Executive Summary: Key Legal and Evidentiary Issues

• Dispute over enforcement of a $46 million umbrella mortgage granted by sophisticated real estate borrowers who later denied the debt and sought an injunction against the lender’s enforcement rights.
• Credibility and sufficiency of evidence supporting Condoman’s attempt to block mortgage enforcement, in light of clear loan documentation, registration, and prior legal advice.
• Effect of contractual “full indemnity” costs provisions in a mortgage, and whether the court should enforce a substantial interlocutory costs order in the face of claimed impecuniosity.
• Proper use of the court’s discretion under Rules 57.03(2) and 60.12 to strike a claim and defence to counterclaim for non-payment of an interlocutory costs order.
• Treatment of repeated assertions of financial hardship and near-insolvency where the party resists disclosing full financial information or taking formal bankruptcy steps.
• Proportionality and fairness in striking both the claim and the defence to counterclaim, including whether a defendant’s pleading can be struck for unpaid costs arising from its own failed motion.

Background and facts of the dispute

Condoman Developments Inc., related numbered companies, and principal Howard Youhanan (collectively “Condoman”) are sophisticated real estate developers who borrowed approximately $46 million from Cannect International Mortgage Corporation, Cannect Mortgage Investment Corporation, and principal Marcus Tzaferis (collectively “Cannect”). The borrowing was secured by an umbrella or “blanket” mortgage over multiple Condoman properties, with the transactions documented through lawyers, thoroughly papered, and properly registered on title. After receiving and using the loan funds, Condoman defaulted under the mortgage. When Cannect sought to enforce its security, Condoman attempted to resist payment and deny the underlying debt. It brought an injunction motion to restrain Cannect from exercising its mortgage enforcement rights, seeking to halt realization efforts on its properties despite the documented loan and mortgage arrangements.

The injunction proceedings and earlier ruling

In December 2024, the court put a timetable in place for the injunction motion and issued a standstill order operating as an interim injunction. This effectively paused Cannect’s enforcement steps until the full argument of the injunction motion. The motion was argued on March 5, 2025. The court dismissed Condoman’s injunction request in reasons dated March 14, 2025. In those reasons, the judge emphasized that the loans had been advanced, the mortgages registered, and that Youhanan had freely consented to all of the transactions without coercion or oppression. The court characterized Condoman’s challenge as lacking any real issue to be tried, stressing that the arrangement involved sophisticated parties, with lawyer-assisted documentation, and that Condoman simply defaulted on money it undeniably owed. The evidence driving the injunction application was viewed as weak and the legal theory overblown; the motion was seen as a litigation tactic to delay or avoid enforcement rather than a meritorious challenge to the mortgage itself. The court also addressed Condoman’s argument that enforcement would lead to its financial ruin, including the claim that Youhanan would lose his entire life’s investments if the properties were liquidated. The judge held that a debtor’s financial hardship or depletion of resources does not render an otherwise valid debt or mortgage unenforceable, absent formal bankruptcy or a statutory stay. Until Condoman actually commenced bankruptcy and benefited from the resulting stay, its financial distress was not a legal answer to non-payment of its obligations.

Financial hardship claims and dealings with the Landlord and Tenant Board

After the injunction ruling, Condoman sought review of Landlord and Tenant Board (LTB) orders that had directed certain tenants in Condoman’s buildings to pay rent to Cannect as mortgagee/trustee, rather than to Condoman as landlord. In its review request, Condoman incorrectly told the LTB that the interim injunction from the Superior Court remained in effect and suggested that continued rent collection by Condoman was necessary to comply with that order. Condoman further asserted that diverting rents to Cannect would cause it “severe financial and legal consequences.” Condoman later conceded that its representation about the injunction’s ongoing force was wrong and apologized. Nonetheless, the judge noted that this episode illustrated a consistent pattern: Condoman repeatedly painted a picture of impending insolvency or extreme financial pressure, without actually invoking bankruptcy processes, and used those assertions as a reason to avoid or delay its obligations, including mortgage payments and associated court-ordered costs.

The mortgage costs clause and initial costs order

The Cannect mortgage contained a contractual term entitling the lender to full indemnity costs for any enforcement proceedings. This provision made enforcement costs part of the secured mortgage debt. After dismissing the injunction, the court considered costs. On April 16, 2025, Justice Morgan ordered Condoman to pay Cannect $268,500 in costs. This full indemnity award tracked the unambiguous terms of the mortgage’s enforcement clause and was granted despite Condoman’s arguments that the figure was excessive and that it could not pay. The court found no reason to depart from the contractual allocation of risk and costs, emphasizing again the parties’ sophistication and the thoroughness of the loan and mortgage documentation. The court also underlined that where a party invokes impecuniosity as a basis not to comply with an order, it must be transparent with its finances. Mere assertion of inability to pay is insufficient; supporting evidence is required. Despite raising its financial condition as a shield, Condoman did not produce the level of disclosure and proof that would justify relief from the costs order.

