COURT FILE NO.: CV-08-00007922-00CL

DATE: 20131118

ONTARIO

SUPERIOR COURT OF JUSTICE

(Commercial List)

B E T W E E N:

TURBO LOGISTICS CANADA INC., 2163960 ONTARIO INC., GEORGE PERLIN, ALEX BER and 2192370 ONTARIO LIMITED

George Perlin and Alex Ber in person, no one appearing for the other plaintiffs or defendants by counterclaim

Plaintiffs

• and -

HSBC BANK CANADA

Brian Casey, Michael Nowina and Christina Doria, for the Defendant, Plaintiff by counterclaim

Defendant

A N D B E T W E E N:

HSBC BANK CANADA

Plaintiff by counterclaim

• and -

GEORGE PERLIN, ALEX BER, 2086611 ONTARIO INC., ARI YAKOBSON, VLADIMIR BOTVINNIK and BORIS SHTEIMAN and 2032990 ONTARIO LTD.

Defendants by counterclaim

A N D B E T W E E N:

COURT FILE NO.: CV-11-9334-CL

HSBC BANK CANADA

Plaintiff

• and -

NENAD SUBOTIC and DIN’S ACCOUNTING & CONSULTING SERVICES INC.

Nenad Subotic in person; action dismissed against Din’s Accounting & Consulting Services Inc.

HEARD: September 16,18, 23-27, 30, October 2 and 4, 2013

Defendants by counterclaim

MESBUR J.

REASONS FOR DECISION

Overview:

[1] In April of 2007 HSBC Bank Canada entered into a loan agreement with 2073004 Ontario Inc. 207 was in the long haul trucking business, and wished to acquire a short haul business called Focus Transportation Inc. HSBC provided 207 with financing for the purpose, among other things, of 207 acquiring Focus, buying out the leases on leased tractors and trailers, and providing operating funds for the company. In March of 2008, 207 and Focus amalgamated to form the company that became the plaintiff, Turbo Logistics Canada Inc.

[2] HSBC also entered into a financing arrangement with the plaintiff 2163960 Ontario Inc. for the purpose of that company acquiring a property in Puslinch, Ontario, where 207/Turbo[^1] planned to relocate its long haul business. HSBC advanced more than $12 million to 207/Turbo and 216. Both 207/Turbo and 216 are now in receivership. Deloitte and Touche Inc. acts as receiver of both.

[3] The receiver sold the Puslinch property in 216’s receivership proceedings. The net proceeds were sufficient to repay the bank’s mortgage on the property. The bank is still owed over $9 million in relation to the loans it advanced to 207/Turbo. The bank holds guarantees from 207/Turbo’s principals, the plaintiffs Ber and Perlin, but their guarantees are limited to only $375,000 each.

[4] The bank takes the position that quite apart from their guarantees, Ber, Perlin, and Nanad Subotic, an individual who was held out to be 207/Turbo’s auditor, are liable to pay the entire amounts outstanding on the loans on the basis of fraudulent or negligent misrepresentations to the bank. HSBC also alleges that Ber, Perlin, Perlin’s company 2032990 Ontario Ltd, Perlin’s former brother in law Vladimir Botvinnik, and Botvinnik’s company 2086611 Ontario Inc. are liable to the bank for damages for conversion or conspiracy.

[5] The bank’s claim against Subotic was asserted in a separate action. It was ordered to be tried together with the main action. The bank alleges that Subotic is also liable for fraudulent or negligent misrepresentation. Although Subotic testified at the trial, HSBC having called him as a witness, he did not participate in the trial in any other way, and did not have counsel. He did, however, take the protection of the Canada Evidence Act before providing his evidence.

[6] The trial therefore involved the claims among HSBC, Ber, Perlin, Subotic, Botvinnik, 219, 208 and 203. Ber and Perlin began the proceedings by suing HSBC for declarations they are not liable on their guarantees to the bank. They take the position the bank tricked them into providing guarantees, coerced 207/Turbo into borrowing more money from the bank than it could afford to repay, and then called the loans and guarantees. They say the bank acted in bad faith.

[7] For its part, the bank says Ber, Perlin, Subotic made fraudulent or negligent misrepresentations to the bank by providing the bank with false, allegedly audited financial statements, false accounts receivable and equipment lists relating to 207/Turbo and a signed commitment letter with a forged signature of a purported shareholder/guarantor. The bank also says that Botvinnik and his company 208 together with Ber, Perlin and Perlin’s company 203 were parties to a conspiracy resulting in them converting some of 207/Turbo’s equipment and accounts receivable out of 207/Turbo’s hands.

[8] As to the remaining parties, the claims and counterclaims have been discontinued or dismissed against Ari Yakobson, Boris Shteiman, Deloitte and Touche Inc. and Din’s Accounting & Consulting Services Inc. 2192370 Ontario Limited had no counsel and did not participate in the trial. The claims by Turbo Logistics Canada Inc. and 2163960 Ontario Inc. have been stayed because of the receivership orders against them. The remaining companies, 208 and 203 were either noted in default or had their pleadings struck.

[9] At the commencement of the trial, Ber and Perlin sought an adjournment in order to retain new counsel. They and their former counsel had parted company about three weeks before the trial. For oral reasons delivered at trial, I denied the adjournment request. I did, however, adjourn the trial briefly on a number of occasions to give Ber and Perlin time to prepare. Other than Ber and Perlin, no other remaining party participated in the trial. At the end of the bank’s case, Ber and Perlin elected not to testify, and called no other evidence.

The essence of the claims:

[10] Turbo Logistics Canada Inc. (207/Turbo) owes HSBC about $9 million before any accrued interest. 207/Turbo’s receiver, Deloitte and Touche Inc. holds $381,402, which represents the receiver’s entire net recovery in the receivership. The bank takes the position that Ber, Perlin and Subotic should be liable to pay the entire balance owing to the bank because of fraudulent or negligent misrepresentations the bank alleges these individuals made to the bank. HSBC says it would never have lent any money to 207/Turbo had it known:

a) The allegedly audited financial statements of the corporate borrower were prepared by Nanad Subotic, who is not a CA, and took none of the steps required to prepare and opine on an audited statement;

b) The equipment lists which formed part of the bank’s security were false;

c) The accounts receivable lists provided each month to support the bank’s loans were also false;

d) The signature of Boris Shteiman as a shareholder and potential guarantor of the borrower was forged;

e) Vladimir Botvinnik, who was held out to be a key employee of the corporate borrower, with all the necessary trucking experience to manage the business was not employed by the business at all, and in fact operated a competing business with virtually the same name as the borrower.

[11] The bank says but for any one of these fraudulent or negligent misrepresentations, it would never have lent any money to 207/Turbo. It says it is therefore entitled to be put back into the position it was in before it advanced any money. Thus, it argues that Ber, Perlin and Subotic who made these false representations are personally liable to repay all the money they induced the bank to lend.

[12] As an alternative argument, HSBC claims damages for conspiracy and conversion against Ber, Perlin, Botvinnik, and the defendant corporations 203 and 208. It says they conspired to have Botvinnik and these companies take over numerous tractors and trailers belonging to 207/Turbo to the use of these companies. These tractors and trailers were subject to the bank’s security.

[13] The bank says they did the same with accounts receivable that were actually owing to 207/Turbo and were thus 207/Turbo’s property. The bank therefore takes the position Botvinnik, 203, 208, Perlin and Ber are liable in conversion for the value of the converted tractors and trailers, as well as the value of the converted accounts receivable.

[14] The bank takes the position that to the extent Botvinnik, 203 and 208 are liable for conversion, Ber, Perlin and Subotic’s liability for misrepresentation would be reduced by any amounts Botvinnik, 203 and 208 pay.

[15] For their part, Ber and Perlin, who each provided personal guarantees to HSBC in the amount of $375,000, say it was the bank’s actions that induced the corporate plaintiffs to borrow money when the bank knew they had no ability to pay the money back. They suggest the bank extracted these guarantees from them, then increased the corporation’s borrowings, and then called the loan. They characterize the bank’s actions as acting in bad faith. As a result, they take the position their guarantees are void and unenforceable.

[16] Although Ber and Perlin, together with Turbo Logistics Canada Inc., 216 and another numbered company actually commenced the main lawsuit, the parties agreed that since the bank’s counterclaim was for a far greater amount than Ber and Perlin’s claims, the bank would proceed on the counterclaim, with Ber and Perlin providing a defence.

Factual findings:

[17] One of the difficulties in this case is that as I have said, Ber and Perlin chose not to testify, and called no evidence to support their positions. Subotic, although a party, did not participate in the trial, other than to testify pursuant to a summons from HSBC. Under the provisions of rule 53.07 HSBC was therefore permitted to cross-examine him.

[18] Botvinnik apparently appeared in the courtroom on the first day of the trial, but did not participate in the trial in any way.

[19] My factual findings must therefore be based only on the evidence adduced on examination in chief and on cross-examination, the admissions in the pleadings or requests to admit, as well as on the documents admitted as evidence. I must comment that although Ber and Perlin were not represented, they provided very thorough and effective cross-examination of all the bank’s witnesses. I gave them additional time following some of the examinations in chief to prepare their cross-examinations, and also provided them with additional time to prepare their response to the bank’s final submissions.

[20] It is against this somewhat unusual backdrop that I turn to my factual findings.

A business opportunity comes to Ari Yakobson

[21] Ari Yakobson holds both a law degree and an executive MBA. Although trained as a lawyer, Yakobson has never practiced law. He devotes his time to various business dealings, including assisting in putting together mid-range mergers and acquisitions. He had dealt with HSBC before, in particular when he brought the bank a deal called “Astley Gilbert”, in which Yakobson himself is a large investor.

[22] Astley Gilbert is in the printing business, and has a large fleet of trucks it uses. When Yakobson learned in late 2006 that a short haul transportation business called Focus Transportation Inc. was looking for a buyer, he approached his partner in Astley Gilbert about acquiring Focus themselves. In anticipation of acquiring Focus, Yakobson even delivered a letter of intent to Focus to acquire its shares for $1.5 million, subject to due diligence. The letter of intent was made in the name of “Ari Yakobson in Trust”.

