Court File and Parties

COURT FILE NO.: CV-15-523545

DATE: 20210628

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Jamila Khwaja Plaintiff

– and –

Imran Jinnah, Asma Jinnah and 53 Puccini Mortgage Corp. Defendants

Counsel:

Emilio Bisceglia, for the Plaintiff

Stephen Schwartz, for the Defendant, 53 Puccini Mortgage Corp.

HEARD: June 8, 2021

REASONS FOR JUDGMENT

SHARMA J.

[1] The plaintiff and the defendant, 53 Puccini Mortgage Corp. (“53 Puccini”), both seek summary judgment. This action was dismissed as against the other defendants, Imran Jinnah and Asma Jinnah, by Order of Master Sugunasiri, dated March 10, 2020.

[2] Both parties assert there is no genuine issue requiring a trial.

[3] 53 Puccini seeks a dismissal of this action with costs.

[4] The plaintiff, Ms. Jamila Khwaja, seeks repayment of principal and interest in connection with her $100,000 investment in a mortgage syndication, or in the alternative, damages for breach of contract and/or unjust enrichment.

I. FACTS

[5] The plaintiff, Ms. Khwaja, is now 81 years old with a high school education. She is a homemaker and was the wife of her late husband, Alam Khwaja, who died in December of 2020.

[6] Mr. Khwaja met Mr. Imran Jinnah at the home of a mutual friend and at functions held by the Canada Pakistan Business Council. In November of 2007, Mr. Jinnah and his accountant, Mr. Mansoor Naqi, advised Mr. and Ms. Khwaja of an investment opportunity for a home construction project in Richmond Hill, Ontario.

53 Puccini Project

[7] Silver Streams Homes Inc. was a builder and developer for a residential home construction project. It was to build 118 homes in four phases in Richmond Hill, Ontario (the “Project”). Mr. Jinnah was the sole director, officer and shareholder of Silver Streams.

[8] According to Mr. Jinnah, in 2007, he incorporated a separate corporation - 53 Puccini - the remaining defendant in this proceeding. His evidence is that the purpose of 53 Puccini was to provide a vehicle for lenders to the Project. Lenders would invest in a mortgage syndication to be held in trust by 53 Puccini. The mortgage would be registered against title to the Project lands in Richmond Hill registered to a numbered company, 2147681 Ontario Inc. During the term of the loan, investors would receive monthly interest payments. Investors were to be repaid in full from the sale of the proceeds of completed homes.

[9] Mr. Naqi administered and managed the mortgage syndication. Immediately following the incorporation of 53 Puccini, Mr. Jinnah transferred control of 53 Puccini to Mr. Naqi. Mr. Naqi was Jinnah’s accountant. The Corporate Profile Report of 53 Puccini shows Mr. Naqi became a director and officer in November of 2007, and Mr. Jack Greenberg became a director and officer in September of 2008.

[10] Following Mr. and Ms. Khwaja’s discussions with Mr. Jinnah and Mr. Naqi, on December 3, 2007, Ms. Khwaja paid $100,000 to 53 Puccini and executed a Subscription and Power of Attorney Agreement with 53 Puccini (the “Subscription Agreement”).

[11] On the same date, she also obtained a personal guarantee from Mr. Jinnah as security for her $100,000 investment.

[12] Ms. Khwaja’s evidence is that the funds were to be used consistent with the business purpose for which 53 Puccini was established – namely to participate in a mortgage syndication with other investors, with the mortgage being registered against title to the Project lands in Richmond Hill.

[13] Ms. Khwaja admitted during her cross-examination that she did not read the Subscription Agreement before she signed it, and that she understood it was a legal document whose terms had legal significance. Ms. Khwaja states that she intended to review the document with a lawyer, but Mr. Naqi advised her that the document was prepared properly and there was no need to consult a lawyer. 53 Puccini did not offer evidence from Mr. Naqi to rebut this assertion.

[14] The Subscription Agreement defined Ms. Khwaja’s participation interest in the mortgage syndication, the purpose for which the funds would be used, and that the mortgage syndication funds would be only used in connection with a second mortgage on the Project lands in Richmond Hill. It also conferred broad power and authority on 53 Puccini to act as attorney and agent, including the power to discharge mortgages and execute other instruments necessary to facilitate the development of the Project.

