COURT FILE NO.: CV-19632096-00CL DATE: 2021-03-17 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: HERCULES MODOPOULOS and TARGET PARK GROUP INC., Plaintiffs AND: TYLER HERSHBERG, TAREK SOBHI, BSAR (DANFORTH) LTD., BSAR (DANFORTH) LP, BSAR MAMANGEMENT GROUP INC., BSAR (BEVERLEY) LTD., BSAR (EGLINTON) LTD., BSAR (QUEEN) LTD., and BSAR (DANFORTH) INC., Defendants
BEFORE: Justice Cavanagh
COUNSEL: Adrian Visheau and Erin Pleet, for the Plaintiffs and Moving Parties David Taub and Philip Holdsworth, for the Defendants and Responding Parties
HEARD: March 10, 2021
ENDORSEMENT
Introduction
[1] The plaintiffs, Hercules Modopoulos (“Modopoulos”) and Target Park Group Inc. (“Target Park”), bring this motion for an interim and interlocutory injunction prohibiting the defendants from transferring or encumbering an investment property which is the subject of this action or exercising other rights in the partnership which owns the property, or in the previous or current general partner of the partnership, outside their normal course of business without the express written consent of the plaintiffs or Order of this Court.
[2] In the action, the plaintiffs claim damages and other remedies in relation to actions taken by the defendants in 2017 to disqualify Modopoulos as a partner in the partnership on the ground that he had failed to satisfy a cash call. The plaintiffs allege that the cash call and the notice of the disqualification of Modopoulos as a partner are null and void. In addition to damages, the plaintiffs seek relief including a declaration that the defendants Tyler Hershberg (“Hershberg”) and Tarek Sobhi (“Sobhi”), who were partners with Modopoulos in the partnership, are disqualified persons in the partnership and an order that their units be transferred to Modopoulos.
[3] This motion was brought after the plaintiffs learned in September 2020 that in June 2020 the general partner (which held legal title to the property) was replaced with a corporation in which Modopoulos held no ownership interest or office, and title to the property was transferred to the new general partner. A mortgage was taken which replaced the existing mortgage which had fallen due. The plaintiffs allege that a portion of the mortgage advances was improperly paid to a company controlled by Hershberg and Sobhi.
[4] The plaintiffs submit that the interlocutory injunctive relief sought is a prohibitive order which is reasonable and proportionate and will not inhibit the defendants’ ability to manage the day-to-day affairs of the partnership.
[5] The defendants submit that the plaintiffs are, in substance, seeking a mandatory order and they have not satisfied the requirements for such an order. They submit that the requested relief is unduly broad and would unfairly hinder the partnership’s ability to carry on business in the ordinary course.
[6] For the following reasons, the plaintiffs’ motion is dismissed.
Factual Background
[7] Modopoulos met Hershberg and Sobhi in 2011. Over time, the three businessmen became friends and began discussing the prospect of buying and developing a property together.
[8] In 2012, Modopoulos learned that two lots located on Danforth Ave. in Toronto (together, the “Property”) would be coming up for sale. Modopoulos, Hershberg and Sobhi agreed that the Property had significant development potential. They decided together to form a partnership for the purpose of acquiring and holding the Property for future development.
[9] To avoid having the Property sit idle while waiting for a redevelopment opportunity, Modopoulos suggested the partners construct and operate a car wash on the Property to help defray carrying costs. Hershberg and Sobhi agreed with this idea. The three partners ultimately decided to construct an eight-bay coin-operated car wash on the Property which would operate through Modopoulos’ company, Target Park.
[10] In May 2012, a company acting as nominee for the three partners contracted to purchase the Property for $1,875,000 (“APS”). In October 2012, BSAR (Danforth) LP Limited Partnership (the “Partnership”) was formed and the general partner, BSAR (Danforth) Ltd. (“Danforth Ltd.”), was incorporated. The three partners were directors of Danforth Ltd. Danforth Ltd.’s bylaws permitted many corporate decisions to be made by majority directors’ vote.
