Dolatabadi v. Top/Star Executives Realty, 2024 ONSC 2742

COURT FILE NO.: CV-13-473196

DATE: 20240513

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

MEHRAN MOHAGHEGH DOLATABADI, personally, MEHRAN MOHAGHEGH DOLATABADI, ESTATE TRUSTEE FOR THE ESTATE OF JILA KHOSRAVI OSKOUEI, and 1823662 ONTARIO INC.

Plaintiffs

– and –

TOP/STAR EXECUTIVES REALTY INC., LABEED & ABEYAN INC., DAVID MCAULAY, SURAJ KASHYAP, also known as SUNNY KASHYAP, MOHAMMAD S. ISLAM and NARQIS ISLAM

Defendants

David A. Brooker, for the Plaintiffs

No one appearing for the Defendants

HEARD: February 21, 2024

Papageorgiou

Overview

[1] Jila Kohsravi Oskouei (the “Deceased”), had high hopes of owning her own business.

[2] The Deceased was deceived into purchasing a business (the “Business”) from the defendant Labeed & Abeyan Inc. (“Labeed”) in reliance on false financial information provided by Labeed and Labeed’s owners, officers and directors, the defendants Mohammad S. Islam and Narqis Islam (the “Islam Defendants”). The defendants knew this information was false.

[3] The Deceased borrowed money and used her and her husband’s life savings to purchase the Business in reliance on these false representations.

[4] After she understood the state of affairs, and the Business failed, the Deceased killed herself because of her distress and inability to cope.

[5] The Plaintiff Mehran Mohaghegh Dolatabadi was the Deceased’s husband. He is now the trustee of the Deceased’s estate (in this capacity, the “Trustee”), as well as the sole officer, director, and shareholder of the plaintiff company 1823662 Ontario Inc (“182”), through which the Business was purchased. He sues as Trustee of the Deceased and on behalf of 182.

[6] The Defendants have never defended this claim and were noted in default in 2013.

[7] There were other defendants, the agents who acted for the Deceased, but the actions against them have been settled.

[8] This matter proceeded before me by way of a motion for default judgment in person. The evidence shows that the Plaintiffs made diligent attempts to serve the Defendants as required, but they have evaded service. I have attached as an Appendix a summary of the service attempts. To the extent that there are any issues with service, I am validating service.

Decision

[9] For the reasons that follow I am granting judgment as against the Islam Defendants and Labeed, in the amounts set out at the conclusion of these reasons.

[10] In arriving at my decision, I have considered section 13 of the Evidence Act[^1], which provides that an action by executors of a deceased person requires corroboration. In my view, the corroboration requirement does not apply to deemed admissions. In any event, there is independent evidence before me consisting of the evidence of the agents who acted for the parties, the Trustee’s affidavit, and documents which provide corroboration.

The Issues

[11] The main issues are:

• Issue 1: Do the materials provide a basis for a finding of liability?
• Issue 2: If so, what are the damages to which the plaintiff is entitled?

Analysis

The test on a motion for default judgment

[12] As noted in Elekta Ltd. v. Rodkin, 2012 CarswellOnt 2928 (ONSC) in determining liability, the test on a motion for default judgment is as follows: A. What deemed admissions of fact flow from the facts pleaded in the Statement of Claim? B. Do those deemed admissions of fact entitle the plaintiff, as a matter of law to judgement on the claim? C. If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitled it to judgement on the pleaded claim?

[13] There were many causes of action alleged, including breach of contract and fraudulent misrepresentation. Pursuant to Central Trust v. Rafuse, 1986 29 (SCC), [1986] 2 S.C.R. 147, at p. 206, where there is concurrent liability in contract and tort, the plaintiff has the right to assert the cause of action that appears most advantageous to them. The Plaintiffs here have elected to proceed by way of fraudulent misrepresentation.

[14] The elements of fraudulent misrepresentation are:

i. A false representation of fact by the defendant to the plaintiff; ii. Knowledge the representation was false, absence of belief in its truth, or recklessness as to its truth; iii. An intention that the plaintiff act in reliance on the representation; iv. The plaintiff in fact acts on the representation; and v. The plaintiff suffers a loss in doing so: Midland Resources Holding Ltd. v. Shtaif, 2017 ONCA 320, 135 O.R. (3d) 481, at para. 162, leave to appeal to S.C.C. refused, [2018] S.C.C.A. No. 541.

