COURT FILE NO.: CV- 09-383033

DATE: 20191104

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N :

ESTATES ASSOCIATES INC.

Plaintiff

– and –

1645112 ONTARIO LTD., 1793411 ONTARIO LTD., RONALD MCCOWAN AND BRYON COHEN

Defendants

Musharaff Iqbal

acting in person for the Plaintiff Estates Associates Inc.

Amandeep Dhillon

for the Defendants 1645112 Ontario Ltd., 1793411 Ontario Ltd. and Ronald McCowan

David Vaillancourt

for the Defendant Bryon Cohen

HEARD: January 14, 15, 16, 17, 18, 28, 29, 30 and 31, and February 1, 4, 5 and 7, and March 26, 2019

FAVREAU J:

Introduction

[1] Estates Associates Inc. (“Estates”) was the owner of a property at 15820 McCowan Road in Whitchurch-Stouffville (the "McCowan Property"). Musharaff Iqbal is the principal of Estates.

[2] Through Mr. Iqbal, Estates sold the McCowan Property to the defendant Ronald McCowan in trust to a company that was ultimately incorporated as the defendant 1645112 Ontario Ltd ("164 Ltd."). As part of the transaction, Mr. Iqbal was to receive mortgages on two properties owned by Mr. McCowan through the defendant 1793411 Ontario Ltd. ("179 Ltd."). (Mr. McCowan and the two numbered companies are collectively referred to as the "McCowan defendants".)

[3] Despite agreeing to sell the McCowan Property for $1,400,000, Estates received no money from the sale and never made any money from the two mortgages.

[4] Estates claims that the McCowan defendants are liable for fraud, conspiracy, negligent misrepresentation and breach of contract. Estates also claims that the defendant, Bryon Cohen, the lawyer who represented Estates on the transaction, is liable in negligence.

[5] For the reasons that follow, I find that Estates has not proven the causes of actions asserted against the defendants on a balance of probabilities.

[6] There is no doubt that Mr. Iqbal entered into a one-sided deal with Mr. McCowan, and that Mr. McCowan got the benefit of Mr. Iqbal's poor financial situation. But Estates has not proven the facts necessary to establish the causes of action asserted against the McCowan defendants.

[7] I am also not persuaded that Mr. Cohen was negligent in his representation of Estates. Mr. Cohen was only retained after the deal was negotiated and signed. Estates has not established that Mr. Cohen fell below the standard of care in the services and advice he provided leading to the closing of the transaction or that, in any event, he caused any losses to Estates.

Conduct of the trial

[8] The trial lasted approximately three weeks.

[9] Estates was originally represented by counsel when the action started. However, pursuant to a court order, Mr. Iqbal was given permission to act for Estates at trial. For much of the trial, Mr. Iqbal presented the case on his own, although on most days he received assistance from someone he identified as a friend who sat with him at the counsel table. In addition, Mr. Iqbal was assisted by a lawyer who acted as an agent for the purpose of examining and cross-examining the experts called by Estates and Mr. Cohen.

[10] While Mr. Iqbal was not familiar with all aspects of the trial process, I found that he had a good understanding of the issues raised by Estates’ claim and that he was able to present the plaintiff’s case with the assistance mentioned above.

Overview of the facts

[11] There are some facts in dispute between the parties that turn on issues of credibility that are addressed further below. However, overall, the undisputed events giving rise to Estates' claim are as follows.

The parties

[12] Mr. Iqbal is the sole director and shareholder of Estates. Mr. Iqbal incorporated Estates for the only purpose of purchasing and owning the McCowan Property. Estates has no other assets, nor does it have any employees.

[13] Mr. Iqbal was originally personally named as one of the plaintiffs in the action, but he was subsequently removed as a result of a motion brought by the defendants. Nevertheless, given that Mr. Iqbal is Estates’ sole director and shareholder, as will become evident in this decision, his personal circumstances, especially his financial circumstances, are relevant to the determination of the issues in this case.

[14] Mr. Iqbal immigrated to Canada from Pakistan with his wife and two children in 1997. He has been a chartered accountant since 1971. Prior to coming to Canada, Mr. Iqbal was the president of his own securities exchange company in Pakistan for over 30 years. After moving to Canada, Mr. Iqbal was involved in several business ventures and real estate transactions. The evidence at trial was that most of these business ventures were unsuccessful.

[15] Mr. McCowan is a real estate developer. He is also the sole officer, director and shareholder of 164 Ltd. and 179 Ltd.. At trial, Mr. McCowan testified that he buys properties in the "secondary market", which he described as properties just outside the Greater Toronto Area. He typically renovates the properties and rents them out or sells them. The properties are all held through separate numbered companies. Mr. McCowan has been operating as a real estate developer for over 40 years.

[16] Bryon Cohen is a lawyer. He was called to the bar in 1971. He is a sole practitioner, and practices primarily in the areas of corporate and real estate law. Mr. Cohen acted for Mr. Iqbal and his companies starting in 1999, when Mr. Iqbal incorporated Estates and purchased the McCowan Property. Mr. Cohen subsequently acted for Mr. Iqbal on what they both agreed were several corporate and real estate matters between 1999 and 2009.

[17] ReMax (All Stars Realty Inc., Brokerage) ("ReMax") and Reine Schickedanz were originally defendants in this action. Mr. Schickedanz is a real estate agent with ReMax who acted for Estates on the sale of the McCowan Property. The claims against ReMax and Mr. Schickedanz were settled prior to trial for $65,000. There is an agreement between the parties that this amount is to be deducted from any damages awarded at trial.

The McCowan Property and its financing up to 2008

[18] The McCowan Property consists of approximately 75 acres of farmland, with a residential building and a barn. The evidence at trial suggests that, by at least 2008, the structures on the property were in a state of disrepair.

[19] As mentioned above, Mr. Iqbal incorporated Estates for the purpose of purchasing the McCowan Property in 1999. Estates bought the property for $652,000 under power of sale.

[20] Mr. Iqbal and his family initially lived in the house on the property after Estates bought it.

[21] In 2006, Estates refinanced the McCowan Property. Estates gave a first mortgage in the amount of $750,000 to MJC Investment Corp. and Investment Corp. (the "MJC Mortgage"). The monthly mortgage payments were approximately $6,200 per month. Mr. Iqbal and his wife provided personal guarantees for the mortgage.

[22] With the proceeds from the mortgage, Estates paid off a first mortgage of $250,000 and a second mortgage of $250,000. Mr. Iqbal also used the money to invest approximately $200,000 in a project with one of his friends, Sohail Mansoor. Mr. Iqbal retained the remaining approximately $50,000 of the loan for living expenses.

[23] Around 2007, Mr. Iqbal and his wife moved out of the house on the McCowan Property and went to live with their son in Toronto. The proprty was then rented out to tenants for approximately $2,000 per month.

[24] By 2007, Mr. Iqbal was in financial difficulty. There was much dispute at trial about the characterization of Mr. Iqbal’s financial circumstances and particularly whether he was “desperate”. However, even based on his own admissions, there is no doubt that Iqbal was in a very difficult situation. He was not working, the rental income from the McCowan Property was far less than the monthly mortgage payments, and he was involved in litigation with Mr. Mansoor over their business project.

[25] By late 2007, Mr. Iqbal decided to sell the McCowan Property.

[26] In November 2007, Mr. Iqbal asked for and obtained a three-month mortgage deferral on the MJC Mortgage, which covered the months of November 2007 to January 2008. When requesting the deferral, Mr. Iqbal advised the mortgagee that he intended to sell the property.

The initial failed attempts to sell the McCowan Property

[27] Mr. Iqbal initially tried to sell the McCowan Property on his own. These efforts were unsuccessful.

[28] Mr. Iqbal then entered into an agreement on February 7, 2008, to sell the property through an auction. The reserve price was $2.75 million. The auction was held on April 26, 2008. The successful bidder was Antonio Raponi, who bid $1,200,000 for the property. A representative of ReMax, Daniel Sarafian, was involved in the transaction on behalf of Mr. Raponi.

[29] After the auction, Mr. Iqbal refused to close the transaction. He claimed that his wife's signature on the agreement had been "manipulated".

[30] Mr. Raponi then commenced litigation against Estates. As part of the litigation, on September 25, 2008, Mr. Raponi obtained a certificate of pending litigation on the McCowan Property.

[31] Around that time, Mr. Sarafian attended a meeting Mr. Cohen’s office at which Mr. Iqbal was present to try to resolve the dispute with Mr. Raponi. The settlement discussions were unsuccessful.

