2014 ONSC 5592, 2014 ONSC 5592

CITATION : Farm Credit Canada v. Beira Limited Tomato, 2014 ONSC 5592 COURT FILE NO.: 1497/13 DATE: 2014/11/ 17 SUPERIOR COURT OF JUSTICE - ONTARIO RE: Farm Credit Canada, Plaintiff/Applicant AND: Jose Augusto Costa Pratas, Beira Litoral Tomato and Cuke Limited and Isaac Braun, Defendants/Respondents BEFORE: Justice A. W. Bryant COUNSEL: Tom Robson, for Farm Credit Canada Celina Devuono, for Jose Augusto Costa Pratas HEARD: September 3 & 4, 2014 ENDORSEMENT I Overview [ 1 ] This is a motion brought by the plaintiff for

summary judgment. Farm Credit Corporation (“FCC”) seeks

summary judgment on account of the unsecured balance owed by the defendant borrowers on their outstanding loans. II Background Facts [ 2 ] Jose Augusto Costa Pratas (“Pratas”) and Isaac Braun (“Braun”) decided to purchase greenhouses to grow vegetables in Leamington, Ontario. In the summer of 2010, Pratas and Braun incorporated Beira Litoral, Tomato and Cuke Limited (“Beira Limited”) and together with Pratas and Braun, (the “Defendants” or the “Borrowers”) purchased the greenhouses.

Pratas and Braun were at all material times the sole directors of Beira Limited. [ 3 ] FCC provides loans to farmers and farming businesses.

FCC advanced a $2,850,000 loan facility to the Defendants pursuant to Loan Agreement No. 404801 dated November 18, 2010 (“Loan 404801”). [ 4 ] On December 1, 2010, Beira Limited purchased greenhouse properties located at 459 Talbot Street, Leamington, Ontario (the “Properties”). [ 5 ] To finance working capital requirements, FCC advanced an additional $500,000 loan facility to Beira Limited, Pratas and Braun pursuant to Loan Agreement No. 429823 dated November 7, 2011 ("Loan 429823”). [ 6 ] On December 1, 2010, Beira Limited granted FCC a $4,750,000 Charge against the Properties as security for Loan 404801 and Loan 429823 (the “Charge”). [ 7 ] Pratas, as President, signed the Charge stating that he had the authority to bind the corporation.

The address for service for the corporation was identified in the Charge as 601-99 Robson Road, Leamington, Ontario N8H 2M8. [ 8 ] On March 2, 2012, the Borrowers defaulted on their financial obligations to FCC under the Loan Agreements. [ 9 ] On May 7, 2012, FCC made a demand for repayment of the FCC loans and issued a Notice of Intention to Enforce Security pursuant to section 244(1) of the Bankruptcy Insolvency Act and a Notice of Intent to Realize on Security pursuant to

section 21 of the Farm Debt Mediation Act . [ 10 ] The Borrowers did not repay the loans and on application of FCC returnable July 17, 2012, Rady J. appointed Deloitte & Touche Inc. (“Deloitte”) as Receiver of the property, assets and undertakings of Beira Limited (the “Appointment Order”). Deloitte consented to its appointment as Receiver. [1] The application proceeded unopposed.

No one appeared on behalf of the Borrowers on the application. [ 11 ] On February 26, 2013, Deloitte, in its capacity as court-appointed Receiver, sought an order approving the sale of the Properties to Sterling Acre Farms Limited (“Sterling Acre”).

On February 26, 2013, Leitch J. approved the sale of the Properties to Sterling Acre and issued an approval and vesting order (the “Approval and Vesting Order”). [2] [ 12 ] The Approval and Vesting Order was not appealed, varied or set aside. [ 13 ] Following the sale of the Properties to Sterling Acres, the Receiver distributed $1,456,619.06 (the “Net Sale Proceeds”) to FCC as directed and authorized by the Order of Deputy Registrar Stevens dated June 12, 2013 (the “Distribution Order”). [ 14 ] The Distribution Order was not appealed, varied or set aside.