[15] I am satisfied that the Plaintiffs have established that the Defendants are liable for fraudulent misrepresentation based upon the deemed admissions in the Statement of Claim, the affidavit evidence of the Trustee, the examination for discovery evidence given by the agents, D. McAulay and S. Kashyap, who represented the Deceased, and the Affidavit of the Sale of Business given by Narqis Islam:

• In or around October 2010, through her agent, the Deceased learned of Labeed’s operation of a dollar/convenience store called Dollar World Plus (the “Business”).
• The Islam Defendants were the sole shareholders, officers, and directors, and at all times operated as the principals and controlling minds of Labeed. They operated the Business on a day-to-day basis.
• During the negotiating process for the purchase of the Business, the Islam Defendants made representations as to the revenue, sales, and value of the Business in order to induce the Deceased into purchasing the Business for a higher price than it was worth and to represent that it was making a profit. They provided her with financial statements that set this information out as set out in the discovery evidence of D. McCaulay, and S. Kashyap, the Deceased’s agents. In her affidavit, required under the provisions of the then Real Estate and Business Brokers Act, Narqis Islam stated that she had provided books and records of the corporation.
• The representations were made by the Islam Defendants when they knew that they were not true and were made with the sole purpose of enticing the Deceased into purchasing the Business.
• Based upon the representations of the Islam Defendants, the Deceased entered into an Agreement of Purchase and Sale to purchase the Business on October 27, 2010 (the “Agreement”). This was a pre-printed form under the Ontario Real Estate Association.
• The Agreement was in trust between the Deceased as buyer in trust for a corporation to be incorporated.
• The material terms were as follows:
  • The purchase price was $338,000.
  • Labeed represented and warranted that the Business had been carried on in the ordinary course and all financial statements and other information provided to the Buyer were true, accurate and correct in all material respects and were prepared in accordance with generally accepted accounting principles.
  • Labeed represented and warranted that no expenditures would be made out of the ordinary course prior to closing and that the Business would be carried on up to the time of closing in the ordinary course in a commercially reasonable manner.
  • Labeed represented and warranted that the tangible assets would be in good condition at the time of closing.
  • Labeed represented and warranted that all chattels and fixtures as included would be in proper working order and that such representation and warranty would survive closing and not merge on completion of the transaction.
  • Labeed agreed that one of its shareholders (one of the Islam Defendants) would attend at the Business for two weeks in total after the closing for a minimum of seven hours per day for a total of 70 hours to assist the Deceased in familiarizing herself with the operation of the Business.
  • Inventory of a minimum of $200,000 was included in the purchase price and would be physically counted after close of business. If the inventory was determined to be only $180,000 the Deceased would be given a $20,000 credit.
  • The Agreement further stated that the “purchaser shall not be obliged to pay for spoiled, outdated or damaged goods in purchaser's sole discretion.”
  • The Agreement constituted the full agreement between the Deceased and Labeed and there was no representation, warranty or collateral agreement affecting the Agreement other than as expressed. [Emphasis added]
• Subsequently, 182 obtained a Small Business Loan from TD Canada Trust in the amount of $164,334 by way of secured loan against the assets of the Business. The Deceased and the Trustee (her husband) personally guaranteed up to 25 % of the loan, which was $41,084 on a joint and several basis.
• TD Canada Trust was not prepared to make a loan without the personal guarantee. The Trustee has provided an affidavit that states that he relied upon the representations made by the Defendants in the financial statements in making the guarantee. These financial statements were given to them by the Defendants and also forwarded to TD Canada Trust as part of the application process to confirm the financial state of the Business.
• The sale closed on March 8, 2011, with 182 having been incorporated to complete the transaction.
• On the date of closing, the Defendants arranged for an inventory count without the Deceased’s or 182’s knowledge or consent, or any input from the Deceased.
• The count prepared by the Defendants totaled $180,480.10 in inventory. As a result, as per the Agreement, an adjustment was made to the purchase price by giving the Deceased a $20,000 credit.
