HSBC Bank Canada v. 1481396 Ontario Inc. et al., 2023 ONSC 531

Court File and Parties

COURT FILE NO.: CV-09-371208 DATE: 20230120 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HSBC Bank Canada, Plaintiff AND: 1481396 Ontario Inc., Henry Nasr, Keysar Nasr and Amal Nasr, Defendants

BEFORE: W.D. Black J.

COUNSEL: James Hardy, for the Plaintiff Marek Tufman, for the Defendants

HEARD: November 16, 2022

Endorsement

Overview

1The defendants, Keysar Nasr and Amal Nasr, move to set aside the Default Judgment made against them in 2009 in this action (the “Default Judgment”) on the basis of a release (the “Release”) executed in their favour by the plaintiff HSBC Bank Canada (“HSBC Canada”). They assert that the Release, executed almost 10 years later in the context of another action, had the effect of releasing them from this claim, in which the Default Judgment was obtained, and from the Default Judgment itself.

2To give effect to the defendants’ position would extinguish their debt to HSBC Canada, confirmed by the Default Judgment, in the principal amount of approximately $1.3 million.

3In short, the defendants take the position that the Release agreed and executed by the parties in the context of the settlement of two other (later) claims is broad enough to encompass the pre‑existing judgment debt.

4HSBC Canada says that this was not the intention, and that an objective assessment of the circumstances and terms of the agreement of which the Release was a part makes it clear that the settlement and release in those two other claims had no effect on the 2009 Default Judgment.

5The defendants acknowledge that “the parties claim that their intentions in executing the release were different”, but maintain that the agreement between them must be determined by examining the terms of the Release itself.

Underlying Facts

6The underlying facts are not contentious.

7Keysar Nasr previously operated a Middle Eastern specialty grocery store in Scarborough with his brother Henry Nasr.

8Beginning in 2006, HSBC Canada provided loan facilities to the grocery store in excess of $1.5 million (the “Loan”). The Loan was supported by an unlimited guarantee from 1481396 Ontario Inc. (“148”) and personal guarantees totaling $1.35 million (plus interest), from the Nasr brothers on a joint and several basis (the “Nasr Guarantees”).

9The Nasr Guarantees were secured by a charge in HSBC Canada’s favour in the amount of $250,000.00 plus interest, on a property known as 14 Personna Boulevard in Markham (the “Property”), for which Keysar Nasr and his spouse Amal Nasr were registered on title as joint owners.

2009 Action and Default Judgment

10The borrowers defaulted on the Loan and in 2009 HSBC Canada commenced this action to recover its losses (this action will be referred to from time to time as the “2009 Action”).

11None of 148, Keysar Nasr, Amal Nasr, or Henry Nasr defended the 2009 Action. They were each noted in default, and by the Default Judgment dated April 22, 2009, it was ordered that:

(a) 148 pay to HSBC Canada the amount of $1,297,293.57;

(b) Keysar and Henry Nasr pay to HSBC Canada the amount of $1,364,970.21 on a joint and several basis;

(c) Amal Nasr pay to HSBC Canada the amount of $252,772.27; and

(d) Interest was to accrue on these amounts at HSBC Canada’s prime rate of interest plus 2% per annum.

12On July 16, 2009, Amal Nasr paid the amount she owed under the Default Judgment.

13None of 148, Keysar Nasr or Henry Nasr have repaid their obligations owing under the Default Judgment. As of July 18, 2022, with accrued interest, Keysar and Henry Nasr owed HSBC Canada $1,857,522.95.

The Conveyance and the 2012 Action

14On February 20, 2009, approximately three weeks after HSBC Canada issued its 2009 Action, Keysar Nasr transferred title to the Property to Amal Nasr alone (the “Conveyance”).

15On August 27, 2012, Amal Nasr entered into an agreement to sell the Property. On September 26, 2012, after discovering the Conveyance, HSBC Canada commenced an action against Keysar Nasr and Amal Nasr (the “2012 Action”), seeking (among other claims), leave to issue a Certificate of Pending Litigation (“CPL”) against the Property and a declaration that the Conveyance was fraudulent. The CPL was issued on September 27, 2012.

16As a result of the registration of the CPL and a subsequent agreement between the parties, the sale of the Property was completed and half of the proceeds of sale were released to Amal Nasr, with the balance (of approximately $600,000.00) paid into trust.

The 2014 Action

17On September 8, 2014, Keysar Nasr and Amal Nasr commenced an action against HSBC Canada seeking damages for the alleged wrongful registration of the CPL (the “2014 Action”). The amended statement of claim in that 2014 Action attributed (unquantified) damages to the loss of opportunity to make other investments (as a result of the CPL) and for the mental and physical harm suffered by Keysar Nasr, as well as punitive damages.

