Court File and Parties
Ontario Superior Court of Justice
Between:
WESTJAX REALTY INC, Plaintiff
– and –
SAMEER KHAN, Defendant
Before: MA Sanderson, J.
Counsel:
- Dominique Michaud, for the Plaintiff
- No one appearing for the defendant Sameer Khan
Heard: In Writing
Reasons for Decision
Introduction
1The plaintiff Westjax Realty Inc, "Westjax", seeks default judgment of $669,377.05 plus continuing contractual interest against the defendant Mr Sameer Khan, "Khan" as guarantor of a mortgage loan made by Vector Financial Services Limited "Vector"/the Lender to Ajax Meadows Ltd. "Ajax"/the Borrower.
2Westjax relies on the content of the affidavit of Mr Brian Lass "Lass" a director of Westjax sworn May 23, 2025 and exhibits thereto.
3There are three elements to Westjax's damages claim against Khan described in that affidavit: Part (1) a shortfall of $619,506.21 alleged to have been owing on the Vector Mortgage Loan as of November 4, 2024, including interest of $572,846.82 and Special Servicing and Default Administration Fees of $221700; Part (2) the additional shortfall of $49,870.84 for costs allegedly incurred by Westjax after the Vector loan was assigned to Westjax [interest of $34,217.11 + $8,859.79 + legal costs of $6,793.94] between November 4, 2024 and the date this motion was initiated, May 5 ,2025; Part (3) continuing contractual interest on the loan post May 5, 2025, to date of payment .
The Parties
4Ajax borrowed $4,000,000 "the Mortgage Loan" from Vector pursuant to a commitment letter dated October 6, 2022 as amended October 28, 2022, and a second commitment letter dated October 18, 2023. Ajax intended to use the money to construct town homes and a commercial plaza in Ajax Ontario, on land in Ajax owned by Ajax.
5As additional security for Ajax's indebtedness to Vector, Khan, sole director of Ajax, delivered a Covenant and Postponement of Claim dated November 24, 2022, providing, inter alia , that Khan would make payment to Vector in the event that Ajax defaulted on the loan.
6Ajax never commenced construction.
7Ajax breached the terms of the loan and security, inter alia , by failing to repay the indebtedness on the maturity date of the loan, November 10, 2023.
8On April 22, 2024, TDB Restructuring was appointed receiver.
9The receiver completed a sale of the security to Marshall Homes (Jax) in the fall of 2024.
10Westjax submits that the total amount recovered on the sale was $4,164,212.56, and that as of November 4, 2024 Ajax owed Vector $4,783,718.77, resulting in a $619,506.21 shortfall at that time.
The Assignment of Vector's Rights to Westjax
11On December 2, 2024 Vector and Westjax entered into an Assignment and Security of Indebtedness Agreement, whereby Vector agreed to sell and assign, and Westjax agreed to assume Vector's rights and obligations under the Mortgage Loan.
12Westjax having stepped into the shoes of Vector is now seeking to recover the $669,377.05 plus continuing contractual interest after May 5, 2025, from the guarantor Khan .
13On December 11, 2024, Westjax through its counsel advised Khan that the loan remained in default and demanded that he pay the outstanding indebtedness.
This Action and Motion—Chronology
14On or about January 10, 2025, Westjax issued the Statement of Claim herein, seeking payment from Khan on his guarantee.
15The Statement of Claim was served on an adult member of Khan's household shortly thereafter.
16Khan did not serve or file a Statement of Defence.
17By requisition dated March 26, 2025, Khan was noted in default.
18This motion for Default Judgment for $669,377.05 plus continuing contractual interest was initiated in early May 2025.
19On June 19, 2025 Khan was served with the Motion Record herein, an endorsement of Parghi J dated June 16, 2025 and Westjax's factum.
20Parghi J gave Khan until June 26, 2025, to notify counsel for Westjax that he intended to respond to this motion.
21That date came and went without any response from Khan.
22During the week of August 4, 2025, this motion was referred to me to be dealt with as a motion in writing.
Motions for Default Judgment Generally
23Rule 19.05 provides that where a defendant has been noted in default, the plaintiff may move for judgment supported by evidence if the claim is for unliquidated damages. The Court may grant judgment, dismiss the action, or order that the action proceed to trial.
