COURT FILE NO.: CV-17-00011697-0000CL

DATE: 2022-08-09

ONTARIO

SUPERIOR COURT OF JUSTICE

(Commercial List)

BETWEEN:

VOLKAN BASEGMEZ, CEM BLEDA BASEGMEZ, ANIL RUKAN BASEGMEZ, BA&B CAPITAL INC., SERDAR KOCTURK and KAAN HOLDINGS INC.

Applicants

– and –

ALI AKMAN, SAMM CAPITAL HOLDINGS INC. and TARN FINANCIAL CORPORATION

Respondents

E. Patrick Shea and Christopher Stanek, for the Applicants

Jonathan Kulathungam and Nipuni Panamaldeniya, for the Respondents

Kyla E. Mahar, for KPMG

HEARD: November 15 – 19, 22 – 25, 2021 and April 22, May 31, 2022

KOEHNEN J.

REASONS FOR JUDGMENT

[1] This case demonstrates the need for written documentation to memorialize business arrangements even between the best of friends. The failure to do so here has led to misunderstandings, the collapse of a potentially lucrative development opportunity and the destruction of decades long friendships.

[2] The applicants and respondents were shareholders in Tarn Financial Corporation which acquired a land re-development project at the corner of Highway 401 and Kennedy Road in Toronto (the “project”). Disagreements arose which led to a finding of oppression against the respondents and the liquidation of the project. This trial was established as the process by which to resolve disputes over the distribution of proceeds of the liquidation. The disputes arise out of the respondents’ claim for development fees, hotel management fees, the reimbursement of certain expenses and reimbursement for monies that the respondents advanced to a wholly owned subsidiary of Tarn Financial Corporation, Tarn Construction Corporation.

[3] For the reasons set out in greater detail below, I find that:

(i) The respondents are not entitled to charge a development fee or hotel management fee. Fees already paid in respect of these items should be treated as payments towards the amount outstanding Ali Akman’s loan to Tarn Financial. Ackman has not demonstrated on a balance of probabilities that there was an agreement to pay him development or hotel management fees. Both fees involve self-interested contracts that were not approved by independent directors or shareholders as they were required to be by section 132 of the Ontario Business Corporations Act.

(ii) The claims for reimbursement of the contested expenses should be dealt with as set out in section V of these reasons.

(iii) The calculation of the amounts owing on account of Ali Akman’s shareholder loans should include amounts that he advanced to Tarn Construction either personally or through his personal corporations. To hold otherwise would give the applicants a windfall because it would increase the amount available for distribution to shareholders by the amount of the unpaid loan that Akman extended to Tarn Construction. Doing so would give the applicants 60% of that money when the understanding always was that it was a loan that Akman had advanced to the project.

The Parties and the Project

[4] The respondent Ali Akman is a successful Turkish businessperson who now resides in Canada. He entered the business world in the early 1980’s in Turkey by starting a business exporting fruit juice and concentrates. He expanded that into a series of other businesses including four juice factories in Turkey which he took public, a plastic manufacturing plant, and a construction and land development business. As part of the latter he built a 36 floor condominium project in Turkey, four low rises, a shopping mall in Ankara, a 120,000 square-foot hospital and four commercial buildings in Turkey. He has also pursued construction projects in Iran, India and China. In 1990, he purchased his first hotel in Turkey. That led to further hotels in Turkey and eventually in Ontario where he purchased and managed a Travelodge in Oshawa and a Best Western hotel in Waterloo.

[5] In approximately 2013, he came upon the Delta Hotel in Scarborough at the intersection of Kennedy Road and Highway 401. He viewed it as a redevelopment project and began pursuing it actively.

[6] Akman secured the property in the summer of 2014. When he received the news he was on his yacht on the Turkish Riviera. The yacht moored next to Akman’s belonged to a business acquaintance, the applicant Volkan Basegmez.[^1] Volkan asked Akman why he seemed so happy. Akman explained that he just secured a project that he had been pursuing for some time. The two had breakfast together on Volkan’s yacht which culminated in Volkan taking a 40% interest in the project for $6 million. Volkan made that investment through his personal holding company, the applicant BA & B Capital Inc.

[7] The applicant Bleda Basegmez is Volkan’s son. The applicant Anil Basegmez is Volkan’s nephew. Both were approximately 25 years old at the time of the events relevant to this action. Akman was approximately 60. As part of Volkan’s investment, Akman agreed that he would sponsor Bleda and Anil to come to Canada as interns to learn about Canadian business practices from Akman.

[8] The applicant Serdar Kocturk is also a successful business person in Turkey. He is the CEO of a large steel group and has various other interests including a tomato paste factory and investments in hotels. He is also a long-time friend of Akman. They had been to boarding school and university together in England. Kocturk had already invested in two hotels with Akman in Ontario. They were close, spent holidays together and were in contact with each other every other week until the events which led to this litigation ended their decades long friendship.

[9] Three weeks after Akman talked to Volkan, he spoke with Kocturk about the project. Kocturk wanted to participate and agreed to pay $3 million for a 20% interest. After Volkan agreed to Kocturk’s participation, the three went forward together. Kocturk made the investment through his personal holding company, the applicant Kaan Holdings Inc.

[10] The respondent Tarn Financial Corporation is the vehicle through which Akman and his partners purchased the Delta project. The respondent SAMM Capital Holdings Inc. (“SAMM”) is a corporation solely owned by Akman.

[11] The project was to be developed and built in three phases. Phase one consisted of two towers with 700 condominium units. Akman says that all the units were sold. Phase two involved demolishing one of the hotel buildings to construct a high-rise condominium with approximately 434 units. Phase three entailed the demolition of the hotel’s parking garage to build a low-rise commercial building with parks, restaurants, cafés and shops. The Delta Hotel would continue to operate from the lower floors of the condominium buildings with the upper floors being residential units.

[12] The relationship between Akman on the one had and Volkan and Kocturk on the other hand began to breakdown in July 2016. The catalyst for the breakdown was the delivery of the 2015 financial statements for the hotel which the plaintiffs received in July 2016. As a result of reviewing those financial statements the plaintiffs became aware that Akman had created a set of class B shares that gave him total control of the corporation although he only held 40% of the equity. Further investigation led the applicants to discover that Akman had caused Tarn Financial to enter into a management agreement with a corporation solely owned by Akman (Akman Hospitality), pursuant to which the latter was paid 4% of the hotel revenue as a management fee. Akman signed that agreement for both parties. Akman later also charged development fees for his past and anticipated work in overseeing development of the project.

[13] Akman took the view that he was entitled to those fees and could not be expected to work for nothing. Volkan and Kocturk took the view that Akman was already being compensated for that work because he received a greater rateable portion of the equity in the project than Volkan or Kocturk did. Recall that Volkan had paid $6 million for 40% interest and Kocturk had paid $3 million for a 20% interest. Akman, on the other hand, received a 40% interest for an advance of only $4.3 million.

[14] As the relationship deteriorated, Kocturk urged Akman to take a more constructive middle ground but Akman was determined to take a hard line. Kocturk and Volkan offered to buy out Akman if they could have an audit conducted but Akman insisted that they set a price first and audit later. Akman refused to sell to third party.

[15] When resolution was not possible, the applicants brought an oppression application in which they sought to wind up Tarn Financial. Lederman J. granted that order. The purpose of this trial is to resolve certain financial issues arising out of the winding up. Before addressing the financial issues, two preliminary issues concerning res judicata and the claims bar date need to be addressed.

