Court File and Parties
CITATION: Chahine Badr v. 2305136 Ontario Inc., 2016 ONSC 5039
DIVISIONAL COURT FILE NO.: 422/15
DATE: 20160916
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
M. Dambrot, R. J. Smith, and C. Horkins J.J.
BETWEEN:
Antoine Chahine Badr, Antoine Chahine Badr o/a Myant Consulting, Myant Consulting Inc. and B.O.T. International Ltd.
Applicants
(Respondents in Appeal)
– and –
2305136 Ontario Inc., Vikeda International Logistics and Automotive Supply Ltd., Vikeda Industries Inc., Vikeda Ventures Ltd., Vikeda Enterprises Ltd., 2208824 Ontario Inc., G.L.A.D. Operations Inc., G.L.A.D. International Inc., Vincent Wong, Ken Wong, Danny Wong, Alex Kua and Kenneth King Yu Chan
Respondents
(Appellants in Appeal)
Counsel:
Christopher Stanek and Shawn Therien, for the Applicants (Respondents in Appeal)
Scott A Rosen, for the Respondents (Appellants in Appeal)
HEARD: May 26, 2016 (Toronto)
REASONS FOR Decision
R. J. SMITH J.:
[1] The appellants 2305136 Ontario Inc (“2305”) and Vincent Wong (“Mr. Wong”) appeal from the decision of Penny J. dated July 6, 2015 where he found that Antoine Chahine Badr (“Mr. Chahine”) and Mr. Wong verbally agreed that Mr. Chahine was a 50% beneficial shareholder in 2305 and was entitled to a shareholder loan valued at $2.8 million in return for his assistance in restructuring the respondent, Vikeda International Logistics and Automotive Supply Ltd. (“VIL”).
[2] The trial judge accepted Mr. Chahine’s evidence that he and Mr. Wong made the above described oral agreement. He also rejected Mr. Wong’s evidence that they never reached an agreement on the exact terms under which Mr. Chahine would become a shareholder in 2305 or on the amount owing to Mr. Chahine for his services in assisting Vikeda International Logistics and Automotive Supply Ltd. (“VIL”) to resolve its financial difficulties. He found that Mr. Wong was not a credible witness and he found that Mr. Chahine was credible as his evidence was consistent throughout.
[3] The appellants submit that the trial judge made palpable and overriding errors of fact when he:
(a) Found that Mr. Chahine and Mr. Wong agreed that Mr. Chahine was a 50% beneficial shareholder in 2305, and that he was owed $2.8 million by 2305 as a shareholder loan;
(b) Dismissed 2305’s counter-application seeking repayment of the loans it made to Mr. Chahine; and
(c) Granted an oppression remedy under s. 248 of the OBCA when Mr. Chahine was never an actual shareholder in 2305.
[4] The respondents submit that the trial judge made findings of fact based on his negative credibility assessment of Mr. Wong and a positive credibility assessment of Mr. Chahine. They submit that the evidence supports the trial judge’s findings of credibility and his findings of fact, and as a result, he made no error let alone a palpable and overriding error in his findings of fact.
Issues
[5] The following issues must be decided on this appeal:
Did the trial judge make a palpable and overriding error of fact when he found that Mr. Chahine and Mr. Wong made an oral agreement that Mr. Chahine was a 50% beneficial shareholder in 2305 and was entitled to a shareholder loan of $2.8 million?
Did the trial judge err in principle or were any of the following remedies granted under s. 248 of the OBCA unjust:
(a) Awarding Mr. Chahine 50% of the shares of 2305?
(b) Finding that Mr. Chahine was entitled to receive a shareholder loan of $2.8 million from 2305 in the absence of evidence that he had contributed that amount of capital to 2305?
(c) Not finding that Mr. Wong was also entitled to a shareholder loan of $3.5 million from 2305?
(d) Finding that the invoice for $3,500,000, prepared by Mr. Chahine and sent to Mr. Wong and VIL in December 2011, was evidence corroborating their agreement that he was entitled to receive a shareholder’s loan in this amount from 2305?
(e) Granting Mr. Chahine 50% of the shares of 2305 and a $2.8 million shareholder loan because this exceeded Mr. Chahine’s reasonable expectations?
(f) Granting the above remedies to Mr. Chahine when the Court should not condone the conduct of Mr. Wong and Mr. Chahine of splitting money that was rightfully owed to VIL’s creditors?
Issue #1 – Did the trial judge make a palpable and overriding error of fact when he found that Mr. Chahine and Mr. Wong made an oral agreement that Mr. Chahine was a 50% beneficial shareholder in 2305 and was entitled to a shareholder loan of $2.8 million from 2305?