[23] Yakobson’s partner did not think the acquisition would be a good fit for their company. Yakobson therefore looked elsewhere to make a deal, and find a buyer for Focus.

[24] Yakobson has known Alex Ber for about twenty five years, and knew Ber had some connection with the trucking business as a principal of a company which operated a long haul transportation business. Alex Ber and George Perlin were the principals of that long haul trucking company, 2073004 Ontario Inc., operating under the name “Mr. Transportation”. Ber’s background is as an entrepreneur, with some trucking experience. Perlin is a mechanical engineer who has had a successful career both working for others and founding his own business. Perlin’s brother in law is an individual named Vladimir Botvinnik. Botvinnik has lengthy and extensive experience in the trucking industry.

[25] Yakobson understood one of Ber’s partners to be George Perlin. Yakobson also understood that Vladimir Botvinnik was employed by Ber and Perlin’s company, either as head driver or dispatcher. Yakobson was led to believe that Botvinnik was the person in the business with extensive trucking experience.

[26] Yakobson thought Ber might be interested in the potential transaction. He therefore told Ber about the opportunity to acquire Focus, which specialized in the short haul trucking business. Ber replied to Yakobson he would have to speak to his partners before committing to the acquisition.

Yakobson approaches HSBC on 207’s behalf

[27] Ber did so, and 207 then decided it wanted to acquire Focus. Once 207 decided it wanted to go ahead with the acquisition, Yakobson became the point person on behalf of 207. Yakobson’s role was to help get the deal funded. Since Yakobson had a pre-existing relationship with HSBC he took the deal to them. Most of his dealings on this transaction were with Garry Castator who was an assistant Vice President in commercial banking. At that time, Castator had been with HSBC about two years, but had significant prior banking experience with another large chartered bank. He currently has about thirty two years’ experience in commercial banking.

[28] At the times relevant to this transaction, Castator reported to Giulio Amodeo, the Assistant Vice President and Team Leader, Commercial Financial Services, of HSBC. Yakobson had dealt with both Amodeo and Castator before, although he had a closer business relationship with Amodeo than with Castator.

[29] Castator described Yakobson as a prior referral source to the bank. He said Yakobson would bring deals to the bank for the bank to consider financing. As Castator understood the proposed transaction here, 207 would acquire Focus and combine 207’s long haul business with Focus’ short haul business, thus creating a larger, synergistic business together.

[30] The borrower was to be 207. Castator understood the principals of 207 to be Ber, Ber’s father in law Boris Shteiman, and George Perlin. Castator also testified that he was led to believe that Vladimir Botvinnik was a key employee of 207. He also understood Botvinnik had operated an existing trucking business before.

[31] Yakobson provided Castator with most of the initial information about 207 to support the loan application. He obtained the information from Subotic, Ber or Perlin. Yakobson explained that he thought Subotic was 207’s outside accountant.

[32] Yakobson met with Castator in early February of 2007. Castator asked Yakobson to provide him with information about 207. Initially, Yakobson provided Castator with what purported to be 207’s audited financial statements. Castator needed them to conduct a preliminary review of 207 to see if financing was something the bank might pursue.

[33] The audited financial statements were from a firm called Danon and Company, and were signed by “Nanad Subotic, BAS, CA.” Subotic testified at trial. He confirmed he holds no university degree and is neither a chartered accountant nor any other kind of accounting professional. He said he created letterhead purporting to be that of Danon and Company, an actual accounting firm run by his cousin. He did so without his cousin’s knowledge or consent.

[34] Subotic said he obtained a precedent for an audited financial statement from the internet, and used it to create what appeared to be audited statements for 207 for the fiscal year ended December 31, 2006. He confirmed he took none of the steps that would be required of a chartered accountant to perform an audit. He conceded that when he prepared these statements he had no idea what Canadian generally accepted audit standards are, even though the statement purported to have been prepared using those standards.

[35] Castator testified that he had never heard of either Subotic or Danon and Company, but assumed they were a small accounting firm. He said that if the bank approved a loan, it would insist on 207’s hiring a larger accounting firm to prepare their audited statements. He believed, however, that the audited statements were authentic. He said if the bank had known the statements were not audited, and were not prepared by a chartered accountant it would never have entered into a loan agreement with 207. He went further, and said this would be the case even if the numbers in the statements were correct. He said the fact the company had misled the bank would have been sufficient for the bank to decline the loan. I believe Castator.

[36] Subotic also provided Perlin with an executive summary[^2] about 207 to be sent on to the bank. Perlin forwarded the executive summary to Yakobson, who in turn provided it to Castator. The executive summary included the following information about 207, its history and its personnel:

a) It described Botvinnik as starting as a truck driver in 1979 before becoming an owner/operator with a small fleet of trucks and trailers. Botvinnik then introduced Ber and Perlin to the trucking industry.

b) Ber and Perlin saw the need to provide on time delivery within the transportation industry. They created 207 for that purpose.

c) Botvinnik’s expertise gave 207 the necessary experience in logistics, and the company expanded. It successfully entered the long haul fast trucking niche, and created a structure to manage its fleet of over 200 units.

d) 207 had long term agreements with key clients.

[37] As to Ber and Perlin, the executive summary described Ber as 207’s president, with Perlin as vice president of operations. Ber was described as a very successful entrepreneur, with keen acumen in the automotive industry. Perlin, a mechanical engineer, is noted as starting his own fire door manufacturing company, using his own patented technology. The executive summary says he sold his business in 2004. He then founded 207 to develop and sustain the most profitable routes and methods during controlled growth. The summary says Perlin brings to 207 “an understanding of large company dynamics and methodology to better control growth”.

[38] Yakobson testified that this executive summary confirmed what he had been told about 207. One of the things I infer from the executive summary is that through it, Yakobson was led to believe that Botvinnik was a key employee of 207, providing it with the necessary experience in logistics. Castator drew the same inference, and also believed Botvinnik was a key employee. Botvinnik was not.

[39] Yakobson was to be paid $75,000 for his role in obtaining financing for 207. He said initially he received about $4,000 to $5,000 per month, but at some point the payments stopped. He was then offered a small shareholding stake in 207, but apparently that never actually materialized.

HSBC does its due diligence

[40] The bank’s due diligence did not end with simply reviewing the purportedly audited financial statements for 207. The bank needed additional information about the company and its principals before it would consider lending it any money.

[41] The bank required aged accounts receivable lists, since any operating loan would be secured by accounts receivable. Generally, the bank will lend only on receivables that have been outstanding for ninety days or less, and will lend only up to a certain percentage of value of those accounts receivable.

[42] 207 apparently had a fleet of tractors and trailers that would form part of the bank’s security. Those assets needed to be valued so the bank could determine the security value of the company’s assets. The bank approves various professional appraisal companies for this purpose. The bank and 207 agreed that a company called Asset Appraisal Corporation would be acceptable to both the bank and 207 to conduct the equipment appraisal.

[43] Ray Brown was a professional appraiser with Asset Appraisal at the time. He is still a professional appraiser, now working for a company called Century Services Inc. Mr. Brown performed the appraisal for 207, doing what was then called a “desktop appraisal”. This kind of appraisal does not involve an actual inspection of the equipment involved, but instead “involves the review of detailed information provided to Asset Appraisal Corporation by the Client relative to the assets that are the subject of the evaluation. Thus assumptions have been made regarding the accuracy of the descriptive information provided and the actual existence and operability of the assets appraised.”[^3]

[44] Ray Brown testified that he would have received the equipment list of the tractors and trailers to be appraised from 207. Mr. Transportation (the name under which 207 then operated) is listed on the appraisal as the client. As stated in the appraisal report, Brown would rely on information from management as to the condition of the equipment. His appraisal described the equipment as being in “good” condition. He said that information would have come from the company. Brown also said that he would rely on the information the company gave him, and would not check ownership to confirm the assets were owned and not leased. This, he said, is standard practice. Although Ber and Perlin seemed to suggest that Brown should have checked ownership and physically inspected the equipment in order to support his appraisal, I have no evidence to suggest any other appraiser would have done so, or that it was standard practice to do so.

[45] Brown appraised the equipment list on both a “fair market value” and “orderly liquidation value” basis. He explained that fair market value is the value, in terms of currency, that one would expect to be paid between a willing buyer and a willing seller, neither being compelled to buy or to sell, and both being aware of all material facts as of that date.

[46] As for orderly liquidation value, Brown said it presumes a liquidation of assets over a prescribed period of time, with the seller being compelled to sell the assets on an “as is, where is” basis. Brown said orderly liquidation value yields a lower value than a fair market value sale.

[47] Brown delivered an appraisal of the machinery and equipment dated March 2007. In it he valued these assets on a fair market value basis at $5,194,000. He put their value on an orderly liquidation basis at $4,472,000.

[48] Although Brown did not physically inspect the tractors and trailers on the equipment list, Castator himself went to 207’s premises and inspected nine of the units on the list. He did this to compare vehicle identification numbers (VIN#s) on actual vehicles with the VIN#s listed on the equipment list. This was to give the bank comfort that the appraised vehicles actually existed.

[49] In early April of 2007 Perlin sent a similar appraisal report to Castator concerning the equipment of Focus since 207 would be acquiring all of Focus’ equipment when it acquired Focus.

[50] After the bank received the appraisal reports, Castator and a colleague arranged to meet with 207’s principals at their premises. The meeting took place on April 10, 2007, with Castator and another banker representing HSBC, and Perlin, Ber and Yakobson representing 207. Castator took extensive notes. His notes of the meeting contain certain bullet points, which he said highlighted some of the information the bank wanted to cover off as part of its due diligence process before offering to lend any money to 207. His notes record what he was told about 207’s business, and the background of its principals. This information, of course, came from Ber, Perlin and Yakobson.

[51] At the meeting, Castator was told 207 had a significant long haul business, with a number of significant customers that made up the customer base at that time. This customer base, he was told, represented 207’s core business. He was given information about 207’s top ten customers, and listed them in his notes.

