Court File and Parties
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: BLUE HEALTH CONSULTANTS INC. and HESHAM ABDALLA, Applicants
AND:
BLUE HEALTH SERVICES INC. and 2680360 ONTRAIO INC, Respondents
BEFORE: L.A. Pattillo J.
COUNSEL: Kris Borg-Olivier, for the Applicants
Mohamed El-Rashidy, for the Respondents
HEARD: April 15, 2021
ENDORSEMENT
1The applicants, Blue Health Consultants Inc. and Hesham Abdalla, seek leave pursuant to s. 246 of the of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “Act”) permitting them to bring an action on behalf of the respondent, Blue Health Services Inc., against the respondent 2680360 Ontario Inc. (“268”) without notice to the directors of Blue Health Services arising out of 268’s actions terminating the lease and locking them out of the premises where Blue Health Services carries on its business. The applicants also seek an interim order immediately restoring Blue Health Services access to the leased premises.
2Blue Health Services principal business involves the management of a private medical facility at 438 Iroquois Shore Road in Oakville (the “Premises”) which it leases from 268 pursuant to a lease dated June 23, 2019, providing, among other things, for a term of 10 years (the “Lease”). After extensive preparations of the Premises to a level 2 medical facility at significant costs, Blue Health Services commenced operation at the Premises in late October 2020.
3Blue Health Consultants, whose principals are Dr. Abdalla and Dr. Mohammed Ayyad, owns 75% of the common shares of Blue Health Services and 2700437 Ontario Inc. (“270”), whose principal is Dr. Yasser Khan, owns the remaining 25% of the common shares. The directors of Blue Health Services are Drs. Abdalla, Ayyad and Kahn.
4In addition, Dr. Kahn is the principal of 268, Blue Health Services landlord.
5The parties agree that almost from the beginning of their relationship in Blue Health Services there have been a number of issues between Drs. Abdalla and Ayyad on the one hand and Dr. Khan on the other concerning the business.
6On March 7, 2021, Dr. Khan, on behalf of 268, purported to terminate the Lease on the ground of non-payment of rent. 268 locked Blue Health Services, its doctors and 29 staff out of the Premises, preventing Blue Health Services from carrying on business.
Preliminary Issue
7At the outset of the hearing, the respondents requested an adjournment “for a few weeks” based on what they submitted were substantial refusals to answer questions during the cross-examinations of the applicants and their affiants.
8No prior notice of the adjournment request was provided to either the applicants’ counsel or the Commercial List Office. That is not the type of practice expected on the Commercial List.
9The refusals which the respondents rely on relate, as I understand it, to questions concerning Dr. Khan’s allegations of Dr. Abdalla’s misconduct in his role of Managing Director of Blue Health Services involving mismanagement, sexual harassment and misappropriation of funds. Those issues are part of the ongoing shareholder dispute which the parties acknowledge will be the subject of a further action. The questions were refused on the basis of relevance. In my view, while they are serious allegations, they are not issues that relate to the application. They are raised as a smoke screen to divert them. Further, the applicants have answered all their undertakings and advisements (save one).
10Additionally, the issues in the application are urgent. Blue Health Services has been unable to operate since March 7, 2021. Many jobs and services have been put at risk. Blue Health Services continued existence has been put at risk. As the respondents have noted, the banks are closing in. Dr. Kahn has already received a postponement of his cross-examination at his request. Further delay to deal with issues that will undoubtedly be raised in other proceedings, in my view, only increases the risks Blue Health Services faces.
11For those reasons, I denied the respondents’ adjournment request.
Leave
12Section 246(1) of the Act provides, among other things, that a “complainant” (defined in s. 245) may apply to the court for leave to bring an action in the name or on behalf of a corporation unless 14 days notice has been given to the directors of the corporation and the court is satisfied a) the directors of the corporation will not bring the action; b) the complainant is acting in good faith; and c) it appears to be in the interests of the corporation that the action be brought.
13Section 246(2.1) provides that notice is not required where all the directors are made defendants. Subsection (3) further provides that where the court is satisfied it is not expedient to give notice, it may make such interim order it thinks fit pending the complainant giving the required notice.
14In Macreanu v. Godino, 2020 ONSC 535 at para. 51, Doi J. summarized the nature of the statutory requirements for leave and the test to be applied as follows:
The statutory requirements for leave to bring a derivative action are remedial in nature and are given a liberal interpretation in favour of the complainant: LaRosa [v. Brown, 2016 ONSC 407] at para. 19, citing Richardson Greenshields of Canada Ltd. v. Kalmacoff (1995), 1995 CanLII 1739 (ONCA), 22 O.R. (3d) 577 (CA) at para. 22, leave to appeal denied [1995] SCCA No. 260; Agisheva [v. Petrov, 2019 ONSC 3872] at para. 30. At the leave stage, the court is not called upon to determine questions of credibility or resolve all issues in dispute, which are matters for trial. To grant leave, the court should be satisfied that a reasonable basis exists for the complaint and that the proposed action is a legitimate or arguable one; Richardson Greenshields, at para., 22; LaRosa at para. 21; Agisheva at para. 30.
