Court File and Parties
Court File No.: CV-14-498460 Date: 2017-05-02 Ontario Superior Court of Justice
Between: DAVID EDELSTEIN, Plaintiff – and – AGOSTINO MONTELEONE, ANTONIO MONTELEONE SR., DOMENIC MONTELEONE and ANTONIO MONTELEONE, Defendants
Counsel: David Edelstein, In Person Salvatore Mannella, for the Defendants
Heard: April 24, 25, 26 and 27, 2017
Reasons for Judgment
Mr. Justice P.J. Cavanagh
Introduction
[1] The plaintiff David Edelstein (“David”) seeks judgment for payment of a share of funds ($174,795.04 plus earned interest) that were deposited into court in this action pursuant to the order of Myers J. dated June 17, 2014 (the “Disputed Funds”).
[2] The defendants deny that David is entitled to the amount that he has claimed. They submit that the Disputed Funds should be paid to the defendants Antonio Monteleone Sr. and Domenic Monteleone in equal shares.
[3] David, through a numbered company (“David’s company”), had an interest in a company called Academy Homes (Bolton) Inc. (“Academy”). The defendant Agostino (Gus) Monteleone (“Gus”), through a numbered company (“Gus’ company”), also had an interest in Academy. The defendant Antonio (Tony) Monteleone (“Tony”) is Gus’ cousin. Tony had an interest in Academy through Gus’ company.
[4] The defendants Antonio Monteleone Sr. (“Antonio”) and Domenic Monteleone (“Domenic”) are brothers and they are the fathers of Gus and Tony, respectively.
[5] The fourth person with an interest in Academy is Ben Gasner (“Ben”). Ben held his interest in Academy through a numbered company (Ben’s company”). Ben does not claim an interest in the Disputed Funds. Ben is not a party to this action, but he was a witness at the trial.
[6] Academy was a plaintiff in another action involving a proposed real estate development (the “Academy litigation”) to be built on property in Bolton, Ontario. The other three plaintiffs were David’s company, Gus’ company and Ben’s company.
[7] At the material times, the plaintiffs were represented in the Academy litigation by a lawyer, Kevin Sherkin. The Academy litigation was settled in 2013.
[8] At the time of settlement of the Academy litigation, Mr. Sherkin received into his firm’s trust account money that had been paid into court to satisfy an order against the plaintiffs for security for costs. The Disputed Funds represent this amount (after deduction of the amount paid to satisfy legal accounts of Mr. Sherkin’s firm) together with interest earned thereon.
[9] When the Academy litigation settled and Mr. Sherkin’s firm received the funds that had been posted with the court as security for costs, David, Ben, Gus and Tony did not all agree on who should receive the Disputed Funds. An application was commenced by Mr. Sherkin’s law firm against Gus, Tony, David and Ben by notice of application issued February 13, 2014. The application requests an order permitting the applicant to pay the funds held in the trust account of Mr. Sherkin’s firm to Dominic and Antonio, the fathers of Gus and Tony.
[10] David opposed the requested order and, on the return of the application, an order was made by Myers J. dated June 17, 2014 requiring that the funds be paid into court and directing that the application proceed as an action with David as plaintiff and Gus, Tony, Antonio and Dominic as defendants. This is that action.
[11] David’s submits that he is entitled to receive his proportionate share of the monies that were received in the trust account of Mr. Sherkin’s law firm upon settlement of the Academy litigation pursuant to a written agreement (entitled “Acknowledgment”) dated May 30, 2007 that was made by the four partners (the “Acknowledgement”). David submits that his share is based upon his proportionate contribution to the overall amounts that were contributed by all of the four partners towards the amounts needed to finance the Academy litigation.
[12] The defendants deny that the Acknowledgement should be interpreted as David submits. The defendants submit that in March 2006 Gus and Tony agreed at a meeting with David, Ben and Mr. Sherkin held at his office to seek financial assistance from their respective fathers to fund the plaintiffs’ obligation to post security for costs. The defendants submit that the four partners agreed at this meeting that the advances would only be made by the fathers of Gus and Tony on condition that at the conclusion of the litigation, upon release of the amount that was posted as security for costs, the fathers would be paid first before any payments were made to David or any of the other partners.
[13] David denies that such an oral agreement was made. He submits that the fathers loaned money to their sons to be used for the Academy litigation without conditions. David submits that Gus and Tony contributed the funds that they borrowed towards their respective shares of the monetary requirements of the Academy litigation. David also submits that even if it is held that an oral agreement was made at Mr. Sherkin’s office, the Acknowledgment was made after the meeting in Mr. Sherkin’s office upon which the defendants rely and that the Acknowledgment prevails over any oral agreement made at that meeting.
