COURT FILE NO.: CV-22-00682382-0000

DATE: 20230109

ONTARIO SUPERIOR COURT OF JUSTICE

RE: Victoria Sanders, by her Litigation Guardian, Sian Rawkins, Plaintiff

-and-

Anant Jain, Anant Jain Law Professional Corporation, Canada's Choice Investments Inc., 12212382 Canada Inc., Centum Smart Mortgages Inc., Ecohome Financial Inc., Summitt Home Services Gp Inc., Crown Crest Capital Management Corp., Alexander Carter, Silver Fund Mortgage Investment Corp. and 2684180 Ontario Inc., Defendants

BEFORE: Robert Centa J.

COUNSEL: Kent Elson and Amanda Montgomery, for the plaintiff

Eli Karp, for the defendant Canada's Choice Investments Inc.

HEARD: December 14, 2022

ENDORSEMENT

[1] Victoria Sanders is a 78-year-old woman. In July 2021, she lived alone in her semi-detached home on a modest annual income of less than $60,000 per year. She has Alzheimer’s disease.

[2] Ms. Sanders alleges that starting in May 2021, strangers visited her home and, through a series of misrepresentations and pressure tactics, persuaded her to take out a $500,000 one-year loan secured by a first mortgage on her house.[^1] The terms of the mortgage required her to pre-pay $125,000 in interest costs, a $25,000 lender fee, a $3,500 mortgage arrangement fee, a $15,000 fee to the mortgage broker, and $1,700 for the lender’s legal fees. The cost of borrowing to Ms. Sanders was 34.2% for a mortgage that she says she did not want or need.

[3] On June 8, 2022, Ms. Sanders, though her litigation guardian, commenced an action against a range of defendants, including two private lenders, Canada’s Choice Investments Inc. (“CCI”) and 12212382 Canada Inc. (collectively, the lenders), who hold the mortgage on her home. She asserts that the mortgage is unconscionable, that she was induced to sign the mortgage through fraudulent misrepresentations, and that she did not have the capacity to contract. Ms. Sanders seeks to rescind the mortgage and to correct the registry to remove the mortgage from title. She also claims general and punitive damages.

[4] The mortgage came due on July 30, 2022. The lenders intend to enforce the mortgage and sell Ms. Sanders’ home. Ms. Sanders brings this motion for an injunction to prevent them from taking any steps to enforce the mortgage until trial.

[5] I grant the injunction, which is in the interests of justice. I am satisfied that Ms. Sanders has made out a strong prima facie case both that the mortgage is unconscionable and that she was induced to enter into the mortgage through fraudulent misrepresentations. In my view, Ms. Sanders will suffer irreparable harm if the injunction is not granted, and the balance of convenience favours protecting her interests.

Facts

[6] There are significant factual disputes between the parties. On this motion, I am not required to make final determinations about what happened. It will be for the trial judge to decide on a balance of probabilities if Ms. Sanders has proved her case. I will summarize the evidence relied on by parties and explain their theories of the case before considering in detail whether or not to grant the injunction sought by Ms. Sanders.

Facts relied on by Ms. Sanders

[7] Ms. Sanders filed a two-volume motion record in support of her request for an injunction. The two primary affidavits were affirmed by her daughter and litigation guardian, Sian Rawkins. She also filed a valuation opinion from Margot Bolin, a real estate salesperson and registered real estate broker, and an affidavit from a legal assistant attaching pleadings in a different proceeding involving CCI. Finally, she filed the transcript of Ms. Rawkins’ cross-examination, the cross-examination of Anas Ayyoub (the director of CCI) on his affidavit of documents, and the rule 39.03 examination of Anant Jain.

[8] Ms. Sanders is 78-years old, retired, and lives by herself in a semi-detached home in Toronto. She purchased the home in 1997 and by 2013, she had paid off the original mortgage. She lives on a fixed income of about $59,000. For many years, she has suffered from bipolar mood disorder.

[9] In the statement of claim, Ms. Sanders alleges that she had been the subject of abusive door-to-door sales tactics that pressured her to pay for goods and to obtain loans that she did not need. In some cases, the goods and services were not provided. By June 2021, Ms. Sanders had two private mortgages and four security interests registered against her home, totalling about $96,000. Ms. Sanders is challenging some of these door-to-door transactions in this action, but they are not the subject of this motion for injunctive relief.

[10] One of those security interests was in favour of Canada’s Choice Capital (“CCC”) in the amount of $9,199. It was registered on title on March 2, 2021, for “whole home air ventilation equipment and whole home plumbing valves.” The sole director of CCC is Mr. Ayyoub, who is also the sole director of CCI, one of the lenders who now holds the mortgage on her house. On cross-examination, Mr. Ayyoub refused to answer if he was the sole owner of each corporation and refused to explain the difference between the two companies.

[11] Ms. Rawkins stated that she received a call from Ms. Sanders’ insurance broker around May 31, 2021. The broker told her that Ms. Sanders had called to ask about obtaining additional insurance due to a large mortgage she was getting on her home. When Ms. Rawkins asked her mother about this potential new mortgage, Ms. Sanders stated that she had to get the mortgage due to a court order and that the mortgage would disappear in a year. These explanations did not make sense to Ms. Rawkins. Ms. Sanders subsequently told Ms. Rawkins that in May and June 2021, some men knocked on her door and began to pressure her to take out a mortgage on her house.

[12] On June 1, 2021, without Ms. Rawkins’ knowledge, Ms. Sanders filled out a mortgage application on CCI letterhead. The application requested a loan of $400,000 with prepaid interest. The form incorrectly indicted that her annual income was $44,000.

[13] On June 2, 2022, Ms. Rawkins’ husband participated in a call with Ms. Sanders, Nancy Collyer (a lawyer), and a person who identified himself as Omar Khan. According to Ms. Rawkins’ husband, Mr. Khan stated that there was no plan to get a mortgage and that a mortgage was only one option under discussion with Ms. Sanders to consolidate her other high interest loans.

[14] On July 17, 2022, Anant Jain, a lawyer, arrived at Ms. Sanders house. The mortgage broker, the defendant CENTUM Mortgage Smart Inc., arranged for him to represent Ms. Sanders on the mortgage transaction. This was their first meeting. Indeed, it appears from his file that he conducted the conflict search on July 17, 2021, at 10:57 a.m. The entire meeting lasted about 30 to 35 minutes. Mr. Jain, who testified that he had acted for one or two elderly clients since his call to the bar in 2014, made no notes during the meeting.

[15] Mr. Jain brought with him a stack of pre-printed documents related to the mortgage transaction. He received these documents from CCI or its lawyers on July 17, 2021, at 12:02 p.m. One of the documents that he brought with him was a six-page “Conditional Commitment Letter” on the CCI’s letterhead. This document proposed a loan of $500,000 for a 12-month closed term at an interest rate of 25%. It was to be secured by a first charge on Ms. Sanders home. She would also be required to pre-pay the interest amounts, along with a $25,000 “lender fee,” a “mortgage arrangement fee” of $3,500, and the lender’s legal fees of $1,700. Ms. Sanders also signed a “letter of direction” authorizing payment of a $15,000 broker fee to the defendant, CENTUM Mortgage Smart Inc.

[16] Ms. Sanders signed a retainer letter with Mr. Jain and an “Acknowledgment of Legal Representation” confirming that “Anant Jain was consulted by me as my personal solicitor.” His evidence on an examination on this motion was that Ms. Sanders read and understood the mortgage documents and that he explained the transaction to her. Ms. Sanders later told Ms. Rawkins that she did not know who Mr. Jain was or that he was a lawyer until she looked at his business card that he left at her house after she signed the mortgage documents. Mr. Jain charged Ms. Sanders $3,000 in legal fees and disbursements for his representation.

[17] The lenders funded the loan on July 30, 2021. In addition to the interest and fees described above, the mortgage proceeds were also used to discharge $45,428 in prior mortgages and security interests, including $11,862.75 to CCC. The remaining balance of $248,697.15 was paid to Anant Jain Law Professional Corporation, in trust. That amount, less Mr. Jain’s fees, was paid out to Ms. Sanders.

[18] When Ms. Rawkins learned that Ms. Sanders had signed the mortgage, she took the necessary steps to invoke the power of attorney for property that she held for her mother and to register a caution on title.

[19] On September 1, 2021, Dr. Martin Chisvin, who had treated Ms. Sanders since 2007, provided an opinion that Ms. Sanders was “suffering from a medical condition that is adversely affecting her judgment with regard to all financial matters.” He concluded that, “Ms. Sanders is unable to participate in the management of her finances at this time.”

