Citation: Bonang v. Wolfridge Farm Ltd., 2014 NSSC 40
Date: 20140131
Docket: Hfx No. 352277
Registry: Halifax
Between:
Gerald P. Bonang and Dianne Bonang both of Brooklyn, in the
County of Hants, Province of Nova Scotia
Plaintiff
v.
Wolfridge Farm Limited, a body corporate, of Yarmouth, in the
County of Yarmouth, Province of Nova Scotia
Defendant
Judge: The Honourable Justice M. Heather Robertson
Heard: October 15, 16, 17 and 18, 2013, in Halifax, Nova Scotia
Decision: January 31, 2014
Counsel: James J. White, for the plaintiff
Stephen C. Kent, for the defendant
Robertson, J.:
[1] This is an application for foreclosure and sale, of a first mortgage on a property located at 39 Dartmouth Road, Bedford, Nova Scotia. The mortgage dated October 28, 2003 is recorded at the Registry of Deeds for the County of Halifax in Book 7520 at p. 113. The plaintiffs Gerald P. Bonang and Dianne Bonang (“Bonangs”) allege breach of virtually all the terms of the mortgage.
[2] The defendant mortgager, Wolfridge Farm Limited (“Wolfridge”) defends the action claiming it was not in breach of the mortgage when foreclosure proceedings were commenced. Wolfridge counterclaims that the Bonangs breached the terms of a written agreement to remediate the property of known environmental contaminants to a residential standard, at an estimated cost of $200,000. They seek remediation of the property and renewal of the mortgage on specific preset terms.
[3] The plaintiffs ask that the defence and counterclaim be dismissed and the foreclosure order be issued. The court must determine what breaches of the parties’ agreements on mortgage have occurred and what remedies must follow.
THE PROPERTY
[4] The property located at 39 Dartmouth Road is zoned residential single unit (“RSU”) in the current land use classification, but is subject to a development agreement with the Town of Bedford dated March 7, 1988 (Exhibit 2, Tab 1), allowing its continued use as “a used car sales and display facility,” but does not include “the servicing of cars, repair of cars, or body work on cars.”
[5] Historically, the property had been the site of a garage from the 1940's to 1970's, whose gas pumps and storage tanks were located on the front of the property, near the street line. These pumps and tanks were removed and the soil in this area remediated and paved over as Dartmouth Road was widened. This portion of the property was expropriated and is now part of the highway. This original use is shown on Figure 1 of the Phase II Environmental Site Assessment prepared by LVM Maritime Testing. This plan also shows the existing commercial building renovated in the 1990's that has been continually used as a car show room since that time.
THE AGREEMENT OF PURCHASE AND SALE
[6] The defendant agreed to purchase this commercial use property in November 2002, for a purchase price of $300,000 as evidenced by the agreement of purchase and sale and amendments (Exhibit 2, Tabs 4, 5, and 6). Indeed prior to closing, Wolfridge made an election concerning the acquisition of real property between persons registered under the Excise Tax Act, R.S.C., 1985, c. E‑15
for its use as a commercial property. It was first contemplated that the property would be remediated of some remaining environmental contamination before the scheduled closing on December 15, 2002.
[7] Clause 4 of the agreement provided:
1. The defendant would make a down payment of $30,000 on the property to be paid December 2002.
2. The vendor would take back a mortgage for the balance of the purchase price for $270,000.
3. The mortgage would be amortized over 15-years, at a rate of 7.5 percent for the first five-year term with any renewals of subsequent terms to reflect the current five-year commercial lending rates.
4. The first mortgage payment of principal and interest would be deferred to March 1, 2003, to allow for the start up of the business.
5. The environmental contamination be remediated before the closing to the “satisfaction of the purchaser.”
6. The property taxes would be paid annually by the purchaser.
The closing did not take place on December 15, 2002 and was in fact postponed to May 5, 2003, as per Exhibit 2, Tabs 5, 6 and 9.
[8] In negotiations preceding the closing of May 5, 2003, the defendant Wolfridge agreed to pay $10,000 toward the remediation costs, which was not paid at closing, but added to the amount of the mortgage which was increased to $280,000.
