COURT FILE NO.: CV-23-0154
DATE: 2023 12 06
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
2439656 ONTARIO
Amandeep Sidhu, for the Plaintiff
Plaintiff (Moving Party)
- and -
NIDHI SADANA
Self-represented
Defendant (Responding Party)
HEARD: November 20, 2023
REASONS FOR JUDGMENT
MANDHANE J.
INTRODUCTION
[1] The plaintiff, 2439656 Ontario Inc. (“243”), alleges that the defendant, Nidhi Sadana, breached a mortgage contract in relation to a residential property at 98 Templehill Road in Brampton, Ontario (“the property”). 243 filed its Statement of Claim on July 21, 2023 and Ms. Sadana filed her Statement of Defence on July 31, 2023. The Notice of Sale was given on August 1, 2023.
[2] The loan was for $183,400 and required monthly interest-only payments, with the balance due on March 28, 2023 (“the second mortgage”). On the maturity date, Ms. Sadana failed to pay out the second mortgage and the parties entered into a renewal for an additional year (“the renewal”). The parties agree that Ms. Sadana defaulted on the renewal as of April 30, 2023.
[3] 243 moves for summary judgment in accordance with paragraph 1 of its Statement of Claim and, if necessary, for an order nunc pro tunc permitting the Statement of Claim to be issued and served after the Notice of Sale. 243 asks for damages in the amount of $219,375.50, which it says is the amount due under the renewal and as of the date of their claim.[^1] 243 also seeks to possess the mortgaged property.
[4] Ms. Sadana was self-represented. Ms. Sadana admits liability for the interest and principal on the second mortgage. She disputes any liability under the renewal on the basis of unconscionability. She says that there are factual issues that require a trial.
OVERVIEW
[5] The parties entered into the second mortgage agreement on April 5, 2022. The associated “Mortgage Loan Commitment” document states that 243 “has approved a 2nd mortgage loan to which shall be secured by Charge on the property…”
[6] Ms. Kulwant Kang, who swore an affidavit on behalf of 243, says that the essential terms of the second mortgage were that:
a. The principle was $183,400.
b. The interest rate was 3.99% per annum.
c. The “Commitment Fee” was $47,400.[2]
d. Repayment was through monthly “interest only” payments of $609.80.
e. The full principal was due on March 28, 2023.
[7] The property already had a mortgage of $1,120,000 in favour of Equitable Bank registered on title as of March 30, 2022 (“first mortgage”). The second mortgage was registered on title on May 6, 2022. The associated “Registered Mortgage Instrument” notes the principal as $183,400, the interest rate as 3.99%, the monthly payments as $609.80, and the last payment being due March 28, 2023.
[8] Ms. Sadana made all the interest payments owed under the second mortgage but was unable to pay off the principal when it came due on March 28, 2023. Ms. Sadana defaulted on the second mortgage. Ms. Kang says that the parties signed a renewal on the following terms:
a. The interest rate was 12% per annum;
b. The “Renewal Fee” was $11,004;
c. The term was extended to March 28, 2024; and
d. The monthly, “interest only” payments were now $1,834, with the entire principal being due on March 28, 2024.
[9] These terms are clear on the face of the renewal contract, which also explicitly incorporated the same contractual terms and conditions found in the second mortgage. The renewal was not registered on title.
[10] In its Statement of Claim, 243 seeks the following damages pursuant to the renewal:
| Item | Amount |
|---|---|
| Principal balance | $183,400 |
| Renewal Fee | $11,004 |
| Missed interest payments from April 30 to June 30, 2023 (at 12% per annum) | $5,502 |
| Acceleration of Mortgage and Renewal | $ 16,506 |
| Mortgage Statement Fee | $ 734.50 |
| Mortgage Discharge Fee | $ 1,130 |
| Legal Fees & Disbursement for Discharge of Mortgage | $ 1,017 |
| Discharge Registration Fee | $ 82.00 |
| TOTAL | $219,375.50 |
[11] Ms. Sadana admits liability for pre- and post-judgment interest at 3.99%. She disputes liability for the renewal fee, any missed interest payments at 12% per annum, acceleration of interest, and various mortgage discharge fees. She says the renewal was unconscionable and should not be enforced.
