Lessons for lenders: Personal knowledge and addressing the evidentiary burden remains key

Introduction

It is common for a special loans officer of a secured lender to swear an Affidavit on behalf of their financing institution in connection with enforcement proceedings.  However, a recent Master’s decision, Meridian OneCap Credit Corp v Nikos Directional Inc, 2021 ABQB 362, from the Alberta Court of Queen’s Bench raises the question of what affidavit evidence and testimony is needed and can be relied on for an Application for Summary Judgment.

Background

The Plaintiff, Meridian OneCap Credit Corp., brought an Application for Summary Judgment which was heard by a Master in chambers.  The Application for Summary Judgment was with respect to two equipment leases (the “Leases”) alleged to be entered into between First Capital Leasing Ltd. as lessor (the “Lessor”), Nikos Directional Inc. (the “Company”) and Nicolae Neacsu (the “Individual”) as lessees.  By way of Affidavit evidence submitted by the secured lender (the “Plaintiff”), it was submitted that the Leases were assigned to the Plaintiff by the original Lessor.  The Leases exhibited to the Plaintiff’s Affidavit contained the signatures of the Individual both on behalf of the Company and in his personal capacity.

The defence raised by the Company and the Individual was described by the Court as a “kitchen sink” style defence.  However, it was commented by the Master that the only real defence was that only the Company was liable under the terms of the Leases and not the Individual.  In an Affidavit submitted by the Individual, it was sworn that:

…

At the time of signing for both leases neither the Plaintiff nor First Capital Leasing advised that I would be personal [sic] liable for any amounts owing on the First Lease and/or Second Lease.

The copies of the First Lease provided by the Plaintiff in Exhibit A from the Affidavit of Daryl Sherwood, appear to be different from the copy that is my possession. The copy of the First Lease in my possession [marked as Exhibit A] is only signed on behalf of NIKOS DIRECTIONAL and not myself personally.

…

In addition to the above statements, the Individual included as an Exhibit to his Affidavit a copy of a “Confirmation of Lease Agreement” dated March 2018 which appeared to show the Company as the sole lessee, as well as a copy of the Lease for one of the pieces of equipment showing the Company as the sole signatory.  The Master pointed out the inconsistency in the documents submitted by the parties.

Decision of the Court

The question to be considered by the Court was whether or not the Individual was also liable under the Leases.

In reaching a determination, the main issue flagged by the Court was the sufficiency of the Plaintiff’s evidence submitted by its employee.  The Master summarized the evidence of the Plaintiff’s employee, including the cross-examination on his Affidavit, as follows:

• The witness was not involved with the Leases prior to default;
• The witness acknowledged that the Lessor was an unrelated company that assigned the Leases to the Plaintiff, but did not provide any particulars of the assignment;
• It was not clear whether the assignment was in writing, or how the witness had personal knowledge of the assignment;
• The witness did not have any idea as to who signed the underlying Leases;
• The witness was not able to identify whose signature was on the “Confirmation of Lease” or the circumstances leading up to this document being executed; and
• The witness was not able to provide an explanation as to why there may be two copies of the Leases.

Another issue was whether the second leased chattel had been delivered up to the auctioneer in the seizure process.  The witness said the chattel had not been delivered up.  However this was based on hearsay evidence from the auctioneer.

As this was an application for summary judgment which “may dispose of all or part of a claim”, affidavit evidence in support of such an application “must be sworn on the basis of the personal knowledge of the person swearing the affidavit”; see Rule 13.18(3), Alberta Rules of Court, Alta Reg. 124/2010.

The Master concluded that the Plaintiff’s witness did not prove any of the central points in issue and that the witness did not have any first-hand or personal knowledge of any of the events or the Leases in question.  It was stated that “[t]here is nothing that would assure the Court that this witness’s evidence is fit and proper to bind the corporate plaintiff.”  Furthermore, the Master found there to be no evidence of any kind that would permit the documents submitted by the Plaintiff to be received as business records.

The Court dismissed the Plaintiff’s Application for Summary Judgment.  Although it was conceded by the Master that, based on the admissions contained in the Statement of Defence and the Individual’s Affidavit, the Court would have been willing to give judgment against the Company.  However, the unresolved issue about the delivery of a piece of equipment subject to one of the Leases prevented the Master from doing so.

Takeaway

The decision raises certain issues and hurdles for lenders seeking to enforce their rights under their loan agreements through summary judgment.  Particularly when the employees of those lenders providing affidavit evidence were not involved at all relevant times in connection with the transactions in question.

Practically speaking, it may not always be possible for a lender to put forward affidavit evidence of each individual employee who was involved, nor can a single employee have all of the particulars surrounding the transaction.  However, lenders and their employees can take the following steps to mitigate any evidentiary issues they may be faced with in any proceedings before the Court:

a) If an agreement has been assigned, have the deponent review the terms of any such assignment, whether it is contained in the contract or a separate agreement. Have the deponent familiarize themselves with the standard protocol of the lender’s assignment process.  For example, are agreements customarily assigned upon execution, if not, when does an assignment take place?  What records are ordinarily maintained by the lender to document the assignment?;

b) Ensure your organization has comprehensive account record-keeping protocols that include tracking all employees who have had carriage of an account from its inception. This will assist deponents in informing themselves as to the history of the account and advising the Court how their information is derived;

c) Prior to an account being transferred to special loans or collections, the employee(s) involved in the initiation and management of the account should compile all relevant and material correspondence with the customer and provide the same to special loans or collections;

d) Prior to swearing an affidavit, deponents should review the entirety of a file from its inception, including any correspondence from the outset of the transaction;

e) Given this recent case, in circumstances where there are issues raised pertaining to the creation of an agreement, it may become necessary to have sales representatives or other employees involved in the initiation of an agreement to tender evidence. They would likely be in the best position to provide personal knowledge of the matters at issue on behalf of the secured lender.

At this time we are currently not aware if the Master’s decision has been appealed but will continue to monitor the matter.