COURT FILE NO.: CV-19-81979

DATE: 20211224

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

GEORGE SOLIMAN and SOLIMAN HOLDINGS INC.

Plaintiffs/Moving Parties

– and –

ANDREW HANNA and ELIZABETH & CO. HOLDINGS INC.

Defendants/Respondents

James R. D. Clark, for the Plaintiffs/Moving Parties

Christopher A.L. Caruana, for the Defendants/Respondents

HEARD: October 12, 2021

reasons for decision

R. Smith J.

[1] The Plaintiffs George Soliman (“Soliman”) and Soliman Holdings Inc. (“Soliman Holdings”) have brought a motion seeking orders:

(a) Granting leave to authorize Soliman to bring a derivative action under s. 146(1) of the Business Corporations Act, R.S.O. 1990 c. B.16 (“BCA”), on behalf of Cotton Mill Pharmacy Inc. (“CMPI”) against the Defendants;

(b) Amending the Statement of Claim to add CMPI as a plaintiff and nunc pro tunc as a moving party to this motion;

(c) Granting leave to issue a Certificate of Pending Litigation (“CPL”) against units 107 and 108, located at 703 Cotton Mill Street, Cornwall, Ontario to Soliman Holdings or alternatively, to CMPI; and

(d) Restraining the Defendants from further dealing with funds received from mortgages registered against units 107 and 108 (referred to as the “Properties”).

Facts

[2] Some of the uncontested facts have been taken from the parties’ factums and motion records.

[3] Soliman and Andrew Hanna (“Hanna”) are licensed pharmacists. In 2014, Soliman and Hanna agreed to open a pharmacy together in Cornwall, Ontario. They incorporated CMPI on June 22, 2014, to operate the pharmacy. They are both officers, directors and 50% shareholders of CMPI.

[4] Cotton Mill Developments Inc. (the “Developer”) owned an industrial building in Cornwall previously used as a cotton mill. The Developer planned to redevelop the building into some condominium units, with commercial units on the first floor.

[5] In 2018, Hanna’s wife's holding company, Elizabeth and Co. Holdings Inc. (“E&C”) purchased both units in the name of his. A mortgage of one million dollars was registered against both units 107 and 108 in favour of the Cornwall Caisse Populaire.

[6] The Pharmacy and Medical Clinic opened in November of 2015. Soliman worked as the manager of the Pharmacy from its opening until May 22, 2017, when he returned to England. Soliman has not returned to work in the Pharmacy since May 22, 2017.

[7] In Soliman's first affidavit, sworn on November 14, 2019, he stated that he incorporated Soliman Holdings to purchase a 50% interest in the Properties. Hanna disagrees and stated that Soliman incorporated Soliman Holdings to purchase a residential unit with his wife and not to purchase an interest in unit 107. An offer to purchase for a residential Unit 211, level 2, dated January 14, 2016, was prepared and signed in the names of E&C and Soliman Holdings, but the purchase was never completed.

[8] The Developer prepared several draft letters of understanding during the course of the negotiations, all of which were never signed by any purchaser and the following other correspondence was exchanged before closing:

(a) On July 27, 2015, the first draft letter of understanding for unit 107 indicated that the intended purchasers were Hanna, Soliman and Cotton Mill Pharmacy. This is the only draft letter of understanding that mentioned Soliman as an intended purchaser;

(b) The Developer also sent a similar draft letter of understanding for unit 108, stating that Hanna and Soliman were the intended purchasers. These letters of understanding included a condition that only Hanna would provide a personal guarantee of $100,000;

(c) Later, on July 27, 2015, the Developer sent another draft letter of understanding to Hanna for unit 107, indicating that the purchasers were intended to be Elizabeth Eskander and Cotton Mill Pharmacy. There was no mention of Soliman or Soliman Holdings. The Developer also sent another draft letter of understanding to Elizabeth Eskander concerning unit 108, indicating that the purchasers would be Elizabeth Eskander, Andrew Hanna and Cotton Mill Pharmacy. There was no mention of Soliman or Soliman Holdings;

