His Majesty the King v. James Edward Pellerin

COURT FILE NO.: 21-R17326-A DATE: 2024/02/07 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: His Majesty the King (Crown) – and – James Edward Pellerin (Accused)

COUNSEL: François Dulude and David Rodgers, for the Crown Bruce Engel and Peter Azzi, for the Accused

HEARD: Ottawa from November 27, 2023 to December 6, 2023

BEFORE: R. Smith J.

REASONS FOR DECISION

[1] James Pellerin is accused of defrauding 18 lenders (the “Lenders”) of money exceeding $5,000 by deceit, falsehood or other fraudulent means between February 10, 2016 and March 12, 2017. The indictment lists 27 counts of both fraud under s. 380(1)(a) and obtaining money of a value exceeding $5,000 by false pretences and with intent to defraud under s. 362(2)(a) of the Criminal Code, R.S.C., 1985, c. C-46.

FACTUAL FINDINGS

[2] The representations made by the Accused to the Lenders are not disputed. The Accused however denies that he had any intent to defraud any Lender by any false pretence, by deceit, by falsehood, or other fraudulent means.

[3] The Accused represented to each of the Lenders that he offered them an investment opportunity to loan his company, Innovalty Investments Ltd. (“Innovalty”), $30,000 which would earn interest at a rate of 20% for 9 months, which was equivalent to a 26.67% rate of return on a yearly basis. The Accused is the directing mind and sole director and shareholder of Innovalty. The “Accused” used in this decision includes James Pellerin and Innovalty as applicable.

[4] The Accused initially represented that he would use $25,000 of the funds loaned to him by each Lender as a deposit on a unit of a 10-unit townhouse that was to be built by Grizzly Homes on Taber Street in Carleton Place. The Accused represented that he would keep $5,000 of the loaned amount of $30,000 for his set up fee.

[5] The representations made by the Accused to each Lender were set out in the “Package of Documents” attached hereto as Schedule “A”. The individual pages of the package of documents were titled, “Opportunity”, “Financial Summary”, “Innovalty Exit Strategies” and “Partners”.

[6] In the package of documents, the Accused made the following representations:

a. that the townhouse units would be built in a six-month timeframe;

b. that each unit would have 1,693 ft.² of living space;

c. that each unit would have 3 bedrooms and 2.5 bathrooms;

d. that he anticipated selling each townhouse unit (flipping the unit) for about $295,000 before having to complete the purchase of the unit; and

e. that if the Accused did not sell their unit before closing, a Lender could purchase their unit at a cost price of $255,000 with any applicable HST to be paid by the developer plus $20,000 to be paid to Innovalty.

[7] The Accused calculated his anticipated profits in the Financial Summary at a sale price of $305,000 as a best case scenario; $295,000 as a likely scenario; and $285,000 as a worst case scenario. In all of these scenarios, the Accused would make a profit and the Lenders would receive 20% interest of $6,000 within 9 months.

[8] The Accused also represented that he had a Century 21 real estate agent, Brenda MacDonald-Rowe, and a developer, Springdale Homes, as partners in this project. Springdale Homes was subsequently replaced by Grizzly Homes as the developer/builder. Ms. MacDonald-Rowe denied that she was ever a partner with the Accused or Grizzly Homes in this project. She testified that she was only a listing real estate agent for Century 21 for the sale of the townhouse units. She was not aware of any partnership with the Accused. I accept her evidence which was credible and corroborated by the listing agreement.

[9] The owner of Grizzly Homes, Mr. Facchin, testified that he was also unaware of any partnership with the Accused. He was the builder and the Accused was the purchaser for all of the units that he intended to build on Taber Street, then changed to Code Crescent. Mr. Facchin and the Accused both had an interest in the success of the townhouse project, Mr. Facchin as the builder and the Accused as the purchaser of all the units. Mr. Facchin also testified that he was unaware of the existence of any Lenders and unaware that they had any interest in any of the townhouse units that he built on Code Crescent, except for the acknowledged interest of Mr. Leech and Ms. Kelleher in unit 30. I accept his evidence which was credible and not contradicted by the Accused.

[10] The Accused represented that his expected exit strategy was to sell all of the townhouse units to third-party purchasers without ever purchasing or taking possession of them (i.e. flipping them).

[11] The initial project was to build ten townhouse units on Taber Street in Carleton Place. However, the developer was unable to obtain a building permit for the project on Taber Street and built 12 townhouse units on Code Crescent instead. The Accused became aware that the townhouse units could not be built on Taber Street on or about October 17, 2016. He advised Mr. Robidoux that they were unable to build the project on Taber Street on or about this date.

