COURT FILE NO.: CV-17-130420-SR DATE: 2018-11-16 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Royal Bank of Canada Plaintiff – and – Aleksandar Mijailovic, Tatjana Mijailovic, and 7915381 Canada Inc. Defendants
Natalie Marconi, for the Plaintiff Evan Moore, for the Defendants
HEARD: May 10, 2018
J. Speyer, J.
A. Background
[1] Aleksandar Mijailovic (“Aleks”) and Tatjana Mijailovic (“Tatjana”) opened a franchise business. [1] They incorporated 7915381 Canada Inc. (“the corporation”), to operate the franchise. Aleks and Tatjana were the sole officers, shareholders and directors of the corporation. The corporation needed to borrow money to finance the operating costs of the franchise. It borrowed that money from the Royal Bank of Canada (“RBC”), in conjunction with the Canada Small Business Financing program. The corporation defaulted on the loan.
[2] RBC also granted a line of credit (“LOC”) to the corporation, and provided Tatjana with a credit card. RBC demanded repayment of the amounts owing on the LOC and the credit card when the corporation defaulted on the loan. Repayment has not occurred.
[3] RBC brought a "simplified rules" action, governed by Rule 76 of the Rules of Civil Procedure, against the corporation, and also against Aleks and Tatjana personally, to collect amounts owing to it in relation to the loan and the LOC, and against Tatjana in relation to the credit card. RBC now moves for summary judgment on its claims against the defendants.
B. The positions of the parties
[4] There is no dispute on this motion that the corporation is liable to RBC for the debts it incurred ($88,455.89 in relation to the loan and $15,631.54 in relation to the LOC). The corporation acknowledges that it owes these amounts to RBC. There is also no dispute that Tatjana is liable to RBC for the amount owing on the credit card ($6,070.94). Counsel for Tatjana acknowledged that she owes that amount to RBC. It is appropriate to grant summary judgment in favour of RBC in those amounts, and I will do so.
[5] RBC also asserts that Aleks and Tatjana are personally liable to RBC as guarantors of the corporation’s small business loan and LOC. RBC submits that they personally guaranteed both the small business loan and the LOC. RBC relies on evidence that Aleks and Tatjana signed personal guarantees, that they provided RBC with detailed information regarding their personal financial circumstances during the loan application process, and that RBC would not have loaned money to the corporation without the personal guarantees of its principals. RBC says that its claim on a simple liquidated debt is appropriate for summary judgment.
[6] Aleks and Tatjana submit that this case, as it relates to their personal guarantees, is not appropriate for summary judgment, and that they have raised genuine issues that must be determined at a trial. They submit that they did not intend to provide their personal guarantees for the corporation’s loans, did not know that they signed documents providing their personal guarantees, and were misled by representatives of RBC.
C. The legal principles that govern motions for summary judgment
[7] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court described the approach that a trial judge must take on a motion for summary judgment.
66 On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
67 Inquiring first as to whether the use of the powers under Rule 20.04(2.1) will allow the dispute to be resolved by way of summary judgment, before asking whether the interest of justice requires that those powers be exercised only at trial, emphasizes that these powers are presumptively available, rather than exceptional, in line with the goal of proportionate, cost-effective and timely dispute resolution. As well, by first determining the consequences of using the new powers, the benefit of their use is clearer. This will assist in determining whether it is in the interest of justice that they be exercised only at trial.
68 While summary judgment must be granted if there is no genuine issue requiring a trial, the decision to use either the expanded fact-finding powers or to call oral evidence is discretionary. The discretionary nature of this power gives the judge some flexibility in deciding the appropriate course of action. This discretion can act as a safety valve in cases where the use of such powers would clearly be inappropriate. There is always the risk that clearly unmeritorious motions for summary judgment could be abused and used tactically to add time and expense. In such cases, the motion judge may choose to decline to exercise her discretion to use those powers and dismiss the motion for summary judgment, without engaging in the full inquiry delineated above.
[8] Notwithstanding the expanded fact-finding powers of a motions judge hearing a motion for summary judgment, summary judgment is appropriate only if the material provided on the motion "gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute": Hryniak, at para. 50. In Hryniak the Supreme Court held, at para. 49, that there will be no genuine issue for trial when the summary judgment process "(1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result."
