Court File and Parties

Court File No.: CV-24-00724921-0000 Date: 2024-08-30 Superior Court of Justice - Ontario

Re: Simcoe Drug Mart, Applicant And: 2774543 Ontario Inc., Respondent

Before: Justice John Callaghan

Counsel: Sarah J. Erskine and Rebecca Curcio, for the Applicant Jayson Thomas, for the Respondent

Heard: August 26, 2024

Endorsement

[1] The Applicant seeks an urgent interlocutory injunction. It seeks to reinstate a lease to a premises in which it operated a pharmacy until it stopped paying its rent. The pharmacy was in a building which included a medical clinic. The pharmacy serviced, among others, the patients of the medical clinic. As a result of non-payment, the Respondent terminated the lease and has relet the premises to an entity that will use the premises as a pharmacy.

[2] For the reasons that follow, I decline to order the injunction.

Facts

[3] The Applicant, Simcoe Drug Mart Inc. (“SDMI” or the “Pharmacy”), operates a pharmacy that is owned by Tahir Majeed (Tahir) (45%, held by his company NGXIT Consulting Inc.), Saeedbhai Patel (“Saeed”) (27.5%) and Akhtar Ada (“Akhtar”) (27.5%). There is a Unanimous Shareholder Agreement (“USA”) between the three owners of the Pharmacy dated July 12, 2021.

[4] Pursuant to a sublease dated November 1, 2020 (the “Sublease”), the Pharmacy subleased a 575 square foot space from the Respondent which is correctly named Simcoe Medical Clinic Inc. (“SMCI”) located within 1487 Simcoe Street North, Oshawa, Ontario (the “Premises”).

[5] SMCI in turn operates a five-physician medical centre servicing nearly 6000 patients from the Premises pursuant to a head lease with the landlord of the Premises (the “Lease”). The Pharmacy serviced SMCI’s patients. The Lease stipulates that the Premises is to be used as a clinic and pharmacy.

[6] Akhtar is a pharmacist and was the designated manager of the Pharmacy who, along with Saeed, operated the Pharmacy. Tahir was also a part owner and director of the Respondent, being the sub-landlord, SCMI. He was an investor in the Pharmacy but not an operator of the Pharmacy. The shareholders are at odds. This Application was brought by Akhtar and Saeed without the input or approval of Tahir.

[7] There is no dispute in this case that the Pharmacy was unable to pay its June rent when due, and that its June rent cheque was returned NSF.

[8] As a result of the non-payment, SMCI took possession of the premises on July 3, 2024. On July 20, 2024, SMCI subleased the premises to a third party. The new tenant is a company owned by a married couple and the husband is a pharmacist. The new tenant is currently in possession of the Premises and intends to operate the Premises as a pharmacy.

[9] The dispute between the shareholders pits Saeed and Akhtar against Tahir. It is alleged that Tahir authorized Saeed to withdraw funds from the Pharmacy’s bank account which caused the Pharmacy to have insufficient funds to pay the June rent. Saeed is said to have taken the money in payment of a $64,000 debt owed to him by Akhtar. The Pharmacy argues that this was done with the intent that Tahir and Saeed could then threaten Akhtar with the loss of the Pharmacy. It is alleged that Tahir and Saeed wanted Akhtar to step down as the designated manager and possibly sell his shares to the other two. Saeed still retains the money even though in this proceeding he and Akhtar assert the payments to Saeed were unauthorized and caused the Pharmacy to default on the rent.

[10] As it happened, Tahir, in his capacity as a representative of the sub-landlord (i.e., SCMI), terminated the Sublease, which is said to have resulted in Saeed ending up on the same side as Akhtar. Akhtar’s foe was now his friend.

[11] The problem is that Saeed never testified. Instead, this story of the conspiracy between Saeed and Tahir to have Saeed take money from the Pharmacy comes from Akhtar who states he was told this by Saeed. The allegation is denied by Tahir. As will be discussed below, this evidence is the crux of the Pharmacy’s allegations.

[12] After the Sublease was terminated, Saeed and Akhtar hired counsel to act for the Pharmacy. They did so on July 24, 2024, being three weeks after the notice of termination and four days after the new tenant entered a sublease with the Respondent. Moreover, they hired the lawyer without the knowledge or agreement of Tahir, contrary to the USA which required all three shareholders to consent to the hiring of counsel.

