Court File and Parties

COURT FILE NO.: CV-20-635181 DATE: 20220222

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Capstack Advisory Services Inc., Plaintiff AND: Gore Park Lofts Development Corp., 121 King (Hamilton) GP Inc., Scholar Properties Ltd., and Tyler Ross, Defendants

BEFORE: W.D. Black J.

COUNSEL: Patrick Bakos, for the Plaintiff Darren Marr, for the Defendants

HEARD: January 10 and 11, 2022

Endorsement

Overview

[1] The plaintiff, Capstack Advisory Services Inc. (“Capstack”), brings this claim seeking payment of its fees for debt financing services provided to the defendants in connection with the defendants’ development and construction of 40 residential condominium units and three retail units (the “Project”), at 121 King Street East in the City of Hamilton (the “Property”).

[2] The question of which, if any, of the defendants is liable to Capstack is somewhat complicated by the corporate structure employed by the defendants for purposes of the Project. It is also slightly complicated by the fact that the initial dealings relative to the agreement in this case were undertaken on the plaintiff’s side by Real Crowd Capital Inc. (“RCC”), an affiliated entity to Capstack. (For ease of reference, and subject to the discussion below about the relevant corporate entities, I will refer to RCC and Capstack together as “Capstack”). Setting that issue aside for the moment, there is no dispute that the defendants (or one or more of them) engaged Capstack to assist in sourcing financing for the Project inasmuch as the defendants had no in‑house financing expertise, and no experience raising funds for a development of this size and type, including construction financing.

[3] The representative of the defendants in their dealings with Capstack, Tyler Ross (“Ross”), had previously dealt with Capstack’s principal, Amar Nijjar (“Nijjar”). This had occurred while Nijjar had been with Jones Lang LaSalle (“JLL”), a large commercial real estate advisory firm that had provided corporate finance assistance on a project involving renovation of a property in Waterloo. The financing for that earlier project, said to be less complex than the Project and requiring about half of the amount of financing, was characterized by Ross as successful and as such, when the defendants required financing for the Project, Ross contacted Nijjar (who at that point was at Capstack), for assistance with sourcing and structuring that financing.

[4] The defendants dispute that Capstack’s work was ultimately helpful to the Project, at least with respect to certain key requirements for the financing; deny that the contractual relationship is governed by Capstack’s mandate letter (the “Mandate Letter”); allege that Capstack was negligent or worse in its provision of services; and dispute the amount claimed and Capstack’s entitlement to anything beyond what the defendants have already paid (just in excess of $40,000).

[5] For its part, Capstack maintains that it undertook extensive work for the benefit of the Project over the course of 15-18 months; that it was responsible for identifying and working with the lender from which the defendants ultimately obtained financing, the Toronto Dominion Bank (“TD”); and in fact that it negotiated the financing with TD on the defendants’ behalf nearly to the point of completion. At that point, the defendants, and Ross in particular, told Capstack to stand down and negotiated the final revisions to the financing deal that had been sourced and nearly completed by Capstack.

[6] The fact that Ross took over negotiations with TD very late in the process is not in dispute. However, while Capstack says the deal was all but done and that Capstack could have obtained the same final financing deal that the defendants did, Ross alleges that Capstack had not succeeded in negotiating a financing deal of value to the Project and that it was therefore necessary for him to take over the negotiations, ultimately winning material concessions that Capstack had been unable to secure. It is on the basis of this intervention and purported success by Ross, in accomplishing what Capstack had allegedly failed to accomplish, that the defendants say that Capstack is entitled to no further payments.

Procedure: Hybrid Summary Trial

[7] The proceeding before me was originally conceived as a summary judgment motion. In a case conference some months prior to the hearing before me, Justice Akbarali astutely persuaded the parties to opt for a hybrid summary trial. The affidavits of Nijjar and Ross were filed before me together with all exhibits, numerous productions, and answers to undertakings, and Nijjar and Ross both gave brief additional evidence in chief. Each was then cross‑examined at some length.

[8] This allowed me to assess the credibility of the key witness on each side and also meant that, whereas on the paper record the defendants disputed that this was an appropriate matter for summary judgment, that argument was not pursued - and was in fact expressly abandoned - given my opportunity to hear viva voce testimony. In my view, in a proper case such as this one, the hybrid summary trial procedure, which allows the judge to assess the credibility of the key witnesses on each side, offers considerable advantages over a purely paper record and, as here, removes the concern that a paper record is inadequate to determine certain factual issues.

Past Dealings Between Ross and Nijjar

[9] As set out above, some years prior to the Project, Ross had engaged JLL and dealt with Nijjar (and a colleague of Nijjar at JLL) in successfully obtaining financing for a renovation project in Waterloo. It seems that the terms of the engagement for that deal, pursuant to which JLL accessed about $5 million, were very similar to the terms in Capstack’s mandate letter (which Capstack maintains serves as the relevant agreement for the Project). It is also clear that the entity for which Ross spoke in the Waterloo matter paid JLL’s fee, apparently without reservation. Ross says that that was the case because the financing sourced by JLL for that Waterloo project, unlike the case here, met the Waterloo project’s specific requirements.

Engagement of RCC/Capstack

[10] In any event, as a result of that positive experience, when it came time to seek a lender for the Project in or about June of 2018, Ross approached Nijjar at RCC, the new entity for which Nijjar was a founding principal, for assistance.

Mandate Letter(s) and Stated Fee

[11] On June 18, 2018, early on in the discussions concerning funding for the Project, RCC issued a version of its standard Mandate Letter (the “2018 Mandate Letter”), to document the agreement as to Capstack’s services and role. While the 2018 Mandate Letter was initially issued on the letterhead of RCC, and signed by Nijjar on RCC’s behalf, it specifically recorded that the fees payable under the 2018 Mandate Letter would be paid to Capstack. Later on in the Project, in circumstances discussed below, a further version of the Mandate Letter (the “2019 Mandate Letter”) dated July 3, 2019, identical in substantive content to the first version, was issued on the letterhead of Capstack, and also signed on Capstack’s behalf by Nijjar. As discussed below, the 2018 Mandate Letter may (or may not) have been signed by Ross and the evidence indicates that he purported to have done so, whether or not he did so in fact. There is no suggestion that Ross agreed to or did in fact sign the 2019 Mandate Letter; in fact part of the reason that he did not do so was his explicit suggestion that having signed the 2018 Mandate Letter, he did not wish to have a second signed agreement in existence.

