Khavari v. Mizrahi, 2016 ONSC 4934

CITATION: Khavari v. Mizrahi, 2016 ONSC 4934

COURT FILE NO.: CV-15-11187-00CL

DATE: 20160817

SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

B E T W E E N:

Khashayar Khavari and Mohammad Mahdi Tajbakhsh

Plaintiffs

– And –

Sam Mizrahi, Michal Renee Mizrahi, Ziba Mizrahi, Mizrahi Enterprises Inc., Mizrahi Inc., 133 Hazelton Inc. (Corp No: 2289816), 133 Hazelton Inc. (Corp No: 1895309), 133 Hazelton Inc. Corp No: 1927750), 1834369 Ontario Inc., Soaring Mizrahi Developments Inc., Mizrahi Development Group (131 Hazelton ) Inc., Mizrahi Development Group (133 Hazelton) Inc., One8One Davenport Inc. (Corp No: 2325793), One8One Davenport Inc. (Corp No: 1912202), One8One Davenport Inc. (Corp No: 1927751), Mizrahi Soaring Developments Inc., Mizrahi Development Group (145 Davenport) Inc., Mizrahi Development Group (185 Davenport) Inc., Unimax International Ltd., 129 Hazelton Inc., Mizrahi Development Group (The One) Inc., Mizrahi Residential (The One) GP Inc., Mizrahi Commercial (The One) GP Inc., Sam M Inc., S. & Z. Mizrahi Investment Ltd., Mizrahi (128 Hazelton) Inc., Mizrahi Development Group (1451 Wellington)Inc., Mizrahi Khalili Inc., Mizrahi (C-GMSO) Inc., and Northern Citadel Capital Inc.

Defendants

– And –

Mahmoud Reza Khavari, Khashayar Khavari, Mohammad Mahdi Tajbakhsh, Ardavan Khavari, Nicholas Tyacke, Vria Investment Ltd., Mandana Khalili Shavarini, Parandis Khalili Khavari Tajbakhsh and Aylar Moussavi

Defendants by Counterclaim

BEFORE: L. A. Pattillo J.

COUNSEL: Peter C. Wardle, Simon Bieber and Alex Fidler-Wener for the Plaintiffs / Moving Parties

Lawrence E. Thacker, Nadia Campion and Chris Kinnear-Hunter for the Defendants / Respondents Mizrahi

HEARD July 29, 2016

ENDORSEMENT

Introduction

[1] This motion is a further installment in the ongoing dispute between the Khavari family and the defendant Sam Mizrahi (“Mizrahi”) concerning the development of two mid-rise, luxury condominium projects in Toronto at 133 Hazelton Avenue (“133”) and 181 Davenport Road (“181”) respectively (collectively the “Projects”).

[2] Pursuant to a three times Amended Notice of Motion, the Plaintiffs, Khashayar Khavari (“Khash”) and Mohammed Mahdi Tajbakhsh (“Mahdi”) (together the “Plaintiffs”) seek, among other things, a declaration that Mizrahi has acted in a manner that is oppressive, unfairly prejudicial to and unfairly disregards their rights in respect of the Project companies and the appointment of an inspector pursuant to ss. 161 and 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”) to investigate not only the Project companies but also other companies owned and controlled by Mizrahi (the “Motion”).

[3] The Motion is brought in an action commenced by Khash and Mahdi on November 20, 2015 claiming, among other things, oppression pursuant to s. 248 of the OBCA in respect of the actions of Mizrahi, the Project companies and other companies controlled and operated by Mizrahi (collectively the “Mizrahi Defendants”) (the “Khavari Action”). Amongst the multiple types of relief sought, the Plaintiffs seek an order pursuant to s.161 of the OBCA for the appointment of an investigator. Discoveries have not yet taken place in the Khavari Action.

