COURT FILE NO.: CV-19-3384

DATE: 2019-08-27

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Senad Seferovic and Nedzad Seferovic, Applicants

AND:

Devad Seferovic, Diamond Drywall Contracting Inc., and Ihor Harapyn, Respondents

BEFORE: Ricchetti J.

COUNSEL: R. Fernandes for the Applicants

C. Stanek for the Respondents Devad Seferovic and Diamond Drywall Contracting Inc.

HEARD: August 22, 2019

ENDORSEMENT

THE MOTIONS

[1] On August 15, 2019, Bielby J., granted an ex-parte order that the net proceeds of sale of 114 Haddington Avenue, Toronto (“Haddington”) be held in trust pending the return of the motion on August 22, 2019 (“Bielby Order”). Devad Seferovic (“Alex”) and Diamond Drywall Contracting Inc. (“Diamond”) (Jointly referred to as “/ Alex/Diamond”) seek to terminate the Bielby Order.

[2] Alex/Diamond’s counsel confirmed and undertook to abide by the Bielby Order until a decision on these motions is released. There is some confusion regarding the state of the proceeds from the Haddington property. Alex/Diamond’s counsel stated, in a letter dated August 15, 2019, that the Haddington proceeds had already been disbursed as of the receipt of the Bielby Order. Alex’s affidavit at paragraph’s 35 and following would suggest the same. Yet, the public records show that the Haddington property was to close on August 29, 2019. As a result, the exact situation regarding the Haddington proceeds is unclear.

[3] The Applicants’ motion seeks interlocutory relief, including:

a) The continuation of the Bielby Order;

b) Various preservation orders with respect to the assets and accounting records of Diamond;

c) Various preservation orders with respect to certain properties alleged to be part of Diamond or the “family” business; and

d) Relief which would essentially re-instate the Applicants to their positions in Diamond, including providing them with their salaries, cell phones, signing authorities and vehicles.

[4] Senad Seferovic (“Sam”), Nedzad Seferovic (“Nick”) and Alex are brothers.

[5] Diamond is a family drywall business started in 2005. It would appear from the Diamond Minute Book that Mike, yet another brother not involved in this proceeding, was the sole shareholder of Diamond from 2005 until 2010.

[6] Once Diamond became successful, homes were brought, renovated and sold with the involvement of the three brothers in this proceeding.

[7] There is no dispute that, to take advantage of principal residence exemption to avoid capital gains tax, the homes were registered in the names of individuals, but the beneficial interest rested with other person or persons. All three brothers admit this was part of their historical dealings, and to some extent their current dealings, but the extent and the beneficial ownership of the homes referred to below is disputed.

[8] As a result, there are two central issues in this application:

a) who is/are the current beneficial owner(s) of Diamond; and

b) who is/are the current beneficial owners of the properties described below.

THE BACKGROUND

[9] Diamond was started in 2005 by the family members. The shares of Diamond were solely registered in the name of “Mike”, an older Seferovic brother. There is no dispute that Mike held the shares in trust for the other brothers.

[10] After a judgment was issued against Mike (and Sam) in 2007, it is alleged that Mike’s shares were transferred to Alex for financial protection of the family business. Diamond’s Minute Books would suggest this was done in 2010. The Applicants say in trust for the family. Alex says he is the sole beneficial owner of Diamond.

[11] In 2010, a dispute arose amongst the brothers and other members of the family regarding the operation of Diamond. Mike commenced an oppression action against his brothers regarding Diamond. This proceeding was settled by Minutes of Settlement executed in June and July 2012 (“Minutes of Settlement”). The Minutes of Settlement included a term that Mike was to transfer “any and all assets under the name of the Respondents to the Respondents” and to transfer his interest in Diamond to the “Respondents.” Of importance is that Mike was to transfer his interest in Diamond to the “Respondents” rather than just Alex. Mike’s share in Diamond to be transferred was never recorded in the Diamond Minute Books.

[12] Not only was Mike’s share transfer not registered in the Diamond Minute Books, the Diamond corporate Minutes Books (produced on this motion), despite the Respondents stating that they are the “complete contents of” Diamond’s Minute Book, appear to be seriously deficient in many regards, including the lack of any resolutions, no shareholder minutes, no director minutes and so on.

