bearing account. The Discharge Amount, and any accrued interest thereon, shall be held by SHLLP in trust pending further Order of the Court and/or the written agreement of the parties.
[15] By paragraph 2 the Consent Order directed the land registrar to discharge and delete the VTB Mortgage from title to the Subject Property.
[16] Paragraph 3 of the Consent Order required the parties to abide by the timetable set forth for the remaining steps in the Application including the filing by the respondent of responding materials, filing by the applicant of any reply materials, cross-examinations and for the adjournment of argument of the Application to the long motions' list commencing the week of June 24, 2019.
[17] Paragraph 4 of the Consent Order stated as follows:
- THIS COURT ORDERS that the Timetable shall be without prejudice to either party moving, on notice to the other party, for an order seeking to convert the application to an action and/or a trial of an issue.
[18] The timetable for the determination of the Application established by the Consent Order was changed by three subsequent orders as follows:
(a) the order of Justice Donohue dated July 16, 2019 made on consent setting forth a revised timetable, (the "Donohue Order");
(b) the order of Justice Nightingale dated October 3, 2019, ordering that the Application be converted to an Action and setting forth a revised timetable (the "Nightingale Order"); and
(c) the order of Justice Parayeski dated March 12, 2020 made on consent setting forth a revised timetable, made on consent (the "Parayeski Order").
[19] The timetable established by the Parayeski Order provided as follows:
(a) the defendant's Affidavit of Documents be delivered by March 16, 2020;
(b) examinations for discovery be completed by April 30, 2020;
(c) undertakings given on discovery be answered by May 29, 2020;
(d) motions for refusals or any other motions (if necessary) be brought by June 12, 2020;
(e) the action be set down for trial by July 3, 2020.
[20] Ontario Regulation 73/20 came into effect, retroactive to March 16, 2020, by which any period of time within which any step must be taken in any proceeding shall, subject to the discretion of the court, be suspended.
Case Management
[21] By letter dated September 24, 2020 counsel for NHDG Mr. Valente wrote to former Regional Senior Judge Arrell, copying counsel for THTL Mr. Juriansz, requesting appointment of a judge to case manage the proceeding. Mr. Juriansz did not object to Mr. Valente's request for case management.
[22] On October 1, 2020 RSJ Arrell appointed me to act as the case management and motions judge for the action pursuant to Rule 37.15 of the Rules of Civil Procedure.
[23] At the first Case Management Conference NHDG stated that it intended to bring a motion seeking release of the Trust Amount to it. On consent of the parties I directed that NHDG's proposed motion be conducted in writing pursuant to Rule 37.12.1(4) of the Rules of Civil Procedure.
Motion
[24] The NHDG has now brought a motion for an order authorizing SHLLP to release to it the sum of $1,173,635.10 and any accrued interest thereon currently being held in trust by it for both parties, upon delivery by NHDG to THTL of its written undertaking to pay any amount due and owing pursuant to the VTB Mortgage as determined by the court.
Position of NHDG
[25] NHDG, in its Factum, makes the following submissions:
(a) the proceeding was commenced by NHDG pursuant to s. 12(3) of the Mortgages Act, R.S.O. 1990, c. M. 40 which provides that when a mortgagor is entitled to pay off a mortgage desires to do so and, inter alia, where for any cause a proper discharge cannot be obtained, or cannot be obtained with out undue delay, the court may permit payment into court of the amount due upon the mortgage and may make an order discharging the mortgage;
(b) the court has authority to order the amount paid into court (or in this case paid into trust) to the mortgagee or as the court may direct;
(c) the court has authority to order the distribution of the funds held in trust notwithstanding that the issue of the disputed funds has not been resolved, citing the case of 1414391 Ontario Ltd. v. Graff, 2015 ONSC 7201(S.C.J.) at para. 25;
(d) the requirement that the Discharge Amount be held in trust pending the disposition of the action amounts to execution before judgment;
(e) the Discharge Amount was paid into trust subject to the express agreement that the determination of the amount owing under the VTB Mortgage would be decided on or before June 30, 2019;
(f) there has been an inordinate delay caused by THTL with the result that NHDG would be deprived of its security for significantly longer than the agreed deadline;
(g) since the terms of the agreement pertaining to the payment of the Discharge Amount into trust has been breached by THTL, NHDG ought not to be held to its end of the bargain;
(h) NHDG has sufficient assets to satisfy any potential award which might be made in favour of NHDG and has provided an Undertaking as to Damages and therefore THTL will suffer no prejudice should the Discharge Amount be paid out to NHDG.