[11] On February 20, 2013, the APS closed, and Danforth Ltd. took title to the Property as general partner on behalf of the Partnership. The equity in the Partnership was acquired pursuant to a form of Subscription Agreement and Power of Attorney signed by each shareholder allocating 50 class B shares to Modopoulos and 25 Class B shares to each of Hershberg and Sobhi at a cost of $125,000 for Modopoulos and $62,500 for each of Hershberg and Sobhi.
[12] A written lease was prepared between Danforth Ltd. as landlord and Target Park as tenant which provides for annual basic rent of $384,000 ($48,000 per bay) or $32,000 per month. The lease in evidence on this motion is dated August 1, 2014 (the “Lease”). There is also a provision in the Lease for Additional Rent.
[13] Modopoulos has provided evidence that all of the partners knew that the lease rates in the Lease were drastically above market rates and would not be economically sustainable for Target Park if they were enforced. Modopoulos’ evidence is that the Lease at inflated rents was for the purpose of obtaining financing. This assertion is disputed by Hershberg and Sobhi. Modopoulos relies on an agreement he says was made among the three partners whereby they agreed to share all income and expenses in relation to the Property, including in respect of the car wash, notwithstanding the terms of written agreements, including the Lease. Modopoulos refers to this agreement as the “Car Wash Agreement”. I describe Modopoulos’ evidence in respect of this agreement more fully when I analyze the issues on this motion.
[14] In the summer of 2014, the limited partners applied for financing to construct the car wash and take out the purchase financing. The Lease was provided to the prospective lender, Atrium Mortgage Investment Corporation (“Atrium”), as part of the application. Atrium loaned the Partnership $2,860,000.
[15] Hershberg and Sobhi provided evidence that the Atrium loan did not fully cover the cost of the car wash’s construction and, starting in February 2015, Hershberg and Sobhi, on behalf of the Partnership, advanced money to Danforth Ltd. as required (“Related Party Loans”) on an interest-free basis. The evidence of Hershberg and Sobhi is that the bulk of the Related Party Loans were advanced in 2016.
[16] Construction of the car wash was completed in early 2016. Target Park began operating the car wash and making payments to the Partnership in June 2016. The payments ended in June 2017. Modopoulos’ evidence is that although the amounts of the payments corresponded with the amounts for minimum rent under the Lease, the payments were not made as rent, and he caused Target Park to make these payments because he was told by Hershberg and Sobhi that this was necessary for “optics” because the lenders were looking at the payments. According to Modopoulos’ evidence, the payments were to satisfy the lenders and show that the Lease was being honoured.
[17] In April 2017 the Partnership entered into a commitment letter with Canadian Mortgage Services Corporation for financing to take out the Atrium construction mortgage (“the CMSC Mortgage”). The CMSC commitment letter included a condition that the Partnership would provide financial statements and confirmation that the Lease provided for annual operating income of $384,000. The CMSC Mortgage closed on June 28, 2017. The CMSC Mortgage paid off the construction mortgage and the existing second mortgage, but, according to the defendants, not the Related Party Loans.
[18] On or about August 10, 2017, Hershberg and Sobhi sent out a notice of meeting of the directors of Danforth Ltd. which was scheduled to be held on August 15, 2017. Modopoulos was travelling abroad at the time. After an exchange of correspondence between counsel, the directors’ meeting was scheduled for August 21, 2017. The stated purpose of the directors’ meeting was to raise additional capital to fund operations of the car wash by way of a cash call in the aggregate amount of $787,600 to be paid rateably by the limited partners so that Danforth could repay the funds received under the Related Party Loans. Modopoulos attended the directors’ meeting via telephone and requested an explanation as to why the cash call was necessary. His evidence is that Hershberg and Sobhi provided only vague responses, claiming that the cash call related to short-term debt obligations and/or related party loans. Modopoulos voted against the cash call. Hershberg and Sobhi voted in favour, and the cash call was passed with a due date of September 15, 2017.
[19] Hershberg and Sobhi provided Modopoulos with a rough breakdown of the cash call amount on August 31, 2017. They intended to use the cash call proceeds to repay the Related Party Loans.
[20] Modopoulos offered to pay his portion of the cash call subject to the payment being held in escrow and used only to pay arm’s length partnership debts and obligations (such as mortgage payments) until Modopoulos was provided with sufficient financial information to assess the validity of the Related Party Loans. Hershberg and Sobhi rejected this proposal.
