COURT FILE NO.: CV-18-595214

DATE: 20210119

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Inder Goyal

AND:

Noreen Ashgar, Mirza Chaudhary, Jack Frymer, 2425779 Ontario Inc. and 2623559 Ontario Inc.

BEFORE: Mr. Justice Chalmers

COUNSEL: G. Sidlofsky and D. Wagner for the Plaintiff

J. Rosenstein for the Defendants, Noreen Ashgar, Mizra Chaudhary and 2425779 Ontario Inc.

A. Dryer for the Defendant, 2623559 Ontario Inc.

S. Secord for the Defendant, Jack Frymer

HEARD: December 3, 2020

ENDORSEMENT

OVERVIEW

[1] Inder Goyal (“Goyal”) and Noreen Ashgar (“Ashgar”) are 50 percent owners of 2425779 Ontario Inc. (“242”). Goyal is the president of 242 and Ashgar is the corporate secretary. 242 was the registered owner of a property located in Thorndale, Ontario (the “Property”). Goyal alleges that Ashgar and her husband, Mirza Chaudhary (“Chaudhary”), sold the Property to 2623559 Ontario Inc. (“262”) without legal authority. Wagdy Bishay (“Bishay”) is the principal of 262.

[2] Goyal brings this motion seeking the following relief:

a) Directions with respect to the management of 242, including an order removing Ashgar as an officer and director of 242;

b) An injunction restraining Ashgar and Chaudhary from holding themselves out as officers and directors of 242;

c) An order granting exclusive management of 242 to Goyal;

d) An injunction restraining Ashgar and Chaudhary from interfering with Goyal’s management of 242;

e) Directions with respect to the funds paid by 262 for the purchase of the Property and which are currently held in court pursuant to the order of Master Sugunasiri dated April 5, 2018;

f) A “top-up” of previous cost awards;

g) Leave to amend the Statement of Claim to add Bishay as a Defendant; and

h) An order requiring 262 to post security for costs of its counterclaim.

[3] Ashgar and Chaudhary bring a motion for the following relief:

a) An order rescinding the sale of the Property to 262 and an order vesting title in the Property to 242; and

b) An order pursuant to s. 207 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA), for a winding up of 242.

[4] 262 also brings a motion seeking the following relief:

a) An order rescinding the sale of the Property to 262 and an order disbursing the funds currently held in court to Goyal to satisfy existing cost awards, with the balance of the funds paid to 262.

[5] For the reasons set out below, I make the following orders:

a) I deny the motion brought by Goyal to remove Ashgar as an officer and director of 242 and to grant exclusive management of 242 to Goyal. I order that Chaudhary is enjoined from holding himself out as a signing officer or director of 242. I also order that Ashgar, Chaudhary and Goyal are enjoined from unilaterally selling, disposing of or in any way encumbering the Property pending the trial of this action;

b) I deny the motion brought by Ashgar and Chaudhary for an order pursuant to s. 207 of the OBCA winding up 242;

c) I grant the motions brought by Ashgar/Chaudhary and 262 for rescission of the sale of the Property to 262. The funds paid by 262 to purchase the Property, which are currently held in court pursuant to the order of Master Sugunasiri, are to be paid out of court and disbursed as follows: the sum of $41,698.07 to satisfy the previous costs awards plus interest on the previous cost awards, shall be paid to Goyal with the balance paid to 262. The order of Master Sugunasiri is set aside;

d) I deny Goyal’s motion to top up the prior cost awards. The issue of costs, including whether to top up previous cost awards, is reserved to the trial judge;

e) I grant Goyal’s motion to amend the Statement of Claim to add Bishay as a Defendant. This order is without prejudice to Bishay’s right to plead in his Statement of Defence that the action is statute barred; and

f) I deny Goyal’s motion for an order that 262 post security for costs of its counterclaim.

BACKGROUND FACTS

[6] The Property is a vacant land, appropriately zoned for use as a gas station. Chaudhary has experience developing land into gas stations and was interested in purchasing the Property. However, the Property was already subject to an Agreement of Purchase and Sale. Chaudhary arranged to have the Agreement of Purchase and Sale assigned to a newly created company, 242. The shares of 242 were held by Chaudhary’s nominee, Balwant Bhangu (“Bhangu”).

[7] The sale closed in July 2014. The purchase price was $535,000. This consisted of the $436,700 owed on the original Agreement of Purchase and Sale and $98,300 for the assignment. Of the total purchase price, $347,000 was financed by way of a mortgage on the Property.

[8] Goyal was Chaudhary’s neighbour. He learned that Chaudhary had an investment opportunity and was interested in participating. Chaudhary asked his lawyer, Jack Frymer (“Frymer”), to prepare a summary of the transaction, which was provided to Goyal. According to Goyal, he agreed to become involved in the project based on the following representations made by Chaudhary:

• The development of the Property would take four months;

• There was a buyer willing to pay $1,600,000 for the developed Property;

• Chaudhary would arrange for an Esso gas station, Esso On the Run convenience store and a Tim Horton’s franchise on the Property; and

• Goyal could double his money at the end of four months.

[9] Chaudhary denies making any representations to Goyal. He agrees, however, that the intention was to develop a gas station at the Property. Chaudhary states that, because Goyal was not experienced with respect to gas station development, he agreed to be responsible for negotiating a site plan agreement and arranging for the tenants.

[10] Goyal’s investment in 242 is governed by two agreements, both dated March 15, 2015. Pursuant to the first agreement, the Share Purchase Agreement, Goyal purchased a 50 percent interest in 242 for $350,000. The only asset of 242 was the Property. The other 50 percent of the shares in 242 was transferred from Bhangu to Chaudhary’s spouse, Ashgar, for the nominal amount of $50. Goyal agreed to pay an additional $150,000 to Chaudhary once the development work for the project was completed.

[11] Goyal wanted clarity over what the development work would constitute. The parties entered into a second agreement on March 15, 2015, the Investment Agreement. This agreement provides that Chaudhary would do all of the development work, such as obtaining a registerable site plan and the satisfactory completion of lease documentation between 242 and Esso, Esso On the Run and Tim Horton’s. Chaudhary was responsible for all costs associated with the development work, including paying all consultants, professionals and fees.

[12] Chaudhary concedes that the development work did not proceed as quickly as he had expected. By February 2018, he had obtained a registerable site plan agreement, which had been executed by the municipality. In addition, Esso had agreed to supply fuel to the site and to open an Esso On the Run convenience store, and Tim Horton’s agreed to a lease and franchise on the Property. However, formal agreements had not been executed between 242 and Esso or Tim Horton’s.

[13] When the municipality approved the site plan agreement, Chaudhary signed on behalf of 242. Chaudhary was not an officer of 242 and he did not have signing authority. Once the site plan agreement was signed, Chaudhary advised Goyal that he had successfully completed this aspect of the development work. Goyal took the position that Chaudhary did not have the authority to sign the site plan agreement on behalf of 242. But although Goyal argued that Chaudhary did not have this authorization, he did not object to the terms of the site plan agreement.

[14] It was necessary to register the site plan agreement on title. The document to register the site plan agreement was prepared by Chaudhary’s lawyer. The draft agreement was signed by Ashgar, who is identified as the president of 242 on the document. This was an error. Ashgar is a signing officer but is the secretary, not the president. The draft document to register the site plan agreement on title was provided to Goyal, who objected to Ashgar being identified as the president of 242. The registration document was amended to identify Goyal as the president. Goyal subsequently executed the document and the site plan agreement was registered on title.

[15] With the site plan agreement and agreements with Esso and Tim Horton’s in place, Chaudhary took the position that he had completed the development work and Goyal was required to pay the development fee of $150,000. Goyal refused to pay the development fee. He said that the development work had not been completed because formal lease agreements had not been entered into with Esso and Tim Horton’s. Chaudhary argued that the Investment Agreement required that there be “satisfactory completion” of the lease documentation. It was his position that formal agreements were not necessary to satisfy the requirement of a satisfactory completion of the negotiations.

[16] In February 2018, there was a breakdown in the relationship between Ashgar/Chaudhary and Goyal. Although Chaudhary asserted that he had completed the development work, Goyal refused to pay the $150,000. There were discussions about buy-outs, but they could not come to an agreement on the purchase price. Nor could the parties agree on the next steps with respect to the development of the Property.

[17] Chaudhary decided to sell the Property. He asked Frymer if he could sell the Property without Goyal’s approval, and was advised that he could do so as long as it was sold for fair market value and the proceeds were held in trust for the benefit of 242 until the shareholders could determine how to distribute the funds. Goyal argues that Frymer’s advice was incorrect. Section 184(3) of the OBCA provides that shareholder approval is necessary before the corporation’s main asset may be sold. The issue of whether Frymer was negligent will be determined at the trial of the action.

[18] Chaudhary relied on the advice he received from Frymer and took steps to sell the Property. On February 16, 2018, Chaudhary sent an e-mail to Goyal to advise him of his intention to cause 242 to sell the Property. He stated that if Goyal does not pay the $150,000 development fee, 50 percent of the architecture fees of approximately $30,000 and 50 percent of the letter of credit of $50,000 by February 21, 2019, he would explore other options, including the sale of the Property. Goyal did not respond to Chaudhary’s e-mail.

