CITATION: Kauffman v. Fazari, 2020 ONSC 7358

DIVISIONAL COURT FILE NO.: 439/20

DATE: 20201130

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: CHRIS KAUFFMAN, Plaintiff/Respondent

AND:

QUEEN ST. 1501 INC. and CESARE FAZARI, Defendant/Appellant

BEFORE: Penny J.

COUNSEL: Raymond M. Slattery and Samantha Schreiber for the Plaintiff/Respondent

Boby Sachdeva and Allison J. Farley for the Defendant/Appellant

David Preger for the Sales Officer, Rosen Goldberg Inc.

ENDORSEMENT

Overview and Issues

[1] There are two related motions before the Divisional Court in this matter. The first is a motion by Mr. Fazari seeking an order granting a stay pending his appeal of the order of Mr. Justice Hainey dated August 25, 2020. In that Order, Hainey J. appointed Rosen Goldberg Inc. as Sales Officer to facilitate the possible sale of six properties owned by single purpose corporations which are, in turn, owned in equal measure by Fazari and Mr. Kauffman.

[2] The second motion is brought by Kauffman for an order quashing Fazari’s appeal on the basis that the Order is interlocutory, such that leave of the Divisional Court is required in order to bring the Fazari appeal.

[3] The logic of these disputes seems to dictate that the jurisdiction motion be resolved first. I will, therefore, deal first with Kauffman’s motion to quash the appeal and then turn to Fazari’s motion for a stay.

[4] The issue on the motion to quash is whether the order is final or interlocutory. If the order is final, Fazari has an appeal as of right to the Divisional Court. If the order is interlocutory, Fazari must first seek leave of the Divisional Court before instituting his appeal.

[5] The test on a motion for a stay pending appeal is well settled and not in dispute. To succeed on a motion for a stay, the moving party must meet a three-part test:

(1) the appeal must present a serious issue for adjudication;

(2) the appellant must show it will suffer irreparable harm if the motion is not granted; and

(3) the balance of convenience must favour the appellant:

RJR-MacDonald Inc. v. Canada (Attorney General), 1994 SCC 117, at para. 40

[6] For the reasons that follow, the motion for an order quashing the appeal is granted. The motion for a stay is dismissed.

Background

[7] Kauffman and Fazari are the 50/50 shareholders, officers and directors of six single purpose corporations that hold ownership interests in six properties (the Properties). In 2018, the professional relationship between Kauffman and Fazari broke down. Despite their attempts to negotiate an equitable split of the assets owned by the six companies, Kauffman and Fazari have been unable to come to a resolution. In 2020, Kauffman commenced this Application, the Bridge Loan Agreement Action and the Oppression Remedy Action. Fazari has defended against these proceedings and, by counterclaim, made his own claims and allegations against Kauffman, including under the oppression remedy.

[8] All of these proceedings were consolidated and placed on the Commercial List by order of Hainey J., who is case managing the proceedings and hearing all motions.

[9] In view of the parties’ inability to come to an agreement about how to ‘divvie up’ the real property assets held by the six jointly-owned corporations, Kauffman brought a motion for the appointment of a sales officer who would, under court supervision, market and sell the Properties, with all proceeds held in trust pending the final disposition of the parties’ competing claims. It is not in dispute that Kauffman’s motion was hotly contested, with both parties filing extensive affidavits and conducting cross examinations. Among other things, in opposition to a court-ordered sales process, Fazari sought the appointment of a Monitor to preserve the Properties and to facilitate a continuation of a process by which the parties would divide up the Properties between them on an equitable basis.

[10] The sales order motion (and another motion which is no longer in dispute) were to be heard on July 15, 2020. At the videoconference hearing, it was determined that Hainey J. had not received Fazari’s responding and cross-motion materials. Justice Hainey was not prepared to make any order without the benefit of reviewing Fazari’s material. Although there is now a disagreement about how the motion ultimately unfolded, it seems that Justice Hainey, at the initial return date, observed that, as both Kauffman and Fazari were making allegations of oppression, perhaps the best way to achieve the required separation of assets was through a court-approved sales process. It does not seem to be in dispute that Justice Hainey urged the parties to work out the terms of a draft order appointing a sales officer in the hopes that a return to court to argue the motion would not be necessary.

[11] The parties did engage in partially successful efforts directed towards the negotiation of a possible sales order, but there is now a significant dispute about whether those negotiations were “without prejudice”. Fazari maintains that his negotiation of the draft sales order was only in the event that Fazari’s motion for the appointment of a Monitor was unsuccessful.

[12] In any event, no agreement was reached and the parties returned before Hainey J. on August 25, 2020 to deal with the motions.

[13] According to Kauffman, at the hearing on August 25, 2020, Mr. Slattery (counsel for Kauffman) advised Justice Hainey that the parties had come to an agreement on the majority of the terms of a draft sales order and sought the court’s guidance on the resolution of several terms that remained in dispute. Justice Hainey went through the outstanding terms with the parties and resolved those issues in dispute. In accordance with what occurred during the hearing, the parties then came to an agreement on the terms of the draft order and an endorsement which appointed Rosen Goldberg Inc. as the Sales Officer to oversee the sale of the Properties. The Order and Endorsement were signed by Justice Hainey.

[14] According to Mr. Slodovnik (former counsel to Fazari), on August 25, 2020 Mr. Slattery wanted to discuss the terms of the sales order based upon Mr. Slodovnik’s “without prejudice” email. Mr. Slodovnik says he objected to proceeding on this basis. The hearing on August 25, 2020 was a half hour motion appointment. “In his discretion,” Mr. Slodovnik deposes, “His Honor made it clear that he would grant the sales order, and therefore the bulk of the half hour was spent working on the terms of the order. If the implication of Ms. Schreiber's affidavit is that Cesare [Fazari] consented to the Order, this is not correct.”