[21] On September 15, 2017, Modopoulos’ lawyer wrote to Hershberg and Sobhi stating that they were in default and had become “Disqualified Persons” under the Partnership Agreement for, among other things, failing to provide disclosure regarding the cash call, failing to act in the best interests of the partnership and unfairly disregarding Modopoulos’ interests.
[22] Modopoulos did not pay any part of the cash call. On September 15, 2017, Danforth deemed Modopoulos a disqualified person pursuant to the Partnership Agreement and provided notice to him (the “Disqualification Notice”). The evidence of Hershberg and Sobhi is that by September 19, 2017, the defendants’ counsel had provided supporting financial documents to substantiate the Related Party Loans. The moving parties deny that all relevant documents were disclosed, and rely on evidence that additional documents, including promissory notes, were produced after this motion was brought.
[23] On September 25, 2017, Hershberg sent a request for meeting of partners for the purpose of replacing Danforth Ltd. as the general partner of Danforth LP with the new entity. On September 27, 2017, Modopoulos’ lawyer wrote to Hershberg and Sobhi’s lawyer to dispute the validity of the Disqualification Notice and he challenged the effort to remove and replace Danforth Ltd. as general partner of Danforth LP.
[24] On October 27, 2017, Modopoulos and Target Park commenced this action seeking, in addition to damages, an order requiring the defendants to, among other things, restore Modopoulos’ partnership interest and interim and interlocutory relief to prevent Hershberg and Sobhi from further alienating the plaintiffs’ partnership interests.
[25] Target Park continued to operate the car wash until the Lease was terminated on January 7, 2018. After that time, the car wash was operated by the defendants.
[26] In the summer of 2020, the CMSC Mortgage was set to mature. Hershberg and Sobhi refinanced this mortgage with Community Trust. On June 29, 2020 a charge was registered against title to the Property securing the amount of $5,000,000. Hershberg and Sobhi also replaced Danforth Ltd. as the General Partner of the Partnership. This required an extraordinary resolution of unitholders and could not have been passed had Modopoulos not been disqualified as a partner. On June 25, 2020, title to the Property was transferred to BSAR Danforth Inc. (“Danforth Inc.”) for no consideration. Hershberg and Sobhi are the sole directors of Danforth Inc. which was incorporated on June 8, 2020. No notice of these transactions was provided to Modopoulos.
[27] The plaintiffs learned of these transactions in September 2020. This motion was then brought.
Analysis
[28] The issue on this motion is whether the Modopoulos and Target Park should be granted an interim and interlocutory injunction which would require the defendants to give notice to Modopoulos and Target Park of any actions in relation to the Property which are outside the normal operations of the partnership or the general partner and to refrain from taking such actions to which Modopoulos and Target Park do not consent without an order of the court.
[29] The test for obtaining an interim or interlocutory injunction was established by the Supreme Court of Canada in RJR-MacDonald v. Canada (Attorney General), 1995 64 (SCC), [1995] 3 S.C.R. 199 in which the Court held that an injunction may be granted where the applicant establishes that (a) there is a serious issue to be tried; (b) the moving party will suffer irreparable harm if the injunction is not granted; and (c) the balance of convenience favours granting the relief sought.
[30] The defendants submit that the relief sought is, in substance, mandatory and, therefore, the moving parties must meet a modified version of the RJR MacDonald test which requires them to demonstrate a strong prima facie case that they will succeed at trial.
[31] In R. v. Canadian Broadcasting Corp., 2018 SCC 5, the Supreme Court of Canada held, at para. 15, that on an application for a mandatory interlocutory injunction, the appropriate criterion for assessing the strength of the applicant’s case at the first stage of the RJR-MacDonald test is not whether there is a serious issue to be tried, but rather whether the applicant has shown a strong prima facie case. The Supreme Court of Canada in CBC explained that a mandatory injunction “directs the defendant to undertake a positive course of action, such as taking steps to restore the status quo, or otherwise ‘put the situation back to what it should be’”. The Court observed that “the potentially severe consequences for a defendant which can result from a mandatory injunction, including the effective final determination of the action in favour of the plaintiff, further demands what the Court described in RJR - MacDonald as ‘extensive review of the merits’ at the interlocutory stage”.
