COURT FILE NO.: CV-20-00641908-00CL

DATE: 20220603

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2043102 ONTARIO LIMITED COB UNDER THE FIRM NAME AND STYLE OF YYZED PROJECT MANAGEMENT, Plaintiff

AND:

EMINENCE LIVING INC., Defendant

BEFORE: Justice Cavanagh

COUNSEL: Terry Corsianos, for the Jean-Pierre Matas, Moving Party

Caitlin Dale, for the Plaintiff

Megan Keenberg for Voreon Inc.

Rory McGovern for Sharief Zaman

HEARD: March 31, 2022

ENDORSEMENT

Introduction

[1] The moving party, Jean-Pierre Matas, brings this motion for an order pursuant to s. 246 of the Business Corporations Act, R.S.O. 1990, c. B.16, as amended (the “OBCA”) granting leave of the Court for him to defend the within action in the name and on behalf of Eminence and to advance a counterclaim.

[2] The motion is opposed by the plaintiff, YYZed, and by Voreon Inc., a direct or indirect shareholder of Eminence.

[3] For the following reasons, I find that Mr. Matas has failed to discharge his onus of satisfying the Court that (i) he is acting in good faith, and (ii) it appears to be in the interests of Eminence that the action be defended and a counterclaim made.

Factual Background

Claims in YYZed’s action

[4] In this action, YYZed claims (a) payment of $271,901.73 as compensation for the value of management services provided to Eminence under a contract for the provision of project management; (b) a declaration pursuant to s. 248 of the OBCA that the actions of Eminence are oppressive and ordering Eminence to release the sum of $271,901.73 to YYZed from proceeds of sale of certain property or, alternatively, that Eminence compensate YYZed in this amount; and (c) in addition, or in the alternative, damages on a quantum meruit basis.

Corporate structure of Eminence

[5] Eminence was incorporated on September 20, 2012. Jean-Pierre Matas and Shareif Zaman are the company’s sole directors and officers.

[6] On September 20, 2012, the shareholders of Eminence entered into a Unanimous Shareholder Agreement (“USA”). This agreement confirmed that Matas Management Services Inc. (“Matasco”), a company owned and controlled by Mr. Matas and his brother Gord, owns 25 common shares of Eminence and, thus, a 25% equity interest. The balance of the equity in Eminence, being 75 common shares, is owned by Kayzan Inc. (“Kayzan”).

[7] Voreon Inc. (“Voreon”) owns two-thirds of the shares of Kayzan. Voreon is owned and controlled by Stamos Katotakis. A company owned by Sharief Zaman owns the remaining one-third of the shares of Kayzan.

[8] The current ownership of the shares of Eminence is the subject of litigation and is in dispute.

[9] Under the USA, unanimous shareholder approval is required for any action or transaction not in the ordinary course of business of Eminence. Accordingly, a decision by Eminence to defend the action requires the consent of both directors and unanimous shareholder approval.

[10] This motion by Mr. Matas is made in the context of the ongoing dispute among the shareholders of Eminence in which litigation is pending. In this litigation, Voreon takes the position that it beneficially owns 100% of the shares of Eminence. This position is disputed by Mr. Matas. In this litigation, Koehnen J. released a decision in Mr. Matas’ favour which has been appealed by Voreon to the Court of Appeal. If the appeal is unsuccessful, Mr. Matas will be entitled to become a 50% shareholder of Eminence.

[11] Voreon takes the position that Mr. Matas’ motion is brought for ulterior motives that relate to the shareholders’ dispute, and that he is not acting in good faith. Mr. Matas’ submits that the shareholding dispute is irrelevant to his motion, and that he is acting in good faith by discharging his duty as a director of Eminence to seek leave to defend the YYZed action.

Contract between Eminence and YYZed

[12] Mr. Matas was originally designated as the project manager for 45 Agnes and was responsible for completing the zoning required to develop the property. He was replaced by YYZed.

