COURT OF APPEAL FOR ONTARIO

CITATION: Cheng v. Grigoras, 2022 ONCA 557

DATE: 2022-07-27

DOCKET: C69238

Trotter, Coroza and Favreau JJ.A.

BETWEEN

Lisheng Cheng

Plaintiff/Moving Party (Appellant)

and

Peter Grigoras

Defendant/Responding Party (Respondent)

Paul H. Starkman, for the appellant

Jeffrey A. Kaufman, for the respondent

Heard: February 14, 2022 by video conference

On appeal from the order of Justice Jane E. Ferguson of the Superior Court of Justice, dated February 23, 2021, with reasons reported at 2021 ONSC 1144, and from the costs order, dated April 20, 2021.

REASONS FOR DECISION

Overview

[1] On January 16, 2014, the appellant entered into a subscription agreement with Atlas (Richmond Hill) Limited Partnership. The objective of the agreement was to construct a medical and surgical centre in Richmond Hill, Ontario. The respondent is the principal of Atlas Healthcare (Richmond Hill) Ltd., which is the general partner of Atlas (Richmond Hill) Limited Partnership (“Atlas”). That same day, the appellant and respondent entered into a guarantee agreement, which guaranteed that the appellant would be repaid $1,200,000 in three years.

[2] The appellant contacted the respondent in January of 2017, when the investment was to be repaid, but was told that payment had been delayed. When the appellant demanded repayment in August of 2018, the respondent told the appellant that his investment would again be delayed for half of a year. The appellant then served a statement of claim on the respondent in October of 2019, seeking repayment of the debt. Shortly after, he brought a motion for summary judgment. Although the motion judge agreed that this case was appropriate for summary judgment, she ultimately dismissed the motion and held that the appellant’s recourse was limited to the assets outlined in Appendix A of the guarantee agreement.

[3] The appellant appeals on the basis that the motion judge erred in concluding that the debt could only be repaid by recourse to the assets listed in Appendix A. Instead, he asserts that the agreement unconditionally guaranteed his investment. The appellant also seeks leave to appeal the motion judge’s decision not to award costs notwithstanding his perceived success on the motion for summary judgment.

[4] For the reasons that follow, we dismiss the appeal and refuse leave to appeal costs.

Factual Background

[5] The subscription agreement required the appellant to invest $1,000,000 in exchange for 1,000 units of Atlas. The guarantee agreement stated that the appellant would be repaid within three years, with interest, for a total repayment of $1,200,000. The respondent signed the guarantee agreement as the guarantor of the debt.

[6] For ease of reference, the relevant provisions of the guarantee agreement are set reproduced below:

2.01 Guarantee. Subject to the terms and conditions herein contained, the Guarantor hereby unconditionally and irrevocably guarantees payment to the Creditors of all the Indebtedness with interest heron from the date of demand for payment at the rate set out in Section 2.05.

2.02 Nature of Guarantee. The Guarantee shall be a continuing guarantee of all the Indebtedness and shall apply to and secure any ultimate balance due or remaining unpaid to the Creditors, or any one of them.

2.03 Liability Not Lessened or Limited. Subject to the provisions hereof, the liability of the Guarantor under this guarantee agreement shall be absolute, unconditional and irrevocable irrespective of, and without being lessened or limited by:

(a) any lack of validity, legality, effectiveness or enforceability of the subscription agreement;

(b) the failure of the Creditors, or any one of them:

(i) to assert any claim or demand or to enforce any right or remedy against the Debtor or any other person (including any other guarantor) under the provisions of the subscription agreement or otherwise, or

(ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any of the Obligations;

(c) any amendment to, rescission, waiver or other modification of, or any consent to any departure from, any of the terms of the subscription agreement or any other guarantees or security;

(d) the loss of or in respect of or the unenforceability of any other guarantee or other security which the Creditors may now or hereafter hold in respect of the Obligations, whether occasioned by the default of the Creditors or otherwise; or

(e) any other circumstance (other than final payment in full of all Obligations) which might otherwise constitute a defence available to, or a legal or equitable discharge of, the Debtor, any surety or any other guarantor.

Any Obligation which may not be recoverable from the Guarantor as a guarantor shall be recoverable from the Guarantor as principal debtor in respect thereof.

2.08 Limitation of liability. Notwithstanding any other provision hereof, the liability of the Guarantor hereunder shall be limited to the amount of $1,200,000.00 for every $1,000,000.00 advanced by the Creditors, or any one of them, calculated on a pro rata basis together with interest from the date that is ninety (90) days following the third anniversary after the Creditor’s delivery of its Deliverables calculated at the rate of 12.00% per annum non-compounded, calculated monthly.

