Court File and Parties
COURT FILE NO.: CV-16-1244 DATE: 20170725 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: Tatiana Andreevskaia Plaintiff/Moving Party – and – Vitali Satanovski and Lyudmyla Tereshchenko Defendants/Respondents
COUNSEL: Mr. Pyne-Hilton, for the Plaintiff Mr. A. Rogerson, Mr. A. Jazayeri, for the Respondents
HEARD: May 9, 2017
Reasons for Decision on Motion for Summary Judgment
VALLEE J.
Introduction
[1] The plaintiff states that the defendants borrowed money from her and her husband Mr. Iablokov, on four occasions. The first two loans of $40,000 and $50,000 were repaid; however, the defendants had difficulty making the payments on the last two loans of $100,000 and $50,000. As a result, the plaintiff requested security. The defendants agreed to provide a second mortgage on their home. They obtained independent legal advice. They signed a promissory note for $150,000. The second mortgage was registered collateral to the note. It is now in arrears. The plaintiff brings this motion for summary judgment for the amount owing on the mortgage.
[2] The defendants state that the four amounts provided by the plaintiff and Mr. Iablokov were gifts to their charity. Subsequently, Mr. Iablokov decided that the money had to be returned. The defendants never agreed to pay any interest on any of the four amounts advanced. They have repaid more than the total amount advanced. The defendants state that the plaintiff made a fraudulent misrepresentation to them as to the amount owing when they signed the mortgage. They did not know what they were signing. They signed the mortgage documents under duress. The mortgage is unconscionable. There are a number of genuine issues that can be determined only in the process of a trial.
Issues
[3] Is there a genuine issue that requires a trial with respect to the following:
(a) Were the amounts provided by the plaintiff gifts or loans? (b) If they were loans, was interest payable on them? (c) Did the plaintiff fraudulently misrepresent the amount owing in order to obtain the mortgage? (d) Did the defendants understand what they were signing? (e) Did the defendants sign the mortgage under duress? (f) Is the mortgage unconscionable?
Applicable Legal Principles
Summary Judgment
[4] In Hyrniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the court provided guidance on the interpretation of rule 20 of the Rules of Civil Procedure. Rule 20.04(2)(a) states that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial. The court noted in paragraph 49 that if the process allows a judge to make the necessary findings of fact, apply the law to the facts, is a proportionate, more expeditious and less expensive means to achieve a just result, and if the judge is able to reach a fair and just determination on the merits of the motion, there will be no genuine issue requiring a trial.
Awarding Interest
[5] A contractual rate of interest will only be awarded if there is an express agreement or an agreement can be implied from the course of conduct. (see Accent Metals Inc. v. Stelfab Niagara Ltd., 2010 ONSC 549)
[6] In McHugh v. Forbes, (1991), 4 O.R. (3d) 374 (C.A.), the court considered interest rates set out in promissory notes that ranged from 28 percent to 36 percent. The court stated at pp. 377-378:
The burden on Forbes [the defendant] then was to satisfy Carruthers J. [the motion judge] that, having regard to the risk and all the circumstances of the transaction, the cost of the loan was excessive and that the transaction was harsh and unconscionable. There was no evidence before Carruthers J. on which he could make a finding that the loan or loans were excessive having regard to the fact they were advanced virtually unsecured to assist Forbes [the defendant] in her troubled business and that no conventional lender would have granted these loans.
Non est factum
[7] The defence of non est factum is available to someone who, as a result of misrepresentation, has signed a document and was mistaken as to its nature and character and who was not careless in doing so. (see Bulut v. Carter, 2014 ONCA 424, 322 O.A.C. 53, para 18)
Independent Legal Advice
[8] In Samra v. 7544405 Canada Inc., 2016 ONSC 1817, the court considered the effect of a party’s obtaining legal advice regarding mortgages. All parties had sophisticated lawyers representing their respective interests when the mortgages were negotiated and registered. The defendant obtained legal advice about her concerns prior to registration of the mortgages. This was a factor in the court’s decision to grant the plaintiff’s motion for summary judgment.