[4] For the reasons that follow, I dismiss the Motion. In my view, the Plaintiffs have failed to satisfy the requirements necessary for the appointment of an inspector either pursuant to s. 161 or pursuant to s. 248 of the OBCA. Based on the record, the Plaintiffs have failed to establish a prima facie case of oppression. Further, having regard to all of the circumstances, I also do not consider it appropriate to appoint an inspector at this stage of the Khavari Action.

Background

[5] The following is a brief outline of the background facts.

[6] Khash is the son of Mahmoud Reza Khavari (“Mahmoud”), the former Chairman of Bank Meli in Iran. Mahmoud currently lives in North York. Mahdi is married to Khash’s sister and Mahmoud’s daughter.

[7] Mizrahi is a Toronto developer. Together with his wife, Mizrahi owns and controls the defendant Mizrahi Inc. (“MI”) which is a general contracting company that Mizrahi uses for all of his developments. MI is the general contractor for the Projects. Mizrahi also owns and controls the defendant Mizrahi Enterprises Inc. (“MEI”) which in turn owns all the shares in the Project companies.

[8] 133 is a mid-rise luxury condominium development consisting of 35 custom designed units and three town homes. It was completed and registered as a condominium corporation in March 2015. All units have been sold and the condominium is partially occupied. The Project has continued to deal with warranty and other issues and a final accounting has not been completed.

[9] 181 is also mid-rise luxury condominium which consists of 68 high-end units including multiple penthouse suites. 181 was scheduled to be completed and registered by the end of June 2016 but due to construction delays, that timing has been pushed back to late fall, 2016.

[10] In 2010, Mizrahi and Khash, on behalf of his family, agreed to embark on the Projects on the basis that Khash, with the assistance of his family, would contribute the equity required to purchase the lands for the Projects as well as the necessary construction financing to develop them; Mizrahi would identify the lands, arrange to have them re-zoned, design and build the condominiums and undertake their marketing and sales; and Mizrahi and Khash would split the profits from the Projects on a 50/50 basis, after all debts, costs, expenses, and interest had been satisfied.

[11] Subsequently, Khash, with the assistance of his family, advanced approximately $14 million which was used to purchase the land for the Projects. Mizrahi and Khash incorporated numerous companies to hold title to the properties and operate throughout the development of the Projects. These companies were owned 50% by Khash and 50% by Mizrahi through MEI and include the Defendants Soaring Mizrahi Developments Inc., 1834369 Ontario Inc., Mizrahi Soaring Developments Inc., 133 Hazelton Inc., Mizrahi Development Group (185 Davenport) Inc., and One8One Davenport Inc. (the “Project Companies”).

[12] In the early fall of 2011, news reports surfaced concerning Mahmoud’s alleged involvement in a large embezzlement and fraud scheme in Iran and that Interpol had issued a warrant for Mahmoud’s arrest. As a result of the allegations, the Khavari family assets were frozen by their bank in Canada with the result that Khash was not able to provide any further financing for the Projects.

[13] The inability of the Khavari family to fulfill their funding obligations for the Projects resulted in an agreement between Khash and Mizrahi in September/October 2011 whereby Mizrahi agreed to be responsible for obtaining the financing the Khavaris were unable to provide. In exchange, Khash agreed to transfer his 50% interest in the Project Companies to MEI so that Mizrahi would retain 100% control over the Project Companies. It was further agreed that Khash would only be entitled to the return of his 50% interest in the Project Companies when the Projects were completed and all liabilities had been fully satisfied (the “Agreement”).

[14] On October 11, 2011, the parties entered into a document entitled “Trust Agreement” as part of the implementation of the Agreement.

[15] Subsequently, Mizrahi secured more than $88 million in financing for the Projects, some of it at high interest rates. As security for the loans, charges and mortgages were granted on the Projects’ lands as well as personal guarantees from Mizrahi and corporations owned by him. The funding was advanced either directly to the Project Companies or through MEI and another company, the Defendant Northern Citadel Capital Inc. (“Northern Citadel”) which was controlled by Mizrahi. Khash and Mahdi were aware of the amounts and terms of the financing Mizrahi obtained.

