ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 09-CV-390165
DATE: 20120618
B E T W E E N:
Deepak Mittal
Applicant
- and -
Pushap Jindal, Ashwani Sood and AAA Holdings Ltd.
Respondents
COUNSEL:
• Neal H. Roth for the Applicant
• Mauro Carabetta for the Respondents Pushap Jindal and AAA Holdings Ltd.
• David Shiller for the Respondent Ashwani Sood
HEARING DATE: June 13, 2012
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION AND OVERVIEW
[ 1 ] This matter began as an application by the Applicant Dr. Deepak Mittal to, among other things, wind-up the Respondent AAA Holdings Ltd. (“AAA Holdings”). There are now two motions before the Court. The Respondent, Mr. Ashwani Sood, brings a motion to enforce a Settlement Agreement under which Dr. Mittal allegedly agreed to sell his interest in AAA Holdings to Mr. Sood and to the Respondent, Mr. Pushap Jindal, for $252,000. Dr. Mittal and Mr. Jindal, however, oppose the enforcement of the Settlement Agreement.
[ 2 ] For the reasons that follow, I am dismissing Mr. Sood’s motion to enforce the settlement. This dismissal is without prejudice to Mr. Sood relying on the settlement as a counterclaim or defence to Dr. Mittal’s original Application, which should now go forward. I shall convert the application into an action. In that action, Dr. Mittal shall be plaintiff and Mr. Sood and Mr. Jindal shall be defendants with counterclaims and crossclaims.
[ 3 ] In my opinion, there are genuine issues requiring a trial about the enforcement of the settlement agreement and, therefore, the settlement should not be enforced summarily. In particular, there is a genuine issue for trial about whether the settlement agreement should be rescinded on the grounds of alleged fraudulent misrepresentations. If there is no enforceable settlement agreement, then a variety of issues must be tried, including whether to wind-up AAA Holdings and whether to enforce a buy/sell provision in the shareholders’ agreement.
[ 4 ] The second motion before the Court is a motion by Dr. Mittal for an interlocutory order: (1) restraining Mr. Sood and Mr. Jindal from transferring their shares in AAA Holdings; (2) requiring AAA Holdings to retain an auditor to prepare annual financial statements from 2005 to date; and (3) restraining AAA Holdings from business transactions in excess of $5,000 without Dr. Mittal’s written consent.
[ 5 ] I shall grant Dr. Mittal’s motion only to the extent of continuing until trial the interim order made by Justice Grace on consent. Dr. Mittal did not make out a case for additional interlocutory relief, and his request for the appointment of an auditor can fairly wait for the trial in this matter.
[ 6 ] I order that the costs of both motions are in the cause.
B. FACTUAL AND PROCEDURAL BACKGROUND
[ 7 ] Mr. Jindal and Mr. Sood are certified general accountants with practices in Brampton, Ontario. Dr. Mittal resides in Kentucky, where he practices medicine. He is the brother of Mr. Jindal’s wife.
[ 8 ] In 2005, Dr. Mittal, Mr. Jindal, and Mr. Sood incorporated AAA Holdings to acquire a commercial plaza in Brampton. AAA Holdings purchased the plaza at a cost of $4,130,025. The anchor tenant was Blockbuster, then a successful video store.
[ 9 ] Dr. Mittal, Mr. Jindal, and Mr. Sood signed a Shareholders’ Agreement dated September 12, 2005 and each received a one-third interest in the corporation (100 shares each). The Shareholders’ Agreement prohibits the sale of shares without the written consent of all shareholders. The Shareholders’ Agreement contains a buy/sell provision and a prohibition on selling one’s shares without the consent of the other shareholders.
[ 10 ] On September 12, 2005, Mr. Sood and Mr. Jindal signed a resolution dispensing with the appointment of an auditor for the corporation. Dr. Mittal did not sign, and he says that he was not aware of the resolution until recently.
[ 11 ] AAA Holdings’ operation of the plaza seems to have gone well until mid-2009, when Blockbuster vacated the plaza, which substantially reduced rental revenue. At the same time, AAA Holdings needed an infusion of cash from its shareholders. It needed $88,000 for roof repairs, and an injection of $150,000 in capital to be on side with its banker, the Royal Bank of Canada.
