Terrapin Mortgage Investment Corp v, 2016 ABQB 340

Court of Queen ’ s Bench of Alberta Citation: Terrapin Mortgage Investment Corp v 1798582 Alberta Ltd, 2016 ABQB 340 Date: 20160620 Docket: 1401 10732 Registry: Calgary Between: Terrapin Mortgage Investment Corp. Plaintiff - and - 1798582 Alberta Ltd., Arres Capital Inc. and Staci Serra Defendants _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] This is an application for solicitor and own client costs in the context of mortgage recovery proceedings.

Normally that would be a routine application, but in the circumstances here the mortgagor and mortgagee were not opposite in interest. The costs claimed arose from a dispute with third parties. The mortgagor, guarantor and mortgagee have been joining forces in the dispute. [ 2 ] The lender, Terrapin Mortgage Investment Corp., (“Terrapin”) argues that the terms of the mortgage govern, they are clear and unequivocal, and they entitle the mortgagee to be paid for “any proceedings, matter or thing taken are done to protect or realize this security [the mortgage] or any other security for this loan”.

However, the mortgagor and guarantor point to 1216808 Alberta Ltd v Crown Capital Corp , 2014 ABQB 468 , 2014 CarswellAlta 1426 and say that this issue, with almost identical contractual wording, has been decided before: where the default is not caused by the borrower, the obligation to pay solicitor and own client costs does not apply.

Facts [3] On February 3, 2014 Arres Capital Inc. (“Arres Capital”) obtained a final order for foreclosure over seven condominiumunits in mortgage collection proceedings. It planned to sell four of them to 1798582 Alberta Ltd. (“179”), a company apparently createdfor the purpose, and on February 5, 2014 a transfer of each was signed, the mortgage was signed by 179 as mortgagor, and a guarantee ofthat mortgage debt was signed by Staci Serra.

She is the wife of Wes Serra, the principal of Arres Capital. [4] On February 7, a detail in the final order for foreclosure was corrected, and on February 13 a certified copy of the final orderwas provided to the lawyer for 179 for purposes of registration. The funds were advanced with the expectation that the final order wouldbe registered at the Land Titles office, along with the transfer of land and the mortgage, and Terrapin would be fully secured for its loanof $426,000 plus interest. The total value of the four units was thought to be approximately $1 million. [5] But registration was stopped.

On February 14, in proceedings brought by investors in loans administered by Arres Capital,Justice Hillier granted an order that was directed to be registered on the titles to the four condominium units that Arres had attempted totransfer to 179 (as well as on the titles of other lands) before the final order could be registered. In the result, i79 never got title andTerrapin never became mortgagee. But the loan had already been advanced. [6] Terrapin demanded payment. Payment was not made. [7] For the last two years litigation has been ongoing as between those investors and Arres Capital.

Terrapin was added as anintervenor in those proceedings to advance its claim to be entitled to a mortgage over the lands and to the proceeds of sale. Throughoutthose proceedings Terrapin, 179 and Staci Serra have been working together, not in opposition. Nonetheless, it seems that Terrapin hasexpended considerable funds (the arguments were made before me without any numbers being identified) protecting or trying to realizeon the mortgage security – or at least on the security document that was supposed to become a mortgage. [8] 179 and Ms. Serra say that the issue has not been created by them.

They were not, at least initially, defendants in theproceedings brought by the investors (over time, proceedings have been amended to add them) and they should not be responsible for thepayment of costs involved in a lawsuit against another party. They point to the fact that they supported Terrapin throughout. [9] The passage in the mortgage that gives rise to the entitlement to solicitor and own client costs is paragraph 32, entitled“Expenses”.

Leaving out irrelevant words, it says this: All expenses, fees, charges or payments incurred, expended or paid by the Mortgagee (whether with the knowledge, consent,concurrence or acquiescence of the Mortgagor or otherwise) with respect to the following matters, that is to say: (a) …; (

i) the mortgagee’s solicitors’ costs as between solicitor and his own client incurred or paid by the Mortgagee as a result of any defaulthereunder or under any other security for this loan, or of endeavoring to collect with or without suit any money payable hereunder, or oftaking, recovering or keeping possession of the Land, and generally any other proceedings, matter or thing taken or done to protect orrealize this security or any other security for this loan; together with interest thereon at the Mortgage Rate, are deemed secured hereby and shall be or constitute a charge or charges against theLand, and all such moneys shall be repayable to the Mortgagee on demand, or if not demanded, then with the next ensuing instalmentexcept as herein otherwise provided, and all such sums together with interest thereon and all other moneys payable by the Mortgagorunder this mortgage shall be deemed to constitute part of the mortgage moneys and are included in the principal secured hereby.

Issue [10] The issue is whether, in these unusual circumstances, the mortgagee is entitled to costs as set out in the mortgagenotwithstanding that the root cause of the default did not lie with the mortgagor and the mortgagor has worked alongside the lender to tryto facilitate recovery. Analysis [11] Superior courts have told us many times that where a contract is clear, the court is to give effect to its clear language. This wassaid, by way of example, in Non-Marine Underwriters, Lloyd’s London v Scalera, 2000 SCC 24, 2000 CarswellBC 885, at paragraph71.

Where there is ambiguity, a court may take into account the reasonable expectation of the parties: Scalera at para. 71. [12] Here, there is no evidence as to what the expectations of the parties actually were.

No doubt no one would actually havethought that the final order for foreclosure would not be registered according to its terms by virtue of proceedings brought by otherpersons in another dispute, with a claim against the vendor of the lands, being someone other than the borrower or the guarantor. [13] Nonetheless, counsel for Terrapin argues that in light of the close relationship between Arres Capital, 179 and Staci Serra, it ishard to accept that the borrower 179 and guarantor Ms.