[16] Khash and Mahdi utilized Mizrahi’s offices to carry out their roles and responsibilities with respect to the Projects. They were provided with complete and unfettered access to all documents and information, including financial information about the Projects. In particular, they received monthly financial reports from Altus Group Limited (“Altus”), an independent third party hired by the lenders to oversee the use of construction funds, as well as annual financial statements for the Project Companies.

[17] The Projects experienced significant delays as a result of inclement weather and environmental issues that affected the Projects’ profitability. In the fall of 2014, a detailed summary of the anticipated revenue and expenses for the Projects was prepared which showed that while there was sufficient revenue to pay off the loans, there would be little or no equity left in the Projects for the developers.

[18] Subsequently, the relationship between the Khavaris and Mizrahi deteriorated.

[19] In the spring of 2015, the Khavaris received a payment of $7 million from the Projects. There is a dispute between the parties as to the basis on which this money was obtained. The Khavaris describe it as a return of equity. Mizrahi says that the Khavari family obtained it under false pretenses along with threats to both himself personally and his businesses. Mizrahi says that he agreed to the payment as a result of the threats and the Khavari family’s representation that they would replace the funds to ensure payment of the Project’s debts. To date, none of the monies have been returned.

[20] On July 6, 2015, the Khavari family attempted to negotiate five cheques totaling almost $3 million dollars. Mizrahi stopped payment on the cheques. Once again, the parties’ evidence differs on what occurred. The Khavaris state that the cheques represented a partial return of their investment which was agreed to by Mizrahi. Mizrahi states that the cheques were negotiated without his authority and despite the Khavaris being told that there were insufficient funds in the Project accounts to honour the cheques.

[21] On July 6, 2015, Khash sent Mizrahi a letter formally demanding, among other things, financial information regarding the Projects and requiring that MEI transfer back to him the shares in the Project Companies that had been transferred pursuant to the Agreement.

[22] On the evening of July 6, 2015, Mizrahi changed the locks to his offices shutting out both Khash and Mahdi. Mizrahi’s evidence is that he took that step for security reasons as a result of the Khavaris’ actions.

[23] Subsequently, Mizrahi learned that sometime in June or early July 2015, a number of files and documents both in hard copy and electronic form relating to the Projects as well as other projects that Mizrahi was involved in (and which the Khavaris had no involvement with) were taken from his offices. In addition, a backup computer server containing all of the information, including financial, for the Projects also disappeared. The backup server was subsequently delivered to Mizrahi’s counsel by Khavari’s counsel on November 17, 2015. Subsequent analysis by a computer expert confirmed that the Khavaris had accessed the server on numerous occasions.

[24] On July 24, 2015, Khash commenced an application against MEI seeking the transfer to him of 50% of the shares of the Project Companies (the “Khavari Application”).

[25] On August 27, 2015, MEI issued a cross-application seeking, among other things, a declaration and an order restraining transfer of any shares in the Project companies (the “Mizrahi Application”).

[26] On November 20, 2015, Khash and Mahdi commenced the Khavari Action against not just the Project companies and the Mizrahi companies involved in the Projects but also against all of the other condominium developments owned and operated by the Mizrahi group of companies.

[27] On December 18, 2015, the parties agreed to consolidate the Khavari Application, the Mizrahi Application and the Khavari Action into one action (the “Action”). It was also agreed that the Khavari Application which was scheduled to be heard on January 6, 2016, would proceed as a motion on the understanding that the facts as set out by Mizrahi in his affidavits would be deemed to be true for the purposes of the motion.

[28] On January 6, 2016, the Khavari Application was heard by Justice Wilton-Siegel (the “Motions Judge”). In reasons released March 24, 2016 [2016 ONSC 101], the Motions Judge dismissed the Khavari Application. The Motions Judge held that Khash was not a beneficial owner of shares in the Project Companies. Rather, in accordance with the Agreement between them, Khash only had a right to return of the shares after the Projects were completed and all liabilities completely satisfied.

