OSHAWA COURT FILE NO.: CV-19-1867
DATE: 20191025
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Bluekat Capital Corp.
Applicant
– and –
YDB Investments Corp., Ijeoma Chijindu, Joy Chijindu, and Christian Chijindu
Respondents
Brian Belmont, for the Applicant
YDB Investments Corp., not present Ijeoma Chijindu, not present Joy Chijindu, in person Christian Chijindu, in person
HEARD: June 28, July 5, and August 30, 2019
REASONS FOR JUDGMENT
SPEYER, J.
Introduction
[1] The Applicant, Bluekat Capital Corp. (“Bluekat”) loaned money on two occasions to the respondents Ijeoma Chijindu and Joy Chijindu. The loans were secured by two mortgages registered on title to the property at 740 West Shore Boulevard in Pickering (“the property”) when the funds were advanced by Bluekat on July 11, 2017 and October 27, 2017. Bluekat claims that before it advanced the funds the Chijindus represented to it that its mortgages would be second and third mortgages, respectively. Bluekat claims that its lawyer, Christian Chijindu (who is the husband of Ijeoma and the brother of Joy, and who acted for them as well in relation to the loans), confirmed that its mortgages stood in second and third priority.
[2] In fact, the Bluekat mortgages were registered by Christian Chijindu as fifth and sixth mortgages. On June 21, 2017, a mortgage in favour of the respondent YDB Investments Corp. (“YDB”), in the amount of $790,000, was registered on title to the property. Ijeoma Chijindu is the sole owner and director of YDB. Bluekat claims that it was not aware of the YDB mortgage when it loaned money to the Chijindus.
[3] The Chijindus have defaulted on all of their mortgages. Bluekat seeks an Order declaring that the YDB mortgage is null and void, or invalid and unenforceable, because it is a fraudulent mortgage, and an Order pursuant to ss. 159 and 160 of the Land Titles Act, R.S.O. 1990, c.L.5 directing the Registrar of the Land Registry Office to delete the registration of the YDB mortgage from the register of title to the property.
[4] This matter came before me initially in motions court on June 28, 2019. This application was initiated pursuant to Rule 14.05(3)(e) because the applicant seeks a declaration of the nature and extent of an interest in or charge on land, specifically the YDB mortgage. None of the respondents appeared, although Christian Chijindu and Joy Chijindu filed responding materials. I was unable to resolve the issues of fact about which there was conflicting evidence contained in the affidavits provided by the parties. There have been no cross-examinations conducted on the affidavits. I ordered that all parties attend before me on July 5, 2019 to address the question whether the application should proceed to trial and be treated as an action.
[5] On July 5, 2019 the applicant and Joy Chijundu appeared. I was advised that Christian Chijindu had chosen to attend a previously scheduled hearing. Joy Chijindu requested an adjournment to retain counsel. On July 5, 2019, I ordered that cross-examinations on the affidavits be conducted before me, followed by submissions. I ordered that all parties attend for that purpose. The matter was adjourned to August 30, 2019.
[6] When the parties appeared before me on July 5, 2019, those who provided affidavits in support of their position had yet to be cross-examined. Having regard to the nature of matters in issue, I considered it essential to the proper disposition of the matter that the cross-examinations take place before me, and I so ordered. I determined that the most expeditious and cost-effective way to determine the dispute on its merits would be to proceed in this manner. If I was unable to determine the factual matters in dispute after hearing the cross-examinations, I would have entertained submissions with respect to converting the application into an action. Having heard the cross-examinations, I determined that I could readily and fairly make the findings of fact necessary to determine the dispute on its merits, and I have done so.
[7] On August 30, 2019, the applicant and its principle, Chidiebele Nwogwonuwe, and the respondents Christian Chijindu and Joy Chijindu appeared. Ijeoma Chijindu did not appear. She advised the court by letter that she was out of the country, confirmed that she has filed no affidavit in relation to this matter, and advised that she does not intend to respond to the application. She further stated that Joy Chijindu’s response addresses all the issues she would have addressed had she chosen to respond. YDB was represented neither by counsel, nor by Ijeoma Chijindu, and has not participated in this hearing at any time.
