COURT FILE NO.: 6164/13

DATE: 20140617
CORRECTED: 2014-09-02

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Bank of Montreal, Plaintiff

AND:

Durham Foods Limited and James Sheehan, Defendant

BEFORE: Trimble J.

COUNSEL: Gillian Silverhart, Counsel for the Plaintiff

James Sheehan, Self-represented

HEARD: June 5, 2014

ENDORSEMENT

[1] The text of the original endorsement dated June 17, 2014 was corrected on September 2, 2014 as follows: The words ‘prime plus’ in paragraph 12 have been removed and the interest rate in paragraph 47 has been corrected to read 5 per cent.

[2] The Bank of Montreal (BMO) brings this motion for summary judgment against the Defendant, Durham Foods Limited (Durham) arising from its default on two loans BMO advanced and a MasterCard account. BMO also seeks summary judgment against Mr. Sheehan for guarantees he provided for the two loans.

[3] The central issue on this motion is whether there is an issue requiring a trial; namely, whether BMO represented to Mr. Sheehan that the Defendants would never be responsible for more than ten per cent of the loan indebtedness because the loans were insured under the Canadian Agriculture Loans Act (CALA) scheme?

[4] The Defendant, Sheehan represented himself. He also represented his company, Durham. There being no objection to Sheehan’s acting for the company on this motion, I allowed it.

FACTS:

[5] Durham applied for loan funding from BMO to start its hydroponic farm operation. On December 20, 2010, BMO granted a loan to Durham for $153,796.25, with interest at prime plus one per cent, with monthly payments of $1,281.09, payable until maturity on December 20, 2022.

[6] On April 12, 2011, BMO granted a second loan to Durham for $58,015.32, with interest at prime plus 6.69 per cent, with monthly payments of $690.66, payable until maturity on April 30, 2016.

[7] In December 2010, Durham also applied for, and was given, a corporate MasterCard account with a limit of $10,000, and interest of 18.4 per cent, annually.

[8] As part of its security agreement with BMO, Durham gave, and BMO registered, a general security agreement over the assets of Durham. In addition, on the same day that each loan was given, Sheehan gave a personal guarantee of $152,500 in respect of the first loan, and $58,016 in respect of the second loan. Each guarantee bore interest at prime plus five per cent. There was no personal guarantee asked for in respect of the MasterCard indebtedness.

[9] Sheehan says that BMO represented to he and Durham that since the two loans were insured under the CALA scheme for 90 per cent of their value, he and Durham would only be responsible for a small portion of the loans’ value. At various times in the arguing of the motion, Sheehan said that the amount for which he would be responsible under his guarantees is five to ten per cent, and at other times, a firm ten per cent. He alleges this representation only in response to this motion. It is not pleaded in Sheehan’s Statement of Defence. Durham has not yet filed its defence, but has delivered it. I am told that Durham’s Statement of Defence is identical in all material respects to Sheehan’s Defence.

[10] BMO denies that this representation was ever made.

[11] The two loans went into default on November 30, 2012. The MasterCard remains outstanding. On April 2, 2013, BMO gave formal notice to Durham and Sheehan that it was seeking payment, realizing on its security, and demanding payment of the guarantees.

[12] The first time the Defendants took the position that it relied on representations by BMO as a defence to the Statement of Claim BMO issued was in its response to BMO’s summary judgment motion (see paragraphs 9 to 13 of the “GROUNDS FOR DISMISSING THE IS MOTION ARE:” in the Defendants’ DEFENCE OF MOTION dated January 31, 2014). They took no such position in their Defence dated December 8, 2013.

JUDGMENT AGAINST THE COMPANY:

[13] BMO argues that since Durham has not filed any material in response to BMO’s motion, summary judgment should issue against Durham. I agree. Hence, Judgment shall issue against Durham based on the amounts outstanding as of November 30, 2012 (see Affidavit of Mike Siek, paragraph 19 and Exhibit F) as follows:

• On the first loan, for $120,474, plus interest at prime plus 1% since November 30, 2012

• On the second loan, for $42,820.92, plus interest at 6.69% since November 30, 2012

• On the MasterCard, for $13,683.47, plus interest at 18.4% since November 30, 2012.

