MOUNTAIN INVESTMENT CORP. PLAINTIFF - v. –, 2022 SKKB 266

KING’S BENCH FOR SASKATCHEWAN Citation: 2022 SKKB 266 Date: 20 22 12 05 Docket: QBG-RG-00534-2019 Judicial Centre: Regina BETWEEN: MOUNTAIN INVESTMENT CORP. PLAINTIFF - and – JAMES ROSS QUEWEZANCE DEFENDANT Counsel: Travis K. Kusch for the plaintiff Alexander E. Buchan for the defendant FIAT ROBERTSON J. DECEMBER 5, 202 2 Contents Paragraph INTRODUCTION .. 1 BACKGROUND .. 3 Chronology of litigation . 9 Agreed Facts . 10 ISSUES . 11 ANALYSIS . 13 The Queen’s Bench Rules . 14 Contracts law .. 18 Unconscionability . 22 The Unconscionable Transactions Relief Act 28 Common law test of unconscionability . 42 Test for relief under the Act 43 Relevant circumstances 44 (

a) where the borrower is unknown to the lender 45

(

b) where the borrower solicited the loan . 47 (

c) where the loan is for a short period of time . 49 (

d) where there is urgency on the part of the borrower to obtain funds 51 (

e) where the lender has to borrow funds in order to finance the loan . 54 (

f) where the borrower has a history of previous default 56 (

g) the existence of any liens or judgments against the property used to secure the loan 58 (

h) the security offered for the amount borrowed . 60 (

i) standard form contract 62 (

j) independent legal advice . 65 (

k) Nature of loan and proceedings 69 Conclusion . 71 Whether cost of loan excessive? . 72 Whether transaction harsh? . 8 2 Whether transaction unconscionable? . 8 5 Conclusion . 9 0 REMEDY .. 9 1 COSTS . 9 6

SUMMARY .. 9 8 INTRODUCTION [ 1 ] This decision addresses an application under Rule 7-1 of The Queen’s Bench Rules to determine a question with respect to a mortgage agreement. The question is whether relief should be granted under either The Unconscionable Transactions Relief Act, RSS 1978, c U-1 [ Act ] or the common law of unconscionability?

For the reasons which follow, I find that relief should be granted under the Act , primarily because the cost of the loan was excessive, but also because the transaction was harsh and unconscionable. [ 2 ] In coming to this conclusion, I considered the risk and all the circumstances at the time the loan was made. Although registered as a second mortgage, the loan was not high risk. It was well secured, given the equity in the mortgaged property. Some of the relevant circumstances may have supported a higher-than-normal cost of loan, but others did not.

In any event, the cost of the loan was, by the lender’s calculation, over 45 percent. That cost was excessive having regard to all of the circumstances.

BACKGROUND [ 3 ] The following is taken from the court file: affidavits of James Ross Quewezance sworn July 27, 2021 [Quewezance Affidavit] and August 16, 2021 [Quewezance Reply Affidavit]; affidavit of Phil Briddon sworn August 12, 2021; and Statement of Agreed Facts dated October 20, 2022 [Agreed Facts]. [ 4 ] The defendant-applicant, James Ross Quewezance, [Borrower] is the owner of a residential property located at 5762 – 7th Avenue North, Regina, Saskatchewan legally described as Lot 24, Block 19, Plan 72R161271. [Property] The Borrower is 72 years of age and an Elder in the Saulteaux First Nation, working as an electrician.

He resides in the Property along with other family members. [ 5 ] On June 8, 2016, the Canadian Imperial Bank of Commerce [CIBC] filed mortgage for $190,000 against the Property as instrument #175406351 [First Mortgage]. That First Mortgage remains registered. [ 6 ] The plaintiff-respondent, Mountain Investment Corp. [Lender] is a mortgage lender registered in Alberta and doing business in Saskatchewan. [ 7 ] On January 30, 2018, the Borrower signed a mortgage agreement under which the Lender agreed to loan $28,000 secured as a second mortgage against the Property [Agreement].

The Agreement had a one-year maturity date and a 20-year amortization period. The Agreement was registered against title to the Property on February 2, 2018 as instrument #181213095 [Second Mortgage]. [ 8 ] On January 14, 2019, the CIBC registered a judgment for $17,347.16 against the Property as Instrument #184021039.

Chronology of litigation [ 9 ] The following chronology is taken from the court file and records steps in and relevant to the litigation: 2019 February 25 Lender files application without notice seeking leave to commence action February 26 Megaw J. grants appointment returnable April 25, 2019 April 25 Chicoine J. adjourns application to May 23 (both parties appearing) May 23 Tochor J. grants leave to commence action with condition statement of claim not issue for 60 days (both parties appearing) September 12 Statement of Claim filed November 18 Lender files application without notice seeking order nisi for sale by real estate listing November 20 Robertson J. dismissed application with leave to re-file after noting for default of defence November 21 Action noted for default of defence McMurtry J. granted “Order Nisi for foreclosure”, but requiring personal service on Borrower November 29 McMurtry J. approved draft order nisi for sale by listing for issue 2020 May 15 Lender files writ of possession for property 2021 July 30 Borrower files notice of application seeking to declare action a nullity or, in the alternative, to set aside the notation for default, order nisi for sale by listing and writ of possession August 29 McCreary J. fiat setting aside noting for default and granting leave for Borrower to file statement of defence and counterclaim within 14 days August 30 Borrower files statement of defence with counterclaim September 21 Lender files statement of defence to counterclaim October 22 Certificate of Compliance with mandatory mediation 2022 November 2 Lender files notice of application seeking relief under Rule 7-1 November 17 Application heard in Regina Civil Chambers Agreed Facts [ 10 ] For the purpose of this application, the parties filed Agreed Facts which are reproduced below: STATEMENT OF AGREED FACTS A.

General Background 1. Mountain Investment Corp. (“ MIC ”) is a mortgage company incorporated pursuant to the laws of Alberta and extra-provincially registered to do business in the Province of Saskatchewan. MIC is in the business of providing short term financing to borrowers. 2. James Ross Quewezance (“ James ”) is an individual who lives in Regina, Saskatchewan. He is an elder of Saulteaux First Nation. 3. James resides with his grandson at the home legally described as follows: Surface Parcel #109453574 Lot 24 Blk/Par 19 Plan No 72R16271 Ext 0 As described on Certificate of Title 72R45357. (the “ Property ”).