I. Res judicata Issue

[16] The applicants submit that a number of the issues that have arisen before me at trial are res judicata. In this action, Akman claims fees on account of hotel management and project development fees. The applicants submit that this issue was already determined in their favour in the reasons of Lederman J.[^2] which were upheld by the Divisional Court.[^3]

[17] The issue of res judicata was initially argued as a pretrial question of law before Justice McEwen in early February, 2021. In an endorsement dated February 18, 2021 he reserved judgment on the Applicant’s motion until the conclusion of the trial.[^4] Given that I became the trial judge, the res judicata issue was argued before me again during the course of the trial.

[18] The issue centres around paragraph 10 of Justice Lederman’s reasons which state:

It was agreed that Akman would receive the same amount of shares as Volkan, despite contributing less capital because the balance of Akman’s contribution would be through the management of Tarn Financial and issuance of personal guarantees that may be required by financial institutions. The applicants allege that it was agreed that based on his reduced capital contribution, Akman would not be entitled to receive any management or development fees from Tarn Financial.[^5]

[19] This statement of Lederman J. can be read as being consistent with the positions of both parties. On the one hand, the first sentence is consistent with the applicants’ position in that it suggests that Akman received more equity per dollar because he was expected to render services to the project. On the other hand, the second sentence is consistent with the respondents’ position in that Lederman J. merely said that the applicants allege that Akman agreed that he would not receive management or development fees because of his lower capital contribution.

[20] The applicants rely as well on passages in the Divisional Court’s reasons to the same effect. In paragraph 2 of its reasons, the Divisional Court stated:

Akman was contributing proportionately less cash than the others. But he also agreed to contribute sweat equity by managing the investment on a day-to-day basis.[^6]

Paragraph 14 of the Divisional Court’s reasons state:

Moreover, there is evidence that Akman caused Tarn to pay his company SAMM over $1 million in alleged development fees when Akman’s efforts to develop the project were supposed to be part of his sweat equity contribution to the business.

[21] On my reading of the Divisional Court reasons, the court was not purporting to make findings of fact beyond those contained in Justice Lederman’s reasons. Rather, it was summarizing those reasons.

[22] I do not find the issues of hotel management or development fees to be res judicata.

[23] Principles of res judicata apply where: (i) a question of law or fact was distinctly put in issue in a prior proceeding; (ii) the issue was directly determined in a final judgment between the same parties; and (iii) the issue did not arise collaterally or incidentally in the prior proceeding.[^7] In addition, the court retains discretion not to apply the principles of issue estoppel or res judicata if applying them would work an injustice.[^8]

[24] Lederman J. found that Akman had acted oppressively and that his oppression warranted the liquidation of Tarn Financial. The oppression consisted of: (i) Akman restructuring the shareholdings of Tarn Financial so as to give him absolute control; and (ii) Akman engaging in self-interested transactions without putting those transactions to the remaining shareholders.

[25] The attention of Lederman J. and of the Divisional Court was on whether oppression had occurred and whether liquidation was the appropriate remedy. Neither set of reasons focused on the division of the proceeds of the liquidation or on the claims either side might make to those proceeds. The ambiguity of the statements about management fees, development fees and sweat equity suggests that those were not distinctly put in issue before Lederman J. or the Divisional Court and were not directly determined in those proceedings. Rather, the issue of sweat equity appears to have arisen collaterally or incidentally to the central questions of oppression and remedy.

[26] An injustice can arise when applying issue estoppel in a subsequent proceeding “where there is a significant difference between the purposes, processes or stakes involved in the two proceedings.”[^9] Here there are such differences in the two proceedings. As noted, the proceeding before Lederman J. focussed on the change to shareholdings and the principle of entering into self interested contracts without others approving. It did not address the quantum meruit arguments that Akman raises in this proceeding to justify the management or development fees. Akman should not be deprived of the ability to raise those arguments.

[27] As a result, I will not apply issue estoppel to the issue of management fees or development fees and will consider those issues without regard to the statements of Lederman J. or the Divisional Court.

II. The Claims Bar Date Issue

[28] The next preliminary issue between the parties concerns the scope of this trial and the issues to be determined in it.

[29] Lederman J. appointed KPMG as Liquidator of Tarn Financial to assist in the liquidation by running a group of claim process and determining the validity of at least arm’s-length claims.

[30] The applicants submit that the only issues to be determined are whether four proofs of claim that the respondents submitted to the Liquidator should be recognized. The respondents cast the issues somewhat more broadly and submit that I am required to address issues numbered 1, 2, 4-10, and 53 in the respondents’ statement of issues.

[31] In support of their position, the applicants point to the Claims Procedure Order of Justice McEwen dated April 13, 2018. That order requires anyone who intends to assert a claim, to deliver a proof of claim together with supporting documentation before the claims bar date[^10] and that any claims not submitted by that time are forever extinguished.[^11] The deadline for the submission of non-arm’s-length claims was June 29, 2018.[^12] The four claims that the applicants submit the trial is restricted to were filed on March 1, 2018 and therefore fall within the claims bar date. The applicants submit that the additional issues that the respondents wish to raise were not the subject of a proof of claim and were raised in the statement of issues dated June 7, 2019, almost a full year after the non-arm’s-length claims bar date.

[32] In my view, the issues to be determined should not be restricted by the non-arm’s-length claims bar date for three reasons.

[33] First, although the respondents raised the additional disputes in their statement of issues, the applicants responded to the statement of issues but did not raise any time bar as a defence to what they now say are new matters that the respondents wish to have determined.

[34] Second, paragraphs 29 - 30 of the claims procedure order provide that the Liquidator will not determine any non-arm’s-length claims but that they will be referred to a process that remained to be determined. This trial was established as the process by which those claims were to be determined. Given that the Liquidator was not determining the non-arm’s-length claims in the first place, there is no administrative inconvenience or cost associated with the determination of those additional issues at this trial.

[35] Third, and most importantly, the additional issues are not so much additional claims as questions that arise in relation to the four claims the respondents submitted in a timely manner. The effective adjudication of the four claims that the applicants agree must be determined, would, as a practical matter, require the determination of the additional issues that the respondents have identified.

[36] I turn now to the respondents’ four claims for development fees, hotel management fees, Akman’s shareholder loan and amounts advanced to Tarn Construction. I will address the “additional issues” after addressing the proofs of claim.

III. The Development Fee

(i) The Claim

[37] Akman, through SAMM, claims a development fee of $9,987,250 of which he has already been paid $1,000,000.

[38] Akman submits that an appropriate development fee is 3.5% of revenue. He calculates the actual amount by taking his fee of 3.5%, multiplying that by the percentage completion of each phase and further multiplying that figure by the projected revenue of that phase. He reflected this in the form of the chart below:

Fees Due	Phase 1	Phase 2	Phase 3
Fee	3.5%	3.5%	3.5%
X % Complete	79.3%	33.0%	30.0%
Equals Adjusted Fee of	2.77%	1.16%	1.05%
X Projected Revenues	$220,000,000	$250,000,000	$95,000,000
Equals Proportionate Fee of	$6,102,250	$2,887,500	$997,500

[39] In the alternative, Akman seeks payment of an additional $6,910,000.00 in accordance with his proof of claim. In the further alternative, Akman seeks a development fee of $5,102,250.00 based solely on Phase 1 of the project (i.e. the $6,102,250.00 estimated fee for phase 1 less the amount received of $1,000,000.00).

[40] From Akman’s perspective, the development fee is justified because he engaged in a significant amount of work to advance what was a complex project. As noted earlier, the plan was to construct three high rise buildings, including a hotel and 700 condominiums as well as three low rise commercial buildings. Akman arranged for rezoning, architectural design and site plan approval. He says he worked with 28 different consultants to bring all of that about.

