COURT FILE NO.: CV-20-0063522

DATE: 20210125

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CHARLES PERLMAN

Plaintiff

– and –

FRIEDRICH NIKOLAI LEHNER a.k.a. ERIC LEHNER, WINNING BRANDS CORPORATION, NIAGARA MIST MARKETING LTD. and XMG CORPORATION

Defendants

Joshua Suttner, for the Plaintiff

Scott Fairley, for the Defendants

HEARD: December 16, 2020

O’Brien, J.

REASONS FOR JUDGMENT

[1] The Plaintiff, Mr. Perlman, brings this motion for summary judgment. He seeks to obtain judgment with respect to several loans he made to the Defendant companies and one loan for which the Defendants acted as guarantors.

[2] Mr. Perlman is retired and not a sophisticated lender. Through the loans, he was seeking to make additional money to supplement a government pension. Mr. Perlman initially made two loans to the Defendants, which were paid. He then made a series of loans that were unpaid. He fell into a situation where he felt “trapped” into continuing to loan funds to the Defendants to keep them afloat so he could be repaid. Mr. Perlman ultimately loaned the Defendants $85,000 CAD and $23,462.20 USD. He also made a loan to another company, which was guaranteed by the Defendants, in the amount of $10,000 CAD. These loans all remain unpaid.

[3] The loans were made through dealings with the principal of the corporate Defendants, the Defendant Eric Lehner. The Defendant Winning Brands Corporation (“Winning Brands”) is a public corporation incorporated pursuant to the laws of the State of Delaware, but with its head office in Barrie, Ontario. The other corporate Defendants are Ontario corporations that are subsidiaries of Winning Brands. Mr. Lehner is the sole director and officer of all the corporate Defendants.

[4] Mr. Perlman’s first unpaid loan was to a company in which Mr. Lehner was not directly involved, but with which he was trying to finalize a joint venture, Supreme Sweets Inc. (“Supreme”). In late October 2017, Mr. Lehner coordinated a loan between Mr. Perlman and Supreme in the amount of $10,000 CAD, with repayment due two months later and a fee owed to him of $1,300.

[5] The rest of the unpaid loans were all to the Defendants. The first three were: a loan dated November 14, 2017 in the amount of $15,000 CAD with a facility fee of $1,950, a loan dated December 14, 2017 in the amount of $25,000 CAD with a facility fee of $4,000, and a loan dated December 18, 2017 of $15,000 CAD with a facility fee of $1,950.

[6] In January 2018, when these loans remained outstanding, Mr. Perlman agreed to make a further loan to the Defendants. The parties entered into a document they called a “Consent Amendment”. The Consent Amendment provided that Mr. Perlman would loan a further $7,500 CAD to the Defendants and, in return, the Defendants agreed to an interest rate of 15 percent per month with respect to the $7,500, as well as retroactively with respect to the outstanding loans, in lieu of the facility fees. The Defendants also agreed to guarantee the Supreme loan, with a retroactive interest rate of 15 percent applying to that loan as well.

[7] From March to June 2018, Mr. Lehner made four further loans to the Defendants, two in Canadian dollars and two in US dollars. By May 2019, all the loans to the Defendants and the loan to Supreme remained outstanding. Mr. Perlman retained counsel who contacted Mr. Lehner about repayment. Mr. Lehner ultimately signed an Acknowledgment of Debts and Guarantee (“Acknowledgment”), in which he confirmed the amounts owed. This served to extend the limitation period. In addition, through the Acknowledgment, Mr. Lehner agreed that, instead of the facility fees or amended monthly interest rate in the Consent Amendment, the retroactive interest rate for each loan would be 60 percent per annum. This lowered the interest rates to the legal limit in order to avoid violating s. 347 of the Criminal Code, R.S.C. 1985, c. C-46.

