CITATION: 2292772 Ont. Inc. v. 2330829 Ont. Inc., 2017 ONSC 6415

COURT FILE NO.: CV-92931/15 and CV-94801/16

DATE: 20171025

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2292772 Ontario Inc.

and Maged Barbara

Applicants

– and –

2330829 Ontario Inc.,

Zaid Almukamis and Akram Karamash

Respondents

Harry Sarros, for the Applicants/Respondents

Simon Morris, for the Respondents/Applicants

AND BETWEEN:

2330829 Ontario Inc.

Ziad Almukamis and Akram Karamash

Applicants

– and –

2292772 Ontario Inc.

and Maged Barbara

Respondents

Simon Morris, for the Respondents/Applicants

Harry Sarros, for the Applicants/Respondents

HEARD: May 12, 2016, September 20, 2016, April 18, 2017, April 19, 2017

REASONS FOR JUDGMENT

Justice S. J. Woodley

OVERVIEW

[1] This application and its counter-application are about three business partners who purchased and managed a commercial property at 252 Hunt Street, Ajax, Ontario, (the “Property”) through a corporation, 2330829 Ontario Inc. (“233”). A breakdown in their relationship terminated their business dealings.

[2] Two of the partners, Ziad Almukamis and Akram Karamash (the “Respondents”), sought to purchase the shares belonging to the third partner—2292772 Ontario Inc. (“229”) and Maged Barbara (together, the “Applicants”)—and the three entered a Share Purchase Agreement (“SPA”).

[3] The Respondents did not, however, complete payment as the SPA contemplated, so the 233 shares never transferred.

[4] The Applicants applied for oppression remedies. The Respondents counter-applied to enforce the SPA, and alternatively sought relief from forfeiture.

[5] During litigation, the Respondents received and accepted several offers to purchase the Property. Initially, they did so without the Applicants’ knowledge or consent. Before the hearing, however, all parties consented to the Property’s sale.

[6] The Property—apparently 233’s sole remaining asset at that time—sold on May 30, 2016. The net proceeds from that sale, after paying all outstanding expenses, total $812,346.16 (held in trust, pending determination of this application).

[7] The primary issue to determine is whether the Applicants are entitled to receive an equal share of these net proceeds (subject to requested adjustments) or a payment of a fixed amount for selling the shares pursuant to the SPA.

[8] Each of the parties also raised secondary corollary issues, elaborated below.

ISSUES

[9] The overarching issues to be determined are as follows:

a. Did breach of contract or oppressive behaviour occur, and if so, are the Applicants entitled to a declaration that the Respondents acted in a manner that is oppressive and that unfairly prejudices and/or unfairly disregards the Applicants’ interests?

b. Did the Applicants elect to proceed by breach of contract or oppression remedy and are they bound by their election?

c. Are the Applicants entitled to any of the following forms of relief:

i. An order for an accounting of all rents which were or ought to have been received?

ii. An order granting 229 one third of the net proceeds on the sale of the Property?

iii. An order setting aside any improvident transactions?

iv. An order indemnifying or compensating Barbara for legal costs and penalties associated with charges against the Applicants by the Town of Ajax on a substantial or otherwise appropriate basis?

v. An order indemnifying or compensating 229 for one third of $83,000 payable to 2388548 Ontario Inc. o/a SP Steel Fabrication?

vi. An order indemnifying or compensating 229 for one third of $63,011.06 payable to TMR Renovation & Construction Inc.?

vii. A declaration that Almukamis and Karamash are jointly and severally liable to 229?

viii. A declaration that Almukamis and Karamash fundamentally breached and repudiated the SPA and that 229 is therefore entitled to retain the pledged shares and receive associated damages and interest?

ix. $65,000 for monies improperly paid out to Universal Engineered Restoration Inc.?

x. Punitive damages?

xi. Costs?

d. Are the Respondents entitled to the following relief:

i. An order that the Applicants pay $180,000 forthwith to 229 to complete 233’s SPA, and that the shares be transferred to them upon receipt of payment by the Applicants’ lawyers?

ii. An order for relief from forfeiture for the alleged SPA breach;

iii. An order that the Applicants pay the Property’s carrying costs for the period between March 31, 2016, and until the Property’s sale?

iv. An order that the sum of $65,000 be paid to Universal Engineered Restoration Inc. from the proceeds of sale of the property?

v. Costs?

Determination of Issues

[10] I determine the above issues as follows:

a. The Respondents fundamentally breached and repudiated the SPA and by their actions, conduct, and exercise of power they acted in an oppressive manner, and they unfairly prejudiced and unfairly disregarded Barbara’s and 229’s interests;

b. The Applicants elected to proceed by pursuing oppression remedies and commencing the present application, and they are bound by their election;

c. The Applicants are entitled to the following forms of relief:

i. No further accounting between the parties is warranted, because sufficient accounting and disclosure was made and otherwise available during the litigation;

ii. 229 shall be entitled to receive one third of the net proceeds on the Property’s sale, held in trust by Brian McMurter and subject to any adjustments ordered in this judgment;

iii. Despite the Applicants’ allegations, the evidence filed only established that the Respondents entered two improvident transactions: [1] the lease termination agreement between 233 and Universal Engineered Restoration Inc., and [2] the payment made to Universal pursuant to that lease termination agreement, both of which are set aside;

