ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-15-4436-00
DATE: 2020 01 30
B E T W E E N:
IRAM SHEIKH,
Plaintiff
Cindy Cohen, for the Plaintiff.
- and -
HAROON Y. SHEIKH, HEYS INTERNATIONAL LTD., HEYS AMERICA LTD., EMRAN SHEIKH, YAHYA SHEIKH, RAISA SHEIKH AND 2395954 ONTARIO INC.,
Defendants
David A. Taub, for all Defendants, except Haroon Y. Sheikh
HEARD: October 24, December 10, and 11, 2018, February 4,5 and 8, April 3 and September 9, 2019
REASONS FOR DECISION
Emery J.
[1] The plaintiff Iram Sheikh brings this action alleging her former husband, Haroon Sheikh and the other defendants conspired to injure her financially. She seeks $25 million for general damages, and punitive damages of $1 million. She claims that Haroon conspired with his brother Emran Sheikh and their parents to defeat her interests in respect of the Heys USA companies she owned with Haroon. It is Iram’s position that transactions carried out pursuant to that conspiracy:
a) deprived her the means by which she could enforce the support payments that Haroon would owe to her in a later court proceeding; and
b) resulted in the loss of an important business opportunity to her and her father, Dil Mohammad.
[2] Haroon was served with the statement of claim in this action. He has not defended, and has been noted in default.
[3] All of the defendants, other than Haroon bring this motion for summary judgment to dismiss the action as against them. Despite the voluminous record, the moving defendants state that there is no evidentiary foundation on which Iram’s claim can succeed. Those defendants state that there will be no better factual basis available at trial and that the court is able to reach a legal conclusion based on the evidentiary record before it. Therefore, there is no genuine issue requiring a trial.
[4] I intend to use first names for the parties for clarity and convenience and to abbreviate the names of various Heys corporations after introducing them. It is my hope that doing so will simplify a complex set of facts involving similar names.
FACTUAL BASIS FOR IRAM’S CLAIM
Background facts about the family business
[5] Iram and Haroon were married in 1996.
[6] Haroon and his brother Emran, along with their parents Raisa and Yahya Sheikh, had built a luggage manufacturing business in Canada known as Heys Canada Ltd. (“Heys Canada”). This family business was successful before Iram and Haroon were married. The “Heys” brand name and related intellectual property were integral to the continuing success of business in Canada and was owned by Heys Canada. Iram became involved in the family business after she and Haroon were married.
[7] Iram and Haroon moved to Florida in 1999. They opened and operated the US branch of the family business through a corporation they incorporated in the State of Delaware as Heys USA Inc. (Heys USA). Heys USA was in the business of selling the Heys brand of luggage in the United States. In the course of expanding the family business through Heys USA, Haroon surrendered all his shares in Heys Canada Ltd.
[8] Initially, Yahya Sheikh was president and a director of Heys USA and owned 30% of the shares. Raisa was the secretary and a director of Heys USA and owned another 30% of the shares. Haroon owned 30% of the shares and was a director. Each Emran and Iram held 5% of the remaining shares and were directors.
[9] Emran, Yahya and Raisa transferred their shares in Heys USA by gift to Haroon in 2007 and resigned their various positions as officers and directors. After those transfers, Haroon and Iram owned 95% and 5% of Heys USA respectively.
[10] The intellectual property for the Heys luggage business in Canada and the United States is owned by Heys Canada. The intellectual property for the Heys brand elsewhere in the world was initially owned by a separate corporation, Heys International Holding Company, Ltd. (“Heys International”) until 2012. The shares of Heys International were held equally by Yahya, Raisa, Emran and Haroon.
[11] In or around 2012, the intellectual property owned by Heys International was transferred to Group IP Holding LP (“Group IP”) a limited partnership in Ontario. As a result of this transfer, Haroon was permitted by either Heys Canada or Group IP to sell luggage bearing the “Heys” brand through Heys USA into the American market.
The Post-nuptial Agreement
[12] Haroon and Iram had entered into a post-nuptial agreement on or about July 16, 2010. As a result, the USA business and product line had been restructured. A new company, Heys USA Group Holding, LLC (“Group Holding”), became the sole owner of Heys USA through this restructuring.
[13] The post-nuptial agreement between Haroon and Iram reflected their agreement that:
a) Group Holding and all of its current and future subsidies were to be owned 51% by Haroon and 49% by Iram;
b) The shares of Heys USA then owned by Haroon were to be transferred to Group Holding;
c) Haroon was to transfer all stock and any equity interest in Heys International or Group IP he expected to receive to Group Holding within 30 days of receipt;
d) Haroon was not permitted to enter into any arrangement with any of his family members without the consent of Iram;
e) Haroon was not permitted to sell assets of any of the companies without Iram’s authorization; and
f) Haroon was not permitted to open another business that would be competitive to Heys USA.
[14] According to Iram’s evidence, she was actively involved in the business of Heys USA from the time they started the corporation in Florida until mid 2012. She did not have control over, or input into, the financial management of Heys USA, which Haroon looked after.
[15] Haroon and Iram separated in June 2012, after which Iram returned to Ontario.
Financing Heys USA
[16] Prior to separating, Iram and Haroon restructured the corporations in the United States pursuant to the post-nuptial agreement through Group Holding. Group Holdings became the sole owner of Heys USA and a number of other related corporations including Heys USA Online, LLC; Heys USA Direct, LLC.; and Heys USA Global, LLC. In accordance with the post-nuptial agreement, Haroon held 51% of the shares in Group Holding, and Iram held the other 49%.
[17] For the purpose of this motion, I accept that Iram held 49% of the shares in Group Holding when she and Haroon separated.
[18] On or about June 2, 2011, Heys USA entered into a financing arrangement through Bank United N.A. Haroon, Iram and Group Holding guaranteed the Heys USA debt to Bank United. Heys USA also entered financing agreements to access credit facilities with Crossroads LLC, and Bibby International Trade Finance Inc. These financing arrangements were all obtained with Heys USA or Group Holding granting security over the assets of Heys USA.
[19] The Bank United financing was increased twice and at its highest point, Heys USA was indebted to Bank United for approximately $20 million.
[20] Iram and Haroon also owned other intellectual property in TCI Holding Inc. (“TCI”), and Y&H Holding, LLC (“Y&H”). These companies were owned by Haroon and Iram pursuant to the post-nuptial agreement in the same proportions as Group Holding.
[21] TCI and Y&H were not party to, or subject to, any of the loan agreements under which the assets of the Heys USA companies owned by Group Holding were secured in favour of Bank United, Crossroads LLC and Bibi International.
[22] According to Iram’s evidence, Heys USA had sales of up to $15 million a year. Unfortunately, growth brought its own host of problems. By 2011, the business had been growing so rapidly that it did not have sufficient cash flow to fund the purchase orders for services or materials to maintain the supply chain.
[23] Iram was not actively involved in the business after she separated from Haroon in June 2012. Iram would only receive updates from Haroon about the business from time to time, yet she continued to receive income from Heys USA.
[24] In late 2012 and early 2013, Iram had become concerned about the financial state of the Heys USA companies held by Group Holdings. Haroon had advised her while she was living in Canada that there were financial issues with the business and that the Bank United financing was in jeopardy.
[25] Iram hired James Reto of the accounting firm Kaufman, Rossin and Co. to investigate and to assess the financial viability of Group Holdings. Mr. Reto reported to Iram as follows:
a) as of February 2013, Heys USA was paying down the debt of Bank United rapidly with a goal of transitioning the Heys USA financing from a line of credit to a term loan;
b) Haroon had clearly indicated that he was interested in bringing Iram’s family into the Heys USA structure and keeping the Heys USA business for their son;
c) Haroon’s business expenditures through Heys USA were being curtailed by Bank United;
d) Haroon was planning to enter into purchase order financing arrangements to assist with cash flow; and
e) Haroon was taking steps to cut costs at Heys USA.
[26] Iram also gave evidence that Heys USA entered into purchase order financing and factoring arrangements with Crossroads LLC. and Bibi International in May of 2013. Iram gave further evidence that Heys USA had paid down the Bank United debt from close to $20 million to under $3 million by September of 2013.
[27] Iram’s father, Dil Muhammad, held discussions with Haroon as early as November 2012 about assisting with financing Heys USA. Mr. Muhammad had provided financial assistance to Heys USA in the past.
[28] Mr. Muhammad met with Haroon in late 2013 and presented a proposal to extricate Heys USA from its $12 million of debt to various creditors, a large portion of which were manufacturers. Haroon explained that the debt was crippling the business of Heys USA. He provided a proposal that would maintain both the interests of Iram and Haroon in Heys USA, yet alleviate the pressure of the crushing debt. This proposal contemplated that Haroon and Mr. Muhammad would buy out the Bank United debt and continue the Heys USA business with Iram.
[29] Bank United was demanding $1.5 million for this debt. Haroon thought he could negotiate with Bank United to reduce the payout to 1.2 million at the time he was discussing financing with Mr. Muhammad.
[30] Haroon advised that he was able to put up $750,000 towards this amount, and that he would transfer $400,000 of that amount to Mr. Muhammad shortly. Mr. Muhammad would fund the remaining amounts necessary to purchase the Bank United debt. Not only would this alleviate Heys USA from the security held by Bank United, it would also free up approximately $2 million in inventory that Bank United had taken as additional security. This would give Heys USA access to that inventory to recover the investment to fund the payout to Bank United and to provide immediate cash flow. Heys USA would then be free to move forward with a new venture.
[31] Although Iram states in her factum that Mr. Muhammad agreed to facilitate the transaction and had the financial resources to contribute, Mr. Muhammad states in his affidavit that he was negotiating with Haroon. He does not go so far as to say that he and Haroon had reached an agreement.
[32] On October 2, 2013 Haroon advised Iram that there were other options that he was considering and that they would have to make a mutual decision on the best course to take.
[33] By October 9, 2013, Haroon sent approximately $410,000 to Mr. Muhammad as the first instalment on the funding to buy out the Bank United debt.
[34] Shortly after Haroon had sent the funds to Mr. Muhammad, he advised Iram that he was able to negotiate a resolution with Bank United that involved Bank United writing off a portion of the debt. When Mr. Muhammad suggested that he send the funds back to Haroon to pay down the bank debt, Haroon replied that he should hold the funds for now. That was the last that Mr. Muhammad or Iram heard about the proposal where Mr. Muhammad would have a role to buy the Bank United debt, or to rescue the business of Heys USA.
[35] Iram was subsequently advised on November 15, 2103 by Haroon that Emran was buying Heys USA.
The Sheikh family intervenes
[36] Raisa Sheikh is the mother of Emran and Haroon and resides in Mississauga, Ontario. Raisa confirmed on her examination for this motion that Iram was an owner of Heys USA.
[37] On November 14, 2013, Haroon sent Emran a copy of a final version of the post-nuptial agreement between himself and Iram, which Emran forwarded to his parents, Yahya and Raisa. This was the day before Emran entered into the agreement with Bank United to purchase the debt of Heys USA that was secured against its assets.
[38] After he received the email attaching a final version of the post-nuptial agreement from Haroon, Emran indicated that the assignment of intellectual property held by TCI and by Y&H had to be “signed today”.
