Court File and Parties

COURT FILE NO.: CV-17-1392 DATE: 20220512

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Maureen Ferraro, Lawrence Hishon, Peter Shannon, Tanja Tudhope, and Michael Grove Plaintiffs – and – Jim Neilas, Chad Martin, Neilas Inc., 1249 Queen E. Inc., Neilas (1249 Queen E) Inc., Neilas (799 College St) Inc., 799 College Street Inc., Hi-Rise Capital Ltd., and Jane Doe and/or John Doe Defendants

COUNSEL: Julian Binavince, for the Plaintiffs Aaron H. Boghossian, for the Defendants

HEARD: February 16, 2022, via Zoom

The honourable justice D.J. Gordon

REASONS FOR DECISION

[1] Two motions for summary judgment require determination. The plaintiffs seek judgment against two defendants, Jim Neilas and 1249 Queen E. Inc. The defendant seeks judgment dismissing the action. The plaintiffs present an alternative claim, requiring each defendant to serve a further and better affidavit of documents.

Introduction

[2] This action arises from a failed condominium project at 1249 Queen St. E., Toronto. The plaintiffs invested in a syndicated loan, secured by a mortgage on the land. They collectively contributed $483,000.00. The syndicated loan was $5,500,000.00. The project was not completed. The property was eventually sold for $2,950,000.00, resulting in a significant loss for the investors.

Parties

[3] The plaintiffs are individuals, all residing in Ontario. Each invested in the syndicated loan as hereafter described.

[4] 1249 Queen E. Inc., (“1249 Queen”), was initially incorporated as Neilas (1249 Queen E.) Inc. on October 4, 2007, the change in corporate name occurring on October 5, 2012. This company held title to the property.

[5] Hi-Rise Capital Ltd., (“Hi-Rise”), was initially incorporated on June 11, 1999 as 1359918 Ontario Inc., changing its corporate name to Waterview Capital Corporation on September 16, 2004 and to its present name on August 18, 2011.

[6] The corporate profile report from the Ministry of Government Services indicates Jim Neilas is the president and a director of both corporations. In his cross-examination, Mr. Neilas reported resigning as an officer and director of Hi-Rise but could not recall when that event occurred although such would have been after the events in this case. Noor Al-Awqati is recorded as the administrator for Hi-Rise since February 13, 2017. Hi-Rise was the mortgage broker arranging the syndicated loan.

[7] Chad Martin is a financial advisor or broker. He solicited the investments of the plaintiffs and was paid a commission by Hi-Rise. The action was discontinued against Mr. Martin at some earlier point in time.

Investment and Loss

[8] The plaintiffs invested in the syndicated loan. They received partial payment on the sale of the property.

[9] The following chart sets out their investment and loss, the latter calculated as at November 30, 2020, prior to the initial return date of the motion:

Investment	Loss
Maureen Ferraro & Lawrence Hishon	$150,000.00
Peter Shannon	$100,000.00
Tanja Tudhope	$34,000.00
Michael Grove	$199,000.00

[10] The defendants do not dispute these amounts.

Sequence of Events

[11] The documentary records reveal the following events relevant to the issues herein:

i) Property acquired by 1249 Queen on October 5, 2007;

ii) First Mortgage for $8,000,000.00, in favour of Hi-Rise, registered on title on January 28, 2011;

iii) Loan commitment for $5,500,000.00 from Hi-Rise to 1249 Queen and Mr Neilas signed on July 2, 2012;

iv) Second mortgage for $5,500,000.00, in favour of Hi-Rise, registered on title on July 16, 2012;

v) Plaintiffs invested in syndicated loan between June 25 and August 31, 2012, with trust agreements and disclosure statements signed on date funds delivered;

vi) Property sold to Condoman Developments Inc. for $2,950,000.00, closing August 10, 2017, with both mortgages discharged.

Documents

[12] The critical evidence in this case is documentary, necessitating a review of the loan commitment, trust agreement and disclosure statement.

i) Loan Commitment

[13] The loan commitment arises from correspondence, dated July 2, 2012, from Hi-Rise to 1249 Queen and Mr. Neilas, essentially an offer to provide a first mortgage loan, accepted by 1249 Queen and Mr. Neilas on July 14, 2012. This appears to be a standard document but with the unusual feature of being signed only by Mr. Neilas, doing so on behalf of Hi-Rise and 1249 Queen and in his personal capacity.

[14] The following stated terms in the loan commitment are of interest:

a) Lender – Hi-Rise b) Borrower – 1249 Queen c) Guarantor – 1249 Queen and Jim Neilas d) Property – 1249 Queen St., Toronto e) Purpose – To construct a 4-storey mixed use residential condominium f) Principal - $5,500,000.00 g) Interest – 18% h) Term – 24 months i) Lender Fee - $110,000.00 j) Additional Fees – 16% on loan advanced to market and compensate third party brokers and referral sources who assist in syndicating the loan. k) Appraisal – satisfactory appraisal at no less than $9,600,000.00 Security – First Mortgage on land. General Security Agreement. General Assignment of Rents. Subordination Agreement. Guarantees. l) Closing – July 16, 2012

[15] The schedule attached to and forming part of the commitment contains these terms:

3. Merger It is understood that the terms and conditions of this offer to mortgage will not merge on closing and will survive closing (emphasis added).

