REASONS FOR JUDGMENT

COURT FILE NO.: 12-54869 DATE: 2016/10/07 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN :

MILLERSON GROUP INC. and THE SINHA FAMILY TRUST Plaintiffs

and

HUNTINGTON PROPERTIES OTTAWA INC. and ORVILLE STATION LTD. Defendants

Court File No. 13-56934

AND:

ONTARIO SUPERIOR COURT OF JUSTICE

HUNTINGTON PROPERTIES OTTAWA INC. Plaintiff

and

DHARMA INC., carrying on business as DHARMA DEVELOPMENTS, AKASH SINHA, MILLERSON GROUP INC. and THE SINHA FAMILY TRUST Defendants

Counsel for Millerson Group Inc., The Sinha Family Trust, et al. Roberto Aburto (Jason Mercier - articling student)

Counsel for Huntington Properties Ottawa Inc. Paul A. Webber, Q.C. and Orville Station Ltd Kate Laframboise

Overview

[1] These two actions arise out of a residential and commercial development in Stittsville, Ontario (‘the Project”). The parties include investors, the Project management company and one of its shareholders, and the corporation incorporated for the Project, Orville Station Ltd. (“OSL”).

[2] The vision for the Project dates back to 2006. It took longer to get off the ground and cost far more than anticipated. The Project was plagued with delays, due in part to public and political resistance, under-financing, a change in the building code, and an economic downturn. By late 2011, the viability of the Project was in jeopardy.

[3] The Project had two investor groups:

i) Huntington Properties Ottawa Inc. (“HPOI”), Beverly Tammadge (“BT”), and John R. Hambleton (“JPH”) (collectively “HG”); and

ii) Millerson Group Inc. (“MGI”) and The Sinha Family Trust (“SFT”) (collectively “MI”). Within MI, MGI contributed money and SFT’s contribution was to find the investment opportunity.

[4] The Project manager was Dharma Inc., operating as Dharma Investments (“DD”). Akash Sinha (“Sinha”), was a shareholder and operated DD. MGI was a 50% shareholder of DD.

[5] By late 2011, HG had lost confidence in DD’s ability to manage the Project and MI was not paying its share of the Project’s financial demands. Also, in December 2011, the third report prepared by the lender’s quantity surveyor, G.A. Armstrong (“GAA”), Report #3, predicted a drastic increase in the cost of the Project. For those and other reasons, as at January 2012, work on the Project had all but stopped.

[6] By February 2012, HG wanted to terminate DD’s contract with OSL, take over management of the Project, and buy out the interests of MI. On March 8, 2012, OSL and DD signed a termination agreement ending the DD management contract, acknowledging the amounts owing by OSL to DD, and agreeing to release DD, its officers, directors, and shareholders from any further obligations under the management contract. HG then assumed management of the Project.

[7] After months of negotiations, on April 30, 2012, HG and MI entered into a settlement agreement (“the Settlement Agreement”). HG agreed to buy out MI’s interests in the Project for a total of $512,500.00. Payment was to be made in installments. The payment obligations and terms were also set out in a promissory note executed by the Plaintiffs (the “Note”). The Settlement Agreement stated that HG was to “assume exclusive control and management of OSL and of the Project.” MI and DD were to exit from the Project. In addition to the buy-out of MI’s interest, the Settlement Agreement included an acknowledgment that OSL owed DD $15,388.60 and that DD was entitled to be paid its sales commissions. Approximately $10,000 remains owing to DD for those commissions.

Default on the Note: Allegations of Deceit

[8] HG made the first payment under the Note due on May 2, 2012, but defaulted on the next payment due June 1, 2012. No further payments have been made. In 2012, MI sued on the Note and, in January 2013, moved for summary judgment. In response to the motion for summary judgment, HG asserted that it entered into the Settlement Agreement based on fraudulent or negligent misrepresentations. The summary judgment motion was stayed to allow HG to issue a claim in deceit. In 2013, HPOI alone issued a claim against DD, Sinha, MGI, and SFT seeking damages and a declaration that the Note is null and void.

[9] MI’s action on the Note and HPOI’s action for damages and to declare the Note a nullity were ordered to be tried together. On consent, at the opening of trial, HG’s damage claim was increased to $1,375,886. The parties also consented to an order for directions whereby HPOI and OSL would adduce their evidence as if they were the plaintiffs and DD, Sinha, MGI, and SFT would adduce their evidence as if they were the defendants. In these Reasons, I refer to those parties collectively as “the Plaintiffs” and “the Defendants”, respectively.

The Plaintiffs’ Claim

[10] The Plaintiffs’ claim is based on allegations of fraudulent and negligent misrepresentation made by Sinha, for himself and for DD. They allege that the misrepresentations were known by the Defendants, who intended the Plaintiffs to rely on the misrepresentations, which they did, to their detriment. The Plaintiffs allege:

i) That the Project was projected to “Break Even”

The HPOI Statement of Claim asserts that Sinha, for himself, DD, and MI, orally represented to HPOI that DD’s financial projections disclosed a “break even” outlook for the Project. The Plaintiffs further assert that section 1(b) of the Settlement Agreement “confirmed the representation”;

ii) That the statement signed by DD on December 15, 2011 and attached to Report #3 inaccurately certified the amount of the hard and soft costs to be paid as set out in Report #3.

The Plaintiffs pleaded two examples of those inaccuracies: that development charges payable to the City of Ottawa had been paid, when, in fact, payment had been deferred; and that $53,449 had been paid to Ottawa Hydro, when it had not been; and

iii) That the Defendants represented that two Agreements of Purchase and Sale (with E2BNet.com and Zags Investment Inc.) were valid sales, with valid closing dates, and would remain in place when, in fact, they were not. These sales are referred to in these Reasons and the “MI sales” or the “MI pre-sales”.

The Plaintiffs’ Claim Fails

[11] I find that the Plaintiffs have failed to prove the allegations of misrepresentation. Further, the Plaintiffs have not shown damages suffered as a result of the alleged misrepresentations or at all. Finally, I find there to be no basis for the claim against Sinha or against DD, which played no meaningful part in the negotiations of HG’s buy-out of MI. As a result, I have determined that the Plaintiffs’ claim fails and the action must be dismissed.

Judgment to MI on the Note

[12] Having concluded that there were no misrepresentations made to or relied upon by the Plaintiffs, there is no factual or legal basis upon which to set aside the Note or to declare it null and void. Therefore, MGI and SFT are entitled to judgment on the Note in the amounts as set out in the Agreed Statement of Facts filed at the opening of trial.

Background

[13] As a principal of HPOI, Whitten gave evidence at trial on behalf of HPOI. Whitten has worked in financing, acquiring and developing commercial properties throughout his 30-plus-year career.

[14] Sinha gave evidence on his own behalf, as a principal of DD, and as a trustee of SFT. Sinha has an undergraduate degree in urban planning and has completed some work toward a master’s degree in urban planning. He worked for the government and then for a number of developers for a few years, before incorporating his own business, DD. Sinha’s first project for DD was in 2004. It was a 29-unit townhouse project. His father-in-law, Gordon Miller, (“Miller”) was an investor. Miller is the principal of MGI.

