Court File and Parties

COURT FILE NO.: 05-CV-290631PD1

DATE: 20120613

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Gurdev Singh Mann, Plaintiff

AND:

Gurpal Singh Saini, Joseph Stanford and Karl Stanford, Defendants

BEFORE: Carole J. Brown J.

COUNSEL: Joseph Markin, for the Plaintiff

James S.G. MacDonald, for the Defendant Gurpal Singh Saini and Helen S. Clarke for the Defendants, Joseph Stanford and Karl Stanford

HEARD: March 5, 2012

reasons for judgment

[1] The plaintiff, Gurdev Singh Mann (“the plaintiff” or “Mann”) and the defendants, Gurpal Singh Saini (“Saini”) and Joseph Stanford (“Stanford”) were businessmen in Brampton and Toronto. The plaintiff, Karl Stanford was Joseph Stanford’s son.

[2] In 2003-2004, the parties entered into a business arrangement with respect to two companies, Crossroads Airline Services Inc. (“CASI”), which carried on business as an inter-terminal luggage and local service provider at Toronto’s Lester B. Pearson International Airport, and Crossroads Courier Services Inc. (“CCSI”), which carried on business as a courier of misdirected airline baggage.

[3] By July of 2004, Stanford left the business, and shortly thereafter Saini and Mann chose to sever their business interests in the companies. After negotiations, Mann purchased all of Saini’s interest in the two companies for $100,000.00.

[4] By November or December of 2004, CCSI was having financial difficulties due to the airlines withdrawing their service agreements with CCSI. CASI continued to be a viable entity through 2009.

[5] The plaintiff brings this action against the defendants for damages in the amount of $400,000.00 for alleged false representations on the parts of the defendants upon which false representations he says he relied in investing in and ultimately purchasing the defendants’ businesses, and also for the monies paid for CCSI due to the lost luggage contracts.

[6] The defendants deny the plaintiffs’ allegations, and state that the plaintiff was properly and fully apprised of all of the financial circumstances of the companies and was provided with all of the financial, business and banking books and records in order to do his due diligence before becoming involved with the companies.

[7] The defendant, Saini, counterclaims as against the plaintiff for liquidated damages in the amount of $50,000.00 allegedly owing under the contract of sale of his interest in the two businesses, CASI and CCSI to the plaintiff.

[8] The defendant, Stanford, counterclaims against the plaintiff in the total amount of $934,702 for lost profits and, loss of future opportunities, due to the mismanagement of CASI by the plaintiff, harassment, intentional infliction of emotional stress, intentional interference with contractual relations between Stanford, CCSI and CASI, and punitive damages.

[9] Prior to trial, the plaintiff and defendant, Saini, agreed to a Statement of Admitted Facts dated February 27, 2012. Stanford did not agree to the said Statement of Admitted Facts. Where reference is made below to Admitted Facts, the agreed facts are only as between the plaintiff and Saini.

[10] At trial, based on testimony given by the plaintiff, his counsel withdrew Admitted Facts, nos. 2 and 3.

The Facts

Involvement of Plaintiff in the Companies

[11] In 2003, the defendant, Stanford, owned and managed Crossroads Courier Inc. (“CCI”) which held service agreements and contracts with several airlines for the delivery of lost or misplaced airline luggage. The evidence indicates that a small part of CCI’s operation also included a package delivery service. While this was challenged by the plaintiff, the claim does not relate to this aspect of the business and I do not deal with it further.

[12] In late 2003, CCI was having significant financial problems and ultimately became insolvent. Stanford sought investment partners who could assist in keeping the business viable and operational. In November of 2003, through a business acquaintance and mortgage broker, Dave Pahuja (“Pahuja”), Stanford met the defendant, Saini. Stanford and Saini agreed to become partners, although no written agreements were entered into at the time. CASI was incorporated on December 4, 2003, with Karl Stanford listed as the sole Director. The evidence indicates that he held the Company as bare trustee for his father, Joseph Stanford. The parties agree that Saini and Stanford were equal shareholders in the Company, with Stanford as Manager of the business.

[13] In late December 2003, Saini approached Mann, another business acquaintance, and discussed the possibility of Mann’s becoming involved in the luggage transfer and delivery businesses.

[14] The evidence indicates that they met 2-3 times prior to the end of the year, including a meeting at the airport offices of CASI and CCI.

[15] The parties discussed an investment by the plaintiff, in return for a partnership interest in the companies and the plaintiff’s involvement in the management of the Companies.

