Court File and Parties
COURT FILE NO.: CV-20-649911
DATE: 20210805
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Rahul Kashyap
AND:
Save Max Real Estate Inc.
BEFORE: W.D. Black J.
COUNSEL: Rahul Soni, for the Plaintiff
Joseph W.L. Griffiths, for the Defendant
HEARD: July 29, 2021
ENDORSEMENT
[1] This is a motion by the Plaintiff Rahul Kashyap for an Order under Rule 45.02 and/or injunctive relief, requiring the Defendant (Save Max) to set aside and not disburse to anyone other than the Plaintiff, any commission-related funds from real estate transactions closed by the Plaintiff during his tenure with the Defendant.
[2] The Plaintiff also seeks an Order striking out the Statement of Defence, in whole or in part, or alternatively requiring the Defendant to supply particulars (in response to the Plaintiff’s Demand for Particulars dated December 2, 2020).
[3] The action in which this motion is brought alleges that the Defendant has not properly accounted for, nor paid, substantial outstanding commissions to which the Plaintiff claims entitlement, including underpaying commission amounts during the Plaintiff’s tenure with the Defendant, and failing to account properly or pay the Plaintiff’s share of commission funds received by the Defendant, and to be received by the Defendant on an ongoing basis, since the Plaintiff’s departure from the Defendant’s employ on August 29, 2020.
Plaintiff’s Time with Defendant
[4] The Plaintiff joined the Defendant, a real estate brokerage business, on January 16, 2016, and worked continuously and exclusively for the Defendant as a real estate agent until resigning on August 29, 2020.
[5] It appears to be common ground that throughout at least most of his time with the Defendant, the Plaintiff was very successful and in particular, focused on and flourished in the “pre-construction/new build projects” area.
[6] There is a debate about the precise nature of the Plaintiff’s status with the Defendant. The Plaintiff takes the position that he was effectively an employee of the Defendant. The Defendant and the “Team Leader Agreement” executed by the Plaintiff on December 12, 2015 just before commending work with the Defendant, characterizes the Plaintiff as an independent contractor.
[7] While the parties now attribute legal significance to their respective characterizations of the relationship, the precise characterization of the Plaintiff’s status was not an issue to which it appears there was much attention paid during his tenure.
[8] The Plaintiff’s success with the Defendant was such that he received various accolades and promotions. He deposes that he became Save Max’s top performing agent for pre‑construction/new build properties, was among other things asked to mentor the niece of Save Max’s founder and principal, Raman Dua, and was promoted to the position of Executive Vice-President, New Developments.
[9] As the Plaintiff progressed and by all accounts thrived with the Defendant, the amount and nature of his compensation changed. At the outset, the Plaintiff received a base salary together with a percentage of gross commissions on transactions that he closed. During 2016 through early 2018, the Plaintiff’s base salary rose from $60,000 at the outset to $120,000 by early 2018. By late 2017, the Plaintiff expressed a preference to be paid with a more generous commission structure (rather than primarily with base salary) and on January 18, 2018 the parties agreed that the Plaintiff’s compensation would become a 100% commission structure, earning graduated commission shares of gross commissions over and above specified thresholds.
Concerns with Calculation and Payment of Commissions
[10] The Plaintiff alleges that it eventually came to his attention that Save Max was miscalculating and underreporting commissions owed to him and that in the result, he was earning a lower commission share than that to which he was entitled at various points.
[11] Gross commissions, including on all transactions closed by the Plaintiff, would be paid initially into Save Max’s “Commission Trust Account” and then the Defendant would calculate and pay amounts owing to the Plaintiff, and to others, such as cooperating external agents, internal cooperating and/or referring agents, and to Save Max itself.
[12] The Plaintiff’s evidence is that he became increasingly concerned, particularly when he had changed to a compensation structure based entirely on a share of gross commissions, that Save Max was not appropriately calculating his commissions, was consistently underpaying him, and was failing to account properly for the incoming and disbursed commission funds. It is alleged that Save Max also overcharged a marketing fee (contractually deducted from gross commissions before payment to agents).
