COURT FILE NO.: 6012/12
DATE: 2015/10/22
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Computershare Trust Company of Canada (Plaintiff)
AND:
Sanjay Gandhi and Hafiz Mohammad Masood (Defendants)
BEFORE: Justice H. A. Rady
COUNSEL:
Jennifer J. Quick, for the Plaintiff
Mark A. Klaiman, for the Defendant Gandhi
Hafiz Mohammad Masood noted in default
HEARD: October 19, 2015
ENDORSEMENT
Introduction
[1] The plaintiff has sued the defendants on a guarantee by way of a claim issued January 3, 2012. Mr. Gandhi defended the action by filing a statement of defence served February 24, 2012. Default judgment was obtained against Mr. Masood on September 11, 2012. Examinations for discovery were completed on June 3, 2013. A pre-trial conference was held on March 27, 2015. The matter is on the running list for this week. Mr. Gandhi brought a motion originally returnable October 13, 2015 seeking to amend his statement to defence. The plaintiff opposes.
The Proposed Amendment
[2] The defendant wishes to add the following paragraph to his statement of defence:
2a. This Defendant pleads that prior to execution of the Guarantee the Plaintiff’s representative represented that a personal guarantee being sought by the Plaintiff be limited to $1,450,000.00. The representative represented to this Defendant that in the event that the property sells for more than $1,450,000.00 then the obligation of this Defendant would be fulfilled. On the strength of the said representation this Defendant executed the Guarantee. This Defendant pleads that if the Plaintiff’s position is that if the Plaintiff is obligated to pay the amount over and above sale price of the property if it exceeded $1,450,000.00, then this Defendant pleads that the Plaintiff misrepresented its obligation in executing the Guarantee. Further, and without in anyway limiting the foregoing this Defendant pleads and relies upon the doctrine of the promissory estoppel.
[3] The defendant relies on a communication from an agent or representative of the plaintiff dated March 23, 2007 that reads:
“Sanjay, just got your message concerning the personal guarantee, and I have confirmed with my legal department incase of default, the guarantee in the commitment letter for $1,450,000.00 of the loan will only be payable to the lender in case the subject property ever sells less than $1,450,000.00. If it sells for more than $1,450,000.00 then your obligation will be fulfilled. Best Regards,”
[4] The author of the email is said to have no recollection of sending it. However, for the purposes of the motion, the plaintiff conceded it was sent.
The Parties’ Positions
[5] The defendant notes that the language of Rule 26 is mandatory and an amendment shall be granted, absent non-compensable prejudice.
[6] The plaintiff counters that the amendment is plainly untenable at law and has no prospect of success. It points out that with the benefit of independent legal advice, Mr. Gandhi signed a “Full Recourse Guarantee” dated April 11, 2007. Its key provisions are as follows:
FULL RECOURSE GUARANTEE
1.01 Guarantee. The Guarantor hereby unconditionally and irrevocably guarantees payment and performance by the Borrower to the Lender of all the debts, liabilities and obligations, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by the Borrower to the Lender or remaining unpaid or unsatisfied by the Borrower to the Lender (…“Obligations”)…;
1.02 Indemnity. If any or all of the Obligations are not duly performed by the Borrower … for any reason whatsoever, the Guarantor will … indemnify and save harmless the Lender from and against all losses resulting from the failure of the Borrower to perform such Obligations;
1.03 Primary Obligation. If any or all of the Obligations are not duly performed by the Borrower … , for any reason whatsoever, such Obligations will … be performed by the Guarantor as primary obligor;
1.04 Guarantee Absolute. The liability of the Guarantor hereunder shall be absolute and unconditional… The liability of the Guarantor hereunder shall be limited to the sum of $1,450,000 plus interest and Costs as herein provided, without apportionment, limitation or restriction of any kind.
2.01 No Release. The liability of the Guarantor hereunder shall not be released, discharged, limited or in any way affected by anything done, suffered or permitted by any Lender Entity in connection with any duties or liabilities of any Borrower Entity to any Lender Entity or any security therefor including any loss of or in respect of any security received by the Lender. Without limiting the generality of the foregoing and without releasing, discharging, limited or otherwise affecting in whole or in part the Guarantor’s liability hereunder, the Lender … may … both before and after an Event of Default:
…
…
take or abstain from taking or enforcing securities or collateral from any Borrower…;
…
apply all money at any time received from any Borrower Entity or from securities upon such part of the Obligations as the Lender may see fit…; and
otherwise deal with any Borrower Entity and all other Persons and securities as the Lender may see fit.
3.01 Continuing Guarantee. This Guarantee shall be a continuing guarantee of the Obligations and shall apply to and secure any ultimate balance due or remaining due to the Lender and shall not be considered as wholly or partially satisfied by the payment or liquidation of any time of any sum of money for the time being due or remaining unpaid to the Lender…;
4.01 Demand and Interest. The Lender shall be entitled to make demand upon the Guarantor at any time upon the occurrence of any Event of Default … and upon such Event of Default the Lender may treat all Obligations as due and payable and may forthwith collect from the Guarantor the total amount guaranteed hereunder whether or not such Obligations are yet due and payable at the time of demand for payment hereunder. … The Lender shall not be bound or obligated to exhaust its recourse against any Borrower Entity or other Persons or any securities or collateral it may hold or take any other action being entitled to demand payment from the Guarantor hereunder. …;
6.02 Entire Agreement. This Guarantee constitutes the entire agreement between the Guarantor and the Lender with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between such parties with respect thereto. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the parties with respect to the subject matter of this Guarantee except as expressly set forth herein. … [P]ossession of this Guarantee by the Lender shall be conclusive evidence against the Guarantor that the Guarantee was not delivered … pursuant to any agreement that it should not be effective until any condition precedent or subsequent has been complied with.