This Motion
24As this was a motion in writing for Default Judgment, there were no submissions before the Court from the responding party, Mr Khan here.
25This Court had to rely on the content of the Motion Record and the written submissions in the factum of Westjax.
26It is trite to say that in ex parte matters, the moving party has a duty to present a complete picture to the Court / to provide the Court with material facts within their knowledge and to present the relevant law, even if it may be unfavourable to their position.
27This case highlights why those obligations should be rigorously observed and enforced.
28Westjax's claim for default judgment against the guarantor Khan is premised on the bases that Westjax has established Khan's guarantee, continuing contractual obligations, and the quantum of the ongoing Mortgage Loan debt.
29In its factum, Westjax submitted that since the defendant Khan has failed to deliver a Statement of Defence and has been noted in default, this Court should grant default judgment against Khan for $669,377.05 as of May 5, 2025, with continuing interest post May 5, 2025 to date of payment at the greater of 14% and the CIBC prime rate plus 8.55%.
30Counsel for Westjax submitted at para 47 of its factum that Ontario courts have routinely granted default judgment against guarantors based on the deemed admissions and evidence provided by the party seeking default judgment which establishes the guarantor's contractual obligations and an ongoing loan default.
31The facts and the information in the Lass Affidavit and the law in the factum would only have entitled Westjax to the default judgment being sought here if they had adequately supported it, having regard to the content of the Motion Record, the relevant legislation and applicable precedent.
32I have reviewed the Statement of Claim and the Lass Affidavit, filed in part to prove the quantum of damages claimed/supplement the deemed admissions in the Statement of Claim, and have considered whether taken together, they provide a sufficient basis in fact and law for an order granting the relief sought.
33For the Reasons that follow, I have concluded that they do not.
34Regrettably, resolution of the issues on this Motion have required this Court to review relevant but uncited statutory provisions, most notably s 8 of the Interest Act R.S.C. 1985 C I-15 and numerous relevant but uncited authorities touching on the issues between the parties in this litigation, the foremost being the enforceability at common law and under s8. of the interest rate and other substantial fees and charges Westjax has included in what it claims to be the ongoing Mortgage Loan debt.
Relevant Contractual Provisions—The Mortgage Loan Contract Here
35A major concern here is the interest rate Westjax used to calculate the amount alleged to be owing by Khan on his guarantee.
36Westjax's claim for Interest to November 4, 2024, is $572,846.82, plus $43,076.90 from November 4, 2024 - May 5, 2025, and "contractual interest" thereafter.
37The Mortgage Loan documents annexed as Exhibits to the Lass Affidavit provided for interest payable by Ajax to Vector from closing of the Mortgage Loan to the Step-Up Date, October 10, 2023, at an interest rate being the greater of 10.95% per annum and the CIBC prime rate plus 5.5% and increasing thereafter to an interest rate being the greater of 14% and the prime rate plus 8.55%.
38The Step-Up Date was defined as the 10 th day of the first calendar month immediately prior to the Maturity Date. All loan indebtedness was due and repayable in full on the 10 th day of the month which was 13 calendar months after the interest adjustment date (the Maturity Date). The Maturity Date of the Mortgage Loan was November 10, 2023, so the Step-Up date was October 10, 2023, one month before the Maturity Date.
39All Westjax's calculations of the Mortgage debt for which it is seeking Default Judgment against Khan are based on the higher rate- the greater of 14% and the CIBC prime rate plus 8.55%. [or at 15% - see Part 1(a)(1).]
40Although the Mortgage Loan documents were included in the Motion Record, in the Factum there is no mention of the interest rate initially charged, or that the rate of interest included in the calculation of the amount alleged to be owing by Khan had been increased by roughly 3% shortly before the Maturity Date of the mortgage.
41Another concern here is the inclusion of Special Servicing and Default Administration Fees of $221,700 included in Westjax's calculation of the amount said to be owing by Khan and whether those fees are enforceable or not at common law and or under s8.
Relevant Statutory Provisions—S 8 of the Interest Act R.S.C. 1985 C I-15
428(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 a mortgage on real property…that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.