[15] Sinha met Whitten when DD was renting space in Stittsville from Whitten’s company, Stittsville Main Street Limited (“SMS”). The two had discussions about developing land in Stittsville owned by SMS. In April 2006, Whitten made a written proposal to DD for a joint venture between SMS and DD: SMS would supply the land and DD would manage the development of 38 condominium housing units. The “green” development was to include commercial space and residential units.

[16] SFT was to be a shareholder in the Project. He invited Miller to invest in the Project through MGI. Whitten also lined up BT and JPH as investors. Meetings were held among Miller, Whitten, Sinha, and Whitten’s lawyer, Geoffrey Howard (“Howard”). By November 2007, OSL had been incorporated for the Project and a Shareholders’ Agreement was entered into among SFT, MGI, HPOI, BT, JPH, and OSL. Neither Sinha nor DD was a party to the Shareholders’ Agreement.

[17] DD’s involvement in the Project was governed by a Project Management Agreement between DD and OSL, dated March 24, 2009. Whitten signed as Vice-President of OSL and Sinha signed as President of DD. The Project Management Agreement set out DD’s obligations and compensation terms. DD provided regular reports at OSL shareholder meetings and circulated minutes of the meetings. DD’s staff included Sinha, Sean Hart, a bookkeeper, and Dave Hobin, a senior construction manager hired for the Project. The meeting Minutes often included balance sheets. These evidenced DD’s regular and fulsome financial reporting and disclosure to the OSL shareholders. BT’s husband, Ken Tammadge (“Tammadge”), an accountant at Collins Barrow, regularly attended the OSL shareholders meetings in place of BT.

[18] On December 17, 2008, the OSL shareholders agreed to accept the Caisse Populaire’s (“CP”) [^1] construction financing terms. On May 19, 2009, CP made a written offer of financing. It included a requirement that prior to each disbursement, CP would receive a monthly report from GAA “establishing the progress of the work, the amount of advances required and the cost to complete the Project”. Paragraph 4.1 of the financing offer required OSL to provide annual financial statements. Those were prepared by Tammadge at Collins Barrow.

[19] The Project encountered unexpected political opposition. By February 2009, the City had given partial approval for the site plan, but a change of local politicians reinvigorated resistance to the Project. In January 2010, Sinha and Tammadge met with the Mayor of Ottawa to explore steps that might be taken to move the Project forward.

[20] Once site plan approval was granted, the OSL shareholders had to address the allocation of costs and benefits as between the residential portion of the Project, in which OSL was participating, and the commercial aspect planned for the development, which would benefit lands still owned by SMS. The allocation of costs with respect to the commercial portion of the Project was a source of conflict between HG and MI. The Settlement Agreement includes a payment under that heading.

CP Financing and the GAA Reports

[21] GAA prepared three reports prior to April 2012, at which time the shareholders parted ways. They were prepared by Yuri Modulevsky (“Modulevsky”), who gave evidence at trial. The first report was dated August 19, 2010. It showed a projected budget for the Project of $7.1 million.

[22] The GAA reports were circulated by DD to Miller, Whitten, and Tammadge. In 2010, the budget was based on estimates only; no contractor quotes had been obtained. After receiving Report #1, CP required a mortgage amendment. Lawyer Howard was retained to assist OSL to comply with the CP requirements.

Report #2: October 20, 2010

[23] GAA Report #2 was dated October 20, 2010. It increased the projected budget by $297,000 to $7,397,000, to reflect an increase in management and marketing fees and a decrease in marketing. This change necessitated revised equity targets and contributions.

[24] At trial, Whitten acknowledged that he was provided with the GAA reports. Between the financial information and budgets circulated by DD and the GAA reports, I find that the Plaintiffs were fully and regularly informed of all financial matters relating to the Project. Whitten was an active shareholder and all the shareholders were involved in financial decision-making.

Project Recovery Plan

[25] In 2010, there were changes to the Building Code Act, 1992 [^2], which the shareholders anticipated would lead to increased construction costs. At the shareholders’ meeting of November 15, 2010, a “Project Recovery Plan” was discussed due to these changes. Three options were discussed: (i) rebranding the Project and starting over, which included releasing customers and reselling at a higher price; (ii) continuing with some customers, releasing others, and re-pricing and reselling at a higher price; and (iii) doing nothing. The projected profit and loss on the three options projected a $350,000 profit under option (i), a $170,000 profit under option (ii), and a loss of $400,000 under option (iii).

[26] In June 2011, HPOI hired Derek Noble, C.A., as Vice-President – Development & Construction (“Noble”). At the request of Whitten, Noble reviewed the Project’s finances and projections. Sinha welcomed Noble’s involvement. DD provided Noble with the information he requested. Noble also spoke and met directly with Modulevsky.

[27] In an email of June 28, 2011, Noble proposed a meeting with Modulevsky and Sinha. Noble confirmed that he had been “asked by the non-Dharma portion of the partnership to be a ‘third’ set of eyes on the Project and make recommendations where [he] can.” Noble also identified large cost variances from the initial Project budgeting, which he suggested would entail a redesign of the electrical and mechanical components and, possibly, the insulation, to shave costs. As at June 2011, final construction drawings had still not been received and, again, the budget was based on estimates, rather than actual trade quotes.

[28] Noble’s involvement at the request of Whitten and as an employee of HPOI is further evidence of the Plaintiffs’ knowledge, involvement, and understanding of the Project’s finances and its other aspects.

GAA Draft Report: November 10, 2011

[29] On November 10, 2011, Modulevsky provided DD with a revised draft construction budget. DD forwarded a copy to Noble and Whitten the following morning. In his email to Whitten of November 18, 2011, Sinha confirmed the ongoing involvement of Noble and that [DD’s] Dave Hobin was communicating with Noble about the construction costs, for which they had started to receive quotes. Sinha also sent Whitten a list of accounts payable, which included amounts owed to DD, and asked that they be dealt with once funds were released by CP. As at the date of that email, the amount owing to DD exceeded $100,000.

GAA Report #3: December 15, 2011

[30] Modulevsky provided DD with his draft margin formula calculation on November 30, 2011. DD forwarded this report to CP but identified errors in it. Modulevsky provided a revised report to CP and DD on December 13, 2011. This report was sent by DD to Noble and Whitten with a request to discuss.

[31] Modulevsky’s final revision to Report #3 was released on December 15, 2011. GAA Report #3 marked a critical event in the Project. It increased the projected budget by $1,906,000 from the previous Report. Modulevsky identified the two major reasons for the “unprecedented” changes to the Project budget: (i) architectural and mechanical/electrical changes to the drawings and specifications, and (ii) the increased cost of construction materials and labour between 2009, the time of the original budget, and 2011.

[32] Report #3 concluded that there was $135,627 available to be advanced based on the margin formula calculation, and that an additional 17 more units had to be sold to satisfy CP.

[33] On December 15, 2011, Sinha emailed Whitten, Miller, Tammadge, and Noble. He confirmed that there would need to be a further equity contribution of $100,000 and that there was a need to finalize customer sales. He reported that he would be revising the pro forma budget to have it ready for CP by December 27, 2011, and asked if Noble could spare an hour or two to review it. On December 18, 2011, Sinha confirmed that he would need to update the business plan and asked Whitten to finalize the cost sharing as between the residential and commercial properties.

