Court File and Parties

COURT FILE NO.: CV-12-451176 DATE: 20170306 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ROYAL BANK OF CANADA Plaintiff – and – SURJE & COMPANY INC. and SUNNY BHASIN Defendants

COUNSEL: J. Davies, for the Plaintiff J. Hernaez, for the Defendant Sunny Bhasin

HEARD: February 6, 7, 8, 9 and 10, 2017

REASONS FOR JUDGMENT

JUSTICE W. MATHESON

[1] In this action, the plaintiff claims against the personal defendant based on a personal guarantee signed by him regarding a line of credit given to the corporate defendant. Default judgment has already been granted against the corporate defendant. A counterclaim was brought, but it was withdrawn at the outset of the trial.

[2] Certain matters are not in dispute. There is no dispute that the personal defendant signed the relevant agreements, including a personal guarantee. There is no dispute that monies were advanced under the credit facility. There is no dispute about the amount due under the credit facility. If the guarantee is enforceable, it is agreed that the amount owing is $149,873.42, plus interest. The dispute is about whether the personal guarantee should be enforced.

[3] The personal defendant submits that he was misled about giving a personal guarantee. He claims to have been misled on two separate occasions, years apart, involving different Bank employees in different sections of the Bank who had no communications with one another. His claim is contrary to clear indications on the agreements that he signed showing that he was giving a personal guarantee.

[4] I conclude that there was no misrepresentation and grant judgment to the plaintiff.

Events giving rise to dispute

[5] The defendant Sunny Bhasin is a well-educated businessman. He graduated with an MBA from Rotman School of Management at the University of Toronto in about 2006. He and another graduate in his year, Jeffrey Luciano, started a consulting business in 2006. The corporate defendant, Surje & Company Inc., was incorporated for that purpose. Mr. Bhasin held 70% of the common shares in Surje and Mr. Luciano held the remaining 30% of the common shares. They described themselves as co-managing partners of Surje during the period of time that they both remained with the business.

[6] Surje’s business was to provide consulting services in Canada and elsewhere, generally with respect to strategy.

[7] Surje obtained a loan from the Business Development Bank of Canada (“BDC”) in the amount of $50,000 that included a personal guarantee given by each of Mr. Bhasin and Mr. Luciano. The BDC loan was given in June 2007.

[8] In early 2008, Mr. Bhasin took steps to obtain additional financing for Surje. Through connections, he was put in touch with the Royal Bank of Canada (“RBC” or the “Bank”).

[9] Ultimately, he was put in touch with Alex Garabedian, who was a senior manager in the small business section of RBC. After some initial contacts, Mr. Garabedian indicated he would determine what Surje was eligible for from RBC. Ultimately a credit facility of $150,000 was approved. Mr. Bhasin testified that he told Mr. Garabedian that he did not want to give a personal guarantee for this loan.

[10] Mr. Garabedian testified at trial. He recalled Mr. Bhasin, who he was favourably impressed by as a Rotman MBA who had business dealings with governments and others. Mr. Garabedian did not recall Mr. Bhasin indicating, before or when the loan documents were signed, that he did not want to give a personal guarantee.

[11] There is no dispute that on May 16, 2008, certain agreements were signed. Each of Mr. Bhasin and Mr. Luciano signed RBC client agreements and a customer agreement for Surje. Most significantly, they signed an agreement entitled “BUSINESS BANKING LOAN AGREEMENT” for the loan to Surje.

[12] Mr. Garabedian testified that the loan agreement was a standard form used for small businesses.

[13] The loan agreement is two pages long and is not overcrowded with text. It states, at the top of the first page, that “owners/partners” are “JOINTLY AND SEVERALLY LIABLE” for the loan (emphasis in the original). On page 2, directly above the signature lines, there is a box prominently displayed in which the following is highlighted:

OWNERS/PARTNERS – READ CAREFULLY: By signing this Agreement, each of you agrees to be personally responsible for the full repayment of each Loan and RBC may demand payment of any such Loan from any of you. … [Emphasis in original.]

