News & Views

 Revise those Mortgage Charge Terms: 1539339 Ontario Inc. v. First Source
March 08, 2021

Revise those Mortgage Charge Terms: 1539339 Ontario Inc. v. First Source

Written by the Liliana Ferreira

Since the 2015 Court of Appeal decision in Parcel v. Acquaviva, the prevailing view about fees and charges added to a mortgage debt by a lender was that unless the fees were actually incurred by the lender, the fees/charges were not collectible. In Acquaviva, the Court reasoned that if the fee/charge was not incurred by the lender, it was a penalty or fine that had the effect of increasing the mortgage's rate of interest, which violated s.8 of the Interest Act and were therefore unenforceable, much to the shock and dismay of lenders who rebutted, ‘but they were included in the mortgage charge terms’! It would take the year 2020, and the recent decision of 1539339 Ontario Inc. and First Source Financial Management Inc. to offer lenders new hope.

In 1539339 v. First Source, First Source held a first mortgage, and 1539339 held a second mortgage. The First Source mortgage was in default and 1539339 brought an application to determine the amount necessary to redeem First Source’s mortgage. There were two issues in particular to be determined: (1) the applicable rate of interest, and (2) whether fees and charges totaling $167,265.45 for management costs, holding over fees, late charges, and other small charges were enforceable. 

The Rate of Interest: 

First Source's mortgage charge terms provided that the mortgage term was 18 months plus one day. For the first 18 months, up to August 1, 2019, the rate of interest was 9.25%, thereafter the rate of interest increased to 18%. The mortgage matured on August 2, 2019. 

1539339 took the position that the increase in the rate of interest ran afoul of the Interest Act because s.8 prohibits a lender from charging a different rate of interest when the loan is in default than when it is in good standing. 1539339 argued that since the mortgage was not being renewed or paid in full on August 2, it went into default on the same day that the rate increased to 18%, which violated the Interest Act.

Fees & Charges: 

With respect to the additional charges claimed by First Source, 1539339 argued that the First Source had failed to demonstrate that the fees/charges were reasonable or actually incurred as required by Parcel and the Interest Act, and the charges were therefore not recoverable.

The Court’s Decision: 

With respect to the rate of interest, the Court determined that since the increase in the interest rate was triggered by the passage of time, and not a default, it did not contravene the Interest Act. In this case, the rate of interest increased on the date of maturity, regardless of whether or not the borrower paid the mortgage, renewed r defaulted. The applicable rate of interest was 18%.

As for the fees and charges, First Source took the position that the fees were recoverable because they were included in the mortgage charge terms, as a “genuine pre-estimate of the value of the services performed for same and is not a penalty or additional interest on the loan secured by the charge”. The mortgage charge terms also contained a provision that the clauses regarding the fees and charges were deemed to be proper notice to subsequent encumbrancers in the event of default by the borrower, as well as a clause confirming that the borrower (i) was aware of the fees/charges, (ii) was aware that such fees/charges would be in addition to the principal and interest due under the mortgage, and (iii) acknowledged that the fees/charges were reasonable, and a reasonable pre-estimate of the lenders actual costs. 

The Court determined that because the fees were contractually described as “reasonable pre-estimates of damages and not as penalties”, they were collectible. The Court did take exception to the amount of $7,350.00 in “Late Charges” because Parcel specifically described these as penalties, and there was no evidence to suggest that the lender actually incurred any actual losses because of late payments. 

First Source provides direct guidance on the specific language that should be included in mortgage charge terms if the lender wants to safeguard their ability to recover additional fees/charges. While this may appear to be a departure from Acquaviva, the underlying principle in the two cases remains the same: a borrower should know the total cost of borrowing.

If you have any questions, please feel to reach out to Liliana Ferreira directly at [email protected] or at 905 763 3770 x 242 for further information.

The material provided in this article is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.


