COURT FILE NO.: CV-08-00356381
DATE: 20121011
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
SHAFEK HANNA and WANDERLEIDA ASSUNCAO
Plaintiffs
- and -
FERCAN DEVELOPMENTS INC. and GAB CAPITAL CORP.
Defendants
AND B E T W E E N:
GAB CAPITAL CORP.
Plaintiff by Counterclaim
- and -
Rolf M. Piehler, for the Plaintiffs/Defendants by Counterclaim, Shafek Hanna and Wanderleida Assuncao
Robert D. Malen, for the Defendant, Fercan Developments Inc.
Judy Hamilton, for the Defendant/Plaintiff by Counterclaim, GAB Capital Corp.
SHAFEK HANNA, WANDERLEIDA ASSUNCAO, PRUDENTIAL PROPERTY MANAGEMENT INC., and THE EQUITABLE TRUST COMPANY
Defendants by Counterclaim
Morgan J.
I. Introduction
[1] This was essentially a mortgage enforcement action by the Defendant, GAB Capital Corp. (“GAB”), which is the mortgagee under a second and third mortgage on a residential property located at 2183 Shawanaga Trail, Mississauga, Ontario (the “Property”).
[2] The mortgagors, Shafek Hanna (“Hanna”) and Wanderleida Assuncao (“Assuncao”), who were common law spouses and who jointly owned the Property, pre-empted the enforcement attempt and sued for a declaration that the mortgage has been fully paid. Accordingly, the lender, GAB, which seeks to enforce its rights under the two mortgages, is the Defendant and Plaintiff by Counterclaim, while the borrowers, Hanna and Assuncao, who are alleged to be in default under the two mortgages, are the Plaintiffs and Defendants by Counterclaim.
[3] The Defendant, Fercan Developments Inc. (“Fercan”), is a company for whom Hanna worked as a construction supervisor/manager, and is owned by Vince DeRosa (“DeRosa”), the same person that owns GAB. It is Hanna and Assuncao’s contention that Hanna had an arrangement with Fercan, which is evidenced by a written and signed agreement, whereby Hanna would work for Fercan and, in addition to reimbursement of expenses, would receive credit against GAB’s mortgages for amounts that reflected ‘savings’ that Fercan gained through Hanna’s efforts on its construction projects. Hanna testified that these ‘savings’, which are reflected in a series of seven invoices he rendered in 2006, were enough to have fully paid off his and Assuncao’s indebtedness to GAB.
[4] The other two Defendants by Counterclaim, Prudential Property Management Inc. (“Prudential”) and The Equitable Trust Company (“Equitable”), were the first mortgagees of the Property – Equitable having assigned the first mortgage to Prudential. GAB’s claims against Prudential and Equitable were dismissed on consent prior to trial.
[5] The first mortgage has now been paid and was, in turn, assigned to a new mortgagee, 2308102 Ontario Ltd. That assignee of the first mortgage has in very recent weeks sold the Property under a Power of Sale to a new purchaser, 2335966 Ontario Ltd.
[6] The principal of the assignee of the first mortgage, Mary Grace Ferrari (“Ferrari”), was summonsed as a witness by GAB and testified at trial. During the course of her testimony, Ferrari stated that she is a friend of Hanna’s and has known him for some 30 years, and that her company took an assignment of the first mortgage a number of months ago after insurance proceeds were paid out due to a fire that damaged the Property. Ferrari also conceded that 2335966 Ontario Ltd., the company that purchased the Property from her company under the Power of Sale, is owned by her father.
[7] The current status of the Property, and the relation of this action to a court application currently pending in Brampton, Ontario seeking to set aside the recent sale to 2335966 Ontario Ltd, will be discussed later in these reasons.
II. The Construction Contract
[8] A substantial amount of time, including the vast majority of Hanna’s three days of testimony, was spent exploring the contractual relationship between Hanna and his employer, Fercan. On December 6, 2005, Hanna and Fercan signed a document entitled “Construction Contract” which provided the terms of Hanna’s retainer as a site supervisor or manager for renovations that Fercan was doing on the third floor of a building it owned at 193 King Street, Toronto. The Construction Contract was for roughly six weeks of work, and set out a materials/labour plus management fee arrangement in which Hanna would be reimbursed for all materials he purchased and labourers he hired for the job and, in addition, would receive a $15,000 management fee.
[9] Hanna rendered invoices to Fercan in accordance with the Construction Contract. These included three invoices for his management fee at $5,000 each – Invoice 1001 dated December 17, 2005, Invoice 1010 dated January 13, 2006, and Invoice 1021 dated January 27, 2006.
[10] It turned out that Fercan later wanted some extra work done on the third floor of 193 King Street that was not included in the Construction Contract. Hanna completed that extra work to Fercan’s specifications. DeRosa’s evidence was that this work took about two weeks to complete and that Fercan again paid him for materials/labour as well as a management fee. This appears in line with the documentary record, which shows that Hanna rendered a fourth invoice for fees relating to this project: Invoice 1037 dated March 31, 2006 for $5,000 that specified, Hanna’s handwriting, “Consult/project manag” for “3rd Floor 193 King St East TO”.
