Court File and Parties

COURT FILE NO.: CV-14-511862 DATE: 20190522 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: SAM CHABA Plaintiff – and – MUHAMMAD ASLAM KHAN Defendant

AND BETWEEN: SWAT EMERALDMINE AND MARKETING INC. Plaintiff by Counter Claim -and- SURINDER CHABA a.k.a. SAM CHABA, MONICA GOYAL and JONATHAN MACKENZIE Defendants to the Counter Claim

Counsel: Muhammad Aslam Khan, counsel for Swat Emeraldmine & Marketing Inc. Richard H. Parker, Q.C., counsel for the Surinder Chaba a.k.a. Sam Chaba

HEARD: March 26, 27 and 28, 2019

Reasons for Decision

G. DOW, J.

[1] The plaintiff, Swat Emeraldmine and Marketing Inc. (“Swat Emeraldmine”) is a provincial corporation created February 7, 2013 by Muhammad Aslam Khan (“Khan”). Mr. Khan is a barrister and solicitor in Ontario who assigned his rights to the corporate plaintiff in August, 2015. The corporate plaintiff by counter claim (“Mr. Khan”), alleges the defendant by counter claim, Surinder Chaba (“Mr. Chaba”) committed the torts of fraudulent misrepresentation and/or inducing breach of contract arising from refinancing efforts on a residential property being 570 Bellamy Road owned by Nicanor and Irene Posadas (“the Posadas”).

Background

[2] In 2012, the Posadas purchased 570 Bellamy Road. It appears they had been previously renting this location. The financing arrangements included an $80,000.00 loan for a period of one year with payments of $850.00 per month through Mr. Khan. The payments were not made. This led to Mr. Khan registering the debt as a Charge on the property in the name of Farooq Mian. The Charge was transferred to Mr. Khan and was the basis for an ex parte judgment granted by Justice Moore on September 30, 2013 in favour of Mr. Khan against the Posadas (and others) for $97,875.98 plus $5452.02 in costs (Exhibit 8). This entitled Mr. Khan to seek an order for possession which was obtained from the Registrar on October 11, 2013. The amount of the debt had risen at this point to the amount of $103,565.54 plus costs of $1,714.51 (Exhibit 16).

[3] The order for possession was delivered to the Sheriff who issued a Notice of Sale on May 26, 2014 to be effective June 24, 2014 (Exhibit 18). The sale was averted by the Posadas who appeared before Justice Mew on June 23, 2014 and persuaded Justice Mew to stay the sale. The motion was adjourned to be heard on its merits on August 29, 2014 with the costs of that attendance and any “execution related costs” reserved to the judge hearing the return of the motion (Exhibit 19). Mr. Chaba, a mortgage broker, became involved and reached out to Mr. Khan by email on August 16, 2014 (Exhibit 20). Mr. Chaba advised that he was arranging financing for the Posadas which including attempting to raise funds to satisfy the judgment of Mr. Khan against the Posadas on an negotiated basis.

[4] Mr. Khan responded the following day by email expressing his determination to collect what was owed and also expressing his doubt about the ability of the Posadas to pay. Emails continued to be exchanged through to August 27, 2014 in advance of a meeting at Mr. Khan’s law office to proceed that day after 2:00 pm. The Posadas were to attend along with Mr. Chaba who was invited by Mr. Khan in an email on August 27, 2014 at 6:13 pm (Exhibit 29). To that point, the amount being offered by the Posadas was $115,000.00 of which $75,000.00 was to be paid in cash (email of August 27 at 4:58 pm or Exhibit 28). The amount being sought by Mr. Khan was $125.000.00 (email of August 23, 2014 at 1:05 pm or Exhibit 24). The parties agreed the meeting lasted for more than five hours. It resulted in the Posadas signing a “Settlement Agreement” dated August 28, 2014.

