Court File and Parties

Court File No.: 1616/18 Court File No.: 1390/19 Date: 2022-01-14 Ontario Superior Court of Justice

Between: Elizabeth Bilbija, Robert Bilbija and EBB Property Investments Inc., Plaintiffs – and – 1247942 Ontario Ltd. o/a Lupine Properties Ltd., Defendant

Counsel: Stuart MacKay, for the Plaintiffs Michael E. Cassone, for the Defendant

And Between: EBB Property Investments Inc., Plaintiff – and – Bradley Douglas Bain, Lerners LLP, Tarik Shousher, Nuage Homes Inc., Nolstev Consulting Inc., Todd Bryant, 1830523 Ontario Inc., Gary Weisz, William Dempsey, Hong Vu, 2514759 Ontario Limited, Greg Harriman, Patrizio Design International Inc., Gillia Anne Bailey, Ray Rogolino and Jim McConnell, Defendants

Counsel: Stuart MacKay, for the Plaintiff M. Paul Downs and Paula Downs, for the Mortgagee Defendants Michael Bordin and Rachel Runge for the Defendants Bradley Douglas Bain and Lerners LLP Philip B. Morrissey for the Defendants Tarik Shousher and Nuage Homes Inc.

Heard: July 5, 7, 2021 via Zoom

Judge: Tranquilli J.

Introduction

[1] The plaintiff corporation and its principals have suffered losses from a failed real estate development. They bring these proceedings as a financial recovery exercise to realize their unsecured investment in priority to the claims of several secured creditors. Those secured creditors now bring these motions for summary judgment seeking dismissal of the plaintiffs’ claims.

[2] The plaintiffs, Robert and Elizabeth Bilbija, are the principals of the plaintiff EBB Property Investments Inc. (“EBB”). EBB entered into a joint venture agreement with the defendant Nuage Homes Inc. and its principal, the defendant Tarik Shousher. EBB agreed it would advance money to Nuage for the construction and marketing of new homes built on lots purchased by Nuage in Mount Brydges, Ontario in exchange for a share of the net proceeds from the sale of each home. The plaintiffs did not secure their investment with a mortgage on the subject properties. The Mount Brydges project failed.

[3] The defendants Nuage and Shousher are also responsible for a failed real estate development in London, Ontario. Several individuals and corporations provided loans to Nuage and Shousher for development of the London subdivision. Those investors secured their investments with mortgages on the subject lots.

[4] The lots in the Mount Brydges project were sold on power of sale. The net proceeds of $653,490.79 are held in trust pending agreement of the parties or further order of this court in the Lupine Action. The lots in the London project were also sold on power of sale. The net proceeds of $714,286.03 are held in trust pending agreement of the parties or further order of this court. Other smaller sums of money are also held in trust from the sale of individual lots in both the Mount Brydges and London projects pending resolution of this and collateral litigation.

[5] Nuage is no longer in operation, and Mr. Shousher is currently out of the country with no expected return date.

[6] Hence, the plaintiffs’ litigation for a division of the spoils. Notwithstanding their rank as an unsecured creditor, the plaintiffs claim a preferential interest in these proceeds by virtue of the joint venture agreement with Nuage and Shousher and the alleged knowledge of that agreement by other of the defendants.

[7] Four actions emerge from the investment failure:

1. The plaintiffs’ first action is against the home builder corporation Nuage Homes Inc. and its principal Tarik Shousher: 1313/18 (“the Nuage Action”). The plaintiffs have a paper judgment against Nuage and Shousher by way of partial summary judgment obtained in 2019 in the amounts of $55,326.63 and $305,377.91 regarding the joint venture agreement. The action otherwise continues, and the plaintiffs claim Nuage and Shouser continue to owe over $500,000 to EBB.
2. The plaintiffs’ second action is against a secured creditor in the Mount Brydges project, Lupine Properties Ltd (“the Lupine Action”): 1616/18.
3. The plaintiffs’ third action is by the corporate plaintiff against the secured creditors in Nuage’s London project as well as Nuage’s solicitor, Mr. Bain and his law firm, Lerners LLP (“the London Action”): 1390/19.
4. The fourth action is brought by mortgagee Mr. Gary Weisz against the personal plaintiffs, Elizabeth and Robert Bilbija: 656/20. Mr. Weisz is a defendant in the London Action; however, has also brought a claim against the personal plaintiffs to enforce their personal guarantee on a Nuage mortgage he secured on two lots in the Mount Brydges project. The plaintiffs have issued a third-party claim against Shousher, Nuage, Bain and Lerners LLP. The Weisz Action was not part of the motions before the court but formed part of the factual context of the submissions on these motions.