[12] The Accused advised most of the initial Lenders that the townhouses would be built on Code Crescent instead of Taber Street. He prepared replacement promissory notes which also stated that the Lender had a security interest in his Agreements of Purchase and Sale (“APSs”) for their unit on Code Crescent. The Accused also agreed to changes to the specifications for the units to be built on Code Crescent without the knowledge or consent of any of the Lenders.

[13] The Accused also represented that each Lender would have an optional exit strategy of purchasing their townhouse unit for $255,000 inclusive of HST plus a fee of $20,000 payable to Innovalty, without any real estate fees. The amount was changed from $255,000 to $257,000 for interior units and $262,000 for the end units on Code Crescent without the knowledge or consent of the Lenders.

[14] Ultimately, Ms. MacDonald-Rowe was unable to sell any of the townhouse units before the closing dates that were agreed to by the Accused in the APSs.

[15] The Accused and his company Innovalty failed to complete the purchase of any of the townhouse units in accordance with the terms of the APSs and the $25,000 deposits on 11 of the units were forfeited to Grizzly Homes as a result of the Accused’s breach of the APSs. The builder retained $275,000 as forfeited deposits as a result of the Accused’s failure to close the transactions on the date agreed upon.

[16] The Accused deposited all of the funds loaned to him by the Lenders into his bank account from which he paid himself a salary of $100,000 in 2016 and a salary of approximately $50,000 in 2017 as well as paying operating expenses for his other businesses, personal expenses such as for coaching, and other overhead expenses.

[17] The Accused repaid Mr. Kulakov and Mr. Robidoux $30,000 plus $6,000 interest (for one of his promissory notes) when they refused to extend the promissory notes and demanded the return of the money loaned plus interest.

PROMISSORY NOTES

[18] Several important parts of the representations made by the Accused were contained in the promissory notes signed by each Lender outlined as follows:

a. Paragraph 4 of each promissory note contained a promise that the Lender would have a security interest in the APS for a specific townhouse unit and read as follows:

This Note will be secured by interest in the Agreement of Purchase and Sale, signed by the Borrower within 30 days of the date of this loan for the property (land and building) located at _______________________________.

Lot 19, Block 2, Unit E, Taber Street, Carleton Place was entered on the initial Leech/Kelleher note, Exhibit 1B.

b. The Leech/Kelleher note also contained the following additional clause:

This interest would allow the Lender the option to purchase the above- mentioned unit for $255,000 CAD less the preconstruction deposit of $25,000 CAD paid by the Borrower.

This option to purchase clause was not included in any of the other lender’s promissory notes.

c. Paragraph 5 of the promissory notes provided that the borrower would provide a copy of the APS to the lender within 7 days of its signature and reads as follows:

The Borrower will provide a copy of the above-mentioned agreement to the Lender within seven (7) days of the purchase agreement being signed. If the Borrower does not finalize an Agreement of Purchase and Sale with the Builder/Developer within one month of the date of this loan, the Borrower agrees to repay the lender the principal plus simple interest of one thousand dollars ($1,000.00) CAD on the 30th day after execution of this Promissory Note, and the rest of this agreement is void.

This clause was in most but not all of the promissory notes.

d. Paragraph 6 stated that no other party has been or will be given an interest in the above-mentioned purchase agreement and reads as follows:

No other party has been, or will be given interest on the above-mentioned purchase agreement until this Note is paid in full or assigned to a third party.

The number of this paragraph may be different in some notes, but this wording is included in every promissory note.

e. Paragraph 7 of the notes stated that the borrower would obtain an acknowledgement from the builder of the lender’s interest in the property and reads as follows:

The Borrower will obtain acknowledgement from the builder of the Lender’s interest in the property.

This clause was included in most but not all of the promissory notes.

[19] Promissory notes containing the same terms as described above were signed by all of the Lenders in 2016. In 2017, the Accused signed similar promissory notes, but he removed paragraph 6 stating that no other party has or will be given an interest in the above-mentioned agreements and also paragraph 7 where the borrower was to obtain an acknowledgement from the builder of the lender’s interest in the property.

ANALYSIS

Legal Test

[20] In the decision of R. v. Théroux, [1993] 2 S.C.R. 5, at p. 15, the Supreme Court of Canada set out the actus reus required for fraud as follows:

(i) the offence has two elements: dishonest act and deprivation;

(ii) the dishonest act is established by proof of deceit, falsehood or “other fraudulent means”;

(iii) the element of deprivation is established by proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim, caused by the dishonest act.

