Court File and Parties
COURT FILE NO.: 12-37022 DATE: 06/16/2016 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Kheen Investment Ltd., Plaintiff AND: Nadine Theresa Smith and Shane Davidson Smith, Defendants AND: Nadine Theresa Smith and Shane Davidson Smith, Plaintiffs by Counterclaim AND: Kheen Investment Ltd., Capital Direct Lending Corp., Damandeep-Singh Aujla, Daman Aujla Professional Corporation, and Rishi Vaid, Defendants by Counterclaim
BEFORE: Turnbull, J.
COUNSEL: Doug Bourassa, for the Plaintiffs, Defendants by Counterclaim, Kheen Investment Ltd. Joseph M. Sereda, for the defendants, plaintiffs by counterclaim, Nadine Theresa Smith and Shane Davidson Smith Michael Bordin, for the defendants by counterclaim, Damandeep-Singh Aujla and Daman Aujla Professional Corporation Philip Garbutt, for the defendant by counterclaim, Capital Direct David Silver, for defendant by counterclaim, Rishi Vaid
HEARD: March 11, 2016.
Endorsement on motions for summary judgment
[1] The plaintiff and all the defendants by counterclaim have brought motions for summary judgment.
[2] This action arises from the refinancing of the property municipally known as 31 Wispi Shore Road, Lindsay, Ontario (the property) which is owned by the defendant Nadine Theresa Smith. She is married to her co-defendant Shane Davidson Smith. (hereinafter “the Smiths”).
[3] In February 2012, the Smiths applied through their mortgage broker to Capital Direct Lending Corporation (Capital Direct) to refinance the property. The financing was to involve two mortgages:
a) A first mortgage in the amount of $450,000.00 bearing interest at a rate of 5.7% (the first mortgage) and; b) A second mortgage in the amount of $290,000.00 bearing interest at a rate of 14.75% (the second mortgage). Nadine Smith signed the mortgage application. In that document, she estimated the total debts of the Smiths at $198,000.00 made up of the following:
- $63,000.00 remaining on a pre-existing mortgage (the 142 mortgage [1]).
- $102,000.00 owing to Revenue Canada to remove a lien on the property.
- $33,000.00 for various consumer debts.
[4] After reviewing the application and undertaking its own due diligence, Capital Direct agreed to provide the funds for the refinancing. By letter dated March 19th, 2012, Capital Direct wrote to Nadine Smith indicting that the application for refinancing had been accepted and that as a condition of that acceptance, the funds would be used to consolidate the Smiths’ existing debts and to satisfy the balance on their existing mortgage in full. In the same letter, Capital Direct advised the Smiths of their requirement that they seek independent legal advice.
[5] Ultimately, the Smiths retained the defendant by counterclaim Rishi Vaid to act as their solicitor on the refinancing. On April 4th, 2012, as a requirement for the financing, Nadine Smith signed a disclosure statement again listing a total debt of $198,000.00, including an estimate of $63,000.00 owing on the 142 mortgage. As in the acceptance letter, the disclosure statement specifically outlined that any debts including the pre-existing mortgage would be paid in priority to and deducted from any advance directly made to the Smiths.
[6] Also on April 4th, 2012, Capital Direct received through its solicitor, Damandeep-Singh Aujla and Daman Aujla Professional Corporation (Mr. Aujla) an irrevocable acknowledgment and direction signed by the Smiths authorizing Capital Direct to pay the proceeds of the refinancing to Capital Direct’s solicitors in trust “to pay outstanding taxes, mortgages, liens or encumbrances and accounts in priority to any funds directed to the Smiths.”
[7] Contained within the acknowledgement was a direction authorizing Capital Direct “to obtain any discharge/assignment statement required from any financial institution, corporation or individual.”
[8] Nadine Smith then sought independent legal advice from the defendant by counterclaim, Rishi Vaid. He signed a certificate which was then forwarded to Capital Direct confirming that Nadine Smith had been given full independent legal advice with respect to the transaction including all consequences arising from the signed directions and the mortgage agreement.
