COURT FILE NO.: CV-18-0245-00
DATE: 20190821
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
JGB COLLATERAL, LLC., a Delaware Limited Liability Company
Plaintiff
– and –
DONNA JEAN HEWITT ROCHON and JOHN ROCHON
Defendants
COUNSEL:
Mary Anne Cummings, for the Plaintiff
Jonathan P. Collings, for the Defendant, Donna Jean Hewitt Rochon
Taayo Simmonds, for the Defendant, John Rochon
HEARD: 16 July 2019, at Belleville
REASONS FOR DECISION
Mew, J.
[1] Donna Rochon and John Rochon have been married to each other for over 46 years. She describes their relationship in these terms: “I’m a mother, a grandmother, I take care of the family. My husband takes care of the finances”.
[2] A company controlled by John Rochon and other members of his family borrowed money from the plaintiff, an asset management firm. The security given for that loan included personal guarantees given by John and Donna Rochon, and a collateral mortgage, placed on a property in Ontario owned by Donna Rochon. A court in New York has already decided that the guarantees are valid and enforceable.
[3] The plaintiff now asks this court to summarily determine the enforceability of the mortgage.
[4] For the reasons that follow, I conclude that the Ontario mortgage should not be enforced and that summary judgment should go in the defendants’ favour dismissing this action.
Background
[5] John Rochon is the founder and chairman of Richmont Partners, described as “a family-owned company that has been in business for 40 years”.
[6] John Rochon, through entities controlled by him, also owns more than 50 percent of the outstanding shares of JRjr33, Inc., a publicly traded Florida corporation. Mr. Rochon, is by any measure, a highly experienced business executive. He challenges the suggestion that he is sophisticated in matters of business, despite a preponderance of the evidence indicating otherwise.
[7] In the late summer and early autumn of 2017, John Rochon, on behalf of JRjr33, engaged in negotiations with the plaintiff (“JGB”), seeking financing for JRjr33. A term sheet was entered into on 12 September 2017 documenting a proposed US$5,000,000 loan. The term sheet contemplated a personal guarantee from John Rochon and that in the event of default that was not remedied, JGB would be able to file a lien against one of two properties, namely (i) Trillium Pond Farm in Lanark, Ontario; or (ii) a residence in Dallas, Texas.
[8] After further due diligence, JGB determined that it would not be able to obtain a lien on the Dallas property because, under Texas law, it was the “legal homestead” of John Rochon and Donna Rochon and was thus protected from creditors under Texas law. As a result, JGB elected to take a lien on the Lanark property as security for the loan.
[9] The Lanark property has been in Donna Rochon’s family since her ancestors settled in the region in 1852. It was purchased by John Rochon from Donna Rochon’s grandmother and at some point in time his name was on the title to the property. However, since 1996 when, to quote Mr. Rochon, “we partitioned our assets”, the Lanark property has been held in the sole name of Donna Rochon.
[10] Because Donna Rochon was the registered owner of the Lanark property, JGB required Donna Rochon to be added as a party to the personal guarantee and to place a charge on the Lanark property as collateral security.
[11] The loan transaction was entered into on 19 October 2017. The loan documentation included a Securities Purchase Agreement which identified John Rochon and Donna Rochon as personal guarantors and a “Personal Guaranty” which was signed by each of John Rochon and Donna Rochon before a notary public. A Service Ontario property index map identifying the Lanark property was attached to the “Personal Guaranty” as a schedule. An acknowledgement and direction to JGB’s Ontario solicitors to register a charge against the Lanark property was signed by Donna Rochon and John Rochon on 18 October 2017.
[12] According to JGB, problems with the loan arose very shortly after closing.
[13] By a letter of 5 January 2018, JGB informed the defendants that what it regarded as an act of default had occurred. The letter went on to state that the mortgage would now be formally registered against the Lanark property. The defendants signed an acknowledgement copy of the letter to that effect.
[14] The act of default which triggered the 5 January 2018 letter was the failure on the part of JRjr33 to file certain financial reports with the US Securities Exchange Commission. But there was also an alleged misrepresentation of JRjr33’s financial position and a failure on the part of JRjr33 to grant JGB first priority liens on the assets of two of its UK subsidiaries.
