Court File and Parties

CITATION: Dhawan v. Shails et. al. 2018 ONSC 7116

COURT FILE NO.: 17-2269-DV

DATE: November 27, 2018

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

Rajender Singh Dhawan Plaintiff/Respondent

– and –

Shails Communication Inc., Santosh Shail, Swapna Shail, TD Canada Trust and Scotiabank Defendants/Appellants

COUNSEL:

David Debenham for the Plaintiff/Respondent

Colin Johnston for the Defendants/Appellants

HEARD: November 19, 2018

JUSTICE SALLY GOMERY

Reasons for Judgment

[1] This appeal centres on the interpretation of a personal guarantee.

[2] On July 7, 2010, Santosh Shail and Swapna Shail executed a guarantee in favour of Rajender Singh Dhawan (the “2010 Guarantee”). On December 8, 2016, a Master held that, by virtue of the 2010 Guarantee, the Shails were liable for all of the debt owed to Dhawan by their company, Shails Communication Inc. (“SCI”). She granted Dhawan partial summary judgment against the Shails for $244,059.96 plus $17,000 in costs, the amounts in a consent judgment already granted in SCI’s favour.

[3] In this appeal, the Shails contend that the Master erred in her interpretation of the 2010 Guarantee. They ask this court to set aside her decision and find that any debt owed under the Guarantee has been discharged. Dhawan says that the Master made no reviewable error. In the alternative, Dhawan says that I should find the Shails liable for the company’s debt based on further guarantees they signed in 2013 (the “2013 Guarantees”).

[4] For the reasons that follow, I am granting the appeal and dismissing the claim against the Shails based on the 2010 Guarantee. I am not making any determination on the enforceability of the 2013 Guarantees because, as found by the Master, this is not an issue appropriate for summary judgment.

Background

[5] Most of the facts relevant to this appeal are not in dispute, either because they have been admitted or appear on the face of the agreements between the parties.

[6] In July 2010, Dhawan entered into an agreement with SCI to provide funding for a proposed project with the Government of Ethiopia (the “Contract”). Under the terms of the Contract, Dhawan would advance $50,000 to SCI immediately so that it could bid on the project. If SCI’s bid was rejected by the Ethiopian Government, it would return this money to Dhawan without interest. If SCI’s bid was accepted, Dhawan would advance a further $250,000 to SCI to fund its work on the project. Once the project was completed, Dhawan would be repaid his money and 25% of the profits of the project.[^1]

[7] Further to paragraph 3 of the Contract, SCI’s obligation to repay Dhawan would be secured by a promissory note and a personal guarantee from the Shails. If Dhawan advanced a further loan of $250,000 to proceed with the execution of the project, paragraph 9 provided that SCI would “execute a further promissory note and guarantee for these monies”.

[8] The Contract, the 2010 Guarantee, and a demand promissory note (the “2010 Note”) were all drafted by Dhawan and signed on July 7, 2010. The Preamble and first two sections of the 2010 Guarantee read as follows:

WHEREAS:

A. Shails Communications Inc. … (herein referred to as the “Borrower”) has issued in favour of the Lender [Dhawan] a Demand Promissory Note of July 7, 2010 (such note as it may hereafter be amended, modified, supplemented, renewed, substituted or replaced from time to time is herein referred to as the “note”) pursuant to which the Borrower has agreed to repay its indebtedness to the Lender.

B. The Guarantors [the Shails] wishes the Borrowers, which is equally and wholly owned by the Guarantors, to repay the indebtedness in accordance with the terms set out in the Note in favour of the Lender and, therefore, is willing to execute and deliver this Guarantee to the Lender.

NOW THEREFORE in consideration of the Lender accepting repayment of the indebtedness in accordance with the note, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Guarantors, the Guarantors agrees as follows:

1. Interpretation. All terms defined in the note and not otherwise defined herein and used in this Guarantee shall have the meanings ascribed thereto in the note.