[9] In due course, when the appropriate documentation had been received, Capital Direct advanced the funds for the refinancing to its solicitor, Aujla to be disbursed in accordance with the signed documentation. After having advanced the funds to its solicitor, Capital Direct then learned from its solicitor that the amount owed on the 142 mortgage was $363,309.58 rather than approximately $63,000.00. Hence, the larger amount was paid to discharge the 142 mortgage in accordance with the irrevocable directions. Ultimately Nadine Smith received $127,600.00, being the balance of the refinancing funds after the necessary debts were paid and corresponding instruments discharged.
[10] Nadine Smith cashed the $127,600.00 cheque. Capital Direct subsequently assigned the first mortgage to National Holdings Limited and the second mortgage to the plaintiff Kheen Investment Ltd. (Kheen Investment).
[11] The Smiths ultimately defaulted on their mortgage payments. Accordingly, Kheen Investment delivered a notice of sale under charge on or about June 29th, 2012 and then issued the statement of claim against the Smiths.
[12] The Smiths defended the main action and brought a counterclaim against Kheen Investment. They also brought counterclaims against Capital Direct for allegedly improperly disbursing the funds during the refinancing and against Mr. Aujla and Mr. Vaid who served as solicitors on the refinancing.
Position of the Smiths
[13] Nadine Smith took title to the property on July 16th, 2005. On the same day, the 142 mortgage was registered on title and one can presume that the funds from that mortgage were used to purchase the property. Shane Smith was never listed on title to the property as an owner. Perhaps that is attributable to two judgments which Mr. Vaid has sworn in his affidavit were registered against Mr. Smith.
[14] Mr. Vaid swore that originally the Home Trust Company had offered a mortgage commitment for the refinancing which would have required Shane Smith to guarantee the mortgage. In that original transaction, Mr. Vaid conducted an execution search which identified an execution against Mr. Smith by the Ontario Securities Commission in the amount of $1,160,000.00. Mr. Vaid has sworn that this judgment against Mr. Smith related to fraudulent investment activities by Mr. Smith and related companies, including Synergy Group (2000) Inc. which was Mrs. Smith’s employer as disclosed in the mortgage application.
[15] Mr. Vaid also swore there was a second Ontario Securities Commission judgment against Mr. Smith for fraudulent activity in the amount of $665,000.00 inclusive of costs. Mr. Vaid swore that in light of these circumstances, the Home Trust Mortgage refinancing did not proceed.
[16] In March 2012, the Smiths’ mortgage broker Mr. Bhalloo asked Mr. Vaid to provide independent legal advice to the Smiths on a prospective mortgage refinancing of the property by the defendant by counterclaim, Capital Direct. On the record before this court, I find that it is clear that Mr. Aujla would be acting on the proposed refinancing on behalf of Capital Direct. The Smiths were to be separately represented by the defendant by counterclaim, Rishi Vaid.
[17] Unlike the proposed refinancing with Home Trust which did not proceed, Capital Direct did not require Shane Smith to guarantee the mortgages.
[18] Nadine Smith signed disclosure with respect to each of the first and second mortgages which stated that Mr. Aujla was retained by Capital Direct to act on its behalf with respect to the mortgages and she confirmed that Mr. Aujla was not acting for her and would not be providing her with any legal advice involving the Capital Direct mortgages.
[19] On the record before this court, Mr. Aujla never met with, spoke with or had any involvement with the Smiths. Mr. Aujla had one brief call and exchanged a few emails with Mr. Smith after the transaction had essentially been completed. However, I accept Mr. Aujla’s position that he could not take instructions or directions from Mrs. Smith or from Mr. Smith (who was not a registered owner of the property nor was he a guarantor). I also find that Mr. Aujla had no dealings or contact with Mr. Vaid prior to this transaction.
[20] In February 2012, the Smiths had engaged Mr. Al-Jawad Bhalloo of Varico C.O.D. Financial Inc. as mortgage agent and broker to assist them in refinancing the property. The purpose of the refinancing was to pay off existing debt and to provide them with additional cash for living and business expenses. With the assistance of Mr. Bhalloo, an application for financing was made to Capital Direct.
