Court of Appeal for Ontario

Date: 2025-04-04
Docket: C69803
Coram: Lauwers, Zarnett and Pomerance JJ.A.

Between:
Sheila McKenzie-Barnswell
Plaintiff (Respondent)

and

Xpert Credit Control Solutions Inc., Right Choice Builders Inc. and Sam Joshi also known as Sanjive Joshi
Defendants (Appellants)

Appearances:
Jeff Rosekat and Vanessa Ford, for the appellants
Olando Vinton, for the respondent

Heard: 2024-09-19

On appeal from the judgment of Justice Carole J. Brown of the Superior Court of Justice, dated July 29, 2021, with reasons reported at 2021 ONSC 4007.

Pomerance J.A.

A. Overview

[1] The appellant Sam Joshi is the director of a private mortgage lender, the appellant Xpert Credit Control Solutions (“Xpert Credit”). The respondent, Sheila McKenzie-Barnswell, has known Mr. Joshi for some time and had borrowed money from his company. Over the course of some years, Mr. Joshi urged the respondent to enter into a series of mortgages with Xpert Credit, which were ultimately consolidated into one mortgage. At Mr. Joshi’s recommendation, Ms. McKenzie-Barnswell entered into a construction contract for home renovations with what he represented to be another of his companies, Right Choice Builders Inc. (“Right Choice”), with the construction to be managed by Xpert Credit and the cost of construction to be added to the mortgage debt. Problems arose with the construction and the work was left incomplete. The respondent brought an action seeking a declaration that the mortgage and construction contract are null and void or are to be set aside, alleging fraud and other wrongdoing. The appellants denied any wrongdoing and brought an action to enforce the terms of the mortgage.

[2] The essence of the respondent’s position at trial was that she was preyed upon by Mr. Joshi, who took advantage of her friendship and lack of sophistication, inducing her through a fraudulent misrepresentation to enter into usurious transactions. Mr. Joshi represented that he was the director of Right Choice, a fictitious company which was not registered or incorporated. The respondent argued that this fraudulent misrepresentation invalidated the contract.

[3] The appellants argued that, while Right Choice was a fictitious company, this was not a material fact and did not induce the respondent to enter into the contract. The appellants argued that the respondent knew that she would be dealing with Mr. Joshi whether or not a company was involved. The appellants denied that the respondent was unsophisticated, arguing that she understood mortgages and contracts, including those at issue in this case.

[4] In ruling for the respondent, the trial judge found:

1. That the appellant Xpert Credit was negligent in the management of the construction contract;
2. That the appellants breached the construction contract;
3. That the appellant, Mr. Joshi, made a fraudulent misrepresentation that induced the respondent to enter into the mortgages and construction contract;
4. That the appellants committed the tort of deceit; and
5. That the transactions, including the construction contract and the mortgages, are unconscionable and should be set aside on that basis.

[5] By way of remedy, the trial judge set aside the final mortgage in the amount of $1,260,000 with interest of 9.99 percent per annum for a total of $1,355,280.33. She declared the construction contract null and void and set it aside. The trial judge further awarded damages for negligence in performance of the contract and breach of contract. She directed that the appellants pay $153,000 plus HST in damages, and that an additional $250,000 be paid into a trust account to ensure that sufficient funds would be available to complete and remedy the construction work.

[6] The appellants contest both the findings of liability and the remedy. I conclude that the trial judge was entitled to find that the construction contract was induced by a material misrepresentation. However, the remedy yielded a windfall to the respondent. In setting aside the entire mortgage, the trial judge did not account for advances received by the respondent untainted by the misconduct related to the construction contract. In addition, once the construction contract was rescinded due to fraudulent misrepresentation, the respondent was no longer entitled to damages measured by what it would cost to see the terms of the contract fulfilled.