[19] Chaudhary had acted as Bishay’s real estate agent in the past and thought he may be interested in purchasing the Property. Chaudhary offered to sell the Property to Bishay for $1,525,000. After negotiations, they agreed on a price of $1,510,000. Bishay incorporated 262 to acquire title to the Property.

[20] Chaudhary caused 242 to enter into an Agreement of Purchase and Sale to sell the Property to 262. The agreement is dated February 24, 2018. On February 26, 2018, Chaudhary advised Goyal that 242 had entered into an agreement to sell the Property to 262 for $1,510,000. On February 28, 2018, Chaudhary sent an e-mail to Goyal explaining that the offer had a seller’s review condition that needed to be waived that day. Chaudhary offered Goyal an opportunity to purchase the Property, and Goyal responded, “Do not do it. Do not sell it. You have the condition to back out.” On February 28, 2018, Goyal’s real estate lawyer wrote to 262 to advise that Goyal did not consent to 242 entering into the Agreement of Purchase and Sale.

[21] The sale to 262 closed on March 5, 2018. 262 paid $507,000. The balance of the purchase price was funded by a vendor takeback mortgage registered on title. Goyal took the position that 242 did not have authority to sell the Property and his real estate lawyer registered a caution on title to the Property on March 12, 2018. On March 13, 2018, Goyal’s real estate lawyer wrote to Frymer and took the position that the sale was illegal and likely fraudulent.

[22] Goyal commenced this action on April 4, 2018. The relief sought includes rescission of the sale of the Property to 262. Goyal brought a motion for leave to register a Certificate of Pending Litigation (“CPL”) on title. The motion for leave to register the CPL was heard by Master Sugunasiri on an ex-parte basis. Master Sugunasiri granted the order for leave to register the CPL and ordered that the proceeds of the sale of $507,000 be paid into court.

[23] After delivering its defence and counterclaim, 262 took steps to have the CPL removed, including bringing a motion to discharge the CPL. Master Abrams dismissed the motion. She ordered 262 to pay costs of the motion in the amount of $30,000, of which $25,000 was to be paid by May 31, 2019. 262 appealed the decision, and Justice Dow dismissed the appeal. He ordered 262 to pay $11,698.07 for the costs of the appeal. 262 then brought a motion for leave to appeal, which was dismissed by the Divisional Court with costs of $5,000. The total costs awarded to Goyal were $46,698.07, of which $41,198.07 is currently owing.

[24] After the appeals were exhausted, 262 decided it did not want to pursue its claim for the Property. 262 brought a motion to amend its defence to abandon its opposition to the rescission of the sale. Chaudhary and Ashgar also brought a motion to amend their defence. Goyal opposed the amendments. These motions were heard by Master Brott on January 27, 2020, who granted the relief sought. In her endorsement, she noted that 262 was seeking to pay the outstanding cost awards from the monies that continue to be held in court pursuant to the order of Master Sugunasiri. Master Brott ordered that the costs of the motion to amend were payable by Goyal to Ashgar and Chaudhary in the fixed amount of $1,246.60.

THE ISSUES

[25] The following issues will be addressed in this endorsement:

a) Is Goyal entitled to an order removing Ashgar as an officer and director of 242 and granting exclusive management of 242 to Goyal?

b) Are Chaudhary and Ashgar entitled to an order winding up 242 and selling the Property?

c) Is 262 entitled to an order for rescission and the payment of the amount held in court, less the costs owing to Goyal?

d) Is Goyal entitled to a top-up of the costs previously awarded to him because the Defendants amended their Defences to abandon their opposition to rescission?

e) Is Goyal entitled to an order amending the Statement of Claim to add Bishay as a defendant?

f) Is Goyal entitled to an order for security for costs against 262 with respect to the counterclaim?

ANALYSIS

Is Goyal entitled to an order removing Ashgar as an officer and director of 242 and granting exclusive management of 242 to Goyal?

[26] Goyal seeks an interim order removing Ashgar as an officer and director of 242 and granting Goyal exclusive management of 242. Goyal states that there is substantial evidence that Chaudhary and Ashgar acted dishonestly and in clear breach of their legal obligations in selling the Property to 262. To ensure that the same conduct is not repeated, he requests that safeguards be put in place with respect to the continued management of 242.

