ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-10-405037
DATE: 20130613
BETWEEN:
Tarion Warranty Corporation
Plaintiff
– and –
Castle Time Homes Inc., Paul George Raby, Amrit Sharma, Harbir Dhaliwal also known as Bobby Dhaliwal, Debabrata Ghatak and Tulsi Das Lasi
Defendants
Neil Abbott, for the Plaintiff
Bobby H. Sachdeva, for the Defendants Castle Time Homes Inc., Amrit Sharma, Harbir Dhaliwal also known as Bobby Dhaliwal, Debabrata Ghatak and Tulsi Das Lasi
No one appearing for the Defendant Paul George Raby
HEARD: April 22, 23, 24, 2013
aston j.
[1] Tarion Warranty Corporation (“Tarion”) claims indemnity from all of the defendants for monies it paid out to various home owners under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (the “Act”). Tarion has proved the quantification of its claim at $290,385.63 plus pre-judgment interest at the rate of 18% per annum from the date of each payment to the various home owners. The amounts and dates are set out in Appendix “B” attached to the Amended Statement of Claim. The calculation of interest would seem to be a matter of simple math.
[2] Tarion has proved both the contractual and statutory obligation of Castle Time Homes Inc. (“Castle Time”) to indemnify the plaintiff. Accordingly, judgment is granted against that defendant for the full amount.
[3] Paul George Raby (“Raby”) did not appear at trial. However, he is an undischarged bankrupt so the proceeding was stayed as against him before trial.
[4] This trial is about the liability of the other individual defendants (the “investor defendants”) based upon the written Indemnity Agreement marked Exhibit 1 in this proceeding (the “Indemnity Agreement”).
Factual Background
[5] Tarion is a private non-profit corporation designated by the Lieutenant Governor in Council to administer the Ontario New Home Warranties Plan Act. Its role includes both consumer protection functions under the Act and the regulation of builders and vendors of new homes. Builders and vendors of new residential properties must be registered with Tarion as a condition of carrying on their business.
[6] Castle Time is a corporation that was at all material times registered as both a vendor and builder under the Act. At all material times Castle Time was controlled by Raby.
[7] Tarion first made a demand for payment against the investor defendants in the spring of 2009, asserting their liability on the basis of the Indemnity Agreement purportedly signed three years earlier in April, 2006. The losses in this case all relate to a failed residential real estate development known as the “Airport Road project”. Raby and Castle Time were responsible for building and selling the homes for the Airport Road project. The defendants Amrit Sharma (“Sharma”), Harbir Dhaliwal (“Dhaliwal”), and Debabrata Ghatak (“Ghatak”) were all investors in the Airport Road project. They were also investors in other unrelated real estate development ventures with Castle Time and/or Raby, including a residential real estate project known as the “Kingston Road project” which never got off the ground. The defendant Tulsi Das Lasi (“Lasi”) was not involved in the Airport Road project but was one of the investors in the Kingston Road project.
[8] I wish to preface any controverted factual findings by saying that I have no reservations whatsoever about the credibility of any of the four investor defendants who testified. Mr. Abbott effectively cross-examined each of the investor defendants. He jumped back and forth in time and from one subject to another, asking questions which would have brought to light any internal inconsistencies or any inconsistencies as between these defendants. Their testimony remained consistent on any material detail. They each made forthright admissions without attempts to minimize or exaggerate. They did not fence with counsel on cross examination, but gave careful and responsive answers. I am satisfied that they were honest in their answers.
[9] The investor defendants had no active role to play in the Airport Road project. They were nothing more than investors in a venture to develop that project. In that capacity, Sharma, Dhaliwal and Ghatak had each advanced substantial personal funds to Raby and/or Castle Time before the events giving rise to this action. There is no evidence they were required to apply for mortgage financing relating to the Airport Road project in 2005 or 2006.
[10] The Kingston Road project did require mortgage financing. In 2005 several potential lenders were approached. The defendant Raby (who not only controlled Castle Time but also a mortgage brokerage, Mortgage Time Inc.) obtained various mortgage commitments discussed by the investor group, a group which included the defendant Lasi, on several occasions.
