Supreme Court

Callidus v Deepak International et al, 2016 NWTSC 71..cor 1 Date Corrigendum Filed : 2016 12 12 Date: 2016 12 01 Docket: S-1-CV 2015-000 233

IN THE SUPREME COURT OF THE NORTHWEST TERRITORIES BETWEEN: CALLIDUS CAPITAL CORPORATION Plaintiff - and - DEEPAK KUMAR, DEEPAK INTERNATIONAL LTD., DEEPAK DEVELOPMENT LTD. AND RAGANI KUSHALINI KUMAR

Defendants Corrected judgment: A corrigendum was issued on December 12, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment.

Application for Summary Judgment Heard at Yellowknife, NT, on June 1 and 2, 2016. st Reasons filed: December 1 , 2016 REASONS FOR JUDGMENT OF THE HONOURABLE JUSTICE A.M. MAHAR

Counsel for the Plaintiff: Counsel for the Defendants:

Glen Rutland Douglas G. McNiven

Page 2 Callidus v Deepak International et al, 2016 NWTSC 71.cor1 Date Corrigendum Filed : 2016 12 12 Date: 2016 12 01 Docket: S-1-CV 2015-000 233

IN THE SUPREME COURT OF THE NORTHWEST TERRITORIES BETWEEN: CALLIDUS CAPITAL CORPORATION Plaintiff - and - DEEPAK KUMAR, DEEPAK INTERNATIONAL LTD., DEEPAK DEVELOPMENT LTD. AND RAGANI KUSHALINI KUMAR

Defendants Corrected judgment: A corrigendum was issued on December 12, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment.

REASONS FOR JUDGMENT INTRODUCTION [1] On December 3, 2015, Callidus Capital Corporation filed a Statement of Claim against Deepak Kumar, Deepak International Ltd., Deepak Development Ltd. and Ragani Kushalini Kumar. The Defendants filed a Statement of Defence on February 11, 2016. The Plaintiff moved for summary judgment. The Defendants filed an amended Statement of Defence and Counterclaim on April 25, 2016. The Plaintiff responded. The application for summary judgment was heard before me on June 1 and 2, 2016.

Page 3 BACKGROUND [2] Most of the facts which form the basis for this dispute are not at issue. I therefore rely heavily on both the Statement of Claim and the special chambers briefs of the applicant Plaintiff for the following background.

[3] The Plaintiff, Callidus Capital Corporation (Callidus), is an incorporated Ontario company with offices in Toronto. Its primary business is acting as a commercial lender.

[4] The Defendant Deepak International Ltd. (Deepak International) is an incorporated company registered in both the Northwest Territories and Ontario, with a registered office in Toronto. The Defendant Deepak Development Ltd. is a company incorporated in the province of Alberta with a registered office in Edmonton. The Defendant Mr. Kumar is the principal of Deepak International. Mrs. Ragani Kumar is his spouse.

[5] In early 2014, Mr. Kumar approached Callidus on behalf of Deepak International, seeking funding to develop a diamond cutting and polishing business in Yellowknife, Northwest Territories. Mr. Kumar had secured a contract with the Government of the Northwest Territories to access rough diamonds and had acquired the right to use specific trademarks in the international marketplace, including the Polar Bear trademark. He had also acquired the right to purchase leasehold interests in suitable factory premises (the Factories). He was seeking funding for both the initial start up and ongoing operations in the early stages of the business.

[6] In the course of attempting to secure this financing, Mr. Kumar made a number of further representations to Callidus:

[7] Mr. Kumar claimed to have purchased substantial, specialized equipment for the polishing and finishing of diamonds from a company in India (the Diamond Equipment). This equipment was worth approximately $ 18,000,000.00 and was contained in several shipping containers situated outside of the Factories. This Diamond Equipment was to be pledged, along with other assets, as security for the loans from Callidus. The Plaintiff was provided with invoices showing the purchase of the Diamond Equipment.