iv. 233 was responsible for the legal costs and penalties associated with charges assessed against the corporation by the Town of Ajax. I am unpersuaded that sufficient grounds exist to indemnify 229 from the payments levied, charged, and paid to the Town of Ajax relating to 233;

v. No grounds exist to indemnify 229 for the $83,000 properly paid by 233 to 2388548 Ontario Inc. o/a SP Steel Fabrication; it was a legitimate expense;

vi. No grounds exist to indemnify 229 for the $63,011.06 properly paid by 233 to TMR Renovation & Construction Inc.; this too was a legitimate expense;

vii. 233 has sufficient funds to satisfy the terms of this Judgment. No grounds exist to grant the declaration that Almukamis and Karamash are jointly and severally liable to 229, except concerning any interest or penalties that 233 may owe Canada Revenue Agency (CRA) for any unpaid corporate taxes. Accordingly, Almukamis and Karamash shall, within 30 days of this judgment, retain an income tax preparer to prepare all of 233’s outstanding corporate income tax returns (ITRs) to date. Also, they shall, within 60 days of this judgment, file all such ITRs with CRA, and shall provide full copies of all ITRs filed to Barbara. The reasonable costs for preparing and filing the ITRs - capped at $3,000 - together with all corporate taxes owed by 233 - shall be p-aid from the net proceeds of the Property’s sale, held by Brian McMurter. Almukamis and Karamash shall pay jointly, from their share of the net proceeds of sale, all amounts assessed by CRA as owed on account of penalties or interest due by 233. If their share of the proceeds is insufficient, they shall pay personally;

viii. The Respondents fundamentally breached and repudiated the share purchase agreement. 229 is therefore entitled to retain the pledged shares and receive an equal distribution of the net proceeds of sale held in trust by Brian McMurter, subject to any adjustments ordered in this judgment;

ix. The evidence did not establish that the $65,000 paid by 233 to Universal Engineered Restoration Inc. (owned by Karamash) for vacant possession and surrender of the lease was a legitimate arms-length transaction and expense. There shall be an adjustment to equalize this payment from the net proceeds of the Property’s sale, such that 233’s other two shareholders, 229 and Almukamis, shall each receive a $65,000 payment in priority to any division or distribution;

x. Punitive damages are not ordered. While the Respondents’ actions were oppressive, the Applicants did not always act with clean hands. For example, the Applicants obtained two court orders obtained in questionable circumstances that were set aside. Further, the net result of the oppression and repudiation is that the Applicants remain entitled to retain their shares and receive additional funds through the Property’s sale. In the circumstances, punitive damages are inappropriate; and

xi. Subject to any offers to settle that may affect costs, the Applicants succeeded on balance and are entitled to costs for the application and counter-application on a partial indemnity basis. The parties shall file costs submissions as directed below by this judgment’s conclusion.

d. The Respondents are entitled to the following relief:

i. The Respondents are not entitled to complete the SPA. They repudiated it, the SPA is ended, and 229 remains a one third shareholder of 233;

ii. The Respondents Almukamis and Karamash shall be entitled to an order for relief from forfeiture and shall jointly be credited with the $50,000 paid to 229 in furtherance of the SPA. However, the $50,000 shall not be returned to the Respondents but shall be retained by the Applicants pending satisfaction of the award of costs;

iii. No further accounting between the parties is ordered. To the extent that this may benefit the Applicants, such benefit shall be deemed to be damages payable by the Respondents to the Applicants for the oppression and breach of contract; and

iv. The $65,000 was paid to Universal Engineered Restoration Inc. on a without prejudice basis before this application’s hearing. This payment is credited as received by Karamash personally. An adjustment is due to the other two shareholders, 229 and Almukamis, and an adjusting payment of $65,000 shall be made to each of 229 and Almukamis as per paragraph [10]c.ix above; and

v. Costs shall be as per paragraph [10]c. (xi) above.

FACTS

[11] In July 2011, Barbara, Almukamis, and Karamash entered into a partnership agreement to operate construction-related businesses. The businesses the partnership operated were Universal Restoration Inc. (“Ram”) and Universal Engineered Restoration Inc. (“Universal”).

[12] On June 6, 2012, Barbara, Almukamis, and Karamash incorporated 233. Each partner held one third of the common shares in the corporation. Barbara held his interest through 229.

[13] 233 had a bank account at TD. Any one of Karamash, Almukamis, Barbara or his wife had signing authority for the account.

[14] On September 5, 2012, 233 bought the Property. The three shareholders contributed equally to the purchase.

[15] Ram and Universal leased the Property. Each company paid approximately $5,500 monthly in rent.

[16] On October 1, 2012, the three shareholders entered into a Shareholders’ Agreement. Its relevant provisions are as follows:

3.7 Prohibited Acts. During the currency of this agreement, notwithstanding any provision to the contrary in the Articles, the By-Laws or this Agreement, the parties agree that except with the unanimous written consent of the Shareholders holding Shares which have rights to vote attached thereto or as otherwise provided in this Agreement:

(b) Disposal of Shares. Except in accordance with Section 5.1 hereof, no party shall transfer, assign, sell, gift, mortgage, hypothecate, pledge or otherwise dispose of or charge any Shares in the capital of the Corporation at any time held or owned by him.

(k) Asset sale. There shall be no sale, lease, exchange or other disposition of all or substantially all of the assets out of the ordinary course of business.