[14] For the following reasons, I have concluded that David is entitled to receive a portion of the Disputed Funds measured based upon his proportionate monetary contribution to the total amounts required to be paid to fund the Academy litigation. I have concluded that David’s proportionate share is 38.37 per cent of the Disputed Funds.
Factual Background to Academy Litigation
[15] David, Ben and Gus, through their companies, formed Academy to acquire property in Bolton, Ontario for the purpose of a townhouse development. Tony is Gus’ cousin, and Tony had an interest in the proposed development to be undertaken by Academy, through Gus’ company. These four persons referred to each other as partners, and I have used this term in these reasons, even though they were not legally partners in a partnership.
[16] Originally, there was another partner, Patrick Labrier (“Patrick”), who operated an engineering company that was engaged to complete the servicing of the Bolton property. The servicing did not proceed as expected, and Academy’s bank stopped advancing funds, causing the project to come to a halt. Sometime later, in 2004, David met with Tony. They discussed the improved market and whether to revive the development of the Bolton property. They discussed proceeding with the development with Gus and Ben. The four partners were not comfortable proceeding with the development with Patrick and drove to his home to confront him. He told them that the property had been sold. They learned that this was not correct, and that the property had not been sold.
[17] The four partners retained a lawyer (not Mr. Sherkin) who registered a caution against the Bolton property. Soon after, the four partners learned that the property had been sold to Patrick’s brother after registration of the caution. The Academy litigation was then commenced against Patrick, his brother, and other defendants. A motion was brought on behalf of the defendants for an order allowing development on the Bolton property to proceed and this order was granted, conditional upon the defendants posting security in the amount of $350,000, which was posted. The plaintiffs in the Academy litigation proceeded with their claim for damages of $3 million.
[18] The plaintiffs in the Academy litigation changed their legal representation to Mr. Sherkin. Sometime after this, the defendants brought a motion for security for costs. This order was granted and the plaintiffs were required to post $165,000 as security for costs to cover the period before the trial of the action. The four partners knew that additional security could be required. When this order was made, the four partners did not have sufficient funds to post the security. By this time, David and Tony had injected significant funds to pay for the costs of the Academy litigation. Gus had also contributed funds but, according to David, not as much.
[19] There is no dispute that the fathers of Gus and Tony each advanced $80,000 and that the funds were used to satisfy the plaintiffs’ obligation to post security for costs. There is also no dispute that the Academy litigation was settled and that the monies that were posted with the court as security for costs were released and were held in the trust account of Mr. Sherkin’s law firm.
[20] The dispute relates to the arrangements for funding of the plaintiffs’ obligation to post security for costs in the Academy litigation and to the entitlement to the Disputed Funds that represent the amounts paid out of court upon settlement of the Academy litigation after payment of accounts for legal services in relation to the Academy litigation.
Analysis
[21] David, as plaintiff, has the legal burden of proof. If he fails to discharge this burden by tendering evidence that establishes a prima facie entitlement to the share of the Disputed Funds that he claims, then his claim must be dismissed.
[22] If David satisfies this prima facie burden, the evidentiary burden shifts to the defendants to prove the existence of the oral agreement they claim was made at Mr. Sherkin’s office. The defendants would then be able to rely upon this agreement as part the circumstances surrounding the Acknowledgment. They submit that the oral agreement should inform the interpretation of the Acknowledgment and that it should be interpreted in a way that does not conflict with the oral agreement.
[23] The defendants submit that, based upon the oral agreement made in March 2006 and the proper interpretation of the Acknowledgement, the Disputed Funds should be paid to the fathers, Antonio and Domenic, in equal shares.
Does the Acknowledgment provide for payment to David of a share of the Disputed Funds?
[24] Before addressing the language of the Acknowledgement, I refer to objective evidence of the background facts at the time of execution of the Acknowledgment: Sattva Capital v. Creston Moly, 2014 SCC 53 at para. 58. This evidence does not include the oral agreement alleged to have been made at a meeting at Mr. Sherkin’s office in March 2006 or the arrangements for financial support made between the fathers, Antonio and Domenic, and their sons, Gus and Tony, respectively. These matters are disputed, and their effect, if any, on the proper interpretation of the Acknowledgement will be addressed separately.
[25] The four partners had discussions with each other concerning how the Academy litigation would be financed. Ben made it clear from the outset that he would not be contributing financially to this litigation. According to David’s evidence, the partners understood that Ben’s share in the proceeds of the litigation would be relinquished to the other three partners, and that Ben would get a nominal amount to stay as a plaintiff (through his company).
[26] David’s evidence was that the other three partners were to be equally responsible for the financial costs of the Academy litigation but that not every expense was divided equally, and that each partner would make the necessary financial contribution to the litigation when money was available.