INDEMNIFICATION AGREEMENT
[9] The plaintiff did not remediate the property before closing, but rather signed an indemnity agreement with respect to the remediation of the property. It read:
WHEREAS the undersigned is the Vendor under Agreement of Sale of 39 Dartmouth Road, Bedford, Nova Scotia, (hereinafter called the “property”) to Wolfridge Farm Limited;
AND WHEREAS Phase I and II environment assessments have indicated that the property is contaminated and in need of remedial work;
For good and valuable consideration the Vendor warrants and agrees to the following:
1. The Vendor will carry out and/or pay for all remedial work required by any governmental authority with respect to contamination that exists as of May 1, 2003 at the property or at adjoining lots that have been contaminated as a result of activities carried out at the property.
2. The Vendor will indemnify and save Wolfridge Farm Limited harmless from any type of charge, action, lien or suit instituted or commenced with respect to contamination existing as of May 1, 2003 at the property.
3. This Agreement is for the benefit of Wolfridge Farm Limited and it successors in title.
THE REMEDIATION OF THE PROPERTY
[10] Although the transaction closed with an indemnity that the Bonangs would respond to and save Wolfridge harmless from “any charge, action, lien or suit instituted or commenced with respect to contamination existing as of May 1, 2003, at the property” no actual claim, lien or charge has ever been initiated against the property.
[11] However, it is clear that Gerald Bonang did intend to clean up the site and communicated with the Department of Environment and Labour (“DOE”) respecting the site and an adjoining site at 84 Golf Links Road, as both properties were said to have had hydrocarbon impacts. Some early work was proposed to be undertaken by Pridy Associates (see Exhibit 2, Tab 7) who according to Mr. Bonang’s testimony went out of business. He then contracted for additional work to be done by Environmental Consulting and Contracting Inc. (“ECCO”).
[12] ECCO communicated with the Minister of DOE, the Honourable Ron Russell by correspondence dated July 5, 2004 (see Exhibit 1, Tab 4). That correspondence outlines early investigative work done on the property. At that time, ECCO wished to achieve agreement on the work required to be done by the Bonangs on 39 Dartmouth Road, with the objective of receiving a certificate of compliance (“COC”) to the Guidelines for the Management of Contaminated Sites in Nova Scotia.
[13] On July 8, 2004 (see Exhibit 1, Tab 5), Michele Casey of DOE replied and indicated that the Department would hold each respective property owner of 84 Golf Links Road and 39 Dartmouth Road responsible for any hydrocarbon exceedences on their respective lands.
[14] Negotiations for the required work to be done to achieve a COC continued with the DOE. By correspondence dated March 3, 2005 from Michele Casey (see Exhibit 4). The final position of the DOE is outlined:
• As per the minimum requirements of Atlantic RBCA (v.2), groundwater flow direction is required to be calculated. In addition, a minimum of one additional monitoring well must be installed between the impacted area and Parker’s Brook to assess the possibility of impacts reaching the brook through groundwater migration.
• The hydrocarbon impacts on the subject property have not been delineated in the eastern direction. This must be completed as part of the remediaton.
• As outline in the letter from Paul Currie (NSEL) to Darrell Jessome, dated May 23, 2003, the Department will only accept the application of commercial remedial criteria to this property if Tier 1 gasoline criteria are applied and a statutory declaration is attached to the deed of the property. A copy of the statutory declaration must be provided to NSEL.
Please proceed with the Remedial Action Plan, incorporating the above comments. Should you have any questions or concerns regarding this information, please do not hesitate to contact me at 424-3421.
[15] By further correspondence of March 31, 2006, Ms. Casey wrote to Mr. Bonang and reasserted that the respective property owners of 84 Golf Links Road and 39 Dartmouth Road (his property) would continue to be subject to the guidelines.
[16] Mr. Bonang testified that he during this period spent between $60,000 and $70,000 attempting to clean up the site. He testified that ECCO drilled between 10 and 15 wells at the rear of the property for remedial purposes. He testified that they put materials down the well holes that would eat up the hydrocarbons. He testified that they determined at that time, that they did not want to disturb the Parker Brook behind the property, by excavating. This remedial work did not impact on the operation of Mr. Early’s business then being operated from the auto showroom in the building on the property.