[15] The terms of the charge registered against the Lanark include the following provision:
The Chargor agrees that Charge is given as collateral security for all present and future liabilities of John Rochon and/or Donna Jean Hewitt Rochon, also known as Donna Rochon, by virtue of Personal Guaranty dated on or about October 16, 2017 or other documents in favour of the Chargee and any instrument, agreement or other documents whatsoever taken by way of renewal or replacement thereof, as the same may be amended from time to time.
[16] In or about April 2018, JRjr33’s UK subsidiaries went into administration (i.e. insolvency). JGB elected to accelerate the enforcement of the loans and by letter dated 19 April 2018 gave Donna Rochon and John Rochon notice of default and demand pursuant to the mortgage on the Lanark property.
[17] Both the Securities Purchase Agreement and the Personal Guaranty have clauses which provide that they are governed by the law of the State of New York.
[18] JRjr33 filed for bankruptcy relief in the United States Bankruptcy Court on 29 June 2018.
[19] Two proceedings have been commenced by JGB against John Rochon and Donna Rochon. This action, which is a mortgage action seeking the possession and subsequent sale of the Lanark property, was commenced on 31 July 2018. A second action, described by JGB as “a collection action against guarantors” was commenced by JGB in the Supreme Court of the State of New York on 24 September 2018.
JGB Obtains Summary Judgment in New York
[20] There has already been summary judgment in JGB’s favour in the New York action. I have not been provided with a complete record of that summary judgment motion. However, a copy of the transcript of argument before Justice Sherwood of the Supreme Court of the State of New York on 30 April 2019, including Justice Sherwood’s oral decision, was filed. Counsel also provided me with a copy of the draft judgment resulting from that decision, which is yet to be (to use the Ontario parlance) issued and entered.
[21] The defendants resisted summary judgment on a number of grounds, including disputing whether there had been events of default, a request for further discovery to determine the availability of defences to the claim, and an assertion that the loan agreement was usurious. The same advocate represented both John and Donna Rochon.
[22] Justice Sherwood rejected the defendants’ objections and granted summary judgment holding that the usury defence was not available and that in the absence of any other viable defences the court would recognise that the guarantees were enforceable. Judgment was given in favour of JGB for the sum of US$6,357,452.09, plus post-judgment interest.
[23] Counsel for JGB advises that no appeal has been taken from Judge Sherwood’s order, the time in which to do so having now expired.
Defendants Plead Non Est Factum and Unconscionability in Ontario Action
[24] In the Ontario action, the defendants pleaded that the request for Mrs. Rochon to pledge the Lanark property came approximately 48 hours before the closing of the land transaction. They say that they were reluctant to sign the personal guarantees that JGB demanded to give JGB the mortgage over the Lanark property. They say this was especially the case for Donna Rochon, who had no ownership interest or role in JRjr33, however, they plead, “JGB was adamant that they pledge the Farm as collateral and would otherwise walk away from the deal”.
[25] The Rochons further plead as follows:
Under duress and without the benefit of independent legal advice, Mrs. Rochon therefore signed a document on October 18, 2017 that purportedly guaranteed JRjr33’s debts and granted a mortgage against the Farm. As an individual foreign to the transaction between JGB and JRjr33, she did so for no consideration.
[26] The defendants were initially represented in this action by the same lawyers. JGB’s motion for summary judgment in this action was brought and originally made returnable on 25 February 2019. The defendants resisted summary judgment on the basis that it would be premature to hear the motion for enforcement of the collateral mortgage until the New York summary judgment motion had been determined. Alternatively, it was argued that Donna Rochon is entitled to rely on the defences of non est factum and unconscionability, given the nature and circumstances of her signing the mortgage documents.
[27] After filing responding materials, the then lawyers for the defendants obtained an order removing themselves as lawyers of record. The summary judgment motion was adjourned to be heard on 16 July 2019.
[28] Donna Rochon subsequently appointed a new lawyer of record. John Rochon has not appointed a new lawyer of record, but retained counsel for the limited purpose of appearing as his advocate for the argument of the summary judgment motion.
[29] The essence of the defence now advanced on behalf of Donna Rochon is that any guarantee that she executed, and by extension, the mortgage which is the subject of this action, is unenforceable due to undue influence and duress on the part of her husband, the defendant, John Rochon. Furthermore, Donna Rochon asserts that she did not obtain independent legal advice, nor was she afforded a reasonable opportunity to obtain it, prior to executing the guarantee and related documents.
Issues
[30] In the Ontario action, JGB does not sue on, or otherwise attempt to enforce, the New York judgment. The summary judgment motion is confined to enforcement of the mortgage by way of orders for possession and sale of the Lanark property.
