Court File and Parties
COURT FILE NO.: 14-61617
DATE: 20180801
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
PRADEEP MERCHANT and SHIV DILAWRI Plaintiffs
– and –
SANDEEP MEHTA Defendant
Counsel:
Derek Nicholson, for the Plaintiffs
Rahul Kesarwani, for the Defendant
HEARD: May 22, 23, 2018 (Ottawa)
The text of the original Reasons for Decision was corrected on August 1, 2018 and the description of the correction is appended
AMENDED REASONS FOR decision
C.T. HACKLAND J.
[1] This is a summary judgment motion in a Simplified Rules (Rule 76) proceeding. The parties agreed to the filing of affidavits and to the calling of vive voce evidence.
[2] In February of 2012 the plaintiffs provided to the defendant, Mr. Mehta, the sum of $60,000. This amount was never repaid by the defendant. The plaintiffs say this was a personal loan advanced to the defendant, on his request, based on their long standing personal friendship and their desire to help him out. The defendant denies that he received these funds as a personal loan, rather he says he accepted the money in order to invest it in a business in which he and his wife had also been investing some of their own funds. He says the plaintiffs, or at least the plaintiff Mr. Dilawri, was well aware of this at the time the money was advanced.
[3] Unfortunately the arrangement was entirely oral, unsupported by any documentation and without anyone seeking legal advice. However, some things are uncontested:
- The parties and their spouses were personal friends who met for regular get-togethers at each other’s homes and the conversation often included business and family matters and their investments;
- On February 7th, of 2012, the plaintiff, Mr. Dilawri, advanced the sum of $30,000 to the defendant, and the plaintiff, Dr. Merchant, advanced $20,000 to the defendant, for a total of $50,000, all of which the defendant acknowledges receiving;
- Mr. Dilawri’s cheque to the defendant for $10,000 on March 5th, 2012 represented equivalent funds received by Mr. Dilawri from Mr. Midha, who was also a social friend of the plaintiffs and the defendant and who attended their social gatherings;
- The defendant admits the total amount he received from the plaintiffs was $60,000.
[4] The plaintiff, Dr. Merchant, testified. He is a physician and former social friend of the defendant. He relayed to the court that in 2009 he loaned $20,000 to the defendant, interest free, for what he understood to be the defendant’s personal needs arising from financial pressures the defendant was under relating to his family’s printing business. The loan was repaid about 18 months later. The defendant also confirmed this in his testimony. I accept that this 2009 transaction was simply a personal loan between friends.
[5] Dr. Merchant further testified that he loaned the defendant a further $20,000 in February of 2012, again believing he was making a personal loan to a friend (the defendant) who needed the funds for his own purposes. It was evident from Dr. Merchant’s evidence that he largely depended on what Mr. Dilawri told him for his understanding of the nature of the transaction. Dr. Merchant was vague and non-specific about what information, if any, he had received from the defendant prior to advancing the funds. Dr. Merchant did believe that he was making a loan repayable on demand, notwithstanding the absence of a promissory note or other written promise to repay the funds. He was not clear as to specifically when he came to understand that he would be receiving 24% annual interest, payable 2% monthly, from the defendant.
[6] It is unclear specifically what Dr. Merchant learned about the transaction before he gave the defendant his cheque for $20,000, in contrast to his understanding after Mr. Dilawri began handing him monthly interest payments in cash in March, April and May of 2012 and again in contrast to this understanding of the transaction after the interest payments terminated in June 2012. The relevant question is what he understood and agreed to at the time he advanced the funds.
[7] As noted, Mr. Midha gave $10,000 to Mr. Dilawri in early March 2017 to give to the defendant. These funds come from his severance received upon retirement from the Public Service. Mr. Midha testified that he believed he was making a personal loan to the defendant, as a friend. He was very vague as to the terms and relied on what Mr. Dilawri told him. Mr. Midha did not expect or ask for interest but acknowledged receiving 2 cash payments of $200, which he told the court he assumes were a pay down of the principal of the loan.
[8] Mr. Dilawri’s evidence was of most significance to the plaintiffs’ case because it is apparent that Dr. Merchant and Mr. Midha were following Mr. Dilawri’s lead in this transaction and had been looking to him for an explanation of the purpose and the details. This was understandable because, as Mr. Dilawri explained himself, he is a prominent and affluent businessman, a person of considerable means and a sophisticated person in business matters with ready access to professional advisors.
[9] Mr. Dilawri testified that he understood that he was making a personal loan to a friend in need and never heard of the idea from the defendant that the $60,000 was being “invested”, until after the default in repayment. He asked rhetorically, why would a person of means, a sophisticated business person like himself, choose to get involved in some high risk investments of the sort involved here?