[8] Although represented by counsel, neither Nuage nor Shousher have actively participated in the Lupine Action, the London Action or Weisz Action.

[9] On a consent or unopposed basis, the Nuage Action, the Lupine Action and the London Action are to be heard together or one after the other pursuant to Rule 6.

The Motions

[10] The secured creditors in the Lupine Action and London Action bring motions for summary judgment dismissing the plaintiffs claims.

[11] The motions were argued over two days, with thousands of pages of unbookmarked digital material left for the court to review by way of affidavits, transcripts of cross-examinations, documentary evidence and answers on undertakings. These reasons do not reflect the considerable time I have spent in examining this evidence and considering the authorities.

[12] The secured creditors in both actions contend this is an appropriate matter for summary judgment. They submit there are no relevant credibility issues requiring trial. These defendants each have registered mortgages on the subject lots which are clearly in priority to the unsecured claims of the plaintiffs, pursuant to s. 93(3) of the Land Titles Act, R.S.O. 1990, c. L.5. The mortagees’ interests are readily bifurcated from the plaintiffs’ claims against Nuage, Shousher and Nuage’s solicitor, the defendant Bradley Bain.

[13] The plaintiffs submit that summary judgment is premature. The Land Titles Act does not extinguish an equitable claim of which the mortgagee had notice. There are significant credibility issues regarding the defendant mortgagees’ direct or imputed knowledge of the joint venture agreement and improper use of funds from the sale of the Mount Brydges lots for other purposes such as in the London project on which some of the moving defendants then registered mortgages so as to purport to extinguish the plaintiffs’ interest.

[14] The defendants Shousher and Nuage either take no position or do not participate in the motions.

[15] The defendant Bain does not take a formal position on the other defendants’ motions. However, in not seeking summary judgment he cautions that disposition of the motions will require findings of fact regarding Mr. Bain’s involvement, some of which are central to the plaintiff corporation’s claims against Mr. Bain. This gives rise to a risk of inconsistent findings if partial summary judgment were granted.

[16] These motions require the court to determine whether there are genuine issues requiring trial in respect of the plaintiffs’ claims against the secured creditors. In substance, the court must consider the advisability of the summary judgment process in the context of the litigation as a whole.

[17] On first review, the positions of the secured creditors as against the unsecured interest of the plaintiffs is beguilingly simple and logical. The analysis arguably starts and stops at s. 93(3) of the Land Titles Act, so as to provide the secured creditors with an absolute defence to the plaintiffs’ unregistered interest.

[18] However, the transactions in issue and the plaintiffs’ allegations raise a web of issues and contested facts as to whether certain parties knew of the plaintiffs’ investment at the times the impugned mortgages were registered on the Mount Brydges and London properties.

[19] For the reasons that follow, I regrettably conclude the current record is not appropriate for summary judgment. There are complex factual issues requiring multiple credibility assessments involving the plaintiffs, the secured creditors, Nuage/Shousher and Nuage’s solicitor. These cannot be resolved on this written record. The motion relief sought within and as between these intertwined actions also requires the court to grant partial summary judgment in both form and substance. Having reviewed the evidence in some detail, I am satisfied that partial summary judgment runs the risk of inconsistent results and is not the most proportionate, timely or cost-effective approach to this litigation.

Overview

[20] The following summary is only a partial overview of the factual issues among the parties in these actions. However, it serves to illustrate court’s concern as to dealing with the mortgagees’ claims on a summary judgment basis.

[21] In October 2014, the defendant Lupine Properties Ltd. sold 15 lots in the Mount Brydges subdivision to Nuage in exchange for a vendor take back mortgage. Mr. Bradley Bain, a named defendant in the London Action, acted for Nuage in this transaction. Mr. Bain also happened to act for the personal plaintiffs in the purchase of a new home in the Mount Brydges project and the refinancing and sale of their previous home.

[22] In March 2015, Shousher and the plaintiffs were in discussions for the plaintiffs to invest in the Mount Brydges project. At Shousher’s request, Mr. Bain prepared a draft joint venture agreement between Nuage and an unidentified company. That first draft went through subsequent revisions with another lawyer retained by the plaintiffs. The plaintiffs then formed the plaintiff corporation, EBB.

