BRANTFORD COURT FILE NO.: CV-11-54SR
DATE: 2013-08-26
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
1445369 Ontario Inc. and Dr. Raza Khan
Plaintiffs
– and –
Hanan Bandkohal also known as Hana Bandkohal
Defendant
Paul Amey, for the Plaintiffs/Defendants to the Counterclaim
Barry Yellin, for the Defendant/Plaintiff to the Counterclaim
AND BETWEEN:
Hanan Bandkohal
Plaintiff to the Counterclaim
– and –
Dr. Raza Khan Medicine Professional Corporation and Raza Muhammed Khan and 1445369 Ontario Inc.
Defendants to the Counterclaim
HEARD: May 30, 2013 at Brantford, Ontario
THE HONOURABLE JUSTICE T. MADDALENA
MOTION ENDORSEMENT
ISSUES
[1] The plaintiffs bring a motion for summary judgment against the defendant, Hanan Bandkohal, for the sum of $95,576.53.
BACKGROUND FACTS
[2] The plaintiff, Dr. Raza Khan (hereinafter referred to as “Kahn”) is an Ontario licenced physician.
[3] Kahn owns 100% of the shares of 1445369 Ontario Inc. (hereinafter referred to as “144”).
[4] Kahn, in addition to his medical practice, operated a cosmetic clinic through 144 offering cosmetic services in Brantford, Ontario.
[5] On December 3, 2008, Kahn sold the clinic to 1349386 Ontario Inc. (hereinafter referred to as “134”) a company solely owned and operated by Hanan Bandkohal (hereinafter referred to as “Bandkohal”) for the sale price of $75,000.
[6] Kahn’s cosmetic clinic leased certain equipment from AMT Finance Ltd. (hereinafter referred to as “AMT”) which was governed by an equipment lease dated September 12, 2007 between Kahn, 144, and AMT.
[7] The equipment lease made clear that Kahn could not sell, transfer, assign or sublease the equipment without first obtaining the written consent and approval of AMT.
[8] The agreement of purchase and sale between 144 and 134 required the parties to enter into a number of further agreements. The asset purchase agreement required 134 to assume the equipment lease of 144 for the following equipment:-
a) Sciton Profile
b) Microdermabrasion
c) LightSheer
[9] The asset purchase agreement (Section 7.02) required that the equipment leases “shall be assigned to the Purchaser”. This clearly implied that an assignment of all of the vendors’ rights, title and interest to the leased equipment would be assigned to the purchaser. This, however, required the consent of AMT as the equipment lease between Khan and 144 and AMT clearly provided that there was no right to sell, transfer, assign or sublease or otherwise deal with the equipment without first obtaining the consent of AMT.
[10] Upon a financial review of Bandkohal by AMT, AMT determined that Bandkohal would not qualify for the assignment of the equipment lease without a guarantor. AMT requested that Bandkohal’s husband execute the equipment lease as guarantor. He did not do so. Therefore, AMT never consented to any assignment of the equipment lease.
[11] Notwithstanding that the assignment of the equipment lease was not completed, the parties proceeded to complete the transaction on December 3,2008 without the consent of AMT to the equipment leases.
[12] Thus, upon closing, both Kahn and Bandkohal knew that Bandkohal had not yet qualified financially for the equipment lease assignment.
[13] However, Kahn, due to concerns over his ongoing and continuing liability under the equipment lease, required that Bandkohal and 134 execute a standard indemnity agreement, which was executed on December 3, 2008.
[14] Bandkohal and 134 took over the running of the clinic from the date of purchase, that is, from December 3, 2008 and continued to make monthly lease payments until the default on December 15, 2010.
[15] On December 15, 2010, 134 was in default of payments owing under the equipment lease for one month. The amount in default was $5,176.53.
[16] On December 29, 2010, 134 vacated the property, and on January 7, 2011, 134 made a voluntary assignment in bankruptcy. AMT sought payment under the lease from Khan and 144.
[17] At the time of default, the balance of payments due on the equipment lease totalled $144,942. Kahn paid the December 15, 2010 lease payment of $5,176.53. In January 2011 Kahn negotiated a settlement with AMT regarding the remaining obligations under the equipment lease and agreed to pay and did pay to AMT $90,400 in full and final satisfaction of all of its obligations under the equipment lease. Kahn, therefore, made a total payment to AMT of $95,576.53.
POSITION OF THE PARTIES
Position of Plaintiffs Kahn and 144:
[18] The plaintiffs claim summary judgment by way of liquidated damages against Bandkohal in the amount of $95,576.53 for breach of the indemnity agreement signed by Bandkohal on December 3, 2008.
