Executive Summary: Key Legal and Evidentiary Issues

• Competing positions on whether an alleged oral agreement on 3 March 2024 validly extended the loan’s maturity date and varied V2’s enforcement rights
• Significance of ongoing negotiations, draft amending agreements and email/text correspondence as objective evidence that no binding variation or standstill agreement was ever concluded
• Effect of loan and security documents permitting V2, in its sole discretion, to register a mortgage on default, despite constraints under the senior Trez mortgage
• Procedural question whether a debt enforcement proceeding of this kind should be converted from an application to an action in light of alleged factual disputes and credibility issues
• Scope of an application judge’s ability to resolve disputes on a paper record, including use of documentary evidence vs. viva voce evidence where credibility is put in issue
• Availability of equitable set-off and counterclaims based on separate dealings, and whether such defences can arise absent a proven amending agreement and where the relevant party is a corporate borrower rather than the individual guarantor

Factual background and parties

The dispute arises from a large commercial loan made to support a real estate development in Ottawa. V2 Investment Holdings Inc. is an investment vehicle owned and controlled by Henry Wolfond, who had a pre-existing personal and business relationship with developer Sam Mizrahi. V2 agreed to loan Mizrahi $12.9 million under a written loan agreement dated 31 October 2019. The funds were intended as bridge financing for a mixed-use condominium development at 1451 Wellington Street, Ottawa, known as the Wellington Project. The development land was held by Mizrahi Development Group (1451 Wellington) Inc., and the broader development business was carried on through related entities including Mizrahi Developments Inc. and 2659100 Ontario Inc. These corporate entities, along with Mizrahi personally, were central to the loan structure as borrower and guarantors. The Wellington Project itself was also subject to construction financing provided by Trez Capital Limited Partnership, secured by a first mortgage over the Ottawa property. Under the Trez first mortgage, Wellington agreed not to allow additional encumbrances to be registered on title without Trez’s consent. This constraint became significant when V2 sought to enforce its security.

Loan structure, interest and security

The October 2019 loan agreement provided for a principal amount of $12.9 million, initially repayable in full on 31 October 2022. Interest was set at 10 per cent per annum, compounded annually and payable monthly in arrears. The agreement further stipulated that, following maturity, the interest rate would increase to 16 per cent per annum. V2 took a package of security to backstop the loan. The principal security was a demand debenture granted by Wellington, which created a charge over the Ottawa property in favour of V2. This was referred to in the appellate reasons as the “V2 Mortgage”. In addition, Mizrahi Developments Inc., Wellington, and 2659100 Ontario Inc. guaranteed the loan. Because the Trez construction financing prohibited new registered encumbrances without Trez’s consent, the V2 Mortgage was not registered on title when the loan advanced. The parties addressed this tension in the loan agreement by giving V2 the contractual right, “in its sole discretion”, to register the V2 Mortgage and any or all of its security on title in the event of default. The agreement also contained an obligation that, if a default continued, Mizrahi and Wellington would use their best efforts to obtain consent from senior secured lenders, including Trez, to the registration of V2’s security. Importantly, the loan terms specified that such consent was not a condition to registration or enforcement of V2’s security. As the Court later emphasized, this meant V2’s enforcement rights were not legally contingent on Trez’s approval, even if registration might trigger a default under the Trez facility.

Events of default and first amendment to the loan

Mizrahi fell into repeated default during the life of the loan. By June 2022 he failed to make the required monthly interest payments and also indicated that he would be unable to repay the principal when it fell due on 31 October 2022. The loan was not repaid on that initial maturity date. In addition, Wellington granted Trez a second mortgage over the same Ottawa property on 1 December 2021, without V2’s consent. This was a further contractual default under the V2 loan agreement. Against this backdrop of non-payment and additional encumbrances, the parties attempted to manage the loan through an amending agreement. On 31 March 2023, they entered into a written first amending agreement. That document extended the maturity date to 31 December 2023 and retrospectively adjusted the interest payment schedule to that new date. Despite this extension and restructuring of interest payments, Mizrahi again failed to repay the loan when the extended maturity date arrived on 31 December 2023. He later stopped making the revised monthly interest payments altogether after May 2024, adding to the tally of ongoing defaults.

Negotiations for further amendment and intercreditor arrangements

After the expiry of the extended maturity date, the parties undertook further negotiations, both about a second amending agreement and about a possible intercreditor agreement between V2 and Trez. The commercial aim of an intercreditor agreement was to facilitate registration of V2’s mortgage on title with Trez’s blessing, in order to avoid putting Wellington in default under the Trez first mortgage. On 3 March 2024, Mizrahi and Wolfond met in person to discuss the terms of a potential second amending agreement and the associated intercreditor structure. The nature and legal effect of what occurred at this meeting became the focal point of the litigation. V2 and Wolfond denied that any agreement—oral or otherwise—was concluded at the meeting or subsequently. Mizrahi contended that an oral agreement was reached, extending the loan maturity date to 1 January 2025 and requiring V2 to hold off on registration of its mortgage until after an intercreditor agreement with Trez was in place. Following the March 3 meeting, the parties, with active involvement from their respective legal counsel, exchanged emails, text messages and draft documents throughout March and April 2024. They discussed the proposed second amending agreement and the potential intercreditor agreement. However, no further written agreements were ever executed.

