C.A. No. 105123
C.A. No. 107043
NOVA SCOTIA COURT OF APPEAL
Cite as: Quad-Ram Development Group Ltd. v. Montreal Trust Company,
Hallett, Matthews and Freeman, JJ.A.
BETWEEN:
QUAD-RAM DEVELOPMENT GROUP ) David G. Coles
LIMITED, a body corporate, and ) for the Appellants
JOSEPH RAMIA )
Appellants )
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- and - )
) R. Barry Ward
) for the Respondent
MONTREAL TRUST COMPANY OF )
CANADA )
)
Respondent ) Appeal Heard:
) September 29, 1994
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) Judgment Delivered:
) November 8, 1994
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THE COURT: Appeal allowed per reasons for judgment of Hallett, J.A.; Matthews and Freeman, JJ.A. concurring
HALLETT, J.A.
There are two appeals before the court in this proceeding. The first from a decision of Palmeter, A.C.J. of the Supreme Court granting the respondent's application to strike the appellant Ramia's defence to a claim made by the respondent against Ramia on his personal covenant and guarantee in a mortgage made by Quad-Ram in favour of the respondent. In addition, the learned chambers judge granted the respondent's application for summary judgment against Ramia pursuant to Civil Procedure Rule 13 and ordered that the quantum of the claim for deficiency, arising out of the sale of the mortgaged property, be assessed at a later date.
The second appeal relates to a decision of Mr. Justice Goodfellow granting the respondent's application, made pursuant to Civil Procedure Rule 47, for the deficiency judgment and fixing the amount of the deficiency at $409,757.
In my opinion the appeal from the Palmeter decision must be allowed and as a result the Goodfellow decision also falls.
Associate Chief Justice Palmeter erred when he concluded that the appellant did not raise a fairly arguable issue that entitled Ramia to a trial. I will first review the relevant facts before giving my reasons for coming to this conclusion.
Ramia is a principal of Quad-Ram. On June 10, 1991, Quad-Ram mortgaged an apartment building to the respondent to secure a loan of $3,000,000. Ramia guaranteed the mortgage pursuant to the following clause:
" Guarantee
The GUARANTOR covenants with the mortgagee that the mortgagor will pay the instalments of principal and interest as they fall due, and will observe the covenants, terms and conditions herein; and that in the event of default by the mortgagor the guarantor will upon demand pay any amounts in default, and will perform the covenants, terms and conditions herein."
Ramia also signed the mortgage as a covenantor by reason of the incorporation of the Commitment Letter into the mortgage. Clause 30 provides that Ramia promised to pay, as principal debtor, the amounts due to the lender and keep all the terms and conditions provided for in the Commitment Letter and the security documents which, of course, would include the mortgage.
Clause 14 of the Commitment Letter makes reference to the security documents that were to be delivered in form and substance satisfactory to the lender at the time the funds were to be advanced and would include an "unconditional and unlimited covenant, guarantee and postponement of claim from each of the Covenantors, as principal debtor and not as surety." There is nothing in the documents filed with the court that would indicate that such an unconditional guarantee was obtained, that is not to say it was not. However, considering the issues raised as to the liability on the guarantee, one would have expected the respondent to have filed such a document if it exists. The only guarantee appears to be that contained in the clause in the mortgage which I have previously set out.
In September 1991 Ramia foresaw difficulties in meeting the mortgage payments. The evidence showed that extremely high vacancy rates in the apartment building could be anticipated because of the likelihood that a number of leases would not be renewed in November of 1991.
In October 1991, with the advice of his chartered accountant and lawyer, Ramia caused Quad-Ram to enter into an agreement with a Mr. Fred Arab to buy from Quad-Ram the shares of a new company to be incorporated as a fully owned subsidiary of Quad-Ram to which Quad-Ram would have transferred the mortgaged property; the new company would have assumed the mortgage of $3,000,000 and given a promissory note to Quad-Ram in the amount of $400,000. On the transfer of the shares of the new company from Quad-Ram to Arab for $1.00 he would pay off the $400,000 promissory note owed by the new company to Quad-Ram. There were a number of conditions precedent to Mr. Arab's obligation to close the transaction including being able to assume the $3,000,000 mortgage held by the respondent.