[21] The Smiths allege that from the very beginning they made it clear to Capital Direct and Mr. Bhalloo, their mortgage broker, that the registered first mortgage in favour of 142 should be discharged but no payment was required. They allege that was disclosed from the beginning by them and confirmed in Capital Direct’s quotes. They further allege that it was confirmed and set out in the solicitor’s instructions and commitment from Capital Direct sent to Mr. Aujla. [2]
[22] Mr. Smith has sworn that in the direction to pay prepared by Mr. Aujla to Capital Direct, the estimated payout for the 142 mortgage was $63,000.00. He alleges however, that Mr. Vaid was personally told by them that the payout number should be zero because any debt related thereto had been paid. They allege that they verbally advised Mr. Vaid to hold all the mortgage transaction documents and not release them until such time that confirmation was received from 142 that there was nothing owing on the mortgage. They alleged that Mr. Vaid agreed to do that and they did not expect them to release the mortgage documents to their detriment without their explicit instructions in writing. They further allege they instructed Mr. Vaid not to close the transaction until they determined the reason for the required payment of $33,000.00.
[23] The Smiths have alleged that Mr. Aujla was acting on behalf of Capital Direct and also acting to protect to the best interests of the Smiths. They rely on the fact that in one document, Mr. Aujla mistakenly confirmed that he was the solicitor for Nadine Smith for the purposes of the mortgage transaction. However it is clear from the record that Mr. Aujla had written to C & K (the assignees of the 142 mortgage) on April 19th, 2012 requesting a mortgage discharge statement for the 142 mortgage. In that letter, Mr. Aujla stated he was solicitor for Mrs. Smith. However I am satisfied that this was an inadvertent statement. As he has explained in his affidavit, he was using a software program called Lawyer Done Deal for the preparation of standard form documents including letters such as the one forwarded to C & K for a mortgage balance. At the time, Mr. Aujla swore that it was not noted that the program had pre-populated the borrower’s name in correspondence. I have no doubt the Smiths knew that their solicitor in this transaction was Mr. Vaid and not Mr. Aujla.
[24] On May 2nd, 2012, Shane Smith learned through third parties that Mr. Aujla had the mortgage advance cheque on his desk. He learned at that time that one cheque was payable to C & K Mortgages which had earlier received an assignment of the 142 mortgage. Mr. Smith has sworn that on May 2nd, he personally spoke with Mr. Aujla and explicitly told him not to forward any funds from any proceeds of the pending mortgage transactions to C & K Mortgages. After Mr. Smith’s conversation with Mr. Aujla he sent him an email May 2nd, 2012 at 9:55 a.m. which confirmed the contents of their conversation and explicitly instructed him not to forward any funds to C & K Mortgages. [3]
[25] On May 3rd, 2012, the Smiths received an amended direction to pay and an attached trust statement. It had indicated a proposed payment to 142 Ontario Inc. in the sum of $364,026.22. On May 7th, 2012, the Smiths received yet further documents from Mr. Bhalloo who they allege forwarded the documents on behalf of Capital Direct requesting their signatures. Shane Smith has sworn that at that stage, the Smiths decided that they were in far more need of the funds and would pursue the defendants by counterclaim to resolve what they believe was a mortgage limited to $63,000.00.
[26] The Smiths allege that the actions of Mr. Aujla constituted a breach of trust in that he acted contrary to explicit instructions and contrary to his undertaking given to Shane Smith in the phone call of May 2nd, wherein he allegedly indicated that he would not release the cheques to C & K Mortgages.
[27] In due course, the Smith’s received a cheque in the amount of $121,000.00 and a further cheque in the amount of $6,600.00.
