Tarra Engineering Inc. v. Naghshbandi, 2017 ONSC 3778
CITATION: Tarra Engineering Inc. v. Naghshbandi, 2017 ONSC 3778
COURT FILE NO.: CV-09-383306
DATE: 20170619
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
TARRA ENGINEERING INC.
Plaintiff
– and –
BIJAN NAGHSHBANDI
Defendant
AND BETWEEN:
BIJAN NAGHSHBANDI
Plaintiff by Counterclaim
– and –
TARRA ENGINEERING INC. and SHAHRAM HEIDARI
Defendants by Counterclaim
Paul D. Koven, for Plaintiff
Antony Niksich, for the Defendant/Plaintiff by Counterclaim
Martin Greenglass, for Defendant by Counterclaim, Tarra Engineering & Structural Consultants
Paul D. Koven, for Defendant by Counterclaim Shahram Heidari
HEARD: September 26, 2016
M. D. FAIETA J.
REASONS FOR DECISION
INTRODUCTION
[1] Tarra Engineering & Structural Consultants Inc. (“Tarra Consultants”) appeals the Order of Master Pope, dated May 18, 2016, wherein leave was granted to Bijan Naghshbandi (“Naghshbandi”) to amend his Statement of Defence and Counterclaim to add Tarra Consultants as a defendant to his counterclaim.
[2] Tarra Consultants alleges nine grounds of appeal in its Notice of Appeal.
[3] For the reasons given below, I have dismissed this appeal.
BACKGROUND
[4] Shahram Heidari (“Heidari”) is the sole officer, director and directing mind of Tarra Engineering Inc. (“Tarra”).
[5] Heidari and Tarra each commenced an action against the defendant Naghshbandi on July 17, 2009.
Tarra Action (Court File No. CV-09-383306)
[6] The plaintiff, Tarra alleges that it made various demand loans to Naghshbandi. Tarra claims the sum of $450,146.77 from Naghshbandi.
[7] Naghshbandi delivered a Statement of Defence and Counterclaim on July 20, 2010. The defendants by counterclaim are Tarra and Heidari.
[8] In his Statement of Defence, Naghshbandi alleges that:
- Tarra was incorporated by Naghshbandi and Heidari in April 2004;
- Naghshbandi was, and continues to be, the owner of 50% of the outstanding common shares of Tarra;
- Naghshbandi was a director, officer, manager and employee of Tarra from April 2004 until December 2006;
- During 2007 and 2008, Naghshbandi provided services to Tarra through his corporation, Ino Ideation Inc;
- Naghshbandi ended his friendship with Heidari in late 2008 when he discovered that Heidari was operating Tarra in an “improper, underhanded and clandestine manner for the personal benefit of Heidari”.
- Heidari is currently Tarra’s sole officer, director and directing mind;
- Naghshbandi has received no profits or dividends from Tarra;
- Naghshbandi and Heidari were the officers and directors of 1314147 Ontario Inc., which operated as Tarra Engineering Company of Canada (“Tarra Canada”) in late 2004;
- Amongst other things, Naghshbandi alleges that the demand loans claimed by Tarra are statute barred and include amounts paid by Tarra Canada and signed by Naghshbandi on behalf of Tarra Canada.
[9] Naghshbandi’s counterclaim, amongst other things, seeks damages in the amount of $300,000.00 with respect to unpaid salary and management fees owed to Naghshbandi as well as a declaration that Naghshbandi owns 50% of the outstanding common shares of Tarra.
Heidari Action (Court File No. CV-09-383309)
[10] Heidari alleges that he made various demand loans to and for the benefit of Naghshbandi in respect of their co-ownership of a property on Shuter Street, Toronto. Heidari claims the sum of $187,092.86 from Naghshbandi.
[11] Naghshbandi delivered a Statement of Defence and Counterclaim on November 13, 2009. It alleges that Heidari’s Reply to Demand for Particulars claims that the loans were made in respect of transactions unrelated to the Shuter Street property. It further alleges that Naghshbandi does not owe any money to Heidari and that, in any event, the claim is statute barred. Naghshbandi counterclaims in the amount of $291,333.47 for monies that he lent to Heidari.
Procedural Matters
[12] On November 16, 2011, with the consent of the parties, this court ordered that the parties adhere to a timetable to complete various steps in this action and that the Registrar shall dismiss this action for delay unless the action was set down for trial by August 15, 2012.
[13] On June 28, 2012, with the consent of the parties, this court ordered that the two actions be tried together or one after the other.
