COURT FILE NO.: CV-21-00664479-0000

DATE: 20230213

ONTARIO SUPERIOR COURT OF JUSTICE

RE: The Toronto-Dominion Bank, Plaintiff

-and-

2275518 Ontario Inc., 1135578 Ontario Inc., 1344228 Ontario Inc., and Grace Diena, Defendants

BEFORE: Robert Centa J.

COUNSEL: Mark J. van Zandvoort and Josh Suttner, for the plaintiff

Eli Karp, for the defendants

HEARD: December 15, 2022, and January 18 and 19, 2023

ENDORSEMENT

[1] The Toronto-Dominion Bank commenced an action against a borrower, two corporate guarantors for the loan, and a personal guarantor. The loan went into default when the borrower was placed into receivership. TD brought this motion for summary judgment to enforce its loan agreement and the guarantees.

[2] For the reasons that follow, I find that there is no genuine issue requiring a trial. I grant summary judgment to TD against all defendants.

Parties and other key individuals

[3] The defendant 2275518 Ontario Inc. carries on business as Abira Physiotherapy. In 2016, Daniel Diena was the President of Abira. Mr. Diena caused Abira to enter into a loan agreement with TD dated February 29, 2016.

[4] Mr. Diena is married to the defendant Grace Diena, who was a director and shareholder of Abira. Ms. Diena provided an unlimited personal guarantee for TD’s loan to Abira.

[5] The Dienas control two corporations that also provided unlimited guarantees for TD’s loan to Abira:

a. the defendant 1344228 Ontario Inc., an investment holding company; and

b. the defendant 1135578 Ontario Inc., which owns the shares of the holding company.

[6] For each of the corporate guarantors, Mr. Diena is its President and a director, and Ms. Diena is a director.

[7] The defendants retained lawyer Jerome Stanleigh to act for them in the loan transaction. Subsequently, TD retained Mr. Stanleigh to act for the defendants and TD in connection with the loan agreement and security documents. The defendants have commenced a third party action against Mr. Stanleigh asserting that he negligently discharged his duties to them.

Facts

[8] Except with respect to one specific issue, the parties do not dispute many of the facts in this action. I will first outline the uncontested facts and will then consider the disputed facts in the context of the legal issues raised on this motion.

[9] In early 2016, Abira owed a total of just under $2 million to two creditors, the Business Development Bank of Canada and the Canadian Imperial Bank of Commerce. Each bank registered security interests ranking in equal priority over the assets of the corporate guarantors. Abira sought to refinance these loans.

[10] Abira obtained commitments from two private lenders, CFE/RJE Financial Inc. and RJE Investments Inc., to provide $700,000 to repay part of the loans to BDC and CIBC. I will refer to the private lenders collectively as CFE/RJE.

[11] TD also agreed to provide a loan facility to Abira, under which it borrowed $997,665.78. Mr. Diena signed the loan agreement on behalf of Abira. To provide security for TD’s loan to Abira, Ms. Diena and the corporate guarantors signed unlimited guarantees. Mr. Diena signed the guarantees on behalf of each the corporate guarantors. Ms. Diena signed her own guarantee and co-signed the guarantee given by 113578 Ontario Inc. Each guarantee provided as follows:

a. The guarantor’s liability is continuing, absolute, and unconditional. The guarantor’s obligations will not be affected by any act, omission, event, or circumstance that might constitute a legal or equitable defence to liability including TD taking or failing to take any security, or TD’s failure to perfect or maintain any security (s. 4(o));

b. TD is not required to exhaust recourse against Abira or any other person or security, before demanding payment from the guarantor (s. 11);

c. There are no representations, warranties, terms, conditions, undertakings or collateral obligations between the parties except as contained in the guarantee, which is the entire agreement between the parties (ss. 12 and 18); and

d. No amendment to the guarantee is valid or binding unless it is signed and in writing.

[12] TD, the defendants, and Mr. Stanleigh all understood that TD intended to have a first-ranking security interest against Abira’s property under the Personal Property Security Act, R.S.O. 1990, c. P.10. Mr. Stanleigh was required to register that security interest. Before he registered TD’s security interest, however, CFE/RJE had already registered a security interest against Abira’s assets and, being first in time, was in first place. None of TD, the defendants, or Mr. Stanleigh knew this at the time.

[13] On December 4, 2019, the Superior Court of Justice placed Abira and a number of other entities under receivership.[^1] This was an event of default for Abira under the loan agreement. On February 13, 2020, TD sent formal demand letters to each of the defendants requesting repayment of the loan. The defendants did not make any payments toward the amounts owing to TD.

[14] On February 26, 2020, the receivership was enlarged to include Ms. Diena among the definition of debtors for the purpose of investigation and inspection.

[15] On February 12, 2021, the court discharged the receiver with respect to Ms. Diena. As part of the receivership, TD received a distribution that reduced the amount of the indebtedness under its loan to $886,271.22, including interest to June 10, 2021. On June 11, 2021, the court discharged the receiver with respect to Abira.

[16] On June 23, 2021, TD commenced this action against Abira pursuant to its obligations under the loan agreement, the two corporate guarantors pursuant to their guarantees, and Ms. Diena pursuant to her personal guarantee.

[17] The defendants defended the action and delivered a statement of defence dated October 8, 2021.[^2] The defendants denied any liability to TD. They pleaded that their lawyer Mr. Stanleigh had failed to follow their instructions to obtain a subordination agreement from CFE/RJE. They also pleaded that Mr. Stanleigh, acting as TD’s agent, made a series of misrepresentations to them:

35. Staneleigh [sic] represented to the Guarantors that TD's security would be in first position after the refinancing. Similarly, TD's loan documentation which provided for TD to be in first position was a representation that TD's security would be in first position.

36. The Defendants and Guarantors relied on that representation made by Stanleigh in agreeing to execute the loan documentation including the loan guarantees.