Attached at Tab 1 is a copy of the title for the Property.

B. The Mortgage 4. In or about the start of 2018, James had incurred some debts that may have made it difficult for James to maintain his current mortgage with CIBC. He had received calls from an independent third party regarding obtaining mortgage financing to pay out these debts. 5. The third party offered to take an application for mortgage financing from a private lender, following which, the third party presented the financing application to MIC for consideration. 6. Following these conversations, MIC contacted James with regard to the loan to pay out the aforementioned debts.

MIC advised James that they would be willing to extend him a loan of $28,000, secured by a mortgage. 7. Following this initial conversation, MIC drafted and provided James with the following documents to be signed and completed in order to advance the funds: (

a) Mortgage and accompanying homestead affidavit, a copy of which is attached at Tab 2 ; (

b) Letter of Mortgage Commitment, a copy of which is attached at Tab 3 ; and (

c) Direction to Pay, a copy of which is attached at Tab 4 . (collectively the “ Mortgage Documents ”). 8. Among other things, the Mortgage Commitment Letter stated as follows: (

a) The term of the loan was to be one year (12 months); (

b) Interest would be accruing at a rate of 14.99% per annum; (

c) The amortization period was 20 years; and (

d) The monthly payment would be based on the 20 year amortization period in the amount of $359.27. 9. MIC requested that James execute the Mortgage Documents with independent legal counsel. James met with Reginald Sauer of Richmond Nychuk (now Nychuk & Company) for those purposes (“ Mr. Sauer ”). Mr. Sauer and James executed documents stating that Mr. Sauer provided James with independent legal advice. Attached as Tab 5 is a copy of the Certificate of Independent Legal Advice. 10. The Certificate of Independent Legal Advice states that Mr. Sauer advised as follows: (

a) That he reviewed the Mortgage with James; (

b) That James understood the interest rate and term of the Mortgage; and (

c) That James and Mr. Sauer discussed the prepayment terms of the Mortgage. Attached at Tab 6 are Mr. Sauer’s notes from the meeting with James when the mortgage was executed. 11. James disputes that he discussed these points with Mr. Sauer. 12. At the meeting, Mr. Sauer and James executed the Mortgage Documents. Following the meeting, the Mortgage was registered against title to the Property. 13.

As is indicated by the Statement of Adjustments, attached as Tab 7 , the $28,000 was distributed as follows: Purpose of Funds Amount Broker Fee $3,950 MIC Placement Fee $2,800 MIC Administration Fee $299 CRA Taxes Holdback $13,445.69 Arrears on RBC Loan $465.25 CIBC Credit Card Arrears $4,021.14 ISC Title Transfer Fees As needed Richmond Nychuk ILA $400 FCT Title Insurance As needed Legal Fees for Preparation of Loan Documents $1,610.21 Any other sums owing None paid 14. The CRA Taxes Holdback was released immediately, and $14,442.90 was paid in James chequing account. 15.

James began making payments in February, 2018. In August, 2018, James had missed two payments and was therefore in arrears. As such, MIC sought to serve a Notice of Intention on James in September, 2018, a copy of which is attached as Tab 8. Attached as Tab 9 is a copy of the arrears Statement stating arrears were $1,915.16. James disputes that the arrears claimed were accurate and suggests the arrears should have been $718.54.

16. It is disputed whether James received the Notice of Intention. 17. Following the expiration of the notice period, MIC commenced formal legal action against James seeking, inter alia, foreclosure and/or judicial sale. James did not defend the action and was noted in default. The notation in default was set aside and James entered a defence in August, 2021. 18. To-date ( sic ) James has paid approximately $28,355.62 to MIC.

Below is a table of all payments made by James to MIC: Payments to MIC Date Payment 01-Mar-18 $359.27 01-Apr-18 $359.27 01-May-18 $359.27 01-Jun-18 $359.27 01-Oct-18 $1,059.27 01-Nov-18 $359.27 17-Jul-19 $3,500.00 14-Aug-19 $500.00 13-Sep-19 $500.00 07-Oct-19 $500.00 17-Oct-19 $500.00 12-Nov-19 $500.00 16-Dec-19 $500.00 15-Jan-20 $500.00 16-Mar-20 $500.00 17-Apr-20 $500.00 14-May-20 $500.00 17-Jun-20 $500.00 15-Jul-20 $500.00 13-Aug-20 $500.00 17-Sep-20 $500.00 14-Oct-20 $500.00 12-Nov-20 $500.00 10-Dec-20 $500.00 20-Jan-21 $500.00 16-Feb-21 $500.00 15-Mar-21 $500.00 01-Apr-21 $10,000.00 19-Apr-21 $500.00 17-May-21 $500.00 14-Jun-21 $500.00 14-Jun-21 $500.00 Total: $28,355.62 19.

James further states that he has made one additional payment of $500. However, MIC has no record of receiving the same. 20. The balance owing is also in dispute. ISSUES [ 11 ] The notice of application seeks the following relief:

a) A declaration determining whether the interest rate and other charges included in the mortgage are unconscionable, either at common law or pursuant to The Unconscionable Transactions Relief Act, RSS 1978, c U-1 ;

b) In the event the answer to question (

a) is yes, a determination of whether the mortgage remains valid and enforceable;

c) In the event the answer to questions 1(

a) and (

b) are yes, a determination of what amount, if any, remains owing from James Ross Quewezance to Mountain Investment Corp.; and

d) Costs at the discretion of this honourable court. [ 12 ] The application raises the following issues: 1. Does this application satisfy the requirements for hearing under Rule 7-1? 2. Should relief be granted under the Act or under the common law for unconscionability? 3. If yes, what is the appropriate remedy?

4. What, if any, costs should be awarded? ANALYSIS [ 13 ] I will address the first issue and then review relevant law before turning to the issues of relief under the Act or common law of unconscionability, remedy and costs. The Queen’s Bench Rules [ 14 ] Rule 1-3(1) of The Queen’s Bench Rules states that, “The purpose of these rules is to provide a means by which claims can be justly resolved in or by a court process in a timely and cost effective way.” [ 15 ] Rule 7-1, reproduced below, allows for applications to determine issues for the purpose of disposing all or part of a claim: Application to resolve particular questions or issues 7-1(1) On application, the Court may: (

a) order a question or an issue to be heard or tried before, at or after a trial for the purpose of: (

i) disposing of all or part of a claim; (ii) substantially shortening a trial; or (iii) saving expense; (

b) in the order mentioned in clause (

a) or in a subsequent order: (

i) define the question or issue or, in the case of a question of law, approve or modify the issue agreed to by the parties; (ii) fix time limits for the filing and service of briefs, an agreed statement of facts or any other materials required for the hearing; and (iii) set out any other direction to organize the hearing; (

c) stay any other application or proceeding until the question or issue has been decided; or (

d) direct that different questions of fact in an action be tried by different modes.