[14] On August 16, 2012 Naghshbandi set the two actions down for trial.
[15] The parties participated in an unsuccessful mediation on October 30, 2012.
[16] In March 2013, Naghshbandi brought a motion to compel answers to undertakings and refusals arising from Heidari’s examination for discovery in November 2010. On August 30, 2013, this court ordered that Heidari and Tarra produce financial statements and tax returns of Tarra from 2004 to the present by September 30, 2013.
[17] On September 21, 2016 this court scheduled the trial of these actions to proceed for 25 days commencing on November 12, 2018. The court also scheduled a pre-trial conference to be held on September 10, 2018.
Motion to Add Tarra Consultants as a Defendant by Counterclaim and to Amend the Statement of Defence and Counterclaim
[18] By a motion dated January 23, 2015, Naghshbandi sought an order granting leave to amend his Statement of Defence and Counterclaim to add Tarra Consultants as a defendant to his counterclaim in the Tarra action and to amend the Statement of Defence and Counterclaim.
[19] The proposed Amended Statement of Defence and Counterclaim adds the following allegations to the Statement of Defence:
- The actions of Heidari in his capacity as an officer and director of Tarra have oppressed and prejudiced Naghshbandi as a shareholder of Tarra by “winding down the business of [Tarra]; causing [Tarra] to stop actively carrying on business and incorporating a new corporation, [Tarra Consultants], to carry on the engineering business activities of [Tarra]. [Tarra Consultants] is a continuation of the business and affairs of [Tarra] under a different name. [Tarra Consultants] is the successor corporation of [Tarra];”
- “Since 2009, Heidari has diverted the engineering business activities of [Tarra] from [Tarra] to a new corporation, [Tarra Consultants]. This was done without Naghshbandi’s prior knowledge, authorization or consent. Heidari incorporated [Tarra Consultants] in December 2009 for the purpose of depriving Naghshbandi of his financial interest in the revenue generated by the engineering business activities of [Tarra].”
[20] The proposed Amended Statement of Defence adds the following allegations, underlined below, to the Counterclaim that Naghshbandi brought against Tarra, Heidari and Tarra Consultants, seeking amongst other things:
- “as against [Tarra Consultants] damages for fraud with respect to unpaid salary and management fees owed to Naghshbandi in the amount of $300,00”;
- “a declaration that [Tarra], [Tarra Consultants] and Heidari have acted in a manner that is oppressive, unfairly prejudicial to, and that unfairly disregards the interests of Naghshbandi as a shareholder of Tarra”;
- the following relief under the oppression remedy provisions of the Ontario Business Corporations Act:
- damages in the amount of $3,000,000…arising from Heidari causing Tarra to stop actively carrying on business and incorporating a new corporation, Tarra Consultants, to carry on the engineering business activities of Tarra or in the alternative, a reference for the purpose of determining Naghshbandi’s damages;
- a declaration that Tarra Consultants is the successor corporation of Tarra and that Tarra Consultants is a continuation of the business and affairs of Tarra under a different name;
- a declaration that Naghshbandi has a 50% ownership interest in Tarra Consultants.
[21] This motion was heard on January 19, 2016. For reasons dated May 18, 2016, Master Pope allowed the motion.
[22] Tarra Consultants alleges that:
(1) The learned Master erred in deferring to trial of the proposed counterclaim against Tarra Consultants the issue of whether such counterclaim was statute barred by reason of a limitation defence when the evidence before the Master was clear that the proposed action against Tarra was statute barred;
(2) The learned Master erred in excluding relevant and admissible evidence that the plaintiff, through his solicitor, had real and actual knowledge of the existence of Tarra Consultants in October 2012, such that her findings in respect of the commencement of the limitation period constitute a palpable and overriding error;
(3) The findings of fact of the learned Master concerning section 21 of the Limitations Act, 2002, and her determination that the plaintiff exercised due diligence in respect of the commencement of the limitation period were factually unsupported by the evidence and constitute a palpable and overriding error;
(4) The learned Master erred in failing to interpret the nature of the proposed counterclaim (namely, that the business carried on by Tarra had been improperly converted by Tarra Consultants) and therefore erred in ruling that Naghshbandi (an alleged shareholder of Tarra) has status in the absence of a Derivative Order to institute legal proceedings for conversion against Tarra;
(5) The learned Master erred in finding that Naghshbandi was a proper complainant so as to have status to bring an oppression action against Tarra Consultants when Naghshbandi is neither an officer, director, shareholder or creditor of Tarra Consultants;
(6) The learned Master erred in permitting Tarra Consultants to be added as a defendant to the counterclaim brought by Naghshbandi based on allegations of conversion and/or oppression when the proposed counterclaim was devoid of any particulars of the alleged conduct and Naghshbandi has produced no evidence to support the bald allegations alleged in the counterclaim;
(7) The learned Master erred in failing to recognize that Tarra Consultants was being added as a defendant via counterclaim simply to obtain additional discovery rights in reference to the damage claim brought by Naghshbandi against Tarra and Heidari;
(8) The learned Master erred in granting leave to bring the motion to add a party notwithstanding Rule 48 and in particular having regard to the fact that the action was set down for trial and without recognizing that the information sought to be obtained via additional discovery was a matter which could be dealt with via reference should Naghshbandi be successful in his counterclaim as against the defendants Tarra and Heidari;
(9) The learned Master erred in permitting Naghshbandi to deliver an amended pleading which was internally inconsistent and further erred in permitting the defendant to sue Tarra Consultants in fraud.
