MOTION HEARD: 20191022
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Hazelton Homes Corporation, Plaintiff
AND:
Rakesh Mehta, Defendant
BEFORE: Master Jolley
COUNSEL: Peter Smiley and S. Berhane, Counsel for the Moving Party Defendant
C. Mills, Counsel for the Responding Party Plaintiff
HEARD: 22 October 2019
REASONS FOR DECISION
Overview
1The defendant seeks an order requiring the plaintiff to post security for costs of the action. The plaintiff takes the position that it is impecunious and that its claim is not plainly devoid of merit. It further argues that its impecuniosity is the direct result of the conduct of the defendant in appropriating property that was registered in his name but allegedly held in trust for the plaintiff.
2The defendant has met the first hurdle and established that there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendant. This position is supported by the plaintiff’s admission that it is a shell company and by its impecuniosity argument.
Impecuniosity
3For the reasons outlined below, I am not satisfied that the plaintiff has met the high evidentiary threshold to demonstrate impecuniosity. The threshold can only be met by “tendering complete and accurate disclosure of the plaintiff’s income, assets, expenses, liabilities and borrowing ability, with full supporting documentation for each category where available or an explanation where not available.” (Uribe v. Sanchez (2006), 33 C.P.C. (6th) 94 (Ont. S.C.J., paragraph 12). That has not been done here.
4The plaintiff’s sole shareholder, Laila Alizadeh, swore that the plaintiff was a holding company, had no income or assets and no bank account. She further swore that certain companies in the plaintiff group of companies, which she described as the “Laila Group of Companies” had no sources of income and no assets other than their claims to sale proceeds of properties caught up in various receiverships. Others in the Laila Group of Companies had closed their bank accounts and and/or had ceased operations. The plaintiff did not provide any income tax returns, banking records or other records concerning its income and expenses or those of the Laila Group of Companies, or to otherwise support these statements. More is required of the plaintiff than these “bald statements unsupported by detail”, particularly in light of the contradictory evidence that was presented concerning the plaintiff’s assets and access to assets. (Horizon Entertainment Cargo Ltd. v. Marshall 2019 ONSC 2081, paragraph 3, quoting Shuter v. Toronto Dominion Bank, 2007 CanLII 37475 (ON SC), [2007] O.J. No. 3435(S.C.J. - Mast.) at paragraph 76).
5Further, some of these statements were discovered to be incorrect through investigation by the defendant. For instance, the defendant learned that Skymark IV, one of the Laila Group of Companies, owns a commercial property on Steeles Avenue that it purchased in September 2018 for $4,475,000 and that the property generates rental income of $18,000 per month. The plaintiff made no reference to this asset in its initial responding record. In court, counsel for Ms. Alizadeh indicated that that amount just covered the mortgage and property taxes, but that asset, income and liability needed to be disclosed by the plaintiff as part of its full disclosure obligation, if it were part of the Laila Group of Companies. (There was no reliable evidence before me as to who owns Skymark IV, not even from Ms. Alizadeh, who is the property manager and who stated on cross examination that she did not know who owned the corporation.)
6The plaintiff also led evidence that another member of the Laila Group of Companies held a first mortgage over certain property known as the Boat House. The evidence was that the mortgage was in arrears, the house was unfinished and uninhabitable and a property tax sale for $152,729.42 had been unsuccessful. What was not disclosed was that the owner of the Boat House is Crown Capital Corporation and that Ms. Alizadeh’s husband Arash Missaghi is its director and officer and describes the Boat House as “my house”. When Mr. Missaghi described the Boat House in the press in 2014, he stated it was the largest home in Canada, was formerly owned by forest titan Peter Grant, sits on 43 acres of land and is 65,000 s.f. in size. He was on record describing it as being worth $20,000,000. While Ms. Alizadeh explained that she had not mentioned her husband’s ownership because he is an undischarged bankrupt. The evidence as to Mr. Missaghi’s bankruptcy is contradictory. Mr. Missaghi himself advised the media that he had been discharged in 2001. In any event, it seems he was bankrupt when Crown Capital was incorporated, when it purchased the Boat House and when it obtained the mortgage.