• Upon taking possession of the Business, the Deceased immediately discovered that the premises suffered from extensive structural damage including water damage in the basement and other areas of the store, causing it to be not only cosmetically displeasing but also a danger to the occupants. The damage appeared to have been covered up by paint or hidden behind shelving and other fixtures in an attempt to conceal it from the Deceased.
• In order to make the premises fit for occupation, the Deceased expended considerable expenses to repair the floors, ceilings, structural walls, and other areas of the premises.
• In addition, $100,000 of the merchandise and inventory that was present in the store and included in the inventory list was not fit for sale and had to be discarded. The Islam Defendants were aware that the merchandise was not fit for sale and fraudulently represented its state to the Deceased. The inventory also included fixtures with a value of $34,274 that should not have been included.
• Further, a representative of Labeed failed to attend at the Business after closing to train the Deceased for 70 hours as required, despite repeated requests.
• The Deceased also discovered that the quantum of sales represented to her by the Islam Defendants was grossly inflated and in fact Labeed had sold much of its inventory at reduced prices in order to attempt to increase sales volume to artificially increase the dollar value of the sales prior to closing.
• The financial statements that had been given to the Deceased by the Defendants for the years 2008, 2009 and 2010 showed sales in the range of 1.05M to $1.09M, cost of goods in the range of 66% to 69% as a percentage of sales, and a gross margin ranging between $346K and $362K. Based on the earnings reported, the Business was profitable with a range of income between $93,000 and $106,000 per year.
• Sales in 2011, the first year after the Deceased took over the Business, totaled $193,162. Sales were only $78,357 as of June 2012—significantly less than the sales noted in the financial statements provided by the Defendants for the previous years. Indeed, the Business lost money.
• Had sales continued based upon the historic results set out in the financial statements provided to the Deceased, the Business should have earned between $85,000 and $105,000 per year.
• Apart from the deemed admissions that the financial statements contained fraudulent misrepresentations, I infer that if the financial statements had contained true and accurate information, sales would not have plummeted to this extent immediately following the sale.
• After operating the Business for the first weeks, the Deceased realized that there was no chance that it could be profitable given the expense for the lease, loan payments and other amounts, such as extensive repairs to make the premises suitable.
• Despite her best efforts to increase sales, the Business continued failing and losing money on a daily basis throughout 2011. She could not afford to make repairs to the premises which if not made, would eventually lead to it being unable to be occupied.
• By November 2011, she was so distressed about her situation including a loss of all of her and her husband’s family savings, that she attempted suicide. This first attempt was not successful. Shortly afterwards, on December 30, 2011, she killed herself.
• Afterwards, her family attempted to operate the Business at a profit but could not because of the overpayment of the purchase price and the lack of sales.
• The contents of the store were distrained, and the Business shut down in June 2012.
• The Trustee subsequently repaid $41,084 of the loan that he guaranteed settling both his own and the Deceased’s personal liability which was on a joint and several basis.
• The Defendants actively fraudulently misrepresented aspects of the Business in order to induce the Deceased to purchase it, such misrepresentations including: overstating the gross sales of the Business; overstating the profits of the Business; taking steps to hide blatant or patent defects in the premises as well as the fixtures and chattels of the store; and falsifying the inventory list and including fixtures and chattels on it as opposed to inventory which falsely increased the value of the said inventory on closing.
• The misrepresentations were made for the sole purpose of inducing the Deceased to enter into the Agreement and in fact did induce her to enter into it. The Defendants acted in bad faith in negotiating the terms of the Agreement.
• The Islam Defendants knew at all times that the Deceased was naïve in business matters, having been a homemaker for several decades and that she was relying upon, and in fact did rely upon, them in providing her with advice as to a profitable and worthwhile business which she could purchase, afford and which would make a profit. They took advantage of her inexperience and naivety.

Issue 2: What are the damages to which the plaintiffs are entitled?

Qualification of the Damages Expert

[16] The Plaintiffs have provided an expert report and affidavit from Marnie Silver to quantify damages.

