Court File and Parties

COURT FILE NO.: CV-12-451701 DATE: 20220429 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1417217 ONTARIO INC. and MUSA SULEMAN Plaintiffs – and – RIVER TRAIL ESTATES INC., 1639395 ONTARIO INC., REGALCRAFT HOMES INC., ESTATE OF MADAN SHARMA, REKHA SHARMA and MEENA SHARMA Defendants

Counsel: Alnaz I. Jiwa, for the Plaintiffs Kenneth Prehogan, Kayla Theeuwen and Max Skrow, for the Defendants

HEARD: In writing

PAPAGEORGIOU J.

Costs and Interest Decision

Nature of the Case and Findings at Trial

[1] This litigation arises out of a defunct Joint Venture between the plaintiff, Musa Suleman, who was 76 years old at the time of the trial, and the deceased Madan Sharma, who is now represented by the Estate of Madan Sharma (the “Estate”). Each side of the Joint Venture claimed that the other had been overpaid and that there had been misappropriations by the other. The defendant Meena Sharma, in her capacity as Trustee of the Estate of Madan Sharma, claimed an oppression remedy pursuant to s. 248(1) of the Ontario Business Corporations Act, [1] alleging that the plaintiffs conducted the business of the Joint Venture in a manner that is oppressive. Apart from alleged misappropriations, the Estate claimed that Mr. Suleman had failed to maintain corporate and accounting books and records, and requested either damages or an accounting.

[2] On November 2, 2021 I delivered reasons. The main findings were that: a) the Estate, the defendant Meena Sharma, Rekha Sharma and River Trail Estates were jointly and severally liable in respect of Joint Venture proceeds in the amount of $1,586,584.83 misdirected to a non-Joint Venture company and that such funds were payable to the plaintiff 1417217; b) that both joint venturers had been overpaid; and c) that an accounting was required because of the poor accounting practices of the plaintiff Musa Suleman post 2008 which I held created a circumstance of prejudice sufficient to constitute oppression.

[3] I will first address the interest claimed by the plaintiffs and then I will address costs.

Position of the Parties as to Interest

[4] 1417217 claims interest from January 1, 2012 at the rate of 8 % compounded monthly, in the alternative semi-annually, and in the alternative on an annual basis. 1417217 alleges that there was an agreement from the outset of the purchase of the property in question that interest would be payable at the rate of 8 %. There is no specific evidence that interest would be calculated in this manner with respect to these proceeds of sale.

[5] The defendants take the position that interest calculations should be deferred until after the accounting, and in the alternative argues that interest should only be payable at the rates set out in the Courts of Justice Act. [2] The defendants argue that there should be no compounding and that 1417217 should not receive any interest for periods where it delayed.

Is it Premature to Order Interest?

[6] In my view, it is not premature to order interest. Indeed, it is appropriate that this court address interest payable because the interest calculation is required for the accounting. The Associate Judge will be taking into account all inflows into 1417217 which must be shared pursuant to the parties’ agreement to share profits on the basis of 2/3 to Mr. Sharma and 1/3 to Mr. Suleman. There is no reason to leave this calculation to the Associate Judge as it is more appropriate for this court to determine since this court has determined the merits which are relevant to arguments about the interest payable.

What is the Appropriate Interest Rate

[7] Section 130 of the Courts of Justice Act provides as follows:

Discretion of court

130 (1) The court may, where it considers it just to do so, in respect of the whole or any part of the amount on which interest is payable under section 128 or 129,

(a) disallow interest under either section; (b) allow interest at a rate higher or lower than that provided in either section; (c) allow interest for a period other than that provided in either section.

[8] Section 130(2)(b) provides that in exercising its discretion, the court shall take into account the circumstances of the case.

[9] First, in paragraph 1(g) of the Statement of Claim the plaintiffs specifically requested “prejudgment interest at the rate of 8 % as agreed between the plaintiffs at the late Madan Sharma and post judgment interest pursuant to the Courts of Justice Act”.

