Hayat v. Raja, 2016 ONSC 6805

CITATION: Hayat v. Raja, 2016 ONSC 6805

COURT FILE NO.: CV-10-409280

DATE: 2016-11-07

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ARIF HAYAT Plaintiff

– and –

MUSHTAQ RAJA, MARYAT INVESTMENTS INC., MINAJ TRANSPORT INC., MUNAZA RAJA, JANISH RAJA and DIRECT EX LOGISTICS INC. Defendants

Ron Sleightholm, for the Plaintiff Areesha Raja, for the Defendants other than Maryat Investments Inc. Gordhan Ambwani, for the Defendant Maryat Investments Inc.

AND BETWEEN:

MUSHTAQ RAJA, MARYAT INVESTMENTS INC. and MINAJ TRANSPORT INC., Plaintiffs by Counterclaim

– and –

ARIF HAYAT Defendant to the Counterclaim

HEARD at Toronto: February 29, March 1, 2, 3, 4, 7, 8, 9, 10 and 11, 2016 and by subsequent written submissions

REASONS FOR JUDGMENT

STINSON J.

Introduction

[1] This case concerns a business dispute between Arif Hayat and Mushtaq Raja. Between 2008 and 2010, Mr. Hayat and Mr. Raja were involved in a series of transactions. Over that period Hayat advanced to Raja more than $555,000, of which only $10,000 has been repaid.

[2] In this lawsuit, Hayat claims relief from Raja, Raja’s wife Munaza and son Janish, and three companies incorporated by Raja. Hayat seeks an accounting, a declaration that certain transactions were unconscionable and should be set aside, and damages. Among other grounds, Hayat’s claims are founded on fraudulent misrepresentation, debt, breach of fiduciary duty, and breach of contract. Hayat also advances a claim under the oppression remedy provisions of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA").

[3] The basic thrust of Hayat’s case is that: he made repeated advances to Raja; Raja did not tell him what he was actually doing with the advances; and, had Raja been forthcoming and disclosed to Hayat what he was doing, Hayat would not have made the advances or signed the documents that he did. As I will explain in due course, the various defendants advance crossclaims and counterclaims for specific relief.

The principal parties

[4] Hayat is a retired airline pilot. He worked for 35 years for Pakistan Airlines, latterly as a captain of a Boeing 747. In 2002, following his retirement, Hayat immigrated to Canada. Prior to his involvement with Raja, Hayat had no business experience and had not been involved with any corporations.

[5] Raja is an entrepreneur. He, too, is an immigrant to Canada, having arrived in 1977. He completed high school in Toronto. In business, he was employed for over 15 years in managerial positions by two large national chains in the hospitality industry. From 1990 until 2003, Raja personally owned and ran a series of restaurants and pubs, approximately ten in all. In 2003, he experienced serious financial reversals and had to close all of them. He also lost his house. Raja decided to change his focus and became involved in the trucking industry, a move that ultimately brought him into contact with Hayat.

Overview

[6] Hayat and Raja initially, in 2008, worked together in the trucking industry, when Hayat joined Raja’s one-man trucking company, Direct Ex Logistics Inc. (“Direct Ex”). Together, they drove the Direct Ex long-haul tractor-trailer rig under contract for FedEx. Hayat invested in Direct Ex on the premise that he was to become a 50% owner. Following his initial investment, Hayat advanced further money to Direct Ex by way of a loan. Hayat also loaned $150,000 to Raja by way of a payment made to another trucking company owned and operated by Raja, Minaj Transport Inc.

[7] By early 2009, the volume of business sent by FedEx to Direct Ex had declined significantly and the profitability of Direct Ex declined as a consequence. Following extensive discussions during their long haul trips, Hayat and Raja decided to become involved in the restaurant business in light of Raja’s substantial experience in that field. They considered various possible purchases and ultimately settled on a large restaurant in Vaughan, Ontario, known as the Dub Linn Gate Irish Pub (“DLG”).

[8] Raja incorporated Maryat Investments Inc. in February 2009 to carry out the purchase, but the transaction was not completed until September 2009. Between those two dates, Hayat advanced various additional sums to Raja’s companies and the parties signed a series of documents, including two Shareholder Agreements and a Loan Agreement. The circumstances and purpose of Hayat’s various advances and the various documents are disputed by the parties. Among the issues are Hayat’s status as a shareholder, officer, and director of Maryat.

[9] Raja began managing DLG in October 2009. He continued to do so until its sale in October 2010, save for a time in June and July of 2010 when he underwent heart surgery and convalesced. Hayat did not have a formal job title or regular responsibilities at DLG, although Raja left him in charge briefly when he was hospitalized in June 2010.

[10] Hayat complains that Raja kept him in the dark about the DLG business over most of the time it was operated, and was not forthcoming about Hayat’s ownership interest or the state of the operation. Raja denies these complaints and says that Hayat intentionally backed away from the business due to pressure from his family about being involved in a restaurant that sold alcohol.

[11] Raja says that, although Hayat agreed to convert his equity investments in Maryat into a loan payable to Minaj, he subsequently agreed to offer Hayat a 50% share of the net proceeds of the sale of DLG once the restaurant was sold. Raja says that he did so because of harassment from Hayat. Following the sale, there was nothing left after all expenses and creditors of the business were paid, and thus Hayat received nothing.

[12] Hayat and Raja describe the events over the two-year period of their relationship in significantly different ways. The case thus involves disputed questions of fact and issues of credibility.

Timeline

[13] Various documents help to establish a basic timeline over which key events occurred and funds were advanced. To assist in putting the disputed points in context, and to frame my analysis, I will begin with an outline of the undisputed points in the chronology:

(a) 2003 – Raja obtains his commercial trucking licence and begins to drive a transport truck tractor.

(b) 2005 – Raja incorporates his own trucking company, Minaj Transport Inc., and begins operations with a single tractor. It ultimately grows to the point that it operates some five tractors, with seven or eight drivers and gross sales of over $600,000.

(c) 2008 – Raja decides to pursue a business opportunity to provide trucking services for FedEx, outside Minaj Transport Inc. He incorporates Direct Ex (as 100% owner) and leases a tractor to provide services to FedEx.

(d) 2008 – At some point in 2008, Hayat is introduced to Raja. Hayat obtains a trucking licence and begins to drive with Raja for Direct Ex.

(e) October 23, 2008 – Hayat agrees to buy 50% of the shares of Direct Ex from Raja for $34,000. Raja prepares a Share Purchase Agreement that both parties sign and Hayat provides a bank draft payable to Direct Ex for $34,000. No share certificate is ever provided to Hayat.

(f) November 17, 2008 – Hayat advances a further $36,179 to Direct Ex. No loan agreement is prepared.

(g) December 4, 2008 – Hayat agrees to make a personal loan of $150,000 to Raja for a term of six weeks. The parties sign a Loan Agreement prepared by Raja. Hayat provides a bank draft payable to Minaj Transport Inc. for $150,000.

(h) Late 2008 to early 2009 – Hayat and Raja discuss the prospect of getting into the restaurant business. In due course their attention is drawn to DLG.

(i) January 20, 2009 – Hayat advances $30,000 by way of a bank draft payable to Minaj Transport Inc. No loan agreement is prepared.

(j) February 19, 2009 – Maryat is incorporated with Raja’s wife, Munaza, and Hayat as the first directors. The ostensible purpose of Maryat is to carry out the purchase of DLG.

(k) March 17 and March 19, 2009 – On these dates, respectively, Mrs. Raja and Mr. Hayat sign documents prepared by Raja tendering their resignations as officers and directors of Maryat. Raja becomes the sole officer and director of Maryat.

(l) March 24, 2009 – Hayat advances $55,000 to Minaj Transport Inc. by way of a bank draft. No loan agreement is prepared.

(m) May 2009 – Hayat and Raja sign two Shareholders Agreements in relation to Maryat, dated May 24 and 25, 2009. The parties now dispute who authored these documents.

(n) June 10, 2009 – Hayat advances $250,000 to Minaj Transport Inc. Hayat borrows the money by way of a draw down on a line of credit secured against his house. No additional documentation is prepared at the time to reflect the terms of the advance to Minaj.

(o) July 15, 2009 – Hayat, Raja, and Minaj Transport Inc. sign a document entitled Loan Agreement by which Hayat’s shareholding in Maryat and all of Hayat’s various advances to the various Raja entities are purportedly converted into a single loan payable to Hayat by Minaj Transport Inc. Raja purportedly becomes the sole shareholder of Maryat. The parties now dispute who authored this document.

(p) July 2009 to August 2010 – Raja makes a series of payments to Hayat on account of interest and principal for Hayat’s loan, in accordance with the July 15, 2009 Loan Agreement.

(q) September 24, 2009 – Maryat closes the purchase of DLG at a price of $250,000. The purchase price is paid by way of a cash payment of $200,000 and a $50,000 vendor take back mortgage.

(r) August 24, 2010 – Hayat issues the statement of claim in this action.

(s) August 30, 2010 – Raja signs an Agreement of Purchase and Sale with PB 10 Investments Ltd. (an arm’s length purchaser). This agreement was for the sale of DLG to PB 10 by way of Raja transferring 100% of the shares of Maryat for a price of $875,000.

(t) October 18, 2010 - Raja’s sale of Maryat’s shares to PB 10 Investments closes and Raja ceases to operate the restaurant. Raja personally receives a cheque for $777,966.75. Raja receives a further $20,000 post-closing.

Procedural history

[14] Hayat first consulted legal counsel in the fall of 2009, when (he says) he discovered that Maryat’s purchase of DLG had at last been closed without his knowledge and Raja had begun operating the restaurant. According to Hayat, Raja had not kept him informed and he was concerned about his interests and investment. Given the limited information and documents available at the time, Hayat did not initiate any legal steps. Hayat received advice, however, that he could tape record future discussions with Raja, something he proceeded to do. Some of those recordings provided important evidence at trial.

[15] Hayat ultimately commenced this lawsuit on August 24, 2010, shortly before Raja signed the agreement to sell Maryat to PB 10. Raja was served with the statement of claim and he delivered a notice of intent to defend on behalf of all defendants before the deal closed. The existence of a lawsuit involving Maryat was revealed to PB 10’s lawyer in one of the pre-closing searches he conducted. Despite that information, the deal proceeded. Raja assured the purchaser that he would look after the lawsuit. He did so by retaining and instructing counsel on behalf of all defendants. That counsel acted for all defendants until, on his own initiative, he was removed from the record in early 2015.

[16] At the time when all defendants were jointly represented by the same counsel, they served a common statement of defence and counterclaim. In that counterclaim, Maryat sought damages from Hayat based upon allegations that Hayat had mismanaged the restaurant when he was in charge of it in June - July 2010, and that he converted cash receipts from the business over that period.