2. Guarantee. The Guarantors, severally and jointly, hereby unconditionally and irrevocably guarantees, as a continuing obligation, payment to the Lender forth-with after demand therefor of all present and future indebtedness, obligations and liabilities of any kind whatsoever which the Bor-rower has incurred or may incur or be under to the Lender arising under or in connection with the note (herein collectively referred to as the “obligations”). All amounts payable by the Guarantors hereunder shallbe paid to the Lender at his address as aforesaid or as otherwise directed by the Lender. For greater certainty, this shall be a continuing guarantee and shall cover all of the obligations now or hereafter existing and shall apply to and secure any ultimate balance due or remaining due to the Lender.[^2]

[9] Following execution of the Contract, the 2010 Note and the 2010 Guarantee, Dhawan advanced $50,000 to SCI. He advanced a further $250,000 to SCI and the Shails between July and October 2010. SCI won the bid for the Ethiopian project, and in December 2010 a contract was signed between the company and the Ethiopian Government. SCI and the Shails did not sign any further guarantee and promissory note for the additional money lent by Dhawan, as contemplated in paragraph 9 of the Contract.

[10] Although by October 2010 Dhawan had advanced all of the money contemplated in the Contract, he subsequently provided SCI and the Shails with additional loans of $450,000 to fund the Ethiopian project and other investments. The Shails did not provide any further personal security until March 2013, when Dhawan alleges that they signed the two 2013 Guarantees. The Shails deny that these guarantees are enforceable for various reasons.

[11] The parties agree that Dhawan provided SCI with $750,000 in total. They also agree that he is entitled to 25% of the profits from the Ethiopian project. Taking into account repayments by SCI of approximately $640,000, and about $123,000 seized by Dhawan from SCI’s bank account, Dhawan is owed $244,059.96. Of this amount, $110,154.80 represents the unpaid balance of loans and $133,905.16 the unpaid profit share.

[12] In April 2016, Justice Ray issued an order, on consent, that required SCI to repay Dhawan $244,059.96 plus $17,000 in costs.

The Master’s Judgment

[13] On September 8, 2016, Dhawan moved for partial summary judgment against the Shails. In her decision on the motion, Master Champagne (as she then was) concluded that, by signing the 2010 Guarantee, the Shails agreed to repay all of SCI’s current and future debts to Dhawan.

[14] In reaching her decision, the Master rejected the Shails’ argument that the phrase “arising under or in connection with the note” in section 2 of the 2010 Guarantee limited the scope of their indebtedness to the amount that Dhawan would recover from SCI pursuant to the 2010. She wrote:

I agree that the indebtedness includes the note but the passage as a whole says the guarantee covers “obligations and liabilities of any kind whatsoever which the Bor-rower [sic] has incurred or may incur or be under to the Lender arising under or in connection with the note (herein collectively referred to as the “obligations”)” [Emphasis added]. This suggests to me that the $50,000 note was meant to be included along with other contemplated indebtedness. The last sentence of paragraph 2 of the guarantee that “[f]or greater certainty, this shall be a continuing guarantee and shall cover all of the obligations now or hereafter existing and shall apply to and secure any ultimate balance due or remaining due to the Lender” [Emphasis added] makes that clear.

[15] The Master rejected the Shails’ affidavit evidence that the 2010 Guarantee was not meant to secure further advances made by Dhawan to SCI. In her view, these were bald and unsupported assertions. They were furthermore, in her view, contradicted by “documented and substantiated evidence that clearly shows that the plaintiff made a series of long term loans and advances to SCI and that SCI repaid him various sums over the period of three years”, a course of action which the Master found was consistent with the interpretation of the Guarantee as a continuing guarantee.