[31] The following issues fall to be determined:
(a) Is summary judgment appropriate?
(b) What is the effect of the New York judgment and, in particular, is Donna Rochon precluded from raising any of the arguments that she now relies on by operation of the doctrine of issue estoppel?
(c) Is the mortgage unenforceable due to undue influence and duress on the part of John Rochon?
Appropriateness of Summary Judgment
[32] JGB brought this motion and has argued throughout that summary judgment is appropriate. In addition to affidavit evidence being filed, the defendants and a representative of the plaintiff were cross examined.
[33] Prior to the original return date of the summary judgment motion JGB argued that Donna Rochon’s affidavit should be struck out because, among other reasons her, affidavit “was clearly drafted with information from someone other than Mrs. Rochon, presumably her husband”. That position was not pursued in oral argument. Rather, the court was asked to use its enhanced powers under Rule 20.04 (2.1) of the Rules of Civil Procedure to weigh evidence, evaluate the credibility of a deponent and draw any reasonable inferences from the evidence in reaching his or her decision on the merits of the motion.
[34] Although when they were jointly represented, the defendants argues that their defences raised triable issues that were not suitable for summary determination, this position was not maintained at the hearing either.
[35] I am satisfied that the evidentiary record is sufficient for me to decide the issues between the parties by way of summary judgment, deploying the powers provided by Rule 20.04(2.1) where necessary.
[36] It is of course well established that summary judgment can, in appropriate circumstances, be given against the party seeking it: King Lofts Toronto I Ltd. v. Emmons, 2014 ONCA 215 at para. 14; Whalen v. Hillier (2001), 2001 CanLII 24070 (ON CA), 53 O.R. (3d) 550 (C.A.).
Effect of the New York Action
[37] The New York action was brought to enforce the terms of the guarantees against Donna Rochon and John Rochon. A review of the “Defendants’ Response to Motion for Summary Judgment in Lieu of Complaint” filed on behalf of John Rochon and Donna Rochon in the New York action articulated three broad grounds for resisting the plaintiff’s request for summary judgment, namely:
(a) The effective annual interest rate applicable to the loan was usurious under the applicable New York Usury Statute;
(b) The motion should be stayed because the plaintiff had earlier filed the Ontario action to secure property of Donna Rochon in satisfaction of the entire amount of the loan;
(c) Factual issues arise over whether there had been defaults at all and that discovery was required into whether those defaults existed and whether JGB had acted in accordance with its obligation of good faith and fair dealing in declaring a default.
[38] If a defence of undue influence was available to the defendants in the New York action, it does not appear to have been advanced during the course of the summary judgment motion.
[39] As already referenced, the New York court rejected the usury defence and the objections based on lack of discovery. As a result the issue of the validity of the guarantees (which, it will be recalled, were governed by New York law) was decided entirely in favour of the plaintiff. No mention of the Ontario mortgage was made either during oral argument or in Judge Sherwood’s reasons.
[40] What then is the effect of the New York judgment on the issues now raised in this mortgage enforcement action, which is brought under Ontario law? To answer this question, it is appropriate to review the doctrine of res judicata.
[41] Res judicata has two species. “Cause of action estoppel” precludes a person from bringing an action against another when that same cause of action has been determined in earlier proceedings by a court of competent jurisdiction. “Issue estoppel” deals with circumstances where, the cause of action being different, some point or issue of fact has already been decided by another court of competent jurisdiction.
[42] In the New York proceeding, the plaintiff sought judgment on its guarantee. The New York court ruled that the guarantee was valid and gave a money judgment accordingly.
[43] The Ontario action seeks to enforce the mortgage given by Donna Rochon in favour of the plaintiff. The mortgage having been provided as collateral security for the guarantee given by Donna Rochon, which guarantee the New York court has ruled was valid and effective.
[44] Because the dispute submitted to this court is an action on the mortgage, and not an action on the guarantee, the relevant branch of res judicata to be considered is issue estoppel. Specifically, does the principle of issue estoppel apply to preclude all or restrict defences that might otherwise be available to Donna Rochon in her opposition to this mortgage enforcement proceeding?
[45] The plaintiff argues that the validity of the guarantee has been finally determined by the New York court. Accordingly, the basis for the charge on the Lanark property is a guarantee that has been held to be valid and enforceable by a court of competent jurisdiction. It would be inequitable for the defendants to effectively reopen that issue now in the guise of defending the mortgage action. The plaintiff therefore says that the principle of issue estoppel should be applied to preclude that from happening.