[17] As the case approached trial, none of the defendants was represented by counsel for a considerable period of time. In early 2016, Maryat retained new counsel, and it served a new statement of defence, counterclaim, and crossclaim. In that pleading Maryat makes no allegations of misconduct against Hayat. In particular, the new Maryat counterclaim no longer asserts that Hayat converted cash receipts from the business while he managed the pub. Instead, it merely seeks declarations that the July 15, 2009 Loan Agreement superseded the prior agreements such that those prior agreements are no longer binding and do not prejudice the interests of Maryat. By way of crossclaim, Maryat seeks indemnity from Raja for any liability to Hayat. Although Maryat pleads no specific facts to support its crossclaim, among the documents in evidence is an indemnity signed by Raja in which Raja agrees to indemnify the purchaser (PB 10) for any breach of warranty contained in their Agreement of Purchase and Sale. PB 10 is not a party to these proceedings.

[18] Shortly before trial, new counsel went on the record for the remaining defendants. An amended statement of defence and counterclaim was served on behalf of Raja, Minaj Transport Inc., and Direct Ex. That pleading repeats the previous allegations of misconduct by Hayat while managing DLG. The counterclaim also purports to seek damages from Hayat arising from his actions while managing the pub, despite the fact that this pleading was not served on behalf of Maryat, the party harmed by Hayat's alleged wrongful conduct.

Assessment of evidence

[19] This case involves numerous disputed facts, not all of which are material. Although many documents were filed as exhibits at trial, their origins and the accuracy of their contents were sometimes disputed. As well, the documentary record was by no means complete: it was apparent that additional documents that could have further explained the transactions in dispute, and the flow of funds, were not produced. I will comment further on this latter point in due course.

[20] Since Hayat and Raja were the sole participants in the disputed transactions, the fundamental issues in this case turn on the assessment of their evidence. Their stories concerning the key events are sometimes difficult or impossible to reconcile. Not all of their testimony can be accurate. Whether this is due to faulty recollection or intentionally false evidence is challenging to decide. The credibility and reliability of the testimony of each of them is hotly contested.

[21] In Faryna v. Chorny (1951), 1951 CanLII 252 (BC CA), [1952] 2 D.L.R. 354, at 357 (B.C.C.A.), the Court described the fundamental test to be applied when evaluating testimony as follows:

… the real test of the truth of the story of a witness … must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.

There are, of course, numerous other considerations that assist in evaluating testimony, some of which I find helpful in this case.

[22] Raja is a very experienced businessman. He has considerable Canadian experience and has been involved with various enterprises in Canada over the course of more than three decades. He has: incorporated companies; bought, sold, and operated businesses in the restaurant and trucking fields; negotiated and signed leases for both premises and equipment; borrowed money; dealt with real estate and business brokers, accountants, and lawyers; and experienced business successes and failures. He “knows his way around.”

[23] By contrast, Hayat is - or at least he was, when he met Raja - a business novice. His previous working life had been spent in the cockpits of aircraft based in Pakistan, half-way around the world from Ontario. He had been in Canada only six years when the two met through a personal - not business - connection. At that point, Hayat had no business experience. He was unfamiliar with Canadian business practices, contracts, and companies. He had never worked in a restaurant, let alone been an owner of or investor in such an enterprise. Although he had brought with him to Canada a reasonable amount of personal capital, it was kept in the bank.

[24] Not long after they met, Hayat began working with Raja in Raja’s long-haul trucking business, Direct Ex. Together they drove thousands of miles, spending literally weeks together in the cab of the truck, eating meals and spending most hours of the day in each other’s company. They spent hours conversing about their lives, their personal and work backgrounds, their financial circumstances and their aspirations. I have no doubt that Hayat’s relative lack of business sophistication and naiveté were readily apparent to Raja, and that he gained Hayat’s trust and confidence with his descriptions and explanations of how business enterprises worked and made profits.

[25] The mere fact that Raja had far greater experience with Canadian business and corporate procedures does not, of course, automatically lead to any conclusion that his evidence should be considered to be more or less truthful or reliable than that of Hayat. It is, however, a relevant factor - and an important one - in assessing their respective explanations for how their relationship developed and the reasons for the various transactions and documents that are the subject of this lawsuit.

[26] Neither Hayat nor Raja was a particularly impressive witness, but for different reasons. My concerns about Hayat relate to the reliability of certain aspects of his evidence. More significantly, my concerns about Raja relate to his credibility, i.e. whether he was telling the truth in the witness stand.

(a) Hayat

[27] Although the basics of the monetary advances made by Hayat are established by the documentary record, Hayat did not display a very good memory in his oral testimony. His recollections were sometimes vague and at other times inaccurate. For example, he could not recall meeting a real estate agent or visiting the premises with that agent when he and Raja were considering the purchase of DLG. The real estate agent - Jack Maniscola - testified and confirmed that he had met Raja and his business partner and attended at DLG with them. Maniscola identified Hayat as that individual. Maniscola had a reasonably good recollection of his involvement in the early stages of the transaction. He was a wholly independent witness who displayed no bias in his testimony.

[28] Hayat testified that he was unaware of the purchase price of the restaurant. He was confronted with the fact that his signature (as a witness) was on a May 20, 2009 offer to purchase submitted by Maryat. He testified that he did not look at the page of this document that mentioned the price. On its face, this evidence seems difficult to accept. In light of the importance of this transaction and the amount of time, effort, and money that the parties had invested in pursuing the purchase, one might have expected Hayat to look at the price recited on the first page. That said, the May 20, 2009 offer was not accepted, and the purchase did not proceed until many months later.

[29] Additionally, Hayat’s evidence was that Raja kept him in the dark about the negotiations and the ultimate purchase price, telling him that the vendors wanted more money. That testimony was not contradicted by any documents. Indeed, the May 25, 2009 Shareholders Agreement (signed just five days after the May 20 offer) recites the purchase price for DLG to be $698,000. This was almost three times the price mentioned in the May 20 offer, and this despite the fact that there was no binding agreement at that time. Arguably, this, too, would be inconsistent with Hayat’s evidence that he was not told what the price was. However, in April 2010 (as described in more detail below) Raja told Hayat that the price paid was $1,200,000, whereas in truth it was just $250,000. Given the conflicting information provided to him, Hayat’s uncertainty concerning the purchase price is understandable and I would not discount the reliability of his evidence, nor his credibility, on this ground.

[30] On several occasions, Hayat’s trial testimony conflicted with his evidence on examination for discovery. For example, at trial he explained that his December 4, 2008 advance of $150,000 to Minaj Transport represented a loan to Raja. On discovery, he testified that the $150,000 was “for that business, for the restaurant.” The latter explanation cannot be correct because, at the time this money was advanced, the parties had not yet firmed up their plan to acquire a restaurant, let alone arrived at the point where funds were required to proceed with the purchase. It may be that, in retrospect, Hayat viewed all of his advances as being folded into the restaurant transaction. Indeed, the May 25, 2009 Shareholders Agreement concerning the Maryat purchase of DLG recites Hayat’s prior contributions as including the $150,000 advance.

[31] Hayat denied that any construction work was performed at DLG. The real estate agent, Maniscola, testified that, when he first showed it to Raja and Hayat, the restaurant was pretty worn down and in need of considerable improvement. The photographs tendered in evidence by the defendants purport to represent “before and after” pictures—a fact disputed by Hayat—as well as some active construction work. Although Maniscola was unable to identify the specific pictures, the so-called “before” photographs correspond with the condition of the premises when he showed them to Hayat and Raja.

[32] Despite the fact that the various photos clearly show improvements to the premises, when he reviewed them Hayat consistently picked out all the pictures labelled “after” and claimed that they showed the state of the premises in 2008, when he first saw DLG, i.e. before the purchase. To my eye, the photos he selected depict an enhanced facility in very good - almost “like new” - condition, quite unlike the premises described by Maniscola. Hayat’s evidence regarding the condition of the premises when he first visited them gave me some concerns about the reliability of his memory and hence the reliability of some aspects of his evidence. That said, it is not clear that Hayat was physically present at DLG when the renovations were carried out.

[33] Hayat also tried to downplay the significance of his role in the operation of the restaurant, perhaps with a view to enhancing his argument that Raja improperly froze him out of the business - and thus distancing himself from the defendant’s counterclaim. Yet Hayat was in frequent attendance at DLG over a lengthy period of time after it began to operate under Raja’s management. Hayat believed that he had a large financial stake in the enterprise, so it is logical that he would want to be there. He had no other ongoing occupation. It is also unlikely that Raja would have put Hayat in charge when Raja was recuperating from surgery if Hayat had as little familiarity with the business as he now claims. While I accept that Hayat was the less sophisticated business person, at times his claimed level of uncertainty and unfamiliarity with the affairs of DLG and Maryat seemed somewhat overstated.

(b) Raja

[34] I turn now to evaluating Raja’s evidence. To begin with, I note that Raja signed multiple affidavits of documents in this proceeding. In each, he attested that he had disclosed all relevant documents that were or had been in his possession. As is apparent from the fact that he signed multiple affidavits of documents, several of them were incomplete. Additionally, on repeated occasions during his testimony, Raja alluded to other documents that, he suggested, would confirm his version of events. However, he had not produced the documents he referred to and they were (for the most part) not forthcoming at trial. If nothing else, this suggests that Raja was casual about the truth of his affidavits when he attested they were complete.

[35] Significantly, Raja did not produce at trial an accounting of the funds he received from Hayat nor a comprehensive documentary record to show what became of those funds. Also conspicuous by its absence was persuasive evidence concerning how much money (if any) Raja personally invested in the joint business. While he did produce copies of various bank drafts that he claimed were written to settle outstanding debts or expenses after the sale of Maryat in 2010, he did not produce his personal bank records to explain what became of the almost $800,000 he personally received when Maryat was sold. His failure to do so is a striking omission.

[36] One very important piece of evidence that is relevant to assessing Raja’s credibility is a series of audio recordings made by Hayat beginning in April 2010 when the parties’ relationship was in decline. The recorded discussions were in the parties’ native language, Urdu, and were transcribed and translated into English. The defendants strenuously objected to their admissibility but, following a voir dire, including uncontradicted expert evidence from an Urdu language translator and transcriptionist, I found them to be accurate and admissible. No issue was raised regarding their relevance. In several ways, the recorded conversations support the plaintiff’s case. The import of the conversations was not contradicted or explained away by the defendants’ testimony. They contain several statements by Raja that are consistent with the plaintiff’s story and inconsistent with Raja’s version of events.

