Court File and Parties
COURT FILE NO.: CV-20-00649593-0000 DATE: 20220324 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Bank of Montreal Plaintiff – and – SEVEN COLORS ENTERTAINMENT LTD. and MASTER MANOJ MAKHIJA also known as MANOJ MAKHIJA Defendants
Counsel: James S. Quigley, for the Plaintiff By Default
READ at Toronto: March 24, 2022
Reasons for Judgment
S.F. Dunphy J.
[1] This is a motion for judgment by default in writing. I originally received the matter for review during the week of September 13, 2021. I addressed certain questions to counsel for the moving party Bank and have now received their response in writing. I am not rendering judgment in the form originally sought nor in the form sought in the Bank’s revised draft judgment. These are my reasons for the changes I have made.
[2] The action is a straightforward enforcement action by the Bank under three credit facilities with its borrower Seven Colors Entertainment Ltd.:
a. A credit facility under the provisions of the Canada Small Business Financing Act (the “CSBFA facility”) in the principal amount of $270,000 dated July 31, 2019 carrying interest at the Bank’s prime rate plus 3%;
b. An overdraft facility in the principal amount of $70,000 with interest accruing at the Bank’s prime rate plus 2.2%; and
c. A Mastercard facility in the principal amount of $5,000 with interest at the rate of 21%.
[3] There are no particular issues affecting the Bank’s claim under these three facilities as against the Borrower Seven Colors. The Statement of Claim pleads the amounts drawn under each facility, the existence of defaults, the demand for payment (principal plus accrued interest) and the amount of the demand that remains unsatisfied. For some reason, the Bank calculated the amount of the indebtedness under each of the three facilities as of a date 11 days prior to the actual demand being communicated. Be that as it may, I am satisfied on the evidence in the motion record and in the deemed admitted claims in the statement of claim that the amount outstanding under the CSBFA facility was $234,894.56 as of August 27, 2020, $73,466.41 under the overdraft facility and $5,863.14 under the Mastercard facility. The aggregate indebtedness under the three facilities was thus $314,224.11 as of that date. Further interest accrued until the date of demand, thereafter, until the date of the statement of claim, and eventually the date of judgment.
[4] The demand upon both the Borrower Seven Colors and the Guarantor (the principal of the Borrower, Mr. Makhija) was effected by registered letter and regular mail both of which were dated September 8, 2020 and sent both to the registered corporate address of Seven Colors and the home address of the Guarantor.
[5] The registered corporate address turned out to be the address of a completely different business whose tenant denied any knowledge of Seven Colors but noted the periodic receipt of unwanted mail addressed to that entity from time to time. Whether Seven Colors inserted the wrong address on all of its loan documentation and in its corporate registrations with the Ministry deliberately or by accident is a moot point: service of demand and eventually of the Statement of Claim upon the registered address of the corporation was effective as against Seven Colors. The address of Mr. Makhija was his home address as reflected in the Bank’s records and on the corporate registrations made by him on behalf of Seven Colors as an officer and director.
[6] Apart from an inconsequential and obvious typographical error in a date on one of the affidavits of service, I take no issue with service of the demands (or the Statement of Claim that followed) upon either defendant. Both were validly served with demands and the Statement of Claim and were ultimately noted in default.
[7] The date of delivery of the demands is of only passing relevance as regards the Borrower Seven Colors. The date of delivery of the demand started the clock running under s. 244(1) of the Bankruptcy and Insolvency Act but no steps have been taken to enforce security (that have been placed before me at least) and there is no issue before me as to the timing of enforcement steps at all events.
[8] The date of reception of the notice is relevant to the two guarantees since the demand date is what triggers the running of interest post default. Pursuant to Rule 16.06 of the Rules of Civil Procedure, service of a document under the Rules is valid the fifth day after mailing (with time periods under seven days being calculated using business days). While the demand letter is not a pleading subject to Rule 16.06, I find that the Rule is a reasonable rule of thumb to follow, and I do so.
[9] I find that service of the demand letter upon Mr. Makhija as guarantor was effective as of September 15, 2020 being the fifth business day following the mailing of the demand letter.
[10] There are two personal guarantees provided by Mr. Makhija. The first is in respect of the CSBFA Facility and is limited to $67,500 in total. The second is in respect of the Overdraft and Mastercard facilities and is limited to $75,000. Both guarantees are thus for only a fraction of the principal amount of the underlying debts – the quantification of interest and enforcement costs of the underlying loan facilities is of academic interest only as regards the guarantor’s personal liability. The proven debt of the Bank far exceeds the guarantee limit under each facility without regard to interest or enforcement costs.
[11] Given the noting in default and the Bank’s proof of the underlying debts under each of the relevant credit facilities, there can be no serious question raised as to the Bank’s entitlement to judgment in the principal amount of $67,000 and $75,000 respectively as against the guarantor (or $142,500 in total). Each of the guarantees provides for the same post-demand interest rate (the Bank’s prime rate plus 3%). The Bank is therefore entitled to judgment in the amount of $142,500 plus interest from September 15, 2020 (the date demand was effective) at that rate to the date of judgment (being the date of these reasons). That number has not been calculated by the plaintiff but the plaintiff shall be entitled to requisition the Registrar to sign judgment as against Mr. Makhija upon filing an affidavit evidencing the calculation of such interest to the date of the judgment. Post-judgment interest shall accrue thereafter at the same rate of the Bank’s prime rate plus 3% until payment.
