Court File and Parties

COURT FILE NO.: CV-22-687465 DATE: 20230113 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

SANJIVE JOSHI and XPERT LAW INC. Plaintiffs – and – DAVID GRACE, 563973 ONTARIO LIMITED and OLYMPIA ATHLETIC CAMPS LIMITED Defendants

Counsel: Daniel Z. Naymark and Dillon Collett, for the Plaintiffs Monica Unger Peters, for the Defendants

HEARD: January 12, 2023

BEFORE: Papageorgiou J.

Endorsement

[1] The plaintiffs Sanjive Joshi (“Joshi”) and Xpert Law Inc. (“Xpert”) (the “Moving Parties”) bring motions for: various interim and interlocutory relief against the defendant David Grace (“Grace”) relating to the defendant 563973 Ontario Limited (“Parent Co.”) or the defendant Olympia Athletica (“Olympia”) (collectively the “Companies”) which include the following prohibitions:

i) from interfering with their interaction with the Companies, ii) from causing any encumbrances on the Companies’ properties, iii) from transferring the Companies’ properties, iv) from executing corporate documentation on behalf of the Companies, v) from dealing with the Companies’ shares, incurring debt or liability in the name of the Companies, vi) from selling any of the Companies equipment, vii) from interfering with Joshi and Xpert’s access to the Companies’ books and records;

[2] They also seek a mandatory order requiring the defendant Grace to grant him unrestricted access to the books and records of the Companies;

[3] The subject matter of this action is Olympia’s operation of an overnight sports summer camp for campers aged 7 to 17 located at 2400 Limberlost Road & 1010 East Limberlost Road, Oxbow Lake Road, Lake of Bays, Ontario (the “Limberlost Property”). The Limberlost Property runs along valuable lakefront property comprising over 40 acres on the shores of Oxbow Lake. Grace has operated this camp on the Limberlost Property for the last 40 years. Joshi has produced an appraisal which values the Limberlost Property at $7.6 million.

[4] The essence of the Moving Parties’ claim is that in or around March 2022 they invested approximately $460,000 in Olympia and Parent Co. by purchasing Grace’s wife’s shares in Parent Co.. It was their expectation that they would be involved in the management of these companies and indeed, after this investment, they took a number of steps towards that end. In the course of their work, they noted significant irregularities and problems in the operation of the business which they sought to address. Soon after they raised these issues, Grace sought to freeze them out of the business.

[5] They claim an oppression remedy on the basis that their reasonable expectations to participate in the management of the business have been harmed. They claim injunctive relief on the basis that the business will suffer if they are not given immediate access to the Olympia and the Parent Co.’ books and records. Part of this irreparable harm relates to a mortgage which it is believed will go into default if they are not permitted to continue their involvement in the business.

Preliminary Matters

[6] There are a number of preliminary issues related to the delivery of Grace’s materials which have not been served in accordance with a court-ordered consent timetable and which were served after he conducted cross examination of Joshi.

[7] The Moving Parties take the position that this Court should not consider Grace’s materials. They also take the position that if this Court determines that it will consider this evidence, they require an adjournment on terms which include this Court granting relief requested on an interim basis as well as costs thrown away.

[8] For the following reasons, I am permitting Grace to file his recent affidavit on the terms requested by the Moving Parties and attached to these reasons as a schedule.

[9] Simply for the purposes of explaining why I am permitting Grace to file a further affidavit, I set out the following facts set out in the parties’ materials, which are not meant to create any issue estoppels.

Grace has not complied with a Court-Ordered Schedule

[10] First, the Moving Parties initiated this proceeding on September 28, 2022 when they served their Statement of Claim together with their Notice of Motion for an interlocutory injunction. Subsequently, on September 30, 2022 Grace commenced a parallel action on behalf of himself and purportedly on behalf of Olympia against the Moving Parties and other non-parties to this action (the “Grace Action”).

[11] The Moving Parties subsequently served their motion record on October 11, 2022.

[12] The Moving Parties attended at Civil Practice Court on October 12, 2022 requesting an urgent hearing and Justice Black scheduled for a full day hearing on January 12, 2013.

