Business Development Bank of Canada v. Oplynx Inc., 2023 ONSC 5706

COURT FILE NO.: CV-23-91061 DATE: 2023/10/11

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Business Development Bank of Canada Plaintiff – and – Oplynx Inc. – and – Toya Kelly Newton Defendants

Counsel: Benjamin Frydenberg for the Plaintiff Self-Represented, Defendants

Heard: September 28, 2023

Summary Judgment Re Default on a Loan

Somji J.

Introduction

1The Plaintiff, Business Development Bank of Canada (“BDC”) moves for summary judgment against the Defendants, Oplynx Inc. and Toya Kelly Newton, resulting from the Defendants’ failure to comply with the terms of a loan agreement. The Plaintiff’s claim is for approximately $120,000, plus interest and costs.

2The issues to be decided are as follows: one, is there a genuine issue for trial?; two, are the Defendants in default of the loan agreement, and if so, what is the appropriate amount to be paid out?

Background Facts

3Oplynx Inc. is a federal corporation located in Ottawa, and Toya Kelly Newton is the Chief Officer/Manager and Director of Oplynx (collectively the “Defendants”). On May 31, 2019, Oplynx Inc. (the “Borrower"), completed a loan agreement with BDC for $200,000 to facilitate the acquisition of the business (the “Loan”).

4Ms. Newton signed the Loan on behalf of the Borrower and also as guarantor. On June 1, 2019, Ms. Newton signed a written guarantee holding her jointly and severally liable for the indebtedness of the Borrower on an unlimited basis (the “Guarantee”). The Guarantee requires Ms. Newton to be liable for all amounts owing by the Borrower under the Loan at the date the bank demands the Loan, together with interests from the date of demand plus any costs incurred from enforcement of the Guarantee.

5The corporate profile of Oplynx Inc. does not list any other individual as a director or officer of the company.

6The Loan required the Defendants to pay only interest for the initial six months. Payments on principle commenced in January 2020. By December 2022, the Defendants had accumulated arrears on principal of approximately $64,483. On December 7, 2022, BDC sent the Defendants a demand letter requesting payment from the Borrower and Ms. Newton as guarantor. The outstanding loan at the time was $180,940.25.

7On December 21, 2022, Ms. Newton emailed counsel for BDC to advise that she intended to sell her home in order to repay the Loan. The email stated as follows:

In order to repay the loan, I have placed my home on the market. However, I have not yet received any offers. Once I have an official offer, I will be able to send you the exact dates of payment. I simply ask in the meantime that BDC does not take any actions that would further complicate and cost additional funds.

8On January 9, 2023, BDC filed a Statement of Claim for breach of contract of the Loan and Guarantee against the Defendants. The Defendants filed a five-paragraph Statement of Defence. While they admitted the outstanding debt, they indicated that the failure to make the loan payments was the result of “[e]xtenuating circumstances”. They did not elaborate further.

9BDC did its own search and found that Ms. Newton sold her private property in Kanata for $770,000. On April 27, 2023, Ms. Newton forwarded $85,000 to BDC to be paid against the Loan. After crediting her for this payment, the remaining balance on the Loan as of April 27, 2023, was $120,919.87.

10Counsel for BDC wrote further to Ms. Newton on May 3, 2023, requesting an accounting of the sale of her home and the net proceeds received by her. BDC counsel also requested Ms. Newton to contact them to discuss satisfying her indebtedness to BDC. On May 8, 2023, Ms. Newton forwarded a Statement of Account which showed the surplus of proceeds from the sale of the home following transaction charges was $116,555.31. Ms. Newton stated that the majority of the funds from the sale of the home went to BDC. However, she did not explain why she reimbursed BDC only $85,000 when $116,555.31 was available from the proceeds of sale. She also did not explain if she had any other funds from which to repay the debt.

11Thereafter, Ms. Newton did not correspond or engage in any further substantive discussions with BDC counsel about the outstanding debt. While the Defendants indicated in the Statement of Defence they reserve the right to amend their response and plead further defences, they did not file any further pleadings or any materials in response to the motion for summary judgment. The Defendants did not attend the motion hearing.

Issue 1: Is there a genuine issue for trial?

12Pursuant to Rule 20.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and in accordance with the test set out for summary judgment in Hryniak v Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, I find there is no genuine issue for trial.