[46] Issue estoppel requires satisfaction of three preconditions, namely that:
(a) the same question has been decided;
(b) the judicatam which is said to create the estoppel was final; and
(c) the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised: Angle v. M.N.R., 1974 CanLII 168 (SCC), [1975] 2 SCR 248, at p. 254.
[47] The preconditions are met in this case. The New York action determined the validity and enforceability of the guarantees given by the defendants. These issues were determined by a court of competent jurisdiction. The decision has not been appealed. The parties were the same as in the Ontario proceeding.
[48] Having been satisfied that the preconditions are met, this court must then consider whether the issue estoppel ought to be accepted or whether applying it would work an injustice: Metropolitan Toronto Condominium Corp. No. 1352 v. Newport Beach Development Inc., [2012] ONCA 850.
[49] In the Metropolitan Toronto Condominium case, Laskin J.A., referring to the Supreme Court of Canada’s decision in Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, stated, at para. 62:
Issue estoppel promotes the orderly administration of justice, but it should not be applied at the cost of real injustice in an individual case: see Danyluk, at para. 67. In exercising its discretion to apply or not to apply issue estoppel in any given case, the court must be mindful of context. The balancing exercise will vary with the nature of the proceedings in question.
[50] Laskin J.A. went on to explain that where a former proceeding was conducted by a tribunal, a court will necessarily enjoy a broader discretion to decline to apply issue estoppel than where the former proceeding was before another court: Metropolitan Toronto Condominium, at para. 63.
[51] In the Metropolitan Toronto Condominium Corp., the prior decision had been made by administrative agency performing a quasi-judicial function. One of the factors which weighed against the application of issue estoppel was the consumer protection purpose of the legislation under consideration.
[52] The New York decision was rendered by a superior court in a neighbouring jurisdiction. Any discretion not to apply the principle of issue estoppel to that decision must, therefore, be carefully and respectfully exercised.
[53] The defences of non est factum based on duress or undue influence and the absence of independent legal advice have been considered in a number of Ontario cases and reflect a concern on the part of our courts to prevent an unjust outcome in certain situations where a relationship of trust and confidence between the parties gives rise to a concern about whether an obligation was freely assumed.
[54] In Bank of Montreal v. Duguid, (2000), 2000 CanLII 5710 (ON CA), 47 O.R. (3d) 737 (C.A.), reference was made to competing policy considerations which come into play where a wife provides a guarantee, secured by a collateral mortgage, for a business loan of the husband (or the husband’s company). Referring to the decision of the House of Lords in Barclays Bank plc v. O’Brien, [1994] 1 A.C. 180, [1993] 4 All E.R. 417 (H.L.), Osborne A.C.J.O., for the majority, noted that in Barclays Bank, Lord Browne-Wilkinson had considered a category of presumed undue influence in circumstances where there was a relationship of trust and confidence of such a nature that it would be fair to presume that the wrongdoer abused the relationship in procuring the complainant to enter into the impugned transaction, i.e. to raise the presumption of undue influence. In such circumstances, once such a relationship had been proved, the burden would shift to the wrongdoer to prove that the complainant entered into the impugned transaction freely, for example by showing that the complainant had received independent advice.
[55] Lord Browne-Wilkinson considered whether the specific relationship of husband and wife, without more, gave rise to a presumption of undue influence. He found that it did not. However, noting the continued existence of relationships where a wife is still subjected to, and yields to, influence by her husband, he concluded at page 190 (A.C.) of his speech that:
…in any particular case a wife may well be able to demonstrate that de facto she did leave decisions on financial affairs to her husband thereby bringing herself within Class 2(B) [i.e. the class of presumed undue influence]… Thus, in those cases which still occur where the wife relies in all financial matters on her husband and simply does what he suggests, a presumption of undue influence within Class 2(B) can be established solely on proof of such trust and influence without proof of actual undue influence.
[56] Osborne, A.C.J.O regarded Barclays Bank as authority for the proposition that a wife seeking to set aside a transaction on account of undue influence may raise a Class 2(B) presumption of undue influence by demonstrating that her relationship with her husband was one in which she relied on her husband so that it would be reasonable to presume that the transaction in question was procured by the undue influence of her husband: See Duguid, at para. 7.