[14] Since no up-to-date interest calculation was provided, I leave it to the parties to determine the totals owing as of the date of these reasons.

[15] Since Durham has not defended this motion, BMO is also at liberty to begin enforcement under the General Security Agreement against Durham. This will be subject to the rights of other creditors as no evidence was presented on the motion concerning the existence or priority of other creditors.

THE ISSUE ON THE MOTION:

[16] The only issue to be decided on this motion is whether there is an issue requiring a trial; namely, whether BMO is estopped from collecting from Mr. Sheehan on the guarantee any amount greater than ten per cent of the guarantee amount.

POSITION OF THE PARTIES:

1. The Plaintiff

[17] The Plaintiff says that there is no genuine issue requiring a trial. The issue of whether or not a representation was made that prevents enforcement of the guarantees can be decided fairly and justly on the record, without a trial. The Plaintiff gives three grounds for its position:

a) The Guarantees, themselves, prohibit Sheehan from relying on representations outside the four corners of the guarantees;

[18] The Guarantees contain exactly the same wording, as follows:

“The UNDERSIGNED acknowledges that this Guarantee has been delivered free of any conditions and that no representations have been made to the undersigned affecting the liability of the undersigned under this Guarantee save as may be specifically embodied herein and agrees that this Guarantee is in addition to and not in substitution for any other guarantees now or subsequently held by the Bank.

The UNDERSIGNED represents and warrants that (i) it fully understands the provisions of this Guarantee and its obligations hereunder; (ii) it has been afforded the opportunity to engage independent legal counsel, at its own expense, to explain the provisions of the Guarantee and its obligations hereunder; and (iii) it has either engaged legal counsel in connection with its execution of this Guarantee or has decided, at its sole discretion, not to do so.”

[19] In argument, Mr. Sheehan conceded that he had independent legal advice (albeit paid by the Bank) before he signed the Guarantees.

[20] The Bank submits that the provisions in the Guarantees, themselves, are a full answer to the issue of whether there were representations made and that if made, could have no effect on the liability of Mr. Sheehan.

b) There is no air of reality to Mr. Sheehan’s position that representations were made to him or that he relied on them to his detriment;

[21] In this submission, the Bank was quite detailed.

[22] First, Mr. Sheehan is a sophisticated litigant. He knew the nature of the guarantee he signed. Before starting Durham, Sheehan was president of Trillium, a private post-secondary school that sold for $4 million just before he started Durham. In addition, Sheehan was a consultant whose services included assisting businesses in filling out forms to obtain, and in obtaining Ontario Government grants.

[23] Second, Sheehan had experience with guarantees before executing those at issue in this action. While president of Trillium, he arranged four loans with BMO and signed four personal guarantees to secure the loans.

[24] Third, Sheehan did not contradict evidence presented by the BMO representatives who were involved in these loans. They each said that they reviewed with Mr. Sheehan, on a line by line basis, commitment letters in respect of each loan. Those letters specifically required him to sign a personal guarantee, and neither mentioned that he would be responsible for only ten per cent of the indebtedness. Sheehan did not gainsay the employees’ evidence that he was allowed to ask questions in those meetings and review of commitment letters.

[25] Fourth, all three bank loan officers that dealt with this loan swore that they never made the representation to Sheehan that his obligation under the guarantees would be other than as contained in the guarantees. None of these people were cross examined. Their credibility was not challenged. In order to make the representation that Mr. Sheehan relies on, the employees would have to have breached their obligations to their employers. This is unlikely.