[8] Mr. Perlman now seeks a judgment in the amounts owed on the loans to the Defendants, as well as against the Defendants as guarantors of the Supreme loan. In addition, he seeks a declaration that the Defendants received the loans from Mr. Perlman based on fraudulent misrepresentation. Although I have not received evidence that the Defendants currently are bankrupt, Mr. Perlman seeks this declaration so that his claim would survive any eventual discharge from bankruptcy of the Defendants pursuant to s. 178 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”).

[9] The Defendants deny that this matter should be determined by summary judgment. They also take the position that this court should not make any determination regarding the Supreme loan, given that Mr. Perlman has commenced a claim in Small Claims Court against Supreme in relation to that loan. They further submit that the Acknowledgment is void as unconscionable. Finally, they submit that the Defendants did not engage in fraudulent misrepresentation.

[10] The issues to be determined are:

1. Is there a genuine issue requiring a trial?

2. Should this court decline to make a determination regarding the Supreme loan at this time given the outstanding proceeding in Small Claims Court?

3. Is the Acknowledgment void as unconscionable?

4. Did the Defendants engage in fraudulent misrepresentation?

[11] For the reasons that follow, I am able to determine this matter by summary judgment. I find that Mr. Perlman is owed the amounts set out in the Acknowledgment, in addition to interest of 60 percent. I am not prepared to grant judgment with respect to the Supreme loan, given the outstanding proceeding in Small Claims Court, but do declare that the Defendants are guarantors of that loan and will be entitled to judgment on that loan if Mr. Perlman obtains a judgment from Small Claims Court. Finally, I find that the Defendants engaged in fraudulent misrepresentation with respect to the loans made in November and December 2017 and in January 2018, but not with respect to the subsequent loans.

Is there a genuine issue requiring a trial?

Pursuant to r. 20.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial. According to Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 49There 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 a proportionate, more expeditious and less expensive means to achieve a just result.

[12] The Supreme Court continues, at para. 50, “the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.”

[13] The motion judge should first determine if there is a genuine issue requiring a trial based only on the evidence before her, without using the fact-finding powers in rr. 20.04(2.1) and (2.2). If there appears to be a genuine issue requiring a trial, she should then determine whether the need for a trial can be avoided using the fact-finding powers. Rule 20.04(2.1) permits the motion judge to (1) weigh the evidence, (2) evaluate the credibility of a deponent, and (3) draw any reasonable inference from the evidence. Under r. 20.04(2.2), the motion judge for the purposes of exercising these powers can order that oral evidence be presented. The expanded fact-finding powers may be used provided that their use is not against the interests of justice: see Hryniak, at para. 66.

[14] The responding party on a motion for summary judgment is required to put its “best foot forward” or risk having summary judgment awarded against it: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 at para. 26, aff’d 2014 ONCA 78, leave to appeal refused, 2015 CanLII 39803 (SCC). Generally, 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.

[15] In my view, there is no genuine issue requiring a trial in this case. Much of the case is about the interpretation of documents. The parties entered into written agreements for many of the loans. In any event, the principal amounts of the loans are not disputed, nor is it disputed that the loans remain unpaid. In addition, Mr. Lehner signed the Acknowledgment, recognizing not only the amounts owed but also committing to an interest rate of 60 percent on the loans.

[16] However, the two primary issues left for me to determine are based on more contentious facts: allegations of fraudulent misrepresentation and that the Acknowledgment was unconscionable. I am satisfied on the record before me that I can make the necessary findings to resolve those issues and that it will be in the interests of justice to do so.

[17] Mr. Perlman has filed an exhaustive record, with an affidavit and attachments totalling over 500 pages, comprised largely of the various loan agreements and many pages of emails. These emails set out the detailed communications between the parties. Meanwhile, in spite of the Defendants’ obligation to put their best foot forward, they have filed only an affidavit of Mr. Lehner totalling 15 pages including attachments. In the affidavit, Mr. Lehner acknowledges the amounts owed but makes bald statements or denials related to the remaining issues in dispute, mostly without referencing any specific discussion or email. Where the evidence conflicts, I am confident I am able to make findings of credibility against Mr. Lehner based on the contents of the email communications filed by Mr. Perlman and based on what is notably absent from Mr. Lehner’s own affidavit, as further detailed below under each issue.

