COURT FILE NO.: CV-22-00677859-00CL

DATE: 20230721

ONTARIO

SUPERIOR COURT OF JUSTICE

COMMERCIAL LIST

BETWEEN:

7572042 CANADA INC., B&R ADVANCED CLOUD COMPUTING INC., BARAKE GLOBAL MANAGEMENT (BGM) INC., BARAKE SOFTWARE DEVELOPMENTS SERVICES INC., BARAKE TECHNOLOGY INDUSTRIES INC., BAVARIA SOFTWARE SECURITY INC., BEIMOL INDUSTRIES INC., BERLIN ADVANCED TECHNOLOGIES (BAT) INC., BERLIN COMPUTER SYSTEMS INC., BERLIN FIBER OPTICS SOLUTIONS INC., BERLIN GLOBAL TECHNOLOGIES INC., BERLIN TECHNOLOGY HOLDING INC., HYDRA COMPUTING INC., MASADA INFORMATION SECURITY INC., MUNICH TECHNOLOGIES INC., PEGASUS ADVANCED CLOUD COMPUTING INC., and RABIH GEORGE BARAKE

Plaintiffs

– and –

THE BANK OF NOVA SCOTIA o/a SCOTIABANK

Defendant

Rabih George Barake on his own behalf and on behalf of the corporate Plaintiffs/Defendants by Counterclaim

Anthony J. O’Brien and Ian Klaiman, for the Defendant/Plaintiff by Counterclaim

HEARD: June 6, 2023

PENNY j.

[1] The Bank moves for summary judgment dismissing the plaintiffs’ action and granting the Bank’s counterclaim. The plaintiffs are without counsel. Mr. Barake was granted leave to represent the corporate plaintiffs, which are all corporations owned and controlled by him. At the outset of the hearing, Mr. Barake requested an adjournment. I dismissed Mr. Barake’s request for an adjournment in brief oral reasons, with more detailed written reasons to follow. In these reasons, therefore, I will deal with the following issues:

(a) the denial of the plaintiffs’ adjournment request;

(b) whether summary judgment should be granted allowing the Bank’s counterclaim;

(c) whether summary judgment should be granted dismissing the plaintiffs’ action against the Bank;

(d) the Bank’s request for collateral relief; and

(e) costs.

Background

[2] These proceedings arise out of federal government programs to support Canadian business during the COVID-19 pandemic. The Highly Affected Sectors Credit Availability Program (HASCAP) was established to provide support for qualifying businesses suffering due to the economic impact of COVID-19. Applicants applied for HASCAP loans directly from their banking institution. The lending banks were responsible for authorizing and administering the loans. However, the loans were backstopped by the Business Development Bank of Canada.

[3] From March to November 2021, Mr. Barake applied for HASCAP loans from the Bank on behalf of the corporate plaintiffs. He provided requisite information to the Bank. This included: confirmation of applications to the Canadian Emergency Rent Subsidy Program and account statements from the plaintiffs showing the corresponding deposits of the CERS funds into the plaintiffs’ account with the Bank; and, the plaintiffs’ financial statements for the years 2018, 2019 and 2020, which portrayed the plaintiffs as operating businesses with significant assets, revenues, and expenses. For example, the 2020 financial statements for the plaintiffs showed, in the aggregate, assets over $11 million, sales/revenues over $14 million and operating expenses over $9 million.

[4] On the strength of the plaintiffs’ representations, the Bank advanced $3,861,000 to the plaintiffs at 4% interest under the HASCAP loan program.

[5] The federal government also instituted another loan program called Canada Emergency Business Account Credit Agreement Small Business. The Bank advanced additional loans to the plaintiffs under the CEBA program in the total amount of $720,000. Under the CEBA loan agreements, the plaintiffs represented that: they were active operating businesses in Canada on March 1, 2020 and that, among other things, the funds from the loans would be used to pay operating expenses such as wages, rent, insurance, property taxes, independent contractors, licenses, etc. and would not be used for any other purpose.

[6] In total, therefore, the plaintiffs borrowed about $4.581 million from the Bank under these two federal government programs. The plaintiffs represented the single largest group of loans made by the Bank under these programs. As a result, the Bank conducted a review of the plaintiffs and their loans. This review raised serious concerns about the bona fides of Mr. Barake and the other Borrowers. As a result, the Bank initially froze the plaintiffs’ bank accounts. On further investigation, the Bank’s investment arm, Scotia Capital, also froze certain investment accounts into which Mr. Barake had transferred most of the funds borrowed from the Bank under the HASCAP and CEBA programs.

[7] The plaintiffs commenced this action against the Bank in March 2022 for unlawfully freezing their accounts, claiming damages of $80 million. By way of defence and counterclaim delivered the same month, the Bank denied the plaintiffs’ allegations and sued for the amounts owed under its loans, together with interest, costs, and other relief.