[52] In the meeting they discussed 207’s corporate structure. Castator was led to understand that 207 was owned by two corporations, Al-Mar Developments Inc. and 2033012 Ontario Limited, with Al-Mar owning one third of 207’s shares, and 203 owning two thirds. Castator was told Alex Ber owned 40% of Al-Mar and his father in law, Boris Shteiman held 60% of its shares. George Perlin was held out as the sole owner of 203.

[53] There was significant information Castator was not told. For example, he was not told that just a few days before this meeting, 203 had registered the business name “Turbo Logistics”. He was not told that Botvinnik had been named as a first director of 203 when 203 was incorporated in September of 2003. He was not told that 203 had been operating as “Mr. Transportation” pursuant to a business licence dated August 23, 2004. Had he known these things, no doubt they would have raised questions about why two of Perlin’s companies, namely 207 and 203, which owned 2/3 of 207, appeared to operating under the same name.

[54] In the written material 207 had sent Castator before the April meeting, 207 described the proposed transaction with Focus as: “Focus Transportation shares to be purchased and company amalgamated with 2073004 Ontario Inc. which will carry on business as Mr. Transportation.”[^4]

[55] Castator was told Vladimir Botvinnik was Perlin’s brother in law, and he was involved in the business. Castator was led to believe that Botvinnik was the one with significant trucking experience and he was to be the general manager of 207, in charge of dispatch and maintenance. When Ber, Perlin and Yakobson toured Castator around the premises at the end of the meeting, Botvinnik was there, and Castator was introduced to him. Castator testified that the bank would never have lent any money to 207 if there was no one in the company with significant trucking experience. I believe him. Castator said he was led to believe Botvinnik would be providing that trucking expertise to 207. That representation was false.

[56] Castator also needed an aged accounts receivable listing before deciding whether to recommend lending any money. He explained that the accounts receivable listing, which Ber faxed to him on March 31 in advance of the meeting, was necessary for both the initial credit approval and also on an ongoing basis. The bank required monthly accounts receivable listings because the bank margins the borrower’s accounts receivable to support the advances to be made against the operating line.

[57] The bank also required a detailed breakdown of some of 207’s customers. As part of its initial due diligence the bank needed to know who the major customers were. Castator’s notes of the April meeting list a number of customers who were held out to be 207’s major customers.

[58] A few days after the meeting, Subotic sent Castator what he called a “brief summary of our clients and our Receivables for March 2007.” The list showed total accounts receivable of $1,489,394.58, of which $970,273.16 were stated to be “current”, $484,421.42 were “31 to 60” and $4,700 were “61 to 90”. The list showed no accounts receivable outstanding for over 90 days.

[59] The client summary showed ten primary clients. These were the same clients Castator had listed in his notes at the April meeting. The client summary from Subotic estimated annual revenues from those clients at $10.6 million.

[60] Ber sent the same information to Castator on the same day.

[61] Castator provided Ber and Perlin with a “Transaction Outline” which was to act as a framework for discussion purposes regarding the proposed facility 207 was requesting. That transaction outline eventually became a credit application which Castator submitted to the bank personnel in charge of actually approving loans.

[62] The credit application was based on the information Castator had obtained from Ber, Perlin and Subotic. It included a lengthy narrative setting out 207’s history, its proposed acquisition of Focus’ shares, the shareholders of both Focus and 207, and a description of the background of each of the principals, as well as of the nature of their business. It included net worth statements from each of Ber, Perlin and Shteiman, as well as credit checks the bank had completed on each of these individuals.

[63] The application also included a detailed review of the payment history for each of 207’s largest clients, particulars about the business of each of them, and an overall analysis of the trucking industry in Canada and industry trends. It also contained a detailed analysis of the financial statements and other financial information he had been given for both 207 and Focus.

[64] Castator recommended a total loan package of $9 million, made up of a combination of term loans and operating loans.

[65] The bank approved loans totalling $8 million and made a comprehensive proposal to 207 in a commitment letter for a credit facility. The commitment letter was sent to Ber and Perlin as 207’s principals.

The commitment letter

[66] The commitment letter proposed an operating facility of $1 million by way of a demand revolving, or operating loan, secured by the company’s accounts receivable. The operating line was to assist in financing the company’s day to day operating requirements. The operating loan was payable on demand.

[67] The commitment letter also proposed a $5.5 million term loan. $650,000 of this was to support the purchase of the balance of the outstanding shares of Focus Transportation. The balance of this term loan was to refinance existing leased equipment.

[68] An additional demand loan of $1 million was proposed to refinance 207’s existing credit facility with the Business Development Bank of Canada (BDC).

[69] Finally, the commitment letter proposed a capital expenditure loan of $500,000 to finance the purchase of additional tractors or trailers.

[70] In all, the commitment letter proposed loans totalling $8 million. The various components of the facility had different interest rates, all based on the bank’s prime lending rate plus an additional percentage. All the loans were to be payable on demand, and secured by the usual panoply of security instruments, including standard indemnity agreements, a general security agreement giving the bank a first priority security interest in all present and after acquired personal property of the borrower and a floating charge over all those assets; a general assignment of book debts and an aggregate of $700,000 in personal guarantees from the shareholders of 207.

[71] The commitment letter also required monthly financial reporting from 207, including monthly aged lists of accounts receivable and accounts payable and other related matters. Annually, 207 was required, among other things, to provide audited financial statements and pro forma financial statements, cash flow statements and budget for the following fiscal year of the borrower.

[72] Castator and Giulio Amodeo signed the commitment letter on behalf of HSBC. On April 30, 2007 Ber signed and accepted the commitment letter as president and on behalf of 207. Perlin, Ber and Boris Shteiman signed as “the Guarantors”.

[73] Boris Shteiman is Ber’s father in law. He is apparently a man of some wealth who was held out to be one of the shareholders of 207, through Al-Mar. His signature appears as “guarantor” on the commitment letter. Shteiman did not actually sign the commitment letter. Someone forged his signature.[^5]

[74] Castator testified that had he known Shteiman’s signature was forged, he would never have recommended the loan and the bank would not have proceeded. He said that even if Shteiman never provided a guarantee (which he did not) the bank still would have refused the loan on the basis of the borrower’s principals not being trustworthy. I believe him.

The bank advances

[75] On May 23, 2007 Perlin sent Castator accounts receivable and accounts payable summaries for 207 as of April 30, 2007. The bank asked for this information in advance of the initial funding for the loan, and also to set up a margin card for the borrower, in order to track whether it was staying within its loan and margin limits.

[76] At the end of May, Perlin sent Castator a fax with information about other lenders to be paid out with a portion of the HSBC financing. The fax included a direction to pay, with payout statements from various financial institutions. HSBC paid pursuant to the direction. At the same time, Perlin, on behalf of 207 and Botvinnik, on behalf of Mr. Transportation Inc. signed an undertaking whereby they promised to ensure title to all the financed equipment was held by 207, free of any claims, other than those of the bank.

[77] Castator explained that he understood Botvinnik was involved because in late December of 2006 Botvinnik’s company, Mr. Transportation Inc. conveyed to 207 all of its interest in certain equipment leases. These were the same leases as the bank was paying out under its financing with 207. The bank relied on the conveyance to ensure that 207 had title, and the leases had actually been conveyed. As added protection, it obtained Botvinnik’s undertaking on behalf of Mr. Transportation Inc. to ensure title had passed.

[78] As promised in the commitment letter, the bank advanced the necessary funds to pay out the equipment leases.

[79] The bank also advanced the necessary funds to complete the Focus acquisition. Ber became a director, president and secretary of Focus in June of 2007.

207 asks for financing for a new deal

[80] At the end of July of 2007, 207 approached the bank about another potential acquisition. The bank decided it would not provide any funding. As Castator put it, the bank viewed it as “too much, too soon.”

[81] As a result, 207 did not proceed with the new acquisition

Some changes at 207

[82] In January of 2008 Perlin sent Castator an updated organizational chart for 207. It now showed 207 operating as “Turbo Logistics”, as opposed to “Mr. Transportation”. Castator said he assumed they had decided to change the trade style of the corporation. No one told Castator that Perlin’s company, 203, had been operating as Turbo Logistics since March of 2007. 203, of course, owned two thirds of 207’s shares.

[83] Castator was surprised to see that the updated organizational chart now listed Yakobson as a shareholder of 207. Castator testified that since Yakobson was shown as a minor shareholder, this was not a material issue to the bank. Yakobson testified, however, that although it was intended he become a shareholder, this never occurred. Accordingly, this representation to the bank was false, although not material.

The Puslinch property

[84] In January of 2008 Ber approached HSBC for additional funding on behalf of a corporation called 2163960 Ontario Inc. 216 planned to acquire some land and a building in Puslinch, Ontario. Ber, Perlin, Yakobson, Shteiman and Botvinnik were each 20% shareholders in 216. The plan was for 216 to acquire the Puslinch property and then lease it to 207 which would run its long haul business out of Puslinch.

[85] The bank agreed to finance up to 65% of the property’s appraised value. It lent $2.275 million, secured by both a first mortgage on Puslinch as well as a guarantee from 207, which was to be the main tenant. The loan represented slightly less than 65% of the property’s appraised value.

[86] The deal closed, and 207 began to operate its long haul business out of Puslinch.

Turbo Logistics Canada Inc. is formed

[87] In March of 2008 the bank received a Certificate and Resolution signed by Alex Ber as president and secretary of a corporation named Turbo Logistics Canada Inc. The documents attached to the certificate and resolution showed that 207 and Focus had been amalgamated to form Turbo Logistics Canada Inc.

[88] From this point, Turbo Logistics Canada Inc. became the borrower from HSBC. Although Turbo Logistics Canada Inc. was technically the borrower, in order to avoid confusion I will continue to refer to the borrower as “207/Turbo”, or the borrower.

The first bulge

[89] By May of 2008, 207/Turbo was having some difficulty staying within its operating loan limits. Although it appeared to have sufficient accounts receivable to support the money it was borrowing, it was borrowing more than the $1 million operating loan its credit facility allowed.

