Court File and Parties

Court File No.: CV-18-1806 Date: 2021-11-29 Superior Court of Justice - Ontario

Re: 2343680 Ontario Inc., Plaintiff And: Mahshid Bazargan and Shahryar Mohammadi, Defendants

Before: Justice C. Boswell

Counsel: Melvin Rotman and Peter Verbeek for the Plaintiff Aryan Kamyab for the Defendants

Heard: Cost Submissions in Writing

Costs Endorsement

[1] The plaintiff moved for summary judgment in this mortgage enforcement action on September 14, 2021. I granted their motion on November 13, 2021 for reasons reported as 2021 ONSC 6752. I invited the parties to make written submissions on costs, which they have done. The following sets out the costs I award and my reasons for doing so.

The Governing Principles

[2] An award of costs, and the amount of the award, are in the court’s discretion. That discretion is grounded in section 131 of the Courts of Justice Act, R.S.O. 1990 c. C.43. Its exercise is guided by Rule 57.01 of the Rules of Civil Procedure.

[3] Rule 57.01 lists a number of factors for the court to consider in the assessment of costs which include, but are not limited to the following:

(a) the complexity of the proceeding;

(b) the importance of the issues;

(c) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(d) whether any step in the proceeding was improper, vexatious or unnecessary or taken through negligence, mistake or excessive caution;

(e) the principle of indemnity; and,

(f) the concept of proportionality, which includes at least two factors:

i. the amount claimed and the amount recovered in the proceeding; and,

ii. the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed.

See Elbakhiet v. Palmer, 2014 ONCA 544.

[4] The weight to be applied to any of the enumerated, or other, factors in any given assessment may vary. It is, however, now well-settled that the overarching principles to be observed in the exercise of the court’s discretion to fix costs are fairness, proportionality and reasonableness: see Beaver v. Hill, 2018 ONCA 840; Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.); and Moon v. Sher (2004), 246 D.L.R. (4th) 440 (C.A.).

[5] By convention, costs will be awarded to a successful party and will generally be measured on a partial indemnity basis: Bell Canada v. Olympia & York Developments Limited et. al. (1994), 17 O.R. (3d) 135 (C.A.). This general rule accords with common sense and serves a number of purposes, identified by Perrell J. in 394 Lakeshore Oakville Holdings Inc. v. Misek, 2010 ONSC 7238, [2010] O.J. No. 5692 (S.C.J.), at para. 10 including: (1) the indemnification, at least to some extent, of successful litigants; (2) the facilitation of access to justice; (3) the discouragement of frivolous positions and/or inappropriate behaviour; and (4) the encouragement of settlements.

[6] Appellate courts have directed that there are two circumstances in which elevated costs may be justified: (1) where they are triggered by the cost consequences of an offer to settle under Rule 49.10; and, (2) where the losing party has engaged in reprehensible, scandalous or outrageous conduct: see Davies v. Clarington (Municipality), 2009 ONCA 722, at para. 28. See also Young v. Young, [1993] 4 S.C.R. 3, at para. 241 and Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239 at para. 43.

The Parties’ Positions

[7] The plaintiff’s motion was successful. It submits that costs should follow the event in the usual manner. Partial indemnity costs are sought in the amount of $22,126.11, inclusive of fees ($16,220.00), disbursements ($3,410.00) and HST (2,496.11).

[8] The defendants’ position is somewhat more complex. The bottom line is that they say the plaintiff should be awarded no costs. But they go further and submit that they should be awarded their costs, assessed on a substantial indemnity basis. They seek $101,830.30, inclusive of fees ($87,816.60), disbursements ($2,596.54) and HST ($11,416.16).

[9] The gist of the defendants’ position is that this action was prolonged, and the summary judgment motion lengthened and made more difficult to resolve, by virtue of a position taken by the plaintiff that was simply wrong in law.

[10] The plaintiff was a second mortgagee. The principal of the second mortgage was $371,250. The applicable interest rate was 13.99%. On December 14, 2018 the second mortgagee bought out the first mortgage for $1,598,782.35. The original principal amount of the first mortgage was $1,608,750. The applicable rate of interest for the first mortgage was 7.29%.