[34] On December 21, 2011, Whitten provided Sinha with HPOI’s analysis of the allocation of the development costs to SMS. Depending on the cost category, his analysis led to a weighting from 0% to a high of 25% as against the commercial portion of the Project. Whitten’s correspondence suggests a high-level understanding of the Project’s finances.

[35] On December 30, 2011, CP advised that CP could disburse the third draw and that OSL needed to prove it could sell units at new prices and meet its required pre-sales. This information was reported immediately to Whitten and Miller.

CP Requires a Forbearance Agreement

[36] In early January 2012, the borrowers were in default. CP agreed to continue funding the Project provided the borrowers entered into and abided by CP’s Forbearance Agreement. The need to achieve pre-sales became a term of the Forbearance Agreement. The Forbearance Agreement required OSL to firm up seven sales in Block 2 within 15 days; to pay $90,000 to CP lawyers to be used to pay off a lien on the Project; and arrange a payment of an additional term deposit totaling $332,000 to a number of unsecured letters of credit.

[37] The Forbearance Agreement was circulated by CP to the shareholders of OSL who were to sign and return it by January 23, 2012. It added to the pressure on Miller to come up with more money. Miller was trying to raise funds but, by early February 2012, he told the shareholders that he could not raise any more money.

[38] On January 23, 2012, DD provided the shareholders with a statement of the current cash position, accounts payable, and an up-to-date listing of the shareholders’ contributions. He included Tammadge in his emails. In reply, Tammadge confirmed that the HPOI group would be using Noble for advice and feedback and “to ensure our investment is protected and provide assistance as necessary.” On January 25, 2012, Sinha invited Noble to meet with him and DD’s bookkeeper, Sean Hart, to review the cost reports and to ensure that they contained sufficient detail on the costs going forward. Sinha’s email was copied to Whitten and Tammadge.

[39] This evidence shows that, by January 2012, Noble and Tammadge were providing HPOI with construction and accounting expertise with respect to the Project’s financial projections and budgeting.

Pre-Sales

[40] The CP financing depended on the borrowers achieving the pre-sales, an essential term of the Forbearance Agreement. Whitten made some inquiries and determined that the pre-sales required by the Forbearance Agreement did not need to be to arm’s-length buyers. On January 6, 2012, the OSL shareholders met and discussed buying the units within the group and releasing the balance of the units to the public. Each shareholder identified units in East Block, Phase 2, that they could commit to purchasing. According to Sinha, the two groups of shareholders discussed committing to the purchase of six units in total: commitments came from Tammadge, Whitten, Miller, Leanne Pelley (a new investor on the MI side), and Sinha.

[41] According to Sinha, none of the shareholders wanted to complete the purchases but they were prepared to find buyers (friends or family) to enter into agreements of purchase and sale (collectively and individually, “APS”) and to pay the deposits in order to satisfy the Forbearance Agreement and to “unlock” the CP financing. According to Sinha, the closing dates under the APS were to be realistic. Proceeding in this way was intended to reduce the need for the shareholders to invest more money in the Project.

[42] Miller lined up two friends, Zul Shaikhali and Cyrus K. Rustamji, to sign purchase agreements and to each pay a $10,000 deposit. Miller had a private agreement with them that the $10,000 down payments would be treated as a loan, which was to be repaid by Miller before July 31, 2012. The two buyers asked for and Miller gave them his personal promise that they would not need to close on the properties. According to Sinha, the other shareholders knew that Miller was using his friends to get the required APSs in place. Indeed, it appears that the HG group did likewise.

[43] The Plaintiffs assert that they did not know of Miller’s side agreement with his two purchasers — that they would not have to close and that Miller would take over full responsibility for the loan.

[44] It is clear that neither Zul Shaikhali nor Cyrus K. Rustamji expected that they would be required to complete their purchases. On that basis, they entered into an APS with OSL on behalf of their companies, Zags Investment Inc. and E2BNet.com. What is less clear is whether Miller was prepared to step into their places. In his evidence at trial, Miller stated that he was always ready, willing and able to complete the purchase of those transactions on behalf of his two buyers.

[45] According to Whitten, as at the time of trial, the Zags Investment Inc. and E2BNet.com units remained unsold and were rented. The Plaintiffs led very little evidence with respect to the efforts taken to market and sell these units. Miller stated that he had never been asked to make good on these purchases. That evidence was not contradicted by Whitten.

[46] The Plaintiffs assert that all the pre-sales arranged by the shareholders were intended to be valid, although there was an understanding, which became a term of the Settlement Agreement, that efforts would be taken to sell these units to other buyers. If that did not happen, the original buyers were expected to close the purchases. The Plaintiffs called Dennis Britt, a representative of CP. Mr. Britt was not aware of the discussions amongst the OSL shareholders regarding this group of pre-sales. However, what CP did or did not know has no bearing on whether the Defendants misrepresented these pre-sales to the Plaintiffs.

[47] The evidence shows that the OSL shareholders knew that the seven pre-sales were to friends or family. They chose not to disclose that information to CP. The evidence of Whitten, Miller, and Sinha, along with the emails and even the Settlement Agreement itself, all support a conclusion that the OSL shareholders understood that the seven pre-sales were put in place in order to satisfy the conditions of the Forbearance Agreement, but on the understanding that all reasonable efforts would be taken to find new purchasers. In essence, the OSL shareholders persuaded seven friends and colleagues to help them with this troubled project by agreeing to buy a unit. Those agreements were needed to, and did, help to preserve the CP financing.

Buy-out Discussions Begin in Earnest

[48] By January 2012, HG wanted DD out, and MI was well behind in its equity contributions. By early February 2012, Miller admitted he would not be able to come up with any more cash for the Project at that time. On February 7, 2012, Sinha emailed Whitten with a proposal whereby the SMS partners (Whitten, BT, and JPH) would advance funds on behalf of MGI and SFT by way of a temporary interest-free loan. The loan would be repaid in 60 days, failing which MGI and SFT would relinquish a proportionate number of shares to SMS based on the total equity contributed, less adjustments. In the draft proposed loan agreement, Sinha acknowledged that the HG group had put in $1,041,423 and that the MI group had put in $640,332. He also included a recital that monies were owing from the commercial portion of the Project to the residential portion, which value was yet to be determined. The recitals also included that DD would continue to provide construction management, sales, and marketing services, as per its contract with OSL.

[49] Sinha’s proposal was not accepted. Whitten forwarded it to Tammadge and Howard, describing Sinha’s proposal as “a joke”. Tammadge agreed. Whitten said that if MI could not come up with funds, that HG would want to take over the Project. With that goal in mind, Whitten listed a four-point plan:

i) Howard would call CP’s lawyer with the idea of HG taking over OSL by way of letting it go into default briefly. CP would enforce its security agreement in order to get records from DD and then would allow HG to resume the Project;

ii) HG would then take over with Noble and continue to use DD’s Dave Hobin — “[t]hat way we are in a position to control and limit funds eventually going to Dharma [DD] after the Project is finished”;

iii) Let the three “Dharma” sales go and ask CP to allow them to continue with only nine sales;

iv) If CP said “no”, then to carry on “and attempt to drive a better deal with Dharma to get more shares per dollar to a ‘last in, first out’, priority deal.”

