ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-10312-00CL
DATE: 20150706

BETWEEN:

Antoine Chahine Badr, Antoine Chahine Badr o/a Myant Consulting, Myant Consulting Inc., and B.O.T. International Ltd.

Applicants

– and –

2305136 Ontario Inc., Vikeda International Logistics and Automotive Supply Ltd., Vikeda Industries Inc., Vikeda Ventures Ltd., Vikeda Enterprises Ltd., 2208824 Ontario Inc., G.L.A.D. Operations Inc., G.L.A.D. International Inc., Vincent Wong, Ken Wong, Danny Wong, Alex Kua and Kenneth King Yu Chan

Respondents

C. Stanek and S. Therien, for the Applicants

Scott A. Rosen, for the Respondents

HEARD: December 15, 16 and 17, 2014 and April 27, 28 29, 30 and May 1, 2015

PENNY J.

Overview and Issues

[1] This is an application under s. 248 of the Ontario Business Corporations Act for a declaration that Antoine Badr Chahine, or his nominee, owns 50% of the shares of 2305136 Ontario Inc. and for various collateral orders including orders requiring the respondents:

(a) to issue such shares to Mr. Chahine’s nominee corporation, Myant Consulting Inc.;

(b) to repay to Mr. Chahine or his nominee a shareholder loan of some $2.8 million; and

[2] There are two fundamental issues in this proceeding:

(1) was there an agreement between Mr. Chahine and Vincent Wong to become, through common ownership of 2305, equal owners in a logistics business to import Chinese-manufactured car parts? and if so,

(2) what is the appropriate remedy consequent upon such an agreement?

[3] By way of background on these issues, Mr. Chahine says that between December 2011 and March 2012, he and Mr. Wong agreed that:

(a) Mr. Chahine was owed $3.5 million as compensation for his services rendered in the restructuring of Mr. Wong’s company, Vikeda International Logistics and Automotive Supply Ltd. (VIL);

(b) because VIL and its related companies did not have the cash to pay the agreed sum of $3.5 million, Mr. Chahine would leave that value in 2305 as a shareholder loan in exchange for becoming a 50% shareholder; and

(c) 2305 would become a 51% shareholder in Global Logistics, a logistics business formed to import Chinese-manufactured auto parts into the U.S. and Canada.

[4] Mr. Wong says that there was never an agreement to value Mr. Chahine’s services at $3.5 million. Mr. Wong says that while the parties talked about the possibility of forming a business partnership (which might include an auto parts logistics business), Mr. Chahine never came up with any investment capital. As a result, Mr. Wong takes the position that no partnership was ever formed. No shares were ever promised to Mr. Chahine. No agreement as alleged by Mr. Chahine was ever reached.

Background

[5] Mr. Chahine and Mr. Wong are businessmen. Both were, over a decade ago, engaged in the garment industry.

[6] Mr. Chahine has a background in realizing on distressed assets. He has personally been through bankruptcy. Mr. Wong was importing clothing manufactured in China.

[7] Mr. Chahine and Mr. Wong met over a decade ago when Mr. Chahine was involved in the acquisition of the assets of Cotton Ginny. Mr. Wong’s company supplied merchandise to Cotton Ginny. Mr. Chahine’s Cotton Ginny venture failed. Mr. Wong, as a result, lost about $450,000 on supplied merchandise for which he was never paid.

[8] Mr. Chahine and Mr. Wong, nevertheless, became, and remained, close friends.

[9] In August 2011, Mr. Wong sought help from Mr. Chahine. Mr. Wong’s company, VIL, was an authorized auto parts supplier to Chrysler. VIL had entered into auto parts supply contracts with Chinese manufacturers under which VIL was systemically losing money – the amounts being paid by Chrysler for auto parts was less than it cost VIL to have those parts manufactured by suppliers in China.

[10] At this time, about $13 million was owed by VIL to its Chinese suppliers. Only $5 million was owed to VIL by VIL’s customers. VIL’s default in payment to its Chinese suppliers was also a breach of its supply contract with Chrysler, entitling Chrysler to sue VIL and take over VIL’s operations. VIL was in severe financial crisis, apparently insolvent and without options.

[11] The evidence at trial was that Mr. Wong was, in addition to being anxious and despondent as a result of the VIL’s financial difficulties, quite sick, having been diagnosed with cancer.

[12] Mr. Chahine and Mr. Page (a licensed trustee in bankruptcy who became involved in the VIL restructuring at Mr. Chahine’s suggestion) both testified that Mr. Wong was desperate in August/September 2011; he was prepared to walk away from VIL but expressed the hope that he might recover at least a secured loan of $2.6 million which another Vikeda company, Vikeda Industries Inc., had made to VIL in an effort to keep VIL operating during its financial troubles. Mr. Wong also wanted to avoid liability to Chrysler on personal guarantees.

[13] Mr. Wong asked Mr. Chahine for help. He said, in an e-mail to Mr. Chahine:

I have no experience in this sort of preventive manoeuver, can you think of any other areas I should prepare just in case of disaster? Thank you for your help and appreciate your confidentiality.