Clause 18 of the mortgage is relevant to the issue. It provides:
" SALE OF PROPERTIES: In the event of a transfer, sale or change in legal or beneficial interest in the Properties, or lease of the whole of any of the Properties or a substantial portion thereof for a period exceeding 20 years, or further encumbering of any of the Properties, without the prior written consent of the Lender, all of the security hereunder shall, at the option of the Lender, be crystallized and without limited the generality of the foregoing, the Loan shall, at the Lender's option, forthwith become due and payable, and all further and additional security shall be deemed in default and fully enforceable. It is understood and agreed by the Borrower that the giving of any such consent shall be at the sole option and discretion of the Lender, which consent may be arbitrarily or unreasonably withheld by the Lender; provided that, in giving any such consent, if, based upon the purchase price paid on any transfer or sale of the Property, the outstanding principal balance of the Loan exceeds the loan-to-lending value ratio as defined and originally approved by the Lender for this Loan, the Lender shall be entitled at its option to require the Borrower to pay an amount sufficient to reduce the outstanding principal balance of the Loan to an amount not exceeding such original loan-to-lending value ratio, together with additional interest calculated as set forth in the following paragraph.
If such a sale or transfer is made without the Lender's consent, whether or not unreasonably withheld, the Loan and interest thereon shall become immediately due and payable and the Borrower shall pay to the Lender additional interest calculated by the Lender as the present value of the interest loss being an amount equivalent to the difference between the aggregate interest that the Lender would obtain by replacing the sum of money thus repaid for a period equivalent to the remaining term of the Loan, discounted at a re-investment rate determined by the Lender, provided that no such additional interest shall be repayable if the re-investments rate is equal to or greater than the face rate of the Loan."
On October 9, 1991 Ramia's solicitors wrote the respondent requesting consent to the proposed Arab transaction; the letter to Mr. Noiles of the respondent stated in part:
" Montreal Trust's consent to the transfer of the title of the property and the subsequent sale of shares is requested. For our purposes, that consent can most easily be provided to you by signing a copy of this letter and returning the same to us."
Mr. Ramia's solicitors went on to state that it was intended that the transaction would occur on or before October 31, 1991, and that if the respondent required any further particulars they would be pleased to be of assistance. The requested consent was never given. The proposed sale to Mr. Arab was not completed. The mortgage which was in default in October 1991 continued to be in default through November. On December 19, 1991, the respondent appointed a receiver/manager to manage the apartment building. In March of 1992 foreclosure proceedings were commenced; a defence was filed on March 18, 1992. The defence is, of course, of extreme relevance with respect to the issues that were before Palmeter A.C.J. The Statement of Defence asserted that (i) the respondent unreasonably refused to consent to the transfer and the assumption of the mortgage by Arab; (ii) that the proposed sale would have improved the position of the respondent; and, (iii) by failing to act responsibly the respondent adversely and prejudicially affected the risk of Ramia on the covenants of the mortgage. Ramia also asserted that the refusal to consent to the assumption precipitated the collapse of the Arab transaction.
Subsequently Quad-Ram and Ramia agreed to withdraw the defence and allow the foreclosure sale to proceed subject to the following provision contained in the order for foreclosure and sale granted on May 7, 1992:
" It is ordered that the Statement of Defense herein filed the 19th day of March, 1992, be and is hereby struck out pursuant to Rule 14.25, saving only as it may apply to an Order of Deficiency Judgment as may be applied [for] hereunder."
This had the effect of preserving Ramia's defence to the claim for a deficiency should there have been one after the foreclosure and sale of the mortgaged property.
The foreclosure order fixed the amount owing on the mortgage and ordered the sale of the mortgaged property. The sale took place on June 29th, 1992; the property was bid in by the respondent for the outstanding sheriff's fees and charges. The respondent then obtained two professional appraisals; one which valued the property as of September 23rd, 1992 at $3,000,000 and the other as of October 1st, 1992 at $2,850,000. The property was listed with five reputable companies in October of 1992 with a listing price of $3,450,000. By that time the vacancy rate had been reduced to 7%. At one point in the year it had been as high as 57%. In February of 1993 the asking price was reduced to $3.2 million. A number of offers were received and they are documented in the affidavits filed in these proceedings. All were rejected by the respondents, principally because the proposed purchaser either required a mortgage representing too high a percentage of the value of the building or the purchaser was unwilling to sign a personal covenant. Eventually the respondent accepted an offer of $2,565,000 which was reduced to a written agreement on November 4th, 1993, with the closing on November 30th, 1993. The transaction was subject to the completion, by the same purchaser, of the purchase of two other properties which the respondent had on the market. The transaction closed on November 30th, 1993, and in early 1994 the respondent instituted proceedings to strike the defence and obtain summary judgment pursuant to Civil Procedure Rule 13. That rule provides:
" Application for a summary judgment
13.01. Where a defendant has filed a defence or appeared on a hearing under an originating notice, the plaintiff may, on the ground that the defendant has no defence to a claim in the originating notice or a part thereof except to the amount of any damages claimed, apply to the court for judgment against the defendant."
