Court File and Parties

COURT FILE NO.: CV-09-383306 MOTION HEARD: 20160119 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: TARRA ENGINEERING INC., Plaintiff AND: BIJAN NAGHSHBANDI, Defendant

AND BETWEEN: BIJAN NAGHSHBANDI, Plaintiff by Counterclaim AND: TARRA ENGINEERING INC. and SHAHRAM HEIDARI, Defendants by Counterclaim

BEFORE: Master Lou Ann M. Pope

COUNSEL: Antony Niksich, MacDonald • Porter • Drees, for the plaintiff/defendants by counterclaim Paul D. Koven, Gertler & Koven, for the defendant/plaintiff by counterclaim Martin Greenglass, Burstein & Greenglass LLP, for proposed defendant by counterclaim: Tarra Engineering & Structural Consultants Inc.

Reasons for Decision

[1] The issue to be determined on this motion is whether the defendant, plaintiff by counterclaim, Bijan Naghshbandi (“Naghshbandi”), is entitled to leave to amend the statement of defence and counterclaim to add Tarra Engineering and Structural Consultants Inc. (“TESC”) as a defendant by counterclaim and to add a claim for monetary damages against the defendants by counterclaim.

Background

[2] This action involves a dispute between Naghshbandi and the defendant by counterclaim, Shahram Heidari (“Heidari”), who were childhood friends in Iran. Both of them are professional engineers. Naghshbandi’s education and background is in industrial engineering and Heidari’s is in geostructural engineering with an additional designation as consulting engineer.

[3] While both of them dispute most of the other’s evidence, the following is my best effort to set out the basic background facts.

[4] It appears that their business relationship dates back to at least 1998 when either Naghshbandi, or both of them, incorporated 1314147 Ontario Inc. operating as Tarra Engineering Company of Canada (“131 Inc.”), which provided engineering services. They were each 50 per cent shareholders in 131 Inc. Heidari’s evidence is that 131 Inc. ran as two distinct entities. He ran Tarra Engineering Company for contract employment services he provided and Naghshbandi ran Tarra Trading for businesses he was involved in in Iran.

[5] Also in dispute is where Naghshbandi resided between 1998 to December 2002 which is not relevant for the purpose of this motion.

[6] Heidari’s evidence is that in 2003 he purchased an engineering business from Tom O’Rourke. He states that on April 15, 2004, he incorporated Tarra Engineering Inc. (“Tarra Inc.”), the defendant by counterclaim, to carry out the business he purchased from Tom O’Rourke. The business was a very specialized nature in geostructural engineering which he wanted to ensure was separate from that of 131 Inc. However, it is Naghshbandi’s evidence that he and Heidari incorporated Tarra Inc. as evidenced from the articles of incorporation which lists both of them as incorporators and first directors. Their respective shareholdings in Tarra Inc. are also in dispute with Naghshbandi claiming to have a 50 per cent interest as he did in 131 Inc. and Heidari claiming that Naghshbandi had only a one share ownership.

[7] Naghshbandi states that in late 2008 he ceased to have any involvement with Heidari and Tarra Inc., other than as a shareholder, when he discovered that Heidari was operating Tarra Inc. in an improper, underhanded and clandestine manner for the personal benefit of Heidari. He states further that at no time did he assign or transfer his shares in Tarra Inc.

[8] Naghshbandi’s evidence is that Heidari refused to provide him with the financial and business records of Tarra Inc., refused to conduct shareholder meetings and withheld monies due and payable to him by Tarra Inc. He further claims that Heidari falsified corporate records to show that Naghshbandi had only a one per cent shareholder interest in Tarra Inc. and he forged his signature on a document which purported to transfer the one per cent shareholder interest to Heidari.

[9] Tarra Inc. commenced this action in 2009 seeking repayment from Naghshbandi of some $450,000 of funds allegedly loaned to him and not repaid.

[10] Naghshbandi denied being loaned any such monies. He counterclaimed against Tarra Inc. and Heidari for breach of contract, fraud, a declaration that he is the owner of 50 per cent of the outstanding common shares of Tarra Inc., oppressive conduct and sought relief pursuant to the oppression remedy provisions of the Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”), and other related relief.

[11] By order dated July 9, 2012, this action was ordered to be tried together with a related action commenced by Heidari against Naghshbandi.

