Nadi Inc. et al. v. Montazemi-Safari et al., 2015 ONSC 3129
COURT FILE NO.: CV-11-437640
DATE: 20150528
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Nadi Inc. and Nadi International Ltd.
Plaintiffs
– and –
Dariush Montazemi-Safari a.k.a. Daryoosh Montazami Safari, Hussien Safari a.k.a. Seyed Hossein Moontazemi Safari, Hassan Tehranchi a.k.a. Harry Tehranchi, Aboutaleb Shokrollah Talebi, Saeed Yahyavi, Cheragh Sahar Soheila and 2179548 Ontario Inc.
Defendants
David A. Taub for the Plaintiffs
Joseph Markin, for the Defendants
HEARD: May 4, 2015
REASONS FOR DECISION
SEAN F. DUNPHY, J.
[1] The defendants claim to have persuaded the plaintiffs willingly to exchange claims of almost $800,000 secured by a collateral mortgage on development land in Richmond Hill and personal guarantees in return for the right to receive two planned but un-built condominium units in Dubai which existed only on paper and were secured neither by tangible financial guarantees of the builder (whose controlling shareholders had already given guarantees that were actually being released by the transaction) nor the escrow fund required by Dubai law. When summarized in this fashion, it is clear that either the defendants made an exceptionally sharp bargain at the expense of a foolish plaintiff or, as is claimed by the plaintiffs, the transaction wheels were greased by a liberal dose of deception and fraud. A close examination of the documents and a consideration of the evidence of the parties leave me convinced it was the latter and I find the plaintiffs are entitled to judgment for the reasons which follow.
[2] The plaintiffs and defendants have separately brought motions for summary judgment – in the one case on the theory that the evidence of the fraud alleged is conclusively proved such that no trial is necessary, in the other that their compliance with their contractual obligations is equally plain and obvious on the evidence and no trial is necessary. The only thing they agree on is that no trial is necessary.
[3] As there are two competing, if opposing, summary judgment motions both of which would entirely dispose of this action, and as both counsel urged upon me that a trial is not required in the interest of justice in order to deal with their motions, I am of the view that I may proceed straight to a consideration of the “toolbox” in Rule 20.04(2.1) of the Rules of Civil Procedure applying the directions of the Supreme Court of Canada in the case of Hyrniak v. Mauldin 2014 SCC 7 (“Hryniak”). Accordingly, I have approached the motion from the perspective that I may weigh the evidence, make findings of credibility and draw inferences of fact in order to determine whether there is a genuine issue requiring a trial (that neither party appears to view as necessary) in order to justice to this case and I have found that I have sufficient evidence before me to reach the conclusions needed to dispose of this case without a trial. After a careful review of the evidence, I am persuaded that the interests of justice do not require a trial and that, having regard to the evidentiary tools placed at my disposal by Rule 20.04(2.1) of the Rules of Civil Procedure, I may confidently dispose of the two motions before me without the necessity of a trial.
Overview
[4] In May, 2009, the defendants owed the plaintiffs almost $2 million. They were in default and their intended Richmond Hill development hung in the balance. The defendants had provided the plaintiffs with, among other things, several personal guarantees and a mortgage on the land subject to development in Richmond Hill registered in the name of the defendant 2179548 Ontario Inc. (“217”).
[5] By an agreement dated May 14, 2009 (the “Amended Pledge Agreement”), the plaintiffs agreed to discharge the collateral mortgage and various other securities held for the debt (including the personal guarantees) in return for a variety of payments to be made over time. Among the items the plaintiffs agreed to accept was title to two planned condominium units in Dubai that were to be transferred to the plaintiffs. The builder of the Dubai project was a company controlled by two of the guarantors whose guarantees were to be released pursuant to the Amended Pledge Agreement. Construction had not yet commenced and the condominiums were thus being sold “off plan”.
[6] The central dispute between the parties is whether the Amended Pledge Agreement required the defendants to have funded an escrow account in Dubai with the full amount of the purchase price of the two units. For reasons expanded upon below, I find that the plaintiffs are correct and the Amended Pledge Agreement so provided.
[7] The Amended Pledge Agreement ultimately credited the defendants with $776,750.50 against their debt in respect of these two units (after allowing for foreign exchange fluctuations). The defendants delivered documents evidencing a duly registered transfer of the right to receive the two un-built units upon completion of construction. While all of the paperwork attending the deal appeared to indicate that the escrow account required by Dubai law to protect a purchaser of an “off plan” condominium had been established and funded with the full amount of the purchase price, it is undisputed that no such funding ever occurred.
[8] In my view, the totality of the closing documents were artfully and intentionally drafted so as to create a Potemkin village of illusion devoid of substance. The point of having done so was to appear to have complied with Dubai law without having done so and thereby to appear to the plaintiffs to have complied with the Amended Pledge Agreement without having done so
[9] The illusion had its intended effect upon the plaintiffs.
[10] Satisfied with the apparent compliance of the defendants with the Amended Pledge Agreement, the plaintiffs kept their end of the bargain. The collateral mortgage was discharged and the personal guarantees were released and the plaintiff waited for the promised condominiums to be built. Undisclosed to the plaintiffs, however, was the fact that between these two events (i.e. the transfer of the right to the Dubai condominiums as and when built that was registered in June, 2009 and the actual processing of the discharge of the Canadian mortgage which occurred in April, 2010), two of the defendants had sold their interest in the Dubai developer and at least one of them had left Dubai one step ahead of his creditors. Within the year, the condominium project was abandoned in a partially-built state by the developer (allegedly under new management) and the plaintiffs accordingly never received the promised condominium units.
[11] In the result, the defendants delivered to the plaintiffs the keys to what turned out to be unsecured and illusory pie in the sky while receiving a tangible release of personal guarantees and the return of the mortgage upon their Richmond Hill development property, liberating them from having to pay $776,750.50 plus interest while allowing the Richmond Hill project to continue unimpeded.
[12] When it became clear that the Dubai project had been abandoned and the plaintiffs finally discovered that the escrow account had never in fact been funded, the principal of the plaintiffs attempted to discuss the matter with the defendants at least one of whom brushed him off in crude and offensive words. The words used by Mr. Yahyavi cannot be repeated here, but expressed in no uncertain terms his firm conviction that the plaintiffs’ actions had once again proved the truth of P.T. Barnum’s famous saying regarding the birthrate of a portion of humanity. The plaintiffs filed a caution on title to the Richmond Hill lands formerly secured by their mortgage. After a short delay, the caution was removed upon the defendants posting replacement security.
[13] The defendants counterclaimed for slander of title in respect of the brief period of time during which the caution was on title, alleging that this caused significant delays in funding of their Richmond Hill construction project resulting in material costs claimed to amount to several millions of dollars.
Background
(i) The parties
[14] The plaintiffs are Nadi Inc., (“Nadi”), an Ontario corporation and its affiliate Nadi International Inc. (“Nadi International”). Nadi International is a Dubai corporation. Both Nadi and Nadi International are owned by Mr. Amir (sometimes “Anthony”) Nadiloey who is sole shareholder of both.
[15] The individual defendants were or have been shareholders in Catalia Development Group Inc. (“Catalia”) or 217 in connection with the purchase and development of an approximately 6 acre property on East Beaver Creek Road in Richmond Hill known as the “Campus 2000” property.
