ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-391311

DATE: 20151231

B E T W E E N:

CLE LEASING ENTERPRISE INC.

Varoujan Arman, for the Plaintiff

Plaintiff

• and -

2173097 ONTARIO INC. c.o.b.

Michael Tweedie, for the Defendants

TIMEOUT SPORTS BAR & CAFÉ,
Sarbjit Kaur and Estate of Gurmit
JAGJIT DHALIWAL, HARDEEP
Dhaliwal
DHILLON, THE ESTATE OF GURMIT
DHALIWAL and SARBJIT KAUR

Defendants

JUDGMENT

D.L. Corbett J.:

[1] This motion for summary judgment is brought by the plaintiff, an equipment leasing company, against the defendants Gurmit Dhaliwal and Sarbjit Kaur, to enforce collateral security provided by these defendants for an equipment lease to the corporate defendant. The claims against the other defendants remain outstanding as per my order of February 12, 2014.

[2] The responding defendants defend on the basis that they did not understand the documents that they signed, and that they signed those documents solely because of the defendant Jagjit Dhaliwal’s undue influence. They also argue that the guarantee is vague and ambiguous and for that reason unenforceable.

[3] At the first return of this motion on the merits I held as follows:

There shall be a trial of the issue as to whether the defendants Gurmit Dhaliwal and Sarbjit Kaur were persuaded to provide the collateral guarantee and mortgage as a result of undue influence by Jagjit Dhaliwal. CLE did not require these defendants to obtain independent legal advice and there is no evidence that they did. Gurmit Dhaliwal does not speak English and was not involved in the business. Sarbjit Kaur does not work in the business and is the wife of Jagjit Dhaliwal. Oddly, CLE required a certificate of independent legal advice from Jagjit Dhaliwal – one of the principals in the business and not his wife or his father who were not.

Costs of this motion reserved to me upon decision at trial.

As per Hryniak v. Mauldin, 2014 SCC 14, I am seized of this matter to the trial of the issues raised on this motion….

[4] The principles that apply to this case are set out in the Court of Appeal’s decision in Bank of Montreal v. Duguid.[^1] A real prospect of undue influence may be established by showing a close relationship between the parties coupled with a manifestly disadvantageous transaction. This “real prospect” is not a legal presumption, and the party alleging undue influence must establish, on a balance of probabilities, that s/he reposed “trust and confidence” in the person who influenced her to such an extent that her consent to the transaction is vitiated. The focus of the inquiry is on all of the circumstances to determine whether the transaction was the product of a free and independent mind. Factors to consider include whether the surety received, or was advised to obtain, independent legal advice, the surety’s sophistication, commercial knowledge, experience, and general independence.

[5] In Duguid, the trial judge accepted that the Duguids were going through a rough period in their marriage, and that Ms Duguid co-signed a promissory note with her husband to preserve and advance the marital relationship, without regard to the commercial merits of the transaction. The Court of Appeal accepted the trial judge’s conclusion that Ms Duguid consented in the context of marital pressure, but reversed the trial judge’s disposition on the basis that this context did not vitiate Ms Duguid’s free and informed consent to the transaction. Ms Duguid was a real estate agent, understood the risks involved in her husband’s business, and understood the import of signing a promissory note.

[6] Mr Dhaliwal and Ms Kaur were both very different from Ms Duguid. I have concluded that their consent was neither free nor informed. For the reasons that follow, I conclude that the collateral security was provided as a result of undue influence and is not be enforceable.

The Transactions in Issue

(a) Background of the Family

[7] Jagjit Dhaliwal is a truck driver. He owns his own rig. He has been driving his truck for a living for two decades. He has done well; he has no debt in respect to his truck. He has purchased a home, paid down the mortgage and supported his family from his business as an independent truck driver.

[8] Sarbjit Kaur is Jagjit Dhaliwal’s wife. She is a stay-at-home mother. Sarbjit and Jagjit went through an arranged marriage at the instance of their parents. Sarbjit testified that her husband is “her master” and that she “obeys him in all things, as a good wife should”. Sarbjit’s domain is the home, which she manages. Jagjit is responsible for the family’s business affairs. He makes the money and the financial decisions.