[57] In Barclays Bank, Lord Browne-Wilkinson had observed, at p. 188, that although the concept of the ignorant wife leaving all financial decisions to the husband was outmoded, “the practice does not yet coincide with the ideal”. He continued: “In a substantial portion of marriages, it is still the husband who has the business experience and the wife is willing to follow his advice without bringing a truly independent mind and will to bear on financial decisions … Such wives can reasonably look to the law for some protection when their husbands have abused the trust and confidence reposed in them”.
[58] Assuming, for the purposes of this analysis, that John Rochon was a “wrongdoer”, what is the effect on the creditor? In Barclays Bank, Lord Browne-Wilkinson explained, at p. 195, [A.C.], that:
A wife who has been induced to stand as a surety for her husband’s debts by his undue influence, misrepresentation or some other legal wrong has an equity as against him to set aside that transaction. Under the ordinary principles of equity, her right to set aside that transaction will be enforceable against third parties (e.g. against a creditor) if… the third party had actual or constructive notice of the facts giving rise to her equity… the key to the problem is to identify the circumstances in which the creditor will be taken to have had notice of the wife’s equity to set aside the transaction.
[59] Lord Browne-Wilkinson continued (at pp. 195-196):
…if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and takes subject to it. Therefore, where a wife has agreed to stand surety for her husband’s debts as a result of undue influence or misrepresentation, the creditor will take subject to the wife’s equity to set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety.
[60] Despite the rejection by the House of Lords of a presumption of undue influence (a position adopted by the courts of this province in Duguid), when considering the possibility of constructive notice, what Lord Browne-Wilkinson described as the law’s “tender treatment” of married women becomes relevant. As he explained, at p. 186 (A.C.):
The tenderness of the law is reflected by the fact that voluntary dispositions by the wife in favour of her husband are more likely to be set aside than other dispositions by her: a wife is more likely to establish presumed undue influence of Class 2(B) by her husband than by others because, in practice, many wives do repose in their husbands trust and confidence in relation to their financial affairs. Moreover, the informality of business dealings between spouses raises a substantial risk that the husband has not accurately stated to the wife the nature of the liability she is undertaking, i.e., he has misrepresented the position, albeit negligently.
Therefore, in my judgment, the creditor is put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors:
(a) the transaction is on its face not to the financial advantage of the wife; and
(b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.
It follows that unless the creditor who is put on inquiry takes reasonable steps to satisfy himself that the wife’s agreement to stand surety has been property obtained, the creditor will have constructive notice of the wife’s rights.
[61] In Barclays Bank, the House of Lords held that a bank which took a surety obligation from a wife, secured on the matrimonial home, to secure the debts of a company in which her husband was interested but in which the wife had no direct pecuniary interest, should have been put on inquiry as to the circumstances in which the wife had agreed to stand as surety for the debt of her husband. Because the wife signed the guarantee and mortgage documents without any warning of the risks or any recommendation to take legal advice, the bank was deemed to have failed to take reasonable steps and was fixed with constructive notice of what was accepted as a wrongful representation made to her by her husband. The wife was therefore entitled as against the bank to set aside the legal charge on the matrimonial home securing her husband’s liability to the bank.
[62] The Barclays Bank decision was considered by the Supreme Court of Canada in Gold v. Rosenberg, 1997 CanLII 333 (SCC), [1997] 3 S.C.R. 767. In that case, a company was owned by an estate. There were two trustees of the estate, Gold and his uncle, Rosenberg. Gold signed a power of attorney in favour of Rosenberg which permitted Rosenberg to continue his management of the company. The company then provided a guarantee to a bank to secure a loan made by the bank to a company owned by Rosenberg. The guarantee was supported by a collateral mortgage owned by the company. Despite the general power of attorney, Gold’s signature on certain documents was required, most notably on a director’s resolution authorising the guarantee.
[63] After referring to Barclays Bank, Sopinka J., at para. 79, stated that when a bank is presented with a situation where a creditor is approached by cohabitees - one the principal debtor and the other, the surety - and the proposed transaction is clearly to the disadvantage of the surety, it should recognise the risk of undue influence. But, by the same logic, a relationship that is more distant would raise less suspicion of undue influence, even if the transaction was apparently unfavourable to the guarantor. That, Sopinka J. found, was the situation as between Gold and Rosenberg. Sopinka J. went on to reject a submission that the bank should have made inquiries about the fairness of the transaction, including satisfying itself that there had been independent legal advice. At para. 82, he wrote:
In these circumstances, I cannot accept that further explanation or legal advice was required and if it had been offered it would not have made any difference. I am confident that Gold would have found a “chat” with [the bank] quite superfluous. As for more legal advice, I am sure that if Gold thought independent legal advice was needed, he would have obtained it. He was aware that the solicitors for the estate also acted for his uncle and it was scarcely necessary for the bank to advise him that he could consult another lawyer if he wished.