(2) If the question is a question of law, the parties may agree on: (

a) the question of law for the Court to decide; (

b) the remedy resulting from the Court’s opinion on the question of law; and (

c) the facts, or may agree that the facts are not in issue.

(3) If the Court is satisfied that its determination of a question or issue substantially disposes of a claim or makes the trial of an issue unnecessary, it may: (

a) strike out a claim or order a pleading to be amended; (

b) give judgment on all or part of a claim and make any order it considers necessary; (

c) make a determination on a question of law; and (

d) make a finding of fact.

(4) Division 2 of

Part 5 applies to an application pursuant to this rule unless the parties agree otherwise or the Court orders otherwise.

(5) A determination of a question or issue mentioned in subrule (1) is final and conclusive for the purposes of the action, subject to the determination being varied on appeal. [ 16 ] Rule 7-1(1) allows an issue to be heard before trial where its determination will dispose of all or part of the claim, substantially shorten a trial or save expense.

In this case, the defence to the claim is primarily unconscionability of the mortgage Agreement, but also non est factum (invalidity of contract because the defendant was mistaken about its character when signing it) and breach of the organizing principle of good faith in contracts law. [ 17 ] I am satisfied that deciding the application will, at a minimum, address the main issue of unconscionability and thereby dispose of part of the defence, shorten any trial and save expense.

In deciding to hear this application, I also consider the fact that both parties agreed to proceed in this manner and filed Agreed Facts and affidavits which provide a sufficient factual foundation for the application. Having regard to the purpose of the Rules, I am satisfied that this application meets the criteria for hearing and determination under Rule 7-1. Contracts law

[18] Reliance on contracts is vital for the commerce which supports our economy. It is also part of the rule of law.The “sanctity of contract” in common parlance means “a deal is a deal”, even a bad deal. Even so, the law provides some relief againststrict application of this principle. [19] In 2020, the Supreme Court of Canada issued two important decisions on contracts: C.M.

Callow Inc. vZollinger, 2020 SCC 45, 452 DLR (4th) 44 [Zollinger]; and Uber Technologies Inc. v Heller, 2020 SCC 16, 447 DLR (4th) 179 [Heller]. [20] In Zollinger, the Supreme Court recognized a duty to act honestly in the performance of contracts as part ofcontract law doctrine.

This decision followed up on the court’s earlier recognition of an organizing principle in contract law of good faithin Bhasin v Hrynew, 2014 SCC 71, [2014] 3 SCR 494. [21] In Heller at para 86, the Supreme Court in the majority judgment explained the need to balance fairness andcommercial certainty: [86] In our view, the requirements of inequality and improvidence, properly applied, strike the proper balance between fairness andcommercial certainty. Freedom of contract remains the general rule.

It is precisely because the law’s ordinary assumptions about thebargaining process do not apply that relief against an improvident bargain is justified. Unconscionability [22] Micheline A. Gleixner in “Consumer Credit in Canada: A Regulatory Patchwork” (2020) 43 Dal LJ 697, (2020CanLII Docs 3627) [Gleixner Article] at 719 described “… the long judicial history of equitable relief or unconscionability …” andinconsistency in the law in Canada: 2.

Unconscionable transactions relief legislation Originally exercised by the courts of equity, the doctrine of equitable relief or unconscionability has a long judicial history protectingvulnerable parties and setting aside contracts on the basis of unfairness, lack of consent, avoidance of unjust enrichment, undue influenceor inequality of bargaining power.

In Canada, the common law test of unconscionability and the principles considered objectively by theCourt governing the doctrine have been applied inconsistently. … [footnote omitted] [23] In Heller, the Supreme Court found a contractual provision requiring exclusive arbitration of contract disputes tobe invalid. In doing so, the majority judgment at paras. 54-79 addressed inconsistency in the application of the law of unconscionabilityas identified by Professor Gleixner above, concluding at para. 79: [79] Unconscionability, in sum, involves both inequality and improvidence (Crawford [Bradley E.

Crawford “Restitution -Unconscionable Transaction - Undue Advantage Taken of Inequality Between Parties” (1966), 44 Can Bar Rev 142], at p. 143; Swan,Adamski and Na [Swan, Angela, Jakub Adamski and Annie Y. Na. Canadian Contract Law, 4th ed. Toronto: LexisNexis, 2018], at p.986). The nature of the flaw in the contracting process is part of the context in which improvidence is assessed. And proof of amanifestly unfair bargain may support an inference that one party was unable adequately to protect their interests (see Chen-Wishart(1989) [Mindy Chen-Wishart, Unconscionable Bargains.

Toronto: Butterworths, 1989], at pp. 47-48; Portal Forest Industries Ltd. v.Saunders, (BC SC), [1978] 4 W.W.R. 658 (B.C.S.C.), at pp. 664-65). It is a matter of common sense that parties donot often enter a substantively improvident bargain when they have equal bargaining power. [24] Heller makes reliance on earlier decisions suspect, given the Supreme Court’s clarification of the test forunconscionability.

For example, prior to Heller, Saskatchewan courts applied a three-part test and emphasized independent legal adviceas a shield against a finding of unconscionability in decisions applying the court’s equitable jurisdiction to set aside unconscionableagreements: R v Vleeming, 2019 SKQB 213; Primewest Mortgage Investment Corporation v Azimi, 2019 SKQB 37; and Input CapitalCorp. v Gustafson, 2019 SKCA 78, [2020] 2 WWR 599, [Gustafson CA #1] reversing 2018 SKQB 154. [25] The Supreme Court in Gustafson v Input Capital Corp., (SCC), on leave to appeal fromGustafson CA #1, remitted the case back to the Court of Appeal “… for disposition in accordance with Uber Technologies Inc. v Heller,2020 SCC 16.” In Input Capital Corp. v Gustafson, 2021 SKCA 56 at paras 13 and 18, [2021] 4 WWR 604 [Gustafson CA #2] theSaskatchewan Court of Appeal summarized the test from Heller for unconscionability: [13] In Heller, the Supreme Court held that the arbitration clause was void under the doctrine of unconscionability, therebysustaining the result in Heller ONCA [Heller v Uber Technologies Inc., 2018 ONSC 718, 421 DLR (4th) 343].