[19] The indemnity agreement executed by Bandkohal on December 3, 2008 obligated her personally and together with her corporation to indemnify Kahn and his corporation for damages arising out of the equipment lease. Kahn states that it is undisputed that on December 15, 2010, 134 was in default of the December monthly lease payment. Further, Kahn states it is undisputed that on December 29, 2010, 134 left the property and, therefore, was in default under the equipment lease.
[20] Kahn states Bandkohal understood clearly on December 3, 2008 that the consent of AMT was needed for the equipment leases. Bandkohal knew AMT required her husband as guarantor which did not occur.
[21] Bandkohal agreed to complete the transaction based on her and 134’s personal indemnity agreement despite lack of consent of AMT. She wished to close the transaction and deal with the particulars of the assignment later. The indemnity agreement executed on December 3, 2008 between Bandkohal and 134 is therefore enforceable.
[22] Kahn states that by completing the asset purchase agreement, Bandkohal and 134 waived AMT’s consent to the leased equipment. This was also reinforced by the fact that Bandkohal and 134 paid the lease costs from December 2008 to December 2010 until the time of default, used the equipment, and operated the clinic during this time.
[23] Kahn states that he has properly mitigated damages, however, is out of pocket $95,576.53. He is relying on the indemnity agreement personally executed by Bandkohal to indemnify him from these losses.
Position of the Defendant Bandkohal:
[24] Part of the asset purchase agreement provided that the leases “shall be assigned to the purchaser . . . .” Bandkohal states that the leases were, in fact, never assigned and the asset purchase document does not address what is to occur if AMT does not agree to assign the lease to the purchaser as set out in the asset purchase agreement.
[25] Bandkohal further states that Article VIII, paragraph 8.01(a) of the asset purchase agreement states as follows:
The Vendor now has and as at the time of closing will have power, right and authority to sell the assets and property referred to herein, to execute and deliver this agreement and to carry out all the terms and provisions hereof on the part of the Vendor to be carried out;
[26] Bandkohal claims this representation by the vendor was false, as AMT only could consent to assign the leases and, therefore, this constitutes a material misrepresentation by Kahn and 144.
[27] Further, Bandkohal states that the vendor has breached Article XI, paragraph 11.01(e) of the asset purchase agreement which required that the vendor “shall” deliver to the purchaser “an assignment of all the Vendor’s right, title and interest in and to those contracts and leases hereinabove referred to”.
[28] Further, Bandkohal states that the indemnity agreement required the equipment leases to be “assigned pursuant to the purchase agreement” prior to her being bound by the indemnity. Bandkohal, therefore, states the leases were not assigned; consequently she is not bound by the personal indemnity agreement. Thus, the personal indemnity is not enforceable or valid.
[29] Bandkohal states the indemnity is triggered only if there is an actual assignment. Given that there was no assignment, it is therefore important to look to parole evidence and extrinsic factors which all require a trial and cannot be the subject of a summary judgment motion. Given that oral evidence is required, there is therefore a genuine issue for trial.
LAW AND ANALYSIS
[30] The summary judgment rule is as follows:
Rule 20.04(2):
(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or
(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of the deponent.
Drawing any reasonable inference from the evidence.
[31] Kahn’s summary judgment request for the amount of $95,576.53 is based on the personal indemnity agreement executed by Bandkohal on December 3, 2008.
[32] It is undisputed that Bandkohal and 134 were the day to day operators of the equipment at the cosmetic clinic from December 3, 2008 to December 29, 2010. Further, it is undisputed that on December 15, 2010, 134 defaulted on the lease agreement, and Kahn and 144 paid $5,176.53.
[33] It is further undisputed that on December 29, 2010, 134 and Bandkohal vacated the premises of the cosmetic clinic and, further, on January 7, 2011, 134 filed an assignment in bankruptcy.
[34] It is also undisputed that on January 3, 2011, Kahn reached a settlement with AMT regarding the balance of the payments outstanding on the equipment lease. The balance stood at $144,942.84 and Kahn negotiated that to $90,400 in full and final settlement under the lease obligations with AMT.
[35] I find as a fact, based on the evidence, that Kahn would not have completed the asset purchase agreement without the personal indemnity of Bandkohal.
[36] Bandkohal, at the time of the execution of the personal indemnity, had independent legal advice and I find she fully understood the purpose and the intent of the indemnity agreement. She executed it. She used the equipment for her benefit at the clinic which she operated for two years.