[32] After the auction sale fell through, Mr. Iqbal tried to sell shares in Estates. He found a third-party buyer, he referred to as “Tony” at trial, who advanced approximately $40,000 for the purchase of shares. Mr. Cohen represented Mr. Iqbal on this transaction. The purchaser refused to close the transaction when he became aware that there was a certificate of pending litigation on the McCowan Property. In the meantime, Mr. Iqbal used at least part of the advance money to pay for the McCowan Mortgage, and he never paid the money back to the prospective purchaser.

The agreement of purchase and sale with Mr. McCowan

[33] Mr. Iqbal then continued to try to sell the McCowan Property on his own without any success.

[34] In the fall of 2008, Mr. Iqbal was approached by Mr. Schickedanz, who had noticed the “for sale” sign when he and another agent from ReMax drove by the property. Mr. Iqbal agreed to sell the property through ReMax. He signed a listing agreement on October 31, 2008. The property was listed for $2.9 million.

[35] There were no offers on the property during the first month it was listed by ReMax.

[36] In late 2008, Mr. Schickedanz called Mr. McCowan about the property. Both Mr. McCowan and Mr. Schickedanz testified that they had no prior business relationship, but they had met socially in the past, and Mr. Schickedanz was aware that Mr. McCowan was in the business of buying investment properties. Mr. Schickedanz thought of Mr. McCowan for the McCowan Property because of the “McCowan” name. Mr. McCowan’s evidence was that Mr. Schickedanz told him that there were mortgage and tax arrears on the property, that the property was in poor condition and that there was litigation involving the property. In his evidence, Mr. Schickedanz claimed that he did not remember giving this information to Mr. McCowan, but he did not deny doing so. After Mr. Schickedanz contacted Mr. McCowan, Mr. McCowan drove by the property and let Mr. Schickedanz know that he might be interested in buying it.

[37] Mr. Schickedanz then arranged a meeting at the McCowan Property with Mr. McCowan and Mr. Iqbal. There is some dispute about the extent to which Mr. Iqbal disclosed his financial difficulties to Mr. McCowan at the meeting, but at the very least Mr. Iqbal acknowledges that he said that he was in some financial trouble.

[38] After the meeting, Mr. McCowan contacted Mr. Schickedanz to discuss an offer he wanted to make for the property. It is evident that, in coming up with a price for the offer, Mr. McCowan was aware of the $1.2 million failed auction price, and that he was aiming to make an offer higher than that amount to make it attractive to Mr. Iqbal.

[39] Mr. McCowan then made an offer to Mr. Iqbal through Mr. Schickedanz to purchase the McCowan Property on what was described as a "no cash basis". The property was to be bought by a company to be incorporated, and the purchase price was to be $1.4 million. The deal was to be structured as follows:

a. Mr. McCowan would assume the MJC Mortgage, which he understood at the time was $750,000;

b. Mr. McCowan would provide mortgages totaling $650,000 to Mr. Iqbal on two other properties he owned:

i. A $350,000 mortgage on a property in Midland, Ontario (the "Midland Property"); and

ii. A $300,000 mortgage on a property in Kitchener, Ontario (the "Kitchener Property").

[40] Mr. Iqbal agreed to this proposal without any negotiation or counter-proposals. Mr. Iqbal's evidence at trial was that he found the terms of this deal attractive because the mortgages on the Midland and Kitchener Properties would provide him with an income stream for his retirement.

[41] Before the parties signed the agreement of purchase and sale, Mr. Iqbal was informed that Mr. McCowan was in the process of selling the Kitchener and Midland Properties. The purchaser was to be Daniel Barnabic. In December 2008, there was a meeting at Mr. Schickedanz's office between Mr. Iqbal, Mr. McCowan, Mr. Schickendanz, Mr. Barnabic and others. At the meeting, Mr. Barnabic discussed his plans for the properties. There is some dispute between the parties over exactly what was said and whether the purchase prices for the properties were discussed at the meeting, which is addressed further below.

[42] What is not in dispute is that Mr. Iqbal never took any steps to obtain independent information about the value of the Midland and Kitchener Properties prior to signing the agreement of purchase and sale on the McCowan Property. He never visited the properties and he never retained anyone to provide him with a valuation of the properties.

[43] Mr. McCowan and Mr. Iqbal signed an agreement of purchase and sale on January 17, 2009 (the "McCowan Property APS"), that reflected the terms referred to above. At that time, the closing date was to be February 16, 2009.

[44] The agreement initially provided that the deposit was to be $5,000, which was revised to $1,000 soon after the APS was signed.

[45] Mr. McCowan’s assumption of the MJC Mortgage was described as follows in the APS:

The Buyer agrees to assume the existing First Charge/Mortgage held by M.J.C. Investment Corp. and Contemporary Investment Inc. for approximately $750,000.00, bearing interest at the rate of 8.9% per annum, calculated semi-annually not in advance, repayable in blended monthly payments of $6,242.70, including both principal and interest, and due on the 23^rd of June 2009. The Buyer hereby agrees to proceed immediately to make an application and provide such material as may be required by the Chargee/Mortgagee for approval of the Buyer as the Chargor/Mortgagor.

[46] The terms regarding Estates’ assumption of the Kitchener and Midland mortgages were as follows in the agreement:

The Buyer agrees to give to the Seller as a further consideration a First mortgage of $350,000.00 bearing the interest of 8% per annum, being fully open and due 1 year from date of closing. Mortgage is registered on 9451 County Road 93, Midland Ontario.

The Buyer agrees to give to the Seller as a further consideration a First mortgage of $300,000.00 bearing the interest rate of 8% per annum, being fully open and due 1 year from date of closing. Mortgage is registered on 89 Ottawa St, in Kitchener.

[47] Around the time when the McCowan Property APS was signed, Mr. Schikedanz was able to negotiate an agreement with Mr. Raponi to remove the Certificate of Pending Litigation from the failed auction. The Certificate was to be removed at the time of closing and upon payment of $25,000 to Mr. Raponi.

[48] Mr. Iqbal did not consult Mr. Cohen about the transaction until after he signed the McCowan Property APS. On January 18, 2009, Mr. Iqbal sent a copy of the agreement to Mr. Cohen, after which Mr. Cohen’s involvement in the transaction began. His specific work on the transaction is addressed further below.

[49] Around Mid-February, Mr. McCowan’s lawyer, allen Weinberg, sent Mr. Cohen copies of the agreements of purchase and sale between Mr. McCowan and Mr. Barnabic for the Kitchener and Midland properties. The agreements showed a purchase price of $450,000 for the Midland Property and $350,000 for the Kitchener Property.

[50] Sometime in March, the purchase price was reduced from $1.4 million to $1.375 million. While there was some controversy at trial over the reason for this change, it is clear from the documentary evidence that the reduction in price was meant to reflect the fact that the outstanding amount owed by Estates on the MJC Mortgage, excluding unpaid arrears, penalties and interest, was approximately $725,000 and not $750,000, as Mr. McCowan had originally understood at the time the deal was agreed to.

The Loan Agreements

[51] Given that this was a “no cash” deal, for the purpose of closing Mr. Iqbal required money to pay amounts that would be due on closing, including mortgage arrears, fees and penalties of approximately $75,000, the $25,000 owed to Mr. Raponi, outstanding legal fees owed to Mr. Cohen, a second mortgage on the McCowan Property in the amount of $10 065.40 and the real estate commission to be paid to ReMax.

[52] Given his financial situation, Mr. Iqbal had no sources of money to make these payments.

[53] In March 2009, Mr. McCowan agreed to lend Estates the money required to close the sale of the McCowan Property. The general terms of the agreement were negotiated between Mr. Iqbal, Mr. McCowan and Mr. Schickedanz. The agreement provided that Mr. McCowan would lend $132,000 to Estates, in exchange for which Estates agreed to assign the Midland Mortgage it was to obtain under the McCowan Property APS to Mr. McCowan. The loan was for a term of 45 days, after which Mr. McCowan would be entitled to enforce the security. The loan was interest free for 14 days, and then ran at a rate of 12% for the balance of the 45 day period. (The loan made by Mr. McCowan to Estates is referred to as the “McCowan Loan”.)

[54] Estates entered into a similar loan agreement with ReMax for the payment of its $72,500 commission. In consideration for the loan, Estates assigned the mortgage for Kitchener Property to ReMax. Again, the term of the loan was 45 days. In the event that Estates failed to pay the loan, ReMax could enforce on its security. (The loan made by ReMax to Estates is referred to as the “ReMax Loan”.)

[55] The uncontroverted evidence is that Mr. Iqbal agreed to the terms of these loan agreements without the benefit of Mr. Cohen's legal advice, but that Mr. Cohen was involved in drafting both loan agreements.

[56] Prior to closing, it became evident that there were outstanding municipal taxes owing on the Kitchener and Midland properties and that there was a corporate tax lien in the amount of $139,888 on the Midland Property. The Loan Agreements were amended just before closing to address these issues by making Mr. McCowan responsible for these amounts.

