ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-19-00612949-0000

DATE: 20210526

BETWEEN:

REZA TAHMASEBI

Plaintiff

– and –

HAMID REZA HAJI HOSSEINI, AMIR HAJI HOSSEINI, CURVE LTD. O/A CURVE MOTOR SPORT, 1741381 ONTARIO LTD., BAHAR DOURGHAMARI, LUXE INC. and AUTO LUXE

Defendants

AND BETWEEN:

HAMID REZA HAJI HOSSEINI, AMIR HAJI HOSSEINI, CURVE LTD. O/A CURVE MOTOR SPORT, 1741381 ONTARIO LTD. and BAHAR DOURGHAMARI

Plaintiffs by Counterclaim

– and –

REZA TAHMASEBI

Defendant by Counterclaim

Justin M. Jakubiak and Martine S.W. Garland, lawyers for the plaintiff/defendant by Counterclaim

Jeffrey Radnoff, lawyer for the defendants/plaintiffs by Counterclaim

HEARD: January 11, 12, 13 and

March 26, 2021

REASONS FOR DECISION

DIAMOND J.:

Overview

[1] The plaintiff Reza Tahmasebi (“Reza”) and the defendant Hamid Reza Haji Hosseini (“Hamid”) both immigrated to Canada from Iran. They met in the early 2000s, became friends, and formed a business relationship shortly thereafter.

[2] The defendant Amir Haji Hosseini (“Amir”) is Hamid’s nephew.

[3] Reza and Hamid operated a used car dealership for several years, and also purchased and invested in several real estate properties.

[4] In or around 2011, Reza and Hamid’s relationship began to deteriorate and ultimately ended in early 2012. They attempted to wind down their business relationship and the corporations in which they held ownership interests. Some of those winding down efforts were successful, but Reza eventually commenced this proceeding seeking inter alia, damages for allegedly oppressive conduct on the part of the defendants. In support of his claims, the plaintiff alleged that payments were diverted from the used car dealership to a sole proprietorship registered to Amir.

[5] The defendants deny all the allegations advanced against them, and take the position that the parties’ business relationship was terminated in accordance with a settlement agreed upon by Reza and Hamid. The defendants furthered counterclaim for damages arising from the allegedly unlawful registration of two Certificates of Pending Litigation (“CPLs”) earlier in this proceeding.

[6] The trial of the action and counterclaim proceeded before me over the course of three days. Closing arguments were concluded on a subsequent full day hearing. At the conclusion of that hearing, I took my decision under reserve.

[7] These are my Reasons for Decision.

Assessment of Credibility

[8] As the trier of fact, I am charged with determining the truth. On occasion, that task can be rendered unenviably difficult when parties are motivated to offer evidence designed to “fit” within a specific theory of the case. In Prodigy Graphics Group Inc. v. Fitz-Andrews 2000 CarswellOnt 1178 (S.C.J.) Justice Cameron offered a non-exhaustive list of traditional criteria by which the evidence of each witness, and, where appropriate, the exhibits tendered at trial, ought to be assessed:

1. Lack of testimonial qualification

2. Demeanour of Witness: apparent honesty, forthrightness, openness, spontaneity, firm memory, accuracy, evasiveness

3. Bias/Interest in the Outcome (if a party, motive)

4. Relationship/Hostility to a party

5. Inherent probability in the circumstances i.e. in the context of the other evidence does it have an "air of reality"

6. Internal consistency i.e. with other parts of this witness' evidence at trial and on prior occasions

7. External consistency i.e. with other credible witnesses and documents

8. Factors applicable to written evidence:

(a) Presence or absence of details supporting conclusory assertions

(b) Artful drafting which shields equivocation

(c) Use of language in an affidavit which is inappropriate to the particular witness

(d) Indications that the deponent has not read the affidavit

(e) Affidavits which lack the best evidence available

(f) Lack of precision and factual errors

(g) Omission of significant facts which should be addressed, and

(h) Disguised hearsay

[9] The assessment of the credibility of witnesses is especially important when bearing in mind the onus of proof. As the trial judge, I must decide whether a specific proposition of fact has or has not been established on a balance of probabilities by the party having the onus of proof. For a party to seek to discharge its legal onus of proof, I must first be satisfied with the credibility and reliability of the evidence in order to be in a position to make the relevant findings of fact.

[10] Put another way, a moving party has the onus of factual proof of the evidence necessary to satisfy its legal burden. As stated by Justice Stinson in Zesta Engineering Ltd. v. Cloutier 2010 ONSC 5810 (S.C.J.):

“In certain instances it is simply not possible to reconcile some aspects of the evidence that was presented by the witnesses at this trial. In part, I liken the situation to attempting to assemble several old jig-saw puzzles whose various parts have sat, co-mingled, in the bottom of an actively-used desk drawer for a decade: some pieces are missing, some are undecipherable, some have changed over time and no longer fit together, and some are not what they seem to be, all due to the passage of time and intervening events. In this case my task is to use the pieces of evidence to re-create as clear a picture of past events as I can give the foregoing limitations, applying the "real test of…truth" as described above, drawing inferences where appropriate, and applying the rules of burden and standard of proof, as required.”

[11] In evaluating the credibility or reliability of evidence, I look to a number of interrelated factors such as its probability, logical connection with other findings and support from independent facts or documents. As held by Justice Brown (as he then was) in Atlantic Financial Corp. v. Henderson et al, [2007] 15230 (S.C.J.):

“In deciding between these two diametrically opposed positions, I am guided by the observations made about assessing the credibility of witnesses by O’Halloran, J.A. in Faryna v. Chorny, 1951 CanLII 252 (BC CA), [1952] 2 D.L.R. 354 (B.C.C.A.) where he stated, at page 357:

“The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.”

[12] I have carefully listened to and observed the testimony of all witnesses called by both parties, and reviewed the identified exhibits throughout the trial. I do not intend to summarize the evidence of each witness, nor do I see the need to present an exhaustive, chronological narrative summary.

[13] In my view, the following issues need to be decided in this proceeding:

Issue #1: Did the parties reach a binding agreement to resolve the wind-up of their business operations?