[10] The defendants argue that there is no basis for an 8 % interest rate because there was no contractual obligation to pay 8 % interest on the misappropriated funds. I agree that there is no contractual basis; this is not a case involving an unpaid loan where a specific interest rate was prescribed.

[11] Nevertheless, I am exercising my discretion to impose an 8 % interest rate. Meena, as Trustee of the Estate knew or should have known that 1417217 was obligated to pay investors interest at the rate of 8 % when she misdirected Joint Venture proceeds to a non-Joint Venture Corporation in 2011. I found that as of January 1, 2008, investors were still owed $1,200,000.00. 1417217 was obliged to continue to pay or accrue interest payable to investors at this rate, while the defendants had the use of the misappropriated funds. It would be unfair to not impose the same interest rate that 1417217 was obliged to pay. As well, the defendants’ costs submission states that the defendants’ counsel recently received correspondence from the CRA which indicated that there is still in excess of $1,500,000.00 payable to the CRA by 1417217. While the interest rate which has been accruing is unknown, it stands to reason that it is also higher than the Courts of Justice Act rate.

[12] Therefore, I am exercising my discretion to impose a pre-judgment interest rate of 8 %.

[13] As the plaintiffs only requested post-judgment interest at the rates set out in the Courts of Justice Act in the Statement of Claim I shall apply that rate to post-judgment interest.

Should Interest Be Compounded and if so How

[14] First, I will deal with whether there is a basis for compound interest and then, if so, I will address the manner in which interest should be compounded.

[15] There are two bases for compound interest, contractual [3] and in cases of wrongfully misappropriated trust property.

[16] There is no contractual basis for compound interest in this case.

[17] With respect to the second basis, the plaintiffs rely upon Waxman v. Waxman, 2008 ONCA 426, [4] where the Court of Appeal stated:

5 In cases of wrongfully misappropriated trust property, it is open to the court to presume the injured party is entitled to receive compound interest. See, for example, Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 SCR 601, Air Canada v. Ontario (Liquor Control Board), [1997] 2 SCR 581 and Brock v. Cole (1983), 142 DLR (3d) 461 (Ont.C.A.).

6 Various justifications have been offered for the presumption. Two such justifications are that the court may presume that the injured party would have made the most beneficial use of the funds possible, and that the wrongdoer enjoyed the most beneficial use of the funds. Regardless of which of those two rationales is employed, there was evidence in the present case to justify the exercise of the discretion. There was evidence that Morris Waxman, the injured party, placed his money in banks and received compound interest thereon. There was also evidence that many of the bonuses and dividends paid to the appellants, the wrongdoers, were put into highly profitable mutual fund limited partnerships.

[18] The defendants argue that there is no basis for the underlying presumption in this case that 1417217 would have made the most beneficial use of the funds and as such, there is no basis for compounding even though I have made the above findings which in my view are equivalent to the misappropriation of trust funds. I agree. There was no evidence as to 1417127’s use of funds other than to use it in the ordinary course of business to pay bills. There was no evidence that any of its outstanding liabilities had interest rates which were compounded.

[19] Therefore, in my view there is no basis to exercise my discretion to order compound interest.

Is There a Basis to Exercise the Court’s Discretion to Not Award Pre-Judgment Interest for the Entire Period Between January 1, 2012 Through to the date of the Decision?

[20] Entitlement to pre-judgment interest is not absolute. [5] Pursuant to s. 130(1) of the Courts of Justice Act, the court may take into account the conduct of any party that tended to unnecessarily lengthen the duration of the proceeding. The court may withhold or reduce pre-judgment interest because of a plaintiff’s delay. [6]

[21] I agree that there is a basis to reduce the periods for which interest is payable because of the plaintiffs’ delay, which goes as follows:

[22] Mr. Suleman was examined for discovery on his own and on 1417217’s behalf in May 2013. The defendants’ undertakings were answered on December 15, 2014.

[23] The plaintiffs made undertakings and did not answer them for so long that the action was struck from the trial list in April 2016, nearly three years after examinations were completed.