Enforcement steps and application for judgment

On 15 April 2024, V2 delivered a notice of intention to enforce its security and proceeded to register the V2 Mortgage on title to the Ottawa property. This registration, although authorized under the loan agreement in the event of default, caused Wellington to be in default under the terms of the Trez first mortgage. V2 also commenced an application in the Superior Court of Justice. In that application, it sought judgment on the loan against Mizrahi as borrower and against MDI, Wellington and 9100 as guarantors. V2 initially also asked for the appointment of a receiver over the Ottawa property. Before the application was decided, Wellington became insolvent and commenced restructuring proceedings under the Companies’ Creditors Arrangement Act. The CCAA initial order imposed a broad stay of proceedings against Wellington, which was extended by subsequent orders. Because of this, V2 narrowed the relief sought in the application. It withdrew its request for a receiver and for any relief against Wellington. At that stage, the only relief pursued and eventually granted was judgment on the loan against Mizrahi and the two remaining corporate guarantors. The development of the condominium project remained unfinished throughout.

Decision of the application judge

The application judge granted judgment in favour of V2. He awarded the full principal amount of $12.9 million together with interest in accordance with the loan agreement, on a joint and several basis against Mizrahi, Mizrahi Developments Inc. and 2659100 Ontario Inc. He found that the parties’ negotiations after 31 December 2023 were “inconclusive” and did not produce a binding second amending agreement or any enforceable standstill arrangement. Despite extensive communications among the parties and their counsel, including draft documentation, the judge concluded that their conduct and the documentary record reflected ongoing negotiations rather than a completed deal. In particular, he emphasized that proposals regarding key terms continued to be exchanged and revised through April 2024 and that no definitive consensus was ever reached, even after V2 registered its mortgage on 15 April 2024. The judge also rejected what he described as Mizrahi’s principal defence: that Wolfond had acted in bad faith by representing that he would sign a second amending agreement and enter into an intercreditor agreement with Trez, then reneging and moving to enforce the loan. The judge found there was no trickery or bad faith on V2’s part. Having determined that there was no agreement to vary or waive V2’s contractual enforcement rights after default, and because the loan amount and interest obligations were admitted and undisputed, he concluded that V2 was entitled to judgment for the liquidated debt.

Procedural posture and issues on appeal

The corporate appellants and Mizrahi appealed to the Ontario Court of Appeal. They advanced four main grounds, three of which were closely related. Procedurally, they argued that the application judge erred in law by failing to consider whether the proceeding should be converted to an action, by not in fact converting it, and by conducting what they said was a credibility analysis on disputed material facts solely on the basis of affidavit material and documents. Substantively, they also alleged an error in principle in foreclosing their ability to plead and pursue equitable set-off and a counterclaim based on other dealings between Mizrahi and Wolfond related to a Toronto condominium project. The appellants framed the case as involving significant factual disputes about what was agreed at the 3 March 2024 meeting and how subsequent events should be characterized. They argued that, in the presence of such disputes, an application judge should not effectively make credibility findings or resolve contested evidence on the papers and should instead convert the matter to an action with full discovery and a trial.

Court of Appeal’s treatment of the application vs. action issue

The Court of Appeal held that the application judge’s reasons were clear and sufficiently detailed to permit appellate review and that he had properly concluded the case could be decided on an application record without a trial. The panel noted that he explicitly identified the request to convert the application to an action and implicitly rejected it by explaining why a trial was unnecessary. The decision whether to convert an application to an action is discretionary and attracts deference on appeal. The Court cited prior authorities confirming that an appellate court may only intervene where the lower court misdirects itself, reaches a decision that is plainly wrong so as to amount to an injustice, or gives no or insufficient weight to relevant considerations. The Court also restated the principle that the mere existence of factual disputes does not automatically require conversion to an action. Under the Ontario Rules of Civil Procedure, an application is appropriate where it is unlikely there will be material facts in dispute requiring a trial, and even where there are such disputes, a trial is not mandated if the judge can resolve them on the application record. The critical question is whether disputed facts are “material” to the issues that must be decided and whether credibility issues truly necessitate viva voce evidence. Applying these principles, the Court held that the application judge properly exercised his discretion. He determined there was no justifiable reason to convert the matter. The record—consisting of sworn affidavits, voluminous email and text correspondence and draft agreements, and cross-examination of the key witnesses—gave him a sufficient evidentiary basis to decide the essential issues without a trial.

