Court File and Parties

COURT FILE NO.: CV-21-3312

DATE: 2021-12-30

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ranjit Dhaliwal v. Ayaz Adatiya, Mukesh Puri, Maple Valley Development Corporation Inc.

BEFORE: Stribopoulos J.

COUNSEL: Mr. D. H. Nuri for the Plaintiff / Moving Party Mr. D. Bourassa for the Defendants / Responding Parties

HEARD: December 17, 2021

ENDORSEMENT

Introduction

[1] The Plaintiff, Ranjit Dhaliwal, moves for an injunction to block the impending sale by the Defendant, Maple Valley Development Corporation Inc., of the property it owns at 3111 Cawthra Road in the City of Mississauga ("the Property"), to Vandyk Properties Incorporated. The transaction is scheduled to close on January 14, 2022.

[2] Mr. Dhaliwal is a minority shareholder in Maple Valley; he owns 33.33% of its Class A shares. Until his removal in March 2021, Mr. Dhaliwal was Vice President and a Director of Maple Valley. The Defendant, Ayaz Adatiya, is the President and a Director of Maple Valley; he owns 33.33% of its Class A shares. The Defendant, Mukesh Puri, is the Secretary and a Director of Maple Valley; he owns 33.33% of its Class A shares. Finally, seven other shareholders own various quantities of Class B shares in Maple Valley.

[3] Mr. Dhaliwal, Mr. Adatiya, and Mr. Puri incorporated Maple Valley in March 2015 to purchase the Property (which, at the time, consisted of two separate abutting parcels of land). Their original plan was to develop the land and construct multiple residential units for resale. It is apparent from the conflicting affidavit evidence filed on the motion that the parties soon began having serious disagreements about various aspects of the development project.

[4] Mr. Dhaliwal makes various allegations about what he characterizes as mismanagement of the project by Mr. Adatiya and Mr. Puri. He claims they made numerous decisions throughout the project that made little business sense, operated to the financial detriment of Maple Valley, and raised questions concerning whether they were acting in the company's best interests or labouring under undisclosed conflicts of interest.

[5] In contrast, Mr. Adatiya and Mr. Puri claim that it was Mr. Dhaliwal who has behaved unreasonably. They maintain that, throughout, they have only ever acted in the best interests of Maple Valley, which has struggled to bring the development project to completion and is now in dire financial straits. Primarily, they say, because Mr. Dhaliwal has refused to furnish his share of the funds necessary to move the project towards completion.

Events Precipitating the Impending Sale and the Motion

[6] In March 2021, the parties reached an impasse in their negotiations to finalize a shareholder agreement, which had been ongoing since 2020. In the aftermath of that, Mr. Adatiya and Mr. Puri accused Mr. Dhaliwal of oppression. They then used their majority position to remove him as a Director of Maple Valley over his objections.

[7] In May 2021, the parties agreed to settle their ongoing dispute concerning Maple Valley by entering into a buy/sell agreement. Eventually, Mr. Dhaliwal agreed to buy out the other shareholders for $12 million. However, before closing, Mr. Dhaliwal rescinded the agreement. He claims he did so because he learnt that Mr. Adatiya and Mr. Puri concealed material information, dissipated Maple Valley's accounts to distort its finances, and misrepresented the company's existing and reasonably expected liabilities.

[8] In September 2021, Mr. Dhaliwal initiated an action against Maple Valley, Mr. Adatiya and Mr. Puri under sections 207 and 248 of the Business Corporations Act, R.S.O. 1990, c. B.16, claiming that they had engaged in conduct that is oppressive and unfairly prejudicial to and disregards his interests.

[9] The Defendants have not delivered a Statement of Defence. Instead, on November 24, 2021, with Mr. Adatiya and Mr. Puri in control of the company, Maple Valley entered an agreement to sell the Property to Vandyk for $8,400,000. The deal was conditional on Maple Valley obtaining "corporate approval" for the transaction.

[10] At shareholders' meetings, one held for Class A shareholders on December 7, 2021, and another for Class B shareholders on December 8, 2021, the shareholders unanimously approved the sale, except for Mr. Dhaliwal, who voted against it.

[11] On this motion, Mr. Dhaliwal seeks an injunction to block the sale of the Property to Vandyk. In insisting that the impending sale is improvident and meant to undermine his redress for oppression, Mr. Dhaliwal makes various claims.