[24] By endorsement dated April 19, 2017 Master Sugunasiri (as she then was) noted that the plaintiffs provided “very little by way of evidence as to the reasons for [their] delays.” She restored the action to the trial list subject to the plaintiffs answering outstanding undertakings that remained as of that date. The action was restored to the trial list after the plaintiffs answered their undertakings on June 12, 2017.

[25] I agree that no interest should be paid for the period between December 15, 2014 to June 12, 2017.

[26] Therefore, I order that 1417217 is entitled to interest at 8 % from January 1, 2012 until November 2, 2021, but not for the period between December 15, 2014 to June 12, 2017.

[27] I also order that post judgment interest shall run from the date of the judgment at the rates set out in the Courts of Justice Act.

[28] The calculations submitted by the parties do not calculate interest on the above basis. If they cannot agree on what interest calculated on this basis is, they may make additional submissions on this issue no longer than 5 pages each.

Position of the Parties as to Costs

[29] The plaintiffs request costs on a full indemnity basis in the amount of $382,650.57 or in the alternative on a substantial indemnity basis.

[30] The defendants assert that there was mixed success and that a no costs order is appropriate. In the alternative, they claim entitlement to costs in respect of mid-trial productions made by the plaintiffs to be set-off against any costs award made.

The Court’s Discretion

[31] Pursuant to s. 131(1) of the Courts of Justice Act, costs are in the discretion of the court. Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 sets out the factors which courts should have regard to when awarding costs. The overall objective is “to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.” [7]

[32] Rule 57 sets out factors which the court may have reference to.

Was There Divided Success?

[33] The defendants argue that success was divided and rely upon caselaw holding that divided success with respect to arguments and outcomes justifies an order of no costs [8], apportionment based upon the relative success of each party [9] or substantially reduced costs based on one party’s lack of success on some major issues. [10]

[34] The defendants base this argument on the following. First, Mr. Suleman was not awarded anything personally. While true, the fact that he was a plaintiff did not change the complexion of this proceeding in any material way, nor did it result in any increased costs. Both Mr. Suleman’s claim and 1417217’s claim were premised on the exact same theories without any differentiation. In my view, Mr. Suleman likely viewed himself as inextricably linked with 1417217’s claim. As well, the defendants’ counterclaim for misappropriation was entirely against Mr. Suleman personally and the defendants failed in this claim.

[35] Second, the defendants argue that the plaintiffs did not achieve any success on a number of claims including the following three. The first is the plaintiffs’ claim to a resulting trust which had never been pleaded. This did not involve any significant trial time but the defendants did have to address it in their closing submissions. In my view this did not occasion any significant costs. The second is the plaintiffs’ claim to repayment of $1 million in proceeds related to a project known as Highbury Estates which had not been pleaded. There were only limited questions asked about it at trial and even though addressed in closing submissions, the defendants could not have incurred significant costs in pointing out that this had not been pleaded. The third is the plaintiffs’ claims of negligence. I found that this was never adequately pleaded, nor did the plaintiffs advance evidence which satisfies this claim. Again, there is no evidence that the defendants would have incurred any significant costs in defending such a claim.

[36] The defendants also argue that the plaintiffs failed entirely in their claim to repayment of $5,358,210.00. While true, and even though the claim for $5,358,210.00 was significant monetarily, there was no significant time spent on this issue at trial. The basis for the $5,358,210.00 was poorly pleaded and theorized. The plaintiffs spent very little time on this at trial. It certainly did not take much time for the defendants to cross-examine on at trial nor did it involve any significant documentation during the trial. While the plaintiffs failed in this claim, this claim could not have occasioned any significant costs incurred by the defendants in the circumstances.

