Executive Summary: Key Legal and Evidentiary Issues

• CMI High-Yield Opportunity Fund Corp., acting as mortgage administrator for TSX Trust Company, sought summary judgment against the defendants following default on a $102,000.00 mortgage loan.
   
• Counsel for the defendants conceded the default and the inability to refinance, leaving only the quantum of the claim in dispute.
   
• Section 8 of the Interest Act prohibits lenders from charging fines, penalties, or elevated interest rates on mortgage arrears, regardless of how such charges are labelled.
   
• Several fees claimed by the plaintiff—including default, penalty, statement, discharge, and processing fees—were challenged as contrary to section 8 and were withdrawn by plaintiff's counsel.
   
• Justice Callaghan awarded the plaintiff the uncontested proper charges plus prejudgment interest but declined to award costs.
   
• The court expressed hope that refusing costs would discourage lenders from advancing unjustified charges in future mortgage default proceedings.

Facts of the case

CMI High-Yield Opportunity Fund Corp. is the mortgage administrator for TSX Trust Company ("TSX"), which advanced a mortgage loan of $102,000.00 to defendants Diana Judith Powell, Kurt Vermont, and Yvonne Elliot. The loan was made pursuant to a commitment letter dated June 1, 2023, and secured by a charge/mortgage registered as instrument number AT6416994 on September 8, 2023, against the property at issue. The mortgage carried interest at 9.99% per annum, compounded monthly, with monthly interest payments of $849.15 due on the first of each month starting October 1, 2023, and continuing until September 1, 2024, at which point the full outstanding balance would become due. The defendants defaulted on the mortgage, and the plaintiff brought a motion for summary judgment to enforce it. At the hearing, defendants' counsel conceded the default and his clients' inability to refinance, raising no defence except a request that only proper charges be awarded.

Policy and legislative provisions at issue

The central legislative provision at issue was section 8 of the Interest Act, R.S.C. 1985, c. I-15, which bars lenders from imposing fines, penalties, or rates of interest on mortgage arrears that effectively increase the interest charged on that debt, irrespective of how the lender characterizes the charge. The court relied on the Supreme Court of Canada's articulation of this principle in Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18, and on appellate authority including P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, and Greenpath Capital Partners Inc. v. 1903130 Ontario Ltd., 2024 ONCA 42. The plaintiff had claimed a list of charges as of October 31, 2024, including a default fee, a three-month penalty, statement and discharge fees, a payment processing fee, an insurance cancellation notice fee, an MII charge, an outlay fee, and a demand letter fee, several of which fell within the scope of section 8's prohibition.

Reasoning and analysis

Justice Callaghan found that section 8 exists to ensure landowners are treated fairly by mortgagees and to protect borrowers' ability to redeem their property or preserve their equity, as recognized in P.A.R.C.E.L. and Krayzel Corp. The court held that absent evidence the disputed charges reflected actual administrative costs or reasonable pre-estimates of such costs, they were prohibited under the Interest Act. When questioned, plaintiff's counsel agreed to withdraw the disputed charges, which the court accepted as a proper concession, noting the plaintiff had made similar concessions in a prior proceeding, CMI High Yield Opportunity Fund v. Todorov, 2023 ONSC 5697. On the question of costs, the court acknowledged that a contractual right to indemnity costs generally warrants deference under Bossé v. Mastercraft Group Inc., 1995 CanLII 931 (C.A.), as reaffirmed in 7550111 Canada Inc. v. Charles, 2020 ONCA 505, and Burr v. Tecumseh Products of Canada Limited, 2023 ONCA 135, but found that advancing unjustified charges without factual foundation was conduct that ought to be discouraged and warranted refusing costs in this instance.

Ruling and overall outcome

The court found the plaintiff, CMI High-Yield Opportunity Fund Corp., entitled to judgment and an order of possession. The proper charges with interest, uncontested by the defendants, totalled $103,714.59, plus prejudgment interest of $17,429.20 calculated at the contractual rate of 9.99% to July 3, 2026, with post-judgment interest continuing to accrue at 9.99% per annum thereafter. The plaintiff was also granted a writ of possession. The court declined to award costs, notwithstanding the plaintiff's contractual entitlement to seek them, given the improper advancement of unjustified charges.