COURT FILE NO.: CV-15-524235
DATE: 20210129
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: SUB-PRIME MORTGAGE CORPORATION and ELLE MORTGAGE CORPORATION, Plaintiffs
AND:
DAVID KAWEESA, JACQUELINE KAWEESA and JEREMY KAWEESA, Defendants
AND RE:
DAVID KAWEESA and JACQUELINE KAWEESA, Plaintiffs by Counterclaim
AND:
SUB-PRIME MORTGAGE CORPORATION, ELLE MORTGAGE CORPORATION and TERRY WALMAN, Defendants to the Counterclaim
BEFORE: Stinson J.
COUNSEL: Glenn Cohen, for Sub-Prime Mortgage Corporation and Elle Mortgage Corporation
Karen Sanchez, for David Kaweesa and Jacqueline Kaweesa
Ranjan Das, for Terry Walman
HEARD at Toronto by Zoom videoconference: January 26, 2021
REASONS FOR DECISION
[1] These reasons concern a motion brought by the plaintiffs and the defendants to the counterclaim for judgment in accordance with minutes of settlement executed by the parties as of November 3, 2020.
Background
[2] This is a mortgage enforcement action, seeking payment of the mortgage debt and possession of the mortgaged property. The plaintiffs hold three mortgages (the first, second and fifth mortgage) on a residential property on Cotswold Cr. in Toronto. That property is the residence of the defendants David and Jacqueline Kaweesa. Title to the property is held in the names of Jacqueline and their son Jeremy Kaweesa. Jeremy resides elsewhere. Jeremy was never served with the statement of claim in Court File No. CV-15-524235 and it was ultimately discontinued as against him. David and Jacqueline defended this action and advanced a counterclaim against the plaintiff mortgagees and their principal, Terry Waldman.
[3] A separate mortgage enforcement proceeding, in Court File No. CV-19-612307, was commenced by the plaintiffs as against Jeremy, seeking the same relief. Jeremy was served in that action. He did not defend and was noted in default. Counsel for the plaintiffs advises that they intend to bring a motion for default judgment as against him, but they have not yet done so.
[4] This case, together with the companion action CV-19-612307, have been before me on numerous previous occasions. Initially, on June 22, 2020, I presided at a pre-trial conference. The matters did not settle. An eight-day non-jury trial date of November 9, 2020, was confirmed and I prepared a rule 50.08 Report to Trial Judge. It included various directions to the parties regarding steps to be taken to prepare the case for trial.
[5] Subsequently, on multiple occasions, I participated in case conferences with counsel in order to deal with issues relating to trial management.
[6] Thereafter, beginning in mid-October 2020, I assisted the parties in a series of settlement conferences directed at the resolution of the litigation. On October 20, 2020, the litigation was settled in principle. On October 27, 2020, there was a further settlement conference to resolve the proper steps to document and implement the settlement. All points were agreed to and draft of minutes of settlement were circulated. A further settlement conference was conducted to finalize the minutes of settlement, and they were signed as of November 3, 2020.
[7] The defendant Jeremy Kaweesa did not participate in any of these discussions. Nevertheless, it was anticipated that he might be willing to agree to the terms of settlement and provision was made for him to sign the minutes of settlement as well. As events unfolded, Jeremy declined to do so. As a result, the remaining parties agreed to prepare and execute an addendum to the minutes of settlement and they did so, as of November 20, 2020. For purposes relevant to this motion, that addendum did not alter the terms of settlement as between the original signatories in any material way.
[8] On January 20, 2021, I convened a case conference to discuss the status of the settlement. At the request of the plaintiffs. I scheduled a motion for January 26, 2021, for purposes of a potential motion to enforce the minutes of settlement. That motion proceeded before me on January 26, 2021.