[18] I am mindful that this action is brought under the simplified procedure and that the primary allegations remaining to be determined involve disputed facts. As set out in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1, at para. 254, “it will often be the case that bringing a summary judgment motion will conflict with the efficiency that can be achieved simply by following the abridged procedures in Rule 76.” The Court of Appeal noted at para. 256 that summary judgment should be discouraged in simplified procedure actions where there is competing evidence from multiple witnesses, the evaluation of which would benefit from cross-examination, or where oral evidence is clearly needed to decide certain issues. This is especially so given that Rule 76 limits discoveries and prohibits cross-examinations on affidavits.

[19] Although the absence of cross-examinations is an important consideration, the Defendants did not provide any indication of what further information they sought from Mr. Perlman, nor where they considered his evidence to be incomplete or not credible. Moreover, Mr. Perlman attended the motion, with Plaintiff’s counsel having offered that he would be available on the day of the motion for cross-examination if needed. I raised with Defendants’ counsel whether he wished to cross-examine Mr. Perlman and he did not indicate any intention to do so. I also am of the view that the efficiency rationale of summary judgment is met in this case. The total amount loaned, while significant to Mr. Perlman, is less than $100,000 CAD and less than $25,000 USD. There is no dispute that these amounts are owed, and Mr. Lehner signed an Acknowledgment to that effect. There are no other suggested witnesses. Finally, although there are remaining factual issues in dispute, in the particular circumstances of this case, where there is an extensive documentary record of communications and where Mr. Lehner has not referred to nor provided any other specific communication, I infer that there are no communications of any importance other than already provided in the documentary record. I consider it to be in the interests of justice to decide this matter by summary judgment.

[20] Although not specifically related to summary judgment, the Defendants also submit that I should not decide the issues regarding the Supreme loan on the motion, as the proceedings in Small Claims Court remain outstanding. This is an issue of timing. The Defendants submit the court should be concerned about inconsistent decisions if I decide this matter now. I agree with this concern. Although Mr. Perlman initially obtained judgment from the Small Claims Court, the Defendants did not attend the trial. The Defendants subsequently obtained an order to overturn the judgment. A new trial date was set but had to be adjourned due to the COVID-19 pandemic. A new trial has not yet been scheduled. If I grant judgment with respect to the Supreme loan, the decision could be inconsistent with the determination of the Small Claims Court on the same loan. However, I can adjudicate on the guarantee. In my view, it is clear from the terms of the Consent Amendment that the Defendants committed to being guarantors of the Supreme loan. Therefore, if the Small Claims Court finds that Mr. Perlman is entitled to payment under the Supreme loan, Mr. Perlman is entitled to enforce that loan against the Defendants as guarantors.

Is the Acknowledgment void on the basis of unconscionability?

[21] The Defendants’ argument that the Acknowledgment is void relies on the fact that Mr. Lehner did not have legal counsel when he signed the Acknowledgment, was facing extremely high interest claims, and understood it was necessary to sign the document to avoid litigation and negotiate for a reasonable interest rate.

[22] For an agreement to be found unconscionable, as set out in Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] S.C.J. No. 16, at para. 65, there must have been both an inequality of bargaining power and a resulting improvident bargain. Unconscionability is an equitable doctrine used to set aside unfair agreements. Equitable doctrines allow judges to respond to the individual requirements of particular circumstances, paying careful attention to context. In particular, the doctrine of unconscionability permits judges to look behind the classic paradigm of freedom of contract in appropriate, individual circumstances: see Uber, at paras. 54-58.

A. Equities weigh against the Defendants

[23] In the circumstances between these parties, the equities do not weigh in favour of the Defendants. Mr. Perlman was an unsophisticated lender looking to make extra money to supplement his government pension. In his initial email with Mr. Lehner, he specifically highlighted that he was not experienced in lending, while also noting that he did not have any financial information about the Defendants:

Please note I have no financials from your firm. I don’t know if you have outstanding debts, loans liens, lawsuits, large liabilities, serious cash flow problems, Etc. Any Financial information would be helpful.

As I explained to Mr. Lowy [from Supreme] I am not a venture capitalist, professional lender, angel investor nor a shark like in Shark tank.

Merely a retired gentleman looking to generate some revenue stream to compliment [sic] my Government pension that is not much income.

[24] By February 2018, Mr. Perlman had loaned the Defendants $62,500 that remains unpaid. As set out in his affidavit, he felt “trapped.” He was “terrified” that if the Defendants went bankrupt, he would “lose everything” and never be paid back. He felt he needed to provide additional loans in the hope that the Defendants ultimately would be able to repay him.

[25] By April 2019, when he had loaned the Defendants more money, still without any repayment, Mr. Perlman wrote in an email to Mr. Lehner that he was “financially destroyed” and “mentally destroyed”.

[26] Even after the signing of the Acknowledgment, and although he submits that he wished to negotiate a more favourable interest rate, Mr. Lehner has not paid any part of the amounts owing. The Acknowledgment was executed on June 3, 2019. After the Acknowledgment was signed, Mr. Perlman waited over seven months before starting this action in the hope of making some arrangement for repayment. The Defendants still have not paid any of the amounts owed.

B. No unequal bargaining power

[27] The primary focus of the Defendants’ concern about the Acknowledgment is the provision that the outstanding loans would be subject to an interest rate of 60 percent. I do not find Mr. Lehner to have had an inequality of bargaining power with respect to the Acknowledgment, nor, in all the circumstances, can the Acknowledgment be said to be an improvident bargain.

[28] First, Mr. Lehner himself proposed a higher interest rate than 60 percent per annum in the initial loans from Mr. Perlman. Mr. Lehner provided Mr. Perlman with the loan templates. He also specifically explained that the “facility fees” or “handling fees” were described this way in the loan documents because they represented impermissibly high interest rates. In an email dated October 24, 2017, Mr. Lehner explained to Mr. Perlman that the payment was characterized as a handling fee “because the return is too high to be characterized as interest (due to the legislated upper limit on interest in Canada of 60% per annum).”

[29] Then, when Mr. Lehner was proposing a further loan from Mr. Perlman in January 2018 (with three previous loans still outstanding), he proposed a retroactive increase in the interest rates on the existing loans. In an email dated January 18, 2018, he proposed an increase of the interest rate from 13 percent per month (the rate at which the facility and handling fees had been calculated) to 15 percent per month, retroactively. The 15 percent per month rate then was incorporated into the terms of the Consent Amendment, with Mr. Perlman loaning a further $7,500 to the Defendants.

[30] The Defendants submit that the high interest rate in the loan agreements was only intended on a short-term basis until the loans were due, not as an interest rate that would apply over a lengthy period if the loans were unpaid. This submission does not square with the wording of the Consent Amendment, in which the 15 percent interest rate was described as a monthly rate until repayment of the loan. Further, two of the loans Mr. Perlman made after the Consent Amendment were due on demand, with interest rates of 15 percent. Given that there was no due date for those loans, it was contemplated that the interest rate would apply until the loan was paid.

[31] Mr. Lehner also asserts in his affidavit that it was Mr. Perlman who “purported to convert the handling fee” to the “15 percent per month interest, being 180 percent per annum.” He also asserts that he was not aware at the time of discussions with Mr. Perlman’s lawyer that interest rates that had been charged were illegal. These statements are plainly untrue. The email trails provided by Mr. Perlman categorically demonstrate that it was Mr. Lehner who proposed the 15 percent interest rate and Mr. Lehner who provided Mr. Perlman, by email attachment, with the proposed Consent Amendment, including the 15 percent interest rate. Further, in the October 24, 2017 email reproduced above, Mr. Lehner himself explains that the wording of the loan agreements was intended to avoid the 60 percent per annum “legislated upper limit” in Canada.