[11] It was Hanna’s testimony that the extra work requested by Fercan rendered the Construction Contract “null and void”. By contrast, DeRosa testified on behalf of Fercan that the extra work was precisely that – extra to the Construction Contract – and that Hanna was simply retained for any extra work on the same basis as he was under the contract. In support of this, counsel for Fercan points to documented examples such as Invoice 1031 dated February 24, 2006, which states that it applies to work on the third floor at 193 King Street and on which Hanna wrote an asterisked notation at the bottom of the page: “*Not Part of Contract”. Fercan paid Hanna’s invoices for this extra work, as rendered.
[12] Over the next several months, Fercan engaged Hanna to work on a number of other projects. These included demolition and retrofitting done by Fercan at sites in Hamilton, Whitby, Iron Street in Toronto, and on the first floor of 193 King Street. There was no written contract with respect to Hanna’s employment on any of these sites, but Hanna’s invoices demonstrate that the arrangement was the same as under the original Construction Contract. That is, Hanna invoiced, and was paid by Fercan, for reimbursement of his material and labour costs, plus a management fee of $2,500 per week (corresponding to the $15,000 management fee for six weeks under the Construction Contract).
[13] Hanna does not dispute that the invoices as described above were rendered by him and paid by Fercan. As indicated, the invoices are in Hanna’s own handwriting and Fercan’s cheques are all in the record. However, he states that the $2,500 per week payments he received were not on account of his fees but rather were additional reimbursements of expenses he incurred on Fercan’s projects. His ultimate point, in taking this position, is that the only compensation (as opposed to reimbursement) that he received for working for Fercan was contained in the disputed ‘savings’ invoices, not the regular invoices.
[14] DeRosa, on the other hand, says that the $2,500 per week was the agreed-upon management fee that Hanna received, and was separate and apart from reimbursement for his outlays on materials and labour. DeRosa also testified that he had never seen the seven ‘savings’ invoices prior to the discovery stage of the present action, and that Hanna never delivered them to him or to anyone else at Fercan (or GAB) at the time they purport to be dated.
[15] The testimony of Fercan’s administrative and finance manager, Monika Faebro, corroborates DeRosa’s explanation. Ms. Faebro reviewed and either approved or amended each and every one of Hanna’s invoices (except for the seven ‘savings’ invoices mentioned above which, like DeRosa, she testified that she never saw).
[16] Likewise, Ana Casihlias, the overall manager of Fercan’s Hamilton project who vetted all invoices relating to Hamilton before forwarding them to Monika for payment, corroborates DeRosa’s explanation. She no longer works for Fercan or DeRosa, but in her testimony at trial she recalled that all of Hanna’s invoices for materials and labour were supported by separate backup documentation in the form of timesheets for his labourers and receipts for materials he purchased. These reimbursements were distinct from the $2,500 per week which was paid to Hanna as his fee. She also confirms that Hanna’s invoices for the $2,500 required no backup materials as they were not reimbursements.
[17] Finally, like Ms. Faebro and DeRosa himself, Ms. Casihlias testified that she had never seen any of the ‘savings’ invoices, including the one that references the Hamilton project.
[18] The explanation of Hanna’s compensation provided by DeRosa, and confirmed by Ms. Faebro and Ms. Casihlias, makes sense as a continuation of the same working arrangement that was embodied in the December 6, 2005 Construction Contract. A review of the documentary record shows that on all of his Fercan projects, Hanna produced receipts and labourers’ timesheets to back up the materials and labour reimbursement portion of his invoices, but not the management fee portion of his invoices. The record therefore verifies DeRosa’s understanding: Hanna was paid $2,500 per week as a management/supervision fee that compensated him for his own time and work.
III. The GAB mortgages
[19] The second and third mortgages on the Property were acquired by GAB on June 15, 2006 by assignment from the previous mortgagees, Sheldon Barris (“Barris”) and a company controlled by Tova Marks, 527540 Ontario Limited (“Marks”).
[20] The second mortgage was entered into by Hanna and Assuncao as borrowers/mortgagors, and Barris and Marks as lenders/mortgagees, on June 15, 2003 in the principal amount of $420,000, and was registered on title to the Property as Instrument No. PR504913 in the Land Registry Office for the Land Division of Peel (No. 43). It provided for interest in the amount of 14% per annum to be paid on the principal sum. The second mortgage was amended on December 29, 2003, increasing the secured principal sum to $500,000. This amending agreement was registered as Instrument No. PR568102 in same Land Registry Office for Peel.
[21] The third mortgage was entered into by Hanna and Assuncao as borrowers/mortgagors, and Barris and Marks as lenders/mortgagees, on January 9, 2004 in the principal amount of $90,000, and was registered on title to the Property as Instrument No. PR573043 in the Land Registry Office for the Land Division of Peel (No. 43). It also provided for interest in the amount of 14% per annum to be paid on the principal sum. The third mortgage was amended on January 28, 2004, increasing the principal sum to $275,000. This amending agreement was registered as Instrument No. PR581518 in the same Land Registry Office for Peel.
