



COURT OF APPEAL FOR ONTARIO

CITATION: JGB Collateral v. Rochon, 2020
    ONCA 464

DATE: 20200717

DOCKET: C67482

Rouleau, Hoy and Hourigan JJ.A.

BETWEEN

JGB
    Collateral, LLC, a Delaware Limited Liability Company

Plaintiff (Appellant)

and

Donna Jean Hewitt Rochon and
    John Rochon

Defendants (Respondents)

Melanie Ouanounou and Kirby Cohen, for
    the appellant

Jonathan P.M. Collings, for the
    respondent Donna Jean Hewitt Rochon

Taayo Simmonds, for the respondent John
    Rochon

Heard: in writing

On appeal from the order of Justice
    Graeme Mew of the Superior Court of Justice dated August 21, 2019, with reasons
    reported at 2019 ONSC 4920, 11 R.P.R. (6th) 334, and from the costs order dated
    October 9, 2019, with reasons reported at 2019 ONSC 5867.

REASONS FOR DECISION

[1]

The respondents, Donna Rochon and her husband,
    John Rochon, guaranteed the indebtedness of JRjr33, Inc. (the Corporation), a
    publicly traded Florida corporation, to the appellant, JGB Collateral, LLC. Ms.
    Rochon granted a mortgage over a property she owns in Lanark, Ontario to the
    appellant as collateral security for the Corporations indebtedness to the
    appellant.

[2]

The Corporation defaulted under the loan and
    filed for bankruptcy relief in the United States Bankruptcy Court. The
    guarantee is governed by New York law, and the New York Supreme Court found
    that the respondents guarantee was valid and enforceable. Based on a review of
    the transcript of argument made to and the oral decision of the New York court,
    the respondents do not appear to have argued before the New York court that Ms.
    Rochons guarantee was the product of undue influence. The appellant, who had
    commenced an action in Ontario seeking possession and the subsequent sale of
    the Ontario property, brought a motion for summary judgment.

[3]

More than 50% of the Corporations outstanding
    shares were owned by entities controlled by Mr. Rochon and Mr. Rochon was the
    Corporations Chairman and Chief Executive Officer.

[4]

The motion judge concluded that the mortgage on
    the Ontario property was not enforceable because it was the product of presumed
    undue influence on Ms. Rochon by Mr. Rochon, the appellant had constructive
    notice thereof, and it did not adequately ensure that Ms. Rochon received
    independent legal advice before she agreed to the mortgage. He dismissed the
    appellants action for enforcement of the mortgage.

[5]

We agree with the appellant that the motion
    judge erred in his articulation and application of the doctrine of presumption
    of undue influence. Applying the correct legal test, Ms. Rochons allegation of
    undue influence fails.

[6]

Below, we outline the doctrine of presumption of
    undue influence and the motion judges reasons on this issue and explain where
    the motion judge fell into error and why Ms. Rochons allegation of undue
    influence fails.

Presumed undue influence

[7]

The doctrine of undue influence and its
    evidentiary companion, the presumption of undue influence, is set out in
Geffen
    v. Goodman Estate
,
[1991] 2 S.C.R. 353;
Bank of Montreal v.
    Duguid

(2000)
,
185 D.L.R. (4th) 458 (Ont. C.A.), leave to
    appeal allowed, [2000] S.C.C.A. No 298, appeal discontinued August 2, 2001; and
CIBC Mortgage Corp. v. Rowatt
(2002)
,
    220 D.L.R. (4th) 139 (Ont. C.A.), leave to appeal refused, [2002] S.C.C.A. No.
    526.
Rowatt
draws heavily on the House of Lords decision in
Royal
    Bank of Scotland v. Etridge (No. 2)
, [2001] 4 All E.R. 449., which
    clarified and modified
Barclays Bank plc v. OBrien
, [1993] 4 All E.R.
    417 (H.L.).

[8]

To summarize, the presumption of undue influence
    is a rebuttable evidential presumption.

[9]

It arises if the nature of the relationship
    between the debtor and the surety coupled with the nature of the transaction
    between them justifies, without any other evidence, an inference that the
    transaction was the result of the undue influence of one party over the other:
Geffen
,
    at p. 378;
Rowatt
, at para. 20.

[10]

When the presumption arises, there are two
    results.

[11]

First, a lender is put on notice and inquiry. In
    order to protect itself from a claim that the guarantee provided to it was obtained
    by undue influence by the benefitting spouse or party, the lender must take
    reasonable steps to try to ensure that the proposed guarantor understands the
    transaction and is entering into it voluntarily by encouraging the guarantor to
    seek and obtain independent legal advice and a full explanation of the
    transaction:
Rowatt
, at para. 16;
Bank of Montreal
,
at
    paras. 17-18.