13First, the materials filed by the Plaintiff, and in particular the affidavits of BDC account manager Mr. Cheema, establish the terms of the Loan and Guarantee, that the Defendants failed to make loan payments, and that the bank sent a demand letter.

14Second, the Defendants admitted the agreements and debt in their Statement of Defence.

15Third, while the Defendants identify “[e]xtenuating circumstances” for failure to make the loan payments, they have not put forth any evidence explaining what this means or the reasons for which the loan payments were frustrated.

16Finally, even upon completion of the sale of her home and repayment of a portion of the Loan, Ms. Newton did not plead further why repayment of the remainder was not feasible or communicate further with BDC about discharging the remainder of the Loan.

17In these circumstances, I find that a summary judgment motion is proportionate, expeditious, and the least expensive manner in which to address the factual and legal issues raised. Upon review of the materials filed by BDC, including the limited pleadings of the Defendants, I am satisfied that the pleadings allow me to make the necessary findings of fact and apply the law in relation to the alleged breach of contract: Hyrniak at para 49.

Issue 2: Has there been a breach of contract?

18Based on the materials filed, I am satisfied that the Defendants entered into a loan agreement with BDC on June 1, 2019, for $200,000 with Ms. Newton as guarantor, and failed to make the interest and principal payments in accordance with the Loan.

19The Loan outlined the required security, covenant, reporting requirements, and other such matters. By signing the Loan, the Defendants acknowledged all of the information provided to BDC in connection with the Loan application to be true.

20The terms of repayment pursuant to the Loan were as follows:

(a) interest is calculated and payable monthly from the date of disbursement at the rate of the bank’s floating base rate plus 4.30 percent per annum, compounded monthly;

(b) the principal was to be repaid by way of an initial payment of $3,530.00 on January 13, 2020, followed by 59 consecutive monthly payments of $3,330.00 commencing on February 13, 2020, until December 13, 2024; and

(c) the bank was entitled to charge the Borrower, inter alia, legal fees and expenses in connection with enforcing the Loan and the Guarantee, as well as loan management fees, transaction fees, non-sufficient funds (“NSF”) fees, administration fees, and a prepayment indemnity.

21The Loan stipulated a variety of events that could constitute default, including failure to make any required loan payments.

22Ms. Newton signed the Guarantee on June 1, 2019, agreeing to be jointly and severally liable for the Borrower’s debt under the Loan.

23By December 2022, the Defendants had not made the requisite monthly interest and principal payments on the Loan and had accumulated arrears in principal of approximately $65,000. Following the demand letter, further payments were not forthcoming and interest continued to accrue.

24In addition, the Statement of Defence and Ms. Newton’s further correspondence to BDC counsel confirms the contract and the Defendants’ continued indebtedness to BDC. Consequently, the Defendants are liable for breach of contract.

25BDC has credited the Defendants the payment of $85,000. As of April 27, 2023, the outstanding debt on the Loan was $120,919.87. The Loan stipulates that interest will continue. Consequently, there will be an Order that the Defendants shall pay to BDC the sum of $120,919.87 together with interest at BDC’s floating base rate plus 4.3 percent per annum, compounded monthly, from April 27, 2023.

Costs

26The Plaintiff seeks costs on a substantial indemnity basis in the amount of $19,539.71.

27Courts have broad discretion to determine to whom costs should be paid and the quantum: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1).

28In exercising their discretion, judges may consider the factors set out in Rule 57.01(1) of the Rules of Civil Procedure and governing jurisprudence. These factors include the following: the experience of counsel and rates charged, the amount an unsuccessful party could reasonably expect to pay, amounts claimed, and amount recovered, apportionment of liability, importance of issues, complexity of the proceedings, and the conduct of the parties.

29BDC is entitled to its costs as the successful party. In determining quantum, the overall objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances rather than the amount of actual costs incurred by the successful party: r. 57.01(1)(0.b); see also Boucher v Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), at paras 37-38; Deonath v Iqubal, 2017 ONSC 3672, at paras 20-21.

30As a general rule, costs on a partial indemnity scale should follow the event and should only be departed from for very good reasons, such as misconduct of the party, miscarriage in procedure, or oppressive or vexatious conduct: 1318706 Ontario Ltd. v Niagara (Regional Municipality) (2005), 75 O.R. (3d) 405 (C.A.), at para 51; 394 Lakeshore Oakville Holdings Inc. v Misek, 2010 ONSC 7238, at paras 10-14.