2.09 Limited recourse. Notwithstanding any other provision hereof, the Guarantee is granted by the Guarantor to the Creditors, and each one of them, for the sole purpose of enabling the Creditors to obtain an effective security interest in and to the Guarantor’s assets listed in Appendix “A” (the “collateral”) and, notwithstanding any other provisions hereof:

(a) the liability of the Guarantor to the Creditors, or any of them, hereunder is limited to the extent such liability (if any) is required to permit such Creditors to realize upon the collateral;

(b) the Creditors, or any one of them, shall not be entitled to sue or commence any action against the Guarantor to recover any sum owing by the Guarantor to the Creditors, or any of them, pursuant to the provisions hereof unless such suit or action is necessary to permit such Creditor(s) to realize upon the collateral; and

(c) the sole recourse of the Creditors, or any of them, against the Guarantor hereunder shall be with respect to the collateral and the rights and remedies of the Creditors hereunder are expressly limited to the realization by the Creditors upon the collateral or any amounts received upon the realization thereof, and the Creditors shall not under any circumstances have right to payment from the Guarantor or against any of the other property or assets of the Guarantor.

[7] Appendix A of the agreement is titled “Notarial Certificate of Guarantor’s Personal Assets”. It purports to be a “personal net worth statement of the principal developer, [the respondent], comprising the list of assets that are being personally guaranteed by him”.

[8] Following the appellant’s investment, three years came and went. The appellant was owed $1,200,000 under the agreement, but he remained unpaid. The appellant brought an action to recover his outstanding debt, as well as a motion for summary judgment asserting that there was no genuine issue for trial.

The Motion Judge’s Reasons

[9] The motion judge identified this case as an appropriate one for summary judgment and proceeded to decide the four issues raised by the parties.

[10] First, whether the guarantee was limited or unlimited. The motion judge agreed with the respondent’s position that terms of the guarantee agreement stated that the appellant was limited to the assets listed in Appendix A. She recognized that there was language in s. 2.01 (“unconditionally and irrevocably”), s. 2.02 (“continuing guarantee”), and s. 2.03 (“absolute, unconditional and irrevocable”) of the guarantee agreement which supported the appellant’s submission that the guarantee was unlimited. However, she found that the appellant’s position was defeated by s. 2.09, which specifically limited the appellant’s recourse to the assets listed in Appendix A, and which operated “[n]otwithstanding any other provision” in the guarantee agreement.

[11] Second, whether the guarantee was contingent on completion of the project for which the investment was made. The motion judge rejected the respondent’s submission on this issue and concluded that any repayment to the appellant was not contingent on completion, because s. 2.05 of the agreement was unequivocal that repayment would occur three years following the investment.

[12] Third, whether the appellant made a proper demand for repayment. The motion judge concluded that he did so at a meeting in August 2018, and again by serving a statement of claim in October 2019. In reaching her conclusion, the motion judge drew an adverse inference from the respondent’s silence during cross-examination, when he was asked whether a statement of claim was a demand.

[13] Fourth, whether the appellant’s action was an abuse of process in light of a concurrent proceeding at the Court of Appeal. The motion judge concluded that it was not, and that the respondent was raising this issue in an attempt to divert attention away from the guarantee in question.

[14] Following costs submissions, the motion judge decided that this was an appropriate case for each party to bear their own costs. Although the motion judge acknowledged that the appellant was successful on the latter three issues, she agreed with the respondent that those issues were really peripheral to the first issue, on which the respondent was wholly successful. As a result, she held that success on the motion was divided and that no costs would be awarded.

Analysis

[15] The appellant’s primary position on appeal is that the motion judge erred in interpreting the guarantee because she did not read the entire agreement properly. According to the appellant, the motion judge ignored the intention of the parties in entering into the agreement, which included the respondent providing a personal and irrevocable guarantee. The appellant says that the evidence given by the respondent during cross-examination shows that the assets in Appendix A were illusory, and the motion judge erred by ignoring this critical evidence.

[16] We do not accept any of these submissions. The resolution of the motion turned on the issue of whether the general terms of liability set out in ss. 2.01-2.03 of the agreement were meant to override the specific term of limited recourse outlined in s. 2.09. As the motion judge explained, the agreement was clear:

There is no ambiguity in this contract. The contract is express and states that 2.02 and 2.03 are subject to other terms and 2.09 operates “notwithstanding any other provision hereof”. The assets listed in Appendix “A” are the collateral which in the section repeats “notwithstanding any other provisions thereof”. This guarantee is not an unlimited and unconditional guarantee. [Emphasis in original.]