(2) Nothing in this section has the effect of prohibiting a contract for the payment of interest on arrears of interest or principal at any rate not greater than the rate payable on principal money not in arrears
43S 8 is not included nor is it mentioned in Schedule B to the Westjax Factum.
Relevant Case Law
44Westjax set out relevant authorities in Schedule A to its Factum.
45Krayzel Corp v Equitable Trust Co 2016 SCC 18 , a decision of the Supreme Court of Canada is the leading case on the applicability and enforceability or unenforceability of contractual mortgage loan provisions under s 8.
46Westjax did not include in Schedule A / List of Authorities any mention of Krayzel Corp v Equitable Trust Co 2016 SCC 18 .
47It did include On Deck Capital v Barnaby 2023 ONSC 3584 and YF Capital Inc v Roy 2025 ONSC 1292 , neither of which mention or grapple with s 8 issues.
48It did mention 1539339 Ontario Inc v First Source Financial Management Inc 2020 ONSC 5083 in which Miller J was required to confront some of the same issues that have arisen here .
49It did not mention or include in Schedule A other authorities that I have referenced elsewhere in these Reasons, including two decisions of the Ontario Court of Appeal, Beauchamp v Timberland Ltd . 44 OR(2d) 513 ; and P.A.R.C.E.L. Inc v Acquaviva 2015 ONCA 331 and several decisions of this court, including Lee v He 2018 ONSC 5932 ; Walia v 2155982 Ontario Ltd Inc 2019 ONSC 1059 ; We Care Limited Partnership v LDI Lakeside Inc 2021 ONSC 7466 ; and BMMB Investments v Farinosh Naimiah 2020 ONSC 7999 .
50In my view, Westjax should have been aware of the possible applicability of s 8 and of Krayzel to the calculation of the quantum of damages being claimed against Khan here, in part because clauses in the Vector Ajax Mortgage Loan documents upon which Westjax relied to calculate the interest rate it claimed parrot the wording of s 8 and of Krayzel .
51Accordingly, whether or not Westjax is taking the position that s 8 is inapplicable here, in the Factum Westjax should have set out s 8, the s 8 issues that could apply and the leading authorities on those issues for consideration by this Court.
52I have set out below my Reasons for my findings on the enforceability of the interest rate and the Special Servicing and Default Administration Fees used in the Westjax calculation and my directions on further steps necessary to determine the amount owing, if any, by Khan to Westjax.
The Three Parts of Westjax's Claim Against Khan as Guarantor of the Ajax Loan
Part 1—Westjax's Claim Against Khan for $619,506.21 Based on Vector's Claim Against Ajax Up to November 4, 2024/ Before the Vector Assignment to Westjax
53Part 1 of these Reasons has five aspects.
54The first two, Parts 1((a)(i)) and (ii) relate to evidentiary proof.
55The next three are: Part 1(b) relating to Westjax's claim for Interest, Part 1(c) relating to Westjax's claim for Special Servicing and Default Administration Fees, Part 1(d) apart from Interest charges, Default Administration and Special Servicing Fees, relating to allowable Costs.
Part 1(a)(i)—Insufficient Proof of Damages—of Interest Payable to November 4, 2024
56In the Lass Affidavit, the shortfall after payment of $4,164,212.56 on November 4, 2024, is alleged to be $619,506.21.
57The Mortgage Loan documents annexed as Exhibits to the Lass Affidavit refer to interest being chargeable initially by Vector to Ajax to October 10, 2023/the Step-Up Date, at the greater of 10.95% per annum and the CIBC prime rate plus 5.5% and thereafter at the greater of 14% and the prime rate plus 8.55%, yet the Lass Affidavit at Exhibit 14 appears to show interest of $572,846.82 having been charged to Ajax to November 4, 2024 at a rate of 15%.
58The Mortgage Loan documents provide that interest is to be calculated daily and compounded monthly on each payment date on the total of the principal amount plus accrued interest. The Lass Affidavit does not specify CIBC prime rates during the relevant period or how and when they fluctuated between October 10, 2023, and November 4, 2024.
59The amounts charged for interest to November 4, 2024, by Vector to Ajax were not shown on Exhibit 14 to the Lass Affidavit on a month-by-month basis.