[13] On October 24, 2022, Justice Black ordered a timetable on consent whereby Grace’s responding materials were due by November 11, 2022.

[14] Notwithstanding the very serious allegations made in the Grace Action, Grace did not deliver any materials by the deadline.

[15] On December 13, 2022 Grace conducted his cross-examination of Joshi.

[16] On December 30, 2022 Grace swore the affidavit which is the subject of the current dispute.

[17] On January 3, 2023, the Moving Parties’ counsel served their factum in accordance with the timetable. That same day, Grace served a Responding Record containing his affidavit sworn December 30, 2022 and a Notice of Cross-Motion in the Grace Action. The Notice of Cross-Motion in the Grace Action seeks a Mandatory Order requiring Joshi and Xpert to immediately repay certain loans which Olympia made to Xpert in the amount of $1,460,000 so that Olympia can repay the mortgage which is coming due in March 2023.

[18] On January 5, 2023, Grace delivered a factum relying on his late affidavit.

[19] I agree that this failure to comply with a court ordered schedule is troubling.

[20] This Court has repeatedly emphasized the importance of complying with timetable orders, an “essential [tool] to ensure rigorous trial management.” Timetables are enforceable and there are sanctions for a party’s failure to comply under Rule 3.04(4) of the Rules of Civil Procedure. Consent ordered timetables should not be breached with a “cavalier” attitude. [1] Consent orders of any kind have a “relative sanctity”, are “final and binding and can only be amended when it does not express the real intention of the parties or where there is fraud.” [2]

Grace delivered his affidavit after he conducted cross-examination

[21] Rule 39.02(3) of the Rules of Civil Procedure provides that “A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross examination. The mandatory part of the provision relates to the situation where evidence is necessary to respond to any matter raised on cross examination. That does not mean that the court may not grant leave if the evidence is not necessary to respond to a matter raised on cross examination.

[22] In the leading case of Brock Home Improvement Products Inc. v. Corcoran, Stinson J. articulated the rationale for the exclusionary rule as follows: [3]

Rule 39.02(1) and (2) are an important and integral part of the procedural code governing the conduct of motions and applications. These Rules are designed to place finite limits on the evidentiary element of those proceedings, an element that is all-too frequently time-consuming, expensive and drawn-out. These Rules oblige the parties to consider the issues and to put all relevant evidence forward before embarking upon cross-examination of the opposite party’s witnesses. This is the approach mandated by the Rules to achieve the “just, most expeditious and least expensive determination” of motions and applications. Consistent with that approach, it is only in exceptional cases that resort should be had to rule 30.02(2).

[23] The factors considered in deciding whether to grant leave under Rule 39.02(2) of the Rules of Civil Procedure are: (a) is the evidence relevant; (b) does the evidence respond to something raised on cross-examination; (c) will granting leave result in non-compensable prejudice; and (d) is there a satisfactory explanation for not presenting the evidence at the outset? [4] All criteria should be weighed and no one criterion is determinative.

[24] Further, r. 1.04 of the Rules of Civil Procedure provides that the rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. In my view, the Court always retains the discretion to admit evidence when it is in the interests of justice.

Is the Affidavit Material Relevant

[25] While the Moving Parties take the position that they have been unfairly excluded from the business operations at issue, the affidavit recently filed by Grace paints a different picture.

[26] Grace is 82 years old. He states that he has dedicated his full life to teaching adolescents, first as a teacher, and for the past fifty years as the founder and operator of Camp Olympia, which is the business owned by the defendant Olympia and which is the subject of this dispute. He says that this camp was always intended to be a social enterprise rather than a profit maximizing commercial venture. Throughout its history, profits have been meagre.

[27] Until COVID-19, the business ran itself, but the government mandated closures prevented the camp from opening in 2020 and reduced capacity in 2021. He turned to experts for assistance.