[20] On October 26, 2021, Dr. Chisvin diagnosed Ms. Sanders as “suffering from a major neurocognitive disorder (Alzheimer’s disease).” On November 8, 2021, Ms. Sanders was assessed by Allana Kaye, a capacity assessor designated by the Ministry of the Attorney General under the Substitute Decisions Act, 1992 S.O. c.30. She concluded as follows:

[Ms. Sanders] struggles with significant threats to her capacity to make financial decisions including mental health issues (bipolar disorder that can affect judgment, insight and impulsivity) as well as cognitive deficits including reduced memory and executive functioning that impairs her ability to recall relevant information or appraise the likely consequences of a given decision/lack of decision. While her mental health condition appears to be stable at the time of this assessment, she exhibited significant changes to her cognitive abilities that affect her ability to reason. It is, therefore, my professional opinion that she does not meet the legal tests "to understand and appreciate" and is not capable of making financial decisions. As such, she requires the intervention of her assigned attorney for property to act on her behalf as her litigation guardian as well as her attorney for property.

She was unable to discern how to keep track of her affairs or options to deal with potential exploitation by her assigned attorney (eg. revoke the power of attorney assuming she remained capable to do so). Overall, [Ms. Sanders] exhibited little comprehension of the scope and potential risks to this document, and thus it is my considered opinion that she does not meet the legal criteria under s.8 of the [Substitute Decisions Act] to assign/revoke a power of attorney for property.

[21] The mortgage came due on July 30, 2022. In Ms. Bolin’s opinion, Ms. Sanders’ house was worth between $1.05 and $1.1 million on August 20, 2022.

CCI

[22] Canada’s Choice Investments Inc. filed a responding motion record containing an affidavit sworn by Mr. Ayyoub, the sole director of CCI. No responding material was filed by 12212382 Canada Inc., despite being named a responding party to the motion.

[23] CCI was incorporated on May 25, 2021, shortly before the events in question. CCI is a private, high-risk equity-based lender that offers short-term mortgages to persons who may have difficulty obtaining financing through traditional banks and mortgage companies. CCI maintains that it does not sell its products door-to-door and that it had no connection to the people who spoke with Ms. Sanders. CCI never interacted directly with Ms. Sanders.

[24] CCI states that while CENTUM Smart Mortgage Brokers is a broker for its products, CENTUM is neither related to CCI, nor is its agent. As a result of this broker relationship, CCI allows CENTUM to use CCI letterhead for mortgage applications and commitment letters “without providing advance notice to CCI.”

[25] CCI states that it received Ms. Sanders’ application for a mortgage loan on or about July 17, 2021. The loan was for a one-year term at an interest rate of 25%. CCI also received and relied on an acknowledgment of legal representation signed by Ms. Sanders stating that Mr. Jain was representing her, had explained the terms of the mortgage agreement to her, and that she understood the agreement and signed it voluntarily. CCI subsequently assigned 70% of the mortgage to 12212382 Canada Inc. CCI describes itself as a “bona fide purchaser for value without notice.”

[26] CCI states that it approved the mortgage on July 30, 2021, and registered a mortgage with instrument number AT5818051 on title.

[27] CCI points out that despite the claims now made about Ms. Sanders’ decline, no steps were taken by her family to have her declared legally incapable prior to the mortgage being registered. CCI also notes that Ms. Rawkins did not put a caution on title to prevent charges from being registered against the property until August 2021.

[28] CCI states that there is substantial equity in the home and that Ms. Sanders could “refinance the loan at a reasonable rate” to re-pay the debt she owes to CCI.

What is the appropriate test for an interlocutory injunction to restrain a mortgagee from enforcing its mortgage?

[29] This motion concerns only one issue in this complicated proceeding. Ms. Sanders seeks an interlocutory injunction to prevent the lenders from taking any steps to enforce the mortgage, including a power or sale, until the final disposition of the proceeding.

[30] A party may seek an interlocutory injunction pursuant to s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, and Rule 40 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The parties disagree about the test that Ms. Sanders must meet to obtain an interlocutory injunction that will prevent the lenders from enforcing their mortgage.

[31] Ms. Sanders submits that she must meet the well-known test set out in RJR — MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, which requires her to demonstrate that:

a. her action raises a serious question to be tried, in the sense that her claim is neither frivolous nor vexatious;

b. she would suffer irreparable harm if the court does not grant the injunction until the completion of the trial; and

c. that the balance of convenience favours granting the injunction because she would suffer greater harm than the lenders if the injunction is not granted.

[32] Ms. Sanders submits that the first step of the test, the serious question to be tried, is a low bar. She submits that the court is only to make a preliminary assessment of the merits of the case to be satisfied that it is neither vexatious nor frivolous.

[33] CCI submits that Ms. Sanders must meet a more stringent test at the first step and must make out a strong prima facie case. CCI submits that Ms. Sanders must satisfy me that there is a strong likelihood that she will be successful on the law and the evidence to be presented at trial: R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 S.C.R. 196, at paras. 17-18.

[34] The legal test matters because counsel for CCI candidly admitted that Ms. Sanders has raised a serious question to be tried.

Arnold v. Bronstein

[35] CCI submits that the controlling authority is Arnold v. Bronstein, [1971] O.R. 467. In its supplementary factum at para. 2, CCI submits that Arnold v. Bronstein stands for the proposition that “in the absence of exceptional circumstances, such as fraud or bad faith, in general a court does not have jurisdiction to restrain a mortgagee from enforcing its rights absent payment of a mortgage into court.”

[36] In Arnold v. Bronstein, Mr. Arnold was the mortgagor in possession of the Norfolk Hotel. More than six months before the mortgage came due, Mr. Bronstein told Mr. Arnold that he would not renew the mortgage on maturity but would consider extending the maturity date if Mr. Arnold paid off $50,000 of the outstanding principal and all taxes owing. Mr. Arnold did not comply with either requirement. Instead, he applied for an injunction to postpone the sale of the property, which was to take place 11 days after the application was heard.

[37] In support of his request for an injunction, Mr. Arnold stated that he had made three attempts to refinance the property, but the general economic conditions made it impossible to refinance. Mr. Arnold also referred to the deteriorating state of his health and submitted that granting an injunction to postpone the sale would not prejudice Mr. Bronstein, who had ample security for the debt.

[38] The court did not accept Mr. Arnold’s submissions. In his reasons at pp. 468-469, Lacourcière J. (as he then was) held that the court would not interfere with the proper exercise of a power of sale in all but the most “extreme and exceptional circumstances”:

It appears that Courts have refused to interfere with the proper exercise of a power of sale in all but the most extreme and exceptional cases. In fact, the learned author of Kerr on Injunctions, 5th ed., p. 538, in a chapter dealing with injunctions between mortgagor and mortgagee, goes so far as to assert that:

The Court has no jurisdiction to restrain a mortgagee from selling under a power of sale, provided he keep within the terms of the power and no case of fraud be made out.

The proposition is well supported by cases referred to in footnote (e). The general rule developed from numerous cases is that a mortgagee, acting in good faith and without fraud, will not be restrained from a proper exercise of his power of sale, except upon tender by the mortgagor of the principal moneys due, interest and costs. This is of course subject to the statutory relief provided by s. 20 [rep. & sub. 1970, c. 54, s. 1] of the Mortgages Act, R.S.O. 1960, c. 245, which is not here invoked. The institution of a redemption action per se does not affect the mortgagee's power of sale: Kerr on Injunctions, supra, p. 540; Halsbury's Laws of England, 3rd ed., vol. 27, para. 566, p. 301.

I am far from satisfied, on the material before me, that [Mr. Arnold] has shown extreme or exceptional circumstances which would justify a departure from the prevailing practice; nor has it been established that [Mr. Arnold] would probably be entitled to redeem, following the granting of an interlocutory injunction.

[39] Justice Lacourcière dismissed the application for an injunction unless Mr. Arnold paid the principal amount, accumulated interest, and costs into court.

[40] In 1971, the common law required all parties seeking an injunction to demonstrate a strong prima facie case: J.T. Stratford & Son Ltd. v. Lindley, [1965] A.C. 269 (H.L.); Hon. Robert J. Sharpe, Injunctions and Specific Performance, loose-leaf, (Toronto: Thomson Reuters Canada, 2021), at §2.6. Although Arnold does not use the words strong prima facie case, I have no doubt that Lacourcière J. correctly applied the law.

[41] In my view, the statement of Lacourcière J. that “a mortgagee, acting in good faith and without fraud, will not be restrained from a proper exercise of his power of sale” addresses the type of legal claim Mr. Arnold needed to assert to obtain an injunction, not the level of proof he had to provide on the motion. Mr. Arnold failed to obtain an injunction because of the nature of the claims he presented, not because of the strength of those claims. Mr Arnold did not claim that Mr. Bronstein defrauded him or acted in bad faith. Mr. Arnold did not make claims of extreme or exceptional circumstances. Mr. Arnold’s claims were of an entirely different sort: he could not pay the amounts owed, the poor economy prevented him from refinancing, and his health was declining. None of Mr. Arnold’s claims challenged the validity of the mortgage or even how Mr. Bronstein exercised his rights under that mortgage. In my view, even if Lacourcière J. was certain that Mr. Arnold would make out his claims at trial, proving those claims would not have warranted relief, much less granting a pre-trial remedy to prevent Mr. Bronstein from exercising his rights under the mortgage.

