Court File and Parties
COURT FILE NO.: CV-18-599322 DATE: 20200326
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
GROWTH CAPITAL CORP. Plaintiff
– and –
2221448 ONTARIO INC. DBA CALIBER EXPRESS, VARINDERPAL BRAR AND NERRAJ SHARMA Defendants
Counsel: Amanda C. McLachlan/Nina Butz, for the Plaintiff Kenneth H. Page, for the Defendant Neeraj Sharma No one appearing for 2221448 Ontario Inc. or Varinderpal Brar, although served
HEARD: December 6, 2019
Kimmel J.
REASONS FOR JUDGMENT
Overview and Factual Background
[1] The plaintiff, Growth Capital Corp., is in the factoring business, providing financing of accounts receivable to small businesses, such as the defendant 2221448 Ontario Inc. d.b.a. Caliber Express. Caliber is a transport and warehousing company. It ceased operations in or about April or May 2018, less than four months after having entered into a Master Accounts Receivable and Factoring Agreement with Growth Capital.
[2] Growth Capital has been unable to collect on certain accounts receivable it purchased from Caliber under that Master Agreement, including some that Caliber had repurchased from its former factoring company, Baron Finance Incorporated, under a Repurchase Agreement. Beyond its contractual claims against Caliber that were personally guaranteed by the defendants Varinderpal Brar and Neeraj Sharma, Growth Capital claims that the defendants fraudulently misrepresented to Growth Capital that Caliber had good and marketable title to the accounts receivable. Growth Capital alleges this was not the case in respect of certain categories of the accounts receivable (the “Fraud Claims”). The three categories of allegedly “fraudulent” accounts receivable are as follows:
a. Customer Rejected Invoices ($82,900.00); b. Non-Existent Customer Entity Invoices ($128,923.00); and c. Customer Directly Paid Invoices to Caliber ($56,250.00 CAD and $1,800.00 USD).
[3] The quantum of the debt owing by Caliber to Growth Capital is not disputed, as follows:
a. $67,977.18 CDN for rental payments made by Growth Capital on Caliber’s behalf; b. $399,599.02 CDN for unpaid receivables acquired pursuant to the Repurchase Agreement (including some of the alleged fraudulent accounts receivable); and c. $2,579.60 USD for unpaid receivables acquired pursuant to the Repurchase Agreement (including some of the alleged fraudulent accounts receivable).
[4] The individual defendants, Sharma and Brar, were the directors of Caliber and they were responsible for its day to day accounting and operations, respectively. They both filed for bankruptcy protection in 2019, prior to the hearing of this motion. In both of their bankruptcy proceedings, an order has been made exempting the within action from the operation of the stay of proceedings pursuant to section 69.3 of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3. These orders allow Growth Capital to prosecute this action against the bankrupt parties, Sharma and Brar, solely for the purpose of establishing liability and valuing Growth Capital’s claims against them.
[5] Sharma and Brar each initially delivered notices of intention to act in person on March 14, 2019. Caliber’s lawyer was granted leave to remove himself as lawyer of record by order of Master Mills made April 8, 2019. Caliber did not appoint a new lawyer of record as the Mills order required it to do and has not responded to this motion for summary judgment. Brar has also not responded to this motion.
[6] Sharma appointed counsel and responded to this motion. He does not dispute that the claimed contractual debt is owing to Growth Capital but denies being involved in any of the alleged fraudulent accounts receivable and disputes the Fraud Claims. Sharma argues that any decision that he committed a fraud should only be made at a trial and not on a summary judgment motion. It is no secret that Sharma is concerned about any judgment being made against him that might survive his bankruptcy, if and when he is discharged. [1]
Summary of Outcome
[7] For the reasons that follow, summary judgment is granted against all defendants for breach of contract and additionally against the defendant Brar for fraudulent misrepresentation. The Fraud Claims against the defendant Sharma are dismissed.
