SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Vault Capital Inc., Plaintiff
– AND –
Jiaxiang Huang and Yong Shi, Defendants
BEFORE: Justice E.M. Morgan
COUNSEL: Julian Binavince, for the Plaintiff
Gary Caplan, for the Defendants
HEARD: November 23, 2022
AMENDED ENDORSEMENT
1In its statement of claim, the Plaintiff, a mortgagee, seeks judgment on the covenant of the Defendants, mortgagors, with respect to a loan secured against a property with the municipal address 1 Caldy Court, Toronto (the “Property”). The Plaintiff has sought to take possession of the property through self-help; the Defendants seek to enjoin the Plaintiff from doing so.
2The Defendants acknowledge that they borrowed $2,860,000 from the Plaintiff. They acknowledge that the loan is secured by a first mortgage over the Property, that the mortgage matured in August, 2022, and that since August, 2022, the mortgage has been in default.
3Pursuant to section 10 of Standard Charge Terms 200033 (“Standard Charge Terms”), which form part of the security documents with respect to the loan and mortgage, the Plaintiff is entitled to possession of the Property:
Quite Possession
Upon default in payment of principal and interest under the Charge or in performance of any of the terms or conditions hereof, the Chargee may enter into and take possession of the land hereby charged and where the Chargee so enters on and takes possession or enters on and takes possession of the land on default as described in paragraph 9 herein the Chargee shall enter into, have, hold, use, occupy, possess and enjoy the land without the let, suit, hindrance, interruption or denial of the Chargor or any other person or person whomsoever.
4The Defendants say that they neither consented to the Plaintiff’s possession of the Property nor did they abandon it. Their position is that the Plaintiff must obtain an order for possession and a writ of possession, and that if the Defendants still refuse to vacate the Property, the Sheriff must enforce the writ of possession.
5At the core of this motion is the Defendants’ allegation that the Plaintiff did not take possession of the Property in an appropriate and legal way. They seek relief in the form of a mandatory Order restoring possession of the Property to the Defendants.
6In Hume v. 11534599 Canada Corp. 2022 ONCA 575, the Court of Appeal confirmed that a mortgagee can, without notice, take possession of any real property mortgaged in its favour, provided that it has the contractual right to do so and that possession is taken “peaceably”. Since the Defendants acknowledge they were in default and the Plaintiff had the right to take possession of the Property under the mortgage documentation, the only question is whether the Plaintiff’s possession of the Property was obtained “peaceably”.
7The Court of Appeal has indicated that “peaceably” in this context means avoiding the violence and threat of violence often associated with self-help remedies. It also means that a mortgagee must minimize any negative consequences to persons affected by the taking of possession other than the mortgagor – for the most part, the family members of the mortgagor if the property in question is a residential property: Ibid., at para 59.
8Before taking possession of the Property, the Plaintiff did attempt to exercise diligence in investigating whether it was occupied. The Plaintiff’s agent, Anthony Forgione, visited the property more than a dozen times during October 2022, and although he did not enter the house he never saw any sign of occupancy – no one coming or going, no car in the driveway, etc. He concluded and reported to the Plaintiff that the Property was unoccupied.
9Upon entering the house, Mr. Forgione discovered that he was not correct in his conclusion. He found no one present, but did observe that one bed appeared to have been slept in and there was some sparse clothing strewn about.
10The Defendant, Jiaxiang Huang, has deposed that he is divorced and that his spouse, who for some time occupied the main house on the property while he occupied the guest house part of the structure, has moved out. His children also do not live at the Property – his affidavit states, in fact, that he was visiting his daughter who lives in Waterloo, Ontario when the Plaintiff changed the locks on the house. There was no violence or threatened violence between the parties when the Plaintiff took possession of the Property; Mr. Huang was out of town and his spouse, the Defendant Yong Shi, had previously moved out.
11From all appearances, Mr. Huang does use the Property for himself, although it is difficult to say that he uses it as a full-time residence. Counsel for the Defendants has submitted videos of the interior of the house taken by Mr. Huang, and I have reviewed those videos carefully. The Property is a large luxury home with a guest house attached. The videos of its interior show a sparsely furnished house, some food in the refrigerator and some male clothing in the closets and a single jacket on the back of a chair. The bedroom has a bed but no other visible furniture, and there appear to be a number of empty rooms and hallways, with no pictures on the walls, etc.
12The impression is that the house, while not abandoned, is used by a single man but perhaps not as a full-time residence. Mr. Huang’s evidence is that he uses part of the house as his residence and part for business meetings and other business purposes. The videos create the impression that the house is occupied, but that it is used by someone to ‘stay in’ but is not really ‘lived in’ in the usual sense of that phrase.
13The evidence in the record establishes that in the past month Mr. Huang has advised the Plaintiff of two agreements of purchase and sale with interested buyers of the Property, one dated November 1, 2022 and the other dated November 9, 2022. The same real estate agent, Adam Wei, acted for both buyers and sellers in each of those agreements. The Defendants at an earlier stage of this dispute cited these agreements as part of their attempt to delay the Plaintiff taking possession of the Property.
