COURT FILE NO.: CV-22-00001327-0000 DATE: 2023 10 06 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

WE CARE FUNDING LIMITED PARTNERSHIP R. Kesarwani, for the Applicant Applicant

• and -

1569635 ONTARIO LIMITED G. E. Cohen, for the Respondent Respondent

HEARD: November 14 and 21, 2022 at Brampton, and January 16, 2023 by video-conference

Reasons for Judgment

Emery J.

[1] In this application, the owner of two properties at 1041 and 1407 Lakeshore Road East in Mississauga (the “Properties”) and the holder of the first and third of the three mortgages registered against title to the Properties are related parties. The applicant, We Care Funding Limited Partnership (“WCF), is the related party that holds those mortgages.

[2] WCF also has a 50% share in the mortgage registered in second place, with the other 50% share held by the respondent, 1569635 Ontario Limited (“156”). In short, the 50% interest held by 156 in the second mortgage is an island surrounded by a sea of common interests.

[3] WCF brings this application for an order to compel 156 to give a discharge or an assignment of its 50% share in the second mortgage under sections 2(2) and 12(9) of the Mortgages Act. WCF has funds in trust with the Accountant of the Superior Court of Justice to pay the proper amount owing to 156 once a discharge statement is provided that shows allowable amounts claimed, or the court determines the proper amount. WCF and the owner will then be in a position to develop the Properties upon receiving an assignment or discharge from 156.

[4] 156 opposes the application for the same reasons it refused to give a discharge statement to WCF before the application was brought. It takes the position that WCF does not have the legal right to ask for a discharge statement or to compel 156 to give a discharge or assignment of its 50% share. As a result, the amount to pay out 156 under the second mortgage has yet to be determined.

[5] In its factum, 156 made the submission that the court had no jurisdiction to hear this application because WCF had brought the proceeding under Rule 14.05(3) of the Rules of Civil Procedure instead of the Mortgages Act. 156 further challenged the procedure chosen by WCF because it had not claimed a declaration of rights. This ground of opposing the application was abandoned by Mr. Cohen at the hearing. Mr. Cohen correctly acknowledged that the court has jurisdiction to hear an application brought under Rule 14.05(3)(e) to seek a judicial determination for disputed costs and charges under a mortgage. See Sub-Prime Mortgage Corporation v. 1219076 Ontario Limited, 2019 ONCA 581, at para. 16.

[6] There are two fundamental issues in this application. The first is whether WCF comes within the definition of a mortgagor or another person or party under the Mortgages Act who is entitled to redeem the second mortgage, or to call for an assignment of the share held by 156. If answered in the affirmative, the first issue yields to the second issue, being the perennial question of the proper amount required to pay out 156.

Background

[7] A little background is helpful to provide context for the dispute and how it has evolved.

[8] The parcels of land making up the Properties are vacant lands on Lakeshore Road located east of Cawthra Road in Mississauga. Initially, the Properties were owned by Booth Lakeshore I Inc. and Booth Lakeshore II Inc. (together, the “Booth Companies”).

The Mortgages Granted

[9] The principals of the Booth Companies are Aiden Booth and Wyatt Booth. These individuals were also the guarantors on three of the initial mortgages granted by the Booth Companies to raise funds for the purpose of developing the Properties. Those mortgages consisted of a $6.265 million first mortgage to Creemore Financial Limited (“Creemore”), a $600,000 second mortgage to Country Homes Limited (“Country Homes”), and a $3 million third mortgage to Jaekel Capital Inc (“Jaekel”).

[10] The second mortgage at issue in this application was granted in August, 2019 to secure a further loan of $2 million for a one year term. There were three lenders who funded this second mortgage: Pure Ink Stream Ltd. (“Pure Ink”) as to $600,000, Trumencas Ltd. (“Trumencas”) as to $400,000, and the respondent 156 as to $1,000,000. The funds from 156 came at the end of assembling the financing to enable the funding under this mortgage. The Booth Companies granted the second mortgage to Pure Ink, Trumencas and 156 as tenants in common.

[11] When the second mortgage for $2 million was arranged in August 2019, both Country Homes and Jaekel postponed the mortgages they held to the new second mortgage. After placement of that second mortgage, there was almost $12 million in secured debt against the Properties.

[12] The particulars of the second mortgage provided for the principal repayment of $2 million, interest only payments in the amount of $23,316.66 each month over the one year term at the rate of 13.99% per annum, and that Standard Charge Terms 200433 would apply to this mortgage.

[13] Mr. Kam Ming Richard Tsang is the president of 156 and gave an affidavit in response to the application. Mr. Tsang states in his affidavit that 156 advanced $1 million as a co-mortgagee for its 50% interest in the second mortgage. 156 takes the position that it would have been impossible for the Booth Companies and their principals to obtain financing of this nature without payment of a significant lender’s fee. It was considered a risky loan at the time, and could not have been obtained from anyone but private fee-based lenders.

