Court File and Parties

COURT FILE NO.: CV-21-00660391-00CL

DATE: 20220204

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ADITCORP HOLDINGS INC. and JUDY MING LI, Applicants/Respondents by Counter Application

AND:

2535679 ONTARIO INC. and SUDESH MUTHUNAWAGONNA, Respondents/Applicants by Counter Application

BEFORE: Justice Cavanagh

COUNSEL: Jonathan Kulathungam and Gathyayini Manoharan for the Applicants/ Respondents by Counter Application

Fred Tayar for the Respondents/Applicants by Counter Application

Lisa Corne for First and Second Mortgagees

HEARD: February 2, 2022

ENDORSEMENT

Introduction

[1] Aditcorp Holdings Inc. (“Aditcorp”) and Judy Ming Li (together, the “Lenders”) bring this application for an order appointing a receiver, without security, of certain property municipally known as 71 Steinway Boulevard, Etobicoke, Ontario (the “Property”) pursuant to s. 243 of the Bankruptcy and Insolvency Act (“BIA”) and s. 101 of the Courts of Justice Act (“CJA”).

[2] The Property is owned by 2535679 Ontario Inc. (“253”). 253 acquired the Property for the purpose of operating a plastics product supply company. Sudesh Muthunawagonna (“Sudesh”) is the shareholder of 253.

[3] A third mortgage was registered against title to the Property on November 14, 2019 by Aditcorp and Ms. Li as mortgagees and 253 as mortgagor securing the stated principal amount of $825,000 (the “Mortgage”). Sudesh is a guarantor of the indebtedness secured by the Mortgage.

[4] The Lenders submit that the Mortgage is in default and they seek the appointment of a receiver under their mortgage security.

[5] 253 Ontario and Sudesh dispute that the Mortgage is valid and enforceable. Alternatively, they challenge the amount of the indebtedness secured by the Mortgage as claimed by the Lenders. They deny that it would be just or convenient for a receiver to be appointed.

Background Facts

[6] 253 is the owner of the Property. The Property is a 4.23 acre lot with a 55,000 square foot industrial building. Sudesh, through another company, operates a plastic production manufacturing business on the Property.

[7] The Lenders are private investors.

[8] By letter dated November 12, 2019 Aditcorp and Ms. Li as lenders and 253 as borrower and Sudesh as guarantor executed a commitment (the “Aditcorp Commitment”) pursuant to which the Lenders agreed to advance the aggregate principal amount of $550,000 to 253. The form of the Aditcorp Commitment Letter appended to the affidavit of Sudesh shows, after handwritten alterations, $300,000 opposite Aditcorp and $250,000 opposite Judy Ming Li.

[9] The Loan Amount in the Commitment Letter states “$550,000 advanced as follows:”

a. 228,000 outstanding commissions payable;

b. 250,000 soft costs funded for loan closing;

c. 72,000 interest reserve.

[10] The mortgage is shown to be a third mortgage behind a first mortgage of $6,000,000 and a second mortgage of $1,600,000. The term of the Mortgage is “open for repayment one (1) months interest as bonus and 30 day notice”. The interest rate is stated to be “Higher of 12.99%, or TD Prime Rate + 9.04%. Interest Rate is compounded monthly, not in advance.” Opposite the term “Amortization” the Commitment Letter states: “Interest Only”. Opposite the term “Lender Fees”, the Commitment Letter states “3.0%”.

[11] The Commitment Letter states that the security is to be a first mortgage for 150% of the loan amount on the Property; Guarantees from all Guarantor(s); and “[a]ny additional security as deemed necessary by the Lender and/or its solicitor at their unfettered discretion”.

[12] The Mortgage was registered against title to the Property on November 11, 2019. The principal amount of the mortgage is stated to be $825,000 with interest-only payments and a balance due date of December 1, 2020. The Mortgage provides for payment on the first day of each and every month with the first payment date of January 1, 2020. The guarantor is stated to be Sudesh. The Commitment Letter includes other terms and conditions including a condition that 253 shall not further encumber the Property without the prior written consent of the Lender.