[39] Iram takes the position that instead of cooperating with her father and herself to purchase the Bank United debt, Haroon instead orchestrated his brother Emran to purchase the Bank United debt and related security over the intellectual property of Heys USA and related companies so that he could realize on the security himself or through a company under his control. Emran was also instrumental in the assignment of the intellectual property of TCI and Y&H to himself or to a company under his control. As a result, Emran and companies he controls ultimately took ownership of the intellectual property for the Heys’ brand in the United States, and recovered all inventory and other assets Heys USA had given as security to lenders.
[40] Iram alleges that the Sheikh family conspired with Haroon to ignore her 49% interest in Heys USA and related companies, TCI and Y&H, and instead took steps to complete these transactions. She asks this court to find that whether the defendants acted in concert to deprive her father and herself from involvement in the business of Heys USA is a genuine issue requiring a trial.
[41] Iram has not made a claim for any remedy similar to the “oppression remedy” known to Ontario law under s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16. It is not known if similar relief might be available under the laws of Delaware in which Heys USA and its related companies were incorporated. Ms. Cohen made submissions on the motion that Iram’s claims in the action are not made to protect her interests as a shareholder in those companies. The claims made for damages seeks to compensate her for the loss of other opportunities Iram claims she has lost as a result of the conspiracy between members of the Sheikh family.
Heys USA divests after the parties separate
[42] The consolidated financial statements of the Heys USA companies show that as of June 30, 2013:
a) The Heys USA companies had liabilities of $16,666,497, and assets of $11,571,908, resulting in a deficit of $5,094,589; and
b) Most of the liabilities of the Heys USA companies were current. However, those companies owed $2,802,659 to Bank United, $1,245,763 to Bibi International and $120,577 to Crossroads.
[43] There was also evidence before the court that the Heys USA companies could not afford to pay their attorneys in the United States who were assisting them with meeting regulatory obligations. The law firm Akerman Centerfitt in Florida wrote a letter dated October 3, 2013 advising Haroon that the corporations owed that firm $211,566. The law firm advised the Heys USA companies in that letter that it would no longer be paying disbursements in respect of those items that required filings by specific dates, and that the intellectual property was at risk if the payments were not made when due.
[44] On October 29, 2013, Bank United sent a letter giving notice of default and demanding payment from the Heys USA companies and its guarantors. This demand letter required payment of $112,000 from Heys USA by November 4, 2013. The letter required the Heys USA companies to bring their loan to value ratio into line, which was not to exceed 90%, by November 28, 2013. The demand letter further gave notice that if the Heys USA companies did not satisfy this demand, Bank United would commence the process of enforcing its security. This security included the Heys trademark in the United States and other intellectual property.
[45] This enforcement would also include realizing on inventory, which included Heys branded luggage and hand bags.
[46] On November 19, 2013, a similar letter was delivered to the Heys USA companies and its guarantors by Crossroads.
[47] Prior to receiving the demand letters from Bank United and Crossroads, Haroon had signed a letter of intent on October 14, 2013 with Group III International Inc. on behalf of Trivest Partners IV L.P., a competitor of the Heys group of companies. Trivest had expressed a wish to acquire the intellectual property of the Heys USA. While this letter of intent involved a purchase price of $1.5 million, Trivest followed up the first letter with a second letter of intent dated November 6, 2014 in which it reduced its offer to $650,000. Each of these letters of intent involved a condition that the Heys USA companies obtain the rights to the international intellectual property for the Heys brand to convey in the sale. Haroon could never have met this condition as he did not control the international intellectual property of the Heys brand.
[48] On November 8, 2013 Haroon sent an email to Trivest and advised that, “I have decided not to move forward.”
[49] In emails dated November 8, 2013, Trivest asked for a conference call to discuss Haroon’s decision. Trivest’s lawyer also noted in an email that Trivest had exclusive negotiating rights with the Heys USA companies until November 30, 2013.
[50] Despite the position taken by Trivest, Emran purchased all of the secured debt of the Heys USA companies soon after from Bank United and Crossroads through companies he owned or controlled. On November 15, 2013 Emran’s company 2395954 Ontario Inc. (“239”) purchased the Bank United debt for USD $1.5 million. On January 22, 2014 another of Emran’s companies, 2402187 Ontario Inc. (“240”), purchased the secured debt from Crossroads for USD $547,657.90.
[51] Bank United represented in the sale agreement that the Heys USA companies owed USD $2,849,079 as of November 15, 2013, composed of unpaid principal, accrued interest and late fees. As a result of the sale of the debt to 239, Bank United absorbed a loss of USD $1,349,079.
[52] Crossroads represented in the sale agreement that the Heys USA companies owed an outstanding balance of USD $1,105,846 as of January 13, 2014, composed of unpaid principal, accrued fees and charges. Crossroads therefore absorbed a loss of USD $558,189 after the sale of its secured debt to 240.
[53] Emran has given evidence that, notwithstanding these significant shortfalls to secured lenders, the Heys USA companies did not have the ability to meet their obligations as they became due. After these sales, there remained numerous lawsuits issued by other creditors of the Heys USA companies. One of those claims was made by Hellmann Worldwide Logistics, Inc. against Heys Canada and Heys USA for payment of debt owed by Heys USA that exceeded USD $2 million. Heys USA defended this claim, which was ultimately dismissed by the court.
[54] Iram conceded when she was cross-examined that neither Emran or his parents, Yahya and Raisa, played any role in the failure of the Heys USA companies.
[55] After acquiring the secured debt of the Heys USA companies from Bank United, 239 enforced that security by taking ownership of the secured assets that the Heys USA companies initially pledged to Bank United. These secured assets included the Heys trademark in the United States and other intellectual property in the United States associated with the Heys brand.