7Ms. Alizadeh also lead evidence that the plaintiff could not raise money from its shareholders and associates (Smith Bus Lines Ltd. v. Bank of Montreal (1987), 1987 CanLII 4190 (ON SC), 61 O.R. (2d) 688 (H.C.J.) at 705). A corporate plaintiff must provide "substantial evidence about the ability of its shareholders or others with an interest in the litigation to post security". "A bare assertion that no funds are available" will not suffice. (1493677 Ontario Ltd. . Crain, [2008] O.J. No. 3236(S.C.J. - Mast.) at para. 19).
8In her affidavit Ms. Alizadeh stated that she had no income, no assets and no bank account. She had historically borrowed money from her brother who was now 65 years old and retired and from her mother who had recently passed away. However, on her cross-examination, she confirmed that her family is worth “somewhere in the tens of millions”. She did not produce her income tax returns or those of her husband. She also did not disclose that she is the property manager of the Steeles commercial property and, presumably, earns an income from that (if she does not, she did not explain why she was working without remuneration).
9She stated that her husband has no income or assets, failing to disclose his indirect interest in the Boat House. There is no affidavit from Mr. Missaghi as to his worth or assets. If he had sworn an affidavit, I would expect him to have explained how he came to presently have no assets when he indicated in April 2014 that his family’s network of companies had a net worth of approximately $300 million. When presented with that statement in the defendant’s reply record, Ms. Alizadeh served further materials indicating that most, if not all, of the US assets and the Canadian assets of the Laila Group of Companies were tied up in various receivership proceedings and that she and her family did not have assets or income that fell outside the receiverships. While that may be true, there was no documentation tendered in support of the fact of or the status of these various receiverships.
10Ms. Alizadeh also did not advise that her teenaged daughter, who has just completed high school and with whom Ms. Alizadeh resides, is the sole officer and director of a company called Skymark Capital Corporation. As of January 2019, Skymark had $1,593,277.54 in its bank account. In a supplementary affidavit, Ms. Alizadeh stated that the account had since been emptied but she provided no details other than to state that the capital had been “virtually exhausted” due to Skymark’s involvement in various US litigation proceedings.
11In these complex financial circumstances and web of numerous companies, it is not sufficient to state that the Laila Group of Companies has no available equity or ability to borrow funds or that the deponent and her family to do not have assets other than those subject to receivership proceedings. Documentary evidence to support these positions is required. The plaintiff has not provided sufficient financial disclosure and what it has disclosed has raised more questions than answers about its actual assets and availability of funds. I am not satisfied that the plaintiff has demonstrated that it is impecunious.
Causation
12I am also not satisfied that the alleged actions of the defendant caused or significantly contributed to the plaintiff’s financial straits. Those difficulties seem to be due to numerous receivership proceedings involving the Laila Group of Companies, as well as criminal fraud charges against Ms. Alizadeh and her husband.
13In making this order, I have considered all the circumstances of the case and the justness of the order holistically and conclude that it is just that the order be made.
Disposition
14Given the early stage of this matter and the uncertainty as to what steps will occur and on what timeline, I order that costs be paid as the litigation proceeds rather than in a lump sum up to and including trial. I order the plaintiff to post security for costs as follows:
(a) $20,000 to cover work done to date and work to be done through to the end of examinations for discovery, within 60 days of this order;
(b) $3,000 to be paid 30 days before the commencement of the mandatory mediation;
(c) $3,000 to be paid 30 days before the pre-trial; and
(d) $30,000 to be paid 30 days before the start of trial.
15This order may be adjusted on motion by either party in the event estimated costs increase or decrease.
Costs of the Motion
16The defendant seeks his costs of the motion on a substantial indemnity basis, given what he says are the plaintiff’s attempts to mislead the court and conceal substantial assets. The defendant is entitled to costs, but I have fixed them on a partial indemnity basis. The amount in each party’s bill of costs are in the same range, confirming their reasonableness. I order the plaintiff to pay the defendant the all-inclusive sum of $12,000 in costs of the motion.
17The plaintiff shall pay the costs of the motion and post the first tranche of the security for costs within 60 days of today’s date. The plaintiff shall take no further step in this action until this order for security for costs and costs is satisfied.
Master Jolley
Date: 31 October 2019