[17] Ms. Silver is a professional accountant with experience in economic loss quantification. She holds the following professional designations: CPA (Certified Professional Accountant), CA (Chartered Accountant), CBV (Certified Business Valuator) and others. She is a Director in the Toronto office of Matson Driscoll & Daminco Ltd., a global professional services firm practicing in the areas of economic loss quantification, business valuation and forensic accounting. She prepared her evidence in compliance with the Canadian Institute of Chartered Business Valuators standards.

[18] Ms. Silver’s evidence is clearly relevant. She has reviewed all relevant documentation and quantified the loss. She has concluded that the Business was worth significantly less than had historically been reported and/or represented by the Defendants.

[19] Ms. Silver’s evidence is necessary as it relates to financial matters that are beyond my knowledge. There is no exclusionary rule.

[20] Her opinion is impartial in the sense that it was prepared based upon the deemed admissions in the Statement of Claim and financial documents appended to her report without influence from the Plaintiffs. Her report does not unfairly favour the Plaintiffs over the Defendants. Indeed, she has provided two possible scenarios, one of which results in a much lower loss. This also shows that she has indeed attempted to consider the matter independently.

[21] She has provided a Declaration of Independence that reads:

We have been engaged as independent professional accountants to provide an expert opinion. The terms of our engagement are to act in an independent and objective manner. Neither our firm or its principals have any financial interest in these proceedings. Our fees are based solely on the time expended and are not contingent upon the ultimate results or conclusions. The author of this report has prepared it acting in an independent and objective manner.

[22] She has signed a form 53 acknowledging her duty to the court and a disclosure of interests that indicates that she is unaware of any actual or potential conflict of interest.

[23] I find that all aspects of admissibility of Ms. Silver’s evidence have been satisfied as per the requirements in R. v. Mohan, 1994 80 (SCC), [1994] 2 S.C.R. 9. I also find that the probative value of this evidence outweighs any prejudicial effect: White Burgess Langille Inman v. Abbot and Haliburton Co., 2015 SCC 23, [2015] S.C.R. 182. The relevance, reliability, and necessity outweigh the consumption of time, or any possible prejudice or confusion.

[24] Thus, I find that Ms. Silver is qualified as an expert in economic loss quantification.

Fraudulent Misrepresentation by the Islam Defendants and Labeed.

[25] Damages for fraudulent misrepresentation restore a party to the financial position they were in before the fraudulent misrepresentation occurred: Parna v. G. & S. Properties Ltd., 1969 28 (ON CA), [1969] 2 O.R. 346, at para. 8, rev’d on other grounds, 1970 25 (SCC), [1971] S.C.R. 306.

[26] Here, the deemed admissions are that the Deceased was induced to enter into the Agreement because of the fraudulent misrepresentations known by the Defendants to be false, in respect of the historical financial circumstances of the Business presented in its financial statements as well as the quality of the inventory present. The Deceased, and consequently 182, would not have entered into the Agreement but for the fraudulent misrepresentations. The Trustee, in his personal capacity, and the Deceased, would not have given the guarantee, but for the fraudulent misrepresentations regarding the Business.

[27] To calculate the loss, Ms. Silver appropriately considered all of the outlays made by the Deceased, and the Trustee on her behalf: Wiebe v. Gunderson, 2004 BCCA 456, at para. 11.

[28] Ms. Silver took into account the purchase price of $338,000, interest paid by the Deceased on her loan in the total amount of $12,626 and advances made to fund operations in the total amount of $97,848.

[29] This results in a loss of $448,474.

[30] After payment of the guarantee, the remaining loan in the amount of approximately $129,000 was not repaid but was written off in 182’s financial statements. Nevertheless, Ms. Silver indicates that the “charge is still outstanding and will become payable if any funds are received from the outcome of this litigation matter.” Indeed, it would be improper for the Defendants to be able to avoid paying this amount and I agree that they are liable for this amount.

Other Considerations

Caveat Emptor?