[23] The court granted Naghshbandi’s motion for leave to amend the Statement of Defence and Counterclaim with the exception of the claims for breach of contract, inducement to breach contract and/or unjust enrichment, with leave to Tarra Consultants to plead a limitations defence.
[24] The court found that Naghshbandi’s claim for a declaration of an ownership interest in Tarra and Tarra Consultants was tenable. It also found that the proposed claims against Tarra Consultants under the Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”) and in fraud were tenable.
ANALYSIS
[25] A Master’s decision will be upheld unless the Master: (1) made an error of law, or (2) exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error. See: Zeitoun v. Economical Insurance Group, 2008 20996 (ON SCDC), 91 O.R. (3d) 131, at paras. 38-41, aff’d (2009), 2009 ONCA 415, 96 O.R. (3d) 639, at para. 1.
ISSUE #1: LEAVE TO BRING A MOTION TO AMEND THE STATEMENT OF DEFENCE AND COUNTERCLAIM AFTER THE ACTION HAS BEEN SET DOWN FOR TRIAL
[26] Tarra Consultants submits that:
The Master erred in granting leave under Rule 48 for the bringing of the motion. Given that discoveries had been conducted before the action was set down, Naghshbandi was aware of [Tarra Consultants] since 2012, had the Tarra tax information since 2013 and that Naghshbandi made no effort to investigate the allegations now being made prior to the Motion being brought, leave to bring the Motion should not have been granted.
[27] Rule 48.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, states:
Subject to subrule (3), any party who has set an action down for trial and any party who has consented to the action being placed on a trial list shall not initiate or continue any motion or form of discovery without leave of the court.
[28] The Master applied the correct test for determining whether to grant leave under Rule 48.04(1) by applying the principles described in Hill v. Ortho Pharmaceutical (Canada) Ltd. [1992] O.J. No. 1740 (Gen. Div.):
The authorities make it clear that setting a matter down for trial is not a mere technicality of procedure. Before it can be vacated to permit any further discovery or other interlocutory proceedings, there must be a substantial or unexpected change in circumstances such that a refusal to make an order under Section 48.04(1) would be manifestly unjust.
[29] Further, it is my view that the Master did not err in granting leave under Rule 48.04(1). Although Naghshbandi may have been aware of Tarra Consultants since 2012, the evidence supports the court’s finding that Heidari refused on discovery to give Tarra’s business records to him which led to a motion and order to produce Tarra’s financial statements and tax returns. The evidence also supports the court’s finding that there was a substantial and unexpected change in the fall of 2013 when Naghshbandi received Tarra’s business records which led him to discover that Heidari had wound down Tarra and had, according to Naghshbandi, apparently transferred Tarra’s business to Tarra Consultants. I also accept the court’s finding that there is no evidence of prejudice if leave was granted.
