Court File and Parties

COURT FILE NO.: CV-21-00659465-00CL DATE: 2022-04-26 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: MOHAMAD FAKIH, MOHAMAD FAKIH FAMILY TRUST, PARAMOUNT FOODS LEGAL INC. and PARAMOUNT FOODS HOLDINGS INC., Plaintiffs

AND:

AHM INVESTMENTS CORPORATION, ALI NOUREDDINE, MIRZA NAEEM JAVED, ABDUL QAYYUM SAEED and AL-GHUNAIM AL-HUMAIDHI LAW FIRM, Defendants

AND BETWEEN: AHM INVESTMENTS CORPORATION, ALI NOUREDDINE, and MIRZA NAEEM JAVED, Plaintiffs to Counterclaim

AND: MOHAMAD FAKIH, PARAMOUNT FOODS LEGAL INC. and PARAMOUNT FOODS HOLDING INC., PARAMOUNT FRANCHISE GROUP INC., FAKIH GROUP INC. and PARAMOUNT FINE FOODS UK HOLDINGS LTD., Defendants to Counterclaim

BEFORE: Penny J.

COUNSEL: John M. Picone, Colin Pendrith, Stephanie Voudouris, for the Plaintiffs/Defendants to Counterclaim, Mohamad Faikih, Mohamad Fakih Family Trust, Paramount Foods Holdings Inc., Paramount Foods Legal Inc., Paramount Franchise Group Inc., and Fakih Group Inc. John J. Pirie, Ben Sakamoto and Michael Nowina, for the Defendants/Plaintiffs by Counterclaim, AHM Investments Corporation, Ali Noureddine and Mirza Naeem Javed

HEARD: March 7, 2022

Endorsement

[1] The Paramount Group is in the business of providing middle eastern food services in Canada through restaurants and franchises. Mohamad Fakih is the founder of this business. Mr. Fakih and his family trust hold 25% of the shares of the Paramount Group. AHM (a British Columbia corporation owned and controlled by Ali Noureddine) and Mirza Naeem Javed collectively hold the remaining 75% of the shares. Messrs. Noureddine and Javed are Kuwaiti businessmen. A voting rights agreement between the shareholders provides that AHM and Fakih each hold 50% of the voting rights. As a result, any disagreement between Fakih and the other shareholders results in a deadlock. This is the current situation afflicting the Paramount Group and its shareholders.

[2] Fakih is a director and CEO of the Paramount Group. Fakih is also director and CEO of the Paramount Group’s subsidiaries. Noureddine is a director of the Paramount Group.

[3] This action for oppression was commenced by Fakih. One of the core allegations in Fakih’s action is that Noureddine and Javed have not provided enough money to the Paramount Group to fund ongoing operational losses.

[4] AHM, Noureddine and Javed have defended on the basis that they advanced millions of dollars for the Paramount Group’s operations based on Fakih’s fraudulent misrepresentations. AHM, Noureddine and Javed have made a counterclaim alleging that it is Fakih and the Paramount Group who have acted in a manner that is oppressive to them, including by Fakih’s:

(a) failure to invest promised funds into the Paramount Group; (b) misrepresenting and concealing the true financial affairs of the Paramount Group; (c) making improper payments to himself and his family members, his personal holding company and others from the Paramount Group; and (d) refusing or neglecting to have audited financial statements prepared.

[5] The proceedings are still at an early stage. There are three motions before the Court:

(1) the plaintiffs’ motion to strike certain paragraphs of the defendants’ counterclaim; (2) the plaintiffs’ motion for security for costs; and (3) the defendants’ motion for compliance with financial disclosure and the appointment of an auditor to prepare audited financial statements in accordance with the Business Corporations Act, R.S.O. 1990, c. B.16.

[6] At my direction, following argument of the motions, the parties filed separate cost summaries for each motion.

Motion to Strike

[7] Rule 25.06(8) of the Rules of Civil Procedure requires that any pleading of fraud, misrepresentation, or deceit must contain “full particulars”. When fraudulent misrepresentation or deceit are alleged, the pleading must set out with full and careful particularity, among other things: (i) the alleged misrepresentation itself; (ii) when, where, how, by whom and to whom it was made; (iii) its falsity; (iv) knowledge of the falsity of the representation; (v) the inducement; (vi) the intention that the plaintiff should rely upon it; (vii) the alteration by the plaintiff of their position relying on the misrepresentation; and (viii) the resulting loss or damage to the plaintiff.

[8] Paragraph 49(b)(i) of the counterclaim seeks “damages in an amount to be quantified at trial for fraudulent misrepresentation and/or deceit”. This claim is ostensibly supported by allegations that can be divided into two categories: (i) those relating to annual profit and the overall state of the business; and (ii) those relating to documents signed by Noureddine and Javed.

