P.A.R.C.E.L. Inc. et al. v. Acquaviva et al.

• Jurisdiction: Ontario
• Court: Court of Appeal (Ontario)
• Judge: Cronk, Gillese and Rouleau, JJ.A.
• Citation: (2015), 334 O.A.C. 259 (CA),2015 ONCA 331
• Date: 12 November 2014

PARCEL Inc. v. Acquaviva (2015), 334 O.A.C. 259 (CA)

MLB headnote and full text

Temp. Cite: [2015] O.A.C. TBEd. MY.010

P.A.R.C.E.L. Inc., Bijan Pardis and P.A.C.I.F.I.C. Inc. (defendants/appellants) v. Sam Acquaviva and Premier Homes Realty Ltd. (plaintiffs/respondents)

(C58689; 2015 ONCA 331)

Indexed As: P.A.R.C.E.L. Inc. et al. v. Acquaviva et al.

Ontario Court of Appeal

Cronk, Gillese and Rouleau, JJ.A.

May 12, 2015.

Summary:

The plaintiffs loaned $458,488.07 to the defendants. The loan proceeds were applied to discharge an existing mortgage. The repayment of the loan was secured by a promise to pay set out in a promissory note. That note was secured by a mortgage on real property in the same amount. Well before the maturity date of either instrument, the defendants ceased all payments. Litigation followed. The defendants appealed from summary judgment for the amount of $541,512.98 on the promissory note and mortgage. Relying on s. 8 of the Interest Act, the defendants attacked the motion judge's awards of: (1) contractual interest (interest under the note and the mortgage); (2) Mortgages Act Interest; (3) post-judgment interest; and (4) late payment charges and default fees.

The Ontario Court of Appeal allowed the appeal, in part, by setting aside: (1) the awards of interest under the note and the mortgage, the Mortgages Act Interest and post-judgment interest at the rate of 10% per annum, and substituting in their stead awards of interest at the rate of 0.75% per annum; and (2) the awards for late payment charges and default fees.

Interest - Topic 3068

Statutory interest - Interest Act - Mortgages - Prohibition of payment of fine or penalty on arrears of principal or interest - The defendants appealed from summary judgment on a Promissory Note and Mortgage - The interest escalation provision of the Note extracted a higher rate of interest in the event of default under the Note - The crux of the dispute concerned the application of s. 8 of the Interest Act - Relying on s. 8, the defendants attacked the motion judge's award of contractual interest (interest under the Note and the Mortgage) - The Ontario Court of Appeal stated that "[t]he critical question is whether s. 8 applies to the single loan secured by both the Note and the Mortgage, where the terms of the Note provide for escalated interest on default but where the Mortgage, which admittedly secures the Note, contains no such provision. In my view, on the facts of this case, the answer to this question is yes. I conclude that the arrears of principal and interest in question are 'secured by [a] mortgage on real property' and that s. 8 of the Interest Act therefore applies to the debt instruments entered into by the parties, including the Note. It follows that, because the Interest Escalation Provision applies to arrears that are secured by a mortgage within the meaning of s. 8, and because it has the effect of increasing the rate of interest charged on the arrears beyond the pre-default interest rate payable on the principal amount of the Note, the Interest Escalation Provision violates the statutory prohibition in s. 8 of the Interest Act and is ineffective." - In the result, the appropriate post-default interest rate was the same as the agreed 0.75% pre-default rate stipulated under the Note - See paragraphs 47 to 77.

Interest - Topic 3068

Statutory interest - Interest Act - Mortgages - Prohibition of payment of fine or penalty on arrears of principal or interest - The Ontario Court of Appeal stated that "[g]iven the protective purpose of s. 8 of the Interest Act, in what circumstances is the section triggered? There are several prerequisites to the application of s. 8 of the Interest Act. First, ... s. 8 requires a finding that the covenant in question imposes a 'fine', 'penalty' or 'rate of interest'. If it does not, then s. 8 is not engaged. Second, the 'fine', 'penalty' or 'rate of interest' must relate to 'any arrears of principal or interest secured by mortgage on real property' ... . The arrears may arise on default occurring before or after maturity of the relevant debt instrument ... . Third, assuming that the covenant stipulates for a 'fine', 'penalty' or 'rate of interest', the covenant must also have the prohibited effect of 'increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears'. In other words, the covenant 'must both stipulate for a 'fine', 'penalty' or 'rate of interest' and have the prohibited effect' ... . Finally, the arrears of principal or interest must be 'secured by mortgage on real property'." - See paragraphs 53 to 56.