[8] The Bank then sought a Mareva injunction against the plaintiffs. By order of June 13, 2022, Justice Cavanagh granted the Bank’s motion for a Mareva injunction against Mr. Barake and the other plaintiffs and ordered costs against Mr. Barake and his companies in the amount of $59,496.74, payable forthwith. Those costs have not been paid and there has been no appeal of that order. Mr. Barake has been represented by a total of five different lawyers but has, since August 2022, been acting on his own behalf. Mr. Barake sought, and was granted, leave to represent the corporate plaintiffs/defendants by counterclaim.

[9] On May 18, 2023, I issued a judgment on application by the Bank, declaring Mr. Barake a vexatious litigant. That judgment prohibited Mr. Barake or the other plaintiffs in this action from initiating any additional proceeding connected to the Bank, including any further matter relating to this action, without first obtaining leave of the court. The judgment specifically did not, however, prevent Mr. Barake from fulfilling any existing undertaking to or orders of the court, or from serving, filing and presenting material or evidence in his defence of the Bank’s then pending motion for summary judgment. Costs of $32,000 were awarded against Mr. Barake on that application. Those costs have not been paid. Mr. Barake has not appealed that judgment.

The Adjournment Request

[10] Some further background to Mr. Barake’s June 6, 2023 adjournment request will provide necessary context for my decision.

[11] Justice Cavanagh scheduled the Bank’s motion for summary judgment (returnable June 6, 2023 for a full day) in November 2022. Mr. Barake was, at the time, acting on his own behalf and, at his request, had been granted leave to represent the corporate plaintiffs as well. Mr. Barake had already been served with the Bank’s motion record and supporting material. Again at Mr. Barake’s request, Justice Cavanagh extended the proposed date for the plaintiffs to file responding material to the Bank’s motion from January 2023 until March 2023. Mr. Barake did not comply with that deadline. Indeed, by June 6, 2023, he had filed no evidence in response to the Bank’s motion. He did however, the day before the motion, file extensive material dealing with his request for an adjournment. Importantly, this material was in the form of an “aide memoire”; there was no evidence filed by Mr. Barake or the other plaintiffs. He had filed voluminous material, including an affidavit, in response to the Banks’ vexatious litigant application.

[12] The material filed to support Mr. Barake’s adjournment request, although lengthy and prolix, boiled down to two propositions: first, Mr. Barake said he needed a lawyer because the motion was complex; second, he claimed he needed more time to respond to the Bank’s motion.

[13] As I said in brief oral reasons at the time. Mr. Barake knew, when the date for this motion was scheduled in November 2022, that he was acting on his own behalf and on behalf of the corporate plaintiffs as well. He was able to file a lot of material on the intervening application in May and in support of his last-minute adjournment request as well. Mr. Barake offered no evidence of any attempts to find a lawyer at any time in the intervening seven months. Indeed, he admitted on June 6, 2023 that he had not done so. Mr. Barake had seven months to prepare for this motion. He has demonstrated that he is capable of preparing and filing material on a motion or application. He chose to ignore the court’s order requiring him to file any responding material for the motion for summary judgment by March, 2023. He made no request to vary that order or extend the deadline. He offered no sufficient basis for why he was not prepared to proceed on June 6, 2023. In effect, Mr. Barake purposely did not comply with the court’s order, filed no responding material, and then bet on receiving the indulgence of the court because he was not prepared.

[14] Mr. Barake’s eleventh hour request for an adjournment is simply a continuation of the vexatious and abusive behaviour that gave rise the judgment declaring him a vexatious litigant. He has a history of non-compliance with the court’s scheduling and other procedural orders and of last-minute adjournment requests. His behaviour on the Mareva injunction motion was essentially the same; his adjournment request on that motion was denied by Justice Cavanagh. This latest request, made at the eleventh hour before the June 6, 2023 motion seven months after the fact, shows Mr. Barake to be unconcerned about compliance with court orders and intent on wearing his opponents down through an “ongoing battle of attrition”. I find as a fact that his request for an adjournment was a deliberate ploy to delay proceedings and add to the burden of the Bank’s mounting costs.

[15] In Khimji v. Dhanani (2004), 2004 CanLII 12037 (ON CA), 69 O.R. (3d) 790 (C.A.), the Court of Appeal for Ontario accepted Laskin J.A.’s statement of the principles applicable to the denial of an adjournment in Toronto-Dominion Bank v. Hylton, 2010 ONCA 752 (although in dissent, not on this point). Laskin J.A. wrote in Hylton at para. 14:

A trial judge enjoys wide latitude in deciding whether to grant or refuse the adjournment of a scheduled civil trial. The decision is discretionary and the scope for appellate intervention is correspondingly limited. In exercising this discretion, however, the trial judge should balance the interests of the plaintiff, the interests of the defendant and the interests of the administration of justice in the orderly processing of civil trials on their merits. In any particular case, several considerations may bear on these interests. A trial judge who fails to take account of relevant considerations may exercise his or her discretion unreasonably and if, as a result, the decision is contrary to the interests of justice, an appellate court is justified in intervening.