[26] Fifth, Sheehan’s timing of raising this representation defence makes it unlikely that it was said. The demand was made in April, 2013. The Defendants did not raise the defence of the representation at that time. The Statement of Defence was filed on or about December 8, 2013. The Defendants did not raise the representation as a defence. The first time that the Defendants raised the issue of the representation as a defence was in the Defendants’ response to BMO’s summary judgment motion. That response was delivered on or about January 31, 2014. BMO says that any real defence based on the representation would have been raised from the outset, were it true.

c) Even if representations were made, the Parole Evidence Rule prohibits oral evidence in the face of clearly worded contracts.

[27] BMO says that the guarantees are clear and unambiguous, and since they are clear, the parole evidence rule prevents admission of oral evidence as to the nature of the agreement. BMO relies on Bank of Montreal v. Maple City Ford Sales, 2002 CarswellOnt 3039 (Ont. S.C.J.) in which the defendant argued that it entered into an oral forbearance agreement that prevented the personal guarantees from operating. The guarantee agreement in Maple City is very similar to that signed by Sheehan. The Court held in Maple City at paragraphs 119-122 that the “no representation” clause in a contract is evidence of the parties’ intent that no representations shall be used, and that the parole evidence rule applies to a clearly drafted no representations clause.

2. The Defendants.

[28] Mr. Sheehan says that three BMO employees told him that since the two loans were insured by CALA, he would be responsible for only ten per cent of the loans. He was told that the Government guaranteed the loans and the Bank’s interest was “secure”. These employees are: Colin O’Regan (accounts manager), Jewel Braithwaite (subsequent accounts manager) and Craig Khattar (Commercial Manager of Credit). Mr. Sheehan is certain that he can establish that these representations were made, at a trial of this issue.

[29] It is of significance that each of these three individuals filed affidavits denying such representations, and that Mr. Sheehan did not cross examine them on their affidavits.

[30] The Defendant does not address, specifically, the grounds advanced by the Plaintiff.

DECISION:

[31] In my view, this is the appropriate case for summary judgment, and that summary judgment should issue.

[32] In 2014 SCC 7, the Supreme Court of Canada considered when summary judgment can be granted on the basis that there is “no genuine issue requiring a trial,” as per Rule 20.04(2)(a). The Court also considered when it is against the “interest of justice” for the new fact-finding powers in R. 20.04(2.1) to be used on a summary judgment motion.

[33] Rule 20.04 provides:

(2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or

(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent

3. Drawing any reasonable inference from the evidence

(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule

(2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation. [emphasis added]

[34] When can summary judgment be granted?

[35] The Supreme Court of Canada stated, at para. 49:

[49] There will be no genuine issue requiring trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[36] The overarching issue to be answered is “whether summary judgment will provide a fair and just adjudication.” The Court went on to say that “the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.”

[37] Where the interests of justice require a hearing of some aspect of a case in order to provide a fair and just adjudication, the powers available under Rules 20.04(2.1) and (2.2) are available. They only become unavailable where it is in the interest of justice for such powers to be exercised only at trial. The Supreme Court noted: “The interests of justice cannot be limited to the advantageous features of a conventional trial, and must account for proportionality, timeliness and affordability. Otherwise, the adjudication permitted with the new powers – and the purpose of the amendments – would be frustrated.”

[38] The motion judge must engage in a comparison between the advantages of proceeding by way of summary judgment and proceeding by way of trial. Such a comparison may include an examination of the relative cost and speed of each medium, as well as the evidence that is to be presented and the opportunity afforded by each medium to properly examine it. The court noted that, “when the use of the new powers would enable a judge to fairly and justly adjudicate a claim, it will generally not be against the interest of justice to do so.” However, the inquiry must go further, and must also consider the consequences of the motion in the context of the litigation as a whole.

[39] In its approach to a motion for summary judgment, the Supreme Court stated that the following analysis should apply:

1. The judge should determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-findings powers. There will be no genuine issue requiring trial if the summary judgment process provides the trial judge with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure.