[56] 239 also commenced an action against Iram and Haroon in the Court of Dade County, Florida as guarantors of the security it had purchased from Bank United. 239 obtained a judgment totalling USD $2,795,423.75 against Haroon. 239 never served Iram with the claim and it was administratively dismissed as against her on August 12, 2015.
[57] 239 continues to own the intellectual property it obtained on foreclosure. There is no evidence that Haroon has any interest, directly or indirectly, in 239.
[58] On November 16, 2013, Haroon granted assignments of intellectual property held by TCI and Y&H to corporations owned or controlled by Emran.
The basis for the conspiracy claim
[59] Iram alleges that Haroon conspired with Emran and their parents to seize ownership of the international intellectual property of the Heys USA companies in which she claims a 49% interest so that Emran’s company 239 could enforce the security it purchased from Bank United. Iram argues that all the transactions to purchase debt were parts of a big plan for Emran or his companies to obtain ownership of the intellectual property of the Heys USA companies. She claims that this plan was made for the purpose of excluding herself and her father, Dil Muhammad, from continuing the luggage business using the Heys brand in the United States. According to Iram, the plan was implemented to keep the intellectual property involving the Heys brand within the family.
[60] Iram relies on evidence of a family meeting between Haroon, Emran, Yahya and Raisa at the home of the Sheikh parents which she believes took place on or about October 1, 2013. Iram alleges that an agreement was reached at that meeting where Emran would investigate ways to take over Heys USA or its assets and Haroon would receive both a salary and the right to pursue a Heys branded watch business for his cooperation.
[61] Iram further alleges that there is evidence of a conspiracy against her because of documents produced showing that Haroon, his employees and advisors sent Emran information about the liabilities and financial undertakings of the Heys USA companies around the time he was discussing a financial arrangement with her father. These documents included information about the status of the secured loan with Bank United. After the meeting on or about October 1, 2013, Iram relies on evidence that Haroon would keep Emran up to date with inside information about the Bank United debt.
[62] On October 29, 2013, Bank United issued its default notice which demanded payment of $112,000. Although Emran received notice of this demand for payment, the notice of default was withheld from Iram.
[63] Iram relies on an exchange of emails in October 2013 marked as Exhibit “O” to her affidavit that discusses the meeting at the home of Yahya and Raisa in early October 2013. The email chain is tendered as evidence of the meeting, the relationship between family members, and Haroon’s requirements to participate in various transactions. She also relies on admissions she obtained on cross-examining both Emran and Raisa that Emran’s corporations paid $100,000 a month to Haroon after the family meeting in October 2013. Iram points to this payment schedule as evidence that the transactions to recover the Heys USA debt were executed as part of the conspiracy to injure her.
[64] Haroon would later receive an allowance of approximately $1.5 million in $100,000 installments from the Sheikh family through a family trust after these transactions took place. Haroon works for, and is thought to have been instrumental in setting up a rival luggage manufacturing company in the United States known as “Hontus”. Haroon currently resides in the United States.
ANALYSIS
[65] The language of Rule 20.04(2) mandates the court to grant summary judgment if satisfied on the evidence that there is no genuine issue requiring a trial. No genuine issue requiring a trial has been defined by the Supreme Court of Canada in Hyrniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. It is where the court finds the evidence given on the motion is sufficient for the presiding judge to reach a fair and just determination of the merits, to make the necessary findings of fact to apply the law, and is a proportionate, more expeditious and less expensive means to achieve a just result.
[66] It is clear from the authorities that both parties must put their best foot forward, and that the court is entitled to assume that all evidence that would be available at trial is before the court on the motion. All elements of proof must be addressed to satisfy the court that there is no genuine issue left that would require a trial to adjudicate the action justly on its merits.
The tort of conspiracy
[67] Iram brings this action against the defendants alleging that all or some of those defendants engaged in a conspiracy to injure her as the sole cause of action.
[68] In Pro-Sys Consultants Ltd. v. Microsoft Corp., 2013 SCC 57, [2013] 3 S.C.R. 477, the Supreme Court of Canada had occasion to revisit and to restate the classic test for civil conspiracy it set out twenty years before in Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 CanLII 23 (SCC), [1983] 1 S.C.R. 452. In Canada Cement Lafarge, Estey J., for the court, acknowledged that the law concerning the scope of the tort of conspiracy is far from clear. He explained that the law of conspiracy recognizes a claim against two or more defendants in combination in one of two circumstances:
(1) When the means used by the defendants are lawful or unlawful, the predominant purpose of the defendant’s conduct is to cause injury to the plaintiffs; or
(2) Where the conduct of the defendants is unlawful, the conduct is directed towards the plaintiff (alone or together with others), and the defendants should know in the circumstances that injury to the plaintiff is likely to and does result.
[69] Estey J. completed his review of the essential elements for the tort of civil conspiracy by stating that in both situations, there must be actual damage suffered by the plaintiff.
Predominant purpose conspiracy
[70] The Supreme Court expanded on what is required to prove the first type of civil conspiracy in Pro-Sys Consultants. This would appear to be the primary nature of the claim for conspiracy Iram is making against the defendants in this action. In Pro-Sys Consultants, Rothstein J. brought clarity to the scope of the tort of civil conspiracy that concerned Estey J. in Canada Cement Lafarge with respect to predominant purpose conspiracy when he wrote:
[74] Predominant purpose conspiracy is made out where the predominant purpose of the defendant’s conduct is to cause injury to the plaintiff using either lawful or unlawful means, and the plaintiff does in fact suffer loss caused by the defendant’s conduct. Where lawful means are used, if their object is to injure the plaintiff, the lawful acts become unlawful (Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., 1983 CanLII 23 (SCC), [1983] 1 S.C.R. 452, at pp. 471-72).