37. That representation was false, as Stanleigh erred and did not register TD in first position.

38. Stanleigh's representation that TD would be in first position was a condition of the guarantors agreeing to execute the guarantee agreements.

39. Given Stanleigh's representations made false through Stanleigh's negligence, the Guarantors are entitled to rescind the guarantee agreement, and do hereby demand a rescission of same.

[18] The defendants pleaded that TD was estopped from relying on its own agent’s error and that TD’s action was barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sch B. The defendants also commenced a third party proceeding against Mr. Stanleigh, who defended the third party claim but not the main action.

Summary judgment

[19] On March 16, 2022, TD moved for summary judgment against the defendants. The initial material filed on the motion consisted of:

a. an affidavit sworn by Kathryn Furfaro, a manager in TD’s Financial Restructuring Group.

b. affidavits from Ms. Diena and Mr. Diena, as well as the transcripts of the cross-examinations on their affidavits;

c. a transcript from the rule 39.03 examination of Mr. Stanleigh; and

d. various answers to undertakings given during the cross-examinations.

[20] Summary judgment is an important tool for enhancing access to justice where it provides a fair process that results in a just adjudication of disputes: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 4-7. Used properly, it can achieve proportionate, timely, and cost-effective adjudication.

[21] The Court of Appeal for Ontario described the correct approach on a motion for summary judgment in Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, 154 O.R. (3d) 561, at para. 24. I am to:

a. determine if there is a genuine issue requiring a trial based only on the evidence before me, without using the enhanced fact-finding powers under rule 20.04(2.1);

b. if there appears to be a genuine issue requiring a trial, determine if the need for a trial could be avoided by using the enhanced powers under

i. rule 20.04(2.1), which allow me to weigh evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence; and

ii. under rule 20.04(2.2), which allows me to order that oral evidence be presented by one or more parties.

[22] In para. 66 of Hryniak, the Supreme Court of Canada emphasized that I must focus on whether the evidence before me permits a fair and just adjudication of the dispute and cautioned that judges should not use the enhanced powers where their use would be against the interests of justice:

On a motion for summary judgment under rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[23] On a motion for summary judgment, the court assumes that the parties have each advanced their best case and that the record contains all the evidence that would be led at trial. Each party is obliged to put their best foot forward. They are not permitted to sit back and suggest that they would call additional evidence at trial: Prism Resources Inc. v. Detour Gold Corporation, 2022 ONCA 326, 162 O.R. (3d), at para. 4; Ntakos Estate v. Ntakos, 2022 ONCA 301, 75 E.T.R. (4th) 167, at para. 38; Salvatore v. Tommasini, 2021 ONCA 691, at para. 17; Miaskowski (Litigation guardian of) v. Persaud, 2015 ONSC 1654, 51 R.P.R. (5th) 234, at para. 62, rev’d on other grounds, 2015 ONCA 758, 342 O.A.C. 167.

Based solely on the written record, there is a genuine issue for trial

[24] TD submits that it is entitled to summary judgment against Abira and the guarantors and that, based on the record before me, there are no genuine issues for trial. TD submits that the loan is in default and its demands to the guarantors under the guarantees have gone unanswered.

[25] TD submits that the fact that its security position was not perfected in first place is legally irrelevant to the enforceability of the guarantees. TD acknowledges the general rule that a creditor must protect and preserve its security and be able to return or reassign the security to the debtor or surety on repayment of the debt. TD emphasizes, however, that the parties to a guarantee may agree to change the general rule and, where the parties have made such an agreement, the courts will enforce it: Bauer v. Bank of Montreal, 1980 CanLII 12 (SCC), [1980] 2 S.C.R. 102.

[26] TD submits that the guarantee signed by the guarantors in this case contains exactly the type of provision that Bauer enforced. Section 4(o) of the guarantee states:

The liability of the Guarantor under this Guarantee is continuing, absolute and unconditional and will not be affected by any act, omission, event or circumstance that might constitute a legal or equitable defence (any and all such legal and equitable defences are hereby expressly waived by the Guarantor) to or a discharge, limitation or reduction of the liability of the Guarantor hereunder, other than as a result of the indefeasible payment in full of the Obligations, including: …

(o) any taking or failure to take any security by the Bank, any loss of or diminution in value of any security, the invalidity. unenforceability, subordination, postponement, release, discharge or substitution, in whole or in part, of any security, or the failure to perfect or maintain perfection or enforce any security;

[27] TD submits that Bauer is dispositive of all of the defences raised by the defendants because provisions like s. 4(o):

a. are not exculpatory or exemption clauses;

b. are not onerous or unusual; and

c. are enforceable absent a specific misrepresentation that led to the formation of the contract in question.

[28] TD submitted that the failure to register its security interest is legally irrelevant to the enforceability of the guarantees because s. 4(o) is enforceable and contemplated this precise situation. TD urged me to determine the matter either on the basis of the record before me or using the enhanced fact-finding powers under rule 20.04(2.1). TD submitted that I had the benefit of affidavits and sworn testimony from all the witnesses to the events, that there were no additional documents, and that the witnesses were “pinned down” to their evidence during the cross-examinations on their affidavits. In these circumstances, TD submitted that there was no genuine issue that required a trial.

[29] In their factum and in oral argument at the return of the motion for summary judgment, the defendants submitted that there was a genuine issue requiring a trial regarding whether or not Mr. Stanleigh had made misrepresentations to Mr. Diena and Ms. Diena that induced them to sign the guarantees and the loan agreement. The defendants submitted that I could not make that determination based on the paper record filed by the parties. They submitted there were real issues of credibility that could not be determined fairly without a trial.

[30] I carefully reviewed the record and factums before the parties appeared for oral argument on December 15, 2022.