[12] The 2018 Mandate Letter replicated in content by the 2019 Mandate Letter, was straightforward and concise. It confirmed that Capstack was engaged to secure “debt capital raise and financing” for the Project, reciting twice in the initial paragraph that this role was “on a best efforts basis”.

[13] In exchange for its services, Capstack was to be paid a fee of 1% of the total gross amount of financing secured, to be paid in three tranches: 25% upon acceptance of a letter of interest by the borrower, a further 25% upon the issuance of a commitment letter by the lender, and the balance of 50% from the financing proceeds (once received). Given that the intention was to raise approximately $10 million for the Project, Capstack’s fee was expected to be about $100,000 (i.e. 1% of $10 million). The total 1% fee amount was broken down into two components: a 75% advisory component which was specified to be HST exempt, and a 25% corporate finance component on which HST was payable.

[14] In addition to this 1% fee, the 2018 Mandate Letter specified a fee for due diligence, deal packaging, software, and marketing (the “Due Diligence Fee”), in the amount of $10,000. It is clear in the 2018 Mandate Letter that the Due Diligence Fee was over and above the 1% fee; as discussed below, as events unfolded, that became considerably less clear.

[15] The 2018 Mandate Letter provided for an initial term of six months, but, if financing did not happen within that six-month term, the agreement was to be extended on a month-to-month basis until funding was secured.

[16] The 2018 Mandate Letter attached a schedule of standard terms and conditions forming a part of the agreement. It is clear and uncontested that upon or immediately after receiving the 2018 Mandate Letter, the defendants sent payment to Capstack of the due diligence fee of $10,000 plus HST contemplated and required by the 2018 Mandate Letter as the initial payment for Capstack’s work.

No Fully Executed Copy of Mandate Letter

[17] Oddly, as intimated above, it is not entirely clear that Ross (or anyone) ever signed the 2018 Mandate Letter on behalf of the defendants. Ross sent emails in the course of his dealings with Capstack suggesting that he had in fact sent an executed copy of the 2018 Mandate Letter to Capstack, or that he thought he had done so, or at least purported to have done so. In his evidence before me, albeit equivocally and only when confronted with his aforementioned emails, Ross reluctantly acknowledged that he “probably” had sent back a signed copy of the 2018 Mandate Letter.

[18] In his affidavit of January 12, 2021, to the contrary, Ross deposes, “To the best of my knowledge, I did not execute the engagement letter dated June 21, 2018” (i.e. the 2018 Mandate Letter).

[19] The written argument filed by the defendants goes further, saying (in paragraph 20): “An engagement letter sent by RCC dated June 21, 2018 was never signed by Ross on behalf of Scholar. Scholar never agreed to be bound by its terms including its Schedule A, which was overly broad”.

[20] While of course this passage in the factum is not evidence, it appears to be based on and only slightly exceeds Ross’ claim in his affidavit (dispensing in the factum with the “to the best of my knowledge” qualification).

[21] The defendants’ theory and the reason, I suspect, why Ross was at pains to distance himself from the notion that he had executed the 2018 Mandate Letter, was that the agreement in issue is comprised of multiple communications by text, by email, and in person, in which, particularly in person, Ross maintains that the key requirements of the defendants’ financing needs were spelled out. The defendants maintain that the 2018 Mandate Letter was too brief to capture these important elements developed in the ongoing discussions and yet at the same time too broad in its scope (as discussed in paragraph 19 above).

[22] More particularly, Ross and the defendants argue that certain items of critical importance to them, in respect of which the initial version of the TD Commitment Letter obtained by Capstack allegedly fell short, were expressly emphasized and agreed upon in the unrecorded ongoing verbal traffic between Ross and Nijjar.

[23] While I will address these allegedly key items below, I am nonetheless troubled by Ross’ evidence concerning the execution (or not) of the 2018 Mandate Letter. During the interactions between the parties, he strongly implied and at one point expressly said that he had sent back a signed copy of the document. In fact, as mentioned above, he said that he refused to sign a new copy of the Mandate Letter in the form of the 2019 Mandate Letter, specifically on the basis that he had already signed the 2018 Mandate Letter and did not want to risk having two signed agreements in existence. One explanation for a signed copy of the document not being available at the time of the hearing is that somehow the technology failed, such that the signed copy somehow got lost in the ether. While that is of course possible, if that were so, one would expect Ross simply to sign and send a further copy, which he was asked to do repeatedly and balked at doing. A more sinister interpretation is that Ross never sent and never intended to send a signed copy of the document, perhaps to leave himself maximum leverage to dispute or avoid paying the fee. I do not jump definitively to this conclusion but I observe that Ross’ evidence, which in many respects came across credibly, is hampered by his continued equivocation on this issue.

Capstack’s Work to Secure Financing

[24] In any event, despite the absence of an executed agreement from Ross at the outset, Capstack began the task of sourcing financing at around the date of the 2018 Mandate Letter.

[25] To that end, Capstack initially put together a substantial package to go to prospective lenders, describing the Project and its particular financing needs.

[26] During the period of September 2018 through May 2019, Capstack initially put together a list of 25 potential lenders. Capstack had approached each of them and, in most cases, had obtained offers to finance the Project. These proposals were not yet detailed but recited certain key elements of the funding on offer, including the proposed loan amount, term, interest rates, and certain conditions or expectations the lender would or might require.

[27] Over the continued course of this timeframe, Capstack then worked with the defendants to narrow down the list of potential lenders from the original list of 25 to a list of nine.

[28] In respect of these nine prospective lenders, consistent with the ongoing work, more extensive information about the offers of potential financing was provided, including percentage and dollar requirements as to “pre-sales” (i.e. pre-construction sales of units in the Project). The information from these nine potential lenders is characterized by Capstack as “offers” for financing; whether or not the information was sufficient to qualify as “offers”, it is definitely the case that in respect of these nine potential lenders, Capstack did additional work on the defendants’ behalf and was able to obtain more specific information which could form the basis of negotiations concerning potential loans should the defendants elect to pursue these avenues.