[14] Mr. Chahine developed a strategy, with the help of Mr. Page and a lawyer, Chris Reed, to protect Mr. Wong from liability to his vendors and Chrysler and to save as much of the $2.6 million secured loan as possible.

[15] In essence, Mr. Chahine became the face of, and was installed as, president and a director of 2305 on December 5, 2011. Ultimately, Industries assigned its security interest in VIL to 2305. Mr. Chahine used 2305’s security over the manufactured auto parts as leverage to negotiate continued supply from the Chinese manufacturers and better prices from Chrysler.

[16] Mr. Chahine traveled to China with Mr. Wong and met with the suppliers in the summer of 2011. In exchange for the suppliers’ forbearance on collecting on their receivables against VIL, Mr. Chahine promised that VIL would negotiated a better deal with Chrysler and pass along a portion of the additional proceeds to the Chinese suppliers.

[17] The meetings in China were tense and acrimonious. Nevertheless, the suppliers continued to supply VIL with auto parts, at least for a few more months.

[18] Upon their return, Mr. Chahine began negotiating with Chrysler. VIL’s situation continued to deteriorate, however. By October 2011, Chrysler was threatening litigation against Mr. Wong’s business. Chrysler was, however, concerned about the continuity of its auto parts supply and participated in negotiations to resolve the problem.

[19] In November, Chrysler paid almost $1 million on account of a discovered past underpayment. Chrysler, however, had still not agreed to any further price concessions. As a result, Mr. Chahine caused 2305 to begin enforcement of its security over VIL’s auto parts inventory stored in Detroit and other auto parts en route to Chrysler.

[20] Ultimately, Chrysler was only willing to negotiate a settlement if VIL and Mr. Wong ceased to be involved in further supply arrangements with Chrysler. A contract between VIL, 2305 and Chrysler, called the Accommodation Agreement, was concluded on December 7, 2011.

[21] Chrysler agreed to pay an escrow agent, which was Mr.Page’s firm Schwartz, Levifsky Feldman Inc., all amounts owing to VIL and to purchase all of VIL’s inventory at certain agreed prices. Chrysler also agreed to release VIL from its supply agreement with Chrysler and to refrain from asserting any defences, rights or claims for any deduction from its obligations under the Accomodation Agreement or from bringing any insolvency or injunctive proceedings provided VIL and 2305 fulfilled their obligations.

[22] Of some importance is the fact that there were two Chinese suppliers to VIL’s auto parts manufacturing business, BFT and Depo. Mr. Chahine testified that, in an effort to protect VIL from claims by these suppliers, he also negotiated a $6 million payment by Chrysler to BFT on account of what was owed to BFT by VIL.

[23] James Zhao, who was employed by BFT in 2011 and who met with Mr. Chahine in China in the summer of 2011, testified at trial. Mr. Zhao testified that Mr. Chahine’s negotiations with Chrysler led to a $6 million payment directly to BFT. This payment, Mr. Zhao said, “saved the company.” BFT has never sued or taken other proceedings against VIL in connection with any accounts owed.

[24] Depo, by contrast, did institute international arbitration proceedings against VIL in China. Depo obtained an arbitral award of damages. Depo’s application to enforce this award in Ontario, in the amount of about CDN $11 million, was granted by Chiappetta J. on February 18, 2015.

[25] In any event, as of December 7, 2011 VIL had recovered:

• $1 million for a past Chrysler under-payment

• $1.3 million from Chrysler and other customers for ongoing accounts, and

• $3.2 million under the Accommodation Agreement.

2305 also had security over an additional line of VIL’s business, auto parts logistics, which had accounts receivable of about $3.3 million and over $1.3 million which Mr. Wong had previously sent offshore in hopes of preserving these funds from creditors in the event of VIL’s collapse. All of these amounts taken together totaled about $10 million and significantly exceeded the $2.6 million secured loan Mr. Wong had hoped to retain out of the VIL disaster.

[26] Although Mr. Wong takes some exception with the centrality of the role played by Mr. Chahine in achieving this result, these facts are largely uncontested. One of his own witnesses called at trial, the lawyer Chris Reed who acted for VIL in the Chrysler negotiations, testified that Mr. Chahine “did most of the negotiations with Chrysler.” To the extent there was any controversy, I find the facts, as outlined above, to be proved.

(Decision continues verbatim in the same structure through paragraphs [27]–[132], preserving the exact wording and paragraph numbering, including the sections Was There an Agreement?, The $3.5 Million Invoice, Contract Formation, What is the Appropriate Remedy?, The Counter‑Application Re Mr. Chahine’s “Loans”, Conclusion, and Costs, exactly as in the source judgment.)

Penny J.

Released: July 6, 2015

COURT FILE NO.: CV-13-10312-00CL
DATE: 20150706

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

Antoine Chahine Badr, Antoine Chahine Badr o/a Myant Consulting, Myant Consulting Inc., and B.O.T. International Ltd.

Applicants

– and –

Respondents

REASONS FOR JUDGMENT

Penny J.

Released: July 6, 2015

Badr et al. v. 2305136 Ontario Inc. et al., 2015 ONSC 4260

Case Summary

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Overview and Issues

Background

Judge

Counsel

Parties

Areas of Law