Issue #2: If no binding agreement was reached, do the defendants’ actions amount to oppressive conduct?

Issue #3: If a finding of oppressive conduct is warranted, what are the plaintiff’s damages, if any?

Issue #4: Were the CPLs registered improperly, thereby entitling the defendants to damages?

[14] In order to decide the above issues, it is still necessary to summarize the formation and termination of the parties’ personal and business relationships. Most of the facts set out in this section of my Reasons are not controversial. Where there are facts in dispute, I will endeavor to explain the reasoning behind my findings.

[15] As stated, Reza and Hamid met in the early 2000s. At that time, Reza ran a business known as Mega City Emissions Test (“Mega City”), which conducted vehicular environmental emissions tests. Mega City owned the property from which it operated, which property was municipally known as 1200 Victoria Park Avenue, Toronto (“the Mega City property”).

[16] From 2002-2004, Amir worked for Reza at Mega City. It was through Amir that Reza met Hamid in or around 2003.

[17] In or around the fall of 2004, Hamid incorporated the defendant company Curve Limited o/a Curve Motor Sport (“Curve”), which was a used car dealership. At the time, all of the shares in Curve were owned by Amir, and Hamid managed Curve’s day to day operations.

[18] Reza and Hamid ultimately agreed that Curve would lease retail space at the Mega City property, and Curve would pay Mega City monthly rent of $18,000.00.

[19] Curve and Mega City operated as described above for several years. In or around the summer of 2007, Reza and Hamid discussed joining forces and operating Curve together. They agreed that they would start buying and selling cars through Curve; Reza would be a silent investor while Hamid would continue to manage Curve’s business operations.

[20] Each of Reza and Hamid agreed to contribute $200,000.00 in capital to Curve: Hamid would contribute $200,000.00 by way of vehicle inventory, and Reza would contribute $200,000.00 in actual working capital. There was a dispute in the evidence as to whether Reza in fact contributed the full $200,000.00 in working capital. It appears that Hamid acknowledged that Reza paid a minimum of $180,000.00 for his investment in Curve. Reza testified that he paid an additional $10,000.00, but the $10,000.00 money order relied upon by Reza is dated in January 2007, which, according to the chronology of both parties is before the Curve business opportunity discussions commenced. I accept that Reza contributed at least $180,000.00 towards Curve, and the parties did not seem to mind that there was a shortfall on Reza’s behalf as they continued together for several years.

[21] As Reza was a silent investor, the parties agreed that Hamid would receive $8,000.00 per month in compensation for his managerial services, and Amir would receive $4,000.00 per month for his sales services rendered to Curve.

[22] On July 23, 2007, Reza and Hamid became 50% owners of the newly incorporated defendant 1741381 Ontario Ltd. (“174”), which was created to purchase and own various real estate properties.

[23] On September 30, 2007, Reza became an officer, director and 50% shareholder in Curve as per the agreement between the parties.

[24] Amir registered a sole proprietorship known as Auto Luxe in late August 2009. Auto Luxe carried on business as a wholesale vehicle dealership, and also operated from the same property as Curve.

[25] Between 2007-2012, Reza and Hamid purchased various properties for investment purposes, and 1850 Lawrence Avenue East, Scarborough (“the Lawrence property”) which was the new location for Curve. Those properties were ultimately sold after their relationship began to deteriorate, and the net sale proceeds have been split equally between Reza and Hamid (as described in greater detail hereinafter).

Issue #1: Did the parties reach a binding agreement to resolve the wind-up of their business operations?

[26] In order to determine whether a binding settlement agreement was reached between the parties, it is necessary to examine the reasons behind the breakdown of the parties’ relationship.

[27] In late 2011, Hamid had been visiting Iran for a few months while Reza remained working at one of the new properties he and Hamid had purchased with a view of potentially opening up a second used car dealership. According to Reza, he asked to be paid for his additional time and expenses incurred during Hamid’s absence. Amir agreed to sign two cheques (with Hamid signing a third cheque) resulting in Reza receiving a total of $24,000.00 for his efforts. The third cheque was signed by Hamid upon his return from Iran, but Hamid then told Reza that Hamid would be paying himself $24,000.00 “because that is what Reza received”.

[28] That was the basis of the dispute between the parties, which regrettably grew until they both decided to part ways and end their business relationships. At that time, the parties owned Curve, 174 and various real estate properties.

[29] As stated above, the real estate properties (owned by 174 and Reza and Hamid personally) were ultimately sold with the net proceeds of sale divided equally between the parties. There are no claims advanced in this proceeding on account of the sale of the real estate properties.

[30] The issue was how to wind down the business operations of Curve. Both Reza and Hamid retained counsel – Paul Kupferstein (“Kupferstein”) and Irving Wolkowicz (Wolkowicz”) respectively. On March 27, 2012, the following email correspondence was sent from Kupferstein to Wolkowicz:

“I have spoken to my client and he has no objection to your client keeping Curve once there has been an accounting and its books have been reconciled. Considering this may take a while, it is proposed that we complete the land deals and transfer of the shares in the numbered company in the time frame in the offers before you – April 30th, 2012. A separate agreement for the shares in Curve at a nominal price can be entered into for completion at the end of May or June to give your client an opportunity to clean up the company’s records and reconcile any amounts owing. It is in both parties’ interest to move toward a resolution and this may be a way of doing so. Please let me know.”

[31] Hamid argues that the contents of this email amounted to a formal “termination agreement” between the parties. I agree with Hamid that on Reza’s cross-examination, Reza somewhat “waffled” with respect to answering whether the contents of Kupferstein’s email were accurate or not. However, in my view, to the extent that Kupferstein’s email evidences any agreement, it was an agreement that Hamid could keep Curve upon its books and records being reconciled through an accounting review process designed to ensure the fair division of any net equity in Curve.