[7] In fairness to the trial judge, this was not a straightforward case. She explained at the outset of her reasons that she had to spend significant time “unraveling” the case. She further commented on “the inadequacy and insufficiency of evidence, the lack of sufficient or any evidence regarding certain claims, the lack of detail in many aspects of the case, the poor quality of the written material and closing submissions, and the inability or unwillingness on the part of the [respondent] to narrow the many causes of action put forth to those meriting the court’s attention and scrutiny”.

B. Issues on Appeal

[8] The appellants submit that the trial judge erred by: (i) applying the incorrect test for unconscionability; (ii) incorrectly finding that the appellants’ misrepresentation about Right Choice was material and relied on by the respondent; and (iii) in setting aside the entire mortgage and awarding an unspecified amount of damages for negligence and breach of contract.

[9] The respondent, by way of cross-appeal, submits that this court should make findings that (i) the appellants engaged in unfair practices contrary to the Consumer Protection Act; (ii) the impugned mortgage should be set aside on the basis of undue influence; (iii) the appellants committed the tort of conversion; and (iv) if liable for the mortgage, the respondent should be permitted to exercise a right of set-off.

[10] Before attending to the issues, I set out the background and the trial judge’s reasons.

C. Background

[11] The respondent, Dr. McKenzie-Barnswell, knew the appellant, Mr. Joshi as a friend and an expert in financial matters. She relied on his financial advice and had a history of borrowing small amounts from Mr. Joshi’s company Xpert Credit. She came to trust him as a financial advisor.

[12] In 2015, the respondent’s elderly parents lived at a residence on Kennedy Road. There was a $250,000 mortgage on the property with interest at 3.3 percent. In July 2015, the respondent borrowed $90,000 with interest at 9.9 percent from Xpert Credit to make her parents’ home “senior-friendly”. The loan was secured on the home as a second mortgage and came due in February 2016. It was renewed for six months to August 2016.

[13] In August 2016, Mr. Joshi, through Xpert Credit, took over the first mortgage with the 3.3 percent interest rate and merged it with the second mortgage with the 9.9 percent interest rate into a single mortgage at 8 percent interest. He told the respondent this would be better as she would pay more if she had two mortgages.

[14] After her father died in March 2016, the respondent intended to sell or renovate the Kennedy Road property. While she was leaning toward selling, Mr. Joshi persuaded her to keep the property and renovate it.

[15] On August 8, 2016, at Mr. Joshi’s recommendation, the respondent entered into a contract for construction to be undertaken at the Kennedy Road property with Mr. Joshi’s company Right Choice, with the price of construction to be $295,000. The construction work was to be complete within approximately 4 months.

[16] The company “Right Choice” did not exist.

[17] On August 10, 2016, the respondent entered into a first mortgage renewal with Xpert Credit for the Kennedy Road property. The principal amount was $552,200 at an interest rate of 8.99 percent for a six-month term. Xpert Credit also charged nearly $30,000 in fees. Prior to the beginning of construction on the Kennedy Road property, and the substantial sums advanced by Mr. Joshi through Xpert Credit, ostensibly for the construction, the mortgage owing on the Kennedy Road property was $410,000.

[18] On August 10, 2016, the respondent signed a blanket second mortgage commitment on both her own residence on Merkley Square and the Kennedy Road property in the amount of $450,000 at 12.99 percent interest for six months. Over $50,000 in fees were payable to Xpert Credit. The respondent did not understand why one mortgage was secured on her own residence, but trusted Mr. Joshi as he told her it had to be done that way.

[19] By February 2017, when the mortgages came due, construction was nowhere near complete.

[20] On March 10, 2017, the two mortgages were consolidated into a $1,260,000 blanket mortgage secured against the Kennedy Road and Merkley Square properties, discharging a first mortgage of $557,075 on the Kennedy Road property, and a second mortgage of $541,263 on the Kennedy Road and Merkley Square properties. The respondent felt she was in a bind as construction was not yet complete, and she could not obtain a mortgage from another lender.