[90] Castator had been somewhat concerned over the spring of 2008 about the increase in borrowings, and had a number of discussions with 207/Turbo. He was told that the increased utilization was due in part to higher fuel prices, combined with customers paying more slowly than before. For example, Yakobson told Castator the company had decided to walk away from a contract with Turbo USA, and redeploy its equipment to other customers who paid in 45 days, instead of 30. Castator understood this was the reason for the increased utilization on the line.

[91] The line was increased to $1.4 million, but even so, 207/Turbo was soon exceeding that limit. It therefore applied to the bank for what is called an “interim bulge” facility. That kind of facility is designed as a short term increase to meet a short term need. The interim bulge application sought an increase in 207/Turbo’s operating line to $1.950 million until August 31, 2008. The bank approved the increase.

[92] Although the bank expected to be repaid by August 31, 2008, this did not occur. Instead, in May and June 207/Turbo’s utilization of its operating line increased even more to $2.858 million, even though the limit was $1.950 million. Even so, 207/Turbo was reporting marginable accounts receivable of up to $3.199 million.

[93] Nevertheless, Castator was becoming increasingly concerned. He tried to understand what was causing such high utilization on the line. He wanted to get it back down to within the authorized limit.

The Bank’s concerns increase

[94] Castator was concerned about other things as well. Although the facility agreement required 207/Turbo to move all its banking to HSBC, the company was still maintaining its day to day bank accounts at Bank of Nova Scotia. Castator said this was a worry to the bank since it meant that the 207/Turbo’s cash, over which HSBC held security, was in another bank. He made repeated demands for 207/Turbo to close its Bank of Nova Scotia accounts and transfer all banking to HSBC as it was bound to do. It did not.

Request for a second bulge

[95] By July of 2008 Ber was asking Castator to increase the operating line to $2.5 million. Castator was only prepared to support that kind of an increase if the shareholders injected at least $300,000 to correct the shortfall in the margin. At this point, 207/Turbo’s borrowings on its operating line were already at $2.94 million, and the marginable security at that time was only $2.6 million. That is why the bank demanded an injection of $300,000 to make up that shortfall in security. As Castator explained, the bank wanted the shareholders to have some financial risk, not just the bank.

[96] Although Perlin and Ber did inject some funds, their contributions fell somewhat short of the requested $300,000.

[97] At the end of August of 2008 the accounts receivable listings the bank was receiving showed total accounts receivable of $4.793 million, made up of $4.1 million for the long haul segment of the business and the balance from the short haul. On the basis of these figures, Castator concluded the company would be within margin if its loan limit were raised again.

[98] Castator prepared the necessary paperwork to request an increase in the credit facilities from the previous bulge to a $2.750 million bulge. As part of any increase, however, the bank would require the principals, namely Ber and Perlin, to increase their personal guarantees to $1 million each. The bank also required a third party review of management information. By that, the bank meant an independent accounting firm would be retained to assess some of the irregularities the bank was beginning to see in the company’s reporting. Ber and Perlin refused to increase their guarantees. They refused to allow the bank’s choice, Deloitte, to conduct a “look see” examination of the company. The bank refused to lend without these additional conditions being met. Accordingly, the second bulge was not approved.

The account goes to special credit

[99] Castator became even more concerned about 207/Turbo’s inability to stay within its credit limits. He could not understand why the accounts receivable were increasing. The fact Ber and Perlin refused to provide additional guarantees or permit Deloitte to do a third party review of management information was a cause for even greater concern.

[100] The bank then decided the 207/Turbo account should be moved to the bank’s special credit group. From that point, Castator had no further involvement with the account. That task fell to James Brydon, an Assistant Vice President Credit with HSBC. He has been with HSBC for 27 years, spending the last 17 years in the special credit department.

[101] As Brydon explained, the bank’s special credit department is set up to deal with non-performing loans, that is, loans that are not performing within the terms of the borrower’s loan agreement. He described these loans as “loans in trouble”, or “problem loans”.

[102] Once the 207/Turbo account was moved to special credit, it became Brydon’s role to be the new relationship manager for this account. First he reviewed the credit file and the history of the customer’s borrowings and margin limits. He saw the main issue as the customer being well over its credit limit. Just before the file was transferred in October of 2008, 207/Turbo had received advances that were $1 million over its authorized credit limit.

[103] Brydon determined that Perlin was the main contact for the company, so he tried to set up a meeting with Perlin. They arranged to meet at the Puslinch property on November 12. Brydon recalls being told that Ber was unavailable for this meeting, so he simply met with Perlin. The bank was anxious to meet as soon as possible in order to see the operation and get a handle on the situation.

HSBC wants Deloitte to do a viability assessment

[104] Brydon met with Perlin to discuss Brydon’s concerns, and talk about next steps. Brydon told Perlin that when a loan is transferred to special credit, the first thing the bank wants to do is to determine what the real problem in the business is, so that it can be corrected. He said the bank always appoints a chartered accounting firm as a consultant to do a viability assessment. The viability assessment will tell the bank whether the company needs to do things to correct the situation. It will also review the bank’s security position in order to assess the bank’s risk.

[105] Although Perlin apparently understood the need for the consultant, he said he was not prepared to agree until he had discussed it with Ber.

[106] Brydon also told Perlin the bank would require the usual package of financial information from the company. Perlin told him he would have to get the information from the accountant. Brydon understood from Perlin that this was an outside accountant who came in periodically to do the books.

[107] Brydon told Perlin the bank had retained Deloitte as its consultant, and Deloitte would be in touch with Perlin directly. Robert Biehler of Deloitte was one of the partners assigned to the 207/Turbo matter. Biehler met with Perlin on November 20, 2008. At this meeting, Perlin explained to Biehler that the business was a $20 million business, with most of that revenue coming from the long haul portion of it. Perlin did not mention that 207/Turbo had apparently shut down its long haul business the previous month.

[108] Biehler provided Perlin with an extensive list of financial disclosure Deloitte would need to do its work. Biehler also asked Perlin to sign Deloitte’s engagement letter. Perlin would not. Shortly after, Brydon called Perlin and explained the engagement letter had to be signed. Perlin’s response was to say that Yakobson had to come and meet with Brydon to discuss the issue of the viability assessment.

[109] Meanwhile, on November 25, Biehler called Perlin to follow up on the requested financial information and getting the engagement letter signed. None had been forthcoming.

[110] Yakobson did in fact meet with Brydon at HSBC. According to Brydon, Yakobson told him he thought the bank had made a mistake in making the loan in the first place and should consider forgiving part of it, or converting part of the debt to equity. Brydon explained to Yakobson that was unlikely, but once the Deloitte review was completed, the bank would consider a re-amortization of the loan to match what the company was able to service. Yakobson responded he thought a Deloitte review would be of no benefit. Brydon explained it was essential to the bank.

[111] Brydon then called Perlin and explained again that the bank absolutely needed the Deloitte review. Perlin requested another meeting. A meeting was arranged for December 4, 2008.

The December 4, 2008 meeting: HSBC delivers demands

[112] Perlin, Ber and Yakobson attended the December 4 meeting with Brydon and Brian Pettit from HSBC and Bob Bougie another partner from Deloitte. Brydon explained that Brian Pettit was his boss, to whom he reported.

[113] At the meeting, Brydon again explained the importance of having Deloitte perform the viability assessment. They discussed the issue, and Perlin and Ber said it would be too expensive. Brydon asked them to think about it, and left Ber, Perlin and Yakobson alone in the meeting room to discuss the issue privately.

[114] When Brydon and the others returned, Ber, Perlin and Yakobson told the bank they would not permit Deloitte to perform the viability assessment.

[115] Brydon then delivered demands for the loans. He testified that he had drawn up the demands in case the borrower refused to accept the bank’s requirement that Deloitte do a viability assessment. He said that had 207/Turbo agreed to Deloitte at that time, there would have been no need to issue demands at that point, although the bank certainly could have done so at any other time.

Events following the demands

[116] The day after the meeting, Brydon emailed Perlin asking for a current accounts receivable list to be delivered by the following day. Brydon never received it.

[117] Instead, Perlin responded with a letter in which he said, among other things, that “Turbo Logistics Canada” was prepared to cooperate reasonably to allay whatever concerns the bank might have. Perlin went on to say that it would be “financially irresponsible” for “Turbo” to agree to pay Deloitte’s fees. Accordingly, they refused to sign Deloitte’s engagement letter.

[118] Perlin’s letter went on to say:

Turbo is prepared to provide all financial information in its possession directly to HSBC. HSBC can then, at its own cost, retain whomever it wishes, to review the information. Further Turbo is prepared to provide the information immediately. All available information will be delivered to HSBC….[^6]

[119] It is noteworthy that Perlin’s letter is on the letterhead of “Turbo Logistics Canada”, although he signs the letter on behalf of “Turbo Logistics Canada Inc.” In the body of the letter he refers to both “Turbo Logistics Canada” and “Turbo”.

[120] Brydon responded the next day with an email to Perlin, copied to both Ber and Yakobson. In his email he stated the bank’s position clearly. He said the only way the bank could be made comfortable with the current situation was by Deloitte conducting a viability study to provide the bank with a third party assessment of the borrower’s present condition.

[121] Brydon went on to point out that under the terms of the loan, the cost of such a review is for the account of the borrower. It is included in the loan documentation, and 207/Turbo agreed to it when the loan was granted.

[122] Brydon went on to say that although Perlin had offered to provide all the information for 207/Turbo the bank requires, the bank had not received the monthly information package for September or October. Although the September information had been promised by the week of November 17th, when the accountant would be in, the bank had not received the information. The company had provided no explanation for this failure.

[123] Brydon concluded his email by saying:

George, your assertion that the Borrower is prepared to cooperate appears not consistent with your actions and you leave the bank with no choice but to protect its interests.

[124] Perlin responded a few days later. He provided none of the requested information. He did not change the company’s position concerning Deloitte.

