Court File and Parties

COURT FILE NO.: CV-16-0040-00 DATE: 2019 07 26

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

NADEEM AHMED MUGHAL also known as NADEEM MUGHAL Ranbir S. Mann for the Plaintiff

- and -

BAMA INC., ABDUL RAHEEM QURESHI, ET ZONE SUPPLIES INC., ZAINAB SAYEED NOMAN, BADAR SOHAIL KHAN, MANSOOR AHMED KHAN and MUHAMMAD NOMAN YUSUF also known as MUHAMMAD YUSUF Sukhjinder Bhangu for the Defendants Bama Inc., Raheem Qureshi, Mansoor Ahmed Khan and Badar Sohail Khan

HEARD: October 30, 31, and November 1, 2018

REASONS FOR DECISION

McSweeney J.

Overview

[1] This is a civil fraud action. In 2014, the Plaintiff Nadeem Ahmed Mughal, a security guard in Mississauga, reconnected with Abdul Raheem Qureshi (“Qureshi”), an old friend from his university days in Pakistan. Qureshi offered him an opportunity to invest his retirement savings, and Mr. Mughal did so. Pleased with the initial returns on his investment, Mr. Mughal then invested funds from a line of credit secured against his home. In total, he invested $210,000. Within months of his final investment, his money disappeared. The company into which Qureshi had put most of Mr. Mughal’s funds, ET Zone Supply Inc. (“ET Zone”), went into receivership.

[2] Mr. Mughal wants his money back. He pleads his action in civil fraud, deceit, conversion, conspiracy and breach of fiduciary duty.

[3] He claims that the Defendants obtained his money through misrepresentation and conspired together to defraud him. He thought he was investing in an active electrical supply company called Bama Inc., of which Qureshi was a Director. Bama Inc. was in fact a shell company. Qureshi instead put the Plaintiff’s money into struggling ET Zone, where he worked as Business Development manager.

[4] The Plaintiff claims that he invested his money because he relied on the defendants’ representations. These included verbal assurances and information about the health and activities of Bama Inc., anticipated rates of return for Bama Inc. investors, being shown a website for “Bama Inc.”, and a promised “bank guarantee” to secure his investment funds. The Plaintiff submits that these representations were known to the defendants to be false, and were intended to induce him to part with his money.

[5] It is agreed that Mr. Mughal invested a total of $210,000, which he has not recovered, and that he did so through the Defendant Qureshi. The issue for trial is whether the evidence establishes Qureshi’s liability and/or any of the other Defendants to Mr. Mughal on any of the bases pleaded.

[6] Pursuant to my order of September 13, 2017, this action proceeded by way of summary trial. Evidence-in-chief was given by affidavit and tested by cross‑examination.

The Various Defendants

[7] The Defendant ET Zone went into receivership on December 21, 2015. It was never served with the claim. The Defendants Zainab Sayeed Noman and Muhammad Noman Yusuf were the principals of ET Zone. They were declared bankrupt in 2017. This action was stayed as against them by court order. The Plaintiff did not move to lift the stay. References to the “Defendants” hereafter therefore do not include ET Zone, Yusuf or Noman.

[8] The Plaintiff proceeded to trial against Bama Inc. and its three directors, Qureshi, Mansoor Ahmed Khan (“MA Khan”) and Badar Sohail Khan (“BS Khan”). At trial, Bama Inc. and the three individual Defendants were represented by the same counsel.

[9] The Defendants resist the Plaintiff’s claim for three main reasons: (1) they deny that they made misrepresentations to the Plaintiff or conspired against him. They plead that he knowingly invested his money in ET Zone with an expectation of return. The Plaintiff, along with other investors, obtained some return, and then lost his investment when ET Zone went into receivership. The Defendants are not liable for that loss. (2) Further, the Defendants plead that any liability is that of Bama Inc. “and the individual Defendants are not personally liable.” (3) In any event, the Plaintiff signed an agreement directly with ET Zone in October 2015 for repayment of his investment funds. That agreement relieved Bama Inc. and its directors of any liability.

