Endorsement

Court File No.: CV-24-00733369-00CL
Date: 2025-01-17
Superior Court of Justice – Ontario – Commercial List

Between:
2722959 Ontario Inc., Frank D’Angelo and Gemma Runaghan, Plaintiffs
and
Canadian Western Bank and John Butler, Defendants

Before: Peter J. Osborne

Counsel:
Joseph Lo Greco, for the Plaintiffs
Gavin Finlayson and Samantha Del Frate, for the Defendants

Heard: January 17, 2025

Background

[1] On December 23, 2024, I issued an Endorsement in this matter granting leave to amend the Statement of Claim and requiring the Plaintiffs to post security for costs in the amount of $75,000.

[2] Given the previously scheduled judicial mediation already pending for next month, February, 2025, and therefore the necessity to have the supplementary productions completed and examinations for discovery conducted within the next month, I ordered that the security be posted no later than January 14, 2025.

[3] The security was not posted by January 14, 2025. The Plaintiffs seek to post that security by way of granting a charge as against real property, to rank in third position. The Defendants oppose.

[4] Accordingly, the parties sought direction today on an urgent basis.

Plaintiffs’ Materials

[5] The Plaintiffs have filed a case conference brief and have uploaded to Case Centre certain native format documents, including:

a. email correspondence between counsel;
b. a parcel register sub-search in respect of the property over which the charge is sought to be granted;
c. a July 10, 2023 property appraisal;
d. a January, 2025 opinion of value from a real estate agent (Aura) based on an exterior inspection and verbal discussion with the owner;
e. a second January, 2025 “letter of opinion” delivered on a “without prejudice as to the value of the property” from a second real estate agent (Re/Max);
f. a December, 2024 mortgage statement in respect of the first mortgage (TD) already registered against title to the property;
g. a February, 2024 mortgage renewal agreement in respect of the second mortgage (Gar) already registered against title to the property; and
h. an internet screenshot from a real estate website “Zolo” in respect of Collingwood real estate trends for January, 2025.

[6] I observed that the above documents were in native format, since they were not attached as exhibits to any sworn or affirmed affidavit. There is no affidavit from any of the existing mortgagees, the property appraiser or either of the two real estate agents offering opinions of value. There is also no affidavit from either individual Plaintiff. The property over which the charge is sought to be placed is located in Collingwood, Ontario. It is owned by the individual plaintiff Gemma Runaghan.

[7] In their case conference brief, the Plaintiffs submit that they have equity in the property exceeding $500,000, but since Mr. Frank D’Angelo is unemployed, and his wife Gemma Runaghan holds a part-time online teaching position earning approximately $1000 per month, “a bank will not permit them in this situation to take out a loan to pay for security for costs”.

[8] Accordingly, the Plaintiffs request that they be permitted to grant another charge against title to the property, to rank in third position subordinate to the existing two mortgages, and to post that third ranking charge as security for costs.

[9] The Defendants object to the proposed third ranking mortgage being posted as security.

Legal Framework

[10] Rule 56.04 provides that the form of security shall be determined by the court.

[11] In the particular circumstances of this case, I am not prepared to approve the third ranking mortgage as an acceptable form of security.

[12] While the relevant jurisprudence (in addition to Rule 56.04) is clear that the court has the discretion to approve different forms of acceptable security, a governing principle is that “the concept of security is to have a ready source of funds to satisfy the claim of the defendant. … The idea of ‘security’ is to avoid the defendant being left in a position of trying to recover funds from an insolvent person”: Rocan Construction Ltd. v. Mallet Millwork Inc., 2011 ONSC 914 at para. 12.

[13] Clearly, courts have permitted a mortgage or charge in favour of the court, payable on demand, to stand as security. See, for example: Bouganim v. Embee Properties Limited; and Clark v. Clark, 2014 ONCA 175 (Ont CA) (“Clark”).

Analysis

[14] The first challenge for me here is that the Plaintiffs have put forward no properly sworn or affirmed affidavit evidence from anyone: neither they themselves as to the efforts they have made, with particulars, to raise the funds required to be posted as security, nor from any of the appraisers or real estate agents on whose evidence they seek to rely for the truth of its contents as to the value of their property.

[15] I am sympathetic to the exigencies of the situation and the relatively short time periods involved (though there was adequate time for the individual Plaintiffs to swear or short affidavit, and since there was time to obtain letters of opinion from real estate agents, there was time to obtain affidavits from them also).

[16] However, even if I were to accept the materials the Plaintiffs have put forward, I am not satisfied that the proposed form of security is adequate or appropriate in these particular circumstances.

[17] I pause to observe that no security was required to be posted in respect of the claim generally. Rather, security was required to be posted only in respect of the new allegations now sought to be advanced pursuant to the amended statement of claim in respect of which leave was just granted. Those amendments would advance new allegations of serious and intentional conduct on the part of the Defendants amounting to fraud and conspiracy.