[16] The evidence of Saini and Stanford, confirmed by Mann, is that Mann was an experienced businessman who had successfully owned and operated a restaurant, owned and operated a taxi fleet, managed and turned around a courier business and, at the material time, owned and operated a leather couch manufacturing business.

[17] The evidence of the defendants is that they relied upon Mann’s business experience and acumen, and his courier business experience when they approached him regarding investment and involvement in their businesses.

[18] The evidence of the defendants, Saini and Stanford and Stanford’s witness, Obadiah Bishop, the dispatcher and supervisor with CCI and CCSI, is that during the month of January 2004, the plaintiff attended at the offices of CASI and CCI regularly to inspect the financial books and records of the businesses, the accounts receivable, accounts payable and to become familiar with the operation of the businesses. He attended with his accountant. He met with the staff, the bookkeeper, the luggage dispatchers and airline personnel. As a result of this due diligence, he decided to become a partner and shareholder in the businesses.

[19] The plaintiff denies that he ever conducted any due diligence, or reviewed any financial records or books. However, he acknowledged in cross-examination that he was afforded the opportunity to do so.

[20] I do not accept the testimony of the plaintiff that he was never shown and did not review the financial records or the service agreements and contracts held by CCI and taken over by CCSI. He was an astute and successful businessman. His evidence that he did not do any due diligence before investing and becoming involved is simply not credible in the circumstances and given his business background. I accept the evidence of the defendants that he attended the offices regularly in January, reviewed the books with his accountant and decided to become involved. If, as he said, he did not conduct any due diligence, and did not know the financial circumstances of the companies nor what contracts were held by any of the companies with the airlines before he invested in the companies, became involved and insisted on being President and CEO of the two companies, that was his decision. I accept the defendants’ evidence, conceded to by the plaintiff in cross-examination, that the books and records were available for him to review. If he did not do so, he is the author of his own misfortune.

[21] The Statement of Admitted Facts indicates that by the time that CCSI was incorporated on January 29, 2004, the plaintiff had indicated that he wanted to be an active shareholder in CCSI and CASI. It also indicates that Mr. Mann was advised of the financial difficulties experienced by the companies, more particularly that CCI and CASI “had a lot of accounts receivable, that the businesses were in “really bad shape” and that the businesses owed a large amount of GST”. With this knowledge of the businesses, Mann agreed to become a partner and shareholder in the businesses, investing $35,000.00. All parties agree that he insisted on and his involvement was dependant on his becoming President and CEO of the companies with control over the banking. Further, he insisted on holding a 35% interest, with Saini and Stanford each holding a 32.5% interest in each company. Mann testified that, in fact, he relied on Stanford and Saini for everything, trusted them in the operation of the businesses and the finances. Stanford and Saini, as well as the defendants’ witnesses, Obadiah Bishop, the luggage dispatcher and supervisor and Delroy Tomlinson, another manager of dispatching, testified that Mann was indeed operating the businesses and finances himself from March of 2004.

[22] The documentary evidence indicates that Saini and Mann signed a Hepco Credit Union account regarding “Change Ownership”. Mann testified that this is when he became a signing officer of the company. A further change of ownership for the account was signed by Mann on July 29, 2004, indicating that he was the sole owner of CASI.

[23] With the exception of a few cheques, no banking records for the Hepco account or any other accounts for either CASI or CCSI were produced.

[24] The plaintiff admitted in cross-examination that there was another account opened and used for CCSI at CIBC. He testified that he became a signing officer of that account in April of 2004, but admitted that he had produced no banking records for the CIBC account. He further admitted that it would have shown deposits/withdrawals regarding CCSI, and also would have shown when the company was closed, as he testified that it was at the same time that the account was closed.

[25] Not only are there no banking records produced in this action, there are virtually no financial records produced regarding either of the businesses which are the subject of these claims and counterclaims. The evidence of the financial circumstances and status of these companies at any material time is sorely lacking, despite the fact that the action has been ongoing since 2005 and that the very claims of the parties are based on the financial profits and/losses of the companies. It is not for this Court to extrapolate numbers or make guesstimates regarding the profits and losses of the Corporations during the material times, without any relevant documentary basis for doing so.

Issues of Credibility

[26] Mr. Markin for the plaintiff has urged from the commencement of trial that this action will be determined on the basis of an assessment of credibility. There is clearly a dearth of any relevant documentary evidence with which to determine the issues, and against which to assess the widely divergent versions of fact presented by the plaintiff, on the one hand, and by the defendants, on the other. Where the plaintiff’s evidence differs from that of the defendants, Saini, Stanford and their witnesses, Mr. Markin submits that the defendants have colluded in their versions of the facts, and urges me to prefer the evidence of the plaintiff. There is no evidence of collusion on the parts of the defendants and there was, further an Order excluding witnesses at the commencement of trial.