[32] In CBC, the Supreme Court of Canada held, at para. 16, that the application judge, in characterizing the interlocutory injunction as mandatory or prohibitive, is required to look past the form and language in which the order sought is framed, in order to identify the substance of what is being sought: “the application judge should examine whether, in substance, the overall effect of the injunction would be to require the defendant to do something, or to refrain from doing something”.
[33] The moving parties submit that their claims in the action raise three main issues to be tried: (i) whether the “Car Wash Agreement”, which requires the partners to share (according to their partnership interests) all income and expenses in relation to the Partnership (including those in respect of the car wash), was made and is enforceable; (ii) whether the cash call was valid and enforceable, and (iii) whether the actions taken by Hershberg and Sobhi to disqualify Modopoulos as a partner and send the Disqualification Notice were oppressive.
[34] These three issues are related. The validity and enforceability of the Car Wash Agreement affects whether the amount claimed in the cash call to satisfy the Related Party Loans was proper. The validity of the cash call affects whether Modopoulos was lawfully disqualified as a partner and whether Hershberg and Sobhi acted oppressively in taking this action against their partner. Modopoulos states on this motion that if he had not entered into the Car Wash Agreement he would not have entered into the written agreements.
[35] The moving parties submit that the substance of the injunctive relief which is sought is to restore Modopoulos to a position where he is entitled to receive notice of actions taken in relation to the Partnership. They submit that as a limited partner of the Partnership and as a director of the general partner, Danforth Ltd., Modopoulos was entitled to notice of actions taken in relation to the Partnership and that he should be afforded these rights pending trial. They submit that without the injunctive relief sought, there is a real risk that the defendants will take additional actions to alienate the moving parties’ partnership interests. The moving parties submit that if, after notice, they object to actions proposed to be taken in relation to the Partnership, it is not unfair, nor would it be unduly burdensome, for the defendants to be required to obtain court approval for such actions.
[36] The moving parties are seeking injunctive relief which would require the defendants to take steps to restore rights to Modopoulos which, the defendants contend, he no longer has, that is, rights as a director of the general partner of the Partnership and as a limited partner. From the perspective of the moving parties, the relief sought would, as the Supreme Court of Canada put it in CBC, “put the situation back to what it should be”, and restore the status quo to what it was before Modopoulos was disqualified as a limited partner. This relief is, in substance, a request for a mandatory order.
[37] The requested relief would go further and give Modopoulos an effective veto, subject to court intervention, over actions taken by the general partner outside the normal course of business of the Partnership, and require Hershberg and Sobhi to come to Court for approval to take actions to which Modopoulos does not consent. The requested injunction, if granted, would call on the court to adjudicate on the propriety of actions proposed to be taken in relation to the Partnership in circumstances where Modopoulos withholds his consent. The relief sought, even to the extent that it is limited to require the defendants to give notice, is, in substance, a request for a mandatory order because the overall effect of the injunction would be to require the defendants to do something, as opposed to refrain from doing something.
[38] For these reasons, I conclude that at the first stage of the analysis, the moving parties must show a strong prima facie case. This means that upon a preliminary review of the case, I must be satisfied that there is a strong likelihood on the law and the evidence presented that, at trial, the moving parties will be ultimately successful in proving the allegations set out in the statement of claim. See CBC, at para. 17.
Have the moving parties shown a strong prima facie case that the Car Wash Agreement is valid and enforceable?
[39] Modopoulos, in his affidavit, describes the eight-bay, coin operated car wash on the Property as the “Car Wash Project”. He gives evidence of the oral agreement made by the three partners in his affidavit:
The Car Wash Project, and our relationship more generally, was to be structured along the following basic terms (the “Car Wash Agreement”):
(a) the rights and obligations associated with the Property and the related development will be transferred to an entity that Hershberg/Sobhi and I would control on a 50/50 basis vis-a-vis each other;
(b) In order to obtain the necessary financing, notwithstanding that the arrangement would be on its face economically non-viable to Target Park, Target Park would, as the tenant, agree to enter into a formal lease with respect to the Car Wash Project;
(c) Hershberg/Sobhi and I would share equally in all expenses and losses incurred with respect to the purchase and development of the Property and the Car Wash Project (including Target Park’s lease payments); and
(d) the agreement would be formalized, following the purchase of the Property.