Serra were unaware of the proceedings brought by the investors in what Terrapindescribes as a “house of cards” and that the “house” might collapse. She argues that Terrapin had no information. [14] Counsel for 179 and Ms. Serra responds that there is no evidence that either 179 or Ms.

Serra were aware of the otherproceedings or that they might impact the registration of the final order, transfer of land and mortgage. [15] Counsel for Terrapin argues that nonetheless the background facts “colour” the circumstances. [16] In foreclosures, solicitor and client costs are routinely awarded because that is what the terms of virtually every mortgageprovide. In Manufacturer’s Life Insurance Co v Toronto Dominion Bank, 1988 ABCA 351 , 1988 CaswellAlta 204, [1989] 1

W.W.R. 474, the Alberta Court of Appeal made it clear that express covenants for solicitor client costs will usually be enforced, “unless there is misconduct or harshness”. The “misconduct” in this context would be that of the mortgagee. The “harshness” would be inflicted on the mortgagor. [ 17 ] There has clearly been no misconduct by Terrapin here that would deny its entitlement to solicitor and own client costs. Terrapin argues that the enforcement of the solicitor and own client costs covenant is not harsh and the background facts should be taken into account in that assessment. [ 18 ] However, 179 and Ms.

Serra say it would be harsh to impose solicitor and on client costs where the only default was in not repaying the funds in circumstances where the underlying asset (the lands) never made it in the hands of the borrower. Although 179 was in default and not repaying the loan, it is obvious that it was not because it was denying the debt or refusing to repay it. It simply never got the asset with which it could refinance or sell to repay the loan. Ms. Serra thought she was getting into a transaction where her company would have lands worth approximately $1 million with a debt for far less than that.

She never expected to be called to pay on the guarantee. [ 19 ] Reading the provision of the mortgage, it seems clear that the obligation to pay the solicitor and own client costs lies with 179 and Ms. Serra. That would be the normal business circumstance of a secured loan: in exchange for the loan, the borrower assumes all risks associated with repayment. [ 20 ] However, a similar circumstance occurred in 2014 in 1216808 Alberta Ltd v Crown Capital Corp , supra, where the lender had a priority dispute with the enforcement creditors of a third party in connection with a postponement.

That is, the dispute was between the lender and other parties, not between the lender and the borrower.

The Court took into account paragraph 12 of the mortgage before it, which was worded in a very similar fashion to the provisions in this case (quoted above) but the Court also took into account paragraph 17 of that mortgage, which said this: In case of default being made in any of the covenants, agreements, provisos, and stipulations herein contained, and by reason of such default the mortgagee considers it necessary to place this mortgage in the hands of his solicitors for the purpose of having such default remedied than I covenant and agree with the mortgagee to pay the full costs of said solicitors as between solicitor and client. [ 21 ] No passage equivalent to paragraph 17 in Crown Capital appears in the case before me. [ 22 ] In the Court’s brief decision in Crown Capital , the Court said at paragraphs 10 and 11: The issue before me is whether the mortgagor (CPI) should have to pay solicitor and client costs of the priority application under its covenants, when the dispute was not between it and the mortgagee, but rather between the mortgagee and a subsequent encumbrancer.

Should the mortgagor (CPI) be forced to pay solicitor and client costs arising out of the dispute that was not of its making? I am of the view that in entering the mortgage contract, the mortgagor and mortgagee must have reasonably expected that the mortgagor would only be responsible to pay the costs and expenses resulting from its default; and not from a dispute between creditors.

The mortgage speaks to solicitor and client costs arising from the mortgagor’s default, not “howsoever arising”. [ 23 ] It seems clear that the presiding Justice was reading paragraphs 12 and 17 together: the obligation to pay solicitor’s costs as between solicitor and client only occurred in the event of default (paragraph 17), in which case the general obligations regarding payment of costs (paragraph 12) would apply. [ 24 ] I must read this mortgage as it stands, taking into account higher court decisions stating that where the contract is clear it should be enforced according to its terms.

The contract here, being the mortgage, does not contain any words that suggest that the obligation to pay under paragraph 32 is only triggered when the underlying problem is not the fault of the borrower, but of a third party. I see no ambiguity in paragraph 32. Since Terrapin has taken extensive steps “to protect or realize this security”, it is entitled to add such expenses to the mortgage debt. [ 25 ] I do not take into account any suspicion or belief that 179 and/or Ms. Serra “must have been aware” of the storm with the creditors brewing on the horizon in February 2014, and in fact I have no such suspicion.

There is no evidence of such knowledge, and any possible wrong-doing by Arres Capital and/or Wes Serra (if for some reason that should be visited on 179 or Ms. Serra) has not been proven. The fact that the allegations are said by Terrapin to have been strong enough to have survived an application before the Court of Appeal that prevented resolution of the dispute with the other creditors is not evidence of wrong-doing. [ 26 ] The borrower, 179, is in default, because it has not repaid the mortgage debt. Why it has not done so is, according to my

interpretation of paragraph 32 of the mortgage, is its risk. The mortgage does not impose that obligation only when 179 is the root cause of the default. Ms. Serra has guaranteed that obligation. Conclusion [ 27 ] Accordingly, I grant the order sought. Solicitor and own client costs are recoverable by Terrapin from 179. No issues were argued suggesting that Ms. Serra is not bound by the terms of the guarantee. Accordingly, such costs are recoverable from her as well. Heard on the 12 th day of May, 2016. Dated at the City of Calgary, Alberta this 20 th day of June, 2016.

A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Kerry Lynn Okita Bishop & McKenzie LLP for the Applicant Judy Burke, Q.C. Demiantschuk Burke & Hoffinger LLP for the Respondents