American Cyanamid and RJR – MacDonald

[42] The holding in Arnold v. Bronstein must also be evaluated in light of subsequent and significant developments in the law of injunctions. In 1975, four years after Arnold v. Bronstein, the House of Lords released its unanimous decision in American Cyanamid v. Ethicon Ltd., 1975 CanLII 2598 (FC), [1975] A.C. 396 (H.L.). In American Cyanamid, the motion judge had granted an interlocutory injunction in a patent case. The Court of Appeal set aside the injunction because the applicant had not raised a prima facie case of infringement. On appeal, the House of Lords restored the initial decision to grant the interlocutory injunction. Lord Diplock criticized the undue emphasis on the strength of the plaintiff’s case at the interlocutory stage. Lord Diplock rejected the “prima facie case” test and held that the court need only “be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.”

[43] The Supreme Court of Canada essentially adopted the American Cyanamid test in Metropolitan Stores (MTS) Ltd. v. Manitoba Food & Commercial Workers, Local 832, 1987 CanLII 79 (SCC), [1987] 1 S.C.R. 110, 38 D.L.R. (4th) 321, and RJR – MacDonald. The threshold for a serious question to be tried has been used consistently since that time for all injunctions, with some limited exceptions including:

a. mandatory injunctions: R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 S.C.R. 196, at para. 12;

b. where the result of the interlocutory motion will in effect amount to a final determination of the action, which will be the case either when the right which the applicant seeks to protect can only be exercised immediately or not at all, or when the result of the application will impose such hardship on one party as to remove any potential benefit from proceeding to trial: RJR – MacDonald, at para. 56;

c. when the question of constitutionality presents itself as a simple question of law alone: RJR – MacDonald, at para. 60;

d. in a private law context, where the factual record is largely settled: RJR – MacDonald, at para. 61;

e. Mareva injunctions: Chitel et al. v. Rothbart et al., (1982), 1982 CanLII 1956 (ON CA), 39 O.R. (2d) 513 (C.A.); Grayson Consulting Inc. v. Lloyd, 2019 ONCA 79, 144 O.R. (3d) 507, at para. 53; and

f. cases where an employer seeks to enforce a restrictive covenant: Wellsky Corporation et al. v. Miller, 2022 ONSC 4124; Orpheus Medica v. Deep Biologics Inc., 2020 ONSC 4974, at para. 14.

[44] Under Canadian law, in almost all cases, the first step of the injunction test asks if the case presents a serious question to be tried. I am cautious about accepting too readily that Arnold v. Bronstein, which predates this development in the law, mandates a different first step test where a mortgagor seeks an injunction to prevent a mortgagee from exercising their rights under a mortgage. If Arnold v. Bronstein stands for the proposition that the moving party must demonstrate a strong prima facie case, that rationale may have been undermined by RJR – MacDonald and its progeny. I will now canvass more recent judicial authority and academic commentary on this point.

Case law and academic commentary support the use of the ‘serious question to be tried test’

[45] The first case to consider is the decision of Charron J.A. (as she then was) in Berlianco Inc. v. Wee Rent It Ltd., 1999 CarswellOnt 4483. The Berlianco company brought a motion in the Court of Appeal to prevent the mortgagee from pursuing any remedies under a mortgage pending Berlianco’s motion for leave to appeal and, if leave was granted, pending the disposition of the appeal. Justice Charron applied the usual first step test from RJR – MacDonald and asked if the case presented a serious issue to be tried:

It is common ground between the parties that the governing test is that set out in RJR – MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311 (S.C.C.). The respondent argues however that, because the injunction is sought against a mortgagee, it is necessary for this court to make a preliminary finding that the mortgagee has acted either in bad faith or fraudulently, before it can consider whether the test in RJR has been met. The respondent relies principally on Arnold v. Bronstein (1970), 1970 CanLII 245 (ON SC), [1971] 1 O.R. 467 (Ont. H.C.) in support of this proposition.

In my view, the case law, including the case relied upon by the respondent, does not support this proposition. It is clear from the cases that, under ordinary circumstances, a court will not interfere with the proper exercise of a mortgagee's power of sale except upon tender by the mortgagor of the principal moneys due, with interest and costs, or without ensuring that the mortgagee is otherwise fully protected. However, there are exceptions. Bad faith or fraud on the part of the mortgagee are but two examples of circumstances where the test for injunctive relief will usually have been met. A finding of bad faith or fraud is not a condition precedent to the granting of injunctive relief as contended.

I am satisfied in this case that the test for injunctive relief has been met:

1. The motion for leave to appeal does raise a serious issue. In making this finding, I am not in any way suggesting that leave to appeal will necessarily be granted or even that it should. This threshold is a relatively low one and it simply involves a preliminary assessment of the merits of the matter.

[46] The courts routinely apply the RJR – MacDonald test when considering when to stay a decision pending appeal: National Bank of Canada v. Guibord, 2021 ONCA 864 (request for a stay of a writ of possession pending appeal denied). Although the case before Charron J.A. arose on different facts, and the parties appear to have agreed that the RJR – MacDonald test applied, the holding in Berlianco is binding if it applies to the circumstances of this case: R. v. Sullivan, 2022 SCC 19, 413 C.C.C. (3d) 447, at para. 63.

[47] The second case to be considered is Venpax Corp. v. Paniw (2002), 49 R.P.R. (3d) 150 (S.C.J.), where Molloy J. considered the interaction of RJR – MacDonald and Arnold v. Bronstein. Venpax bought an apartment building from the defendants in a deal that closed on December 15, 1998. Venpax defaulted on a required principal payment and some, but not all interest payments. On August 31, 1999, Venpax commenced an action alleging that the defendant made fraudulent or negligent misrepresentations that caused Venpax to overpay for the building. Venpax sought damages and an injunction to prevent the defendants from enforcing their rights under the mortgage. The defendants issued a notice of sale under the mortgage in November 2000, which prompted Venpax to move for an interlocutory injunction to prevent the defendants from exercising their rights under the mortgage.

[48] Venpax submitted that it needed to meet the RJR – MacDonald test to obtain its injunction. The defendants relied on Arnold v. Bronstein and emphasized the special nature of a mortgage debt and submitted that a mortgagee can only be restrained from exercising its rights under a mortgage in exceptional circumstances.

[49] Justice Molloy stated that while she did not need to decide the issue, it appeared to her that Venpax only needed to demonstrate a serious question to be tried. Justice Molloy concluded that she did not have to decide the issue because Venpax both alleged fraud and had demonstrated a strong prima facie case, if that was necessary:

As a general principle, "a mortgagee, acting in good faith and without fraud, will not be restrained from a proper exercise of his power of sale, except upon tender by the mortgagor of the principal moneys due." Further, the courts will adhere to this general rule "in all but the most extreme and exceptional cases": Arnold v. Bronstein (1970), 1970 CanLII 245 (ON SC), [1971] 1 O.R. 467 (Ont. H.C.).

In the case before me, there is an allegation of fraud, which is one of the exceptions to the general rule recognized in Arnold [v. Bronstein]. There is some suggestion in the case law that in order to avoid the application of the principles set out in Arnold v. Bronstein, the party seeking the injunction must show a strong prima facie case of fraud: Toronto Dominion Bank v. E. Goldberger Holdings Ltd. (1993), 1993 CanLII 8645 (ON SC), 14 O.R. (3d) 619 (Ont. Gen. Div.), Household Trust Co. v. Markson, [1995] O.J. No. 451 (Ont. Gen. Div.). In my opinion, these cases must be applied with care in light of the 1994 decision of the Supreme Court of Canada in RJR MacDonald, in which the strong prima facie case test was rejected in favour of the less stringent test of "serious question to be tried." The Court recognized in RJR MacDonald that there are exceptions in which a stronger test on the merits should be applied, but did not include injunctions restraining mortgagees among those exceptions. In 967305 Ontario Ltd. v. North American Trust Co. (1996), 1996 CanLII 11102 (ON SC), 28 O.R. (3d) 212 (Ont. Gen. Div.), Sharpe J., as he then was, applied the "substantial question to be tried" test on a motion for injunctive relief against the exercise of a power of sale (although he dismissed the injunction motion on other grounds). It seems to me that this is now the proper standard to be applied and that the usual RJR MacDonald standard applies in cases which, because of their subject matter, fall outside the rule in Arnold [v. Bronstein].

However, for purposes of the case before me, I do not need to decide this issue. The mortgage was given to the defendants by Venpax as part of the consideration in the transaction in which the fraud is alleged to have occurred. The fraud allegation was not raised after the fact when the mortgagee sought to enforce its mortgage remedies. On the contrary, the statement of claim was issued before the mortgage had even gone into default. The allegation of fraud is not a mere bald allegation. There is affidavit evidence particularizing the claim and providing documentary support for it. Some of the key allegations are also supported by a written statement provided by an independent witness who was the building superintendent prior to the plaintiff's purchase. Even if the test to be applied is the higher strong prima facie case standard, I find that it is met in this case.