[37] At the time of the closing of the transaction, Bandkohal was very well aware that she did not qualify for purposes of AMT and the lease assignment. She was aware that AMT required her husband to act as guarantor.
[38] I find that she also knew at the time of the closing that her husband would not or could not act as guarantor. Thus, she completed the transaction knowing the leases had not been assigned by AMT but, notwithstanding, she agreed to indemnify Kahn and use the equipment.
[39] Ultimately, it was Bandkohal’s failure to satisfy AMT that made the lease formally unassignable.
[40] I find that the equipment lease itself was “assignable” but it was not assigned due to the failure or inability of Bandkohal’s husband to execute the lease agreement as guarantor. She had the benefit of the equipment for two years as if it had been assigned. Bandkohal cannot now argue that it was formally not assigned and thus the indemnity is not valid and unenforceable.
[41] Bandkohal also claims Kahn breached or misrepresented a term of the asset purchase agreement because Kahn represented the equipment leases as “assignable”, whereas these were not assignable without the consent of AMT.
[42] It is abundantly clear Kahn did not hide anything from Bandkohal. On the date of closing, Bandkohal knew AMT had the absolute authority with respect to the assignment of the leases and Bandkohal knew the assignment had not taken place since her husband had not signed as guarantor as she alone did not financially qualify. Notwithstanding that, she wished to complete the transaction. She represented that she would address the issue later, but never did.
[43] In fact, both Kahn and Bandkohal clearly understood that only AMT could assign the equipment leases and that is precisely why Kahn required Bandkohal to execute the standard form indemnification agreement.
[44] Bandkohal states that the actual assignment is a condition precedent and, without the condition precedent being fulfilled, the indemnification agreement cannot be enforceable.
[45] If one could consider the lease assignment as a condition precedent, it is clear that condition either merged upon the completion of the transaction, or was waived by Bandkohal upon the completion of the transaction, her use of the equipment for two years, and payment of lease payments from December 3, 2008 until default in December 2010.
[46] She cannot now rely upon that condition to permit her to walk away with no financial consequences.
[47] I adopt the reasoning in the case of Henderson v. Risi 2013 CarswellOnt 2779 (Ont. S.C.J.) wherein the court stated in paragraph 87:
I conclude that the SPA [share purchase agreement] did call for the delivery of audited financial statements within thirty days after closing and there was a breach of that provision. However, the breach caused no damage. It was waived either expressly or implicitly by Risi since she did accept the statements with a Notice to Reader …
[48] Accordingly, I find that Bandkohal knew that AMT required a guarantee from her husband and she knew that this would not happen. She executed the indemnity agreement knowing and understanding the importance and consequences of that agreement. Although, after the closing she may have had intentions to follow up with AMT regarding the assignment of the lease, this is something she did not do. As a result, by her completing the transaction, utilizing the equipment at the clinic and reaping the benefits of the equipment for a period of two years, I find that she has waived either expressly or implicitly the requirement for the assignment of the lease.
[49] Further, I find that the indemnity agreement can and should be treated as a standalone document. It is written in a standard format and Bendkohal clearly knew and understood the intent and purpose of the agreement. Having done so then, it is not open for her now to argue that the personal indemnity is unenforceable and invalid.
COUNTERCLAIMS BY BANDKOHAL
[50] Kahn has brought this claim for summary judgment only on the personal indemnity executed by Bandkohal on December 3, 2008.
[51] Bandkohal counterclaimed against Kahn for breach of warranty, misrepresentation, breach of fiduciary duty, defamation, trespass, assault, malicious prosecution and abuse of process, theft/unlawful preference. Bandkohal states that the claims of Khan should proceed along with her counterclaims and can only be determined at trial.
[52] However, I find the counterclaims brought by Bandkohal arise out of “separate transactions” that are not related to the personal indemnity agreement. I find the matters dealing with the counterclaims may proceed in the normal ordinary course through the litigation process and are separate from the indemnity issue.
MITIGATION
[53] Bandkohal claims that Kahn has not properly mitigated his damages.
[54] Firstly, although Kahn had the knowledge and skill to utilize the equipment, I accept Kahn’s evidence that he wished to sell the clinic since his medical practice was very busy. He wished to spend more time with his family and he found that he did not have sufficient time remaining to continue with the cosmetic clinic.
[55] Further, I accept the undisputed evidence that just prior to default Bandkohal presold $13,000 worth of gift certificates. This, according to Kahn, would make it difficult for him to continue with the clinic.