[12] First, he says the agreed-upon sale price is well below fair market value, which he estimates as being between $10 million to $12 million. In that regard, he notes that the deal was entered into without the Property first being listed on MLS - effectively, a private sale. Further, he notes there is no appraisal to verify that $8,400,000 represents the Property's current fair market value.

[13] Second, he says the terms of the agreement are inexplicably favourable to Vandyk, including a six-month vendor take-back mortgage for $1,300,000 at 0% interest. In addition, under the agreement, Maple Valley will assign its interest in a $1,200,000 letter of credit with the City of Mississauga to Vandyk. From a practical standpoint, that means that the sale price is, in fact, only $7,200,000.

[14] Third, he questions whether Vandyk is indeed at arm's length of Adatiya and Puri. In that regard, beyond what he says is a sale price well below market value, Dhaliwal points to a $600,000 "loan" that Vandyk recently made to Mr. Adatiya and Mr. Puri.

[15] Finally, he notes that Maple Valley inexplicably accepted the offer by Vandyk over a better offer from another prospective purchaser - Brilliance Luxury Homes Inc. Brilliance offered to buy the Property for $8,600,000, without a vendor take-back mortgage. He argues that this decision is further evidence that the Defendants must prefer a sale to Vandyk because of some undisclosed conflict of interest.

[16] In response to the various allegations levelled by Mr. Dhaliwal, the Defendants filed an affidavit sworn by Mr. Adatiya. He deposes that Maple Valley is on the brink of financial collapse, has insufficient funds to finance its ongoing construction efforts, and says its financial position is worsening by the day. In that regard, Mr. Adatiya places the blame squarely on Mr. Dhaliwal, who, unlike him and Mr. Puri, has refused to furnish the funds necessary to keep the company afloat.

[17] Moreover, he claims that efforts to secure further financing did not come to fruition when a potential lender learnt of Mr. Dhaliwal's oppression action. Ultimately, he claims that he and Mr. Puri, as Directors, have exercised their business judgment to sell to Vandyk because they have concluded that a sale as soon as practicable is in the best interests of Maple Valley. In that regard, Mr. Adatiya gives several reasons why Maple Valley has no choice but to sell to Vandyk now.

[18] First, he notes that Maple Valley has defaulted on its mortgage commitments and has received default notices from its mortgagees. Although the mortgagees have not yet exercised their power of sale, he claims they could do so at any moment.

[19] Second, he notes that because Maple Valley has been unable to pay its debts, some of the contractors to whom Maple Valley owes money have registered construction liens on the Property. That includes a $37,056.75 debt to an architectural firm and $137,225.78 owed to a lighting company. In addition, Maple Valley avoided another construction lien only because Mr. Adatiya and Mr. Puri mortgaged their homes to pay a $600,000 debt to the site contractor.

[20] Third, with creditors at their door, Mr. Adatiya claims he and Mr. Puri had no choice but to seek an immediate and urgent sale of the Property. There is simply no time to list the Property on MLS; this is a distress sale. As a result, Mr. Adatiya and Mr. Puri approached Vandyk, an experienced and well-financed builder and developer, to buy the Property. Through discussions with Vandyk, they received the $8,400,000 offer. Exercising their business judgment, they concluded that the sale to Vandyk was in the best interests of Maple Valley.

[21] Fourth, it was only after receiving Vandyk's offer that counsel for Mr. Dhaliwal advised that there could be a competing offer from Brilliance. They told him that they would consider any competing offers "with an open mind." Ultimately, even though Brilliance offered $8,600,000 for the Property, he and Mr. Puri decided not to accept it. Mr. Adatiya explains that decision by noting that Brilliance failed to satisfy them that it was able to fund the purchase. However, they managed to use Brilliance's competing offer to negotiate a better deal with Vandyk, who increased its offer to $8,650,000, with 5% interest payable on the vendor take-back mortgage.

[22] For all these reasons, Mr. Adatiya explains, he and Mr. Puri concluded that the sale to Vandyk is in the best interests of Maple Valley. A view, he notes, that all the shareholders agree with, except for Mr. Dhaliwal. In short, in the business judgment of Mr. Adatiya and Mr. Puri, the sale to Vandyk represents the best opportunity to preserve what value remains for Maple Valley and avoid the alternative, a forced sale with all its associated costs and downward pressure on the sale price that would necessarily entail.

The Governing Test

[23] Section 101(1) of the Court of Justice Act, 1990 c. C.43, confers authority on this court to grant an injunction, "where it appears to a judge of the court to be just or convenient to do so."