[27] I note that the reason that divergent versions of fact cannot be tested against a fulsome documentary record, including financial and other business records, is due to the fact that the plaintiff, who controlled the two companies after July of 2004, failed to produce any relevant business records to assist the Court.

[28] In assessing the credibility of the witnesses in this case, I am guided by the observations made by D. Brown J. in Atlantic Financial Corp. v. Henderson et al, [2007] 15230 (SCJ), as follows:

In deciding between these two diametrically opposed positions, I am guided by the observations made about assessing the credibility of witnesses by O’Halloran, J.A. in Faryna v. Chorny, 1951 252 (BC CA), [1952] 2 D.L.R. 354 (B.C.C.A.) where he stated, at page 357:

The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanor of the particular witness carried conviction of the truth. The test must reasonable subject his story to any examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.

[29] Additional factors to take into account when assessing a witness’ credibility include the presence or absence of evidence contradicting a witness’ statements and corroborative evidence: Sopinka and Lederman, The Law of Evidence in Civil Cases (1974), pp. 527-8.

[30] As is apparent from my reasons in this matter, where the parties’ versions of the facts are divergent, I have preferred the evidence of the defendants to that of the plaintiff due to (i) internal contradictions in his testimony and inconsistencies in the position taken by the plaintiff, considering his testimony, the documentation produced, the Amended Statement of Claim and the Statement of Agree Facts; (ii) the improbability of his version of the facts which do not accord with common sense and with his business background taking into consideration his previous experience as a businessman and his business acumen and the documentation produced; (iii) his failure to produce relevant and material documentation related to the companies in issue and their financial circumstances. I note as well that he was evasive and defensive in giving his answers.

Incorporation of CCSI

[31] Due to financial difficulties and liabilities experienced by CCI, the defendants, Stanford and Saini testified that the plaintiff insisted that a new corporation should be incorporated to replace CCI, the luggage courier service, as Mann did not want to assume any of CCI’s liabilities. CCSI was incorporated on January 29, 2004. The plaintiff denies that he made the suggestion to incorporate the new company and states that he was never advised of the existence of CCI. He stated that when he invested in the companies he was only aware of CCSI and CASI. He denied that he knew of CCI although the Agreed Statement of Fact included the admitted fact that the plaintiff was advised of the financial difficulties of CCI (para 6) and that he wrote advising the GTAA Baggage operations that CCI was insolvent and CCSI was owned by him and Saini (para 13). Moreover, the documentary evidence includes correspondence from Mann to Michael J. Sinclair, the Manager of Baggage Operations for the Greater Toronto Airports Authority (GTAA) and a second letter to Margaret Whibley, Senior Representative Concessions of the GTAA, with the same message. Both letters are dated March 1, 2004 introducing “myself and my new organization”, CCSI which has “taken on the responsibility of supplying service to your organization” as CCI is insolvent. He further requests of GTAA “the relationship and support that your [sic] have given to the old company Crossroads Courier Inc.” While he testified that the letter was authored by Stanford and he signed it without reading it, I do not accept this evidence. Nor do I accept that he was unaware of the existence of CCI which again does not accord with the evidence, testamentary and documentary, or with business sense, particularly given the vast business experience and acumen of the plaintiff and his opportunity to review the financial records and contracts of the companies.

[32] Mann’s evidence was that he did not know about CCI, did not know that the service contracts with the airlines were held with CCI and not CCSI and that the withdrawals of all of the airlines’ business in November – December, 2004 were due to this. He testified that when the airlines withdrew the contracts, they refused to speak with him as the contracts were with the other company, CCI, which he did not own.

[33] It is clear from the evidence that he knew about CCI and attempted by his letters and similar letters written by Stanford to communicate to the GTAA and the airlines that there would be a seamless transition of business from CCI to CCSI.

[34] Indeed, by the plantiff’s own admission, the airlines continued to use the services of CCSI from March 1, 2004 through November – December of 2004, and continued to pay the invoices for services rendered by CCSI through that time.

[35] Based on all of the evidence, I do not accept the plaintiff’s version of the facts in this regard, nor his claim for damages on the basis of misrepresentations and failure to disclose information regarding CCI or the airline contracts.

[36] The plaintiff states that this was the reason for the airlines refusal to renew the service agreements. The defendants state that it was because of poor service on the part of the company CCSI under the plaintiff’s management.