(d) On February 3, 2016, the Developer sent another draft letter of understanding for unit 107 to Hanna which described Elizabeth Eskander as the owner and indicated that the purchasers would be Elizabeth Eskander and Cotton Mill Pharmacy. A similar draft letter was sent on the same date to them for unit 108. These draft letters were also not signed by any purchaser;

(e) On February 11, 2016, Hanna wrote to CMPI’s corporate counsel advising that he did not agree with the terms of a new proposed draft agreement of understanding prepared by the Developer for unit 107 and 108. Soliman was copied on this email;

(f) On March 1, 2016, the Developer sent two more draft letters of understanding to Hanna to the attention of Elizabeth Eskander, who was described as the owner. It stated that Elizabeth, Hanna and Cotton Mill Pharmacy would be the purchasers for both units 107 and 108. Both of these draft letters of understanding required a personal guarantee of $100,000 from only Hanna;

(g) On July 22, 2016, Soliman wrote to Hanna and to CMPI’s lawyer’s legal assistant pointing out a mistake, namely that the draft agreement only provided for two parking spots instead of four for the medical clinic;

(h) On December 20, 2016, Royal Bank of Canada (“RBC”) sent an email to Hanna and Soliman setting out the information required by it in order to consider a financing request for the CMPI, including Financial Statements and Statements of Personal Affairs;

(i) On May 19, 2017, Soliman wrote emails to Mr. Ghobrial and CMPI’s lawyer stating that they (Hanna and Soliman) had managed to resolve their issues and had moved forward from their initial disagreement and were continuing their partnership. On May 22, 2017, three days later, Soliman left the Pharmacy and returned to the U.K. He has never returned to work in the Pharmacy since that date; and

(j) On June 10, 2017, Soliman sent a letter to his uncle Mohsen’s assistant with copies to Hanna and Elizabeth requesting certain documents to close the pharmacy deal.

[9] On November 29, 2017, the Caisse Populaire of Cornwall sent a financing offer only to E&C confirming that the Caisse Populaire would provide mortgage financing of $613,600 to purchase the units 107 and 108. A collateral mortgage for $1,000,000 was registered against both units.

[10] Soliman seeks to obtain 50% of the value of the Pharmacy and the two condominium units. Soliman returned to England in May of 2017 and has not returned to work at CMPI in Cornwall for the past four years. In 2014, before discussing opening a pharmacy with Soliman at his wedding, Hanna had signed a letter of commitment and paid a deposit for unit 107. On June 1, 2015, Hanna's wife signed a letter of commitment and paid the deposit for the other unit (108) from her personal account.

Analysis

Issue #1 – Should Soliman be granted leave to commence a derivative action in the name of CMPI against the Defendants?

[11] Soliman claims that he and Hanna verbally agreed that they would each acquire a 50% interest through their holding companies, in unit 107 (the “Pharmacy”) and unit 108 (the “Medical Clinic”) in the redeveloped property.

[12] Hanna agrees that he and Soliman agreed to set up a pharmacy together in Cornwall, Ontario and that they would each own a 50% interest in the Pharmacy. However, Hanna denies that they ever discussed or agreed to any or an equal ownership of the Properties.

[13] In his Statement of Claim and in his first affidavit, Soliman stated that he and Hanna agreed that Soliman Holdings would be registered as a 50% owner of units 107 and 108. In his second affidavit and in the proposed amendment to the statement of claim, Soliman pleads in the alternative, that he and Hanna agreed that CMPI would become the owner of the Properties. Soliman seeks leave to commence a derivative action in the name of CMPI and asks the court to grant a CPL against the Properties in favour of CMPI.

[14] Section 246 of the BCA defines a complainant to include a director or a shareholder. Under s. 246 of the BCA, a complainant may apply to the court for leave to bring an action in the name and on behalf of a corporation.