(ii) The Richmond Hill Transaction
[16] In two separate transactions dated July 27, 2007 and June 9, 2008, Nadi agreed to purchase two parcels of land which together comprise the Campus 2000 property from Campus 2000 Development Inc. The earlier of the two agreements contemplated a delayed closing to permit the purchaser to arrange zoning and severances necessary for its intended development of the Campus 2000 lands.
[17] In agreeing to purchase the lands, Nadi was acting on its own behalf and in trust for Catalia.
[18] On July 12, 2008, Nadi and Catalia entered into an agreement whereby Nadi agreed to convey its interest in the Campus 2000 lands to Catalia for a price of $2,850,000, payable in three instalments ending on November 15, 2008. As the original purchase agreements had not yet closed, Nadi was, in effect, assigning its interest in the purchase agreements.
[19] In early September, the global financial crisis that would explode on September 15, 20008 was just beginning to ignite in financial markets around the world and this transaction, among thousands of others, was in peril. The coming months saw a series of Band-Aid agreements cobbled together to buy time for the defendants to raise the funds necessary to perform their end of the bargain.
[20] The first such Band-Aid agreement was the Assignment Agreement dated September 9, 2008 which (i) arranged for the assignment of the two purchase agreements in respect of the Campus 2000 property to a numbered company (the defendant 217) incorporated for the purpose; and (ii) provided for a new schedule for making the required payments to Nadi. The Assignment Agreement recites that Mr. Nadiloey was to receive 2.5% of the shares of 217 as an additional part of the transaction. The individual defendants Hussein Safari, Talebi, Yahyavi and Tehranchi (i.e. all but two of the individual defendants whose participation emerges later in the story) along with Catalia were named as “Covenantors” to the Assignment Agreement and as such agreed to be “responsible for the performance of the terms of this Agreement as principals”.
[21] On October 31, 2008, the two purchase agreements in respect of the Campus 2000 lands were finally completed and 217 took title to the Campus 2000 lands. Unable to perform their obligations under the Assignment Agreement, the defendants required more time. Thus the “Pledge Agreement” was entered into that same day by the parties to the Assignment Agreement.
[22] The Pledge Agreement substantially revised the arrangements between the parties. Accordingly, the parties agreed that the Pledge Agreement superceded all prior agreements “save and except for the covenants of Hussein Safari and Dr. Aboutaleb Talebi”. These two surviving personal covenants were from the same two individual defendants who controlled the Dubai developer referred to below.
[23] Under the Pledge Agreement, Mr. Nadiloey agreed to surrender his newly-acquired 2.5% interest in 217, which interest was to be distributed pro-rata among the “Pledgers” who were described as the other shareholders of 217. The Pledgers were all of the individual defendants except Mr. Hussein Safari (hereafter, references to “Mr. Safari” shall refer to Mr. Hussein Safari not to be confused with his son, the defendant Dariush Safari whose full name will be used where relevant). The remaining debt to be paid to Nadi was confirmed at $3,015,000 including accrued interest and a new schedule of payments was established through to February 15, 2009 with interest on overdue payments bearing a rate of 12%.
[24] With the Pledge Agreement, the parties at least attempted to anticipate further financing and payment difficulties and provided for certain automatic deferral periods prior to enforcement. As security for the newly confirmed debt, the Pledgers pledged all of the shares of 217 (title holder to the Campus 2000 property) and it was agreed that the Pledgee (Mr. Betel – Mr. Nadiloey’s lawyer) would be entitled to register a collateral mortgage on the Campus 2000 property upon certain conditions occurring including further defaults. Unsurprisingly, Mr. Betel (the Pledgee) registered the collateral mortgage over the Campus 2000 lands shortly thereafter (on December 4, 2008).
[25] By April, 2009 Nadi further payment defaults had occurred under the schedule agreed under the Pledge Agreement and enforcement proceedings had progressed to the point where Notice of Sale had been delivered under the collateral mortgage. Nadi held the following security for repayment of the debts owing to it by various of the defendants: (i) the collateral mortgage over the Campus 2000 lands, (ii) a pledge of all of the shares of 217 (which owned the Campus 2000 lands); (iii) personal guarantees of the five shareholders of 217 (not produced but released on September 11, 2009 – see below); and (iv) the continuing covenant of Mr. Safari and Dr. Talebi from the original Assignment Agreement. The first three elements of security were pledged and held by Mr. Betel under the Pledge Agreement while the personal covenants survived from the Assignment Agreement and were in favour of Nadi directly. It is fair to say that the defendants were experiencing considerable difficulty in arranging the funds needed to pay Nadi and Mr. Nadiloey the amounts owed them while arranging the funding necessary to get their development of the Campus 2000 lands underway.
(iii) Bella Vida and the Dolce Vita Condominiums in Dubai
[26] With the Pledge Agreement in default, the parties once again had discussions about how to resolve matters in early 2009. The defendants suggested that Mr. Safari and Mr. Talebi had funds invested in a condominium project in Dubai which they could not remove from the project but which could be used to pay for units on behalf of the plaintiff.
[27] Mr. Nadiloey was originally from Iran. Mr. Safari and Mr. Talebi were partners in a seemingly (to the eyes of Mr. Nadiloey) large and established development business in nearby Dubai where the proposed condominium development was located. Mr. Nadiloey occasionally travelled to Dubai to visit with relatives from Iran. Killing two birds with one stone, Mr. Nadiloey travelled to Dubai in April, 2009 to meet relatives and to explore the defendants’ suggestion regarding using the two condominium units as a possible means of arranging to satisfy some of the remaining debt owed to Nadi.
[28] The defendants’ proposal involved the transfer of two retail outlets (identified as Unit 2 and Unit 3) to be constructed in a condominium project known as “Dolce Vita” in Dubai. The project developer was Bella Vida Limited (“Bella Vida”), a Dubai-registered company indirectly controlled by Mr. Safari and Mr. Talebi. Mr. Safari’s and Mr. Talebi’s interest in Bella Vida was held through another Dubai company known as “New World Investments Limited” (“New World”). The “Dolce Vita” condominium project had been registered with the relevant Dubai real estate authorities but construction had not yet begun.
[29] Mr. Nadiloey’s evidence is that the acquisition of the two condominium units was the first business he had conducted within Dubai although he had some familiarity with the place through his prior tourist visits to see relatives. He indicated that his due diligence in connection with the proposal made consisted of the following:
• He consulted with Mr. Safari and his partner Mr. Talebi whom he described as having a big office in Dubai and whom he considered to be trustworthy;
• He consulted local newspapers to get a sense of condominium sale values;
• He consulted (but did not hire) real estate agents briefly to get a sense of values of completed projects;
• He looked at promotional brochures relating to the project; and
• He consulted (but did not hire) local lawyers whose names he can no longer recall to understand the legal requirements of such transactions.
(iv) The Amended Pledge Agreement
[30] Mr. Nadiloey decided that Nadi would accept the defendants’ proposal after having performed his due diligence (such as it was). The Amended Pledge Agreement followed after some negotiation on May 14, 2009. Neither party has seen fit to provide much direct evidence regarding the negotiation of this document which, on its face, is clearly the victim of at least some inelegant cutting and pasting.
[31] The Amended Pledge Agreement itself is governed by Ontario law although Schedule A attached to it (dealing with the acquisition of the two Dubai condominiums) is governed by Dubai law.