[24] The test to be applied in deciding whether to grant an injunction is well-settled: see RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, at p. 334. First, the court must conduct a preliminary assessment of the case's merits to determine whether there is a serious question to be tried. Second, the court must determine whether the party seeking the injunction would suffer irreparable harm should the court not grant it. Finally, the court must consider the balance of convenience and assess which party would suffer more harm from granting or refusing an injunction pending a decision on the merits.

The Positions of the Parties

[25] On behalf of Mr. Dhaliwal, Mr. Nuri submits that the circumstances satisfy the three preconditions for granting an injunction to block the impending sale of the Property to Vandyk. First, he argues that based on the record, his client has established a triable issue as to whether Mr. Adatiya and Mr. Puri have engaged in oppressive and unfairly prejudicial conduct to the detriment of his client's interests as a minority shareholder. He contends that a private sale without the benefit of a current appraisal and to a purchaser with whom Mr. Adatiya and Mr. Puri do not appear to be at arm’s length continues the very same troubling pattern of conduct that precipitated his client initiating an action for oppression.

[26] Second, he submits that his client will suffer irreparable prejudice if the sale proceeds. The sale will dispose of Maple Valley's only asset. There will effectively be nothing left of the company if the transaction goes ahead. Additionally, he argues that because the Property is in the midst of development, it will be difficult for his client to prove at trial that the sale was improvident and quantify his damages.

[27] Finally, Mr. Nuri argues that the balance of convenience favours granting an injunction. He notes that none of Maple Valley's mortgagees has issued a power of sale. Therefore, he submits that time remains to sell the Property on the open market and ensure that his client obtains maximum value for his investment in Maple Valley while occasioning minimal risk for the Defendants.

[28] On behalf of the Defendants, Mr. Bourassa submits that the court should decline to exercise its discretion to grant an injunction. First, he contests that there is a genuine issue for trial. In so arguing, he emphasizes the business judgment rule. He notes that it will require the trial court to show deference to the decisions made by Mr. Adatiya and Mr. Puri as Directors. To overcome the effect of that rule and succeed in claiming oppression, Mr. Dhaliwal will bear the burden of establishing Mr. Adatiya and Mr. Puri have not discharged their duties honestly, prudently, in good faith, and on reasonable grounds in the best interests of the company. Mr. Bourassa contends that the evidence marshalled by Mr. Dhaliwal on the motion falls far short of demonstrating a triable issue when it comes to that.

[29] Instead, he submits that the evidence on the motion overwhelmingly demonstrates that the only reason Maple Valley is on the brink of financial ruin is that Mr. Dhaliwal refuses to do what his clients have done and put more of his own money on the line. Ultimately, argues Mr. Bourassa, the record shows that Maple Valley is in a precipitous financial situation. And that Mr. Adatiya and Mr. Puri, exercising their business judgment, which the court has no good reason to second guess, have concluded that the only viable option is to sell the Property to Vandyk at this time. A decision, he emphasizes, that all the shareholders have ratified, except for Mr. Dhaliwal.

[30] Second, Mr. Bourassa submits that the sale would not occasion irreparable prejudice to Mr. Dhaliwal. Ultimately, in the unlikely event that he was to succeed in the action, Mr. Dhaliwal can seek damages. If the sale is improvident, as Mr. Dhaliwal claims, he could marshal expert evidence to prove that, making any damages to him entirely quantifiable.

[31] Finally, because Maple Valley's creditors are nipping at its heels, and the company is on the brink of financial ruin, Mr. Bourassa submits that the balance of convenience favours refusing an injunction. To do otherwise, he argues, would leave the company in an entirely untenable position, its principal asset likely subject to power of sale at a discount and a consequential loss to all its shareholders.

Analysis

[32] Having summarized the evidence, the law, and the parties' competing positions, I turn next to apply the three-part test from RJR-MacDonald.

Is there a serious question to be tried?

[33] Under this first prong of the test, the Supreme Court explained in RJR-MacDonald, at p. 337, the threshold to meet "is a low one" and the judge "must make a preliminary assessment of the merits of the case." As Sopinka and Cory JJ. explained in RJR-MacDonald, at pp. 337-338:

Once satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third tests, even if of the opinion that the plaintiff is unlikely to succeed at trial. A prolonged examination of the merits is generally neither necessary nor desirable.