The facts
[8] The nature of the affidavits filed by all the parties requires an explanation of the approach I have taken to those affidavits. In addition to addressing matters of fact, all are replete with argument and opinions. I have disregarded the improper aspects of the affidavits, and have based my decision only on that part of their content that describes matters of fact.
[9] Joy Chijindu and Ijeoma Chijindu became the registered owners of the property, for which they paid $470,000, on August 19, 2016. On the same date, a mortgage was registered in favour of the Royal Bank in the amount of $376,000. I accept Joy Chijindu’s evidence, contained in her affidavit, that when the property was purchased there was a small 700 square foot bungalow on the property, and that she purchased it for the land value. The bungalow was demolished in September 2016, and the construction of a new home commenced. According to a City of Pickering Inspection Report completed on June 12, 2017, the framing, plumbing rough-in and HVAC rough-in were inspected that day.
[10] On March 9, 2017, a second mortgage was registered on title to the property from Ijeoma Chijindu and Joy Chijindu in favour of Harsha Rathod in the amount of $250,000.
[11] On April 27, 2017, a third mortgage was registered on title to the property in favour of Harsha Rathod in the amount of $1,000,000. This charge was deleted on March 6, 2019. According to the evidence of Christian Chijindu, the mortgage discharge was registered to encourage buyers, not because the principle was repaid.
[12] On June 21, 2017, a fourth mortgage was registered on title to the property in favour of YDB in the amount of $790,000.
[13] On July 11, 2017, a fifth mortgage was registered on title to the property in favour of Bluekat in the amount of $84,084. On October 27, 2017, a sixth mortgage was registered on title to the property in favour of Bluekat in the amount of $61,278.
[14] When the second Bluekat mortgage was registered, a total of $2,561,362 was charged against the property that was bought less than a year earlier for $470,000. The Rashad, YDB and Bluekat mortgages were all registered by Christian Chijindu. Clearly, he was aware of all of them.
[15] There is no dispute between the parties regarding the registration of these mortgages. What is in dispute is whether the mortgage in favour of YDB was real, or whether it was a fraudulent mortgage in respect of which no monies were advanced by YDB to the borrowers, that was registered to frustrate Bluekat’s ability to realize its security in the event that the borrowers defaulted on their loans.
[16] In order to understand what happened, it is necessary to understand the relationships between the respondents. As previously noted, Christian Chijindu is married to Joy. Ijeoma is his sister. According to the Corporation Profile for YDB, the registered address for YDB is the same as the address for Christian Chijindu’s law office. Ijeoma Chijindu is the sole director and officer of YDB.
[17] Chidiebele Nwogwonuwe is the principle of Bluekat. Some of the communications between Christian Chijindu and Bluekat occurred between Mr. Chijindu and Ms. Nwogwonuwe’s late husband, Felix Mordi, and are documented in emails between them that form part of the record. Nothing in those emails undermines or detracts from Ms. Nwogwonuwe’s evidence regarding her personal knowledge of the circumstances of the Bluekat mortgages.
[18] Chidiebele Nwogwonuwe has sworn in her affidavit that Christian Chijindu requested that Bluekat lend funds to his wife and sister. He was a family friend. She swore that the respondents represented in their mortgage commitment that “1st mortgage with Royal Bank is no more than $376,000 and no other encumbrances on the property”. A copy of this mortgage commitment, albeit unsigned by anyone on behalf of Bluekat, was produced by her and is in evidence. In this mortgage commitment, the lender’s solicitor is identified as “Christian Chijindu Barrister and Solicitor”. The mortgage commitment is irregular, as it identifies “Harsha Rathod” as the lender on the first page, but the amounts to be advanced, and the dates on which they are to be advanced clearly relate to the Bluekat loan, and the lender is identified as Bluekat later in the document. It appears that the person who prepared the commitment document used a precedent and neglected to change the lender on the first page. Christian Chijindu testified in cross-examination that he prepared that document, and that it was incorrect because it referred to the Rathod mortgage. The document is signed by Ijeoma Chijindu and Joy Chijindu, the borrowers on July 11, 2019, the same date that Bluekat provided them funds. The document also states, at the bottom of each page “Mtg. 2nd mtg. on 740 West Shore Blvd., Pickering, Ontario”.