[21] The construction work was poorly done. It failed to meet the contract specifications. It breached the Ontario Building Code (“OBC”) and the Fire Code. The shoddy workmanship resulted in damage to the property from leaks and rendered it unsafe. The builder also failed to obtain municipal approval at each construction phase as required. The property could not be occupied or sold until all the construction work was completed and all the approvals were obtained.

[22] The respondent expressed her concerns in March 2017. In August 2017, Mr. Joshi sent a different company to complete the work, which demanded more money to complete the construction. The respondent refused to sign a new agreement. The appellants abandoned the construction project and demanded payment in full of the outstanding mortgage. The respondent brought her action claiming damages on a host of grounds. Both actions came before the trial judge.

D. The Trial Judge’s Reasons

[23] The trial judge made general credibility findings, in which she rejected Mr. Joshi’s evidence. She found him to be less than forthcoming due to his shifting answers to questions, his inconsistencies, and his defensiveness. The trial judge found, as a fact, that the respondent was not a sophisticated businesswoman, but rather, someone who trusted and relied on Mr. Joshi for financial advice. She preferred the testimony of the respondent over that of Mr. Joshi, and her findings in that regard disclose no palpable and overriding error.

[24] With respect to the causes of action, the trial judge began by examining the allegation of negligence and breach of the construction contract. She found that the Xpert Credit owed a duty of care to the respondent in managing the construction at the Kennedy Road property, and that it breached that duty. There was no evidence to establish that Xpert Credit actually provided any supervision of the construction. The work that was done was negligent, deficient, and in breach of the OBC and the Fire Code. It resulted in property damage and loss to the respondent. These findings also grounded liability for breach of the construction contract.

[25] The trial judge further concluded that Mr. Joshi’s false assurance that construction would be undertaken by Right Choice, a fictitious company, amounted to fraudulent misrepresentation and she set aside the construction contract on that basis. The trial judge put it this way:

Based on all of the evidence in this case, Mr. Joshi falsely represented to the [respondent] that his company, Xpert Credit, would act as construction manager for Right Choice, of which he also was a director. Right Choice would undertake all of the construction to be done on [the Kennedy Road property]. Mr. Joshi made the statement knowing that it was false in that Right Choice was a fictitious company which he sometimes used for contracts. It was not incorporated and did not exist. In my view, he made the false statements deceptively and with the intention of having the plaintiff agree to having the work done and entering into a contract with Right Choice, a fictitious company. This materially induced [the respondent] to act to her detriment. It was unclear from all of the evidence who or what company actually undertook the construction, which was never finished. Due to the shoddy workmanship and many deficiencies, [the respondent] suffered loss and property damage.

Mr. Joshi’s fraudulent misrepresentation to [the respondent] regarding the construction to be undertaken and who would be doing it constituted fraud and misrepresentation. It caused [the respondent] to enter into a construction contract with a fictitious company and to take out a construction mortgage.

[26] These findings also grounded liability for the tort of deceit.

[27] Finally, the trial judge found that the financial transactions were unconscionable. She found that the transactions were improvident for the respondent, and “designed to provide a regular stream of income to Mr. Joshi and his companies”. She further found that the appellant Mr. Joshi “knowing [the respondent’s] lack of knowledge and sophistication in the area and knowing that she had placed her trust in him, knowingly took advantage of her vulnerabilities”.

[28] In the result, the trial judge set aside the construction contract and the various mortgages (merged into the blanket mortgage of $1,260,000), and awarded damages for negligence and breach of contract.

E. Analysis

(1) The Test for Unconscionability

[29] Although I agree with the appellants that the trial judge erred by applying a test to determine unconscionability that had been superseded by more recent Supreme Court jurisprudence, I would not interfere with her finding that the transactions were unconscionable.

