



COURT OF APPEAL FOR ONTARIO

CITATION: TFS RT Inc. v. Dyck, 2019 ONCA 25

DATE: 20190117

DOCKET: C65417

Rouleau, van Rensburg and Zarnett JJ.A.

BETWEEN

TFS RT Inc. and TFP International Inc.

Plaintiffs (Respondents)

and

Kenneth Dyck, Shaun Dyck and GPEC Holdings Ltd.

Defendants (Appellants)

Caleb Edwards, for the appellants

Mark S. Shapiro and Michael J. Brzezinski, for the
    respondents

Heard: January 7, 2019

On appeal from the judgment of Justice Kenneth G. Hood of
    the Superior Court of Justice, dated April 23, 2018, with reasons reported at
    2018 ONSC 2617.

REASONS FOR DECISION

[1]

The appellants appeal the summary judgment which was granted against
    them to enforce guarantees dated August 24, 2015 in favour of the respondents.
    The guarantees were of obligations of Green Patch Environmental Consulting Ltd.
    (the borrower). The individual appellants were at the relevant times the
    officers, directors, shareholders and directing minds of the borrower and of the
    corporate appellant, GPEC Holdings Ltd.

[2]

The borrower incurred obligations to the respondents under a Loan
    Agreement dated August 24, 2015. The Loan Agreement provided that advances under
    it would bear interest before maturity at the rate of 2.5% per 30 days, and
    after maturity at an additional rate of 0.416% per 30 days (5% per annum). It
    also provided that the respondents would deliver monthly loan statements to the
    borrower showing advances, interest accrual and payments, which would be deemed
    conclusive and binding unless disputed in writing by the borrower.

[3]

The borrower was provided with loan statements during the currency of
    the loan and after maturity. They showed that interest was calculated at 30% prior
    to maturity, which the motion judge interpreted to describe a per annum rate,
    and at 35% per annum after maturity. He found that the borrower never disputed
    the loan statements.

[4]

The borrower defaulted under the Loan Agreement. After demands by the
    respondents under the Loan Agreement and the guarantees, a Forbearance
    Agreement was entered into among the appellants, the borrower and the
    respondents on March 17, 2016. As later extended, it provided for a period of
    forbearance by the respondents until May 14, 2016. The Forbearance Agreement
    stated the amount then owing for principal and interest, which the motion judge
    found was clearly calculated at the rate of 30% per annum pre-maturity and 35%
    per annum afterwards. It also contained covenants by the borrower and the
    appellants that there were no defences to the amount owed, that the Loan
    Agreement and guarantees were binding, and that there were no defences
    thereunder.

[5]

The borrower did not make the payments the Forbearance Agreement
    required. The respondents commenced proceedings for the appointment of a
    receiver over the assets of the borrower.

[6]

The motion judge found that by June 1, 2016 counsel for the borrower,
    who were also counsel for the appellants, were aware of a potential argument
    that the interest payable by the borrower under the Loan Agreement should be
    reduced and limited by virtue of s. 4 of the
Interest Act
, R.S.C. 1985,
    c. I-15. That section provides:

Except as to mortgages on real property or
    hypothecs on immovables, whenever any interest is, by the terms of any written
    or printed contract, whether under seal or not, made payable at a rate or
    percentage per day, week, month, or at any rate or percentage for any period
    less than a year, no interest exceeding the rate or percentage of five per cent
    per annum shall be chargeable, payable or recoverable on any part of the
    principal money unless the contract contains an express statement of the yearly
    rate or percentage of interest to which the other rate or percentage is
    equivalent.

[7]

On June 6, 2016, in the pending receivership proceedings, Penny J. made
    an endorsement recording certain agreements between the borrower and the
    respondents, including the agreement of the borrower to:

[F]orego any further argument, defence, counterclaim, etc.
    regarding the quantum of the outstanding obligations owing to [the respondents],
    including any dispute as to the principal, accrued and accruing interest,
    default interest, legal fees and other professional fees.