[16] In interpreting the 2010 Guarantee, the Master relied on the Court of Appeal’s decision in Royal Bank of Canada v. Samson Management & Solutions Ltd.[^3] In that case, the Court held that a guarantee given by an individual to secure a line of credit by a bank was a “continuing all accounts guarantee”. The Master concluded that:

The wording of the [2010] guarantee contemplates future loans by the plaintiff and future indebtedness by SCI which in fact occurred. In the circumstances, I find that the Shails are personally liable for the debts of SCI.

[17] The Master accordingly granted Dhawan partial summary judgment for $244,059.96 plus $17,000 in costs, the amounts SCI had been ordered to pay to Dhawan in April 2016.

[18] In his partial summary judgment motion, Dhawan also relied on the 2013 Guarantees. The Shails claimed, among other things, that they executed these Guarantees based on misrepresentations by Dhawan and that they overstated SCI’s debt to him. The Master declined to make any finding on the parties’ competing allegations on the 2013 Guarantees and did not rely on them in reaching her decision.

[19] The Master also dealt with arguments based on the Arbitration Act, 1991 and oppression. Her decisions on these issues have not been challenged in this appeal.

The parties’ positions and the questions on appeal

[20] The Shails contend that the Master erred in law in interpreting the 2010 Guarantee. They ask this court to set aside her decision and find that the 2010 Guarantee was only intended to secure Dhawan’s initial $50,000 advance, that this advance was repaid by SCI prior to the April 2016 consent order, and that the Shails’ obligations under the 2010 Guarantee have accordingly been extinguished.

[21] In their factum, the Shails claimed that the Master exceeded her jurisdiction by using powers reserved to a judge in rule 20.04(2.1). They raised other issues in their notice of appeal. This argument and these issues were however not pursued at the hearing.

[22] Dhawan says that the Master made no legal errors and that, as a result, I may only set her decision aside if she made a palpable and overriding error in interpreting the 2010 Guarantee. He argues that she made no such errors as her interpretation of the Guarantee was reasonable. In the alternative, Dhawan argues that I should find the Shails liable for the amount of the consent judgment against SCI based on the 2013 Guarantees.

[23] The questions arising in this appeal are:

(1) What is the applicable standard of review of the Master’s decision?

(2) Did the Master err in law or make an overriding and palpable error of fact and law in interpreting the 2010 Guarantee?

(3) If so, has the Shails’ debt under the 2010 Guarantee been extinguished?

(4) If the Shails are not liable under the 2010 Guarantee, are they liable under the 2013 Guarantees?

Standard of review

[24] On review of a Master’s decision on a motion for summary judgment, I may only interfere if the Master made an error of law, exercised her discretion on wrong principles, or made a palpable and overriding error of fact or mixed fact and law.[^4]

[25] In Sattva Capital Corp. v. Creston Moly Corp., the Supreme Court of Canada held that the interpretation of a contract is generally a question of mixed fact and law.[^5] A master or judge’s interpretation should therefore not be overturned on appeal in the absence of a palpable and overriding error. Exceptionally, a lower court may make an error of law in interpreting a contract. In that case, the standard of review is correctness.

[26] In 1079268 Ontario Inc. v. GoodLife Fitness Centres Inc., the Ontario Court of Appeal considered when a faulty interpretation of a contract would amount to an error of law.[^6] The central issue in that case was whether GoodLife’s lease include the basement of the building it was renting. The judge who heard the application concluded that it did not. The Court of Appeal allowed the appeal.

[27] The Court of Appeal clarified how a judge or master could make a legal error in interpreting a contract:

Sattva makes clear that the standard of review is palpable and overriding error, unless it is possible to identify an extricable question of law, in which case correctness review applies. Sattva emphasizes that questions of law are relatively rare; courts must be cautious in identifying extricable questions of law, lest contractual interpretation collapse into correctness review. Nevertheless, the Supreme Court identified three examples of legal errors that may be made in the course of contractual interpretation: “the application of incorrect principles, the failure to consider a required element of a legal test, or the failure to consider a relevant factor”… .[^7]