[16] Denying Mr. Barake’s adjournment request is no doubt prejudicial to his position in the litigation. But I am obliged to consider more than just his interests. As I have already concluded, Mr. Barake’s reasons for seeking an adjournment were not bona fide. He was purposely trying to delay these proceedings and cause the Bank maximum inconvenience and cost. As I will discuss in more detail below, Mr. Barake has utterly failed to advance any substantive defence to the Bank’s allegations. The Bank, by contrast, is suffering material prejudice. It is having to run up costs – costs which it seems are increasingly unlikely to be paid. In addition, Mr. Barake has flaunted his obligations to answer questions ordered to be answered on his Mareva examination. As a result, the Bank has no idea what financial resources, if any, Mr Barake has access to and what he has been doing with his assets since the Mareva injunction. The borrowed funds appear to have been mostly dissipated due to Mr. Barake’s speculative trading in self-directed trading accounts into which Mr. Barake improperly transferred the borrowed funds. The administration of justice as well, for the reasons outlined above, requires the denial of Mr. Barake’s adjournment request. Sometimes, enough really is enough. It was for all these reasons that Mr. Barake’s request for an adjournment was denied.

Motion for Summary Judgment

[17] Following my ruling on the request for an adjournment, Mr. Barake indicated his displeasure with the ruling and asked if he were required to remain on the call (the hearing was by videoconference on Zoom). Mr. Barake was advised that he was not required to remain at the hearing but I suggested it would be in his interest to do so, as I intended to give him an opportunity to respond when the Bank had finished its submissions. I then called on counsel for the Bank to make their submissions.

[18] Mr. Barake stayed on the call until late morning. The Bank was still engaged in making its submissions. At that point, Mr. Barake again expressed his displeasure with my ruling and indicated that he was going to withdraw from the hearing. I reiterated my intention to give him an opportunity to respond to the Bank’s submissions when they were completed. Nevertheless, Mr Barake elected to withdraw and signed off the Zoom call. The hearing proceeded in his absence.

The Test for Summary Judgment

[19] Rule 20.04(2) provides that if the court is satisfied that there is no genuine issue requiring a trial, the Court “shall” grant summary judgment. Rule 20 provides the court with fact-finding powers (the power to weight evidence, evaluate credibility, and draw inferences) if required to resolve claims without the need for a trial. The Supreme Court of Canada has made it clear that the focus on a motion for summary judgment is not on what further evidence could be adduced at trial but rather on whether a trial is required to resolve disputed issues of material fact. A trial is not required where the summary judgment procedures (1) allow the court to make the necessary findings of fact, (2) allow the court to apply the law to the facts, and (3) is a more proportionate, more expeditious and less expensive means to achieve a just result.

[20] It is well settled that on a motion for summary judgment, the moving party bears the onus of establishing a prima facie case that there is no genuine issue requiring a trial. The onus then shifts to the responding party. It is not sufficient for the responding party to simply rely on allegations in their pleadings or claim that further evidence might be lead at trial; they must set out, in affidavit material or other evidence, specific facts showing there is a genuine issue requiring a trial. The responding party must put their “best foot forward” and the court is entitled to assume that the record before the court is, in substance, the same as the record that would be presented at trial. The summary judgment analysis under Rule 20 involves two steps. First, the judge hearing the motion determines whether there is a genuine issue requiring a trial, based on the evidence before the court, without using the fact-finding powers. If there is no genuine issue requiring a trial, summary judgment must be granted. If there appears to be a genuine issue requiring a trial, the judge should then determine whether “the need for a trial can be avoided” by using the fact-finding powers granted under Rule 20 to weigh evidence, evaluate credibility, and draw inferences. A trial is not required when the summary judgment process “(1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a more proportionate, more expeditious and less expensive means to achieve a just result”.

[21] The Bank’s motion for summary judgment has two components. First, it seeks summary judgment on its counterclaim for payment of the debt the plaintiffs owe to the Bank. Second, the Bank seeks judgment dismissing the plaintiffs’ action against the Bank. I will deal with these two components in that order.

The Bank’s Counterclaim

[22] In the counterclaim, the Bank has sued Mr. Barake and the corporate Borrowers for judgment on the full amount of the loans advanced to the plaintiffs. The Bank asserts that the loans were obtained under false pretenses. The Bank further asserts that the Borrowers defaulted under the loan agreements, essentially by:

(a) falsely representing that the Borrowers were engaged in active, operating businesses in need of assistance under the federal government guaranteed loan programs when, in fact, these businesses were effectively nonexistent.