[8]

Subsequently a receiver was appointed and realizations were made from
    the borrowers assets and distributed to the respondents under court order. The
    payments to the respondents were not reduced by virtue of the
Interest Act
.

[9]

The respondents commenced this action under the guarantees in July 2016,
    as the amounts realized from the borrowers assets were less than the full
    amount owed, as calculated under the Loan Agreement, the Forbearance Agreement
    and the orders in the receivership proceeding.

[10]

Before
    the motion judge, the appellants argued that as the Loan Agreement specified a pre-maturity
    rate of interest of 2.5% per 30 days, and lacked an express statement of its yearly
    equivalent, the claim against them could not include interest on the borrowers
    obligations at a rate of more than 5% per annum as provided for by s. 4 of the
Interest
    Act
. The appellants argued that this adjustment meant they owed nothing,
    as the respondents recoveries from the borrowers payments and the
    receivership realizations satisfied all obligations once interest was thus recalculated.

[11]

The
    motion judge rejected this argument. He held that he did not have to determine
    whether the Loan Agreement violated the
Interest Act
, because the
    combined effect of the Forbearance Agreement and the orders consented to or
    made in the receivership, including the June 6, 2016 agreement, foreclosed any
    such argument.

[12]

Before
    us, the appellants renew their argument of an
Interest Act
violation.
    They argue that the Forbearance Agreement could not have the effect the motion
    judge gave it as that would constitute an impermissible contracting out of the
Interest
    Act
s protections. And they argue they were not themselves parties to the June
    6, 2016 agreement, which they concede meant that the borrower gave up any
Interest
    Act
argument it might have had.

[13]

We
    would not give effect to the appellants submissions, for the following
    reasons:

a)

Similar to
    the motion judge we do not consider it necessary to determine whether the
Interest
    Act
was violated or whether, as the respondents argued, the Loan Agreement
    and the loan statements under it could together be taken as containing the
    required disclosure of a yearly equivalent rate in light of the sophistication
    of the parties and the comments of this court in
Solar Power Network Inc.
    v. ClearFlow Energy
, 2018 ONCA 727 at para. 53 about interpreting section
    4 of the

Interest Act
to accord with modern commercial
    reality.

b)

Whatever the
    restrictions that may exist on contracting out of
Interest Act
protections, the parties here did not dispute that potential
Interest Act
arguments can be consensually resolved and such a resolution would be binding.
    That is exactly what the agreement of June 6, 2016 was. The appellants
    expressly conceded before us that the borrowers obligations would not be
    reduced by the
Interest Act
,
because under the June 6, 2016 agreement the borrower agreed to forego and not
    raise any argument, defence or dispute regarding, among other things, accrued
    or accruing interest.

c)

There is
    no merit to the argument that only the borrower, and not the appellants, were affected
    by the June 6, 2016 agreement. The appellants were the borrowers directing
    minds and were represented by the same counsel. When they directed the borrower
    to make the June 6, 2016 agreement, they had knowledge of the potential
Interest
    Act
issue and must be taken to have consented to the waiver by the
    borrower of any defence or dispute based on it, thereby confirming the
    borrowers obligations which they had guaranteed. The appellants cannot
    maintain that what the borrower owes for interest is to be determined giving
    effect to the June 6, 2016 agreement, while what they owe as guarantors of
    those same obligations is to be determined a different way. The guarantees were
    of all obligations of the borrower in connection with the Loan Agreement, and the
    Forbearance Agreement and the June 6, 2016 agreement defined and settled the
    amount of those obligations. The guarantees expressly bound the appellants to any
    account settled or stated between the Lender and the Borrower or admitted by
    or on behalf of the Borrower.

[14]

The
    appeal is therefore dismissed with costs payable to the respondents in the
    amount of $14,000, inclusive of disbursements and applicable taxes, an amount
    agreed to between the parties.

Paul Rouleau J.A.

K. van Rensburg J.A.

B. Zarnett J.A.