[32] The parties to the Amended Pledge Agreement are (i) the five individual defendants who were parties to the original Pledge Agreement (but excluding Mr. Safari), (ii) Nadi and Mr. Nadiloey as pledgees, (iii) 217, (iv) Catalia, and (v) Mr. Betel as Escrow Agent.
[33] Under the Amended Pledge Agreement, the remaining debt owed to Nadi was stipulated to be $1,963,500 inclusive of accrued interest and Mr. Betel’s legal fees. Of this amount, (i) $353,500 was to be paid by May 15, 2009, (ii) $210,000 was to be paid by August 31, 2009; (iii) the two Dubai condominium units were to be transferred for value of up to $900,000 (see below) by June 15, 2009 and (iv) the remaining $500,000 plus interest amounts was to be paid on March 1, 2010. The collateral mortgage was to remain in place until the last payment while the personal guarantees of the individuals were to be released upon satisfaction of the first three items.
[34] Paragraph 3 of the Amended Pledge Agreement begins with a truncated sentence as follows:
“Transfer of properties in Dubai as per Schedule A attached hereto and which properties are to have satisfactory title. The current value of these properties is 2,633,208 Dirham (2,400 Dirham x 1,097.17 square feet) estimated to be $900,000 Canadian” (emphasis added).
The remainder of the paragraph provides that the value in AED will be converted to Canadian dollars as at the date “the Land Department in Dubai acknowledges receipt of the transfer” and provided for a reconciliation (by way of credit or cash payment as the case may be) of any difference in the value of AED 2,633,208 expressed in Canadian dollars at such date. “AED” is the abbreviation for the currency of Dubai, the United Arab Emirates dirham[^1].
[35] Paragraph 5 of the Amended Pledge Agreement provides:
“Provided items numbered 1 and 3 are completely paid the balance on the third mortgage will be $710,000.00” (emphasis added).
[36] Paragraph 7 of the Amended Pledge Agreement provides: “The personal guarantees of the individuals will be released after items number 1(a) and (b) have been paid and item number 3 real property in Dubai has been transferred”.
[37] There is no explicit mention of any condition relating to an escrow account in the body of the Amended Pledge Agreement – a fact upon which the defendants placed great emphasis in argument. However, the amount referred to in paragraph 5 as being “paid” under item 3 is the value in AED mentioned in that paragraph upon its conversion to Canadian funds in the manner described. This is the same amount (in AED) that is referenced on the Reservation Forms as having been “paid” into the escrow account as discussed below.
[38] The Schedule A referenced in paragraph 3 consists of two substantially identical three-page documents entitled “Dolce Vita Reservation Form”. Each of these was initially signed on behalf of Mr. Safari by his son under a power of attorney and Mr. Safari acknowledged that he was authorized to do so. The forms are also signed by Mr. Talebi. Mr. Safari is identified in each case as the “Developer”.
[39] Page one of the first of the Reservation Forms identifies the Purchaser as Nadi International and indicates:
“I would like to reserve the following unit for purchase and I understand that this reservation is irrevocable.”
Dolce Vita, Dubai Marina,
Total Area in square feet (approximately): 495.49 Sq. Ft,
Flat number: Shop 2
Purchase Price: AED 1,189,176.00”
The second page of the form contains three text boxes. The first bears the title “Seller’s Details” and identifies “New World Investments Group” as the seller with a contact address of P.O. Box 182109, Dubai, United Arab Emirates. The second text box reads as follows:
“Payable to: ESCROW ACCOUNT
Account Name: Dolce Vita
Bank Name
& Branch: Mashreq Bank (Badr-Al-Islami) - Islamic Banking
Swift Code: BMOLAED
Trust Account No. 4498001866
Bank Address: P.O. Box 182109 Dubai UAE
Escrow Unit Reference No.: 10002”
(emphasis added).
The third text box is entitled “Payment Schedule” and contains three fields having data filled in:
“Payments Schedule: Payments made
Amount (AED): 1,189,176.00
Cheque No: Paid
Total Amount (AED): 1,189,176.00”
(The data field for cheque date was left blank)
[40] It appears to me a rather challenging proposition for the defendants to suggest that I should actually interpret the phrases displayed prominently on this document, i.e.. “payable to: escrow account”, “Payments made” and “Amount (AED): 1,189,176” as if they actually read “NOT payable to escrow account” and “(AED) 1,189,176 Payment NOT made”. Reading the document in such a fashion would require one to be possessed of the sort of elastic view of the meaning of words in the English language as is possessed by characters to be encountered in Alice in Wonderland, but is not appropriate to a court of law.
[41] The documents on their face would tell any ordinarily competent reader that the identified payments had been made to the identified account and in the identified amounts. Suggesting that they in fact convey the opposite information is pure sophistry.
[42] The third page of the Reservation Forms is a page of “Terms and Conditions, paragraph 3 of which reads:
“Purchaser hereby undertakes to promptly enter into an Agreement of Sale upon presentation of same to Purchaser by Seller or its agent, whereupon the terms of such sale shall be governed by such Agreement of Sale”.
Paragraph 9 of the Terms and Conditions stipulates that Dubai law governs the Reservation Form.
[43] The second reservation form attached is in every respect identical to the first with the exception of the price (AED 1,444,032), the unit size (601.68 Sq. Ft), the Flat Number (Shop 3) and the Escrow Unit Reference No. (10003).
[44] There has been no explanation as to why the address given for Mashreq Bank where the escrow account was allegedly located was the same Post Office box number as the address indicated for the seller, New World. The documents produced in the record make it clear that the P.O. Box in question was controlled not by Mashreq Bank but by Mr. Talebi and Mr. Safari.
[45] An innocent error seems hard to believe in the circumstances, particularly when the error was repeated later in June in subsequent closing documents. A more probable inference is that the erroneous address was intended to provide a means to intercept any queries about the non-existent escrow account in the event any such inquiries were made.
(v) Subsequent Events in Dubai
[46] Paragraph 9 of the Amended Pledge Agreement required the transfer of the rights to the Dubai condominium units to be completed by June 15, 2009 failing which the Amended Pledge Agreement would be void and the parties would revert to their rights under the original Pledge Agreement. The “Reservation Forms” in Schedule A of the Amended Pledge Agreement contemplated the parties entering into subsequent sale agreements. Accordingly, on June 2, 2009, Nadi International entered into two substantially identical sale agreements entitled “Apartment Sale and Purchase Agreement” with Bella Vida as Seller (instead of New World), one such agreement for each of Shop 2 and Shop 3. The agreements each indicated an anticipated completion date of “4th Quarter of 2010”. Once again, this document has a section entitled “Payment Schedule” which indicates (for Shop 2): “Amount Paid: 1,189,176.00”. The column beside this, entitled “due date” is blank and the “remarks” section has the notation “PAID”. These documents are signed by Mr. Safari, Mr. Talebi and Mr. Nadiloey and are repeated mutatis mutandis for Shop 3.
[47] A fresh “Dolce Vita Reservation Form” document was also executed on June 2, 2009 in respect of each such Agreement. Although in a different typeface, the forms are materially identical to the original Schedule A documents. There was no change between the June 2, 2009 versions of the Reservation Form and the Reservation Forms attached to the May 14, 2009 Amended Pledge Agreement beyond the substitution of Bella Vida for New World Investment as the “Seller”, the insertion of the date (June 2, 2009) and the execution of the documents by Mr. Nadiloey and Bella Vida (Mr. Safari and Mr. Talebi) as well as Bella Vida’s seal where required. In particular, the now dated Reservation Form continued to represent the address of Mashreq Bank as being the same as Bella Vida’s address and it continued to represent the specific “Escrow Unit Reference No.” for each shop on page 2. This information would have had to have been separately (and I infer deliberately) inserted on this form as it is a separate document on a different letterhead and font and more than a simple re-print.