[11] Between December 14, 2018 and May 14, 2021, the plaintiff took the position that it was entitled to charge 13.99% interest on the amount it paid to buy out the first mortgage. During cross-examination of Ms. Bazargan on May 14, 2021, the plaintiff’s counsel conceded that it was lawfully entitled to charge only 7.29% on the balance of the first mortgage.

[12] They defendants say they made a proposal to pay out the first and second mortgages in December 2019 for $2.1 million, which figure was based on interest owing on the first mortgage at 7.29%. They say their offer was rejected by the plaintiff who, at the time, demanded interest at a rate of 13.99% on the balance owing on the first mortgage.

[13] The plaintiff’s motion for summary judgment was initiated on November 18, 2020. Again, the plaintiff sought interest on both the first and second mortgages at a rate of 13.99%. It was not until August 31, 2021 that the plaintiff filed a revised factum with the court, indicating that it was seeking only 7.29% interest on the balance attributable to the first mortgage.

[14] The defendants seek their costs on a substantial indemnity basis, despite the fact that they technically lost the motion, based on:

(a) An assertion that the plaintiff’s conduct in seeking 13.99% interest on the first mortgage balance amounted to reprehensible conduct, was vexatious and caused the proceedings to be significantly prolonged; and,

(b) Their offer to settle for $2.1 million made in December 2019. They say the result on the motion was better for them than the amount offered roughly two years ago.

Discussion

[15] There is no question that the plaintiff succeeded on its motion for summary judgment. It is, in my view, prima facie entitled to its costs, fixed on a partial indemnity scale. It asks for no more than that.

[16] Whether the plaintiff should be deprived of its costs, or whether it ought to have to pay costs, depends on my assessment of the defendants’ two-pronged argument. I will address each prong in turn, beginning with the defendants’ purported offer to settle.

The Purported Offer to Settle

[17] The defendants say they made an offer to pay out both the first and second mortgages in December 2019 for $2.1 million. That offer was purportedly conveyed to the plaintiff by a mortgage broker named Cynthia Salomon.

[18] The evidence tendered in relation to the purported offer is found at paragraphs 45-57 of the affidavit of Mahshid Barzagan sworn December 22, 2020. Those paragraphs provide as follows:

45. I have made numerous attempts to refinance the Property to discharge the Second Mortgage. In or about December 2019, Cynthia Salomon, a mortgage agent representing Luisa contacted me and advised that she may be able to refinance the Property. She advised that Luisa was seeking a payout of $2,100,000 for the entirety of the Second Mortgage. Cynthia further advised that she was able to secure a mortgage for $2,400,000.00 with an 85% loan to value ratio. Attached and marked Exhibit “AA” is the text message exchange between Cynthia and I dated December 19, 2020 (sic).

46. On or about February 18, 2020, Luisa changed her mind and advised that she would need $2,377,655.37 to discharge the Second Mortgage. Cynthia and I were surprised by Luisa’s change of position. At that juncture, Cynthia stated, “I’ve decided not to get involved with your file from this moment to keep my sanity dignity” (sic). Attached hereto and marked as Exhibit “BB” is the text exchange between Cynthia and I (sic).

47. Initially in December 2019, Luisa sought $2,100,000.00 in exchange for the discharge of the Second Mortgage because she knew what she had done to me was improper, and she could not legitimately seek 13.99% interest on the amount she had paid to MCC to discharge the First Mortgage. However, by February 18, 2020 (sic).

[19] The “Luisa” mentioned at in the foregoing passages refers to the principal of the plaintiff, Luisa Araujo.

[20] I have read the text messages attached at Exhibits “AA” and “BB”. They involve some discussion about the payout of the balance owing from the defendants to the plaintiff. At no point do they reflect an offer made by the defendants to the plaintiff to pay $2.1 million to discharge the first and second mortgages.

[21] Moreover, there is a dispute as to whom Ms. Salomon was representing. Ms. Araujo denies that Ms. Salomon was her agent and says instead that Ms. Salomon was representing the defendants in their attempt to refinance. It was unnecessary for me to resolve that factual dispute in order to decide the summary judgment motion. I have reached no conclusion about who Ms. Salomon represented and am, frankly, unable to do so on the record before me.

