Court File and Parties

COURT FILE NO.: CV-21-00001403-0000

DATE: 2022-08-05

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: B2B Bank, Plaintiff

AND:

Maria Letrado Caro, Defendant

BEFORE: Kurz J.

COUNSEL: Michael Cassone, for the Plaintiff Sudha Chandra, for Ms. Letrado

HEARD: July 25, 2022

ENDORSEMENT

Introduction

[1] The Plaintiff, B2B Bank (“B2B” or the “bank”), moves for summary judgment in its claim to collect the balance of an unpaid loan against the Defendant, Maria Letrado Caro (“Ms. Letrado”) and her counterclaim against the bank based on negligence and breach of fiduciary duty.

[2] B2B argues that this is a simple collection matter in which $69,090.92 of a $200,000 loan remains outstanding. That being the case, it argues that there are no genuine issues requiring a trial.

[3] Ms. Letrado, who brought a counterclaim against BMO for $60,000, raises two primary arguments, which are applicable to both the main claim and the counterclaim:

1. B2B was responsible for the actions of her own investment advisor, who was allegedly involved in a fraud against her in obtaining the loan funds and applying it to a poor investment; and
2. B2B breached a fiduciary duty or duty of care to her in regard to that loan.

[4] For the reasons set out below, I find that there is no genuine issue requiring a trial. I grant summary judgment in favour of B2B and dismiss the counterclaim.

Background

[5] Ms. Letrado was a homeowner who alleges that she was seeking a loan to renovate her home. Through a neighbour, she identifies only as “William”, she was introduced to what she now describes as an unscrupulous investment broker named Neil Kumar (“Kumar”), an employee of Shah Financial Planning Inc. (“Shah Financial”).

[6] On or about October 1, 2013, Ms. Letrado executed and submitted an application in support of her request for a loan from B2B in the amount of $200,000.00 (the “Loan Application”). The loan was to be used to purchase securities in an investment called the “Stone Dividend Yield Hog Fund” (the “Securities”). B2B did not recommend the Securities or any particular investment to her.

[7] In her ten-paragraph responding affidavit to this motion, Ms. Letrado claims that she signed the Loan Application with William’s assistance. She adds, without reference to the source of her information, that the Loan Application was prepared by Kumar. She admits that she assumed that Kumar worked for B2B but offers no evidence to support that assumption.

[8] Ms. Letrado claims that B2B should have known of Kumar’s unscrupulous nature, without offering any reasons to support that assertion. She states that Kumar was “later… permanently banned” by his mutual funds regulator for failing to cooperate with an investigation into falsified loan applications. Again, no source is provided for that information and no proof is provided.

[9] B2B approved the Loan Application and granted Ms. Letrado a loan. Among the terms of the loan agreement between the parties (the “Loan Agreement”), were the following:

Principal: $200,000.00 Annual Interest Rate: Prime Rate plus 0.75% Payments: Payments of $1,185.78 starting on September 28, 2013 and on the 28th day of each month thereafter Securities Purchased: Fund Code: SCL213 Fund Name: Stone Dividend Yield Hog Fund Dollar Amount: $200,000.00

[10] Ms. Letrado asserts that [B2B] “knew that Kumar was borrowing money on [her] behalf” but failed to warn her about him. Again, she fails to identify why she believes that B2B knew of Kumar’s improper activities. There is no evidence that B2B knew of Kumar, let alone his unscrupulousness. She also claims that her loan application was “falsified” by Kumar without stating how it was falsified by him or whether he did so before or after she signed it.

[11] Under the Loan Agreement, Ms. Letrado provided pre-authorized payment instructions to B2B in order to allow it to (i) automatically withdraw payments from Ms. Letrado’s bank account; and (ii) to deposit distributions from the Securities, which were secured by the Loan Agreement.

[12] For almost the first three years of the dealings between the parties, the Securities operated as a worthwhile investment for Ms. Letrado. During the first 35 months of the term of the Loan Agreement, Ms. Letrado received monthly distributions of $2,901.35 from the Securities. Of that amount, she remitted loan payments of $1,185.78 to B2B, leaving her with a surplus of $1,715.57 every month.