[28] Grace says that Joshi, who is 100 % owner of Xpert, held himself out to Grace to be a highly successful and wealthy businessman with accolades in construction, development, lending and business. Joshi initially acted as Grace’s mortgage broker but quickly became his business advisor and trusted friend. Grace says he believed Joshi was looking out for his best interests, and that he was genuinely interested in aiding Grace. Grace then invited him to become his business and investment advisor and then a shareholder of Parent Co. because he believed Joshi would protect Olympia’s financial interests. He says that rather than help him, Joshi engaged in a deliberate, concerted and unlawful campaign to exploit Grace’s wealth and take managerial control and full ownership of Olympia and Parent Co. by doing the following:

a. Joshi encouraged Grace to borrow $3,400,000.00 against the Limberlost Property, with predatory fees. Grace says that this mortgage was $1,000,000 more than he needed and that Joshi told him that the additional funds did not need to be allocated to the camp’s operations. Grace says that the mortgaged amount was composed of $575,945 in fees and interest to the lender, a lending fee of $139,000, a first bonus of $265,000, a second bonus of $85,000 and reimbursement of purported legal fees in the amount of $95,637.99. Grace says that Olympia received only $1,600,042 from the refinancing. Further, the mortgage had a one year maturity date, maturing March 1, 2022. Then this mortgage was renewed on March 1, 2022 for a one year term with the principal debt increased to $3,650,000. Again there were various fees and bonuses paid. Grace alleges that Joshi and Xpert received various fees associated with these mortgage transactions. The fact of the mortgages is admitted but the argument that they was predatory as well as its implications of these mortgages is strongly contested. Joshi asserts that these were bona fide mortgages and that it was Grace who wanted these mortgage funds. He says that Grace needed his assistance because he had been unable to arrange mortgage financing on his own. He says that his work consolidated existing debt which was at high interest rates from private lenders. b. Joshi then convinced Grace to lend $1,460,000.00 to Xpert (the “Xpert Loans”), raising $1,240,000.00 from the proceeds of the above mortgage and an additional $220,000.00 of personal funds. He says the Xpert Loans unjustly benefited Joshi and Xpert, causes serious financial loss to the Olympia and Parent Co. The fact of these loans is admitted but Joshi’s evidence is that Grace wanted to make these loans to earn a higher rate of interest than the money was earning in the bank. Joshi strongly also denies the implications of these transactions which Grace asserts. c. Joshi refused to repay the $1,460,000.00 principal plus interest owing which funds are necessary to pay off the mortgage due in March 2023. He says that this will enable the mortgagee to commence power of sale/foreclosure proceedings and the argument is being made that Joshi intends to purchase the Limberlost Property if the mortgagee forecloses. I note that only $460,000 of the loaned amounts are due as of January 2023 and Joshi’s counsel has advised that Joshi has paid these monies to his trust account, and that Joshi is agreeable to these funds being used for legitimate business purposes but that he is concerned that they should not be spent without any necessary financial controls. The remaining $1,000,000 is not repayable pursuant to the promissory notes until 2025. d. Joshi, through his company, Xpert, acquired 50% ownership in Parent Co., became Secretary-Treasurer of Olympia, and Secretary-Treasurer of and a Director of Parent Co. Joshi asserts that it was actually Grace and his wife who wanted Joshi to purchase her shares and that Grace was fed up with managing these businesses and wanted to take a back seat and wanted Joshi to assume management. e. Joshi attempted to acquire Grace’s 50% shares in the Parent Co. through manipulation of lawyer Hero Salih of Pallet Valo LLP by requesting that she prepare a shareholders agreement whereby Grace’s shares would pass to Joshi for no consideration upon his death. There is an email from Ms. Salih which supports this allegation, although Joshi explains in his affidavit that Ms. Salih must have misunderstood his instructions. He says it was his intention that the shareholders agreement contain a shotgun clause whereby either shareholder could purchase the others’ shares for fair market value. f. Xpert misappropriated $250,000.00 from Olympia. This is contested. g. Joshi arranged for Olympia to enter into a construction contract with his brother-in-law’s construction company OSMI. He alleges that this construction contract was fabricated and that OSMI subsequently registered a construction lien on the Limberlost Property. Joshi’s evidence on this point is that this was a bona fide construction contract in respect of work which was required. Grace never expressed any concern previously about the fact that the construction contract was being entered into with his brother in law. Joshi further says that this agreement was entirely to Grace’s and the Companies’ benefit as the contractor agreed to fund the project until 95 % of the work was completed. He says that Grace did not object to any of the terms of the construction agreement. h. Joshi caused Salvatore Chiarella to obtain an unopposed Judgment against the Camp Parties due to negligent or fraudulent mismanagement of the litigation proceedings. This is contested. i. Joshi improperly excluded Grace from Olympia and Parent Co’s operations and finances including attempting to rescind Mr. Grace’s signing authority on Olympia’s bank account. This is contested.