4. Syndication It is understood by the Borrower that HRC may at its sole option syndicate all or part of this Loan with any third party at its sole option. Furthermore HRC shall have five business days from the date of execution of this agreement to syndicate the mortgage loan failing which this Commitment shall become null and void. This commitment must be waived by HRC in writing.

[16] The mortgage was registered on title, as a second mortgage, on July 16, 2012.

[17] The loan commitment was amended on April 1, 2014 and April 19, 2016, extending the term of the mortgage on each occasion by two years, ultimately being due on May 1, 2018. All other terms remained the same. Again, the documentation is signed only by Mr. Neilas, on behalf of Hi-Rise and 1249 Queen.

ii) Trust Agreement

[18] The trust agreement is a one-page document that incorporates, by reference and attachment, a lengthy Loan Participation Agreement (“LPA”). The parties to the trust agreement are Hi-Rise, as Trustee, and the named investors, as Beneficiaries.

[19] The trust agreement contains the following recitals:

a) Trustee holds an interest in the First Mortgage registered against 1249 Queen St. E. in the name of Hi-Rise; b) Beneficiary has advanced a stated amount as a portion of the mortgage to the Trustee; c) Trustee holds the amount advanced as trustee for the Beneficiary; d) The rights and obligations are set out in the attached LPA.

[20] The agreement then provides that the Trustee is the mortgagee and investor as trustee for the Beneficiary.

[21] The document was signed by Mr. Neilas on behalf of Hi-Rise and by each investor.

[22] The attached LPA contains a recital indicating the relationship between Hi-Rise and the participant (investor) is governed by certain terms, specifically a first mortgage from 1249 Queen for $5,500,000.00.

[23] Of interest on this motion are the following provisions in the LPA:

Use of Funds HRC agrees to advance the Participant’s Participation to the Borrower upon the terms and conditions contained in the Loan Commitment issued by HRC to the Borrower.

Relationship of Participation to HRC It is expressly understood and agreed that the Participant’s Participation is in no way to be deemed an investment in HRC, or any of its affiliates, subsidiaries, employees, or officers or a borrowing by HRC or any of its affiliates, subsidiaries, employees or officers from the Participants, and repayment of the Participant’s Participation is in no way, either directly or indirectly, guaranteed by HRC or any of its affiliates, subsidiaries, employees or officers, other than any the corporate guarantee for the amount of the Participant’s Participation being provided by HRC.

The parties hereto further acknowledge and agree that the Participant’s decision to participate in the Loan has not been induced by, nor does the Participant rely upon or regard as material, any representation or promise whatsoever with respect to the Loan, whether oral or otherwise, by whomsoever made, except as set out in this document, and the Investor/Lender Disclosure required under FSCO Regulations and Trust Agreement executed between HRC and the Participant.

Entire Agreement This Agreement expresses the entire and final agreement between the Parties hereto with respect to all matters herein and the Parties agree that the execution of this Agreement has not been induced by, nor do any of the Parties hereto rely upon or regard as material any representation or promise whatsoever, whether oral or otherwise, by whomsoever made, except as hereinbefore expressly set out, nor shall any such representations, whether oral or otherwise, have the effect of varying or altering the terms of this Agreement.

iii) Disclosure Statement

[24] As required by the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29, a disclosure statement was signed by each investor and by Mr. Neilas on behalf of Hi-Rise at the time of the investment funds were delivered and the trust agreement signed.

[25] The disclosure statement contains a number of parts, as follows:

a) Caution – The investor acknowledges receipt of a Caution (part of the form) that says:

All mortgage investments carry a risk. You should very carefully assess the risk of this mortgage investment before making a commitment. In general, the higher rate of return, the higher the risk of the investment. Inexperienced investors are not advised to enter into mortgage investments. You are strongly advised to obtain independent legal advice before committing to invest. This mortgage investment is not insured by the Government of Ontario. This mortgage investment cannot be guaranteed by the mortgage brokerage. If you are not prepared to risk a loss, you should not consider mortgage investments. The mortgage brokerage cannot make payments to you except from payments of principal and interest made by the borrower under the mortgage. Therefore, the mortgage brokerage cannot continue mortgage payments to you if the borrower defaults.

If this investment is for a mortgage to fund a development, construction or commercial project, the repayment of this investment may depend on the successful completion of the project, and its successful leasing or sale. If you are one of several investors in this mortgage, you may not be able to enforce repayment of your investment on your own if the borrower defaults. You should inspect the property or project and the surrounding area before investing. The attached declarations and disclosure summary are not intended to be a comprehensive list of factors to consider in making a decision concerning this investment. You should satisfy yourself regarding all factors relevant to this investment before you commit to invest.

b) Declaration by the Mortgage Brokerage – Hi-Rise declared the following:

• Hi-Rise and related company will make a profit from the project if it is successful
• a related company will hold title and be entitled to profit from the project if it is successful
• the borrower, 1249 Queen, is a company owned by the same principal as Hi-Rise
• the appraiser is not related to the mortgage brokerage
• as to the use of the proceeds of this investment, there is an inconsistency, two disclosure statements say it will not be used to refinance and two disclosure statements indicate the proceeds will be used to pay out the first mortgage of $400,000.00, the second mortgage of $280,000.00 and a portion of the third mortgage (no evidence was tendered on the motion as to any other mortgages or as to the disbursement of the investment funds by Hi-Rise)

c) Information Disclosure Summary

Part A – Property to Be Mortgaged

• legal description provided (but not address)
• property with existing commercial buildings and vacant land, property said to be “approved to construct a four story residential building” (some forms say five story)
• property taxes are $14,841.66 and are not in arrears
• property zoning is appropriate for the proposed used
• property has been appraised at a projected market value when project is completed at $9,600,000.00

Part B – Mortgage Particulars

• the investor’s percentage interest in the mortgage and the number of others with an interest is stated (although inconsistently)
• mortgage not yet registered (it was for two investors)
• mortgage will be administered by Hi-Rise
• mortgage is $5,500,000.00 at 18% per annum, interest only, maturing by May 1, 2016, with quarterly payments by borrower and to the investor in stated amounts
• mortgage is to be a first charge
• projected value is $9,600,000.00, with a loan value ratio of 57 per cent.

Part C – The Borrowers

• the borrower is 1249 Queen

Part D – Fees

• no fees are payable by investor
• borrower will pay legal fees, commission, marketing fees and lender fee to Hi-Rise and referral fee to Williamsburg Financial, all in stated amounts

Part E – Attached Documents

• a number of documents were to be attached, including the appraisal (no documents are attached)

Funds Advanced and Received By Investors

[26] The plaintiffs delivered funds to Hi-Rise on the date of the trust agreement and disclosure statement.

[27] Some payments were received by the plaintiffs on account of their investment. A payment was also received by each plaintiff in October 2017, said to represent their proportionate share in the sale proceeds.

[28] As stated above, each plaintiff suffered a significant loss on their investment. The calculation of such loss is set out in the plaintiffs’ evidence and is not disputed by the defendants on this motion.

Affidavit of Documents

[29] The affidavit of documents was provided by Noor Al-Awqati, Chief Operating Officer of Hi-Rise, sworn May 23, 2019, on behalf of all defendants.

[30] The plaintiffs only became aware of the loan commitment letter as a result of the disclosure provided by Ms. Al-Awqati. It also appears, the plaintiffs first received a copy of the trust agreement, signed in 2012, as a result of this disclosure. Each plaintiff identified his/her signature on the trust agreement.

Positions of the Parties – Briefly Stated

i) Plaintiffs

[31] The plaintiffs seek summary judgment in the amount of their investment loss. They rely on the documentary record, the trust agreement, they say, incorporating the LPA and the loan commitment. In result, the plaintiffs rely on the contractual guarantee provided by 1249 Queen and Mr. Neilas. As beneficiaries of the trust, the plaintiffs are pursuing the remedies the trustee ought to have done on their behalf.

ii) Defendants

[32] The defendants seek summary judgment dismissing the plaintiffs’ claim against them. They say the plaintiffs chose to invest in the syndicated loan with knowledge of the risks. The loan commitment was an internal document to Hi-Rise and 1249 Queen, could be and was amended, and that the plaintiffs did not know of it and did not rely on it when deciding to invest. The defendants rely on the LPA as governing the relationship between the parties. This document excludes any guarantee. Accordingly, the defendants’ position is the plaintiffs have no cause of action against them.

Analysis

[33] There are several issues raised in the factums and submissions of counsel.

i) Summary Judgment

[34] Rule 20.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 permits a party to move for summary judgment. Rule 20.04 provides as follows:

20.04 (2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or

(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.

Powers (2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent.
3. Drawing any reasonable inference from the evidence.

[35] The relevant principles pertaining to summary judgment are now well known as a result of Hryniak v. Mauldin, 2014 SCC 7.

[36] In Hryniak, Karakatsanis, J. addressed what she described as “necessary culture shift:” having regard to access for justice, at para. 28, offering this comment

[28] This requires a shift in culture. The principal goal remains the same: a fair process that results in a just adjudication of disputes. A fair and just process must permit a judge to find the facts necessary to resolve the dispute and to apply the relevant legal principles to the facts as found. However, that process is illusory unless it is also accessible – proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure.

[37] When is there no genuine issue requiring a trial? Karakatsanis addressed this question in great detail, in particular at paras. 49, 50, 66 and 67, as follows:

[49] There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[50] These principles are interconnected and all speak to whether summary judgment will provide a fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.

[66] On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[67] Inquiring first as to whether the use of the powers under Rule 20.04(2.1) will allow the dispute to be resolved by way of summary judgment, before asking whether the interest of justice requires that those powers be exercised only at trial, emphasizes that these powers are presumptively available, rather than exceptional, in line with the goal of proportionate, cost-effective and timely dispute resolution. As well, by first determining the consequences of using the new powers, the benefit of their use is clearer. This will assist in determining whether it is in the interest of justice that they be exercised only at trial.