[13] The Diamond business continued to be operated. All three brothers in this proceeding continued to be involved in the Diamond business, each having different responsibilities in the business.

[14] Let me now deal with the homes. The homes currently at issue in this proceeding are the Haddington property, 583 St. Germain Avenue, Toronto (“St. Germain”), and 321 Patricia Avenue, Toronto (“Patricia”) (hereafter referred to as the homes or the properties). Details of the parties prior dealings with homes (although not all) and the homes in dispute are significant:

a) in 2003, 5875 Ladyburn Crescent, was purchased and registered in Nick’s name. The Applicants state that the mortgage for this property was paid through the family business, Diamond (there is no evidence to the contrary);

b) in 2013, 196 Cameron Avenue was purchased and registered in Alex’s name. When the Cameron Avenue property was sold in late 2015, the net proceeds are alleged to have been deposited into the Diamond bank account (there is no evidence to the contrary);

c) in late 2015 (after the sale of Cameron Avenue property), the Haddington property was purchased. Haddington is registered in the name of Alex. Like the prior properties, the renovations on this property involved all three brothers. When the Haddington property was refinanced in the amount of $1,900,000, the “main borrower” was Sam. Alex is a guarantor under this mortgage;

d) in 2016, 583 St. Germain Avenue (“St. Germain property”) was purchased. The St. Germain property is registered in the name of Alex. Some of the financing to complete this purchase appears to have come from drawing upon a line of credit secured against the Ladyburn property, some financing from friends and personal financing from Nick. There is no dispute about this financial assistance by Nick; and

e) in late 2016, 321 Patricia Avenue (“Patricia property”) was purchased. Title to this property was registered in the name of the Respondent, Ihor Harapyn. The Applicants believed a trust agreement existed which showed the three brothers as beneficial owners. Alex states that Ihor Harapyn holds the property in trust solely for himself. However, no trust agreement has been produced.

[15] There are other homes, but it appears that the Haddington, St. Germain and Patricia properties are the current properties at issue.

[16] Exactly who pays the mortgages, renovation costs and related expenses of these properties is not clear and documented in the motion record before me.

[17] In early 2019, additional financing was required for the Haddington property. The required financing exceeded what Sam and Nick expected. Sam and Nick started to make enquiries of Alex into the financial affairs of Diamond.

[18] Lavish expenditures by Alex were discovered from Diamond’s bank account. Sam and Nick asked for accounting information, to which Alex refused.

[19] The respective sides retained counsel.

[20] On April 15, 2019, Alex’s counsel wrote to Sam/Nick’s counsel advising that Alex had “no partner” in the Diamond business. The relationship between the brothers became even more strained.

[21] This application was commenced by Sam and Nick on August 14, 2019. Alex/Diamond’s counsel refers to the claim as an oppression claim. However, a careful review of the relief and grounds, appears that, in addition to the oppression claim, there are other claims such as conversion, breach of fiduciary duty, unjust enrichment, trust claims and so forth.

[22] Sam and Nick appeared before Bielby J., on August 15, 2019 and obtained the Bielby Order essentially requiring that the Haddington net proceeds be preserved on an interim basis.

[23] On August 20, 2019, shortly after the knowledge of the Bielby Order came to Alex’s attention, Alex terminated Sam and Nick as employees of Diamond. Sam and Nick’s cell phones, vehicles, signing authorities and payments to homes in their names were also terminated.

THE POSITION OF THE PARTIES

The Applicants

[24] The Applicants allege that, throughout all the dealings with Diamond and the various properties, the intention of the parties was that they jointly owned the beneficial interest in these assets.

[25] The Applicants rely on:

a) the history of their dealings showing that the properties and assets were and continue to be registered in the various names with entirely different beneficial ownership;

b) the source of financing the various business endeavours and the properties involved all the brothers, regardless of who was the registered owner;

c) all the brothers were involved in the Diamond business and were signatories on the Diamond bank accounts;

d) Sam and Nick deposited considerable funds into Diamond’s bank account since January 2018, being close to $2,000,000;

e) text messages in early 2019, when issues had arisen regarding the Haddington renovations, Nick texted Alex angrily asking what Alex was doing to “my investment” even though Alex was the only registered owner. There is no evidence of a response from Alex to this text;

f) Alex’s refusal to provide access to Diamond’s accounting records or an accounting after the Applicants’ questioned the finances; and

g) The senior responsibilities of Sam and Nick were, after they questioned the finances, terminated by Alex including Sam and Nick’s employment in Diamond, including the removal of their cell phones, the email accounts, access to corporate vehicles and signing authorization on the Diamond bank accounts.

