COURT FILE NOS.: CV-19-00616377-0000 CV-19-00630372-0000

DATE: 20210730

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2598508 ONTARIO INC.

Applicant

– and –

2394049 ONTARIO INC. o/a GOODMAN GREEN SOLUTIONS

Respondent

Amandeep S. Dhillon and Rahul Gandotra, for the Applicant

Bernard Gasee and Derek Ketelaars, for the Respondent

AND BETWEEN:

2394049 ONTARIO INC.

Applicant

– and –

2598508 ONTARIO INC., KALEXIA DEVELOPMENT CORP., HURON REALTY LIMITED PARTNERSHIP, ACRE REALTY INVESTMENT MANAGEMENT INC., KAI XU and QUIN XU

Respondents

Bernard Gasee and Derek Ketelaars, for the Applicant

Amandeep S. Dhillon and Rahul Gandotra, for the Respondents

HEARD: March 29-31, 2021

VERMETTE J.

REASONS FOR JUDGMENT

[1] This case involves an Application and a Cross-Application that ultimately proceeded before me by way of a hybrid trial. The main issue concerns the interpretation of a prepayment clause in a mortgage. The mortgagor paid back the principal and all the interest payable under the mortgage (i.e. all the interest that would have been payable up to the maturity date) two weeks before the maturity date. Its position is that it does not have to pay any additional charges, even if the payout was made slightly before the maturity date, because it paid everything that the mortgagee could expect to receive under the mortgage. The mortgagee disagrees with this position and required the mortgagor to pay a prepayment charge in the amount of one extra month of interest at the time of the discharge of the mortgage (which was paid under protest). The mortgagee now argues before this Court that it was in fact entitled to charge three months’ interest (not just one month) pursuant to the provisions of the mortgage.

[2] In addition to the issue of the interpretation of the prepayment clause, the parties disagree as to whether a settlement was reached regarding the amount of the prepayment charge to be paid by the mortgagor to the mortgagee during a conversation between the lawyers for the parties that took place the day before the payout and the discharge of the mortgage.

FACTUAL BACKGROUND

A. The Mortgage

[3] In November 2017, the Applicant, 2598508 Ontario Inc. (“259”), purchased a property in Richmond Hill, Ontario, for $26,500,000.00. 259 obtained a second mortgage against the property from the Respondent, 2394049 Ontario Inc. operating as Goodman Green Solutions (“GGS”). The key terms of the mortgage were as follows:

a. Principal amount: $3,500,000.00;

b. Interest rate: 12% per annum;

c. Monthly payments: interest only, $35,000.00 due the 6^th of each month;

d. First payment date: January 6, 2017;

e. Maturity date: December 6, 2018.

[4] The total amount of interest to be paid by 259 to GGS under the mortgage was $420,000.00, i.e. 12 monthly payments in the amount of $35,000.00.

[5] On November 23, 2017, the parties signed a mortgage commitment entitled “Mortgage Agreement”. Paragraph 3 of the mortgage commitment reads as follows:

Term: the mortgage shall commence on December 6, 2017 for 12 months, there will be no prepayment privilege for the subject mortgages [sic] during first six months of the term, early payment is allowed thereafter within 1 months’ [sic] notice on payment date.

[6] The parties subsequently entered into a Mortgage Loan Agreement and Disclosure. The Mortgage Loan Agreement and Disclosure was signed on December 8, 2017 by: (1) GGS as lender; (2) 259, Kalexia Developments Corp. (“Kalexia”), Huron Realty Limited Partnership (“Huron”) and Acre Realty Investment Management Inc. (“Acre”) as borrowers; and (3) Kai Xu and Quin Xu as guarantors.[^1] The Mortgage Loan Agreement and Disclosure describes the term of the mortgage as follows: “12 Months – after the first six months (the “Closed Period”) fully open on with one month’s notice on payment date”.

[7] GGS registered a second charge/mortgage against 259’s property on December 21, 2017 (“Mortgage”). The schedules to the Mortgage were signed by 259, Kalexia, Huron and Acre as borrowers, and by Kai Xu and Quin Xu as guarantors.

[8] Schedule “B” to the Mortgage, entitled “Additional Provisions” (“Additional Provisions”), contains the following provisions, among others:

1. CONFLICT BETWEEN DOCUMENTS: Where there is a contradiction, conflict or inconsistency (collectively a “Conflict”) between the [Mortgage Agreement and Disclosure], these Additional Provisions and the Standard Charge Terms, the [Mortgage Agreement and Disclosure] shall prevail over both these Additional Provisions and the Standard Charge Terms to the extent of the Conflict, and these Additional Provisions shall prevail over the Standard Charge Terms to the extent of the Conflict.

2. ONGOING COSTS: The Chargor shall pay the following ongoing costs of the Chargee as applicable:

a. STATEMENT FEE: The Chargor shall pay to the Chargee the fee of $300.00 for each and every statement given by the Chargee with respect to this mortgage requested by or on behalf of the Chargor and such amount, at the Chargee’s option, shall be paid in advance or be charged on the Property and shall bear interest at the rate aforesaid.

11. PAYMENT OMISSION: All payments made pursuant to the terms of this mortgage, shall be delivered to the Chargee or the Chargee's solicitor or broker, on any banking day before 2:00p.m, and in the event that such payment is not made on time, then the interest at the rate aforesaid shall continue to accrue until next business day following the day when the payment is made.

12. INTEREST RATE ADJUSTMENT: Provided there is no renewal agreement reached, the Borrower covenants and agrees that the interest rate on the fifteenth (15^th) day of the final month of the term shall increase from stipulated interest rate to 25.00% per annum, calculated monthly not in advance, and interest shall continue to be charged at this increased rate for each and every month thereafter. Notwithstanding the foregoing, if mortgage/loan is repaid in full during the last 16 days of the term (and on or before maturity), the interest rate shall be deemed to be 12% per annum during the last 16 days of the term. [Emphasis in the original.] (“Interest Rate Adjustment Clause”)

13. PREPAYMENT: Passing the Closed Period, provided that upon giving at least one month’s written notice, the Borrower, when not in default hereunder and having never been in default, shall have the right to prepay the whole or any part of the principal outstanding plus interest accrued, all applicable fee(s), costs, and other sum which may be due as herein set out (the “Mortgage Due”) on any monthly payment date. Prepayment of this Mortgage shall be permitted based [sic] the following terms:

a. The Borrower may prepay this Mortgage Due in whole or in part on providing the Borrower or its Solicitor with a minimum of one month’s written notice of said prepayment together with a definite payment date confirmed, falling of which the Borrower agree [sic] to pay to the Lender three (3) month’s [sic] interest at the rate of interest chargeable hereunder on the principal amount outstanding to receive;

b. If prepayment of any part of the principal sum secured hereunder is made by reason of payment after acceleration upon the occurrence of a default, the Borrower agrees to pay to the Lender three (3) months’ interest on the principal amount prepaid at the rate of interest chargeable hereunder at the time of prepayment as hereinbefore set out;

c. If the Mortgage Due are not repaid on the Maturity Date, then the Borrower agrees to pay to the Lender in addition to the Mortgage Due required, three (3) months interest at the rate of interest chargeable on the Mortgage Due. (“Prepayment Clause”)

27. GENERAL: The Borrower shall execute any documents and do such further and other things as are reasonably required to give effect to the terms and intent of this Mortgage Commitment. The terms of this Mortgage are binding on the respective heirs, executors, administrators and assigns of the parties. Time is of the essence, and any extension of time must be approved by the Chargee in writing. The division of this Charge into separate Articles, Sections, Subsections and Schedule(s), and the insertion of headings is for convenience of reference only and shall not affect the construction or interpretation of this Charge;

[9] The provisions set out in paragraph 8 above are identical or quasi-identical to provisions found in the Mortgage Loan Agreement and Disclosure. The parties have not alleged any conflict between the relevant documents.

[10] It is admitted that 259 was never in default under the Mortgage.