[21] At p. 16 of Théroux, the Supreme Court discussed the type of conduct which may fall under the third category of “other fraudulent means” to include “the use of corporate funds for personal purposes, non-disclosure of important facts, exploiting the weakness of another, unauthorized diversion of funds, and unauthorized arrogation of funds or property”. The existence of other fraudulent means will be determined “by what reasonable people consider to be dishonest dealing”: Théroux, at pp. 15-16.

Dishonest Act

[22] The dishonest act is established by proof of deceit, falsehood, or “other fraudulent means”. At p. 16 of Théroux, the Supreme Court stated that what constitutes a lie or a deceitful act for the purpose of the actus reus is judged on the objective facts, and the “other fraudulent means” in the third category is determined objectively by reference to what a reasonable person would consider to be a dishonest act. Further, “[b]y adopting an expansive interpretation of the offence, the Court [in R. v. Olan, [1978] 2 S.C.R. 1175] established fraud as an offence of general scope capable of encompassing a wide range of dishonest commercial dealings.”

[23] At p. 17 of Théroux, the Supreme Court stated as follows: “In instances of fraud by deceit or falsehood … all that need be determined is whether the accused, as a matter fact, represented that a situation was of a certain character, when, in reality, it was not.”

Deprivation

[24] I find that the element of deprivation has been proven beyond a reasonable doubt because all of the Lenders listed on the indictment have lost the $30,000 they loaned to the Accused plus the interest on the promissory notes. The Lenders Colin Leech and Mary Jane Kelleher recovered $25,000 but have been deprived of the interest of $6,000 promised to them in the promissory note.

[25] The Accused did not argue that the Lenders have not been deprived of an amount of money in excess of $5,000. None of the Lenders listed in the indictment have recovered any money on the promissory notes other than Mr. Leech and Ms. Kelleher, who recovered $25,000.

[26] The builder retained deposits of $275,000 when the Accused failed to close on the APSs. The Accused also paid himself a salary of approximately $150,000 and paid both personal and overhead expenses for his other businesses with the balance of the funds loaned to him. In total, the Lenders suffered prejudice to their economic interests of approximately $630,000 plus the loss of interest.

Mens Rea For Fraud

[27] At p. 18 of Théroux, the Supreme Court held that the test was “not whether a reasonable person would have foreseen the consequences of the prohibited act, but whether the accused subjectively appreciated those consequences at least as a possibility.”

[28] At p. 20 of Théroux, the Supreme Court stated as follows:

Correspondingly, the mens rea of fraud is established by proof of:

1. subjective knowledge of the prohibited act; and

2. subjective knowledge that the prohibited act could have as a consequence, the deprivation of another (which deprivation may consist in knowledge that the victim’s pecuniary interests are put at risk).

[29] The mens rea for fraud refers to the guilty mind or the wrongful intention of the accused. The test is subjective, namely whether the accused appreciated the consequences at least as a possibility that the economic interests of the victims would be put at risk: Théroux, at p. 19.

[30] At p. 18 of Théroux, the Supreme Court stated that “[i]n certain cases, subjective awareness of the consequences can be inferred from the act itself”.

[31] At p. 20 of Théroux, the Supreme Court stated as follows:

I have spoken of knowledge of the consequences of the fraudulent act. There appears to be no reason, however, why recklessness as to consequences might not also attract criminal responsibility. Recklessness presupposes knowledge of the likelihood of the prohibited consequences. It is established when it is shown that the accused, with such knowledge, commits acts which may bring about these prohibited consequences, while being reckless as to whether or not they ensue.

[32] In Théroux, the accused was involved in residential construction. He collected deposits from individuals based on a representation that the deposits were insured by the Fédération de construction du Québec. The representation that the deposits were insured was false. The company that was to have built the residences became insolvent, could not complete the project and most of the depositors lost their deposit. The Supreme Court upheld the Québec Court of Appeal’s finding that, “the fact that Théroux honestly believed that the residences would be built, and that the deposits would not be lost, was no defence to the crime.”

[33] The facts in Théroux are very similar to the facts before me. I am satisfied that Mr. Pellerin honestly believed that the townhouses would be built, the townhouse units would be sold and that the funds he was loaned would be repaid. However, this is not a defence to the charges against him, if it is proven that he knowingly made misrepresentations which he knew were false and could cause a risk of prejudice to the economic interests of the lenders.

False Pretences

[34] The offence of obtaining money exceeding $5,000 by false pretences requires the Crown to prove beyond a reasonable doubt that the Accused obtained money by false pretence, namely that he:

a. made a representation about any present or past fact that he knew was false;

b. made the representation to induce the lender to act on it; and

c. made the representation to dishonestly deprive the Lenders of greater than $5,000.