Unpaid costs and Cannect’s motion to strike

More than 60 days passed after the April 16, 2025 costs order, and Condoman conceded that the $268,500 in costs had become due, payable, and overdue. Cannect sought enforcement, pointing out that, given its existing blanket mortgage over all Condoman properties and Condoman’s ongoing default, simply registering the judgment as further security would be meaningless. Instead, Cannect invoked Rules 57.03(2) and 60.12 of the Rules of Civil Procedure and moved to dismiss Condoman’s claim and strike its defence to Cannect’s counterclaim on the basis of non-payment of the interlocutory costs order. Cannect argued that compliance with court orders is essential to the integrity of the justice system and that ongoing defiance risks making the court a “paper tiger.” It relied on appellate authorities confirming that striking a claim or defence is an available remedy where a party breaches an interlocutory costs order, provided the remedy is applied proportionately and with regard to common-sense factors such as the seriousness, deliberateness, and impact of the default. The judge reviewed these authorities, noting that the remedy does not have to be reserved only for “last resort” situations. Courts should generally give a party a chance to cure its default, but they also must consider whether there has been a clear and continuing failure to comply, whether there is a reasonable explanation and credible plan to fix the problem, and whether the default seriously undermines the court’s ability to do justice in the case.

Condoman’s opposition and request to delay enforcement

Condoman resisted the motion, arguing that it was impecunious and that the timing was inappropriate because it was seeking leave to appeal the injunction ruling to the Divisional Court. It asked the Superior Court to refrain from enforcing the costs order until the leave application or appeal was determined. Condoman’s counsel also argued that Cannect’s enforcement steps had worsened its financial distress, making payment of a $268,500 costs award effectively impossible at this time. The judge rejected that framing, observing that Cannect’s steps were simply the predictable exercise of rights that any lender under a $46 million mortgage would take following a default and an unsuccessful injunction. The court noted that Condoman had provided an undertaking as to damages when it sought the injunction, and the mortgage itself expressly provided that enforcement costs formed part of the debt. Cannect’s response to default therefore could not be treated as an unforeseeable or unfair exacerbation of Condoman’s problems. On the procedural front, the court recorded that Condoman had not obtained any stay of the costs order from either the Divisional Court (where leave was being sought) or from the Superior Court itself. The appellate case law confirms that merely filing an appeal does not, by itself, stay a costs order. The appropriate procedure is to bring a motion for a stay and meet the applicable test, which Condoman had not done. The judge regarded Condoman’s stance—simply refusing to pay, resisting further enforcement, and leaning on the pending leave application—as an attempt to achieve a de facto stay without complying with the formal requirements for one. That approach, the court held, has system-wide implications because costs orders are a primary tool for discouraging abusive or tactical use of litigation.

Proportionality, striking both the claim and the defence

Condoman also contended that striking its Statement of Claim and, more particularly, its defence to Cannect’s counterclaim would be an extreme sanction. It cited authorities stressing that striking pleadings should be exercised sparingly and usually reserved for situations involving serious or near-complete failures to meet pre-trial obligations, coupled with significant prejudice to the opposing party. The judge accepted the general policy of restraint but concluded that it did not preclude the use of striking in this case. Condoman had been given time to cure its default in paying the costs order but had not paid anything—not even a partial or installment payment. Given Cannect’s existing blanket mortgage—and Condoman’s default under that mortgage—securing the judgment by further registration would offer no practical protection. The court considered and rejected the argument that a defence should be treated more delicately than a claim. Although security for costs is generally a plaintiff-directed remedy, the judge noted that the present motion was one for enforcement of a costs order, not for security. Rule 60.12 expressly allows orders affecting a defence, not just a claim. In this particular case, Condoman’s defence to Cannect’s counterclaim essentially repeated the allegations in its own Statement of Claim. Striking only the claim would not give Cannect any real relief, because the same issues would continue to be litigated as part of the defence. In the judge’s view, proportionality had to be assessed not only by the size of the mortgage and the costs at stake, but also by the need to preserve the efficacy of court orders and to prevent a party from using unfounded litigation to block a lender from recovering tens of millions of dollars.

Final disposition and monetary consequences

Justice Morgan ultimately granted Cannect’s motion. The court dismissed Condoman’s action outright and struck Condoman’s defence to Cannect’s counterclaim, thereby allowing Cannect to proceed with its counterclaim unimpeded. In addition to relying on the prior April 16, 2025 order that Condoman pay Cannect $268,500 in full-indemnity costs under the mortgage’s enforcement clause, the judge addressed costs for the present enforcement motion. Both sides filed costs outlines that were similar in magnitude, with Cannect seeking approximately $13,108 and Condoman seeking around $13,039 if it had succeeded. The court fixed a round figure, ordering Condoman to pay Cannect a further $13,000 on an all-inclusive basis for this motion. Taken together, the earlier interlocutory costs order and the present motion’s costs result in a total of $281,500 ordered payable by Condoman to Cannect. Cannect thus emerges as the successful party, with its counterclaim able to move forward and with cumulative costs awards in its favour in the amount of $281,500.