Court File and Parties

Court File No.: CV-24-837
Date: 2025-05-28
Court: Superior Court of Justice - Ontario

Between:
MCC Mortgage Holdings Inc., Plaintiff
and
Cajetan Jose Fernandes and Maria Dolly Fernandes, Defendants

Before: C. Boswell
Counsel:

• Amanda McInnis for the Plaintiff
• Obaidul Hoque for the Defendants
  Heard: March 27, 2025

Ruling on Summary Judgment Motion

The Motion

[1] Cajetan Fernandes took out a sizeable mortgage with the plaintiff on the home he occupies with his spouse, Maria Fernandes. He defaulted on the repayment terms. The plaintiff sues for possession of the mortgaged property and payment of the outstanding balance. There is no dispute that the principal is due and payable or that the plaintiff is entitled to possession of the mortgage premises. There is a dispute about the validity of certain fees and charges the plaintiff purports to levy against Mr. Fernandes.

[2] The plaintiff moves for summary judgment under r. 20 of the Rules of Civil Procedure.

The Legal Framework

[3] Rule 20.04 provides that the court may grant final judgment on a motion where satisfied that there is no genuine issue requiring a trial.

[4] The test to be applied to summary judgment motions is well-settled. Motion judges are obliged to follow the directions of the Supreme Court in Hryniak v. Mauldin, 2014 SCC 7, particularly at paras. 65-68. Those principles are so well-known that I do not need to repeat them in detail here. It is worth noting, however, the following remarks of Justice Karakatsanis, from paragraph 49 of the decision. After instructing that there will be no genuine issue requiring a trial when the motion judge is able to reach a fair and just determination on the merits on the evidentiary record presented on the motion, she added:

This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[5] I questioned counsel about whether the plaintiff’s motion was the type of case suitable for determination on a summary judgment motion. In other words, whether the court is able to make a fair and just determination on the merits on the evidentiary record before the court. Unsurprisingly, the plaintiff’s counsel answered in the affirmative. The defendants’ counsel was not so sure. His expressed concern was that the plaintiff’s evidentiary record filed in support of the motion was not sufficient to allow the court to make several of the factual findings the plaintiff wishes the court to make. He pointed in particular to the absence of certain documents from the evidentiary record, including, for instance, the original lending commitment.

[6] Certain principles have long been applied to the assessment of the evidentiary record in summary judgment motions, both before and after Hryniak. They include, amongst others, the following two:

• Each party must “put their best foot forward”. Neither may rest on the allegations in their pleadings; and
• The court is entitled to assume that the record before it contains the core substance of the evidence that the parties will present at trial.

See, for instance, Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at paras. 26 and 32, affirmed 2014 ONCA 878.

[7] The upshot of the foregoing is simple. The question to be settled is not whether there is a genuine issue requiring better evidence. It is whether there is a genuine issue that requires a trial, in other words, a more extensive process, to resolve.

[8] With those comments in place, I will turn to a consideration of the disputed aspects of the plaintiff’s claim.

The Disputed Charges

[9] The balance sought by the plaintiff is $994,948.07, plus interest on that amount at the rate of 8.490% from and after August 28, 2024. The plaintiff included in its motion materials a discharge statement as of that date. It breaks down the outstanding balance as follows:

• Principal: $881,637.86
• BoC Rate Increase (March 3 - 31): $510.67
• BoC Rate Increase (April 14 - 30): $388.51
• BoC Rate Increase (June 1 - 30): $703.40
• BoC Rate Increase (July 13 - 31): $654.80
• BoC Rate Increase (September 7 - 30): $697.00
• BoC Rate Increase (October 27 - 31): $121.00
• Renewal 2022 Walkthrough Fee*: $499.00
• BoC Rate Increase (December 7 - 31): $581.00
• BoC Rate Increase (January 25 - 31, 2023): $109.00
• BoC Rate Increase (June 7 - 30, 2023): $417.46
• BoC Rate Increase (July 12 - 31, 2023): $344.86
• Deferred Interest: $27,152.98
• NSF Fee (08, 09, 10, 11/2023 and 01, 02/2024)*: $3,900.00
• Postage & Delivery Cost (08, 09, 10, 11/2023 and 01, 02/2024): $120.00
• Administrative Fee (03, 04, 05, 06, 07, 08/2024): -----
• Per Diem (January 1, 2024 to August 28, 2024): $49,422.19
• Balance of Renewal 2023 Lender Fee*: $8,236.60
• Pro-Rated Lender Fee (June 1, 2024 to August 28, 2024)*: $4,820.24
• Administration Renewal Fee (Renewal 2023 #2)*: $1,200.00
• Administration Fee (Renewal 2023 #2)*: $599.00
• Administration Renewal Fee (Renewal 2023 #1)*: $1,200.00
• Administration Fee (Renewal 2023 #1)*: $599.00
• Prepayment Costs: -----
• Default Legal Proceedings Fee*: $7,500.00
• Discharge Administration Fee: $1,079.00
• Statement Fee: $999.00
• Discharge of Mortgage: $1,438.00
• Wire Fee: $17.50

Total as of August 28, 2024: $994,948.07

[10] Many of the charges sought to be imposed by the plaintiff are not in dispute. The principal claimed, for instance, is agreed. Additional interest charged as a result of fluctuations in the Bank of Canada prime rate does not appear to be in dispute. The statement fee was disputed in the Statement of Defence, but in oral argument, the defendants’ counsel advised that it was not in dispute. The fee charged to discharge the mortgage, and the wire fee are similarly undisputed.

[11] The dispute focuses primarily on charges purportedly incurred at times when the mortgage was renewed. The following table sets out the particular items in dispute:

Line	Description	Amount
(viii)	Renewal 2022 Walkthrough Fee	$499.00
(xiv)	NSF Fees	$3,900.00
(xviii)	Balance of Renewal 2023 Lender Fee	$8,236.60
(xix)	Pro-Rated Lender Fee (June 1, 2024 to Aug 28, 2024)	$4,820.24
(xx)	Administration Renewal Fee (Renewal 2023 #2)	$1,200.00
(xxi)	Administration Fee (Renewal 2023 #2)	$599.00
(xxii)	Administration Renewal Fee (Renewal 2023 #1)	$1,200.00
(xxiii)	Administration Fee (Renewal 2023 #1)	$599.00
(xxv)	Default Legal Proceedings Fee	$7,500.00
(xxvi)	Discharge Administration Fee	$1,079.00

Total Disputed Fees: $29,632.84

The Parties’ Positions

The Defendants

[12] In addition to disputing the fees I have flagged above, the defendants take the position that there is a genuine issue requiring a trial in this case: specifically, whether the renewal fees were in fact discussed with and agreed to by Mr. Fernandes.

[13] Beyond that general assertion, the defendants’ objections to the impugned charges fall into three broad categories.

[14] First, the defendants assert that Mr. Fernandes never agreed to pay any of the impugned fees.

[15] Second, they say that a number of the fees purportedly charged offend s. 8 of the Interest Act, R.S.C. 1985, c. I-15. That section provides that no fine, penalty or rate of interest may be stipulated for any arrears of principal or interest, secured by a mortgage on real property, that has the effect of increasing the rate of interest on arrears beyond the rate of interest applicable to the principal not in arrears. The defendants’ position is that certain charges, including renewal fees, a “walkthrough fee” and administrative fees, have the effect of substantially increasing the interest on arrears, contrary to s. 8.

[16] Third, they argue that the plaintiff ought not to be entitled to collect any fees that they did not legitimately incur, unless the plaintiff can demonstrate that the amounts charged were genuine pre-estimates of damages incurred and not penalties, which are void at common law.

The Plaintiff

[17] The plaintiff takes the position that all charges were agreed to, including renewal fees, which were expressly agreed to in several successive renewal agreements. The defendants were not coerced into signing renewal agreements. They could have taken their business elsewhere. There is a contractual basis for each of the charges imposed by the plaintiff.