[50] In his response, Tammadge stated that he preferred to meet the Forbearance Agreement terms using the three MI sales, and to pay the required funds on the lines of credit “before playing hardball”. He was concerned about not having his name “out there on a default”. Whitten responded that he also did not want his name associated with a default, but worried that once they paid the Forbearance Agreement terms, they would likely lose any leverage.

[51] On February 9, 2012, Miller confirmed that he was unable to raise funds and that MGI and SFT would need to discuss reorganizing shares. On February 18, 2012, Sinha provided Whitten with “critical dates” and confirmed the recent sales made to satisfy the Forbearance Agreement. The closing dates for all seven shareholders pre-sales were scheduled for December 2012.

[52] Whitten, Sinha, and Miller met on February 16, 2012. Whitten proposed a buy-out on the basis of a dollar per OSL share and 35% on amounts contributed by MI. DD would receive no payments on account of its receivables for un invoiced time. The three MI pre-sales were to “remain committed”, but HPOI would be able to release the sales should higher prices become available. DD was to turn over to HPOI all bank signing authority, and DD’s files and personnel were to be made available to HPOI for meetings and consultations to ensure continuity with trades, purchasers, etc.

[53] Miller was unhappy with Whitten’s 35% offer. He emailed Tammadge to enlist his support, but Tammadge backed Whitten and explained that the personal guarantees given by him and his wife, BT, were at stake, as was his professional relationship with CP.

[54] The email exchanges that follow are important to the Plaintiffs’ assertion that it relied upon alleged misrepresentations of Sinha, DD, or the Defendants that the Project was projected to break even.

Expectation of Profit or Break Even

[55] In an email of February 22, 2012 to Whitten, Sinha expressed his opposition to Whitten’s proposal to terminate DD and, in particular, the nonpayment of DD’s management fees and unpaid invoices. On that same date, Whitten, speaking for HG, responded to Sinha, in part:

1. Are you still expecting a profit on your investment? I ask this because we are not. We just want to finish the Project and get some of our investment out. If you feel there is a potential profit in the Project, we would be very happy if you bought us out at 100 cents on the dollar, but that does not seem realistic. There has been a bunch of money wasted on this Project that cannot be recovered. The Project is currently being compromised due to the lack of work and the effects of weather on the South Block work done so far.

To summarize, last week I discussed 50% of your loan advances, but since then, I have been insulted by you refusing to provide us with copies of plans, that we have paid for and we are entitled to. This amounts to going in blind without the ability to have the plans reviewed by our construction people, and thus the offer was reduced because we cannot evaluate the project sufficiently. Fighting over this is going to get us nowhere fast.

I am leaving tomorrow for a week, so it would be ideal if we can get our lawyer working on a legal agreement while I am away. [Emphasis added.]

[56] Sinha initially threatened that DD would not turn over drawings to Tammadge and Whitten unless arrangements were made to pay DD’s outstanding invoices. But, by February 23, 2012, Sinha was offering to do all that he could to resolve the matter while asking for a good faith effort from HG. He concluded his email by offering to check with his bookkeeper to determine when he might be able to provide financial statements.

[57] Tammadge’s response was that the transaction (MI buy-out) should happen by March 5, 2012. He asked to see financial records to date, even in “raw form”.

[58] Sinha’s evidence at trial was that he and Miller were in shock, and that Miller thought it was time to get out of the Project. Sinha was disappointed with the criticism of DD and did not agree that new management would be helpful, given that full disclosure had already been made to Noble. Sinha stated that there had been no complaints or expressed dissatisfaction with DD. He said the notion of Whitten wanting to take over the management of the Project came out of nowhere. In parallel email exchanges between Whitten and Miller — copied to Tammadge, Sinha, and others on February 24 and February 27, 2012 — Whitten responded to Miller’s suggestion that MGI and SFT would be happy to get out of the Project with what they might have received had it been completed. His response was this: “By the way, what is that? Is it is [sic] a loss in our investment? A huge profit?...”

[59] Whitten’s response can be seen either as a negotiation tactic or as his genuine uncertainty about whether the Project would lead to a loss or a profit. In either case, it reveals the investors’ shared concern that the Project could fail and that they would lose their investment.

[60] The Plaintiffs led no evidence to show that on and after February 27, 2012, the Plaintiffs asked the Defendants for information or that the Defendants refused or failed to provide or to disclose any and all information requested by the Plaintiffs. By contrast, the evidence shows that the Plaintiffs were provided with any and all available information and documentation, which was available for review by the Plaintiffs and their own legal, accounting, and construction professionals. Moreover, the individuals who comprised HG were shareholders of OSL, all of whom had been personally and actively involved throughout the Project.

March 8, 2012: Termination of DD’s Contract and Buy-Out Negotiations Continue

[61] On March 1, 2012, Sinha prepared the first draft of the Settlement Agreement by which MI was to exit the Project. The draft included a number of assumptions, including an assumption that the current financial projection for the Project was that it would break even. The OSL shareholders’ negotiations that followed addressed what percentage would be paid to MGI and SFT on their investments and the three pre-sales arranged by Miller and Sinha.

[62] On the issue of the pre-sales, Whitten, speaking for HG, stated that “we cannot lose two sales. We would make best efforts to replace the two, or three units, but the [CP] loan agreement calls for these pre-sales, and we will not participate in a deception of the lender, and an advance of funds to you is based on a certain degree of viability” (emphasis added). Sinha agreed to those terms provided that the closing dates were extended by one year.

[63] Whitten’s email is consistent with Sinha’s evidence that the pre-sales were obtained to meet the terms of the Forbearance Agreement, that Whitten acknowledged the obligation to find alternate buyers, and that the pre-sales were not absolute but only had a “certain degree of viability”.

HPOI Takes Over Management of the Project

[64] While negotiations of the MI buyout were ongoing, on March 8, 2012, DD’s management contract was terminated. HPOI and OSL assumed management of the Project. DD agreed to immediately hand over all assets and property related to OSL, including bank accounts, plans, trade and sales agreements. DD and its officers, directors, and shareholders were fully released from any obligations under the Project Management Agreement.

[65] After March 8, 2012, steps were taken to implement the management transition from DD to HPOI and OSL: Sinha forwarded communications from third parties to Whitten, and Sinha worked on turning over all DD’s documents and information to HPOI, offering to meet with Whitten and to provide any information that might facilitate progress on the Project. OSL’s lawyer, Howard, prepared OSL’s corporate resolutions and resignations, whereby Sinha and Miller resigned as Directors and Officers of OSL to be replaced by Whitten and Tammadge.

[66] Negotiations continued regarding the buy-out amount. As at March 16, 2012, HG had increased its offer to 60% on the dollar. MI was seeking 85% on the dollar, but Miller acknowledged that the compromise would come somewhere in between those two figures.

[67] On March 22, 2012, Sinha confirmed to Whitten that he would be delivering all the vendor invoices, year-end binders, aged payables listing, and a list of all outstanding invoices and supporting invoices, cheques with deposit books, closing notes, electronic records, and the accounting database by the week of March 25, 2012.