Under the reasons of themajority, the Supreme Court refashioned the language of the doctrine of unconscionability in some respects and clarified the frameworkfor its application. Setting aside those aspects of Heller that have no bearing on this case or the Decision [2019 SKCA 78], the majority’sreasons may be summarised in relevant terms as holding that: (

a) the analytic framework for assessing whether a transaction is unconscionable is a two-part test that involves: (

i) proof of inequality in the positions of the parties; and (ii) proof of an improvident bargain (at para 64); (

b) unconscionability may be established without proof that the stronger party has knowingly taken advantage of the weaker (at para82); and (

c) courts must take a contextual approach to determining whether a transaction is unconscionable (at para 78).

... [18] Accordingly, although we may have expressed the applicable two-part test in different words, the analytic approach this Courtundertook in the Decision (and that which was undertaken by the trial judge in the Trial Decision [2018 SQB 154]) did not differ insubstance from the approach later confirmed by the Supreme Court in Heller. Putting the Decision in the language of Heller, we foundthat the proper analytic framework for assessing whether a transaction is unconscionable involves a two-part test that requires: (

a) proof of inequality in the positions of the parties; and (

b) proof of an improvident bargain. [26] In Fatoki v Hilton Homes

(2007) Ltd., 2022 MBQB 14 at para 64, Edmond J. referred to Heller in rejecting aclaim of unconscionability with respect to a city development fee and in stating the two-part test: [64] For a contract to be unconscionable, there must be an inequality of bargaining power between the parties and it must be animprovident bargain (See Uber Technologies Inc. v. Heller, 2020 SCC 16, 447 D.L.R. (4th), at para. 64 and Sator et. al. v. Boon, 2020MBCA 36, 100 B.L.R. (5th) 59). [27] So the three-part test for unconscionability, as previously applied by Saskatchewan courts, is now a two-parttest.

The Unconscionable Transactions Relief Act [28] The Act in s. 3 empowers the court to provide remedies where “… the cost of the loan is excessive or thetransaction is harsh or unconscionable …”: Powers of court 3 Notwithstanding the provisions of any other Act, where, in respect of money lent, the court finds that, having regard to the riskand to all the circumstances at the time the loan was made, the cost of the loan is excessive or that the transaction is harsh orunconscionable the court may: (

a) re-open the transaction and take an account between the creditor and the debtor and relieve the debtor from payment of any sum inexcess of the sum adjudged by the court to be fairly due in respect of the principal and the cost of the loan; (

b) notwithstanding any statement or settlement of account or any agreement purporting to close previous dealings and create a newobligation, re-open any account already taken and relieve the debtor from payment of any sum in excess of the sum adjudged by thecourt to be fairly due in respect of the principal and the cost of the loan; (

c) order the creditor to repay any such excess if it has been paid or allowed on account by the debtor; (

d) set aside either wholly or in part or revise or alter any security given or agreement made in respect of the money lent, and, if thecreditor has parted with the security, order him to indemnify the debtor. [29]

Section 4(

d) expressly extends this authority to “… an action or proceeding for the foreclosure of a mortgage…”.

Section 5 confers jurisdiction on this Court. [30] The Act has been judicially considered in: Primewest Mortgage Investment Corporation v Antonenko, 2018SKQB 259 [Antonenko]; Teresa McCrea Investments Inc. v Conley Management Ltd., 2012 SKQB 374, [2012] 12 WWR 108 [TeresaMcCrea]; and Steppler v Laurel Credit Plan Ltd. (1968), (SK KB), 63 WWR (ns) 168 (Sask Dist Ct) [Steppler]. [31] In Steppler, Batten D.C.J. (as she then was) found the cost of the loan which provided a rate of interest of 61percent to be excessive and reduced the rate to 8 percent. [32] In Teresa McCrea, Barrington-Foote J. (as he then was) found the cost of the loan to be 24.07 percent which hefound to be not excessive. [33] In Antonenko, Elson J. found the cost of the loan to be 23.3 percent, which he found to be not excessive.

In doingso, he considered a non-exhaustive list of factors identified in Teresa McCrea which he summarized at para. 54, finding at para. 60 thatall of those factors were present to justify a higher than normal rate of interest: [54] The application of s. 3 of the UTRA [The Unconscionable Transactions Relief Act] contemplates an objective test of the riskassociated with a loan and all the attendant circumstances to that risk.

In Teresa McCrea Investments Inc. v Conley Management Ltd.,2012 SKQB 374, [2012] 12 WWR 108 [Teresa McCrea Investments], Barrington-Foote J. identified and discussed several factors a courtcan consider when applying this test. In doing so, Barrington-Foote J. drew guidance from three particular authorities: Dassen GoldResources Ltd. v Royal Bank, (AB KB), [1995] 1 WWR 171 (Alta QB); Milani v Banks (1997), (ON CA), 145 DLR (4th) 55 (Ont CA) and Ekstein v Jones (2005), 34 RPR (4th) 280 (Ont Sup Ct) [Ekstein]. From these authorities, thefollowing non-exclusive factors were identified: (

a) where the borrower is unknown to the lender; (

b) where the borrower solicited the loan; (

c) where the loan is for a short period of time;

(

d) where there is urgency on the part of the borrower to obtain funds; (

e) where the lender has to borrow funds in order to finance the loan; (

f) where the borrower has a history of previous default; (

g) the existence of any liens or judgments against the property used to secure the loan. All of the above factors suggest greater risk and, in turn, justify a lender imposing greater costs. In a contextual analysis of thecircumstances at the time a loan is made, the presence of one or more of these factors may justify a lender charging a greaterproportionate cost of the loan than otherwise would be charged. [34] The Gleixner

Article reviewed legislation from across Canada, arguing that consumer protection would be betterachieved by federal legislation, rather than the patchwork approach of the provincial and territorial legislation. In doing so, ProfessorGleixner observed at pp. 722-723 that the statutory regimes in Manitoba and Saskatchewan are similar for unconscionable transactionsrelief: In comparison, the statutory provision in Manitoba and Saskatchewan is disjunctive. Relief is available when the cost of a loan isexcessive or the transaction is harsh or unconscionable.

Accordingly, relief is still possible if the cost of the loan is excessive but notharsh or unconscionable. Nevertheless, in most cases, excessive interest and costs are usually sufficient in and of themselves to render acontract harsh and unconscionable unless refuted by the lender.

When judicially considered, “[b]oth components are cast against the riskand circumstances at the time the contract is entered.” In addition to a comparison with the rates in the prevailing market in the area forthe same general type of loan involving a similar risk, the excessiveness of the cost of the loan is also determined by the risk associatedwith the loan, including an examination of the following non-exclusive risk factors for the lender: (

a) where the borrower is unknown to the lender; (

b) where the borrower solicited the loan; (

c) where the loan is for a short period of time; (

d) where there is urgency on the part of the borrower to obtain funds; (

e) where the lender has to borrow funds in order to finance the loan; (

f) where the borrower has a history of previous default; (

g) the existence of any liens or judgments against the property used to secure the loan; (

h) the security offered for the amount borrowed. The second component which requires proof that the transaction was harsh or unconscionable has been described as follows by theManitoba Court of Appeal: [T]he debtor must demonstrate both the inequality of the parties and the improvidence of the bargain, before the creditor is obligated toshow that a contract freely entered into by the parties was fair, just and reasonable in the circumstances. Only then, if the creditor fails todo so, can the court set aside a valid contract in whole or in part under the Act.

In order to overcome the significant legal obstacles encountered in earlier federal money lending legislation previously discussed, the“cost of the loan” is broadly defined in these provincial statutes to include all types of charges and fees in addition to interest costs. … [Footnotes omitted] [35] The similarity in Manitoba and Saskatchewan legislation is shown in Aguiar v 5026113, 2018 MBQB 70 at para31 [Aguiar], upheld in 2019 MBCA 47, which reproduces s. 2 of The Unconscionable Transactions Relief Act, CCSM, c U20, [ManitobaAct] which is almost identical to s. 3 of the Saskatchewan Act. [36] Earlier, the Manitoba Court of Queen’s Bench applied the Manitoba Act in finding the cost of a loan to beexcessive at 26.97 percent in Trans Canada Credit Corp. v Martin, 2000 MBQB 109 at para 19, [2000] 9 WWR 226, and 21 percent in2000 (substituting a simple interest rate of 10 percent when prevailing rates ranged downward from 12.5 percent per annum) inDeneschuk Construction Ltd. v Waywayseecappo First Nation, 2000 MBQB 136, [2001] 1 WWR 333. [37] In Aguiar, the court set aside as unconscionable a sale agreement for the applicant’s home.

The property, valuedat $88,000, was sold for a purchase price of between $27,000 and $30,000 during foreclosure proceedings.

The court discharged anyclaim by the purchaser, who had a history of acquiring properties from desperate owners in similar circumstances. [38] Aguiar at para 32 quotes from a 2014 decision of the Manitoba Court of Appeal in Quick Auto Lease Inc. vNordin, 2014 MBCA 32 at para 14, 303 Man R (2d) 262 [Nordin]: [32] In order to alter contractual relations by using the provisions of the The Unconscionable Transactions Relief Act, the followingstatement of Mainella J. in the case of Quick Auto Lease Inc. v. Nordin, 2014 MBCA 32, 303 Man.

R. (2d) 262 is of interest (at para.14): 14 The Act, as interpreted in Bomek [Bomek v Bomek (1983), (MB CA), 146 DLR (3d) 139] and Slevin, [Granville Savings & Mortgage Corp. v Slevin (1992), (MB CA), 93 DLR (4th) 268] is clear as to when a judge can use the

statutory remedy to relieve a debtor. The judge’s decision does not alter the law enunciated in Bomek and Slevin. The debtor must demonstrate both the inequality of the parties and the improvidence of the bargain, before the creditor is obligated to show that a contract freely entered into by the parties was fair, just and reasonable in the circumstances.

Only then, if the creditor fails to do so, can the court set aside a valid contract in whole or in part under the Act . [ 39 ] In Nordin , the Manitoba Court of Appeal dismissed an appeal against a decision dismissing the lender’s claim under a car loan where the purchaser had paid almost $17,000 over the course of a four-year loan for $9,956 with an interest rate of 25 percent. [ 40 ] In Sartor v Boon , 2020 MBCA 36 , [2020] 5 WWR 462 [ Sartor ] (involving the same purchaser as in Aquiar ), the Manitoba Court of Appeal applied the Manitoba Act in upholding a finding of unconscionable transaction in another case of the purchase of a home for less than its market value.

In doing so, the court described the shifting onus: [14] In order to be unconscionable, the debtor must demonstrate both the inequality of the parties and the improvidence of the bargain. The onus then shifts to the creditor to show that the contract was freely entered into by the parties and was fair, just and reasonable in the circumstances (see Quick Auto Lease Inc v Nordin , 2014 MBCA 32 at para 14 ). The issue in an unconscionable transaction is unfair advantage gained through power. [ 41 ] With this history in mind, I will turn to the question of whether the Agreement was unconscionable.

Common law test for unconscionability [ 42 ] From the authorities reviewed above, it is apparent that the test for unconscionability under the common law (equity) requires both: (

a) proof of inequality in the positions of the parties; and (

b) proof of an improvident bargain. Test for relief under the Act [ 43 ] The test for relief under s. 3 of the Act requires proof that: (

a) the cost of the loan is excessive; (

b) that the transaction is harsh; or (

c) that the transaction is unconscionable. The test for relief under the Act is broader than that in common law. I will, therefore, address the test under the Act , recognizing that parts of that test incorporate the common law test. Relevant Circumstances [ 44 ]

Section 3 of the Act requires the court to have “… regard to the risk and to all the circumstances at the time the loan was made …” in deciding whether to grant relief under the Act . I will use the non-exhaustive list of relevant factors identified in Teresa McCrea and since applied in Antonenko and Manitoba decisions, as summarized in the Gleixner

Article above, as well as other circumstances I consider relevant. This provides the contextual approach recognized as required in Gustafson CA#2 at para 13(c). In doing so, I recognize that most of the factors are more pertinent to the questions of whether the transaction is harsh or the cost of loan is excessive than to the question of whether the transaction is unconscionable. (

a) where the borrower is unknown to the lender [ 45 ] There was no prior relationship between the Borrower and Lender. [ 46 ] This circumstance weighs against granting relief under the Act . (

b) where the borrower solicited the loan [ 47 ] The Borrower (Mr. Quewezance) was brought to the Lender (Mountain Investment) by a third party, who received a referral/broker fee from the Lender. While not clear from the Agreed Facts reproduced above, the Lender’s lawyer, in response to my question, told me during argument that the “independent third party” identified in paragraphs 4 and 5 of the Agreed Facts is the same person who received the “broker fee” of $3,950 in the column of payments under paragraph 13.