60Looking at Exhibit 14 to the Lass Affidavit, I am not satisfied that the interest that has been included in the Vector calculation up to November 4, 2024 is accurate, or that it provides a reliable basis upon which a default judgment in the amount claimed could have been based.
61However, given my finding later in these Reasons that the higher interest rate specified in the Mortgage Loan documents cannot be enforced because it violates s 8 of the Interest Act , no further calculation using the higher interest rates specified in the Mortgage Loan documents will be required.
62In the montly calculation directed to be done later in these Reasons interest at the pre Step-Up Rate interest rate [the greater of 10.95% per year and the CIBC prime rate plus 5.5%] must be included
Part 1(a)(ii)—Proof of the Treatment of Holdback Amounts on Exhibit 14 as of November 4, 2024
63In the Assignment of Security and Indebtedness Agreement there is mention that as at its date of execution, December 2, 2024, the Receiver was continuing to hold back funds that eventually may have been released.
64Clarification is needed as to whether there should be an adjustment to the amount used in the calculation of the alleged shortfall in that regard.
Part 1(b)—Was the Interest Rate Increase Included by Vector in the Calculation of the Shortfall and Included in Westjax's Claim against Khan to November 4, 2024 Contrary to s 8 of the Interest Act ?
65The Mortgage Loan contract provided that throughout the term of the mortgage and until one month before the November 10, 2023 Maturity Date, interest would be chargeable at the greater of 10.95% per annum and the prime rate plus 5.5%. After October 10, 2024, one month before the Maturity Date interest would be chargeable at the greater of 14% and the prime rate plus 8.55%.
66On its face, the interest rate payable on the mortgage loan here would be about 3% higher if the borrower defaulted on the immediately upcoming maturity date, and the higher interest rate would continue to be charged for however long thereafter that the mortgage remained in default.
67On its face, the increased interest rate was timed to coincide or almost coincide with the Maturity Date and would have the effect of increasing the interest charged on the arrears beyond the rate of interest payable on principal money not in arrears at and after default.
68As noted earlier, the leading authority on the meaning, applicability and enforceability of mortgage loan interest rate increases is Krayzel Corp v Equitable Trust Co 2016 SCC 18 .
69Krayzel involved a mortgage loan, initially at a lower prescribed rate and two renewals. That case turned on whether mortgage rate increases in the Second Renewal Agreement were enforceable or whether they fell afoul of s 8.
70The Second Renewal Agreement documents provided for an interest rate of 25% effective February 1, 2009. They required the borrower to make payments at 7.5% or prime plus 5.25% whichever was greater. The lender specified that if no default occurred, accrued interest would be forgiven.
71The issue was whether the Second Renewal Agreement complied with s 8 of the Interest Act or whether the 25% interest rate it specified was unenforceable.
72In Krayzel , Brown J. for the majority in the Supreme Court of Canada wrote:
at paragraph 24: s 8 identifies three classes of charges, a fine, penalty or rate of interest-that shall not be stipulated for, taken reserved or exacted.
at paragraph 25: by directing the inquiry to the effect of the impugned mortgage term, parliament clearly intended that mortgage terms guised as a bonus, discount, or benefit would not, as such, comply with s 8. Substance, not form is to prevail. What counts is how the impugned term operates and its consequences it produces, irrespective of the label used. If its effect is to impose a higher rate on arrears than on money not in arrears, then s 8 is offended . [emphasis added]
at paragraph 26 ...subsection 2 [of s 8] preserves a general freedom of contract for any rate of interest or discount with the caveat that such freedom is subject to what is otherwise provided by the Act...S 2 is therefore subject to the restriction imposed by s 8 on a loan secured by a mortgage...
73Westjax included 1539339 Ontario Inc v First Source Financial Management Inc 2 020 ONSC 5083 in Schedule A to the Westjax factum.
74In that case Miller J mentioned Brown J's obiter at paragraph 33 of Krayzel: I am content to dispose of this appeal by considering the Second Renewal Agreement alone, since its operation was made retroactive to the date…on which the rate increase under the first renewal agreement took effect. That said, an interest rate increase triggered by the mere passage of time and not by default such as that imposed under the first renewal agreement clearly does not offend s 8.