[22] In early 2006, Hanna and Assuncao were in default of payments owed under the second and third mortgages, and Barris and Marks issued Statements of Claim seeking payment of $639,835.41 under the second mortgage and $111,803.91 under the third mortgage. They also sought possession of the Property in exercise of their rights as mortgagees. In two separate judgments dated February 7, 2006 (Court File No. 06-22201) and March 2, 2006 (Court File No. 06-22203), respectively, this relief was granted. On March 7, 2006 the court granted leave to issue a Writ of Possession pursuant to the February 7, 2006 judgment, and on March 13, 2006 a Writ of Possession was obtained and the Sherriff of the Regional Municipality of Peel was directed to give possession of the Property to Barris and Marks.
[23] In late 2005 and early 2006, at about the same time as Hanna began working for Fercan, Hanna and Assuncao had begun seeking ways to refinance the two Barris-Marks mortgages. They secured a written commitment through Harvey Spring (“Spring”), a real estate lawyer who had a client interested in placing a mortgage on the property. Hanna’s evidence was that they would have taken the Spring financing if they had not been offered a more attractive deal by DeRosa. Assuncao, in her testimony, tried to corroborate this view of the genesis of the GAB mortgage, although she was vague on many details since she indicated that her husband, Hanna, generally looked after financial matters for them.
[24] Spring was called as a witness by Hanna and Assuncao, and confirmed that he had a financing commitment in place for them in early 2006. It was his evidence, however, that this commitment was terminated due to Hanna and Assuncao’s failure to pay interest from February1, 2006 to March 13, 2006, which was a condition of the commitment he had arranged. Accordingly, the commitment was withdrawn on March 14, 2006 in a letter from Spring to Hanna and Assuncao.
[25] The Spring commitment was roughly $200,000 short of the money that Hanna and Assuncao would have needed to pay off the two Barris-Marks mortgages. Hanna testified that he was confident that he would have had no trouble raising the funds to make up that amount, but he could provide no evidence that this confidence was really warranted. He also failed to mention in his examination-in-chief that he had missed the February-March interest payment which precipitated the withdrawal of the Spring commitment.
[26] It may be, of course, that the offer from DeRosa was ultimately more attractive than the Spring offer. However, it seems clear that by the time Hanna and Assuncao spoke to DeRosa about their mortgage debts, they were seeking an alternative to the Spring offer which had become financially unfeasible for them.
[27] Hanna testified that DeRosa promised him that he would pay off the second and third mortgages, replacing those mortgages with an unsecured debt to DeRosa or Fercan. He claims that he was surprised to learn a year later, in June 2007, that GAB – a company controlled by DeRosa – now held the mortgages secured against the Property and that they had not been discharged when Barris and Marks were paid.
[28] For his part, DeRosa testified that he had always spoken to Hanna about taking an assignment of the second and third mortgages, and that it never occurred to him to simply have them discharged and to leave his company with no security for its loan. His evidence is that he had agreed that he would forebear from enforcing the mortgages for one year in order to give Hanna and Assuncao time to either refinance or to sell the Property. He wanted to help them avoid losing the Property, but he did not want to lose money himself.
[29] DeRosa’s view of the mortgages and the assignments was corroborated by his lawyer, William Friedman (“Friedman”), who prepared all of the assignment documentation on behalf of GAB. Friedman testified that he designed the assignment so that GAB would inherit from Barris and Marks all of their rights under the second and third mortgages, including their rights under the judgments and orders already issued by the court. Friedman confirmed that he had the assignments duly registered on title.
[30] Friedman also testified that DeRosa had agreed that he would forebear in enforcing his rights for a year, and that he would demand a lesser interest rate (12% per annum instead of 14%), in return for Hanna and Assuncao paying the two mortgages off (at the discounted rate) in one year’s time. Friedman advised DeRosa that the best way to proceed would be to pay Barris and Marks whatever they required in order to assign the mortgages, and to draft the assignment so that the full rights of Barris and Marks under the mortgages would be passed on to GAB. As mortgagee, GAB could then decide at its discretion when and to what extent to enforce these rights.
[31] Friedman is a lawyer called to the bar in Quebec in 1975 and Ontario in 1978. He is a veteran corporate and real estate lawyer and I find him to be very credible. His explanation of the GAB mortgages makes commercial sense.
[32] In her testimony at trial, Assuncao attempted to support Hanna’s view that the mortgages were supposed to have been discharged from title rather than assigned to DeRosa’s company. However, when pressed in cross-examination she conceded that her knowledge of this comes from Hanna, and not from DeRosa or any from first-hand knowledge of an agreement between them. She also conceded that at discovery she had testified differently, and that at that time she had stated that her understanding of the arrangement was more similar to DeRosa’s: “mortgage free for a year, no interest, nothing.”
IV. The ‘savings’ agreement
[33] As indicated at the outset, the position taken by Hanna and Assuncao in seeking a declaration that the second and third mortgages, or the debt thereon, has been paid, is that Hanna worked the debt off by saving Fercan money on its construction projects. This arrangement was allegedly reduced to writing in a signed agreement between Hanna and Fercan. The ‘savings’ were further documented by Hanna in a series of seven invoices he rendered that were addressed to Fercan and that on their face related to Fercan projects on which Hanna worked.
[34] DeRosa, along with Ms. Faebro and Ms. Casihlias, testified that no one at Fercan had ever received or seen the seven disputed invoices. These are the only invoices submitted by Hanna that have not been paid and that have not been recorded in Fercan’s (or, for that matter, GAB’s) books. They have been introduced into the record by Hanna. A visual review of these invoices reveals that several of them are either misnumbered and/or misdated, or are numbered out of sequence with the other invoices rendered by Hanna, suggesting that they may have been prepared at a later time than they are dated.
