Court of Appeal for Ontario

Citation: 6071376 Canada Inc. v. 3966305 Canada Inc., 2020 ONCA 428

Date: 2020-06-30

Docket: C67237

Before: Feldman, Fairburn and Nordheimer JJ.A.

Between:

6071376 Canada Inc. Plaintiff (Respondent)

and

3966305 Canada Inc. and Mahmood Khedmatgozar Defendants (Appellants)

Counsel: Charles M. Gibson and Ian Houle, for the appellants G. James Thorlakson and David R. Ellliott, for the respondent

Heard: In writing

On appeal from the order of Justice Wolfram Tausendfreund of the Superior Court of Justice, dated June 25, 2019, with reasons reported at 2019 ONSC 3947.

REASONS FOR DECISION

[1] The personal appellant ("the appellant") purchased a commercial development project in Gatineau, Quebec, referred to as the "Hull Project", in trust for a company yet to be incorporated. 3966305 Canada Inc. ("396") was incorporated for that purpose.

[2] The appellant needed investors for the Hull Project. He found three who lived in California ("the principals"). Based upon representations made in late February 2003 and an agreement reached, the principals decided to invest over $230,000 in the Hull Project. They incorporated 6071376 ("607") for this purpose. The appellant's brother – Ramin – was named the sole director of 607 and was to act as the principals' "eyes and ears on the ground" for all matters relating to the project.

[3] The appellant sold the Hull Project in June 2006, but never disclosed that fact to the principals. The appellant did not provide the principals with a portion of the proceeds. Nor did he reimburse them for their original investment. Instead, despite their ongoing efforts to determine what was happening with the Hull Project, the principals did not discover its sale until about six years later.

[4] It appears that the appellant used the proceeds from the sale of the Hull Project to purchase other properties which provided him with good financial gain.

[5] Two of the three principals eventually came to Canada in 2012 to attempt to discover what had happened to their money, particularly given that their repeated questions had either gone unanswered or were deflected. The appellant obfuscated, among other things, claiming that he had lost relevant documents. Importantly, he never disclosed that the Hull Project had been sold in 2006. The appellant was later asked for a cost-revenue summary for 2008 to 2012 and said that he would forward the documents to the principals. Of course, that would have been impossible given that there were no such documents, the Hull Project having been gone for over two years before the beginning date for which the principals were seeking some financial accountability.

[6] The trial judge concluded that the parties had formed an agreement in February 2003. Among other things, in return for their investment, the agreement entitled the respondent to 40 percent participation in the Hull Project, including the net income and net sale proceeds upon disposition. He also concluded that the respondent was owed a fiduciary duty by both 396 and the appellant personally.

[7] Included in the damages award was $515,600 for pre-judgment interest and $200,000 payable by the appellant as punitive damages.

[8] The appellant argues that the trial judge erred in five respects. We do not accept any of these arguments.

[9] First, the appellant argues that the trial judge failed to consider the factual matrix underlying the purported agreement. He maintains that the fact that a co-tenancy agreement was never signed was an important factor informing whether an actual agreement was ever reached.

[10] This argument overlooks the fact that an unsigned co-tenancy agreement was specifically addressed by the trial judge. He simply found that it did not undermine the fact that an earlier oral agreement had been reached by the parties. It was that oral agreement at the end of February that was acted upon and that resulted in the investment made by 607.

[11] The finding that the oral contract had been formed by the end of February turned largely on credibility findings, ones that were open to the trial judge to make and to which we owe deference. Specifically, the trial judge rejected the appellant's evidence that there were matters left to be negotiated that extended beyond the end of February. Based upon an acceptance of the principals' evidence, it was open to the trial judge to reach his conclusion that there was a contract reached by the end of February 2003 and that the appellant breached the terms of that contract.

[12] Second, the appellant argues that the trial judge erred by failing to draw an adverse inference from the respondent's decision not to call Ramin as a witness at trial. It was under no obligation to do so. Ramin was equally available to both parties and was not within the exclusive control of the respondent. Indeed, we note that Ramin is the brother of the appellant.

[13] Third, the appellant claims that the trial judge failed to give adequate reasons for concluding that he was not a credible witness. We see no error in how the trial judge approached his credibility findings. Based upon the factual record, it was entirely open to the trial judge to reject the appellant's evidence.

[14] Fourth, the appellant argues that he should not have been found personally liable. We do not accept this argument