This person is identified in the direction to pay found at Tab 4 of the Agreed Facts, showing payment “to Eyal Sager, broker fees in the amount of $3,950.00”. So the Borrower was led to the Lender by a third party who had a shared financial interest with and benefit from the Lender in the subsequent transaction. [ 48 ] This circumstance favours granting relief under the Act . (

c) where the loan is for a short period of time [ 49 ] The term of the mortgage agreement was one year. This is a short term for a mortgage loan, but not for so-called “pay day loans”. The short term would seem to reduce, rather than increase, the risk to the Lender since its money would not be tied up for long. [ 50 ] This circumstance is neutral. (

d) where there is urgency on the part of the borrower to obtain funds [ 51 ] The Supreme Court in Heller at para 85 stated that unconscionability focuses on “… the protection of the more vulnerable”. [ 52 ] The Borrower was anxious to obtain the loan. The urgency was not objectively real, given the equity in the property and the apparent availability of other, better options. But given the Borrower’s subjective state of mind, I regard him as “financially vulnerable”, as recognized in Sartor at para 17.

[ 53 ] This circumstance favours granting relief under the Act . (

e) where the lender has to borrow funds in order to finance the loan [ 54 ] There is no evidence that the Lender had to borrow funds to finance the loan. The Borrower was in the business of making such loans. [ 55 ] This circumstance is neutral. (

f) where the borrower has a history of previous default [ 56 ] The Borrower did not have a history of previous default. At the time of the Agreement, the Borrower was behind in his credit card payments. Proceeds from the mortgage loan were used to pay those credit card arrears. CIBC registered a judgment against the Property in 2019; however, this mortgage agreement was made in 2018. [ 57 ] This circumstance is neutral. (

g) the existence of any liens or judgments against the property used to secure the loan [ 58 ] There was a First Mortgage registered against the Property; however, there was ample equity to secure this Second Mortgage. [ 59 ] This circumstance is neutral. (

h) the security offered for the amount borrowed [ 60 ] The security was a Second Mortgage. There was sufficient equity to secure both mortgages. [ 61 ] This circumstance is neutral. (

i) standard form contract [ 62 ] The Supreme Court in Heller at para 71 observed that inequality may practically result where “… only one party could understand and appreciate the full import of the contractual terms ...”. The court went on at paras. 88-89 to comment on standard form contracts: [88] We do not mean to suggest that a standard form contract, by itself, establishes an inequality of bargaining power (Waddams (2017) [S.M. Waddams , The Law of Contracts , 7th ed (Toronto: Thomson Reuters, 2017)] , at p. 240). Standard form contracts are in many instances both necessary and useful.

Sophisticated commercial parties, for example, may be familiar with contracts of adhesion commonly used within an industry. Sufficient explanations or advice may offset uncertainty about the terms of a standard form agreement.

Some standard form contracts may clearly and effectively communicate the meaning of clauses with unusual or onerous effects (Benson [ Peter Benson, J ustice in Transactions: A Theory of Contract Law (Cambridge, Mass: Harvard University Press, 2019)] , at p. 234). [89] Our point is simply that unconscionability has a meaningful role to play in examining the conditions behind consent to contracts of adhesion, as it does with any contract.

The many ways in which standard form contracts can impair a party’s ability to protect their interests in the contracting process and make them more vulnerable, are well-documented. For example, they are drafted by one party without input from the other and they may contain provisions that are difficult to read or understand (see Margaret Jane Radin, “Access to Justice and Abuses of Contract” (2016), 33 Windsor Y.B. Access Just. 177, at p. 179; Stephen Waddams, “Review Essay: The Problem of Standard Form Contracts: A Retreat to Formalism” (2013), 53 Can. Bus.

L.J. 475, at pp. 475-476; Thal [ Thal , Spencer Nathan. “The Inequality of Bargaining Power Doctrine: the Problem of Defining Contractual Unfairness” (1988), 8 Oxford J. Legal Stud . 17] , at pp. 27-28; William J. Woodward, Jr., “Finding the Contract in Contracts for Law, Forum and Arbitration” (2006), 2 Hastings Bus. L.J. 1, at p. 46). The potential for such contracts to create an inequality of bargaining power is clear.

So too is their potential to enhance the advantage of the stronger party at the expense of the more vulnerable one, particularly through choice of law, forum selection, and arbitration clauses that violate the adhering party’s reasonable expectations by depriving them of remedies. This is precisely the kind of situation in which the unconscionability doctrine is meant to apply. [ 63 ] The Agreement is found at tab 2 of the Agreed Facts and It appears to be a standard form contract. It is in small print with dense, run-on sentences which are difficult to read. It is not easily understood by most people.

I have no difficulty accepting that the Borrower would have difficulty reading and understanding the Agreement. [ 64 ] This circumstance favours granting relief under the Act . (

j) independent legal advice [ 65 ] The Borrower obtained independent legal advice before signing the Agreement. [ 66 ] The Borrower’s lawyer argued that this circumstance is no longer relevant, having regard to Heller at para 83 . [83] Independent advice is relevant only to the extent that it ameliorates the inequality of bargaining power experienced by the weaker party … It, for instance, can assist a weaker party in understanding the terms of a contract, but might not ameliorate a weaker party’s

desperation or dependence upon a stronger party …. Even where advice might be of assistance, pro forma or ineffective advice may not improve a party’s ability to protect their interests … [citations omitted] [ 67 ] I agree that Heller changes the weight accorded to independent legal advice. However, receipt of such advice remains a relevant circumstance. [ 68 ] This circumstance weighs against granting relief under the Act . (

k) Nature of loan and proceedings [ 69 ] The fact that the application arises in the context of a mortgage agreement and foreclosure proceedings is relevant. The Legislature of Saskatchewan has enacted laws which govern foreclosure proceedings: The Land Contracts (Actions) Act, 2018 , SS 2018, c L-3.001 ; The Land Titles Act , 2000, SS 2000, c L-5.1, s. 132 ; The Limitation of Civil Rights Act , RSS 1978, c L-16 ; and The Queen’s Bench Act, 1998 , SS 1998, c Q-1.01 , s 70. This Court has also adopted procedural Rules in The Queen’s Bench Rules , in particular Divisions 5 and 6 of