[41] Akman initially sought out arm’s-length developers but found their fees too high.[^13] When proposals from arm’s-length developers were not attractive, Akman says Volkan and Kocturk approved of Akman doing the development work in respect of which the fee remained to be agreed.

[42] According to Akman, by the time the dispute erupted, substantial development work had been done. Phase 1 of the project was sold out, 75% of the tenders were completed, shoring was finished and excavation was almost done. In addition, Akman arranged initial financing of $9 million and a construction loan of $132 million with arm’s length parties. SAMM guaranteed both loans as well as Tarion bonds.[^14]

[43] The challenge with Akman’s approach of seeking a percentage of revenue based on the percentage of completion of each phase is that no revenue was actually earned. Although deposits were collected on sales, those deposits had to be returned to the purchasers when the project collapsed because of the shareholder dispute. If Akman is to be paid a development fee based on revenue, the project should earn revenue that it is able to retain. Doing preparatory work but having the project collapse because of poor stakeholder management and oppressive conduct on the part of Akman should not necessarily entitle Akman to a fee.

(ii) Evidence About the Development Fee

[44] Akman admits that there was no discussion about a development fee early on in the piece but that he raised the development fee in May 2015 when he decided not to use an outside developer. According to Akman, Volkan and Kocturk agreed Akman was entitled to a fee and that they would fix it on his next trip to Turkey.

[45] Akman’s contemporaneous emails tell a different story. Akman described the development fee to his partners in an email of November 17, 2016 as follows:

Again, something which has not been discussed before, I said that my expectation for a compensation for my management and project development services ranges from zero to infinity.[^15]

[46] Despite this email, Akman insisted in cross-examination that he had discussed development fees and that they are referred to in earlier emails which are in his records and that his lawyers could produce if necessary. No such documents were produced. He then refined the point to indicate that they had not discussed the quantum of the fee but had always discussed the existence of a development fee. That too, however, would belie the suggestion in his email of November 17, 2016 that this was not something discussed before.

[47] In support of his position, Akman points to an email from Volkan to Akman and Kocturk dated November 18, 2016 in which Volkan summarizes the contents of a meeting between the three shareholders which occurred the previous day. In that email, Volkan states:

As for the success premium, first of all, I would like to state once more here that the effective and solid contribution of Ali to the process requires an absolute compensation. The nature, amount and compensation method of this premium will be discussed and determined by the shareholders as soon as possible.[^16]

[48] The applicants take the position that any emails from them to Akman offering compensation for his services were sent after a dispute arose and were therefore settlement offers on which Akman cannot rely at trial.

[49] Akman submits that that the applicants led no evidence to suggest that Volkan’s offer was part of a settlement discussion. Akman also submits that entertaining that proposition now violates the rule in Browne v. Dunn[^17] because it was not put to Akman in cross-examination. I view the Browne v. Dunn and settlement issue as somewhat beside the point.

[50] Even if I accept Volkan’s email of November 18, 2016 as being something that could be held against the applicants, it would not assist Akman. Volkan refers to compensating Akman by way of a success premium. There was no success here because the project collapsed as a result of Akman’s unilateral restructuring of shareholdings and as a result of his imposition of self-interested contracts on Volkan and Kocturk. While Volkan and Kocturk may have been prepared to pay Akman a “success premium” for his development work, that does not mean that they were prepared to, or should be forced to, pay that premium if Akman pursued a course of conduct that led to the failure and sale of the development.

[51] Akman responded increasingly aggressively to the emails from Volkan. Kocturk urged Akman to show restraint and cooperation which only led Akman to become more entrenched in his views and angry with Kocturk for “taking Volkan’s side.”

[52] In February 2017, Akman transferred funds from Tarn Financial to Tarn Construction and then caused Tarn Construction to pay SAMM $1,130,000 including HST as a partial payment towards the development fee. Although Akman testified earlier that no payments could be made without a purchase order, there was no purchase order for the $1,130,000 development fee. When confronted with the inconsistency, Akman took the position that purchase orders were not required for retainers. He provided no explanation for failing to require purchase orders for retainers even though those amounts could be materially more significant than the items for which he says purchase orders were required. The funds were paid to SAMM before the invoice was even issued.

[53] In March 2017, Akman terminated the internships of Anil and Bleda.

[54] An invoice for the balance of the development fee of $6,780,000 was dated August 31, 2017. The text on the invoice simply states “development fees for promotion of condos.”

[55] Kocturk testified that he never thought that Akman would receive an additional fee but that the rateably higher proportion of equity he received over Volkan and Kocturk compensated him for whatever development work he undertook. On this theory, Akman will be compensated for his work by way of the higher distribution of profits he receives on the liquidation.

[56] There is some economic sense to Kocturk’s version of events. A percentage premium for Akman would align his incentives with those of Kocturk and Volkan. It would incentivize Akman to control costs and would secure upfront, a development fee or whatever other form of premium he though appropriate.

[57] Akman dismisses Kocturk’s view by noting that his initial agreement was with Volkan, not Kocturk. Akman submits that his agreement with Volkan was that Volkan would be a silent partner and that although he would be kept informed and have the right to input, Akman retained final decision making power. Akman points out that Volkan did not testify as a result of which the only evidence of that agreement is Akman’s which must be accepted.

[58] Even if I were to accept this submission, it does not assist Akman in his claim to the development fee. The legal issue at hand is the limitation on rights of officers or directors to enter into self interested contracts with corporations of which they are officers or directors. Those rights are governed by s. 132 of the Ontario Business Corporations Act[^18] (the “OBCA”). Even if Volkan had agreed to be a “silent partner,” that does not deprive him of the protections of s. 132 nor does it allow Akman to breach s. 132.

[59] Directors and officers of corporations owe the corporation statutory and common law duties to "act honestly and in good faith with a view to the best interests of the corporation".[^19] These are fiduciary duties that require directors and officers to: (i) avoid situations in which their interests conflict with those of the corporation; and (ii) not to abuse their position for personal gain.[^20] Directors and officers cannot contract out of their fiduciary duties.[^21]

[60] Section 132 of the OBCA requires directors and officers to disclose in writing to the corporation the nature and extent of their interest in a contract with the corporation. The contract must be disclosed at the meeting at which a proposed contract is first considered.[^22] Where a contract does not require the approval of the directors or shareholders, the director or officer must disclose in writing the nature and extent of his or her interest forthwith after the director becomes aware of it.[^23] Where all directors are required to make disclosure, the contract may be approved only by shareholders.[^24]

[61] Akman did not comply with s. 132 of the OBCA in connection with the payment of the development fees to SAMM. There is no dispute that he would not now receive the authority of the shareholders required by s. 132 to pay fees to SAMM.

[62] The challenge here for Akman is that, although he was, in his own mind, supposed to receive management and development fees, he did not reduce any of that to writing, let alone receive the approval of his fellow shareholders. Development agreements are complex agreements. They set out, among other things, the duties and responsibilities of the developer, what the fee is, what it is based on, how the base of its calculation is to be determined and what development standard the developer is to meet.

[63] Quite apart from the requirements of the OBCA, it is essential to reduce any such agreement to writing because the absence of a written agreement is a recipe for a self interested party to engineer any fee and profitability level he wanted based on criteria he may chose to select after the fact.

[64] In the absence of any agreement, Akman says he is entitled to a fee based on principles of quantum meruit.