[32] In any event, Reza gave evidence that he never received a substantive response to Kupferstein’s email, and proceeded to visit the Royal Bank of Canada (“RBC”, Curve’s bank) to request copies of Curve’s account statements. During that attendance (which took place in April 2012), Reza was apparently told that he was not an authorized Curve representative, at least according to RBC’s records. As a result, RBC unilaterally froze Curve’s bank accounts even though Reza was an officer, director and shareholder of Curve.

[33] In the face of RBC’s freezing of Curve’s account, Reza and Hamid delivered a jointly signed letter to RBC stating as follows:

“This letter is to inform our bank (RBC Royal Bank) that we have resolved our problem in our partnership and everything is back to normal now. we are writing this letter to our bank manager Mr. Huen Knox to remove the hold (freezing) from our accounts.”

[34] To the extent that Hamid argues that this letter evidenced a further agreement (or perhaps an acknowledgement) between the parties that their dispute with respect to the business operations of Curve was resolved, I do not agree. This letter was obviously written for one purpose, namely to ensure that Curve’s RBC accounts were unfrozen so that either party could gain access to the account statements with a view to pursing the reconciliation contemplated by the Kupferstein email.

[35] When the parties wound up 174, they entered into a Share Purchase Agreement in late February 2013. By early April 2013, Hamid took the position that Reza owed him money for his share of operating expenses incurred by 174. When Reza did not pay the demanded sum, Hamid issued an action in the Ontario Small Claims Court. Hamid took the position that there was not enough money from the sale of Curve’s vehicles to pay the carrying costs of the real estate properties leading up to the parties entering into the Share Purchase Agreement.

[36] There is no dispute that on or about July 19, 2013, Reza and Hamid met with Curve’s accountant Parviz Tehranfar (“Parviz”) to review, inter alia, Curve’s available books and records. After that exercise was completed, the parties agreed that Reza owed Hamid the sum of $18,698.76. This was the sum being sued for by Hamid in the Ontario Small Claims Court. Hamid then sent the following correspondence to Reza:

“To: Mr. Reza Tahmasebi

Please find this letter as a confirmation of meeting we had on Friday, July 19, 2013 in Azmon Accounting with Mr. Paviz Tehranfar, regarding all calculation to the amount you owe me (Mr. Hamid Hajihosseini) which is $18698.76.

As discussed:

The method of payment:

6 Returning cheques numbered: 0084-0085-0086-0088-0089-0090 from my company cheques which you have in your possession for interest payment of V.T.B. on 1850 Lawrence avenue property. The total amount of the cheques that you will be returning is =$3010.00x6=$18060.00

And One extra payment for amount of $638.76

The total $18060.00+638.76=$18698.76”

[37] The parties ultimately agreed that the above sum owing by Reza would be offset against some of the interest payments for a vendor take-back mortgage, which was the security Hamid gave pursuant to the Share Purchase Agreement for the amounts he owed Reza for his shares in 174.

[38] Hamid ultimately made all the payments owing to Reza under the Share Purchase Agreement. Hamid submits that based upon the documentation referenced above, and the conduct of the parties, a binding agreement was reached between them whereby Reza’s shares incurred were essentially transferred/sold back to Hamid for nominal value.

[39] Hamid relies upon the following passages from the Federal Court of Appeal’s decision in Apotex Inc. v. Allergan, Inc. 2016 FCA 155:

“The test is whether a reasonable bystander observing the parties would conclude that both parties, in making a settlement offer and in accepting it, intended to enter into legal relations: see, e.g., McCabe v. Verge (1999), 1999 CanLII 18936 (NL CA), 182 Nfld. & P.E.I.R. 135 at para. 13 (Nfld. C.A.); British Columbia (Minister of Transportation & Highways) v. Reon Management Services Inc., 2001 BCCA 679, 208 D.L.R. (4th) 175 at para. 24.

The requirement of an objective, mutual intention to create legal relations does not mean that there must be formality. Settlements need not be reached through counsel or in pre-planned, formal discussions.

Indeed, many cases show that—sometimes much to the surprise of clients and lawyers alike—seemingly idle conversations can have binding, legal consequences. Binding settlements can arise from impromptu, informal communications in relaxed, non-business settings. See, e.g., McCabe, above at para. 11; UBS Securities Canada, Inc. v. Sands Brothers Canada Ltd., 2009 ONCA 328, 95 O.R. (3d) 93 (C.A.); Ward v. Ward, 2011 ONCA 178, 104 O.R. (3d) 401 at para. 64; RTS Flexible Systems Limited v. Molkerei Alois Muller Gmbh, 2010 UKSC 14, [2010] 1 W.L.R. 753 at para. 45.

Second, like all other agreements, a settlement agreement must satisfy the requirement that there be consideration flowing in return for a promise. In settlement agreements, this is almost certainly never a problem—by definition, settlements are compromises, and so there will be consideration flowing both ways.

The Court must also find, as an objective matter, that the terms of the agreement are sufficiently certain: see, e.g., Bawitko Investments Limited v. Kernels Popcorn Limited (1991), 1991 CanLII 2734 (ON CA), 53 O.A.C. 314, 79 D.L.R. (4th) 97 at pp. 103-104 at p. 104 (Ont. C.A.); Olivieri v. Sherman et al., 2007 ONCA 491, (2007), 86 O.R. (3d) 778 at para. 49 (C.A.). Where the parties “express themselves in such fashion that their intentions cannot be divined by the court…the agreement will fall for lack of certainty of terms”: John McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at p. 91. Another way of putting this is that the court must be satisfied that the parties were objectively ad idem or were objectively of a common mind.

It is not for the courts to amend the parties’ offer and acceptance and make the terms certain. The Court will not make “a new agreement for the parties” where they “were never ad idem”: Kelly v. Watson (1921), 1921 CanLII 23 (SCC), 61 S.C.R. 482, 57 D.L.R. 363.

That being said, where the parties were objectively of a common mind and “intended some legal relationship to exist between them,” often their reasonable expectations can be discerned and “courts will generally strive to give effect to [them]”: Hunt River Camps/Air Northland Ltd. v. Canamera Geological Ltd. (1998), 1998 CanLII 18009 (NL CA), 168 Nfld. & P.E.I.R. 207, 517 A.P.R. 207 at pp. 217-18 (Nfld. C.A.); see also, e.g., Canada Square Corp. v. Versafood Services Ltd. (1982), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250, 130 D.L.R. (3d) 205 (C.A.); Olivieri, above at para. 50.