[15] It is from the Order (and supporting Endorsement) made in these circumstances that Fazari appeals. The sole ground of appeal is that the Endorsement, on its face, does not provide any analysis of how Hainey J. reached the conclusion that the appointment of the Sales Officer was necessary. Further, Fazari says, the Endorsement does not provide any insight as to the legal basis or factual findings of oppressive conduct on the part of Fazari which, Fazari says, must, by necessary implication, have been made by Hainey J. in order to support the appointment of the Sales Officer.

Analysis

Final or Interlocutory?

[16] An interlocutory order is one which does not determine the real matter in dispute between the parties but only some collateral matter. An order may appear final in the sense that it determines the very question in dispute but it is nevertheless interlocutory if the merits of the case remain to be determined: Hendrickson v. Kallio, [1932] O.R. 675 (C.A.).

[17] The rule in Hendrickson has been expanded to include the circumstance where, even if an order does not finally dispose of the merits, it will be final for purposes of appeal if it deprives a party “of a substantial right which could be determinative of the entire action”: Stoiantsis v. Spirou, 2008 ONCA 553 at paras. 21-22.

[18] Mr. Sachdeva argues forcefully that an order under s. 248(3) of the OBCA cannot be made without a finding of oppression. Mr. Sachdeva is concerned, given the absence of reasons supporting such a finding, that Hainey J.’s implicit finding of oppression against Mr. Fazari has deprived him of a substantive right which could be determinative of the entire action, which centrally involves competing allegations of oppression by one party against the other.

[19] Given that a head of relief claimed by Fazari in the litigation involves an order implementing an alleged “agreement” between the parties to divide the actual real estate between them on an equal basis, Fazari also submits that the Order will deprives him of the substantive right to insist, in opposition to a sale and ultimate distribution of fair value between the parties, on an actual in specie division of the real estate assets of the jointly owned corporations.

[20] Without in any way commenting on the merits of Fazari’s position on appeal, in my view the terms of the Order itself make it plain that the Order is interlocutory in the required sense cited above. The Order results in a process leading to a possible sale, not to a sale itself. The Order expressly requires any sale to be specifically approved by the court in a future order.

[21] Paragraph 1 of the Order states: “Any sale of the [Properties] shall be subject to approval of the Court.” In addition, the Order sets out various notice provisions before significant steps are taken. Paragraph 8 of the Order requires notice to the parties before the Sales Officer seeks any directions from the court or signs any documents. Paragraph 9 of the Order specifically requires notice to the parties before the Sales Officer lists the Properties for sale and the price at which the Properties are proposed be listed. Paragraph 11 of the Order requires notice to the parties before the Sales Officer: a) rejects any offer; b) makes any counter-offer; or, c) accepts any offer. The parties are entitled to object to any matter raised in paragraphs 9 and 11. The Sales Officer must then make best efforts with the parties to resolve any objection, failing which the matter must be returned to court for further directions.

[22] Fazari relies on two decisions which found that the appointment of a receiver is, itself, a final order: Illidge (Trustee of) v. St. James Securities Inc. (2002), 60 O.R. (3d) 155 (Ont. C.A.); Ontario v. Shehrazad Non Profit Housing Inc., 2007 ONCA 267. However, the ratio of both cases was that the appointment of the receiver was sought by way of originating process (notice of application), rather than by way of motion. Here, the underlying litigation encapsulates a number of proceedings and causes of action (breach of contract, breach of fiduciary duty and oppression). The motion for the appointment of the Sales Officer was a way of initiating a process to bring about a future resolution of some of the issues in dispute; it was not, as in Illidge and Shehrazad, the very thing the litigation was for.

[23] Until the court makes an order approving a sale of one or all of the Properties, no party can have been deprived of a substantial right which could be determinative of the action. The Order of August 25, 2020 is, therefore, interlocutory. Leave is required to appeal that Order. No leave having been granted, the appeal must be quashed without prejudice to Fazari’s ability to seek leave in writing from a three-member panel of the Divisional Court. The consideration of any such motion for leave, if brought, can be expedited, if necessary, by contacting the administrative head of the Divisional Court.

Stay

[24] It seems to me to be axiomatic that, in the absence of a valid appeal, there would normally be no ability to obtain a stay pending appeal. Nevertheless, in the unique circumstances of this case, where a motion for leave may well be brought, I believe a consideration of Fazari’s motion for a stay is appropriate.

[25] The threshold for showing that the appeal raises a serious issue for adjudication is low. The moving party need only show that the appeal is not frivolous or vexatious. There are, in the present circumstances, material disputes about the factual and legal foundations for the Order. I am not prepared to say that there is no serious issue for adjudication.

[26] However, as with most stay motions, the real issue is the need to show irreparable harm. The same analysis giving rise to the conclusion that the Order is interlocutory leads to the conclusion that, at least until the court issues an order approving a sale, there is no harm or possibility of harm arising from the Order at all, much less irreparable harm. The motion for a stay is, in that sense, premature at the very least.

[27] The balance of convenience, for the same reason, supports denying the motion for a stay in the present circumstances.

Conclusion

[28] For the foregoing reasons, the appeal from the Order is quashed without prejudice to Fazari’s right to seek leave to appeal. The motion for a stay is dismissed.

Costs

[29] The parties agreed that in the event of a clear winner, costs should be fixed and awarded in the amount of $7,000. As Kauffman succeeded on both motions, he is entitled to costs in the agreed amount.

Penny J.

Date: November 30, 2020