[13] On October 4, 2015, Eminence entered into an agreement entitled “Construction Management Services Proposal” with YYZed (the “Agreement”). The Agreement states that “[t]he intent of this proposal is to deliver a comprehensive construction management services in relation to the development at 45 Agnes Street, Mississauga (the “Project”)”.

[14] Under the heading “Construction Management Fees”, the parties agreed to fees to be charged by YYZed. The fees were based on a percentage (3%) of the total construction costs for the project. For stages 1 and 2, the allocation to hard costs was 2.85%. The Agreement provides that fees are divided by the number of months scheduled for each stage of activity and that adjustments to the fee schedule can be made if changes are made to the project schedule.

[15] The draft hard cost budget upon which fees during the preconstruction phase were calculated showed a cost of $46,980,540. This was subject to change. YYZed agreed in a letter of intent that the pre-construction component of this fee shall be 0.5% which translated into an estimated fee of $19,575 per month assuming a 12 month pre-construction schedule. YYZed agreed to defer one-third of the pre-construction fee until the first draw was advanced by the construction lender to accommodate Eminence’s cash flow problems. The letter of intent states that the monthly pre-construction fee payable will be fixed in the amount of $13,000, and that the pre-construction fees will accrue immediately upon the commencement of work by YYZed. The draft hard cost budget could be amended by the project manager.

[16] The final hard cost budget could not be completed until the tendering process with the major trades was completed. Once the final hard cost budget was accepted, this would form the basis for the “Guaranteed Maximum Price” under the Agreement. In the pre-construction phase, the final hard cost budget was not completed, and YYZed charged for its services during this phase based on the draft hard cost budget, with the agreement of Eminence.

[17] YYZed commence providing services under the Agreement in early 2016. A number of invoices were issued and paid by Eminence. The last payment was received on August 11, 2016.

[18] On October 24, 2018, Alan Savage (one of YYZed’s principals) sent an email to the principals of Eminence and attached invoice number 13685 dated September 30, 2018 in the amount of $271,901.73. In the description section of this invoice the following statement is included: “Fianl (sic) billing for all outstanding management fees and deferral fees to September 30, 2018, as per attached a breakdown and our agreement.”

[19] On November 5, 2018, Mr. Savage sent an email to Mr. Matas and Mr. Zaman in which he advised that YYZed is suspending services for the project at 45 Agnes Street due to nonpayment of accounts for over two years and for lack of any meaningful effort to help resolve the accounts.

[20] The Agreement includes a provision for payment of a termination fee of $250,000 if the Agreement is terminated without cause and/or for reasons outside the control of YYZed.

[21] Mr. Savage explains in his affidavit that there was an accumulation of unpaid invoices for services rendered by YYZed and he describes his discussions with Mr. Zaman and Mr. Matas to address his concerns. Mr. Savage’s evidence is that following Eminence’s suspension of its services at 45 Agnes, he was repeatedly assured by the directors of Eminence, Mr. Matas and Mr. Zaman, that YYZed’s accounts would be paid including assurances that, if the property were to be sold, YYZed would be paid from the proceeds of sale.

[22] In Mr. Matas’ reply affidavit sworn on February 2, 2022, he deposes that he objected to YYZed’s invoice before the 45 Agnes property was sold and he considered the invoice to be grossly inflated based on the work that was actually done and given what was required under the Agreement. Mr. Matas’ deposes that since he did not control Eminence’s computer-generated accounting, YYZed’s invoice was simply posted onto the system’s accounts payable.

[23] The 45 Agnes property was sold by Voreon under power of sale in February 2020. Net proceeds of sale of approximately $9.3 million are being held in trust. No payments were made to YYZed from the sale proceeds.

[24] On June 2, 2020, YYZed commenced the within action against Eminence seeking payment of $271,901.73, the amount of the final invoice.

[25] The action has not been defended. Mr. Zaman, the other of the two directors of Eminence, has not authorized Eminence to defend the action.

[26] Mr. Katotakis, in his capacity as a director of Voreon (an indirect shareholder of Eminence), has confirmed his approval to pay YYZed’s invoice. Mr. Katotakis deposes that YYZ’s work was instrumental in completing the zoning and securing the ultimate purchaser for 45 Agnes.