[29] In any event, the defendants did so with respect to only three of the nine potential lenders, and Capstack obtained still further and more specific information about potential loans from these three candidates.

Choice of TD as Lender

[30] Ultimately, the defendants elected to pursue financing with TD, and by May 2019 Capstack obtained a term sheet from TD (the “Term Sheet”) outlining the terms and conditions on which TD was offering to provide funds and credit facilities to Scholar Properties Ltd. (“Scholar”, the defendant identified for this purpose) in connection with the Project.

Invoice Issued and Paid on Receipt of Term Sheet

[31] Consistent with the 2018 Mandate Letter, upon receipt of the Term Sheet, Capstack sent an invoice to Scholar, and Scholar paid the first tranche of the Corporate Finance Fee under the 2018 Mandate Letter, calculated based on 25% of the overall fee.

[32] I pause to note Capstack’s description of the work that it did for the defendants to source financing for the Project. That is, Capstack says, and the defendants do not deny, that over the course of 15 months following the date of the 2018 Mandate Letter, Capstack spent numerous hours performing the work contemplated therein: securing capital raise and financing for the Project; completing due diligence; corresponding and organizing meetings with multiple potential lenders; obtaining numerous bids from those potential lenders; and communicating all the while with Ross concerning the positions and offers of the lenders and ensuring that those offers were in keeping with the needs of the Project. Capstack involved at least four members of its group at various points in time, including Nijjar, in the work on the defendants’ behalf.

[33] Capstack also notes that even once Ross advised, at some point in the weeks prior to receipt of the Term Sheet, that the defendants wished to pursue the offer from TD, Capstack continued to negotiate with TD on the defendants’ behalf, which led to TD’s delivery of the Term Sheet. Capstack points to the defendants’ prompt payment of the first tranche of the fee, upon receipt of the Term Sheet, as corroboration that Capstack’s efforts and results were consistent with what was required and expected under the 2018 Mandate Letter, and in keeping with the defendants’ needs and expectations for the Project. Indeed, up to the point of delivery of the Term Sheet, the defendants appear to agree that Capstack’s work was appropriate.

Delivery of Initial Commitment Letter and First Problems

[34] At some point following TD’s delivery of the Term Sheet, however, and certainly upon and after the subsequent delivery by TD of an initial version of a Commitment Letter in August 2019 (the “Initial Commitment Letter”), the relationship between the parties soured.

[35] Ross testified that the difficulties and eventually the schism between the parties arose because Capstack failed to secure certain indispensable components in the proposed financing agreement with TD, as embodied in the Initial Commitment Letter.

Key Items Allegedly Not Addressed in Initial Commitment Letter

[36] These items were described slightly differently at different points, but essentially Ross said that, first, the defendants needed the full amount of the financing up front (rather than in phases). This was in large part because it was necessary to use some of the funds to pay out a mezzanine loan from Effort Trust (a partner to the defendants in the Project). That loan carried a very high interest rate (11.5%) and replacing it with conventional lower interest financing would substantially reduce the defendants’ ongoing carrying costs.

[37] Second, it was critical to the defendants that appropriate “land value” be attributed to the Property to confirm the defendants’ equity in the Project. The defendants had in hand a valuation they had commissioned valuing the Property at $2 million.

[38] Third, and the item that occupied the largest proportion of the evidence about what the proposed TD financing initially lacked, Ross testified that it was important that the defendants be given credit, in TD’s consideration and assessment of “pre-sales”, for certain “bulk sales” the defendants had negotiated. In this context, bulk sales refers to investors acquiring multiple units in the Project.

Ross’ Takeover of Final Negotiations

[39] Once TD delivered the Initial Commitment Letter, Ross testified that it became apparent to him that TD’s position with respect to these critical items was inadequate for the defendants’ needs. Accordingly, Ross inserted himself more directly into the discussion with TD and effectively took over the final negotiations ultimately leading to the revised and final version of TD’s commitment letter (the “Final Commitment Letter”). Ross maintained in his evidence that the Final Commitment Letter, while not “perfect”, was considerably improved on these key parametres as compared to the Initial Commitment Letter. Ross attributes this improvement to his having taken over the negotiations, and the defendants’ unwillingness to pay the balance of Capstack’s account relates to the notion that Ross accomplished what Capstack was unable to accomplish.

Capstack’s Position on State of Negotiations

[40] Capstack’s position on this issue is that the overall course of its negotiations with TD, as is typical, was a continuum, that Capstack made steady incremental progress on various items including those now said by the defendants to have been key items, and that, but for Ross’ taking over negotiations and sidelining Capstack at the eleventh hour, Capstack could and would have arrived at the same result, more or less, as the result embodied in the Final Commitment Letter.

[41] It says that Ross’ takeover of the negotiations was so late in the process that the final outcome was more or less set, or at least predictable, and that Ross “swooping in” to take credit for the final result was, together with Ross’ refusal to sign (or re-sign) any version of the Mandate Letter, a deliberate strategy to avoid having to pay Capstack’s total fee.

[42] While of course the question of whether or not Capstack could have obtained the precise final result in the form of the Final Commitment Letter, as Ross did, involves some degree of speculation, certain documentation produced during the overall course of negotiations is helpful in guiding this determination.

Comparison of Initial and Final Commitment Letters on Key Items

[43] It is useful as context for this discussion to compare TD’s position on the allegedly key items in its Initial Commitment Letter to its position on these items in the Final Commitment Letter. To that end, the chart below was produced in undertakings and included in Capstack’s compendium at the hearing, and helpfully sets out differences between the Initial Commitment Letter and the Final Commitment Letter.