The Law
[7] Rule 26.01 provides as follows:
On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[8] The defendant relies on a number of cases where after trial, entire agreement clauses were held not to be enforceable by reason of misrepresentations made by one party to the other. He also relies on cases where a promissory estoppel was established.
[9] The recurrent theme in the cases is expressed in Tudale Explorations Ltd. v. Bruce (1978), 1978 1471 (ON SC), 20 O.R. (2d) 593 (C.A.) quoting Snell in his work on Equity, 27th ed.p.563:
“Where by his words or conduct one party to a transaction makes to the other an unambiguous promise or assurance which is intended to affect the legal relations between them (whether contractual or otherwise), and the other party acts upon it, altering his position to his detriment, the party making the promise or assurance will not be permitted to act inconsistently with it.”
[10] In 7326246 Canada Inc. v. Ajilon Consulting, 2014 ONSC 28, [2014] O.J. No 538 (S.C.J.) Justice Himel commented on entire agreement clauses:
58 Similarly, entire agreement clauses found in contracts induced by a negligent misrepresentation have generally been found to be unenforceable in the context of an unsophisticated party unless notice of the clause, or even notice of the clause’s intended effect, was brought home to the unsophisticated party during bargaining: see Beer v. Townsgate I Ltd. (1997), 1997 976 (ON CA), 152 D.L.R. (4th) 671 (Ont, C.A.), at para. 29; Zippy Print Enterprises Ltd. v. Pawliuk (1994), 1994 1756 (BC CA), 100 B.C.L.R. (2d) 55 (B.C. C.A.), at para 45; Roberts v. Montex Development Corp. (1979), 1979 452 (BC SC), 100 D.L.R. (3d) 660 (B.C.S.C.).
[11] The same kind of reasoning informed the analysis in Antorisa Investments Ltd. v. 172965 Canada Ltd., [2006] O.J. No. 3427 (S.C.J.) and Machias v. Mr. Submarine Limited, 2002 49643 (ON SC), [2002] O.J. No. 1261 (S.C.J.), the latter case involving the inequality of bargaining power between a franchisor and franchisee.
[12] The defendant also relied on Kuban v. Royal Bank, [1996] O.J. No. 1817 (S.C.J.); Armstrong Baum Plumbing and Heating v. Toronto Dominion Bank, [1994] O.J. No. 331 (S.C.J.); aff’d (1997), 1997 14478 (ON CA), 32 B.L.R. (2d) 230 (Ont. C.A.). The first case involved a plaintiff who signed a guarantee in blank on the strength of assurances made by the bank’s manager as to its import. The second involved a bank that actively contributed to its customer’s misunderstanding of the document.
[13] The plaintiff relies on the well settled line of authority that establishes that an alleged collateral agreement cannot stand where it is inconsistent with or contradicts the terms of a subsequent written guarantee. See Hawrish v. Bank of Montreal, 1969 2 (SCC), [1969] S.C.R. 515 and Bauer v. Bank of Montreal, 1980 12 (SCC), [1980] 2 S.C.R. 102.
[14] The plaintiff’s position is captured at paras 20 and 23 of its factum:
Mr. Gandhi is attempting to introduce and rely on an alleged representation which, he says, would discharge his liability. Such a defence has no chance of success: the alleged representation pre-dates the execution of the Guarantee, is completely inconsistent with it, as per the provisions set out above (not the least of which is the “Entire Agreement” clause), and contradicts the Guarantee’s very title as a “Full Recourse Guarantee”. The evidence upon which he is relying to attempt to escape liability is inadmissible under the parol evidence rule; his new defence pursuant to the proposed amendment will fail and cannot be raised.
Mr. Gandhi’s proposed amendment and new defence with respect to promissory estoppel is not capable of success. The alleged representation, if true, came before the execution of the Guarantee. The legal relationship between the parties vis-à-vis the Guarantee did not occur until the execution of it; thus, the alleged representation did not affect a legal relationship and the required elements of promissory estoppel cannot be fulfilled.
Analysis and Disposition
[15] It is troubling that this motion was brought on the eve of trial and more than six months after the pre-trial when the alleged representation was first raised.
[16] This is not a situation of an imbalance of power or where someone has signed a document in blank. On the contrary, the evidence is that Mr. Gandhi had independent legal representation when the guarantee was signed.
[17] Nevertheless, I am prepared to permit the amendment to be made. While I have reservations about the merits of the defence, the email is of sufficient concern to me that the interests of justice require that the allegation be adjudicated at a trial. I have no evidence about Mr. Gandhi’s level of sophistication or what his understanding of the guarantee was when he executed it in light of the email communication.
[18] If the parties cannot agree, I will receive brief written submissions on costs, first from Mr. Gandhi by October 30, 2015 and from the plaintiff by November 6, 2015.
“Justice H.A. Rady”
Justice H.A. Rady
Date: October 22, 2015