[13] Over that first 35 months of her investment in the Securities, Ms. Letrado received a total of $101,687.25. Of that amount, she received a surplus, over loan payments, of $60,044.95. These funds were withdrawn from and deposited to Ms. Letrado’s account in a different financial institution, Scotiabank. In total, Ms. Letrado received monthly distribution payments on the Securities of $124,104.20.

[14] On or about July 23, 2019, the Plaintiff received a letter from Shah Financial, Kumar’s employer. Enclosed with that letter was a letter of direction from Ms. Letrado to B2B, authorizing the collapse of the Securities, which were still held by B2B as security for the outstanding loan. Two days later, the Securities were redeemed. In accordance with the terms of the Loan Agreement, the proceeds of that redemption of the Securities, $83,474.16, was applied by B2B to the credit of Ms. Letrado’s outstanding debt under the Loan Agreement.

[15] On July 23, 2019, Shah Financial sent a letter of direction to B2B from Ms. Letrado. The letter requested that the loan payments owing by Ms. Letrado to B2B be payable at the rate of $500 per month rather than the $1,185.78 set out in the Loan Agreement. B2B approved the change of payment terms. But argues that it neither entered into a new loan agreement with Ms. Letrado nor did it waive its right to full compliance with the terms of the Loan Agreement. Ls. Letrado does not dispute those contentions.

[16] On March 19, 2021, the Plaintiff delivered a demand for full payment to Ms. Letrado. The materials before the court do not explain the change in its position regarding payment. It states that the loan was a demand loan and that it was entitled to demand full payment. No further payments were made.

[17] On July 23, 2019, Ms. Letrado settled any claims against Shah Financial and Kumar in return for the payment to her of $25,000. The payment came within the context of an investigation against Shah Financial and Kumar by the Ontario Ombudsman for Banking Services and Investments (“the Ombudsman”). According to the release signed by Ms. Letrado, her complaint against Shah Financial and Kumar was that she was “unsuitable for the leverage investment and seeking compensation”.

[18] I note that nothing in the record before me discloses that Ms. Letrado registered any complaint against B2B with the Ombudsman. Nothing in the release refers to B2B or a relationship between B2B and Kumar/Shah Investments. There is no evidence that B2B participated in the settlement or was even aware of Ms. Letrado’s complaint to the Ombudsman.

Law Regarding Summary Judgment

[19] This motion is brought under r. 20.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The terms of r. 20.04 are mandatory: the court shall grant summary judgment if it is satisfied that there is no genuine issue for trial with respect to a claim or defence (see also Hryniak v. Mauldin, 2014 SCC 7 ("Hryniak"), at para. 68, and Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429 ("Mega International"), at para. 83).

[20] The principles under which the court makes the determination of a genuine issue for trial are set out by the Supreme Court of Canada in Hryniak, at paras. 44-45, 49-50 and 66.

[21] There will be no genuine issue requiring a trial if the summary judgment process allows the court to reach a fair and just determination on the merits on a motion for summary judgment. That will be the case when the process (1) provides the court with the evidence required to fairly and justly adjudicate the dispute by making the necessary findings of fact, (2) allows the judge to apply the law to those facts, and (3) is a proportionate, more expeditious, and less expensive means to achieve a just result: Hryniak, at paras. 49, 66.

[22] The Hryniak approach requires a "broad assessment of the entire record to determine whether summary judgment [is] appropriate or whether a trial would be required": Pichelli v. Kegalj, 2021 ONCA 445, at para. 12. Despite this "robust approach to summary judgment, the overarching goal remains to have 'a fair process that results in a just adjudication of disputes'": Pichelli at para. 23, citing Hryniak at para. 28..

