Court File and Parties

COURT FILE NO.: CV-16-563876 DATE: 20181116 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Hassoun Enterprises Ltd., Plaintiff AND: 2455695 Ontario Inc., 2449006 Ontario Inc. and Furquan-Reza Molu, Defendants

AND BETWEEN

2455695 Ontario Inc., 2449006 Ontario Inc., Plaintiffs by Counterclaim (Appellants) AND: Hassoun Enterprises Ltd., 2427196 Ontario Inc., 2453080 Ontario Inc., Youssef Hassoun, Salam Ammar, Syed Arsalan Absar, Syed Fahan Absar and Sbarro LLC, Defendants by Counterclaim (Respondents)

BEFORE: H. McArthur J.

COUNSEL: R. Ahmed, counsel for the Appellant (Defendants/Plaintiffs by Counterclaim) M. Kleinman, counsel for the Respondents (Plaintiffs/Defendants by Counterclaim)

HEARD: November 5, 2018

Endorsement

Introduction

[1] This is an appeal from the Order of Master Brott refusing to issue a Certificate of Pending Litigation (“CPL”) against three properties.

[2] The motion seeking the CPL arose in the context of an action brought by Mr. Hassoun (a franchisor) against Mr. Molu (a franchisee) [^1]. Mr. Molu counterclaimed, and alleged that Mr. Hassoun had fraudulently conveyed three properties to his wife. Mr. Molu then brought the motion seeking a CPL against those properties.

[3] At the hearing before the master, the parties diverged on the appropriate test for granting a CPL in a case where no judgment has yet been obtained and the allegation of fraudulent conveyance is not part of the main action. Mr. Molu argued that the question was whether a prima facie case of fraud had been made out with respect to the alleged fraudulent conveyance. Mr. Hassoun countered that the three-part test set out in Grefford v. Fielding, [2004] O.J. No. 1210 (S.C.), applied. That is, the claimant must (1) satisfy the court that there is a high probability that he or she will successfully recover judgment in the main action; (2) introduce evidence demonstrating that the transfer was made with the intent to defeat or delay creditors (evidence that the transfer was for less than fair market value lightens the burden); and (3) demonstrate that the balance of convenience favours issuing a CPL in the circumstances of the particular case.

[4] The master did not choose between the competing tests advanced by the parties. Instead, she considered both tests and found that on either test, Mr. Molu had failed to meet his onus. As a result, she dismissed the motion.

[5] Mr. Molu argues that the master erred in two ways. First, by finding that Mr. Molu failed to establish a prima facie case of fraud despite the existence of numerous “badges of fraud.” Second, by finding that Mr. Molu failed to meet the test set out in Grefford.

[6] For the reasons set out below, I find that the appeal should be dismissed. I do not intend to delve into the facts in detail, and will simply provide a brief overview. I will then address the applicable standard of review, before turning to my analysis of the issues raised.

Brief overview of the facts

[7] Mr. Hassoun is the owner and director of Hassoun Enterprises Ltd., which holds the license to sub-franchise Sbarro restaurants. Mr. Molu purchased two franchises through two separate numbered corporations. Things did not go well. Mr. Hassoun issued the first notice of default to Mr. Molu in January 2016. On April 15, 2016, Mr. Hassoun issued notices of termination for both franchises.

[8] On June 3, 2016, Mr. Hassoun instructed his real estate lawyer to transfer his interest in three properties to his wife for $1.00 each.

[9] On June 7, 2016, four days after the transfer, Mr. Molu emailed Mr. Hassoun asserting that the pro-formas he had been provided were inaccurate and proposing that Mr. Hassoun repurchase the franchises as a means to parts ways “amicably.”

[10] Second notices of default were delivered on June 17, 2016. Following that, Mr. Molu abandoned both franchises. On August 31, 2016 Mr. Molu delivered notices of rescissions of both franchises alleging that Hassoun Enterprises Ltd. had failed to comply with its disclosure obligations under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c.3. As result, Mr. Molu claimed that he was entitled to rescind the franchise agreements without penalty.

[11] On November 9, 2016, Mr. Hassoun brought an action against Mr. Molu. On June 29, 2017, Mr. Molu issued his Statement of Defence and Counterclaim. The Counterclaim includes a claim for the alleged fraudulent conveyance of the three properties transferred to Mr. Hassoun’s wife on June 3, 2016.

[12] Mr. Molu brought a motion before Master Brott seeking a CPL against the three properties. The motion lasted a full day. On June 26, 2018, the master released her six-page decision dismissing the motion.

Standard of Review

[13] The law is clear that a master’s decision should not be interfered with unless the master made an error in law, exercised his or her discretion on the wrong principles, or misapprehended the evidence such that there was a palpable and overriding error: Zeitoun v. Economical Insurance Group, [2008] O.J. No. 1771 (Div. Ct.), at paras. 40-41, aff’d 2009 ONCA 415, at para. 1.

[14] An appeal from a master’s decision is not a rehearing. Deference applies on questions of fact and mixed fact and law. The appellate court is not to substitute its interpretation of the facts or reweigh the evidence simply because it takes a different view of the evidence from that of the master: Wellwood v. Ontario (Provincial Police), 2010 ONCA 386, at para. 28.

Analysis

1) Issue One: Did the master err in failing to find a case of prima facie fraud in light of the existence of “badges of fraud”?

[15] Mr. Molu argues that there were clear “badges of fraud” in the present case. Given this, he asserts that the master erred by failing to find a case of prima facie fraud.