[13] The affidavit in support of the application by Aditcorp and Ms. Li was sworn by Aditya Anand, a director and officer of the Aditcorp.

[14] Mr. Anand states in his affidavit that in addition to the Mortgage, funds advanced to 253 were secured by way of a guarantee and postponement of claim from Sudesh and a general security agreement. Mr. Anand states that in contravention of the Commitment Letter, on January 17, 2020 253 granted a subsequent charge in favour of DJ Line Holdings Inc. in the principal amount of $1,004,678.50. Mr. Anand states that the Mortgage matured on December 1, 2020 and 253 failed to repay the debt.

[15] On December 4, 2020, the lenders, through their lawyers, demanded payment of all amounts due under the Mortgage. By letter dated December 30, 2020, the Lenders, through their counsel, issued a subsequent demand and delivered a notice of intention to enforce their security under the BIA. Mr. Anand states that the amount of indebtedness in the December 30 demand was $627,245.38. He states that 253 owes in excess of this amount to the Lenders and, since the loan matured, 253 has been unable to repay the debt.

[16] Mr. Anand states that he is not aware of 253 having any viable sources of funding available to them sufficient to satisfy the current indebtedness, and the Lenders have lost faith in the ability of 253 to repay the indebtedness in either the near or long term.

[17] 253 and Sudesh oppose the appointment of a receiver and seek relief in respect of the Mortgage on their Counter Application.

[18] Sudesh asserts that in early 2018 he hired Vijaya Lahoti, a mortgage broker, to obtain mortgage financing the 253 would use to satisfy and replace the then-existing mortgages encumbering the Property. Sudesh is provided affidavit evidence in which he asserts that Ms. Lahoti:

a. failed to obtain the requested financing herself;

b. hired a third party to obtain that financing at 253’s expense, without his knowledge;

c. advised 253 not to show the relevant commitment letter to its lawyers;

d. misled 253 about the amount of financing that had been arranged;

e. allegedly arranged to have 253 pay twice for the same service;

f. arranged for 253 to accept supplemental financing from another client of Ms. Lahoti’s, without disclosing a conflict of interest; and

g. arranged to have 253 hire the Lenders’ lawyer to represent it in the mortgage transaction without informing 253 that the lawyer also represented the Lenders.

[19] 253 and Sudesh submit:

a. The Mortgage should be discharged because (a) the Commitment was altered after 253 and Sudesh executed it, to their prejudice; (b) 253 and Sudesh were denied independent legal advice; and/or (c) the application of subsection 2(d) of the Unconscionable Transactions Relief Act.

b. This Court should determine the amount properly needed to discharge the Mortgage; and

c. If the Mortgage is valid, it would not be just and convenient for a receiver to be appointed.

Analysis

[20] The issues on these applications are:

a. Is the Mortgage void or unenforceable?

b. If the Mortgage is enforceable, what is the amount needed to discharge it?

c. Should a receiver be appointed over the Property?

Issue One: Is the Mortgage is void or unenforceable?

[21] 253 and Sudesh submit that the Aditcorp Commitment is void or unenforceable for one or more of three reasons. I address each argument below.

(a) Was the Aditcorp Commitment altered in a way that was material and prejudicial to the Respondents and, if so, is the legal effect of the alteration that the Aditcorp Commitment and the Mortgage are unenforceable?

[22] There are three versions of the Aditcorp Commitment in the materials before me. One version is appended as Exhibit “C” to the affidavit of Aditya Anand sworn March 12, 2021 in the Application Record as filed. This version is a typewritten document, without handwritten alterations, and provides that Aditcorp is lending $300,000 and Ms. Li is lending $250,000. Sudesh appends as an exhibit to his affidavit another version of the Aditcorp Commitment which, he deposes, was altered and initialed by Judy Ms. Li after he signed it. This version, in the typewritten text before handwritten alterations, shows Aditcorp lending $370,000 and Ms. Li lending $180,000, with changes in handwriting striking out these amounts and showing Aditcorp lending $300,000 and Ms. Li lending $250,000. This version is also found in the Application Record uploaded by the Lenders to CaseLines for this hearing as Exhibit “C” to the affidavit of Aditya Anand.

