Legal Blog

Prudence Re-Visited

In our June 2006 newsletter, we dealt with Manufacturers Life Insurance v. Elgie, a 2006 decision of the Ontario Superior Court of Justice. The decision dealt with the duty of a mortgagee to manage seized assets prudently before the mortgagee sold them and the consequences for failing to do so.

The trial judge held that the mortgagee, through its manager, mismanaged the mortgagor’s apartment building. She assessed the mortgagor’s damages at $785,000 and set off this amount from the mortgage deficiency of approximately $2.88 million after sale. The mortgagee had also claimed $93,000 for costs of the seizure and sale, but the judge had postponed that issue until the parties had argued the issue of costs of the entire proceedings. The trial judge has now handed down her decision regarding costs and interest.

Costs 

The judge allowed the mortgagee the full $93,000 for the costs of the seizure and sale; after all, the mortgagor had defaulted on its mortgage responsibilities. The fact that the mortgagee did not act responsibly as a mortgagee in possession did not mean that it lost its right to costs to which it was entitled under the mortgage.

The costs of the action, however, were another matter. Because the mortgagor was largely successful on its counterclaim, the judge awarded the mortgagor the costs of the counterclaim on a partial indemnity basis and fixed these costs at $125,741. The judge also awarded the mortgagee its costs of the action on a solicitor-client basis, as stated in the mortgage, and fixed these costs at $237,468.

We feel that the judge should not have awarded the mortgagee so much. Since the mortgagee incurred most of its costs unsuccessfully defending the counterclaim, we would have awarded far less to it. 

Interest 

The judge allowed the mortgagor pre-judgment interest on the mortgagor’s damages at the same rate as the mortgagee was receiving under the mortgage. This was fair because the damages awarded in the counterclaim were being set off against the monies awarded to the mortgagee on the claim. It would be inequitable for the mortgagee to gain interest on money, which it ultimately would not receive due to the setoff, at rates that were higher than the mortgagor received on that money.

Result 

The judge did not perform the math, but, from what we can determine, the mortgagor owes less than it would have owed were it not for the counterclaim, but ultimately owes the mortgagee a whack of money on the judgment.