[37] The evidence of Saini, Stanford, Bishop and Tomlinson was that the plaintiff fired staff and reduced frequency of pick ups and delivery of luggage, resulting in complaints from the passengers to the airlines and from the airlines to CCSI.

[38] Jeffrey Farrugia (“Farrugia”) was called to testify on behalf of Stanford. He was employed with Air Canada and held the position of Manager, In-bound Baggage for 22 years, including during the material times (2003-4). He had known Stanford since 1979 when Stanford was his Crew Supervisor at Air Canada for 3 months. The relationship was professional.

[39] In 2003-2004, he was responsible for luggage on all inbound flights, including ensuring that all misdirected and misplaced luggage is located and ultimately delivered to the customers. He was in charge of approximately 106-108 baggage agents.

[40] He explained the operation of his department as it interfaced with the subject companies. With respect to missing luggage, a file is opened and once the luggage is located and received, it is logged and is placed in a specified location for pick-up by the courier company in this case, CCSI, for delivery to the customer.

[41] There were set times during the day for pick-up by the courier company, at 3 hour intervals.

[42] In 2003-2004, he dealt with Bishop, Tomlinson and Stanford regarding misplaced baggage.

[43] He stated that regarding CASI, difficulties concerning interterminal delivery were experienced at the start-up of the Company in and after December of 2003, which were resolved early on. Regarding CCI, misplaced baggage delivery was fairly smooth, although it could be disrupted by weather.

[44] He stated that he first saw the plaintiff at the airport at the end of December 2003 or early in 2004. He stated that after the plaintiff became involved and took over the companies, Air Canada began to receive more calls from the call centre regarding delivery of customers misdirected bags and complaints received from the customers related thereto. He testified that he was asked to monitor the misplaced baggage situation. He testified that there were issues regarding delays in pick-up of bags by CCSI once the bags had been located and arrived at the airport. Bags were not being delivered in a timely fashion in the summer and thereafter.

[45] He stated that by the end of the year, Air Canada was receiving many complaints regarding slow delivery of misdirected luggage. He and his supervisor, Kathy Brassard, went to the CCSI offices and warehouse to investigate. He testified that they found approximately 200 undelivered bags in the warehouse and another approximately 200-250 bags stored in a 5-ton truck at the warehouse. He testified that these bags had not been delivered for up to 5 days after they had arrived at the airport, and that the standard, accepted delay from the time such bags arrive and are cleared by Air Canada to the time they are delivered to the customer is 6 hours from contact with the customer to schedule delivery. He testified that Air Canada took possession of the bags being held by CCSI.

[46] The contract was terminated by Air Canada shortly thereafter. He had no direct involvement in the decision to terminate and did not know directly the reason therefore or whether there had been any correspondence in that regard.

[47] The plaintiff denies that there were any delays in pick-up or delivery of bags or any bags kept for a long period of time before delivery. He maintains that the contract was terminated due to the fact that the contract was actually held by CCI and not CCSI. There was no evidence produced by the plaintiff to support or establish this claim. I prefer the evidence of Farrugia regarding the problems experienced from the summer onward regarding delays in pick-up and delivery of misplaced luggage. Based on the evidence, I find, on a balance of probabilities, that the reason for the termination of the contract was because of poor performance and service, and not because, after 10 months, the airline determined that the contract was held by CCI and not CCSI. I note again the letters sent by the plaintiff to Air Canada on March 1, 2004, as set forth at paras. 28 and 30, above.

[48] The plaintiff states that CCSI was incorporated on January 29, 2004 prior to his becoming a shareholder/investor in CCSI and CASI. He states that his first investment of $35,000.00 was to be a loan. The $35,000.00 payment was made by bank draft and there is no notation to suggest that it was a “loan”. The plaintiff testified that he had originally written a personal cheque for $35,000.00 payable to Crossroads Airport Services Inc., which had a notation of a loan, which he gave to the defendants, Saini and Stanford. He testified that they took the cheque to his bank and had a bank draft prepared to replace the personal cheque. The defendants deny this. No evidence of the personal cheque was produced. The plaintiff testified that he did not have the cheque and did not request a copy from his bank. There is therefore no evidence of such a cheque before me, nor any other documentary evidence to establish that the $35,000.00 was a loan.

[49] The parties signed the Shareholders Agreement for CASI on February 9, 2004, with the plaintiff holding 35% of the shares and the defendants, Saini and Karl, holding 32.5% each, Karl as bare trustee for his father, Joseph.

[50] According to the defendants, the parties agreed and understood that the same ownership interests and management structure would apply to CCSI, although there was no written agreement executed. It appears from all of the evidence that this is the way in which CCSI was operated during the material times from March 1 through July of 2004.