Discussions in 2018 About Possible Settlement

18In 2018, the parties to the 2012 Action and the 2014 Action began discussions about Keysar and Amal Nasr’s intention to amend their defence in the 2012 Action to plead a trust agreement in relation to the Property.

19More particularly, by affidavit dated November 20, 2018, the real estate lawyer who had acted for Keysar and Amal Nasr during the relevant timeframe deposed that he had prepared a trust agreement in 2007 providing that Keysar Nasr held the Property in trust for Amal Nasr, and that Keysar Nasr was on title to the Property only for financing purposes. The trust agreement was attached as an exhibit to the affidavit. It had not been previously pled (or apparently produced) in the 2012 Action or the 2014 Action.

20After receiving the affidavit and the attached trust agreement, HSBC Canada offered, in an email from its lawyer Mr. Polster to Mr. Tufman, counsel for Keysar Nasr and Amal Nasr, to settle the 2012 Action and the 2014 Action. The email said:

[W]e have been instructed to offer to have the action dismissed on a without costs basis. Mutual releases would be required, and [the 2014 Action] would also be dismissed without costs.

21It is evident from the context that HSBC Canada’s offer referred to the 2012 Action (and specifically added the 2014 Action). The offer specifies a dismissal of “the action”, and contemplates having “the funds released from trust”.

22The offer does not refer to the 2009 Action or the Default Judgment.

Acceptance of Settlement Offer

23The proposed settlement terms were accepted by Mr. Tufman’s reply email to Mr. Polster dated December 12, 2018. Mr. Tufman wrote: “I am pleased to advise that I am instructed to accept the offer.”

24HSBC Canada points out that Mr. Tufman’s email accepting the offer makes no reference to the 2009 Action or the Default Judgment. Accordingly, HSBC Canada maintains that the settlement relates only to the 2012 Action and the 2014 Action, and comprises an agreement to dismiss both such actions without costs.

Exchange of Forms of Release and Discussions re Same

25Notwithstanding HSBC Canada’s understanding of what was and was not contemplated by the settlement, Mr. Tufman sent Mr. Polster a draft release on December 18, 2018, including a term providing that “[t]he judgment in [the 2009 Action] is deemed to be satisfied”.

26This proposed form of release was not acceptable to HSBC Canada, and in the correspondence that followed (discussed below) Mr. Polster described Mr. Tufman’s proposed form of release as “overreaching”.

27In response to Mr. Tufman’s December 18, 2018 email and draft release, Mr. Polster replied on December 20, 2018, with a different form of draft release (which was the form ultimately signed by the parties and thus became the Release).

28Unlike the draft release provided by Mr. Tufman, the Release makes no reference to the 2009 Action. It does, in its preamble and in its first numbered paragraph, refer specifically to the 2012 Action and the 2014 Action.

29On January 2, 2019, Mr. Tufman and Mr. Polster exchanged further emails.

30Mr. Tufman initiated the exchange with an email in which he asked Mr. Polster to confirm the amount HSBC Canada understood to be outstanding on the 2009 Default Judgment.

31Mr. Polster’s response is somewhat telling. He wrote: “Why? Is your client planning on making a payment?” In a separate line, Mr. Polster also asked “Have you reviewed the draft release that I sent to you on December 20th?”

32In my view, Mr. Tufman’s response is also telling. Mr. Tufman did not answer Mr. Polster’s question about the form of release provided by Mr. Polster, and in response to Mr. Polster’s inquiry as to the reason why Mr. Tufman was asking about the 2009 judgment debt, Mr. Tufman said: “Phil; isn’t it a simple and usual question in a debtor-creditor relations? [ sic ]”.

33I believe, given what eventually followed, that Mr. Tufman had already formulated (or was formulating) a “gotcha” strategy, and that he was already determined to assert an interpretation of the Release as encompassing the 2009 Action and the Default Judgment.

34Certainly his answer – “isn’t it a simple and usual question…” – is cagey. That is, if Mr. Tufman believed that the Release was broad enough to include the 2009 Action and the Default Judgment, and was being transparent, he could have answered Mr. Polster’s inquiry by saying something like: “Given that the debt will be extinguished by the Release, we wish to know how much is outstanding” (or words to that effect). I find that instead, Mr. Tufman’s response was intentionally elliptical, concealing rather than acknowledging his clients’ intended interpretation of the Release.

