Meadow Ridge Estates Inc., Shirestone Developments Ltd., Kurt Repchull, Shelly Repchull, James Jonasson, v. Natalie Jonasson, 2018 NSSC 330

SUPREME COURT OF Nova Scotia Citation: Meadow Ridge Estates Inc. v. Moskowitz Capital Mortgages Fund II Inc. , 2018 NSSC 330 Date: 20181224 Docket: Hfx No. 453470 Registry: Halifax Between: Meadow Ridge Estates Inc., Shirestone Developments Ltd., Kurt Repchull, Shelly Repchull, James Jonasson, and Natalie Jonasson Applicants v. Moskowitz Capital Mortgages Fund II Inc. Respondent Judge: The Honourable Justice D. Timothy Gabriel Heard: May 28, 29, 30 and 31, 2018, in Halifax, Nova Scotia Date of Decision: December 24, 2018 Counsel: W.

Harry Thurlow and Jacob Che (Articled Clerk), for the Applicants Adam Crane and Jennifer Singh (Articled Clerk), for the Respondent By the Court: Introduction [ 1 ] Pursuant to amended Notice of Application in Court filed on August 11, 2017, the Applicants, Meadow Ridge Estates Inc. (“Meadow Ridge”), Shirestone Developments Ltd. (“Shirestone”) et al. seek an order: “Declaring that the Respondent has repudiated the term sheet and mortgage executed by the parties and, as such, is not entitled to the interest and fees charged in relation thereto. 2. Awarding the Applicants: a. damages; b. interest; and c. costs. 4.

Directing that any amounts due by the Applicants to the Respondent pursuant to the term sheet and the mortgage be set-off against a corresponding portion of damages awarded to the Applicants; 5. In addition, or alternatively, awarding judgment to the Applicants for reimbursement of any amounts determined to be an overpayment by the Applicants to the Respondent; Any such further and better relief as this Honourable Court deems just.

[ 2 ] Within this context, the Applicants make a number of serious allegations against the Respondent, Moskowitz Capital Mortgages Fund II Inc (“Moskowitz”). The following are not exhaustive but they include (all references are to the corresponding paragraph of the amended Notice of Application): 14. … Moskowitz has never advanced the hard cost facility [portion of the loan] instead …[it] has demanded increasingly unreasonable information …from Meadow Ridge as a justification for not advancing the hard cost facility, and for charging interest on amounts not advanced. 22.

The Plaintiffs (sic) state that there is no reasonable justification for Moskowitz to withhold the balance owing under the term sheet… further more the Plaintiffs (sic) state that Moskowitz’s refusal to honour the term sheet was perpetrated under the guise of false concerns over the stability of the project or document disclosure… 23.

In addition to the foregoing and in further bad faith, Moskowitz has conducted and continues to conduct this litigation in an abusive manor (sic) by stifling the project in order to pressure the Applicants to withdraw the application or otherwise cause injury to the Applicants. [ 3 ] The Applicants then go on to allege six specific examples of Moskowitz “bad faith” actions. [ 4 ] The Applicants state that the total cost to borrow in relation to the actual funds advanced by Moskowitz was unduly onerous. In fact, they say that it was unconscionable.

They go on to allege that the effective interest rate on the funds advanced by the Applicants was contrary to s. 347 of the Criminal Code and, thus, usurious. They also plead relief under the Unconscionable Transactions Relief Act R.S., c. 481, s. 1. and the Money-Lenders Act R.S., c. 289, s. 1. [ 5 ] The Respondent, Moskowitz, has filed an amended Notice of Contest on October 16, 2017. Among other things, the Respondent contests allegations of bad faith and states that it, at all times, had justifiable reasons for any of the actions that were or were not undertaken.

For example, it states that it was justified under the terms of the parties’ contract to refrain from advancing funds on those occasions of which the Applicants have complained. It alleges that the Applicants failed to meet the terms and conditions specified in the term sheet and mortgage.

Alternatively, it argues that the Applicants created a change in risk with respect to the loan as a result of their actions or inactions ( amended Notice of Contest, paras. 28 and 29). [ 6 ] Moreover, they allege that Meadow Ridge (on July 7, 2016) intentionally defaulted under the provisions of the term sheet and mortgage by refusing to make its interest only payment, which was due on that date. ( amended Notice of Contest, para. 25 ) [ 7 ] In addition to the affidavits that have been filed in this proceeding, the court heard from Kirk Repchull, Dr.

James Jonasson, Natalie Jonasson, Shelley Repchull, Bryan Jaskolka and Paul Conrad (actuary), all on behalf of the Applicants. [ 8 ] Brian Moskowitz and Kelly McKeating (actuary) testified on behalf of the Respondent. [ 9 ] Twenty-four exhibits were tendered in total. These exhibits included affidavits on behalf of the witnesses who testified and other materials. They are enumerated as follows: Exhibit No. Date Tendered By Description of Exhibit 1 28-May-18 A. Affidavit of Kurt Repchull sworn Oct. 11, 2016 (marked as Exhibit 1 – Volume 1 and Exhibit 1 – Volume 2) 2 28-May-18 A.

Affidavit of Kurt Repchull sworn Jul. 4, 2017 3 28-May-18 A. Supplementary Affidavit of Kurt Repchull sworn Apr. 6, 2018 4 28-May-18 R. Email from Bryan Jaskolka to Kurt Repchull dated Sep. 9, 2015 5 28-May-18 R. Email from Bryan Jaskolka to Kurt Repchull dated February 3, 2016 6 28-May-18 A. Affidavit of James Jonasson filed on Oct. 11, 2016 7 28-May-18 A. Affidavit of Natalie Jonasson filed on Oct. 11, 2016 8 28-May-18 A. Affidavit of Shelly Repchull filed on Oct. 11, 2016 9 29-May-18 A. Affidavit of Bryan Jaskolka – Oct. 13, 2016 (marked as Exhibit 9 – Volume 1 and Exhibit 9 – Volume 2) 10 29-May-18 R.

Email from K. Repchull to Bryan Jaskolka dated Feb. 23, 2016 11 29-May-18 R. Letter to Adam Crane from McKeating Actuarial Services dated May 25 12 29-May-18 A. Affidavit of Paul Conrad filed on Jan. 31, 2018 13 29-May-18 R. Report of Kelly McKeating filed on Apr. 5, 2018 14 29-May-18 R. Affidavit of Brian Moskowitz filed on Dec. 2, 2016 15 29-May-18 R. Supplementary Affidavit of Brian Moskowitz filed Apr. 10, 2018

16 30-May-18 A. Email string from Stern enclosing budget beginning Feb. 18, 2016 17 30-May-18 A. Email string Jul. 2, 2015, attaching cost breakdown 18 30-May-18 A. Email from Isabelle to Suri attaching construction checklist dated Jul. 9, 2015 19 30-May-18 A. Isabelle to Stern dated Sep. 17, 2015 20 30-May-18 A. Appraisal Report prepared by John Ingram dated Sep. 25, 2015 21 30-May-18 A. Email from Isabelle to Stern dated Sep. 17, 2015 22 30-May-18 A. Loan

summary for Meadow Ridge Estates dated Nov. 24, 2015 23 30-May-18 A. Documents provided to Ms. McKeating by Respondent (partial list) 24 30-May-18 Printed material from Moskowitz website – Let our track record speak for itself [ 10 ] The facts as established will be set forth initially at a “2000 foot level”. Additional attention will be given to certain of them further on in these reasons, to the extent necessary to illustrate the conclusions at which I have arrived. [ 11 ] First, I will introduce the principal non-corporate participants in this matter: A. Kurt Repchull – Mr.

Repchull is the President of the Applicant Companies, Meadow Ridge and Shirestone Developments Limited (“Shirestone”); B. Shelley Repchull, James Jonasson and Natalie Jonasson – Ms. Repchull is the wife of Kurt Repchull. Ms. Jonasson is Kurt Repchull’s sister. Dr. Jonasson is her husband. All were passive investors in the project with limited involvement. Of the three, Ms. Repchull was the most involved, as she provided occasional bookkeeping/secretarial services for Meadow Ridge in what amounted to approximately one day per week; C. Brian Moskowitz (“Mr.

Moskowitz”) is the President of the Respondent Company, “Moskowitz”; D. Andrew Stern (“Mr. Stern”) is an employee of Moskowitz and had dealings on behalf of the Respondent with the Applicants at various times throughout the relevant time periods; E. Brenan Isabelle (“Mr. Isabelle”) is an employee of Moskowitz and had dealings on its behalf with the Applicants at various times throughout the parties’ dealings with one another; F. Jenny Comia (“Ms. Comia”) is an employee of Moskowitz and also had dealings on its behalf with the Applicants at various times throughout the relevant time period; G. Bryan Jaskolka (“Mr.

