Canada: Absent Evidence Of Unconscionability Or Disproportionality, Forbearance Agreement Upheld By Court Of Appeal

On October 10, 2019, the Ontario Court of Appeal released its decision in Del Hugh Terrelonge v CVC Ardellini Investments Inc. ("CVC"). The Court of Appeal unanimously dismissed the appeal and upheld Justice Wilton-Siegel's January 2019 decision to interpret the terms of a Forbearance Agreement executed between CVC Adellini Investments Inc., together with other related parties (collectively, the "Respondent") and Del Terrelonge (the "Appellant") in favour of the Respondent. The Court also confirmed Justice Wilton-Siegel's determination that the Appellant's request for relief from forfeiture under section 98 of Ontario's Courts of Justice Act was not appropriate under the circumstances.

In 2013, the Appellant's company, Templar Corporation ("Templar"), defaulted on a $15+ million mortgage – placing a Templar-owned hotel and the Appellant's personal residence in jeopardy. To avoid a sale of the properties, Templar arranged for the Respondent to pay approximately $8.5 million of its debt.

At around the same time, the Appellant and Respondent entered into a Forbearance Agreement. In signing the Forbearance Agreement, the Appellant acknowledged that Templar actually owed in excess of $17 million, and confirmed that there was an existing, un-waived default. For its part, the Respondent agreed to refrain from enforcing its rights against the Appellant and Templar as long as certain fees were paid and conditions met until the earlier of: one (1) year from the date of signing, the repayment in full of the outstanding debt, and/or default by Templar under the terms of the Forbearance Agreement. If Templar honoured the terms of the Forbearance Agreement, the Respondent further agreed to accept a limited payment of $8.5 million plus interest, costs, and expenses upon maturity.

Templar failed to repay the $8.5 million plus accrued interest to the Respondent before the one (1) year forbearance period had elapsed. As a result, the Respondent terminated the Forbearance Agreement and obtained judgment against the Appellant for approximately $8 million. The Respondent also took possession of the Appellant's personal residence and the Templar-owned hotel, which it sold for $9.75 million. According to the Respondent, that left approximately $7 million outstanding.

Ontario Superior Court of Justice Decision

The Appellant brought a motion before the Superior Court and argued that the debt owed to the Respondent pursuant to the Forbearance Agreement was limited to the $8.5 million paid in respect of the defaulted mortgage. He argued that the sale of the hotel had more than satisfied this debt and requested that the Respondent's charge against his personal residence be discharged.

Justice Wilton-Siegel rejected the Appellant's arguments and found that the Respondent had been assigned the full $17 million debt, which meant that approximately $7 million CAD remained outstanding. He also found that section 8 of the Interest Act (which limits the penalty or rate of interest applicable to an arears of principal or interest secured by a mortgage on real property) was inapplicable under the circumstances. So, too, was section 98 of the Courts of Justice Act, which may be used to grant relief against penalties and forfeitures. According to Justice Wilton-Siegel, there was simply " basis for the exercise of the Court's discretion in this case given the agreement between the parties... As mentioned, the Appellant and Terrelonge agreed that the full amount of the [outstanding debt] would become due and payable if $8.5 million, and stipulated interest, was not paid within one year."

Court of Appeal Analysis and Decision

The Appellant appealed Justice Wilton-Siegel's decision on the basis that he made legal and palpable and overriding errors of mixed fact and law in his interpretation of the Forbearance Agreement and assignment of the full $17 million to the Respondent. According to the Appellant, Templar's real intention was to borrow $8.5 million only. He argued that the only reason the Forbearance Agreement included a transfer of the full outstanding debt was to preserve the debt's priority over other Templar creditors, and that the parties always intended that Templar would not be liable for more than $8.5 million (plus interest and associated costs of enforcement) in the event that it defaulted. The Appellant also submitted that Justice Milton-Siegel erred in law by declining to grant relief from forfeiture under section 98 of the Courts of Justice Act.

The Court of Appeal rejected the Appellant's grounds of appeal, finding nothing in the Forbearance Agreement to suggest that the Respondent ought to be limited to recovering only $8.5 million in the event of Templar's default. The Court even went so far as to commend the motion judge for holding the parties to the terms of the Forbearance Agreement after noting that both the Appellant and Respondent are sophisticated parties, who were represented by counsel at the time the Forbearance Agreement was entered into. The Court of Appeal also acknowledged Justice Wilton-Siegel for following Sattva and recognizing the surrounding circumstances of the Forbearance Agreement, but avoiding impermissibly using them to create a new agreement (with more favourable terms to the Appellant).

Lastly, the Court clarified that the section 98 Interest Act relief sought by the Appellant is a highly discretionary equitable remedy typically used to protect against "unconscionable transactions and disproportionate results." In the instant case, the Court of Appeal agreed with Justice Wilton-Siegel and found no evidence of unconscionability or disproportionality in the Respondent's actions. In fact, Templar could have cleared its $17 million+ debt for the price of approximately $8.5 million, had it complied with the terms of the Forbearance Agreement. This was memorialized in the Forbearance Agreement, which the parties (through their counsel) agreed to. As a result, the Respondent's obtaining judgment against the Appellant and request for repayment of a greater sum than the $8.5 million were commercially reasonable actions.


Parties to Forbearance Agreements (and other agreements-generally) should pay close attention during the drafting phase to ensure they understand the terms and potential implications on them, their business interests, and assets. Counsel, too, should be diligent in providing advice and direction during the drafting and negotiation of agreements, as Courts will strive to give effect to the arrangement between the parties as it was drafted barring evidence of unconscionability.

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