B. Correspondence between the lawyers leading to the discharge of the Mortgage

[11] On November 8, 2018, Diana Young, GGS’s solicitor, sent the following letter to 259, Huron, Kalexia and their solicitor, David Markowitz (“November 8, 2018 Letter”):

The subject mortgage will be due on December 6, 2018, please be advised that a full payment of the outstanding principal and accrued interest has to be repaid on the balance due date.

If we do not receive the full payment on or before December 6, 2018 according to the mortgage documents, there shall be consequence of increase of interest rate, various enforcement costs and penalties may apply.

If you are looking for a renewal from the Lender, please deliver a non-refundable payment in amount of $1,500.00 (certified cheque or bank draft) payable to “Diana Young Professional Corporation in trust” to our Toronto office immediately. Upon receipt of the payment, we will communicate with the Lender for his instruction. The payment shall be used for the communication service with the Lender for the renewal, and it is not refundable regardless the renewal is successful or not. [Emphasis in the original.]

[12] The November 8, 2018 Letter was not requested by any of its recipients.

[13] Mr. Markowitz responded to Ms. Young on the same day and advised as follows:

I believe we will be paying out your client on or prior to maturity. I will send you a request for a payout statement once I know for sure and have a precise date.

[14] One week later, on November 15, 2018, Mr. Markowitz sent a letter to Ms. Young requesting a payout statement for discharge purposes on November 22, 2018. His letter reads, in part:

We are the solicitors for 2598508 Ontario Inc., being the mortgagor referred to above. Our client is arranging a new mortgage secured by the above-noted property with a closing date scheduled for November 22, 2018 (the “Closing Date”).

Kindly provide us with an unqualified payout statement for discharge purposes setting out all amounts required to be received by you, on November 22, 2018, in exchange for a discharge of the above-noted mortgage and related security, including per diem interest charges should funds be received by you after this date and any applicable discharge fees.

A copy of the Charge/Mortgage and Notice of Assignment of Rents are enclosed herewith for your reference.

Additionally, below is the list of related PPSA registrations which are required to be discharged:

As the subject mortgage is a private mortgage, please also provide us with a copy of the signed Acknowledgement and Direction with respect to the discharges and confirm that the discharges will be available for registration on the Closing Date.

We appreciate your prompt response and anticipated cooperation. [Emphasis in the original.]

[15] Having not heard back from Ms. Young, Mr. Markowitz sent a follow-up e-mail to her on November 19, 2018, asking her whether she anticipated having the payout statement and signed discharge by November 22, 2018.

[16] On November 20, 2018, at 10:18 a.m., Mr. Markowitz sent another follow-up e-mail to Ms. Young:

Dear Diana/Maggie,

Further to my voicemail message of this morning to Maggie and my e-mail below [i.e. November 19, 2018 e-mail], I have not heard from you in connection with my requests via e-mail and fax, this past Thursday, for a payout statement and signed discharge.

As previously advised, we have a closing scheduled for this Thursday November 22^nd, which involves numerous parties and significant efforts to coordinate. As of now, all parties and matters are coordinated to complete our transaction on Thursday save and expect [sic] for the items that we await from you and, of course, we cannot complete the transaction without these items. Further, if we do not receive the payout statement and signed discharge in time, it will cause significant difficulty for our client.

Please get back to me today to let me know your anticipated timing.

I attach a copy of my letter dated November 15, 2018 for your ease of reference.

Thanks in advance.

[17] At 10:29 a.m., Ms. Young sent a mortgage discharge statement (“Discharge Statement”) to Mr. Markowitz, which included the following chart:

Principal Owing (as at the Proposed Settlement Date) $3,500,00.00

Accrued Interest to (as at the Proposed Settlement Date) $1,150.68 x 16 18,410.88

Prepayment Clause – After six (6) month(s) minimum term elapsed with one-month notice payment to the Lender on each Payment Date. Notice was received via fax from lawyer office on November 15, 2018. Therefore Interest is accumulated to January 6, 2018: $1,150.68 x 45 51,780.60

Statement Fee 300.00

Discharge Fee 300.00

Renewal Notice Letter sent on November 8, 2018 300.00

Government Charge for Discharge 76.55

Discharge Legal Fee – Discharge of Charge, Notice of Assignment & PPSA (subject to change) 1,300.00

TOTAL PAYABLE (E. & O.E.) $3,572,468.03

Per Diem Rate $1,150.68

[18] The Discharge Statement was prepared by the Vice-President of GGS, Mr. Hugh Kuang.

[19] At 11:27 a.m., approximately one hour after the Discharge Statement was sent, Mr. Markowitz sent the following e-mail to Ms. Young’s clerk, Maggie Zhang:

Thank you for the statement. However, your client is not entitled to charge a prepayment penalty or charge. The mortgage matures December 6, 2018. As such, my client is entitled to payout the mortgage on December 6, 2018 without providing your client with any notice. December 6^th is when the loan is due and my client is agreeable to paying interest to that date.

Please provide me with a revised statement immediately. If your client is not willing to revise the statement, please let me know immediately and I will seek instructions from my client.

Further, please:

1. provide me with a copy of the draft Discharge of Charge.

2. confirm that you are in receipt of the signed Acknowledgement and Direction re: discharge.

3. confirm that immediately upon payout, you will register discharges of the following PPSA Financing Statements: […].

[20] Ms. Zhang sent the following e-mail in response at 11:44 a.m.:

Please find attached draft Discharge of Charge with PPSA Discharge for your reference.

We will discharge the mortgage with the relate [sic] PPSA once the entire outstanding balance, including interest and costs, has been received.

[21] Mr. Markowitz responded as follows at 11:51 a.m.:

Thank you. Please let me know if you will be amending the payout statement so that interest is only charged to December 6^th rather than January 6^th.

[22] Ms. Zhang advised Mr. Markowitz at 12:43 p.m. that they would let him know after they received instructions from their client.

[23] The following morning, on November 21, 2021, Mr. Markowitz sent a follow-up e-mail to Ms. Zhang at 7:24 a.m.:

Please let me know if your client has agreed to revise the payout statement. If not, among other things, I anticipate my instructions will be to pay the funds under protest and that my client will commence an action after closing for the return of the overpayment.

I look forward to your prompt response with your client’s instructions.

[24] Ms. Zhang responded at 10:18 a.m. that they were still waiting for instructions from their client and that they would get back to Mr. Markowitz once they had instructions. She subsequently sent the following e-mail to Mr. Markowitz at 1:26 p.m.:

We have different position about the amount of interest your client (the Borrower) has to pay.

1. On November 15, 2018, the Borrower sent the prepay notice via your office for its new mortgage closing and prepay the existing mortgage on November 22, 2018. This is clearly a pre-payment notice under paragraph 9 of the mortgage commitment.[^2]

2. On November 20, 2018, the Borrower sent an email via your office, claimed that your client entitled to pay off the mortgage on December 6, 2018. However, the November 20 email does not change the fact of your client’s delivery of pre-payment notice and requests the prepayment and your client’s obligation under paragraph 9 of the mortgage commitment.

3. In essence, the mortgage commitment is generally designed to allow the lender with reasonable [sic] sufficient time to re-invest large amount payout received in the market. Intentionally circumventing borrower’s obligation to sacrifice or damage the Lender’s right and interest is not acceptable equitably [sic]

Our payout statement remains the same, please have discharge fund ready to discharge the existing mortgage and complete your client’s new mortgage closing on November 22, 2018. [Emphasis in the original.]

[25] Mr. Markowitz responded as follows at 2:23 p.m.:

I agree with you that the purpose of a pre-payment charge is to allow the lender time/notice to re-invest its money. However, your client should expect to receive repayment on maturity. That is when the funds are due. So, there is no entitlement to notice past this date. Further, 1 month’s notice (if you were entitled to it, which is denied), would entitle your client to interest to December 15, 2018, (not January 6, 2019). Additionally, you sent my client a renewal letter (and charged my client $300 for the letter without my client requesting same) on November 8, 2018 asking if my client sought a renewal and I advised on November 8^th that my client would not be renewing the mortgage and would be paying out the mortgage shortly.

Its [sic] quite clear that your client is looking to take advantage of our client, hold our client hostage over the required discharge and make a quick additional (and unwarranted) $35,671.08 (the “Disputed Amount”).