[13] The Plaintiff deposes that he met with Mr. Dua and with others at Save Max, in particular during 2020, when he became increasingly concerned about the calculation and underpayment of his compensation to try to obtain clarity and satisfaction.
[14] While the Plaintiff maintains he was reassured by Mr. Dua that he would receive the percentages of commission to which he maintained he was entitled, he says that Save Max refused to provide him with information about the commission structures of other agents with whom the Plaintiff worked on transactions from time to time, and failed or refused to provide details about commission allocations for other Save Max cooperating and/or referring agents who were paid a share of commissions on transactions in which they and the Plaintiff were involved.
[15] Among other concerns, the Plaintiff noted that in many pre-construction/new home sales, he was according to Save Max being paid, or to be paid, 12.5% of total gross commissions rather than the 25% to which he believed he was entitled.
[16] Matters appear to have come to a head in July of 2020. In early July the Plaintiff had a series of communications with Mr. Dua and others at Save Max which, despite alleged assurances from Mr. Dua that the Plaintiff would be paid at the 25% level, led the Plaintiff to believe that Save Max would not honour those assurances and that Save Max’s accounting for transactions and commissions was flawed or deliberately obtuse. Apart from the underpayment of commission in percentage terms, the Plaintiff felt that Save Max was improperly and unilaterally deducting “general expenses” from his commission share and not providing details about how such expenses were calculated.
[17] The lack of transparency from Save Max, the Plaintiff alleges, makes it difficult for him to calculate exactly what amount he is owed, or will be owed, for transactions that have closed or will be closing over the coming months. The Plaintiff summarizes this concern at paragraph 47 of his affidavit of February 12, 2021, where he says: “At the end of the day, Save Max has the benefit of being privy to the details of when and how much money is in fact received from my real estate transactions/closing, especially since such monies are paid to Save Max to be held in trust. I do not have this same benefit as Save Max.”
Plaintiff’s Resignation and Subsequent Events
[18] On August 28, 2020, the Plaintiff met with Mr. Dua and advised that he was resigning from Save Max. The next day, Save Max’s head of HR sent an email to the Plaintiff alleging that the Plaintiff was in breach of his contract with Save Max, alleging that the Plaintiff has already engaged in solicitation of Save Max employees and Builders, and warning against any further such solicitation and alleging that the Plaintiff owed Save Max a $25,000 penalty to defray training costs (purportedly based on a clause in the Plaintiff’s agreement with Save Max).
[19] Since that date the parties have continued and escalated their dispute. Following his resignation, the Plaintiff wrote emails to Save Max in which he requested or demanded details about the accounting for commissions on transactions that had closed and or would close, and in which the Plaintiff had been involved and would receive a share of commission.
[20] Save Max did not provide the information that the Plaintiff requested and in turn, requested that the Plaintiff provide it with a list of all transactions that he had completed while at Save Max.
Plaintiff’s Calculation of Amounts Owing
[21] In late October of 2020, the Plaintiff filed his claim.
[22] Despite being unable to access the accounting details that Save Max has (or should have) with respect to the transactions in which the Plaintiff was involved, the Plaintiff has compiled his own list of 281 transactions for which he claims: (1) He has been underpaid; or (2) He has yet to be paid.
[23] He calculates that the total gross commissions that builders have paid or will pay to Save Max in connection with transactions that the Plaintiff executed or closed while working for Save Max “is expected to be $2,379,973.83. He maintains that his commission share from those transactions should amount to $1,578,215.82 and alleges that Save Max’s own calculations confirm his entitlement to not less than $1,161,385.57 (which, to be clear, the Plaintiff says reflects a shortfall of $416,830.25).
[24] Of those totals, Plaintiff’s counsel advises that something in the range of $150,000 to $200,000 should already have been paid in respect of transactions (among the 281 total transactions listed by the Plaintiff) that have already closed and for which Save Max has already received gross commission payments.
[25] The balance of the amounts claimed by the Plaintiff are for transactions for which he was responsible as an agent, but for which closings and gross commission payments are pending.
