



COURT OF APPEAL FOR ONTARIO

CITATION:
Clearflow Commercial Finance Corp. v. Gdak, 2022 ONCA 242

DATE: 20220322

DOCKET: C69606

Trotter,
    Coroza and Favreau JJ.A.

BETWEEN

Clearflow Commercial Finance
    Corp.

Applicant (Respondent)

and

Jaimee Lynn Gdak
, Trigger Wholesale Inc., The En Cadre Group Inc., Mark Gdak and
    Jaimak Real Properties Inc.

Respondents (Appellant)

Benjamin G. Blay, for the appellant

Jeffrey J. Simpson, for the respondent

Heard: February 17, 2022 by videoconference

On appeal from
    the order of Justice Bernadette Dietrich of the Superior Court of Justice,
    dated May 26, 2021, with reasons reported at 2021 ONSC 3421.

REASONS FOR DECISION

[1]

This appeal arises from an order enforcing a Guarantee
    executed by the appellant, Jaimee Lynn Gdak. Ms. Gdak guaranteed the full
    amount of the indebtedness of Trigger Wholesale Inc. (Trigger) in favour of Clearflow
    Commercial Finance Corp. (Clearflow). The motion judge found that the
    Guarantee was valid, binding and enforceable. Ms. Gdak appeals this order.

[2]

At the conclusion of the hearing, we dismissed
    the appeal with reasons to follow. These are our reasons.

Background

[3]

Clearflow provides financing services to Ontario
    businesses. Trigger, one of Clearflows clients, was in the business of
    importing and distributing firearms and ammunition in Canada. Mark and Jaimee
    Lynn Gdak are the sole shareholders, directors, and officers of Trigger. Clearflow
    alleges that Mr. Gdak orchestrated a massive fraud over a number of years
    against Clearflow, amounting to tens of millions of dollars in losses. The
    proceedings below and this appeal relate solely to the enforceability of the
    Guarantee.

[4]

In April 2015, Clearflow extended three separate
    credit facilities to Trigger: factoring of accounts receivable (Clearflows
    main method of financing); purchase order financing; and discrete advances for
    business purposes. The details were set out in three Credit Agreements. As part
    of this arrangement, on April 30, 2015, Mr. and Ms. Gdak jointly executed an unlimited
    and continuing Guarantee of the full amount of the indebtedness of Trigger in
    favour of Clearflow. The Gdaks are also officers and directors of The En Cadre
    Group  they both signed similar guarantees on behalf of En Cadre.

[5]

When Ms. Gdak executed her guarantee, the total
    maximum indebtedness shown on the Credit Agreements was $1.4M. By 2020, the
    actual debt had skyrocketed to $48M.

[6]

In 2019, before the allegedly fraudulent
    activities of Mr. Gdak and Trigger came to light, Mr. Gdak, on behalf of
    Trigger, approached Clearflow to restructure the then-existing credit
    facilities that would soon expire. He sought to renegotiate the Credit
    Agreements and have Ms. Gdak released from the Guarantee. As a result of the
    negotiations, Clearflow issued a proposal that would see Ms. Gdak released from
    the Guarantee. This was also reflected in drafts of the proposed financing
    documentation. However, this was all contingent on Mr. Gdak providing current
    financial statements. The negotiations dragged on into late 2020. The
    statements that were produced were not acceptable to Clearflow. Moreover, a
    field audit conducted on behalf of Clearflow uncovered the alleged fraudulent
    activities. Consequently, the deal fell apart. Clearflow refused to sign back the
    re-financing documents prepared by Trigger. Clearflow issued a written demand
    for all amounts owing. In the end, Clearflow never signed a document confirming
    that Ms. Gdaks Guarantee had been cancelled or released.