Chronology of Relevant Events

[10] The following facts were established by agreement or not disputed at trial:

a) 1980-1984

• Plaintiff and Qureshi studied together back home in Pakistan

b) Nov 13, 2008

• Bama Inc. is incorporated with its two directors, MA Khan and BS Khan, to do work in the human resources department and IT fields. By 2010, it is inactive and Bama Inc.’s original business account is closed

c) 2012

• Plaintiff and Qureshi became reacquainted in Canada

d) June 2014

• MA Khan speaks with BS Khan, who is working abroad, and obtains his consent to add Qureshi as a third director of Bama Inc. Qureshi is added as a Director of Bama Inc.

e) Fall 2014

• Various meetings held at the Plaintiff’s home to discuss investments between the Plaintiff and Qureshi

f) Nov 21, 2014

• MA Khan and Qureshi open a new business account in the name of Bama Inc. at TD Canada Trust. A credit memo in the amount of $222.97 is the first money in the account. Only MA Khan and Qureshi have signing authority

g) Nov 27, 2014

• Qureshi text messages the Plaintiff with a Bama Inc. account and instructions to transfer his funds directly into that account

h) Nov 28, 2014

• The Plaintiff transfers $35,000 and $25,000 (total $60,000) via his TD bank Account directly into Bama Inc.’s TD Business Account, as directed by Qureshi (the 2014 investment)

i) Dec 1, 2014

• Qureshi transfers the Plaintiff’s $60,000 from Bama Inc.’s account to the ET Zone account

j) March 16, 2015

• $4,000 transferred from Bama Inc.’s account to the Plaintiff’s account (first “profit” payment)

k) March/April 2015

• Qureshi shows Bama Inc.’s website to the Plaintiff [disputed by Qureshi; found as a fact, as referenced in reasons]

l) June 4, 2015

• The Plaintiff provides $50,000 from his CIBC secured line of credit in a bank draft payable to Qureshi personally. Qureshi deposits funds into his personal account

m) June 5, 2015

• Qureshi transfers $45,000 of the $50,000 to his brother-in-law and retains $5,000 in his personal account

n) June 9, 2015

• Qureshi text messages the Plaintiff, asking, “[C]an it be possible today to make a draft of $100,000 in the name of Bama Inc. Our company agrees to give us bank guarantee.”

o) June 10, 2015

• The Plaintiff draws a further $100,000 from his line of credit and gives Qureshi a bank draft in that amount, payable to Bama Inc.

p) June 11, 2015

• Qureshi deposits the Plaintiff’s $100,000 into Bama Inc.’s account and then transfers it to ET Zone’s account

q) June 12, 2015

• Qureshi gives a document to the Plaintiff titled “Nadeem Mughal Investment”, dated June 11, 2015. This document lists the amounts given by the Plaintiff and references a bank guarantee and that funds were invested with ET Zone

r) July 2, 2015

• $3,500 deposited into the Plaintiff’s account from Bama Inc. account (second “profit” payment)

s) Aug 18, 2015

• ET Zone as Borrower has defaulted on its Credit Agreements with RBC. RBC issues a Notice of Intention to Enforce Security per s. 244(1) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, and issues demand letters to Yusuf and Noman, both as principals of ET Zone and in their capacities as Guarantors

t) Aug 26, 2015

• Second demand letters from RBC to ET Zone and guarantors Yusuf and Noman

u) Sept 21, 2015

• Yusuf and Noman execute a Forbearance Agreement with RBC for their liability on behalf of ET Zone and as personal guarantors. Outstanding liabilities total CAD $2,207,515.18 plus USD $1,240,368.24. The Forbearance Agreement includes consent to appoint a receiver and consent to judgment in favour of RBC against ET Zone and against Yusuf and Noman personally, upon expiry of a specified forbearance time period

v) Sept 22, 2015

• On or about this date, the Plaintiff meets Yusuf for the first time, as introduced by Qureshi

w) Oct 10, 2015

• Yusuf, for ET Zone, agrees to repay the Plaintiff $210,000. An agreement was signed on October 10, 2015, but stated on its face that it was made on June 11, 2015

x) Dec 21, 2015

• RBC obtains a court order appointing a receiver for ET Zone

y) Dec 13, 2015 – January 5, 2016

• Several phone calls are recorded by the Plaintiff, in which Qureshi promises to personally repay Plaintiff for the money he has lost

ISSUES

I. Are the Defendants liable to the Plaintiff in civil fraud?

II. Did the Defendants conspire to cause economic injury to the Plaintiff?

III. Are the Defendants liable to the Plaintiff on any of the other bases pleaded?

IV. Does the Plaintiff’s October 10, 2015, agreement with ET Zone relieve the Defendants of liability?

ANALYSIS

[11] As a general comment, where the evidence of Qureshi and the Plaintiff conflict on this action, I prefer the evidence of the Plaintiff. The Plaintiff was consistent in his evidence throughout about what representations Qureshi made to him and his own reasons for agreeing to invest with Qureshi. By contrast, Qureshi was generally inconsistent, evasive and argumentative during his testimony.