[30] The trial judge applied the test approved by this court in Phoenix Interactive Design Inc. v. Alterinvest II Fund L.P., 2018 ONCA 98, 420 D.L.R. (4th) 335, at paras. 15, 38-39, leave to appeal refused, [2018] S.C.C.A. No. 89, which required that four conditions be met:

1. a grossly unfair and improvident transaction;
2. a victim's lack of independent legal advice;
3. an overwhelming imbalance in bargaining power caused by the victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
4. the other party knowingly taking advantage of this vulnerability.

[31] In Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] 2 S.C.R. 118, at paras. 62-66, 80-82, the Supreme Court rejected this approach in favour of a two-part test, consisting of the following elements:

1. an inequality of bargaining power (which exists when a party cannot adequately protect its interests in the contracting process); and
2. a resulting improvident bargain.

[32] The appellants argue that, having applied the wrong legal test, the trial judge’s finding of unconscionability cannot stand. I disagree. In Uber, the Supreme Court rejected the Phoenix test because it was more stringent than was necessary. The Supreme Court found that the requirements of a “grossly” unfair transaction and an “overwhelming” imbalance in bargaining power “unduly narrows the doctrine, making it more formalistic and less equity-focused”: Uber, at paras. 81-82. In setting out a two-part test, the Supreme Court held that “the requirements of inequality and improvidence, properly applied, strike the proper balance between fairness and commercial certainty”: Uber, at para. 86.

[33] The trial judge found the transactions to be unconscionable based on a more stringent standard than was affirmed in Uber, but she made specific findings that, on their face, satisfy the dual requirements of unequal bargaining power and a resulting improvident bargain.

(a) Inequality of Bargaining Power

[34] On the issue of unequal bargaining power, the trial judge observed:

I find that the [respondent] was at a disadvantage entering into the mortgage agreement and the construction contract. Based on all of the evidence before the court, I do not find the plaintiff to have been a sophisticated, experienced businesswoman possessing knowledge about construction contracts, mortgages or financial affairs generally, as has been urged by Mr. Joshi. The [respondent] was doing business with an individual, Mr. Joshi, who was sophisticated and knowledgeable as regards mortgages and contracts. Further, she trusted Mr. Joshi as a friend. Mr. Joshi knew this and appears to have used the plaintiff’s trust to benefit himself and his companies. Given all of the foregoing, I find that there was an overwhelming imbalance in bargaining power given her relative lack of knowledge in the area and her trust of Mr. Joshi.

[35] In Uber, the Supreme Court noted, at para. 66, that an inequality of bargaining power exists when “one party cannot adequately protect their interests in the contracting process”. Differences in wealth, knowledge, or experience, may be relevant, but “[t]here are 'no rigid limitations' on the types of inequality that fit this description”: Uber, at para. 67. Inequalities of bargaining power may arise from an individual's personal characteristics, or the vulnerabilities peculiar to a specific situation: Uber, at para. 67.

[36] Examples of inequality of bargaining power include situations of dependence “where a party is vulnerable due to financial desperation, or where there is 'a special relationship in which trust and confidence has been reposed in the other party'”: Uber, at para. 70. An inequality of bargaining power can also arise in situations of “cognitive asymmetry”, where “as a practical matter, only one party could understand and appreciate the full import of the contractual terms”: Uber, at para. 71.

[37] The trial judge made several findings of fact supporting a finding of an inequality of bargaining power:

• The respondent was not a sophisticated businesswoman and trusted Mr. Joshi as a friend and an expert in financial matters;
• During the mortgage transactions, the respondent trusted and appeared to be following Mr. Joshi's direction throughout;
• Mr. Joshi had sophisticated knowledge about mortgages and contracts;
• The respondent did not appear to understand or appreciate the mortgage transactions;
• She did not receive independent legal advice; and
• She did not fully understand the nature, terms, or effect of the mortgages.