[17] Mr. Bonang testified that he did not again turn his mind to cleaning up the site until Mr. Early contacted him in 2011.
[18] He testified that he then engaged LVM Maritime Testing who were prepared to complete the remediation on the site in October 2012, but that Mr. Early refused LVM permission to enter the property and do the work.
[19] Mr. Bonang testified that LVM’s plan for remediation involved some excavating along a trench approximately 30' to 40' in length at the rear of the property, which soil would be hauled away by trucks in accordance with their Phase II Environmental Site Assessment (see Exhibit 1, Tab 16).
[20] It is very clear that all of the plans for the remediation of this site from 2002 forward, advanced on behalf of the Bonangs contemplated a cleanup of the residual hydrocarbons that contaminated the site from early days and that the cleanup would be done to a commercial standard, as required by the guidelines. It is also very clear that the DOE would be prepared to issue a compliance certificate for the subject property, with notice of the certificate registered at the Registry of Deeds by way of a statutory declaration.
[21] The evidence of environmental geologist Robert Bekkers of LVM confirmed this objective as does his report to Mr. Bonang dated October 10, 2012, which outlines the scope of the intended work (see Exhibit 6). The proposed cleanup was not a huge undertaking and according to Mr. Bekkers’ evidence would have been completed for as little as $13,000, but could escalate depending on the depth of the required excavation. The work would have taken two to three days, he testified.
[22] The defendant represented by Mr. John Early, represented by Stephen Kent, testified that Wolfridge was a company owned by his wife. Its principal business was the ownership and operation of a horse farm in the Annapolis Valley, although Wolfridge also took title to the property at 39 Dartmouth Road and signed the original mortgage.
[23] John Early testified he is a lawyer and has been licensed to practise law in the State of Connecticut for 32 years. Mr. Early testify he has been in the family business of selling cars since his youth in the USA. He runs of used car business in Sarasota, Florida as well as the used car business at 39 Dartmouth Road. He carried on business there under the name and style ColorCars. Through the operation of that business he paid the monthly mortgage payments and paid the annual taxes until they fell into arrears in 2009.
[24] It was his testimony that he contacted Gerald Bonang in January of 2011, explaining he was in arrears of taxes. He testified he told Bonang he was in the process of refinancing and planned to payout the mortgage and cover the tax arrears.
[25] He testified he was unable to secure bank financing, due to the outstanding issue of the unremediated soil on the property, which resulted in the Royal Bank refusing his financing. He testified that he made this clear to Mr. Bonang.
[26] Mr. Bonang had paid the three years of taxes owing on March 19, 2011, as a tax sale was initiated by the Municipality and set for August 2011. In April 2011, Mr. Bonang, through his solicitor, offered to refinance the property. This proposed draft mortgage (Exhibit 2, Tab 13) reflected a higher interest rate (10%) and included as parties to the mortgage Wolfridge, John Early, his wife Linda Early and ColorCars Experienced Automobiles Ltd., the latter being the business operated from the site. Mr. Early did not respond to this offer to refinance.
[27] Mr. Bonang commenced foreclosure proceedings on July 13, 2011. Mr. Early ceased to make any mortgage payments July 5, 2011 forward. He successfully resisted two summary judgment applications dated January 18, 2012 and May 9, 2013, arguing that his defence and counterclaim raised factual issues in dispute that required trial.
[28] It is Mr. Early’s evidence that having not heard from Mr. Bonang in early January 2011, as to what steps he intended to take to remediate the property, he was forced to engage STRUM Environmental (“STRUM”) to commence the remediation process. He also testified that he had first asked the Royal Bank if ECCO, Mr. Bonang’s earlier consultants, who had prepared a plan of remediation in 2006, would be an acceptable contractor to carry out the remediation so that his financing would be approved. Mr. Early claims that the Royal Bank emailed him saying ECCO would not be acceptable to the bank and that they attached a list of approved engineers, which list included STRUM, whom he then engaged.
[29] Mr. Early testified that he received the STRUM report in April 2011 (Exhibit 1, Tab 13). This document is a proposal of recommended steps for obtaining a compliance certificate in accordance with the guidelines, following Phase I and II site studies.