[48] The transaction was further evidenced by two “Initial Contract of Sale” documents each dated June 15, 2009. These documents were registered with the Dubai Land Department. These agreements confirm the sale and provide “the seller shall transfer the ownership of said property and register same in the same of the second party upon the completion of payment and construction”. The Initial Contract of Sale for each unit declared a value for each unit at the same amount shown on the Reservation Forms and evidence the payment of a 2% tax on the declared value on registration. The document is signed by Mr. Safari, Mr. Talebi and Mr. Nadiloey.
[49] On June 17, 2009, Bella Vida provided Nadi International with an “Acknowledgement Receipt”. The document states
“Received from: Nadi International Ltd./Amir Anthony Nadiloey
Amount: (AED) 2,633,208.00
Amount in Words: Two million six hundred thirty three thousand two hundred eight dirhams only” with the following added in hand: “Equivalent to CAD 776,757.50”
The Receipt is signed by Mr. Safari and Mr. Talebi.
[50] Mr. Nadiloey was given further documents in connection with the “closing” of the purchase of the condominium units at that time. Among them were “journal vouchers” from Almasah International, a real estate brokerage company that Mr. Nadiloey testified was owned by Mr. Safari Sr. and Mr. Talebi (on cross-examination, Mr. Safari Sr. indicated it was owned by Mr. Talebi alone). The Journal Voucher dated June 2, 2009 indicates:
“Account Name Debit Credit
Advances- Ontario Ltd. (Equivalent to CAD 776,757,.5) 2,633,208.00
Received Full Payment – Dolce Vita Shop 2 1,189,176.00
Received Full Payment – Dolce Vita Shop 3 1,144,032.00
Explanation: Advances of Seyed Hossein Montazemi Safari, Dr. Aboutaleb Shokrallah Talebi and Soheila Mohammed Ali Cheragh Sahar to Ontario Inc. (Reg No. 2179548) as part of payment for land in Canada”
Total: 2,633,208.00 2,633,208.00
[51] In early August, 2009, Mr. Safari left Dubai and surrendered his residence permit. The plaintiffs allege that he fled one step ahead of his creditors and left a number of buyers with claims for un-built condominiums and no escrow funds to turn to in his wake. The affidavit of Mr. Al Hosani contains a copy of his certificate to counsel for the plaintiffs that “our law firm has filed many lawsuits on behalf of various clients before Dubai courts against Almaseh International and New World Investments Ltd. and we acquired judgments in favor of our clients, however we didn’t find any way to collect the amounts of the claims where there is no balance in the escrow accounts of the companies above, and we don’t know any assets for them in Dubai”.
[52] Mr. Safari testified in his cross-examination that he and Mr. Talebi sold Bella Vida to a group of investors named “Babak Investments Ltd.” (“Babak”) in December 2009. He initially declined to answer any questions regarding the identity of the purchasers or the circumstances of the transactions and, upon being ordered to do so, indicated only that he had no information about or contact information for Babak.
[53] Bella Vida did not complete the construction of the “Dolce Vita” building under its allegedly new management. How much construction took place after Babak took over Bella Vida in December, 2009 is not before me, but the fact that the project was abandoned is not seriously contested and has been confirmed by the Dubai courts.
[54] Considering:
• the un-contradicted evidence of Mr. Al Hosani regarding numerous unsatisfied judgments against Almaseh International and New World Investments in Dubai from purchasers who, like Nadi International, found empty escrow accounts,
• the departure of Mr. Safari from Dubai within a few weeks of closing the transfer to Nadi International without any prior warning or intimation of such plans to Mr. Nadiloey so shortly after persuading him to accept the condominium units in return for substantial value in Canada and releases of personal guarantees,
• the failure to provide any substantive details confirming the bona fides of the alleged transfer to Babak on cross-examination of Mr. Safari,
• the suggestion by Mr. Safari on his own cross-examination that he lost money on Bella Vida; and
• the abandonment of the Bella Vida project shortly after that time,
I have no hesitation in inferring that at least Mr. Safari and Mr. Talebi among the defendants knew (i) that the Dolce Vita project was in some level of financial difficulty in May/June 2009; (ii) that escrow accounts had not been funded for a number of purchasers (including Nadi International); and (iii) that there was a very significant risk, even a high probability, that the project might never be completed and that in such event, purchasers such as Nadi International would be entirely unsecured without recourse to any assets in given the lack of properly escrowed funds.
(vi) “Completion” of Amended Pledge Agreement
[55] On September 11, 2009, the defendants paid Nadi the sum of $123,242.50 being the “true up” payment required under s. 3 of the Amended Pledge Agreement to account for the rise of the Canadian dollar against the UAE dirham at the time of the transfer of the condominium registration. The same day, Nadi provided a release of the personal guarantees of the five 217 shareholders (i.e. all of the personal defendants except Mr. Safari). The record before me does not appear to contain copies of these guarantees. However, the record does disclose that these defendants had pledged their shares in 217 as owner of the Campus 2000 lands and they accordingly profited from the releases to that extent at least.
[56] The defendants continued to experience delays in making the agreed upon payments under the Amended Pledge Agreement. Further extensions of time were negotiated for some payments which I have not related here. Nevertheless, by April, 2010, they had completed all of the payments required and had purported to have complied with s. 3 of the Amended Pledge Agreement (the two Dubai condominium units), albeit without having funded the escrow accounts or disclosed that fact. In April, 2010 the defendants requested an assignment of the collateral mortgage over the Campus 2000 lands to a related party at their direction (Grand Gable Investment Co. Inc.). Believing the Amended Pledge Agreement to have been fully complied with, the plaintiffs heeded the request and proceeded to complete the Amended Pledge Agreement. Following the assignment of the collateral mortgage, it was discharged.
[57] At this point, there is no suggestion in the evidence that the plaintiffs had any inkling that (i) Mr. Safari had left Dubai; (ii) Mr. Safari and Mr. Talebi had sold Bella Vida to Babak; (iii) that the escrow accounts had never been funded; and (iv) that the Dolce Vita project either had been already been abandoned or was at risk of being abandoned (the precise date of abandonment is not before me, although it was certainly before 2011 when the Mr. Nadiloey began his investigations referred to below).
(vii) Subsequent Investigations by Plaintiffs
[58] The “Dolce Vita” building was scheduled to have been completed in the latter part of 2010. Having no news, Mr. Nadiloey travelled to Dubai to investigate in early 2011. The empty 11-story concrete shell where his completed building was meant to stand was clearly an ominous sign. He soon learned that the project had been abandoned with contractors left unpaid. Further investigations required professional assistance, but they ultimately revealed that the escrow account at Mashreq Bank contained no funds to the credit of the two units purchased by Nadi International.
(viii) Expert Opinions and Dubai Judgment
[59] The plaintiffs filed expert opinions from Bennett Jones Middle East LLP (Dubai office) (Mr. McDermott) dated March 21, 2012 by way of attachment to an affidavit of Mr. Nadiloey and an Affidavit of Khalaf Al Hosani attaching his opinion dated December 23, 2014. Neither opinion was examined upon or contradicted. Both opinions are to similar effect.
