Executive Summary: Key Legal and Evidentiary Issues

• Dispute arose from the respondents’ enforcement of a mortgage and proposed sale of a mortgaged property to an allegedly arm’s-length purchaser.
• Applicant challenged the genuineness of the purchaser’s independence, focusing on the role and interests of investor Darivoj Vranich in both the mortgage and the eventual purchasing entity.
• The court relied on written assurances that the purchaser and any investors were entirely arm’s length and independent of the respondents, a statement later shown to be inaccurate.
• After judgment on the merits, the agreement of purchase and sale was assigned to a new corporation in which Mr. Vranich held at least an officer role, creating serious doubts about the truthfulness of earlier assurances.
• Respondents’ failure to fully answer the court’s follow-up questions about when the assignment was discussed, why it occurred, and the extent of Mr. Vranich’s involvement led to concerns about non-cooperation with the court.
• Despite the respondents’ success on the main application, the court exercised its discretion on costs to deny them any costs as a sanction for providing an inaccurate answer and refusing to clarify the assignment and purchaser relationship.

Background and parties

The proceedings arise from a commercial dispute over the enforcement of a mortgage against real property. Hermina Developments Inc. was the applicant, and Epireon Capital Limited together with Pro-M Capital Partners Inc. (amalgamated with Forsgate Inc., previously Forsgate Funding Corporation Inc.) were the respondents. The respondents held and were enforcing a second mortgage over a development property, and the central controversy in the underlying application concerned their ability to sell the mortgaged property pursuant to that security. The application was heard in the Ontario Superior Court of Justice by Justice Koehnen, with judgment on the merits released on July 9, 2025, in which judgment was granted in favour of the respondents. The later decision of November 24, 2025, is a costs endorsement dealing solely with whether the successful respondents should receive their costs of the application.

Facts of the mortgage enforcement dispute

From the applicant’s perspective, the respondents’ conduct in enforcing the mortgage went beyond a straightforward realization remedy. Hermina Developments Inc. contended that the respondents had always intended to seize the property for themselves, directly or indirectly, in order to develop it for their own benefit rather than simply recover the mortgage debt. This concern was set out in the applicant’s material filed during the application. In response, the respondents maintained that the proposed purchaser of the property was entirely independent. They filed affidavit evidence asserting that the purchaser was at arm’s length and that there was no improper self-dealing through the sales process.

A key individual in the background was investor Darivoj (Darivoj) Vranich. He had invested funds behind the second mortgage that the respondents were enforcing and had, at one point, made a joint venture offer to invest further funds to develop the property with the respondents. The applicant was troubled by the possibility that this relationship continued through the purchaser end of the transaction, such that the sale might effectively be to someone who was economically aligned with, or closely connected to, the mortgagee. This concern went directly to the fairness and openness of the mortgage sale process.

Concerns about the purchaser’s independence

The applicant’s doubts did not abate even after the respondents’ initial affidavit assurances. In both its factum and oral argument, Hermina Developments Inc. raised the issue that Mr. Vranich might be associated with the purchaser, contrary to the respondents’ suggestion of a clean arm’s-length transaction. The court itself took these concerns seriously. It asked the respondents to provide direct confirmation that the purchaser was entirely at arm’s length from them.

On June 27, 2025, the respondents’ counsel delivered a written response to the court. That response stated that there was “no legal or beneficial ownership relationship whatsoever” between the respondents and both the named purchaser and “any investors with the purchaser of the property.” It further affirmed that there was no relationship of control—such as through directors or officers—and that the parties were “totally independent of each other,” with the only relationship being that of vendor and purchaser, and potentially of mortgagee and mortgagor if the agreement of purchase and sale closed. That written assurance, explicitly confirmed as having been verified with both the respondents and the purchaser, was central to the court’s understanding of the parties’ relationships when it decided the main application.

Post-judgment assignment and discovery of a new purchaser

Events after the July 9, 2025 reasons for judgment triggered the costs dispute. The property ultimately was not transferred to the “named purchaser” identified during the application. Instead, following the release of the reasons, the respondents took the position that the agreement of purchase and sale had been assigned to a different corporation, 1001295663 Ontario Inc. (“1001 Co.”), under an assignment agreement dated August 1, 2025. In connection with this new purchaser, it emerged that Mr. Vranich was at least an officer of 1001 Co., and “perhaps more,” suggesting a significant role in the purchasing entity.

The applicant raised this issue squarely in its costs submissions, arguing that the June 27 assurance that the purchaser and any investors were entirely arm’s length and independent of the respondents was, in light of subsequent events, inaccurate. Hermina Developments Inc. urged the court to deny the respondents any costs because they had misled the court as to the true nature of the purchaser’s independence and had not been forthcoming about the assignment and Mr. Vranich’s involvement.