[ 15 ] On July 2, 2013, FCC applied the Net Sale Proceeds as follows: (1) $967,104.24 to Loan 404801; (2) $432,025.00 to Loan 429823; and (3) $50,429.22 to FCC for legal costs incurred. [ 16 ] After distribution of the Net Sale Proceeds, FCC realized a deficiency of $2,091,155.28 on Loan 404801 and Loan 429823 as of August 8, 2013 (the “Deficiency”). [3] [ 17 ] None of the Defendants paid the Deficiency or any portion thereof. [ 18 ] FCC commenced these proceedings by Statement of Claim issued August 12, 2013. [4] Beira Limited and Braun did not file a statement of defence or otherwise defend the action and o n September 20, 2013, FCC obtained default judgment against Beira Limited and Braun. [5] [ 19 ] On September 5, 2013, Pratas filed a statement of defence in these proceedings. [6] [ 20 ] On December 18, 2013, FCC brought this motion for

summary judgment seeking payment of the Deficiency. Beira Limited and Braun have not responded to this

summary judgment motion and did not appear on the return of the

summary judgment motion. [ 21 ] Ayan Gangopadhyay (“Gangopadhyay”), a FCC Account Manager, Special Credit, filed an affidavit sworn November 27, 2013, in support of FCC’s position on the motion. [ 22 ] Pratas responded to FCC’s motion for

summary judgment and filed an affidavit on August 5, 2014. III The Issues and Analysis [ 23 ] Pratas has raised a number of issues in defence of FCC`s claim and in response to FCC`s motion for

summary judgment on its claim. Each issue will be dealt with separately. Did Pratas sign the Loan Agreements relating to Loan 404801 and Loan 429823 as a Borrower? [ 24 ] Pratas filed a statement of defence on September 5, 2013 alleging “he has no contract” with FCC to repay the loans. [7] [ 25 ] Pratas also filed a responding affidavit on this motion wherein he states: I did not review the FCC Loan Agreement 404801 dated November 18, 2010. It was my understanding that Beira Limited was the sole borrower respecting this loan.

I was not aware that Isaac and I were co-borrowers respecting FCC’s $2,850,000 loan facility. [8] [ 26 ] The FCC Loan Agreement 404801, dated November 18, 2010, expressly states that each of Pratas, Braun and Beira Limited are Borrowers and Guarantors of the $2,850,000 loan facility. [ 27 ] The FCC Loan Agreement 404801 was signed on December 1, 2010.

The Agreement stipulates that: “Each Borrower of a new Loan must sign this Agreement in that capacity.” [ 28 ] Pratas, in his capacity as President, signed Loan Agreement 404801on behalf of Beira Limited. [9] Pratas and Braun also signed Loan Agreement 404801 in their personal capacity as “Borrower”. [ 29 ] Elvey Marshall, Pratas’ solicitor, witnessed “Pratas’” signature, in his personal capacity as a Borrower for Loan Agreement 404801. [ 30 ] Loan Agreement 404801specifically required FCC to pay the Loan funds of $2,840,025, less the processing fee, to Elvey Marshall “in trust”. [ 31 ] Loan Agreement 429823 dated November 7, 2011, was for $500,000.

This Loan Agreement specifies that the Borrowers are each of “Beira Limited”, “Pratas” and “Braun”. [10] [ 32 ] The 429823 Loan Agreement was signed by the parties on November 10, 2011. The Agreement stipulates that “Each Borrower of a new Loan must sign this Agreement in that capacity.” Pratas, in his representative capacity as President signed the Loan Agreement on behalf of Beira Limited. In addition, Pratas and Braun each signed Loan Agreement 429823 in their personal capacity as a “Borrower”. Mr. Jeff Jack, FCC Manager, witnessed Pratas’ signature and Braun’s signature.

The payee was identified as Beira Limited. No other person or corporation was named as a Borrower or Guarantor under Loan Agreement 429823. [11] [ 33 ] The FCC Loan Agreements 404801 and 429823 were valid loan agreements. Pratas’ statement that Beira Limited was the sole borrower and that he was not a co-borrower is contrary to the express language of the executed Loan Agreements. The terms of the Loan Agreements are clear and unambiguous. [ 34 ] I find that Pratas signed the Loan Agreements on behalf of the corporation in his capacity as President.