[9] As the foregoing summary indicates, in addition to my original assignment as the pre-trial conference judge, I have had extensive involvement with the parties in relation to the negotiation and finalization of the settlement of this matter. In light of that involvement, I raised at the outset of the hearing on January 26, 2021 the question whether any of the parties objected to my hearing the motion. I referred expressly to rule 50.10 (1), which provides that a pre-trial conference judge shall not preside at the hearing of the matter, except with the written consent of all parties.
[10] All counsel informed me that they did not object and their clients were content with me hearing and deciding the motion. They specifically noted paragraph 19 of the minutes of settlement, which provides as follows:
- The parties agree that the Honourable Justice D. Stinson will, subject to His Honour’s discretion, remain seized of this action and CV-19-00612307, for any purpose in connection with implementing these Minutes of Settlement, including, if necessary, scheduling and dealing with next steps If Jeremy or we said does not sign these minutes of settlement and the signing of judgment on January 26, 2021.
It was submitted that this provision in the minutes of settlement was equivalent to the “written consent” required by rule 50.10 (1).
[11] On the basis of the foregoing, and in light of counsel's confirmation that all parties were content that I hear the motion for judgment, I proceeded to do so.
[12] Because the potential settlement of action CV-19-612307 was also the subject of the original pre-trial conference and the later settlement negotiations among the parties, and because Jeremy has not signed a written consent that would permit me to do so, by reason of rule 50.10 (1), I am not eligible to preside at the hearing of a motion for judgment in CV-19-612307. I so informed counsel for the plaintiffs, who indicated that they will take other steps to pursue relief in that matter, before another judge.
Plaintiffs’ motion for judgment
[13] I turn now to the motion before me.
[14] Pursuant to the November 3, 2020 minutes of settlement, all signatories agreed to settle the litigation on the basis of a payment of $2,100,000 to be made by David and Jacqueline to the plaintiffs, on or before January 25, 2021. In exchange for the settlement payment, the plaintiffs agreed to assign/transfer or discharge their mortgages, as instructed by David and Jacqueline. In consideration of the settlement payment, and the assignment/transfer or discharge of the mortgages, the parties agreed to the dismissal without costs of the action and the counterclaim on consent, and the exchange of releases.
[15] The minutes of settlement also addressed the potential situation in the event the settlement payment was not made on or before January 25, 2021. Specifically, paragraph 13 of the minutes of settlement provides as follows:
- In the event that the Settlement Payment is not received by Mr. Das [counsel for Mr. Walman, acting as escrow agent] on or before January 25, 2021, Judgment (the "Judgment") in favour of the Plaintiffs shall immediately issue in this action as follows:
i. Payment by David and Jacqueline to Elle Mortgage Corporation and Sub-Prime Mortgage Corporation in the total amount of CAD $2,700,000.00 (TWO MILLION, SEVEN HUNDRED THOUSAND DOLLARS) inclusive of pre-judgment interest and costs, plus post-judgment interest at a rate of 8.5% per annum;
ii. Dismissal of the Counterclaim;
iii. Possession of the Property in favour of Elle Mortgage Corporation and Sub-Prime Mortgage Corporation, and leave to issue a writ of possession.
[16] As well, paragraph 14 of the minutes of settlement provides as follows:
- Elle Mortgage Corporation and Sub-Prime Mortgage Corporation shall have the right to take possession as Mortgagee and sell under Power of Sale, with all attendant rights and obligations as provided by law.
[17] As events unfolded, David and Jacqueline were unable to make the settlement payment on or before January 25, 2021, as required. The plaintiffs have therefore brought this motion for a judgment in their favour in accordance with the terms of paragraph 13 of the minutes of settlement.
Positions of the parties
[18] Stated simply, the plaintiffs submit that the minutes of settlement expressly contain a consent to judgment in the event the settlement payment is not made as provided. The mere fact that the defendants have been unable to secure new financing in the past two-and-a-half months is no reason to excuse them from the agreement they freely made on the eve of the scheduled trial. The defendants knew at the time they signed the minutes of settlement that they would be seeking to refinance while the COVID-19 pandemic continued and the court has no jurisdiction to extend the time for performance of the agreement. The doctrine of frustration has no application.