[11] The investor defendants understood that in the course of arranging financing for the Kingston Road project they would be required to sign personal guarantees and to make financial disclosure of their net worth, supported by corroborating documentation from third parties such as their banks. In that context, they signed various documents and gave certain documents to Raby and/or his assistant, Tom Korstad (“Korstad”).
[12] The investor defendants allege that Tarion dealt solely with the defendant Raby regarding the Indemnity Agreement, and that Raby or his assistant Korstad delivered forged or otherwise fraudulent versions of the allegedly executed Indemnity Agreement to the plaintiff. Each of these defendants admits signing “page 9 of 9” (the “Signature Page”) of Tarion’s standard form Indemnity Agreement. This Signature Page has these pre-printed words at the bottom of the page: “INDEMNITY (REVISED) Tarion 2005.07 (Standard Form)”. However, I do accept the evidence of each of the four investor defendants that they were not actually aware the signature page was a Tarion document and they did not consciously agree to provide any indemnity to the plaintiff.
Positions of the Parties
[13] Tarion claims that even if the defendants only saw and signed the Signature Page of the Indemnity Agreement, they are still bound to the entire Indemnity Agreement by their signatures. Where a signatory has an opportunity to review a document, knows the nature of the document and chooses not to read it, he ought to be bound by it nonetheless. Tarion asserts that any fraud or deceit on the part of Raby or his assistant Korstad provides no defence for the individual defendants. Had these defendants not been so careless, they could have avoided the loss to both themselves and to Tarion. In this case, the individual defendants were in a better position to avoid the loss. If Raby is a fraudster, they were in the better position to know that through their ongoing working relationship with Raby and their position as partners with him on multiple projects. The defendants were in a better position than Tarion to protect themselves. Tarion says the defendants should not escape liability on the basis of their own failure to exercise due diligence. They should have either obtained and read the Indemnity Agreement or asked questions about Tarion’s role in any indemnity being sought. Tarion asserts that it should be able to rely on documents provided in the normal course of business, with signatures acknowledging the contents of the document (“page 9 of 9”), without any obligation on its part to make further inquiry beyond its own normal procedures.
[14] The principal defence of Sharma, Dhaliwal, Ghatak and Lasi is that they never had any intention of indemnifying Castle Time’s obligations to Tarion and only ever intended to personally guarantee Castle Time’s mortgage financing on the Kingston Road project. Though they were each familiar with Tarion’s role in new home construction, including the requirement that builders and vendors be registered with Tarion, they had been assured by Raby in 2004 that Castle Time was properly registered and Tarion’s name never even came up in any discussion after that. It is undisputed that Tarion had their contact information in March or April 2006 but that there was no communication between Tarion and the investor defendants until Tarion’s demand letters in 2009. Alternatively, the defendants submit that even if they could be responsible to Tarion as a consequence of their carelessness in signing the Indemnity Agreement, their own carelessness is less than the lack of diligence (even recklessness) on the part of Tarion. They argue that in choosing which side ought to be responsible when both sides are the victims of Raby’s fraud and deceit it ought to be Tarion, not themselves.
Analysis
[15] What Tarion document did the defendants sign?
[16] The defendants all acknowledge signing the signature page of the Indemnity Agreement. It is “page 9 of 9”. I find as a fact that none of them ever saw the first eight pages of that document before signing. For that matter, they never saw those first 8 pages until the spring of 2009, after Tarion had already paid out claims by homeowners and first sought recourse against these defendants.
[17] The Indemnity Agreement bears the date April 3, 2006 on the first page. However, it was on April 10, 2006 that Tarion first received what purported to be the signed Indemnity Agreement. It was given to Tarion by Raby or his assistant Korstad. However, the document provided was apparently only a photocopy and the signatures were not witnessed (see Exhibit C-99). Raby’s assistant Korstad was advised that Tarion needed the “original” Indemnity Agreement, that signatures needed to be witnessed and that all information on the Personal Net Worth Statements from indemnitors needed to be supported by other documentation. On April 13, 2006, Tarion received from Korstad “the signed Indemnity Agreement, signature pages with witness” (Exhibit C-101).