[5] The terms of the settlement agreement included:

(1) a calculation that the amount owed had risen to $160,258.65; (2) in paragraph six of the agreement that June 23, 2014 motion to be heard on August 29, 2014 (although stated returnable September 5, 2014) would be withdrawn and the “costs of the motion may be fixed or assessed”; (3) the settlement amount was $115,000.00, $80,000.00 of which was to be paid as a lump sum on or before September 5, 2014; (4) the balance of $35,000.00 plus a $3,000.00 lender’s fee was to be treated as a mortgage for six months at 12% per annum with payments of $380.00 monthly; and (5) execution by the debtors of a promissory note for $115,000.00 to be held as collateral security.

[6] There is no mention of a role for Mr. Chaba described in the agreement. However, one of the seven (alphabetized) schedules attached to the settlement agreement (Schedule “D” within Exhibit 31) is the Promissory Note signed by the Posadas with their signature witnessed by two of their children. In addition, Mr. Chaba signed the document under the word “GURRANTOR” and a statement describing the guarantor as unconditionally responsible for the entire debt.

[7] Mr. Khan’s evidence was that he required the guarantee because of his concerns about the Posadas’ ability to raise the necessary funds and their prior conduct and tactics in not making payments on the previous debt. Mr. Chaba testified he was told by Mr. Khan that he was only required to sign as a witness. He further testified Mr. Khan refused to show him what he was signing and that it was both dark outside and dark in Mr. Khan’s office where he was “forced” to sign the document. I do not believe Mr. Chaba and his evidence in this regard. Mr. Chaba had a financial interest in the agreement being reached, that is a commission to be paid, for refinancing the primary mortgages on the home for higher amounts to secure the $80,000.00 required to be paid by September 5, 2014.

[8] Mr. Chaba admitted in cross-examination it was “my mistake” not to read what he signed before he signed it. Mr. Chaba’s years of experience as a mortgage agent are completely contrary to his evidence as to how his signature came to be on the document. Further, Mr. Chaba testified he learned of the guarantee when he reviewed the settlement agreement the next day. However, his email to Mr. Khan at 10:53 am on August 29, 2014 makes no mention of it but rather complains of the costs awarded that morning.

[9] The order of Justice Perell on August 29, 2014 identifies both Mr. Khan and the Posadas as attending. Justice Perell’s endorsement includes the phrase “the agreement provides that the court may order costs”. Justice Perell filled in what appears to be a draft order presented at the motion that Mr. Khan recover $9,000.00 from the Posadas for costs within 30 days.

[10] Mr. Chaba continues with his efforts to refinance despite retaining (the same law firm as the Posadas) who write to Mr. Khan on September 2, 2013 raising Mr. Chaba’s position that he was only asked to sign as a witness and signed on that basis (Exhibit 33). Emails and correspondence between the litigants and lender make it clear that refinancing was contemplated for $368,000.00 through Home Trust. It did not proceed before Mr. Chaba issued his Statement of Claim on September 9, 2014. The Posadas issued a Statement of Claim against Mr. Khan and others on September 17, 2014.

[11] Mr. Khan relied on the Statement of Claim against him being for $1 million as part of what had occurred between the parties and being out of all proportion to any alleged losses suffered. It resulted in emotional upset to Mr. Khan. I conclude, and Mr. Khan, as a lawyer in good standing with the then Law Society of Upper Canada would have known, that statements of claim contain nothing more than allegations and the action was principally for, as stated in paragraph 1b. of the Statement of Claim a “declaration that Sam Chaba’s commitment as guarantor under the Agreement (as defined below) are void”. As any prudent counsel would do, a further or alternative claim was made for damages in an amount that far exceeded what could be proven (as part of avoiding having to amend the claim before trial). In this instance the sum of $1 million was used.

[12] Mr. Khan delivered correspondence under his letterhead enclosing an offer to settle the action by discharging Mr. Chaba as a guarantor under the agreement on October 19, 2014 (Exhibit 42). Mr. Chaba testified that he was not aware of that offer until his current counsel showed it to him a few months before this trial began. Mr. Chaba admitted in cross-examination if he had been advised of the offer, he would have accepted it and “finished the litigation”.