[34] To be sure, at trial, the court will need to apply the “business judgment rule” when assessing Mr. Adatiya’s and Mr. Puri's actions as Directors. Under that rule, courts must accord deference to the business decisions made by a company's Directors: BCE Inc v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 40, 99. However, the rule provides no sanctuary for Directors where evidence casts doubt on the honesty, prudence, good faith, or reasonableness of their decisions: see Corporacion Americana de Equipamientos Urbanos SL v. Olifas Marketing Group Inc (2003), 2003 CanLII 22758 (ON SC), 66 O.R. (3d) 352 (S.C.), at para. 14; Main v. Delcan Group Inc, 1999 CanLII 14946 (ON SC), 47 B.L.R. (2d) 200 (Ont. S.C.), at paras. 35-36; CW Shareholdings Inc. v. Wic Western International Communications Ltd. et al. (1998), 1998 CanLII 14838 (ON SC), 160 D.L.R. (4th) 131 (Ont. Gen. Div.), at p. 150.

[35] The evidence marshalled on the motion undoubtedly establishes that there are, at the very least, triable issues concerning Mr. Dhaliwal's claim that Mr. Adatiya and Mr. Puri engaged in conduct that is unfairly prejudicial to and disregards his interests; including the good faith of their decision to sell the Property to Vandyk. The evidence on the motion calls into question the propriety of that decision. After all, they entered the agreement to sell after Mr. Dhaliwal initiated his action for oppression. Moreover, they negotiated the deal privately, without placing the Property for sale on the open market. Finally, and most critically, there is a basis in the evidence to seriously question whether Vandyk is, in fact, at arm’s length from Mr. Adatiya and Mr. Puri.

[36] In these circumstances, Mr. Dhaliwal has easily met the relatively low threshold under the first part of the test for an injunction; there is undoubtedly a serious question to be tried.

Would Mr. Dhaliwal suffer irreparable prejudice if the court does not grant an injunction?

[37] The second part of the test is more exacting. To succeed, Mr. Dhaliwal must demonstrate that he would suffer irreparable harm should the court not grant an injunction. That means "harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other.": RJR-MacDonald, at p. 341.

[38] If the sale to Vandyk goes ahead, Mr. Dhaliwal will receive his share of the proceeds after Maple Valley discharges its mortgages and pays its other debts. But, of course, if the sale is improvident, Mr. Dhaliwal will not receive his share of the Property's true present value. Further, the sale will deprive him of the opportunity to realize the profits he would have enjoyed had the project been completed with the sale of multiple residential units.

[39] However, I do not accept that Mr. Dhaliwal's potential damages are not quantifiable. After all, expert evidence could undoubtedly prove the Property's current market value. Further, although somewhat more involved, such evidence could provide a reliable indication of what Mr. Dhaliwal could have earned had the project continued to completion as initially planned.

[40] The difficulty for Mr. Dhaliwal should the court decline to grant an injunction is that there would be nothing left of Maple Valley for him to collect against if his action against the company succeeds. After all, the Property is Maple Valley’s sole asset. But, that said, as the Supreme Court recognized in RJR-MacDonald, at p. 341:

The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.)).

[41] And to be sure, should he succeed at trial against Mr. Adatiya and Mr. Puri, given the nature of the claims he advances against them, a damage award against them personally would very likely be appropriate: see Business Corporations Act, s. 248(3)(j); Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 S.C.R. 1037, at paras. 49-57. Importantly, nothing in the motion record suggests that Mr. Adatiya or Mr. Puri are impecunious. As a result, should he succeed in his action, Mr. Dhaliwal could be made whole for anything he lost through a damage award against Mr. Adatiya and Mr. Puri personally.

[42] Accordingly, I am not satisfied that Mr. Dhaliwal would suffer irreparable harm if the court fails to grant an injunction to block the sale of the Property to Vandyk. It follows that the circumstances do not justify the issuance of an injunction.

Conclusion

[43] Although the court is sympathetic to Mr. Dhaliwal, as it shares his doubts concerning the propriety of the sale to Vandyk, it cannot grant his motion for an injunction because he has failed to demonstrate that he will suffer irreparable harm should the sale proceed. Ultimately, the potential harm to Mr. Dhaliwal is quantifiable, and he can obtain monetary damages should he succeed at trial. Accordingly, the court must dismiss the motion.

[44] In the circumstances, the costs of this motion should be payable in the cause.

“J. Stribopoulos J.”

Released: December 30, 2021