Court File and Parties
COURT FILE NO.: CV-15-540150 DATE: 20160803 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: International Offtake Corporation and Sheroy Irani, Plaintiffs AND: Incryptex Ltd., Agoncaerus Inc., Agoncaerus Inc. S.L., Wesley Kam a.k.a. Wesley Weber, Michelle Kam and Apexdx Ltd. Defendants
BEFORE: L. A. Pattillo J.
COUNSEL: Aaron L. Kreaden, for the Plaintiffs David Fenig, for the Defendants
HEARD: July 22, 2016
Endorsement
Introduction
1The Defendants, Incryptex Ltd. (“Incryptex”), AgonCaerus Inc. (“AgonCaerus”), AgonCaerus Inc. S.L. (“AgonCaerus S.L.”), Wesley Kam a.k.a. Wesley Weber (“Weber”), Michele Kam (“Kam”) and ApexDX Ltd. (“ApexDX”) seek partial summary judgment dismissing the majority of the Plaintiffs’, International Offtake Corporation (“IOC”) and Sheroy Irani (“Irani”) claims against them on the ground there is no genuine issue for trial.
2For the reasons that follow, I dismiss the motion. In my view, the Defendants have failed to meet their onus of establishing there is no genuine issue for trial. Given the record, I am unable to reach a fair and just determination on the merits of the motion. Simply put, a full appreciation of the evidence and issues cannot be achieved by way of summary judgment. In light of my conclusion, I do not intend to get into the detailed examination of the evidence and its bona fides as provided to me by counsel.
Background
3The Plaintiffs claim damages of $1,325,000 for breach of contract or in the alternative, for fraudulent misrepresentation or unjust enrichment. The Plaintiffs also seek a constructive trust based on fraudulent conveyance and assert an oppression claim all arising out of dealings between Irani and Weber and Kam concerning Incryptex, a corporation established to carry on a digital currency exchange.
4The claim alleges that in November 2014, following meetings and discussions with Weber representing Incryptex, Irani entered into an agreement with Incryptex which provided that Irani would use his connections to establish a relationship between Incryptex and a bank, manage that relationship and act as CEO and Director of Incryptex. In exchange for his services, Irani was to receive compensation in the form of 12% of the shares of Incryptex on the understanding that the value of Incryptex was in the range of $3 million to $10 million and annual compensation of $150,000 for his role as CEO and Director of Incryptex.
5Subsequently, Irani received 3,429,600 shares of Incryptex pursuant to the agreement which he directed be held through IOC.
6The allegations of fraudulent misrepresentations relate to both Weber and Kam’s representations to Irani about Weber’s role in Incryptex, his actions on behalf of Incryptex, and his representations concerning a public offering of Incryptex’s shares and the value of those shares.
7In early September 2015, the Plaintiffs allege that they learned for the first time that Weber had been using an assumed name and that he had prior criminal convictions for, among other things, fraud as well as issues with the Ontario Securities Commission (“OSC”). A criminal investigation involving, among others, Weber, Kam and Incryptex followed.
8The Plaintiffs allege that although Irani subsequently provided the services agreed to, Incryptex has breached its agreement with him by failing to compensate him. They further allege that based on their fraudulent misrepresentations to Irani, Weber and Kam are personally liable for all damages incurred as a result of those representations.
9Further, in November of 2015, Incryptex entered into an agreement with ApexDX which provided for the transfer of substantially all of Incryptex’s assets and certain liabilities to ApexDX in exchange for ApexDX shares. The Plaintiffs allege that the transaction was a fraudulent conveyance designed to defeat the claims of Irani and IOC. They further submit that the business and affairs of Incryptex were conducted in a manner that is oppressive to the interests of IOC who is a shareholder.
10In defence to the claims, the Defendants do not dispute that there was an agreement with Irani concerning his becoming involved in Incryptex in financial management as well as assisting with corporate valuation and corporate strategy in exchange for 7% of the then outstanding shares of Incryptex and an “executive salary” to be paid monthly once operations start. They plead, however, that there was never any agreement as to the amount of salary and in any event, operations never commenced. Further, they plead that Irani failed to perform his duties as CFO or assist Incryptex in obtaining a relationship with a bank. They deny any breach of contract or unjust enrichment. Further, they deny that any misrepresentations were made to Irani and that he knew about Weber’s criminal background long before Weber told him in September 2015.