Jaskolka”) is a friend of Mr. Repchull. He is also the Chief Operating Officer and Vice-President of Canadian Mortgages Inc. (“CMI”) the company which brokered the financing of the project by Moskowitz Capital, and is a minority investor in Meadow Ridge through Canadian Lending Inc. (“Canadian Lending” or “CLI”) which in turn is a company related to CMI because it acts as CMI’s underwriter; H. Nanit Suri (“Mr. Suri”) was an employee of CLI/CMI and had involvement in negotiating the term sheet and corresponding with various individuals at Moskowitz Capital and the Applicants throughout the relevant time period.

Background [ 12 ] The antecedents to this application have been provided in the various affidavits of Messrs. Repchull, Joskolka, and Moskowitz. Briefly put, the Applicant, Meadow Ridge, conceived of a relatively small project which involved the development of some real estate in Upper Sackville, Nova Scotia. The parties have referred to this as the “project” and I will also do so in these reasons. As noted earlier, Mr. Repchull was the President of both the Applicant Meadow Ridge and the Applicant Shirestone.

The latter corporate entity was to act as the project manager. [ 13 ] On or about August 31, 2015, Meadow Ridge and Moskowitz entered into an agreement whereby the latter would finance the project in the total principal amount of $1,120,000.00. The deal was brokered by Mr. Jaskolka’s company, CMI. Mr. Repchull and the remaining Applicants agreed to act as guarantors of the loan.

Pursuant to their agreement, significant security was required of the Applicants, including a first mortgage over the project itself, and mortgages against some of their individually owned real properties. [ 14 ] The nuts and bolts of the agreement were embodied in a “term sheet”. This term sheet has been reproduced at least twice in the materials filed by the parties. One such instance occurs in the affidavit of Kurt Repchull (Exhibit 1, volume 1) sworn October 11, 2016 ( tabs c and e). [ 15 ] The date of the term sheet is August 31, 2015.

It defines the purpose of the loan to Meadow Ridge as such: To provide construction financing on a cost to complete basis for road construction and site servicing of 26 building lots at Sackville Drive, Upper Sackville, Nova Scotia (PID #41164039). [Emphasis added] [ 16 ] There is no record of any discussion between the parties as to the meaning of “cost to complete basis” prior to February of

2016. I will return to this point later in these reasons. [ 17 ] The term sheet provided, inter alia , for the following (it is convenient to quote from para. 6 of the Applicant’s pre-hearing brief in this respect): 6. The terms and conditions of the financing were embodied in a term sheet executed August 31, 2015 and Mortgage executed September 28, 2015 which are found at tabs “C’ and “E” of the Affidavit of Kurt Repchull filed October 12, 2016 respectively. The relevant terms include: (

a) Pursuant to the term sheet:

(1) Moskowitz agreed to finance the Project for a total principal amount of $1,120,000.00 (the “Principal”);

(2) The term was 12 months;

(3) Interest was the greater of 11% or the TD Canada Trust prime rate plus 8.3%, compounded daily;

(4) Payments were due monthly, not in advance, and were interest-only;

(5) The Principal could be repaid at any time during the term with 30 days written notice plus three months’ interest, provided the funds for repayment came from Project unit sales (failing which the term was closed);

(6) Moskowitz required a satisfactory appraisal report;

(7) Meadow Ridge needed to have equity of at least $500,000.00 prior to the first advance, and at least $560,495.00 prior to the second advance;

(8) The Principal was divided into two facilities: (a) $250,000.00 for “land and closing costs” (the “Land Cost Facility” ); and (b) $870,000.00 for the hard cost facility (the “Hard Cost Facility ). (

c) The following draws on the Hard Cost Facility were mandated: (d) $200,000.00 by November 1, 2015; (e) $300,000.00 by January 1, 2016 (for a total of $500,000.00); and (f) $370,000.00 by March 1, 2016 (for the full $870,000.00)

(9) If such amounts were not drawn, interest would accrue on those amounts as if they had been advanced. In addition, “standby fees” of $10,000 per month would apply…

(10) Several collateral agreements were required as security (the “Collateral Security”). The Collateral Security included, among other agreements: (

a) A first mortgage on the Project (PID 41164039); (

b) A first mortgage on three other Shirestone properties (16, 22, and 31 Shire Lane in Upper Sackville, Nova Scotia); (

c) A second mortgage on the home of Dr. and Ms. Jonasson; (

d) A second mortgage on the home of Mr. and Ms. Repchull; (

e) A second mortgage on each of two properties owned jointly by Mr. Repchull, Ms. Repchull, Dr. Jonasson, and Ms. Jonasson (1 and 3 Connolly Road in Middle Sackville, Nova Scotia), which were both executed on September 28, 2015; and (

f) General security agreements against Meadow Ridge, Shirestone, Mr. and Ms. Repchull, and Dr. and Ms. Jonasson (the “GSAs”).

(11) To secure the debt under the term sheet, Meadow Ridge, Shirestone, and Moskowitz executed the mortgage on the Project on September 28, 2015 (the “Mortgage”). Shirestone, Mr. and Ms. Repchull, and Dr. and Ms. Jonasson also executed their respective mortgages on September 28, 2015.

Moskowitz registered financing statements pursuant to the GSAs on October 9, 2015. (emphasis added) [ 18 ] As noted above, the stand-by fee ($10,000.00) was stated to be due and payable in the event that $250,000.00 of the committed funds (the land cost facility, or “LCF”) was not drawn by the Applicants on or before September 18, 2015. If the Applicants failed to do so by this date, the Respondent could elect to cancel the agreement. However, if not cancelled, and in consideration of each monthly extension granted by the Respondent, a further stand-by fee of $10,000.00 was due and owing.

The first stand-by fee payment was due and owing on September 19, 2018, and similar payments every 30 days thereafter, “in order to hold funds for this transaction” ( Exhibit 1, volume 1, tab c., p. 3 of 7). In the evidence of Mr. Moskowitz, once the funding was approved, the total $1,120,000.00 was “set aside” – it was “tied up” in the sense it could not be used for any other purpose. [ 19 ] The terms also provided for a commitment fee of $33,600.00 payable to Moskowitz, a broker fee of $11,200.00 payable to CMI, and a non-refundable deposit of $7,500.00.

The three latter payments were all to be payable out of the LCF, which was to be the

first installment of funds drawn down by the Applicants. [ 20 ] The term sheet also contained a

section called “special mortgage conditions”. The conditions set out in the term sheet are as such (it is convenient to quote from the pre-hearing brief of the Respondent, at pp. 3 to 5 in this respect):

a) Subject to receiving a satisfactory appraisal report on the subject property addressed to Moskowitz Capital Management Inc. confirming an "as is" value of $500,000 and an "as complete" value of $1,950,000.

b) The Borrower's equity must be not less than $500,000 prior to the first advance and $560,495 prior to the second advance.

c) Subject to meeting the conditions herein, the following amounts in aggregate are to be drawn from the Hard Cost Facility by the following dates: i) $200,000 November 1, 2015; ii) $500,000 January 1, 2016; and iii) $870,000 March 1, 2016. failing which interest will start to accrue and become payable as part of the monthly interest payment as if the funds were advanced . This clause is for the benefit of the Lender to insure that the Project is moving forward and the Borrower(s)/Guarantors(

s) is utilizing the committed funds set aside specifically for the Project. The dates for the Land Cost Facility and Hard Cost Facility set out in the term sheet and in any subsequent documentation are considered to be "on or before dates" where it is anticipated that the borrower draws on the funds on or before the date specified, with the specified date being the worst case scenario.

Schedule "B" of the term sheet (Pg. 7 of Exhibit "5" of Affidavit of Brian Moskowitz, sworn on December 2, 2016) is entitled "Required Documentation" and sets out the documentation that Moskowitz Capital required the Applicants to provide before the Land Cost Facility would be advanced. Moskowitz Capital required this documentation in order to conduct the necessary loan underwriting and due diligence.

Some of the important documents that Moskowitz Capital required the Applicants to provide are as follows: Item #2 Item #10 Item #11 Item #14 An appraisal of PID 41164039, Upper Sackville, NS accompanied by a letter of transmittal from the appraiser, reflecting a minimum "as is" value of $500,000 and a minimum "as complete" value of $1,950,000 based on a 180 day marketing period. Full set of working drawings, stamped by engineer, for the project. Final construction budget for the Project. All municipal applications relating to the construction. Item #3 of

Schedule "B" of the term sheet stipulated as one of the Required Documentation items "Any other reasonable documentation requested by the Mortgagee(

s) and / or its solicitor." [Emphasis added] [ 21 ] The provisions of the term sheet were secured by a first mortgage over the project between the Applicant, Meadow Ridge, and the Respondent, Moskowitz, dated September 28, 2015. It is attached as Exhibit “E” to the affidavit of Mr. Repchull sworn October 11, 2016 (Exhibit 1, volume 1). The mortgage confirmed that the Respondent was to finance the project for a total principal amount of $1,120,000.00 over a 12 month term to begin on December 1, 2015, and end on December 1, 2016. It was to bear interest at a rate the greater of 11% or the TD Canada prime rate plus 8.3%, with interest only payments due on the first of every month. The principal

amount could be repaid at any time with 30 days written notice plus three months interest, provided that the funds for repayment came from the project unit sales. All monies secured by the mortgage would become immediately due and payable upon an event of default, including failure to make an interest payment. [ 22 ] The Applicants did not actually receive the land cost facility draw from the Respondent until November 24, 2015. It will be recalled that the deadline in the term sheet specified for this draw was September 18, 2015.

