Court File and Parties

COURT FILE NO.: CV-17-587093 DATE: 20190607 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ILLA PANDIT and IBJK INC., Plaintiffs/Moving Parties AND: SURENDRABHAI (SAM) R. PATEL, BHS ELECTRONICS INC., CRIMP CIRCUITS INC., BRIJESH PATEL, MINESH PATEL, BUSINESS DEVELOPMENT BANK OF CANADA, and 1694863 ONTARIO INC., Defendants/Responding Parties

BEFORE: Justice S. Nakatsuru

COUNSEL: David Boghosian, for the Plaintiffs/Moving Parties Mordy Mednick and J. Suttner, for the Defendants/Responding Parties

HEARD: March 19, 2019

Endorsement

[1] What is at stake is the proceeds of the sale of a hotel. The main parties to this action were shareholders in 1694863 Ontario Inc. (“169”), which bought a hotel, the Knight’s Inn, years ago. [1] By all accounts, it did not do that well for some time. A key question in the litigation is whether the Plaintiffs, Illa Pandit and the company of which she was a principal, IBJK Inc., sold their shares to the Defendant, Mr. Patel and his company BHS Electronics Inc., or remained shareholders and a director of 169 which owned the hotel. When 169 was set up and purchased the hotel in or about 2006, Ms. Pandit had 50% of the shares, Mr. Patel had 25% of the shares, and Chimanbhai Patel had 25% of the shares.

[2] On November 18, 2013, the Assignment Agreement was signed. It is said the deal struck was for the sale of Ms. Pandit’s shares of 169 to Mr. Patel and Mayankbhai Patel. Ms. Pandit received no monies for this. It is said the deal was that Mr. Patel and Mayankbhai Patel assumed her corporate and personal liabilities in the amount of approximately $3 million. Ms. Pandit disputes this. She says that the deal never closed. She claims she has remained the 50% owner and a director of the company. On the other hand, Mr. Patel claims the deal went through. When Mayankbhai Patel backed out, Mr. Patel went ahead and kept his side of the deal and he has been, since 2013, the sole shareholder and director of 169 having obtained all the shares from the other shareholders. [2]

[3] In 2015, the Pan American Games’ site was located adjacent to the hotel premises. This site was later taken over by the University of Toronto. It is Ms. Pandit’s view that the hotel has increased considerably in value.

[4] The Plaintiffs move for summary judgment on essentially the “liability” aspect of the claim. They seek an order declaring: (1) that Ms. Pandit continues to be the owner of 50% of the shares of 169; (2) that Ms. Pandit remains a director of 169; (3) that the two mortgages placed on the hotel property are invalid and removed from title; and (4) that 169 must provide financial disclosure to the Plaintiffs. Initially, the Plaintiffs sought the sale of the hotel as well. At the hearing, I was advised that there was an agreement of purchase and sale for the property that was agreed to by all the parties. As a result, the sale of the hotel no longer needs to be decided.

[5] The Plaintiffs argue that the issue of accounting and the distribution of the proceeds from the sale can be dealt with on a reference to a master. In their submission, once liability is established, then all that is required is an accounting of who is owed what sum of monies. It is submitted that this can be done at a second stage of the motion.

[6] The Defendants’ primary response to the motion is that this is not an appropriate case for summary judgment. The Defendants argue that a trial is needed to establish whether the Assignment Agreement is or is not null and void. The Defendants further submit that this is a motion for partial summary judgment and submit on that basis it should not be granted and that a trial is required.

[7] Finally, alternatively, the Defendants have brought their own motion for summary judgment and they submit that they should be granted their motion for summary judgment for the declarations they seek.

[8] With respect to this, the Plaintiffs take the position that the Counterclaims of the Defendants are statute-barred. This issue was added to the motion after the Plaintiffs were granted leave to amend their pleadings. The Defendants say that what they seek is really the other side of the claims made by the Plaintiffs and that the declarations they seek are not barred given s. 16 of the Limitations Act 2002, S.O. 2002, c. 24, Sched. B. They further rely on discoverability and estoppel. Given my ultimate conclusion that a trial is required, I will not deal further with this issue.