Deloitte becomes involved after all

[125] Perlin had sent Brydon an email (with copies to Ber, Yakobson and their lawyer) in which he said that Turbo Logistics Canada “has nothing to hide from HSBC and we are prepared to fully cooperate with your requests.” He proposed to do so by:

a) Transferring all of Turbo’s banking to HSBC (something they had been obliged to do from the time the loan facility was granted);

b) Provide all Turbo Logistics Canada financial information to HSBC and Deloitte as originally requested; and

c) Do all of this at the least cost possible to Turbo Logistics Canada.

[126] Perlin suggested another meeting. Brydon arranged a meeting on December 15, 2008 at the offices of its lawyers. Perlin and Ber attended, along with their lawyer. At this meeting they agreed to appoint Deloitte right away. 207/Turbo finally signed the appointment letter on December 15. Deloitte was to “act as a consultant, to review the operations and financial position of Turbo Logistics Canada Inc.” The plan was for Deloitte to start its review the next day.

[127] Deloitte did so. During the time that Deloitte acted as consultant, its role was primarily to approve all cheques that were written on the company account. Robert Biehler, a chartered accountant and licenced trustee in bankruptcy is a partner at Deloitte, and a senior Vice President of Deloitte Restructuring Inc. Biehler was one of the two partners assigned to the job, the other being Bob Bougie.

[128] Biehler testified he was told the company operated out of two locations, one in Richmond Hill and the other in Puslinch. Biehler’s instructions were to go to the Richmond Hill location first.

[129] Biehler testified he went to the Richmond Hill location on December 16 and met with Perlin and Subotic there. From them he learned the long haul part of the business had been closed in October, and therefore Puslinch was no longer being used by 207/Turbo. He also learned that 207/Turbo’s tractors and trailers that were not key to the short haul business were being stored at the Puslinch yard.

[130] Biehler asked for more information from Perlin and Subotic. He asked for a listing of all the tractors and trailers, the books and records of the long haul, and the financial statements of the company. He was told the bookkeeping was not up to date, and there were issues about collectability of some of the accounts receivable. Because the books were not up to date, he was told there was some doubt about the integrity of the information. In sum, he learned it was likely Deloitte would have to re-create the accounts receivable because of the state of the business’ records, and would have to contact customers directly for payment.

[131] At this December 16 meeting, Subotic gave Biehler an aged accounts receivable listing totalling only $1.3 million. The receivables for the short haul business were only $277,000.

[132] Although Deloitte had been requesting the books and records for the entire business, including the long haul portion since mid-November, it still had not received them. At the meeting, management told Biehler they did not have the records for the long haul. Biehler asked Subotic to go to Puslinch and find them.

[133] Subotic then provided some information by email. Biehler was concerned about the integrity of the information, since it was in an Excel spreadsheet format, which could be easily manipulated. Biehler also became concerned about the accuracy of the accounts receivable listings in light of the information he had received that the long haul business had ceased operations in October. He wondered how the receivables listing could still show large receivables in the current column, if the long haul business had stopped operating two months earlier.

[134] Biehler testified that for a business like 207/Turbo he would have expected significant accounting records, including a general ledger, a software program that would be able to produce detailed transactions for an accounts receivable list that in turn would generate a trial balance of all the company’s assets and liabilities. Since a company like 207/Turbo would have hundreds of different accounts, he expected there would be source documents like invoices, driver time sheets, bills of lading and the like. As far as assets were concerned, he would have expected to see ownership documents, purchase and sale agreements and leases.

[135] For accounts payable, he expected to see source documents like purchase orders, listings of what was owed to independent contractors, payroll records, T4s and so on.

[136] There was nothing.

[137] Deloitte became a court-appointed monitor on December 30, 2008 and was appointed Receiver of both 216 and 207/Turbo pursuant to a court order on January 27, 2009. Between those two dates, Deloitte received none of the records for the long haul business. After the receivership order, Deloitte was empowered to take control of the businesses, including their records. While it took possession of some of the records for the short haul business, there were none for the long haul. Deloitte did find computers at the Richmond Hill location, and took possession of them. Deloitte’s IT experts imaged the computers and examined the data. They discovered the computers had been wiped clean of all data before Deloitte took possession of them on January 28, 2009. The inspection showed there was virtually no electronic data to be retrieved. Accordingly, Deloitte had no records whatsoever for the long haul portion of the business.

[138] Deloitte still tried to locate the records. Biehler testified Perlin and Subotic told him a former bookkeeper named Tony Katz might have the records. Biehler said Perlin and Subotic told him they were at a loss about where the records might be. When Deloitte followed up with bookkeeper Katz, Katz had no knowledge of where the books and records were, and did not have them himself.

[139] Since the receivership order also applied to 216 which owned the Puslinch property, Deloitte wanted copies of all the leases on the property to confirm the rents that were being paid, and get an idea of the cash flow for the building. Deloitte also needed to continue to verify the assets and liabilities of 207/Turbo, especially the ownership of the tractors and trailers, which were significant assets.

[140] Deloitte attended the Puslinch property where 207/Turbo was supposed to be operating, and discovered the company was no longer operating from that location. The long haul business of the company had apparently shut down in October. Although the Puslinch property was supposed to have been the location out of which 207/Turbo operated its long haul business, there were no books and records relating to the long haul segment of the business. The only records were for Focus, the short haul operation. The short haul business had no accounts receivable that were even close to supporting the considerable advances the bank had made.

[141] All of this information came as a surprise to Brydon and HSBC. At the December 15 meeting, no one from Turbo had suggested the long haul business had been shut down. At that meeting, Perlin had promised to provide all the necessary financial information the bank needed. He never suggested there were no records for the long haul business.

What Deloitte learned

[142] 207/Turbo’s short haul operations were conducted out of premises in Richmond Hill. A chartered accountant named Stefano Damiani was a manager in the restructuring practice of Deloitte at the time. He had the task of overseeing the receivership at the Richmond Hill location. His role was to deal with the part of the business that represented the short haul business, or what they referred to as the Focus assets.

[143] When Damiani took possession of the Focus premises in Richmond Hill he noticed there were no employees on site, and it appeared things were missing. He saw that records had been removed, and desks were cleaned. The missing records were primarily accounts receivable and time sheets, together with customer information. Damiani took possession of the computers at that location. He testified they had been wiped clean of any information predating the receivership. He therefore had to try to reconstruct records to assist in collecting accounts receivable.

[144] Damiani had some help from a long term Focus employee, Audrey, in putting together accounts receivable listings for the short haul business. As Damiani explained, he understood from Audrey that time sheets for the days before the receivership had been available, but she had been instructed not to input them into the system. She told Damiani that when she came back to work, the time sheets were gone. Damiani enlisted Audrey’s help to try to reconstruct the missing time sheets in order to issue demand letters to customers.

[145] The July accounts receivable list 207/Turbo had given the bank showed combined accounts receivable for both the short and long haul businesses at about $3.5 million. The short haul portion of that was about $541,000 at that point. Deloitte was led to believe the accounts receivable for the short haul were about $277,000 at the end of December. Deloitte was able to collect about 70 to 90% of those short haul accounts receivable. Deloitte considered that a pretty reasonable recovery. The long haul receivables were a different story.

[146] Since Biehler was then based in Deloitte’s Kitchener office, his involvement was primarily in the Puslinch operation, since Puslinch is located right next to Cambridge, Ontario. Biehler was in charge of securing and selling the assets from the long haul business which were supposed to be located in Puslinch.

[147] There were current no records for the long haul business. The bank had an accounts receivable listing for the period ended August 31, 2008. It showed accounts receivable of just over $4.1 million in relation to the long haul business, and just over $666,000 for the Focus part of the business. Another listing showed $541,000 for the short haul and $2.9 million for the long haul. When Biehler asked Subotic for accounts receivable listings in December of 2008, Subotic gave him accounts receivable that totalled only $1.3 million.

[148] Biehler testified he was told about a former bookkeeper named Tony Katz. Biehler was led to believe Katz had quit, but would have knowledge of the long haul’s books and records. Deloitte tried to contact Katz through its counsel. Katz apparently reported he had no knowledge of any books or records, and had no possession of any.

[149] Since there were no records for the long haul, Biehler tried to collect the accounts receivable using the earlier accounts receivable lists the company had provided to the bank. He collected nothing.

[150] What came as a particular surprise was what he learned from a number of accounts that had been listed on the August 31, 2008 accounts receivable list. At least eight customers, who purportedly owed 207/Turbo just under half a million dollars, were able to prove to Biehler they did not, and had not ever owed anything to 207/Turbo.

[151] Janet Smith, is the risk manager at All Connect Logistical Services. The accounts receivable list showed All Connect owing 207/Turbo $24,000. Ms. Smith testified they had no account with 207/Turbo. She said All Connect had an account called “Turbo Logistics Canada”, but it was under a different numbered company, namely Botvinnik’s or Boris Shteiman’s company, 208. All Connect’s records show that 208 used to operate as Mr. Transportation, but no longer did.

[152] Ms. Smith also checked All Connect’s records to see if they had used a company called Mr. Transportation to move any freight for them between March 1, 2008 and July 18, 2008. They had not.

[153] Deloitte also sent a letter to MAK Freight Systems, suggesting that MAK owed about $15,000 to 207/Turbo. Kay Singh is the senior accountant at MAK. She testified that she checked her company’s records to determine if Turbo was a client and whether they were owed any money.

[154] Her records confirmed that Turbo Logistics Canada and Turbo Transportation performed services for MAK. She was able to show that all their invoices were paid by producing cancelled cheques. All the cheques, which were payable to either Turbo Logistics Canada or Turbo Transportation were deposited into an account at TD Bank. 207/Turbo never banked there. 203 did.

[155] Deloitte approached KML Logistics about their owing 207/Turbo $34,000. Mark Linton who is the president and owner of the company testified there was no way his company owed anything like that. He checked his corporate records to see if they had ever done business with 207, Mr. Transportation or Turbo Logistics Canada Inc. He found one invoice for a pickup on November 27, for $750. KML did not use 207, Mr. Transportation or Turbo Logistics Canada Inc. or any other similarly-named company for any other services.