[15] Section 246(2) of the BCA states that upon 14 days notice to the corporation, the court must be satisfied that:

(a) The directors of the corporation will not bring or diligently prosecute the action;

(b) The complainant is acting in good faith; and

(c) It appears to be in the interests of the corporation or its subsidiary that the action be brought and prosecuted.

[16] In Drake v. Goodwin, 2019 ONSC 2865 (Div. Ct.), the Divisional Court stated that it must appear to be in the best interests of the corporation, in this case CMPI, to bring this action in the sense that an arguable case must be shown to exist.

[17] In Rea v. Wildeboer (2015), 2015 ONCA 373, 126 O.R. (3d) 178 (CA) at paras. 18-19, the Court of Appeal held that a derivative action was warranted where the claim sought to recover damages done to the company itself. On the other hand, the oppression remedy is a personal claim resulting from the affairs of the company being conducted in a manner that is oppressive, as related to the interests of the complainant.

[18] In Wiens v. 1814047 Ontario Inc., [2020] O.J. No. 5447 (Div. Ct.) at paras. 1 and 13, the Divisional Court stated that leave to commence a derivative action will be denied where the dispute amounts to little more than a dispute between shareholders and where the benefit that arises does not warrant the expense to the corporation.

[19] If leave is granted to allow Soliman to commence a derivative action by CMPI against the Defendants, based on his second affidavit stating that there was an alternative verbal agreement that CMPI would purchase both units, this would be contradicted by Soliman's first and third affidavits. Adding a separate claim that is contradicted by Soliman’s own affidavit evidence would unduly complicate this action.

[20] I find that it is not in the best interests of CMPI to grant leave to Soliman to commence a derivative action in its name to seek an order that it be declared the sole owner of units 107 and 108 for the following reasons:

(a) The dispute in this case is really a dispute between Hanna and Soliman, the two shareholders of CMPI. Soliman seeks to have Soliman Holdings be declared a 50% owner of the Properties and seeks to have them sold along with CMPI. The claim to have CMPI declared as a 100% owner of the Properties is an alternative claim which is contradicted by Soliman’s own affidavit evidence;

(b) Soliman's sworn evidence in two of his three affidavits states that he and Soliman agreed that Soliman Holdings and Hanna or his wife's company were to each become 50% owners of the two Properties. In his second affidavit, Soliman equivocates and states that firstly a 50% ownership of the two Properties was to be in Soliman Holdings, or in the alternative, that CMPI should be declared to be the 100% owner of the Properties. Hanna denies that he ever agreed that Soliman or his holding company would own 50% or that CMPI would be the 100% owner of the Properties;

(c) In these circumstances, CMPI does not have an arguable case that it should be declared to be the sole owner of the two Properties because;

(i) Soliman swore two affidavits stating that he agreed with Hanna that Soliman Holdings would acquire 50% ownership of the two Properties. Soliman’s second affidavit stated in the alternative, the agreement was that CMPI would purchase the two Properties;

(ii) Soliman's evidence that there was an alternative agreement that CMPI would purchase the two units does not amount to an arguable case that would be in the best interests of CMPI to pursue;

(iii) this allegation is clearly contradicted by two of Soliman's own affidavits and by Hanna's affidavit evidence;

(iv) the original signed letter of understanding and the deposit for both units described Elizabeth Eskander as the purchaser and did not include CMPI; and

(v) the vendor prepared seven draft letters of understanding that initially included Hanna, Soliman and Cotton Mill Pharmacy as the intended purchasers. However, all of the draft letters were prepared by the vendor and none of them were signed by any purchaser;

(vi) all of the draft letters provided that Hanna was to provide a personal guarantee of $100,000 and there was no mention of Soliman providing any guarantee;

(vii) none of the draft unsigned letters of understanding stated that CMPI was to be the sole purchaser;

(viii) after the first two draft letters of understanding were sent, subsequent amended draft letters of understanding from July 27, 2015 onwards, were only sent to Hanna and indicated Elizabeth Eskander as the owner. The draft letters of understanding continued to include Cotton Mill Pharmacy along with Elizabeth and Hanna. CMPI never signed any draft letter of understanding with the vendor and it was never shown as the only intended owner;

(ix) neither Soliman, Soliman Holdings, nor CMPI ever signed any Agreement of Purchase and Sale, other than Soliman Holdings and E&C signed an offer to purchase unit 211, which did not proceed; and

(x) Soliman did not contribute any considerations, money or sign a mortgage to acquire an interest in the Properties.

