Court File and Parties
COURT FILE NO.: CV-15-5350-00 DATE: 2017-04-13 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Abdul Razak Alyousef, Plaintiff AND: Anes Alyousef, Zainab Almelli, 2390247 Ontario Inc., c.o.b. Alyousef Brother’s, 2296411 Ontario Inc. and John Doe, Defendants
BEFORE: Van Melle J.
COUNSEL: S. McGrath, for the Plaintiff O. Chaudhry and A. Farooq, for the Defendants
HEARD: March 27, 2017
Endorsement
[1] The plaintiff (“Yousef”) brings this motion for the appointment of an inspector over 2390247 Ontario Inc. c.o.b. Alyousef Brother’s (“239”).
[2] Alyousef and Anes Alyousef (“Anes”) are brothers. Zainab Almelli is Anes’ wife. 239 carries on business as Alyousef Brother’s. Its sole director and officer is Anes. The identity of its shareholders is the crux of the dispute between the parties.
[3] The defendant 2296411 (“229”) is a corporation of which Anes is the sole director, officer and shareholder.
[4] Yousef immigrated to Canada from Syria in 1989. Anes came later around 1994 or 1995.
[5] In 2013 239 was incorporated with Anes and Ghassen Barazi as 50% shareholders. Barazi is the father in law of Yousef’s daughter. According to Yousef he declined to go onto the corporation as an officer or director as he was involved in several lawsuits. He takes the position that he was to be an equal shareholder, which gives him standing as a beneficial shareholder, to bring this motion.
[6] 239 is a trucking company which specializes in the delivery of temperature controlled products. 239’s one client is The Milkman. Sia Koh is the principal of The Milkman.
[7] Yousef and Barazi’s evidence is that they, with Anes, were to be 1/3 shareholders in 239. Barazi gave instructions to incorporate 239. He along with Anes was one of the first directors. As set out above, Yousef was not made a director.
[8] In October 2013, Barazi resigned as a director of 239. According to Barazi, he resigned because he felt pressured to resign by Anes and did not want to get involved in a dispute within his family. Anes’ evidence is that Barazi resigned because he did not bring the assets to 239 that he said he was going to bring.
[9] Yousef says he was kicked out of the business by Anes in November 2013.
[10] Yousef’s materials back up his contention that he assisted in the negotiation of contracts for 239. There were two main contracts, the “Big Contract” dated October 7, 2013 and the “Small Contract” dated December 20, 2013.
[11] The Big Contract was for the delivery of milk and milk products and the Small Contract was a “pickup agreement”.
[12] Yousef has a number of e-mails where he is corresponding with Sia Koh (The Milkman) on behalf of 239. On April 25, 2013 Yousef sent an e-mail:
It was very nice meeting with you today. With regards to what we discussed earlier, it would be our pleasure to do business with your company at a price of $250 per round-trip delivery at the present time to cover the cost of a tractor and two trailers with the driver. During the near future we will review prices and we will see that if it is possible to reduce the price. We are very interested in becoming part of the success of your company.
[13] Koh responded:
Hi Yousef, I have take [sic] a look at your quote and the best I can do is $160.00 per round trip. Sia.
[14] On May 6, 2013 Yousef sent an e-mail to Koh:
Hi Sia, Thank you for the email you sent me on May 03/2013 and for taking my call today. As I said in my previous email, we are interested in having business with you and we would be happy to review the prices again to show you our interest. We are going to drop our prices, but we kindly ask you to increase your prices so we can meet in the middle, so we will got for $200/per round-trip. To cover the cost of a tractor and two trailers with the driver. With regards to our phone conversation today, I told you I was coming to see you tomorrow at 10:00 am but I would like to change it to Wednesday at 10:00 am because I’m going to spend all Tuesday in Ottawa. Sorry for any inconvenience.
[15] And in response:
Hi Yousef, Wed. is ok. I cant pay more than $175.00 per round trip load Sia
[16] Regarding the Big Contract, on September 6, 2013 Koh emailed Yousef with particulars of the contract and questions.