(b) Improvidence

[38] On the issue of improvidence, the trial judge offered the following analysis:

As regards the mortgages extended by the defendant’s company, Xpert Credit, to the [respondent] and continued to be rolled out every six months, fees were paid by the [respondent] to Xpert Credit, every six months in the amount of $20,000-$30,000, in addition to the prepaid interest.

The plaintiff argues that this was usurious and criminal in nature. The plaintiff did not provide any evidence to establish that it was usurious in the legal sense, nor that it was a criminal rate of interest pursuant to the Criminal Code, RSC 1985, c C-46. As regards the percentage of interest charged for each six-month mortgage, again, there was no evidence to compare the amount charged with the prime lending rate.

Nevertheless, in my view, the mortgage transactions extended to the plaintiff were designed to provide a regular stream of income to Mr. Joshi and his companies. I find them to have been improvident transactions for the plaintiff.

[39] A transaction is improvident if, at the time the contract is formed, “it unduly advantages the stronger party or unduly disadvantages the more vulnerable”: Uber, at para. 74. Improvidence is assessed contextually. Relevant circumstances at the time of contract formation may include “market price, the commercial setting or the positions of the parties”: Uber, at para. 75.

[40] In situations where a person is in desperate circumstances, the emphasis is on whether the stronger party has been unduly enriched, which can occur where “the price of goods or services departs significantly from the usual market price”: Uber, at para. 76. In situations where the weaker party did not understand or appreciate important contractual terms, “the focus is on whether they have been unduly disadvantaged by the terms they did not understand or appreciate”; in particular, whether the terms flout the weaker party's reasonable expectations, or cause “unfair surprise”: Uber, at para. 77.

[41] While there was no evidence at trial about the market rate for interest or fees on private mortgages at the time of the impugned transactions, this does not bar a finding of improvidence. It was open to the trial judge to find that the fees charged to the respondent “every six months in the amount of $20,000-$30,000” were improvident. Between August 2016 and March 2017, Xpert Credit charged the respondent over $158,000 in pre-paid fees, an amount in excess of 15% of the principal of the August 2016 mortgages.

[42] As well, the trial judge did have some, albeit not exactly contemporaneous, evidence about the commercial setting in which the impugned transactions occurred. The trial judge noted that the respondent was able to receive a mortgage in the amount of $410,000 on the Kennedy Road property from Xpert Credit in March 2016 at an interest rate of 8%. The trial judge also noted that according to Mr. Joshi's own evidence, the respondent had previously obtained a mortgage of approximately $300,000 on the Merkley Square property from the Bank of Montréal for five years at an interest rate of 3.99%. There was no indication that either of these mortgages involved tens of thousands of dollars in pre-paid fees.

(c) Conclusion on Unconscionability

[43] The appellants’ appeal of the trial judge’s findings of unconscionability and fraudulent misrepresentation implicitly challenges various findings made by the trial judge. The trial judge found that Mr. Joshi had exploited his friendship with the respondent, and her lack of sophistication in financial matters, to pad his own pocketbook. It was open to the trial judge to make these findings on the evidence introduced at trial. The appellants have failed to demonstrate any palpable and overriding error.

[44] I would decline to interfere with the trial judge's finding that the August 2016 and March 2017 mortgage transactions were unconscionable. The trial judge’s factual findings leave little doubt that the conditions of unequal bargaining power and improvidence were established. Had the trial judge adverted to the Uber decision, she would invariably have reached the same conclusion. There is no basis for appellate intervention.

(2) Fraudulent Misrepresentation

[45] It was common ground at trial that Mr. Joshi knew that “Right Choice Builders Inc.”, the counterparty to the construction contract signed by the respondent, was not registered or incorporated. Mr. Joshi admitted it was “just the name” he used on contracts from time to time. The trial judge found that Mr. Joshi lied to the respondent by (i) telling her that she was entering into a contract with a company when that company did not exist, and (ii) advising that this fictitious company would be performing the construction project. The appellants say that this misrepresentation was not material and did not induce the respondent to enter into the contract. The trial judge, however, found to the contrary. It was open to her to do so. Indeed, having deceived the respondent about the very party with whom she was contracting, it does not lie in the appellants’ mouths to say that the dishonesty did not matter.