[28] In GoodLife, the Court of Appeal found that the application judge considered some, but not all, of the relevant circumstances when the lease was signed.[^8] The circumstances surrounding the formation of the lease were particularly important given the inconsistent and contradictory provisions in the lease.[^9] The Court concluded that the application judge’s failure to interpret the lease having regard to the circumstances as a whole amounted to an error of law. According to the Court:

The problem in this case is not that the application judge simply failed to refer to all the material evidence in the reasons for her decision; indeed, she was not required to do so. The problem is that the application judge failed to consider all the material evidence before reaching her decision. The result is an interpretation of the lease that was inconsistent with the intention of the parties.[^10]

[29] Having considered all of the evidence with respect to the negotiation of the lease, the Court concluded that the parties clearly intended to include the basement in the leased premises, even if there were some provisions in the final agreement that suggested otherwise.

Did the Master make a reviewable error in interpreting the Guarantee?

[30] In my view, the Master erred in law in interpreting the 2010 Guarantee by failing to consider the circumstances in which it was signed and by not applying applicable interpretive principles.

[31] In Sattva, the Supreme Court said that the court must “read the contract as a whole, giving the words their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract”.[^11]

[32] Like the lease in GoodLife, and as the Master herself recognized, the language in the 2010 Guarantee is inconsistent. According to its preamble, the consideration for the Guarantee was Dhawan’s acceptance of repayment of the indebtedness “in accordance with” the 2010 Note. Section 1 of the 2010 Guarantee says that any term not otherwise defined had the same meaning given to as in the 2010 Note. Section 2 states that the Shails guarantee indebtedness “arising under or in connection with” the 2010 Note. All of this language ties the Shails’ indebtedness to the terms of the 2010 Note.

[33] On the other hand, section 2 of the Guarantee says that it is a “continuing” guarantee. A continuing guarantee “covers a series of transactions, and the surety will be liable in respect of any of those transactions (subject to any overall limit in the amount of the guarantee)”.[^12] The qualification of the guarantee as a continuing guarantee could imply that the Shails’ indebtedness secured by the 2010 Guarantee was not limited to the indebtedness secured by the 2010 Note.

[34] Section 9 of the 2010 Guarantee provides another example of the inconsistency of its terms. The first sentence of the section states that “All monies, advances, renewals and credits in fact borrowed or obtained by the Borrower from the Lender under or in connection with the note shall be deemed to form part of the obligations” notwithstanding any lack of capacity on the part of the parties signing on behalf of SCI or any irregularity in the underlying transaction. Although this is broadly drafted, it is again tied to the terms of the 2010 Note. But later on in the same section, the phrase “monies, advances renewals or credits in fact borrowed or obtained from the Lender” is not similarly qualified.

[35] Given the inconsistent terms in the 2010 Guarantee, the parties’ intent can only be ascertained by examining all of the circumstances surrounding its execution. This would include, notably, the overall deal struck between them that same day as reflected in the Contract and the 2010 Note. The Master did not however refer to the terms either the Contract or the 2010 Note. In my view, this amounted to an error in law.

[36] The Contract contains separate and distinct provisions with respect to the first $50,000 that Dhawan undertook to advance to SCI immediately, and with respect to the further $250,000 that he might provide, if SCI’s bid was accepted. Further to paragraph 3 of the Contract:

Dhawan has agreed to deliver Fifty Thousand ($50,000) Dollars to [SCI] upon signing of this agreement, and [SCI] has agreed to execute a Promissory Note for indebtedness and personal guarantee of its Directors, Santosh Shail and Swapna Shail, in return thereof. This money is to enable [SCI] to bid for the contract with the Ethiopian Government.