[19] In response to the motion, the defendants filed an affidavit from Jacqueline in which she described various efforts made by her to secure financing. She stated that she was informed by a mortgage broker that she was “not able to obtain refinancing … until all the registered charges that do not reflect the amount that is required, being $2.1 million, be [sic] discharged.” She added that she was told that lenders had advised her mortgage broker that the plaintiffs’ fifth mortgage on the property must be discharged before they could issue a commitment to refinance. In her words the lenders “were not interested because of the charges on the property.” A second mortgage broker advised her that other lenders were also raising similar issues. In the face of these difficulties, on January 21, 2021, Jacqueline requested an extension of two weeks to make the settlement payment; on January 25, 2021, she requested an extension of two days, but the plaintiffs refused. In the face of the difficulties encountered by her clients in securing refinancing, counsel for the Kaweesas asked the court to extend the deadline for payment.
[20] In an additional submission, counsel for the Kaweesas argued that the continued COVID-19 pandemic and the additional lockdown imposed by the Government of Ontario had frustrated the performance of the minutes of settlement. She submitted that the doctrine of frustration should be applied to provide relief to them.
Analysis
[21] It is a well-established principle that there is a strong presumption in favour of the finality of settlements: see Tsaoussis (Litigation Guardian of) v. Baetz (1998), 1998 CanLII 5454 (ON CA), 165 D.L.R. (4th) 268 (Ont. C.A.), at paras. 15-16; Deschenes v. Lalonde, 2020 ONCA 304, at para. 27. Based on that principle and for the reasons that follow, I have concluded that the plaintiffs are entitled to enforce their settlement with the defendants and to the relief that they seek.
[22] Firstly, I agree with the submission of the plaintiffs that it is not open to the court to rewrite the parties’ agreement to grant an extension or insert a new deadline that was not contemplated when the parties made their bargain in October 2020. The case was nearing trial and each side chose to compromise their respective positions on certain specified terms, to avoid the expense and risk of proceeding to court. Each side was represented by skilled counsel and fully advised. To insert a new timetable would be an unfair interference with the decisions made by the parties when they agreed to the settlement.
[23] Second, the defendants were fully aware of the state of title to the property when they agreed to the settlement. They knew that prospective lenders would want to understand the nature of the encumbrances and the basis for their removal as part of the refinancing process. The agreement expressly provided for an agreed-upon response on behalf of the plaintiffs to be provided to prospective lenders should they ask questions about the encumbrances. The settlement was structured to include an escrow provision that protected all participants. The defendants were in a position to explain all this to their lenders, with the assistance of their counsel. Additionally, as the evidence tendered by the plaintiffs on the motion demonstrates, the plaintiffs’ mortgages were not the only encumbrances on the property that may have been of concern to prospective lenders. I therefore do not accept that the plaintiffs should bear the consequences of the defendants’ inability to accomplish the refinancing that they hoped to achieve. In fairness, that is a risk the defendants knowingly accepted when they agreed to the settlement terms.
[24] Third, the unhappy reality of the ongoing COVID-19 pandemic was a known quantity at the time the settlement was made. All parties were aware of the restrictions and limitations imposed as a result of the need to avoid personal contact and physical interactions – the parties had been operating under those strictures for many months and were likely to do so for many more. Despite those limitations, many usual business transactions have continued to be carried out by alternate “virtual” means and other appropriate accommodations, albeit with some added inconvenience. Once again, the defendants were aware of this situation when they agreed to the settlement terms.
[25] I am alert to defendants’ counsel’s mention of the specific, recent lockdown measures imposed by the Government of Ontario. In the circumstances of this case and on the record before me, however, I do not consider that to be a factor that would warrant relieving the defendants from their obligations under the deal to which they agreed. The limitations imposed by that measure were not of a nature that would preclude them from refinancing, in my view.