Events leading up to the closing

[57] While the closing date for the sale of the McCowan Property was originally scheduled for February 16, 2009, the deal did not close until April 17, 2009.

[58] There were a number of extensions sought by both sides of the transaction. For example, when it became evident that Mr. Iqbal did not have the cash necessary to close the deal, extensions were needed to negotiate the McCowan Loan and the ReMax Loan. Mr. McCowan also required extensions because his lawyer, Mr. Weinberg, was not immediately available to do some of the work required on the transaction.

[59] The day before the closing, Mr. Cohen received insurance certificates for the Midland Property and the Kitchener Property, which showed insurance amounts that were far below the values of the mortgages Mr. Iqbal was to receive. The insurance for the Kitchener Property was $255,000 and the insurance for the Midland Property was $175,000.

[60] Mr. Cohen shared that information with Mr. Iqbal on the morning of the closing. There is no dispute that this information made Mr. Iqbal very upset. There is some disagreement over the advice Mr. Cohen gave to Mr. Iqbal in the circumstances that is addressed below. Ultimately, Mr. Iqbal decided to go ahead with the closing, and the transaction closed on April 17, 2009.

Events following the closing

[61] There is some disagreement over what efforts Mr. Iqbal made prior to closing to obtain money to pay back the loans he was to obtain for the closing from Mr. McCowan and ReMax. What is not in dispute is that by the time of the closing, Estates had not yet obtained any financing to pay off the loans.

[62] Therefore, following the closing, in accordance with the loan agreements, Estates had 45 days to obtain the funds necessary to pay back the loans, failing which Mr. McCowan and ReMax could enforce their security on the loans.

[63] Mr. Iqbal was able to find a potential financier, Power-Can Financial, within 45 days of the closing. However, Power-Can Financial obtained appraisals showing that the Kitchener and Midland Properties were in poor condition and that they were worth far less than the purchase prices between Mr. McCowan and Mr. Barnabic suggested. The appraisal for the Midland Property was $175,000, and the appraisal for the Kitchener Property was $185,000.

[64] Estates did receive one loan offer on the Midland Property in June 2009 for $135,000, to be secured by the first mortgage on that property. However, rather than accepting that amount or seeking out other loans, Estates defaulted on both loans.

[65] Following the defaults, Mr. McCowan and ReMax realized on their security. Mr. McCowan became the mortgagee for the $350,000 mortgage on the Midland Property, which he registered on title to the property. ReMax became the mortgagee for the $300,000 mortgage on the Kitchener Property which was registered on title for that property.

Status of the Midland and Kitchener properties after closing

[66] The Agreements of Purchase and Sale between Mr. McCowan and Mr. Barnabic for the Kitchener and Midland Properties ultimately closed on September 19, 2009.

[67] Mr. McCowan and ReMax retained their respective mortgages on the properties after they were transferred to Mr. Barnabic.

[68] In October of 2009, Mr. McCowan transferred his interest in the mortgage on the Midland Property to a third party company.

[69] Both properties were sold under power of sale. The Kitchener Property was sold in May 2010 for $110,000, and the Midland Property was sold in July 2010 for $140,000.

Procedural history

[70] Estates started this action on July 14, 2009.

[71] Since the commencement of the litigation, there have been numerous court appearances on various matters:

a. Estates originally obtained an order preventing the sale of the McCowan Property, which was subsequently set aside.

b. Mr. Cohen brought a successful motion for security for costs, which was subsequently overturned by the Divisional Court.

c. The McCowan defendants were successful on a motion for summary judgment, which was subsequently overturned by the Court of Appeal based on a finding that the claim gave rise to issues for trial.

d. The action has been dismissed for delay by the registrar at least once, but Estates brought a successful motion before a Master to set aside the dismissal.

[72] During the trial and in his written closing submissions, Mr. Iqbal purported to rely on the Divisional Court decision addressing security for costs and the Court of Appeal decision dismissing summary judgment in support of his position that the claim against the defendants is meritorious. However, these findings are not binding on me as a trial judge. The trial decision is to be based entirely on the evidence presented by the parties at the trial, and not on prior judicial findings about the potential merits of Estates' claim before it went to trial.

Positions of the parties

[73] Estates' claim against the McCowan defendants is that there was a conspiracy between Mr. Sarafian, Mr. McCowan, Mr. Schickedanz and Mr. Barnabic to defraud the company of the McCowan Property. Estates also alleges that, prior to signing the McCowan Property APS, Mr. McCowan misrepresented the value of the Midland and Kitchener properties by saying that they were excellent investments and that they were in very good condition. Estates also claims that Mr. McCowan and Mr. Barnabic showed Mr. Iqbal copies of agreements of purchase and sale for the Midland and Kitchener properties with inflated prices for the purpose of inducing Estates into signing the APS. Estates alleges that the agreements between Mr. Barnabic and Mr. McCowan were shams.

[74] The McCowan defendants argue that there is no merit to the claim advanced against them. There was no conspiracy to defraud Estates. Mr. Iqbal was desperate to sell his property. Mr. McCowan was always clear that he would buy it as long as it was a no cash deal. He did not make any misrepresentations about the values of the Kitchener and Midland properties, and Mr. Iqbal took no steps to protect himself by viewing the properties or obtaining an independent valuations or appraisals. The McCowan defendants also adamantly deny that Mr. McCowan showed the agreements of purchase and sale for the Kitchener and Midland properties to Mr. Iqbal before the APS was signed and that the agreements were a sham.

[75] While Mr. Iqbal did make suggestions during the trial that Mr. Cohen was involved in the alleged conspiracy, by the time of closing submissions Mr. Iqbal's claim was primarily focused on allegations of negligence. Estates alleges that Mr. Cohen was negligent in a number of respects, including by failing to assist in improving the deal once Mr. Cohen became involved in the transaction, and by urging Mr. Iqbal to close the transaction on the day of closing when it became evident that the Kitchener and Midland properties were not worth as much as the mortgages.

[76] Mr. Cohen denies that he was negligent. He argues that the McCowan Property APS was completed by the time he was retained, and that there were no opportunities to negotiate a better deal because of Mr. Iqbal's poor bargaining position. He also argues that he did not pressure Mr. Iqbal into closing the deal. Rather, given Mr. Iqbal's financial circumstances at the time of the closing, Mr. Cohen recommended to Mr. Iqbal that his best option was to close the transaction, but Mr. Cohen made it clar that the decision was Mr. Iqbal’s to make.

Witnesses at trial and assessment of credibility

[77] The determination of some of the issues in this case requires an assessment of the witnesses' credibility. Therefore, in this section, I address my findings of credibility with respect to the main witnesses.

[78] As held in Rider v. Grant, 2015 ONSC 5456 (Sup. Ct.), at para. 90:

In deciding issues of credibility, it is not simply a matter of accepting the evidence of one party over another based on how the witness performed in the witness box. Rather, "the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions."

Mr. Iqbal

[79] I have no doubt that Mr. Iqbal is sincere in his belief that Estates was wronged by the defendants. However, overall, I found that his evidence lacked credibility and reliability, and that he tended to tailor his evidence for the purpose of supporting his claim. In many instances, his evidence in chief was contradicted by his evidence on cross-examination, documentary evidence and his evidence on examinations for discovery.

[80] One of the primary examples of this was his resistance at trial to admitting that he was in a "desperate" financial situation at the time he was trying to sell the McCowan Property. When he gave his evidence in chief, Mr. Iqbal said that statements that he made that he was "desperate" for cash at his examination for discovery meant that he did not have sufficient money to retire. He was adamant that he was not trying to sell the property because he was "desperate", but because he was looking for a way to finance his retirement. He claims that he was attracted to the mortgages on the Midland and Kitchener Properties because they would generate revenue for his retirement. However, this evidence was inconsistent with Mr. Iqbal's actual financial situation, the evidence of other witnesses about what he told them at the time he was negotiating the sale of the McCowan Property and the concessions he made on cross-examination.

[81] As reviewed above, there is no doubt that Mr. Iqbal was in a very difficult financial situation by the time he entered into the McCowan Property APS. He had been trying to sell the property for close to one year. He was behind on his mortgage payments and had already had to request a deferral. He and his wife had given personal guarantees on the mortgage. He was not working. The rent payments were only approximately one third of the mortgage payments. He was involved in litigation with Mr. Raponi and there was a certificate of pending litigation on the property. He had no cash for the closing. He did not have the money required to close the McCowan Property APS. He was behind in paying fees owing to Mr. Cohen which he explained in an email was due to a “liquidity crunch”. And there were no other prospective buyers for the McCowan Property.