[27] Tony had the same understanding, as shown by the following questions and answers from the examination for discovery of Tony that were read into evidence by David:
Q. And as far as you know at that time, I was injecting whatever I was required to inject. A. Yes.
Q. Would you agree that there were times … although our intention was that we were going to try to keep the finances equal, that that only lasted for so long, because with cash flow issues, there were times where, if you had money, you had taken a cheque to Kevin [Mr. Sherkin]. If I had money, I would have taken a cheque to Kevin, so it didn’t … There wasn’t a hard set and firm rule that you would only advance money if I had my cheque and if Gus had his cheque? A. I agree.
Q. And it was like that with the three of us. We knew at that point that Ben wasn’t injecting any money. So … A. Yes, I agree.
Q. Okay. And over the next few years that the case progressed, you and I personally never had any upset between each other of how much the other wasn’t injecting. So, we were okay with … I was okay with what you were injecting, and you were okay with what I was injecting? A. Yes.
[28] Several months after the security for costs funds had been posted, discussions began among the four partners about formalizing the agreement with Ben concerning his interest in any proceeds from the Academy litigation because of the fact that he was not contributing to the expenses of the litigation. Draft agreements were prepared by Gus’ wife, who was a real estate law clerk at a law firm, with the assistance of a lawyer at her firm. These drafts were provided to Ben. Ben was not comfortable with the proposed arrangement, and arrangements were made for him to receive independent legal advice. David paid the lawyer’s charge for this advice.
[29] Following receipt of this advice, Ben provided the other three partners with a draft form of agreement for their consideration. By May 2007, there was still no agreement signed. David, Gus and Tony met with Mr. Sherkin, without Ben. Mr. Sherkin expected that Ben would be present, but proceeded with the meeting. Following the meeting, he sent a letter to Ben dated May 24, 2007 and indicated that the meeting was to discuss responsibilities of each of the partners to fund the litigation. He advised that Ben’s share of the security and legal fees had not been paid and that his 25 per cent share of the amount currently posted with the court as security for costs was $41,250.
[30] On May 30, 2007 David, Gus, Tony and Ben met at a coffee shop to discuss the Academy litigation. At the meeting, the Acknowledgment was signed. David prepared the Acknowledgement, and he based it on the draft agreements that had already been submitted to Ben and the draft agreement that Ben had submitted to the other partners.
[31] The Acknowledgement addressed Ben’s share of any residual monies out of the Academy litigation in view of his lack of involvement in contributing any monies to the expenses for the Academy litigation.
[32] The Acknowledgement also provides, in the fourth paragraph, as follows:
This “Acknowledgement”, is also for the purpose of all parties agreeing that all invested/paid/posted/incurred monies that have been spent or will be spent on/within the “said” lawsuit, shall immediately be reimbursed to the owed parties (Gus, Tony & David), whether it arises from a settlement or a trial decision. The “said” reimbursement shall happen immediately upon receipt of funds, by “The Group’s” lawyer. (Emphasis in original)
The Acknowledgement bears the signatures of David, Gus, Tony and Ben.
[33] In interpreting the Acknowledgement, I consider the words used by the parties and the surrounding circumstances as directed by the Supreme Court of Canada in Sattva in the following passage at para. 57:
While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement [citation omitted]. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract [citation omitted]. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement [citation omitted].
[34] The fourth paragraph of the Acknowledgement addresses reimbursement to the “owed parties (Gus, Tony & David)” of all monies “invested/paid/posted/incurred” that “have been spent on/within the ‘said’ lawsuit”. Based on the words used by the parties, this paragraph applies to all monies contributed by the three named parties, and does not exclude the money posted with the court as security for costs. The word “posted” was specifically used, and Tony admitted on discovery in a passage read in by David that money was not posted anywhere else than as security for costs.
[35] This paragraph of the Acknowledgement addresses the way in which the obligation for reimbursement will arise: “whether it arises from a settlement or trial decision”. This paragraph also addresses the time that reimbursement to the “owed parties”, Gus, Tony & David, shall happen: “immediately upon receipt of funds, by ‘The Group’s’ lawyer”.
[36] The defendants submit that the reference in paragraph four of the Acknowledgement to monies received by the group’s lawyer clearly refers to monies received from the defendants in the Academy litigation, and not to the release of funds posted with the court on behalf of the plaintiffs as security for costs of the Academy litigation. The defendants submit that David may have had a cause of action against Gus and Tony for payment of amounts that would equalize the monetary contributions made by each of them to the Academy litigation and that he has not made such a claim in this action.
[37] In my view, reading the text of the Acknowledgement in the context of the objective evidence of the surrounding circumstances at the time that it was signed, the Acknowledgement should not be interpreted as narrowly as the defendants submit. This paragraph of the Acknowledgement was, on my interpretation, intended to ensure that monies contributed by each of Gus, Tony and David would be reimbursed to each of them upon settlement or a decision at trial in the Academy litigation. This paragraph of the Acknowledgement was, in my view, also intended to address the circumstance where the funds received by the group’s lawyer upon a settlement or trial decision were insufficient to fully reimburse the three “owed parties”.