[65] There are two types of quantum meruit claims: contractual and restitutionary. To justify a claim based on contractual quantum meruit, Akman must establish that there was an enforceable agreement to pay for services but that the amount of those fees was not agreed. Akman says he is not claiming for contractual quantum meruit but claims restitutionary quantum meruit.

[66] To establish a claim based on restitutionary quantum meruit, SAMM must establish that: (a) it provided management services to Tarn Financial; and (b) Volkan and Kocturk (either personally or through their corporate shareholders ) requested, acquiesced or encouraged SAMM to provide the management services in circumstances that make it unjust for SAMM to not be paid for those services.[^25]

[67] Although I am prepared to accept that Volkan and Kocturk acquiesced to Akman’s role as developer, that does not entitle him to a further development fee. As noted, there is a conflict in the evidence about whether Akman was compensated for his development work by way of his higher rateable interest in the project.

[68] I have concluded that the appropriate approach to take here is that Akman should be compensated for his work on the development solely through his higher shareholding. I come to that view for two reasons.

[69] First, I prefer the evidence of Kocturk over that of Akman on this issue. Kocturk struck me as a moderate, temperate witness. He was careful in the expression of his views and was willing to concede points against him. His evidence was consistent with contemporaneous emails. Although Akman testified at trial that he had documents that would prove his point, he did not produce them.

[70] Second, if there is a risk that the record at trial might not reflect what actually happened, it is more appropriate for Akman to bear that risk. Akman was the party who failed to abide by s. 132 of the OBCA and who failed to set out in writing the terms he claims were agreed.

[71] Akman describes himself in his closing submissions as a “savvy businessman” with “international experience as both a hotelier and a developer.” There is no doubt that Akman is an experienced, successful business person. He was very much in control and in command of the project throughout. He was also represented by counsel throughout. There is nothing harsh in holding him to the requirements of s. 132 and having the consequences of failing to do so fall on his shoulders.

[72] There are many good policy reasons for this. Even if all sides are acting with the utmost good faith, there is substantial room for disagreement about the terms of any development fee if the agreement is not reduced to writing. There is also substantial room for mischief by controlling shareholders to arrange corporate affairs to their benefit and to the prejudice of other shareholders if non-arm’s-length agreements are not fully disclosed in writing.

[73] I accept that Akman did work in relation to sourcing the property and exposed himself to risk through personal guarantees. It is up to Akman, however, to ensure that whatever quid pro quo he receives for this is approved in writing. On the evidence before me it is clear that no agreement was reduced to writing and no shareholder approval was ever sought. On my view of the evidence, Akman has not established, on a balance of probabilities, any entitlement beyond the 40% interest he obtained for a smaller rateable investment than the other shareholders.

[74] In the event I am wrong in this assessment, I will nevertheless go on to determine what an appropriate development fee should be in the circumstances of this case.

[75] Both sides called experts on development fees. Akman called Pouyan Safapour, the President of Devron development. His focus is on residential development with some ancillary non-residential uses. The applicants called Robert Cameron, an independent development consultant. The respondents challenge Cameron’s expertise by noting that he is more involved in construction and construction management than development and has had little, if any, experience with residential development projects. I accepted both as experts. In my view there was little material difference between their evidence.

[76] According to Cameron, development management fees are usually 3.5% of development costs plus a success fee. He had also never seen a development fee with a related party because it muddies the waters.

[77] Safapour dismissed Cameron’s focus on development fees based on costs as a practice that prevailed 10 or more years ago. According to Safapour, the practice had fallen out of favour because it did not incentivize the developer to increases revenues or decrease costs. Indeed, a fee based on a per centage of costs may in fact incentivize the development manager to increase costs.

[78] Safapour initially testified that the typical fee for a development manager was 3.5% of gross revenue of the project. His report was based on that approach.

[79] Safapour had, however, prepared his own proposal to Akman to serve as development manager. That proposal charged 3.9% of the total project cost if he were acting as both development and construction manager and 2.5% of project cost if he were acting only as development manager. This was a materially lower fee than the 3.5% of gross revenue that Safapour proposed as a typical development fee. Safapour explained the lower fee that he proposed as being attributable to the fact that in projects where Devron charges 3.5% of revenue, it is a non-arm’s-length owner of the property and the land development opportunity was brought forth by Devron. Safapour did not indicate if he had partners in those other projects. In addition, Safapour explained that Akman seemed like a high value potential future client which resulted in Devron’s desire to provide a lower fee to establish a longer-term relationship, especially because Devron was in a more aggressive growth stage at the time and was looking for more immediate business.

[80] On cross examination, Safapour agreed that there are many different ways to calculate development fees. He conceded that they are sometimes based on cost but would also sometimes be based on revenue and sometimes include a large profit component.

[81] In my view an appropriate approach to a development fee here, if one were awarded, would be a fee of 3.5% of costs incurred on the development to date. A fee based on projected revenue or projected costs would, in my view, be inappropriate because those revenues or costs were never realized, largely because of the approach that Akman took to his partners.

[82] The Liquidator identified payments of $4,997,819 to entities that provided construction, engineering or design services which it categorized as payments related to the development of the project.

[83] In addition, the Liquidator identified payments totaling $1,702,474 as related to brokerage commissions for the project. I would exclude those fees from the base on which costs are calculated because the sales related to those commissions were never completed, again, largely because of Akman’s conduct.

[84] The Liquidator also identified $800,708 for accounting and legal fees. I would include these fees as the base on which to calculate development fees on the theory that those fees related largely to the development of the project.

[85] I would therefore calculate the development fee as 3.5% of development costs of $5,798,527[^26] or $202,948.45

IV. The Hotel Management Fee

[86] Akman claims hotel management fees of $1,010,974.95.[^27] These are in addition to the $389,575 that he had already caused Tarn Financial to pay him on account of management fees.

[87] Akman submits that I should find an agreement to pay him a hotel management fee from the underlying circumstances.

[88] Akman says that before the hotel was purchased, he showed Volkan and Kocturk a financial statement of the previous owner which disclosed a management fee of 3% and explained to them that this was the fee that was paid to the company that was managing the hotel. Before closing, Akman says he advised Volkan and Kocturk that he would manage the hotel but that there was no discussion about management fees at that point. It appears that these were two separate conversations. Akman asks me to infer from those conversations that his partners knew of and implicitly approved of the management fee. A description of the previous owner’s financial statement does not, however, amount to an agreement to pay Akman a hotel management fee.

[89] Akman also took the position that the applicants had agreed to pay the management fee although he says the specific amount of the fee was not discussed. Contemporaneous emails suggest otherwise.

[90] On November 13, 2016, Kocturk sent Akman an email[^28] objecting to the management contract which appears at that point to have been based on a 4% fee for 30 years. Akman responded approximately two hours later with a telling answer.[^29] After noting that management fees could be 5% of the first $5 million in revenue, 4% of the next $20 million and 3% over that he stated:

I could not charge these because I did not know about it and did not inform you in the beginning. I only charged the expenses which was 120/140 K/year.

I had told you at the outset that once the project started to generate cash you could take that into consideration to determine a decent compensation and that you would not mistreat me. Whatever you call it, success fee/Finder’s fee/management fee.

[91] In other words, there was never an agreement for Akman to charge management fees. Based on his own email, there was at best an agreement to agree on some sort of compensation at a later date.