[28] Mr. Vaid has sworn that on April 4th, 2012 he met with the Smiths in his office for approximately 2 hours to review the mortgage documents. He has sworn he fully explained the mortgage documents to ensure the Smiths understood the documents and their risk obligations and consequences associated with the transactions. Shane Smith signed as a consenting spouse and only in that capacity. The mortgage documents included the execution of an “Acknowledgement and Guarantee” for the mortgages which Mrs. Smith explicitly directed and authorized among other things:
a) Capital Direct to pay the mortgage proceeds to Mr. Aujla. b) Mr. Aujla to pay outstanding taxes, mortgages, liens of encumbrances and account in priority to the mortgage. c) Mr. Aujla to obtain any discharge statements required. d) Mr. Aujla to contact that local property tax department to confirm the property taxes owing on the property.
[29] The mortgage documents also included a “direction to pay” addressed to Capital Direct and Mr. Aujla which listed various debts to be paid with the mortgage proceeds. The direction to pay was identical to the debts listed in Mrs. Smith’s mortgage application and disclosure statement. Mrs. Smith omitted to disclose that there were two mortgages relative to the refinancing i.e. the registered 142 mortgage and an unregistered private charge in favour of K.L.R. properties (K.L.R. Mortgage).
[30] The direction to pay also provided that any other amounts not known at the time of execution were to be paid out of the proceeds. Mr. Vaid has sworn that he explained to the Smiths that the proceeds of the mortgage would be used to pay out all encumbrances on title necessary to secure Capital Direct’s priority over mortgages together with other amounts they instructed Mr. Aujla to pay pursuant to the direction to pay and acknowledgement and guarantee. This included a lien to the Canada Revenue Agency of $102,000.00 and a credit card debt of $33,000.00.
[31] Mr. Vaid has confirmed that he also advised the Smiths that the net mortgage advances, which were referred to as “estimates” in the direction to pay, were subject to confirmation by Mr. Aujla before they could be paid out.
[32] On April 20th, 2012, Mr. Aujla registered the new mortgages on title to the property. Additionally, on April 20th, 2012, Capital Direct transferred the first mortgage to National Holdings Ltd. (National Holdings) and a second mortgage to the plaintiff Kheen Investment Ltd. (the plaintiff in this action). On April 27th, 2012, Mr. Aujla received C & K Mortgage’s discharge statement which showed an outstanding balance on the 142 mortgage of $363,309.58.
[33] Mr. Aujla received the mortgage proceeds into his trust account and paid out the various debts listed in the direction to pay including the 142 mortgage, the payment of which was $364,062.22 pursuant to C & K’s discharge statement.
[34] Mr. Aujla made the payment to C & K on May 3rd, 2012 and paid out the KLR mortgage and the CRA lien on May 4th, 2012. Thereafter, Mrs. Smith received the balance of the proceeds from the new first and second mortgages.
[35] While there was a series of emails between Shane Smith and Mr. Aujla on May 2nd, 8th, and 9th, 2012 concerning the 142 payment statement, there was no contact or direction from Nadine Smith to Mr. Aujla. Most tellingly, the Smiths did not contact Mr. Vaid about these issues. In my view, Mr. Vaid was retained to provide the Smiths with independent legal advice and he did that in an appropriate manner. His retainer did not extend beyond that as evidenced by the fact that Mr. Smith attempted to directly deal with Mr. Aujla in early May.
[36] Counsel for the Smiths argued that there is a triable issue on the record in that Mr. Aujla allegedly committed a breach of trust or alternatively he was negligent when he released the funds to pay out the 142 mortgage. He submitted that when Mr. Aujla learned from Mr. Smith that the payout on the 142 mortgage was only to be $63,000 and not $363,000, he had an obligation to immediately hold the funds until the matter was clarified.
[37] However, in the record there is clear evidence that Mr. Aujla did check that the appropriate amount was owing. On May 2nd, Mr. Smith (who was not a registered owner) emailed Mr. Aujla not to pay the first mortgage because it was the wrong amount. At tab 33 of the motion record, Mr. Aujla has produced another mortgage discharge statement which he received on May 3, 2012 which showed the payout figure on the 142 mortgage to only be $3,394.58. Not surprisingly, Mr. Aujla found this unusual and upon checking, he found that the statement was not generated by the assignees of the 142 mortgage.