Standard of Review of Findings of Fact
[6] In Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 25, the Supreme Court stated that with regard to the standard to be applied on appeal of findings of fact, “palpable and overriding error” was the correct standard. It stated as follows:
It is our view that the trial judge enjoys numerous advantages over appellate judges which bear on all conclusions of fact, and, even in the absence of these advantages, there are other compelling policy reasons supporting a deferential approach to inferences of fact. We conclude, therefore, by emphasizing that there is one, and only one, standard of review applicable to all factual conclusions made by the trial judge -- that of palpable and overriding error.
[7] In Waxman v. Waxman, 2004 39040 (ON CA), [2004] O.J. No. 1765 (C.A.) at paras. 296-297, the court defined the meaning of a palpable and overriding error and stated as follows:
296 The "palpable and overriding" standard addresses both the nature of the factual error and its impact on the result. A "palpable" error is one that is obvious, plain to see or clear: Housen at 246. Examples of "palpable" factual errors include findings made in the complete absence of evidence, findings made in conflict with accepted evidence, findings based on a misapprehension of evidence and findings of fact drawn from primary facts that are the result of speculation rather than inference.
297 An "overriding" error is an error that is sufficiently significant to vitiate the challenged finding of fact. Where the challenged finding of fact is based on a constellation of findings, the conclusion that one or more of those findings is founded on a "palpable" error does not automatically mean that the error is also "overriding". The appellant must demonstrate that the error goes to the root of the challenged finding of fact such that the fact cannot safely stand in the face of that error: Schwartz v. Canada, 1996 217 (SCC), [1996] 1 S.C.R. 254 at 281.
Factual background
[8] In August of 2011, Mr. Wong sought and obtained Mr. Chahine’s help when his company, VIL, encountered financial difficulties. Until January 2012, VIL carried on two businesses. In the first business, it purchased and resold blow molded and other auto parts to Chrysler Group LLC (“Chrysler”) and other auto parts suppliers. Secondly, it acted as a third party logistics supplier and freight forwarder of Chinese manufactured auto parts on a cost plus, fee for service basis (the “Logistics business”).
[9] The trial judge found that the facts were largely uncontested, except for the terms of the agreement between Mr. Wong and Mr. Chahine. The uncontested background facts are set out in paras. 5-26 of the trial judge’s reasons as follows:
[5] Mr. Chahine and Mr. Wong are businessmen. Both were, over a decade ago, engaged in the garment industry.
[6] Mr. Chahine has a background in realizing on distressed assets. He has personally been through bankruptcy. Mr. Wong was importing clothing manufactured in China.
[7] Mr. Chahine and Mr. Wong met over a decade ago when Mr. Chahine was involved in the acquisition of the assets of Cotton Ginny. Mr. Wong’s company supplied merchandise to Cotton Ginny. Mr. Chahine’s Cotton Ginny venture failed. Mr. Wong, as a result, lost about $450,000 on supplied merchandise for which he was not paid.
[8] Mr. Chahine and Mr. Wong, nevertheless, became and remained, close friends.
[9] In August 2011, Mr. Wong sought help from Mr. Chahine. Mr. Wong’s company, VIL, was an authorized auto parts supplier to Chrysler. VIL had entered into auto parts supply contracts with Chinese manufacturers under which VIL was systemically losing money – the amounts being paid by Chrysler for auto parts was less than it cost VIL to have those parts manufactured by suppliers in China.
[10] At this time, about $13 million was owed by VIL to its Chinese suppliers. Only $5 million was owed to VIL by VIL’s customers. VIL’s default in payment to its Chinese suppliers was also a breach of its supply contract with Chrysler, entitling Chrysler to sue VIL and take over VIL’s operations. VIL was in a severe financial crisis, apparently insolvent and without options.
[11] The evidence at trial was that Mr. Wong was, in addition to being anxious and despondent as a result of the VIL’s financial difficulties, quite sick, having been diagnosed with cancer.
[12] Mr. Chahine and Mr. Page (a licensed trustee in bankruptcy who became involved in the VIL restructuring at Mr. Chahine’s suggestion) both testified that Mr. Wong was desperate in August/September 2011. He was prepared to walk away from VIL but expressed the hope that he might recover at least a secured loan of $2.6 million which another Vikeda company, Vikeda Industries Inc. (“Industries”), had made to VIL in an effort to keep VIL operating during its financial troubles. Mr. Wong also wanted to avoid liability to Chrysler on personal guarantees.
[13] Mr. Wong asked Mr. Chahine for help. He said, in an e-mail to Mr. Chahine:
I have no experience in this sort of preventive manoeuver, can you think of any other areas I should prepare just in case of disaster? Thank you for your help and appreciate your confidentiality.