[31] Courts will not enforce a guarantee induced by a misrepresentation. Where a creditor misrepresents the nature, extent, or quality of the security that it possesses for a debt in order to convince a person to provide the guarantee, the guarantor is entitled to be released on the basis of that misrepresentation: Royal Bank v. Druhan, (1996), 1996 CanLII 10613 (NS SC), 157 N.S.R. (2d) 29 at para. 24. As the Supreme Court of Canada held in Bauer, at paras. 14-15:

Various authorities were cited for the proposition that a contract induced by misrepresentation or by an oral representation, inconsistent with the form of the written contract, would not stand and could not bind the party to whom the representation had been made…. 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.

[32] Given the centrality of the alleged misrepresentations to the defendants’ defence, I had significant concerns, based only on the evidence before me, and without using the enhanced fact-finding powers under rule 20.04(2.1), that there was at least one genuine issue requiring a trial.

[33] At the hearing of the motion, I concluded that I could not fairly determine the motion on the record before me without resort to the enhanced powers under rule 20.04(2.1) or (2.2). The dispute between the parties would require me to weigh the evidence, evaluate the credibility of the deponents, and draw inferences from the evidence.

[34] I also concluded that it would be in the interests of justice for me to hear oral evidence for the purposes of exercising my enhanced powers under rule 20.04(2.1). This was not to permit either party to repair a deficient record or to avoid their legal or evidentiary onus: Crisafi v. Urban Landmark Realty Inc., 2018 ONSC 191. I concluded that I should exercise the power bestowed on the court to assist me to determine if a fair and just resolution of the issue without a trial was possible: Pomata Investment v. Yang, 2021 ONSC 6786, at para. 12.

[35] I, therefore, adjourned the hearing on December 15, 2022, and ordered that the defendants present the oral evidence of Mr. Diena and Ms. Diena, and that Mr. Stanleigh also be required to give oral evidence. None of the parties suggested that it was necessary or advisable to call oral evidence from any other person. I agree.

[36] With the cooperation of counsel to the parties and counsel for Mr. Stanleigh, we were able to resume the hearing on January 18 and 19, 2022. The evidence was not lengthy. Mr. Diena’s evidence was completed in 75 minutes, Ms. Diena’s evidence was completed in 40 minutes, Mr. Stanleigh’s evidence took about 45 minutes. This oral evidence was very helpful to me.

[37] Having heard the oral evidence of the three key witnesses, I am now satisfied that the evidence before me permits a fair and just result and will serve the goals of timeliness, affordability, and proportionality in light of the litigation as a whole. In this case, the interests of justice do not require that the enhanced powers under rule 20.04(2.1) only be exercised at a trial. The parties were obliged to put their best foot forward: James v. Chedli, 2021 ONCA 593, at para. 31, Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at para. 26, aff’d 2014 ONCA 878, leave to appeal refused, [2015] S.C.C.A. No. 97. The added expense and delay of a trial is not necessary for a fair and just adjudication of this case: Pomata Investment v. Yang, 2021 ONSC 6786, at para. 9.

The defence of misrepresentation does not raise a genuine issue for trial

[38] I find that the defendants’ defence of misrepresentation does not raise a genuine issue requiring a trial. In assessing whether or not there is a genuine issue requiring a trial, it is helpful to keep in mind a few key legal propositions.

[39] A misrepresentation is a statement of fact that is not true. Misrepresentations must relate to a matter of existing fact: Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87, at para. 73; Moin v. Blue Mountains (Town), (2000) 2000 CanLII 16816 (ON CA), 135 O.A.C. 278, at para. 20; Business Development Bank of Canada v. Experian Canada Inc., 2017 ONSC 1851, at para. 140; Andronyk v. Williams (1985), 1985 CanLII 774 (MB CA), 35 C.C.L.T. 38 (Man. C.A.); Kelly v. Lundgard, (2001), 2001 ABCA 185, 202 D.L.R. (4th) 385, at para. 105. A representation must be a matter of ascertainable fact, not an opinion or expectation: Hembruff v. Ontario (Municipal Employees Retirement Board), (2005), 2005 CanLII 39859 (ON CA), 78 O.R. (3d) 561 (C.A.), at para. 76. Statements of future intent will not support a finding of misrepresentation unless at the time the statement is made the speaker did not possess the intent indicated: Edgington v. Fizmaurice (1885), 29 Ch. D. 459 (C.A.).

Evidence of the Dienas

[40] Mr. Diena and Ms. Diena filed virtually identical affidavits. Before turning to their oral evidence, it is helpful to consider the affidavit evidence they provided. The key evidence about the representations is as follows:

12. To represent us in the transaction, we retained the services of Jerome Stanleigh to act as counsel. As part of Mr. Stanleigh's retainer, he was to follow instructions on the Loan Commitments made by the parties to the transaction.

13. Despite the agreements otherwise, Mr. Stanleigh did not subordinate CFE/RJE's position to TD, and instead registered security to CFE/RJE in priority over TD.

14. That was an error, and was contrary to TD's instructions to Stanleigh, and my instructions to Stanleigh as guarantor.

15. As a result of the error made by Mr. Stanleigh in registering security, the Borrowers have been unable to obtain further institutional financing given that TD's PPSA registration is registered in second position and CFE/RJE PPSA registration is in first position.

16. The guarantees at issue in this litigation were only provided as a result of the security interests being properly delineated between TD and CFE/RJE and TD having priority to that of CFE/RJE.

17. I agreed to be a guarantor of TD's loan which was intended to be in first priority.

18. My lawyer Jerome Stanleigh was also acting for TD. In his capacity as TD's lawyer, Mr. Stanleigh advised me that he would register TD in priority position in accordance with the closing agenda.

19. I relied on Mr. Stanleigh being TD's lawyer as assurance that I would not be in a guarantor position on an institutional loan in second position.

20. Mr. Stanleigh who was acting for me as well as for TD did not explain to me that my guarantee would be valid even if he made an error that resulted in TD being in second position contrary to the parties' agreement relative to loan priority. Had Stanleigh explained to me that in the event that he made an error acting for TD that I would still be responsible as guarantor, I would not have agreed to sign the loan guarantee.