[35] DeRosa’s evidence is that there was never any such agreement with Hanna. He says that there were no ‘savings’ and that Fercan would have had no way of measuring any ‘savings’ since it did not get competitive bids to compare with Hanna’s fees. He also testified that the cost of Hanna’s management fees and expense – without factoring in any ‘savings’ – was equivalent to what he knew from his long experience to be the cost of those services in the market.
[36] This disagreement over the terms of Hanna’s work represents a large financial discrepancy between the parties ($619,000, to be precise). In his examination-in-chief, DeRosa was specifically asked how he and Hanna could differ so fundamentally over the possibility that Hanna should have been credited for saving DeRosa’s company hundreds of thousands of dollars in construction costs. DeRosa’s response was short and to the point: “Mr. Hanna is dishonest.”
[37] Hanna’s position with respect to the ‘savings’ arrangement and the two mortgage loans is contained in a written agreement dated May 7, 2006. I note in passing that May 7, 2006 is a month before the assignment of the second and third mortgages from Barris and Marks was actually completed.
[38] The document dated May 7, 2006 between Fercan and Hanna has been produced by Hanna and is part of the record in this action. It does say what Hanna testifies was the arrangement that he had come to with DeRosa – i.e. that Hanna and Assuncao’s second and third mortgages would be credited with ‘savings’ generated by Hanna on the Fercan jobs. By all appearances, the May 7, 2006 agreement is signed by Hanna and by DeRosa on behalf of Fercan.
[39] DeRosa testified that he never saw the May 7, 2006 document and that he never signed it. He further states that he first learned of the existence of this document on November 28, 2007, when Hanna’s former solicitor, Walter Wysocky (“Wysocky”), faxed a copy to Friedman (in his capacity as GAB’s solicitor), and Friedman forwarded it on to DeRosa.
[40] Wysocky’s November 28, 2007 fax to Friedman, it should be noted, came after Hanna and Assuncao brought, and lost, a motion to set aside the Writ of Possession that Barris and Marks had obtained the previous year and that GAB had renewed and was by then seeking to enforce. The ground for their motion was that the mortgage had been paid down through an “arrangement” between Hanna and Fercan. Neither the May 7, 2006 document nor the seven ‘savings’ invoices were produced in Hanna’s affidavit sworn November 13, 2007 in support of that motion.
[41] In his November 2007 endorsement, Festeryga J. wrote: “[t]he material before me of the defendants [i.e. Hanna and Assuncao] contains bald statements in Pars. 2, 3 and 4 with no substantiation. I find the motion has no merit and therefore is dismissed.” Counsel for Fercan submits that the sudden appearance of a copy of the May 7, 2006 document just after this ruling can be seen as an attempt by Hanna to concoct the substantiation that the court had found lacking.
[42] The May 7, 2006 document contained in the record before me mimics the font and wording style used in the December 6, 2005 Construction Contract. The Construction Contract was drafted by Friedman. Hanna asserts that Friedman also drafted the document on DeRosa’s instructions. Friedman testified that he did not draft the May 7, 2006 document and that, like DeRosa, he never saw it before it was faxed to him by Wysocky on November 28, 2007.
[43] Upon receiving the fax on November 28, 2007, the first thing Friedman did, after receiving DeRosa’s instructions, was to retain a qualified handwriting expert to opine on the authenticity of DeRosa’s purported signature. Taking this immediate step would itself seem to confirm that DeRosa and Friedman were confident in the knowledge that the purported signature, and the May 7, 2006 document as a whole, was a fabrication.
[44] The report of the handwriting expert, Dan Purdy (“Purdy”), concluded that it is “highly probable” that the signature on the May 7th document purporting to be DeRosa’s is not in fact his signature. That conclusion was later confirmed in a supplementary report issued by Purdy after Hanna produced the original document at discoveries and Purdy got a chance to examine the original signature.
[45] There is no one to corroborate Hanna’s claim that the May 7th agreement ever existed. Assuncao testified that she was vaguely aware of an agreement that Hanna would work off the mortgage indebtedness to DeRosa, and she was clear that what little she did know she only learned second-hand from Hanna.
[46] Given that the alleged agreement is the central premise of Hanna’s entire claim that the second and third mortgages have been paid off, I was surprised to learn mid-trial that Hanna was not contesting the Purdy report. Counsel advised that the Purdy report was admitted by Hanna and Assuncao in their response to a Request to Admit served by Fercan and GAB prior to trial.
[47] Hanna testified that he does not know who pretended to sign the May 7th document for DeRosa. In his testimony he stated, somewhat mysteriously, that he was at 193 King Street on May 7, 2006 and “someone told me to come upstairs and sign a piece of paper”. When he reached the Fercan office on the second floor, he claims that no one was there and the document was already signed by DeRosa and waiting for him.