[156] Deloitte wrote to Northland Logistics suggesting it owed 207/Turbo $15,000. Mary Jo Atkinson, who is the company’s manager, checked their ledgers to see if that amount was owing at any time, or whether it had been paid. She found one invoice from Turbo Logistics for $2,500. It was paid by a cheque payable to Turbo Logistics Canada, and was deposited into an account of Mr. Transportation, which appears to be at TD Bank.

[157] Deloitte had similar experiences trying to collect from Stones Transport Inc., Two-Way Transportation, CSA Transportation, and MacKinnon Transport.

[158] Deloitte suggested Stones might owe 207/Turbo $37,900. Marina Perlin[^7], Stones’ bookkeeper and office manager produced records from her company’s accounting system. They showed all invoices as paid, either to Turbo Logistics or Turbo Transportation. Stones’ carrier information sheet showed the carrier they were dealing with as “2086611 Ontario Inc. o/a Turbo Transportation” as well as “2086611 Ontario Inc. o/a Turbo Logistics Canada.

[159] With Two-Way Transportation, Deloitte suggested they owed 207/Turbo $25,000. Stina Lassko-Bartman, the office manager at Two-Way, testified that on receiving the demand from Deloitte, she checked her company’s records. By doing this she could determine all cheques paid to any vendor. She first checked Mr. Transportation for the period from January 1, 2000 to August 30, 2013. The first transaction done with Mr. Transportation Inc. was on November 3, 2000, with the last in August of 2006. As to Turbo Logistics, she was only able to locate one invoice in the amount of $850. This invoice was paid and represented the only transaction recorded in their system.

[160] Nancy Bouchier, who is the accounts payable clerk at CSA Transportation recalled dealing with Turbo Logistics and Mr. Transportation, although she was unaware of any connection between the two companies. She, too, received a demand letter from Deloitte, suggesting CSA owed 207/Turbo. $161,000. Her immediate response was that CSA owed nothing. She produced cancelled cheques to confirm this. All were either payable to Turbo Logistics Canada and deposited into the TD Bank where 207/Turbo had no account, or were payable to 208. CSA’s records showed nothing owing to 207/Turbo although 207/Turbo had repeatedly sent HSBC accounts receivable lists showing money owing from CSA.

[161] Similarly, Deloitte wrote to MacKinnon Transport, suggesting it owed 207/Turbo $119,000. At their first meeting, Perlin and Ber had told Castator that MacKinnon was one of 207’s major clients.

[162] When Deloitte suggested MacKinnon owed this money, Andrea Neuert who is the manager of finance and administration of MacKinnon Transport instructed their accounts payable administrator to pull out all the documents necessary to verify any balance owing. Those documents showed this particular vendor as “Turbo Logistics operating as 2086611 Ontario Inc.”

[163] Ms. Neuert went on to say that on November 11, 2008 MacKinnon received an invoice from “Turbo Transportation a division of 2086611 Ontario Inc.” All invoices were paid. As a result, Ms. Neuert concluded MacKinnon did not owe 207/Turbo $119,000. It appears MacKinnon never conducted any business at all with 207/Turbo even though Perlin and Ber held out MacKinnon as one of 207’s main customers, and continued to list significant accounts receivable from MacKinnon to support 207/Turbo’s borrowings from HSBC.

Deloitte tries to realize on the bank’s security: equipment and receivables

[164] In its role as receiver, part of Deloitte’s role was to locate and sell the assets that were subject to the bank’s security, in order to generate funds to pay down 207/Turbo’s indebtedness to the bank. Since tractors and trailers formed a huge part of the company’s assets, one of the first things Deloitte did was to try to locate and sell that equipment.

[165] HSBC had been receiving extensive equipment listings fairly regularly from 207/Turbo. After the receivership, however, the equipment landscape changed dramatically.

[166] Deloitte began with the management list of trailers Perlin had provided. It included the year, make, unit number, plate number, location and VIN# for each piece of equipment 207/Turbo was said to own. From this list, Biehler created a database that Deloitte used as a tool for its own management purposes in the receivership. They also used the appraisal HSBC had received at the time they first advanced funds. They began to check ownership of the equipment on the list. To their surprise, they found some was not actually owned by 207/Turbo. For example, 31 trailers that had been listed on the equipment lists 207/Turbo provided to the bank were not actually owned. Similarly, 27 of the tractors 207/Turbo had told the bank it owned were not actually owned by it.

[167] Some equipment that 207/Turbo actually owned was nowhere to be found.

[168] Right after the receivership order was made, Biehler went with an associate to the Puslinch property to identify which vehicles were on site and were part of the receivership. Biehler was told to contact Botvinnik, so he provided Botvinnik with a copy of the receivership order. Botvinnik followed Biehler around, but was unhelpful. Botvinnik began to tear Turbo decals off vehicles. He asserted ownership over others. For example, he asserted ownership over a forklift. Deloitte asked him provide proof of ownership. He never did.

[169] Deloitte then asked Botvinnik to provide a list of what the receiver could remove from Puslinch. They asked Botvinnik to provide a list of what he owned, so the receiver could identify what vehicles were not part of the receivership. Again, Botvinnik was uncooperative.

[170] Deloitte became even more concerned when they discovered that vehicles they had identified in the yard at Puslinch as being part of the receivership were later moved. Eventually, with the help of a private investigator, Deloitte was able to locate some of the receivership assets elsewhere.

[171] Botvinnik became even more uncooperative, accusing Deloitte of interfering with his business. When Biehler pointed out Deloitte’s broad powers under the receivership order, Botvinnik responded that if Deloitte didn’t care about his business, then he didn’t care about Deloitte’s court order. Later, Botvinnik denied Deloitte access to the Puslinch property. Deloitte found a lock on the gate which had never been there before. Eventually, Botvinnik was found in contempt, and Deloitte was able to regain access to the yard. Botvinnik has yet to purge his contempt, or be sentenced for it.

[172] At the end of the day, Deloitte was able to locate and sell a total of only 53 tractors and 15 trailers in five different auction sales. The net sale proceeds came to only $587,000.

[173] The receiver encountered equally difficult problems trying to identify and collect on other assets or cash flow.

Attempts to locate other assets or cash flow

[174] Since 216 owned the Puslinch property, and 216 was subject to the receivership order, Biehler also tried to get confirmation of the rents being paid to 216 for the Puslinch property. Deloitte wanted copies of leases in order to confirm the rents being paid in order to get a sense of cash flows. They did get some leases, but the leases did not provide any satisfactory information.

[175] For example, it appeared that Botvinnik’s company, 208, was a tenant at Puslinch. It, however, was not paying rent. It alleged it enjoyed a rent free period, although that was not reflected in its lease. After the receiver went into possession, 208 began to pay some rent, until it terminated its lease early in August of 2009.

[176] Another tenant at Puslinch was a company called Hancor. The 216 records did not show any rent received from Hancor. Hancor, however, was able to provide the receiver with copies of cancelled cheques for its rents. The cheques were all deposited into the account of Mr. Transportation at TD Bank. Although 216 was the landlord, none of the rent cheques from Hancor went into 216’s bank account. Instead, they were diverted to 203’s account at TD Bank. Hancor told Deloitte it was always told to deliver the rent cheques to Botvinnik, which it did.

[177] Deloitte sued 203, and eventually settled that suit.

[178] Another lease showed a company called Ontario Truck Sales and Leasing as the tenant under a 5-year lease dated September 1, 2008. The base rent was stated to be $3,600. Deloitte collected nothing under that lease since they could not locate or contact this apparent tenant. They had a similar experience with another purported tenant, Onyx Transportation. Deloitte could find no company with that name after conducting extensive searches for them.

Other problems at Puslinch

[179] As I have said, Biehler had been led to believe the long haul equipment was being stored at Puslinch. When Biehler went to Puslinch to take control of the premises and the equipment he discovered Botvinnik seemed to be operating another long haul trucking company on the Puslinch premises. Biehler was concerned about whether Botvinnik was using 207/Turbo’s equipment. He was concerned that much equipment appeared to be missing.

[180] It was apparent Botvinnik was not and had not been the general manager of 207/Turbo. Instead, he was operating his own business out of the Puslinch property, calling it Turbo Logistics Canada. Turbo Logistics Canada has a virtually identical logo to that of 207/Turbo.

[181] The receiver learned that Botvinnik had been operating as Mr. Transportation Inc., at the same time as 207 was operating as Mr. Transportation. Later, Botvinnik’s companies operated as Turbo Logistics Canada, while 207 had amalgamated with Focus to become Turbo Logistics Canada Inc. There were points at which Perlin’s company, 203, was also operating as Mr. Transportation or Turbo Logistics Canada, or Turbo Logistics. I have no doubt these choices of names were made deliberately among Perlin, as owner of 203, and indirectly of 207/Turbo, Ber, as an owner and officer of 207/Turbo, and Botvinnik, as owner of 208 with a view to blurring the lines between Botvinnik’s corporations and 207/Turbo so as to manipulate financial information, equipment and accounts receivable. The fact Botvinnik’s letterhead for Turbo Logistics Canada contains a virtually identical logo to that of Turbo Logistics Canada Inc. is only one fact that supports my conclusion. There are many more from which these inferences can be drawn, particularly the relationship Perlin, Botvinnik and 203 had with the TD Bank.

Perlin/Botvinnik’s companies and the TD Bank

[182] It turns out that Botvinnik had been operating Perlin’s company, 203, for years, quite independently of 207. In fact, Botvinnik and Perlin had established a banking relationship for 203 with TD Bank as early as 2005.

[183] Matthew Simpson is an account manager with TD Bank’s financial restructuring group. This group is similar to the special credit group at HSBC of which Brydon was the manager. Simpson ended up in charge of 203’s account after 203 became in breach of its liquidity covenant and TD Bank began to have concerns about the quality of the company’s reporting.

[184] Simpson testified at the trial under summons. As the summons required, he brought with him the TD Bank’s file for 203. The TD Bank’s file disclosed significant information, as did Mr. Simpson.

[185] Simpson testified that TD Bank’s relationship with 203 began in 2005. Once Simpson’s department became involved in the 203 account in early 2007 he met with George Perlin and Vladimir Botvinnik. Simpson understood Perlin and Botvinnik were the principals of 203, even though Perlin was telling HSBC around the same time that he, Perlin, was the sole owner of 203.