[7]

In October 2020, Clearflow brought an
    application to recover $48.6M it alleges it lost as a result of a fraudulent
    scheme engineered by Mr. Gdak and Trigger. Clearflow sought the appointment of
    a receiver over the assets, property, and undertakings of Trigger, En Cadre,
    and the Gdaks real property, as well a Mareva injunction restraining the Gdaks
    from disposing of their property. The Mareva injunction was granted and Grant
    Thornton Ltd. was appointed as receiver in October 2020. While Mr. Gdak did not
    dispute the fraud claims, Ms. Gdak denies knowledge or participation in the
    scheme.

[8]

Within the context of its application, Clearflow
    brought a motion to enforce the Guarantee and sought a finding of liability
    against both Mr. and Ms. Gdak. Mr. Gdak did not dispute liability pursuant to the
    Guarantee; he did not file any materials on the motion. Ms. Gdak vigorously
    resists enforcement.

[9]

The Guarantee in question is a single-page
    document. It was signed by Mr. Gdak as President of Trigger; Ms. Gdak signed
    as V.P. Under the heading THE NATURE OF YOUR LIABILITY, the following
    condition is found:

Your liability under the Guarantee is
    CONTINUING, absolute and unconditional. It will not be limited, reduced, or
    otherwise affected by any one or more of the following events:



·

any change in the terms or amount or existence
    of the Obligations.



·

any event whatsoever that might be a defence
    available to the Customer for its obligation or a defence to you under this Guarantee,
    all of which are hereby waived.

[10]

Ms. Gdak does not dispute signing the guarantee.
    Nor does she allege duress. Moreover, a lawyer who represented Trigger at the
    time, Brian Kelly, witnessed Ms. Gdaks signature on the Guarantee.

The Motion Judges Decision

[11]

Ms. Gdak resisted the enforcement of the Guarantee
    on a number of bases. As the motion judge said in para. 6 of her reasons:

Ms. Gdak denies liability on her Guarantee on
    the basis that there was an undisclosed material change in the principal amount
    of the indebtedness covered by the Guarantee, and because she did not have the
    opportunity to obtain independent legal advice. Alternatively, she asserts that
    the applicant, through its words and conduct, released her from her Guarantee.

[12]

In thorough reasons, the motion judge rejected
    each of these submissions.

[13]

The motion judge held that Ms. Gdak was not
    released from liability under the Guarantee as a result of a material change to
    the contractual arrangements between Clearflow and Trigger (i.e., the increasing
    extension of credit to Trigger, growing to $48M). She rejected Ms. Gdaks claim
    that her liability was limited to $1.4M.

[14]

The motion judge recognized that a guarantor
    will be released from liability where the creditor and the principal debtor
    agree to a material change in the terms of the contract of debt without the
    guarantors consent: see
Manulife Bank of Canada v. Conlin
, [1996] 3
    S.C.R. 415. However, it is equally clear that it is open to parties to contract
    out of this protection. The motion judge found that Ms. Gdak did just that  she
    contracted out of this protection. The one-page document states in capital letters
    that her liability is CONTINUING and will not be limited, reduced, or
    otherwise affected by any change in the terms or the amount of the debt. The
    motion judge found that the advances were specifically contemplated and did not
    result in a materially different risk than the one to which Ms. Gdak agreed.

[15]

The motion judge did not accept the submission
    that the Guarantee must be read narrowly to protect Ms. Gdak because she was a
    family member (the wife of Mr. Gdak) and because she was unsophisticated or
    vulnerable. There was no evidence that she signed the Guarantee as a matter of
    accommodation or as a favour for Mr. Gdak. The motion judge found that Ms. Gdak
    signed in her capacity as an officer and shareholder of Trigger.

[16]

The only argument advanced by Ms. Gdak in
    support of her claim of unsophistication was that she did not finish high
    school. The motion judge held that, [l]ack of a high school diploma, in my
    view, does not equate to a lack of sophistication. Nor does itindicate a lack
    of intelligence or an inability to read and comprehend a one-page guarantee.
    The motion judge further found that Ms. Gdak was significantly involved in
    running the business.