Interest - Topic 3068

Statutory interest - Interest Act - Mortgages - Prohibition of payment of fine or penalty on arrears of principal or interest - The defendants/appellants executed a Promissory Note and a Mortgage in favour of the plaintiffs/respondents, in relation to a single loan - The interest escalation provision of the Note extracted a higher rate of interest in the event of default under the Note - The controversial point was whether s. 8 of the Interest Act applied to the Note; i.e., did the elevated rate of interest apply to arrears "secured by mortgage on real property" - The Ontario Court of Appeal rejected the respondents' argument that the covenant said to trigger s. 8 must always be set out in the terms of a mortgage instrument - First, s. 8 "can also apply in cases in which the prohibited charges are provided for in a debt instrument that evidences and secures a loan and that is secured by a mortgage on real property. Where, as here, the debt instrument and the mortgage that secures it are for the same principal amount and provide for the same payment terms, and where payment of one is payment of the other, the mortgage is not a true collateral or accessory security; the two instruments secure repayment of the original or principal liability - here, the single loan - and s. 8 applies to both. Second, the language of s. 8 itself supports this conclusion. ... Third, the decision of this court in Pizzey v. Crestwood Lake Ltd. (2004) ... is instructive in this regard. ... [A]s in Pizzey, the terms of the Note determine the post-default rate of interest payable on the one debt between the parties. And the Note is secured by a mortgage on real property. Consequently, given the agreed-upon structure of this loan transaction, both instruments fall within the ambit of s. 8 of the Interest Act on the facts of this case." - See paragraphs 57 to 71.

Interest - Topic 3068

Statutory interest - Interest Act - Mortgages - Prohibition of payment of fine or penalty on arrears of principal or interest - The defendants appealed from summary judgment on a Promissory Note and Mortgage - They contended that the late payment charges ($11,110) and the default fees ($7,200) allowed by the motion judge constituted "fine[s]" or "penalt[ies]" prohibited under s. 8 of the Interest Act - The Mortgage provided that the plaintiffs were entitled to a late charge of $10 per day in the event of their late receipt of monthly payments due under the Mortgage - It also provided for the payment of a $300 "Missed [P]ayment Fee" - The Ontario Court of Appeal set aside the impugned charges and 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" - See paragraphs 92 to 97.

Interest - Topic 3506

Statutory interest - On judgments - Rate of interest - The defendants appealed from summary judgment on a Promissory Note and Mortgage - Clause 2 of the Note provided for the escalation of the applicable interest rate from 0.75% to 10% per annum "after demand, default, and pre and post judgment" (the interest escalation provision) - The motion judge, without elaboration, awarded post-judgment interest at the rate of 10% per annum on the outstanding amounts owed under the Note - The Ontario Court of Appeal determined that the interest escalation provision was unenforceable by reason of s. 8 of the Interest Act - It followed that a 10% per annum post-judgment interest rate based on that provision was unsustainable - "[I]n these somewhat unusual circumstances, Pizzey [v. Crestwood Lake Ltd. (2004) (Ont. C.A.)] affords guidance as to the appropriate approach for determining the rate of postjudgment interest. ... In this case, the 0.75% per annum interest rate governed the appellants' debt prior to default under the Note, and under the Mortgage both before and after default. In my view, it is the appropriate rate to govern the post-default debt and, hence, postjudgment interest." - See paragraphs 86 to 91.

Mortgages - Topic 3061

Payment of mortgage - Interest - General - [See first Interest - Topic 3068 ].

Negotiable Instruments - Topic 6301

Promissory notes - Interest - General - [See first and third Interest - Topic 3068 ].

