Executive Summary: Key Legal and Evidentiary Issues

• Enforceability of a 22% default interest clause in the original mortgage was challenged under section 8 of the Interest Act.

• Validity of a 12.7% interest rate in a subsequent renewal agreement was disputed, with allegations that it was agreed to under economic duress.

• The distinction between a renewal and a variation of the mortgage agreement was central to the analysis and outcome.

• The court examined whether the renewal agreement was procured by wrongful pressure, depriving the respondents of practical alternatives.

• The 22% default interest clause was found void under section 8, but the 12.7% renewal agreement was upheld as valid and enforceable.

• Five Peaks Capital Ltd. was granted enforcement of the mortgage at the 12.7% rate, with the 22% clause struck out.

Facts of the case

Five Peaks Capital Ltd. (“Five Peaks”) lent $3,600,000.00 to Global City Properties (Cottonwood) Ltd. (“Global City”) under a one-year mortgage agreement executed March 10, 2023, with Jaswant Singh Dhillon and Jaswinder Kaur Dhillon as guarantors. The agreement provided for a 12.20% annual interest rate, compounded monthly, with monthly payments of $36,600.00, and a balance due date of April 1, 2024. The mortgage was open, allowing prepayment with 30 days’ notice and a minimum fee of three months’ interest. If not repaid in full on the maturity date, Five Peaks could unilaterally impose a 22% interest rate for three months and charge a renewal fee.

When the mortgage matured in 2024, the parties negotiated a renewal. After initial offers and counteroffers, including a rejected attempt by the respondents to revert to a 12.2% rate, the parties executed a renewal agreement on May 28, 2024, setting a new interest rate of 12.7%, a $36,000.00 renewal fee (to be capitalized), and monthly payments of $38,100.00. The renewal was conditional on, among other things, payment of outstanding and advance interest installments and provision of pre-authorized debit information. The renewal extended the term by 12 months, with a new maturity date of April 1, 2025.

Global City defaulted again, leading to foreclosure proceedings. On May 13, 2025, Associate Judge Hughes declared the March 10, 2023, agreement valid and in default, fixed the redemption amount as of April 1, 2024, at $3,600,000.00 plus interest at 12.2% (or such other rate as later determined), and set November 14, 2025, as the last date for redemption. The only remaining issue before the court was the applicable interest rate for the accounting.

Policy terms and clauses at issue

The original agreement’s 22% default interest clause was at issue, as it allowed Five Peaks to impose a higher rate for three months if the loan was not repaid at maturity. Section 8 of the Interest Act prohibits imposing a higher interest rate on arrears than on principal not in arrears. The renewal agreement, signed May 28, 2024, set a 12.7% interest rate and included conditions such as payment of outstanding and advance interest, provision of tax and insurance documents, and a $36,000.00 renewal fee.

Arguments of the parties

Five Peaks argued that the renewal agreement was a true renewal, supported by fresh consideration, and that the 12.7% rate was valid. They maintained that the 22% clause was never enforced and that the renewal reflected a consensual adjustment of risk. The respondents contended that the renewal was not a genuine new bargain but a variation compelled by the threat of the unenforceable 22% clause, which they argued was void under section 8 of the Interest Act. They claimed they had no real choice but to accept the higher rate, amounting to economic duress.

Legal analysis and findings

The court found that the 22% default interest clause was void under section 8 of the Interest Act, as it increased the charge on arrears beyond the rate payable on principal not in arrears and was triggered by non-payment at maturity. The court determined that the renewal agreement was a renewal, not a mere variation, as it was supported by forbearance from enforcement and new obligations. On economic duress, the court found that, although the lender referenced the 22% clause during negotiations, the respondents did not establish that they lacked practical alternatives or that their will was overborne. The respondents had nearly a year’s notice of the maturity date, opportunities to refinance or sell the property, and time to seek legal advice. No protest or reservation of rights was communicated at the time of signing the renewal, and the first formal allegation of duress arose only after default and commencement of litigation.

Ruling and outcome

The court struck down the 22% default interest clause as void and unenforceable under section 8 of the Interest Act. The renewal agreement, including the 12.7% interest rate, was found not to offend section 8 and not to have been procured under economic duress. It was therefore held valid and enforceable. The petition was granted in part: the 22% clause was struck, but the balance of the mortgage and the renewal agreement remained valid and enforceable. If the parties could not agree on costs, they were permitted to make written submissions within 14 days, with any reply due within 7 days thereafter. No specific monetary award was determined beyond the enforcement of the mortgage at the 12.7% interest rate.