The Respondents

[26] Alex/Diamond state that Sam and Nick have always been just employees of Diamond, working for minimum wage and a 2-3% bonus.

[27] Alex alleges that, in March 2019, he discovered Sam and Nick accepted cash for some jobs.

[28] Alex/Diamond repeatedly point to the registered ownership of the Diamond shares and various homes.

[29] Alex/Diamond submit that no order be made until after a complete record with cross-examinations and full productions.

[30] Alex/Diamond submits that the motion should be dismissed because no undertaking was included in the Applicants’ motion materials.

[31] Alex/Diamond submits that the motion should be dismissed because the Applicants delayed in bringing this application and motion.

THE ANALYSIS

[32] Part of the authority for the relief sought includes s. 248 of the Ontario Business Corporation Act which provides:

248 (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of. R.S.O. 1990, c. B.16, s. 248(2).

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue.

[33] As stated above, there are other torts alleged by the Applicants. The Applicants rely on Rule 45 for the preservation of Haddington property and on s. 101 of the Courts of Justice Act to grant the injunction order sought.

[34] Alex/Diamond assert that relief “freezing” or dealing with the homes is not available under the oppression remedy because they are not corporate assets. I reject this as the application advances claims which are broader than just s. 248 of the Ontario Business Corporations Act and because there is an allegation that the homes are part of or an asset of Diamond. I am satisfied that, if appropriate, this court has jurisdiction to make the orders sought.

[35] I recognize that the test under Rule 45 is somewhat different (see Taribo Holdings Ltd. v. Storage Access Technologies Inc. 2002, OJ 3886 (Sup Ct.)) but have concluded that, given the allegation the Applicants’ claim an interest in Diamond and in the homes/properties, the test in RJR MacDonald is a broader more encompassing test that should be applied.

[36] Clearly the relief sought by the Applicants is injunctive type relief. Both parties recognise that the Applicants must meet the test in RJR-MacDonald Inc. v. Canada (A.G.), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311.

Test for the Injunctive Relief

[37] At para. 43 of RJR Macdonald, the Supreme Court stated:

First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.

[38] At paras. 44-45, the Supreme Court in RJR MacDonald said that the “serious question” threshold is a “low one” and a judge should not engage in an extensive review of the merits. A judge must be satisfied that the application is “neither vexatious nor frivolous.” I will deal with mandatory injunctions orders sought by the Applicants separately below.

[39] The second test is whether the litigant who seeks the interlocutory injunction would, unless the injunction is granted, suffer irreparable harm. The court defined “irreparable” as referring to the nature of the harm suffered rather than its magnitude and, specifically described it as harm which either cannot be quantified in monetary terms or which cannot be cured.

[40] The third test involves the determination of which of the parties will suffer the greater harm from the granting or refusal of the interlocutory injunction pending a decision on the merits. In other words, the balance of convenience must be weighed.

[41] The court then considers and weighs the above factors and determines whether it is just or convenient to grant the injunction.

[42] The onus is on the Applicants to establish that they meet this test.

Serious Issue to be Tried

[43] I am satisfied that the evidence, in the materials before me, establishes that all the parties have conducted themselves in a manner that the registered owner, whether it be the shares of Diamond or the properties, is not necessarily the beneficial owner. The parties have seen fit to conduct themselves in this manner, that is having assets registered in one name but beneficially owned by others, for years and continue to do so.

[44] Accordingly, it is no defence to this motion that the Diamond shares and the properties are registered in the name of Alex.