75On the facts of 1539939 , Miller J held that the interest rate increase there took effect with the passage of time and not due to default.
76Westjax did not include Walia v 2155982 Ontario Ltd Inc 2019 ONSC 1059 in Schedule A to the Westjax factum. In Walia , Hebner J wrote at para 36 : This is not a case where the increased rate of interest occurs due to the passage of time. In Krayzel the first mortgage renewal increased the rate of interest after 6 months. In that case the interest was increased due to the passage of time. The trigger was the passage of six months. In this case the trigger is non-payment of either a monthly payment or the principal on the due date. In my view when the trigger for the increased rate is either a missed monthly payment or failure to pay the entire loan amount on the due date, s 8 of the Interest Act applies.
77There are other cases where counsel have submitted that the increased interest rates in their mortgages occurred, not because of lender concerns about non-payment on default, but merely by the passage of time.
78In Lee v He . 2018 ONSC 5932 , the mortgage loan had a one-year term. Mortgage interest was to be 12.99% to August 15, 2017. The mortgage contract at s A.12 provided that in the event outstanding principal and interest was not repaid by the balance due date, interest at a rate of 20% per annum would be charged from the maturity date until payment in full…
79Boswell J wrote:
at para 11:at issue is whether this provision for increased interest upon maturity runs afoul of s 8 of the I nterest Act…
at para 13: Despite the plain wording of s A.12 …counsel argued that it does not have the effect of increasing the interest rate payable on arrears beyond 12.99 %.
at para 14: Counsel attempted to fit this case into a line of authority reflected in the Supreme Courts decision in Krayzel Corp v Equitable Trust Co 2016 SCC 18 .
at Para 18: Mr Lee's counsel submitted that this case is, similarly, one where the increased interest rate is triggered by the simple passage of time, rather than default. He argued that the mortgage matured on August 15, 2017. At that moment the increased interest rate applied. The mortgage was not actually in default until the Hes failed to repay it in full on that date. In other words, one could not say the mortgage was in default until the clock struck 12:01 a.m. on August 16, 2017.
at para 19: In effect, counsel argues that the lender intended for the interest rate to rise to 20% on the very last day of the term. The increased rate would incidentally apply to arrears remaining after that date, simply due to the passage of time.
80Boswell J rejected that argument. Following the lead of the Supreme Court of Canada in Krayzel , Boswell J looked at substance, irrespective of the label used, and the overall effect of the loan provisions. He wrote:
at para 20: I am not persuaded by counsel's argument. S A.12 was not designed to impose an increased rate of interest for one day. It was designed as a penalty to impose an increased rate of interest if the mortgage was not repaid on maturity.
at para 21: Section A.12 specifically refers to interest on past due amounts. It specifically provides that interest on arrears will be 20% charged from the maturity date forward. That is a different rate than the 12.99% charged before maturity on principal not in arrears. This clause clearly has the effect of charging an increased rate on arrears. It violates s 8.
81Sharma J in We Care Funding Limited Partnership v LDI Lakeside Inc et al 2021 ONSC 7466 wrote:
at para 63: In Lee v He 2018 ONSC 5932 and P.A.R.C.E.L. Inc v Aquaviva 2015 ONCA 331 the courts held that charging a higher interest rate on arrears of a mortgage offends the Interest Act and are not properly charged by a mortgagee
at para 64: Consistent with the authorities and this statutory prohibition I agree it was improper to charge interest at the rate of 24% on the first mortgage as it was at a higher interest rate chargeable on monies not in arrears…
82I have considered whether characterizing the Step-Up Rate as occurring solely by the passage of time and not as the result of any default or event of default in the mortgage document can take the interest rate increase outside of the purview of s 8, and have concluded, in all the circumstances here, that it cannot.
83Brown J in Krayzel has instructed that substance not form is to prevail irrespective of the label used.
84Where, as here, the timing of the increased interest rate is on its face tied closely to the Maturity Date and where the Maturity Date is when default would occur if the indebtedness were not repaid, this does not look like a random choice of a date for an interest rate increase but a choice of date clearly tied to an event of default. The interest rate increase, viewed objectively at the time the contract was made did not solely, merely, incidentally occur by the passage of time.