[14] At trial, Mr. Garabedian did not specifically recall the meeting at which this agreement was signed, now about eight years ago. However, he recognized his signature on the loan agreement and testified that he would have followed his standard procedure for a meeting at which such a document was signed. In his position at that time, he managed up to 200 clients and had met with clients to sign loan paperwork about a hundred times.

[15] Mr. Garabedian’s standard procedure was to review and discuss each document before it was signed. With respect to the loan document, his standard procedure was that he would explain that these owners were personally liable and were signing for both personal and business liability. By the conclusion of the trial, there was no dispute that the statements in the loan agreement about personal responsibility are the equivalent of a personal guarantee.

[16] At one point in his evidence, Mr. Bhasin did testify that he was walked through the documents at this meeting. However, he testified that both before and during the meeting, he told Mr. Garabedian that he did not want to provide a personal guarantee and that Mr. Garabedian said there was no personal guarantee. As for the loan agreement itself, Mr. Bhasin testified that he did not read it. He testified that he did not read any of the documents he signed that day. He said he was relying on his discussions with Mr. Garabedian and trusted him.

[17] On the evidence, I conclude that if Mr. Bhasin had wanted to read the documents, he would have done so. Similarly, if he had wanted to obtain legal advice before signing, he would have asked for and had the opportunity to do so. He did not do so.

[18] Mr. Luciano also testified about this meeting. He testified that he had no recall of what took place at the meeting and little or no recall of related events. He acknowledged that his signature appears on the documents and agreed that the above statements about personal responsibility were obvious. Although he testified that he had no recollection of what happened at the meeting, he said that upon leaving the meeting he was not under the impression that he had increased his own personal responsibility. At trial, he could not explain why he had that belief.

[19] For reasons set out below, I do not accept Mr. Bhasin’s evidence that Mr. Garabedian said there was no personal guarantee. There is a similar issue regarding what transpired at the meeting in 2010 when the personal guarantee that is the subject of this action was signed. I will therefore address credibility findings later in these reasons.

[20] In 2009, RBC decided to transfer Surje from its small business section to its corporate section, giving rise to the need for new loan documentation. The 2008 credit facility was not expiring but the corporate section used a different form of agreements.

[21] Mr. Bhasin was told of the transfer and the need for new loan documentation. A new person in the corporate section of RBC took over the relationship. Surje was then assigned to the second witness who testified for the plaintiff at trial – Praveen Ravindranath. Mr. Ravindranath has been with RBC since 1985. He became a commercial account manager in 2007. As of 2010, when the new loan documentation was signed, he had about 80 accounts including Surje.

[22] There was no communication between Mr. Garabedian and Mr. Ravindranath regarding the history of RBC’s relationship with Surje or otherwise. Mr. Ravindranath reviewed the Bank’s documentation, which included the 2008 loan agreement and its personal guarantee, the general security agreement and the account agreements.

[23] Mr. Luciano had no involvement in the events giving rise to the new loan documentation signed by Mr. Bhasin in 2010. He had left Surje and notified the Bank of his departure.

[24] Mr. Ravindranath met Mr. Bhasin a few times in 2009 and 2010 before the new loan documentation was signed. The meeting to sign the new loan documentation took place on December 24, 2010. That date was discussed and Mr. Bhasin said he was available.

[25] At that meeting, Mr. Bhasin signed a new loan agreement, a new general security agreement, an insurance plan document and an agreement entitled “GUARANTEE AND POSTPONEMENT OF CLAIM”. He agrees he signed these documents. He signed one copy of each of them. However, Mr. Bhasin testified that, again, he did not read any of them.

[26] Mr. Ravindranath and Mr. Bhasin testified about what took place at this meeting. No one else was at the meeting. The meeting lasted between 45 and 60 minutes.

