COURT FILE NO.: CV-10-0138 & CV-11-964-00 & FS-09-0953-00
DATE: 20130325
ONTARIO
SUPERIOR COURT OF JUSTICE
Court File No: CV-10-0138-00
B E T W E E N:
Nashaat Aly et al
R. Fisher and B. Sarsh, for the Plaintiffs
Plaintiffs
- and -
Nader Halal Meat Inc. et al
A. Farooq, H. Syed and O. Chaudhry for the Corporate Defendants and Adel Tohamy, Nader Tohamy and Tamer Tohamy
Defendants
Court File No. CV-11-964-00
AND B E T W E E N:
Naiema Mohamed El-Sayed Mohamed El Feky
J. Lagoudis and M. Guirguis, for the Plaintiff
Plaintiff
- and -
Nader Halal Meat Inc. et al
A. Farooq, H. Syed and O. Chaudhry, for the for the Corporate Defendants and Adel Tohamy, Nader Tohamy and Tamer Tohamy
Defendants
Court File No. FS-09-0953-00
AND B E T W E E N:
Naiema Mohamed El-Sayed Mohamed El Feky
J. Lagoudis and M. Guirguis, for the Applicant
Applicant
- and -
Adel Mohamed Tohamy
A. Farooq, H. Syed and O. Chaudhry, for the Respondent
Respondent
HEARD:
Phase 1 of the liability portion of the trial took place on May 14, 15, 16, 17, 18, 22, 23, 24, 25, 28, 29, 30 31 and June 1 and 5, 2012
Phase 2 of the liability portion of the trial took place on January 21, 22, 23, 25, 18, 29, 30, 21, and February 1, 2013
REASONS FOR JUDGMENT ON LIABILITY
Ricchetti, J.
THE ALY ACTION: CV-10-0138-00. 3
THE EL-FEKY FAMILY LAW APPLICATION: FS -09-0953-00. 4
THE EL - FEKY OPPRESSION APPLICATION: CV 11-964-00. 7
CONTEMPT MOTIONS. 8
THE TRIAL PROCEDURE.. 8
CREDIBILITY AND RELIABILITY OF THE WITNESSES’ EVIDENCE.. 10
Nashaat 11
Taghreed. 13
Dean El-Sedfy/ Aziz Diriny/ Zahar Masood. 15
Larry Joslin. 16
Adel 17
Nader. 21
Tamer. 25
Hamid Shaikh. 27
Fareed Sheik. 30
Naiema. 34
Yuraj Chhina. 38
Nancy Rogers. 38
FINDINGS OF FACT.. 39
The Early Years and the Relationship between Adel and Naiema. 39
Adel decides to open a business. 43
The Alys immigrate to Canada and the Decision to open Nader Halal 43
Nader Halal Opens. 46
Nader Halal becomes Successful 49
Nashaat Commences working at Nader Halal 50
Nader Halal produces substantial yearly profits. 51
The Events of 2001 and the Alys’ acquisition of an interest in Nader Halal 53
Adel tries to renege on the agreement 55
The Incorporation of Tamer Inc. And Nader Halal Meats Inc. 56
The Purchase of the Plaza. 58
The Separation of Adel and Naiema. 59
The Divorce Settlement Agreement 61
Naiema Leaves Canada. 66
2004 Through 2007. 67
The Alys leave Nader Halal 68
Adel speaks to his friends about the ownership of Nader Halal 70
The Return of Naiema in 2008. 72
The Events leading up to the Final Agreement 73
The Final Agreement 79
Subsequent Events leading to the actions. 83
The Break-In. 85
The Tohamy Family Businesses Today. 86
THE AVAILABILITY AND RELIABLITY OF FINANCIAL RECORDS. 87
The Continued Lack of Documentation. 94
FINDINGS OF FINANCIAL FACTS REGARDING THE TOHAMY FAMILY BUSINESSES. 96
The 2012 Cash Register Tapes. 100
FINANCIAL FACTS RELATING TO ADEL AND NAIEMA.. 101
Family Property as of November 2, 2004. 101
Value of Tamer Inc. 101
Value of Nader Halal 102
The Value of Family Property at November 2, 2004. 107
Adel’s 2004 Income. 111
Adel’s Current Income. 113
Naiema’s 2004 Income. 113
Naiema’s Current Income. 114
ANALYSIS OF THE ALYS’ CLAIM... 115
CONTRACT.. 115
Was there a partnership agreement prior to 2001?. 116
Was there an agreement in 2001?. 124
QUANTUM MERUIT and UNJUST ENRICHMENT.. 131
FIDUCIARY DUTY.. 132
CONSTRUCTIVE TRUST.. 133
OPPRESSION.. 133
SPOLIATION.. 135
ANALYSIS ON THE EL-FEKY CLAIMS. 137
SETTING ASIDE THE SEPARATION AGREEMENTS. 137
The Two Stage Review.. 138
Have any of the provisions in s. 56(4) of the FLA been engaged?. 139
The Exercise of Judicial Discretion. 144
APPLICATION TO THE DIVORCE SETTLEMENT AGREEMENT.. 145
Is s. 56(4) of the FLA engaged?. 145
The Exercise of Judicial Discretion. 148
APPLICATION TO THE FINAL AGREEMENT.. 151
Is s. 56(4) of the FLA engaged?. 151
DID THE SEPARATION AGREEMENTS CAUSE A TRANSFER OF NAIEMA’S SHAREHOLDINGS? 159
SPOUSAL SUPPORT.. 161
Do the Separation Agreements result in Unconscionable Circumstances?. 162
Is Naiema on Social Assistance?. 163
Should the court set aside the waiver provision?. 163
OPPRESSION.. 165
THE CONTEMPT MOTIONS. 166
Naiema’s April 4, 2012 Motion. 167
APPOINTMENT OF A RECEIVER.. 170
THE ALY ACTION: CV-10-0138-00
1Nashaat Aly (“Nashaat”) and Taghreed Aly (“Taghreed”) (referred to as the “Alys”) claimed “at least a 20%” interest in a Halal meat supermarket known as Nader Halal Meats and Variety, which business was subsequently incorporated in 2003 as Nader Halal Meat Inc. (“Nader Halal”), Tamer Investments Inc. (“Tamer Inc.”) and Nader Fine Foods Inc. (“Nader Foods”). These are collectively referred to as the “Tohamy Family Businesses”.
2The Alys’ Statement of Claim has been amended a number of times. The Fresh as Amended Statement of Claim advances the following causes of action:
a) breach of contract;
b) unjust enrichment;
c) oppression under ss. 245 and 248 of the Ontario Business Corporations Act, R.S.O. 1990, Chap. B. 16 (“OBCA”);
d) spoliation; and
e) breach of fiduciary duty.
3The Alys’ claim is succinctly set out in the following paragraphs of the Fresh as Amended Statement of Claim:
The Plaintiffs state that in or about 1991, Adel made them an offer relative to the establishment and operation of Nader Inc. In consideration for the Plaintiffs moving to Canada to establish, operate and nurture Nader Inc., Adel, on his own behalf or on behalf of Nader Inc., promised: (i) to put up an initial investment of $80,000 toward the establishment of Nader Inc. and (ii) to grant the Plaintiffs a 20% ownership interest in Nader Inc. Adel represented to Nashaat and Taghreed that they were his business partners and that they would ultimately be compensated as such.
Nashaat and Taghreed accepted the above offer and in or around September of 1991 came to Canada to establish, operate and obtain their ownership interest in Nader Inc. From the commencement of their business dealings with Adel relative to Nader Inc. the Plaintiffs had a reasonable expectation of a 20% ownership interest in Nader Inc. based on the arrangements between the Plaintiffs and Adel. This expectation formed part of the fundamental compact or arrangement between the Plaintiffs and Adel.
21 On an ongoing basis throughout the Plaintiffs’ tenure with Nader Inc., it was repeatedly represented to them by Adel that they were partners in Nader Inc. and that they would receive or had at least a 20% ownership interest in the business. Prior to the incorporation of Nader Inc. in 2003, it was represented at various points that the Plaintiffs had a 50% or 33% ownership interest in the business. The Plaintiffs performed the aforesaid duties at less than fair market value in reliance on, or in consideration of, these representations.
4The defendants in the Aly Action are Adel Tohamy (“Adel”), Nader Tohamy (“Nader”), Tamer Tohamy (“Tamer”) (collectively referred to as the “Tohamy Personal Defendants”) and Naiema El-Feky (“Naiema”). The Tohamy Personal Defendants and Naiema deny there was an agreement that the Alys would be partners or have an ownership interest in any of the Tohamy Family Businesses. These defendants submit that the Alys were employees of Nader Halal, who have been paid for their services, and have no further claim in law to an interest in any of the Tohamy Family Businesses.
5In addition, Naiema submits that she did not agree to the Alys becoming partners in the Tohamy Family Businesses and, as such, if the Alys are entitled to any interest, the interest should come from Adel’s share of the Tohamy Family Businesses.
THE EL-FEKY FAMILY LAW APPLICATION: FS -09-0953-00
6Naiema commenced this application in March 2009. Adel is the sole respondent in this proceeding. Naiema claims:
a) Setting aside the Divorce Settlement Agreement (“Divorce Settlement Agreement”) dated November 2, 2004;
b) Setting aside the Final Agreement (“Final Agreement”) dated July 8, 2008;
c) Equalization of Net Family Property (including the shares and/or profits in the Tohamy Family Businesses);
d) Exclusive possession, sale and division of the proceeds of sale of the matrimonial home; and
e) Spousal support.
7The Court of Appeal for Ontario granted Naiema an extension of the limitation period set out in s. 7(3) of the Family Law Act (“FLA”). Therefore, the limitation period is not an issue in this trial.
8Naiema’s position at trial can be summarized as follows:
a) With respect to the Divorce Settlement Agreement and the Final Agreement, Naiema claims that both agreements should be set aside because of:
i. Duress; and
ii. Unconscionability;
b) If both the Divorce Settlement Agreement and the Final Agreement are set aside, Naiema claims ½ of the Net Family Property (including the Tohamy Family Businesses) as at November 2, 2004;
c) Naiema claims that neither the Divorce Settlement Agreement nor the Final Agreement relinquished her rights to her interest in the matrimonial home or the Tohamy Family Businesses. As a result, regardless Naiema claims entitlement to a ½ interest in the matrimonial home, a continuing 25 % interest in the Tohamy Family Businesses. Naiema claims her share of profits from the Tohamy Family Businesses since November 2, 2004 – this claim being grounded in the Family Law Act (FLA) (division of family assets upon separation) or the OBCA (oppression); and
d) Regardless of whether the Divorce Settlement Agreement and Final Agreement are set aside, Naiema claims spousal support retroactively and prospectively.
9Adel’s position at trial was that the Divorce Settlement Agreement and the Final Agreement are valid and binding. Pursuant to the Divorce Settlement Agreement and the Final Agreement Naiema relinquished her rights to any interest or a claim to:
The matrimonial home;
The Tohamy Family Businesses; and
Spousal support.
THE EL - FEKY OPPRESSION APPLICATION: CV 11-964-00
10Naiema brought this application for oppression under the Ontario Business Corporations Act (“OBCA”) seeking relief relating to her alleged interest in the Tohamy Family Businesses.
11This application is shown as Action No. CV-10-8960-00 in the Trial Record, being the action number assigned when the proceeding was commenced in Toronto. Eventually, this application was transferred to Brampton and Action No. CV-11-964-00 was assigned to the application.
12The respondents in the El-Feky Oppression Action Application are Nader Halal, Tamer Inc., Adel, Nader and Tamer and Nader Fine Foods Ltd. (“Nader Fine Foods”). Nader Fine Foods is a restaurant owned and operated by Adel, Nader and Tamer in the last few years. These parties are collectively hereafter referred to as the “Tohamy Respondents”.
13Naiema commenced this action claiming that:
a) she continues to be a beneficial owner of 25% of the shares of Nader Halal and Tamer Inc.;
b) she has been oppressed and seeks to recover her interest (including the past profits) in the Tohamy Family Businesses; and
c) she claims an interest in Nader Fine Foods because monies from Nader Halal and Tamer Inc. were used to open and operate this business.
CONTEMPT MOTIONS
14There were a number of contempt motions brought by the Alys and Naiema regarding the alleged breach by Adel, Nader and Tamer of disclosure orders. The contempt motions were adjourned and heard during the liability phase of the trial.
THE TRIAL PROCEDURE
15The above three proceedings were ordered to be tried at the same time. The reasons for and manner in which the trial was to proceed are set out in my written reasons of March 16, 2012 and March 26, 2012.
16Subsequently, counsel for all parties consented to an order bifurcating the liability and damage issues in these actions. Counsel were advised that the reasons for liability would necessarily require findings of credibility of the parties and the witnesses (including the experts called by the parties) notwithstanding that these witnesses might potentially testify at the damages phase of the trial. Nevertheless, all counsel were in agreement to continue with the bifurcated trial.
17The liability portion of the trial took place in two phases. The first phase focused on liability issues in the Aly Action. The second phase focused on liability issues in the El-Feky Family Law Application and the El-Feky Oppression Application.
18The more significant witnesses called during the first phase of the liability portion of the trial included:
a) Adel Tohamy (Naiema’s former husband and father of Nader and Tamer);
b) Naiema El-Feky (Adel’s former wife and mother of Nader and Tamer);
c) Nader Tohamy (son of Adel and Naiema);
d) Tamer Tohamy (son of Adel and Naiema);
e) Nashaat Aly (brother of Adel);
f) Taghreed Aly (wife of Nashaat and cousin of Adel);
g) Dean El-Sedfy (friend of Adel);
h) Aziz Diriny (friend of Adel);
i) Zahar Masood (friend of Adel);
j) Larry Joslin (financial expert called by the Alys);
k) Hamid Shaikh (Adel and the Tohamy Family Business’ accountant); and
l) Fareed Sheik (financial expert);
19The following witnesses testified at the second phase of the liability portion of the trial:
a) Naiema;
b) Larry Joslin (financial expert called by Naiema);
c) Nancy Rogers (valuation expert called by Naiema);
d) Yuraj Chhina (the lawyer who provided ILA to Naiema);
e) Sheik (financial expert called by the Tohamy Defendants);
f) Tamer;
g) Nader; and
h) Adel.
CREDIBILITY AND RELIABILITY OF THE WITNESSES’ EVIDENCE
20The parties did not agree on any facts or even a chronology. Each party provided voluminous documentation. As a result, the credibility and reliability of the witness’ viva voce evidence became central to the findings of fact.
Nashaat
21Nashaat’s evidence as to his involvement and importance to Nader Halal was exaggerated in an attempt to justify a partnership interest in Nader Halal. For example, his evidence that “almost every day Adel told him he was an owner” for 17 years was an extreme exaggeration. Much of Nashaat’s evidence (particularly financial evidence of Adel and the corporate entities) also appeared to be a repetition of information he obtained from the document disclosure and not his personal knowledge.
22I reject Nashaat’s evidence that he had an agreement with Adel regarding the ownership in Nader Halal prior to 2001:
a) Nashaat testified Adel told him in 1991 that they had a partnership in Nader Halal without stating a percentage and Nashaat never asked what percentage. It makes little sense that Nashaat would not ask what percentage of the business was his;
b) The Alys pleading states the agreed upon ownership interest in 1991 was 20%, but Nashaat testified it was 50%;
c) Nashaat testified that, over the subsequent years, Adel changed the percentage the Alys had in Nader Halal without Nashaat ever complaining, getting upset or doing anything about his ever changing alleged ownership interest;
d) Nashaat testified that he started asking Adel for his “profits” in 1995-96 but chose not to leave Nader Halal until 2007 even though Nader Halal became very successful, Adel became wealthy and Nashaat had received none of the profits;
e) Nashaat testified he believed he was an owner or partner in Nader Halal from 1991 but Nashaat stopped working at Nader Halal in early 1992, then decided to get other full-time jobs starting in March 1992, took upgrading engineering related courses, applied and received unemployment insurance and social assistance until 1995. It makes little sense for Nashaat to have done this if he thought or believed he was a 50% (or any other percentage) partner in Nader Halal; and
f) Despite testifying that he believed he was an owner in Nader Halal, Nashaat never told anyone he was a partner or owner of Nader Halal. Nashaat did not report to the bank he was a partner when he applied for a mortgage in 1999 – he showed himself as an employee at Nader Halal.
23There is no documentary or other evidence which supports Nashaat’s evidence that there was an agreement with Adel that he was a part owner in Nader Halal prior to 2001.
24However, Nashaat’s evidence that Adel and he agreed in 2001 that the Alys would have a 20% interest in Nader Halal is corroborated by the evidence of three witnesses, all of whom were friends of Adel. The actions of Nashaat after 2001 appear to be consistent with the existence of an agreement as to a joint ownership interest in Nader Halal. As a result, I accept the portion of Nashaat’s evidence relating to the discussions with Adel in 2001 regarding the agreement that the Alys would have a 20% interest in Nader Halal and the subsequent events.
Taghreed
25I reject Taghreed’s evidence that there was an agreement she and her husband were partners or owners in Nader Halal, prior to 2001:
a) Taghreed testified at the examination for discoveries that the Alys had accepted Adel’s offer in the hospital in September 1991, but at trial she denied she accepted the offer in the hospital;
b) Taghreed testified she did not know why Nashaat, if they were partners in Nader Halal, would take an upgrading engineering course in 1994. I do not accept that she would not know why her husband took the course while he was unemployed and Taghreed was at home with her first child;
c) Taghreed went to extraordinary lengths to give evidence regarding the discussions between Nashaat and Adel to which she was not privy. For example, she testified that on two occasions, when Nashaat was on the phone with Adel, she could hear what Adel was saying to Nashaat;
d) Much of Taghreed’s evidence was simply a repeat of Nashaat’s evidence regarding his business discussions with Adel. Taghreed admitted that she did not have any significant business discussions with anyone other than her husband, Nashaat;
e) Taghreed presented a letter to the bank dated December 1, 1999. Taghreed knew the letter was false in several respects and, nevertheless, gave it to the bank to obtain a mortgage. In addition, the letter showed Taghreed was an employee at Nader Halal;
f) Taghreed testified that, in 1991, while believing she and her husband were 50% owners of Nader Halal, there were no discussions with as to how the business was going to be set-up or other financial details. Taghreed agreed that the Alys had no input into any business decisions regarding the start up or operations of Nader Halal; and
g) Taghreed testified that she continued to trust Adel despite the many broken promises and the numerous changing percentages over the years.
26In my view, much of Taghreed’s evidence related to why she should be a partner: because she sacrificed her career, worked long hours, fulfilled her duties at Nader Halal, ensured the business survived, and the importance of her role given Adel’s health issues. Even if these were true, many of these reasons may be morally relevant to her claim, but they do not create a contract or entitlement at law to an interest in Nader Halal.
Dean El-Sedfy/ Aziz Diriny/ Zahar Masood
27Mr. El-Sedfy, Mr. Diriny and Mr. Masood were all long-time friends of Adel. They were called as witnesses by the Alys.
28These three witnesses were credible. Their evidence was reliable. They answered questions in a straight forward manner. They had no reason to be biased in favour of one side or the other. These were long standing friends of Adel, and yet, their evidence was entirely inconsistent with Adel’s evidence. Their evidence was corroborative of Nashaat’s evidence that the Alys had become 20% part owners in Nader Halal in 2001.
29Their evidence was highly significant on the existence of an agreement between Adel and Nashaat with respect to an ownership interest in Nader Halal. Their evidence was not seriously challenged and there is no good reason why their evidence should be rejected in whole or in part.
30I accept their evidence. Each of these witnesses confirmed Adel told them he had agreed and given the Alys 20% of the Nader Halal business in 2001.
Larry Joslin
31Larry Joslin (“Joslin”) is a forensic and investigative accounting expert. Mr. Joslin is a Certified Management Accountant and a Certified Fraud Examiner. He has 36 years experience in auditing and investigative accounting. Mr. Joslin has considerable experience in this field and has testified on numerous occasions as an expert witness.
32Mr. Joslin was called as a witness by the Alys and Naiema.
33I accept the evidence of Mr. Joslin. He was a balanced witness who answered the questions regardless of whether or not his evidence assisted the Alys, Naiema– in other words, the way a true independent expert witness should. His answers were clear, straightforward and made sense in the circumstances of this case. Where a limitation existed in his opinion, Mr. Joslin was ready to acknowledge the limitation.
34Mr. Joslin’s evidence cast considerable and very serious doubt as to the credibility and reliability of Adel’s entire evidence. Mr. Joslin’s evidence was so compelling that when Adel subsequently testified, he was compelled to and admitted that he had lied and cheated when reporting Nader Halal and his personal income to Revenue Canada.
35Mr. Joslin’s evidence also shows the lengths to which Adel went to hide his fraudulent actions. Mr. Joslin’s reports describe how Adel had produced few financial documents voluntarily. Subsequently, when ordered by the court, additional relevant financial documents were produced but many were not. Many financial documents reasonably expected to be available and produced, remain not produced by the Tohamy Respondents.
Adel
36The evidence of Adel is neither credible nor reliable. I completely reject his evidence in its entirety. In addition to Adel’s false recording and reporting of financial information, Adel assisted employees and suppliers to avoid their tax obligations by paying them in cash. The amounts are significant, in many years as much as $2,000,000 per year in unrecorded and unreported sales.
37Adel is a secretive and manipulative person focussed on money. Adel was prepared to do and say whatever was best and profitable for Adel.
38In this case, there is no difference in Adel’s admitted actions to cheat and lie to Revenue Canada and lying and cheating his brother to avoid an agreement that his brother had a share in Nader Halal.
39During his evidence, Adel was not prepared to concede even the most insignificant detail if he believed the answer was not helpful to his position. For example, when asked about a single cheque signed by Nashaat, Adel would not admit that Nashaat may have personally paid approximately $200 to a supplier of Nader Halal because no business cheques were available. Instead, Adel suggested the product was for Nashaat personally. Only after being confronted with his prior testimony did Adel admit that Nashaat paid Nader Halal’ supplier for the product.