[37] In my view, the bulk of the trial time and the main issues as between the parties concerned the following issues:

i) The plaintiffs’ claim that Meena, Rekha, the Estate and River Trail Estates had misappropriated $1,586,584.83 in respect of Joint Venture proceeds of sale which were misdirected to a non-Joint Venture company. As noted above, I lifted the corporate veil to hold Meena, Rekha, the Estate and River Trail Estates jointly and severally liable. This was significant relief as the misappropriation occurred in 2011. With interest, this is a significant victory.

ii) The plaintiffs’ claim that as of January 2008, Mr. Sharma had been overpaid management fees in the amount of $2,424,712.00 while Mr. Suleman had been overpaid $1,368,195.00 as of that date. I found that the plaintiffs’ claims in this regard were substantiated. The defendants opposed both of these findings, even the finding that Mr. Suleman had been overpaid in these amounts.

iii) The defendants’ claim that they were entitled to an oppression remedy on the basis that Mr. Suleman had misappropriated funds and/or on the basis that he kept the books and records of 1417217 in a manner that created a circumstance of prejudice for the Joint Venture and that this was sufficient to constitute oppression. I dismissed the Estate’s claim that it was entitled to an oppression remedy on the basis that Mr. Suleman had misappropriated any Joint Venture funds but awarded the accounting because of the state of the books and records post 2008 when he began to assume a greater role for the accounting.

[38] Therefore, the plaintiffs succeeded in establishing misappropriation, lifting the corporate veil (which is quite significant) as well as proving that the more significant overpayment of management fees was to Mr. Sharma, while the defendants’ claims of misappropriation were dismissed. The only success achieved by the defendants in respect of its counterclaim was an Order for an accounting which had also been sought by the plaintiffs although it was not very well particularized.

[39] As well, while the defendants were successful in their claim for an accounting, they did not meet their entire objective. The defendants sought the accounting to commence at the beginning of the Joint Venture in 2000 but they lost most primary Joint Venture documents including the electronic accounting system kept at Mr. Sharma’s premises which was ultimately disclosed at trial for the first time. As well, the bulk of the discrepancies (apart from the issue of the online transfers) related to the period after January 1, 2008 when the Joint Venture began winding down and Mr. Suleman assumed greater responsibility for the accounting. Therefore, I ordered that the accounting could not commence in 2000 as the defendants desired but instead has been ordered to commence as of January 2008.

[40] The plaintiffs’ success in proving that Mr. Sharma had been overpaid $2,424,712.00 while Mr. Suleman had been overpaid $1,368,195.00 as of January 2008 (when the accounting shall commence) means that the plaintiffs are commencing the accounting with a significant advantage particularly since commencing January 2008 the Joint Venture was winding down, did not earn significant revenues, and had a significant tax liability which is still outstanding. As well, I accepted Rahim Suleman’s evidence that the projects had been unprofitable. The defendants’ own submissions note that at present there is a CRA debt outstanding in the amount of $1,500,000.00.

[41] In my view, the plaintiffs were by far the more successful party even though there was some divided success. Nevertheless, the divided success justifies some reduction in the plaintiffs’ costs.

Was there Conduct Which Unnecessarily Lengthened the Action and the Trial

[42] Both sides accuse the other of such conduct.

[43] I did not find the plaintiffs’ allegations in this regard persuasive. The plaintiffs primarily argue that the defendants sought and obtained too many undertakings which were ultimately unhelpful to their case as argued and presented at trial. The plaintiffs allege an improper purpose of trying to frustrate the plaintiffs’ case and cause them to incur costs. There is no evidence of this sort of bad faith. The plaintiffs brought a significant action against the defendants and they were entitled to ask relevant questions to defend themselves. Parties often do not know what will be helpful until they ask and their theories of the case often evolve with the evidence they discover. If the plaintiffs felt that the questions were irrelevant, they should not have given the undertakings. I also do not find the fact that the defendants brought and lost a security for costs motion of any import. The plaintiffs were awarded costs for this step and these costs were paid.

[44] The defendants correctly point out that the plaintiffs failed to answer undertakings made at the 2013 discovery which resulted in the case being struck from the trial list in April 2016. In April 2017 the case was restored to the trial list after a motion brought by Master Sugunasiri (as she then was).