[18] Moreover, none of the charges contravenes s. 8 of the Interest Act because all of them were part of the up-front cost of borrowing.

[19] To the extent that there were fees payable on default, those fees reflect genuine pre-estimates of damages and are not penalties.

[20] The plaintiff accordingly seeks judgment for the full amount sought, together with interest at the mortgage rate from and after August 28, 2024.

The Issues

[21] The motion raises the following issues for determination:

1. Is this a proper case for summary judgment?
2. Were the fees and expenses charged contracted for?
3. Do any of the fees and expenses charged contravene s. 8 of the Interest Act?

[22] I will address these issues in turn.

Discussion

(i) Is this a proper case for summary judgment?

[23] I am satisfied that this is an appropriate case to render a final judgment on the paper record before the court. The parties had a contractual relationship that is well documented. Any amount owing by the defendants falls to be determined on the basis of the initial lending agreement between them and any renewals to it, together with the application of well-settled principles applicable to mortgage enforcement proceedings.

[24] The court is not called upon to make credibility findings or to draw inferences. If there are gaps in the evidentiary record, as the defendants’ counsel suggests there are, then those gaps may impact on the ability of the plaintiff to make out its claim. But the court is entitled to proceed on the motion as though the evidentiary record here is what will be available at trial. The plaintiff has asked for judgment on this record. I am prepared to render a judgment on this record, which will reflect the amounts owing as supported by the evidence filed and the application of any relevant principles of law.

[25] In my view, the court does not require a trial of any of the issues between the parties in order to make the factual determinations necessary to decide the case. The summary judgment process enables the court, in the circumstances here, to reach a fair and just determination on the merits based on the evidentiary record filed on the motion. Given that the disputed amounts total less than $30,000, the summary judgment procedure is also the most proportionate, expeditious and least expensive means to achieve a just result.

(ii) Were the fees and expenses charged contracted for?

[26] In support of its motion, the plaintiff filed the affidavit of Jessica Chalasinska, a senior client relations manager of the plaintiff, dated September 4, 2024. The defendants responded with an affidavit of Mr. Fernandes, sworn December 31, 2024. The plaintiff replied with a further affidavit of Ms. Chalasinska, sworn January 16, 2025.

[27] Ms. Chalasinska provides the following basic details of the mortgage (hereafter referred to as “the Charge”):

• It was dated October 26, 2021;
• The original term of the Charge was November 1, 2021 to November 1, 2022;
• The interest rate was variable, calculated as the Bank of Canada’s prime rate plus 3.49% per annum, calculated monthly. As at November 1, 2021, the rate was 5.99%;
• The Charge was renewed from time to time. Most recently, it was renewed for a six-month term maturing June 1, 2024, at which time the total outstanding balance became due and payable. There were no further agreements to renew the Charge beyond June 1, 2024;
• Default occurred March 1, 2024 and continues.
• The Charge was renewed on November 21, 2022. No fees have been claimed in respect of that renewal. There is no evidence as to whether fees were claimed and paid.
• The Charge was subsequently renewed two further times: for one month from November 1, 2023 to December 1, 2023 and from December 1, 2023 to June 1, 2024. The amounts in dispute between the parties largely relate to fees charged in relation to these latter two renewals.

[28] Ms. Chalasinska attached a number of documents to her affidavit which relate to the Charge, including, but not limited to:

• The original Mortgage/Charge registered October 26, 2021;
• A Cost of Borrowing Disclosure Statement signed by Mr. Fernandes on October 21, 2021;
• An executed Mortgage Renewal Offer dated November 16, 2023;
• An executed Mortgage Renewal Offer dated January 5, 2024;
• A Discharge Statement dated August 28, 2024;
• A Returned Item Report, showing six instances where Mr. Fernandes’ monthly mortgage payments were not honoured due to insufficient funds.