[68] In an email to Sinha of March 30, 2012, Whitten questioned Sinha’s assumption that the Project would break even, which was based on the GAA Report of November 30, 2011, which showed a projected profit of approximately $400,000. Whitten stated:

You are aware, I am sure, that there are many deficiencies in the budget to accomplish this, such as those we discussed on Wednesday, plus others, such as marketing. There is also only a $100,000 contingency left in the budget. There remain many units still to sell in the Project, and the remaining marketing budget has only $47,000 left, with $538,000 spent to date. Any serious marketing campaign wipes out any profit. There are also new bills arriving that we were not aware of.

[69] Thereafter, Whitten put forward a revised Settlement Agreement. It did not include an assumption that the Project would break even but, rather, assumed that the Project was to be re-envisioned with a profitable portion attributed to the residential side.

[70] Whitten’s emails and his proposed revisions to the Settlement Agreement appear to reflect his expectation that the Project might not break even and would need to be “re-envisioned”.

[71] Negotiations between Whitten, Miller, and Sinha continued into April 2012. There was disagreement among them about how to treat the amounts owing to and by DD and OSL. Both Miller and Sinha urged Whitten to distinguish accounting issues between OSL and DD and the buy-out of MGI and SFT.

[72] On April 10, 2012, Whitten advised that Noble had discovered “some issues” that would directly affect the financial position of the South and East Blocks. Those included Noble’s conclusions that the occupancy dates were no longer achievable. Whitten asserted that DD was responsible for delays that prevented timely completion of the units. Miller and Sinha disagreed and blamed any delays on the disruption in the management of the Project, after it had been taken over by HPOI and OSL. Miller accused Whitten of nickel and diming on every issue in their negotiations, which was interfering with moving forward with the successful completion of the Project.

[73] This email exchange is compelling evidence that the Plaintiffs did not accept or rely on DD’s budgeted projections on the Project. With the information from DD in hand, the Plaintiffs were doing their own analysis with their own experts.

[74] On April 17, 2012, Whitten circulated a revised draft settlement agreement that had been reviewed by Howard. The following day Sinha returned a black-lined version, which included input from Karen Hennessy, a lawyer advising MGI, SFT, and DD. The black-lined version contained a significant change to paragraph 1 of Whitten’s draft: instead of “Assumptions and Agreements”, paragraph 1 was changed to “Background and Context”. That language remained in the Settlement Agreement.

[75] In his April 18, 2012 email, Sinha also included a request that the Settlement Agreement reflect that the purchasers who are committed to purchase the three units would be entitled to assign their purchase agreements or sell to anyone else. He stated that this had always been the intention among the shareholders relating to the commitments for these units.

[76] The evolution of the Settlement Agreement conflicts with the Plaintiffs’ assertion that the Defendants, or any of them, represented that the Project would break even and that the Plaintiffs relied on any such representation. The Settlement Agreement signed by the parties on April 30, 2012 does not include any representations and warranties. Given the evolution of the wording in paragraph 1, it is reasonable to conclude, which I do, that those paragraphs were intended to provide background and context to the Settlement Agreement and did not “confirm” any purported oral or other representations made by DD.

[77] By the time the Settlement Agreement was signed, the Plaintiffs and their experts had reviewed the budgets, examined the records, met with Modulevsky and with representatives of the City, and obtained legal and accounting advice. In other words, they had done their due diligence and entered into the Settlement Agreement with their eyes open.

[78] Paragraph 2(g) of the Settlement Agreement also includes a term that OSL would extend the closing dates of the three MI units by 60 days and obligated OSL and HG to use commercially reasonable efforts to sell those units to other parties at the best market price and to then return any deposits made. The Settlement Agreement also allowed MI or its buyers to sell their units or assign their agreements of purchase and sale.

Settlement Agreement signed April 30, 2012

[79] The Settlement Agreement was finalized at the end of April 2012 and was to be signed following production of financial statements from HPOI, to confirm HPOI’s ability to honour its obligations, and from MGI, to confirm its financial inability to further invest in OSL. Those steps having been completed, the Settlement Agreement was signed on April 30, 2012, together with the other documents contemplated by the parties to the Settlement Agreement. Those included a full and final release in favour of MI and DD, executed by BT, HPOI, JPH, and OSL as Releasers (“the Release”) and the Note, which evidenced the payments due under the Settlement Agreement.

[80] Under the Release, except with respect to obligations under the Settlement Agreement, the Releasees, their directors, officers, employees, shareholders and representatives, their heirs, executors, administrators, etc., were irrevocably released from all claims of any kind which the signatories or their successors and assigns ever had, have, or in future might have by reason of any cause, known or unknown, including those arising out of or relating to the Releasers being shareholders or creditors of OSL; the Project Management Agreement between OSL and DD; the Shareholder Agreement among the shareholders of OSL; or relating to the Project, provided that the Release did not release any obligations under the Settlement Agreement. Further, the Releasers represented and warranted that they had not assigned and would not assign any of the released claims, and would not make any claim or initiate any proceedings against any person or entity who, in respect of the released claims, might claim contribution or indemnity from the Releases.

Analysis

Grounds to Set Aside a Release

[81] In Tercon Contractors Ltd v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, the Court considered the enforceability of exclusionary clauses. In its analysis, to determine whether or not the exclusionary clause applies to the circumstances, a trial judge must first look at the intention of the parties as expressed in the contract. Read as a whole, I have no doubt that the parties intended the Release in favour of MI to apply to the Plaintiffs’ claims in this Action.

[82] Step two of the Tercon analysis requires the Court to consider whether the exclusionary clause was “unconscionable” at the time the contract was made, “as might arise from situations of unequal bargaining power between the parties” (at para. 122, citing Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426, at p. 462). In this case, all parties had the benefit of legal advice. The Settlement Agreement and the accompanying Releases were the end product of lengthy negotiations. As I have concluded above, there is no basis for any assertion that the Plaintiffs were lacking financial or other disclosure at the time that they entered into a Settlement Agreement and signed the Releases. I find, therefore, that there is nothing unconscionable about the inclusion of the releases as a term of the Settlement Agreement.

[83] The Tercon analysis requires a third step: the Court may consider whether to refuse to enforce the release by reason of the existence of “an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts” (at para. 123).

[84] In this case, the reverse would be true: if the Court refused to enforce the release clauses, it would offend public policy and the strong public interest that contracts such as the Settlement Agreement, negotiated by well-informed parties with the benefit of legal advice, should be enforced.

[85] The applicability of the Tercon analysis to release clauses can be found in the decision of Perell J. in D.L.G. & Associates Ltd. v. Minto Properties Inc., 2014 ONSC 7287. In that case, the Court considered whether the release was enforceable to discharge a fraudulent or misrepresentation claim. The Court considered the Tercon analysis and expanded upon the doctrine of unconscionability. It held, at para. 82, the following:

With respect to unconscionability, it should be noted that as a legal doctrine, unconscionability, has three elements: (1) pronounced inequality of bargaining power; (2) substantially improvident or unfair bargaining; and (3) the defendant knowingly taking advantage of the vulnerable plaintiff. [Footnotes omitted.]