[40] In his responding affidavit, Sobhi denies the existence of the Car Wash Agreement, as Modopoulos described it, and he denies that the Lease was knowingly made by the partners at inflated rent. The defendants’ position is that the Lease is a valid and enforceable contract which created legal rights and obligations for the parties in accordance with its terms.
[41] In his reply affidavit, Modopoulos explains the discussions about the car wash which preceded the Lease. He denies that he told Hershberg and Sobhi that he had extensive experience operating car washes and states that the idea of operating a car wash was only raised in the context of discussions about how to defray the carrying cost of the Property. Modopoulos states that the three partners knew from inquiries “that a high performing coin-operated carwash could hope to generate about $40,000 in annual revenue per bay in a good year, and that would be after two to three years of operations to normalize revenues” and that they knew “that a net lease for a coin-operated carwash would likely be in the range of $18,000-$25,000 per bay per year”, and “[a]nything out of this range would not have been financially viable”.
[42] Modopoulos states that Hershberg and Sobhi insisted that “the lease show a very high rental payments so that lenders could be satisfied that the Partnership would generate sufficient income to meet its repayment obligations”. He states that he was extremely uncomfortable with making any misrepresentations to the lenders, but Hershberg and Sobhi told him that this was routinely done in the real estate industry and that the amount of the rental payment would be of no consequence to the partners since they would all be sharing revenues and expenses on an equal basis. Modopoulos denies that there were any negotiations of the rental amount shown in the Lease.
[43] The moving parties rely on emails which show that Hershberg and Sobhi were involved in preparation of drafts of the written Lease which showed rental payments which are lower than the rentals in the Lease. They rely on emails from the defendants including a May 3, 2012 email from Hershberg to Modopoulos which states that “[a] Target Park related entity and the principals of BSAR have agreed to transfer the rights and obligations associated with the Property and the related development into an entity that the principals of each will control on a 50:50 basis vis a vis each other” and “[a]ny expenses incurred by either Target or BSAR that are directly related to this opportunity prior to firm up (including the funding of deposit monies and any due diligence expenses) will be shared on an equal basis by Target and BSAR as if the to be formed entity has already been put in place regardless of whether firm up occurs”.
[44] The moving parties also rely on an email sent by Hershberg to Modopoulos dated January 30, 2014 in which he states “[a]s far as making Target whole for deficiencies that may take place over the life of the lease, that is something we have discussed from the outset and we all understand that”. The moving parties rely on evidence that Modopoulos made a number of requests by email to reconcile amounts owing to Modopoulos because of his contributions to the Partnership income and, although these were received, Sobhi never asked Modopoulos to explain what he meant by these requests.
[45] The moving parties submit that this evidence supports their position that the Car Wash Agreement was made and that it is valid and enforceable.
[46] The effect of a conclusion that the Car Wash Agreement was made among the three partners and it is valid and enforceable would be that this agreement would prevail over the terms of other written agreements made by the three partners and related entities, including the Lease. To give legal effect to the Car Wash Agreement would be to hold that Target Park was not legally liable to make the lease payments called for by the terms of the Lease, and that all income received by Target Park and expenses incurred by Target Park in the operation of the car wash are, notwithstanding the terms of the Lease, to be shared on a 50-50 basis between Modopoulos and Hershberg/Sobhi.
[47] The defendants dispute that they made the Car Wash Agreement. They say that this was requested by Modopoulos, but not agreed to. The defendants also submit that such an agreement is unenforceable at law because it conflicts with the entire agreement clauses in the written agreements and that such an agreement made to mislead lenders is an illegal contract.
[48] The defendants also submit that evidence of the oral Car Wash Agreement constitutes parol evidence which is inadmissible. In this regard, they rely on the following passage from Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para 59:
It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been reduced to writing [citations omitted]. To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties [citations omitted]. The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract [citations omitted].