[15] By the terms of the Subscription Agreement, 53 Puccini was acting as the agent or trustee for the individual investors who collectively formed the mortgage syndication. When the funds were loaned by 53 Puccini, 53 Puccini was the mortgagee and 2147681 Ontario Inc. was the mortgagor.

[16] The interpretation of the Subscription Agreement and the determination of who was the “lender” and borrower” is central on this motion. I refer to its terms in my analysis below.

Discharge of Mortgages

[17] According to Mr. Jinnah, on January 7, 2008, Mr. Naqi caused the 53 Puccini mortgage on the Project lands to be discharged from title to the Richmond Hill property. Mr. Naqi transferred Ms. Khwaja’s interest in the mortgage syndication from 53 Puccini to a mortgage Mr. Naqi held in the name of Icorp Global Inc., which was registered on another property in Whitby, Ontario, in which Mr. Jinnah also had an interest (the “replacement mortgage”).

[18] The Corporate Profile Report of Icorp Global Inc. shows that Mr. Naqi is also a director and officer of Icorp Global since 2005.

[19] Mr. Naqi did not provide evidence on behalf of the defendants on this motion. Mr. Jack Greenberg did.

[20] In Mr. Greenberg’s affidavit, he states that as part of his law practice, he acted for groups of investors who syndicate loans secured by mortgages registered against title to certain property. In this capacity, he was introduced to Mr. Jinnah in August of 2008. While Mr. Greenberg was not involved in the initial discussions with Ms. Khwaja about her investment, he did become a director and officer of 53 Puccini on September 8, 2008, as indicated in the Corporate Profile Report, which was not disputed by Mr. Greenberg.

[21] Mr. Greenberg’s evidence is that on September 12, 2008, Mr. Naqi asked Mr. Greenberg to prepare a waiver document to be signed by lenders to the mortgage for the Project. One of the lenders Mr. Naqi mentioned in his email was Ms. Khwaja. Mr. Naqi’s email indicated that the lenders were either being paid back, or they would release their interest in the mortgage for the Project and transfer that interest to Mr. Greenberg.

[22] In response, Mr. Greenberg prepared an Acknowledgement, Direction and Release whereby investors in the Project would transfer their interest in the mortgage to the replacement mortgage on the Whitby property. There was no evidence that Ms. Khwaja signed this document. In fact, the undisputed evidence is that she did not.

[23] Mr. Greenberg’s affidavit is that on September 18, 2008, he spoke with Mr. Naqi who advised him that all the lenders on the Puccini mortgage signed the documents for the transfer of their interest to the replacement mortgage registered on the Whitby property. Mr. Greenberg further states that he relied on the information provided by Mr. Naqi. Again, 53 Puccini did not offer evidence from Mr. Naqi to support this point. I also note that by September 18, 2008, Mr. Greenberg himself was a director and officer of 53 Puccini.

[24] On February 16, 2010, the replacement mortgage held by Icorp Global Inc. on the Whitby project was also discharged. The defendant’s evidence from Mr. Greenberg is that Mr. Greenberg discharged this mortgage on the instructions of Mr. Naqi.

Ms. Khwaja’s Lack of Knowledge or Consent of Mortgage Transfer

[25] Ms. Khwaja states the transfer of the mortgage from the Richmond Hill property to the Whitby property, as well as the discharge of the mortgage from the Whitby property, were all without her knowledge or consent. The defendants did not adduce any evidence to suggest otherwise.

[26] Mr. Greenberg’s explanation for the discharges were that they were on the instructions of Mr. Naqi. Mr. Naqi did not provide any evidence that would explain why the discharges occurred.

[27] Ms. Khwaja’s evidence is that around mid-2009, she and her husband met with Mr. Jinnah to find out when they would get a return on their investment since some of the homes on the Richmond Hill property had sold. The Subscription Agreement also contemplated that the Mortgage on the Project land would mature on April 1, 2009. It was at that time, that they learned for the first time that the mortgage on the Richmond Hill property was transferred to the Whitby property. They also learned that Mr. Greenberg was involved in the mortgage transfer.

[28] Ms. Khwaja and her husband were concerned about the safety of their investment and advised Mr. Jinnah that they wanted to meet Mr. Greenberg to find out about its status.