11The Defendants further plead that the sale of Incryptex’s assets to ApexDX was done for proper business purposes and was approved by all shareholders except IOC. They deny there was any fraudulent conveyance or that they have acted in a manner oppressive to IOC.
12In light of the pleadings, therefore, the main issues in the action can be summarized as follows:
- What were the terms of the agreement reached between Irani and Weber in the fall of 2014 in respect of Irani’s involvement in Incryptex;
- Did either or both of Irani and Incryptex fulfill their obligations under the agreement;
- Did either or both of Weber and Kam make representations to Irani that were false and, if so, did Weber and Kam know they were false, did Irani rely on the representations and has he suffered loss as a result;
- Does the sale of Incryptex’s assets to ApexDX amount to a fraudulent conveyance and/or oppressive conduct pursuant to s. 248 of the Ontario Business Corporations Act.
The Summary Judgment Motion
13The Defendants’ motion for summary judgment was commenced shortly after pleadings were closed and before any production or discovery had commenced. In support of their motion, the Defendants rely mainly on the affidavit of Kam and have filed a three-volume motion record as well as a supplementary motion record. There is no affidavit from Weber. To the extent that Kam deals with the meetings between Weber and Irani, it is based on information and belief.
14In response, the Plaintiffs have filed the affidavits of Irani and others which have provided more substance to the allegations in the statement of claim and the issues raised by the pleadings. The Plaintiffs’ principal affiant is Irani who deals directly with his discussions he had with Weber concerning his involvement in Incryptex, the agreement reached between them and the misrepresentations of Weber.
Discussion
15The Supreme Court’s decision in Hryniak v. Mauldin, [2014] 1 S.C.R. 87, 2014 SCC 7, at paras. 66 to 68, sets out the procedure to be followed on a motion for summary judgment under rule 20.04. First, I must determine whether there is a genuine issue for trial based solely on the evidence before me and in the absence of using the fact finding powers provided in rule 20.04(2.1) (weighting evidence, evaluating credibility and drawing reasonable inferences). If there appears to be a genuine issue for trial, then I am required to determine whether the need for a trial can be avoided by utilizing the powers in rule 20.04(2.1).
16For the reasons that follow, I am satisfied based on the evidence before me (and more specifically the lack of evidence) that the issues raised by the parties require a trial. Further, having regard to the record before me and the issues raised by the parties and particularly the absence of evidence from Weber, utilization by me of the fact finding powers in rule 20.04(2.1) will not assist in avoiding a trial.
17Given the nature of the Plaintiffs’ allegations, the direct involvement of Weber in both the contract discussions and the alleged misrepresentations coupled with the Defendants’ denials of the claims, Weber’s evidence concerning what transpired is essential to establishing the defence. This is particularly so given Irani’s evidence. Yet Weber’s evidence is not before the court except in the form of information and belief from Kam. And Kam has admitted on cross-examination that she has no firsthand knowledge of most, if not all, of the material events in dispute.
18Where, as here, the claim will turn on credibility as to what occurred and what was agreed, direct evidence from those involved is essential. Its absence from the Defendants does not meet the “best foot forward” requirement in summary judgment motions which, in my view, applies equally to both the moving party and the responding party.
19The Defendants submit that given the OSC proceedings against him, Weber could not testify and accordingly no negative inference should be drawn against him. Given the protections provided for in both the Ontario Evidence Act and Canada Evidence Act, I do not consider that to be a reasonable explanation of Weber’s failure to testify. Rule 20.02(1) permits me to draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of contested facts. In the absence of a reasonable explanation for Weber’s failure to testify, I draw an adverse inference against him. As a result, the Defendants have failed to meet their onus on the motion of establishing there is no genuine issue for trial in respect of the breach of contract and fraudulent misrepresentation claims.