Evidence of Mr. Stanleigh

[41] Mr. Stanleigh did not swear an affidavit for use on TD’s motion for summary judgment. Instead, he was examined pursuant to rule 39.03 and gave live evidence at the motion.

[42] Mr. Stanleigh candidly admitted that he no longer had the file for this matter as it was inadvertently destroyed by a third-party document scanning company he had retained to digitize his files so that he could preserve them. Nevertheless, he could describe the broad structure of the loan arrangements and confirmed that TD, Abira, and the guarantors all intended that TD’s loan would be in first secured position. Although he “took instructions from TD,” he did not view himself as giving TD legal advice. Mr. Stanleigh testified that, in his mind, his only clients were the defendants.

[43] He testified that he explained the guarantees to Mr. Diena and Ms. Diena, as he had done with previous guarantees. He emphasized to them that they would be totally responsible for any outstanding amounts if Abira defaulted in any way under the loan agreement.

[44] Mr. Stanleigh testified that during this transaction, he met with Ms. Diena only once: he explained the guarantee and then she signed it. He testified that he did not have a specific recollection of the meeting and that he had previously discussed guarantees with Ms. Diena, as she had guaranteed several prior loans. He explained that she understood the basic issues related to guarantees and her full exposure.

[45] Mr. Stanleigh was “extremely doubtful” that he would have discussed anything about the security priorities with Ms. Diena when explaining the guarantee to her. As he put it, “priorities were not on the agenda” during that conversation, which focused on his explanation that if Abira did not meet its obligations to TD, the bank could initiate proceedings against her and the guarantors. From his perspective, there would have been no reason for him to discuss priorities with Ms. Diena while he was explaining the obligations the guarantee would impose on her.

[46] With respect to Mr. Diena, Mr. Stanleigh stated that it was “almost impossible” for him to conceive that he discussed the lenders’ priorities at the time he signed the guarantees as “one had nothing to do with the other.” Mr. Stanleigh knew Mr. Diena to be an astute businessman who understood priorities without Mr. Stanleigh needing to discuss them with him. A discussion of priorities would not have been “under the umbrella” of the advice provided during a discussion of the guarantees.

[47] Mr. Stanleigh was absolutely certain that he would not have told Ms. Diena or Mr. Diena at the time they discussed the guarantees that he had already registered TD’s security instrument. He would never have attempted to register a security interest before TD advanced the funds, so he would never have told Mr. Diena or Ms. Diena that the security was registered before they signed the guarantees.

[48] Mr. Stanleigh was certain that neither Mr. Diena nor Ms. Diena ever told him that they would only sign the guarantees if TD’s security was registered in first place. Those were not the instructions from TD and would have been a non-starter and inconsistent with the terms of the guarantee. The guarantees were absolute and unconditional. Mr. Stanleigh explained that to both Mr. Diena and Ms. Diena.

Assessing credibility

[49] Mr. Diena, Ms. Diena, and Mr. Stanleigh told quite different versions of events. To determine the issues raised on this motion, I must assess their reliability and credibility.

[50] One of the leading decisions on assessing credibility is Faryna v. Chorny, 1951 CanLII 252 (BC CA), [1952] 2 D.L.R. 354 (B.C.C.A.); Phillips et al. v. Ford Motor Co. of Canada Ltd. et al., 1971 CanLII 389 (ON CA), [1971] 2 O.R. 637 (C.A.). In Faryna, at para. 10, the court explained that:

The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.

[51] I am entitled to accept all, some, or none of the evidence of a witness. I will assess the evidence before me according to many factors including:

a. if the evidence makes sense by being internally consistent, logical or plausible;

b. if there are inconsistencies or weaknesses in the evidence of the witness such as internal inconsistencies, prior inconsistent statements, or inconsistencies with the evidence of other witnesses;

c. if there is independent evidence to confirm or contradict the witness’ evidence, or a lack of such evidence;

d. if the witness’s demeanour, including their sincerity and use of language, although this must be considered with caution; and

e. if the witness, particularly one that is a party in a case, may have a motive to fabricate: Caroti v. Vuletic, 2022 ONSC 4695, at paras. 434-436; 1088558 Ontario Inc. v. Musial, 2022 ONSC 5239, at para. 83.

[52] As set out above, on May 31, 2022, Mr. Diena and Ms. Diena each swore an affidavit for use on the motion for summary judgment. When I am assessing their affidavits, I will be guided by the decisions in Konstan v. Berkovits, 2023 ONSC 497, paras. 8 to 12, and Prodigy Graphics Group Inc. v. Fitz-Andrews, 2000 CarswellOnt 1178 (S.C.), at para. 46. I will consider the following factors:

a. presence or absence of details supporting conclusory assertions;

b. artful drafting which shields equivocation;

c. use of language in an affidavit which is inappropriate to the particular witness;

d. indications that the deponent has not read the affidavit;

e. affidavits which lack the best evidence available;

f. lack of precision and factual errors;

g. omission of significant facts which should be addressed; and

h. disguised hearsay.

[53] In this case, I am left with very significant doubts about the truthfulness and the accuracy of the evidence of both Mr. Diena and Ms. Diena. For the reasons set out below, where their evidence is contradicted by the evidence of Mr. Stanleigh, I prefer and accept Mr. Stanleigh’s evidence.

[54] The affidavit evidence provided by Mr. Diena and Ms. Diena is neither credible nor reliable.

[55] First, the affidavits were identical, except for the first paragraph of Ms. Diena’s affidavit, which accurately described her as a defendant to the proceeding. This is troubling because the affidavits purport to recount separate conversations between Mr. Stanleigh and each of Mr. Diena and Ms. Diena. These conversations took place six years before the Dienas prepared their affidavits. If these affidavits reflected the recollection of each affiant, it is extremely unlikely that Mr. Diena and Ms. Diena would each remember their separate conversations with Mr. Stanleigh the same way and would describe those conversations using the same words.