On March 17, 1994, the respondent made a demand for particulars of the defence. The respondent demanded specifics of the alleged offers that were referred to in the defence and particulars of the (i) alleged unreasonable rejection of the proposed assumption of the mortgage by Mr. Arab as referred to in the defence; (ii) how the respondent failed to act responsibly; and (iii) what it did that materially and prejudicially affected the risk of Ramia.
An Answer to the demand for particulars was filed. It set out that Mr. Fred Arab had agreed to purchase the shares of the new company to be incorporated and that the conditions precedent to the closing of that transaction were satisfied except that the respondent refused to consent to the sale of the beneficial interest in the mortgaged property. It was asserted that the respondent refused to allow the assumption of the mortgage unless payment was made of a sum of money and under terms which were so onerous that the purchaser would not accept. The Answer stated that the "up front payment" which the respondent demanded was equivalent to three months of mortgage payments. The Answer stated that the closing of the Arab transaction would have seen the building sold for $3,400,000; that the respondent failed to act in a businesslike manner and that the position of the respondent would have improved, not only by retaining all the security it held in relation to the original mortgage, but also implying that the respondent would have acquired the covenant of Mr. Arab. The Answer also asserted that the respondent had made inquiries as to the financial ability of Mr. Arab and had been supplied with net worth statements demonstrating his ability to satisfy the obligations he would be assuming. The Answer set out that the risk to Ramia on the covenant in the mortgage was increased by the respondent's refusal to consent to the assumption of the mortgage. The risk to Mr. Ramia increased because he continued to be the sole person bearing the risk of a deficiency judgment.
The respondent's application for a deficiency judgment was supported by the affidavit of Herb MacIntosh of the respondent company, that affidavit being dated December 31st, 1993. There was already on file the affidavit of Mr. Noiles of the respondent company dated the 21st day of April, 1992. Presumably it was filed at the time the foreclosure order was sought. Noiles' affidavit sets out the dealings in October and November 1991 between Ramia and the respondent with respect to the proposed Arab transaction.
By order dated April 11, 1994, the chambers judge ordered "that the deficiency judgment application hearing... be adjourned sine die pending disposition of the statement of defence on file herein." On April 28th, 1994, the respondent gave notice that it would be applying for an order (i) striking the statement of defence pursuant to Rule 14.25; (ii) for summary judgment pursuant to Rule 13.01; and (iii) fixing a day for the determination of the quantum of the deficiency judgment pursuant to the foreclosure and sale. The application was heard by Palmeter A.C.J. on May 10th, 1994. It would appear from the record that there would have been before the court in support of the application the April 21st, 1992, affidavit of Mr. Noiles as well as the affidavits of Mr. Herb MacIntosh dated December 31st, 1993, March 1st, 1994, and April 27th, 1994. In opposition to the application Palmeter A.C.J. would have had before him the affidavit of Mr. Ramia dated the day of May 1994 which stated as follows:
" I, Joseph Ramia, of Dartmouth, in the County of Halifax, Province of Nova Scotia, hereby make oath and say as follows:
1. THAT I am the named individual Defendant in this proceeding and am a principal of the corporate Defendant in this proceeding, and as such, have personal knowledge of the matters deposed to herein, except where stated to be by way of information and belief.
2. THAT on or about June 10, 1991, Quad-Ram Development Group Limited ("Quad-Ram"), entered into a mortgage with Montreal Trust Company of Canada ("Montreal Trust") and that I was named personally as a guarantor of this mortgage.
3. THAT within a few months after the mortgage was executed, I came to the realization that Quad-Ram would have difficulty in meeting its obligations under the mortgage and attempted to enter into an agreement with Mr. Fred Arab which would have been him assume the mortgage as part of a Share Purchase Agreement and that the Share Purchase Agreement is attached hereto to this my Affidavit as Exhibit "A".
4. THAT the conditions precedent to this Agreement are set out in Article 4.
5. THAT one of the conditions precedent required that Mr. Arab be able to assume the existing mortgage.
6. THAT all of the other conditions precedent were satisfied or arrangements were in place that would have seen them satisfied prior to closing with the exception of (g) and (l).
7. THAT with respect to condition "l", a collateral agreement had been reached whereby if this term could not be satisfied, another arrangement had been agreed upon.