CHART FOR UNDERTAKING #13 Differences between the Original Commitment Letter (issued in August 2019) and the Renegotiated Commitment Letter (October 30, 2019)

1. Drawdown – Facility 1 (pgs. 2-3)

• Original Commitment Letter (Issued August 2019):

  • “Facility 1 1. Available at the Borrower's option by way of Prime based loans in Canadian dollars, subject to Disbursement Conditions. I. Drawdown up to $8,400,000 will be against monthly Draw Requests prepared by the Quantity Surveyor and supported by: a) Engineer's Certificates (re hard servicing costs only); b) Budget showing original budget, revised budget, costs to date and costs to complete; c) List of accounts payable, holdbacks and HST reconciliation; d) Compliance Certificate signed by the Borrower confirming compliance with the Construction Lien Act, all applicable tax legislation, and the terms and conditions herein; e) Sales summary and summary of builder deposits together with copies of Purchase & Sale Agreements not already provided; f) Sub search (to be ordered by the Bank) II. Draws will be permitted up to 100% of total project costs to date less the following items: a) Paid purchaser deposits utilized in the Project; b) Owner's equity of $3,700,000 (equating to the land value of $1,000,000 plus $2,700,000 in paid costs to date). c) Holdbacks. 2. In addition to the draws up to $8,400,000 noted above, a one-time equity withdrawal of $1,000,000 will be made available upon confirmation of an additional $3,527,378 in net revenue across 31 units per disbursement condition #6. In the event that the equity has been financed by way of mezzanine financing provided by Effort Trust per Disbursement Condition #4, the funds will be released as a single draw in escrow via the Bank's solicitor and will be directed to repay $1,000,000 of the $2,000,000 Effort Trust mezzanine financing, with confirmation provided that the loan agreement and security have been amended so as to reduce the liability accordingly.”

• Renegotiated Commitment Letter (Executed October 30, 2019):

  • “Facility 1 1. Available at the Borrower's option by way of Prime based loans in Canadian dollars, subject to Disbursement Conditions. I. Drawdown up to $9,400,000 will be against monthly Draw Requests prepared by the Quantity Surveyor and supported by: a) Engineer's Certificates (re hard servicing costs only); b) Budget showing original budget, revised budget, costs to date and costs to complete; c) List of accounts payable, holdbacks and HST reconciliation; d) Compliance Certificate signed by the Borrower confirming compliance with the Construction Lien Act, all applicable tax legislation, and the terms and conditions herein; e) Sales summary and summary of builder deposits together with copies of Purchase & Sale Agreements not already provided; f) Sub search (to be ordered by the Bank) II. Draws will be permitted up to 100% of total project costs to date less the following items: a) Paid purchaser deposits utilized in the Project; b) Owner's equity of $2,700,000 (equating to the land value of $1,000,000 plus $1,700,000 in paid costs to date). c) Holdbacks.”

2. Security – f) (pg. 4)

• Original Commitment Letter (Issued August 2019):

  • “f) Standstill Agreement executed by Effort Property Corporation ;”

• Renegotiated Commitment Letter (Executed October 30, 2019):

  • “f) Standstill Agreement, allowing Effort Property Corporation to enforce after ninety (90) days if unsatisfied with TD’s enforcement, executed by Effort Property Corporation;”

3. Disbursement Condition – 4 (pg. 5)

• Original Commitment Letter (Issued August 2019):

  • “4. The Borrower is to demonstrate minimum project equity of $3,700,000 as confirmed by the Quantity Surveyor and broken down as follows: Land Value $1,000,000 Plus: paid costs to date $2,700,000 Total Equity $3,700,000 Note: Equity to decrease to $2,700,000 upon achievement of sales target detailed under Disbursement Condition #6. Additionally, the Borrower is permitted to substitute equity with up to $2,000,000 in mezzanine financing from Effort Trust. Mezz financing will fully postpone and standstill to TD Bank security.”

• Renegotiated Commitment Letter (Executed October 30, 2019):

  • “4. The Borrower is to demonstrate minimum project equity of $2,700,000 as confirmed by the Quantity Surveyor and broken down as follows: Land Value $1,000,000 Plus: paid costs to date $1,700,000 Total Equity $1,700,000 The Borrower is permitted to substitute equity with up to $1,000,000 in mezzanine financing from Effort Trust. Mezz financing will fully postpone and standstill to TD Bank security.”

4. Disbursement Condition – Condition 6 (pg. 6)

• Original Commitment Letter (Issued August 2019):

  • “6. Unconditional firm presales* generating minimum net revenue of $7,068,663 across no more than 20 units must be achieved prior as evidenced by Purchase and Sale Agreements. Copies of relevant pages of the Purchase & Sale Agreements with end purchasers showing purchaser name, purchase price, unit size, and deposits to date to be provided prior to initial drawdown and on an ongoing basis. To trigger $1,000,000 equity withdrawal an additional $3,527,378 in net revenue (equating to a total net revenue of $10,596,041) across a maximum total of 31 units is required. In addition to meeting the sales revenue target, all terms and conditions of this agreement must be in compliance, the QS is to confirm that i) all existing sales are in good standing, with deposits having been received as per schedule in the individual APS's and ii) that a minimum 10% deposits have been received on all 31 sales included in meeting the test and iii) all sales qualify under the definition of unconditional firm presale. *An unconditional firm presale is defined as a sale to an arm's length purchaser, with a minimum contracted down payment of 15% of purchase price as evidenced by copies of executed Purchase and Sale Agreements. In the case of staged deposits, a $5,000 deposit must be received at signing, increasing to 5% within 30 days, 10% within 180 days and the balance due within 365 days. Inclusion of any sales to bulk purchasers (ie 2 or more units sold to individuals) and/or any units purchased under an investment company will be subject to Bank's approval”

• Renegotiated Commitment Letter (Executed October 30, 2019):

  • “6. Unconditional firm presales* generating minimum net revenue of $10,912,117 across no more than 32 units must be achieved prior as evidenced by Purchase and Sale Agreements. Copies of relevant pages of the Purchase & Sale Agreements with end purchasers showing purchaser name, purchase price, unit size, and deposits to date to be provided prior to initial drawdown and on an ongoing basis. In addition to meeting the sales revenue target, all terms and conditions of this agreement must be in compliance, the QS is to confirm that i) all existing sales are in good standing, with deposits having been received as per schedule in the individual APS's and ii) that a minimum 10% deposits have been received on all 31 sales included in meeting the test and iii) all sales qualify under the definition of unconditional firm presale. *An unconditional firm presale is defined as a sale to an arm's length purchaser, with a minimum contracted down payment of 15% of purchase price as evidenced by copies of executed Purchase and Sale Agreements. In the case of staged deposits, a $5,000 deposit must be received at signing, increasing to 5% within 30 days, 10% within 180 days and the balance due within 365 days. Inclusion of any sales to bulk purchasers (ie 2 or more units sold to individuals) and/or any units purchased under an investment company will be subject to Bank's approval. The following bulk purchaser and individual are limited to 2 qualifying presales each: High-Margin Capital Inc. (Units #201 and #301) Dao Mai Nguyen (Units #604 and #605) The following investment companies are limited to 1 qualifying presale each: Invest Connect Management Inc. (Unit #302) Purneve Holdings Inc. (Unit #602)”