[29] What is noticeably missing from the plaintiff’s evidentiary record, at least from the defendants’ point of view, is the original lending agreement. The defendants submit that the plaintiff has failed to establish that Mr. Fernandes agreed to the various charges now in dispute.

[30] To establish its entitlement to the disputed charges, the plaintiff relies on the provisions of the registered Charge, including the following, which are set out in the Charge as “Additional Provisions”:

• Paragraph 22, which provides:

  Any service charge or other charges assessed for any cheque returned for insufficient funds or for any other reason shall be the responsibility of the Mortgagor, and the Mortgagor shall pay to the Mortgagee the sum of six hundred and fifty dollars ($650.00) for each instance of such a returned cheque, which sum may be added to the principal amount of the Mortgage at the option of the Mortgagee. The Mortgagor acknowledges and agrees that the fee of $650.00 is a genuine pre-estimate of the administrative costs incurred by the Mortgagee in connection with such returned cheque and not a penalty or additional interest on the Mortgage;

• Paragraph 24, which provides:

  The Mortgagee's additional administration and servicing fees are and shall be as follows:

  • Default Proceedings: Payable for each step in any legal action or proceeding instituted. $3,750.00
  • Renewal of Mortgage: Minimum fee for each renewal by the Mortgagee based on credit. Prorated
  • Administration Renewal Fee: Minimum administration fee charged upon each renewal. $1,200.00
  • Discharge Fee: See provision #26.
  • Mortgage Statements: Minimum fee for preparation of each statement by the mortgagee. $999.00
  • Possession: For attendance to take possession following default by the mortgagee $3,750.00
  • Administration Fee: Administration fee upon discharging the mortgage. $1,079.00

• Paragraph 26, which provides:

  The Mortgagee shall be entitled to prepare or have its solicitors prepare a discharge or assignment of the Mortgage and any other documents necessary to release or assign any security held by the Mortgagee and shall have a reasonable time after payment of the principal amount outstanding under the Mortgage, together with any interest thereon and any costs thereunder, within which to prepare, execute and deliver such documents. The Mortgagor shall pay a discharge fee in the amount of $1,438.00 in addition to all other charges in connection with the preparation, review, execution and delivery of such documents to the Mortgagee.

[31] The defendants submit that the Charge is not the mortgage agreement. Their position appears to be that Mr. Fernandes is not bound by the Additional Terms set out in the Charge. I do not accept that position. It may have been preferable had the plaintiff filed the original lending agreement. That said, the Charge, including all of the Additional Terms, was registered electronically. It was signed by Hong Tao Liu, as counsel for the defendants. He signed the usual attestation, to the effect that “I have the authority to sign and register the document on behalf of the Chargor(s).” In my view, that attestation is sufficient to bind Mr. Fernandes to the provisions of the Charge, including the Additional Terms.

[32] The defendants have not offered any evidence that their lawyer was not properly authorized to register the Charge on behalf of Mr. Fernandes, or that he did not review the Charge before it was registered, or that he was otherwise not aware of its terms.

[33] I find that Mr. Fernandes agreed to the terms set out in the Charge, as registered. The Charge, as registered, included all of the disputed fees, set out in the table at para. 30 above, save for the 2022 Renewal Walkthrough Fee of $499.00, and the two Administration Renewal Fees of $599.00 each.

[34] Having said that, two of the more significant fees in dispute include the Renewal Lender Fees for 2023 ($8,236.60) and 2024 ($4,820.24). The Charge does not provide for a specific renewal fee. It indicates only that any renewal fee would be prorated. Accordingly, it is necessary to look beyond the Charge to determine what, if anything, was agreed to with respect to renewal fees.

[35] The Charge initially came due on November 1, 2022. It was apparently renewed for another year. There is no evidence in the record regarding the terms of the renewal. They do not appear to be in dispute.

[36] The Charge came due again on November 1, 2023. On November 16, 2023, the plaintiff wrote to Mr. Fernandes to advise him that the Charge had to be paid out or renewed by November 1, 2023. Further, that if the renewal documents were not signed and returned by November 1, 2023 (an obvious impossibility), the Charge would be automatically renewed for one year, with an interest rate of 11.64% and a renewal fee of $28,619.92.