[18] In short, the Plaintiffs now allege, pursuant to the leave they sought and received, that a mortgage placed on the home of the individual Defendant, Mr. Butler, by the corporate Defendant and his then employer, Canadian Western Bank, was not as the Defendants maintain an ordinary course mortgage to pay out a prior mortgage and collateralize a home equity line of credit. Rather, the Plaintiffs now allege, the mortgage represents an undisclosed (Pierrenger) agreement between the Defendants relating to this action in that the Defendant Butler agreed to indemnify CWB in respect of costs, and the mortgage is in fact security for the payment of that obligation if it comes to pass, and both Defendants then conspired to conceal these transactions from the Plaintiffs. If true, these allegations would be contrary to the express representations the Defendants and their counsel have made to the Court as well as to the Plaintiffs with respect to the nature and purpose of the Butler mortgage.

[19] I previously determined that as a condition of granting leave to assert these new allegations, security for costs was appropriate in the circumstances, and that the appropriate quantum of security was limited to $75,000.

[20] I am not satisfied, even if I were to take into account the material the Plaintiffs have filed, that the proposed security would represent accessible funds to which the Defendants could readily look for the payment of costs if successful.

Evidence Regarding Property and Mortgages

[21] There is no current appraisal. The appraisal provided is almost two years old, from July, 2023. It estimates a market value of $1.7 million. There is no evidence as to the change, if any, in condition of or improvements to the property since that time.

[22] The two letters of opinion estimate the value of the property as being between $1,900,000 and $1,950,000 (letter contains a typographical error and references $1,1950,000) according to one appraisal, and between $1,895,000 and $1,945,000 according to the second appraisal.

[23] The TD mortgage statement reflects that the outstanding principal amount as at December 31, 2024 is $329,448.96, and that throughout 2024, an amount of $10,274.65 in respect of principal was repaid, together with $9,311.60 in interest.

[24] The Gar mortgage statement is a year old and dates from February, 2024. That mortgage matures in approximately 45 days on March 1, 2025. The renewal amount is $915,793. That mortgage bears interest at the greater of 15.75% or RBC prime rate +8.55%.

[25] Counsel advised during the hearing of this matter that it would automatically renew for the applicable fee of $5,150. Even if that were to occur, the interest rate would increase to 18% or RBC prime rate +15.55% compounded monthly. Presumably, these interest rates reflect, among other things, risk,as assessed by the lender. There is no up-to-date information about the status and currency of this mortgage.

[26] I pause to observe that the mortgage provides that approval from the lender of renewal is subject to eight enumerated conditions, including:

a. a new appraisal report no more than one month old;
b. a mortgage statement in respect of the TD mortgage;
c. confirmation that property tax is paid in full, with no owing balance;
d. confirmation of valid property insurance;
e. credit bureau report on the mortgagors no more than one month old (i.e., the individual Plaintiffs);
f. new title search;
g. good standing of the loan with no owing payments; and
h. receipt of a fully signed renewal agreement.

[27] There is no evidence (or even information) before me as to whether those conditions could be satisfied or in fact will be satisfied within the next 45 days. There is also no evidence or information other than the submission of the Plaintiffs by counsel made in the case conference brief to the effect that a bank would not give them a loan as a result of their employment circumstances.

Conclusion

[28] In short, I am not satisfied on the state of the record before me that there is, as the Plaintiffs submit, net equity in the property exceeding $500,000, and even if I were, I am not satisfied that a third ranking charge in the particular circumstances of this case would satisfy the purpose for an order for security for costs as described by the Court of Appeal for Ontario in Clark v. Clark, 2014 ONCA 175 at paras. 43 and 44, recognizing as I do that the inquiry is of necessity very fact-specific (as that case itself demonstrates):

to ensure the existence of a ready source of funds to which a successful litigant may look to satisfy the costs of a proceeding that he or she has been compelled to incur. For this reason, security for costs is generally intended to be in a form that is readily accessible to the party ultimately awarded the costs of the relevant proceeding.

The security afforded by a second mortgage on a residential property is neither immediately liquid, nor readily accessible by the affected mortgagee. Moreover, depending on the value of the secured property and the amount of the first mortgage, a second mortgage of this type may not afford reliable security for costs at all.

[29] For all of these reasons, the proposed third ranking mortgage against this particular property in these particular circumstances is not an appropriate form of security. The Plaintiffs shall post security, in an acceptable form, such as cash or a letter of credit.

[30] In the circumstances, I vary my earlier order that required the security to be posted no later than January 14, 2025, to extend the deadline for posting of security until one week from the date of this Endorsement, being January 27, 2025. In the circumstances and given the already scheduled next steps in this matter, including the mediation scheduled for February that will require preparation, it is not appropriate to extend that deadline further.

Peter J. Osborne