[14] The second mortgage was registered against title to both the Properties on August 21, 2019 as Instrument No. PR3526563. The mortgage matured on August 20, 2020 according to its terms.

[15] WCF acquired the 20% co-tenant share of Trumencas Ltd. in the second mortgage on September 29, 2021 and the 30% co-tenant share of Pure Ink in the second mortgage on February 4, 2022 for terms disclosed to 156.

WCF Consolidates its Position on Title

[16] WCF is a limited partnership registered under the Limited Partnerships Act. Mr. Vikas Soota is the president of City Centre Holdings Inc, the general partner in WCF. Mr. Soota gave two affidavits for WCF on this application.

[17] On July 22, 2020, the Booth Companies transferred the Properties to Anthem Developments Inc. (“Anthem”). According to the registered Transfer, the conveyance of title was from “beneficial owner to trustee”, for no consideration. Anthem became, and remains the registered owner of the Properties. Anthem was incorporated one day before the transfer.

[18] Mr. Soota is a shareholder and director of Anthem. He testified on cross-examination that it was around this time that he became involved as an investor.

[19] The first mortgagee, Creemore, commenced an Application on the Commercial List Court in Toronto for a receivership order in September 2020 which was granted on November 5, 2020. One day later, Creemore assigned its charge to WCF, which was subsequently registered on title to the Properties to WCF and City Centre Holdings Inc.

[20] At the same time or a short time after, Country Homes commenced an Application on the Commercial List for a receiver as it had not been paid out its third mortgage. 156 was not a party to the Application but was listed on the Application as a party for service.

[21] WCF acquired the Country Homes mortgage soon thereafter, ending the receivership application with respect to that mortgage. As with the Creemore mortgage, WCF and City Centre Holdings Inc. are the registered holders of the Country Homes mortgage.

[22] Through this process, WCF now holds both the first and third mortgage on the Properties. The general partner of WCF, City Centre Holdings Inc., has the same shareholders and directors as Anthem, the registered owner of the Properties.

Steps Taken by WCF to Pay Out 156

[23] On or about May 10, 2021, WCF first gave notice to 156 in a letter from its counsel, Phillip Cho of WeirFouds LLP, of its intention to obtain an assignment of the 50% share in the second mortgage held by 156. WCF made a proposal to buy out 156 from the mortgage, admittedly at a discount. 156 did not respond to this request until its counsel, Mr. Seun Olowolafe, provided a discharge statement from 156 on October 1, 2021.

[24] Mr. Cho responded to Mr. Olowolafe’s email on October 21, 2021 to dispute several charges claimed by 156 as improper. Mr. Cho advised Mr. Olowolafe at that time that he calculated $1,075,470 as the amount WCF was offering to purchase the debt owing to 156 under the mortgage.

[25] On March 1, 2022, Mr. Kesarwani wrote to Mr. Olowolafe to advise him that he was now acting for WCF. He reiterated that WCF had given notice of its intention to purchase the 156 share of the mortgage on May 10, 2021, and to again offer $1,075,470 for that share. The letter went on to identify the charges in dispute, all of which added up to an additional $516,608.27 at the time.

[26] Subsequently, 156 retained Mr. Cohen as counsel. Mr. Cohen wrote to Mr. Kesarwani on March 9, 2022 to challenge the right of WCF to acquire the share of 156 in the second mortgage in the manner proposed. After counsel for WCF reached the conclusion that buying 156 out of the mortgage was not achievable on negotiated terms, this application was commenced.

[27] After WCF commenced this application on May 9, 2022, it proceeded to pay $1,680,274 to the Accountant of the Superior Court of Justice, to the credit of this application. This amount represents the undisputed sum owing to 156 that had grown to $1,110,541 as of May 20, 2022 when payment the Accountant was made, and disputed charges totalling $569,733.04. The manner in which this payment to the Accountant was made is not clear from the materials. There is no evidence that this payment was made under s. 12(3) or s. 12(6) of the Mortgages Act.

[28] 156 provided two discharge statements that are included in the record for this application. However, when it comes to the second mortgage, 156 has taken the position that WCF is not entitled to require, or to receive a discharge statement for this mortgage. 156 has not responded to requests for a discharge statement made by WCF as a co-mortgagee, or as a prior mortgagee under s. 22(2) of the Mortgages Act.

[29] WCF takes the position that it has tendered the funds required for discharge upon 156 by taking these steps. It took these steps because 156 has maintained its refusal to provide WCF with an updated discharge statement as the co-mortgagee of the second mortgage or as first mortgagee.