[9] The defendant’s receiving independent legal advice on a loan may provide a plaintiff with a shield against a defence of non est factum. (See B.D.B.C. v. Cavalon, 2011 ONSC 7080, para. 27)
[10] On a motion for summary judgment, the court will assume that the parties have provided all of the evidence that will be available at trial. (See Samra, para. 19 quoting Beatty v. Best Theratronics Ltd., 2014 ONSC 3376)
Unconscionability
[11] In Upper Valley Dodge Chrysler Limited v. Estate of Marcel Cronier et al., (2004), 20 R.P.R. (4th) 259 (Ont. Sup.Ct.), the court quoted from Black v. Wilcox (1976), 70 D.L.R. (3d) 192 (Ont. C.A.) at para. 194, in which the court set out a test to determine unconscionability as follows:
[12] In order to set aside the transaction between the parties, the Court must find that the inadequacy of consideration is so gross or that the relative positions of the parties is so out of balance in the sense that there is a gross inequality of bargaining power…that equity must intervene to protect the party of whom undue advantage has been taken.
The Defendants’ Position
a) The amounts provided by the plaintiff were gifts. They were subsequently repaid.
[13] The defendants operated a successful charity known as Niagara International Children’s Society. The charity provided training for youth to learn various artistic skills that the defendants possessed. Regarding the amounts advanced, most of the communications were with the plaintiff’s husband, Mr. Iablokov. The defendants state that initially, the amounts provided by the plaintiff were personal loans to Mr. Satanovski so that he could start a new business separate from the charity. Each time a loan was provided, Mr. Iablokov decided that the funds should be donations to the charity instead of a loan. He was interested in the charity’s projects and wanted to participate with the hope of furthering his own international export business interests.
[14] After the plaintiff provided each amount to the charity as a donation, it issued a charitable receipt. The charity needed the money to meet its overhead expenses because it had certain government contracts and often was not paid for several months at a time. Subsequently, Mr. Iablokov changed his mind and wanted the money back. The charitable receipts were rescinded. The funds were repaid. There is no dispute that the charity paid back the first amount advanced on June 25, 2008 of $40,000 and the second amount advanced on August 25, 2008 of $50,000.
b) No interest was payable on the amounts advanced.
[15] The defendants state that they never agreed to pay any interest on the various amounts advanced. Regarding the third amount, when he understood that it was a personal loan, the defendant Mr. Satanovski signed a document that simply states, “I, Vitali Satanovski, borrowed from Serguei Jablokov [Sergey Iablokov] $100,000 CAD for the term of one year. The whole amount is due at 10th of October, 2009.” Regarding the fourth amount, again, when he understood that it was a personal loan, Mr. Satanovski signed a similar document that states, “I borrowed $50,000 for a term of 2.5 (two and a half) month [sic]. 27.06.2009.” No interest rate is set out in either of these documents. To determine whether interest was payable on the funds donated, the court will have to make findings of credibility based on viva voce evidence at trial. The court cannot make this determination on a motion for summary judgment.
c) The plaintiff fraudulently misrepresented the amount owing to obtain the mortgage.
[16] The defendants state that they were financially unsophisticated. Mr. Iablokov was an experienced businessman. He called them every month to tell them the amount that had to be paid. They trusted that his calculations were correct. The charity paid the amounts requested.
[17] In the summer of 2008, Mr. Iablokov told the defendants that they still owed the plaintiff $150,000. This was a fraudulent misrepresentation. At the time, the defendants could not confirm the amount that the charity had paid. The charity’s accountant had all of the documents. He was incompetent and ultimately found to have engaged in professional misconduct. In August 2008, the plaintiff required a second mortgage as security. The defendants agreed to give the plaintiff a second mortgage on their home in the amount of $150,000 with 20 percent interest because they trusted Mr. Iablokov when he said that they owed that amount.