[92] In a further email that Akman sent to his partners on November 17, 2016 he repeated the sentiment that hotel management fees had not been discussed before by stating:

Since it had not been discussed before, I stated that the management fee that appears on the report is not being collected and that the company takes advantage of it for tax purposes and that it would be confirmed by the audit report. [^30]

[93] Akman says the management fee was confirmed in an email from him to his partners on November 27, 2014. That email is not, however, quite as direct as Akman asserts. The relevant passage in the email states:

Since the Akman Hospitality management company to be established will seem to manage these hotels, there will be no management change in terms of Franchisee and there will be no problem.[^31]

[94] At trial, Akman testified that the expression “seem to manage” in this email was a translation error. According to Kocturk, there is no translation error and the translation is faithful to the Turkish original. According to Kocturk, the expression “seem to manage” made sense because there had been no agreement about management or a management fee and because Akman had explained that the entry for the management fee was only an effort to have Tarn Financial pay less corporate tax as opposed to a true fee that Tarn Financial was paying. The translations were prepared by a jointly retained, court certified translator. Akman raised no issue about the interpretation before taking the stand. Akman called no independent evidence about the translation. In those circumstances, I accept the translation to be correct.

[95] Kocturk says he had no difficulty in principle with paying a fee to manage the hotel but also noted that hotel management companies require a “serious corporation” with staff and infrastructure. Here, the management company was Akman Hospitality which Kocturk described as “a one-man show” as opposed to a real management company. Kocturk noted that Akman has approximately 15 businesses in Turkey, a business in Switzerland and other hotels in Canada. As a practical matter, Akman would not have time to manage the hotel himself apart form some very high level direction.

[96] Kocturk’s view is supported by contemporaneous emails. In this regard it is worth noting that Akman’s email of November 27, 2014 stating that Akman Hospitality will seem to manage the hotel also referred to it as a company “to be established.” In other words, there was no existing infrastructure. This was not a case of Akman Hospitality having developed expertise in the area by having managed Akman’s other hotels.

[97] The “one man show” nature of the company was in effect confirmed by Akman at trial. Akman appears to agree that SAMM and Akman Hospitality had no management infrastructure. Akman initially said that Akman Hospitality was providing management services. When he was asked why the invoice for those services was from SAMM, he answered:

Actually, I was providing the management and I own both Akman Hospitality and also I was the owner of Akman Hospitality 100 per cent. I was the owner of SAMM Holdings as well. So our accountants either invoiced from Akman Hospitality or Samm. Didn't make a difference. So it was just accounting purposes where the invoice came from. But actually, I was performing the management.

[98] To underscore the nature of the one person operation, the respondents called Roslynn Winegrad, Marriott’s area Vice President for owner/franchise services, as a witness. She testified that the Delta Kennedy failed to meet its franchise standards in 2015 as well as in early 2017 before the Liquidator was appointed and was in financial default to the franchisor for several months. Ms. Winegrad says she was pleased to be dealing with the Liquidator as someone who was responsive and had an interest in improving the hotel.

[99] Akman submits that any criticism of his hotel management is an after-the-fact invention by Volkan and Kocturk because, while the relationship was ongoing, Kocturk congratulated Akman on the operation of the hotel. The congratulations that Kocturk provided was an email response to delivery of financial results for the hotel, not an assessment of the quality of management or the quality of the hotel.

[100] In light of the evidence above, I am not able to find that there was any agreement about the payment of hotel management fees to Akman. Akman’s own emails say that he did not advise Volkan or Kocturk about hotel management fees. At its highest, his email of November 13, 2016 to the effect that once the project started to generate cash, Volkan and Kocturk could take that into consideration to “determine a decent compensation,” amounts to an agreement to agree.

[101] The hotel management agreement falls afoul of s. 132 of the OBCA for the same reasons that the Development Agreement does.

[102] Akman also claims quantum meruit in respect of the hotel management fee. In support of this claim, he points to a report of his expert, Monique Rosszell who opined that a hotel of the sort in question would typically pay a management fee of 3.16% of revenue plus a 1% incentive fee. The incentive fees are typically geared to the gross operating profit. The fees Akman charged came to 1.5% of revenue in 2014 and 2015 and 3% for 2016 and 2017.

[103] Ms. Rosszell’s report was based on a review of 75 Canadian hotel management contracts that were in place between 2015 and 2017. The contracts she reviewed involved arm’s length arrangements. During cross-examination she agreed that she conducted no review of non-arm’s-length arrangements, did not have details of the management arrangements for the Delta Kennedy, had not seen any management agreement for the Delta Kennedy, was not given any details about what Akman did to manage the hotel and could not speak to the quality of Akman’s management.

[104] I would be disinclined to use quantum meruit as a means of compensating Akman for the hotel management fee for the same reasons that I declined to do so for the development fee. Akman knew in advance that the hotel would require management. His solution was to hire an independent Hotel Manager, Colleen Ross, as an independent contractor for $7,400 per month. Although Ms. Ross described her role as operational management rather than the strategic management, there was no evidence about what sort of strategic management the hotel required in light of the fact that it was going to be re-built and renovated as part of the redevelopment. The closest there was to evidence of strategic management was the creation of a model suite to illustrate the level of finish in the new rooms and ongoing discussions with the franchisor about hotel quality.

[105] It was Akman’s choice to hire Ross as manager and not to put any written agreement about hotel management to the other shareholders for approval. If those decisions now work to his detriment, that is a risk he should bear.

[106] I am not satisfied that Akman is entitled to any further compensation by way of quantum meruit. My overall impression was that Akman was providing little if any direction for the overall management of the hotel. It is the shareholders of the hotel who should decide what sort of management they want and how much they are prepared to pay for it. It is not in my view appropriate for Akman to fail to put a proposal to his fellow shareholders and then claim quantum meruit compensation after the fact. Especially not when the way in which the hotel was managed was contested at trial and the compensation Akman seeks is equal to an arm’s length management contract. To do so would allow far too much scope for a majority shareholder to enter into a self interested contract which provides little by way of management services and then compel unwilling minority shareholders to compensate the majority shareholder as if he had been providing satisfactory, arm’s length services. Once again, if Akman feels this approach is unfair, he had full control of the situation and could have avoided it by presenting a management agreement to Volkan and Kocturk in a timely manner.

[107] As a result of the foregoing, the $389,575 already paid on account of the hotel management fee will be deducted from Akman’s shareholder loan.

V. Akman Shareholder Loan

[108] SAMM claims repayment of a shareholder loan of $4,332,118.90.[^32] The parties agree that this should be increased by $300,000 to take into account added expenditures that Akman or companies related to him made for the benefit of the project. This would bring the total shareholder loan claim to $4,632,119.80.

[109] Two types of dispute arise over the shareholder loan. The first concerns whether certain payments that have been made to Akman should decrease the amount owing on his shareholder loan or whether Akman is entitled to those payments independently of his shareholder loan.

[110] The second concerns whether the amount outstanding on Akman’s shareholder loan should be determined based solely on advances he made to Tarn Finance or whether they should also include advances he made to Tarn Construction.

[111] I will address only the first issue in this section and will address the treatment of advances to Tarn Construction in the next section of these reasons.

[112] Justice Lederman directed that KPMG undertake a review of funds transferred into and out of Tarn Financial by the parties. KPMG prepared a sources & uses report in fulfilment of that direction. In certain cases, Akman had Tarn Financial make payments to him for what he says were reimbursements for business expenses that he incurred on behalf of Tarn Financial. KPMG disagreed with that characterisation and treated many of those expenditures as reimbursements of Akman’s shareholder loan.

[113] Akman retained PWC to prepare its own responding report. It addressed contentious payments in its Schedules 4, 5, 6 and 7. In certain cases PWC concluded that the expense was a legitimate business expense which should not be counted as a repayment of Akman’s shareholder loan. In other cases, PWC did not see adequate support for the assertion that the payment was a business expense, and categorized the payment as “Unknown Purpose.” Akman submits that even the payments categorized as “Unknown Purpose” are reimbursements for legitimate business expenses. I review those contested expenditures below, Schedule by Schedule.