5. Permitted Liens (pg. 8)

• Original Commitment Letter (Issued August 2019):

  • This section did not exist in the Original Agreement

• Renegotiated Commitment Letter (Executed October 30, 2019):

  • “$1,000,000 charge in 2nd (Second) position from Effort Property Corporation”

6. Offer Expiry (pgs. 8-9)

• Original Commitment Letter (Issued August 2019):

  • “We trust you will find these facilities helpful in meeting your ongoing financing requirements. We ask that if you wish to accept this offer of financing (which includes the Standard Terms and Conditions), please do so by signing and returning the attached duplicate copy of this letter to the undersigned. This offer will expire if not accepted in writing and received by the Bank on or before September 30, 2019.”

• Renegotiated Commitment Letter (Executed October 30, 2019):

  • “We trust you will find these facilities helpful in meeting your ongoing financing requirements. We ask that if you wish to accept this offer of financing (which includes the Standard Terms and Conditions), please do so by signing and returning the attached duplicate copy of this letter to the undersigned. This offer will expire if not accepted in writing and received by the Bank on or before October 31, 2019.”

A. Drawdown of Funds

[44] Dealing with the relevant items from the chart in turn, and commencing with the first item, the Initial Commitment Letter proposed to advance funds in two phases: an initial drawdown of up to $8.4 million, followed by a further drawdown of $1 million upon the confirmation of a stated net revenue target being met.

[45] The Final Commitment Letter instead contemplates that the full amount of $9.4 million would be available in an initial drawdown. In fact, it is agreed that, inasmuch as in addition to the $9.4 million (in two parts in the Initial Commitment Letter and as a single drawdown in the Final Commitment Letter) the facility contemplated Letters of Credit being available in the amount of $200,000, the total facility amounted to $9.6 million.

[46] With respect to the apparent difference between a two-phase drawdown totaling $9.4 million versus a single drawdown in that amount, Capstack’s counsel points to the details of the conditions to be met in the respective versions of TD’s commitment. That is, in the Initial Commitment Letter, the second drawdown of $1 million is available once there is confirmation of “an additional $3,527,378 in net revenue across 31 units”. This requirement is specifically referable to “condition #4”. Condition #4, the details of which are also set out in the chart, requires for purposes of the Initial Commitment Letter and as a pre-condition to drawdown of the first $8.4 million, “unconditional firm presales generating net revenue of $7,068,663 across no more than 20 units…as evidenced by Purchase and Sale Agreements”.

[47] For the additional $1 million drawdown, the Initial Commitment Letter requires, as shown in condition #4, additional net revenue of $3,527,378 which, when added to the $7,068,663 required for the first drawdown of $8.4 million, equates to a total net revenue of $10,596,041 across 31 units.

[48] The Final Commitment Letter, on the other hand, in condition #4, requires as a precondition to the drawdown of $9.4 million, confirmation of “net revenue of $10,912,117 across no more than 32 units…as evidenced by Purchase and Sale Agreements”.

[49] As such, looking at the total effect of the versions of the commitments relative to this parametre, the conditions of the Initial Commitment Letter are actually slightly less onerous than those of the Final Commitment Letter. That is, under the Initial Commitment Letter, in order to access the full drawdown of $9.4 million, the borrower must achieve net revenue of $10,596,041 across 31 units, whereas in the Final Commitment Letter, to access that same full drawdown of $9.4 million, the borrower must show net revenue of $10,912,117 across 32 units.

[50] Both parties argue to some extent, that in order to understand the full picture, it is insufficient to look at individual items like this in isolation. They both say, and it is clearly the case, that movements or apparent concessions by TD in one category are often accompanied and offset by increasing requirements in another category.

[51] For example, referring to the different versions of disbursement condition #3 in the chart, the Initial Commitment Letter requires the borrower to demonstrate total equity in the Project of $3.7 million, whereas the Final Commitment Letter requires $2.7 million in equity. However, once a sales target contemplated by disbursement condition #6 is met, the Initial Commitment Letter lowers the equity requirement to the same level contemplated by the Final Commitment Letter. Moreover, the Initial Commitment Letter allows substitution of equity with up to $2 million in mezzanine financing from Effort Trust, whereas the Final Commitment Letter limits the substitution to $1 million.

[52] The stated key objective for the defendants, and the reason why the full drawdown of $9.4 million being available from the outset is said to be an improvement in the Final Commitment Letter as compared to the Initial Commitment Letter, is the purported ability to replace high‑interest mezzanine financing with lower-interest conventional financing. Given that, however, it is not at all clear that the Final Commitment Letter represents a better outcome for the defendants. That is, the net revenue requirement to allow for the full amount of the drawdown is in fact slightly higher in the Final Commitment Letter as compared to the Initial Commitment Letter.

B. Land Value

[53] With respect to the land value, it is common ground that in both the Initial Commitment Letter and the Final Commitment Letter, TD valued the Property at $1 million, which is lower than the value attributed to the Property in an earlier appraisal commissioned by the defendants, prepared by Colliers International.

[54] However, the defendants say that because the minimum project equity required under the Final Commitment Letter - which included the land value of $1 million just as in the Initial Commitment Letter - was reduced from $3,700,000 in the Initial Commitment Letter to $2,700,000 in the Final Commitment Letter, the configuration in the Final Commitment Letter was more advantageous for them.

[55] Again, however, a review of the details shows the claimed advantages to be unclear. That is, disbursement condition #4 in the Initial Commitment Letter specifically provides that once the sales targets required under disbursement condition #6 are met (being the same net revenue targets contemplated for the purposes of the drawdown of the $1 million, discussed above), then the equity requirement decreases to $2,700,000, the same figure as provided in the Final Commitment Letter. Again, the purported advantage for the defendants under the Final Commitment Letter thus appears minimal for practical purposes.