[23] Each version shows an aggregate amount to be loaned of $550,000. The stated rate of interest in each version is “Higher of 12.99%, or TD Prime Rate + 9.04%. Interest Rate is compounded monthly, not in advance.”

[24] The evidence does not disclose who made the handwritten alterations or when they were made. The evidence does not disclose why there are two typewritten versions.

[25] The Respondents submit that the alteration was prejudicial to them because (if enforced) it would increase the cost of the Mortgage to them. They say this because the alteration increased the proportion of the loan advances attributable to Ms. Li by $70,000 and correspondingly decreased the proportion attributable to Aditcorp. The Respondents submit that Ms. Li is improperly claiming interest at the rate of 25% per annum, whereas, Aditcorp is claiming interest at 12.99%. They submit, therefore, that the alteration increased the cost of the Mortgage to the Respondents by a sum equal to the difference between (i) interest on $70,000 at 12.9% per annum over the period from November 13, 2019 to the date of payment, and (ii) interest on the same sum over the same period at the rate of 25% per annum.

[26] I disagree with the Respondents’ submission in this regard. The Aditcorp Commitment provides for interest at the rate of 12.99%. The Lenders do not assert that a higher interest rate applies. Ms. Li gave evidence that she expected to be repaid $250,000 at the end of the year, after her advance of $200,000. She may have had this expectation when this evidence was given, but there is no factual or legal basis to support an obligation on the part of the Respondents to pay interest at a higher rate than 12.99%. The handwritten alteration to the Aditcorp Commitment to change the allocation of principal advances between the two lenders, if enforced, would not have been prejudicial to the Respondents.

[27] The Respondents submit that even if the alterations are not prejudicial, the Aditcorp Commitment is unenforceable because the alterations were material in that they changed the allocation of principal advances between the two lenders. They rely on a decision of the British Columbia Supreme Court in Petro Canada Exploration Inc. v. Tormac Transport Ltd., 1983 CanLII 465 (BC SC). In that case, an employee of a lender added red wafers beside the signatures of personal guarantors of the indebtedness of a company. The hearing judge concluded that the addition of the wafers showed a clear intention on the part of the lender’s employee unilaterally to transform the undertaking made without seal into an instrument under seal, which was not authorized by the guarantors and was contrary to the express terms of the documents.

[28] The hearing judge cited legal authorities regarding the effect of unauthorized alteration of instruments beginning with Pigot’s Case (1614), 11 Co. Rep. 266, 77 E.R. 1177. The hearing judge held that the alteration when made was material (because there was unpaid past indebtedness for which the makers, by virtue of the sealing, would have been liable) but it was no longer material (because subsequent advances were made that would have bound the guarantors). The hearing judge then addressed whether the unauthorized alteration still rendered the altered document unenforceable.

[29] The hearing judge cited other authorities in British Columbia, including Johnson v. Trobak, 1977 CanLII 1625 (BC CA) which approved the following statements in 9 Hals. (4th) 413:

597 ... If, after a written contract has been executed a promisee intentionally alters it in a material respect without the consent of the promisor, whether by adding anything to it or by striking out any part of it or otherwise the promisor is discharged, even if the original words can still be read. The rule applies not only to contracts under seal, but to all contracts in writing and written instruments.

1378 ... A material alteration is one which varies the rights, liabilities or legal position of the parties as ascertained by the deed in its original state, or otherwise varies the legal effect of the instrument as originally expressed, or reduces to certainty some provision which was originally unascertained and as such void, or which may otherwise prejudice the party bound by the deed as originally executed.

The effect of making such an alteration without the consent of the party bound is exactly the same as that of cancelling the deed.

[30] The hearing judge in Petro Canada held, at para. 22, that the rule excluding altered documents, in its modern application, appears to rest on the principal or policy that the law will not assist a party to enforce a bargain who has placed the other party in jeopardy by unilateral alteration of the instrument by which their bargain was made.

