Court File and Parties

COURT FILE NO.: CV-11- 433846 DATE: 20170418 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: 2383431 Ontario Inc. AND: Rose of Sharon (Ontario) Retirement Community, Woo Kim, Jongho Lee, Adam Yoo, Jeongmin Ryu, Jae Hoon Cho, Richard Yoon, Jane Kim, Helen Huh and Lawrence Kim

BEFORE: Madam Justice J.T. Akbarali.

COUNSEL: J. Baichoo and J. D’Aloisio, for the Plaintiff/Moving Party B.G. McEachern, for the Defendant/Responding Party, Lawrence Kim S. Grayson, for the Defendant/Responding Party Richard Yoon P. Cho, for the Defendants/Responding Parties Jane Kim and Helen Huh S. A. Alexanian, for the Defendants/Responding Parties Woo Kim, Jongho Lee, Jeongmin Ryu, Jae Hoon Cho and Adam Yoo

HEARD: March 31, 2017

Endorsement

Overview and Positions of the Parties

[1] Members of the Korean community in Toronto wanted a retirement residence and long-term health care facility to serve the needs of its senior population. The corporate defendant, Rose of Sharon (Ontario) Retirement Community, was incorporated to build and licence such a facility.

[2] In 2005, Rose of Sharon contracted with Unimac Corporation Ltd. to construct the facility. The cost of the project was about $17 million, financed by a first mortgage.

[3] The construction took longer than anticipated. The delay made it difficult for Rose of Sharon to service the first mortgage. Unimac insisted it needed further funds or it would walk off the job. Unimac’s principal, Leon Hui, offered a solution. He could obtain funds to pay Unimac by way of a $700,000 mortgage from a company called IWOK. Mr. Hui is the sole officer and director of IWOK, however the relationship between IWOK and Unimac is not clear; Mr. Hui refused to answer questions on his examination about it. Whether Rose of Sharon and its directors knew about the relationship between Mr. Hui and IWOK is a matter of dispute.

[4] To provide funds, IWOK wanted the members of the board of directors of Rose of Sharon to guarantee the new mortgage debt. They refused. Certain directors were replaced. Eventually, on November 10, 2008, the directors of Rose of Sharon, who are the individual defendants, signed a guarantee. The scope of the guarantee is also a matter of dispute.

[5] IWOK advanced $700,000 to Rose of Sharon, all of which was used to pay Unimac. The IWOK mortgage required Rose of Sharon to make monthly payments of interest only and provided for a three year term.

[6] On May 1, 2011, Rose of Sharon defaulted on the mortgage. By September 27, 2011, Rose of Sharon was in receivership. The receiver has commenced an action against Unimac, among other defendants, for damages of over $3 million related to defects in the construction.

[7] IWOK assigned its mortgage to Morrison Financial Services which subsequently assigned it to the plaintiff, 2383431 Ontario Ltd. (“238”).

[8] On this motion, 238 seeks summary judgment against the individual defendants (the guarantors) on the basis of the guarantee. The guarantee provides that the guarantors guarantee “the due and punctual payment of all interest owing on the security of the Charge and any renewals thereof and observance and performance of the covenants, agreements, terms and conditions herein contained by the Chargor, and the Guarantors… covenants with the Chargee that if the Chargor shall at any time make default in the punctual payment of any monies payable hereunder, the Guarantors will pay such monies to the Chargee…”

[9] 238 argues that pursuant to the guarantee, the guarantors are liable for principal and interest (which it argues continues to accumulate). The guarantors argue that the guarantee, properly construed, limits their responsibility to the interest on the mortgage for the term of the mortgage, and nothing more [1]. They argue that their position is supported by the factual matrix, and point to emails from Mr. Hui and between counsel, and to a preliminary second mortgage commitment, all of which refer to the directors providing a guarantee of interest only. Both the plaintiff and the guarantors argue that the guarantee is unambiguous.

[10] The guarantors argue in the alternative that summary judgment is not appropriate because they have a defence that requires a trial. They argue that the guarantors are released from their guarantee when the creditor has materially changed the risk to the guarantors, including by eroding the value of the security [2]. They argue that the construction defects caused by Unimac’s shoddy work materially increased their risk and eroded the value of the property. They argue that Unimac’s relationship to IWOK is such that Unimac’s actions and knowledge should be imputed to IWOK. 238 argues that the guarantee includes a clause by which the guarantors waived their equitable defences.

[11] The parties raise the following issues on this motion:

a. Whether the guarantors’ guarantee was of interest only for the term of the mortgage or whether they are liable for all of the chargor’s obligations, including the repayment of the principal and the interest which continues to accure, and

b. Whether the guarantors’ defence relating to the construction defects was waived by the terms of the guarantee.