[18] The defendants state that the plaintiff made a total of $240,000 in charitable donations. The charity repaid more than that to the plaintiff. According to the defendants’ documents, which they later obtained from their accountant, the charity repaid a total of $272,000 consisting of $232,500 in cheques and $40,000 in cash. It had no debt to the plaintiff in August 2008.
d) The defendants did not understand what they were signing when they signed the mortgage.
[19] The defendants acknowledge that they received independent legal advice regarding the mortgage. Nevertheless, the lawyer who provided that advice only discussed with them the nature of the documents they were signing, the amount of the mortgage, the applicable interest rate and their liability to make the required payments. There was no discussion of the previous financial interactions among the parties leading up to Mr. Iablovkov’s assertion that the defendants owed $150,000. They did not understand what they were signing when they signed the mortgage documents.
e) The defendants signed the mortgage under duress.
[20] The defendants state that Mr. Iablokov threatened that if they did not sign the documents, he would send the Russian mafia would visit them. Mr. Satanovsky stated on cross-examination that he believed that the plaintiff had connections to the Russian mafia. The defendants believed that if they did not sign the mortgage documents, they would be beaten up. The defendant signed the mortgage documents because they feared for their safety.
f) The mortgage was unconscionable.
[21] The defendants state that Mr. Iablokov had considerably more bargaining power. He abused it by coercing them to sign the mortgage. The interest rate of 20 percent was exceptionally high. The defendants state that the mortgage was unconscionable.
[22] The defendants state that there are a number of evidentiary issues in dispute. Viva voce evidence is required at trial in order for the court to have a full appreciation of the evidence and properly determine the matter.
Analysis
a) Were the amounts provided by the plaintiff gifts or loans?
[23] The defendant’s evidence is that each of the four amounts was initially advanced as a loan to Mr. Satanovski. After each time that a loan was provided, Mr. Iablokov changed his mind, wanted the cheque back and then decided to make a donation to the charity. Charitable receipts were issued; however, when Mr. Iablokov decided that he wanted the money to be repaid, the receipts were cancelled.
[24] There is no air of reality to the defendants’ evidence regarding this sequence of events. The first three amounts were advanced on June 25, 2008, August 25, 2008, and October 10, 2008. If Mr. Iablokov decided that the better course of action was to provide a gift to the charity, it is quite unlikely that this sequence would have been repeated on two more occasions within four months.
[25] The record contains a Bank of Montréal draft in the amount of $100,000 dated October 9, 2008, as evidence of the third amount advanced. It also contains a duplicate of a cheque in the amount of $46,000. The date on this cheque is faint. The handwritten numbers appear to be 09 06 27. This is the date of the fourth advance alleged by the plaintiff. Mr. Iablokov’s name and address are printed on the cheque. This amount is $4,000 less than the $50,000 that the plaintiff alleges was provided for the fourth amount. Nevertheless, the defendants did not dispute the four amounts that the plaintiff alleges were advanced. Both the bank draft and the cheque are payable to the charity.
[26] Mr. Iablokov states that most of the funds advanced came from the plaintiff’s line of credit. It would be completely illogical to conclude that the four amounts advanced totalling $240,000 were donations when the plaintiff had to pay interest on the balance on her line of credit.
[27] During the cross-examination on his affidavit, Mr. Satanovski stated that he was the CEO of the charity. He stated that the four amounts of money advanced were donations to the charity. He described them as “a gift that were -- that was to be returned to Mr. Iablokov.” (Transcript of Mr. Satanovski’s cross-examination on his affidavits dated December 13, 2016 and February 8, 2017 p. 42) Later on, he agreed that he was the person who had control of all of the finances. He made the decisions regarding what was paid. He was the person who was signing cheques and who knew exactly how much money the charity had in the bank. He agreed that he was more or less tracking how much of the loans he was paying back to Mr. Iablokov. [Emphasis added] (Transcript p. 91)
[28] I find that the defendant’s evidence on this issue is not credible. It is illogical to conclude that,
(a) the plaintiff would borrow money from a line of credit to make the four advances to Mr. Satanovski as personal loans, (b) then almost immediately afterwards decide that each of these advances would be a donation to the charity, (c) then decide that the money had to be returned, and allow the charity to repay the money over time with no interest charged.