[29] Mr. and Ms. Khwaja met with Mr. Greenberg on April 17, 2009. There is a dispute as to what occurred at that meeting that I set out next, although it is not relevant to my analysis.

[30] Ms. Khwaja states she asked Mr. Greenberg about the transfer of the mortgage. She said she wanted to meet him to get his legal advice, since he was a lawyer. She says Mr. Greenberg gave her assurances that her investment was safe and still secured by the mortgage on the property. Ms. Khwaja further states that she gave Mr. Jinnah and 53 Puccini more time to repay the investment. She says at no time was she advised her interest was no longer secured by the mortgage.

[31] Mr. Greenberg states that he recalls meeting with Mr. and Ms. Khwaja, but that he did so as a courtesy to Mr. Jinnah. He denies advising the Khwajas not to worry about their investment, or that he gave them legal advice as their lawyer. He states he did not tell them their investment was safe. He further denies telling them that their investment was still secured by the 53 Puccini Mortgage in Richmond Hill.

[32] Relevant to this motion is an email sent by Mr. Jinnah to Mr. Greenberg, dated April 7, 2009 before the meeting with Mr. Greenberg. It confirms that Ms. Khwaja and her husband were not comfortable with their investment being secured by way of a mortgage on the Whitby property, and their intention to have their interest transferred back to the mortgage on the Richmond Hill property. It reads:

"Hi Jack,

Last year we had moved Mrs Alam 's $100,000 loan from Puccini Mortgage Corp to Whitby Mews Development Inc. The final paper work was handled by Mansoor at his office coordinating with you.

I had a meeting with Mr. Alam Khawja [sic} yesterday at his office. Following was agreed in this meeting;

• Both Mr & Mrs Alam Khawja [sic} were not comfortable dealing thru Mansoor and would prefer to deal directly with you.

• Both of them need to understand the safeguards put in to protect their capital

• They have agreed to give a extension for 6 months on the following conditions;

a. The security of the loan to be movedfrom Whitby to Puccini

b. Interest/or 6 months to be paid upfront

I am also marking this e-mail to Mr. Alam so that you can get the required clarifications from him directly if so required while developing the required documentation.”

Investment Lost

[33] Mr. Greenberg states that any loans secured by mortgages registered to title to the lands in Richmond Hill that formed the Project, either matured in February of 2013 or went into default in July of 2013 and were not repaid.

[34] In 2013, Silver Streams began to experience significant financial challenges. In December of 2013, Silver Streams and various related companies that owned the lands in the Project were granted court protection under the Companies Creditors Arrangement Act (CCAA). The companies subject to the CCAA proceedings included 2147681 Ontario Inc. (the company to which the Project land in Richmond Hill was registered).

[35] As a result of these proceedings, a number of secured creditors suffered substantial losses. There were no recoveries for any unsecured creditors in the CCAA proceedings.

[36] The CCAA proceedings resulted in a report from a referee under the Construction Lien Act, prepared by Mr. Duncan Glaholt, dated September 28, 2016. This report was approved by Justice Wilton-Siegel on November 7, 2016.

[37] That report ordered the monitor to pay various parties in ranked priority. In third priority was payment to “‘Jack Greenberg, In Trust for Private Mortgagees’, the balance of the funds held with respect to the subject lands and premises, up to but not exceeding $11,960,703.22.” Pursuant to this report, 53 Puccini was one of the Project Mortgagees.

[38] Mr. Greenberg’s evidence is that there was a substantial deficiency and the actual amount received by those parties was $2.5 million. He further stated that 53 Puccini does not currently hold Ms. Khwaja’s investment monies nor is the money sitting in his trust account. He states he does not have any funds in his trust account that belong to 53 Puccini, and 53 Puccini is not an active company.

[39] In November of 2016, Mr. Jinnah also made a proposal to his creditors under the Bankruptcy and Insolvency Act, which was accepted and approved by the court on October 31, 2017. As a result of that bankruptcy proceedings, this action was dismissed as against Mr. Jinnah and his spouse.