This shall serve as notice to you and your client that the Disputed Amount will be paid to your trust account under protest and that my client disputes payment of the Disputed Amount. After the payout and discharge are completed, my client will be commencing an action for the recovery of the Disputed Amount. Further, we require you to hold the Disputed Amount in trust until this matter is resolved by settlement or court order and if you release the Disputed Amount to your client prior to their [sic] being a settlement or court order, my client reserves the right to hold Ms. Young personally liable. Additionally, please be advised that in the action for the return of the Disputed Amount, my client will also be seeking, among other things, damages, interest and costs (on a full indemnity, solicitor-own-client basis).

[26] Ms. Zhang sent the following response at 6:02 p.m.:

1. Legal Fees for Discharge Need Increase: In our discharge statement, our legal fees are about $1300. I do not know how much fees you charged or will charge, but I have to increase my legal fees for service provided beyond the purely discharge services.

3. [sic] Your Suggestion of Holding $35,671.08: Your suggestion would incur extra legal costs which your client shall pay in advance:

(1) Holding fee: a lawyer charged my client over $50K holding fees for involving litigation in similar situation;

(2) Processing Fee: for providing documentation, evidence and being called as witnesses etc during the litigation. Your proposal will get me (and yourself) involved a [sic] litigation which costs easily more than $35K to your client.

While I have no intention to get you into trouble, but your proposal will definitely get your client and my client into trouble of litigation although no one is afraid, and get me into a situation without being compensated for my anticipated large volume of time and services involved.

Your proposal is not accepted. Continuously dragging this thing is not in your client’s best interest.

3. Lender’s Position Remain [sic] the Same: Our position remains the same as in our last email.

Let [sic] make things simple, and save un-necessary further costs to your client. Make the payments and close the discharge deal. [Emphasis in the original.]

[27] Ms. Young’s evidence is that Ms. Zhang drafted the e-mails sent at 1:26 p.m. and 6:02 p.m. on November 21, 2018 (reproduced above), but that she (Ms. Young) reviewed them before they were sent and made some changes to them.

[28] Mr. Markowitz’s evidence is that after receiving the 6:02 p.m. e-mail from Ms. Zhang, he thought that he should try to bring Ms. Young “back into the situation” in order to try to reach a solution. Mr. Markowitz and Ms. Young then had a telephone conversation, but their evidence diverges as to what was said during the call.

[29] Before discussing the telephone conversation between Mr. Markowitz and Ms. Young, I note that GGS’s position is that the Discharge Statement contains a miscalculation of the prepayment interest due. The prepayment interest charge set out in the Discharge Statement is in the amount of $51,780.60 and is based on 14 days of interest from November 22, 2018 to December 6, 2018 (the maturity date), plus 31 days of interest from December 6, 2018 to January 6, 2019. Based on section 14(a) of the Additional Provisions, GGS argues that since 259 failed to give the minimum one-month notice under the Prepayment Clause and only gave a 7-day notice (i.e. notice given on November 15, 2018 for payment on November 22, 2018), 259 was required to pay interest from November 22 to December 6, 2018, plus three months of interest, in the total amount of $119,670.72.

[30] The evidence adduced by GGS is that when Ms. Zhang advised Ms. Young that 259 was taking the position that the Discharge Statement was incorrect, Ms. Young reviewed the Mortgage documents and the Discharge Statement, and she realized that there was a miscalculation. Ms. Young states that she then discussed the error with GGS and that after that discussion, she spoke with Mr. Markowitz on the phone.

[31] Ms. Young’s evidence in her affidavit with respect to her telephone conversation with Mr. Markowitz on November 21, 2018 is as follows:

I reiterated to Mr. Markowitz that his client did not provide sufficient advance notice to make a prepayment under the Mortgage which gave my client the right to charge three month’s [sic] interest. Despite the Lender’s entitlement, I advised that I had instructions to settle the issue and avoid litigation. If the Borrower was content to pay the amount set out in the Discharge Statement, we would not seek the further amounts owed, and there would be no dispute post closing. Mr. Markowitz and I discussed that the legal fees charged to the clients for this transaction were not worth being dragged into a litigation dispute which would cost the parties more than the amount in dispute.

I advised Mr. Markowitz that if his client did not drop his protest of the discharge statement and continued to dispute the amount on the Discharge Statement, the Lender would insist on the 3 month’s [sic] interest plus other interest and costs accumulated, and I would send a revised mortgage discharge statement setting out the correct amount. Further, if he did not pay the three month’s [sic] interest in the revised mortgage discharge statement, I would be instructed not to provide a discharge on November 22, 2020 [sic].

I suggested to him that he agree to a business decision rather than arguing our competing interpretations of the Mortgage documents, and that he agree that the mortgage would be discharged upon payment of the amount in the Discharge Statement without protest.

Mr. Markowitz confirmed to me that his client would make the payment of the amount set out in the Discharge Statement. I requested he provide me with confirmation in writing that his client would pay the amount, as evidence of settlement of the disputed amount of the payout.

At 6:13 p.m. on November 21, shortly after our phone call, Mr. Markowitz sent me an email wherein he confirmed that his client would make the payment stated in the Discharge Statement, in exchange of a discharge registered on the closing date. As per my position that if his client did not drop the dispute, my client would issue a revised discharge statement with 3 months interest added, Mr. Markowitz confirmed that his client would not accept any increase to the amount set out in the Discharge Statement. […] His email confirmed what we had agreed to in our phone conversation that we would resolve our dispute over the discharge amount on consent and that his client would agree to pay the amount in the Discharge Statement. [Emphasis in the original.]

[32] In contrast, Mr. Markowitz’s evidence is that the telephone conversation between he and Ms. Young did not resolve the matter. Rather, “the call escalated into a heated exchange with raised voices.” He is categorical that there was no settlement reached between the lawyers. He denies that Ms. Young made any claim that her client was entitled to a prepayment charge of three months’ interest under the Mortgage. He says that this topic was never discussed. He also denies that Ms. Young told him that her client had miscalculated the prepayment interest charge set out in the Discharge Statement, and states that the $119,670.72 amount was never mentioned. Mr. Markowitz describes the conversation as follows in his affidavit:

In our sole conversation, which took place on November 21, 2018 after receipt of Maggie’s email of 6:02 pm, the issue discussed between Ms. Young and I was her assertion that if my client required her to hold the disputed amount ($35,671.08) in trust, she would charge my client a Holding Fee of $50,000.00 and a Processing Fee of $35,000.00, as set out in Maggie’s above-noted email. In our conversation, I told Ms. Young that in an effort to avoid, what I and my client viewed as extortive changes [sic], my client would not require the disputed funds to be held in trust, but that my client would be paying the amounts set out in the discharge statement under protest and disputing the pay-out amount. This is why, following our conversation, I sent Ms. Young an email at 6:13 pm on November 21, 2018 confirming that I, on behalf of my client, planned on paying her the funds to pay out the mortgage the following day, in accordance with the payout statement provided. I also told Ms. Young in my email that if it was her position that her client’s payout statement was no longer valid (given the additional extortive charges she had raised and the fact that my client refused to waive its protest), that she advise me of same and that any such amounts charged would not be accepted by my client and the return of any such additional costs would be vigorously pursued by my client.

[33] The e-mail sent by Mr. Markowitz at 6:13 p.m. on November 21, 2018, which is referred to by both Ms. Young and Mr. Markowitz in support of their respective versions of their telephone conversation, reads as follows:

I plan on paying you funds tomorrow in accordance with the attached payout statement. Upon your receipt of payment, I expect to receive registered discharges promptly.

If it is your position that the attached statement is no longer valid, please advise and provide me with a new statement immediately. But, please note that any increases to the amounts owing in the attached statement will not be accepted by my client and the return of any such additional costs will be vigorously pursued.

[34] The following day, on November 22, 2018, Mr. Markowitz sent an e-mail to Ms. Zhang and Ms. Young at 10:00 a.m.:

Maggie/Diana,

We are preparing funds now to provide to you in trust in connection with this payout/discharge.

