Executive Summary: Key Legal and Evidentiary Issues

• Enforceability of a settlement agreement in the context of mortgage enforcement proceedings.

• Effect of non-compliance with s. 244(1) of the Bankruptcy and Insolvency Act (BIA) on the ability to enforce a mortgage or settlement agreement.

• Whether entering into and partially performing a settlement agreement constitutes a waiver of statutory notice requirements.

• The role of legal counsel and acknowledgment of terms in determining voluntary relinquishment of legal claims.

• The relevance and application of insolvency status under the BIA to enforcement proceedings.

• Appropriateness of appellate intervention in the enforcement of settlement agreements.

Facts of the case

Dewdney Mountain Farms Ltd. (“Dewdney”) owned a rural property in Bobcaygeon, Ontario, which was subject to a first mortgage held by Fragin Holdings Limited and a second mortgage held by Alyange Holdings Inc. (“Alyange”). Paul and Cynthia Ritchie, who owned and operated Dewdney, were guarantors of the second mortgage and occupied the property. Dewdney defaulted on payments under the second mortgage, prompting Alyange to commence mortgage enforcement proceedings in 2019. Fragin also initiated its own action due to defaults under its mortgage.

The property was divided into two parcels: the Hunt Camp and the Quarry Property. In 2022, Dewdney sold the Hunt Camp and entered into separate but similar settlement agreements with both Fragin and Alyange. Under the agreement with Alyange, Alyange would receive $600,000 from the sale proceeds, provide a partial discharge of its mortgage (only over the Hunt Camp), and Dewdney would consent to judgment for the outstanding mortgage amounts and other related relief. Alyange agreed not to enforce the judgment or mortgage until the earlier of December 31, 2023, or the sale of the Quarry Property. Dewdney and the Ritchies acknowledged and agreed to these terms in writing.

Policy terms and clauses at issue

Central to the dispute was the enforceability of the settlement agreement, particularly whether Alyange’s failure to provide notice under s. 244(1) of the Bankruptcy and Insolvency Act (BIA) before enforcing its mortgage rendered the agreement unenforceable. Section 244 of the BIA requires advance notice when a secured creditor intends to enforce security over all or substantially all of a debtor’s property used in a business, but only if the debtor is insolvent. The appellants argued that Alyange’s failure to send such notice barred enforcement of the agreement and the mortgage.

Proceedings and arguments

After the settlement, Dewdney refused to provide the required consent to judgment, claiming the agreement was unenforceable due to lack of BIA notice. Alyange moved to enforce the settlement agreement under Rule 49.09 of the Ontario Rules of Civil Procedure. The motion judge rejected Dewdney’s arguments, finding that the settlement agreement was a valid and binding contract, voluntarily entered into with the benefit of legal counsel, and that Dewdney had relinquished any claim under s. 244 of the BIA by entering into and partially performing the agreement. The judge also found no evidence of insolvency or that the statutory notice was required, and that even if it was, non-compliance did not bar enforcement of a voluntary settlement.

Appeal and analysis

On appeal, Dewdney and the Ritchies reiterated their argument that Alyange’s failure to provide s. 244 notice precluded enforcement. The Court of Appeal held that the case should be resolved solely on the basis of the settlement agreement, affirming that such agreements are enforceable absent vitiating factors like fraud or duress, none of which were present. The court found that Dewdney, represented by counsel, knowingly relinquished any BIA notice claim when entering into the agreement and that the parties had acted upon its terms. The appellate court further noted that the motion was for enforcement of the settlement, not the mortgage itself, making the BIA notice requirement irrelevant to the present proceedings. The court also found no evidence that Dewdney was insolvent, and even if s. 244 were relevant, the motion judge would not have granted relief for non-compliance.

Ruling and outcome

The Court of Appeal dismissed the appeal, upholding the enforcement of the settlement agreement. The court ordered costs to Alyange Holdings Inc., the successful party, fixed at $4,000, all inclusive. No specific monetary award beyond the agreed settlement and costs was determined in the appeal decision.