[12] Naghshbandi set this action down for trial on August 16, 2012 and mediation took place on October 30, 2012.

[13] On August 30, 2013, as a result of a discovery motion brought by Naghshbandi and opposed by Tarra Inc. and Heideri, Master Hawkins ordered Tarra Inc. and Heidari to produce financial statements and tax returns of Tarra Inc. from 2004 to September 30, 2013. It was after those documents were produced in late September 2013 that Naghshbandi states he discovered that the revenue of Tarra Inc. had been declining each year with a drastic decline in 2012 of approximately 90 per cent to just over $100,000. These facts are the basis of this motion to amend to add TESC.

This Motion

[14] Naghshbandi filed his notice of motion in January 2015 originally returnable on June 11, 2015 when it was adjourned. It came back on for hearing on October 6, 2015 when it was adjourned by Master Mills in order for TESC to conduct cross-examinations of Naghshbandi which took place on November 25, 2015.

[15] In addition to the relief sought on this motion, Naghshbandi seeks leave to bring this motion pursuant to Rule 48.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended, as he set this action down for trial on August 16, 2012. To be accurate, Naghshbandi did not explicitly seek leave to bring this motion in the relief section of his notice of motion; however, in the “Grounds” section, he relied on rule 48.04 being the applicable rule and his factum addresses that issue.

Summary of Evidence

[16] It is Naghshbandi’s position that Heidari incorporated TESC for the purpose of depriving him of his financial interest in Tarra Inc. He further submits that Heidari wound down Tarra Inc. and transferred its business activities to TESC which now carries on the engineering business formerly carried on by Tarra Inc.

[17] His evidence to support these allegations includes the fact that after Tarra Inc.’s business records were produced in late September 2013, his counsel noticed a decline in revenue and after investigations it appeared that Tarra Inc. was no longer carrying on business. His counsel performed searches of the Professional Engineers Ontario’s website in January 2015 when it was found that Tarra Inc. was no longer licensed with the Professional Engineers Ontario. However, on cross-examination, Naghshbandi admitted that the professional license is held by the engineer not the company. In my view, it is clear based on the results of the search of the Licence Holder Directory under “Employer’s Name (as reported by licence holder)” of “Tarra Engineering Inc.,” there was no licence holder match for that company. I interpret that to mean that in January 2015, there was no licenced engineer registered or associated with Tarra Inc.

[18] However in the second search under Heidari’s name, the following statement appeared under “Employment Profile”:

Employment Information supplied by licence holder in PEO’s LE system: Employer Name: Tarra Engineering and Structural Consultants Inc.

[19] Further, a Corporation Profile Report of TESC provides that it was incorporated on December 3, 2009, which was shortly after this action was commenced and, Naghshbandi states, immediately before the drastic decline in revenue reported by Tarra Inc.

[20] Naghshbandi further alleges that Heidari has operated Tarra Inc. in a manner to deprive him of his shareholder interest in that company and to deprive him of his financial interest in the revenue generated by the engineering business activities of Tarra Inc.

[21] It is Heidari’s evidence that in or about October 2006, Naghshbandi ended his formal relationship with Heidari because Naghshbandi wanted to set up a new business as a contractor. Given a possible conflict of interest if Naghshbandi’s new company was to provide contracting services to Tarra’ Inc.’s customers, Naghshbandi resigned as a director of Tarra Inc. and transferred his one-share interest to Heidari. Heidari filed the affidavit of Ezat Zanganeh, sworn August 21, 2013, Tarra Inc.’s bookkeeper, who confirmed Naghshbandi’s resignation as director and transfer of share.

[22] Exhibits to Heidari’s affidavit include several documents, discussed below, which he states support his position that Naghshbandi had no involvement in Tarra Inc. as a director or shareholder subsequent to October 30, 2006.

[23] Regarding the “Disclosure Letter” which appears to deal with Naghshbandi’s income tax issues, he does not deny having signed the letter. On the fourth page under the heading “Tarra Engineering Inc. (Tarra), he stated:

. . . I was supposed to have transferred my shares in Tarra to Mr. Heidari and ceased to be a director. I remember signing documents for this purpose but I was not given copies. To my surprise my solicitor obtained a Profile Report on Tarra recently which shows me as a director. I do not know where documents are evidencing my transfer of shares and withdrawal as a director or what has been reported to CRA in this connection.