Part 10. The public policy behind this legislation is to provide consumer protection, as recognized in Walker v Bank of Montreal , 2017 SKCA 42 at paras 7-10 , 415 DLR (4th) 277. This legislative policy and the court’s supervisory jurisdiction over foreclosure proceedings mirrors that of the common law and Act for unconscionability and unconscionable transactions. [ 70 ] This factor favours granting relief under the Act . Conclusion [ 71 ] Unlike Teresa McCrea and Antonenko , where the relevant circumstances weighed against a finding of unconscionability, the circumstances in this case are mixed. With this in mind, I turn to the specific questions. Whether cost of loan excessive? [ 72 ]

Section 2 (

a) of the Act defines “cost of the loan” to mean “… the whole cost to the debtor of money lent …”:

Interpretation 2 In this Act : (a) “cost of the loan” means the whole cost to the debtor of money lent, and includes interest, discount, subscription, premium, dues, bonus, commission, brokerage fees and charges, but not actual lawful and necessary disbursements made to a treasurer of a municipality or to a person authorized under any Act to receive for filing or registration any document affecting title to property; [ 73 ] The parties, in their briefs of law, helpfully provided their calculations of the cost of the loan, as reproduced below: (

a) Mr. Quewezance’s brief of law at paragraph 31: Cost Item Value Portion of $28,000 Broker Fee $3,950.00 14.11% Placement Fee $2,800.00 10.00% Administration Fee $299.00 1.07% Independent Legal Advice $400.00 5.75% MIC Legal Fees $1,610.21 1.00% Title Insurance $279.00 1.43% Interest Rate 14.99% Borrowing Cost 48.34% (

b) Mountain Investment brief of law at paragraph 12: Cost Item Year One Year Two Interest $4,172 $4,172 Broker Fee $3,950 $0.00 Placement Fee $2,800 $0.00 Admin Fee $299 $299 Legal Fees $1,316.92 $0.00 Title Insurance $279.00 $0.00 Total Cost $12,816.92 $4,471 Total Advances $28,000 $28,000 Effective Rate 45.77% 15.97%

[ 74 ] Their calculations are similar, with the Borrower calculating the cost of the loan at 48.34 percent and the Lender calculating the cost of the loan (for the first year) at 45.77 percent. [ 75 ] Counsel agreed that the difference in percentages related to the different amount of legal fees. The Lender’s lawyer had used the figure stated in the January 30, 2018 statement of adjustments found at Tab 4 of the Agreed Facts ($1,316.92). The Borrower’s lawyer used the figure stated in the February 5, 2018 letter found at Exhibit B of the Quewezance Affidavit identified in paragraph 3 ($1,610.21).

Given that the latter figure is found in the later letter from the lawyers who charged the fee, I agree with the Borrower that it is more likely to reflect the actual charge. So I accept the total cost of the loan as 48.34 percent (But the difference between 45.77 percent and 48.34 percent would not affect my decision). [ 76 ] The Lender argued that while 48.34 percent or 45.77 percent might appear excessive, the court should have regard to the small value of the loan of $28,000.

In other words, since some fees are fixed charges, such as independent legal advice, they take a higher proportion of a small loan than a larger loan. I find this argument unpersuasive. [ 77 ] The Borrower, in his brief of law at paragraph 33, offered an alternative calculation which produced a total borrowing cost of 72.53 percent. I find I need not consider that calculation and will instead accept the total cost of the loan as 48.34 percent. [ 78 ] From the cases reviewed, one must consider the percentage cost of the loan in light of prevailing interest rates.

The Borrower’s lawyer, in his brief of law at paragraph 50, stated that, “… Canada’s prime interest rate in January of 2018 was 3.45%, prime rate is currently 5.95%, and most major credit cards charge approximately 20% interest.” The Lender’s lawyer did not dispute these rates, so I accept them as points of reference. [ 79 ] I also considered: the pre-judgment interest rate as of January 30, 2018, when the Agreement was signed, of 1.66 percent, pursuant to s. 2 (

a) of The Pre-judgment Interest Act , SS 1984-85-86, c P-22.2 ; the post-judgment interest rate of 5 percent, pursuant to s. 113 of The Enforcement of Money Judgments Act , SS 2010, c E-9.22 and s. 10 of The Enforcement of Money Judgments Regulations , c E-9.22, Reg 1; and the criminal rate of interest, which is anything over 60 percent per annum: s. 347 of the Criminal Code , RSC 1985, c C-46 . [ 80 ] Having regard to all of the circumstances, I do find the total cost of the loan, representing almost half of the amount loaned, to be excessive. [ 81 ] While I will address the other grounds, I primarily decide this application on this ground for granting relief.

Whether transaction harsh? [ 82 ] Having regard to all of the circumstances reviewed above, I find that the Agreement was harsh in its effect on a financially vulnerable person. [ 83 ] The use of the word “transaction” in s. 3 indicates a broader meaning than the agreement alone. In considering this question, I have regard to both the Agreement and the resulting event of default and foreclosure proceedings. For example, when the Borrower missed payments, which were automated withdrawals from his bank account, he was charged NSF charges of $125 each time.

These charges amount to penalties. [ 84 ] The Agreement, although expressly provided an amortization period of 20 years, was for a one-year term. The mortgage loan was for $28,000. The actual loan was diminished by several thousands of dollars charged for fees. The Agreed Facts at paragraph 18 states that the Borrower has made payments to the Lender in the amount of $28,355.62. According to the Lender, from the affidavit of Phil Briddon sworn August 12, 2021, the Borrower then owed $23,760.52. So, in the end, the Lender would receive double the amount of the original loan.