[56] My concerns are heightened because Mr. Diena’s affidavit included the sentence, “From my experience in business and from talking to my husband I know that institutional lenders (including TD) will only grant loans on operating businesses where they have a priority registration” (emphasis added). This evidence contains a glaring factual error. This is strong evidence that Mr. Diena did not prepare his own affidavit, that Ms. Diena’s affidavit was used as a template for his affidavit, and that Mr. Diena did not read his affidavit before he affirmed it.

[57] The best evidence would have been for Mr. Diena and Ms. Diena each to provide their own evidence, to the best of their own recollection. The facts set out above cause me to place less weight on each of the affidavits.

[58] Second, the affidavits contain other obviously incorrect and misleading information. Each affidavit includes the following paragraph:

14. While the funds from CFE/RJE were not sufficient to pay off the entire loan amount, they were to be buttressed by the funds received from TD. CFE/RJE received confirmation from Mr. Stanleigh that TD would be advancing the required funds, and that CFE/RJE's position would be subordinated to TD. Attached hereto as Exhibit "H" is a copy of this correspondence among the parties relating to the subordination. The subordination agreement that was to set CFE/RJE as being in first position relative to TD was included in the closing agenda, a copy of which is attached hereto as Exhibit "I".

[59] There are three significant problems with this paragraph. First, it contains an important typographical error. The phrase “first position relative to TD” should read “second position relative to TD.” Standing alone, that error would not concern me greatly, but it significantly changes the meaning of the sentence and causes me to doubt that either Ms. Diena or Mr. Diena reviewed their affidavits carefully to ensure their accuracy. Second, none of the emails included at Exhibit H list Mr. Stanleigh as a sender or recipient. That exhibit, therefore, offers no support for the factual assertion in the affidavit that Mr. Stanleigh provided any assurances to CFE/RJE. Third, the closing agenda included at Exhibit I contains no reference to a subordination agreement that was to place the CFE/RJE security interest behind that of TD. This is no mere typographical error. This error misrepresents the events at the time of the closing of the CFE/RJE loan transaction and would, if true, cast significant doubt on the evidence of Mr. Stanleigh. Instead, the misrepresentation causes me to view all the evidence in the affidavits with great skepticism. It is extremely unusual for an affidavit to be contradicted by its own exhibits.

[60] Third, Ms. Diena’s live evidence contradicted and undermined her affidavit evidence in at least four significant ways:

a. In paragraph 21 of her affidavit, Ms. Diena swore that “In his capacity as TD’s lawyer, Mr. Stanleigh advised me that he would register TD in priority position in accordance with the closing agenda.” However, when asked during her examination in chief “who told you that TD would be in first position,” Ms. Diena stated that she did not remember. On cross-examination, Ms. Diena admitted that she was not sure that paragraph 21 of her affidavit was accurate.

b. In paragraph 17 of her affidavit, Ms. Diena swore that Mr. Stanleigh’s actions in allowing CFE/RJE to register their security interest ahead of TD was “contrary to…my instructions to [Mr. Stanleigh] as guarantor. On cross-examination, however, she confirmed that she had no specific recollection of giving Mr. Stanleigh any instructions, much less instructions specific to the registration of TD’s security interest.

c. In paragraphs 21 and 22 of her affidavit, Ms. Diena swore that “My lawyer Jerome Stanleigh was also acting for TD. In his capacity as TD's lawyer, Mr. Stanleigh advised me that he would register TD in priority position in accordance with the closing agenda.” However, when asked during her examination in chief “Did you know that Mr. Stanleigh was acting for TD?,” Ms. Diena testified that she did not give it too much thought and that she knew Mr. Stanleigh was her lawyer. She stated that at the time she signed the guarantees, she knew Mr. Stanleigh was her lawyer but did not know that he was also the lawyer for TD.

d. In paragraph 22 of her affidavit, Ms. Diena swore that “I relied on Mr. Stanleigh being TD's lawyer as assurance that I would not be in a guarantor position on an institutional loan in second position.” However, when challenged on cross examination, Ms. Diena admitted that she did not sign the guarantees because of any specific representation that Mr. Stanley made directly to her. This admission is devastating to the defendants’ claims of misrepresentation.

[61] Fourth, Mr. Diena’s live testimony undermined his credibility and caused me to doubt his affidavit evidence in at least three significant ways:

a. Mr. Diena described TD having first position security for its debt as “the most important” feature of the loan to him and that he told Mr. Stanleigh “many times” that registering TD in first position “was the most important thing to be done” and that they discussed the security position “constantly.” Mr. Diena said nothing like this in his affidavit. Moreover, it seems unusual for a borrower to view the lender’s relative priority as the most important feature of the loan. Mr. Diena’s testimony appeared to me to be an attempt by him to provide evidence that he considered to be helpful to his legal position as opposed to his genuine recollection. I found his evidence on this point implausible.

b. Mr. Diena was, at times, evasive in his evidence. For example, Mr. Diena was evasive when counsel for TD suggested to Mr. Diena that, contrary to his affidavit, the closing agenda for the CFE/RJE financing (Exhibit I to his affidavit) did not mention a subordination agreement between TD and CFE/RJE. Mr. Diena offered several different explanations. First, he suggested that TD was actually a party to the Abira and CFE/RJE transaction because his lawyer Mr. Stanleigh also acted for TD on the other financing. Then, he suggested that he must have been told by Mr. Stanleigh that there was a subordination agreement listed on the closing agenda. Finally, Mr. Diena conceded what was obvious all along: his affidavit was incorrect and misrepresented the content of the closing agenda. I was troubled by Mr. Diena’s evasiveness on this point. It undermined his credibility and the reliability of his evidence.