[12]

Second, if the lender has not taken the
    reasonable steps and the guarantor seeks to avoid liability on the guarantee or
    security by claiming that it was obtained by undue influence, the evidential
    onus is on the lender to adduce sufficient evidence to rebut the presumption:
Rowatt
,
at para. 20.

[13]

The judge must decide on the totality of the
    evidence whether the allegation of undue influence has been proved. The nature
    and ingredients of the impugned transaction between the benefitting spouse or
    party and the other party are essential factors in deciding both whether the
    evidential presumption has arisen and whether the lender has rebutted it. If
    the judge concludes that there was no undue influence, the presumption is
    rebutted and does not apply:
Rowatt
, at para. 20.

The motion judges approach

[14]

At para. 84 of his reasons, the motion judge
    described the presumption of undue influence as follows:

It is a presumption which flows from the
de
    facto
existence of a relationship under which the complainant generally
    reposed trust and confidence in the wrongdoer. It is the establishment of that
    relationship which raises the presumption of undue influence. Unless the [
sic
]
    JGB can then disprove undue influence, for example by showing that Donna Rochon
    had independent legal advice, she will succeed in setting aside the impugned
    transaction merely by proof that she reposed trust and confidence in her
    husband without having to prove that he exerted actual undue influence or
    otherwise abused such trust and confidence in relation to the particular
    transaction impugned.

[15]

The motion judge found that the essential facts
    supporting a presumption of undue influence were met: [t]his is a classic case
    of a spouse who unquestioningly complied with any and all requests by her
    husband to sign documents related to his business.

[16]

He noted that two lawyers acted for the
    respondents, one of whom was the Corporations general counsel and the
    respondents daughter. He also noted the evidence of Mr. Barlev-Ehrenberg, an
    officer of the appellant, that he had obtained oral confirmation from both
    lawyers that everything in the guarantee, including the statement in it that
    its terms had been explained to the respondents by an independent lawyer, had
    been explained to both respondents.

[17]

However, in the motion judges view, this was
    insufficient. The appellant did not obtain written confirmation of Ms. Rochon
    having been given independent legal advice. Moreover, there was no indication
    that Ms. Rochon received legal advice independent from (and by a different
    lawyer) to any legal advice given to Mr. Rochon.

[18]

He commented that Ms. Rochons challenge to the
    enforceability of the mortgage would have been neutralized by the simple
    device of requiring adequate evidence, through a Certificate of Independent
    Legal Advice (or similar), that Donna Rochon was fully aware of the import of
    the security that she was providing.

[19]

He concluded:

I am satisfied that Donna Rochon has
    established, on a balance of probabilities, that she was subject to undue influence
    by her husband at the time that she agreed to the mortgage conditions and,
    subsequently, when she agreed to the registration of the charge against the
    Lanark property. I am further satisfied that the circumstances gave rise to
    constructive notice of undue influence to JGB and that in the circumstances,
    JGB unreasonably failed to take adequate steps to enquire (whether by
    determining that she had received independent legal advice, or otherwise) and
    thereby satisfy itself that Donna Rochon understood the nature, import and
    legal effect of her agreement to the mortgage terms and the registration of the
    charge against the Lanark property.

Analysis

[20]

Respectfully, the motion judges analysis is
    tainted by several errors.

[21]

First, in determining whether the presumption
    arose, the motion judge considered only the nature of the relationship between
    Mr. and Ms. Rochon. He failed to consider the nature of the transaction between
    them.

[22]

While the respondents swore in their affidavits
    before the motion judge that Ms. Rochon had no financial interest in the
    Corporation, they acknowledge in their factums on appeal that Ms. Rochon had a
    financial interest in the Corporation. However, they argue that it was not
    significant, and, therefore, the motion judges failure to explicitly consider it
    is of no moment.

[23]

We disagree.

[24]

Ms. Rochon had a significant interest in the
    Corporation.

[25]

The materials before the motion judge included
    the Schedule 13D filing with the US Securities and Exchange Commission, dated
    June 6, 2017, signed by Mr. Rochon and filed with the Securities and Exchange
    Commission. It indicates that Ms. Rochon was a limited partner of and owned 20%
    of the outstanding partnership interests of Rochon Capital Partners, Ltd., an
    entity that held approximately 35% of the common shares of the Corporation. The
    Schedule 13D filing further indicates that Ms. Rochon had the indirect right,
    through her ownership of the limited partnership interests, to receive
    dividends from, or proceeds from the sale of, any common stock owned by Rochon
    Capital Partners, Ltd.