[27] By email dated October 8, 2021 to legal counsel for YYZed, Mr. Zaman stated that he is a director of Eminence and he confirmed that Eminence seeks to pay all outstanding accounts owed to YYZed and he opposes any motion brought to try to challenge these accounts.

[28] YYZed has taken the position that if Mr. Matas’ motion is successful and he is granted leave to defend Eminence, YYZed will seek leave to amend its claim to (i) seek payment of fees based on the 2.85% rate in the Agreement rather than the 0.5% rate that was an accommodation to Eminence, and (ii) enforce payment of the termination fee but, if leave is not granted, it will not do so. YYZed relies on this assurance in opposition to Mr. Matas’ motion.

Analysis

[29] Mr . Matas brings this motion pursuant to section 246 of the OBCA for (a) an order granting him leave to defend the action in the name and on behalf of Eminence, (b) authorizing Mr. Matas pursuant to section 247 (a) of the OBCA to unilaterally control the conduct of the action on behalf of Eminence; and (c) an order pursuant to section 247 (d) of the OBCA requiring Eminence to pay all reasonable legal fees and other costs reasonably incurred by Mr. Matas in connection with the action.

[30] Section 246(1) of the OBCA provides:

246(1) Subject to subsection (2), a complainant may apply to the court for leave to bring an action in the name of and on behalf of a corporation or any of its subsidiaries, or intervene in an action to which any such body corporate is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the body corporate.

(2) No action may be brought and no intervention in an action may be made under subsection (1) unless the complainant has given 14 days’ notice to the directors of the corporation or its subsidiary of the complainant’s intention to apply to the court under subsection (1) and the court is satisfied that,

(a) the directors of the corporation or its subsidiary will not bring, diligently prosecute or defend or discontinue the action;

(b) the plaintiff 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, prosecuted, defended or discontinued.

[31] The parties agree that Mr. Matas is a complainant and that the directors of Eminence will not defend the action.

[32] Mr. Matas’ motion is opposed by YYZed and by Voreon on the grounds that Mr. Matas has failed to prove (a) that he is acting in good faith, and (b) that it appears to be in the interests of Eminence that the action be defended.

Legal principles

[33] In Richardson Greenshields of Canada Ltd. v. Kalmacoff, 1995 1739 (ON CA), the Court of Appeal for Ontario addressed a provision in the Loan and Trust Companies Act that provides for leave for a complainant to bring a derivative action. The statute provides that before granting leave, the court has to be satisfied that the complainant is acting in good faith and that it appears in the interests of the company that the action be brought. Robins J.A., writing for the Court, held:

It should also be borne in mind that s. 339 is drawn in broad terms and, as remedial legislation, should be given a liberal interpretation in favour of the complainant. The court is not called upon at the leave stage to determine questions of credibility or to resolve the issues in dispute, and ought not to try. These are matters for trial. Before granting leave, the court should be satisfied that there is a reasonable basis for the complaint and that the action sought to be instituted is a legitimate or arguable one. The preconditions of section 339 cannot be considered in isolation. Whether they have been satisfied must be determined in the light of the potential validity of the proposed action.

[34] In Hevey v. Wonderland Commercial et al., 2021 ONSC 540, the application judge addressed the approach to be taken to whether an applicant is acting in good faith on an application for leave to commence a derivative action. The application judge adopted the analysis of the good faith requirement as set out in 2538520 Ontario Ltd. v. Eastern Platinum Ltd., 2020 BCCA 313, [2020] B.C.J. No. 1820, a decision of the British Columbia Court of Appeal where Justice Griffin, writing for the majority of the court, noted the following, at paras. 29-33:

The requirement that the complainant be acting in good faith focuses on the primary purpose for the bringing of a derivative action. The primary purpose must be to benefit the company. The onus is on the applicant to provide evidence proving this question of fact: Jordan Enterprises Ltd. v. Barker, at paras. 27-30.