[37] Of particular significance is an April 2010 recording in which Raja assured Hayat that the purchase price they had paid for the restaurant was $1,200,000 - plainly a false statement. Raja promised to show Hayat the purchase documents, but never did. Had he followed through and done so, the Statement of Adjustments for the purchase would have revealed that the actual price paid was $250,000, comprised of $200,000 cash and a $50,000 vendor take back mortgage. Even adding in expenses for rental deposits and renovations, the total acquisition cost was closer to half the amount stated by Raja. Yet, according to Raja’s other trial evidence the costs of the renovation work (more than $240,000) had still not been paid by April 2010, despite advances by Hayat to Minaj Transport and Maryat totaling $485,000 – almost double the purchase price.

[38] In another of the April 2010 recordings, Raja assured Hayat that he was a 50% shareholder in Maryat. Raja said this to Hayat despite the fact that the July 2009 Loan Agreement (upon which Raja now relies) purports to indicate that Hayat was just a lender. Raja assured Hayat that he would receive a Maryat share certificate shortly. It was never forthcoming.

[39] These recorded statements by Raja were made at a time when Hayat was pressing him for information and documents regarding the DLG acquisition, and Hayat’s ownership interest in Maryat. They suggest that Raja was not merely unforthcoming with information and documents; he was prepared to tell Hayat whatever he felt was necessary to satisfy Hayat’s inquiries, regardless of the truth or falsity of what he was saying. They raise very serious doubts about his credibility.

[40] Other aspects of Raja’s testimony raised additional concerns. During the course of his cross-examination by Hayat’s counsel, Raja sometimes gave non-responsive answers or offered information that was not sought, presumably in the belief that it helped his case. On other occasions, he became argumentative. He had to be reminded that he was there to provide information, and nothing more. On at least one occasion he was reluctant to admit the obvious: that he had no receipt from the Canada Revenue Agency for the payment of the withholding tax he claimed to have remitted in late 2010. By answering as he did, and by stepping out of the role of witness, Raja gave the impression that he was trying to argue his case. To me, this conduct further detracted from his credibility because it suggested that his evidence was, in part, tailored to fit his theory of the case, or at least to support his defence as he perceived it.

[41] Raja’s approach to managing funds, and keeping books of account and corporate records, can best be described as casual in the extreme. Early on in his dealings with Hayat, Raja commingled money that had been provided by Hayat for business purposes with his personal finances. Despite the fact that - according evidence of both of them - Hayat and Raja were 50/50 co-owners of Direct Ex by the late fall of 2008, Raja continued to use the Direct Ex bank account to pay his personal expenses. The limited banking records that were produced reflect the fact that funds that Hayat paid into Direct Ex - in the belief they were being used for business purposes - were in large measure used by Raja to pay his own expenses, such as the purchase of over $9,000 of airline tickets for Raja’s family to travel to Pakistan for a family wedding.

[42] Raja’s casual approach to using funds in the corporate bank account to pay his personal expenses continued after Hayat became a co-owner of Direct Ex and Hayat advanced further funds to the business. Raja even used the bank account of Maryat to pay personal expenses after the sale of the business to PB 10, at a time when he was telling Hayat that there was no money left after the sale. Raja’s ongoing practice of using corporate funds to pay personal expenses reflects a lack of attention to the interests and concerns of his business partner and raises serious doubts about the honesty of his business practices.

[43] As well, despite his experience with incorporating companies for business purposes, Raja took a casual approach to corporate organization and management. Three corporations featured prominently in the evidence - Direct Ex, Minaj Transport, and Maryat - yet the minute books or other corporate records of these corporations were not tendered in evidence. At some stage, at least, Hayat was supposedly a shareholder of Direct Ex and Maryat. There is no evidence that Raja (who arranged for the incorporation of both companies) arranged for any shares or share certificates to be issued to Hayat. Raja’s explanation - that he offered to provide Hayat with a share certificate for Direct Ex, but Hayat declined - makes little sense. Why would someone who had just paid $34,000 to become a shareholder (and who had signed a Share Purchase Agreement) refuse to accept a share certificate? Raja’s attempt to explain away his failure to provide a share certificate on this basis further detracts from his credibility.

[44] This takes me to the other documents signed by the parties. Raja agreed that he prepared some of them, but asserted that the most significant ones (the May 24 and 25, 2009 Shareholders Agreements and the July 15, 2009 Loan Agreement) were created by Hayat. Hayat denied doing so.

[45] It is undisputed that Raja prepared the October 2008 Share Purchase Agreement when Hayat first invested in Direct Ex, and the December 2008 Loan Agreement for the $150,000 advance. Raja also prepared the March 2009 letters of resignation for Hayat and Mrs. Raja to sign, removing them as directors of Maryat. Raja was and is a far more sophisticated and experienced business person than Hayat. The language in the May 24, 2009 Shareholder Agreement in particular reflects fairly sophisticated legal concepts, with which Hayat was unlikely to be familiar. Raja had previously dealt with Canadian lawyers, but there is no evidence that Hayat did so before he sought legal advice many months later regarding the issues that gave rise to this lawsuit. Given the foregoing, it makes sense that Raja would be much more capable than Hayat of generating the May and July 2009 documents, or of having the contacts and resources that would enable him to do so.

[46] Another significant point is that the May 25, 2009 Shareholders Agreement purports to record that Raja “has contributed $456,000” toward the purchase of DLG. That information could only come from Raja. His explanation at trial was that Hayat included this number when he prepared the document, based on information supplied by Raja during their truck driving trips. Raja further explained that the $456,000 was intended to represent his intended future contributions (despite the fact that the May 25 document included a breakdown of the total sum, listed in the past tense).

[47] Raja’s explanation does not ring true. The information, the verb tense, the breakdown, the detail, and the other factors mentioned above all point to Raja being the author. And the net result of the documents in question was unquestionably favourable to Raja. I therefore conclude that Raja and not Hayat was the author of the two Maryat shareholders agreements and the July 15, 2009 Loan Agreement. Although Hayat admitted that he read and understood the documents he was signing, and that he was neither forced nor coerced into signing them, it is apparent that Hayat trusted Raja’s explanations for why they were appropriate at the time they were signed. I will return to this topic in due course.

[48] A further occasion when Raja made a false statement to advance his own interests was in connection with the sale of the shares of Maryat to PB10. This lawsuit was commenced on August 24, 2010. In the Agreement of Purchase and Sale, signed on August 30, 2010, Raja represented that there was no pending litigation against or involving Maryat or its shares. Raja was aware of this lawsuit before the deal closed on October 18, 2010, yet on that date he signed a Statutory Declaration attesting that all the representations and warranties contained in the Agreement of Purchase and Sale were “true and accurate as at [the date the Agreement was signed] and are true and accurate on … the Closing Date.” His Statutory Declaration was plainly false, on a highly material point. This is another example of Raja misstating the truth, and saying what he needed to say to achieve his own objectives, regardless of the accuracy of what he was saying.

(c) Conclusion re assessment of evidence

[49] I am confronted in this case with a situation in which the evidence of neither of the principals was very persuasive. I am required, nonetheless, to make findings of fact applying the "real test of … truth" as described above, drawing inferences where appropriate, and applying the rules of burden and standard of proof as required.

[50] Overall, the evidence of Hayat, while not wholly reliable, reflects the recollections of someone with a less than perfect memory who was an unsophisticated investor who did not fully understand the milieu or the transactions in which he became involved. He placed his trust in a far more experienced and savvy business partner. The accuracy of Hayat’s recollections also may have been influenced to some degree by his embarrassment and chagrin at his own gullibility at having advanced and lost such a significant sum without any security or other proper record of what became of his investment. On the key points about Raja keeping him in the dark about the purchase, and Raja being the author of the May and July 2009 documents, Hayat’s evidence was not shaken. For the most part, his story makes sense. I have no significant concerns regarding his credibility.

[51] By contrast, the evidence of Raja suggests a largely after-the-fact attempt to explain and legitimize the way in which he did business and what became of Hayat’s money, despite significant gaps in the timeline and the documentary record. In particular, the audio recordings show that Raja lied to Hayat about the purchase price for DLG, and they support Hayat’s contention that he was kept in the dark about the restaurant purchase transaction. These and other aspects of Raja’s evidence described above give me serious cause to doubt his credibility.

[52] Accordingly, where there is any material conflict between the testimony of Hayat and that of Raja that is not corroborated or explained by a reliable, undisputed, contemporaneously-prepared document that supports Raja’s version, I prefer and accept the evidence of Hayat over that of Raja.

Findings of fact re impugned transactions

[53] As mentioned previously, the basic thrust of Hayat’s complaint is that he continued to advance money to Raja over the period November 2008 through June 2009 in the belief and understanding that Raja was applying it appropriately and for the purposes intended, and that the transactions were what Raja represented them to be. For simplicity, I will review the circumstances surrounding the various transactions and determine the basis upon which the payments were advanced and how they were in fact applied.

(a) Hayat’s advance of $34,000 on October 23, 2008

[54] This advance was intended as payment for a 50% equity interest in Direct Ex. I find as a fact that virtually all of this advance was used by Raja to pay personal expenses, and not for business purposes. No share certificate was issued. Hayat received no value for this advance.

(b) Hayat’s advance of $36,179 on November 17, 2008

[55] Hayat’s second advance to Direct Ex, $36,179, was deposited to the bank account of Direct Ex. At the time he made this loan, Hayat was unaware that the funds previously advanced by him had been used by Raja for personal expenses. The second advance was intended as a loan to the company for the purpose of assisting in the acquisition of a second truck. As it turns out, these funds were not used for that purpose, because a second truck was never acquired. Rather, the bank records of Direct Ex reflect an ongoing pattern of questionable withdrawals and charges over the succeeding months. There is no evidence that anyone other than Raja had access to or control over this account.

[56] Raja failed to provide a satisfactory accounting for his dealings with this bank account. In fairness to Raja, he did mention that he and Hayat were paid in cash for their work with Direct Ex. These are likely represented by a series of cash withdrawals in the amount of $3,000 that were made on semi-regular intervals. That may explain some, but certainly not all, of the otherwise-unexplained charges to this account. For example, on one occasion (December 12, 2008) there was a cash withdrawal of $25,000, a sum that is vastly out of proportion to any amount that might be classified as salaries for Hayat or Raja.