[40] Ms. Khwaja received thirteen interest payments on her investment between April 2009 to January 2011, although it was not paid each month. Ms. Khwaja submitted evidence showing she received $18,750 in total interest payments. She states that in 2013, the interest payments stopped and she has not been able to collect from 53 Puccini the principal amount of the investment, nor the interest thereon.

II. POSITION OF THE PARTIES

[41] Ms. Khwaja argues that she is entitled to payment of $100,000 pursuant to the terms of the Subscription Agreement, or in the alternative, that she is entitled to damages of $100,000 for breach of contract and/or unjust enrichment.

[42] 53 Puccini argues this action should be dismissed for two reasons:

a. There is no covenant in the Subscription Agreement whereby 53 Puccini agreed to pay or guaranteed the repayment of Ms. Khwaja’s investment, and

b. The plaintiff has failed to establish a claim for unjust enrichment since 53 Puccini has not been enriched and because there was a juristic reason for its receipt of the initial investment, which was set out in the Subscription Agreement.

[43] Both parties assert that these findings can properly be made on this motion and that a trial is not required.

III. ISSUES & ANALYSIS

[44] I consider the plaintiff’s motion for summary judgment first. If Ms. Khwaja has not met her burden of establishing that she is entitled to summary judgment, I may then consider whether 53 Puccini has met its burden of establishing that this claim should be dismissed.

[45] For the reasons that follow, I find that a fair a just determination of this case does not require a trial and that judgment should be granted for the plaintiff in the sum of $100,000.

Legal Principles – Summary Judgment

[46] Rule 20.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”) sets out the test for obtaining relief on a motion for summary judgment: “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 defence…”

[47] In determining whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and a judge may weigh evidence, evaluate credibility of a deponent, and draw any reasonable inferences from the evidence, unless it is in the interests for such powers to be exercised only at a trial (see r. 20.04(2.1) of the Rules).

[48] As stated in Hryniak v. Maudlin, 2014 SCC 7 (“Hryniak”) at para 49:

“There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process

(1) allows the judge to make the necessary findings of fact,

(2) allows the judge to apply the law to the facts, and

(3) is proportionate, more expeditious and less expensive means to achieve a just result.”

[49] A judge on a summary judgment motion must first determine if there is a genuine issue requiring a trial without using the new fact-finding powers in rules 20.04 (2.1) and (2.2). If there appears to be a genuine issue requiring a trial, a judge may use these fact-finding powers if it is not against the interests of justice. (Hryniak, at para 66).

[50] On a summary judgment motion, each party may not rest on allegations in its pleadings. Each party must “put its best foot forward” or “lead trumps or risk losing.” The court is entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial (see Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200 at paras 26 and 27).

Legal Principles – Contract Interpretation

[51] The following principles are relevant when interpreting the Subscription Agreement and Guarantee:

a. The overriding concern is to determine the intent of the parties and the scope of their understanding. The Court must read the contract as a whole, giving the words their ordinary meaning, consistent with the circumstances known to the parties at the time of contract formation. The setting of the contract must be considered. In a commercial contract, the court should know the commercial purpose for the contract. Creston Molly Corp. v Sattva Capital Corp., 2014 SCC 53 at para 47 (“Sattva”)

b. A provision in a contract should not be read as standing alone, but in light of the agreement as a whole and its other provisions. Beatty v Wei, 2018 ONCA 479 at para 47.

c. When looking at the surrounding circumstances in interpreting a contract, the court must not use them to deviate from the contract’s text such that the court is effectively creating a new agreement. Sattva, at para 57.

d. Contract interpretation should accord with sound commercial principles and good business sense and avoid commercial absurdity. Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673 (“Timothy’s Coffees”)

e. Where a transaction involves the execution of several documents, with each document executed in the faith of the other, then assistance in the interpretation of one agreement may be drawn from the related agreements. Timothy’s Coffees at para 16.

The Subscription Agreement

[52] After reading the contract in its entirety, I recount some of the relevant terms found within Subscription Agreement that inform my analysis. Any emphasis is mine.