[48] Interestingly, this is not the first time that Hanna has claimed to have a ‘work off the debt’ agreement with a mortgage lender. In a Statement of Defense dated July 8, 2009 (Court File No. CV-09-2272-00), he defended on this basis against an enforcement action brought by Prudential under the first mortgage on the Property. That pleading asserted that Hanna had been retained to do demolition and construction work for the principals of Prudential. As it was put at para. 25 of the Statement of Defense: “[h]ad the Kotharis honoured the Development Agreement, Hanna would have been [sic] earned a further $360,000 profit and amounts to be credited to the amount outstanding under the Mortgage…”
[49] That action settled with an agreement by Hanna and Assuncao to pay Prudential the full amount claimed. Counsel for Fercan submits that it is at least noteworthy that Hanna has tried something similar to his current position at least once before, although the previous time he did not claim to have a written agreement to this effect.
[50] Hanna’s testimony in the present trial regarding the alleged agreement and the invoices supporting it was punctuated by contradictions and bouts of short temper. For example, he testified in chief that Friedman was present when he and DeRosa discussed the May 7th agreement (a meeting which Friedman categorically denies took place); two days later in cross-examination he couldn’t seem to recall his own testimony. When asked again if Friedman was present when the deal was struck, he replied in a way which suggested that the ‘truth’ is composed not of relating what actually happened but of trying not to trip up on what he said last time: “I think so, maybe I said he was, maybe I said he wasn’t.”
[51] At one point Hanna testified that he can barely remember who Friedman is because he has not seen him since late 2005, apparently forgetting that he had already testified that Friedman was present at a meeting between him and DeRosa on or about May 7, 2006. Hanna repeatedly testified that the Construction Contract was “nullified” almost as soon as it began – suggesting that it had been replaced with the ‘savings’ agreement – and yet he continued to render invoices for months referring explicitly to the Construction Contract.
[52] On the seven contentious invoices, Hanna had only the most evasive answers as to how he arrived at the ‘savings’ figures. His answers were limited to responses such as “because that’s what it was worth” or that he had “asked around” as to the cost. Except for one instance, he could not point to or produce any quotes from other contractors to give a comparative value in support of his ‘savings’ invoices.
[53] Hanna testified that the one exception to the lack of comparative quotes was the Hamilton ‘savings’ invoice, Invoice 1046 dated May 4, 2006 in the amount of $90,000. In his testimony-in-chief he compared his Hamilton costs with a written estimate by Bavco Construction, another contractor working in Hamilton. In cross-examination it was pointed out to him that the Bravco estimate was dated July 2007 – more than a year after he had invoiced the ‘savings’ to Fercan – and that it related specifically to work to be done after Hanna left the Hamilton job. Hanna promptly retreated from his position that this was a comparative quote that supported his ‘savings’ invoice.
[54] Another one of the seven invoices, Invoice 1058 dated June 27, 2006, specified design work done by Hanna on 193 King Street, and yet it is clear that Fercan had hired an architect to do all of its design work and that Hanna is not a designer. Yet another of the seven invoices, Invoice 1060 dated June 30, 2012, is for exotic woods and furniture imported from Brazil, and yet Hanna supplied no furniture to Fercan; and while he did supply a small amount of imported wood for flooring and trim at 193 King Street, the real cost of the imported wood was billed separately by Hanna as Invoices 1007 and 1012, which were paid by Fercan.
[55] One more of the controversial invoices, Hanna’s Invoice 1059 rendered on June 30, 2006, credits Hanna with ‘savings’ on the Whitby project in the amount of $125,000. This figure corresponds with a ‘saving’ in this amount specifically noted in the May 7, 2006 document. Hanna’s work on the Whitby project had just begun the week before May7, 2006, and it strains credulity that any large scale savings could have been calculated after only a few days’ work. Furthermore, Hanna provided no satisfactory explanation as to how a May 7th agreement could foretell a June 30th ‘savings’ in such a substantial amount.
[56] Yet another one of the seven invoices, Invoice 1057 dated June 27, 2006, refers to a gold Rolex watch supposedly pledged by Hanna as extra security for DeRosa’s loan to him. Hanna could not produce an appraisal, receipt, or other evidence of value of the watch; indeed, there is no evidence other than Hanna’s word that the Rolex watch ever existed. Added to that is the fact that there is another invoice with the same number and date – Invoice 1057 dated June 27, 2006 – for $3,077.38 in materials relating to the Iron Street project. That invoice was received, approved, and paid by Fercan, as it related to verifiable work done on Iron Street.
[57] In my view, DeRosa was believable when he testified that he knew of no Rolex watch belonging to Hanna and that he would not have taken a watch – certainly not without a reliable appraisal – as security for a loan. DeRosa is in the real estate business. He reinforced his position on the witness stand when he stated his incredulous response to Hanna’s Rolex story: “I am not a jeweler.”
[58] At times on the witness stand, Hanna’s intemperate responses seemed designed to keep the truth from coming out. Even in examination-in-chief, when asked how he calculated the ‘savings’ invoices, Hanna said that there was “not much discussion about it”, and that he would just give the invoice to “some idiot” whose name he can’t recall. As he put it, “We didn’t just talk about the weather, I just told them it would have cost X, and I came in at Y, so I saved you $75,000”.