[17]

The motion judge found that, even if she had
    found that the Guarantee should be interpreted narrowly, this would not assist
    Ms. Gdak. She found that the definition of the word Obligations in the
    Guarantee ought not to be limited in the manner submitted by Ms. Gdak. It was
    clear that she guaranteed debts arising from all three credit facilities, and
    in particular, the factoring of accounts receivable (the credit facility that
    generated the vast majority of the outstanding debt to Clearflow).

[18]

The motion judge rejected Ms. Gdaks claim that
    the Guarantee was unenforceable because she did not receive independent legal
    advice. The motion judge observed that the Guarantee was signed in the presence
    of (indeed, witnessed by) Triggers lawyer, and Ms. Gdak was a director of
    Trigger. Moreover, the motion judge found that there was no evidence of undue
    influence, unconscionability, fraud, or misrepresentation. Again, this aspect
    of Ms. Gdaks position amounted to a claim of a lack of sophistication, already
    rejected by the motion judge. She rejected Ms. Gdaks claim that she did not
    know that she was a director of Trigger. The motion judge engaged in a detailed
    review of Ms. Gdaks day-to-day involvement in the business in reaching this
    conclusion.

[19]

Lastly, the motion judge did not accept Ms.
    Gdaks submission that Clearflow released her from her Guarantee through its
    words and conduct and was thereby estopped from asserting that the negotiations
    were never consummated. The motion judge found that the Guarantee provides that
    it shall be binding unless a release of the guarantor is expressly made in writing
    by Clearflow and authorized by its Board of Directors. It was not. The
    negotiated release was conditional on Trigger providing the requested financial
    statements. They were not provided in an acceptable form; moreover, the field
    audit revealed alleged fraud. The motion judge found that Ms. Gdak was not
    released.

Discussion

[20]

On appeal, Ms. Gdak repeats the same arguments
    that were made before the motion judge in the hope of a different result.
    However, she has failed to identify an error of law or principle, nor any
    palpable and overriding error of fact.

The Standard of Review

[21]

The appellant insists that the Guarantee is a
    standard form contract that must be interpreted on a standard of correctness:
    see
Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.
,
    2016 SCC 37, [2016] 2 S.C.R. 23.

[22]

The respondent disputes this characterization,
    submitting that, in order for the correctness standard to apply, the following
    three requirements must be met: (i) the appeal must involve the interpretation
    of a standard form contract; (ii) the interpretation at issue is of
    precedential value; and (iii) there is no meaningful factual matrix that would
    assist in the interpretation of the contract: see
Ledcor
, at para. 24.

[23]

We agree with the respondent that elements (ii)
    and (iii) are not satisfied in this case. The motion judges interpretation of
    the Guarantee will have no precedential value, mainly because the factual
    matrix between the parties was critical to the motion judges interpretation of
    the Guarantee. Consequently, the appellant cannot justify the application of the
    exception to the Supreme Courts holding in
Sattva Capital Corp. v. Creston
    Molly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, that contractual
    interpretation is a question of mixed fact and law and subject to deferential
    review on appeal. Even if it could be said that the correctness standard is
    applicable, we see no error in the motion judges analysis.

No Independent Legal Advice

[24]

The appellant submits that the motion judge
    erred by casting the onus of proof on her to establish that she did not receive
    independent legal advice. The appellant submits that she was put in the
    impossible position of having to prove a negative. We do not accept this
    submission. The appellant sought to resist the enforcement of the Guarantee
    based on a number of putative defences, one being her failure to receive
    independent legal advice. Clearly, she carried the onus on this issue.

[25]

In any event, the motion judge found that
    independent legal advice was not required in the circumstances. She found that
    Ms. Gdak was an officer and director of Trigger and that she signed the
    Guarantee in that capacity. Ms. Gdak had the opportunity to consult with a
    lawyer, Mr. Kelly, who witnessed the signatures of both Mr. and Ms. Gdak. She
    could have asked him for advice about the Guarantee.