I. Are the Defendants Liable to the Plaintiff in Civil Fraud?

[12] The Supreme Court of Canada has described the elements of the tort of civil fraud, which must be proven on a balance of probabilities, as requiring: (i) a false representation by the defendant; (ii) some level of knowledge of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness); (iii) the false representation caused the Plaintiff to act; and (iv) the Plaintiff’s actions resulted in a loss: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 87.

[13] Recent cases have placed less emphasis on the tortfeasor’s intention to deceive the Plaintiff, finding that where fraud is proved, the motive of the person committing the fraud is immaterial. It does not matter whether there was an intention to cheat the person to whom the false statements were made: see Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126, at para. 18, citing Derry v. Peek (1889), 14 App. Cas. 337, at p. 374.

[14] Representations to Plaintiff prior to first investment of $60,000: The Plaintiff testified at trial that he reconnected with an old university friend from Pakistan, Qureshi, in 2012. He had heard through friends over the years that Qureshi had worked abroad in the electrical-supply area.

[15] The Plaintiff testified that Qureshi told him initially that he was doing consulting work in the electrical-supply area. In 2014 he told the Plaintiff that he had joined Bama Inc. as one of two directors. Qureshi described his company, Bama Inc., as an electrical-supply company supplying companies in Qatar, Africa, Europe, Asia and the Middle East. The role of Bama Inc., as the Plaintiff understood from Qureshi, was to “supply parts and do tenders”.

[16] Qureshi told the Plaintiff that he had invested in “our company” and was seeing four to eight percent returns on investment quarterly. He offered the Plaintiff an opportunity to invest his own money. In November 2014 Qureshi sent a text message to the Plaintiff with the Bama Inc. account number. The Plaintiff deposited $60,000 into Bama Inc.’s account.

[17] I find in this evidence that the Plaintiff believed and relied on Qureshi’s representations that Bama Inc. was an active electrical-supply company generating significant returns for its investors. His initial $60,000 investment was made in reliance on those representations. These representations were false; Bama Inc. was in fact a corporation with no assets, employees or business; in other words, a shell corporation.

Representations to the Plaintiff prior to the 2015 Investments from Line of Credit

[18] On March 16, 2015, the Plaintiff received a transfer of $4,000, which he understood to be a “profit” payment, directly to his bank account from Bama Inc.’s account. After receiving this payment, he spoke to Qureshi about investing more in Bama Inc.

[19] Bama Inc. Website: In March or April 2015, Qureshi showed him a website for Bama Inc. The site had images of oil drilling equipment and described Bama Inc. as “a leading supplier” of products, including tools and equipment, oil field products, telecommunications products and electrical products. The website also referenced Bama Inc.’s services of “providing communication equipment supply, installation and on-going maintenance support to our clients”.

[20] The Plaintiff, with the help of his children, took a screen capture of two pages of the website in early 2016 in preparation for litigation. I accept his evidence that Exhibit 1 depicts the same site shown to him by Qureshi in 2015 before he gave Qureshi an additional $150,000.

[21] On June 5, 2015, the Plaintiff took $50,000 from his line of credit. At Qureshi’s direction, he made the bank draft payable to Qureshi personally. At trial, he explained that at this point, he still trusted Qureshi and that Qureshi had told him that he and Bama Inc. were the same thing, so he would still deposit the funds in the Bama Inc. account.

[22] Qureshi disputed this evidence and testified on cross-examination that he explained to the Plaintiff that the $50,000 funds were to go to his brother-in-law, as he wanted to withdraw his own investment. Qureshi did transfer $45,000 to his brother-in-law and kept $5,000 in his own personal account.

[23] On this conflicting evidence, I believe the Plaintiff’s evidence that Qureshi did not tell him that his funds were going to be given to Qureshi’s brother-in-law. The Plaintiff understood they would go to Bama Inc. as a further investment.

[24] I further accept this evidence that the website had bolstered his belief that Bama Inc. was an active company.

[25] The “bank guarantee” representations: When Qureshi asked the Plaintiff for a further $100,000, he texted the Plaintiff, “[C]an it be possible today to make a draft of $100,000 in the name of Bama Inc. Our company agrees to give us bank guarantee ” [emphasis added].

[26] The Plaintiff took $100,000 from his line of credit and provided the requested funds to Qureshi in the form of a bank draft payable to Bama Inc.