15The applicants submit that 268’s actions were illegal both because Blue Health Services was not in arrears of rent at the time of the termination and, more importantly, 268 was in breach of the moratorium on evictions in place pursuant to the Commercial Tenancy Act, R.S.O. 1990, c.L.7, as amended (the “CTA”). Further, 268’s actions have caused it damages.
16There is conflicting evidence concerning whether rent was in arrears at the time of the termination. The applicants say that Blue Health Services is owed a rent credit due to 268’s receipt of significant financial assistance for landlords from the Canada Emergency Commercial Rent Assistance (“CECRA”) program for the months May through October 2020.
17When the federal government ended the CECRA program in the fall of 2020, it created the Canada Emergency Rent Subsidy (“CERS”) rent support program for tenants which Blue Health Services applied for and subsequently received assistance under. While the applicants acknowledge that issues with respect to the adjustment for TMI were not resolved, they submit between the CERS assistance and the aforementioned credit, Blue Health Services was not in arrears.
18268 submits that Blue Health Services owes rent arrears of approximately $410,000. That contrasts with an email sent by Farah Kahn, Dr. Kahn’s wife, on behalf of 268 on February 10, 2021 to both Dr. Abdalla and Dr. Khan that $116,991.40 was owing for 2020 and $40,560.10 for each of January and February 2021. That email was the first and only notice of rent arrears before the termination and said nothing about termination.
19The rent issue is further complicated by the fact that less than two weeks before the termination on March 7, 2021, Dr. Khan took approximately $214,000 out of Blue Health Services bank accounts without authorization. On cross-examination he said it was for safekeeping and to ensure expenses were paid. Less than two weeks later, he terminated the tenancy for non-payment of rent without having applied any of the moneys he took towards any of the alleged arrears of rent.
20With respect to the moratorium issue, the applicants submit that as a result of Blue Health Services receiving the CERS assistance, the non-enforcement provisions of the CTA, (ss. 79 – 87), together with the provisions of Ontario Regulation 763/20 operate to prevent 268 from terminating Blue Health Services tenancy or locking it out of the Premises.
21OReg. 763/20 provides, in part, that the prescribed period for the purposes of clause (b) of the definition of “non-enforcement period” in s. 79 of the CTA is the period that begins on December 17, 2020 and ends on April 22, 2022. The Regulation further sets out in s.2(1) the following criteria in respect of s. 80(2) of the CTA: 1) the tenant has been approved to receive CERS; 2) the tenant has provided proof of the approval to their landlord; and 3) not more than 12 weeks have passed since the day the tenant was approved.
22The evidence establishes that Blue Health Services was approved to receive a CERS rent subsidy by Revenue Canada on January 12, 2021 for the period November 22, 2020 to December 19, 2020. On February 18, 2021, Revenue Canada approved a CERS rent subsidy for the period January 17 to February 13, 2021.
23The applicants concede that formal proof of receipt of CERS was not sent to 268 but that Dr. Khan was aware of Blue Heath Services application and subsequent approval based on information he was copied on or provided with over the period. They further submit that less than 12 weeks had passed from the February 18, 2021 approval which 268 has notice of.
24268 submits that the non-enforcement period in the CTA, as amended by OReg. 763/20 does not apply in respect of Blue Health Services because it is not entitled to obtain CERS. But it is clear that Blue Health Services did obtain CERS. Further, it submits that proof of approval was never provided. Dr. Khan denies that he had any knowledge of the approval. And, finally, it submits that because the approval was retroactive to November 2020, more than 12 weeks had passed from when it learned Blue Health Services first obtained CERS.
25Initially, the respondents submit that the applicants request for leave should be dismissed because they are not a “complainant” as required by s. 246(1) of the Act. Section 245 defines “complainant” to mean, among other things: a registered holder of a security of a corporation and a director or an officer of a corporation.
26As noted, the record establishes Blue Health Consultants owns 75% of the common shares of Blue Health Services. Further, Dr. Abdalla is a director and the Managing Director of Blue Health Services. The applicants are clearly “complainants” under s. 246 of the Act.
27Based on the evidence, I am satisfied and so find that a reasonable basis exists for Blue Health Services complaint against 268 concerning the wrongful termination of the Lease and 268’s breach of the CTA and the non-enforcement period and that the proposed action is more than arguable.
28The respondents submit that the applicants are not acting in good faith. They point to their allegations of Dr. Abdalla’s misconduct as Managing Director. In my view, those allegations do not establish that Dr. Abdalla is not acting in good faith in seeking leave to have Blue Health Services bring an action against 268 for wrongful termination of the Lease. They attempt to conflate the issues of Dr. Abdalla’s alleged misconduct with the evidence on the application of why leave is being sought. In my view, as noted earlier, those issues are separate from the issues raised by the applicants in the application.
29Based on the evidence, I am satisfied that in seeking leave, Dr. Abdalla and Blue Health Consultants are acting in good faith. They are trying to save the company and with it the jobs of the staff.