[35] The evidence is uncontested that the Accused received $30,000 from each Lender, which is greater than $5,000, and that they were deprived of the money loaned to the Accused because it was not paid back.

[36] The Defence does not dispute that the Lenders named in the indictment were deprived of an amount of money greater than $5,000, namely $30,000 plus interest, except for Mr. Leech and Ms. Kelleher who were deprived of a smaller amount but greater than $5,000.

[37] The Accused testified in this trial and as a result I must consider the following factors as set out in the decision of R. v. W.(D.), [1991] 1 S.C.R. 742, at p. 757:

1. First, if I believe evidence that raises a defence, I must acquit.

2. Second, if I do not believe evidence that raises a defence, but I am left in reasonable doubt by it, I must acquit.

3. Third, even if I am not left in doubt by evidence raising a defence, I must ask myself whether, on the basis of the evidence I accept, I am convinced beyond a reasonable doubt by that evidence of the accused’s guilt.

[38] The Defence submits that the Crown has failed to prove beyond a reasonable doubt that the Accused intended to defraud the Lenders by deceit, falsehood, other fraudulent means, or that any deceit, falsehood or other fraudulent means caused the Lenders to be deprived of $30,000 plus interest. The Defence submits that the Lenders lost their investments as a result of unforeseen events that occurred, namely bad luck and bad management and that the Accused never lied about any material fact.

[39] The Crown submits that it has proven beyond a reasonable doubt that the Accused deprived the Lenders listed in the indictment of $30,000 plus interest, by deceit, falsehood, other fraudulent means, or by false pretences in the following ways:

a. by falsely representing to the Lenders in each promissory note that they held a security interest in an APS for a specific townhouse unit;

b. by using the funds loaned to him for a purpose other than that represented to the lenders, namely, to pay himself a salary of approximately $150,000, and to pay for other personal expenses such as coaching and overhead expenses for his other businesses;

c. by recklessly misrepresenting to more than one Lender in their promissory note, that they had a security interest in the APS for the same unit;

d. by misrepresenting the specifications of the proposed townhouse units to the Lenders, namely by changing the unit specifications from 3 bedrooms to 2 bedrooms, reducing the number of bathrooms from 2.5 to 1.5, and by removing the en-suite bathroom and replacing it with a closet; and

e. by failing to obtain an acknowledgement from the builder of the Lender’s interest in the townhouse units, except for Mr. Leech and Ms. Kelleher.

A. The Accused knowingly committed a dishonest act by falsely representing to each Lender in each promissory note he signed that they held a security interest in the APS (land and building) for a specific townhouse unit

[40] All of the promissory notes signed by the Accused with the Lenders stated in paragraph 4 that the note was “secured by interest in the agreement of purchase and sale” to be signed by the borrower for a specific townhouse unit. The builder, Mr. Facchin, testified that he was not aware that any of the Lenders had any interest in the initially proposed 10-unit townhouse development on Taber Street or any interest in any of the of 12 townhouse units he built on Code Crescent, other than the interest of Mr. Leech and Ms. Kelleher in unit 30 on Code Crescent.

[41] The Chief Building Officer for Carleton Place testified that there was no legal description for any individual townhouse unit until a plan of survey was registered. As a result, no security interest could be given to any lender in any individual townhouse unit until the survey had been registered. All of the promissory notes purported to grant a security interest in an APS for a specific townhouse unit on Taber Street. However, the promissory notes did not provide any security interest in any specific townhouse unit because the building permit was never obtained and a final survey identifying the separate units was never registered.

[42] Evidence was not presented of when the survey of the individual townhouse units on Code Crescent was registered. However, no security interest of any sort, such as a mortgage or lien, was ever registered against the block of land or individual townhouse units on Code Crescent in favour of any Lender.

[43] Except for Mr. Leech and Ms. Kelleher, the Accused failed to obtain an Acknowledgement of Interest from the builder for each Lender who loaned funds to the Accused pursuant to a promissory note. By failing to give notice to the builder or obtaining an acknowledgement of the Lender’s purported security interest in the APS for a specific unit, the Accused put the Lenders’ economic interests at risk. The risk was ultimately realized as all of the Lenders lost more than $5,000 and did not have any security interest whatsoever in any of the individual townhouse units. The Lenders were deprived of any right to possibly recover the funds they loaned to the Accused from the builder because the builder did not have any notice and had no legal obligation to any of the Lenders.