[60] The Bennett Jones opinion letter examined the two “Apartment Sale and Purchase Agreements” referred to above as well as a letter Mr. Nadiloey’s investigation had succeeded in obtaining from Mashreq Bank confirming that no deposit monies were held in the escrow account in respect of the two units in question. After quoting Article (7) of Law No. 8 of 2007 of Dubai, the Bennett Jones opinion notes that “(a) the failure of a Developer to pay or to cause Deposit Monies to be paid into the Guarantee Account for a specific Development constitutes a contravention of Law No. 8 of 2007; and (b) no Deposit Monies were paid into a Guarantee Account (as defined by Law No. (8)) in respect of Units S-02 and S-03 in the Dolce Vita Project”.
[61] It is to be noted that the documents, including the “Acknowledgement Receipt”, the Reservation Forms and the Journal Voucher all acknowledge receipt of payment from the buyer for the full amount of the purchase price and thus apparent compliance with Dubai law.
[62] Mr. Al Hosani’s opinion letter more directly addresses the issues before the court. His opinion specifically confirms:
a. The Reservation Forms are indeed standard forms used for the type of transaction;
b. The Reservation Forms show that the payments of AED 1,444,032.11 and AED 1,189,176.00 had been made into the Mashreq Bank escrow account; and
c. The failure to deposit or maintain funds in the escrow account contravenes Dubai law.
As noted, he was neither contradicted nor examined upon this opinion.
[63] The defendants relied upon the affidavit of Ms. Iaia which was subject to cross-examination. I don’t propose to review her opinion in detail here for the simple reason that it was entirely irrelevant. The opinion focussed solely upon whether Nadi International had received the unchallenged right to take delivery of the two condominium units as and when built. That has never been in issue in the case and, of course, the project having been abandoned, so it is now academic. Ms. Iaia’s affidavit does not in any way address the subject-matter of the unfunded escrow account which is the issue the court must deal with. I can place no reliance upon her opinion and need comment no further.
[64] Lastly, I must mention the proceedings undertaken by the plaintiffs in Dubai. The defendants sought to make quite an issue about this judgment, but on closer analysis, it is a red herring.
[65] The plaintiff’s investigation of what had gone wrong with the transaction in 2011 very quickly ran into road blocks. In order to obtain further information, including as regards the status of the escrow account from Mashreq Bank, the plaintiffs’ legal advice was that a legal claim had to be launched to obtain the information. In Dubai, the civil litigation system is quite different from our own in that the court appears to take an active role in investigating the claim once filed. In this case, the court investigated the claim and determined that the escrow fund had in fact not been funded.
[66] In the interim, the plaintiffs had commenced this proceeding in Ontario and, among other motions they soon faced was a motion by the defendants seeking to stay the Ontario proceeding as forum non conveniens and abuse of process. In proceedings before B. O’Marra J., the plaintiff had given an undertaking to discontinue the Dubai proceeding. Unfortunately, the Dubai court released its judgment at almost exactly that instant and this fact was not learned by the plaintiffs until afterwards.
[67] The plaintiff’s position was that the legal proceeding was the only way in which it could obtain the information about the status of the development and the escrow account. In this, the defendants were supported by the un-contradicted legal opinion of Mr. Al Hosani. This legal opinion is also supported by various of the Dubai documents filed in the record showing the lack of an escrow account and similar matters, all of which were clearly obtained by the court through its independent investigation.
[68] The Dubai judgment was as against Bella Vida and makes no mention of the fraud allegations against the defendants to this action. The judgement is dated March 26, 2012 and found that that the plaintiff (Nadi International) was entitled to rescission of the agreement and a refund of the full purchase price as evidenced by the receipt from the vendor, Bella Vida. The court ruled that Bella Vida could not deny the receipt of the purchase price having given the receipt quoted above.
[69] There is no argument of res judicata arising from this judgment. The plaintiffs’ evidence, which I accept, is that the proceeding was undertaken to obtain information relevant to this proceeding and the steps they took were a reasonable means, under Dubai law, to do so. There is no evidence on the record before me that any of the fraud issues raised in this case were before the court in Dubai. I am satisfied that the plaintiffs have taken reasonable steps to ensuring that this court alone was seized of the substantive issues raised in the statement of claim and never had any other intent. This claim is concerned only in the most peripheral of ways with the rescission of the Apartment Sale Purchase Agreements and the resulting (unsatisfied) claim against Bella Vida. I have no reason to believe that the Dubai court intended to or made a ruling on the merits of the fraud allegations in relation to the escrow account raised in this case.
Issues
[70] Was the failure to provide a funded escrow account a breach of the Amended Pledge Agreement?
[71] If so, have some or all of the defendants fraudulently misrepresented the existence of a funded escrow account to the plaintiffs?
[72] If so, what relief is appropriate?
Analysis
(i) Did the Amended Pledge Agreement require a funded escrow account?
[73] There is no dispute that there was no actual escrow account containing any actual funds for the benefit of the plaintiffs. The defendants claim this was never required by the Amended Pledge Agreement. Mr. Nadiloey just as vehemently claims that an escrow account was required and that he was misled by the defendants into believing that this had been done. Neither side could point to any specific discussions in the context of negotiating the Amended Pledge Agreement to prove or disprove their respective position.
[74] The defendants argue that they have performed the contract precisely in accordance with its terms. They recite the opinion of Ms. Iaia to the effect that the transfer of the right to receive the units by Bella Vida in favour of Nadi International was valid and complete and the fact that the Amended Pledge Agreement makes no mention of a pledge account. They claim that an escrow account was not required under Dubai law and deny having represented one had been provided for in this case. They attribute the various mentions of the escrow account in the Dubai transactional documents to the fact that “standard forms” were being used and these were simply fields on the form of no particular applicability in this case. They claim that an escrow fund would make no commercial sense in this case as the whole reason for using the Dubai units as currency was their difficulty in finding the funds to pay Mr. Nadiloey. They also deny that anything untoward can be read into the departure of Mr. Safari from Dubai a scant few weeks after the completion of the transfer to Nadi International and the sale of Bella Vida shortly thereafter to other interests, saying that the plaintiffs had no agreement prohibiting the sale of Bella Vida.
[75] I cannot accept any of the defendants’ arguments. In my view it is clear that s. 3 of the Amended Pledge Agreement required that the transfer of the interest in the two condominium units be completed “as per” the Reservation Forms attached as Schedule A and those Reservation Forms and Dubai law which governed them plainly provided for a fully-funded escrow account into which the purchase price as shown on the documents would be or had been deposited.
[76] I shall consider the matter from the point of view of (i) the plain language used in the Reservation Forms and the documents contemplated by them and subsequently executed or delivered on June 2, 2009, June 15, 2009 and June 17, 2009; (ii) the requirements of Dubai law which govern the Reservation Forms; (iii) the defendants arguments based upon the use of “Standard Forms”, and (iv) the defendants arguments regarding commercial common sense.