[38] By the language used in the Acknowledgment, the obligation to reimburse monies to Gus, Tony and David arises when funds are received by the group’s lawyer from a settlement of the Academy litigation. Subject to the effect of the oral agreement that the defendants allege was made in March 2006, this, in my view, would include monies received on a settlement from the release of funds posted as security for costs. The Acknowledgement provides that upon such receipt, the “owed parties” are to be immediately reimbursed for all “invested/paid/posted/incurred monies”. The Acknowledgement does not specify the proportions in which the funds received by the group’s lawyer on a settlement shall be reimbursed to the three “owed parties”.
[39] In my view, the evidence is clear that the three partners who were financing the Academy litigation intended to share the burdens and the benefits of this litigation equally. They hoped and expected that the litigation would be successful and that upon a settlement or a successful decision at a trial, they would recover the amounts that each had contributed. They agreed that the surplus amount or, as described in paragraph two of the Acknowledgment, the “residual” monies, would be shared equally among the three partners who were financially contributing, after payment of Ben’s smaller share. In my view, they would also have reasonably expected that if the monies received on a settlement were not sufficient to fully reimburse the three parties who were funding the Academy litigation for their monetary contributions, each would be reimbursed from the monies received for his proportionate share of the total amounts contributed by all three partners. The Acknowledgment must be interpreted having regard to this context.
[40] The fact that David made a significantly greater financial contribution to legal fees, appraisal fees, arbitration fees and other expenses than did Gus or Tony, and that Gus and Tony made greater contributions than David to funding of the amount posted as security for costs should not affect the principle that the partners had agreed upon. Other than Ben, who had a special arrangement, the partners agreed to share equally in the financial burdens of the litigation and in the monies received upon a settlement or trial decision, if any, subject to adjustment, if necessary, to equalize their respective financial contributions.
[41] Having regard to this factual context, in my view, the Acknowledgement provides that the reimbursement to the “owed parties” from amounts received from the group’s lawyer on a settlement of the Academy litigation was intended to be made according to the proportionate contributions that each of the three partners had made to the overall monetary burden of the litigation. If each had contributed equally, as was intended, each would share equally in reimbursement from amounts received on a settlement. If the three “owed parties” did not contribute equally, the Acknowledgement should be interpreted such that the reimbursement would be made proportionately, according to their respective monetary contributions to the overall monetary requirements of the Academy litigation.
[42] I therefore conclude that David has satisfied his legal burden to prove a prima facie claim based upon the interpretation of the Acknowledgment. This proof is, however, subject to the defendants’ evidence that there was a prior agreement made orally among the partners at Mr. Sherkin’s office that affects the interpretation of the Acknowledgement. The defendants bear the evidentiary burden of proving that such an agreement was made.
Did the four partners agree in March 2006 that money advanced by the fathers to fund the plaintiffs’ obligation to post security for costs would be repaid to them if the amount paid into court was released, in priority to any payments to anyone else?
[43] The evidence with respect to the arrangements that were made to fund the plaintiffs’ obligation to post security for costs conflicts in material ways.
[44] According to David’s evidence, after the order for security for costs was made, the four partners met with Mr. Sherkin at his office to discuss how to proceed. Mr. Sherkin gave them options to respond to the order which included posting the security, walking away from the lawsuit or providing evidence of their personal net worth and agreeing to be personally liable for costs, in which case the judge would consider a reduction of the $165,000. According to David, Gus said he would speak to his father to see if he could borrow some money. David does not know if Tony approached his own father or if the two fathers spoke, but what happened was that Gus and Tony borrowed money from their fathers in March 2006. $160,000 was provided to Mr. Sherkin. This was $5,000 short of the amount required and David provided the $5,000 that was needed. Mr. Sherkin paid the $165,000 into court on April 6, 2006 to satisfy the order for security for costs.
[45] David also swore an affidavit in the Academy litigation on April 7, 2008 in response to a motion for an additional order for security for costs that the defendants rely upon. In that affidavit, David said at paragraph 2 that he regarded the Academy litigation as meritorious, and that the case had become stronger with completion of the discoveries. In paragraph 3, he said:
Accordingly, out of desperation Mr. Monteleone’s parents loaned us the money necessary to post the funds in court and it was contemplated to bring a motion to reduce the security however as certain matters went forward we determined that if in fact the matter did not resolve we would eventually bring a motion to reduce the security.
The defendants rely on this evidence to show that the four partners believed that their case was a strong one when the order for security for costs was made and that the partners did not themselves have the money to fund the obligation to post security for costs, and needed financial assistance.