[82] Regardless of the actual language used, the witnesses at trial testified that Mr. Iqbal shared with them that he was in a “desperate” financial situation. During cross-examination, Mr. Iqbal even admitted telling Mr. McCowan he was "desperate" when they first met at the McCowan Property, but throughout the trial he repeatedly tried to qualify what he meant by saying that he was not so desperate that he could not feed his family.

[83] Based on all of the evidence, I am satisfied that, regardless of the specific word used, and despite his protestations at trial, Mr. Iqbal was in dire financial circumstances when he entered into the McCowan Property APS.

[84] There are many other examples of circumstances in which Mr. Iqbal gave evidence that he later contradicted or that was contrary to documentary evidence or evidence he gave on examinations for discovery:

a. Mr. Iqbal testified in chief and during cross-examination that Estates’ payments on the MJC mortgage were up to date by the time of closing, except for the three months of deferred payments. When confronted during cross-examination with the fact that the mortgage arrears at the time of closing were far higher than the value of three months of mortgage payments, Mr. Iqbal said that he had an understanding with the mortgagee that he did not have to make any mortgage payments until the property was sold. He did not provide any documentation or evidence in support of this position.

b. In chief, Mr. Iqbal testified that the rental income on the McCowan Property was generating approximately $5000 per month, which covered most of the monthly mortgage payments. During cross-examination, he agreed that in 2008 Estates was only receiving $1950, which is far less than 50% of the approximately $6000 monthly mortgage payments.

c. In chief, Mr. Iqbal testified that there were over ten extensions to the closing date, that Mr. McCowan had requested all the extensions and that Mr. Cohen agreed to the extensions without consulting him. However, it is clear from the documents, from Mr. Cohen's evidence and from Mr. Weinberg's evidence that both sides requested extensions. During cross-examinations, Mr. Iqbal also confirmed that Mr. Cohen kept him informed about the extensions.

d. In chief, Mr. Iqbal said that Mr. Cohen told him that the Kitchener Property was "marvelous" and "very good". When confronted with that evidence in cross-examination, Mr. Iqbal said "I don't remember" and then admitted that Mr. Cohen did not use the word "marvelous".

e. In chief, Mr. Iqbal testified that when he first met Mr. Cohen to discuss the McCowan Property APS, Mr. Cohen told him that he "liked the deal". During cross-examinations, Mr. Iqbal agreed that Mr. Cohen talked to him about many deficiencies in the transaction.

f. In chief, Mr. Iqbal claimed that he did not find out about the reduction in the purchase price from $1.4 million to $1.375 until the day of the closing. However, during his cross-examination and when confronted with his discovery transcript, he agreed that he had discussions with Mr. Cohen about the reduction in March 2009.

g. When Mr. Iqbal was shown a document setting out how the $132,000 loan from Mr. McCowan was to be paid out, he claimed that Mr. McCowan actually kept $82,000 of the loan for himself, when it was clear from the documentation that this was an amount that Mr. McCowan was to use in part to pay MJC for Mr. Iqbal's outstanding mortgage arrears, interest and penalties.

[85] Unfortunately for Mr. Iqbal, the effect of these exaggerations and contradictions in his evidence is that I have difficulty accepting that he is telling the truth in relation to some key events where his evidence is contradicted by the evidence of other witnesses or uncorroborated by any other evidence.

[86] As addressed below, this affects my assessment of Mr. Iqbal’s evidence on the misrepresentations he claims Mr. McCowan made to him about the values of the Midland and Kitchener properties before he signed the McCowan Property APS. It also affects my assessment of his evidence about the advice he claims Mr. Cohen did and did not provide before the closing date.

Mr. McCowan

[87] Mr. McCowan’s evidence was generally more internally consistent than Mr. Iqbal’s evidence. However, I nevertheless had a difficult time believing aspects of his evidence because it was not always plausible and it also often appeared to be tailored to meet the needs of his defence.

[88] The most glaring example of this was Mr. McCowan’s evidence in chief that Mr. Iqbal told him that he visited the Kitchener and Midland Properties before the McCowan Property APS was signed, and that Mr. Iqbal told him that he was very happy with the properties. If this was true, it would arguably be a complete defence to the claim against the McCowan defendants. However, there is absolutely no evidence in support of this assertion. This obviously false and self-serving evidence on an important issue puts into question Mr. McCowan’s other evidence at trial.

[89] Again, one of the key issues between the parties is what representations Mr. McCowan made to Mr. Iqbal at the meeting with Mr. Barnabic. As addressed further below, my assessment of Mr. McCowan’s credibility affects my assessment of the evidence on this issue.

Mr. Cohen

[90] Unfortunately, Mr. Cohen kept scant notes of his conversations and meetings with Mr. Cohen. However, I found that his evidence was generally credible. He appeared to be candid, and his evidence was logical, internally consistent and consistent with other evidence.

[91] Therefore, I generally believed Mr. Cohen's evidence over Mr. Iqbal's evidence, where there were discrepancies between their evidence.

Other witnesses

[92] The other fact witnesses called at trial were:

a. Mr. Sarafian;

b. Mr. Schickedanz;

c. Mr. Weinberg; and

d. Mr. Barnabic.

[93] I do not find it necessary to comment on their credibility at this stage. However, I make some findings as necessary below.

[94] In addition to the fact witnesses, Mr. Iqbal called Reuben Rosenblatt as an expert in relation to the claim against Mr. Cohen.

[95] Mr. Cohen called Sidney Troister as a responding expert.

[96] In both cases, with the agreement of the parties, the expert reports were marked as exhibits and accepted as the experts’ evidence in chief. The expert witnesses were then subject to cross-examination. As mentioned above, Estates was represented by a lawyer for the purpose of presenting Mr. Rosenblatt's evidence and cross-examining Mr. Troister.

Burden of proof

[97] This is a civil trial, and Estates therefore has the burden of proving its case on a balance of probabilities. This means that I must find that it is more likely than not that the evidence supports Estates’ claim against the defendants.

[98] In making this determination, I cannot rely on speculation but must rely on the evidence as presented by the parties at trial. While some of the circumstances surrounding the transactions in this case may be suspicious, that does not mean that I can find that the defendants conspired or committed fraud in the absence of evidence that establishes these causes of action and the other causes of action asserted.

Claim against Mr. McCowan and his companies

[99] The causes of action advanced by Estates against the McCowan defendants are as follows:

a. Negligent misrepresentation;

b. Fraudulent misrepresentation;

c. Conspiracy; and

d. Breach of contract.

Negligent misrepresentation

[100] Estates asserts that Mr. McCowan made the following two misrepresentations:

a. At the meeting in December 2008 between Mr. Iqbal, Mr. McCowan, Mr. Barnabic, Mr. Shinckendanz and others and on a number of other occasions, Mr. McCowan made a number of misrepresentations about the quality and condition of the Kitchener and Midland properties; and

b. At the December 2008 meeting, Mr. McCowan showed Mr. Iqbal the agreements of purchase and sale for the Kitchener and Midland properties that showed purchase prices of $350,000 for the Kitchener Property and $450,000 for the Midland Property, thereby misrepresenting the value of the properties.

[101] In order to succeed on the negligent misrepresentation claim, Estates must establish:

a. The existence of a duty of care based on a "special relationship" between the representor and representee;

b. The representations were untrue, inaccurate, or misleading;

c. The representor acted negligently in making the misrepresentation;

d. The representee reasonably relied on the misrepresentation; and

e. The reliance was detrimental to the representee.

See: Sharbern Holdings Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, at para. 121.

[102] Before considering each of these elements, I must first be satisfied on a balance of probabilities that Mr. McCowan made the alleged representations.

[103] With respect to the representations Mr. McCowan allegedly made about the quality and condition of the properties, I am unable to make a finding about what Mr. McCowan said to Mr. Iqbal regarding the properties. Mr. Iqbal’s evidence regarding what Mr. McCowan said about the properties was never defined with any precision. In chief, he testified that Mr. McCowan told him that the properties were in “excellent condition”, and that he had invested a lot of money into the properties. His evidence on this point changed a number of times. In his closing submissions, Mr. Iqbal submitted that Mr. McCowan represented that the properties were in “tiptop” shape. During their testimony, both Mr. McCowan and Mr. Barnabic testified that they told Mr. Iqbal about the properties’ development potential. Mr. Barnabic intended to turn the Kitchener Property from a duplex to a triplex and the Midland Property into a medical office. It is evident that there were discussions about the conditions and qualities of the properties, but, given the lack of precision in what Mr. Iqbal says Mr. McCowan told him and my assessment of Mr. Iqbal’s credibility and reliability above, without more, I am not in a position to make a finding as to what specific representations Mr. McCowan made to Mr. Iqbal about the quality and condition of the properties in the absence of more evidence. In any event, even if I had found that Mr. McCowan made specific representations about the quality of the properties, the reasonable reliance analysis below would apply to such representations. It would not be reasonable for Mr. Iqbal to rely on general statements about the properties being in “excellent” condition as an assurance that the value of the properties was sufficient to cover the mortgages.