[38] In para. 66 above, Karakatsanis J. identifies a two-step process:

i) is there a genuine issue requiring a trial, based upon the evidence presented on the motion; ii) if there is, can a trial be avoided by using the expanded powers in Rule 20.04(2.1) and (2.2).

See as well: Trotter v. Trotter, 2014 ONCA 841, at paras. 72 and 75.

[39] Despite this “culture shift”, the evidentiary requirements in Rule 20.02 have not changed. Parties must “put their best foot forward”. They are prohibited from saying “more and better evidence will (or may) be available at trial.” The court is entitled to assume the record contains all of the evidence the parties would present at trial. See: Pizza Pizza Ltd. v. Gillespie (1990), 75 O.R. (2d) 225 (Gen. Div.); Dawson v. Rexcraft Storage & Warehouse Inc. (1998), 164 D.L.R (4th) 257 (Ont. C.A.); and New Solutions Extrusion Corporation v. Gauthier, 2010 ONSC 1037.

ii) Statement of Claim

[40] Rule 25.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 requires every pleading contain a “concise statement of the materials facts on which the party relies… but not the evidence by which those facts are to be proved”.

[41] Mr. Boghossian submits judgment may not be granted in favour of the plaintiffs as they did not plead a guarantee was provided and did not claim breach of trust. He relies on OLE Real Estate Inc. v. Shanmugan, 2016 ONSC 6483, at para. 13, where Dunphy J. said “Judgment may only be sought for the claim pleaded, not the one that ought to have been pleaded”.

[42] Mr. Binavince submits the Statement of Claim is sufficient in that it raises the “factual matrix” and there was no evidence to suggest the defendants were surprised or have suffered any prejudice. He relies on a number of authorities in support of his argument.

[43] First, Mr. Binavince referred to Rule 1.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 which provides that the rules are to be “…liberally construed to secure the just, most expeditious and lest expensive determination of every civil proceeding and its merits”. (Of some interest Karakatsanis J. addressed Rule 1.04(1) and (1.1), particularly as to “proportionality” within the framework of access to justice in Hryniak, at paras. 30-33)

[44] In terms of caselaw, Mr. Binavince identified several decisions for the following propositions:

a) The fundamental purpose of a pleading is to prevent a surprise to the opposing party and that pleadings are often drafted at a time when the lawyer and party have limited knowledge of the issues and events that give rise to the proceeding. See: Magnotta Winery Corporation v. Ontario (The Alcohol and Gaming Commission), 2020 ONSC 561, at para. 48; b) A defendant’s basic entitlement is to have notice of the factual matrix out of which the plaintiff’s claim arises. A plaintiff is not required to name or specify the technical cause of action as an essential part of pleading. See: 1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505, at paras. 26-27; Sweda Farms Ltd. v. Ontario Egg Producers, 2011 ONSC 6146, at para. 25; and Rausch v. Pickering (City), 2013 ONCA 740, at para. 95.

[45] The Statement of Claim does describe the “factual matrix”. At the time of drafting, neither the plaintiffs or drafting counsel were aware of the loan commitment. That document was disclosed by the defendants during this litigation. The Statement of Claim also makes clear the claim against Mr. Neilas was based on his personal liability for the wrongful acts or omissions of the corporate defendants as the corporations were under his control and each was his “alter ego (para. 8). The claim also identifies trust, trustee, fiduciary duty and breach of fiduciary duty and breach of contract (paras. 28-31 and 38-39).

[46] While the Statement of Claim might have been amended, I am satisfied that sufficient facts and claims are plead. The defendants did seek particulars with respect to the above paragraphs in the Statement of Claim and the plaintiffs provided a response. No complaint was ever raised by the defendants until served with a motion for summary judgment.

[47] It is also of some significance that all of the documents were in the possession and control of the defendants and, indeed, were prepared by them, or one of them or on their behalf. The defendants cannot be taken by surprise, nor is there any complaint in the affidavit of Mr. Neilas.

[48] Lastly, as hereafter discussed, the concepts of trustee and fiduciary duty are interconnected in the circumstances of this case.

[49] In result, I reject the defendants’ complaint as to the sufficiency of the Statement of Claim.

iii) Adequacy of the Plaintiffs’ Evidence

[50] Mr. Boghossian presents a further submission as to the adequacy of the plaintiffs’ evidence, in particular the absence of evidence from the plaintiffs regarding a guarantee or that they relied on a guarantee and that the evidence presented in Ms. Burby’s affidavit is improper hearsay. He seeks an adverse inference.

[51] Mr. Boghossian referred to several decisions for the following:

a) A self-serving affidavit is not sufficient to create a triable issue in the absence of detailed facts and supporting evidence. See: Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 SCR 423 at para. 31; and b) A party may not rely on the affidavit of a law clerk (or lawyer) containing improper hearsay evidence and does not establish the facts upon which the party relies. See: Expresso Tax Fund III Limited Partnership v. Arc Stainless Inc., 2018 ONSC 415, at paras. 2, 12 and 24.

[52] Mr. Binavince submits, as previously noted, the plaintiffs were unaware of the loan commitment until disclosed by the defendants and, accordingly, they cannot present evidence as to the guarantee. He also says there is no requirement for the moving party to present the evidence being relied on, that such was obtained by disclosure from the defendants and on the cross-examination of Mr. Neilas.