[46] Ben’s evidence was that after the order for security for costs was made, Mr. Sherkin met with the group and gave them options about whether to post the money, call it quits or try to reduce the amount. Mr. Sherkin asked what the group wanted to do. Ben said that the group had originally discussed how to post the $165,000 and they told Mr. Sherkin they would get back to him. With respect to the discussions within the group, Ben said that he had already told the group said that he could not provide money for the litigation. Ben’s evidence was that Gus and Tony said they would approach their fathers and try to borrow the money from them. Ben does not recall a meeting at Mr. Sherkin’s office where the group was present and the loan was discussed with Mr. Sherkin.
[47] When asked about the outcome of the discussions with the fathers, Ben’s evidence was that the group met at a coffee shop, and Gus and Tony said that their fathers had agreed to lend them the money. Ben’s evidence was that he believes that Gus said that there was a stipulation that David would have to contribute an equal amount into the lawsuit. Ben understood this to be a requirement of the fathers.
[48] Mr. Sherkin was called as a witness by David. Mr. Sherkin had delivered an affidavit in support of his firm’s application for an order directing the Disputed Funds to be paid to the fathers. David had opposed this application which, following the order of Myers J., proceeded as this action.
[49] In his affidavit, Mr. Sherkin stated:
At a certain point in the previous litigation (04-CV-278753CM3 and 05-CL-6038) the Court ordered $165,000.00 to be paid as security for costs. None of the principals that are Respondents to this litigation had the necessary funds to do so and as a result, Agostino and Antonio Monteleone agree to seek the funds from their respective fathers on the understanding and agreement that at the conclusion of the litigation those funds would be returned to their fathers who ultimately agreed to advance the funds. I was present at this meeting.
When Ben was cross-examined, he was asked whether he agreed with this paragraph. Ben responded that he agrees with this paragraph until the words “from their respective fathers”. This answer is consistent with his evidence that he did not recall a meeting with the group in Mr. Sherkin’s office where the loan was discussed with Mr. Sherkin. He agreed that he did not know about the understandings between the fathers and their sons.
[50] After Mr. Sherkin had given evidence, David read into evidence questions and answers from the examinations for discovery of Tony and Gus concerning meetings with Mr. Sherkin in the absence of David and Ben about what to do concerning the release of the money that had been posted as security for costs. Mr. Sherkin was asked generally about these meetings in his evidence in chief, and he testified that he told Tony and Gus that he cannot be in the middle of any dispute with the other partners. He was not asked specifically about the discovery evidence that was read in, and I do not find it necessary to make any findings about these meetings.
[51] Mr. Sherkin gave evidence at trial that there was a meeting at his office that the four partners attended. He explained what a security for costs order meant, and that the case could not proceed without security being posted or the shareholders personally undertaking to be responsible for costs. He explained that the money was at risk if the case was lost. He testified that the partners did not have the money, and Tony and Gus agreed to ask their fathers if one or both would put up the money for the security for costs payment on the understanding they were not expecting anything in return – such as interest – other than to get the money back first because they are not participants in the lawsuit. He testified that the parties agreed and the money came and was posted in court. The fathers did not come to his office, and he did not speak with the fathers.
[52] Gus’ evidence was that when the order was made requiring security for costs, there was a meeting at Mr. Sherkin’s law firm that he attended with David, Ben, Tony and Mr. Sherkin. According to Gus, this was a critical meeting because they had to post $160,000 and if they did not do so, the case would be “done”. At that time, the group was confident that they had a good case. Gus said that there was discussion among the group about what to do and that the members of the group did not have the money to fund the requirement for security for costs. He said that Mr. Sherkin suggested that they try to borrow from family or friends because a bank would not be willing to lend money in the circumstances. Ben responded that he was not willing to put any money in because he did not want problems with his wife. David didn’t have money to pay either and he was not willing to ask his family for financial assistance.
[53] Gus was asked whether, as a result of the meeting, he knows whether an understanding or agreement was reached and his response was that he and Tony would ask their fathers to provide financial assistance on condition that they would get their money back. His evidence was that he knows that the group agreed because they did not have options. He said that everybody said okay to this arrangement. Gus’ evidence was that there was a good prospect for settlement at this time and that they believed that the money posted as security would only be held for a few months; a maximum of six months. Gus testified that as a result of this discussion and his understanding, he approached his father and Tony approached his father to ask for financial assistance. The fathers agreed, and each advanced $80,000. Tony delivered his father’s money to Mr. Sherkin and Gus delivered his father’s money to Mr. Sherkin.
[54] Gus testified that the loans from the fathers were made to the three partners, Gus, David and Ben, who were representing Academy through their numbered companies. The fourth shareholder of Academy, Patrick’s company, was a defendant and did not benefit from the loans. Gus testified that each of these three partners received the benefit of the loans and that each was on the hook for one-third of the $160,000 that had been loaned.
[55] Tony did not testify at the trial, nor did his father, Domenic, or Gus’ father, Antonio.