[31] I note that there was a provision in the standard form Agreement which would have allowed the Deceased to inspect business invoices, but it was deleted by the Defendants with the Deceased’s consent. Had the Deceased been able to review these invoices, she may have been able to determine the true state of the Business. The doctrine of caveat emptor could apply but for the exception, which holds that caveat emptor does not apply in cases of fraud or where there is a warranty: Redican v. Nesbitt, 1923 10 (SCC), [1924] 1 D.L.R. 536, at p 144; Sevidal v. Chopra (1987), 1987 4262 (ON SC), 64 O.R. (2d) 169. As noted, there is a deemed admission of fraud and there is an express warranty as to the substantial accuracy of the financial statements provided.

Entire Agreement Clause?

[32] As well, in Central Trust v. Rafuse, at p. 206, the Court indicated that a concurrent liability in tort will not be permitted if the effect would be to “permit a plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that constitutes the tort”.

[33] There is an entire agreement clause in the Agreement which states that “there is no representation, warranty, collateral agreement or condition affecting this Agreement other than as expressed herein.” [Emphasis added]

[34] The analytical approach to determine whether to enforce an exclusionary clause like an “entire agreement” clause involves consideration of whether the exclusion clause applied to the circumstances established, whether the exclusion clause was unconscionable at the time it was made, and whether the court should refuse to enforce it for public policy reasons: Tercon Contractors Ltd. v. British Columbia, 2010 SCC 4, paras. 122 and 123.

[35] Here, the entire agreement clause not only fails to exclude the awarding of damages based upon misrepresentations made in the financial statements, but the Agreement itself represents and warrants that the contents of the financial statements provided are true and accurate. Therefore, as a matter of contractual interpretation, the exclusion clause, properly construed, does not exclude liability for fraudulent misrepresentation.

[36] Furthermore, and in any event, the application of the exclusion clause in this case would be unconscionable because of the Defendants’ deemed knowing deception, their deemed knowledge that the Deceased was naïve in business matters and was relying upon the Defendants, and the deemed admissions that they committed an abuse of trust and took advantage of the Deceased’s inexperience and naivety. Additionally, the entire agreement clause is contained in a pre-printed standard form and there is no evidence that it was specifically brought to her attention.

[37] Courts have held that enforcing an exclusion clause was unconscionable in the context of fraudulent representations that induced a party to enter into an agreement. See Zippy Print Enterprises Ltd. v. Pawliuk (1994), 1994 1756 (BC CA), 100 B.C.L.R. (2d) 55, at para. 115 and Singh v. Trump, 2016 ONCA 747, at paras. 111-122.

[38] As in the above cases, I find that it would be grossly unfair for the Deceased to be precluded from making a tort claim for fraudulent misrepresentation in all the circumstances.

Director and Officer Liability?

[39] The judgment sought does not require lifting the corporate veil. As officers, and directors, the Islam Defendants are liable for independent torts committed by them: ADGA Systems International Ltd. v. Valcom Ltd. et al. (1999), 1999 1527 (ON CA), 168 D.L.R. (4th) 351 (Ont. C.A.), at para. 38; NDB Bank v. Dofasco Inc. (1999), 1999 3826 (ON CA), 181 D.L.R. (4th) 37 (Ont. C.A.), at para. 42.

Costs

[40] Pursuant to s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, costs are in the discretion of the court. Rule 57 of the Rules sets out the factors which courts should have regard to when awarding costs. The overall objective is “to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant”: Zesta Engineering Ltd. v. Cloutier (2002), 2002 25577 (ON CA), 21 C.C.E.L. (3d) 161 (Ont. C.A.), at para. 4; Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 26; Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722, 100 O.R. (3d) 66, at para. 52; and G.C. v. Ontario (Attorney General), 2014 ONSC 1191, at para. 5.27.

[41] The plaintiffs have provided a detailed Bill of Costs that spans the time period of 11 years in the amount of $134,644.37 which includes fees expended pursuing the other defendants with whom the plaintiffs have settled. The Defendants, against whom judgment is sought, were noted in default in 2013 and there was never any discovery of them.

[42] These costs include costs expended pursuing the other defendants, with whom the Plaintiffs negotiated a dismissal without costs.

[43] Thus, the costs claimed as against these Defendants are not fair and reasonable or within the reasonable contemplation of the Defendants against whom judgment is sought because they include fees expended to pursue the other defendants.