[53] The plaintiffs rely on the documents produced by the defendants. Mr. Binavince submits such are not contentious and, hence, properly presented in the affidavit of Mr. Burby. In this regard, he also relies on Expresso Tax Credit, at para. 31 where a guarantee presented in the law clerk’s affidavit was not contentious but that the amount owing was in dispute.

[54] I am well aware of the caselaw that addresses the danger in relying on affidavits from law clerks and lawyers. Ms. Burby is a lawyer with the same law firm as Mr. Binavince. Her affidavit simply presents documents, all coming from the defendants. The documents are not contentious. It is the interpretation of those documents that requires a determination. Ms. Burby does not cross the line by addressing the ultimate issue. There is nothing improper with her affidavit.

[55] The plaintiffs present evidence as to the amount owing. While such is not in dispute, their affidavits thus meet the requirement as stated in Expresso Tax Credit.

[56] In result, the defendants’ complaint is rejected.

iv) Capacity to Sue

[57] Mr. Boghossian raises a further issue regarding the capacity of three of the plaintiffs to sue, Michael Grove, Peter Shannon and Tanja Tudhope.

[58] Subsequent to the trust agreement executed by these plaintiffs and by Mr. Neilas on behalf of Hi-Rise, another trust agreement was signed by an officer on behalf of The Bank of Nova Scotia Trust Company and by Mr. Neilas on behalf of Hi-Rise. These documents make reference to the registered retirement savings plan of each of these plaintiffs.

[59] While the issue of standing was addressed in the affidavit of Mr. Neilas, there is no reference to it in the factum of Mr. Boghossian. It was the subject of brief submissions. No authority for the proposition was provided.

[60] The complaint is rejected for a number of reasons:

a) the evidence of Mr. Neilas could be disregarded on the basis of an adverse inference as hereafter addressed; b) the investment was made at the time the initial trust agreements were executed and the relationship between the parties is governed by that document; c) there is no evidence to suggest the subsequent trust agreements were meant to amend or replace the initial agreements and the disclosure statements were not amended; d) the evidence of these plaintiffs, which is not challenged, is that they have no knowledge of any agreement between the defendants and the institution that holds their registered retirement savings plans; e) the further evidence of the plaintiffs, also not challenged, is that Hi-Rise continued to communicate with them directly about their investment, including an invitation to vote on the proposed sale of the property; f) it is likely the subsequent trust agreements were solely for income tax purposes; and g) there plaintiffs would have exercised control on their investments even if made through a self-directed registered retirement savings plan.

[61] In result, I conclude the initial trust agreements govern the relationship between the parties.

v) Adverse Inference

[62] Mr. Binavince requests the court to make an adverse inference, including that the evidence tendered by the defendants on this motion be rejected, pursuant to Rule 34.15 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for the following reasons:

a) the defendants refused to produce Ms. Al-Awqati, despite being served with a Notice of Examination, who had provided the prior affidavit of documents on behalf of all defendants, the plaintiffs seeking further documents, including source information for those disclosed; b) the defendants refused to produce John Neilas, despite being served with a Notice of Examination, who was the other shareholder of Neilas Inc., the company that provided information regarding certain disclosed documents; c) Mr. Neilas refused to answer numerous questions, said to be on the basis of relevance, at his cross-examination, including:

• whether he was a lawyer
• the status of his mortgage broker license and that of Hi-Rise
• whether Chad Martin was working for Hi-Rise
• anything pertaining to the disclosure statement, including the process of completing, that he signed on behalf of Hi-Rise
• anything with respect to the LPA attached to the trust agreement that he signed on behalf of Hi-Rise
• any matters pertaining to the affidavit of documents or the plaintiffs’ request for a further and better affidavit of documents.

[63] Mr. Binavince submits an adverse inference is appropriate under Rule 34.15 as the matters were all relevant to these motions. He further says the defendants should not be allowed to present evidence on matters Mr. Neilas refused to answer on his cross-examination. This refusal, he argues, demonstrates a lack of credibility of Mr. Neilas, and prevented him from testing the defendants’ evidence.

[64] Mr. Boghossian indicated, in his initial objection that I overruled, that he first heard of the request during submissions. He further asks how a refusal to answer questions can lead to an adverse inference when the plaintiffs’ remedy was to move to compel answers.

[65] As to the concern of Mr. Boghossian regarding notice, he was present at cross-examination of Mr. Neilas. On completing his questioning, Mr. Binavince said:

I am going to advise counsel that I will be relying on the Rules, and in regards to the refusals, that your client will… none of your clients will be entitled to advance any evidence on questions that were refused improperly.

[66] The warning was given. There was no surprise.

[67] Mr. Binavince relies on the decision of J.F. Ferguson J., in Lawyer’s Professional Indemnity Co. v. Geto Investments Ltd., 2007 CarswellOnt 4657 (Ont. SCJ), where, at paras. 92-97, there is a discussion on the availability of an adverse inference for failure to call a witness. The same principle applies when a party refuses to produce a witness for cross-examination. Here, a Notice of Examination was served for Noor Al-Awqati and John Neilas, both being corporate officers of a defendant. They were not produced. The defendants’ remedy, if there was an objection to a named person being examined or cross-examined, was to move to set aside the Notice of Examination. That did not occur.