[45] The evidence in this motion which leads me to the conclusion that the Applicants have satisfied this test, includes:

a) The settlement with Mike demonstrates that the shares in Diamond were not what appeared in the shareholder registry;

b) The evidence advanced by Sam and Nick prior to and their continued involvement in Diamond and their financial involvement in the properties is evidence that Diamond and the properties may be owned by the three brothers;

c) There is no evidence regarding how Alex acquired 99% of Diamond in 2010. There is no explanation or corporate documentation regarding Alex’s acquisition of the 99 shares. Essentially, there is no information or documentation to explain how Alex came to be the sole beneficial shareholder as he now suggests;

d) With regard to the properties, Alex admits he continues to put homes in the names of other persons as bare trustee; in this case Ihor Harapyn. In another example, 265 McRoberts was, according to Alex, his property, but was registered in Nick’s name in 2013, again to further their scheme to avoid capital gains tax when the properties were renovated and sold for a higher price. Alex responds that he is buying, renovating and selling homes on his own account, for tax purposes to avoid capital gains when he sells for a profit. Yet, this is inconsistent with the evidence that Sam and Nick were both involved in the financing of properties despite them being registered in Alex’s name alone. There is a further problem with Alex’s statement that the homes are his beneficially because Sam and Nick allege that profits went into Diamond but Alex does not deny this nor produce documents to show otherwise. On the record before me, there is considerable evidence that the beneficial owners of the properties may be other than the registered owner;

e) It makes little sense that, in this family business, Sam and Nick would be paid minimum wages by Diamond with a small bonus (2-3%) of each drywall job particularly given Alex’s admission that Sam and Nick’s responsibilities increased to include “dealing exclusively with some customers and supervising the subcontractors on some jobs” and be authorizing signatories on cheques; and

f) I do not find Alex’s suggestion that he discovered Sam and Nick to be taking cash for jobs without his knowledge as seriously undermining the current evidence of Sam and Nick. The timing appears to be entirely too coincidental – after Sam and Nick began to question Alex’s handling of the monies and Alex only took steps to terminate them after he became aware that Sam and Nick had brought this application and obtained the Bielby Order.

[46] While the onus is on the Applicants, given these facts from the materials before me, there is some evidentiary burden from Alex, the person holding the Diamond records, to do more than just say that the Diamond shares and the homes are his beneficially because he is the registered owner.

[47] For the reasons set out above, the primary and repeated submission by Alex/Diamond is that the shares in Diamond and in Haddington/other homes are in Alex’s name and therefore, Sam and Nick have no interest in these assets and should not be the subject of a court order, does little to dissuade this court that there is a serious issue to be tried. This submission entirely fails to recognize that beneficial ownership may, and often is and has been different than the registered owner.

[48] I am satisfied the evidence discloses that there is a serious issue to be tried; namely who is/are the beneficial owners of Diamond and the properties (Haddington, St. Germain and Patricia).

Irreparable Harm

[49] The Applicants point to the following as irreparable harm:

a) The homes are unique properties and given the refusal/lack of an accounting, properties in which they have financially contributed) where documentation is not always accurate or complete (ie Diamond’s minute book), they would suffer irreparable harm if Alex were permitted to deal with, sell the properties and dispose of the proceeds without an order;

b) The fact Alex has disrupted the Diamond business by, terminating Sam and Nick and the repercussions of this will not be known or calculable; and

c) Alex significant use and depletion of Diamond’s corporate funds for personal use.

[50] Alex/Diamond’s counsel submits that any damages are easily quantifiable, and the damages suggested by the Applicants is speculative. Alex/Diamond suggests that since Alex will continue to operate Diamond “enforcement of any damages award against Alex is unlikely to be a problem.”

[51] This is like a “trust me” submission which fails to deal with the essence of the dispute – Diamond and the homes/properties are allegedly owned by the three brothers; the two applicant brothers now being excluded. “Trust me” in these circumstances does not assuage the court or the Applicants that no relief should be granted.

[52] One of the troubling aspects is the inconsistency in Alex’s position. At one point he says that the Haddington proceeds were disbursed prior to the Bielby Order coming to his attention. But then Alex goes on to say that he is unable to pay for work done at Haddington, St. Germain and Patricia because he lacks the funds from Haddington. (see para. 46 of the Respondent factum), that he is forced to live in a bed and breakfast and so on. If Alex was using his personal funds for the purchase, renovation of Haddington and received funds from Haddington, this submission makes little sense.

[53] Alex has the accounting records for Diamond and the homes. Yet, none of this has been included in the motion materials. In these circumstances it is difficult to overcome the Applicant’s submission that permitting Alex to unilaterally deal with assets they jointly own, will not result in unknown, unquantifiable damages.