(o) Capital Assets. No capital asset having a value in excess of Ten Thousand Dollars ($10,000.00) shall be purchased or leased.

5.6 Additional Sale Provisions.

(a) In the event of the sale of Shares in the capital of the Corporation as hereinbefore provided…the following additional provisions shall apply:

(i) The date scheduled for closing (the “Closing”) may, notwithstanding any other provision hereinbefore, be at any earlier or later date agreed to and fixed by the parties hereto,

(ii) The Seller…shall resign from the Board of Directors and from any office or employment with the Corporation.

(xi) In the event that the purchase price of any Share is to be paid over a period of time, the Purchaser shall deliver and pledge the Shares purchased to the Seller as continuing collateral security for such payment; pending payment in full, the Seller shall be entitled to exercise all of the rights of a Shareholder under Section 3.7 hereof; in the event of a default in payment, the Seller shall be entitled, at his option, to retain the pledged Shares in full satisfaction of the debt or to dispose of the pledged Shares and to claim and deficiency from the Purchaser.

(xii) Until the purchase price is paid in full to the Seller, he shall have full access to the books, records and financial statements of the Corporation.

10.7 Acknowledgement. The parties hereto and each of them hereby acknowledges that they requested Wafik Abadir to act for them in the preparation of this Agreement…

[17] In the latter part of 2013, the shareholders determined to end their business relationship.

[18] From April 2014 to April 2016, Universal and SP Steel Fabricators (“SP Steel”) were the Property’s two tenants. Universal was owned by Karamash and SP Steel was an at arms’ length company.

[19] On March 28, 2014, the Respondents agreed to pay Barbara $150,000 for the transfer of certain equipment to Ram. This purchase was recorded in a bill of sale. This same day, the shareholders entered the SPA, wherein the Respondents agreed to pay Barbara (229) $250,000 for his shares in 233.

[20] The SPA’s relevant provisions, dated March 28, 2014, are as follows:

1.7 Time of essence

Time shall be of essence of every provision of this Agreement.

2.2 Purchase Price

2. The purchase price paid to the Second Part for all 33 shares owned by it is Two Hundred and Fifty Thousand dollars ($250,000) payable as follows:

A. The sum of Fifty Thousand dollars ($50,000) shall be paid upon signing of this agreement.

B. The sum of Two Hundred Thousand dollars ($200,000) shall be paid on or before June 27, 2014.

2.3 Corporate Reorganization

Upon payment of the purchase price in full Maged Barbara shall resign his position as a director of the Corporation and shall execute all necessary documents to effect the execution of this agreement.

2.4 Mortgage

4. 2330829 Ontario Inc., Ziad and Akram shall be the sole decision makers to sell or re-mortgage the property.

5. If the property is sold for a price that is higher than the price paid to 2292772 Ontario Inc. per share, then 2292772 Ontario Inc. releases and forever discharge 2330829 Ontario Inc., Ziad and Akram from any claim pertaining to the purchase price of the shares included in this agreement.

[21] To further the SPA, the Respondents allege they paid Barbara and/or 229 the following amounts:

a. An undated cheque (serial number 1164) for $10,000 from Universal payable to Barbara;

b. An undated cheque (serial number 2219) for $10,000 from Ram payable to Barbara;

c. A cheque dated March 28, 2014, for $50,000 from Ram payable to 229 (serial number 2238); and

d. A cheque dated April 11, 2014, for $150,000 from Ram payable to 229 (serial number 2250).

[22] The Respondents claim they paid $70,000 and owe a further $180,000 pursuant to the SPA. The Respondents allege they have been ready, willing, and able to pay the $180,000, but never tendered the money as Barbara claims a further $200,000.

[23] Barbara asserts that the two $10,000 payments were bonuses and unrelated to the SPA. To support his position Barbara notes:

a. the two $10,000 cheques are not payable to 229 (the shareholder of 233);

b. the serial numbers on the two $10,000 cheques precede the serial numbers of both the cheque dated March 28, 2014—for the first payment as required by the SPA ($50,000)—and the cheque dated April 11, 2014—for the equipment purchase ($150,000); and

c. neither of the two $10,000 cheques have dates recorded on their fronts or backs and it appears that the dates were purposefully deleted.

[24] Barbara seeks oppression remedies, not enforcement, and claims that if forfeiture is ordered the Respondents paid only $50,000 towards the share purchase, not $70,000 as alleged.

[25] Despite being required to finalize payment under the SPA’s terms, the Respondents never paid or tendered any further amounts for the purchase of the shares.

[26] On October 15, 2014, Frank Feldman, then the Applicants’ counsel, wrote a letter (the “Letter”) to the Respondents advising:

We are hereby requiring immediate payment of the balance of the share purchase price in the sum of $200,000.00 together with interest at the Corporation’s prime ban rate and legal fees of $1,130.00, payable to 2292772 Ontario Inc. and that the above noted guarantors be released as guarantors of the mortgage forthwith. Should the forgoing not be obtained on or prior to October 24, 2014, I have instructions to commence all appropriate legal proceedings to enforce my clients’ rights and will be pursuing payment of $200,000.00, plus all related damages, punitive damages, interest and legal costs.

[27] The Respondents did not respond to this letter nor did they make any further payment for the purchase of the shares.

