NEWMARKET COURT FILE NO.: CV-10-101248-00 SR

DATE: 20151204

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

STREAM EXPRESS INC.

Plaintiff

– and –

ROTSHELD RAKHNAYEV, YURY RAKHNAYEV, and 2020494 ONTARIO INC. c.o.b. as RBA FINANCIAL GROUP

Defendant

AND BETWEEN:

2020494 ONTARIO c.o.b. as RBA FINANCIAL GROUP

Plaintiff by Counterclaim

• and –

STREAM EXPRESS INC.

Defendant by Counterclaim

F. Scott Turton, for the Plaintiff

George Corsianos, for the Defendant

HEARD: December 2, 2015

EBERHARD J.

[1] Trial by Simplified Procedure was efficiently presented based on affidavit evidence with cross-examinations completed thoroughly and effectively in a timely manner.

[2] In 2008, Steam Express Inc., a trucking business, entered into a factoring contract with RBA Financial Group. The contract was terminated amicably in December 2008. Thereafter RBA Financial Group received numerous cheques from Steam Express’s customers. Of monies thus received, $57,450.00 was not turned over to Steam Express. The quantum is not in dispute.

[3] Steam Express demanded the funds. RBA Financial Group refused on the basis that they were applied to an oral consulting contract and to outstanding obligations owed by Steam Express to RBA Financial Group under the factoring contract.

[4] Trial was necessary because the disputed facts engage an assessment of credibility of the two individuals who dealt with each other: Gurmail Singh Nirman, president of Steam Express; and Michael Raknayev, chief financial officer of RBA Financial Group. Michael Raknayev is brother to named Defendant Rotsheld Rakhnayev and son of named Defendant Yuri Rakhnayev, who are the directors of 2020494 ONTARIO INC. c.o.b. as RBA Financial Group.

[5] I relied very little on in court demeanor as both witnesses are from cultural groups whose nuances of expression I am unable to share. Rather, I relied principally on the consistency of the witness’ testimony with the known facts and the documentary evidence.

[6] Gurmail Singh Nirman testified that he eventually learned from customers he pursued for payment for invoices sent after December 2008, that RBA Financial Group continued to receive some cheques. He explained that he had missed sending notice to some customers to send payments directly to Steam Express rather than RBA Financial Group, particularly those with whom he did not have regular work. Nor did he pursue repayment from RBA Financial Group aggressively at first. During 2009 and 2010 Mr. Nirman had continued dealings with Michael Raknayev with a view to Mr. Nirman finding factoring clients for RBA Financial Group in the Sikh community where he was well connected. He incorporated a separate company to do this. He expected a finder’s fee. When he did provide a referral, RBA Financial Group did not pay. For Mr. Nirman the ongoing good relationship was soured and he then more aggressively demanded payment of all the monies RBA Financial Group had received from Steam Express customers after 2008.

[7] Rotsheld Rakhnayev, president of RBA Financial Group, had little to do with Mr. Nirman, trusting his brother to manage the relationship and the accounting associated with it on behalf of RBA Financial Group. Yury Rakhnayev had nothing whatever to do with Mr. Nirman or any dealings. The evidence they gave did not bear on my findings of credibility. I do find without hesitation that neither of these directors had knowing assistance or knowing receipt as contemplated in the test for personal liability set out by the Supreme Court of Canada in Citadel General Insurance Co. v Lloyds Bank Canada, [1997] 3 S.C.R. 805. It may be inferred that Rotsheld Rakhnayev would become aware of the issue once the dispute matured to litigation but there is no evidence of participation in the circumstances as they developed.

[8] Michael Raknayev testified that the termination of the factoring agreement was amicable because at the same time he entered into an oral agreement with Mr. Nirman that for $50,000 consulting services would be provided to help Mr. Nirman set up his own factoring business using RBA Financial Group software and knowhow. Recognizing that Mr. Nirman did not have the funds, payment would be taken from continuing payments to RBA Financial Group by Steam Express’s customers. Which payments RBA Financial Group would retain would be at Mr. Nirman’s discretion. Though he arranged for Mr. Nirman’s incorporation of a company and provided a disc setting forth the RBA Financial Group system and credit information which could be installed anytime by RBA Financial Group technicians, Mr. Nirman failed to move forward on the business.