Practice - Topic 5725

Judgments and orders - Summary judgments - Costs - [See Practice - Topic 8425 ].

Practice - Topic 8425

Costs - Appeals - Grounds - Error in principle - The appellants/defendants argued that the motion judge erred by awarding the respondents/plaintiffs their costs of the summary judgment motion (on a Promissory Note and Mortgage) on a substantial, rather than a partial, indemnity scale - The Ontario Court of Appeal disagreed - "The respondents sought costs of the summary judgment motion in the total amount of $97,809.34, calculated on a substantial indemnity scale and based on a $425 hourly billing rate for counsel. However, the motion judge rejected this hourly rate and calculated costs utilizing a $375 per hour counsel rate. Thus, it is inaccurate to suggest that the motion judge awarded costs on a substantial indemnity scale. In addition, the motion judge made various other deductions from the quantum of costs the respondents claimed. His reasons reveal that he considered carefully the respondents' costs claim, the appellants' objections to that claim, and the applicable principles governing an award of costs. ... In these circumstances, I see no basis for interference with the motion judge's discretionary costs ruling. In my view, his costs award is neither plainly wrong nor infected by an error of principle." - On the disposition of the appeal, the respondents remained successful in obtaining summary judgment for the core relief sought - No variation in the costs award was therefore warranted - See paragraphs 102 to 108.

Cases Noticed:

Reliant Capital Ltd. v. Silverdale Development Corp. et al. (2006), 226 B.C.A.C. 161; 373 W.A.C. 161; 52 B.C.L.R.(4th) 13; 2006 BCCA 226, leave to appeal refused (2006), 362 N.R. 396; 242 B.C.A.C. 320; 400 W.A.C. 320 (S.C.C.), refd to. [para. 50].

Mastercraft Properties Ltd. et al. v. EL EF Investments Inc. (1993), 64 O.A.C. 308; 14 O.R.(3d) 519 (C.A.), refd to. [para. 53].

Beauchamp v. Timberland Investments Ltd. (1983), 1 O.A.C. 73; 44 O.R.(2d) 512 (C.A.), refd to. [para. 54].

Headway Property Investment 78-1 Inc. v. Edgecombe Properties Ltd. et al., [1998] O.A.C. Uned. 285; 1998 CanLII 3546 (C.A.), refd to. [para. 58].

Pizzey Estate v. Crestwood Lake Ltd. et al. (2004), 181 O.A.C. 383 (C.A.), leave to appeal refused (2005), 334 N.R. 197 (S.C.C.), consd. [para. 62].

NBY Enterprises Inc. v. Duffin et al., [2006] O.T.C. 272; 2006 CanLII 7519 (S.C.), refd to. [para. 72].

Paragon Capital Corp. et al. v. 395342 Alberta Ltd. et al. (2004), 350 A.R. 370; 2004 ABQB 25, refd to. [para. 72].

Chong et al. v. Kaur, [2013] O.T.C. Uned. 6252; 2013 ONSC 6252, refd to. [para. 96].

Bhanwadia v. Clarity Financial Corp., [2012] O.T.C. Uned. 6393; 2012 ONSC 6393, refd to. [para. 96].

2088300 Ontario Ltd. v. 2184592 Ontario Ltd. et al., [2011] O.T.C. Uned. 2986; 2011 ONSC 2986 (Master), refd to. [para. 96].

Nesci v. Ramrattan, [2009] O.T.C. Uned. 328; 2009 CanLII 5153 (S.C.), refd to. [para. 96].

Hamilton v. Open Window Bakery Ltd. et al., [2004] 1 S.C.R. 303; 316 N.R. 265; 184 O.A.C. 209; 2004 SCC 9, refd to. [para. 104].

Statutes Noticed:

Interest Act, R.S.C. 1985, c. I-15, sect. 8 [para. 40].

Counsel:

Howard Crosner, for the appellants;

Domenic Saverino, for the respondents.

This appeal was heard on November 12, 2014, before Cronk, Gillese and Rouleau, JJ.A., of the Ontario Court of Appeal. In reasons written by Cronk, J.A., the Court delivered the following judgment, dated May 12, 2015.