[ 12 ] It is a disputed issue, but Mr. Sood deposes that by the summer of 2009, Dr. Mittal was eager to sell his shares in AAA Holdings. Mr. Sood says that Dr. Mittal was unable to make his contribution to cover AAA Holdings’ cash needs. Mr. Sood says that Dr. Mittal needed capital for his medical practice and was fed up with having to deal with his brother-in-law, Mr. Jindal, in several business ventures.
[ 13 ] Dr. Mittal denies that he had financial problems, and he denies that he needed to sell his interest in AAA Holdings. He says, however, that he was interested in selling his shares because his relationship with Mr. Jindal was troublesome and because he was told that the financial situation at the plaza was declining because Blockbuster had given notice and the circumstances of many of the tenants was poor because of the poor economy.
[ 14 ] Meanwhile, in September 2009, Mr. Jindal purported to exercise the buy/sell provision of the Shareholders’ Agreement to purchase Dr. Mittal’s one-third interest. He allegedly sent Dr. Mittal a letter triggering the buy/sell for $28,561.98.
[ 15 ] Around the same time, Dr. Mittal was having private conversations with Mr. Sood about withdrawing from AAA Holdings and selling his interest to him for around $250,000, even though he thought it was worth $800,000. Mr. Sood’s evidence is that at this juncture, he was discouraging Dr. Mittal from selling, but that Dr. Mittal was emphatic about ending his interest in AAA Holdings.
[ 16 ] It is another disputed point, and a major one at that, but during the negotiations between Dr. Mittal and Mr. Sood, Dr. Mittal says that he was not told that the rental situation at the plaza had changed for the better. A day-care centre was interested in renting the vacant Blockbuster space. However, Mr. Sood says that he told Dr. Mittal about the potential tenant and that Dr. Mittal was simply disinterested in this news because of his eagerness to sell.
[ 17 ] Dr. Mittal does not deny that he was prepared to sell his shares to Mr. Sood at what would have been a substantial bargain, but he says that he would not have sold if he knew the true state of affairs about the new tenant. He says that he was fraudulently deceived by Mr. Sood and by Mr. Jindal who never disclosed to him the true state of affairs at the plaza.
[ 18 ] Mr. Sood denies hiding any information from Dr. Mittal, and Mr. Sood says that he came to an agreement to purchase Dr. Mittal’s interest for $256,500 in the fall of 2009. For his part, Mr. Jindal complains that these negotiations were a conspiracy against him.
[ 19 ] In any event, the agreement between Dr. Mittal and Mr. Sood was arrested because Mr. Jindal claimed that he already was the owner of Dr. Mittal’s shares, having exercised the buy/sell provision in the Shareholders’ Agreement. For his part, Dr. Mittal denied receiving notice of Mr. Jindal’s buy/sell notice, and when he learned of it, in October 2009, he stopped his negotiations with Mr. Sood and brought the Application now before the Court to have the exercise of the buy/sell provision by Mr. Jindal set aside. Dr. Mittal sought an order that he would be the buyer of Mr. Jindal’s shares for $28,561.98. As one of the alternatives, he sought to have AAA Holdings wound-up.
[ 20 ] In his original application, Dr. Mittal also sought orders for: the appointment of an auditor, the delivery of annual financial statements for the years 2005 to date; an accounting; the appointment of a receiver/manager; injunctive relief administering the business affairs of AAA Holdings; an oppression remedy; and an order winding-up AAA Holdings.
[ 21 ] Dr. Mittal initially sued only Mr. Jindal; Mr. Sood was not a party to the application. As noted below, Mr. Sood was later added as a party respondent.
[ 22 ] In December 2009, Mr. Jindal made an offer to settle, and following the offer, the parties met in Toronto on December 12, 2009. They agreed to negotiate without legal representation, apparently to save expense.
[ 23 ] At their meeting, they reached an agreement in principle pursuant to which Dr. Mittal would sell his shares to Mr. Sood and to Mr. Jindal for $256,500. To implement the settlement, the Application would be discontinued and the parties would sign a release and transfer Dr. Mittal’s shares.
[ 24 ] Mr. Sood points out that in reaching the settlement, Dr. Mittal had legal representation available to him, which apparently he did not utilize, and he had the ability to obtain more information about the business affairs of the plaza, but he did not seem interested in exercising due diligence. Dr. Mittal did not ask Mr. Jindal or Mr. Sood to bring AAA Holdings’ financial statements, rent rolls, general ledger, or any other financial information to their meeting.
