Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether property insurance expenses paid by the mortgagee could be included in the amount owing under a mortgage in foreclosure proceedings.

• Interpretation of s. 10-11 of The King’s Bench Act and s. 11 of The Limitation of Civil Rights Act was critical to determining the recoverability of insurance costs.

• The mortgage agreement expressly allowed the mortgagee to add costs incurred for insurance to the principal sum owed.

• The Chambers judge’s reliance on prior case law and statutory interpretation led to exclusion of insurance expenses from the mortgage account.

• The Court of Appeal clarified that neither the statutes nor case law barred recovery of contractually stipulated insurance expenses.

• The appeal outcome turned on the proper reading of statutory provisions and the contractual terms governing the mortgage.

Facts of the case

Innovation Federal Credit Union (Innovation) provided a mortgage loan to Kenneth MacVicar and Teri Ouellette in December 2018, secured by their property. The mortgage agreement included provisions obliging the mortgagors to maintain fire insurance on the property and allowed Innovation to pay for such insurance if the mortgagors defaulted, with those costs to be added to the mortgage debt. In mid-2024, the mortgagors defaulted, prompting Innovation to commence foreclosure proceedings. As part of its claim, Innovation sought to recover the unpaid principal, interest, taxes paid on behalf of the mortgagors, and $3,505.42 for fire insurance it had secured after the mortgagors failed to do so.

Background and procedural history

The mortgagors did not defend the foreclosure action. When Innovation applied for an order nisi for sale of the property, the Chambers judge questioned whether the fire insurance expense could be included in the amount owing. Citing s. 10-11 of The King’s Bench Act and s. 11 of The Limitation of Civil Rights Act, as well as prior case law, the Chambers judge concluded that the insurance expense was a “cost or fee” incidental to the mortgage default and should not be included in the mortgage account at this stage. Innovation was permitted to file a new draft order excluding the insurance expense or submit further argument, but the Chambers judge ultimately maintained her position and excluded the insurance cost from the recoverable amount.

Discussion of policy terms and statutory interpretation

The mortgage agreement contained explicit clauses requiring the mortgagors to insure the property and authorizing the mortgagee to do so at the mortgagors’ expense in the event of default. The agreement further stipulated that such expenses would be added to the principal sum and bear interest. The Chambers judge’s decision relied on an interpretation of s. 10-11 of The King’s Bench Act, which addresses the effect of acceleration clauses and the right of redemption, and s. 11 of The Limitation of Civil Rights Act, which limits certain recoverable costs in mortgage actions. The Chambers judge, following reasoning from earlier cases, viewed these statutes as barring inclusion of fire insurance expenses in the mortgage account.

The Court of Appeal’s analysis and outcome

On appeal, the Saskatchewan Court of Appeal found that the Chambers judge erred in law by misinterpreting the relevant statutes and misapplying prior case law. The appellate court clarified that s. 10-11 of The King’s Bench Act does not define or limit the types of expenses that may be included in the mortgage account, but instead provides relief from acceleration if the mortgagor remedies the default. Similarly, s. 11 of The Limitation of Civil Rights Act does not expressly prohibit recovery of property insurance premiums paid by the mortgagee; it only restricts certain other costs. The Court emphasized that, where a mortgage agreement expressly allows for recovery of insurance expenses, and those expenses are incurred due to the mortgagor’s default, such amounts are properly included in the mortgage account.

Ruling and overall outcome

The Court of Appeal allowed Innovation’s appeal, set aside the Chambers judge’s decision, and ordered that the calculation of the amount due under the mortgage must include the $3,505.42 paid for fire insurance. The matter was remitted to the Court of King’s Bench to determine the final amount owing and any further terms for the order nisi. No order was made as to costs for the appeal, and the question of costs in the lower court was left for determination by the trial judge. The successful party in this appeal was Innovation Federal Credit Union, and the amount specifically ordered to be included in its favor was $3,505.42 for fire insurance, with the total sum to be finalized by the lower court.