[9] For the following reasons, I agree with the primary position of the Defendants. There are two essential reasons why both motions should be dismissed:

• There is a genuine issue requiring a trial: the determination of credibility of key witnesses on significant issues requires a trial; and
• Partial summary judgment is not appropriate as the issue of liability cannot be readily bifurcated from remedy.

[10] In this case, I find it is important to highlight that the Defendants object to bifurcating the motion into liability and accounting/damages. In other cases, it may well be appropriate to do so when the parties consent. The Defendants do not consent given the nature of the issues raised in this case. For the following reasons, I have been persuaded that they are right.

A. Test for Summary Judgment

[11] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 45, the Supreme Court of Canada confirmed that summary judgment is a significant alternative model of adjudication. Rule 20 of the Rules of Civil Procedure provides judges with fact-finding powers (i.e., the power to weigh evidence, evaluate credibility, and draw inferences) if required, in order to eliminate unmeritorious claims that have no chance of success at trial.

[12] Determination of a motion for summary judgment involves a two-step approach. A judge must:

1. Determine whether there is a genuine issue requiring trial based only on the evidence before him or her, without using the fact-finding powers. If there is no genuine issue requiring a trial, summary judgment “must be granted”.
2. If there appears to be a genuine issue requiring a trial, the judge should then determine whether “the need for a trial can be avoided” by using the fact-finding powers to weigh evidence, evaluate credibility, and draw inferences.

B. Partial Summary Judgment

[13] Partial summary judgment should be rare. There are a number of reasons why this so. It has been well expressed in the authorities from the Ontario Court of Appeal: Butera v. Chown, Cairns, LLP, 2017 ONCA 783; Mason v. Perras Mongenais, 2018 ONCA 978.

[14] More recently in Service Mold + Aerospace Inc. v. Khalaf, 2019 ONCA 369, the Court of Appeal re-affirmed these principles. In Service Mold, a bookkeeper defrauded the respondent corporations. The appellant Toronto Dominion Bank was the corporations’ bank. The corporations initially claimed against both Ms. Khalaf and TD for both payroll and cheque fraud. TD was the respondent in a motion for summary judgment motion only on the claim in strict liability for cheque fraud. The motion judge granted partial summary judgment, but the Court of Appeal set it aside.

[15] Paciocco J.A. wrote that partial summary judgment should not have been granted. He did not contradict the motion judge insofar as she initially found “the cheque fraud and payroll fraud claims to be distinct, representing different causes of action.” Paciocco J.A. did, however, hold that the motion judge erred in her subsequent analysis (at para. 18):

In my view, the motion judge erred in principle when evaluating the risk of overlap in the evidence. She proceeded to partial summary judgment because she had not heard evidence about the payroll fraud during the summary judgment motion, there was “no indication that any additional evidence on the cheque fraud would be available at trial”, there “may or may not be a different date” for commencement of the relevant limitation periods, and there would only “possibly [be] different office procedures and possibly different considerations as to when the plaintiffs ought to have been aware of the loss.” Her orientation was wrong. In effect, she looked to see whether overlap had been demonstrated. To the contrary, she should not have proceeded to partial summary judgment unless she was satisfied affirmatively that the issues before her could readily be bifurcated without causing overlap that could lead to inefficient duplication or a material risk of inconsistent findings or outcomes.

[16] Following up on these comments, even where an issue on a partial summary judgment motion can be readily bifurcated in a legal sense - as a damages issue can be separated from liability - a motion judge must still consider whether there is overlap on the facts that could lead to either (1) inefficient duplication or (2) a material risk of inconsistent findings. Therefore it may be necessary to refuse partial summary judgment even where an issue can be bifurcated because there is a material risk of inconsistency, because partial summary judgment would lead to inefficiencies, or both.

C. Credibility a Genuine Issue Requiring Trial

[17] Analytically, this case could be disposed of as inappropriate for partial summary judgment for the reasons I will subsequently give. That said, I find it useful to first discuss the credibility issues that arise in this case. They are issues that require a trial. They also become significant when it comes to assessing the question of whether partial summary judgment is appropriate.

[18] Before addressing this, I wish to point out that initially the Plaintiffs claimed that the Assignment Agreement was unconscionable. Given the potential that pursuing this allegation could lead to another triable issue, the Plaintiffs have refrained from reliance on it in this motion.

[19] Briefly, the liability issue is the question of whether the Assignment Agreement was executed or not. In 2013, the shareholders wanted to sell the hotel given the financial drain it was causing them. Mr. Patel avers that in September 2016, he found a potential purchaser, Mayankbhai Patel. Ms. Pandit and her husband, Bharat Pandit, were involved in the day to day management of the hotel. They no longer wished to do so, especially given some personal family stress they were under at the time. Mr. Patel avers that after discussions, they agreed on a transfer of Chimanbhai Patel’s and Ms. Pandit’s shares to him and Mayankbhai Patel making them the shareholders of 169. Ms. Pandit says that the sale was really to Mayankbhai Patel as she was told that Mr. Patel was only involved since Mayankbhai Patel had bad credit.

[20] On November 18, 2013, Ms. Pandit, Mr. Patel, Chimanbhai Patel, and Mayankbhai Patel executed the Assignment Agreement with a number of terms. The rights of 169 were assigned to Mayankbhai Patel and Mr. Patel. The purchase price would be a nominal sum of $50 for the transfer of Ms. Pandit’s shares to Mayankbhai Patel and Mr. Patel. The possession would be assumed December 1, 2013. Most significantly, it was a condition that Mayankbhai Patel and Mr. Patel would assume the liabilities. Ms. Pandit was to transfer her share certificates. Mayankbhai Patel and Mr. Patel would assume liabilities including the Business Development Bank of Canada (“BDC”) first mortgage. Mr. Patel would then release Ms. Pandit from her personal loans, promissory notes, and guarantees that she had given.

[21] The Plaintiffs take the position that the deal never closed on June 2, 2014, as required and Ms. Pandit kept the share certificates. This was because Mayankbhai Patel had resiled from the Assignment Agreement. In particular, Mayankbhai Patel resiled in or about the first week of February 2014 without fulfilling the condition he make a deposit of $250,000 to pay down the accounts payable for the hotel. The Plaintiffs argue that his participation was crucial, as both he and Mr. Patel were jointly to assume the liabilities of, and indemnify and hold harmless, Ms. Pandit. Ms. Pandit never agreed to have Mayankbhai Patel’s interest assigned to Mr. Patel. She also argues that the release of her and her husband’s personal guarantee given to BDC on the first mortgage was not procured as required. The $50 consideration was not tendered. Formal releases were not obtained. As a result, the Plaintiffs submit that the Assignment Agreement became null and void. After this happened, Ms. Pandit, as she and her husband had already expressed, did not remain involved in the management and running of the hotel. Ms. Pandit was occupied by her own personal affairs and did not again attempt to become involved in 169’s business until 2016. During this time, unknown to her, she was removed as a director of 169 and Mr. Patel took the position that the company was his. Given this, the mortgages placed on the property later on, the Brijesh/Minesh mortgage and the Crimp mortgage, without her approval, were also null and void.

[22] The Defendants take the position that the deal did close. While Mayankbhai Patel stepped away, Mr. Patel took over the business. Mayankbhai Patel’s resiling was inconsequential and an issue that Ms. Pandit knew about in February of 2014. Mr. Patel conducted himself as if he was the sole shareholder and director. He invested further monies into 169 and paid all the bills. He never got any deposit from Mayankbhai Patel and he used his own monies for the accounts payable. While he did not give the nominal $50 payment to Ms. Pandit, it was because he had not received the Share Certificates as required. It is submitted that Ms. Pandit should not be entitled to rely on her default to escape her own contractual obligations. Regardless of not paying such a nominal sum, Mr. Patel argues that the Assignment Agreement is enforceable. The Assignment Agreement did not require a removal of Ms. Pandit and her husband as personal guarantors of the BDC mortgage but only to indemnify them. Mr. Patel later removed Ms. Pandit as a director of 169 as it was an implicit term of the Assignment Agreement and because she had shirked her responsibilities as a director. Leaving her on as a director would defeat the purpose of the Assignment Agreement. Formal releases were not required and even if they were, the informal Assignment Agreement was still binding. It was not until 2016 that Ms. Pandit re-appeared to try and assert that she never transferred her shares. Mr. Patel submits this is a classic seller’s remorse case where a claim is being put forward now that the hotel is worth something. The Defendants further argue that Ms. Pandit is estopped by her subsequent conduct.

[23] Assessing these positions of the parties involves assessing the credibility of a number of witnesses. Thus the determination of credibility is an essential part of the fact-finding process and requires a trial. Some of the credibility issues are as follows:

• The Assignment Agreement is most deficient. There is a dispute as to who drafted it. Mr. Patel avers it was Ms. Pandit’s son, Jaymin Pandit, who drafted it. Ms. Pandit avers it was Mr. Patel’s friend, Kirit Shaw, who was a practicing real estate agent. Regardless of who drafted it, it suffers from significant deficiencies. The most concerning one is a handwritten “Amendment” page attached to the Assignment Agreement. The handwritten portion states that Mr. Mayankbhai Patel would take possession when he paid the deposit of $250,000. It further states that if the closing is not done “within 1st June, 2015” (the year “2015” appears to be overwritten on top of the year “2014”) he would hand back the hotel and lose the deposit and other monies he paid. This “Amendment” is initialed by Ms. Pandit, Mr. Patel, and Chimanbhai Patel. Mayankbhai Patel neither signed nor initialed it. While I appreciate that the subjective intentions of the parties are not usually relevant to contractual interpretation, the circumstances of this handwritten “Amendment” and the differing closing date requires some adequate explanation which has not been provided.
• Ms. Pandit averred that there was no closing or an attempt to close the Assignment Agreement by Mr. Patel on or before the stipulated closing date since the Assignment Agreement had fallen apart when Mayankbhai Patel resiled from the Assignment Agreement. Ms. Pandit avers that in order for there to be a closing of the Assignment Agreement, Mr. Patel and BHS Electronics Inc. had to deliver a formal release of her personal indebtedness to Mr. Patel, a release of her personal guarantee of the BDC mortgage, and a formal release and indemnity regarding all debts from Mr. Patel and Chimanbhai Patel. Mr. Patel disputes this. No formal releases were ever required. Mr. Patel said that the Assignment Agreement contemplated he would assume the liabilities of 169 such that IBJK and Ms. Pandit would no longer be liable for the BDC mortgages of approximately $1,875,000. He did not seek BDC’s consent to remove her or her husband, Bharat Pandit, as personal guarantors of the loan as the Assignment Agreement did not require it nor could he obtain it from BDC. Rather, if there was a default of the BDC mortgages and BDC tried to enforce it, he agreed he would make the payments and indemnify the Pandits.
• The $50 consideration for Ms. Pandit’s 50% shareholding was never given to her by Mr. Patel. Mr. Patel states that he was willing to do so but did not give the cheque since Ms. Pandit refused to provide the Share Certificates in exchange for the cheque.
• There is an email dated January 9, 2017, where Mr. Patel wrote to Chimanbhai Patel and Bharat Pandit saying that the Assignment Agreement never took place and that they were still responsible for the costs of the hotel. The Plaintiffs rely on this as an admission in attacking Mr. Patel’s credibility. Mr. Patel states that this email and other communications were just an effort made by him to resolve their differences when he was stunned that she had come to claim in 2016 that she remained a shareholder and a director. According to him, these were not admissions.
• Ms. Pandit submits that in November of 2018, Mr. Patel had fraudulently got her son Jaymin to send him two pieces of her identification for a fictitious purpose. It is her position that Mr. Patel used this to unilaterally and secretively remove her from being a director. It is Mr. Patel’s position that Ms. Pandit had essentially abandoned her position and obligations. Mr. Patel said he removed her with her knowledge based upon the Assignment Agreement and communication from her son, Jaymin.
• There is considerable conflict with respect to events that happened after the closing of June 2, 2014, and what they mean. These findings are significant on the issues of not only whether the Assignment Agreement closed or did not close, but also, even if it did close, whether Ms. Pandit should be estopped from asserting her claim due to her conduct. Fundamentally, Mr. Patel’s position is that these events show that the Assignment Agreement was executed and that he took over the ownership and management of the hotel. Ms. Pandit’s position is that these events show only that Mr. Patel took over the day to day management of the hotel, consistent with the comments made by Bharat Pandit at the September 10, 2013 shareholders’ meeting. She stepped away from the day to day management because events in her personal life required her attention. She argues that these events do not support Mr. Patel’s position.
• Mr. Patel says Ms. Pandit’s conduct was consistent with her intent to relinquish control over 169. In his affidavit, he gives his evidence on this issue and refers to concrete examples of how she just removed herself from the picture and Mr. Patel basically conducted himself as the sole shareholder and director that he was. On the other hand, Ms. Pandit replies that her conduct was consistent with her belief that the Assignment Agreement fell apart. She and her husband only wanted to relinquish the day to day management of 169 but not her shares. Just as an example, there is the fact that Mr. Patel set up a new account for 169 with his bank, TD Canada Trust, and transferred monies to that account where he had signing authority. Ms. Pandit states this was simply so he could take over the day to day management and was more convenient for him. Similarly, her giving Mr. Patel information about the suppliers was to facilitate the day to day management of 169. Ms. Pandit argues that the fact that Mr. Patel paid down outstanding accounts and put more money into 169 when no one else did was because he was the only shareholder with the means. Given that she had given up the day to day management of the hotel, she was never asked to advance further funds as Mr. Patel knew she could not. She was never asked to pay any promissory note or personal loans or guarantees. Ms. Pandit says Mr. Patel routinely kept her advised of his attempts to sell the hotel and sought their approval.

[24] Looking at the motion record, I am unable to come to a finding regarding who to believe. Both positions are plausible. Both are confirmed in some ways by the documentation. Both have strengths but also weaknesses. There are inconsistent statements. Reviewing the transcripts of the cross-examinations have not furthered my ability to make a finding as to whom to prefer. It remains a genuine issue requiring a trial.

[25] This is not a straightforward case of contractual interpretation. It is as much about whether certain events occurred and the beliefs of the parties about whether the Assignment Agreement was carried out. The Assignment Agreement itself has flaws. There is a need to supplement the terms of the contract with evidence. That evidence is conflicting. It is complicated. It spans numerous years. And it depends upon credibility.

[26] In sum, there are genuine issues requiring a trial in this case. I do not intend to go on to determine whether these issues on liability can be avoided if I use my expanded fact-finding powers. I have just highlighted them given how these credibility concerns also infect the accounting/damages phase that the Plaintiffs say can be bifurcated on this partial summary judgment motion. I find that the analysis I have undertaken puts to rest any notion that I should resort to my expanded fact-finding powers to deal with the credibility issues.

D. Partial Summary Judgment: Liability and Accounting/Damages

[27] The Plaintiffs take the position that everything flows from the determination of liability. In other words, the bifurcation of this determination from the accounting phase can readily be done, which will simply sort out who is owed what given that it is agreed that the property will be sold and the monies distributed.

[28] I do not agree.

[29] First of all, in terms of the Plaintiffs’ claim, in addition to an accounting of all profits and losses of the business and all loans obtained and paid from May 1, 2013, to the present, they also seek damages in the form of dividends that should have been paid. That said, I agree that this is just an alternative argument as it is really not the most significant issue.

[30] Secondly, there are parts of the Counterclaim by the Defendants that impact on this issue. Even if the Plaintiffs are successful, the Defendants are claiming for outstanding personal loans of Ms. Pandit, promissory notes, funds advanced by them, and converted funds that belonged to 169. They also seek personal liability against Ms. Pandit and punitive damages.

[31] While I point this matter out, the main issue that makes this partial summary judgment inappropriate is that the accounting/damages phase will not be resolved until after liability is. The Plaintiffs say this can be done either as a reference or a trial of an issue.

[32] I am aware that in Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239, Strathy C.J.O., held that a summary judgment judge has the jurisdiction to bifurcate liability and damages and to direct a reference to determine the latter. However, he also recognized that this would not always be appropriate. As Strathy C.J.O. said at para. 38:

It is conceivable that a judge hearing a summary judgment motion could decline to determine liability and order a reference as to damages because of a risk of inconsistent findings on liability and damages. This is not such a case.

[33] In Lyall v. Whitehead, 2018 ONSC 2795, McEwen J. dismissed a motion for partial summary judgment in an estates case. He adopted the Court of Appeal’s framework in Butera and discussed whether the issues before him could be readily bifurcated from the issues in the main action:

In this case, credibility is extremely important. As stated in Baywood, voluminous affidavit evidence can obscure the affiant’s authentic voice. That has happened here. I received the evidence in a decontextualized manner and to make any findings on credibility in this fashion would result in fundamental unfairness in a way it will not likely occur at trial where the trial judge will see all of the evidence. Put another way, I cannot make credibility findings on the issues before me without also impacting the trial judge’s ability to independently assess the facts at trial. The trial judge’s credibility findings will be based on a set of facts broader than mine, but will also inherently include those that the defendant has put before me. They are not readily bifurcated from the broader underlying claim.

[34] In Kimko Inc. v. Abuaita, 2018 ONSC 2243, Rady J. heard a summary judgment motion regarding an aborted real estate purchase and sale transaction. The plaintiff alleged that the defendant committed an anticipatory breach of an agreement of purchase and sale and was entitled to damages or specific performance. The defendant counterclaimed for a declaration that the plaintiff breached the APS and for damages. Both parties moved for summary judgment. The plaintiff on the issue of liability and damages; the defendant on the issue of liability only, with damages being remitted to trial. Rady J. held that summary judgment was not appropriate on the issue of damages. In doing so, she made these observations at paras. 15-17:

While there may be some attraction to essentially bifurcating the issues of liability and damages, in my view, it would be unwise in this case for many of the reasons articulated in Butera.

Summary judgment in favour of one party or the other would undoubtedly delay the case, given their rights of appeal. It is entirely possible that there could be two appeals: one on the issue of liability; and later on damages. This cannot be said to be the most expeditious and least expensive way to proceed.

Second, the determination of liability would not bring the litigation to an end. Another trial would be necessary – again, hardly expeditious and less expensive. Scheduling is also a challenge in the post-Jordan environment.

[35] In this case, the accounting that the Plaintiffs seek is not a simple task. Leaving aside the Counterclaims made by the Defendants that exist aside from the accounting (for instance, the purely personal loans said to have been made to Ms. Pandit which would survive any summary judgment motion), determining what is owed to the different parties is not a straightforward matter that can be determined on paper. More evidence will be required.

[36] Just to highlight, the Plaintiffs have refused to produce the banking records of CIBC. The Defendants claim that Ms. Pandit converted the funds in this 169 bank account for her own use. The Defendants have refused to produce 169’s financials post Assignment Agreement. I have no doubt that once produced, witnesses will have to give evidence. Likely the very same witnesses who have given evidence already on this motion. Likely even more. Given the credibility concerns already identified, I find that the credibility issues will likely flow into the accounting assessment.

[37] To illustrate this point, I will refer to the significant issue of the contributions of the original shareholders to 169. Mr. Patel claims that to enable IBJK/Ms. Pandit to make their initial shareholder contribution to 169, Ms. Pandit borrowed $710,000 from him. He itemizes five separate loans. Four of the loans were unsecured cash loans. One was a mortgage.

[38] Ms. Pandit disagrees that she owes Mr. Patel any of the amounts he claims. With respect to loan #5 for $400,000, Ms. Pandit avers that this was a mortgage against another property which she subsequently sold. The new owner assumed the mortgage from Mr. Patel with his consent to transfer. The new owner then paid out the mortgage to Mr. Patel in full.

[39] In cross-examination, Ms. Pandit continued to insist that Mr. Patel never loaned her any money for the initial shareholder loan. Then, at the cross-examination, her counsel refused to allow any questions about the personal loans Mr. Patel made to Ms. Pandit as he took the position it was not a matter for the motion but the second accounting phase. Regardless of whether an adverse inference can be taken on the issue, as Mr. Patel argues, this issue was relevant given that it was on the basis of her personal loans were being waived that the Assignment Agreement was entered into. How much she owed Mr. Patel was material. It was also important to Ms. Pandit’s credibility. And to Mr. Patel’s credibility. Given that Ms. Pandit denied ever getting any of the significant loans, the cross-examination if it had been allowed to continue would have given important insight into not only her credibility on this point, but also in general on both the issue of liability and the accounting/damages phase.

[40] Another instance where credibility will be important is the dispute over the amounts Mr. Patel states that he advanced to the hotel from 2010 to 2013. Mr. Patel claims he advanced $875,000. Ms. Pandit disputes that, including an allegation that one of the purported cheques supporting an amount appears to have been forged. Just looking at Ms. Pandit’s Reply Affidavit of August 22, 2018, it is clear she significantly disputes what Mr. Patel further invested on his own. I can easily see this becoming a contentious issue where an assessment of credibility will be required.

[41] This concern is not isolated to what was initially put into the company or what further amounts of money were paid into 169 by Mr. Patel. Another important aspect is the Brijesh Patel/Manish Patel and Crimp Circuit Inc. mortgages placed on the hotel. Brijesh Patel is Mr. Patel’s son. Manish Patel is his nephew. Ms. Pandit avers she never approved them and that they are complete fabrications. Here too the credibility issues will be interwoven. I appreciate that if it is found that Ms. Pandit remained a shareholder and a director, then 169 did not obtain her approval for these mortgages. I also appreciate that Mr. Patel likely registered these mortgages to protect his interests he claims they reflect. However, there are more contested factual findings that will need to be made.

[42] Mr. Patel avers that the Brijesh Patel/Manish Patel mortgage was based upon essentially undocumented loans in order to finance 169’s second mortgage. But no security was registered at the time of those loans. Mr. Patel outlines how the $900,000 was advanced for 169’s benefit in his affidavit. Ms. Pandit alleges that this mortgage is a complete fabrication. She avers, based on communications of Mr. Patel at the time that he created a false financial crisis in late December 2013 in order to have her agree to a draconian mortgage and she only agreed under false pretenses to do so. Mr. Patel replies that while he may have portrayed a problem in order to get their attention, he avers the circumstances were true. He states that Ms. Pandit is aware of the circumstances by way of her husband, Bharat. Bharat and Jaymin Pandit previously attended at the office of 169’s corporate solicitor, Mr. Sanjay Doshi, with Mr. Patel. During that attendance, Mr. Patel provided Mr. Doshi with two cheques to satisfy the second mortgage debt immediately. To the contrary, Ms. Pandit’s position is that she was not aware that the second mortgage was discharged on December 4, 2013.