C. Bulk Sales

[56] As set out above, most of the evidence concerning Capstack’s alleged shortcomings in its negotiation of the Initial Commitment Letter is related to the treatment of bulk sales for purposes of calculating and valuing advance sales.

[57] The defendants say that Nijjar represented to Ross from the outset of its dealings with TD that TD would permit bulk sales and would allow bulk sales to be counted and valued as pre‑sales for purposes of conditions of financing.

[58] Ross alleges that it was only as of May 6, 2019, when Nijjar sent Ross an email advising that TD had concerns that investors in the Project were “mostly speculators”, that the defendants had any inkling that the defendants’ bulk sales might not be credited as pre-sales by TD.

[59] The defendants say that, as Nijjar and Capstack knew, they had made a number of bulk sales already by that point and did so based on Capstack’s representations that TD would count these sales in the pre-sales calculation.

[60] Ross testified that even after advising of TD’s concerns in his May 6, 2019 email, Nijjar continued to downplay the extent of those concerns and to reassure Ross that there was no reason to worry.

[61] By email on May 16, 2019, a representative of TD contacted Capstack to confirm and reiterate TD’s concerns about bulk sales, going so far as to state, “The Bank will not consider the current sales as market acceptance”. Yet in his email to Ross relaying this information from TD, Nijjar continued to downplay the concern, stating that TD was “having heartburn over the Bulk Sale Item. We are checking with them on their final position”. Ross says that Nijjar continued to assure him in ongoing conversations that bulk sales would ultimately be permitted and credited under TD’s pending commitment letter.

[62] In the Initial Commitment Letter, sales to bulk purchasers or investment companies would be counted as pre‑sales if TD provided approval. Ross testified that this was too uncertain for the defendants’ purposes, that they needed a “guarantee” about bulk sales being acceptable, and that the uncertainty created by bulk sales being counted only if the Bank approved them would have a negative impact on the defendants’ sales process, and would prevent the defendants from holding back any units for later sale on the residential market (at a higher price than pre-sales).

[63] Ross testified that a combination of these alleged shortcomings - with particular emphasis on the bulk sales problem, which allegedly came as a surprise in the period between early May 2019 and the receipt of the Initial Commitment Letter in August 2019 - led him to take over the negotiations. On the bulk sales issue, the Final Commitment Letter allowed a total of six pre‑sales in the nature of bulk sales (in each case involving investors as opposed to residential purchasers for “own-use”) to be counted in TD’s calculation of qualifying pre‑sales necessary for the advancement of funds. It was clear in his evidence that Ross characterized TD’s acceptance of these six pre‑sales as being the result of Ross’ last minute intervention in the negotiation, and that absent Ross’ efforts, TD’s position would have been very problematic for the defendants.

[64] However, the documentary record reveals that there was ongoing communication about the bulk sales, that Capstack kept Ross and the defendants apprised of developments on that front, and that by late May 2019, TD was expressing a willingness to include certain bulk sales and to continue to review and assess other bulk sales as part of its due diligence in connection with the proposed loan facility. The record also shows that Capstack was keeping Ross informed about these ongoing negotiations and the changes in TD’s position, and that Ross was in turn updating Effort Trust about these developments.

[65] Pointing to this ongoing correspondence, Capstack argues, and the record supports, that the inclusion of additional bulk sales for purposes of TD’s pre-sales approval calculations in the Final Commitment Letter is not a stark wholesale change as compared to the Initial Commitment Letter, unlike how it is characterized in Ross’ evidence. In fact, this position was an unsurprising part of the continuum of the negotiation that Capstack had undertaken with TD on an ongoing basis, and, in part, was simply based on TD receiving updated information about the bulk sales in question which allowed TD to understand the details and provide informed approval.

[66] I agree. Particularly as seen in the context of the give-and-take reflected in both the Initial Commitment Letter and the Final Commitment Letter, with TD making concessions on certain items in exchange for additional requirements on others, the alleged improvements in the Final Commitment Letter compared to the Initial Commitment Letter, on the key items identified by Ross, are modest at best. They can fairly be seen as expected outgrowths of the overall negotiation, the vast majority of which was undertaken by Capstack.

[67] In addition to being undermined by the facts described above, the defendants’ arguments also fall short in other areas.

Alleged Negligence

[68] The defendants allege that for the reasons discussed above, Capstack was negligent in its performance under the agreement (be it pursuant to the Mandate Letter(s) or an oral agreement). However, the defendants led no evidence as to the expected standard of care in the industry in issue, let alone expert evidence suggesting that Capstack fell below that standard, whatever it was.

[69] In order to find negligence, I would require that type of evidence. It appears to me, in assessing Capstack’s overall efforts and results, that it devoted sufficient resources to the Project; that it effectively and successfully sourced appropriate candidates to finance the Project; and that the end result was a beneficial one for the defendants, in large part owing to Capstack’s efforts. In the absence of expert testimony to the contrary, it seems to me that Capstack performed appropriately.

Fee Allegedly in Excess of Industry Standards

[70] To similar effect, Ross alleged both in his affidavit and his evidence that the 1% fee charged by Capstack under the Mandate Letters is excessive compared to “industry standards”. However, again, the defendants offered no evidence concerning the alleged standards that Capstack’s fees exceeded. On this issue as well, I would need expert evidence before I could make any informed conclusion in that regard. Capstack’s fees do not strike me as unreasonable and so in the absence of reliable evidence to the contrary I am not prepared to find such fees excessive.

Conclusion re the Agreement

[71] On the question of what the actual agreement between the parties was, I find that the agreement is embodied by the 2018 Mandate Letter and the 2019 Mandate Letter.

[72] I accept that there were myriad discussions and written communications along the way, as would be typical of most such consulting arrangements. However, there is no evidence that any such communications significantly departed from or appreciably overhauled the contractual structure established in the 2018 Mandate Letter.

[73] That is, the stated agreement between the parties contained in that document, as well as in the 2019 Mandate Letter - which was identical except for the substitution of Capstack for RCC as the contracting party and not merely the entity to be paid for the work - was that Capstack would make best efforts to secure financing for the Project. That remained the essential framework for the ongoing relationship in issue here.