30Finally, I am also satisfied based on the evidence that the proposed action is also in the best interests of Blue Health Services. The respondents submit that it is not. They submit that Blue Health Services has been losing money and that to allow it to continue in business will just mean greater losses. They also point to the company’s significant liabilities to the banks.
31The applicants submit there is no evidence that Blue Health Services was in default of its loans and its financial situation was not as bad as the respondents make out. To the extent the banks are concerned, it arises from the shareholder dispute and not Blue Health Services financial state.
32The applicants seek to restore the business of Blue Health Services and obtain compensation from 268 for the wrongs it has caused it. In my view, given 268 and Dr. Khan’s actions, bringing the proposed action is clearly in Blue Health Services best interests.
33The respondents rely on the fact that 14 days notice has not been given to the directors, in accordance with s. 246(1) of the Act. In the circumstances, It is clear that such notice is unnecessary. As noted, there are only three directors of Blue Health Services, Drs. Abdalla, Ayyad and Khan. Section 3.5 of the Shareholder Agreement between the parties requires that the Board’s decision be unanimous. Dr. Abdalla is an applicant and Dr. Ayyad is a principle of Blue Health Consultants, the other applicant. They do not require notice. It is clear from 268 and Dr. Khan’s response to the application that he would not have consented to an action against his company based on his alleged wrongdoing. In any event, Dr Khan has had notice of the request since March 16, 2021 when he was served with the application record.
34Regardless, in the absence of the 14 day notice, I am satisfied, having regard to Dr. Khan’s actions in terminating the Lease as he did and locking out Blue Health Services, and given that Blue Health Services continued operation was in jeopardy every day the Premises remained shut, that it was not expedient for the applicants to give the required 14 days notice to the directors before bringing the application. In such circumstances, and in the absence of the formal notice, s. 246(3) of the Act provides that I may make any interim order I “think fit” pending the required notice.
35Accordingly, pursuant to s. 246(3), I make an “interim” order providing that the applicants give the directors of Blue Health Services 14 days formal notice of the proposed action. In the event the directors do not pass a unanimous resolution authorizing Blue Health Services to bring the action under the sole direction of the applicants within the 14 days, leave is granted pursuant to s. 246(1) of the Act authorizing the applicants to bring the action on behalf of Blue Health Services.
s. 246(4) Interim Order
36Section 246(4) of the Act provides that where a complainant on an application can establish to the satisfaction of the court that an interim order for relief should be made, the court may make such order as it thinks fit.
37The applicants seek an interim order pursuant to s. 246(4) requiring 268 to immediately restore Blue Health Services access to the Premises without any preconditions, pending further order of the court or the agreement of the parties. Effectively, the applicants seek a mandatory injunction against 268 requiring it to restore the status quo.
38In Macreanu, in considering the request for interim relief pursuant to s. 246(4) of the Act, Doi J. applied the test for an interlocutory injunction as set out in RJR-McDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 SCR 311 at para. 43: a) serious issue to be tried; b) irreparable harm if the relief is refused; and c) the balance of convenience favours granting the relief.
39I agree that given the nature of the relief sought by the applicants, the appropriate test is the interlocutory injunction test, save and except that because what is being sought is in effect a mandatory injunction, rather than serious issue to be tried, the first branch of the test requires a strong prima facie case: R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 S.C.R. 196 at para. 15.
40In my view, for the reasons already noted, I am satisfied the applicants have established a strong prima facie case that 268 and Dr. Khan’s actions in terminating the Lease on March 7, 2021 and locking Blue Health Services out of the Premises on the basis of rent owing was improper and constituted a breach of the Lease. Further, and even if I accept Dr. Kahn’s evidence that he didn’t know of Blue Health Services’ CERS application and receipt, both he and 268 clearly received notice of its receipt within 12 weeks of the February 18, 2021 approval bringing into play the non-enforcement provisions of the CTA.
41Further, I am also satisfied that if Blue Health Services remains prevented from resuming its business operations at the Premises, it will suffer extensive damages which cannot be compensated for in damages. In other words, the harm it will suffer will be irreparable.
42Finally, I am also satisfied that the balance of convenience favours Blue Health Services and the granting of the interim order. The Premises sit empty. There is no evidence that 268 will suffer any damages if Blue Health is allowed to continue operating at the Premises. On the other hand, as noted, the impact on Blue Health Services will be irreparable.
43For the above reasons, therefore, an interim order shall issue pursuant to s. 246(4) of the Act directing 268 to immediately restore Blue Health Services access to the Premises without any preconditions, pending further order of the court or the agreement of the parties.
44At the conclusion of the argument, counsel for the applicants undertook to provide me with the answers to certain questions I asked during the argument. I have subsequently received that correspondence as well as a reply letter from counsel for the respondents objecting to it. In light of counsel for the respondents’ position, I have not considered or relied on the correspondence.
45The applicants have succeeded on their application and are entitled to their costs which the parties have agreed are $25,000. Accordingly, costs of the application to the applicants fixed at $25,000 in total, payable by 268 forthwith.
L.A. Pattillo J.
Released: April 16, 2021