Please confirm that we may rely on the attached payout statement. If I do not hear from you by 11:00am, we will proceed to pay you in accordance with the payout statement.

Your prompt reply would be greatly appreciated.

[35] Ms. Zhang replied at 10:46 a.m. as follows:

Dear David:

Please be noticed that the discharge statement will not be changed if the matter is settled by your client.

Otherwise, the increase [sic] legal fees is still applied for future service provided beyond the purely discharge service.

[36] At 10:52 a.m., Mr. Markowitz sent the following e-mail to Ms. Zhang:

Thank you. I will direct deposit $3,573,618.71 to your trust account today (which includes per diem to tomorrow). Once I have made the deposit, I will provide you with copies of the certified cheque and deposit receipt.

Once you have received the above, please proceed to register the mortgage and PPSA discharges promptly (and provide me with copies of same) so that the re-finance transaction can be completed.

Thank you in advance for your anticipated cooperation.

[37] At 11:59 a.m., Mr. Markowitz sent a further e-mail to Ms. Zhang:

We are proceeding with banking very shortly and the funds will be in your account soon.

I confirm that the funds are to be held in trust until all your client’s security is discharged.

Further, funds are being provided on the condition that all funds are to be returned to my firm immediately upon our written demand (if demanded prior to the registration of the discharges).

[38] At 1:05 p.m., Mr. Markowitz sent to Ms. Zhang evidence of the deposit in Ms. Young’s trust account and asked to be provided with registered copies of the Discharge of Charge and Assignment of Rents and PPSD Financing Statements.

[39] At 1:34 p.m., Ms. Zhang sent the following e-mail to Mr. Markowitz:

We received your funds with thanks.

Refer to the last e-mail we sent to your [sic] this earlier morning, we assumed that the matter has been already settled by your client.

We will processing [sic] discharge the mortgage, notice of assignment of rents and PPSA accordingly.

We will release the payout funds to our client immediately once the noted mortgage, notice of assignment of rents and PPSA has [sic] been discharged by our office.

[40] The Discharge of Charge indicates that it was registered at 1:37 p.m. on November 22, 2018.

[41] At 1:38 p.m., Mr. Markowitz sent the following e-mail:

Hi Maggie/Diana,

My client does not require you to hold the Disputed Amount in trust after closing. However, I confirm that the Disputed Amount is paid under protest and my client reserves its rights to make a claim against your client for, amongst other things, the return of the Disputed Amount.

Please provide me with the registered discharges.

[42] At 1:44 p.m., Ms. Zhang sent the “registered discharge, notice of assignment of rents and PPSA” to Mr. Markowitz.

[43] The evidence of 259 and Mr. Markowitz is that they did not hear about the alleged miscalculation in the Discharge Statement until after the litigation was commenced.

C. The Application and Cross-Application

[44] 259 commenced its Application against GGS on March 18, 2019. It seeks a declaration that GGS improperly and incorrectly imposed: (a) a pre-payment penalty/charge on 259 in the amount of $35,671.08, and (b) a $300 charge for the issuance of the November 8, 2018 Letter. 259 also asks for an order directing GGS to repay these amounts (for a total of $35,971.08) to 259.

[45] GGS commenced a Cross-Application in late October 2019. It seeks a declaration that it was entitled to charge the Respondents a prepayment charge for 104 days of interest equal to $119,670.72, and an order that the Respondents pay damages in the amount of $67,890.12 (i.e. the difference between $119,670.72 and the $51,780.60 figure included in the Discharge Statement).

DISCUSSION

[46] As stated above, this case raises two main issues: (A) whether the parties reached a settlement; and (B) if they did not, whether a prepayment charge was payable and how the Prepayment Clause should be interpreted.

[47] I will discuss these two issues in turn.

A. Whether there was a settlement reached between the parties

[48] GGS’s position is that the parties reached a settlement during the telephone conversation that Ms. Young and Mr. Markowitz had in the early evening of November 21, 2018 (“November 21, 2018 Call”). GGS alleges that 259 agreed to pay the equivalent of one month’s interest, as set out in the Discharge Statement, without any protest, and that GGS agreed in return not to seek payment of three months’ interest, as it is allegedly entitled to receive under the Mortgage. 259 denies the existence of any settlement.

[49] In my opinion, the evidence in this case does not support a finding that a settlement was reached by the parties. I have come to this conclusion for the reasons outlined below.

[50] There is no written communication (e-mail, letter, release, minutes of settlement, etc.) between counsel or the parties confirming the alleged settlement and its terms. Everything turns on what was said orally during the November 21, 2018 Call. As set out above, Mr. Markowitz’s and Ms. Young’s respective versions of what was said during the November 21, 2018 Call are diametrically different.

[51] It is my view that it was not possible for the parties to reach a binding settlement during the November 21, 2018 Call. It is undisputed that the issue of whether GGS was entitled to receive the equivalent of three months’ interest was not raised by GGS before the November 21, 2018 Call. The parties disagree as to whether this issue was raised at all during the November 21, 2018 Call, but they agree that it was not raised before.

[52] That being the case, it would not have been possible for Mr. Markowitz to agree on a settlement on the phone with Ms. Young without first having a conversation with his client to: (a) advise that GGS was taking the position that it was entitled to receive a prepayment charge equivalent to three months’ interest or $119,670.72; (b) advise that GGS was prepared to give up this claim in exchange for the payment in full of the amount set out in the Discharge Statement, with no payment made under protest; and (c) seek instructions as to whether 259 wanted to accept this offer or not. Further, it is likely that Mr. Markowitz would have wanted to take some time to review the relevant provisions of the Mortgage to assess the merits of GGS’s claim and be able to give advice to his client on this issue. Mr. Markowitz was not in a position, and did not have the required instructions, to accept GGS’s offer and conclude a settlement during the November 21, 2018 Call.

[53] There is no evidence adduced by either side showing that there was a further communication by Mr. Markowitz or 259 after the November 21, 2018 Call accepting GGS’s offer. In fact, there are no e-mails, correspondence or notes suggesting that GGS’s alleged entitlement to be paid $119,670.72 was raised with 259 at any time before GGS brought its Cross-Application. It is noteworthy that after Mr. Markowitz sent his e-mail at 1:38 p.m. on November 22, 2018 reiterating that the “Disputed Amount” had been paid under protest, Ms. Young (or Ms. Zhang) did not raise the alleged settlement in their response to Mr. Markowitz. Instead, Ms. Zhang simply sent the registered discharges to Mr. Markowitz.

[54] I give no weight to Ms. Zhang’s alleged “corroboration” of the settlement. While Ms. Zhang states in a short affidavit that Ms. Young advised her after her call with Mr. Markowitz that a settlement had been reached between the parties, Ms. Zhang did not participate in the November 21, 2018 Call. I also note that she is an employee of Ms. Young. Whether or not Ms. Young thought that there was a settlement and whether or not she told Ms. Zhang that there was one, I find that a settlement was not reached during the November 21, 2018 Call and that a reasonable person in Ms. Young’s position would not have concluded that a binding settlement had been reached by the end of the call.

[55] In addition, I find that Mr. Markowitz’s account of the November 21, 2018 Call and his explanation of the subsequent communications between the parties are more consistent with the evidence than Ms. Young’s account and explanation. I accept Mr. Markowitz’s evidence that after receiving Ms. Zhang’s e-mail at 6:02 p.m. on November 21, 2018, which e-mail included wild claims for additional fees, he decided to call Ms. Young directly in an attempt to de-escalate the situation. I find the tone and contents of Mr. Markowitz’s 6:13 p.m. e-mail, which was sent after the November 21, 2018 Call, to be inconsistent with an alleged settlement. Among other things, if there had been a settlement, Mr. Markowitz would not state in his e-mail: “If it is your position that the attached statement is no longer valid, please advise and provide me with a new statement immediately.” This e-mail is consistent with Mr. Markowitz addressing the claim for additional fees set out in Ms. Zhang’s e-mail sent at 6:02 p.m., not with a binding settlement. Similarly, Mr. Markowitz’s e-mail sent at 10:00 a.m. on November 22, 2018 in which he asked Ms. Zhang to confirm that he could rely on the Discharge Statement is inconsistent with a settlement having been reached the day before. Given Mr. Markowitz’s “communication style” and his habit of confirming/requesting confirmation of various things in writing, it is my view that he would have sought to confirm any settlement in writing had there been one reached during the November 21, 2018 Call.

