Court File and Parties

COURT FILE NO.: CV-18-00607417-0000 DATE: 2023-10-12

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

EDWARD PERKS and MAY MCCONAGHY Plaintiffs

• and -

HETTI GROUP INC., LANCE HETTIARACHCHI, LASANTA HETTIARACHCHI, SUGI FINANCIAL SERVICES INC., JOSE SUGUITAN and GAMINI ROY DE SILVA Defendants

Counsel: Frank Spizzirri, for the Plaintiffs Domenic Saverino, for the Defendants

HEARD: September 11, 2023

Merritt J.

REASONS FOR JUDGMENT

OVERVIEW

[1] This case is one of thirteen (13) current actions against one (1) or more of the defendants relating to unpaid loans in connection with one or more of three (3) residential renovation/construction projects. The thirteen (13) actions were brought under one (1) case management umbrella in 2022 and this action was chosen as the test case for summary judgment.

[2] The Plaintiffs, May McConaghy ("May") and Ed Perks ("Ed"), are retired individuals who each loaned $50,000 to the Defendant Hetti Group Inc. ("Hetti Group"). Hetti Group is a corporation owned, controlled, and directed by the defendants Lasanta Hettiarachchi ("Lance") and his brother-in-law Gamini Roy Da Silva ("Roy") (together, the “Hetti Defendants”). On July 31, 2014, the Plaintiffs and the Hetti Group signed loan agreements and promissory notes regarding the loans.

[3] Hetti Group was involved in three renovation/construction projects: a residential property at 68 Belgrave Avenue in Toronto (the “Belgrave Property”), a residential property at 276 Yonge Boulevard in Toronto (the “Yonge Blvd. Property”) and a subdivision at 130 Densmore Road in Cobourg (the “Densmore Subdivision”, and collectively, the “Project”).

[4] Lance was a director and signing officer of Hetti Group. He attended to the day-to-day dealings of Hetti Group. Roy was the President, director and signing officer of Hetti Group. He acted as the office administrator. Roy was also the owner of the Belgrave Property.

[5] The Defendant Jose Suguitan ("Jose"), directly and indirectly through his corporation Sugi Financial Services Inc. ("Sugi Financial", and collectively, the "Suguitan Defendants") found and solicited potential lenders to invest in one or more of the three projects. The Suguitan Defendants were also responsible for liaising and communicating with lenders and providing updates on the status of the projects once the loans were made. For this work, the Suguitan Defendants were compensated with commissions of approximately 10% of the funds they raised. Their commissions totalled approximately $1.4 million. There was no written agreement between any of the Suguitan Defendants and any of the Hetti Defendants.

[6] Sugi Financial is owned and controlled by Jose and is not represented by legal counsel. I am advised that Sugi Financial will consent to judgment against it. Jose is bankrupt and no order to continue the proceeding pursuant to Rule 11 of the Rules of Civil Procedure has been obtained and therefore the action against him is stayed.

[7] Although the Notice of Motion claims declaratory and other relief, the Plaintiffs only seek Judgment for damages for repayment of the loans plus interest against the Hetti Defendants.

DECISION

[8] The Plaintiffs are entitled to summary judgment against each of the Hetti Defendants. There is no issue requiring a trial. It is appropriate to pierce the corporate veil because Lance and Roy directed wrongful things to be done when they misappropriated funds from the Project. Hetti Group was completely dominated and controlled by Lance and Roy and used as a shield for their improper conduct.

POSITIONS OF THE PARTIES

[9] The Plaintiffs claim that the funds they invested were to be used only for the Belgrave Property but were misappropriated by Lance and Roy for their personal use, and that Hetti Group is a sham used to funnel the misappropriated funds.

[10] The Plaintiffs say that the Suguitan Defendants misrepresented the nature, terms, and risk level of the loans to entice them to invest and then misrepresented the progress of the work.

[11] The Hetti Defendants deny that Hetti Group is a sham and deny that they misappropriated any funds. They say the funds loaned were for general use and were not earmarked for any particular property. They say there is no reason to pierce the corporate veil.