[27] Goyal seeks this relief pursuant to s. 248 of the OBCA. Section 248 provides that a complainant may apply to court for an order if any act of the corporation or a director is oppressive, unfairly prejudicial or unfairly disregards the interests of a shareholder. The oppression remedy is an equitable remedy that provides the court with broad discretion to enforce fairness: see BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 58. To succeed in an oppression remedy claim, there must be more than mere prejudice or an adverse effect on the complainant. Oppressive conduct is conduct that is “burdensome, harsh and wrongful”: Investment Administration Solutions Inc. v. Pro-Financial Asset Management Inc., 2018 ONSC 1220, at para. 90.

[28] Goyal argues that Chaudhary and Ashgar tried to defraud him in selling the Property to 262 and in holding themselves out as having authority to bind 242. Based on the evidence before me, I am unable to conclude that the conduct of Chaudhary and Ashgar was oppressive.

[29] I am of the view that Chaudhary did not act dishonestly in selling the Property to 262. He obtained legal advice that he could sell the Property as long as it was sold for fair market value and the proceeds of the sale were held in trust pending agreement by the shareholders with respect to distribution. There is no evidence that Chaudhary intended to keep the sale a secret or that Goyal would not receive his share of the proceeds. Within two days of entering into the Agreement of Purchase and Sale, Chaudhary advised Goyal of the sale, and Goyal was provided with an opportunity to purchase the Property, which he declined. There is also no evidence that the sale price of $1,510,000 was not fair market value. Goyal did not provide any evidence with respect to the value of the Property at the time of the sale.

[30] Goyal relies on two incidents in which he says Chaudhary and Ashgar improperly held themselves out as having authority to bind 242: when Chaudhary signed the site plan agreement on behalf of 242 and when Ashgar signed the draft registration document. I am unable to conclude in either case that the conduct was oppressive.

[31] Chaudhary negotiated the site plan agreement with the municipality and signed it on behalf of 242. The fact he did so does not result in any oppression to Goyal. Goyal and Chaudhary agree that the site plan agreement was to be negotiated by Chaudhary. It is also agreed that the site plan agreement increased the value of the Property. Once it was signed, Chaudhary immediately advised Goyal that he was successful in this aspect of the development work.

[32] Goyal argues that he objected when he learned Chaudhary had executed the site plan agreement on behalf of 242 and that, after he made this objection, Chaudhary admitted to trying to defraud him. Goyal refers to an e-mail from Chaudhary dated October 26, 2017, in which he alleges Chaudhary admits he tried to cheat Goyal by executing the site plan agreement:

One thing, I will commend you on that you are one of the smartest persons, I met in my life. I tried to cheat you by signing different documents, but you caught me right in time and confronted me to stop cheating.

[33] Chaudhary states that he was being sarcastic when he wrote this e-mail. It seems that Goyal did not take the e-mail seriously when it was first received on October 27, 2017, since he responded as follows:

LOL Mizra, you yourself know it be better 4 both of us going forward.

This will help us work better together and with more understanding. My purpose is to try and remove any potential irritants going forward. Want your support from HEART, not with a bad feeling.

[34] This does not suggest that Goyal understood Chaudhary’s e-mail to be a confession. I note that Goyal did not include the “LOL” e-mail in the material before Master Sugunasiri on the ex- parte motion for leave to register the CPL.

[35] I find that Chaudhary’s conduct was not consistent with “cheating” Goyal. The document signed by Chaudhary was the site plan agreement, which Goyal agrees was Chaudhary’s responsibility to negotiate. Immediately after signing the site plan agreement, Chaudhary advised Goyal. Additionally, the site plan agreement has enhanced the value of the Property for the benefit of Ashgar/Chaudhary and Goyal. Goyal has not taken the position that the terms of the site plan agreement were oppressive or contrary to his interest. Indeed, he registered the site plan agreement on title.

[36] I am also unable to conclude that Ashgar’s conduct was oppressive. It was necessary to register the site plan agreement on title. The registration document was prepared by the real estate lawyer and Ashgar was incorrectly identified on the draft document as the president of 242. This document was not registered on title. When the draft was provided to Goyal, he objected to Ashgar being identified as the president of 242 and the lawyer changed the registration document to correctly identify Goyal as president. Goyal signed the registration document and the site plan agreement was registered on title.

[37] I find that the fact that Ashgar was mistakenly identified as president in the draft document is of no consequence. As secretary of 242, she had signing authority to bind the corporation. The purpose of the document was to register the site plan on title. Goyal agreed that the site plan was to be registered on title and he signed the amended document to do so. In any event, the document signed by Ashgar was a draft and was corrected before it was registered.

[38] It is my view that there is no basis for a finding that Ashgar’s conduct was oppressive to Goyal. I am not prepared to make an interim order removing Ashgar as an officer and director of 242. I am also not prepared to grant exclusive management of 242 to Goyal.