[9] The details in support of the first category of allegations appear in numbered subparagraphs to para. 54 of the counterclaim. There are three deficiencies:

• the allegation in para. 54 that “Mr. Fakih misrepresented the […] overall state of the business” is not supported by any particulars at all in paras. 10 through 12. Those paras. make allegations with respect to “efficiency” and “profit” only.
• the claim in para. 11 that Fakih’s representation regarding “overall business viability and value referred to in the preceding paragraph were false statements” is not supported by full particulars. The allegations in para. 10, the “preceding paragraph”, do not relate at all to “business viability” or “value”. Rather, they relate to “efficiency” and “profit”.
• the claim in para. 12 relating to the representations made to Javed as opposed to Noureddine that “Mr. Fakih represented that Paramount Fine Foods was a successful business earning $4 million in annual profit and that while the business had been experiencing some operational issues that it would continue to grow into the future” is not even alleged to be false. Nor is the allegation that “Mr. Fakih represented that he had put a significant amount of his own personal funds into the business and would continue to do so to ensure the success of the business going forward.”

[10] Those paras. are struck with leave to amend.

[11] The plaintiffs also complain that none of these allegations indicate precisely when, where, or how these supposed false misrepresentations were made by Fakih. However, the particulars provided satisfy me that the defendants have pleaded what they can recall of these details. Whether that is sufficient as a matter of substance will be decided on a motion for judgment or at trial, but it is sufficient for pleading purposes at this stage of the proceedings.

[12] The second category of allegations, which relate to documents signed by Noureddine and Javed, appear in numbered subparagraphs of para. 55 of the counterclaim.

[13] There are, again, three deficiencies;

• the allegation in para. 55 that “Mr. Fakih misrepresented the nature of the documents that he asked Mr. Noureddine to sign at the February 2018 meeting” is not supported by the balance of that paragraph, which does not relate to the “nature of the documents” but instead the “premise” for two promissory notes, the nature of which is unclear.
• the allegation in para. 55 that “both of the promissory notes for $5.5 and $1.2 million were premised on fictitious loans that were not made and Mr. Fakih’s misrepresentation that he had advanced more monies into the business than Mr. Noureddine at that point in time as a justification for the $5.5 million promissory note” is silent about any “justification” for the $1.2 million promissory note.
• neither of the allegations in para. 55 are actually supported by subparas. 28 through 32. In particular, whereas para. 55 alleges a misrepresentation by Fakih relating to “the nature of the documents”, and alleges, separately, that they were “premised on fictitious loans”, paras. 28-32 do not allege at all, let alone with any particularity, (i) what documents were signed or how Fakih misrepresented the “nature of the [numerous] documents”, or (ii) that Fakih claimed that any loans had been made to AHM.

[14] These paras. are also struck with leave to amend.

Costs

[15] I award the plaintiffs costs of this motion payable by the defendants fixed in the all inclusive amount of $15,200.

Security for Costs

[16] Whether to exercise the discretion to order security for costs of the counterclaim involves a two-part inquiry. First, the defendants to the counterclaim must demonstrate that Noureddine, Javed, and AHM fall within one of the factors set out in Rule 56.01(1) of the Rules of Civil Procedure. If they do, the onus shifts to Noureddine, Javed, and AHM to show that it would be unjust for the court to exercise its discretion to order security for costs.

[17] The defendants to the counterclaim have met their initial burden. Rule 56.01(1)(a) provides that the court may order security for costs where it appears that the plaintiff or applicant is ordinarily resident outside Ontario. Noureddine and Javed reside in Kuwait. They do not live in, do business in, or have any connection to Ontario other than their investment in Paramount. AHM is not an Ontario corporation; it is a British Columbia corporation. AHM was only incorporated for the purpose of investing in Paramount. It does not have any employees and does not carry on any business at all.

[18] Nevertheless, under the second part of the enquiry, the plaintiffs by counterclaim argue that an order for security for costs is unnecessary and unjust for the following reasons:

a) the estimate in the moving parties’ draft bill of costs is not proper evidence and does not apportion fees amongst claims; b) the plaintiffs by counterclaim have sufficient assets both in Ontario and in British Columbia, a reciprocating jurisdiction, to satisfy an order for costs; c) security for costs is inappropriate where the counterclaim involves the same issues and arises from the same facts and circumstances as the original claim; and d) the plaintiffs by counterclaim are not required to post security for costs by virtue of s. 249(3) of the Business Corporations Act. Their counterclaim is, at its core, an oppression remedy claim.

[19] I am unable to accept the argument that the evidence supporting the request is insufficient. A draft bill of costs was filed. The respondents were at liberty to demand further particulars and details or to file opposing material about the categories or the quantum. They were not prejudiced in any way by the fact that the draft bill was not attached to an affidavit.

[20] I am also not persuaded that the respondents have sufficient assets in the jurisdiction. The assets they hold consist of shares in the Paramount Group and shareholder loans owing by the Paramount Group. The Paramount Group is the entity over which this dispute is taking place. The nature of the respondents’ shareholdings, for example, is in issue in these proceedings. Where ownership of the very assets said to represent adequate security is in dispute, it is hard to see how those assets could provide adequate security if for example, the plaintiff were successful, and the defendants were unsuccessful, at the end of the day.