[23] In April 2015, EBB entered into a joint venture agreement with Nuage and Shousher to fund the construction, marketing and sale of homes built on the Mount Brydges lots purchased by Nuage. The plaintiffs claim the final version of the agreement was executed at Mr. Bain’s office in his presence. Mr. Bain denies this and claims he was not involved in finalizing the terms of the joint venture. He submits he did not know the plaintiffs were the intended investors in the joint venture when Shousher asked him to prepare the initial draft.

[24] The final version of the joint venture agreement provided that when a home was constructed and sold to a third party, EBB was to distribute 50% of the net proceeds to Nuage. Nuage agreed not to encumber, sell, convey, dispose of or otherwise deal with the lots other than as provided in the agreement. By separate agreement of the same date, EBB and Nuage agreed that “outside financing” would be used after the funds of $750,000 and that “all parties must agree to details of outside financing details.” There is a question as to who drafted this separate agreement and where it was signed.

[25] The plaintiffs made a “business decision” to proceed with the joint venture without security. The plaintiffs claim that Shousher told them that a mortgage would interfere with Nuage’s ability to obtain financing. The plaintiffs claim they also relied on Mr. Bain’s representations when they relented on their requirement for security.

[26] In November 2015, Gary Weisz retained Mr. Bain to secure a mortgage on his investment into two of the Nuage lots in the Mount Brydges project. The personal plaintiffs agreed to guarantee the Weisz Mortgage. During this transaction, the plaintiffs learned Mr. Bain held a mortgage in trust over the Mount Brydges lots for Calzonettimediate Inc. The plaintiffs claim they were “furious” to learn of this mortgage and threatened not to guarantee the Weisz Mortgage. Shousher apparently appeased the plaintiffs with a further agreement for the plaintiffs to participate in the development of phase 2 of the Mount Brydges project. From the Weisz Mortgage, Mr. Bain paid $143,215 to the plaintiff corporation EBB. On cross-examination, Mr. Bain testified he did not know either who EBB was or the purpose of the payment to EBB from the Weisz Mortgage. The plaintiffs claim they discussed the joint venture agreement with Mr. Bain during the meeting for the personal guarantee. Mr. Bain denies any recollection of such a discussion.

[27] Lupine later provided Nuage with secondary financing for construction on two of the lots in the Mount Brydges project: Lot 4 and Lot 15 (the “Construction Mortgages”). On May 26, 2017, Lupine registered a second mortgage on Lot 15 to secure advances totalling $300,000 plus interests and costs. On March 8, 2018, Lupine registered a second mortgage on Lot 4 to secure advances totalling $75,000 plus interests and costs. Mr. Bain was not involved in registering either of the Construction Mortgages for Lupine. However, the plaintiffs allege he either discharged or postponed the trust mortgage in order to accommodate the Construction Mortgages. The plaintiffs allege Mr. Bain knew or ought to have known this was in violation of the joint venture agreement.

[28] Several of the Mount Brydges lots sold between September 2016 and February 2018. The terms of the joint venture agreement required the plaintiffs’ solicitor to hold the proceeds in trust and the plaintiffs assert they required payment in accordance with the terms of the agreement. The plaintiffs claim Mr. Bain failed to hold the proceeds of sale in trust. However, in cross-examination, the plaintiffs claimed they agreed to “roll the money over” to other lots in the Mount Brydges project.

[29] The plaintiffs allege the net proceeds from the sale of the Mount Brydges lots were paid into a single Nuage bank account from which Nuage managed both the Mount Brydges and London projects, among other endeavours. The plaintiffs allege Mr. Bain was aware of the joint venture agreement and Nuage’s solvency issues but continued to register mortgages for Nuage on the London project with various private investors, some of whom were also previously involved through loans to Nuage secured on the Mount Brydges lots.

[30] In the Lupine Action the plaintiffs claim the Construction Mortgages on the two Mount Brydges lots contravened the terms of the joint venture agreement. The plaintiffs seek either orders discharging the two Construction Mortgages or declarations the Construction Mortgages are of no force and effect and that the plaintiffs’ interest is in priority to the defendant’s interest. The plaintiffs allege that Lupine, through its principal John Lean was aware of the joint venture agreement and that he also knew the mortgages would require their consent in order to be valid. Lupine claims it was unaware of the joint venture agreement and had no reason to be aware of either an agreement or a term restricting encumbrances.

