Court File and Parties
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Morex Capital Corp., Plaintiff
AND:
Mohammed Rasheed Kubah, Defendant
BEFORE: Kurz J.
COUNSEL: Adam Ostermeier, for the Plaintiff
Thanasi Lampropoulos, for the Defendant
HEARD: May 25, 2023
ENDORSEMENT
Introduction
1This matter was originally brought as a motion for summary judgment on an unpaid mortgage (the “mortgage”). The parties first attended before me on April 18, 2023. At that time, I adjourned this motion to allow for the Defendant to file responding materials through his new counsel and to complete the sale of the subject property.
2The Defendant has now sold the subject property and paid the full amount claimed by the Plaintiff in its discharge statement. But it did so under protest regarding some of the charges claimed by the Plaintiff as set out below.
3Following payment of the mortgage, counsel for the Plaintiff indicated that it had erred in its discharge statement because it undercharged the legal fees to which it is entitled under the mortgage. The accounting department of the Plaintiff’s law firm inputted the wrong hourly fees for the two lawyers working on this proceeding. As a result it seeks an added $11,050 in allegedly undercharged legal fees. It also claims that it properly charged the various other fees set out in its discharge statement. That being said, counsel for Morex concedes that it lacks evidence for some fees and that other fees which it claims are subsumed in the legal fees already charged by its counsel.
4I will deal first with the objections to certain fees claimed in the discharge statement and then set out directions for the resolution of the claim for an added $11,050 in legal fees as well as further costs of this motion.
Fees Charges in the Discharge Statement
Applicable Principles
5There is no question that the mortgage entitles the Plaintiff to charge the Defendant its full indemnity legal fees for the enforcement of the mortgage, as a matter of contract law. That point is made clear in the mortgage’s standard terms. There is also no question that my discretion to reject or diminish the Plaintiff’s legal collection fees is limited. As the Court of Appeal for Ontario set out in Everest Finance Corp. v. Jonker, 2023 ONCA 87, at para. 8:
The motion judge does not appear to have appreciated that her discretion in awarding costs did not extend to changing the contractual terms of the mortgage. The mortgage provided for full indemnity costs for steps taken to recover the amount due. While the motion judge might vary the amount sought if it included amounts that were not appropriate, or because excessive rates or time were charged, she did not have the authority to essentially change the contracted full indemnity costs provision to a partial indemnity one. That is not an authority included under the well-established parameters of a judge's discretion when it comes to awarding costs.
6On the other hand, s. 8(1) of the Interest Act, R.S.C. 1985, c. I-15 ("s.8(1)") limits the right of a mortgagee to claim fees that are penalties rather than actual costs of collection. Section 8(1) and (2) of the Interest Act reads as follows:
8(1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real Properties or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.
(2) Nothing in this section has the effect of prohibiting a contract for the payment of interest on arrears of interest or principal at any rate not greater than the rate payable on principal money not in arrears.
7In Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18, [2016] 1 S.C.R. 273 ("Krayzel"), at para. 21, Brown J., writing for the majority of the Supreme Court of Canada, explained that the purpose of s. 8(1) is to protect landowners from charges "that would make it impossible for [them] to redeem, or to protect their equity" (adopting Reliant Capital Ltd. v. Silverdale Development Corp., 2006 BCCA 226, 270 D.L.R. (4th) 717 (B.C.C.A.), at para. 53).
8Brown J. summarizes the effect of s. 8(1) as follows at para. 24:
24 Section 8(1) identifies three classes of charges - a fine, a penalty or a rate of interest - that shall not be "stipulated for, taken, reserved or exacted" if "the effect" of doing so imposes a higher charge on arrears than that imposed on principal money not in arrears. Section 8(2) affirms that subs. (1) does not prohibit a contract from requiring payment of interest on arrears of interest or principal at a rate equivalent to or lower than that payable on principal money not in arrears.
9The leading Ontario case on the application of s. 8(1) is P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331. There, Cronk J.A., writing for the Court of Appeal for Ontario, explains at para. 51 that s. 8(1):
creates an exception to the general rule that lenders and borrowers are free to negotiate and agree on any rate of interest on a loan. Section 8 prohibits lenders from levying "fine[s], penalt[ies] or rate[s] of interest" on "any arrears of principal or interest" that are "secured by mortgage on real Properties".