[44] I have reviewed the time dockets and assess the fair and reasonable costs for the time expended up to the noting in default of these Defendants as well as the fees expended in respect of the motion for judgment to be $45,000 on a partial indemnity basis inclusive of disbursements and HST.

Conclusion

[45] I award the Trustee for 182 and the Deceased damages for fraudulent misrepresentation as against the Defendants in the amount of $448,474 plus costs in the amount of $45,000 on a partial indemnity basis inclusive of HST.

[46] The plaintiffs shall provide submissions on the details of the interest calculations and when it runs from together with a draft Judgment within 14 days.

Appendix re Service Attempts.

[47] The Statement of Claim was issued and served on the Defendants. They did not defend and were noted in default on April 17, 2013.

[48] The Plaintiffs amended the Statement of Claim in October 2019 and served it on the Defendants on November 1, 2019, at 45 Markham Road (the “Markham Property”) which they had determined was the Defendants’ address through a parcel registry search that showed that the Narqis Islam was the registered owner. Narqis Islam and Mohammad Islam are husband and wife. A search of the Defendant Mohammed Islam’s driver’s licence shows him with a listed address of the Markham Property. Affidavits of service are in the file. The Defendants took no steps to defend the Amended Statement of Claim or to set aside the noting in default after service of the Amended Claim.

[49] The Plaintiffs began their attempts to serve the Defendants personally with the default judgment materials for a motion returnable during the week of February 20, 2024, on February 7, 2024. I note that pursuant to the Rules of Civil Procedure, service did not have to be made personally. Pursuant to Rule 16.01(4)(b)(i), it could have been made by mailing the record to the Islam Defendants’ last known address. Pursuant to Rule 16.02, service on Labeed could have been made by leaving them with an office or director.

[50] The Plaintiffs first attempted personal service at the Markham Property which still showed the Defendant Narqis Islam to hold title. The process server was told by its occupants that the Islam Defendants were the owners but did not reside there. He spoke to a woman who gave him Narqis Islam’s phone number. The process server telephoned and spoke to Narqis Islam who advised that she did not want the documents. She would not provide her or her husband’s current address. Further efforts to attempt service at this address were unsuccessful.

[51] The Plaintiffs then determined that the Islam Defendants held title to 44 Muir Drive (the “Muir Property”), also from a parcel register. The process server attempted service on February 8, 2024, twice but no one answered the door. On the second attempt, the process servicer observed two cars in the driveway and could hear noise in the house, but no one answered the door. He left a contact card on the door. He also placed a call to the Defendant Narqis Islam, and she did not answer. He then left a message to make arrangements, but she did not return the call.

[52] Search of the licence plates of the two vehicles showed that they were owned by Mohammad Labeed Islam, whose birthdate is January 12, 1993, whose registered address was the Markham Property. It appears that this is the Islam Defendants’ son.

[53] On February 9, 2024, the Plaintiffs attempted to deliver copies of the Motion Materials to the Markham Property and the Muir Property. The materials were successfully delivered to the Markham Property.

[54] At the Muir Property, the process server was met with an individual who refused to give his name and advised that neither of the Islam Defendants lived there, that he did not know them, and he further refused to accept the package. Accordingly, the Plaintiffs then mailed the Motion Materials to the Islam Defendants at the Muir Property.

Papageorgiou J.

Released: May 13, 2024

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

MEHRAN MOHAGHEGH DOLATABADI, personally, MEHRAN MOHAGHEGH DOLATABADI, ESTATE TRUSTEE FOR THE ESTATE OF JILA KHOSRAVI OSKOUEI, and 1823662 ONTARIO INC.

Plaintiffs

– and –

TOP/STAR EXECUTIVES REALTY INC., LABEED & ABEYAN INC., DAVID MCAULAY, SURAJ KASHYAP, also known as SUNNY KASHYAP, MOHAMMAD S. ISLAM and NARQIS ISLAM

Defendants

REASONS FOR JUDGMENT

Papageorgiou J.

Released: May 13, 2024

[^1]: R.S.O. 1990, c. E. 23.