Executive Summary: Key Legal and Evidentiary Issues

• Applicants disputed the validity and enforceability of second and third mortgages on a property owned by a company in which they were shareholders.

• Court upheld both the second and third mortgages as valid and enforceable.

• Property was sold under power of sale; second mortgagee was paid in full, including legal costs.

• Sale proceeds were insufficient to fully pay the third mortgagee.

• Loan document allowed recovery of legal costs on a solicitor and client basis, entitling substantial indemnity costs.

• Court awarded the third mortgagee $85,779.60 in costs of the application.

Background of the dispute

Ronghai Chen and Jianlin Feng, the applicants, challenged the validity and enforceability of a second and third mortgage registered against a property owned by a company in which they were shareholders. The matter was brought before the Ontario Superior Court of Justice, where Justice E.M. Morgan presided.

Outcome on the mortgages

The court held that both the second and third mortgages were valid and enforceable. As a result, the applicants were not successful in invalidating the mortgage claims.

Property sale and proceeds distribution

The property in question was sold under a power of sale. The second mortgagee received full payment, including legal costs, from the proceeds of the sale. However, the proceeds were not sufficient to fully cover the debt owed to the third mortgagee.

Policy terms and cost entitlement

The third mortgagee pointed to a clause in the loan document requiring the debtor to pay legal costs on a solicitor and client basis. The court acknowledged that such clauses are generally enforceable and confirmed that the third mortgagee was entitled to costs on a substantial indemnity scale, citing Everest Finance Corporation v. Jonker, 2023 ONCA 87.

Court’s findings on cost submissions

The third mortgagee sought $85,779.60 as costs of the application. It also attempted to include legal fees of the second mortgagee and those of the solicitor handling the property sale. However, the court rejected those additions, stating they were not considered “costs” of the application but rather represented losses on the loan.

Final decision on costs

The court found that the amount claimed by the third mortgagee was reasonable and reflected the work performed. Accordingly, the applicants were ordered to pay the third mortgagee the all-inclusive amount of $85,779.60 as costs of the application. The decision was dated February 10, 2025.