[37] Apart from the fact that the plaintiff’s terms were impossible to meet, given that its letter was sent 16 days after the maturity date, I was not directed by the plaintiff’s counsel to any terms of the Charge that would permit the plaintiff to unilaterally impose the terms it threatened in the November 16, 2023 letter. It would appear to me that the threatened terms would contravene s. 8 of the Interest Act, which I will discuss in further detail below.

[38] For reasons best known to the plaintiff, the proposed renewal was for only one month. The fees associated with the renewal for that month totalled $3,946.88 and included: a lender fee of $1,648.88, an administration renewal fee of $1,200.00 (to be paid upon discharge), an administration fee of $599.00 (to be paid upon discharge), and a renewal walkthrough fee of $499.00.

[39] Despite the onerous terms proposed by the plaintiff, Mr. Fernandes executed the one-month renewal, though it is unclear on what date he signed the renewal documents.

[40] On January 5, 2024, the plaintiff extended a renewal offer to Mr. Fernandes to cover the period December 1, 2023 to June 1, 2024. Despite the high administrative fees being charged by the plaintiff, it appears to have been chronically behind in its paperwork.

[41] At any rate, the plaintiff once again demanded that the renewal be executed, failing which the same automatic renewal terms threatened on November 16, 2023 would be applied. Mr. Fernandes once again executed the renewal agreement. This time he agreed to fees that totalled $12,181.94 and included: a $9,883.94 lender fee, a $1,200 administration renewal fee (payable on discharge), a $599 renewal fee (payable on discharge), and a $499 renewal walkthrough fee. In fact, Mr. Fernandes agreed in each renewal agreement he executed to pay the same suite of fees set out at para. 24 of the Additional Terms of the original Charge. Mr. Fernandes deposed that he did not agree to pay any of the disputed fees. Clearly, he did. He did not address in his affidavit, the renewal agreements he clearly signed.

[42] Having set out the foregoing, I return to the table of disputed fees set out at para. 30 above. I will consider whether the evidence establishes an entitlement to the fees as charged, subject to the defendants’ argument that the fees offend s. 8 of the Interest Act and are, as such, unenforceable.

The 2022 Walkthrough Fee of $499.00

[43] No evidence has been provided in relation to the renewal of 2022. No evidence was specifically provided that a renewal walkthrough fee was still outstanding in relation to the 2022 renewal. This fee is accordingly disallowed.

NSF Fees of $3,900.00

[44] Ms. Chalasinska deposed that there were six instances of cheques being returned for insufficient funds. That evidence does not match up with the renewal agreements which provided for automatic debits from Mr. Fernandes’ account. The Returned Items Report suggests that there were six returned debits for insufficient funds. These related to payments due in August, September, October, and November 2023, as well as January and February 2024.

[45] Mr. Fernandes agreed to pay $650.00 for every NSF payment. I am satisfied that there were six NSF payments, and that the total of $3,900.00 is made out.

The Balance of the 2023 Renewal Lender Fee of $8,236.60

[46] The Renewal Fee agreed to in relation to the period December 1, 2023 to June 1, 2024 was $9,883.94, payable at the rate of $1,647.32 per month over the six-month term. It would appear only one payment was made on the Charge during that term (the December 1, 2023 payment). I am satisfied that $8,236.62 remains outstanding in relation to the agreed-upon renewal fee.

The Pro-Rated Lender Fee (June 1, 2024 to August 28, 2024) of $4,820.24

[47] The Charge became due on June 1, 2024. It was not paid and went into default. The plaintiff purports to charge a lender fee of $4,820.24 for the three-month period following the maturity date. Presumably this amount is tied to the following statement contained in the January 5, 2024 Renewal Agreement:

If the Mortgage is not paid out at the end of the Term, we may charge an additional portion of the Lender Fee calculated on a pro-rata basis.