[39] Goyal has expressed a concern that Ashgar and Chaudhary may carry out illegal or dishonest acts pending trial that will negatively impact Goyal’s interest in 242 and the Property. I do not share those concerns. However, I order that Chaudhary is enjoined from holding himself out as a signing officer or director of 242. I also order that Ashgar, Chaudhary and Goyal are enjoined from unilaterally selling, disposing of or in any way encumbering the Property pending the trial of this action. This order does not prevent the parties from coming to an agreement with respect to the sale or disposition of the Property.

Are Chaudhary and Ashgar entitled to an order winding up 242 and selling the Property?

[40] Ashgar and Chaudhary seek an order pursuant to s. 207 of the OBCA for an order winding up 242. Section 207 provides as follows:

(1) A corporation may be wound up by order of the court,

(a) Where the court is satisfied that in respect to the corporations or any of its affiliates,

(i) Any act or omission of the corporation or any of its affiliates effects a result,

(ii) The business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or

(iii) The powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner,

That is oppressive of unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, or

(b) Where the court is satisfied that,

(iv) It is just and equitable for some reason, other than the bankruptcy or insolvency of the corporation, that it should be wound up; or

(2) Upon an application under this section, the court may make such order under this section or section 248 as it thinks fit.

[41] Section 207 of the OBCA provides the court with wide discretion to order a winding up if it is just and equitable in the circumstances. A winding up may be appropriate if the parties are incapable of continuing to run a business, as in the case of two equal shareholders who are unable to reach decisions collectively on significant matters: see Animal House Investments Inc. v. Lisgar Development Ltd., 2007 CanLII 82794 (ON SC), [2007] O.J. No. 3879, at para. 59.

[42] Ashgar and Chaudhary argue that an order winding up 242 and effecting the sale of the Property should be made. Goyal takes the position that a winding up order cannot be made on an interim basis. In the action, Goyal is arguing that, as a result of her conduct, Ashgar forfeited her shares in 242. If there is a finding that her shares are forfeited, Goyal would be the only shareholder of 242 and an interim winding up order may be inconsistent with the relief granted following the trial.

[43] Ashgar and Chaudhary seek summary judgment with respect to the winding up order. They argue that Goyal’s position that Ashgar forfeited her shares has no “air of reality”. It is Ashgar and Chaudhary’s position that whether Ashgar forfeited her shares can be determined on the motion for summary judgment and is not a genuine issue requiring a trial. Goyal submits that whether 242 should be wound up and, if so, on what terms are genuine issues requiring a trial.

[44] In the Statement of Claim, Goyal raises three legal bases for the court to deprive Ashgar of her shares in 242:

a) Contract – because Chaudhary did not complete the development work, Ashgar is not entitled to retain her shares;

b) Mistake – Goyal would not have agreed to advance funds to 242 if he knew Chaudhary would not complete the development work;

c) Fraudulent misrepresentations – Chaudhary withheld information from Goyal, which impacted his decision to invest in 242.

[45] Ashgar and Chaudhary argue that there is nothing in the agreement that provides that Ashgar’s entitlement to her shares is contingent on the performance of the development work. In addition, there is no evidence to support Goyal’s argument that Ashgar’s shares are forfeited because of pre-contractual misrepresentations made by Chaudhary. They state that the Investment Agreement includes an entire agreement clause, which provides that there are no representations or warranties other than what is set out in the agreement.

[46] On the evidence before me, I have grave doubts as to whether Goyal will be successful at trial in establishing that Ashgar’s shares are forfeited. I am not, however, prepared to grant summary judgment on this issue. This determination will not dispose of the entire action and will result in partial summary judgment. There is a risk that a trial judge with a complete record may make different findings at trial. There is also a risk that an interim winding up order may be inconsistent with other relief that may be granted by the trial judge.

[47] I am also of the view that Ashgar and Chaudhary have not established that a winding up order is the most appropriate remedy in the circumstances. A winding up order is a draconian remedy of last resort: see Gold v. Rose, 2001 CarswellOnt 5 (S.C.), at para. 18. It is a final order that cannot be undone. The court must consider whether less restrictive alternatives are available: see P.M.M. v. Y.W.M., 2019 ONSC 866, 22 R.F.L. (8th) 349, at paras. 41 and 50.

[48] Ashgar and Chaudhary argue that a winding up is necessary because the parties are unable to agree on the sale or development of the Property. But a mere inability to work together is not sufficient to order a winding up. The breakdown in the relationship must support a reasonable inference that the parties did not intend their business association to continue: see P.M.M., at para. 49. Here, there is no evidence as to the reasonable expectations of Ashgar and Chaudhary or how the conduct complained of breaches those expectations.