[49] The oral Car Wash Agreement, as described by Modopoulos, appears to contradict the Lease. I am not satisfied that the moving parties have shown a strong prima facie case that the Car Wash Agreement does not offend the parol evidence rule or that it should be enforced notwithstanding the entire agreement clauses in the written agreements.
[50] I also refer to Modopoulos’ evidence (which Hershberg and Sobhi dispute) that when he, Hershberg, and Sobhi made the Car Wash Agreement and, as part of this agreement, Target Park entered into the Lease, they intended to (i) conceal from lenders that the Lease did not create a binding obligation on Target Park to make the lease payments (which, he contends, were knowingly inflated), and (ii) mislead lenders to rely on the Lease to provide financing for the acquisition and development of the Property. At common law, under the doctrine of illegality, the court will not lend its aid to one who founds his cause of action on an illegal act: Continental Bank Leasing Corp. v. Canada, 1998 794 (SCC), at para. 86.
[51] I am not called upon to reach a final conclusion on the validity and enforceability of the Car Wash Agreement on this motion. I accept, as counsel for the moving parties submits, that a court has discretion when called upon to decide whether an illegal contract should be enforced. Nevertheless, I am not satisfied that the moving parties have shown that there is a strong likelihood on the law and the evidence presented that, at trial, they will be ultimately successful in proving that the Car Wash Agreement is a valid and enforceable contract.
Have the moving parties shown a strong prima facie case that the cash call was invalid and unenforceable?
[52] The moving parties rely on evidence that the amount of the cash call was exactly equal to the amount of the Related Party Loans and, when the cash call was made, the position taken by Hershberg and Sobhi was that the financial position of the Partnership was dire and unsustainable. The moving parties dispute the evidence given by Hershberg and Sobhi that Modopoulos had knowledge of the Third Party Loans when the cash call was made. They contend that the first time that Modopoulos was given notice of the Third Party Loans was in June 2017 when he was provided with unaudited financial statements, and that all other evidence about Modopoulos’ knowledge is disputed oral evidence. The moving parties contend that Modopoulos’ knowledge of the Third Party Loans is a key fact that affects whether the cash call was valid, and his evidence is that he did not have knowledge of these loans.
[53] The moving parties also rely on s. 132 of the Ontario Business Corporations Act R.S.O. 1990, c. B.16 which requires a director who has a material interest in a proposed material transaction with the corporation to disclose his interest and not to vote on any resolution to approve the transaction. The moving parties submit that Hershberg and Sobhi failed to comply with this statutory provision when they voted to approve the cash call, and that this failure invalidates the cash call.
[54] The defendants submit that the evidence supports a finding that they disclosed that the cash call was for purpose of repaying the Related Party Loans and there was no self-dealing that was prohibited by s. 132 of the OBCA. They rely on Joy Estate v. 1156653, 2007 21591 where the defendant, a director of a corporation, had an interest in approval of an agreement and the plaintiffs asserted that he failed to disclose his interest when the agreement was approved at a directors’ meeting. The court held that the agreement should not be set aside because the director’s interest in the agreement was obvious from the terms of the agreement and he acted honestly and in good faith.
[55] The question of whether and how s. 132 of the OBCA applies to the meeting held to consider the cash call will require the trial judge to consider the evidence and apply s. 132 in the context of this evidence. The evidence concerning Modopoulos’ knowledge of the Related Party Loans is contentious, and I am not able to resolve the conflicts in the evidence on this motion. I am not satisfied that the moving parties have shown a strong prima facie case that the resolution to approve the cash call is invalid.
Have the moving parties shown a strong prima facie case that the actions taken by Hershberg and Sobhi to disqualify Modopoulos as a partner and send the Disqualification Notice were oppressive?
[56] The moving parties submit that Hershberg and Sobhi acted in breach of their duties as partners to Mr. Modopoulos when they approved the cash call to repay the Related Party Loans and when they disqualified Modopoulos as a partner. The moving parties submit that the evidence discloses that Modopoulos was not provided with full information about the Related Party Loans when the meeting was held to approve the cash call and, in fact, additional documents were provided on this motion which are relevant to the Related Party Loans. They argue that Hershberg and Sobhi were using the cash call procedure to pay themselves while at the same time asserting that the Partnership was in dire financial circumstances and unable to make mortgage payments. They rely on Modopoulos’ evidence, which is not contested, that he offered to pay the cash call on a without prejudice basis provided the money was used only for third party obligations, an offer that was rejected.