[8] Mr. Kumar told Callidus that the shipping containers could not be opened to allow for an inspection of the Diamond Equipment because to do so would void

Page 4 several agreements with the manufacturer, including warranty. Only a designated representative of the manufacturer would be permitted to open the containers.

[9] Mr. Kumar said that Deepak International planned to use the initial loan advance to complete the acquisition of the Factories, renovate them to their new purpose, install the Diamond Equipment and go into business. The Plaintiff was provided with two property appraisal reports which collectively valued the Factories at $ 3,065,000.00.

[10] Mr. Kumar also provided the plaintiff with a personal statement application wherein he claimed to have personal net assets in excess of $ 26,000,000.00.

[11] In June 2014, Callidus agreed to provide financing to Deepak International by way of a number of credit facilities which collectively made up the Loan Agreement.

These were comprised of: (a) The Operating Loan; a demand revolving loan in the principal amount of up to $ 4,000,000.00, of which approximately $ 1,078,230.00 remains outstanding in respect of accumulated fees and payment-in-kind interest;

(b) The Equipment Loan; a demand term loan in the principal amount of up to $ 10,000,000.00, of which $ 1,000,000.00 was advanced and remains outstanding;

(c) The Acquisition Loan; a demand term loan in the principal amount of up to $ 1,116,750.00, of which $ 1,116,750.00 has been advanced and remains outstanding.

[12] As security for the credit facilities, Deepak International mortgaged its leasehold interest in the two factory properties in Yellowknife. Also provided were security agreements charging all of the personal property of Deepak International. Mr. Kumar and Mrs. Kumar provided personal guarantees on June 13, 2014 for all of Deepak International’s indebtedness to the plaintiff, limited to the principal amount of $1 million each. Deepak Development provided a corporate guarantee as well, to the full indebtedness of Deepak International. All of this security was properly registered in the Northwest Territories, Alberta and Ontario.

Page 5 [13] The Diamond Equipment remained, by far, the most valuable asset pledged as collateral. Along with the invoices referred to above, the Plaintiff was provided with a declaration which set out that the funds for the purchase of the Diamond Equipment had been provided by Mr. Kumar’s father.

[14] The Plaintiff advanced roughly $ 2,000,000.00 on the understanding that these funds would be used to acquire the Factories and install the Diamond Equipment. The remaining amount available under the Equipment Loan would be advanced by the Plaintiff upon a formal appraisal of the Diamond Equipment. Mr. Kumar has disputed this claim. I find his assertion that the Plaintiff would have agreed to advance the rest of the money without an appraisal or inspection of the Diamond Equipment incredible and reject it. I accept that the agreement was as described by Callidus.

[15] In December 2014, Deepak International defaulted on a number of terms in the Loan Agreement, relating to reporting covenants, the payment of municipal taxes and rents and the maintenance of insurance. The Plaintiff contacted Mr. Kumar about these issues, but Mr. Kumar did not take any action to address them.

[16] Callidus paid all taxes and rental payments at that time and continued to do so until the date of this hearing.

[17] Between February and March 2015, Callidus attempted to work with the Deepak International to rectify the defaults, to no avail.

[18] In March 2015, a senior employee of Callidus, Mr. James Hall, flew to Yellowknife to gauge the extent of the problems and to see what could be done to address them. He discovered that Deepak International had done nothing to either renovate the Factories or install the Diamond Equipment.

[19] Mr. Kumar informed Mr. Hall that the Diamond Equipment was still in the shipping containers, which were in an unsecured field across the street from the Factories. Mr. Hall asked Mr. Kumar to open the containers. Mr. Kumar repeated that he was unable to do so because of the terms of the warranty agreement with the manufacturer, which he was unable to produce at that time. Mr. Hall accepted this and did not inspect the Diamond Equipment.