[14] Mr. Chahine developed a strategy, with the help of Mr. Page and a lawyer, Chris Reed, to protect Mr. Wong from liability to his vendors and Chrysler and to save as much of the $2.6 million secured loan as possible.
[15] In essence, Mr. Chahine became the face of, and was installed as, president and a director of 2305 on December 5, 2011. Ultimately, Industries assigned its security interest in VIL to 2305. Mr. Chahine used 2305’s security over the manufactured auto parts as leverage to negotiate continued supply from the Chinese manufacturers and better prices from Chrysler.
[16] Mr. Chahine traveled to China with Mr. Wong and met with the suppliers in the summer of 2011. In exchange for the suppliers’ forbearance on collecting on their receivables against VIL, Mr. Chahine promised that VIL would negotiate a better deal with Chrysler and pass along a portion of the additional proceeds to the Chinese suppliers.
[17] The meetings in China were tense and acrimonious. Nevertheless, the suppliers continued to supply VIL with auto parts, at least for a few more months.
[18] Upon their return, Mr. Chahine began negotiating with Chrysler. VIL’s situation continued to deteriorate, and, by October 2011, Chrysler was threatening litigation against Mr. Wong’s business. Chrysler was, however, concerned about the continuity of its auto parts supply and participated in negotiations to resolve the problem.
[19] In November, Chrysler paid almost $1 million on account of a discovered past underpayment. Chrysler, however, had still not agreed to any further price concessions. As a result, Mr. Chahine caused 2305 to begin enforcement of its security over VIL’s auto parts inventory stored in Detroit and other auto parts en route to Chrysler.
[20] Ultimately, Chrysler was only willing to negotiate a settlement if VIL and Mr. Wong ceased to be involved in further supply arrangements with Chrysler. A contract between VIL, 2305 and Chrysler, called the Accommodation Agreement, was concluded on December 7, 2011.
[21] Chrysler agreed to pay an escrow agent, which was Mr. Page’s firm, Schwartz, Levitsky Feldman Inc., all amounts owing to VIL and to purchase all of VIL’s inventory at a certain agreed price. Chrysler also agreed to release VIL from its supply agreement with Chrysler and to refrain from asserting any defences, rights or claims for any deduction form its obligations under the Accommodation Agreement or from bringing any insolvency or injunctive proceedings provided VIL and 2305 fulfilled their obligations.
[22] Of some importance is the fact that there were two Chinese suppliers to VIL’s auto parts manufacturing business, BFT and Depo. Mr. Chahine testified that, in an effort to protect VIL from claims by these suppliers, he also negotiated a $6 million payment by Chrysler to BFT on account of what was owed to BFT by VIL.
[23] James Zhao, who was employed by BFT in 2011 and who met with Mr. Chahine in China in the summer of 2011, testified at trial. Mr Zhao testified that Mr. Chahine’s negotiations with Chrysler led to a $6 million payment directly to BFT. This payment, Mr. Zhao said, “saved the company.” BFT has never sued or taken other proceedings against VIL in connection with any accounts owed.
[24] Depo, by contrast, did institute international arbitration proceedings against VIL in China. Depo obtained an arbitral award of damages. Depo’s application to enforce this award in Ontario, in the amount of about CDN $11 million, was granted by Chiappetta J. on February 18, 2015.
[25] In any event, as of December 7, 2011, VIL (sic – “2305”) had recovered:
• $1 million for a past Chrysler underpayment
• $1.3 million from Chrysler and other customers for ongoing accounts, and
• $3.2 million under the Accommodation Agreement.
2305 also had security over an additional line of VIL’s business, auto parts logistics, which had accounts receivable of about $3.3 million and over $1.3 million which Mr. Wong had previously sent offshore in hopes of preserving these funds from creditors in the event of VIL’s collapse. All of these amounts taken together totaled about $10 million and significantly exceeded the $2.6 million secured loan Mr. Wong had hoped to retain out of the VIL disaster.
[26] Although Mr. Wong takes some exception with the centrality of the role played by Mr. Chahine in achieving this result, these facts are largely uncontested. One of his own witnesses called at trial, the lawyer Chris Reed who acted for VIL in the Chrysler negotiations, testified that Mr. Chahine “did most of the negotiations with Chrysler.” To the extent there was any controversy, I find the facts, as outlined above, to be proved.