[29] Both parties retained expert forensic accountants. The Plaintiffs retained PricewaterhouseCoopers LLP (“PwC”) and the Mizrahi Defendants retained Duff & Phelps Canada Limited (“Duff & Phelps”). Both firms carried out a detailed review of the source and use of funds in respect of the Projects. Both firms provided detailed written reports and PwC also provided a response to the Duff & Phelps report. Both forensic experts were cross-examined.

[30] Of note, the financial information concerning the Projects that PwC had access to in order to prepare its first report came from the Khavaris.

[31] In summary, each of PwC and Duff & Phelps:

a) carried out essentially the same review and analysis;

b) based their analysis and conclusions on the same source documents;

c) had access to all of the source documents that each other were given;

d) used the same assumptions and methodology concerning cash transactions in and out of each of 131 and 181;

e) treated all advances to and from 133 and 181 by each of Khash and Mizrahi as shareholder loans;

f) reached identical conclusions on the quantification of the cash transactions, with the exception of two cash transactions and four discreet and defined contested assumptions;

g) have reconciled and agree on the quantum of the two cash transaction discrepancy items;

h) have reconciled and agree with each other on the reasons for those two cash transactions; and

i) agree that determination of the four assumptions are legal issues that are outside their expertise and competence as expert witnesses and must be determined by the court.

The Appointment of an Inspector

[32] The court may appoint an inspector pursuant to either s. 161 or s. 248 of the OBCA.

I. Section 161

[33] Section 161 of the OBCA provides, in part:

161(1) A registered holder or a beneficial owner of a security or, in the case of an offering corporation, the Commission may apply, without notice or on such notice as the court may require, to the court for an order directing an investigation to be made of the corporation or any of its affiliates.

161(2) Where, upon an application under subsection (1), it appears to the court that,

(a) the business of the corporation or any of its affiliates is or has been carried on with intent to defraud any person;

(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted, or the powers of the directors are or have been exercised, in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of a security holder;

(c) the corporation or any of its affiliates was formed for a fraudulent or unlawful purpose or is to be dissolved for a fraudulent or unlawful purpose; or

(d) persons concerned with the formation, business or affairs of the corporation or any of its affiliates have in connection therewith acted fraudulently or dishonestly,

the court may order an investigation to be made of the corporation and any of its affiliates.

[34] In the recent case of Akagi v. Synergy Group (2000) Inc., 2015 ONCA 368, 125 O.R. (3d) 401 (C.A.), the Court noted, in a footnote to para. 69 that the purpose of s. 161 is to ensure that a corporation discharges its core obligation to provide shareholders with an accurate picture of its financial position.

[35] In Trackcom Systems International Inc. v. Trackcom Systems Inc., 2014 QCCA 1136, the Quebec Court of Appeal set out the test to be met in respect of the appointment of an inspector pursuant to s. 229 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”). Section 229 of the CBCA is virtually identical in wording to s. 161 of the OBCA. At paras. 52 – 55 of the decision, Gascon J.A. (as he then was) set out a three part test: first, the applicant must be a security holder; second, the judge must be satisfied that one of the situations listed in subsection 229(2) [s.161(2) of the OBCA] has been established prima facie; and third, the judge must consider the appropriateness of the investigation, bearing in mind its usefulness and reasonableness under the circumstances, with due consideration to its expected costs and benefits.

[36] I agree with and adopt Justice Gascon’s test. In my view it provides the necessary safeguards for what is an extraordinary remedy which can have significant cost consequences. Nor do I consider that it differs from the test which has been applied by Ontario courts.

[37] The Plaintiffs submit they need only establish “at least an index of suspicion or appearance that the reasonable expectations of the security holder have not been met.” That requirement arises from this court’s decisions in Royal Trustco Ltd. (No. 3), Re, [1981] O.J. No. 252 and Catalyst Fund General Partner I Inc. v. Hollinger Inc., 2004 CanLII 66299 (ON SC), [2004] O.J. No. 3886 at para. 39. It has subsequently been adopted in Goodman v. 230 Major Mack Holdings Inc., 2014 ONSC 5089 at para. 33.