The good faith requirement is a separate requirement that must be established by the complainant based on evidence. It cannot simply be presumed, even where the claim can be said to be in the best interests of the company: Discovery Enterprises Inc. v. Ebco Industries Ltd. (1997), 1997 4375 (BC SC), 40 B.C.L.R. (3d) 43 at paras. 117-118 (S.C.) [Discovery Enterprises (S.C.)]; aff’d (1998). 1998 7049 (BC CA), 50 B.C.L.R. (3d) 195 at para. 5 (C.A.) [Discovery Enterprises] (C.A.)].

The evidence that may be considered by the court in determining the good faith requirement includes the applicant’s stated belief in the merits of the proposed action. If this evidence is accepted by the court, it is a prima facie indication of good faith, but it is not necessarily determinative: Jordan Enterprises at para. 29; Discovery Enterprises (S.C.) at para. 117. The court must also consider evidence that indicates the applicant has ulterior motives, including considering any existing disputes between the parties.

A conclusion that there is an absence of “good faith” simply means that the applicant has not met the onus of showing that the primary purpose of the action is to benefit the company. There is no requirement that the respondent show the applicant is acting in bad faith. The finding of good faith, or of a failure to prove good faith, is a finding of fact in the purview of the trial judge, typically based on inferences drawn from the record, and the appeal court will not interfere absent a palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33 at para. 10; Discovery Enterprises (C.A.) at para. 7.

[35] In Hevey, Nicholson J. quoted with approval the following comments of Whitten J. in 1172773 Ontario Ltd. v. Bernstein, [2000] O.J. No. 4102, 2000 CarswellOnt 4039 (S.C.J.), at paras. 39-41 and 44, as follows:

The concept of good faith is founded on honesty. It is not equivalent to saintliness. It is not devoid of self-interest. The relationship of “complainant” defined in the statute, would imply that within the concept there is the possibility of personal gain.

The practical objective for a complainant acting in good faith within the context of section 246 is “a person who could reasonably be entrusted with the responsibility of advancing the interests of the corporation by seeking to remedy a wrong allegedly done to the corporation.” (Hollingworth J. in commenting upon an analogous situation in the Re Canadian Opera Co. and 670800 Ontario Inc. et al. (1989), 1989 4307 (On SC), 69 O.R. (2d) 532 (Ont. Ont. High Ct.) at p. 536.)

Good faith has to have an objectively reasonable component especially in light of the practical objective. To not have such a component would in extreme situations erode the good faith. It is with the objective scrutiny, that the good faith requirement overlaps with the requirement that the derivative action be in the interests of the corporation.

A derivative action which is motivated less by potential return to the corporation and more by the prospect of a potential tactical advantage against the respondent, is anathema to the requirement of good faith. Vedova v. Garden House Ltd. [1985] O.J. No. 408 (High Court of Justice) ...

[36] In Drake v. Goodwin, 2019 ONSC 2865, the Divisional Court heard an appeal from an order granting leave to a complainant to commence a derivative action. The appellant submitted that the application judge erred in failing to find that the proposed claim was statute barred. The Divisional Court, at para. 27, quoted with approval the above passage from Richardson Greenshields and held that the analysis needed to reach a conclusion that the claim was statute barred is not appropriately conducted on an application for leave to commence a derivative action. The Divisional Court held, at para. 30, that “[i]nsofar as a court is required to consider the merits of a proposed derivative action on a leave motion, it is limited to an assessment of whether an applicant has demonstrated the low standard of an “arguable case”.

[37] Mr. Matas submits that Eminence has strong defences to YYZed’s claim on the basis that (a) the claim is statute barred (in whole or in part); (b) YYZed’s claim is inflated; and (c) YYZed received, or was legally entitled to receive, a finder’s fee in connection with the sale of 45 Agnes and, as a result, YYZed was unjustly enriched to the detriment of Eminence and Eminence is entitled to set off the finder’s fee against any amounts otherwise owing to YYZed.