[18] Whatever documents Tarion received April 10th and April 13th were not produced at this trial. The defendants all testified that they did not meet to sign any documents in the month of April, 2006 until April 17th. I accept their evidence on that point.
[19] On April 17, 2006, the defendants, including Raby, met at the offices of Akal Insurance for about forty-five minutes to an hour. They reviewed in detail a mortgage proposal from Wildwood Capital Inc. for the financing of the Kingston Road project. Raby had obtained this mortgage proposal, the latest in a series of similar mortgage proposals dating back to September, 2005. The investor defendants all signed this mortgage proposal (Exhibit D-9) in order to obtain the financing needed for the Kingston Road project. They also signed the Signature Page at this meeting. I accept their belief that this signature page was slipped in with the Wildwood Capital documents. Tarion’s name was never mentioned during the meeting, but its name is on the bottom of the document they signed, as already noted.
[20] I accept the evidence of the defendants that they never noticed Tarion’s name on the document they signed and that they only intended to sign personal guarantees for the proposed mortgage financing of the Kingston Road project. I also accept their evidence that the Tarion signature page was signed April 17, 2006 in the circumstances they described.
[21] This finding necessitates a collateral finding that the documents presented to Tarion on April 10th and April 13th – whatever they were – were forgeries. I have no hesitation in arriving at that conclusion.
[22] On March 24, 2006, Raby had provided Tarion with Personal Net Worth Statements from each of the investor defendants. It is quite obvious on the face of each of those four documents (Exhibits A-9, A-10, A-11 and A-12) that the date on the signature line had been changed from 2005 to 2006. None of the initials on page three of the Indemnity Agreement are those of the defendants. Lasi’s initials in particular, are quite noticeably different. But the icing on the cake on this point is the clear evidence that Raby was actively deceiving the investor defendants in presenting any mortgage financing proposal for the Kingston Road project in April, 2006 when he had already advised Tarion by a letter dated February 21, 2006 that the Kingston Road project was no longer going ahead. Raby lead his investors down the garden path by presenting them with a mortgage proposal to finance a project he was not going ahead with.
[23] The Wildwood Mortgage proposal discussed and accepted on April 17, 2006 was a sham. Raby apparently thought he needed the defendants to sign a Tarion Indemnity Agreement as part of the annual renewal of Castle Time’s registration under the Act. First, he manufactured those signatures in the documents tendered to Tarion April 10th and 13th. When that failed, he obtained their signatures by slipping a single signature page in with the other unrelated documents the defendants signed on April 17th. The defendants still trusted Raby in April of 2006. The Airport Road project only went sour in 2008. Raby was the first to sign the Signature Page and the investor defendants all simply followed suit.
[24] The fact that the defendants never consciously intended to provide an indemnity to Tarion for the obligations of Castle Time Homes Inc. does not necessarily absolve them of liability to Tarion. They do not claim non est factum. They acknowledge they knew they were signing a personal guarantee for Castle Time’s obligations and they acknowledge that the pre-printed words at the bottom of the page could have alerted them to the fact that there were eight other pages of some Tarion document (more specifically an indemnity form) for them to look at before signing.
[25] However, it is relevant on the issue of liability to also take into account any carelessness or lack of diligence of the party seeking to rely on the document.
[26] In Marvco Color Research Ltd. v. Harris, 1982 63 (SCC), [1982] 2 S.C.R. 774, the Supreme Court of Canada held that the defence of non est factum is not available to a party who, knowing a document has legal effect, carelessly fails to read the document, thereby permitting a third party to perpetrate a fraud on an innocent party. Paragraph 24 of that decision is critically important. The party relying upon the document in that case was “completely innocent of any negligence, carelessness or wrongdoing, whereas the [signatories] by their careless conduct have made it possible for the wrong doers to inflict a loss”. The case does not lay down a hard and fast rule but establishes a guiding principle to be applied to the particular facts of any case. At paragraph 27 of the decision we are reminded that resolution of the two conflicting objectives (relieving a signor whose consent is genuinely lacking and at the same time protecting innocent third parties who have acted upon an apparently regular and properly executed document) must reflect a compromise and allow the Court flexibility in its resolution of that conflict. In my view, it is clearly germane to the analysis to consider any failure of due diligence on the part of Tarion in this case. There is no doubt the investor defendants were careless but that does not dictate the outcome.