[38] In Catalyst, in concluding that an inspector should be appointed under s. 229(1) of the CBCA on the basis of oppression, the court stated, in part, at para. 39: “In the case of an oppression remedy, the reasonable expectation is determinable on the material before the Court. In the case of inspection relief, there must be at the very least an index of suspicion or appearance that reasonable shareholder expectations have not been met in viewing the actions or non-actions of management and directors. It is then appropriate to test that prima facie case with an inspection to determine whether further relief is warranted.”

[39] In my view, in appointing an inspector under s. 161 (2)(b) (and the other subsections of s. 161(2)) the applicant must first establish a prima facie case in that regard. See too: Moore v. Assaly, 2013 ONSC 817 at paras. 40 to 45.

[40] Further, it is not enough that an applicant merely allege misconduct or raise suspicion. Such allegations can be rebutted by the respondent. It is incumbent on the court to examine the entire record before determining whether a prima facie case of oppression has been made out: Ferguson and Imax Systems Corp. et al (1984), 1984 CanLII 2021 (ON SC), 47 O.R. (2d) 225 (Div. Ct.) at para. 22.

[41] The third part of the test, consideration of the appropriateness of appointing an inspector, arises from both the fact that the remedy is discretionary and that it is an extraordinary remedy. In considering the issue of appropriateness, the courts have had regard to a number of factors, including:

a) Whether the applicant needs access to the information;

b) Whether there are better less expensive means to acquire the information;

c) Whether the proposed investigation would give a tactical advantage to the applicant; and

d) The expense of the investigation as compared to the benefits.

See: Trackcom Systems at para. 58; Kowch v. Gibraltar Mortgage Ltd., 2010 ABQB 535 at paras. 35, 38 and 44.

I. Section 248

[42] Section 248 of the OBCA provides, in part, as follows:

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

248(2) 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 or any of its affiliates effects or threatens to effect 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.

248(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(m) an order directing an investigation under Part XIII be made;

[43] Having regard to the wording of s. 248, the powers and remedies that are contained in that section regarding the appointment of an inspector overlap and are interrelated with those in s. 161 (which is in Part XIII of the OBCA) and specifically s. 161(2)(b).

[44] The Mizrahi Defendants submit that the test to obtain the appointment of an inspector pursuant to s. 248 is different than s.161. Specifically, they submit that in order for an applicant to obtain the remedies set out in s. 248(3) which includes the appointment of an inspector, the court must first determine that the applicant has been oppressed. In my view, that is too high a standard on a motion such as this where what is being sought is really interim relief in the Action. I note that s. 248(3) provides for both interim and final orders. Where, as here, what is being sought is an interim order, I do not consider that a finding of oppression is necessary for the appointment of an inspector under s. 248(3).

[45] I conclude therefore, based on the interrelationship with s. 161, the test to be applied in appointing an inspector on an interim basis under s. 248 is similar to that of s. 161 save and except with respect to the issue of standing to seek such an appointment.

[46] I turn next to the question of whether the Plaintiffs have met the test required for the appointment of an inspector either under s. 161 or s. 248 of the OBCA.

Standing

[47] Mizrahi submits that the Plaintiffs have no standing to bring an application under s. 161 of the OBCA because they are not registered or beneficial shareholders. In that regard, Mizrahi relies on decision of the Motions Judge in the Khavari Application which concluded that Khash was not a beneficial shareholder in the Project Companies but rather had a contractual right to compel the return of his shares once the Projects were completed and all liabilities in respect of the Projects had been satisfied.

[48] The Plaintiffs submit that because the Khavari Application was decided on agreed facts with which they do not agree, it is not binding on them. I do not accept their position. The court is not in the business of determining hypothetical issues. While the facts agreed to are not binding in respect of the issues in the Action, the decision in the Khavari Application that Khash is not a beneficial owner of shares in the Project Companies is binding on the Plaintiffs. Further, as the Khavaris did not appeal the decision in the Khavari Application, the issue it decided is res judicata. While the Plaintiffs are bound by the decision in the Khavari Application, they are not restricted to the facts as agreed to in that Application at trial.