[32] In short, Mr. Lehner was well aware of the upper limit for annual interest rates. Meanwhile, he himself proposed interest rates of 15 percent per month, which translated to 180 percent per year, when it suited him to do so in order to obtain the loans he wanted. He did not suffer from unequal bargaining power when Mr. Perlman inserted the lower 60 percent per annum in the Acknowledgment.

[33] Second, the fact that Mr. Lehner signed the Acknowledgment without the assistance of legal counsel does not represent an inequality of bargaining power. Mr. Perlman’s counsel encouraged Mr. Lehner to retain legal counsel before signing the Acknowledgment and offered to refer him to a lawyer. Mr. Lehner initially advised that he had scheduled a meeting with a lawyer, then said the meeting had not occurred. At that point, he said he would be willing to sign the document without speaking to a lawyer if certain changes were made. Mr. Perlman’s counsel responded, saying, “I am not going to recommend that you do not review this with your lawyer. We can wait until the 27th [the date to which the meeting with the lawyer purportedly had been moved] to hear back from you.” Mr. Lehner ultimately did not retain a lawyer and advised that he was “willing to forego conventional legal representation” because he did not consider himself to be in an adversarial relationship with Mr. Perlman. Mr. Perlman’s counsel’s response to this suggestion was crystal clear:

My advice is not that you forego legal representation, but if you are satisfied that you can sign the acknowledgment without such representation, that is your decision. Note that the acknowledgement says that you have had the opportunity to consult counsel and in the event that this does proceed to litigation, I will rely on this e-mail to foreclose any defence raised that you did not have adequate legal representation or advice.

[34] In addition, the Acknowledgment itself contains a clause specifically stating that the Defendants “acknowledge and affirm that no party is under any legal disability and that they have had the opportunity to consult with legal counsel and having chosen to exercise that right, or not, as the case may be, they represent that they understand the terms of this agreement and that they enter into this agreement freely, without compulsion or duress.”

[35] Mr. Lehner cannot be told repeatedly that he should retain his own counsel and be warned about the consequences of refusing to do so, then when he does refuse, claim he was unfairly treated. His lack of legal representation does not constitute an inequality of bargaining power.

C. No improvident bargain

[36] In any event, the Acknowledgment was not an improvident bargain. It restated the amounts the Defendants agree were owed to Mr. Perlman. Otherwise, the only change was to reduce the interest rates Mr. Lehner had himself proposed. Although the interest rate inserted in the Acknowledgment, 60 percent per annum, is the upper legal limit in Canada, Mr. Lehner understood this and chose to accept it. Meanwhile, at the time of the signing of the Acknowledgment, it had been 18 months since Mr. Perlman had made the first of many loans. By the date of the Acknowledgment, Mr. Perlman had not received a cent in repayment on any of them. In Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7, [2004] 1 S.C.R. 249, at para. 43, in providing guidance regarding courts’ remedial discretion to cure illegal interest rates, the Supreme Court noted the importance of not subverting the policy behind s. 347 of the Criminal Code, namely the intention to curb loansharking activity. However, courts were directed to approach situations that clearly did not involve loansharking cautiously, keeping in mind that there was no need to deter, through the criminal law, effective interest rates of up to 60 percent per year. Although there is no need to cure an illegal interest rate here, I note that enforcing the 60 percent rate in the Acknowledgment is entirely unrelated to loansharking. It was Mr. Perlman who was taken advantage of in the circumstances of this case, not Mr. Lehner.