[46] The appellants contend that “Right Choice Builders” was not a fictitious company, but rather, a company that had simply not been incorporated. However, the formal corporate status of the company was not the crux of the misrepresentation. The fraud lay in the assertion that the company existed and would play a role in the construction contract. On Mr. Joshi’s own evidence, Right Choice was just a name used in the contract. It did not exist.

[47] The appellants argue that (i) Mr. Joshi did not intend to deceive or induce the respondent into the contract, and (ii) any reference to Right Choice was immaterial, because the respondent always knew that she was dealing with “Mr. Joshi and his companies”. I do not agree. The reference to Right Choice was significant. This was the company Mr. Joshi said would be performing the construction work – hardly a peripheral matter. One might ask why Mr. Joshi would have referred to the company if not for the purpose of making the contract more attractive to the respondent. The respondent, whom the trial judge found to be a credible witness, testified that she was inclined to sell the property rather than renovate it. Mr. Joshi had to persuade her to renovate rather than sell. The reference to the fictitious company helped him to do that. As the trial judge found, Mr. Joshi “made the false statements deceptively and with the intention of having the [respondent] agree to having the work done and entering into a contract with Right Choice, a fictitious company. This materially induced the [respondent] to act to her detriment”. These were reasonable inferences, open to the trial judge, on the whole of the evidence.

(3) Remedy Ordered by the Trial Judge

(a) Error in the Contractual Remedy

[48] While I would uphold the trial judge’s findings of liability for fraudulent misrepresentation and unconscionability, I find error in the remedy.

[49] The first error arises in connection with the damages for negligence and breach of the construction contract. The trial judge awarded damages that would cover the cost of completing the construction and bring the property into compliance with the OBC and the Fire Code. As the trial judge put it:

Due to the negligence, breach of contract and fraudulent misrepresentation of the [appellants], they are responsible for payment of all damage or loss sustained by the [respondent] as a result of the [appellants’] negligent construction work. All amounts required to complete the work that the [appellants] should have done under the construction contract, as well as all work required to comply with the OBC and Fire Code, are the responsibility of the [appellants], Mr. Joshi, Xpert Credit and Right Choice, jointly and severally. [Emphasis added.]

[50] One of the central findings of the trial judge was that the contract was to be set aside due to fraud. The usual remedy for a fraudulently induced contract is recission of the contract. One cannot logically rescind a contract yet, at the same time, order its enforcement. When induced by fraud to enter into a contract, the deceived party is entitled to sue in tort for damages based on the party’s out-of-pocket loss: S.M. Waddams, The Law of Contracts, 8th ed. (Toronto: Thomson Reuters, 2022), at para. 430; 1018429 Ontario Inc. v. FEA Investments Ltd., 179 D.L.R. (4th) 268 (Ont. C.A.), at paras. 50, 52. However, the deceived party is not entitled to expectation or “loss of bargain” damages: Waddams, at para. 430; FEA Investments, at paras. 50, 52; see also Todd Family Holdings Inc. v. Gardiner, 2017 ONCA 326, 64 B.L.R. (5th) 1, at para. 25.

[51] In other words, the respondent is not entitled to the cost of completing the work of the contract, though she is entitled to be compensated for her out-of-pocket loss, and the repair of damage to her property flowing from the negligent work. She is entitled to be placed in the position she would have been but for the appellants’ wrongdoing, that is, had she not been induced to enter into the construction contract.

