Court File and Parties

COURT FILE NO.: CV-18-595214 MOTION HEARD: 20180807 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Goyal, Plaintiff AND: Asghar et al., Defendants

BEFORE: Master Abrams

COUNSEL: A. B. Dryer, for the defendant 2623559 Ontario Inc. G. Sidlofsky/D. Wagner, for the plaintiff S. Secord, for the defendant Frymer

HEARD: July 26, 2018 and August 7, 2018

Reasons for Decision

By the court:

[1] The defendant 2623559 Ontario Inc. (“262”) moves for an Order discharging a certificate of pending litigation and a notice, pursuant to s. 71 of the Lands Title Act, registered against title to a property purchased by it in Thorndale, Ontario.

[2] The property is a vacant parcel of land intended for development as a gas station/convenience store (Esso) and food store (Tim Hortons). It is zoned for these uses and a site plan agreement has been registered.

The Parties

[3] The plaintiff is a 50% shareholder in the defendant 2425779 Ontario Inc. (“242”). The other 50% shareholder is the defendant Noreen Asghar whose husband, defendant Mirza Chaudhary, is a real estate agent with whom the principal of 262 has done business, on a number of occasions, in the past—starting as early as 2012.

[4] The Thorndale property was purchased by 262, ostensibly from 242. The plaintiff alleges that that the sale was fraudulent and ought to be rescinded.

[5] 262 responds that the sale was not fraudulent. It characterizes itself as an arm’s length, innocent and bona fide purchaser for fair market value. Indeed, 262 was incorporated in early March/18 for the purpose of purchasing the property in question. The principal of 262 is an educated businessman who has extensive experience investing, including in commercial real estate/gas station and convenience store properties.

The Motion

[6] The plaintiff says that there is no basis to interfere with the Order made by Sugunasiri, M. on April 4/18. In her reasons, Master Sugunasiri found there to be “no doubt that there is a triable issue with respect to an interest in land”, that the “equities lie in favour of the plaintiff” with there being “some badges of fraud that reflect some questionable behaviour on the part of [Ms.] Asghar and [Mr.] Chaudhary”, and that “there is a serious issue to be tried with respect to the plaintiff’s entitlement to [the proceeds of sale paid by 262]”. For the reasons that follow, I agree with the plaintiff. The Order of Master Sugunasiri will not be set aside or varied by me.

The Plaintiff’s Involvement with the Thorndale Property: A Brief History

[7] The plaintiff says that he had been told about the Thorndale property by Mr. Chaudhary, in his capacity as real estate agent, when it was just vacant land: in 2015. He further says that Mr. Chaudhary suggested that he invest in the property because, with the help of Mr Chaudhary, the property could be developed into a gas station and Tim Horton’s franchise and, then, sold for a profit. The plaintiff’s evidence is that Mr. Chaudhary told him that “he had already lined up a buyer to purchase the property once it had been developed” and suggested a sale price of some “$1,600,000”.

[8] The best vehicle for effecting the purchase, the plaintiff says that Mr. Chaudhary told him, was to purchase the shares of the corporation that already held title to the property: 242. The suggestion made, the plaintiff submits, was that Ms. Asghar, Mr. Chaudhary’s wife and nominee, would receive 50% of the shares of 242 for nominal consideration ($50.00), with Mr. Chaudhary to obtain all necessary development approvals, negotiate lease agreements, and pay expenses attendant on obtaining the approvals as well as environmental reports. For his 50% of the shares of 242, the plaintiff was to pay $500,000: $350,000 on closing and $150,000 after the registration of the site plan. The $150,000 was not to be released until after the site plan agreement was registered and “satisfactory completion of the lease/sublease/supply agreement documentation” between 242 and its gas, convenience and Tim Hortons suppliers (Article 2.03 of the March 15/15 agreement).

[9] The plaintiff says that he was never told that the person who previously owned 242 and from whom he was purchasing shares was holding the shares of 242 as Mr. Chaudhary’s nominee (something admitted by both Mr. Chaudhary and Mr. Frymer in their respective statements of defence: paras. 5 and 4 and 7, respectively).

[10] The plaintiff also says that after he paid $350,000, as required, Mr. Chaudhary was not responsive to his efforts to obtain information and, when Mr. Chaudhary did communicate with him, it was to discourage him in respect of his ownership of the property. The plaintiff posits that Mr. Chaudhary withheld information about the site plan approval and offered to buy out his interest in the property.

