Court File and Parties

Court File No.: CV-23-00003690-0000 Date: 2024-07-16 Superior Court of Justice – Ontario 491 Steeles Avenue East, Milton ON L9T 1Y6

Re: Natalie Walker, plaintiff And: 13690792 Canada Inc., Rafiqul Malik, and Titus Muhuri, defendants

Before: Justice L. B. Stewart

Counsel: Olubunmi Ogunniyi, for the plaintiff

Heard: July 11, 2024, by video conference

Reasons for Judgment

[1] This motion for default judgment was heard on July 11, 2024. On July 15, 2024, after I had made my decision, but before I had completed my reasons, I received a further communication from plaintiff’s counsel regarding disposition of assets by the defendant Malik. I therefore expedited these reasons.

Overview

[2] The plaintiff, Ms. Walker, gave 13690792 Canada Inc. (136) $69,000 to invest in real estate. These funds were not invested as per the agreement between the parties. Rather, the funds were misappropriated by the two directors of 136, the defendants Rafiqul Malik and Titus Muhuri.

[3] The defendants failed to comply with a judgment arising from an application which required them to disclose financial information and pay costs (Court File CV-23-1392, judgment dated July 26, 2023). The defendants did not respond to this action, although properly served. They were therefore noted in default. The defendants failed to respond to this motion, although properly served.

[4] I find that the defendants 13690792 Canada Inc., Rafiqul Malik and Titus Muhuri are liable for the damages proven by Ms. Walker and detailed below. I find that punitive damages are appropriate in this case. Costs are also awarded to Ms. Walker.

Background Facts and Procedural History

[5] In the spring of 2022, the defendants Rafiqul Malik and Titus Muhuri were directors of 136. In April, 2022, after discussions between Ms. Walker, Malik and Muhuri, Ms. Walker agreed to loan $49,000 to 136 to be invested in real estate. The agreement was that the loan be repaid after six months, along with interest of 8% per year.

[6] In May, 2022, Ms. Walker loaned 136 a further $20,000, on the same terms.

[7] In April, 2022, Ms. Walker received one payment of $1960, characterized as an “advance”. She has received no other funds from the defendants.

[8] Ms. Walker’s money did not stay with 136 and it was not invested in real estate. Malik and Muhuri misappropriated Ms. Walker’s funds. Specifically:

a. Malik and Muhuri signed a direction to the legal counsel for 136 to pay $49,000 to Malik personally. b. Another legal counsel for 136 paid the $20,000 to Malik personally.

[9] Ms. Walker made efforts to reach Malik by email on three dates in February, 2023. Malik did not respond.

[10] As of April 26, 2023, Malik and Muhuri were the two directors of 136. Ms. Walker retained counsel, who contacted Mr. Malik on April 27, 2023. On May 2, 2023, Mr. Malik responded: “I no longer own the company”. A corporate search dated May 9, 2023 showed that Malik was no longer a director.

[11] Ms. Walker then brought an application in court file CV-23-1392 and obtained a judgment, requiring the defendants (respondents on the application) to provide an accounting and financial information. The defendants did not comply with this judgment.

[12] Ms. Walker then started this action by statement of claim issued November 23, 2023. None of the defendants defended, although properly served.

[13] The defendants were noted in default by the registrar (at the request of the plaintiff).

[14] Although the defendants are not entitled to further notice in this proceeding, the plaintiff followed best practice and served these motion materials on the defendants. The defendants did not respond to this motion.

Test for Default Judgment

[15] On a motion for default judgment, the court may grant judgment, dismiss the action or order that the action proceed to trial: Rule 19.05 of the Rules of Civil Procedure.

[16] In determining liability, the test for default judgment is:

a. What deems admissions flow from the facts pleaded in the statement of claim? b. Do those deemed admissions entitle the plaintiff, as a matter of law, to judgment on the claim? c. If no, has the plaintiff adduced admissible evidence which, when considered with the deemed admissions, entitle her to judgment on the pleaded claim? Dolatabadi v. Top/Star Executives Realty et al, 2024 ONSC 2742 at para 12.

[17] In this case, the plaintiff meets the test for default judgment against all three defendants.

Liability of 136

[18] According to the contract between Ms. Walker and 136, the corporation owes Ms. Walker $49,000 plus interest at 8% per year as well as $20,000, which was advanced separately from the first installment of funds.

Liability of Rafiqul Malik and Titus Muhuri

[19] Ms. Walker’s statement of claim alleged that the defendants are personally liable to her on the basis of civil fraud, fraudulent misrepresentation, and/or breach of fiduciary duty. The facts as pleaded and as proven by Ms. Walker meet the test for civil fraud. It is therefore not necessary to consider the other allegations.

[20] The elements civil fraud are:

a. a false representation of fact by the defendant to the plaintiff; b. some level of knowledge of the falsehood by the defendant (whether through knowledge or recklessness); c. the false representation caused the plaintiff to act; and d. the plaintiffs actions resulted in a loss A.J. Lanzarotta Fruits & Vegetables Ltd. v. United Farmers et al, 2024 ONSC 1780 at para 43.