[49] I am of the view that the most just and equitable order is to maintain the status quo pending the trial of the action. I do not order 242 to be wound up, and 242 will remain the owner of the Property. If the parties are unable to come to any agreement with respect to the sale of the Property, it will be available to satisfy any order that may be made by the trial judge.

[50] I recognize that there may be an issue as to the interim management of 242. Goyal will continue to be president of 242 and Ashgar will be the secretary. There is nothing in this order that prevents Ashgar and Goyal from coming to an agreement with respect to the sale or disposition of the Property. If they are unable to come to an agreement, I order Ashgar and Goyal to contribute equally to the carrying costs of 242 and the Property, subject to reapportionment following the trial of the action. If Ashgar and Goyal are unable to agree on the management of 242, either one may bring a motion before me for further directions.

[51] I also recognize that if there is no winding up of the corporation, the Property may not be developed or sold until the matter can proceed to trial. This might be unfortunate, but I note that the Property has not been developed for several years, and its value has increased during that time. Also, as I stated in paragraph 39, my order does not prevent the parties from agreeing to develop or sell the Property in the period before trial.

Is 262 entitled to an order for rescission and the payment of the amount held in court, less the costs owing to Goyal?

[52] Ashgar/Chaudhary and 262 seek an order setting aside the transfer of the Property and vesting title to 242. 262 also seeks an order disbursing the funds currently held in court to Goyal to satisfy existing cost awards, with the balance of the funds paid to 262.

[53] Pursuant to the order of Master Brott, the Defendants amended their Defences to withdraw their objection to the rescission of the sale of the Property to 262. It is not surprising that, after its efforts to set aside the CPL were unsuccessful, 262 did not want to remain involved in the ongoing dispute between Ashgar/Chaudhary and Goyal.

[54] Goyal agrees that the sale of the Property to 262 should be set aside, but he argues that the funds paid by 262 should remain in court for the benefit of this action. Goyal takes the position that there has been no change in circumstances that warrants revisiting or otherwise amending Master Sugunasiri’s order. He also argues that he may be entitled to damages from 262 at the conclusion of the trial; if the funds are released to 262, they may be dissipated and not available for execution.

[55] 262 argues that rescission is the unwinding of the transaction. The parties are to be put in the same position they were in before they entered into the sale. As a result, the ownership of the Property would revert to 242 and the funds would return to 262. The vendor takeback mortgage would be discharged.

[56] I am of the view that the funds paid by 262 should not remain in court. Contrary to the position taken by Goyal, the circumstances have changed; the parties now agree that the transaction should be rescinded. Once the Property is transferred back to 242, the legal underpinning for the order that the funds be paid into court is removed.

[57] Goyal argues that he has a claim for damages against 262 for loss of the use of the Property. It is his position that if the funds do not remain in court, 262 may not have any assets available to pay a judgment. Goyal is seeking in effect, an order for execution before judgment. On the evidence before me, I am of the view that Goyal is not entitled to a Mareva Injunction.

[58] I grant the motion brought by 262 and order rescission of the sale of the Property. The transfer is set aside in its entirety. The ownership of the Property will vest in 242 and the Land Registrar is directed to amend the Land Registry to name 242 as the owner of the Property. The funds currently held in court pursuant to the order of Master Sugunasiri shall be disbursed on the basis that the outstanding cost awards in the amount of $41,698.07, plus interest on the cost awards, shall be paid to Goyal, with the balance, including all remaining interest, paid to 262 by way of payment to its lawyer, Alan B. Dryer, in trust.

Is Goyal entitled to a top-up of the costs previously awarded to him because the Defendants amended their Defences to abandon their opposition to rescission?

[59] Goyal argues that, as a result of the amendment of the Defences to remove the opposition to rescission, all of the costs he incurred in pursuing the claim for rescission, including the costs of opposing the motion and appeals to remove the CPL, are costs “thrown away”. Goyal seeks an order of costs, which is a “top-up” of the costs previously awarded on the CPL motion and appeal. In the CPL motion and appeal, 262 was ordered to pay costs to Goyal fixed in the amount of $46,698.07, of which $41,698.07 is currently owing. The costs were awarded on a partial indemnity basis. Goyal argues that based on the amendments to the Statements of Defence, he is entitled to costs on a full indemnity basis.

