CITATION: Arraf v. Bishara, 2018 ONSC 3021

DIVISIONAL COURT FILE NO.: 121/18 DATE: 20180514

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

C. HORKINS, THORBURN and POMERANCE JJ.

BETWEEN:

ASHRAF ARRAF

Sean Heeley, for the Applicant (Respondent)

Applicant (Respondent)

– and –

ADEL BISHARA

Kevin Scullion, for the Respondent (Appellant)

Respondent (Appellant)

HEARD at Toronto: May 14, 2018

THORBURN J. (Orally)

NATURE OF PROCEEDING

1The Appellant, Adel Bishara, appeals the judgment of Parayeski J., dated March 8, 2017, granting judgment in favour of the Respondent, Ashraf Arraf, in the amount of $386,443.15 plus 10% interest per annum post judgment.

BACKGROUND

2The parties were the owners and equal shareholders of 2102394 Ontario Inc. (“the Company”). Both the Appellant and the Respondent were to have all of the privileges of ownership of the shares including the right to vote and receive dividends provided there was no default.

3On July 9, 2010, the parties agreed that the Respondent would sell his interest in the Company including shares for $290,000. $140,000 was for the loan from the Respondent to the Company, another $20,000 was for a second loan from the Respondent to the Company, and $130,000 was for the release of all claims and an agreement not to compete or solicit. The Appellant was to pay $5,000 per month from February 9, 2011 to April 9, 2012. Interest was to accrue at 10% per annum.

4The Appellant made an initial $80,000 payment on signing and the Respondent transferred one share to the Appellant; the remaining 49 shares were held in escrow. The shares were to revert to the Respondent if the Appellant failed to satisfy the terms of the repayment schedule.

5The parties agree that the Appellant failed to make any further payments.

6Although the Appellant submits that the Respondent’s interest in the Company reverted to the Respondent, it is agreed that the Company books do not reflect the change of ownership and the Appellant continues to operate the Company and have exclusive access to its financial records.

7The Respondent claims that although the Appellant was in default, he continued to operate the Company to the exclusion of the Respondent, declaring bonuses and dividends to himself and failing to provide the Respondent with financial information about the Company.

8The Respondent filed an application pursuant to s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”) in April 2012, alleging oppression and seeking a number of corporate remedies. He moved for summary judgment in the amount of $255,256.31 against the individual Appellant, not the Company, but his motion was dismissed.

9In dismissing the motion, Sloan J. stated that “I would have been prepared to make… the order ... regarding the oppression but that is not before me today. Today the plaintiff asks for summary judgment in the amount of $255,256.31 against Mr. Bishara … the plaintiff’s claims should be framed properly and clearly against [the Appellant] Mr. Bishara … , as a debt owing pursuant to the July 9th, 2010 agreement.”

10The Respondent did not amend his application to bring a claim against the Appellant personally until October 24, 2016.

11At the hearing of the application on March 8, 2017, the Respondent sought judgment against the Appellant personally and withdrew the claims against the Company.

12Parayeski J. ordered that the Appellant pay $386,443.15 to the Respondent, being $210,000 plus 10% interest.

THE ISSUES

(1) Did Parayeski J. err by holding that the amendment did not constitute a new cause of action and the limitation period had not therefore expired?

(2) Did Parayeski J. err in not granting the Appellant the set off value of the shares transferred to the Respondent and thereby enable the Respondent to “double dip”?

COURT’S JURISDICTION

13Section 255 of the OBCA, provides that “an appeal lies to the Divisional Court from any order made by the court under this Act.”

14The Court of Appeal therefore directed that this appeal be heard by the Divisional Court.

15The Court has jurisdiction by virtue of s. 255 of the Act. However, whether or not there is jurisdiction, for the reasons set out below, we find there is no merit to this Appeal.

STANDARD OF REVIEW

16As set out in Housen v. Nikolaisen, 2002 SCC 33 the standard of review of a legal issue is correctness. The standard of review for an issue of fact or mixed fact and law, is that of palpable and overriding error. (See also: Exchange Corporation Canada Inc. v. Mississauga (City) 2014 ONCA 113 at para 22.)

17The court’s assessment of whether a new cause of action was initiated and the quantum of damages are questions of mixed fact and law, as they involve the application of these facts to the agreed legal principles regarding limitation periods and contractual remedies.

ANALYSIS OF THE ISSUES AND CONCLUSION

(1) Did the amendment constitute a new cause of action such that the limitation period expired?

18The Limitations Act, 2002 provides that a claim must be brought within two years of when the party advancing the claim knew or ought to have known of the loss or injury.

19However, in Ascent Inc. v. Fox 40 International Inc., 2009 36994 (ON SC), the court held that “[a] new cause of action is not asserted if the amendments simply plead an alternative claim for relief arising out of the same facts previously pleaded and no new facts are relied upon”.

20The Appellant submits that the amendment that was made in this case broadened the scope of the application by targeting a new “person” with an in personam claim. Moreover, he claims that in deciding the limitations issue, the court incorrectly focused on the knowledge of the party defending the claim: “[T]he exposure of the individual [Appellant] is not a surprise. The applicant [Respondent] is entitled to judgment.”