[24] However, it is Naghshbandi’s evidence set out in his supplementary affidavit sworn August 6, 2015, at paragraph 13, that he recalled signing a document in which he agreed that his shares in Tarra Inc. would be transferred to Heidari in the event certain conditions were met, which included resolving the outstanding issues with Canada Revenue Agency and an agreement on the purchase price of his shares. He further states that those conditions were never met and Heidari has not produced a copy of that document. Notably, Nashshbandi fails to state that he has not produced that document in this action yet he relies on it for his claim to 50 per cent shareholding.

[25] In my view, this letter combined with Naghshbandi’s evidence on this motion raise doubt regarding the issue of his status with Tarra Inc., both as an officer and director, and as a shareholder.

[26] The second document which is by Heidari is one page which contains handwritings, partly in English and partly in, it appears, Arabic. It is not signed or dated. In my view, that document is unreliable.

[27] Similarly, the third document is a RBC Royal Bank form entitled “Personal Statement of Affairs” which Heidari states was completed by Naghshbandi in November 2008 wherein he claimed no financial interest in Tarra Inc. Again, this document is unsigned. Naghshbandi denies preparing or signing it.

[28] Heidari states that after Naghshbandi’s resignation, he had no involvement as director or shareholder of the company and had only limited involvement with Tara Inc. through some contracting work and odd jobs that he provided to the company for which he was paid.

[29] Heidari’s evidence is that after he applied for the designation of consulting engineer in October 2009, he incorporated TESC to allow him to work in the engineering consulting field. While devoting a significant amount of his time to the new business in consulting engineering, he continued to provide his services at Tarra Inc. for work that was ongoing; however, his new focus was to build an engineering consultant business through TESC.

Leave to Bring Motion – Rule 48.04

[30] Rule 48.04(1) of the Rules of Civil Procedure set out the consequences of setting an action down for trial.

Subject to subrule (3), any party who has set an action down for trial and any party who has consented to the action being placed on a trial list shall not initiate or continue any motion or form of discovery without leave of the court.

[31] Subrule 48.04(2) sets out the instances where subrule (1) does not apply which do not apply to this motion.

[32] Naghshbandi set this action down for trial on August 15, 2012 and this motion was filed in January 2015. As there is no saving provision in subrule (2) applicable herein, I find that Naghshbandi requires leave to bring this motion.

[33] Having found that leave is required, I will now address the test to grant leave.

[34] The long-standing test for the granting of leave under rule 48.04(1) was enunciated in Hill v. Ortho Pharmaceutical (Canada) Ltd., [1992] O.J. No. 1740 (Gen. Div.). The moving party has the onus to establish that there has been a substantial or unexpected change in circumstances such that a refusal to make an order under rule 48.04(1) would be manifestly unjust. (also see Jetport v. Jones Brown Inc., 2013 ONSC 2740 (Ont. S.C.J. – Master), para. 4.)

[35] In March 2013, after the action had been set down for trial, Naghshbandi brought a motion for an order requiring Heidari and Tarra Inc. to answer questions taken under advisement, which was opposed by them. After a full hearing, Master Hawkins ordered Heidari and Tarra Inc. to produce the financial statements and tax returns of Tarra Inc.

[36] Naghshbandi submits that it was not until after the financial statements and tax returns were produced in the Fall of 2013 that he discovered the information that led him to conclude that Heidari had wound down Tarra Inc. and essentially transferred Tarra Inc.’s business to his new company, TESC.

[37] Heidari’s position is that Naghshbandi has led no evidence to establish that there has been a substantial or unexpected change in circumstances. He further submits that Naghshbandi failed to explain why he waited to bring his discovery motion until after he set the action down for trial in August 2012, and had he brought the motion before setting the action down, he would have learned the information he now relies on for this motion much earlier in the action.

[38] There is a great deal of conflicting evidence regarding the facts that gave rise to this action. For example, there is conflicting evidence regarding whether Naghshbandi requested the business records of Tarra Inc. from Heidari in the past. There is also conflicting evidence regarding one of the major issues as to whether Naghshbandi resigned as director of Tarra Inc. and transferred his share to Heidari, or the conditions and circumstances under which Naghshbandi may have agreed to resign and transfer his share. Moreover, there is conflicting evidence regarding the amount of shares Naghshbandi owned in Tarra Inc.