[56] However, David introduced evidence from Tony concerning the arrangements discussed among the four partners to satisfy the order for security for costs by reading in from Tony’s examination for discovery, including the following questions and answers:
Q. So, Kevin met with us, he told us that we would either have to post the money, we would either have to go back and try to get that amount reduced by providing the documents that he had asked for that hadn’t been provided to him, or that we could walk from the lawsuit. A. Yes.
Q. Okay. So, the group had a discussion? A. Yes.
Q. The discussion was between myself, you, Ben and Gus? A. I believe so.
Q. And during that conversation, you said that you were going to contact your father, and Gus said that he was going to contact his father? A. I believe so.
Q. And did you show him anything … so, you go to the house you sit down with your parents, and what do you tell them? A. Basically, we were in a do-or-die situation, and it is pretty well the end of this lawsuit if we didn’t continue with the securities for cost motion.
Q. And when you said … your last sentence, you just … two sentences ago, you said … you told him that we were in a do-or-die situation, right? A. Yes.
Q. Who is “we”? A. The group.
Q. And your parents knew that there was a group? A. Obviously.
Q. So, you had mentioned to them that there is a group of four guys … is that a yes? A. Yes.
Q. Did you mention one guy is David, one guy is Ben, one is me and one is Gus? A. Pretty well.
Q. Okay. And did you discuss … Did you offer, or did he request any sorts of terms with the loan? A. It is my dad. “Pay it back as soon as you can”.
Q. What about interest or anything like that? A. We don’t charge interest among family members.
[57] The defendants have the evidentiary burden of proving, on a balance of probabilities, their factual assertion that the four partners agreed at a meeting in Mr. Sherkin’s office that any money provided by the fathers would be repaid to them first before any payments would be made to any of the partners. They rely upon the evidence of Mr. Sherkin and the evidence of Gus.
[58] I have considered the evidence as a whole, and I have concluded that the defendants have not met their evidentiary burden.
[59] In reaching this conclusion, I rely upon the discovery evidence of Tony that was read into evidence that after Mr. Sherkin had given the options to the group, the group had a discussion that was between David, Tony, Ben and Gus (with no mention of Mr. Sherkin). In this discussion, Tony said he would contact his father and Gus said that he would contact his father. In the passages from Tony’s discovery evidence that were read in as evidence, he did not say that there was a condition of financial support that the fathers’ money would be repaid first. Tony admitted that there was no discussion with his father about such a term.
[60] No attempt was made by the defendants to qualify Tony’s discovery evidence. Counsel for the defendants had advised at the beginning of trial that he intended to call Tony as a witness but he decided not to do so. I draw an inference from the failure to call Tony as a witness that, had he been called, he would have confirmed the evidence that he gave at his examination for discovery or he would otherwise have given evidence that was harmful to the defendants’ case: Sopinka, Lederman and Bryant, The Law of Evidence in Canada, Fourth Edition, at para. 6.450.
[61] The evidence given through Tony’s examination for discovery is supported by Ben’s evidence. Ben testified that there was a separate meeting, after the meeting at Mr. Sherkin’s office, attended by the four partners at which Gus and Tony said that they would approach their fathers for financial help. Ben’s evidence was that he did not recall a discussion at Mr. Sherkin’s office where loans from the fathers was discussed.
[62] I also take into account the evidence that was read in from the examinations for discovery of the fathers, Antonio and Domenic. Antonio was asked about his discussions with Gus concerning Gus’ request for financial assistance:
Q. There was an amount of money that was advanced which is the money that we are talking about now. You’re (sic) son contacted you about this money? A. Yes.
Q. Did he call you or did he visit you at your home? A. Came home.
Q. Came to the house, okay. And when did that happen? A. March 2006.
Q. And what exactly did Gus say to you at that meeting? A. That he needed $80,000.
Q. And he needed the $80,000 for what? A. To give it to the lawyer, was a deposit … something. MS. KARAGEORGIEVSKI: For security.
Q. Did Gus show or provide you with any paperwork or notes when he was explaining why the loan was required? A. No. He said that he needed money for the lawyer, I don’t know any particular … any details.
Q. Okay. What was it that was offered or guaranteed to you in return for the loan? A. He said that it was for short period and he will reimburse me shortly.
Q. Okay. Did you request anything of Gus in exchange for the loan? A. No, I asked nothing from him for the … in return of the money … when he get the money he’ll return it to me.
Q. I understand that, but did Gus ever say, “Don’t worry, you’ll get the money back”? A. Yes.
Q. Okay. Do you know what priority is? A. No.
Q. “Priority” means that someone understands that they’ll get back their money first or before someone else. So my question is, did Gus ever discuss priority with you? A. I don’t remember something like that.
Q. Okay. If Gus received the deposit back … let me rephrase that. The money was given as a deposit to the court, if the money came back from the court to the lawyer, would you have minded if Gus use that money for other legal bills for the same lawsuit? a. I don’t think so.