[68] Failure to provide evidence from a party, or to provide documentary disclosure or to answer proper questions invites an adverse inference under Rule 20.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and Rule 34.15. See: Sopinka, Lederman & Bryant, The Law of Evidence in Canada, Third Edition: Markham, LexisNexis, 2009, at para 6449; Levesque v. Comeau, [1970] SCR 1010, 16 D.L.R. (3d) 425, at para.432; Canada Southern Petroleum v. Amoco Canada Petroleum Co. (1997), 8 CPC (4th) 328 (Atla. Q.B.) at paras. 90-92; Dawson v. Rexcraft Storage & Warehouse Inc. (1998), 164 D.L.R (4th) 257 (Ont. C.A.), at para. 301; and Indcondo Building Corp. v. Steeles-Jane Properties Inc. (2001), 14 C.P.C (5th) 112 (Ont. S.C.J), at paras. 5-7.

[69] The subject matter in Indcondo was a motion to dismiss a third-party claim under Rule 20 on the grounds of being statute barred by virtue of the limitation period. At para. 7, Nordheimer J., as he then was, offered the following comments:

7 Third, there are the events surrounding the cross-examination of Mr. Rotundo on his affidavit. A review of the transcript shows that Mr. Rotundo refused to answer almost all of the questions that had any significance to his position on this motion. The transcript lists 23 separate refusals out of a total transcript of only 34 pages. I appreciate that the third parties could have moved to compel answers to these questions but did not. Their failure to do so, however, does not preclude them from pointing to the degree of interference that occurred with their attempt to cross-examine the only deponent offered in response to this motion and from asking the court to draw an adverse inference therefrom. In my view, the concerted effort to block the third parties from obtaining relevant information through the process of cross-examination of Mr. Rotundo ought to be the subject of an adverse inference by the court on the same principle that underlies Rule 20.02 which is referred by Justice Borins in the above quotation [referring to Dawson].

[70] A review of the evidentiary record presented on these motions clearly demonstrate the litigation strategy of the defendants being delay, deny and obstruct. Such a conclusion is derived from the following:

a) A consent order was granted by Flynn J. on August 29, 2019, regarding affidavit of documents by the defendants; discontinuance against Mr. Martin, a litigation timetable and directing the defendants to pay costs of $1,000.00. Being a consent order, the costs ought to have been paid forthwith or, at most, within 30 days. Instead, the defendants delayed payment for two years and only then paid in the face of a motion to strike their pleadings. Ability to pay was never an issue; b) The defendants delayed efforts by the plaintiffs to schedule this motion and other events in the litigation process. While counsel for the defendants has a duty to follow a client’s instructions, they also have an obligation to communicate promptly with opposing counsel and co-operate in scheduling events as set out in the Rules of Civil Procedure and the Rules of Professional Conduct; c) Mr. Neilas refused to answer proper questions on his cross-examination, claiming, incorrectly, he was only to be questioned on his guarantee, and despite the fact he was involved in every event in this project and signed all of the documents on behalf of the corporate defendants; d) Ms. Al-Awqati did not attend for cross-examination, despite service of a Notice of Examination; e) Mr. John Neilas did not attend for cross-examination, despite the service of a Notice of Examination; f) The defendants refused to produce any other person on behalf of the corporate defendants for cross-examination; and g) The appraisal, referred to in the disclosure statements and said to indicate a projected market value for the property at $9,600,000.00 was not provided to the investors at the time funds were delivered and has not been delivered during this litigation.

[71] Yet, the defendants have presented evidence regarding documentation, including an interpretation, by way of affidavits from Mr. Neilas. In my view, this is improper and contrary to the Rules of Civil Procedure.

[72] As Nordheimer J. said in Indcondo, a motion to compel answers is not required. It has always been my view that when counsel is confronted by an opposing party that refuses to answer relevant questions, or does not comply with undertakings or fails to disclose evidence, the appropriate strategy is to rely on an adverse inference and oppose the presentation of evidence by that party. That is the position of Mr. Binavince has, quite properly, taken.

[73] The conduct of Mr. Neilas in his cross-examination could also be considered in terms of credibility, having regard to the enhanced powers under Rule 20.04(2.1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[74] If necessary, I conclude an adverse inference is appropriate in the circumstances and findings or rulings include:

a) Mr. Neilas is or was a lawyer and well understood the loan agreement was a binding contract; b) Mr. Neilas and Hi-Rise were involved in disciplinary proceedings regarding their mortgage broker licenses by the Financial Services Tribunal under the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29; c) There never was an appraisal for $9,600,000.00; d) The evidence of Mr. Neilas is not credible; e) The documentary evidence tendered by the defendants, including interpretation of same, is inadmissible; and f) The defendants have no evidence in opposition to the evidence presented by the plaintiffs.