[56] I am satisfied that Kahn negotiated with AMT direct, once Bandkohal defaulted, a reduction of $54,542.84 on the remainder of the lease with AMT. Kahn borrowed the money to do so and is still paying interest on it today.
[57] I adopt the reasoning of Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, 2012 CarswellOnt 12505 (S.C.C.), whereby the court held at paragraph 73:
The defendant, having breached the contract, bears the onus of proving that the plaintiff unreasonably failed to mitigate its loss . . . . This entails establishing, on a balance of probabilities: (1) that opportunities to mitigate the loss were available to the plaintiff; and (2) that the plaintiff unreasonably failed to pursue these opportunities . . . .
[58] I find Bandkohal has failed to prove either of the aforementioned. I am satisfied that there is no failure to mitigate on the part of Kahn.
A STAY OF JUDGMENT
[59] Bandkohal requests that if summary judgment is granted, the court should exercise its discretion and order a stay of the judgment pursuant to Rule 20.08 of the summary judgment rules. Rule 20.08 provides as follows:
Where it appears that the enforcement of a summary judgment ought to be stayed pending the determination of any other issue in the action or counterclaim, crossclaim or third party claim, the court may so order on such terms as are just.
[60] The court stated in Perdue v. Meyers, [2005] O.J. No. 3637 at paragraph 24: “Granting of a stay of execution of a summary judgment pending the determination of a counterclaim is a pure exercise of discretion.”
[61] Further, in the case of Cuddy Food Products v. Puddy Bros. Limited (2002), 35 C.P.C. (5th) 159 (S.C.J.) the court held as follows:
Stay of execution pending the trial of the defendant’s counterclaim which was based on a separate action by the defendant [is] refused where the facts giving rise to the plaintiff’s claim had no connection to the facts giving rise to the defendant’s claim and the defendant’s motivation in not paying was to gain an advantage on other creditors.
[62] The issues arising out of the counterclaim arise out of “separate transactions” and not related to the indemnity agreement executed by Bandkohal on December 3, 2008. The mere fact of the existence of a counterclaim is not sufficient to stay enforcement of a summary judgment.
[63] Accordingly, no stay of judgment is granted.
THE FULL APPRECIATION TEST
[64] In the case of Combined Air Management Services v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1 CA, the court stated at paragraph 50:
50 . . . the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?
55 Thus, in deciding whether to use the powers in rule 20.04(2.1), the motions judge must consider if this is a case where meeting the full appreciation test requires an opportunity to hear and observe witnesses, to have the evidence presented by way of a trial narrative, and to experience the fact-finding process first-hand. Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record -- as may be supplemented by the presentation of oral evidence under rule 20.04(2.2) -- the judge cannot be “satisfied” that the issues are appropriately resolved on a motion for summary judgment.
[65] I am satisfied in this case before me that the “full appreciation” of the evidence does not require a trial and there is no genuine issue for trial with respect to the indemnity agreement executed by Bandkohal. The agreement is abundantly clear in that Bandkohal executed it with independent legal advice and the full knowledge of its purpose and intent. Bandkohal knew that because the leases had not been assigned by AMT that Kahn would not complete the transaction without the completion by her of the indemnity agreement.
[66] Bandkohal acted in every way as if the leases had been assigned to her as she went ahead and reaped the financial benefit of the use of the leased equipment for a period of two years before simply deciding that she would walk away.
[67] With respect to the summary judgment motion, I find that the no genuine issue for trial test has been met and the “full appreciation test” has also been met.
ORDERS MADE
[68] Summary judgment is granted in favour of the plaintiffs Kahn and 144 as against the defendant, Bandkohal in the amount of $95,576.53 together with pre-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, C.43.
[69] There shall be no stay of judgment.
COSTS
[70] Unless otherwise agreed, the parties may make written submissions on costs limited to two pages plus a bill of costs with the plaintiffs’ submissions due by September 16, 2013, and the defendant’s submissions due by October 7, 2013.
Date: August 26, 2013
BRANTFORD COURT FILE NO.: CV-11-54SR
DATE: 2013-08-26
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1445369 Ontario Inc. and Dr. Raza Khan
Plaintiffs
– and –
Hanan Bandkohal also known as Hana Bandkohal
Defendant
AND BETWEEN:
Hanan Bandkohal
Plaintiff to the Counterclaim
– and –
Dr. Raza Khan Medicine Professional Corporation and Raza Muhammed Khan and 1445369 Ontario Inc.
Defendants to the Counterclaim
MOTION ENDORSEMENT
Maddalena, J.
Released: August 26, 2013