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MORTGAGES - Payment - Prepayment

Wednesday, June 24, 2020 @ 6:59 AM  

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Appeal by the defendant from an order certifying an amended claim based on statutory illegality in a class action alleging that certain prepayment provisions in a mortgage contract were illegal. The respondent pleaded that the appellant’s use of single and double discretion mortgage contracts was contrary to and in breach of its statutory disclosure obligations under the Trust and Loan Companies Act and the Cost of Borrowing (Trust and Loan Companies) Regulations. On a prior appeal by the appellant, some of the claims had been struck. The court found the claim that the impugned clauses were void for uncertainty and unenforceable by reason of the lender’s discretion in the calculation of prepayment charges did not disclose a viable cause of action. The respondent then amended her pleadings to include the claim regarding statutory illegality. The appellant argued that the chambers judge erred in not striking these claims because they were built on the same underlying premise rejected at the earlier appeal that the appellant was required to calculate prepayment charges as interest foregone over the remaining term of the mortgage. The appellant also argued the judge erred in failing to give effect to its alternative arguments that the statutory illegality claims were bound to fail because the statutory provisions did not require that it disclose the internal formula used to calculate prepayment charges, breach of those provisions could not form the basis of restitutionary relief, and they related to disclosure agreements, not to mortgage contracts.

HELD: Appeal dismissed. The judge did not err in finding that the reasoning in the first appeal did not determine the viability of the statutory illegality claims, directly or by necessary implication. While the court held that the appellant was not required to present value the interest rate differential or use an unchanged amortization period in calculating prepayment charges, it did not necessarily follow from these findings that there was nothing wrongful in relation to the appellant’s calculation of prepayment charges. The respondent’s underlying premise of the statutory illegality claims was that the appellant had a duty to disclose the way it calculated prepayment charges and that it must do so in clear and comprehensible language in accordance with statutory requirements and public policy standards. A discretionary prepayment clause in a mortgage contract might be sufficiently certain to be legally binding and a lender may be entitled by the terms of the contract to calculate the prepayment charge in a particular manner, but its disclosure regarding its calculation methodology could still fail to meet statutory requirements. The statutory illegality claims relied on a different legal theory than the previously struck common law and related equitable claims. The respondent’s plea that the impugned clauses did not disclose the way the prepayment charges would be calculated in language that was clear and comprehensible was not patently unreasonable or incapable of proof. Section 536 of the Trust and Loan Companies Act did not completely oust the court’s jurisdiction under the illegality doctrine or prevent a court from granting a remedy based on a breach of the Act. Given the nature of the claims for restitutionary relief in connection with alleged breaches of the Business Practices and Consumer Protection Act and the Mortgage Brokers Act, they were arguable regardless of whether those statutes represented complete codes for the administration and enforcement of the statutory rights and obligations which they created.

Sherry v. CIBC Mortgage Inc., [2020] B.C.J. No. 827, British Columbia Court of Appeal, G. Dickson, B. Fisher and P. Abrioux JJ.A., May 21, 2020. Digest No. TLD-June222020005