[104] In contrast, I do accept Mr. Iqbal’s evidence that he was shown the agreements or drafts of the agreements of purchase and sale for the Kitchener and Midland Properties or at least told about the purchase prices at the meeting in December 2008.

[105] Initially, during his evidence in chief, Mr. Iqbal said that he was shown copies of the agreements of purchase and sale during the December 2008 meeting at Mr. Schickedanz's office. However, when he was cross-examined and shown that the Midland agreement was signed in 2009, he said that he may have seen draft copies and, when pressed further, he conceded that he was not sure whether he had ever seen the draft agreements. He then said that he was at least told that the purchase prices were higher than the mortgages, but he did not offer any specifics about who gave him the information or what he was told.

[106] On its own, this evidence is not sufficient to establish that Mr. Iqbal saw copies of the agreements of purchase and sale, especially given my assessment about the credibility and reliability of his evidence. However, Mr. Iqbal’s evidence on this point is corroborated by Mr. Cohen’s evidence at trial. Mr. Cohen testified that soon after he was retained by Mr. Iqbal in January 2009, they met to review the McCowan Property APS. In the context of that meeting, Mr. Cohen expressed concerns to Mr. Iqbal that there was no information that the values of the properties were sufficient to protect the values of the mortgages. In that context, Mr. Iqbal told him that he had seen agreements of purchase and sale showing values higher than the mortgages. Mr. Cohen then made requests from Mr. Weinberg to obtain copies of the agreements of purchase and sale, after which Mr. Weinberg finally sent them to him on February 17, 2019. When he was examined, Mr. Weinberg confirmed that Mr. Cohen requested copies of the agreements of purchase and sale for the Kitchener and Midland Properties although he did not address the timing of those requests.

[107] Mr. McCowan is adamant that he did not provide or show copies of the agreements of purchase and sale for the Midland and Kitchener properties to Mr. Iqbal at the December 2008 meeting. He relies on the fact that the he and Mr. Barnabic did not even sign the Midland agreement until January 2009.

[108] On balance, I find that Mr. McCowan did make representations about the purchase price for the Kitchener and Midland properties at the meeting in December 2008. He may have shown Mr. Iqbal draft agreements or told him the purchase prices, but I am satisfied that representations about the purchase price were made at the meeting. Mr. Cohen’s request for the agreements, after being told about them by Mr. Iqbal, provides some corroboration of this evidence. In addition, it defies common sense that there was no discussion about the purchase prices at the December 2008 meeting. The purpose of the meeting was to discuss the transactions. Mr. Barnabic and Mr. McCowan may not have signed any agreements by that point, but it is evident that they at least had some kind of agreement in principle.

[109] Accordingly, I accept that Mr. McCowan made a representation to Mr. Iqbal about the prices at which Mr. Barnabic was purchasing the Midland and Kitchener Properties to Mr. Iqbal before the McCowan Property APS was signed.

[110] The issue then becomes whether this was a misrepresentation.

Whether there was a duty of care based on a special relationship

[111] The McCowan defendants argue that they did not owe Estates a duty of care, because no such duty exists as between buyer and seller. No cases were cited for this proposition.

[112] In any event, the relationship between Estates and the McCowan defendants as it relates to the mortgages on the Midland and Kitchener properties is not that of buyer and seller, but rather of mortgagor and mortgagee. In that context, I accept that the McCowan defendants owed a duty of care to Estates not to provide inaccurate information about the properties.

Whether the representation at issue was untrue, inaccurate or misleading

[113] On their face, the representations about the purchase prices for the Kitchener and Midland Properties are not false. Mr. McCowan and Mr. Barnabic, through their respective numbered companies, entered into agreements of purchase and sale that provided that the Kitchener Property was to be sold for $350,000 and the Midland Property was to be sold for $450,000. The evidence at trial establishes that these sales occurred.

[114] However, the crux of Estates’ claim against the McCowan defendants is that the agreements between Mr. McCowan and Mr. Barnabic were a sham and were therefore a misrepresentation; Estates contends that Mr. McCowan connived with Mr. Barnabic to make it look like Mr. Barnabic had agreed to purchase the properties for the stated prices when there was in fact no such agreement.

[115] There are certainly indicia that make the transaction seem suspicious. For example:

a. While the agreements originally signed by the parties provided for closing date of February 28, 2019, the closings did not take place until September 19, 2009, which notably is after the issuance of the statement of claim.

b. Even after the closing, Mr. Barnabic never paid the full price he agreed to pay for the properties and they were ultimately sold under power of sale.

[116] However, I cannot find that these indicia of a suspicious transaction are sufficient for me to make a finding that the agreements were a sham or, to put it in legal terms, that they were fraudulent.

[117] Suspicious circumstances alone are not sufficient to establish a fraudulent intent. As was held in Wassilyn v. Rick Zeron Stables Inc., 2013 ONSC 127 (Sup. Ct.), at para. 67, the standard of proof is heightened when dealing with allegations of fraud:

Where allegations are framed in fraud, and have criminal or quasi-criminal undertones, the Plaintiff is required to prove such allegations on a standard of proof higher than the common civil standard or balance of probabilities. The evidence must be scrutinized in a manner commensurate with the gravity of the allegation.

[118] Estates has not put forward evidence to establish that the agreements of purchase and sale between Mr. Barnabic and Mr. McCowan were fraudulent.

[119] While the transactions closed much later than originally anticipated, they did close and evidence of the transfers was provided at trial.

[120] Mr. Barnabic testified at trial and provided an explanation for the delay in closing and for why the properties were ultimately sold under power of sale. His evidence was that he intended to buy the properties for the purpose of re-entering the real estate development business. The Midland Property was located next to a hospital, and he intended to demolish the existing structure and construct a building that could house medical offices. He made several trips to Midland to meet with hospital administrators and others in furtherance of this plan. With respect to the Kitchener Property, he intended to transform it into a triplex. Again, he took a number of steps to investigate this possibility prior to closing. His explanation for the delay in closing and his ultimate loss of the properties to powers of sale was that, when he originally entered into the agreements with Mr. McCowan, he intended to pay for the properties with the proceeds from the sale a property he inherited from his father in Croatia. The sale of the property was delayed. Notably, the agreements of purchase and sale between Mr. McCowan and Mr. Barnabic for both properties include an number of amendments extending the closing date. Mr. Barnabic testified that he was never able to pay the full price required for the property. However, he paid portions of the purchase prices to Mr. McCowan and he lost this money.

[121] In his evidence, Mr. McCowan’s explanation for the delay in closing was that Mr. Barnabic told him that he was waiting for an inheritance.

[122] While Mr. Iqbal invited me to disbelieve this evidence, he did not have any evidence to contradict it.

[123] On balance, I find Mr. Barnabic’s explanation plausible, especially given that there is no evidence to contradict his explanation of what happened.

[124] In addition, it is important to consider the plausibility of the allegation that the agreements were a sham designed to induce Mr. Iqbal to enter into the McCowan Property APS. Even on Mr. Iqbal’s evidence, there is no suggestion that Mr. McCowan ever told him before signing the APS that he could not or should not get valuations for the Midland and Kitchener properties because the agreed prices with Mr. Barnabic were proof of the value of the properties. There was nothing preventing Mr. Iqbal from obtaining valuations or from even driving by the properties before he signed the McCowan Property APS. Given how easy it would have been for Mr. Iqbal to make his own assessment about the value of the properties, it is hard to see how showing him draft agreements at the December 2008 meeting or telling him about the intended purchase prices could realistically have been intended as a misrepresentation of the true value of the Midland and Kitchener properties.

[125] Finally, I note that Estates did not provide expert evidence at trial regarding the value of the Midland and Kitchener properties during the relevant time period, which was December 2008 when the alleged misrepresentations were made. Mr. Iqbal relies on the two appraisals he obtained from a potential lender in May 2009. However, the person who prepared those appraisals was not called as a witness nor did the appraisals reflect the values of the properties in December 2008. Therefore, while there are certainly suggestions that the purchase prices did not reflect the market value for the properties, there was no evidence at trial on which I can rely to conclude that the prices did not reflect market value at the time they were agreed to.

[126] Therefore, based on the evidence available at trial, I am not able to find on a balance of probabilities that the representations were untrue.

Mr. Iqbal must have reasonably relied on the representation

[127] Even if I were to find that the represented purchase prices were untrue at the time they were made, I would not find that Mr. Iqbal relied on these representations or that he could reasonably rely on the representations.