[17] There is no basis to disturb the conclusion of the motion judge. Contrary to the submissions of the appellant, the motion judge interpreted the contract by examining the entire text of the guarantee agreement. Her decision was rooted in the words used in the various subsections of that agreement. Section 2.09 clearly, expressly, and plainly limits the recovery of the appellant to the assets listed in Appendix A of the agreement. The appellant has not pointed us to any palpable and overriding error of fact in coming to this finding. As the motion judge properly held, the agreement was unambiguous.

[18] The appellant also claims that, while the respondent personally guaranteed repayment, Appendix A does not disclose any of the respondent’s assets. As a result, he says, the guarantee is illusory. The appellant submits that the motion judge ignored the respondent’s evidence during cross-examination on this point.

[19] We do not agree with the appellant’s submissions. A fair reading of the respondent’s evidence during cross-examination is that he did own the assets in Appendix A at the time the guarantee was entered. Unfortunately for the appellant, subsequent events caused the respondent to face receivership in 2019 and, by the time he was cross-examined in 2020, he no longer owned those assets. However, this does not detract from the fact that Appendix A listed the only personal assets of the respondent, as they existed in 2014, upon which the parties agreed the debt could be realized. Moreover, the appellant could have moved to enforce the agreement in 2017 when the guarantee became due.

[20] Finally, we do not accept the appellant’s argument that the motion judge failed to render operative orders, contrary to r. 59.03(4) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The appellant argues that the order only includes the motion judge’s conclusion regarding the agreement but failed to also state the disposition of the proceeding.

[21] The parties could not agree on the form of the order in the court below. On April 1, 2021, counsel for both parties attended before the motion judge to address the form of the order. The motion judge approved the order in the form prepared by counsel for the respondent. The order reads as follows:

1. THIS COURT ORDERS that the guarantee is limited to the collateral in Appendix “A” to the guarantee dated January 16, 2014.

[22] Rule 59.03 sets out the requirements for the preparation and form of an order. Specifically, r. 59.03(4) requires that “[t]he operative parts of an order shall be divided into paragraphs, numbered consecutively.”

[23] As noted above, the order of the court states that the guarantee is limited to the collateral in Appendix A to the guarantee agreement. We agree with the appellant that the order should have explicitly stated the disposition of the proceeding. However, on its own, this error does not affect the substantive outcome of the appeal. The appellant sought a personal judgment against the respondent claiming that the guarantee was unlimited and that Appendix A was illusory. The motion judge found that the guarantee was limited to the collateral in Appendix A. Accordingly, while the appellant was successful on some of the peripheral issues on the motion, the result is that the motion for summary judgment was dismissed. Indeed, in her subsequent costs endorsement on April 20, 2021, the motion judge specifically stated that, although the appellant was successful in having the motion proceed as a summary judgment motion, “he was not successful” on the summary judgment motion itself.

[24] In order to rectify this error in the order, this court can exercise its powers under s. 134(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43:

134(1) Unless otherwise provided, a court to which an appeal is taken may,

(a) make any order or decision that ought to or could have been made by the court or tribunal appealed from;

(b) order a new trial;

(c) make any other order or decision that is considered just.

[25] We would amend the motion judge’s order pursuant to s. 134(1)(a) of the Courts of Justice Act to reflect that the appellant’s summary judgment motion was dismissed and declaring that the guarantee is limited to the collateral identified in Appendix A to the guarantee agreement dated January 16, 2014.

Leave to Appeal the Costs Order Below

[26] The appellant also seeks leave to appeal the motion judge’s decision to order no costs because success was divided. The appellant takes issue with this characterization of the outcome of the summary judgment motion. He argues he was successful on three out of the four issues that were before the motion judge and that he should not have had to bear his own costs in light of his successes.

[27] We see no basis for disturbing the motion judge’s discretionary costs order. Again, the motion judge specifically noted that, although the appellant was successful in having the motion proceed as a summary judgment motion, the appellant was unsuccessful on the crux of the motion. It is obvious that the motion judge’s decision was tethered to her finding that the appellant was unsuccessful in obtaining the real relief that he sought: personal payment by the respondent of the $1,200,000 and interest under the guarantee agreement. The appellant has not shown that the motion judge made an error in principle or that the costs award is plainly wrong: see Hamilton v. Open Window Bakery, 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27, referring to Duong v. NN Life Insurance Company of Canada (2001), 2001 CanLII 24151 (ON CA), 141 O.A.C. 307 (C.A.), at para. 14.

Disposition

[28] For these reasons, the appeal is allowed for the limited purpose of amending the motion judge’s order. Otherwise, the appeal is dismissed, and leave to appeal costs is refused. The respondent is entitled to costs in the agreed upon amount of $15,000, all inclusive.

“Gary Trotter J.A.”

“S. Coroza J.A.”

“L. Favreau J.A.”