[45] As well, the plaintiffs had mistakenly misunderstood that a document produced by the defendants and agreed to be included as a trial document could not be admitted for the truth of its contents without the witness who prepared the document. This resulted in the plaintiffs seeking leave to call an additional witness as well as additional the admission of mid-trial production of documents from that witness. In their cost submissions dated October 8, 2020, the defendants indicated that they received two boxes of documents which they had to review and requested costs in the amount of $66,425.00 as costs thrown away. I agree that this should be taken into account, but I view the quantum as too high given the quantum of documents.

Is There a Basis for Full Indemnity Costs?

[46] Full indemnity costs are an exception to the general rule and are awarded only under special circumstances [11] where the conduct of the party against whom costs are awarded is egregious [12]. I see no basis for full indemnity costs and in any event the plaintiffs never pleaded this.

Is There a Basis for Substantial Indemnity Costs

[47] Substantial indemnity costs awards are an exception to the general rule and are awarded only under special circumstances [13]. Conduct that is reprehensible, scandalous or outrageous falls within the ambit of an award of full indemnity costs”. [14] In Davies v. Clarington (Municipality) the Court of Appeal recognized that meritless claims of fraud, deceit and dishonesty based upon pure speculation were commonly accepted as a basis for attracting a higher costs award. [15]

[48] In my view, the following facts justify an award of substantial indemnity costs:

a) The defendants made significant allegations of dishonesty and misappropriation against Mr. Suleman, who is a professional CPA, which were prejudicial to his character and reputation. [16] Throughout the trial and in their closing submissions they said that he was “cooking the books”. These claims were not proven and were primarily based upon an allegation that the plaintiffs had failed to share revenues earned by the Joint Venture post 2008. These claims were completely meritless because there was never any agreement among the Joint Venturers that they would share revenues – rather as would be expected their agreement was to share profits. The defendants were aware of the significant tax liability which 1417217 had and must have been aware that the Joint Venture continued to incur expenses as it would down. Their misappropriation of funds prevented 1417217 to pay its significant outstanding tax liability of which they were aware.

b) The defendants raised a completely new theory of misappropriation at trial and never pleaded that there were online transfers in the total amount of $479,132.00 during the years 2002 to 2008 from 1417217 into bank accounts controlled by Mr. Suleman. A significant amount of cross-examination of Mr. Suleman related to this issue. Because the accounting claim was bound up with their misappropriation claim, it was not apparent that this argument would be made until it was, and the plaintiffs had absolutely no notice. This laborious cross examination on this unpleaded issue significantly increased costs.

c) During the trial Meena and Rekha provided evidence for the first time that Mr. Sharma had advised Meena that Mr. Suleman faxed bank statements to him with blacked out entries when Mr. Sharma became concerned about online transfers. This had never been pleaded, it had never been questioned during the discovery and critically, the defendants had never even cross-examined any of the plaintiffs’ witnesses on these allegedly blacked out statements. I found this to not be credible. This also lengthened the trial.

d) The defendants disclosed for the first time at trial that they had lost the entire electronic accounting system while still claiming an accounting dating back to the commencement of the Joint Venture which would be impossible given these facts.

e) In Barry v. Garden River Ojibway Nation No. 14 (1997) [17] the Court of Appeal held that the appellants were beneficiaries of a trust who were obliged to sue their trustees and as such they should receive their costs on a solicitor and client scale. Although there was not a formal trust arrangement here, I made findings that Meena worked with Mr. Suleman cooperatively to sell the property in question and that she specifically undertook to hold the proceeds in question in trust and then misdirected them. In my view, this is similar to the basis found by the Court of Appeal in Barry so as to justify substantial indemnity costs.

f) I lifted the corporate veil to find Meena, Rekha, 1417217, and River Trails jointly and severally liable on the basis that “this is the quintessential case where the corporate veil must be lifted. Meena and Rekha cleverly put a significant asset beyond the reach of the plaintiffs by directing it to a corporation controlled by Rekha, all the while representing that such funds were being held in trust.” In my view, substantial indemnity costs should be awarded as a form of chastisement for the defendants’ conduct. [18]

[49] As to the quantum, the plaintiffs have provided a Bill of Costs which adequately sets out the rates and time spent by counsel which I find reasonable and certainly within the reasonable expectation of the defendants. Indeed, the defendants would be in no position to challenge the rates or amount of time spent since they did not file their own Bill of Costs.