[71] In my view, evidence of the nature of the injury alleged by a plaintiff making the claim is an essential component of predominant purpose civil conspiracy. It is the means by which the plaintiff’s evidence can be assessed to prove the purpose behind the conduct of two or more other parties, whether that purpose was the predominant reason for that conduct, and a means by which the court can determine if the resulting damage alleged aligns with the defendant’s purpose.
[72] Iram alleges that the predominant purpose of the agreement between family members to have Emran take control of the assets of the Heys USA companies was to essentially remove those assets from her reach to cause her injury in two ways. First, she alleges it deprives her of the means to enforce any order for child support or spousal support against Haroon. Second, she alleges that the collusion of the Sheikh family members wrongfully removed the opportunity from herself and her father Dil Muhammad to take control of the Heys USA companies in order to continue its luggage business under the Heys brand in the United States. Iram has therefore raised the of loss of chance doctrine to prove the nature of her injury and the damages she has allegedly suffered as a result.
[73] The loss of chance doctrine was examined in Barry v. Pulley, 2015 ONCA 449, 335 O.A.C. 176. The Court of Appeal for Ontario referred to a two-step framework to determine causation of an actionable injury where a plaintiff alleges that injury consists of the loss of a chance to achieve a benefit or to avoid a loss. The Court referred to the earlier case of Folland v Reardon (2005), 2005 CanLII 1403 (ON CA), 74 O.R. (3rd) 688 (C.A.), and identified the four criteria the plaintiff must meet for the first step as follows:
The plaintiff must establish on the balance of probabilities that but for the defendants’ wrongful conduct, the plaintiff had a chance to obtain the benefit or avoid a loss.
The plaintiff must show that the chance lost was sufficiently real and significant to rise above mere speculation.
The plaintiff must demonstrate that the outcome, that is, whether the plaintiff would have avoided the loss or made the gain, was dependent on someone or something other than the plaintiff himself or herself.
The plaintiff must show that the loss of chance had some practical value.
[74] If each of these four criteria are met, the court then proceeds to the second step. In this step, the court will award damages equal to the probability found by the court of securing the lost benefit (or avoiding the alleged loss), multiplied by the value of that loss of benefit (or the loss sustained). See also Wong v. 407527 Ontario Ltd. (1999), 1999 CanLII 3788 (ON CA), 179 D.L.R. (4th) 38 (Ont. C.A.).
[75] The burden to prove a loss of chance type of injury was reinforced by the comments of Cronk J.A. in Trillium Motor World Ltd. v. Cassels Brock and Blackwell LLP., 2017 ONCA 544. At para. 262, Cronk J.A. draws the distinction between the requirements of proof for a loss of chance claim in contract, and claims for damages in tort at paragraph 262:
[262] The distinction between loss of chance claims in contract and claims for damages in tort is important because, in contract law, proof of damage is not part of the liability inquiry. In contrast, in tort law, liability rests not only on proof of a breach of the applicable duty of care but, as well, on a showing by the plaintiff that the defendant’s conduct caused a loss.
[76] As the plaintiff, Iram has the burden to prove both liability and damages to succeed in the action. Proving the loss of chance claimed by Iram is as necessary to prove liability against the defendants for conspiracy as it is to prove the nature and extent of the injury she seeks to quantify as damages. However, she is not the moving party on this motion. The burden of satisfying the court on this motion that there is no genuine issue requiring a trial to dismiss Iram’s action rests on the defendants to show Iram has suffered no loss of chance or other injury, as they are the moving parties.
[77] The defendants have filed persuasive evidence that the steps Emran took, directly and through his companies, were necessary to protect the business interests of the family and the family business. There was little evidence that contradicted facts brought forward in his evidence that Heys USA was in financial trouble by 2013. The Heys brand was at risk in the United States because the secured creditors would seize assets, or Haroon would try to sell them to pay those creditors. Emran has given evidence there was no predominant or other purpose behind the actions taken by himself or the family in connection with an agreement to injure Iram.
[78] In support of their position, the defendants rely on Harris v. GlaxoSmithKline Inc., 2010 ONCA 872, 106 O.R. (3d) 661, as authority to justify steps taken for the purposes of protecting trade or business interests as a legitimate exercise of self-interest. If those steps were taken for that reason, they do not provide the legal basis to make out a claim for conspiracy. This remains the case if that conduct, although aggressive, is otherwise lawful: see Alleslev-Krofchak v. Valcom Ltd., 2010 ONCA 557, at para. 98.
Unlawful conduct conspiracy
[79] Iram frames her claim for civil conspiracy in the amended amended statement of claim as a “conspiracy to injure”. At the motion, Ms. Cohen expanded on Iram’s intent behind this characterization in her pleading. She argues that the term “conspiracy to injure” included an allegation that Haroon, Emran, their parents and companies also engaged in unlawful conduct to implicate themselves in the second type of conspiracy. This form of civil conspiracy would apply where two or more of the defendants colluded in a course of unlawful conduct in circumstances where they knew or ought to have known their conduct would injure Iram.
[80] Counsel for Iram argues that members of the Sheikh family and their corporations engaged in unlawful conduct that caused injury they could have foreseen that conduct would cause, and that she has been injured as a result. She bases this argument on the statement made by Rothstein J. in Pro-Sys Consultants that lawful conduct becomes unlawful for the purposes of making out the cause of action if its object is to injure the plaintiff.