[37] The Defendants submit that Mr. Lehner only signed the Acknowledgment in order to be able to negotiate a better interest rate. This may well have been the case, but it does not negate the clear wording of the Acknowledgment, which sets out that an interest rate of 60 percent per annum would be applied to the loans. In any event, I reject the suggestion that Mr. Lehner did not realize he was entering into an enforceable document. Mr. Lehner no doubt wanted to negotiate for a reduced rate, but on signing the document wrote in an email: “I understand that I have made myself more vulnerable with the signature of that document”. Moreover, to the extent Mr. Lehner stated he wished to negotiate a lower interest rate, he knew that was only a possibility, not a certainty. In an email of May 28, 2019, in which he advised that he was willing to sign the Acknowledgment, his language reflected his knowledge that negotiation of the interest rate was only a possibility. Specifically, he confirmed that there was “a willingness to at least ask if there [was] a possibility of a different interest rate” (emphasis added).

[38] In any event, after signing the Acknowledgment, Mr. Lehner never proposed a different interest rate nor made any payments due under the loans. Although the Defendants submit that Mr. Perlman and his counsel refused to meet with Mr. Lehner, this is because he repeatedly suggested meeting with them without first providing disclosure about the Defendants’ finances, as requested. Mr. Perlman’s counsel requested information such as the current debts, assets, and deals of the Defendants. When Mr. Lehner finally did provide some financial disclosure, it consisted only of a list of amounts owed to third parties, in many cases only identifying the third party by a name, such as “Ron, in Florida”, who was owed $2,000 and “Richard, New York”, who was owed $500. This was insufficient and it was not unreasonable for Mr. Perlman to refuse to meet.

[39] In all of the circumstances, the Acknowledgment was not an improvident bargain. It is Mr. Perlman who has suffered in this matter, not Mr. Lehner.

Did Mr. Perlman’s losses arise from fraudulent misrepresentation?

[40] Mr. Perlman also alleges that Mr. Lehner engaged in fraudulent misrepresentation when he represented the status of Winning Brands’ finances to him. I conclude that Mr. Lehner knowingly misrepresented Winning Brands’ finances and that Mr. Perlman was induced by the misrepresentation to make loans to the Defendants in November 2017, December 2017, and January 2018. By February 2018, Mr. Perlman was aware of the Defendants’ poor financial situation. He made the further loans in spite of that knowledge because he felt, as he describes it, “trapped.” By this point, he cannot be said to have been induced by Mr. Lehner’s prior statements.

[41] The test for fraudulent misrepresentation requires proof on a balance of probabilities showing: (i) a false representation by the defendant; (ii) some level of awareness of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness); (iii) the false representation caused the plaintiff to act; and (iv) the plaintiff’s actions resulted in a loss: see Hryniak, at para. 87; Mughal v. Bama Inc. et al., 2019 ONSC 4504, at para. 12. As set out in Mughal, at para. 13: “Recent cases have placed less emphasis on the tortfeasor’s intention to deceive the Plaintiff, finding that where fraud is proved, the motive of the person committing the fraud is immaterial.”

[42] Here, I find that the representations Mr. Lehner made by email to Mr. Perlman dated November 14, 2017 constitute fraudulent misrepresentations, on which Mr. Lehner relied when he made the loans dated November 14, 2017, December 14, 2017, and December 18, 2017, for a total amount of $55,000 CAD.

[43] Addressing the first step of the test, I am satisfied that Mr. Lehner made a false representation. Shortly after Mr. Perlman made the loan to Supreme on October 30, 2017, Mr. Lehner asked Mr. Perlman whether he would continue lending funds to the Defendants. Mr. Lehner advised Mr. Perlman over the phone that he required a loan of $15,000 to pay another debt owed by the Defendants in order to ensure the Defendants did not default on that obligation.

[44] On November 13, 2017, Mr. Lehner provided Mr. Perlman with a loan document for a $15,000 loan to the Defendants, stating that the document had been prepared in the event Mr. Perlman decided to proceed with the loan. Mr. Perlman was hesitant to loan more money to the Defendants after he learned that his loan would be used to repay another loan. He was concerned that the Defendants had additional outstanding loans that had not previously been disclosed. He therefore emailed Mr. Lehner on November 14, 2017 expressing concerns and asking for information about other outstanding loans Winning Brands may have:

[I]s there any repayment penalty in the agreement if due date is not met? If not would you be open to some agreeable repayment penalty clause? Trust me I prefer no default but was a bit concerned after learning the $15k loan is to be used for not defaulting on another loan. I worry what would happen if that situation applied to me because of some delay from a buyer on an order. I hope you don’t have too many outstanding loans to be paid back from others? Perhaps you could disclose where you stand with that.