[10] At para. 25 of his decision, the trial judge must have intended to write 2305 instead of VIL when he wrote: “In any event, as of December 7, 2011, VIL had recovered…” VIL had granted a security interest to VIL Industries (“Industries”) for the $2.6 million loan it had made to VIL. Industries assigned its security interest to 2305 and then 2305 proceeded to act on the security interest to negotiate with Chrysler and VIL’s creditor and to recover the monies referred to in para 25 of the trial judge’s decision.
Factual Finding of The Agreement Between Mr. Wong and Mr. Chahine
[11] In finding that there was an agreement between Mr. Wong and Mr. Chahine, the trial judge applied the correct principles for the formation of a contract. He quoted from Professor Waddams as follows:
The principal function of the law of contract is to protect reasonable expectations engendered by promises. It follows that the law is not so much concerned to carry out the will of the promisor as to protect the expectation of the promisee. This is not, however, to say that the will of the promisor is irrelevant. Every definition of contract, whether based on agreement or promise, includes a consensual element. But the test of whether a promise is made, or whether assent is manifested to a bargain, does not and should not depend on an inquiry into the actual state of mind of the promisor, but on how the promisor’s conduct would strike a reasonable person in the position of the promisee.
[12] The appellant submits that the trial judge erred in finding that Mr. Wong and Mr. Chahine were ad idem on the terms of the agreement as alleged by Mr. Chahine. Mr. Wong submits that they never agreed that Mr. Chahine would be a 50% shareholder in 2305 and they never agreed that he would be entitled to receive a shareholder loan of $2.8 million from 2305. Mr. Wong also argued that Mr. Chahine did not give any consideration to 2305 that entitled him to receive 50% of the shares in 2305 and to receive the shareholders’ loan of $2.8 million.
[13] At paras. 27-91, the trial judge reviewed the evidence related to the agreement entered into between Mr. Wong and Mr. Chahine. The trial judge considered the evidence of various meetings and email correspondence between Mr. Chahine and Mr. Wong and found that Mr. Chahine had invested hundreds of hours helping Mr. Wong with the restructuring of VIL. He found that there was never any discussion of compensation for Mr. Chahine until it appeared that Mr. Wong was going to get more out of the deal than the amount of Industries’ secured loan to VIL of $2.6 million. Once the accommodation agreement with Chrysler was concluded, it became apparent that the restructuring would generate about $10 million for 2305 and leave the Chinese suppliers with claims against an insolvent VIL. VIL would cease to carry on both its auto parts manufacturing and logistics business. The logistics business would be carried on by the new entity called Global Logistics which was now owned and operated by 2305.
[14] At para. 30 of his decision, the trial judge accepted Mr. Chahine’s evidence that, at the December 10, 2011meeting, he and Mr. Wong agreed that from the anticipated $10 million that would be received by 2305, Mr. Wong would be repaid the secured loan of $2.6 million made by Industries to VIL and he would be paid approximately $450,000 that he had lost with Cotton Ginny. These two amounts were rounded to $3.0 million as a priority payment to Mr. Wong. This left approximately $7.0 million of “windfall” funds received by 2305 beyond what Mr. Wong had hoped to receive after the restructuring.
[15] At para. 31 of the decision, the trial judge found that Mr. Chahine and Mr. Wong agreed that they would split the $7.0 million fifty-fifty, such that Mr. Chahine would receive $3.5 million and Mr. Wong would also receive $3.5 million.
[16] The trial judge relied on various emails and also on a number of witnesses who testified that Mr. Wong referred to Mr. Chahine as his equal partner in 2305 on multiple occasions.
[17] Mr. Wong’s evidence was to the effect that they never went past the stage of talking about potential terms of a partnership. Mr. Wong’s central argument before the trial judge was that Mr. Chahine had never put any money into the 2305 business, which is why the $3.5 million invoice became very important evidence in the trial.
[18] The trial judge rejected Mr. Wong’s evidence that he and Mr. Chahine never got past the negotiation stage of an agreement and accepted Mr. Chahine’s evidence that they had reached an agreement that each of them would be entitled to receive shareholder loans of $3.5 million from 2305. Mr. Chahine’s shareholder loan was for the amount of $3.5 million less the amounts already paid to him by 2305 of $700,000, which left him with a shareholder loan of $2.8 million.
[19] Mr. Chahine’s evidence was accepted and found credible that, at a meeting he had with Mr. Wong on December 10, 2011, they agreed on how he was to be compensated for his assistance with the VIL restructuring. A summary of the trial judge’s reasons for finding Mr. Chahine to be credible were as follows:
(a) His evidence remained consistent throughout the legal proceedings whereas in contrast, Mr. Wong’s evidence had changed throughout the proceedings.