[31] The Lenders rely on Bank of Montreal v. Riley, 1988 CanLII 3875 (AB QB), at para. 11, where the court held,

There has been a trend away from a rigid application of the rule, particularly with respect to what is a material alteration, which is evident in two cases involving guarantees, Canadian Imperial Bank of Commerce v. Skender , 1985 CanLII 239 (BC CA), [1986] 1 W.W. R.284 (B.C.C.A.), and Bank of Montreal v. Scott (1986), 1986 CanLII 1777 (ABQB), 76 AR 19; 49 Alta L.R. (2d) , upheld on appeal 15 April 1987, No. 188288 (Alta). 117. These decisions indicate that the alteration must make a significant difference in favour of the promisee and the fundamental character of the contract or in the legal operation of the document.

[32] I do not need to decide whether, in Ontario, the less rigid application of the rule as described in Riley applies. Contrary to the Respondents’ submission, the alteration did not change the cost of the loan to 253 and Sudesh, to their prejudice. The cost of the loan remained the same. Even under the rule as explained in Petro Canada, the alteration of the Aditcorp Commitment to change the allocation of the principal advances between the two lenders was of no consequence to the Respondents. The alteration was not material.

[33] The Aditcorp Commitment is not unenforceable by virtue of the handwritten alterations.

(b) Is the Aditcorp commitment void and unenforceable because the Respondents did not receive independent legal advice?

[34] The Aditcorp Commitment provides, in Schedule A, that “[f]or all mortgages over the amount of $50,000 independent legal advice for the mortgagor is required.”

[35] The evidence of Sudesh is that when he signed the Aditcorp commitment, there was no schedule. It was a three page document. Ms. Li gave evidence on her cross-examination that she signed the three page document and she agreed that there was no Schedule A attached at the time.

[36] The Respondents submit that although they retained a law firm to represent them (a firm recommended by Vijaya Lahoti, the mortgage broker retained by 253 to obtain mortgage financing for 253), the lawyers were not independent because they also represented the Lenders. Sudesh’s evidence is that he and 253 did not receive any legal advice and he and his wife were simply given the mortgage documents and told to sign, and they did as they were told. The lawyer did not give evidence on this application.

[37] The Respondents submit that because they were denied independent legal advice, a requirement of the Aditcorp Commitment, the Mortgage is unenforceable against them.

[38] In support of this submission, the respondents rely on Lumen v. Premier Electric Inc., 1998 CanLII 3247 (Ont. C.A.). In Lumen, the appellant appealed a judgment against her based on a settlement agreement. One of the provisions of the settlement agreement required that the appellant “shall provide a certificate of independent legal advice with respect to the settlement”. No such certificate of independent legal advice was ever obtained or provided. The appellant argued that the provision regarding independent legal advice was a condition of the settlement agreement and that, without it, the settlement agreement was unenforceable against the appellant. The Court of Appeal agreed:

Having regard to the chronology of events and to the financial position of the corporate defendant and the bankruptcy of the appellant’s husband, it is most unlikely that anyone giving independent legal advice to the appellant would have counselled her to agree to the settlement and to give the promissory note and mortgage for which it called. Any argument that the provision in question was inserted solely for the benefit of the plaintiff and could be waived by it is foreclosed by the evidence, given by the plaintiff’s solicitor on the cross-examination on his affidavit, that the insertion of that provision was a matter of prudence and thus protection for both the respondent and the appellant and their respective solicitors. In our view, that condition having failed, the appellant was not bound by the remaining terms of the settlement agreement and judgment should not have passed against her.

[39] The Lenders rely on Duca Community Credit Union Ltd. v. Fulco Automotive Ltd., 2002 CarswellOnt 5350. In Fulco, the plaintiff’s claim was against the defendant, as mortgagor, for payment of the balance owing due under covenants contained in the mortgage. The letter of commitment provided that the mortgagor was to obtain independent legal advice. The trial judge concluded that “it makes no sense that such a clause would be inserted into the contract for the benefit of [the mortgagor]. She could, on her own initiative, get independent legal advice, if she wished it, irrespective of the contents of the contract. The only sensible interpretation is that the clause was for the benefit of the plaintiff”. The trial judge concluded that the plaintiff, by proceeding with the transaction, must be taken to have waived the clause for its benefit.