Issues for Determination

[30] This application is brought by WCF for an order:

a. To compel 156 to give a discharge or assignment of the 50% interest of the Charge/Mortgage registered as Instrument No. PR3526563 on August 21, 2019 on title to the Properties upon payment of the proper amount; b. Determination of the proper amount owing to 156 under the second mortgage; c. An order that interest ceased to accrue on the $1,110,541.46 that WCF proposed for release to 156 on May 20, 2022; and d. Distribution of appropriate amounts of the $1,680,274 paid by WCF to the Accountant in trust on May 20, 2022 upon the discharge of the 156 share in the second mortgage, or the assignment of that share to WCF.

Positions of the Parties

WCF

[31] WCF does not dispute that 156 is entitled to payment of $1 million for its principle under the second mortgage. WCF also acknowledges that 156 is entitled to accumulated interest to the date funds were paid to the Accountant for that purpose, and to any reasonable expenses for providing statements and any discharge document. WCF disputes the claim 156 is making for the payment of fees for multiple documents, a post maturity penalty and for the lender’s fee claimed.

156

[32] 156 maintains its position on this application that WCF was not entitled to a discharge statement for the amount owing pursuant to requests WCF has made under s. 22(2) as a co-mortgagee or a prior mortgagee. Mr. Cohen observed that Anthem never made a request for a discharge statement, which it was entitled to ask for as a mortgagor.

[33] It is also the position of 156 that WCF has never paid, tendered or deposited the proper amount for the principle owing, which would include accumulated interest since the second mortgage matured and allowable expenses for its share of the mortgage.

[34] 156 initially claimed a renewal fee of $50,000 for the charge. This part of the claim was abandoned in Mr. Tsang’s affidavit dated August 11, 2022, in response to this application.

[35] In another change of position, 156 has also reduced its claim for interest on the mortgage after maturity from 26% per annum under the standard charge terms to 13.99% annually, compounded.

[36] 156 maintains its claim to a pre-payment penalty of three months interest under s. 17 of the Mortgages Act as it has never taken steps to enforce the mortgage. 156 continues to claim fees for providing multiple discharge statements and for when it will be called upon to deliver a discharge of mortgage for each of the two Properties.

[37] Finally, 156 claims a lender’s fee on its portion of the mortgage in the amount of $108,500.

Analysis

[38] The issues for determination on this application were therefore narrowed to the following:

1. Is WCF entitled at law to compel 156 to give a discharge of its interest in the second charge, or to make an assignment of that interest to WCF or as it may direct on payment of the proper amount?
2. What amount is owing to 156 for its 50% interest in the charge?
3. Did interest continue to accrue at the rate prescribed by the second mortgage after WCF paid funds into court on May 20, 2022?

Statutory Framework

[39] The substantive rights of each party to this application are grounded in the Mortgages Act, RSO 1990, c M.40.

[40] The right of a mortgagor under s. 2(1) to require a mortgagee to assign a mortgage upon payment may be enforced by each encumbrancer who derives title from the mortgagor despite any intermediate encumbrancer under s. 2(2). This subsection sets out priorities between encumbrancers on title who are entitled to an assignment or to request a discharge of a mortgage.

[41] Section 12(6) of the Mortgages Act allows a party owing money admittedly due under a mortgage to pay an amount in excess of the amount where the proper amount is open to question, plus any other amount ordered by the court. The court may also require an additional amount be paid into court to answer any claim for subsequent interest and costs under s. 12(7).

[42] Section 17(1) provides that, where default has been made in the payment of any principal money secured by a mortgage, the mortgagor or any other person entitled to make such payment may at any time, upon payment of three months interest on the principal money so in arrear, pay that money. Section 17(1) also provides that the mortgagor or person entitled to make such payment may give the mortgagee at least three months notice, in writing, of the intention to make such payment at a time named in the notice. In that event, the person making such payment on the day so named is entitled to make the same without any further payment of interest except to the date of payment.

[43] The Application seeks an Order allowing the registration of an Order discharging the mortgage under s. 21(9) of the Mortgages Act that would have the same effect as a certificate of mortgage signed by 156 as mortgagee.

[44] In section 22(2), a mortgagor may, by notice in writing, require the mortgagee to furnish the mortgagee with the statement in writing:

a. of the amount of the principal or interest with respect to which the mortgage is in default; or b. the nature of the default or the non-observance of the covenant,

and the amount of any expenses necessarily incurred by the mortgagee.

Issue #1: Is WCF entitled to redeem or compel 156 to give a discharge of its interest on payment?

[45] The question of whether WCF was a party entitled to call for a discharge statement merged with the larger question of whether it was entitled to pay out or redeem the 156 share in the second mortgage at law as submissions went on. This issue took an inordinate amount of time for because Mr. Kesarwani based the entitlement of WCF to a remedy on its capacity as a co-mortagee with 156.

[46] The legal procedure of partition and sale under the Partitions Act or under some creative use of the common law was not argued as the basis for seeking an Order as a co-mortgagee. Instead, Mr. Kesarwani made submissions that WCF was entitled to the Order requested because WCF was affiliated with Anthem, the owner, and therefore had the weight of mortgagor’s right to exercise, or to seek the intervention of the court.