[56] Turning to Ms. Young’s account, her evidence is that when Ms. Zhang advised her of 259’s position that the Discharge Statement was incorrect, she reviewed the Mortgage documents and the Discharge Statement, and she realized that there was a miscalculation. She states that she then discussed the error with GGS and, after that discussion, she spoke with Mr. Markowitz on the phone. This account is not consistent with the evidence and, in particular, with Ms. Zhang’s e-mails sent at 1:28 and 6:02 p.m. on November 21, 2018, which Ms. Young reviewed and amended.

[57] Early on November 21, 2021, Mr. Markowitz asked Ms. Zhang to advise whether their client would revise the Discharge Statement. Ms. Zhang advised Mr. Markowitz at 10:18 a.m. that they were waiting for instructions from their client. By 1:26 p.m., Ms. Young/Ms. Zhang had received instructions from GGS as Ms. Zhang sent an e-mail to Mr. Markowitz stating that GGS had a different position from 259 and that the Discharge Statement would not be changed. Ms. Zhang’s next e-mail at 6:02 p.m. raises the possibility of increased fees, but does not refer to a miscalculation, or an increase in interest or prepayment charge. Based on Ms. Young’s account of what happened and the timing of the various e-mails, she should have received instructions from GGS with respect to the alleged miscalculation by early afternoon on November 21, 2018, i.e. before Ms. Zhang sent her 1:26 p.m. e-mail. However, Ms. Zhang’s e-mails of both 1:26 p.m. and 6:02 p.m. are inconsistent with the alleged realization of a miscalculation and do not refer to any miscalculation.

[58] Even if, somehow, Ms. Young only found out about the miscalculation after the 1:26 p.m. e-mail was sent and only discussed it with GGS at some point in the afternoon, this does not explain why the 6:02 p.m. e-mail does not refer to the alleged miscalculation. Moreover, I find that there was not enough time between Ms. Zhang’s 6:02 p.m. e-mail (which does not refer to any miscalculation) and Mr. Markowitz’s e-mail of 6:13 p.m. (which all parties agree was sent after the November 21, 2018 Call) for Ms. Young to have a conversation with GGS about the miscalculation and then have another conversation with Mr. Markowitz during which she explained the miscalculation to him and the parties reached a settlement.

[59] The fact that two of Ms. Zhang’s e-mails sent on November 22, 2018 contain the word “settlement” does not change my view. Ms. Zhang’s 10:46 a.m. e-mail states:

Please be noticed that the discharge statement will not be changed if the matter is settled by your client.

Otherwise, the increase [sic] legal fees is still applied for future service provided beyond the purely discharge service.

[60] Mr. Markowitz did not advise Ms. Zhang or Ms. Young that the matter had been settled by his client, and Ms. Zhang never sent a revised Discharge Statement with higher fees. Mr. Markowitz’s evidence is that he considered Ms. Zhang’s 10:46 a.m. e-mail “nonsensical” and “not worthy of a substantive reply having received it 14 minutes before the time for which I advised […] that funds would be sent”.

[61] Some of the correspondence sent by Ms. Young’s office reflect a language barrier issue and is not as clear as it should be. Ms. Zhang’s 10:46 a.m. e-mail is such an example. I accept Mr. Markowitz’s explanation with respect to this e-mail. Further, Ms. Zhang’s e-mail could be interpreted as referring to 259 agreeing that the Disputed Amount did not have to be held in trust after closing. It could also be interpreted as confirming that there was no settlement because it uses the word “if” (“if the matter is settled by your client”). I reiterate that a binding settlement could not have been reached during the November 21, 2018 Call and that a settlement was never confirmed subsequently. Given this, Ms. Zhang’s reference to a settlement does not make sense.

[62] The second e-mail sent by Ms. Zhang that refers to a “settlement” was sent on November 22, 2018 at 1:34 p.m., after payment was received from 259. Ms. Zhang stated:

We received your funds with thanks.

Refer to the last e-mail we sent to your [sic] this earlier morning, we assumed that the matter has been already settled by your client.

We will processing [sic] discharge the mortgage, notice of assignment of rents and PPSA accordingly.

We will release the payout funds to our client immediately once the noted mortgage, notice of assignment of rents and PPSA has [sic] been discharged by our office.

[63] Ms. Zhang did not wait for any confirmation regarding a settlement and registered the discharge at 1:37 p.m.

[64] Again, the language used by Ms. Zhang in the second paragraph of her e-mail is not clear, and this paragraph does not appear to be responsive to Mr. Markowitz’s prior e-mail which simply advised that payment had been made and asked for a copy of the discharge. In response to Ms. Zhang’s unclear statements, Mr. Markowitz sent an e-mail at 1:38 p.m. stating that his client did not require that the Disputed Amount be held in trust after closing, but that the Disputed Amount was paid under protest. Again, Ms. Zhang’s only response to this e-mail was to send copies of the registered discharges. She did not raise the settlement issue.

[65] I reject GGS’s allegation that Mr. Markowitz waited until the discharge was registered at 1:37 p.m. to send his e-mail at 1:38 p.m. In my view, this allegation is unsupported by the circumstances and the evidence. Among other things, there were only four minutes between Ms. Zhang’s e-mail and Mr. Markowitz’s response; this suggests that Mr. Markowitz started replying to Ms. Zhang’s e-mail shortly after reading it and was typing his response while Ms. Zhang was registering a discharge.

[66] Further, I find that Mr. Markowitz was a credible witness, who was forthcoming and testified in a candid and straightforward way. As set out above, his evidence was logical, internally consistent, and consistent with the documentary evidence. In contrast, Ms. Young was not as candid, straightforward and forthcoming as Mr. Markowitz when she testified. I have come to this conclusion after taking into account the fact that Ms. Young’s first language is not English, and I have not made any judgments based on Ms. Young’s particular choice of words. During her testimony, Ms. Young appeared unwilling to answer certain relevant questions. In addition, as set out above, I found that her evidence was not always consistent with the documentary evidence. Thus, I prefer Mr. Markowitz’s evidence over Ms. Young’s on the issue of the alleged settlement.

[67] While Ms. Young’s and Mr. Markowitz’s clients did not participate in the November 21, 2018 Call, they gave evidence about what they were told by their respective lawyers regarding a settlement. In this regard, I prefer the evidence of Kai Xu, the President and CEO of 259, over the evidence of Hugh Kuang, the Vice-President of GGS. Mr. Kuang was not a credible witness. In cross-examination, he was unresponsive and combative, refusing to answer many questions based on specious grounds, even on matters that were set out in his affidavit. He also took positions and gave some answers that contradicted his affidavit evidence. In contrast, Mr. Xu testified in a responsive, forthcoming and straightforward way, and his evidence was consistent with the documentary evidence. Mr. Xu testified at trial that at no time did Mr. Markowitz advise him that he had entered into a settlement on behalf of 259 or that GGS had miscalculated the prepayment charge.

[68] In support of its position that a settlement was entered into, GGS argues that it would not have discharged the Mortgage if it did not believe that there was a settlement as GGS would have wanted to keep its security for its future anticipated litigation costs, future interest and for the three months’ interest prepayment charge. Again, no binding settlement was reached during the November 21, 2018 Call and any mistaken belief to the contrary on the part of GGS does not change this fact. Further, I am of the view that there were good reasons for GGS to discharge the Mortgage even if an amount was paid under protest; among other things, GGS may have wanted to avoid any potential liability in the event its refusal to discharge the Mortgage interfered with 259’s planned refinancing.

[69] Accordingly, based on the foregoing, I find that the parties did not reach any settlement.