[39] I find Naghshbandi’s evidence credible regarding his requests for the business records of Tarra Inc. in the past and Heidari’s refusal to give them to him. I arrive at that finding because it is Heidari’s evidence that Naghshbandi resigned as director of Tarra Inc. in October 2006, yet Heidari opposed Naghshbandi’s motion for production of the business records from 2004. Heidari and Tarra Inc. were ordered to produce those records from 2004 to September 2013. In my view, given Heidari’s evidence that Naghshbandi resigned and transferred his share in 2006, Heidari has not explained why he did not give Naghshbandi the business records from at least 2004 to 2006.

[40] The fact that Naghshbandi delayed bringing his discovery motion until after he set the action down for trial is not a relevant factor on the issue of leave to bring this motion because Naghshbandi sought leave to bring his discovery motion which, it appears, was granted by Master Hawkins. Master Hawkins’ decision was not filed on this motion; therefore, any reasons he may have given on that point is not before me for consideration.

[41] In considering whether to grant leave, the court must also determine whether in doing so it would be manifestly unjust. This involves a consideration of prejudice to any party.

[42] In my view, none of the opposing parties adduced any evidence of prejudice if leave is granted. To be clear, TESC did not file any evidence on this motion. Heidari’s affidavit was sworn on behalf of Tarra Inc. and himself in his personal capacity. Heidari and Tarra Inc.’s submissions regarding prejudice relate to the motion to add a party. They submit that the action will be delayed and additional expense incurred. Frankly, there is simply no evidence that the action will be delayed given that the pre-trial and trial have not been scheduled. Delay alone does not amount to prejudice. Any additional expense argument relates to the motion to amend to add a party.

[43] For the above reasons, I am satisfied that Naghshbandi has demonstrated that there was a substantial and unexpected change in circumstances in the Fall of 2013 when he received the business records of Tarra Inc., which thereafter led him to the discovery of the financial status of Tarra Inc. and the existence of TESC. Therefore, having satisfied the test, leave is hereby granted to Naghshbandi to bring this motion.

Motion to Amend the Statement of Defence and Counterclaim

[44] Rule 26.01 of the Rules of Civil Procedure is the general rule regarding amendment of pleadings which states that:

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[45] Rule 5.04(2) of the Rules of Civil Procedure provides that:

At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such grounds as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[46] The authorities are clear that with respect to a motion to add a party under rule 5.04, the moving party has the onus to demonstrate that no prejudice will result from the proposed amendment that could not be compensated for by costs or an adjournment. If this test is met, it is mandatory that the court grant leave to amend pursuant to rule 26.01. The test also involves a consideration of whether the proposed claim is legally tenable, that it is in compliance with the rules of pleading, and is not barred by operation of the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B. This is so because the use of the word “may” in rule 5.04 gives the court discretion to allow the amendment to join a party despite the absence of non-compensable prejudice. (A. Mantella & Sons Ltd. v. Ontario Realty Corp. (2008), 2008 ONSC 23953, 91 O.R. (3d) 449, aff’d 2009 ONCA 115, at para. 12; Mazzuca v. Silvercreek Pharmacy Ltd. (2001), 2001 ONCA 8620, 56 O.R. (3d) 768 (C.A.), at para. 25)

Limitation Period

[47] The applicable limitation period is contained in section 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B:

Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[48] Section 5 of that Act addresses the requirements that must be considered to determine when a claim is “discovered”:

A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[49] Section 5(2) contains a presumption that a person with a claim is presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[50] Lastly, section 21 prohibits the addition of a new party to an existing action after the limitation period has expired.

[51] The authorities are clear that when a party is seeking to apply the discoverability rule, the court should afford a degree of latitude to that party before declaring that the limitation period has begun to run. In practical terms, the question is not whether the moving party believes, for example, that his injury meets the criteria but whether there is a sufficient body of evidence available to be placed before a judge that, in counsel’s opinion, has a reasonable chance of persuading a judge, on the balance of probabilities that the injury qualifies. Therefore, when such a body of material has been accumulated, then and only then should the limitation begin to run. (Wong v. Adler (2004), 2004 ONSC 8228, 70 O.R. (3d) 460 (S.C.J.))