[38] Mr. Smith then sent several more emails urging Mr. Aujla not to pay out the 142 mortgage. However, as directed by his client Capital One, he disbursed the funds. Mr. Aujla did not owe a duty of care to the Smiths. His client was Capital One. He is not liable to the Smiths for any of his actions. Capital One had a signed agreement and proper directions with the Smiths to refinance the property and to pay the net proceeds to Ms. Smith.
[39] The 142 mortgage statement was discharged from title on May 22nd, 2012. The CRA lien was discharged on May 13th, 2012.
[40] The Smiths have paid nothing on the second mortgage. Mr. Bourassa, counsel for Kheen Investment who took an assignment of the second mortgage shortly after closing, advised the court that his client has been making all the payments on the first and second mortgages since their registration to protect the position of the second mortgagee in the event of a Power of Sale proceeding being initiated by the first mortgagee. His client seeks payment of the amount owing as at March 4, 2016 of $716,979.19 and that is the amount of the judgment which Kheen is seeking. It represents all the monies paid by Kheen on the first mortgage and interest which has accrued on the second mortgage at the contracted rate of 14 per cent per annum, calculated half yearly.
Analysis
[41] I find that there is no genuine issue which requires a trial of this matter. The motions for summary judgment of all moving parties should be granted in accordance with the principles enunciated in Hyrniak v. Mauldin 2014 SCC 7, [2014] 1 SCR 87. Pursuant to that decision of the Supreme Court of Canada, under Rule 20, when a judge is able to make the necessary findings of fact, apply the law to the facts and achieve a just result in a proportionate, expeditious and less expensive manner, that is to be done.
[42] This litigation was commenced September 12th, 2012 when Kheen Investment issued its statement of claim alleging default on the second mortgage.
[43] The Smiths served a statement of defence and counterclaim on or about November 2nd, 2012. In that document, the Smiths did not name C & K Mortgages as a defendant by counterclaim even though they alleged that entity improperly received the mortgage proceeds in dispute.
[44] In 2013, both Mr. Aujla and Capital Direct issued third party claims against C & K which C & K defended. On April 15th, 2013, counsel for C & K provided a solemn declaration from the principal of 142, Joe Loschiavo, confirming that the balance owing on the 142 mortgage was $363,309.58 plus per diem interest of $119.44 as of April 27th, 2012.
[45] On or about June 17th, 2013, after the third party claims against it were issued, C & K served a demand for particulars on the Smiths. The Smiths’ counsel delivered a response to the demand for particulars on August 12th, 2013. The demand for particulars sought “particulars of the allegation as to why no monies whatsoever were owing under the 142 Ontario Inc. charge.” The Smiths responded as follows: “No monies were advanced under the 142 Ontario Inc. charge to the defendants, plaintiffs by counterclaim.”
[46] However, Mr. Loschiavo confirmed by sworn declaration that $390,000 was advanced and as an exhibit to his declaration, there is evidence of a number of payments made by the Smiths. At paragraph 7 of Mr. Loschiavo’s affidavit, he swore that from August 20, 2005 to April 12, 2012, the Smiths made monthly mortgage payments of $4,021. He was not cross examined on his evidence nor did the Smiths offer any explanation for the monthly payments made by them. As exhibit D to his declaration, Mr. Loschiavo has attached a mortgage payment sheet showing the payments and the balance outstanding.
[47] The Response to the Demand for Particulars is also contradicted by the evidence of the 142 mortgage advance of $390,000.00 to Nadine Smith in 2005. In Mr. Vaid’s supplementary motion record, at tab A, a copy of the cheque for $390,000 dated July 25, 2005 is presented and it shows that the funds were advanced to Robert McGillen, the lawyer for Ms. Smith when she purchased the property in 2005.
[48] Nadine Smith has not provided any evidence of repayment of the mortgage. If no monies were advanced under the 142 mortgage, Nadine Smith has offered no proof of how the property was purchased, why the mortgage was registered and why she signed the mortgage.