ISSUES
[12] Is this an appropriate case for summary judgment?
[13] Was the mortgage renewal unconscionable?
[14] What damages are owing?
SHORT CONCLUSION
[15] This is an appropriate case for summary judgment because there are no factual issues in serious dispute.
[16] The renewal is unconscionable and is of no force and effect.
[17] Under the terms of the second mortgage, Ms. Sadana shall pay damages equal to the principal and interest at 3.99% per annum. She is not liable for the mortgage discharge fees claimed by 243.
Is this an appropriate case for summary judgment?
[18] Rule 20.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides that a plaintiff may move for summary judgment based on affidavit material, while the defendant under must set out evidence of specific facts that show that there is a genuine issue for trial. I may draw adverse inferences from the failure of a party to provide evidence of any person having personal knowledge of contested facts: Rule 20.02(1).
[19] In determining whether there is a “genuine issue requiring a trial”, I can weigh the evidence, evaluate the credibility of a deponent, and draw any reasonable inference available from the evidence: Rule 20.04(2.1). If the only genuine issue is the amount to which the moving party is entitled, I may order a trial of that issue or grant judgment with a reference to determine the amount: Rule 20.04(3). Where the only genuine issue is a question of law, I may determine the question and grant judgment accordingly: Rule 20.04(4).
[20] 243 says that this is an appropriate case for summary judgment because the claim is based on a clear and enforceable contract. They say that they have put their best foot forward and seek judgment in accordance with their Statement of Claim. Ms. Sadana says that this is not an appropriate case for summary judgment because there are material facts in dispute, namely, whether she was under duress when she signed the contracts, and whether a mortgage broker was involved in the transaction.
[21] While these are important factual issues, I am not satisfied that resolving them requires a trial. On the issue of duress, Ms. Sadana swore an affidavit outlining the circumstances under which she signed the renewal contract. 243 did not cross-examine Ms. Sadana on her affidavit, and 243’s responding affidavit is silent on the alleged duress. Despite 243’s obligation to put its best foot forward, Ms. Sadana’s evidence remains unchallenged. A trial is unlikely to shed further light on the circumstances surrounding the negotiation or signing of the renewal: Heath v. Toronto International Film Festival Inc., 2019 ONSC 6365 at para. 33 (citations omitted). I discuss the evidence of unconscionability in further detail below.
[22] On the issue of whether 243 used the services of a mortgage broker, I am able to decide this issue using my enhanced powers. On a balance of probabilities, I am not convinced that the second mortgage was referred to 243 by a mortgage broker named Nupur Bhugra. First, Ms. Sadana has no recollection of dealing with anyone named Ms. Bhugra. Second, I am prepared to draw an adverse inference against 243 because it did not proffer an affidavit from Ms. Bhugra herself or any documents referencing and agreement between 243 and Ms. Bhugra in relation to her compensation.
[23] Overall, I find that there are no genuine issues requiring a trial. It would be disproportionate to order a trial in these circumstances. While Ms. Sadana raises equitable issues to attack the enforceability of the contract, these are legal issues that are well within my jurisdiction to decide on a motion for summary judgment.
Is the MORTGAGE renewal unconscionable?
[24] 243 relies on the plain language of the renewal in support of its claim. They say that this is a typical mortgage default case and that I should enforce the terms of the parties’ agreement. In her defence, Ms. Sadana asks me to set aside the renewal on the basis of coercion, duress, and illegality. Given that her arguments are all raise equitable remedies, I address them wholistically under the umbrella of unconscionability.
[25] In Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] 2 S.C.R. 118, a majority of the Supreme Court of Canada addressed the doctrine of unconscionability in contract law, stating that it is “an equitable doctrine that is used to set aside “unfair agreements [that] resulted from an inequality of bargaining power”: para. 54 (citations omitted). In describing the types of situations that unconscionability is meant to address, the Court highlighted, as an example, “the vulnerable couple who signs an improvident mortgage with no understanding of its terms or financial implications”: para. 58. The Supreme Court concludes that, as an equitable doctrine, unconscionability “is meant to protect those who are vulnerable in the contracting process from loss or improvidence to that party in the bargain that was made”: para. 60 (emphasis original).