[26] The Defendant, for its part, does not dispute the Plaintiff’s prima facie entitlement to shares of gross commissions that have been paid or will be paid for transactions on which he worked.
Defendant’s Position on Amounts Alleged Owing
[27] It does, however, take issue with the Plaintiff’s calculation of the amounts owing to him, takes issue with the Plaintiff’s claim to a 25% commission share in many of the transactions involved, and maintains that paying the Plaintiff at that level would leave insufficient funds to pay other agents who participated in those transactions and are entitled to a share of commissions.
[28] Moreover, it alleges that since the Plaintiff’s abrupt resignation, it has discovered that the Plaintiff was secretly for some months prior to his resignation, setting up a business to compete with Save Max. It learned that the Plaintiff registered a domain name in May of 2020 (Hashtag Homes), federally incorporated a corporation, Hashtag Homes Real Estate Inc. on July 23, 2020, and the Defendant alleges, began soliciting builders and Save Max agents for his new competing business all without advising Save Max. The Defendant claims that this conduct constituted bad faith, a breach of his ethical duties as a real estate professional, and a breach of fiduciary duties the Plaintiff owed to Save Max.
[29] The Defendant alleges that as such, the Plaintiff does not come to Court with “clean hands” and is therefore disentitled to equitable relief.
[30] In the alternative, the Defendant maintains that the Plaintiff does not meet the test for an Order under Rule 45.02, or for injunctive relief and that the Plaintiff’s claim to set aside funds amounts to “execution before judgment”.
Need for Particulars
[31] With respect to the request to strike out the Statement of Defence in whole or in part and/or to provide particulars, counsel for the Defendant candidly agrees that the Defendant’s pleading is short on particulars but advises that the scope and pace of the litigation to this point has been fulsome and frenetic, such that the Defendant has had insufficient time to complete its preliminary investigations from which it is expected the necessary particulars will emerge.
[32] While I have passing concern about the proposition that the Defendant has pleaded various legal and factual conclusions without yet (based on counsel’s candid acknowledgement) having in its possession the details of the facts on which those conclusions are necessarily based, I am nonetheless prepared to take Defendant’s counsel at his word and to give the Defendant a brief period of time within which to provide the required particulars. Mr. Griffiths estimated that he can provide particulars within 45-60 days. In my view that is unduly generous and there should be no reason why the Defendant having made various allegations in its pleadings, should not be able to provide the particulars of those allegations within 30 days.
Rule 45.02 Relief and Funds Held by Defendant
[33] With respect to the claim for relief under Rule 45.02 and/or injunctive relief, as set out above, the Defendant does not dispute the Plaintiff’s prima facie right to receive a share of commissions for the transactions he executed while with Save Max.
[34] It disputes the amounts claimed and based on the allegations in its counterclaim described in a general way above, maintains that any amounts payable to the Plaintiff should be reduced or overtaken by the Defendant’s claims.
[35] It is important to note that the Defendant currently holds an amount which it has continued to set aside in relation to the Plaintiff’s claim for commissions.
[36] This setting aside of funds clearly relates to an endorsement made by Justice Myers at a case conference in this matter on February 2, 2020. I understand that that case conference related primarily to scheduling and that the extensive record before me now was not yet in place. Nonetheless, in the circumstances before him, His Honour wrote: “…it is incumbent upon the defendant to advise the plaintiff if it proposes to make any transfer or use of the funds that he claims and to do so with sufficient notice so that he can seek an order on an urgent basis. The defendant can expect to be held accountable by the court in the event that funds supposedly being held are not available if ordered to be paid at a later date.”
[37] Pursuant to Justice Myers’ observation, the Defendant has accumulated just over $58,000 which it maintains is the proper amount referable to commission share payable to the Plaintiff (subject to the Defendant’s counterclaim) relative to those among the 281 transactions from the Plaintiff’s list that have closed and for which gross commission payments have been received. The Plaintiff disputes the amount that should be held to this point, acknowledges that in the absence of transparency of the Defendant’s accounting, the amount is somewhat uncertain, but maintains that it should be something more like $150-200,000.