[40] The trial judge then addressed whether the transaction was unconscionable because the defendant did not receive independent legal advice before signing the mortgage. The trial judge found that the defendant had a sophisticated business understanding of the transaction, she understood that she was signing a mortgage, and she understood the liability she undertook by signing it. The defendant also signed the mortgage as an officer of Fulco, a corporation. The trial judge found that the defendant received legal advice from a lawyer who explained the standard charge terms and the lender’s rights to her. The trial judge found that the fact that the defendant did not receive independent legal advice does not make the transaction unconscionable. On appeal, the Court of Appeal held that the trial judge made findings of fact that are supported by the evidence and that the trial judge properly applied the law to those facts: Duca Community Credit Union Ltd. v. Fulco Automotive Ltd., 2003 CanLII 40349 (ON CA).

[41] The provision in Schedule A of the Aditcorp Commitment is like the provision in Fulco. Unlike in Lumen, there was no evidence given on these applications of the purpose of this provision in Schedule A. Schedule A seems to be a set of standard terms, and there is no evidence that these terms were the subject of negotiations. I interpret the provision in Schedule A for independent legal advice in the same way as did the trial judge in Fulco. This provision (assuming for purposes of this argument by the Respondents that it formed part of the Aditcorp Commitment) was for the benefit of the Lenders. The Lenders did not breach the terms of the Aditcorp Commitment by proceeding with the Mortgage loan transaction.

[42] The evidence is that Sudesh completed grade 10 in Sri Lanka before immigrating to Canada and he had no schooling in Canada. His first language is Sinhalese. He is able to speak conversational English, although his ability to read and write English is limited. Sudesh operates a recycling business at the Property through a corporation. He has signed mortgage documents in the past.

[43] Sudesh gave evidence that he received from the mortgage broker he had retained, Ms. Lahoti, a commitment letter from Ontario Wealth Management Corporation (“Owemanco”) in early October 2019 (the “Owemanco Commitment”). The loans were to pay out prior existing first and second mortgages. He signed the Owemanco Commitment on the advice of Ms. Lahoti.

[44] Ms. Lahoti recommended that Sudesh retain Schneider Ruggiero Spencer Milburn LLP. 253 retained this firm. On November 13, 2019, Sudesh and his wife met with Mr. Ruggiero. They did not know that he was also Aditcorp’s lawyer. They signed mortgage documents for the Owemanco mortgages which took approximately one hour. After that, Mr. Ruggiero left the room and Ms. Lahoti entered with Ms. Li. Ms. Lahoti told Sudesh that the Owemanco mortgages were insufficient to discharge the prior mortgages and that she had arranged for Ms. Li to advance a further $200,000 to take out the prior mortgages. Ms. Lahoti advised Sudesh that Mr. Ruggiero would be coming back and he would have to execute further mortgage documents. Sudesh was told that the mortgage would secure more than $200,000 because it was also intended to secure future advances to 253 and those funds would be advanced after the new mortgage was registered. Mr. Ruggiero then returned with documents to be signed relating to Judy Li’s mortgage of $200,000 and the further advance to be received later.

[45] On his cross-examination, Sudesh testified that he received the Aditcorp Commitment by email from Ms. Lahoti the night before he signed the Mortgage and he signed it and sent it back. He did not read it because he knew that Ms. Lahoti was arranging a mortgage loan and he had signed many papers with her before that occasion and he trusted her. He attended at Mr. Ruggiero’s office the next day who told him he was getting a new mortgage and there were a lot of papers to sign. The lawyer did not go through the documents as Sudesh was signing them, and just told him in general what was going on, and showed Sudesh and his wife where to sign. Sudesh knew that the documents were for the mortgage loan and he did not ask questions.