[59] Each of his Hanna’s invoices, including the seven ‘savings’ invoices, refer by name to one of Fercan’s jobs. Nevertheless, Hanna persisted in denying that his invoices relate to specific jobs and testified that they cannot be properly explained now because they ran across many jobs. On a number of his invoices, the $2,500 management fee is specifically earmarked for “Jeff”, which is the name by which everyone who knows Hanna (Assuncao, DeRosa, Ferrari, etc.) refers to him. Nevertheless, he persisted in denying that the management fee was for him and insisted that his only pay consisted of credit for ‘savings’.
[60] In yet another example of his refusal to give a straightforward answer under oath, Hanna testified that some of his work in Whitby entailed removing toxic waste from the job site, and that he drove the dump truck to the disposal himself. His point was that the ‘savings’ invoice relating to Whitby was well earned because he had saved Fercan a difficult and expensive waste removal chore. However, Fercan produced a contract evidencing that it had hired another company, Ashco Paving Inc., for waste removal from the Whitby site – including haulage and dumping fees for asbestos, PCBs, and led paint. Moreover, under cross-examination it was pointed out to Hanna that at discovery he could not answer the question as to who removed the waste from Whitby, and that he had only answered with an obstructionist and sarcastic response: “My mother drove the truck.”
[61] At one point counsel for Fercan pointed out that three of the seven contested invoices – Invoice 1058 relating to design work at 193 King Street, Invoice 1059 relating to Whitby, and Invoice 1060 relating to the Brazilian furniture and wood at 193 King Street – were dated within three days of each other (one on June 27 and two on June 30, 2006). Counsel asked Hanna how it was that he had earned in the range of $415,000 in such a short time. Hanna’s response was, quite literally, that he can only remember how an invoice figure was arrived at if he is first shown his discovery transcript, so that he can be sure to say the same thing now that he did then. ‘Truth’ for Hanna, by his own admission, seems to be a strategic question.
[62] In short, I find it difficult to believe that the ‘savings’ arrangement or the seven invoices supposedly based on that arrangement were real. The arrangement was not only documented by an agreement that turns out to have a forged signature, but the invoices that support it were, according to Hanna, strictly between him and DeRosa. They remained secret, even from the court on the motion before Festeryga J. in November 2007.
[63] This secrecy, as counsel for Fercan points out, is a classic badge of fraud. Solomon v. Solomon (1977), 1977 CanLII 1164 (ON SC), 16 OR (2d) 769, at 778 (Ont SC). Under the circumstances, it “give[s] rise to an inference of intent to defraud in the absence of an explanation…” Re Fancy (1984), 1984 CanLII 2031 (ON SC), 46 OR (2d) 153, at para. 19 (Ont SC). No explanation whatsoever has been provided for the secrecy which Hanna attributes to the seven invoices and the supposed agreement with DeRosa.
[64] In one ironic moment on the witness stand, Hanna testified that he cannot recall whether he ever discussed the May 7, 2006 agreement with Assuncao. Once again, this answer was at odds with the evidence given at discoveries, where he had answered the same question definitively and asserted that he did not tell Assuncao about the agreement. When this discrepancy was put to him in cross-examination, Hanna responded with what he thought was a facetious answer but which I take to be one of his more accurate statements: “Well you got me. I must be a big liar.”
[65] I find that there was no agreement with DeRosa, Fercan, GAB, or anyone else in which Hanna was to work off the indebtedness under the second and third mortgages. Neither Fercan nor DeRosa nor GAB ever agreed to credit him with the value of any ‘savings’ on Fercan’s construction projects. The May 7, 2006 document purporting to be an agreement to this effect was not a real agreement, and there is no evidence except for Hanna’s testimony, which cannot be believed, that Friedman drafted it on DeRosa’s instruction. There is likewise no credible evidence that the seven ‘savings’ invoices rendered by Hanna were ever delivered to Fercan, or that they were real invoices that were payable by Fercan or GAB.
V. The mortgages and their enforcement
[66] Hanna and Assuncao complain that they had not even heard of GAB until June 2007 when they received a demand for payment from Friedman on GAB’s behalf. The fact that GAB did not make any demand for an entire year supports DeRosa’s version of the agreement he struck with Hanna on taking assignment of the mortgages.
[67] GAB may not have given the borrowers written notice that it was taking an assignment of the mortgage in June 2006. That fact, however, is not legally meaningful. Notice of assignment need not be given upon assignment of a mortgage; notice must be given only at the time of enforcement. Falconbridge on Mortgages (5th edn.), Walter M. Traub, ed. (Toronto: Canada Law Book, 2011), at §11:20. It is enough that Hanna and Assuncao knew of the assignment of the second and third mortgages to DeRosa’s company, even if the name of that company eluded them.
[68] There is no credibility to Hanna’s contention that DeRosa had promised him that the second and third mortgages on the Property would be discharged rather than assigned. Assuncao’s testimony at discovery that DeRosa’s company still held the mortgages confirms what is already obvious. It would make no commercial sense to discharge rather than assign the two mortgages.
[69] It would certainly be contrary to DeRosa’s financial interest to leave GAB unsecured. There is no realistic suggestion that Hanna offered DeRosa any advantage that other contractors did not offer, and it would be entirely out of character for a rational business person like DeRosa to make such an arrangement. It would also be illogical and contrary to Hanna’s own interest for him to have agreed to a secret arrangement eliminating the mortgages on his home, and not to have checked to ensure that the mortgages were discharged. As Iacobucci J. stated in Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 SCR 129, at para. 56, “it would be absurd to adopt an interpretation which is clearly inconsistent with the commercial interests of the parties”.
[70] I find that the assignment of the second and third mortgages was properly documented and registered. Those mortgages are enforceable by GAB. As the court held in Alter v. Estate of Csontos, 2004 CanLII 12231, at para. 28 (Ont SC), “[t]he assignment was registered on title and that is legal notice.” Under these circumstances, “equity will give effect to an assignee’s claim.” Alter, supra, at para. 28.
[71] Since Hanna and Assuncao did not pay the mortgage debt within a year of GAB having become assignee of that debt, the discounted interest rate and one year’s forbearance that were agreed to by DeRosa in return for payment within a year do not apply. The face value of the mortgages is therefore due and payable.
[72] In addition to a monetary judgment in the amounts due under the two mortgages, GAB also seeks issuance of a Writ of Possession of the Property. This, of course, is a standard mortgage remedy, and in the ordinary case I would have no hesitation granting it to a mortgagee who has successfully proved its claim. The present circumstances of the Property, however, give me pause in this regard, as a new owner that has now purchased the Property under Power of Sale.
[73] As stated at the outset of these reasons, the recent purchaser, 2335966 Ontario Ltd., is a company whose principal is Ferrari’s father. Ferrari, in turn, is a long-time friend of Hanna’s and the principal of 2308102 Ontario Ltd., the company that, after a fire at the Property, took an assignment of the first mortgage and then sold the Property under Power of Sale. It was noted in a September 27, 2012 endorsement by Hourigan J. in the Brampton proceeding that is considering the Power of Sale transaction that, “there is a prima facie case that the mortgage was paid out from the insurance proceeds.” In other words, there is evidence that the assignment of the mortgages was done for little or no consideration and that and sale of the Property was not at arm’s length.
[74] When Ferrari testified at trial, she would not say how much her company paid for the assignment of the first mortgage (since the first mortgagee had presumably already been paid with the insurance proceeds); she also would not say how much money her company actually received from her father’s company upon the sale of the Property. She did make a point of stating that although Hanna acts as a “consultant” to her company, the sale was done independently of him, and that she had the Property appraised and that it had been listed on the open market before its sale.
[75] In cross-examination, Ferrari was asked to identify the written appraisal, which she did, and was asked why the name “Jeff” appears on the top of each page of the report. She conceded that this refers to Hanna and that it was Hanna, not her, that had obtained the appraisal. Ferrari was also asked under cross-examination to identify the Multiple Listing Service notices of listing and sale of the Property, which she did. She conceded that this documentation reveals that the Property was listed on July 24, 2012 and sold on July 25, 2012 – i.e. she had listed it on the open market for all of one day before it was sold to her father’s company.
[76] Further, Ferrari was shown a corporate profile report of her father’s company, 2335966 Ontario Ltd., dating from mid-July 2012, and conceded that it recorded its head office as 2183 Shawanaga Trail, Mississauga, Ontario. She had no satisfactory explanation as to why the purchaser under Power of Sale had listed the Property as its head office address several weeks prior to having purchased it.
[77] Finally, Ferrari also indicated in her testimony that another of her companies, Kafoolabta Products Inc. (“Kafoolabta”), until very recently has occupied, or perhaps even still occupies, the Property. She was ambiguous in her explanation as to whether that company leased the Property from Hanna or occupied it rent free, and whether it continues to lease it or occupy it rent free from the new purchaser. Ferrari was equally ambiguous in her testimony as to who at Kafoolabta actually occupies the Property, but she did confirm a corporate profile shown her by counsel for GAB indicating that Hanna is a principal of Kafoolabta.
[78] The court in Brampton has already reversed its own prior Order authorizing the Power of Sale, on the grounds of material non-disclosure in the ex parte motion brought by Ferrari’s company, 2308102 Ontario Ltd., to authorize it in the first place. In his endorsement of September 27, 2012, rendered a day prior to the end of the present trial, Hourigan J. found that in seeking authorization of the Power of Sale counsel for 2308102 Ontario Ltd. had “failed to disclose pending litigation [i.e. the present action], failed to disclose that insurance proceeds had been paid out and failed to disclose the nature of the relationship among the registered owner, 2308102 [i.e. Ferrari’s company], and 2335966 Ontario Ltd. [i.e. the purchaser, Ferrari’s father’s company].”
[79] Accordingly, in addition to setting aside the court’s authorization of the Power of Sale, Hourigan J. ordered that GAB is at liberty to register a certificate of pending litigation on title to the Property, and he imposed a Mareva injunction on the assets of 2308102 Ontario Ltd. He then ordered trial of the remaining issues in the Brampton proceeding, which I understand include, inter alia, a claim by GAB to set aside the sale of the Property and the assignment of the first mortgage, and a claim on the insurance proceeds. Both Hanna and Assuncao testified here that they received substantial funds from the insurance proceeds over and above anything paid to the first mortgagee – Hanna stated he received more than $100,000 and Assuncao would not commit to a number when asked how much she received.