[52] The authorities are also clear that it is not appropriate for a motions judge or master to resolve a limitation issue where the application of the discoverability rule is central to its resolution, for the following reasons. It is a question of fact when the cause of action arose and thus when the limitation period commenced. The applicability of the discoverability rule is premised on the finding of these facts; that is, when Naghshbandi discovered that he had a cause of action against TESC or, when through the exercise of reasonable diligence, he ought to have known he had a cause of action against TESC. These facts constitute genuine issues for trial and as such, it is not appropriate for a motions judge or master to assume the role of a trial judge by resolving them.

[53] The motions judge or master must examine the evidentiary record before it determines if there is an issue of fact or of credibility on the discoverability allegation. As long as the moving party puts in evidence steps taken to ascertain the identity of the tortfeasor and gives a reasonable explanation on proper evidence as to why such information was not obtainable with due diligence, then that will be the end of the enquiry and the proposed party will normally be added with leave to plead a limitations defence. This is not a high threshold. If the moving party fails to provide any reasonable explanation that could on a generous reading amount to due diligence the motion will be denied. If the moving party puts in evidence of steps taken but the proposed party also provides evidence of further reasonable steps that the moving party could have taken to ascertain the information within the limitation period, then the court will have to consider whether the moving party’s explanation clearly does not amount to due diligence. If there is any doubt whether the steps taken by the moving party could not amount to due diligence then this is an issue that must be resolved on a full evidentiary record at trial or on summary judgment. The strength of the moving party’s case on due diligence and the opinion of the master or judge hearing the motion whether the moving party will succeed at trial on the limitations issue is of little or no concern on the motion to add the party. The only concern is whether a reasonable explanation as to due diligence has been provided such as to raise a triable issue. (Wakelin v. Gourley, [2006] O.J. No. 1442 (Ont. Div. Ct.))

[54] Applying the above principles to the facts herein, Heidari submits that Naghshbandi knew or ought to have known since 2010 that Tarra Inc. did not appear to be carrying on business as Naghshbandi had performed searches of the Professional Engineers Ontario website in the fall of 2013 after receiving production of Tarra Inc.’s tax returns. Naghshbandi’s evidence is that he learned from the website that Heidari was working at TESC and that Tarra Inc. was not listed as an engineering firm.

[55] Heidari also asserts that Naghshbandi had the opportunity to question him at his examination for discovery in November 2010 regarding every aspect of their business including whether Tarra Inc. continued to carry on business. The fact that he did not examine to the necessary degree to obtain the information he states that he received only in the Fall of 2013, does not excuse the fact that he had the opportunity to do so.

[56] Heidari submitted further evidence of Naghshbandi’s counsel purportedly having accessed TESC’s website in October and November 2012 which, he argues, further supports his position that from at least October 2012 Naghshbandi had full knowledge of the existence of TESC and that Heidari was operating TESC. The said reports are not, in my view, conclusive to any extent of Heidari’s assertions. Further, it is Naghshbandi’s position that the information contained in paragraphs 45 and 46 of Heidari’s affidavit regarding the subject records are confidential and privileged as the result of a mediation agreement signed by Heidari. Neither party produced the said agreement. Further, Naghshbandi explicitly stated in his affidavit that he did not waive privilege and confidentiality with respect to mediation. For those reasons, I decline to consider the said records.

[57] However, Naghshbandi’s evidence is that Heidari either gave an undertaking or refused to produce the tax returns of Tarra Inc. at his discovery which necessitated his motion culminating in Master Hawkins’ Order made in August 2013.

[58] I find that Naghshbandi has demonstrated a reasonable explanation for having discovered his cause of action against TESC in the Fall of 2013 after Heidari and Tarra Inc. produced the financial records of Tarra Inc. as ordered by Master Hawkins, and after Naghshbandi’s counsel conducted several searches, as outlined above.