[19] Chidiebele Nwogwonuwe swore that the only mortgage on the property that Christian Chijindu disclosed to Bluekat in his capacity as its lawyer was the RBC mortgage. In her cross-examination, Ms. Nwogwonuwe explained that it would have made no business sense for Bluekat to loan money to Mr. Chijindu in circumstances where the value of the property was substantially exceeded by mortgages that were registered ahead of her mortgages. Her evidence in this regard was compelling and logical. Overall, I found Ms. Nwogwonuwe to be straightforward and responsive in answering Mr. Chijindu’s questions. Her answers made sense. Her answers are supported by the documents that have been entered in evidence. I believed her.
[20] Chidiebele Nwogwonuwe also swore that the lawyer who acted for both Bluekat and the borrowers was Christian Chijindu. She provided the loan proceeds to Christian Chijindu and testified that the funds were deposited into his trust account. There is no evidence before me as to when, how, and where those funds were disbursed. Mr. Chijindu acknowledged in cross-examination that he acted for his sister and wife, as well as for Bluekat, in relation to the two Bluekat mortgages, and that he “ran the mortgage through his trust account”.
[21] Both Bluekat mortgages went into default. None of the principle has been repaid. Interest payments have not been made. Earlier in 2019, the Chijindus unsuccessfully applied to this court to have the Bluekat mortgages set aside. That application was dismissed. Then the Chijindu controlled respondent YDB attempted to sell the property pursuant to a notice of sale. By an order made earlier in these proceedings, I prohibited the Chijindus and YDB from disposing of the property in any way. A YDB initiated sale, had it occurred, would have wiped out Bluekat’s security interest in the property.
[22] Joy Chijindu’s affidavit states that she and Ijeoma Chijindu borrowed $100,016.23 from YBD to make the down-payment on the property, a further $236,000 from YBD at the commencement of construction, and $250,000 from Harsha Rathad which was disbursed in two installments. Thus, she describes a total of $586,016.23 that was borrowed to purchase the property and construct the new house, in addition to the amount of the Royal Bank mortgage.
[23] Joy Chijindu also swore in her affidavit that she and Ijeoma Chijindu “did not discuss any loans with the applicant. We did not apply for any loans with the applicant, nor did the applicant commit to advancing any loans or did it advance loans for $84,084.00 or $61,278.00 to us.” Joy Chijindu’s affidavit is silent with respect to the $1,000,000 charge that was registered against the property in favour of Harsha Rathod, but it appears that no corresponding amount was borrowed by her to construct the new house. Confusingly, Joy Chijindu’s affidavit also states, “we disclosed to the applicant all the loans already taken and registered on the property when we requested for a loan in July 2017 as part of the loan application and disclosure process.” She also swore that “we have not denied that we are indebted to the applicant. Our debt is properly documented and acknowledged”. It may be that Joy Chijindu’s statement denying her participation in arranging, and the existence of, a loan to her from Bluekat is qualified to refer to the point in time when the YDB mortgage was registered, and that her statements can thus be rationalized. But it remains that they are confusing and provide an incomplete account of the mortgages that were registered on title to her property.
[24] In cross-examination, Ms. Chijindu was confronted with the Mortgage Commitment of June 11, 2017, and confirmed that it was signed by her. She testified that she read it, and that she was satisfied that it was correct. Clearly, it was not correct. The Bluekat mortgage was not a second mortgage, as stated numerous times in the Commitment. There then existed three encumbrances in addition to the RBC mortgage that bore no reasonable relationship to the value of the property.
[25] Mr. Christian Chijindu testified in cross-examination that he registered the YDB mortgage. He also testified that the funds in relation to that mortgage flowed through his trust account. He provided no documents to support this assertion. Why he registered it in the amount of $700,000 is a mystery. If the mortgage was legitimate, it should have been a simple matter for him to produce his trust account records that showed the receipt of money from YDB and the disbursement of funds to his wife and sister. No such records were produced.