(i) Schedule 4 Expenses

[114] Schedule 4 addresses expenses for hotel operations. Where PWC has categorized a payment on Schedule 4 as “Unknown Purpose,” I would continue to treat that payment as a repayment of Akman’s shareholder loan. Akman has not introduced any evidence to override PWC’s categorization. In those circumstances, Akman has failed to discharge his burden of proof to demonstrate that he is entitled to the payment as a reimbursement of a business expense.

[115] Those expenses that PWC has characterized as business expenses are generally those that are supported by purchase orders and invoices and which make sense for the hotel to incur as a business expense. As a result, where PWC has characterized an expense as a business expense on Schedule 4, I accept the characterization as a valid business expense with the exception of those listed below. Put another way, those valid business expenses should be deemed to be a reimbursement to Akman and should not go to decrease the amount he is owed on his shareholder loan.

[116] I disallow the expense of $2,479 for an iPhone and MacBook Air. Note 21 to Schedule 4 observes that neither the phone nor the MacBook Air were collected by KPMG during the liquidation process. It strikes me that if in fact the phone and the MacBook were used by Akman, it is unlikely that they were used for purposes related exclusively to the hotel and would more likely have been used by Akman for all of his business and personal needs. In those circumstances, the expense should not be borne by the hotel. This amount should be viewed as a repayment on account of Akman’s shareholder loan.

(ii) Schedule 5 Expenses

[117] Schedule 5 of the PWC report relates to development costs. It contains payments of $1,007,049. By far the largest is the development fee of $1,000,000, the categorization of which PWC has described as being determinable by the Court. As noted earlier, I find that Akman is not entitled to a development fee and categorize that payment as a repayment of Akman’s shareholder loan.

[118] PWC has categorized the remaining expenses on Schedule 5 as business expenses. I agree with that categorization and would categorize those expenses as reimbursement of payments that Akman made on behalf of Tarn Financial rather than as repayments on his shareholder loan. The costs appear to relate to advertising expenses for the condominium development and are unlikely to be personal expenses of Akman.

(iii) Schedule 6 Expenses

[119] Schedule 6 of the PWC report relates to travel, gift and entertainment expenses. Akman submits that the items PWC has categorized as “Unknown Purpose” are in fact reimbursements for business expenses. One of those is a payment of $4,975 for return airline tickets for Akman and his wife between Toronto and Istanbul dated June 6, 2015. In note 7 to Schedule 6, PWC observes that Akman described the purpose of the trip as being for “coordination meetings with partners in Turkey with respect to the promotion of the Kennedy Project.” A second payment is for $4,300 for a return ticket between Toronto and Istanbul dated August 24, 2017. According to Note 15 of Schedule 6, Akman described the purpose of the August 24 trip as being for meetings with shareholders.

[120] I would categorize both of those expenditures as repayments on Akman’s shareholder loan as opposed to reimbursement of business expenses. With respect to the ticket of June 6, 2015, it is unclear precisely what coordination needed to occur between the shareholders in relation to the promotion of the Kennedy project or precisely why Akman’s wife needed to be there. According to Akman, his wife Saba is an architect. According to Kocturk, she studied architecture at school but never practiced as an architect. According to Akman, the purpose of her visiting Turkey was to provide comments on sketches of the condominium sales office and to review prototypes of the development created by the modelling company in Turkey. In the absence of a more clearly defined purpose for the meeting and a more clearly defined role for Saba that the other shareholders had agreed to, I would not be inclined to allow those expenses. There is simply too much scope for blending of personal and business interests here. In those circumstances I would be more inclined to take a strict approach to the separation of personal and business interests. In that light, the expenses are ones in relation to which Akman is conflicted and for which there was no approval by disinterested directors or shareholders.

[121] The second return ticket between Toronto and Istanbul in the amount of $4,300 dated August 24, 2017 was a trip for Akman to meet the other shareholders to discuss a settlement of disputes between them. Given that the disputes arose out of Akman’s conflicted behaviour, it would not be appropriate to have other shareholders pay for a trip that was brought about because of Akman’s misconduct. The reimbursement of both airline tickets should be treated as a partial payment on Akman’s shareholder loan.

[122] The remaining “Unknown Purpose” expenses relate to payments to various restaurants and for a Louis Vuitton wallet. The notes to the Schedule indicate that Akman described the restaurant expenses as relating to meals with a client or customer. I have received no further explanation for how the dinner or the wallet are related to the hotel or the development. Absent such an explanation I would treat the remaining “Unknown Purpose” expenses on Schedule 6 as reimbursements of Akman’s shareholder loan as opposed to characterizing them as reimbursements for business expenses.

[123] I accept PWC’s characterization of the balance of the expenditures on Schedule 6 as legitimate business expenses except for those set out below. I note in this regard that I am not undermining the integrity of PWC’s characterizations but that I am characterizing things for a different purpose. By way of example, in a solely owned business, there may be a broader category of expenses that could be viewed as legitimate business expenses perhaps for purposes of tax deductibility than in a business with other shareholders where the underlying issue is whether the other shareholders should be, in effect, contributing to the cost of the expense.

[124] I disallow the expense of $2,420 for two tickets to a fundraiser for Justin Trudeau. In a solely owned business, that may well be a valid business expense on the theory that it builds on and enhances the owner’s network of contacts. In a business with other shareholders, that is not necessarily the case. I received no explanation for how attending an event for a federal politician would benefit the hotel or the development when government decision making in relation to the project would occur at the municipal level rather than the federal level. In addition, there was no evidence about who obtained the tax receipt for the event.

[125] I disallow the expense dated June 30, 2015 of $4,125 for an airline ticket for Saba Akman for the reasons set out above.

[126] I disallow the expense dated June 26, 2015 for an airline ticket for Akman in the amount of $3,250. There is no support provided for the specific purpose of the trip.

[127] I disallow the expense dated July 20, 2015 $440 on account of flight expenses for Mr. and Mrs. Akman for the same reasons.

[128] I disallow the expense dated July 14, 2017 for a return ticket from Istanbul to Toronto in the amount of $4,000. PWC’s note in support of this expenditure indicates that the purpose of the meeting was to meet other shareholders. PWC was provided with emails containing discussions about payments to settle disputes between the partners in connection with that trip. This too is an expenditure for a trip by Akman to settle disputes arising from his own conflicts of interest. In my view, the other shareholders should not be required to pay any portion of those expenses.

[129] That said, I do allow the expense dated August 16, 2016 for a return ticket from Toronto to Istanbul in the amount of $2,350. It appears that Akman was in Istanbul from August until the end of September 2016. He has provided evidence of press interviews promoting the Kennedy project during that time. The shareholders also agreed that the promotional event in Istanbul for the Kennedy Project took place in September of 2016. A trip to Istanbul for that event is, in my view appropriate as a legitimate business expense to charge to Tarn Financial.

(iv) Schedule 7 Expenses

[130] Schedule 7 to the PWC report contains miscellaneous expenditures of $199,943.

[131] The plaintiffs have admitted the expense for the Art Shoppe dated August 13, 2015 in the amount of $6,774 as being a valid business expense.

[132] I accept that where PWC has characterized an expense as being for an Unknown Purpose on Schedule 7, it should not be allowed as a valid business expense and should be characterized as a repayment of Akman’s shareholder loan.