The reason for this delay is one of many things that are contested between the parties. [ 23 ] It is a fact that there were various emails and other pieces of correspondence flowing between these two dates from Messrs. Suri, Isabelle, Stern, Repchull and Moskowitz relating to various items of “due diligence” specified in the term sheet and/or the mortgage.

The seeds of the suspicion and mistrust that grew between the parties were planted during this time, and, as will be seen, reached full maturity not many months later. [ 24 ] When this land cost facility (“LCF”) was advanced on November 24, 2015, it was, for our purposes, in the net amount of $186,045.10.

This consisted of the specified amount ($250,000.00) less a number of expenses. (Affidavit of Brian Moskowitz, Exhibit 14, para. 112) [ 25 ] After the net amount shown above was reduced by a further “600.00 for registration costs and $4,800.00 for legal fees”, the final amount made available to the Applicants by the Respondent was $180,645.10.

The Applicants, nonetheless, accept (for the purposes of this application) that LCF proceeds of $186,045.10 were advanced to them on November 24, 2015. [ 26 ] The hard cost facility (“HCF”), however, which was contemplated in the term sheet and in the mortgage was never released. In fact, the Applicants never received any further funds from Moskowitz after November 24, 2015.

A closer look: What preceded the advance of the LCF on November 25, 2015 . [ 27 ] First, we note the following fees that were paid out of the LCF advance: HRM taxes (secured land, 53 Cavalier Drive): $754.29 HRM taxes (secured land, Sackville Drive): $476.10 HRM tax certificates: $600.00 Title insurance: $1,402.00 Release of mortgage recording fee: $100.00 Commitment fee: $33,600.00 Standby fee ($10,000/month x 2 months) $20,000.00 Appraisal fee: $5,692.50 Insurance review fee: $400.00 Wire fee: $35.00 Per diem (11% interest/day x 7 days) $527.40 Broker fee (CMI): $11,600.00 Recording fee: $600.00 Moskowitz’s legal fees: $4,800.00 Meadow Ridge legal fees: $5,957.00 Total: $86,544.29 [ 28 ] It will be recalled that the term sheet included a requirement that Meadow Ridge was to draw down the land cost facility by September 18, 2015.

The failure to do so brought with it the requirement to pay a “standby fee” to the Respondent of $10,000.00 per month of delay ($10,000.00 x 2 = $20,000.00) as noted above. [ 29 ] It would appear that the required documents (opinion letter, collateral mortgages, general security agreements and other documents required) ancillary to the principal and collateral security to be provided by the corporate Applicant, Meadow Ridge, and the Guarantors, was not provided by the Respondent’s counsel to counsel for the Applicants until September 18, 2015, at 3:15 p.m. [ 30 ] As a consequence, the documentation itself was not executed until September 28, 2015.

On October 5, 2015, Mr. Jaskolka wrote to Mr. Moskowitz by way of email intending to share “…some concerns to this point and how your company has handle [sic] this financing…” ( affidavit of Kurt Repchull, October 12, 2016, Exhibit O ). The email goes on to indicate: …I need to understand as do my partners if your company is planning on delivering on the commitment it has written. Brennan [Isabelle] promised, in writing, to Kurt [Repchull] a copy of the appraisal report and now is refusing to provide it until after closing.

At the same time, there seems to be confusion regarding if your company is even planning to fund this as the last we heard, there was still “unspecified” delays on your end with no timetable set. …we do intend to conclude this transaction but are stating [sic] to wonder if your company is going to honour the terms of its commitment. ( affidavit of Kurt Repchull, October 12, 2016, Exhibit O ) [ 31 ] Meanwhile, Moskowitz was alleging delay (and, in some instances, failure) on the part of Meadow Ridge to comply with the obligations as stipulated in the commitment letter.

Moskowitz says that these unfulfilled loan terms were the fault of the Applicant, Meadow Ridge. [ 32 ] First, the Respondent points out that the term sheet itself was not executed until August 31, 2015 and that the Applicants’ shortcomings in this respect affected everything else, beginning with the date of the LCF advance. In fact, it contends that the failure to execute the term sheet earlier than August 31, 2015 was caused by drawn-out responses to earlier drafts of the term sheet that had been sent out by the Respondent, and that the first such draft was provided on August 10, 2015.

[ 33 ] Moreover, as we have seen, Moskowitz indicates that once the term sheet was executed, the company set aside $1,120,000.00 which was earmarked to fund the project. Once these funds were set aside, Moskowitz Capital says that it became unable to utilize the money for anything else ( affidavit, Brian Moskowitz, December 2, 2016, paras. 39 and 40). [ 34 ] Mr. Moskowitz goes on to point out that it was not until August 31, 2015 that the Applicants even provided his company with the name of their counsel.

The Respondent contends that, given this, it was actually a very quick turnaround between the execution of the term sheet and the provision of the loan documents on September 18, 2018. He contrasts this with the behaviour of the Applicants, who he says “were very slow in providing the required documentation to the terms which Moskowitz Capital required before funding the loan” ( affidavit of Brian Moskowitz, para. 51). [ 35 ] Mr.

Moskowitz goes on to point out that the Respondent’s legal counsel sent to the Applicants (in care of their counsel) a letter dated September 18, 2018, which was intended to remind them of the documentation which was required of the Applicants in order to advance the funds LCF. The letter included, inter alia , the following: …In order to facilitate our preparation of this documentation, please provide: 1. The full legal names of all borrowers and guarantors in accordance with Regulation 20 of the Personal Property Security Act (Nova Scotia) together with: A.

Copies of a birth certificate and driver’s license for each borrower or guarantor; or B. In the case of a corporation other than a Federal or Nova Scotia Company, the full legal name as it appears on the certificate or articles of incorporation; 2. Written confirmation of: A. The marital status of any individual borrower or guarantor; B. The full legal name of the spouse of each individual; and C. Whether any spouse has a matrimonial interest in a property to be mortgaged pursuant to this transaction. We have set out the more common requirements of this loan below.

Any additional requirements of the Commitment Letter must be honoured prior to funding. As noted above, we will provide all necessary security and transaction documents for this transaction. You will be required to complete any land registrations. We will be completing any necessary PPSA searches and registrations. In addition to the identification documents and ultimately signed original documentation, we will require your office to provide us with: 1. Tax certificates for each mortgaged property; 2. Zoning confirmation for each mortgaged property, if available; 3.

Current location certificates or surveys for each mortgaged property; 4. Commercial title insurance from Stewart Title or First Canadian Title in respect of each mortgaged property naming Moskowitz Capital Mortgage Fund II Inc. as loss payee and, if applicable, containing construction loan, potable water or sewage endorsements; 5. An original signed copy of the commitment and any amendments; 6. A void cheque from the borrow (to accompany the pre-authorized payment form); and 7.

In the event the Lender has agreed to take other than a first position, written confirmation from each existing lender of the outstanding balance of the loan and confirmation that the loan is in good standing. Please forward these items as soon as possible… [ 36 ] Mr.

Schwartz (counsel for the Respondent) also pointed out that the funds necessary to fund the loan had been “set aside” and that a $10,000.00 standby fee would be owed as of September 19, 2015 ( affidavit of Brian Moskowitz, December 2, 2016, paras. 52 – 55). [ 37 ] It will be recalled that the Applicants collectively and individually executed a number of collateral security documents on September 28, 2015, including the mortgage over the project property executed by Meadow Ridge, a mortgage executed by Shirestone in favour of Moskowitz Capital over 16 Shire Lane, 22 Shire Lane, 31 Shire Lane, as well as lots 6, 7 and 8, a mortgage over Mr. and Ms.

Repchull’s personal real property at 53 Cavalier Drive, Lower Sackville, a mortgage executed by the Repchulls and the Jonassons over 1 Connolly Road, Middle Sackville, and 3 Connolly Road, Middle Sackville and a mortgage executed by the Jonassons over 515 Voyager Way, Hammonds Plains, Nova Scotia. The mortgages on 515 Voyager Way, 53 Cavalier Drive, 1 and 3 Connolly Road, were to be second mortgages. [ 38 ] These documents were all signed on September 28, 2015.