Plain Language
[77] In my view the plain language of the Reservation Forms[^2] supports no other interpretation but that the purchase price was required to be and had been paid into escrow to the credit of Nadi International by June 2, 2009 to the full extent of the stipulated purchase price of AED 2,633,208. In support of this conclusion I note the following:
a. The Reservation Forms each identified the purchase price as being “Payable to: Escrow Account” with specific details of the escrow account both as to financial institution and account number and the unique Escrow Unit Reference number attributed to it (i.e. a separate one for each unit);
b. The May 14, 2009 version of the Reservation Forms (attached to the Amended Pledge Agreement) was not fully executed and was attached to an agreement (the Amended Pledge Agreement) that required the transaction to be completed “as per” the form;
c. The June 2, 2009 version of the Reservation Forms was in respect of the “actual” closing and was fully executed, suggesting funding occurred on that day;
d. The Payment Schedule on each such Reservation Form indicated “Payments made” and “Paid” in respect of the purchase price on the same page as the text box that indicated “Payable to: Escrow Account”;
e. The Payment Schedule (Schedule 1) attached to the June 2, 2009 Apartment Sale and Purchase Agreement for each of the units clearly shows the same amount as being “Paid” and bears the seal of Bella Vida;
f. The June 17, 2009 Acknowledgment Receipt specifically acknowledges receipt of this same amount in full payment for the two properties;
g. The progression of the documents suggests the parties went from agreement (May 14, 2009) to completion (June 2, 2009) in a conventional manner, with the latter documents being fully completed, sealed and executed (with registration occurring in the Dubai Land Department on June 15, 2009).
[78] There is no other conclusion possible upon a fair reading of these documents alone or in combination. They contain a clear and unambiguous statement that the specified purchase price has been paid and has been paid into the identified escrow account. There was no need to use this “paid” language if a “payment in kind” transaction were intended. The cumulative effect of using these words in this fashion was undoubtedly to create the false impression of the funding of the escrow account as required by Dubai law.
[79] To the extent that s. 3 of the Amended Pledge Agreement required the transfer the two condominium properties “as per” the Reservation Forms, proceeding to complete the transfers without having funded the escrow account identified in respect of each of the two units with the full amount of the purchase price was clearly not “as per” the Reservation Forms and was thus a breach of the Amended Pledge Agreement which the defendants cannot argue that the plaintiffs have waived since it is beyond doubt that the plaintiffs had every reason to believe (and the defendants used every stratagem to ensure they believed) that the escrow account had in fact been funded and the Amended Pledge Agreement complied with.
Dubai Law
[80] Mr. Al Hosani’s expert evidence clearly confirms that the Reservation Forms, governed as they were by Dubai law, required precisely what I have analyzed them to require by an analysis of the plain language of the documents. His opinion further confirms that Dubai law required the amounts shown as having been paid by the buyer to have been deposited into escrow as the document indicates was done. The Bennett Jones opinion, directed only to the Apartment Sale Agreements is to similar effect. This evidence was not challenged or contradicted by the defendants.
[81] It is no coincidence that the closing documents prepared by Bella Vida under Mr. Talebi and Mr. Safari’s direction tracked Dubai law so closely. Firstly, the evidence is that Mr. Nadiloey had consulted local legal counsel, even if he had not retained them. The documents thus needed to appear to conform to local law in order to pass inspection. Secondly, the Amended Pledge Agreement only required the plaintiffs to release the various securities pledged by the defendants upon the acceptance of the documents for registration by the Dubai Land Department. For both reasons, they had to appear to conform to Dubai law or there was a risk that they would be rejected and the purpose of the deception thereby frustrated.
[82] Mr. Safari insisted on numerous occasions that Dubai law did not require an escrow account and that this requirement was somehow a later development of Dubai law not applicable to this transaction. Mr. Safari is not an expert on Dubai law.
[83] Mr. Al Hosani’s opinion clearly contradicts him (and the law cited dates from 2007). Mr. Safari’s apparent flight from Dubai soon afterwards sparking a trail of law suits against his various companies in his wake also suggests that his protestations in this regard have little credibility. The defendants have adduced no evidence at all to establish that the escrow account was not required to complete the transaction described in the Reservation Forms. It goes without saying that a motion for summary judgment requires all parties to put their best foot forward. The plaintiffs’ legal opinions regarding Dubai law went entirely unanswered.
[84] Ms. Iaia’s opinion of Dubai law presented by the defendants was very carefully worded to avoid any mention of the escrow account issue at all. Her opinion simply skirts the issue of the legal requirement for an escrow account under Dubai law and is thus entirely irrelevant.
[85] Were there conflict between the two legal opinions, I should have preferred Mr. Al Hosani’s. He is locally licensed and not merely a foreign legal consultant (as is the case with Ms. Iaia). She was an associate at an international law firm when she gave the opinion and, by the time she was cross-examined on her affidavit affirming her opinion, had taken up residence in London, working only part-time in Dubai and was no longer employed by the same firm.
[86] In my view, the legal opinion of Mr. Al Hosani concerning the requirements of Dubai law in order to complete the transaction “as per” the Reservation Forms conclusively demonstrates that the failure to provide Nadi International with a funded escrow account was a breach of the Amended Pledge Agreement.
Standard Forms
[87] The suggestion that the Reservation Forms were merely “standard forms” which should not be taken out of context also holds no water.
[88] It is true that the Reservation Forms were “standard forms” in use in Dubai. Indeed, the only opinion on those standard forms – that of Mr. Al Hosani – was that under Dubai Law, the forms as completed indicate that that purchase price has actually been placed into escrow. This is precisely what Mr. Nadiloey believed upon reviewing them and precisely the normal and natural conclusion that a reader would form in reviewing them.
[89] Whether standard forms or no, the important point is that the standard forms were filled in. They were filled in with information that clearly suggested an entirely different state of affairs than that which existed.
[90] The defendants suggest that the transaction simply an instance of “payment in kind”. The “standard forms” employed were simply the ones normally used and were nearest to hand. That may even have been so, but there was no need to populate the forms with such superfluous details as an actual escrow account number and “Escrow Unit Reference Number” unique to the unit as well as to make repeated references to a specific purchase price in each case described as being “paid” unless there was an intention to deceive. Value might have been a requirement for transfer tax purposes, but in such case would have been superfluous on all but the registered documents. The inclusion of such superfluous details – if the agreement were as described by the defendants – is entirely inconsistent with the intent suggested by the defendants.
[91] The mere fact that a form employed is a standard form does not liberate the author from responsibility for its content, particular when deciding to populate the fields of the form with data which alone or in combination with other data makes a statement which is materially misleading or wrong. It would have been possible to leave the irrelevant boxes on the form empty or to have inserted “not applicable” or words to similar effect. This was not done. Instead, words like “paid” and “payment made” were juxtaposed with “payable to escrow account” and a unit-specific escrow account reference number at that.
[92] The act of filling in a form reflects – at least as regards the fields filled in – a choice. Where the choice is made to populate a form with irrelevant details that can only reasonably suggest a state of affairs that is untrue, the conclusion of fraudulent intent will not lag far behind.
[93] Most damning, in my view, is the fact that the text box entitled “Escrow Unit Reference No.” was filled in with a unique number for each of the two units. There can be no innocent explanation for having included the “Escrow Unit Reference No.” on the form if nothing was being placed in the escrow account for the credit of these two specific units.
[94] The fact that Amended Pledge Agreement required a closing “as per” a Reservation Form which included a reference to a unique escrow sub-account associated solely with the units being conveyed rather conclusively conveys the implication that the amount shown as “paid” were required to be “paid” into that designated sub-account as no other purpose could be served by including such unique information.
Commercial Sense
[95] The defendants claim that it would have made no commercial common sense for them to fund an escrow account. Had they the liquid funds, they argue, they should surely have simply paid the plaintiffs and saved the “valuable” asset which was the Bella Vida condominiums for themselves.
