2013 ONSC 5176, 2013 ONSC 5176

CITATION: 1375420 Ontario Ltd. v. Pioneer Marine Transportation Ltd., et al., 2013 ONSC 5176 COURT FILE NO.: 7860-12 DATE: 20130919 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ) ) 1375420 Ontario Ltd. ) ) ) M. Polvere, for the Plaintiff ) Plaintiff ) ) - and - ) ) ) Pioneer Marine Transportation Ltd., Laurie Anne Huneault, Michael Wilfred Huneault, Fred Charles Huneault, 1515538 Ontario Inc., 2193732 Ontario Inc. and Voyageur Maritime Trading Inc. ) ) ))) F. Caplan, for the Defendant, Michael Wilfred Huneault ) Defendants ) ) ) ) HEARD: July 22, 2013 LEITCH J. [ 1 ] The plaintiff moves for

summary judgment against the defendant, Michael Wilfred Huneault in relation to a guarantee in its favour. Background Facts [ 2 ] On February 28, 2008 the defendant Pioneer Marine Transportation Limited (“Pioneer”) signed a promissory note in the amount of $250,000 evidencing indebtedness to the plaintiff in the amount of $250,000 that was due on December 31, 2008. [ 3 ] The defendants, Fred Charles Huneault (“Fred Huneault”) and Laurie Anne Huneault (“Laurie Huneault”), the parents of Michael Huneault, jointly and severally guaranteed Pioneer’s debt to the plaintiff. [ 4 ] As outlined in the affidavit of Mr.

John Shelley, the president of the plaintiff sworn in support of this motion, Fred Huneault, Laurie Huneault, and Michael Huneault were officers, directors, and shareholders in various associated companies involved in the great lake transport and shipping business. [ 5 ] The plaintiff agreed to extend the repayment of the principal owing under the promissory note provided certain specified interest payments were made pursuant to written extension agreements made during 2009 and 2010, the last of which required that the principal was due on July 31, 2011.

[ 6 ] On July 14, 2011, the plaintiff entered into an agreement with a number of parties including Michael Huneault which became the subject of this action and will be described in more detail below. [ 7 ] The plaintiff has obtained judgment against all of the defendants in this action other than Michael Huneault. [ 8 ] In addition to the financing in favour of Pioneer, the plaintiff also provided financing to Vanguard Shipping (Great Lakes) Ltd. (“Vanguard”) in the amount of $290,000 that was due December 31, 2010. [ 9 ] Michael Huneault, Terry Warren, Kim Shelley and Laurie Huneault jointly and severally guaranteed Vanguard’s indebtedness to the plaintiff.

Vanguard’s indebtedness to the plaintiff was secured by a General Security Agreement under which, according to the affidavit filed by a director of Vanguard when Vanguard sought protection pursuant to the Companies’ Creditors Arrangement Act, R.S.C. 1985 c.36 as amended in March 2012, the plaintiff was a second secured creditor of Vanguard ranking subsequent to Vanguard’s principal lender.

This General Security Agreement was granted by Vanguard in favour of the plaintiff as a term of the extension of Vanguard’s promissory note. [ 10 ] Through his personal holding company 2193732 Ontario Inc., Michael Huneault owned 25% of Vanguard. He was also the president of Vanguard. [ 11 ] Michael Huneault executed the security granted to the plaintiff by Vanguard on behalf of Vanguard. The Evidence of Mr. Shelley Respecting The Creation of the July 14, 2011 Agreement [ 12 ] Mr.

Shelley deposed in para. 39 of his affidavit that he had several discussions with the Huneaults and Terry Warren respecting the plaintiff’s promissory note and security. Specifically, he deposed that: During those discussions, the defendant Michael Huneault was insistent that Vanguard would purchase another ship through a tentative refinancing agreement with Roynat Inc. if 137 [the plaintiff] agreed to subordinate its security from second position to third position. [ 13 ] Mr.

Shelley continued to explain in para. 41 of his affidavit that: During the month of July 2011, I received numerous telephone calls from Michael Huneault requesting my cooperation in order to facilitate the refinancing with Roynat Inc. and subordinating 137 [the plaintiff] security of the ship’s mortgage to Roynat Inc. I advised Michael Huneault that 137 [the plaintiff] would only subordinate its security on the Vanguard loan if he, Michael Huneault, agreed to guarantee the Pioneer loan, in addition to the outstanding guarantees of his parents, Laurie and Fred Huneault, to which he agreed.