[54] This is particularly so as the continued operation of Diamond to the exclusion of Sam and Nick, if they are eventually determined to be beneficial owners, will be impossible to quantify the impact on Diamond’s business caused by their exclusion.

[55] I am satisfied that the impact on Diamond’s business and what may occur with the properties, the Applicants have established irreparable harm.

Balance of Convenience

[56] Neither party has produced much to ascertain the financial consequences if some form of injunctive order is granted. That makes a consideration of the balance of convenience difficult to assess. But the Diamond records are in Alex’s possession and he has refused to produce them to Sam and Nick to date.

[57] Alex/Diamond submit that in these circumstances “considering the few facts that are agreed upon, the only course of action is for the court to maintain the status quo that existed prior to the Bielby Order until after cross-examination on the affidavits have been completed and all relevant documents have been produced.”

[58] I am not persuaded that this is a viable or reasonable answer to the balance of convenience. An order that preserves Alex’s authority to continue Diamond’s ability to carry on business in the ordinary and usual course in day-to-day operations and ensuring accounting records are maintained will essentially make this factor neutral.

[59] As for the properties, the net proceeds of sale will only encumber the net profits, after payment of any registered, bona fide, third party creditors.

[60] Alex/Diamond point to the 4 month delay in bringing this motion. I am not persuaded that a delay from April 15, 2019 until August 14, 2019 has caused any prejudice to the Respondents or disentitles the Applicants to a full consideration of the merits. Much of the delay relates to attempting to obtain information or work matters out.

[61] On balance, I am satisfied that the preservation of assets in a fair and just manner is a primary consideration as to whether the injunction should be preserved.

Lack of Undertaking

[62] Alex/Diamond submit that the Bielby Order and this motion be dismissed as the Applicants have failed to provide an undertaking as to damages. Alex/Diamond submits this is fatal and the motion should be dismissed.

[63] On a motion for an interlocutory injunction or mandatory order, the moving party almost invariably gives an undertaking as to damages. Rule 40.03 provides that, unless the court orders otherwise, the moving party must undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party.

[64] There is no dispute that the Applicants’ materials do not include an undertaking in the motion material. The Applicants, through their counsel, during the submissions on this motion, agree to be bound by an undertaking as to damages.

[65] Rule 40.03 provides:

40.03 On a motion for an interlocutory injunction or mandatory order, the moving party shall, unless the court orders otherwise, undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party. R.R.O. 1990, Reg. 194, r. 40.03.

[66] I agree that, absent exceptional circumstances, an injunction should not issue without an undertaking from the moving parties. However, this does not mean a meritorious injunction motion should be dismissed if the moving party have simply forgotten to include the undertaking in its materials but is nevertheless prepared to provide an undertaking. Alex/Diamond only raised this issue on August 20, 2019, just two days before this motion was heard. There has been little time to deal with this and it cannot be said that the Applicants refuse to provide the undertaking or have delayed dealing with this issue.

[67] In this case, it was apparent, upon this issue being raised that the Applicants, through their counsel, agreed to an undertaking regarding any and all assets they own.

[68] Is this sufficient?

[69] In my view, it is, provided that the Applicants file their undertaking to this court within 7 business days of the release of these reasons. Such an approach to deal with a lack of an undertaking is not uncommon. For example, see Rust Check Canada Inc. v. Buchowski, 1994 CanLII 7416 (ON SC) where the court ordered the undertaking to be filed after the motion was heard:

[30] Rule 40.03 plainly requires an undertaking to abide by any order concerning damages. There is no reason why Rust Check cannot file one. A continuing undertaking will have to be filed as a condition of the granting of any continuation of this injunction.

[35] Therefore, upon an undertaking being filed in writing under the corporate seal of Rust Check Canada Inc. that it undertakes to abide by any order which the court may make if it ultimately appears that the granting of this order has damaged the responding party and that the plaintiff ought to compensate the responding party, an order will issue restraining the defendants, their agents or associates from dealing in any way with products or chemicals manufactured according to the formulas, processes or know-how of Rust Check Canada Inc. and, further, restraining them, their agents or associates from dealing in any way with products bearing trademarks or product names owned by Rust Check Canada Inc.