[28] On April 20, 2015, the Respondents, on 233’s behalf, received their first offer to purchase the Property for $1,860,000, to close on July 27, 2015. Barbara was not notified of this offer when received and did not consent to the sale before the Respondents accepted it. Although the Respondents accepted the offer on 233’s behalf, the Property did not sell pursuant to this offer due to disputes between the parties.

[29] On August 31, 2015, the Applicants commenced this application as court file number 92931/15, seeking the relief noted above.

[30] The Applicants and Respondents appeared in court on December 15, 2015, and obtained a temporary order from Justice Salmers (the “Order”) requiring the following:

a. That the Respondents grant the Applicants full access to their books and records;

b. That TD Bank and Royal Bank of Canada provide the Applicants with information and documents confirming and detailing all transactions on account concerning or in any way related to this application;

c. That all of 233’s acts and financial transactions and/or expenditures, other than in the ordinary course of business, have the Applicants’ prior written consent;

d. That the Applicants be signatory on all 233’s bank accounts and cheques; and

e. That Almukamis and/or Karamash be prohibited from dealing with or depleting any of 233’s assets, including the Property.

[31] Despite the Order’s terms, Almukamis and Karamash accepted a second offer to purchase the Property, dated December 28, 2015, without Barbara’s knowledge or consent and thus directly contravening the Order. This offer for $1,925,000 was to close on March 30, 2016.

[32] On January 1, 2016, the Respondents negotiated a lease termination agreement with the Property’s tenant Universal, agreeing to pay them $65,000 for vacating the Property to allow its sale. This agreement was made without Barbara’s knowledge or consent, thus once again directly contravening the Order.

[33] On February 12, 2016, the Respondents issued a counter-application (further amended on April 26, 2016, and seeking the relief noted above).

[34] In March 2016, Barbara discovered approximately 40–50 vehicles at the Property. The vehicles were registered to a company owned by Karamash. Barbara contacted the Town of Ajax who attended and charged 233 for improperly using the Property. According to Barbara, Karamash pled guilty to every charge, each attracting a $1,000 fine. Barbara seeks indemnification for all costs associated with the charges.

[35] On March 9, 2016, the Respondents negotiated a lease termination agreement with the tenant SP Steel, agreeing to pay them $83,000 for vacating the Property to allow its sale. According to the Respondents, Barbara consented to this agreement and provided his formal consent to an order to be spoken to by the Applicants’ lawyer. That order supposedly allowed the Property’s sale and it provided that an equal $250,000 payment would be made to each of the three partners on closing.

[36] On March 30, 2016, only the Applicants’ lawyer attended court. The Respondents’ lawyer did not attend court, because he understood that a consent in the form of an approved order was being obtained. The order that the Applicants’s lawyer submitted and obtained, however, was not in the form of the consent order. Instead, the Applicants obtained an order for an unequal distribution of the proceeds—not as agreed.

[37] The Respondents appealed the order of March 30, 2016, and the Applicants consented to setting it aside before that appeal’s perfection. But as a result of this order, the second offer to purchase did not close.

[38] 233 received a third offer to purchase the Property, dated March 30, 2016. It was for $1,925,000 to close on May 30, 2016. All parties agreed to accept the offer.

[39] On April 1, 2016, the Applicants attended court on an ex parte basis and obtained an order requiring Universal to vacate the Property immediately. Since this order was obtained ex parte against a non-party, the Respondents threatened further proceedings. Consequently, the Applicants consented to vacate the ex parte order; it was vacated on April 8, 2016.

[40] On April 8, 2016, TMR Renovation & Construction Inc. (“TMR”) registered a lien on the Property of $63,011.06 with respect to services and materials it purports to have supplied to the Property.

[41] Barbara claims that he did not approve the work done to the Property using TMR’s services and materials. The lien’s total amount was paid out on closing and the Applicants dispute the claims’ validity; they otherwise assert that the work resulted from poor management of the Property.

[42] Having reviewed the affidavit evidence and the TMR invoices, I am content that the work was necessary and completed to preserve the Property’s integrity. I am also content that the payment was a legitimate expense paid on 233’s behalf.

[43] On April 21, 2016, Harry Sarros, the Applicants’ current counsel, requested copies of the following from the Respondents: T2 tax returns; HST returns and notices of assessment; rent rolls; detailed general ledgers; and statements, slips, and documents supporting all non-cheque transactions.

[44] On May 12, 2016, the Applicants consented to pay Universal $65,000 on closing the Property’s sale on a without prejudice basis.

[45] On May 30, 2016, the Property’s sale closed. The net sale proceeds totalling $812,346.16 were paid to Brian McMurter. They are held in trust pending determination of this application and counter-application.

[46] It appears that 233’s corporate ITRs for the years 2014 to 2016 inclusive were never filed, nor were taxes paid for this same period. It also appears that the net sale proceeds of the Property’s sale—held in trust—are 233’s sole remaining asset.

THE LAW AND ANALYSIS

Jurisdiction

[47] Clause 10.8 of the Shareholders’ Agreement stipulates that the parties resolve disputes by first resorting to mediation and binding arbitration. Despite this wording, all parties attorned to the jurisdiction of the Superior Court of Justice.

The Applicants’ Claims

i. Breach of Contract, Repudiation, and Oppression

[48] The Applicants tried to remedy the situation and obtain payment to close the sale even though it was not the Applicants’ responsibility to do so. I find on the evidence that the Applicants dealt in good faith and sought to finalize the SPA’s terms.