(b) The evidence supported a finding that approximately a $10 million windfall was received by 2305 and the parties did not dispute the fact that there was the sum of $2.6 million owing to the secured creditor, Industries, plus the approximate sum of $450,000 which Mr. Wong had lost in Cotton Ginny in a previous investment. That left a windfall of approximate $7.0 million which was received by 2305, half of which was to treated as a shareholder loan to each of Mr. Chahine and Mr. Wong.
(c) Mr. Chahine sent an invoice to Mr. Wong and VIL on December 19, 2011 for $3.5 million plus HST of $455,000 less the payments made to him of $239,500 for a total of $3,715,500. The evidence was uncontested that Mr. Wong never objected to this invoice until after this litigation was commenced.
(d) The trial judge accepted Mr. Chahine’s evidence that he and Mr. Wong agreed that he could leave his money (the $3.5 million), in 2305 as a shareholder loan and receive a half interest in 2305 as a shareholder, This evidence supports his conclusion about how the $3.5 million figure was arrived at.
(e) 2305 maintained a controlling interest in G.L.A.D. and Mr. Wong sent Mr. Chahine cash flow projections and monthly income statements for the logistics business. Mr. Chahine remained in place as the president and director of 2305 and continued to have signing authority over the bank account after the December 2011 agreement was made.
(f) The evidence supported the finding that Mr. Chahine represented G.L.A.D. in its negotiations with Hongtu over the logistics and distribution contract, and he was successful in the negotiations.
(g) Mr. Chahine was also the “face of ownership of G.L.A.D” in dealings with Chrysler. Mr Wong could not be seen to be involved in the dealings with Chrysler and as a result, Mr. Chahine was represented to be the owner of G.L.A.D. for the purpose of negotiations with Chrysler.
(h) By February 2012, Mr. Chahine and Mr. Wong agreed that the $3.5 million invoice less the $700,000 already paid would be recorded as a debt owed to Mr. Chahine by 2305 and both Mr. Chahine and Mr. Wong were to receive $10,000 per month from G.L.A.D. as a financing fee on their shareholder loans to 2305. Mr. Chahine received monthly $10,000 payments until Mr. Wong unilaterally terminated those payments in March 2013.
(i) The documentary and viva voce evidence supported the finding that Mr. Chahine and Mr. Wong represented themselves as partners to various third parties including Mr. Chahine’s business associates, an insurance broker, the lawyer and the trustee, Alan Page.
(j) Mr. Chahine and Mr. Wong sought “key man insurance” on their lives through Mr. Rabah and they sought equal amounts of insurance on their lives. The insurance agent testified that he understood that both Mr. Chahine and Mr. Wong had an equal stake in the Logistics business.
(k) The trial judge rejected Mr. Wong’s evidence that the $3.5 million invoice sent by Chahine in December of 2011 was part of an elaborate scheme proposed by Mr. Chahine to illegally claim the $455,000 as an HST credit. In cross-examination, Mr. Wong’s controller admitted that the above evidence was false and he gave this false evidence because Mr. Wong told him to do so. He testified that this would have been tax fraud and would have been contrary to his professional obligations. He admitted that what actually happened was that he had made a mistake by claiming $455,000 as the HST input tax credit when the tax credit should have only been claimed on the $700,000 actually paid to Mr. Chahine.
(l) Mr Wong’s silence when he received the invoice for $3.5 million from Mr. Chahine, which was exactly one half of the $7.0 million, was consistent with Mr. Chahine’s testimony. The lack of communication from Mr. Wong about this invoice adversely affected Mr. Wong’s credibility and corroborated Mr. Chahine’s evidence. The trial judge found that Mr. Wong made up this explanation during the litigation when it became clear that he had to explain why he never challenged the $3.5 million invoice sent to him by Mr. Chahine at that time.
Analysis
[20] The appellant has not identified any errors in the factual findings of the trial judge other than disagreeing with his finding that Mr. Wong and Mr. Chahine reached a verbal agreement. In fact, the evidence was largely uncontested with the exception of Mr. Wong’s evidence that he never made a specific agreement with Mr. Chahine.
[21] The evidence adduced at trial amply supported the trial judge’s finding that an agreement was made between Mr. Wong and Mr. Chahine on the specific terms he identified. In addition, the trial judge’s reasons for rejecting Mr. Wong’s evidence, finding him not credible, and finding that Mr. Chahine was credible, were also amply supported by the record. For example, Mr. Wong gave contradictory and unreliable evidence, which was contradicted by his own controller.
[22] The trial judge also applied the correct legal test for the formation of a contract, and reviewed the evidence in a detailed and careful manner. The appellant has not identified any error, let alone any palpable and overriding error in the trial judge’s finding of fact of that both parties were ad idem on the terms of the agreement.