I am pretty sure I will move forward on this thus asking for banking information. Its [sic] better for me that you do well. You falling behind and me not helping with this could end up hurting me thus motivating me to go ahead, plus I want to help you.

[45] On November 14, 2017, Mr. Lehner responded with an email purporting to summarize other outstanding loans. He stated:

In terms of disclosure of short term transactional bridge loan, there is only you and Mr. Lugassy whom Tibor has known for a number of years. This type of funding would be too expensive to carry out on a larger scale, because the profit payments to the lender severely reduce the transaction margin (but is still appreciated because it is helping us to accelerate our business recovery).

Any other loan arrangements are institutionalized with monthly payments (secured by a mortgage on my house into monthly payments of about $3,500 per month) or long term founding lenders who have been with us for years and are being repaid from share issuances, such as Joe Canouse in Atlanta, and Blackbridge Capital in New York for example. (My step-mother Erika, who is in her 80’s, loaned the company $100,000 in 2015 when we ran into the delisting at that time of Walmart Canada and Canadian Tire. She was returning a favour that I had performed for her of a substantial nature many years earlier. She is declining in health, and I would like to utilize some of the Regulation A+ proceeds from Blackbridge Capital in New York to provide her with at least a partial cash payment as soon as possible because she is not in a position to make use of stock....

[46] Mr. Perlman’s evidence was that, based on Mr. Lehner’s response, he believed that the Defendants had some modest outstanding loans, including a $100,000 loan from a family member and some other debts that were being repaid in company shares. These amounts did not seem exorbitant to him and he was comfortable making additional short-term loans to the Defendants on the basis that their debts were not significant.

[47] However, I find that Mr. Lehner’s representations regarding Winning Brands’ outstanding loans were false both in what was said and what remained unsaid. In Winning Brands’ 2017 Q3 financial statements, which were signed and certified as accurate by Mr. Lehner on November 7, 2017 (approximately a week before the above email exchange), Winning Brands’ liabilities totaled almost $3.5 million. To the extent Mr. Perlman’s request for information was specific to information about loans, Winning Brands’ loans totaled over $2.3 million. In the financial statements, the loans were characterized as “Loans Payable – 2008 to present” (almost $1.5 million), “Loans Payable – 2006 & 2007” (over $88,000), and “Loans Payable – Brand Development” (over $700,000).

[48] In submissions, counsel suggested that Mr. Lehner’s description in the email above is not necessarily inconsistent with this list, as these loans could have fallen into the categories he referenced of institutionalized loans with monthly payments or long-term loans paid with share issuances. However, this is speculation on the record before me. While baldly denying that he misled Mr. Perlman, Mr. Lehner, in his affidavit, did not specifically state that the statements in the email were true, nor explain why. Moreover, it is difficult to square these statements with the list of amounts owed to third parties Mr. Lehner later provided in communications with Mr. Perlman’s counsel. This list includes multiple loans to individuals, such as $50,000 to “Angie Ricci”, $26,000 to “Armstrong”, $60,000 to “Berend and Jackie”, $2,000 to “Ron in Florida”, and so on, as well as debts to the CRA, the Ministry of Labour, and others. It does not contain anything that appears to fall within the category of “institutionalized loans”.

[49] Finally, non-disclosure of material facts can amount to fraud: see Canada Mortgage and Housing Corporation v. Evan Gray, 2013 ONSC 1986, at para. 34. In his response to Mr. Perlman’s question about loans, I find that Mr. Lehner downplayed the amounts owed. He misrepresented by omission when he vaguely referred to categories of loans but failed to advise that Winning Brands had loans in the amount of over $2.3 million and total liabilities of almost $3.5 million.