[81] The elements for the unlawful conduct kind of civil conspiracy were examined in Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, 106 O.R. (3d) 427. In Agribrands, Goudge J.A. wrote as follows:
[37] It is clear from that jurisprudence that quasi-criminal conduct, when undertaken in concert, is sufficient to constitute unlawful conduct for the purposes of the conspiracy tort, even though that conduct is not actionable in a private law sense by a third party. The seminal case of Canada Cement LaFarge is an example. So too is conduct that is in breach of the Criminal Code, R.S.C. 1985, c. C-46. These examples of "unlawful conduct" are not actionable in themselves, but they have been held to constitute conduct that is wrongful in law and therefore sufficient to be considered "unlawful conduct" within the meaning of civil conspiracy. There are also many examples of conduct found to be unlawful for the purposes of this tort simply because the conduct is actionable as a matter of private law. In Peter T. Burns and Joost Blom, Economic Interests in Canadian Tort Law (Markham, Ont.: LexisNexis, 2009), the authors say this, at pp. 167-68:
There are two distinct categories of conduct that can be described as comprising "unlawful means": conduct amounting to an independent tort or other actionable wrong, and conduct not actionable in itself. . . . . .
Examples of conspiracies involving tortious conduct include inducing breach of contract, wrongful interference with contractual rights, nuisance, intimidation, [page438] and defamation. Of course, a breach of contract itself will support an action in civil conspiracy and, as one Australian court has held, the categories of "unlawful means" are not closed.
The second category of unlawful means is conduct comprising unlawful means not actionable in itself. . . . . .
The first class of unlawful means not actionable in themselves, but which nevertheless supports a conspiracy action, is breach of a statute which does not grant a private right of action, the very instance rejected in Lonrho (1981) by the House of Lords. A common case is a breach of labour relations legislation, and another is the breach of a criminal statute such as the Canadian Criminal Code.
[38] What is required, therefore, to meet the "unlawful conduct" element of the conspiracy tort is that the defendants engage, in concert, in acts that are wrong in law, whether actionable at private law or not. In the commercial world, even highly competitive activity, provided it is otherwise lawful, does not qualify as "unlawful conduct" for the purposes of this tort.
Discussion
[82] The defendants submit that it is not unknown for the court to dismiss a plaintiff’s claim for civil conspiracy on a motion for summary judgment. In Correct Building Corporation v. Lehman, 2018 ONCA 462, the Court of Appeal affirmed the decision of the motions judge to dismiss the claim of conspiracy for lack of evidence as follows:
[11] The motion judge also correctly concluded that there was no evidence of any conspiracy between the respondents and the City. Indeed, the record before the motion judge was devoid of a shred of evidence that could reasonably support such a finding. The conspiracy claim was properly dismissed on that basis.
[83] In my view, the facts before me are different than those facts in Correct Building Corporation. There were clearly a series of discussions, if not an agreement of some nature between Haroon, Emran and perhaps their parents in October or November 2013 on which one or more of them acted. In contrast, there was no evidence of any agreement between the principals in Correct Building Corporation. As the motions judge below in Correct Building Corporation, I found as a fact at para. 114 of the Reasons for Decision, at 2017 ONSC 150, that:
[114] Little evidence has been filed by CGI to show facts that raise a genuine issue requiring a trial based on the test for civil conspiracy set out in Cement Lafarge. In particular, there is no evidence that Indicom or Stewart prepared the appraisal or colluded with the City about the conclusions made in the appraisal with the predominant purpose to cause injury to CGI. Nor is there any evidence that the conduct of Indicom or Stewart was unlawful and that the conduct was directed towards CGI.
[84] The evidentiary record consists of affidavits filed by all parties except Haroon, and transcripts from cross-examinations of all parties who gave affidavits on the motion. Proof of collusion as a central element to any claim for civil conspiracy requires evidence that the parties against whom unlawful conduct is alleged have acted in concert.
Is summary judgment appropriate here?
[85] Despite the call in Hryniak for a shift in litigation culture to consider summary judgment procedure as an equally viable alternative to a conventional trial, that view should not be taken as a direction to pre-empt the trial process for the sake of expediency or economy.
[86] The Court of Appeal has confirmed in recent cases that summary judgment should not be employed as the preferred delivery system for civil justice in Ontario, but rather in cases where summary judgment would be appropriate. The trial process remains the standard forum for the hearing of civil disputes in Ontario. The Court made it clear in Mason v. Perras Mongenais, 2018 ONCA 978, that summary judgment is only appropriate where it would lead to a fair and just adjudication of a case on its merits. At para. 44, Nordheimer J.A. took the opportunity to explain that:
[44] With respect, the culture shift referenced in Hryniak is not as dramatic or as radical as the motion judge would have it. The shift recommended by Hryniak was away from the very restrictive use of summary judgment, that had developed, to a more expansive application of the summary judgment procedure. However, nothing in Hryniak detracts from the overriding principle that summary judgment is only appropriate where it leads to “a fair process and just adjudication”: Hryniak at para. 33. Certainly there is nothing in Hryniak that suggests that trials are now to be viewed as the resolution option of last resort. Put simply, summary judgment remains the exception, not the rule.
[87] A motions judge, confronted with an insufficient record to make findings of fact on central issues, may dismiss the motion because a conventional trial is the more appropriate forum for the court to hear evidence in order to reach a just determination of the case: Swampillai v. Royal Sun, 2019 ONCA 201.
[88] In Trade Capital v. Cook, 2019 ONSC 4950, Penny J. recognized this undercurrent in the jurisprudence as follows:
[50] The Court of Appeal for Ontario has repeatedly emphasized that while the motion for summary judgment is an important tool, it is not a tool to be applied in all, or even most, cases. There is no default to the summary judgment procedure; summary judgment is not the “new normal.”