[11] The plaintiff says that it was not until September 2017, after he refused an offer by Mr. Chaudhary to purchase his interest in the Thorndale property, that Mr. Chaudhary told him that the site plan had been approved. When the plaintiff obtained a copy for his review, he discovered that Mr. Chaudhary had signed it on behalf of 242 (though he was not authorized by 242 to do so) and that Ms. Asghar had registered a notice on title to the Thorndale property indicating, without his knowledge and prior approval, that she had authority to bind 242.

[12] The plaintiff submits that Mr. Chaudhary declined to deal with him in a fair and businesslike manner. Indeed, Mr. Chaudhary has admitted to this. In an email sent October 26/17 (referenced by Sugunasiri, M.), he acknowledged that he had tried to “cheat” the plaintiff.

[13] The plaintiff’s evidence is that he was becoming increasingly concerned about the manner in which Mr. Chaudhary and Ms. Asghar were dealing with him, 242 and the property and sought to sever dealings with them. To do so, he offered to sell his interest in the property—this on February 1/18.

[14] In response, Mr. Chaudhary made demand for $150,000 indicating that it was to be paid when the site plan agreement was registered. He also said that he would be prepared to sell his interest in the property for $900,000 or purchase the plaintiff’s interest in the property for $600,000.

[15] The plaintiff declined to pay the $150,000 saying that payment of that amount was contingent on the Tim Horton’s lease and gas station contract being completed and environmental reports being obtained and shared with him. He also declined Mr. Chaudhary’s sale/purchase proposals.

[16] Thereafter, without discussion or consultation, the Thorndale property was sold to 262, ostensibly by 242--with Ms. Asghar signing on behalf of 242 and with an acknowledgement on the part of the principal of 262 that he knew that Mr. Chaudhary and Ms. Asghar were in a dispute with the plaintiff.

The Sale of the Thorndale Property to 262

[17] For his part, the principal of 262 says that, in 2017, he asked Mr. Chaudhary to find a gas station/food store property in the London, Ontario area because his daughter was going to school there. He had a personal connection to the area. Mr. Chaudhary introduced him to the Thorndale property. The property was sold to 262 for $1,510,000 (without it being listed/marketed to the public) and was transferred to 262 only 7 days after the agreement of purchase and sale was signed. The principal of 262 says that the property ought to remain that of 262, without any cloud on title.

The Test

[18] Subsection 103(6) of the Courts of Justice Act is permissive. The test on a motion for leave to issue a certificate of pending litigation is the same as the test on a motion to discharge a certificate of pending litigation. “It is appropriate to begin with a consideration of the requirement that the claimant have a ‘reasonable claim to the interest in the land claimed’ and to follow up with a consideration of the equities, in particular the 8 factors suggested in 572383 Ontario Inc. v. Dhunna [ (1987), 24 C.P.C. (2d) 287 ]. At the end of the day, the governing test will be that set out by the Divisional Court in Clock Investments Ltd. v. Harwood Estates Ltd. (1977), 16 O.R. (2d) 671 where Steele, J. said: …the governing test is that the judge must exercise his [or her] discretion in equity and look at all of the relevant matters between the parties in determining whether or not the certificate should be vacated” (Waxman v. Waxman, 1991 CarswellOnt 3452, at para. 7). On the issue of whether the claimant has a reasonable claim to an interest in land, the question is whether there is “a triable issue as to such interest, not whether the plaintiff [claimant] will likely succeed” (2526716 Ontario Inc. v. 2014036 Ontario Ltd., 2017 CarswellOnt 4351 (SC.J.), at para. 46(ii)).

Interest in Land/Reasonable Claim

[19] I agree with the plaintiff when he says that an interest in land is here in issue. The plaintiff seeks to rescind the agreement by which 242 transferred the Thorndale property to 262, set aside the transfer and obtain a declaration that 262 is holding title for 242. He says that the transfer of the Thorndale property was a fraudulent sale, intended to cause him to suffer damages and to deny him his interest in the property to which he claims to be solely entitled.

[20] While 262 urges a narrow construction of s. 103 of the CJA, there is case law that suggests that a more liberal approach—the approach urged upon me by the plaintiff—is here appropriate. In Chilian v. Augdome, 1991 CarswellOnt 422 (C.A.), at para. 55, the Court of Appeal held that it is sufficient that the claim asserted, if successful, would adversely affect the defendant’s interest in the land, whether or not the claim was not made by the plaintiff in his personal capacity. The court in Municipality of Middlesex v. McRobert et al., 2017 CarswellOnt 11528 (S.C.J.), relying on Chilian, concluded that a plaintiff need not personally claim an interest in property for itself/himself to be entitled to a certificate of pending litigation. It is sufficient, as is the case here, that “the responding party’s interest in the land would be adversely affected if the claim succeeded”.