8. THAT with respect to condition "g", Montreal Trust refused to allow the assumption of the existing mortgage unless payment was made of the sum of money of an amount and under such terms which were so onerous that the purchaser would not accept.
9. THAT Montreal Trust insisted upon this unreasonable payment when it was aware that such demand would result in the purchasers failing to close and that the failure to close this agreement would result in harm to myself and Quad-Ram.
10. THAT had this agreement closed, then there would be no deficiency and Quad-Ram would have acquired $400,000.
11. THAT Montreal Trust's position would have improved in that it would not only have retained all of the security it held in relation to the original mortgage, but would also have acquired additional security from Mr. Arab.
12. THAT information was provided to Montreal Trust that demonstrated that Mr. Arab's ability to satisfy his obligations under an assumed mortgage were apparent and that, indeed, the position of the Plaintiff would be enhanced had it allowed the assumption of the mortgage."
The record also shows that Palmeter A.C.J. had before him pre-trial memoranda which had been filed by counsel for the parties. At the hearing neither counsel wished to cross-examine on the affidavits.
Mr. Ramia's affidavit is not a model of a properly drafted affidavit in that it is not confined to facts. It contains some facts but also contains allegations, arguments and speculation. The business of the courts could be made much easier if counsel would prepare affidavits in accordance with the Civil Procedure Rules. The Ramia affidavit has attached to it a copy of the agreement made with Mr. Arab on October 14, 1991. Neither of the parties filed an affidavit from Mr. Arab.
There is nothing in the agreement with Mr. Arab which would appear to oblige him to personally guarantee the mortgage. Only paragraph 4(g) is relevant; it states as a condition precedent to the closing that Mr. Arab be allowed to assume the existing mortgage on the property within ten (10) working days of the signing of the agreement between Arab and Ramia. Therefore, there is a question whether or not Mr. Arab had an obligation to Ramia to make himself personally liable to the respondent for the mortgage debt as Ramia suggests. Possibly it was assumed that the respondent would require such a covenant and that Mr. Arab would agree. However, given the dismal vacancy rate of the apartment building at the time it would seem unrealistic to infer that Mr. Arab would be prepared to take on such a responsibility in October of 1991. This issue was not canvassed before Palmeter A.C.J. or this Court.
Paragraph 9 of the Ramia affidavit does not contain facts but rather speculation and argument. Paragraph 10 is mere speculation that there would have been no deficit if the Arab transaction had been concluded although it is factually correct that if Quad-Ram had closed the transaction with Mr. Arab it would have received $400,000 pursuant to the terms of that agreement. Paragraph 11 is a statement of opinion as it is not clear what additional security the respondent might have obtained from Mr. Arab. The contents of paragraph 12 of the Ramia affidavit are in the nature of argument and nothing more.
Paragraph 8 is relevant. It asserts that Montreal Trust refused to allow the assumption of the existing mortgage. That is factually correct. As to whether or not the payment required by Montreal Trust and the terms were so onerous that Mr. Arab would not accept is partly an assertion of fact and partly a matter of argument but does go to the issue of the reasonableness of the refusal to consent to the transfer to Arab.
The affidavits in support of the respondent's application to strike the defence and to enter summary judgment with the quantum of the deficiency to be assessed at a later date set forth that the mortgage was in arrears in October of 1991 and continued in arrears until it was foreclosed in May of 1992 and that Mr. Ramia signed the covenants and had guaranteed the mortgage. The position of the respondent, as set out in the pre-trial memo filed by counsel, focused on Clause 18 of the mortgage. The respondent relied on this clause to "totally refute" the allegation in the defence that Ramia should not be liable for a deficiency judgment on the ground that the respondent acted unreasonably in not providing a consent to the sale. The respondent argued that by reason of Clause 18 it could arbitrarily or unreasonably withhold the consent.
The appellant asserted before Palmeter A.C.J. that arguable issues had been raised. Namely, that the respondent had acted unreasonably, prejudicially and contrary to business efficacy in refusing to consent to the Arab transaction. As part of its argument counsel for the appellant questioned whether Clause 18 applied to Mr. Ramia. He submitted that it did not and that the respondent could not act unreasonably with respect to the consent issue without putting in jeopardy any deficiency claim it might wish to advance against Ramia personally. Counsel for the appellant submitted that there were fairly arguable issues that entitled the appellant to a trial as to whether or not he would be liable for a deficiency judgment arising out of the foreclosure proceeding and subsequent re-sale by the respondent after having purchased the property for a nominal sum at the Sheriff's sale.