85Calling a thing a peach doesn't make it a peach if it isn't a peach. A thing isn't a peach unless it has the characteristics of a peach.
86One cannot simply by labelling it as such, make a mortgage rate increase on its face timed to coincide with default into an increase occurring solely by the passage of time and not by an event of default.
87Here the objective facts do not support the use of the label applied in the clause upon which Westjax relies. Regard, not to the label used but to the substance of the rate increase dictates calling the rate increase what it is – a penalty.
88In my view, the inclusion of the clause in the mortgage documents mentioning the Step-Up Rate as occurring solely by the passage of time and not as a result of any default or event of default is objective evidence that the timing of the rate increase was not randomly chosen, but with Krayzel and s 8 of the Interest Act in mind.
89An acknowledgement that the Step-Up Rate occurred solely by the passage of time and not as the result of any default or event of default does not make it so.
90While parties to contracts are generally free to contract as they wish, freedom of contract here is limited by s 8.
91In Krayzel , Brown J wrote at paragraph 26:
S 2 preserves a general freedom of contract for any rate of interest or discount with the caveat that such freedom is subject to what is otherwise provided in the Act … S 2 is therefore subject to the restriction imposed by s8 on a loan secured by a mortgage.
92Accordingly, I am of the view that the parties to this mortgage could not make changes to the rate of interest that were free of restrictions imposed by section 8. Once the restrictions in s 8 are applied to the purported interest rate changes after the Step-Up Date, these interest rate changes are unenforceable.
Part 1(c)—Are the Special Servicing Fees and Default Administration Fees Charged by Vector Enforceable?
93In addition to the additional interest costs after the Step-Up Date there were Special Servicing and Default Administration Fees in the event of default.
94The Mortgage Loan documents provided: each borrower acknowledged and agreed that … at all times following the occurrence of any event of default….the borrower would pay to the administrator Default Administration Fees of $5,000 in the first month and $10,000 per month plus taxes and …if the borrower failed to repay the principal amount on the maturity date, the borrower shall pay…an amount calculated at a rate of 0.25% per month multiplied by the then outstanding principal amount for each month the loan remains unpaid (Special Servicing Fee)[See Case Center page A-146].
95The Mortgage Loan documents also contain the following: the parties agree that the Default Administration Fees and Special Servicing Fees are reasonable pre-estimates of the Lender's costs and do not constitute a fee or a penalty….
96The Westjax Factum contains the following at para 53: Para 20 of the Commitment states that the parties agreed that the Default Administration Fees and Special Servicing Fees are reasonable pre-estimates of the Lender's costs and do not constitute a fine or a penalty. The express contractual language of the Credit Agreement supports a finding that the fees and charges detailed in the Lenders Statement constitute liquidated damages rather than a penalty.
97In submitting that those charges were enforceable, Westjax relies on this wording and on the decision of Miller J in 1539339 Ontario Inc v First Source Financial Management Inc 2020 ONSC 5082 .
98In 1539939 Ontario Inc v First Source supra , Miller J held on the facts there that fees specified in the mortgage documents were a genuine pre estimate of damages and not a penalty.
99Westjax submitted at para 51 of the Factum: As set out by the Honourable Justice Miller in the case of 1539339 …contractual language that properly characterizes default fees as a reasonable pre-estimate of damages, rather than as penalties supports the enforceability of such fees.
100I have here considered the evidence on whether the Default Administration Fees and Special Servicing Fees are a reasonable pre estimate of damages and have concluded it falls short.
101In my view whether a sum stipulated in a contract is a penalty at common law depends upon the circumstances of the particular contract judged at the time of making the contract.
102There is no evidence or data in the Lass Affidavit or elsewhere in the Motion Record here upon which this Court could confidently conclude that these fees are a genuine reasonable pre estimate.
103These fees are very substantial. There is nothing to demonstrate that they are in line with real fees charged for administration on default in similar circumstances.
104There is no evidence in the Motion Record that Vector gauged likely administration and other costs arising from default at the time of making of the contract or that these fees were based on information gathered at that time.