[57] The questions of whether the cash call is invalid and whether the disqualification of Modopoulos as a partner following his failure to satisfy the cash call are, in my view, closely connected with the question as to the validity and enforceability of the Car Wash Agreement. Modopoulos’ position is that he had contributed a substantial amount of money to the Partnership, through payments made by Target Park in respect of the Lease and through other payments, and that a full reconciliation was needed of contributions by all partners before repayments of any amounts owing under Related Party Loans could be made and before he could be disqualified as a partner. The resolution of these issues depends, at least to some extent, on whether the Car Wash Agreement is valid and enforceable.
[58] For reasons given in my analysis of the first two issues, I am not satisfied that the moving parties have shown that that there is a strong likelihood on the law and the evidence presented that, at trial, they will be ultimately successful in proving that Hershberg and Sobhi engaged in oppressive conduct when they acted to disqualify Modopoulos as a partner.
Have the moving parties shown that they will suffer irreparable harm if the injunctive relief is not granted?
[59] The moving parties are required to show that if the interlocutory injunction is not granted they will suffer irreparable harm. “Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. See RJR - MacDonald, at para. 59.
[60] The moving parties submit that if the interlocutory injunction they request is not granted, they will suffer irreparable harm in two respects: (i) they stand to lose their primary and, perhaps, only means of recovery; and (ii) they stand to be deprived of their interest in the Property which is a unique asset and a rare development property in a rapidly developing part of the City of Toronto.
[61] The moving parties contend that if the requested injunctive relief is not granted, the defendants will be free to encumber or transfer the Property and, if they do so, there is a real risk that nothing will be left for the moving parties to recover if they succeed in the action.
[62] The moving parties contend that the Community Trust mortgage was not used only to pay the existing mortgage on the Property, but that the mortgage advance was also used to pay $823,345 allegedly in payment of related party loans, in addition to those paid following the cash call. The moving parties challenge the need for additional related party loans.
[63] The defendants’ position is that no mortgage funds were improperly dissipated. Their position is that the cash call was insufficient to pay the Related Party Loans, and that additional loans were made to the Partnership. They rely on the financial statements for the Partnership which show that amounts due to related parties increased from $464,045 as of December 31, 2017 to $595,813 as of December 31, 2018 and to $706,834 as of December 31, 2019. The 2020 financial statements are not available. These financial statements are unaudited, and no review engagement was performed by the accountants who prepared the statements.
[64] On the evidence before me, I am unable to find that the defendants dissipated assets of the Partnership. I am not satisfied that the moving parties have shown that they are likely to lose their means of recovery for the claims made in the action if the requested injunction is not granted. The general partner holds title to the Property for the Partnership. I am not satisfied that the defendants have taken, or intend to take, steps to sell the Property or dissipate the equity of the Partnership in the Property to deprive the moving parties of an effective remedy if they succeed in their action.
[65] The moving parties submit that because the Property is a desirable development property in a prime area of Toronto where development opportunities are rare, Modopoulos will suffer irreparable harm through loss of his stake in the future development of this unique asset.
[66] In Southcott Estates Inc. v. Toronto Catholic District School Board, 2009 3567 (ON SC), [2009] O.J. No. 428 (Ont. S.C.J.); 2010 ONCA 310, 104 O.R. (3d) 784 (Ont. C.A.); aff’d 2012 SCC 51, [2012] 2 S.C.R. 675 (S.C.C.), Karakatsanis J. addressed the issue of uniqueness of an investment property in the context of whether a party was required to mitigate damages and held, at para. 41:
A plaintiff deprived of an investment property does not have a “fair, real, and substantial justification” or a “substantial and legitimate” interest in specific performance (Asamera Oil Corp., at pp. 668-69) unless he can show that money is not a complete remedy because the land has “a peculiar and special value” to him (Semelhago, at para. 21, citing Adderley, at p. 240). Southcott could not make such a claim. It was engaged in a commercial transaction for the purpose of making a profit. The property’s particular qualities were only of value due to their ability to further profitability. Southcott cannot therefore justify its inaction.
