ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-11-41979500A1
DATE: 20120423

BETWEE N:

TRI-NOVO GROUP INC.

Meagan Swan , for the Plaintiff (Defendant by counterclaim) and the Third Parties

Plaintiff

• and -

LARRY RADZIO, RENE ROBERT RADZIO, DAF’D RESTAURANTS INC. and SOUND SOLUTIONS GROUP LTD.

Salma Sheikh , for the Defendants (Plaintiffs by counterclaim)

Defendants

and

1216779 ONTARIO LTD. and 939315 ONTARIO LTD. Third Parties

HEARD: April 2, 2012

CHAPNIK J.

[ 1 ] This is a motion by the plaintiff for summary judgment against the defendants for damages in the amount of $79,480.15 and for a dismissal of the counterclaim. The third parties move for summary judgment to have the third party claim against them dismissed.

[ 2 ] Upon reading the materials filed and hearing the submissions of counsel for the parties, I am satisfied that there are genuine issues that require a trial for their resolution and the motions before me should be dismissed.

BACKGROUND

[ 3 ] The defendant, DAF’D Restaurants Inc., entered into a five year commercial lease agreement with the plaintiff on September 1, 2008 and the defendant Rene Robert Radzio (“Rene”) and his father, Larry Radzio (“Larry”), executed the lease as guarantors. They abandoned the premises and, therefore, breached the lease in January, 2010, under the following circumstances.

[ 4 ] Rene, who was 21 years of age at the time, met Patrick Lau, the principal of the plaintiff, through a cousin who worked for him and Mr. Lau’s sons with whom he had developed a friendship over the years.

[ 5 ] It is alleged that Rene regarded Mr. Lau as “a trusted business advisor and sophisticated businessman” and that the terms of the agreement were dictated by Mr. Lau and all legal documents were prepared on his behalf.

[ 6 ] The terms of the agreement included the following:

a. Payment of $210,000.00 by the defendants prior to entering into the lease which the plaintiff claims was a separate agreement for “lease commission” and which the defendants say they understood to represent “additional security” for the lease. Upon the direction of Mr. Lau, the funds were paid equally to the third parties on August 29, 2008; and

b. The lease was executed and was to commence on September 1, 2008; it included provision for a three month security deposit in the sum of $61,815.09 due December 1, 2008 and first and last months rent of $43,379.01 due January 1, 2009. The monthly rental payments approximated $20,000.00.

[ 7 ] Occupancy of the premises took place September 15, 2008 and required substantial leasehold improvements which the defendants estimate cost about $400,000.00. On December 2, 2008, the plaintiff demanded the $61,815.09 security deposit. At the plaintiff’s request for “security to secure the debt”, Larry, on behalf of Sound Solutions Group Ltd. (“Sound Solutions”), granted a mortgage in the amount of $150,000.00 against a property it owned on King Street in Toronto.

[ 8 ] On January 5, 2009, the plaintiff demanded the first and last months’ rental in the sum of $43,379.01 and when the defendants were unable to come up with the funds, it requested additional security in the form of a General Security Agreement. The Agreement was dated January 4, 2009 and granted a security interest over “all present and future property and assets owned by them” as well as items specifically detailed in the document.

[ 9 ] Upon default in mortgage payments for October and November 2009, the plaintiff issued a Notice of Sale under Mortgage to Sound Solutions.

[ 10 ] Full payment of the outstanding rent including the December rent was made on or about December 15, 2009.

[ 11 ] On or about January 4, 2010, the plaintiff demanded the January rent. The defendants abandoned the leased premises on January 9, 2010 and the plaintiff terminated the lease by Notice of Termination claiming outstanding arrears of $130,000.00 plus costs and other expenses. The statement of claim was issued February 8, 2011.

[ 12 ] In February 2010, the plaintiff served Larry and Sound Solutions with a statement of claim for possession of the King Street property and damages. The said defendants failed to respond and the plaintiff obtained default judgment against them for possession and the sum of $131,639.50. The property was sold on September 9, 2010 for $325,000.00.

[ 13 ] The plaintiff claims it suffered a shortfall on the sale of $15,006.52 plus interest and, in this motion, claims against the defendants for the mitigation damages, rent damages and shortfall damages which it contends are payable under the lease and mortgage in the amount of $79,480.15 and an order dismissing the counterclaim against it.

[ 14 ] It is noted that at no time did Rene or Larry have independent legal advice before or when signing the lease or mortgage or other legal documents in this matter.

[ 15 ] Indeed, according to the defendants, Mr. Lau had Rene and Larry execute a waiver of independent legal advice on February 4, 2009.

[ 16 ] The defendants filed a statement of defence and counterclaim on April 11, 2011 claiming the plaintiff had recouped surplus funds of $256,672.07 due and owing to them. They counterclaimed for unjust enrichment and damages in this amount along with “such further and other damages as may be determined prior to or at trial”, interest and substantial indemnity costs.