[27] When he gave Qureshi the $100,000, the Plaintiff asked for written confirmation of his investment. On June 11, 2015, Qureshi presented him with a one-page “investment summary” showing the money he had collected from the Plaintiff to date. The summary included reference to “ Bank Guarantee from ET Zone Supplies Inc. to Bama Inc”. The summary was authored and signed only by Qureshi.

[28] Qureshi also denies telling the Plaintiff that Bama Inc. was an electrical‑supply company. In cross-examination, he admitted that he himself was in fact working for ET Zone, an electric-supply company, when discussing investment with the Plaintiff. Qureshi testified that the Plaintiff had visited him at ET Zone when he was at work and that he told the Plaintiff that his investment money would go to ET Zone. He further alleges that it was the Plaintiff who asked that his money not go to ET Zone directly. It was the Plaintiff’s request that his money be paid to ET Zone by way of Bama Inc. so that his reportable income would not be seen to increase.

[29] The Plaintiff was consistent in his evidence that he invested in Bama Inc., which was an electrical-supply business run by his old friend. He did not learn until June 11, 2015, that Bama Inc. was only a bank account and that his money had gone into a different company, ET Zone.

[30] As noted previously, Qureshi was inconsistent in his evidence, and evasive and argumentative when he was challenged on evidence that he had not given in his affidavit filed on summary judgement. Where his trial testimony differed or was contradicted by that earlier affidavit, he became argumentative and offered repeated excuses, such as, “[I]t was a summary judgment so I gave a summary”.

[31] Conclusion re: civil fraud: I find on a balance of probabilities that the evidence establishes that Qureshi’s statements to the Plaintiff about Bama Inc. as a supply company which he was a Director of induced him to give him his first $60,000 savings to invest.

[32] I find further misrepresentations were made prior to the Plaintiff’s 2015 investments of money from his line of credit. I find that the subsequent “profit” payment of March 16, 2015, constituted a further misrepresentation, as Bama Inc. was not a company generating any income. It was not yielding any profits. Nor does the evidence establish that ET Zone was generating any returns on investment in March 16, 2015.

[33] The evidence does not support characterization of the $4,000 transferred from Bama Inc.’s account to the Plaintiff’s account as a “profit” payment. It would appear on the evidence to be a return to the Plaintiff of some of his own money, which he gave Qureshi in November 2014. The fact that the money came from Bama Inc.’s business account gave credence to the Plaintiff’s belief that his money was invested in Bama Inc. and was earning returns. On his own admission, the Plaintiff was very happy with the $4,000 paid into his account, and for that reason, wanted to talk to Qureshi about further investment. I find that the “profit” payment of March 16, 2015, also constituted a misrepresentation by Qureshi.

[34] Bama Inc. was never an active electrical-supply company. The Bama Inc. corporate entity was in fact inactive from 2010 until 2014. In June 2014 MA Khan took steps to add Qureshi as a third director, and in November he and Qureshi opened a new business bank account in the name of Bama Inc. and made themselves signing authorities with independent withdrawal privileges.

[35] Qureshi denies that he ever showed the Plaintiff the Bama Inc. website. I prefer the Plaintiff’s evidence on this point, as his recollection was clear and consistent. The action of Qureshi showing the Plaintiff the Bama Inc. website, describing a fictitious electrical-supply company with international contracts and business relationships, was a significant misrepresentation.

[36] I find on the evidence that this misrepresentation was made to bolster and encourage the Plaintiff’s belief that Bama Inc. continued to be a successful electrical-supply company that was generating returns for its investors.

[37] The Plaintiff testified that it was not until Qureshi gave him the investment sheet that he knew all his money had gone into ET Zone, not into his friend’s company, Bama Inc. The Defendants dispute this evidence, pointing to opportunities the Plaintiff had to ask questions or check on information he received from Qureshi. There is no evidence that the Plaintiff made inquiries. To the contrary, he relied on Qureshi based on their long friendship and Qureshi’s experience. However, it has long been established in the case law that the victim’s lack of due diligence in inquiring into a potentially fraudulent transaction is no defense: see Sylvan Lake Gold & Tennis Club Ltd. v. Performance Industries Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, at paras. 67-71.

[38] I find on the evidence that the Plaintiff did not in fact know his money was going into ET Zone until June 11, 2015. I find that the actions of Qureshi – of showing the Bama Inc. website, paying “profits” from Bama Inc.’s account to the Plaintiff and texting his investment instructions to the Plaintiff with careful words, such as “company agrees to give us bank guarantee”, when soliciting the final $100,000 from the Plaintiff – were all in aid of continuing his misrepresentation to the Plaintiff until he had taken his money, all while maintaining the fiction that his money was being invested in Bama Inc. As a director of Bama Inc., Qureshi knew that these representations were false and that Bama Inc. was a shell company.