[29] Grace says that collectively, Joshi, Joshi’s wife, Meena Lakhanpal, and brother-in-law, Hitesh Jhaveri, have “earned” $3,298,732.86 from Olympia and Parent Co. comprised of the following:

a. $1,460,000.00 plus interest for loans to Xpert; b. $175,882.86 paid to Ms. Lakhanpal (Joshi’s wife) for legal fees; c. $1,356,000.00 in construction liens against Olympia’s real property registered by Mr. Joshi’s brother-in-law, d. $250,000.00 paid to Xpert for construction costs, but allegedly misappropriated by Mr. Joshi instead; and e. $56,850.00 in mortgage fees paid to Mr. Joshi’s entities.

[30] Grace states that he determined it was in the Olympia and Parent Co.’s best interests to exclude Joshi from the management because of Joshi’s alleged breaches of fiduciary duties which he claims Joshi owes.

[31] Given that the oppression remedy is founded upon the principles of fairness, if a contextual analysis of all of the evidence ultimately supports the conclusion that the Moving Parties engaged in various breaches of duty as a result of the above noted transactions, then this evidence is relevant to the relief requested by the Moving Parties.

[32] I note that the Moving Parties do agree that some of the financial transactions took place but strongly disagree that there was anything untoward or that Joshi has engaged in any improper conduct. Their evidence is that at all times they were attempting to rescue Olympia and Parent Co.’s business which was a sinking ship by the time they became involved. It was Grace who asked for their help. Joshi says that from March to July 2022 they worked tirelessly to turn the business around by arranging necessary infrastructure improvements and imposing financial controls in response to financial improprieties which they discovered. The work they did and the alleged improprieties they discovered are set out in detail in Joshi’s affidavit evidence. In that regard, Joshi retained a consultant on behalf of Olympia who prepared a report documenting the financial issues and lack of controls.

[33] The Court is in no position to consider the full implications of the transactions at issue without consideration of Grace’s affidavit evidence.

Does the affidavit respond to something raised on cross examination?

[34] The proposed affidavit does not respond to anything new raised on cross examination. What it does is repeat allegations which Grace already made in his September 30, 2022 Statement of Claim with some supporting evidence.

[35] Notably, Joshi had already responded to almost all issues contained in the Grace Action in his October 11, 2022 affidavit filed herein, presumably anticipating that Grace would raise all of the same allegations in an affidavit in response to this injunction motion. There are, however, some new facts which Grace has set out in his affidavit and Joshi objects to certain evidence which is without prejudice and which also seeks to taint his character improperly.

Is there an explanation for not presenting this evidence in accordance with the schedule?

[36] Grace’s affidavit offers no explanation for his failure to deliver an affidavit in accordance with the court-ordered timetable.

[37] He has new counsel appointed approximately three weeks ago who argued that Grace’s former solicitor failed to properly advance his interests which is the reason why Grace terminated the solicitor and retained new counsel.

[38] While there is no evidence on this point, this is a very significant proceeding. The businesses in question represents Grace’s life’s work and it is shocking that there is no evidence filed on behalf of Grace whatsoever given the companion proceeding which he has commenced and which sets out all of the aforementioned allegations.

Prejudice

[39] The Moving Parties argue that granting leave would result in non-compensable prejudice in that it would allow Grace to engage in case splitting.

[40] I am not persuaded by this argument because Grace has advanced no case at all which is arguably being split.

[41] The fact that the Moving Parties had Grace’s Statement of Claim and provided evidence in response to most of the evidence he now seeks to file reduces the prejudice as they are not taken by surprise.

[42] As well, if there are portions of Grace’s evidence which are inadmissible or improper, that can be dealt with at the motion.

Is it in the interests of justice that the evidence be admitted even if the criteria above are not satisfied?