[50] Other courts across the country have held that a party seeking an injunction to prevent a mortgagee from exercising their rights under a mortgage need only demonstrate a serious question to be tried: Tall Boys Ltd. v. Bennett, 2002 NFCA 50, 216 D.L.R. (4th) 307; Warford v. Bell, 2005 NBBR 454, 2005 NBQB 454, at paras. 33 to 37; King v. Squires, (2002), 2002 CanLII 54141 (NL SC), 208 Nfld & P.E.I.R. 90 (Nfld. S.C.). In Tall Boys Ltd., after a detailed consideration of the law of injunctions, the Newfoundland Court of Appeal explicitly rejected the application of the strong prima facie case standard at the first step.

[51] Academic commentary also supports the application of the serious question to be tried standard as the first step of the injunction test. The case of Girard v. MCAP Service Corp., 2004 CarswellOnt 1462, 22 R.P.R. (4th) 1 (S.C.J.), concerned a mortgagor attempting to obtain an injunction to stop the mortgagee’s exercise of a power of sale under a mortgage after the mortgagee signed a bona fide agreement of purchase and sale. In his helpful annotation to the decision, Jeffrey Lam described the standard RJR – MacDonald test as “the undisputed governing criterion for mortgage remedies.” He wrote as follows:

In so doing, the court applies, perhaps not surprisingly, the Canadian application of the injunction test from American Cyanamid Co. v. Ethicon Ltd…., as adopted in Canada in the seminal decision of RJR – MacDonald …. This three-part test (i.e. (i) serious issue, (ii) irreparable harm, and (iii) balance of convenience) has become ubiquitous in the realm of real property remedies (and seemingly elsewhere throughout Canadian law) and appears to be the undisputed governing criterion for mortgage remedies (see generally, the cases on point cited in Dunn and Gray, Marriott and Dunn: Practice in Mortgage Remedies in Ontario (5d), Carswell, c. 32, but see also Westside Towers Inc. v. West End Development Corp. (1996), 5 R.P.R. (3d) 271, 1996 CarswellOnt 3794, 15 O.T.C. 181 (Ont. Gen. Div.), a recent case where injunctive relief was granted seemingly without a detailed application of the American Cyanimid/ RJR – MacDonald test). In addition to mortgage sales, this American Cyanimid/ RJR – MacDonald test has also been applied to tenants seeking to enjoin their landlords from terminating their leasehold estates (see, e.g., Mah v. Trustcan Realty Ltd. (1996), 1996 CanLII 10442 (AB KB), 3 R.P.R. (3d) 187, 1996 CarswellAlta 570, 42 Alta. L.R. (3d) 182 (Alta. Q.B.) and Bitove Corporation v. Skydome Corporation (unreported, Court File No. 96-CU-108227, released July 31, 1996 (Ont. Gen. Div.)).

[52] In Marriott and Dunn: Practice in Mortgage Remedies in Ontario, 5th edition, the authors identify the serious question to be tried standard from RJR – MacDonald as the appropriate test to be applied to obtain injunctive relief against a power of sale. At para. 32:2, they state that:

Although, in making an application for an interlocutory or interim injunction, the applicant must show the court that the claim is not frivolous or vexatious and that there is a serious triable issue, the applicant is not required to demonstrate a “probability,” “a prima facie case” or “a strong prima facie case”: American Cyanamid Co. v. Ethicon Ltd., 1975 CanLII 2598 (FC), [1975] 1 All E.R. 504 at p. 510 (Eng. H.L.). Once satisfied that the application is neither vexatious or frivolous, the motions judge should proceed to consider the second and third tests, even if of the opinion that the mortgagor is not likely to succeed at trial.

[53] These decisions and authors all support Ms. Sanders’ submission that she need only demonstrate at the first step that her case raises a serious question to be tried.

The decision in Bilbija does not require the use of strong prima facie test in all cases

[54] CCI points to the decision of Dietrich J. in Bilbija v. 2513630 Ontario Inc., 2021 ONSC 571, as recent authority for its submission that the strong prima facie test should be applied. I do not agree with CCI’s interpretation of Bilbija.

[55] Bilbija concerned two motions brought in two related actions. In one action, the plaintiff mortgagee sought to enforce its mortgage security over a residence owned and occupied by Mr. Bilbija. The mortgagee moved to obtain an order of possession. The other action was an oppression action brought by Mr. Bilbija against several defendants, including the mortgagee. Mr. Bilbija sought an injunction under s. 248(3) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, to prevent the mortgagee from enforcing its rights under the mortgage.

[56] At para. 38, Dietrich J. began her analysis by stating that “to obtain the injunctive relief he seeks, Mr. Bilbija must show that a) there is a serious issue to be tried… RJR – MacDonald Inc.” Justice Dietrich then acknowledged that Mr. Bilbija’s request for an injunction must be considered in light of Arnold v. Bronstein and Berlianco where “the Court of Appeal cited fraud and bad faith as two examples of ‘extreme or unusual’ circumstances that might entitle a defaulting mortgagor to relief from a power of sale.” The mortgagee submitted that there could only be extreme or unusual circumstances if Mr. Bilbija could demonstrate a strong prima facie case for relief.

[57] Justice Dietrich did not accept the mortgagee’s submission. Instead, Dietrich J. held that, on the specific facts of the case before her, Mr. Bilbija needed to meet the strong prima facie case threshold. He needed to meet the higher test not because he sought an injunction in a mortgage remedy case, but because the injunction he sought would remove any potential benefit for the mortgagee proceeding to trial. RJR – MacDonald recognized this situation as one where the moving party is required to meet the higher standard. At para. 43, Dietrich J. held:

The test in RJR – MacDonald, as noted at para. 55, generally requires the motion judge to satisfy him or herself that the claim is not frivolous or vexatious and then to consider the second and third part of the test. However, RJR – MacDonald also provides, at para. 56, that the more rigorous standard of establishing a strong prima facie case should be applied where:

[T]he result of the interlocutory motion will in effect amount to a final determination of the action. This will be the case either when the right which the applicant seeks to protect can only be exercised immediately or not at all, or when the result of the application will impose such hardship on one party as to remove any potential benefit from proceeding to trial.

An injunction enjoining 190 from enforcing its mortgage rights until after the Oppression Action will “remove any potential benefit from proceeding to trial” for 190 because Mr. Bilbija has testified that his monthly income from CPP and OAS is approximately $1,250, whereas the costs to service the Residence are approximately $7,000 monthly. Further, Mr. Bilbija has admitted that he has no ability to borrow. Accordingly, unless Mr. Bilbija can prove he is owed a salary or other funds from the defendant corporations, Mr. Bilbija and Ms. Bilbija would be living at the Residence at the expense of 190, whose ability to collect all of the debt owed to it would only diminish with the passage of time.

I am satisfied that on the facts of this case, Mr. Bilbija must meet the higher threshold of a strong prima facie case of oppressive conduct.

[58] Bilbija fits comfortably within the longstanding exception in RJR – MacDonald: where an injunction will remove any benefit from proceeding to trial, the party seeking that injunction must demonstrate a strong prima facie case. I do not read Bilbija as authority for the proposition that a party seeking an injunction to prevent a mortgagee from exercising its rights under a mortgage must in all cases demonstrate a strong prima facie case.

[59] In this case, CCI did not submit that this injunction would amount to a final determination of the action or remove any potential benefit of a trial of the action. The value of Ms. Sanders’ property significantly exceeds the size of the mortgage. There is no evidence that a victory for CCI at trial would be pyrrhic. Granting the injunction does not remove the benefit to CCI to move forward to trial.

[60] On the other hand, Ms. Sanders is not just seeking to prevent the lenders from exercising their rights under a mortgage that she accepts is valid. She is seeking recission and cancellation of the mortgage itself and orders vacating the security interests and mortgages from title. She also seeks general and punitive damages.

[61] Unlike in Bilbija, if I grant this injunction, neither party loses the benefit of proceeding to trial, and the injunction will not finally determine the dispute among them. The decision in Bilbija does not compel Ms. Sanders to demonstrate a strong prima facie case standard on the facts of this case.

Step one: there is a serious question to be tried

[62] In my view, Ms. Sanders’ pleading alleges fraud, bad faith, and the type of extreme or unusual circumstances that fit easily within the type of misconduct described in in Arnold v. Bornstein: Berlianco, at para. 3; Venpax, at para. 13; Hotel California Holdings Ltd. v. Grossman (1980) 11 R.P.R. 66 (Ont. H.C.J.), at para. 24; King, at paras. 12 to 13. As remedies for these alleged wrongs, Ms. Sanders seeks, among other relief, an order declaring the mortgage void and setting it aside, and general, aggravated, and punitive damages.