Merit of the proposed defence that Eminence claim is statute barred

[38] The first defence upon which Mr. Matas relies is that the action by YYZed is statute barred.

[39] Mr. Matas submits that there is a reasonable basis for this defence because YYZed’s final invoice sent on October 24, 2018 confirms that YYZed’s monthly invoices for fees (based on $243,903 in total) had been sent and were due by January 2017 and the action was not commenced until June 2, 2020. With respect to the fees that YYZed had agreed to defer until construction financing was available (one-third of the total), Mr. Matas submits that YYZed agreed that the accommodation to defer fees was not binding and that such fees, in any event, would continue to accrue. Mr. Matas submits that there is a reasonable basis for a defence that YYZed’s claim for deferred fees is also statute barred.

[40] YYZed relies on Mr. Savage’s evidence that Eminence, acting through Mr. Zaman and Mr. Matas, made repeated efforts to resolve YYZed’s accounts and that, during these communications, the amount of Eminence’s claim was acknowledged. Mr. Savage’s evidence is that following the suspension of YYZed’s services, YYZed was repeatedly assured by Mr. Matas that its accounts would be paid, including assurances that, if the property were to be sold, YYZed would be paid from the proceeds of sale.

[41] YYZed submits that Eminence breached the Agreement in April 2020 when it failed to pay the amount owing from the proceeds of sale of 45 Agnes, as had been agreed. YYZed also relies on s. 13(1) of the Limitations Act, 2002 and submits that Eminence acknowledged liability in respect of the claim for a liquidated sum, the balance due to it, which extended the limitation period that would otherwise apply. YYZed relies on an email from Mr. Matas dated May 24, 2019 in which he requested a breakdown of the payables owing to YYZed without objecting to the charges.

[42] YYZed submits that, therefore, the limitation defence is doomed to fail.

[43] With respect to the proposed limitation period defence, the evidence in the voluminous record that bears on this defence conflicts in some areas. Key factual issues are whether Eminence, through its representatives, acknowledged the amount owed to YYZed based on the “final invoice” and whether Eminence agreed that the unpaid amount owed to YYZed would be paid out of the proceeds of sale of 45 Agnes to accommodate Eminence’s cash flow problems. Mr. Matas deposes that he did not so agree, but this evidence is not supported by written communications showing his objections to payment of the YYZed accounts out of the proceeds until after the sale. On his cross-examination, Mr. Matos agreed that in the three months after closing of the sale of 45 Agnes, he was silent when he was asked about his position on the YYZed invoice. As he put it, “I never said yes or no”.

[44] On the record before me, I do not regard it to be readily apparent, as Mr. Matas puts it, that the defence that Mr. Matas advances based on the limitation period is likely to prevail. Given the correspondence upon which YYZed relies as an acknowledgement by Eminence of the liquidated amount owing, and the evidence concerning the agreement that YYZed says was made to pay the amount owing from the proceeds of sale, there are significant obstacles to a successful defence based on expiry of the limitation period. I also consider that Mr. Zaman and Voreon support YYZed’s position. Mr. Zaman was a director of Eminence and if, in this capacity, he agreed with YYZed that the amount claimed was due and owing and would be paid from the proceeds of sale of 45 Agnes, this would support YYZed’s position that it is entitled to rely on such agreement.

[45] I do not find that the limitation period defence is not an arguable one. I consider the strength of this defence as part of my consideration of whether Mr. Matas has shown that it is in Eminence’s interests that the action be defended.

Merit of proposed defence that the amount claimed by YYZed is excessive

[46] Mr. Matas also seeks to have Eminence defend the claim based on his position that the amounts claimed by YYZed are too high. Mr. Matas stated on cross-examination that he valued YYZed’s work at about $60,000. In response to an undertaking, Mr. Matas recalculated YYZed’s fees to be $57,940.76 based on what percentage each of the 13 required tasks was completed by YYZed and based on the higher estimated hard cost budget outlined in the “adjusted scenario” in the table sent by Mr. Savage.