[13] Similarly, Mr. Khan wrote Mr. Chaba’s counsel on October 23, 2014 (Exhibit 43) making an unilateral declaration the settlement agreement to be null and void. He also demanded a Notice of Discontinuance be served and filed by 4:00 pm the following day. Again, Mr. Chaba testified in cross-examination not seeing that letter until it was shown to him by his current counsel a couple of months prior to this trial commencing. I make no finding in this regard.

[14] Mr. Chaba’s counsel at that time also raised, by letter dated October 23, 2014 discussing settlement and that they attempted to contact Mr. Khan’s “insurer to arrange for counsel to represent you on this action” (Exhibit 45). This appears to result in Mr. Khan drafting a Statement of Defence and Counterclaim, dated October 27, 2014, the Counterclaim being the trial before me.

[15] By August 2015, Mr. Khan transferred his rights in this action to pursue Mr. Chaba for damages to Swat Emeraldmine. By June, 2016, the Posadas had settled the claim against them for payment of the debt owed to Mr. Khan in the amount of $140,000.00 (Exhibit 50).

[16] In response to the action served on Mr. Khan by Mr. Chaba with allegations of a legal wrong having been committed, Mr. Khan wrote to his insurer, LawPro on October 9, 2014. That letter included Mr. Khan’s position that his action did not involve providing a legal service to a third party. I infer from that statement that Mr. Khan was acknowledging that he had no coverage. While the Statement of Claim alleges a “special relationship” and “fiduciary duty” between Mr. Chaba and Mr. Khan, it does not contain any allegations that Mr. Khan had been retained by or was acting on behalf of Mr. Chaba in their dealings resulting in the execution of the settlement agreement.

[17] LawPro investigated the situation and, after repeated requests for information from Mr. Khan, provided its position in its letter of March 17, 2016. That letter advises Mr. Khan that because he had not co-operated with the determination of whether there was coverage, LawPro was denying coverage.

[18] A motion for summary judgment proceeded before Justice Stewart and her endorsement of November 17, 2016 notes “Chaba acknowledges that he has suffered no damages and that Khan had settled his claims with the Posadas rendering the Guarantee issue moot. Accordingly, summary judgment is granted dismissing Chaba’s action against Khan”. However, Justice Stewart also concluded Mr. Chaba raised genuine issues with regard to the counterclaim and specifically identified four such issues while acknowledging there may be others. Thus Mr. Khan’s motion for summary judgment in the counterclaim was dismissed.

[19] Justice Stewart subsequently endorsed, on May 10, 2017 that the costs of the action before her should be “reserved to the judge hearing disposing of the counterclaim, or by further order of the court”.

[20] Mr. Khan relied on a letter from Irina Vlassova of Matrex Financial dated March 21, 2016 who identified herself as the individual tasked with investigating Mr. Khan’s complainant to FSCO (Financial Services Commission of Ontario) against Mr. Chaba (Exhibit 78). The complaint was with regard to Mr. Chaba failing to disclose to the lender, Home Trust, the existence of a third mortgage on the Posadas’ property. Mr. Chaba disputed those allegations and Ms. Vlassova confirmed there was insufficient information to take any regulatory action against Mr. Chaba. The issue was a civil matter. Ms. Vlassova testified at the trial, apparently for the purpose of revealing Mr. Chaba had an action against her set for trial in Small Claims Court on April 11, 2019 alleging unpaid commissions.

[21] There was also an email from Mr. Chaba to Ms. Vlassova August 29, 2015 (Exhibits 79 and 79B) where he describes Mr. Khan’s actions as fraudulent such that Mr. Chaba filed a complaint with the Law Society. I have concluded this evidence did not assist me in determining the issues in this matter.

[22] Mr. Khan also testified about Requests to Admit sent and received in November, 2018 and in February, 2019. He described their use as intending to harass and intimidate him.

[23] As a part of attempting to quantify his damages, Mr. Khan testified about the following:

(1) declining revenue in his law practice as reported to Revenue Canada from an average of about $103,000.00 between 2011-2013 to an average of about $31,0000.00 between 2014-2018; (2) his April 28, 2015 default on his financed purchase of a Mercedes Benz vehicle in 2012 (Exhibit 64); (3) taking out a second mortgage on his home in October, 2014; (4) vacating his law office premises at the end of December, 2015 for non-payment of rent; (5) garnishment for unpaid remittances or taxes by the Canada Revenue Agency; (6) termination of Canadian Bar Association life insurance policies for failing to pay the premiums due; and (7) cancellation of credit cards due to unpaid balances.