B. Whether a prepayment charge was payable

a. Approach to be adopted to interpret the Mortgage

[70] In order to determine whether a prepayment charge was payable, I need to interpret the clauses of the Mortgage. The parties disagree with respect to the approach that should be followed to interpret the provisions of the Mortgage.

[71] 259 submits that the approach to contractual interpretation set out in the decision of the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (“Sattva”) should be applied in this case. In contrast, GGS submits that mortgages are not to be interpreted using the same interpretation principles applicable to all contracts. It argues that since they are documents relating to land, mortgages “must be treated with extreme respect and construed strictly.” GGS further argues that the rights and obligations of the parties must be found within the terms of the mortgage, and that the terms of a mortgage cannot be varied in the absence of written evidence of variation. All the authorities relied upon by GGS predate Sattva.

[72] In Sattva, the Supreme Court of Canada directed courts to “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”: para. 47. The overriding concern is to determine the intent of the parties and the scope of their understanding: para. 47. The Supreme Court recognized that ascertaining contractual interpretation can be difficult when looking at words on their own because “words alone do not have an immutable or absolute meaning”: para. 47. The Court explained that “[t]he meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement”, but that the surrounding circumstances “must never be allowed to overwhelm the words of that agreement”: paras. 48 and 57. The Supreme Court also stated: “While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement”: para. 57. The Court also clarified that the relevant surrounding circumstances “consist only of objective evidence of the background facts at the time of the execution of the contract. . . , that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”: para. 58.

[73] Mortgages are secured loans and loans are contractual agreements. The words used in mortgages, like words used in any other contract, “do not have an immutable or absolute meaning”. Given this, I see no valid reason for refusing to apply the approach outlined in Sattva to mortgages. Contrary to what GGS’s submissions appear to imply, the approach to contractual interpretation set out in Sattva does not allow the court to deviate from the text of a contract such that the court effectively creates a new agreement. Further, the Supreme Court has not described the approach in Sattva as being large and liberal as opposed to strict and narrow. Rather, the approach is described as a practical and common-sense one that is concerned with determining the intent of the parties and the scope of their understanding: para. 47. Again, I fail to see why this type of approach would not apply to mortgages.[^3]

[74] Ultimately, however, this issue is of no moment as I reach the same conclusion whether I approach the matter on the basis of a “strict” interpretation of the Mortgage or on the basis of the principles set out in Sattva.

b. Positions of the parties regarding the Prepayment Clause

[75] 259’s position is that the Prepayment Clause (section 14 of the Additional Provisions) was never triggered and was not applicable in this matter. It relies on the language of the Interest Rate Adjustment Clause (section 13 of the Additional Provisions) which does not refer to any required notice or penalty to make payment in the last 16 days of the term as contemplated by this provision. 259 also argues that given the purpose, language and functional operation of the Prepayment Clause, the right of prepayment under the Prepayment Clause can only be exercised outside the last month of the term of the Mortgage. This is because, among other things, once the Mortgage is within one month of the maturity date, the lender knows to expect repayment of the amounts due under the mortgage on the maturity date, and can therefore take steps to prepare to reinvest the mortgage principal upon repayment. 259 submits that accepting GGS’s position would result in a commercial absurdity and be inequitable as it would allow GGS to collect an amount above and beyond that which it would otherwise have been entitled to under the Mortgage, notwithstanding that the Mortgage was never in default and was paid in full two weeks prior to maturity.

[76] GGS’s position is that the Mortgage expressly requires that a prepayment be on a payment date and that one month’s notice be given. If both of these contractual terms are not met, a payment equivalent to three months’ interest is required. In this case, the proposed prepayment on November 22, 2018 was not on a payment date and one month’s notice was not given, requiring 259 to pay three months’ interest. According to GGS, any repayment before the maturity date must legally and logically be interpreted as a prepayment, even if all of the interest owing up to the end of the term of the Mortgage is paid. GGS argues that the logical consequence of 259’s position is that a mortgagor would be able to repay a mortgage at any time as long as it pays the interest to the end of the term, and that such a result “goes beyond the pale” and contradicts the principle that mortgages are to be interpreted strictly.

c. Meaning of “prepayment”

[77] As stated above, mortgages are secured loans and loans are contractual agreements. Under a loan agreement, the borrower is entitled to the use of the lender’s capital for some stipulated period of time. The lender is entitled to a stream of interest income and to the ultimate repayment of its capital. See Lee v. He, 2018 ONSC 5932 at para. 25.

[78] Many mortgages contain provisions regarding prepayment. However, very few Canadian cases and legal authorities discuss the meaning of the word “prepayment” in the context of a mortgage: see Maxam Opportunities Fund Limited Partnership v. Greenscape Capital Group Inc., 2013 BCCA 460 at para. 46. The main Canadian cases that do so are focused on whether the definition of “prepayment” includes involuntary prepayments made when the lender calls the loan: see Cymax Stores Inc. v. Coleco Investments Inc., 2019 BCSC 492 and Maxam Opportunities Fund Limited Partnership v. Greenscape Capital Group Inc., 2013 BCCA 460. These authorities are of limited utility given that the voluntary character of the repayment of the Mortgage in this case is not in issue.

[79] While the ordinary meaning of the word “prepay” suggests a payment that is made in advance, the use of the word “prepayment” in the context of a loan is often linked to a reduced amount of interest being paid/charged with respect to the loan as a result of the early payment. For example, “prepayment clause” is defined as follows in B.A. Garner, ed., Black’s Law Dictionary, 11^th ed. (Thomson Reuters, 2019) at 1431:

prepayment clause. (1935) A loan-document provision that permits a borrower to satisfy a debt before its due date.

• Although any interest not yet due is waived, the lender may impose a penalty for prepayment.

[80] Courts have dealt with prepayment clauses in mortgages in many different cases. Such clauses often require that advance notice of the prepayment be given to the mortgagee and/or that a prepayment charge or “bonus” be paid to the mortgagee. The purpose of giving advance notice of the mortgagor’s intent to repay is to give the mortgagee the benefit of a reasonable period during which to arrange for the alternate investment of its funds: see Mastercraft Properties Ltd. v. El Ef Investments Inc. (1993), 1993 CanLII 8545 (ON CA), 14 O.R. (3d) 519 (C.A.). “Bonuses” contractually payable when a mortgagor pays off a mortgage early have been said to be designed to compensate the mortgagee for, among other things, the loss of the opportunity to earn the agreed-upon rate of interest for the entire mortgage period: see C.M.T. Financial Corporation v. McGee, 2015 ONSC 3595 at para. 63.

[81] While the foregoing paragraphs outline some general principles, there is no accepted definition of “prepayment”, “prepayment clause” or “prepayment charge”. Therefore, this case turns on the specific wording and interpretation of the Prepayment Clause in the Mortgage.

d. Interpretation of the Prepayment Clause and the Interest Rate Adjustment Clause

[82] Dealing with the Interest Rate Adjustment Clause first,[^4] I do not agree with 259 that the Interest Rate Adjustment Clause in the Additional Provisions (section 13) provides for an independent right to repay the loan in full during the last 16 days of the term. This clause provides for an increase of the interest rate on the 15^th day of the final month of the term in the event the loan is not renewed and not repaid on or before maturity, and it refers to the last 16 days of the term in this context. This clause does not deal directly with the issue of repayment before the maturity date – it does so obliquely and incompletely, at best. For these reasons, I do not think that the Interest Rate Adjustment Clause can be interpreted in the way suggested by 259 or that it can supersede the other provisions of the Mortgage regarding prepayment and payment dates. While the Interest Rate Adjustment Clause appears to indicate that repayment during the last 16 days of the term is something that is possible under the Mortgage, it does not specify the terms and conditions that would apply to such payment. Such terms and conditions must be found elsewhere in the Mortgage or in an agreement between the parties regarding an early repayment.