[53] Paragraph 1 the Subscription Agreement establishes the core of the agreement between the parties and it is recounted in full:

The undersigned hereby subscribes for a $ One hundred thousand ($100,000) Dollar participation interest (the “Unit(s)”) in a certain mortgage syndication to be described herein (the “Mortgage Syndication”) and to be held in trust by 53 PUCCINI MORTGAGE CORP. substantially on the terms and conditions set out herein. The total participation amount for all the Unit(s) in the Mortgage Syndication is Five Hundred Thousand Dollars ($500,000). The undersigned tenders herewith the sum of $100,000.00 in case or by certified cheque or bank draft payable to 53 PUCCINI MORTGAGE CORP. to be negotiated only once this Subscription is accepted. The balance of any such proceeds shall be delivered to 53 PUCCINI MORTGAGE CORP. by certified cheque or money order on or before December 3, 2007 and same shall be held and only used as set out herein in connection with a second mortgage on Lot 4 Plan M 807 Richmond Hill, being a residential home development site in the Town of Richmond Hill (the “Project”).

[54] Paragraph 3 states Ms. Khwaja’s participation in the mortgage syndication is subject to Ms. Khwaja’s execution of a Mortgage Syndication Agreement, “if any”. This document, however, was never executed. The defendant noted that the language “if any” suggests that a Mortgage Syndication Agreement was not necessary for the Subscription Agreement to have effect. Since it was not executed or presented to Ms. Khwaja, it is irrelevant in my analysis as to what it might contain.

[55] In paragraph 5(b), Ms. Khwaja irrevocably nominates 53 Puccini as Ms. Khwaja’s “lawful attorney and agent, with full power and authority …to…execute…deliver and file…:”

a. “all partial discharges, discharges, postponements, conveyances, agreements and other instruments necessary or desirable to facilitate the development, construction and marketing of the Project including any sales, refinancings of the whole or any part thereof and to reflect the dissolution and termination of the Mortgage Syndication…” (para 5(b)(i)(C)).

b. “execute and deliver all such other documents or instructions on behalf of and in the name of the Mortgage Syndication…as may be deemed necessary for or desirable by 53 Puccini Mortgage Corp to carry out fully the provisions of the Mortgage Syndication Agreement in accordance with its terms.” (para 5(b)(iii)

[56] The exercise of the power of attorney by 53 Puccini was “limited to the extent of the rights and obligations” under the Mortgage Syndication Agreement (para 7(a)).

[57] Within the Subscription Agreement, Ms. Khwaja acknowledged the following points:

a. No securities commission or similar authority has passed upon the Mortgage Syndication (para 5(c));

b. The Mortgage Syndication has no operating history and there are no guarantees whatsoever including guarantees relating to performance (para 5(d));

c. There are substantial risks in the investment in connection with the Project or in connection with the release of any funds pending the closing of the Project (para 5(e));

d. Having been advised to obtain independent financial, legal and accounting advice (paras 5(h), 5(i)(A);

e. That Mr. Naqi is simply acting as escrow agent for the Mortgage Syndication and not as an investment advisor (paras 5(h), 5(i)(B);

f. That Mr. Naqi, as Manager, shall be entitled to implement all decisions concerning the day to day management and administration of the Mortgage Syndication, notwithstanding that he may have a personal interest in or a conflict in connection with the Project or Mortgage Syndication (para 5(i)(C)).

g. That “all of the funds to be paid in connection with this subscription are in connection with a second mortgage on the Project (“Mortgage”) on terms which include the following” (para 5(i)(D):

i. The Mortgage is subordinate only to a first mortgage;

ii. The Mortgage shall bear interest at 15% per year calculated monthly;

iii. “Any released funds shall bear interest at the rate of 15% per annum calculated monthly not in advance and payable interest only monthly in arrears”

iv. The Mortgage will mature on April 1, 2009, provided however that the mortgagee (53 Puccini) “shall be entitled to extend same from time to time, but for an extension period not to exceed one further year.” The mortgagee reserved the right to demand partial or full payment of the principal on the mortgage, by providing 60 days notice to the mortgagor (2147681 Ontario Inc).

v. The Mortgage shall be open for repayment in whole or part at any time or times upon payment of the whole or any part of the balance of principal outstanding thereunder plus all interest…”

[58] Notably, the Subscription Agreement did not include terms setting out any rights of investors. For example, it did not define when interest payments would be made to participants, like Ms. Khwaja. Nor did it define when payment on the principal of the loan would occur, although the mortgage was to mature on April 1, 2009, subject to a maximum one year extension, which suggests that date would be an interval at which investors would or might be repaid. There was, however, no promise to repay. In other words, the Subscription Agreement contained no covenant by which 53 Puccini agreed to pay or guaranteed the repayment of Ms. Khwaja’s investment in the mortgage syndication.

