Court File and Parties

COURT FILE NO.: CV-21-00668023-00CL DATE: 20211005

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ragusangar Nadarajah, Vasanthaseelan Ratna Ananthan and 669143 Ontario Ltd., Plaintiffs

AND:

Suman Pushparajah, Facedrive Inc., 10328545 Canada Inc. o/a The Firm Group, Dilanie (Linat) Reveendran and Seetha Investments Corp., Defendants

BEFORE: C. Gilmore, J.

COUNSEL: Timothy Hill and Max Munoz for the Moving Party Plaintiffs Robert P. Hine for the Defendants Suman Pushparajah and Seetha Investments Corp.

HEARD: September 29, 2021

ENDORSEMENT

Overview

[1] The Plaintiffs Ragusangar Nadarajah (“Ragu”) and Vasanthaseelan Ratna Ananthan (“Vasanth”) allege that the Defendant Suman Pushparajah (“Suman”) holds 1,809,080 shares for each of them in Facedrive Inc. (“Facedrive”). Suman originally held 5,427,240 shares in Facedrive which the Plaintiffs allege are owned by Suman, Ragu and Vasanth in equal thirds.

[2] Mr. Hine represented Suman and Seetha Investments Corp. on this motion. The Firm Group (“TFG”) is currently unrepresented. Relief was not sought against the other Defendants.

[3] In early September 2021 the Plaintiffs learned through media reports that Suman sold 1.6 million Facedrive shares for $3.5 million. Pursuant to the current lock-up agreement, Suman could sell a further 15% of the total shares as of September 30, 2021 and another 15% on December 31, 2021. The Plaintiffs brought this motion to preserve the shares since a sale of any further shares could potentially impinge on their alleged shareholding interest and because Suman now claims that all of the shares belong to him.

[4] Shortly after hearing this motion on September 29, 2021 I released a brief endorsement via email indicating that the Plaintiffs had met the test for a preservation order but that the shares themselves would not be preserved. If the Defendants on this motion chose to sell the shares, they could do so, but the proceeds were required to be paid into Court pursuant to Rule 45.01(2). I advised counsel I would release further reasons as contained herein.

Background Facts

[5] In 2017 Ragu, Vasanth, Suman and four others formed the defendant company, TFG. TFG provided consulting services to start-up businesses. In exchange for their services they often took shares in the start-up. By 2018 only Ragu, Vasanth and Suman were left in TFG.

[6] One of the start-ups taken on by TFG was Facedrive. Facedrive offered an eco-friendly ride service alternative to Lyft and Uber.

[7] According to the Plaintiffs, they contributed time and their personal financial resources to the building of Facedrive with the encouragement of Suman. They were promised shares in Facedrive in exchange. The Plaintiffs allege that they provided free office space to Facedrive, used personal funds to insure, lease and maintain vehicles for Facedrive and even paid traffic violations and highway toll fees incurred by drivers.

[8] In 2019 the Plaintiffs allege that Suman came to them and asked them for $200,000. The plan was that all three of them would contribute $100,000 for a total of $300,000 so that TFG could purchase an ownership interest in Facedrive which was going public in September 2019. The Plaintiffs allege they contributed their $200,000 in August 2019. The funds were paid to TFG’s account which Suman controlled.

[9] Suman disputes this. His position is that he paid the entire purchase price of $500,000 for the shares from his own funds. He disputes having received any funds from the Plaintiffs, but if he did, those funds were intended to partially repay various loans advanced to the Plaintiffs by Suman.

[10] A photograph of the $200,000 cheque was produced as Exhibit E to Ragu’s affidavit sworn September 21, 2021. Suman submits the Court should not rely on the cheque as any evidence of a share purchase by the Plaintiffs as there is no indication the cheque was cashed, on whose account it was drawn or the purpose for which it was paid. Suman also disputes that the Plaintiffs expended time and personal resources for which they were promised compensation by way of the shares. Suman submits there is no evidence of this, only bald allegations.

[11] By February 2021 the value of Facedrive’s share was up to $54.40 per share. However, Suman advised the Plaintiffs that because he was the CEO and an officer of Facedrive, all of their shares were subject to a lock-up until March 2021. In early March 2021 the Plaintiffs asked Suman when they could start selling their shares. When they received no response, they became concerned. They were also concerned when they discovered that Suman had unilaterally removed them as directors of TFG without a shareholder’s meeting.

[12] On March 8, 2021 Facedrive publicly announced that its senior management (including Suman) had agreed to a further lock-up until March 2022. In August and September, a shareholder who had refused to sign the second lock-up agreement sold over 10 million Facedrive shares. This upset the signatories to the second lock-up agreement and lead Facedrive to announce on September 1, 2021 that it would not enforce the second lock-up agreement.

[13] The Plaintiffs and their counsel sent numerous letters to Suman requesting confirmation of their 2/3 ownership interest in the shares. Frustrated with the lack of response, the Plaintiffs then had their counsel write to Facedrive’s counsel. Having received no response, the Plaintiffs commenced this action for damages on September 1, 2021.