[128] During the trial, Mr. Iqbal never testified that he in fact relied on the represented purchase prices in agreeing to take the mortgages for the Kitchener and Midland properties as part of the purchase price for the McCowan Property. In fact, his evidence is clear that he had agreed to the deal in principle before the meeting with Mr. Barnabic and there is no evidence that his agreement to the deal was conditional on obtaining the purchase prices for the Midland and Kitchener properties. Notably, while Mr. McCowan claims Mr. Iqbal requested the meeting, Mr. Iqbal’s evidence was that Mr. McCowan suggested the meeting.

[129] In any event, Mr. Iqbal stated several times in his evidence that he was not concerned with the values of the properties, because he was not purchasing the properties but only getting mortgages on the properties. This may have been naïve or misguided on his part, but it nevertheless contradicts any argument that Mr. Iqbal relied on the purchase prices for the properties when he signed the McCowan Property APS.

[130] Even if Mr. Iqbal had relied on the purchase prices, in my view his reliance was not reasonable. While Mr. Iqbal may have made unwise business decisions in the past, he was nevertheless experienced enough that he should have known that he could not rely on the purchase price agreed to between two parties as evidence of the market value of the property. In order to protect his own interests, a reasonable person would have obtained independent appraisals prior to signing the McCowan Property APS.

The representation must have been detrimental to Estates

[131] Given my finding above that Mr. Iqbal did not rely on any representations made by Mr. McCowan regarding the values of the Kitchener and Midland properties, there is no basis for finding that his reliance on the representations cause him any damages.

Fraudulent misrepresentation

[132] As held in P. (P.) v. D. (D.), 2017 ONCA 180, at para. 41, to succeed on a claim for civil fraud, the plaintiff must show that:

a. The representation was made by the respondent;

b. The respondent knew that the representation was false or was recklessly indifferent to its truth or falsity;

c. The false statement was material and by it the appellant was induced to act; and

d. The appellant suffered damages.

[133] Given my findings above that Estates has not established that the representations about the purchase prices for the Midland and Kitchener properties were false, including intentionally false, or that they induced Mr. Iqbal to enter into the McCowan Property APS, Estates’ claim for fraudulent misrepresentation cannot succeed.

Conspiracy

[134] As held in EnerWorks Inc. v. Glenbarra Energy Solutions Inc., 2012 ONSC 414 (Sup. Ct.), at paras. 66-69, there are two types of civil conspiracy:

66 The elements of a claim of conspiracy are: (1) two or more defendants make an agreement to injure the plaintiff; (2) the defendants (a) use some means (lawful or unlawful) for the predominate purpose of injuring the plaintiff, or (b) use unlawful means with knowledge that their acts were aimed at the plaintiff and knowing or constructively knowing that their acts would result in injury to the plaintiff; (3) the defendants act in furtherance of their agreement to injure; and, (4) the plaintiff suffers damages as a result of the defendants' conduct. See: Hunt v. T & N plc, 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959; Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 CanLII 23 (SCC), [1983] 1 S.C.R. 452; Normart Management Ltd. v. West Hill Redevelopment Co (1998), 1998 CanLII 2447 (ON CA), 37 O.R. (3d) 97 (C.A.).

67 Canada Lafarge Ltd. is authority that there are two types of conspiracy: (1) conspiracy to injure; and (2) conspiracy to perform an unlawful act.

68 The elements of conspiracy to injure are: (1) the defendants acted in combination; (2) the defendants intended to harm the plaintiff; and (3) the defendants' conduct caused harm to the plaintiff.

69 The elements of conspiracy to perform an unlawful act are (1) the defendants acted in combination; (2) the defendants committed an unlawful act, i.e. a crime, tort, or breach of statute; (3) the defendants knew or should have known that injury to the plaintiffs was likely to occur from their misconduct; and (4) the defendants' misconduct in furtherance of the conspiracy caused harm to the plaintiff.

[135] In this case, Estates asserts that there was a broad conspiracy between Mr. McCowan, Mr. Cohen, Mr. Sarafian, Mr. Schickedanz and Mr. Barnabic to defraud Estates of the McCowan Property.

[136] In support of his claim that there was a conspiracy, Mr. Iqbal relies on a number connections between these individuals, including the following:

a. Mr. Iqbal testified that, at the end of the settlement meeting with Mr. Sarafian over the failed auction at which Mr. Cohen was present, as he was leaving Mr. Sarafian told Mr. Iqbal that he would “lose” his property;

b. Mr. Sarafian was the owner of ReMax brokerage that employed Mr. Schickedanz; and

c. Mr. Schickedanz shared information with Mr. McCowan about the failed auction and Mr. Iqbal’s dire financial circumstances.

[137] As mentioned above, the first requirement to prove a conspiracy is that the plaintiff demonstrate that there is an agreement between the alleged conspirators to injure the plaintiff. In this case, there is no evidence of such an agreement involving Mr. McCowan. In particular:

a. There is no evidence that Mr. McCowan ever met or had communications with Mr. Sarafian prior to the signing of the McCowan Property APS or at any time;

b. The only evidence about the relationship between Mr. Schickedanz and Mr. McCowan is that they had met casually a number of years before the transaction, and that Mr. Schickedanz contacted Mr. McCowan after it became clear that he was having difficulties selling the McCowan Property. At that point, there is evidence that Mr. Schickedanz may have improperly disclosed information about Mr. Iqbal financial’s circumstances to Mr. McCowan, but this is not evidence of an agreement to injure Estates. It may give rise to a claim against ReMax and Mr. Schickedanz, but not a claim against the McCowan defendants.

c. I have already addressed the issue of the relationship and agreement between Mr. McCowan and Mr. Barnabic above.

d. There is no evidence of any relationship or agreement between Mr. Cohen and the other people referred to above. In fact, Mr. Cohen only became involved in this matter after Estates entered into the McCowan Property APS with Mr. McCowan.

[138] Again, in advancing the conspiracy claim, Mr. Iqbal focused on potential improprieties by ReMax. But ReMax is no longer a party to this action, and there is no evidence of an agreement to injure Estates or Mr. Iqbal or to commit an unlawful act between ReMax or its representatives and the remaining defendants in the action.

Breach of contract

[139] While Estates’ statement of claim asserts a claim for breach of contract, in his closing arguments, Mr. Iqbal did not argue that the McCowan defendants breached the McCowan Property APS. In fact, there would be no basis for finding that the McCowan defendants breached any contractual obligations owed to Estates as there is no dispute that they fulfilled their obligations under the APS and the Loan Agreements.

[140] However, in his written closing submissions, Mr. Iqbal argues that the McCowan defendants acted in bad faith in negotiating and carrying out their obligations under the agreements. In making this submission, he relies on the Supreme Court of Canada’s decision in Bhasin v. Hrynew, 2014 SCC 71, in which the Supreme Court found that there is a common law duty of good faith in the performance of contracts.

[141] In Bhasin, at para. 73, Cromwell J. described the obligation as “simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”.

[142] The duty of good faith only appears to apply to the performance of agreements. In this case, Estates takes issue with what occurred before the McCowan Property APS was signed. I have already addressed the claims of negligent and fraudulent misrepresentation above.

[143] In any event, the duty of good faith does not go so far as to prevent one party from overtly benefitting from another party’s negative financial circumstances, which is what happened in this case. Mr. Iqbal was in a dire financial situation. He had tried to sell the McCowan Property without success for close to one year. There were no other prospective buyers. Mr. McCowan was aware of this situation and he used the inequality of bargaining power to his advantage. He made a “no cash” proposal. As part of the deal, he offered mortgages on two other properties he owned. When it became apparent that Mr. Iqbal had no cash to close the deal, Mr. McCowan took back the full mortgage on the Midland Property as security on a loan he made to Estates. Throughout the period between the signing of the McCowan Property APS and the closing date, Mr. McCowan did not agree to any concessions. No one disputes that the deal was one sided or that Mr. Iqbal was at a disadvantage in negotiating the deal. But the law of good faith in contract performance has not reached the point where, absent dishonesty or a misrepresentation, a contracting party is to refrain from taking advantage of the other party’s poor financial and negotiating position.

Claim against Mr. Cohen

[144] Estates' primary claim against Mr. Cohen is in negligence. However, during the trial, Mr. Iqbal also suggested that Mr. Cohen was part of an alleged conspiracy with Mr. McCowan and others. He also claimed that Mr. Cohen preferred his own interests over Estates' interests by seeking to get paid through the loan Mr. Iqbal was to receive from Mr. McCowan on closing. Therefore, in addressing the claim against Mr. Cohen, I focus primarily on the negligence claim but I also briefly address conspiracy and breach of fiduciary duty.

