COURT FILE NO.: CV-20-00649248-00CL

DATE: 20211001

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Prishram Jain, Jain Bloor Developments Inc., Prishram Jain Inc., and Tact Architecture Inc., Plaintiffs (Responding Parties)

AND:

Orest Kelebay, 36 Pacific Holdings Inc., 38 Pacific Holdings Inc., 2142792 Ontario Limited, 4127 Dundas West Limited, 1858 Bloor West Holdings Inc., 1778 Bloor Holdings Inc., Latino Food Delights Importing Inc., Ivan Kominek, West End Medical Group Inc., Berkshire York Developments Inc., a.k.a. Berkshire York Development Ltd., King Edward Investments Inc., Kelebay Bloor Developments Inc., and 2330107 Ontario Limited, Defendants (Moving Parties)

BEFORE: C. Gilmore, J.

COUNSEL: James Wortzman and Catherine Allen, Counsel for the Plaintiffs (Responding Parties)

Sahar Cadili and Jacky Cheung, Counsel, for the Defendants (Moving Parties)

HEARD: September 27, 2021

ENDORSEMENT on motion

Overview

[1] This is the Moving Parties’ motion to approve the Foremost Loan (“the Loan”) and dispense with the future consent of Mr. Prishram Jain (“Jain”) and the consent of Jain Bloor Development Inc. (“JBD”) for:

a. Any severance to satisfy planning or municipal requirements;

b. Any steps taken by the Limited Partnership necessary to satisfy the terms of the loan;

c. Future financing for ongoing renovations;

d. Future financing to replace the loan once renovations are complete.

[2] The mortgage of the Limited Partnership (“the LP”) to Timbercreek Mortgage Servicing Inc. (“the Timbercreek Mortgage” and “Timbercreek”) matured on December 1, 2020. Timbercreek could enforce its security but has chosen not to because the Limited Partnership is making efforts to obtain new financing through the Loan.

[3] The Loan would allow the LP to pay out Timbercreek and finance renovations. The LP has formally approved the Loan, but Jain will not consent to the Loan given the underlying litigation in this matter. The other limited partners are concerned that Jain’s failure to consent will result in their personal guarantees on the Timbercreek Mortgage being at risk and their investments destroyed. The Responding Parties’ actions have resulted in oppression to the Defendants. Further, the real reason for Jain’s refusal to consent is to leverage his request for a buyout of his interest in the partnership.

[4] The Responding Parties’ position is that this Court does not have the jurisdiction to grant the relief sought by the Moving Parties. The Moving Parties have not commenced an application or action for oppression. They cannot now seek relief for oppression on this motion. The Moving Parties are, in effect, seeking to have the Court rewrite the LP agreement to satisfy a skittish lender.

Background Facts

[5] In 2016, Jain, through JBD, acquired the 33.33% interest of 1446529 Ontario Corporation in the LP for $661,420.17. JBD also owns 1/3 of the shares in King Edward Investments Inc. (“KEI”). KEI is the general partner (“GP”) and owns 0.01% of the shares of the LP. The LP is governed by the Limited Partnership Agreement (“LPA”) dated June 1, 2012. Orest Kelebay (“Kelebay”) and Michael Stastny (“Stastny”) each own a 33.33% interest in the partnership through their respective corporations.

[6] Jain has made certain claims in the underlying action related to the LP. Those claims relate to the GP and Kelebay failing to provide financial information, withholding financial documents to which JBD is entitled, failing to hold monthly partnership meetings and co-mingling LP funds, all contrary to the LPA. Jain and JBD claim that the conduct of the GP and Kelebay has been oppressive and disregarded JBD’s interests.

[7] Jain’s claim sets out that he has invested $1.6M into the partnership in exchange for a 10% interest in the properties and projects. When Kelebay refused to put this agreement in writing, acknowledge Jain’s 10% interest or return the investment, Jain commenced the within action.