35Certainly Mr. Polster’s response confirmed his understanding (and his client’s position) that the 2009 Default Judgment was something separate and apart from the subject of the Release. Replying to Mr. Tufman’s ostensibly innocent suggestion that the inquiry about the current amount outstanding was a “usual question” in a debtor-creditor scenario, Mr. Polster wrote:

It hasn’t been one that has arisen during the course of the litigation. I’ll make inquiries – but the draft release you sent to me that included a provision that the judgment is satisfied is more than a little overreaching. Have you reviewed the one I sent to you?

36Following this email exchange there is uncontroverted evidence that Mr. Polster spoke to Mr. Tufman on the phone, and told him that the underlying debt pursuant to the Default Judgment was still owed by Keysar Nasr to HSBC Canada, such that the appropriate release was the draft release that Mr. Polster had sent to Mr. Tufman (which became the Release) which did not reference the 2009 Action or the Default Judgment.

37There is an issue worth noting relative to this phone call. That is, Mr. Tufman, who had the telephone discussion with Mr. Polster, was also counsel who argued this motion before me. He was of course not in a position to provide evidence in the motion he was arguing. That said, when counsel for HSBC Canada pointed this out, Mr. Tufman made no suggestion that there would have been any contrary evidence to offer. Indeed, if there had been important contrary evidence, Mr. Tufman, who is an experienced counsel, would know that he could swear an affidavit and arrange for other counsel to argue the motion. I infer that there is no evidence that Mr. Tufman can offer to dispute Mr. Polster’s evidence concerning the call.

Execution of Release

38After further correspondence, Mr. Tufman delivered executed copies of the Release on January 10, 2019. Keysar Nasr had executed the Release on December 28, 2018 and Amal Nasr had executed it on January 7, 2019.

39It is noteworthy that the parties to the Release, being HSBC Canada, Keysar Nasr, Amal Nasr and Claude Marche, are the parties to the 2012 Action and the 2014 Action. The other parties named in the 2009 Action and the Default Judgment are not parties to the Release.

40On January 11, 2019, Mr. Tufman wrote to Mr. Polster delivering documents necessary for the dismissal of the 2012 Action and the 2014 Action. No documents relating to the 2009 Action were provided.

Defendants’ Communication of Position on Effect of Release

41Just over a year later, on January 28, 2020, Mr. Tufman wrote to Mr. Polster asking why writs of seizure and sale remained outstanding against Keysar Nasr, inasmuch as “all of my clients’ obligations to HSBC have now been released by the documents which we signed”.

42Mr. Polster responded that the writs remained in place because the underlying debt from the Default Judgment continued to be owed, and that no release of the debt from the Default Judgment was ever “contemplated, discussed or agreed to”.

43That led to this motion being brought.

Moving Parties’ Argument

44The moving parties’ argument begins with reference to two paragraphs of the preamble to the Release, contemplating the release of all claims:

(b) arising out of or relating to the actions in the Ontario Superior Court of Justice being Court File Nos. CV-12-111325 (Newmarket) and 14-CV-511785 [ sic ] (Toronto), and

(c) arising out of or relating to any claims, liabilities and issues of any sort which were asserted or which could have been asserted in the above-noted actions, including by way of amendment.

45The moving parties then note that a release is a contract and, like any contract needs to be assessed and interpreted in accordance with the rules of contractual interpretation.

46They next note the importance of finality in releases, in turn important to “promote finality of all disputes between the parties”.

47The moving parties also cite and rely on the rule of contra preferentem, noting that the Release was provided by or on behalf of HSBC Canada, and drafted by its lawyer, and urging that any ambiguity ought to be construed against HSBC Canada.

48By reference to recent caselaw, the moving parties assert that it is now clear that the rules of contractual interpretation re-visited by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 apply to releases. They cite the more recent decision of that Court in Corner Brook (City) v. Bailey, 2021 SCC 29, 460 D.L.R. (4th) 169, at para. 21, which specifically pronounced that “a release is a contract, and these [Sattva] general principles of contractual interpretation apply”.

49Next, and key to their argument, the moving parties note that in paragraphs 5-8 of the statement of claim in the 2012 Action, HSBC Canada recites the events leading to the issuance of the 2009 Action.

50They allege that this recital of facts constitutes “assertions”, and that as assertions they are caught by the ambit of subparagraph (c) of the recital to the Release as “claims, liabilities and issues of any sort which were asserted or which could have been asserted in the above-noted actions…” (which above-noted actions included the 2012 Action).