I further find that he also signed the Loan Agreements in his personal capacity as a Borrower. [ 35 ] Pratas claims he failed to review the FCC Loan Agreement dated November 18, 2010. Pratas’ failure to read the Loan Agreements prior to signing them does not relieve him of his responsibility to repay the debt owing. [ 36 ] Pratas pleads that in November 2010, “Steve” from FCC told him that since he loaned Beira Limited approximately 50% of the purchase price for the Properties, FCC would not require him to be personally liable for repayment of the loans whether as a borrower or

a guarantor. Pratas did file not any documentary or other evidence to support this alleged representation. No documentary evidence wasfiled confirming that FCC promised Pratas a 50% discount with respect to amounts advanced pursuant to either Loan Agreement 404801or Loan Agreement 429823. Such a representation makes no sense in an arm’s length commercial transaction and is contrary to theexpress terms of the Loan Agreements. [37] Loan Agreement 429823 was signed and dated November 7, 2011, approximately eleven months after the first loan wassigned.

Pratas in his capacity as President of Beira Limited signed Loan Agreement 429823. Pratas and Braun also signed LoanAgreement 429823 as Borrowers, jointly and severally responsible for payment of the loans. [38] As a defendant, Pratas must put his best foot forward in these circumstances. Mr. Marshall, Pratas’ lawyer, witnessed Pratas’signature for Loan Agreement 404801. Mr. Marshall received the proceeds of the loan ($2,850,000) in trust. In civil cases, anunfavourable inference can be drawn from the failure to call a material witness (see Leveque v. Comeau, (SCC), [1970]S.C.R. 1010, 16 D.L.R. (3d) 425, at 432).

I infer that Pratas did not call Mr. Marshall as a witness because his evidence would have beenhelpful to FCC. [39] Gangopadhyay attached business records as exhibits to his affidavit. These business records are consistent with and confirmGangopadhyay’s affidavit evidence. These business records were made in the usual and ordinary course of business and it was in theusual and ordinary course of business for FCC to make such records. These business records satisfy the common law and statutorybusiness records exception to the hearsay rule (Ontario Evidence Act), R.S.O., c. E. 23).

I find these records are reliable, supportF.C.C.’s position and are contrary to Pratas’ evidence. [40] Loan Agreements 404801 and 429823 specify that FCC is the lender and that Beira Limited, Pratas and Braun are theBorrowers. Pratas signed the Loan Agreements on behalf of Beira Limited in his capacity as President. He also signed the Agreementsin his personal capacity as Borrower. The Loan Agreements are business records made in the usual and ordinary course of business.

Ifind that Pratas signed Loan Agreements 404801 and 429823 as President on behalf of Beira Limited and he signed Loan Agreements404801 and 429823 in his personal capacity as Borrower. Did Pratas receive an accounting for the Loans? [41] In his affidavit sworn August 5, 2014, Pratas states: “I have not received an accounting with respect to the amount which FCCclaims to be owed.”[12] [42] Gangopadhyay, attached three accounting schedules as exhibits to his affidavit.[13] [43] The first

schedule is titled ‘Disposition of Payments Received’ for the period December 1, 2010 to August 26, 2013 for Loan40480. The second

schedule is titled ‘Disposition of Payments Received’ for the period November 14, 2011 to August 26, 2013 forLoan 429823. For example, the payment of $439,025.60 from the sale of the Properties was recorded. The Third

Schedule is titledPortfolio Balances for the two loans. [44] I find that Beira Limited received an accounting of the money transferred from FCC to Beira and an accounting of the proceedsfrom the Receiver’s sale of the Properties, assets and undertakings. The accounting schedules show the amount received, paymentsmade, how funds were applied and the monies owning. I find that these schedules provide a proper accounting. Was the Receiver’s Motion Record Served on Pratas? [45] On or about July 17, 2012, Rady J. appointed Deloitte as the Receiver and Manager of the Properties.