[8] Kelebay claims that he has continued to make investments into the LP but Jain has not and currently owes $776,904 in capital contributions. Kelebay therefore claims that Jain is a “defaulting partner” under the LPA.

[9] Jain claims that Kelebay and the Moving Parties have not complied with s.7 of the LPA which requires them to maintain proper records, provide annual financial statements and business operation reports. The only records received by Jain were haphazard ones provided in response to the litigation.

[10] On June 18, 2012 the LP purchased a property located at 2271-2273 Bloor Street West (“the Property”). In November 2017 the LP obtained financing by way of a mortgage to Timbercreek. The plan was to convert the existing multi-tenant building into a child-care centre. A lease with a prospective tenant for the child-care centre has already been signed. The Moving Parties are concerned about a claim for damages from the prospective tenant if they are unable to complete the necessary renovations for the child-care centre.

[11] Extensive renovations to the Property have been underway since November 2020. As of September 1, 2021, over $750,000 is owed to contractors for the renovation. The Moving Parties require a portion of the Loan to pay the contractors. There is a concern that liens may be registered if the contractors continue to remain unpaid.

[12] The Timbercreek mortgage was personally guaranteed by all three limited partners. After the Timbercreek mortgage matured in December 2020, Timbercreek offered to enter into a forbearance agreement with the partners, but Jain would not sign the agreement. He was concerned about the cost of the renewal terms proposed by Timbercreek. He asked about other alternatives. Timbercreek has not taken steps to enforce its security but the Defendants are concerned they could do so at any time and call on their personal guarantees including Jain’s.

[13] In March 2021 a capital call of $330,250 per partner was made. Jain objected to providing the funds on the grounds that he had no financial documentation which would support why the funds were needed.

[14] On March 2021 KEI obtained a commitment letter from First National Financial for an advance of $7,400,000 to the LP to pay out Timbercreek with the balance to be used for construction. The loan would be personally guaranteed by Kelebay and Stastny. However, Jain’s position is that on May 20, 2021 First National advised it was requiring a personal guarantee from him. Jain objected on the basis of the Limited Recourse provision at article 3.14 of the LPA. On June 15, 2021 First National terminated its financial commitment.

[15] In June 2021 the partners pushed forward with the capital call originally discussed in March 2021. An information package containing financial documents relating to the capital call was provided to Jain. Jain’s position is that a review of the documents by his accountant revealed that documents were missing. Jain opposed the capital call on this basis, but the resolution was passed despite his opposition and the notice of capital call was delivered thereafter.

[16] On July 6, 2021 KEI obtained the commitment letter from Foremost. The terms of the loan were that Foremost would advance $8.2M to the LP. The funds would be used to pay out Timbercreek and the balance used to finance construction. Foremost would obtain a first ranking charge over the property and the loan would be personally guaranteed by Kelebay and Stastny. Another condition of the Foremost Loan is title insurance. Stewart Title has advised the Moving Parties that it will provide title insurance if a court Order is obtained to approve the Loan.

[17] While Foremost did not require Jain’s personal guarantee, it did require his consent. Foremost did not want Jain to dispute its rights under the mortgage in the future. Jain questioned why the Foremost loan was $800,000 more than the First National Loan.

[18] Jain was then sent the Foremost Loan documents. He was concerned that the Postponement Agreement would require him to sign any documents the lender deemed necessary and that he would be prevented from enforcing any actions against the Debtor or the GP. Jain was also concerned that the proposed resolutions for the upcoming LP meeting in relation to the Foremost Loan ratified all prior acts of the LP. Those acts are the basis of Jain’s oppression remedy.

[19] On August 30, 2021 the resolutions related to the Loan were passed by Kelebay and Stastney despite Jain’s objections. While the resolution is valid, Jain’s position is that the LPA does not require him to sign or agree to financing.