[49] Based on the court’s finding therefore in the Khavari Application, Khash is not a shareholder of the Project Companies. Nor is there any issue that he is a shareholder of MI, MEI or any of the other Mizrahi Defendants. Accordingly, the Plaintiffs have no standing to apply for an order appointing an inspector under s. 161 of the OBCA.

[50] Standing is much broader under s. 248 of the OBCA than under s. 161. Section 248(1) provides that a “complainant” may obtain relief for oppressive conduct. Section 245 defines “complainant” to include a former shareholder or officer or director. As Khash is both a former shareholder and an officer and director of the Project Companies, he meets the definition of “complainant” and accordingly has standing under s. 248.

Prima Facie Case

[51] Both parties agree that oppressive conduct is conduct which unfairly disregards the reasonable expectations of a complainant. See: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 at para. 68.

[52] The Plaintiffs allege that Mizrahi’s actions, including his unilateral dealings with the Project Companies and his handling of the funds for the Projects constituted oppressive conduct. Specifically, they point to Mizrahi’s changing of the locks to the Projects office on July 6, 2015; what they submit are serious questions arising from Project financings obtained by Mizrahi, specifically loans from Ridgemount to MEI and from Bridging Capital to Northern Citadel; the use of Project funds by Mizrahi for personal matters and the refusal to provide timely and accurate financial information.

[53] In response Mizrahi and some of his employees have filed affidavits which address the Plaintiffs’ allegations. Mizrahi states that up until July 2015, both Khash and Mahdi were deeply involved in both the operations and finances of the Projects and were aware of, complicit in and, in many cases responsible for much of what they now complain about. They had unfettered access to the Project bank accounts and controller. They were provided with monthly financial reports from Altus and financial statements for the Project Companies on an annual basis. The Plaintiffs were at all times aware of the impact that the delays and additional costs incurred had on the profitability of the Projects.

[54] Mizrahi states that he changed the locks on his offices due to concerns about security arising from the Khavaris’ actions. Mizrahi further states that both Khash and Mahdi were at all times aware of the terms and amounts of the financing, including interest rates and fees, that he obtained for the Projects including the Ridgemount and Bridging Capital loans and points to loan documentation signed by the Plaintiffs.

[55] In my view, Mizrahi has responded to the Plaintiffs’ allegations of oppressive conduct in specific detail. Whether the Plaintiffs’ allegations of improper conduct are correct or whether Mizrahi’s responses will prevail cannot be determined on this motion. At its heart, the evidence raises credibility issues that cannot be resolved on a motion like this. Further, even if some or all of the Plaintiffs’ allegations are correct, the issue remains as to whether Khash’s reasonable expectations as a complainant have been unfairly disregarded by Mizrahi having regard to the Agreement. Those issues, in my view, can only be resolved at trial.

[56] As a result, based on all the evidence, I am not satisfied that the Plaintiffs have established a prima facie case of oppression on the part of the Mizrahi Defendants entitling them to an order appointing an inspector either under either s. 161 or s. 248 of the OBCA.

Appropriateness of Appointing an Inspector

[57] Further, and in addition to my conclusion that the Plaintiffs have failed to establish a prima facie case of oppression, I am further of the view that, in all of the circumstances, it would not be appropriate to appoint an inspector.

[58] The Plaintiffs submit that an inspector is needed to resolve three key factual questions:

1. The actual flow of funds in and out of the Projects;

2. Whether Mizrahi used the funds for legitimate Projects purposes; and

3. The actual revenues, costs and net profits of the Projects.

[59] In my view, however, an inspector is not required to respond to any of the three above items. In that regard, the flow of funds in and out of the Project Companies has already been quantified by PwC and Duff & Phelps who reached substantially identical conclusions. The Plaintiffs have had access to far more financial information than any shareholder is entitled to receive and can otherwise obtain any additional information required through the discovery process in the Action at far less cost and inconvenience.