No Injunction
[38] I am unable on this record, to find that the Plaintiff has satisfied the elements required for me to order a mandatory injunction, let alone a Mareva injunction. It is not at all clear to me, among other things, that if I fail to make that Order there will be irreparable harm. There is no evidence before me that the Defendant would be unable to satisfy a monetary judgment at the conclusion of the case, if indeed that is the result. I am also unable to assess the cleanliness or otherwise of the Plaintiff’s hand, the evidentiary record is still developing, the Defendant’s allegations are serious, and it is not yet clear to me whether or not those allegations are meritorious.
Discussion re Relief Under Rule 45.02
[39] On the other hand, I think that this is a proper case for an Order under Rule 45.02, and that the Defendant should provide an accounting of the gross commission funds in issue.
[40] On the latter point, Mr. Griffiths confirmed that the Defendant has the necessary information and the ability to provide an accounting in respect of the 281 transactions in issue, including the amount of gross commissions received or expected in each case, the expenses the Defendant claims a contractual right to deduct, the percentage of gross commissions the Defendant acknowledges is owed to the Plaintiff, and the share of commissions the Defendant says is owed to another agent or agents in respect of any of these transactions.
[41] I agree with Plaintiff’s counsel that to date there has been insufficient transparency about these details and that having the Defendant provide this information, which Mr. Griffiths confirms it can readily do, will be helpful to both parties and to the Court going forward.
[42] I note that resort to Rule 45.02 should be undertaken sparingly and only in circumstances in which, as the Ontario Court of Appeal specified in Sadie Moranis Realty Corporation v. 1667038 Ontario Inc., 2012 ONCA 475: (a) the Plaintiff claims a right to a specific fund; (b) there is a serious issue to be tried regarding the Plaintiff’s claim to that fund; and (c) the balance of convenience favours granting the relief sought by the Plaintiff.
[43] With respect to the “specific fund” requirement, the Court noted that past jurisprudence has sometimes described the specific fund as “earmarked to the litigation”.
[44] The Court in Sadie Moranis cautioned against a notion that it said had crept into the jurisprudence in the decade or so prior to that decision, that the claimed right had to be “proprietary”. The Court confirmed that the legal right in question need not be a proprietary right.
[45] On the other hand, the Court also confirmed that the test will not be met when the Plaintiff’s claim is simply a claim for damages, because a claim for damages is not a claim to a legal right to a fund. It quoted with approval Justice Wilton-Siegel’s observation in Assante Financial Management Ltd. v. Dixon (2004) O.J. No. 2237, 8 CPC (6th) 57 that: “There is a subtle but important difference between an amount that may be owing to the plaintiff and a “right” of the plaintiff to a fund”.
[46] In the case before me, I do not think that there is an impediment to the Rule 45.02 Order sought. That is, as set out above, Save Max expressly concedes that the Plaintiff is entitled to a share of gross commissions that have been paid and will be paid, in respect of the 281 transactions in which it agrees, the Plaintiff was directly involved in executing or closing the transaction.
[47] Save Max’s dispute is as to the correct percentage to which the Plaintiff is entitled in those transactions, and that the amounts owing may be set off or erased by what the Plaintiff may end up owing to the Defendant as a result of the Defendant’s counterclaim.
[48] As such, subject to those considerations, it is a matter of agreement that the Plaintiff has a putative legal right to his share of commissions.
[49] On the topic of what that share should be, Mr. Griffiths advises that the Defendant disagrees that the Plaintiff is entitled to 25% of gross commissions in the 281 transactions and goes further to say, that the Plaintiff may not be entitled to the 12.5% that the Plaintiff has suggested the Defendant (inaccurately according to the Plaintiff) has agreed represents the Plaintiff’s share.
[50] Mr. Griffiths points out that Save Max maintains that in many of the transactions in issue, there are other agents who are entitled to a share of gross commissions, such that paying the Plaintiff 12.5% of those commissions, let alone 25%, will then require Save Max to pay those other agents from its own funds rather than from gross commissions per se. He says that if I am inclined to make a Rule 45.02 Order, the percentage should be less than 12.5% and in the order of “7-8%”.