[20] By demand letters dated April 9, 2015, the Plaintiff: (a) Demanded payment of all amounts owing from Deepak International;

Page 6 (b) Also demanded payment from the Corporate Guarantor, Deepak Development, as well as Mr. Kumar and Mrs. Ragani Kumar personally, and;

(c) Delivered notice to both corporate Defendants of its intention to enforce on the security.

[21] The Defendants and the Plaintiff entered into a forbearance agreement on April 29, 2015. The Plaintiff conditionally agreed not to enforce its security. This was done to allow Deepak International sufficient time to arrange for alternate financing.

[22] Deepak International was unable to provide proof of insurance for the Diamond Equipment. The Plaintiff retained private security at a cost of $ 1,000.00 a day.

[23] The forbearance agreement expired on May 29, 2015, with all amounts still outstanding. The parties entered into an amendment of the forbearance agreement, again on terms and conditions, again to allow Deepak International more time to arrange financing. During the time this amendment was in force, to July 31, 2015, Deepak International did not provide customary details regarding the proposed refinancing, failed to allow an inspection of the Diamond Equipment and failed to arrange for an agent of the manufacturer to attend in Yellowknife to allow an inspection to take place.

[24] The parties entered into a second amendment to the forbearance agreement on July 31, 2015. Again, this was done for the purpose of allowing additional time to arrange refinancing, and again it was on terms and conditions. This time, however, a covenant was included which required Deepak International to arrange, before August 28, 2015, for a representative of the manufacturer to travel to Yellowknife to allow an inspection of the Diamond Equipment.

[25] These arrangements were represented as having been made and ultimately cancelled because of complications relating to rioting in India. The second amendment expired. After the expiry, until September 21, 2015, the Plaintiff continued to try to work with Deepak International to allow for an inspection of the Diamond Equipment and refinancing, neither of which took place.

Page 7 [26] On September 21, 2015, the Plaintiff appointed The Bowra Group Inc. as Receiver under the terms of the security. The Receiver was instructed to attend in Yellowknife for the purpose of inspecting the Diamond Equipment.

[27] On September 27, 2015, Mr. Kumar provided the Plaintiff with the warranty in question. This was the first time, despite repeated requests, that this document had been provided and this was the day before the planned opening of the containers.

[28] On September 28, 2015, the Receiver, accompanied by Mr. Hall, opened the containers. They were full of junk completely unrelated to the business of polishing diamonds. The Plaintiff was later advised by the Government of the Northwest Territories that the containers did not belong to Deepak International and had been left behind by the previous tenants of the Factories.

[29] As of the date of this hearing, Deepak International has failed to either produce or disclose the whereabouts of the Diamond Equipment. None of the Defendants has made any payments against the amounts owing to the Plaintiff.

THE POSITION OF THE DEFENDANTS AND ANALYSIS [30] In the first Statement of Defence, filed February 11, 2016, the Defendants denied all of the allegations in the Statement of Claim. The only argument advanced was one of jurisdiction; in which the Defendants claimed that the proper jurisdiction for this action was Alberta and that it was not properly before the court in the Northwest Territories. I ruled on this application on April 22, 2016 and that ruling is my decision. It is worth noting for these purposes, however, that I found the argument on jurisdiction to be without merit. While the agreements between the parties provided for the laws of Alberta to apply, they also provided the Plaintiff with the right to seek recovery in whatever court they chose. The proposed business in question as well as most of the collateral, real or otherwise, was in the Northwest Territories. The balance of convenience clearly favoured an action in the Northwest Territories, and I am of the view that the only reason to seek otherwise was to unnecessarily prolong these proceedings.

[31] The Defendants do not deny that they entered into both the loan agreements and the forbearance agreements. They concede that they were advanced $ 2,116,750.00, that the interest rates agreed upon are as described by the plaintiff,

Page 8 and that the mechanisms for recovery of other costs is also as described. They claim that they should not be held accountable for this indebtedness for a number of reasons.