Justice Rady ordered thatno proceeding or enforcement process in any court or tribunal shall be commenced or continued against the Receiver except with the written consent of the Receiver or with leave of this Court.[14] (Motion Record dated February 14, 2013). [46] Deloitte was appointed the Receiver and manager of Beira Limited.

In the Motion Record, dated February 14, 2013, theReceiver sought approval of the steps taken since the First Report, dated December 5, 2012. [47] In his August 5, 2014 affidavit, Pratas said that he did not receive Deloitte’s motion materials.[15] Pratas further states “that ifhe had been served with the motion materials by Deloitte respecting the sale of the Properties I would have objected to the sale price ofthe Properties ... since I believe that this price is not reflective of the market values for the Properties.”[16] The improvident sale issue isdealt with separately below. [48] The Receiver was represented by the London Law firm of Brown, Beattie O’Donovan LLP.

Ms. Godin, barrister and solicitor,filed an affidavit in which she deposed that Deputy Registrar Stevens approved the marketing and sale of the Properties as recommendedby the Receiver. Although Pratas and Beira Limited were served with the Deputy Registrar’s Order neither Pratas nor Beira Limitedattended to oppose the relief requested by the Registrar. The Approval and Vesting Order was served on Pratas. He did not appeal orseek to vary or set aside that Order. [49] Ms.

Celia McCrady, a legal assistant employed by Brown, Beattie O’Donovan filed an affidavit of service indicating that sheserved the Receiver’s motion materials on Jose Pratas, Clara Pratas and Beira Limited at 601-99 Robson Road, Leamington, ON N8H2M8 by a UPS courier. On December 7, 2012, Ms. McCrady gave a copy of the Motion Record to the UPS courier for service.[17] A liensearch on 601-99 Robson Road, Leamington, ON N8H 2M8 shows it is owned by Beira Limited, with Mr.

Jose Pratas as President ofBeira, with a mortgage charge to Clara Pratas and Jose Pratas.[18] [50] In her affidavit of service,[19] McCrady stated that she served the Receiver’s Motion Record on Jose Pratas, Clara Pratas andBeira Limited at 601-99 Robson Road, Leamington, ON N8H 2M8. This is Beira Limited’s address for service. [51] Ms. McCrady’s supplemental affidavit, sworn August 25, 2014, was further to her affidavit sworn February 15, 2013. Sheattached a Charge/Mortgage registered as CE451409 showed the address for service as 601-99 Robson Road, Leamington, Ontario, N7H

2M8 with a Charge/Mortgage authorized by Jose Pratas, President of Beira Limited. [ 52 ] The UPS Tracking Information of Proof of Delivery confirmed delivery on February 19, 2013 to “Pratas” at 601-99 Robson Road, Leamington. A second UPS Tracking Information of Proof of Delivery shows confirmation of delivery on February 19, 2013 to “Pratas” at 601-99 Robson Road, Leamington. A third UPS Tracking Information Proof of Delivery confirms delivery on February 19, 2013 to “Pratas” at 601-99 Robson Road, Leamington. A person named “Pratas” signed the three UPS Proof of Delivery documents. [ 53 ] Ms.

McCrady said the three packages accepted and signed for by “Pratas” were copies of the Motion Record served on Beira Limited, Jose Pratas and Clara Pratas. As noted above, the Charge/Mortgage specified that the address for service for Beira Limited was 601-99 Robson Road, Leamington, Ontario N8H 2M8. [ 54 ] Ms.

McCrady’s sworn affidavit that the Receiver’s Motion Records were served on persons named Clara Pratas, Jose Pratas and Beira Limited at unit 601, 99 Robinson Road Leamington confirms that Jose Pratas resides at that address. [20] [ 55 ] In the Charge, the Chargor is identified as a corporation called “Beira Limited.” At the hearing, counsel for Pratas conceded that Elvey Marshall is Mr. Pratas’ lawyer. The Charge states that Mr. Marshall has authority to sign the charge/mortgage on behalf of the Chargor. Mrs.