[75] Is an adverse inference or finding on credibility necessary? As hereafter discussed, a determination of the issues can be made solely on the documentary record and the application of relevant legal principles. If I am correct in this regard, the above findings or rulings are not required. Otherwise, as in Indcondo, the conduct of the defendants would necessitate such to be made. At the very least, these matters will be relevant on the issue of costs.

vi) Merger

[76] In his submissions, Mr. Boghossian presented an alternative argument, saying that even if there was a guarantee in the loan commitment, such was not in force given its absence in the mortgage as registered. He relies on the principle of “merger”. No authority for the application of merger to this case was presented.

[77] Mr. Neilas, in his cross-examination, acknowledged the loan commitment was a “contract”, while the mortgage was the security. As such, Mr. Binavince submits the terms of the loan commitment may be enforced. I agree.

[78] Regardless, the issue does not require determination as it was already addressed in the loan commitment in para. 3 of the attached schedule. There is no merger. Perhaps Mr. Boghossian missed reading that term in the document.

vii) Trustee

[79] As revealed in the affidavit of Mr. Neilas and the factum and submissions of Mr. Boghossian, the defendants rely on the terms set out in the LPA as governing the relationship between the parties and the investment in the project. They completely ignore the trust agreement.

[80] The defendants also rely on Orwinski v. Hi-Rise Capital, 2019 ONSC 3975, another case involving the Neilas group of companies. Mr. Boghossian says the facts are identical to the case at bar. In Orwinski, the plaintiffs were seeking an early redemption of their investment in the syndicated loan. In dismissing the plaintiff’s motion, and granting the defendant’s motion, both for summary judgment, J.E. Ferguson J. made in reference to the LPA, as well as a Mortgage Administration Agreement (“MAA”). Under the MMA, Hi-Rise was trustee with respect to the mortgage. However, there is no reference to a trust agreement nor did the plaintiffs claim to be a third-party beneficiaries. In result, the case is distinguishable and does not assist in the analysis in this case.

[81] Rather, it is necessary to consider basic principles pertaining to the trust relationship. In my view, this is critical to the issues raised.

[82] The principles regarding trust relationships and the duty of a trustee have long been known. Such as succinctly described by Professor Waters in the following manner:

I. TRUST AND FUDICIARY RELATIONSHIP A. Trustees as Fiduciaries The hallmark of a trust is the fiduciary relationship which the trust creates between the trustee and the beneficiary. The whole purpose of a trustee’s existence is to administer the property on behalf of another, to hold it exclusively for the other’s enjoyment. The express trustee is expected to put the interests of the trust and the beneficiaries first in his thinking whenever he is exercising the powers, or performing the duties of, his office. His duty is one of the selfless service. And the object of describing a man as a resulting or constructive trustee is to emphasize that he is a person who is under the express trustee’s fiduciary obligation to hold property, of which he is technically the owner, for the benefit of another.

It was in Equity that the notion of the fiduciary was first conceived, and it originated to explain the position of one who at law held title and had all the appearance of full enjoyment, but who nevertheless because of Equity’s intervention had no right of personal enjoyment. Here was a man who had the capacity to bring every proprietary and possessory action available at law, but who was personally liable to another for all he did; a man whose rights were only those of administration and disposition, and whose liability to another resulted in his holding even those rights on behalf of the other. At law such a man would have been an agent, a mere conduit for the creation of rights and duties between his principal (the trust beneficiary) and the third party (for instance, those selling to and buying from the trust), but it did not work out that way. As we have seen, Equity could not deny the doctrines of the common law, and at law the trustee was title holder and possessor. The only way around that obstacle was for Equity to impose obligations upon this person with title and possession, and the nature and scope of these obligations were spelt out in the concept of fiduciary relationship. The trustee was a fiduciary of his rights and powers; he not only exercised those rights and powers on behalf of the beneficiary, he owed to the beneficiary the utmost duty of loyalty.

See: Waters, Gillen & Smith, Waters’ Law of Trusts, Fourth Edition: Toronto, Caswell, 2012 at paras. 42-43.

[83] The “utmost duty of loyalty” required the trustee to make complete disclosure of all relevant factors and documents, more recently described as “transparency”. This is particularly the case when, as here, the trustee, Hi-Rise, and its principal, Mr. Neilas, are in a conflict of interest. The Neilas Group are the landowner, developer, mortgage broker, mortgagor and mortgagee.

[84] The disclosure statement provided limited information to investors, saying:

a) Hi-Rise and related company will make a profit if the project is successful; b) a related company will hold title and will be entitled to a profit if the project is successful; and c) 1249 Queen is a company owned by the same principal as Hi-Rise.

[85] This disclosure was incomplete. Had the investors been provided with the loan commitment, for example, they would have had more complete information regarding the conflict of interest, particularly as to Mr. Neilas.

[86] There are other items that were not disclosed, namely:

a) the appraisal; and b) the existing first mortgage in favour of Hi-Rise for $8,000,000.00, representing to the investors that the syndicated loan would be secured by a first mortgage, not a second.

[87] As hereinafter discussed, I conclude that the loan commitment was part of the trust agreement, that it was signed by Mr. Neilas on behalf of Hi-Rise and as trustee for the beneficiaries. Mr. Neilas has never explained why the guarantee was not included in the mortgage. It should have been, had the trustee and Mr. Neilas complied with the duty of acting in the best interests of the beneficiaries, not their own.