[46] In Bank of Montreal v. Featherstone, 1989 CanLII 4218 (ON CA), the Court of Appeal heard appeals from judgments against wives of borrowers on their personal guarantees where no independent legal advice was given prior to the guarantees being signed. The Court of Appeal held:

The failure of a wife to obtain independent legal advice before executing a guarantee will not in every case entitle her to escape liability under the guarantee. The obvious purpose of the bank in requesting a certificate of independent legal advice is to avoid, if possible, the spouse’s later defences such as non est factum, unconscionability, fraud, misrepresentation or undue influence. The burden of proving each of these defences rests upon the person seeking to set aside the guarantee.

[47] The evidence shows that Sudesh, an experienced businessman, knew he was signing mortgage documents for a mortgage loan. He did not ask questions of Mr. Ruggiero because he knew that the documents were for a mortgage loan. Sudesh had received the Aditcorp Commitment the night before and chose not to read it because he trusted Ms. Lahoti. 253 received the benefit of the advances made under the Mortgage.

[48] On the evidence, I do not accept that the Respondents have shown that the Mortgage is unenforceable because the Respondents did not receive independent legal advice.

(c) Does the Unconscionable Transactions Relief Act relieve the Respondents of their obligations?

[49] The Unconscionable Transactions Relief Act, R.S.O. 1990, c. U.2 provides in s. 2:

Where, in respect of money lent, the court finds that, having regard to the risk and to all the circumstances, the cost of the loan is excessive and that the transaction is harsh and unconscionable, the court may,

(a) reopen the transaction and take an account between the creditor and the debtor;

(d) set aside either wholly or in part or revise or alter any security given or agreement made in respect of the money lent, and, if the creditor has parted with the security, order the creditor to indemnify the debtor.

[50] The Respondents submit that the unfairness of the Aditcorp Commitment and the Mortgage are such that the cost of the loan is excessive in the circumstances of the loan transaction render the transaction unconscionable. They submit that the Mortgage should be discharged and the Aditcorp Commitment declared void.

[51] Although the Mortgage is stated to secure the principal amount of $825,000, it was known to Sudesh that the stated amount of the Mortgage would be higher than the amounts advanced when the Mortgage was registered. The Mortgage does not secure amounts that were not advanced to 253. The interest rate under the Aditcorp Commitment, while high, is not excessive. I do not find that the Mortgage, which secures advances made thereunder, is unconscionable.

[52] The Respondents have not shown that the Mortgage is void or unconscionable and should be set aside under the Unconscionable Transactions Relief Act.

Issue Two: What is the amount of the indebtedness secured by the Mortgage?

[53] The Respondents in their counter application ask for an order determining the amounts owing under the Mortgage. I heard submissions from the Respondents and the Lenders with respect to this claim.

[54] There are several issues that arise:

a. Does the Mortgage secure the brokerage fee in the amount of 1.5% of the “Loan Amount” of $7,600,000 stated in the Owemanco Commitment to be payable to Anbros Financial Inc.?

b. Does the Mortgage secure a second brokerage fee of $114,000 stated in a Letter of Direction dated November 12, 2019 (signed by Sudesh on behalf of 253 and in his personal capacity) to be payable to The Mortgage Alliance Company of Canada?

c. Does the Mortgage secure an interest reserve in the amount of $72,000?

d. Does the Mortgage secure legal fees claimed in the aggregate amount of $10,460.38?

e. Does the Mortgage secure Mortgage Administration Fees in the amount of $25,000?

[55] I address each issue in turn.

Does the Mortgage secure payment of the $114,000 brokerage fee that, under the Owemanco Commitment, was payable by 253?

[56] The Owemanco Commitment expressly provides for payment by 253 of a Brokerage Fee to Anbros Financial Inc.in the amount of $1.5% of the $7,600,000 loan amount, or $114,000. The Respondents do not challenge that this fee was agreed to.

[57] The Aditcorp Commitment states that the $550,000 advance includes $228,000 outstanding commissions payable. This amount includes the $114,000 brokerage fee payable under the Owemanco Commitment. 253 and Sudesh signed the Aditcorp Commitment and agreed that the advance under the Mortgage would include this fee.

[58] The Respondents challenge the evidence supporting an assignment of Anbros’ right to the brokerage fee to Aditcorp.