He agreed with me that the terms would be the same regarding a payment

schedule for monthly interest payments to be made similar to the promissory note that Michael Huneault had personally guaranteed in the Vanguard loan. [ 14 ] Mr. Shelley further deposed in his affidavit that on July 14, 2011, he received from counsel for Vanguard, a form of agreement pursuant to which the plaintiff would postpone its security against Vanguard in favour of Roynat Inc. Michael Huneault was shown as a party to this agreement that contained his guarantee of the Pioneer loan. [ 15 ] Ultimately, this agreement was signed by all the parties other than the plaintiff and then forwarded to Mr.

Shelley for his signature on behalf of the plaintiff. Counsel for Vanguard, Mr. Corless, in the transmittal communication sending the agreement to Mr. Shelley for his signature, noted that it had been signed by all other parties and that the agreement was: The same as the draft I forwarded you late this afternoon except that last portion of para. 2(

a) has been changed to provide for payment under Michael’s guarantee under two installments – 100 K on or before July 31, 2012 and 150 K on or before July 31, 2013. [ 16 ] As Mr. Shelley deposed in para. 43 of his affidavit, this change had been specifically requested by Michael Huneault, and although he “was not happy with the change”, he “was prepared to accept it in order to have an additional guarantee”, as he had requested. [ 17 ] Mr. Shelley signed the form of agreement Mr. Corless had sent to him and returned it to Mr. Corless. [ 18 ] Thereafter, the plaintiff’s lawyer sent what Mr.

Shelley considered a more comprehensive form of agreement to Mr. Corless for the parties to execute. However, that document was not signed because as Mr. Shelley asserted in para. 46 of his affidavit, he was “advised by Pat Corless that his clients (including the Huneaults) did not execute the agreement and guarantee prepared by Mr. Rose [the plaintiff’s counsel] because they had already executed the “Priority Agreement”, which included the postponement of 137’s [the plaintiff’s] security and the repayment and guarantee of the Pioneer loan”.

The Terms and Provisions of the July 14, 2011 Agreement [ 19 ] The plaintiff is described as the party of the first

part in this agreement with Laurie Huneault, Fred Huneault, Michael Huneault, 1515538 Ontario Inc., and 2193732 Ontario Inc., described as the parties of the second part. [ 20 ] The recitals to this agreement state that Vanguard is indebted to the plaintiff in the principal sum of $290,000 plus interest which is defined as the “Vanguard loan”.

The recitals also reference the security held by the plaintiff for the Vanguard loan; that each of Laurie Huneault, Michael Huneault, 1515538 Ontario Inc. and 2193732 Ontario Inc. had a material interest as shareholders, either directly or indirectly in Vanguard and its affiliate; that Pioneer was indebted to the plaintiff in the sum of $250,000 plus interest which was defined as the (“Pioneer loan”) and that Fred Huneault and Laurie Huneault had previously guaranteed payment to the plaintiff of all principal and interest under the Pioneer loan. [ 21 ] The agreement went on to provide that the plaintiff agreed to postpone its security in favour of new security being given by Vanguard to Roynat Inc.

[ 22 ] The provisions of para. 2 of this agreement ground this action. Paragraph 2 provides as follows: In consideration of the execution and delivery by 1375420 [the plaintiff] of the instruments of subordination and postponement referred to in para. 1, (

a) Michael hereby guarantees to 1375420 [the plaintiff] payment of all principal and interest due under the Pioneer loan, principal of $100,000 on or before July 31, 2012 and principal of $150,000 on or before July 31; (

b) Each of Fred, Laurie, Michael, 1515538 and 2193732 covenant and agree with 1375420 [the plaintiff] as follows: 1. Any amount received by way of Laurie, Michael, 1515538 and 2193732 from either Vanguard or Vanship by way of repayment of shareholder loan, dividend, return of capital or other similar distribution, shall be forthwith paid by such recipient to 1375420 [the plaintiff] and applied against the balance of principal and interest owing under the Pioneer loan; 2.

Any remuneration paid to Laurie, Michael or Fred by either Vanguard or Vanship either by way of salary, bonus, consulting fee or otherwise in excess of the rates of remuneration now being paid to such individual, shall forthwith, upon receipt by such recipient be paid to 1375420 [the plaintiff] and applied against the balance of principal and interest owing under the Pioneer loan. [ 23 ] Paragraph 4 of the agreement provided that the obligations contained in paras. 2 and 3 expired upon the payment in full of the Pioneer loan. [ 24 ] There is no issue that Michael Huneault executed the July 14, 2011 agreement. [ 25 ] As Mr.