[21] However, I agree with the plaintiffs by counterclaim that their counterclaim is inextricably connected to both the claim and their defence to the claim. In other words, there is a substantial coincidence between the alleged facts that constitute their defence and those that support their counterclaim. The plaintiffs’ oppression action puts the entirety of the relationship of the Paramount Group’s shareholders in issue. The counterclaim presents the respondents’ version of events. This close connection between the counterclaim and the original claim militates against an exercise of this court’s discretion to award security for costs against the respondents.

[22] I also agree with the plaintiffs by counterclaim that an order directing security for costs is not appropriate in the present case because the respondents’ counterclaim is, at its core, an oppression remedy claim. Section 249(3) of the Business Corporations Act provides that a “complainant is not required to give security for costs in any application made or action brought or intervened in under this Part”.

[23] While the plaintiffs (defendants by counterclaim) are correct when they say that several aspects of the counterclaim fall outside of the ambit of the oppression counterclaim, these aspects are nevertheless caught by the assessment of the pleadings set out in para. 21 above, which is an equally valid, stand-alone basis for declining to exercise my jurisdiction to order security for costs.

[24] The motion for security for costs is dismissed.

Costs

[25] I award the defendants costs of this motion payable by the plaintiffs fixed in the all inclusive amount of $25,000.

Financial Information and Audited Financial Statements

Access to Financial Information under the OBCA

[26] Under ss. 140 and 141 of the Business Corporations Act, all corporations must prepare and maintain corporate records, including “adequate accounting records”.

[27] Further, accounting records relating to the operations, business, assets and liabilities must be accessible to directors to enable them to ascertain quarterly with reasonable accuracy the financial position of the corporation: OBCA, s. 144.

[28] Directors and shareholders have the right to access and take copies of information at no charge: OBCA, s. 145.

[29] The defendants concede that “some” of the required information has been provided but maintain there are “gaps” in the material provided and that there are levels of financial disclosure to which they have not been provided access at all.

[30] The plaintiffs take the position that all ss. 140/141 information has been provided and that the additional information requested goes beyond what is reasonably necessary for a director’s purpose.

[31] The “gaps” referred to in para. 9 and Exhibit M to the Markaroff affidavit shall be specifically listed and that list shall be delivered to the plaintiffs. The plaintiffs shall produce those documents for inspection regardless of whether they have allegedly been produced before.

[32] The defendants also seek more current and ongoing information. In light of the lack of audited financial statements, this is a reasonable request so long as it does not impose onerous or undue burdens on the plaintiffs. The OBCA refers to “quarterly” financial reporting being available to directors. There is no evidence in this case of quarterly financial reports or summaries being prepared in the ordinary course. However, there is evidence of weekly reports being prepared and delivered to Fakih.

[33] In the circumstances, those weekly financial reports shall be made available to the defendants on an ongoing basis. Since they are being prepared for management anyway, providing them to the other director will not be the least bit onerous.

The Appointment of an Auditor to Prepare Audited Financial Statements

[34] Under the OBCA a corporation must provide audited financial statements to shareholders unless the obligation to do so has been waived by the shareholders. No such waiver has been given by the shareholders in this case: OBCA, s. 148.

[35] The plaintiffs say they are happy to have audited financial statements prepared as long as the defendants pay for them. The plaintiffs take the position that they cannot afford to pay for audited financial statements because the Paramount Group is operating under constraining financial difficulties; there are other, more pressing priorities.

[36] The receipt of audited financial statements is a mandatory right that shareholders can assert without explanation: Markus Koehnen, Oppression and Related Remedies (Toronto: Carswell, 2004), at p. 150; Packall Packaging Inc. v. Ciszewski, 2016 ONCA 6, 344 O.A.C. 180, at para. 28. Further, given the competing claims and counterclaims being made in these proceedings, audited financial statements will be an important and necessary tool for evaluating those claims and resolving this litigation.

[37] I am not satisfied with the plaintiffs’ explanation. At its highest, the plaintiffs’ claim amounts to an assertion that there are more important or urgent demands on the use of the corporations’ cash. This is not a sufficient basis to brush aside the mandatory requirement for audited financial statements. If the plaintiffs’ claims are literally true, then the Paramount Group would appear to be incapable of satisfying its financial obligations as they come due. This would mean the Paramount Group is insolvent and facing far graver problems than those posed by these competing applications under the oppression remedy.

[38] An order shall issue appointing Grant Thornton LLP for the purpose of conducting an audit of the Paramount Group for 2016, 2017, 2018, 2019, 2020 and 2021 and authorizing it to prepare the requested audited financial statements as soon as reasonably possible. The Paramount Group shall be responsible for Grant Thornton’s fees for performing these audits, without prejudice to any claim, based on sufficient cause, to recover such fees from the defendants at the conclusion of these proceedings.

Costs

[39] I award costs of this motion to the defendants payable by the plaintiffs fixed in the all inclusive amount of $20,000.

Penny J. Date: April 26, 2022