[57] There are numerous other questionable withdrawals or charges to the Direct Ex account, such as payments for Visa cards, Enbridge, Peel Water Services, Shoppers Drug Mart, Best Buy, Walmart, and Future Shop. There are also numerous charges to clothing stores, restaurants, and food stores, plainly none of which were proper business expenses for a trucking company. The Direct Ex records thus reflect a practice of Raja using the corporate bank account and funds as a source to pay his personal expenses. In addition to this evidence of these misapplications of corporate funds, the bank account statements reflect numerous ATM withdrawals for amounts ranging from $200 to $1,000, quite apart from the $3,000 withdrawals that reflect (arguably) wages for Hayat and Raja.

[58] Assuming that the numerous $3,000 cash withdrawals were legitimate payments to Hayat and Raja for wages, I calculate the inappropriate charges at more than $44,000. I have summarized the charges that I find to be, and classify as, inappropriate withdrawals by Raja in Appendix A to these reasons. These payments total well in excess of the second advance made by Hayat to Direct Ex ($36,179). This means that, in effect, Raja used all of Hayat’s November 17, 2008 advance to Direct Ex to pay his personal expenses.

[59] I find as a fact that at least $44,000 of funds of Direct Ex were used by Raja for his personal expenses. Raja did not disclose this to Hayat. Raja also did not disclose that the October 23, 2008 advance had largely been used to fund Raja's personal expenses. I conclude that had Raja done so, Hayat would not have advanced the $36,179 or any of the further amounts he did.

(c) Hayat’s personal loan of $150,000 to Raja on December 4, 2008

[60] This payment was somehow advanced by way of a bank draft payable to Minaj Transport Inc. I find as a fact that Raja used over half of these funds to pay for his daughter’s wedding, something he did not disclose to Hayat. Despite the fact that the loan had a six week term, it was not repaid when due in January 2009. Instead, based on Raja’s representations that the restaurant deal was proceeding, this otherwise repayable debt was “rolled over” and eventually came to be treated as part of Hayat’s investment in Maryat.

(d) Hayat’s advances of $30,000 and $55,000 to Minaj Transport Inc. on January 20 and March 24, 2009

[61] These payments were made by Hayat on the basis of his understanding (based on what he was told by Raja) that this money was required for the restaurant deal, despite the fact that no restaurant deal was in place. By now, taking into account the $150,000 “loan” and these two further advances, Hayat had advanced $235,000 to Raja’s company, Minaj Transport (in which Hayat had no interest, unlike Direct Ex) and had been provided with no security. Hayat did so on the basis of Raja’s assurances that he was pursuing the restaurant acquisition and the funds were required for this purpose. I am satisfied that, had Raja not led him to believe that his money was required for the restaurant, Hayat would not have advanced the funds.

(e) Hayat’s resignation as a director of Maryat on March 19, 2009

[62] Soon after Maryat’s incorporation with Hayat and Raja’s wife, Munaza Raja, as first directors (February 19, 2009) Raja arranged for them to resign (on March 17 and 19, 2009). As a consequence of their resignations, Raja became the sole officer and director of Maryat, thus giving him control of the corporation. I find as a fact that Raja persuaded Hayat to resign on the basis of his false representation that the landlord of the premises in which DLG is located required the principals of the purchaser corporation to provide a personal guarantee for the lease, thus putting their personal assets at risk. At this stage, there could not have been any such requirement or demand from the landlord because there was no deal with the vendors of DLG. Thus, a discussion or negotiation with the landlord was premature and could not have taken place at that time.

[63] Indeed, there is no documentary evidence to support Raja’s contention that the landlord of DLG ever required a personal guarantee, or that Raja gave one. Despite its purported significance, no copy of such a guarantee was produced at trial. The Agreement of Purchase and Sale by which Maryat purchased DLG says nothing about a personal guarantee, nor does the Assignment of Lease. The latter document merely provides that the vendor will remain liable on the lease as well as Maryat.

[64] Although Maryat was represented by a lawyer retained by Raja on the purchase (Morris Goldstein – the same lawyer who acted for Raja on the sale of Maryat’s shares), Goldstein’s reporting letter to Maryat on the acquisition was not produced. Presumably it would have made reference to the alleged personal guarantee; it is logical that a copy would have been contained in his file. Indeed, although Goldstein could have clarified various aspects of both the 2009 purchase and the 2010 sale transactions, the defendants did not call him as a witness. Calling him was within their power and his evidence should have supported their case. Based on the defendants’ failure to do so, I draw an adverse inference that Goldstein’s evidence would not have been favourable to them: see Sopinka, Lederman & Bryant, The Law of Evidence in Canada, 4th ed. (Toronto: Lexis Nexis, 2014) at 386-387.

[65] I am aware that the principal of PB 10, Bhalwant Bhangu, testified that Raja had given a personal guarantee for the DLG lease, up until 2014. On cross-examination, he said that Raja had told him about the guarantee. When pressed whether he saw a copy, he responded that Raja's signature was on the lease.

[66] As in the case of the alleged personal guarantee, the lease of the DLG premises was not put in evidence, although the September 2009 Assignment of Lease to Maryat as assignee was. It was signed by the former tenant, by the landlord, and by Raja on behalf of Maryat. It may be that this is the document mentioned by Bhangu. Significantly, although it sets out the terms upon which the landlord is granting its consent, the 2009 Assignment of Lease makes no mention of a personal guarantee as a condition of the landlord consenting to the assignment. There is also no mention of such a guarantee in the 2010 Agreement of Purchase and Sale between Raja and PB 10 or in the lawyer’s reporting letter to PB 10 concerning its acquisition of Maryat. I therefore place no reliance on Bhangu’s testimony that he saw the guarantee signed by Raja because he had no direct knowledge about the alleged guarantee.

[67] In all the circumstances, I find as a fact that the landlord did not require a personal guarantee as a condition of consenting to the assignment of the lease in 2009 and that Raja never provided one. It follows that Raja’s purported explanation to Hayat that led to Hayat's resignation as a director of Maryat, namely that a personal guarantee was required, was false. I conclude and find that Raja's purpose in having Hayat resign as a director and officer of Maryat (which was consummated by way of the July 15, 2009 Loan Agreement, discussed below) was to obtain sole control over the affairs of Maryat to the exclusion of Hayat, its principal (and likely sole) funder.

(f) The May 2009 Shareholders Agreements

[68] Hayat and Raja signed two Shareholders Agreements in relation to Maryat, dated May 24 and 25, 2009. As I have previously found, Raja prepared them and had Hayat sign them. The May 24 document confirmed they were to be 50/50 shareholders. It also set out other details of their relationship as shareholders and joint operators of the business, despite the fact that no purchase agreement for DLG was in place yet.

[69] The May 25 document purported to recite that Maryat would be purchasing DLG for $698,000, again despite the lack of any purchase agreement. It stated that Hayat had contributed $286,000 and that Raja “has contributed $456,000.00 as follows: $350,000.00, $50,000.00, and $56,000.00 for a total of $456,000.00 in the corporate account,” or $170,000 more than Hayat. It went on to provide that Hayat’s $150,000 loan to Raja “is no longer in effect … and has been subsumed by this agreement” and was to be treated as part of Hayat’s contribution of $286,000. The latter sum was stated to be comprised of contributions by Hayat of “$150,000.00, $30,000.00, $50,000.00 and $56,000.00.” The reference to $50,000 is incorrect, because Hayat's third advance to Minaj was, instead, $55,000. The specific source of the $56,000 number is unclear, although it may be somehow a partial incorporation of Hayat’s previous advances to Direct Ex into the Maryat deal. Raja did not explain this number, since he denied having authored this document, a denial I disbelieve. In all, to this point and based on the evidence I accept and the documentary record, I find as a fact that Hayat had, to this point, advanced a total of $235,000.

[70] What is clear, however, is that there is no credible or reliable evidence that Raja had advanced any sums toward the planned restaurant venture or that he later did so. It should have been easy for him to demonstrate his contributions by producing financial records, but he failed to do so. Hayat never saw anything in writing to show that Raja had invested $456,000; in Hayat's words “I trusted him."

[71] I find as a fact that the contributions attributed to Raja are fictitious and were never made. I further find as a fact that, by preparing the May 25 document, Raja intended to mislead Hayat as to the true status of the purchase transaction and Raja’s purported investment in it. He did so with the purpose of persuading Hayat to continue to remain involved in the venture, to refrain from demanding the return of his previous advances, and also with a view to inducing Hayat to advance further funds in the future.

[72] Raja achieved his goal. In reliance on Raja's false representation that Raja had contributed $170,000 more than he had, Hayat advanced, on June 10, 2009, an additional $250,000 to Minaj Transport Inc. for purposes of the Maryat venture, by drawing on the line of credit on his house. But for the false information contained in the May 25, 2009 Shareholders Agreement, Hayat would not have borrowed the $250,000, nor would he have advanced these funds.

[73] Based upon the contents of the two Shareholders Agreements, it is plain and I find as a fact that Hayat’s original $150,000 loan and his subsequent advances of $30,000, $55,000, and $250,000 (a total of $485,000), although paid to Minaj Transport, were intended by him and agreed by Raja to be Hayat’s investment in Maryat, in exchange for a 50% shareholding. Although Hayat paid for his shares, they were never forthcoming.

(g) The July 15, 2009 Loan Agreement

[74] As previously stated, I find that this document, too, was prepared by Raja. The purported effect of this agreement was to convert Hayat’s shareholding in Maryat and all of Hayat’s various advances to the various Raja entities into a single unsecured loan, payable by Minaj Transport Inc.

[75] According to Hayat, Raja told him that this transaction was necessary to enable Raja to satisfy the landlord of DLG that Hayat had no interest in Maryat; otherwise the landlord required Hayat's personal guarantee. Raja testified that Hayat prepared the document in order to remove himself from a business that served alcohol due to pressure from his family.

[76] For the reasons previously given, I reject Raja's evidence and accept Hayat's. Raja's repeated statements that Hayat’s personal guarantee was required if Hayat was a shareholder were false. They were made (initially) to induce Hayat to resign as a director and thereafter to surrender his interest in Maryat and convert all his advances into an unsecured loan to Minaj Transport. But for Raja's misrepresentations, Hayat would not have signed the Loan Agreement. It had the effect (on paper, at least) of consummating Raja's plan to acquire full control of Maryat.

[77] It is also important to bear in mind that the Loan Agreement was signed in the wake of the May 25 Shareholders Agreement in which Raja falsely represented to Hayat that he had himself invested $456,000 in the restaurant venture. As I have previously noted, that misrepresentation by Raja was made, in part, to induce Hayat to invest further funds. I conclude and find that, had Hayat been aware that Raja had invested nothing, he would have been unwilling to convert his shares into an unsecured loan to Raja’s trucking company.

