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Real Property Law - Mortgages - Mortgage agreement - Terms - Validity - Payment - Prepayment - Penalty

Thursday, July 21, 2016 @ 8:00 PM  


Appeal by the defendant, CIBC Mortgages, from an order certifying the action by the plaintiff, Sherry, as a class proceeding. The plaintiff took issue with contractual terms governing the prepayment of mortgage loans advanced by the defendant to borrowers from 2005 onward, particularly the imposition and calculation of prepayment charges, and the discretion accorded to the defendant in that regard under the terms of its mortgage agreements. The plaintiff’s action sought to have the relevant terms of the disputed mortgage contracts declared void for uncertainty or unconscionable at law or equity under the Business Practices and Consumer Protection Act. The action also sought an accounting and general, punitive and exemplary damages for breach of contract and/or breach of fiduciary duty due to alleged miscalculations of prepayment charges based on the interest rate differential arising from prepayment. On the motion for certification, the chambers judge found it was not plain and obvious the plaintiff’s arguments had no chance of success and concluded the pleadings disclosed a viable cause of action. The chambers judge accepted the defendant’s argument the proposed class was overbroad. The remaining criteria for certification were met. Certification was granted on the condition the class was properly narrowed and defined. A supplemental decision accepted the plaintiff’s class definition of individuals who paid any prepayment penalty. The defendant appealed.

HELD: Appeal allowed in part. The chambers judge erred in ruling that reasonable causes of action were disclosed in respect of the enforceability of the subject mortgage contracts, whether they were void for uncertainty, and whether the defendant breached the mortgage contracts or a fiduciary duty by reason of the alleged miscalculations. Unlike Australian law, the Canadian courts consistently gave effect to discretionary clauses of both a subjective and objective nature rather than finding them void or illusory. In addition, a binding Court of Appeal precedent, Pfeiffer, conclusively precluded a contractual or fiduciary claim based on the prepayment calculations. The claims based on uncertainty and miscalculations were thus bound to fail. Deletions were made to the certification order where required. Based on recent evolutions in the jurisprudence, there was no error in ruling that the claims of systemic unconscionability or for punitive damages could proceed as common issues. There was no basis for appellate interference with the chambers judge’s definition of the proposed class.