40There are many examples of Adel’s false testimony. Some examples include:
a) Adel continued to file income tax returns for Naiema after they were separated and after Naiema had left Canada in 2004. Adel instructed his accountant to file tax returns, showing Naiema was operating a property management business and that she was being paid an income from the family businesses. All of this was, of course, false. Naiema did not have a business, provide any work or receive any money. These false returns were filed solely to reduce taxes;
b) A net worth statement for Adel dated 2006, prepared for banking purposes, showed a personal net worth as $8,097,486. However, by 2007, after the Alys brought their claim, Adel’s alleged net worth statement was reduced to $1,791,434. Any financial information from Adel is completely unreliable;
c) Adel provided the bank a document, to obtain financing for Tamer, describing himself as having a Ph.D. from Concordia and McGill Universities and a professor. None of it was true;
d) Adel testified that all of the financial documents have always been available to the opposing parties. I reject this as simply not believable given the significant number of orders of this court (some on consent) requiring production of financial documents and the continuing non-production of those financial documents;
e) Prior to 2008, Adel reported, as gross sales of Nader Halal, all interac/credit cards sales and some (but very little) of the cash sales. However, starting in 2008, after the Alys had commenced this action, Adel reported gross sales of Nader Halal less than the total amount of all interac/credit card sales. In other words, he was not reporting all the paper sale transactions and none of the cash sale transactions. In 2009, Adel reported gross sales less than the total of the interac/credit card sales. In 2010, Adel reported gross sales of approximately $400,000 less than all interac/credit card sales. In both years, Adel reported none of the cash sales. The amount not recorded or reported by Adel over all of the years is in the millions of dollars;
f) On one occasion in 2009 Adel refused to produce cash register tapes. The implication was that the cash register tapes were available but would not be produced. However, later Adel testified the cash register tapes had been thrown out because they had been destroyed by rats;
g) The rental income for Tamer Inc. has been reported by Adel to have decreased in 2011 by approximately 25% from the prior year. Up until 2010 the rent income was consistently approximately $100,000 or more per month. Without any credible explanation, the rent income decreased to approximately $76,000 per month notwithstanding an additional tenant – Tim Hortons. Adel’s sole explanation was that the economy is tough – an explanation I do not accept; and
h) I find that Adel lied under oath with respect to his income and assets in his sworn 2008 Financial Statement:
i. When Adel realized that the asset values shown in his 2008 Financial Statement were substantially in error, Adel stated that the “document was not made for division of property”;
ii. On the valuation of Nader Halal, Adel estimated the value to be approximately $260,000 as at November 2, 2004. However, Adel had estimated the value of Nader Halal at $6,000,000 in 2003 when seeking a loan with the bank. Adel’s answer was that the different estimates were what he believed at the respective times. Adel never explained why the valuation could or would vary by that amount over a short period of time; and
iii. When Adel realized that his income, shown on his 2008 Financial Statement, was inconsistent with his reported income to the bank, Adel suggested that the amount in the mortgage application was his and his sons’ income. Eventually, after all possible explanations were shown to have no basis in fact, Adel finally admitted the income in the 2008 Financial Statement was wrong.
41Adel’s testimony regarding the evidence of Mr. El-Sedfy, Mr. Diriny and Mr. Masood was to allege that they are lying without giving any real or credible reason why they would be lying and contradicting Adel’s evidence.
42Adel’s evidence was one false explanation after another. When it comes to Adel’s evidence, the truth was absent.
Nader
43Nader’s evidence is neither credible nor reliable. Nader testified he did not know about the unreported cash in Nader Halal, did not know details of his own tax returns, and did not know financial details of the corporations. Nader’s evidence was biased in an effort to avoid any knowledge or make any admissions which could assist the Alys or to implicate himself in some of the fraudulent dealings in Nader Halal and Tamer Inc. Nader’s professed ignorance of the financial details of Nader Halal continued despite working full-time at Nader Halal as the Chief Executive Officer since August 2007. Nader testified he did not know and could not explain how cash and paper transactions were (or were not) recorded at Nader Halal prior to July 2012. Nader’s professed lack of knowledge is inconsistent with having a Bachelor’s Degree in Economics and Marketing.
44His lack of knowledge with respect to business and financial related issues is not believable or reliable:
a) Nader could not explain his own income tax returns. Nader testified that he signed his tax returns without looking at them or asking any questions. Nader could not explain to this Court what monies he had received from the Tohamy Family Businesses from 2007 to 2011;
b) Nader could not explain transactions in his own bank accounts. Nader’s bank account showed significant amounts of cash deposited into his account over short period of times. However, Nader denied any knowledge of these cash deposits or where the money came from. For example, during the period April 3, 2008 to April 23, 2008 the amount of cash deposits into Nader’s account was almost $10,000 but Nader testified he could not remember where the cash came from. After being confronted with prior evidence and despite his earlier denials under oath, Nader eventually admitted he knew a lot of cash from Nader Halal was not reported but simply deposited into bank accounts;
c) Nader was asked what the “real” total sales for Nader Halal were prior to July 2012. Nader testified that he “didn’t know if anyone totalled the sales before July 2012”. In other words, despite his management role and education, his evidence is that no one knew or recorded the total annual sales in Nader Halal;
d) Nader could not explain the financial details or the source of the purchase funds regarding properties where he is the registered owner;
e) While Nader is a director and one third shareholder of Tamer Inc., a corporation worth millions, he testified he knew nothing about the business except that he received a salary – but didn’t know the amount of that salary; and
f) Nader testified that, while cash deposits from Nader Halal stopped in 2009 (the same time the Alys commenced their action), this was a complete coincidence. His explanation was that there were no cash deposits to be deposited because all the cash was used for expenses. No explanation was given how this suddenly happened for a very successful business which had had substantial cash surplus for many years.
45I conclude that Nader’s evidence with respect to the Tohamy Family Businesses cannot be relied upon. Nader has been a party to Adel’s falsification and manipulation of the financial records and record keeping of the Tohamy Family Businesses.
46Nader’s evidence on non-financial matters cannot be relied on either:
a) Nader’s sworn affidavit in response in the El-Feky Oppression Application included a statement that he and Naiema’s family in Egypt advised Naiema to get legal advice prior to signing the Divorce Separation Agreement but Naiema refused and stated that Naiema just wanted the money and Adel “could do whatever he wants after that”. Naiema did not testify as to these events. This is very significant evidence on the validity of the Divorce Settlement Agreement. However, at trial Nader did not give any evidence regarding this discussion with Naiema;
b) Nader’s evidence regarding having all of Naiema’s belongings in Canada with him in the car during the second visit to Mr. Chhina is not believable. It is contrary to Naiema’s evidence and the evidence of Mr. Chhina that he recorded – Naiema was concerned she would have no place to stay if she didn’t sign the Final Agreement;
c) Nader embellished his evidence. For example, he testified Naiema signed a document for Mr. Chhina that confirmed she signed the Final Agreement contrary to his advice, a document which Nader said he witnessed. However, no such document existed in Mr. Chhina’s file and Mr. Chhina denied any knowledge of preparing or having Naiema sign such a document; and
d) Nader admitted getting angry at Mr. Chhina when Mr. Chhina continued, after the Final Agreement was signed, to advise Naiema not to deliver the Final Agreement to Adel because it wasn’t fair. Nader’s explanation that he did so because Naiema was unhappy with “the process” – not the terms of the Final Agreement. Nader’s evidence is not true. Although Nader denied at trial knowing exactly what Naiema wrote at the bottom of the Final Agreement, Nader had previously testified that he had seen what Naiema had written, understood it and that Naiema would never forgive Adel for the terms of the agreement. It was clear that Naiema was unhappy with the terms of the Final Agreement. Nader’s evidence was a blatant attempt to minimize his knowledge that Naiema was upset at what she felt forced to sign and Mr. Chhina was interfering with what Nader wanted for his father – the execution of the Final Agreement.
Tamer
47Tamer simply did what Adel told him to do. Adel gave him money when needed – no questions asked. Adel bought him properties – no questions asked. Adel put properties in his name – no questions asked. Adel had his tax returns prepared and Tamer signed them – no questions asked. Tamer has no idea if his tax returns are accurate or not. Tamer could not even state how much he received or was paid by the Tohamy Family Businesses in any year. Tamer admits knowing little if anything regarding Nader Halal or Tamer Inc. In short Tamer would have this Court believe that he received large sums of money each year for many years, properties were bought and registered in his name, he has shareholdings in the Tohamy Family Businesses and yet, he knows none of the details or whether there had been any wrongdoing. I do not accept his lack of knowledge as to the financial affairs of the Tohamy Family Businesses.
48I do not accept Tamer’s evidence that he told Naiema on November 2, 2004 that, if Naiema signed the Divorce Settlement Agreement, she would not be entitled to her shares in the businesses; the shares would be re-distributed. Given how little Tamer testified he knew about the Tohamy Family Businesses, how much Tamer wanted to distance himself from any knowledge regarding the Tohamy Family Businesses and the obvious financial benefit to him, it makes little sense for him to have gotten into details of the structure of the Tohamy Family Businesses shortly after his parents separation and before his mother left for Egypt.
49Prior to the afternoon break, Tamer testified that Nader, “ever since he started working full time at the store”, there were Excel spreadsheets prepared showing the total sales, including cash sales, for Nader Halal. This is consistent with Nashaat’s evidence where he produced a copy of the Excel spreadsheet prior to his departure in 2007. Clearly, these Excel spreadsheets had not been produced and would answer a number of questions regarding the actual total sales of Nader Halal over the years. However, after the afternoon break, Tamer’s evidence changed significantly; he then testified that there were Excel spreadsheets but these only reported interac/credit sales – not cash sales. This raises a serious issue as to what occurred during the afternoon break. The questions before the afternoon break were clear – whether there were records regarding the “cash sales”. Tamer answered that there were Excel spreadsheets. I am satisfied Tamer lied about this issue to be consistent with Adel and Nader’s evidence that no such Excel spreadsheets existed.
50Tamer’s evidence relating to non-financial materials was also not credible:
a) Tamer testified that Adel had returned from the hospital on October 29, 2004 as supportive of Adel’s evidence that he could not and did not physically beat Naiema that day. However, it is clear from the medical records Adel had returned home from a hospital stay many days before October 29, 2004; and
b) Tamer denied that there was much conflict between Adel and Naiema but it was clear from other parts of his evidence where he referred to “numerous arguments” where the Alys were regularly called upon to have Naiema reside with them for periods of time; and
Hamid Shaikh
51Mr. Shaikh had been the accountant for Adel, Naiema, Nader, Tamer and the Tohamy Family Businesses since the early 1990’s.
52Mr. Shaikh’s evidence is not reliable as his preparation of the financial records was only as good as the documentation and information he received from Adel. For a number of years, the evidence is that the gross sales in the financial statements he prepared were off by about 100% or up to $2,000,000 per year in total sales.
53The other difficulty I have with Mr. Shaikh’s evidence is that he took “some” accounting courses. The rest he learned by experience. It was clear from his evidence that Mr. Shaikh had limited knowledge of corporate accounting matters. He could not explain shareholder loans in the financial statements he prepared or how the share transfers had taken place. Mr. Shaikh could not even explain the income tax returns he prepared.
54When pressed in cross examination about what percentage he understood the owners of Nader Halal each held in the early 1990’s, Mr. Shaikh denied he asked Adel what his and Naiema’s respective ownership interest in the Nader Halal were. During this period, Nader Halal was a partnership. Mr. Shaikh, the accountant preparing and filing the personal tax returns for Adel and Naiema, would need this fundamental information to do the personal income tax returns. How Mr. Shaikh could allocate income or losses amongst the partners without knowing this basic information is unfathomable. Later in his evidence, Mr. Shaikh testified he “believed” the ownership in Nader Halal was 50-50. Notwithstanding this, he deliberately prepared and filed income tax returns showing Adel as 99% owner of Nader Halal. Mr. Shaikh admitted he advised Adel to falsify his tax return by showing the wrong percentage interest in Nader Halal. When asked whether it bothered him that he had reported the wrong percentage ownership to Revenue Canada, he said no!
55An example of Mr. Shaikh’s limitations on accounting matters was demonstrated during his explanation as to how he prepared the corporate financial statements. Mr. Shaikh testified that, if there was unexplained equity in the company, he would allocate this to “shareholder’s loans” despite the fact there was no proof of any shareholder loans or from whom. He assumed the money came from somewhere and, therefore, put it into the shareholder advance column! He did so without knowing the financial and tax consequences arising from this “calculation.” When pressed, Mr. Shaikh had no way of explaining Shareholder Loans in the financial statements.
56Mr. Shaikh admitted that, since 1995, he has prepared and filed income tax returns for Adel, Naiema, Nader and Tamer. Mr. Shaikh prepared these tax returns without speaking with, or even meeting, anyone other than Adel. There was no verification of the information Adel provided to him. On this basis, Mr. Shaikh prepared and filed tax returns for Naiema subsequent to 2004 for several years, while Naiema was in Egypt, showing that she operated a property management business providing services to Tamer Inc., all of which is false.
57Mr. Shaikh was involved in the incorporation of Nader Halal and Tamer Inc. Yet, there was no evidence that Mr. Shaikh understood the tax and legal consequences of the transfers of the businesses from personal ownership into corporations.
58Mr. Shaikh simply did what Adel told him to.
Fareed Sheik
59Mr. Sheik was called by the Tohamy Respondents to give expert evidence.
60Mr. Sheik provided expert evidence in the area of forensic accounting. He is a Chartered Accountant and a Certified Forensic Examiner. Mr. Sheik has 8 years experience in accounting. He has a general accounting practice, not just specializing in forensic accounting.
61Mr. Sheik also provided expert evidence in business valuations. However, Mr. Sheik is not a certified business valuator or has any particular expertise in the area beyond being a Chartered Accountant.
62This is the first time Mr. Sheik has been qualified as an expert to give opinion evidence in court.
63The fundamental difficulty with Mr. Sheik’s evidence is that Adel admitted, under oath, he had failed to report very substantial cash and other sales in his financial statements and to Revenue Canada. Adel did not dispute the yearly gross sales amounts estimated by Mr. Joslin. This establishes without any doubt that the financial statements of Nader Halal are not reliable. Any opinion based on these financial statements would, as a result, also not be reliable. Notwithstanding this, much of Mr. Sheikh’s evidence relies heavily on the validity and accuracy of the financial statements and documentation.
64In addition to Mr. Joslin’s expert evidence, Naiema called Ms. Nancy Rogers to give expert evidence on the valuation of Nader Halal on November 2, 2004. Mr. Sheik criticized Mr. Joslin and Ms. Rogers’ approach and conclusions because of the lack of documentation. The difficulty is that the lack of accurate and reliable documentation is due to Adel – the person who retained him. Taking cash sales, not reporting them and not documenting them, means there will not be a paper trail. That is why a forensic accounting was needed. Using Mr. Sheik’s approach, to not include items where there is no documentary proof, would reward the person who failed to keep proper and accurate business records – Adel. Mr. Sheik made substantial revisions to Mr. Joslin’s calculations because there was no “supporting evidence available such as bank confirmation or bank statement etc.” However, Mr. Sheik never asked Adel or his bank to produce the documents. Nevertheless, Mr. Sheikh concluded “it is not clear whether Adel Eltohamy owes this amount or whether it is a loan received from TD or if there any corresponding liability exists against this amount.” Mr. Sheik’s failure to make enquiries of Adel to fill this information gap undermines Mr. Sheik’s opinions.
65Mr. Joslin estimated the financial “enrichment” from the Tohamy Family Businesses, as the total amount Adel and his sons received financially from the Tohamy Family Businesses. However, Mr. Sheik insisted that the amount of living expenses spent by Adel and his sons, regardless of how extravagant a lifestyle, should not be included as part of the enrichment. Given that the forensic accounting was to determine the total financial benefit Adel and his sons received from the Tohamy Family Businesses, this makes little sense. If Adel and his sons had spent all of the money they received from the Tohamy Family Businesses entirely on an extravagant lifestyle or lost it all gambling, Mr. Sheik would have concluded there was no enrichment. This makes little sense.
66Mr. Sheik’s opinion as to the value of Nader Halal business was so low as to cause serious doubt as to the validity and reasonableness of Mr. Sheik’s analysis. The evidence from the Alys and Naiema was that Nader Halal’s net profit in the late 1990’s was approximately $600,000 to $750,000 annually. This was not disputed by Adel. This profit level was consistent with the amounts spent by Adel over those years – paying off his house, giving gifts to the Alys, accumulating approximately $1,700,000 in a bank account, expanding the business without debt and a luxury lifestyle. For Mr. Sheik to suggest that Nader Halal was only making 2-3% of the gross sales ($40 - $60,000 per year on approximately $2,000,000 total sales or even $80 - $120,000 on the total sales admitted by Adel of approximately $4,000,000) is simply not possible. Further, given these profit levels, Mr. Sheik’s opinion that Nader Halal was only worth approximately $250,000 is simply not plausible.
67One further serious problem arises with Mr. Sheik’s evidence. His opinions were extremely biased in favour of Adel; a serious flaw in an expert’s evidence. Examples include:
a) Mr. Sheik was involved in preparing a calculation of Adel’s 2004 income in his Financial Statement. The amounts used by Mr. Sheik are pure speculation. Mr. Sheik reviewed financial statements (which he knew to be wrong) and made arbitrary allocations to Adel. For example, in one case Mr. Sheik made a dividend income allocation to Adel when there is no indication in the financial statements of any declared dividends in 2004. Mr. Sheik didn’t even try to explain the inconsistency between his “calculation” and Adel’s actual reported income to Revenue Canada;
b) When confronted with discrepancies with Adel’s evidence, Mr. Sheik did his utmost to justify Adel’s evidence. For example, when asked why Adel had valued Nader Halal in the millions of dollars to the bank but Mr. Sheik only valued his share at $250,000, Mr. Sheik testified it is common for persons to overvalue their assets and their incomes when providing statements to third parties such as banks; and
c) Mr. Sheik provided extremely different valuations of Tamer Inc. in 2011 and 2013. In Mr. Sheik’s 2011valuation he valued Tamer Inc. at $1,157,235. In Mr. Sheik’s 2013 valuation he valued Tamer Inc. at $221,000. Mr. Sheik attempted to explain there was a different purpose of the 2011 and 2013 reports but each of his valuation opinions were to value Tamer Inc. as at November 2, 2004.
68I reject Mr. Sheik’s evidence.
Naiema
69Naiema is an Agricultural Engineer.
70While portions of Naiema’s evidence were credible and reliable, when troubled by a question, Naiema was prone to being evasive or having no recollection.
71One particular inconsistency has to do with the Alys alleged interest in Nader Halal:
a) In Naiema’s January 2009 affidavit, she stated:
The Alys arrival encouraged Adel to open the business because he could rely on the Alys;
The Alys assisted in the start-up of the business;
The Alys were involved in the management of the business in its early stages;
At some point, Adel told her that he had decided not to give an ownership interest in Nader Halal to his brother but instead would give him enough to start a small business; and
b) In Naiema’s November 2009 affidavit, she stated – with my comments on the importance of the change in her evidence:
It was always Adel’s intention to open a business when they came to Toronto. (This contradicted the Alys version of the events leading to the decision to open Nader Halal);
The business had been opened a month or two before the Alys arrived in Toronto (This distanced Adel’s decision to open Nader Halal from the Alys arrival and any need of their assistance in the business);
The Alys were not involved in the start-up of Nader Halal (This contradicted the Alys’ allegations that they were involved in getting Nader Halal started);
Nader Halal did not do well when Adel was not present at the store (This contradicted the Alys allegation as to their importance in the Nader Halal business); and
Nashaat kept nagging and begging Adel for a share in Nader Halal. She did not recall Adel telling her that he would give Nashaat a part of Nader Halal. Adel only said he could get Nashaat a small business to stop him from nagging Adel. (This contradicted the prior implication that Adel had agreed to give Nashaat a part of Nader Halal, but later changed his mind and would buy him some other business instead).
c) At trial, Naiema testified:
the business was started after the Alys arrived in Toronto;
the Alys did assist in the start-up of the business; and
she knew nothing about Adel’s promise of a share in Nader Halal to the Alys.
72These inconsistencies with respect to whether she knew Adel had agreed or given the Alys a share in Nader Halal and later tried to “buy off” the Alys with another business, are significant and go to the central issue in the Alys’ claim. Naiema was trying to “protect” her claimed interest in Nader Halal, knowing that any interest the Alys received in Nader Halal might reduce her potential entitlement. This accounts for the change in her evidence, being supportive of the Alys’ claim prior to Naiema commencing her own action and later changing her evidence to deny the Alys’ had an interest in Nader Halal. I reject Naiema’s evidence in so far as she denies knowing the Alys’ had an interest in Nader Halal. Naiema’s evidence in her January 2009 affidavit is entirely consistent with the Alys’ having an interest in Nader Halal in 2001.
73There are several other areas of Naiema’s evidence which I reject:
a) Her evidence that she did not know her marriage was over in November 2, 2004 when she took the $100,000 and left for Egypt for 4 years is not credible. She had left the country, bought her own apartment and did not communicate again with Adel. I am satisfied Naiema was making a new life in Egypt because her marriage was over;
b) Her evidence with respect to the abuse and violence by Adel appeared to be exaggerated and an attempt to discredit Adel. Her evidence as to what happened on October 29, 2004 was significantly different than what she told the police;
c) Her obvious attempt to retract her prior statement under oath that, approximately two months before October 29, 2004, she had been told she was no longer part of the family business by explaining that her son had only said they were “thinking” of getting her out of the Tohamy Family Businesses, makes little sense and undermines her credibility. She knew that the marriage was in serious difficulty and that Adel no longer wanted her to be part of “his” businesses; and
d) Her evidence that she does not beneficially own the apartment in Egypt and the monies in the bank account is not credible. Naiema knew that her sons and Adel were not making any claim to the apartment or monies in Egypt; yet, she continued to suggest that the $100,000 was not “given” to her in 2004 is not credible. The apartment and the bank account are in her name and her name alone.
Yuraj Chhina
74Mr. Chhina is an Ontario lawyer. He practiced family law back in 2008. He was called as a witness by Naiema.
75Mr. Chhina was a credible and reliable witness. He had no interest in the outcome. His evidence was not seriously challenged by any party. Mr. Chhina’s evidence was consistent with the notes that he had made contemporaneously at the time of the meeting in July 2008. I accept Mr. Chhina’s evidence in its entirety.
Nancy Rogers
76Ms. Rogers is a Specialist in Investigative and Forensic Accounting, a Chartered Business Valuator and a Chartered Accountant. Ms. Rogers has testified on numerous occasions in court as an expert in valuation issues. She has written and presented extensively on forensic accounting and business valuation issues. She was called as an expert witness by Naiema.
77I accept Ms. Rogers’ evidence.