As of October 1, 2015, the Respondent says that the outstanding loan documentation required of the Applicants still included title insurance, solicitor’s undertaking, solicitor’s opinion, Director’s Resolutions of Meadow Ridge, Certificate of Officer from Meadow Ridge and a preauthorized payment form ( affidavit of Mr. Moskowitz, December 2, 2016, para. 68 ).

[ 39 ] Further emails and letters were sent by Moskowitz Capital and/or counsel on its behalf requesting the further documents noted above. On October 7, 2015, Mr. Stern sent an email to Messrs. Repchull and Suri with respect to the due diligence items ( affidavit of Mr. Moskowitz, December 2, 2016, paras. 68 – 70 ). [ 40 ] It is very evident at this time that the patience of each side was wearing thin. Mr. Repchull responded on or about October 8, 2015 ( affidavit of Mr. Moskowitz, December 2, 2016, Exhibit 15 ).

His views of the Respondent’s continuing requests may be gleaned from these portions of it: All of this information has already been provided and questions answered. An explanation of the below is quite simple, these are residential homes, not commercial manufacturing facilities. They are not located in areas of manufacturing or zoned for such activities. There are no commercial or environmental risks, no underground storage tanks… as for the $140,000.00 on the 2014 Shirestone Development financial statements – this was a demand loan when we built the properties on Connolly Road.

The balance was paid in full upon closing on May 21, 2014…I have included a copy of the closing documents from the lawyer…which shows [the outstanding balance including interest] was paid to the Royal Bank of Canada…these [property tax statements on Meadow Ridge, Shire Lane lots and 515 Voyager Way] have already been emailed, also on September 17, 2015. Tax certificates are also going to be available on closing and will be ordered two days prior to closing…what are the terms and conditions on the $150,000.00 from Canada Lending found in Meadow Ridge Estates Inc.?

Bryan, you can answer this…We were told a month ago when we set this up that this [proof of insurance on Meadow Ridge Estates and Shire Lane with Moskowitz Capital Mortgage Fund II Inc. listed as additional insured] was satisfactory. Has something changed? …Dr. James Jonasson has told me that this [mortgage statement on 515 Voyager Way] was already sent. I can only assume someone has it. [ 41 ] The above correspondence was sent by Mr. Repchull at 11:06 a.m. on October 8, 2015.

Later that day, at 9:23 p.m., counsel for Moskowitz Capital wrote to counsel for the Applicants indicating, inter alia : I understand this loan is now ready to proceed with respect to the land advance as quite sometime has passed the mortgage needed to be amended to reset the interest adjustment date and payment dates. A copy has been attached. I also understand that it has been agreed the first mortgage can be postponed rather than paid out. In this regard I attach: 1. A revised mortgage; and 2. A comparison version for your review; and 3.

A postponement agreement to be executed and recorded instead of paying out the prior existing mortgage. I acknowledge receipt and satisfaction with the title insurance. We will require: 1. Executed copy of the postponement and an undertaking to record it to the parcels; 2. Solicitor’s undertaking; 3. Solicitor’s opinion; 4. Director’s Resolution of Meadow Ridge; 5. Officer’s Certificate of Meadow Ridge; and 6. Preauthorized payment form with void cheque.

These items must be received and reviewed prior to funding. [ 42 ] On October 15, 2015, counsel for the Respondent had occasion to write to counsel again for the Applicants: I am writing to follow up on Jared’s [lawyer, Jared Schwartz] email…Please let us know if you have questions or concerns. Otherwise, we will keep an eye out for your documents which we hope to receive shortly. [ 43 ] On behalf of the Applicants on October 19, 2015, Mr. Suri wrote to Messrs .

Isabelle and Stern as follows: Hi Brenan/Andrew, Apologize for not being able to get back to you yesterday, but as per our earlier discussion working with the lawyer to get you the information. Would want to clarify a few things from your end as well: 1) Due to the delay in closing, can you send me some new draw dates that would work; the client suggests the following after the first advance (as aggregates to be drawn against the hard facility): Dec 1 st

Feb 15 th April 15 th 2) Can you please also send a detailed requirement of the conditions precedent to the draws against the hard costs, the commitment letter does no [sic] detail them. Thanks & Regards, Nanit Suri [ 44 ] Moskowitz Capital responded through Mr. Stern the same date: Hi Nanit, 1) We will honor the requested draw dates below. 2) We require the following prior to any hard cost advances.

They are the original conditions from the term sheet we are waiving for the land advance. • Full set of working drawings, stamped by engineer, for the Project. • Final Construction Budget (including schedule) for the Project. • Municipal Approval Have the clients signed all legal documents? We attempted to contact their law firm regarding timelines however haven’t heard back. We still require insurance in order to proceed on the land advance. Kurt was looking into this however I haven’t heard back. Lastly, for ease of tracking, I’ll state here we also require the terms of the postponed mortgage.

Thanks, Andrew [ 45 ] The foregoing communications were being held in tandem with some others. For example, we have already seen the email from Mr. Jaskolka to Mr. Moskowitz dated October 5, 2015. On October 7, 2015, Mr. Jaskolka wrote again: …please call me. Need to understand where we are with interest reserve, or no reserve. This has been mentioned on and off periodically. Need definitive answer on this. Further some of this information has already been provided and answered, but we will do so again.

Before we jump through anymore hoops we would like verification that there will be no other requests and changes to terms. [ 46 ] The first draw with respect to the hard cost facility was scheduled for December 1, 2015, the second ($300,000.00) was scheduled for February 15, 2016, and the third ($370,000.00) was now scheduled for April 1, 2016. [ 47 ] As previously discussed, the land cost facility (LCF) itself was not advanced until November 25, 2015.

Aftermath of the LCF advance [ 48 ] One of Meadow Ridge’s subcontractors working on the project, in fact the largest one, was All Terrain Contracting Inc. (“All Terrain”). All Terrain invoiced Meadow Ridge $174,966.75 on December 29, 2015. [ 49 ] On January 4, 2016, Meadow Ridge paid $4,251.45 in interest to Moskowitz Capital. This was calculated on the basis of $450,000.00 in Moskowitz loan advances even though only $250,000.00, the land cost facility (net –$186,045.10) had actually been advanced. This process was repeated on February 1, 2016.

Payments were made to Moskowitz Capital via automatic debit from Meadow Ridge’s account. [ 50 ] On February 3, 2016, Allan Stern wrote to Mr. Repchull indicating that the “full set of working drawings” noted in his email of October 16, 2015, to Mr. Suri, remained outstanding. He also added the following: The budget provided Monday is not at a level of typical detail. I also noticed that the All Terrain price of the roads doesn’t match the contract.

Can you please provide an accurate detailed budget so we can confirm the detailed costs match our expectations as well as it will assist in monitoring the project…provide a construction timeline for the project to correlate the budget to…development agreement received and under review. Waste water permit to be provided please provide the status.

[ 51 ] Mr. Stern then indicated: This draw is still capturing items typically covered in the initial loan due diligence, since we waived them in order to expedite the land advance. Going forward, draws will likely only require site inspections by an engineer verifying work in place and may require invoices as backup support. [ 52 ] Meanwhile, Mr. Jaskolka was attempting “damage control”. On February 4, 2016, he emailed Kurt Repchull to indicate: Hi Kurt Nanit has spoken with Andrew at length today and has some more clear action items.

Nanit and I discussed and both feel what they are looking for is not unreasonable and other lenders would want the same or equivalents. So we need to focus I think on complying and producing what is missing rather than being aggravated, and it will result in a much better experience with the lender, combined with if we are then missing something at the end its much easier for us to ask for a waiver or a deferral of that one missing item after having been co-operative on the other points.

I have asked Nanit to call you to explain what we should focus on immediately and what I believe are relatively fast and easy action points I’d like to try and cover off today and tomorrow, at which point, we will review what we CANNOT (if anything) comply with or mostly comply, and then once its down to just a few items (or ideally one) we will try and get an exception on that one item or sort it out. I’ve also instructed him to carry out the full actions to get what is missing, if you like, to assist you if you want that help.

We do not believe that they are intentionally trying to do anything other than manage the loan in accordance with their loan policies which look reasonable to us. Bryan Jaskolka [ 53 ] Mr. Jaskolka testified at the time that he wrote this he was beginning to become concerned about what he felt were the increasing demands by Moskowitz Capital, and the effect that this was having on the ability of Meadow Ridge to continue with the project as it has been doing. He gave evidence to the effect that he was attempting to be a peace maker and assure Mr.

Repchull that these demands were not anything that should cause him to get further upset. [ 54 ] His views soon changed, however, as did the tone of his correspondence with Moskowitz Capital. On February 23, 2016, he said the following: Hi Brian We have provided everything your people asked, including providing them contacts to WSP. Please release our 2 nd draw. Kurt is getting very upset at this point and there is just really nothing else to be provided. Even WSP is at a loss for what else your people could want. They have gone very detailed, your people keep complaining its high level.