[74] The defendants’ contention that their key concerns were not clearly articulated in the Mandate Letters does not rise to the level of a separate agreement or even parol evidence that would modify a substantial term of the agreement. In my view, the contractual arrangement between the parties required Capstack to make best efforts to source financing appropriate for the Project and, within reason, to meet the stated wishes of the defendants for that financing.

[75] I accept the defendants’ contention that “not just any” financing would meet Capstack’s obligations under the agreement, and that, within reason, the financing obtained would need to cater to the Project’s particular requirements.

[76] At the same time, I do not accept the notion implicit in the defendants’ submissions that the financing, in order to fulfill Capstack’s contractual obligations, would have to perfectly satisfy the defendants’ “best case” aspirations for such funding.

[77] In any event, Capstack appears to have undertaken extensive, diligent efforts to source and arrange appropriate financing for the Project. Capstack was in touch with the defendants (primarily Ross) throughout the engagement to advise of progress and receive input with respect to the financing being negotiated and, as a result of its work, obtained an overall package from TD that met the stated objectives for the Project. This is plus or minus any contribution from Ross’ participation near the end of the negotiation.

[78] This is evidenced by the fact that the defendants have proceeded with the Project on the basis of the financing from TD, which, as set out above, is largely in the form sourced and negotiated by Capstack. It is also supported by the fact that the defendants paid Capstack’s accounts without reservation or delay until the delivery of the Initial Commitment Letter. There is also no evidence of significant concerns expressed by the defendants, either about Capstack’s efforts or about the constituent elements of the evolving financing package, except concerns expressed at the last minute, when the deal was substantially in place. As noted above, while the defendants now allege negligence on the part of Capstack, there was no hint of any such allegation during the life of the contract, and no expert evidence before me from which I could conclude that Capstack’s performance was below the standard required.

Analysis re Lack of Fully Executed Agreement

[79] For the reasons discussed above, I also place no weight on the absence, in the record before me, of a copy of a Mandate Letter executed by or on behalf of the defendants. In the course of the relationship between the parties, Ross explicitly and implicitly led Capstack to believe that he had in fact signed the 2018 Mandate Letter and at no stage did he take issue with its terms or suggest that he was not bound by it.

[80] In Kernwood Ltd. v. Renegade Capital Corp., [1997] O.J. No. 179 (C.A.), the Court of Appeal for Ontario confirmed that the requirement of a signature may be seen as a formality where the parties’ intention to be bound by an agreement can be established by the parties’ conduct or words:

“…It is well-settled law that, except in certain situations, a party’s intention to be bound can be manifested by words or conduct: Calvan Consolidated Oil & Gas Company Limited v. M. E. Manning (1959), S.C.R. 253 at 261. A manifest intention to be bound can be established by conduct or words where an objective interpretation of the conduct or words of the parties would lead a reasonable person to conclude that the parties intended to be bound: Industrial Tanning Co. v. Reliable Leather Sportwear Ltd. (1953), 4 D.L.R. 522 at 525 (Ont. C.A.). In such cases, the requirement of a signature is treated as a mere formality.”

[81] To similar effect, in Big Sky Marketing Co. Ltd. v. Glengor International Pty. Ltd., 2003 BCSC 1463, the British Columbia Supreme Court reiterated that the test for determining whether or not a contract has been reached is an objective one based on examining the outward expression or manifestation of intent by the parties:

“If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that the other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.”

[82] The Court in Big Sky added that the parties’ conduct subsequent to the creation of a contract is also relevant to establishing their intention as to the elements of the contract at the time it was formed.

[83] In the case before me, in addition to giving every appearance that it was proceeding on the basis of the Mandate Letter, including paying invoices issued at junctures and in amounts provided by the Mandate Letter, the defendant went further. Ross, testifying on the defendant’s behalf, purported to have actually signed the agreement in question. Whether or not Ross actually did so, it is an added element which, combined with the objective evidence of the defendants acting in accordance with the Mandate Letter, leads me to find that the Mandate Letter in fact represents the agreement between the parties here.

[84] Based on my findings above, and with one exception, I find that Capstack is entitled to payment of the amounts it claims pursuant to the Mandate Letter.

Conclusion re Due Diligence Fee

[85] The exception relates to Capstack’s claim for the Due Diligence Fee. As set out above, it was clear in the 2018 Mandate Letter that the Due Diligence Fee was to be over and above the 1% fee for Capstack’s work in sourcing financing for the Project. That is, the Mandate Letter says:

“In addition to the Debt Fee, due diligence, deal packaging, software and marketing fee in the amount of $10,000 CAD plus HST (“Due Diligence Fee”), is payable upon the execution of this Engagement Letter. This fee is payable to RCC affiliated company Capital Stack Advisory Services Inc.”

[86] However, notwithstanding that it was Capstack’s apparent intention at the outset that the Due Diligence Fee would be “in addition to the Debt Fee”, Nijjar subsequently specifically represented otherwise. In an email on June 25, 2018 in response to an inquiry from Ross, Nijjar said that the Due Diligence Fee formed “part of the total 1 per cent of the fee”. Similarly, almost a year later, in an email of June 6, 2019, Nijjar said “our fee was 1 per cent with 10K up front”.

[87] The defendants paid the Due Diligence Fee at the outset, but, based on Nijjar’s repeated representations, take the position that this fee was to be applied against the balance of funds paid from the financing proceeds. In maintaining the position that it should be entitled to rely on Capstack’s representations about whether or not the Due Diligence Fee formed a part of the 1% fee, or was in addition to it, the defendants rely on Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102, in which Justice McIntyre said:

“No quarrel can be made with the general proposition advanced on this point by the appellant. To succeed, however, this argument must rest upon a finding of some misrepresentation by the bank, innocent or not, or on some oral representation inconsistent with the written document which caused a misimpression in the guarantor’s mind, or upon some omission on the part of the bank manager to explain the contents of the document which induced the guarantor to enter into the guarantee upon a misunderstanding as to its nature.”

[88] Notwithstanding that a fair reading of the language in the 2018 Mandate Letter concerning the Due Diligence Fee appears to contemplate it being separate from and in addition to the 1% fee, Ross testified that he was under the impression that it was included in the 1% fee and therefore asked Nijjar for clarification. As seen above, Nijjar twice confirmed in clear terms that the Due Diligence Fee was included in the 1%. As such, on balance, I think it is fair to treat the Due Diligence Fee as included within the 1%.