[26] Proving unconscionability is a “two-step” process, requiring: “(1) proof of inequality in the positions of the parties, and (2) proof of an improvident bargain”: para. 64. The standard of proof is a balance of probabilities and the burden rests on the party claiming unconscionability. I draw guidance in my approach from Centa J. who recently applied Uber in the context of a mortgage enforcement action: Sanders v. Canada’s Choice Investments Inc., 2023 ONSC 195.
Did Ms. Sadana have unequal bargaining power?
[27] Inequality of bargaining power will exist where “one party cannot adequately protect their interests in the contracting process”: Uber, at para. 66. The Supreme Court identified the key issue before me as whether Ms. Sadana was vulnerable to exploitation by 243 during the bargaining process: para. 72. Inequality is meant to be applied contextually and may arise from differences in wealth, knowledge, experience, or from other circumstances that render a party vulnerable: para. 67. The Court at para. 69 noted that, a common example of inequality comes in the form of ‘necessity’ cases, where:
the weaker party is so dependent on the stronger that serious consequences would flow from not agreeing to a contract. This imbalance can impair the weaker party’s ability to contract freely and autonomously. When the weaker party would accept almost any terms, because the consequences of failing to agree are so dire, equity intervenes to prevent a contracting party from gaining too great an advantage from the weaker party’s unfortunate situation.
The Court said that financial desperation can create unequal bargaining power even if duress and undue influence have not been demonstrated: para. 70.
[28] Inequality in bargaining power can also occur where one party cannot understand and appreciate the full importance of contractual terms “because of disadvantages specific to the contracting process, such as the presence of dense or difficult to understand terms in the parties’ agreement”: para. 71. The Court specifically addressed standard form contracts, stating at paragraph 89 that, “the many ways in which standard form contracts can impair a party’s ability to protect their interests in the contracting process and make them more vulnerable, are well-documented.” However, the Court also recognized that “sufficient explanations or advice may offset uncertainty about the terms of a standard form agreement”: para. 88.
[29] Applying these general principles to the facts before me, I find that there was a significant power differential between the parties. First, there is no dispute that Ms. Sadana was an unsophisticated debtor, that this was a second mortgage on her primary residence, and that the renewal agreement was signed without the benefit of legal advice. On the other hand, 243 was a private, numbered company whose business was mortgage lending, and who did so using standard forms.
[30] Second, I find that Ms. Sadana’s economic situation at the time the renewal was negotiated made her more vulnerable to 243’s exploitation. Ms. Sadana was under extreme financial pressure at the specific time that she signed the contract. She already had a first mortgage on the property, she had defaulted on the second mortgage just two days earlier, the second mortgage was secured against her primary residence, and her husband had also posted the property as collateral on another mortgage where 243 was the lender (see 2439656 Canada v. Singh, 2023 ONSC 6883). That said, Ms. Sadana was capable of entering into the contract and she clearly had a choice in the matter. My point is simply that, like most people in her situation, Ms. Sadana was particularly desperate and susceptible to coercion at the time that she signed the renewal.
[31] Indeed, Ms. Sadana’s unchallenged and uncontradicted evidence is that 243 exploited her desperation to exert pressure on her during the contract negotiations. She says that she was “forced to sign the renewal agreement on the threat that otherwise the lender would proceed with an action under the Mortgages Act.” This was just days after the default. She says that, given the timing, “[t]he Plaintiff very well knew that Defendant was not in the position to pay a raised interest rate of 12%.” I accept Ms. Sadana’s submission that 243 would have known at the time of the renewal agreement being signed that she was in dire financial straits, was desperate not to lose her home, would agree to almost anything, did not obtain legal advice, and was not in any realistic position to meet the onerous terms stipulated in the renewal.