[12] The Bank sought to add to its claim under the guarantees half of the full amount of its legal enforcement costs of the principal indebtedness, calculated on a full indemnity basis. The guarantee is clear that enforcement costs of the underlying loan documents are part of the guaranteed obligations. However, the guarantee does not exclude such amounts from the liability limit in clear and express language:
“The liability of the undersigned (or each undersigned, if more than one), under this Guarantee, is limited to the aggregate amount of Sixty-seven Thousand Five Hundred Dollars ($67,500.00), plus interest thereon at a rate of 3.00 per cent per annum above the Bank's prime interest rate in effect from time to time, from and including the date of demand until payment, and legal or other costs, charges and expenses.”
[13] The reference to “legal or other costs, charges and expenses” in context refers to enforcement costs of the guarantee itself and not the costs of enforcement of the underlying facility which are otherwise provided for in the guarantee. It is also to be noted that interest on the guarantee is calculated independently of the underlying principal obligations (which bear three separate rates), further confirming my interpretation of the clause.
[14] The foregoing language is from the guarantee of the CSBFA facility. The second guarantee (of the overdraft and Mastercard facilities) has the same limitation of liability language but is limited to $75,000 instead of $67,500.
[15] In the result, I find that the Bank’s enforcement costs of the Borrower’s obligations are a component of the guaranteed obligations but are subject to the liability caps of $75,000 and $67,500 in each of the guarantees. The principal debt far exceeds these amounts making the question academic. The Bank is also entitled to its enforcement costs of the guarantees themselves (outside the cap) and there is no contractual entitlement in the guarantees to any scale of costs other than the usual scale of partial indemnity costs.
[16] The Bank has failed to provide an Outline of Costs restricted to the guarantees on a partial indemnity scale. The guarantor has taken no steps to hinder the Bank in pursuing its claim which has gone entirely by default. The liability caps on the two guarantees is a fraction of the total indebtedness and the claim under the guarantees was as simple and uncomplicated as can be conceived of but for the Bank’s unsuccessful efforts to obtain judgment in excess of its entitlements. With a properly prepared requisition and affidavit of calculations, judgment under the guarantees at least could have been signed over the counter without the need for a motion in writing. I assess the Bank’s reasonable partial indemnity costs for pursuing its default claim under the two guarantees at $2,500 all inclusive. Post-judgment interest on costs will be calculated at the ordinary post-judgment interest rate.
[17] I am satisfied that the Bank has made out a contractual claim to full indemnity costs as against the Borrower Seven Colours. The Bank has filed a Costs Outline evidencing $17,617.47 in such costs. The outline is far from the leanest I have seen on what should have been a very simple enforcement proceeding. The Bank has incurred further costs since the Outline, but such costs have effectively been the result of seeking relief that it was not entitled to, including seeking blanket declaratory relief under its security without any particulars nor indication of enforcement efforts undertaken. But for that overreach in relation to enforcement, the Bank’s claim as against the Borrower could also have been resolved over the counter with an affidavit of calculations. I shall allow the Bank’s costs as against the Borrower Seven Colors in the amount of $15,000 all inclusive.
[18] In summary, the Bank shall be entitled to requisition the Registrar to sign judgment as against Mr. Makhija as follows:
a. Principal: $142,500
b. Pre-judgment interest: from September 15, 2020 to March 24, 2022 at the plaintiff’s prime rate plus 3% (such calculation to be evidenced by affidavit);
c. Post-judgment interest on the judgment amount at the plaintiff’s prime rate from time to time plus 3%; and
d. Costs fixed in the amount of $2,500 plus post-judgment interest at the post-judgment interest rate as of March 24, 2022.
[19] The Bank shall be entitled to requisition the Registrar to sign judgment as against the Borrower Seven Colors as follows:
a. The CSBFA Facility:
i. Principal plus accrued interest as of August 27, 2020: $234,894.56;
ii. Prejudgment interest from August 28, 2020 to March 24, 2022 at the Bank’s prime rate from time to time plus 3% (such calculation to be evidenced by affidavit);
iii. Post-judgment interest at the Bank’s prime rate from time to time plus 3% until payment in full;
b. The Overdraft Facility:
i. Principal plus accrued interest as of August 27, 2020: $73,466.41;
ii. Prejudgment interest from August 28, 2020 to March 24, 2022 at the Bank’s prime rate from time to time plus 2.2% (such calculation to be evidenced by affidavit);
iii. Post-judgment interest at the Bank’s prime rate from time to time plus 2.2% until payment in full;
c. The Mastercard Facility:
i. Principal plus accrued interest as of August 27, 2020: $5,863.14;
ii. Prejudgment interest from August 28, 2020 to March 24, 2022 at the rate of 21% per year (such calculation to be evidenced by affidavit);
iii. Post-judgment interest at the rate of 21% per year until payment in full;
d. Costs: $15,000 all inclusive plus post judgment interest at the post-judgment interest rate as of today’s date.
S.F. Dunphy J.
Released: March 24, 2022
Additional Information
COURT FILE NO.: CV-20-00649593-0000 DATE: 20220324 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Bank of Montreal Plaintiff – and – SEVEN COLORS ENTERTAINMENT LTD. and MASTER MANOJ MAKHIJA also known as MANOJ MAKHIJA Defendants
REASONS FOR JUDGMENT S.F. Dunphy J.