[60] The Defendants argue that the issue of costs was addressed at the time of the motions to amend the Statements of Defence. The motions were heard by Master Brott on January 27, 2020. Goyal asked for costs thrown away as a result of the amendments. Master Brott ordered that the costs of the motion to amend were payable by Goyal to Ashgar/Chaudhary fixed in the amount of $1,246.60. There was no appeal of her costs award. The Defendants argue that the issue has already been decided and this is a complete bar to Goyal’s claim for costs thrown away on this motion.

[61] The Defendants argue in the alternative that there is no basis for a top-up cost award. Goyal seeks the top-up of his costs pursuant to R. 23 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”), which provides that where a defendant seeks to withdraw all or part of a defence, leave must be obtained from the court. This rule does not state that the plaintiff is automatically entitled to costs with the withdrawal of a defence or that the costs are to be on a full indemnity basis. I was not directed to any authority in support of this position.

[62] If the defence was not withdrawn and the matter proceeded to trial, the plaintiff would be entitled to partial indemnity costs if he was successful. Substantial indemnity costs may be ordered if the plaintiff obtained a judgment which was more beneficial than a formal Offer to Settle, or on the basis of the factors set out in R. 57.01. There would be no incentive for a defendant to withdraw a defence and thereby limit the issues at trial if, as a result, the defendant would be subject to full indemnity costs.

[63] In any event, even if costs could be awarded on a full indemnity scale, I decline to do so. The issue of the costs of the action is an issue for the trial judge based on all the evidence. The trial judge will be in the best position to determine if Goyal is entitled to additional costs and, if so, on what scale.

Is Goyal entitled to an order amending the Statement of Claim to add Bishay as a defendant?

[64] Goyal takes the position that Bishay, as the principal of 262, acted with Ashgar and Chaudhary to commit a fraud on him. He seeks an order amending the Statement of Claim to add Bishay as a defendant. Bishay argues that the limitation period for bringing the action against him has expired and, as result, he should not be added as a defendant.

[65] Bishay states that the sale of the Property occurred on February 24, 2018, over two years ago. No steps were taken to add him as a defendant before the expiry of the two-year limitation period. Goyal argues that he did not “discover” that Bishay may have participated in a fraud against him until Bishay was cross-examined on his affidavit on June 26, 2018. On that cross-examination, Bishay acknowledged his history of doing business with Chaudhary. He also stated that there were no negotiations with respect to the purchase of the Property and that he did not conduct any due diligence into the purchase. Goyal alleges that because of their past relationship, Bishay was acting as Chaudhary’s nominee and knew or was wilfully blind to his attempt to commit the fraud on Goyal. In support of his position, he points to the fact that Bishay refused to answer questions about where he obtained the funds he paid for the purchase of the Property.

[66] Bishay denies being involved in any fraud with Chaudhary. In any event, it is his position that Goyal had all information necessary to commence an action against Bishay within the two years following the sale of the Property. By February 28, 2018 at the latest, Goyal had disclosure of the sale to 262 and Bishay’s role in the transaction. By that date, Goyal was taking the position that the attempted sale was a fraud. He did not require any further information to advance this claim against Bishay. Bishay argues that there is a sufficient evidentiary record to demonstrate that the limitation period for bringing an action against him has expired and the motion to amend the Claim should be dismissed: Szarati v. Melnychuk, 2016 ONSC 1293, 129 O.R. (3d) 605, at para. 40.

[67] Goyal argues that the limitation period did not start to run until Bishay was cross-examined in June 2018. The limitation period would have expired in June 2020; however, it was tolled as a result of the COVID-19 pandemic. The tolling period was from March 16, 2020 to September 14, 2020. Goyal argues that, as a result of the tolling of the limitation period, the claim against Bishay is not statute barred.

[68] Goyal brings this motion pursuant to R. 26 of the Rules of Civil Procedure, which provides that the court shall grant leave to amend a pleading unless there is actual prejudice. I am not satisfied that there is actual prejudice to Bishay in this case. I am not prepared to determine the issue of discoverability on the record before me. I grant leave to amend the Statement of Claim to add Bishay as a Defendant. This is without prejudice to Bishay alleging in his Statement of Defence that the claim is statute barred. This is also without prejudice to Bishay bringing a motion for summary judgment dismissing the action on a more complete record.

Is Goyal entitled to an order for security for costs against 262 with respect to the counterclaim?

[69] 262 has brought a counterclaim against Goyal. Goyal argues that he is entitled to an order for security for costs because 262 is a nominal Plaintiff and there is good reason to believe it has insufficient assets to pay the costs of the Defendant by Counterclaim. Goyal also argues that he is entitled to security for costs on the basis that 262 has not paid outstanding cost awards.

