ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO: CV-12-466166
DATE: 20141201
B E T W E E N:
Vitaliy Dovbush and Alexander Faltschuk
Plaintiffs
- and -
Bogdan Mouzitchka, Alexandra Mouzitchka and IMB + Records Inc.
Defendants
Donald R. Fiske,
for the Plaintiffs
Stephen M. Werbowyj,
for the Defendants
HEARD: September 15 and 16, 2014
WHITAKER J.
What this Case is About
[1] This is an action in contract.
[2] The parties engaged in a financial transaction.
[3] The issue between the parries is the correct characterization of the transaction.
[4] The plaintiffs say they advanced a loan to the defendants, on demand and at their discretion.
[5] The defendants say the plaintiffs invested money in their company and the funds invested cannot be recalled under the agreement.
[6] I find the financial transaction is a share sale and purchase agreement and not a loan.
[7] The cross claim is not made out.
[8] Reasons follow.
Analysis
[9] The plaintiffs have the burden of proof – meaning they must persuade me on a balance of probability that the $100,000 dollars paid by them into the corporation was a loan recallable on their notice.
[10] The business in issue is telecom based and essentially brings eastern European cable network signals to North America.
[11] The business was founded and remains owned by the defendants Bogdan Mouzitchka and his wife, Alexandra Mouzitchka ( “Bogdan” and “Alexandra”),
[12] The plaintiffs are Vitaliy Dovbush and his brother, Alexander Faltschuk (“Dovbush” and “Faltschuk”).
[13] I found the Mouzitchka’s credible. On the contrary, I found Dovbush and his brother, Faltschuk, to be incredible. They (the brothers) made assertions of fact which simply made no sense in the normal course of business conduct. Where the evidence differs as between the brothers and the Mouzitchka’s, I prefer the latter.
[14] The following facts are consistent either with the parties’ current arrangements or were agreed to.
The parties intended that the plaintiffs would purchase 25% of IMB and become ‘hands on’ employee investors paid a salary. A verbal agreement was reached for these terms between the parties.
The parties did not intend a loan transaction at any time and no loan documents were prepared or executed;
There never was a requirement that the defendants prove a value for IMB at $4 million or otherwise. The claim for it is nothing more than an excuse for non-payment of the balance of the purchase price of $400,000.
The fact that the plaintiff’s lawyer, Walter Burych, failed to testify in court to provide an explanation as to why none of the four letters of intent prepared by him contain a valuation of IMB requirements - lends support to this submission by the defendants.
[15] It is clear that the letter of intent from the defendants contemplated an intended share purchase and sale, no loan documentation was ever prepared or even produced. The only paper suggesting this was a loan was written by the plaintiff just prior to the commencement of litigation and is self-serving and ambiguous.
[16] Bogdan did not look for or want a loan for the company and the payment of $100,000 was a non-refundable payment.
[17] The plaintiffs were to work for the company at a yearly salary of $100,000 to learn the business.
[18] The verbal agreement between the parties on January 19, 2012 had clear terms:
i. the plaintiffs would purchase 25% of the shares of IMB+Records for the purchase of $1 million with the business being valued at $4 million;
ii. that the two brothers would work for the company for $100,000 a year; and
iii. the $400,000 would be lent back as a shareholder loan.
[19] I was shown a white board with writing on it and the brothers suggest this to be the terms of a contract which coincides with the terms provided in the previous paragraph.
Conclusions
[20] I find the parties intended to enter into an agreement of share sale and Purchase. The terms were the payment of $1,000,000 with $400,000 lent back as a shareholder loan and the two brothers hired as employees for $100,000 per year.
[21] I find that there was no loan to the company from the brothers and that the money was invested as a down payment and not refundable.
Cross claim
[22] The cross claim is dismissed
Outcome
[23] The action is dismissed.
[24] The parties may make written submissions as to costs no more than 5 pages with two centimetres indented and at 12 point. Submissions are to be made within two weeks.
WHITAKER, J.
DATE: December 1, 2014
COURT FILE NO: CV-12-466166
DATE: 20141201
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Vitaliy Dovbush and Alexander Faltschuk
Plaintiffs
- and -
Bogdan Mouzitchka, Alexandra Mouzitchka and IMB + Records Inc.
Defendants
REASONS FOR DECISION
WHITAKER J.
Released: December 1, 2014