[83] Turning to the Prepayment Clause, I agree with 259 that the Prepayment Clause, based on its wording, is a term for the benefit of the borrower, i.e. 259, to be exercised by 259, and pursuant to which 259 could save interest due over the remaining term of the Mortgage. The Prepayment Clause provides that 259 “shall have the right to prepay the whole or any part of the principal outstanding plus interest accrued […]”. The defined term “Mortgage Due” used in the first paragraph of the Prepayment Clause and in subsection (a) only encompasses interest accrued as of the prepayment date. Here, 259 did not pay interest accrued as of November 22, 2018; rather, it paid interest up to the maturity date, December 6, 2018. As a result, 259 did not exercise its right under the Prepayment Clause to pay the principal outstanding and only the interest accrued as of the payment date, and this clause was not triggered. Given that the Prepayment Clause is a term for the benefit of 259, that 259 did not invoke it, and that 259 did not seek to pay a reduced amount of interest under the Mortgage, GGS cannot impose a prepayment charge pursuant to the Prepayment Clause. This conclusion is squarely based on the wording of the Prepayment Clause and is consistent with the fact that a prepayment privilege is normally associated with the waiver of interest not yet due.

[84] GGS argues that the prepayment charge represents a “purchase price for the reconveyance” or “the price for the mortgagee granting a prepayment right in the contract”. That may be the case, but the specific wording of the Prepayment Clause cannot be ignored, and it does not apply when the mortgagor pays all the interest due under the Mortgage up to the maturity date, and not only the interest to the date of payment. While it may have been open to GGS to include a clause in the Mortgage imposing a fee or a “purchase price for the reconveyance” for any repayment before the maturity date, whether or not all the interest was paid, it did not do so.

[85] In light of the foregoing, GGS improperly imposed a one month’s interest prepayment charge on 259 pursuant to the Prepayment Clause in order to discharge the Mortgage on November 22, 2018, and 259 is entitled to the return of that fee, which was paid under protest.

[86] While the Prepayment Clause and the charges provided therein were not triggered by the facts of this case, I find that 259’s payment on November 22, 2018 nevertheless constituted a breach of the Mortgage. 259 repaid the Mortgage before the maturity date. Even though 259 paid the full amount of interest payable under the Mortgage, repayment was not allowed before December 6, 2018 given the provisions of the Mortgage with respect to payment dates and maturity date. This conclusion is supported by the other agreements signed by the parties. While the mortgage commitment dated November 23, 2017 (entitled “Mortgage Agreement) did not provide for prepayment charges, it did provide that “early payment is allowed thereafter [i.e. after the first six months of the term] with 1 months’ [sic] notice on payment date.” One month’s notice was not provided by 259. The Mortgage Loan Agreement and Disclosure also stated that, after the first six months, the Mortgage was “fully open on with one month’s notice on payment date.” The Mortgage Loan Agreement and Disclosure also included a prepayment clause that was, for all intents and purposes, the same as the Prepayment Clause in the Additional Provisions, but it was not triggered for the reasons set out above.

[87] The fact that the payment was made only two weeks before the maturity date and that it may have been reasonable to expect, in this situation, that the mortgagee would be accommodating and accept payment a few days early cannot change the express terms of the Mortgage regarding when payments can be made.

[88] While 259’s payment on November 22, 2018 was in breach of the Mortgage, GGS provided a discharge of the Mortgage after 259 paid under protest the prepayment charge improperly imposed pursuant to the Prepayment Clause. The fact that 259’s payout was in breach of the Mortgage did not entitle GGS to charge a fee that was not provided for under the Mortgage or that was not agreed upon by 259.

[89] GGS did not adduce any evidence that it suffered any damages as a result of 259 repaying the Mortgage two weeks early. GGS took the position that it did not have to show damages as a result of the early repayment of the Mortgage in order to be able to impose the prepayment charge under the Prepayment Clause, and it basically refused to answer questions relating to this issue. While GGS would not have had to prove damages in order to impose prepayment charges if those were triggered, they were not triggered in this case. In the absence of evidence regarding any damages suffered by GGS as a result of 259’s breach of contract, GGS is not entitled to an order for damages. I discuss nominal damages below.

[90] In any event, I agree with 259’s submissions that it is very unlikely that GGS would have suffered any damages as a result of receiving the payout a mere two weeks before the maturity date. The maturity date was “notice” to GGS that it would be repaid on December 6, 2018, and so it knew that it should arrange for the alternate investment of its funds by that date. Further, GGS received all the interest that it could expect to receive under the Mortgage.

[91] The authorities cited by the parties with respect to prepayment are of limited utility because none of them deal with a situation where all the interest payable under a mortgage up to the maturity date was paid. In all the cases, the mortgagor only paid interest to the date of repayment, not to the maturity date. Further, the analysis above shows that a lot turns on the specific wording of the prepayment clause, and the mortgages in the cases referred to by the parties either contained no prepayment clause or a prepayment clause with different terms. Nevertheless, I review below the most relevant authorities cited by the parties.

[92] GGS relies on the case Demicher v. Sterling Trust, 1989 CarswellOnt 1620 (Prov. Ct.) (“Demicher”). In that case, the mortgagors sold their property and repaid the mortgages before the date of maturity. They appear to have only paid interest to the date of repayment (i.e. not up to the maturity date) as the case states that “[t]he Plaintiffs had some idea that the Defendant would request some money from them for the early discharge to cover administrative costs and lost interest during the period of re-financing”. [Emphasis added.] The mortgages did not include any clause referring to early payment of the mortgage. The mortgagee insisted on the payment of a penalty in the form of three months’ interest before providing a discharge of the mortgages. The mortgagors paid under protest.

[93] Thomson Prov. J. dismissed the Plaintiffs’ actions. He rejected the Plaintiffs’ argument that this was merely a case of breach of contract (i.e. the Plaintiffs breaching their obligation to keep money for a defined period of time and to repay on certain terms), and that the Plaintiffs should only be required to pay actual damages suffered by the mortgagee. According to Thomson Prov. J., the mortgagee had been vested with the title and estate to the land and could require the payment of a “bonus” as a “purchase price” for reconveyance. He noted that a mortgage, as a document relating to land, must be construed strictly, and that in the absence of written evidence of variation or of an accord and satisfaction, the terms of the mortgage cannot be varied. Thomson Prov. J. also rejected the Plaintiffs’ argument related to the unilateral aspect of the mortgagee’s demand for three months’ interest. He stated the following:

Counsel for the Plaintiff argued that the payments made in order to obtain the discharge to facilitate the sale of the properties was not a true accord and satisfaction because of the unilateralness of the demands made upon the Plaintiffs by the Defendant. The Plaintiffs did have a choice; they must live with the consequences of not informing themselves prior to entering into the Agreements of Sale, and of deciding not to keep the properties until better terms could be negotiated or the term of the mortgage had expired.

[94] I disagree with Thomson Prov. J. on this point. The “bonus” charged by the mortgagee was not provided for in the mortgages, was imposed unilaterally, and was paid under protest. Surely, the principle relied upon by Thomson Prov. J. that the terms of a mortgage cannot be varied absent written evidence of an agreement must apply to both the mortgagor and the mortgagee. A mortgagee cannot unilaterally impose an arbitrary fee that is not mentioned in the mortgage if the fee was not agreed to by the mortgagor. That this is the case can be seen by considering a situation where a mortgagee would seek to impose unilaterally an excessively high and onerous “bonus”. In my view, had Thomson Prov. J. considered this scenario which logically flows from his decision, he would have come to the conclusion that mortgagees do not have the unilateral power or discretion to determine and charge fees not mentioned in the mortgage. In the absence of a fee set out in the mortgage, the mortgagee could either refuse to accept payment and to discharge the mortgage, or seek monetary compensation for damages actually suffered and proven by the mortgagee.

[95] Demicher was referred to by Kozak J. in 1037733 Ontario Inc. v. Royal Bank of Canada, [1990] O.J. No. 1689 (S.C.J.) (“Royal Bank”), on which GGS also relies. In that case, the Plaintiff was seeking to recover a sum paid under protest to obtain the discharge of a mortgage so as to facilitate the sale of the mortgaged property to a third party. The Plaintiff’s action was dismissed as there was a specific clause in the mortgage imposing the three months’ interest fee paid to the mortgagee, and Kozak J. relied on the principle that in the absence of written evidence of variation, or of an accord and satisfaction, the terms of the mortgage cannot be varied. Kozak J. stated as follows at paras. 33 and 37:

Exhibit #1, Tab 13 is an agreement between the parties, dated December 21, 1993 which, inter alia, provides that upon sale of the premises prior to the end of the term, the borrower will pay to the bank, on demand, the principle [sic] and accrued and unpaid interest ... together with an amount to compensate the bank for its loss of investment equal to the amount which would have been payable under the prepayment section of this agreement, which further provides for the payment of a bonus in an amount equal to three months interest at the rate set forth above.