[59] Further, I find no reason for Naghshbandi to have performed the searches of the Professional Engineers Ontario website any earlier that he did in the Fall of 2013. In other words, I find there was no triggering event that would have caused him to do so and it was not until he reviewed the tax returns that he discovered inconsistencies and alleged errors as described in his affidavit sworn May 19, 2015 at paragraphs 23 through 31. Those documents were requested at Heidari’s discovery in November 2010 and they were not produced until the Fall of 2013. Although Naghshbandi could have brought his motion earlier resulting in earlier production and hence earlier knowledge, the fact is he obtained leave to bring the motion and was successful.

[60] I am also satisfied that the information obtained in the financial records of Tarra Inc. was not available to Naghshbandi earlier than the Fall of 2013 based on his evidence that he had made earlier requests for these documents from Heidari who refused to produce them. This is borne out by the fact that it required a court order to compel Heidari to produce those records. Further, there is evidence that Heidari was in control of the day-to-day operations of Tarra Inc. and that Naghshbandi was out of the country for periods of time conducting related business in Iran.

[61] For those reasons, I find that Naghshbandi has met his onus of demonstrating that he took all reasonable steps to obtain the financial records and upon receipt, immediately performed searches to ascertain the status of Tarra Inc.

Prejudice

[62] Both rules 26.01 and 5.01 of the Rules of Civil Procedure provide that a motion to amend a pleading to add a party shall be granted on terms that are just and unless prejudice would result that could not be compensated for by costs or an adjournment.

[63] Heidari’s evidence is that adding a party at this late stage will cause unnecessary delay and expense. He cites the fact that the action was set down for trial by Naghshbandi in 2012 and the action is scheduled for trial scheduling court on May 11, 2016. He submits that the delay would involve TESC retaining counsel to defend the action, further productions, examinations for discovery, mediation and adjourning the date for trial scheduling court. Heidari’s evidence is that TESC has “another shareholder in addition to Heidari,” and by adding TESC to the action, the other shareholder would likely have to retain “his” own counsel to protect his shareholder interest in TESC.

[64] I agree that it is likely that this action will be delayed if TESC is added as a party. However, and as stated above, it is a general principle with respect to prejudice, delay alone does not amount to prejudice. Further, the other shareholder in TESC has not filed any evidence to the effect suggested by Heidari. It is troubling that this motion is being brought at a late stage in the action; however, it is my view that the delay was caused by the late production by Tarra Inc. and Heidari of the financial records being the subject of Master Hawkins order of October 30, 2013. Moreover, it is my view that added expense does not amount to prejudice as the trier of fact will be in a position to assess any additional costs of adding a party should the moving party fail to prove his claim at trial. In other words, any unnecessary expense can be compensated with costs.

[65] The opposing parties have adduced no evidence of, for example, witnesses who may not be available to give evidence at trial given any delay if TESC is added to this action, documents that are no longer available or faded memories that may give rise to a claim of prejudice. These examples are the types of evidence that our courts have found to constitute prejudice that may defeat a motion to amend to add a party.

[66] Further, given my findings above relative to the limitation period, I find that there is no presumption of prejudice which must be rebutted by the moving party.

Tenable Causes of Action

[67] Naghshbandi proposes to add numerous claims against TESC in his counterclaim at paragraph 66, including breach of contract, fraud, a declaration that TESC conducted itself in an oppressive manner contrary to the provisions of the OBCA, a mandatory injunction, declarations that TESC is the successor corporation of Tarra Inc. and that he has a 50 per cent ownership interest in TESC.

[68] On a motion to add a party, absent prejudice or abuse of process, unless the facts alleged are based on assumptive or speculative conclusions that are incapable of proof, they must be accepted as proven and the court should not look beyond the pleadings to determine whether the action can proceed.

[69] Further, with motions to add a party under rule 5.04, consideration should be given to such matters as the state of the action, whether the trial is imminent, whether examinations for discovery of all parties have been held, whether it is a proper joinder of a new cause of action, whether the purpose of adding the defendant is improper and whether the proposed added party is a necessary or proper party. (A. Mantella & Sons Ltd., at para. 40)

[70] Naghshbandi states that his decision to add TESC to this action arose as a result of the reported revenue information contained in the 2009 to 2012 tax returns of Tarra Inc. He submits that TESC is a necessary and proper party to this proceeding given his claim that Tarra Inc. is guilty of oppressive conduct. If successful at trial he contends that the court has broad discretion to correct the wrong done by the oppressive conduct which would include a declaration that he has a 50 per cent interest in TESC.