[70] A similar approach was taken in Marks v. Ottawa (City), 2007 CanLII 23354 (ON SC):

[33] Upon the respondents Maheux and Natividad filing a written undertaking that the work to be installed will not encroach on the applicant’s property as described in the survey, the interim injunction granted May 28, 2007 and continued May 29, 2007 is hereby lifted. Subject to the filing of the written undertaking, the respondent may therefore enter upon the applicant’s property for the purpose of performing the work pursuant to the City of Ottawa Right-of-Entry Permit, as may be amended or re-issued by the City of Ottawa. I note that the dates limiting the entry by the respondents has expired because of these proceedings and therefore either need to be amended or a new permit issued to permit the respondents to move forward with the work.

[71] And there is Goodwin v. Goodwin, [2011] O.J. No. 464:

68 I was not directed to an undertaking re damages which is required from the Applicant pursuant to Rule 40.03. The Applicant must file the appropriate undertaking on the continuing record prior to the injunction taking effect (unless he already has and I did not see it in the materials).

[72] The last example is 6056628 Canada Inc. v. 2350894 Ontario Inc., [2019] O.J. No. 990:

57 I make the following orders:

5. In accordance with Rule 40.03, the plaintiff corporations shall provide undertakings to the court concerning damages. The undertakings shall state: that the plaintiff corporations "undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the injunction orders of October 5, 2015, October 16, 2015 and/or February 26, 2019 have caused damage to the defendant for which the plaintiff corporations ought to compensate the defendant"; and that the plaintiff corporations have sufficient assets to fulfill the undertakings and that if they do not, the principals of the plaintiff corporations identified in the November 20, 2018 affidavit of Zadek Ramowski shall be personally liable for the undertaking.

The undertakings of the plaintiff corporations shall be served on the landlord's lawyer and filed with the court within 14 days of the date of this order, failing which the injunction orders of October 5, 2015, October 16, 2015 and February 26, 2019 shall be dissolved.

[73] I am satisfied that, to satisfy the Applicants’ requirement to file an undertaking, the Applicants shall, within 7 business days of the release of these reasons, serve and file an undertaking to this court in this matter which provides that: “they irrevocably, jointly and severally, undertake to this court to abide by any order concerning damages that the court may make against them or either of them if it ultimately appears that the granting of the injunction orders of August 15, 2019 and orders granted hereunder have been found to have caused damage to the Respondents or any of them for which the Applicants ought to compensate the Respondents."

Conclusion

[74] Considering all the above factors, I am satisfied it would be just to grant injunctive relief to preserve and protect the respective interests and positions of all parties, pending the hearing of the Application or trial.

What is the appropriate order to make pending trial?

[75] The purpose of this injunction is to permit the Diamond drywall business to continue operating but at the same time preserve the Diamond business pending trial.

[76] As for the homes/properties, given the allegations, the purpose is to preserve these assets or to ensure that if they are sold, to preserve the net proceeds of sale pending trial. Given the possibility that the home/properties may have different beneficial ownership than Diamond, Diamond’s monies shall not be used to pay mortgages, or other ownership related expenses connected with these homes/properties.

[77] There are other injunctive orders (aside from Diamond’s business and the homes)sought by the Applicants which I will deal with separately.

Diamond

[78] In order to preserve the Diamond business, and subject to further order of this court or the written agreement of the parties, the parties are hereby ordered as follows :

a) Alex and Diamond are hereby restrained from dealing with, assigning, encumbering, disposing or otherwise transferring or issuing any shares, interest in or the business or corporation of Diamond;

b) Alex and Diamond are hereby restrained from carrying on business except in Diamond’s usual and ordinary course of its day-to-day drywall business and to make such payments and incur/pay such expenses solely in relation to Diamond’s day to day drywall business;

c) Alex and Diamond are hereby restrained from making any payments, incurring any expenditures or liabilities except in the usual and ordinary course of Diamond’s day-to-day drywall business. To be clear, this order prohibits Diamond from making mortgage or other ownership payments to the St. Germain and Patricia properties;

d) Alex and Diamond are herby restrained from paying or remunerating Alex any monies including by way of salary, dividend, distribution or shareholder loans or otherwise, except that Diamond may continue to pay to Alex his normal and usual income or salary and business expenses consistent with Alex’s remunerations in 2018;

e) Alex and Diamond are hereby restrained from assigning, transferring, selling or encumbering any of Diamond’s assets except in its usual course of Diamond’s day to day drywall business operations; and

f) Alex and Diamond shall preserve and maintain all detailed business records including banking records, receipts, ledgers and other financial documentation of Diamond;

g) Alex and Diamond shall provide a copy of Diamond’s business records or give access to Sam and Nick all the records required to be preserved hereunder, on the first of each month, commencing immediately. Alex and Diamond shall permit Sam and Nick to make reasonably financial inquiries of Diamond’s bookkeeper/accountant for the purpose of clarifying income and expense items.