[63] Passages from the examination for discovery of Domenic were also read into evidence by David. Domenic confirmed that that he loaned the money to Tony, and that Tony needed the money as a security deposit for a lawyer. There was no evidence from the many questions and answers that were read into evidence in which Domenic said that there was a condition to his loan to Tony, other than repayment. Tony told him that he would repay it quickly.
[64] The evidence from the fathers proves that the loans were made by Antonio and Domenic to their sons, Gus and Tony, and not to Academy or the other plaintiffs. This evidence contradicts the evidence of Gus about the identities of the borrowers.
[65] I assessing the credibility and reliability of the witnesses, I consider the harmony or lack of harmony of the evidence given with the preponderance of probabilities disclosed by the facts and circumstances in the conditions of this case: R. v. Pressley (1948), 94 C.C.C. 29 (B.C.C.A.).
[66] The defendants urge me to accept the evidence of Mr. Sherkin and the evidence of Gus over the evidence given by Ben and the questions and answers from Tony’s examination for discovery that were read into evidence.
[67] Mr. Sherkin made it clear in his evidence at trial that the events in question took place more than ten years ago, and that the passage of time affected his recollection of some events, although he did not say that his recollection of this meeting was unclear. He said that he had a busy practice and that he has had to deal with many clients, and attended many meetings, since the events in question. He was clear that, in his view, it only made sense that the persons who had advanced the money to be posted as security for costs should receive the money back when it was released as part of the settlement.
[68] Ben, like Mr. Sherkin, is not a party to this action, and has no financial stake in the outcome of the Action. His evidence is consistent with the evidence given by Tony on his examination for discovery. The evidence of Ben and Tony is also consistent with the evidence of the fathers (through reading in of questions and answers on discovery) where neither said that there were any special terms for the loans that were made to their sons. Gus, unlike Ben, is a party to this litigation and has a financial stake in the litigation because of his interest in having the loan made by his father repaid.
[69] In my view, had there been a condition agreed upon by the four partners that money advanced by the fathers to their sons (and then by the sons to fund the plaintiffs’ security for costs obligation) would be repaid by the plaintiffs first, before reimbursement of amounts advanced by David, such a condition would likely have been discussed with the fathers. There was no evidence that there were such discussions. If such a condition was discussed and agreed upon, I would have expected that Tony would have testified to this effect. He did not testify. The fact that the loans were not made to the plaintiffs directly, but were made to their sons who then advanced the money to fund the plaintiffs’ security for costs obligation, is inconsistent with the fathers having a priority claim upon receipt of funds by the plaintiffs upon release of funds posted with the court as security. Monies received by the plaintiffs from release of funds posted as security for costs would be available to all unsecured creditors on a pro rata basis. David, Tony and Gus had advanced money to fund the plaintiffs’ action.
[70] In my view, the evidence given by Mr. Sherkin is not in harmony with these circumstances. I do not regard the evidence of Mr. Sherkin that the four partners agreed at a meeting in his office in March 2006 that the fathers would be repaid first from any monies advanced to satisfy the plaintiffs’ obligation to post security for costs to be reliable. I do not question the sincerity of Mr. Sherkin concerning his recollection, but I find that he must have misremembered this part of the meeting in question. I rely upon the discovery evidence from Tony and the evidence of Ben, which I accept. I prefer this evidence to the evidence of Mr. Sherkin and Gus with respect to the discussions among the group about Gus and Tony seeking financial support from their fathers to fund the security for costs obligation. I find that Mr. Sherkin’s recollection about this part of the meeting is mistaken, and I also do not accept Gus’ evidence on this point.
[71] I find that Gus and Tony told David and Ben in a discussion that involved the four of them that they would approach their fathers to borrow money to be used to fund the plaintiffs’ obligation to post security for costs. I find that there was no condition discussed and agreed upon among the four partners that any money advanced by the fathers and used to fund the plaintiffs’ obligation to post security for costs would be repaid to them first, before payments to partially or fully reimburse David for money that he had contributed to the Academy litigation. I find that the fathers agreed to loan the money to their sons without any special conditions, other than repayment, and that they expected to be repaid in a fairly short period of time.
Was an express trust created?
[72] The defendants also pleaded that the funds provided by Domenic and Antonio were to assist Academy with the litigation and avoid a motion to dismiss or stay the action for failure to post security for costs. The defendants plead that, accordingly, the funds were impressed with a specific trust and could not be used for any purpose other than to stand as security for costs.
[73] In my view, the evidence does not support a conclusion that Domenic and Antonio intended to create a trust.
[74] The following questions and answers from Domenic’s examination for discovery were read into evidence:
Q. Sir, the money, there was a sum of money that was posted in court as security and money that is security is at risk. So, if the money is lost in the lawsuit, you would have expected Tony to pay you back anyways? A. Yes.