[29] This would have resulted in a net loss to the plaintiff. The parties were not friends nor were they related. Mr. Satanovksi was introduced to Mr. Iablokov because he wanted to borrow money. The parties were at arm’s length.
[30] It is curious that the plaintiff lent significant amounts of money to the charity with no written agreement regarding the repayment terms. In the statement of defence at paragraph seven, the defendants state:
Serguei Iablokov requested Defendants to secure outstanding amount of his donations by way of a second mortgage on Defendants’ property. Defendants agreed and signed mortgage documents August 10, 2010 on the name of Tatiana Andreevskia. Thus outstanding donation amounts, which became at some point interest-free loans to charity (not any personal or business loans to the Defendants), became registered against Defendants’ property as a Second Mortgage with 20% interest and $2,500 monthly payments of interest. [Emphasis added]
[31] Based on the record before me, I find that the four amounts advanced were not gifts that had to be repaid. They were loans.
a) Was interest payable on the loans?
[32] The defendants are correct in their allegation there is no documentary evidence to show that they agreed to pay interest on the loans. Mr. Iablokov states that they agreed verbally to pay interest.
[33] In a schedule attached to the plaintiff’s factum, the plaintiff provides a summary of payments received on all four loans as well as the interest rate calculation. It is attached Schedule A.
[34] With respect to the first loan of $40,000 advanced on June 25, 2008, Mr. Iablokov states that the defendants agreed to pay interest of 10 percent in two months, amounting to $4,000. I note that this interest amount is actually 60 percent per annum. ($2,000 per month x 12 = $24,000 being 60 percent of $40,000.) Page 1 of Schedule A lists the amounts that the defendants paid on the first advance. It shows that between June 30, 2008 and August 27, 2008, the defendants paid a total of $44,000 to retire the loan. Of the 10 payments, eight were the amount of $4,000.
[35] With respect to the second loan of $50,000 advanced on August 25, 2008, Mr. Iablokov states that the defendants agreed to pay interest of 26 percent for six months. The total amount of interest payable was $13,000. Page 2 of Schedule A shows that the interest apportioned over six months was $6,500. When added to the principal, the total amount owing was $56,500. Over a six-month period, each payment was to be $9,417. On October 2, 2008, the defendants made their first payment of $9,417.
[36] The third loan was advanced on October 10, 2008 in the amount of $100,000. At the time, the defendants owed five more payments of $9,417 on the second loan. Regarding the third advance, Mr. Iablokov states that the defendants agreed to pay interest of 26 percent for one year. Page 3 of Schedule A shows that the payments were to be interest only in the amount of $2,167. Because there were five payments of $9,417 remaining on the second loan, the defendants agreed to make blended payments. The third loan was advanced on October 10 so the first payment was prorated for 20 days being August 11 to August 31. Therefore, the first interest payment on the third loan was $1,444. When added to the $9,417 monthly payment which was owed on the second loan, the total was $10,861 after the third loan. The amount of interest owing for the first full month on the third loan was $2,167. When added to the amount of $9,417, the second to fifth payments were to be $11,584. At that point, the second loan would be paid in full. Going forward, payments 6 to 12 on the third loan would be $2,167.
[37] Page 3 of Schedule A shows that with respect to the third loan, the first five payments were made in the correct amount and at that point the second loan was paid in full. Subsequently, payments six and seven were made in the amount of $2,195 being $28 more than required. The defendants failed to make the eighth payment. The ninth payment was made in the amount of $2,139, which was $28 less than required.
[38] The plaintiff states that before the defendants finished making payments on the third loan, the plaintiff advanced a fourth loan of $50,000 on June 27, 2009. The plaintiff states that the defendants agreed to pay 26 percent interest for two and a half months. The interest was $1,083 per month. Over two and a half months, it was $2,708. Page 4 of Schedule A shows that on July 15, 2009, the defendants should have made two payments being $2,167 for the third loan and $2,708 for the fourth loan. They only paid $2,708. In August, 2009, they made no payments.