[ 25 ] On December 13, 2009, Mr. Jindal prepared written minutes of settlement and sent them to Mr. Sood and Dr. Mittal. In January 2010, Mr. Jindal redrafted the minutes of settlement in a form that was acceptable to the parties.
[ 26 ] On February 9, 2010, the parties signed the February Settlement Agreement. Under the agreement, the Jindal buy/sell provision was set aside and Dr. Mittal agreed to transfer 53 of his 100 AAA shares to Mr. Sood and 47 of his shares to Mr. Jindal for $252,000, including his shareholder advance balance, goodwill, reserves, and retained earnings.
[ 27 ] The parties also signed a mutual release. The release included an acknowledgement that the parties had not been induced to execute the release by reason of any representation or warranty of any nature or kind whatsoever, and that there was no condition, express or implied, or collateral agreement effecting the release.
[ 28 ] Because of the corporate restructuring and the affect on lending arrangements, the Settlement Agreement required the consent of the Royal Bank, and this consent was sought in February 2009.
[ 29 ] While the completion of the settlement agreement was pending, Dr. Mittal kept pressing for its closing, but with delays he began to express exasperation and he began to demand the payment of interest and other changes to the agreement. He threatened to revoke the Settlement Agreement.
[ 30 ] On April 9, 2010, the Royal Bank approved the settlement.
[ 31 ] In another disputed point, Dr. Mittal says that around this time he learned for the first time from his own conversations with persons at the Royal Bank about the leasing of the Blockbuster space to a new tenant. Dr. Mittal says that he formed the opinion that both Mr. Sood and Mr. Jindal had hidden information and misrepresented the financial status of the plaza. He says that after some demands for information were not answered by either Messrs. Sood or Jindal, Dr. Mittal refused to complete the settlement.
[ 32 ] Mr. Sood disputes Dr. Mittal’s version of the facts. He says that Dr. Mittal always knew about the new tenant and even with the knowledge he had now received from the Royal Bank Dr. Mittal did not protest, but rather pressed for the completion of the settlement.
[ 33 ] On April 16, 2010, Dr. Mittal’s counsel wrote to Mr. Jindal and Mr. Sood advising that Dr. Mittal was no longer prepared to complete the settlement because there have been material breaches of the minutes of settlement. No material breaches, however, were identified in the letter, but Dr. Mittal says that the lack of detail can be explained because he was still investigating the misrepresentations.
[ 34 ] On June 16, 2010, Dr. Mittal’s lawyer sent an e-mail message to Mr. Sood’s lawyer indicating that Dr. Mittal believed that the Settlement Agreement was entered into following misrepresentations by Messrs. Sood and Jindal. Mr. Sood submits that this is the first time that Dr. Mittal alleged that there had been misrepresentations.
[ 35 ] The settlement did not proceed.
[ 36 ] On June 30, 2010, Mr. Sood brought a motion to be added as a party respondent and to enforce the settlement. Both Dr. Mittal and Mr. Jindal were not prepared to complete the settlement. On July 14, 2010, Mr. Sood was added as a party respondent and the motion was adjourned for cross-examinations.
[ 37 ] Cross-examinations of Mr. Sood and Mr. Jindal took place in March 2011 and Dr. Mittal was cross-examined in April 2011.
[ 38 ] On February 6, 2012, a motion by Dr. Mittal for interim relief came on before Justice Grace, who made an interim order on consent. He ordered, among other things, that pending the return of the motion: (a) AAA Holdings shall not pay any money to either of Messrs. Sood or Jindal, save for the $1,500.00, plus HST, per month to Mr. Jindal, in respect of his alleged management fee; (b) AAA Holdings shall not make payment of any expenses in excess of $5,000.00 without first giving notice to Dr. Mittal, save for payments to government authorities, such as realty taxes and HST, and payments to the Royal Bank of Canada in respect of the first mortgage. The issue of the appointment of the auditor was adjourned.
[ 39 ] Mr. Sood now brings on his motion to enforce the alleged Settlement Agreement. Dr. Mittal resists the motion. His position is that his original application should continue and in his own motion, he seeks interlocutory injunctive relief. Mr. Jindal also resists Mr. Sood’s motion. Mr. Jindal’s position is that he seeks to enforce the shotgun purchase of Dr. Mittal’s shares and to resist Dr. Mittal’s original application.