[186] Perlin gave Simpson a business card with the company name “Turbo Logistics Canada” while Botvinnik proffered the card of “Mr. Transportation”. Both business cards had the same business address, namely 6227 Netherhart Road in Mississauga. This is the same address Castator first visited and was told was the premises of 207 before the Puslinch property was purchased. The business cards show not only the same business address for the two companies, Mr. Transportation and Turbo Logistics Canada, but also show Mr. Transportation’s telephone number as the same number shown as Turbo Logistics Canada’s fax number.

[187] Simpson’s file shows that 203 was incorporated on 17 June 2005, with Botvinnik named as president and Perlin as treasurer.

[188] Like HSBC, TD Bank required 203 to send accounts receivable and accounts payable listings to support its borrowings. In 2006 it was Nanad Subotic who was sending 203’s accounts receivable and accounts payable listings to the TD Bank. At this time, 203 was apparently operating as Mr. Transportation.

[189] In March of 2007 TD Bank was advised 203 had registered the business name “Turbo Logistics”.

[190] In April of 2008 TD Bank was provided with signing authority for 203. Botvinnik and Perlin were authorized to sign for 203, operating as Mr. Transportation. In 2008, of course, Perlin was telling HSBC that it was 207 that operated as Mr. Transportation.

[191] 203 was not the only company operating with similar names to 207. In 2005 a company called 2086611 was incorporated. Boris Shteiman (Ber’s father in law) is listed as president and secretary of the company. On January 25, 2007 he registered the trade name Turbo Logistics Canada on behalf of 208. In 2009 Botvinnik became a director of this company.

[192] So, by March of 2008 when 207 and Focus amalgamated to become Turbo Logistics Canada Inc., 203 was operating as Turbo Logistics, and 208 was operating as Turbo Logistics Canada. Similarly, 203 also operated as Mr. Transportation at the same time as 207 operated under the same trade style.

[193] From an analysis of the financial information both TD Bank and HSBC were receiving, it turns out Botvinnik/Perlin/Ber/Subotic were sending the same financial information with same accounts receivable lists and the same equipment lists to both TD Bank and HSBC to support both 203’s borrowings from TD Bank, and 207’s borrowings from HSBC.

[194] It is against this factual background I turn to the law, and its application to the facts as I have found them.

The law:

[195] The bank’s case is founded on several theories of liability. They include:

a) Fraudulent or negligent misrepresentation;

b) Conspiracy;

c) Conversion

Fraudulent misrepresentation

[196] The test for civil fraud, or deceit, has remained unchanged since Derry v. Peek [^8]

[197] The elements of the tort are:

a) The defendant made a false representation of fact to the plaintiff;

b) The defendant

i) Knew the representation was false, or

ii) Had no belief in the truth of the representation, or

iii) Was reckless as to the truth of the representation;

c) The defendant intended the plaintiff to act in reliance on the representation;

d) The plaintiff acted on the representation; and

e) The plaintiff suffered a loss as a result.[^9]

[198] It matters not whether the defendants made the statement knowing it to be false, or recklessly, without caring whether it was true or not. Making a statement recklessly for the purpose of influencing another person is dishonest.[^10]

[199] Where misrepresentations are made to induce a loan, a person who signs the loan document may be held responsible for the misrepresentation, even if that person claims not to have read it. In Village on the Park (Re)[^11] the court held that where that person is an experienced businessperson, failing to investigate whether the business scheme is legitimate or not can amount to a fraudulent misrepresentation.

[200] Directors may be held liable for actions taken under the corporation’s name where the court finds those actions fraudulent, deceitful, dishonest or otherwise made with malicious intent. This means a director can be held liable for either fraudulent or negligent misrepresentation.

[201] In an action for deceit, plaintiffs are entitled to be put in the same position they would have been in had the representation not been made.[^12] The court is entitled to assume that where fraud or misrepresentation induced the plaintiff to enter into the transaction, the plaintiff would not have entered into the transaction at all. Therefore it would have avoided any loss at all resulting from it.[^13]

Negligent misrepresentation

[202] The tort of negligent misrepresentation requires proof of the following elements:

a) There is a duty of care based on a special relationship between the representor and representee;

b) The representation made to the representee was untrue, inaccurate or misleading;

c) The representor acted negligently in making the misrepresentation;

d) The representee reasonably relied on the misrepresentation to its detriment; and

e) Suffered damages as a result.[^14]

[203] Where a plaintiff proves negligent misrepresentation, like the case of fraudulent misrepresentation, it is entitled to be put in the position it would have been in if the misrepresentation had not been made.[^15]

Conspiracy

[204] The tort of civil conspiracy requires the following elements to be present:

a) Two or more defendants make an agreement to injure the plaintiff;

b) The defendants use some means (either lawful or unlawful) for the predominant purpose of injuring the plaintiff. OR,

c) The defendants use unlawful means, knowing their acts are aimed at the plaintiff, and knowing or constructively knowing that their acts would result in injury to the plaintiff;

d) The defendants act in furtherance of their agreement to injure; and

e) The plaintiff suffers damages as a result of the defendants’ conduct.[^16]

[205] Damages for conspiracy in this case would be the value of the tractors and trailers that disappeared, and the value of the accounts receivable that were allegedly diverted away from 207/Turbo.

Conversion

[206] The Supreme Court of Canada has defined the tort of conversion as follows:[^17]

The tort of conversion involves a wrongful interference with the goods of another, such as taking, using or destroying those goods in a manner inconsistent with the owner’s right of possession. The tort is one of strict liability, and accordingly, it is no defence that the wrongful act was committed in all innocence.

[207] Damages for conversion are quantified as the value of the assets that were converted to someone else’s use.[^18]

Discussion:

Fraudulent misrepresentation

[208] The only conclusion I can draw from the evidence is that Ber, Perlin, and Subotic acted together to mislead the bank. They were the individuals who provided information about 207 to support 207’s loan from HSBC. They were the ones who provided the bank with false audited financial statements for 207. They cooked up accounts receivable statements for 207. Someone forged Shteiman’s signature as a potential guarantor on the term sheet.

[209] They led the bank to believe that Botvinnik was a key employee of 207, when this was false. They misled the bank about who 207’s major customers were. For example, MacKinnon Transportation never did any business at all with 207. Its customer relationship was with Turbo Logistics Canada, a division of 208. Ber, Perlin and Subotic knew or must have known the information they were giving HSBC was misleading or false. They knew or must have known the bank relied on the information, since according to the loan documents the accounts receivable and the equipment, for example, formed the basis on which the bank was lending.

[210] Ber and Perlin could have testified and provided an alternative explanation as to how the false audited statements came to be. They could have testified to explain how both TD Bank and HSBC came to receive identical accounts receivable lists to support loans for two different companies. They could have testified to explain why the bank was provided with false and misleading information. They chose not to. I can only infer, therefore, they would not have been able to provide any credible evidence to refute the bank’s theories. Ber, Perlin and Subotic could have called other witnesses to contradict the bank’s evidence. Again, they chose not to. I therefore infer no contrary evidence was available to them.

[211] There is no question the bank has suffered damages. It is still owed over $9 million on account of the loans it advanced to 207/Turbo.

[212] As a result, I must conclude the bank has made out its claim for fraudulent misrepresentation.

Negligent misrepresentation

[213] Even if I had not found fraudulent misrepresentation, Ber, Perlin and Subotic would be liable on the basis of negligent misrepresentation.

[214] The relationship between Ber, Perlin and the bank was sufficiently close to create the “special relationship” necessary to support a duty of care between them. Ber and Perlin were the principals of 207, which was to be the borrower from the bank. Subotic held himself out as the accountant for 207, and the author of the audited financial information to support 207’s borrowings. All knew that correct financial information was crucial to the bank’s decision whether to lend or not. I find all of this created sufficient proximity to support a duty of care owing from Ber, Perlin and Subotic to the bank. They owed a duty to provide accurate information to the bank to support their borrowings.

[215] The representations Ber, Perlin and Subotic made were untrue. The financial statements were not audited. Subotic is not a chartered accountant. Botvinnik was not a key employee of 207; he was not employed by 207 at all. The list of major customers they provided to the bank in the April 2007 meeting was inaccurate and misleading. The accounts receivable listings they provided were false. The representations were untrue, misleading or false.

[216] Negligence requires a duty of care and a breach of that duty. I have found a duty of care. The false representations they made to the bank breached that duty of care.

[217] There is no doubt the bank relied on the misrepresentations to its detriment. It would never had lent at all had it known the representations were false.

[218] As to damages, there is no question the bank has suffered damages. But for these fraudulent or negligent misrepresentations, the banks would never have lent. Damages for negligent misrepresentation are calculated in the same fashion as for fraudulent misrepresentation. I will deal with the calculation of damages in the section titled “damages”, below.

Conversion

[219] Botvinnik, 203 and 208 have ended up with equipment and accounts receivable that appear to be the property of 207/Turbo. There is no suggestion Botvinnik or 203 or 208 purchased any of these assets from 207/Turbo.

[220] I can only infer that 207, 203 and 208 were intermingling equipment and receivables without regard for the separate legal companies and were operating informally as a group of companies. I am supported in this view by the fact they were using the same equipment lists and accounts receivable lists to support 203’s borrowings from TD Bank. This key fact was misrepresented to HSBC.

[221] I have no evidence to suggest Botvinnik, 203 or 208 acquired any of these assets by any lawful means so as to deprive 208 of its lawful right to possession of those assets. I can only conclude, therefore, that Botvinnik, 203 and 208 have converted the goods of 207/Turbo.

[222] As to damages, I will deal with the calculation of damages for conversion in the “Damages” section, below.

Conspiracy

[223] Was there an agreement to injure the plaintiff? It seems to me there must have been. Ber, Perlin, Subotic and Botvinnik all acted together to create the financial information they submitted to both HSBC and TD Bank to support two separate loan facilities for two different companies. I can only infer from their decision to do so that they must have agreed to injure HSBC by providing false information to support the loan.