78In my view, Ms. Rogers used the proper valuation approach. She is an experienced Chartered Business Valuator who properly applied the appropriate valuation principles to reach a reasonable valuation range. Ms. Rogers’ evidence was unbiased in favour of either party. She was unshaken in cross-examination. Ms. Rogers’ valuation opinion provided a conservative and reasonable valuation of Nader Halal as at November 2, 2004 based upon the amount of profits generated by Nader Halal over the prior years. Ms. Rogers concluded that the value of Nader Halal on November 2, 2004 was between $1,470,000 -$1,898.00. I accept this valuation.
FINDINGS OF FACT
79Given the lack of agreement on even the most basic facts and the credibility issues identified above, it was necessary for this court to make findings of fact based on a comprehensive review of all the viva voce evidence and the documentary evidence at trial.
The Early Years and the Relationship between Adel and Naiema
80Adel is 64 years old. He was born in Egypt. He graduated in 1971 with a Masters in Computer Science from Alexandria University. He immigrated to Canada in 1974. He continued his education in Canada and received a Master of Business Administration in 1978. He became a successful production engineer in Montreal.
81Naiema is 56 years old. In approximately 1981, she graduated from Alexandria University in Egypt with an engineering degree in agriculture.
82On February 22, 1982 Adel married Naiema. It was an arranged marriage. Adel described it as expecting a partner for life. Adel returned to Canada. Naiema followed in July 1982.
83Adel wanted and expected a “traditional wife.” Adel did not expect Naiema to work outside the home. They agreed that Naiema’s primary, and essentially only responsibility, was to be a mother to their future children and homemaker. From July 1982 and throughout the marriage, Naiema did not work outside the home.
84Adel and Naiema have two sons: Nader born in 1983 and Tamer born in 1984.
85In 1983, after the birth of Nader, Naiema was diagnosed with epilepsy. Adel’s view of Naiema changed. In Adel’s evidence, he described Naiema as, because of her medical condition, as having become a “dependent” and a “liability” rather than a partner. Adel stated that he “kept her for 20 years” for his children and to be kind to her despite the fact she had “no respect for him” and wanted to “destroy him.” This “liability” continued until Adel felt it was “dangerous” to him because Naiema had called the police on October 29, 2004. This defined Adel’s view of Naiema, including her role in the marriage and her entitlement after the marriage had ended.
86Adel is a very controlling and secretive person. He did not share financial information with Naiema. Naiema was not to and did not have any input into any financial matters, business matters or any other matter other than the home and children. Some of the evidence of Adel’s control of Naiema and the non - sharing of financial and business information with Naiema includes:
a) Throughout their marriage, Naiema was not told of the family’s bank accounts, the location of those bank accounts or the balances in those bank accounts. Several of these accounts are joint bank accounts;
b) Throughout their marriage Naiema was not told of the business’ bank accounts, or even where the Tohamy Family Businesses did their banking;
c) Naiema was not told that Adel had given his brother Nashaat $70,000 in 1999 as a deposit for the purchase of his house;
d) Naiema was not told that Adel had fully paid for their jointly owned matrimonial home on Adamson Street (“Matrimonial Home”). Adel led Naiema to believe there was a mortgage on the matrimonial home for years;
e) Naiema was not told that Adel had sponsored the Alys to immigrate to Canada;
f) Adel was the person “responsible for management of the whole supermarket” into which all the family savings had been invested. Naiema was not consulted on major business decisions;
g) Naiema was simply told of Adel’s decision to offer Nashaat $100,000 to buy a small business;
h) Despite telling Naiema that she was a 50% partner in Nader Halal, Adel arranged for tax returns to be filed for a number of years showing Adel as a 99% partner and Naiema as a 1% partner; and
i) Naiema did not meet or speak with Adel’s accountant who prepared her income tax returns. Adel arranged for her income tax returns to be prepared and filed without input or approval by Naiema. This continued even after Naiema had left Canada in 2004.
87Keeping the above type of information from Naiema was deliberate and indicative of Adel’s control and his decision to keep accurate financial information from Naiema or have Naiema involved in financial or business matters. I am satisfied that Naiema had no choice but to leave financial and business matters to Adel to deal with on behalf of both of them while they were married.
88All of the decisions with respect to the start-up, establishing and operating Nader Halal (and later with all the Tohamy Family Businesses) were made by Adel without input or approval by Naiema. As Naiema testified several times, Adel was the head of the family unit, he made all the decisions for his family – which included her. While they were living together, Naiema accepted the decisions that Adel made on behalf of the family, including her. Naiema, knowing and accepting that Adel was making business and financial decisions with third parties on her behalf, is now estopped from now rejecting any business decisions Adel made prior to their separation on November 2, 2004.
Adel decides to open a business
89In 1988, Adel and Naiema lived in Montreal. Adel continued to work as a production engineer. That year, Adel suffered a serious heart attack. Given his medical condition and lack of employment prospects, Adel considered opening a business in the Greater Toronto Area (GTA).
90In 1990, Adel and one of his good, long term friends, Mr. Dean El-Sedfy, discussed the types of businesses Adel might open in the GTA. A food related business was discussed. They looked for potential locations. They found the location where Nader Halal eventually opened, 48 Dundas Street West, Mississauga.
91In 1991, having lost his job, Adel decided to leave Montreal and move to the GTA. Adel had approximately $80,000 to establish a business.
The Alys immigrate to Canada and the Decision to open Nader Halal
92Nashaat is Adel’s brother. He is a civil engineer. Taghreed is Nashaat’s wife and Adel’s cousin. Taghreed is also an engineer.
93Let me briefly deal with decision making in the Aly family unit. Taghreed left all business decisions to her husband. It was not part of their family dynamics for Taghreed to have business or financial discussions with Adel, Naiema or anyone other than her husband. At most, Taghreed might have overheard or have been present during some of the discussions between Adel and Nashaat. Taghreed admitted that she did not discuss business matters with Naiema despite being “like sisters.” If Taghreed could not discuss any business matters with Naiema relating to the family business (in which Taghreed alleges she has an interest), it is highly unlikely she would discuss business matters with anyone except her husband. Nashaat was the only person having direct discussions with Adel on all business related matters, including Nader Halal. Taghreed was content to let Nashaat deal with Adel and was prepared to accept whatever decisions Nashaat made on behalf of both of them. Nashaat’s business decisions were made for and accepted by the Aly family unit.
94In 1990 or 1991, Nashaat and Taghreed wanted to immigrate to Canada. Adel was prepared to sponsor them.
95The Alys immigration to Canada had nothing to do with Adel considering or deciding to open a business. There were no promises by Adel to the Alys to make them partners in any possible business venture and there was no inducement by Adel that the Alys immigrate to Canada to join him in a business venture. I reject the Alys’ evidence that there was a discussion with or a promise by Adel that the Alys would be partners in a business Adel was going to establish. Given the timing of Adel’s move to the GTA, the long standing desire of the Alys to immigrate to Canada, Adel’s continued search for a business and a location (even after the Alys arrived in Canada), it makes little sense Adel would make a legally binding commitment to the Alys’ regarding a potential and speculative business while they were still in Egypt.
96Adel and Naiema moved to the GTA in August 1991.
97Adel briefly continued to look for an engineering position and, at the same time, continued to investigate opening a business. Further heart problems in September 1991 made the decision for Adel. He would not be able to find employment. Adel decided to open a business.
98Nashaat and Taghreed (the “Alys”) arrived in Canada on September 25, 1991. The Alys had no significant financial resources when they arrived in Canada. The Alys found Adel in the hospital. I reject the Alys’ evidence that there was a discussion or an offer of ownership in Adel’s proposed business at the hospital on September 26, 1991. It makes little sense that Adel, having had further serious heart problems and without having decided what type of business to open, without a location and without a budget, would make an offer, promise or commitment to the Alys to be his partners in this business. The Alys had no grocery or any retail experience when they came to Canada. They were engineers. The Alys had no money to invest in a business. There is simply no credible evidence that an offer was made by Adel in September 1991.
99The Alys lived with Adel and Naiema when they arrived in Canada for about 6 months.
Nader Halal Opens
100After Adel left the hospital in late September or early October 1991, he decided to start a Halal meat and variety store in the Mississauga area, choosing the location he had seen with Mr. El-Sedfy. Adel signed a lease starting November 1, 1991. The rent was $4,500 per month. Adel was the sole tenant (although it also showed Nader Halal – an unincorporated entity). Business registration for Nader Halal showed Adel and Naiema as the owners. When Nader Halal started, he and Naiema were “50/50” partners.
101Nader Halal opened for business in late November or early December 1991. Given Adel’s limited financial resources, Nader Halal could not afford many employees.
102Adel asked and Taghreed agree to work at Nader Halal. Taghreed, not having any employment in Canada, began working at Nader Halal as a cashier and was paid $150 - $200 per week cash.
103Nashaat chose not to work at Nader Halal. Working at Nader Halal was not the type of employment Nashaat had come to Canada for. Nashaat continued his search for employment in engineering.
104Sometime in early 1992, the Alys moved into a rental apartment. Taghreed continued to work at Nader Halal. Nashaat continued to look for employment.
105In early 1992, Adel had run out of money. Adel approached his good friend, Mr. El-Sedfy, and offered him a 50% interest in Nader Halal if Mr. El-Sedfy would invest $24,000 and join him in trying to make Nader Halal successful. Mr. El-Sedfy did not accept the offer since he did not have the financial resources and was, at the time, employed in Montreal. Adel continued with Nader Halal.
106Later that year, Adel again had serious heart problems. Adel was concerned he might die. Adel did not know if he would be able to return to Nader Halal after he recovered. Adel approached Nashaat and told him that, if Adel died, he wanted Nashaat to have 50% of Nader Halal and Adel’s family would continue to own the other 50% of Nader Halal. Adel repeated to Mr. El-Sedfy that, if he died, the Alys were to get 50% of Nader Halal while Adel’s family would keep the remaining 50% for at least 5 years, and thereafter, the Alys would own 100% of Nader Halal. Adel asked Mr. El-Sedfy to be his executor to implement this arrangement.
107But, Adel did not die.
108Adel returned to Nader Halal. Given that Adel did not die, there was no enforceable agreement between Adel and Nashaat with respect to the Alys’ possible partnership interest. This left some expectation or hope by the Alys that they might someday, given Adel`s continued health problems, have an interest in Nader Halal. While Adel was in the hospital and Nashaat still unemployed, Nashaat helped run Nader Halal for several weeks until Adel was able to return to Nader Halal. Afterwards, Nashaat returned to his search for employment. This is compelling evidence that there was no agreement that Nashaat was a 50% owner of Nader Halal during this period of time.
109The Alys’ allege there existed, in 1992, a partnership agreement for 50% of Nader Halal. I do not accept the Alys’ evidence on this issue. The Alys have not established such an agreement on the balance of probabilities:
a) If there had been a 50-50 partnership in 1992, Nashaat would not have stopped working at Nader Halal for some 3 years after 1992;
b) Nashaat would not have continued looking for and working at other full-time employment; and
c) Nashaat would not have taken courses to upgrade his education – in an engineering related area. Nashaat was still hoping to get an engineering job.
110By the end of 1992, Nader Halal had become an established business. However, Adel continued to receive Unemployment Insurance Benefits in the amount of $10,368 for 1992 despite owning a business and working full-time at that business. This is the beginning of the overwhelming evidence of Adel’s greed and evidence that he was prepared to say or do anything, including committing fraudulent activity, to further his desire to accumulate wealth.
111T4’s were issued by Nader Halal to its employees including Taghreed. However, the T4’s bore no relationship to the amount of work or hours worked by the employees or the amount they were paid in cash by Adel. It was common for Adel to pay Nader Halal’s employees cash and submit fictitious and small T4’s at the end of the year. The T4 amounts were only to establish a modest labour expense at Nader Halal. For Taghreed, receiving cash and paying no taxes on a substantial part of her income, meant her “real take home income” was effectively higher.
Nader Halal becomes Successful
112By 1994, Nader Halal had become a very successful grocery store. It was so successful that Adel purchased the Matrimonial Home. However, the success of Nader Halal was assisted by Adel’s complete and deliberate falsification of the business’ sales and profits and failure to report substantial amounts as income. As a result, Adel was paying no income taxes or substantially less income taxes. Adel admitted at trial that he started to “lie and cheat” when it came to reporting to Revenue Canada in 1994. Adel admitted he continued to fail to report accurately to Revenue Canada at least until sometime after 2007. As will be described below, I am not persuaded Adel has ever accurately reported the business or personal income at any time prior to or subsequent to 2007.
Nashaat Commences working at Nader Halal
113By 1995, Taghreed had continued to work at Nader Halal as a cashier and Nashaat had worked at a number of other jobs such as: a security guard and a draftsperson. None as an engineer. None for very long. At times he collected Employment Insurance. At times (as late as 1995) he was on social assistance. At times he took education upgrading courses. In 1995, Nashaat had a job prospect in the United States.
114If Nashaat accepted this job, it would have meant Adel was losing Taghreed, his cashier and family member whom he trusted with this responsibility. It was with this background that Adel asked and Nashaat agreed to work at Nader Halal. Nashaat agreed.
115Nashaat continued to hope and ask Adel for an interest in Nader Halal. Nashaat continued to do so for years. Adel continued to keep Nashaat’s requests at bay, never committing to anything through excuses, delays, vague promises or “gifts” to placate Nashaat but always leaving the possibility open.
116By 1995, Taghreed had had a child and was working part-time in the mornings at Nader Halal. Nashaat worked part-time in the afternoons into the evenings. Adel decided to pay Nashaat and Taghreed a total of $600-700 per week cash. Taghreed and Nashaat filed their taxes based on the fabricated and erroneous T4’s provided by Adel, some as low as $1,000 for the annual income. The result was that the Alys paid little or no income tax. All the evidence during this period of time suggested that the Alys were employees of Nader Halal.
117By 1995 Nader Halal was very profitable for Adel.
118The Matrimonial Home was fully paid by the end of 1996. Adel did not tell Naiema that their matrimonial home was clear of debt.
Nader Halal produces substantial yearly profits
119By 1997, Nader Halal had become so successful that it was generating profits of approximately $600,000 to $750,000 per year. Adel admitted this to Naiema. This was not an exaggeration. Adel’s lifestyle and asset accumulation during this period is consistent with substantial profits at Nader Halal. Of course, Adel did not report any significant profits and did not report any significant income during these years. No doubt this helped the profitability of Nader Halal, and Adel’s asset accumulation and lifestyle, during this period.
120In 1998, Adel expanded the Nader Halal business from 4000 square feet to 6000 square feet. The Alys were not involved in this decision or paid any of the cost associated with this expansion because they continued only to be employees of Nader Halal. The Alys continued to receive and report “employment” income.
121By 1999, Adel had decided to pay the Alys $900 cash per week. However, the T4’s for Nashaat and Taghreed continued to be negligible (less than $18,000 combined). As a result, the Alys’ income of approximately $46,000 per year represented significantly more employment income to them.
122By 1999, Adel’s retained profits from Nader Halal were continuing to accumulate. Adel accumulated considerable wealth.
123In 1999, Adel gave the Alys approximately $70,000 as a deposit for a new home and a used van. There was no documentation regarding these “gifts.” Adel admitted they were “gifts.” The Alys allege these gifts were a “share of the profits” from Nader Halal. I reject this evidence. Given the vast amount of money Adel was making from Nader Halal, the value of these gifts did not represent a significant amount of money. The amount of these gifts bore no relation to the level of profits of Nader Halal or any alleged respective partnership interest in Nader Halal. I am satisfied these were gifts and not a distribution of profits. The Alys were still employees of Nader Halal. The Alys’ own evidence, including their 1999 bank mortgage application, showed themselves as employees of Nader Halal.
124The $70,000 payment by Adel in 1999 deserves further comment. By this time, Nader Halal was making a large amount of undeclared profit. Adel was hospitalized for periods of time in 1999. Nashaat and Taghreed had a significant role in running Nader Halal while Adel was ill. With this background, there may have been a number of explanations for Adel’s gifts to the Alys. Perhaps it was for managing the store during his absence. Perhaps it was a payment to keep at bay Nashaat’s desire and requests for an interest in Nader Halal. In any event, it does not necessarily follow, as the Alys would have this court accept, that the $70,000 was a payment for “profit sharing” in Nader Halal.
The Events of 2001 and the Alys’ acquisition of an interest in Nader Halal
125By 2001, Nader Halal continued to generate profits in the range of $600,000 to $750,000 per year (although only reporting a nominal, if any, profit to Revenue Canada). Adel was paying Nashaat and Taghreed approximately $900 per week in cash. Adel had a fully paid Matrimonial Home. He had accumulated a significant amount of savings from Nader Halal’s unreported profits. Adel enjoyed a very good lifestyle – he had renovated his home, he drove expensive cars, his sons had cars, he had substantial monies in the bank. Adel’s net worth in 2001 was significant. Adel, himself, placed a value on Nader Halal at $6,000,000. It was all good for Adel and his family.
126However, Adel’s health problems resurfaced in the middle of 2001. This was a particularly bad year for Adel’s health.
127Given the millions of dollars Nader Halal had generated and substantial amount of money which Adel had saved, Adel decided he was going to incorporate Nader Halal, along with another corporation to hold any investments he made from the profits of Nader Halal. Adel’s health was poor and his sons were still too young to run or take over Nader Halal. Adel needed a succession plan.
128In the fall of 2001, Adel told Nashaat that he was going to incorporate Nader Halal and that the Alys would have a 20% interest in Nader Halal. After all, the Alys had been working at Nader Halal for years, knew the business, they were family and could be counted on to carry on the business for Adel’s family should something happen to him. The Alys agreed. The Alys’ 20% interest in Nader Halal was established through this agreement between Adel and Nashaat. (the “2001 Agreement”)
129Adel repeated and confirmed to Mr. El-Sedfy that he had decided to incorporate and had given the Alys 20% of Nader Halal. Mr. El-Sedfy expressed concerns that the 20% was significantly less than the 50% Adel had previously considered giving Nashaat in 1992. Adel confirmed to Mr. El-Sedfy that there were no problems as the Alys had agreed to the 20% interest in Nader Halal. Mr. El-Sedfy recommended to Adel that the Alys’ interest in Nader Halal be reduced into writing.
130Despite the agreement and unbeknownst to the Alys, Adel did not immediately proceed with the incorporation of Nader Halal. The Alys continued to work in Nader Halal receiving approximately $900 cash per week in 2001 and approximately $1,200 cash per week in 2002. The difference was now, the Alys had a firm agreement with Adel that they owned 20% of Nader Halal and expected to reap the benefits of this ownership interest.
Adel tries to renege on the agreement
131In 2002, Nashaat asked Adel for documentation with respect to his 20% share in Nader Halal. Nashaat was no longer asking for an interest in Nader Halal but was now asking for documentation regarding his 20% share in Nader Halal.
132However, by 2002, the 2001 health issues for Adel were in the past. Adel had recovered his health. Parting with 20% of Nader Halal to the Alys no longer looked like a good idea to Adel. Adel responded to Nashaat, not by denying that the Alys were 20% shareholders of Nader Halal, but by lying to Nashaat that the “official documents” only showed the names of the directors, being himself and his family, and not the Alys. This explanation by Adel satisfied Nashaat for a period of time.
133To further appease the Alys and hopefully avoid any further questions regarding their 20% interest in Nader Halal, in 2002 Adel:
a) Increased the cash the Alys received for work to $1,200;
b) Paid for a pilgrimage for the Alys;
c) Gave them two additional used vehicles; and
d) Gave them additional cheques for $1,200 and $1,500 per month from Adel’s personal account. This no doubt gave the Alys comfort that they were beginning to reap the profits from their ownership in Nader Halal.
The Incorporation of Tamer Inc. And Nader Halal Meats Inc.
134On February 1, 2002, Adel incorporated Tamer Inc. The shares in Tamer Inc. were issued 25% to each of Adel, Naiema, Nader and Tamer.
135On February 1, 2003, Adel incorporated Nader Halal’s business into Nader Halal Meats Inc. I continue to refer to the corporate entity as Nader Halal as, aside from the incorporation and issuance of shares, there was no real change in the manner in which Nader Halal operated. How this transfer of Nader Halal’s proprietorship business into a corporate structure was accomplished is not known. It would appear that the corporation simply appeared and carried on the prior business without any valuations or transfer documentation.
136Contrary to the 2001 Agreement, the shareholdings in Nader Halal were issued at 25% to each of Adel, Naiema, Nader and Tamer.
137Naiema knew the shareholdings in Nader Halal and Tamer Inc. would include their children. Like all other business decisions, Naiema accepted Adel’s decision to include the children as shareholders.
138In 2003, Nashaat remained concerned that he did not have any documentation regarding his 20% ownership interest in Nader Halal. Nashaat approached Mr. Hamid Shaikh, Adel and Nader Halal’s accountant, and asked Mr. Shaikh whether his interest in Nader Halal had been recorded in writing. Mr. Shaikh deliberately avoided answering the question and told Nashaat to ask Adel. Nashaat asked Mr. Shaikh to add his name on the documents to show his ownership interest in Nader Halal. Mr. Shaikh admitted this conversation with Nashaat took place. Mr. Shaikh was clearly nervous dealing with this issue while testifying as Mr. Shaikh has worked for and taken instructions from Adel for many years and Adel is a major source of business for Mr. Shaikh.
139After the conversation with Nashaat, Mr. Shaikh told Adel about the conversation that he had had with Nashaat. This conversation between Nashaat and Mr. Shaikh is significant. Nashaat’s attempting to force the issue is consistent with the existence of the 2001 Agreement. Adel’s explanation as to why Nashaat would have had this conversation with Mr. Shaikh makes no sense whatsoever. Adel suggested the Alys were concerned that, if Adel died, Adel’s family would terminate the Alys employment at Nader Halal. Adel suggested that, by incorporating and ensuring each of his family members were 25% shareholders of Nader Halal, this somehow gave the Alys protection against this concern. Neither Adel nor his counsel during submissions could provide any credible answer as to how this would have achieved what Adel suggested it would for the Alys.
140Having been told by Mr. Shaikh of the conversation that he had had with Nashaat, it would have been logical for Adel to confront Nashaat to deal with the shareholdings in Nader Halal if the 2001 Agreement did not exist. Adel did not do so. Adel’s failure to confront Nashaat is consistent with the existence of the 2001 Agreement.