[32] The first argument is that by only advancing roughly $ 2,000,000.00 instead of the full $ 15,000,000.00 or $ 20,000,000.00 contemplated by the loan agreements, the Plaintiff made it impossible for the Defendant to take the necessary steps to succeed. This is, with respect, a ridiculous argument. Deepak International does not deny that the diamond equipment was part of the collateral for the loan. They do not deny that Callidus was not allowed to verify this collateral. Without this verification it would have been madness for Callidus to continue providing ever greater funds. If Deepak International ever wanted the funds all they had to do was produce the Diamond Equipment. The Defendants are essentially saying that they should not be responsible for the debt they incurred because they were not allowed to become vastly more indebted.

[33] The second argument is contained in the counterclaim. Deepak International claims that there should be offset against funds they lost because of Callidus failure to open a so-called blocked account in a timely manner. The claim is that a considerable amount of money was lost because Deepak International could not carry on business while they waited for this to occur. While it is not to be expected that all evidence that could possibly be provided at trial be made available on an application for summary judgment, a respondent is expected to provide sufficient evidence for the court to make a decision. Other than a bald assertion that losses were incurred because of this delay, there is no evidence. What funds? From which customers? For what? There is also no evidence that Deepak International was anxious that this account be created, other than an initial request. It makes no sense that Deepak International would either sit on accounts receivable while they mutely waited for Callidus to open the blocked account, or not simply tell Callidus why they needed the account opened quickly. I find that this claim has no merit.

[34] Mr. Kumar claims that a number of problems arose because of the nature of the legal advice he received while trying to deal with issues with his credit. It came to his attention that both, Callidus and the Defendants, were represented by lawyers from the same large national law firm, although from different offices. The lawyers were never joined in this proceeding and were never examined. We have no way of knowing if there was in fact a waiver. Mr. Kumar asks the court to accept that the Defendants would never have signed the forbearance agreements if they had been properly represented and advised. It was clearly submitted to the court that the lawyer who advised Deepak International was acting as an agent for

Page 9 Callidus, presumably through the other lawyer from the same firm who formally acted for Callidus. This allegation is disturbing and, were it not nonsensical, could well be seen as slanderous. The signing of the two forbearance agreements was clearly in Deepak International’s interest. Mr. Kumar asserts throughout his affidavits and through counsel that Deepak International was and is desperately looking for alternate lenders. Filing for bankruptcy protection, which is logically the only other option than the forbearance agreements, would clearly not help this search.

[35] If the defendants have an issue with the quality of the legal advice they received, that is between them and their lawyers and has nothing to do with Callidus. To suggest that anything more untoward occurred than a minor failure of a conflict checking system invites the court to make progressively more ugly speculations. First, it is inconceivable that two well-respected lawyers would risk their careers over something as innocuous as these forbearance agreements. Second, the suggestion that Callidus was in some way directing these lawyers in their nefarious dealing takes us to another level of paranoia altogether. There is absolutely no merit to this position and I reject it in the strongest possible way.

[36] This issue leads to the overarching position of the Defendants that the Plaintiff breached their good-faith obligations to the Defendants. There is absolutely no evidence, beyond bald assertions and incredible accusations that the Plaintiff engaged in anything other than the ordinary conduct of business with the Defendants. There is nothing between Callidus and the Defendants that would lead me to conclude that there was a fiduciary relationship, or to indicate anything like bad faith.

[37] It was suggested during submissions by counsel for Deepak International that the court ought not to find that the Diamond Equipment was never in fact in the shipping containers. There is no question raised in the evidence that the shipping containers opened for inspection were not the shipping containers originally indicated by Mr. Kumar to contain the Diamond Equipment. Upon the containers being opened and inspected, there was nothing found in the containers that would remotely indicate that expensive and delicate equipment had ever been in them. Faced with this extremely prejudicial and pivotal circumstance, the best that Mr. Kumar can do is the following, from paragraph nine of his second affidavit:

Page 10 “I made no misrepresentations regarding the acquisition, existence, or whereabouts of the diamond equipment to the plaintiff.”