Whether transaction unconscionable? [ 85 ] For the transaction to be unconscionable, there must be proof of both: (

a) inequality in the positions of the parties; and (

b) an improvident bargain. [ 86 ] I have already concluded that there was an inequality in the position of the parties. Heller at paras 74-79 discusses what makes “an improvident bargain”: [74] A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable (see McCamus [John D. McCamus, The Law of Contracts , 2nd ed (Toronto: Irwin Law, 2012)], at pp. 426-27; Chen-Wishart (1989), at p. 51; Benson, at p. 187; see also Waddams (2017), at p. 303; Stephen Waddams, Principle and Policy in Contract Law: Competing or Complementary Concepts? (2011), at pp. 87 and 121-22).

Improvidence is measured at the time the contract is formed; unconscionability does not assist parties trying to “escape from a contract when their circumstances are such that the agreement now works a hardship upon them” (John-Paul F. Bogden, “On the ‘Agreement Most Foul’: A Reconsideration of the Doctrine of Unconscionability” (1997), 25 Man. L.J. 187, at p. 202 (emphasis in original)). [75] Improvidence must be assessed contextually (McInnes [Mitchell McInnes , The Canadian Law of Unjust Enrichment and Restitution (Markham, Ont.: LexisNexis, 2014], at p. 528).

In essence, the question is whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized. An undue advantage may only be evident when the terms are read in light of the surrounding circumstances at the time of contract formation, such as market price, the commercial setting or the positions of the parties (see Chen-Wishart (1989), at pp. 51-56; McInnes, at pp. 528-29; Reiter [B. J. Reiter, “Unconscionability: Is There a Choice? A Reply to Professor Hasson” (1980), 4 Can. Bus.

L.J. 403] at pp. 417-18). [76] For a person who is in desperate circumstances, for example, almost any agreement will be an improvement over the status

quo. In these circumstances, the emphasis in assessing improvidence should be on whether the stronger party has been unduly enriched. This could occur where the price of goods or services departs significantly from the usual market price. [77] Where the weaker party did not understand or appreciate the meaning and significance of important contractual terms, the focus is on whether they have been unduly disadvantaged by the terms they did not understand or appreciate.

These terms are unfair when, given the context, they flout the “reasonable expectation” of the weaker party (see Swan Adamski and Na, at pp. 993-94) or cause an “unfair surprise” (American Law Institute and National Conference of Commissioners on Uniform State Laws, Proposed Amendments to Uniform Commercial Code

Article 2 – Sales: With Prefatory Note and Proposed Comments (2002), at p. 40). This is an objective standard, albeit one that has regard to the context. [78] Because improvidence can take so many forms, this exercise cannot be reduced to an exact science. When judges apply equitable concepts, they are trusted to “mete out situationally and doctrinally appropriate justice” (Rotman [Leonard I. Rotman, “The ‘Fusion’ of Law and Equity?: A Canadian Perspective on the Substantive, Jurisdictional, or Non-Fusion of Legal and Equitable Matters” (2016), 2 C.J.C.C.L. 497], at p. 535).

Fairness, the foundational premise and goal of equity, is inherently contextual, not easily framed by formulae or enhanced by adjectives, and necessarily dependent on the circumstances. [ 87 ] Having regard to the discussion above, I do find the bargain to be improvident. [ 88 ] While the Borrower did receive independent legal advice on the Agreement, the Borrower would have been better served by prior credit counselling. Free credit counselling is available through the non-profit Credit Counselling Society.

I do not believe that a fully informed and competent credit counsellor would have recommended that the Borrower enter into the Agreement. [ 89 ] I am satisfied the criteria of inequality of bargaining position and an improvident bargain are satisfied on the facts of this case. I therefore find that the transaction was unconscionable. Conclusion [ 90 ] I find that the Borrower is entitled to relief under the Act , primarily because the cost of the loan was excessive, but also because the transaction was harsh and unconscionable.

While I need not rely upon the common law, I would find the Agreement unconscionable there as well. REMEDY [ 91 ]

Section 3 of the Act provides a range of remedies. [ 92 ] I decline the Borrower’s suggestion that I set aside the Agreement or discharge the debt. The Borrower had the benefit of the loan, even if the cost was excessive. I also consider that foreclosure proceedings have been delayed, first by the Borrower’s default of defence, which was later set aside, and then by this application. I find no fault in this observation other than to point out that the delay has deferred payment of the debt. [ 93 ] Instead, I find that the cost of the loan should be reduced retroactively to the original interest rate, being 14.99 percent, on the loan of $28,000. (In doing so, I recognize that s. 5(2) (

h) of The Pre-judgment Interest Act provides that “The court shall not award interest if there is an agreement between the parties respecting interest …”.) [ 94 ] Although 14.99 percent is much higher than prevailing interest rates at the time and should cover some transaction expenses, the Lender shall also be entitled to a one-time administration fee of $1,000. No interest is payable on this one-time fee. No other fees from the original deductions shall be payable.

The payment from the loan of prior debts to other creditors remains. [ 95 ] Counsel for both parties agreed that, with directions such as these, I could leave them to calculate the amount owing. The parties have leave to return for further directions. COSTS [ 96 ] The Queen’s Bench Rules in Rule 11-1 provide guidance on award of costs. The Borrower has been successful on this application. Although the amount of money involved is relatively small, the issue was complex. Both parties cooperated in bringing the application. I have also considered the Tariff of Costs,

Schedule I-B. With this in mind, I fix costs at $1,000 payable forthwith by the Lender, Mountain Investment Corp., to the Borrower, James Ross Quewezance. [ 97 ] Since the cost award and one-time transaction fee are both for $1,000, they cancel each other out. This should also make calculation easier of the amount remaining owing.

SUMMARY [ 98 ] The application is granted with costs awarded to the applicant fixed at $1,000. [ 99 ] The cost of the loan is to be re-calculated based upon an interest rate of 14.99 percent per annum on the loan amount. The Lender may add an administration fee of $1,000 payable by the Borrower at the time of the Agreement. I also direct that the late payment fees be removed from the amount owing.

If necessary, I rely upon s. 13 of The Queen’s Bench Act, 1998 : Power to relieve against penalties, forfeitures 13 The court may grant relief against penalties and forfeitures and, in granting that relief, may impose any terms with respect to costs, expenses, damages, compensation and any other issues that the court considers appropriate. [ 100 ] The parties are invited to make submissions on the amount payable as a result of the decision.

[ 101 ] I thank both counsel for their assistance. J. D.N. ROBERTSON