[31] In the London Action, the plaintiff EBB seeks declarations that seven private mortgages registered on the London project are of no force and effect and that the plaintiff’s interest in the property takes priority. EBB claims the mortgagee defendants are in knowing receipt of trust property. EBB also seeks damages of $1,000,000 against Shousher, Nuage, Mr. Bain and Lerners LLP for breach of trust, breach of fiduciary duty, fraudulent misrepresentation, and civil fraud. The plaintiff alleges all defendants are liable in the tort of conspiracy.

[32] In the London Action, the plaintiffs allege the monies raised for the Mount Brydges project between the joint venture agreement and the “improper” mortgages were far in excess of what was required for development of that project. The plaintiffs contend the funds were instead improperly used for the London project as well as a crypto-currency venture by the defendant Shousher.

[33] The plaintiff claims Mr. Bain knew or ought to have known that the net proceeds of any sale of the developed Mount Brydges lots were to be held in trust for the benefit of EBB.

[34] Among other allegations, the plaintiffs claim the improper use of the trust proceeds from the Mount Brydges project on the London project give it an interest in those lots in priority to the secured creditors and that Mr. Bain’s knowledge is imputed to those mortgagees.

Analysis

[35] The principles governing the appropriate use of summary judgment are well understood: Hyrniak v. Mauldin, 2014 SCC 7. First, a motion judge should determine if there is a genuine issue requiring trial based on the evidence before her without using the enhanced fact-finding powers under r. 20.04(2.1). Second, if there appears to be a genuine issue requiring a trial, the motion judge should determine if the need for trial can be avoided by using the enhanced powers under r. 20.04(2.1), which allow the judge to weigh evidence, evaluate credibility and draw any reasonable inference from the evidence, as well as to order that oral evidence be presented by one or more parties. However, the overarching goal remains to have a fair process that results in a just adjudication of disputes.

[36] These are the reasons I decline to use the enhanced fact-finding powers under r. 20.04(2.1):