After hearing oral argument Palmeter A.C.J. rendered the following oral judgment:
" I have heard your arguments today, gentlemen, and I have read both of your extensive briefs and for that I thank you. On this type of an application it really ... the application is by the plaintiff for summary judgment and to strike the defence. The defence originally was struck in regard to the foreclosure itself. But in this particular type of an application, once the ... I use prima facie but once the applicant establishes the possible right to summary judgment, the onus shifts to the defendant to show that there is some reasonable arguable point which necessitates a trial, if so, it should go to trial. Now, as I have already indicated to Mr. Coles, I have read his cases, they are interesting cases, but I have some difficulty with their relevance to this particular matter. I am not satisfied on the basis of the affidavit evidence and submissions made to me that Montreal Trust acted unreasonably or in bad faith. Certainly, bad faith is not set out in the defence. Unreasonableness is; I suppose perhaps they are to be used interchangeably, but the onus is on the defendant to show me this. Mr. Coles suggests that this is a question of fact. Well, I have some problems with that. It seems to me that on the face of it, s. 18 of the mortgage, the mortgage company had every right to refuse to grant a transfer or an assignment of the mortgage and had every right, also, to demand some pay down if that was in fact what they did. I cannot see whether the actions of Montreal Trust prejudiced Mr. Ramia in this particular matter. He signed not only as a guarantor but he signed as a covenantor. The covenants of the mortgage are his. He really does not stand in much of a different position than the mortgagor, although I do agree with you Mr. Coles, there is a higher equitable duty owed to a guarantee. In any event, I have looked at everything, I am not convinced that there is an arguable point to be argued on trial in this particular matter. I am going to grant the application and I am going to require that the deficiency be assessed pursuant to the appropriate Civil Procedure Rule." (Emphasis mine)
The Law
On an application for a summary judgment pursuant to Civil Procedure Rule 13 the law is clearly stated in Carl B. Potter Limited v. Anil Canada Limited and Mercantile Bank of Canada (1976), 15 N.S.R. (2d) 408 (C.A.). In that case Mr. Justice MacIntosh, sitting in chambers, had dismissed an application by the plaintiff for summary judgment. In dismissing an appeal from that decision Mr. Justice Cooper stated:
" We were referred to authorities which set out what an applicant under our Rule 13 and corresponding rules in other jurisdictions must establish to obtain summary judgment. It is stated in The Supreme Court Practice 1973, vol. 1 at p. 132 that:
The purpose of O. 14 is to enable a plaintiff to obtain summary judgment without trial, if he can prove his claim clearly, and if the defendant is unable to set up a bona fide defence, or raise an issue against the claim which ought to be tried (Roberts v. Plant, [1895] 1 Q.B. 597, C.A.; Robinson & Co. v. Lynes, [1894] 2 Q.B. 577; Dane v. Mortgage Ins. Corpn., [1894] 1 Q.B. 54, C.A.; Nassau Steam Press v. Tyler, 70 L.T. 376; Edwards v. Davis, 4 T.L.R. 385, C.A.).
'When the Judge is satisfied not only that there is no defence but no fairly arguable point to be argued on behalf of the defendant it is his duty to give judgment for the plaintiff' (per Jessel, M.R., Anglo-Italian Bank v. Wells, 38 L.T., p. 201, C.A.).
In Royal Bank of Canada v. Malouf, [1932] 2 W.W.R. 526 (Sask. C.A.) Martin, J.A., said at p. 529:
It is well settled that the provisions of Rule 127 are not to be used to strike out a defence, unless it is very clear that the defendant has no substantial defence to submit to the Court; but when a Judge is satisfied, not only that there is no defence, but no fairly arguable point to be presented on behalf of the defendant, it is his duty to give effect to the Rule and to allow the plaintiff to enter judgment for his claim: Anglo-Italian Bank v. Wells (1878) 38 L.T. 197, at 200; Ontario Bank v. Bourke (1885) 10 P.R. 561; Velie v. Hemstreet (1909) 2 Sask. L.R. 296, 11 W.L.R. 297. Moreover, in order to resist an application under the Rule, it is not sufficient for the defendant to say he has a good defence on the merits; the defence must be disclosed, and sufficient facts must appear to show that there is a bona-fide defence, or at least, as stated by Jessel, M.R., in Anglo-Italian Bank v. Wells, supra, 'a fairly arguable point to be argued on behalf of the defendant:' ...