[51] At the end of the trial this seemed to be in issue, as indicated below.

[52] Despite the fact that this action was commenced by the plaintiff on June 2, 2005, the plaintiff and his counsel, Mr. Markin advised the Court two days prior to the end of trial that they had noticed that the contract dated February 9, 2004 did not transfer a 35% interest in CCSI to the plaintiff, but only a 35% interest in CASI. Based on this new realization, Mr. Markin argued that the plaintiff did not receive what he had bargained for. This claim did not form part of the pleadings. Moreover, the parties all agreed that the plaintiff had received 35% of both companies, while each of Stanford and Saini received 32.5% of both companies. They further all agreed that the plaintiff obtained his interest in both companies on the condition that he become President and CEO of both companies, which occurred. Finally, in July 2004, he purchased Saini’s interest in both companies.

Resignation of Stanford

[53] There is no evidence to establish that he did not receive what he bargained for, whether the agreement was written or oral. The uncontroverted evidence is that he received his 35% share of CCSI as well as assuming the position of President and CEO, and I so find.

Purchase by Plaintiff of Companies

[54] From March 2004 through July 2004, none of the parties received any salary or dividends from the companies. Stanford’s financial circumstances were strained. He requested of the plaintiff payment of his salary and the evidence indicates that he was given a loan of $1500.00. There is evidence that Stanford was also paid $7000.00 and an additional $5000.00. Stanford testified that the $1500.00 was a loan paid to him personally, but that the additional payments were made to keep CCSI going, and were paid from CCI revenues received after January 2004. However, this was not sufficient for him to maintain his family and pay his debts and on July 5, 2004, he wrote a letter of resignation to the plaintiff regarding the two companies. There are two letters of resignation, one signed, which indicated that Stanford accepted the fact that the companies had been struggling to operate profitably and that the plaintiff was not able to compensate Stanford as promised. He wrote that, in view of his personal financial circumstances, he had to seek other employment and that, should the plaintiff need assistance in the future, to contact him. He testified that he had not written the letter and that the signature which he acknowledged was or appeared to be his may have been signed by the plaintiff. He produced no expert report or evidence regarding the authenticity or lack thereof of the signature.

[55] The other, produced by him, is unsigned and indicates the fact that he and the plaintiff had differences of opinion regarding the direction and goals of CCSI which had affected his ability to provide customer service the airlines had grown accustomed to, and he felt that he and the plaintiff would not be able to resolve their differences. He testified that it was his practice to keep an unsigned copy of his correspondence. The plaintiff, Mann, stated that he had received only the signed copy and denied having signed this or any correspondence on the defendant’s behalf. Whichever version is true, the uncontroverted evidence is that Stanford left the companies on July 5, 2004.

[56] Thereafter, Mann and Saini treated their interest in the companies as 50% each. They did not seek any legal advice regarding the effect, if any, of Stanford’s resignation on the interest allocation in the businesses.

Purchase by plaintiff of Companies

[57] In July 2005, Mann and Saini began to speak about one of them purchasing the other’s interest in the businesses. There is no evidence to establish that they considered Stanford’s interest, if any, in the businesses.

[58] It was ultimately agreed that Mann would purchase Saini’s interest in the two companies for a total of $100,000.00.

[59] On July 20, 2004, Mann and Saini entered into a written share purchase agreement for the purchase by Mann of Saini’s interest in the companies. The agreement stated that “each party owns 50% of the total shares”. The provisions of the agreement, in relevant part, are as follows:

1.2 The purchase price payable by the Purchaser to the Vendor for the Purchased Shares shall be $100,000.00 for the shares of both Corporations plus assumption of the existing loans and any other liabilities. The purchaser will pay the price for the shares as follows:

i) Pay a down payment of $35,000, by way of certified cheque or bank draft, which will be non refundable;

ii) Assume the loans guaranties of BDC and assume all the hidden and other liabilities;

iii) Pay 2nd installment of purchase price in the amount of $15,000 on August 22, 2004 by way of certified funds to the vendor;

iv) Pay the remaining funds in 10 monthly installments of $5,000.00 each starting January 1, 2005;

2.1 The Vendor covenants, represents and warrants as follows and acknowledges that the Purchaser is relying upon such covenants, representations and warranties in connection with the purchase by the Purchaser of the Purchased Shares:

(a) The Vendor is the registered and beneficial owner of the Purchased Shares, with good and marketable title thereto, free and clear of any pledge, lien, charge, encumbrance or security interest of any kind and the Vendor has the power and authority and right to sell the Purchased Shares in accordance with the terms of this Agreement.