Disposition of Issue #1
[23] For the above reasons, I find that the trial judge did not commit any palpable and overriding error in finding that there was an agreement between Mr. Wong and Mr. Chahine that Mr. Chahine was a 50% beneficial shareholder of 2305 and also was entitled to receive a shareholder loan of $2.8 million.
Issue #2 – Did the trial judge err in principle in granting remedies under s. 248 of the OBCA or were any of the remedies he granted unjust?
Standard of Review of a Remedy Granted Under s. 248 of the OBCA
[24] Interference by this Court with a remedy granted under s. 248(3) of the OBCA is limited, in recognition of the discretion afforded to the Court in making it, to cases where there was an error in principle or the decision is otherwise unjust. In Naneff v. Con-Crete Holdings Limited, 1995 959 (ON CA), 23 O.R. (3d) 481 (C.A.) at paras 17-18, the Court of Appeal stated that:
- Section 248(3) empowers a court upon a finding of oppression to make any order “it thinks fit”. When that broad discretion is given to a court of first instance, the law is clear that an appellate court’s power of review is quite limited. In Mason v. Intercity Properties Ltd., (1987), 1987 173 (ON CA), 59 O.R. (2d) 631 (C.A.), Blair J.A. set out the governing principle at p. 636:
The governing principle is that such a discretion must be exercised judicially and that an appellate court is only entitled to interfere where it has been established that the lower court has erred in principle or its decision is otherwise unjust.
- I approach this issue, therefore, keeping in my mind that the Court can only interfere with the remedy if it concludes that there was an error in principle on the part of Blair J. or if the remedy in all of the circumstances is an unjust one. It cannot be interfered with, as Carruthers J. said (at p. 701) when giving the judgment of the Divisional Court, “simply because someone else might prefer a different way of going about things”.
ISSUE 2(a) – Did the trial judge err in principle or was it unjust to award Mr. Chahine 50% of the shares of 2305?
[25] The trial judge found that Mr. Wong and Mr. Chahine agreed that the value of Mr. Chahine’s services provided to Mr. Wong, VIL and to 2305 in assisting in the restructuring of VIL, negotiating with the Chinese suppliers, negotiating with Chrysler, and acting as President of 2305 was consistent with their agreement that he was entitled to receive 50% of the common shares of 2305.
[26] The fact that 50% of the shares of 2305 had not actually been issued to Mr. Chahine does not prevent a finding that Mr. Chahine had been promised an equal number of shares in 2305 by Mr. Wong in return for his services. At the time of their agreement, Mr. Wong controlled 2305 and had the power to issue those shares to Mr. Chahine.
[27] The remedies provided for in section 248(3) of the OBCA, give a broad discretion to the application or trial judge to make any order that he or she sees fit. In this case, the controlling shareholder of 2305 refused to comply with his agreement to cause 2305 to issue 50% of its shares to Mr. Chahine.
[28] Section 248(2)(c) of the OBCA reads as follows:
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of. R.S.O. 1990, c. B.16, s. 248 (2).
[29] The trial judge found that Mr. Chahine was, at a minimum, a creditor of the corporation holding a shareholder loan of $2.8 million and as such, he could order the issue of securities, compensation and rectification of the registers when he found an oppression of Mr. Chahine’s interest.
[30] Section 248(3)(d), (j) and (k) of the OBCA read as follows:
(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,
(d) an order directing an issue or exchange of securities;
(j) an order compensating an aggrieved person;
(k) an order directing rectification of the registers or other records of a corporation under section 250; (Emphasis added)
[31] Section 245 of the OBCA defines a complainant who is entitled to make a claim for an oppression remedy as follows:
- In this Part,
“action” means an action under this Act; (“action”)
“complainant” means,
(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates, (emphasis added)
(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part. (“plaignant”) R.S.O. 1990, c. B.16, s. 245.
[32] The trial judge found that Mr. Wong agreed with Mr. Chahine that he would receive 50% of the shares in 2305 in addition to a shareholder loan of $2.8 million in return for the services he provided in assisting Mr. Wong with the financial restructuring of his VIL business. The fact that Mr. Wong did not take steps to actually have 2305 issue 50% of its shares to Mr. Chahine in accordance with their agreement, does not affect the fact that Mr. Chahine met the definition of complainant under section 245 of the OBCA and as a result, he was a proper person to make an application. The appellant has not identified any error made by the trial judge in awarding Mr. Chahine 50% of the common shares of 2305 pursuant to his agreement with Mr. Wong, who had control of the company, and simply failed to take the required steps, as per his agreement, to issue the shares to Mr. Chahine.