[47] There was no submission that the concept of one party being the affiliate of another to entitle an applicant with additional rights to seek a remedy under the Mortgages Act. There is no allowance for an “affiliate” to have rights or obligations such as one might find in other statutes such as in ss. 1(4) or 248(2) of the (Ontario) Business Corporations Act. For reasons not provided to the court, the principals of WCF chose not to make their requests for a discharge statement or to bring an application under s. 12 of the Mortgages Act in the name of Anthem as the mortgagor. If Anthem had obtained an Order under s. 12(6), it is likely that the trajectory of this litigation would have been entirely different.

[48] 156 was within its rights to require WCF to show it had the legal entitlement to seek the orders on the application as a party under s. 2(2). In submissions on the inability of WCF to exercise these rights as the holder of the third mortgage, 156 submits that a subsequent mortgagee must show its own mortgage is past due or else it has no locus standi before the court: Parsons v. The Bank of Montreal, [1868] O.J. No. 346 (Upper Canada Court of Chancery) per Spragge V.C. See also Falconbridge on Mortgages, 5th Ed. § 29:7 and Marriot and Dunn, Practice in Mortgage Remedies, 5th Ed., § 16:4 regarding parties.

[49] It was only when Mr. Kesarwani made his submissions in reply to the standing argument did he make the point that the transfer of charge of the Country Homes mortgage, attached as an exhibit to the affidavit of Mr. Soota, shows the mortgage was originally registered on July 3, 2019. He referred to the original Country Homes mortgage in evidence that showed the mortgage matured on July 1, 2020. The third mortgage became due that day, and has never been paid. These facts give WCF the required standing as a subsequent encumbrancer holding the third mortgage in default to bring this motion and to seek this relief.

[50] Mr. Cohen made a submission that was not strenuously pressed that City Centre Holdings Inc. is shown in the Transfer of Charge of the shares in the second mortgage from Trumencas and Pure Ink as the general partner of WCF, but is not an applicant in this proceeding. I am satisfied under partnership law principles and s. 8 of the Limited Partnerships Act, RSO 1990, c.L.16 that City Centre Holdings Inc. entered this transaction on behalf of WCF, and that it is appropriate for WCF to bring this application in the name of the partnership.

Issue #2: Proper amount payable to compel a discharge

[51] The issue about the proper amount required to pay out 156 for its share of the second mortgage involves the judicial determination of several items on the discharge statements that come down to two main issues: what charges and expenses claimed by 156 in relation to the mortgage are allowable, and what interest is 156 entitled to be paid since the mortgage matured on August 20, 2020.

[52] 156 has provided two Discharge/Payout Statements that are contained in the evidentiary record showing the following dates and details:

a. November 6, 2020 for $1,262,584.69, plus a per diem of $712.33; and b. October 1, 2021 for $1,515,308.27, plus a per diem of $712.33.

[53] In the discharge statement dated November 6, 2020, 156 gave the following breakdown of the $1,262,584.69 claimed as of that date:

• $1,000,000 for principle
• $108,500 for out of pocket disbursements for default administration
• $34,974 for 3 months iinterst under Mortgages Act
• $50,000 for Automatic fee renewal
• $64,109 for unpaid interest to August 10 (2020)
• $2,000 for statement fee $500 x 4
• $2,000 for discharge fee 500 x 4

[54] In the discharge statement dated October 1, 2021, 156 gave the following breakdown of the $1,515,308.27 claimed as of that date:

• $1,000,000 for principle
• $115,000 for unpaid fees
• $4,520 for legal fees and disbursements on default action
• $34,975 or 3 months interest under Mortgages Act
• $50,000 for Automatic fee renewal
• $295,813.27 for unpaid interest from August 10 (13 months, 20days at 26%)
• $2,500 for statement fee $500 x 5
• $2,500 for discharge fee 500 x 5

[55] WCF has given the following breakdown for the $1,680,274 that it paid into court to the credit of this application on May 20, 2022:

• $1,000,000 for principle
• $115,000 for Lenders fees claimed
• $50,000 automatic renewal fee
• $2,500 for 5 statement fees
• $2,500 for 5 discharge fees
• $4,520 for legal fees and disbursements on default action
• $11,300 for legal fees and disbursements re: CV-20-732757 (re: Country Homes)
• $34,975 for 3 months interest under the Mortgages Act
• $295,813.27 for unpaid interest as of October 1, 2021
• $418 for interest August 10 to October 1, 2021
• (1,300) calculation adjustment $1,515,726,17 as of October 1, 2021 Plus $164,548.23 to May 19, 2022

[56] The Court of Appeal held in the Sub-Prime Mortgage Corporation case that it is important that a mortgagor have a clear understanding how it may contest items in a discharge statement. As the Court noted at para. 15, it was held in Rokhsefat v. 8758603 Canada Corp., 2019 ONSC 273 that the standard charge terms to a mortgage are not a “carte blanche” for the mortgagee to charge or incur fees to the account of the mortgagor.

Unpaid Fees/Out of Pocket Disbursements on Default

[57] WCF takes the position that 156 is not entitled to a discharge statement fee until it provides a valid discharge statement. The 156 position is that $500 is owing for each of four discharge statements given.

[58] The first discharge statement rendered in the record was prepared for filing in the context of the Country Homes receivership in November 2020. I accept this to be a discharge statement given in connection with the mortgage as 156 produced it as the co-mortgagee in the context of litigation regarding the Country Homes mortgage.

[59] The second discharge statement was provided by Mr. Olowolafe on October 1, 2021 in response to Mr. Cho’s request.

[60] The two discharge statements in evidence on this application were prepared for different reasons and for different recipients. They provide details of the principle owing, amount owing for interest and expenses claimed by 156 as a mortgagee under s. 22(2). I am allowing $1,000 for the recovery of fees to prepare those two statements. In its factum, 156 agreed to limit this claim for fees to prepare these discharge statements to this amount.

Legal Fees and Disbursements

[61] WCF agrees to the payment of the fees incurred by Yan Liu, the lawyer who advised 156 with respect to the lender’s fee when the funding was being arranged and later assisted 156 when the mortgagor defaulted in 2019. Yan Liu also prepared the first discharge statement at the request of Garfinkle Biderman when Country Homes issued a Notice of Sale under its third mortgage (before receivership). Solicitor Liu’s invoice for $4,520 inclusive of disbursements and HST is attached as exhibit “D” to Mr. Tsang’s affidavit. WCF agrees to pay 156 for that invoice, subject to assessment.

[62] 156 also claims the legal fees of Mr. Olowolafe in the amount of $12,712.50, to defend 156 in an action commenced by Trumencas to enforce its 20% interest in the second mortgage, and later in the application of Trumencas to appoint a receiver. Mr. Olowolafe’s invoice dated March 10, 2022 to 156 for services rendered in connection with the second mortgage is attached as exhibit “G” to Mr. Tsang’s affidavit.

[63] WCF agrees to paying 156 for this invoice, subject to an explanation why the amount has increased from $11,250, and reservation of the right to assess the account.

[64] In paying out the interest of 156 to take an assignment under s. 2(2), instead of the mortgagor, WCF stands in the shoes of the mortgagor for all amounts the mortgagor would be liable to pay under the terms of the mortgage. This would include payment of legal fees under the Standard Charge Terms 200433. Those terms include the following additional costs at para. 8: “legal fees (as between solicitor and client) and expenses which may be incurred in taking, recovering and keeping possession of the land…and generally in any other proceedings taken in connection with or to realize upon the security given…”

[65] As a matter of law, it is open for the court to exercise the discretion under s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 to award costs contrary to an agreement between the parties: see Bosse v. The Mastercraft Group Inc. at page 33. However, the exercise of that discretion depends on the context in which it arises, and would turn on the facts and conduct of the parties in a particular case. I find there is no reason to exercise my discretion to override the contractual entitlement of 156 to costs “as between solicitor and client” or on a full indemnity basis.

[66] The language used in the charge terms is broad enough to cover the legal fees that 156 incurred with in connection with the security given. It extends the services for which those fees were paid to “any other proceedings”. Solicitor Liu provided services directly relevant to the collection of payments under the second mortgage during its term, and Mr. Olowolafe provided legal services to represent 156 with respect to its 50% of the second mortgage after maturity between March 1, 2021 and March 2, 2022. The amount of that invoice increased from the amount initially claimed for it because to the addition of HST on $11,250, bringing it to $12,712.50.

[67] I consider these fees to be fair and reasonable, and within the contractual intentions of the parties. I therefore include the invoices paid by 156 to solicitors Liu and Olowlafe in the amounts of $4,520 and $12,712.50 as proper expenses, for a total of $17,232.50.

Automatic Fee Renewal

[68] 156 claimed an automatic renewal fee of $50,000 in each of the two discharge statements in evidence.

[69] This renewal fee was abandoned Mr. Tsang on behalf of 156 on August 11, 2022. This fee was not included in the Mortgage Commitment letter. It would not have been enforceable in any event after the decision of Dunphy J. in Elle Mortgage Corporation v. Sihota, 2021 ONSC 1593 as a charge of this nature is unfair to the mortgagor.

The Lender’s Fee

[70] Mr. Tsang states in his first affidavit that he negotiated a lender’s fee of $125,000 with the Booth Companies and the guarantors for providing 156’s portion of the loan. He states that the agreement for the payment of that fee was confirmed by a written direction for payment, signed by the Booth Companies and it’s guarantors, which was transmitted to 156 together with the executed mortgage commitment.