21The Appellant further submits that although the shareholders may have other personal interests that are intimately connected to a transaction, only shareholder interests are protected by s. 248 of the OBCA. The Appellant submits that the Company was not involved with the agreement and had no rights or obligations under it. The Respondent sought recovery of a personal debt from the Appellant, which s. 248 cannot provide. The amendment sought this relief, and thus it constituted a new cause of action.

22It is agreed that the Respondent was aware of the Appellant’s breach and launched his application under s. 248 of the OBCA one month after the loan balance ought to have been fully paid. The oppression application targeted the Company and its directors and officers and there was no claim for collection of a personal debt.

23It is further agreed that the only amendment to the claim was to seek judgment against the Appellant personally. All of the material facts that supported this relief were already pleaded: the loans to the Company, the agreement between the Appellant and the Respondent to pay the Respondent and the release of all claims and an agreement not to compete, the default in payment to the Respondent, the failure to transfer the shares upon default, and the Respondent’s exclusion from the Company’s operations. Moreover, the Appellant was already a party to the application and both the Appellant and Respondent were shareholders of the Company.

24As such, the amendment did not constitute a new cause of action. The Appellant received notice of the original application within the two-year limitation period and the amendment did not bring the application outside of the limitation period because it was not a new cause of action.

25Leave to make the amendment was granted by the court on December 13, 2013 and no deadline was imposed for serving and filing the amended application.

26Section 248 of the OBCA states that the court may make any order it sees fit if the court is satisfied that there was conduct that was “oppressive or unfairly prejudicial to or unfairly disregard[ed] the interests of any security holder, creditor, director or officer of the corporation”. The order can only be made pursuant to s. 248 if there is a finding of oppression.

27The amounts owing under the agreement are a personal debt on behalf of the Appellant for the acquisition of shares, but also an obligation against the Company for amounts outstanding on shareholder loans due and owing to the Respondent.

28The Respondent had a reasonable expectation that the Appellant and the Company would comply with their obligations under the agreement to return the shares to the Respondent, that they would give him input as a shareholder, would pay the shareholder loans, and would pay for the transfer of shares.

29Parayeski J. did not specifically make a finding of oppression but Sloan J. did. Moreover, the only reasonable interpretation of Parayeski J’s decision is that the Appellant disregarded the Respondent’s interests.

30Parayeski J. therefore acted within his jurisdiction pursuant to s. 248 of the OBCA and BCE v. 1976 Debentureholders, 2008 SCC 69 to exercise his discretion to enforce what is right and fair. For these reasons, we find that Parayeski J. did not err in holding that the amended claim did not constitute a new cause of action and the claim should be adjudicated.

(2) Did Parayeski J. err in causing double recovery by not granting the Appellant the set off of the value of the shares transferred to the Respondent?

31A party suffering loss is to be put in the same situation as he would have been in had the loss not been suffered. He should not profit from the loss. (Agriculture Research Institute of Ontario v. Campbell-High, 2002 CarswellOnt 818 (C.A.) paras 37-38 and Ratych v. Bloomer, 1990 97 (SCC), [1990] 1 S.C.R. 940 at paras 21-22.)

32The Appellant submits that Parayeski J. erred by valuing the Respondent’s loss without regard for the reversion of shares and loans. The Respondent suffered no loss: $160,000 represented the Respondent’s shareholder loans which he continues to hold, and $130,000 represented the Respondent’s shares, which he also continues to hold.

33Alternatively, the Appellant submits that Parayeski J. erred by failing to set off the value of the shares that reverted to the Respondent upon default. A party suffering loss should be put in the same situation he would have been in had the loss or breach not been suffered but should not profit from the loss.

34We do not agree.

35In his decision, Parayeski J. ordered payment of $210,000 plus the 10% annual interest since the date of default as per the terms of the agreement among the three parties. This sum reflects the fact that $80,000 was advanced by the Appellant. The quantum of damages is consistent with the amount owing pursuant to the Agreement. Moreover, although the two loans were to the Company (that is now been run solely by the Appellant) the loans were guaranteed by the Appellant.

36The Appellant appeared to concede in oral submissions that although the share certificate was provided to the Respondent as per the Agreement, the Company’s Minute book has not been amended to reflect the change and there has therefore been no formal change of ownership. The Appellant could have effected this change.

37Moreover, although the financial records of the Company are in the sole possession of the Appellant, the Appellant elected to adduce no evidence as to the value of the shares. As such there was no evidence as to a change in value of the shares.

38The Appellant has continued to run the Company, deal with the Company finances and dividends, choose when to hold Company meetings, and instruct the Company solicitor. The Appellant alone has the power to instruct the Company solicitor to reflect the change in ownership of the shares and chose not to do so.

39Because he continues to own the shares and operate the Company there is no double recovery.

40The Respondent concedes that he has the share certificate but agrees to return the share certificate to the Appellant upon receipt of the judgment owing to him. The Respondent undertakes that upon satisfaction of the judgment, the Respondent will have no further interest in the Company.

41For these reasons, the Appeal is dismissed.

C. HORKINS J.

42I have endorsed the Appeal Book and Compendium as follows: “This appeal is dismissed for oral reasons delivered today. The Appellant shall pay the Respondent (Applicant) costs of $5,175.40 (Fees & HST) plus $572.11 for disbursements and HST.”

___________________________ THORBURN J.

I agree