[10] I did not find certain aspects of Mr. Dilawri’s evidence to be particularly credible. I am satisfied that he discussed the general details of the transaction with the defendant. He knew the defendant had invested his own family money in some business that was paying 2% interest per month in cash. The month after Mr. Dilawri advanced the funds to the defendant, he (Mr. Dilawri) received what he knew to be interest payments, in cash from the defendant. He knew very well that the defendant was not personally paying the interest, rather he knew the defendant was obtaining the interest payments in cash from a third party with whom the defendant had invested the funds. I reject Mr. Dilawri’s evidence that he believed the defendant was personally paying him and Dr. Merchant 2% interest monthly in cash on the funds they had advanced.
[11] Had this been a personal loan to the defendant, Mr. Dilawri would have known what the money was needed for. I find that Mr. Dilawri must have known the money was invested by the defendant and that the defendant was not personally making the interest payments. I think it is apparent that Mr. Dilawri was unwilling to become directly involved in what he knew was a shady investment involving very high cash interest payments, but was content to do so through an intermediary (the defendant) whom he could hold responsible for the investment. The fact that the defendant had all the direct dealings with the person running this scheme and the lack of any documentation gave the plaintiffs a plausible deniability if the transaction was called into question and the potential to hold the defendant responsible for repayment as they are now seeking to do in this proceeding.
[12] In summary, and for the reasons further developed below, I find that the $60,000 advanced by the plaintiffs was, to Mr. Dilawri’s knowledge, intended to be used by the defendant to invest with an entity in which the defendant had already placed some of his own family funds and had been receiving substantial interest payments in cash. On the other hand, I consider it to be doubtful that Dr. Merchant and Mr. Midha understood the nature or details of the transaction at the point they contributed their respective portions of the total funds.
The Defendant’s Evidence
[13] The court also heard from the defendant, Mr. Mehta. I accept his evidence even though it did not advance his case nor cast him in a particularly favourable light.
[14] Mr. Mehta testified that the earlier (2009) $20,000 personal loan from Dr. Merchant was indeed a personal loan from a good friend which he repaid, without interest. He said that previous loan had nothing to do with the present transaction, and I accept his evidence in that regard.
[15] The defendant further testified that in August of 2011, he personally invested $70,000 in a loan business operated by one Benedetto “Benny” Manasseri. Benny operated a car wash in his part of the city, and as a side line made high risk loans under the business name Pro-Fit Financing Corporation. This business paid the defendant 2% interest each month, in cash (no documentation), which Benny handed over to him at meetings which took place in a fast food restaurant. The defendant was sufficiently impressed with this investment that in December 2011, he invested a further $125,000 of his wife’s money in the Pro-Fit business on the same terms, except that his wife received post-dated cheques from Pro-Fit for the 2% monthly interest payments, rather than cash.
[16] I also accept the defendant’s evidence that he mentioned that he had invested in this scheme at one or more of the parties’ social gatherings and that Dr. Merchant and Mr. Dilawri expressed some interest in this investment. Moreover, the plaintiffs had a general understanding that “Benny” was behind the business.
[17] The defendant, Mr. Mehta, made a remarkable admission in his testimony. He was asked to explain a bank draft which he drew on his Scotiabank branch, payable to Pro-Fit Financing, dated February 7th, 2012, in the sum of $26,000. This is the same date the defendant received the plaintiffs’ funds ie.: Dr. Merchant’s cheque for $20,000 and Mr. Dilawri’s cheque for $30,000. The defendant confirmed that indeed he had received these amounts from the plaintiffs, totalling $50,000, plus a subsequent further $10,000 from Mr. Dilawri by cheque dated March 4, 2012. However, he went on to admit that his $26,000 bank draft he paid to Pro-Fit Financing was all of the plaintiffs’ money that he ever invested with Pro-Fit. As for the balance of the plaintiffs’ funds, a total of $34,000, he kept for himself. He did not explain what use he ultimately made of these funds.
[18] The defendant admitted in his testimony that he did not disclose to the plaintiffs that he had never invested $34,000 of their money in the intended investment. Moreover, he swore and filed a false or at least highly misleading affidavit, dated April 19, 2016, in these proceedings, stating:
I in turn provided the funds to Pro-Fit resulting in the plaintiffs’ investment of $60,000 effective February 7, 2012 such that 2.0% interest in amount $1,200 (sic) would be payable to them within the first week of each month thereafter.