Analysis
Issue 1: Was the Discharge Amount paid into trust subject to the express agreement that the determination of the amount owing under the VTB Mortgage would be decided on or before June 30, 2019?
[26] The starting point is that the Consent Order requiring SHLLP to hold the Discharge Amount in trust and that the VTB Mortgage be discharged from the title to the Subject Property was made on consent of the parties.
[27] It is firmly established that a consent order or judgment is not a judicial determination on the merits of the case, but only an agreement elevated to an order on consent (see Rick v. Brandsema, [2009] 1 S.C.R. (S.C.C.) at para. 64, quoting with approval the late James G. McLeod in his annotation in the Reports of Family Law to Thomsett v. Thomsett, 2001 BCSC 546, 16 R.F.L. (5th) 427 (B.C.S.C.) at pp. 428-29.
[28] In Verge Insurance Brokers Ltd. v. Sherk, 2015 ONSC 4044 (S.C.J.), leave to appeal refused 2015 ONSC 5614, Quinn, J. offered a very useful analysis of the "consent-order-is-a-contract" principle at paras. 53-57. As part of his analysis Quinn J. quoted at paras. 54-55 the Court of Appeal in two cases as follows:
54 "A consent judgment is final and binding and can only be amended when it does not express the real intention of the parties or where there is fraud. In other words, a consent judgment can only be rectified on the same grounds on which a contract can be rectified": see Monarch Construction Ltd. v. Buildevco Ltd. (1988), 26 C.P.C. (2d) 164 (Ont. C.A.) at pp. 165-166.
55 "[A] consent judgment may be set aside on the same grounds as the agreement giving rise to the judgment. These grounds go to the formation of the agreement ...": see McCowan v. McCowan (1995), 1995 CanLII 1085 (ON CA), 14 R.F.L. (4th) 325 (Ont. C.A.) at para. 19. This statement was approved by the Supreme Court Canada in Rick v. Brandsema, 2009 SCC 10, [2009] 1 S.C.R. 295 (S.C.C.) at para. 64.
[29] The Consent Order in this case provided that the Discharge Amount and any accrued interest thereon shall be held by SHLLP in trust "pending further Order of the Court and/or the written agreement of the parties."
[30] It is evident that NHDG does not seek to amend or set aside the Consent Order but rather seeks a "further Order" authorizing the release of the trust funds to it on an interlocutory basis prior to a final determination of the Discharge Amount.
[31] The Consent Order, and the parties' agreement underpinning it, is silent with respect to the circumstances under which a "further Order" may be made providing for payment of the Discharge Amount out of trust. In particular, the Consent Order is silent on whether such an order may be made on an interlocutory basis not on consent, and if so, on what grounds.
[32] It is therefore necessary to determine what the parties intended in agreeing to the terms of the Consent Order with respect to these questions.
[33] In Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 (S.C.C.), Rothstein, J. stated as follows at para. 47,
the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744 (S.C.C.), at para. 27 per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, [2010] 1 S.C.R. 69 (S.C.C.), at paras. 64-65 per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.
[34] In my view the "surrounding circumstances known to the parties at the time of formation of the contract" leading to the Consent Order (or the "factual matrix") included the following:
(a) the parties had not agreed upon an engineer to determine or "peer review" the extra servicing costs associated with the subsurface conditions of the Subject Property as agreed to in the APS and the VTB Mortgage;
(b) NHDG had taken the position that no amount was owing under the VTB Mortgage, based upon a report of its own retained engineer;
(c) THTL had taken the position that NHDG was in default under the VTB Mortgage and had initiated power of sale proceedings;
(d) NHDG had commenced an Application seeking an injunction restraining THTL from enforcing the Notice of Sale and an order authorizing NHDG to pay into court the amount claimed by THTL to be due and owing on the VTB Mortgage in exchange for the discharge of the VTB Mortgage from the title to the subject property, subject to a final determination by the court of the amount due and owing in respect of the VTB Mortgage;
(e) NHDG wished to have the VTB Mortgage removed from the title to the Subject Property and was prepared to replace the security held by THTL on the Subject Property by virtue of the VTB Mortgage with cash, to be held either in court or in trust pending determination of the amount owing by it under the VTB Mortgage.