[39] Further support for this conclusion is the evidence that by June 11, 2015, ET Zone was just two months away from receivership proceedings and having its lender call on more than $3.5 million in loans. Had Qureshi told the Plaintiff that the “company” giving the alleged “bank guarantee” was ET Zone, not Bama Inc., the Plaintiff could have made inquiry and learned of ET Zone’s corporate difficulties. With such information, he would not have invested his line of credit funds.

[40] Qureshi testified that he did not have a bank guarantee, but that ET Zone had promised one and he was waiting to receive it. His evidence was contradicted by Yusuf, who testified on cross-examination that ET Zone did not promise nor give a guarantee. He also testified, which was not disputed, that he did not even know the Plaintiff by name until September 2015.

[41] I find that there never was a bank guarantee and that Qureshi’s misrepresentation was made to reassure the Plaintiff that his further funds would be safe. The Plaintiff testified that although he had been comfortable in investing his savings, he did not really want to invest his line of credit funds because it was borrowed money. I find on the evidence that he did so on the strength of the additional representations from Qureshi.

[42] That is, the evidence supports a finding that the “profit” payment of March 16, 2015, the showing of the Bama Inc. website to the Plaintiff and the assurance that his $100,000 investment would be backed by a bank guarantee were all false representations. Qureshi knew they were false, as he knew Bama Inc. was not an operating company. The Plaintiff relied on these further representations in making his decision to invest funds from his CIBC secured line of credit in Bama Inc.

[43] I find that these additional misrepresentations were made by Qureshi to the Plaintiff to persuade him to part with funds from his line of credit. The Plaintiff testified that he was reluctant to invest from his line of credit. It is consistent with his reluctance to note that any return would have to exceed the interest rate he was paying in borrowing the money. I find that these additional reassuring misrepresentations were relied on by the Plaintiff in 2015 in deciding to invest funds from his line of credit.

[44] In conclusion on this point, the evidence establishes on a balance of probabilities that Qureshi committed civil fraud by making representations to the Plaintiff which he knew were false about the nature of Bama Inc. as an active company under his control as Director and the returns that investors in Bama Inc. were receiving. The Plaintiff gave his money to Qureshi based on those misrepresentations. He lost all the money he invested, save $7,500 in “profit” payments, which I find were funds returned to him to perpetuate his belief in Bama Inc. as an active company generating returns.

[45] I find that Qureshi personally liable to the Plaintiff. Directors are personally liable for their own tortious conduct at law, even if they claim to have been acting on behalf of a corporation: see Adga Systems International Ltd. v. Valcom Ltd. (1999), , 43 O.R. (3d) 101 (C.A.), at para. 18, leave to appeal to SCC refused, [2000] 1 S.C.R. xv (note).

[46] Liability of the Other Defendants: I have found that Qureshi perpetrated civil fraud on the Plaintiff. The next question is whether any of the other Defendants also did so.

[47] The Plaintiff bears the onus of establishing each element of civil fraud on a balance of probabilities with respect to each Defendant.

[48] With respect to Defendant BS Khan, the Plaintiff alleges that this Defendant said encouraging things to him about investing in Bama Inc. BS Khan denies ever meeting the Plaintiff until after this action was commenced. On the Plaintiff’s own evidence, his meeting with BS Khan took place in late June or July 2015. The chronology is clear that by that time, the Plaintiff had already given all his money to Qureshi. It is therefore not possible, even if he did meet the Plaintiff, that BS Khan could have induced the Plaintiff to invest in Bama Inc.

[49] The evidence does not support a finding of representations, false or otherwise, made to the Plaintiff by BS Khan. I find no liability of BS Khan to the Plaintiff in civil fraud.

[50] With respect to MA Khan, the evidence does not establish that he personally made specific misrepresentations to the Plaintiff. Nor does the evidence place him at the meetings between Qureshi and the Plaintiff at which misrepresentations were made. In conclusion, with respect to this Defendant, the evidence does not establish that MA Khan made misrepresentations to the Plaintiff as required for a finding of liability for civil fraud. However, as referenced below, the evidence regarding the involvement of MA Khan becomes relevant in the conspiracy analysis.