[19] The defendant explained why he only invested $26,000 of the money he received from the plaintiffs in Pro-Fit, rather than the full $60,000. He said he wished to recover the $70,000 he had personally invested in Pro-Fit in August 2011, particularly since he had invested a further $125,000 of his wife’s money in Pro-Fit in December of 2011. He said Pro-Fit had already repaid to him $34,000 of his original $70,000 investment, but he was still owed the remaining $36,000. Accordingly, he decided to simply retain $34,000 of the plaintiffs’ money instead of paying all $60,000 into Pro-Fit and then have Pro-Fit remit back to him the balance of his own initial investment. The defendant attributed this idea to Benny who, he said, suggested to him that it was simpler and would save paperwork to handle matters in that fashion. Benny was not asked about this when he testified.
[20] I find that the defendant used $34,000 of the plaintiffs’ investment to reduce his personal investment exposure to the Pro-Fit scheme. Accordingly, these funds were not invested as the parties intended when the funds were advanced. I find the defendant has no lawful entitlement to retain these funds.
[21] The defendant went on in his testimony to suggest or imply that Pro-Fit was paying to the plaintiffs the amount of interest that would have accrued on a $60,000 investment. He could not speak to what records Pro-Fit may have maintained concerning the plaintiffs’ investment, if any. Benny Manasseri subsequently testified and said he no longer had any records. He said he had recently been released from prison following his guilty plea to criminal organization charges relating to his lending business. He said his Pro-Fit lending business would likely have recorded in its records that it had an investment from Mr. Dilawri and Dr. Merchant, although it might have been put under Mr. Mehta’s name. He explained that he knew of the plaintiffs’ investment because the defendant had told him about the source of the funds. His evidence was extremely vague and unhelpful.
[22] I put no weight whatsoever on Benny Manasseri’s affidavit or testimony. It is almost completely inadmissible hearsay and comes from a convicted felon who was jailed for his fraudulent operation of the very business in question. He stated that Pro-Fit was incorporated and still exists today but he has no records. I prefer the evidence from the bankruptcy trustee referring the court to bankruptcy records “for the bankruptcy of Benedetto Manasseri operating under Pro-Fit Financing as a sole proprietor as disclosed on his statement of affairs. The bankruptcy occurred in 2013 and he obtained his discharge in 2015”. Neither party put before the court the list of creditors who had filed claims in Manasseri’s bankruptcy.
[23] The evidence establishes that the plaintiffs received interest payment in cash, from Pro-Fit in March, April and May of 2012. The defendant personally obtained the cash payments from Pro-Fit and delivered them to the plaintiffs. Pro-Fit or Benny Manasseri defaulted in June 2012 and the plaintiffs and the defendant and his wife and Mr. Midha lost their entire investments.
[24] In summary, of the $60,000 received by the defendant from the plaintiffs, I find that $34,000 was kept by the defendant without the plaintiffs’ knowledge or consent and without any entitlement to do so. The defendant kept these funds to reduce his own exposure in the Pro-Fit lending scheme. The discussions or understanding the defendant may have had with Benny Manasseri are not binding on the plaintiffs and provide the defendant with no defence. These funds were retained by the defendant and never invested and must be repaid to the plaintiffs. The balance of the plaintiffs’ funds, ($26,000) was invested by the defendant in this high risk and dubious scheme, with the acquiescence of Mr. Dilawri who arranged this investment with Dr. Merchant and Mr. Midha, neither of whom had a full appreciation of the destination of the funds at the time they were advanced. Nevertheless, Mr. Dilawri acted for Dr. Merchant and himself when he provided funds to the defendant to invest and I see no basis on the evidence in this case to hold the defendant liable for the $26,000 actually advanced to this failed investment.
[25] There will be judgment to the plaintiffs in the sum of $34,000 plus interest pursuant to s. 128 of the Court of Justice Act, R.S.O. 1990, c. C 43 running from the date of the default, June 7, 2012.
[26] This is a case of mixed success as between the parties and I exercise my discretion to award no costs. An additional reason for awarding no costs is that the plaintiff, Mr. Dilawri was not candid in his evidence so far as he took the position he knew nothing of what the defendant was going to do with the funds, and the defendant, Mr. Mehta, filed a false affidavit with the court and misled the plaintiffs about his handling of $34,000 of their funds.
Mr. Justice Charles T. Hackland
Released: August 1, 2018
APPENDIX
COURT FILE NO.: 14-61617
DATE: 20180801
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
PRADEEP MERCHANT and SHIV DILAWRI Plaintiffs
AND
SANDEEP MEHTA Defendant
AMENDED REASONS FOR decision
Hackland J.
Released: August 1, 2018
[25] There will be judgment to the plaintiffs in the sum of $34,000 plus interest pursuant to s. 128 of the Court of Justice Act, R.S.O. 1990, c. C 43 running from the date of the default, June 7, 2012.