[43] Mr. Patel attempted to summons Mr. Doshi to give evidence to confirm this. Ms. Pandit takes the position Mr. Doshi’s evidence was covered by solicitor-client privilege held by her and she did not waive it. Mr. Patel takes the position that he is the sole director and officer of the corporation and can waive privilege. Mr. Patel also argues that these events are not privileged. Mr. Doshi was summoned for an examination as Mr. Patel wished to ask him whether Jaymin Pandit and Bharat Pandit attended his office with Mr. Patel on December 4, 2013, saw Mr. Patel hand Mr. Doshi the cheques in the amount of $710,000, and understood that the second mortgage was discharged in full. Mr. Doshi was summoned for the examination but did not attend due to this dispute about privilege being asserted. This issue no doubt will be raised in any accounting phase.

[44] It is the same with the Crimp Circuit Inc. mortgage, which Mr. Patel says was for legitimate 169 expenses while Ms. Pandit alleges they were not. It is also submitted by Mr. Patel that given a resolution dated November 27, 2013, Mr. Patel was given authority to unilaterally borrow on behalf of 169.

[45] Given the interrelated nature of the various disputes between the parties, I can easily envision that much will be disputed and much will depend upon the credibility of the parties. At this point, I note that the Defendants have not provided any of 169’s financials on the basis the Plaintiffs are not entitled to it. While I will refrain from commenting on the validity of such a position, the result is there is no record produced so I can properly assess the magnitude of the credibility problem in this case. But I find it will likely be a significant one.

[46] Thus, I see the issue of accounting and remedy will be hotly contested. It will not simply be a matter of accounting of the shareholder loans advanced, the liabilities since assumed by the company and the profits made by 169.

[47] Not only are amounts disputed, another significant issue will be who has priority in getting paid first from the proceeds of the sale of the hotel. Mr. Patel argues that whatever happens to the mortgages at issue, they still have priority over any shareholder loans. Regardless of whether the Assignment Agreement is valid or not, Mr. Patel takes the position that these charges should be given priority. Alternatively, it is submitted that Ms. Pandit should be responsible for 50% of any of these liabilities incurred.

[48] This will need to be sorted out through the documentation including any directors’ resolutions. All the main parties will likely have to testify regarding this. Given the Byzantine labyrinth of transactions, some alleged to be fraudulent, the sorting out of which ones should be paid first and how much and the assessment of the accounting will entail considerable examination, especially given how little cooperation is likely to be forthcoming from such antagonistic parties. This is leaving aside the assessment of the damages in the amount of dividends owed as claimed by the Plaintiffs and the punitive damages sought by the Defendants in their Counterclaim.

[49] I find that granting partial summary judgment and leaving the issue of accounting and/or damages at a second stage will hardly be expeditious and less expensive than a trial.

[50] Finally, there is a serious issue of inconsistent findings being made regarding credibility between the liability and the accounting/damages phases. Indeed, this potentially highlights the need that a trier hear all the evidence relating to credibility at the same time. The example of the lack of cross-examination of Ms. Pandit with respect to whether loans were made to her also highlights this.

[51] In conclusion, I dismiss the motions for summary judgment.

[52] I would encourage the issues of costs be resolved between the parties. If it cannot, I will entertain written submissions, each one limited to two pages excluding any attachments (any Bill of Costs, Costs Outline, and authorities). The Defendants shall file within 10 days of the release of these reasons. The Plaintiffs shall file within 7 days thereafter. There will be no reply submissions without leave of the court.

Justice S. Nakatsuru Released: June 7, 2019

Footnotes

[1] There is some conflicting evidence as to whether the individuals or the companies they owned were the shareholders. BHS Electronics Inc. is Mr. Patel’s company. IBJK belongs to Ms. Pandit. Kamlaxi is Mr. Chimanbhai Patel’s company. For the sake of ease of reading, I have just referred to the individuals.

[2] Chimanbhai Patel is said to have transferred his shares to Mr. Patel as well but this is not subject to this litigation.