[64] A bank or other commercial lender is only required to act reasonably in the circumstances.
[65] At para. 85 of Gold, commenting on a decision of the Ontario Court of Appeal in Bertolo v. Bank of Montreal (1986), 1986 CanLII 150 (ON CA), 57 O.R. (2d) 577, Sopinka J. stated:
Whether or not someone requires independent legal advice will depend on two principal concerns: whether they understood what is proposed to them and whether they are free to decide according to their own will. The first is a function of information and intellect, while the second will depend, among other things, on whether there is undue influence.
[66] In Bertolo, while there was no assertion of undue influence, the Court of Appeal held that a mother who had provided a bank with a promissory note and a mortgage on her house to secure a loan taken out by her son should have had independent legal advice because without it she was incapable of understanding any aspect of the transaction.
[67] In the circumstances, even though a New York court has already decided that the guarantee that forms the basis for the mortgage is valid, the recognition of the law on undue influence in Ontario is such that it would result in an injustice for the plaintiff to be able to enforce the charge placed on the Lanark property without consideration of the application of these legal principles to the facts.
[68] It follows that the principle of issue estoppel, to the extent that it would otherwise preclude a consideration of the defence of undue influence, including the lack of independent legal advice, raised by Donna Rochon, should not be applied in this case.
Is the mortgage unenforceable due to undue influence and duress on the part of John Rochon?
[69] Donna Rochon effectively argues that Lord Browne-Wilkinson’s description accurately describes her role at the time she signed the guarantee and the mortgage documents. The risk of undue influence should, she says, have been readily apparent to JGB. Yet JGB failed to take effective steps to ensure that she was acting on her own free will.
[70] Before turning to the substance of the evidence, I will address the plaintiff’s concerns about the quality of the Donna Rochon’s evidence.
[71] Donna Rochon’s evidence was provided by way of an affidavit sworn on 17 December 2018, and her subsequent testimony when cross-examined. Both when she swore the affidavit and when she was cross-examined, Donna Rochon was represented by the same lawyer who represented her husband. This is despite the fact that her affidavit asserts that while she did not want to sign anything, she was informed, and believed, that she did not have any alternative. Although her affidavit does not use the phrase, “undue influence”, its import is clear. Indeed, in her affidavit, she goes further, effectively asserting, as noted above, that her husband misrepresented to her the nature of the loan (“would not be due for two more years”) and stating that she believed that there was “very little risk to me personally”.
[72] JGB asserts that Donna Rochon is not coming with “clean hands” and, as such, should not be entitled to equitable relief. She swore an affidavit which she invites the court to rely on but then effectively resiled from portions of that affidavit under cross-examination. For example, in her affidavit, she says that her husband told her that the loan document would not be due for two more years, that she did not want to sign anything but was informed and believed that she did not have any alternative, and that if she did not sign the documents it would have prevented JRjr33 from paying its employees and sales consultants. Yet, on cross-examination, she acknowledged that she had the opportunity to read everything before she signed, said that she did not remember what her husband told her (“I don’t know if he even told me anything”) and agreed that it would not have mattered what she had been told because she would have done what he asked her to do.
[73] In evaluating the effect of Ms. Rochon’s vacillations, I bear in mind that even in the earlier stages of the defence of this action she was represented by the same lawyer who represented her husband, despite there being a clear conflict of interest given her assertion of undue influence. Taken with my observation that JRjr33 had, to JGB’s knowledge, attempted to close the transaction with a power of attorney signature for Donna Rochon, there is an ample basis to be concerned about the possibility of Donna Rochon being manipulated by others.
[74] I am, accordingly, not inclined to reject her claim for relief on “clean hands” grounds.
[75] Donna Rochon’s evidence is that she signed the loan documents based on what John Rochon told her. She did not have the documents explained to her before she signed. She claims in her affidavit that she did not inquire, or investigate further, out of fear of being embarrassed by her lack of sophistication. She says she was unaware of the value of the project involved. She claims not to have known whether she legally owned the Lanark property. She conceded that she left all financial and legal matters to her husband. That is how, she says, their marriage had always operated. She said that she had signed over 10,000 documents on that basis during the course of her marriage. She always signed whatever documents were sent over to her by her husband without reading them and, indeed, only looked at the signature pages of the documents that she signed.