[44] The Accused’s representation in paragraph 4 of each promissory note stating that the note was secured by an APS for a specific unit was false, because without an acknowledgement from the owner/builder of a security interest in favour of the Lender, the Lender did not have any security whatsoever in the specific unit referred to in the promissory note. I find that the Accused knew that the promissory notes were not secured by any interest in the APSs for any specific unit because he switched the units between Lenders often without the Lender’s knowledge or consent.

[45] The Accused also signed promissory notes granting more than one Lender a security interest in the same townhouse unit. Nothing prevented the Accused from doing so because no real security interest was ever given for a specific unit. On 9 occasions, according to the Accused’s own evidence as set out in Exhibit 45, he signed a promissory note with several Lenders with a security interest in the same APS for the same townhouse unit.

[46] I do not accept the Accused’s explanation that he only made typographical errors on the nine occasions. His evidence in this regard does not raise a reasonable doubt about whether he knew that he assigned the same APS and townhouse unit as security to more than one lender.

[47] The Accused also failed to get any of the Lenders, except for Mr. Leech and Ms. Kelleher, copies of the APSs which were supposedly being given as security for the promissory notes. This allowed the Accused to change the APSs as he wished without obtaining consent from any Lender. This also allowed the Accused to change the specifications of the townhouse units that were built on Code Crescent from the specifications he had represented to the Lenders.

[48] The Accused notified the Lenders about the change in the project’s location from Taber Street to Code Crescent and had them sign replacement promissory notes, but he failed to inform the Lenders or obtain their consent to the material changes in the townhouse units’ specifications (i.e., change from 3-bedroom units to 2-bedroom units, 2.5 to 1.5 bathrooms, 2 stories to 1-story units, and removing the en-suite bathroom). These changes were material and possibly constituted a risk to the Lenders’ economic interests.

[49] All of the Lenders testified that they would not have loaned money to the Accused on a promissory note if they did not have a valid security interest in the APS for the specified unit. I accept their evidence which was not contradicted in any way by the Accused.

[50] The Accused argued that removing any security interest in any specific APS for a specified unit was actually an advantage for the Lenders because he was then able to switch the units on a first-come basis between the Lenders. I do not agree that failing to provide any security interest in a specified unit for any Lender who loaned funds under a promissory note was of any benefit. To the contrary, the Accused knowingly made a false promise to each Lender when he signed each promissory note that the Lender would receive a security interest in the APS for a specific unit. This false representation caused the Lenders to be deprived of the money they loaned to the Accused.

[51] I do not accept the evidence of the Accused that he believed that making the false representation was actually a benefit to the Lenders. His evidence does not make any sense and does not raise a reasonable doubt. The Accused made a false representation to each Lender that their promissory note was secured by an interest in an APS for a specific townhouse unit to be built on Code Crescent. The Accused either knew that the representation was false or he was reckless about whether or not it was true. This false representation caused Lenders to be deprived of the $30,000 loaned to him plus interest under the promissory note. Falsely promising the granting of a security interest in an APS for a specific townhouse unit in order to obtain a $30,000 loan constitutes committing a dishonest act by “other fraudulent means” which caused the deprivation to the Lenders.

[52] I find that at the outset of the project, the Accused had an honest belief that the 12 townhouses would be built on Code Crescent and that they could be sold at a profit before he was required to close the purchases. If this had occurred it would have allowed him to pay back the loans plus interest at 20% for 9 months, but this is not a defence for the mens rea required to commit fraud, as was held in Théroux.

[53] The Accused was the directing mind of Innovalty and he personally made the misrepresentations. As such, I find that he is responsible for any fraudulent misrepresentations made by him or Innovalty.

[54] I find that the Accused knew that the promissory notes did not provide any security interest in the APS for a specific townhouse unit or he was reckless when making this misrepresentation and committed a dishonest act for the following reasons:

(a) the Accused testified that he had written ten books on investing in real estate and had special expertise in the real estate area. As a result, the Accused would have known that the purported security interest he allegedly granted to the Lenders in an APS for a specific unit, would not be valid without the owner/builder’s knowledge and consent (he obtained an acknowledgement from the owner/builder for Mr. Leech’s and Ms. Kelleher’s note). The Accused was also negligent in making the representation that the Lenders had a valid security interest in a specific unit without obtaining legal advice and put the economic interests of the Lenders at risk by failing to make reasonable inquiries from a knowledgeable and reliable legal advisor;

(b) the Accused would have known that he could not grant a security interest in land that he did not own by signing a promissory note stating that a security interest had been granted. Only the owner of the land could grant a security interest in any part of their land. In this case, Mr. Facchin or a corporation controlled by him was the owner of the land on which the townhouses were built. Accordingly, he or the corporation would have had to agree to the granting of a security interest in his lands or at a very minimum, would have needed to acknowledge that a valid grant of a security interest affected his land; and

(c) after the note for Mr. Leech and Ms. Kelleher was signed, the Accused did not make any effort to obtain an Acknowledgement from the owner/builder of any other Lender’s interest in any townhouse unit and did not provide any such Acknowledgement from the owner/builder for future lenders. In subsequent promissory notes, the Accused removed the requirement to obtain an Acknowledgement of the Lenders’ interest from the owner/builder.