The court’s request for further information on the assignment

Faced with these concerns, the court sought clarification. On October 30, 2025, Justice Koehnen wrote to counsel for the respondents asking for key factual details: when the assignment agreement with 1001 Co. was signed, when discussions about the assignment first began, and why the agreement of purchase and sale needed to be assigned at all. These questions went to the heart of whether the June 27 statement had been accurate when made, and whether a plan to assign the agreement to an entity connected to Mr. Vranich existed at or before that time.

Respondents’ counsel replied that Mr. Vranich had invested only $600,000 in the second mortgage, representing 14% of that mortgage and about 8% of the total mortgage advances once the second mortgagee bought out the first mortgage. They characterized the issue of the sale price as a “red herring,” maintaining there was no credible evidence that the property’s value exceeded the sale price regardless of who the principals or shareholders of the assignee were. They further stated that counsel was unaware of the assignment until the applicants raised the issue and that they did “not propose to provide more background into this matter,” apart from providing a corporate search and the assignment agreement itself. Counsel also said they did not know the amount of Mr. Vranich’s investment in the assignee because he was not a client of their firm.

Justice Koehnen accepted counsel’s statements as to their personal knowledge and accepted that they had no awareness of the assignment when the June 27 email was sent. The issue, however, was not counsel’s integrity but the conduct and knowledge of the respondents themselves. Importantly, the response did not answer when discussions about the assignment began or why the assignment occurred. The respondents also appeared unwilling to make or disclose further inquiries on those points, despite having shown a willingness earlier to make inquiries of the purchaser in order to deliver the June 27 assurance.

Analysis of costs and party conduct

The costs endorsement begins from the general rule that a successful party is presumptively entitled to its costs, subject to the court’s discretion to depart from that rule in exceptional cases. Justice Koehnen noted the well-known factors under Rule 57.01 of the Ontario Rules of Civil Procedure, as well as additional considerations where a party’s behavior is “reprehensible, scandalous or outrageous,” including clandestine conduct, concealment, evasiveness, or deception. Courts may also depart from the usual costs principle in cases of misconduct, procedural miscarriage, or oppressive and vexatious conduct.

Here, the judge found that this was one of the unusual cases that warranted such a departure. The court was particularly troubled by the combination of: first, the categorical assurance given on June 27 that there was no ownership or control relationship between the respondents and both the purchaser and its investors; second, the later emergence that the agreement had been assigned to a company in which the key investor behind the second mortgage was at least an officer; and third, the respondents’ refusal to fully answer the court’s follow-up questions about when the assignment was contemplated and why it occurred.

Justice Koehnen emphasized that he had not attempted to re-evaluate whether a different answer on June 27 would have changed the substantive outcome of the application, nor did he seek to revisit the merits. Instead, the focus was on the integrity of the process and the court’s ability to rely on parties’ answers. The court’s concern was that the June 27 response “ultimately turned out to be wrong,” and that there was a “good possibility” the respondents knew that answer was inaccurate and had some sort of plan to assign the agreement as of that time. The respondents could have dispelled these concerns by providing full answers to the October 30 questions, but they declined to do so.

In that context, the judge stressed that judicial resources are limited. The court cannot re-litigate complex matters simply to test the effect of new information where a party is unwilling to cooperate. When a party declines to cooperate with a direct request from the court, it must accept that it may face sanctions in costs. The most practical and proportionate way for the court to express its dissatisfaction with the respondents’ conduct was through the costs decision.

Outcome on costs and implications for the parties

The respondents, having succeeded on the merits of the application, sought to have their costs fixed at $270,292.15. Justice Koehnen accepted that, but for the concerns described, they would ordinarily have been entitled to costs as the successful party. Nonetheless, in light of the inaccurate June 27 assurance, the subsequent assignment to an entity involving Mr. Vranich, and the respondents’ refusal to meaningfully answer the October 30 questions, the court exercised its discretion to refuse any costs award. The judge explicitly held that the failure to cooperate with the court’s request was the reason for this sanction, not whether different answers would have changed the judgment itself.

Accordingly, the costs endorsement concludes by declining to award costs to the respondents, even though they had prevailed in the underlying application. The respondents therefore remain the successful party in terms of the substantive judgment released on July 9, 2025, but they receive no costs of the application in the November 24, 2025 costs decision. The decisions before us do not disclose any specific damages or monetary relief ordered on the merits in favour of the respondents; they only show that their requested costs of $270,292.15 were denied, resulting in no monetary amount being ordered in their favour in the costs endorsement. On the record available from these decisions, the respondents are the successful party, but the precise total monetary amount ordered in their favour on the underlying application cannot be determined.