(b) providing to the Bank in support of their loan applications, false financial statements, and other false and misleading information, which was relied on by the Bank in approving the loans and advancing the funds; and

(c) using the loaned funds for improper, prohibited purposes, i.e., not to assist the Borrowers in paying legitimate ongoing business expenses during the COVID-19 pandemic but for Mr. Barake’s personal purposes. In essence, the Bank asserts Mr. Barake orchestrated a fraudulent scheme to obtain the HASCAP and CEBA loans by submitting false and misleading information to the Bank and, once the loans were advanced, transferred the funds into his personal accounts (or other accounts controlled by him) and used the funds to pay personal expenses and to engage in speculative stock market trading in self-directed investment accounts set up by him for that purpose.

[23] In support of this motion for summary judgment, the Bank has submitted three affidavits:

(1) the affidavit of Frances Trottier. Mr Trottier is the Director, Product, Policy & Operational Effectiveness with the Bank. Mr. Trottier’s affidavit describes the history of the Borrowers’ loan applications and attaches all of the Bank’s documents associated with Mr. Barake and the Borrowers, including all the loan applications, all the documents submitted by the Borrowers (including financial statements), all the loan agreements, all the Bank approvals and risk reports for each loan application, all the credit agreements, all schedules of conditions and reporting requirements, all the PPSA searches and general security agreements, all the business account agreements and statements for each Borrower, all the iTrade investment account agreements and account statements into which borrowed funds were transferred, the post-default demands and correspondence, and the results of all the Bank’s internal investigations, including corporate profile reports on the Borrowers, domain name searches and Mr. Barake’s publicly filed bankruptcy proceedings;

(2) the affidavit of Nicole Daley. Ms. Daley is a Senior Investigator - Investigation Services, in the Corporate Security department with The Bank of Nova Scotia. She conducted a tracing analysis of the proceeds of the HASCAP loans. This includes a summary of her analysis with a breakdown of the proceeds of the HASCAP loans which the Bank advanced to the Borrowers. This analysis tracks the movement of these proceeds by account numbers, dates, and amounts. She also prepared summaries of each of the accounts held by the Borrowers, which contain details and a breakdown of all transactions related to these accounts. Finally, Ms. Daley also conducted domain name searches for each of the domain names of the plaintiffs/Borrowers provided during their loan applications; and

(3) the affidavit of Adam Burnett. Mr. Burnett is an accredited appraiser and principal of Corporate & General Liquidators and Auctioneers Inc. Mr. Burnett was engaged by the Bank to attend at the business premises where Mr. Barake and the Borrowers were allegedly operating the plaintiff companies. Mr. Burnett’s assignment was to determine whether Mr. Barake or any of the plaintiff companies were operating any business at the locations given by Mr. Barake to the Bank as part of the loan application process. There were four premises identified by the Borrowers as the locations of the plaintiffs’ various business operations: (i) 5000 Yonge Street, Unit 1901, Toronto, Ontario, M2N 7E9; (ii) 100 King Street West, Suite 5700, Toronto, Ontario, M5X 107; (iii) 5200 Yonge Street, Unit 200, Toronto, Ontario, M2N 5P6; and (iv) 40 Applewood Crescent, Unit 100, Ajax, Ontario, L4K OC3. Mr. Burnett prepared a report of his factual findings at these locations.

[24] There was no cross examination on the evidence of these affiants. As noted earlier, the plaintiffs filed no evidence rebutting or seeking to explain or qualify the Bank’s evidence.

The Loans

[25] Under the HASCAP loan program, the Borrowers received loan advances of $3,861,000, bearing interest at the rate of 4.00% per annum.

[26] The credit agreements for the HASCAP loans required the Borrowers:

• to establish that they had been negatively impacted by the COVID-19 pandemic and that they were financially viable prior to the impact of the COVID-19 pandemic;

• to use the proceeds from the financing only to fund the cash flow needs of business operations;

• to establish that the financing coupled with the Borrowers’ existing liquidity and forecasted operational cash flow would allow for continuity business operations during the pandemic;

• to provide financial statements to the Bank that were complete and correct in all respects and fairly presented the financial condition and results of the Borrowers; and,

• to show that the Borrowers’ historical cash flow was sufficient to service the financing and that its reasonably anticipated future cash flow would be sufficient to service the financing.

[27] Mr. Barake, on behalf of the Borrowers, represented and warranted to the Bank, that:

• the Borrowers had been, directly or indirectly, negatively impacted by the COVID-19 pandemic or the economic environment created by the COVID-19 pandemic;

• the Borrowers were financially viable prior to the economic impact of the COVID-19 pandemic;

• the financial statements delivered to the Bank for purposes of the HASCAP loans were complete and correct in all material respects and fairly presented the financial condition and results of operation of the Borrowers at their stated date, all in accordance with GAAP;

• the Borrowers’ historical free cash flow (for the period prior to March 1, 2020) would have been sufficient to service the HASCAP loans and, based on reasonable assumptions as to the COVID-19 pandemic, the Borrowers reasonably anticipated that their future free cash flow (together with the subsidies and credit currently available to it) would be sufficient to service the HASCAP loans; and

• the proceeds from HASCAP loans would only be used to fund the cash flow needs of the business operations of the Borrowers.