II. Did the Defendants Conspire to Cause Economic Injury to the Plaintiff?

[51] Conspiracy to cause economic injury: The Plaintiff pleads that the Defendants conspired to cause him economic injury. The constituent elements of the tort of conspiracy are: (1) two or more defendants agreement or act with a common design to injure the Plaintiff; (2) the defendants (a) use lawful or unlawful means for the predominant purpose of injuring the Plaintiff, or (b) use unlawful means by conduct directed at the Plaintiff, knowing or constructively knowing that their acts would likely result in injury to the Plaintiff; (3) the defendants act in furtherance of their agreement to injure; and, (4) the Plaintiff suffers damages as a result of the defendants' conduct: see Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, 106 O.R. (3d) 427, at paras. 24-26.

[52] Specifically, he asks me to find on the evidence that Yusuf conspired with his employee Qureshi, his acquaintance MA Khan and BS Khan to revive Bama Inc. as a shell corporation. The name of Bama Inc. could then be used to solicit funds to be quietly transferred to ET Zone at a time when it was in dire financial difficulty.

[53] The evidence establishes that each of Qureshi and MA Khan had already invested in ET Zone before the Plaintiff was encouraged to do so. Qureshi himself was working for ET Zone at its main Mississauga office in the position of “Manager Business Development (Overseas) ET Zone Supplies Inc.” According to his LinkedIn profile, which was put into evidence at trial, he held this position from October 2014 to December 2015.

[54] I infer that in his capacity as manager at ET Zone, working at its head office, Qureshi would have been aware of the dire financial situation of ET Zone, which culminated in August 2015 from its default on more than $3 million in loans.

[55] Although it was Qureshi who showed the website to the Plaintiff, MA Khan was the Bama Inc. director with the IT experience. In cross-examination, MA Khan could not explain why his former address and his wife’s phone number were on the website’s main pages. He did not deny the existence of the website. I find on a balance of probabilities that MA Khan was involved in creating the fake website showing Bama Inc. as a thriving electrical supply company in order to support the scheme for obtaining investment money in Bama Inc.

[56] I also must consider the evidence that MA Khan himself had invested money in ET Zone. The record confirmed that he paid $60,000 into ET Zone on June 4, 2014. Around this time, MA Khan wanted to add Qureshi as a director of Bama Inc. and called BS Khan in Qatar to ask for his consent to do so.

[57] When asked on cross-examination why he wanted to add Qureshi to his dormant company, MA Khan testified that he offered Qureshi an opportunity to join the company in order to “le arn operations”. Later in his evidence he resiled from that statement, stating vaguely that he wanted Qureshi to join Bama Inc. because “we may be able to do something, some business”. This makes no sense, given that Bama Inc. did not have any operations and that its original purpose had been to deliver consulting services in IT and Human resources – nothing related to electrical supply in international markets.

[58] At several points in the trial testimony, the defendants referenced the need for a new director of Bama Inc., specifically Qureshi, because it was necessary to have someone to “disperse profits from ET Zone” through Bama Inc. There was no reason given for any need create a new corporate account for dispersal of profit. Nor did the defendants explain why, particularly at a time when ET Zone was struggling and not likely generating significant profit, such a step was necessary in November 2014.

[59] The active use of the Bama Inc. account also contradicts this rationale: after being opened by Qureshi and MA Khan on November 21, 2014, with a deposit of $222, the account was used within a week to receive money from the Plaintiff, Mr. Mughal. The money was taken from him and then moved to ET Zone without notice to him. I find that the purpose for opening the Bama Inc. business account was to mislead the Plaintiff into believing his funds were being invested in Bama Inc.

[60] Further, MA Khan testified that he took money out of the Bama Inc. business accounts as his own “profit” payments when Qureshi told him he could. His testimony at trial places these withdrawals at over $7,000, while a summary document prepared by the Defendants uses a figure in the range of $12,000. Despite MA Khan’s testimony at trial that “we [the investors in ET Zone] all had individual agreements with ET Zone”, he did not produce his own investment agreement to explain the amounts he withdrew for his personal purposes from the Bama Inc. account once the Plaintiff’s money was put into it.

[61] I find on the evidence that MA Khan arranged for Qureshi to join Bama Inc. with a view to creating a vehicle for indirect investment into ET Zone. He had known Yusuf, principal of ET Zone, since 2013, and had himself invested in ET Zone. He knew Qureshi was working for ET Zone. He either knew or was willfully blind as to where the deposits into the Bama Inc. account were coming from, as they were not flowing in as profits to be “dispersed” from ET Zone. He also used the Bama account for his personal purposes, withdrawing money for himself.