If the diamond equipment had existed it would have been no great task for Mr. Kumar to verify this, even if there were supposedly legitimate concerns about revealing this to the Plaintiff at this late stage in the proceedings. The Court has been provided with nothing.

[38] It would be very easy to conclude that there never was Diamond Equipment in those containers. This finding has little bearing on the issue of indebtedness generally speaking or on the success of this motion for summary judgment. It does, however, potentially impact on two aspects of the relief sought by the plaintiffs; whether this indebtedness should survive the filing for bankruptcy and on the issue of costs. I must bear in mind that this was an Application for Summary Judgment, not a trial. It would not be fair for me to make findings beyond what is necessary to decide this application. This was not a civil fraud trial and the Defendants were not defending an action for fraud. Even if I made a firm finding that the Diamond Equipment was never in the containers, it would be quite another thing to make a finding that the equipment never existed at all, or was never in the possession of Mr. Kumar. While I do find that Mr. Kumar was less than entirely honest in his dealings with the Plaintiff, I simply do not have enough evidence to make a finding of fraudulent misrepresentation or false pretenses.

APPLICABLE LAW [39] The leading case on the test to be applied on an Application for Summary Judgment is Hryniak v Mauldin, 2014 SCC 7. On appeal from Ontario Court of Appeal, the Supreme Court of Canada moved away from the “full appreciation” test as the appropriate test to determine if there is a genuine issue for trial that cannot be dealt with by way of summary judgment. The prior test, which stated the following: “can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?”(para. 53), was rejected. In its place, Karakatsanis J. wrote:

[56] While I agree that a motion judge must have an appreciation of the evidence necessary to make dispositive findings, such an appreciation is not only available at trial. Focusing on how much and what kind of evidence could be adduced at a trial, as opposed to whether a trial is "requir[ed]" as

Page 11 the Rule directs, is likely to lead to the bar being set too high. The interest of justice cannot be limited to the advantageous features of a conventional trial, and must account for proportionality, timeliness and affordability. Otherwise, the adjudication permitted with the new powers — and the purpose of the amendments — would be frustrated.

[40] In the same decision, the Court provided guidance in the interpretation of the words “genuine issue requiring a trial”:

[49] 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.

[41] While the issue on appeal in Hryniak related to the Ontario Rules, the direction given has been held to apply to Applications for Summary Judgment generally. Hryniak was recently considered and followed by Shaner J. of this Court in Leishman v Hoechsman et al., 2016 NWTSC 27, and I can do no better than to adopt the following reasons therein:

[39] Following the Supreme Court of Canada’s decision in Hryniak v Mauldin … , there has been a movement away from such a strict approach in recognition that a full-blown trial is not always necessary to ensure claims are adjudicated fairly. Indeed, Karakatsanis, J., suggested (at para 24) that in some cases, requiring a trial may actually impede access to justice by burdening litigants with disproportionately high costs, as well as increasing unnecessarily the time required for legal resolution of a claim. Summary judgment rules "must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims." (Hyrniak, at para 5).

[40] Taking the approach set out in Hryniak, the question is not whether there is a genuine issue for trial but rather, whether there is a genuine issue requiring trial - and tools such as cross-examination available in the trial process - to allow a court to reach a fair and just result.

[42] Although Karakatsanis J. rendered her judgment in the context of an appeal from a summary judgment order made under Rule 20 of the Ontario Rules of Civil Procedure, RRO 1990, Reg 194, the rationale she articulated for the modern approach is equally applicable to applicants in the Northwest Territories. Like Ontario's Rule 20, Rules 175 and 176 of the Rules of the Supreme Court of the Northwest Territories are ultimately intended to allow the Court, in appropriate cases, to assess claims fairly and efficiently based

Page 12 on a record, rather than a formal trial. Thus, the test should be the same. The question for the Court in determining if a summary judgment application is appropriate whether there is a genuine issue which requires a trial for fair and just resolution, rather than whether there is a triable issue.