[14] It was not until Suman’s first affidavit of September 22, 2021 that the Plaintiffs learned that Suman took the position that he was the sole owner of the shares. The Plaintiffs were shocked to receive Suman’s court material because he had provided no response to their enquiries for months. Further, there are numerous text messages produced by the Plaintiffs which directly contradict Suman’s position. Suman submits that the text messages cannot be relied upon as they are unsworn and somewhat jumbled evidence which has been “interpreted” by the Plaintiffs to suit them.

The Plaintiffs Have Met the Test for a Preservation Order

[15] To obtain a preservation order, the Plaintiffs must meet the test set out in Taribo Holdings Ltd. v. Storage Access Technologies Inc., [2002] O.J. No. 3886. At paragraph 4 of Taribo, the Court makes it clear that orders under Rule 45 are also appropriate where the dispute relates to the ownership of shares or their proceeds.

[16] The test to be met by the Plaintiffs on this motion is set out at paragraph 5 of Taribo as follows:

1. The assets sought to be preserved constitute the very subject matter of the dispute;

2. There is a serious issue to be tried regarding the plaintiffs' claim to that asset, and;

3. The balance of convenience favours granting the relief sought by the applicant or moving party.

[17] The Plaintiffs submit that the first part of the test is clearly met given that the heart of this dispute relates to the Plaintiffs’ claim that Suman holds their shares in Facedrive and Suman insists all the shares belong to him.

[18] In their Statement of Claim the Plaintiffs seek declarations that they are the rightful owners of 2/3 of the shares based on their financial contribution of $200,000 and the services they provided to Facedrive.

[19] Suman takes the position that this case is not really about the shares, it is about the significant damages sought by the Plaintiffs. The shares are incidental to the damages sought and are therefore not the main dispute.

[20] I disagree. The main dispute in this case emanates from Suman’s position he owns the shares and the Plaintiffs’ position (as claimed) that they own 2/3 of the shares based on financial and other contributions. Without this dispute, there would be no claim for damages. I therefore find that the first part of the test in Taribot is met.

[21] The second part of the test relates to whether there is a serious issue to be tried. The Plaintiffs need not demonstrate a prima facie case. The threshold here is somewhat lower but does require sufficient evidence for a review of the merits of the case.

[22] Suman suggests that this part of the test is not met due to serious gaps in the evidence. Suman’s counsel points to a cheque for $200,000 drawn on an unknown account, an unsigned shareholders agreement, fragments of What’s App conversations as interpreted by the Plaintiffs, and a lack of evidence in relation to the alleged “services” provided to Facedrive.

[23] I do not agree with Suman on this point either. While Suman is critical of the What’s App extracts, they cannot be ignored, nor does he deny that he wrote the messages attributed to him. Some evidence that may be considered supportive of a serious issue to be tried can be found in the following What’s App conversations between Suman, Ragu and Vasanth:

a. January 31, 2019: Suman says, “My mentor put in money for facedrive for us. I told I was going to put money n more ownership.”

b. March 24, 2019: Suman says, “I’m hoping to get our shares to 80-100 mil.” Just before that text, he says “I realized lot with FD it’s all about putting right piece.”

c. April 1, 2019: Suman says, “When facedrive goes public we rich just saying.”

d. June 25, 2019: Suman says, “It will be billion dollar company n we will be worth 150. Right now we can sell our shares n cash out 15 mil.

e. August 12, 2019: Ragu asks: “Bro 200k I can do. Need to pay back dudes for invoicing money. Who do I make 200 out to?” Suman responds: “Firm group. The Firm Group.”

[24] It should be noted that the TD Bank draft for $200,000 was dated August 12, 2019.

[25] Suman does not deny he wrote the messages, he takes issue with the way the Plaintiffs’ counsel has interpreted them. I do not view the interpretation of those messages as critical to this part of the test on this motion. The messages and the timing of them speak for themselves without further interpretation. I therefore find that the second part of the test has been met.

[26] As for the balance of convenience, the Plaintiffs are logically concerned that Suman will continue to dispose of his Facedrive shares potentially disposing of their alleged 66% share especially given his recent position that the shares belong solely to him. There is also the risk that Suman, as the CEO and a director of Facedrive could exercise his power to further reverse the current lock-up agreement.

[27] Suman submits that the prejudice of any preservation order will be borne solely by him as the share price has decreased steadily in 2021 and if it continues to decline he will be unable to recapture any value in the shares if a preservation order is put in place.

[28] I agree that there is prejudice to both parties in not allowing the shares to be sold at an appropriate time, thus my order that any proceeds of a sale be paid into Court. If Suman is indeed the owner of 100% of the shares as he claims, he will want to ensure that they are sold for a good price. The Plaintiffs will benefit by this decision if they are found to be the owners of 66% of the shares as alleged.

Order and Costs

[29] The Plaintiffs did not have complete success. The relief they sought was granted in the alternative. Their argument focussed almost solely on the preservation order relief. They are seeking partial indemnity all-inclusive costs of $22,600.

[30] Suman was not successful. His failure to respond to the Plaintiffs and his last-minute position that he owned all of the shares lead to the requirement that this motion be argued. Suman sought all inclusive costs of $23,474 if successful.

[31] Costs should be ordered, however, the case is at a very preliminary stage where the evidence before the Court remains untested and the disputes significant. I therefore fix costs at $15,000 payable in the cause.

C. Gilmore, J.

Date: October 5, 2021