Summary Judgment Analysis
[8] Rule 20.04 directs that the court shall grant summary judgment if:
a. the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or a defence; or b. the parties agree to have all, or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
[9] The framework for determining summary judgment motions comes from the Supreme Court of Canada in the case of Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 7. It requires that the judge be confident that the court has the evidence to make the factual findings required to adjudicate the dispute (by applying the law to the facts) and to reach a fair and just determination on the merits. The question to ask is whether there is a genuine issue “requiring a trial” and whether it is in the interests of justice for the judge to use the fact-finding powers to decide that issue. This can be considered in light of the goals of timelines, affordability, and proportionality.
[10] The procedure to be followed on a motion for summary judgment prescribed by the Supreme Court in Hryniak is in two stages:
a. the judge should first determine if there is a genuine issue requiring a trial based only on the evidence before him or her without using the fact-finding powers in sub-rule 20.04(2.1). b. if there appears to be a genuine issue requiring a trial, Rule 20.04(2.1) permits the motion judge, at his or her discretion, to: (1) weigh the evidence, (2) evaluate the credibility of a deponent, or (3) draw any reasonable inference from the evidence unless it is in the “interest of justice” for these powers to be exercised only at trial: Hryniak, at para. 66.
[11] The parties have agreed in this case to have the plaintiff’s contract claims (under the Master Agreement and Personal Guarantees) determined by way of summary judgment. The debt owing by Caliber is not disputed, and it is not disputed that the individuals guaranteed the debt by the Personal Guarantees.
[12] The approach with the respect to the Fraud Claims is different for each of the individual defendants.
a. Brar has not responded to this motion so the question I must decide in relation to him is whether the plaintiff has established, on a balance of probabilities based on the evidence in the record, that he made the alleged fraudulent misrepresentations; and b. The situation with respect to Sharma is different, because the plaintiff’s allegations and evidence about his involvement in the Fraud Claims is not as strong or direct as it is against Brar, and Sharma has responded to this motion by denying any involvement with the allegedly fraudulent accounts receivable. In assessing the Fraud Claims against Sharma, both the plaintiff and Sharma agree that I am entitled to assume that each side has put its best foot forward with respect to the evidence and that no other or additional or better evidence would be led at trial. (See, for example, Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at paras. 26-27, aff’d 2014 ONCA 878 and Da Silva v. Gomes, 2018 ONCA 610, at para. 18, cited recently by me in Lotin v. Gregor, 2019 ONSC 1510).
[13] The Supreme Court of Canada’s description of the “interest of justice” inquiry in the Hryniak case at paras. 58 – 60 directs the court to consider the consequences of the motion in the context of the litigation as a whole in deciding whether the court’s Rule 20.04(2.1) fact-finding powers should be exercised only at trial. The Supreme Court used the example that if some of the claims against some of the parties will proceed to trial in any event, “it may not be in the interests of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice.”
[14] This underscores the concern about inconsistent findings at trial when a summary judgment motion is not dispositive of the entire case, as I found in the case of Avila v. Couto, 2019 ONSC 400, at paras 32-33. This is precisely what the Court of Appeal has repeatedly said is not an appropriate case for summary judgment. (See Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438; Hamilton (City) v. Thier + Curran Architects Inc., 2015 ONCA 64, 45 C.L.R. (4th) 1; Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561; Mason v. Perras Mongenais, 2018 ONCA 978, and Healthy Lifestyle Medical Group Inc. v. Chand Morningside Plaza Inc., 2019 ONCA 6).
[15] There would have been concerns in this case about partial summary judgment if I were to accept Sharma’s first position (relying upon Bruno Appliances and Furniture, Inc. v. Hryniak, 2014 SCC 8, at paras. 28 and 29) that even if it could be shown that he was aware of and potentially benefitted from the alleged fraud, the question of whether he personally perpetuated the alleged fraud (as the plaintiff’s Fraud Claims against him allege) is a genuine issue requiring a trial. However, the parties agree that it is open to me, even without a cross-motion by Sharma, to dismiss the claims for fraud against him if I conclude (as I have) that the plaintiff has not made out those claims with its best foot forward on this motion. See King Lofts Toronto I Ltd. v. Emmons, 2014 ONCA 215 and Kassburg v. Sun Life Assurance Co. of Canada, 2014 ONCA 922.