[63] In this case, the appropriate test at the first step is the usual one from RJR – MacDonald: has Ms. Sanders demonstrated a serious question to be tried? She need only demonstrate that her claim is neither vexatious nor frivolous. Given this low standard, counsel for CCI conceded that Ms. Sanders met that test, if it applied. I agree. Making only a preliminary assessment of the merits of the case, I find that Ms. Sanders has demonstrated two serious questions to be tried:

a. Is the mortgage unconscionable?[^2]

b. Did agents of CCI make fraudulent misrepresentations to her that induced her to sign mortgage documents?

[64] As I will explain below, if necessary, I would also find that Ms. Sanders has demonstrated a strong prima facie case on the issues of unconscionability and fraudulent misrepresentation.

[65] On the evidence before me, I have serious doubts that Ms. Sanders was mentally competent when she signed the loan and mortgage documents on July 17, 2021. However, as I will discuss below, equity will set aside contracts for unconscionability on grounds far weaker than those required to prove incapacity at common law. In my view, it is better to deal with this case directly and consider whether or not it is an unconscionable contract. I agree with the view expressed by Professor Stephen Waddams in The Law of Contracts, 8th ed. (Toronto: Thomson Reuters Canada, 2022), at §662 to 663 that the law of mental incompetence is usefully assimilated within the general doctrine of unconscionability:

Mental incompetence is a comparative concept and can vary from certifiable insanity to something not much worse than commercial naiveté. It was shown in the chapter on unconscionability that the courts of equity would set aside contracts on the grounds of weakness of intellect far short of what would justify an order of incompetency. Similar relief is given in cases of senility and simple ignorance of business matters. Thus relief is available on grounds of unconscionability where undue advantage is taken of weakness of intellect and, a fortiori, in cases of more serious incompetence.

Some cases have suggested that relief is only available if the party seeking enforcement knows of the other's mental incompetence, or at least, ought to know of it. Others suggest that even where the stronger party is ignorant of the incompetence, a contract will only be enforceable if fair and reasonable. The cases on unconscionability are consistent with the latter view. The gain to the party seeking enforcement is the same whether or not that party knew of the other's condition at the time of contracting. With the development of a recognized doctrine of unconscionability, it would seem that the law of mental incompetence could be usefully assimilated with the general doctrine of relief in cases of inequality of bargaining power. [internal citations omitted]

[66] Finally, it is not necessary for me to decide if the alleged defects in the mortgage documents are sufficiently serious to justify injunctive relief. Ms. Sanders did not emphasize this point in her written or oral submissions. It is not the gravamen of this case.

Step one: in the alternative, there is a strong prima facie case

[67] If I am wrong about the appropriate test to be applied, I will now consider if Ms. Sanders has demonstrated a strong prima facie case. On this test, Ms. Sanders must satisfy me that there is a strong likelihood on the law and the evidence to be presented at trial that she will prove unconscionability or fraudulent misrepresentations: R. v. Canadian Broadcasting Corp., at paras. 17-18.

Unconscionability

The equitable doctrine of unconscionability

[68] Unconscionability is an equitable doctrine that is used to set aside unfair agreements that resulted from an inequality of bargaining power: Uber Technologies Inc. v. Heller, 2020 SCC 16, 447 D.L.R. (4th) 179, at para. 54. The purpose of unconscionability is to protect vulnerable persons in transactions with others: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, at pp. 405 and 412; Syncrude Canada Ltd. v. Hunter Engineering Co., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426, at p. 462, per Dickson C.J., and p. 516, per Wilson J.; Norberg v. Wynrib, 1992 CanLII 65 (SCC), [1992] 2 S.C.R. 226, at p. 247; see also Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at para. 43.

[69] The court will always be concerned with unfairness, with contracts that work harshly, and with conduct that is oppressive. As Dickson C.J.C. stated in Hunter at p. 462:

Courts, as a result, do not ignore serious flaws in the contracting process that challenge the traditional paradigms of the common law of contract, such as faith in the capacity of the contracting parties to protect their own interests. The elderly person with cognitive impairment who sells assets for a fraction of their value (Ayres v. Hazelgrove, Q.B. England, February 9, 1984); the ship captain stranded at sea who pays an extortionate price for rescue (The Mark Lane (1890), 15 P.D. 135); the vulnerable couple who signs an improvident mortgage with no understanding of its terms or financial implications (Commercial Bank of Australia Ltd. v. Amadio, [1983] HCA 14, 151 C.L.R. 447) — these and similar scenarios bear little resemblance to the operative assumptions on which the classic contract model is constructed. [emphasis added]

[70] The court will always be concerned with unfairness, with contracts that work harshly, and with conduct that is oppressive. As Dickson C.J.C. stated in Hunter at p. 462:

In my view, there is much to be gained by addressing directly the protection of the weak from over-reaching by the strong….There is little value in cloaking the inquiry behind a construct that takes on its own idiosyncratic traits, sometimes at odds with concerns of fairness.

[71] CCI submits that Ms. Sanders must meet the four-part test for unconscionability found in Phoenix Interactive Design Inc. v. Alterinvest II Fund LP, 2018 ONCA 98, 420 D.L.R. (4th) 335, at para. 15. I disagree. The Supreme Court of Canada expressly rejected the Phoenix test in its 2020 decision in Uber, which is the leading Canadian case on unconscionability. In that case, Uber urged the Supreme Court to apply the Phoenix test when assessing if the arbitration agreement contained in its contract with its drivers was unconscionable. At paras. 80 to 82, the Supreme Court rejected Uber’s suggested approach:

Uber argues, however, that the Court should abandon the classic two-part approach to unconscionability and adopt a stringent test consisting of four requirements:

• a grossly unfair and improvident transaction;

• a victim’s lack of independent legal advice or other suitable advice;

• an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and

• the other party’s knowingly taking advantage of this vulnerability.

(See Phoenix Interactive Design Inc. v. Alterinvest II Fund L.P., 2018 ONCA 98, 420 D.L.R. (4th) 335, at para. 15; see also Titus, at para. 38; Cain, at para. 32.)

This higher threshold requires that the transaction was “grossly” unfair, that there was no independent advice, that the imbalance in bargaining power was “overwhelming”, and that there was an intention to take advantage of a vulnerable party.

We reject this approach. This four-part test raises the traditional threshold for unconscionability and unduly narrows the doctrine, making it more formalistic and less equity-focused. Unconscionability has always targeted unfair bargains resulting from unfair bargaining. Elevating these additional factors to rigid requirements distracts from that inquiry.

[72] Under Canadian law, unconscionability requires only two elements: an inequality of bargaining power and a resulting improvident bargain: Uber, at para. 65. Unconscionability targets unfair bargains resulting from unfair bargaining. The concepts are interrelated. For example, proof of a manifestly unfair bargain may support an inference that one party was unable to protect their interests adequately.

[73] An inequality of bargaining power exists when one party cannot adequately protect their interests in the contracting process. This may result from a claimant’s purely cognitive, deliberative, or informational capabilities that preclude a worthwhile judgment as to what is in the claimant’s best interest. These disadvantages need not be so serious as to negate the capacity to enter a technically valid contract. A common example of inequality of bargaining power is where only one party could understand and appreciate the full impact of the contractual terms, creating a type of cognitive asymmetry. This may occur because of personal vulnerability or because of disadvantages specific to the contracting process. Unequal bargaining power can be established even if the legal requirements of contract formation are otherwise met. In such circumstances, weaker parties may be vulnerable to exploitation in the contracting process and courts can provide relief from an improvident bargain: Uber, paras. 66 to 72.

[74] An improvident bargain is one that unduly advantages the stronger party or unduly disadvantages the more vulnerable party at the time the contract is formed. The terms of the agreement are to be assessed in light of the surrounding circumstances at the time of contract formation including the market price and the position of the parties. The court should consider, for example, if the price of goods or services in the contract departs significantly from the usual market prices: Uber, at paras. 73 to 79.

There is a strong prima facie case of unconscionability

[75] I find that Ms. Sanders has raised a strong prima facie case that the mortgage is unconscionable.

(a) CCI’s submissions on unconscionability

[76] I will first address CCI’s submissions that Ms. Sanders has not demonstrated a strong prima facie case because she has not met the four-part test from Phoenix. As I noted above, the Phoenix test is no longer good law. The Supreme Court of Canada rejected the Phoenix approach because it raised the traditional threshold for unconscionability, unduly narrowed the doctrine, made it more formalistic, and less equity-focused: Uber, at para. 82. Indeed, CCI’s submissions amply demonstrate how the Phoenix test distracts from equity’s proper focus on unfair bargains resulting from unfair bargaining.