[51] In Trotter v. Trotter 2014 ONCA 841 the Court wrote (at para 49) that “the fact that the new process of adjudication is well-intentioned and can be beneficial cannot impose an imperative on the court to use it in every case. There is a risk that, in an effort to dispose of the case, the evidence will not be properly analysed.” The principal goal must remain a fair process that results in a just adjudication of the dispute. The Court went on to say, at para 54, that:
It is not always a simple task to assess credibility on a written record. If it cannot be done, that should be a sign that oral evidence or a trial is required.
[89] A pragmatic approach to determine whether either party has shown a genuine issue requiring a trial was taken by C. MacLeod J. in Vinette v. Delta Printing Limited, 2017 ONSC 182 (unreported). MacLeod J. is quoted by Pollak J. with approval in the Livestock Financial Protection Board v. Harrington, 2018 ONSC 2105, this way:
[12] In the case of Vinette v. Delta Printing Limited, 2017 ONSC 182 (), the court summarized the law regarding summary judgment as follows:
[11] As currently worded and as interpreted by the Supreme Court of Canada the rule now imposes a three part inquiry.
[12] The first question is whether there is a genuine issue at all? For a plaintiff there will be no genuine issue if the plaintiff has all the evidence to prove its case and the defendant has insufficient evidence to contradict it and any legal defences raised by the defendant are without merit.
[13] If there does appear to be a genuine issue then the second stage of the inquiry is to determine if the issue can be resolved without a trial. The rule provides mechanisms to do so. For example, if the genuine issue is an evidentiary issue then pursuant to Rule 20.04(2.1) and (2.2) the motions judge may weigh the evidence and make findings of credibility and, if it is necessary, may conduct a mini-trial. If it is a pure question of law then the judge may decide the question pursuant to Rule 20.04(4). If the only issue is the quantum of damages judgment can be granted with a reference under Rule 20.04(3).
[14] Finally, if a trial is necessary then the court may narrow the issues and give directions for an expedited trial under Rule 20.05. The Supreme Court has now mandated that there be a culture shift. Summary judgment should be granted whenever it is just to do so. No longer is the full forensic machinery of a trial to be regarded as the default process. Part of the analysis is a proportionality analysis because defaulting to a trial that may be unaffordable and disproportionate to the issues in dispute has significant implications for access to justice.
[15] Proportionality of course is not the same as expediency. It is important to remember that the primary objectives of Rule 20 are to weed out cases that have no merit or to determine cases that can justly be determined without a trial. The rule is not designed to substitute judicial guesswork or scepticism for the rules of evidence or the hard work of fact finding. Summary judgment is not to be granted inappropriately simply because the judge feels a party is unlikely to succeed at trial. It is only appropriate in cases where the tools available on a summary judgment motion permit the judge to reach a decision fairly and justly. Conversely however the motions judge should not shirk his or her responsibility for making hard decisions simply because it is safer or easier to permit the matter to proceed to trial.
[90] The evidence of the moving parties shows that Haroon, Emran and their family completed the impugned transactions for business reasons unrelated to Iram and her financial circumstances. Iram has provided no evidence that any agreement between Haroon and any other member of the Sheikh family, and related conduct took place for the predominant purpose of injuring her. While the exchange of emails between Haroon and Emran in October 2013 marked as Exhibit “O” may be evidence of an agreement reached at “Mommy’s” house on or around October 1, 2013, it also shows a certain acrimony between the brothers and the intent of the family more to placate Haroon than to injure Iram, if at all. The moving defendants have therefore satisfied the burden of showing there is no genuine issue requiring a trial to dismiss Iram’s claim based on a “conspiracy to injure”.
[91] Once the moving party has satisfied the court there is no genuine issue requiring a trial to merit summary judgment, the evidentiary burden shifts to the responding party to show there is a triable issue after all: Sanzone v. Schechter, 2016 ONCA 566.
[92] As the responding party, Iram need only show there is a genuine issue requiring a trial to defeat the motion. I consider an issue for trial to be genuine in that proving it could make the difference between Iram succeeding or failing to prove her case of civil conspiracy against two or more defendants.
[93] Iram has conceded that all evidence the parties would call at trial has been put into the evidentiary record for this motion. However, the court must make the ultimate call about whether sufficient evidence has been given to determine whether there is no genuine issue for the court to dismiss the action.
[94] I find as a fact that an agreement between two or more of the defendants in this action was made to act in concert. All it takes to make this finding is that Haroon and one or more of his family members agreed upon a course of a conduct that became unlawful if and when the object of that conduct was to injure Iram by ignoring her rights under the post-nuptial agreement. The questions that arise include what terms of the plan were carried out, the result of the defendant’s conduct after the plan was carried out, and whether the damage claimed matches any proven purpose behind the agreed upon conduct.
[95] I have concluded that I cannot make findings of fact to answer these questions on the current evidentiary record. I am not able, among other things, to determine the terms of the agreement was entered between Haroon, Emran and one or both parents in 2013, or the purpose or object behind it. There is insufficient evidence on the record to make any finding why the family paid Haroon an allowance following $1.5 million, particularly when he has been characterized as an outsider to the family and that he was operating Hontus to compete with the Heys brand in the United States. Further evidence, if available, is required to prove the motive for entering any such agreement and whether the defendants acted in concert in a manner consistent with its terms. In my view, these questions of fact are genuine issues requiring a trial.
[96] Finally, I cannot decisively conclude on the evidence that Iram has not suffered damage or loss because of the defendants conduct. I do not consider Iram’s claim that she has been deprived of the ability to enforce spousal and child support going to damages to fulfill the legal requirement to show actual damage or injury. Iram commenced her family application against Haroon in Ontraio in 2014, after the transactions were completed. She did not obtain the support order she claims she cannot enforce unitl May 25, 2015. There is also the evidence given by Iram herself that while Haroon at one time asked for the return of the $410, 000 he had advanced to Mr. Muhammad, those funds have since been applied to his support obligations.