105The submission at paragraph 54 of the factum that the fees charged by the lender account for administrative time and effort expended by the lenders employees in managing the loan following default is not supported in any evidence of Mr Lass or by any data based estimate of anticipated administrative times or costs gathered at the time of the making of the contract. That submission is also not supported by any evidence of reasonable administrative times or costs actually incurred.
106In BMMB Investments v Farinosh Naimiah 2020 ONSC 7999 Myers J wrote:
at paragraph 36: Case law has consistently held that lenders may lawfully recoup from mortgagors who are in default of their payment obligations, the administrative costs incurred by lenders caused by the defaults. The common law recognizes for good business reasons that such costs can be estimated in advance and fixed in a contract. But fees and charges levied on a mortgage default that are not genuine pre-estimates of costs actually incurred by a lender are penalties that can be void at common law and may violate the statute [emphasis added].
at para 44: In view of the absence of evidence that any of the fees is … a genuine pre-estimate of damages suffered by the lender… none of the fees claimed in this case can be allowed.
107I find on the lack of evidence here that there was no genuine pre-estimate and that these fees constitute a penalty at common law and are unenforceable.
Do These Fees Violate s 8?
108To be enforceable these fees must not only not constitute a penalty at common law. They must also not violate s 8.
109Apart from the common law argument, in dealing with Default Administration Fees and Special Servicing Fees, the Westjax Factum does not mention s 8.
110In BMMB Investments v Farinosh Naimiah 2020 ONSC 7999 Myers J wrote:
In P.A.R.C.E.L. Inc. v. Acquaviva , 2015 ONCA 331 , the Court of Appeal held:
[96] 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 : see for example Chong v Kaur 2013 ONSC 6252 …
at para 38: Mr Bourassa argues that before evidence is required to support a fee set out in a contract, the contract provision must first be found to be an unenforceable penalty. He submits that in 15393339 Ontario Inc v First Source … 2020 ONSC 5082 Miller J recognized that a defendant who asserts that a clause in a contract is an unenforceable penalty bears a preliminary burden of proof. Until declared unenforceable at the instance of the mortgage borrower, the contract provision must govern.
at paragraph 39: In 1539339 the mortgage included an agreement that the fees charged were a genuine pre-estimate of the losses to be suffered by the mortgagee on the occurrence of the relevant events. Miller J considered that agreement, the amounts being sought as fees and held that they were not penalties on the facts before her. However, she held that late charges of $7,350 claimed were properly found to be penalties in the absence of any evidence that the lender suffered any actual losses as a result of the late payments.
at para 40: I do not read 1539339 as changing the common law test for penalty clauses or the test for s 8 of the Interest Act set out by the Court of Appeal in P.A.R.C.E.L. To say as Miller J did, that there is a finding required that a particular fee is a penalty is simply reciting the common law alternative for challenging contractual fees. There is no additional test or burden on the borrower… The test at common law is whether a fee is a genuine pre estimate of damages incurred by a lender. The test under s 8 of the Interest Act is as set out above in P.A.R.C.E.L. v Aquaviva. Both apply and satisfying either will invalidate a fee [emphasis added].
at para 43…Absent proof of specific costs being incurred the costs are rightly subsumed in its ordinary costs of business.
at para 44: In view of the absence of evidence that any of the fees is either a genuine pre-estimate of damages suffered by the lender or 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, to borrow the words of P.A.R.C.E.L . none of the fees claimed in this case can be allowed.
111In We Care Funding Limited Partnership v LDI Lakeside et al 2021 ONSC 7466 , Sharma J wrote:
at para 66: With respect to administration costs while a mortgagee is generally entitled to be indemnified for the costs that are incurred to respond to a default by a mortgagee, the costs claimed must be reasonable and properly incurred. There must be some basis in the evidence to determine that costs were incurred at the amounts claimed. Absent proof of the specific costs being incurred the costs are rightly subsumed in the ordinary course of the mortgages business; see also Lee v He at para 43 ; BMMB Investment Limited v Naimian 2020 ONSC 7999 at paras 26 and 43 ; NRD Management Services Ltd v Dorothy Litwin 2021 ONSC 3238
at para 67: In its factum the Plaintiff appears to have abandoned its claim for this amount. If they had not and without evidence of actual administrative costs, I would have disallowed it…It would have constituted an increase in the interest rate applicable to monies in default in excess of the interest rate payable upon monies not in default contrary to s 8 of the Interest Act .