There is no merit to the argument that the defendant in this case would have to prove that there was an actual loss of investment by virtue of the discharge of the existing mortgage. The words, loss of investment, are not qualifying words; they are words of explanation only. Even if a replacement mortgage on the same property was to contain a higher rate of interest and additional security, this would not preclude the mortgagee from enforcing its rights to the payment of three months penalty interest. Such payment is a contractual right which compensates the mortgagee for the time taken, administrative costs and any time or money lost with respect to re-investing money due to early discharge. As was stated in Demicher, “The mortgage has been vested with the title and estate to the land. The request for a penalty or bonus is a purchase price for reconveyance.” [Emphasis added.]

[96] The decision in Royal Bank is easily distinguishable and does not apply to this case. In Royal Bank, the mortgagor only paid the accrued interest to the date of repayment, not the full amount of interest payable under the mortgage to the maturity date, and there was a specific contractual clause imposing a fee equivalent to three months’ interest in the event of the sale of the property before the end of the term of the mortgage. Kozac J. simply enforced the express terms of the mortgage. The situation in Royal Bank is also very different from the situation in Demicher as the prepayment charge in Royal Bank was a contractual right set out in the mortgage, not a fee unilaterally and arbitrarily imposed by the mortgagee.

[97] GGS also refers to the decision of the Court of Appeal in Re Cloval Developments Inc. and Koledin (1983), 1983 CanLII 1669 (ON CA), 44 O.R. (2d) 261 (C.A.) (“Cloval”). The issue in that case was whether a clause in a mortgage permitting prepayment of the mortgage at any time without notice or bonus was carried forward into what was described as an extension agreement. The Court concluded that since the privilege of prepayment was not expressly provided for in the extension agreement, it was lost, and the mortgage was irredeemable except on payment in conformity with the new agreed terms. Weatherston J.A. stated:

The privilege to prepay a mortgage is a valuable right, especially where, as here, there is an agreed interest rate of 17½%. While the case is not free from doubt, we feel that we must give effect to the terms of the extension agreement. In that agreement it is provided in the words that I have quoted that the mortgagee “doth, subject to the terms hereinafter set forth, GRANT AND EXTEND to the Mortgagor time for payment of the said principal money”. Subject to equitable remedies a mortgagor must comply strictly with the proviso for payment of the mortgage money. That proviso is modified by a privilege to prepay. The extension agreement in this case contained new terms for payment and a new proviso that the mortgage should be void on payment “at the rate and in the manner heretofore provided”.

[98] My conclusion about 259’s breach of contract is consistent with the decision in Cloval. I also note that the comments of the Court of Appeal regarding the privilege to prepay are premised on the mortgagor paying a reduced amount of interest when prepaying a mortgage, i.e. not paying the full amount of interest due up to the maturity date of the mortgage.

[99] To conclude on this point, I find that a prepayment charge in the amount of $35,671.08 was improperly imposed on 259 by GGS as the Prepayment Clause was not triggered in this case. I also find that 259’s payment on November 22, 2018 was in breach of the Mortgage, but that GGS has not established any damages as a result of this breach.

e. $300.00 fee for the November 8, 2018 Letter

[100] 259 argues that GGS improperly asked 259 to pay a fee of $300.00 with respect to the November 8, 2018 Letter. As stated above, the parties agree that neither 259 nor any other of the recipients requested this letter. Section 3(a) of the Additional Provisions states:

The Chargor shall pay to the Chargee the fee of $300.00 for each and every statement given by the Chargee with respect to this mortgage requested by or on behalf of the Chargor and such amount, at the Chargee’s option, shall be paid in advance or be charged on the Property and shall bear interest at the rate aforesaid. [Emphasis added.]

[101] Costs claimed under a mortgage must be reasonable and properly incurred: Lee v. He, 2018 ONSC 5932 at para. 43. Given that the November 8, 2018 Letter was not requested by 259 and is therefore not covered by section 3(a) of the Additional Provisions, and given that there is no other basis in the Mortgage for this fee, I find that GGS improperly charged $300.00 to 259 for the November 8, 2018 Letter.

f. Nominal damages

[102] Nominal damages may be given in all cases of breach of contract and may be awarded where a breach has been established but damages flowing from that breach have not. Nominal damages are a trivial amount – typically one dollar – and serve a symbolic rather than a compensatory purpose. They are always available for causes of action, like breach of contract, that do not require proof of loss, even if they are not pleaded. However, it is open to the court in an appropriate case to decline to award nominal damages where there is a proven breach of contract: see Place Concorde East Limited Partnership v. Shelter Corporation of Canada, 2006 CanLII 16346 at para. 76 (Ont. CA); Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19 at para. 105; and RINC Consulting Inc. (Roustan Capital) v. Grant Thornton LLP, 2020 ONCA 182 at para. 52.

[103] I decline to award nominal damages to GGS. Such an award would serve no purpose in this case. GGS did not bring its Cross-Application to seek a judicial statement or declaration that 259 committed a breach of contract because it paid back GGS on November 22, 2018. Rather, GGS brought its Cross-Application with the intention of claiming $67,890.12 in damages and obtaining a declaration that it could charge three months’ interest to 259 under the Prepayment Clause, which it could not do. Given that GGS took erroneous positions under the Mortgage and also sought, through Ms. Young, to extract unfounded, unreasonable and excessive fees from 259 after the dispute arose, it would not be in the interest of justice to award nominal damages to GGS in the circumstances of this case: see RINC Consulting Inc. (Roustan Capital) v. Grant Thornton LLP, 2020 ONCA 182 at paras. 53, 55.

CONCLUSION

[104] In light of the foregoing, I grant the following relief:

a. a declaration that GGS incorrectly imposed under the Mortgage a prepayment charge in the amount of $35,671.08 and a $300.00 charge for the November 8, 2018 Letter;

b. an order that GGS pay $35,971.09 to 259; and

c. the dismissal of GGS’s Cross-Application.

[105] If costs cannot be agreed upon, 259 and the other Respondents to the Cross-Application shall deliver submissions of not more than four pages (double-spaced), excluding the bill of costs, within 14 days of the date of this Judgment. GGS shall deliver its submissions (with the same page limit) within 10 days of its receipt of 259’s submissions.

Vermette J.

Released: July 30, 2021

[^1]: The same borrowers and guarantors were identified in the mortgage commitment dated November 23, 2017, except that Acre was not included in the list of borrowers.

[^2]: The reference to paragraph 9 appears to be a reference to section 9 of the Mortgage Loan Agreement and Disclosure which, for all intents and purposes, is identical to the Prepayment Clause (i.e., section 14 of the Additional Provisions) reproduced above.

[^3]: The Supreme Court of Canada has recently held that no special rule of contractual interpretation applies to releases only, and that a prior rule applicable to releases has been overtaken by the general principles of contract law set out in Sattva: see Corner Brook (City) v. Bailey, 2021 SCC 29. While I note the release of this decision, I have not relied on it to reach my conclusion given that it only deals with releases and it was released after the closing submissions were made in this matter.

[^4]: This clause reads as follows:

Provided there is no renewal agreement reached, the Borrower covenants and agrees that the interest rate on the fifteenth (15<sup>th</sup>) day of the final month of the term shall increase from stipulated interest rate to 25.00% per annum, calculated monthly not in advance, and interest shall continue to be charged at this increased rate for each and every month thereafter. **Notwithstanding the foregoing, if mortgage/loan is repaid in full during the last 16 days of the term (and on or before maturity), the interest rate shall be deemed to be 12% per annum during the last 16 days of the term.** [Emphasis in the original.]