Negligence

[145] In order to succeed on the negligence claim, Estates must demonstrate:

a. Mr. Cohen owed Estates a duty of care;

b. Mr. Cohen's conduct fell below the standard of care;

c. The alleged negligence caused Estates’ damages; and

d. The quantum of those damages.

[146] As the lawyer acting for Estates on the transactions, Mr. Cohen owed the company a duty of care. This is not in dispute. However, there is significant disagreement over whether Mr. Cohen met the necessary standard of care and, if so, whether his negligence was the cause of any damages suffered by Estates.

Standard of care

[147] The standard of care applicable to Mr. Cohen is "that of a reasonably competent solicitor": Ristimaki v. Cooper (2006), 2006 CanLII 12415 (ON CA), 79 O.R. (3d) 648 (C.A.), at para. 59. A lawyer is required to bring reasonable care, skill and knowledge to the professional service which he or she has undertaken: Central & Eastern Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147, at para. 66. The reasonableness of the lawyer's conduct is to be determined "in light of the surrounding circumstances such as the time available to complete the work, the nature of the client's instructions, and the experience and sophistication of the client": Rider v. Grant, 2015 ONSC 5456 (Sup. Ct.), at para. 86. A lawyer who does not "adequately or diligently protect the client's interests will be found negligent": Ristimaki, at para. 59.

[148] As a preliminary matter, I start by addressing Mr. Iqbal's argument that any differences between his evidence and Mr. Cohen’e evidence should be resolved in his favour because Mr. Cohen has very few contemporaneous notes or written records of the advice he claims to have provided to Mr. Iqbal. As held in Rider, para. 93, the absence of notes or written communications is relevant but not determinative:

… While it would be preferable to have a written retainer or notes of the initial meeting given the disagreement of the parties as to what transpired, the absence of them does not mean that the lawyer's evidence ought to be rejected or given little weight by the court. The lack of notes is a factor to be taken into consideration, along with other factors, in determining the credibility issues.

[149] As reviewed above, I found that Mr. Iqbal's evidence was often inconsistent and self-serving. In contrast, I generally found that Mr. Cohen's evidence was credible and consistent with other evidence. Under the circumstances, I am not giving preference to Mr. Iqbal's version of his interactions with Mr. Cohen simply because Mr. Cohen has few contemporaneous notes.

[150] In this case, context is crucial to assessing whether Mr. Cohen met the standard of care in representing Mr. Iqbal on the transactions at issue. The context includes the following considerations:

a. Mr. Iqbal negotiated and signed the McCowan Property APS before consulting or retaining Mr. Cohen;

b. Mr. Iqbal was in a dire financial situation at the time he retained Mr. Cohen, and Mr. Cohen was aware of this. In particular, Mr. Cohen was aware that Mr. Iqbal was "seriously" in arrears on his mortgage and that the mortgagee was very close to commencing a power of sale, that Mr. Iqbal and his wife had signed personal guarantees, that Mr. Iqbal was not working, that there was a certificate of pending litigation on the McCowan Property and that Mr. Iqbal did not have any cash to contribute to the closing of the transaction;

c. Mr. Iqbal had been trying to sell the McCowan Property for over one year; and

d. Mr. Iqbal negotiated the general terms of the loan agreements with Mr. McCowan and Mr. Schickedanz before speaking to Mr. Cohen. Mr. Cohen therefore only had an opportunity to participate in the negotiations of the wording of the agreements.

[151] Cumulatively, these circumstances mean that Mr. Cohen had no opportunity to provide advice to Mr. Iqbal before he entered into the two key sets of agreements that are at the heart of this case, and Mr. Iqbal had virtually no bargaining power to improve his position in these agreements. Both Mr. McCowan and Mr. Weinberg were clear in their evidence that the McCowan defendants would not agree to make any concessions because they understood Mr. Iqbal’s poor bargaining power.

[152] As mentioned above, both Mr. Iqbal and Mr. Cohen relied on expert evidence addressing the issue of whether Mr. Cohen met the standard of care in his representation of Mr. Iqbal. Both experts have impeccable qualifications and produced comprehensive reports reviewing Mr. Cohen's work throughout his retainer on the transaction.

[153] Mr. Iqbal's expert was Reuben Rosenblatt. Mr. Rosenblatt stated that the McCowan Property APS was highly one sided and that the sale of the Midland and Kitchener properties between Mr. McCowan and Mr. Barnabic was very suspicious. In his opinion, these were "red flags" that triggered a number of obligations on Mr. Cohen's part which he said were not met based on his review of the available documents. In general terms, his opinion was that:

a. Mr. Cohen had an obligation to fully explain the terms and consequences of the deal to Mr. Iqbal, including the one-sided nature of the McCowan Property APS and the suspicious nature of the sale of the Kitchener and Midland properties, and to recommend to Mr. Iqbal that he try to get out of the deal;

b. Mr. Cohen had an obligation to investigate the value of the Kitchener and Midland Properties, and to advise Mr. Iqbal about whether the values supported the mortgages; and

c. Mr. Cohen missed a number of opportunities to improve the deal for Estates.

[154] Besides relying on his expert’s evidence in support of his claim against Mr. Cohen, Mr. Iqbal also claims that Mr. Cohen improperly pressured him to close the deal on closing day after Mr. Iqbal became aware of the values of the Kitchener and Midland properties set out in the insurance certificates.

[155] Mr. Cohen's expert is Sidney Troister. In his comprehensive report, Mr. Troister states that he disagrees with Mr. Rosenblatt, who he sees as holding Mr. Cohen up to a "counsel of perfection standard". He expresses the view that Mr. Rosenblatt ignores the circumstances in which the transaction was taking place.

[156] I agree with Mr. Troister that context is crucial in this case. A more careful lawyer may have simply refused to work on this one-sided untenable transaction. A more careful lawyer would certainly have taken better notes and provided ongoing written advice to Mr. Iqbal. However, given all the circumstances reviewed above, I cannot find that Mr. Cohen fell below the standard of care in this case.

Alleged failure to provide proper advice on the deal

[157] In his report, Mr. Rosenblatt states that Mr. Cohen should have conducted a detailed review of the McCowan Property APS and the loan agreements with Mr. Iqbal to ensure that Mr. Iqbal had a good understanding of the one-sided nature of the deal.

[158] I agree with Mr. Troister that, in assessing whether Mr. Cohen fell below the standard of a reasonably competent solicitor, he is not to be held to a standard of perfection.

[159] I also accept Mr. Cohen's evidence, which in some cases is corroborated by Mr. Iqbal's evidence, that he did provide ongoing advice to Mr. Iqbal about some of the pitfalls of the agreement. For example:

a. When Mr. Cohen first received the agreement, he reviewed it in detail with Mr. Iqbal. Mr. Iqbal confirmed this in cross-examination.

b. At that first meeting, Mr. Cohen explained to Mr. Iqbal that the agreement was unworkable because he would need cash to close the deal and he did not have cash. Mr. Iqbal confirmed this in cross-examination.

c. Mr. Cohen explained to Mr. Iqbal that it would be difficult for Mr. Iqbal to borrow against the mortgages to the Kitchener and Midland properties because the McCowan Property APS did not give him any rights to access the property or any ability to obtain information about the property. Mr. Iqbal confirmed this in cross-examination.

d. Mr. Cohen recommended on more than one occasion that Mr. Iqbal obtain valuations, even on a drive by basis, for the Midland and Kitchener properties. While Mr. Iqbal adamantly denied that Mr. Cohen made this recommendation, I accept Mr. Cohen’s evidence. Mr. Cohen’s evidence is consistent with other evidence about the advice he gave Mr. Iqbal about the risks of the transaction, and, as reviewed above, accepting Mr. Cohen’s evidence above Mr. Iqbal’s evidence is consistent with my credibility assessment;

e. After Mr. Cohen received the agreements of purchase and sale between Mr. McCowan and Mr. Barnabic, he reviewed them and was concerned about whether they were legitimate. He raised questions about the deal with Mr. Weinberg and shared his concerns with Mr. Iqbal. He also told Mr. Iqbal that he did not like the ratio of the mortgages in relation to the sale prices;

f. He reviewed the terms of the loan agreements with Mr. Iqbal, and advised him that it would be difficult to find financing within 45 days without any appraisals or commitments. He also questioned Mr. Iqbal about how he could start paying interest after the first 14 days; and

g. On the day of closing, Mr. Cohen reviewed the pros and cons with Mr. Iqbal of closing the deal on the day of closing.

[160] Mr. Iqbal was not unsophisticated. He was a chartered accountant and had some business experience.

[161] Mr. Iqbal and Mr. Cohen had a longstanding relationship. This was not the first time Mr. Iqbal had come to Mr. Cohen after entering into an unfavourable agreement. During his cross-examination, Mr. Iqbal agreed that he is stubborn and had not always followed Mr. Cohen's advice in the past.