Q. Thank you. Sir, have you ever heard of Academy Homes Bolton Inc.? A. No.
Q. If I told you that I own Academy Homes Bolton Inc. and wanted a loan, would you give it to me? A. In this case I have to go to a lawyer because you’re not part of the family and I never loan money to people outside of family.
Q. Thank you. So, Tony didn’t tell you that the money was for Academy Homes? A. He did not say it at the beginning he’s saying that now in the last few months or year.
Q. So, you didn’t loan Academy Homes Bolton Inc. the money, you loaned Tony the money? A. Yes.
[75] The following questions and answers were read into evidence from the examination for discovery of Antonio:
Q. What was our (sic) understanding about there being a guarantee that you would get your loan paid back? A. My son, no warranty, he is giving … reimbursing me.
Q. And what was it that your son told you that he needed the money for? A. I said before, he had to pay the lawyer, to put down a deposit of some kind.
Q. I understand that. Did Gus ever tell you that your money was a loan to Academy Homes Bolton Incorporated? A. No.
[76] These questions and answers from the examinations for discovery of Domenic and Antonio that were read into evidence, as well as the passages quoted earlier in these reasons, make it clear that the fathers intended to make unsecured loans to their respective sons. They did not intend to create a trust by giving money to Mr. Sherkin or to the court to be held in trust for them and used for the specific purpose of satisfying an order for security for costs against Academy and the three numbered companies. If the amounts that were loaned were not repaid, the remedies of Antonio and Domenic were against their sons, the borrowers.
Conclusions on David’s rights under the Acknowledgment
[77] I therefore conclude that the Acknowledgment provides that monies received by Mr. Sherkin’s firm arising from settlement of the Academy litigation, including monies received from release of funds posted with the court as security for costs, shall be reimbursed to the “owed parties (Gus, Tony & David)”. For reasons already given, I conclude that each of Gus, Tony & David is entitled by the Acknowledgment to be reimbursed from the Disputed Funds in an amount to be calculated based upon each person’s proportionate monetary contribution to the overall monetary requirements for the Academy litigation.
[78] David provided evidence concerning the amounts that were paid by each of the three partners who were funding the Academy litigation. David provided copies of returned cheques and bank statements that, in addition to his oral evidence, supported the amount of his monetary contributions to the litigation. David’s evidence is that these payments were all for the Academy litigation, and not for any other matters. No contrary evidence was given. These payments included payments for legal fees, appraisal fees, and sundry payments. He also provided copies of statements from Mr. Sherkin’s law firm showing amounts received into and dispersed from Mr. Sherkin’s firm’s trust account.
[79] David listed the payments by Gus and Tony in a schedule based upon these trust statements. The defendants agreed that the overall costs of the Academy litigation exceeded $350,000. David’s schedule showed the following contributions:
David $140,520.18 Gus and Tony $225,666.67 (including $160,000 for security for costs) Total $366,186.85
[80] David’s proportionate monetary contribution to the overall monetary requirements for the Academy litigation is, based upon this evidence, 38.37%.
[81] David was not seriously challenged on this evidence. The defendants did not tender evidence of the monetary contributions by Gus and by Tony. I accept the evidence given by David of his monetary contributions and the overall monetary contributions by the four partners to the Academy litigation.
Is David entitled to an award of exemplary damages?
[82] David also claimed an award of exemplary damages. He submitted that there was evidence of disgraceful and unwarranted conduct by the defendants that justified such an award. I do not agree that the evidence proves that there was disgraceful and unwarranted conduct by the defendants that would justify an award of exemplary damages. I do not award such damages.
Disposition
[83] I order and declare that David is entitled to receive 38.37 per cent of the Disputed Funds that are held in court pursuant to the order of Myers J. and I order and direct payment out of court of this amount to David.
[84] The defendants submit that the disputed funds should be paid equally to Antonio and to Domenic. Based upon the findings I have made, I would have directed that the balance of the Disputed Funds, after payment to David of his share, should be paid to Gus and Tony in accordance with their respective monetary contributions to the overall monetary contributions made by the four partners to the Academy litigation. No submissions were made by the defendants concerning who should receive payment of the balance of the Disputed Funds in the event that I decided that David was entitled to a share.
[85] I order and direct that the balance of the Disputed Funds, after payment of the amount to which David is entitled, be paid according to the joint direction of Gus and Tony. I may be spoken to if there is disagreement about how and to whom the balance of the Disputed Funds should be paid.
[86] If the parties are unable to agree upon the costs of this action, David may make written submissions not to exceed 5 pages (excluding any costs outline). The defendants may make responding submissions within 15 days of receipt of David’s submissions, also not to exceed 5 pages. David may make reply submissions within 10 days of receipt of the responding submissions of the defendants not to exceed 2 pages.