[17] Anes deposed that it was he who got the company registered through his accountant and that he did everything required to get the company up and running.
[18] Koh deposed that all his contact and negotiations were with “Joe”. Joe is Anes. However, Yousef has produced e-mails to show that this is not correct. Koh acknowledged in his cross-examination that he did in fact have dealings with Yousef.
[19] In fact, all the correspondence regarding the set-up of the company, the logo, lawyer are copied to Anes and Yousef.
[20] Yousef has produced copies of text messages between himself and Anes. The messages cover the time between January 2013 and November of 2013 and document texts relating to issues regarding 239. They discuss checking out refrigerated trucks; temperature; pricing; negotiations with Sia; documentation for lawyers and the contract with Sia. On August 30, 2013 Anes says [as translated into English]:
Just to let you know, and without any grief and Huff From me, I don’t want to work with Sia. Because after thinking about the matter It’s clear to me and I realized you need this deal more than I do. So from the bottom of my heart I Withdrew my self and I will leave this deal for you. There’s no point in all of Of us losing it, and decreasing the prices and him “Sia” benefiting at the expense of Either of Us. So I pray God bless it for you.
[21] From September to November, 2013 the texts continue to discuss paperwork; financial matters and meetings with Sia. On September 23 Yousef wrote:
Thank god. Give the corrections to Joe (Work for Sia) so he can give it to their lawyer and return it to us immediately so we can give it to rayhan (our lawyer).
[22] On November 26, 2013 Anes sent an email to Koh. The email concerned a dispute about the lease for one of the trucks that 239 was taking over from The Milkman. Toward the end of the email he said: “This email is just a confirmation to my partner of what we agreed upon this morning. We (The Milkman, Alyousef Brothers & the leasing company) shall sign the additional schedule related to the leasing issue on Thursday Nov. 28 th or before.” It is undisputed that the partner to whom he referred was Yousef.
[23] On November 30, 2013 Yousef and Anes had a falling out.
[24] The defendants take the position that Yousef was never to be a shareholder in 239. Needless to say, they interpret the events leading up to the lawsuit differently than does the plaintiff.
[25] However, the documentation produced supports the plaintiff’s view more than it supports the defendants’.
[26] The defendants submit that the appointment of a receiver is an extraordinary remedy and all other remedies should be explored first – that the documentation sought by the plaintiff could be obtained in other ways.
[27] The defendants say that Yousef is not a director, not a shareholder and there is no documentation to support the facts as he alleges.
[28] The defendants cite Khavari v. Mizrahi, paragraph 36, as standing for the proposition that ordinary remedies should be exhausted before an inspector is appointed. The defendants say that the history of this case is that the plaintiff waited until days before the statutory limitation period was up and took almost no steps for a year before bringing this motion. The defendants say there is no mention of scheduling discoveries. While this is true there is evidence that the plaintiff requested documents. On November 17, 2016 counsel for the plaintiff wrote to Mr. Chaudry, Anes’ counsel, asking for access to 239’s books and records. He asked for articles and by-laws; shareholder agreements; minutes; resolutions; directors register; securities register; audited financial statements and accounting records.
[29] The defendants ignored this request. By ignoring the request, the defendants gave the plaintiff no choice but to bring this motion to access the documentation he requires to proceed with his claim.
The Law
[30] The Business Corporations Act, R.S.O.1990, c. B. 16, ss. 161-163, 247-249 deals with investigation and remedies.
[31] There is a three part test for the appointment of an inspector (See Khavari v. Mizrahi [2016] O.J. No. 4341):
- Is the plaintiff a shareholder or beneficial owner of shares in 239?
- Has the business or affairs of 239 been carried on or conducted in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of the plaintiff as a shareholder?
- Is an investigation appropriate?
The parties are agreed that the question in dispute is whether or not the plaintiff is a shareholder.