[86] Applying that analysis to the facts as I have found them, there was no inequality of bargaining power, no improvident or unfair bargaining, nor any advantage knowingly taken of a vulnerable plaintiff. Moreover, the facts lead to a conclusion that MGI was the more vulnerable party: MGI could not keep up with required equity contributions, and both MGI and SFT had no alternative but to turn over their shares for the best bargain they could obtain. By contrast, HG was the more powerful bargaining group: HG had the financial wherewithal to complete the Project and to replace DD with its own construction manager and accounting personnel.

[87] There is no evidence of innocent misrepresentation, although that would not operate to invalidate the release clause (see Millerson Group Inc. v. Huntington Properties Ottawa Inc., 2013 ONSC 1048, at para. 20, citing 561895 Ontario Inc. v. Metropolitan Trust Co. of Canada (2004), 193 O.A.C. 71 (C.A.), at para 18).

Findings of Fact on Specific Allegations

[88] Set out below is a summary of the Court’s findings with respect to the specific allegations contained in the Statement of Claim. Unless otherwise stated, these findings are based upon my findings of fact as set out above.

1. Did the Defendants or any of them misrepresent the amounts owing for Development Charges?

[89] The Plaintiffs’ allegations that DD fraudulently or negligently misrepresented the amount that was owing to the City of Ottawa are not borne out by the evidence:

(a) A deferral agreement between OSL and the City of Ottawa was signed on August 25, 2011. The Defendants asserted that the agreement had been registered on title. On cross-examination, Whitten agreed that it was “possible” that the deferral agreement had been registered on title and may have been discovered when he was doing his due diligence prior to signing the Settlement Agreement;

(b) The issue of deferred payments and development charges was also raised in a letter from DD to City Counsellor Qadri, dated December 8, 2011. This letter was copied to Whitten; and

(c) In the weeks leading up to the signing of the Settlement Agreement, Whitten met with representatives of the City of Ottawa. In a letter dated April 30, 2012 to Whitten and Michael J. Broughton (City of Ottawa Program Manager), Development Review refers to his meeting with Whitten on April 16, 2012. He references their discussions concerning the payment of planning fees, payment of deferred development charges, etc. In his evidence, Whitten stated that he had no recollection of what was discussed at this meeting.

[90] I find Whitten’s evidence that he did not recall if he discussed the deferral of the development charges to be unreliable. I conclude that Broughton’s letter is evidence that the deferral of development charges was discussed with Whitten on April 16, 2012.

[91] Whitten ultimately admitted on cross-examination that he had been made aware of the deferral of the development charges before the Settlement Agreement was signed. That admission, together with the other evidence, leads me to conclude that, at the latest, by April 16, 2012, but more probably well before that date, Whitten was aware of the deferral of the development charges, which fees remained outstanding as at April 30, 2012. The Plaintiffs’ allegations of fraudulent or negligent misrepresentation with respect to this issue fail.

2. Did the Defendants or any of them misrepresent the amounts owing or paid to Hydro Ottawa?

[92] The Plaintiffs assert that the Defendants fraudulently or negligently misrepresented to the Plaintiffs that $53,449 had been paid to Ottawa Hydro. Sinha’s evidence was that there was a dispute with Ottawa Hydro regarding the perceived over-design of its transformer and, for that reason, payment was on hold. In the accounts payable listing sent by DD to Whitten in November 10, 2011, the Hydro Ottawa payable of $54,135 was marked “(on hold)”.

[93] Whitten also asserted that the Plaintiffs relied upon an entry in GAA Report #3, which shows $53,449 under the heading “Gross Cost to Date” for Hydro connections. Whitten stated that entry meant that $53,449 had been paid to Hydro as at that date. He was mistaken.

[94] The Plaintiffs called Modulevsky as a witness. Modulevsky explained that the entries under the column entitled “Gross Cost to Date” simply show that the Hydro work valued at $53,449 had been completed on the Project or, alternatively, that he had been provided with an invoice in that amount. It did not mean that that amount had been paid.

[95] Taken at its best, the Plaintiffs’ allegations on this issue appear to reveal a fundamental misunderstanding of the GAA reports. It is surprising that the Plaintiffs’ lack of understanding about the meaning of the numbers in the GAA Report persevered to the date of trial: Modulevsky was the Plaintiffs’ witness and the Plaintiffs engaged other construction and accounting professionals who reviewed and worked with the subsequent GAA Reports after HPOI took over management of the Project.

[96] I conclude that the Plaintiffs have failed to show that any misrepresentation, fraudulent or negligent, was made with respect to the Hydro Ottawa payable.

3. Did Sinha or DD make, and did the Plaintiffs rely on, misrepresentations that the Project was projected to “break even”?

[97] I conclude that the statement in the Settlement Agreement that the Project would break even was not a representation or an acknowledgment of a prior oral representation. At most, that wording evidences an agreement by the parties, equally-informed, that the Project would break even.

[98] I also find that the Plaintiffs did not rely on any projections or budgets made by DD or Sinha. In addition to the reasons already given, I note that the HPOI Statement of Claim asserts, and Whitten’s evidence was, that HG had lost confidence in DD. HG concluded that DD was not competently managing the Project but, instead, was mismanaging it. There was no evidence at trial that could reconcile the Plaintiffs’ allegation that HG had no confidence in DD with the assertion that, despite that lack of confidence, the Plaintiffs relied on DD’s projections regarding the profitability of the Project. I do not accept Whitten’s testimony on that point.

4. Could or should Sinha be held personally liable for DD’s budget estimates?

[99] The Defendants deny that Sinha has any personal liability to the Plaintiffs. That defence is well-supported by the evidence. At no time did Sinha act in his personal capacity with respect to the Project: the management contract was between DD and OSL. Sinha and DD are not shareholders. DD was a party to the Settlement Agreement only as it related to amounts owed to DD by OSL. Sinha and DD are not parties to or payees on the Note.

[100] In the HPOI Statement of Claim, the Plaintiffs assert that Sinha and DD owed a special duty to all of the investors to accurately inform them of the proposed profits/losses of the development.

Negligent Misrepresentation

[101] In the case of Queen v. Cognos Inc., [1993] 1 S.C.R. 87, the Supreme Court of Canada considered the issue of negligent misrepresentation. The Court, at p. 110, stated that there are five general requirements for such a claim to succeed:

(1) there must be a duty of care based on a “special relationship” between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted.

In that case, the existence of a special relationship had been conceded. As a result, the Court was not required to analyse that issue.

[102] In Cognos, the Court specifically considered whether representations made during pre-contractual negations went beyond a duty to be honest. The Court concluded that the representor must be truthful and honest and, also, must exercise “such reasonable care as the circumstances require to ensure that the representations made are accurate and not misleading” (at p. 121). The representor’s belief in the truth of those representations is irrelevant to the standard of care. Rather, the question was whether the representor, in this case, Sinha or DD, exercised “such reasonable care as the circumstances require[d]” so as to ensure the accuracy of his or its representations. Again, I have found that there were no representations made with respect to whether the Project would break even.