[49] The Respondents, however, did not seek to finalize the SPA and by their conduct evinced an intention not to be bound by the SPA.

[50] Repudiation occurs where a party, “by words or conduct evinces an intention not to be bound by the contract…such an intention may be evinced by a refusal to perform, even though the party refusing mistakenly thinks that he is exercising a contractual right”: S. M. Waddams, The Law of Contracts (4th ed. 1999), at ¶620, quoted in Guarantee Co. of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] 3 S.C.R. 423 (S.C.C.) at para. 40; see also Jedfro Investments (U.S.A.) Ltd. v. Jacyk Estate, 2007 SCC 55, [2007] 3 S.C.R. 679, at para. 20.

[51] The test to determine if a repudiatory breach has occurred is objective. As the Ontario Court of Appeal explained in Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721, at para. 37:

the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it…That is…whether the breach deprives the innocent party of substantially the whole benefit of the contract.

[52] Five factors can be considered to determine if conduct deprived the innocent party of substantially the whole benefit of the contract (Spirent at para. 36):

(1) the ratio of the party’s obligations not performed to that party’s obligations as a whole;

(2) the seriousness of the breach to the innocent party;

(3) the likelihood of repetition of such breach;

(4) the seriousness of the consequences of the breach; and

(5) the relationship of the part of the obligation performed to the whole obligation.

[53] The repudiation’s effect depends on the election made by the non-repudiating party. If that party treats the contract as remaining in full force and effect, the contract

“‘remains in being for the future on both sides. Each [party] has a right to sue for damages for past or future breaches” If, however, the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligations. Rights and obligations that have already matured are not extinguished’” (M. P. Furmston, Cheshire, Fifoot and Furmston’s Law of Contract, 12th ed. (London: Butterworths, 1991) at pp. 541, & 543-44, quoted in Guarantee, at para. 40; see also Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733, 118 O.R. (3d) 321, at para. 24.)

[54] An election accepting the repudiation is irrevocable. Specific performance is no longer available once repudiation is accepted. “Actual notice of acceptance or adoption [of the repudiation] is not necessary, but that adoption may be reasonably inferred from all the circumstances as proved”: American National Red Cross v. Geddes Brothers (1920), 1920 6 (SCC), 61 S.C.R. 143 (S.C.C.), rev’g (1920), 1920 11 (ON CA), 47 O.L.R. 163 (Ont. C.A.); see also Brown v. Belleville (City), 2013 ONCA 148, [2013] O.J. No. 1071 at para. 46.

[55] The Respondents failed to pay the amount owed to 229, and this conduct evinced an intention to repudiate the SPA. The Applicants—the innocent party—were entitled to elect between treating the contract as being in full force and effect or, by words or conduct, accepting the repudiation and terminating the contract (see Sandiford v. 21045887 Ontario Inc., 2012 ONSC 5825, 9 B.L.R. (5th) 324 at para. 61).

[56] The Applicants elected the latter: they accepted the repudiation and terminated the contract. As such, they are entitled to pursue oppression remedies.

[57] The Respondents’ submitted that they proceeded to act as 233’s sole shareholders, interpreting the Letter as the Applicants’ election to uphold the SPA. This submission is not credible.

[58] The Letter sought to force the Respondents to act according to the SPA’s terms. It did not act as an election but as a good faith attempt to finalize the agreement.

[59] The Respondents’ conduct—their refusal to pay the amount due, even after they received the Letter—evinced their intention to repudiate the SPA.

[60] From an objective view, the Applicants did not elect their remedy until they took the purposeful step of commencing the present application. At that stage, the Applicants elected repudiation and became entitled to pursue oppression remedies.

ii. Oppression

[61] To determine the oppression issue, it is important to review the relevant statutory provisions of the Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA), particularly the duties owed under s. 134, and the remedies available under s. 245.

[62] The OBCA provides remedies that give courts “a broad, equitable jurisdiction to enforce not just what is legal but what is fair”: BCE Inc., Re, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 58.

[63] Further, the OBCA is remedial legislation, so it should be given a liberal interpretation.

[64] To assess an oppression claim, a court must answer two questions:

a. Does the evidence support the reasonable expectation asserted by the claimant?

b. 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?: BCE Inc., at para. 68.

[65] Factors useful to determine the existence of a reasonable expectation include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders: BCE Inc., at para. 72.

[66] “Oppression” implies coercive and abusive conduct, and suggests bad faith. “Unfair prejudice” may admit of a less culpable state of mind that nevertheless has unfair consequences. Finally, “unfair disregard” of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders’ reasonable expectations: BCE Inc., at para. 67.

[67] The acts complained of need not be illegal. Nor is it necessary to show bad faith or want of probity: Ford Motor Co. of Canada v. OMERS, 2006 15 (ON CA), [2006] O.J. No. 27 (Ont. C.A.), at para. 91.

[68] Oppressive conduct may take the form of callous indifference as well: Loveridge Holdings Ltd. v. King-Pin Ltd. (1991), 5 B.L.R. (2d) 195 (Ont. C.J. (Gen. Div.)).

