Appeal court adjusts remedy in case alleging fraud relating to a construction contract
The Ontario Court of Appeal has upheld a trial judge’s findings of liability for fraudulent misrepresentation and unconscionability in a matter involving a mortgage and construction contract but saw errors in the remedies she imposed.
In McKenzie-Barnswell v. Xpert Credit Control Solutions Inc., 2025 ONCA 253, the appellant S. Joshi was the director of a private mortgage lender, the appellant Xpert Credit Control Solutions. The respondent had previously borrowed money from Joshi’s company.
Joshi encouraged the respondent to enter mortgages with Xpert Credit, which were later consolidated into a single mortgage. He also urged her to enter a construction contract for home renovations with the appellant Right Choice Builders Inc., a fictitious company which he represented as one of his companies, with Xpert Credit managing the construction.
The work remained incomplete after issues plagued the construction. The respondent filed an action asking the court to set aside the mortgage and construction contract for being null and void based on fraudulent misrepresentation.
She alleged that Joshi took advantage of their friendship and her lack of sophistication, misrepresented that he was director of Right Choice, a fictitious company that was unregistered and unincorporated, and induced her through fraudulent misrepresentation to enter usurious transactions.
The appellants denied wrongdoing and filed an action to enforce the mortgage’s terms. They accepted that Right Choice was a fictitious company. However, they argued that its fictitious nature was not a material fact and did not induce the respondent to enter the contract. They also claimed the respondent was sophisticated, understood mortgages and contracts, and knew she was dealing with Joshi regardless of whether a company was involved.
The trial judge ruled for the respondent. She set aside the construction contract for being null and void and set aside the final mortgage worth $1,260,000, with annual interest of 9.99 percent, for a total of $1,355,280.33.
The judge ordered the appellants to pay $153,000 with HST as damages for contractual breach and negligence in the contractual performance. She also directed the appellants to pay $250,000 into a trust account to ensure the availability of funds to complete and remedy the construction work.
The judge made the following findings:
The appellants challenged the judge’s liability findings and remedy.
The Court of Appeal for Ontario saw no error in the trial judge’s conclusions regarding liability for fraudulent misrepresentation and unconscionability.
The appeal court ruled that the trial judge was entitled to find that Joshi exploited their friendship and her lack of sophistication in financial matters and fraudulently induced the respondent to enter the construction contract for his own benefit and that unconscionability tainted some of the mortgage transactions.
The appeal court refused to interfere with the judge’s finding of unconscionability in the August 2016 and March 2017 mortgage transactions. The appeal court noted that the judge’s factual findings showed that the case met the conditions of unequal bargaining power and improvidence.
Despite seeing no flaws in the liability findings, the appeal court saw errors in the remedies imposed by the trial judge. Regarding the construction contract, the appeal court affirmed the damages award of $153,000 plus HST but set aside the order requiring the payment of $250,000 into trust.
As for the mortgage, the appeal court set aside the judge’s order invalidating the entire mortgage and instead reduced the amount the respondent owed to Xpert Credit.
The appeal court determined that the respondent owed the outstanding amount of $319,000, which represented the $472,000 that the respondent legitimately owed to Xpert Credit less the $153,000 that the appellants owed for damages.
In reaching this conclusion, the appeal court noted that:
