Court File and Parties

COURT FILE NO.: CV-17-4445 DATE: 20181206

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

LORA MORCOUS and NABIL WILLIAM EKLADIOS ABDELMALEK Plaintiffs

Counsel: Monty Dhaliwal, for the Plaintiffs

• and -

FAYEZ NADYTAWFIK YOUSSEF KOSA and 1955474 ONTARIO INC. Defendants

Counsel: No One Appearing for the Defendants

HEARD: December 3, 2018

REASONS FOR JUDGMENT (Undefended Trial)

FRAGOMENI J.

INTRODUCTION & OVERVIEW

[1] The Plaintiffs, Lora Morcous and Nabil William Ekladios Abdelmalek, commenced an action as against the defendants Fayez Nadytawfik Youssef Kosa and 1955474 Ontario Inc. by way of a Statement of Claim dated October 13, 2017 for the following relief:

1. A declaration that the Plaintiff, Lora Morcous is a 19% shareholder and that Nabil Abdelmalek is a 30% shareholder of 1955 Inc.;
2. An accounting of all accounts receivable, cash on hand, or cash in banks and other depositories for Fayez and/or 1955 Inc.;
3. A declaration that the Plaintiffs are aggrieved persons pursuant to section 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, and that certain acts of the Defendants have been and/or are threatened to be exercised in a manner that is oppressive, unfairly prejudicial to or that unfairly disregards the interests of the Plaintiffs as minority shareholders of 1955 Inc.;
4. An order that 1955 Inc. and/or Fayez pay the Plaintiffs their share of the proceeds from the sale of Maryam Pharmacy which closed on August 22, 2017, in accordance with the Shareholders Agreement made on September 26, 2016 and the Agreement of Purchase and Sale dated July 7, 2017;
5. An order requiring these Defendants to produce all their financial records relating to the corporation and its activities or an account to the Plaintiffs at their own expense;
6. An order requiring these Defendants to make the Corporate Minute Book of 1955 Inc. available for inspection;
7. An order rectifying the oppressive acts of these Defendants in respect of the affairs of 1955 Inc., and without limiting the generality of the foregoing, to issue the following orders:
8. that a Receiver-Manager be appointed to operate 1955 Inc. until the hearing of this action;
9. In the alternative, an order winding up 1955 Inc.;
10. In the alternative, damages as against these Defendants for unjust enrichment in the amount of $150,000.00;
11. A declaration that these Defendants hold 100% of the proceeds arising from the sale of Maryam Pharmacy which closed on August 22, 2017 in trust for the Plaintiff by way of Constructive and/or Resulting Trust, in accordance with the Shareholders Agreement made on September 26, 2016 and the Agreement of Purchase and Sale dated July 7, 2017;
12. A declaration that these Defendants or alternatively the Defendant, Fayez, hold 49% of the issued shares of 1955 Inc. in Trust for the Plaintiff by way of Constructive and/or Resulting trust;
13. A declaration that the Defendant, Fayez, owes the Plaintiffs a fiduciary duty as a director and officer of 1955 Inc. and as their trustee;
14. Damages against the Defendant, Fayez, for breach of trust in the amount of $150,000.00;
15. In the alternative, damages against the Defendant, Fayez, for conversion, in the amount of $150,000.00;
16. In the alternative, damages against the Defendant, Fayez, for theft, in the amount of $150,000.00;
17. Punitive and exemplary damages in the amount of $50,000.00;
18. Pre-judgment and Post-judgment interest in accordance with the Courts of Justice Act R.S.O. c. C. 43 as amended; and
19. Their costs on a substantial indemnity basis together with any requisite H.S.T. thereon.

[2] Mr. Bryan Gardhouse, a process server, attempted to serve Kosa and 195 without success. Mr. Gardhouse’s Affidavit of Attempted Service sets out the following:

1. On or about, OCTOBER 13, 2017, I was instructed by PALLETT VALO LLP, to serve the STATEMENT OF CLAIM, personally or alternate to personal service on FAYEZ NADYTAWFIK YOUSSEF KOSA and 1955474 ONTARIO INC. at SHOPPERS DRUG MART, 3874 BATHURST STREET, TORONTO, ONTARIO.
2. On October 28, 2017, at approximately 1:55 p.m., I attempted to serve FAYEZ NADYTAWFIK YOUSSEF KOSA and 1955474 ONTARIO INC., personally at SHOPPERS DRUG MART, 3874 BATHURST STREET, TORONTO, ONTARIO. However, I was advised by a male pharmacist that Fayez was not scheduled in until Monday October, 30, 2017. I left my contact name and number.
3. On OCTOBER 30, 2017, at approximately 6:25 p.m., I attempted to serve FAYEZ NADTAWFIK YOUSSEF KOSA and 1955474 ONTARIO INC. personally at SHOPPERS DRUG MART, 3874 BATHURST STREET, TORONTO, ONTARIO. However, I was advised by a female pharmacist that Fayez was not in today and works every other Saturday and Sunday. As of the date of this affidavit, I have not received a return phone call.
4. On OCTOBER 31, 2017, I was provided with a picture of the Defendant, FAYEZ NADYTAWFIK YOUSSEF KOSA by Pallet Valo LLP, attached hereto as Schedule “A” to confirm if the male in the picture was one and the same as the male pharmacist I spoke with at my previous attempt of October 28, 2017 at 11:55 a.m. I do confirm that the said picture provided to me was the defendant, FAYEZ NADYTAWFIK YOUSSEF KOSA and determined that he was not being honest and admitting he was the defendant, FAYEZ NADYTAWFIK YOUSSEF KOSA that I was looking for.

[3] In his Affidavit sworn August 14, 2018, Nabil Abdelmalek sets out the following at paras. 54 – 59 as it relates to service of the Statement of Claim:

54. In or around October of 2017, Lora and I instructed our lawyers, Pallett Valo LLP (“Pallett Valo”), to issue a Statement of Claim for this matter and serve same on the Defendants.
55. Pallett Valo engaged the services of a process server (the “Server”) to serve the Defendants with the Statement of Claim. I am advised and do verily believe that, over the next few weeks, the Server attempted to personally serve Fayez at multiple locations but was unsuccessful. Attached to this my affidavit and marked as Exhibit “S” are true copies of the Server’s affidavits of attempted service.
56. Consequently, I decided to attempt service of the Statement of Claim myself on Fayez at a restaurant, Destiny Asia Fusion (the “Restaurant”), where I know that Fayez frequently attends.
57. On November 17, 2017, I saw Fayez in the parking lot of the Restaurant and I attempt to serve him with the Statement of Claim. When Fayez saw me approaching him with documents in my hand, he fled to a nearby intersection, where I eventually followed served him with the Statement of Claim.
58. Fayez took the Statement of Claim and threw it on the ground before proceeding to pick up a rock and strike me on the head with it, causing me serious head injuries for which I was briefly hospitalized. I continue to suffer impairments from the assault, including a heart condition and physical pain. Attached hereto to this my affidavit as Exhibit “T” are true copies of Mackenzie Richmond Hill Hospital’s Emergency After Visit Summary dated November 18, 2017.
59. A police investigation commenced after Fayez’s assault. This investigation is on-going, though I was advised that the police intend to detain Fayez. Attached hereto to this my Affidavit is Exhibit “U” are true copies of the Police Records in my possession as arising from Fayez’s assault of me.

[4] A requisition noting the Defendants in default is dated December 12, 2017.

[5] This matter appeared before Justice McSweeney on October 25, 2018 at which time she made the following endorsement:

This matter is to proceed to uncontested hearing to deal with damages. Materials filed deficient as to no statement of claim or proof of noting in default. Per case law, counsel may choose to serve defendants despite rules not require such service. Uncontested hearing set for week of December 3, 2018 for one hour.

[6] The Endorsement of Justice McSweeney, the Motion Record dated October 15, 2018 and the Fresh as Amended Statement of Claim was served on the defendants on October 26, 2018 by sending a copy by regular letter mail to 18 Faye Drive, Toronto, Ontario M2J 3X2.

[7] Rule 19.02(1)(a) of the Rules of Civil Procedure states:

19.02 (1) A defendant who has been noted in default, (a) is deemed to admit the truth of all allegations of fact made in the statement of claim; and

[8] I have reviewed and considered the Motion Record and supporting material contained therein. I have also reviewed the Moving Parties’ Factum. The factum sets out the summary as to the facts at paras. 2 to 24.

[9] I have also reviewed and considered the Affidavit of Nabil, sworn August 14, 2018 setting out the circumstances of what transpired between the parties.

[10] A useful and informative chart is included in the Plaintiffs’ factum at paragraph 9, as follows:

Purpose of Payment	Method of Payment	Date	Amount	Reference
(a) Construction costs of the Pharmacy	Personal Cheques	June 29, 2016 July 30, 2016 August 22, 2016	$11,017.50 $11,017.50 $11,017.50	Nabil’s Affidavit at paragraph 19, Motion Record at p. 19; Tab 2(g) of the Motion Record at pp. 75-77.
(b) Advertising, services and equipment.	Credit Card	August- November 2016	$6,412.52	Nabil’s Affidavit at paragraph 22, Motion Record at p.19; Tab 2(i) of the Motion Record at pp.102-121
(c) Legal Fees	Personal Cheques	May 4, 2016	$1,500.00	Nabil’s Affidavit at para 23(a), Motion Record at p. 20; Tab 2(j) of the Motion Record at pp. 123-124.
(d) Rent for Pharmacy	Personal Cheque	May 4, 2016	$3,329.26	Nabil’s Affidavit at para 23(b), Motion Record at p. 20; Tab 2(j) of the Motion Record at p. 125.
(e) Printing Services	Personal Cheques	August 25 September 5, 2016	$5,189.26	Nabil’s Affidavit at para 24, Motion Record at p. 20; Tab 2(k) of the Motion Record at pp. 126-132.
(f) Insurance	N/A	N/A	$2,040.00	Nabil’s Affidavit at para 25, Motion Record at p. 20
Total			$51,523.54

[11] At paras. 10 and 11 of the factum, the Plaintiffs complete their review of the payments made:

In addition to the above payments, the Plaintiffs advanced a total of $59,500 in shareholder loans towards 1955 Inc. Specifically, the Plaintiffs advanced the following shareholder loans towards 1955 Inc.: (a) $20,000 in May 2016; (b) $12,000 in November 2016; (c) $13,000 in March 2017; (d) $3,000 in May 2017; and (e) $11,500 in June 2017. The funds advanced to the Corporation by way of shareholder loans were used to fund the costs of medicines, construction, inventory, administration, salaries and a variety of other payments.

[12] Tab L of the Motion Record reproduced the Shareholders Agreement between the parties. Paragraphs 2(a) (b) and (c) state:

2.(a) The parties acknowledge that Nabil Abdelmalek and Lora Morcous have contributed money to the Corporation for construction expenses, monthly rent, purchase of electronics and equipment for the Pharmacy, and ongoing expenses for utilities, insurance, internet and software, etc. (b) The Parties acknowledge that upon the sale of the business or declaration of dividends to the Shareholders, any such funds advanced by Nabil Abdelmalek and Lora Morcous and any unpaid salary to Fayez Kosa (based on average Pharmacist salary at the time) shall be deducted and paid prior to the distribution of sale proceeds to the Shareholders prior to payment of dividends to the Shareholders. (c) Nabil Abdelmalek and Lora Morcous agree to pay for the cost for medications, (prescription and non prescription). Upon the sale of the business or prior to declaration of dividends to the Shareholders these amounts shall be repaid to Nabil Abdelmalek and Lora Morcous before any distribution of sale proceeds to the Shareholders or prior to declaration of dividends to the Shareholders.

[13] Nabil explains in detail the circumstances surrounding the sale of the pharmacy at paras. 34 to 53 of his Affidavit sworn August 14, 2018. At no time did the plaintiffs receive any funds from the sale of the pharmacy. Instead, on August 23, 2017, the corporate solicitor delivered to Kosa a cheque for $101,661.25 representing the full sale price. Without their knowledge Kosa removed the plaintiffs as authorized signatories from the corporate banking account on July 24, 2017, between the date the APS was executed and the closing date.

[14] Nabil deposes that he believes Kosa flew to Egypt the next day after appropriating the funds.

[15] I am satisfied that the evidentiary record supports the relief requested by the plaintiff.

Punitive Damages

[16] Punitive damages are awarded in exceptional cases. The leading case on punitive damages is Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595.

[17] In Whiten, a case involving reprehensible conduct by an insurer, the majority held that the recognized justifications for an award for punitive damages are retribution, denunciation and deterrence and that punitive damages are limited to cases where the defendant’s behaviour amounts to misconduct that represents a marked departure from ordinary standards of decent behaviour. The majority went on to state that the quantum of the award ought to be rationally proportionate to the end sought to be achieved. The majority discussed several factors that determine the proper amount of a punitive damages award, many of which are of particular relevance to the matter before me:

a) The blameworthiness of the defendant’s conduct. The factors that influence blameworthiness include: i. whether the misconduct was planned and deliberate; ii. the intent and motive of the defendant; iii. whether the defendant persisted in the outrageous conduct over a lengthy period of time; iv. whether the defendant concealed or attempted to cover up its misconduct; v. whether the defendant was aware that what he or she was doing was wrong; vi. whether the defendant profited from the misconduct; and vii. whether the interest violated by the misconduct was known to be deeply personal to the plaintiff or a thing that was irreplaceable; b) The degree of vulnerability of the plaintiff; c) The harm or potential harm directed specifically at the plaintiff; d) The need for deterrence; e) Whether other penalties, both civil and criminal, are likely to be inflicted on the defendant for the same conduct; and f) The advantage wrongfully gained by the defendant from the misconduct.