[20] The Moving Parties attempted to gain Jain’s cooperation by agreeing that such cooperation would be without prejudice to Jain’s claims in this action. This was confirmed by way of letter from the Moving Parties dated September 8, 2021. The Moving Parties take the position that Jain is a defaulting partner as a result of his non-cooperation. Jain takes the position that his refusal to vote in favour of the financing is not an act of oppression and is clearly contemplated by the LPA.

[21] Jain wants to be bought out of the partnership for his cost of $671,000. Thus far, there has been no agreement on a buyout. The Moving Parties claim that Jain is not cooperating with the financing in order to gain leverage on the proposed buyout. The lender requires a court order before proceeding with the Loan, thus the reason for this motion. Jain submits that the lender is effectively attempting to re-write the LPA which is improper and outside of this Court’s jurisdiction.

Legal Issues and Analysis

Issue 1: Should the Loan be Approved?

[22] The Moving Parties submit that under s.248(3) of the Ontario Business Corporations Act (OBCA), a court may make an interim order in connection with an oppression application. Specifically, they argue that Jain is unfairly disregarding the interests of KEI’s shareholders. Jain’s refusal to approve the Loan will prejudice the LP, KEI and the principals behind the entities.

[23] The Moving Parties are entitled to expect Jain to consent to the Loan for the following reasons:

a. The Timbercreek mortgage has matured and enforcement action may be taken risking the partners’ personal guarantees;

b. The Moving Parties have taken steps to ensure Jain is not prejudiced with respect to the underlying action;

c. The Loan is necessary to complete ongoing renovations and failure to pay contractors’ invoices could result in the registration of construction liens;

d. Jain is not required to provide a personal guarantee on the Loan; and,

e. A tenant has already signed a lease for the Property based on the completion of the renovations.

[24] According to the Moving Parties, Jain’s refusal to consent to the Loan given the abovementioned circumstances amounts to bad faith in order to leverage his buyout demands and is unfair to them.

[25] I do not agree that this is a ground upon which the Court can rely to grant the relief sought by the Moving Parties. The Moving Parties have not made a claim for oppression in their Statement of Defence and Counterclaim nor have they commenced a separate action for oppression. Further, the Responding Parties are not required to consent to the Loan pursuant to the LPA. The Moving Parties seek the comfort of court ordered approval by way of dispensing with the Responding Parties’ rights under the LPA.

[26] Jain relies on Landvis Canada Inc. v. Ocean Choice International Limited Partnership, 2016 544 (NLSC). In that case the court held at para 141:

From the decisions in BCE and J.S.M., I take that in circumstances involving sophisticated participants in a commercial relationship which was entered into on the basis of comprehensive written agreements, it would be the exceptional case where a complainant could establish, for the purpose of pursuing an oppression claim, a reasonable expectation that exists independently from the rights and obligations set out in the agreements. In any commercial relationship with serious participants and serious money at stake, the reasonable observer would expect the negotiated agreements to represent the sum total of the parties’ expectations of each other. And further, in circumstances where a reasonable expectation is established, a complainant must go on to establish oppressive conduct in breach of the expectation and compensable loss caused by such breach. Importantly, any relief ordered must go to rectify the particular consequences of the breach in question. The remedy is remedial, not punitive.

[27] In Landvis, the Court also referenced J.S.M. Corp (Ontario) Ltd. v. Brick Furniture Warehouse Limited, 2008 ONCA 183, an Ontario Court of Appeal decision in which Justice Doherty said:

It cannot be gainsaid that the oppression remedy gives the court a broad discretion. …

60 The oppression remedy is not, however, a means by which commercial agreements negotiated at arms length by sophisticated parties can be rewritten to accord with a court’s after-the-fact assessment of what is "just and equitable" in the circumstances. It is not the function of the court to rewrite contracts or to relieve a party to a contract of the consequences of an improvident agreement. See Jedfro Investments (U.S.A.) Ltd. v. Jacyk, 2007 SCC 55, [2007] S.C.J. No. 55 at para. 34. …

62 The reasonable expectations of parties to commercial agreements negotiated at arms length must be those reasonable expectations that find expression in the agreements negotiated by the parties.