[96] Three objections come to mind.
[97] Firstly, the idea that the Bella Vida condominiums were an asset the defendants were sorry to part with is hardly one that I am prepared to accept at face value without some tangible confirming evidence. The evidence rather suggests the project was in considerable trouble and the defendants were only too happy to be able to monetize their interest in it. The defendants have introduced no evidence to dispel that suggestion. Mr. Safari’s evidence on cross-examination consisted primarily of self-serving statements or refusals to give information. His claim that these assets were valuable strikes me as particularly tending towards the former category given that he left Dubai a few weeks after completion of his deal with the plaintiffs and his former Dubai businesses were soon thereafter besieged by creditors with unsatisfied judgments.
[98] Secondly, even if there were value in the purely hypothetical un-built condominiums at the time of transfer (May/June 2009), this does not mean that this value could have been readily extracted from the company in which it resided (Bella Vida) and transferred to where it was needed (Canada) simply because Mr. Safari and Mr. Talebi had interests in both. Moving assets between affiliate companies across international boundaries raises numerous tax and corporate law issues which may well have stymied attempts to do so.
[99] Third, despite the Mr. Safari’s repeated boasts that Nadi International could have sold the units at a profit, the suggestion is simply not credible. Absent security in the form of a funded escrow account as required by Dubai law, there is no reason to expect that any purchaser would have paid any amount of money for the right to buy an interest in a purely paper building under an agreement that had failed to comply with local legal requirements. Escrow protects the buyer against the risk of non-completion and that is precisely the risk that Dubai law required developers to protect them from.
[100] I cannot accept the suggestion of value residing in the unsecured right to receive the condominiums where the suggestion is grounded solely in the potential existence of a greater fool.
[101] The Bella Vida development in fact withered on the vine unfinished and there is no evidence of some “novus actus interveniens” that converted an allegedly valuable asset into the disaster it has since been revealed to be. The defendants disclaimed any knowledge as to what happened to Bella Vida after Mr. Safari and Mr. Talebi cut ties with it – a less charitable description might be that they cut and ran from it and the fact that it sunk beneath the waves soon thereafter does not lend credence to its alleged value in June, 2009.
(ii) Did the Defendants Fraudulently Misrepresent the Existence of the Escrow Account?
[102] The tort of fraudulent misrepresentation requires proof of (i) a false representation of fact; (ii) made with knowledge of its falsehood, recklessly or without belief in its truth; and (iii) with the intention that it be acted upon by the complaining party; and (iv) detrimental reliance by the complaining party: Carom v Bre-X Minerals, (2000) 2000 CanLII 16886 (ON CA), 51 O.R. (3d) 236 (C.A.) at para. 43.
[103] The Reservation Forms and the documents subsequently executed in order to complete the “transfer” of the un-built condominium units to Nadi International contained a representation that an escrow account had been funded with the stipulated purchase price (in AED) of the two units in question. That is the opinion of a Dubai law expert (Mr. Al Hosani) and it is my own conclusion based upon the plain meaning of the language employed in the documents. Since no such escrow account was in fact ever funded, that representation was false and the first element of the test is satisfied.
[104] Mr. Safari did not sign the Amended Pledge Agreement. He did however execute the Reservation Forms attached to it. His cross examination makes it clear that Mr. Safari had full knowledge of the forms being used and the lack of an escrow account. Furthermore, Mr. Safari signed the documents of June 2 and June 15 which completed the transaction. Having read the entirety of the transcripts of his examinations, I accept that his knowledge is established. Mr. Safari knew what the documents provided and knew that no trust account had been funded. He certainly knew that Mr. Nadiloey believed the account to be funded and the only purpose in having prepared the forms in the manner they were prepared was to create just that false impression.
[105] Mr. Talebi was Mr. Safari’s partner in Bella Vida and, according to Mr. Safari, was the party who actually prepared or directed the preparation of the closing documents. While he filed no affidavit and was not examined, his knowledge of the false representation cannot be gainsaid. I have no hesitation in finding that he had knowledge that the representations contained in the documents regarding the escrow account were untrue since no such account had been funded.
[106] Mr. Yahyavi’s offensive and vulgar comments quoted by Mr. Nadiloey on his cross-examination also demonstrates that he was aware that the defendants had taken advantage of the plaintiffs. Unfortunately, it does not provide any details as to when he became aware of that fact. He provided affidavit evidence and was cross-examined on it, but I have found nothing in either relevant to this issue and counsel did not refer me to any passages. His evidence appears to have been restricted to the defendants’ counterclaim.
[107] On the other hand, Mr. Yahyavi, Mr. Tehranchi and Mr. Soheila all signed the Amended Pledge Agreement. As shareholders of 217, parties to the Amended Pledge Agreement and as parties to all of the agreements that preceded it all of which sought to deal with the serial defaults of the defendants in discharging their obligations to Nadi and Mr. Nadiloey arising from the purchase of his interest in the Campus 2000 lands, they would have had knowledge of what internal arrangements the defendants had made among themselves to find the funds necessary to discharge their obligations to the plaintiffs under the Amended Pledge Agreement. None of these filed any evidence disclaiming knowledge. Accordingly, I find that I can infer from this evidence that they knew they had signed the Amended Pledge Agreement that, by its terms, provided for a funded escrow account, they must have known that Mr. Nadiloey and the plaintiffs drew that same conclusion and were acting upon it, and they would have known from their own internal agreements whether any of them had in fact funded almost $800,000. I find that they all had the requisite knowledge using the toolbox of Rule 20.04(2.1) of the Rules of Civil Procedure.
[108] It is noteworthy that the only evidence any defendant put forward on the motion for summary judgment of the plaintiffs was that of Mr. Safari and, as noted, his evidence leaves me entirely convinced of his fraudulent intent. The plaintiffs’ affidavit evidence and Statement of Claim all clearly attribute fraudulent intent to all of them and they have not responded separately. Charged with putting their best foot forward, they chose to stand mute and deny. All benefitted from the reliance placed upon the false representation contained in the Reservation. I infer from the foregoing that, at the very least, each of these three individuals knew or were reckless to the fact of the fraudulent misrepresentation made on their behalf and of the plaintiffs’ reliance upon it.
[109] Given my findings in relation to the other three criteria of fraudulent misrepresentation, I have little difficulty in inferring that each of the defendants intended the misrepresentation to be relied upon by the plaintiffs in precisely the manner that occurred.
[110] The following factors reinforce my finding that each of the defendants intended such reliance by the plaintiffs:
a. The use of the false postal box address for Mashreq Bank strongly suggests that someone (and the evidence is that Mr. Talebi filled in the form) wished to ensure that inquiries about the escrow account – if made – would be safely intercepted;
b. The pervasive use of the phrases “payable to: escrow account” and “paid” or “payment made” throughout the documents used to effect the transfer of the condominium units in circumstances where a “payment in kind” transaction as suggested by the defendants would have required no such details;
c. The insertion of an escrow account number coupled with the provision of a unique Unit Reference number;
d. The fact that Mr. Safari and Mr. Talebi were both carrying on business and were the directing minds of Bella Vida who must have known that Dubai law required an escrow account and thus appear to have gone to great lengths to appear to comply with Dubai law while actually flouting it.