[69] Indicia of conduct that support a finding of oppression are as follows (Ford Motor at para. 92):

a. The lack of a valid corporate purpose for a transaction;

b. The failure on the part of a corporation and its controlling shareholders to take reasonable steps to simulate an arm’s length transaction;

c. The lack of good faith on the part of a corporation’s directors;

d. Discrimination between shareholders with the effect of benefiting a majority shareholder to the exclusion or to the detriment of a minority shareholder;

e. The lack of adequate and appropriate disclosure of material information to minority shareholders; and

f. A plan or design to eliminate a minority shareholder.

The court can consider the conduct’s cumulative effect.

[70] In the present case, the Applicants’ counsel requested information about 233 on at least three occasions. The Respondents did not respond to the requests despite their obligation to provide the information and despite a court order requiring disclosure.

[71] The Respondents actively engaged in the management and operation of the corporation without considering the Applicants’ views and preferences.

[72] The Respondents entered into lease agreements, sought financing, and engaged contractors without informing the Applicants of the nature and extent of their dealings.

[73] The Respondents entered an agreement of purchase and sale and purported to sell the Property owned by 233 without the approval or consent of the Applicants and in direct breach of the Order.

[74] The Respondents entered a termination of lease agreement with Universal that was non-arms’ length without obtaining Barbara’s consent or approval and (again) directly breaching the Order.

[75] In short, the Respondents sought to exclude the Applicants from the corporation’s operation. They took active steps to divert the corporation’s banking practises while steadfastly refusing to finalize the sale of shares that would have allowed the Respondents to deal with the corporation without heed to the Applicants’ rights.

[76] The Respondents’ submission that it was not oppressive to sell the Property for $1,925,000 in 2016, as Barbara was amenable to selling the Property for $2 million in 2013, does not address the issue. The Respondents purposefully excluded Barbara from decision-making and finances.

[77] In the circumstances, I find that oppression existed. The Applicants are entitled to just and equitable remedies arising from the acts of oppression.

iii. Accounting for Rent

[78] On December 15, 2015, Salmers J. granted the Applicants leave to obtain financial information directly from any financial institution that may possess such information.

[79] During the period that Barbara was actively involved with managing the corporation, he knew that Ram and Universal were paying approximately $11,000 per month for rent. For the period following Barbara’s active involvement, the Respondents provided financial and documentary disclosure and filed same with the court. Further, Salmers J. granted Barbara the right to obtain financial information directly from any financial institution in possession of such information. At the application hearing, the Respondents filed various bank records, cancelled cheques, and financial documents—including an accounting—and extensive cross-examinations were conducted on the numerous affidavits and documents filed.

[80] In the circumstances, I find that sufficient accounting and disclosure was made or otherwise available to Barbara. No further financial disclosure or accounting as between the parties is required or ordered.

iv. One Third of the Net Proceeds of Sale from the Property

[81] As I found above, the Respondents repudiated the SPA and 229 remains an equal one third shareholder of 233.

[82] Accordingly, 229 is entitled to receive one third of the net proceeds on the Property’s sale, currently held in trust by Brian McMurter and subject to any adjustments ordered in this judgment.

v. Setting Aside Improvident Transactions, and Indemnification

[83] The Applicants specifically alleged that the Property was mismanaged, and the rent charged for it was below fair market value. To establish the fair market value for the rent, the Applicants relied upon a letter from James Ferguson of Royal LePage, dated March 15, 2016 (the “LePage Letter”).

[84] The LePage Letter is insufficient to find that the rent charged and received for the property was below market value. It does not qualify as an expert opinion. Mr. Ferguson filed no affidavit. No attempt was made to certify him as an expert or his letter as an expert report. Further, the rent charged and received during the period that Barbara was involved in the running of the corporation was less than that charged and received during the period he was excluded from the business.

[85] In the circumstances, I find that the Applicants provided insufficient evidence to establish that the Property was mismanaged, and that the rent charged was below fair market value.

[86] Concerning the allegations pertaining to the lien filed by TMR for the Property’s repairs, and the termination agreement reached with SP Steel, I find that the Applicants filed insufficient evidence to establish these transactions or events resulted from mismanagement, negligence, or improvident transactions.

[87] Concerning the charges and penalties imposed by Ajax, I find that Barbara shares responsibility and is not entitled to indemnification. Alternative resolutions were available to remove the vehicles from the Property, for example, negotiating their removal with the other shareholders without having to resort to calling the Town of Ajax. Barbara provided no evidence that he sought any such alternative resolution. As a shareholder of 233 at the time of the incident, Barbara elected to report his own corporation and forced it to incur foreseeable penalties.

[88] It is unclear if the Respondents took steps to file 233’s corporate ITRs following 2013. It appears that 233’s sole asset is the net proceeds of sale held by Brian McMurter, sought to be distributed.

[89] 233’s corporate officers are responsible for ensuring that all tax returns are filed, and all taxes paid. Since Barbara was excluded from business operations, the obligation fell upon Almukamis and Karamash to file the return and pay the taxes. It is 233’s obligation—equally shared by all shareholders—to retain a tax preparer and pay all outstanding corporate taxes. Since they purposefully excluded Barbara, the Respondents are both responsible for any penalties and/or interest owed on the taxes for failure to timely file the corporate ITRs.

[90] In the circumstances, the Respondents shall, within 30 days of this judgment, retain an income tax preparer to prepare all outstanding corporate ITRs for 233 for 2014, 2015, and 2016, and shall within 60 days of this judgement file the ITRs with CRA. Barbara shall be copied on the ITRs when filed and shall receive a copy of all correspondence sent and received to CRA on behalf of 233.