The matter was also dealt with by the Ontario Court of Appeal in Featherstonhaugh v. Featherstonhaugh, [1939] 2 D.L.R. 262, where at p. 268 Robertson, C.J.O., said:
The defendant is to show the nature of his defence, and to disclose such facts as may be deemed sufficient to entitle him to defend, and it is upon his success or failure in doing so that the fate of the motion must turn. In a sense the usual rule is reversed for this special purpose, and the burden of proof, such as it is, lies upon the defendant and not upon the plaintiff."
These tests have been consistently applied by the Supreme Court for many years.
In Lunenburg County Press Ltd. v. Deamond (1977), 18 N.S.R. (2d) 689 MacKeigan C.J.N.S. in setting aside an order for summary judgment stated at p. 691:
" We are very conscious, however, as a judge should be in dealing with an application of this sort, that summary judgment is a summary proceeding which should not be lightly granted so as to deprive a litigant of his right to have any bona fide case disposed of after full trial."
In my opinion the issue in this appeal is whether or not counsel for Ramia had raised a fairly arguable point. The answer to that question turns, in part, on whether sufficient facts had been disclosed that would have warranted Palmeter, A.C.J. refusing the motion for summary judgment.
Disposition of the Appeal
In my opinion the appeal ought to be allowed. Palmeter A.C.J. erred in several ways: first, he appears to have applied an incorrect test when he stated that in an application for summary judgment, "once the applicant establishes the possible right to summary judgment the onus shifts to the defendant to show that there is some reasonably arguable point which necessitates a trial. If so it should go to trial." The law is that the applicant must clearly prove his right to summary judgment as claimed, not simply establish the possible right to summary judgment. I would not consider this error serious standing alone as it may be no more than a question of semantics. However, in my opinion the learned judge failed to recognize that the terms of the mortgage and the affidavits before him disclosed evidence which, when coupled with the argument made by counsel for Mr. Ramia, showed that the appellant had a fairly arguable point as to whether or not Ramia was liable for a deficiency judgment as claimed. From the affidavit evidence it is clear that there was a request for a consent from the respondent to the transfers involved in the Arab transaction. This request is contained in Mr. Boyne's letter of October 9, 1991. It is also clear that this consent was never forthcoming. Mr. Richard Noiles is the senior analyst for the Maritime Provinces of the Income Property Lending Division of the respondent. In his affidavit dated April 21, 1992 he reviewed the history of the relationship between the respondent and Mr. Ramia with respect to the Quad-Ram mortgage and the Arab transaction. In his affidavit he makes reference to the proposed non-arms length transfer from Quad-Ram to a numbered company and the correspondence with Mr. Ramia's chartered accountants. He refers to the letter from Mr. Boyne of October 9th, 1991. He acknowledges that Mr. Arab provided a net worth statement on October 29th, 1991 and that he received an executed copy of the Arab transaction agreement by fax on October 31st, 1991; he noted that that was to be the closing date. In his affidavit Mr. Noiles swears at paragraph 15:
" 15. THAT I repeat the foregoing paragraph and say that on Thursday, November 7, 1991, I together with Mr. John Bulley, Manager of the Montreal Trust office at Halifax, met with Mr. Ramia wherein a consent to the S.85(1) transfer was discussed provided that mortgage loan arrears be first brought current, together with discussing possible terms of a subsequent consent to transfer relating to a possible share purchase by a Mr. Arab."
There is no mention in the affidavit what the possible terms of the consent to transfer relating to the share purchase by Mr. Arab were. In paragraph 17 Mr. Noiles states:
" 17. THAT the October 15, 1991, mortgage payment was received by Montreal Trust on November 14, 1991, as aforesaid and was returned "N.S.F." on November 26, 1991, and at no point did the Defendants provide the Plaintiff with any S.85(1) "Offer" or "Agreement" other than as aforesaid."
Other than the fact that the time for the closing had expired it is not clear why the respondent would have required any other agreement than the agreement that had been forwarded. It is clear from Mr. Noiles' affidavit that Mr. Ramia was advised that all mortgage arrears would first have to be brought current.
In Paragraphs 23 and 24 Mr. Noiles makes the following statements:
" 23. THAT I repeat the foregoing paragraphs and say that on the facts, the only transfer of title for which Montreal Trust consent was officially requested was that request pertaining to a non arms-length S.85(1) transfer, and which request clearly required all mortgage arrears to be first paid, and which mortgage arrears were admitted by the Defendants and admitted as not paid.
24. THAT I repeat the foregoing paragraph and say that the Agreement respecting Mr. Arab was clearly to pertain to a share sale subsequent in time to a s. 85(1) transfer, and had no relevance until and unless the s. 85(1) transfer was first effected, and was not, therefore, a relevant "offer" to purchase anything, and did not comprise an "offer" to purchase realty in any event."