[78] The defendants made much of the fact that, after July 15, 2009, Hayat received monthly payments from Minaj Transport and Maryat on account of the loan described in the July 15, 2009 Loan Agreement. Those payments were, however, required to enable Hayat to service the debt he had taken on to make the $250,000 advance to Minaj in June 2009 by way of a draw down on the line of credit secured against his house. Had those payments not been made, Hayat would undoubtedly have taken legal steps against the defendants long before he did. In effect, by making the monthly payments (likely out of Hayat’s own money), Raja kept Hayat at bay and in the dark.

[79] Apart from the loan payments, and occasional cash payments on account of some of the work performed by Hayat at DLG in subsequent months, with one exception Hayat received no repayment from Raja for all the money he advanced. The sole exception was two $5,000 payments (a total of $10,000) that Hayat insisted Raja make, so that Hayat could pay for his daughter's education.

(h) Raja closes the deal to purchase DLG in September 2009

[80] Following the execution of the Loan Agreement, Raja was free to - and did - proceed with the acquisition of DLG on his own terms. He closed the deal on September 24, 2009 at a price of $250,000 by way of a cash payment of $200,000 and a vendor take back mortgage of $50,000. Thus, despite having received a total of $485,000 from Hayat for the ostensible purpose of purchasing DLG, Raja expended less than half that amount to become the owner. He offered no satisfactory evidence to explain what happened to the other $285,000 that he received from Hayat.

[81] Following the closing of the purchase, Raja renovated the pub, reopened it, and began to operate it. I find as a fact that renovations were carried out but, for the reasons that follow, I do not accept Raja’s evidence regarding the amounts those renovations cost or what was actually expended.

[82] At trial, Raja purported to identify a series of photocopies of documents said to be the Customer’s Record of Draft Purchased for various bank drafts he claimed he purchased following the sale of Maryat in October 2010, in order to pay various liabilities incurred in relation to DLG. Once again, the authenticity of these documents was disputed by the plaintiff. Although some of the drafts were payable to government agencies, at least one payment is of doubtful authenticity, being $240,500 purportedly paid in November 2010 to the contractor who had done the renovation work in September 2009. No representative of the contractor testified to prove its invoices, to authenticate the receipts for these alleged payments, to explain why the contractor waited over a year to be paid such a significant sum for the work, or to testify that the draft was ever received or negotiated. Raja failed to produce his personal bank records showing that the drafts were actually purchased and not re-deposited. In the absence of corroborating or supporting evidence I do not accept Raja’s evidence regarding the sums supposedly paid for the renovations.

[83] At one stage soon after the purchase, Raja involved another investor in the pub and received funds from him. Their relationship was short-lived, however, and Raja ended up repaying the money he received from that person.

[84] Following the purchase, Hayat had some limited involvement in working in a minor capacity at DLG, although he was not an active manager and was not conversant with the finances of the business. Hayat repeatedly sought information about the business from Raja, but was rebuffed. Raja shared very little financial information, leading Hayat to become more and more frustrated to the point he sought legal advice and began secretly recording their conversations. As I have noted, during the course of one such conversation, Raja lied to Hayat about the purchase price paid for DLG, essentially to keep Hayat placated. He also assured Hayat that he would again become a director and would receive his 50% share. Neither event transpired.

(i) The events of June – July 2010

[85] In June 2010, Raja had a serious heart attack. He was faced with the prospect of a risky medical procedure that he might not survive. In advance of his surgery, Raja took steps to put in place arrangements to deal with Maryat, DLG, and Hayat. These included providing Hayat with a Notice of Change to file with the Province of Ontario, reciting that Hayat was again a director of Maryat. It was never filed. He also put Hayat in charge of the operation of the business.

[86] As events unfolded (happily) Raja survived his surgery and regained his health. He claimed he was unhappy with the way in which Hayat had managed DLG and accused Hayat of having stolen some of the cash receipts of the business while he was in charge. Hayat denied the accusation. The parties’ relationship became adversarial and this litigation followed.

[87] In relation to the allegation that Hayat stole some of the cash receipts of the business during the time he was in charge (a charge that Hayat denied), the evidence presented by Raja to support this very serious allegation was scanty and of doubtful authenticity. The records of the business showing daily receipts were not produced, although a “Daily Summary Report” purporting to summarize all sales between June 6 and July 31, 2010 was placed in evidence by the defendants. Its authenticity was disputed by the plaintiff and, in my view, for good reason. It recites total sales during that eight week period (less than two months) as $233,034 or more than $29,000 per week. However, the Maryat financial statements show total sales for the full 12 months ending September 30, 2010 as $785,908 or approximately $15,000 per week. This disproportionate allocation of annual revenue (almost 30%) to the period of less than eight weeks while Raja was ill and a far less experienced manager, Hayat, was supposedly running the business leads me to doubt the authenticity of the summary.

[88] Nor was there sufficient direct evidence that Hayat had access to the disputed funds. One former employee-server testified, but her evidence was limited and did not come close to establishing a defalcation of the magnitude of which Hayat stands accused, or to proving that he was personally or solely responsible for the alleged shortfalls. Over the relevant time period, deposits continued to be made to Maryat’s bank account - albeit not in the same amounts as before Raja’s absence. Further, as I have noted previously, the wronged party was Maryat, and at trial it no longer advanced the allegations against Hayat for these alleged wrongs. In the circumstances, I do not find this accusation proven on a balance of probabilities.

(j) Raja sells the shares of Maryat to PB 10 in October 2010

[89] Despite Raja’s knowledge of Hayat’s lawsuit alleging oppressive conduct by Raja and claiming a beneficial interest in Maryat, Raja completed the sale of Maryat to PB 10 on October 20, 2010. Raja received almost $778,000 on closing and a further $20,000 a month later. Although Raja had assured Hayat in the spring of 2010 that he was a 50% owner and promised he would pay him half the proceeds of any sale of the business, Hayat received nothing. Raja claimed that, after he paid all the outstanding liabilities of Maryat, there were no funds left over.

[90] Although Raja produced the corporate bank account records for Maryat for the period up until January 2011, they show that only $97,000 of the $798,000 cash paid to Raja was deposited in the old corporate bank account to cover various Maryat liabilities. The bank records also show that Raja reverted to his old habit of using corporate accounts to pay personal expenses. Among the post-closing expenses paid out of the old Maryat bank account in November and December 2010 were multiple debit card payments to Petro Canada, Costco, a hair stylist, a drug store, and a kebob restaurant.

[91] Significantly, Raja failed to produce his personal bank records showing the distribution of the almost $800,000 he received from the sale. Nor was there any explanation for Raja’s failure to deposit the money owed for Maryat’s debts into Maryat’s bank account. At the very least, that natural course of action would have resulted in a proper record of the funds received and the payments made. At the time he received the money from PB 10, Raja was aware that he was being sued by Hayat in relation to Maryat’s affairs. It would have been straightforward and logical for him to handle the sale proceeds carefully. Instead, he chose to again mix them with his personal affairs, and then failed to account for the funds.

[92] Overall, the records produced by Raja fall far short of providing a satisfactory accounting for the proceeds of the sale of the shares of Maryat to PB 10. I have no hesitation in finding that he has failed to account for the funds.

(k) PB 10’s knowledge of the lawsuit

[93] As I have mentioned previously, the existence of a lawsuit involving Maryat (this action) was discovered by PB 10’s lawyer, Amandeep Kapila, through one of the pre-closing searches he conducted. In turn, Kapila informed his clients (the principals of PB 10) by providing them a copy of the search. He testified that he recommended further investigation of the lawsuit, but they declined, despite receiving independent legal advice. According to Kapila, the clients responded that they had spoken to the vendor (Raja).

[94] What emerges from the foregoing is that the new owners of Maryat were aware of the existence of this lawsuit before they closed the purchase. They could easily have obtained additional information, including a copy of the statement of claim. Had they done so, they would have learned that Hayat was asserting that he was a 50% shareholder of Maryat. They further would have learned that Hayat was claiming a beneficial interest in Maryat’s assets and relief under the oppression remedy provisions of the OBCA, including an order that the defendants purchase Hayat’s shares in Maryat. Instead, they chose not to go beyond the information provided by Kapila and Raja. It therefore follows that they cannot claim to have had no notice of Hayat’s claims.

[95] In any event, at the relevant times, Raja was the directing mind and sole director and officer of Maryat. It follows that, prior to the sale, Maryat was fixed with knowledge of Raja’s conduct; it was also fixed with knowledge that Hayat was asserting oppression and seeking relief arising from the circumstances under which (a) Raja acquired Hayat's shares, (b) Maryat was capitalized, and (c) Maryat acquired and operated DLG.

Analysis of the plaintiff’s claims

[96] Hayat’s complaints regarding his interactions with Raja can be divided into two broad categories: those which concern their dealings regarding Direct Ex, and those which concern their dealings regarding Maryat and DLG.

[97] In relation to Direct Ex, the essence of Hayat's complaint is two-fold. First, that he advanced funds to Direct Ex to become a shareholder, but was never issued shares. Second, that Raja used the bank account of Direct Ex to pay his personal expenses, thus using up a significant portion of the funds that Hayat advanced by share purchase and loan intended for corporate purposes.

[98] In relation to Maryat and DLG, Hayat's complaints are more broad reaching and significant from a monetary perspective. In essence, Hayat complains that Raja, on behalf of and through the medium of Maryat, fraudulently induced him to capitalize Maryat, resign as a director, then forgo his shareholdings in Maryat, leaving Raja in complete control. Subsequently, despite Raja’s acknowledgement that Hayat was entitled to a 50% interest in Maryat (and at a time after Hayat had commenced this proceeding against Raja and Maryat), Raja purported to sell all the shares of Maryat and personally received the proceeds of sale, paying nothing to Hayat.

[99] Based on the foregoing, Hayat seeks relief based on, among other grounds, fraudulent misrepresentation and the oppression remedy provisions of the OBCA. In my view, for the reasons that follow, Hayat has established a basis for relief on each of these grounds. I will begin my analysis with a summary of the relevant legal principles.

Fraudulent misrepresentation

[100] Fraudulent misrepresentation is a cause of action in both contract law and tort law. Although the same facts will often support an action framed in contract or tort, there are some differences between the required elements and available remedies for each.

[101] While a tort claim requires that the plaintiff have suffered damage as a result of his or her reliance on a fraudulent misrepresentation, a contract claim does not. Practically speaking, the plaintiff in a contract claim will usually have suffered damage. However, the nature of the wrong in contract is simply that the plaintiff was induced to enter a contract that he or she would not have otherwise entered, regardless of whether the plaintiff suffered actual damage. This concern is reflected in the nature of the typical contract remedy (rescission). In tort, the damage is the nature of the wrong, i.e. tort law compensates plaintiffs for harm/damage caused by the wrongful acts of others. The tort remedy is to put the plaintiff in the position he or she would have been in had the tort not been committed.