[62] I find on a balance of probabilities that MA Khan conspired with Qureshi to obtain money for ET Zone through Bama Inc. He did so by working with Qureshi to create a corporate presence (bank account and website) to support the false impression that Bama Inc. was an active electrical-supply business. This misrepresentation was central to the success of the fraud on the Plaintiff. It would not have succeeded if MA Khan had not taken steps to make Qureshi a director of Bama Inc. Qureshi’s experience as an engineer in the electrical-supply industry was necessary for him to credibly hold himself out to the Plaintiff as a director of Bama Inc. as an electrical-supply business. It was Quershi who had that background, not MA Khan. MA Khan’s background is in IT.

[63] For the same reasons as cited earlier with respect to Qureshi, I find that he and MA Khan are personally liable for their tortious conduct in conspiring to defraud the Plaintiff.

[64] With respect to the third Bama Inc. director, the Defendant BS Khan, I find that the Plaintiff has not met its evidentiary onus to establish that he had knowledge of or involvement in the scheme to use Bama Inc. as a “fake front” for investment in ET Zone. By MA Khan’s admission, he did not even tell BS Khan about the existence of the Bama Inc. bank account. BS Khan’s passport was made an exhibit at trial. It supported his evidence that he works abroad and returns to Canada mostly in the summer to see his family.

[65] In summary with respect to the claim of conspiracy, I find that Qureshi and MA Khan (1) acted together to create the false impression for investors that Bama Inc. was an active, successful electrical supply company in order to obtain funds to give to ET Zone, where both had invested money; (2) working together, these Defendants planned to obtain funds from the Plaintiff in the name of Bama Inc., knowing or constructively knowing that he was likely to lose his money; (3) they acted in furtherance of this plan; and (4) the Plaintiff suffered damages in the form of lost investment as a result of Defendants' conduct.

III. Are the Defendants liable to the Plaintiff on any of the other Bases Pleaded

[66] Deceit and Conversion: The Plaintiff also pleads the torts of deceit and conversion. In view of my conclusion with respect to civil fraud, the tort of deceit, which has the same constituent elements, is also made out. With respect to conversion, the fact that the deprivation of the Plaintiff was monetary rather than a specific chattel makes that analysis inapplicable in these circumstances.

[67] Breach of fiduciary duty: The Plaintiff also alleges breach of fiduciary duty. In this case the evidence of representations made to the Plaintiff is insufficient to ground a fiduciary duty owing by any of the Defendants to the Plaintiff. To the extent that the Defendants were directors of a corporation, the Supreme Court of Canada has held that directors of companies owe their fiduciary duties to the corporation, not to the shareholders: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 66.

[68] Qureshi’s promise to repay the Plaintiff: Qureshi admits that after the Plaintiff had lost his investment, he promised to repay him. In particular, during a phone call on December 13, 2015, Qureshi offered to sell his house, saying, “ Buddy, I have told you that I will sell the house and will give you the money at the end of year, Insha Allah. Why do you worry?” [translation from Urdu].

[69] At trial, the Defendants took the position that Qureshi did not mean to be taken at his word, as he only made this promise to comfort the his friend, as the Plaintiff was having serious health problems at that time due to the stress of losing his money. Further, they argued that the promise was not enforceable as it was not in writing as required by the Statute of Frauds, R.S.O. 1990, c. S.19.

[70] It is not necessary, given my findings that Qureshi is liable to the Plaintiff, to determine whether this promise would have been enforceable on its own, and specifically whether there was any consideration for it.

IV. Does the Plaintiff’s October 10, 2015, Agreement with ET Zone relieve the Defendants of Liability to the Plaintiff?

[71] The Defendants argue that any liability to the Plaintiff is extinguished by an agreement he signed with Yusuf on behalf of ET Zone on October 10, 2015. It purports to create and settle the business relationship between the parties on the basis that ET Zone acknowledges owing $210,000 to the Plaintiff and agrees to a repayment schedule starting with $50,000 payable by October 31, 2015, and $2,000 per month thereafter.

[72] The agreement purports to be a “full and final settlement” of all the obligations of the parties to each other and to “ensure [ sic ] to the benefit of, and be correspondingly binding on the Parties hereto and their respective successors and permitted assigns.”

[73] The agreement purports to be “made in triplicate as of the 11 th of June, 2015”. There is no dispute that the agreement was made and witnessed by a lawyer on October 10, 2015.

[74] The Plaintiff testified that he was pressured to sign the agreement, as the Defendants told him it was the only way he could get his money back. It is not disputed the Plaintiff did not receive $50,000 by October 31, 2015, nor that ET Zone performed none of its obligations under the agreement.