[71] Alberto Menendez, the president of Trumencas, gave an affidavit dated August 30, 2022 which WCF included in its Supplementary Application Record. His evidence is particularly cogent as he has personal knowledge of facts that occurred when the second mortgage was arranged. Mr. Menendez was not cross-examined.

[72] In his affidavit, Mr. Menendez acknowledges that WCF paid Trumencas $500,000 for its 20% share in the second mortgage. He explains that this amount represented a significant discount from the full amount required to fully recover its $400,000 investment, arrears in interest and litigation costs.

[73] Mr. Menendez disagrees with Mr. Tsang’s evidence that there was any agreement for payment of a lender’s fee to 156, either orally or in writing, out of the loan advance or the net proceeds. He states that Trumencas did not agree to having the lender fee for 156 deducted from the funds advanced on closing.

[74] An amended direction was therefore executed by the Booth Companies and guarantors for payment of a reduced lender’s fee of $95,000 out of the advance. The balance was to be paid directly, after closing. This amended direction was transmitted by email. This payment plan was also unacceptable to Trumencas.

[75] Mr. Tsang describes how the Booth Companies and 156 finally agreed orally that $10,000 of the fee would be paid out of the advance, and the balance of $115,000 would be paid after closing or at the time the second mortgage was paid out.

[76] At the request of Country Homes’ lawyer in the receivership, 156 provided a discharge statement showing the amount owing under it’s part of the second mortgage. The discharge statement was filed with the court as an exhibit to an affidavit on behalf of Country Homes. Vikas Soota admitted at the cross-examination on his affidavit that he and his counsel, who were service parties to the Application, saw the statement. This statement claims the sum of $108,500 as “out of pocket disbursements for default administration”. According to Mr.Tsang, this is how he and 156 were advised by the broker, Adit Kumar, to characterize the unpaid lender fee. 156 states in its factum that the lender’s fee was discounted from the $115,000 fee specified elsewhere in the evidence.

[77] As a principle of law, this court has upheld the validity of lender’s fees on a contractual basis where the parties have agreed upon those fees as part of the deal. The decision of Leiper J. in Stoney Creek Centre Inc. v. 2459437 Ontario Inc., 2019 ONSC 2450 stands as authority for that proposition. On an application to determine the proper amounts owing under a charge, Leiper J. found that the parties in that case had entered into an agreement for the borrower to pay a lender’s fee as a term of the Mortgage Financing Agreement between them. This lender’s fee was to be deducted from the amount advanced.

[78] I find there to be no unequivocal evidence in writing on this application that proves on the balance of probabilities that the mortgagor agreed to pay a lender’s fee. The documents, some of which were reviewed in paragraph 9 of the Menendez affidavit, do not show an agreement on essential terms for this payment:

a. There was no lender fee specified in the Mortgage Commitment dated August 3, 2019; b. No lender fee of any amount is shown on or claimed in any of the statements of advance prepared by each of the 3 co-tenant parties; c. There was no lender fee reported by lender’s lawyer in its Form 9D Report on Investment; and d. There was no lender fee instructed by Trumencas in its Form 9E Investment Authority.

[79] There are inconsistencies about how much and to whom any lender’s fee should be paid. The Booth Companies signed a Letter of Direction of unknown date in August 2019 for Ardalan Robati, to pay himself $40,000 for a consultant’s fee. There is little, if any evidence about who Ardalan Robati is or why he should be entitled to receive a lender or a broker’s fee. There is also a Letter of Direction, also of unknown date in August 2019 signed by the Booth Compnaies to Pure Ink, Trumencas, 156, Ardalan Robati and Natalie Kwok to pay a lender/consultant fee of $95,000 from the proceeds of this mortgage loan on closing, but does not direct to whom it shall be paid.

[80] The confusion is compounded by the agreement described by Mr. Tsang by which the Booth Companies would pay $10,000 on closing, and $115,000 when the mortgage was paid out for a lender’s fee. The latter amount is claimed for “Unpaid fees” on the discharge statement dated October 1, 2021. However, the discharge statement dated November 6, 2020 claimed $108,500 for “Out of pocket disbursements for default administration.” 156 takes the position on the application that it is prepared to accept this lower amount.

[81] Mr. Tsang was cross-examined on August 23, 2022. He acknowledges that the lender’s fee for $125,000 is not reflected in the Mortgage Commitment. He states that he did not obtain legal advice at the time because the mortgage broker, Adit Kumar, prepared the documents. At questions 72 to 79 of his cross-examination, he states that he trusted Adit and that he relied upon him. Adit Kumar was a mortgage broker employed by Anbros Financial Corporation.

[82] Mr. Tsang stated on cross-examination that Adit was a very experienced broker and represented the Booth Company, and that he knew all documents had to be signed. Later, Mr. Tsang testified that it would be hard for him to answer whether Adit was acting for 156 as the lender or the Booth Companies as the borrower.