[70] As a preliminary objection, 262 takes the position that a defendant may not bring a motion for security for costs before delivering its Statement of Defence. Goyal did not deliver his defence to the counterclaim before bringing this motion for security for costs. 262 argues that this court does not have jurisdiction to consider this motion pursuant to R. 56.03(1) of the Rules of Civil Procedure. Goyal states that he did not deliver a Statement of Defence before bringing the motion because 262 had not responded to a demand for particulars. He has since delivered his defence.

[71] In the alternative, 262 argues that there is no entitlement to an order for security for costs. Goyal has the onus of showing that one of the factors set out in R. 56.01 applies. Goyal relies on R. 56.01(c), in that cost orders made against 262 remain unpaid. Goyal also relies on R. 56.01(d), in that 262 is a nominal plaintiff and there is good reason to believe that it has insufficient assets to pay the costs of Goyal.

[72] I am not satisfied that 262 has refused to pay the existing cost awards. On the motion before Master Brott, 262 undertook to pay the costs out of the money currently held in court. In any event, I have ordered the costs paid when the money held in court is disbursed. In addition, there is no evidence that 262 is without assets. In fact, the evidence is to the contrary. 262 paid over $500,000 to purchase the Property. 262 is currently the owner of the Property, which has a value of at least $1,500,000. I ordered that the transaction is rescinded. Once the transaction is rescinded, 262 will not own the Property, but the money held in court will be paid to 262, less the amounts disbursed to Goyal to satisfy the cost awards.

[73] Goyal argues that, although approximately $450,000 will be paid to 262, those assets could be dissipated before trial. This is speculation. 262 has sufficient assets at the time of the motion and therefore there is no basis for a security for costs order. If those circumstances change, Goyal could bring a motion at that time.

DISPOSITION

[74] For the reasons set out above, I make the following orders:

a) I deny Goyal’s motion to remove Ashgar as an officer and director of 242 and to grant exclusive management of 242 to Goyal. Goyal will continue to be president of 242 and Ashgar will be the secretary. I order that Chaudhary is enjoined from holding himself out as a signing officer or director of 242. I also order that Ashgar, Chaudhary and Goyal are enjoined from unilaterally selling, disposing of or in any way encumbering the Property pending the trial of this action;

b) I deny Chaudhary’s motion brought pursuant to s. 207 of the OBCA for a winding up of 242;

c) I grant the motions brought by Ashgar/Chaudhary and 262 for rescission of the sale of the Property to 262. I make the following orders with respect to the rescission of the transaction:

i. I order that the transfer of the Property to 262 is set aside and direct the Land Registrar to amend the Land Registry to name 242 as the owner of the Property;

ii. I order that the amount currently held in court pursuant to the order of Master Sugunasiri dated April 5, 2019 shall be distributed with the payment of the costs which are currently owing in the amount of $41,698.07, along with any interest owing on those cost awards to Goyal, and the balance together with all remaining interest to 262 by way of payment to its solicitor Alan B. Dryer, in trust;

iii. I order that the CPL registered as Instrument No. ER1163555 on April 16, 2019 is discharged;

iv. I order that the Charge on the Property registered as Instrument No. ER1159089 on March 8, 2018 is set aside and direct the Land Registrar to delete the registration of that instrument;

v. I order the Plaintiff to discharge the Notice registered pursuant to s. 71 of the Land Titles Act, R.S.O. 1990, c. L.5, as Instrument No. ER1159842;

vi. I order that paragraph 3 of the order of Master Sugunasiri dated April 15, 2018 is set aside.

d) I deny Goyal’s motion to top up the prior cost awards. The issue of costs, including whether to top up previous cost awards, is reserved to the trial judge;

e) I grant Goyal’s motion to amend the Statement of Claim to add Bishay as a Defendant. This order is without prejudice to Bishay’s right to plead in his Statement of Defence that the claim as against him is statute barred;

f) I deny Goyal’s motion for an order that 262 post security for costs of the counterclaim.

[75] As a result of this order, the registered owner of the Property is 242. Ashgar, Chaudhary and Goyal are enjoined from unilaterally selling, disposing of or in any way encumbering all or part of the Property pending trial, except on the consent of the parties or pursuant to further order of this court. If there are expenses incurred with respect to the Property before trial, such as property taxes, each of Goyal and Ashgar will equally contribute to the expenses pending reallocation following the trial of the action.

[76] To date, the parties have been unable to co-operate with respect to the development or sale of the Property. I am hopeful that going forward, Ashgar and Goyal will be able to agree on the management of 242. If that is not the case, either one may bring a motion before me for further directions.

[77] Each party was partially successful and partially unsuccessful on the motions. The costs of the motions are reserved to the trial judge.

DATE: JANUARY 19, 2021