20Nor do I accept the Defendants’ submission that it was open to the Plaintiffs to examine Weber pursuant to rule 39.03. It is the Defendants’ motion and the onus is on the Defendants to establish that there is no genuine issue for trial. Failure to put forward the evidence of the only person from the Defendants’ side with firsthand knowledge of the events in issue fails to meet that onus.
21The Defendants rely on the fact that while Irani said he would reduce the agreement reached to writing, he never did. An agreement of the kind alleged does not have to be in writing to be binding: Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 53 O.A.C. 314 (C.A.) at para. 20. Further, the parties agree that there was part performance with Incryptex’s delivery of the shares to IOC.
22As noted, the motion does not involve the Plaintiffs’ oppression claim which is based on the allegation the sale of Incryptex’s assets to ApexDX was done to deprive Irani of his compensation. The facts surrounding that transaction also form the basis of the Plaintiffs’ fraudulent conveyance claim.
23While I am aware that Weber was no longer involved in Incryptex at the time of the ApexDX transaction, I am also of the view that it is not appropriate to grant summary judgment in respect of the fraudulent conveyance claim in circumstances where there is another claim in the action involving the same or substantially the same facts which will be proceeding to trial. As noted by Belobaba J. in IPEX Inc. v. AT Plastics Inc., 2016 ONSC 1859 at para. 35, where there are two causes of action which rely on the same facts, allowing summary judgment on one when the other is proceeding to trial is not in the interests of justice as it raises the risk of duplicative proceedings and inconsistent findings of fact.
24The Defendants submit that the Plaintiffs’ claims (except oppression) can be resolved by looking at the documents. While that may be in the end, it is premature to decide the case on that basis at this stage when the parties have not even exchanged affidavits of documents. See: Amonite v. A.P. Plasman Corp, 2014 ONSC 1705 at para. 60.
Conclusion
25This motion was ill-advised. For the reasons stated, this was not an appropriate summary judgment motion. The Defendants have failed to meet their onus of establishing there is no genuine issue for trial of the Plaintiffs’ claims. The motion is accordingly dismissed.
26The Plaintiffs are entitled to their costs. Notwithstanding that I consider the motion to have been ill-advised, I am of the view that costs should be on the partial indemnity scale. In that regard the Defendants have provided a cost outline claiming a total of $32,677.46 in partial indemnity costs. The Plaintiffs on the other hand have provided a cost outline for the motion which claims a total of $83,743.72 for partial indemnity costs. That total includes $74,628.95 in fees and taxes and $9,114.77 in disbursements.
27There is no question that the Defendants raised a number of issues requiring a significant effort on the part of the Plaintiffs’ counsel to respond. The Defendants have raised no issue with the partial indemnity rates claimed, the lawyers/students/clerks involved in the file and the hours claimed. In my view, they are reasonable given the issues. Further, the Plaintiffs have reduced the time involved in document management by half to reflect that a portion of the effort involved will be required for production and discovery going forward.
28The Defendants submit given their partial indemnity costs, which include the costs of the action, that the costs claimed by the Plaintiffs are far in excess of their reasonable expectations of the costs they would be required to pay if they were unsuccessful. I do not consider the Defendants’ cost outline to reflect the Defendants’ reasonable expectations of the Plaintiffs’ costs. In my view, the Defendants’ costs are not directly comparable to the Plaintiffs’ costs given that the Defendants choose to bring their motion in the absence of any production and discovery and having regard to the issues they raised. The Defendants knew that by proceeding as they did, the Plaintiffs would be put to significant costs to respond and that those costs could well be in excess of their costs.
29That said, given that I have dismissed the motion, the action must go forward to trial. In addition to the documents, a portion of the work done by Plaintiffs’ counsel will stand them in good stead in preparing for discoveries and trial and, if successful at trial, will be recoverable in costs at that stage.
30Based on the above comments therefore and having regard to the principle of proportionality, I consider that a fair and reasonable amount in respect of the Plaintiffs’ costs on the motion on the partial indemnity scale to be $45,500, inclusive of disbursements and taxes. Payable forthwith.
L. A. Pattillo J.
Released: August 3, 2016