[102] The Supreme Court of Canada has held that “where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue in tort.” BG Checo International Ltd v. British Columbia Hydro & Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12, at para 15.

[103] The definitive statement of the test for fraudulent misrepresentation in contract law in Canada was established by Lord Atkinson in United Shoe Machinery Co of Canada v. Brunet, [1909] A.C. 330, at para. 12 (J.C.P.C.). The test can be summarized, in the language of Professor Fridman in The Law of Contract in Canada (Toronto: Thomson Carswell, 2011) at 285, as follows:

(1) That the representations complained of were made by the wrongdoer to the victim;

(2) That these representations were false in fact;

(3) That the wrongdoer, when he made them, either knew that they were false or made them recklessly without knowing whether they were false or true;

(4) That the victim was thereby induced to enter into the contract in question.

This statement of the test has been accepted in Ontario. See Rowe v. TCL Tele-Communications Ltd. (2000), 2000 CanLII 27008 (ON CA), 135 O.A.C. 299 at paras. 1-2 (C.A.); 801438 Ontario Inc v. Badurina (2000), 34 R.P.R. (3d) 306, at para. 33 (Ont. S.C.); Clark v. Coopers & Lybrand Consulting Group (1999), 1999 CanLII 14878 (ON SC), 19 C.C.E.L. (3d) 188, at paras. 36-37 (Ont. S.C.).

[104] In tort law, the test for fraudulent misrepresentation (sometimes also known as the tort of deceit) is largely similar to contract. However, tort claims have four key differences from contract claims. First, the representor must know that an impugned statement is false; there is no mention of recklessness. Second, the representor must have intended to deceive the plaintiff with the false statement. (I note here that these two differences are likely explained by the fact there is a separate cause of action in tort law for negligent misrepresentation.) Third, a plaintiff need only be induced to “act” generally; this includes but is not limited to entering a contract. Fourth, the plaintiff needs to show that his or her reliance on the fraudulent misrepresentation caused damage. See: XY Inc. v. International Newtech Development Inc., 2013 BCCA 352, 366 D.L.R. (4th) 443, at paras. 23-24, leave to appeal refused [2013] SCCA No. 376; Dhillon v. Dhillon, 2006 BCCA 524, 232 B.C.A.C. 249, at para. 77; Todd Family Holdings Inc. v. Gardiner, 2015 ONSC 4432, 47 B.L.R. (5th) 46, at para. 44.

[105] Hayat’s claims in this case could easily be classified as either contract or tort claims.

The oppression remedy

[106] The oppression remedy is an equitable remedy that protects the reasonable expectations of parties - in their capacities as shareholders, directors, creditors, and other proper parties - beyond their strict legal rights. As the court explained in Linamar Corp. v. Wescast Industries Inc. (2004), 2004 CanLII 18045 (ON SC), 1 B.L.R. (4th) 253, at para. 7 (Ont. S.C.), “[o]ppression, however, goes far beyond a breach of legal obligations. The oppression remedy is to be given a broad and liberal interpretation. It gives the court broad, equitable jurisdiction to enforce not just what is legal but what is fair”. See also BCE Inc., Re, 2008 SCC 69, 3 S.C.R. 560, at para. 58.

[107] The oppression remedy cannot be invoked as a matter of course to deal with contractual and tortious wrongs or other distinct legal and equitable claims: see e.g. J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd., 2008 ONCA 183, 234 O.A.C. 59, at para. 65 (“Brick Furniture”) However, the availability of other causes of actions on the same facts is not a bar to bringing an oppression claim: see e.g. Fedel v. Tan, 2010 ONCA 473, 101 O.R. (3d) 481, at para. 56 (“Fedel”). The court in Fedel emphasized the following statement at para. 66 of Brick Furniture: an action for oppression is appropriate when a party’s “interest as a creditor [is] compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself.” The court in Fedel added that this is also true with respect to a party’s ownership interest. This describes the present case.

[108] Only a “complainant” may apply to the court for an oppression remedy. The term “complainant” is defined in s. 245 of the OBCA as follows:

(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.

[109] Section 248 of the OBCA provides:

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

(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.

[110] The Supreme Court affirmed in BCE, at para. 63, that the “reasonable expectations” of corporate stakeholders are the foundation of the oppression action:

Stakeholders enter into relationships, with and within corporations, on the basis of understandings and expectations, upon which they are entitled to rely, provided they are reasonable in the context: see 820099 Ontario; Main v. Delcan Group Inc. (1999), 1999 CanLII 14946 (ON SC), 47 B.L.R. (2d) 200 (Ont. S.C.J.). These expectations are what the remedy of oppression seeks to uphold.

[111] In light of this foundation of reasonable expectations, the Supreme Court in BCE established a two-part “inquiry” for an oppression claim, at para. 68: “(1) Does the evidence support the reasonable expectation asserted by the claimant? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms ‘oppression’, ‘unfair prejudice’ or ‘unfair disregard’ of a relevant interest?”

[112] Against the backdrop of the legal principles outline above, I turn now to a review of Hayat’s complaints. I will begin with his claims relating to Maryat and DLG.

The claims relating to Maryat and DLG

(a) Fraudulent Misrepresentation

[113] As I have found, Hayat provided a total of $485,000 that was used to capitalize Maryat. This began with Hayat’s $150,000 personal loan to Raja (paid to Minaj Transport) that was due to be repaid in January 2009. As I have found, Hayat did not require Raja or Minaj to repay that loan on the basis that the funds were instead to be invested in Maryat to be used for the restaurant purchase the parties were then pursuing.

[114] Hayat’s further two advances to Minaj, $30,000 in January 2009 and $55,000 in March 2009, were made for the same purpose. Hayat’s resignation as a director of Maryat in March 2009 was procured by Raja’s misrepresentation that, as a director, his personal guarantee of DLG’s lease was required by the landlord. Hayat’s final advance of $250,000 in June 2009 was his additional investment in Maryat for purposes of the restaurant purchase. It was based upon Raja’s misrepresentations that he, Raja, had invested $456,000 and that the purchase price of the restaurant was $698,000.

[115] Finally, also in reliance on Raja’s misrepresentations regarding his cash contributions to Maryat and the need for a personal guarantee on the lease if Hayat remained a shareholder, Hayat signed the July 15, 2009 Loan Agreement by which he purported to give up his shareholding in Maryat in exchange for an unsecured loan to Minaj Transport.

[116] Based on the facts I have found, and the serial misrepresentations made by Raja, I have little difficulty in finding that Hayat has made out a cause of action in fraudulent misrepresentation against Raja, both in contract and in tort. At the risk of repetition, I have found that Raja:

(a) induced Hayat to forego repayment of the $150,000 loan when it was due in January 2009 on the ground that it was required for the purchase of DLG (which it was not, since the deal did not close until September 2009 and the funds were not required until then);

(b) induced Hayat to advance further sums to Minaj in January and March 2009 for the same (false) reason;

(c) induced Hayat to resign as a director of Hayat on the basis of a false explanation;

(d) induced Hayat to advance an additional $250,000 based on false representations regarding Raja’s own investment and the purchase price of the transaction;

(e) induced Hayat to transfer his shares to Raja on the basis of false information regarding the personal guarantee and the cumulative effect of Raja’s prior misrepresentations regarding his own investments and the state of the transaction.

[117] I have no hesitation in finding as a fact that these various misrepresentations were made knowingly by Raja, with a view to inducing Hayat to act to his detriment. I further find that Hayat acted to his detriment and suffered damages: he refrained from collecting a loan due to him, which was never repaid; he advanced monies he would not otherwise have paid over, which he lost; and he gave up any control over the affairs of Maryat when he ceased to be a director and shareholder, with the ultimate result that the company was sold and he received nothing.

[118] Apart from the interest payments that allowed him to service the debt he took on to fund the $250,000 advance, Hayat was paid only $10,000 on account of the loan. Since the interest payments merely covered Hayat’s interest costs, he has therefore lost the net sum of $475,000.

[119] The usual contract remedy for fraudulent misrepresentation is rescission of the contract induced by the fraud. This requires restoration of the parties to the position they occupied before the contract was performed. In relation to Hayat’s various agreements to advance money (or, in the case of the non-repayment of the initial $150,000 loan, his agreement to convert it into an investment in the restaurant acquisition), this remedy would involve directing the funds to be returned to him. In each case Hayat’s funds were paid to Minaj Transport, a corporation controlled by Raja. Given that Raja was the directing mind of Minaj Transport, it would be appropriate to direct Minaj Transport to repay those sums. On this basis, I order Minaj Transport to pay Hayat $475,000.

[120] The ultimate beneficiary of Raja’s fraudulent misrepresentations was Maryat since it received the funds that Hayat advanced and used them to acquire and operate DLG. Maryat was incorporated by Raja on February 19, 2009 and, after March 19, 2009, Raja was its sole director. It is clear that, subsequent to March 19, 2009, Raja was Maryat’s operating mind. I therefore conclude that Raja was acting on behalf of Maryat in making the fraudulent misrepresentations from which it benefitted. In the circumstances, Maryat is fixed with knowledge of Raja’s fraud and cannot rely on the July 15, 2009 Loan Agreement.

[121] Because it was induced by fraud, the July 15, 2009 Loan Agreement would ordinarily be voidable or liable to be set aside. However, restoration to the parties’ former positions is no longer possible because Raja no longer owns the shares. The purchaser of the shares, PB 10 Investments, has not been named as a defendant in these proceedings. Thus the contractual remedy of restitution of the shares is unavailable in this situation to right this wrong. Raja cannot be ordered to return something he no longer controls, especially where the current owner of the shares (PB 10) is not before the court.

[122] Turning to tort remedies, damages may be awarded to compensate the wronged party for the loss suffered by reason of the misrepresentation. As I have found, on the basis of Raja’s misrepresentations, Hayat refrained from collecting his initial $150,000 loan, and he continued to make further advances based on additional misrepresentations by Raja. On the basis of his personal participation in making the fraudulent misrepresentations, I find Raja personally liable for the full amount advanced, and order him to pay Hayat the sum of $475,000. Since all the advances were made to Minaj Transport (of which Raja was at all times the controlling mind) I would fix Minaj Transport with direct and vicarious liability for the $475,000 on the basis of the tort of misrepresentation, as well.

[123] On the basis of my finding that Raja was the directing mind of Maryat subsequent to Hayat’s resignation as a director, I would fix Maryat with direct and vicarious liability for the March 24, 2009 and June 10, 2009 advances of $55,000 and $250,000 on the basis of the tort of misrepresentation. After giving credit for the $10,000 received by Hayat, I order Maryat to pay tort damages to Hayat in the total amount of $295,000.