[60] Further, the role of an inspector is to gather facts, not to determine whether funds are used for “legitimate” purposes, which is a legal question to be determined at trial.

[61] Finally, the quantification of actual revenues, expenses and net profits for each of the Projects remains premature given that neither Project has been completed from a financial standpoint. Mizrahi has stated that he will provide a complete accounting to the Plaintiffs for each of the Projects upon their final completion.

[62] I am also of the view that in the circumstances the cost of an inspector will significantly outweigh any benefits. The Plaintiffs submit that it will only cost $60,000 and take two weeks to carry out the investigation exercise. I am unable to accept both the Plaintiffs’ cost and time estimates. As noted, both parties have retained forensic accountants to investigate the flow of funds in the Projects. In their Costs Outline, the Plaintiffs have claimed $133,999.47 for PwC’s fees. Mizrahi has claimed $331,022.11 for expert witness fees, a good portion of which I assume relates to Duff & Phelps. In carrying out the tasks requested by the Plaintiffs, the inspector will have to conduct an exercise similar to that carried out by each of the two expert accountants, presumably at similar cost and time. The parties have already spent significant monies on investigating the flow of funds for the Projects. The appointment of an inspector will do nothing in my view except add additional unnecessary costs.

[63] Finally, I accept Mizrahi’s evidence that the additional costs, lost time, business disruption and other adverse consequences that will result from an investigation as requested by the Plaintiffs will cause undue hardship to the Projects and all of its stakeholders who have a reasonable and legitimate interest in seeing the Projects completed without further delay.

Conclusion

[64] For the above reasons, the Motion is dismissed.

[65] The Mizrahi Defendants are entitled to their costs. As I have already indicated, at the conclusion of the argument on the Motion, I received Costs Outlines from both parties.

[66] Mizrahi has alleged that the purpose of the Khavaris in bringing the Motion is to damage Mizrahi’s business and reputation. Even though I consider the Motion was ill advised, I am not prepared to so conclude on the record before me. I therefore do not consider that this is a matter for substantial indemnity costs.

[67] The Plaintiffs’ costs outline claims partial indemnity costs of $687,815.08 in total made up of fees of $408,194.65 and disbursements of $279,630.43. The Mizrahi Defendants claim partial indemnity costs of $769,391.91 made up of fees of $362,979.17 and disbursements of $406,412.74.

[68] There is no question that both parties have done a significant amount of work in respect of the Motion. Each side has filed multiple affidavits; there have been extensive productions and lengthy cross-examinations. The expert accounts have carried out an extensive investigation. The material that has been filed on the Motion is voluminous. Both parties were well aware during the course of the proceedings that substantial costs were being incurred by each side.

[69] There is also no question that the issues on the Motion were important and required significant time and effort on the part of counsel to present and to refute. Neither side has taken any issue with the number of lawyers involved, the rates claimed nor the hours spent by opposite counsel.

[70] It is important to keep in mind, however, that this was an interim motion in the Action. The main issue for the trial, oppression, still remains. The allegations of oppression were front and center on the Motion. In my view, much of the work that was done on the Motion can and will be used in respect of preparation for and the actual trial. That includes the legal work, affidavits, productions, expert reports and cross-examination transcripts. Accordingly, I have reduced the preparation fees, the expert witness fees and cross-examination transcript disbursements in the Mizrahi Defendants’ Costs Outline by an amount of approximately one half of the amounts claimed.

[71] Having regard to the above factors, therefore, I conclude that the Mizrahi Defendants’ partial indemnity costs for the Motion should be fixed at $373,860.25. In my view, that amount is a fair and reasonable amount. The costs are made up of $180,000 (including HST) for fees including attendance on the Motion, $165,000 (including HST) for expert fees, $3,000 for cross-examination transcripts (including HST) and $25,860.25 (including HST) in other disbursements.

[72] Payable forthwith.

L. A. Pattillo J.

Date of Release: August 17, 2016