[35] The Consent Order (and the underlying agreement between the parties) had two aspects – one substantive and the other procedural.
[36] It is clear that the parties intended to replace the security held by THTL for the balance of the purchase price by virtue of the VTB Mortgage, with cash to be held in trust by NHDG's counsel pending the ultimate determination by the court of the amount, if any, owing by NHDG to THTL for the balance of the purchase price of the Subject Property. The parties did not intend for THTL to relinquish its security pending the determination of the amount owing – only to alter its form from a charge against the title to the Subject Property to cash held in trust. This was the substantive aspect of the Consent Order.
[37] The procedural aspect of the Consent Order was represented by the timetable for the steps to be taken in the proceeding leading to a final disposition, and the stipulation that the timetable was without prejudice to the right of either party to bring a motion to have the application converted to an action and/or to direct a trial of an issue.
[38] I am unable to accept NHDG's submission in its Factum that "the Discharge Amount was paid into court subject to the express agreement that the Discharge Amount would be decided on or before June 30, 2019" (emphasis added). There is nothing in the Consent Order to support this submission. The Order does not expressly state that if the Discharge Amount were not determined before June 30, 2019 NHDG would be entitled to the return of the trust monies and THTL would lose its security.
[39] There was no express link between the agreed timetable set forth in para. 3 of the Consent Order and the obligation of SHLLP to hold the Discharge Amount in trust. Para. 3 obligated both parties to adhere to the timetable but specified no consequences for a failure to do so. In particular, the Consent Order does not specify that in the event that THTL should fail to adhere to the timetable the trust amount should be released to NHDG in exchange for an undertaking to pay the amount, if any, it is ultimately found to be liable to pay.
[40] NHDG made no submission that such a term should be implied into the agreement underlying the Consent Order. In any event, I see no basis to imply this term into the agreement in order to give it business efficacy. The parties must be presumed to have been aware of the potential consequences provided by the Rules of Civil Procedure for a failure to comply with the timetable, including the possibility of striking out the offending party's pleading pursuant to Rule 60.12. Striking pleadings would ultimately result in a final order disposing of the parties' respective entitlements to the Trust Amount. There is no basis in my view to imply a provision into the Consent Order whereby THTL's substantive right to security of the trust for its claim for the balance of the sale price, which replaced its mortgage security, would be subject to relinquishment without its consent on an interlocutory basis.
[41] NHDG did not bring a motion to strike out THTL's defence or for any other order when the Discharge Amount was not decided by June 30, 2019 but rather consented to a succession of orders setting new timetables and ultimately applied for and obtained a direction for Case Management of the proceeding. The current motion was not brought until after RSJ Arrell gave direction that the proceeding be Case Managed.
[42] It is not necessary to make a finding on whether THTL was in default of the procedural aspect of the Consent Order as NHDG expressly waived any such alleged default by consenting to the revised timetables and ultimately seeking Case Management of the proceeding.
[43] I find that the case of 1414391 Ontario Ltd. v. Graff, 2015 ONSC 7201(S.C.J.) does not assist NHDG. In that case the mortgagee failed to provide mortgage statements of the amounts owing under various mortgages as required by s. 22(3) of the Mortgages Act. Faieta, J. ordered that the mortgagor be permitted to pay the amount into court, that the mortgages be discharged pursuant to s. 12 of the Mortgages Act and that the mortgagee provide the mortgage statements as required by s.22(3). He further ordered that, from the amount paid into court, the mortgagee be paid the amounts owing on the mortgages as set forth on its mortgage statements and that the excess amount paid into court be repaid out of court to the mortgagor.