Pratas is not referenced. [ 56 ] A Charge/mortgage was registered against Clara and Jose Pratas’ condominium residence located at 601 Robson Road. This unit was subsequently transferred from Clara and Jose Pratas to Clara Pratas. It is circumstantial evidence that Jose Pratas and Clara Pratas reside at this address and is the address for service for Beira Limited. It is clearly open to this Court to rely upon the mortgage to infer that Mr. and Mrs. Pratas reside at unit 601, 99 Robson Road and that Mr.

Pratas was served with a copy of the Receiver’s Motion Record at this address. [ 57 ] The service of motion records, pleadings and other legal documents by independent couriers is a well-recognized practice in civil litigation. Motion courts regularly rely upon affidavits of service to prove the service of documents at residences or places of business. [ 58 ] I find on a balance of probabilities that Pratas and Beira Limited were served with the Receiver’s Motion Records.

Did FCC make an improvident sale? [ 59 ] The Appointment Order provides that “no proceeding or enforcement process shall be commenced or continued against the Receiver except with the written consent of the Receiver or with leave of the court.” [ 60 ] Deloitte, in its capacity as court appointed Receiver, sold the Properties, assets and undertakings of Beira Limited to Sterling Acre in accordance with the Approval and Vesting Order. [ 61 ] Pratas pleads that the Properties were sold by the Receiver “at a price well below the fair market value … [T]he Defendant alleges that the Plaintiff was negligent in accepting the price of less than $2,000,000.” [21] [ 62 ] On July 15, 2014, Leitch J. stated that the motion before her was not properly framed to make a claim against the court appointed Receiver.

She adjourned the motion to a date to be fixed by the trial co-ordinator’s office to allow the moving party to prepare the necessary material. [ 63 ] Pratas, in his affidavit dated August 5, 2014, states that he was advised by his lawyer, Mr. Marshall, that Deloitte was appointed the Receiver for the purpose of selling the Property. [22] Pratas further states: “It is now my understanding that Deloitte sold the Properties.” [23] [ 64 ] I find that FCC did not sell the Properties; rather, the Receiver, a duly appointed officer of the court, sold the Properties.

Accordingly, FCC cannot be held responsible for the Receiver ’s conduct. [ 65 ] I find that the court appointed Receiver sold the Properties pursuant its authority under the Appointment Order and the Approval and Vesting Order. The Receiver is not a party to this action. As required by the terms of the Appointment Order, Pratas must obtain leave of the court before suing Deloitte, as court-appointed Receiver of Beira Limited for improvident sale of the Properties. No leave has been granted. IV Conclusion: [ 66 ] The Supreme Court in Canada (Attorney General) v .

Lameman , 2008 SCC 14 , [ 2008] 1 S.C.R. 372 , at para. 10 , set out some of the purposes of the

summary judgment rule. The court stated: The

summary judgment rule serves an important purpose in the civil litigation system. It prevents claims or defences that have no chance of success from proceeding to trial. Trying unmeritorious claims imposes a heavy price in terms of time and cost on the parties to the litigation and on the justice system. It is essential to the proper operation of the justice system and beneficial to the parties that claims that have no chance of success be weeded out at an early stage.

Conversely, it is essential to justice that claims disclosing real issues that may be successful proceed to trial. [ 67 ] More recently i n Hryniak v. Mauldin , 2014 SCC 7 , the Supreme Court of Canada, clarified and simplified the

summary judgment rule: There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for

summary judgment. This will be the case when the 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 proportionate, more expeditious and less expensive means to achieve a just result. [24]

[ 68 ] I find there is no genuine issue requiring a trial based only on the evidence adduced on this motion. There will be no genuine issue requiring a trial as the

summary judgment process provides me with the evidence to fairly and justly adjudicate the dispute in a timely, affordable and proportionate procedure under Rule 20.04(2)(a). [25] [ 69 ] I grant FCC’s

summary judgment motion. [ 70 ] Counsel for FCC may file submissions on costs within 10 days of the release of my decision, limited to 3 pages and appendices. Counsel for Mr. Pratas may file his responding submissions within 10 days thereafter, limited to 3 pages and appendices. “ Justice A. W. Bryant” Justice A. W. Bryant Date: November 17, 2014