[59] In my view, the language of the Subscription Agreement only confirmed an agreement on these principal issues:

a. the participation of Ms. Khwaga for $100,000 in the mortgage syndication in relation to the Project in Richmond Hill,

b. an acknowledgement of the risks of participation;

c. the authority of 53 Puccini to act for the investors as attorney or agent, in relation to the Project;

[60] The issue then becomes whether an obligation to pay the principal should be inferred in Subscription Agreement.

The Guarantee

[61] On December 3, 2007, the same day the Subscription Agreement was signed, Mr. Jinnah signed a personal Guarantee and Postponement of Claim (the “Guarantee”) in favour of Ms. Khwaja. Mr. Jinnah stated at his cross-examination that this was at Ms. Khwaja’s request, and it was the only personal guarantee he offered to any investor.

[62] The language in the Guarantee identifies Ms. Khwaja as the “Lender”. It defines 53 Puccini as the “Borrower.” It states:

WHEREAS the Lender has agreed to extend a loan (the loan in favour of 53 Puccini Mortgage Corp (the borrower in the maximum principal amount of One Hundred Thousand Dollars ($100,000.00) on the terms and subject to the conditions set out in a Subscription and Power of Attorney) the Agreement dated December 3, 2007 between the Lender and the Borrower, inter alia;”

Analysis

[63] Ms. Khwaja argues this Court can look to the terms of Guarantee to find a lender-borrower relationship as between Ms. Khwaja and 53 Puccini within the Subscription Agreement. I disagree.

[64] In my view, relying upon the Guarantee to interpret a lender-borrower relationship and an implied covenant to repay a loan would be inconsistent with the parties intention at the time the contract was entered into, the commercial purpose of the contract, and the express language of the Subscription Agreement.

[65] The evidence of Mr. Jinnah is that 53 Puccini was established as “a vehicle for lenders” to the Project whereby “lenders would invest in a mortgage to be held in trust by 53 Puccini”. The evidence of Ms. Khwaja and 53 Puccini supports that this was the reality within which the parties were operating. The agreement expressly stated that repayment on the investment was not guaranteed and that there were risks with this investment. The commercial purpose was to attract investors with a rate of return of 15%, but with an express understanding that there were risks.

[66] The Subscription Agreement contemplates that individual investors would have participant interests in a syndicate. Together their proceeds would be loaned by 53 Puccini as the lender (mortgagee) to 2147681 Ontario Inc. as borrower (mortgagor), and that the mortgage would be registered on title to the property owned by the borrower in Richmond Hill. This is confirmed in Mr. Jinnah’s cross-examination and the documentary record.

[67] While 53 Puccini was the lender, it wore a double hat as the agent or trustee upon which the individual investors relied to create the mortgage syndicate. This was the commercial reality of the arrangement, supported by the express words of the Subscription Agreement. 53 Puccini was granted the authority to act on behalf of individual investors to loan funds to the mortgagor, which would be secured by a second mortgage on the Project property. This understanding is also consistent with the evidence of Mr. Jinnah and Ms. Khwaja about their expectations.

[68] Ms. Khwaja may have held an expectation to be repaid the principal. However, the Subscription Agreement made clear that this was dependent upon the actual borrower, 2147681 Ontario Inc., repaying the funds to 53 Puccini as the lender and as the mortgage syndicate agent for the investors. Therefore, I find that 53 Puccini was not the borrower in this commercial relationship in relation to the investors. It would be improper to infer from the Guarantee that 53 Puccini was the borrower in the Subscription Agreement. In relation to Ms. Khwaja and other investors, 53 Puccini was the agent or trustee.

[69] To infer a guaranteed covenant to repay the investment, in the face of express words to the contrary, would bring a commercially absurd result. It would establish a new contract, materially different from the words used by the parties, that cannot be inferred from the evidence around the circumstances when the contract was entered into.