[48] In my view, the contractual provision supporting the additional renewal fee is not sufficiently clear to be enforceable. It is not clear what the “additional portion” of the Lender Fee is. Nor is it clear on the evidence filed in support of the motion, how the figure $4,820.24 is arrived at. The plaintiff’s counsel advised in oral argument that the plaintiff was prepared to forego this claimed fee. This amount is accordingly disallowed.

The Administration Renewal Fees of $2,400.00

[49] I am satisfied that Administration Renewal Fees of $1,200.00 were agreed to in both the November 16, 2023 Renewal Agreement and the January 5, 2024 Renewal Agreement.

The Administration Fees of $1,198.00

[50] I am similarly satisfied that Administration fees of $599.00 were agreed to in both the November 16, 2023 Renewal Agreement and the January 5, 2024 Renewal Agreement.

The Default Legal Proceedings Fee of $7,500.00

[51] Paragraph 24 of the Charge provides for, amongst other things, a fee of $3,750.00 for each step in a legal action or proceeding instituted. The plaintiff commenced this action and also initiated power of sale proceedings. I am satisfied that the purported fee is established in the evidence.

The Discharge Administration Fee of $1,079.00

[52] The Discharge Administration Fee is provided for at para. 24 of the Charge. I am satisfied that it has been made out in the evidentiary record.

(iii) Do any of the fees and expenses charged contravene s. 8 of the Interest Act?

[53] Section 8 of the Interest Act “precludes a mortgagee from imposing terms that have the effect of charging a higher rate of interest on money in arrears than that charged on principal money not in arrears.” See Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18, at para. 1.

[54] Section 8 specifically provides 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 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.

[55] In Krayzel, the Supreme Court instructed that rate increases triggered by the passage of time do not infringe s. 8, but rate increases triggered by default do. The intent of the provision is to “protect landowners from charges that would make it impossible for them to redeem or to protect their equity.” See paras. 20-21.

[56] The protection of s. 8 does not extend only to post-default increases in interest rates. It includes post-default fines and penalties. In the result, the form the increased charge takes is not determinative. What matters is the effect. If, in effect, a higher rate of interest is charged, then s. 8 is offended.

[57] Four pre-requisites must be met to trigger the protection of s. 8:

1. The charge in question must constitute a “fine”, “penalty”, or “rate of interest”;
2. The fine, penalty, or rate of interest must relate to any arrears of principal or interest secured by mortgage on real property;
3. The covenant in question must have the effect of increasing the charge on the arrears beyond the rate of interest payable on money not in arrears; and
4. The arrears of principal or interest must be secured by a mortgage on real property.

See P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, at paras. 53-57.

[58] As I noted above, the terms that the plaintiff threatened to impose by automatic renewal in November 2023 and January 2024, contravene s. 8 of the Interest Act. If Mr. Fernandes failed to renew or pay out the Charge, the plaintiff intended to impose a substantial increase in both the interest rate and the fees charged. These increased charges do not result from a mere passage in time. Instead, they purport to impose a rather draconian penalty payable if the Charge was not repaid at the end of the term. See Elle Mortgage Corporation v. Sihota, 2021 ONSC 1593, at paras. 24-32. All four pre-requisites to the triggering of s. 8’s protection are satisfied with respect to the threatened automatic renewal terms and they would be unenforceable.

[59] That said, Mr. Fernandes actually signed consensual renewal agreements. In the result, the threatened draconian charges were never applied.

[60] The defendants’ counsel suggested in argument that the unenforceable threatened renewal terms had a coercive effect on Mr. Fernandes. He asserted bad faith, duress, and unconscionability. None of these remedies were, however, pleaded in the statement of defence nor included in the defendants’ factum. Those arguments, which were not in any event fully developed in oral submissions, cannot play any role in the outcome of the motion.

[61] Mr. Fernandes agreed to pay a variety of charges and fees in renewal agreements signed in both November 2023 and January 2024. Before doing so, he had a choice. He could take his business elsewhere, or he could enter into an agreement to renew his mortgage with the plaintiff, on the plaintiff’s terms. He chose to do the latter.