[44] 1414391 Ontario Ltd. is in no way analogous to the case at bar. The mortgagee in that was ordered to be paid the full amount claimed by it to be owing on the mortgages from the monies paid into court by the mortgagor, with the excess to be returned to the mortgagor. The case does not support the proposition that the court has jurisdiction to deprive the mortgagee of the security represented by the monies paid into court to replace the mortgage on title prior to determination of the amount owing to the mortgagee.
Issue Two: Did the requirement that the Discharge Amount be held in trust constitute "execution before judgment"?
[45] I am unable to accept NHDG's submission that the trust amount should be released to it because the requirement that the Discharge Amount be held in trust pending determination of the amount owing under the mortgage represented "execution before judgment."
[46] In my view execution before judgment references the attachment of a defendant's assets for an unsecured claim prior to a finding of liability. It does not refer to attaching a debtor's asset by means of a mortgage on land or security on chattels granted by agreement.
[47] In my view it is not open to a mortgagor to seek a court-ordered discharge of a mortgage on the basis that the holding of the mortgage by the mortgagee represents execution before judgment in respect of the mortgage debt. If this were the case, mortgages would cease to have any effect in law. Equally it is not open to NHDG to seek release of the monies held in trust by SHLLP, implemented on consent of the parties to replace the VTB Mortgage on title to the Subject Property, on the basis that it represents "execution before judgment."
[48] The case of Salna v. Lotfi-Noushad, [2007] O.J. No. 1856 (Div. Ct.) does not assist NHDG in this respect. It is evident that the plaintiff in that case was not a secured creditor but rather was advancing a claim for damages in connection with an aborted purchase of condominium units from the defendant. The Divisional Court held that that the motion judge erred in ordering that the defendant be required to hold five condominium units as security for the plaintiff's claim pending determination of the action. At para. 11 the Court held that the Court below was clearly wrong in granting relief in the nature of a Mareva injunction by ordering that the five units, unrelated to the agreement, be held as security in the action, being relief which was not requested by the parties.
[49] Salna does not stand for the proposition that a secured creditor is subject to being stripped of its security granted by agreement between the parties pending a determination of the amount of its entitlement on the basis that it represents "execution before judgment."
Issue Three: Should the trust amount be released to NHDG on the basis that it has sufficient assets to satisfy any judgment in the proceeding?
[50] Finally, I am unable to accept NHDG's submission that the trust amount should be released to it on the basis that it has sufficient assets to satisfy any judgment that the court may make in respect of THTL's claim.
[51] In my view the court does not have a discretion or jurisdiction to deprive a secured creditor of its security pending a judicial determination of the amount owing, on the basis that the debtor has sufficient assets to pay an unsecured judgment. No authority was offered by NHDG for this proposition.
[52] NHDG submits that "in the event that [THTL] has concerns regarding the disposition of NHDG's assets, its remedy is to bring a motion for a Mareva injunction." I am unable to accept this submission. There is no justification for, or authority supporting, the removal of the security of the Trust Amount, which was implemented by agreement to replace the mortgage security held by THTL, on the basis that THTL may move for a Mareva injunction against NHDG if it wishes to protect itself from the risk of non-payment.
Disposition
[53] For the foregoing reasons the motion of NHDG for payment out of the trust to it of the Trust Amount in exchange for an undertaking is dismissed.
Costs
[54] The parties are strongly urged to settle the issue of costs between themselves.
[55] If the parties are unable to do so, THTL may make written submissions as to costs within 14 days of the release of this Endorsement. NHDG has 10 days after receipt of THTL's submissions to respond. The written submissions shall not exceed five (5) double-spaced pages exclusive of Bills of Costs or Costs Outlines, offers to settle and authorities. All such written submissions are to be forwarded to me via email to the Assistant Trial Coordinator at the Hamilton Sopinka courthouse at the same email address as utilized for filing the motion materials.
[56] If the parties are able to settle the question of costs, counsel are requested to advise the court accordingly.
D.A. Broad, J.
Date: January 18, 2021