[50] Taking into account adjustments because of some of the success achieved by the defendants as well as costs which they incurred because of mid-trial production of documents, I am reducing the substantial indemnity costs claimed by the plaintiffs in the amount of $363,341.60 to $280,000.00.

[51] The defendants argue that if costs are awarded to the plaintiffs, they should not be payable until the accounting ordered has been complete. I see no reason to defer the costs payment. 1417217 currently owes the CRA $1.5 million based upon the defendants’ submission. This is almost the exact amount which was misappropriated by the defendants and which must be repaid pursuant to my judgment. Had the defendants not misappropriated these funds and put both 1417217 and Mr. Suleman into financial hardship, this action may never have been commenced. I find the argument that it would not be in the interests of justice to require the costs to be paid until after the accounting unpersuasive. Indeed, the interests of justice require that the costs be paid immediately. Mr. Suleman’s lawyer has worked for many years at times for no remuneration. If Mr. Suleman is not paid his costs at this time, he may not be able to afford the accounting before the Associate Judge.

Is the Plaintiffs’ Counsel Entitled to a 15 % Bonus or Risk Premium

[52] The plaintiffs’ counsel argue that they are entitled to a 15 % risk premium because at times he acted without being paid. In my view, there is no basis for this relief. [19]

[53] In conclusion I order interest at the rate of 8 % to be paid for the periods January 1, 2012 until November 2, 2021, but not for the period between December 15, 2014 to June 12, 2017 without any compounding. If the parties cannot agree on these calculations they may submit short submissions no longer than 3 pages setting out their calculations.

[54] I also order costs to be paid to the plaintiffs by the defendants the Estate, Meena, Rekha and River Trails in the amount of $280,000.00 payable within 30 days.

Papageorgiou J.

Released: April 29, 2022

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1417217 ONTARIO INC. and MUSA SULEMAN Plaintiffs – and – RIVER TRAIL ESTATES INC., 1639395 ONTARIO INC., REGALCRAFT HOMES INC., ESTATE OF MADAN SHARMA, REKHA SHARMA and MEENA SHARMA Defendants

COSTS DECISION Papageorgiou J. Released: April 29, 2022

[1] R.S.O. 1990, c. B.16. [2] R.S.O. 1990, c. C.43. [3] Bank of America v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601. [4] 2008 ONCA 426. [5] Somers v. Fournier, 60 O.R. (3d) 225 (C.A.), at para. 22. [6] Somers, at para. 26. [7] Boucher v. Public Accountants Council (Ontario) (2004), 71 O.R. (3d) 291 (C.A.), at para. 26; see also Zesta Engineering Ltd. v. Cloutier, at para. 4; Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at para. 52; G.C. v. Ontario (Attorney General), 2014 ONSC 1191, at para. 5. [8] Seetal v. Quiroz, [2009] O.J. No. 3124 (S.C.), at para. 9; Ferrelli v. Grilli, [2005] O.J. No. 25 (S.C..), at para. 9. [9] Lysko v. Braley (2006), 50 C.C.E.L. (3d) 1 (ONCA). [10] United States v. Yemec, 2010 ONCA 845. [11] Baryluk (Wyrd Sisters) v. Campbell, at para. 10. [12] Penuvchev v. Cocovski, 2012 ONSC 4405, at para. 13. [13] Baryluk, at para. 10. [14] Baryluk at para 10. Davies v. Clarington (Municipality), 2009 ONCA 722 at paras 29-30. [15] Davies para 47. [17] (1997), 33 O.R. (3d) 782 (C.A.). [18] Davies, at paras 29-30. [19] Walker v. Ritchie, 2006 SCC 45, [2006] 2 S.C.R. 428, at paras. 24-42; Ward v. Manufacturers Life Insurance Co., 2007 ONCA 881, [2007] O.J. No. 4882, at paras. 61-72; Keays v. Honda Canada Inc., 2008 SCC 39, [2008] 2 S.C.R. 362, at para. 79.