BACKGROUND FACTS

[12] The Defendants set up and operated the business together. The Suguitan Defendants were in charge of finding the money to be invested. Jose liaised with investors. Lance stated that this task was delegated to Jose and that Lance did not monitor nor take interest in what Jose reported to investors. The Suguitan Defendants allegedly tracked the loans and interest payments, and Jose and Lance met to prepare, sign, and deliver interest payments. Jose (and his son) owned one of the properties. Roy owned one of the properties. Lance and Jose routinely met to discuss the projects. None of the defendants have produced any evidence of any kind to suggest a falling out or disagreement or that the defendants were not working together.

[13] Roy purchased the Belgrave Property on April 28, 2014, for $699,900, with a purchase mortgage of $489,900. Hetti Group projected that $1.1 million would be borrowed to fund the renovation work.

[14] Roy added additional mortgages on the property, depleting equity as time passed, but claims to know few of the details of the transactions for which he signed. As a result, it is unclear how much was actually borrowed, how much the net proceeds of the mortgages actually were, whether Roy received the full net proceeds, and if not, where any difference went.

[15] Quarterly interest payments were made to the Plaintiffs by cheques from Hetti Group in accordance with the loan terms in 2014 through to the end of 2016. Despite the renovation and construction work not being completed within the period promised and being extended to 2015 and then into 2016, the messaging from the Suguitan Defendants with respect to the projects was always positive. The first missed quarterly payment was the payment due in December 2016.

[16] On January 27, 2017, the Plaintiffs received a memo purporting to be from Hetti Group advising them that interest payments would stop, the properties were being readied for sale, and the lenders would be paid from the proceeds of sale, including both principal and accruing interest. The letter was delivered to the Plaintiffs and other lenders by Leah Parial from Sugi Financial.

[17] The Plaintiffs and other investors were not told that the properties were not ready for sale.

[18] On October 23, 2017, Leah Parial from Sugi Financial forwarded another memo purportedly from Hetti Group regarding the status of each of the 3 properties. The memo advised that the house on the Belgrave Property would be completed in November and then listed for sale.

[19] Lance denies that these memos were prepared by Hetti Group. On his cross examination he said that they were fraudulent documents prepared by Jose. However, when pressed, he agreed that the contents of the memos were true.

[20] The Defendants’ venture collapsed in 2018 and at that time, despite approximately four years having passed, construction work was not completed on any of the three projects. Work had not been started at the Yonge Blvd. Property and only the roads and municipal services were in place, with building started at the Dunsmore Subdivision. The Project failed, despite the defendants having three to four years to complete the work and having what appears to be between $9 million and $14 million in financing available.

[21] The Plaintiffs only learned that the Belgrave Property project was in trouble when they were contacted by a receiver.

[22] The three properties were sold with no recovery to the Plaintiffs or other investors. No mortgage was ever registered on title with respect to the Plaintiffs’ loans. None of the principal due to the Plaintiffs under the loans has been paid. Interest was paid until December 2016. The Belgrave Property was seized and sold by the receiver and the Plaintiffs lost their entire investment.

[23] The only project Hetti Group managed to complete was a 7,000 square foot home on a seven-plus acre lot which is owned by Lance’s sister, Deepika Hittiarachchi (“Dee”), who is also Roy’s wife, and where Lance's and Roy's families reside (the “Hetti Family Home”).

[24] No accounting of what was borrowed has been produced, so it is unclear how much of the money that was borrowed from the Plaintiffs and other lenders for the Project actually went into the Project, and how much went to other things or people. Lance admits that $9 million was borrowed from investors for the Project. The Suguitan Defendants were paid over $1.4 million in commissions. Based on a 10% commission rate, this would mean that the total borrowings could be as high as $14 million. The Suguitan Defendants claim they kept track of the loans, the interest payments, and the commissions paid in connection with the solicitation of loans but have not produced any documents or even an after-the-fact attempt at reconciliation regarding same.