[77] First, CCI submits that on an objective standard, the mortgage is not “grossly improvident.” CCI notes that the loan did not offend s. 347 of the Criminal Code, R.S.C. 1985, c. C-46, which makes it an offence to receive interest at an effective annual rate of interest in excess of 60%. CCI also points out that the interest rate on the mortgage is similar to “credit card rates [routinely] charged by lenders across Canada.”

[78] In Uber, the Supreme Court of Canada rejected the grossly improvident standard, which no longer forms part of the law of unconscionability. The question, which I will address below, is whether or not the mortgage is improvident. There is no requirement that a loan agreement contain an interest rate that violates the Criminal Code for equity to consider that loan to be unconscionable. CCI submits that the interest rate on this $500,000 loan, which is secured by a first mortgage on property worth several times the value of the amount advanced, is comparable to the interest rate on a typical credit card. I do not find this a very persuasive defence to an allegation that the mortgage is improvident.

[79] Second, CCI submits that Ms. Sanders had independent legal advice before signing the contract, which means that it cannot be an unconscionable transaction. In Uber, the Supreme Court of Canada emphasized that the mere receipt of legal advice does not prevent a court from finding a contract unconscionable: Uber at para 83. Independent legal advice is relevant only to the extent that it ameliorates the inequality of bargaining power experienced by Ms. Sanders. As the Supreme Court noted, pro-forma or ineffective advice might not improve a person’s ability to protect her interests: Uber at para 83.

[80] Here, Ms. Sanders has provided evidence that Mr. Jain’s evidence may well have been pro-forma and ineffective. Ms. Sanders did not choose Mr. Jain freely from among all the lawyers in Ontario, he was provided to her by the mortgage broker defendant who received a $15,000 fee for arranging the mortgage. There is no evidence that he helped to protect her interests or to negotiate any of the mortgage’s more onerous terms. There is no evidence he suggested that she explore other lenders or loan structures. There is no evidence that he cautioned Ms. Sanders about the onerous repayment terms or asked her how she proposed to repay this mortgage in one year given her fixed income. The evidence suggests, rather, that Mr. Jain presented the mortgage documents prepared by CCI and its counsel as a fait accompli. While Mr. Jain dutifully created a paper trail on which CCI hopes to rely, and while this is an issue for trial, Ms. Sanders has led evidence that causes me to doubt that the services provided by Mr. Jain will ultimately be described either as “independent” or “legal advice.”

[81] During the cross-examination of Mr. Ayyoub, counsel for Ms. Sanders asked him to provide a list of all CCI mortgages where Mr. Jain acted for the borrower. CCI lenders refused to answer that question on the basis of relevance. Counsel for Ms. Sanders then asked Mr. Ayyoub to provide all communications between Mr. Ayyoub or CCI and Mr. Jain that related to her mortgage or otherwise. CCI also refused to answer that question on the basis of relevance. It is difficult to see how those refusals were appropriate.

[82] Given these refusals, and considering all of the evidence, Mr. Jain’s involvement in this transaction does not undermine Ms. Sanders’ strong prima facie case that this transaction was unconscionable.

[83] Third, CCI submits that Ms. Sanders cannot demonstrate an overwhelming imbalance in bargaining power caused by her ignorance of business, illiteracy, ignorance of the language of the bargain blindness, deafness, illness, senility, or similar disability. Uber makes clear that a finding of unconscionability does not require the imbalance in bargaining power to be “overwhelming” or rise to the level of rendering the person incapable of entering into a contract: Uber, at para. 67. As I will explain below, however, the imbalance of bargaining power in this case is significant.

[84] Fourth, CCI submits that “a finding that the CCI Mortgage is unconscionable would require a finding that CCI knowingly took advantage of a power imbalance between them in order to "force" Ms. Sanders to accept the CCI loan.” This is not the law. Ms. Sanders does not need to prove that CCI knowingly took advantage of her for the court to declare the mortgage unconscionable. Unconscionability is concerned with protecting the vulnerable and deliberate exploitation is not a necessary element. The Supreme Court of Canada’s comments at para. 85 of Uber are directly applicable to this case:

One party knowingly or deliberately taking advantage of another’s vulnerability may provide strong evidence of inequality of bargaining power, but it is not essential for a finding of unconscionability. Such a requirement improperly emphasizes the state of mind of the stronger party, rather than the protection of the more vulnerable. This Court’s decisions leave no doubt that unconscionability focuses on the latter purpose. Parties cannot expect courts to enforce improvident bargains formed in situations of inequality of bargaining power; a weaker party, after all, is as disadvantaged by inadvertent exploitation as by deliberate exploitation. A rigid requirement based on the stronger party’s state of mind would also erode the modern relevance of the unconscionability doctrine, effectively shielding from its reach improvident contracts of adhesion where the parties did not interact or negotiate.

[85] The doctrine of unconscionability applies to contracts of adhesion and other contracts where the parties to the contract did not interact or negotiate: Uber, at para. 85. The interposition of the mortgage broker and the door-to-door salespersons between Ms. Sanders and CCI does not prevent the court from reviewing the mortgage for unconscionability. Equity will not allow parties to enforce improvident contracts formed in situations of inequality of bargaining power simply because the improvident bargain has been carefully arranged through intermediaries or nicely structured through a chain of contracts.

[86] For these reasons, I do not accept CCI’s submissions that Ms. Sanders has failed to demonstrate a strong prima facie case of unconscionability.

(b) Findings on unconscionability

[87] I find that Ms. Sanders has demonstrated a strong prima facie case that the mortgage is unconscionable because an inequality of bargaining power resulted in an improvident bargain.

[88] First, there is a significant amount of evidence that there was an inequality of bargaining power, and that Ms. Sanders was not able to protect her interests in the contracting process. Ms. Sanders was 78 years old and living alone. Six weeks after the mortgage was signed, her psychiatrist has indicated that she was not capable of managing her own financial affairs and confirmed a diagnosis of Alzheimer’s disease. Ms. Rawkins’ evidence is that Ms. Sanders was not able to explain the terms or the mortgage or why she needed it.

[89] On November 8, 2021, less than four months after Ms. Sanders signed the mortgage documents, Ms. Kaye interviewed Ms. Sanders as part of a formal capacity assessment. Ms. Kaye’s report describes Ms. Sanders’ level of knowledge and understanding of her financial situation and why Ms. Kaye concluded that Ms. Sanders was not capable of making financial decisions:

Mrs. Sanders knew the name of her bank but significantly over-estimated her income. She could not recall the amount that she receives from her pensions. Her responses to questions regarding her investments varied significantly from the factual information provided (different banks, amount of savings). She was not able to recall her expenses, but knew that she could obtain larger sums from her investments if she had a larger expense. Mrs. Sanders stated that she did not feel she "needs to knew the numbers as long as the bills are being paid." Mrs. Sanders was not able to identify a budget to meet her current expenses and was not able to identify the type of expenses she may have as she ages. She was aware that she had to change banks as a result of these men who had exploited her but indicated that she is not able to use the new bank account. She identified that she had been told to sign papers for "renos" but she could not recall what she had signed, when she had signed these papers or the associated costs. Mrs. Sanders stated that she had been told that she "had to" sign these papers and when asked why she felt she had no option, she stated "they somehow convinced me that they were right and everyone else was wrong." There was no evidence of critical thinking when making this decision or at the present time when discussing potential options. She was aware of the mortgage placed on her home, and that she had signed "papers" but she could not provide specific details, stating that she had never received any documents. Mrs. Sanders was not aware of the monthly cost of this mortgage, the possible options to deal with the situation or the impact this exploitation had on her financial situation. While she knew that a lawyer had been engaged by her daughter to look into the legal issues regarding this mortgage, she could not provide any information with respect to the potential legal action. Significantly reduced insight and judgment were noted in her discussion regarding the need for a power of attorney for property. Mrs. Sanders did not feel she required anyone to manage her finances on her behalf at the present and had no criteria by which she would be able to determine that she was having difficulty making these decisions (despite the significant evidence related to her having signed legal documents affecting her financial situation).

[90] Ms. Sanders submits that she lacked capacity to sign the contract documents at the time she signed them. But even if she is not able to demonstrate at trial that she lacked capacity to contract, diminished cognitive, deliberative, or informational capabilities that preclude a worthwhile judgment are sufficient for the purposes of the doctrine of unconscionability even if they are not so serious as to negate the capacity to enter a technically valid contract: Uber at para. 67.

[91] Ms. Sanders has presented a strong prima facie case that she was powerless to negotiate any terms of this mortgage and that she was much less sophisticated than the defendants. There is significant evidence that, despite Mr. Jain’s attendance to oversee the signing of the mortgage documents, Ms. Sanders did not appreciate the financial or legal implications of this mortgage.

[92] Second, Ms. Sanders has presented a strong prima facie case that the loan and mortgage were improvident. Improvidence must be assessed contextually. The terms of the agreement must be read in the context of the surrounding circumstances at the time of contract formation, including market price and the position of the parties. One way to assess improvidence is to assess whether the stronger party has been unduly enriched because the cost of the goods and services departs significantly from the usual market price: Uber at paras. 75 to 76.