[28] I agree with the Responding Parties that the relief sought by the Moving Parties is a consent which the Responding Parties are not required to give under the LPA and in the face of an already approved financing resolution under the LPA. They seek the comfort of a court Order because the lender requires it, not because the Responding Parties’ conduct has been oppressive.

[29] In short, the LPA contains no mechanism by which the partners can force another partner to consent to financing. Asking the Court to do so by way of cloaking the Responding Parties’ refusal in a form of oppression, does not conform with the proper use of such a remedy based on the case law.

Issue 2: Should the Court Exercise its Inherent Jurisdiction and make a Mandatory Order?

[30] The Moving Parties rely on 80 Wellesley St. East Ltd. v. Fundy Bay Builders Ltd. et al. 1972 535 (ON CA), [1972] OJ No. 1713 (ONCA) (“80 Wellesley”) as establishing this Court’s inherent jurisdiction as follows:

As a Superior Court of general jurisdiction, the Supreme Court of Ontario has all of the powers that are necessary to do justice between the parties. Except where provided specifically to the contrary, the Court’s jurisdiction is unlimited and unrestricted in substantive law in civil matters.

[31] The Moving Parties submit that this is an appropriate case for the Court to exercise its inherent jurisdiction. Failing to do so will result in the partnership failing and a possible enforcement of the personal guarantee given to Timbercreek. This is unfair given the Responding Parties’ motive for refusing to consent is intended to leverage his buyout demands.

[32] The Responding Parties rely on Igloolik Isuma Productions Inc. v. Deluxe Laboratories, 2007 2804 (ONSC) at para 4 for the proposition that the Court will not exercise its inherent jurisdiction where the result will be an alteration of the contractual relationship between the parties.

[33] I agree. The Court in Igloolik stated at para 4:

The applicant is asking the Court to rewrite a commercial agreement negotiated at arms length between two apparently sophisticated parties. In the absence of special circumstances going to the formation of the agreement, I do not think that the Court should exercise any inherent jurisdiction it may have to issue the requested mandatory order

[34] As there is no provision in the LPA requiring an LP to provide the form of consent to financing sought here, the Moving Parties are asking the Court to do what the Court refused to do in Igloolik. While this Court clearly has inherent jurisdiction to make Orders to do justice between the parties, this does not include interfering with the contractual relationships between sophisticated business parties.

Issue 3: Should Jain be Required to Provide his Consent for Future Events?

[35] Given my findings above, not much needs to be said on this point. Even if I had determined that Jain’s actions in refusing to consent were oppressive or that the Court had inherent jurisdiction to effectively order a consent on Jain’s behalf, going beyond that to require that he consent to future events would be overreaching.

[36] First, there was no evidence that any of the alleged future events would actually take place. Further, making such an Order would be further rewriting the LPA.

[37] There is no basis for making such an Order

Final Determination and Costs

[38] Given all of the above, the motion is dismissed.

[39] The Responding Parties have successfully defended this motion and now seek partial indemnity all inclusive costs of $26,829. The Moving Parties sought all inclusive costs of $27,049 if they had been successful.

[40] In ordinary circumstances, the Responding Parties would be entitled to their costs given their success. However, it appears from the record that the Responding Parties are using these circumstances to extract a bargain from the Moving Parties on the buyout issue. Their failure to consent when their personal guarantee on the Timbercreek mortgage is at stake and the partnership assets are in jeopardy otherwise makes no sense. While I have not found that this tactic amounts to oppressive conduct, it would be inequitable for the Responding Parties to now receive costs.

[41] No costs are ordered payable to the Responding Parties for the motion.

C. Gilmore, J.

Date: October 1, 2021