[103] The evidence at trial, and as conceded by Whitten in his evidence, was that a budget is not a representation; it is an estimate. Budgets change. The Plaintiffs hired Tom Demarco (“Demarco”), B.Sc., Eng. of Demarco Construction Limited, to review the budget. On March 19, 2012, Demarco provided Whitten with his preliminary comments about the budget. In his report, Demarco noted a number of budget items that were not included in the DD budget. According to Demarco, that led to an increase in hard costs for the South Block of over $48,000. Demarco also identified information that was missing or estimates for which there was no breakdown. Finally, he concluded that there could be a possible soft cost overrun of $32,000.

[104] That evidence respecting Demarco’s report adds to the body of evidence that shows that the Plaintiffs did not accept DD’s budgeting as accurate — they believed otherwise. Therefore, even if Sinha and DD were in a special relationship, the Plaintiffs have failed to show that they did or could have relied in any reasonable manner upon the projected profits set out in the DD budget.

[105] The Defendants concede that there was a special relationship among the shareholders; as between a purchaser and seller of a business; and between the Project manager of the Project and the owner. However, the Defendants dispute that there was a special relationship between Sinha and the Plaintiff. Again, as I have stated, Sinha never acted in his personal capacity. Therefore, there is no basis for a claim against him personally and, for the reasons already given, there were no representations made upon which the Plaintiffs had or could reasonably have relied on with respect to the projected financial outcome of the Project.

[106] For the Plaintiffs to succeed in their claims, they would also have had to show that they did, in fact, rely on a misrepresentation (see Cognos, supra; Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165).

[107] The Plaintiffs rely, in part, on the recent Supreme Court of Canada decision in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494. Bhasin clarified and perhaps expanded on the existing common law by recognizing the “organizing principle of good faith that underlies and manifests itself in various more specific doctrines governing contractual performance. That organizing principle is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily” (at para. 63).

[108] At para. 73 of Bhasin, the Court held that there exists a general duty of honesty in contractual performance, which requires that parties must not lie or knowingly mislead the other about matters linked to the performance of the contract. Further, at para. 86, the Court stated that “contracting parties must be able to rely on a minimum standard of honesty from their contracting partner in relation to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests.”

[109] There is nothing in the evidence that could support a conclusion that the Defendants did not act honestly or in good faith. While the Plaintiffs asserted that DD failed to competently manage the Project or mismanaged the Project, they did not prove those claims at trial. Most of the items in the budget were based on the estimates and not on trade quotes. The Project itself was re-envisioned after HG took over. Finally, the November 26, 2013 GAA Report #15 shows that Blocks 1 and 2 were completed at a cost lower than had been budgeted in Report #3.

5. What is the impact of Sinha’s signature on the certificate to CP that the amounts to be paid were as set out in Report #3?

[110] The Plaintiffs asserted that Sinha certified the accuracy of statements set out in GAA Report #3 relating to the amount of hard and soft costs to be paid, etc.; that he knew what he certified was false; that he intended the Plaintiffs to rely on that certification; and that they did so, to their detriment.

[111] Sinha candidly acknowledged that he signed the certification without much thought and that it may not have been accurate. However, after HG took over the Project, its representative also signed such certificates, which, if the Plaintiffs’ assertions about the inaccuracy of the amounts reported were to be accepted, would lead to the conclusion that the Plaintiffs also knowingly misrepresented the state of the finances to CP.

[112] That evidence suggests that the signing of the certificate had little meaning to any of the parties involved in the Project. It was a document required by CP but, one might conclude, a document that was not scrutinized for its accuracy. In any event, for the reasons set out above, I conclude that the Plaintiffs did not rely on DD’s projections or financial statements as certified to CP. Furthermore, December 2011 was before the Defendants had any reason to think that their involvement in the Project would come to an end in a few months. For that reason also, there is no basis to conclude that they made or intended to make any representations to the Plaintiffs upon which they would rely when they entered into the Settlement Agreement.

6. Was there a Misrepresentation on the Validity of Pre-Sold Units?

[113] At trial, Whitten stated that none of the HPOI “non-arm’s-length” sales closed. He explained that “his side” funded the Project so that the lender would be repaid. Whitten stated that the lender was only concerned about getting repaid and that failing to close the MI sales did not affect the financing. The Plaintiffs assert, however, that they suffered the loss of the actual sale proceeds.

[114] The Plaintiffs’ entitlement to claim damages arising from the loss of these two sales seems to depend, in part, on what was intended in the Settlement Agreement by the requirement that the sales “remain in place”. The Plaintiffs argue that the Settlement Agreement required that the Plaintiffs be able to close the two sales. The Defendants dispute that. They assert that the Settlement Agreement obligated them to ensure that the agreements of purchases and sale remained in place in order to comply with the Forbearance Agreement, which they did.

[115] The Settlement Agreement provides that the units were to close in December 2012 with a possible 30-day extension beyond that. The Plaintiffs’ evidence shows that the units were not ready for occupancy until September 30, 2013 at the earliest or, based on the GAA Report #15, until October 2013. I conclude that the sales remained in place until, at least, November 2013, and did not close because OSL was not in a position to deliver the units. Despite that, as at the date of trial, the buyers still have not demanded a refund of their deposits. Whitten confirmed that the deposits on the MI pre-sales remain in the lawyer’s trust accounts.

[116] Whitten offered minimal evidence about the efforts taken by OSL to close the two MI sales. On May 8, 2013, OSL wrote to Zags Investments Inc. and E2BNet.com. The letters thanked the buyers for their patience with the delays in the delivery of their new homes and advised of the redesign of the East Block, which reduced the number of units in the building from 16 to 14 and increased the square footage of the purchased units. The letters enclosed copies of an amendment to the Agreement of Purchase and Sale which changed the “tentative” occupancy date from December 5, 2012 to September 30, 2013 and listed nine changes to the Standard Unit and Building Specifications.

[117] Whitten asserted that, in response to these letters, “the silence was deafening”. He did acknowledge that “someone” called Lisa Westfall of his office. She was not called as a witness. Whitten “believed” that they refused to close.

[118] On cross-examination, Whitten was asked to explain why the GAA Report #15 still showed those purchasers with a closing date of October 23, 2013. Confronted with that evidence, Whitten stated that the Plaintiffs “hoped” they would close. Whitten’s evidence on that point is contradictory and tends to confirm the Defendants’ version of events: the pre-sales were put on the books to reassure CP and to meet the requirements of the Forbearance Agreement. That conclusion is supported by the fact that, even when the Plaintiffs believed the buyers would not complete the purchases, they allowed the sales to remain in the GAA Report given to CP. Despite Whitten’s stated belief that the buyers refused to close, on November 25, 2013, he personally certified the accuracy of the GAA Report #15.

[119] I conclude that the Plaintiffs have failed to prove that the Defendants or any of them fraudulently or negligently misrepresented the true status of the two MI pre-sales. I further conclude that it was OSL who could not complete the transaction as per the terms of the APS and that, in those circumstances, the purchasers would have been entitled to walk away from the purchase.

[120] Given that HG had assumed total control over the Project from and after March 8, 2012, the Plaintiffs cannot, in fairness, blame the Defendants for the fact that OSL was not able to complete the purchase in December 2012 or, it appears, not even by September 2013.