c. Mr. Diena was, at times, prepared to change his testimony when he perceived that doing so was to his advantage. In paragraph 21 of his affidavit, Mr. Diena swore that “In his capacity as TD’s lawyer, Mr. Stanleigh advised me that he would register TD in priority position in accordance with the closing agenda.” During cross-examination, counsel asked Mr. Diena when Mr. Stanleigh made that statement. Mr. Diena stated that Mr. Stanleigh told him that between March 8 and 15, 2016. Counsel pointed out that this alleged representation took place after Mr. Diena signed the loan agreement (March 1) and the 1135578 Ontario Inc. guarantee (March 4). Mr. Diena’s evidence with respect to the timing of the alleged representation would obviously undermine the defendants’ claims that they relied on this alleged representation when they signed the loan agreement and guarantees. After seeing the dates that he signed the guarantees, Mr. Diena changed his evidence and said that Mr. Stanleigh made the representation as early as March 1, 2016. This is a significant change in his evidence. It causes me to have concerns about the credibility and reliability of all of Mr. Diena’s evidence.

[62] Taken together, the problems I have listed above cause me to place very little weight on the evidence of Mr. Diena and Ms. Diena. I do not find them to be credible or reliable.

[63] In contrast to the evidence of Mr. Diena and Ms. Diena, I found that Mr. Stanleigh was a credible and reliable witness. He gave his evidence in a careful and thoughtful fashion. He recognized the limitations of his memory given the passage of time and the fact that he no longer had access to his files. His evidence was consistent with the loan and guarantee documents. Where his evidence was inconsistent with the evidence of Ms. Diena or Mr. Diena, I prefer Mr. Stanleigh’s evidence.

Conclusion

[64] With the benefit of the oral evidence, I find that there is no genuine issue for trial regarding the alleged misrepresentations. For the reasons set out above, I do not accept the evidence of Mr. Diena and Ms. Diena regarding the misrepresentations they allege that Mr. Stanleigh made to them on behalf of TD.

[65] I do not accept that Mr. Stanleigh made any false representations to them on behalf of TD. I find that Mr. Stanleigh did not make a misrepresentation to the guarantors, including a misrepresentation by omission, silence, half-truths, inaction, or the non-disclosure of material information: Wong v. Li, 2023 ONCA 42, at para. 13. Specifically, I find that:

a. During the discussion of the guarantees, the guarantors did not instruct Mr. Stanleigh to register TD’s security in priority to the CFE/RJE;

b. The guarantors did not provide their guarantees only on the basis that TD would have priority to that of CFE/RJE and never said such a thing to Mr. Stanleigh;

c. Mr. Stanleigh did not discuss issues of the relative priority positions of TD and CFE/RJE while discussing with Mr. Diena and Ms. Diena the obligations imposed by the guarantees;

d. Mr. Stanleigh did not tell the guarantors that the TD security was already registered in first place before they signed the guarantees; and

e. The guarantors did not rely on any representations of Mr. Stanleigh about TD’s security position when they signed the guarantees.

[66] If Mr. Stanleigh said anything to the guarantors about TD’s security position when discussing the guarantees, and I do not find that he did, he would have said nothing more than that “he would be registering the TD loan in first position.” This is the representation the defendants alleged in their statement of defence:

35. Stanleigh represented to the Guarantors that TD's security would be in first position after the refinancing. Similarly, TD's loan documentation which provided for TD to be in first position was a representation that TD's security would be in first position.

[67] Even if Mr. Stanleigh said he would be registering TD in first place, I find that this is not the type of statement that could give rise to an actionable misrepresentation as it is a statement of future intent or expectation, not one of existing fact: Queen v. Cognos Inc., at para. 73; Moin, at para. 20; Business Development Bank of Canada, at para. 140; Andronyk at para. 98; Kelly, at para. 105. There is no evidence that Mr. Stanleigh did not possess the indicated intent: Edgington.

[68] In conclusion, I find that the defendants were not induced into giving the relevant guarantees on the basis of a representation that TD would have its security registered in first place. The guarantors cannot rescind the guarantee contract on this basis. TD is not prohibited from enforcing the guarantees on this basis.

The defence that s. 4(o) of the guarantee was unusual does not raise a genuine issue for trial

[69] The defendants submit that s. 4(o) of the guarantee was sufficiently unusual that there was an obligation on the part of TD to bring that clause specifically to their attention. The defendants note that they had not previously signed a guarantee on a form used by TD. The defendants submit that since TD did not bring this particular clause to their attention, the clause is unenforceable against them.

[70] Having heard the evidence of Mr. Stanleigh, Mr. Diena, and Ms. Diena, I find that this defence does not raise a genuine issue requiring a trial. There are no material facts in dispute. Even if TD did not bring s. 4(o) specifically to the attention of the guarantors, the bank was not required to do so because there is nothing unusual about that clause.

[71] Section 4(o) of the guarantee states:

The liability of the Guarantor under this Guarantee is continuing, absolute and unconditional and will not be affected by any act, omission, event or circumstance that might constitute a legal or equitable defence (any and all such legal and equitable defences are hereby expressly waived by the Guarantor) to or a discharge, limitation or reduction of the liability of the Guarantor hereunder, other than as a result of the indefeasible payment in full of the Obligations, including: …

(o) any taking or failure to take any security by the Bank, any loss of or diminution in value of any security, the invalidity. unenforceability, subordination, postponement, release, discharge or substitution, in whole or in part, of any security, or the failure to perfect or maintain perfection or enforce any security;

[72] The defendants provided no evidence to demonstrate that this clause was in any way unusual. This is not surprising. In his text The Law of Guarantee, 3rd Edition (Lexis Nexis), §15.138, Kevin McGuiness states:

one of the most frequently encountered creditor exoneration clauses is a provision which excuses the creditor if it fails to obtain or perfect any security interest granted by the principal in relation to the guaranteed debt or obligation. The following is a typical clause of this kind:

The failure of the Creditor to take any security that the part parties hereto contemplated it would take or the failure of the creditor to perfect any security by registration of the security in the appropriate registry shall not prejudice or in any way limit or lessen the liability of the Guarantor under this Guarantee.