[59] Aditya Anand is the shareholder of both Anbros and Aditcorp. Mr. Anand has given evidence that an agreement was made by which Aditcorp “agreed to assume” the brokerage fee payable to Anbros and that it was secured by the Mortgage. I take this evidence to mean that Aditcorp took an assignment from Anbros of its right to the brokerage fee to Aditcorp. This evidence is supported by the terms of the Aditcorp Commitment.

[60] I am satisfied that Aditcorp is the assignee of Anbros’ right to this brokerage fee and that $114,000 should be treated as having been advanced under the Mortgage and applied in payment of the brokerage fee under the Owemanco Commitment.

Does the Mortgage secure payment of a second $114,000 brokerage fee owed to The Mortgage Alliance Company of Canada?

[61] The Lenders contend that 253 agreed to pay a second brokerage fee in the amount of $114,000 to Mortgage Alliance and that Aditcorp “agreed to assume” the brokerage fee that was owed to Mortgage Alliance and this amount was advanced under the Mortgage.

[62] The evidence in support of this assertion is provided by Anand on information and belief from Ms. Lahoti. In support of this assertion, the Lenders also rely on a document called “Letter of Direction” dated November 12, 2019. The Letter of Direction was signed by 253 and Sudesh in his personal capacity.

[63] The Letter of Direction refers to the Property as the mortgaged property. The name of the lender is not shown. The principal amount is shown to be $7,600,000 with a one year term. The brokerage fee is stated to be $114,000. The Letter of Direction includes instructions which state: “[a]s a deduction on closing from the proceeds, we the undersigned herebey (sic) irrevocably authorize and direct you to pay the above-noted brokerage fee to the brokerage The Mortgage Alliance Company of Canada”.

[64] On its face, the Letter of Direction applies to the $7,600,000 loan to be made under the Owemanco Commitment. There is no other document in evidence by which 253 agreed to pay a second brokerage fee in relation to this loan.

[65] Sudesh denies that he agreed to pay a second fee of $114,000.

[66] The evidence does not support the Lenders’ assertion that 253 agreed to pay two separate brokerage fees, each in the amount of $114,000, for the same loan. The Owemanco Commitment provides for payment of one fee in this amount.

[67] I conclude that the Mortgage does not secure a loan advance of $114,000 in satisfaction of a second brokerage fee in this amount.

Does the Mortgage secure an interest reserve of $72,000?

[68] The Aditcorp Commitment provides that part of the mortgage advance is $72,000 as an interest reserve.

[69] The $72,000 is allowed as part of the principal advance and must be allocated to payment of interest until it is exhausted.

Does the Mortgage secure payment of legal expenses as claimed?

[70] The Lenders seek payment under the Mortgage of legal fees in the amounts of $9,296.95, $577.76, and $585.67 charged by the Schneider Ruggiero firm. The Respondents submit that no evidence has been provided to support such charges. They object to these charges.

[71] In Rokhsefat v. 8758603 Canada Corp., 2019 ONCA 273, the Court of Appeal heard an appeal from a judgment determining the amount owing on a mortgage on an application by the mortgagor. The application judge allowed certain expenses and disallowed others, including professional fees that were not supported by an explanation. With respect to legal fees, the Court held:

A mortgagee must be able to ascertain, assert, and finally defend its right to the legal fees in connection with the mortgage debt. The standard charge terms of mortgage instruments are not a “carte blanche” for a mortgagee to incur and charge fees: Chong & Dadd v. Kaur, 2013 ONSC 6252, at paras. 40 and 43. In the particular circumstances of this case, the respondents’ court application was a justifiable response to the appellant’s unreasonable conduct, in refusing to explain the additional charges and its issuance of a premature Notice of Sale.

[72] In the circumstances, it was incumbent on the Lenders to adduce some evidence to show that the fees claimed were incurred and to provide some evidentiary basis for the court to assess the reasonableness of the fees claimed. I observe that the claim for legal fees is in relation to the Mortgage, but the lawyers were also providing legal services at the same time in relation to the first and second mortgages. I am not able to determine on the evidence before me whether the fees claimed are limited to those in relation to the Mortgage.