[83] Neither Adit Kumar, Aiden Booth or John Booth gave affidavits on the application, or were examined out of court to have a transcript of their evidence available when this application was heard.

[84] Mr. Cohen submits that WCF had notice of the lender’s fee that Mr. Tsang negotiated, and relies on the doctrine of actual notice that the balance of the lender’s fee would be paid when the mortgage matured. He refers to Waterstone Properties Corporation v. Caledon, 2017 ONCA 623 at paras. 23-26 that actual notice of an obligation with respect to land even in the absence of a registered interest is enforceable against the transferee.

[85] Waterstone Properties was a case involving the transfer of a piece of land, where the claimants had actual notice of a municipality’s equitable interest in the property, despite the conversion of the property into the land titles system. The case is therefore distinguishable on the facts, as 156 has no equitable interest in funds it seeks to recover for a lender’s fee. If 156 has a claim for the lender’s fee it would be in contract, that claim would be subject to the requirements of an agreement to pay funds at a later time for past services rendered.

[86] In contrast to the facts in Stoney Creek, I find on the evidence there was no such agreement in evidence. I do not find the evidence of Mr. Tsang proves on the balance of probabilities that the owners or any of the other two initial co-mortgagees agreed to pay either a lender’s fee or a broker’s fee for 156 to fund the second mortgage. I do not accept that the presence of a line item on a document provided as part of the documentation to WCF when it took over the Pure Link share of the second mortgage would qualify as actual notice of an agreement to pay a lender’s fee by either Pure Link or the owners. It is clear from the evidence that Trumancas never agreed too it. Therefore, the fee claimed by 156 described as a lender’s fee is denied.

Unpaid Interest

[87] I find on the evidence that 156 advanced money to fund it share under the second charge on or about August 21, 2019. As holder of a one half share in the second mortgage, 156 is entitled to interest on a compounded basis at the rate of 13.99% per annum pursuant to the charge terms, both during and after the term of the mortgage.

[88] There is no evidence to suggest that the mortgagor did not make the required payments thoughout the term of the mortgage. Mr. Tsang has stated in his first affidavit that solicitor Liu assisted with recovering payments owing when cheques for interest payments had been returned in March and April 2020, and that those payments were caught up by May. According to the discharge statement provided by 156 on October 1, 2021, post maturity interest accumulated at 26% per annum to that date in the amount of $295,813.27.

[89] In his affidavit sworn on August 11, 2022, Mr. Tsang adjusted the interest rate claimed to 13.99% per annum on the post maturity balance outstanding. This would result an adjusted compound interest of $275,408 calculated by 156 for the period August 20, 2020 when the mortgage matured, and May 10, 2022. To this amount I would add approximately $500 per diem for an additional $5,000 in compounded interest to May 20, 2022 when WCF paid funds to the Accountant. This brings the total for unpaid interest as at that date up to $280,408.

[90] I find that the payment by WCF of $1,680,274.50 to the Accountant on May 20, 2020, combined with the evidence of Mr. Soota that WCF offered the release of $1,110,541.46 upon request, met the essential objectives of s. 12 of the Mortgages Act. While it is unknown if WCF actually obtained an Order for the payment in of mortgage funds under dispute or if it was just made on requisition, the effect is the same as of May 20, 2022. To require that an Order be obtained that specifically characterizes the payment is made under s. 12(6) would allow form to triumph over substance. In my view, that requirement woud be unreasonable under the circumstances.

[91] As a result, 156 is entitled to interest on its $1 million in principle after maturity up to May 20, 2022. 156 could have requested and been paid $1,110,541.46 from the funds held by the Accountant to redeploy that capital to an investment opportunities elsewhere at any time after. While each case turns on it own facts, a mortgagee should not generally be permitted to profit from any delay it has caused in providing a discharge statement, or accepting repayment: Cheung v. Moskowitz Capital Mortgage Funds II Inc., 2018 ONSC 1322 (at para. 24).

Interest Payable After Maturity Under s. 17(1)

[92] There is also the claim of 156 for payment of three months of interest under its share of the second mortgage under s. 17 of the Mortgages Act. This part of its claim totals $34,975.

[93] Section 17 provides that a mortgagor must pay three months of interest or give three months notice of an intention to pay out a mortgage that has matured but is in default. Although this term is not expressly included in the standard charge terms for this mortgage, 156 submits that the Divisional Court in O’Shanter Development Co. v. Gentra Canada Investments Inc. at that s. 17 held that it is deemed to be included as a term in all mortgages in Ontario.

[94] Justice Saunders in O’Shanter explained that the obligation for the mortgagor to pay pre-payment interest or to give notice to the mortgagee is founded in equity, and traditionally required six month of interest or notice for the mortgagee to arrange for the reallocation of funds. Section 17 has now codified this entitlement and reduced the period of payment or notice to three months.