[30] Mr. Bruce Strum a geologist and Mr. Jeff Dodd an engineer of STRUM both testified. They did not carry out any work on behalf of the defendant after April 29, 2011. Both appeared to be reluctant witnesses. Mr. Strum testified, “we both decided we did not want to become involved.” Mr. Strum also agreed that his remediation proposal was to have been to a commercial standard when he prepared his estimate for Phase I and II studies and the site work required for the remediation.
[31] In August 2011, John Early communicated with Jeff Dodd of STRUM by email (Exhibit 2, Tab 16). Mr. Dodd told Mr. Early “Given the limited information so far it is difficult to put an estimate to the cost of the clean up . . . could be between 50,000 and 150,000 . . .”. Mr. Early had emailed Mr. Dodd, “I need a worst case scenario analysis to be able to speak with mortgagee.”
[32] No further negotiations ensued however and Mr. Early prepared for trial. He testified that he became aware of a change in DOE Contamination Protocols in August 2013 (Exhibit 1, Tab 20), that would require that any remediation of the site must be to the higher residential standard. He then engaged Mr. Tim Murphy, whose affidavit and report are before me as Exhibit 17. Mr. Murphy also testified. I did not find his evidence very helpful. He had reviewed some but not all reports on the site. His premise was that the property could only be remediated to a residential standard and further he assumed that up to 50% of the soils would be required to be trucked away. Having done no testing, those assumptions were in my view taken from thin air and provided in response to Mr. Early’s instructions.
[33] After Mr. Early’s refusal to allow LVM on the property to remediate the site in October 2012, no further remediation has been done.
THE MORTGAGE DEFAULT
[34] The Bonangs conveyed 39 Dartmouth Road to Wolfridge on May 2, 2003. The statement of adjustments at closing is shown in Exhibit 2, Tab 9.
[35] The vendor’s take back mortgage was in the amount of $280,000 for a term of five years and an interest rate of 7.5%, maturing on July 5, 2008.
[36] The renewal date passed without either party addressing a formal renewal of the mortgage. Mr. Early continued to make the original monthly payments of principal and interest up to and including July 5, 2011, when the foreclosure proceeding was commenced. Had the mortgage been renewed by the agreement of the parties an interest adjustment to an acknowledged lower commercial rate would have been required as per the terms of the mortgage.
[37] Mr. Early fell in arrears of his annual tax payments in 2009, however, once three years in arrears, Mr. Bonang brought the tax account up to date on March 18, 2011 by paying $34,760.96.
[38] Mr. Early has made no further payments on account of property taxes from 2009 to the present.
[39] Other breaches of the covenants of the mortgage as outlined by plaintiff counsel, with reference to the provisions of the mortgage are as follows:
1. Failure to cooperated in the remediation of the site (Clause II a vi) (Clause 15).
2. Failure to renegotiate the terms of the mortgage renewal (Clause II a vi).
3. Failure to keep the property unencumbered (Clause II a iv) - a judgment of Oulton’s Fuels.
4. Failure to make payments upon demand (Clause 16).
5. Failure to seek and obtain consent to rent the property (Clause 17).
6. Acceleration of loan repayment upon default (Clause 18).
[40] Arguably, both parties were careless in their duties to renegotiate the mortgage at the end of its five-year term in 2008. However, Mr. Early was in breach of the mortgage and in particular refused to respond to the plaintiff or his counsel after March of 2011.
[41] The foreclosure proceedings could have been sustained by his single failure to pay the property taxes from 2009 forward. The mortgage was then in default. The plaintiff was within his rights to commence foreclosure proceedings in July 2011. The defendant cannot rely as he does on the curative provisions of the mortgage (Clauses 6, 14 and 18 of Scheduled B). He took virtually no steps to cure his default and made no proposals to the plaintiff.
[42] The fact is, by his own admission, Mr. Early ran into financial difficulties and was refinancing all of his affairs. He also acknowledged on cross examination he had significant judgments against him in the USA. Counsel showed Mr. Early Exhibit 12, a business report from the Sarasota Herald that indicated Mr. Early had $3.2M in judgments against him. Mr. Early argued that $1.7M of these claims were still pending. He also agreed he was in debt litigation with Wells Fargo and RBC and that RBC has seized some of his accounts. These matters would clearly have impacted his capacity to borrow from a commercial lending institutions.