[9] Gurmit Dhaliwal is Jagjit’s father. Gurmit and his wife (Jagjit’s mother) live with Jagjit and Sarbjit. At the time of the impugned transaction, Gurmit was in his mid-60’s. He was born and raised in India, where his formal schooling did not extend beyond learning to write his own name in Punjabi. After he came to Canada, Gurmit worked in menial jobs within the Sikh community. At the time of the impugned transaction, he was an assistant in a Sikh grocery store. He did not read, write or understand English, written or spoken.

(b) The Proposed Restaurant Business

[10] Jagjit decided to invest in a restaurant business. This was not with a view to leaving the business of truck-driving. This was in addition to his core business. He thought the restaurant was a good idea and that he could make money from it.

[11] Jagjit had a partner in the restaurant venture – Hardeep Dhillon. Mr Dhillon was also a truck driver. The restaurant project was apparently his idea.

[12] With the help of a paralegal, Jagjit and Hardeep caused the corporate defendant to be incorporated for their restaurant business. They called their restaurant the “Timeout Sports Bar & Café”. They hired a general manager, Kris Sokanan, who lived with his parents across the street from the Dhaliwals. They leased premises and obtained equipment for the business.

[13] The restaurant equipment was obtained pursuant to an equipment lease between the corporate defendant and the plaintiff dated August 13, 2008. The equipment lease was supported by a personal guarantee from Jagjit’s wife, Sarbjit, and a collateral mortgage against the Dhaliwal family home provided by Sarbjit and her father-in-law, Gurmit. The personal guarantee was unlimited; the collateral mortgage against the house was for $90,000 plus interest at 24% from and after default.

(c) Default

[14] The lease went into default in January 2009.[^2] On June 15, 2009, there was a fire at the restaurant and the business was destroyed. Insurance proceeds have not been available to pay the equipment lease. The plaintiff calculates the balance owing under the equipment lease as $265,951.12, plus legal costs, as of March 1, 2013. This calculation is not challenged.

(d) Claims Against the Business

[15] The claim against the corporate defendant is straightforward. It entered the lease with the plaintiff, has defaulted. There was no evidence on this motion that the corporate defendant has any defence to the plaintiff’s claim.

[16] Jagjit Dhaliwal and Hardeep Dhillon were the active parties behind the transaction. The corporate defendant was their corporate vehicle. It is not contested that the restaurant was a business venture between Jagjit Dhaliwal and Hardeep Dhillon.

[17] This summary of the background facts to the transaction, uncontested, establishes that Sarbjit Kaur and Gurmit Dhaliwal were not principals in this transaction, and the security they provided was collateral to the main transaction. They were both sureties.

(e) Claims Against Sarbjit Kaur

[18] Sarbjit Kaur provided both a personal guarantee and a collateral mortgage against the family home. She says that she did not know what she was signing, received no independent legal advice, and signed only because her husband asked her to sign.

[19] CLE required that Sarbjit’s and Gurmit’s spouses receive independent legal advice in respect to the collateral mortgage. Ironically, as a result, there is a certificate of independent legal advice in respect to one of the principals behind the transaction, Jagjit Dhaliwal, because his wife was providing a collateral mortgage. But there was no requirement by CLE for independent legal advice for Sarbjit Kaur or Gurmit Dhaliwal.

[20] Undue influence is an obvious concern here. Ms Kaur was not part of her husband’s business. The proposed transaction was not beneficial to her. This is not a case like Powers v. Mesaros, relied upon by the plaintiff, where the transaction, although closely associated with the husband, was central to the financial well-being of the entire family.[^3] In Powers, had the loan not been given, an existing business, from which the family was supported, would not have been advanced, leading to the collapse of the business and loss of that family income. Here, this was a speculative investment that might or might not benefit the family in the long-run. It was a hope for “something more” and not a necessary part of the status quo. The implication, in Powers, is that of course the spouse would have agreed to the loan had she understood the true position. No such inference can be drawn on the facts of this case.