[71] TESC submits that the proposed claims are not tenable causes of actions for several reasons.

[72] Firstly, TESC submits that Naghshbandi has no status to bring the proposed action as there is no evidence that he is a shareholder, officer or director of TESC that would give him status to bring an oppression action against that company. TESC relies on the well-established principle of law that a shareholder has no status in the absence of a derivative order to institute a legal proceeding, and where such a proceeding is commenced, it is in reality the claim of the corporation for its losses. (Thomson v. Quality Mechanical Service Inc., 2001 ONSC 28007, 56 O.R. (3d) 234; Carnegie v. Rasmussen Starr Ruddy, 1994 ONSC 7283, 19 O.R. (3d) 272; Walters v. Royal Bank of Canada [2002] O.J. No. 702 (C.A.))

[73] TESC further asserts there is no evidence of oppressive conduct by TESC and there is no evidence to support the allegation of a shift of business or assets from Tarra Inc. to TESC.

[74] I concur that the above-noted cases support the principle of law that an individual shareholder has no status to commence a legal proceeding on behalf of the corporation for damages sustained by the company, as was held in Thomson. In Thomson, the court dismissed the shareholder’s claim against the corporation’s banker holding that the plaintiff as an individual had no cause of action against the bank for damages or under the oppression remedy provisions of the OBCA and that the claims advanced were of a personal nature against a third party to the corporation which had no role in the control or operation of the corporation and which did not do anything directly related to the individual and his dealing with the corporation. Notably, the plaintiff therein made no request for derivative relief on behalf of the corporation.

[75] Similarly, our Court of Appeal in Walters, at paragraph 7, applied the same principle of law in holding that the appellant, could not assert as a personal cause of action, the claims of the corporation for its losses, nor could he, as a shareholder of the corporation, claim those losses that he suffered indirectly as a result of the losses of the corporation.

[76] The case law relied on by TESC can be distinguished on the facts. Naghshbandi’s primary claim is for a declaration that he has a 50 per cent ownership interest in both Tarra Inc. and ultimately in TESC based on his allegations that Heidari transferred the customers of Tarra Inc. to the newly-formed TESC with the intent to defraud him. Unlike the plaintiffs in the cases relied on by TESC, Naghshbandi’s primary claim is not being made on behalf of the corporation.

[77] For those reasons, Naghshbandi’s claim for a declaration of an ownership interest in Tarra Inc. and TESC are allowed.

[78] The opposing parties provided no basis for opposing the claim for a declaration that TESC is the successor corporation of Tarra Inc. In my view, there are ample facts pled by Naghshbandi to support this claim. As stated above, the court on a motion for joinder of a party must accept the facts pled as proven and not go beyond the pleadings. Therefore, the claim for this declaration is allowed.

[79] The claims for relief under the oppression remedy provisions of the OBCA against TESC are found at subparagraphs 66 c. and e. of the counterclaim. The claims are for a declaration that TESC’s conduct was oppressive, unfairly prejudiced the interests of Naghshbandi as a shareholder of Tarra Inc., [1] damages of $3,000,000, declarations that TESC is a successor corporation of Tarra Inc. and that Naghshbandi has a 50 per cent ownership interest in TESC.

[80] The issue is whether Naghshbandi as an individual has a cause of action against TESC under the oppression remedy provisions of the OBCA or personally for damages.

[81] Although the section of the OBCA is not specifically pled in the proposed pleading, it appears that the subject claims are brought against TESC for oppression under the provisions of s. 248 of the OBCA “arising from Heidari causing Tarra Inc. to stop actively carrying on business; and incorporation a new corporation, Tarra Engineering and Structural Consultants Inc., to carry on the engineering business activities of Tarra Inc.”

Section 248 of the OBCA reads in part as follows:

248(1) Oppression remedy – A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this action.

(2) Idem – Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates, (a) any act or omission of the corporation of any of its affiliates effects or threatens to affect a result; (b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or (c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

[82] The meaning of “complainant” for the purposes of s. 245 of the OBCA reads as follows:

“complainant” means, (a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates; (b) a director or an officer or a former director or officer of a corporation or of any of its affiliates; (c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

[83] If the trier of fact finds that Naghshbandi did not transfer his share or shares to Heidari and declares that he has an ownership interest in Tarra Inc. and TESC, in my view, it would be open to the court to find that Naghshbandi is a “complainant” under s. 245(a) or (c) of the OBCA and exercise its discretion to find that Heidari’s conduct, as sole director of Tarra Inc. and TESC, was oppressive under s. 248(2)(c) of the OBCA. This would in my view include awarding monetary damages as pled.