[32] Indeed, 243’s actions taken just a few months later—after Ms. Sadana defaulted on the renewal—are consistent with her evidence of its excessive conduct. For example, 243 admits to issuing its Statement of Claim prior to its Notice of Sale in contravention of s. 42 of the Mortgages Act, RSO 1990, c M.40. In its submissions, 243’s counsel tried to justify this conduct on the basis that it was “common practice” and because it would have been necessary either way for 243 to initiate a legal action because forced sale of the property was a foregone conclusion.
[33] In McKenna Estate v Marshall, 2005 37001 (ON SC), Justice Sproat held that the purpose of section 42 is to provide the “mortgagor in default with breathing space and an opportunity to correct the default without having the additional concern or requirement to retain counsel and prepare a Statement of Defence” (at para. 11). I find that 243’s action in issuing the Statement of Claim prior to the Notice of Sale was calculated to create competing pressures on Ms. Sadana in terms of protecting her most valuable asset while defending herself in the Superior Court. This was exactly the situation the notice provisions are meant to avoid. 243’s conduct is strong circumstantial evidence supporting my conclusion that it exerted undue pressure on Ms. Sadana during the negotiation of the renewal.
[34] Third, Ms. Sadana’s unchallenged and uncontradicted evidence that she was never provided with the mandatory disclosure required under sections 23 through 25 of the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29 (“MBLA Act”), and its Regulations, including the Cost of Borrowing and Disclosure to Borrowers, O. Reg. 191/08. As an example, 243 claims $16,506 that it says flows from the provisions in Dye and Durhams’ “Standard Charge Terms No. 200033.” 243 says that the Standard Charge Terms are part of the renewal agreement because they were explicitly referenced in the second mortgage. While that may be true, the Standard Charge Terms were never disclosed to Ms. Sadana: tthe exhibit before me was not signed or initialed by either party, and there was no acknowledgement entered as evidence before me. Indeed, the Standard Charge Terms were included in 243’s supplementary record only after Agarwal J. specifically requested that 243 explain how it arrived at its claim for damages. In her affidavit, Ms. Sadana described the acceleration of interest term now relied upon by 243 as “incomprehensible.”
[35] Fourth, I find that Ms. Sadana was disadvantaged in the bargaining process because 243 was not in compliance with the consumer protection legislation that applies to mortgage lenders. There is no dispute that 243 was a “mortgage lender” within the meaning of section 4(1) of the MBLA Act, and that it does not hold a brokerage license as required by section 4(2). 243 was not entitled to a licensing exemption because it did not use the services of a licensed mortgage broker in the transaction involving Ms. Sadana: Exemptions from the Requirements to be Licensed, O. Reg. 407/07.
[36] The regulatory provisions that 243 evaded were all aimed at consumer protection in the context of the risky private mortgage market, and the need to professionalize the field of mortgage lending. During first reading in 2006, the MBLA Act was touted as improving consumer protection, enhancing the quality of financial regulation, and encouraging greater competition and choice for consumers: Bill 65, An Act respecting mortgage brokerages, lenders and administrators, 1st reading, Ontario Legislative Debates, 38, No. 90A (14 June 2006) (Greg Sorbara). On third reading, the rationale for the bill was explained as being to “protect the customer, provide the customer with broader opportunities, and enhance the professionalism of the industry overall”: Bill 65, An Act respecting mortgage brokerages, lenders and administrators, 3rd reading, Ontario Legislative Debates, 38-2, No. 126A (27 November 2006) (Wayne Arthurs). To accomplish its goals, the MBLA Act requires mandatory education, licensing, reporting, and other checks and balances.
[37] 243’s failure to abide by mandatory regulatory requirements aimed at addressing the harms associated with predatory lending is strong circumstantial evidence that Ms. Sadana was disadvantaged in its relationship with 243. Despite 243 having extreme power over Ms. Sadana’s financial future, 243 failed to abide by professional standards regarding disclosure and also included illegal terms in both the second mortgage and renewal (as will be discussed below). 243’s willingness to operate illegally further contributed to the unequal bargaining power between the parties.
