Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20220128 DOCKET: C69293

MacPherson, van Rensburg and Roberts JJ.A.

BETWEEN

Oxygen Working Capital Corp. Plaintiff (Respondent)

and

Mike Mouzakitis and Angela Mouzakitis Defendants (Appellants)

Counsel: John S. Contini, for the appellants Sam Rappos, for the respondent

Heard: January 24, 2022 by video conference

On appeal from the judgment of Justice Frederick L. Myers of the Superior Court of Justice dated March 15, 2021, with reasons reported at 2021 ONSC 1907.

Reasons for Decision

[1] This appeal turns principally on the reasonableness of the motion judge’s exercise of his enhanced powers under r. 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The appellants argue that the motion judge erred in finding that there were no genuine issues requiring a trial concerning the enforcement of their guarantees.

[2] At the conclusion of the appellants’ submissions, we dismissed the appeal with reasons to follow. These are those reasons.

[3] The appellant, Mike Mouzakitis, is the directing mind and will of Scoby Kombucha Inc. (“Scoby”). The other appellant, Angela Mouzakitis, is his sister. On November 20, 2019, Scoby and the respondent entered into a master factoring agreement (“MFA”). In connection with the MFA, the appellants, with the benefit of independent legal advice, entered into separate guarantees of the indebtedness of Scoby. Mr. Mouzakitis’s guarantee was dated November 20, 2019, and Ms. Mouzakitis’s guarantee was dated November 26, 2019. The guarantees were continuing, unlimited in scope and time, and were not tethered to any particular transaction. Each guarantor promised to guarantee “all indebtedness, liabilities and obligations of any kind whatsoever” that Scoby “has incurred or may incur or be under” to the respondent.

[4] Under the MFA, Scoby could borrow funds from the respondent based on the security of its accounts receivable. The loans were a percentage of the accounts receivable tendered by Scoby for factoring by the respondent. There was no fixed percentage stipulated under the MFA. It was intended that the loans would be repaid from Scoby’s collected accounts receivable. If the accounts receivable remained unsatisfied, Scoby was required to repay the loans. If Scoby failed to do so, the appellants were required to repay them under the guarantees. Scoby factored its accounts receivable with the respondent and received funds in about November 2019 and June 2020. Scoby’s indebtedness under the November 2019 loan was satisfied. The June 2020 loan went into default.

[5] After making a demand, the respondent commenced an action against the appellants under their guarantees to recover the amounts outstanding under the June 2020 invoices and brought a motion for summary judgment. The motion judge granted summary judgment in favour of the respondent in the amount of $289,190.59, including prejudgment interest at 27% per annum. He awarded the respondent $16,000 in costs on a substantial indemnity basis in accordance with the guarantees’ provisions. The judgment bears interest at the rate of 27% per annum on the amount of $289,190.59 and 2% per annum on costs.

[6] The appellants raise several issues.

[7] The first four issues relate to the motion judge’s application of the requisite analytical framework on a motion for summary judgment set out by the Supreme Court in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. In particular, the appellants take issue with the motion judge’s treatment of Mr. Mouzakitis’s evidence on the cross-examination on his affidavit that they say gives rise to a genuine issue of credibility requiring a trial. The motion judge noted that Mr. Mouzakitis volunteered for the first time on cross-examination that the respondent’s President, Sab Ravalli, represented to him prior to factoring the June 2020 accounts receivable that the guarantees would not apply to that transaction. Mr. Mouzakitis claimed that Mr. Ravalli told him this was because unlike the prior advance for 80% of the invoice amount, the respondent would only advance 50% and 70% of the respective invoices being factored. The allegations were not pleaded nor were they contained in Mr. Mouzakitis’s affidavit filed on the motion, notwithstanding the respondent’s Chief Financial Officer’s affidavit that stated there were no representations made to the appellants. The appellant, Ms. Mouzakitis, did not file an affidavit on the motion. As the motion judge further noted, the respondent did not seek leave to file an additional, late affidavit to respond to Mr. Mouzakitis’s evidence. However, there was a hearsay denial of any representation about the limitation of the guarantees in the respondent’s original affidavit material that is expressly based on inquiries from Mr. Ravalli and others. The appellants argue that the motion judge also erred in relying on the respondent’s hearsay denial of any representation.

[8] We start our consideration of these issues with the standard of review. With respect to the motion judge’s Hryniak analysis, this court recently reiterated in Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, 154 O.R. (3d) 561, at para. 23, that “[a]bsent an error of law, a misdirection, or the creation of an injustice through a decision that is clearly wrong, a motion judge’s determination of these questions is generally entitled to considerable deference on appeal.”

[9] We see no error with the motion judge’s careful and detailed analysis that comprised both steps of the Hryniak framework.

[10] The motion judge first considered whether there was a genuine issue requiring a trial based on the record alone and without utilizing the enhanced fact-finding powers under r. 20.04. His interpretation of the MFA and guarantees based on their plain wording is unassailable. We agree with his conclusion that the appellants’ subjective, unilateral understanding that their guarantees only applied to the November 2019 transaction is inconsistent with the plain wording of the MFA and the guarantees that contain no such restriction, and is in any event irrelevant to the objective factual matrix that may assist with the interpretation of an agreement. As the Supreme Court instructed in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 58, while “[t]he nature of the evidence that can be relied upon under the rubric of ‘surrounding circumstances’” will vary, it “should consist only of objective evidence of the background facts at the time of the execution of the contract” and not the parties’ unilateral subjective intentions.

[11] As the motion judge concluded, correctly in our view, but for Mr. Mouzakitis’s new evidence, he did not see “a credibility issue requiring resolution, nor any conflict in the evidence, to undermine the interpretation of the scope of the guarantees on the plain meaning of their words as at the date they were signed.” However, as he properly concluded, if Mr. Mouzakitis’s evidence were believed and capable of amounting to a defence to the applicability of the guarantees to the June 2020 advance, he would not be able to decide the motion on the record without resolving the apparent conflict as to whether the respondent said or agreed it would limit the reach of the guarantees. He then turned to analyze Mr. Mouzakitis’s new evidence.

[12] The motion judge determined that he could fairly make the necessary findings of fact and credibility under r. 20.04(2) and that a trial or a mini-trial was not necessary nor an affordable, efficient and proportional process. He explained:

In my view this is a case in which utilizing the enhanced powers will lead to a fair result. It seems to me that an inference is safely available that had Mr. Mouzakitis ever mentioned this evidence before his cross-examination, it would have been pleaded front and centre. In addition, the evidence as adduced is uncertain as to time and unsupported despite an indication that there is documentary support. There is no evidence or reliance, inducement, or a written amendment or waiver. Finally, the notion that a lender whose first advance was not repaid on time as required, would agree to forgo its security in a simple, unrecorded, undocumented conversation, does not accord with my understanding of business common sense or lending logic.

[13] There is no basis to interfere with the motion judge’s findings.

[14] Respectfully, the appellants’ reliance on this court’s decision in Royal Bank is misplaced. In Royal Bank, the motion judge erred by failing to engage with the entire Hryniak analysis, consider all the evidence, and determine whether there was a genuine issue requiring a trial. Her reasons were conclusory; while she recited some of the evidence, she did not weigh it, evaluate it, or make findings of credibility as she was required to do in that case. Moreover, she ignored corroborating evidence of the allegations of misrepresentation in the examinations for discovery and affidavits that were before her on the motion.

[15] In contrast, as indicated above, the motion judge in the present case fully and meaningfully applied the Hryniak framework and reasonably determined that he could resolve the credibility issues raised by Mr. Mouzakitis’s new evidence using the enhanced powers under r. 20.04.

[16] We are not persuaded by the appellants’ submission that the motion judge impermissibly relied on a hearsay denial of the allegations of misrepresentation. Rather, it is clear from his reasons that the motion judge did no more than accept the fact of the respondent’s blanket denial of the allegations as reflected in the supporting affidavit, which he was entitled to do. The motion judge was well aware that there was no additional affidavit filed to challenge Mr. Mouzakatis’s new evidence. However, that Mr. Mouzakatis’s allegations were unchallenged by specific affidavit evidence did not require the motion judge to accept them. As we have already noted, following the Hryniak framework, the motion judge gave clear and detailed reasons as to why he found Mr. Mouzakatis’s uncorroborated evidence to be incredible. We see no error.

[17] Turning to the appellants’ fifth issue raised on appeal, we are not persuaded that the motion judge erred in his consideration of the appellants’ allegations that the respondent’s interference led to their customer refusing to pay the factored June 2020 accounts receivable. While he was correct in describing Mr. Mouzakitis’s repetition in his affidavit of his customer’s alleged statements as inadmissible hearsay, the motion judge’s primary reason for rejecting the appellants’ evidence was because the evidence was bald and unsupported. The motion judge stated: “The evidence is a simple adoption of the statement of defence. There is no basis in the bald and unsupported allegations on which to find a genuine issue requiring a trial that anything done by the [respondent] so seriously enhanced the guarantor’s risk as to release the guarantees.” Again, these findings were open to the motion judge and are free of error.

[18] Finally, with respect to the appellants’ sixth issue, the question of interest, we do not accept that a trial was required to determine which rate of interest should apply. It was open to the motion judge on the record before him to interpret the MFA and determine that the interest rate was 27%. Again, we see no error.

[19] For these reasons, we dismissed the appeal.

[20] The appellants shall pay the respondent’s costs of the appeal in the all‑inclusive amount of $15,000, on a substantial indemnity basis as provided for in the guarantees.

“J.C. MacPherson J.A.”

“K. van Rensburg J.A.”

“L.B. Roberts J.A.”