141Nashaat continued to ask for documentation regarding his interest in Nader Halal. This evidence was consistent with Naiema’s evidence that she observed Adel and Nashaat in 2003 arguing over the issue of the Alys’ ownership in Nader Halal and she was told by Adel that Nashaat was trying to “inherit him while he was still alive.” Adel told Naiema he felt Nashaat wanted to take the store away from him and was tired of Nashaat’s “nagging” about a share in Nader Halal.
142Adel’s response to Nashaat’s continued demands for documentation regarding his 20% interest in Nader Halal was to placate Nashaat with more cheques for $1,500 per month for 2003, $1,200 in 2004 and 2005 and a used Lexus SUV in 2006. This did not deter Nashaat from continuing to request the documentation but it did temporarily keep the disagreement from escalating.
The Purchase of the Plaza
143In 2003, Tamer Inc. purchased Rowntree Gate Plaza on 2687 Kipling Ave. for approximately $5,750,000 (the “Plaza”). Adel had approximately $1,700,000 in the bank accumulated from the profits of Nader Halal. Adel used these monies for the purchase of the Plaza. In addition, Adel placed a $250,000 Line of Credit on the Matrimonial Home. The balance of approximately $3,800,000 was arranged through a bank mortgage on the Plaza. No monies were advanced by Nader or Tamer for the purchase of the Plaza.
144The Plaza was generating approximately $600,000 per year net income. In 2004, Adel told Naiema the Plaza was worth $6,500,000 and would be paid off by 2008. Given that the Plaza had been purchased the previous year, this gross value appears to be reasonable. Given the profits from Nader Halal and the Plaza, Adel’s estimate to retire the debt on the Plaza also appears to have been reasonable.
145Using the profits from Nader Halal, Adel paid off the Line of Credit on the Matrimonial Home within months. He did not tell Naiema.
146In 2003, Adel told Naiema that Nader Halal was worth not less than $5,000,000. The substantial value of Nader Halal at the time, regardless of whether Adel’s valuation was correct, is consistent with the financial evidence at this trial and in particular, the lifestyle and assets acquired by the parties during the marriage.
147Adel also told Naiema in 2003 that their Matrimonial Home was worth approximately $1,200,000. Considerable renovations and upgrades had been done to the Matrimonial Home.
The Separation of Adel and Naiema
148On October 29, 2004, an incident occurred between Adel and Naiema which led to a serious disagreement and their eventual separation on November 2, 2004.
149Naiema testified that Adel beat her, choked her and almost killed her. However, this is not borne out by the other evidence, most importantly, the police report of the incident which includes what Naiema reported to the police as to what had happened that night. On the other hand, Adel, Nader and Tamer’s description also makes little sense. They suggested that Adel was too ill, looked beaten and could barely stand so he could not have assaulted Naiema. However, Adel was not too ill to get in the car and drive to Starbucks to have a coffee after the incident. Naiema did go to the prayer room. She says she was locked in there. Nader and Tamer say there was no outside lock on the room. Adel, Nader and Tamer also testified that the incident was caused by Naiema failing to take her medication to calm down because she wanted to be in this “angry state.” The only conclusion that can be drawn is that there was a very serious incident that night which required the intervention of the police, not only that evening, but also the next day.
150There had been numerous prior serious incidents between Adel and Naiema. In one occasion, years earlier in Montreal, the police had been called. The marriage had not been a “smooth” one. Prior to October 29, 2004, Adel had on two occasions “divorced” Naiema, a serious step in their religious belief. On each occasion, there was a significant separation period when Naiema went to Egypt for months leaving Adel in Canada. Other evidence establishes that there was considerable ongoing conflict between Adel and Naiema. The Alys testified they had “Naiema’s room,” a room regularly used by Naiema to stay over when arguments arose between Adel and Naiema. Tamer confirmed that Nashaat was usually called when arguments arose between his parents and that Naiema had gone to Egypt previously to “cool down”. Nader, in a prior affidavit, referred to “many arguments between my parents.” Tamer also referred to the “many arguments between my parents”.
151Given Adel’s view that, from 1983 onward Naiema was a “liability”, conflict in the marriage was not surprising.
152As a result of the incident on October 29, 2004, Naiema left the Matrimonial Home to go and stay with the Alys as she had done numerous times in the past. As she was leaving, Adel said “Talaq” for a third time – effectively completing a religious divorce. Regardless of the cause, Naiema was distraught. She wanted to return to Egypt and to her family.
153Adel and Naiema have not spoken to each other since that evening.
The Divorce Settlement Agreement
154Nader and Tamer were upset at what had transpired that evening. Nader was particularly upset at Naiema for having called the police on his father.
155The next morning, Nashaat spoke with Adel. Nashaat later told Naiema:
a) Adel would give Naiema $100,000;
b) Naiema could live in Egypt and use the money to buy an apartment there; and
c) Use the interest from the balance of the funds for living expenses.
156Naiema agreed.
157This agreement must be viewed in the context of this 22 year marriage. There was conflict, Adel was extremely controlling, Adel made essentially all the decisions, Adel had all the financial information, and Naiema, having just been through a difficult evening where she had to leave the Matrimonial Home, was divorced by her husband and had little ability to make an informed choice of her own free will on her property and support rights.
158Adel searched the internet and found a draft separation agreement. He filled in the blanks and gave the draft separation agreement to Nader to have Naiema sign it.
159There is no mention of the $100,000 payment in the draft separation agreement. Adel’s explanation was that Naiema was leaving all her assets behind for their children. The difficulty for Adel is that his draft agreement does not leave Naiema’s property to her children – essentially it leaves the family property to Adel. Adel’s response, when questioned about the undisclosed amount for spousal support, was the $100,000. Then when asked about the amount of the net equalization payment, Adel’s response was again $100,000. When confronted with this potential inconsistency, Adel testified it did not matter, Naiema got what she wanted and the amount was enough for a “very good life” in Egypt.
160On November 2, 2004, Nader brought the Divorce Settlement Agreement to Naiema. It is significant that:
a) Naiema, did not have independent legal advice;
b) The Divorce Settlement Agreement was in English, a language which Naiema does not read or understand; and
c) Adel did not provide complete and accurate financial disclosure. Adel provided no financial disclosure.
161Nader had a conflict. He was Naiema’s son. He was angry at Naiema for having called the police. He stood to acquire Naiema’s shares in the Tohamy Family Businesses if Naiema signed the Divorce Settlement Agreement. Nader had no legal training and could not and did not fully explain to Naiema what family law rights she would be giving up if she signed the Divorce Settlement Agreement. Nader told Naiema that if she did not sign, “she couldn’t get what she wanted” meaning the money Adel had agreed to give her to buy an apartment in Egypt. I am not persuaded that Nader told Naiema anything more than – sign this document to get your $100,000 to go to Egypt.
162Naiema denies being told or knowing the terms of the Divorce Settlement Agreement before signing. Naiema testified she did not understand the nature or consequences of signing the Divorce Settlement Agreement. I accept this evidence because Naiema:
a) was distraught with the turn of events on October 29, 2004;
b) was out of the Matrimonial Home and she couldn’t return given that she was divorced from Adel;
c) had to rely on Nader, her son, as to the nature and consequences of signing the document;
d) was told that unless she signed the document, she would not have the money to leave Canada and go to Egypt; and
e) was not, even generally, told by Nader what her property and support rights were or what she would be giving up if she signed the document.
163Naiema did not know about or agree to give up her property and support rights. Naiema did not understand the nature or consequences of signing the Divorce Settlement Agreement. Nevertheless, Naiema signed the Divorce Settlement Agreement on November 2, 2004. Both parties agree this is the separation date.
164The Divorce Settlement Agreement includes the following provisions:
a) Spousal support was settled for an undisclosed amount;
b) Adel was to have exclusive possession of the Matrimonial Home. Naiema would execute “any and all legal documents required to facilitate transfer of deed in the name of husband or as directed by him”;
c) “The Wife shall not claim in present, past or future on the Husband’s bank accounts, Matrimonial home situated at 155 Adamson Street, Mississauga, Nader Halal Meat Inc., or Tamer Investment Inc.”;
d) “The Wife shall also not claim in future for any claim arising out of the marriage breakdown or shall not sue the Husband for damages whatsoever. The Wife is absolutely barred from bringing any court action including for personal injuries or losses arising out of the divorce settlement.”
e) “The Husband and Wife accept the terms of this agreement in full and final satisfaction and discharge of all claims and demands each may, at any time, have against the other pursuant to the Family Law Act.”;
f) Each had read the agreement in its entirety and had full knowledge of the contents;
g) Each understood their respective rights and obligations under the agreement;
h) Each had made full and complete disclosure of the financial circumstances to the other;
i) Each acknowledged the terms of the agreement were fair and reasonable; and
j) Each was entering into the agreement without any undue influence, fraud or coercion.
Naiema Leaves Canada
165In November 2004, Naiema left for Egypt. She purchased an apartment in the City of Alexandria. The apartment is in her name. She deposited the balance of the $100,000 (USD) into a bank account in her name. The interest from these monies paid the expenses of the apartment and provided her with a little money for living expenses. However, the interest was not enough to permit her to buy her medicine. This was a difficult time, financially, for Naiema.
166Naiema testified that the apartment and monies in Egypt were in trust for her sons. I do not accept this evidence. The apartment is in her name only. The bank account is in her name only. There is no evidence to suggest that anyone else had any control over the apartment she purchased or how she invested the balance of the $100,000 or used the interest.
167On December 23, 2004, Adel finalized the religious divorce in writing.
2004 Through 2007
168The corporate filings for Nader Halal for the periods ending December 31, 2003, 2004, 2005 and 2006 continued to show Naiema, Adel, Nader and Tamer as 25% shareholders.
169On January 1, 2007 Adel, Nader and Tamer divided Naiema’s shares in Nader Halal and Tamer Inc. amongst themselves. The corporate filing for Nader Halal for the period ending December 31, 2007 (erroneously shown as 2006) show Adel, Nader and Tamer as the sole shareholders (Adel with 34% and each of Tamer and Nader with 33%).
170In 2006 Adel commenced divorce proceedings.
171In the summer of 2006, Nader brought Naiema a copy of Adel’s divorce application. The application was for a simple divorce and did not seek to deal with property or support issues. Naiema took no steps to respond to Adel’s divorce application. By court order, the parties were divorced on May 26, 2006.
172Nashaat and Taghreed continued to work at Nader Halal. The Alys continued to be paid cash each week. The Alys continued to believe they were 20% owners in Nader Halal. The Alys continued to ask Adel for their share of the profits – but to no avail.
The Alys leave Nader Halal
173In early summer of 2007, Nader graduated with an economics’ degree. Adel wanted Nader to assume or participate in the management of Nader Halal. Nader started to take over some of the responsibilities that Adel had handled at Nader Halal. In essence, this made Nader the person giving instructions to Nashaat, his uncle.
174Nashaat was unhappy with this turn of events. This, coupled with the unsuccessful continued demands for documentation confirming the Alys’ interest in Nader Halal and the lack of a share of profits from Nader Halal, caused stress to Nashaat.
175On July 31, 2007, Nashaat was hospitalized with a heart attack. While at the hospital, Adel came to see Nashaat. Nashaat demanded his interest in Nader Halal. In a very shrewd move, indicative of and consistent with Adel’s manipulation of the Alys over the years, Adel demanded written proof the Alys had an interest in Nader Halal. It is noteworthy that Adel did not respond with a denial the Alys had an interest in Nader Halal – it was a demand for written proof. This was the same written proof that the Alys had been asking Adel for years but had not been provided by Adel. There was no documentation for Nashaat to produce. Adel smiled at Nashaat in the hospital bed and walked out of the hospital room without saying a word to Nashaat. While Adel did not accept all of the evidence given by Nashaat on this point, he did accept most of Nashaat’s version of what transpired, although suggesting this was a further demand by Nashaat for an interest in Nader Halal.
176Adel decided he would no longer honour the 2001 Agreement.
177Nashaat never returned to Nader Halal.
178There is no doubt why Adel did not want to part with 20% of Nader Halal to the Alys. 20% of Nader Halal was extremely valuable. Adel was healthy. Adel had made and was making substantial amounts of monies from Nader Halal. Adel now believed he owned 34% of Nader Halal. The Alys had not documentary proof. Adel’s son was now in a position to run Nader Halal. Adel no longer needed the Alys. The financial rewards were too large for Adel to part with.
179Adel spoke with Mr. El-Sedfy regarding Nashaat’s absence from Nader Halal. Adel told Mr. El-Sedfy it was over a dispute about the ownership in Nader Halal. Adel did not deny to Mr. El-Sedfy that Adel had given the Alys a 20% interest in Nader Halal but told Mr. El-Sedfy that, in Adel’s opinion, Adel had already given the Alys, more than the 20% of Nader Halal they were entitled to.
180During the summer of 2007, Taghreed was in Egypt. Upon her return, Taghreed became aware of Adel’s denial of their interest in Nader Halal and Nashaat’s refusal to return to Nader Halal. Taghreed hoped things would work out between the brothers. Taghreed continued to work at Nader Halal.
181Adel continued to pay Taghreed the same amount of cash he had been paying both her and Nashaat. Adel hoped that Nashaat would return to Nader Halal and forget about an interest in Nader Halal.
182Neither brother was prepared to give in.
183In early 2008, Taghreed was left with no choice but to approach Adel directly since Adel and Nashaat no longer spoke to each other. Adel did not deny he had agreed to give the Alys a 20% interest in Nader Halal but told Taghreed he had settled with the Alys by having given them the deposit on their home and the other monies over the years. It was clear to Taghreed that Adel would not give the Alys 20% of Nader Halal. The response was unacceptable to Taghreed. As a result, in early 2008, Taghreed left Nader Halal and did not return.
Adel speaks to his friends about the ownership of Nader Halal
184Adel was upset over Taghreed’s departure. Adel discussed the matter with Mr. El-Sedfy. Again, like the previous conversation with Mr. El-Sedfy, Adel did not deny the Alys had been 20% partners in Nader Halal but that Adel had given the Alys more than 20% “worth” over the years. Mr. El-Sedfy asked if 20% of the shares in Nader Halal had been issued to the Alys. Adel responded “no” but went on to say “what is 20% of” and then listed a number of assets in the store – the floor, the shelves... Mr. El-Sedfy responded 20% of “everything” including the property and the profits. This was not the answer Adel was looking for from his friend. That was the end of the discussion with Mr. El-Sedfy.
185Adel also discussed what had happened with the Alys with his friend Mr. Aziz Diriny. Adel told Mr. Diriny that Nashaat was upset because there had been many discussions about Nashaat’s interest in Nader Halal and Nashaat wanted something on paper. Adel said “it was over” meaning there was no further partnership with the Alys. Again, there was no denial by Adel that the Alys had had an interest in Nader Halal.
186In 2008, Adel had a meeting with his friends, Mr. Diriny and Zahar Masood. There was a further discussion as to why Nashaat was no longer at Nader Halal. Adel confirmed to both men that he had given the Alys a 20% interest in Nader Halal in 2001 when Adel had created a five way (not a four way) partnership in Nader Halal. However, Adel remained adamant that Nashaat had already received what he deserved and there was nothing more for Nashaat to get.
187Later the same year, Mr. Diriny was at Adel’s home and was told that Naiema was no longer “part of the corporation”. Mr. Diriny asked if it was the same corporation which Nashaat had been or was a partner. Adel answered yes but that it was his money and he could do with it as he wanted.
188In all of the conversations Adel had with his friends, there no denial of the Alys’ interest in Nader Halal. Adel acknowledged several times that the Alys had been given an interest in Nader Halal. The evidence of these witnesses was clear and unequivocal. They had no reason to lie. If anything they would have given evidence favourable to Adel, their friend, and not the Alys. I accept their evidence completely.
189Given the difficult situation Adel, he proposed to Nashaat that Adel would buy him a small business in lieu of his interest in Nader Halal. For a period of time, both Adel and Nashaat looked at several businesses, but could not agree on a business.
The Return of Naiema in 2008
190In May 2008, Naiema decided to return to Canada. Naiema sold some gold her mother had left her to purchase a ticket to Canada. Naiema’s health had deteriorated. Naiema had little money with her but she did continue to own the apartment in Egypt and had approximately $60,000 in her bank account in Egypt.
191After she arrived in Canada, Tamer took Naiema to a hotel and paid for the hotel. Naiema told Tamer that she was there to take Adel to court because she wanted to get what was “hers.” This upset Tamer.
192Naiema went to see a religious leader in the community regarding her financial issues. He advised her to see Mr. Chhina, an Ontario lawyer, who practiced family law.
193Naiema told her sons that she needed an apartment in Canada. Her sons agreed to ask Adel. In June 2008, Tamer told Naiema that Adel had agreed to get her an apartment in Canada. At the time, Naiema was not told she would have to sign an agreement.
The Events leading up to the Final Agreement
194Adel went to see a lawyer to have another separation agreement prepared. When asked why Adel felt he needed another separation agreement if, as he testified, the Divorce Settlement Agreement was clear and provided a complete release by Naiema, there was no credible or reasonable response to this question.
195A new separation agreement was prepared. The draft “Final Agreement” went beyond dealing with Naiema getting an apartment to live in. It provided a detailed and comprehensive separation agreement.
196Naiema and Nader attended at Mr. Chhina’s office to review the Final Agreement. Mr. Chhina was provided with a copy of the 2006 Divorce Order, the Divorce Separation Agreement and the draft Final Agreement. Mr. Chhina did not speak Arabic and so he had his assistant, Nada Newman, attend and translate for him.
197Mr. Chhina reviewed the facts and background with Naiema for approximately 2 hours. Naiema disclosed the background regarding her marriage, the family assets, and the separation. Naiema told Mr. Chhina that the Tohamy Family Businesses and the matrimonial home had a total value between $7,000,000 (Mr. Chhina’s recollection) to $20,000,000 (as set out in Mr. Chhina’s notes).
198Mr. Chhina explained to Naiema the terms of the Divorce Settlement Agreement. Naiema advised Mr. Chhina that the Divorce Settlement Agreement was not what she had agreed to in 2004.
199Mr. Chhina advised Naiema to pursue her family law claims. Mr. Chhina requested a retainer of $5,000. Naiema told Mr. Chhina that she did not have funds to pay for the retainer. Why Naiema did not use the funds from her bank account in Egypt was not clear. Mr. Chhina advised Naiema to seek Legal Aid. Naiema applied for Legal Aid. It was refused.
200Naiema went to see another lawyer with Nader. This lawyer would not assist her. Details of this lawyer and why the lawyer would not assist were not clear from the evidence.
201Naiema then sought help from the community. A local non-profit organization arranged for Naiema to see yet another lawyer. She went to see this other lawyer with Nader and a copy of the draft Final Agreement. The lawyer met with Naiema for approximately one hour and advised her to go to court. He asked for a retainer. Naiema did not provide the retainer. Naiema left and did not deal with this lawyer any further. It was not clear whether this was the same lawyer as in the previous paragraph but it makes no significant difference.
202Nader’s wife was pregnant with Naiema’s first grandchild. She didn’t want to return to Egypt. Naiema wanted an apartment in Canada. She could only do so if she signed the draft Final Agreement.
203Naiema was living in a furnished apartment that had been arranged and paid for.
204Nader made another appointment with Mr. Chhina. Nader and Naiema went to see Mr. Chhina again on July 8, 2008. Prior to going to Mr. Chhina’s office, Nader picked up Naiema and all the belongings she had in Canada and placed them in his car. Nader told Naiema that if she did not sign the agreement, she would not have an apartment to return to. Essentially, she would be out on the street with no money. Nader’s evidence on this point was that the lease on the apartment had coincidentally expired that day and he had made arrangements for his mother to move to an apartment a block or two away. When asked why he hadn’t brought Naiema or her belongings to the new apartment before going to see Mr. Chhina, Nader testified it was too late to do so. Nader denies he told Naiema she would have no place to go if she did not sign the draft Final Agreement. Nader’s version of what happened is simply not believable. I do not accept Nader’s evidence on this issue. It is too coincidental. It makes little sense that Nader would not take Naiema’s belongings to the new apartment only a block and a half away prior to seeing Mr. Chhina. More importantly, Mr. Chhina’s notes of that day say:
Feeling that they will throw her out
No money to pay legal fees
Mr. Chhina’s notes are consistent with Naiema’s evidence that she was told she would be thrown out if she did not sign the draft Final Agreement.
205Mr. Chhina was again given a copy of the draft “Final Agreement” and a letter of June 12, 2008 from Adel’s counsel attaching Adel’s sworn Financial Statement dated June 1, 2008 (“2008 Financial Statement”).
206Adel’s 2008 Financial Statement is incomplete, misleading and deliberately fails to completely and accurately disclose the value of Adel’s family property as at November 2, 2004. This financial information was known to him and not known to Naiema. Adel knew that when Naiema received independent legal advice, the lawyer would review Adel’s 2008 Financial Statement and advise Naiema, to some extent, based upon the 2008 Financial Statement. Adel did his utmost to reduce the value of his family property as much as possible.
207Adel was prepared to, and did knowingly, falsify this statement under oath. Let me describe some of the more serious falsehoods in Adel’s 2008 Financial Statement:
a) Adel’s Income – Adel disclosed that his income was $39,000 in 2007. However, this is a far cry from Adel’s actual income. Adel had reported to the bank, when applying for a loan just a few months earlier that his 2007 income was $162,000 per year. Even this amount was substantially less than Adel’s real income from Nader Halal and Tamer Inc. ;
b) The Matrimonial Home – Adel valued the Matrimonial Home at $700,000 on valuation date. However, in early 2008 he advised the bank the value of the Matrimonial Home was $1,500,000. As of December 2005, Adel advised the bank that the value of the Matrimonial Home was $1,050,000. Adel produced a “value of opinion” from a real estate agent retained by him (which agent did not testify) suggesting the value of the Matrimonial Home in 2004 was only $540,000;
c) Nader Halal – in Adel’s 2008 Financial Statement, Adel valued the Nader Halal business at $400,000. However, Adel valued Nader Halal in his bank statement of January 2003 at $6,000,000;
d) Household goods – Adel’s 2008 Financial Statement listed the value of these items at $5,000. However, when he completed his mortgage application in December 2005, he valued this same property at $220,000;
e) Vehicles – Adel’s 2008 Financial Statement valued his vehicles at $9,000. In December 2005, Adel valued these vehicles at $60,520;
f) Bank Accounts – Adel failed to disclose at least two Bank of Nova Scotia bank accounts. Adel disclosed that the bank accounts had a total balance of $3,150. However, the bank accounts had more than $250,000 in them. One bank account not referred to by Adel contained more than $200,000; and
g) Line of Credit – Adel showed a Line of Credit in the amount of ½ of $250,000 on the Matrimonial Home when no such debt existed on November 2004. This Line of Credit had been utilized on February 26, 2003 and fully repaid by August 2003, more than a year before the separation.