[47] Mr. Savage disagreed with this methodology because that is not how fees are to be charged under the Agreement. Mr. Savage denies that the fees charged by YYZed were inflated. In his affidavit, he calculates a fee based on a revised draft hard cost budget of $51,124,200 multiplied by 3% under the Agreement, with a fee allocation of 95% to stages 1 and 2, to produce a fee of $1,457,040 if the Project had advanced to the end of construction. Mr. Savage then divides this fee by 69 months being the estimated number of months for stages 1 and 2, producing a monthly fee of $21,117. Mr. Savage’s evidence is that YYZed provided services over 33 months, so that the amount payable under the Agreement would have been $696,845, less amounts paid, an amount that exceeds the amount charged to Eminence.

[48] Mr. Savage provided detailed affidavit evidence concerning the services performed by YYZed under the Agreement. Mr. Katotakis’ evidence is that YYZed was instrumental in completing the zoning of the property so that it could be sold pre-construction for a profit.

[49] Mr. Matos has not shown that Mr. Savage conceded that its charges are exaggerated. This is vigorously disputed by YYZed.

[50] I do not find that this proposed defence is not an arguable one, and I take the apparent strength of the defence into account in my assessment of whether Mr. Matos has shown that it appears to be in Eminence’s interest that the action be defended.

Merit of proposed defence based on YYZed’s receipt of a “finder’s fee”

[51] Mr. Matas also relies on a defence based on what he calls a “side agreement” between Voreon and YYZed to the effect that YYZed would be paid a “finder’s fee” of $250,000 from the sale of 45 Agnes. Mr. Matas submits that through this finder’s fee, YYZed has been paid for its charges under the Agreement even if the charges are legitimate (which he denies). Mr. Matas also seeks leave to make a counterclaim against YYZed for damages based on receipt of the finder’s fee by YYZed or a legal entitlement to receive it.

[52] Mr. Matas relies on the Agreement of Purchase and Sale (“APS”) for the 45 Agnes property between Voreon as seller and RHH Rental Properties Ltd. as buyer that provides that the seller directs the buyer to pay a finder’s fee of $250,000 to YYZed. Mr. Matas deposes that the lawyer representing Voreon provided a breakdown of the distribution of the proceeds of sale that confirms that the amount of $282,500 was paid on account of “Commissions”. Mr. Matos appends to his affidavit an email from Mr. Savage that refers to the invoice for the commission at 45 Agnes. The invoice is in the name of Halkirk Construction Ltd. (Halkirk”). Mr. Matos deposes that although Halkirk may have been the named recipient, the actual or beneficial recipient was YYZed. Mr. Matos also relies on a “Direction Re: Funds” signed by Mr. Savage on behalf of YYZed and by Mr. Katotakis on behalf of Voreon directing payment of the finder’s fee to Halkirk.

[53] Mr. Matos deposes that Eminence should be allowed to set-off the entire amount claimed by YYZed on the basis that YYZed breached its contractual and fiduciary duties owed to Eminence by receiving payment of the finder’s fee.

[54] In his affidavit, Mr. Savage deposes that YYZed found a potential buyer for 45 Agnes and he advised Mr. Zaman that the buyer was introduced to YYZed through two individuals who would expect to receive a commission for the transaction. Mr. Savage deposes that the finder’s fee was fully disclosed and that the sale was beneficial to Eminence. Mr. Savage deposes that the finder’s fee was paid directly to Halkirk, of which he has no knowledge, other than that the Halkirk invoice was provided to YYZed. Mr. Savage’s evidence is that YYZed was not entitled to a finder’s fee and the provision for payment of the fee in the APS was not drafted by YYZed and was incorrect. Mr. Savage deposes that YYZed has no interest in Halkirk. The position of YYZed is that the issue raised by Mr. Matas about the finder’s fee is irrelevant to this motion.

[55] With respect to the defence based on the finder’s fee, there is no evidence that YYZed received a finder’s fee. Mr. Savage has denied that it did. Although the APS provides for payment of a finder’s fee to YYZed and a direction was signed on behalf of YYZed directing payment to Halkirk, Mr. Savage’s evidence that YYZed was not entitled to a finder’s fee, did not receive the fee, and has no interest in Halkirk, makes a defence based on receipt of (or legal entitlement to receive) a finder’s fee by YYZed untenable.