[24] This reduced Mr. Khan’s credit rating from 717 in March, 2010 to 493 by February, 2016. Mr. Khan also testified being humiliated within his community and shattered emotionally. This was without any corroborating medical or financial evidence to support same.

[25] It was submitted by counsel for Mr. Chaba, no evidence was tendered as to what value Mr. Khan received from the debts he claimed to have incurred and have been unable to pay. Mr. Khan attributed the inability to pay as a result of the Posadas’ failure to repay the initial $80,000.00 loan to them and all ancillary amounts.

[26] In cross-examination, it was admitted the $80,000.00 lent to the Posadas in 2012 was not Mr. Khan’s money and from his trust account. He refused to identify the source of the money. He failed to ensure the funds to cover the $80,000.00 were either certified before it was deposited or cleared before the $80,000.00 was forwarded to the Posadas. This simple, logical safeguard to the source of Mr. Khan’s problem undermines any legal wrong having been committed against him by Mr. Chaba. It would have avoided any personal exposure. This conclusion is reinforced by the fact that in June, 2016 Mr. Khan agreed to accept $140,000.00 (presumably) in full satisfaction of the debt owed to him by the Posadas. Neither the details nor the document confirming the settlement was tendered as evidence in this trial.

Analysis

[27] Mr. Khan’s action fails for the following reasons. First, I would divide the actions of the parties into two time frames. The first is with regard to conduct on or before October 27, 2014 being the date on the Statement of Defence and Counterclaim by Mr. Khan. Basic legal principles dictate that Mr. Khan’s cause of action must have arisen by that date. It is pleaded and claimed at trial to be fraudulent misrepresentation and inducing breach of contract. As of that date, Mr. Chaba had only been involved in the dealings between the Posadas and Mr. Khan from on or about August 16, 2014. The task is to review what Mr. Chaba did in those (August – 15 days, September – 30 days and October – 27 days =) 72 days. I find Mr. Chaba attempted to negotiate a settlement of the amount the Posadas owed to Mr. Khan. He did so in an attempt to earn a fee or commission. The fee or commission was to be paid by the Posadas out of funds to be created remortgaging 570 Bellamy with payment to what was owed to Mr. Khan as a result of the judgment of September 30, 2013. The inference is and I find that he was so confident the refinancing would occur and pay him a commission, he foolishly signed the Settlement Agreement as a guarantor.

[28] The elements of fraudulent misrepresentations, to quote Mariani v. Lemstra, [2004] O.J. No. 4283, are:

“(1) that the defendant made a false representation of facts; (2) that the defendant knew the statement was false or was reckless as to its truth; (3) that the defendant made the representation with the intention that would be acted upon by the plaintiff; (4) that the plaintiff relied upon these statements; and (5) that the plaintiff suffered damage as a result” (at paragraph 12).

[29] The representation at issue must stem from Mr. Chaba’s interaction with Mr. Khan and Mr. Khan’s decision to enter into the Settlement Agreement on August 28, 2014. I find this agreement was to pay Mr. Khan $80,000.00 by September 5, 2014 and the balance as a six month mortgage. I heard no evidence from either Mr. Khan or Mr. Chaba that would satisfy this tort. Mr. Khan was doubtful of the Posadas’ ability to raise the necessary funds. He was initially offered only $80,000.00 as a compromise settlement. Mr. Khan required Mr. Chaba to sign the Settlement Agreement as a guarantor as part of accepting $115,000.00. This was a reduction from Mr. Khan’s initial demand for $125,000.00. The funds were not due until September 5, 2014 as Mr. Khan, as I so find, was aware that the refinancing was not yet complete. To compound matters or undermine the likelihood refinancing could be obtained, Mr. Khan attended before Justice Perell on August 29, 2014 seeking additional amounts and was granted $9,000.00. I conclude the terms of the Settlement Agreement vitiates any tangible claim that Mr. Chaba represented anything to Mr. Khan that Mr. Chaba knew to be false or reckless and that Mr. Khan would rely on or act on to his detriment.