It’s a fixed price contract anyway and a lot of the work is already done. We are paying you interest already on this money as well. The only item left on the while project missing is the septic system numbers and it was discussed that could very reasonably be made a condition of the third draw, without any risk to your security. There is no problem with that, as by then it will be finalized. Its well underway already. Please release my funds, or call my ASAP if there is still an issue. 647-558-3893.

Andrew keeps saying he’s “reviewing” but they’ve had almost everything for weeks now and there’s really not that much to review, its all approved by HRM and it was just the budget they said they needed it was sent on Thursday. Everything else should have already been reviewed. Please advise. Bryan Jaskolka [ 55 ] The above was sent at 1:47 p.m. The next email that day was sent by Mr. Jaskolka moments later.

This is now causing project damage as well. We were hoping to use this supplier [All Terrain] for other matters and Kurt doesn’t think they are going to want to work with us anymore as they don’t have confidence in the project’s financier. [ 56 ] At 4:28 p.m. that day there was a response from Moskowitz Capital in the form of an email from Mr. Isabelle who said the following: Thank you for providing the budget from WSP we have reviewed and discussed with WSP and with Brian. After inputting the updated data and the likely timeline of sales, we believe there will be a funding shortfall.

Since the financing is on a cost to complete basis the requested draw cannot be provided at this time . Further work must be in place before drawing the hard cost facility. Please review the attached and let us know if there is any discrepancies. ( Affidavit of Brian Moskowitz, Exhibit “14”, Tab 38) [Emphasis added] [ 57 ] At 4:56 p.m. Mr. Moskowitz added the following comments in his email to Mr. Jaskolka: Bryan, we are funding in a cost to complete basis as per the loan agreement . We have put the numbers on paper so you can have the facts. I’m in NB and NL until Thursday. We can speak about it tomorrow.

I am heading into a meeting now. ( Exhibit “14”, Tab 39 ) [Emphasis added] [ 58 ] However, that did not end the discussion between the parties that day. At 5:06 p.m. Mr. Jaskolka sent another email to Mr. Moskowitz. The following has been excerpted therefrom: Brian, you are coming back with the costs to complete concerns but there has been no material changes to the cost to complete. This is not in keeping with the commitment letter . Furthermore, the entire last three weeks we have been discussing this matter with your people, at no time did they take ANY ISSUE with the figures.

They in fact stated they were fine, but they just wanted a further level of detail… If you weren’t going to advance you should have said that three weeks ago, not send my people and Kurt on a wild goose chase about “additional detail level” that even WSP didn’t know what else you could possibly want. I don’t see the issue other than that we are about to have a very angry road contractor and a project you are going to push up our costs and timeline…

Seems rather self serving and to only give us a few days notice as well about that… The work has been done and the contractor should be paid so we can continue with our work and connect the road to the city streets and move on to marketing the project… Please call me when you get out of your meeting I prefer to speak with you this evening as we really cannot afford any further delays at this point. [Emphasis added] [ 59 ] Then, Mr. Stern entered the discussion at 6:21 p.m. emailing Mr.

Jaskolka and indicating the following: It was the “percentage of work completed” and “percentage of work paid for” that they only provided at the end of last week. The budget provided previously was not helpful in calculating the “cost to complete” and therefore that was the cause of the delay . The major discrepancy is not the changes to WSP budget or the increased interest costs, it is the amount of progress to date. I have reattached the Excel breakout using the figures provided from WSP, which arrives at $914,387.00 of work to complete and thus the funding shortfall.

The source of interest payments is important, as when reviewing the personal net worth statements and guarantor sources of income, we do not see sufficient means to make the mortgage payments and therefore need to account for those upfront. This is no different than any construction project financed by industry standards. The amounts paid to date where also less than we expected. Of the $877,202.00 of WSP work completed, they have only paid invoices for $734,116.00 (of which they used our $250,000.00).

Further equity will be required to trigger the hard cost facility. ( Exhibit “14”, Tab 40 ) [Emphasis added] [ 60 ] At 7:52 p.m. the same day Mr. Jaskolka responded: I’m sorry but your comments do not meet the terms and conditions of the mortgage loan agreement. There is no condition for income, interest reserve, absorption studies, cost-based draw analysis, or any of what you refer to below. The items regarding what is outstanding, you have been provided the final budget by WSP, you have been provided the municipal permits, and drawings.

The item outstanding, re: treatment plant, you already advised was OK to get on the third draw, but more to that point, that’s not really the issue you are taking up below or any of your other emails. Seems to be a bit of an afterthought excuse now. The only actual condition that I see, is a verification of owner’s equity in excess of $560K ~ which was satisfied on the day of closing, since the initial draw required owners equity of $500K and we already exceeded that. As such, in accordance with the MLA , the next draw is due and we are paying for it.

The MLA also contemplates 100% of the road work being financed by the project. As there have been no project cost overruns, or project cost increases of any significance, there’s really no basis for withholding at this point. Obviously, I’m not going to be adding hundreds of thousands of cash to the project interest free while you are charging us interest on money we deserve to have access to without any real legal basis for withholding .

SO if you are having remorse about funding this project and will not honor your MLA and keep this project funded, we’ll be looking for a credit of the lender and legal fees on your end along with no prepayment penalty, and I will look for another funder and we can

part company as friends. Otherwise, this matter must be immediately addressed as we do not have time for multiple week delays and shifting objectives anymore. I look forward to a call from Mr. Moskowitz in the morning to address this matter. [Emphasis added] [ 61 ] On February 26, 2016, Jaskolka sent to Mr. Moskowitz the following email from WSP (it should be noted that WSP was the project manager and Ryan Barkhouse the project engineer). Mr. Barkhouse had indicated in the email which was originally sent to Mr.

Suri: I understand that there is some question regarding the project’s timeline with respect to schedule. My thoughts on that question, with respect to the work we have designed and tendered and based on my experience as a professional engineer who has worked on and completed numerous residential land development projects, it is my opinion that the project is on schedule, if not slightly ahead of

schedule . [Emphasis added] [ 62 ] Meadow Ridge paid All Terrain $25,000.00. All Terrain was owed, as indicated, much more than that but the Applicants (not

having received advances under the HCF) had no further funds with which to provide the balance. A further invoice was issued by All Terrain on February 29, 2016, for $84,818.25. On that date further correspondence between Mr. Jaskolka and Mr. Moskowitz ensued. [ 63 ] Earlier, on February 26, 2016, Moskowitz had indicated that it had adjusted the cost to complete assumptions and would advance $35,280.00. The precondition, however, was that Meadow Ridge must invest $94,909.00 of its own funds in order to cover future interest.

Meadow Ridge regarded this as an “interest reserve” which had not been included in either the term sheet or the mortgage. [ 64 ] Meadow Ridge wrote on February 29, 2016 indicating its view that they were entitled to an advance of $112,000.00 (even on the basis of the way that the Respondent had indicated that they were interpreting “cost to complete”). It further reiterated that the method of accounting that Moskowitz was putting forward was not (so the Applicants say) discussed at any time in the financing negotiations.

The Applicants argued therein (and in this Application) that what the Respondent said (in particular, in Mr. Stern’s email at 6:21 p.m. on February 23, 2016) constituted a “new method of accounting” and a “reinterpretation” of the meaning of “cost to complete” in the term sheet ( Jaskolka affidavit, October 11, 2016, para. 32 and Exhibit “5” ). [ 65 ] The Applicants contend that the meaning of the phrase “cost to complete” was never discussed or mentioned before February 23, 2016.

They say that they reasonably interpreted it to mean that the outstanding amount of the loan to be advanced would equal the cost of the project to be completed. This would be consistent (they argue) with the equity requirement of $560,000.00 which was needed to bring the total costs at the beginning of $1,680,000.00 down to the intended loan amount of $1,120,000.00. All of this would mean that it was the lender’s money which would be used to complete the project. [ 66 ] The effect of what the Respondent was saying in Mr.

Moskowitz’s email of February 23, 2016, was that the funding formula contemplated by “cost to complete basis” meant that the unfunded portion of the loan always had to equal or exceed the cost of completing the project . The implication of this was that no advance would be made unless the Applicants first paid an equivalent amount into the project from their own resources and subsequently sought reimbursement by way of a funding advance. [ 67 ] Mr. Moskowitz confirms that the above

interpretation is correct in his affidavit filed April 10, 2016: 9. An example of cost to complete method with respect to a hypothetical loan for an amount of $300,000 with three anticipated draws of $100,000 each under the loan is as follows:

a) In order to draw the first $100,000 , which would leave the remaining unfunded loan amount of $200,000, the remaining cost to complete the project would have to equal $200,000 .

b) To draw the next $100,000 leaving the unfunded loan amount of $100,000, the remaining cost to complete the project would have to equal $100,000.

c) To draw the remaining $100,000, the remaining cost to complete the project would have to be $0 . To do this, the final work must be completed and paid for by the borrower then receive reimbursement from the lender or the lender would directly pay the specific contractor(s).

d) If the remaining amount of the loan was $100,000, but there was $150,000 worth of work to complete the project, there would be a funding shortfall of $50,000, which would either have to be funded by the borrowers or more work would have to be completed so that the cost to complete the project would be $0 after the final advance of $100,000, before the final draw would be advanced. [Emphasis added] [ 68 ] On March 1, 2016, April 1, 2016, and June 1, 2016, respectively Meadow Ridge paid the Respondent interest of $5,289.05 (as though the amount of $750,000.00 had been advanced by the latter), $7,006.85 (again on $750,000.00) and $10,463.57 (on the full $1,120,00.00, even though none of the hard cost facility had been advanced to that point). [ 69 ] In March 2016 further developments were occurring.