(b) Oppression

[124] I turn now to Hayat’s claim for relief under the oppression remedy provisions of the OBCA. Hayat was a director of Maryat and a shareholder (either legal or beneficial). He thus qualifies as a former director and former actual (or beneficial) shareholder. He therefore has standing as a complainant under s. 245 of the OBCA.

[125] Hayat’s position as shareholder is most relevant to this action, although the circumstances under which he ceased to be a director are also material. He ceased to be a director when he was fraudulently induced to resign that position. He ceased to be a shareholder when he was fraudulently induced to sign the July 15, 2009, Loan Agreement. By reason of these two actions, both induced by fraud, Hayat lost the ordinary means available to protect his interests as a shareholder-investor.

[126] As the Supreme Court stated in BCE, the “reasonable expectations” of corporate stakeholders are what the remedy of oppression seeks to uphold. The first portion of the two-part enquiry mandated by that decision requires me to determine Hayat’s expectations and whether they were reasonable. In the present case, Hayat’s reasonable expectations were shaped by the friendship that he shared, or thought he shared, with Raja.

[127] As discussed above, Hayat immigrated to Canada in 2002 with no business experience, while Raja had lived in Canada since 1977 and had extensive business experience, particularly in the restaurant and trucking industries. In 2008, when Hayat began driving with Raja for Raja’s Direct Ex trucking business, they spent thousands of miles, or entire weeks, on the road together. They talked extensively, shared personal stories, and became close friends. They acted as partners in their business endeavours, not simply as arms-length investors or contracting parties. They took a religious oath in their temple to be honest business partners. The evidence described in earlier sections of this decision makes clear that Hayat had a close friendship with Raja and placed great trust in him with respect to the operation of their joint business endeavours.

[128] Hayat’s situation is in some ways analogous to the complainant in Fedel. In that case, the Court of Appeal recounted, at para. 55, that the application judge had found that “Fedel had reasonable expectation that [the defendant director] was operating the businesses of [the defendant corporations] in a proper manner and that he was protecting Fedel's 40 per cent ownership interest in those companies.” Later in the decision, at para. 99, the Court of Appeal describes Fedel as having argued that he had a “reasonable expectation that he owned 40 per cent of the companies.”

[129] The defendants Raja and Maryat argue that, although Hayat may have previously held a 50% shareholding in Maryat, the July 15, 2009 Loan Agreement had the legal effect of converting Hayat’s 50% equity interest in Maryat into an unsecured loan to Minaj Transport. As a factual matter, that argument is undermined by the assurances made by Raja to Hayat in their recorded conversation on April 27, 2010 that Hayat held a 50% interest in Maryat. That admission was made long before Raja agreed to sell all the shares to PB 10. In any event, for the reasons I have already expressed, Hayat’s signature on the Loan Agreement was procured by Raja’s fraudulent conduct at time when he was the directing mind of Maryat. It is therefore not open to Maryat to disown or to disclaim knowledge of Raja’s fraudulent conduct or to rely on that document.

[130] I therefore conclude that Hayat reasonably expected that he was to be a 50% shareholder in Maryat, in accordance with the terms of the parties’ shareholders agreements. Hayat and Raja had intended to be equal partners, participants and investors in Maryat and the DLG venture. The evidence fully supports Hayat’s expectation.

[131] Turning to the second aspect of the enquiry, the evidence establishes that Hayat’s reasonable expectation was violated when, through fraudulent conduct, Raja successfully excluded Hayat from the ownership and control of Maryat by having him resign as a director and surrender his shares. It is difficult to imagine more oppressive or unfair conduct in a corporate context than where one of two supposedly equal co-owners deprives the other of his entire interest in the corporation by means of fraud, while using funds supplied by the innocent party to capitalize the corporation and its business.

[132] I therefore conclude that Hayat has made out a case for relief under s. 248. While it may be impossible to use the contractual remedy of rescission to restore Hayat’s shares because Raja has sold them, the broad remedial powers of s. 248 of the OBCA are not hindered by the same limitations. Rather, the remedies available under s. 248(3) are very broad. That section provides as follows:

(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,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

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

(n) an order requiring the trial of any issue.

[133] The two remedies most suited for the circumstances of this case are s. 248(3)(g) and (j). Based on my findings, Hayat advanced $485,000 in the expectation that he would receive 50% of the shares of Maryat; in turn, Maryat benefited from Hayat’s advances of $485,000. An order under s. 248(3)(g) directing Maryat to pay to Hayat the money he paid for his shares would therefore be an appropriate remedy. Such an order, however, is subject to s. 248(6), which prohibits a corporation from making such a payment where it would make the corporation insolvent. I have no information regarding the current financial status of Maryat and whether such an order would force it to contravene s. 248(6). I am, however, prepared to make such an order, subject to compliance with s. 248(6).

[134] No such limitation applies to an order under s. 248(3)(j) which empowers me to make an order compensating an aggrieved person. In my view, Hayat is clearly an “aggrieved person” to whom compensation is due. I am, therefore, prepared to make such an order in his favour.

[135] After allowing for a credit of $10,000 for the funds Hayat received, I order Maryat to pay Hayat the sum of $475,000; my order is made under s. 248(3)(g), provided Maryat complies with s. 248(6), and pursuant to s. 248(3)(j).

(c) Summary re claims involving Maryat and DLG

[136] Hayat is not entitled to double recovery for his losses relating to Maryat and DLG and Raja’s misconduct concerning them. In relation to Hayat’s claims for misrepresentation, I have:

(a) ordered Minaj Transport to pay him $475,000;

(b) ordered Raja to pay him $475,000;

(c) ordered Maryat to pay him $295,000.

In relation to Hayat’s oppression claims, I have:

(a) under s. 248(3)(g) (and subject to s. 248(6)) ordered Maryat to pay to Hayat $475,000 for his shares; and

(b) under s. 248(3)(j) ordered Maryat to compensate Hayat as an aggrieved person by paying him $475,000.

[137] As is apparent, the same $475,000 award is payable by various parties pursuant to various grounds of liability. While it is intended to impose liability on the indicated defendants on a joint and several basis, recovery by Hayat of any amount on account of this sum from any single defendant will reduce the amount owed by the others on this same liability.

The claims relating to Direct Ex

[138] Hayat’s complaints regarding Direct Ex concern (a) Raja’s failure to cause the corporation to issue a share certificate to him and (b) his unrepaid loan to Direct Ex and Raja’s use of company funds for his own purposes. In relation to the former topic, there is no question that Hayat paid for and was entitled to receive his shares. He therefore qualifies as a complainant under s. 245 of the OBCA. Since his reasonable expectation was that he would be treated as a shareholder, it is appropriate to make an order under s. 248(3)(d) requiring Direct Ex to issue shares to him.

[139] While Hayat has standing to bring an oppression claim in his capacity as a shareholder of Direct Ex, in relation to his claim concerning his loan to Direct Ex he also has standing in his capacity as a creditor of Direct Ex. Hayat became a creditor as a result of his $36,179 loan to Direct Ex on November 17, 2008. Section 245(c) of the OBCA gives the court discretion to find that a person is a “proper person” to qualify as a “complainant.” Section 248(2) of the OBCA refers to the interests of creditors, and “[i]t is well established now that a creditor has status to bring an application as a complainant, pursuant to s. 245 (c)”: Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1995), 1995 CanLII 7419 (ON SC), 25 B.L.R. (2d) 179 (Ont. Gen. Div.), varied on other grounds Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 1998 CanLII 5847 (ON CA), 40 O.R. (3d) 563 (C.A.).

[140] As a creditor, Hayat is not simply seeking to bring a debt claim under the oppression remedy, but to obtain a remedy for Raja’s oppressive behaviour with respect to Hayat’s interests as a creditor. In my view, for the reasons that follow, it is appropriate to exercise the court’s discretion in this case and allow Hayat to bring an oppression claim in his capacity as creditor to Direct Ex.

[141] Ordinarily, a claim of misappropriation or conversion of corporate funds by a director would be brought by way of derivative action by the corporation against the director. This is because misappropriation generally affects all or a subset of corporate stakeholders as a class, rather than distinctly affecting individual corporate stakeholders. However, the facts underlying alleged misappropriation can give rise to both a derivative claim and oppression claim, particularly in the context of closely-held corporations: Rea v. Wildeboer, 2015 ONCA 373, 126 O.R. (3d) 178. In Wildeboer, the Ontario Court of Appeal indicated, at para. 41, that an oppression claim must have a “particularized allegation of any wrong done to the interests of the plaintiffs themselves, qua shareholders or otherwise, as opposed to a wrong affecting the ‘corporate body’, i.e., the collectivity of shareholders as a whole.”

[142] Hayat’s interests were particularly affected apart from the stakeholders as a collectivity because the misappropriation benefitted the only other corporate stakeholder in Direct Ex, i.e. Raja, and harmed only Hayat’s interests. As I have found (and summarized in Appendix A) Raja misappropriated more than $44,000 from the corporate bank account of Direct Ex. Misappropriation in such circumstances can amount to oppression: see e.g. Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, 89 O.R. (3d) 36, at paras. 31-33 & 38-40. In particular, the Court of Appeal observed in Malata, at para. 31, that “[O]ne situation in which the overlap between the oppression remedy and the derivative action can be found is where directors in closely held corporations engage in self-dealing to the detriment of the corporation and other shareholders or creditors.” At para. 38 of Malata, the court found:

It is important in my view that in this case, we have a closely held corporation. It seems to me that if the alleged oppressive conduct is made out when Malata HK is one of three shareholders and, more particularly, is a major creditor of Malata Canada, it is appropriate for Malata HK to seek a return of the monies to Malata Canada under s. 248 of the Act. Malata HK could have proceeded by way of a derivative action. However, given the overlap between ss. 246 and 248 of the Act and the particular circumstances of this case, I do not believe that it was required to do so.

[143] Similar to the situation in Malata, Hayat’s claim in respect of Raja’s conversion of corporate funds from Direct Ex presents an appropriate case for bringing a misappropriation claim by way of an action for oppression under the OBCA. Direct Ex was a closely-held corporation of which Raja was the sole directing mind and the only shareholder other than Hayat.

[144] With regard to remedies, it is appropriate to affix personal liability to Raja. The Ontario Court of Appeal held in Budd v. Gentra Inc. (1998), 1998 CanLII 5811 (ON CA), 111 O.A.C. 288 (Ont. C.A), at para 47:

In deciding whether an oppression action claiming a monetary order reveals a reasonable cause of action against directors or officers personally, the court must decide:

• Are there acts pleaded against specific directors or officers which, taken in the context of the entirety of the pleadings, could provide the basis for finding that the corporation acted oppressively within the meaning of s. 241 of the C.B.C.A.?