[26]

As well, the Corporation was in many respects a
    family business. Both Ms. Rochons son and daughter held positions. Separate
    and apart from her significant financial interest in the Corporation, Ms.
    Rochon had an interest in doing what she could to support it. As she admitted
    on cross-examination, executing documents at the request of her husband, such
    as those relating to the loan from the appellant, was in both her and her
    husbands interests.

[27]

This was not a transaction which, from a
    business point of view, was of no benefit to Ms. Rochon.

[28]

Moreover, while the Ontario property was a farm
    that had been in Ms. Rochons family for generations, Mr. Rochon had purchased
    the property from Ms. Rochons family and gifted it to Ms. Rochon. The property
    was presumably acquired with the fruits of Mr. Rochons business activities.

[29]

The relationship between Mr. and Ms. Rochon 
    one in which, as the motion judge found, Ms. Rochon unquestioningly complied
    with any and all requests by her husband to sign documents  when coupled with
    the nature of the transaction between them, does not justify an inference that
    the mortgage was procured by the undue influence of Mr. Rochon over Ms. Rochon.

[30]

Second, even if a presumption of undue influence
    did arise such that the appellant was put on notice to ensure Ms. Rochon was
    entering into the transaction freely, the appellant did so. The motion judge incorrectly
    elevated what
Rowatt
and
Bank of Montreal

say a lender
    must do to protect itself from an assertion of presumed undue influence (namely,
    take reasonable steps to try to ensure that the proposed guarantor understands
    the transaction and is entering into it freely by suggesting that the guarantor
    seek and obtain independent legal advice and a full explanation of the
    transaction) to a requirement that a lender obtain a written certificate from a
    lawyer that the lawyer has provided independent legal advice to the guarantor.

[31]

The evidence of Mr. Barlev-Ehrenberg of the
    appellant was that he inquired of both attorneys representing both Mr. Rochon and
    Ms. Rochon whether everything that was stated in the guarantee had been
    explained to them, including the statement in the guarantee that it was
    explained to them by an independent solicitor, and both counsel confirmed that
    this was the case for both Mr. and Ms. Rochon.

[32]

On these facts, this inquiry was sufficient to
    protect the appellant from Ms. Rochons assertion of presumed undue influence.

[33]

Third, having found that the presumption arose,
    and that the appellant was not protected from Ms. Rochons allegation of undue
    influence by the steps it had taken, the motion judge did not go on to consider
    whether, on the totality of the evidence, the allegation of undue influence was
    proved. Essentially, he treated his finding that the appellant had not taken
    sufficient steps as dispositive of the question of undue influence. But the
    presumption of undue influence can be rebutted in the absence of independent
    legal advice:
Bank of Montreal
, at paras. 25-27.

[34]

While Ms. Rochon swore in her affidavit that she
    believed that she did not have any alternative but to sign the loan documents,
    as the motion judge noted, in her cross-examination she admitted that she
    signed the loan documents of her own free will and that her husband did not
    threaten or force her to sign any of the documents. She said in
    cross-examination I have a choice, yes, I do. When pressed on the
    inconsistency, she said I had no choice but to sign the document because my
    choice was to ignore it and just sign the thing. She also admitted that she
    swore and signed her affidavit because her husband asked her to. Ms. Rochons
    own evidence rebuts the presumption on which she seeks to rely.

[35]

Although Ms. Rochon may have unquestioningly
    complied with any and all requests by her husband to sign documents the motion
    judge stated that the assertion that she was wilfully blind has merit. Wilful
    blindness is not proof of undue influence.

[36]

Further, as noted above, the nature and
    ingredients of the impugned transaction between Mr. and Ms. Rochon are
    essential factors in deciding both whether the evidential presumption has
    arisen and whether the appellant has rebutted it. We have discussed the nature
    of the transaction above. If the presumption arose, the nature of the
    transaction joins Ms. Rochons own evidence in rebutting it.

Disposition

[37]

Accordingly, the appeal is allowed and the order
    of the motion judge dated August 21, 2019 dismissing the appellants summary
    judgment motion and its action is set aside.

[38]

Summary judgment in favour of the appellant is
    granted.

[39]

The costs order of the motions judge dated
    October 19, 2019 is also set aside. If the parties are unable to agree on costs
    below, the determination of costs below shall be returned to the motion judge.
    If the parties are unable to agree on costs of the appeal, and the motion for a
    stay pending appeal, they may make written submissions not exceeding three
    pages, to be made within 21 days of the release of these reasons.

Paul
    Rouleau J.A.

Alexandra
    Hoy J.A.

C.W.
    Hourigan J.A.