[37] Paragraphs 4 to 8 of the Contract set out what the parties agreed to do, depending on what happened with SCI’s bid. Paragraph 4 says that, if SCI’s bid was rejected, it would repay Dhawan the $50,000 he had advanced without interest, “as soon as the decision of the Ethiopian government is made public in any manner”. Paragraphs 5 6, 7 and 8 set out what would happen if SCI’s bid is accepted. Paragraph 9 says:

Dhawan will further deliver Two Hundred and Fifty Thousand ($250,000) Dollars to [SCI] to complete their formalities with the Ethiopian Government, Export Development Canada (EDC) and any other federal or provincial government or department, to proceed with the execution of the project. [SCI] agrees to execute a further promissory note and guarantee for these monies.

[38] Paragraph 3 requires SCI and the Shails to provide security as consideration for Dhawan’s advance of the first $50,000. Paragraph 9 anticipates further security if and when he advances a further $250,000 later on.

[39] Dhawan argues that paragraph 9 of the Contract does not preclude the possibility that the 2010 Guarantee is a continuing guarantee that secures all of SCI’s debt to Dhawan. If the Guarantee’s terms clearly indicate that the Shails intended to cover all loans that he might extend in future to SCI, it would not matter that the parties contemplated something different in the Contract they signed the same day.

[40] As already noted, however, the terms of the 2010 Guarantee are ambiguous. This makes the terms of the Contract highly relevant to ascertaining the parties’ intentions in signing the 2010 Guarantee. The Contract, which sets out what parties undertake to do, states that separate security will be provided for the two advances due from Dhawan. This supports the argument that they intended that the 2010 Guarantee would be limited to the amounts due under the 2010 Note.

[41] So too does the language of the 2010 Note. In the Note, SCI acknowledges its debt to Dhawan under the Contract and promises to repay him $50,000. If SCI fails to repay the money by the due date or at the demand of Dhawan, or if it becomes bankrupt or insolvent, interest of 18% annually will run on the principal amount as of July 6, 2010. SCI also agrees to indemnify Dhawan “against any claims or costs arising out of non-payment” of the loan, and to pay all costs of collection including legal fees.

[42] There is no evidence that Dhawan and the Shails ever amended, modified, supplemented or replaced the 2010 Note. In light of this, Dhawan’s recovery against SCI based on the Note was limited to $50,000 plus interest plus any costs associated with enforcement of the security. There is nothing in the 2010 Note that suggests that it secured further advances by Dhawan. In fact the opposite is true. It specifically contemplates the execution of “further agreement(s) and documents” if SCI wins a contract from the Ethiopian government. This logically refers to SCI’s undertaking at paragraph 9 of the Contract to provide a further promissory note and guarantee if it received a further $250,000 advance from Dhawan.

[43] The terms of the 2010 Note would again not prevent Dhawan from preparing, and the Shails from signing, a continuing guarantee on July 7, 2010 that secured all future advances by Dhawan. I cannot however infer that the parties intended to depart from the deal concluded the very same day in the absence of unambiguous language to this effect in the 2010 Guarantee.

[44] To the extent that there is any further doubt about the meaning to be given to the 2010 Guarantee, it can be resolved based on the contra proferentem rule. The scope and rationale of the contra proferentem rule is that:

provisions in agreements and other written documents that suffer from ambiguity are to be construed against the interest of the person who draft or proferred the ambiguous provision. … The apparent rationale for the rule is that the author of the agreement, having had an opportunity to protect his or her interest, ought to be able to take advantage of such protections as have been inserted only to the extent that they are clearly communicated in the language of the agreement to the other party. The doctrine works against unfair surprise of the non-drafting party. A further underlying concern may be to preclude any incentive that might otherwise exist for the author to strategically draft provisions that are deliberately obscure, with the intention of preserving the opportunity of asserting a more generous interpretation at a later date. [^13]

[45] Applying the general rule and rationale to guarantees:

[I]n the context of guarantees that, in the usual case, are drafted by someone other than the guarantor, provisions imposing burdens on the guarantor will be construed against the interests of the person who drafted the guarantee.[^14]

[46] Dhawan drafted the 2010 Guarantee. Its terms are ambiguous insofar as the reference to a “continuing” guarantee in section 2 is at odds with other language in the document that limits the Shails’ liability to SCI’s indebtedness under the 2010 Note. There is no evidence that Dhawan told the Shails that he construed the 2010 Guarantee as a continuing guarantee. In these circumstances, the contra proferentem rule dictates that any ambiguity in the terms of the 2010 Guarantee must be resolved in the Shails’ favour and against Dhawan’s interests.