The Homes/Properties

[79] In order to preserve or sell the homes pending the hearing of the Application or trial, the following order is made and, subject to further order of this court or the written agreement of the parties, the parties are hereby ordered as follows:

a) The Bielby Order of August 15, 2019 is hereby continued. The net proceeds of sale of Haddington, in the possession of Alex, Diamond or anyone holding the monies on their behalf, shall immediately be paid to the Accountant of the Superior Court of Justice to the credit of this action; and

b) 583 St. Germain Avenue, Toronto and 321 Patricia Avenue, Toronto shall not be further encumbered or sold by the parties. If these properties or any of them are sold by agreement of the parties or by a bona fide third party creditor(s) exercising their security rights, the net proceeds of sale shall be paid into court to the Accountant of the Superior Court of Justice to the credit of this action.

[80] I decline to order that Diamond continue to pay the mortgages and other related expenses of any properties to which Diamond is not the registered owner and which the beneficial ownership is in dispute.

Employment Relief

[81] The Applicants seek a variety of orders which would essentially require them to be re-instated with Diamond, despite their termination, including reinstating their cell phones, vehicle access, salaries and signing authorities.

[82] Essentially what is sought is a mandatory order.

[83] Where the injunctive relief is a mandatory order, the moving party must demonstrate a strong prima facie case that it will succeed at trial (R. v. Canadian Broadcasting Corp., 2018 SCC 5, 417 D.L.R. (4th) 587).

[84] I am not persuaded that the Applicants have demonstrated a strong prima facie case. While the Applicants have demonstrated a serious issue to be tried and perhaps even a compelling case, I am not persuaded that it has reached the higher threshold required by for a mandatory injunction.

[85] No authority has been provided where employees have been reinstated in an employee termination situation.

[86] Further, to permit Sam and Nick to resume their responsible positions in Diamond would create havoc and the likely disruption to Diamond’s business. The impact on Diamond’s business would be difficult if not impossible to assess. Attempting to determine later who caused any loss to Diamond’s business would be impossible. This way, the responsibility (and potential liability if the Applicants are successful) will rest entirely on Alex.

[87] Further, reinstating Sam and Nick would essentially be granting Sam and Nick what they are in essence claiming; tantamount to judgment before they prove their case.

[88] I decline to make an order in this regard.

CONCLUSION

[89] An injunction shall immediately issue in the terms set out above. In the event that the undertaking referred to above is not served and filed with the court within 7 business days from today’s date, Alex/Diamond may bring a motion before me (if I am available) to terminate this injunction, including the Bielby Order.

[90] The parties shall agree on a timetable for the filing of any further materials on the Application, examinations, factums and arrange for a return date with the Trial Coordinator’s Office.

COSTS

[91] Any party seeking costs shall serve and file written submission on entitlement and quantum within three weeks of the release of these reasons. Written submissions shall be limited to 5 pages, with attached Costs Outline and any authorities.

[92] Any responding party shall have three weeks thereafter to serve and file responding submissions. Written submissions shall be limited to 5 pages with any authorities relied on attached.

[93] There shall be no reply submissions without leave.

Ricchetti J.

Date: August 27, 2019

COURT FILE NO.: CV-19-3384

DATE: 2019-08-27

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

RE: Senad Seferovic and Nedzad Seferovic, Applicants

AND:

Devad Seferovic, Diamond Drywall Contracting Inc., and Ihor Harapyn, Respondents

COUNSEL: R. Fernandes for the Applicants
C. Stanek for the Respondents Devad Seferovic and Diamond Drywall Contracting Inc.

ENDORSEMENT

Ricchetti J.

Released: August 27, 2019