[9] Michael Raknayev further testified that Steam Express owed obligations on the factoring contract that was terminated in December 2008. These obligations consisted largely of a set-up fee for the commencement of the factoring arrangement and further charges. No payment for these items was claimed during the currency of the factoring contract.

[10] Taken together, Michael Raknayev asserts that the obligations owed by Steam Express to RBA Financial Group exceed the customer cheques retained by RBA Financial Group after the factoring contract was terminated.

[11] I reject the evidence of Michael Raknayev. It is incongruent with known facts. Other evidence readily available to the Defendant but undisclosed to the Plaintiff could have been put forward to support Michael Raknayev’s version of events. I draw an adverse inference by the absence of such supporting evidence. The incongruent version of events put forward by Michael Raknayev and the late timing of his explanations, demonstrate they are patently invention to avoid repayment of funds received by RBA Financial Group from customers of Steam Express when RBA Financial Group had no right to those funds.

[12] Among the reasons why I do not accept Michael Raknayev’s version are the following:

(a) The factoring agreement was meticulously documented as required by RBA Financial Group. Mr. Nirman says the set-up fee of $10,000 was not in the document he signed and his signature was cut and pasted, though he freely acknowledged the personal guarantee signed on a different page. The original signed document in the control of RBA Financial Group was not produced to refute the assertion. Michael Raknayev deposed that Mr. Nirman took two days to think about the set-up fee and personal guarantee before advising he was willing to proceed. I find it inconsistent that Mr. Nirman would take pause to consider a fully defined written commitment to pay $10,000 for a set-up fee to RBA Financial Group but agree to be bound to a commitment of $50,000 for a much less clearly defined obligation to provide consulting services. To be sure, they were friendly, referred business to each other and had at least one acknowledged oral agreement of that nature, but Mr. Nirman does not strike me as a man who would let go of $50,000 on a handshake.

(b) Neither the $10,000 set-up fee nor expenses now claimed for legal fees, share of credit check expenses, web application set up or PPSA discharge fee were ever raised or charged during the currency of the factoring agreement. Nor were they averted to in any way at the amicable termination of the factoring agreement. The release specifically stated “Please be advised that RBA Financial Group Inc. have concluded their receivables agreement and RBA has no further interest in the Receivables of Steam Express Inc.” Nor were they mentioned when repayment of customer cheques was demanded by Mr. Nirman and then formally by his lawyer in a 2010 letter that invited “If there is a reason that you have not remitted these payments to my client, please send me a letter in the next five days setting out that reason. Otherwise, please ensure that the sum of $30,250 is received by myself, or Steam Express Express Inc. by 7 September 2010.” Nor were they mentioned in the first Statement of Defence. Only when Steam Express amended its Statement of Claim adding three additional cheques totaling $13,500.00, so other pretexts failed to add up to the quantum of the Plaintiff’s claim, were these fees asserted. That conduct causes me to doubt the existence or validity of the asserted fees quite apart from Mr. Nirman’s denial that he signed the clause in the contract upon which the Defendant relies.

(c) Michael Raknayev protests that the release issued on termination of the factoring agreement was to give something for Steam Express to send notice to their customers that they were now to pay Steam Express directly and asserts that Steam Express not sending that notice to some customers was because Mr. Nirman intended payments from some customers to be sent to RBA Financial Group to apply to the obligations of Steam Express. I prefer the evidence of Mr. Nirman that in his small company some customers were not sent notice through inadvertence and particularly those customers who were not regulars. He did eventually pursue payment from these customers but it took him considerable time to do so. I find this was due to sloppiness in business practice. Then, when he discovered that RBA Financial Group had received cheques he pursued RBA Financial Group. I accept that he was not aggressive initially as he and Michael Raknayev were discussing further business relations, Michael Raknayev promised payment and did pay some invoices over and information received from at least one customer was consistent with his faith in Michael Raknayev as the customer was told the payment would be turned over. However that payment never was.