[30] Regarding the tort of inducing a breach of contract, the four elements, to paraphrase Drouillard v. Cogeco Cable Inc., 2007 ONCA 322, are:

(1) Mr. Khan had a valuable and enforceable contract with the Posadas; (2) Mr. Chaba was aware of the existence of this contract; (3) Mr. Chaba intended to and did procure the breach of the contract; and (4) as a result of the breach, Mr. Khan suffered damages (at paragraph 26).

[31] There is no dispute the Settlement Agreement between Mr. Khan and the Posadas was a valid and forcible contract. There is no doubt Mr. Chaba was aware of the contract given his attendance at the meeting where it was consummated as he signed Schedule D to the Settlement Agreement as a guarantor. At issue is whether Mr. Chaba intended to procure the breach of that contract. I find Mr. Khan has failed to prove this third element. It was in Mr. Chaba’s best interest (a payment of the commission associated with the refinancing) to have the Settlement Agreement fulfilled. There was no evidence from the most likely source to indicate the contrary, being the Posadas, that Mr. Chaba said or did anything to undermine or deter payment of the agreed upon amount to Mr. Khan. Again, one would have expected if that were so, it would have been dealt with in the settlement achieved with the Posadas or Mr. Khan in June, 2016 and presented at this trial.

[32] Counsel for Mr. Khan submitted and relied on authority that separate claims can exist against the borrower and their guarantor. I agree. However, in the absence of evidence that a term of the settlement with the borrower is the right to pursue any action against the guarantor, I conclude the payment of the debt in its entirety was agreed upon. As stated, I heard no evidence of any such term or condition.

[33] Mr. Khan tendered a calculation based on the Settlement Agreement of August 28, 2014 that $63,785.50 of principal was owed and repayable as of June 1, 2016. With interest, that amount increased to $90,679.96 (Exhibit 77). However, Mr. Khan limited his claim at the opening of trial to $80,000.00.

Conclusion

[34] The claim by Mr. Khan is dismissed. I heard submissions about Request to Admits, either unreasonably responded to not responded to in a timely manner and deferred any decision regarding same. I heard submissions that Request to Admits were used as part of “pressuring”, harassment and intimidation. I advised that conduct during the litigation would be dealt with in the awarding of costs, if any.

[35] Following the end of the trial, I received email communication from plaintiff’s counsel which dealt with my request that the parties provide me with their demand for costs. It also contained additional submissions and case law with regard to the merits of the action. From the email from defence counsel received subsequently, it was clear the latter was not forwarded in compliance with Rule 1.09. Defence counsel sought direction as to whether he should respond. I advised him, through my assistant, that should a response be required I would advise him. Defence counsel responded that he did not consent to that direction. I did review the additional material from plaintiff’s counsel. I did so before completing these reasons. Those submissions and case law did not alter my conclusion which is favourable to Mr. Chaba. As a result, I did not require any response from his counsel.

[36] Mr. Khan’s counterclaim is dismissed. If the parties cannot agree on costs, they may schedule a half day appearance before me during the week of June 17 or July 1, 2019 for submissions. Seven days in advance of any such hearing, they shall submit to me, with proof of service on the other side, all material upon which they intend to rely. That material shall include a Bill of Costs with all nature of claims being made subtotaled to November 17, 2016 (being the date of Justice Stewart’s decision dismissing the main action).

Mr. Justice G. Dow Released: May 22, 2019

COURT FILE NO.: CV-14-511862 DATE: 20190522 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: SAM CHABA Plaintiff -and- MUHAMMAD ASLAM KHAN Defendant

AND BETWEEN: SWAT EMERALDMINE AND MARKETING INC. Plaintiff by Counter Claim -and- SURINDER CHABA a.k.a. SAM CHABA, MONICA GOYAL AND JONATHAN MACKENZIE Defendants to the Counter Claim

**REASONS FOR DECISION** Mr. Justice G. Dow Released: May 22, 2019