[21] Constructive notice of undue influence or a real prospect of undue influence may be established by a close relationship between the parties coupled with a manifestly disadvantageous transaction. All of these circumstances are made out in this case. And it is clear that CLE understood that this was so: that is why it requested certificates of independent legal advice from the spouses of the collateral mortgagors: the manifest disadvantage of the transaction to the spouse of Gurmit Dhaliwal was no different than the manifest disadvantage to Gurmit himself and to Sarbjit. The requirement of independent legal advice for Jagjit was either an overabundance of caution or, more likely, a misunderstanding by CLE over who the true principals were in the transaction. While this was not established on the evidence – because no one asked the question – it seems most likely that the failure to require independent legal advice for Sarbjit and Gurmit was simply a mistake or oversight.

[22] Unlike the situation in Duguid, this is a case where it is appropriate to presume undue influence, given the nature of the transaction and the nature of the relationship between the parties. This really is a traditional arranged marriage, with a stay-at-home wife and a husband responsible for financial matters. Where Jagjit tells his wife to do a thing, especially in regards to a business matter, she will do it. Sarbjit had little or no commercial knowledge, experience, or sophistication or independence in respect to business matters.[^4]

[23] These points are not mere technicalities:

(a) The test of whether the transaction was “beneficial” to Ms Kaur is not a roundabout route to defeat the distinct legal personalities of spouses. Many “undue influence” cases arise in the context of spouses or close family members. Benefit to one spouse should not be seen as a constructive benefit to the other as a matter of law, or this independence is defeated. Where, as in Powers v. Medaros, there is powerful evidence that the spouse had a compelling self-interest in consenting to the transaction, that may, as a matter of fact, persuade the court that the transaction was not disadvantageous. That does not arise here. There was potential benefit to the entire family in the sense that a successful business investment would have served to benefit all. However the merits of the transaction were not so compelling that Ms Kaur would inevitably have agreed to the transaction had she received proper independent legal advice;

(b) I have found that this was a traditional Sikh marriage where the wife obeyed the husband in respect to financial matters external to the family. This finding should not be reduced to a stereotypical caricature of patriarchy. If Ms Kaur had received advice that led her to doubt the wisdom of the collateral security, she would have raised her concerns with her husband, privately. She would not have defied him publicly, but she might well have persuaded him that the collateral security was a bad idea – or that proceeding with the transaction on the basis of her strong opposition to it was ill-advised. Mr Dhaliwal was not sophisticated in business affairs himself, and advice to Ms Kaur about the risks involved in the transaction for the family could well have led to a different result. Ms Kaur summarized her feelings about her husband in her evidence: “I respected him and had full confidence in him”. This is not a statement that she would blindly agree with him, even if she had reservations. This is not a case where the provision of legal advice to Ms Kaur would have made no difference to the result; we will never know what difference it would have made.

(c) There is a certificate of independent legal advice for Jagjit Dhaliwal and Gurmit Dhaliwal’s wife. However, on the evidence I am not persuaded that any substantive independent legal advice was given to either of them. On the evidence, the Dhaliwals went to a lawyer recommended by CLE or its broker, and met with a lawyer for ten to fifteen minutes, at which time they signed the paperwork. None of them met privately with the lawyer. On the evidence, Gurmit Dhaliwal and his wife do not speak or understand English. There is no evidence that the lawyer spoke or understood Punjabi. In view of the uncontradicted evidence as to what happened at the one meeting with that lawyer, which I accept, I am not prepared to accept the certificates of independent legal advice at face value and conclude that no independent legal advice was given. In the result, I conclude that Jagjit Dhaliwal, a truck driver by trade, with no experience in business aside from owning and operating his own truck, never himself received legal advice about the transaction. He was a principal in the transaction, and this absence of legal advice may not be material to his own liability. However, it is relevant to the issues respecting his wife Sarbjit. As I note above, I am satisfied that if Sarbjit had received independent legal advice about the transaction, that advice would have provided her with concrete bases on which to voice concerns with her husband. Jagjit struck me as a reasonable man who loves and respects his wife. As the husband in a traditional Sikh family, he would expect his wife to do what he asked in the transaction. But he also would have listened to her concerns, privately, and would have taken them into account.