[25] The Hetti Defendants and the Suguitan Defendants each filed a separate group defence. Each group denies any liability and each group blames the other for any potential liability. Each group cross-claimed against the other group.

THE ISSUES

[26] The Issues before the Court in this motion are:

1. Is there a genuine issue requiring a trial?
2. Should the corporate veil be pierced such that Lance and Roy are personally liable for Hetti Group's debt to the Plaintiffs?
3. Should the Defendants be jointly liable as partners or principal/agents for the actions and misrepresentations of the others?
4. Should the defendants be liable to the Plaintiffs for unjust enrichment?
5. Has the limitation period expired?

ANALYSIS

Summary Judgment

[27] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if there is no genuine issue requiring a trial. The purpose of the rule is to provide timely and affordable justice where in the particular circumstances of the case, it is fair and just to do so. The applicable legal test is set out in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87.

[28] There is no genuine issue requiring a trial if the summary judgment process provides the motion judge with the evidence required to adjudicate the dispute in a fair and just manner and the process is a timely, affordable, and proportionate procedure.

[29] There is a two-step process. First, the motion judge must determine if there is a genuine issue requiring a trial based only on the evidence before him or her, without using the enhanced fact-finding powers provided for in rule 20.04(2.1). If there still appears to be a genuine issue requiring a trial, the motion judge moves to the second step to determine if the need for a trial can be avoided by using the powers under rule 20.04(2.1) and (2.2).

[30] The use of those powers is in the interest of justice if it leads to a fair and just result and serves the goals of timeliness, affordability, and proportionality.

[31] It is trite law that each party must put their best foot forward to establish whether or not there is a genuine issue requiring a trial. The motion judge is entitled to assume that the record includes all the evidence the parties would present at trial. The moving party bears the onus of demonstrating that there is no genuine issue requiring a trial: Switzer et al. v. Petrie et al., 2023 ONSC 5115, at paras. 18-21.

[32] In this case, there are credibility issues. The Plaintiffs say the Hetti Defendants misappropriated funds and the Hetti Defendants deny doing so. Each of the Defendant groups blames the other. Not every issue with respect to credibility constitutes a genuine issue for trial. Merely raising an issue of credibility will not be an answer to the summary judgment motion. The issue of credibility must be genuine and the responding party's evidence must not be disingenuous: Royal Bank v. Feldman (1995), 23 O.R. (3d) 798 (Gen. Div.), at paras. 4-5; Rogers Cable TV Ltd. v. 373041 Ontario Ltd. (1994), 22 O.R. (3d) 25 (Gen. Div.), at paras. 4-6.

[33] In this case, there is no genuine issue requiring a trial in respect of Hetti Group being liable to the Plaintiffs based on the evidence before me. Repayment of the loans was not conditional on the success of the project. The Plaintiffs loaned Hetti Group $50,000. No defence has been raised and Hetti Group is liable to repay the loaned amounts to the Plaintiffs plus interest. Although Lance disputes the form of the loan agreement as discussed further below, he does not dispute the existence of the loans, the amount of the loans or the interest rate.

Piercing the Corporate Veil

[34] The court will pierce the corporate veil when a company is incorporated for an illegal, fraudulent, or improper purpose or if those in control direct a wrongful thing to be done. Shoppers Drug Mart Inc. v. 64730360 Canada Inc., 2014 ONCA 85, 372 D.L.R. (4th) 90, at para. 43; Clarkson Co. v. Zhelka, [1967] 2 O.R. 565 (High Ct.), at para. 83. The courts will disregard the separate legal personality of a corporate entity where it is completely dominated, controlled, and being used as a shield for fraudulent or improper conduct: Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 425 (Gen. Div.), at pp. 433-434, aff’d [1997] O.J. No. 3754 (C.A.).