• Is there a reasonable basis in the pleadings on which a court could decide that the oppression alleged could be properly rectified by a monetary order against a director or officer personally?

[145] The present facts meet these two criteria. First, if Raja had not personally withdrawn over $44,000 from the corporate account for his own benefit, then Direct Ex would have had the necessary funds to repay Hayat’s loan. Raja’s conversion of Direct Ex’s corporate assets was clearly oppressive to Hayat’s interests as a creditor. Second, this oppressive conduct could be “properly rectified by a monetary order against” Raja personally because all of the converted funds went to Raja’s personal use. The facts that I have found regarding Raja’s personal use of the funds of Direct Ex make this clear.

[146] I therefore order Direct Ex to repay Hayat his $36,179 loan. The difference between $44,000 and the $36,179 loan amount is not being ordered to be repaid because Hayat’s claim based on conversion as creditor is clearer than any claim for conversion in his capacity as shareholder. I also order Raja to pay Hayat $36,179. Once again, these awards are overlapping, and no double recovery will be permitted. To the extent recovery of the $36,179 is accomplished from one of these two defendants, the liability of the other for this judgment debt will be reduced.

The claims against Raja’s spouse and son

[147] At the time Hayat commenced this action, he was largely unfamiliar with the manner in which Raja had structured his and their joint business affairs because Raja had kept him in the dark. He was aware, however, that at some point Mrs. Raja had been associated as a director of Maryat. He also had some belief that Raja’s son had been involved in the business of DLG around the time of Raja’s hospitalization in June - July 2008. As a consequence, he chose to include them as co-defendants to this proceeding.

[148] Based on the evidence presented at trial, there is no basis to impose liability on either the spouse or the son in relation to Raja’s proven misconduct. I would therefore dismiss the action as against them.

The Counterclaims

(a) Maryat

[149] As I have previously noted, in relation to the allegation that Hayat stole some of the cash receipts of the business during the time he was in charge, I do not find this accusation proven on a balance of probabilities. In any event, the party allegedly harmed by this conduct, Maryat, did not advance this assertion at trial. Maryat did, however, seek a declaration that the July 15, 2009 Loan Agreement was valid and binding and that it superseded the $150,000 loan and the two shareholders agreements. For the reasons stated previously, I have found that Hayat was induced to sign the Loan Agreement by fraud at a time when Raja was the directing mind of Maryat. In the circumstances, it is not open to Maryat to rely upon or assert the validity of the Loan Agreement. Maryat’s counterclaim must therefore be dismissed.

(b) Raja and Minaj Transport

[150] In their counterclaim Raja and Minaj Transport also sought declarations that the Loan Agreement was valid and superseded the $150,000 loan and the two shareholders agreements. For the same reasons explained above, it is not open to Raja - either on his own behalf or as the directing mind of Minaj Transport - to rely upon an agreement that was induced by his own fraudulent conduct. This counterclaim also purported to seek an accounting and payment of the sums allegedly converted by Hayat while operating the restaurant, an allegation I have found to be unsubstantiated. In any event, that complaint, if it was proven, was not one that would result in any recovery to Raja or Minaj Transport, since it involved a wrong to Maryat. No other facts were proved at trial that would warrant a remedy in favour of Raja or Minaj Transport. I therefore conclude that their counterclaim should be dismissed, as well.

Maryat’s Crossclaim

[151] In its pleading, Maryat advanced a crossclaim against Raja for indemnity with respect to Hayat’s claim. No specific facts were pleaded to support such a claim. Based upon the submissions to date, I see no basis for granting that relief. I will leave it to counsel for Maryat, if so advised, to seek to make such further submissions as may be appropriate in relation to this subject, by making a written request to that effect within 30 days. If such a request is forthcoming, I will convene a telephone case conference to discuss a suitable process for addressing that issue.

Conclusion and Disposition

[152] For these reasons, I dispose of the claims made in these proceedings as follows:

(a) In relation to Hayat’s claims for misrepresentation, I order Minaj Transport to pay Hayat $475,000, I order Raja to pay Hayat $475,000, and I order Maryat to pay Hayat $295,000;

(b) In relation to Hayat’s oppression claims involving Maryat, I order Maryat (under s. 248(3)(g) of the OBCA and subject to s. 248(6)) to pay Hayat $475,000 for his shares and I order Maryat (under s.248(3)(j)) to compensate Hayat as an aggrieved person by paying him $475,000;

(c) These defendants’ liability to Hayat is joint and several. To the extent that Hayat receives a payment or payments on account of the $475,000 award from any of the defendants the liability of the remaining defendants to Hayat will be reduced by a like sum;

(d) In relation to Raja’s claims involving Direct Ex, I order Direct Ex (under s. 248(3) of the OBCA) to issue shares to Hayat sufficient to make him a 50% shareholder of the corporation, I order Direct Ex to repay Hayat his $36,179 loan and I order Raja to pay Hayat $36,179;

(e) I dismiss Hayat’s claim as against Munaza Raja and Janish Raja;

(f) I dismiss the counterclaim of Maryat;

(g) I dismiss the counterclaim of Raja and Minaj Transport;

(h) I dismiss the crossclaim of Maryat as against Raja, subject to counsel submitting a request in writing within 30 days, to make further submissions in relation to this subject.

Costs

[153] In relation to costs, I encourage the parties to reach agreement. Should they be unable to do so, I direct as follows:

(a) The plaintiff shall serve his Bill of Costs on the defendants, accompanied by written submissions, within 30 days of the release of these reasons.

(b) The defendants shall serve their responses on the plaintiff within 20 days thereafter. I expressly invite the defendants to submit the Bills of Costs they would have presented had they been successful at trial.

(c) The plaintiff may, but is not obliged to, serve a reply within 10 days thereafter.

(d) In all cases, the written submissions shall be limited to three double-spaced pages, plus Bills of Costs.

(e) I direct counsel for the plaintiff to collect copies of all parties' submissions and arrange to have that package delivered to me in care of Judges' Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no costs submissions should be filed individually: rather, counsel for the plaintiff will assemble a single package for delivery as described above.

(f) In the event counsel for Maryat submits a request to make further submissions regarding its crossclaim against Raja, the date for the commencement of costs submissions shall be deferred until the conclusion of that process.

___________________________ Stinson J.

Released: November 7, 2016

Appendix A

Personal Expenses Charged to Direct Ex by Raja

Date	Description	Classified as "Likely personal" by Stinson J.
1/Dec/08	Sears Canada #1	$539.00
1/Dec/08	Sears Canada #1	$66.67
2/Dec/08	Sears Card U8U6X6	$30.00
2/Dec/08	Peel Water X3W5K9	$403.45
2/Dec/08	Visa Payment	$150.00
2/Dec/08	Visa Payment	$50.00
2/Dec/08	United Drug Mar	$124.06
4/Dec/08	GM W/D 001256	$500.00
8/Dec/08	No Frills #1301	$45.66
8/Dec/08	No Frills #1301	$27.09
8/Dec/08	GM W/D 007483	$500.00
11/Dec/08	Pinstripe #N001	$295.00
12/Dec/08	Cash Withdrawal	$25,000.00
12/Dec/08	Harry Rosen Inc	$101.61
12/Dec/08	International C	$56.50
15/Dec/08	Salo's Courtice	$47.42
15/Dec/08	Feet First #443	$42.35
15/Dec/08	Shoppers Drug M	$96.68
12/Jan/09	International C	$180.78
15/Jan/09	No Frills #1301	$49.83
19/Jan/09	Visa Payment	$500.00
19/Jan/09	Visa Payment	$100.00
19/Jan/09	Sears Card L4W8Y6	$50.00
3/Feb/09	KFC/Taco Bell #	$10.44
3/Feb/09	GM W/D 002333	$300.00
18/Feb/09	Visa Payment	$500.00
18/Feb/09	Visa Payment	$50.00
18/Feb/09	Peel Water Q9Z9H2	$308.53
18/Feb/09	Enbridge Q9Z9H9	$250.99
18/Feb/09	Enersource Q9Z9J3	$274.92
26/Feb/09	GM W/D 009035	$1,000.00
26/Feb/09	Best Buy #926	$1,000.00
27/Feb/09	Future Shop #71	$282.48
2/Mar/09	Silver Spoon	$21.15
2/Mar/09	Silver Spoon	$5.64
2/Mar/09	Wal-Mart #1061	$259.18
2/Mar/09	GM W/D 008623	$300.00
16/Mar/09	Enbridge U5L3W2	$250.95
16/Mar/09	Sears Card U5L3W5	$1,050.00
16/Mar/09	Visa Payment	$1,700.00
16/Mar/09	Visa Payment	$85.00
16/Mar/09	Visa Payment	$50.00
16/Mar/09	Visa Payment	$150.00
16/Mar/09	Visa Payment	$50.00
16/Mar/09	GM W/D 009030	$500.00
13/Apr/09	El Salam Supermarket	$17.76
13/Apr/09	Price Chopper #	$48.11
13/Apr/09	GM W/D 004748	$200.00
13/Apr/09	Lucy Seafood KI	$57.16
14/Apr/09	GM W/D 004073	$800.00
15/Apr/09	GM W/D 007721	$200.00
20/Apr/09	GM W/D 003449	$1,000.00
23/Apr/09	Visa Payment	$50.00
23/Apr/09	Sears Card A5Z2U9	$20.00
1/May/09	GM W/D 003085	$200.00
4/May/09	Visa Payment	$50.00
4/May/09	Enbridge H2W3X5	$204.75
4/May/09	Visa Payment	$349.00
4/May/09	Visa Payment	$1,000.00
4/May/09	Cash Withdrawal	$200.00
4/May/09	Maple Lodge Far	$127.80
4/May/09	Thiara Super Ma	$46.67
14/May/09	Visa Payment	$329.30
14/May/09	Peel Water H7X3R5	$204.82
15/May/09	Cash Withdrawal	$120.92
15/May/09	GM W/D 003597	$200.00
25/May/09	Shopper's Drug	$127.00
5/Jun/09	GM W/D 005276	$500.00
8/Jun/09	GM W/D 002555	$260.00
15/Jun/09	GM W/D 003144	$500.00
22/Jun/09	NoFrills Daniel	$128.36
22/Jun/09	Highland Farms	$22.59
22/Jun/09	Shoppers Drug M	$34.02
22/Jun/09	Dollarama #577	$25.09
22/Jun/09	Wal-Mart #1061	$43.19
Total		$44,241.14