[16] If it had not been open to me to dismiss the Fraud Claims against Sharma I would have concluded that there was a genuine issue requiring a trial in respect of them, in which event the summary judgment motion would have been dismissed as this is not an appropriate case for partial summary judgment because there would be a risk of overlapping and potentially inconsistent findings at the trial in respect of the three categories of allegedly fraudulent invoices underlying the Approved Receivables and in respect of the Fraud Claims against Brar and Sharma. This is not a case where the Fraud Claims can be severed from the claims for breach of contract because the defendants and the damages are the same for both causes of action.
The Contract Claims
The Master Agreement
[17] Pursuant to the Master Agreement made as of January 11, 2018, Growth Capital purchased Approved Receivables from Caliber at an agreed upon discount based on certain supporting documents and representations and covenants of Caliber. Caliber’s representations under the Master Agreement included that:
a. No event of default appears reasonably likely to occur as of the date of the Master Agreement [4.1(e)]; b. Caliber has good and marketable title to the Approved Receivables, free and clear of all encumbrances…save those of which Growth Capital has been advised [4.1(f)].
[18] Caliber’s covenants under the Master Agreement included that:
a. It would perform all contractual and legal obligations to its customers (the Debtors) and would not permit any set-off or counterclaim or other contra to arise in favour of the Debtors [4.2(b)]; b. It would notify Growth Capital promptly of any dispute with a Debtor concerning an Approved Receivable and provide Growth Capital with any credit notes issued [4.2(c)]; and c. It would refrain from selling, assigning, pledging, charging, mortgaging or otherwise disposing of or dealing with the Approved Receivables or any part thereof other than as expressly permitted in the Master Agreement [4.2(h)].
[19] The Master Agreement [section 2.5] required Caliber to provide payment remittance instructions to its customers (the Debtors) to pay the amounts owing in respect of the Approved Receivables directly to Growth Capital. The parties agreed that any payments received by Caliber on account of the Approved Receivables purchased were to be immediately forwarded by Caliber to Growth Capital and would, in the interim, be deemed to be held in trust by Caliber for Growth Capital.
[20] Upon an event of default, or if an Approved Receivable remained outstanding for more than 90 days, Growth Capital had the right under Article 5 of the Master Agreement to require Caliber to repurchase an Approved Receivable. An Event of Default, as defined in Article 7 of the Master Agreement, arose when Caliber ceased to carry on business and was also defined to include a breach by Caliber of any of its warranties or covenants not remedied within 30 days of demand by Growth Capital.
[21] Pursuant to section 3 of the Master Agreement, Approved Receivables outstanding for more than 90 days that were not repurchased by Caliber were subject to an additional fee (calculated as a purchase price adjustment, for an additional discount of 2% of the unpaid balance, payable monthly in arrears.
[22] The Master Agreement contained an entire agreement clause [9.7] by which the parties confirmed that there had been no representations, inducements, promises or agreements or otherwise among the parties not embodied in the Master Agreement. Any amendments to the Master Agreement were required to be in writing [9.8].
The Personal Guarantees
[23] Brar and Sharma each executed a Personal Guarantee on January 11, 2018 by which they unconditionally and irrevocably guaranteed payment and performance of
[A]ll present and future indebtedness, liabilities and obligations, direct or indirect, absolute or contingent, now or at any time hereafter due or owing to the Growth Capital by the Borrower [Caliber], whether incurred by the Borrower alone or jointly with any other person or persons, or otherwise howsoever including, without limitation, under or in respect of the Agreement (the “Obligations”) … [which] Obligations shall include … all obligations of the Borrower under the Agreement, or any other agreement in effect between the Borrower and Growth Capital from time to time.
[24] Section 3 of the Personal Guarantees limits Growth Capital’s recourse against the guarantors to the enforcement of their obligations under the guarantees and the enforcement of any security agreements they granted in favour of Growth Capital.