14It would appear that neither of the supposed agreements of purchase and sale were real sales. The lawyer retained by Mr. Wei and his real estate brokerage has acknowledged that there was no written communication between Mr. Wei and either buyer. The agreement dated November 1, 2022 had a requisition date of November 4, 2022, but under cross-examination Mr. Huang stated that he never retained a lawyer with respect to the transaction and that the buyer never paid a deposit. He also conceded that that there has been no deposit paid by the supposed purchaser under the November 9, 2022 agreement.
15Both agreements of purchase and sale now appear to have evaporated; the Defendants are not preparing for a closing under either one. Plaintiff’s counsel is of the view that they were a ruse, concocted by Mr. Huang as a delay tactic. Under the circumstances, I find it hard to disagree with that view.
16During the course of the hearing before me, Defendants’ counsel attempted to explain why Mr. Huang does not just move out of the house since he concedes that the mortgage is in default and that he is obliged under the mortgage to give up the Property to the Plaintiff. Counsel’s view is that the Plaintiff should seek an Order removing Mr. Huang rather than exercise a self-help remedy.
17I understand that as a lawyer’s position, but at the hearing it seemed to me that, under the circumstances, this might be a maneuver for delay by the Defendants, invoking legal formality for its own sake. After all, both sides are aware that it takes many months – currently up to a full year – to obtain a motion date for a civil proceeding.
18Defendants’ counsel explained that the Defendants are not seeking delay for its own sake. He elaborated that Mr. Huang feels that if he is in possession then he can control the eventual sale of the Property and hopefully will get more money out of it than if the Plaintiff controls the sale.
19I appreciate Defendants’ counsel’s forthright answer, although I indicated at the hearing that I did not think that controlling the sale of the Property was a relevant criteria for the Defendants maintaining physical possession. In taking this position, the Defendants confuse the concern the Court of Appeal has expressed for protecting mortgagors in residential properties from personal upset for gaining a financial advantage over the Plaintiff/mortgagee.
20A mortgagor has a right not to be confronted or threatened with violence, and not to be put out of his or her home in an aggressive or oppressive way that leaves families homeless; barring those circumstances, a mortgagee has a right to take possession of the mortgaged property by self-help: Royal Trust v. 880185 Ontario Ltd., 2005 CanLII 13910 (Ont CA). In other words, where a residential mortgage is in default, mortgagors have a right to protect themselves from an oppressive self-help dispossession of their home. But they do not have a right to use those protections as a delay tactic, to obtain a financial advantage they would not otherwise have, and to generally game the system.
21In Hume, at para 59, the Court of Appeal addressed the meaning of “peaceable” in the context of a mortgagee’s self-help possession, as follows:
In the case of residential properties that are occupied, the requirement that possession be taken peaceably may require something more than possession being taken without violence or the threat of violence. Otherwise, mortgagees could change the locks on a residence while the occupants are temporarily away which, while not involving the actual use or threat of violence, dispossesses the owners or occupants of their habitation and personal possessions without giving them an opportunity to make arrangements to move to another location. While such actions may not be violent, they are likely not peaceable.
22Having discovered that the Property, while not exactly fully resided in, was not abandoned, the Plaintiff should have given the Defendants (or, more precisely, Mr. Huang) some time to remove their possessions in an orderly way. They were not dispossessing a family of its habitation as the Court of Appeal described, but they were removing Mr. Huang from some of his possessions and a premises that he uses at least sometimes and for some purposes.
23Accordingly, at a pre-hearing case conference held on November 10, 2022, Justice Myers determined that while the Plaintiff may be entitled to the Property de jure, the Defendants should retain possession de facto pending this hearing. As a result, the state of affairs when the parties attended before me is that Mr. Huang has been back in possession of the Property for the past two weeks. I do not know whether, in the meantime, Mr. Huang has packed what appear on his videos to be his relatively sparse possessions in preparation for moving out of the Property, or has left everything in place hoping that the realities of court scheduling will provide him with another year to occupy the Property as mortgagor in default.
24As Plaintiff’s counsel points out, the only “stakeholders” with respect to the issue of possession of the Property are the Plaintiff and Mr. Huang. The rest of his family is not impacted by the Plaintiff seeking possession of the Property. By agreeing to be bound by the Standard Charge Terms in the mortgage, Mr. Huang consented to the Plaintiff taking possession on default.
25While Mr. Huang himself does suffer some negative consequences as a result of his own default and of the Plaintiff’s remedy, no other individuals are directly effected. There is no irreparable harm to Mr. Huang (or to the other Defendant), and there is no basis to enjoin the Plaintiff from exercising its rights altogether.
26There is, however, a basis for affording Mr. Huang a bit of equitable relief. He does use the Property for business purposes and at least for part-time (or perhaps even full-time) residential purposes. He deserves some time to get his affairs there in order and, possibly, to locate another property for to use in the same way that he uses this one. Under Justice Myers’ interim ruling he has now had a two-week reprieve from the Plaintiff’s right of possession. I would extend that for another 30 days.
27The Defendants shall vacate the Property within 30 days of today, at which time the Plaintiff is entitled to take physical possession of the Property.
28Given the nature of the dispute and the result of my ruling, there will be no costs for or against either party.
Date: November 24, 2022 Morgan J.