[28] The HASCAP loan agreements specify events of default. These include breaches of the loan agreements and circumstances where it is determined that any representation or warranty made by the Borrowers to obtain the loan is false or misleading in any material respect.

[29] As security for their indebtedness to the Bank, the Borrowers executed general security agreements granting the Bank a security interest in all the property and assets of the Borrowers. The Bank registered and perfected its security interests in this property under the PPSA.

[30] From March to December 2021, the Borrowers also applied for and were granted loans from the Bank under the CEBA program in the total amount of $720,000. The CEBA loan agreements required the Borrowers to establish, and to provide representations that, among other things:

• the businesses were facing ongoing financial hardship as a result of the COVID-19 pandemic

• the Borrowers intended to continue to operate their businesses or resume operations

• the Borrowers had made all reasonable efforts to reduce their costs and to adapt their businesses to improve viability

• the loans would only be used by the Borrowers to pay identified operating expenses, such as rent, wages and other employment expenses to arm’s length third parties, insurance, property taxes, utilities, and regular debt service

• the Borrowers acknowledged that the Bank was relying on the accuracy of the representations given by them.

[31] Similar to the HASCAP loan agreements, the CEBA loan agreements provide for events of default which include failure to observe or perform obligations under the agreements and situations where the Bank becomes aware that any information provided by the Borrowers to obtain the loans was untrue or that the Borrowers were engaged in unlawful or improper conduct.

[32] Each of the Borrowers was required to open business accounts with the Bank for their respective businesses. Each Borrower did so. These accounts were governed by a Business Account Service Request and a Business Banking Services Agreement.

The Defaults and Demands

[33] Not long after the loan advances were made, the Bank conducted a review of the Borrowers’ loan portfolio. This review raised serious issues about the bona fides of the plaintiffs’ businesses and the basis upon which they had borrowed $4.581 million.

[34] The evidence submitted by the Bank about the results of its investigations (which is uncontradicted) shows the following:

• Mr. Barake had made an assignment in bankruptcy on July 26, 2019 and received an automatic discharge from bankruptcy on April 27, 2020. The trustee in bankruptcy received a total of $2,736 to the estate from voluntary payments by Mr. Barake. There were proven claims in excess of $463,000. Mr. Barake’s sworn Statement of Affairs listed no realizable assets, except for furniture, personal effects, and a 2013 Jetta, which were collectively valued at less than $10,000. Mr. Barake’s sworn statement also indicated that since January 2017 he had been self-employed as an Uber driver and earned net monthly income of about $2,000. In his Statement of Affairs, Mr. Barake listed no shareholding or other interest in the corporate plaintiffs and, in response to the question, “Have you operated a business within the last 5 years?”, Mr. Barake disclosed that he operated only three of the corporate plaintiffs, namely, Beimol Industries Inc., Barake Software Developments Services Inc. and 7572042 Canada Inc., and only to the date of their respective dissolutions (which occurred in 2017 and 2018 – which fell within the time period covered by financial statements later submitted to the Bank showing ongoing business activity in 2018, 2019 and 2020)

• most of the plaintiffs had been previously dissolved and were resurrected in 2021, only shortly before the loan applications were made

• the plaintiffs’ domain names and websites were created concurrently with the corporate revivals in 2021, again shortly before the loan applications were made

• the plaintiffs’ bank accounts following the loans reflected no ordinary course business revenues or expenses as would be expected if there were ongoing operating businesses. The only money coming in (and going out) was a result of the Bank’s loans under the federal support programs

• the plaintiffs had no real business premises. The addresses and telephone numbers provided by the Borrowers were “shared space” environments which offered reception and meeting rooms on a fee for service basis. There was no ongoing business being conducted by the Borrowers at these premises. The rents for these shared work spaces bore no relationship to the rent subsidies being received from the federal government which had been submitted as part of the Borrowers’ loan applications

• Mr. Barake and two of the corporate plaintiffs opened iTrade accounts with Scotia Capital Inc. These were self-directed trading accounts. Of the total sum of $3,861,000 that BNS advanced under the HASCAP loans, $3,533,000 was traced into investment accounts as follows:

i. $3,378,000 into the investment accounts, including $2,100,000 into Mr. Barake’s personal investment account; and

ii. $155,000 into accounts held with Questrade.

From the investment accounts, there were withdrawals in the aggregate of approximately $639,836.