[33] As a result, I find that the trial judge did not make any error of principle nor was it unjust to award Mr. Chahine 50% of the shares in 2305 in the circumstances.
ISSUE 2(b) – Did the trial judge err in principle or was it unjust to find that Mr. Chahine was entitled to receive a shareholder loan of $2.8 million from 2305 in the absence of any evidence that he had contributed that amount of capital to 2305.
[34] The trial judge found that Mr. Wong and Mr Chahine were both entitled to receive shareholder loans from 2305. The trial judge found that the parties agreed that they would be 50/50 partners in the logistics business. The trial judgegave effect to that agreement by making them each 50% shareholders of 2305, and determining that each would be entitled to $3.5 million shareholder loans, after Mr. Wong or Industries was paid approximately $3.0 million. ($2.6 million plus $450,000).
[35] The trial judge did not find that Mr. Chahine had actually advanced $2.8 million of capital to 2305, but rather that through his efforts, 2305 acquired a windfall of $7 million after paying Mr. Wong $3 million. He found that Mr. Wong and Mr. Chahine agreed to split this amount equally and they were each entitled to receive shareholder loans of $3.5 million. The amount of Mr. Chahine’s shareholder loan was reduced to $2.8 million as a result of previously receiving $700,000 from 2305.
[36] The trial judge found that Mr. Wong and Mr. Chahine agreed that Mr. Chahine had provided a value of $3.5 million to 2305 as a result of his assistance in negotiating the financial restructuring of VIL. Mr. Chahine’s assistance allowed 2305 to carry on the logistics business and to receive a net windfall of $7 million, largely as result of Mr. Chahine’s efforts, that would be shared in the manner they agreed.
[37] The appellant has not pointed to any evidence that the value of Mr. Chahine’s contribution, which resulted in a windfall of $7 million to 2305, was not agreed to be split evenly. The value of $3.5 million was received by 2305 as a result of Mr. Chahine’s efforts and could be categorized as a shareholder loan owing to Mr. Chahine.
Disposition of issue 2(b)
[38] As a result, I see no error of principle nor was it unjust for the trial judge to find that the amount of $2.8 million, received in cash by 2305, as a result of Mr. Chahine’s efforts, was a shareholder loan owing to Mr. Chahine.
ISSUE 2(c) – Did the trial judge err in principle or was it unjust to not find that Mr. Wong was also entitled to a shareholder loan of $3.5 million from 2305?
[39] The appellant submits that it would be unfair to Mr. Wong if he was not also found to have made a shareholder loan of $3.5 million to 2305 in accordance with their agreement. There is no unfairness as at para. 116 of his decision, the trial judge said “… I find that each of Mr. Chahine and Mr. Wong made shareholder loans to 2305.” The trial judge found that the amount of Mr. Chahine’s shareholder loan was for $3.5 million less the amounts paid to him of $700,000 for a total of $2.8 million and as a result Mr. Wong was also entitled to a shareholder loan of $3.5 million.
[40] It is implied in the trial judge’s decision that $7.0 million of the $10.0 million received by 2305 as a result of the restructuring efforts, resulted in shareholder loans to each of Mr. Chahine and Mr. Wong of $3.5 million. In addition, the trial judge found that they agreed that approximately $3.0 million was to be paid to Mr. Wong and Industries first, from the approximately $10 million received by 2305 from the structuring.
Disposition of Issue 2(c)
[41] As a result, there was no error of principle in the decision of the trial judge on this issue, nor was it unjust to Mr. Wong as the trial judge did find that he was also entitled to a shareholder loan of $3.5 million from 2305 and that he and Industries were also to receive an additional $3 million from 2305.
ISSUE 2(d) – Did the trial judge err in principle or was it unjust to find that the invoice for $3,500,000, prepared by Mr. Chahine and sent to Mr. Wong and VIL in December of 2011, was evidence corroborating their agreement that he was entitled to receive a shareholder’s loan in that amount from 2305?
[42] The appellant submits that the invoice for $3.5 million prepared by Mr. Chahine in December of 2011 and sent to VIL and Mr. Wong could not be considered as evidence of a shareholder loan to 2305, because the invoice was sent to a different company.
[43] However, the trial judge found that Mr. Wong and Mr. Chahine agreed that rather than receiving payment of the $3.5 million invoice, they agreed that the invoice would be reduced by $700,000 to $2.8 million, which was the amount that Mr. Chahine had been paid by 2305, and that it would be converted into a shareholder loan from 2305.