[27] In Isaacs v. Royal Bank, 2011 ONCA 88, the Ontario Court of Appeal had to address the issue of who, as between two allegedly innocent victims of a mortgage fraud, should bear the loss occasioned by the fraud. The court considered the carelessness of the bank who sought to rely on the document as a factor to consider but found that the bank’s carelessness paled in comparison to the appellant’s own conduct. Her conduct actually assisted the fraudsters in perpetrating the fraud. She had agreed to serve as an accommodation mortgagor for a stranger, for compensation, without disclosing to the bank the nature of the transaction. Her conduct was characterized as “more than careless”. Though that case is therefore distinguishable from this one on the facts, it fortifies my view that the carelessness of both sides is a relevant consideration. It is not enough to simply say the defendants cannot “escape” liability because of their carelessness.
[28] The other cases cited by counsel for the plaintiff are helpful to a point but not determinative of the issues in this case because they are distinguishable in a meaningful way. For example, in both Glass v. 618717 Ontario Inc., 2012 ONSC 535 and Lagani v. Lagani, 2012 ONSC 2614 the trial judge rejected the defendant’s evidence that the defendant only signed an “orphan signature page” and not a full agreement. More importantly, in those cases, there was no carelessness or other blameworthy conduct on the part of the parties seeking to rely on the written agreements. Furthermore, in those cases and others it is an important assumption that the signatory knew the nature of the document he or she was signing, even if ignorant of the particular terms. There was an intention to enter into a specific type of legal obligation. The cases establish that a person cannot claim not to know what the document says if he or she does not inform himself or herself as to the terms before signing, but that is different from not knowing what kind of document the person is signing or knowing who the other party to the purported contract is.
[29] In each of the cases cited by the plaintiff, the signatory could reasonably have expected the other party to acquire some legal right as a consequence of the document signed. The identity of the other party was actually within the contemplation of the signatory.
[30] I turn then to further consideration of the acts and omissions of the parties in considering the “conflicting objectives” identified in Marvco and addressed in subsequent cases.
[31] The defendants were certainly careless in signing the Signature Page of Tarion’s standard form Indemnity Agreement. There were four of them in the room, none of them paying enough attention to what they were signing. Not only did they fail to notice the Tarion words at the bottom of the signature page, they also failed to notice that the borrower in the Wildwood Mortgage proposal was listed as “Castle Time Homes (Kingston) Inc.”. There is no such company, yet not one of the defendants asked where that name had come from.
[32] The defendants do not plead that Raby was acting as Tarion’s agent in seeking the Indemnity Agreement. If Tarion owed any duty of care to the defendants, the nature of that duty must be at the low end of any range. Generally speaking, institutions are not required to go behind documents they receive in the normal cause of business. There is no counterclaim in this action. The defendants do not allege that Tarion is liable to them in negligence. On the other hand, it is legitimate to consider Tarion’s failure to exercise due diligence. If Tarion was careless, or even reckless, it may provide the defendants with a shield, even if not a sword.
[33] Tarion’s policy is to deal only with one contact person in the process of approving an application for registration. With some 5,500 registration applications each year, this may make administrative sense. However, Tarion had the addresses and contact information of each of the defendants from March, 2006 onwards and it never made any attempt to contact any of them until three years later, after it had already paid out some claims.