[93] My first step is to identify the cost of this loan to Ms. Sanders. The total cost of the loan to her should include all interest, fees, brokerage fees and charges. This is the approach, for example, in s. 1 of the Unconscionable Transactions Relief Act, which defines cost of the loan to mean:

the whole cost to the debtor of money lent and includes interest, discount, subscription, premium, dues, bonus, commission, brokerage fees and charges, but not actual lawful and necessary disbursements made to a land registrar, a local registrar of the Superior Court of Justice, a sheriff or a treasurer of a municipality.

[94] When calculating the cost of the loan to Ms. Sanders, I would include the following amounts, all of which CCI required to be paid pursuant to the Conditional Commitment Letter on its letterhead:

Prepaid interest

$125,000.00

Lender’s fee

$25,000.00

Mortgagee’s legal fees

$2,500.00

Mortgage arrangement fee

$3,500.00

Mortgage broker fee

$15,000.00

Total

$171,000.00

[95] Ms. Sanders paid $171,000 to borrow $500,000 for 12 months. The borrowing costs, or annual percentage rate, equalled 34.2%.

[96] The risks to CCI associated with this loan were minimal. The interest and the fees listed above were deducted on day one from the funds advanced to Ms. Sanders. The balance of the money made available to Ms. Sanders was secured by a first mortgage on a house that Ms. Bolin valued at between $950,000 and $1.1 million and the mortgage broker valued at $1.213 million. There was ample security for the money advanced.

[97] Ms. Sanders presented evidence that the annual percentage rate for a reverse mortgage on her house would be somewhere between 6.63% and 9.00%. In contrast, CCI presented no evidence to suggest that 34.2% annual percentage rate was consistent with the market rates generally available in July 2021 for a fully secured first mortgage with the features of the loan that it provided to Ms. Sanders.

[98] Based on the evidence before me, there is a strong case that the cost of this loan was much higher than the usual market price for such a mortgage: Uber, at paras. 73 to 79. Proof of a manifestly unfair bargain, such as this one, may well support an inference that Ms. Sanders was unable to protect her interests adequately.

[99] In conclusion, I find that Ms. Sanders has presented a strong prima facie case that the mortgage was unconscionable because of an inequality of bargaining power between the parties that resulted in an improvident loan and mortgage.

Fraudulent misrepresentation

[100] The Supreme Court of Canada explained in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 87 that the tort of fraudulent misrepresentation is made out where a plaintiff proves that:

a. the defendant made a false representation to the plaintiff;

b. the defendant knew that that their representation was false or was reckless about that;

c. the plaintiff acted in reliance on the representation; and

d. the plaintiff suffered a loss as a result.

[101] Ms. Rawkins stated in her affidavit that after she received the call from the insurance company on May 31, 2021, she discussed the potential mortgage with Ms. Sanders who told her that “she thought that she had to get the mortgage due to a court order and that the mortgage would somehow disappear after a year.”

[102] This evidence creates a strong prima facie case of a fraudulent representation. If a judge accepts that evidence at trial, the judge could also infer that Ms. Sanders acted in reliance on that representation to her detriment. This is particularly the case where the noxious misrepresentation invoked the authority of a purported order of the court to persuade Ms. Sanders to act in reliance on that statement.

[103] CCI submits that “there is literally not a scintilla of evidence before the Court connecting [CCI] to person who procured the mortgage application from the Plaintiff.” I disagree.

[104] First, the mortgage application presented to Ms. Sanders at her doorstep was, literally, on CCI letterhead and was titled “Canada’s Choice Investments Inc. Mortgage Application.”

[105] Second, there is a Sonnet Insurance policy dated June 1, 2021, for Ms. Sanders’s property that named CCI named as the mortgagee. The policy period commenced on the day Ms. Sanders signed the mortgage application on CCI letterhead. On cross-examination, Mr. Ayyoub had no answer for why the insurance policy named CCI as mortgagee on June 1, 2021. In response to an undertaking to confirm how CCI became listed on this policy and to produce any documentation that addressed this issue, CCI could only offer that the “precise circumstance behind this is unknown. However, someone must have called Sonnet to add CCI to this policy.” No supporting documents were produced. The fact that CCI’s name appeared on a policy with start date of June 1, 2021, the very day that someone procured Ms. Sanders’s signature on the loan application on CCI’s letterhead, is much more than a scintilla of evidence connecting CCI to the door knockers.

[106] While it will be for the trial to determine if the persons who obtained her signature on the document titled “Canada’s Choice Investments Inc. Mortgage Application” were acting as agents for CCI, I reject CCI’s submission that there is no evidence connecting it to the people selling $500,000 mortgages door-to-door.

[107] This is also why I do not accept that CCI can characterize itself on this motion as a “bona fide purchaser for value without notice.” CCI may be able to make out such a defence at trial, but on the record before me, I do not find their submissions persuasive.

[108] I find that Ms. Sanders has raised a strong prima facie case that she was induced to enter into the loan and the mortgage through fraudulent misrepresentations.

Step two: Ms. Sanders would suffer irreparable harm without an injunction

[109] At the second step of the injunction test, Ms. Sanders must demonstrate that she will suffer irreparable harm if the injunction is not granted. Irreparable harm is “harm which either cannot be quantified in monetary terms, or which cannot be cured, usually because one party cannot collect damages from the other”: RJR – MacDonald, at para. 64.

[110] At this stage, the burden remains on Ms. Sanders to place sufficient evidence before the court to demonstrate that she will suffer irreparable harm. The evidence tendered must be clear and not speculative. Absent clear evidence that irreparable harm will result, the injunction should not issue. Irreparable harm is not made out simply because damages may be difficult to quantify. The plaintiff must prove that the alleged harm cannot be quantified in monetary terms: Downtown Kids Academy Inc. v. Zakrzewski, 2017 ONSC 5045, 43 C.C.E.L. (4th) 339; Ciba-Geigy Canada Ltd. v. Novopharm Ltd., 1994 CanLII 19563 (FC), 1994 CarswellNat 700 (F.C.T.) at para 118; 754223 Ontario Ltd. v. R-M Trust Co., [1997] O.J. No. 282 (Gen. Div.) at para. 40; 2158124 Ontario Inc. v Pitton, 2017 ONSC 411 at para. 49.

[111] The three parts of the RJR – MacDonald test are not watertight compartments and the strength of one factor may compensate for the weakness of another. The issue of irreparable harm must be assessed in the context of the specific facts of this case: Starkman v. Home Trust Co., 2015 ONCA 436, at para. 17.

[112] There is no doubt that the loss of one’s home can, in the right circumstances, constitute irreparable harm: Toronto-Dominion Bank v. Hagey, 2016 ONCA 270, at para. 11.

[113] I find that Ms. Sanders has demonstrated that she will suffer irreparable harm if the injunction is not granted. The property in dispute has been her home for 25 years. She is 78. She is ill and living with bi-polar disorder and a chronic and degenerative condition, Alzheimer’s disease. She is suffering from serious cognitive decline, as explained by her psychiatrist and the capacity assessor. Ms. Rawkins, who is a psychiatrist herself, stated that she believes it would be extremely harmful to her mother’s mental health if she loses her home and is required to move.

[114] I must assess the issue of irreparable harm in the context of the specific facts of this case, which includes my assessment that Ms. Sanders has demonstrated a strong prima facie case that the mortgage is unconscionable. In these circumstances, forcing her from her home would be a profound injury to her dignity, which is not remediable in damages. I find that she has demonstrated the type of special connection to her home that is unique and irreplaceable. If she is forced from her home but is ultimately successful at trial, I do not think the harm she will have suffered to her dignity can be quantified in monetary terms.

[115] CCI states that Ms. Sanders will not suffer irreparable harm because she can return the balance of the funds from the original mortgage “and obtain a reverse mortgage to pay the loan balance.” It seems to me that it lies ill in the mouth of CCI to suggest that Ms. Sanders should be required to obtain a reverse mortgage at a much lower interest rate so that may obtain its profits and protect its capital advanced under a mortgage that may well be found to be unconscionable.

[116] CCI claims that it has sufficient assets to pay damages or restitution to Ms. Sanders if her claim is successful. CCI indicated that it holds assets valued at $3,400,000. It is not clear what type of assets make up this pool. It does not appear that CCI owns real estate as its registered head office is a mailbox in a UPS store. Moreover, CCI declared irrelevant and refused to answer the following questions during the cross-examination of Mr. Ayyoub:

a. To provide the list of the mortgages owned by CCI, including the amount of the loans and the age of the lenders;

b. To provide the amount of cash CCI has in the bank;

c. To provide a copy of any statements of claim for any lawsuits against CCI, Anas Ayyoub, or CCC, that is not already on the record;

d. To provide a list of when the mortgages owned by CCI come due;

e. To provide a list of all legal disputes that CCI is involved in regarding enforcement of its mortgages, including a copy of the pleadings;

f. To answer whether Anas Ayyoub is the sole owner of both CCI and CCC; and

g. To provide financial statements and tax returns for CCI and CCC.