D. Is there a genuine issue requiring a trial?
[9] The answer to this question requires that two questions be answered:
- Does the evidence permit me to fairly and justly adjudicate the dispute? and,
- Can the summary judgment process provide a timely, affordable and proportionate procedure by which to adjudicate the dispute?
a. Does the evidence permit me to fairly and justly adjudicate the dispute?
[10] In support of its motion, the plaintiff filed an affidavit from an RBC assistant manager, assigned to its Collections Litigation Department. The affidavit attaches as exhibits documents executed in the course of the relationship between RBC and the corporation, Aleks and Tatjana. While the assistant manager had access to the documents appended to her affidavit, she purports to have no first-hand direct involvement in, or knowledge about, their creation or execution.
[11] The material documents appended to the assistant manager’s affidavit are:
- A loan agreement between the corporation and RBC relating to the small business loan;
- A guarantee and postponement of claim signed by Tatjana Mijailovic and Aleksandar Mijailovic in relation to the small business loan, their liability being limited to $61,250.00;
- A loan agreement between the corporation and RBC relating to the LOC;
- A guarantee and postponement of claim signed by Tatjana and Aleks in relation to the LOC, their liability being limited to $15,000; and,
- Credit card statements relating to Tatjana’s RBC Visa credit card.
The documents do not include any loan application.
[12] A few things about the documents are odd. The loan agreement between RBC and the corporation in relation to the small business loan is dated in its heading “November 06, 2013”, but it is signed by Tatjana, as general director of the corporation, on November 3, 2013, some three days before the document was apparently created. This may be a simple error, as there is no dispute in the evidence that documents were signed by Tatjana on November 13, 2013. At the very least, it indicates that a careless or perfunctory approach was taken when the documents were signed. The loan agreement relating to the LOC is dated in its heading “October 29, 2013”, but it is signed by Tatjana, as general director of the corporation, on November 13, 2013. The two documents headed “Guarantee and postponement of claim”, were signed by Aleks and Tatjana on November 13, 2013. The document relating to the personal guarantee of Aleks and Tatjana in relation to the small business loan appears to have been witnessed by Ajay Mathur. The document relating to the personal guarantee of Aleks and Tatjana in relation to the LOC does not bear a witness’ signature.
[13] The responding motion record contains the affidavit of Tatjana, and attaches numerous exhibits primarily in the nature of correspondence between RBC and the defendants. There is also an affidavit from Aleks, which merely adopts the contents of Tatjana’s affidavit, and adds nothing to the evidence. Tatjana’s affidavit states that in July or August, 2013, Tatjana and Aleks commenced their discussions with RBC about securing financing to assist with the operating costs of a franchise that the corporation was in the process of acquiring. The affidavit states that the corporation submitted an application to a senior account manager, Lisa Mattison. The affidavit further states that on August 22, 2013, Ms. Mattison advised them that RBC would finance up to 90% of the amount sought by the corporation, but that because she was not permitted to approve loans exceeding $275,000, the application would be referred to the RBC Commercial Department. Thereafter, Tatjana and Aleks dealt briefly with Fernandes Roosevelt, and then with Ajay Mathur.
[14] On September 5, 2013, Aleks and Tatjana met with Roosevelt and Mathur. They were told that Mathur would be their point of contact with RBC. It was their understanding that their account was the first such account that Mathur handled for RBC. The affidavit details problems experienced by Aleks and Tatjana in their dealings with Mathur. The affidavit and appended emails document apparent delays and Mathur’s explanations for the delays in processing the financing application. Aleks and Tatjana contacted Ms. Mattison, seeking her assistance to determine the status of their file when they were unable to get answers from Mathur.
[15] On October 25, 2013, Mathur emailed Aleks and Tatjana and advised them that the corporation had been approved for various credit facilities, including the Canada Small Business Finance Loan and LOC that are the subject of this motion.
[16] In her affidavit, Tatjana swears that at no time did anyone from RBC tell Aleks or her that they were required to personally guarantee the loans.
[17] On November 4, 2018, Mathur sent an email to Tatjana advising her that “you will be receiving our facility letter and documents related to facilities. These are currently under preparation and will be with you soon”. He also advised her that the bank’s processing team had already charged their account the amount of the loan processing fees, and requested that funds be placed in the account to cover those fees.