[25] Section 4 of the Personal Guarantees requires the guarantors to indemnify Growth Capital, for, among other things, “…any losses, demands, damages, liabilities, …payments and expenses of any nature or kind, howsoever and whenever arising, which Growth Capital may suffer or incur in any way relating to or arising from … (a) the failure of the Borrower [Caliber] to pay and satisfy the Obligations.”
[26] Section 5 requires the Guarantors to pay interest on all amounts owing from the date of Growth Capital’s demand for payment.
The Repurchase Agreement
[27] The Approved Receivables at issue were acquired from Baron, the factoring company that Caliber had been previously dealing with. This acquisition was effected under the Repurchase Agreement with an effective date of January 29, 2018. The Repurchase Agreement was supported by two schedules listing all of the invoices payable to Baron that Growth Capital would be purchasing, broken down by currency. Pursuant to section 2 of the Repurchase Agreement, Caliber warranted to Growth Capital that it had no knowledge of any defect in or dispute relating to any receivable or any reason to believe that the receivable would not be paid by the customer.
[28] The Repurchase Agreement contained an entire agreement clause. The entire agreement clause indicated that the Repurchase Agreement superseded all previous discussions and agreements between Baron, Caliber and Growth Capital in respect of the termination of the existing factoring agreement between Caliber and Baron. This included the repurchase of all outstanding Purchased Receivables sold or conveyed to Baron by Caliber under that prior factoring agreement that were being repurchased by Caliber and sold to Growth Capital under the Master Agreement.
[29] It was contemplated that Growth Capital would have the opportunity to review and approve the accounts receivables before it acquired them under the Master Agreement, including those coming from Baron under the Repurchase Agreement. The Repurchase Agreement was signed by Growth Capital at the request and urging of Caliber on the understanding that no payments would be made until Growth Capital had been provided with the back-up for the listed invoices so that they could be confirmed to be Approved Receivables.
[30] Once Baron provided copies of the listed invoices to Caliber, Caliber began putting pressure on Growth Capital to settle the account with Baron under the Repurchase Agreement. Brar assured Growth Capital that all of the invoices were accurate. Based on that assurance, Caliber made the payments to Baron on February 1, 2018.
The Rental Payment Funding
[31] Brar and Sharma advised Growth Capital in January 2018, before the Master Agreement and Repurchase Agreement were signed, that Caliber was experiencing a temporary lack of liquidity while it was moving its factoring arrangements from Baron to Growth Capital and due to reduced customer volume. They asked if Growth Capital would also fund Caliber’s rental payments for its corporate office and facility on a temporary basis. Growth Capital agreed to do so, and it made three monthly rental payments on behalf of Caliber to its landlord, in the amount of $23,204.33 each at the end of January, February and March 2018. It was understood and agreed that Caliber would repay these amounts funded by Growth Capital for rental payments.
[32] Caliber repaid a portion of the first rental payment, $13,048.80, in February of 2018. None of the other rental payments have been repaid. Growth Capital calculates the balance owing, inclusive of interest up to April 8, 2019, to be $67,977.18.
Caliber’s Defaults
[33] Growth Capital pursued collection of the Approved Receivables. In the course of these efforts, it discovered the following categories of allegedly fraudulent invoices that remain unpaid:
a. 37 invoices totalling CDN $82,900.00 that customers rejected based upon their advice to Growth Capital that Caliber had not provided them with the indicated transportation services (either because the order was cancelled, or the work was awarded to another company or the delivery had been completed under a different invoice and paid for already) – these are the Customer Rejected Invoices; b. 18 invoices totalling CDN $128,923.00 for customers listed that could not be contacted, due to incomplete or incorrect contact information, and were later confirmed by Growth Capital to be non-existent entities through its efforts to locate them – these are the Non-Existent Customer Entity Invoices; and c. 8 customers who advised that they had paid the amounts indicated on their invoices directly to Caliber or Baron. This was confirmed to be the case for 47 invoices totalling CDN $56,250.00 and 1 invoice for USD $1,800.00 – these are the Customer Directly Paid Invoices.