Masada Information Security Inc.’s account was opened with a balance of $100 on June 16, 2021. There were no deposits in September 2021. From that time, including to end including December 2021 (when the investment accounts were declining in value), there were 18 deposits from Mr. Barake’s personal account totaling $103,949.50. These deposits were depleted through a series of 95 cash withdrawals in Quebec, each in the sum of $1,000. There were also various payments made to what appeared to be non-arm’s length parties, including, payments from the plaintiff Berlin Computer Systems Inc.’s account to “Jean-Paul Barake” totaling $10,493 and to “Carmel Barake” totaling $11,159. Thus, contrary to the requirements of the loan agreements and the representations made by the plaintiffs to the Bank to obtain the loans, most of the borrowed funds were transferred by Mr. Barake into personal self-directed trading accounts and invested for purposes of speculative trading. Other funds that went directly into Mr. Barake’s personal bank account were used for the personal living expenses of Mr. Barake and members of his family.

[35] The Bank made these discoveries over a period of months from late 2021 to March 2022. Under the terms of the plaintiffs account agreement with the Bank, the Bank was entitled to suspend service and freeze funds in certain circumstances. Acting on these contractual rights, the Bank initially froze the plaintiffs’ business accounts in January 2022 and froze the iTrade accounts with Scotia Capital in March 2022.

[36] On more than one occasion, the Bank invited the plaintiffs to provide evidence that they were in fact, operational businesses, that the financial statements provided in support of the loans were true and accurate, and that the plaintiffs used proceeds of the loans as required by the loan agreements. The plaintiffs failed to respond to these invitations at the time and, in fact, at any time since these demands were made.

[37] The Bank served notices of intention to enforce security and made demands for repayment of the indebtedness in full. No payments were made. Instead, the Borrowers sued the Bank for allegedly improperly freezing their accounts.

[38] Further, the Bank sought the agreement of the plaintiffs to liquidate the securities in the iTrade accounts to mitigate against further losses. The plaintiffs refused. By the time the Mareva injunction issued by Justice Cavanagh was granted, affording the Bank the right to realize on the investment accounts, significant additional losses had been incurred due to market forces operating at the time.

Analysis and Conclusion

[39] The central question in the Bank’s motion for summary judgment on its counterclaim is whether the loans advanced to the plaintiffs were obtained by means of fraudulent misrepresentation. I find that they were; there is no genuine issue requiring a trial on this question.

[40] A claim for fraudulent misrepresentation requires prove of four elements: (i) a false representation made by the defendant; (ii) knowledge of the falsehood of the representation (whether through knowledge or recklessness); (iii) the false representation caused the plaintiff to act; and (iv) the plaintiff’s actions resulted in a loss.

[41] The evidence proves each of these four elements on a balance of probabilities.

[42] The plaintiffs represented, through the financial statements and other information submitted to the Bank, that they were bona fide, substantial businesses with ongoing expenses and revenues which qualified them for loan support under the HASCAP and CEBA programs. These representations were false. There is not a shred of independent evidence that there were any businesses being operated by Mr. Barake in 2021. The financial statements and other documents were fabrications.[^1] The financial statements showed the Borrowers as viable businesses being operated during significant periods of time in which (according to Mr. Barake’s sworn statement in his bankruptcy proceeding and the Bank’s evidence, taken from public corporate records) these businesses had been dissolved, were not operating and had no assets or value. Mr. Barake also swore in his statement of affairs that he was employed as an Uber driver, again at a time he subsequently represented to the Bank he was running a dozen or more sophisticated cybersecurity businesses with substantial revenues and assets.

[43] The fraudulent nature of the representations made to the Bank is further supported by the fact that the business bank accounts opened at the time the loans were made reveal no income, revenue, or business expenses whatsoever. There is no evidence of any legitimate business expenses, revenues, or assets. The evidence is that the only funds circulating in the plaintiffs’ accounts were the funds loaned by the Bank under the federal government programs.

[44] The Borrowers have offered no evidence of any actual operating income or expenses, contracts, counterparties, or contractors or employees. Indeed, Mr. Barake’s evasive answers on his Mareva examination, and the multitude of questions he flatly refused to answer (in spite of being ordered by the court to do so), indicate a settled intention not to provide any evidence relevant to the financial status and operations of the Borrowers before, during and after the loan applications were made. These refusals give rise to a strong inference that there were no active businesses being operated, and that the plaintiffs’ representations to the contrary were untrue.

[45] The fraudulent nature of the plaintiffs’ representations is also supported by the fact that the plaintiff corporations were resuscitated from dissolution immediately prior the loan applications being made. Likewise, the domain names for the Borrowers were all created immediately prior to the loan applications being made. This was done, I find, to lend credence to the “validity” of the plaintiffs’ business, when in fact, there were no operating businesses. Further, the evidence shows that the plaintiffs had no business premises; there was only a telephone number and an address leased for minimal expense, again to create the false impression that there were valid businesses being operated when there were not.

[46] The transfer of the borrowed funds to Mr. Barake’s personal accounts, and into his iTrade investment accounts, was clearly done intentionally and in violation of the agreements he had signed on the Borrowers’ behalf.