[51] Mr. Griffiths also argues that because the fund in issue is not only comprised of a share of commissions paid to date, but also a share of commissions going forward, the fund has in large part not yet come into existence and as such, it is speculative or premature to order funds to be held which are not yet in the possession of the Defendant.
[52] A somewhat similar (though not identical) circumstance was before the Court in Oriental Garden Chinese & Vietnamese Restaurant Inc. et al v. Nguyen (2018 )ONSC 7538. In that case the Plaintiff claimed an interest in a property, but, given that a fund comprised of proceeds of sale of the property did not exist when the action was commenced, the Defendant argued that the Plaintiff could not assert a right to the fund.
[53] Justice Nieckarz held that the Plaintiffs had asserted a legal right to the specific fund and that the proceeds of sale flowed from the property in which the Plaintiffs claimed a specific interest.
[54] Appreciating that the circumstances exhibit important differences, in my view it is nonetheless apt to conceive of a flow of funds relative to the interest claimed as appropriately forming a part of the fund “earmarked for the litigation” even if some of the funds have not yet arrived. It is not difficult here to identify the Plaintiff’s interest in and right to current and future commissions even if some or even most of the commissions have not yet been paid to the Defendant.
[55] As I read the cases, the concern is to avoid unfairly tying up the Defendant’s assets or interfering with the Defendant’s ability to carry on business such that the Plaintiff must show a specific legal right to the funds in question (as opposed to simply a general claim for damages).
[56] In addition, of course, given that this is an extraordinary remedy, the Plaintiff must show that there is a serious issue to be tried regarding the Plaintiff’s claim to that fund, and that the balance of convenience favours granting the relief sought by the Plaintiff (Sadie Moranis, paragraph 19).
[57] Again, here it is agreed that the Plaintiff has a right to the fund (subject to disagreements about amount and the potential results of the counterclaim), and agreed that in the ordinary course those funds would be paid out to the Plaintiff as commission share to which he is entitled.
[58] In my view this meets the second and third requirements. Not only is there a serious issue regarding the Plaintiff’s claim to the fund, but in fact a concession (subject to the qualifications I have mentioned), that he is entitled to it. In terms of balance of convenience, given that in the ordinary course the Defendant would set aside and pay the commission share to the Plaintiff, it cannot be said to be inconvenient to set the funds aside (as would happen in the ordinary course).
[59] As such, in my view the Plaintiff meets the test for a Rule 45.02 Order.
Amount to be Set Aside
[60] That leaves the question of the appropriate amount to be set aside and the appropriate steps to take relative to the fund in issue.
[61] In terms of quantum, as noted the Defendant has already set aside approximately $58,000 as a result of Justice Myers’ comments at the case conference before him.
[62] In addition, I order that the Defendant should set aside on an ongoing basis, a commission share from all 281 transactions on the Plaintiff’s list, as gross commissions are received in relation to those transactions, calculated on the basis of 12.5% of such gross commissions. While the Defendant has argued for a lower percentage, Mr. Griffiths also said that the amount to be set aside should be “no more than 12.5%”, and the documentation in the record shows that in most instances the debate between the parties reflects the Plaintiff maintaining an entitlement to 25% of gross commissions and the Defendant maintaining that the correct share is 12.5%.
[63] I recognize that 12.5% is therefore less than the amount to which the Plaintiff claims entitlement. It is, however, an amount that the Defendant says is either the maximum that should be set aside or higher than what should be set aside. It also appears to be an amount that, given my observations above about what would happen in the ordinary course, should not unduly hamstring the Defendant’s business operations or tie up any assets beyond funds that would have been paid to the Plaintiff in the ordinary course.
[64] There will perhaps be remaining disputes, even with this direction, as to what funds should properly have been set aside relative to transactions that have already closed and in respect of which the Defendant has already received gross commission payments. In that regard, I note the discrepancy between the amount already set aside by the Defendant (just over $58,000) and the amount that the Plaintiff maintains should be set aside (as noted above, between $150-200,000).