These led Meadow Ridge to consider other expedients. First, on March 2, 2016, Mr. Jaskolka corresponded with Mr. Repchull indicating that he (through CMI) could provide interim financing interest-free for the first 30 days, so that Meadow Ridge could pay All Terrain and the project could continue ( Repchull affidavit, October 2, 2016, para. 50 ). This enabled Meadow Ridge to pay the balance (then) still owed to All Terrain ($83,317.50) on March 22, 2016. [ 70 ] As this was going on, Mr. Moskowitz’s affidavit outlines what was happening from the Respondent’s perspective ( affidavit, December 2, 2016 ): 142. Mr.

Jakolka [sic] sent me an email on February 23, 2016 requesting that Moskowitz Capital let the Applicants out of the Loan/Mortgage on the following basis “we’ll be looking for a credit of the lender and legal fees on your end along with no prepayment penalty”. 143. On or about February 24, 2016, I sent an email to Mr. Jaskolka indicating that Moskowitz Capital is considering the Applicants request to amend the term of the Loan to exit without a penalty. Attached as Exhibit “41” is a copy of the email from Mr. Jaskolka on February 23, 2016 and my response on February 24, 2016.

144. In response to paragraphs 32-34 of the Affidavit of Brian [sic] Jaskolka, I emailed Mr. Jaskolka on February 29, 2016 indicating that “Based on the numbers provided, and the concessions we provided on Friday, the formula provides for a draw figure of $112M”. Attached as Exhibit “42” is a copy of my email to Mr. Jaskolka and a revised copy of the Cost to Complete calculations. 145. In my email to Mr. Jaskolka, I requested that the Applicants provide the cancelled cheques for which WSP had been paid to date. 146.

Moskowitz Capital requested the cancelled cheques from the Applicants for both the confirmation of the validity of the contracts and for proof that the suppliers were being paid. 147. Cancelled cheques are a normal request as part of a quantity surveyor’s (cost consultant) report. We requested that WSP provide the cancelled cheques but they did not do so. As a result, Moskowitz Capital asked the Applicants and Mr. Jaskolka to provide them. 148.

As of February 29, 2016, Moskowitz Capital was trying to reduce the costs for the Applicants by conducting an internal review instead of having the Applicants hire a cost consultant. 149. It was Moskowitz Capital’s understanding that suppliers were not being paid, through the actions of the Applicants who told us that Allterrain was not paid and providing us with unpaid invoices . 150. Unpaid invoices have an impact on the cost to complete the Project and could cause potential damage to the Project such as builders’ liens. 151. My email to Mr.

Jaskolka was partially in response to an email from him where he alleged that Moskowitz Capital slipped clauses into

Schedule B without discussion with the Applicants or Mr. Jaskolka. 152. I indicated in my email to Mr. Jaskolka that he was incorrect with this allegation. The Applicants and Mr. Jaskolka had an opportunity to obtain legal advice and had time to review the documentation. 153. I also indicated to Mr. Jaskolka that I never offered the Applicants a credit. I wrote in my email that: What I said was that if you need time to arrange new financing I would postpone the interest on unadvanced funds. If this is something you are interested in then we can amend the loan.

We are prepared to provide relief for 90 days while you arrange new financing. No further funds will be advanced after this. Again both parties would have to agree to an amendment… [Emphasis added] [ 71 ] The Applicants respond by saying, in effect, “of course, All Terrain (and other suppliers) had not been paid. This was because none of the HCF had been advanced by the Respondent”. The Applicants argue that the Respondent created the problem with unpaid suppliers (that Mr. Moskowitz pointed out above) then relied on that “problem” to justify further funding delays.

It was not until March 2, 2016 that interim funding became available to the Applicants (through Mr. Jaskolka’s company, CMI) to pay All Terrain and some other costs. [ 72 ] Anyway, Mr. Moskowitz continues the narrative: 156. Despite the difficulties that Moskowitz Capital was having with the Applicants throughout the Loan, Moskowitz Capital was still willing to work with the Applicants in relation to the anticipated advances under the Hard Cost Facility. 157.

Throughout a construction loan, Moskowitz Capital or any other lender has to continuously review the progress of the borrower and their financial situation. 158. Moskowitz Capital had some level of comfort regarding the balance associated with the budget and finances of Meadow Ridge because we understood that WSP was preparing the budgets for the Applicants. 159. Moskowitz Capital understood, based on representations made by the Applicants, Mr. Jaskolka and Mr. Suri that the budget for the Project was prepared by WSP.

Attached as Exhibit "43" are copies of the various correspondence that we received from the Applicants, Mr. Jaskolka and Mr. Suri which Moskowitz Capital relied upon. 160. By the end of February, 2016, Moskowitz Capital discovered that the budget was not prepared by WSP but it was prepared by Mr.

Repchull , which caused Moskowitz Capital concern as we had lost confidence in Mr. Repchull's reporting and ability to bring the Project to completion. 161. On or about March 1, 2016, I sent an email to Mr. Jaskolka and Mr. Repchull indicating that Moskowitz Capital wanted a cost consultant to report on the operations of Meadow Ridge before proceeding with an advance under the Hard Cost Facility . In my email, I stated that: We have decided not to move forward with the advance until we have a cost consultant report to verify the work to date, work paid for and cost to complete .

You represented that the budget and costs to date were from WSP but we have learned they are not from WSP. Rather the numbers are from Kurt. We don't have confidence in your reporting. [Emphasis added] 162. Attached as Exhibit "44" is a copy of the email I sent to Mr. Jaskolka and Mr. Repchull. 163. On or about March 2, 2016, Mr. Jaskolka sent me an email indicting [sic] the following: If a cost consultant is required to remedy this situation, then lets [sic] do that immediately. I'm working on the other spreadsheet as we assemble all the source date [sic].

If that doesn't resolve the impasse, then I would like the right to exercise my buyout clause in the 2nd mortgage postponement, and/or the mortgage to be open and interest only payable on the $250k advances, and we will work to pay you out. 164. Attached as Exhibit "45" is a copy of the email from Mr. Jaskolka. 165.

As an alternative to proceeding with a cost consultant and with the funding of the Hard Cost Facility, Moskowitz Capital presented the Applicants with an amended term sheet that would reduce the principal of the loan to the $250,000 that was already advanced, change the maturity date to May 31, 2016, open up the prepayment of the Loan, and remove the Hard Cost Facility funding. [Emphasis in original] [ 73 ] Then at paras. 167 to 171: 167. Mr.

Jaskolka followed up with another email on March 2, 2016 indicating that the Applicants were agreeable to proceeding with a cost consultant, indicating that "This had never before been requested, but is a fair and reasonable approach." Attached as Exhibit "47" is a copy of the email from Mr. Jaskolka. 168. In that same email, Mr. Jaskolka indicated that should the cost consultant process fail, then he would "forward this amendment to the project lawyer and my ILA and upon their recommendation we will accept and work on facilitating a payout." 169.

The Applicants chose to proceed with the cost consultant instead of proceeding with an amendment of the term sheet/mortgage . 170. On or about March 3, 2016, Mr. Jaskolka sent me an email indicating that "Regarding your amending offer, we're happy to proceed with the cost consultant at this time." Attached as Exhibit "48" is a copy of the email from Mr. Jaskolka. 171. On or about March 11, 2016, I sent an email to Mr. Jaskolka indicating that they should engage either Hanscomb Loan

Monitoring Inc. ("Hanscomb") or Altus Group as the cost consultant to monitor the Project on a cost to complete basis as per the term sheet/mortgage. Attached as Exhibit "49" is a copy of the email to Mr. Jaskolka. [Emphasis added] [ 74 ] Mr. Jaskolka and Mr. Moskowitz had discussed in prior email correspondence the fact that he felt that even on Moskowitz’s version of the “cost to complete” formula, the Applicants own calculations indicated that they were entitled to a draw in the amount of at least $112,000.00.