Lack of certainty of terms leading to a finding that there was no agreement is something quite different from the presence in an agreement of words that have a range of meaning. For example, words like “disparage” or “scientific” may have a range of meaning but as long as a court can divine a meaning from those terms in the circumstances of a particular case, the agreement is not void for uncertainty: see Olivieri, above at para. 49.

An agreement does not arise until there is matching offer and acceptance on all terms essential to the agreement: Olivieri, above at para. 32; Fieguth v. Acklands Ltd. (1989), 1989 CanLII 2744 (BC CA), 59 D.L.R. (4th) 114, 37 B.C.L.R. 62 (C.A.) at para. 35; Bawitko, above at pages 103-04. Disagreement, objectively assessed, on an essential term will mean that there is no agreement: Reon Management Services Inc., above at para. 34.”

[40] As I understood Hamid’s submissions, the purported binding agreement between the parties is set out entirely in the March 27, 2012 email from Kupferstein to Wolkowicz. Hamid argues that the contents of that email are clear, unambiguous and include all essential terms, namely to sell Curve’s assets, pay the liabilities and split any remaining proceeds.

[41] I cannot agree with Hamid’s position. To begin, the email enclosed a draft Share Purchase Agreement (for matters relating to 174), the terms of which ended up being fundamentally different from the actual Share Purchase Agreements ultimately signed by the parties in February 2013. The March 27, 2012 email, at its highest, appears to be “an agreement to agree”, and is in fact more like an offer on the part of Reza. If that email was indeed an offer (and in my view that is the highest form that email could take), there is no evidence of that offer being accepted by Hamid. While Hamid argues that the parties’ subsequent conduct in ultimately signing a Share Purchase Agreement, (ie. selling and splitting the proceeds from the real estate properties) evidences acceptance of the offer and performance of the purported binding agreement, I do not accept that argument. In particular, with respect to Curve, the March 27, 2012 email proposed that Hamid keep Curve after, and only after, a full accounting and reconciliation had occurred. I do not find that Reza and Hamid reached an agreement on all matters that are vital to the resolution of the dispute between them, and the March 27, 2012 email simply deferred legal obligations until an actual final agreement had been reached.

[42] Hamid further argues that once Reza was sued in Small Claims Court, Reza was required to raise any and all issues concerning the accounting and reconciliation of Curve’s business operations. Hamid submits that the doctrines of res judicata and cause of action estoppel apply to the facts of this case.

[43] In my view, the subject matter of the Small Claims Court action did not relate to or encompass the issue of the pending winding up of Curve’s business operations. The claim made by Hamid sought damages “arising from a breach of contract”. The body of the claim dealt with Reza and Hamid’s status as directors of 174, and sought damages as a result of Reza’s alleged failure to contribute an equal 50% share of 174’s operating costs. Nowhere in the claim is the word “Curve” even mentioned. How could there be an obligation upon Reza to challenge the purported binding agreement when that issue wasn’t raised in the Small Claims Court action?

[44] For these reasons, the answer to Issue #1 is “No”.

Issue #2: If no binding agreement was reached, do the defendants’ actions amount to oppressive conduct?

[45] In a corporate law setting, the oppression remedy is designed to protect the reasonable expectation(s) of the complaining party. In order to determine those reasonable expectations, the Court must examine:

• The conduct complained of;

• The nature of the relationship between the parties;

• The extent to which the subject conduct was foreseeable; and,

• The detriment to the interest of the complaining party.

[46] Curve was no doubt a small, closely held corporation. The Court’s analysis of Reza’s expectation(s) as a shareholder is contextual and objective. As held by the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders 2008 SCC 69, the oppression remedy is an equitable remedy, and as such the Court is to enforce not just what is legal but also what is fair, having regard for business realities. What is fair is judged by the reasonable expectation(s) of the stakeholders in context and in regard to the relationships at play.

[47] Reza argues that as a 50% shareholder of Curve, his reasonable expectations included:

a) Hamid would maintain accurate financial and accounting records to which Reza would have access;

b) Hamid would make full disclosure of all material facts relating to Curve’s business operations;

c) Hamid would not charge personal expenses to Curve; and

d) Hamid would abide by the terms “of the agreement”.

[48] The above paragraph is lifted from paragraph 83 of Reza’s closing submissions. It is unclear what “agreement” Reza is referring to, as I have already found that there was no binding agreement with respect to the winding up with Curve. To the extent that Reza is complaining about the Share Purchase Agreement, that agreement does not relate to Curve’s business operations. As such, I do not find that there was any reasonable expectation on the part of Reza for Hamid to abide by “an agreement” in the air. If Reza is referring to some shareholders agreement, I have not been made aware of the terms of any such document.

[49] Reza complains that he was excluded from Curve’s business operations. I do not understand this submission, as Reza described himself in his trial affidavit (confirmed during his cross-examination) as a silent investor in Curve. As a silent investor, he chose not to be privy to Curve’s business operations, and thus cannot be said to have been “excluded”.

[50] The true nature of Reza’s complaints, and the alleged “transgressions” on the part of the defendants which unfairly prejudiced Reza’s shareholding interest, are as follows:

a) Hamid did not maintain accurate financial business records for Curve;

b) Hamid used Curve’s funds to pay for his personal expenses; and

c) Hamid arrangement for Curve to use Auto Luxe was a sham designed to misappropriate funds out of Curve to Amir.

[51] I will deal with each complaint in turn with a view to assessing whether the impugned acts or omissions on the part of the defendants amounts to oppressive conduct.

a) Failure to Maintain Financial Records

[52] To begin, as held in MacDonald v. D’Aubin 2019 NSSC 389, the failure to maintain adequate financial records will not, in and of itself, necessarily give rise to an oppression remedy. That said, even if there was no bad faith on the part of an offending director, a failure to maintain adequate financial records could amount to oppressive conduct if the state of the financial recordkeeping amounts to a breach of fundamental obligations placed upon officers and directors of a corporation.