[62] For the most part, the fees Mr. Fernandes agreed to pay did not relate to arrears on principal or interest. The exceptions are arguably:

• The pro-rated lender fee of $4,820.24.
• The NSF Fees of $3,900.00; and
• The default legal proceedings fee of $7,500.00.

[63] I will first comment on the pro-rated lender fee, then address the NSF and default legal proceedings fees together.

The Pro-Rated Lender Fee

[64] I have disallowed this fee for other reasons, set out above. But even if I had otherwise accepted that this fee was contracted for, I would find it unenforceable. This fee applied only on default. It was clearly a penalty which had the effect of increasing the rate of interest charged on amounts in arrears.

The NSF and Default Legal Proceedings Fees

[65] The defendants concede that mortgagees are generally entitled to be indemnified for the costs incurred to respond to a default by a mortgagor. I agree. But the costs claimed must be reasonable and properly incurred. See Lee v. He, 2018 ONSC 5932, at para. 43. As the Court of Appeal instructed in P.A.R.C.E.L., at para. 96, in the context of late payment charges and default fees:

In the absence of evidence that the charges in question reflect real costs legitimately incurred by the respondents for the recovery of the debt, in the form of actual administrative costs or otherwise, 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 of the Interest Act.

[66] I accept that there were undoubtedly administrative costs incurred by the plaintiff in relation to dealing with returned debits and with initiating legal proceedings. The question is whether the charges imposed here reflect real costs, legitimately incurred, or whether they constitute additional penalties which have the effect of increasing the interest rate payable on arrears.

[67] The plaintiff’s position is that the sums charged ($650 for each returned debit and $3,750 for each legal step taken), were genuine pre-estimates of damages in the form of administrative costs to be incurred by the plaintiff as a result of default. Ms. Chalasinska said as much in her affidavit, though I did not find her conclusory statements that all of the fees imposed by the plaintiff were genuine pre-estimates of damages to be helpful. The true nature of a clause remains a matter of construction.

[68] Parties are free to agree on genuine pre-estimates of damages, but if the agreed-upon fees are properly construed as a penalty, they will be unenforceable. In Federal Business Development Bank v. Eldridge, [1985] N.B.J. No 339 (NBQB), at para. 25, Jones J. described the law as follows:

The law is clear that parties may as part of their agreement undertake that in the event of default of one or the other the measure of damages will be a certain sum of money. Parties are free to enter into contracts of this nature. Where however the agreement is not an agreement to estimate loss in advance but rather a penalty intended to secure performance of the contract then it is not liquidated damages but rather a penalty and as such is not recoverable. See 12 Halsbury's, 4th edition, 1179, at para. 1118:

The parties to a contract may agree at the time of entering into it that in the event of a breach the party in default shall pay a stipulated sum of money to the other. If this sum is a genuine pre-estimate of the loss which is likely to flow from the breach, then it represents the agreed damages, called 'liquidated damages', and it is recoverable without the necessity of proving the actual loss suffered. If, however, the stipulated sum is not a genuine pre-estimate of the loss but is in the nature of a penalty intended to secure performance of the contract, then it is not recoverable, and the plaintiff must prove what damages he can.

[69] In the instant case, if the fees sought are genuine pre-estimates of damages, they will not constitute penalties and will not run afoul of the common law or of s. 8 of the Interest Act. If they are in the nature of penalties, however, then they will be unenforceable both at common law and as a result of the application of s. 8 of the Interest Act, given that they have the effect of increasing the rate of interest on arrears.

[70] In determining whether a clause is a pre-estimate of damages or a penalty, the most important factor a court will consider is quantum. In other words, if the stipulated sum is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved following the breach, then it is a penalty. See Infinite Maintenance Systems Ltd. v. ORC Management Ltd., [2001] O.J. No. 77 (Ont. C.A.).

[71] The onus of establishing that a clause is a penalty is on the party asserting as much. See Infinite Maintenance Systems, at para. 13.