[27] Mr. Ravindranath testified that he remembered the meeting. Mr. Ravindranath said that no changes were being made – he told Mr. Bhasin that the company was still being provided with an operating line of $150,000, secured by a general security agreement and Mr. Bhasin’s personal guarantee. However, the form of the agreements, which were the standard documents for the commercial section, were different. He followed his standard procedure and reviewed each agreement with Mr. Bhasin before it was signed. He did not go through each document line by line. He explained the total limit on the credit facility (which was still $150,000), the interest rate, how the amount was secured, fees and reporting requirements.

[28] On the loan agreement, under the heading “SECURITY” on page 1, there is a specific reference to the personal guarantee, as follows:

Security for the Borrowings and all other obligations of the Borrower to the Bank (collectively, the “Security”), shall include…

b) Guarantee and postponement of claim on the Bank’s form 812 in the amount of $150,000 signed by Sunny Bhasin. [Emphasis added.]

[29] The guarantee and postponement of claim agreement is two-and-a-half pages long and begins with a description of the personal guarantee being given by the signatory and then describes the terms.

[30] Mr. Ravindranath testified that after he described this agreement, Mr. Bhasin asked why he should sign a personal guarantee and Mr. Ravindranath answered him. In that conversation, Mr. Ravindranath told Mr. Bhasin that virtually every owner of a small or medium-sized business had to give a personal guarantee.

[31] Mr. Bhasin gives a very different account of this meeting. He testified that none of the agreements were reviewed with him; they were simply placed in front of him in a stack for him to sign. Mr. Bhasin testified that he was wrongly told that the agreements were the same as the original loan and he relied upon this misrepresentation and simply signed the agreements. He clarified that he knew that the forms themselves were not the same – the forms were new. He testified that he did not read any of the agreements. He testified that he trusted Mr. Ravindranath and assumed that there was no personal guarantee in the documents that he signed.

[32] Mr. Bhasin also suggested that Mr. Ravindranath’s arm was covering the documents. However, in demonstrating what he meant it was apparent that Mr. Ravindranath was handling the documents in an ordinary way. He was not stopping Mr. Bhasin from reading the documents. Again, if Mr. Bhasin wanted time to read the documents, he would have done so.

[33] On Mr. Bhasin’s account of the meeting, the process of dealing with the agreements would have taken only a few minutes. At trial, he made an unsatisfactory attempt to explain what transpired during the approximate 40 or more additional minutes of the meeting.

[34] Mr. Bhasin and Mr. Ravindranath had a friendly relationship, but were not personal friends. In their various meetings, they had the sort of friendly exchange of pleasantries that suited their business relationship. I accept that the meeting included such pleasantries, but this would not have occupied very much time. The length of the meeting is much more consistent with Mr. Ravindranath’s account of what took place at the meeting.

[35] I accept Mr. Ravindranath’s account of the meeting as further discussed below.

[36] RBC was satisfied with Surje’s financial condition when the new loan documents were signed in December 2010. Shortly before the meeting, the Bank had received the Surje 2009 financial statements, which were satisfactory to RBC. However, as things developed, it became apparent that Surje had financial problems.

[37] Mr. Bhasin testified that he first discovered that he had assigned a personal guarantee on a Friday evening in late June or early July 2011. Mr. Ravindranath called him at home that evening and said that the bank had some concerns about Surje. One of the things he mentioned was the personal guarantee that Mr. Bhasin had signed in 2010.

[38] Mr. Bhasin testified that right after the phone call he went to his box of banking documents, which he had at home because Surje did not have a formal office by that time. He took out the 2010 documents. He saw the personal guarantee. He testified that he was shocked and troubled.

[39] Despite Mr. Bhasin’s testimony about his strong reaction to discovering the personal guarantee, Mr. Bhasin did nothing about the personal guarantee. He did not even send an email. He testified he was busy with the business.

[40] On or about July 20, 2011, Mr. Bhasin completed and signed a “Personal Statement of Affairs” for RBC. Mr. Bhasin testified that he did not read the Declaration directly above his signature on this document, which states that the information provided was true, complete and correct and that he understood that it would be used by the Bank to determine his creditworthiness. On his Personal Statement, Mr. Bhasin said that he owned 100% of Surje even though Mr. Luciano’s shares had not been transferred to him. Mr. Bhasin and Mr. Luciano had protracted and ultimately unsuccessful negotiations regarding Mr. Luciano’s shares in Surje.