These paragraphs indicate a rather narrow and technical approach by the respondent and are not accurate. The fact is that Mr. Boyne had asked for a consent to the proposed Arab transaction and the consent was never forthcoming; that is not to say it should have been. Clearly Clause 18 contemplates that any changes of beneficial ownership require the consent of the respondent and the consent can be unreasonably refused. Before Palmeter A.C.J. the respondent asserted its right to act unreasonably. Again, I am not suggesting the respondent did act unreasonably in not consenting but that is a question of fact that could only be answered at trial. No evidence has been put forward by either party as to just what the discussions were or what terms the respondent may have been imposing to obtain its consent to the Arab transaction. We have the Answer to the Demand for Particulars which asserts the respondent was seeking the equivalent of three monthly mortgage payments. That does not provide a full answer as to what other terms were discussed. However, Ramia swears in paragraph 8 of his affidavit, which was before Palmeter A.C.J.:
" 8. THAT with respect to condition "g", Montreal Trust refused to allow the assumption of the existing mortgage unless payment was made of the sum of money of an amount and under such terms which were so onerous that the purchaser would not accept."
Mr. Ramia does not state what the "onerous" terms were but he has made a sworn statement that the terms were so onerous Mr. Arab would not accept them. Therefore, there is some evidence that the consent may have been unreasonably withheld.
In Paragraph 25 Mr. Noiles states:
" 25. THAT I make reference to the Statement of Defence and say that it imputes that the Plaintiff herein, Montreal Trust Company of Canada, unreasonably refused to consent to a bona fide sale of the mortgaged real property at a price exceeding the principal amount of the mortgage, wherein the Defendants have otherwise admitted:
(a) That no bona fide third party offer to purchase the realty mortgaged existed but was, rather, a share purchase transaction;
(b) That the only existing "realty" purchase was a non arms-length S. 85(1) transfer constructed by the Defendants themselves for a value equal to the principal indebtedness of the mortgage and not at a price "above the mortgage amount" as alleged;
(c) That no transfer consent was to be subjected to any test other than that prescribed by the mortgage wherein consent could be "arbitrarily or unreasonably withheld";
(d) That the mortgage was in arrears; and
(e) That as from November 29, 1991, Montreal Trust was properly within its rights to act on its security."
Paragraphs 25(a) and (b), rather than stating just what the conditions that were proposed were, in addition to bringing up the arrears, deal with the technical questions as to whether there was an offer to purchase the realty. The Arab transaction clearly involved a change in the beneficial ownership of the realty. Had the Arab transaction been completed it would have resulted in a purchase price of $3.4 million dollars being obtained for the property which is a price above the mortgage amount. It would not seem particularly relevant whether the change in beneficial interest of the mortgaged property was by transfer of the realty or by a share transfer. There is nothing in any of the MacIntosh affidavits that throws any further light on the consent issue. I agree that Ramia admitted that the mortgage was in arrears and that the respondent could exercise its rights under the security; that, however, is not the issue. The issue before Palmeter A.C.J. was whether Ramia raised a fairly arguable point to the respondent's claim for a deficiency judgment. I recognize that the Noiles affidavit appears to have been prepared for the application for the foreclosure order and not for the specific purpose of the summary judgment application. Nevertheless there is nothing in any of the respondent's affidavits that is responsive to the assertion in the Ramia affidavit that the terms to be imposed by the respondent were so onerous as to kill the sale to Arab. That issue is relevant to the respondent's claim for a deficiency.
I have concluded that sufficient facts had been disclosed by the evidence to support the submission of counsel that the appellant could raise a fairly arguable issue that should be dealt with at a trial. There is the argument that Clause 18 of the mortgage, which the respondent relied on before Palmeter A.C.J., may not apply to Ramia either as covenantor or guarantor. Clause 18 makes specific reference to the borrower, that is Quad-Ram agreeing that consent to a transfer of the beneficial interest in the mortgaged properly could be unreasonably or arbitrarily withheld by the respondent. Ramia is not mentioned in Clause 18.
The guarantee clause, which I have quoted previously, merely states that Ramia guarantees payment and will observe and perform all the covenants on the mortgage. It does not necessarily mean that Ramia agreed to the alleged right of the respondent to unreasonably refuse to consent to the proposed sale insofar as it impacts on the claim for a deficiency judgment against him. The guarantee is not unconditional. There is no evidence that Ramia signed a separate unconditional guarantee referred to in the Commitment Letter.