208At some point during the meeting between Naiema and Mr. Chhina, Nader was asked to leave the office. Mr. Chhina remained in his office alone with Naiema. Nada Newman was on the telephone to interpret for Mr. Chhina. Mr. Chhina read the draft Final Agreement to himself. Then Mr. Chhina reviewed the draft Final Agreement with Naiema.
209Naiema was crying during the meeting. She was distraught.
210Mr. Chhina made it clear to Naiema that:
a) by signing the Final Agreement, Naiema would be giving up “everything” in exchange for a condominium she could live in. “Everything” included Nader Halal, Tamer Inc. and the Matrimonial Home. If Naiema signed the Final Agreement she was “writing off” her claims to the Matrimonial Home and the Tohamy Family Businesses;
b) The Final Agreement was not fair to Naiema;
c) Naiema was entitled to ½ of the family assets which included Nader Halal, Tamer Inc. and the Matrimonial Home. If Naiema signed the Final Agreement she could not pursue any claims she had; and
d) after discussing the length of marriage, Adel’s income and her role in the marriage, Naiema was entitled to spousal support but if Naiema signed the Final Agreement she would be giving up her right to spousal support but she would have her “living” expenses paid by the sons.
211Naiema said to Mr. Chhina she understood the above but she cried and told him that she “had no choice but to sign”. She said this several times.
212Mr. Chhina continued to advise Naiema not to sign the Final Agreement.
213Mr. Chhina repeated to Naiema several times not to execute the draft Final Agreement, that she did not have to sign the draft Final Agreement and that it was her choice whether she did so.
214Mr. Chhina again suggested that Naiema go to Legal Aid to bring a family law claim against Adel. However, Naiema said no – she had been there and had been declined. Naiema said “No, it’s over, I have to agree”.
215Naiema signed the Final Agreement. Mr. Chhina signed the Certificate of Independent Legal Advice.
The Final Agreement
216The Final Agreement of July 8, 2009 provides:
Equalization of Net Family Property
- The parties agree that:
i. Adel has paid Naima the sum of $150,000.00 Canadian on or November 2004 for equalization of net family property;
ii. Adel shall purchase a condo in the amount of $180,000.00 to $200,000.00 for the exclusive and indefinite use of Naima; the title of same condo shall be registered in the names of the parties’ two sons; namely: Nadir Tohamy and Tamer Al Tohamy;
iii. Adel shall pay for the condominium fees, property tax and all costs associated with maintaining the condo for the length of his lifespan;
iv. Adel shall also pay for medication costs for Naima for the length of his lifespan;
The parties agree that the above-referenced terms are in full and final settlement of all claims on the matrimonial home located at: 1533 Adamson Street, Mississauga, Ontario L5C 1B6, Nadir Halal Meat Inc. and Tamer Investment Inc., past present or future, whether arising from Adel and Naiema’s cohabitation and marriage or subsequent to the breakdown of their marriage, including but not limited to the equalization of net family property between the two parties.
Furthermore, Naima agrees that she has received payment for her share of matrimonial home and that the above-referenced terms are in absolute satisfaction of the equalization of the net family property claim and as such she is not entitled to any of the equity in the home or further equalization payments.
Matrimonial Home
Naima agrees that the matrimonial home located at 1533 Adamson Street, Mississauga, Ontario L5C 1B6 shall be transferred to Adel for his own use absolutely and he is free to do as he pleases with the matrimonial home.
Naima agrees to execute all documents necessary for the transfer, listing and sale of the matrimonial home.
Releases
The parties acknowledge that the above-referenced terms hereby remises and releases the parties to this Full and Final Release from all actions, causes of action, demands, damages or losses however arising with respect to the former matrimonial home.
Each party releases and discharges all rights and claims he or she now has or may acquire relating to Property in which the other had, has or may have an interest, including all rights and claims involving:
a. possession of Property;
b. ownership of Property;
c. division of Property;
d. compensation for contributions of any kind, or an interest in Property for contributions of any kind; and
e. equalization payments of any kind, under the Family Law Act.
GENERAL RELEASE
Each party agrees to release each other from all claims at common law, in equity or by statute against the other, Naima will release and discharge Adel from any and all claims to the former matrimonial home, and any and all other claims against him.
This Final Agreement is settlement of all issues between all parties. This Final Agreement is a full and final settlement of all issues arising out of Naima and Adel’s marriage breakdown.
Each party releases each other from all claims at common law, in equity or by statute against each other including claims under the Family Law Act, Divorce Act and the Succession Law Reform Act.
Without limiting the generality of the foregoing the parties declare that the intent of this Final Agreement is to conclude all issues arising from the matters set forth above and below and it is understood and agreed that this Final Agreement is intended to cover, and does cover, not only all known injuries, losses, debts and damages, but also injuries, losses, debts and damages not now known or anticipated but which may later develop or be discovered, including all of the effects and consequences thereof.
The parties agree and understand that they will not make any claim or take any proceedings against any other person or corporation who might claim, in any manner or forum, contribution or indemnity in common law or in equity, or under the provisions of any statute or regulation, and/or under the Rules of Civil Procedure, and all claims are forever discharged by this Final Agreement, in connection with the matters outlined above and below.
SPOUSAL SUPPORT RELEASE
As a result of the terms of this Final Agreement, and except as specifically provided in this Final Agreement, Naima and Adel are financially independent of each other and release their rights to Spousal Support from the other forever. The parties intend this Release to be forever final and non-variable.
The Final Agreement has been negotiated in an unimpeachable fashion and fully represents the intentions and expectations of the parties. Both parties have had independent legal advice and all the disclosure they have asked for and need in order to understand the nature and consequences of the Final Agreement and to come to the conclusion, as they do, that the terms of this Final Agreement, including the release of all Spousal Support rights, constitutes an equitable sharing of both the economic consequences of their relationship and its breakdown.
The terms of this Final Agreement substantially comply with the overall objectives of the Divorce Act now and in the future and the parties’ need to exercise their autonomous rights to achieve certainty and finality.
The terms of this Final Agreement and, in particular this release of Spousal Support, reflects the parties’ own unique particular objectives and concerns. Among other considerations, the parties are also depending upon this Spousal Support release, in particular, upon which to base their future lives.
Naima and Adel do not want the courts to undermine their autonomy as reflected in the terms of this Final Agreement, which they intend to be a final and certain settling of all issues between them. They wish to be allowed to get on with their separate and independent lives, no matter what changes may occur. The parties specifically anticipate that one or both of them may lose their jobs, become ill and be unable to work, find their financial resources diminished or exhausted whether through their fault or not, or be affected by general economic and family conditions changing over time. Changes in their circumstances may be catastrophic, unanticipated or beyond imagining. Nevertheless, no change, no matter how extreme will alter this Final Agreement and their view that the terms of this Final Agreement reflect their intention to always be separate financially. The parties fully accept that no change whatsoever in their circumstances will entitle either of them to Spousal Support from the other.
The terms of this Final Agreement are fully understood, that the aforementioned terms are accepted voluntarily for the purpose of making full and final compromise in settlement of all potential claims and proceedings against the parties now or hereafter brought, for damages, loss or injury resulting from the matters set forth above.
CERTIFICATE OF INDEPENDENT LEGAL ADVICE
I Yurraj Chhina, Barrister & Solicitor, of the City of Toronto, in the Municipality of Toronto, certify that I was consulted by, Naima Mohamed El-Sayed Mohamed El Feky, one of the parties to the attached Final Agreement with respect to his rights and obligations under this Agreement.
I acted only for Naima Mohamed El-Sayed Mohamed El Feky and fully explained to her the nature and effect of the Agreement. Naima Mohamed El-Sayed Mohamed El Feky acknowledged that she completely understood the nature and effect of the Agreement. Naima Mohamed El-Sayed Mohamed El Feky executed the Final Agreement in front of me and confirmed that she was entering into the Agreement of her own volition without any fear, threats, compulsion or influence by Adel Mohamed Tohamy or any other person.
Dated at Toronto this 8th day of July, 2008
“signed by Mr. Chhina”
217Mr. Chhina gave the executed Final Agreement to Naiema. In his reception area, he again told Naiema the Final Agreement was unfair and that she should not deliver the executed Final Agreement to her son. Two things happened. Nader became upset at Mr. Chhina continuing to tell Naiema the Final Agreement was not fair and she should not deliver the Final Agreement. Naiema told Mr. Chhina that if she had not signed the Final Agreement, Nader would have left her there – meaning his office. This is consistent with Naiema’s evidence at trial and Mr. Chhina’s note from his meeting.
218Naiema decided to write the following on the bottom of the signatory page of the Final Agreement before giving it to Nader:
I will never forgive you, and will never ever accept what you have done to me. Allah (Alone) is Sufficient for me, and He is the Best Dispose of affairs (for me). And you are unjust.
219Nader paid Mr. Chhina. Naiema and Nader left. Nader then took Naiema and her belongings to another rental apartment.
Subsequent Events leading to the actions
220Naiema continued to live in the rental apartment for about a month. Eventually, she chose a condominium. The condominium was purchased for her. Title to the condominium was registered in the name of Nader and Tamer. The condominium’s furnishings were purchased for her. Naiema’s condominium expenses have been paid for. Naiema’s medications have also been purchased for her.
221In late August 2008 Naiema left for Egypt. She returned approximately one and a half months later.
222Nader and Tamer each provided Naiema with $200 per month for her additional expenses. Naiema used this money for groceries and other incidental expenses. This amount of money was not sufficient for Naiema to pay for the balance of her living expenses.
223Sometime in late 2008 or early 2009, Nader and Tamer stopped giving Naiema the $400 per month. They told Naiema to get the money from welfare. Tamer, who apparently still had a relationship with his mother, gave his mother $400 per month for a while. However, these monies also came to an end. Naiema was forced to seek welfare. Naiema now lives on welfare, with a total annual income of approximately $11,000.
224Naiema cannot work because of her medical condition. Adel did not challenge this evidence at trial.
225In March 2009, Naiema commenced the Family Law Application.
226In approximately 2009, Adel decided to start a restaurant business, Nader Fine Foods. A great deal of money from Nader Halal and Tamer Inc. were used to start Nader Fine Foods and support it with its ongoing losses to date.
The Break-In
227Once the Aly Action and the El-Feky Law Action had been commenced, there were financial disclosure obligations on Adel and the Tohamy Respondents, in particular, the total sales information regarding Nader Halal. By early 2009, some examinations for discovery had taken place. Adel was to produce the total sales information regarding Nader Halal. One of the documents sought was the Excel spreadsheets that were on the laptop at Nader Halal. These were the same Excel spreadsheets, some of which Nashaat had copied, and became central to establishing Nader Halal’s actual historical gross sales.
228After undertaking to provide the financial documents and before they were produced, there was an alleged break-in at Nader Halal on June 29, 2009. This was just two weeks after the examinations for discovery and the undertakings given.
229Essentially, a computer laptop and some money were the only significant items stolen. The Excel spreadsheets were on the laptop. There are allegedly no other copies of the Excel spreadsheets.
230Surprisingly, the alarm at Nader Halal did not go off. After the alleged break in, the motion sensors in Nader Halal were tested by the insurer and found to be working.
231Nader explained that the motion sensors had been turned off because of birds in the building. I do not accept this explanation.
232I am persuaded the Alys have proven, on a balance of probabilities that Adel, Nader or Tamer deliberately destroyed the Excel spreadsheets of Nader Halal to avoid production to the Alys.
The Tohamy Family Businesses Today
233Nader Halal and Tamer Inc. continue to carry on business. Nader Fine Foods carries on business as of the date of this trial but allegedly continues to lose money. Adel, Nader and Tamer are the sole shareholders, officers and directors of the three companies.
234Tamer Inc. continues to own the Plaza. The mortgage has been paid down from the approximately $3,800,000 to approximately $1,000,000. However, after these actions were commenced, several new mortgages totalling $1,400,000 were placed on the Plaza by Adel.
235The Matrimonial Home continues to be registered in the joint names of Adel and Naiema. It has been vacant for years because of these legal proceedings. The Matrimonial Home remains unsold. Adel now lives in a condominium he owns. His children each have condominiums. Nader also has a home. Adel drives luxury vehicles – a Mercedes SUV and an Audi SUV (it is not clear if they were leased at the same time or one after the other). Nader drives a Lexus SUV.
236There have been no shareholders meetings, directors meeting or apparently any corporate formalities at either Nader Halal or Tamer Inc.
237Some of the bank accounts at the Bank of Nova Scotia continue to be in the joint names of Adel and Naiema.
THE AVAILABILITY AND RELIABLITY OF FINANCIAL RECORDS
238All parties called forensic accountants and valuation experts despite the fact much of their evidence touched upon matters more closely related to damages. The purpose of the respective expert’s evidence at this part of the trial was:
a) to deal with issues of credibility;
b) to deal with the contempt motions; and
c) the valuation of the Matrimonial Home and the Tohamy Family Businesses; and
d) the income of Naiema and Adel.
239Mr. Joslin is a Certified Fraud Examiner. He was called by the Alys and Naiema. He has 36 years of experience in auditing and investigation financial records. He has testified in court as a forensic financial expert in a number of civil and criminal investigations.
240Ms. Rogers is a Specialist in Investigative and Forensic Accounting, a Chartered Business Valuator and a Chartered Accountant. Ms. Rogers has testified on numerous occasions in court as an expert on valuation issues. She has written and presented extensively on forensic accounting and business valuation issues. Ms. Rogers was called by Naiema.
241Mr. Sheik is a Chartered Accountant and a Certified Fraud Examiner. Mr. Sheik has not previously testified in court. He has no recognized valuation accreditations from any independent organization but he has provided valuations to approximately 8 of his clients for their personal accounting purposes. Mr. Sheik was called by the Tohamy Respondents.
242The lack of financial records was a common refrain from the Tohamy Respondents. Even defence counsel and Mr. Sheik admitted that the financial statements and records of the Tohamy Family Businesses were incomplete.
243Equally important, what financial documents were produced by the Tohamy Respondents were generally erroneous and contained false and unreliable financial information. The erroneous, false and unreliable financial documentation did not occur by accident or poor record keeping. Adel deliberately falsified financial records so that he could under-report income tax. He did not want anyone, including Naiema, to know the true financial affairs of the Tohamy Family Businesses or his personal financial affairs. Adel didn’t even give complete or accurate information to his accountant.
244Like Adel’s 2008 Financial Statement and his tax returns, other documentation prepared or submitted by Adel over the years, such as the banks; contain false and unreliable financial information. Adel is prepared to provide false financial information, if he believes it advances his interests.
245Unfortunately, Adel is not the only person responsible for the lack of and accuracy of financial information and documentation. Both Nader and Tamer became involved in the Tohamy Family Businesses. Tamer less so. Both share considerable responsibility for their failure to keep accurate financial records of the Tohamy Family Businesses or to accurately record and report their accurate incomes, at a very minimum since 2007.
246There are many financial questions that remain unanswered:
a) How were the assets and business of Nader Halal transferred to Nader and Tamer Inc. in 2003 or Naiema’s shares transferred to Adel, Nader and Tamer?
b) The financial statements are admittedly unreliable. However, there appear to be no ledgers or any records showing advances, dividends, bonuses, payments out to shareholders, officers, directors etc. There are no complete records of employee remuneration. There are no complete records of expenses. Who got the money, how much and what it was used for will forever be unknown. What Mr. Shaikh relied on for his booking and preparation of T4’s and the income tax returns for Adel, Nader and Tamer and the companies remains a mystery; and
c) Adel used the cash and the monies from the Tohamy Family Businesses as he saw fit. There were numerous examples of money going from one account and into another account without any documentation or proper bookkeeping or financial recording. These transfers occurred between business and personal accounts just as easily. Monies were used to buy condominiums for Adel, Nader and Tamer, for the start-up of Nader Fine Foods, for personal expenses and so on. It was as though Adel had one cookie jar and it did not really matter where the monies came from or how the monies were spent from that jar. Nader and Tamer knew of this and, to a considerable extent, were involved or turned a blind eye to everything going on because they received their cars, their condominiums and money whenever they asked Adel for more.
247As a result, any financial information presented to this trial by Adel, Nader and Tamer is unreliable.
248Given the importance of these facts, let me provide some examples of this deliberate lack of and unreliability of financial records by the Tohamy Respondents:
Nader Halal:
a) It was clear from Nashaat’s evidence that for a period of time, Adel was keeping an Excel spreadsheet record of the total sales at Nader Halal. Nashaat made a copy of this record but it only covered a particular period of time. Confronted with the Excel spreadsheets, Adel admitted that the total sales set out in the Excel spreadsheets (and used in Joslin’s expert report) – “sounds right.” During the second phase of the trial, Tamer admitted that Excel spreadsheets showing the total sales existed – but recanted this evidence within minutes after a court recess. Adel and Nader testified that a record of the total sales for Nader Halal were only recorded starting in July 2012. It is inconceivable that financial records of Nader Halal’s total sales were not kept for almost 20 years but it is also inconsistent with the existence of Excel spreadsheets produced by Nashaat and admitted (but later recanted) by Tamer;
b) Cash sales represented approximately 50% of the sales of Nader Halal through approximately 2008. Adel admitted, during the first phase of the trial, that the total sales set out in Mr. Joslin’s report was “more or less” accurate. This was an underreporting on Nader Halal’s financial statements (and Revenue Canada) of total sales of approximately $20,000,000 – most of it from cash sales. Much of this money was deposited into the personal accounts of Adel, Nader and Tamer. However, in 2009, after these actions were commenced, cash deposits into the personal or the business bank accounts abruptly stopped. Adel and Nader suggested that Nader Halal’s business had slowed to a point where all cash sales were used for cash expenses and therefore, there was no excess cash to deposit. The more likely truth is that the cash sales are being deposited elsewhere, unknown and undisclosed, in the eventuality that the Alys or Naiema are successful in these actions;
c) As this matter was moving closer to trial, in 2010, the total sales reported by Adel and Nader dropped significantly. Based on the documentation produced by Moneris, the point of sale process supplier of interac/credit card transactions for Nader Halal, once these actions were commenced, Adel became more and more aggressive not only not reporting any cash sales but reporting less and less of the paper sales transactions;
d) Nader, an economics graduate, has run Nader Halal, with Adel, for years. When questioned about any significant financial issue, Nader’s response was always that he did not know. It was feigned ignorance regarding virtually all financial matters;
e) Adel and Nader deliberately structured the financial affairs of Nader Halal to give the appearance of reduced sales. For example, they arranged for a loan through an associated company with Moneris. The loan was repaid by deductions by Moneris from the paper sales transaction reconciliation. The effect of this was to reduce the appearance of money being paid to Nader Halal from the paper sales transactions. This loan was discovered by Mr. Joslin’s detailed review of all monies into and out of the business and personal bank accounts and was not deliberately disclosed by Adel and Nader. After the loan’s discovery and when questioned about the less than two year old loan, Adel and Nader said they had no documentation regarding the loan and no documentation was produced. It appears that Adel and Nader were simply “caught” attempting to give the appearance of reducing the sales of Nader Halal; and
f) There is overwhelming evidence that the true and accurate financial picture of Nader Halal and Tamer Inc. has not been disclosed in the evidence at this trial. There have been numerous orders of this court requiring Adel, Nader, Tamer and the Tohamy Respondents to produce specific financial information and documentation. Despite numerous court orders, financial disclosure remained incomplete at trial.
Tamer Inc.:
a) One would have expected that the financial reporting for the Plaza, where leases are signed and tenants pay by cheque would be much more reliable. However, it is not. Monies were borrowed by Adel, Nader and Tamer against the Plaza and the amounts are not detailed anywhere. There are two mortgages obtained by Adel after these actions were commenced, one for $800,000 and one for $600,000, where there is little or no documentation as to what happened to the monies. Some of the money was admittedly for personal use;
b) The net monthly income from the tenants of the Plaza was consistently around $100,000 per month for a number of years. However, as this matter proceeded to trial, the monthly rent income for the Plaza dropped to approximately $75,000 per month – a 25% drop in gross rent. There was no credible explanation as to this drop in income despite the fact the leases did not change significantly and the current rental income included a new tenant, Tim Hortons. Adel denied he was receiving some portion of the rent in cash but his explanation makes little sense; and
c) Mr. Shaikh admitted he could not make the financial numbers “add up” in Tamer Inc. and when he could not, he simply made accounting entries such as making an entry in “shareholder loans” to balance the statement, whether or not any of the shareholders had actually advanced any money to the company. Over the years, these entries become impossible to unravel.
The Continued Lack of Documentation
249There is no doubt there remains outstanding substantial financial disclosure.
250Mr. Joslin provided a lengthy list of outstanding disclosure during the course of his evidence. There is no point in repeating the list at this time. Ms. Fisher’s letter of September 11, 2012 also sets out documentation that was missing as of that date. Another letter of December 10, 2012 from Ms. Lagoudis set out an extensive list of documents which continued to be outstanding as of that date.
251Many of the requested documents were never provided at all or in their entirety. Many items continue to be outstanding despite further disclosure by Adel’s counsel as late as January 4, 2013, just prior to the second phase of the trial.
252Let me provide a few examples:
a) The Tohamy Respondents failed to provide any documentation with respect to the above mentioned Merchant Loan Advance from the Moneris related company. There would have been some documentation required for this loan advance which took place approximately 2 years ago. However, the Tohamy Respondents testified that they had no copies of the documentation and they asked the loan provider to provide copies. They testified that the loan provider advised that all the documentation had been destroyed. I do not accept that the loan documentation, relating to a loan made approximately two years ago, is no longer available for production;
b) No documentation has been provided for the $800,000 and $600,000 mortgages registered against the Plaza. No applications, no net worth statements – nothing. Further, there is no documentation which shows what happened to the money advanced. There is simply no documentary trail such as cancelled cheques. We are left to rely on the testimony of Adel and Nader and Mr. Joslin’s attempt to reconcile the monies going into various bank accounts; and
c) Adel applied for a mortgage with TD Canada Trust within the last two years. The mortgage application and supporting documentation were not produced. Adel testified that the bank had told him that all of the financial documentation supplied by Adel to the bank had been destroyed “after funding”. A letter was produced by a representative of TD Canada Trust which appeared to confirm this policy. This TD Canada Trust representative did not testify. I find this policy to be highly questionable in light of the document retention requirements in the Income Tax Act (s. 230) and the Bank Act, (s. 238). From a practical perspective the lack of documentary retention by the bank would hamper the bank’s ability to deal with any subsequent disputes regarding the mortgage.