[34] Growth Capital first raised its concerns about these invoices with Brar and Sharma and indicated that these were violations of the Master Agreement, on or about March 12, 2018. Brar and Sharma initially objected to Growth Capital’s contention that there had been violations of the Master Agreement, indicating that:
a. Sharma would resolve any issues with the Customer Rejected Invoices; b. Brar would personally collect on the Non-Existent Customer Entity Invoices; and c. Denying that Caliber had received payment of any of the Customer Directly Paid Invoices.
[35] When no progress had been made on these collections by April 16, 2018, Brar and Sharma promised to provide Growth Capital with an offer of additional security, which never materialized.
[36] Caliber ceased operations on April 18, 2018, allegedly due to the cancellation of their insurance because they lacked funding to pay the insurance premiums for their fleet of trucks. Despite repeated promises by Brar and Sharma that they would get back to Growth Capital with proposed solutions, and their advice that Caliber would be resuming operations in May 2018, Growth Capital discovered Caliber’s phone lines had been disconnected on May 25, 2018 and Caliber has not resumed any business operations since.
[37] Sharma has verified in his testimony in response to this motion that the sum of $56,250.00 is due and owing to Growth Capital for the Customer Directly Paid Invoices that Caliber accepted payment for contrary to the terms of the Master Agreement. He did not address the USD $1,800.00 invoice in this category. He explains in his testimony that it is not uncommon for customers to pay the company rather than the factor and the normal practice would have been to make monthly adjustments for these, but Caliber was in a difficult financial position and was unable to make those adjustments. The Master Agreement expressly contemplates that this might occur in section 2.5 and provides that any direct payments received be held in trust by Caliber.
[38] Sharma has verified that $67,977.18 is due to Growth Capital for rental payments made on Caliber’s behalf.
[39] Sharma continues to deny any knowledge of the Customer Rejected Invoices or the Non-Existent Customer Entity Invoices. Sharma maintains his belief that these invoices were genuine but claims that only Brar possesses the corporate documents relating to these outstanding invoices that could answer or verify what the customers have said to Growth Capital, or what Growth Capital has discovered through its own investigations, about them. Neither Brar nor Caliber have provided any evidence in response to this motion to dispute what Growth Capital says about the Customer Rejected Invoices and the Non-Existent Customer Entity Invoices.
[40] Growth Capital claims that there are a further 8 unpaid invoices, totalling $10,025.00 CDN and $200.00 USD. The total amount owing in respect of the Approved Receivables that remain unpaid and that Caliber is liable to repurchase by virtue of breaches of sections 2.5 and 3.1 of the Master Agreement is CAD $339,599.02 and USD $2,579.60. Brar and Sharma are jointly and severally liable for these amounts owing by Caliber under their Personal Guarantees.
[41] This balance due has been calculated based on the buyout calculation reports prepared by the plaintiff that detail the invoices, funding, aging and fees, including the purchase price adjustment provided for in section 3.5 (calculated up to April 8, 2019 when the supporting affidavit was sworn). Caliber is also liable for the balance owing of the rental payments financed by Growth Capital on its behalf, totalling CAD $67,977.18, which is repayable pursuant to the agreement between Growth Capital and Caliber in respect of same, which is also covered by the Personal Guarantees.
[42] The defendants are jointly and severally liable in contract to pay these outstanding amounts, of CAD $407,576.02 and USD $2,579.60. [2]
The Fraud Claims
[43] The Fraud Claims asserted against Brar and Sharma relate to the three categories of allegedly fraudulent invoices: The Customer Rejected Invoices, the Non-Existent Customer Entity Invoices and the Customer Directly Paid Invoices.
[44] Growth Capital must prove, on a balance of probabilities, the following elements of a civil fraud against Brar and Sharma:
a. That they each made a false representation(s); b. That they had knowledge of the falsehood or were reckless as to the truth of what was represented; c. Growth Capital relied upon the false representation; d. The false representation resulted in a loss to Growth Capital.