[32] Jones v. Mizzi at paragraphs 13 – 14 stands for the proposition that the evidentiary threshold required to appoint an inspector pursuant to s. 161 of the BCA is low, and that an inspector will be appointed if there is an appearance of oppressive conduct and the applicant has made out a prima facie case. At paragraph 13:
[13] The jurisprudence makes it clear that the evidentiary threshold required to appoint an inspector pursuant to s.161 of the OBCA is low. According to Eberle J. in Consolidated Enfield Corp. v. Blair, 1994 CarswellOnt 249 in which he agreed with Galligan J. as follows at para. 83:
… Having regard to the fact that the relief provided for in the section is an investigation, it seems to me that a Court is entitled to make an order for an investigation if it appears on the face of the material submitted to the Court that there is good reason to think that the conduct complained of may have taken place.
[14] An inspector will be appointed under s.161 of the OBCA if there is an appearance of oppressive conduct and the applicant has made out a prima facie case. Campbell J. confirmed this in Catalyst Fund General Partner I Inc. v. Hollinger Inc., 2004 CarswellOnt 3782 at para. 39 as follows:
… In the case of an oppression remedy, the reasonable expectation is determinable on the material before the Court. In the case of inspection relief, there must be at the very least an index of suspicion or appearance that reasonable shareholder expectations have not been met in viewing the actions or non-actions of management and directors. It is then appropriate to test that prima facie case with an inspection to determine whether further relief is warranted.
[33] I am satisfied that the material before me establishes that there is a possibility that Yousef is a beneficial shareholder. The defendants submit that in making this finding, I am making a determination akin to summary judgment. I do not agree. There are significant credibility issues in this matter which can only be tested through trial.
[34] At paragraph 41 of Khavari v. Misrahi:
[41] The third part of the test, consideration of the appropriateness of appointing an inspector, arises from both the fact that the remedy is discretionary and that it is an extraordinary remedy. In considering the issue of appropriateness, the courts have had regard to a number of factors, including:
a) Whether the applicant needs access to the information; b) Whether there are better less expensive means to acquire the information; c) Whether the proposed investigation would give a tactical advantage to the applicant; and d) The expense of the investigation as compared to the benefits.
See: Trackcom Systems at para. 58; Kowch v. Gibraltar Mortgage Ltd., 2010 ABQB 535 at paras. 35, 38 and 44.
[35] In this case Yousef needs access to the information. He needs to be able to establish what damages, if any, he has suffered should he be successful in proving that he is a beneficial shareholder.
[36] I agree with defendants’ counsel that there are less expensive means by which to obtain the information, but those means would only be successful with the co-operation of Anes and 239. Such co-operation has not been available to date.
[37] The investigation is not that expensive. The projected cost of the proposed inspector, Fuller Landau Group Inc. is $7000.
[38] An order will issue that Fuller Landau Group Inc. be appointed pursuant to s. 161 of the Ontario Business Corporations Act as an Inspector, an officer of this Court, to investigate and report on the business and financial affairs of 239 with the powers and obligations set forth herein. 239 and its officers, directors and employees shall co-operate fully with the Inspector in the exercise of its powers and discharge of its obligations and provide the Inspector with the assistance that is necessary to enable the Inspector to adequately carry out the Inspector’s functions.
[39] The Defendant, Anes Alyousef, is to disclose to the Inspector and the Plaintiff by way of sworn affidavit, within seven (7) days of the date of this Order:
(a) a list of every asset owned directly, indirectly or beneficially, by the Defendant, 239 between October 1, 2013 and the date of this Order (the “Relevant Period”); (b) a list of every bank account in the name of or used by 239 during the Relevant Period, including the name of the bank, the address of the bank branch, the date the account was opened and the date the account was closed (if applicable); (c) the location of all bank statements associated with the accounts listed pursuant to paragraph (b); (d) a list of all credit cards issued in the name of 239 during the Relevant Period, including the issuer of the credit card, the credit card number, the date the card was issued and the date the card was cancelled (if applicable); (e) the location of all statements associated with the credit cards listed pursuant to paragraph (d); and (f) an authorization to the Inspector to obtain any bank statements, credit card statements or other relevant financial records on behalf of 239.