Jaskolka goes on to explain in paras. 39 to 45 of his affidavit ( filed on October 14, 2016 ): 39. … on March 3, I emailed Moskowitz and agreed to appoint the cost consultant. I decided not to execute the mortgage amending agreement because I was hopeful the cost consultant would resolve the problems with Moskowitz, and the Project could continue as planned . That email is attached as Exhibit "Y". 40. On March 4, 2016, I emailed Mr. Moskowitz and Mr. Stern a budget and a supporting documentation package, and explained that all outstanding invoices would be paid within the week.

Based on the emails at the time, I expected that this was all the additional information Moskowitz needed to see. That email is attached as Exhibit “Z”. 41. On March 11, 2016, Mr. Moskowitz asked that I engage Hanscomb Loan Monitoring Inc. ("Hanscomb") or the Altus Group as the cost consultant on a "cost to complete" basis. That email is attached as Exhibit “AA”. 42. I emailed Hanscomb that same day, and after receiving their proposal I engaged them on March 21, 2016. My email is attached as Exhibit “BB”. 43. On April 1, 2016 Hanscomb provided its initial project review.

That document is attached as Exhibit “CC”. 44. During April and May I do verily believe that Mr. Repchull was working hard to make as initial report in hand, its report on the First Draw imminent, and with so much progress being made, Moskowitz would finally advance the overdue Draws. 45. On May 30, 2016 Hanscomb provided its report on the First Draw, recommending that Moskowitz advance $190,382.00. That document is attached as Exhibit “DD”. [Emphasis added] [ 75 ] Hanscomb Loan Monitoring Inc. (“Hanscomb”) had earlier provided an initial project review on April 1, 2016.

It was prefaced by an email from Amanda White of Hanscomb to Andrew Stern for the Respondent, and said, inter alia : Andrew, attached the initial project report for your review. If you require anything further please let us know. We will be preparing the advance report to follow the initial report this week. To ensure that we have everything that is required please let us know when a good time would be to discuss this or if you have a standard list of requirements please provide them for our reference at your earliest convenience. [ 76 ] Copies were sent to Messrs.

Repchull and Jaskolka on behalf of the Applicant. [ 77 ] As was seen, Hanscomb was one of the two cost consultants from whom the Respondent had advised the Applicant that it would accept a report. The Applicants were required to pay the cost of this report. At p. 4 of the initial report (in the final two paragraphs of the executive

summary) Hanscomb advises ( affidavit, Bryan Jaskolka, October 14, 2016, volume 2, Tab cc ): 11. Subject to our recommendations contained in this report and all legal and security matters being in order, we believe the subject property satisfies conditions precedent to the advance of funds. 12. From our review of the project plans and specifications we have determined the project budget that has been developed to be a fair and adequate budget for completing the project scope in accordance with provided plans and specifications, with the exception of the contingency reserve . Please see

section 8 on page 13 for details. Consideration has also been given to applicable codes and permits required and it has been determined that the budget adequately reflects these requirements as well. Review of contracts and accepted quotes currently in place has also been done. [Emphasis added]

[ 78 ] At para. 5, p. 10 (of the initial report) we find as follows: [ 79 ] Contingencies (as earlier mentioned in the executive report) were dealt with on p. 13 of the initial report in para. 8(6): Contingencies: A contingency of $15,967.00 remains in the budget to cover variances between bids received and for unforeseen changes within the design documents and the actual construction. This contingency was not included in the original budget provided, however is the difference (savings) between the current budget and the original budget as provided in the Lender term sheet.

Typically, we would recommend a contingency in the range of 3% - 5% for this type of project. However it is our understanding that any increase in the project budget will be added to the Developer's equity when incurred. Therefore reducing any progress claim/advance by the same amount. [ 80 ] At para. 7 the author goes on to conclude: Conclusion: We conclude that the overall total should be adequate and cost distribution reasonable based on the form of construction and type of project, with exception of the Contingency. The project monitoring cost

schedule presented in Appendix B will be used as a frame of reference for on-going cost monitoring of the project development and to assist in evaluation of costs to complete at each review stage. [ 81 ] Hanscomb provided its (final) report on the first draw (from the HCF) on May 30, 2016. Central to that report was its recommendation that Moskowitz advance $190,382.00 to the Applicant. Included in this report was the following: 1. PROJECT MONITORING CONSULTANTS REPORT … 4. Equity & Payments Review: Confirmation of the Borrower's Equity requirement of $566,393.00 is required before the … advancement of funds.

According to our review of the invoices and cancelled cheques, an equity amount of $574,218.65 (excluding HST) has been paid to date by the Borrower, which exceeds the equity required. Therefore based on the information we have received to date, the equity requirement has been achieved. Please see the following breakdown of equity values reviewed:

a) Land Value $223,688.00

b) Hard Costs & Soft Costs Paid to Date $600,530.65

c) Less: Advancements Made by Lender To Date $250,000.00

d) Equity Value Paid to Date : $574,218.65 … 7. Progress of the Work: Allterrain Contracting Costs are approximately 74% complete: • Mobilize - 100% complete • Cut Trees -100% complete • Grubbing - 100% complete

• Excavate & Import Fill-100% complete • Sanitary Services-100% complete • Storm Services - no claim • Type 2 -100% complete • Type 1 - 100% complete • Asphalt - no claim • Landscape -no claim • Signs -no claim • Guardrail - no claim • C0#1 -Over Excavation - no claim • C0#2 - Wastewater Treatment Plant & Construction - 11 % complete • C0#3 -Additional Blasting - 100% complete. … 9.

Schedule : The Developer has not provided a construction

schedule to HLMI. Construction began in November 2015 and the project is expected to be completed by July 2016 for a total construction period of approximately 7 months. At the time of our current site visit the progress of the work appears to be progressing as planned. Please refer to photographs taken of the construction progress during the period of this advance request in Appendix B. … 13.

In my/our opinion, as of the date hereof, the figures set forth below accurately reflect the Project costs or work completed on the Project and the costs of the remaining work required completing the Project in accordance with the plans and specifications. A report setting out in greater detail those elements comprising the figures set out below is attached hereto and forms part of this Certificate. 1. Project Costs of Work Completed to Date: $1,043,850.00 2. Project Costs of Remaining Work: $642,543.00 3. Total Project Costs (1+2): $1,686,393.00 4. Original Total Project Contract Value: $1,680,495.00 5.

Amount of Additional Costs, if any (3-4): $5,898.00 … 15. Budget Movements: The current budget is $1,686,393.00 which has increased by $5,898.00 from the original budget of $1,680,495.00. Please refer to

Section 3 for a detailed breakdown of the current budget.

( Bryan Jaskolka affidavit, sworn October 13, 2016, tab DD) [ 82 ] The report concluded on page 6 by providing a

summary of total project costs: [ 83 ] The total first advance of the HCF recommended by Hanscomb was $190,382.00 as indicated. [ 84 ] On June 1, 2016, Mr. Moskowitz provided confirmation that he had received the Hanscomb report.

The Applicants’ representative requested that if he had any further questions he put them in writing so that everything would be clear. [ 85 ] Up to this point, some sense of how Meadow Ridge was financing the project, and how the project ended up being in the shape that was reported by Hanscomb, notwithstanding the fact that the Respondent still had not provided any of the HCF funding, may be gleaned from Mr. Repchull’s affidavit. Although he also provided viva voce evidence on the topic, his affidavit evidence was more concise: 55.

By this time [April 1, 2016] the Project was in desperate need of cash, and Moskowitz was still refusing to advance any of the overdue Draws. Instead, Meadow Ridge executed a Grid --​ Promissory Note (the "Grid Note") with Canadian Lending on April 14, 2016 . A copy of the Grid Note is attached as Exhibit "00". Under its terms, all amounts are charged 18% interest (calculated semi- annually, not in advance). 56. Meadow Ridge had to add most of its expenses on the Project to the Grid Note, since we couldn't get any money from Moskowitz.

The amounts on the Grid Note relating to the Project are: March 4, 2016 All-Terrain (subcontractor) $109,966.75 March 22, 2016 All-Terrain (subcontractor) $83,317.50 March 29, 2016 (lawyer) Pat Cassidy (bare land condo service) $5,750.00 April 7, 2016 Meadow Ridge $10,000.00 April 8, 2016 Meadow Ridge $10,000.00 April 10, 2016 Meadow Ridge $10,000.00 April 30, 2016 All Terrain (subcontractor) $40,623.75 June 29, 2016 All Terrain (subcontractor) $10,350.00 June 29, 2018 All-Terrain (subcontractor) $151,627.50

July 12, 2016 Moskowitz (payment into court) $322,535.75 Total: $838,989.50 [Emphasis added] [ 86 ] On June 1 st , 2016 after receiving the Hanscomb report which recommended a draw on the hard cost facility in the amount of $190,382.00, Mr. Stern contacted Mr. Jaskolka and indicated as follows ( affidavit of Jaskolka, October 14, 2016, volume 2, tab ff ): As part of each draw we do for our clients we do a spot review of the progress on the project.