[26] This brings me to the subject of frustration. Defendants’ counsel argued that the COVID-19 pandemic and the most recent lockdown measures were developments that had such an impact on the parties’ situation that the doctrine of frustration should apply to relieve the defendants from their obligations under the settlement. For the following reasons, I do not accept that submission.
[27] The doctrine of frustration was recently summarized by Sanfilippo J. in Bang v. Sebastian, 2018 ONSC 6226 as follows (at paras 27-30):
[27] The doctrine of frustration operates to relieve parties of their bargain because a supervening event has occurred, without the fault of either party, which renders the performance of the contract substantively different than the parties had bargained for. This is seen in Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, at para. 53:
Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes “a thing radically different from that which was undertaken by the contract”: Peter Kiewit Sons Co. of Canada v. Eakins Construction Ltd., 1960 CanLII 37 (SCC), [1960] S.C.R. 361, per Judson J., at p. 368, quoting Davis Contractors Ltd. v. Farehan Urban District Council, [1956] A.C. 696 (U.K. H.L.), at p. 729.
[28] The Supreme Court canvassed earlier cases of frustration that assessed the contractual obligations on an “implied term” theory, namely: “if the contracting parties, as reasonable people, had contemplated the supervening event at the time of contracting, would they have agreed that it would put the contract to an end”: Naylor Group at para. 54. This approach was discarded in favour of a preferred analysis, referred to by the Court as the “radical change in the obligation” approach, namely: has a supervening event occurred that has altered the contract to such an extent that to compel performance would cause one of the contracting parties to do something that is “radically different” than what the parties had agreed to under the contract: Naylor Group at para. 55.
[29] Both approaches, however, share a common element: there can be no frustration if the supervening event was contemplated by the parties at the time of contracting and was provided for or, as in the present case, deliberately chosen not to be provided for in the contract: Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975), 1975 CanLII 726 (ON CA), 9 O.R. (2d) 617, at p. 626 (C.A.).
[30] A party claiming that a contract has been frustrated has the onus of proving the constituent elements necessary to establish frustration: Gerstel v. Kelman, 2015 ONSC 978, 40 B.L.R. (5th) 314.
[28] The question to pose, therefore, is this: Did the ongoing COVID-19 pandemic and the most recent lockdown measures alter the settlement agreement to such an extent that to compel performance would cause the defendants to do something that is “radically different” than what they parties had agreed to do? The answer is “No”. The obligation of the defendants was to pay a specified sum on a specified date, in exchange for specified actions (discharges/assignments of mortgages) by the plaintiffs. The pandemic and the lockdowns did not alter those obligations.
[29] Additionally, the supposed supervening event – the pandemic – was contemplated by the parties at the time of contracting, since it was ongoing then with no prospect of early resolution. Yet the parties deliberately chose not to provide for it in their contract. Thus, there can be no frustration: Capital Quality Homes, above.
[30] On the record before me, the defendants have not discharged the onus of proving the constituent elements to establish frustration. I therefore conclude that doctrine is of no assistance to them.
Conclusion and Disposition
[31] For the above reasons, the plaintiffs’ motion for judgment in accordance with the minutes of settlement is granted. In light of the current lockdown and restrictions that may have an impact on the ability of the defendants to relocate, I direct that no steps may be taken to enforce the writ of possession for a period of 90 days after the current state of emergency in Ontario formally ends.
[32] I encourage the parties to resolve the issue of costs. If they cannot do so by February 8, 2021, they may make written submissions – confined to two double-spaced pages, plus a bill of costs – according to the following timetable:
Plaintiffs and defendants to the counterclaim – February 12, 2021
Defendants – February 19, 2021
[33] The costs submissions should be submitted via email to my assistant. In the event no submission is received from the plaintiffs and defendants to the counterclaim by February 12, 2021, the issue of costs shall be deemed to be resolved by the parties.
Stinson J.
Date: January 29, 2021