[88] The loan commitment was a contract, as acknowledged by Mr. Neilas. In result, the trustee had an obligation to enforce the terms when the loan went into default, particularly on the guarantee. Hi-Rise has not done anything in this regard.

[89] When a trustee fails or refuses to take action to enforce contractual terms, the beneficiaries can, a traditional exception to the doctrine of privity of contract. See: Greenwood Shopping Plaza Ltd. v. Neil, J. Buchanan Ltd., [1980] 2 SCR 228, at para. 239.

viii) Guarantee

[90] The guarantee was a condition of the loan commitment. While the term was extended by amendment, the guarantee remained a requirement.

[91] The wording is clear and unambiguous. No interpretation is required. A guarantee was provided by 1249 Queen and Mr. Neilas.

[92] In his affidavit, Mr. Neilas incorrectly said:

34. Additionally, the “Commitment Letter” itself did not provide a personal guarantee, but rathered contemplated a guarantee that I was to give to HRC in the future, which guarantee was in fact never provided.

[93] No evidence was presented in support of this statement. No explanation was offered as to why the guarantee term was absent in the mortgage.

[94] There was also no evidence as to why the guarantee was a condition of the loan commitment. Perhaps it was a marking tool to demonstrate confidence of the principal in the project success. Such, however, would be impermissible speculation and no finding is required. Simply put, the guarantee is there. It was a requirement of the contract.

[95] The absence of the guarantee in the mortgage speaks to the conflict of interest of Mr. Neilas and preferring his interests to those of the beneficiaries.

ix) Trust Agreement

[96] The trust agreement defines the relationship between the parties and their rights and obligations. The LPA and the loan commitment are incorporated into the trust agreement by reference. The LPA was attached while the loan commitment was identified in that part of the LPA referred to previously and identified under the heading “Use of Funds”.

[97] There is only one loan commitment. Accordingly, while the term in the LPA did not make specific reference to a loan commitment, dated July 2, 2012, there can be no dispute that it is the document.

[98] The guarantee is a term of the loan commitment. The investors lack of knowledge as to the specific loan commitment is not relevant as such resulted only due to non-disclosure. The trustee, Hi-Rise, and Mr. Neilas, its principal, signed the loan commitment. The trustee was acting on behalf of beneficiaries. Notice to the trustee is deemed notice to the beneficiaries. Liability cannot be avoided based upon the trustee’s breach of the duty it owed to the beneficiaries.

[99] Mr. Boghossian says the loan commitment was an internal document between Hi-Rise and 1249 Queen and was created before the trust agreement was signed. Hence, he argues no trust existed when the loan commitment was signed. I disagree.

[100] In presenting this submission, Mr. Boghossian ignores the fact two of the investors, Peter Shannon and Tanya Tudhope, signed the trust agreement on June 25, 2012. More importantly, he fails to consider the purpose of the syndicated loan. The loan commitment is part of the package as investors are invited to contribute funds for this specific loan. Hi-Rise never intended on being the actual lender. Rather, the company was always acting as trustee on behalf of beneficiaries who had already invested and those that would invest in the future. Clearly, the intention was to create a trust from the outset. While there are several documents involved, not all executed at the same time, I have no difficulty in concluding they represent one transaction or package.

[101] To suggest, as Mr. Boghossian did, that the plaintiffs must establish the trust was contemplated at the time of the loan commitment does not take into account how syndicated loans are established. His clients provide the intention to create the trust. They cannot now argue it was not contemplated.

[102] There are conflicting terms, particularly as to the guarantee. The defendants rely on the LPA, the plaintiffs on the loan commitment. Both are part of the trust agreement. There are several principles to assist:

a) The documents were prepared by or on behalf of the defendants and, hence, the contra proferentem rule applies; b) The sequence of the terms, with the loan commitment being first by virtue of the “Use of Funds” clause; and c) The specific overrules the general.

[103] In result, I conclude:

a) The LPA and the loan commitment are incorporated into the trust agreement; b) The guarantee referred to in the loan commitment is an essential term of the trust agreement; c) The trustee was obliged to enforce the guarantee by virtue of its duty to the beneficiaries; and d) As the trustee has refused to enforce the guarantee, the beneficiaries may do so in place of the trustee.

x) Is a Trial Required?

[104] As previously stated, in my view, the issues in dispute can be determined by reference to the documentary record and the relevant legal principles.

[105] In result, there is no genuine issue requiring a trial.

xi) Summary

[106] For these reasons, the plaintiffs’ motion is granted and the defendants’ motion is dismissed.

[107] The plaintiffs are entitled to payment from 1249 Queen and Mr. Neilas in the amounts for their loss as set out above plus pre-judgment interest from December 1, 2020, to the date hereof, and post-judgment interest thereafter, both at 18 percent per annum, calculated monthly. Judgement on those terms is granted.

[108] If the parties are unable to resolve the issue of costs, brief written submissions are required. Counsel shall exchange and deliver their submissions to my chambers in Kitchener within 30 days of the release of this decision. These costs submissions shall be forwarded to my attention by e-mail, care of Kitchener.SCJJA@ontario.ca. If no submissions are received within the prescribed time period, the issue of costs will be considered settled.

Gordon, J Released: May 12, 2022