[23] Each party to a motion for summary judgment has an obligation to "...'put its best foot forward' with respect to the existence or non-existence of material facts that have to be tried" (Ramdial v. Davis (Litigation Guardian of), 2015 ONCA 726, 341 O.A.C. 78, at para. 27, citing Papaschase Indian Band No. 136 v. Canada (Attorney General), 2008 SCC 14, [2008] 1 S.C.R. 372, at para. 11).

[24] The onus for proving that there is no genuine issue for trial rests with the moving party. However, in response to the evidence of the moving party, the responding party may not rest on mere allegations or denials in the party's pleadings. That party must set out in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial. A self-serving affidavit is not sufficient itself to create a genuine issue for trial in the absence of detailed facts and supporting evidence: Rules of Civil Procedure, Rule 20.01(2); Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 31.

[25] In the oft-repeated maxim of Osborne J.A., the responding party to a motion for summary judgment must "lead trump or risk losing": 1061590 Ontario Ltd. v. Ontario Jockey Club, [1995] O.J. No. 132 (Ont. C.A.), at para. 35. The principle was reaffirmed in Ramdial, at para. 28.

[26] The court is entitled to assume that the record before it is complete, that it contains all of the evidence that a party would present if there were a trial: Broadgrain Commodities Inc. v. Continental Casualty Company (CNA Canada), 2018 ONCA 438, at para. 7, citing Dawson v. Rexcraft Storage & Warehouse Inc., 1998 4831 (Ont. C.A.), at para. 17; Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at paras. 27, 33-34, aff'd 2014 ONCA 878, leave to appeal to S.C.C. refused, [2015] S.C.C.A. No. 97; and Tim Ludwig Professional Corporation v. BDO Canada LLP, 2017 ONCA 292, at para. 54.

[27] Once the moving party discharges the burden of showing that there is no genuine issue for trial, the onus shifts to the responding party. That party must then provide evidence of specific facts showing that there is a genuine issue requiring a trial: Ramdial, at para. 30. An adverse inference may be drawn from a failure to support the allegations or denials in a party's pleadings: Pearson v. Poulin, 2016 ONSC 3707, at para. 40.

[28] Under r. 20.04(2.1) the court may exercise enhanced powers on the motion unless it is in the interest of justice to exercise them at trial instead. Those enhanced powers allow the court to weigh the evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence. As Paciocco J.A. wrote for the Court of Appeal for Ontario in Mega International, above, those powers "...are presumptively available to a summary judgment motion judge to use to fairly and justly adjudicate a claim at a motion for summary judgment": at para. 83; see also Hryniak, at para. 45. However, the court is not required to resort to those powers to make up for a party's evidentiary shortcomings: Broadgrain Commodities Inc., at para. 7.

Issues

[29] In every motion for summary judgment, the key issue is whether there is a genuine issue requiring a trial. Here, it is agreed that that issue can be determined in reference to the two following sub-issues:

1. Is B2B responsible for the acts or omissions of Kumar?
2. Did B2B owe Ms. Letrado a fiduciary duty or a duty of care?

Issue No 1: Is B2B responsible for the acts or omissions of Kumar?

[30] B2B has met its onus in this motion by proving that it had a debtor-creditor relationship with Ms. Letrado, that it loaned her $200,000 on the terms set out above and that the full amount was not repaid. Ms. Letrado does not challenge B2B’s figures, which set out an outstanding loan balance of $69,090.92 plus prejudgment interest at 3.2% per annum from September 21, 2018.

[31] In support of her claim about B2B’s liability for Kumar’s alleged improprieties, which operates as both a defence to the bank’s claim against her and her counterclaim, Ms. Letrado argues that:

1. she assumed that Kumar worked for B2B, and that B2B knew that Kumar was borrowing money on her behalf.
2. B2B should know its clients but failed to do so here. She points to the Loan Application, in which she is required to provide the bank with certain information about her income, assets and employment status. The application form states that the bank may review the information in the application. Thus, it was entitled to determine the veracity of the claims she made in her loan application. She says that it should have investigated Kumar.
3. Ms. Letrado also points to an undated portion of an email sent by the CEO of Shah Financial, Ekta Chauhan, purportedly in 2021. The email broadly states that Ms. Letrado’s 2013 loan from B2B was “an unsuitable leverage that was fraudulently opened with falsified documents”.