Provisions of this kind feature frequently in guarantee case law around the world.

[73] I do not find that there is anything unusual in s. 4(o) that required TD to bring it specifically to the attention of the guarantors. Even if this was the first guarantee they gave to TD, Mr. Diena and Ms. Diena are experienced in providing unconditional guarantees for significant amounts of money: 3173763 Canada Inc. v. Kemp, 1998 CanLII 4453 (ON CA).

[74] As noted, it is common for standard form guarantee agreements to provide that the liability of the guarantor shall not be affected by any failure by the creditor to preserve or perfect such security. Bauer stands clearly for the proposition that any such agreement will be binding on the guarantor.

[75] Mr. Diena testified that he did not read the guarantees when he signed them. However, for the reasons set out above, the ticket cases relied on by the defendants, including Tilden Rent-A-Car Co. v. Clendenning (1978), 1978 CanLII 1446 (ON CA), 18 O.R. (2d) 601 (C.A.), do not assist the defendants with respect to this type of contract, this particular clause, or these circumstances.

[76] I do not accept their bare allegation that they would not have signed the guarantee had this clause been properly explained to them: Toronto-Dominion Bank v. 1503345 Ontario Ltd., 2006 CanLII 16373 (ON SC), at para 28.

[77] In my view, the defendants’ defence regarding the allegedly unusual provision raises no genuine issues requiring a trial. There is no merit to this defence.

The defence of post-guarantee revision does not raise a genuine issue for trial

[78] The defendants submit that there is a genuine issue for trial regarding whether or not there was a variation after the provision of the guarantee that vitiates the guarantee. I disagree. This defence raises no genuine issues requiring a trial.

[79] The defendants submit that “there was a variation of the risk assumed by the guarantor, the variation was substantial, and the variation materially altered the risk assumed by the guarantor.” In support of this submission, the defendants repeat their submission that the guarantors relied on representations that TD would have first position security and that they would not have given the guarantee. The guarantors submit that “the granting of the guarantee by the guarantor was fundamentally premised on TD counsel’s representation that TD would be registered first.”

[80] For the reasons set out above in the section on the alleged misrepresentations, having heard the oral evidence, this defence does not raise a genuine issue for trial. I find that Mr. Stanleigh did not make any such representations to the guarantors and the guarantors did not rely on any such representations to sign the guarantee.

[81] Unlike the situation in Turfpro Investments Inc. v. Heinrichs, 2014 ONCA 502, the material terms of the loan agreement and the guarantee were not altered without their consent. Unlike in Turfpro, the guarantors agreed to guarantee the risk inherent in these loans. They signed the guarantees that contained the standard clause s. 4(o). In my view, there was no variation of the risk assumed by the guarantors and, to the extent they were not expecting TD to be in second position, they agreed to s. 4(o), which made the guarantee enforceable if TD ended up in second position.

[82] I find that this defence does not raise a genuine issue requiring a trial. I find that there is no merit to this defence.

The third party claim is not a reason to deny summary judgment

[83] The defendants submit that their third party claim against Mr. Stanleigh means that this is not an appropriate case for summary judgment. I disagree. In my view the defendants’ third party claim against Mr. Stanleigh is no barrier to the determination of this motion for summary judgment.

[84] The summary judgment process is tailor-made to enforce liquidated claims by creditors against debtors and guarantors. Unless there is a genuine issue for trial, the court should be reluctant to delay a creditor’s access to this summary procedure to enforce its legitimate contractual claims against debtors and guarantors.

[85] The defendants submit that TD’s motion is “akin to partial summary judgment.” I disagree. TD’s motion, if successful will dispose of the entirety of its claim against the defendants. The third party action is a separate legal proceeding: Pomata, at para. 48. The test for granting partial summary judgment does not apply to this case.

[86] The defendants have asserted a claim against their lawyer asserting that he did not meet the standard of care required of him in discharging the duty of care he owed to them. Those claims may proceed without impairing TD’s action on the loan agreement and the guarantees. However, that negligence action has nothing to do with TD’s action on the loan agreement and guarantees. The allegedly negligent actions of Mr. Stanleigh do not raise a genuine issue requiring a trial in relation to TD’s claim against the defendants.

[87] The defendants raise the risk of duplicative proceedings or inconsistent findings of fact. I am not persuaded by these submissions. The defendants’ complaint is against their lawyer, not TD: Weitzman v. Hendin, (1989) 1989 CanLII 4185 (ON CA), 61 D.L.R. (4th) 525 (Ont. C.A.); Canada Life Mortgage Service Ltd. v. Beasley, 1999 CarswellOnt 829; National Bank of Canada v. Meneses, 2008 CanLII 25064 (ON SC).

[88] In Pomata, the defendants submitted that their third party claim was derivative of the main action, that there was an inescapable overlap of factual and legal issues, and, therefore, summary judgment was not appropriate nor was it in the interests of justice. Justice Diamond did not accept those arguments and reasoned as follows:

[48] To begin, a Third Party Claim is a separate legal proceeding. Further, I do not find the presence of any findings that this Court has made on the plaintiff’s summary judgment motion that would be binding in the third party proceeding. The cause of action pursued by the defendants in their counterclaim is one of breach of an alleged oral contract. No such cause of action is being advanced in the third party action, relying instead upon alleged misrepresentations and breaches of fiduciary duty owed by Joyi to the defendants. The evidence in support of the causes of action in the third party proceeding are intra the defendants and Joyi, as the plaintiff was never a party to any of the events giving rise to the Third Party Claim.