[18] In 1698496 Ontario Ltd. v. Zoberi, 2015 ONSC 5267, 59 R.P.R. (5th) 266, at para. 23, the Court stated:

As noted in Whiten v. Pilot Insurance (2002 SCC 18, [2002] 1 S.C.R. 595 at paragraph 36), punitive damages are awarded in exceptional cases for “malicious, high handed” conduct that offends the court’s sense of decency. In order to trigger an award of punitive damages, the conduct must represent a marked departure from ordinary standards of decent behaviour.

[19] In Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, the Court set out the following at para. 62:

By their nature, contract breaches will sometimes give rise to censure. But to attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency — the exceptional case that can be described as malicious, oppressive or high-handed and that offends the court’s sense of decency: Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, at para. 196; Whiten, at para. 36. The misconduct must be of a nature as to take it beyond the usual opprobrium that surrounds breaking a contract. As stated in Whiten, at para. 36, “punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment)”. Criminal law and quasi-criminal regulatory schemes are recognized as the primary vehicles for punishment. It is important that punitive damages be resorted to only in exceptional cases, and with restraint.

[20] In Lauzon v. There It Was Gone Inc., 2012 ONSC 3583, 218 A.C.W.S. (3d) 327, the Court stated the following at para. 83:

Ms. Lauzon claimed aggravated and punitive damages. Although not pressed vigorously in argument, I do find Mr. Drummond did act in a callous and high-handed manner towards Ms. Lauzon by dealing with the inventory entrusted to him for listing on eBay without any regard to Ms. Lauzon’s legitimate interest in it and through his persistent failure to respond to her repeated requests to ascertain the status and whereabouts of her inventory. This conduct is worthy of condemnation by the Court and I therefore assess aggravated or punitive damages against Mr. Drummond in the sum of $10,000.00.

[21] The plaintiffs trusted Kosa and he took advantage of their vulnerability and lack of sophistication in the financial matters surrounding this business venture. Kosa took advantage of his friendship with the plaintiffs. He misrepresented the true nature of his intentions and then misappropriated all the funds received on the sale of the pharmacy. I am satisfied that Kosa’s conduct and behaviour support a claim for punitive and exemplary damages.

[22] Judgment to Issue as follows:

1. This court declares that Lora Morcous (“Lora”) is a 19% shareholder and that Nabil William Ekladios Abdelmalek (“Nabil”) is a 30% shareholder of 1955474 Ontario Inc. (“1955 Inc.”);
2. This court further declares that the Defendant, Fayez Nadytawfik Youssef Kosa (“Fayez”), holds 49% of the issued shares of 1955 Inc. in trust for the Plaintiff;
3. This court further declares that the Defendant, Fayez, owes the Plaintiffs a fiduciary duty as a director and officer of 1955 Inc. and as their trustee;
4. This court further declares that the Plaintiffs are aggrieved persons pursuant to section 248 of the Ontario Business Corporations Act, R.S.O. 1990, c B. 16, and that certain acts of the Defendants have been and/or are threatened to be exercised in a manner that is oppressive, unfairly prejudicial to or that unfairly disregards the interests of the Plaintiffs as minority shareholders of 1955 Inc.;
5. This court further declares that these Defendants hold 100% of the proceeds arising from the sale of Maryam Pharmacy which closed on August 22, 2017 in trust for the Plaintiffs, in accordance with the Shareholders Agreement made on September 26, 2016 and the Agreement of Purchase and Sale dated July 7, 2017;
6. This court orders that the Defendants provide to the Plaintiffs an accounting of all accounts receivable, cash on hand, or cash in banks and other depositories for Fayez and/or 1955 Inc. within 90 days;
7. This court further orders that these Defendants are required to make the Corporate Minute Book of 1955 Inc. available for inspection within 90 days;
8. The court further orders that these Defendants are required to produce all their financial records relating to the corporation and its activities or an accounting to the Plaintiffs at their own expense within 90 days;
9. This court further orders that the Defendants, Fayez Nadytawfik Youssef Kosa and 1955474 Ontario Inc., pay to the Plaintiffs the sum of $111,332.78 for the Plaintiff’s share of the proceeds from the sale of Maryam Pharmacy; the sum of $10,000 for punitive and exemplary damages; and the sum of $12,500 for the costs of this action all-inclusive.
10. This Judgment bears interest at the rate of 3 per cent per year from its date.

Fragomeni J. Released: December 6, 2018