[39] The plaintiff states that the defendants advised that they were unable to make the payments required. The plaintiff agreed to accept interest only payments on the principal of $150,000, being the combined amount of the third and fourth loans. The defendants agreed to pay 26 percent interest over 12 months which amounted to a payment of $3,250 per month. Page 5 of Schedule A shows that between September 30, 2009 and May 1, 2010, the defendants made monthly payments ranging from $2,500 to $3,250. No payment was made in November, 2009. In June 2010, the defendants’ cheque in the amount of $3,250 was returned due to insufficient funds (NSF). No payment was made in July 2010. On August 1, 2010, the defendants made a payment of $3,250.
[40] As noted above, in Accent Metals, the court stated that a contractual rate of interest may be awarded if an agreement can be implied from the parties’ course of conduct. The defendants did not take issue with the lists in Schedule A showing the amounts paid. I accept the plaintiff’s evidence regarding the amounts that the defendants paid, as set out in Schedule A. The history of the amounts paid shows that the defendants paid interest on all four loans. Therefore, I find that the defendants agreed to pay interest on all four loans. There is no air of reality to the defendants’ position that the plaintiff lent $240,000 between 2008 and 2009 with no interest. The first two loans were repaid. Based on the history of the payments, I find that the defendants agreed to pay 26 percent interest on a combination of loans three and four.
b) Did the plaintiff fraudulently misrepresent the amount owing in order to obtain the mortgage?
[41] Mr. Iablokov states that he became concerned about the defendants’ ability to pay the amount owing. By August 1, 2010, as a result of the defendants’ failure to make certain payments, they had accumulated arrears of $7,474. The plaintiff requested security by way of a second mortgage to be registered on the defendants’ home.
[42] The record shows that on August 9, 2010, the defendants signed a promissory note in the amount of $150,000. On August 10, 2010, a mortgage with an interest rate of 20 percent, collateral to the promissory note was registered on the defendants’ property. The interest rate of 20 percent was 6 percent less than the rate that the defendants had previously paid. Based on the calculations in Schedule A, I find that the plaintiff did not misrepresent the amount that the defendants owed.
c) Did the defendants understand what they were signing?
[43] The record also shows that the defendants received independent legal advice from Mr. James B. Lewis, a solicitor, prior to signing the documents. Their certificate of independent legal advice (ILA) states:
… I was consulted by Lyudmyla Tereshchenko and Vitali Satanovski in their presence alone as to the effect of their executing Mortgage/Charge and registration documents for collateral Mortgage to a promissory note.
I explained to them the nature of the documents described above and advised them fully as to the liability which they would incur by executing them. I also advised them fully as to the manner in which such liability could be enforced by the Mortgagee. They have informed me and I am satisfied that they fully understand the nature and effect of executing the documents and that in executing the documents they are acting freely and voluntarily and not under any undue influence exercised by Tatiana Andreevskaia or any other person. [Emphasis added]
[44] The defendants state that they received inadequate independent legal advice. The history of their dealings with the plaintiff and the calculations of the amount in the promissory note were not discussed. The solicitor explained only the nature of the documents that they were signing. The defendants also state that they did not understand what they were signing when they signed the mortgage documents.
[45] Even if I accept the defendants’ evidence that they did not discuss with their solicitor the history of the parties’ financial dealings, this does not mean that the ILA that they received was inadequate. The history with respect to the first and second loans was irrelevant to the mortgage. They had been repaid. The executed promissory note states that the defendants received $100,000 on October 10, 2008 and $50,000 on June 27, 2009. It also states that in consideration of receiving those amounts, the defendants promise to pay $150,000 with monthly interest payments in accordance with the collateral mortgage. The record shows that the defendants have a first mortgage on their property. The mortgagee is a financial company. Accordingly, the defendants had previous mortgage experience with a mortgage.