[49] While there is no motion for summary judgment in the third party proceeding, the plaintiff and the defendants consented to the scheduling of the plaintiff’s motion for summary judgment. If Joyi (and even Lou) are potential witnesses at the trial of the Third Party Claim, I do not expect their testimony to overlap with the issues germane to the disposition of the main action. I do not find a risk of potentially different findings in the Third Party Claim, as the defendants cannot now create a defence out of whole cloth in order to defeat the plaintiff’s motion for summary judgment on some unsubstantiated promise to call evidence at a later date, especially in light of their legal and evidentiary onuses in response to the plaintiff’s motion.

[89] I agree with the reasons of Diamond J. and apply that reasoning to this case. The defendants third party claim in negligence against Mr. Stanleigh may continue among those parties. I do not see a risk of potentially inconsistent findings in the third party claim.

[90] For the reasons set out above, I am satisfied that there is no genuine issue requiring a trial with respect to TD’s claim or the defendants’ defences. The third party claim may continue, but it is no barrier to granting summary judgment to TD.

Relief from forfeiture

[91] Finally, the defendants submit that they are entitled to relief from forfeiture. I disagree.

[92] Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just. In considering whether to grant relief from forfeiture, the court must consider three factors: a) the conduct of the applicant; b) the gravity of the breach; and c) the disparity between the value of what has been forfeited and the damage caused by the breach: 2356802 Ontario Corp. v. 285 Spadina SPV Inc., 2022 ONSC 2427, at para 82; Poplar Point First Nation Development Corp. v. Thunder Bay (City), 2016 ONCA 934, 135 O.R. (3d) 458, at para. 78; Dube v. RBC Life Insurance Co., 2015 ONCA 641, 127 O.R. (3d) 161, at para. 6; Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490, at para. 32. These factors do not create a three-part test requiring satisfaction of each part. They are elements to guide the court in the exercise of its discretion: Scicluna v. Solstice Two Limited, 2018 ONCA 176, at para. 29.

[93] Relief from forfeiture is available in a wide range of cases, but it is a discretionary equitable remedy and should be granted sparingly. The party seeking the relief bears the onus of establishing the case for relief: PDM Entertainment Inc. v. Three Pines Creations Inc., 2015 ONCA 488, at paras. 66 to 67; Voortman v. SPCVC Investments Inc., 2018 ONSC 3602, at para. 10; Kozel v. The Personal Insurance Company, 2014 ONCA 130, at paras. 28-29; Ontario (Attorney General) v. McDougall, 2011 ONCA 363, at para. 87.

[94] I see no basis to award the defendants relief from forfeiture.

[95] The first factor, the conduct of the party seeking relief, requires an examination of the reasonableness of the breaching parties’ conduct as it relates to “all facets of the contractual relationship, including the breach in issue and the aftermath of the breach”: McDougall, at para. 89. The court should consider the nature of the breach, what caused it and anything that the party tried to do about it. All of the circumstances should be taken into account, including anything that tends to explain the act or omission that led to the forfeiture: Williams v. Paul Revere Life Insurance Co., (1997), 1997 CanLII 1418 (ON CA), 34 O.R. (3d) 161, at para. 49 (Ont. C.A.)

[96] I do not view the defendants’ conduct as reasonable in the circumstances. The guarantors signed continuing, absolute, and unconditional guarantees. Their failure to respond to the guarantees was complete, deliberate, and ongoing. They have taken no steps to address or remedy the situation. I see nothing in their conduct that I would describe as reasonable.

[97] The second factor, the gravity of the breach, requires the court to look at both the nature of the breach itself and the impact of that breach on the contractual rights of the innocent party: McDougall, at para. 91; Kozel, at para. 67.

[98] Here, the defendants’ breaches were grave both in nature and in their impact on TD. The bank has not been able to recover any of the amounts owing on the guarantees, other than the small amount that was made available through the receivership process. The defendants’ breach has completely undermined TD’s rights under the contracts.

[99] The third factor, any disparity between the value of the property forfeited and the damage caused by the breach, requires the court to conduct a proportionality analysis: McDougall, at para. 92. Here, there is no disparity, much less a substantial disparity between the value of the property to be forfeited and the damage caused their breach of the guarantees. The guarantors are simply being required to make good on their guarantees.

[100] Balancing all three factors, in my view, this is not an appropriate case to grant relief from forfeiture to the guarantors. As noted above, they may continue their action against Mr. Stanleigh to determine whether or not they have a valid claim against him in respect of any of the amounts they are required to pay under the guarantees.

Conclusion

[101] For the reasons given above, I grant summary judgment to TD. I grant judgment against the defendants, jointly and severally, for:

a. $886.271.22, which was the amount of the indebtedness as of June 10, 2021;

b. $77,241.74 in fees and expenses incurred by TD prior to this proceeding;

c. $115,079.91 in pre-judgment interest in the amount of in accordance with the terms of the loan agreement and the guarantees;

d. post-judgment interest in accordance with the Courts of Justice Act.

[102] If the parties are not able to resolve costs of this action, TD may email its costs submission of no more than three double-spaced pages to my judicial assistant on or before February 20, 2023. The defendants deliver their responding costs submission of no more than three double-spaced pages on or before February 27, 2023. No reply submissions are to be delivered without leave.

Robert Centa J.

Date: February 13, 2023

[^1]: ECN Financial v. 2345760 Ontario Inc., Rando Drugs Ltd, 2275518 Ontario Inc., Family Health Pharmacy West Inc. formerly known as M. Blacher Drugs Ltd., 2501380 Ontario Inc., 2527218 Ontario Inc., Dumopharm Inc., and 2527475 Ontario Inc. (Court File No. CV-19-00632106)

[^2]: On October 19, 2022, the defendants brought a cross-motion to amend their statement of defence to explicitly plead aspects of the alleged misrepresentations made by Mr. Stanleigh. This motion was to be returnable on October 25, 2022, when the motion for summary judgment was originally to be heard. TD was prepared to argue the motion based on the new pleading, which made good sense. If necessary, I grant leave to the defendants to amend their statement of defence and this motion for summary judgment will be determined based on the amended statement of defence.