[18] On November 6, 2018, Tatjana sent an email to Mathur advising him that funds had been deposited to the account to cover the bank’s fees, and asked him “Is there anything outstanding (aside from the franchise disclosure doc.), do we need to sign any paperwork?” Mathur replied that there would be a lot of paperwork to sign that he hoped to send to them within two days. He wrote “By a lot of paperwork I mean a number of documents for you and Aleks to sign, so while they may be many but they may not be very time consuming (hopefully). We will work together on that…”. In a later email, Mathur wrote: “One of the ways to speed up the process is for you and Aleks to come over to my office to sign these documents. We can review them together and I can answer any questions you may have or get you the answers to your questions via my colleagues”.
[19] Correspondence about arranging a meeting time followed. They ultimately agreed to meet on November 13, 2013 at noon in Mathur’s office.
[20] Tatjana’s affidavit describes the November 13, 2013 meeting. She swears that Mathur told them that there were several documents that they needed to sign on behalf of the corporation as a formality to complete the financing process. She swears that at no time did Mathur explain that the documents included personal guarantees. She says that given Mather’s previous statement that they would review the documents together, she and Aleks expected that anything of importance would be highlighted by Mathur.
[21] Tatjana swears that the documents presented to her for signature on November 13, 2013 identified the corporation as the sole borrower. She swears that she and Aleks asked Mathur whether they were signing only as representatives of the corporation, and that he responded that they were signing only as representatives of the corporation, and not in their personal capacities.
[22] Tatjana also swears that she and Aleks took steps to organize the affairs of the franchise so as to avoid personal liability for the corporation’s financial obligations, citing their successful efforts to negotiate a lease that did not include personal liability. She points to the fact that they have young children, and that Aleks gave up fulltime professional employment to run the franchise. She states that they would not have accepted the loans if they knew they were personally liable for them.
[23] In a supplementary record, the plaintiffs provided affidavits from Ajay Mathur and Lisa Mattison.
[24] Mathur, in his affidavit sworn March 25, 2018, states that he has a clear recollection of his meeting with Tatjana and Aleks on November 13, 2013, more than four years earlier. He swears that he told them that they were signing personal guarantees to pay $61,250 and $15,000 personally if the corporation failed to pay. He swears that he pointed out the relevant paragraphs in the documents where the guarantees are listed as security. He swears that at no time did Tatjana and Aleks tell him that they did not wish to be personally liable for the loans, and that if they had told him that, he would have told them that RBC would not grant the loans. Aspects of his affidavit, providing his opinion about what Tatjana and Aleks knew or intended, are not admissible evidence.
[25] Mathur’s affidavit does not explain irregularities in the documents. It does not explain why the small business loan agreement dated November 6, 2018, signed by him, bears a date above Tatjana’s signature of November 3, 2013. The affidavit also does not explain why the loan agreement relating to the LOC, signed by Tatjana on November 13, 2013, is dated October 29, 2018. Nor does it explain why the “Guarantee and Postponement of Claim” document in relation to the small business loan is signed by him as witness to the signatures of Tatjana and Alex, while the same document in relation to the LOC is not signed by him or any other witness. While this may have been an oversight, it at least evidences that a careless and perfunctory approach was taken to the signing of the documents.
[26] Lisa Mattison’s affidavit was sworn on March 8, 2018. She swears that she told Tatjana and Aleks at a meeting with them on August 7, 2013 that RBC required them to provide their personal guarantees for their corporation’s loans, without which RBC would not provide the loans. She also required them to provide documents proving that they had the means to pay their guarantees from their personal income and/or assets. She swears that Tatjana and Aleks confirmed to her on August 7, 2013 that they would provide their personal guarantees. She swears that the only reason she would have asked for personal financial information is to determine whether the respondents could pay personal guarantees, without which RBC would not have extended credit to their corporation.
[27] Lisa Mattison also swears that on August 9, 2013, Tatjana and Aleks emailed to her their 2012 income tax returns, property assessments for two properties that they owned, a lease with their tenant, and RESP documents. On August 29, 2013, Tatjana and Aleks provided completed and signed statements of their personal affairs to Ms. Mattison, detailing their personal income, personal assets and personal liabilities. Over the next several weeks, they provided updates to their statements of personal affairs.