[91] The reasonable costs for the preparation and filing of the returns by a third party shall be paid from the net proceeds of the Property’s sale, capped at $3,000. All taxes found due and owing by 233 for the years 2014, 2015, and 2016 shall also be paid from the net proceeds of the Property’s sale. All amounts found due and owing by 233 on account of penalties and/or interest for the years 2014, 2015, and 2016 shall be paid jointly by Almukamis and Karamash from their share of the net proceeds of the Property’s sale, and to the extent their share of the proceeds is insufficient, shall be paid personally by them. Almukamis and Karamash shall indemnify Barbara from any and all charges for interest and/or penalties due by 233 for the period 2014, 2015, and 2016.

[92] Concerning the termination agreement made with Universal and the $65,000 payment made to them for terminating the lease, I find that the transaction smacks of self-dealing and fabrication. The termination agreement transaction is set aside and there shall be a corresponding adjustment to equalize the payment made by 233 to Universal (Karamash) from the net proceeds of sale such that 229 and Almukamis, shall each receive payment of $65,000 from the net proceeds in priority to any division or distribution.

vi. Punitive Damages

[93] Punitive damages are not ordered. The Respondents’ actions were oppressive, but the oppressive conduct was not lengthy and occurred while the parties were actively engaged in terminating their relationship pursuant to the SPA.

[94] Further, the Applicants are not blameless in this dispute and did not always act with clean hands. For example, the Applicants obtained two orders under questionable circumstances, necessitating the Respondents to appeal and/or have the orders set aside.

[95] Finally, the net result of the Respondents’ behaviour is the Applicants’ enduring entitlement to retain their shares and receive an equal share of the net proceeds of the Property’s sale, the amount of which exceeds the payment that they were otherwise entitled to receive by the SPA.

[96] Accordingly, punitive damages are inappropriate here.

vii. Costs

[97] The Applicants requested that costs be fixed on a substantial indemnity basis at $79,743.92, inclusive of HST and disbursements.

[98] Although the Applicants succeeded on balance, they neither proved many allegations nor appeared before the court with clean hands. Some of the Applicants’ claims were unsubstantiated and added extra time and expense to the proceeding.

[99] Accordingly, I find the Applicants are entitled to costs for the application and counter-application on a partial indemnity basis. The parties shall file costs submissions as follows:

a. Applicants to file costs submissions within 30 days of this judgment, limited to 4 pages with a bill of costs and any offers to settle attached as a schedule;

b. Respondents to file response within 45 days of this judgment, limited to 4 pages with a bill of costs and any offers to settle attached as a schedule;

c. Applicants to file any reply within 60 days of this judgment, limited to 2 pages;

[100] With respect to relief against forfeiture, relief will be granted but the Applicants shall retain $50,000 received by them pending the costs decision.

The Respondents’ Claims

i. Carrying Costs of the Property for March 31 to May 30, 2016

[101] The Respondents entered two termination of lease agreements and accepted two offers to purchase the Property without the prior written consent of Barbara—in direct breach of the Order. The Respondents are not entitled to be indemnified for carrying costs of the Property when difficulties arose closing the accepted offers and executing the termination of lease agreements all done in defiance of the Order.

ii. The $65,000 Payment to Universal

[102] The Respondents produced an April 26, 2014 lease between 223 and Universal, despite the fact that Universal was a tenant since September 2012. By that lease’s terms, rental payments were due commencing October 1, 2014 with a termination date of September 31, 2018. 233’s signatory to the lease was Almukamis. Universal’s signatory was Karamash.

[103] Barbara was aware that Universal was a tenant since 2012, but was unaware of the 2014 lease until following the Property’s sale when the Respondents produced the “termination agreement” for the 2014 lease. The termination agreement, executed January 1, 2016, was unknown and unapproved by Barbara, and was executed in defiance of the Order.

[104] The termination agreement smacks of self-dealing and fabrication.

[105] As noted above, there shall be a corresponding adjustment to equalize the payment made by 233 to Universal (Karamash) from the net proceeds of the Property’s sale such that 229 and Almukamis, shall each receive payment of $65,000 from those net proceeds in priority to any division or distribution.

iii. Relief from Forfeiture

[106] The court has jurisdiction to grant relief against penalties and forfeitures under s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court must first consider the amount paid that may be subject to forfeiture.

[107] On my review of the evidence, I find that the two undated $10,000 cheques payable to Barbara with serial numbers preceding the payments to 229 of $50,000 and $150,000 are unrelated to the SPA due to the following:

a. The serial numbers suggest the cheques were issued before the SPA was drafted;

b. The missing dates from both the front and back of the cheques raise suspicion in the circumstances; and

c. The cheques are payable to Barbara, who did not own the share certificates.

[108] I conclude that the Respondents paid $50,000 towards the SPA and this is the amount subject to the claim for relief from forfeiture.

[109] Consideration of the forfeiture issue necessarily involves consideration of whether the Respondents were penalized for failing to satisfy the SPA’s terms or whether the Respondents simply did not receive a benefit it would have been otherwise provided pursuant to the SPA’s terms.

[110] To exercise the discretion to grant relief from forfeiture a court must next consider:

a. The Applicants’ conduct;

b. The gravity of the breach; and

c. The disparity between the value of property forfeited and the damage caused by the breach.

