ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 08-CV-350427PD1
DATE: 20130321

B E T W E E N:

NAVROZ GILLANI

Plaintiff

• and -

SHIRAZ KARMALI

Defendant

Maurice J. Neirinck, for the Plaintiff
H. James Marin, for the Defendant

HEARD: January 22 to 25, 2013

SPENCE J.

REASONS FOR DECISION

[1] The Plaintiff, Navros Gillani (“Mr. Gillani”), claims against the Defendant, Shiraz Karmali (“Mr. Karmali”), for breach of promise to pay, misrepresentation, breach of contract, fraud, conversion, breach of trust and unjust enrichment and related relief, including punitive damages.

[2] The claim relates to a fraudulent investment scheme promoted by Salim Damji in 2001 and 2002 which is said to have defrauded investors of amounts approaching $100 million. The scheme involved the promotion of the sale of shares in corporations referred to collectively in the pleadings as “STS” under which investors were given the opportunity to subscribe for shares of STS which were to be issued when they were offered to the public. The Plaintiff pleads in its Statement of Claim that STS in fact never existed.

[3] As it turns out, the fraud was discovered in April 2002 and the Initial Public Offering never occurred. The Defendant pleads the investors lost their investments.

[4] The Plaintiff claims that the Defendant agreed to sell him 50,000 of the Defendant’s “personal” shares at $1.14 per share and the Plaintiff paid the purchase price to the Defendant, but thereafter never received any shares in STS as promised. The Plaintiff claims that the Defendant subsequently disclosed that the $57,000 had been used by the Defendant and others in a manner contrary to the agreement. The Plaintiff claims that he demanded the return of his $57,000 and in the result has sustained $57,000 in damages.

[5] The Defendant denies that he offered to sell shares from his own holdings and says he did not make an offer at the price of $1.14 per share. The Defendant pleads that the understanding was that the Plaintiff would get a refund of his money that he had already invested in STS and use the refund to purchase shares in STS.

[6] Based on the pleadings, it can be taken as common ground for the purposes of this action that no shares were ever issued in STS. From the evidence, as set out below, the scheme was promoted by offering to prospective investors the opportunity to subscribe for shares to be issued at a later date in return for the quoted price paid for the subscription.

The Conflicting Versions of the Arrangement made by the Plaintiff

[7] The evidence of the Plaintiff is that he made an agreement with the Defendant in late October 2001 for the Plaintiff to provide $57,000 to the Defendant which the Defendant would accept as the price for the purchase from him of 50,000 of the shares which he would acquire in STS (his “personal shares”) at a sale price to the plaintiff of $1.14 per share. The Plaintiff says the Defendant volunteered that the purchase monies were to be held in trust by the Defendant and that the Plaintiff would be guaranteed that he would not suffer a loss on the shares.

[8] The Plaintiff said he was told, at the outset of communications about the proposed purchase, by a Mr. Suleman, that he was upset that the Plaintiff had made a $35,000 subscription for STS shares through Soltan Damji and the Plaintiff was told it would therefore be necessary for the Plaintiff to cancel that investment as a condition of being able to make the proposed purchase from the Defendant.

[9] The evidence of the Defendant is that all that he did was to advise the Plaintiff that he would try to help the Plaintiff to acquire shares in STS by arranging for the Plaintiff to meet with Mr. Suleman to discuss with him whether they could agree on purchase terms.

[10] Mr. Suleman’s evidence is that he met with the Plaintiff and discussed terms for a purchase of STS shares that he would seek to arrange for the Plaintiff at a “family price”, if the Plaintiff got a cancellation of his purchase arrangement with Soltan Damji and that, when it was arranged, Mr. Suleman advised the Plaintiff to provide him with a cheque payable to the Defendant for the purchase. Mr. Suleman says that the cheque was received and deposited in his joint bank account with the Defendant on November 9, 2001 and that subsequently, the amount of $57,000 was paid out of that account to Salim Damji for the purchase of shares at the agreed price.

[11] It is common ground that the Plaintiff provided his cheque dated November 9, 2001 for $57,000 payable to the Defendant for the purchase of shares in STS.

[12] As indicated above, other aspects of the course of dealing in respect of the purchase are not agreed.

[13] It is common ground that no shares were ever delivered to the Plaintiff and no payment was ever made to the Plaintiff in respect of his $57,000 payment.

[14] The Plaintiff claims that he had an agreement that the Defendant would sell shares to the Plaintiff from the shares to be acquired by the Defendant and instead, the payment made by the Plaintiff was applied by the Defendant for his own purposes.

[15] The Defendant’s case is that the Defendant facilitated a meeting between the Plaintiff and Mr. Suleman and, on the evidence of Mr. Suleman, the result was that a deal was made for the purchase for the Plaintiff of shares in STS which was honoured by the payment of $57,000 for that purpose and on the agreed terms to Salim Damji and the investment disappeared along with all the other investments that were made in the fraudulent scheme promoted by Mr. Damji.

The Issues that arise from the Conflicting Versions

[16] The principal issues are:

(i) Did the Plaintiff settle the terms of his purchase with the Defendant or with Mr. Suleman?

(ii) Was the purchase to be of “personal” shares of the Defendant or other shares to be issued by STS?

(iii) What were the other terms of the purchase with respect to the amount to be paid, the price per share, a guarantee from the Defendant and the holding of the purchase monies in trust?

(iv) How were the terms of the purchase negotiated?

(v) How was the purchase price paid?

(vi) Who was the person responsible to deliver the shares, the Defendant or Mr. Suleman?

These issues are largely interrelated.

[17] It is helpful to start first with the subject matter of the purchase: i.e. whether it was to be of personal shares of the Defendant or other shares to be issued by STS.

(continued verbatim…)

Spence J.
Released: March 21, 2013

Footnotes

[180] E.g., trespass to land or goods, or conversion.

[181] As a trustee he is liable to account for any breach of trust for which he is in any way responsible: Nova Scotia (Attorney General) v. Axford (1885), 13 S.C.R. 294 (S.C.C.) at 300.

[182] Maguire v. Maguire (1921), 50 O.L.R. 162, 64 D.L.R. 204 (Ont. H.C.). The knowledge or the means of knowing may have existed when he commenced the intermeddling, or have come to him while he was in the course of intermeddling; but this is of no consequence provided he knows of the situation, actually or constructively, when he acts inconsistently with the existence of the trust.

[183] Air Canada v. M & L Travel Ltd., [1993] 3 S.C.R. 787.

[184] Dubai Aluminium Company Ltd. v. Salaam (2002), [2003] 2 A.C. 366 (Eng. H.L.) at para. 138.