[47] In their statement of defence to counterclaim, and in some of the material filed by Mr. Barake since this matter has been before the court, the plaintiffs suggest that the Bank knew the domain names were recently created and that the amounts loaned to the plaintiffs would be transferred to investment accounts. These suggestions are denied by the Bank and there is utterly no evidence to support these allegations.

[48] Material submitted by Mr. Barake (such as his “aide memoire” seeking an adjournment of the motion) also contains numerous references to alleged “lies and falsehoods” contained in the Bank’s material, in particular, the affidavit of Frances Trottier. However, nowhere are these “lies and falsehoods” particularized and there is no evidence to support Mr. Barake’s bald, argumentive assertions or to rebut the evidence proffered by the Bank.

[49] There is also a suggestion from Mr. Barake that the Bank suffered no loss because the Business Development Bank of Canada has guaranteed the loans. This is a fatuous allegation. The guarantees require the Bank to exhaust all remedies against the Borrowers. Further, the fact that it is the taxpayers who may ultimately foot the bill for Mr. Barake’s fraudulent activity, rather than the Bank itself, is irrelevant to the Bank’s legal rights under the loan agreements and could not, in any case, constitute a defence to the plaintiffs’ fraudulent misrepresentations or their obligations to repay the Bank’s loans.

[50] The only available inference from the evidence is that Mr. Barake knew his representations as to the alleged businesses under his ownership and control were false. His own sworn statement in his bankruptcy proceeding, as well as his post-loan conduct (including his refusal to answer questions on his Mareva examination and failure to provide any evidence rebutting the evidence of the Bank), is inconsistent with any other conclusion.

[51] The Bank’s evidence, which I accept, is that it would not have made these loans to the plaintiffs in the absence of the false representations that were made.

[52] Finally, it is clear there has been a loss caused by these false representations. The Bank advanced funds in the amount of $4.581 million to the plaintiffs; these funds were misused by Mr. Barake and have, as a result of Mr. Barake’s conduct, been dissipated notwithstanding the Bank’s efforts to prevent this loss, including obtaining a Mareva injunction.

[53] Mr. Barake has had every opportunity to answer the Bank’s allegations. He has utterly failed to do so. In spite of his failure to respond with admissible evidence to the Bank’s motion, Mr. Barake has filed hundreds of pages of material. I have looked through this material. It is utterly devoid of any evidence capable of deflecting, or explaining, the obvious inferences to be drawn from the results of the Bank’s investigations and the evidence it has presented in this motion for summary judgment. The Bank’s evidence is without challenge, either by way of contrary evidence or by way of cross examination. The Bank’s evidence is plausible, logical and supported by extensive documentary evidence.

[54] In the circumstances, I have no hesitation in concluding there is no genuine issue requiring a trial on the Bank’s counterclaim. It loaned the funds to the Borrowers on the basis of fraudulent representations. It is entitled to be repaid. I therefore grant judgment to the Bank in the amount of $4.581 million plus interest and costs, as dealt with below.

The Plaintiffs Claim

[55] The central tenant of the plaintiffs’ claim in the main action is that the Bank unlawfully froze the plaintiffs’ accounts and that, as a result, the plaintiffs suffered losses.

[56] The banking agreements Mr. Barake signed on behalf of the Borrowers provide, among other things, that the Bank may terminate, cancel or suspend services (including freezing any funds in any account) at any time without notice, in the event of: default, any representation being untrue, and in circumstances where the Bank has reason to suspect that the Borrowers have engaged in any improper or unlawful activity.

[57] The Borrowers also acknowledged in the banking agreements that the Bank’s fees for services are small in relation to the potential value of the Borrowers’ instructions and that the Bank’s willingness to provide services is based on the limitations of liability contained in the agreements. The Borrowers agreed that the Bank’s liability for any loss the Borrowers suffered in connection with the provision of any service, or refusal to provide any service, is limited exclusively to actual proven damages arising directly from Scotiabank’s gross negligence or wilful misconduct.

[58] Similarly, the iTrade account agreements governing the plaintiffs’ investment accounts with Scotia Capital provide that Scotia Capital may, without notice, immediately suspend or freeze all trading activity in the client’s account for any reason that Scotia Capital, in its sole discretion, deems prudent. This includes where Scotia Capital has reason to believe that the client is using the iTrade account for any fraudulent, unlawful, or improper purposes.

Analysis and Conclusion

[59] The plaintiffs’ claim for damages against the Bank of $80 million is premised on the Bank having wrongfully, and unlawfully, frozen the plaintiffs’ accounts, thereby interfering with their use of the funds, causing the plaintiffs to suffer a loss.

[60] The plaintiffs have offered no evidence in support of their claims. I have already found, in relation to the first issue (the Bank’s counterclaim), that the Bank’s loans to the plaintiffs were obtained by virtue of the plaintiffs’ fraudulent misrepresentations to the Bank.