[21] Ms. Walker is a single mother of children with special needs. She was interested in the investment proposal made by the defendants on behalf of 136 in order to provide for her family.

[22] The individual defendants promised that the corporate defendant would invest Ms. Walker’s funds in real estate at a specific rate of return. None of these things happened. Ms. Walkers funds were paid directly to Mr. Malik within a few days of the April funds being advanced and on the same day as the May funds were advanced.

[23] With the exception of one payment of $1960, Ms. Walker has received no funds and no communications from the defendants. Mr. Malik resigned as a defendant of 136 in the days following contact from Ms. Walker’s legal counsel.

Personal Liability

[24] I find that this is an appropriate case in which to find that the directors Malik and Muhuri are personally responsible for the liability of the corporation. In short, Malik and Muhuri used 136 as a “front” to solicit money from Ms. Walker and to promise to invest it in real estate with an 8% return. They were the only two directors of the corporation.

[25] The Ontario Court of Appeal recently noted that “piercing the corporate veil” typically occurs when the company is incorporated for an illegal, fraudulent, or improper purpose or where the corporate entity “is completely dominated and controlled and being used as a shield for fraudulent or improper conduct” 1417217 Ontario Inc. v. River Trail Estates Inc., 2024 ONCA 491 at para 48, citing 642847 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.) at para. 68, citing Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 28 O.R. (3d) (Gen. Div.), at pp. 433-34, aff’d [1997] O.J. No. 3754 (C.A.).

[26] In this case, the evidence as it relates to Ms. Walker is that the directors used the corporation as a shell to funnel money to themselves.

a. Ms. Walker provided a bank draft for $49,000 to the law offices of Mak Sultan (counsel for 136) dated April 1, 2022 with a direction that it pertained to the loan agreement (the direction dated April 5, 2022). b. The lawyer’s trust ledger statement dated April 7, 2022 shows $46,088.45 was “paid to 13690792 Canada Inc”. However, on April 5, 2024, Malik and Muhuri directed the lawyer to pay that same sum to Malik, personally and a cheque for $46,088.45 was written to Malik on April 6, 2022. c. Ms. Walker then provided another bank draft for $20,000 on May 18, 2022 to a second legal counsel, who wrote a check to Malik for $20,000 on the same day.

Punitive Damages

[27] A court can award punitive damages on a motion for default judgment Elekta Ltd. v. Rodkin, 2012 ONSC 2062 at para 24.

[28] In the 2002 case of Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, the Supreme Court set out 11 factors to consider in determining whether an award of punitive damages is warranted. This is such a case.

[29] The quantification of punitive damages must be rational and ensure that the amount of punitives is not higher than needed to accomplish their purposes Midwest Amusement Park LLC c. Cameron Motorsports Inc, 2018 ONSC 4024 at para 103.

[30] Ms. Walker seeks $25,000 in punitive damages. I award punitive damages in the amount of $12,250, which represents the approximate return on Ms. Walker’s investment as promised by the defendants. I arrive at this sum not in an effort to award lost profit, but rather to reflect and quantify the harm done by these individual defendants committing fraud behind the protection of a corporation.

Costs

The individuals used a corporate structure to project a formality and buttress their alleged legitimacy.

[31] Ms. Walker seeks her costs on a substantial indemnity basis. I agree that this is the appropriate scale. Elevated costs are warranted in only two circumstances. The first involves a Rule 49.10 offer and the second is where the losing party engaged in behavior worthy of sanction: Davies v. Clarington (2009), 2009 ONCA 722, 100 O.R. (3d) 66 (C.A.) at para 28. All of the actions of the defendants detailed above, including their breach of the 2023 court order, are worthy of sanction.

[32] The hourly rate for plaintiff’s counsel ($450) is reasonable given his 30 cumulative years of experience in Nigeria, England and Ontario (called in Ontario in 2002). The hours spend by counsel are on the modest end of the scale. The disbursements are also reasonable, although I have deducted the conveyancing costs.

[33] I therefore award costs in the amount of $11,456.23, broken down as follows:

a. Legal fees: $8,685.00 b. HST on fees: $1129.05 c. Disbursements: $1642.18.

Orders Made

[34] I therefore grant the following orders:

a. Default judgment is granted to Ms. Walker. b. Damages in the amount of $69,000 as against any and all of the defendants. c. Punitive damages in the amount of $12,250 as against any and all of the defendants. d. Prejudgment interest in the amount of 4.8% running from the dates of the loans made by Ms. Walker. e. Post judgment interest in the amount of 7% running from the date of the judgment. f. Costs in the amount of $11,456.23

[35] I have signed the draft judgment. The judgment is in full force and effect as of July 16, 2024 without the need to have it formally issued and entered by the court.

Stewart J.

Released: July 16, 2024