[60] Thereafter, Mann continued to operate CCSI until December of 2004, when the airlines terminated the contracts for delivery of misplaced and lost baggage. He produced no financial records regarding CCSI. There is, therefore, no evidence regarding the financial status of CCSI at fiscal year end 2004-5, nor any evidence of whether or when the company was closed or dissolved.

[61] Mann continued to operate CASI through 2009. The evidence is that it was successful.

[62] Again, no financial records were produced other that the unaudited financial statements and Income Tax Returns for CASI for the year ended November 30, 2004 and for CCSI for the year ended December 31, 2004; the CCSI in-house balance sheet as of September 30, 2005 showing a net loss; some scattered cheques, bank statements, deposit slips and credit card statements for certain months for some parties. There was no continuous record of finances for either company for the material times. Accordingly, it is not possible to determine the actual profits or losses realized by CASI.

[63] The evidence indicates that the plaintiff drew $5000.00 per month from CASI from January 2005 onward. The testimony of the plaintiff further indicates that when the company was dissolved in 2009, he took all the remaining capital from CASI which he estimates as approximately $250,000.00 Again, there were no records to establish these amounts.

Were there misrepresentations made by the Defendants to the Plaintiff as alleged

[64] The plaintiff’s claim for damages of $400,000.00 is based on allegations of false representations by the defendants regarding the financial circumstances of CASI and CSI/CCSI, upon which he relied in investing in and ultimately purchasing the Companies.

[65] The plaintiff’s claim against the defendants is essentially one of fraud by non-disclosure and false representation. With respect to such a claim, a party must strictly prove its allegations: Atlantic Financial Corp. v Henderson et al., [2007] 15230; Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., (1988), 1988 178 (BC CA), 54 D.L.R. (4h) 43 (B.C.C.A.).

[66] The plaintiff bore the onus of proving on a balance of probabilities that the defendants made inaccurate representations or failed to disclose the true state of affairs regarding CASI and CCI.

[67] There is no evidence of misrepresentations by the defendants to the plaintiff regarding the companies, their financial difficulties, the contracts held by the companies, nor any failure on the parts of the defendants to disclose information regarding any of the foregoing. The financial difficulties of the companies were divulged to the plaintiff as set forth in the Statement of Admitted Facts. The defendants testified that the books and records of the companies and the contracts held by the companies were made available for review by the plaintiff, who did review them. While the plaintiff denies that he reviewed anything before investing and managing the companies, he did admit that all books, records and documentation were made available to him to review. I have found the evidence of the defendants to be preferred. I find the plaintiffs evidence not to be credible given that he was an astute, successful businessman who had owned several businesses and had “turned around” a company. If, indeed, he did not avail himself of the opportunity to do his due diligence of the companies in which he chose to invest, and of which he became President and CEO, he was reckless or negligent regarding his own business venture and has no one but himself to blame. He is the author of his own misfortune.

[68] The plaintiff alleges that he was not advised of the existence of CSI, nor that CSI held the contracts with the airlines. I have already found, at paragraph 30 above, that based on all of the evidence, he knew of the existence of CCI and the contracts it had with the airlines. With respect to termination of those contracts, the plaintiff claims that the airlines terminated the contracts from CCSI after 10 months of operation because the contracts had been signed with CCSI’s predecessor, CSI. The evidence from the defendants, the dispatcher, Obediah Bishop and Mr. Farrugia of Air Canada, was that the contracts were terminated as service had declined, luggage was not picked up and delivered in a timely manner, and just prior to the termination, following voluminous complaints received by Air Canada from its customers, Air Canada found some 700 misplaced bags in storage at CCSI which had not been delivered to customers within 5 days of the bags being located and delivered to the airport.

[69] While the plaintiff denies all of this, I have preferred the evidence of the defendants, Mr. Bishop and Mr. Farrugia, in this regard.

[70] Based on all of the foregoing, the plaintiff has failed to establish his claims on a balance of probabilities, and I dismiss the plaintiff’s action.

Saini Counterclaim

[71] The defendant, Saini, counterclaims for the balance of the amount owing from the plaintiff, Mann, on the Share Purchase Agreement of July 20, 2004 in the amount of 50,000.00. He further seeks rectification of the Share Purchase Agreement preamble which, he claims, contains misspelling of names and misstatements regarding ownership interest which were not noticed at the time of execution of the Agreement but were known by the parties to be errors.