1. I accept the defendants’ submissions as to the quality of the plaintiffs’ pleadings in terms of an appreciation of the nature of any proprietary claim in the proceeds of the sale of either the Mount Brydges or the London projects. However, it is evident the plaintiffs are making equitable claims based upon the mortgagees’ direct or imputed knowledge of the joint venture agreement or alleged misuse of proceeds from the Mount Brydges project.
2. There are two lines of authority interpreting application of s. 93(3) of the Land Titles Act. The first line supports the defendants’ contention that s. 93(3) provides the registered mortgagee with an interest in priority to unregistered interests: Holborn Property Investments Inc. v. Romspen Investment Corp., 2008 CarswellOnt 6914 (ONSC). However, the other line of authority holds that s. 93(3) of the Land Titles Act is only available to a bona fide purchaser for value without notice: 909403 Ontario Ltd. v. Di Michele, 2014 ONCA 261. On that approach, the court is required to assess the credibility of parties in ascertaining whether any, some or all of the defendants had actual or imputed knowledge of the joint venture agreement and/or the misuse of proceeds owing to the plaintiffs. On this interpretation, the court is also required to determine whether those proceeds are subject to a constructive trust and whether the equities favour the plaintiffs. The court is not in position to fairly consider which line of cases applies without a more complete evidentiary record. In my view, the issues of some, one or any of the defendants’ knowledge and the plaintiffs’ entitlement to an equitable remedy require comprehensive and tested evidence.
3. There are a host of credibility issues pertaining to numerous transactions that are at the core of both the London and Lupine Actions. The plaintiffs allege Lupine’s principal Mr. Lean was aware of the agreement such that his Construction Mortgages are invalid. Mr. Lean denies such knowledge. The plaintiffs also allege that Nuage’s solicitor Mr. Bain was aware of the agreement and the improper registering of mortgages and misuse of funds to invest in the London project. Mr. Bain denies this. The plaintiffs’ credibility is also in dispute, with several internal inconsistencies in their evidence, such as the circumstances of the finalizing of the joint venture agreement, the apparent agreement to roll over proceeds from sales of the Mount Brydges lots instead of holding the proceeds in trust as per the agreement and their reasons for agreeing to not take security on their investment. Similarly, there are credibility issues raised regarding various of the London investors and whether or what they knew of the Mount Brydges joint venture agreement and use of proceeds by Nuage in the London project. The overlapping and conflicting accounts of the transactions among the plaintiffs, Mr. Bain and the mortgagees cannot be fairly resolved through comparison of the multiple decontextualized affidavits and transcripts. A trial judge will be in a better position to address the credibility issues on an assessment of all the evidence.
4. As a general principle, the court is entitled to assume the record on a motion for summary judgment contains all the evidence the parties would present at trial. However, there are exceptions to this principle: Dia v. Calypso Theme Waterpark, 2021 ONCA 272 at para. 26. The evidence of Mr. Shousher is conspicuous by its absence on these motions, yet is likely key to resolving many of these conflicting accounts as to the circumstances of the negotiation and execution of the joint venture agreement, the defendants’ knowledge of the agreement and the alleged use of Mount Brydges proceeds in the London project. There was some limited examination of Mr. Shousher in respect of the Nuage Action; however, the court was not taken to any evidence from Mr. Shousher that would resolve the conflicting accounts among the plaintiffs, Mr. Bain and the various mortgagees in both actions for the purposes of these central issues on these summary judgment motions. The court understands Mr. Shousher may well also not be in attendance at trial. However, without more, that mere possibility at this juncture is not an appropriate consideration for the exercise of the court’s fact-finding powers for summary judgment. It also remains a possibility that he could be summonsed to trial and he could even testify remotely, if necessary, if he remains out of the country. It still remains that a trial judge will be in a better position to determine these issues, with or without Mr. Shousher’s participation. This is a complex factual case where the trial judge will develop a fuller appreciation of the relationships among the parties and the context of the transactions in issue.
5. The court must also be alive to the risks of partial summary judgment: Dia, supra at para. 27. The action will continue as against Mr. Bain and the summary judgment sought in the London Action arguably does not foreclose on the conspiracy claims against those mortgagee defendants. Mr. Bain’s alleged liability does not stand on its own in the context of the plaintiffs’ allegations against the moving parties. He is allegedly directly or indirectly involved in all of the impugned transactions from the joint venture agreement, to the Construction Mortgages to the disbursement of proceeds to the registered mortgagees in the Lupine and London Actions.
6. Technically, there is a question as to whether the defendant’s motion in the Lupine Action qualifies as partial summary judgment as the mortgagee is the sole defendant in that action. The consent order provides for the actions to be tried together or one after the other under Rule 6. Whether the application of Rule 6 changes the partial summary judgment analysis is debatable. Without deciding the issue, I note that many of the considerations that are relevant to ordering the trial of two or more actions together under Rule 6 are relevant to the factors a court should address when considering partial summary judgment. The allegations arise from a series of transactions involving both the Mount Brydges and the London Projects. If I granted summary judgment and the matter against Mr. Bain proceeded to trial, I can foresee that any of these parties in both actions could be called to testify as to their involvement in the transactions and that a finger pointing or blame game could ensue. There is a real risk of inconsistent findings. Partial summary judgment will also not be proportionate, timely or cost-effective. I am mindful of the delay caused by the pandemic and the imperative to facilitate access to justice; however, that situation cannot render use of summary judgment on this record a fair and just adjudication of the matters.
7. I considered requiring oral evidence and determined it would not assist the court in weighing the evidence or determining the credibility issues. Such a focused hearing would not resolve the issues of Mr. Shousher’s missing evidence and partial summary judgment.

[37] For these reasons, I conclude summary judgment is not in the interests of justice and the defendants’ motions are dismissed.

[38] Due to the exigencies of scheduling and court resources, I am not seized of this matter. However, my review of these proceedings indicates these matters have been beset by delay and discoordination for reasons that cannot be entirely due to the pandemic. It is time for these matters to be coordinated as they move through examinations for discovery toward trial.

[39] I require the parties to contact the trial coordinator to request that a 50.13 case conference be scheduled. Among other issues, the purpose of the case conference is to include: addressing the conduct of examinations for discovery in supplement to the evidence generated through these motions, the involvement of Calzonettimediate Inc. as a party to one or more of the proceedings, a litigation timetable, the involvement and status of the defendant Shousher/Nuage’s involvement and the extent to which the Weisz Action should also be included to some extent in the scheduling of these matters.

[40] The parties are encouraged to resolve the costs of these motions. If costs are unresolved, the plaintiffs shall provide written submissions within 30 days of the date of release of this decision. The moving party defendants and the responding defendant Bain shall provide written submissions, if any, within 15 days thereafter. Submissions shall be limited to 2 pages excluding a costs outline. No reply may be filed without leave.

Justice K. Tranquilli Released: January 14, 2022