[35] I accept the Plaintiffs’ evidence that Jose told them that the loans were risk free, that they would be “in first position”, that the investment was “secured” by a first mortgage on title to the Belgrave property, that the invested funds would be used solely for the renovation work at Belgrave and that the project would be completed within one year. I accept that he personally guaranteed the loans verbally. He failed to tell them that there was already a mortgage on the property for approximately 80% of its value, which had been taken out to fund the purchase of the property, and that further mortgages would be placed on the property to finance construction. There is no evidence to contradict the Plaintiffs’ evidence on these points and the documents, including the brochure provided to the Plaintiffs and the loan agreement, reflect most of these representations. The loan agreement provides that the loan is to be secured by a mortgage, that the loan is to be paid off in less than one year, and that the loaned funds are to be used solely for the purchase, development, and marketing of the Belgrave Property.

[36] Lance denies that he signed the loan agreements contained in the Plaintiffs’ materials. He says that he signed a different form of loan agreement. He agrees that it is his signature on the last page of the loan agreements contained in the Plaintiffs’ materials. The signature page only contains the signatures and no other content. Lance says that Jose must have removed the last page from the loan agreements that Lance did sign and attached it to the loan agreements contained in the Plaintiffs’ materials. I do not accept this evidence.

[37] The Plaintiffs and Jose say the loan agreements contained in the Plaintiffs’ materials are the loan agreements signed by the parties. Jose says he saw Lance read and sign the loan agreement. It is the same form of loan agreement signed by other investors over a period of approximately three years. In the case of at least one other investor, the signatures appear on a page with other content, i.e., they are not the only writing on the page. No other form of loan agreement has been produced. The loan agreements contained in the Plaintiffs’ materials are consistent with the Plaintiffs’ evidence about what Jose told them about the terms of the loans and consistent with the contents of the brochure they were given. The interest cheques paid to the Plaintiffs refer to the Belgrave Property. Lance says Jose prepared the cheques but admits that he signed them. If the funds were borrowed for general use, there would be no reason to refer to the Belgrave Property on the face of the interest cheques.

[38] Lance’s statement that he did not sign the form of agreement contained in the Plaintiffs’ materials is a bald allegation not supported by any evidence. Lance’s evidence is not credible on this point. His credibility is also undermined by other bald allegations he makes, such as the allegation that $1.2 million was paid to his sister for repayment of a loan she made to Hetti Group. If this were true, one would expect some documentation to support the existence of the loan or, at a minimum, an affidavit from the sister attesting to the existence of the loan and repayment of same.

[39] I accept the Plaintiffs’ evidence that the loan agreements contained in their materials are the loan agreements signed by them and Hetti Group. These loan agreements provide that the funds were to be used only for the Belgrave Property.

[40] Given that no records were kept, it is impossible to determine where the Plaintiffs’ funds (and the funds of any of the other investors) went. However, it is clear that not all of the funds invested were used for the Project.

[41] Hetti Group is a sham of a corporation and Lance and Roy were its controlling minds. Hetti Group was the vehicle through which Lance and Roy funneled the investors’ funds to themselves, their friends, and their family.

[42] Apart from its incorporation by Roy and the bank account set up to receive and disperse investors’ money, Hetti Group has no other tangible or intangible corporate or operational existence. Apart from the production of bank statements and copies of the loan agreements and promissory notes, Hetti Group produced no corporate or financial records; no documents; no emails or correspondence between themselves, between them and the Suguitan Defendants or between them and the investors; or any other evidence to support there being a serious construction operation. Hetti Group had no minute book, passed no by-laws, issued no shares, prepared no financial statements, kept no ledgers of any kind, and filed no income tax or HST returns. Lance and Roy are unsure what shares of Hetti Group are owned by each of them. Lance and Roy did not issue T4s for the salaries they paid to themselves, nor did they keep a ledger of the loans from the lenders or a ledger or tracking of any kind of expenses and transfers of funds out of Hetti Group’s bank account.

[43] Lance said that had Hetti Group earned income, they would have prepared financial statements and filed tax documents. Hetti Group did not employ a bookkeeper or accountant and, given the state of its record keeping, or lack thereof, it would have been virtually impossible to prepare financial statements or tax documents.

[44] The Hetti Defendants have not attempted to create even a rough draft of any accounting summary of how they spent the $9-$14 million that they obtained from the Plaintiffs and other investors. Lance admitted in his examination for discovery that he does not know where the money went.

