Executive Summary: Key Legal and Evidentiary Issues

• Calculation of joint venture net profit hinged on whether HRAC could deduct the value of the 14 building lots it contributed and certain construction costs.

• Determination of whether costs for the Adley Street extension, berm, and additional excavation should be excluded from joint venture expenses.

• Dispute over the legitimacy and evidentiary support for expenses and fees claimed by HMIC under the mortgage.

• Assessment of the appropriate prejudgment interest rate, considering both contractual and statutory provisions.

• Set-off of damages and prejudgment interest between the joint venture and mortgage actions, including the discharge of the mortgage on the properties.

• Reliance on expert evidence regarding the calculation of net profit, with significant discrepancies between the parties’ experts.

Background and facts of the case

These three actions arose from a joint venture and a mortgage involving 2264052 Ontario Inc. (“226 Ontario”) and HarbourEdge Realty Administration Corporation (“HRAC”) for the development of 14 homes at the Brockwoods subdivision in Brockville, Ontario. Orren Louch is the principal of 226 Ontario, and Larry Dunn is the Chairman and CEO of HRAC and HarbourEdge Mortgage Investment Corporation (“HMIC”). The joint venture began in February 2014 and was terminated by HRAC on August 16, 2015. 226 Ontario claimed that HRAC forced it off the project after Mr. Louch requested a written joint venture agreement and an accounting of home sales. HRAC cited disputes over construction pace, joint venture terms, profit advances, and default on a $370,000 blanket mortgage advanced by HMIC in December 2014 as reasons for termination.

Although the joint venture ended in 2015, HRAC did not provide a profit statement until 2022, calculating the joint venture’s profit at approximately $5,500. 226 Ontario disputed this, alleging HRAC minimized profits by deducting the value of the land it contributed and including costs not intended to be joint venture expenses. The calculation of unpaid profit is the subject of court file no. CV-21-86834.

Calculation of joint venture profits and policy terms

The parties relied on expert opinion evidence regarding net profit. HRAC’s expert, Gwynne Potter, calculated net profit as either $11,916.00 or $41,691.00. 226 Ontario’s expert, Cameron McQuaid, calculated net profit between $277,595.00 and $838,865.00, depending on the scenario. Mr. McQuaid’s “Scenario 1B” excluded $235,902 of construction costs and did not deduct the value of the 14 lots contributed by HRAC.

The Letter of Intent, signed February 10, 2014, stated HRAC would acquire its 50% interest by contributing the lots, and 226 Ontario by managing construction. No formal written joint venture agreement was executed. The court found no evidence that the parties intended HRAC to deduct the value of the lots from profits. Both parties’ draft agreements contained profit-sharing formulas that did not include a deduction for land value. The court found Mr. Louch’s evidence credible that the parties intended to be 50/50 partners, and that deduction of land value would be inconsistent with this arrangement.

The court also addressed whether certain construction costs should be excluded. 226 Ontario argued that costs for the Adley Street extension, berm ($61,030), and additional excavation ($240,554) were not to be borne by the joint venture. The court found these costs should be excluded, based on credible evidence from Mr. Louch and supporting witnesses, and HRAC’s own admissions.

Mortgage enforcement and related claims

The day after the joint venture was terminated, HMIC demanded immediate payment of the $370,000 mortgage. 226 Ontario and Mr. Louch did not dispute the principal but challenged HMIC’s claims for $154,552.62 in expenses and $118,100 in fees. The court found no evidentiary basis for the claimed expenses, which were mostly legal costs, and no contractual basis for the monthly late fees. Mr. Dwyer, HMIC’s President and COO, admitted on cross-examination that there was no way to determine if the legal fees related to the mortgage actions and that the mortgage did not allow for the late fee/NSF charges.

Prejudgment interest and set-off

The prejudgment interest rate was also in dispute. 226 Ontario and Mr. Louch requested the contractual rate of 10% per annum, compounding semi-annually, or the statutory rate under s. 128 of the Courts of Justice Act. The court exercised its discretion under s. 130 of the Act to award prejudgment interest at 10% per annum, compounding semi-annually, for both the joint venture and mortgage actions, finding it just in the circumstances.

Outcome and orders

The court awarded 226 Ontario damages of $419,432.50 in the joint venture action, together with prejudgment interest at 10% per annum, compounding semi-annually, from August 16, 2015. HMIC was awarded $370,000 in the mortgage actions, with prejudgment interest at the same rate from August 17, 2015. The damages and prejudgment interest in the mortgage actions were ordered to be set off against those in the joint venture action. The mortgage on the properties in Elizabethtown and Mallorytown was ordered discharged. The court reserved on costs, inviting written submissions if the parties could not agree.

In summary, 226 Ontario was successful in its claim for joint venture profits and in resisting the additional expense and fee claims under the mortgage. The exact net amount owing will depend on the set-off and interest calculations, but the judgment clearly favored 226 Ontario.