[40] The Inspector is directed and empowered to:
(a) Investigate any and all funds received or disbursed by 239 during the Relevant Period; (b) Report to this Court by filing an Inspector’s Report, after service on the parties, which Inspector’s Report shall include: (i) The steps taken by the Inspector; (ii) The co-operation received by the Inspector from the Defendants; (iii) The total annual receipts and disbursements by 239 for each year during the Relevant Period; (iv) A summary of any transactions conducted by 239 during the relevant period out of the ordinary course of business. (v) A summary of any transactions between 239 and any person not dealing at arms’ length (as that term is defined in the Income Tax Act) during the Relevant Period; and (vi) Any corporate reorganizations, purported changes in the shareholders of 239 or any changes in its capital structure during the Relevant Period. (c) Effect service pursuant to paragraph 3(b) by sending an electronic copy of the Inspector’s Report to the plaintiff’s counsel at smcgrath@weirfoulds.com and to the defendants’ counsel at omer@anserlaw.com; (d) Have full and complete access to the property of 239 including the premises at 1880 Bonhill Road, Mississauga, Ontario, books, records, tax returns, data, and any financial documents of 239 including receipts and bank statements, whether in paper or electronic form, to the extent that it is necessary to adequately assess 239 business and financial affairs or to perform its duties arising under this Order; (e) Perform such other duties as are required by this endorsement.
[41] The Inspector shall not take possession of any property of 239 and shall not, by fulfilling its obligations hereunder, be deemed to have taken or maintained possession or control of any property or other asset of 239. The Inspector shall not, as a result of this Order or anything done in pursuance of the Inspector’s duties and powers under this Order, be deemed to be in possession of any property within the meaning of any environmental legislation, unless it is actually in possession.
[42] In addition to the rights and protections afforded the Inspector as an officer of this Court, the Inspector shall incur no liability or obligation as a result of its appointment or the carrying out of the provisions of this Order, save and except for any gross negligence or wilful misconduct on its part. Nothing in this Order shall derogate from the protections afforded the Inspector by any applicable legislation.
[43] The Inspector shall be paid its reasonable fees and disbursements at its standard rates and charges by 239 as part of the costs of these proceedings. 239 is hereby authorized and directed to pay the accounts of the Inspector from 239’s bank account and, in addition, 239 is hereby directed to pay the Inspector a retainer in the amount of $5,000, to be held by it as security for payment of its fees and disbursements outstanding from time to time, said retainer to be paid within seven (7) days of the date of this Order.
[44] The Inspector shall be entitled to the benefit of and is hereby granted a charge over the bank accounts of 239 and any future cash receipts payable to 239 (the “Administrative Charge”). For greater clarity, the Administrative Charge does not attach to the physical property of 239. The Administrative Charge shall not exceed an aggregate amount of $15,000, as security for the Inspector’s professional fees and disbursements incurred at the standard rates and charges of the Inspector.
[45] The payment of the Inspector’s fees and disbursements is without prejudice to the right of 239 to claim the costs from the plaintiff at a later date.
[46] The Inspector’s appointment shall terminate upon the filing of its report with the Court, or upon further order of this Court.
[47] The plaintiff has been successful on this motion. He claims costs, on a partial indemnity scale of $30,000. It was apparent on the argument of the motion that a great deal of effort went into the presentation. Plaintiff’s counsel had complied with the Practice Direction and the Rules and had provided a comprehensive and useful compendium. The defendants (who refer to themselves as the plaintiff in the opening paragraph of the costs outline) claim $20,705.75 on a partial indemnity basis. I mention this to show the reasonable expectation of the parties regarding costs. The plaintiff is entitled to his costs which I fix at $25,000 all-inclusive payable in the cause.