[67] The moving parties rely on 1954294 v. Gracegreen Real Estate Development Ltd., 2017 ONSC 6369 in support of their submission that where an investment property is unique, and a substitute is not readily available, specific performance may be available as a remedy. In that case, there was evidence that the property, an investment property, was “site-plan” ready, a feature which presented a particularly attractive investment opportunity that the plaintiff had been unable to replicate elsewhere. There was evidence that the plaintiff had made efforts to seek comparable development opportunities elsewhere which were unsuccessful. The defendant provided no evidence challenging the plaintiff’s evidence. The motion judge accepted that there was a real risk that an award of damages will not meaningfully do justice between the parties and, in reaching this conclusion, he took into account that the defendant acted in bad faith by trying to terminate a valid agreement of purchase and sale to take advantage of escalating property value. In these circumstances, the motion judge held that the equitable remedy of specific performance was appropriate.
[68] Modopoulos provided evidence that the Property had significant appreciation value based on its location, but he did not provide evidence that there are no comparable investment properties available. I accept that there may be circumstances where the remedy of specific performance is available in actions involving contracts for sale of investment properties, but the moving parties have not shown that these circumstances exist. Modopoulos made a commercial investment in the Property with a view to making a profit. To the extent that the Property is an attractive development opportunity in a desirable area of Toronto, this quality may enhance the profitability of the investment and affect the amount of damages to which the moving parties may be entitled. It does not, however, on the evidence before me, make damages an inadequate remedy.
[69] The moving parties have failed to show that damages are not an adequate remedy and that they will suffer irreparable harm if the injunctive relief they seek is not granted.
Have the moving parties shown that the balance of convenience favours granting injunctive relief?
[70] The moving parties submit that they seek only to impose reasonable restrictions on the defendants’ ability to deal with the Property while the litigation is pending and they do not claim any rights beyond those that Modopoulos had as a partner, director, and shareholder. The moving parties contend the notice is the key to the relief they seek, and that to require the defendants to give notice of any actions they intend to take that are outside the ordinary course of business and to ask for the consent of Modopoulos to any such actions and, if consent is not given, to seek leave from the court to take such actions, would not impose an undue burden on the defendants.
[71] The defendants submit that the relief sought is overly broad, would require supervision of the court to adjudicate on actions to be taken where Modopoulos’ consent was not given, and would provide no substantive benefit to the moving parties while the action proceeds to trial.
[72] Both the moving parties and the defendants submit that the merits are a relevant consideration at this stage of the analysis, and each side contends that the merits favours their position.
[73] A principal objective of the moving parties in seeking injunctive relief is to prevent the defendants from taking steps to sell the Property or dissipate its value by encumbering it such that the moving parties ability to enforce a judgment if successful at trial is impaired. In my view, the moving parties do not require an injunction requiring the defendants to give them notice and seek their consent to actions that may be taken in relation to the Property. The title register for the Property is publicly available, and the moving parties are in a position to know if the Property is listed for sale or if it is encumbered further.
[74] The moving parties have sued Hershberg and Sobhi for damages and other relief. The moving parties have not shown that they have a strong prima facie case on the merits, and, on the evidence before me, I am not satisfied that the defendants have taken or intend to take steps to dissipate assets to impair the ability of the moving parties to enforce a judgment.
[75] In my view, the balance of convenience does not favour granting an injunction the effect of which, like a Mareva injunction, would be to prevent the defendants from dealing with assets before judgment without the consent of the moving parties or the court.
Disposition
[76] For these reasons, the moving parties’ motion is dismissed.
[77] If the parties are unable to resolve costs, the defendants may make written submissions (not exceeding 3 pages, excluding costs outline) within 10 days. The moving parties may make responding written submissions (also not exceeding three pages excluding costs outline) within 10 days thereafter. If so advised, the defendants may make brief reply submissions (one page) within 5 days thereafter.
Cavanagh J.
Date: March 17, 2021