For our discussion the general questions we will be asking are: • What is the current status of the sales and marketing initiatives? • What has [sic] the source of mortgage payments to date and in the future? [ 87 ] In response, Mr. Jaskolka replied on June 10 th , 2016 to both Messrs. Moskowitz and Stern ( affidavit, volume 2, tab gg ): The source of mortgage payments to date has been the shareholders of the corporation, and in the future we anticipate mortgage payments being made from the same source… [ 88 ] Mr.

Jaskolka also reported that the company’s marketing initiatives had consisted of a website, the receipt of free publicity from The Chronicle Herald, and that Meadow Ridge had been in receipt of regular contact with agents and direct consumers with some interest in the seniors community. He provided a design for the project entry signage, and reported that site work was ongoing with respect to the sewage treatment plant.

Then he added: Once we are receiving our financing draws in a timely fashion, we will be in a position to turn our attention to sales and marketing instead of our financing, something that we thought was dealt with in November 2015 when your mortgage was put in place…if there are additional requests for information beyond what we have already provided to date, we also ask that you identify where in the loan documents the requested information is required as a conditional of advancing funds.

The only specific concerns that you have raised relate to verification of work completed to date, the work paid for to date, and the project costs to complete. The Hanscomb report addressing these issues has been in your hands for almost a month with no further concerns raised by you. The Hanscomb report recommends an advance, and clearly you have taken no objection to the recommendation… We consider all conditions now satisfied for a further advance. [ 89 ] On June 14, 2016 Mr. Jaskolka followed up with an email to Messrs.

Moskowitz and Stern pointing out that he had not received a reply to his email of June 10, and that he anticipated “your confirmation of release of funds by no later than the end of day tomorrow, Wednesday, June 15”. [ 90 ] What happened next has been the subject of comment in the affidavits of Messrs. Jaskolka, Repchull and Moskowitz. [ 91 ] First, Mr. Repchull ( affidavit, filed October 12, 2016 ): 64. On June 14, 2014 Mr. Moskowitz called me to ask how Meadow Ridge was paying its subcontractors (since he hadn't advanced any of the Draws) . As I recall, at one point in the conversation Mr.

Moskowitz threatened to recall the Mortgage entirely. I was surprised by that call. 65. That same day, Mr. Jaskolka forwarded me an email with Mr. Moskowitz's version of the call I had with him. Mr. Moskowitz's comments were not correct based on my recollection of that call. I emailed Mr. Jaskolka and told him that I had repeatedly told Mr. Moskowitz that the source of payments were shareholder loans, and that Mr. Moskowitz had never said that the information he needed was a "status update" before the release of funds. 66.

Allterrain issued invoices 2964 and 2965 on the Project on June 16 and 17, 2016, for $38,812.50 and $124,319.02, respectively. A copy of those invoices are attached as Exhibit "XX" and Exhibit "YY". 67. On June 23, 2016 I received another email from Ms. Comia, attaching an invoice for the interest due on the Mortgage as of July 1, 2016. The invoice charged interest as if the full $1,120,000.00 had been advanced by April 15, 2016; it had not. Moskowitz had still only advanced $250,000.00. A copy of that email and statement are attached as Exhibit "ZZ". 68.

At this point we had been waiting almost 8 months for money on a 12 month mortgage. It was clear to me that Moskowitz just wanted to collect his interest and was never going to advance any more funds for the Project. We desperately needed to find money somewhere else in order to keep the Project going. After speaking with Mr. Jaskolka and with my lawyer, I told my staff to cancel the

automatic debit of the Moskowitz interest payment which was due July 4, 2016. 69. On July 7, 2016, I received a Demand Letter and Notice of Default from Moskowitz. A c opy of that letter is attached as Exhibit "AAA". 70. On July 15, 2016, I received four letters entitled "Notice of Intention to Enforce Security (Sec.244(1)) of the Bankruptcy and Insolvency Act , RSC 1985, c 8-3". They were addressed to Shirestone, Meadow Ridge, me (in my personal capacity), and my wife, respectively. A copy of these documents are attached as Exhibit "BBB". 71.

Shirestone, Meadow Ridge, and I are first-time developers, a fact which I told Moskowitz many times. We are a small, family- owned development company, and Moskowitz had advertised that fact on their website. We relied on Moskowitz to fund our project; we don't have the money ourselves, and this is why we sought financing in the first place . [Emphasis added] [ 92 ] Next, Mr. Jaskolka ( affidavit filed October 14, 2016 ): 51. On June 14, 2016, Mr. Moskowitz emailed me stating that he had spoken to Mr.

Repchull by phone in order to check whether there was "a material change in risk and if payments [could] be made". He said that Mr. Repchull had not yet provided a "status update". Finally he requested a

schedule of shareholder loans to Meadow Ridge so that Moskowitz could understand how payments were being made. This email is attached as Exhibit “II”. This was not a requirement of either the term sheet or the Mortgage. 52. Mr. Repchull replied to me a half hour later and said he had told Mr. Moskowitz the source of payments several times, contrary to Mr. Moskowitz's earlier email. Mr. Repchull also told me that Mr. Moskowitz never told him he required a "status update" before the release of funds, and that Mr. Moskowitz had actually threatened to recall the loan… [ 93 ] Mr.

Jaskolka concludes by describing unsuccessful attempts that the parties made to resolve their differences at this juncture. [ 94 ] Finally, Mr. Moskowitz’s perspective is provided in his affidavit of December 2, 2016: 183. On or about May 30, 2016, Hanscomb provided Moskowitz Capital with the first advance report ("First Advance Report")... 184. Upon our review of the First Advance Report, Moskowitz Capital determined the amounts for interest, taxes and other timing related amounts used in Hanscomb's calculations were too little . 185.

For example, Hanscomb included interest costs of $56,000, of which they indicated that $29,797 was already paid, leaving $26,203.00. In reality, the potential interest costs remaining were approximately double the amount based on the time remaining to complete the Project and for the sale of units. Other factors such as potential extra property taxes should have also been considered. 186. On or about June l, 2016, I sent Mr. Jaskolka an email to set up a phone call to discuss the First Advance Report. 187. Mr.

Jaskolka responded to my email stating "Please email us any questions you have so that we can conclude the pending draw." Attached as Exhibit "56" is a copy of my email to Mr. Jaskolka and his reply email. 188. I spoke with Mr. Jaskolka after receiving his email and attempted to arrange a teleconference between Moskowitz Capital, Mr. Jaskolka and Mr. Repchull. 189. On or about June 1, 2016, Mr. Stern sent Mr. Jaskolka an email indicating that as part of each draw for client, Moskowitz Capital does a spot review of the progress on the project. Mr.

Stern set out some general questions that Moskowitz Capital was looking for answers on, including: What is the current status of the sales and marketing initiatives?

What has the source of mortgage payments to date and in the future? … 191. If the Applicants were unable to begin paying down the principal balance of the Loan with the sale of units or pay out the Loan upon the ending of the term, the Applicants would have been exposed to having to pay extra interest costs, further increasing the cost to complete. 192. As a result of these concerns, Moskowitz Capital inquired about the status of the sales and marketing initiatives, as well as the source of the mortgage payments to date and in the future. 193.

Despite our attempts to discuss the timing of the Project and other issues with respect to the Project with the Applicants and Mr. Jaskolka, the Applicants and Mr. Jaskolka stonewalled our attempts. … 195. After further delay by Mr. Jaskolka and the Applicants, on June 10, 2016, Mr. Jaskolka sent me an email with copy to Mr. Stem in response to Mr. Stem's email from June 1, 2016. Mr. Jaskolka indicated that "The source of mortgage payments to date has been the shareholders of the corporation, and in the future we anticipate mortgage payments being made from the same source”. 196. Mr.

Jaskolka also outlined the various marketing efforts being made by the Applicants. A copy of Mr. Jaskolka's email is contained as Exhibit “GG” to the Affidavit of Bryan Jaskolka. 197. On or about June 14, 2016, I spoke with Mr. Repchull by telephone to obtain an update from him prior to proceeding with the first advance under the Hard Cost Facility. I wanted to inquire about whether there was a material change in risk and if monthly payments could be made. 198. Mr. Repchull refused to provide me with a status update. During the call, I recall saying to Mr.

Repchull, something to the effect that, "if you aren't going to provide the information, what other option do I have but to call the loan.'' 199. After not receiving any information from Mr. Repchull, I attempted to call Mr. Jaskolka and then sent Mr. Jaskolka an email requesting that he provided me with a

schedule of shareholder loans into Meadow Ridge in an effort to understand how monthly payments were being made. Attached as Exhibit "59" is a copy of my email to Mr. Jaskolka. 200. The Applicants and Mr. Jaskolka did not provide the requested

schedule of shareholder loans. [Emphasis added] [ 95 ] The parties could not even agree on how to end their relationship. The Applicants realized that they would need an alternative source of funding, both

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