[45] I reject the Hetti Defendants’ submission that I require evidence from a forensic accountant. There is substantial evidence that the monies loaned by the Plaintiffs and the other investors were misappropriated. Funds were given to Lance’s friend Kevin Bacchus to purchase a company that owns a parking lot in Coburg and to pay expenses regarding same. Lance initially claimed that the parking lot was purchased by Hetti Group but later produced the actual agreement of purchase and sale showing that it was purchased by Lance personally in his own name. There was no accounting for the income from the parking lot and no accounting for the proceeds of the sale of the parking lot, although some of the sale proceeds were paid to Hetti.

[46] Funds were used to pay salaries to Lance and Roy. Lance’s salary was $30,000 to $35,000 per month and Roy’s monthly salary was set at $15,000 to $20,000 per month despite him having no construction experience and him claiming he was nothing more than Lance’s assistant.

[47] Funds were also used to pay the expenses of Lance and Roy, including leasing a top-of-the-line BMW for Lance and paying just over $1 million for Lance’s personal credit cards. Lance has not produced any credit card statements to show that the funds were used for business purposes.

[48] Funds were paid to Lance’s girlfriend, Cassandra Taylor (“Taylor”), who did not work for Hetti Group. Lance claims that this money was paid to Taylor for her salary, but there were no T4s issued.

[49] Funds were also used to build the Hetti Family Home. There was evidence of large transfers to Lance’s sister Dee, and no evidence from her to show that the funds to build the Hetti Family Home came from anywhere else.

[50] As set out above, $1.2 million was paid to Dee, allegedly for repayment of a loan she made to Hetti Group. There is no explanation regarding what this money was used for. There was no documentation and not even an affidavit from her saying that she actually loaned Hetti Group money. This $1.2 million was paid shortly before the collapse of the Project.

[51] Approximately $1.4 million was paid in bank drafts, cheques, cash withdrawals and e-transfers to unspecified individuals for unknown purposes.

[52] Funds were also paid to Hetti Inc., a company owned by Taylor, allegedly for rent, but no lease agreement was produced.

[53] A new mortgage was put on the Belgrave property just before the receivership and it appears that approximately $236,000 is unaccounted for.

[54] Although it appears that Lance was largely responsible for the transactions referred to above, Roy acquiesced. Roy was the President and a director of Hetti Group and a beneficiary of Lance’s actions.

[55] The Hetti Defendants have not provided even a high-level summary or attempt to reconstruct the use of funds to demonstrate that the funds were used for legitimate business purposes. Lance and Roy have not provided any credible explanation or serious business purpose for the payments and transfers of funds that have enriched them, their families, and friends.

[56] The corporate veil should be pierced, and Lance and Roy should be personally liable for the debts of Hetti Group to the Plaintiffs, because Hetti Group was a cover and a shield for Lance and Roy’s improper conduct.

Joint and Several Liability

[57] While it is true that partners are liable for each other’s conduct in a partnership, here there was no formal partnership. I have not been provided with any authority for the proposition that I can deem the parties to be partners and impose liability on this basis.

[58] Nor have I been provided with any authority for the proposition that the Suguitan Defendants are agents of Hetti Group or that all of the Defendants should be jointly and severally liable because they all knew what was going on.

[59] Given my decision to pierce the corporate veil, and the fact that relief is not being sought against the Suguitan Defendants, it is not necessary for me to decide this issue.

Unjust Enrichment

[60] The Plaintiffs provided no cases dealing with unjust enrichment in a context similar to the case here. In view of my finding that the corporate veil is pierced, I need not decide this issue.

Limitation Period

[61] The limitation period is 2 years: Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, s. 4.

[62] Under the loan agreement and the promissory note, the loan was to be repaid on April 22, 2015. Interest was to be paid on a quarterly basis commencing June 22, 2014.

[63] The loan was not repaid but the Hetti Group continued to pay interest for a time. The last interest payment was made October 11, 2016. The first missed interest payment due under the loan agreements and promissory notes was the payment due in December 2016.