[75] It is not necessary to evaluate the Plaintiff’s duress argument, nor to consider whether such an agreement could operate as a shield to liability of non‑parties. I find the agreement unenforceable on the following bases.

[76] First, ET Zone and Yusuf personally were subject to the terms of a Forbearance A greement at the time the agreement was signed. The Forbearance Agreement prevents ET Zone or Yusuf from entering into any financial agreements (other than day-to-day expenditures required to run the company) without RBC’s approval. ET Zone was therefore contractually barred from entering into a repayment agreement with the Plaintiff after September 21, 2015. The attempt to “back date” the agreement to June 11, 2015, did not change this fact.

[77] Second, Yusuf was aware that ET Zone was subject to the Forbearance Agreement and already owed more than $3 million to RBC. At the time of signing the agreement with the Plaintiff, he therefore knew that the Plaintiff would not be paid the funds promised. I find that the agreement was therefore entered into in bad faith, in order to shift any liability to the Plaintiff from the personal Defendants to corporate Defendant ET Zone, which was heading into receivership. The agreement is therefore also unenforceable on the basis that it was made in bad faith.

[78] Third, per its terms, the agreement binds only the parties “and their respective successors and permitted assigns”. Qureshi and MA Khan were not parties to the agreement. Their liability to the Plaintiff is therefore not extinguished by its terms.

[79] For the reasons above, the October 10, 2015, agreement between the Plaintiff and ET Zone does not relieve the Defendants of liability to the Plaintiff.

CONCLUSION

[80] For the foregoing reasons, the Plaintiff’s civil fraud claim is allowed as against the Defendant Qureshi.

[81] The evidence supports a further finding of a conspiracy to cause economic injury to the Plaintiff on the part of Qureshi, MA Khan and Bama Inc.

[82] The claims as against BS Khan in his personal capacity are dismissed.

[83] I have found that the Plaintiff was fraudulently deprived of $210,000 by the actions of the Defendants Qureshi, MA Khan and Bama Inc. Those Defendants are jointly and severally liable to the Plaintiff.

[84] I find on all the evidence that the Plaintiff would not have invested with Qureshi had he known his funds were going into ET Zone. As a matter of remedy, he is entitled to an award that will place him, as far as money can do, in the financial position he would have been in had the fraudulent misrepresentations not been made. He is therefore entitled to repayment of the amount of his investment; that is, $210,000 plus interest.

[85] I have found Qureshi and MA Khan personally liable for tortious conduct. However, in the alternative, I would have arrived at that result by piercing the corporate veil of Bama Inc. to find personal liability on the part of both Qureshi and MA Khan. The facts establish that Bama Inc. was a facade corporation used by those Defendants for the improper purpose of obtaining investment funds for a failing company, ET Zone, using representations that Bama Inc. was a viable supply business in its own right. Bama Inc. was dominated solely by Qureshi and MA Khan and used for that improper purpose only: see Yaiguaje v. Chevron Corporation, 2018 ONCA 472, 141 O.R. (3d) 1, at paras. 64-71, leave to appeal to SCC refused, 2019 CarswellOnt 5163 (SCC).

ORDER

[86] The Defendants Raheem Abdul Qureshi, Mansoor Ahmend Khan and Bama Inc. are jointly and severally liable to the Plaintiff in the total amount of $210,000 plus interest.

[87] Pre-judgment interest is allowed pursuant to s. 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

[88] Judgment granted accordingly. Order to issue.

COSTS

[89] The Plaintiff was successful and is presumptively entitled to his costs. If the parties are unable to agree on costs, they may file written submissions, to be filed on the following timeline:

a) Submissions of the Plaintiff due by 4 p.m. August 16, 2019;

b) Submissions of the Defendants by 4 p.m. August 30, 2019; and

c) Any Reply by the Plaintiff by 4 p.m. September 6, 2019.

[90] The Plaintiff also asks that I order that the relief granted will survive the bankruptcy of the liable Defendants. The Plaintiff did not make submissions on this point, so I am unable to determine whether such a term is appropriate. If the Plaintiff wishes to do so, he may file such submissions on this point along with his cost submissions, on the same timelines as listed above, and the Defendants may respond accordingly. Such additional submissions are not to exceed four pages.

[91] Please note that submissions are to be filed in paper and electronic copy, in the Brampton SCJ administration office, to my attention. Submissions are not to exceed five pages, exclusive of offers to settle, cost outline and authorities.

McSweeney J.

Released: July 26, 2019