[41] At trial, in an effort to explain why Mr. Luciano’s 30% was not mentioned on his Personal Statement of Affairs, Mr. Bhasin said that for a number of reasons, Mr. Luciano’s share was worthless. On the same line of the Personal Statement of Affairs, Mr. Bhasin indicated that the net worth of Surje was then “$5+” million, which he could only explain at trial by saying it was worth that much to him.

[42] A few months later, in September 2011, Mr. Ravindranath phoned and told Mr. Bhasin that the Bank was going to reduce the operating line to the amount currently being used; the balance would not be available. Mr. Ravindranath asked Mr. Bhasin not to make any further withdrawals. It would take a couple of days to implement the change.

[43] Mr. Bhasin ignored this request. The next morning, Mr. Bhasin went to his local branch and took a personal bank draft in his own name for the balance of the operating line – $37,500 – and deposited it. He took a personal draft because he knew that a draft to the company could be held by the Bank. He later persuaded the Bank to restore that credit.

[44] On September 21, 2011, Mr. Bhasin had a meeting with Mr. Ravindranath. Mr. Bhasin made handwritten notes of the meeting. Various issues were discussed. The Bank had been asking for a new corporate address for Surje, and a new address had not been provided. The company no longer had its own office. Mr. Bhasin testified that he was using the offices of an informal client who was a high-profile billionaire and it would be inappropriate to give out that address. The Bank had also been asking for other information that had not been provided, such as the Notices of Assessment for Surje. At trial, Mr. Bhasin did not have a satisfactory explanation for the refusal to provide those documents.

[45] At that meeting, Mr. Ravindranath told Mr. Bhasin that the Bank wanted to move the Surje account to the Special Loans department.

[46] There were other issues discussed at the meeting. However, Mr. Bhasin did not raise any issue about the personal guarantee that he testified he was shocked to discover several months earlier.

[47] A couple of weeks later, by email on October 3, 2011, Mr. Ravindranath wrote to Mr. Bhasin. Among other things, Mr. Ravindranath referenced the personal guarantee. In the opening sentence, Mr. Ravindranath said that the loan was “guaranteed by you personally.”

[48] In his reply to this email, Mr. Bhasin said nothing about the personal guarantee.

[49] Commencing in October 2011, a series of letters were mailed to Surje, none of which Mr. Bhasin acknowledges receiving. Initially, the Bank sent letters to the only address of record they had for Surje (since the request for an updated address had been refused). The matter was then referred to counsel, who wrote to a number of addresses including Mr. Bhasin’s home address. Mr. Bhasin did not acknowledge receipt of any of the letters, and said there were sometimes problems with the mailbox at his home address.

[50] As set out in the letters, the Surje account was first moved to the Special Loans department at the Bank, and then refereed to counsel. Demands were made, and then this action was commenced.

[51] It was not until February 2012 that Mr. Bhasin wrote disputing giving a personal guarantee in 2010. In a letter dated February 17, 2012, Mr. Bhasin said that “if” something was “inserted” into the routine renewal documents without his knowledge there was a serious issue.

Witness credibility

[52] There are obviously issues of credibility arising from the above events. Most significantly, there is a factual dispute about what was said and done about a personal guarantee in connection with the 2008 loan and what was said at the December 2010 meeting when the new loan documents were signed.

[53] Having carefully considered all of the trial evidence including both witness testimony and the historical documents, I conclude that I prefer the evidence of Mr. Garabedian and Mr. Ravindranath to the evidence of Mr. Bhasin. With respect to Mr. Luciano, his evidence was so lacking in foundation that I do not find it helpful, although I have taken it into account.