[56] Mr. Matas has not shown that this defence is an arguable one.

Other factors bearing on proof of (i) good faith and (ii) whether a defence of the action is in Eminence’s best interests

[57] I note that the amount of YYZ’s claim is $271,901.73. This amount is not insignificant but, when viewed in relation to the legal charges and other expenses that would be needed to be incurred for Eminence to defend the claim, it is not a substantial claim. If the action is defended and a counterclaim is advanced on the grounds proposed and the litigation proceeds through documentary discovery, oral examinations, and trial, there is a significant risk that the legal expenses that Eminence would incur would become disproportionate to the amount in dispute. This risk would exist even if reasonable efforts were made to control the expenses. Of course, Eminence would be exposed to an obligation to pay costs of the action if it were to be unsuccessful, as would YYZed if it were to be unsuccessful. Mr. Matas submits that costs of litigation would likely influence the parties to settle the action and, while this may be so, there can be no assurance of a settlement.

[58] I next consider the interests of Eminence through the lens of its shareholders. There is an ongoing and unresolved dispute about who are the beneficial owners of the shares of Eminence. If Matas successfully opposes Voreon’s appeal of Justice Koehnen’s decision, he may become a 50% shareholder. The other shareholder, Kayzan, whose shareholders are Voreon and a company controlled by Mr. Zaman, supports payment of the amount claimed by Eminence. This is shown through the affidavit of Mr. Katotakis and the email from Mr. Zaman to which I have referred. The fact that significant stakeholders of Eminence, including one of its two directors (and an indirect shareholder), do not support the expenditure of the company’s money to defend the action because they agree that YYZed’s claim is valid and should be paid is a factor that weighs against granting leave to Mr. Matas’ to defend the action on behalf of Eminence. Their evidence would not support the positions that Mr. Matas would take on behalf of Eminence if he is granted leave to defend the action, and would decrease the likelihood of Eminence successfully defending the action.

[59] Voreon has provided evidence through the affidavit of Mr. Katotakis that by the time that YYZed was engaged as project manager for the Project in early 2016, the relationship among Eminence’s shareholders was, as he put it, “strained to the breaking point”. He deposes that Mr. Matas had caused six mortgages to be registered on title to 45 Agnes without Voreon’s knowledge or consent, and that these mortgages were not required for 45 Agnes because Voreon had provided all of the necessary funds for Eminence to purchase the property and to pay for zoning expenses. Mr. Katotakis states that when he became aware of two of the mortgages in favour of a particular lender, any remaining trust between him and Mr. Matas was broken. These circumstances led to the shareholder dispute to which I have referred. I do not make any findings about the facts in relation to that litigation, but I take note that there is contentious litigation that is ongoing and an absence of trust among the shareholders. This is relevant to whether Mr. Matas has shown that he is a person who should be entrusted with the responsibility of directing a defence of the action on behalf of Eminence.

[60] I also take into consideration the position advanced by YYZed that, if Mr. Matas’ motion is dismissed, it will not seek to amend its claim to add claims for (i) payment of higher fees as provided for by the Agreement, and (ii) payment of the termination fee under the Agreement, whereas, if Eminence defends the action, it intends to seek leave to amend its claim to make these claims. Mr. Matas contends that this should not be a factor because, he submits, the limitation period for such claims has passed. This is not clear on the record, and YYZed submits that all of the needed facts have been pleaded. I am not called upon to decide this issue on this motion. However, I am not able to conclude with confidence that if the action is defended, Eminence will not be faced with a claim for a much higher amount.

[61] Mr. Matas has the burden of satisfying the Court that he is acting in good faith and it appears to be in the interests of Eminence that the action be defended. YYZed and Voreon submits that the evidence shows that Mr. Matas is acting in bad faith, and that Mr. Matas is acting for an ulterior purpose that is connected with the shareholder dispute. There is no onus on YYZed or Voreon on this motion to prove that Mr. Matas is acting in bad faith. I do not make such a finding on this record.