[45] Growth Capital claims that Brar and Sharma represented that Caliber had good and marketable title to the Approved Receivables. Aside from what is represented by Caliber in the Master Agreement to this effect (in section 3.1), the primary evidence about representations concerning the quality of the Approved Receivables is a statement by Growth Capital’s representative Nelko Mahlyanov in his affidavit. Growth Capital’s representative stated that, upon receipt of copies of the invoices supporting the Approved Receivables from Baron on or about January 30, 2018 Brar assured him that all of the invoices that were being repurchased from Baron were accurate. Growth Capital’s representative also gave evidence that, after the problems with collecting on these invoices was raised by Growth Capital, Brar indicated he had some special knowledge about the Non-Existent Customer Entity Invoices when he volunteered to personally collect on them and also admitted to knowing that some invoices had been paid directly to Caliber.
[46] Growth Capital maintains that Caliber did not have good and marketable title to, and that Caliber (and Brar) had reason to believe that, the invoices falling into the three categories of invoices that are the subject of the Fraud Claims would not be paid and that they were not accurate – they had either already been paid, were issued for services that had not been provided or paid for under different invoices, or were issued to non-existent entities.
[47] Growth Capital claims to have wired the payments (of CAD $638,411.96 and USD $26,598.45) to Baron on February 1, 2018 in reliance upon Brar’s assurance or representation about the accuracy of the invoices underlying Approved Receivables. Growth Capital says it would not have paid for the re-purchase of the Approved Receivables from Baron if it did not have this assurance and it is now out-of-pocket the amounts claimed for all that remain unpaid, which are the subject of its claims herein.
[48] Although the evidence is not overwhelming, I am satisfied that Growth Capital has established on a balance of probabilities that Brar misrepresented to Growth Capital the accuracy of the invoices underlying the Approved Receivables repurchased by Caliber from Baron and that Growth Capital acquired under the Master Agreement. The record establishes that he either knew that they had already been paid, were issued for services that had not been provided or were issued to non-existent entities, or that he was reckless in making this representation without verifying the accuracy of the invoices underlying the Approved Receivables while pressuring Growth Capital to pay for them. A trial is not required for me to make this finding, as there is no evidence in dispute.
[49] Reliance and causation of damages are established based on the evidence of Growth Capital’s representative, summarized above. These representations of Brar are not covered by the entire agreement clauses. The representations relied upon were made after those agreements were executed. The entire agreement clauses, when read in context, relate to representations made prior to their execution.
[50] The evidence is not sufficient for me to make the same finding of fraud against Sharma. He is not alleged to have made the same representation as Brar did that the underlying invoices were accurate. Aside from the mere fact that he is one of the two directors of Caliber (discussed in the next section of these reasons), the only basis on which he is said to be personally responsible, beyond his Personal Guarantee, is because he was in charge of accounting and therefore should have known that the invoices underlying Approved Receivables were not accurate. This inference is not sufficient to establish the requisite knowledge or recklessness for a fraud claim.
[51] Even accepting the plaintiff’s evidence about the three categories of allegedly fraudulent invoices does not establish that Sharma knew about them or was reckless. He says he did not deal with the customer arrangements or deliveries and there is no evidence to contradict this. He handled the bookkeeping and accounting, based on the information he was provided with, or that was entered into the accounting system by someone else, and he deposes that he believed that the customers were real and legitimate and that the services invoiced had been provided.
[52] With respect to the now acknowledged Customer Directly Paid Invoices, the evidence is not sufficient to establish that Sharma had at the time of the execution of the Master Agreement and the Repurchase Agreement, or when the payments made by Growth Capital pursuant thereto, the requisite actual knowledge or recklessness that a claim for fraud requires. The mere fact that he, along with Brar, were expressing urgency with respect to the completion of the Master Agreement and Repurchase Agreement does not establish that he knew something that he was concealing, or that he was reckless.