[70] 53 Puccini relies on Orwinski v. Hi-Rise Capital, 2019 ONSC 3975 for the proposition that the Subscription Agreement does not impose a positive obligation on a mortgage syndicate to repay a loan. The facts in that case were different in that it deals with a request by an investor for an early redemption on a similar agreement as the Subscription Agreement in this case. In any event, my reasoning in this decision is consistent with that of my colleague, Justice Ferguson. We both found that a mortgage syndication agreement does not establish a lender-borrower relationship or an unqualified right to a return of capital.

[71] Under the Subscription Agreement, 53 Puccini’s responsibility as agent for the investors was to hold and invest funds received from investors only in connection with a second mortgage on the Project lands in Richmond Hill, and to repay principal and interest once or if 53 Puccini received payment on the mortgage from the borrower. The Subscription Agreement did not create a lender-borrower relationship as between Ms. Khwaja and 53 Puccini.

Breach of Contract

[72] The plaintiff argues there was a breach of contract when, on January 7, 2008, 53 Puccini caused the mortgage on the Project lands in Richmond Hill to be discharged and transferred to another company that then registered the mortgage to lands in Whitby, without the consent or agreement of Ms. Khwaja.

[73] I agree.

[74] First, paragraph 1 of the Subscription Agreement states clearly that the funds “shall be held and only used as set out herein in connection with a second mortgage” on the Richmond Hill Project land.

[75] Paragraph 5(i)(D) further states that all of the funds paid in connection with this subscription “are in connection with a second mortgage on the Project”. This is followed by para 5(i)(D)(1) that states the “Mortgage is subordinate only to a first mortgage thereon which shall provide funds for acquisition and servicing of the Project”. The Project is clearly defined in paragraph 1 as being limited to the Project lands in Richmond Hill.

[76] Given the significant risks with this investment, how the invested funds were to be secured was a critical component of the agency/trustee relationship as between Ms. Khwaja and 53 Puccini.

[77] I disagree with the assertion that the Subscription Agreement conferred broad authority on 53 Puccini to discharge the mortgage on the Project land and transfer it to another property as it saw fit, without any constraints.

[78] While 53 Puccini had authority to act as attorney and agent to discharge mortgages, that power was to be exercised to “facilitate the development, construction and marketing of the Project” in Richmond Hill as found in para 5(b)(i)(C). Moreover, the authority to exercise the power of attorney is limited to the rights and obligations of 53 Puccini under the Mortgage Syndication Agreement (para 7(a)), which was never signed. In its absence, the Court cannot infer that 53 Puccini had the power to exercise a power of attorney, using the funds of the investors, for something unrelated to the Project.

[79] The defendants did not offer any evidence to suggest that they had the authority to transfer the mortgage. If it had such evidence, it would presumably be from Mr. Naqi who was administering the mortgage syndicate at the relevant time and directed the transfer to occur. However, the defendant did not put its best foot forward by adducing any evidence from Mr. Naqi. The limited evidence with respect to the transfer was from Mr. Greenberg, who merely stated that “he relied on Naqi’s representation that all lenders in the Puccini Mortgage agreed to a transfer of their participation in the Puccini Mortgage to the Whitby Mortgage.” There was no other evidence to suggest that Ms. Khwaja agreed to the transfer.

[80] In my view, it was incumbent upon the defendant to lead evidence about the discharge and transfer of the mortgage to defend against the plaintiff’s allegation in her Statement of Claim that 53 Puccini breached the Subscription Agreement by these acts.

[81] During his cross-examination, Mr. Jinnah was asked about the discharge of the mortgage, and why Ms. Khwaja was not repaid her investment. Each time, Mr. Jinnah declined to answer and advised Ms. Khwaja’s counsel to ask Mr. Naqi. In my view, the defendant had notice that this issue was live, and it had a burden to put its best foot forward. From its failure to do so, this Court is entitled to draw a negative inference as a result.

[82] Without any rebutting evidence from Mr. Naqi, I accept the uncontradicted evidence of Ms. Khwaja that the transfer of the mortgage was without her knowledge and consent.

[83] The evidence is also clear that Ms. Khwaja was concerned about the transfer of her interest in the mortgage to the Whitby property, and she wanted her agent – 53 Puccini – to abide by the original Subscription Agreement. This is confirmed by the April 7, 2009 email from Mr. Jinnah to Mr. Greenberg advising that Ms. Khwaja wanted to “protect her capital” and that she wanted the security for her investment “to be moved from Whitby to Puccini.”