[22] I am not, in the circumstances, satisfied that any offer was ever made by the defendants to the plaintiff that may have an impact on the costs consequences of the motion. Even if an offer had been made to pay $2.1 million, I have no basis upon which to conclude that the amount awarded to the plaintiff herein, $2,472,657.91, is a better result for the defendants than what they purportedly offered in December 2019. The defendants offered no particulars to back up that assertion.

[23] I understand that the defendants made a formal offer to resolve the motion in May 2021 for $2,050,000, all-inclusive. That offer was not accepted. The plaintiff has bettered that offer in terms of the result achieved on the motion.

[24] In short, I am entirely unpersuaded by the defendants’ submission that they made an offer to settle that justifies an award of costs in their favour.

The Assertion of Reprehensible Conduct

[25] The plaintiff maintained the position, for a considerable period of time, that she was entitled to charge 13.99% interest on the amount she paid to buy out the first mortgage. That position was consistent with the terms of the second mortgage, but inconsistent with s. 8 of the Interest Act, R.S.C. 1985, c. I-15.

[26] The plaintiff’s conduct was not, in my view, reprehensible, scandalous or outrageous. It was legally incorrect.

[27] Nothing in the plaintiff’s conduct supports an award of substantial indemnity costs in favour of the defendants.

[28] The defendants have done their best to paint themselves out to be victims of the plaintiff. They asserted, in defence to the summary judgment motion, that they should be required to pay no interest on either the first or second mortgage from and after December 15, 2018 because the plaintiff had purportedly breached its duty of honest contractual performance. I rejected that argument. With respect to costs, they assert that they have been victimized by the plaintiff’s position regarding the interest rate, yet they took no steps to bring that issue to a head. Instead, they purport to have incurred $100,000 in costs in their defence of a relatively straightforward mortgage action. And that has not even seen them through to a pre-trial.

[29] The defendants are not victims. They have not paid anything towards the principal or interest on roughly $2 million in financing against their home in three years.

[30] Having said that, I agree with their position to this extent: the plaintiff increased the cost of litigation, prolonged the proceedings, and made settlement considerably more difficult, if not impossible, by maintaining an unsustainable position with respect to the interest it was entitled to. There have to be cost consequences associated with that conduct, even if it does not rise to the level of “reprehensible”.

[31] The plaintiff’s submissions in relation to the motion and to the costs issue confirm their view that this action was a simple and straightforward mortgage enforcement proceeding. It was made more difficult, they say, by the defendants’ assertion of a breach of the duty of honest contractual performance. I agree. But in my view the plaintiff’s insistence on an extremely high rate of interest that it was not entitled to, was such an aggravation to the defendants that it is not surprising that they took the position they did.

[32] The defendants have not paid anything on their mortgages. They ought reasonably to have expected to be sued. Even when sued, they paid nothing on their mortgages. Again, they ought to have expected that the litigation would be pursued to a judgment in one way or another. They ought to have expected that they would incur costs along the way.

[33] Having considered the plaintiff’s conduct, which prolonged the case and hindered resolution, I limit their costs to $10,000, plus HST of $1,300. The plaintiffs have sought disbursements totalling $3,410. Of that sum, $1,650 is sought for “editing, formatting and filing”. I do not know that means and am not prepared to allow it. Disbursements are fixed at $1,760. The total costs owing are $13,060, which are payable within 30 days.

[34] In making submissions on costs, the plaintiff’s counsel alerted me to the fact that I had not dealt in my previous ruling with the issue of possession of the mortgaged premises. The summary judgment motion did request an order for possession. Based on the circumstances of the case and the obvious default under both the first and second mortgages, the plaintiff is entitled to possession of the mortgaged property. The plaintiff shall be at liberty to obtain a writ of possession against 43 Grayfield Drive, Stouffville, Ontario, being legally described as Lot 21, Plan 65M3848, S/T Ease for Entry as in YR838104, Town of Whitchurch-Stouffville, PIN 03683-0584 LT.

C. Boswell J.

Date: November 29, 2021