(d) Throughout the factoring agreement the parties followed a system wherein Steam Express’s invoices were sent out by RBA Financial Group with an RBA Financial Group stamp requiring that payment be made to RBA Financial Group. The funds were collected by RBA Financial Group and applied to the Steam Express account. By way of contrast, when the cheques came in after the termination of the factoring agreement, the invoices had gone out directly from Steam Express to its customers and RBA Financial Group had no invoice to refer to. It is acknowledged that some cheques that came in were mis-allocated to other RBA Financial Group clients and not discovered until three years later when Steam Express amended its Statement of Claim and RBA Financial Group went back through its records.

Absent in this arrangement was any means for Steam Express or RBA Financial Group to know which customers of Steam Express were paying their bills. Michael Raknayev said he and Mr. Nirman were in “daily communication by phone. He would say I sent out invoices. He knew what was coming in. One time he knew $18,000 was coming in, he wanted it and we sent it to him.” This is so incongruent with the purpose and operations of a factoring service as to be ridiculous that Michael Raknayev would rely on such a system now that the factoring contract was finished and the funds arriving were to the benefit of RBA Financial Group.

(e) Michael Raknayev and a bookkeeper were the accounting department for RBA Financial Group. The Defendant asserts that cheques received from Steam Express customers were being applied towards Steam Express’ indebtedness on the factoring contract and the $50,000 consulting fee. In addition to acknowledged mis-allocation of cheques to the wrong client, there is a complete absence of records showing allocation to these asserted obligations.

Michael Raknayev described that RBA Financial Group daily receives 1000s of cheques on different basis or terms so when a cheque comes in, they process, record them by individual contract, allocate to books, then put them into the bank. He testified the Steam Express cheques in issue went into the bank after they were allocated to Steam Express’s consulting agreement and outstanding debt

Michael Raknayev, when confronted, proclaimed such records the private information of RBA Financial Group and irrelevant to the issues before the court. Michael Raknayev has university degrees in accounting and finance. It is impossible that he does not know the importance of bookkeeping entries to demonstrate what happens to monies coming in and going out. It is impossible that funds could be allocated without having specific records, contemporaneous with the receipt of funds. I draw an adverse inference from the testimony that the records exist but were not disclosed. This could merely be an inference that the records would not support the Defendant’s case. I infer instead that the records do not exist because the allocation did not occur as described by Michael Raknayev.

(f) As to the details of the $50,000 oral consulting agreement Michael Raknayev testified there were 3 components: first the software designed by RBA Financial Group; second provide for the incorporation and market materials and business cards; and thirdly the statistical information on debtor payment trends. He testified that the software was given to Mr. Nirman but it was never installed because of Mr. Nirman’s failure to set up an office. He testified that some third party in their network did the incorporation. This evidence is unsupported by evidence from any third party. Undisclosed evidence of about business cards was inadmissible and no other business materials were proven. The statistical information was part of the software. He also indicated he and Mr. Nirman had many conversations which he asserted were the consulting advice. I prefer the evidence of Mr. Nirman that he did his own incorporation. I also find that the discussions, the software, the information were equally consistent with Mr. Nirman’s testimony that the purpose was for him to serve as RBA Financial Group’s agent to bring in factoring clients from the Sihk community for a fee. The evidence is that the factoring business is highly competitive. Mr. Nirman’s evidence of the purpose of their ongoing discussions is consistent with their mutual business interest. Setting up Mr. Nirman as a competitor is not.

In any event, I find the alleged services of the consulting agreement version are unperformed. Moreover, in the absence of solid evidence there is no reason to find that Steam Express was party to the agreement rather than Mr. Nirman in his personal capacity. Even if I accepted that Mr. Nirman authorized payment from funds owing to Steam Express, his wholly owned company, I am not persuaded that his discussions with Michael Raknayev intended Steam Express as the contracting party. Indeed, a separate corporation was contemplated and set up for whatever it was they had in mind.

[13] As the list grows longer of incongruence in Michael Raknayev’s evidence I turn to two pieces of evidence that challenge Mr. Nirman’s credibility.