51As the moving parties put it:

…the terms of the release which was drafted and proffered by HSBC were not ambiguous, and they clearly referred to the claims raised in this action as having been specifically asserted in the fraudulent conveyance action [the 2012 Action]. In any event, if the release is ambiguous with respect to such matters (and it is respectfully submitted that it is not) then the application of the contra preferentem rule makes it clear that any ambiguity in the release must be resolved in favour of the moving parties.

HSBC Canada’s Arguments

52HSBC Canada’s responding argument starts with the proposition that the narrow issue on this motion is whether the Release released Kesyar Nasr from his obligations under the Default Judgment.

53It agrees that the principles of contractual interpretation set out by the Supreme Court of Canada in Sattva apply, and points out that Sattva holds that evidence of the surrounding circumstances of a contract – its “factual matrix” – is admissible to interpret the contract and ought to be considered at the outset of the interpretive exercise.

54This is a fair observation. While the Supreme Court cautions that surrounding circumstances cannot “overwhelm” the words of the contract or create a new agreement (Sattva, at para. 57), and that the plain meaning of words remains paramount, the Court has nonetheless confirmed that “no contracts are made in a vacuum” and that some context can be helpful in the interpretive process (Sattva, at para. 47).

55HSBC Canada notes that in Corner Brook, the Court confirmed that these principles apply to releases, recognized that the context of the dispute can serve as a limiting factor to the broad wording often found in a release, and that courts can therefore “be persuaded to interpret releases narrowly more so than other types of contracts” (Corner Brook, at para. 38).

56Against this backdrop, HSBC Canada asserts that the most important element of the factual matrix within which the Release arose is the settlement agreement from which the Release sprang.

57As set out in paragraphs 20 and 21 above, the settlement clearly related to the 2012 Action and the 2014 Action, and not to the 2009 Action or the Default Judgment.

58HSBC Canada says, forcefully, of the terms of the settlement, “If either party had intended them to apply to the 2009 Action or the [Default] Judgment, that would have been referenced. Reasonable people do not expect to be released from (or agree to release) over a million dollars in liabilities through the ‘back door.’”

Analysis of Arguments

59I agree that the terms of the agreement self-evidently intended to dismiss the 2012 Action and the 2014 Action, and did not include the 2009 Action or the Default Judgment.

60The plain words of paragraph 1 in the body of the Release, the operative paragraph setting out the ambit of the Release, confirm that the parties release one another,

from any and all liability…arising out of or relating to the conveyance of mortgage on and legal proceedings relating to the property known as 14 Personna Boulevard, Markham, Ontario, including the actions in the Ontario Superior Court of Justice bearing Court File No.s CV-12-1113125 (Newmarket) and 14-CV-511785 [ sic ] (Toronto).

61These words plainly do not refer to, or release, the 2009 Action or the Default Judgment, and it would have been straightforward to include a direct reference to the 2009 Action or the Default Judgment if the intention was for the Release to capture those items.

62Nor am I persuaded by the argument that by reciting the events leading to the 2009 Action (and ultimately the Default Judgment) in the 2012 Action, HSBC Canada has “asserted” those facts as a claim. Indeed the Default Judgment was long since in place as of the issuance of the 2012 Action; there was no claim in that regard to “assert”.

63In my view it is also fair, in considering the factual matrix for the Release, to note Mr. Tufman’s proposed inclusion of the Default Judgment in the draft release that he provided, and the language that “The judgment in [the 2009 Action] is deemed to be satisfied.”

64HSBC Canada, through its counsel Mr. Polster, emphatically rejected this ploy, describing the attempt to include this clause as “more than just a little overreaching”.

65As noted, Mr. Polster’s uncontradicted evidence is that he also told Mr. Tufman over the phone, unequivocally, that HSBC Canada was not agreeing to release the Default Judgment.

Conclusion

66In my opinion, any reasonable and objective assessment of the mutual understanding of the parties cannot help but conclude that the Release was not intended to release the Default Judgment, and that the parties well understood that that was the case.

67In the circumstances, I dismiss the motion, and specifically conclude that the Default Judgment remains in full force and effect.

Costs

68HSBC Canada is entitled to its costs of the motion.

69It does not appear that the parties have uploaded costs outlines as required.

70I direct the parties to attempt to agree on the costs payable by Keysar Nasr and Amal Nasr to HSBC Canada within the next 20 days (February 9, 2023). If they cannot agree, then HSBC may provide a costs outline and submissions not to exceed five pages in length, within 10 further days (February 19, 2023), setting out the costs it claims. Within 10 further days (March 1, 2023), the moving parties may provide responding submissions, also not to exceed five pages in length (as well as a costs outline if they choose to submit one).

W.D. Black J.