In McKenzie-Barnswell v Xpert Credit Control Solutions Inc., 2025 ONCA 253("McKenzie"), Sam Joshi ("S.J" or the "Appellant"), a director of a private mortgage lender, Xpert Credit Control Solutions ("Xpert Credit") loaned money over several years to Sheila McKenzie-Barnswell (the "Respondent") via a series of private mortgages. During the same time period, the Respondent, at the advice of the Appellant, also entered into a construction contract for home renovations with another one of the Appellant's companies, Right Choice Builders Inc. ("Right Choice"), with construction to be managed by Xpert Credit and the cost of construction to be added to the mortgage debt.
Ultimately, the work and construction were left incomplete forcing Ms. McKenzie-Barnswell to bring an action to seek a declaration that the mortgage and construction contract be nullified and voided due to allegations of fraud and other wrongdoings.
The Appellant's argument was that even if Right Choice was a fictitious company, it was not inducing the Respondent to enter into the contract. The Appellant further argued that the Respondent wilfully and consciously got involved with the Appellant in the mortgages and contracts.
The Respondent took the position that the Appellant took advantage of her unsophisticated position and lack of knowledge of mortgages and contracts. This lack of knowledge and sophistication was used against her by the Appellant, with the use of his fictitious company, to ultimately induce her to enter into the construction contract. Ultimately, the trial judge found in favour of Ms. McKenzie-Barnswell that the fraudulent misrepresentation invalidated the construction contract.
The Trial Judge ruled:
- the Appellant was negligent in the management of the construction contract;
- the Appellant breached the construction contract;
- the Appellant made a fraudulent misrepresentation that induced the Respondent to enter into the construction contract;
- the Appellant committed the tort of deceit, as the Appellant omitted that Right Choice was a fictitious company; and
- the Appellant had exploited his friendship with the Respondent, and her lack of sophistication in financial matters, to take advantage and benefit himself, making the construction contract and the entire mortgage debts unconscionable and thus be set aside on those basis.
The Court of Appeal affirmed the trial judge's finding of fraudulent misrepresentation and unconscionability. However, the Court of Appeal confirmed that the Respondent is only entitled to fulfilment of the construction contacts that are related to the fraudulent misrepresentation, not on the whole mortgage, resulting in that the Respondent was still required to repay the mortgage component of the loans advanced.
The fact pattern in McKenzie raises many red flags which likely would have been avoided if a skilled legal professional were consulted prior to finalizing the construction contract for home renovations. If the Respondent had consulted with a lawyer, counsel would have completed searches against the companies involved in the transaction and would have identified Right Choice as a fictitious company. In the case at hand, the Appellant posed as the Respondent's trusted financial advisor and convinced the Respondent to make a deal without highlighting to the Respondent that independent legal counsel should be retained.
Retaining professional advisors is important for sereral reasons. A qualified legal professional would review the proposed construction contract to ensure that the responsibilities of each party are clearly delineated, funds are advanced at specific intervals as construction targets are met, independent parties are retained to verify targets are complete, a mechanism is in place to verify that advanced funds are utilized toward the property's construction and that liability is appropriately attributed. A professional advisor would complete due diligence searches and review the agreement with the represented party to ensure that the agreement captures the entire proposal discussed and to ensure such party understands the contractual terms.
At SorbaraLAW, we provide professional legal services with experts that are qualified to assist property owners with drafting and negotiating construction agreements.
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