[ 17 ] The plaintiff’s motion for summary judgment came before Justice Perell on November 30, 2011. Since the defendants had not filed materials and upon their request for an adjournment, the adjournment was allowed on terms, including that “there shall be no cross-examinations of the plaintiff’s and third parties’ affiants”, that the defendants pay $3,000.00 in costs and post security for costs in the amount of $13,000.00 by January 20, 2012 (which they have done).

THE RELEVANT LAW

[ 18 ] The new test on a Rule 20 motion under the Rules of Civil Procedure , R.R.O. 1990, reg. 194 is whether the judge can “fully appreciate” all of the evidence and issues required to make a dispositive finding without a trial and given the additional considerations.

[ 19 ] In explaining the new formulation, the jurisprudence notes that the burden does not change; that is, the moving party bears the evidentiary burden of showing there is no genuine issue requiring a trial and the party resisting summary judgment has the onus to satisfy the Court that there are material facts to be tried and there is a real chance of success at trial. The resisting party must adduce evidence of material facts that require a trial to assess credibility, weigh evidence and draw factual inferences.

[ 20 ] This standard remains consistent with prevailing jurisprudence that each party must put its best foot forward with respect to the existence or non-existence of material issues to be tried. In doing so, the Court is entitled to assume that the record contains all the evidence that the parties would present if there were a trial. See, for example, Combined Air Mechanical Services Inc. v. Fiesch , 2011 ONCA 764 , [2011] O.J. No. 5431 (C.A.) at para. 50 and 56 ; Royal Bank of Canada v. Tie Domi Enterprises Ltd. , 2011 ONSC 7297 at para. 5 ; Hino Motors Canada Ltd. v. Kell , 2010 ONSC 1329 , [2010] O.J. No. 1105 (Ont. S.C.J.) at para. 9 and 1061590 Ontario Limited v. Ontario Jockey Club (1995), 21 O.R. (3d) 547 at 557.

ANALYSIS

[ 21 ] The plaintiff contends that this is a simple case with only the issue of the $210,000.00 initial payment potentially in dispute and that the defendants made admissions regarding this in its favour in their pleadings and in cross-examination.

[ 22 ] I disagree. First, this case involves a number of parties and a relatively complex set of facts and evidence. The pleadings raise, among other things, issues of coercion (threats), breach of trust and the unequal bargaining power between the parties. Second, there has been no documentary disclosure or production by the plaintiff, no affidavit of documents or cross-examination of the plaintiff or its affiants. This makes it difficult for the Court to gain a “full appreciation” of the facts or evidence underlying the claim or counterclaim. Third, the defendants have raised a number of material facts which remain in dispute and that raise questions of fact and credibility in respect of both the lease and the mortgage proceedings, including the plaintiff’s damage calculation, surplus funds, power of sale proceedings and the $210,000.00 payment made to it.

[ 23 ] Having said that, I will opine that although these issues were clearly raised in the materials, the defendants’ pleadings are poorly drafted. It was the plaintiff’s position on this motion that, in the pleadings as confirmed in cross-examination, the defendants did not dispute liability for either breaches of the lease and mortgage or the calculation of amounts owing thereunder. Moreover, they agreed with the contention that the $210,000.00 was paid as commission for obtaining the lease.

[ 24 ] However, a reading of the whole of the documents including the transcripts of the cross-examinations of both Rene and Larry clearly leads to a different conclusion. For example, when Rene was asked about the $210,000.00 payment and his assertion that it was a security deposit, the following exchange took place (page 30, Q. 150-152):

Q. You knew what a security deposit was though, correct?

A. I know what a security deposit is, yes.

Q. Okay. And so when you saw that the lease contained a provision relating to security deposits that only contemplated a three moths security deposit, did you say anything?

A. Yes. I was really aware of that because we had discussed that previously when he first brought up the $200,000. He said, “We’re going to do this. We’re going to work together, and I’m going to pay it to my other companies, and so we’re not going to put it on the lease”.

Q. Right.

A. Because if he put it on the lease, he would have to pay it to Tri-Novo and it would cost him a bit more, and that was kind of the working relationship that we had.

(See also Q. 211-215).

[ 25 ] At no time did either defendant say they understood the payment to be one of a commission granted separate from the lease such as would constitute an admission of this disputed fact. Indeed, many of their direct assertions in the transcript contradict this.

[ 26 ] The defendants do not dispute the defaults on the lease and the mortgage. They claim, however, that there are discrepancies in the material facts “with respect to the damages suffered by the plaintiff, the surplus of funds remaining after the plaintiff mitigated its damages and the additional security deposit of $210,000.00 claimed by the plaintiff as a lease commission”.

[ 27 ] Moreover, if the $210,000.00 is found to be a lease commission, they allege it was charged in contravention of the Real Estate and Business Brokers Act , 2002, S.O. 2002, ch. 30, Sch. C as amended (REBBA).