[84] The material facts to support the proposed claims against TESC under the OBCA have been, in my view, sufficiently pled in the statement of defence.

[85] Thus, it is my view that Naghshbandi’s proposed claims under the OBCA are tenable at law and therefore permitted.

[86] Naghshbandi also seeks to add claims against TESC for breach of contract, fraud, inducement to breach contract and/or unjust enrichment with respect to unpaid salary and management fees owned to him found at subparagraph 66 a. of the proposed pleading.

[87] Naghshbandi did not assert a claim against Tarra Inc. for breach of contract, inducement to breach contract and/or unjust enrichment with respect to unpaid salary and management fees owned to him. At paragraph 10 h. and 11 of the proposed pleading, it is alleged that Heidari’s action were oppressive and prejudicial, which actions included withholding monies due to Naghshbandi for salary and management fees and that he received no profits or dividends from Tarra Inc. Thus, I find that there being no claim made against Tarra Inc. for breach of contract, inducement to breach contract and/or unjust enrichment, and in considering Naghshbandi’s claim that Heidari transferred the business of Tarra Inc. to TESC, these proposed claims against TESC are untenable and therefore are not permitted.

[88] The proposed amendment of the claim of fraud is pled at subparagraph 66 a.

[89] The rules of pleading provide under Rule 25.06(9) of the Rules of Civil Procedure that:

Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.

[90] The elements that constitute the tort of civil fraud are: (a) a false representation made by the defendant; (b) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (c) the false representation caused the plaintiff to act; and (d) the plaintiff’s actions resulted in a loss. (Bruno Appliances and Furniture Inc. v. Hryniak (2014), 37 R.P.R. (5th) 63, 2014 SCC 8 (S.C.C.))

[91] At subparagraph 10 d. of the statement of defence and counterclaim, it is pled that Heidari forged Naghshbandi’s signature on a document which purported to record his resignation as a director of Tarra Inc. Further, at subparagraph 10 h. it is pled that Heidari made fraudulent misrepresentations to Naghshbandi regarding payment to him for salary and management fees.

[92] In my view, based on the allegations made at subparagraphs 10 d. and h., as well as the facts contained in the pleading, I am satisfied that Naghshbandi has properly pled the material facts to support the allegation of fraud against TESC. Thus, that claim is allowed.

[93] Lastly, the final proposed amendment found at subparagraph 66 d. is for a mandatory injunction that all financial and business records of TESC be made available for inspection by Naghshbandi. The opposing parties made no specific submissions on this amendment. Given my rulings set out above, this amendment is permitted.

Conclusion

[94] For the above reasons, Naghshbandi’s motion for leave to amend the statement of defence and counterclaim in the form attached as Schedule “A” to the Amended Notice of Motion is hereby granted, with the exception of the claims for breach of contract, inducement to breach contract and/or unjust enrichment pled at subparagraph 66 a., with leave to TESC to plead a limitations defence.

Costs

[95] Naghshbandi has been successful on this motion to add TESC as a defendant by counterclaim. However, the opposing parties were successful, in part, with respect to specific claims sought to be added. Thus, it was reasonable and necessary to oppose this motion.

[96] In my opinion, it is fair and reasonable that Naghshbandi receive a portion of his costs of this motion given his success on the main relief sought to add TESC as a party. However, in fixing costs, I have taken into consideration that he was not successful on all the relief sought due to opposition by Heidari, Tarra Inc. and TESC.

[97] Costs to Naghshbandi are hereby fixed in the amount of $8,000, inclusive, payable equally by (1) Tarra Inc. and Heidari as plaintiff and defendants by counterclaim, and (2) by TESC, within 30 days.

(Original Signed) Master Lou Ann M. Pope Released: May 18, 2016

[1] In my view, to be properly pled, that paragraph should be amended to state “. . . as a shareholder of Tarra Inc. and TESC”.