[76] During the course of her cross-examination, while being asked about contradictions between her answers to questions and her affidavit, Donna Rochon said:
You do not understand. We do not operate that way as a couple. I don’t even know how much anything is. I don’t want to know. I am a very happily wed woman, and that’s what I want to stay. Now he did something wrong here, I do agree. He should have informed me, and he didn’t inform me. He is the one that I am mad at, because that is my property, and it has been in my family since the 1850s. It was the gift to me from my husband. He bought it from my grandmother before she went into an old folks’ home in Perth. So, yes, I do love that place, and I had no idea that it would even [sic] involve any kind of transactions whatsoever.”
[77] It was not until 26 September 2017 that JGB determined that John Rochon did not own the Lanark property. On 27 September, initial drafts of the Personal Guaranty and other ancillary documents were sent to the lawyers representing JRjr33, John Rochon and Donna Rochon (the same lawyers represented all of those parties). This draft specifically referenced that the guarantors would provide a mortgage over the Lanark property in favour of JGB.
[78] The affidavit of Yehoshua Barlev-Ehrenberg of JGB discloses that on 17 October 2017, JGB’s lawyers sent the lawyers acting for Donna Rochon and John Rochon a draft of the mortgage documents for the Lanark property. On 18 October 2017, the defendants’ lawyer returned a copy of the Standard Charge Terms, accepted by Donna Rochon by her daughter, Heidi Hafe, pursuant to a power of attorney. In addition to being the daughter of Donna Rochon and a lawyer, Heidi Hafe was a senior person with JRjr33. JGB’s lawyers (prudently) declined to close the transaction on the basis of the power of attorney signature and required that all of the documents be resigned by Donna Rochon personally.
[79] The evidence therefore shows that JRjr33 attempted to close the transaction with a power of attorney signature on behalf of John Rochon’s wife in circumstances where she was also being asked to consent to a charge on the Lanark property.
[80] According to Donna Rochon, it was not until 18 October 2017 that she was asked to sign documents involving JGB. She says that she had not previously seen copies of any of these documents.
[81] In her affidavit, Ms. Rochon says that:
My husband told me that the document was a loan to JRjr33 that would not be due for two more years and that the company anticipated no problem making the required payments. He further informed me that JRjr33 had about $18 million of company assets to back up the loan.
[82] JGB argues that Donna Rochon cannot prove that John Rochon unduly influenced her. No one threatened her. She trusted her husband and had no reason not to trust him. She makes no allegation of any specific misrepresentation by John Rochon to her. She admits that her signature on all of the loan documents, including the mortgage documents, was affixed by her own free will.
[83] I concede that there are valid grounds for the scepticism expressed by JGB concerning what Ms. Rochon’s actual knowledge of financial matters was generally and, more specifically, her of husband’s business dealings. And the assertion that she was wilfully blind has merit. Absent undue influence, a defence of wilful blindness would not support a defence based on non est factum: Meridian Credit Union Ltd. v. Vrankovic, 2013 ONSC 7546.
[84] But JGB’s position misses the point of why there can be a presumption of undue influence. It is a presumption which flows from the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer. It is the establishment of that relationship which raises the presumption of undue influence. Unless the JGB can then disprove undue influence, for example by showing that Donna Rochon had independent legal advice, she will succeed in setting aside the impugned transaction merely by proof that she reposed trust and confidence in her husband without having to prove that he exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned: Barclay’s Bank at p. 189-90 (A.C.).
[85] Regardless of what Ms. Rochon knew or did not know or understand, the essential facts supporting a presumption of undue influence are met. This is a classic case of a spouse who unquestioningly complied with any and all requests by her husband to sign documents related to his business.
[86] On the question of whether Donna Rochon sought independent legal advice before she agreed to be a guarantor or when she agreed to place a charge on the Lanark property, the evidence of Mr. Barlev-Ehrenberg is that he inquired from both lawyers acting for the Rochons’ side – one of whom was their daughter – that everything that was stated in the guarantee, including the statement in the guarantee that its terms had been explained to them by an independent lawyer: both lawyers confirmed that that was the case.