[89] In his evidence, despite the clear confirmation in his own emails that the Due Diligence Fee was included in the 1% fee, Nijjar was adamant that that was not what he meant. This denial, in the face of emails to the contrary authored by him, was not credible. Nijjar’s evidence was also imperfect in other areas. His tendency was to frequently resort to arguing Capstack’s case in his answers rather than focusing on the precise question he was being asked to answer.

[90] Overall, though I felt that Nijjar’s evidence hewed more closely to the documentary record, and with commercial common sense than Ross’ evidence, and where there is conflict between their testimony, with the single exception of their evidence about the Due Diligence Fee, I prefer the evidence of Nijjar.

Overall Conclusion re Amounts Owing

[91] This means, in terms of the amounts I award to Capstack, that Capstack is entitled to be paid the second tranche of 25% of the overall fee plus the balance of another 50% payable from the financing proceeds, but less the Due Diligence fee of $10,000 (plus HST) already paid. However, it should be noted that according to the 2018 Mandate Letter, HST is payable only on the 25% portion of the overall payment referable to the “Corporate Finance Fee”. The remaining balance of 75% of the fee, labelled as the “advisory fee”, is stated to be HST exempt. Accordingly, since HST was paid on the 25% payment under the first tranche paid by the defendants together with the Due Diligence Fee at the outset of the mandate, no HST is payable by the defendants on the remaining payments.

Question of Entities Bound by Agreement

[92] This leaves the question of which entity or entities owe(s) payment to which entity or entities.

[93] On this front, the defendants say that assuming for these purposes that the 2018 Mandate Letter governs, the only parties to that agreement were RCC and Scholar. They argue that therefore there is no evidence from which the Court could conclude that any of the other defendants were bound by the agreement. Moreover, they say since RCC was the author of and party to the 2018 Mandate Letter, it is RCC and not Capstack that has any claim at all.

[94] As such, since RCC is not the plaintiff, the defendants argue that there is no valid claim.

[95] In terms of defendants other than Scholar, they say that any attempt to visit liability on the remaining defendants - Gore Park Lofts Development Corp. (“Gore Park”), 121 King (Hamilton) GP Inc. (“121 King”), and Ross - in the case of Gore Park and 121 King, would improperly pierce the corporate veil, and in the case of Ross, would have no proper contractual basis.

[96] Capstack agrees that liability cannot be found against Ross in his personal capacity. It explains that at the time it commenced the action, it had no information about the defendants’ ownership structure and so included Ross out of an abundance of caution.

[97] In terms of the arguments about corporate identity, I start by looking at the plaintiff’s side of the matter. While it is true that the 2018 Mandate Letter was issued on the letterhead of RCC, and signed on RCC’s behalf, the document explicitly says that the “fee is payable to RCC affiliated company Capital Stack Advisory Services Inc.” (i.e. Capstack). Moreover, during the currency of the contract, the 2019 Mandate Letter, which explicitly made Capstack the party to the agreement, was sent to the defendants. This is the document that Ross specifically said he declined to sign because he had already signed the 2018 Mandate Letter (which, beyond making Capstack the party to the agreement, was otherwise identical to the 2019 Letter) and he did not wish to have two signed agreements for the same deal. Even leaving aside the possible attempt by Ross to thereby avoid having any signed agreement, which would not have been a successful ploy in any event, it would be unacceptable to allow the defendants to maintain that they have no liability to Capstack, when they knew all along of their obligation to pay Capstack under the deal, paid Capstack partial amounts under the deal, and refused to sign the updated version of the agreement inserting Capstack as the contracting party.

[98] On the other side of the ledger, while it is true that Scholar was the signatory, or purported signatory to the agreement, the 2018 Mandate Letter was addressed to “Scholar Properties Ltd. and/or Nominee Co. TBD”, and the signature line for the document contemplates that the signature would be on behalf of entities described in the same way. Capstack explains, and the defendants agree, that at the time of the 2018 Mandate Letter, the defendants’ ownership structure with respect to the Property and the Project was unclear, and did not become clear until an answer to an undertaking provided by the defendants just before trial.

[99] That information showed that 121 King was the legal owner of 47% of the Project pursuant to a joint venture with a company called Catherine Holdings Inc., which was the legal owner of the remaining 53%. (The beneficial owner of Catherine Holdings Inc. was Effort Property Corp., the defendants’ partner, which had also provided to it the mezzanine financing discussed above.) On or about October 25, 2018, registered ownership of the respective shares in the development was transferred to Gore Park. Scholar was apparently engaged by Gore Park, albeit before Gore Park became the registered owner, to act as the development manager for the Project. Scholar holds no legal or beneficial interest in the Property.

[100] While it would have been preferable for Capstack to insist on executed Mandate Letters from all defendants, in my view, it was clear from the outset that Capstack knew only that there were or would be other entities involved in the Project and attempted to account for that involvement by use of the “Scholar Properties Ltd. and/or Nominee Co. TBD” language. While this was an imperfect approach as a matter of corporate law, in circumstances in which Ross ultimately was evasive even about signing the Mandate Letter, I am prepared to give effect to this effort to encompass the other defendants.

[101] In the alternative, given my findings about the value of the work provided by Capstack, I would find that Capstack is entitled to the amount that I have awarded on the basis of quantum meruit and that all defendants, other than Ross, are liable to it on that alternative basis as well.

Costs

[102] In addition to the judgment amount, Capstack is entitled to its costs. In its bill of costs, Capstack pegs those costs, on a partial indemnity basis at $25,357.50 plus HST for a total of $28.653.98. The bill of costs for the defendants is remarkably similar, calculating its partial indemnity costs and disbursements including HST at $27,042.02. As such, I find Capstack’s proposed costs to be reasonable and I provisionally award it costs on a partial indemnity scale of $28,653.98. I say provisionally just in case there have been offers to settle which may impact on my costs award.

[103] Subject to hearing from the parties in that regard, costs are to be paid within 30 days of the date of this endorsement.

[104] I thank counsel for both sides for their cooperative effort in putting this record together and in presenting the evidence and argument skillfully and efficiently.

W.D. Black J. Date: February 22, 2022