[111] People may be taken to intend the natural and normal consequences of their actions. The documents used to satisfy paragraph 3 of the Amended Pledge Agreement viewed as a whole unmistakably conveyed the impression that an escrow account existed and had been funded with the full amount of the purchase price for the two units. All of the defendants knew or ought to have known that was untrue and all of the defendants benefitted from the reliance of the plaintiffs on the appearance these documents created. In my view, all of the elements of fraudulent misrepresentation are established.
[112] 217 is bound by the actions and knowledge of the individuals who were its shareholders, officers and directors and was also a party to the Amended Pledge Agreement and beneficiary of the release by the plaintiffs of the collateral mortgage.
[113] The fourth element of the test similarly poses little difficulty on the evidence before me. Acting upon the belief induced by the documents that an escrow account had been funded and thus that the condominium units had been transferred in accordance with the Amended Pledge Agreement, the plaintiffs proceeded to release the collateral mortgage and personal guarantees. The guarantees were released in September, 2010 and the collateral mortgage was assigned back at the defendants’ direction in April, 2010, thereby completing the fourth element of the tort (detrimental reliance).
[114] Accordingly I find that the defendants fraudulently misrepresented to the plaintiffs the status of the escrow account and their consequent undisclosed breach of the Amended Pledge Agreement. They did so with the intent that the plaintiffs would rely on this misrepresentation in accepting the defendants’ purported compliance with s. 3 of the Amended Pledge Agreement and thereby releasing the various securities that were released thereafter. This reliance in fact occurred and the personal guarantees and covenants of the defendants were released and the collateral mortgage was assigned and then discharged.
(iii) Appropriate Remedy – Return of the fruits of Fraudulent Misrepresentation
[115] The object of the fraudulent misrepresentation scheme perpetrated by the defendants was that the plaintiffs should act as if the defendants had discharged their obligations under the Amended Pledge Agreement when in fact they had not. The principle of damages is to return the innocent party to the position they would have occupied had the wrong done to them not occurred. In this case, that would entail restoring to Nadi the securities that it possessed under the Pledge Agreement which it discharged in reliance upon the fraudulent misrepresentation (i.e. the collateral mortgage and pledges of the shares of 217 and the personal guarantees/covenants). Under s 9 of the Amended Pledge Agreement, had the transfer of the condominium units pursuant to s. 3 thereof not been completed by June 15, 2009, the Amended Pledge Agreement would be void and the parties would revert to their rights under the Pledge Agreement.
[116] Any approach to remedy, therefore, must start from the position that the plaintiffs are entitled to be where they would have been had the fraud not occurred. The starting point is thus that the Amended Pledge Agreement became void in accordance with its terms as of June 15, 2009 and the rights of the parties should thus be determined by reference to the Pledge Agreement.
[117] Clearly, the court cannot return the status quo ante in its entirety. The collateral mortgage was discharged and other interests in the Campus 2000 lands have intervened. The interim settlement resulted in securities (cash and a mortgage) being posted in substitution for a CPL. This latter event at least makes the task of putting the egg back in the shell somewhat easier, at least if the securities posted are adequate to answer the judgment the plaintiffs are entitled to receive.
Disposition
[118] The plaintiffs’ Notice of Motion seeks the relief claimed in paragraph 1 of the Statement of Claim plus orders directing the release or enforcement of the securities posted under the interim settlement under which the caution was removed.
[119] Having regard to my findings above, I find that the plaintiff is entitled to judgment against the defendants pursuant to paragraph 1(a), (b), (c), (e), (g) and (h) of the Amended Statement of Claim herein (subject to my comments below regarding pre-judgment and post-judgment interest and costs).
[120] In addition, the plaintiffs are entitled to the orders requested in paragraph (b), (c) and (d) of their Notice of Motion dated December 23, 2014 (without duplication in the case of (d)).
[121] On the matter of interest chargeable, the Amended Pledge Agreement provided (in s. 9) that it would have been void had the defendants failed to convey the condominium units “as per” the Reservation Forms in s. 3. I have found that the effect of the fraud perpetrated in this case was to mislead the plaintiffs into believing that s. 3 had been complied with when in fact it had not. As the perpetrator of fraud should not be permitted to enjoy the fruits thereof, the normal outcome of this ruling would be a finding that the Amended Pledge Agreement became void on June 15, 2009. Upon the Amended Pledge Agreement becoming void, the Pledge Agreement would govern and that agreement provided (in s. 4(ii)) for a 12% interest rate. The Statement of Claim seeks only a 6% interest rate the basis for which I have been unable to determine. The correct interest rate for both pre-and post-judgment interest in this case would appear to me to be 12%.
[122] Accordingly, I am directing the parties to provide me with written submissions (restricted to five pages each) as to the applicable pre-judgment and post-judgment interest rate having regard to my findings. If necessary, I will entertain a written motion to amend the Notice of Motion and Statement of Claim accordingly as to this one issue. The plaintiffs should deliver their submissions within fourteen days and the defendants within fourteen days thereafter if the parties are not able to work this out between them.
[123] While fraud is alleged and proved in this case, I have not found it to be a case calling for punitive damages. The fraud was discovered relatively early and its nefarious impact was soon mitigated by the swift action of the plaintiffs in seeking a CPL which resulted in security being posted. The imposition of substantial indemnity costs plus interest is, in my view, an adequate response.
[124] The parties came to the motions for summary judgment without outlines of costs. This is regrettable. Our masters courts are overburdened as it is without having the added burden of taxing costs on motions when same could and should have been brought before the court disposing of the matter. The practice of this court is to fix costs on motions wherever and whenever this can reasonably be done.
[125] I have awarded costs on a substantial indemnity basis for the action and the motion (without duplication). I am aware that the plaintiffs have received some costs awards which - albeit with delay – have been paid. Clearly costs of the action cannot duplicate costs already awarded. I direct the plaintiffs to deliver their submissions on costs and a costs outline to the defendants within fourteen days of the release of these reasons. The defendants are to have fourteen further days to respond. Submissions in each case are to be limited to three pages exclusive of the outlines of costs. The plaintiff is directed to collect these submissions and remit same to my assistant via emailed pdf with a copy to the defendants.
[126] While it may be a purely hypothetical outcome, it seems to me that upon satisfaction of the judgment the plaintiffs have obtained, the defendants ought to be entitled to an assignment of whatever rights are enjoyed by Nadi International Ltd. under the judgment issued by the Dubai court.
Sean F. Dunphy, J.
Released: May 28, 2015
COURT FILE NO.: CV-11-437640
DATE: 20150528
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Nadi Inc. and Nadi International Ltd.
Plaintiffs
– and –
Dariush Montazemi-Safari a.k.a. Daryoosh Montazami Safari a.k.a. Hussien Safari a.k.a. Seyed Hossein Mo Ontazemi Safari, Hassan Tehranchi a.k.a. Harry Tehranchi, Aboutaleb Shokrollah Talebi, Saeed Yahyavi, Cheragh Sahar Soheila and 2179548 Ontario Inc.
Defendants
REASONS FOR DECISION
Sean F. Dunphy, J.
Released: May 28, 2015
[^1]: As will be seen, by the time of closing changing exchange rates had reduced that value of the transaction from $900,000 to $776,750.50, necessitating a “top up” payment of the difference which was paid in September, 2009.
[^2]: Both the undated “New World” Reservation Forms attached to the May 14, 2009 Amended Pledge Agreement and the June 2, 2009 “Bella Vida” Reservation Forms later executed by the parties in substantially identical language.