Lack of Sophistication and Unconscionability

[26]

The appellant submits that the motion judge
    erred in failing to find that the appellant lacked sophistication and that this
    resulted in a serious inequality of bargaining power in relation to Clearflow.
    In making this submission, counsel placed great emphasis on the fact that Ms.
    Gdak did not complete high school.

[27]

We do not accept this submission. We agree with
    the motion judge that a failure to complete high school does not equate with a
    lack of sophistication. In any event, the motion judge took into account a
    number of circumstances in rejecting the submission that Ms. Gdak lacked
    sophistication, including evidence that demonstrated the extensive and
    important roles she played in the day-to-day operation of the business. Although
    Martin Rees (the partner of Clearflow with whom the Gdaks were dealing) may
    have had considerable experience in commercial transactions, this did not
    render Ms. Gdak unsophisticated. Moreover, we see no basis to disturb the
    motion judges conclusion that Ms. Gdak had failed to establish
    unconscionability or undue influence.

Inscrutability of the Document

[28]

The appellant submits that the motion judge paid
    no attention to the inscrutability of the Guarantee. In other words, she
    submits that the print on the document was too small.

[29]

In our view, this is not a legitimate basis to
    render the document unenforceable. The document is a single page in length.
    Although the print is small, it is readable. This is self-evident. There was no
    expert evidence adduced on the application on this issue. In the absence of evidence
    of improper tactics on the part of Clearflow, and there is none, the size of
    the print of the document is not a basis for refusing to enforce the Guarantee.

Error as to the Appellants Role in the
    Company

[30]

The appellant submits that the motion judge
    erred in making the following statement, at para. 61: [a]s a director, Ms.
    Gdak would have been required to sign off on the financial statements for these
    companies. The annual financial statements would have reflected the
    indebtedness to the applicant, which would have been easy for her to track year
    over year. As the appellant points out, s. 159(1) of the
Ontario Business
    Corporations Act
, R.S.O. 1990, c. B.16 (the
OBCA
) requires that
    the financial statements of an Ontario company be approved by
the board of
    directors
and the approval shall be evidenced by the signature at the foot
    of the balance sheet of
any director authorized to sign
 (emphasis added).

[31]

Mr. and Ms. Gdak were the sole directors of the
    company. Whether or not Ms. Gdak provided the signature evidencing the approval
    of the board, she was obliged by the
OBCA
to exercise the care,
    diligence and skill that a reasonably prudent person would exercise in
    comparable circumstances (s. 134(1)) and she was required to comply with all
    provisions of that act (s. 134(2)).

[32]

In our view, the motion judge made no error in
    concluding that Ms. Gdak had legal obligations as one of two directors of Trigger.
    This was merely one factor that informed the motion judges conclusion that she
    was aware of Triggers ballooning indebtedness to Clearflow.

Insufficient Reasons

[33]

The appellant submits that the reasons of the
    motion judge are insufficient in that they fail to explain why she preferred
    the evidence of Clearflow over that of Ms. Gdak. We disagree.

[34]

The motion judge provided comprehensive reasons
    that are more than sufficient to permit appellate review. She evaluated Ms.
    Gdaks evidence against the whole of the evidence. The motion judge found her
    evidence lacking on many points, either because it was contradicted by other
    evidence, or because it was simply not credible. The appellants complaint is
    more in the nature of a disagreement with the motion judges credibility
    assessments, rather than the manner in which she explained the conclusions that
    she reached.

Clearflows Breach of the Agreement

[35]

The appellant submits that the motion judge
    erred in how she addressed the argument that the Guarantee was unenforceable
    against her because Clearflow breached the agreement. Essentially, the
    submission is that Clearflow breached the agreement by extending financing
    facilities in excess of the original projected amounts of $1.4M (i.e., giving Trigger
    more money than they originally requested). We do not accept this submission.