FINDINGS OF FINANCIAL FACTS REGARDING THE TOHAMY FAMILY BUSINESSES
253Despite the lack of financial records and the unreliability of whatever financial documents have been produced, certain facts can nevertheless be ascertained.
254Prior to 2001, Nader Halal had been very profitable:
(a) Adel bought the Matrimonial Home in 1994 and had fully paid for it within a short time;
(b) In the late 1990’s or early 2000 Adel admitted to his wife, Naiema that Nader Halal was making $600,000 to $750,000 net profit. I accept this range as reasonably accurate;
(c) As set out in Mr. Joslin’s expert’s report, Adel and his family lived a lifestyle spending hundreds of thousands of dollars in personal expenses each year; and
(d) Adel invested substantial amounts of money in GIC’s. When Tamer Inc. bought the Plaza in 2003, Adel had approximately $1,700,000 on deposit in GIC’s at his bank.
255Subsequent to 2001, Nader Halal continued to be very profitable:
a) Approximately $17.885 million in cash sales was generated by Nader Halal over 6 years (2002-2008). Only approximately $3.3 million in cash was deposited into Adel’s or Nader Halal’s bank accounts. The cash deposits represented only a small portion of the total of cash sales;
b) Adel reported the following total sales for Nader Halal but admitted that the accurate total sales were approximately as shown below:
| Year | Gross Sales As Per Financial Statements | Reported Net Profit | Estimated Gross Sales |
|---|---|---|---|
| 1997 | $1,488,191 | $23,883 | Not estimated by Joslin |
| 1998 | $1,636,365 | $20,524 | Not estimated by Joslin |
| 1999 | $1,852,274 | $18,376 | Not estimated by Joslin |
| 2000 | $1,876,912 | $13,316 | Not estimated by Joslin |
| 2001 | $1,817,917 | Not in evidence | Not estimated by Joslin |
| 2002 | $1,873,652 | Not in evidence | $4,312,595 |
| 2003 | $1,720,532 | $465 | $4,046,628 |
| 2004 | $2,122,542 | $3,250 | $4,046,763 |
| 2005 | $2,087,020 | $1,263 | $4,228,570 |
| 2006 | $2,670,044 | $2,566 | $4,114,759 |
| 2007 | $1,915,064 | $2,923 | $3,730,900 (potentially incomplete) |
| 2008 | $1,658,767 | $3,503 | $3,355,330 |
| 2009 | $1,458,370 | ($32,704) | $3,120.937 |
| 2010 | $1,282,943 | ($78,283) | $3,129,456 |
c) During many of the same years Adel’s reported (T4) income was as follows:
2003 - $10,500
2004 - $0
2005 - $0
2006 - $0
2007 - $0
2008 - $52,666.60
2009 - $43,999.95
2010 - $39,999,96
d) Subsequent to 2007 and continuing to date, Adel continued to under-report Nader Halal’s total sales and, even more aggressively than in prior years. Clearly, and without any question, Adel was engaged in fraudulent activities to accumulate wealth by not reporting his actual sales, reducing his expenses by paying cash and using monies interchangeably between the companies, himself and his children;
e) This fraudulent activity of Adel involved millions of dollars over the years. I reject Mr. Sheik’s opinion evidence that Nader Halal would have only made 2-4% net profit of gross sales. Mr. Sheik’s opinion is not consistent with the large sums of money and lifestyle expenses of Adel. Using Mr. Shaikh’s 2-4% profit margin on the gross sales of Nader Halal, it would have been impossible for Adel to have enjoyed the lifestyle he did, make gifts to the Alys, expand Nader Halal, accumulate the debt free assets and have approximately $1,700,000 in GIC’s by 2003. Mr. Sheik’s evidence defies the test of reasonableness when compared to the actual evidence.
The 2012 Cash Register Tapes
256There was considerable evidence regarding the Nader Halal cash register tapes. Expert reports on the issue were filed by the parties.
257Essentially, Mr. Joslin concluded that not all cash register tapes were produced and there were considerable sales not recorded by the cash register tapes.
258Mr. Sheik suggested that the cash register tapes were accurate and, where there were discrepancies, there were valid possible explanations for the discrepancies.
259I am not satisfied that all of the cash register tapes have been disclosed and, in any event, the cash register tapes would not disclose all the sales in Nader Halal. It is clear that there are a significant number of “gaps” in the cash register tapes produced where no entries were made, in some cases for days, there were a number of void or “no sale” entries and the total number of transactions recorded appeared to be extremely low. In at least two months, May and August 2012, the recorded sales on the cash register tapes were less than the amount of paper transaction sales by interac/credit card sales. Even Mr. Sheik agreed this should not occur since the total sales should always be greater than the interac/credit card sales.
260I have no hesitation in concluding that there are many cash sales at Nader Halal which are not recorded anywhere, including on the limited cash register tapes produced by the Tohamy Respondents.
FINANCIAL FACTS RELATING TO ADEL AND NAIEMA
261The following financial facts are established by the evidence.
Family Property as of November 2, 2004
Value of Tamer Inc.
262The Plaza was purchased in February 2003 for $5,750,000. Adel used monies from his bank accounts to make the down payment of approximately $2,000,000 on the Plaza. By December 2004, there was only $3,138,000 outstanding on the mortgage, the only mortgage on the Plaza.
263Even without any appreciation in the Plaza, there was at least $2,600,000 in equity in Tamer Inc. most of it being the money Adel put into the purchase and the mortgage pay-down. Mr. Sheik sought to allocate the shareholder loans in Tamer Inc. amongst all the shareholders. There are two serious problems with this. The shareholder loan account is highly unreliable given the manner in which Mr. Shaikh recorded the shareholder loans. More importantly, I do not see why any of the shareholder loans would be attributed to Nader or Tamer. They made no loans to Tamer Inc. They contributed no monies to Tamer Inc. or the purchase of the Plaza.
264In essence, the entire value in Tamer Inc. as at November 2004 would be part of Adel and Naiema’s family property and be subject to equalization under the FLA.
Value of Nader Halal
265I accept Ms. Roger’s November 2004 valuation of Nader Halal at $1,470,000 -$1,898.000. In my view, Ms. Rogers used a proper valuation approach. She is an experienced Chartered Business Valuator who properly applied the appropriate valuation principles to reach her valuation opinion. Ms. Rogers’ evidence was unbiased in favour of either party. She was unshaken in cross-examination. Ms. Rogers’ valuation opinion provided a conservative and reasonable valuation of Nader Halal on November 2, 2004 based upon the amount of profits generated by Nader Halal over the prior years.
266There are many difficulties with Mr. Sheik’s opinion:
a) Mr. Sheik’s has little experience or training in preparing or providing valuation opinions. A simple review of the attachments to his report show that he heavily relied on materials from the Canadian Institute of Chartered Business Valuators (CICBV) and his interpretation of those materials in arriving at his opinion. Mr. Sheik has not studied the principles set out in the CICBV documents. Ms. Rogers has. Mr. Sheik is not a member of the CICBV. Ms. Rogers is. Mr. Sheik has never testified on business valuations in court as an expert. Ms. Rogers has on numerous occasions. Mr. Sheik has not written or lectured on business valuations. Ms. Rogers has;
b) Mr. Sheik criticizes Ms. Rogers in having failed to prepare a “comprehensive valuation report” – the highest level of reliability for valuation reports. It is true that a comprehensive valuation report would have been preferred but given the lack of financial documentation and the lack of reliability of what was produced, this was not possible. Mr. Sheik concluded that Ms. Rogers’ report “does not serve the purpose it was intended for i.e. determining the net worth of Mr. Adel Tohamy as of the valuation date”. Mr. Sheik’s comment misses the point that Ms. Rogers’ opinion provides the highest level of assurance given the available documentation;
c) Mr. Sheik was critical of Ms. Rogers using a “notional” valuation. This underscored Mr. Sheik’s lack of understanding of basic valuation principles. This notional method of valuation is the typical method used by the CICBV and, by necessity, every historical valuation must be “notional” since there was no sale on the valuation date;
d) One of Mr. Sheik’s attachments to his report includes the definition of EBITDA which was taken from the Toronto Star’s business section – a newspaper;
e) Mr. Sheik relied on hindsight (what occurred after November 2, 2004) to determine the value of Nader Halal. I accept Ms. Rogers’ evidence that this is a fundamental error in approach for a valuator. The valuation must be done with all the information known at the date of valuation;
f) Mr. Sheik relied on financial statements which he knew to be wrong and unreliable. By using a discounted cash flow of the reported profits from subsequent years, Mr. Sheik commits two fundamental errors –use of hindsight and use of knowingly unreliable financial statements;
g) In my view, Mr. Sheik used the wrong comparator to the Nader Halal business. I am not persuaded that “Supermarkets and other Grocery (except convenience) stores” was the appropriate comparator. Ms. Rogers’ comparators were much more focused and applicable to a business like Nader Halal. Having used his chosen comparator, Mr. Sheik calculated Nader Halal’s profit should be 2.35% of gross sales, but he failed to apply any objective reasonable review of this percentage. It simply generates too low a profit to account for the net disposable monies (i.e. the enrichment) to Adel to prior to November 2, 2004. Further, Mr. Sheik’s conclusion that Nader Halal’s business was worth only $236,000 - $278,000 on November 2, 2004 makes little sense given the annual profits generated by Nader Halal;
h) Mr. Sheik unilaterally applied a minority discount to Naiema’s interest in Nader Halal. Again Mr. Sheik simply relied on materials from the Canadian Institute of Chartered Business Valuators as to when to apply a minority discount and the amount of minority discount to be applied. I am not persuaded that, for the calculation of net family property of Adel and Naiema, any minority discount should be applied. Whether a minority discount is appropriate can be dealt with in the damages phase of the trial. At this stage, all that is necessary is a valuation of Nader Halal at November 2, 2004;
i) Mr. Sheik criticized Ms. Roger’s reliance on the estimated cash sales from the Excel spreadsheet Nashaat produced. The difficulty is that Adel admitted that the total sales from those Excel spreadsheets were relatively reliable. Mr. Sheik’s speculation as to the reliability of the Excel spreadsheets appeared to be nothing more than a further attempt to drive down the valuation of Nader Halal for Adel;
j) Mr. Sheik did everything he could to reduce the value of Nader Halal. He even suggested there were too few parking spots at Nader Halal under the City’s 2011 parking by-law concluding that “I even doubt whether the store can be sold to another party.” When asked, Mr. Sheik did not know what a legal non-conforming use was. Similarly, Mr. Sheik relied on competition in the neighbourhood which he concluded would “bring down the price of the business”. This was speculation by Mr. Sheik to attempt to justify a low valuation for Adel;
k) Part of Mr. Sheik’s reasoning included the break up or “terminal” value of Nader Halal. It was not clear why this would be appropriate in these circumstances. One would expect that the Nader Halal business would have a greater value being sold as an ongoing business rather than liquidation of its business assets, of which there were very few;
l) Mr. Sheik arrived at his valuation opinion of Nader Halal based on an average of break-up value and discounted cash flow value despite acknowledging that this approach is not usually used, he admitted he was not aware of it ever having been used and there is no reference to its use in any of the literature he reviewed; and
m) Mr. Sheik used his own experience to conclude that Nader Halal had no goodwill despite the fact it had operated for some 13 years at the same location prior to 2004 and had been very successful in the market place. “No goodwill” in these circumstances is difficult to accept.
267In light of the above, Mr. Sheik’s conclusion that Naiema’s 25% share in Nader Halal on November 2, 2004 was worth between $30,000 to $50,000 makes no sense at all.
268Mr. Sheik’s conclusion demonstrates a lack of reasonableness and independence in his approach and conclusions.
The Value of Family Property at November 2, 2004
269The value of Adel’s family property varies significantly between Adel’s two Financial Statements. In Adel’s 2008 Financial Statement he calculated the value of certain family property as at November 2, 2004 to be approximately $2,000,000 ($700,000 Matrimonial Home, $1,000,000 Tamer Inc. and $200,000 Nader Halal). By contrast, in Adel’s 2013 Financial Statement he calculated the value of the certain family property to be approximately $1,400,000 ($540,000 Matrimonial Home, Cash $125,000, $100,000 for Tamer Inc. and $125,000 for Nader Halal, and shareholder loans of $600,000).
270Adel’s 2008 Financial Statement showed a personal net worth of $849,650 as at November 2, 2004. Adel valued Tamer Inc. at $500,000 and Nader Halal at $100,000.
271Adel’s January 2013 Financial Statement showed a personal net worth of $956,848 as at November 2, 2004. This time Adel valued, at November 2, 2004, his interest in Tamer Inc. at $55,250 and Nader Halal at $64,431.
272Like all of Adel’s other financial documentation, there are major inconsistencies and variances in his financial disclosure.
273Given that Adel and Naiema’s family property included Nader Halal and Tamer Inc. as their significant assets and the highly unreliable financial statements of both companies, any determination of the value of these companies on November 2, 2004 based on documentation is unreliable. Adel’s own valuation of these companies is unreliable.
274The value of the companies must be determined from the surrounding facts.
275Mr. Joslin, calculated value of the Adel and Naiema’s family property at $3,376,211 on November 2, 2004. Mr. Joslin reviewed the family property, the cost of assets (without appreciation) and some estimated of values. It was the best approach possible in the circumstances.
276Mr. Sheik used a number of methods to improperly minimize Adel’s net family property. For example:
a) Mr. Sheik allocated a substantial shareholder loan in Tamer Inc. amongst the four shareholders even though it is clear that it was Adel, with money from the family bank account, who made the almost $2,000,000 down payment on the Plaza. This “allocation” substantially reduced Adel’s value of his family property and substantially increased the net worth of Nader and Tamer. No valid or accounting reason was given for this allocation. Mr. Sheik had no shareholder ledger showing who made the advances but he did have access to the bank account documentation which showed the money came from Adel’s bank account. Mr. Sheik also could not or would not appropriately respond to questions as to whether permitting one shareholder to make advances to a company and allocating the loan amongst all shareholders (which essentially permits the other shareholder to take the money out tax free by way of repayment of a loan) was appropriate for tax purposes. I find Mr. Joslin’s approach to allocate the entire shareholder loans to Adel, the person who made the advances to the company, to be the correct approach. I accept Mr. Joslin treating the entire shareholder loan to be family property of Adel and Naiema; and
b) Mr. Sheik also tried to justify a reduction of the amount in one of Adel’s bank account on November 2, 2004 by deducting the $100,000 USD Adel paid to Naiema on November 3, 2004 – one day after the separation. I agree with Mr. Joslin’s approach that the entire bank balance on November 2, 2004 is family property of Adel and Naiema. The fact Adel made the subsequent payment might, if equalization was to be ordered, entitle Adel to a credit for this payment.
277Mr. Sheik’s calculation of Adel’s net family property at November 2, 2004 is grossly understated.
278I accept Ms. Rogers’ valuation of Nader Halal.
279Given that neither Tamer nor Nader had contributed any money or value to Nader Halal prior to the separation, the entire value at November 2004 should be attributed to Adel and Naiema’s family property. As for Tamer Inc., the value is approximately the amount of the down payment on the purchase of the Plaza and the mortgage pay-down prior to the separation. Again, since neither Tamer nor Nader contributed any money nor value to Tamer Inc. prior to the separation, the entire value is attributed to Adel and Naiema. Even recognizing Nader and Tamer’s 25% interests, given that they had contributed $0 to the acquisition and most of the value remained in the initial down payment, no significant value would had accrued to their shareholdings.
280I also make this allocation of the entire values of Nader Halal and Tamer Inc. to Adel and Naiema since there is no evidence as to how Nader and Tamer acquired their shares. They didn’t pay for them. They didn’t incur any liability for them. There was simply no transfer mechanism which would suggest that Nader and Tamer entitled to the immediate 25% each of any net equity in these companies. No one sought to lead evidence that a resulting trust would not apply in these circumstances.
Conclusion on the value of the family property as at November 2, 2004
281The value of the family property owned by Adel and Naiema on November 2, 2004 and subject to equalization under the FLA was the following approximate amounts:
Monies in the bank - $250,000
Nader Halal – approximately $1,750,000
Tamer Inc. - $2,600,000
The Matrimonial Home - $1,000,000
Other assets such as vehicles, household goods - $250,000
282The net value of the family property of Adel and Naiema as of November 2, 2004 to be equalized was approximately $6,000,000.
Adel’s 2004 Income
283Adel did not even try to suggest that his reported income to Revenue Canada over the years was accurate.
284In 2004, Adel reported $0 income to Revenue Canada.
285Mr. Joslin concluded that Adel’s income for 2004 was $668,622.57. This amount was calculated based on Adel’s increased net worth from December 2003 to December 2004 (approximately $454,000) and from his estimated personal expenses ($213,000). This increase in net worth was the cost of asset acquisitions over the year and not from any appreciation of previously purchased assets. I find this approach to be reasonable.
286Mr. Sheik took a different approach. He simply looked at the financial statements of Nader Halal and Tamer Inc. and used those known inaccurate financial statements to allocate, and in some cases create or rationalize, an income to Adel. For example none of the financial statements show any dividends were paid to Adel, yet, Mr. Sheik calculated Adel’s 2004 income as including dividend income.
287I accept Mr. Joslin’s approach as being the only available and reasonable approach in the circumstances where the financial documentation is non-existent and, what does exist is unreliable.
288The estimated 2004 income of Adel by Mr. Joslin is supported by other evidence. Ms. Rogers determined that, as of November 2, 2004, she estimated that Nader Halal (alone and without any profits from Tamer Inc.) would generate approximately $550,000 of after tax profits each year. It should be noted that this amount appeared to be based on the estimated total sales of Nader Halal and payment of taxes on the business’ net income. In other words, without the payment of taxes, the actual profits from Nader Halal to Adel would have been higher.
Adel’s Current Income
289Adel’s current income would, at this point, be speculation. Given the lack of financial documentation and the unreliability of whatever financial documents do exist, I conclude that Adel continues to have a substantial unreported income come from Nader Halal and Tamer Inc. and possibly Nader Fine Foods in the hundreds of thousands of dollars per year. The exact amount of Adel’s current income cannot be determined because of Adel’s failure to produce complete and reliable financial records. It will be necessary to assess and determine an imputed for current income for Adel for use in the determination of the quantum of spousal support at the damages phase of this trial.
290I do not accept Adel’s reported income in his 2013 Financial Statement.
291I am satisfied that Adel has the means to pay spousal support.
Naiema’s 2004 Income
292Prior to the separation, Naiema had no income in 2004. Naiema’s documented income was “paper” income created by Adel to save taxes with no real money being received by her. She was dependent on Adel for any money she received.
293Subsequent to the separation, Naiema earned interest income on the balance of the $100,000 after buying the apartment in Egypt. Currently, that amount is $360 per month. No doubt the amount would not have been that significantly different in 2004 and subsequently. This was not sufficient income for Naiema to buy her medicines and pay all her expenses.
Naiema’s Current Income
294Essentially, there was no cross-examination on Naiema’s current income or inability to find employment. Her income is approximately $11,000 per year, mostly from Ontario Disability Support Program (OPSP).
295For awhile, Naiema was receiving $200 per month from each of Nader and Tamer but that stopped around the time Naiema brought this application.
296At this stage, it is not necessary to determine quantum of support, the issue is whether Naiema is entitled to spousal support if the two separation agreements are set aside.
297Naiema clearly has need for additional financial support even if one takes into account that:
a) She has an apartment in Egypt;
b) She has monies in the bank account in Egypt with a $360 per month interest income;
c) Her condominium expenses in Ontario are paid; and
d) her medication is provided by her family.
298Naiema’s need for financial support from Adel continues today.
ANALYSIS OF THE ALYS’ CLAIM
CONTRACT
299A partnership agreement need not be in writing but it requires a valid agreement in law.
300The approach to determining whether a partnership exists is set out in Backman v. Canada, 2001 SCC 10 at paragraphs 25-26:
(b) The Approach to Determining Whether a Partnership Exists
As adopted in Continental Bank, supra, at para. 23, and stated in Lindley & Banks on Partnership, supra, at p. 73:“in determining the existence of a partnership . . . regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case”. In other words, to ascertain the existence of a partnership the courts must inquire into whether the objective, documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit.
Courts must be pragmatic in their approach to the three essential ingredients of partnership. Whether a partnership has been established in a particular case will depend on an analysis and weighing of the relevant factors in the context of all the surrounding circumstances. That the alleged partnership must be considered in the totality of the circumstances prevents the mechanical application of a checklist or a test with more precisely defined parameters.
301The Alys allege there was an oral partnership agreement with Adel that they had an interest in Nader Halal prior to the start of Nader Halal’s business or which agreement arose over the years.
302The issues raised by Adel and Naiema are:
a) Lack of consideration; and
b) Lack of mutual or common intention.
Was there a partnership agreement prior to 2001?
303I reject that there was any valid and binding partnership agreement with the Alys regarding Nader Halal prior to 2001.