[26] Mr. Chijindu testified that he disclosed the YDB mortgage to Ms. Nwogwonuwe’s late husband. Where, when and how that communication occurred he could not say. He also testified that he provided a copy of a title search that he conducted to Bluekat. He produced no documentation to support any of this and acknowledged that none exists. I found his evidence on these issues to be evasive. It shifted as the unsatisfactory nature of his answers became apparent. I find it incredible that a lawyer would provide a copy of a title search to a client and not retain a copy of his correspondence or any record of it. Moreover, Mr. Chijindu’s evidence about this is squarely contradicted by his own words in an email he sent to Felix Mordi, the late husband of Ms. Nwogwonuwe, on January 11, 2018, in which he sought a third loan from Bluekat, in which he wrote: “The house has already been listed for $1,500,000. There is only about $750,000 mortgage on the house. There is more than enough equity in the house.” This was false. After the YDB mortgage was registered, the property was encumbered by mortgages totalling $2,416,000. I reject Mr. Chijindu’s evidence that he ever disclosed the YDB mortgage to Ms. Nwogwonuwe, to her late husband, or to Bluekat in any fashion.
[27] In his affidavit filed on this application, Mr. Chijindu swore: “When I conducted my title search on or before July 11, 2017, I did not discover any adverse information that compromised the applicant’s prospective charge, or any adverse information that could undermine its loan terms and conditions as set out in the written commitment dated July 9, 2017”. I assume that the error in the date of the commitment is unintentional. To the extent that this statement has any meaning, it is misleading and false. Mr. Chijindu registered all four mortgages that were at that time registered on title to the property and was obviously aware of them, quite apart from any title search he may have conducted. The number and value of those mortgages clearly compromised Bluekat’s proposed security interest.
[28] Mr. Chijindu’s mendacity in relation to these matters is further demonstrated by his email to counsel for Ms. Nwogwonuwe, sent on December 20, 2018, wherein he stated: “I can confirm to you that I never acted for Bluekat Capital Corp. on the above transactions.” During his cross-examination, in the face of compelling evidence that he in fact did act for Bluekat in relation to the transactions at issue, he acknowledged that his email was false.
[29] Mr. Chijindu was given an opportunity in cross-examination to provide evidence that YDB in fact advanced funds to his sister and wife. His argumentative and evasive response was that the applicant has not provided any evidence that no money was advanced. That is so, undoubtedly because the applicant was not a party to the YDB mortgage and had no access to that information or to the banking records of the Chijindus and YDB. Mr. Chijindu, on the other hand, or his wife or sister, the latter of which was involved in both sides of the YDB mortgage, were uniquely positioned to provide evidence to the court about that transaction. I am entitled to, and do, draw an adverse inference from their failure to proffer any evidence that the YDB mortgage was anything but a sham.
[30] The foregoing review of the evidence, and my assessment of the credibility of the witnesses, compels me to find as a fact that the YDB mortgage registered on title to the property by Mr. Chijindu was indeed a sham.
[31] First, the sole officer and director of YDB, Ijeoma Chijindu, an owner of the property, and thus one of the purported borrowers under the YDB mortgage, and sister of Mr. Chijindu, chose not to appear for the hearing of this application. I infer that she could not provide evidence that YDB provided any funds to her and/or Joy Chijindu. I infer that she could not provide any documentary evidence to support the existence of the YDB mortgage.
[32] Second, I have been provided with no documentation from any source in relation to the YDB mortgage. All likely parties to that mortgage were parties to this proceeding. Counsel who registered that mortgage, Mr. Chijindu, was a party to this proceeding. If any documentation existed to support the mortgage reflected in the registered charge in favour of YDB, or any funds advanced in relation to that charge, the respondents were uniquely positioned to provide it to the court. They did not, even though they had ample opportunity to do so.
[33] The evidence of Mr. Chijindu and Joy Chijindu in relation to the YDB mortgage is not credible, for reasons I have already explained. The registration of the YDB mortgage bears no relationship, either as to its amount or when it was registered, to monies said by Joy Chijindu to have been advanced by YDB to her and Ijeoma Chijindu to fund the purchase and construction of the house.
[34] The $1,000,000 mortgage registered in favour of Harsha Rathod, and then discharged without the transfer of any funds, was not the subject of any explanation by the respondents. It is no longer a factor in determining the priority of the various mortgages as it has been discharged. However, its unexplained appearance and disappearance, together with the fact that it vastly exceeded the unencumbered value of the property when it was registered on title is some evidence that it was a sham mortgage, arranged for some unknown purpose, and that the respondents were prepared to engage in that deception.