Assessment of the documentary record and alleged oral agreement

The Court of Appeal closely examined the documentary trail surrounding the alleged oral agreement of 3 March 2024. It emphasized that the application judge relied on the objective documentary record rather than resorting to subjective credibility assessments to reach his conclusions. The correspondence and draft agreements exchanged after the March meeting were inconsistent with the position that a binding oral agreement had already been concluded on that date. Negotiations over the terms of a proposed second amending agreement and an intercreditor arrangement continued into April 2024, with significant points still under discussion. The Court highlighted a key email dated 18 April 2024, about six weeks after the alleged oral agreement, where Mizrahi sent Wolfond a draft second amending agreement that contained a proposed further maturity extension and other terms. Wolfond’s reply characterized the draft as “totally unacceptable”. This exchange, in the Court’s view, was wholly at odds with the idea that a binding deal extending the loan to 1 January 2025 had already been reached on 3 March 2024. Similarly, the Court pointed to an email from Mizrahi to Wolfond dated 15 March 2024, in which Mizrahi explained that he expected to repay the loan from condominium unit sales following registration and targetted October 2024 for registration, then stated that he “would like to extend [the] loan to January 1, 2025 to align with this time line.” The language of “would like to extend” suggested a proposal, not an agreement already formed on 3 March. The appellate panel also noted that Mizrahi’s own affidavit description of the 3 March meeting did not mention any concluded agreement to extend the maturity date. The absence of contemporaneous protest by Mizrahi when V2 proceeded with registration of its mortgage, coupled with the ongoing bargaining over essential terms, further undermined the claim that a binding oral contract had been reached. On this record, the Court accepted the application judge’s finding that no further amending agreement or standstill was ever concluded.

Intercreditor agreement arguments and evidentiary gaps

The appellants also relied on an alleged agreement that there would be an intercreditor arrangement between V2 and Trez, which they said formed part of the purported March 3 oral agreement. The Court of Appeal noted that by its nature any intercreditor agreement would require the consent of both lenders—V2 and Trez. The record contained no evidence of any intercreditor discussions actually resulting in commitment from Trez, nor any evidence that Trez had agreed to the proposed terms. The appellants called no evidence from Trez, even though they could have done so, to support their assertion that such an agreement existed or was legally binding. In any event, the Court considered that even if some intercreditor understanding had been reached between V2 and Trez, it would not determine the core question in this appeal: whether Mizrahi and V2 had actually agreed to extend the maturity date of the loan. The intercreditor point, at best, related to the mechanics of registering V2’s security without triggering default under the Trez financing, not to the existence of an enforceable extension of the borrower’s repayment obligations to 1 January 2025.

Equitable set-off and counterclaim

The appellants’ fourth ground of appeal concerned their alleged inability to pursue equitable set-off and a counterclaim based on purported personal claims by Mizrahi against Wolfond arising from a separate Toronto condominium project. They argued that determining the matter by application rather than action foreclosed those claims. The Court of Appeal dealt with this argument briefly. It held that once the application judge found, and the Court agreed, that there was no further amending agreement in relation to the Ottawa loan, there was no basis for equitable set-off. Equitable set-off requires a close and direct connection between the claims sought to be set off, often arising out of the same transaction or closely connected dealings. Here, the supposed claims related to a different project in Toronto rather than the Wellington Project. Moreover, even if another amending agreement had existed, the party to such an agreement would have been Wellington, the corporate project entity, not Mizrahi in his personal capacity. That corporate-personal distinction further undermined the viability of any equitable set-off defence or personal counterclaim within the framework of this particular enforcement action.

Outcome and monetary consequences

The Court of Appeal dismissed the appeal in its entirety, leaving intact the Superior Court’s judgment in favour of V2. As a result, V2 remained entitled to judgment for the full $12.9 million principal amount of the loan, together with contractual interest, against Sam Mizrahi and the two corporate guarantors on a joint and several basis. The exact dollar amount of accrued and future interest under the 10 per cent, later 16 per cent, interest provisions was not quantified in the appellate reasons, and the decision does not specify the total monetary sum once interest is included. On the question of costs at the appellate level, both sides sought costs if successful, with V2 relying on a contractual provision requiring the borrower to pay all out-of-pocket enforcement expenses. The Court of Appeal ultimately ordered the appellants to pay V2 $55,000 in all-inclusive costs of the appeal. The reasons do not disclose the amount of any costs awarded at first instance. Accordingly, based on the decisions as provided, the successful party overall is V2 Investment Holdings Inc., which obtained judgment for $12.9 million in principal plus interest (the total interest figure is not determinable from the text) and was also awarded $55,000 in costs on appeal, while the precise total of trial-level costs and interest-inclusive debt remains unspecified.