Court of Appeal for Ontario

Date: October 26, 2018

Docket: C64478 & C64511

Panel: Hoy A.C.J.O., Sharpe and Fairburn JJ.A.

Between

Sukhinder Sandhu and 2207190 Ontario Inc. Plaintiffs (Respondents)

and

Sikh Lehar International Organization, Manjit Mangat and Harkhanwal Singh Defendants (Appellants)

Counsel

Ted R. Laan, for the appellant Sikh Lehar International Organization

Harinder Dhaliwal, for the appellants Manjit Mangat and Harkhanwal Singh

Paul J. Pape, for the respondents Sukhinder Sandhu and 2207190 Ontario Inc.

Heard: October 19, 2018

On appeal from: the judgment of Justice LeMay of the Ontario Superior Court of Justice, entered September 25, 2017, with reasons reported at 2017 ONSC 5680.

Reasons for Decision

[1] This appeal arises from an attempt by the respondents, Sukhinder Sandhu and 2207190 Ontario Inc. ("220"), to purchase a property municipally known as 79 Bramsteele Road (the "Property") owned by the appellant Sikh Lehar International Organization ("SLIO").

[2] The trial judge found that the sum of $1,735,000 that the respondents advanced to SLIO under an agreement dated April 8, 2015 (the "Control Agreement") was a loan, that the loan was subject to interest at the rate of 12% per annum, and that the individual appellants, Manjit Mangat and Harkhanwal Singh, were jointly and severally liable with SLIO to repay the loan.

[3] The appellants argue that the trial judge erred by: (1) failing to conclude that the loan was repayable only if the respondents ultimately purchased the Property; (2) finding that interest was payable on the loan at a rate of 12% per annum, when the Control Agreement did not specifically provide for payment of interest; and (3) finding that Mangat and Singh are jointly and severally liable in their personal capacities, along with SLIO, for repaying the loan.

[4] We reject these arguments.

Standard of Review

[5] As a preliminary matter, the trial judge's findings were driven by his interpretation of the Control Agreement. Contractual interpretation involves issues of mixed fact and law, and the trial judge's interpretation of the Control Agreement is reviewable only for palpable and overriding error: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. While this court will review extricable questions of law that arise in the interpretive process on a standard of correctness, the appellants have not identified any such extricable question of law.

Nature of the Loan

[6] First, there is no basis to interfere with the trial judge's conclusion that the funds advanced to SLIO were a loan and were required to be repaid even if the respondents did not ultimately acquire the Property. The trial judge properly interpreted the Control Agreement having regard to the surrounding factual matrix, and his interpretation of the agreement in this context was reasonable.

[7] The Control Agreement is essentially a one-page document. It specifically describes the funds at issue as a loan. It does not state that the loan is a limited-recourse loan, repayable only if the respondents purchase the Property.

[8] The factual matrix surrounding the Control Agreement was that SLIO was having difficulties meeting its bills, and its five trustees could not agree as to how, whether and to whom the Property should be sold. Mangat and Singh were two of SLIO's five trustees. They entered into an agreement to sell the Property to Sandhu. The remaining trustees entered into an agreement to sell the Property to another person, at a higher price, subject to the approval of SLIO's trustees.

[9] The purpose of the Control Agreement was to enable Mangat and Singh to secure the departure of the other trustees so that the respondents could acquire the Property. The initial agreement of purchase and sale between Sandhu, Mangat and Singh in respect of the Property was replaced, and subsequently modified and extended, after the parties entered into the Control Agreement. Ultimately, the purchase and sale of the Property was not completed on the agreed upon closing date. The trial judge found that neither party was ready, willing or able to close the transaction and that, as a result, the respondents had the right to rescind the agreement of purchase and sale. That finding is not challenged on appeal.

[10] The appellants argue on appeal that the loan was repayable only if the purchase and sale of the Property to the respondents was completed. In that eventuality, the purchase price would be partially satisfied by setting off the amount of the outstanding loan. However, as we have stated, the Control Agreement does not provide that the funds would only be repaid if the respondents acquired the Property.

[11] Further, the appellants' interpretation is not commercially reasonable. On their interpretation of the Control Agreement, notwithstanding that SLIO was not ready, willing or able to close the transaction and the fact that respondents were entitled to rescind the agreement of purchase and sale, SLIO is entitled to retain both the funds advanced under the Control Agreement and the Property. In other words, the appellants' failure to do what was necessary to complete the transaction results in a windfall to them. This interpretation finds no support in the express terms of the Control Agreement and invites a commercially absurd result. We agree with the trial judge's conclusion that the funds advanced under the Control Agreement were a loan that must now be repaid.

Interest on the Loan

[12] Second, the trial judge's finding that the loan was subject to interest at the rate of 12% per annum is amply supported by the record. As the trial judge noted, a letter from counsel to SLIO, prepared under instructions, identifies this as the prevailing interest rate for the loan. Contrary to the appellants' submissions, this letter is not inconsistent with Sandhu's evidence at trial.

Personal Liability of Mangat and Singh

[13] Finally, there is no basis to interfere with the trial judge's finding that Mangat and Singh are jointly and severally liable with SLIO to repay the loan. The respondent 220, Mangat and Singh are the parties to the Control Agreement. At the time that the parties entered into the Control Agreement and the funds were advanced, all the parties knew that Mangat and Singh were not in a position to incur liabilities on behalf of SLIO. Further, the Control Agreement does not state that Mangat and Singh are not liable in their personal capacities for the loan.

Disposition

[14] Accordingly, the appeal is dismissed. The appellants shall be jointly and severally liable for the respondents' costs of the appeal, which are fixed in the amount of $15,000, inclusive of HST and disbursements.

"Alexandra Hoy A.C.J.O."

"Robert J. Sharpe J.A."

"Fairburn J.A."