[47] The terms of 2010 Guarantee are different than those in the guarantee in RBC v. Samson, the case relied upon by the Master in her decision. Dhawan points out that the last sentence of section 2 of the 2010 Guarantee strongly resembles a term in the guarantee in RBC v. Samson, which read as follows:

This guarantee shall be a continuing guarantee and shall cover all the liabilities, and shall apply to and secure any ultimate balance due and remaining unpaid to the Bank.[^15]

[48] The last sentence of section 2 of the 2010 Guarantee reads:

For greater certainty, this shall be a continuing guarantee and shall cover all of the obligations now and heareafter existing and shall apply to and secure any ultimate balance due and remaining unpaid to the Bank

[49] There is however a critical distinction between the language used in the two guarantees. Earlier in the same section in the 2010 Guarantee, “obligations” are restricted to “indebtedness, obligations and liabilities “under or in connection with” the 2010 Note. Nothing in the guarantee at issue in RBC v. Samson tied the guarantor’s indebtedness to a particular debt instrument. On the contrary, the guarantee required Mrs. Samson to pay the bank “all debts and liabilities, present or future, direct or indirect, absolute or contingent, mature or not, at any time owing” by Mr. Samson “or remaining unpaid by the customer to the Bank, heretofore or hereafter incurred or arising and … incurred by or arising from agreement or dealings between the Bank and the customer”.

[50] The broad and unfettered language in the guarantee in RBC v. Samson distinguishes from the 2010 Guarantee. The Master accordingly erred in relying on this case in her interpretation of the Guarantee.

[51] The Master also relied on the parties’ conduct after signing the 2010 Guarantee which, in her view, was consistent with the existence of continuing guarantee. Post-contractual conduct may be used as an interpretive aid in some circumstances:

[I]f after considering the words used in the agreement itself (i.e., as used in their immediate context), and after taking into account the context of the agreement as a whole, there remain two reasonable alternative interpretations, then subsequent conduct may be used as additional evidence to determine which of the two reasonable alternative interpretations is the correct one.[^16]

[52] As I have already concluded, however, there are not two reasonable interpretations of the 2010 Guarantee, once all of its terms and its context are taken into consideration. The only reasonable interpretation is that the Shails were specifically guaranteeing SCI’s indebtedness pursuant to the 2010 Note, as opposed to providing a continuing, all accounts guarantee. The parties’ post-agreement conduct is accordingly irrelevant.

[53] I conclude that the parties could not have and did not intend that the Shails would provide Dhawan, through the 2010 Guarantee, with security for all amounts he might advance to SCI in the future. The statement in section 2 of the 2010 Guarantee that it is a continuing guarantee cannot, by itself, transform a specific guarantee to a much broader, indeed unlimited, security. Since the 2010 Note was never amended, supplemented or replaced, the total amount of indebtedness pursuant to the 2010 Guarantee was $50,000 plus interest plus any costs of execution.

Is the Shails’ debt under the 2010 Guarantee extinguished?

[54] If I find that the 2010 Guarantee only guarantees SCI’s indebtedness under the 2010 Note, the Shails say I should further find that their liability under the Guarantee has been extinguished based on the rule in Clayton’s case. The Master did not deal with this argument because she found that the 2010 Guarantee secured all of SCI’s debt to the Shails.