[53] However, as held in Lee et al v. To et al 1997 CanLII 11160 (SKQB), the reason a failure to maintain adequate financial records could be oppressive is that without those records, “no proper decision making can occur by either the corporation or the shareholders who have invested in the corporation.”

[54] It cannot be said that Reza, as a silent partner, was involved in any decision making in terms of Curve’s business operations. Notwithstanding, Reza argues that the absence of proper financial records precludes him from assessing Curve’s business activity and financial position. As Reza and Hamid did agree to wind up the corporation and conduct an accounting to reconcile Curve’s business operations, Reza did have an expectation that he would be able to carry out this task.

[55] I do not believe that Reza had a reasonable expectation that Curve’s corporate records would be maintained in accordance with the explicit statutory requirements set out in the Ontario Business Corporations Act, R.S.O. c. B16, (“OBCA”) as the parties’ relationship was quite informal and until the events which gave rise to this proceeding, Reza had never complained about the state of Curve’s financial records.

[56] Reza argues that the financial records produced by Hamid (via Parviz) are incomplete, inaccurate and incomprehensible. There appears to be no dispute that the underlying source documents (i.e. RBC bank statements) were available to Reza by the spring of 2012 after he and Hamid delivered the April 30, 2012 letter to RBC. Hamid argues that he has produced all of Curve’s bank statements and bookkeeping records as prepared by Parviz. A handwritten book detailing the transactions between Auto Luxe and Curve was also produced, along with the garage registry for both companies detailing the purchase date, sale date and sale price of each vehicle.

[57] I have reviewed the financial records produced by the defendants. While I agree that most, if not all of the expected source documents were and remain available to Reza, the question is whether adequate accounting records were prepared and maintained.

[58] During Hamid’s cross-examination, he was shown two completely different sets of Curve’s financial statements for the same time periods. One set appeared to have been produced for RBC, while the other set was produced for Canada Revenue Agency (“CRA”). These financial statements included income statements and balance sheets. Hamid disavowed any knowledge of the two sets of Curve’s financial statements, and shifted the responsibility for the creation of those documents to Parviz. When Parviz was cross-examined upon his trial affidavit, he initially denied preparing two sets of financial statements, and then gave evidence that he may have prepared a second set of financial statements for RBC. In order to explain this discrepancy, Parviz suggested that perhaps one set of financial statements was a “work in progress and incomplete”.

[59] I reject Parviz’s evidence on this point. It is obvious to the Court that (presumably at Hamid’s instruction, and I so find) Parviz prepared two sets of financial statements. While it is unclear as to the exact purpose for the preparation of two sets of financial statements, there was no valid or honest reason for doing so. A financial statement is a financial statement, as the information and calculations therein are lifted from source documents. Hamid argues that the plaintiff’s complaints in this regard failed to distinguish “between the accounting prepared by Parviz and the underlying records themselves.” There could only have been one set of financial statements lifted from the original source documents. The defendants have failed to maintain adequate financial records.

[60] The question is then is whether that failure amounts to oppressive conduct? Was it Reza’s reasonable expectation to rely on Parviz’s preparation of financial statements in order to conduct and complete the accounting exercise set out in the March 27, 2012 email? In my view, as a silent investor known to all not to have inserted himself in Curve’s day to day operations, Reza did have an expectation that whatever accounting exercise was being undertaken, the individual(s) charged with carrying out that accounting exercise would have been able to rely upon the available financial records prepared and maintained by Curve. In other words, it was not within Reza’s contemplation that in order to perform a reconciliation, one would have had to challenge or undermine the existing financial records prepared by Parviz. It seems that is exactly what needed to take place as shown by the expert evidence proffered by both parties at this trial.

[61] Dealing specifically with Reza’s concerns about Auto Luxe, the notebook produced by Hamid is indeed incomplete in comparison to other financial records. While Hamid described the notebook as a complete record of every Auto Luxe sale, at trial he then identified the notebook as belonging to Amir.

[62] Some of the records identified at trial showed sales of vehicles from Auto Luxe to Curve for a specific figure, and then Curve selling those vehicles at a loss to the end customer. Despite Hamid’s attempts to explain this discrepancy (i.e. why would Curve purchase a vehicle from a non-arm’s length company such as Auto Luxe and then sell it at a loss), through the necessity of creating “fake invoices” to reimburse Amir for his salary/commission, I did not accept these discrepancies as having been explained in part or in full, even as alleged advances on Amir’s commission. Hamid’s evidence seemed like the proverbial “Monday morning quarterback” approach to questions that should produce straightforward answers.

[63] There are further records evidencing Curve making payments to Auto Luxe in 2008 and 2009, which according to the defendants’ evidence was prior to Auto Luxe commencing operations. Such records again raise more questions than answers.

[64] In my view, and on the facts of this case, the defendants’ failure to maintain adequate financial records constitutes oppressive conduct.

b) Payment of Hamid’s Personal Expenses from Curve

[65] There is no doubt that several personal expenses of Hamid were run through Curve. These include clothing, meals, and liquor. These personal expenses recurred throughout several years.

[66] Hamid gave evidence that those personal expenses were set off against amounts he was owed based on his $8,000.00 per month compensation. Of note, the balance of his salary (i.e. when he did not run through any personal expenses through Curve) was paid in cash which was reflected in various bills of sale for vehicles purchased from Curve.

[67] Unfortunately, the accounting records produced by the defendants do not prove one way or the other whether Hamid took $8,000.00 per month in compensation, or perhaps more.

[68] It is Hamid’s onus to explain and prove that these expenses, which on their face have admitted to be personal in nature, were proper. Apart from his story that the expenses were part of his monthly compensation, or on occasions “gifts”, Hamid has not satisfied this Court of his onus.