[97] Despite these misgivings, I am not dismissing this part of her claim on partial summary judgment.
[98] The Court in Butera v. Chown, Cairns LLP, 2017 ONCA 783 noted that partial summary judgment raises other problems that run contrary to the stated objectives underlining the availability of summary judgment in Hryniak. I take this to refer to those objectives that encourage summary judgment as a fair and just process to allow the court to adjudicate a dispute between the parties on the merits, compared to the fact finding process that is followed at a conventional trial. The Court in Butera summarized its concern over defeating those objectives if partial summary judgment is not discouraged on the following terms:
Such motions cause a resolution of the main action to be delayed;
A motion for partial summary judgment may be very expensive;
Judges would be required to spend time hearing partial summary judgment motions and writing comprehensive reasons on an issue that does not dispose of the action entirely; and
The record available on hearing a motion for a partial summary judgment would likely not be as expansive as the record at trial, therefore increasing the danger of inconsistent findings.
[99] A real issue for trial will be whether Iram has suffered the loss of chance for any business opportunity with her father, Dil Muhammad, because of the defendants’ conduct. The evidence surrounding their discussions with Haroon raise issues of genuine credibility. Question abound, and include an inquiry into how those discussions proceeded. Was an agreement reached that was binding on Haroon? What were the terms? Why did Haroon advance $410,000 to Mr. Muhammad if they had no agreement? This issue is as important as the question whether the defendants knew that injury would result to Iram if they acted in concert with an object to divert business opportunities away from her. Each of these questions is a genuine issue that cannot be decided on the current record.
CONCLUSION
[100] I do not consider it appropriate to exercise the powers made available to the court under subrules 20.04(2.1) or (2.2). Justice Karakatsanis noted in Hyrniak that the reference to “interest of justice” in those subrules is not a term defined by the Rules. The fact that this important term is not defined by statute or rule allows it the flexibility for the court to apply it where the circumstances require. To determine whether it would be in the interest of justice that the fact-finding powers provided under Rule 20.04(2.1), and by extension (2.2), be exercised only at trial is an inquiry that is, by its very nature, comparative in terms of proportionality and fairness. As Justice Karakatsanis explained in Hyrniak:
[58] This inquiry into the interest of justice is, by its nature, comparative. Proportionality is assessed in relation to the full trial. It may require the motion judge to assess the relative efficiencies of proceeding by way of summary judgment, as opposed to trial. This would involve a comparison of, among other things, the cost and speed of both procedures. (Although summary judgment may be expensive and time consuming, as in this case, a trial may be even more expensive and slower.) It may also involve a comparison of the evidence that will be available at trial and on the motion as well as the opportunity to fairly evaluate it. (Even if the evidence available on the motion is limited, there may be no reason to think better evidence would be available at trial.)
[101] I consider the complexity of the issues and the clash of factual and issue-related evidence on the current record to be so difficult to reconcile that it is in the interest of justice that such judicial fact-finding be left to a trial. It would not surprise me if counsel expressed the view that the trial should be conducted using materials salvaged from this motion. Counsel may well ask for an order that the affidavits filed on the motion serve as the evidence in chief of each witness. They might seek an order that the cross-examination transcript of each party be treated as her or his examination for discovery. Orders containing these or any other relevant terms are available for the court to make under Rule 20.05.
[102] In conclusion, Iram has met the evidentiary burden that shifted to her, and has shown there is at least one genuine issue requiring a trial after all. The defendants’ motion for summary judgment is dismissed. In accordance with the direction given in para. 78 of Hyrniak, I shall remain seized of matters relating to this action up to and including trial unless or until it is in the interests of justice to relinquish that involvement. I therefore invite counsel to arrange a re-attendance before me to make submissions on what orders, if any, they seek under Rule 20.05 to expedite all remaining steps to ready the action for trial .
COSTS
[103] The outcome of this motion was a close call. The materials were voluminous and the issues hard fought. The moving and responding parties succeeded in meeting their respective burdens, with Iram succeeding in the final analysis as the responding party with everything to lose.
[104] I am inclined to reserve costs to the end of trial in view of seizing myself. If there was any offer to settle the action itself relevant to this motion, I would likely see that offer in submissions on costs. I am concerned that learning settlement positions at this stage would compromise my ability to hear the trial.
[105] Counsel for the parties are encouraged to explore the resolution of costs for this motion. Counsel should also confer with each other about whether the terms of an order for relief under Rule 20.05 can be reached on consent.
[106] If counsel for the parties require an attendance before me to make submissions on what orders should be made, if any, under Rule 20.05, they may arrange that attendance through the trial co-ordinator’s office.
[107] If my assistance is nonetheless required to determine costs on this motion, the following terms shall apply:
The plaintiff Iram Sheikh shall serve and file written submissions by February 21, 2020;
The responding party shall file written submissions by March 9, 2020;
No reply submissions are permitted without leave; and
All written submissions shall be no more than three double-spaced, typewritten pages, not including a bill of costs, costs outline or any offer to settle the motion.
[108] Written submissions may be filed by sending them to my judicial assistant at melanie.powers@ontario.ca.
Emery J.
Released: January 30, 2020
COURT FILE NO.: CV-15-4436-00
DATE: 2020 01 30
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
IRAM SHEIKH,
Plaintiff
- and -
HAROON Y. SHEIKH, HEYS INTERNATIONAL LTD., HEYS AMERICA LTD., EMRAN SHEIKH, YAHYA SHEIKH, RAISA SHEIKH and 2395954 ONTARIO INC.,
Defendants
REASONS FOR DECISION
Emery J.
Released: January 30, 2020