ISSUE #2: LEAVE TO DELIVER AN AMENDED STATEMENT OF DEFENCE AND COUNTERCLAIM
[30] Rule 5.04(2) states:
At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[31] In Steel Tree Structures Ltd. v. Gemco Solar Inc., 2016 ONSC 955, [2016] O.J. No. 655, at para. 23, the Divisional Court adopted the following test for adding a party under Rule 5.04(2):
a) The proposed amendment must meet all of the tests under Rule 26.01.
b) Joinder should be appropriate under Rule 5.02(2) or required under Rule 5.03. The addition of the parties should arise out of the same transaction or occurrence (Rule 5.02(2) (a)), should have a question of law or fact in common (Rule 5.02(2)(b)), or the addition of the party should promote the convenient administration of justice (Rule 5.02(2)(e)). Adding a party will be particularly appropriate if it is unclear which of the original defendant or the proposed defendant may be liable (Rules 5.02(2)(c) or (d)), or if it is necessary that the proposed defendant be bound by the outcome of the proceeding or his or her participation is otherwise necessary to allow the court to adjudicate effectively (Rule 5.03(1)).
c) Joinder should not be inappropriate under Rule 5.03(6) or 5.05. The addition of a party should not unduly delay or complicate a hearing or cause undue prejudice to the other party. In a case-managed proceeding, it may also be appropriate to withhold consent if it will cause significant disruption to the court-ordered schedule: Belsat Video Marketing Inc. v. Astral Communications Inc. (1999), 1999 1092 (ON CA), 86 C.P.R. (3d) 413, 118 O.A.C. 105 (C.A.).
d) Addition of a party will not be permitted if it is shown to be an abuse of process. Abuse of process will exist where the addition of a party is for an improper purpose such as solely to obtain discovery from them, to put unfair pressure on the other side to settle, to harass the other party or for purely tactical reasons. National Trust Co. v. Furbacher, [1994] O.J. No. 2385 (QL) (Gen. Div.); MacRae v. Lecompte (1983), 1983 3052 (ON SC), 143 D.L.R. (3d) 219, 32 C.P.C. 78 (Ont. H.C.J.). [Footnote omitted]
[32] Rule 26.01 states:
On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[33] The general rule is that while amendments to a pleading are presumptively approved, there is no absolute right to amend a pleading: see Marks v. Ottawa (City), 2011 ONCA 248, [2011] O.J. No. 1445, at para. 19. A court may refuse to approve an amendment to a pleading when:
- It will cause an injustice that is not compensable in costs;
- It violates the rules governing pleadings (for instance, see Rules 25.06 and Rule 25.11); or
- It discloses no reasonable cause of action or defence, or it would have been struck if originally pleaded. See: Rule 21.01(1)(b); 1317424 Ontario Inc. v. Chrysler Canada Inc., 2015 ONCA 104, [2015] O.J. No. 711, at para. 7.
Grounds of Appeal Related to the [Limitations Act, 2002](https://www.canlii.org/en/on/laws/stat/so-2002-c-24-sch-b/latest/so-2002-c-24-sch-b.html)
[34] The following provisions of the Limitations Act, 2002, S.O. 2002, c 24, Sch B are relevant:
Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
(1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
- (1) If a limitation period in respect of a claim against a person has expired, the claim shall not be pursued by adding the person as a party to any existing proceeding.
[35] In the context of whether leave to amend the Statement of Defence and Counterclaim should not have been granted in light of the Limitations Act, 2002, Tarra Consultants raises three grounds for appeal.
Did the learned Master err in excluding relevant and admissible evidence that the plaintiff, through his solicitor, had real and actual knowledge of the existence of Tarra Consultants in October 2012 such that her findings in respect of the commencement of the limitation period constitute a palpable and overriding error?
[36] Having considered the learned Master’s decision, particularly paragraph 56, I find that the alleged timing of Naghshbandi’s knowledge of the existence of Tarra Consultants was not improperly excluded by the learned Master in assessing the discoverability of the claim.
Were the findings of fact of the learned Master concerning section 21 of the Limitations Act, 2002, and her determination that the plaintiff exercised due diligence in respect of the commencement of the limitation period factually unsupported by the evidence and constitute a palpable and overriding error?
[37] I am not satisfied that the findings of fact of the learned Master found at paragraphs 58-61 of the decision are factually unsupported by the evidence or constitute a palpable and overriding error given the analysis outlined therein and the lack of any cogent explanation by the appellant.
Did the learned Master err in deferring to trial of the proposed counterclaim against Tarra Consultants the issue of whether the counterclaim was statute barred by reason of a limitation defence when the evidence before the Master was clear that the proposed action against Tarra Consultants was statute barred?
[38] The court granted leave to Naghshbandi to amend the Statement of Defence and Counterclaim with leave to Tarra Consultants to plead a limitations defence.