[54] Beginning with Mr. Garabedian, I found him a straightforward and responsive witness who readily acknowledged what he did and did not know, including that he did not specifically recall the meeting in question. I accept his evidence that he would have followed his standard practice, including explaining the documents during the meeting at which Mr. Bhasin signed the agreements. Mr. Garabedian’s own signature is on the loan agreement, based upon which he testified that he would have followed his standard practice. His evidence also accords with the documents that were signed, which plainly indicate that Surje’s owners had personal responsibility for the Surje revolving line of credit. I find that he did follow his standard practice of reviewing the documents including the boxed text on the loan agreement regarding personal responsibility. I find that he did not say there was no personal guarantee, which would have been directly contrary to the boxed text on the loan agreement.

[55] Similarly, I found Mr. Ravindranath to be a straightforward and responsive witness. He recalled the key meeting. His testimony about what transpired when the 2010 documents were signed is not only consistent with his standard practice, but also with the length of the meeting, the nature of the documents being signed and Mr. Bhasin’s own conduct in response to later Bank inquiries.

[56] I found Mr. Bhasin’s testimony about his “discovery” of the personal guarantee in mid-2011 completely inconsistent with his own actions. After his “shock” he did nothing at all. He did not even send an email. And after the personal guarantee was raised in a Bank email some months later, he did not contest it. And at the Bank meeting around the same time, he did not raise it as an issue. When Mr. Bhasin did send a letter that included this issue, it was not put in terms of his “shock” when discovering it in mid-2011. Instead, he wrote his letter as if he still did not know that he had signed that agreement, saying that “if” something had been inserted that there would be a serious problem.

[57] Mr. Bhasin’s testimony was unresponsive and inconsistent on a number of subjects, such as the financial information that was and was not provided to the Bank; whether or not Mr. Luciano remained a shareholder after his departure; what Mr. Luciano may or may not have done regarding the company after his departure; why the corporate Notices of Assessment were not provided to the Bank; the actual financial status of the company from time to time; and the answers that Mr. Bhasin himself provided on his own Personal Statement of Affairs in July 2011. As well, there is no contemporaneous documentation that supports Mr. Bhasin’s evidence about the alleged discussions with each of Mr. Garabedian and Mr. Ravindranath regarding a personal guarantee. The documents do contain a reference to the BDC loan at the initial stages. Any prior loans were part of the vetting process for the Bank to decide whether to lend Surje money. But there is no reference in the early documents to a personal guarantee being significant or not wanted by Mr. Bhasin going forward. Overall, I did not find Mr. Bhasin to be a credible witness. I do not accept his evidence when it departs from the evidence of Mr. Garabedian regarding his practice, the evidence of Mr. Ravindranath or the contemporaneous documents including the agreements signed by Mr. Bhasin.

[58] I therefore accept Mr. Ravindranath’s account of the December 2010 meeting, in which he reviewed the documents with Mr. Bhasin, including the guarantee and postponement agreement that Mr. Bhasin questioned and then signed.

Analysis

[59] The issue on this trial is whether the personal guarantee signed by Mr. Bhasin in 2010 is enforceable. There is no issue that the basic requirements to enforce the loan have been established. The loan agreement was signed on behalf of the corporate defendant. The operating line was provided and was drawn on. The necessary steps were taken to call the loan. The amount due under the loan remains unpaid. That amount is agreed.

[60] Four defences were advanced in the statement of defence of Mr. Bhasin. In final argument, his counsel indicated that he was proceeding with one defence only – the defence based upon misrepresentation. The defences based upon an alleged fiduciary duty and lack of independent legal advice were dropped. The fourth defence, non est factum, was also dropped although some overlap with misrepresentation was properly acknowledged in argument.

Alleged misrepresentation

[61] The alleged misrepresentation is pleaded as follows: that Mr. Ravindranath asserted that the 2010 loan documents were the same as the documents for the 2008 loan. Mr. Bhasin acknowledged that this was not a reference to the form of the loan documentation being the same. The new agreements were signed in order to change to the form of documents used in the commercial section of the Bank. The focal point of the defendant’s case is that Mr. Ravindranath said nothing had changed, which meant, to Mr. Bhasin, that there was no personal guarantee.