[44] The trial judge considered the invoice as evidence of the agreement between Mr. Wong and Mr. Chahine, that the value of Mr. Chahine’s services provided to 2305 was $3.5 million, that this amount would be considered as a shareholder loan, and that Mr. Wong would also receive a shareholder loan of $3.5 million in 2305. The note corroborated the amount of the value of Mr. Chahine’s services that was agreed upon and was also evidence of the fact that Mr. Chahine was not insisting on immediate payment and agreed to leave his money in 2305.
DISPOSITION OF ISSUE 2(d)
[45] As a result, I find that the trial judge did not err in principle in finding that the invoice for $3.5 million was evidence corroborating the agreement that Mr. Chahine was entitled to receive a shareholder’s loan in this amount from 2305, nor was his finding unjust.
ISSUE 2(e) Did the trial judge err in principle or was it unjust to grant Mr. Chahine both 50% of the shares in 2305 and a $2.8 million shareholder loan, because this exceeded Mr Chahine’s reasonable expectations?
[46] The reasonable expectations of shareholders is a consideration applicable on an application under the oppression remedy of s. 248 of the OBCA in determining whether there has been oppressive conduct to a shareholder and in determining a fit and just remedy.
[47] In this case, Mr. Chahine ‘s reasonable expectations were that Mr. Wong and 2305 would honour their agreement, which was that he would receive 50% of the shares in 2305 as well as been entitled to a $2.8 million shareholder loan.
disposition of Issue 2(e)
[48] As a result, there is absolutely no evidence that the remedy ordered in accordance with the agreement as found by the trial judge was not in accordance with Mr. Chahine’s reasonable expectations. In fact it was exactly what he reasonably expected to occur. The trial judge made no error of principle nor was his finding on this issue unjust.
ISSUE 2(f) – Did the trial judge err in principle or was it unjust to grant remedies to Mr. Chahine, because the Court should not condone the conduct of Mr. Wong and Mr. Chahine’s splitting of money which was rightfully owed to VIL creditors?
[49] This issue was not raised before the trial judge and was only raised peripherally in argument before us. The evidence was that Industries was granted a security interest in VIL’s assets in order to secure a loan of $2.6 million to VIL. The security agreement was assigned by Industries to 2305, which then acted on its security agreement to negotiate terms with suppliers, with Chrysler, and to collect funds that were owing.
[50] The two Chinese suppliers to VIL’s auto parts business were BFT and Depo. As part of the negotiations, Mr. Chahine negotiated a $6.0 million payment by Chrysler to BFT on account of what was owed to BFT by VIL. BFT has not sued or taken any legal proceedings against VIL and as a result, there is no evidence of the exact amount, if any, that remains owing by VIL to BFT.
[51] Depo instituted international arbitration proceedings against VIL in China and obtained an arbitral award of damages. Depo has applied to enforce this award, in the amount of $11.0 million Canadian funds in Ontario, and it was approved on February 18, 2015. There was no evidence before us as to whether Depo will take further proceedings or whether Depo will allege that the restructuring arrangement involved a preference or not. This issue was not before the trial judge and there is insufficient evidence to consider it on this appeal.
disposition of Issue #2(f)
[52] As this issue was not raised before the trial judge and insufficient evidence was before this Court to consider it, we decline to make any findings on this issue. The dismissing of this appeal does not constitute a condoning of any of the actions of the parties or on the manner which the restructuring was conducted.
Dispostion of Appeal
[53] For the above reasons, the appeal is dismissed.
Costs
[54] The parties may make brief submissions on costs within 15 days of the release of this decision.
R. J. Smith J.
M. Dambrot J.
C. Horkins J.
Released: September 16, 2016
CITATION: Chahine Badr v. 2305136 Ontario Inc., 2016 ONSC 5039
DIVISIONAL COURT FILE NO.: 422/15
DATE: 20160916
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
M. Dambrot, R. J. Smith, and C. Horkins J.J.
BETWEEN:
Antoine Chahine Badr, Antoine Chahine Badr o/a Myant Consulting, Myant Consulting Inc. and B.O.T. International Ltd.
Applicants
(Respondents in Appeal)
– and –
2305136 Ontario Inc., Vikeda International Logistics and Automotive Supply Ltd., Vikeda Industries Inc., Vikeda Ventures Ltd., Vikeda Enterprises Ltd., 2208824 Ontario Inc., G.L.A.D. Operations Inc., G.L.A.D. International Inc., Vincent Wong, Ken Wong, Danny Wong, Alex Kua and Kenneth King Yu Chan
Respondents
(Appellants in Appeal)
REASONS FOR Decision
R. J. Smith J.
M. Dambrot J.
C. Horkins J.
RELEASED: September 16, 2016