304The Alys have not established that, on the balance of probabilities, there existed a valid partnership agreement in Nader Halal prior to 2001. The reasons include:
(a) The allegations in the Alys’ pleadings suggest that the Alys accepted an offer by Adel while in Egypt. This pleading is not consistent with their evidence at trial. The Alys alleged that they moved to Canada in consideration of promise of a partnership by Adel. This pleading is not consistent with their evidence at trial. The Alys alleged that the partnership offer was 20% in 1991. This pleading is not consistent with their evidence at trial;
(b) The Alys had no money to contribute to the start-up of Nader Halal or its operation. Adel took all the financial risks for Nader Halal in 1991. The Alys had no expertise in the grocery store business. In these circumstances, there would have been no reason for Adel to offer 50% (or any %) of Nader Halal to the Alys prior to the start up of the business. Adel alone took the risk of $4,500 per month rent. The suggestion that the Alys contributed their efforts is inconsistent with Taghreed being paid, like an employee, virtually from the start-up of Nader Halal despite the fact Adel was short on money and the business was initially not profitable. An agreement is also inconsistent with Nashaat looking for and working at other jobs for a number of years rather than working at Nader Halal – where he alleges he was a 50% owner;
(c) Nashaat’s evidence was that, when Adel went into the hospital in 1992, Adel told him “if I die” Nashaat would have 50% of Nader Halal. This evidence is inconsistent with Nashaat’s earlier evidence that he and his wife had already become partners in 1991 prior to the store opening. If the Alys were partners since 1991, there would have been no reason for Adel to have made the alleged statement (which is consistent with Mr. El-Sedfy’s evidence). In any event, even if Adel had made the “offer” in 1992, Adel did not die. The statement would not amount to a valid agreement in law as it was conditional on an event which did not happen;
(d) It makes little sense that the Alys would give up their engineering careers, having just arrived in Canada, to join a start-up business with little capital and with no experience in the grocery business. Besides, the evidence is clear and uncontested that Nashaat did not give up his engineering career for Nader Halal in the early 1990’s. Nashaat tried for years to get engineering related employment and could not. It was only after years that he went to work at Nader Halal in 1995. As for Taghreed, her cashier job allowed her to earn money for her family and given Nashaat’s unemployment, a job for cash, and flexible hours to care for her children, would have been attractive. Taghreed did not sacrifice her career;
(e) The evidence of Nashaat and Taghreed was that, in October 1991, the partnership agreement was formed, but no percentage was specified. They simply understood it was 50%. It is impossible to accept that a partnership could have been formed without, at a minimum, the partners expressly agreeing on the percentage each owned in the business – a fundamental and necessary term of any valid partnership agreement;
(f) The Alys were not named on the business permit. Adel and Naiema were;
(g) The Alys were not shown as tenants on the Nader Halal lease. Only Adel’s name was on the lease;
(h) The Alys were not shown on any of the Nader Halal bank accounts;
(i) The Alys had no involvement in the major decisions, the location, the lease, or the expansion in 1998. This would have been highly unlikely if the Alys were partners in Nader Halal;
(j) In 1994, after the Alys had their first child, neither Taghreed nor Nashaat worked at Nader Halal. Both were on unemployment insurance. This is inconsistent with being partners in Nader Halal;
(k) It makes little sense that Nashaat would, if he believed he was a 50% partner in Nader Halal, permit Adel to buy a home in 1994 with profits from Nader Halal while the Alys, having received no profits at all, remained in a small apartment;
(l) Nashaat’s testified that he asked for Adel for his profits in 1995-1996. Adel told him to wait until 1997 when Adel expected to have the mortgage on his house paid off. Nashaat testified that in 1997, after Adel had fully paid for his house (and while the Alys were still in a small rental apartment), Nashaat again asked Adel for his share of the profits. Nashaat testified that Adel told him he needed one or two years to accumulate money for Adel’s children’s future and then, Adel would give him 100% of the business. This makes no sense. If Nashaat had been a 50% partner he would not have agreed to permit Adel to pay off his house, and continue to accumulate money for Adel’s children’s future, while Nashaat had not received any profits at all for years, remained in a small apartment and agreed not to receive profits for a further number of years. Further, it makes little sense that Adel would simply give the Alys 100% of Nader Halal in one or two years. Two years later, in 1999, Nashaat testified he again asked Adel for “his profits.” This time Adel told him that the renovation costs were high and he had not made the profits he had hoped. Nashaat knew that Nader Halal was making substantial profits and there would have been no reason Nashaat would have accepted this response from Adel unless Nashaat knew that there was no valid agreement with respect to his ownership in Nader Halal. All of the above is more consistent with Nashaat’s continued request for an ownership interest in Nader Halal and not with an existing partnership agreement;
(m) In 1999, the Alys submitted letters to their bank for a mortgage application. The application showed Nashaat as a manager and Taghreed as a cashier of Nader Halal – both employees receiving salaries. If they had been partners in Nader Halal, by then a very successful business, it would have been logical for them to have reported this to the bank in their mortgage application;
(n) The Alys suggested that Adel gave them used cars and the $70,000 as part of their profits in Nader Halal. I reject this evidence as evidence of an existing partnership. It is noteworthy that these “gifts” started around 1999. In 1999, Adel spent a considerable time in the hospital. Nashaat ran Nader Halal for a lengthy period of time. When Adel came out of the hospital, Nashaat testified he again asked for his “profits.” Nashaat’s request had a better chance of acceptance given Adel’s recent health issue and his assistance to Adel during this period. Adel gave Nashaat $70,000 as a down payment to permit the Alys to purchase a home and used vehicles. Adel made these “gifts” to appease the Alys from continuing with their demands for a part of Nader Halal. From the Alys’ perspective, given the substantial profits by Nader Halal, I doubt giving them $70,000 and a used Volkswagen or a Grand Caravan would have satisfied them as to a payment of their share of profits (regardless of whether it was 20%, 30% or 50%). In my view, it is more likely Adel made these gifts to defer further demands by the Alys for a share in Nader Halal and to recognize the work the Alys did while Adel was ill. It is also noteworthy, there is no evidence that the Alys reported the $70,000 or the value of the vehicles as their ownership “profits” from Nader Halal;
(o) The Alys received a salary for working at Nader Halal. They held responsible positions. Taghreed was a cashier – an important position in a cash business but still a cashier. Nashaat was an assistant manager. They were trusted employees – Nashaat was Adel’s brother and Taghreed was his cousin. The fact that they signed cheques, had keys to the store and were permitted to pay themselves cash are nothing more than indicative they were trusted employees and not necessarily evidence they were partners in Nader Halal;
(p) The Alys also suggested that they worked long hours, were critical in the start-up and success of Nader Halal as a basis for an entitlement to an interest in Nader Halal. I reject this. They were paid for their work at Nader Halal. If hard work and long hours was a basis for a claim to ownership, many employees, in many companies, could claim an interest in the companies that employ them;
(q) Nashaat testified that Adel told him in 1999 that Adel was the 2/3 owner of Nader Halal and the Alys were a 1/3 owner. According to Nashaat’s evidence he simply accepted this. The evidence of the Alys was that they were partners in Nader Halal in the amount of 50%, then 20% and then 33%. The alleged partnership interest significantly varied over the years with no rational explanation for the changes. There was no complaint by the Alys even when the alleged percentage went down. This continually varying alleged partnership interest is not consistent with an “agreement” prior to 2001;
(r) In early 2001, after all of the delays and the continually changing discussions with Adel regarding their interest, Nashaat testified that when Adel went back into the hospital, Adel again told him that the Alys were 50% partners in Nader Halal and that, if Adel died, the Alys were to give Adel’s family 50% of the profits for about 5 years and after that the Alys would own 100% of Nader Halal. This evidence by the Alys was yet another change to their alleged partnership agreement(s) and more consistent with no prior “agreement”; and
(s) The Alys testified to a number of reasons for not having obtained any documentation of their partnership interest in Nader Halal. While I accept that Nashaat is Adel’s brother, after the many discussions over the years regarding an ever changing potential partnership interest in Nader Halal, the delays by Adel, watching Adel become very wealthy, at some point, Nashaat would have said “enough” and insisted on documentation regarding his interest in Nader Halal. He did not do so prior to 2001. Up until then, Nashaat’s own evidence was that he was asking for profits – not documentation to confirm his partnership interest. There is a distinction and, in the facts of this case, it is significant.
305These facts are more consistent with the Alys wanting and asking Adel to give them an interest in Nader Halal. However, the Alys could never “tie” Adel down to a valid and firm agreement prior to 2001.
306The onus is on the Alys to establish that there was a valid partnership agreement in Nader Halal prior to 2001. They have failed to meet this onus. There simply is no evidence of an offer and acceptance between Adel and Nashaat (on behalf of their respective families). The conduct of the parties is not consistent with the existence of a partnership. The only potentially corroborating witness, Mr. El-Sedfy, Adel’s friend, did not testify the Alys were partners but that they would be partners in 1992 if Adel died – a condition which was not met.
307I conclude there was no partnership agreement between Adel and Nashaat with respect to Nader Halal prior to 2001.
Was there an agreement in 2001?
308I am satisfied the Alys have established, on the balance of probabilities, that there was a partnership agreement that the Alys were 20% owners of Nader Halal as of 2001.
Was there consideration at law?
309Adel became very ill again in late 2001. It was an extremely difficult year for him medically. Adel was away from the business for an extended period of time. It is probable that his repeated medical issues in this year caused Adel to consider how the business would or could continue without him. Adel’s children were too young to take over Nader Halal. Naiema had not been involved in running Nader Halal. This would have been an opportune time for Adel to deal with the long-term ownership and operation of Nader Halal for his family.
310Adel needed the Alys to continue to operate Nader Halal should something happen to him. He wanted them motivated but to retain the majority of Nader Halal for himself and his family. The Alys were the perfect partners. They were family. They were involved in the operations and had been for a number of years. Adel had successfully relied on the Alys during other periods when he had been in the hospital and Nader Halal had continued successfully. The Alys had wanted an interest in Nader Halal for a number of years and, hopefully, this would finally end his “nagging” for an interest in Nader Halal.
311Giving the Alys’ a 20% interest would ensure the Alys continued with Nader Halal. This was important at the time for Adel.
312I am satisfied there were mutual benefits and obligations with respect to the partnership agreement that the Alys had a 20% interest in Nader Halal. The Alys received 20% in Nader Halal. The Alys relied on the partnership agreement to continue to work at Nader Halal. On the other hand, Adel received certainty that, at a precarious time, he would be assured the Alys would remain at Nader Halal for the benefit of his family long term.
313As a result, there was valid consideration at law in the formation of the partnership agreement.
Was there a common intention as to the Alys’ ownership in Nader Halal?
314The evidence establishes that the Alys accepted and agreed to a 20% interest in Nader Halal in 2001.
315The issue raised by the Defence is that there was no “common” intention. In other words, the Defence submits that Adel did not have the intention to make the Alys 20% partners in Nader Halal. I disagree. Adel intended and agreed to make the Alys 20% partners in Nader Halal in 2001.
316The considerable evidence that Adel intended and agreed to give the Alys a 20% interest in Nader Halal includes:
(a) Mr. Shaikh testified that Nashaat asked him whether his name was shown in the company documents as an owner in Nader Halal. Mr. Shaikh told Adel. Adel did not tell Mr. Shaikh that the Alys were not part owners in Nader Halal. Adel did not approach Nashaat to deny that he was a part owner in Nader Halal. If the Alys were not partners in Nader Halal, no doubt Adel would have confronted his brother and denied his brother’s entitlement to a share in Nader Halal and made this clear to all including his accountant. His failure to do so is corroborative evidence that Adel knew and had agreed that the Alys were 20% owners of Nader Halal;
(b) Mr. El-Sedfy testified that in 2007 Adel told him that he had given Nashaat 20% of Nader Halal. Mr. El-Sedfy told Adel to give the Alys documentation showing that they owned 20% of the shares of Nader Halal. Adel’s statements to Mr. El-Sedfy confirms Adel had agreed and knew he had agreed to give the Alys for 20% of Nader Halal;
(c) Mr. Diriny, a long-time friend of Adel, testified that Adel confirmed to him Nashaat was a 20% partner in Nader Halal in 2001. Adel told him it was a 5 way partnership, implying 5 persons at 20% interest each – one for each of Adel’s family and one for the Alys. Mr. Diriny’s evidence is entirely consistent with Adel’s knowledge, intention and agreement that the Alys were 20% owners in Nader Halal;
(d) Mr. Masood, another long-time friend of Adel testified that Adel told him Nashaat a 20% interest in Nader Halal in 2001. This evidence is consistent with Nashaat’s evidence that Adel knew and had agreed that the Alys were 20% owners in Nader Halal;
(e) Naiema swore an affidavit on January 30, 2009 (“January Affidavit”). It says:
In or about 2003 my husband, Adel, told me that the store value has reached about 5 million dollar, and that he was not going to give it to his brother he said “when the time comes I can get him a small business like a gas station.”
(emphasis added)
I find that Naiema’s January Affidavit, at a minimum, implicitly confirms that Adel knew there was an agreement that the Alys were partners in Nader Halal;
(f) When Adel decided to bring Nader into Nader Halal’s business, this created problems with Nashaat. Shortly after Nashaat left the grocery store, Adel and Nashaat were looking at the purchase of another business for Nashaat in lieu of the Alys’ partnership interest. I accept Nashaat’s evidence that this was an attempt by Adel to compensate the Alys for their 20% share in Nader Halal. It confirms Adel knew there was a partnership agreement with the Alys. There is no other rational explanation offered as to why Adel would be looking for a business for the Alys. I do point out that no counsel took the position this evidence was inadmissible as settlement discussions to resolve potential litigation; and
(g) Adel’s response to Nashaat’s question on July 31, 2007 in the hospital is telling. Nashaat asked for his interest in Nader Halal. Adel responded: “Do you have a paper for that?” This is an unusual response if the Alys were not partners. Adel would have denied they were partners in Nader Halal. Adel’s response suggests that the question was a legitimate one and that Adel knew the Alys were partners in Nader Halal.
317The Alys became 20% partners in Nader Halal in 2001. Adel made the offer to Nashaat for 20% of Nader Halal and Nashaat agreed. Adel recovered from his medical issues and he was loath to part with the 20% interest in Nader Halal that he had given to Nashaat. Given everything that had occurred since the opening of Nader Halal, Nashaat attempted to get documentary evidence of his ownership interest. Adel did not want the Alys to leave Nader Halal, so Adel continued to delay the Alys with money, lies and promises. As Adel testified, he was tired of Nashaat’s nagging and arranged for them to be working at different times at Nader Halal. Adel’s actions worked. Nashaat continued to ask for documentation of his ownership and his share of the profits but he took no firm steps. The Alys believed eventually Adel would come through with proof of their ownership in Nader Halal. They started to receive significantly more money from Adel after the 2001 Agreement. Tensions for the Alys escalated when Adel brought Nader into Nader Halal. The Alys felt they could and would likely be “eased out” of Nader Halal without proof of their ownership. The Alys were rightfully concerned regarding Adel’s intention given what occurred shortly thereafter at the hospital. Even after Nashaat’s heart attack and his meeting with Adel at the hospital, Adel continued to try to assuage the Alys by continuing to pay the Alys their combined full salary for many months. When that failed, Adel tried to resolve the issue without giving the Alys their 20% of the Nader Halal by trying to purchase for the Alys another business in lieu of their interest in Nader Halal. Unfortunately, Adel’s actions failed and the litigation began.
318I am satisfied, on the balance of probabilities that, in 2001, Adel offered to make Nashaat a 20% partners in Nader Halal for the Alys continued work in Nader Halal. Nashaat accepted the offer. For the reasons set out above, this constituted a partnership agreement between Adel and Naiema, on the one part, and Nashaat and Taghreed, on the other part.
Does the Alys’ interest come out of Adel’s interest in Nader Halal?
319Naiema submits that any partnership share that the Alys are entitled to in Nader Halal should come out of Adel’s share in Nader Halal. There was very little submitted by Adel’s counsel on this issue.
320As set out above, Naiema was content to leave all business decisions to Adel and be bound by them.
321The Alys relied on Adel being in a position to grant to them an interest in Nader Halal. Given that Adel conducted all the business dealings on behalf of Adel and Naiema, the Alys were entitled to and did rely on the 2001 Agreement.
322I am satisfied that Naiema knew of the partnership agreement regarding Alys’ ownership interest in Nader Halal. This is evident from Naiema’s January 2009 affidavit where she stated under oath she was aware of Adel having agreed to give the Alys’ an interest in Nader Halal and that “when the time comes” Adel would instead to buy another business for the Alys. Clearly, Naiema was aware that Adel and Nashaat had agreed on a partnership agreement but, when it was necessary in the future, Adel would buy him off with another business. Naiema knew this prior to the separation.
323Naiema never complained that she did not agree to Adel’s partnership agreement with Nashaat. Naiema’s own evidence is that Adel made all the business decisions on behalf of both of them – he was the “head of the family”. Besides, Naiema was content to accept all of Adel’s other business decisions since 1991 until 2004. This is the only business decision by Adel that Naiema now seeks to distance herself from in the 13 years.
324Even if I had found that Naiema didn’t know about the partnership agreement that the Alys were 20% owners of Nader Halal, given that Naiema agreed and accepted Adel’s business decisions, by her actions prior to 2004, she is bound by Adel’s partnership agreement with the Alys in 2001. Naiema would necessarily know that third parties, like the Alys, would rely on Adel’s business dealings on behalf of both of them.
325The classic statement of equitable estoppel is the following:
It is the first principle upon which all courts proceed, that it will prevent a person from insisting on his strict legal rights, whether arising under a contract or on his title deeds, or by statute, when it would be inequitable for him to do so having regard to the dealings which have taken place between the parties.
See Depew v. Wilkes, [2000] O.J. No. 4303 (S.C.J.)
326Given Naiema’s conduct and the reliance on the 2001 Agreement, Naiema is estopped from denying that the 20% of Nader Halal comes out of the entire ownership interest in 2001, thereby leaving 80% in Nader Halal with Adel and Naiema.
QUANTUM MERUIT and UNJUST ENRICHMENT
327These claims were not seriously pursued by the Alys. The reasons are obvious. If there is no agreement with respect to the Alys’ partnership or ownership interest in Nader Halal, the Alys would not be entitled to relief under either of these remedies.
328Adel did benefit from the employment services provided by the Alys but the Alys were paid for their employment services. Prior to 2001, that is exactly the relationship between the parties. It was the only relationship prior to 2001. Adel was the employer paying the Alys agreed upon remuneration for their services.
329However, from 2001 onward, the Alys were 20% partners in Nader Halal. There is no need for a quantum meruit or unjust enrichment remedy. The appropriate remedy is an accounting between partners or such other remedies under the OBCA.
FIDUCIARY DUTY
330The fiduciary relationship relied on by the Alys is that the Alys were partners with Adel and Naiema. If there was no agreement with respect to a partnership, it was an employer-employee relationship. There was no other fiduciary relationship in the circumstances of this case.
331Prior to 2001 there was no fiduciary relationship. Adel did not exert control over the Alys. The Alys were not vulnerable. Adel did not have a duty to act in the best interests of the Alys prior to 2001.
332After 2001, a fiduciary relationship arose because of the 2001 Agreement. They were partners.
333Partners owe a fiduciary duty to each other. This duty includes keeping proper accounts, to account to other partners for partnership profits, and not to appropriate partnership profits or assets for their private benefit. See: Rochwerg v. Truster (2000), 58 O.R. 93d) 687 (C.A.).
334After 2001, Adel and Naiema breached their fiduciary duty to the Alys as partners in Nader Halal by failing to keep proper business records for Nader Halal, failing to account to the Alys for their share of the profits and appropriating monies from Nader Halal to acquire assets to the exclusion of the Alys.
335The Alys have established, on the balance of probabilities, that subsequent to 2001 Adel and Naiema have breached the fiduciary duty owed to them.
CONSTRUCTIVE TRUST
336Again, this claim by the Alys only has merit if there was an agreement that they were partners in Nader Halal.
337Prior to 2001, the Alys were simply paid employees of Nader Halal. There would be no entitlement to a constructive trust in the ownership of Nader Halal. A constructive trust claim is not made out by the Alys simply because they alleged they were invaluable to the business or worked hard during the start-up and over the years in Nader Halal.
338Subsequent to the 2001 Agreement, Adel and Naiema held 20% in Nader Halal in trust for the Alys.
OPPRESSION
339Obviously, this corporate claim is only applicable subsequent to the incorporation of Nader Halal.
340Sections 245 and 248 of the OBCA, supra, provides as follows:
- In this Part,
“action” means an action under this Act; (“action”)
“complainant” means,
(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,
(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.
- (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;
(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or
(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.
(emphasis added)
341The Alys became beneficial owners of 20% of Nader Halal in 2001. When Nader Halal was incorporated by Adel, the Alys were not issued 20% of the shares in Nader Halal, the corporate entity. The Alys continued to have a 20% beneficial interest in the corporation in which the Nader Halal business was rolled into. As a result, after the incorporation of Nader Halal, the Alys were a “complainant” under the OBCA entitled to bring a claim. See: Fedel v. Tan, 2010 ONCA 473.
342Since the incorporation of Nader Halal, the Alys were not provided with documentation to show they were 20% owners in Nader Halal, excluded from the management and shareholder rights and denied 20% of the profits of Nader Halal. I am satisfied that the remaining shareholders have carried on Nader Halal in a manner that is oppressive or unfairly prejudicial or unfairly disregarded the Alys’ 20% interest in Nader Halal.
343Whether the diversion of monies from Nader Halal into Tamer Inc. and Nader Fine Foods, resulted in a beneficial or constructive interest in those corporations to the Alys is properly left for the damages portion of the trial.
SPOLIATION
344A recent summary on the law of spoliation is set out in Muskoka Fuels v. Hassan Steel Fabricators Limited:
The most recent case to review the law in Canada relating to spoliation is that of McDougall v. Black & Decker Canada Inc., 2008 ABCA 353, 2008 ABCA 353, which does nothing to alter the principles set down in the leading case in Ontario, which is Spasic v. Imperial Tobacco Ltd., nor the Supreme Court of Canada’s ruling in the leading case of St. Louis v. R. (1895) S.C.R. 649. Those principles, as set down by Madam Justice Conrad writing for a unanimous court in McDougall v. Black & Decker Canada Inc., are as follows:
Spoliation currently refers to the intentional destruction of relevant evidence when litigation is existing or pending.
The principal remedy for spoliation is the imposition of a rebuttable presumption of fact that the lost or destroyed evidence would not assist the spoliator. The presumption can be rebutted by evidence showing the spoliator did not intend, by destroying the evidence, to affect the litigation, or by other evidence to prove or repel the case.
Outside this general framework other remedies may be available – even where evidence has been unintentionally destroyed. Remedial authority for these remedies is found in the court’s rules of procedure and its inherent ability to prevent abuse of process, and remedies may include such relief as the exclusion of expert reports and the denial of costs.
The courts have not yet found that the intentional destruction of evidence gives rise to an intentional tort, nor that there is a duty to preserve evidence for the purposes of the law of negligence, although these issues, in most jurisdictions, remain open.
Generally, the issues of whether spoliation has occurred, and what remedy should be given if it has, are matters best left for trial where the trial judge can consider all of the facts and fashion the most appropriate remedy.
Pre-trial relief may be available in the exceptional case where a party is particularly disadvantaged by the destruction of evidence. But generally this is accomplished through the applicable rules of court, or the court’s general discretion with respect to costs and the control of abuse of process.
