Heshmati v. Memarzadeh, 2017 ONSC 6547

Heshmati v. Memarzadeh, 2017 ONSC 6547

CITATION: Heshmati v. Memarzadeh, 2017 ONSC 6547

DIVISIONAL COURT FILE NO.: 558/16 DATE: 20171031

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

BETWEEN:

KAMBIZ HESHMATI

Arvid Shahmiry, for the Plaintiff/Respondent

Plaintiff /Respondent

– and –

BABAK MEMARZADEH, a.k.a. MEMARZADEH c.ob. MAROON CUSTOM CABINETS, a.k.a. MAROON KITCHENS, MAROON CUSTOM CARPENTREY

Zack Silverberg and Rachel Fielding, for the Defendants/Appellants

Defendants/Appellants

HEARD at Toronto: October 31, 2107

SPIES J. (Orally)

Overview

1The Appellants, who were the Defendants in a Small Claims Court action, appeal the decision of Deputy Judge Kay dated November 3, 2016, who awarded judgment for $7,500 and $3,865 in costs in favour of the Plaintiff, Kambiz Heshmati (Heshmati) against the Defendant Babak Memarzadeh (Babak) personally and his company Maroon Custom Carpentrey Inc. (TREY Inc.). The Deputy Judge dismissed the cross claim made by the Defendants without costs.

2The only issue on this appeal is the finding of the learned Deputy Judge that Babak is personally liable for the amount owed to the Plaintiff. The Appellants do not seek to disturb the other findings of the trial judge.

3The position of the Plaintiff at trial was that the Defendants had repudiated a contract to do carpentry and cabinetry work in his kitchen. The Plaintiff pleaded that he had a contract with both TREY Inc. and Babak personally.

4The Defendants pleaded that there was no repudiation and they had in fact been barred from entry to the Plaintiff’s home so they were unable to complete the work and they also submitted that Babak was not personally liable.

The Contract and the Parties

5The trial judge found that the Plaintiff engaged under contract Maroon Custom Carpentry Inc. (TRY Inc.) (Reasons at page 255) and that the Plaintiff believed he had a contract with TRY. Inc. (Reasons at page 263. There was ample support for those findings of fact. The contract is by letter dated January 22, 2014 on the letterhead of TRY Inc. and according to the terms of the contract, TRY Inc. agreed to do the work and it could register a lien if not paid. The contract also provided that in the event of any damages caused by humidity fluctuation etc., TRY Inc. was not to be held responsible.

6Counsel for the Respondent relied on a passage from the reasons of the trial judge (at page 255), which is set out after the first finding of fact referred to above, which he submitted was an additional finding of fact:

I am getting ahead of myself, but basically the position of the plaintiff is that the defendants, plural, repudiated the contract. In any event the contract was between the plaintiff and Babak Memarzadeh personally as well as Maroon Custom Carpentry, carpentry spelled RY, Inc. [TRY Inc.], and that the personal defendant is equally liable. [Emphasis added]

7The portion of the reasons that I have set out above is not a finding of fact in my view. Given the context of the reasons as a whole, it clearly follows the finding of fact the Plaintiff engaged under contract TRY Inc. and it simply sets out the position of the Plaintiff at trial. Otherwise the reasons of the trial judge would be conflicting within the same paragraph and the last line of the above passage would read simply “and … the personal defendant is equally liable”.

8There is some ambiguity on the face of the contract as to whether or not Babak was a party to the contract that I understand was relied upon by the Plaintiff at trial. For example on the first page of the contract there is reference to the contract being between the Plaintiff and Babak with TRY Inc. referenced and there is the fact that Babak signed the contract as the contractor with no reference to TRY Inc. under his signature.

9Despite any ambiguity, when the Plaintiff paid for work done, the cheques were made payable to TRY Inc. This occurred on at least three occasions. Although the trial judge makes no reference to this evidence, given his findings of fact he clearly rejected the alternative position of the Plaintiff that he believed he had a contract with Babak personally.

10As it turns out, when the Defendant company was incorporated in May 2010, it was incorporated as Maroon Custom Carpentrey Inc. I presume counsel for the Plaintiff discovered this when the claim was issued because that is how the claim was pleaded. The Plaintiff sued TREY Inc. and Babak personally and it was pleaded that TRY Inc. was not a dually registered corporation under the Ontario Business Corporations Act. The Plaintiff pleaded not only breach of contract and repudiation but that Babak entered into the contract in his personal capacity and that the Defendants were jointly and severally liable for the damages claimed.