[133] There are only two business expenses on Schedule 7. The largest is an expense in the amount of $152,560 to Joyco Trade SA dated August 31, 2017. I disallow this as a business expense and find that it is a repayment on account of Akman’s shareholder loan.

[134] Akman says the payment of $152,560 to Joyco is a business expense for the planning, design, and set up of the sales office in Europe. He points to the invoice marked as Exhibit 57[^33] to justify this payment. The invoice simply lists an expense of $152,550 for “planning/designing/setting up of Tarn Tower sales office in Europe 2015 fees”. KPMG characterizes this as a reimbursement on Akman’s shareholder loan as opposed to a business expense. PWC characterized it as a business expense because of the description of the services on the invoice. During his examination in chief, Akman confirmed the description on the invoice as the basis for charging it as a business expense.

[135] There are several problems with the Joyco expense. First, it is a related party expenditure which was made without the approval of disinterested directors or shareholders. Second, it contains a very general description without any break down to justify or explain the cost of 152,5600. Third, a very different explanation emerged for that expense during cross-examination. It appears that Akman had told his own auditors that the expense was due to trading losses.[^34] Akman then explained that the expense was on account of both trading losses and the condominium sales office in Turkey. According to Akman, Tarn Financial needed money in Canada. He had to liquidate investments to fund those needs and incurred a loss on the liquidation. I was not shown any trading records to support the explanation of a loss on securities nor was I taken to any financial records of Tarn Financial to demonstrate a particular need for funds. Given the contradictory explanations for the Joyco expense and the absence of adequate supporting documents to support either theory, I disallow it as a business expense and would have the sum applied to decrease the amount owing on Akman’s shareholder loan.

[136] The second expense on Schedule 7 is for a Go Pro camera dated June 28, 2016 in the amount of $373. I accept that as a legitimate business expense. Akman described it as being intended to film construction on an ongoing basis and give purchasers access to the construction video. I understand that has now been accepted by the applicants as a legitimate expense as well.

(v) Interest Expense

[137] In addition to the foregoing expenses, Akman also claims $47,000 from Tarn Financial in allegedly saved interest costs as a result of his payment of a loan that Tarn Financial had with Meridien Credit Union.

[138] It appears that Tarn Financial had a loan with Meridien that bore interest at 10% per year. Akman caused SAMM to pay off the loan of $2,600,000 on August 22, 2016 instead of having it paid off on October 26, 2016. Akman says he did so to save interest charges to Tarn Financial. The $47,000 payment that Akman claims is the interest rate of 10% that would have been payable between August 22, 2016 and October 27, 2016.

[139] In my view, Akman is not entitled to that interest. There is no evidence that Meridien had made any demand for payment. The stated purpose of Akman using SAMM’s funds to pay off the loan was to have Tarn Financial save on interest payments. There would be no interest saving to Tarn Financial based on Akman’s claim. There would simply be a shift in the recipient of interest from Meridien to SAMM. In other words, Akman would simply have replaced an arm’s-length lender with a related party lender. That is a transaction that would require the approval of disinterested directors or shareholders. No such approval was obtained. In those circumstances it would not in my view be appropriate for SAMM to charge interest. Once again, there is too much room for mischief by related parties if they are allowed to replace arm’s-length lenders with themselves without the approval of disinterested directors or shareholders.

VI. Advances to Tarn Construction

[140] As noted earlier, Akman lent more money to the project than the initial injection of $4.3 million. Akman paid some of those additional funds to Tarn Financial and others to Tarn Construction, a wholly owned subsidiary of Tarn Financial. Akman received repayments of those funds, principally from Tarn Finance. The applicants submit that the calculation of the amount owing on Akman’s shareholder should be based solely on the amount he lent to Tarn Financial and on the amounts Tarn Financial repaid him. Akman submits that the amount owing on his shareholder loan should be calculated based on the total of the amounts he advanced to both Tarn Financial and Tarn Construction minus the repayments he received from either company.

[141] The outstanding amount that Akman advanced to Tarn Construction directly comes to $708,870.50.

[142] In support of their position that Akman should not be reimbursed for any funds that he advanced to Tarn Construction, the applicants note that the proofs of claim that Akman submitted were submitted in the liquidation only of Tarn Financial. The Liquidator received a number of other proofs of claim from arm’s length parties which were based on amounts that Tarn Construction owed to creditors. The Liquidator disallowed those claims because there was no supporting documentation that identified Tarn Financial as being liable for the claims against Tarn Construction. In addition, since Tarn Construction had no assets, the Liquidator did not initiate a claims process for it. This left millions of dollars in claims against Tarn Construction unpaid. Akman did not oppose the Liquidator’s disallowance of its claims against Tarn Construction and did not seek to appeal that disallowance. The applicants submit that allowing Akman’s claims against Tarn Construction would prefer Akman’s claim to those of other creditors of Tarn Construction.

[143] The applicants also note that the court has since approved the activities of the Liquidator in respect of the claims against Tarn Construction and submit that Akman’s position essentially asks me to revisit that order in circumstances where he did not object to it at the time.

[144] Akman advances three theories on which he is entitled to repayment of advances made to Tarn Construction: substantive consolidation, piercing the corporate veil and principles of equitable winding up.

[145] Substantive consolidation allows the court to treat members of a corporate group as a single entity in certain circumstances, especially where one acts as the agent of another.[^35] As the name suggests, piercing the corporate veil allows the court to find a shareholder liable for the obligations of a corporation.[^36] I do not find those theories appropriate to apply. If I were to apply either of those theories to Tarn Construction, I would have to apply the theory equally to other creditors of Tarn Construction. While Akman suggests that many of those creditors have been paid out because they placed construction liens on the project or came to a settlement with the Liquidator, I am not satisfied that I have sufficient information about the status of Tarn Construction and its creditors, especially because the Liquidator never conducted a claims process for it given its lack of assets.

[146] My underlying jurisdiction here is not, however, limited to that of a claims officer approved appointed to adjudicate contested claims in a bankruptcy or liquidation. The issue before me arises in the context of a shareholder dispute and an equitable liquidation.

[147] Lederman J. ordered Tarn Financial to be wound up pursuant to s. 248 of the OBCA as a remedy for Akman’s oppression.[^37] Under s. 248(3) (l) of the OBCA, the court can, as a remedy for oppression, issue an order to wind up the corporation under section 207 of the OBCA. Section 207(2) provides:

Upon an application under this section, the court may make such order under this section or section 248 as it thinks fit.

Section 209 of the OBCA provides:

Power of court

209 The court may make the order applied for, may dismiss the application with or without costs, may adjourn the hearing conditionally or unconditionally or may make any interim or other order as is considered just, and upon the making of the order may, according to its practice and procedure, refer the proceedings for the winding up to an officer of the court for inquiry and report and may authorize the officer to exercise such powers of the court as are necessary for the reference. (emphasis added).

[148] Winding up or liquidation under s. 207 is often referred to as just and equitable liquidation or just and equitable winding up.

[149] It is clear that the court has broad powers under the winding up provisions to make any order it thinks fit or considers just. That is consistent with the broad, equitable and remedial nature of both the oppression remedy and the equitable liquidation provisions.

[150] The starting point of my analysis here is that this is not an ordinary proof of claims procedure in which one needs to determine amounts owing as between various creditors. That process has already occurred within Tarn Financial and its creditors have been fully paid. What is before me is a decision about how the remaining proceeds that arose from the sale of the project should be divided amongst the three shareholders of Tarn Financial. As a result, what creditors of Tarn Construction may or may not be owed is not directly before me.