[117] I doubt that many of these refusals were appropriate. Certainly, by choosing not to provide this information, CCI has prevented Ms. Sanders from testing its assertion that it has sufficient assets to pay any damages award made at the end of this case. Absent such documents, I do not give much weight to CCI’s assertion of financial health.

[118] I am also mindful of the fact that Ms. Sanders was able to identify at least eight legal proceedings that are currently underway challenging the validity of CCI mortgages. These lawsuits increase the risk that CCI may not be able to pay any damages award that may be made against it. Because of their refusal to answer seemingly relevant questions, the information necessary to answer that question is not before the court.

[119] In conclusion, I find that Ms. Sanders would suffer irreparable harm if I do not grant the injunction.

Step three: the balance of convenience favours Ms. Sanders

[120] The third step in the injunction test is to assess the balance of convenience. In Metropolitan Stores (MTS) Ltd., at para. 35, the Supreme Court of Canada posed the question this way: which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory injunction, pending a decision on the merits?

[121] In my view, if the injunction is not granted Ms. Sanders will suffer greater harm than CCI will suffer if I grant the injunction. Considering the relative impact on the parties of granting or withholding the injunction, I find that the benefit to Ms. Sanders of granting the injunction outweighs the convenience to CCI of withholding relief.

[122] CCI holds a 30% interest in the mortgage. The remaining 70% of the interest is held by 12212382 Canada Inc., which did not respond to the motion. I accept CCI’s submission that if this injunction is granted, it will not be able enforce the mortgage to recover its capital before trial. I also accept that it is not receiving any further interest payments on the capital it advanced.

[123] In most mortgage enforcement cases, the balance of convenience will favour the mortgagee. This will particularly be true where the mortgagor acknowledges the indebtedness and arrears, does not dispute the validity of the mortgage, has not made payments for many years, is allowing tax arrears to accumulate, or is allowing the property’s value to deteriorate through lack of upkeep: Starkman at para. 19; Arnold, at p. 469.

[124] Here, however, Ms. Sanders is challenging the validity of the mortgage itself. There is no evidence that she is allowing the property to deteriorate or become subject to tax arrears. The evidence before me is that CCI is very well secured, as the value of the property far exceeds the size of the debt.

[125] It also appears that CCI is the beneficiary of title insurance, which may respond to challenges to the validity of the mortgage based on circumstances such as those presented in this case. I do not give too much weight to this factor as there is no evidence as to whether or not CCI has called on this policy, but it suggests that CCI may have access to additional recourse, if necessary.

[126] When I consider who will suffer the greater harm from granting or refusing the injunction, I conclude that, in these circumstances, Ms. Sanders’ dignity interests far outweigh the financial interests of CCI.

The interests of justice

[127] The overarching consideration in deciding whether or not to grant an injunction is the interests of justice: Zafar v. Saiyid, 2017 ONCA 919, at para. 18; Circuit World Corp. v. Lesperance, (1997), 1997 CanLII 1385 (ON CA), 33 O.R. (3d) 674 (C.A.), at para. 8; Starkman v. Homes Trust Co., 2015 ONCA 436 at para. 7.

[128] CCI makes four submissions in support of its argument that the interests of justice do not require an injunction to be issued.

[129] First, CCI submits that Ms. Rawkins “is the author of her mother’s misfortune (if any) as she had notice of the impending loan transaction and took no steps to prevent it from happening.” I do not accept this submission. First, it conflates Ms. Rawkins with her mother. They are two separate people. At the time of the transaction, Ms. Rawkins had no legal authority to prevent her mother from signing the mortgage documents. Second, to suggest that Ms. Rawkins is the “author of her mother’s misfortune” is a submission that is completely at odds with the factual record before the court. There is evidence before me to suggest that several people are responsible for the misfortune that befell Ms. Sanders, but Ms. Rawkins is not one of them.

[130] Second, CCI submits that Ms. Rawkins did not “move promptly or with alacrity to set aside the loan transaction once she learned of it.” I do not accept this submission. Once Ms. Rawkins learned of the transaction, she took several steps, including obtaining medical assessments and a capacity assessment of Ms. Sanders, which led to Ms. Rawkins exercising her power of attorney for property. Ms. Rawkins then began to explore an extremely complicated set of financial arrangements into which Ms. Sanders entered even before the mortgage at issue in this proceeding.

[131] I find that Ms. Rawkins moved promptly. On October 6, 2021, counsel for Ms. Sanders wrote to Mr. Jain to obtain his file and to investigate what happened. On June 8, 2022, Ms. Rawkins (as litigation guardian) issued the statement of claim in this proceeding. The complexity of this claim is evident from the number of defendants, the range of causes of action, and the pleaded relationships among the defendants.

[132] I do not see that CCI suffered any meaningful prejudice from the speed with which Ms. Rawkns moved. Ms. Sanders commenced the claim before the mortgage came due. CCI had received its interest payments, lender’s fees, and other profits on the day the loan was advanced. I would not give effect to this submission.

[133] Third, CCI submits that Ms. Sanders continues to hold funds that CCI advanced through the mortgage and has not repaid those funds to CCI or obtained a reverse mortgage to pay back all the amounts she owes to the lenders. I do not agree that this is a reason not to grant the injunction. CCI did not bring a cross-motion to compel Ms. Sanders to pay any money in to court pending trial. For the reasons set out in the section on irreparable harm, I have doubts about the financial ability of CCI to satisfy any damages award that Ms. Sanders may receive and I would not require her, at this time and on this record, to borrow further money to pay CCI anything. Finally, there appeared to be uncertainty regarding to whom Ms. Sanders had paid the balance of the mortgage funds and whether those funds were, in fact, available to her at this time. In all the circumstances, I do not see as a reason not to grant an injunction.

[134] Fourth, CCI is concerned about the length of time the litigation will take and how long it will have to wait to be able to act on its mortgage if it is successful. I agree that this is a valid concern. CCI or Ms. Sanders can apply to the Regional Senior Justice for the Toronto Region under Rule 77 to appoint a case management judge to manage this proceeding (and any of the eight other proceedings challenging CCI mortgages) and to set an aggressive timetable to get this case (or cases) to trial.

[135] I find that the interests of justice strongly support granting an injunction.

Conclusion and costs

[136] I grant an interlocutory injunction restraining Canada's Choice Investments Inc. and 12212382 Canada Inc. and anyone else having notice of this order from taking any steps to enforce the mortgage held by Canada's Choice Investments Inc. and 12212382 Canada Inc. against Ms. Sanders home, including a power of sale, until the final disposition of this proceeding or until further order of the court.

[137] If the parties are not able to resolve costs of this motion, Ms. Sanders may email her costs submission of no more than three double-spaced pages to my judicial assistant on or before January 16, 2023. CCI may deliver its responding submission of no more than three double-spaced pages on or before January 23, 2023. No reply submissions are to be delivered without leave.

Robert Centa J.

Date: January 9, 2023

[^1]: This case involves a loan amount ($500,000), various terms on the loan (interest rates, fees, etc.) and a mortgage, which is a registered charge on property to secure the loan amount. On this motion, the parties used the term “mortgage” to refer compendiously to all the terms of the transaction. I will do the same, except where it is necessary to specify a particular element of the transaction.

[^2]: In her statement of claim, Ms. Sanders also pleads that the mortgage should be set aside pursuant to s. 2 of the Unconscionable Transactions Relief Act, R.S.O. 1990, c. U.2, because “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 purpose of the legislation is to relieve a party to a contract from her obligation where the contract was made absent her informed consent or in circumstances of unequal bargaining power. The legislation exists to protect those in need of money, but not skilled in borrowing it and who are thereby in the hands of lenders who seek to take advantage of them. The legislation affords an ability to give relief where it is “obvious that an unfair advantage has been taken of the borrower: Milani v. Banks (1997), 1997 CanLII 1765 (ON CA), 32 O.R (3d) 557 (C.A.), at para. 23; Smit v. Pluim, 2015 ONSC 7945, at para. 17. Ms. Sanders would need to demonstrate that the cost of the loan is excessive having regard to the risk and all of the circumstances and that the transaction is harsh and unconscionable either because the terms are very unfair or that there was an inequality of bargaining power and that one of the parties took advantage of this: Ekstein v. Jones, (2005), 34 R.P.R. (4th) 280 (Ont. S.C.J.) , paras. 44 to 60; McPherson v. Napior, 2017 ONSC 5934, at para. 9; Grand Ridge Estates Limited v. Breadner Holdings Inc., 2018 ONSC 655, at para. 89; Smit, at para. 19. As Ms. Sanders did not rely on this ground in her factum on this motion, I will not address it further.