[55] The rule in Clayton’s case is sometimes referred to as the “first-in, first-out” rule. Under this rule, where a debtor borrows successive amounts of money, each repayment will apply against the oldest outstanding debt, unless the debtor specifies otherwise.[^17]

[56] The parties agree that SCI had repaid $639,845.30 against debt obligations of $750,000 by the date of the summary judgment motion. The Master stated that the timing of the payments was unclear from the evidence. In a schedule to his factum, however, Dhawan sets out the dates of each advance he allegedly made to SCI and amounts he received in repayment, based on evidence on the motion. The Shails do not take issue with the accuracy of the information in the schedule. I accordingly have no reason not to rely on it.

[57] The schedule shows that the Shails repaid Dhawan $150,000 in August 2011. There is no evidence that the Shails specified that this repayment would apply against any particular advance made by Dhawan. Assuming that interest of 18% ran on this amount from July 2010, the total amount due in August 2011 pursuant to the 2010 Note was $59,750.[^18]

[58] Based on the rule in Clayton’s case, the Shails’ repayment of $150,000 applied against Dhawan’s first loan. The amount exceeded any liability that SCI had in connection with that loan. Since the 2010 Guarantee secured only this indebtedness, its repayment discharged the Shails’ obligations under the Guarantee.

[59] As a result, I conclude that the Shails’ obligations under the 2010 Guarantee have been extinguished.

Are the Shails liable for SCI’s debt as a result of the 2013 Guarantees?

[60] The Master concluded that she could not grant summary judgment on Dhawan’s claim with respect to the 2013 Guarantee. She wrote:

Given that the Shails’ allegations of misrepresentation could impact their validity, I am not relying on the March 2013 notes and guarantees in coming to my decision and I make no finding as to the alleged misrepresentation.

[61] In order to reject the Shails’ misrepresentation defence, the Master would have had to determine what information they had when they signed the 2013 Guarantee. The Master found that the evidence on this point, an exchange of emails between the parties in January 2013, was not helpful because of unexplained discrepancies on the time-stamps on the messages.

[62] On the appeal, Dhawan argues that the Master should have inferred that the discrepancies in the time-stamps were due to the time difference between Canada and Brazil and that, as a result, the Shails’ allegation of misrepresentation was not credible.

[63] By virtue of rule 20.04(2.1), a judge considering a motion for summary judgment has the power to make findings of fact that a Master does not. The Master was accordingly correct in declining to draw the inference proposed by Dhawan with respect to the emails. Had she done otherwise, the Shails could have argued that she exceeded her jurisdiction on the motion.

[64] But even if the Master did not have the power to make the necessary findings of fact to deal with the misrepresentation defence, Dhawan argues that I should exercise this power as a judge on this appeal. He contends that it would be in the interests of justice for me to do so, since a favourable ruling for the plaintiff on this point would dispose of the entire action.

[65] I am not convinced that a party may properly seek determinations on an appeal that would have exceeded the jurisdiction of the court of first instance. In any event, in my view it would be inappropriate for me to make the proposed findings in this case. Dhawan chose to seek summary judgment before a Master, and the Shails assembled their record and argument on this basis. I cannot fairly dispose of an issue that the Shails could not have anticipated would be before the court.

[66] I will therefore not intervene in the Master’s determination that Dhawan’s claim with respect to the 2013 Guarantee is an issue requiring a trial.

Conclusion and costs

[67] The appeal is granted. The Master’s decision granting Dhawan judgment in the amount of $244,059.96 plus $17,000 in costs is set aside. Dhawan’s claim pursuant to the 2010 Guarantee is dismissed. As found by the Master, Dhawan’s claim pursuant to the 2013 Guarantee, and his other claims against the Shails, are not appropriate issues for summary judgment.

[68] The Shails seek costs on the appeal. Their counsel’s bill of costs includes fees, on a partial indemnity basis, of $16,961.30 (HST included) and $6395.62 in disbursements.