Disposition of Motion for Leave to Commence a Derivative Action

[21] For the above reasons, the Plaintiff’s motion for leave to commence a derivative action in the name of CMPI is dismissed and the motion to add CMPI as a plaintiff for this motion nunc pro tunc is also dismissed.

Issue (c) – Should a Certificate of Pending Litigation (“CPL”) be Granted?

[22] I find that CMPI has not raised a triable issue that it has an interest in land that would justify granting a CPL for the reasons given for denying leave to commence a derivative action.

[23] I also find that Soliman Holdings has not raised a triable issue that it has an interest in the two Properties for the following reasons:

(a) The Plaintiffs did not present any evidence that Soliman Holdings or Soliman ever signed any Letter of Understanding or Agreement of Purchase and Sale to acquire an interest in the Properties;

(b) The initial Commitment Letter for a space in the project for a pharmacy was dated July 26, 2014 and did not include Soliman Holdings and the deposit was only in the name of Andrew Hanna;

(c) The subsequent signed Commitment Letters dated June 1, 2015 for unit 107 and 108 were only in the name of Elizabeth Eskander as purchaser for space for a pharmacy and a medical clinic;

(d) No evidence was presented that Soliman Holdings ever contributed any consideration including money, or that Soliman provided any personal guarantee towards the purchaser of either of the Properties;

(e) Soliman alleges that there was a verbal agreement between him and Hanna that his holding company, Soliman Holdings, would acquire a 50% interest in the Properties but he has not provided any details about how much he or Soliman Holdings had to contribute to the purchase of the Properties. In cross-examination, Soliman stated that he did not remember the terms of the agreement to purchase an interest in the Properties, other than that his holding company would own a 50% interest;

(f) Soliman Holdings is not mentioned as a purchaser in any of the draft letters of understanding prepared by the vendor; and

(g) Soliman or Soliman Holdings does not allege that it had any agreement or contract with Elizabeth Eskander or E&C, the owner of the Properties. At its highest, Soliman would have a personal claim against Hanna for breach of an alleged agreement.

[24] In Perruzza v. Spatone, 2010 ONSC 841, the Master listed the Dhunna factors to be considered at para. 50 when deciding whether to issue a CPL as follows:

(iv) Factors the court can consider on a motion to discharge a CPL include (i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the CPL is or is not removed with or without security (572383 Ontario Inc. v. Dhunna 1987 CarswellOnt 551 (S.C. -- Mast.) at paras. 10-18) …

[25] The Dhunna factors do not support the granting of a CPL in favour of Soliman Holdings for the following reasons:

(a) Soliman Holdings is a shell corporation, as admitted by Soliman in cross-examination. This factor favours refusing to grant a CPL;

(b) There is an absence of evidence on whether the Properties are unique. This factor is neutral;

(c) If Soliman's allegations are accepted as true, Hanna and Soliman intended to acquire property to operate a pharmacy together. However, Soliman left the pharmacy on May 22, 2017 and has not returned to work in the pharmacy since then. Soliman does not seek to continue the operation of the pharmacy but rather wants it and the Properties sold. This factor favours refusing to grant a CPL;

(d) Soliman’s sole objective is to recover his alleged half interest in the Pharmacy and the Properties through a sale. This factor favours refusing to grant a CPL;

(e) No evidence was presented that it will be difficult to conduct an accounting and determine damages. This factor favours refusing to grant a CPL;

(f) In this case, damages are a satisfactory remedy because this is what Soliman seeks. This factor favours refusing to grant a CPL;

(g) There is no evidence of another willing purchaser. This factor is neutral; and

(h) The granting of a CPL may cause serious harm to the Defendants because the mortgage of one million dollars on the Properties may become due and payable if an encumbrance is placed on the Properties. This could force a sale by the mortgagee, which would cause great harm to the Defendants. The Plaintiffs have their claim for damages and an accounting which would not be as seriously affected if the granting of a CPL is refused. This factor strongly favours refusing to grant a CPL.