[162] There was no evidence or suggestion by Mr. Iqbal at trial that he did not understand the McCowan Property APS or the loan agreements. His primary complaint against Mr. Cohen was that Mr. Cohen did not help him take advantage of opportunities to terminate or improve the deal, and that Mr. Cohen did not advise him to get valuations for the Kitchener and Midland properties.

[163] Under the circumstances, I do not find that Mr. Cohen was negligent in the advice he gave Estates or Mr. Iqbal.

Alleged failure to obtain better information on the values of the Midland and Kitchener properties

[164] In his report, Mr. Rosenblatt states that Mr. Cohen should have done more to obtain accurate values for the Kitchener and Midland properties.

[165] The evidence at trial is that Mr. Cohen did make efforts to assist Mr. Iqbal in obtaining better evidence about the values of the properties.

[166] Soon after he received the McCowan Property APS from Mr. Iqbal, Mr. Cohen contacted Mr. Weinberg to discuss the possibility of arranging valuations for the properties. Part of the reason for doing this was to assist Mr. Iqbal in raising money to close the deal. With valuations, Mr. Iqbal may be able to get a loan against the value of the mortgages. In response, Mr. Weinberg pointed out that the APS did not allow for any inspections of the Midland and Kitchener properties, which was in fact the case.

[167] Mr. Cohen then recommended to Mr. Iqbal that he nevertheless get valuations on a drive by basis. Mr. Cohen's evidence is that Mr. Iqbal's response was that he could not afford valuations of the properties.

[168] Accordingly, I find that Mr. Cohen made reasonable efforts to obtain financial information about the properties and to encourage Mr. Iqbal to get valuations.

Alleged failure to improve the deals

[169] In his report, Mr. Rosenblatt identified a number of opportunities he claims Mr. Cohen missed for improving the deal, including the following:

a. The occasions when Mr. McCowan requested extensions;

b. When it became evident that the amount of the outstanding mortgage was approximately $725,000 rather than $750,000, Mr Cohen should have tried to keep the $25,000 for Estates given that it was part of the original purchase price. This would have given Mr. Iqbal some cash for the closing; and

c. When it became obvious that there were outstanding taxes owing on the Midland and Kitchener properties.

[170] However, the evidence is that Mr. Cohen made some efforts to improve the deal for the Estates, but Mr. Iqbal had not bargaining power. During all of their negotiations, Mr. Weinberg made clear that there was no room to negotiate a better deal for Estates because Mr. McCowan was aware of Mr. Iqbal's dire financial situation. Throughout, Mr. McCowan’s attitude was that this was a “take it or leave it” deal.

[171] Mr. Cohen's evidence was that he tried to improve the deal on a number of occasions, but that Estates’ lack of bargaining power made it impossible to do so. For example, he tried to get an agreement that Mr. McCowan would pay additional expenses on the mortgage for the extensions requested on his behalf, but Mr. Weinberg would not agree. He also tried to get the benefit of the $25,000 difference between the expected value of the MJC Mortgage and the actual value of the mortgage, but Mr. Weinberg would not agree.

[172] Under the circumstances, Mr. Cohen made a number of reasonable efforts to improve Estates’ position, but he was not able to do so due to the terms of the McCowan Property APS, to which Mr. Iqbal had agreed by the time Mr. Cohen was retained, and due to Mr. Iqbal’s financial circumstances.

Allegation that Mr. Cohen pressured Mr. Iqbal to close the deal

[173] Mr. Iqbal claims that, on the day of closing, Mr. Cohen pressured him to close the deal, suggesting that Mr. Cohen was motivated by his desire to receive payment for his unpaid legal fees.

[174] However, Mr. Iqbal's own evidence does not support this position.

[175] During his examination in chief, Mr. Iqbal claimed that Mr. Cohen told him that he could not "walk away from the deal". However, during his cross examination, Mr. Iqbal agreed that on the day of closing:

a. Mr. Cohen explained the consequences of not closing;

b. Mr. Cohen gave his opinion that the best course of action was to close the transaction;

c. Mr. Cohen told Mr. Iqbal that he had to make a decision about whether to close or not;

d. Mr. Cohen never told him he could not walk away from the deal;

e. Mr. Iqbal made the decision to close; and

f. On the day of closing, given his financial circumstances, Mr. Iqbal had no other realistic options than to close the deal.

[176] Accordingly, I reject Mr. Iqbal’s position that Mr. Cohen improperly pressured him into closing.

Causation

[177] Even if I had found that Mr. Cohen was negligent in the services and advice he provided to Mr. Iqbal, I would not find that Mr. Cohen was the cause of any damages Estates may have suffered.

[178] In order to prove that Mr. Cohen caused his damages, Mr. Iqbal must prove on a balance of probabilities that "but for" Mr. Cohen’s alleged negligence, he would have "proceeded in a manner that avoided the damages suffered": Folland v. Reardon, 2005 CanLII 1403 (ON CA), [2005] O.J. No. 216 (C.A.), at para. 61.

[179] As reviewed above, given Mr. Iqbal's poor negotiation position, there is no basis for finding that there were opportunities for Mr. Cohen to assist in improving the McCowan Property APS or the loan agreements. Therefore, there is no basis for finding that M. Cohen's actions prevented Mr. Iqbal from obtaining a better deal.

[180] Alternatively, Mr. Iqbal suggests that Mr. Cohen should have advised him to terminate the APS and Loan Agreements or, at least, to provide him with better advice that would have led him to terminate those agreements.

[181] Given that Mr. Iqbal entered into these agreements without advice from Mr. Cohen, and that he did not take Mr. Cohen's advice to better protect himself by getting valuations of the Kitchener and Midland properties, I find it hard to believe that Mr. Iqbal would have acted on any advice Mr. Cohen gave him to terminate the deals.

[182] More importantly, even if Mr. Iqbal had received such advice and had decided to terminate the deal, there was no evidence at trial that Estates would have been in a better position if the deal was terminated. There was no evidence that another buyer was immediately available to buy the property at a price that would put Estates in a better position. Mr. Iqbal faced imminent foreclosure and he and his wife faced personal liability on any shortfalls from the enforcement of the mortgage. Estates also faced the uncertainty of ongoing litigation from the failed auction, including the certificate of pending litigation.

[183] Therefore, I cannot find that, even if Mr. Cohen had fallen below the standard of care, he caused any damages to Mr. Iqbal.

Conspiracy

[184] At trial, Mr. Iqbal suggested on a number of occasions that Mr. Cohen was involved in a conspiracy with Mr. McCowan and others to defraud him of the McCowan Property. As reviewed above, Estates has not proven that there was a conspiracy. In any event, there is no evidence that Mr. Cohen knew or had any relationship with Mr. McCowan, Mr. Schickedanz or Mr. Barnabic before Mr. Iqbal sent him the APS in January 2009. Mr. Cohen had met Mr. Sarafian earlier, but only once and for the purpose of assisting Mr. Iqbal in settling the litigation arising from the failed auction.

Breach of fiduciary duty

[185] Although there were no direct submissions on the issue, Mr. Iqbal also suggested that Mr. Cohen breached his fiduciary duty by preferring his own economic interests over his duty to his clients. In support of this contention, Mr. Iqbal points to the facts that the loan from Mr. McCowan was meant to include a payment to Mr. Cohen for unpaid legal fees related to the failed share purchase. Mr. Iqbal testified that he believed that Mr. Cohen turned a blind eye to the flaws in the deal to get his payment.

[186] The fact that Mr. Cohen sought to obtain payment for unpaid legal fees does not form the basis for a finding of breach of fiduciary duty. In addition, there is simply no evidence that Mr. Cohen's motivation during the course of the services he provided to Mr. Iqbal on these matters was to close the deal so that he could recover unpaid fees. I am satisfied that Mr. Cohen's efforts were directed at assisting his client navigate a poor deal while he was in dire financial circumstances.

Conclusion

[187] For the reasons above, Estates’ claims against the defendants are dismissed.

[188] I encourage the parties to try to agree on costs. If they are not able to do so, the defendants are to provide written submissions no longer than 5 pages, excluding their bills of costs, by no later than November 18, 2019, and Estates is to provide responding submissions no longer than 8 pages by no later than December 2, 2019.

FAVREAU J.

RELEASED: November 4, 2019

COURT FILE NO.: CV- 09-383033

DATE: 20191104

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N :

ESTATES ASSOCIATES INC.

Plaintiff

– and –

1645112 ONTARIO LTD., 1793411 ONTARIO LTD., RONALD MCCOWAN AND BRYON COHEN

Defendants

REASONS FOR JUDGMENT

FAVREAU J.

RELEASED: November 4, 2019