[24] Taking everything into account, I am satisfied that Sarbjit Kaur’s signatures on the mortgage and guarantee documents is the product of undue influence of Jagjit Dhaliwal.

(f) Claims Against Gurmit Dhaliwal

[25] The case against Gurmit Dhaliwal is more difficult because Gurmit died before the trial of the issue of undue influence. I ordered the trial of this issue because I concluded that it turned in part on issues of credibility that should be decided after I had a chance to assess the witnesses when they gave their evidence orally.

[26] Much as the court would have benefitted from hearing Gurmit’s evidence orally, the trial of the issue of undue influence did provide the court with information of surrounding circumstances, and a sharper lens through which to review Gurmit’s affidavit evidence. Through that lens, I conclude that the defence of undue influence is as strong for Gurmit Dhaliwal as it is for Sarbjit Kaur. He was unsophisticated in business affairs. He could not understand the documents he signed. The transaction was disadvantageous for him in the same ways that it was disadvantageous for Sarbjit. Gurmit felt a moral obligation to support his son, but he had no way in which to evaluate the transaction, or to form or voice any objections to it privately with his son. I accept that Gurmit’s equity in the family home was a product of his son’s labour, a fact that would have strengthened Gurmit’s sense of obligation to do as his son asked. But, as in the case of Sarbjit, this sense of obligation would not have silenced Gurmit in private conversation with his son, and if he had been armed with good independent legal advice, the result could well have been different.

[27] I conclude that Gurmit’s signatures on the mortgage documents were a product of undue influence of Jagjit Dhaliwal.

(g) Notice to CLE of the Undue Influence

[28] The defence of undue influence can succeed against CLE only if CLE had actual or constructive knowledge of the alleged undue influence.

[29] CLE’s witnesses were Natasha Shergill (CLE’s Operations Manager) and Steve Tabar (a principal of Jocova Financial Services Corp., the broker that acted as CLE’s agent in dealing with Jagjit Dhaliwal, Hardeep Dhillon and Kris Sokanan). They both testified that if they had been aware of inappropriate pressuring of Sarbjit or Gurmit, the proposed transaction would not have proceeded, at least not unless they became satisfied that Sarbjit and Gurmit were not proceeding on the basis of undue diligence. I accept this evidence. If they had actual information of undue influence, I accept that, at a minimum, they would have required certificates of independent legal advice for Sarbjit and Gurmit. I accept that this is CLE’s standard practice in these sorts of lease transactions. As was established during the evidence, both Jocova and CLE had a financial interest in completing the lease transaction, but this interest was not such as to lead to an inference that they would have proceeded if they actually suspected undue influence.

[30] What Ms Shergill and Mr Tabar did not explain was why certificates of independent legal advice were not required for the collateral guarantors. There was mention that Sarbjit appeared on corporate documents as a director of the corporate defendant. Sarbjit denies that she knew she had been so listed, and there is no document showing her agreement to act in such a capacity. On the evidence, she would not have understood what that even meant. Mr Tabar, as the broker who dealt with the defendants, understood that the principals behind the deal were Jagjit Dhaliwal and Hardeep Dhillon and their manager, Kris Sokanan (with whom he had had previous dealings respecting a different restaurant). From all of this it was obvious that Sarbjit and Gurmit were collaterals, not principals, sufficient information to put Jocova and CLE on notice of the risk of undue influence.[^5]

A Note On Credibility

[31] There were significant credibility difficulties in this case. Sarbjit Kaur claimed in an early affidavit that her signature on the guarantee and mortgage was “a fraud”, not hers. At trial she conceded that the signature was hers, and explained that she had not been “100% certain” it was hers at the time of the earlier affidavit. Ms Kaur swore in an early affidavit that she had been pressured by both her husband and Hardeep Dhillon to sign the documents. At trial she agreed that Mr Dhillon had not been present when she signed and that he had not pressured her to sign; just her husband had done so. Ms Kaur said that she did not understand the guarantee and mortgage (on the one hand), and that she did not want to sign them because she did not want to put the family home at risk (on the other hand). She was unable to reconcile these two aspects of her evidence.

[32] There were similar concerns with Gurmit Dhaliwal’s affidavit, which could not be tested because of Gurmit’s death before the trial.