[69] Using corporate funds for personal reasons is not within the reasonable expectations of any shareholder. Accordingly, I find that this specific conduct is also oppressive.

c) Auto Luxe

[70] Reza gave evidence that when he finally reviewed Curve’s bank statements, he discovered a history of payments from Curve to Auto Luxe between 2008-2011 totaling over $2,000,000.00. According to Hamid and Amir, the arrangement was for Auto Luxe to purchase vehicle inventory, subsequently sell the vehicles to Curve, and then Curve would turn around and re-sell those vehicles to end user customers. Auto Luxe paid Curve 5% commission from a net profit of the sale of any vehicle.

[71] Reza argues that there was no need for Auto Luxe to insert itself into this chain of transactional events, as Curve could have purchased vehicles directly as a general dealer (which it had done historically to that point). Reza testified that he had no knowledge of the arrangement between Curve and Auto Luxe.

[72] This was somewhat confirmed by Amir, who testified that he never spoke about the arrangement directly with Reza, and assumed that Hamid had done so. For his part, Hamid testified that in or around 2009, Amir was looking to “make more money”. As previously stated, Amir registered Auto Luxe as his sole proprietorship in late August 2009. Hamid testified that Amir opened Auto Luxe with Reza’s full knowledge, as Reza and Hamid did not want to lose Amir to a competitor. Amir did not confirm Hamid’s position, as he gave evidence that he only saw Reza around Curve’s business a handful of times.

[73] Reza was cross-examined briefly upon his knowledge of Auto Luxe. When pressed that he allegedly knew about the arrangements while it was happening, Reza denied this and maintained that he only found out much later that Auto Luxe sold cars directly to Curve. Reza was presented with various documents showing that he must have known of the existence of this arrangements, but Reza never really looked at the documents having been no more than a silent partner.

[74] I do not accept the defendants’ explanation, nor do I find that Reza was aware (or at least aware in any substantive way) of the arrangement between Auto Luxe and Curve. I agree with Reza that apart from Hamid’s explanation that he did not want to lose Amir to a competitor (of which there is little evidence other than Hamid’s statement), I do not see an objective reason why Curve would divest itself of additional profits by including Auto Luxe as a middle man, especially when Curve was fully able to purchase vehicles directly from dealers. As a 50% shareholder in Curve, why would Reza agree, or even reasonably expect, to help Amir earn additional money at Curve’s expense?

[75] The arrangement between Curve and Auto Luxe amounts to oppressive conduct that disregards Reza’s shareholding interest in Curve.

Issue #3: If a finding of oppressive conduct is warranted, what are the plaintiff’s damages, if any?

[76] To begin, the Court retains a broad discretion under section 248(3) of the OBCA. That discretion must be exercised using principles designed to address, and if possible rectify, oppressive conduct. As held by the Court of Appeal for Ontario in Maneff v. Con-Crete Holdings Ltd. 1995 CanLII 959 (ONCA), any remedy to be fashioned by the Court should rectify the oppressive conduct, but need not punish the offending party.

[77] The Court must strive to fashion a remedy that is minimally intrusive and as consistent as possible with the reasonable expectations of the parties. I have already found the presence of oppressive conduct detailed in the previous section. In my view, on the facts of this case it was Reza’s reasonable expectation that Curve would have been operated in a manner seeking to maximize profits for its shareholders. This would include good faith efforts to charge Curve for legitimate business expenses, something which Hamid, and to a lesser extent Amir, did not always do.

[78] Upon the deterioration of the parties’ relationship, Reza’s reasonable expectations were essentially met save for the winding up of Curve’s business operations through an accounting of all properly maintained financial records. The defendants argue that Reza did not have a reasonable expectation that Hamid would provide Reza with an accounting of Curve. I agree that it was up to Reza to carry out that accounting exercise. That said, not all of the blame for the failure to do so (at least prior to this litigation commencing) can lay at the feet of Reza, as even if he had exercised that right, the state of Curve’s financial records were difficult to comprehend.

[79] It is true that as a silent investor, Reza earned a yearly return on his investment of approximately 30-40%. That on its own does not define or limit Reza’s reasonable expectation, especially when it was agreed that he would no longer participate as a silent investor in Curve. What Reza was expecting was a “final accounting” whereby he would be paid any additional funds due and owing to him. At the time, Reza was proceeding on the assumption that Curve’s books and records were being properly maintained, and Curve’s business operations were being run without additional personal expenses to Hamid and the insertion of Auto Luxe as a “middle man” for no reason beneficial to Curve.

[80] Reza claims damages for three separate categories of loss:

a) loss of profit on incremental sales to Curve (2001 chosen year);

b) loss of profits due to excess expenses taken out of Curve from 2009-2011; and

c) loss of business by Curve.

[81] The plaintiff filed the expert report of Patricia Harris (“Harris”), who was qualified as a certified professional accountant and chartered business evaluator certified in financial forensics. While the defendants filed their own expert opinion report from Errol Soriano (“Soriano”) that report took the form of a “limited critique report”, and did not offer any alternatives for the damage theories or calculations prepared by Harris.

[82] Harris admitted that her report was somewhat limited by the state of Curve’s financial records. Her evidence was that those financial records did not allow a meaningful accounting of Curve’s business operations. While Soriano repeatedly stated that “all available information had been produced including 21 bankers boxes of accounting records”, he admitted on cross-examination that not only was the scope of his critique narrow, he never reviewed the contents of the 21 boxes of accounting records himself and therefore could not speak to their quantity or quality. It was clear that insofar as a response to Harris’ concerns about the limited financial information available, Soriano was parroting what the defendants had told him.

[83] Given the limitations described by Harris in her report, she chose to rely upon industry statistics to quantify loss of profits, and her choice in implementing this method ensured conservative estimates.

[84] I will address each of the categories of loss in turn.

a) Loss of Profit on Incremental Sales in 2011

[85] Harris proceeded on the assumption (which has now been accepted by this Court), that Auto Luxe received proceeds from sales of vehicles that would otherwise have been earned by Curve, all without Reza’s knowledge. Harris opined that since Curve’s business was relatively new and in growth mode from 2007-2009, she assumed that Curve’s business stabilized in 2010 and beyond, and chose 2011 as the subject year to examine.