[62] Mr. Matos has affirmatively stated that he is acting in good faith as a director of Eminence in seeking leave to defend the action on behalf of Eminence. He states that defending the action is in Eminence’s interests because if the action is not defended, YYZed will obtain default judgment for the amount of its claim. He states that there are strong merits to the defences he wishes to advance on behalf of Eminence. I do not accept Mr. Matas’ affirmative statement of his good faith as, in itself, sufficient to discharge his onus.

[63] Although I have found that two of the three defences raised by Mr. Matos are at least arguable, I see significant obstacles to success on these defences based on the evidence before me. This is not a case where there are clear meritorious defences. The fact that other stakeholders of Eminence support the payment to YYZed will weaken the position of Eminence if this case were allowed to proceed as a defended action. Mr. Matos’ position as a shareholder of Eminence (as much as a 50% shareholder) means that his interest in the outcome of the action as a shareholder is equal to or less than the interest of the other shareholder. The fact that Mr. Matas is engaged in the contentious shareholder litigation raises considerable doubt as to whether he should be entrusted with the responsibility to direct a defence on behalf of Eminence to YYZed’s action.

[64] Taking these factors into account, and having regard to the amount claimed, the risk of a significantly higher claim if the action is defended, the expenses that will be needed to defend the action (some of which will be unrecoverable no matter the outcome), and the not insignificant risk of an adverse costs award, I am not satisfied that it would be objectively reasonable for Eminence to defend the action. If it is not objectively reasonable to defend the action, this calls into question the purpose for Mr. Matos’ wish to defend the action at the expense of Eminence. In my assessment, having regard to these circumstances, Mr. Matos has failed to show that the primary purpose for him seeking leave to defend YYZed’s action is to benefit Eminence.

[65] In addition, the fact that Mr. Matas, a director of Eminence, chose to remain silent, without explanation, during the three months after the closing of the sale of the 45 Agnes property when he was asked for the basis for his objection to payment of YYZed’s invoice calls into question Mr. Matas’ belief that YYZed was not entitled to payment of its charges and the motivation for him to seek to direct the defence of the action on behalf of Eminence.

[66] For these reasons, I am not satisfied that Mr. Matas has discharged his onus of showing that he is acting in good faith.

[67] Even if I had found that Mr. Matos has satisfied his onus of showing that he is acting in good faith, I would dismiss his motion because, as I have found, Mr. Matos has not shown, when I consider the costs and risks of defending the action, weighed against the benefits, that it is in Eminence’s interest to defend YYZed’s claim. There is no question that YYZed performed services under the Agreement for which it has not been paid. Although it is possible that a limitation period defence could prevail, and that the amount claimed could be reduced, there is also a risk of exposure to a significantly higher claim if the action is defended, and, in any event, the costs of defending the action would, in my assessment, likely become disproportionate to the amount in dispute. The motion materials on the motion, much of which relates to the merits of the proposed defences, comprise many hundreds of pages, and this supports my assessment that Eminence’s reasonable legal expenses to defend the action would be considerable. The fact that the other indirect shareholders of Eminence oppose this motion and object to the use of Eminence’s money to fund the defence of this litigation is a factor that supports my finding in this respect.

[68] I conclude that Mr. Matas has failed to discharge his onus in respect of the requirements under s. 246(2)(b) and (c) of the OBCA.

Disposition

[69] For these reasons, Mr. Matas’ motion is dismissed.

[70] I encourage the parties to resolve costs. If they are unable to do so, the responding parties may make written submissions (not exceeding 5 pages double spaced excluding costs outlines) within 10 days. Mr. Matas may make responding submissions to each submission (not exceeding 5 pages for each response, excluding costs outline) within 10 days thereafter. The responding parties may make brief reply submissions (not longer than 3 pages) within 5 days thereafter.

Cavanagh J.

Date: June 3, 2022