[69] The Shails’ counsel has advised that he is acting in a pro bono capacity pursuant to Pro Bono Law Ontario’s Appeals Assistance Program. This does not automatically mean that the Shails cannot recover costs. The Ontario Court of Appeal has ruled that costs may be awarded in favour of parties represented by pro bono counsel in appropriate cases.[^19] This promotes access to justice by encouraging more lawyers to take on deserving cases even if the client cannot afford to pay counsel. The criteria for awarding costs are generally the same that apply in other cases, with one additional consideration. If costs are sought on an interlocutory proceeding, an award to a pro bono party could create an uneven playing field, because the other party might not be able to recover costs that the impecunious party might eventually be ordered to pay. This concern can be addressed by adjusting the amount of the interlocutory costs award or suspending the obligation to pay it until the action is fully resolved.[^20]

[70] Having reviewed the Shails’ bill of costs, I conclude that the fees claimed are fair and reasonable. Their counsel’s experience, rate and time expended are appropriate given the complexity of the issues and their importance to the Shails. The fees claimed are slightly lower than those in the bill of costs submitted by Dhawan’s counsel. This implies that the amount claimed by the Shails is within the range of what he would expect to pay.

[71] The Shails’ list of disbursements includes $2420.48 for “Transportation/Hotel/Meals re December 6, 2018 hearing date adjourned”. I suspect that the date in this entry is wrong, but no explanation is provided for the disbursement and no supporting documents are provided. This item is accordingly disallowed. The other disbursements claimed are reasonable.

[72] I am therefore awarding total costs to the Shails of $20,000 inclusive of fees, disbursements and HST. Of this amount, $5000 is payable within 30 days of this decision and the balance of $15,000 is payable when final judgment is entered in the action.

Justice Sally Gomery

Released: November 27, 2018

[^1]: Paragraph 7 of the Contract also states that “Dhawan will also become a shareholder of the Corporation for a twenty-five (25%) percent share in the Corporation”. The parties do not agree on what this means. It is not however material for the purpose of this appeal. [^2]: The text of the agreements contain typographical and grammatical errors which are reproduced here. For ease of reading, I have not inserted [sic] next to every error. [^3]: 2013 ONCA 313 (“RBC v. Samson”). [^4]: Mehdi-Pour v. Minto, 2011 ONSC 3571 (Div. Ct.), affirming 2010 ONSC 5414 (“Medhdi-Pour”), at para. 4. [^5]: 2014 SCC 53, [2014] 2 SCR 633 (“Sattva”). [^6]: 2017 ONCA 12 (“GoodLife”). [^7]: GoodLife, at para. 24, citing Sattva, at para. 53. [^8]: GoodLife, at para. 5. [^9]: GoodLife, at para. 28. [^10]: GoodLife, at para. 40. [^11]: Saatva, at para. 47. [^12]: K. McGuiness, The Law of Guarantee, 3d ed (Toronto: LexisNexis Canada, 2013), at para. 7.5., p. 324. [^13]: John McCamus, The Law of Contracts (Toronto: Irwin Law, 2005), at pp. 722 and 723. [^14]: McCamus, at p. 723. [^15]: RBC v. Samson, at para. 24. [^16]: K. McGuinness, The Law of Guarantee, 3d ed. (Toronto: LexisNexis Canada, 2013), at para. 6.70, citing Re Canadian National Railways and Canadian Pacific Ltd., 1978 1975 (BC CA), [1978] B.C.J. No. 1298, 95 D.L.R. (3d) 242 at 262 (BCCA), aff’d 1979 229 (SCC), [1979] 2 S.C.R. 668. [^17]: Devaynes v. Noble (Clayton’s Case, Re) (1816), 1 Mer. 529, 35 E.R. 767 (Ch. Div.), at 798. [^18]: It is not clear if in fact the total amount claimed by Dhawan includes any interest on this advance. [^19]: 1465778 Ontario Inc. v. 1122077 Ontario Ltd., 2006 35819 (ON CA). [^20]: 1465778 Ontario Inc. v. 1122077 Ontario Ltd, at paras 37 to 44.