[87] There is, however, no written confirmation of Donna Rochon having been given “independent” legal advice and, and significantly in my view, no indication that Ms. Rochon received legal advice independent from (and by a different lawyer) to any legal advice given to Mr. Rochon.
[88] Would it have made any difference if Donna Rochon had received independent legal advice? Perhaps so, perhaps not. Donna Rochon says she was unaware that she was pledging her ancestral home. JGB suggests that such evidence cannot be credible.
[89] The lesson provided in the Barclays Bank case is that a prudent lender in JGB’s situation should satisfy itself that someone in Donna Rochon’s position has received independent legal advice. That may be of no import vis-à-vis the guarantee, which was provided under New York law and has been found to be valid and enforceable by the New York court. But it does have application to the enforceability of a mortgage, governed by Ontario law, and relating to real property located in this province.
[90] I would add that it is not as if JGB was indifferent to the form of security that was being provided. The initial plan was to take as security either the Texas residence jointly owned by Donna Rochon and John Rochon or the Lanark property which, at least initially, JGB did not realize was in the sole name of Donna Rochon. The taking of the Texas property as security was discarded once it was realised that, as a “family homestead”, it would be unsuitable. That determination was made on 20 September 2017.
[91] Through the simple device of requiring adequate evidence, through a Certificate of Independent Legal Advice (or similar), that Donna Rochon was fully aware of the import of the security that she was providing, the opposition now raised by Donna Rochon to the enforcement of the collateral mortgage on the Lanark property would be neutralised.
[92] Unfortunately, whether through ignorance of the expectations placed on lenders under Ontario law or, as suggested by Donna Rochon, because there was pressure to get the security in place without further delay, no such confirmation was obtained.
[93] The circumstances in this case are quite different and entirely distinguishable on their facts from those pertaining in the Gold case.
[94] I am satisfied that Donna Rochon has established, on a balance of probabilities, that she was subject to undue influence by her husband at the time that she agreed to the mortgage conditions and, subsequently, when she agreed to the registration of the charge against the Lanark property. I am further satisfied that the circumstances gave rise to constructive notice of undue influence to JGB and that in the circumstances, JGB unreasonably failed to take adequate steps to enquire (whether by determining that she had received independent legal advice, or otherwise) and thereby satisfy itself that Donna Rochon understood the nature, import and legal effect of her agreement to the mortgage terms and the registration of the charge against the Lanark property.
[95] It follows that I do not agree with JGB that if the guarantee was valid, the mortgage cannot be invalid. While the guarantee and the mortgage are clearly linked to each other, they are governed by different systems of law. In so concluding, I do not purport to decide any issue relating to the enforceability of the New York judgment in Ontario. That issue was not directly before me.
[96] There being no suggestion that any evidence not already before the court, which might be adduced at trial, would have a bearing on the application of the legal principles that have been discussed in these reasons, I am satisfied that there is nothing left to be tried. Summary judgment is therefore appropriate.
Decision
[97] The mortgage on the Lanark property is not enforceable because it was the product of presumed undue influence on Donna Rochon by her husband, which the plaintiff had constructive if not actual notice of. As a result of the plaintiff’s failure to adequately ensure that Donna Rochon had received independent legal advice before she agreed to a collateral mortgage being taken out against the Lanark property, the plaintiff is not entitled to any remedies under the mortgage.
[98] Judgment will go in favour of Donna Rochon dismissing the plaintiff’s action.
[99] There would appear to be no basis for the continuation of the action against John Rochon. The claim against the defendants is made in relation to the sums due under the mortgage. Donna Rochon is the sole mortgagor. Accordingly, the action should be dismissed against John Rochon also.
[100] I would encourage the parties to resolve the issue of costs of the summary judgment motion and the action, failing which, costs submissions should be filed with the trial coordinator at Belleville as follows:
(a) by a party seeking costs within 21 days of the release of these reasons;
(b) responding submissions within 14 days thereafter.
Submissions should not exceed four pages in length and should be accompanied by the parties’ Bill of Costs (whether the parties claiming costs or responding to a claim for costs). Copies of any offers to settle should also be provided.
Graeme Mew J.
Released: 21 August 2019
COURT FILE NO.: CV-18-0245-00
DATE: 20190821
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
JGB COLLATERAL, LLC., a Delaware Limited Liability Company
Plaintiff
– and –
DONNA JEAN HEWITT ROCHON and JOHN ROCHON
Defendants
REASONS FOR DECISION
Mew, J.
Released: 21 August 2019