[34] Tarion has its own form for a Net Worth Statement and provided that form to Raby in this case. However its policy is not to insist on any particular form. It seems to me Raby’s deceit would have been more difficult to accomplish had it been necessary for him to have the investor defendants complete fresh net worth statements on a Tarion form because that would require more than mere signatures. In this case Tarion accepted photocopies of net worth statements which, right on their face, were for a different purpose (mortgage applications) with a different unnamed institution. Tarion did not insist on original signatures on the net worth statements. It accepted photocopied statements on which the signature date had quite obviously been changed from 2005 to 2006 for each of the four individuals. On the other hand, Tarion received at least some currently dated corroborating documents to verify (approximately anyway) some of the numbers in the net worth statements provided in both April, 2006 and in April, 2007. Those third party corroborating documents could only have come from the investor defendants themselves.
[35] Rather than trying to compare the actions and inactions of the parties to answer the question “Who was more careless?” it seems to me more appropriate, to ask the question “But for this party’s carelessness, what would have happened?” In answering this question, I am mindful of the need to draw a line between mere speculation and reasonable inference.
[36] The defendants say that if they had known they were signing an indemnity in favour of Tarion related to Castle Time’s obligations for the Airport Road project (the only residential project Castle Time Homes still had on the go as of April, 2006), they would have chosen not to sign. I certainly accept that evidence with respect to the defendant Lasi because he was not even an investor in that project. In fact, had Lasi been shown page 3 of the Indemnity Agreement, the handwritten reference to “20 homes” needing initialing would have stood out and might well have alerted him to the fact that the indemnity being sought had nothing to do with any project in which he was participating. Had the other defendants been asked to initial page 3 (where the number of homes is handwritten into the pre-printed form) I think it is more likely than not that they too would have noticed that it related to the Airport Road project and not the Kingston Road project. They had already advanced their money for the Airport Road project and did not need new mortgage financing. On the other hand, Castle Time could not continue building or selling Airport Road homes without renewing its registration. If the Indemnity Agreement to Tarion was required to enable the Airport Road project to carry on, the investor defendants might have signed the Indemnity Agreement. However, I find it is more likely they would not have signed it, and in the case of Mr. Lasi, it is highly unlikely he would have.
[37] What if the defendants had not carelessly signed the Indemnity Agreement? Tarion would not have any personal guarantees from them, but it never requested those guarantees in the first place. When applying for Castle Time’s annual registration renewal in December 2005, Raby volunteered guarantors without any request from Tarion. Furthermore, when Raby advised Tarion that the Kingston Road project was not going ahead on February 21, 2006, the situation for Castle Time was back to where it had been, with the 20 homes of the Airport Road project as the only residential project in progress. No guarantors had been necessary for that project from 2004 to 2006. It is reasonable to infer Tarion probably would have renewed Castle Time Homes’ registration for the Airport Road project in 2006 without the Indemnity Agreement. There is no evidence to suggest any reason why it would not.
[38] In the final analysis, the defendants enabled Raby to perpetrate a fraud through their carelessness. On the other hand, the plaintiff also contributed in a material way to the situation giving rise to this litigation. Neither side is blameless or an “innocent victim”.
[39] The nature of the legal obligation the investor defendants thought they were taking on was a personal indemnity on a specific mortgage application for a specific and unrelated project. They had no actual knowledge of any requirement to enter an agreement with Tarion, nor of any need to provide security for the Airport Road project, only the Kingston Road project. They did not consciously contract with the plaintiff. It is, at the very least, questionable that they would have chosen to do so. Finally, it is more likely than not that Tarion would have renewed Castle Time’s registration under the Act in 2006 even without the Indemnity Agreement.
[40] The plaintiff’s claim is dismissed. If counsel are unable to agree upon costs, brief written submissions may be made. The defendants are to deliver their submissions within 20 days of today’s date and the plaintiff within 15 days thereafter. If submissions on costs are necessary, I expect them to be reasonable and realistic, failing which there will be cost consequences in relation to the submissions on costs.
Aston J.
Released: June 13, 2013
COURT FILE NO.: CV-10-405037
DATE: 20130613
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Tarion Warranty Corporation
Plaintiff
– and –
Castle Time Homes Inc., Paul George Raby, Amrit Sharma, Harbir Dhaliwal also known as Bobby Dhaliwal, Debabrata Ghatak and Tulsi Das Lasi
Defendants
REASONS FOR JUDGMENT
Aston J.
Released: June 13, 2013