[52] The trial judge relied on the evidence of Mr. Barrett, a licensed renovator with 20 years’ experience, in determining what it would cost to carry out the terms of the contract. The trial judge relied on this estimate in ordering the $153,000 plus HST to be paid and in directing that additional monies be paid into trust. However, a review of Mr. Barrett’s evidence and report reveals that the $153,000 was an estimate for repair of the damage done to the property, rather than the cost of completing the terms of the contract. For example, Mr. Barrett’s report estimated the cost of lowering window wells, fixing the sump-pump, fixing eavestroughs and downspouts, and repairing failing concrete. Mr. Barrett saw these measures as necessary to prevent water seepage and the collapse of the structure. The estimate also referred to the work that would be necessary to obtain permits to re-occupy the property. Viewed in this light, the $153,000 was an estimate – albeit perhaps a conservative estimate – of how much it would cost to restore the respondent to the position she was in before entering into the construction contract.

[53] Mr. Barrett testified that repairs might well cost more, but that could only be determined once restoration efforts began.

[54] The trial judge appeared to rely on Mr. Barrett’s evidence as reflecting the cost of performing the contract, but that remedy is not available to the respondent in the circumstances of the case. Nor is there any evidence to support the trial judge’s order that the appellants pay $250,000 into a trust account. Whether for repair of damage, or performance of the contract, this amount was rooted more in speculation than in the evidence. Mr. Barrett mused that it might cost more for repair than he originally thought, but he was not certain of this, and the extra cost was not quantified. In reality, the respondent failed to prove that repair would cost any more than $153,000. I would uphold the award of $153,000 as being the amount necessary to repair the property and bring it into compliance with the OBC. I would set aside the order requiring that $250,000 be paid into trust.

(b) Failure to Sever the Mortgage

[55] The second error lies in the trial judge’s decision to set aside the entire March 2017 mortgage. It is true that the monies advanced for the performance of the construction contract were rolled into the March 2017 mortgage. That part of the March 2017 mortgage must fall with the invalidation of the construction contract. But it is far from clear that the entire debt should be set aside. The invalidation of the construction contract did not invalidate the entire mortgage. Nor does the finding of unconscionability compel that result.

[56] Mortgages are severable. Where some, but not all aspects of a mortgage are void for fraud, it is appropriate to determine whether other aspects of the mortgage are enforceable: Ontario Hardwood Flooring Co. v. Dowbenko, (1957) 7 D.L.R. (2d) 111 (Ont. C.A.), at p. 115. In this case, the monies advanced for the construction contact, invalidated by fraud, did not taint the entire March 2017 mortgage.

[57] Similarly, while some aspects of the blanket March 2017 mortgage were unconscionable, other aspects of the debt are enforceable. [1] The respondent received advances and used the funds for various purposes. For example, the respondent borrowed $90,000 in order to make her parents’ home more “senior-friendly”. The respondent also asked that the debt be increased by $17,000 so that she could pay her father’s funeral expenses.

[58] The trial judge was clearly troubled by the dynamic underlying the transactions in this case. She found that the appellants took improper advantage of the respondent’s lack of sophistication in financial matters. She perceived the appellant Mr. Joshi to have breached the trust the respondent placed in him as a result of his friendship with her. The trial judge was moved to vindicate the respondent’s financial interests. However, in wiping out the entire debt, the remedy went beyond vindication. It gave the respondent a windfall benefit, by eradicating debt that was, despite the findings, valid and enforceable.

[59] The record discloses that the respondent owed the following amounts to Xpert Credit prior to and independently of the August 2016 mortgage transactions:

• $410,000 owing on the Kennedy Road property (the March 2016 mortgage);
• $45,000 owing on the Merkley Square property;
• $17,000 borrowed in March 2016 to cover the respondent's father's funeral expenses.

While the trial judge did not purport to sever the mortgage, it is open to this court to conduct that analysis based on the record of the proceedings. First, the trial judge found as a fact that the amount owing on the Kennedy Road property was $410,000 prior to the August 2016 mortgage transactions. This was also the figure Mr. Joshi gave in his evidence.