[72] The Share Purchase Agreement executed by Saini and Mann set forth the terms and conditions of payment by Mann to Saini for his interest in the two companies, CASI and CCSI. The total purchase price agreed on was $100,000.00, allocated equally between the companies; viz. $50,000.00 for each company.

[73] Pursuant to the Agreement, as set forth at paragraph 56 above, Mann was to pay Saini $35,000.00 on July 20, 2004, $15,000.00 on August 22, 2004 and the balance of $50,000.00 in 10 monthly installments of $5,000.00 each, starting January 1, 2005.

[74] The evidence establishes that Mann paid the $35,000.00 at the time of execution of the Agreement. He thereafter paid the $15,000.00 in three separate payments, the last made on October 20, 2004. However, Mann failed to make any payments thereafter.

[75] Mr. MacDonald, counsel for Saini made written demand for the outstanding balance on May 4, 2005. This action was commenced on June 2, 2005. In the Statement of Claim, for the first time, Mann alleged that there had been misrepresentations made regarding CCSI which were false. He alleged that he relied upon these representations in investing in the company and ultimately lost the airline contracts. For this reason, he refused to pay the $50,000.00 outstanding balance for CCSI.

[76] I have already found that the plaintiff has failed to establish any false representations were made by the defendants upon which he relied in investing in the business and which ultimately led to loss of the service contracts with the airlines and failure of the business.

[77] Accordingly, I find that Saini is entitled to be paid by Mann the outstanding balance of $50,000.00 by Mann pursuant to the Share Purchase Agreement.

Stanford Countercliam

[78] Stanford counterclaims as against Mann for his share of the profits in CASI in the amount of $434,705, loss of future opportunities in the amount of $250,000,00 due to the plaintiff’s direct and deliberate mismanagement of CASI, $400,000.00 for harassment, intentional infliction of emotional distress and intentional interference with contractual relations between CASI, CCSI and himself, and punitive damages of $100,000.00.

[79] It is the position of the defendant, Joseph Stanford, that he continued to be a shareholder in both CASI and CCSI after his resignation from the position of Customer Service Manager with both companies on July 5, 2004. The evidence is clear that prior to his resignation, his son Karl Stanford held a 32.5% interest as bare trustee for Joseph Stanford pursuant to the Shareholder Agreement.

[80] Further, Stanford held a 32.5% interest in CCSI pursuant to the oral agreement and understanding of the parties, Mann, Saini and Stanford.

[81] Contrary to the plaintiff’s allegations that Stanford advised the plaintiff that he was abandoning any interest he had in the companies, Stanford categorically denies this and testified that he only resigned from his positions with the companies. Stanford’s letter of resignation dated July 5, 2004 states that it is an “official notice of resignation”. He testifies that he was resigning his position as Manager of Customer Service as he was unable, due to his personal financial circumstances, to work for no remuneration. The letter does not state that Karl was giving up or abandoning his ownership interest in the companies coincident with Joseph’s resignation from his employment with the companies.

[82] There is no evidence to establish that Stanford or his son, Karl, on Stanford’s behalf, intended to or did abandon his 32.5% interest in the companies and none was produced by the plaintiff.

[83] While the plaintiff testified that he and Saini treated their ownership interest in the companies after Stanford’s resignation as 50% each, he admitted that he did not consult or obtain the advice of a lawyer regarding the legal effect of Joseph’s resignation. The plaintiff claims that it was Saini who misrepresented to the plaintiff that they each owned 50% of the Corporations after Stanford’s resignation. Saini testified that he was advised of this change in ownership interest by the plaintiff. Neither party had legal training and neither consulted their lawyer with respect to this issue. I prefer and accept Saini’s evidence in this regard. Mann was controlling the business at that time, and was seen as experienced and astute. There is no evidence that the plaintiff attempted to contact Karl Stanford, the owner of the legal interest in CASI. It does not follow from Joseph’s resignation from his positions with the companies that Karl would abandon his legal ownership of the companies and there was no evidence adduced to this effect. Nor was there any caselaw cited which would support such a position. Further, there was a detailed process for purchase and sale of shares held by Mann, Saini and Karl Stanford contained in the Shareholders Agreement regarding CASI which appears to have been ignored by the plaintiff vis-à-vis Stanford. Whether this was willful blindness or negligence, it was clearly wrong.