[151] The parties agree that any funds that Akman advanced to Tarn Construction were used for the project. While the applicants submit that there is no evidence to demonstrate that the monies advanced to Tarn Construction increased the project’s value, they do concede that the monies advanced to Tarn Construction were used for the project. There does not appear to be any disagreement that the overall work Akman did on the project advanced it towards development and made it a more desirable property when it was sold. This, on a balance of probabilities, led to a higher sales price from which all shareholders will benefit. There is nothing to suggest that the monies Akman advanced to Tarn Construction had any different effect.

[152] If I ignore the advances that Akman made to Tarn Construction, there will be more money in Tarn Financial to distribute to shareholders. The net effect of that is that Basegmez and Kocturk will obtain 60% of the $708,000 unpaid advance that Akman made to Tarn Construction ($424,800). Giving Basegmez and Kocturk $424,800 of the money that Akman advanced to Tarn Construction does not strike me as either just or equitable. Although Akman may have acted oppressively, relief for oppression should to be designed to remedy the wrong, not to inflict punishment on the oppressor.[^38] Giving Basegmez and Kocturk a windfall of $424,800 does more than remedy the wrong and penalizes Akman.

[153] The Liquidator noted as well that some of the funds advanced by the applicants were not paid directly to Tarn Financial but to another corporation controlled by Akman or to accounts controlled by Akman. The Liquidator has not confirmed whether those funds were ultimately paid to Tarn Financial or Tarn Construction. This suggests that there was some informality about the specific party to which funds for the project were paid. Regardless of that informality, all parties agree that the applicants are entitled to repayment of those funds even if they were not paid to Tarn Financial. If that principle applies to funds that the applicants paid, it should also apply to funds that Akman paid.

[154] The applicants’ case was predicated on the proposition that after the shareholders were repaid their shareholder advances, any surplus would be shared according to their shareholdings. That meant that Akman would be compensated for his “sweat equity” by virtue of the fact that he advanced less cash for his shareholder loan than others did. I have applied that principle to find in the applicants’ favour on the development fee and the hotel management fee. That principle would however be compromised if Akman is not compensated for funds he lent to the project because he paid them directly to Tarn Construction rather than to Tarn Financial. In that case, not only would Akman not receive a rateably superior return for his sweat equity that the parties had agreed to, he would be paid $424,800 less because he would not be repaid money that he undisputedly lent to the project through Tarn Construction. That does not strike me as having been within the reasonable expectations of any of the shareholders.

[155] As a result of the foregoing I find that Akman should be repaid the money he advanced to Tarn Construction before the other shareholder loans are re-paid and any surplus is divided among shareholders. On my view of the evidence, each of the three shareholders agreed to capitalise the project with an initial investment that was paid as a shareholder loan. The shareholders received their pro rata shareholdings in Tarn Financial based on the amounts of the initial loans. The overall object of the liquidation was to pay out creditors of Tarn Financial before addressing the rights of the shareholders to repayment of their initial advances and subsequent distribution of any surplus. It is in keeping with that overall scheme to have Akman repaid his advances to Tarn Construction before any of the initial shareholder loans or remaining surplus be distributed. It is my understanding that priority is not really an issue because there are sufficient funds to repay both the initial advances to Tarn Financial as well as the advances that were made directly to Tarn Construction.

Conclusion and Costs

[156] For the reasons set out above I find that:

i. Akman was not entitled to be paid fees on account of hotel management or development fees and that any such fees which were paid to him should be applied to reduce the outstanding amount of his shareholder loan.

ii. Contested expenses and reimbursements should be dealt with in the manner set out in Section V of these reasons.

iii. The amount owing on Akman’s shareholder loan should be based on monies he lent to Tarn Financial and Tarn Construction and repayments he has received from either entity.

[157] Much of the argument at trial proceeded on the basis of general principles as opposed to accounting details. It was put to me that if I resolved the principles, then the Liquidator would be able to do the accounting. The intention of these reasons was to address all of the issues that the parties required me to resolve. It is my understanding that the reasons address either explicitly or implicitly all of the issues the respondents sought to have resolved as set out in paragraph 28 above. If any issues remain unresolved, if there is any dispute about the effect of these reasons or the parties or the Liquidator require further assistance in arriving at a calculation of specific amounts owing, I remain seized of this matter and will provide assistance as needed.

[158] Any party seeking costs as a result of these reasons should make written submissions by September 9, 2023. Any responding party should provide responding submissions by September 23, 2022. Any reply should be delivered by September 30.

Koehnen J.

Released : 2022-08-09

[^1]: To avoid confusion between the various Basegmez parties, I will refer to them by their first names. I mean no disrespect in doing so. [^2]: Basegmez et al. v. Akman et al. 2017 ONSC 5370. [^3]: Basegmez et al. v. Akman et al. 2018 ONSC 812. [^4]: Endorsement of McEwen J. dated February 18, 2021. [^5]: Basegmez et al. v. Akman et al. 2017 ONSC 5370 at para. 10. [^6]: Basegmez et al. v. Akman et al. 2018 ONSC 812 at para. 2. [^7]: Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, at para. 24. [^8]: Penner v. Niagara (Regional Police Services Board), 2013 SCC 19 at paras 29-30 [^9]: Penner at para. 42. [^10]: Claims Procedure Order of Justice McEwen dated April 13, 2018, para. 13. [^11]: Ibid. at para. 14. [^12]: Ibid. para. 2 (j). [^13]: For example, Tridel wanted a 50% equity interest in the property plus a development and construction management fee. [^14]: Tarion is a consumer protection organization established by the government of Ontario to administer new home warranties. Developers are required to post security in the form of a bond to protect against warranty claims and to protect purchasers’ deposits. [^15]: Exhibit 36, CaseLines document A271 pdf p. 4. [^16]: Exhibit 36. [^17]: Browne v. Dunn (1893), 6 R. 67 (H.L. (Eng.) [^18]: Business Corporations Act, RSO 1990, c B.16 [^19]: OBCA, s 134(1)(a) and BCE Inc. (Re), 2008 SCC 69 para. 37. [^20]: Unique Broadband Systems Inc. (Re), 2014 ONCA 538 para. 46. [^21]: OBCA, ss 134(2) and (3). [^22]: OBCA, s. 132 (2) (a). [^23]: OBCA, s. 132 (4). [^24]: OBCA, s. 132 (5.2). [^25]: Ariston Realty Corp. v. Elcarim Inc., 2014 ONCA 737, 378 D.L.R. (4th) 197, at para. 28, citing Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2007 ONCA 324, 282 D.L.R. (4th) 697, at paras. 95, 99. [^26]: $4,997,819 plus $800,708. [^27]: Exhibit 7. [^28]: Joint Trial Brief No. 208, CaseLines document A 270. [^29]: Ibid. pdf p. 2. [^30]: Ex. 35 [^31]: Ex 5, Joint Trial Brief 002, CaseLines document A61. [^32]: Proof of claim, Exhibit 31. [^33]: CaseLines document A 363. [^34]: See KPMG Sources and Uses Report, CaseLines document A 50 PDF p. 146 [^35]: See for example Ontario College of Pharmacists v. 1724665 Ontario Inc, 2013 ONSC 4295 at paras. 100 to 103. [^36]: See for example Yang v. Overseas Investments (1986) Ltd.., [1995] 4 W.W.R. 231, [1995] A.J. No. 58 at paras. 96, 97 and 100; Pelliccione v. John F. Hughes Contracting & Development Co., [2005] O.J. No. 4132, 142 A.C.W.S. (3d) 770. [^37]: 2017 ONSC 5370 at para. 53 [^38]: See for example, Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481 at 488.