[86] Harris complained that she was never provided with supporting documentation evidencing Auto Luxe’s actual costs in purchasing the vehicles sold to Curve. Such information would have assisted Harris in quantifying the loss of profits without referring to industry standards.

[87] Using industry standards, Harris gave evidence that the industry growth rate unit sales for 2011 increased by 1.7% while Curve’s sales declined by 14.5%. Harris testified that Curve’s 2011 sales would have increased by approximately 1.57% (being the actual industry growth rate average).

[88] The defendants argue that Harris’ choice of 2011 for her calculation is flawed, as that was the year when Curve underperformed in comparison to the 2008-2010 years when Curve significantly overperformed other used car dealerships. Indeed, based upon industry standards, Curve had profit of approximately $150,000.00 due to its out performance of other used car dealership in those years.

[89] The defendants further submit that during the 2011 business year, Reza and Hamid were not getting along. In my view, as Reza was a silent investor in Curve, the state of his relationship with Hamid likely played little to no role in Curve’s performance that year.

[90] In my view, Harris did the best with what she was given. I do not accept that the 2011 drop in business was simply due to an alleged underperformance on the part of Curve. Business was trending upward for the previous three years, and I accept that applying an industry average of 1.5% growth provides a conservative estimate for the loss of profit on the 2011 incremental sales. The fixed and variable expenses deducted by Harris in her calculation are reasonable, and while the industry growth of standard in 2011 was less than the previous three years, the actual drop in Curve’s reported sales from 2010 to 2011 was far greater than the drop in the industry growth standard, and I do not accept the defendants’ attempted explanations for same.

[91] Accordingly, I accept Harris’ calculations and grant damages for loss of profits on 2011 incremental sales in the amount of $35,000.00 payable to Reza by Hamid, Amir and Curve.

b) Loss of profits due to excess expenses taken out of Curve from 2009 -2011

[92] Harris requested a copy of Curve’s general ledger to allow her to reconcile what was set out in the financial statement prepared by Parviz. She concluded that, much like her estimate with respect to the loss of profits on the 2011 incremental sales, she needed to rely upon and apply industries statistics to quantify the loss relating to excess expenses.

[93] I find merit in the defendants’ position that Harris did not consider the fact that Curve was the entity funding the acquisition carrying costs of the various real estate properties purchased, maintained and ultimately sold by Reza and Hamid. As such, Curve would have incurred expenses higher than industry standards for used car dealerships only.

[94] A review of a chart of Curve’s actual expenses as compiled by Harris in fact included some expenses that relate to those acquisition and carrying costs for the real estate properties. While I understand Harris’ frustration with trying to “put Humpty Dumpty back together again” in terms of assessing proper vs. improper expenses, I find that some of the assumptions made in her report were not borne out by the evidence at trial.

[95] Harris calculates the loss of profits on excess expenses for the 2009-2011 years as totaling $123,000.00. The Court must discharge its duty to arrive at the best estimate of loss suffered by a party who has been subject to oppressive conduct in order to rectify that conduct and put the party back into the position defined by his/her reasonable expectation. Based upon Harris’ partial review of (partial) general ledgers provided by the defendants, she found $143,841.00 in alleged excess expenses in 2010 and $130,940.00 in alleged excess expenses in 2011. I have reviewed those lists along side with the evidence of Hamid and Amir. Not all of those expenses were improper, and some do relate to the acquisition in carrying costs of the real estate properties as submitted by the defendants.

[96] I have attempted to quantify, as best as the Court can, the loss of profit on the actual expenses. In my view, a reasonable conclusion, using the industry standards employed by Harris, is approximately $75,000.00 and I so order Hamid, Amir and Curve to pay those damages to Reza.

c) Loss of business by Curve

[97] This category of loss is the most controversial, and the largest component of Reza’s damages claim. Harris has calculated a loss of business value ranging from $189,000.00 to $434,000.00 premised upon two essential components: (a) the goodwill value of Curve, and (b) an incorrect “due to shareholder” amount in the financial statements.

[98] There are some inherent difficulties with Harris’ assumptions and calculations. To begin, it is difficult to understand why goodwill would be captured as part of the accountant/reconciliation process when Reza’s reasonable expectation was that Curve was never going to be sold as a going concern business, but rather wound-up with the net equity/profits divided between Reza and Hamid equally.

[99] Further, it is arguable whether a used car dealership even has an inherent goodwill component. Indeed, the following excerpt is lifted from an industry publication relied upon by Harris in her expert report:

“Without a tied-into a franchise, used car dealers have hurdles to overcome from poor public image and low credibility. Used car dealers often use high pressure sales techniques and provide less transparency than new vehicle dealers. Even their location can work against them. Most used car dealers are located on lesser roads and thorough-fares as opposed to franchise dealerships, which have nice facilities, are located in prominent areas, and benefit from drive-by views.

For the reasons we have discussed, their best prospects for an owner is to sell the dealership to an employee. That employee might be able to keep the track record going. By selling the dealership over to that employee, the owner has a better chance of obtaining a higher price. Otherwise, the owner is going to have a hard time finding someone who will pay any material amount of blue sky.”

[100] The defendants point out that Reza was never asked to, nor did he ever, pay for any goodwill when he agreed to purchase his interest in Curve. As well, when the parties were negotiating the wind-up of Curve due to the deterioration of their relationship, Reza (through Kupferstein) advised that Hamid could keep Curve without paying for any goodwill that may have accumulated.

[101] Harris was clear that she calculated Reza’s losses based upon assumptions that Curve was a going concern and Reza would have received fair market value upon the sale of his shares in Curve. In my view, this is a re-working of the terms upon which Reza was prepared, to wind-up the Curve business and extract his net equity therefrom.

[102] I do not accept Harris’ reasons for concluding that Curve had goodwill as at the date the parties agreed to wind-up the business. Strong industry and market conditions do not bestow goodwill upon a particular business. The fact that Hamid chose to continue to operate the used car dealership at the same location does not bestow goodwill to the business, as this was a personal decision undertaken by Hamid only. I am not prepared to grant damages for the loss of business value with a component for goodwill, as such a conclusion is simply not grounded in sufficient objective facts.