Shelley deposed in para. 47 of his affidavit, there was no question in his mind in that: (

a) Michael Huneault was privy to the request for the subordination of the plaintiff’s security and Mr. Shelley’s request for his guarantee. (

b) That consideration flowed to Vanguard by allowing Roynat Inc., the further advance of money to Vanguard to procure a ship as desired by Michael Huneault; and, (

c) Michael Huneault requested that his guarantee be satisfied by two payments rather than one payment as particularized in the agreement. The Applicable Law [ 26 ] This motion is pursuant to Rule 20, which provides that a court shall grant

summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim. [ 27 ] The rules are now clear that in determining whether there is a genuine issue requiring a trial, the motions judge shall weigh the evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence. [ 28 ] In Combined Air Mechanical Services Inc. v.

Flesch, 2011 ONCA 764 , 108 O.R. (3d) 1, the Court of Appeal indicated that a motions judge must have a full appreciation of the evidence and issue before concluding that there is no genuine issue requiring a trial. The Evidence of Michael Huneault [ 29 ] Michael Huneault swore two affidavits in response to this motion for

summary judgment. In the first affidavit he deposed that through his wholly owned holding company, 2193732 Ontario Inc., he owned 25% of the common shares in Vanguard and Vanship Ltd., and during the time in which the guarantee in issue was signed he served as president of Vanguard and reported directly to a chief executive officer who was Vanguard’s majority shareholder.

He also deposed that he understood that 2193732 Ontario Inc. had agreed to guarantee the $250,000 Pioneer loan in favour of the plaintiff. [ 30 ] In para. 5 of his first affidavit in respect of the July 14, 2011 agreement, he deposed that he was “rushed into signing the document” and that he had “only a few minutes to review before being required to sign”. [ 31 ] Further, in para. 19 of his first affidavit he deposed that he was “made aware” of the plaintiff’s requirement that he guarantee the Pioneer loan on July 14 and that he made it very clear that he was “only willing to put up the shares of my company as well as my shareholder loan and I would personally guarantee any bonuses or increases in wages”. [ 32 ] He filed a supplementary affidavit sworn March 20, 2013 in which he deposed that the requirement of a guarantee was entirely within Mr.

Shelley’s control. He was critical of the timing of Mr. Shelley’s demand asserting that had he been aware that his signature would be required, he would have consulted a lawyer. He deposed in subpara.(

f) of para. 2 of his supplementary affidavit as follows: I suspect if I would have had the opportunity to consult a lawyer, that a lawyer would have advised me, that this deal was going to close no matter what because it was in the interest of the plaintiff for it to close and that the refusal to sign, would not have terminated the deal. At the very least, the limitation as to the amount or the assets at risk would have been introduced by a lawyer on my behalf at that time.

And in subpara. (g): It must be remembered that I had been told by the plaintiff on more than one occasion that they were really only looking at my shares as being at stake with regard to the only previous guarantee that I had ever signed in my life, which was also with Shelley. And in subpara. (h):

I believe that he knew very well that he had given me a misconception about the contents of that guarantee and did not want me to have the opportunity to talk to a lawyer and have it explained to me that the guarantee did not say what I thought it said. And in subpara. (

i) I believe that he knew very well that he had given me a misconception about the contents of that guarantee and did not want me to have the opportunity to talk to a lawyer and have it explained to me that the guarantee did not say what I thought it said. [ 33 ] Michael Huneault went on to depose that Mr. Shelley lied in his affidavit in stating that Michael Huneault knew well in advance that Mr. Shelley requested guarantee in exchange for the postponement of the plaintiff’s security.

He also deposed that the July 14, 2011 agreement containing the guarantee was prepared by Vanguard’s corporate counsel who, Michael Huneault alleges, was also the personal lawyer for Terry Warren and a close friend and business associate of Mr. Shelley and who had stated that he could not provide Michael Huneault with any legal advice. Disposition [ 34 ] There was an evidentiary issue raised by Mr. Caplan on behalf of Michael Huneault at the hearing of this motion with respect to portions of the affidavit of Mr. Shelley which referenced allegations against Michael Huneault in another action.

I noted at the hearing of this motion that I appreciated that those paragraphs were allegations only and that information was not within Mr. Shelley’s first-hand knowledge. Accordingly, I have not considered that portion of his affidavit in considering the issues on this motion. I have not considered paras. 14, 15, 16, 17 or 18 of Mr. Shelley’s affidavit in considering the issues on this motion. [ 35 ] The enforceability of the July 14, 2011 agreement and the plaintiff’s ability to rely on that agreement is not diminished by the fact that the plaintiff’s counsel, Mr.