[111] In the present case, the Respondents were not required to pay additional funds as a form of penalty imposed by the SPA for failing to comply with the terms—they were simply required to pay the share purchase price pursuant to the SPA.

[112] The SPA does not contemplate deposits; it contemplates scheduled payments without reference to deposits or penalties for termination. Further, the SPA does not provide for forfeiture on default, and there appears to be no authority for the Applicants to retain the $50,000 except in the form of a penalty or damages.

[113] The breach appears have caused no measurable damages, save for legal fees caused by the fact that the Applicants had to initiate this application to enforce their rights.

[114] In the circumstances, the Respondents shall be entitled to relief against forfeiture to the sum of $50,000. However, the Applicants shall retain the $50,000 pending satisfaction of the legal fees and disbursements owed to them by the Respondents.

JUDGMENT

[115] For the reasons above, the following Judgment shall issue.

THIS COURT ORDERS AND ADJUGES THAT

a. The acts, omissions, or exercise of power by the Respondents were carried on in a manner that is oppressive to, unfairly prejudicial to, or unfairly disregards the interest of 2292772 Ontario Inc. and Maged Barbara.

b. The Respondents Ziad Almukamis and Akram Karamash fundamentally breached and repudiated the Share Purchase Agreement dated March 28, 2014 and such agreement is hereby terminated.

c. The shareholders of 2330829 Ontario Inc. are 2292772 Ontario Inc., Ziad Almukamis, and Akram Karamash, in equal shares.

d. The $50,000 paid by the Respondents to the Applicant 2292772 Ontario Inc., in furtherance of the Share Purchase Agreement dated March 28, 2014, shall be retained by the Applicants pending determination of the costs payable to the Applicants.

e. The funds currently held in trust by Brian McMurter, solicitor for the vendor 2330829 Ontario Inc., shall be distributed as follows:

i. $65,000 to 2292772 Ontario Inc.; and

ii. $65,000 to Ziad Almukamis.

iii. That sum necessary to pay the reasonable costs for preparation and filing of all outstanding corporate ITRs and corporate taxes for the years 2014, 2015, and 2016, said costs not to exceed $3,000 to a third party tax preparer;

iv. That sum necessary to pay CRA any and all unpaid taxes due and owing against 2330829 Ontario Inc. for the years 2014, 2015, and 2016, said sum to be remitted to CRA upon the filing of the corporate ITRs for 2014, 2015, and 2016;

v. Following distribution as set out above at paragraphs [115]e.i & ii and payment of the items set out at paragraphs [115]e.iii & iv above, the balance of the net proceeds of sale shall be divided into three equal shares to be distributed as follows:

1. One equal share shall be held for 2292772 Ontario Inc. to be distributed upon receipt of a notice of assessment from CRA confirming that no further taxes are due by 2330829 Ontario Inc. at which time the balance shall be paid and distributed to 2292772 Ontario Inc.; and

2. Two equal shares shall be held for Almukamis and Karamash in the first instance for payment of any and all penalties and/or interest due and owing by 2330829 Ontario Inc. for the years 2014, 2015, and 2016, said penalties and/or interest to be remitted from the two shares to CRA upon the filing of the 2014, 2015, and 2016 ITRs. Following payment, the amount remaining shall be held pending receipt of a CRA notice of assessment confirming no taxes, interest or penalties are due by 2330829 Ontario Inc. at which time the balance shall be paid and distributed to Almukamis and Karamash equally. In the event that the amount held is insufficient to pay all penalties and/or interest due for the years 2014, 2015, and 2016, the deficit shall be paid personally by Almukamis and Karamash who shall indemnify Barbara and 2292772 Ontario Inc. from any claim for interest and/or penalties owed by 233 for 2014, 2015, or 2016; and

3. In the event that 2330829 Ontario Inc. receives an assessment or notice of re-assessment from CRA determining that further taxes are due by 233 for the period 2014, 2015, and 2016, such further taxes shall be paid equally by each of 2292772 Ontario Inc., Almukamis and Karamash from the shares held for them as described immediately above at paragraphs [115]e.v.1 & 2 (i.e. one third is payable from the share held for 229 and two thirds are payable from the share held for Almukamis and Karamash).

f. Subject to the filing of any outstanding ITRs for the years 2014, 2015, and 2016, and the remittance of any outstanding taxes and/or penalties and interest due and owing 2330829 Ontario Inc., and the distribution of the funds held in trust as directed herein, the within applications be and are hereby determined.

Justice S. J. Woodley

Released: October 25, 2017

CITATION: 2292772 Ont. Inc. v. 2330829 Ont. Inc., 2017 ONSC 6415

COURT FILE NO.: CV-92931/15 and CV-94801/16

DATE: 20171025

ONTARIO

SUPERIOR COURT OF JUSTICE

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2292772 Ontario Inc.

and Maged Barbara

Applicants

– and –

2330829 Ontario Inc.,

Zaid Almukamis and Akram Karamash

Respondents

AND BETWEEN:

2330829 Ontario Inc.

Ziad Almukamis and Akram Karamash

Applicants

– and –

2292772 Ontario Inc.

and Maged Barbara

Respondents

ENDORSEMENT

The Honourable Madam Justice S.J. Woodley

DATE RELEASED: October 25, 2017