[50] Mr. Lehner’s statements meet the second part of the test, in that I find he knew they were false. Only a week earlier, he had certified the accuracy of the financial statements, including the almost $3.5 million in debt, over $2.3 million of which was in loans.

[51] I also find that the representations caused Mr. Perlman to act, in that he expressly sought assurance about outstanding loans prior to committing to making the loan in November 2017. Mr. Perlman previously had turned down other proposed loans (for example, an initial loan to Supreme in September 2017), but decided to go forward at this time after receiving Mr. Lehner’s information about Winning Brands’ loans. Mr. Perlman stated in his affidavit that he felt comfortable making additional short-term loans given the information Mr. Lehner provided.

[52] Mr. Lehner challenges Mr. Perlman’s alleged reliance on his representations by stating that Mr. Perlman “conducted, or could have conducted, the due diligence that he considered necessary before entering into any loan transactions.” He states that all necessary financial information was publicly available. Canadian courts have rejected categorically the defence of a lack of due diligence on the part of a victim of fraud: see Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club, 2002 SCC 19, [2002] 1 S.C.R. 678, at paras. 69-70; Man Financial Canada Co. v. Keuroghlian, 2008 ONCA 592, 240 O.A.C. 300, at para. 48; and Mughal, at para. 37.

[53] However, Mr. Lehner’s statements about Winning Brands’ loans only induced Mr. Perlman to make the loans of November 14, 2017, December 14, 2017, December 18, 2017, and January 26, 2018. These were the loans starting immediately after the fraudulent statements on November 14, 2017. Mr. Perlman suffered losses from these loans, as they remain unpaid.

[54] By February 2018, Mr. Perlman had become aware of the Defendants’ precarious finances. All of Mr. Perlman’s loans to the Defendants remained outstanding. On February 21, 2018, Mr. Lehner emailed Mr. Perlman to tell him that a deal he had been working on that promised significant returns had fallen through. He said he had intended to use those returns to pay back the outstanding loans. When Mr. Lehner asked Mr. Perlman for another loan, Mr. Perlman says he felt “trapped.” He was “terrified” that if Mr. Lehner’s business went bankrupt, he would lose everything and never be paid back for the loans he had made. He believed his options were to refuse and lose everything or provide additional loans and hope he eventually would be repaid. Given Mr. Perlman’s serious concerns about the Defendants’ finances, I cannot say that at this point he was induced by Mr. Lehner’s statements about Winning Brands’ finances to make the additional loans.

[55] In sum, Mr. Lehner’s representations, as detailed above, constitute fraudulent misrepresentation, which induced Mr. Perlman to make the loans from November to January 2018, causing him losses of $55,000 plus interest. I note that, as there is no evidence the Defendants have been assigned into bankruptcy, I am not making a declaration specifically under s. 178(1) of the BIA.

Disposition

[56] The motion is allowed, and judgment is granted as follows:

1. I order the Defendants to make payment to Mr. Perlman in the amounts of $85,000 CAD and $23,462.20 USD plus pre-judgment interest of 60 percent per annum;

2. I declare that the Defendants are guarantors of the $10,000 loan to Supreme, but that Mr. Perlman is not entitled to enforce that loan against the Defendants unless and until he receives judgment for that loan in Small Claims Court or the Small Claims Court proceeding is discontinued; and

3. I declare that Mr. Lehner engaged in fraudulent misrepresentation on behalf of Winning Brands with respect to the loans in November and December 2017 and January 2018, totaling $55,000 CAD plus 60 percent interest.

Costs

[57] With respect to costs, I have received the parties’ costs outlines and encourage them to reach an agreement. If they are not able to do so, Mr. Perlman may provide me with any additional submissions on costs of not more than four pages double-spaced within 14 days of the date of this decision. The Defendants then will have seven further days to respond with the same limitation on length. The submissions may be sent to my judicial assistant, Anna Maria Tiberio.

_______ O’Brien, J.

Released: January 25, 2021