[35] Mr. Chijindu’s failure to disclose the existence of the YDB and Rathod mortgages to his client, Bluekat, in circumstances where he stood to personally benefit from the existence of the YDB mortgage because it would, in practical terms, extinguish Bluekat’s security interest in his wife’s property provides evidence of his motive to register a sham mortgage. The YDB mortgage was registered shortly before the first Bluekat mortgage was registered, and while negotiations for that loan were underway.
[36] I am satisfied, based on convincing evidence, that the non-arms length transactions between Mr. Chijindu, his wife, his sister, and the corporation controlled by them that resulted in the registration of the YDB mortgage, were organized by them to benefit themselves at the expense of Bluekat or any other creditor they convinced to lend them money secured by a worthless mortgage, by misrepresenting the extent of the encumbrances on the grossly over-mortgaged property. The evidence convincingly establishes that Mr. Chijindu falsely represented to the applicant that the first Bluekat mortgage was a second mortgage, that he knew that his representation to the applicant was false because he registered all the mortgages, that the false representation caused Bluekat to advance funds to the respondents, and that the respondents’ actions resulted in a loss to Bluekat. I find that the YDB mortgage, undocumented except as to its registration, was a sham, and a tool that was employed to perpetrate this fraud. See: Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, at para. 21.
The legal consequences of finding the YDB mortgage to be a sham
[37] The YDB mortgage which was registered to facilitate the perpetration of a fraud is void.
[38] Sections 159 and 160 of the Land Titles Act, R.S.O. 1990, c.L.5, provide:
Court may order rectification
159 Subject to any estates or rights acquired by registration under this Act, where a court of competent jurisdiction has decided that a person is entitled to an estate, right or interest in or to registered land or a charge and as a consequence of the decision the court is of opinion that a rectification of the register is required, the court may make an order directing the register to be rectified in such manner as is considered just. R.S.O. 1990, c. L.5, s. 159.
Application to court to rectify
160 Subject to any estates or rights acquired by registration under this Act, if a person is aggrieved by an entry made, or by the omission of an entry from the register, or if default is made or unnecessary delay takes place in making an entry in the register, the person aggrieved by the entry, omission, default or delay may apply to the court for an order that the register be rectified, and the court may either refuse the application with or without costs to be paid by the applicant or may, if satisfied of the justice of the case, make an order for the rectification of the register. R.S.O. 1990, c. L.5, s. 160.
[39] The court’s authority to order rectification of the register, and the manner is which any rectification will occur, are governed by the court’s determination of what is just in the circumstances of the case. In Wesley v. Iles, 2013 ONCA 8, at para. 18, the Court of Appeal described the discretion afforded by s. 159 of the Land Titles Act as a “wide discretion … which allows [the trial judge] to make any order directing the land register be rectified in such manner as is considered just”. See also: TD Bank v. Rehmtulla, 2017 ONSC 4237, at para. 30.
[40] Bluekat is aggrieved by the entry in the register that documents the void YDB mortgage.
[41] To deny rectification would be to permit the respondents to benefit from their dishonesty to the detriment of the applicant. The justice of the case demands that the YDB mortgage be deleted from the parcel register in relation to the property.
[42] It is ordered that:
i. A declaration will issue that the YDB mortgage is a fraudulent mortgage.
ii. Pursuant to sections 159 and 160 of the Land Titles Act, the Charge registered on June 21, 2017 as Instrument No DR1607559 in Land Registry Office 40 is to be rectified by deleting that Instrument from the Register.
iii. The Land Register for the Land Titles Division is directed to delete Instrument No. DR1607559, registered on June 21, 2017 from the Register.
iv. In the event that the parties are unable to agree as to costs, I will receive written submissions from each of them, not to exceed two pages in length in addition to a bill of costs and disbursements, and any offers to settle. The applicant’s submissions are to be served and filed within three weeks of the release of this judgment. The respondents’ submissions are to be served and filed within two weeks thereafter.
The Honourable Justice J. Speyer
Released: October 25, 2019
OSHAWA COURT FILE NO.: CV-19-1867
DATE: 20191025
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Bluekat Capital Corp
Applicant
– and –
YDB Investments Corp.
Respondent
REASONS FOR JUDGMENT
The Honourable Justice J. Speyer
Released: October 25, 2019