[53] Growth Capital’s representative deposes that Sharma (and Brar) admitted to him during a meeting held on February 21, 2018 (after the agreements were signed) that Caliber had received payment for some of the Customer Directly Paid Invoices and had failed to remit those payments to Baron before entering into the Master Agreement and Repurchase Agreement. Sharma himself explains in his affidavit that it is not uncommon for customers to pay the company (Caliber) rather than the factoring company and the normal practice would have been to make monthly adjustments for these, but Caliber was in a difficult financial position and was unable to make those adjustments.
[54] The record is not clear as to when Sharma actually became aware that payments had been made in respect of the Customer Directly Paid Invoices. I am unable to find, on a balance of probabilities, that Sharma was aware that these underlying invoices had already been paid to Caliber, or that he was reckless as to whether they had been, at the time of the execution of the Repurchase Agreement or when Growth Capital paid Baron. [3] In any event, it has not been established that Sharma made any personal representations about these invoices to Growth Capital at any time.
[55] Lastly, the mere fact that Growth Capital’s representative deposes that Sharma indicated, after the collection problems were raised, that he would resolve any issues with the Customer Rejected Invoices does not establish that he knew about those issues at the time the agreements were entered into.
[56] I am not satisfied that Sharma made any fraudulent misrepresentations to Growth Capital about the allegedly fraudulent invoices. A trial is not required to determine this as I have made these findings accepting as true the plaintiff’s best evidence, which when considered in light of the surrounding circumstances and other evidence, does not establish the necessary factual foundation for a finding of fraud against Sharma.
[57] Growth Capital and Sharma both made submissions about the absence of evidence and records in the possession of Brar that might have shed light on the allegedly fraudulent invoices, particularly the Customer Rejected Invoices and the Non-Existent Customer Entity Invoices that Sharma has not verified (in contrast with the Customer Directly Paid Invoices that Sharma has now verified but claims not to have had any knowledge of at the time). The mere prospect that these records might have provided an answer to, or some explanation about, the Fraud Claims asserted by Growth Capital would not have shielded Sharma from summary judgment against him for the Fraud Claims if they had been otherwise established.
[58] Both parties acknowledge that a responding party cannot defeat a motion for summary judgment by simply pointing to missing evidence, without taking reasonable steps to secure it. See 3113736 Canada Ltd. v. Cozy Corner Bedding Inc., 2019 ONSC 2249, at para. 77 and Sweda at para. 28. The court may draw an adverse inference from the absence of records, but that does not assist the plaintiff in its case against Sharma where the Fraud Claims have not been proven based on the plaintiff’s own evidence.
[59] A moving party also cannot fill an evidentiary gap in its case by inference from the absence of affirmative evidence from the respondent. The onus never shifts from the moving party to demonstrate that there is no genuine issue for trial through proof of the facts necessary to make its case. It remains open to the responding party to defeat the motion based on the failure of the plaintiff to meet its burden. See Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 52 O.R. (3d) 97 (C.A.), at para. 30; see also Pereira v. Contardo, 2014 ONSC 6894, 123 O.R. (3d) 271, at para. 43.
[60] Any records that Brar may be in possession of were equally accessible by summons (pursuant to Rule 39.03) to either party. Neither Sharma nor Growth Capital pursued them for this motion. The prospect that these records might either corroborate, or answer, Growth Capital’s allegations of fraud against Sharma is not a reason to have a trial. The court is entitled to assume that both parties have put their best feet forward and that the best evidence of the alleged fraud committed by Sharma is before the court. I have found that the evidence is not sufficient, so the Fraud Claims against Sharma are dismissed. See King Lofts and Kassburg.
Piercing the Corporate Veil
[61] Placing their signatures in the signature block for the corporate defendant, in their capacities as officer and director, does not make Brar and Sharma personally responsible for Caliber’s breaches of that agreement. The very existence of the Personal Guarantees that they signed confirms this (as there would not be a need for their Personal Guarantees if they were directly liable under that agreement). The Personal Guarantees only guaranteed the payment and performance of Caliber’s indebtedness, liabilities and obligations to Growth Capital.