Is this an appropriate case for summary judgment?

[12] Summary judgment must be granted when there is no genuine issue requiring a trial. This will be the case when the summary judgment process allows me to make the necessary findings of fact, allows me to apply the law to the facts and is a proportionate, more expeditious and less expensive means to achieve a just result: Hryniak v. Mauldin, 2014 SCC 7 at paras 47, 49, [2014] 1 S.C.R. 87.

[13] A process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute: Hyrniak at para. 50.

[14] The court hearing a summary judgment motion must guard against the dangers of decontextualized affidavit and transcript evidence becoming the means by which substantive unfairness enters into the summary judgment process in a way which would likely not occur in a trial: Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450 at para. 44, 120 O.R. (3d) 438.

[15] In 2287913 Ontario Inc. v. Blue Falls Manufacturing Ltd., 2015 ONSC 7982, Myers J. noted that “summary judgment lies best when the moving party is able to identify a discrete, neat, gating issue that might be resolved on a motion to thereby save the parties the cost and delay associated with going to trial on a number of other issues”. In contrast, “uploading a complex, multi-issue case with facts in dispute to a judge without the benefit of counsel’s trial narrative creates very challenging motions that are more likely to be found to be disproportional in the context of the “litigation as a whole” as discussed in Baywood”: see paras. 10-11.

[16] In my view, the motion before me presents the challenges identified in Baywood and in Blue Falls.

[17] While 283 seeks to characterize the motion as a simple one to interpret and enforce a guarantee, the issues are much more complicated than that. I am asked to interpret the guarantee in the context of affidavit evidence including evidence of the factual matrix that raises serious questions as to the validity and scope of the guarantee, but the record does not allow me to fully address those questions.

[18] I am left wondering, for example, whether the relationship between IWOK, Unimac and Mr. Hui impacts the validity of the guarantee. The plaintiff’s witness, Mr. Hui, refused to answer questions about those relationships on examination. In those circumstances, I am not prepared to find that the guarantors failed to put their best foot forward with respect to whatever defences they could have advanced that relate to those relationships, which might include misrepresentation, fraud or rectification.

[19] The guarantors’ defence with respect to the construction deficiencies relies, in part, on the relationships between IWOK, Mr. Hui and Unimac. I cannot draw conclusions about the merits of this defence without the evidence about these relationships.

[20] The defence also relies on the construction deficiencies, which are the subject of another action. I have very little evidence about the defects, or the state or stage of the action against Unimac. Counsel for the plaintiff produced Mr. Hui as the plaintiff’s witness on this motion, and is retained on this other action. Nonetheless, there is a gap in the evidence before me.

[21] The guarantee includes two paragraphs in which certain defences are waived, including anything “whatsoever whereby the Guarantors as surety only would or might have been released…” It is not clear to me whether Rose of Sharon as chargor would have a defence available against 238 on the basis of the construction deficiencies, either at law or on the evidence. This is a matter which is relevant to the interpretation and application of this provision of the guarantee. I am not confident I can decide the interpretation of the guarantee, and how it might impact this claimed defence, on the record before me.

[22] Nor do I consider it wise to interpret part of the guarantee in circumstances where I cannot dispose of all the issues raised in this action. The interpretation of the scope of the guarantee should be made at the same time that the waiver provision is construed. I am wary of the implications of interpreting part of the document when much more of it is in dispute. This raises the spectre of inconsistent interpretations. A trial will allow the parties to develop a more accurate factual matrix and a more complete narrative within which the court may interpret the whole of the guarantee.

[23] I do not have confidence that I can reach a just conclusion on this motion on the basis of the record that is before me. Accordingly, I dismiss the motion for summary judgment.

[24] In view of the direction from the Supreme Court of Canada in Hryniak, I seize myself of the trial of this action. There will be issues to address with respect to its timing and related to the action against Unimac. I thus direct the plaintiff to arrange a case conference which should take place before me by May 31, 2017 to set a timetable for the progress of this action.

[25] If the parties cannot agree on costs, the defendants should deliver joint costs submissions to me of no more than three pages plus any relevant attachments within two weeks of the date of these reasons. The plaintiff shall deliver responding submissions of no more than three pages plus any relevant attachments within two weeks from receipt of the defendants’ submissions. The defendants may deliver a joint reply of no more than two pages within one week from receipt of the plaintiff’s submissions.

Madam Justice J. T. Akbarali Date: April 18, 2017.

[1] They paid this amount in April, 2016.

[2] They rely on Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415 and Pax Management Ltd. v. Canadian Imperial Bank of Commerce, [1992] 2 S.C.R. 998 in support of this argument.