C. DISCUSSION
[ 40 ] With this factual and procedural background, my discussion and analysis should be and can be brief.
[ 41 ] To summarize the factual background into its core elements. Dr. Mittal, Mr. Jindal, and Mr. Sood each were one-third owners of AAA Holdings. In the fall of 2009, Mr. Jindal says that he purchased Dr. Mittal’s one-third interest for $28,561.98 pursuant to a shotgun provision in the Shareholders’ Agreement. Dr. Mittal denies the sale, and in the fall of 2009, brought an application to buy-out Mr. Jindal. Late in 2009 and early in 2010, the parties apparently agreed to settle their disputes, and Dr. Mittal agreed to sell his shares to both Mr. Sood and Mr. Jindal. However, Dr. Mittal alleges that he later discovered that he had been deceived about the financial fortunes of AAA Holdings and he terminated the Settlement Agreement, which is fine by Mr. Jindal, who now wishes to complete his purchase of Dr. Mittal’s shares for $28,561.98. This is opposed by Mr. Sood, who wishes to enforce the Settlement Agreement reached between all the parties.
[ 42 ] In Bayerische Landesbank Girozentrale v. R.S.W.H. Vegetable Farmers Inc., (2001), 53 O.R. (3d) 374 (S.C.J.), the Court held that judgment may be granted on a motion to enforce a settlement only if there are no genuine factual disputes that require a trial for their resolution. The Court held that the test for a summary judgment applies to the motion to enforce a settlement.
[ 43 ] The test for enforcing a settlement agreement is the same test as used to grant a motion for summary judgment. In my opinion, it is manifestly apparent that the test for a summary judgment cannot be satisfied in the immediate case. There are numerous issues that require a trial, and it would simply not be substantively or procedurally fair to any party to decide these issues without a trial.
[ 44 ] This means that the original application should continue, but the proceeding should be converted into an action.
[ 45 ] Where there are material facts in dispute that require a trial, the court may order that the application proceed to trial: rule 38.10(1) (b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194; Collins v. Canada (Attorney General) (2005), 76 O.R. (3d) 228 (S.C.J.). Where there is a dispute with respect to facts material to the issues to be resolved, an application is not appropriate and a trial should be ordered: Keewatin v. Ontario (Ministry of Natural Resources) (2003), 66 O.R. (3d) 370 at para. 46 (Div. Ct.); Burlington (City) v. Clairton (Village) (1979), 24 O.R. (2d) 586 at 589 (C.A.); and Moyle v. Palmerston Police Services Board (1995), 25 O.R. (3d) 127 at p. 131 (Div. Ct.).
[ 46 ] A proceeding by action is necessary for two reasons. First, even if there had never been a settlement agreement, the factual controversies in this case could not fairly be resolved without the forensic machinery of a trial and the interlocutory procedures associated with an action. Second, the issue of whether there has been a settlement agreement is, in effect, an action for specific performance with a defence of rescission based on fraudulent misrepresentations. Those issues also cannot be fairly decided by a proceeding by application. The multi-issue disputes between the parties require a trial.
[ 47 ] I therefore order Dr. Mittal’s application converted into an action in which he is plaintiff and Messrs. Sood and Jindal are defendants. I order Dr. Mittal to deliver his statement of claim within thirty days of the release of these Reasons for Decision. After the delivery of the statement of claim, the action should proceed in accordance with the Rules of Civil Procedure.
[ 48 ] As for Dr. Mittal’s request for interlocutory relief, I can be equally brief. Dr. Mittal has failed to show that any relief beyond the relief granted under Justice Grace’s order is required. In other words, the issues to be tried, the risk of irreparable harm, and the balance of convenience do not favour any additional relief. All that is required is to continue Justice Grace’s order until the trial.
[ 49 ] As for costs, it remains to be seen whether the Court will ultimately enforce the Settlement Agreement or set it aside. Similarly, it remains to be seen what the fate is of the buy/sell provision triggered by Mr. Jindal. In these circumstances, the appropriate costs award is to make costs in the cause of the action.
[ 50 ] Orders accordingly.
Perell, J.
Released: June 18, 2012
COURT FILE NO.: 09-CV-390165
DATE: 20120618
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Deepak Mittal
Applicant
‑ and ‑
Pushap Jindal, Ashwani Sood and AAA Holdings Ltd.
Respondentss
REASONS FOR DECISION
Perell, J.
Released: June 18, 2012