B. The Accused knowingly committed a dishonest act when he used the Lenders’ funds for a purpose other than he represented – namely to pay himself a salary of $150,000, to pay personal expenses, and to pay overhead expenses for his other businesses

[55] The Accused was unable to sell (flip) any of the townhouse units before the agreed closing date and was unable to complete the closing for any of the 12 townhouse units built on Code Crescent. As a result, the deposits given on 11 APSs signed by the Accused with deposits from the Lenders were forfeited to the builder. Mr. Leech and Ms. Kelleher recovered $25,000 possibly because of the acknowledgement of their security interest by the builder and one of the Lenders purchased a townhouse unit. The builder retained $275,000 of deposits which were made with funds provided by the Lenders to the Accused.

[56] The Accused received $30,000 from 25 lenders or $750,000 over a period of approximately 1.5 years in 2016 and 2017. He repaid Mr. Robidoux and Mr. Kulakov $36,000 each ($30,000 plus $6,000 interest) and the builder retained deposits of $275,000. As a result, the Accused was left with approximately $403,000, which was loaned to him for the purpose of making deposits to purchase townhouse units that were to be built on Code Crescent in Carleton Place.

[57] The Accused paid himself a salary of $101,616 in 2016 and took a further salary draw of $54,708 in 2017 from the remaining funds. He also paid for overhead expenses for his other businesses such as rent, salaries, car leases, fuel, advertising, and $17,000 and $11,000 for personal coaching expenses.

[58] The Lenders were never advised and were unaware that the funds loaned to the Accused would be used for any purpose other than to make a deposit on a townhouse unit to be built in Carleton Place. The Lenders were never told that the Accused would pay himself approximately $150,000 in salary plus other overhead expenses. The representation in the package of documents given to each Lender starting with the document titled “Opportunity” outlines a high interest loan to be used for a real estate investment project where the Accused would use $25,000 from the $30,000 advanced under the note as a deposit on a specific townhouse unit to be built and which the Lender could purchase for $255,000 inclusive of HST plus $20,000 to Innovalty if the unit was not sold before closing.

[59] The Accused planned to sell (flip) the townhouse units for approximately $300,000 before he was required to close and represented that he would make a gross profit of between $30,000 and $50,000 per unit. From these funds, the Accused planned to repay the Lenders the amount loaned plus interest of $6,000 and the Real Estate Commission of 4%. The Accused represented that he would make a net profit of between $17,600 and $36,800 per unit.

[60] The Accused’s representations did not mention that he would use the funds loaned to him by the Lenders for any purpose other than as set out in his package presentation. The Accused represented that he would receive a set up fee of $5,000 per unit in the “financial summary”. There were 23 remaining Lenders, after 2 had been repaid, but only 12 townhouse units were built. As a result, the Accused would have been entitled to receive a total of $60,000 (12 x $5,000 per unit) as a set up fee. The Accused was not authorized to use the loan funds for any other purpose other than to make a deposit on a specific townhouse unit and to pay himself a $5,000 set up fee for each unit.

[61] The taking of an amount above the sum of $60,000 for his personal use from the money loaned to him would constitute the commission of fraud by “other fraudulent means”. I find that the Accused’s conduct would be considered dishonest conduct by reasonable people. The representations made to the Lenders by the Accused and the reasonable expectations of the Lenders was that the Accused would be entitled to receive a $5,000 set up fee for each unit built plus any profit received from the sale (flipping) of the unit before closing. Only 12 townhouse units were built on Code Crescent and so the Accused’s set up fees would have been limited to $60,000 (12 x $5,000).

[62] I also find that taking additional funds above the $60,000 he represented he would be entitled to receive, constitutes the offence of obtaining funds in excess of $5,000 by false pretences as well as constituting the offence of fraud.