[28] Ms. Mattison’s affidavit also asserts that Tatjana and Aleks “confirmed, in writing, their decision to provide said Guarantees to the Canadian Government” in the Canada Small Business Registration Form. This assertion is clearly hearsay, not acknowledged to be so, because the respondents’ signatures on this form are dated November 13, 2018, and apparently witnessed by Mr. Mathur. Ms. Mattison cannot provide any evidence with respect to the manner in which documents were signed on November 13, 2018 because, on the evidence before me, she was not present at that meeting. Her affidavit also makes the misleading statement that the respondents confirmed to RBC that they were receiving independent legal and financial advice, implying that such advice related to their financing arrangements, when the document appended in support of that proposition in fact states “we are receiving independent legal and financial advice as to our involvement in the franchised business offered to us by Red Heart & Co. LLC.”. The Canada Small Business Registration Form was signed on November 13, 2018, not in the presence of Ms. Mattison, so she cannot provide any admissible evidence about the circumstances in which it was signed.
[29] The Canada Small Business Financing Act Loan Registration Form appended to Ms. Mattison’s affidavit also indicates that the loan was approved on October 25, 2013. Aleks and Tatjana are named as personal guarantors of the loan. Tatjana signed the document as the responsible officer of the borrower (the corporation) on November 13, 2013. This begs the question how the loan came to be approved weeks before Tatjana and Aleks signed the document committing them as guarantors of the loan.
[30] The defendants filed a Supplementary Responding Motion Record that included an affidavit from Aleks. In that affidavit, he swears that Mathur at no time advised or explained that Tatjana or Aleks were required to provide personal guarantees, that Mathur presented documents and just told them where to sign, and that they were signing as representatives of the corporation and not in their personal capacities. Aleks also swore that Mattison at no time discussed personal guarantees with him or Tatjana and that they submitted documentation regarding their personal financial circumstances to Mattison only because they understood the information was required because the corporation was a brand new business that would be operating a brand new franchise.
[31] The foregoing review of the evidence compels me to conclude that the evidence does not permit me to fairly and justly adjudicate this dispute. There are significantly divergent accounts, in the affidavits filed, to the extent that they contain admissible evidence, of how the respondents came to sign the documents that the plaintiffs rely on to evidence their purported guarantees. The materials filed on this motion do not permit me to confidently find the facts necessary to assess the respondents’ defence of non est factum, arising from alleged misrepresentation of the nature of the documents by RBC’s representative, Mathur, during the November 13, 2013 meeting. That determination requires an assessment of the credibility and reliability of witnesses that cannot be resolved on the basis of the record.
b. Can the summary judgment process provide a timely, affordable and proportionate procedure by which to adjudicate this dispute?
[32] Rules 20.04(2.1) and (2.2) provide:
(2.1) [Powers] In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
- Weighing the evidence.
- Evaluating the credibility of a deponent.
- Drawing any reasonable inference from the evidence.
(2.2) [Oral Evidence (Mini-Trial)] A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation.
[33] Because this is a simplified procedure action, neither party is permitted to cross-examine on the affidavits filed on the motion: Rule 76.04. It is not possible in this case to fairly and properly evaluate the credibility and reliability of the affiants in the absence of cross-examination.
[34] The problematic nature of motions for summary judgment in the context of simplified procedure actions has been noted by the Ontario Court of Appeal. In Singh v. Concept Plastics Ltd., 2016 ONCA 815, the court stated, at para. 23:
Although summary judgment is available in the context of actions brought under the simplified procedure, as this court stated in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1, at para. 256:
Given that Rule 76 limits discoveries and prohibits cross-examination on affidavits and examinations of witnesses on motions, the test for granting summary judgment will generally not be met where there is significant conflicting evidence on issues confronting the motion judge.
[35] Copeland J., in Cornacchia v. Rubinoff, 2018 ONSC 2732, recently noted, at para. 40:
Concept Plastics does not hold that summary judgment will never be available on a simplified procedure matter due to the unavailability of cross-examination on the affidavits filed for the motion. Rather, in Concept Plastics the Court of Appeal signaled the need for caution in considering summary judgment motions in simplified procedure matters, due to the unavailability of cross-examination. Where a motions judge is considering a summary judgment motion in a simplified procedure matter, the judge should consider if there is unfairness as a result of the unavailability of cross-examination. If the motions judge grants the motion, the judge should explain why and how the potential unfairness due to the unavailability of cross-examination is addressed by the materials filed on the motion: see Concept Plastics at paragraphs 24-25.
[36] The absence of cross-examination on the affidavits filed on this motion, makes it impossible for me to fairly assess the credibility and reliability of the deponents of the affidavits.