[64] The Plaintiffs argue that the Defendants or their agents acknowledged the debts after the maturity date, and that this acknowledgement extends the limitation period.

[65] Section 13 of the Limitations Act provides:

13 (1) If a person acknowledges liability in respect of a claim for payment of a liquidated sum, the recovery of personal property, the enforcement of a charge on personal property or relief from enforcement of a charge on personal property, the act or omission on which the claim is based shall be deemed to have taken place on the day on which the acknowledgment was made.

(9) This section does not apply unless the acknowledgment is made to the person with the claim, the person’s agent or an official receiver or trustee acting under the Bankruptcy and Insolvency Act (Canada) before the expiry of the limitation period applicable to the claim.

(10) Subsections (1), (2), (3), (6) and (7) do not apply unless the acknowledgment is in writing and signed by the person making it or the person’s agent.

(11) In the case of a claim for payment of a liquidated sum, part payment of the sum by the person against whom the claim is made or by the person’s agent has the same effect as the acknowledgment referred to in subsection (10).

[66] The Suguitan Defendants continued to correspond both verbally and in writing with the Plaintiffs acknowledging the debt. I find that the Suguitan Defendants were tasked with corresponding with the investors on behalf of Hetti Group and were their agents for this purpose.

[67] On June 7, 2017, the Suguitan Defendants sent the Plaintiffs an email and attached an Investment Summary that details the amounts of the two loans and their annual interest rates. On October 23, 2017, Leah Parial from Sugi Financial sent the Plaintiffs an email and attached a memo from Hetti Group advising that investors would receive their principal and accrued interest upon sale of the Belgrave project.

[68] Although the emails acknowledging the debt were not signed in the traditional sense, courts have found that a name on an email is a sufficient signature for an acknowledgement under s. 13: Re Temple, 2012 ONSC 376, 109 O.R. (3d) 374, at para. 33; Environmental Building Solutions v. 2420124 Ontario Ltd., 2018 ONSC 3112, at para. 77.

[69] As Boswell J. said in 1475182 Ontario Inc. o/a Edges Contracting v. Ghotbi, 2021 ONSC 3477, 155 O.R. (3d) 272, at paras. 47-49:

On the facts of the case at bar, Dr. Ghotbi's texts were obviously not "signed" in the traditional sense. But s. 13(10) does not prescribe any particular type of signature.

The world is changing. Everyone knows that. We live in a digital world now, much more than was the case when the [Limitations] Act came into force in 2002. It is incumbent upon the court to consider not just traditional means of affixing one's signature to a document, but other, more modern means, including digital signatures.

In this instance, there is no question about the authenticity of the text messages. There is no question that Dr. Ghotbi was the author of the June 2, 2016 texts in issue. From that perspective, the underlying purpose of s. 13(10) has been satisfied.

[70] Although the October 23, 2017 email does not specifically refer to the amount owing, the acknowledgement under s. 13 does not need to confirm and concede the amount owing: Middleton v. Aboutown Enterprises, 2009 ONCA 466, at para. 1. Rather, “it is sufficient that the debtor acknowledges that the debt claimed is owing, though he or she may dispute the precise amount or may refuse to pay it”: Ghotbi at para. 36.

[71] The October 23, 2017 email saying that “investors will receive their principal and accrued interest upon sale and exit from this project” is a sufficient acknowledgment for purposes of s.13 of the Limitations Act.

[72] The Statement of Claim was issued on October 22, 2018.

[73] I find that the defendants acknowledged the debt in June and October of 2017. Given that the Statement of Claim was issued on October 22, 2018, the action was commenced within the limitation period and is not statute barred.

DAMAGES

[74] The Plaintiffs’ damages are $50,000 each, plus pre- and post-judgment interest at the rate of 14%.

COSTS

[75] The parties are encouraged to agree on costs. If they cannot do so, they may each make submissions in writing of not more than 3 pages in length in addition to costs outlines by October 24, 2023.

Merritt J. Released: October 12, 2023