[39] The court stated that:
…it is not appropriate for a motions judge or master to resolve a limitation issue where the application of the discoverability rule is central to its resolution…as [such] facts constitute genuine issues for trial and as such, it is not appropriate for a motions judge or master to assume the role of a trial judge by resolving them…As long as the moving party puts in evidence steps taken to ascertain the identity of the tortfeasor and gives a reasonable explanation on proper evidence as to why such information was not obtainable with due diligence, then that will be the end of the inquiry and the proposed party with will normally be added with leave to plea a limitations defence. This is not a high threshold…If there is any doubt whether the steps taken by the moving party could not amount to due diligence then this is an issue that must be resolved on a full evidentiary record at trial or on summary judgment…The only concern is whether a reasonable explanation as to due diligence has been provided such as to raise a triable issue.
[40] The court found that Naghshbandi provided a reasonable explanation for discovering his cause of action against Tarra Consultants in the fall of 2013 after Heidari and Tarra produced the financial records of Tarra as ordered by this court. In my view, this finding was available to the Master on the evidence. The appellant has not demonstrated that the Master erred in failing to find that the proposed counterclaim is statute barred.
Does Naghshbandi have standing to institute the counterclaim?
[41] Tarra Consultants assert the following two grounds of appeal.
Did the learned Master err in failing to interpret the nature of the proposed counterclaim (namely, that the business carried on by Tarra had been improperly converted by Tarra Consultants) and therefore err in ruling that Naghshbandi (an alleged shareholder of Tarra) has status in the absence of a Derivative Order to institute legal proceedings for conversion against Tarra?
Did the learned Master erred in finding that Naghshbandi was a proper complainant so as to have status to bring an oppression action against Tarra Consultants when Naghshbandi is neither an officer, director, shareholder nor creditor of Tarra Consultants?
[42] The court’s discussion of the oppression remedy is found at paragraphs 80-85. The court found that Naghshbandi’s claim under the OBCA was being brought pursuant to the oppression remedy provision found in section 248 of the OBCA. The court also found that Naghshbandi is a “complainant” within the meaning of section 248 of the OBCA.
[43] The court came to the conclusion that Naghshbandi could be viewed as a “complainant” if it was found that he had an ownership interest in Tarra because he remained a shareholder of Tarra. Tarra submits that Naghshbandi is no longer a shareholder. In my view the court did not err in arriving at this conclusion as the factual issue of whether Naghshbandi remains a shareholder of Tarra is clearly not resolved.
[44] Further, I find that leave to assert a claim under the OBCA was not required under section 246 of the OBCA as the claim being advanced by Naghshbandi is personal in nature, as it is alleged “… that the complainant’s individualized personal interests have been affected by the wrongful conduct”: see Rea v. Wildeboer, 2015 ONCA 373, 126 O.R. (3d) 178 at para. 27, and thus is captured by s. 248 of the OBCA.
Other grounds
[45] Tarra Consultants submits that the court erred in allowing Tarra Consultants to be added as a defendant by counterclaim when it produced no evidence to support the allegations in the counterclaim.
[46] I reject the premise of the submission. The motion before the Master was not a motion for summary judgment. Generally the facts alleged in a pleading must be accepted as proven and the court should not look beyond the pleadings to determine whether the action is tenable. I find that the allegations advanced by Naghshbandi established a tenable claim.
[47] I also reject the submission that the learned Master erred in failing to recognize that Tarra Consultants was being added as a defendant via counterclaim simply to obtain additional discovery rights in reference to the damage claim brought by Naghshbandi against Tarra and Heidari. As already indicated, I have found that the Master did not err in finding the claim advanced against Tarra Consultants is tenable.
CONCLUSION
[48] I encourage the parties to resolve the issue of costs, failing which Naghshbandi shall provide its costs submissions within one week and the other parties shall provide their costs submissions within two weeks. Such submissions shall be no more than three pages, exclusive of their outline of costs.
Mr. Justice M. D. Faieta
Released: June 19, 2017
CITATION: Tarra Engineering Inc. v. Naghshbandi, 2016 ONSC 3778
COURT FILE NO.: CV-09-383306
DATE: 20170619
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
TARRA ENGINEERING INC.
Plaintiff
– and –
BIJAN NAGHSHBANDI
Defendant
AND BETWEEN:
BIJAN NAGHSHBANDI
Plaintiff by Counterclaim
– and –
TARRA ENGINEERING INC. and SHAHRAM HEIDARI
Defendants by Counterclaim
REASONS FOR DECISION
Mr. Justice M. D. Faieta
Released: June 19, 2017