[16] I cannot agree. In the present case, the master clearly considered the alleged badges of fraud being advanced by Mr. Molu. She carefully reviewed the facts and made reasonable findings based on these facts. For example, she gave little weight to the complaint that the properties had been transferred for insufficient consideration, as she found that there was little to no equity in the properties at the time of the transfer. By way of other example, while acknowledging that there was a close relationship between Mr. Hassoun and his wife, she accepted Mr. Hassoun’s explanation that he transferred the properties to his wife because they had been experiencing marital difficulties: the transfers were a gesture to demonstrate to his wife that he was committed to their life together. The master also considered the submission that the transfer of the properties showed “suspicious timing.” In rejecting this, the master reasonably noted that Mr. Hassoun had instructed his lawyer to transfer the properties on June 3, four days before Mr. Molu’s email asserting that the pro-formas were inaccurate and proposing that Mr. Hassoun repurchase the franchises as a way to part amicably.

[17] In my view, the master’s reasons show that she found that Mr. Hassoun had met his “burden of explanation” and that Mr. Molu had failed to establish his legal burden despite the presence of badges of fraud. This conclusion was reasonably open to the master. A court is not compelled to draw an inference of fraudulent intent, even where there are badges of fraud: FL Receivables Trust 2002-A (Administrator of) v. Cobrand Foods Ltd., 2007 ONCA 425, at paras. 39-40.

[18] The question is not whether this court might have reached a different conclusion from that of the master. The question is whether the master erred in reaching that conclusion. Here, the master carefully reviewed the facts and considered the alleged badges of fraud. The master’s conclusion that despite these badges, Mr. Molu had failed to establish prima facie fraud was reasonable. This ground of appeal must fail.

2) Issue Two: Did the master err in finding that the test in Grefford had not been met?

[19] The master found that Mr. Molu had failed to meet each aspect of the three-part test set out in Grefford. In careful and detailed reasons, the master clearly articulated the basis for her conclusions. Her decision was largely factually driven. In my view, Mr. Molu invites this court to reweigh the evidence and take a different view of the evidence from that of the master. Given the deference owed to the master’s decision, this position cannot prevail.

[20] The master reasonably concluded that Mr. Molu had failed to establish that there was a “high probability” of success in the main action. She properly considered the Wishart Act, as well as the recent decision of Raibex Canada Ltd. v. ASWR Franchising Corp., 2018 ONCA 62. She took into consideration that the pro-formas/projections of expected revenues and expenses provided were not relied upon by Mr. Molu in considering whether to purchase a franchise. Moreover, she noted that it was made clear to Mr. Molu that he should do his own due diligence. Given the factual record before her, it was reasonably open to the master to conclude that Mr. Molu had the opportunity to make an informed investment decision before purchasing the franchise and thus that he had not established a high probability of success in the main action.

[21] The master also found that Mr. Molu had failed to establish an intent to deceive by Mr. Hassoun, for the same reasons that she found that Mr. Molu had failed to establish prima facie fraud. As discussed above, I find that this conclusion was reasonably open to the master.

[22] Finally, the master clearly explained why the balance of convenience was not tipped in favour of Mr. Molu. She correctly identified that Mr. Molu was not yet a creditor and, since the evidence did not establish a high probability of success on the main action, he may never be a creditor. Mr. Molu, however, argues that the balance of convenience clearly favours his claim because the “intent to defraud creditors has already been proven.” As noted above, however, the master rejected this argument and found that an intent to defraud had not been proven. Again, this finding was reasonably open to her. In my view, she reasonably concluded that the balance of convenience militated against the CPL.

[23] The master found that Mr. Molu had failed to establish any of the three-part test set out in Grefford. Her decision is not marred by an error in law or a palpable and overriding error. Her conclusions were reasonable and amply supported by the evidence. This ground of appeal must fail.

Conclusion

[24] The master considered both the prima facie case of fraud test and the test set out in Grefford. The master carefully analyzed the facts and determined that Mr. Molu had failed to establish his onus on either test. Mr. Molu essentially asks this court to reweigh the evidence and come to a different conclusion. But the master’s conclusions were largely factually driven and are entitled to deference. Mr. Molu has thus failed to establish that the master erred in law or committed a palpable and overriding error. The appeal is dismissed.

Costs

[25] Mr. Hassoun was successful on this appeal and is entitled to costs. He is seeking costs in the amount of $12,480.96. Mr. Molu did not take issue with the quantum being sought by Mr. Hassoun. Indeed, if Mr. Molu had prevailed he would have sought very similar costs in the amount of $12,466.76.

[26] Pursuant to s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, the court has a broad discretion when determining the issue of costs. Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 sets out the factors to be considered by the court when determining the issue of costs. In determining the costs issue, I have considered these factors, as well as the principle of proportionality set out in r. 1.04(1.1). I keep in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice.

[27] I also keep in mind that the overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario, [2004] O.J. No. 2634 (C.A.). In my view, the costs sought by Mr. Hassoun are fair and reasonable in the circumstances, having regard to the complexity of the matter. This view is bolstered by the fact that if Mr. Molu had prevailed on the appeal, he would have sought almost identical costs.

[28] Mr. Hassoun is entitled to costs in the amount of $12,480.96, inclusive of HST and disbursements, payable within 60 days.

Justice Heather McArthur

Date: November 16, 2018

[^1]: The appellants are 2455695 Ontario Inc. and 2449006 Ontario Inc., numbered corporations of Mr. Molu. For ease of reference, in general, rather than referring to the numbered corporations, I will refer to Mr. Molu. Similarly, in general, I will refer to the respondent corporation Hassoun Enterprises Ltd. as Mr. Hassoun.