[36]

As noted in para. 14 above, the motion judge
    found that Ms. Gdak had contracted out of any protection to which she may have
    been entitled at common law. By its very terms, the Guarantee was a continuing
    guarantee for all obligations and indebtedness in favour of Clearflow. The
    terms and conditions of the credit facilities extended to Trigger never changed
    in a way that was not contemplated by the Guarantee. The motion judge also
    found that Ms. Gdak knew or ought to have known that her liability had
    increased over time.

Contra Proferentem and the Ejusdem Generis
    Rule

[37]

Lastly, the appellant submits that the terms of the
    Guarantee should be construed against the drafter of the document (i.e., Clearflow).
    However, the
contra proferentem
rule is only applied in the face of an
    ambiguity in the impugned contract:
Manulife Bank of Canada v. Conlin
,
    [1996] 3 S.C.R. 415. As Cory J. held at p. 425, if there is any ambiguity in
    the terms used in the guarantee, the words of the documents should be construed
    against the party which drew it. We agree with trial judges refusal to apply
    the
contra proferentem

rule. The appellant is unable to
    identify any ambiguity in the Guarantee.

[38]

The appellant submits that she should be
    released from her liability by virtue of the
ejusdem generis
principle. She submits that the motion judge ought to have applied this
    principle when interpreting the term Obligations in the Guarantee. The term
    is described as all present and future lease payments and obligations,
    conditional sale installments and obligations, and any other debts and
    liabilities. The appellant contends that the debts arising from the credit
    facilities extended to Trigger, especially the factoring of accounts
    receivable, are of a different nature than the specific Obligations described
    in the Guarantee. As the reasoning goes, she should not be liable under the
    Guarantee for these debts.

[39]

We do not accept this submission. The factoring
    of accounts receivable was at the core of the financing relationship between Clearflow
    and Trigger. It accounts for the lions share of Triggers indebtedness to
    Clearflow, of which all parties, including the appellant, were well aware. We
    adopt the following passage from paras. 63-64 of the motion judges reasons:

Accordingly, I find that a narrow
    interpretation of the terms of the Guarantee is not warranted in this case. Had
    I decided this point differently, I would nonetheless have rejected Ms. Gdaks
    interpretation of the definition of Obligations in the Guarantee.
    Obligations is defined to include all present, and future lease payments and
    obligations, conditional sale instalments and obligations, and any other debts
    and liabilities. Ms. Gdak submits that the
ejusdem generis
interpretation
    maxim ought to apply such that any other debts and liabilities must be read
    narrowly to include only debts of the same class or kind, being debts of a
    similar nature to lease payments and conditional sale instalments, and that the
    applicant has led no evidence of indebtedness that falls into that class.

I reject this highly technical interpretation.
    I agree with the applicant that the phrase other debts and liabilities covers
    each of the credit facilities that the applicant offered and provided to
    Trigger. It would have been obvious to the parties entering into the financing
    arrangements that the Guarantees were in respect of the funds being advanced in
    accordance with the April 23, 2015 funding proposal. That proposal specifically
    refers to the credit being advanced and the Guarantees of each of En Cadre, Mr.
    Gdak and Ms. Gdak. Triggers credit facilities did not include lease payments
    or conditional sale instalments. It is therefore apparent that the Guarantees
    were intended to cover other debts and liabilities, such as those described in
    the April 23, 2015 funding proposal and advanced by the applicant. This is the
    only logical interpretation of the Guarantee considering the factual matrix at
    the time the credit facility documentation, including the Guarantees, was
    executed.

Disposition

[40]

The appeal is dismissed. As agreed by the
    parties, the respondent is entitled to its costs on a partial indemnity basis
    in the amount of $16,250, inclusive of taxes and disbursements.

Gary Trotter J.A.

S. Coroza J.A.

L. Favreau J.A.