[37] Charney J. considered a similar situation in Diao (Litigation guardian of) v. Zhao, 2017 ONSC 5511 and concluded, at para. 25:
Where a proceeding is commenced under the simplified procedure provided in Rule 76, the process must take into account the effect of Rule 76.04(1), which does not permit cross-examination of a deponent on an affidavit filed in support of the motion for summary judgment. This may make it more difficult for the court hearing the motion to fairly resolve factual conflicts: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764 at para. 243; Singh v. Concept Plastics Limited, 2016 ONCA 815 at paras. 22 - 24; and Bogatyreva v. Ricky3 Holdings Ltd., 2014 ONSC 3516 at paras. 27, 28 and 37. In such cases a summary trial may be the more expeditious and less expensive means to achieve a just result.
[38] The proper resolution of the factual conflicts in this case can only occur when the court has the benefit of viva voce evidence from the witnesses, tested by cross-examination. This requires a summary trial, not a motion for summary judgment.
[39] The Ontario Court of Appeal made this point in Combined Air, at paras. 256 and 261, as follows:
First, summary judgment motions in simplified procedure actions should be discouraged where there is competing evidence from multiple witnesses, the evaluation of which would benefit from cross-examination, or where oral evidence is clearly needed to decide certain issues. Given that Rule 76 limits discoveries and prohibits cross-examination on affidavits and examinations of witnesses on motions, the test for granting summary judgment will generally not be met where there is significant conflicting evidence on issues confronting the motion judge. While the motion judge could order the hearing of limited oral evidence on the summary judgment motion under rule 20.04(2.2), in most cases where oral evidence is needed, the efficiency rationale reflected in the rule will indicate that the better course is to simply proceed to a speedy trial, whether an ordinary trial or a summary one: see rules 76.10(6) and 76.12.
Moreover, in the context of a simplified procedure action, a summary judgment motion that requires oral evidence from key witnesses offers little or no benefit from an efficiency standpoint as compared to the parties simply proceeding to trial.
[40] I have considered whether I should exercise the jurisdiction conferred by Rule 20.04(2.2) to hear oral evidence within the summary judgment motion. I find that in the circumstances of this motion, proceeding in this manner would not be an efficient or proportionate manner to achieve a just result. Because this is a simplified procedure claim, the trial is expected to be relatively short. It is more efficient to order that the matter proceed to a simplified trial under Rule 76 than to conduct cross-examination within a summary judgment motion.
Conclusion
[41] Accordingly, this court orders that:
a) 7915381 Canada Inc. pay to the plaintiff the sum of $88,455.89, due under the small business loan, together with prejudgment interest from May 17, 2017, to today’s date, at the plaintiff’s prime rate in effect during that period of time, plus 3 per cent per annum, and post judgment interest in accordance with the Courts of Justice Act; b) 7915381 Canada Inc. pay to the plaintiff the sum of $15,631.54, due under the line of credit, together with prejudgment interest from May 17, 2017, to today’s date, at the plaintiff’s prime rate in effect during that period of time, plus 3 per cent per annum, and post judgment interest in accordance with the Courts of Justice Act; c) Tatjana Mijailovic pay to the plaintiff the sum of $6,070.94, due under the credit card account, together with prejudgment interest from May 17, 2017, to today’s date, at the rate of 19.99% per cent per annum, and post-judgment interest in accordance with the Courts of Justice Act; d) The plaintiff's motion for summary judgment against Aleksander Mijailovic and Tatjana Mijailovic as guarantors of the small business loan and the line of credit is dismissed; e) The trial will proceed by way of summary trial in accordance with Rule 76.12.
Costs
[42] Given that the parties have achieved mixed success on this motion, there will be no order as to costs.
J. Speyer J.
Released: November 16, 2018
COURT FILE NO.: CV-17-130420-SR DATE: 2018-09-16 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Royal Bank of Canada Plaintiff – and – Aleksandar Mijailovic, Tatjana Mijailovic, and 7915381 Canada Inc. Defendants REASONS FOR JUDGMENT J. Speyer, J.
Released: November 16, 2018
[1] I will refer to Mr. and Mrs. Mijailovic throughout this judgment as Aleks and Tatjana respectively. I have taken this liberty in the interests of clarity, and because their counsel referred to his clients in that fashion in his factum and oral argument.