[80] Although the validity of the recent sale has not been pursued in all of its dimensions in this action, there is enough evidence in the record to suggest that the outcome of the Brampton application may impact on the current title and status of the Property. Counsel for GAB submits that this court can make a conditional order for possession of the Property that turns on the result of the Brampton proceeding.
[81] I have not found a case that is on all fours with the scenario presented here, where enforcement of a mortgagee’s right to possession turns on the outcome of a title dispute in a separate proceeding. I note, however, that courts in other contexts have issued conditional or postponed orders that turn on a variety of events. In Leier v. Shumiatcher (1962), 1962 CanLII 294 (SK CA), 37 WWR 605 (Sask. C.A.), it was made it clear that civil remedies may be postponed that depend on the outcome of parallel criminal proceedings; in Twigg v. Greenizen, (1922), 1922 CanLII 18 (SCC), 63 SCR 158, the Supreme Court granted rescission of a contract conditional on restitution in integrum of title to the subject lands; and as far back as Crombie v. Davidson (1823), 19 QB 369, a pre-Confederation court in Ontario granted an order that funds be paid out of the sheriff’s office to a creditor conditional on the master’s charges being paid.
[82] Counsel for GAB has provided me with a recent decision of this court, Mishev v. Shah (2011), 2011 ONSC 1672, 105 OR (3d) 387 (Ont SC), dealing with a mortgagor’s plan to refinance a mortgage after his default and a court-ordered postponement of the discharge to which the mortgagee was otherwise entitled. While the facts in Mishev are not directly analogous to those in the case before me, that decision does demonstrate that the court may postpone a mortgage remedy to the occurrence of an external event. I am satisfied that the remedy of possession sought by GAB should in a similar way be granted and postponed, pending the outcome of the proceeding in Brampton.
VI. Judgment
[83] There shall be a declaration that GAB’s assignment of the second and third mortgage on the Property is valid, and that GAB’s rights and entitlements pursuant to the two judgments on these mortgages dated February 7, 2006 (Court File No. 06-222091) and March 2, 2006 (Court File No. 06-22203), respectively, are valid, subsisting, and enforceable.
[84] GAB shall have judgment in the amount of $1,523,111.22 on the second mortgage and $263,957.83 on the third mortgage, provided that this monetary judgment replaces rather than duplicates any monetary award contained in the judgments of February 7, 2006 and March 2, 2006. The interest rate in both mortgages is 14%, and that will continue to be the rate that applies as pre-judgment and post-judgment interest on the amounts owing to GAB.
[85] GAB shall also have an Order granting it leave to issue a Writ of Possession of the Property, but that Order shall not be exercised by the Sheriff until there is a further ruling by Hourigan J. or any other judge of the Superior Court setting aside the recent sale transaction and/or confirming that title to the Property was not transferred pursuant to the Power of Sale transaction. At that point, GAB may proceed on an ex parte basis to direct the Sheriff to execute a notice to vacate and to secure GAB’s possession of the premises.
[86] The claim by Hanna and Assuncao against Fercan and GAB is dismissed.
[87] In my view, Hanna’s conduct has been egregious. The evidence, both in testimony and in the documentary record, has led inexorably to my finding that he concocted a specious claim against Fercan designed to frustrate the ability of GAB to exercise its rights and remedies under the mortgages. As for Assuncao, while she was not the primary mover behind these maneuvers she was willing to go along with them and to benefit from them.
[88] Furthermore, after years of litigation, the Plaintiffs only conceded in their counsel’s Response to Request to Admit a week or so before trial that the Purdy report would not be contested. This compelled the Defendants to produce not one but two expert reports by Purdy (the first analyzed the faxed copy of the May 7th document sent in November 2007, and the second analyzed the original produced by Hanna on discovery but not admitted to be false until much later). It also compelled them to defend their positions all the more vigorously against what was presented as a documented claim that they knew to be false. In my view, the entire litigation was unnecessary, and the strategies employed by the Plaintiffs made it prolonged and expensive.
[89] I find that costs on a substantial indemnity scale are appropriate, to be paid by both Plaintiffs to each of the Defendants.
[90] Fercan and GAB have each submitted a Bill of Costs in roughly the same range (Fercan’s costs on a substantial indemnity scale come to just over $120,000 and GAB’s come to just over $109,000, both all inclusive). The Bills reflect the long history of the litigation, the thorough discovery process, the pre-trial and trial preparations, the research and searches, the seniority of counsel, and the seven day trial. Using GAB’s figure as a common denominator, Hanna and Assucao shall pay costs in the amount of $109,000 to each of Fercan and GAB, inclusive of disbursements and HST.
E.M. Morgan J.
Released: October 11, 2012
COURT FILE NO.: CV-08-00356381
DATE: 20121009
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
SHAFEK HANNA and WANDERLEIDA ASSUNCAO
Plaintiffs
- and -
FERCAN DEVELOPMENTS INC. and GAB CAPITAL CORP.
Defendants
AND B E T W E E N:
GAB CAPITAL CORP.
Plaintiff by Counterclaim
- and -
SHAFEK HANNA, WANDERLEIDA ASSUNCAO, PRUDENTIAL PROPERTY MANAGEMENT INC., and THE EQUITABLE TRUST COMPANY
Defendants by Counterclaim
REASONS FOR JUDGMENT
Morgan J.
Released: October 9, 2012