2. If there appears to be a genuine issue requiring a trial, the judge should determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). The motion judge may, at his discretion, use those powers unless it is against the interest of justice to do so. It will not be against the interest of justice if use of the powers will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[40] In Hryniak, the Supreme Court of Canada left undisturbed the law with respect to the ongoing obligations of a party responding to a summary judgment motion. The responding party must still put his/her best foot forward presenting sworn evidence of specific facts showing that there is a genuine issue requiring a trial (see: Canadian Imperial Bank of Commerce v. Mitchell, 2010 ONSC 2227, [2010] O.J. No. 1502 and Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764). Without detracting or deviating from Hryniak, the parties have the duty to place all available, relevant evidence before the court to consider on the motion. The court must determine whether the evidence before it, including any evidence that may be obtained through the additional powers under Rule 20.04, is sufficient to make the findings needed to arrive at a final determination of the issue(s). If yes then judgment can be made on the summary motion. If not then a trial or some procedure crafted under Rule 20.04 is required.

[41] This motion, at its most basic, is a motion to enforce written guarantees which contain a clear and unambiguous “no representations” clause which prohibits altering the terms of the guarantee by the very sorts of oral representations Mr. Sheehan now advances. For this reason, alone, there is no issue requiring a trial or any other bespoke procedure under Rule 20.04. The motion for summary judgment can and should be granted on the record, alone.

[42] Setting aside the effect of the “no representations” clause, there is no triable issue on the record as it exists. In this case, BMO has put forward a complete record setting out the basis for its request for summary judgment. That record includes affidavits from the three BMO employees who had involvement with the loans to Durham and the Sheehan guarantees, as well as a detailed cross-examination of Mr. Sheehan. Each of those BMO employees denied making the representations that Sheehan says were made, which he says limit his liability to ten per cent of Durham’s indebtedness. The cross-examination casts serious doubt on what specific representation was allegedly made.

[43] The Bank has put forward its best foot and has satisfied me that there is no issue requiring a trial, and that I can reach a fair, just adjudication of the issues, on the record provided, without resort to the special powers under 20.04.

[44] The onus shifts to Sheehan to put his best foot forward to raise the issue requiring a trial. He has not done so.

[45] Sheehan submits that he is sure the bank representatives will agree with him (if only he could talk with them at a trial) that they told him that his exposure was limited to ten per cent of Durham’s indebtedness. Sheehan has tried, since January 31, 2014, to raise an issue of pure credibility that could only be resolved at a trial. Unfortunately, he has not done so effectively. That the fact of the representation was first made in response to the motion for summary judgment, and was not alleged at the time the demand for payment was made nor raised in the Statement of Defence filed, puts the truth of the representation in doubt. Further, Sheehan had the opportunity to cross examine all the affiants proffered by BMO, but did not do so.

[46] Sheehan attempted to create a “real” credibility issue that requires, if not a full trial, a trial of that issue. To hold that such an issue of credibility exists and that a trial or bespoke procedure under Rule 20.04 is required, I would have to ignore the “no representations” clause in the guarantee, reject clear, uncontradicted evidence that the alleged representation was never made, and reject that Sheehan was a sophisticated commercial actor who knew and understood what he was doing. Further, I would have to overlook that he took independent legal advice.

[47] For all of these reasons, the motion for summary judgment against Mr. Sheehan on the guarantees must be allowed.

[48] I note that by November 12, 2012, some of the principal on the loans had been retired. Therefore, BMO shall have judgment against Mr. Sheehan pursuant to the guarantees, as follows:

• On the first loan, $120,474, plus interest at prime plus five per cent since November 30, 2012;

• On the second loan, $42,820.92, plus interest at prime plus 5 per cent since November 30, 2012.

COSTS

[49] BMO is entitled to its costs of the motion. Parties shall have 30 days within which to exchange then file costs submissions, failing which I will fix them.

Trimble J.

Date: June 17, 2014

Corrected: September 2, 2014