[43] In my view, particularly in light of the fact that there is absolutely no evidence before me filed on behalf of Grace, and taking into account his age, the nature of the allegations and the potential consequences for him, it is in the interests of justice that he be permitted to file his affidavit setting out his position. The Moving Parties are not being taken by surprise and, they have already filed a response to the bulk of the evidence he seeks to admit. It would be unfair to take into account Joshi’s evidence in response without even considering Grace’s evidence in the first place.

[44] In my view whatever prejudice exists can be remedied by an adjournment, an opportunity to file further evidence, permitting the Moving Parties to conduct further cross examinations as well as the imposition of terms.

[45] Weighing all of the factors, in my view, it is in the interests of justice that Grace’s new affidavit be accepted.

Terms of the adjournment

[46] Counsel for the Moving Parties proposed interim terms which are set out in the attached schedule and which I am ordering as a term of this adjournment. I have granted most of the terms sought by the Moving Parties except for the formal restoration of Joshi’s role as an Officer. The terms I have imposed will ensure control and supervision over the financial matters where Joshi noted there have been irregularities. I have not restored the roles which Meena Lakhanpal (his wife) or Mary Butcher had as requested because they are not parties to this proceeding. However, I have permitted Joshi to retain Mary Butcher to assist him with his role as required. If Joshi’s role is ultimately restored in full, then he may be permitted to retain staff on a more formal and permanent basis.

[47] The motion shall return before me on February 9, 2023 and shall be peremptory on Grace.

[48] The Moving Parties may also bring a cross-motion to strike out portions of Grace’s affidavit evidence which they object to at that time.

[49] The following timetable shall apply: a) The Moving Parties may file a further affidavit by January 20, 2023 in response to Grace’s affidavit herein; b) Cross-examinations of both parties, limited to the contents of Grace’s new affidavit filed herein, and the Moving Parties’ supplementary affidavit shall occur on or before January 27, 2023; c) The Moving Parties shall file their supplementary factum by February 2, 2023; d) Grace shall file his supplementary factum by February 6, 2023.

[50] As well, I am awarding the Moving Parties costs in the amount of $10,000 in respect of costs thrown away. Although I accept that it is in the interests of justice that Grace be permitted to file his affidavit so that a determination on the merits can be made rather than simply based upon one side’s evidence, Grace is ultimately responsible for the decisions made by his former counsel who failed to file any responding materials, as well as his current counsel who was on the record for approximately 3 weeks before serving Grace’s affidavit. The matters involved herein are complex and while it is understandable that it would have taken some time for counsel to get up to speed, had counsel advised the Moving Parties of its intention, it is possible that the parties could have come to an agreement together so that the Moving Parties’ costs in preparing for this motion were not wasted.

[51] Costs shall be payable within 14 days.

[52] If any issues arise pending the return of the motion, the parties may schedule an urgent case conference before me.

[53] The parties may forward an Order to my attention for signature.

Papageorgiou J. Released: January 13, 2023

Reasons for Judgment

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

SANJIVE JOSHI and XPERT LAW INC. Plaintiffs – and – DAVID GRACE, 563973 ONTARIO LIMITED and OLYMPIA ATHLETIC CAMPS LIMITED Defendants

Papageorgiou J Released: January 13, 2023

Schedule of Cited Cases

[1] OZ Merchandising Inc v. Canadian Professional Soccer League Inc. et al, 2017 ONSC 1182 (SCJ) at paras 11-20; Cowitz v. Jaikaran, 2018 ONSC 7463 (SCJ) at para 8

[2] Verge Insurance Brokers Limited et al. v Richard Sherk et al., 2015 ONSC 4044 (SCJ) at paras 53-56.

[3] Brock Home Improvement Products Inc. v. Corcoran et. Al., [2002] O.J. No. 931 at paras 8-9 quoted with approval by Pepall J. (as she then was) in Catalyst Fund Limited Partnership II v. IMAX Corporation at para 16.

[4] Ghandchi v. Falsafi, 2022 ONSC 6411 (SCJ) at para 74 citing Skrobacky v. Frymer, 2011 ONSC 3295 (SCJ) at para 12, in turn citing Brock Home;