[ 28 ] In setting out the underlying material facts, the defendants point to inconsistent and unsubstantiated damage amounts claimed at various junctures by the plaintiff. The defendants claim a credit for leasehold improvements, equipment and furniture left in the premises, and for payments made to the plaintiff; and they raise queries regarding the plaintiff’s claims pertaining to its mitigation efforts and losses claimed (see paras. 53-60 of the defendants’ factum). These are, in my view, all legitimate and genuine issues for trial and since no documents have been submitted by the plaintiff to prove its’ damage claims or answer these inquiries, this Court cannot, on this motion, fully appreciate or deal with these issues.

[ 29 ] In regard to the $210,000.00 payment, the nature of the payment and the intention of the parties at the relevant time involve questions of credibility that must be resolved at trial. This includes the matter of a contravention of the REBBA by the plaintiff as alleged in the above circumstances.

[ 30 ] Regarding the matter of res judicata raised by the plaintiff, the defendants Rene and DAF’D Restaurants Inc. were not parties to the mortgage documents nor were they served with the notice of sale or any notice of the proceedings. The lease agreement is joined in the mortgage documents and the defendants’ assertion that the mortgage calculations are incorrect and inconsistent remains a material fact in issue. The plaintiff’s claim based on res judicata is dismissed.

[ 31 ] As to the plaintiff’s claim based on the Limitations Act 2002 , S.O. 2002, c. 24 , it is similarly dismissed. The defendants assert that the plaintiff took actions while it delayed in responding to the defendants’ counsel who indicated a desire to set aside the default judgment on the mortgage.

[ 32 ] Moreover, the main, but not only, issue in the counterclaim is the determination of the parties’ intentions and the true nature of the $210,000.00 payment. It is contended that the first indication given to the defendants by the plaintiff that it (the plaintiff) considered this as a “lease commission” separate from the lease was in March, 2011, well within the proper time period for the filing of pleadings. This argument by the plaintiff is also dismissed.

CONCLUSION

[ 33 ] In summary, the defendants, pursuant to their defence and counterclaim, claim inter alia , that the relationship between them and the plaintiff’s principal, Patrick Lau, was fiduciary in nature, that Mr. Lau was a sophisticated businessman and trusted advisor to the defendants, in particular to Rene who was inexperienced and 21 years of age at the time, that all documents were signed without independent legal advice and that Mr. Lau exercised undue pressure, influence and coercion tactics in his dealings with the defendants. Moreover, the defendants were never properly served with the Notice of Sale for the collateral mortgaged property and the plaintiff’s calculations are both inconsistent and incorrect.

[ 34 ] These are all legitimate and genuine issues that require a trial for their resolution, some of which involve issues of credibility. Moreover, there are no substantiating documents to prove the plaintiff’s claimed damages or to refute the issues of material fact raised by the defendants. Finally, I am satisfied the defendants have shown material facts to be tried and there is a real chance of success at trial. Accordingly, this motion by the plaintiff for summary judgment and a dismissal of the counterclaim is dismissed.

[ 35 ] As for the third party action, the defendants request a declaration that each of the third parties received the sum of $105,000.00 from them for the sole benefit of the plaintiff and that the funds were to be held as a security deposit for the lease or, in the alternative, they claim damages in the amount of $105,000.00 against each of them for unjust enrichment.

[ 36 ] These claims also rest on issues of credibility and require a trial for their resolution. The motion for summary judgment brought by the third parties is dismissed.

[ 37 ] The plaintiff submitted a costs outline, claiming costs for the summary judgment motions brought on behalf of the plaintiff and third parties in the amount of $6,104.13 on a partial indemnity basis and $7,136.13 on a substantial indemnity basis. Defendants’ counsel claimed 100 hours of work at the sum of $350.00 per hour and $1,500 for disbursements. She contends that the issues she had to respond to were complex and demanded that much time and research. In my view, the amount claimed is excessive. On the other hand, experienced counsel for the plaintiff must have known that it would be difficult for the Court to gain a “full appreciation” of the issues in this case given that there was no production of documents on its part. They also should have realized that the materials raised genuine issues of credibility and that it would be difficult, if not impossible, to resolve such issues without a trial.

[ 38 ] In my view, a fair and appropriate amount of costs given the result, the complexity of issues, the reasonable expectation of the parties and the factors set out in rule 57.01(1) of the Rules of Civil Procedure is the all-inclusive sum of $20,000.00, payable forthwith by the plaintiff and third parties, jointly and severally, to the defendants.

[ 39 ] I suggest that this case be case-managed or that the parties set out a realistic timetable for the exchange of documents, amendments to the pleadings, if so advised, examinations for discovery and scheduling of any motions, pre-trial and dates for trial.

S. Chapnik J.

Released: 20120423

COURT FILE NO.: CV-11-41979500A1
DATE : 20120423

ONTARIO SUPERIOR COURT OF JUSTICE BETWEE N: TRI-NOVO GROUP INC. Plaintiff - and - LARRY RADZIO, RENE ROBERT RADZIO, DAF’D RESTAURANTS INC. and SOUND SOLUTIONS GROUP LTD. Defendants and 1216779 ONTARIO LTD. and 939315 ONTARIO LTD. Third parties REASONS FOR DECISION Chapnik J.

Released: 20120423