CREDIBILITY
[43] Mr. Early is not a credible witness. Notwithstanding the closing documents: the deed, the indemnity agreement and the mortgage, Mr. Early insists on unwritten terms and conditions that meet his convenience. The mortgage did not have a 15-year term. The indemnity agreement he accepted at closing was not an undertaking to “clean the property to my satisfaction.” The extent of the indemnity is clear on its face. Mr. Early waived this clause of the agreement of purchase and sale when he accepted the indemnity agreement.
[44] The suggestion that the residual remediation must now be done to a residential standard and cost in excess of $200,000 inclusive of HST is a fiction created by Mr. Early to attempt a false setoff against the mortgage debt owing. Indeed even the protocols he quoted (Exhibit 1, Tab 20) would not preclude COC being issued as Mr. Bonang’s expert Robert Bekkers testified. His own consultant STRUM proposed remediation to the commercial standard.
[45] Mr. Early’s testimony regarding his original plans on purchase of the property and his intended use of the property was not very credible and often contradictory. 39 Dartmouth Road could be converted to residential use and like 84 Golf Links Road, the remediation of residual hydrocarbons would not preclude a house being built. However, Mr. Early is not believable on this score. He purchased a commercial property for $300,000, whose highest and best value renegues its continued commercial use, as evidenced by Exhibit 13 which shows comparable residential lots in Bedford having average value of $125,000 - $135,000. Having given a few versions of how he could develop the property, he testified finally, that he had contemplated putting an apartment in the commercial premise. Never did he address any change of use with the Bonangs as required under the terms of the mortgage.
[46] In my view, Mr. Early’s insistence on “remediation to a residential standard” has been a red herring, so Mr. Early could renegue on his obligations under the mortgage, defend the foreclosure action and carry on business an additional two years, without making any payment to the Bonangs on the mortgage debt owing.
[47] Mr. Early has suffered no loss, because of delayed remediation. He offered no proof that the Royal Bank had ever agreed to or refused to finance his business or lend money secured by a mortgage on the property at 39 Dartmouth Road. The single piece of documentary evidence he presented from RBC was entitled “For Discussion Purposes Only”(Exhibit 2, Tab 14). His testimony respecting what Royal Bank officials told him is not believable and certainly not corroborated. He could easily have called upon the bank to verify these matters, if there were any truth to his testimony.
[48] Mr. Bonang did not actually have an obligation to remediate the site beyond the terms of the indemnity agreement and I believe Mr. Early, a trained lawyer understood this. It is clear that Mr. Bonang did intend to clean the site and was prevented from doing so by Mr. Early.
[49] Mr. Early’s cross claim respecting a remediation agreement is not a legally related contract rising out of the original transaction that could give rise to any equitable setoff . He has conveniently reinterpreted an indemnity agreement to create a “worst case scenario.” He inflated the costs to create a setoff equal to the balance outstanding on the mortgage. This case bears no comparison to the facts in Holt v. Telford, [1987] 2 S.C.R. 193 or the case of Coba Industries Ltd. v. Millie’s Holdings (Canada) Ltd. 1985 CanLII 144 (BCCA). Both cases are distinguished on their facts.
[50] No equitable remedy is appropriate in this case. Any injustice would result to the Bonangs if the court seriously considered reinstating the mortgage almost four years following default.
[51] In the result, the defendant has failed to demonstrate to the court they have a valid defence. The defendant is in breach of the covenants of the mortgage. The defendant’s counterclaim is dismissed.
[52] The plaintiffs’ foreclosure order is granted. However, the failure of the parties to sign a formal renewal on July 5, 2008 although not fatal does require an adjustment to the interest rate from July 5, 2008 forward to July 5, 2011 which I will arbitrarily set at 5.5%, in light of the submissions made by counsel, as to prevalent commercial rates of the day. Mr. White, counsel for the Bonangs can recalculate the total mortgage payout (principal and interest) as of September 5, 2013 and present the order for foreclosure and sale to me for my approval.
Justice M. Heather Robertson