Need for Accounting
[65] This discrepancy is in part why I am ordering the accounting referred to above. By requiring the Defendant to provide the information that it has acknowledged it can readily provide for each of the 281 transactions, being the gross commission amount, expenses that are contractually deducted from gross commissions, the Plaintiff’s share of gross commissions calculated at 12.5% (or in cases where funds have been set aside based on a percentage less than 12.5%, to get to the $58,000 currently held by the Defendant the percentage used to calculate the Plaintiff’s commission share in those cases), and the share the Defendant says is owing to other agents, I expect that the parties and the Court will be assisted going forward in understanding the amounts actually in issue.
Payment into Court
[66] While the Defendant has held the funds itself to this point pursuant to Justice Myers’ comments, the Plaintiff is concerned that since funds held by the Defendant are, on the Defendant’s own evidence, potentially payable to agents other than the Plaintiff. Since the Defendant’s accounting for such funds has been unclear to this point, and given the acknowledged co-mingling of funds earmarked for the Plaintiff with funds allegedly payable to others, I think it is appropriate to have the funds instead paid into Court.
Summary of Findings
[67] By way of summary then, the Defendant is to provide to the Plaintiff an accounting in respect of the 281 transactions on the Plaintiff’s list, up to date, including for each transaction the items specified in paragraph 40 above, by not later than 30 days from today’s date.
[68] The Defendant is to pay into Court the amount it has been holding (just in excess of $58,000) based on Justice Myers’ comments, and to be clear that $58,000 should be accounted for in the Defendant’s accounting to be provided within 30 days.
[69] On an ongoing basis, the Defendant is to pay into Court amounts for the Plaintiff’s share of incoming gross commissions (i.e. for the 281 transactions on the Plaintiff’s list) calculated on the basis of a 12.5% share (as set out above). Appreciating that the Defendant will not wish to pay into Court every time a transaction closes, the Defendant may accumulate funds and pay them into Court every 30 days until such time as commissions have been paid for all 281 transactions, but with the proviso that the Defendant must update its accounting to the Plaintiff every time gross commissions are received (relative to the 281 transactions), and must set aside those funds (i.e. the Plaintiff’s commission share based on 12.5%), preserve those funds, not use them for any other purpose and pay them into Court every 30 days.
[70] If the parties agree and if it is easier for the funds to be held by either party’s counsel in an interest-bearing trust account rather than undertaking payments into Court every 30 days, then those amounts may instead be paid into such counsel’s trust account as may be agreed, still on an “every 30 days” basis.
[71] Finally, as set out above, Mr. Griffiths is also to provide to Mr. Soni, within 30 days of today’s date, a response to the outstanding Demand for Particulars. As I observed to counsel during argument, the Demand for Particulars as written, is quite repetitive and so the Defendant should only be obliged to respond once with respect to any given particular sought.
[72] To be clear, my Order is intended to address the lack of clarity about the relevant accounting to require the Defendant to set aside and pay into Court (or as otherwise agreed), an amount to which it is agreed the Plaintiff has an entitlement (albeit the Defendant says the amount is the maximum entitlement and the Plaintiff says it is below the minimum entitlement), so that at the conclusion of the case the money can be paid to the Plaintiff in partial or complete satisfaction of the amounts he claims, or can be returned to the Defendant in part if the amount recovered by the Plaintiff is less than what he claims, or even entirely, if the Defendant’s counterclaim is successful. It is also intended to ensure the delivery of particulars which Defendant’s counsel fairly concedes are reasonably required.
[73] While my Order will require the Defendant to undertake various steps as set out above, it is my view that success was in fact divided here. While I found that the basis for a Rule 45.02 Order was made out, I was not persuaded that the Plaintiff was entitled to other injunctive relief. I was also not persuaded to order funds set aside at the rate of 25% of gross commissions, as the Plaintiff urged. As such, I make no order as to costs.
W.D Black J.
Date: August 5, 2021