[49] In my view, the Smiths’ position totally lacks credibility. First, she failed to disclose the true amount owing on the 142 mortgage in her mortgage application to Capital Direct.
[50] Secondly, Nadine Smith cashed the cheque which constituted the balance of the proceeds after the transaction. If she truly believed this mortgage transaction was invalid and completed without her authority, one would have expected that she would have immediately returned the cheque and had her solicitor institute proceedings for injunctive relief against C & K to freeze the funds.
[51] Thirdly, the Smiths have suffered no loss as a result of the refinancing. They received the benefit of this refinancing in that the CRA liens and prior encumbrances were all paid off and they received the use of $127,000 of net proceeds.
[52] Fourth, Mr. Smith alleges that a signature of Ms. Smith on a document was false. However no evidence, other than his bald statement was presented. No handwriting expert has been brought forward to verify that the signature is not that of Nadine Smith. Ms. Smith has not sworn an affidavit to that effect.
[53] Fifth, there is clear evidence that the $390,000 mortgage from 142 was advanced and that Ms. Smith did make monthly payments on that mortgage to 2012. This is directly contrary to the false denial in the Request to Demand for Particulars. No proper explanation for the monthly payments was proffered by the Smiths when they have an obligation on a summary judgment motion to “put their best foot forward”.
[54] From the record it is clear that Mr. Vaid did not breach any duty of care to his client. He gave them independent legal advice as required and they chose not to retain him and seek his services thereafter.
[55] I further note that in the unsuccessful first attempt to refinance the property with Home Trust, Mr. Vaid and Mr. Smith had an exchange of emails. In the context of that contemplated mortgage transaction, there was an email exchange [4] between Mr. Bhalloo and Mr. Smith. In an email he sent to Mr. Smith, Mr. Bhalloo asked…”and what about the $390K? Is that going to be brought up?” It is clear that Mr. Smith knew about the $390,000 mortgage and that he knew it was going to have to be dealt with.
[56] Mr. Aujla owed no duty of care to the Smiths. His instructing principal clearly was Capital Direct and he acted in accordance with their instructions and the directions provided to him by the registered owner Ms. Smith. He was under a positive obligation to discharge the mortgages. Shane Smith had no authority whatsoever to direct him or give any instructions as he was not the owner of the property nor was he liable on the covenant.
[57] Kheen Investment has a valid second mortgage which is in default and it is entitled to judgment on that mortgage.
[58] In my view, there is no genuine issue requiring a trial in this matter.
[59] Nadine Smith has not filed a sworn affidavit of this series of motions. She has chosen not to cross examine and challenge the evidence of Mr. Vaid, Mr. Aujla or other deponents on their affidavits. In my view the record speaks for itself and summary judgment should follow.
Conclusion
[60] It is ordered that Kheen Investment Ltd. shall have judgment against the defendants Nadine Theresa Smith and Shane Davidson Smith in the amount of $716,979.19 (calculated to March 4, 2016) together with accrued interest thereafter in accordance with the mortgage document.
[61] Kheen Investment Ltd. is granted leave to issue a writ of possession with respect to the subject property.
[62] It is ordered that Kheen Investment shall have their costs of this action against Nadine Theresa Smith and Shane Davidson Smith on a full indemnity basis in an amount to be assessed by the court.
[63] It is ordered that the counterclaim of Nadine Davidson Smith and Shane Davidson Smith against Kheen Investment Ltd., Capital Direct Lending Corp., Damandeep-Singh Aujla, Daman Aujla Professional Corporation, and Rishi Vaid shall be dismissed with costs payable on a full indemnity basis.
[64] In my view this action has simply been an effort by people who have spent beyond their means, mortgaged their property to the roof, and thereafter decided to blame everyone but themselves for their difficulties. This action should never have been brought and that it why I am ordering that full indemnity costs be paid.
[65] I will receive brief written submissions with costs outlines from all counsel with respect to the costs to be awarded.
Turnbull, J Date: June 16, 2016