[21] And though 262 suggests that Kafouf v. Kafouf et al., 2017 ONSC 5093, is authority better followed here--with the court in Kafouf indicating that Chilian is an anomaly to the prevailing jurisprudence that shareholders of a company do not have an “interest in property” so as to allow them to obtain a certificate of pending litigation in the case of a shareholders’ oppression case--I do not agree. Counsel for the plaintiff points out, and I accept, that at issue in Kafouf, unlike here, was a claim to an interest in property owned by the very company in which the plaintiff held shares. That is not the case here. At issue here is an interest in property owned by 262, a company in which the plaintiff has no interest. And (as in Chilian and Municipality of Middlesex), 262’s interest in the Thorndale property will be adversely affected if the plaintiff’s claim succeeds.

[22] Then too, and in any event, I accept that there exist several badges of fraud sufficient to have justified the registration and now to justify the maintenance of a certificate of pending litigation on title (see: Bank of Montreal v. Ferri, 2011 CarswellOnt 10299 (S.C.J.), at para. 40 and Bank of Nova Scotia v. Fulchini, 2016 CarswellOnt 6718 (S.C.J.), at paras. 15 and 19). They include: secrecy; speed; false statements; questions as to adequacy of consideration; close and pre-existing relationship with Mr. Chaudhary; Mr. Chaudhary’s continued involvement; and notice of the plaintiff’s objection seemingly being disregarded.

[23] Specifically:

1. The sale was arranged in secret. The property was not listed. The plaintiff was not made privy to any discussions with the principal of 262.
2. Though the plaintiff was the president of 242 and a 50% shareholder of 242, the transfer documents were signed by Ms. Asghar as president.
3. There was no corporate resolution or shareholders resolution approving the sale of 242’s only asset.
4. Mr. Chaudhary instructed counsel in respect of the closing.
5. The haste with which the sale was completed was not in keeping with the usual purchasing behaviour of Mr. Bishay, 262’s principal. He has acknowledged that all of his past deals involved extensive due diligence (at least 3 months), with no due diligence having been done here. 262 had not even obtained environmental reports which its principal knew would be required by the banks for financing purposes. Mr. Bishay has admitted that this is the only land deal that he has made that was not conditional upon him receiving satisfactory environmental assessments and that was not conditional on financing.
6. There are close personal ties between Mr. Bishay and Ms. Chaudhary, with Mr. Chaudhary having acted as Mr. Bishay’s exclusive real estate agent on a number of transactions, since 2012; Mr. Bishay is in regular direct contact with Mr. Chaudhary; and Mr. Bishay has relied on Mr. Chaudhary to deal with, inter alia, lawyers, licenses, incorporations, agreements and the like. He has attested to his blind trust in Mr. Chaudhary (Cross-examination of Mr. Bishay, q. 623/p. 132).
7. Mr. Chaudhary refers clients to the lawyer who acted for 262 on the purchase of the Thorndale property.
8. Although he is a medical doctor and a seasoned commercial investor, Mr. Bishay says that he did not even read the agreement of purchase and sale for this $1.5 million sale (Cross-examination of Mr. Bishay p. 157/q. 767).
9. Mr. Chaudhary was a dual agent on the transaction, acting for both 242 (ostensibly) and 262.
10. This transaction is the only real estate transaction in respect of which Mr. Bishay had no partners.
11. There are problems with some of the transfer documents, including errors in the land transfer tax affidavit as to the consideration (see paras. 90-93 of Mr. Goyal’s April 4/18 affidavit) and in the characterization of Ms. Asghar as president. Ms. Asghar was not available to be examined on this motion. She went to Pakistan and, as at the time of the hearing of the motion, had not returned. Further, there is a charge for $1,000,000 registered against the property but it is not disclosed as a vendor-take back mortgage in the land transfer tax statement.
12. There is some question as to the fair market value of the property. The plaintiff, a registered real estate broker, suggests that it exceeds $2.1 million. 262 relies on a letter of opinion, commissioned by Mr. Chaudhary after the fact, signed by an associate of Mr. Chaudhary, and on an appraisal, also obtained by Mr. Chaudhary, which uses the transfer price purportedly paid to 242 as support for the appraised value and values the property as vacant, unimproved development land (though as at the date of the appraisal, the property had site plan approval for a gas station and convenience store and had signed a lease with Tim Hortons).
13. The documentation raises questions as to the source of the monies paid by 262. It is true that bank account statements have been produced by Mr. Bishay, but it is also true that more than was paid out by him was paid back into his account within days following the transfer of the Thorndale property. Further, the July 17/18 RBC Homeline (credit line) Plan, excerpted for the motion by 262, reveals a credit line limit of $2,376. Then too, with respect to the $400,000 advance (allegedly) from a corporation that operates a gas station in St. Catharines, a corporation in which others have an interest (not simply Mr. Bishay), it is curious that even a redacted record with nothing but the $400,000 transfer could not be produced.
14. The VTB mortgage of $1,000,000 due to be paid on May 5/18 has not been paid.
15. Mr. Chaudhary has continued to be involved with the property, including advertising it for sale in the Spring of 2018, sending a prospective purchaser (really an investigator posing as prospective purchaser) plans for development of the property and a copy of the lease agreement; dealing with the TDL (Tim Hortons) Group without advising it of the litigation; preparing a letter to take to the city dealing with “zoning”, inter alia; posing as the owner representative for estimates; and dealing with architects in respect of construction issues.
16. Though letters of objection and notification that he was the president and 50% owner of 242 were sent by the plaintiff only two days after the agreement of purchase and sale was signed and before the transaction closed, the deal closed allegedly in reliance upon legal advice given to Mr. Bishay. What that legal advice was has not been disclosed. Mr. Bishay’s evidence is that he simply “didn’t care” about the plaintiff’s objection (Cross-examination of Mr. Bishay, q. 615/p. 130). That an educated and experienced businessperson didn’t read the agreement of purchase and sale and didn’t care that there were issues raised as to the sale, before the sale closed, certainly raises questions.