11In the defence to the claim, the Defendants pleaded that there was “a typo” in the quote given to the Plaintiff with respect to the corporate name and it should have been TREY Inc. and that it was the only proper Defendant and that there was no basis to pierce the corporate veil. At trial, Babak said in his cross-examination that he was not aware of the difference in spelling of the company name until his cross-examination and his position was that it was typo when the company was registered by the accountant. There certainly doesn’t seem to be any reason why that is not correct given the common spelling of the word “carpentry” and the fact that there is no other spelling of a name associated with Babak that would be Trey.

12The Defendants also brought their own claim against the Plaintiff. The same Title of Proceeding was used as in the claim, which meant that TREY Inc. and Babak personally claimed the balance of the amount owing with respect to work done. In the body of the claim it was pleaded that Babak was the owner and director of TREY Inc.

13I do not know why Babak was added as a plaintiff to this claim given his position that he is not a proper party to Heshmati’s claim. The explanation counsel gave to the Deputy Judge was that is how the plaintiff, Heshmati, had styled his claim. I suspect that is the reason because although the relief claimed in the opening of the claim refers to all of the plaintiffs, at the end at paras. 33 and 35 of the claim all of the relief claimed was claimed by Maroon (TREY Inc.) only.

Analysis of Personal Liability

14Returning to the Reasons of the trial judge, having found, correctly in my view, that the Plaintiff entered into a contract with TRY Inc., the trial judge went on to deal with the Plaintiff’s position that the Defendants had repudiated the contract and that Babak was personally responsible as well as the company TREY Inc. The trial judge then reviewed the evidence of repudiation and found correctly, in my view, that this was a case involving credibility and on that issue he found against Babak where his evidence conflicted with Heshmati or his wife.

15At page 262 of his Reasons, the trial judge dealt with the discrepancy in the spelling of the name of the Defendant company. The trial judge referred to Babak’s evidence that it was a typo that he was unaware but it does not appear that the trial judge accepted that evidence although he did not expressly reject it and he certainly did not find that there had been any improper conduct in this regard. The trial judge said he had very little evidence as to the intent of Babak as to the difference in the company names although he did find that the cheques from Heshmati were payable to TRY Inc. and he surmised, correctly in my view, that the cheques were deposited into the account held in the name of TRY Inc. (Reasons at page 265).

16The key findings in terms of this appeal start at page 265 of the Reasons. The trial judge decided that because TRY Inc. did not exist as a corporation, that it was not entitled to carry on business and found therefore that the contract was between the Heshmati and Babak personally.

17At this stage the trial judge gave absolutely no reasons for that conclusion. The trial judge then found at page 267 of his Reasons that Heshmati would have judgment against both Babak personally and TREY Inc. for $7,500. He clearly relied only on the fact that the corporation did not exist which in my view was an error in law. In particular the trial judge failed to consider rectification of the company name at this point and/or failed to go through an analysis such as the court did for example in Pelliccione v. John F. Hues Contracting & Development Co. 2005 CarswellOnt 4697 starting at para. 69, to determine if Babak should be held personally liable.

18It was at this stage of his Reasons that the trial judge went on to deal with the Defendants’ claim against the Plaintiff. At page 267 of the Reasons, the trial judge relied on the pleadings in the Defendants’ cross claim in making certain findings of fact to bolster his reasons for coming the conclusion he already had on the Heshmati’s claim that Babak was personally liable. The trial judge stated at page 268: “If Mr. Memarzadeh personally claimed for the balance of the contract in his own name, it indicates to me that he sees himself as a party to the contract and that makes him personally liable in my view.” The trial judge then gave judgment to Heshmati against Babak personally and TREY Inc. at page 269, although he had already made that finding at page 267 of the Reasons.

19The trial judge gave no reasons for finding against TREY Inc. Counsel agree that because there had been a mutual mistake, the trial judge rectified the Respondent’s contract so that it was with TREY Inc. I agree that it is the only possible explanation for the conclusion and I agree that what the trial judge did was to rectify the name of the company to correct the spelling of the name and then find that TREY Inc. was liable for the judgment.