[46] Because the defendants had previous mortgage experience and they received appropriate independent legal advice regarding the second mortgage, I do not accept their evidence that they did not know what they were signing when they signed the documents for the second mortgage.
d) Did the defendants sign the mortgage under duress?
[47] Mr. Satanovski stated at cross-examination on his affidavits that that Mr. Iablokov told the defendants that if they did not agree to a second mortgage to secure the debt, members of the Russian mafia would beat them up.
[48] Furthermore, the defendants allege that Ms. Tereshchenko’s daughter was in the room when they received ILA. They state in their factum that she will “testify in court that Mr. Iablokov was also in the room”. On a motion for summary judgment, the defendants must put their best foot forward. As noted above in Samra, the court is entitled to assume that the evidence before it will be the evidence adduced at trial. The record does not contain an affidavit sworn by Ms. Tereshchenko’s daughter. If an affidavit signed by her to this effect had been included as evidence, it might have given the allegation an air of reality. I give no weight to a third party’s description of the daughter’s memory which is not evidence before me. It is contradicted by the solicitor’s signed certificate of ILA in which he states that he was consulted by the defendants in their presence alone.
e) Is the mortgage unconscionable?
[49] As noted above in Upper Valley Dodge Chrysler Limited, the court must find gross inadequacy of consideration or gross inequality and abuse of bargaining power in order to set aside a transaction between the parties. It is clear from the promissory note that in consideration of having received $150,000 from the plaintiff, the defendants agreed to provide a second mortgage as security. I find that the consideration provided by the plaintiff in exchange for the mortgage executed by the defendants was appropriate.
[50] All of the parties were individuals. The defendants were experienced in business. They obtained government contracts. This is not a situation in which a large, well-resourced company had far more bargaining power than an individual and abused it to obtain a bargain that was detrimental to the person. It is clear from the record that the plaintiff advanced $150,000 to the charity. Initially, payments were being made; however, they fell into arrears. At that point, the defendants owed a large amount of money to the plaintiff which was unsecured. The plaintiff’s obtaining a second mortgage registered on the defendants’ property to secure the loan does not constitute an abuse of bargaining power. Accordingly, I find that the mortgage is not unconscionable.
Conclusion
[51] The defendants’ position on this motion for summary judgment is contradicted by the evidentiary record before me. A full appreciation of the evidence and the issues within the context of a trial is not required for me to make the following findings of fact:
(a) The amounts advanced by the plaintiff to the charity were loans; (b) The payment history shows a course of conduct in which the defendants paid interest on the loans; (c) The last two loans were combined into one loan of $150,000; (d) When the defendants payments became irregular, the plaintiff requested a mortgage as security; (e) The defendants received appropriate ILA when they signed the promissory note and the mortgage documents; and (f) There was nothing unconscionable about the mortgage.
[52] Accordingly, I find that there is no genuine issue that requires a trial.
[53] On page 6 of Schedule A, the plaintiff provided a chart which sets out the payments owing on the mortgage and the amounts received. By June 18, 2012, the defendants were in arrears in the amount of $14,020. Only two payments were made in 2013 in the amounts of $3,000 and $2,000. Only two payments were made in 2014 in the amounts of $2,500 and $10,000.
[54] The plaintiff shall have judgment as requested in paragraphs a, b and c of the notice of motion dated December 26, 2016 together with the appropriate per diem amount. If the parties cannot agree on the total amount, they may make written submissions no longer than three pages in text which are to be sent to the Barrie trial coordinator to my attention.
Costs
[55] If the parties cannot agree on the costs of this motion, they may make written submissions. The text of the submissions shall be no longer than three pages with 1.5 spacing, regular margins and 12 point font, excluding bills of costs and case law. The plaintiff may serve and file written submissions within 14 days of the release date of these Reasons. The defendant shall serve and file responding submissions within a further 10 days. The plaintiff may serve reply submissions within a further five days.