C. The Accused knowingly misrepresented to more than one Lender that they held a security interest in an APS for the same townhouse unit

[63] The Accused represented to more than one Lender that he granted them a security interest in the same townhouse unit in the promissory notes that they signed. The initial proposed development on Taber Street involved ten townhouse units and the Accused signed ten APSs with the owner/builder. However, the Accused represented that he had given a security interest in 14 units on Taber Street. The Accused represented that both Mr. Pilon and Ms. Lalonde had a security interest in the APS for unit E, B1 on Taber Street; that both Sascha Walker and Mr. Oulton had a security interest in the APS for unit C, B1 on Taber Street, and both Ms. Standberg and Mr. Marshall held a security interest in the APS for unit D, B1 on Taber Street. Assigning the same unit as security to more than one Lender occurred on several other occasions. The granting of a security interest in the same unit to more than one Lender was a breach of the representation contained in many notes that no one else would be assigned a security interest in the same unit.

[64] The Accused testified that he made clerical errors on nine occasions where he assigned the same unit as security to more than one Lender. I do not accept his evidence and find that his evidence does not raise a reasonable doubt because it is unbelievable that this would have occurred so often that it is more than a coincidence.

[65] In addition to offering the explanation of clerical error for assigning the same unit as security to more than one Lender, the Accused also testified that he was providing a security interest in townhouse units in a phase 3 development on Taber Street for five additional townhouse units. I do not accept the Accused’s explanation that there was ever a phase 3 planned for Taber Street because according to the testimony of the builder, Mr. Facchin, the real estate agent Ms. MacDonald-Rowe, and Scott Bullen, a representative of the builder, they never intended and never planned to build any phase 3 townhouses on Taber Street. They all testified that they had never heard of or discussed any possible phase 3 development on Taber Street. I accept their evidence. I find beyond a reasonable doubt that Mr. Pellerin made up the possibility of a phase 3 development on Taber Street to explain why he represented that the same units were given as a security interest to more than one Lender.

[66] In addition, the Accused did not produce any signed APS with the builder for a proposed phase 3 development on Taber Street. An APS would have been required if a Lender was to be given a security interest in an APS for a phase 3 development on Taber Street.

[67] Assigning the same townhouse unit as security to more than one Lender is evidence of an intention to deceive the Lenders into believing that they held a valid security interest when the Accused knew this was false. The Accused also knew that each Lender relied on his promise of a valid security interest in a specific unit. All of the Lenders testified that they would not have loaned the funds to the Accused if they had been told that they did not have a valid security interest in a specific unit. This false representation put the Lenders’ economic interests at risk and constitutes proof of fraud and also obtaining money in excess of $5,000 by a false pretence beyond a reasonable doubt.

D. The Accused misrepresented the specifications of the unit in his written representation to the Lenders

[68] The Accused changed the specifications of the townhouses from those represented to the Lenders for the building on Taber Street. The townhouse units that were built on Code Crescent were changed in a material way without giving notice to or obtaining the consent of any of the Lenders.

[69] The Accused initially represented to each Lender in his proposed four-page package of documents titled “Opportunity” the specifications for the proposed townhouses. The townhouses were to have 3 bedrooms, 2.5 bathrooms, and could be purchased by the Lender for a price of $255,000, where the developer paid any applicable HST, plus $20,000 payable to Innovalty. The specifications attached to the APSs also initially provided for nine-foot ceilings. The Accused changed the specification to 2-bedroom units with 1.5 bathrooms and 8-foot ceilings without the consent or knowledge of the Lenders.

[70] The APS between Grizzly Homes Inc. and Innovalty dated November 1, 2016, for unit 30 on Code Crescent was for a purchase price of $262,000, inclusive of HST. A replacement APS was entered at trial which was for the same amount, except that the purchase price was $262,000 exclusive of HST.

[71] The Accused testified that the price for an end unit was $5,000 more and his purchase price was increased by $2,000 when the project was moved from Taber Street to Code Crescent. He testified that the price was increased to $257,000 for townhouse units on Code Crescent that were not end units. I agree that the price changes were not material amounting to less than a 1% increase and the extra $5,000 for an end unit is a reasonable explanation.

[72] However, the changes the Accused made from 3-bedroom units to 2-bedroom units and changing the number of bathrooms from 2.5 to 1.5, when taken together amount to a material change. The change in the price of a unit from $255,000 inclusive of HST to exclude HST would cost a purchaser an additional $12,000 to $13,000 and also constitutes a material change.

[73] The Lenders were not advised of and did not consent to any of the above material changes, namely the unit specifications or the purchase price. The height of the ceilings was not mentioned in the Accused’s information package. Only the Lenders Mr. Leech and Ms. Kelleher received a copy of the APS which included the specification of nine-foot ceilings. The height of the ceilings would only have been a misrepresentation to the Lenders, Mr. Leech and Ms. Kelleher.