[32] There are a number of problems with those arguments, namely that:

1. Ms. Letrado offers no evidence or realistic basis for her views that Kumar was working for B2B or that B2B was aware of the alleged fraud that he was perpetrating against her. In Ms. Letrado’s own words, that was her assumption. She can point to no representation by B2B to that effect. The Loan Agreement cites Kumar as her representative with B2B. At her cross-examination, Ms. Letrado confirmed that she has no evidence to suggest that the Plaintiff knew Kumar was borrowing money on her behalf. There is simply no evidence to support Ms. Letrado’s claims regarding B2B’s knowledge of Kumar’s alleged improprieties. On the other hand, the evidence of B2B is that it has no relationship with Kumar or Shah Financial and never did. It did not employ them or pay them any referral fees. There is no evidence before the court that contradicts those assertions.
2. Ms. Letrado signed the Loan Application. While B2B was entitled to examine the veracity of the statements that she made to the bank to obtain the loan, it was not obliged to do so. Even assuming that Ms. Letrado lied in her loan application, she should not be able to point to her lies in order to evade the consequences of a loan premised on those lies: see Livent Inc. Special Receiver and Manager of) v. Deloitte & Touche, 2016 ONCA 11, at para. 71 – 80 regarding the application of the doctrine of ex turpi causa. B2B certainly had no duty to protect Ms. Letrado from her own false statements in the Loan.
3. Ms. Chauhan’s unsworn email statement, eight years after the fact, about the nature of the loan have little to no evidentiary value in this motion. I say this for the following reasons: i. No particulars of her allegation are offered. ii. The evidence does not disclose the source of Ms. Chauhan’s statement. Was she involved in the transaction? Did she even hold her present role with Shah Financial at the time of the loan in 2013? iii. Ms. Letrado does not even offer an affidavit directly from Ms. Chauhan. Under Rule 20.02, the court may accept hearsay evidence based on “knowledge and belief”, but it is entitled, “where appropriate … to draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of the contested facts.” In the absence of an explanation for the failure to offer Ms. Chauhan’s direct evidence and in light of the limited evidence offered of her correspondence with B2B, I find it appropriate to draw that inference.
4. Ms. Letrado complained to the Ombudsman against Kumar and Shah Financial. She settled with them for $25,000. B2B was not a party to that complaint and not even mentioned in the only materials regarding that complaint (i.e., the release) placed before the court. The inference that the court can reasonably take from those facts is that Ms. Letrado did not believe, at the time of her complaint to the Ombudsman, that she had a complaint against B2B.

[33] Thus, it is not open to the court on the evidence before it to find that B2B is responsible for the acts of Kumar and Shah Financial.

Issue No. 2: Did B2B owe Ms. Letrado a fiduciary duty or a duty of care?

[34] Ms. Letrado argues that a form of special relationship existed between B2B as lender and herself as borrower. That argument flies in the face of both the case law and the facts of this case.

[35] The Court of Appeal for Ontario clearly stated that generally, there is no fiduciary duty between a bank and a borrower. As it wrote in Baldwin v. Daubney, [2006] O.J. No. 3824 (Ont. C.A.), at para. 15

15 Finally, we reject the submission that the respondent financial institutions owed the appellants a fiduciary duty to advise them adequately about the loans. Again, we do so for the reasons given by the motion judge. At paras. 65 to 66 of the reasons, he explains:

It is well established in the case law that the ordinary relationship of lender and borrower does not involve or give rise to a fiduciary duty on the part of the lender towards the borrower. See Mastercraft, [1994] O.J. No. 941, supra, at p. 284 in paras. 47 to 49; also Anand v. Medjuck, [1995] O.J. No. 2571 (Gen. Div.) at p. 43 at para. 40 and Bank of Montreal v. Witkin, [2005] O.J. no. 3221, supra, at paras. 54 and 55 and 59 to 61.