[103] This leaves an assessment of Harris’ calculations for the fair market value of Reza’s interest in Curve as at August 31, 2011 being adjusted by adding back the proper shareholders’ loan. When Harris met with Parviz, she learned that the shareholders’ loan amount in the financial statements (a deficit of $5,109.00) was not a real Curve liability, but was used by Parviz to balance the books. Parviz never denied this in cross-examination, but rather indicated that he did not recall that conversation. Nevertheless, Parviz acknowledged that using the shareholders loan entry to balance was indeed something he has done with his clients’ records.

[104] I find that the shareholders’ loan listed on the financial records is not accurate. Harris attempted to calculate what the true value of the “due to shareholders” should be. Both experts seem to agree that if Parviz’s shareholders loan entry was not accurate, then Curve’s book value would increase to $316,744.00 as at August 31, 2011. The shareholders’ deficit was increased by adding the shareholders loan, something with which Soriano accepted himself. As I have rejected Harris’ inclusion of various possible goodwill valuations to the claimed loss of business value, leaving the adjusted shareholders deficit as is, I accept her calculations that Curve’s fair market value is approximately $364,000.00 thereby reducing Reza’s 50% share to $182,000.00.

[105] This amount represents Reza’s loss of business value damages. While the defendants argue that these are losses to Curve, I disagree. These are losses due to the shareholders.

[106] Accordingly, I find that Reza is entitled to damages in the amount of $182,000.00 for loss of business value payable by Hamid, Amir, and Curve.

Issue #4: Were the CPLs registered improperly, thereby entitling the defendants to damages?

[107] Earlier in this proceeding, Reza proceeded ex parte and obtained leave to register CPLs against title to two properties: 7 Teal Court, Toronto owned by Hamid and his wife, and 52 Walnut Grove Crescent, Richmond Hill owned by Amir. Reza’s theory in support of those CPLs was that the funds misappropriated from Curve were traceable into the purchases of both properties in 2012 and 2013.

[108] Only the CPL against the Teal property remains, as the CPL against Amir’s property was discharged on consent. Hamid seeks damages for the improper registration of the CPL against the Teal property.

[109] Under sections 103(4) and 103(5) of the Courts of Justice Act, RSO. 1990 c. C43, damages may be awarded for the improper registration of a CPL if there was no reasonable cause to have the CPL registered in the first place, or if the party registering had no reasonable claim to an interest in land.

[110] At the time Reza moved for leave to register the CPLs against title to both properties, he had received limited financial disclosure from the defendants. He gave evidence that within that disclosure, there were various payments made to Scotiabank which held a mortgage against title to Amir’s property Walnut Grove property, and Hamid’s prior home which he owned from 2007-2013. That said, it is unclear why there was any need to move on a without notice basis as the properties had already been purchased several years before this litigation commenced.

[111] The issue for this Court’s determination is whether Reza had a reasonable claim to an interest in land in the Teal property based upon a theory of traceable, misappropriated funds from Curve. No evidence was led at trial to show that there were material payments made towards the Teal property using Curve funds.

[112] The defendants strenuously argue that there was no reasonable claim to an interest in land. That may be a conclusion to be drawn from the evidence at trial, but I must be satisfied that Reza never had reasonable cause to register the CPL against the Teal property.

[113] In my view, there was never a reasonable claim to an interest in the Teal property. Hamid purchased the Teal property in November 2013, far after the business relationship had ended and during the period where Curve was not even operating.

[114] If there was any evidence to support the theory advanced by Reza at the time he sought leave to register the CPL, the Court would have expected it to be have been presented at trial. Reza’s evidence amounts to no more than speculation on this point. While I accept the fact that the test for leave to register a CPL is a low one (requiring a moving party to show that an interest in land “is in question”), such a theory must still be premised upon actual evidence and not conjecture.

[115] In my view, Reza “took a flyer” on a theory that misappropriated funds must have found their way into the Teal property. There is no evidence to support that theory. To permit the registration of a CPL based on a theory with no evidence would promote future CPL registrations (likely on an ex parte basis) based solely upon conjecture. Theories are not facts. If there was no evidence to support the registration of the CPL against the Teal property, then the CPL should not have remained registered.

[116] I agree with the defendants. The CPL was improperly registered against title to the Teal property. It is unclear what damages were suffered as a result of the registration of the CPL, and the Court is not prepared to award “significant damages” as claimed by Hamid in a vacuum.

[117] Accordingly, I direct that if the parties are unable to resolve the issue of damages caused by the improper registration of the CPL against title to the Teal property, a reference before a Master shall be scheduled for that purpose.

Costs

[118] In the event the parties are unable to resolve the costs of this proceeding, they may serve and file written costs submissions (totaling no more than five pages including a Costs Outline) in accordance with the following schedule:

a) Reza shall have 10 business days from the release of this Reasons for Decision to serve and file his written costs submissions; and,

b) the defendants shall have 10 business days from the receipt of Reza’s written costs submissions to serve and file their own responding written costs submissions.

Diamond J.

Released: May 26, 2021

COURT FILE NO.: CV-19-00612949-0000

DATE: 20210526

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

REZA TAHMASEBI

Plaintiff

– and –

HAMID REZA HAJI HOSSEINI, AMIR HAJI HOSSEINI, CURVE LTD. O/A CURVE MOTOR SPORT, 1741381 ONTARIO LTD., BAHAR DOURGHAMARI, LUXE INC. and AUTO LUXE

Defendants

A N D B E T W E E N:

HAMID REZA HAJI HOSSEINI, AMIR HAJI HOSSEINI, CURVE LTD. O/A CURVE MOTOR SPORT, 1741381 ONTARIO LTD. and BAHAR DOURGHAMARI

Plaintiffs by Counterclaim

– and –

REZA TAHMASEBI

Defendant by Counterclaim

REASONS FOR DECISION

Mr. Justice Diamond

Released: May 26, 2021