Dhunna Factors

[24] On the issue of the Dhunna factors, the plaintiff succeeds in satisfying me, too, that the certificate of pending litigation ought to be maintained. The plaintiff is not a shell corporation; the land is unique in that it especially well-suited for the plaintiff’s original intended use (with the site plan agreement having been registered and there being no evidence as to comparable alternatives for sale nearby); the claim for damages, as asserted, is not an alternative claim; damages may not be a satisfactory remedy given the allegations of fraud; there being no commercial history with the property, damages may be difficult to quantify; the principal of 262 may be a nominee of Mr. Chaudhary, given their close relationship and the actions taken by Mr. Chaudhary in respect of the property (both before and after the sale), given Mr. Bishay’s blind trust in Mr. Chaudhary, and given the curious inconsistencies between Mr. Bishay’s manner of dealing in connection with this deal as opposed to others; and the balance of harm seems evenly tipped.

[25] While urgency is alleged by 262, there is no evidence of 262 having taken steps to obtain financing to pay off the VTB mortgage and/or fund the development of the property. Indeed, Mr. Bishay says that no such steps were taken (Cross-examination of Mr. Bishay, qq. 745-751/pp/ 154-155). Further, there is no evidence that TDL Group will terminate the lease, entered into before this litigation was even commenced. It is simply supposition on the part of 262.

Full and Fair Disclosure

[26] On the issue of full and fair disclosure, I note that paragraph 1 of the share purchase agreement and Article 2.03 of the March 15/15 agreement were reproduced for the Master, at first instance; the plaintiff did depose to the fact that he had suspicions that Mr. Chaudhary was the nominee of the owner of the shares of 242 that he purchased; and the plaintiff did indicate that it was his view that neither Mr. Chaudhary nor Ms. Asghar had performed their obligations to 242, thus negating Ms. Asghar’s entitlement to a 50% interest in 242. But, even if the disclosure might have been more fulsome, it was, in my view, sufficient. I agree with counsel for the plaintiff when, relying on 1376273 Ontario Inc. v. Woods Property Development Inc., 2001 CarswellOnt 2919 (S.C.J.), at para. 60, he says that 262 “has failed to identify or explain how any of the alleged non-disclosures…[could have] materially impacted the court’s decision to grant the certificate of pending litigation”. I cannot, at first blush, see how they would or could have. As described, I do not see them as being material.

Conclusion

[27] In all, and as argued by the plaintiff, the equities of the case justify maintaining the certificate of pending litigation on the title to the Thorndale property. [1]

[28] Failing agreement as to the issue of costs, I may be spoken to.

November 2/18

Master Abrams

[1] Note: At the request of counsel for Mr. Fryer, and without opposition from Messrs. Dryer, Sidlofsky and Wagner, I confirm that nothing in the endorsement of Master Sugunasiri ought to be construed to mean that the parties are taking the position that Mr. Fryer engaged in fraudulent conduct or participated in a conspiracy to defraud.