Was the renewal an improvident bargain?
[38] Having satisfied myself that Ms. Sadana was in an unequal bargaining position vis-à-vis 243, I now turn to the second stage of the test for unconscionability outlined by the Supreme Court in Uber, namely, whether the renewal was an improvident bargain.
[39] An improvident bargain is one that “unduly advantages the stronger party or unduly disadvantages the more vulnerable”: para. 74. Improvidence must be assessed contextually, with the essential question being “whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized”: para. 75. The focus here is on the outcome, such as whether the stronger party was “unduly enriched” or whether the weaker party was disadvantaged by those terms that they did not understand: paras. 76-77. Determining improvidence is not an exact science and my goal must be to seek out fairness in the context of the specific situation: para. 78.
[40] Here, as a starting point, I note that the interest rate contemplated in the second mortgage was 3.99%, while the renewal contemplated an interest rate of 12%. After including all the additional charges and fees that 243 now claims pursuant to the renewal, it is effectively seeking an interest rate of 19.62%. The fact that the true costs of the loan are hidden in fine print—that was never disclosed or explained to Ms. Sadana—is a telling sign of an improvident bargain. Moreover, since my analysis is meant to be contextual, “there is no requirement that a loan agreement contain an interest rate that violates the Criminal Code for equity to consider the loan to be unconscionable”: Saunders, para. 78.
[41] Second, Ms. Sadana could never have appreciated how the higher interest rate would impact the damages due upon default. Because she was never provided with the Standard Charge Terms, Ms. Sadana did not appreciate that signing the renewal would make her liable for all twelve monthly interest payments due under the contract just one month after she defaulted on the second mortgage.
[42] Third, I note that the renewal included terms that were illegal because they violated s. 8(1) of the Interest Act, R.S.C., 1985, c. I-15, which states that:
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 property 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.
[43] In P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, 126 OR (3d) 108, at paras. 52-56, the Court of Appeal for Ontario set out four prerequisites that trigger the application of s. 8 of the Interest Act:
a. the subject covenant must impose a fine, penalty or rate of interest;
b. the fine, penalty or rate of interest must relate to arrears of principal or interest secured by a mortgage on real property, whether before or after maturity of the applicable debt instrument;
c. the subject covenant must have the effect of increasing the charge on arrears beyond the rate of interest payable on principal money not in arrears; and
d. the arrears of principal or interest must be secured by a mortgage on real property.
[44] As stated by the Court of Appeal in P.A.R.C.E.L. at para. 51, s. 8 of the Interest Act “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.” Moreover, as consumer protection legislation, s. 8 of the Interest Act is entitled to a broad and liberal construction that best secures the attainment of its objects having regard to the substance of the transaction: Elle Mortgage Corporation v. Sihota, 2021 ONSC 1593, at para. 30.
[45] Applying P.A.R.C.E.L., I agree with Ms. Sadana that the renewal fee is illegal pursuant to s. 8 of the Interest Act. The onus is on 243 to prove that the “renewal fee” reflected the real costs that were actually and legitimately incurred pursuant to their mortgages, and there is no evidence whatsoever of the administrative cost to 243 of renewing the mortgage, especially since the renewal was not registered on title: Morex Capital Corp. v. Kubah, 2023 ONSC 3185, at para. 11.
[46] Finally, I find that 243 would be unjustly enriched if the renewal was enforced because it would effectively allow 243 to use its superior bargaining position to strip equity in the property. There is simply no way that 243 could have realistically believed that Ms. Sadana was in a position to finance “interest-only” payments that were more than triple the amount owed under the second mortgage. The only reason for insisting on such a term was to artificially inflate 243’s claim for accelerated interest, and pre- and post-judgment upon Ms. Sadana’s impending default. Given the context, there was almost no additional risk to 243 of signing the renewal. It did not extend any further capital and was not expecting to be paid pursuant to the contract regardless. The second mortgage was already secured against the equity in the home. Allowing 243 to collect under the renewal agreement would result in unjust enrichment beyond that which is fair in the circumstances.