Likewise Clause 30 of the mortgage provides that Ramia covenants as principal debtor and not as surety and covenants that he will pay or cause to be paid to the respondent all amounts due by Quad-Ram under the loan and will observe, keep and perform all the terms and conditions set forth in the Commitment Letter to be kept by Quad-Ram pursuant to the Commitment Letter or any security document. It can be argued that Clause 30 would not cause Ramia to be bound by the provisions of Clause 18 with respect to his potential liability for the deficiency arising from the realization from the sale of the property that secured the loan.
In summary none of the relevant clauses expressly state that Ramia agreed that the respondent mortgagee could act unreasonably in withholding consent to a transfer or change in the legal or beneficial interest in the property; such an express statement may very well not be necessary in order to impose liability on Ramia for a deficiency. However, the terms of the relevant clauses when coupled with the equitable principles that are invariably applied in disputes when a mortgagee is seeking a deficiency judgment raise a question as to the effect of Clause 18 on Ramia. This is a fairly arguable issue insofar as the respondent is claiming against Ramia on his guarantee or covenant, the issue being whether the respondent had to act reasonably or could act unreasonably in refusing consent to the assumption of the mortgage as proposed in the Arab transaction. If the respondent had an obligation to Ramia to act reasonably in the matter of consent, whether it did or failed to so act, is a question of fact and therefore an issue for a trial judge. Neither of these questions should have been decided by Palmeter A.C.J. on a summary judgment application given the evidence before him.
The learned trial judge erred when he apparently concluded that Clause 18 was a complete answer to the argument that the respondent had an obligation to act reasonably in the matter of consent in order to successfully claim against Ramia for the deficiency. The affidavit evidence before Palmeter A.C.J. stated that the Arab transaction was not completed because of the failure of the respondent to consent to the proposed change of ownership of the mortgaged premises. Whether that evidence is credible is a matter for trial. There is evidence that had the transaction been completed Quad-Ram would have been in pocket $400,000. Mr. Ramia is a principal of Quad-Ram and therefore would have benefited had the Arab transaction been completed. Even though Ramia would still have been on the mortgage covenant he would have had an offset, so to speak, to any deficiency judgment awarded against him in the event of a foreclosure.
The Court had before it an application for a deficiency judgment following a foreclosure sale. As noted by Hart J.A. in Central Trust Company v. Adshade et al (1983), 60 N.S.R. (2d) 414 at p. 425 equitable principles have always intervened to balance the equities between the parties to a foreclosure action. By striking out the defence and entering summary judgment Palmeter A.C.J., to some extent, foreclosed Justice Goodfellow's opportunity to fully consider Ramia's arguments which I have reviewed herein. These matters were relevant on the question of the right of the respondent to a deficiency judgment. Ramia was thus deprived of his right to have the court fully consider all the equities between the parties. It is clear from the transcript that Justice Goodfellow recognized the difficult position he had been placed in by the order striking the defence. It is also clear from a review of his decision that he was unable to deal with these issues in a satisfactory way. The main focus of his decision, as would be expected, was with respect to the actions of the respondent subsequent to the purchase of the property by the respondent at the sheriff's sale.
Whether Ramia's guarantee or his covenant contained in Clause 30 of the mortgage enabled the respondent mortgagee to unreasonably refuse to consent to the transfer of the beneficial interest and yet claim a deficiency judgment against Ramia is a fairly arguable issue. Likewise, whether the respondent unreasonably refused consent to the Arab transaction is an arguable issue. This is not to say that Ramia will succeed on trial but he is entitled to have a trial at which the unanswered questions can be addressed. It was not appropriate to strike the defence and enter summary judgment with the deficiency to be determined at a subsequent hearing. I would allow the appeal and set aside the decision of Palmeter A.C.J. As a consequence, the decision of Mr. Justice Goodfellow must also be set aside.
Costs shall be in the event. A trial judge can better assess the matter of disposition of costs of this appeal after he has heard the evidence at the trial and reached a conclusion on the issues raised in the defence.
Hallett, J.A.
Concurred in:
Matthews, J.A.
Freeman, J.A.
C.A. No. 105123
C.A. No. 107043
NOVA SCOTIA COURT OF APPEAL
BETWEEN:
QUAD-RAM DEVELOPMENT
GROUP LIMITED, a body corporate,
and JOSEPH RAMIA
)
Appellants )
- and - ) REASONS FOR
) JUDGMENT BY:
MONTREAL TRUST COMPANY )
OF CANADA ) HALLETT, J.A.
)
Respondent )
)
)
)
)
)
)