Rose, prepared a more comprehensive agreement and guarantee after the July 14, 2011 agreement was signed. There was no basis for Michael Huneault to take the request for this agreement as an acknowledgement by the plaintiff that the July 14, 2011 agreement was improper or unenforceable. [ 36 ] In resisting this

summary judgment motion, Mr. Caplan emphasized that Michael Huneault deposed that he was not a key officer in the group of companies operated by the defendants and that his corporate background is limited. Mr. Caplan also emphasized that Michael Huneault did not have independent legal advice prior to signing the July 14, 2011 agreement. [ 37 ] Further, Mr. Caplan asserted that the agreement was prepared “at the last minute” and as a result, Michael Huneault was under duress based on the time constraints.

Michael Huneault deposed that he was not aware of the request for his guarantee until only hours before he was obliged to sign the documentation, and because of the timing, he was unable to secure independent legal advice and was put under duress, all of which was intentional conduct on the part of Mr. Shelley. [ 38 ] Paragraphs 58 and 59 of the factum filed on behalf of Michael Huneault set out those arguments: 58.

In this case, there are different factual positions with regard to the level of involvement of Huneault, his experience level, whether he knew of the underlying loan or had any detail with regard to same, whether he had been asked for his guarantee prior to the signing date, whether he objected to signing it that day and all of the background evidence with regard to his personal background and knowledge background. 59.

At his highest point, Huneault’s position is that the actions of the plaintiff were unconscionable and constituted unfair economic duress which is a position still allowed in the Province of Ontario, with their no basis upon which the court, with its current fact availability, can resolve the positions of the two parties, which are diametrically opposed. [ 39 ] However, I am satisfied that there is no genuine issue requiring a trial in relation to the liability of Michael Huneault under the July 14, 2011 agreement applying the “full appreciation test” described by the Court of Appeal in Combined Air. [ 40 ] While Michael Huneault contends that the extent of his operational involvement in the defendants is in issue, nevertheless it is clear that he had indirect ownership in Vanguard and had signed the security agreement that was being postponed on behalf of Vanguard. [ 41 ] There was valuable consideration provided to Michael Huneault for his guarantee.

Specifically, the plaintiff subordinated its security to facilitate refinancing by Vanguard, the corporation which Michael Huneault had a direct interest in. [ 42 ] Furthermore, the amendments to the agreement setting out a payment

schedule were made for the benefit of Michael Huneault, which in my view, belies his assertion that he was somehow taken advantage of by the plaintiff. [ 43 ] Further evidence detracting from Michael Huneault’s assertions on this motion is the fact that he had previously signed a guarantee in favour of the plaintiff regarding a loan from the plaintiff in favour of Vanguard.

The conclusion is inescapable that Michael Huneault was familiar with documentation pursuant to which was an unconditional guarantee of payment by a corporation to the plaintiff. [ 44 ] Furthermore, even though Michael Huneault suggests that only his shares were to be “at stake”, as was the case under his prior guarantee, that earlier guarantee did not reflect such a limitation. [ 45 ] It is clear to me that Michael Huneault was aware of the obligations that would be imposed upon him by signing a guarantee. Indeed, he had signed one previously.

The terms of the guarantee set out in the July 14, 2011 agreement were modified to benefit Michael Huneault from the form of guarantee he had signed previously in favour of the plaintiff. [ 46 ] In short, there is no evidence whatsoever that the plaintiff placed him under duress or that the plaintiff created any economic pressure or time pressure or deprived him of any opportunity to seek legal advice if he wished to do so. There is simply no evidence to

support Michael Huneault’s bald assertion that had he had the opportunity to consult a lawyer, he would have been advised his refusal tosign the July 14, 2011 agreement would not have terminated Vanguard’s deal. There is simply no evidence to support MichaelHuneault’s assertion that Mr. Shelley “had given” him “a misconception about the contents of the guarantee”. [47] There was no obligation on Mr. Shelley to ensure that Michael Huneault consulted a lawyer before signing the July 14, 2011agreement. Indeed, as noted by the Court of Appeal in 978011 Ontario Ltd. v.

Cornell Engineering Co. at para. 32. 32. …We have a judicial system that emphasizes individual responsibility and self-reliance. Generally, parties negotiating a contractexpect that each will act entirely in the party’s own interests. Absent a special relationship, the common law in Canada has yet torecognize that in the negotiation of a contract, there is a duty to have regard to the other person’s interests, namely, to act in good faith: see Bell v. Lever Brothers Ltd., [1932] A.C. 161 (H.L.), and more recently, Martel Building Ltd. v. Canada., 2000 SCC 60 at para. 73.