[73] It would not have been a hardship for the Lenders to provide evidence to support the fees claimed. They could have put the legal accounts into evidence showing the services rendered for the Mortgage transaction and the basis for the fees charged.

[74] In the absence of any evidence with respect to the legal fees claimed, it is not possible for me to evaluate the reasonableness of the charges for legal fees. The claim for these legal charges is not allowed.

Does the Mortgage secure payment of $25,000 as an Administration Fee?

[75] The Aditcorp Commitment provides that the mortgage or shall pay the mortgagee’s reasonable administrative costs and charges arising out of or incurred by the mortgagee in connection with its administration of the mortgage. The Aditcorp Commitment provides that, at the mortgagee’s discretion, it may charge up to $250/incident plus disbursements for the administered event of default management costs, and these are agreed to be reasonable by the Mortgagee and the mortgagor. If the fee claimed is based upon a charge per occurrence, there would have been 100 incidents to support the claim.

[76] In P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, the Court of Appeal addressed a claim by a mortgagee for late payment charges and default fees under a mortgage. The Court noted that there was no evidence demonstrating that the mortgagees incurred any actual losses as a result of late or missed payments under the mortgage. The Court held, at para. 95, that in the absence of evidence that the charges in question reflect real costs legitimately incurred for the recovery of the debt, in the form of actual administrative costs or otherwise, the effect of the charges was to impose an additional penalty or fine thereby increasing the burden on the mortgagors beyond the rate of interest agreed upon in the mortgage. The Court of Appeal did not allow recovery of the fees.

[77] There is no evidence of any particular incidents to support the fees claimed. There is no evidence of the amount of time spent by the Lenders to administer the Mortgage. In the absence of such evidence, the claimed administration fee is disallowed.

Does the Mortgage secure payment of a lender’s fee in the amount of $15,000 or in any other amount?

[78] The Lenders claim that the Mortgage secures a Lender Fee in the amount of $15,000.

[79] The Aditcorp Commitment provides for “Lenders Fee” of 3%.

[80] The Mortgage secures a Lenders Fee. This fee is to be calculated as 3% of the aggregate of $200,000 (advanced by Ms. Li), $114,000 (brokerage fee) and $72,000 (interest reserve).

[81] The Lenders Fee is $11,580.

Other charges

[82] The other charges in the updated payout statement that was provided to me for this hearing (discharge fee of $750 and legal fees for discharge of $1,250) are allowed.

[83] The claim for additional legal fees estimated at $60,000 is to be determined as part of the determination of the costs of these applications.

Issue Three - Is it just or convenient for a receiver to be appointed?

[84] The Respondents submit that if the amount needed to be paid to discharge the Mortgage is determined, there is no need to a receiver because this amount will be paid in exchange for a discharge.

[85] The fundamental dispute between the Lenders and the Respondents is the amount secured by the Mortgage. There are two prior mortgages which are being serviced. The Respondents provided evidence that the Property has an appraised value as at January 8, 2021 of $13,040,000. It appears that there is sufficient equity to satisfy the indebtedness secured by the Mortgage.

[86] In the circumstances, I am not satisfied that it would be just or convenient for a receiver to be appointed. If the amount needed to be paid to discharge the Mortgage is not paid, it is open to the Lenders to bring a new application for the appointment of a receiver.

Disposition

[87] For these reasons:

a. The Lenders’ application for the appointment of a receiver is dismissed, without prejudice to their right to bring a separate application for the appointment of a receiver if the indebtedness secured by the Mortgage is not paid.

b. The counter application by the Respondents for an order discharging the Mortgage is dismissed.

c. The amount secured by the Mortgage is determined in accordance with this endorsement.

[88] I ask counsel to provide me with an approved form of Order that reflects this endorsement. This may be done after costs are determined.

[89] If the parties are unable to resolve costs, the Lenders may make written submissions (not longer than 4 pages, excluding costs outline) within 10 days. The Respondents’ written submissions (also not longer than 4 pages, excluding costs outline) are to be made within 10 days thereafter. Brief reply submissions (not longer than 2 pages) may be made within 5 days thereafter.

Cavanagh J.

Date: February 4, 2022