20That is reasonable but it works both ways. If TREY Inc. exists for the purpose of judgment it existed for the purpose of the contract. In my view what the trial judge was really saying was that Heshmati’s contract was with TREY Inc. and that was the basis of the finding against that company. There is no issue with respect to the rectification of the name TREY Inc., but in my view, having made that rectification the trial judge erred in law in finding Babak personally liable.

Piercing the Corporate Veil

21The trial judge noted at page 263 of his Reasons that the Plaintiff had argued about piercing the corporate view but he did not rely on this argument to make a finding of personal liability. The Respondents argue that the trial judge could have pierced the corporate veil of TREY Inc. because the trial judge found that Babak refused to complete the contract because of his relationship with the first builder Mr. Nobihar. The evidence was that Mr. Nobihar got TRY Inc. the contract with Heshmati in the first place but was fired thereafter. Apparently at that time, Mr. Nobihar told Babak that he should not complete the contract or he would not give him anymore work.

22Given the loss of supply of work would be a loss of TREY Inc. I disagree with the position of the Respondent that this somehow makes Babak liable, relying on Alpha Tire Corp. v. South China Industries (Canada) Inc., 2000 CarswellOnt 178 at para. 19. Babak was not furthering his own personal interests; he was acting to further the interests of his company. Also, the conduct of Babak does not meet the test in 642947 Ontario Ltd. v. Fleshcer (2001), 2001 8623 (ON CA), 56 O.R. (3d) 417 (Ont. C.A.) at para. 68. There was no evidence before the trial judge that the company was incorporated for an illegal or improper purpose or that Babak’s conduct was fraudulent or improper such that the corporate veil should be pierced.

The Pleadings and Admissions

23Having found the contract was between TREY Inc. and Heshmati, the only other basis the trial judge relied on to make a finding as against Babak personally was the pleadings by the Defendants (Reasons, page 268). There the trial judge referred to the Defendants’ claim against the Plaintiff and the explanation counsel gave for why the claim was styled the way it was. The trial judge then stated: “If Mr. Memarzadeh personally claimed for the balance of the contract in his own name, it indicates to me that he sees himself as a party to the contract and that makes him personally liable in my view.”

24Before me the Respondent relies on Sera GMBH v. Sera Aquaristik Canada Ltd., 2007 ONCA 70. In that case, the individual defendants were granted summary judgment and found not to be personally liable by the motions judge but that was reversed on appeal although there was a strong a dissent from Sharpe J. The bottom line is that the majority found that because of the admissions and positions taken by the individual defendants in the pleadings, there was a triable issue as to the personal liability of the individual defendants and therefore the case merited a trial and could not be disposed of as a summary judgment.

25The case at bar however has been to trial and findings of fact have been made. Setting aside the question of the spelling of the Appellant company, the trial judge found the contract was between a company and the Respondent and that the Respondent believed that he had contracted with the company. These findings are inconsistent with finding that Babak was a party to the contract. It is also inconsistent with the reading of the Respondents’ pleadings in the Small Claims Court as a whole. In my view, the learned Deputy Judge drew an improper inference from the pleadings, that was at odds with his own conclusions of fact and as such he erred in law.

Disposition

26For these reasons, the appeal is granted. The Small Claims Court judgment against Babak personally is set aside.

Costs

27I am not prepared to interfere with the costs awarded at trial as requested by the Appellants. It is true that the Respondent has now had mixed results at trial but I am not satisfied that the issue of Babak’s personal liability added materially to the length of trial. The Respondent succeeded on the main issue and therefore I will not disturb the order of costs at trial.

28The Appellants however are entitled to costs on a partial indemnity basis for this appeal. The Appellants are requesting partial indemnity costs of approximately $12,400 and disbursements of $3,500 inclusive of HST, a total of almost of $16,000. I appreciate the disbursements are high and those cannot be controlled but in my view the time claimed by counsel is excessive given the amount in issue. Furthermore, although I can understand counsel would want to have experience in arguing these matters, the preparation and argument of this appeal did not require two counsel. Certainly the Respondent should not pay for that. When I consider the Respondent’s Cost’s Outline in the amount of $5,000 and all of the circumstances, in my view, an award of $8,000 all-inclusive is reasonable, to be paid by the Respondent to the Appellants within thirty days of today.

___________________________ spies J