[62] Corporations serve as a shield against the personal liability of their officers and directors except in limited circumstances. To pierce the corporate veil, Growth Capital would have to establish either that Caliber had been incorporated for an illegal, fraudulent or improper purpose (which is not alleged) or that those who completely dominate or control the company in control expressly directed it to commit a wrongful act. The purpose of this exception to the usually sacrosanct separate legal personality of a corporation is to avoid those in a position of complete domination and control from using a corporation as a shield for their fraudulent or improper conduct. See 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417, 152 O.A.C. 313 (C.A.), at para. 68.
[63] The case for fraudulent misrepresentation has already been made out against Brar for reasons indicated in the previous section. There is no need to rely on a piercing of the corporate veil to hold him accountable for that, particularly when, as Sharma’s counsel points out, this theory of personal liability was not pleaded.
[64] The evidence is not sufficient to establish that Sharma dominated, or expressly directed, Caliber to falsify the invoices underlying the Approved Receivables or to misrepresent the status of their payment, in breach of the Master Agreement. Sharma’s counsel also argues that this theory of personal liability for Sharma, based on a piercing of the corporate veil, was not pleaded in the statement of claim. For both of those reasons, I am not prepared to pierce the corporate veil in order to make a finding against Sharma personally, although he remains liable under his Personal Guarantee.
Summary of Disposition and Costs
[65] The following order shall issue:
a. The plaintiff shall have judgment against all of the defendants for breach of contract, based upon their joint and several liability under the Master Agreement and the Personal Guarantees for the claimed amounts of CDN $407,576.20 and USD $2,579.60, plus pre-judgment interest from and after April 8, 2019 and post-judgment interest, pursuant to the Courts of Justice Act; b. The plaintiff’s judgment against Brar includes liability for the Fraud Claims against him for fraudulent misrepresentations made by him in respect of the Rejected Invoices and Non-Existent Entity Invoices, totalling $82,900.00 and $128,923.00, respectively; c. The plaintiffs Fraud Claims against the defendant Sharma are dismissed; d. Any amounts received by Caliber in respect of the Customer Directly Paid Invoices are declared to be held in trust by Caliber for Growth Capital pursuant to the deemed trust provisions contained in the section 2.5 of the Master Agreement; and e. The costs of this motion and the action shall be determined by agreement of the parties or by further order of this court to be made based upon the written submissions of the plaintiff and the defendant Sharma.
[66] I asked the parties to exchange their costs outlines at or shortly after the hearing of the motion and assume that this exchange has occurred. I encourage counsel to attempt to reach an agreement on costs. If they are able to do so, they should advise the court of such by April 3, 2020 and provide a draft order.
[67] If no agreement is reached on costs, then each side may make brief written submissions on costs (not to exceed 3 pages double spaced) to be delivered together with their respective costs outlines by April 17, 2020, and each may respond to the other’s in a brief reply submission on costs (not to exceed 1.5 pages double spaced) to be delivered by April 29, 2020. All cost submissions should be served on the opposing parties and delivered by email to my assistant at: linda.bunoza@ontario.ca Cost submissions should, if possible, also be filed with the court following whatever current notice to the profession is in place at the time regarding COVID-19, together with a copy of this final (signed) page of my reasons with a request that the intake office send them to me electronically. In these extraordinary circumstances, the parties may also agree to extend the time lines for costs submissions without the prior approval of the court. The parties are asked to advise the court of any such agreement by email to my assistant.
Kimmel J.
Released: March 26, 2020
Footnotes
[1] Although requested in the relief sought, I advised counsel for the plaintiff during the course of oral submissions that it is not for this court to determine or make any declaration about which, if any, of the findings of liability herein will, or will not, be released by any order of discharge from bankruptcy of the individual defendants.
[2] The claim by Growth Capital that Caliber was unjustly enriched by the payment made by Growth Capital to Baron to eliminate Caliber’s debt owing to Baron in respect of the same Approved Invoices that are the subject of the breach of contract claim is superfluous, in light of my findings in respect of the breach of contract claim.