[84] To interpret the Subscription Agreement as giving unrestricted authority for 53 Puccini to discharge and transfer mortgages as it saw fit makes little commercial sense. New investors would not be able to appreciate the risks at the time of contract formation. While investors were advised that there were significant risks with the Project, they understood those risks were limited to the risks inherent in having a second mortgage secured on the Project lands. The transfer of the mortgage, without the consent of the investor, created new risks that the investors were entitled to understand as a condition of having 53 Puccini to continue to serve as their agent. This opportunity was not afforded to Ms. Khwaja.

[85] While Ms. Khwaja admits she did not read the Subscription Agreement or seek legal advice before signing it, it does not mean that 53 Puccini has the authority to fundamentally change a critical term of its agency contract with Ms. Khwaja to her detriment.

[86] As a result, I find that 53 Puccini breached its contract with Ms. Khwaja when it transferred the mortgage from the Project lands to the property in Whitby, namely, January 7, 2008.

Effect of April 2009 meetings

[87] 53 Puccini notes that this action was not commenced until 2015, although Ms. Khwaja was aware that her interest in the mortgage was transferred in April of 2009. It argues this is telling because Ms. Khwaja did not object to receiving interest payments in the hopes of also receiving her principal. In my view, there is no evidence to suggest that Ms. Khwaja consented or condoned the transfer of her interest in the mortgage.

[88] The documentary evidence shows that on April 7, 2009, Mr. Jinnah directed Mr. Greenberg to transfer back Ms. Khwaja’s interest in the mortgage to the Richmond Hill Project lands.

[89] Mr. Greenberg’s evidence is that after his meeting with the Khwajas, he spoke with Mr. Naqi by phone. Mr. Naqi indicated that the principal of the Whitby mortgage had increased to $1.3 million, and that he could not recall what position Ms. Khwaja took concerning the transfer of her mortgage investment in the Puccini Mortgage to the Whitby mortgage. Mr. Greenberg states that he understood Mr. Naqi would speak with them.

[90] There was no evidence adduced by Mr. Naqi as to whether or not he did speak with Ms. Khwaja. By April of 2009, Mr. Greenberg was also a director and officer in 53 Puccini and he also had responsibilities on behalf of 53 Puccini as its agent to Ms. Khwaja. The Court is left with the uncontradicted evidence of Ms. Khwaja that at no time did she consent to her interest in the mortgage being transferred or remaining on the Whitby property.

Damages

[91] In my view, Ms. Khwaja is entitled to damages of $100,000, representing the value of her investment that was to be managed by her agent, 53 Puccini, pursuant to the terms set out in the Subscription Agreement.

[92] Those damages arose when the contract was breached on January 7, 2008, namely when the mortgage on the Project land was discharged.

[93] After that date, and beginning in April of 2009, Ms. Khwaja received thirteen interest payments, totalling $18,750. April 2009 was also the date upon which the mortgage on the Project lands was to mature.

[94] In my view, it would be unfair to 53 Puccini to allow Ms. Khwaja to retain these interest payments since they were all made after January 7, 2008 when the breach occurred, and after April of 2009, when Ms. Khwaja discovered the breach. April 2009 was also the date upon which the mortgage was to mature under the Subscription Agreement.

[95] As a result, Ms. Khwaja possessed a legitimate expectation that the mortgage would be paid out at that time. At that time, she was either entitled to the return of her investment from 53 Puccini due to the breach of contract, or she was entitled to interest if she chose to continue her investment, but not both. Accordingly, I have reduced her damage award by $18,750.

[96] 53 Puccini is ordered to pay Ms. Khwaja $81,250.00 in total damages.

IV. COSTS

[97] The parties are encouraged to agree upon costs for this motion. If the parties are unable to agree, they may make brief written submissions to me (maximum three pages double-spaced, with an attached bill of costs). Ms. Khwaja may have 14 days from the release of this decision to provide her submissions, with a copy to the defendant. 53 Puccini shall have a further 14 days to respond.

M.D. Sharma J.

Released: June 28, 2021