The reason that there is no fiduciary duty is simple. A fiduciary duty arises where a relationship between the parties, such as trustee and beneficiary, is established in order to give one party the responsibility to look out for the best interests of the other. The relationship between a lender and a borrower is not of that kind. Rather, it is a typical commercial relationship in which the interests of the parties are not the same and each party seeks to secure its own interest and can reasonably believe only that the other party is doing the same.

[36] Similarly, in XPG v. Royal Bank, 2017 ONSC 2598, at para. 356, Raikes J. of this court found that there is no duty of care between bank and borrower, writing:

356 Absent a special relationship or exceptional circumstances, the relationship between a bank and its customer is that of creditor and debtor which is governed by the contract between them: Pierce v. Canada Trustco Mortgage Co., 2005 CarswellOnt 1876 (C.A.) at para. 27. A duty of care does not exist in connection with the making of the loan: Pierce, para. 27; Baldwin v. Daubney, 2006 CarswellOnt 5783 (C.A.) at paras. 13-14.

[37] As B2B points out, by executing the Loan Application, Ms. Letrado confirmed that: (i) she read and understood the Terms; (ii) B2B does not involve itself in the choice of investment, the investment strategy, or in the decision to borrow; and (iii) there are no representations or warranties except as expressly set out in the Loan Agreement. I note that there is no pleading by Ms. Letrado of non est factum.

[38] Ms. Letrado argues that B2B nonetheless had a duty to investigate its loan to her because the circumstances of the loan should have raised suspicions. She claims that the loan was obtained with falsified documents, using false information. She has not proven that allegation. However, even if that were true, she fails to point out how B2B should have known this. She fails to identify what in particular should have aroused the suspicion of B2B to the alleged fraud being perpetrated against both parties to this action.

[39] Further, there is no evidence that Ms. Letrado ever brought an alleged fraud regarding the Loan Application or the Loan Agreement or the loan itself to the attention of B2B. The bank delivered monthly and annual loan statements to Ms. Letrado at her home. B2B asserts, without contradiction, that its records demonstrate no attempt by Ms. Letrado to contact it to dispute her liability under the mortgage or to allege fraud or falsified documents. Ms. Letrado also admitted on her cross-examination that she never advised the Plaintiff that the Loan Agreement was opened with falsified documents.

[40] B2B further argues that if Ms. Letrado had promptly brought any allegations of fraud to its attention it would have mitigated its damages (and the losses of Ms. Letrado) by collapsing the Securities purchased with the loan funds before they further decreased in value.

[41] Thus, I find that B2B breached no fiduciary duty or duty of care to Ms. Letrado.

Conclusion

[42] In conclusion. I find that this matter can be fairly and justly resolved through this motion for summary judgment. Further, I find that there is no genuine issue requiring a trial of either the main action or the counterclaim. Accordingly, I grant judgment against Ms. Letrado and in favour of B2B as follows:

1. Payment of $69,090.92;
2. Pre-judgment and post-judgment interest on the sum of $69,090.92 at the rate of 3.2% per annum from September 21, 2018 to the date of payment;
3. The counterclaim is dismissed.

Costs

[43] The parties should attempt to resolve the issue of costs on their own. If they are unable to do so, B2B may submit its costs submissions of up to three pages, double spaced, one-inch margins, plus a bill of costs/costs outline and offers to settle. B2B shall do so within 14 days of release of this endorsement. It need not include the authorities upon which it relies so long as they are found in the commonly referenced reporting services (i.e., LexisNexis Quicklaw, or WestlawNext) and the relevant paragraph references are included. Ms. Letrado may respond in kind within a further 14 days. No reply submission will be accepted unless I request it. If I have not received any submissions within the time frames set out above, I will assume that the parties have resolved the issue and will make no costs order.

“Marvin Kurz J.”

Electronic signature of Justice Marvin Kurz

Date: August 5, 2022