[Citation omitted]
10At paras. 52-56 of P.A.R.C.E.L., Cronk J.A. lays out four prerequisites for the court's application of s. 8(1) to prohibit a mortgagee from charging certain fees or other amounts to a mortgagor:
The covenant in question must impose a "fine", "penalty" or "rate of interest". If it does not, then s. 8(1) is not engaged.
The "fine", "penalty" or "rate of interest" must relate to "any arrears of principal or interest secured by mortgage on real Properties", whether before or after maturity of the relevant debt instrument.
"the covenant must also have the prohibited effect of 'increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears'."
"the arrears of principal or interest must be 'secured by mortgage on real Properties'"
[Citations omitted]
11The court in P.A.R.C.E.L. placed the onus on the mortgagee claiming the amounts following default to prove that they "reflect real costs legitimately incurred by the First Mortgagees for the recovery of the debt, in the form of actual administrative costs or otherwise": para 96.
12In the absence of that proof, the court concluded:
the only reason for the charges was to impose an additional penalty or fine, apart from the interest otherwise payable under the Mortgage, thereby increasing the burden on the appellants beyond the rate of interest agreed upon in the Mortgage. The courts have not hesitated to disallow similar charges on the basis that they offend s. 8(1) of the Interest Act ...
Application of the P.A.R.C.E.L. Principles
13Here, the defendant objects to the following charges set out in the Plaintiff’s discharge statement:
a. $1,500 for late payment fees;
b. $3,200 for NSF/return payment fees (5 months)
c. $5,000 for Morex default/demand letter;
d. $350 for reinvestment fee;
e. $350 for mortgage discharge statement fee;
f. $975 for mortgage discharge fee
g. $7,500 for legal administration fee.
14During the course of argument, counsel for the Plaintiff withdrew the claim for the mortgage discharge and legal administration fees. He also conceded that the Plaintiff provided no evidence regarding the late payment fees, the five months of NSF return fees, and the default/demand letter (which likely would have been part of the legal fees in any event).
15That leaves the reinvestment fee and the mortgage discharge fee. I agree with the Defendant’s counsel that there is no evidence regarding the reinvestment fee or even what it is. That leaves the discharge statement fee. I find that it is a proper fee in that a mortgage discharge statement was prepared and that it does not represent double counting of a legal fee or a penalty.
16Thus, of the amounts set out in para 13, only the $375 is payable. The balance shall be reimbursed to the defendant, but subject to and only following the resolution of the legal fee issue, as set out below.
Legal Fee Issue
17The issue of the Plaintiff’s counsel undercharging its legal fees is one that only arose at the last minute. It is reflected in the May 24, 2023 affidavit of a legal assistant employed by the Plaintiff’s law firm.
18As I explained to counsel during the course of argument, I require legal briefs from them as to the Plaintiff’s ability to collect the undercharged legal fees. I have no authorities before me regarding the issue. At my suggestion, they will discuss and attempt to negotiate a resolution of that issue. If they are unable to do so, they will arrange a date for a Zoom conference call with me to set out a timetable for the resolution of that issue.
Costs of this Motion
19While the Plaintiff is entitled to the full indemnity costs of this motion to the extent that is necessary to enforce the mortgage terms, that entitlement is not boundless. The amounts claimed must, per Everest, above, be appropriate and not be excessive.
20Here, the Plaintiff is not entitled to costs regarding the collection of fees to which it is not entitled. Further, even if it is entitled to costs that were not previously collected because of its error, I cannot see requiring the Defendants to pay those costs. In fact, it is at least arguable that the Defendants are entitled to its costs in resisting all of the fees set out above. That is a matter for the parties to discuss. Again, if they are unable to resolve that issue, they may arrange a Zoom conference with me to discuss next steps towards resolution.
21If I have not heard from the parties within 30 days, I will assume that they have resolved the issues set out in this endorsement and treat this decision as final.
“Marvin Kurz J.”
Electronic signature of Justice Marvin Kurz
Date: May 25, 2023