31Where a loan agreement specifies that costs for the enforcement of the loan will be paid on a substantial indemnity or solicitor-client basis, courts have often respected the terms of the costs recovery term in the contract and awarded substantial indemnity costs: Fares and Bakhos v The Toronto-Dominion Bank, 2019 ONSC 1043 at para 7; Royal Bank of Canada v Lunardi, 2016 ONSC 3382 at para 4. All-Mar Development Ltd. v HSBC Bank Canada, 2009 CarswellOnt 6505, at paras 4 and 8, leave to appeal dismissed 2010 ONCA 221.

32However, the agreement of the parties does not exclude the court’s authority to exercise its discretion contrary to the loan agreement: Fares and Bakhos at para 8. The costs recovery term is one factor for consideration. The final cost award must be proportional in light of the totality of factors, including litigation efficiency and party behaviour: Royal Bank of Canada v Ultimate Holographic Reproductions Inc., 2013 ONSC 4355 at paras 2 and 12; see also Deutsche Bank AG v O'Keefe, 2012 ONSC 4496 at paras 7, 8, 13, and 15.

33In this case, the Loan and Guarantee state that the Bank’s legal fees and expenses incurred in connection with the enforcement of the Loan and the security shall be payable on demand. More specifically, page 6 of the Loan states:

Legal: Fees and expenses, payable on demand, incurred by BDC in connection with the placing of the Loan and the Security including the enforcement of the Loan and the Security, whether or not any documentation is entered into or any advances made.

34I disagree with BDC counsel that the phrase “payable on demand” is sufficient to inform a borrower that the costs will be on a solicitor-client basis. I find the language of the Loan does not specify that legal costs for enforcement will be paid on a solicitor-client or substantial indemnity basis to warrant such an award.

35BDC counsel argues that alternatively, the Defendants’ conduct in this matter warrants substantial indemnity costs.

36Party conduct may justify substantial indemnity costs where the losing party is engaged in unreasonable conduct. Unreasonable conduct may involve unproven allegations of fraud, or unnecessarily prolonging or complicating proceedings. In Bank of Nova Scotia v 8405751 Canada Corp., 2018 CarswellOnt 13959 the court awarded substantial indemnity costs to the bank because the Defendants advanced serious claims of fraud and conspiracy for which there was no evidentiary foundation and to which the bank had to respond. The Defendants also withdrew their claims at the last minute at the start of the motion. The court found the Defendants conduct warranted a substantial indemnity award: at para 51.

37Similarly, in Bank of Montreal v Cardinal, 2016 ONSC 5211, the Plaintiff made a number of allegations against the bank putting its integrity and reputation into question. While the Plaintiff did have some success in the proceeding, their allegations of dishonesty against the bank were unfounded and bordered on fraud: at para 35 The Plaintiffs also unnecessarily increased costs: at para 32. For all those reasons, the court granted the bank substantial indemnity costs.

38In this case, the Defendants did not file any evidence to support the “[e]xtenuating circumstances” in the Statement of Defence, failed to file further pleadings in support of their defence, and failed to respond to the motion for summary judgment. BDC counsel argues that in the absence of a legitimate defence, had the Defendants simply failed to defend it would have allowed BDC to move for default judgment at less cost.

39While a default judgment would have perhaps been more expeditious and less costly for the plaintiffs, I do not find the Defendants engaged in unreasonable conduct that would justify an exceptional award of substantial indemnity costs. The Defendants choice to initially file a defence or their passivity in following through is not, in the circumstances of this case, grounds for substantial indemnity costs. As stated in TD Waterhouse Canada Inc. v Little, 2009 CarswellOnt 6690, “…the absence of an evidentiary basis for a responding party's position is a feature common to almost all successful summary judgment motions. It is not in itself a factor justifying the sanction of substantial indemnity costs”: at para 3.

40The Bill of Costs filed indicates that following the issuance of the demand, BDC incurred legal fees for the Statement of Claim and pleadings, summary judgment motion, court appearances, and costs submissions. The hours accorded with the work performed. The matter was not complex. The rates charged were commensurate with counsels’ experience.

Considering BDC’s success on the summary judgment motion, the low complexity of the matter, and the time and rates charged, the Defendants will pay partial indemnity costs consisting of fees, HST, and disbursements.

BDC counsel will resubmit the Bill of Costs identifying the actual and partial indemnity costs following which a final order with judgment and costs will be issued.

Somji J.