[72] In my view, in applying the test as just described, I conclude that the NSF fees are a penalty. I am not satisfied, however, that the defendants have met their onus to establish that the default legal proceedings fees are similarly penalties.

[73] On the basis of the evidentiary record filed, I have no idea what actual administrative work the plaintiff was put to in relation to payments that were returned NSF, or in relation to the commencement of this claim or the power of sale proceedings.

[74] That said, in terms of the NSF fees, it is very difficult to imagine how the plaintiff could possibly incur anywhere near $650 in administrative fees every time a payment is returned NSF. Even imagining, for the sake of argument, that an administrative assistant in the plaintiff’s employ was being paid a wage of $50 per hour, $650 would amount to 13 hours work. There is simply no way that recording and following up on an NSF payment would require anywhere even close to 13 hours of work.

[75] In the result, I find that the NSF fees, such as they were, amount to a penalty and are unenforceable.

[76] On the other hand, I can imagine that commencing and managing legal proceedings – whether an action or power of sale – could require significant administrative work. Whether it is as much as was agreed upon in this instance is not possible for me to say. But based on the evidentiary record before me, I am unable to conclude that the amount stipulated for is unconscionable in comparison with the greatest loss that could conceivably be proved following the breach. The defendants have not, in the result, met their onus to establish that these fees are in the nature of a penalty. The plaintiff is accordingly entitled to the fees as charged.

Summary

[77] To summarize, I find that the plaintiff is entitled to and shall have judgment against Mr. Fernandes for the following amounts owing on the Charge:

• Principal: $881,637.86
• BoC Rate Increase (March 3 - 31): $510.67
• BoC Rate Increase (April 14 - 30): $388.51
• BoC Rate Increase (June 1 - 30): $703.40
• BoC Rate Increase (July 13 - 31): $654.80
• BoC Rate Increase (September 7 - 30): $697.00
• BoC Rate Increase (October 27 - 31): $121.00
• BoC Rate Increase (December 7 - 31): $581.00
• BoC Rate Increase (January 25 - 31, 2023): $109.00
• BoC Rate Increase (June 7 - 30, 2023): $417.46
• BoC Rate Increase (July 12 - 31, 2023): $344.86
• Deferred Interest: $27,152.98
• Postage & Delivery Cost: $120.00
• Per Diem Interest (January 1, 2024 to August 28, 2024): $49,422.19
• Balance of Renewal 2023 Lender Fee: $8,236.60
• Administration Renewal Fee (Renewal 2023 #2): $1,200.00
• Administration Fee (Renewal 2023 #2): $599.00
• Administration Renewal Fee (Renewal 2023 #1): $1,200.00
• Administration Fee (Renewal 2023 #1): $599.00
• Default Legal Proceedings Fee: $7,500.00
• Discharge Administration Fee: $1,079.00
• Statement Fee: $999.00
• Discharge of Mortgage: $1,438.00
• Wire Fee: $17.50

Total: $985,728.83

[78] The plaintiff is entitled to interest on the total outstanding balance reflected in the previous paragraph from and after August 28, 2024, at a rate calculated at the Bank of Canada’s prime rate plus 3.49% per annum, calculated monthly.

[79] I further find that the plaintiff is entitled to a judgment against the defendants for possession of the mortgaged premises. The plaintiff shall be at liberty to obtain a writ of possession.

Costs

[80] I strongly encourage counsel to agree on the costs of the proceedings. If they are unable to agree, each may make written submissions, not to exceed two pages, not including Bills of Costs. The plaintiff shall serve and file their submissions by June 18, 2025 and the defendants shall serve and file their submissions by July 9, 2025. Submissions may be filed by email to my judicial assistant.

C. Boswell
Date: May 28, 2025

[1] The plaintiff has used “BOC” as a shortform for Bank of Canada. The interest rate applicable to the mortgage loan was a variable rate equal to the prime rate posted by the Bank of Canada from time to time, plus 3.490 percent.

* Disputed.