345I am satisfied that the Alys have established, on a balance of probabilities, that the Tohamy Respondents intentionally destroyed relevant evidence, namely the Excel spreadsheets, which were highly relevant to the pending litigation.
346The timing of the break in and theft of the laptop was too coincidental to the examinations for discovery and the undertaking to produce the documents. The explanation that the security system was turned off because of “birds” was simply not believable.
347As a result, I draw an adverse inference that the Excel spreadsheets would have produced documentary evidence which would not have been helpful to the Tohamy Respondents. Having said this, given the facts of this case, the conduct of the Tohamy Respondents and the repeated failure to produce relevant documentation despite obligations under the Rules or court orders, with or without the adverse inference, there would have resulted in different findings of fact.
ANALYSIS ON THE EL-FEKY CLAIMS
SETTING ASIDE THE SEPARATION AGREEMENTS
348Naiema seeks to set aside the Divorce Settlement Agreement and the Final Agreement (the “Separation Agreements”) under s. 56(4) of the FLA.
349Section 52(1) of the FLA provides:
- (1) Two persons who are married to each other or intend to marry may enter into an agreement in which they agree on their respective rights and obligations under the marriage or on separation, on the annulment or dissolution of the marriage or on death, including,
(a) ownership in or division of property;
(b) support obligations;
(c) the right to direct the education and moral training of their children, but not the right to custody of or access to their children; and
(d) any other matter in the settlement of their affairs.
350Section 56(4) of the FLA provides:
(4) A court may, on application, set aside a domestic contract or a provision in it,
(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;
(b) if a party did not understand the nature or consequences of the domestic contract; or
(c) otherwise in accordance with the law of contract.
351Section 56(4) of the FLA applies despite any provision to the contrary. See s. 56(7) of the FLA.
The Two Stage Review
352There are two competing principles: First, the public interest to oversee compliance with the legislative scheme that, upon dissolution of a marriage, prima facie, the parties should have an equal division of the family assets accumulated during the marriage. Secondly, the public interest to ensure parties are encouraged and free to negotiate a final settlement of their family law entitlements.
353Section 56(4) of the FLA sets out the situations where a court may set aside a domestic contract or a provision in it.
354The Supreme Court in Hartshorne v. Hartshorne, 2004 SCC 22 made the following statements:
40In addressing the issue of deference, this Court may apply Miglin v. Miglin, 2003 SCC 24, for its general legal proposition that some weight should be given to marriage agreements. Miglin raised the question of the proper weight to be given to a separation agreement that one of the parties subsequently wishes to have modified through an initial application in court for support. In that case, the agreement in issue was a separation agreement and the relevant provision was s. 15.2 of the Divorce Act. At paras. 45 and 46 of Miglin, in addressing the proper weight to be accorded to the agreement, Arbour J. and I stated:
. . . the answer to these questions does not lie in adopting a near‑impermeable standard such that a court will endorse any agreement, regardless of the inequities it reveals. Neither, however, does the solution lie in unduly interfering with agreements freely entered into and on which the parties reasonably expected to rely. . . .
Nevertheless, the language and purpose of the 1985 [Divorce] Act militate in favour of a contextual assessment of all the circumstances. This includes the content of the agreement, in order to determine the proper weight it should be accorded in a s. 15.2 application. In exercising their discretion, trial judges must balance Parliament’s objective of equitable sharing of the consequences of marriage and its breakdown with the parties’ freedom to arrange their affairs as they see fit. Accordingly, a court should be loathe to interfere with a pre‑existing agreement unless it is convinced that the agreement does not comply substantially with the overall objectives of the Divorce Act. [Emphasis added.]
At para. 67, we continue by stating:
. . . we are of the view that there is nevertheless a significant public interest in ensuring that the goal of negotiated settlements not be pursued, through judicial approbation of agreements, with such a vengeance that individual autonomy becomes a straitjacket. Therefore, assessment of the appropriate weight to be accorded a pre‑existing agreement requires a balancing of the parties’ interest in determining their own affairs with an appreciation of the peculiar aspects of separation agreements generally and spousal support in particular.
355Section 56(4) of the FLA was considered by the Court of Appeal in Levan v. Levan, 2008 ONCA 388 (leave to appeal to SCC refused 2008 SCC 231). The Court of Appeal described the two stage approach to be applied, albeit in the context of a marriage contract:
33It is now well established that a finding that a party has violated a provision of s. 56(4) of the FLA does not automatically render the contract a nullity. Rather, a trial judge must determine whether it is appropriate, in the circumstances, to order that the contract be set aside. This is a discretionary exercise. See Dochuk v. Docuk (1999), 44 R.F.L. (4th) 97 (Ont. Gen. Div.). Here, the trial judge determined that it was appropriate to set aside the marriage contract. She recognized that it was appropriate to exercise that discretion not simply because of the failure to disclose, but also because of other factors relevant to s. 56(4), such as the wife’s failure to understand the nature and consequences of the contract in accordance with s. 56(4)(b).
[50] Section 56(4) of the FLA was designed to address and codify prior concerns maintained by courts that both parties fully understood their rights under the law when contracting with their spouses.[1] It has been characterized as the “judicial oversight” provision of marriage agreements: Hartshorne v. Hartshorne, 2004 SCC 22, [2004] 1 S.C.R. 550 at paragraph 14. The provision is of such significance that, in accordance with s. 56(7), it cannot be waived by the parties.
51The analysis undertaken under s. 56(4) is essentially comprised of a two-part process: Demchuk v. Demchuk (1986), 1 R.F.L. (3d) 176 (Ont. H.C.J.). First, the court must consider whether the party seeking to set aside the agreement can demonstrate that one or more of the circumstances set out within the provision have been engaged. Once that hurdle has been overcome, the court must then consider whether it is appropriate to exercise discretion in favour of setting aside the agreement. This approach was adopted and applied by the trial judge in this case.
Have any of the provisions in s. 56(4) of the FLA been engaged?
i) Section 56(4) (a) - Lack of financial disclosure
356The failure to disclose pertinent financial information regarding family assets or income, particularly if not know to the other party, is a significant factor in determining the enforceability of a separation agreement. In Rick v. Brandsema, 2009 SCC 10, Justice Abella made the following statements at paras. 47 and 49:
In my view, it flows from the observations and principles set out in Miglin that a duty to make full and honest disclosure of all relevant financial information is required to protect the integrity of the results of negotiations undertaken in these uniquely vulnerable circumstances. The deliberate failure to make such disclosure may render the agreement vulnerable to judicial intervention where the result is a negotiated settlement that is substantially at variance from the objectives of the governing legislation.
Whether a court will, in fact, intervene will clearly depend on the circumstances of each case, including the extent of the defective disclosure and the degree to which it is found to have been deliberately generated. It will also depend on the extent to which the resulting negotiated terms are at variance from the goals of the relevant legislation. As Miglin confirmed, the more an agreement complies with the statutory objectives, the less the risk that it will be interfered with. Imposing a duty on separating spouses to provide full and honest disclosure of all assets, therefore, helps ensure that each spouse is able to assess the extent to which his or her bargaining is consistent with the equitable goals in modern matrimonial legislation, as well as the extent to which he or she may be genuinely prepared to deviate from them.
357In Levan, supra, the Court of Appeal acknowledged the importance of accurate and complete financial disclosure prior to entering into separation agreements:
53This view is reinforced in Dubin v. Dubin, (2003), 34 R.F.L. (5th) 227 at para. 32 (Ont. S.C.J.):
…knowing assets and liabilities at the date of the agreement is fundamental to an eventual calculation of net family property. A party needs to know what asset base might potentially grow, in order to determine what he or she is being asked to give up in the agreement. Coupled with financial disclosure is the notion of understanding legal rights and obligations under the legislative scheme. This second notion carries with it the concept of independent legal advice. Thus, a party must know what assets and liabilities exist at the date of the contract, and must understand the general legislative scheme in order to know what he or she is giving up in the proposed agreement.
358I accept the Respondent’s submission that there is an obligation on the moving party seeking to set aside the domestic contract to make requests of financial disclosure, this has no application to this case.
359The Respondent’s submission would place the entire or substantially the entire burden on the moving party. I disagree. There are two duties at play; the duty to make reasonable enquiries for financial information and the duty to make complete and accurate financial disclosure. It is the circumstances of each case which governs the weight to be placed on a failure of either duty.
ii) Section 56(4) (b) - Understanding the nature or consequences of the agreement
360This provision requires the parties to understand the nature of the agreement to be executed or the consequences of executing the agreement.
361There is no guidance in the FLA as to the degree a party should understand the “nature or consequences” before executing the agreement. The wording “nature” of the agreement suggests an application of the equitable principle of non est factum – failure to understand the fundamental nature of the document executed, an equitable principle of law that vitiate one party’s consent, making an agreement void or voidable at law. The wording “consequences’ of the agreement suggests an application of the principle of consensus ad idem, where the party did not knowingly agree to the effect or impact of the provisions in the agreement. Applying these equitable principles, would require a party seeking to set aside the agreement to meet a high threshold to vitiate the validity of an agreement. Application of these strict principles, like the equitable principle of unconscionability, to family law proceedings is dangerous. If it were as simple as applying these equitable principles of law, an agreement could be set aside under the law of contract pursuant to s. 56(4) (c) of the FLA and there would have been no need for s. 56(4) (b) of the FLA.
362Some guidance as to what constitutes “nature or consequences” was described in Grant-Hose v. Grant-Hose, [1991] O.J. No. 314:
Section 56(4)(b) speaks in language reminiscent of the common law doctrine of non est factum. However, the subsection enables a court to grant relief where a party did not understand the nature “or” consequences of a domestic contract: that is, relief would appear to be available where a party understood the nature of the document, but did not understand its consequences. Moreover, by empowering the court to set aside a “domestic contract” or “a provision in it”, the legislation seems to draw no distinction between a lack of understanding as to the very nature or character of the document as a whole and a lack of understanding of its individual contents: compare, Marvco Color Research Ltd. V. Harris (1982), 141 D.L.R. (3d) 577 (S.C.C.). The word “nature” relates to the fundamental character of the document, its class or type. The word “consequences” would seem to reach the effect or impact of the document upon the spouses’ affairs. The words “a provision” would seem broad enough to cover any such provision, whether it be one relating to support or property.
363Obviously, where one party has received independent legal advice, it is difficult for the party to set aside the agreement on the basis they did not understand the nature or consequences of the agreement. Notwithstanding, there are cases where the court has nevertheless set aside a domestic contract on the basis of a lack of understanding the nature and consequences of the agreement despite independent legal advice. See Patrick v. Patrick, [2002] O.J. No. 639 (Sup. Ct.).
iii) Section 56(4) (c) - Otherwise in accordance with the law of contract
364In this case, Naiema submits that the separation agreements are void because the agreements are unconscionable or obtained under duress.
365The legal requirements for unconscionability in a commercial context are not directly applicable in a family law context. In Miglin, supra at para. 81, 82 and 91 the Supreme Court made the following comments:
81 It is difficult to provide a definitive list of factors to consider in assessing the circumstances of negotiation and execution of an agreement. We simply state that the court should be alive to the conditions of the parties, including whether there were any circumstances of oppression, pressure, or other vulnerabilities, taking into account all of the circumstances, including those set out in s. 15.2(4)(a) and (b) and the conditions under which the negotiations were held, such as their duration and whether there was professional assistance.
82 We pause here to note three important points. First, we are not suggesting that courts must necessarily look for “unconscionability” as it is understood in the common law of contract. There is a danger in borrowing terminology rooted in other branches of the law and transposing it into what all agree is a unique legal context. There may be persuasive evidence brought before the court that one party took advantage of the vulnerability of the other party in separation or divorce negotiations that would fall short of evidence of the power imbalance necessary to demonstrate unconscionability in a commercial context between, say, a consumer and a large financial institution. Next, the court should not presume an imbalance of power in the relationship or a vulnerability on the part of one party, nor should it presume that the apparently stronger party took advantage of any vulnerability on the part of the other. Rather, there must be evidence to warrant the court’s finding that the agreement should not stand on the basis of a fundamental flaw in the negotiation process. Recognition of the emotional stress of separation or divorce should not be taken as giving rise to a presumption that parties in such circumstances are incapable of assenting to a binding agreement. If separating or divorcing parties were generally incapable of making agreements it would be fair to enforce, it would be difficult to see why Parliament included “agreement or arrangement” in s. 15.2(4)(c). Finally, we stress that the mere presence of vulnerabilities will not, in and of itself, justify the court’s intervention. The degree of professional assistance received by the parties will often overcome any systemic imbalances between the parties.
91 Although we recognize the unique nature of separation agreements and their differences from commercial contracts, they are contracts nonetheless. Parties must take responsibility for the contract they execute as well as for their own lives. It is only where the current circumstances represent a significant departure from the range of reasonable outcomes anticipated by the parties, in a manner that puts them at odds with the objectives of the Act, that the court may be persuaded to give the agreement little weight.
(emphasis added)
366The definition of “duress” was described in Berdette v. Berdette, [1991] 3 O.R. (3d) 513 (C.A.):
Finlayson J.A., speaking for the majority of this court in Stott v. Merit Investment Corp. (1988), 63 O.R. (2d) 545, 48 D.L.R. (4th) 288 [leave to appeal to S.C.C. refused (1988), 63 O.R. (2d) x, 49 D.L.R. (4th) viii], at pp. 561-62 O.R., p. 305 D.L.R., said that in order for pressure to amount to duress it must be “a coercion of the will”, or it must place the party to whom the pressure is directed in such a position as to have no “realistic alternative” but to submit to it.
367Duress need not be actual or threatened violence, but merely the deliberate actions by one party sufficient to pressure the will of the other party to such an extent as to leave no “realistic” ability to freely decide.
The Exercise of Judicial Discretion
368Even if the party seeking to set aside the separation agreement satisfies the first stage enquiry, it does not necessarily follow the separation agreement will be set aside. Rather the court is to exercise its discretion, considering all the relevant circumstances in the case, whether it is appropriate to set aside the agreement. See Levan v. Levan, supra and Dochuk v. Dochuk, (1999), 1999 14971 (ON SC), 44 R.F.L. (4th) 97 (Ont. Ct. (Gen. Div.)
369The fact that the property division is not consistent with the FLA is, by itself, not a sufficient reason to set aside the separation agreement. See Armstrong v. Armstrong, [2006] O. J. No. 3823 (Ont. C. A.). Simply put, the parties are entitled to enter into a bad deal, if they choose to do so, provided that the integrity of the negotiation and execution process is respected by both parties.
370At the heart of the court’s exercise of its discretion, the court is bound to review the procedural and substantial integrity of the negotiations and execution of the separation agreement (See Rick v. Brandsema, 2009 SCC 10) in the context of the family law legislation. “In the context of the family law legislation” permits the court to consider the fairness of the agreement as one of the factors in the exercise of its discretion. The Ontario Court of Appeal in Levan, supra said at paragraph 60:
Although there is nothing in the governing legislation that suggests that fairness is a consideration in deciding whether or not to set aside a marriage contract, I do not see why fairness is not an appropriate consideration in the exercise of the court’s discretion in the second stage of the s. 56(4)(a) analysis. In my view, once a judge has found one of statutory preconditions to exist, he or she should be entitled to consider the fairness of the contract together with other factors in the exercise of his or her discretion. It seems to me that a judge would be more inclined to set aside a clearly unfair contract than one that treated the parties fairly.
APPLICATION TO THE DIVORCE SETTLEMENT AGREEMENT
Is s. 56(4) of the FLA engaged?
371With respect to the Divorce Settlement Agreement, Naiema has established the first stage of the inquiry. I am satisfied Adel failed to make complete and accurate financial disclosure and that Naiema did not understand the nature and consequences of the Divorce Separation Agreement.
372I conclude the evidence establishes Adel failed to make complete and accurate financial disclosure prior to November 2, 2004 because:
a) There was no financial disclosure by Adel to Naiema in November 2004;
b) Adel was the only one with any detailed and clear knowledge of the family assets and liabilities. Adel was the sole keeper of all the family’s financial information. Adel was the only one who knew what bank accounts were kept, where the bank accounts were and the balances of those bank accounts. Adel did not disclose to Naiema whether the Matrimonial Home had been fully paid for a number of years. Adel made very large expenditures without consulting or even telling Naiema that he had done so. What little knowledge Naiema had regarding the family’s finances was based on Adel’s statements and those statements were not reliable;
c) While Naiema knew they owned Nader Halal, she had no reliable information as to the value of the business. Similarly, Naiema knew that they had bought the Plaza, but she did not have any financial information regarding its value or the debt associated with the Plaza; and
d) Naiema was not in a position to make any enquiries of Adel given the circumstances of the marriage and the events of October 29, 2004.
373I conclude Naiema did not understand the nature or consequences of the Divorce Settlement Agreement because:
a) I accept Naiema’s evidence she did not understand the nature or consequences of signing the Divorce Settlement Agreement;
b) Naiema didn’t understand and could not read English. The Divorce Settlement Agreement was in English. The Divorce Settlement Agreement was not fully explained to Naiema. Nader was 19 years old, with no legal training, no understanding of the family assets and liabilities and no understanding of Naiema’s entitlement under the FLA. To this date, Nader could not explain what the family assets were in 2004 – he could not explain the business financial affairs while he ran Nader Halal or his own past and current assets and liabilities at trial. He could not and did not explain to Naiema the family assets at issue in 2004;
c) Nader did not testify that he explained to Naiema her entitlement under the FLA. The Divorce Settlement Agreement does not set out Naiema’s entitlement under the FLA. It simply states she is releasing all claims against Adel. No one explained to her that she had a right in law to ½ the value of the net family property;
d) Adel described Naiema’s erratic behaviour arising from her lack of medication. If Adel was so persuaded as to Naiema’s erratic emotional and physical behaviour, it is difficult to accept Adel’s position that Naiema fully understood the nature or consequences of the Divorce Settlement Agreement just a few days later;
e) The Divorce Settlement Agreement was presented just a few days after leaving the Matrimonial Home, after Adel divorced her, having no place to go, presented by her son who was upset with Naiema, told she wouldn’t get money to go to Egypt unless she signed the Divorce Settlement Agreement. All are facts which strongly suggest Naiema was vulnerable and in no position to fully understand or appreciate the nature or consequences of the Divorce Settlement Agreement;
f) The terms of the Divorce Settlement Agreement are not clear as to what Naiema was giving up. For example, there is no clear provision that Naiema was relinquishing her shares in Nader Halal or Tamer Inc. Naiema simply agreed not to make any claims against Adel with respect to the companies. Perhaps the transfer and release of Naiema’s shares in Nader Halal and Tamer Inc. to Adel might be implied. But Naiema is not a sophisticated person who would understand the distinction. Even Adel suggested he believed that Naiema was leaving the shares in Nader Halal and Tamer Inc. to her children. That is not what the Divorce Settlement Agreement provides; and
g) The Divorce Settlement Agreement does not specify Naiema’s entitlement to the $100,000 or what it was for.
The Exercise of Judicial Discretion
374I am satisfied the circumstances of this case are overwhelmingly in favour of setting aside the Divorce Settlement Agreement.
375Naiema was vulnerable: emotionally, physically and financially. Adel took advantage of that vulnerability.
376There had been significant marital discord and Naiema could not continue with the marriage. Naiema needed to escape from the marriage and return to her family. Naiema had had no money of her own. She had no knowledge or control of any family property. Naiema had to rely on Adel for any financial support or access to family property. Adel had divorced her. Naiema was out of the Matrimonial Home. Naiema had no place to go. Naiema needed money to return to her family in Egypt. Naiema was as vulnerable as one could get.
377Adel knew this. Adel’s children were now grown. Adel no longer needed Naiema to take care of them. Naiema was a liability. Adel was rich. He could get rid of Naiema and keep his fortune.
378But Adel needed Naiema to sign the Divorce Settlement Agreement to keep his money and property and put Naiema into his past. Adel decided to send Nader, the son who was clearly unhappy with Naiema for calling the police on Adel, to see Naiema with an agreement in English. The agreement gave Naiema a pittance of the family property. Adel knew that Naiema had no choice – she was divorced, could not return to her family and needed money to go to her family in Egypt. Adel was ideally situated to take advantage of Naiema’s vulnerability and he did so.
379Given the circumstances, Naiema signed the Divorce Settlement Agreement without knowledge of her family law rights or what she was giving up by signing the document.
380The terms of the Divorce Settlement Agreement are substantially at variance with the objectives of the FLA and the Divorce Act. Adel was worth millions of dollars. Naiema received $100,000 in a final and complete settlement of any family property equalization and any spousal support.
381The Divorce Settlement Agreement left Adel with virtually all of his and Naiema’s family property and no financial obligations to his wife of many years. The Divorce Settlement Agreement left Naiema with an apartment in Egypt and in a financially difficult situation – she could not even afford her medication.
382The underlying essence and starting point of the existing family law legislation is an equal division of the value of net family assets acquired during the marriage. This Divorce Settlement Agreement was at the furthest spectrum of what might be considered reasonable in the circumstances.
383In Rick v. Brandsema, 2009 SCC 10 the Supreme Court upheld the trial judge’s decision to set aside a separation agreement. Writing for the court, Abella J. said at para. 6:
The husband’s exploitative conduct, both in failing to make full and honest disclosure and in taking advantage of what he knew to be his wife’s mental instability, resulted in a finding of unconscionability.
384The Supreme Court’s statement is applicable to the circumstances of this case as it relates to the Divorce Settlement Agreement.
385The Respondent submits that Naiema enjoyed the benefits of the Divorce Settlement Agreement for four years and a further year with the benefit of the condominium use in Canada. The Respondent submits these are factors to deny Naiema the relief sought. I agree that these are factors but in the financial circumstances of this case, the financial benefit Naiema received paled by comparison with the financial benefits she was entitled to and Adel kept under the Divorce Settlement Agreement.
386The Divorce Settlement Agreement is hereby set aside.
APPLICATION TO THE FINAL AGREEMENT
Is s. 56(4) of the FLA engaged?
387I now turn to the Final Agreement and consider whether it should be set aside.
Financial Disclosure
388The first issue is whether there was complete and accurate financial disclosure in July 2008. As can be seen from the above findings regarding Adel’s 2008 Financial Statement, the purported values of the Tohamy Family Businesses, the Matrimonial Home and other family assets were deliberately and significantly undervalued. In addition, Adel failed to disclose other family property which was not included in the 2008 Financial Statement.
389Adel’s 2008 Financial Statement was not complete and accurate financial disclosure. It was highly misleading.
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