[14] The first is addendum 3 to the factoring contract which calls for a $10,000 set up fee. I do not rely on his protestation that he did or did not sign this. His further evidence is that he signed the many paged document where directed to sign. I have drawn an adverse inference form the failure of the Defendant to produce the original of a challenged document in its control but that does not get us to a positive finding. I then turn to the external circumstance that the factoring business is highly competitive. I further turn to the evidence that during the currency of the agreement nor for several years afterward did the Defendant make any claim for this fee. I find that the conduct of the Defendant belies its assertion that this contractual right at all times existed. Assertion of that right arose so late and so conveniently to match the quantum of the Plaintiff’s claims that I doubt its validity from the start.

[15] The second troubling evidence is a series of emails in March and April 2010. In both, Mr. Nirman was demanding payment. On Mar 24 12:26 pm Michael Raknayev seems to write “I will let you know. However. I may apply this cheque for the money you owe re the consulting agreement.” Mr. Nirman appears to have responded at 12:31 “I really need the money asap maybe use another cheque”. Michael Raknayev does use the words “consulting agreement” and Mr. Nirman does not correct him. Nor is this addressed in Mr. Nirman’s subsequent reply affidavit.

[16] On April 9, 2010 10:28 am Mr. Nirman appears to write: “HI, MICHAEL, GOOD MORNING HERE MY PAYMENTS FROM MY CUSTMERS PLEASE PAY ME ASAP” to which Michael Raknayev seems to respond at 10:46 “I told you these cheques will be applied for the consulting agreement!!!”

[17] Mr. Nirman denies these are his emails. Perhaps not, perhaps so, I cannot know. But they are clearly volleys in a battle forming about the dispute now before me. They lack detail to be determinative. There is damage to Mr. Nirman’s credibility in his failure to correct the reference to a “consulting agreement”.

[18] So, I assess evidence. I can accept some, all or none of the evidence of any witness. I remind myself of the deficits in Mr. Nirman’s testimony just mentioned. I weigh that against the testimony of Michael Raknayev which I had difficulty accepting in any aspect.

[19] I find, and there is really no dispute, that RBA Financial Group received $57,450 from the customers of Steam Express after the factoring contract was terminated. That is proven.

[20] To explain, the Defendants offered the juristic reason that the funds were applied to a $50,000 debt for services provided under an oral consulting agreement. There is no credible evidence to support the existence of that agreement. It is not proven.

[21] As to the $10,000 set up fee, even if it was included and signed in the factoring contract, which I do not need to decide, it was on the evidence of Michael Raknayev a matter of RBA Financial Group discretion whether to enforce the clause, they elected not to do so during the currency of the agreement, they terminated the contract amicably with no conditions expressed and they signed a release stating they had no interest in Steam Express receivables. I find that set up fee is not owed so provides no juristic reason for retaining Steam Express receivables.

[22] Further, the items claimed as expenses still owed under the factoring contract, are patently invention for the purpose of this trial. Michael Raknayev stated the expenses are sometimes charged to clients at their discretion. Here, they were charged in an effort to escape their own liability, long after the currency of the agreement and with the aforementioned release.

[23] The law was argued under the principles of unjust enrichment. I have just mentioned how the third part of that legal characterization was assessed and found that there was no juristic reason for RBA Financial Group to retain funds which retention constituted a benefit to RBA Financial Group and corresponding loss to Steam Express.

[24] There is no need to be so fancy in this judgment. RBA Financial Group kept payments from Steam Express’ customers to which they had no entitlement. RBA Financial Group has to pay it back

[25] Judgment to issue in favour of the Plaintiff against 2020494 ONTARIO INC. c.o.b. as RBA Financial Group in the sum of $57,540 together with pre and post judgment interest at the Courts of Justice Act rate.

[26] Parties may address costs by written submissions of no more than two pages together with offers and Bill of Costs forwarded to the judicial secretary in Barrie as follows: January 15, 2016 for the Plaintiff, January 22, 2016 for the Defendant and January 26, 2016 for reply.

EBERHARD J.

Released: December 4, 2015