About the Author:

Liliana Ferreira's practice encompasses commercial and estate litigation. She advises individual and corporate clients on a range of legal issues such as employment and contract disputes, construction matters and debt recovery claims. Prior to joining FIJ Law LLP in 2013, Liliana focused her practice on estate litigation at a boutique firm and gained experience in will challenges, dependant support claims, power of attorney disputes and fiduciary issues. Her unique expertise allows her to take a balanced approach to litigation with a sharp focus on advocacy and dispute resolution while assisting her clients in making informed business decisions.

The Repercussions of Retaliation in the Work Environment
December 15, 2020

The Repercussions of Retaliation in the Work Environment

Written by the Robert A. Izsak and Amanda Maio

An employer cannot intimidate, dismiss, or otherwise penalize an employee, or threaten to do so on the grounds that the employee does any of the following:

  • Makes inquiries about their rights;
  • Makes inquiries about the salary of other employees with a view to determining if the employer is providing equal pay for equal work
  • Taking or planning to take pregnancy, sick, bereavement, family responsibility, declared emergency, family caregiver, family medical, critical illness, domestic or sexual violence, crime related child disappearance or child death leave
  • Files a complaint with the Ministry of Labour;
  • Exercises or attempts to exercise a right under the Employment Standards Act;
  • Gives information to an employment standards officer;
  • Asks the employer to comply with the Employment Standards Act or regulations thereunder; and
  • Testifies or is required to testify or otherwise participates or is going to participate in an employment standard proceeding. 1

If an employer punishes an employee, or suspends, terminates or threatens any of these actions, an employer can be ordered to reinstate the employee to their job and to compensate the employee for any losses incurred due to such violation and further order that any unpaid wages are reimbursed to the employee. Such actions are referred to as employer retaliation or reprisal.

There are a number of forums where the employee can seek remedy if he/she is a victim of employer retaliation including the Employment Standards Boards and/or the Ontario Courts. The Employment Standards Board provides employees with full access to a Tribunal that has broad authority to make binding and punitive orders against offending employers at low or no cost to the employee. Employees filing complaint to the Board are not required to have legal counsel.

Lawyers practicing in the area of employment law have long recognized that the decisions of the Employment Standards Board tends to favour employees. Admittedly, this conclusion is largely anecdotal but many professionals share the view of a perceived and actual bias against employers resulting in added obligations on the part of employers to prove that their actions did not constitute a reprisal. If an employer engaged in conduct for true and legitimate business purposes that the employee may have perceived as a reprisal, it is imperative that the employer maintains detailed notes, accounts and records to provide real evidence in support of an employers’ defence that such action was legitimate and required. 

An employee may be terminated or disciplined for many reasons, including poor work performance, insubordination, or poor attendance. However, if only one of the reasons provided by the employer can be tied to a reprisal, that is, if an employee was terminated because she failed to attend work without good reason for 20 of the last 30 work days and also because she then advised the employer that she was pregnant and would be taking maternity leave, the employer’s action will be deemed a reprisal and the employer will face the consequences of that action.

When dealing with allegations of reprisal, the burden of proof falls on the shoulders of the employer. The employer must establish that it did not retaliate against an employee for exercising his or her statutory rights.

Employers are therefore cautioned to ensure they are well educated on the issue of retaliation and have policies and procedures firmly established to ensure that actions taken are not for the purpose of retaliation and cannot be construed as an act of reprisal.

If you have any questions, please feel to reach out to Amanda Maio directly at [email protected] or at 905 763 3770 x 209 for further information.

The material provided in this article is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.

____________________________________

Employment Standards Act, 2000, S.O. 2000, c. 41, s. 74(1);


About the Author:

Robert A. Izsak is a respected leader in the debt recovery sector. Combining a systematic approach with a sensitivity to the individuality of debtor issues, Rob provides unrivalled collection portfolio management and litigation support to financial institutions and large commercial enterprises.

Amanda Maio focuses primarily in the area of commercial litigation. Through the continued mentorship and guidance of the experienced litigation lawyers at FIJ, Amanda works with both large financial institutions and individual clients to support their litigation needs.