[95] I would not allow the claim for a pre-payment penalty for two reasons. The first has to do with the fact that it is an equitable right that is subject to the discretion of the court having regard to all of the circumstances. WCF gave notice in May 2021 of its intention to purchase the 156 share of the mortgage. Dunphy J. explained in Elle Mortgage Corporation the narrow circumstances in which s. 17 is intended to apply:

[39] Section 17 is thus confined to the narrow circumstance where it is the mortgagor who is seeking to repay the mortgage post-default. In such cases, the mortgagor may either give the required notice and repay the mortgage and interest three months later without penalty or, giving no notice, repay it all at any time but with the three month’s interest payment as well. While there is no explicit stay of enforcement proceedings that comes into effect upon giving the notice, the combination of the time required to conduct enforcement proceedings, the availability of relief from forfeiture and the fact that the penalty cannot be exacted if payment is in response to enforcement proceedings all provide a practical level of protection that a mortgagor who is able to repay the mortgage post-default has a means to do so and without increased interest cost by giving the requisite notice.

[96] One goal of s. 17 identified by Dunphy J. would be to afford a mortgagor with the opportunity of a window to arrange financing to repay the mortgage without an interest premium upon giving notice to the lender of this intention. He considered the situation where a mortgagee seeks to frustrate the efforts of the mortgagor to pay out the mortgage by arranging other financing. As meritorious as the prospect for finding that the notice provisions have been legislated into s. 17 might be, Justice Dunphy found that the mortgagees in that case were entitled to payment of three months interest as a matter of law in the absence of three months notice by the mortgagors. See also Mastercraft Properties Ltd. v. El Ef Investments Inc..

[97] On these authorities, 156 was entitled to 3 months notice or payment in lieu of notice. Here, however, WCF gave notice of its intention to buy out the share of 156 in the mortgage on May 10, 2021. It was because of the mortgagees resistance to providing the discharge statement and raising the dispute over standing that WCF did not move forward one way or another at that time. The authorities provide a margin of discretion for the court to determine that the position of the mortgagee precluded the mortgagor, or in this case the co-mortgagee with the necessary information to exercise its statutory ability to payout 156 within the notice period. By doing so, 156 effectively extended the start time to do so from the exchange of letters between counsel in March 2022 to at least May 20, 2022.

[98] Second, I consider it to be inequitable that 156 should recover three months of interest under the mortgage when the court is already allowing the recovery of post maturity interest at the contractual rate for the period May 2021 to May 2022. To make an order permitting recovery of an additional three months interest would be redundant, and therefore inequitable.

[99] I agree with Mr. Cohen that 156 has not taken steps to enforce its share of the mortgage, or the mortgage itself. While 156 would ordinarily be entitled to a three month interest bonus for WCF to payout its share, 156 received notice of the intention of WCF to redeem that share and call for a discharge or assignment permitted under s. 17 instead.

[100] The claim for payment of three months interest under s. 17 is therefore disallowed.

Conclusion

[101] The application is granted. There shall be an Order that:

a. WCF is entitled to bring this application as a subsequent encumbrancer under s. 2(2) of the Mortgages Act to compel 156 to give a discharge or to assign its interest in the second mortgage registered against title to both the Properties on August 21, 2019 as Instrument No. PR3526563.

b. WCF is entitled to compel 156 to give a discharge or assignment of its interest in the second mortgage upon payment of $1,334,880.16. This amount is calculated as follows:

1. $1,000,000 for the principle amount outstanding;
2. $17,232.50 for 156’s legal fees to protect its share of the mortgage;
3. $1,000 for statement fees;
4. $280,408 for unpaid interest at 13.99% per year from August 20, 2020 to May 20, 2022; and
5. $36,239.66 for unpaid interest on $189,099.04 of the disputed amount ($1,299,640.50 - $1,110,541.46) now found to be owing, at 13.99% per year for simple interest from May 21, 2022 to October 6, 2023 (500 days at $72.50 per diem);

c. This amount may be paid by WCF upon a consent order for payment out by the Accountant to 156 in that amount, or by WCF directly to 156; and d. The balance of funds paid by WCF on or about May 20, 2022 to the Accountant after such payment to 156 shall be returned to WCF.

[102] The parties are urged to resolve the costs of this application between themselves. If it is necessary for the court to determine costs, the party claiming costs shall serve and file written submissions by October 19, 2023, with responding submissions filed by October 31, 2023. No reply submissions are permitted without leave.

[103] If either party wishes to bring any error in the mathematical calculations in this judgment to my attention, they may do so by the same dates that submissions on costs are due.

[104] Any written submission on costs shall exceed three pages, not including any offer to settle or bill of costs. All submissions may be submitted by email to my judicial assistant at melanie.powers@ontario.ca.

Emery J. Released: October 6, 2023