[62] Where the claim is that a contracting party was induced to enter into an agreement by misrepresentation, inconsistent with the form of the agreement, there must be a finding that there was a misrepresentation to begin with: Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102, at pp. 110-112. I have found that Mr. Ravindranath did not simply say that the loan documentation was the same, as alleged by the personal defendant. Mr. Ravindranath said that nothing had changed – that it was the same credit line, with the same security of a general security agreement and a personal guarantee. He explained that the personal defendant was personally liable. He reviewed not only the credit facility and security, but also the fees and reporting. All that Mr. Ravindranath said must be taken into account.

[63] There were certainly some changes reflected in the new loan documentation. For example, the interest rate was slightly lower. There were different fees. These sections were reviewed by Mr. Ravindranath. The guarantee agreement itself was a few pages rather than a few paragraphs and included a postponement of claim, as prominently shown in its title. This document was reviewed by Mr. Ravindranath. The personal defendant has not proved the misrepresentation.

[64] Even if the reference to “no changes” or “the same” was directed to the issue here – the personal guarantee – there was still no misrepresentation. The 2008 loan also included a personal guarantee. From the standpoint of that security, there was no change. It was the same. And Mr. Garabedian did not misrepresent the 2008 loan as excluding a personal guarantee.

[65] There was argument before me about the parol evidence rule and the extent to which evidence that Mr. Bhasin sought to rely upon was admissible. This arose at least in part because of the entire agreement clauses that form part of the terms and conditions in both the 2008 and 2010 loan documentation. Given my finding that there was no misrepresentation I need not get into this argument in any detail. Since there was no misrepresentation, it matters not whether it would have been excluded by an entire agreement clause.

[66] The Bank also questions whether Mr. Bhasin can separate his misrepresentation claim from the test for non est factum, since Mr. Bhasin claims misrepresentation and he signed the personal guarantee. Non est factum addresses the situation where a party has signed an agreement as a result of a misrepresentation e.g., Bulut v. Carter, 2014 ONCA 424; Royal Bank of Canada v. Hussain.

[67] As recently summarized in Royal Bank of Canada v. Lunardi, 2016 ONSC 2541, at para. 11, the three-part test for non est factum is as follows:

(1) that the defendant signed the document mistaken as to its nature and character;

(2) that the mistake was the result of a misrepresentation; and,

(3) that the defendant was not careless in doing so.

[68] To succeed in this defence, the signatory must establish all three elements of the test.

[69] I have already found that there was no misrepresentation, which defeats this defence. Even if there had been a misrepresentation, carelessness would defeat the defence of non est factum in this case. This defendant is a highly-educated businessman, who chose to sign agreements on two occasions without reading any of them. There was obvious text on the face of the agreements about the security for the loan including a personal guarantee, which would have been noticed if the documentation had been given even the slightest attention by the personal defendant. No significant time pressure was established on the evidence. If the absence of a personal guarantee was as important as the personal defendant now says it was, he was certainly careless in paying so little attention to the agreements that he was signing, even on his version of the events that took place. Thus, the defence of non est factum would be unsuccessful.

[70] The personal defendant also wished his counsel to make a submission about Bhasin v. Hrynew, 2014 SCC 71, and the general comments recognizing that there is “an organizing principle of good faith” that underlies various doctrines governing contract performance. As set out by the Court in that case, that organizing principle “is simply that the parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily”: at para. 63. It is not clear to me how this general principle assists the personal defendant in this case, in that it is he who does not wish to perform the contractual duties in the contract that he signed. The steps taken by the Bank did not offend the above organizing principle even if it is more broadly applied as suggested by the personal defendant.

Judgment

[71] RBC shall therefore have judgment against the personal defendant for $149,873.42, plus interest.

[72] If the parties are unable to agree on the interest owing or on costs, the plaintiff shall make its submissions by delivering brief written submissions together with a costs outline by March 27, 2017. The personal defendant may respond by delivering brief written submissions and related materials by April 19, 2017. As agreed between the parties, these submissions may include costs of the counterclaim that was withdrawn at the outset of the trial.

Justice W. Matheson Released: March 6, 2017