[47] In summary, applying the test in Uber, I find that Ms. Sadana was a vulnerable party and that 243 abused her vulnerability for its own economic advantage. 243’s actions were excessive in the circumstances and calculated to inflict maximum economic harm on Ms. Sadana. The renewal is not the kind of good faith bargain that the law is meant to uphold. I find it null and void. The only enforceable agreement between the parties is the second mortgage.
What damages are owing under the second mortGage?
[48] Ms. Sadana admits some liability under the second mortgage. She admits that she owes the principal and pre- and post-judgment interest at 3.99%. Ms. Sadana says that 243 is not entitled to any damages in relation to mortgage discharge fees.
Are the discharge fees recoverable?
[49] 243 says that the original mortgage contract clearly contemplated and incorporated various fees that Ms. Sadana was required to pay upon maturity. These fees were included in the “Schedule of Additional Provisions,” which was initialled by both parties. Clause 38 states as follows:
- Upon the balance due date of the principal and interest secured hereunder or any renewal thereof, the Mortgagor shall be deemed to have requested the Mortgagee's solicitor to prepare the discharge documents for this charge and shall pay the following fees to the Mortgagee's solicitor ONLY:
Discharge Fee - $1,000.00 plus HST per property
Mortgage Statement Fee - $650.00 plus HST
Legal Fees to Discharge Mortgage - $900.00 Plus HST per property.
Discharge Registration Fee - $78.79 per property
[50] Beyond the terms of the second mortgage itself, 243 has not provided any evidence regarding how it estimated the fees it now claims. In its supplementary factum it states, “the rationale for this entry is that the Mortgagee will need to retain and pay for a real estate solicitor to discharge the subject mortgage at some point in time. The said real estate solicitor will charge the Mortgagee a fee for their services. This amount is covered by paragraph 38 of the Mortgage Commitment.” As was the case in BMMB Investments Ltd., v. Naimian, 2020 ONSC 7999, 30 RPR (6th) 324, at para. 33, the plaintiff has not sought or obtained a mortgage discharge as of yet and it is not clear that discharge will ever be required because 243 is seeking possession of the property for the purposes of sale.
[51] In summary, the test at common law is whether the fees are a genuine pre-estimate of damages incurred by the lender, while to the test under s. 8 of the Interest Act is as set out above in P.A.R.C.E.L. Applying both, I would not allow 243 to recover the damages of $2,628.39 that it claims in relation to the discharge of the mortgage.
[52] Pursuant to the terms of the second mortgage, the Defendant shall pay the Plaintiff $187,668.60 in damages, which includes the principal of $183,400 and $4,268.60 in interest. I calculated the interest based on the monthly interest payments of $609.80 for seven months, from April 30, 2023 to December 1, 2023.
Final Order
[53] 243 is hereby granted leave nunc pro tunc to serve the Notice of Sale prior to the Statement of Claim.
[54] Ms. Sadana shall pay 243 damages in the amount of $187,668.60 within 30 days.
[55] If Ms. Sadana does not pay the damages due within 30 days, she shall be liable for post-judgment interest at a rate of 3.99% from the date of my final order onwards.
[56] If Ms. Sadana does not pay the damages due within 30 days, 243 shall be granted leave to bring its motion for possession of the home which shall be scheduled as a regular motion (59 minutes). I am not seized.
[57] Ms. Sadana was the more successful party, was self-represented, and has not made a claim for costs. No costs shall be payable to either party.
Mandhane J.
Released: December 6, 2023
COURT FILE NO.: CV-23-0154
DATE: 2023 12 06
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
2439656 ONTARIO
Plaintiff
- and -
NIDHI SADANA
Defendant
REASONS FOR SUMMARY JUDGMENT
Mandhane J.
Released: December 6, 2023
[^1]: The Statement of Claim seeks damages in the total amount of $224,877.50. However, in its submission before me, 243 abandoned its claim for $5,502 that it had claimed was “due in accordance with section 17 of the Mortgages Act.”