[224] Was the predominant purpose of their agreement to injure the bank, whether by lawful or unlawful means? I am not persuaded they did so for the predominant purpose of injuring HSBC (they may well have had an equal purpose or plan to harm TD Bank). I am, however, convinced they used unlawful means, knowing their acts were aimed at HSBC, and knowing or constructively knowing that their acts would result in injury to HSBC.

[225] Unlawful means can include a crime, tort, or breach of statute. Here I have determined that at the very least the acts of Ber, Perlin and Subotic were tortious, since I have found they have made negligent misrepresentations to the bank. The “unlawful means” test for conspiracy is therefore met.

[226] Did Ber, Perlin, Subotic and Botvinnik act in furtherance of their agreement to injure the bank? I have no doubt on the basis of the totality of the evidence that their acts were deliberate, and aimed at HSBC with a view to obtaining all the financing. I also have no doubt they knew, or must have known that their acts would result in injury to HSBC since there was no real security to support the borrowings, and no intention for 207/Turbo to repay the bank.

[227] There is no question the bank has suffered damages as a result of these defendants’ conduct. It lent money in the expectation its position was secured. It is out over $9 million as a result of the actions of Ber, Perlin, Subotic and Botvinnik.

Damages

[228] The bank quantifies its overall damages for fraudulent or negligent misrepresentation as the total amount outstanding on the loan, plus interest. It reasons that but for the misrepresentations, it would never have lent any money to 207 in the first place. It argues it is therefore entitled to be put back into the same position it would have been in had the loans never been made. I agree.

[229] The bank calculates the principal amount owing on the loan as $9,165,782.94. The receiver holds the sum of $381,402 on account of the sales it made of the equipment it was actually able to recover. That sum must be credited against the amount owing.

[230] Although the loans provide for interest rates that vary as the bank’s prime rate varies, and is that rate plus various percentages the bank suggests it would not be unreasonable for interest simply to run at the prejudgment interest rate mandated by the Courts of Justice Act. For the fourth quarter of 2008 that rate is 3.3%, which is lower than the rates specified in the loan. The bank’s suggestion is more than reasonable.

[231] One of the components of the loan was a US dollar loan in the amount of $300,000 US$. It is a relatively small piece of the total amounts owing to the bank. The bank says it would be extremely complex and costly to calculate the amount owing on account of the US dollar loan, given both the fluctuating exchange rate for the US dollar as compared to the Canadian dollar, and the fluctuating interest rate on the loan. Accordingly, the bank is not claiming the amount outstanding on this portion of the loan. Again, the bank’s position is more than reasonable.

[232] Accordingly, I accept the bank’s calculation of its total damages as follows:

Full Amount of HSBC's Loan (Outstanding $ 9,165,782.94

Principal):

(Exhibit 3, Tab 112)

Less Amount Held by Receiver: ( $381,402.00)

(Exhibit 3, Tab 140,)

Pre~ judgment interest calculated from December 4,

2008 (up to and including October 2, 2013)

@3.3%: $1,461,804.26

TOTAL OWING- $10,246,185.20

[233] Alternatively, it is clear Ber, Perlin Botvinnik, 208 and 203 have somehow taken over tractors and trailers that belonged to 207. They have committed the tort of conversion.

[234] In trying to locate and sell 207/Turbo’s equipment, Biehler went through an exhaustive process to identify which equipment listed on the various equipment lists actually belonged to 207/Turbo. He then tried to locate and sell that equipment. From this exercise he was able to create a breakdown of tractors and trailers that 207/Turbo actually owned, but that Deloitte had not been able to recover and sell.

[235] Ray Brown, the appraiser, prepared an appraisal for the purposes of calculating damages. He was qualified as an expert at trial, entitled to provide the court with his opinion evidence.

[236] He did a current appraisal on of the missing equipment on both a fair market and orderly liquidation value basis. From his opinion, and Biehler’s evidence it is clear that the value of all the trailers that 207 owned but were not recovered is $775,000 on an orderly liquidation basis. Similarly, the value of the tractors that 207 owned but were not recovered is $1,172,000, making the total damages for conversion of the equipment $1,947,000.

[237] Quantifying the value of the converted accounts receivable is more challenging. As the bank put it, the best evidence of 207/Turbo’s accounts receivable closest to the date of the receivership was the statement 207/Turbo provided on July 31, 2008. There, the accounts receivable for the long haul portion of the business is listed at $2,036,891. This is the same figure as 203 presented to the TD Bank for the same period. Since Deloitte collected none of 207/Turbo’s long haul accounts receivable, I can only conclude it was 203 who collected them, thus converting 207/Turbo’s asset.

[238] I would therefore fix the damages for conversion of the accounts receivable at $2,036,891. The total damages for conversion, for both the equipment and the accounts receivable come to a total of $3,983,891.

Punitive damages

[239] In addition to the claims for damages which I have set out above, the bank also claims punitive damages against Ber, Perlin, Subotic and Botvinnik. It says the tort of conspiracy, which involves Botvinnik, 203, 208 Ber and Perlin, warrants punitive damages. It also argues that fraudulent misrepresentation should also result in an award of punitive damages. It points out that conversion and wrongful seizure of goods can also warrant an award of punitive damages.[^19] I agree.

[240] The bank suggests a figure of $100,000 for punitive damages, to be paid jointly by Ber, Perlin, Subotic and Botvinnik. This seems a reasonable figure.

Ber and Perlin’s guarantees

[241] Although Ber and Perlin did not adduce any evidence in support of their claim their guarantees are void, I can deal briefly with this claim, on the basis of the evidence at trial.

[242] Ber and Perlin were examined for discovery, and portions of their examinations were read in at trial, as part of the bank’s case. In these read-ins both Ber and Perlin admit they signed the guarantees when the commitment letter was accepted. They also admit that when the credit facilities were changed, each signed the new facility letters as guarantors. There was therefore no material change to the guarantees to which Ber and Perlin did not consent. There has been no evidence led by Ber and Perlin in support of their claim that the guarantees are void and thus this claim must fail.

[243] As to Ber and Perlin’s claims that the bank was negligent, commissioned an improper appraisal, made numerous errors and somehow orchestrated 207/Turbo’s default, I have no evidence to support any of these allegations against the bank. I therefore conclude there is no basis to set aside their guarantees. The claim must therefore be dismissed.

Conclusion:

[244] I have no doubt Ber, Perlin, Perlin’s company 203, Botvinnik, Botvinnik’s company 208 together with Subotic schemed together to provide false information to the bank in order to induce the bank into lending millions of dollars to 207/Turbo.

[245] I also have no doubt Ber, Perlin and Botvinnik together devised a way to remove 207/Turbo’s equipment and accounts receivable into the hands of Botvinnik, 203 and 208 in order to prevent the bank from realizing on these assets pursuant to its security.

[246] As a result, I find in favour of HSBC, and dismiss Ber and Perlin’s claim.

[247] Accordingly, judgment will issue in the following terms:

a) Against Ber and Perlin and Subotic for damages for fraudulent misrepresentation in the amount of $10,246,185.20 inclusive of interest to October 3, 2013;

b) Against Ber and Perlin on their guarantees, in the amount of $375,000 each;

c) Against Ber, Perlin, Botvinnik, 203 and 208 for damages for conspiracy and conversion in the amount of $3,983,891;

d) The amount owing under paragraph (a) above will be reduced by any amounts Ber, Perlin, Botvinnik, 203 and 208 pay on account of the amounts set out in paragraphs (b) and (c) above;

e) Ber, Perlin, Botvinnik, 203, 208 and Subotic will jointly and severally pay punitive damages fixed at $100,000.

[248] If the parties are unable to agree on the issue of costs, they may make brief written submissions to me. As the rules provide, the submissions will be no longer than three pages in length. They will include a bill of costs, together with information on each lawyers’ year of call and actual billing rate. If there are any offers of settlement that bear on the issue of costs, these will be included as well. The bank’s costs submissions will be delivered within three weeks of the date of release of these reasons, with Ber, Perlin’s, Botvinnik’s and Subotic’s to be delivered within three weeks of receiving the bank’s costs submissions.

MESBUR J

Released: 20131118

[^1]: Although 207 is now Turbo Logistics Canada Inc., in order to avoid confusion, I will continue to refer to Turbo Logistics Canada Inc. primarily as “207”, “207/Turbo” or “the borrower” in these reasons.

[^2]: Exhibit 1, tab 14

[^3]: Asset Appraisal Corporation appraisal report prepared for 207 (Mr. Transportation), as of March 2007

[^4]: Exhibit 1, tab 6

[^5]: Exhibit 24, affidavit of Boris Shteiman sworn August 23, 2013, and accepted, on consent, as truth of its contents without the necessity of cross-examination. In it, Shteiman deposes he did not sign the document and his signature must have been forged. Forensic testing apparently confirmed this.

[^6]: Letter attached to Perlin’s email to Brydon of December 4, 2008, tabs 105 and 114 of exhibit 3

[^7]: No relation to George Perlin

[^8]: 14 App. Cas. 337 (UK HL)

[^9]: See, for example, Fiorillo v.Krispy Kreme Doughnuts Inc. 2009 29902 (ON SC), [2009] O.J. No. 2430;

[^10]: Edgington v. Fitzmaurice,( 1885), 29 Ch.D. 459 (C.A.), as quoted in Gregory v. Jolly, 2001 4324 (ON CA), [2001] O.J. No. 2313 (OCA)

[^11]: 2009 ABQB 497

[^12]: Fiorillo, supra note 9

[^13]: Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co. 1991 27 (SCC), [1991] 3 S.C.R. 3

[^14]: Fiorillo, supra note 9

[^15]: Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., supra

[^16]: EnerWorks Inc. v. Glenbarra Energy Solutions Inc. 2012 ONSC 414, [2012] O.J. No. 2272 (S.C.J.)

[^17]: Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, 1996 149 (SCC), [1996] 3 S.C.R. 727

[^18]: S.M. Waddams, The Law of Damages, loose-leaf (Toronto: Thomson Reutres 2012) s.1.1000 and s. 11.230

[^19]: S.M. Waddams, The Law of Damages, supra, article 11.230