[74] The balance of the changes to the specifications of the unit that was to be built were material and were made without the knowledge or consent of the Lenders. I find that the unilateral changes to the specifications by the Accused was a misrepresentation that he knew constituted a risk to the Lenders’ economic interests and therefore, also constitutes “other fraudulent conduct” within the meaning of the Criminal Code.

E. The Accused failed to obtain an acknowledgement from the builder of the Lender’s interest in the townhouse units, except for Mr. Leech and Ms. Kelleher

[75] Many of the promissory notes contained a term that the Accused would provide the Lenders with an Acknowledgement of Interest (“Acknowledgement”) for the APS for a specific unit. The Accused did obtain an Acknowledgement for the Leech/Kelleher loan but failed to do so for all other Lenders named in the indictment.

[76] The Lenders all testified that they would not have loaned the money to the Accused if they did not have a security interest in the APS for a specific unit, but they did not testify that they would not have loaned the money if an Acknowledgement was not provided.

[77] The representation that the Accused would provide an Acknowledgement was not fulfilled by the Accused, but it was not a factor that caused the Lenders to advance the loan to the Accused. The Lenders relied on the false representation contained in the promissory notes that they would acquire a security interest in the APS for a specific townhouse unit. The Accused’s failure to obtain an Acknowledgement was a breach of the terms of the promissory note where this term was inserted but was not a false representation that put the Lenders’ economic interests at risk. The failure to provide an Acknowledgement was part of the false representation that the Lenders held a security interest in an APS for a specific unit and not a separate fraudulent act.

DISPOSITION

[78] I find that the Accused committed fraud by falsely representing in each promissory note signed by each Lender named in the indictment, with the exception of Mr. Leech and Ms. Kelleher, that they had a security interest in the APS signed by the Accused for a specified unit, where the owner of the land (and builder) never agreed to grant any security interest in his land to the Lenders and never received notice of any security interest being purported to be granted to the Lenders by the Accused. The promissory notes, signed and prepared by the Accused, contained a false representation that the Lenders would have a valid security interest in an APS for a specified townhouse unit, which caused them to advance the $30,000 loans to the Accused and put their economic interests at risk. Each Lender named in the indictment lost the sum of $30,000 plus interest which exceeds the sum of $5,000, except for Mr. Leech and Ms. Kelleher, who recovered $25,000. For these reasons I find the Accused guilty beyond a reasonable doubt of all counts of fraud listed in the indictment.

[79] I do not believe the Accused’s evidence nor has his evidence raised a reasonable doubt that he made a clerical error when he signed promissory notes granting more than one Lender a security interest in the same townhouse unit. Each Lender testified that they would not have loaned the money to the Accused if they had known that they did not have a security interest in the APS for the specified unit or if they were aware that another Lender was also given security in the APS for the same unit. Based on the evidence presented by the Crown, namely the evidence of the Lenders and the promissory notes signed, giving the same unit as security to more than one Lender constitutes fraud by the Accused for those Lenders where more than one Lender was promised a security interest in the same unit. The Accused’s actions of misrepresenting to more than one Lender that they held a security interest in the same unit also constitutes the offence of obtaining money in excess of $5,000 by false pretences.

[80] For the same reasons as given in the above two paragraphs, I find the accused made false representations to each Lender that they would have a security interest in the APS for a specific townhouse unit and as a result the I find him guilty beyond a reasonable doubt of the offence of obtaining more than $5,000 by false pretences for all counts listed in the indictment.

[81] I also find the Accused guilty beyond a reasonable doubt of fraud for taking more than $60,000 of the funds loaned to him for his personal use which constituted “other fraudulent conduct”, that has been outlined in the above reasons for decision. The Accused also deprived all of the Lenders listed in the indictment of more than $5,000 by his fraudulent conduct of using the funds loaned to him for a purpose other than as a deposit on townhouse units. This constitutes a dishonest act by the Accused.

[82] I also find that changing the specifications of the townhouse units without the lender’s knowledge or consent constitutes a dishonest act by other fraudulent means as reasonable people would consider this to be dishonest dealing.

[83] For the above reasons, the Accused is found guilty beyond a reasonable doubt on all 27 counts listed in the indictment.

Justice Robert Smith

Released: February 7, 2024

COURT FILE NO.: 21-R17326-A DATE: 2024/02/07 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: His Majesty the King (Crown) – and – James Edward Pellerin (Accused)

REASONS FOR DECISION Justice Robert Smith Released: February 7, 2024