[60] Second, it would be consistent with the evidence about the earlier $90,000 loan on the Kennedy Road property, and the later August 2016 and March 2017 mortgages, if the March 2016 mortgage of $410,000 included pre-paid interest.

[61] Third, although Mr. Joshi testified that the August 2016 mortgage in the amount of $552,000 on Kennedy Road reflected additional borrowings by the respondent, he did not adduce documentary evidence to support this and the trial judge generally rejected Mr. Joshi's evidence.

[62] Fourth, once the respondent made out a prima facie case that the August 2016 and March 2017 mortgage transactions were unconscionable or tainted by fraudulent misrepresentation, the “evidential” or “tactical” burden shifted to the appellants to call evidence to rebut this inference: see Peel Law Association v. Pieters, 2013 ONCA 396, at paras. 70-71. The appellants could have led additional evidence at trial about the interest on the pre-August 2016 loans, or any other additional cash advances received by the respondent (i.e. advances apart from the pre-paid interest) but chose not to do so.

[63] I would therefore vary the judgment below to order that the amount payable under any and all mortgages in favour of Xpert Credit is $472,000 (the total of the amounts in para. 59 above). Given the trial judge’s findings about the conduct of the appellants, I decline to order pre-judgment interest on that amount.

[64] By way of set-off, I would reduce this amount by $153,000 (the damages for negligence).

[65] The respondent is therefore indebted to Xpert Credit in the net amount of $319,000. That net amount will bear post-judgment interest from the date of this court’s order.

(4) The Respondent’s Cross-Appeal

[66] The respondent, by way of cross-appeal, seeks relief on the basis of (i) unfair practices contrary to the Consumer Protection Act; (ii) undue influence; (iii) conversion and (iv) set-off. I see no error in the trial judge’s determination that the Consumer Protection Act did not apply in this case. It is unnecessary to consider the issue of undue influence, since I would uphold the trial judge’s finding that the construction contract must be set aside due to fraudulent misrepresentation and unconscionability. I am also not persuaded that the trial judge erred in declining to make a finding of conversion. Such a finding in this case would depend on the respondent’s contractual entitlement to funds under the mortgages, an issue which no longer arises, those mortgages having been set aside: see Corridor Transport Inc. v. Vittorio Junior Lentini, 2024 ONCA 773.

F. Disposition

[67] In conclusion, I see no error in the trial judge’s conclusions regarding liability. It was open to the trial judge to find that the appellant fraudulently induced the respondent to enter into the construction contract and, further, that some of the mortgage transactions between the parties were tainted by unconscionability. The trial judge did, however, err in the remedies that she imposed.

[68] As it relates to the construction contract, I would uphold the damages award of $153,000 plus HST, but set aside the order requiring the payment of $250,000 into trust.

[69] As it relates to the mortgage, I would set aside the trial judge’s order invalidating the entire mortgage, and would instead reduce the amount that is owed by the respondent to the appellant Xpert Credit. Based on the analysis above, the outstanding amount owing on the mortgage is reduced to $319,000. This reflects the amount legitimately owed by the respondent to that appellant ($472,000) less the amount owed by the appellants for damages ($153,000).

[70] Finally, as success on appeal was divided as between the parties, I would decline to make any order as to costs.

Released: April 4, 2025

“R. Pomerance J.A.”
“I agree. P. Lauwers J.A.”
“I agree. B. Zarnett J.A.”

[1] I would note that s. 2 of the Unconscionable Transactions Relief Act, RSO 1990, c U.2 specifically contemplates that a loan might be severed upon a finding that “the cost of the loan is excessive and that the transaction is harsh and unconscionable”. While the trial judge did not refer to the Act in her discussion of the remedy to grant in light of her finding of unconscionability, s. 2 codifies what is permitted at common law where a contract is found to be unconscionable: a reopening of the transaction to take an account between the creditor and the debtor.