7. Have the Plaintiffs proven Damages?

[121] In cross-examination, Modulevsky confirmed that the GAA Report #15 was GAA’s final report. Report #15 shows the amount budgeted for Block 1 was $1,736,000, as compared to the budgeted amount of $1,754,000 set out in Report #3, upon which the Plaintiffs assert they relied. Similarly, the amount budgeted for Block 2 in Report #15 was $3,155,000. That is a reduction from $3,390,000, the amount budgeted in Report #3. Those reductions in the budget may reflect over-budgeting in Report #3 or may represent efficiencies made by HPOI and OSL after they assumed management of the Project from DD. There may be any number of other explanations for the reduced budget after HPOI and OSL took over the Project. However, that evidence does not support or lead to the conclusion that the Plaintiffs relied to their detriment on Report #3, which underestimated costs.

[122] The Plaintiffs have failed to put forth sufficient or reasonable evidence of any losses it claims to have sustained by reason of its alleged reliance on misrepresentations. The Plaintiffs’ evidence with respect to damages was incomplete and, at times, misleading. For example, in Whitten’s list of damages, he included $45,000 to be paid by SMS to satisfy its obligation to pay its share of the development costs. That negotiated amount cannot be seen as damages any more than can the other amounts that the Plaintiffs contracted to pay to buy out MI’s interests.

[123] The Plaintiffs have also failed to put forth sufficient evidence of their own investments, which they claim to have lost. In calculating their claim for damages, the Plaintiffs improperly included accounting entries respecting investments (and losses) made by non-parties.

[124] The Defendants objected to the Plaintiffs’ claim for damages of non-parties (BT and JPH) to the litigation. Neither BT nor JPH are parties, nor were they called as witnesses at trial. Accordingly, the Plaintiffs cannot succeed in recovering damages from them in these proceedings.

[125] The Plaintiffs have failed to provide satisfactory evidence to support their allegations that the Project was completed at a loss. Among other things, the development of Block 3, which was included in the budget and was projected to be profitable, has not been commenced. When asked about the value of this undeveloped land, Whitten made a guess of its value but the Plaintiffs led no independent evidence of the market value of the undeveloped land.

[126] Also, no cogent or independent evidence was offered as to the value of the four unsold units, which have been rented and for which no accounting was provided. Again, Whitten offered his own estimate of the net value of those units, after deducting the mortgage, but there was no independent evidence led to support his estimate.

[127] The onus is on the Plaintiffs to prove damages. They have failed to do so.

8. Are the Releases a Bar to the Plaintiffs’ Claims?

[128] The Plaintiffs have not succeeded in proving fraudulent or negligent misrepresentation and there is no basis upon which to conclude that the releases ought not to be enforced. By their terms, the Releases operate as an absolute bar to the Plaintiffs’ action. For that reason also, the Plaintiffs’ claim is dismissed. The releases may also have costs implications, which will be addressed at a later date.

Payment Due Under the Note: Agreed Statement of Facts

[129] At trial, the parties filed an Agreed Statement of Facts dated March 11, 2016. In it, the parties agree that the Note was signed and sets out the amount owing to MGI and SFT and the payment schedule. The first payment of $115,834 was due and paid on May 3, 2012. Starting at paragraph 3 of the Agreed Statement of Facts:

3. However, since that time, HPOI and OSL have neglected or refused to pay the subsequent amounts owing under the Promissory Note, namely: (a) $115,833.00 due on June 1, 2012 (the “Second Payment”) (b) $115,833.00 due on September 1, 2012 (the “Third Payment”); and (c) $120,000.00 due on May 1, 2013 (the “Fourth Payment”), one year after the execution of the Promissory Note. (d) $45,000 due on April 16, 2015.

4. There is currently $396,666.00 exclusive of interest, owing to MGI and SFT from HPOI and OSL under the terms of the promissory note.

5. In accordance with the agreement between the parties, interest is payable on an overdue amount at the rate equal to the Prime rate set by OSL’s bankers plus 2% per annum from the date the amount became due and payable until the date paid. OSL’s banker is TD Canada Trust. TD Canada Trust’s Prime Rate is 3.000%.

6. The interest payable pursuant to the Promissory Note as of March 14, 2016 is $62,661.

7. Interest from March 15, 2016 at 5% on the principal of $396,666.00 onwards is $54.34 per day.

Default on Note and Whitten’s Response to Request for Payment

[130] When MI failed to make the second payment of $115,834 due on May 31, 2012, Sinha asked for payment. At first, Whitten told him that the funds were not available and that he would advise Sinha when they were. On June 5, 2012, Whitten told Sinha that he would advise him when the cheque was ready and, for the first time, asserted that there had been omissions in the list of accounts payable provided by DD. On June 13, 2012, Whitten emailed DD with a copy to Miller and Howard. In that email, Whitten stated that, based on his meeting with Modulevsky, he had a couple of concerns:

1. DD represented to Modulevsky that $90,000 and $12,500 had been paid for development charges and cash in lieu of Parkland to the City but HG could find no record of those payments and the City was asking to be paid. He also asserted that the construction lender [CP] had advanced funds for that purpose.

2. DD represented to Modulevsky that payments of $80,893 had been made to Hydro Ottawa but there was no record of those payments and, again the construction lender had advanced funds for those purposes.

[131] Modulevsky’s evidence on this issue is referred to above. It contradicts what Whitten says in his June 13, 2012 email. Moreover, the figure of $80,893 was nowhere in the GAA Reports. Modulevsky stated that he had no knowledge of how Whitten arrived at the figure of $80,893. Whitten also could not explain where that figure came from.

[132] The July 2012 GAA Report still shows $53,449 under “Gross Cost to Date” for the hydro costs. This GAA report was certified by Noble. At trial, Whitten admitted that, when Noble signed the certificate, it was not “fraud’ — an allegation levelled against the Defendants. Similarly, the same page of the July 2012 GAA Report shows $90,000 in development charges under “Gross Cost to Date”. At trial, Whitten admitted that as of July 2012, he knew that the development charges had not been paid, but that he continued to believe that in the GAA Report “Gross Cost to Date” meant that those charges had been paid. This evidence leads to the conclusion that Whitten was trying to justify non-payment under the Note by making assertions he knew or ought to have known were false or inaccurate.

Disposition

[133] For the reasons set out above, MGI and SFT are entitled to judgment on the Note in the amounts as set out in the Agreed Statement of Facts.

Outstanding Issues:

[134] I was not asked to, and these Reasons do not, address two issues:

(1) the status of the MI APSs, and, in particular, the refund to the buyers of their deposits; and

(2) The payments due to DD for sales commissions.

[135] Should the parties wish me to address those issues, they may contact the trial co-ordinator to arrange for a short hearing before me.

Costs

[136] The Plaintiffs’ claim is dismissed. The Defendants are successful in their claim, and are entitled to their costs.

[137] If the parties cannot agree on costs then they may submit written argument to me, not to exceed three pages, together with any Offers and Bills of Costs, within 30 days of the release of these Reasons.

L. Sheard, J Released: October 7, 2016

Footnotes

[^1]: CP is also known as Desjardins. [^2]: S.O. 1992, c. 23.