[33] Credibility issues are difficult in these circumstances. Clearly Ms Kaur has given false evidence when it seemed in her interests to do so. This would be a basis on which the court could reject, outright, all of her evidence.

[34] It is trite law that the court may accept some, none, or all of a witness’ evidence. An unreliable witness may be telling the truth about some aspects of her evidence, and the court is entitled to believe her.

[35] Here I am satisfied that Ms Kaur is truthful about several core aspects of her testimony. I conclude that she understood that the guarantee and mortgage put her family at financial risk. There was some risk to the family home. I am not satisfied, however, that she understood the true scale of the risk, and the extent to which the family was shouldering disproportionate risk in the transaction. I am not satisfied that she understood the potential benefits of the transaction. I am not sure that she understood the overall structure of the investment in the restaurant, its plans, or the ways in which her family might benefit from it in the long run.

[36] Notwithstanding the significant problems with Sarjit’s and Gurmit’s credibility, I accept their evidence on essential points going to the issue of undue influence. They knew the house could be at risk, but they really understood little else about the transaction.

Conclusion

[37] The defence of undue influence is made out for both Sarbjit Kaur and Gurmit Dhaliwal. The absence of independent legal advice is not always fatal to enforcement of a collateral guarantee and mortgage. But it is in this case. The circumstances of the transaction put Jocova, and thus CLE, on notice. The transaction was manifestly disadvantageous for Sarbjit Kaur and Gurmit Dhaliwal. Their signatures on the documents were entirely a product of Jagjit Dhaliwal’s request for them. Those signatures are a product of undue influence. And the overall circumstances were such as to put Jocova and CLE on notice of presumptive undue influence.

[38] The claims against Sarbjit Kaur and Gurmit Dhaliwal are dismissed. As noted at the outset, the claims against the remaining defendants remain outstanding as per my order of February 12, 2014. If these claims cannot be resolved then counsel may arrange an appointment in the latter half of January to speak with me to establish a schedule to bring the remaining issues to a final disposition. Subject to any subsequent order I may make, I am seized with the balance of this case to its final disposition. It is ordered that the action not be dismissed administratively pending final disposition in this court.

Costs

[39] I am concerned that Sarbjit Kaur’s and Gurmit Dhaliwal’s evidence was not entirely candid and truthful, as I have explained above. I consider that this conduct was fodder for conflict in this case and is deserving of some sanction. I also recognize that this decision does not dispose of the case as against the remaining defendants. Counsel may wish to take these points into account when they discuss the issue of costs.

[40] If costs cannot be agreed then the defendants shall make their costs submissions by January 29, 2016, and the plaintiff shall provide responding submissions by February 12, 2016.

[41] I am indebted to counsel on both sides for their assistance. I would especially like to commend Mr Arman for his exceptional carriage of this matter in what proved to be an unsuccessful cause for CLE. The problem here was the failure to require independent legal advice for two vulnerable sureties. Everything that could be said and done on CLE’s behalf in the face of this failure was done with skill and sound judgment.

D.L. Corbett J.

Released: December 31, 2015

Footnotes

[^1]: Bank of Montreal v. Duguid (2000), 2000 5710 (ON CA), 47 O.R. (3d) 737, 185 D.L.R. (4th) 458, per Osborne A.C.J.O. See also the reasons of Jenkins C.J.P.E.I. in Lewis v. Central Credit Union Limited (2012) PECA 9, 2012 PECA 9, 351 D.L.R. (4th) 248; Bertolo v. Bank of Montreal (1986), 1986 150 (ON CA), 33 D.L.R. (4th) 610 (Ont. C.A.).

[^2]: The restaurant did not open until May 2009, so there was no revenue from which to make lease payments between January and May 2009.

[^3]: Powers v. Mesaros, [2007] B.C.J. No. 1065 (BCSC).

[^4]: Duguid, infra, paras. 23-26.

[^5]: See, for example, CIBC Mortgage Corp. v. Rowatt, 2002 45110 (ON CA), [2002] O.J. No. 4109 (C.A.), paras. 11-20, per Feldman J.A.