[84] No counsel provided me with caselaw regarding what the legal effect is when a shareholder resigns from a corporation. At law, subject to any agreements between the parties, the former employee continues to hold his or her shares in the company. When an employee resigns, his or her shares in the company are not automatically redeemed: see Wells v. Conestoga Meat Packers Ltd. (2007) 2007 47159 (ON SC), 286 D.L.R. (4th) 422; Towers, Perrin, Forster Crosby, Inc. v. Cantin, (1999) 1999 15100 (ON SC), 46 O.R. (3d) 180. A shareholder’s relationship to an organization is distinct from an employee’s relationship to the organization, even if they are one and the same person. One relationship may be informed by the other, for example if either the shareholder agreement or the employment contract establishes limits on the other. Nevertheless, these relationships are independent of one another; shareholders are not always employees, and vice versa.

[85] It is not uncommon for employees or even directors of corporations to resign from these roles, yet retain their shares in a company: see Chisholm v. Antigonish Construction Ltd. 2008 NSSC 12. Subject to any contractual or legislative exceptions, when an employee who is also a shareholder resigns, the former employee becomes a regular shareholder. In this case, there were no contractual or legislative exceptions brought to my attention.

[86] In this case, Joseph, the employee, was not the shareholder. His son, Karl was the legal owner, who held the shares as bare trustee for his father, Joseph. Thus, in the present circumstances, the resignation of Joseph as employee could not be interpreted as an abandonment of the 32.5% ownership interest held by Karl in the company. Karl continued to hold the interest in the company after Joseph’s resignation from his position with the companies.

[87] I find that there is no evidence to establish that Joseph Stanford did more than resign from his management positions with the companies. I accept his evidence that he did not abandon his beneficial interest in the companies. There is no evidence to establish any abandonment of ownership interest by Stanford or by his son Karl as legal owner. I find that Karl continued to hold a 32.5% ownership interest in the company as bare trustee for Joseph. Based on all of the evidence in this case, it is most probable that, had the plaintiff and Saini obtained proper legal advice, and respected Karl Stanford’s ownership interest in the company, the plaintiff would have negotiated purchase of both Saini’s and Stanford’s equal interests in CASI. Stanford has not provided any financial or accounting evidence of the fair market value of the company. However, the plaintiff purchased Saini’s 32.5% interest in CASI for $50,000.00. As Stanford and Saini owned equal shares in the Company, I will use that value for Stanford’s interest in the shares. I find that the defendant, Karl Stanford, as bare trustee for Joseph Stanford, is entitled to be paid by the plaintiff the amount of $50,000.00 for his interest in CASI.

[88] The defendant, Stanford, claims damages for lost profits from CASI from 2004 to 2009 of $434.702.00. He calculated the income and expenses for the period 2004-2009 using the unaudited financial statements for CASI for the year ending November 30, 2004 for operating costs from which he extrapolated increasing expenses through 2009, and the revenues as set forth in the Service Contract with Air Canada for 2004-2009. From the operating costs, he deducted the amounts set forth in the financial statements for advertisement, membership dues and subcontracts, stating that there had been no expenses for these items while he was there. He increased the amounts annually and took 32.5% of the resulting operating income per annum. This totaled $404,033.47, not $434,702.00.

[89] There was no expert report or evidence called regarding these estimated figures. The actual financial statements and income tax returns for CASI for 2005-2009 were not produced. Such documents were not produced by the plaintiff, and there is no evidence to indicate whether they were the subject of a productions motion on the parts of the defendants. They are not part of the record. As I observed at paragraph 24 above, there is an astonishing dearth of business and financial records relevant to the claims for profits and lost opportunities regarding CASI. It is not for this Court to make large awards of damages, as is sought in this case, on the basis of speculation and extrapolated estimates of profits and losses over a 5 year period, with no financial underpinnings for those years, rather than on concrete numbers.

[90] Stanford has not provided sufficient or any evidence regarding his claims for lost profits or harassment or intentional infliction of emotional distress. I dismiss those aspects of his counterclaim.

Order

[91] Based on the foregoing analysis and findings, I order as follows:

1. The plaintiff’s claim is dismissed;

2. The counterclaim of the defendant, Saini is granted in part, and the plaintiff is to pay the defendant, Saini, the amount of $50,000.00 within 60 days;

3. The counterclaim of the defendant, Stanford, is granted in part, and the plaintiff is to pay the defendant, Karl Stanford, as bare trustee for Joseph Stanford, the amount of $50,000.00 within 60 days.

Costs

[92] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: June 13, 2012

COURT FILE NO.: 05-CV-290631PD1

DATE: 20120613

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Gurdev Singh Mann

Plaintiff

And

Gurpal Singh Saini, Joseph Stanford and Karl Stanford

Defendants

REASONS FOR JUDGMENT

Carole J. Brown J.

Released: June 13, 2012