[26] The majority of the factors favor refusing to grant a CPL. In addition, the equity of the situation favours refusing to grant a CPL because neither Soliman or Soliman Holdings has any written agreement to acquire a 50% interest in the Properties, they do not have a written agreement to acquire an interest with E&C, the owner of the Properties and they have not made any financial or other contribution to acquire the Properties. Hanna has been forced to personably advance a further $65,000 to satisfy the Royal Bank’s loan conditions with CMPI, while Soliman has refused to make any contribution and left the Pharmacy four years ago. Great harm would be caused to the Defendants if a CPL was granted which might cause the Caisse Populaire to call in the mortgage.

Disposition on Granting a CPL

[27] For the above reasons, the motion to grant a CPL in favour of CMPI or Soliman Holdings is dismissed.

Issue (d) Should a Restraining Order be Granted?

[28] A restraining order is a limited form of a Mareva injunction. To obtain such relief, the plaintiff must establish; a) a strong prima facie case; b) they would suffer irreparable harm that cannot compensated for in damages; c) the balance of convenience favors granting the injunction; d) there are assets in Ontario; and e) there is a real risk that the Defendants are about to remove or dissipate the assets.

[29] The Plaintiffs have not demonstrated a strong prima facie case as outlined above in refusing to grant a CPL. The Defendants also have not presented any evidence to support any of the other factors for a Mareva injunction, other than that the Defendants have property in Ontario.

[30] For the same reasons as given for refusing to grant a CPL, the motion to grant a restraining order is dismissed.

Should the Plaintiffs be Allowed to Amend their Statement of Claim?

[31] Rule 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg.194, states that the court shall grant leave to amend a pleading on such terms as are just and unless prejudice would result that cannot be compensated in costs.

[32] Hanna submits that the limitation period to assert any new cause of action has expired because in February of 2018, Soliman discovered that the Properties had been purchased by E&C. On March 28, 2018, Soliman's counsel wrote to Hanna stating that he wished to submit the issues of the ownership of the Properties to arbitration. In August of 2018, Soliman's counsel wrote again stating that the issues related to the Properties may not fall within the arbitration provisions. If the limitation period is determined to be two years, then it expired in February of 2020 or August of 2020 at the latest. This motion to amend the Statement of Claim was brought in February of 2021, which is beyond the two-year limitation period.

[33] The Plaintiffs argue that the limitation period is 10 years, as it deals with real property. I have not ruled on the appropriate limitation period in this motion.

Disposition of Motion to Amend the Statement of Claim

[34] For the reasons given for refusing leave to allow a derivative action, the request to add CMPI as a plaintiff is denied as well as the amendments to the Statement of Claim as set out in para. 1(c), (d), (i), (j), (l), (m) and (n).

[35] Leave is granted to amend the Statement of Claim other than the amendment to add CMPI as a plaintiff and the proposed amendments to para. 1(c), (d), (i), (j), (l), (m) and (n) of the Statement of Claim. The other proposed amendments are allowed, including the proposed amendment to seek an oppression remedy, but are subject to any defences that may be raised including a limitation defence.

Costs

[36] The Defendants shall have 15 days to make submissions on costs, the Plaintiffs shall have 15 days to respond and the Defendants shall have 10 days to reply.

Released: December 24, 2021

COURT FILE NO.: CV-19-81979

DATE: 20211224

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

GEORGE SOLIMAN and SOLIMAN HOLDINGS INC.

Plaintiffs/Moving Parties

– and –

ANDREW HANNA and ELIZABETH & CO. HOLDINGS INC.

Defendants/Respondents

reasons for decision

R. Smith J.

Released: December 24, 2021