[61] There was nothing negligent, unlawful, or improper in the Bank freezing the plaintiffs’ bank and investment accounts. The Bank’s investigation raised serious issues about the propriety and validity of the outstanding loans and the transfers of loaned funds to the Mr. Barake’s self directed investment accounts. These are facts which, I have found above, not only raised reasonable concerns but which the evidence has proved to be true on a balance of probabilities.

[62] The Bank was well within its rights to freeze the plaintiffs’ accounts. The banking and investment agreements expressly authorized the Bank to take the actions that it did in the circumstance which it was facing at the time. The subsequent order of Justice Cavanagh granted a Mareva injunction. The plaintiffs have not demonstrated that there was any error in Justice Cavanagh having done so.

[63] There is no genuine issue requiring a trial in connection with the plaintiffs’ claim. It is manifestly without merit and is unsupported by any evidence whatsoever. The plaintiffs’ claim is contrary to the plain meaning of the agreements they entered into with the Bank as a precondition to receiving the borrowed funds. The plaintiffs’ claim is dismissed with costs, as dealt with below.

Conclusion on the Two Main Issues

[64] For the reasons set out above, the Bank’s motion for summary judgment is granted. Judgment is granted on the Bank’s counterclaim against the plaintiffs in the amount of $4.581 million plus interest and costs.

[65] Judgment is further granted dismissing the plaintiffs’ claim against the Bank with costs.

Other Remedial Issues

[66] In addition to judgment on the debt owed to the Bank, the Bank’s counterclaim sought various additional orders which include:

(a) possession of any and all of the assets of the plaintiffs;

(b) restraining the plaintiffs and all persons (except for the Bank) to whom notice of such order may be given from selling, transferring, assigning, encumbering or removing these assets;

(c) compelling the plaintiffs to deliver an accounting of all monies received from the Bank, including particulars as to how and where the money was expended and an order for disgorgement of such funds and any profits earned thereby;

(d) declaring a constructive trust over all the plaintiffs’ property in favour of the Bank and an order entitling the Bank to trace its loans through to other persons and property;

(e) declaring that any transfers of loaned funds to third parties are fraudulent conveyances or unjust preferences and are accordingly null and void as against the Bank and the Borrowers’ other creditors;

(f) declaring that the judgment granted against the plaintiffs is a debt arising from having obtained property by false pretenses or fraudulent misrepresentation in accordance with s. 178(1)(e) of the BIA; and

(g) punitive damages as against the plaintiffs in the sum of $1.5 million.

[67] The Mareva order is, by its terms, interlocutory in nature. It therefore expires upon the release of this Judgment. Having found the funds advanced by the Bank were obtained by means of fraudulent misrepresentations, I find it is appropriate to make the following orders.

[68] First, an order shall issue restraining the plaintiffs and any third parties having notice of this Judgment (excluding the Bank) from transferring, encumbering, or otherwise dealing with any assets in the possession of the plaintiffs until the Judgment is satisfied or further order of the court.

[69] Second, an order shall issue compelling the plaintiffs to provide an accounting of all monies received from the Bank.

[70] Third, an order shall issue imposing a constructive trust on all monies advanced by the Bank to the plaintiffs and granting a tracing order entitling the Bank to trace all such funds through the hands of plaintiffs.

[71] Fourth, an order shall issue authorizing and directing the Bank’s counsel, Lipman, Zener & Waxman PC, to pay the funds held in trust (some $462,861.45) to the Bank to the credit of its Judgment against the plaintiffs.

[72] I am not satisfied that the exceptional requirements for an award of punitive damages have been made out in this case.

[73] The balance of the collateral relief sought, I find, is either premature or has not been sufficiently justified on the evidence.

Interest

[74] Pre- and post-judgment interest on the sum of $3.861 million is awarded at the rate of 4% per annum.

[75] Pre- and post-judgment interest on the sum of $720,000 is awarded at the rate prescribed by the Courts of Justice Act.

Costs

[76] Although I have found that the exception remedy of punitive damages is not warranted in the circumstances, the law recognizes that successful claims against those who have engaged in fraudulent or deceitful behaviour may be subject to an award of costs at the higher scale.

[77] In this case, I have disposed of the entire action, granted the Bank’s counterclaim and dismissed the plaintiffs’ action. I have done so essentially on the basis that the plaintiffs obtained loans from the Bank under false pretences, in a scheme in which they knowingly misrepresented the status, viability and financial status of the plaintiffs’ businesses. This is, I find, a sufficient basis upon which to order substantial indemnity costs of the action and of the motion.

[78] I award substantial indemnity costs to the Bank of $82,000, inclusive of fees, disbursements, and all applicable taxes.

Penny, J.

Released: July 21, 2023

[^1]: On his Mareva examination, for example, Mr. Barake refused to confirm that the accountant listed on the financial statements had actually prepared them.