Inkeeping with the principle of self-reliance imposed by law on each party to a contract, the failure to read a contract before signing it isnot a legally acceptable basis for refusing to abide by it. Nor is the fact that the clause was not subject to negotiations sufficient in itself: see Fraser Jewellers

(1982) Ltd. v. Dominion Electric Protection Co. (1997), (ON CA), 34 O.R. (3d) 1 at 10 …; L’Estrange v. (F.) Ltd., [1934] 2 K.B. 394 at 403. [1934] All E.R. Rep. 16. [48] I agree with the comments of Bellamy J. in Toronto-Dominion Bank v. Degraauw, [1998] O.J. No. 194 (Gen. Div.), at paras. 60to 62. 60. For certainty and security in commerce, it is essential that parties be able to rely on properly executed documents. It is expectedthat a person who signs a document will exercise reasonable care before doing so.

The onus of proof is a very heavy one to dischargeand it is on those attempting to use the plea to discharge the onus. The Supreme Court of Canada has made it clear that people who arecareless enough to sign a document without reading it do so at their peril. 61. The governing Canadian authority on non est factum is the decision of the Supreme Court of Canada in Marvco Color ResearchLtd. v. Harris, (SCC), [1982] 2 S.C.R. 774 in which, Estey, J. on behalf of the court, adopted the dissenting reasons ofCartwright, J. in Prudential Trust Co. Ltd. et al. v.

Cugnet, (SCC), [1956] S.C.R. 914 where, twenty-six years before,Justice Cartwright concluded that a person who does not exercise reasonable care in signing a document cannot rely on the plea of nonest factum. The Supreme Court of Canada accepted Cartwright, J.’s dissenting words at p. 932 that “generally speaking, a person whoexecutes a document without taking the trouble to read it is liable on it and cannot plead that he mistook its contents”. 62. More recently, our Court of Appeal has affirmed this position in Canada Trustco Mortgage Co. v. Ferenczi (1996), (ON CA), 91 O.A.C. 52.

In that case, no one had explained to the appellant what he was signing. Nevertheless, because he trustedthe representative of the institution, the appellant signed the documents without reading any of them beforehand. The Court held that byhis own carelessness he had disentitled himself to the defence of non est factum. [49] Plaintiff’s counsel referred me to a statement of duress contained in Bhakhri v. Valentim, 2012 ONSC 2817, at para. 18. 18.

The law is clear as to what must be shown to establish operative duress, to avoid a contract. “Duress, whatever form it takes, is a coercion of the will so as to vitiate consent…in a contractual situation commercial pressure is notenough.

There must be present some factor which could in law be regarded as coercion of his will so as to vitiate his consent…it ismaterial to enquire whether the person alleged to have been coerced did or did not protest; whether…he did nor did not have analternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering thecontract he took steps to avoid it”.

There is no evidence that would support a claim of duress by Michael Huneault. [50] In short, there is no evidence that the plaintiff placed Michael Huneault under duress or that the plaintiff created any economicpressure or time pressure or deprived Michael Huneault of any opportunity to seek legal advice if he wished to do so. There is simply noevidence to support Michael Huneault’s bald assertion that had he had the opportunity to consult a lawyer, he would have been advisedthat his refusal to sign the July 14, 2011 agreement would not have terminated Vanguard’s deal.

There is simply no evidence to supportMichael Huneault’s assertion that Mr.

Shelley “had given” him “a misconception about the contents of the guarantee”. [51] Considering Michael Huneault’s involvement in the relevant business dealings, his prior execution of a guarantee, his interest inthe company that was being benefited by the July 14, 2011 agreement and the fact that the plaintiff did not impose any time constraint orcreate any type of pressure, there is simply no basis upon which Michael Huneault can now contend that he has no liability under theJuly 14, 2011 agreement. [52] To paraphrase the Court of Appeal in Combined Air at para. 55, full appreciation of the evidence and issues that is required tomake dispositive findings is attainable on the motion record relied on by the plaintiff, and thus I can be satisfied that the issues in thisaction are appropriately resolved on a motion for

summary judgment. [53] For the foregoing reasons, the motion for

summary judgment is allowed. My preliminary views, subject to written submissionson costs if necessary, is that the plaintiff as the successful party should recover their costs of the motion. If the issue of costs cannot beresolved, counsel may make brief submissions in writing within the next 30 days. “Justice L. C. Leitch” Justice L. C. Leitch

Released: September 19, 2013