112There is no sufficient basis in the evidence here to conclude that the Debt Administration Fees or the Special Servicing Fees were actually incurred in the amounts claimed.
113I am not satisfied that the Special Servicing Fees and the Default Administration Fees were properly chargeable by Vector to Ajax to use the words of the Court of Appeal in P.A.R.C.E.L. that they reflect real costs legitimately incurred for recovery of the debt in the form of actual administrative charges or otherwise. Again to use the words of the Court of Appeal, the only reason for the charges was to impose an additional penalty or fine. They violate s 8. I disallow them.
Part 1(d)—Do Other Costs Claimed in Exhibit 14 Represent Real Costs Actually Incurred by Vector?
114Real costs legitimately incurred to respond to a default are usually recoverable. See Sharma J in We Care Funding Limited Partnership v LDI Lakeside et al 2021 ONSC 7466 at para 66 and Myers J in BMMB at paragraph 36.
115The evidence Westjax has provided that costs claimed are real costs actually incurred is limited.
116The Factum contains the following:
at paragraph 30: the Lender's Statement details the costs incurred by the Lender in connection with Borrowers default up to the date of the Sale. These included contractual interest fees and charges owed to the Lender pursuant to the credit agreement and legal fees in connection with the enforcement of the loan…
at paragraph 33: The assignee's statement details the costs incurred by the assignee in connection with the guarantors continued default under the loan and guarantee following the sale. These include contractual interest legal fees in connection with enforcement of the loan and guarantee and the lenders loss.
at para 50 of the Westjax factum: the Lender's Statement details the costs incurred by the Lender in connection with the Borrowers default up to the time of the Sale including contractual interest, fees and charges owed to the Lender pursuant to the terms of the Credit Agreement.
117I have reviewed the documents mentioned in Exhibit 14 including the document said to particularize it, the Schedule of Loan Charges.
118I have already disallowed the Default Administration and Special Servicing Fees that were included in the Schedule of Loan Charges. Nevertheless, other items listed on it meet the test of real costs legitimately incurred for the recovery of the debt.
119Having specifically reviewed each of the items shown on Exhibit 14, the Schedule of Loan Charges and on the Mortgage Payout Statement [at Case Center A-221] I allow the following charges - an NSF payment charge [limited to $350 as specified in Schedule A], a mortgage discharge statement of $395.50, two bank processing fees of $500 each, a letter fee of $750, Gowlings fees of $7,500 and Cassels fee of $966.15, two annual review fees of $565 each, two bank wire fees of $17 each, all totalling $12,125.65.
120Interest is to be calculated under Part 1(d) at the pre Step-Up Date Rate.
Part 2—Westjax Costs Post Assignment
121Interest is to be calculated on the recalculated shortfalls, if any, at the pre Step-Up Rate.
122To the extent that the costs claimed include costs of bringing this action and motion they should be separated out. Overlapping costs included in the Bill of Costs should be identified.
Part 3—Continuing Interest
123Any continuing interest calculation must start with any amounts held to be properly owing herein under Parts 1 and 2, and then the Pre Step-Up interest rate should be used.
Disposition
124Within 10 days of the release of these Reasons, Counsel for Westjax is directed to prepare and submit a revised calculation in affidavit form, reflecting the disallowances mentioned in these Reasons. The recalculation is to use the same time divisions used in the original Motion Record and is also to reflect fluctuations in the CIBC prime rates calculating daily interest on a monthly basis at the Pre Step-Up Rate, the greater of 10.95% per annum and the CIBC prime rates plus 5.5% as set out in the Mortgage documents.
125Counsel are also to submit a revised draft order.
126These Reasons are to be served on Mr Khan within 5 days of their release.
127The revised draft Judgment and affidavits are to be served on Mr Khan within 15 days of the release of these Reasons.
128Once I have reviewed the further items directed to be delivered, I shall also make a separate order with respect to the costs of this motion and Action.
MA Sanderson, J.
Released: September 17, 2025