[13] The evidence is that all the shareholders paid themselves from time to time from the Pharmacy. However, the Pharmacy alleges that it was the money taken by Saeed at the instruction of Tahir that has resulted in the non-payment of the rent which, in turn, led to the default of the Sublease. Akhtar put the alleged scheme between Tahir and Saeed this way in his affidavit:

Specifically, [Tahir] directed [Saeed] to commit unauthorized withdrawals from SDMI’s bank account for the purpose of leaving insufficient funds for SDMI to remit the June 2024 Monthly Rental Payment so that [Tahir], on behalf of [the Respondent], could then rely on SDMI’s failure to remit the Monthly Rental Payment as a basis for [the Respondent] to assert its rights as landlord under the Commercial Tenancy Act.

[14] As it happened, that was not the only money taken. Akhtar admitted he took money, including on account of his future salary, which was not authorised. Why he felt he was entitled to be paid in advance is not clear. Nonetheless, he concedes that that he and Saeed continue to retain funds that belong to the Pharmacy. Akhtar testified in his affidavit that “if [the Pharmacy] is granted the requested relief, [Saeed] and I intend to deposit these funds, amounting to $134,100, back into [the Pharmacy’s] bank account to pay the liabilities required for SDMI to resume operations at the Premises”. Akhtar was equivocal in cross-examination as to the exact amount taken be him and Saeed from the Pharmacy. In the absence of any other figure, I find that the affidavit which clearly identifies $134,100 sets out the correct amounts that Saeed and Akhtar hold that belong to the Pharmacy.

[15] The failure to pay the June rent was not the only problem for the Pharmacy. Even before the Pharmacy defaulted on its rent payment, it had an outstanding receivables balance owing to its principal drug wholesaler of over $106,000. By the time the rent default occurred, the supply of product to the Pharmacy had begun to dry up. Akhtar, as the designated manager, told patients to go elsewhere because the Pharmacy did not have an adequate supply of medicinal supplies. He put a sign on the Premises to tell patients to “kindly visit any other pharmacy to fill your prescriptions".

[16] There was no undertaking as to damages given by the Pharmacy as it has no funds. In his affidavit, Akhtar said he and Saeed would return sufficient funds to pay the outstanding rent and the wholesaler’s invoices if the lease was reinstated. He did not provide an undertaking for damages. Saeed has said nothing. In argument, counsel for the Pharmacy said that Akhtar and Saeed would provide the undertaking as to damages.

Issues

[17] The issue to be determined on this motion is whether the court should provide an interlocutory mandatory order reinstating the lease and prohibiting the Respondent from leasing the premises to the new tenants.

[18] There is a preliminary issue as to the admissibility of the evidence of Akhtar as to the actions of Tahir and Saeed and Tahir’s apparent scheme to create a deficiency in the Pharmacy by having Saeed pay himself unauthorised funds. It is this conduct that the Pharmacy says is at the root of the non-payment in this case. The Pharmacy states that it should be entitled to relief from forfeiture because Tahir, who is a part owner of the Respondent, engineered with Saeed that the Pharmacy would have no money because of his approval of unauthorized payments to Saeed.

Akhtar’s Evidence

[19] The only evidence of this purported scheme by Tahir and Saeed is Akhtar who heard of it from Saeed. There are emails and texts that have been produced, but they do not independently support any such scheme. Tahir has denied any scheme with Saeed and has provided explanations that have not been contradicted other than by Akhtar’s hearsay evidence.

[20] The Respondent argues that this is highly contentious evidence and Akhtar’s evidence is entirely hearsay. Saeed has authorized and promoted this litigation. He is available and could easily have sworn an affidavit but did not do so. The Respondent asks that Akhtar’s evidence regarding Saeed and Tahir’s alleged scheme be struck or, alternatively, disregarded.

[21] Rule 39.01(5) allows for the filing of hearsay evidence but only where the evidence is “not contentious”. Where the hearsay involves contentious evidence, the general practice is to either strike out that evidence or disregard it: Gonzalez v. Dos Santos, 2023 ONSC 388. Evidence is contentious “if it deals with something that is in dispute or to which there are differences between the contending parties”: Cameron v. Taylor, (1992), 10 OR (3d)277 (Ont. Gen. Div.).

[22] The evidence of Akhtar on this point is crucial and highly contentious. The evidence of the alleged scheme is hearsay. Moreover, Tahir expressly denies the allegation. Saeed is a promoter of this litigation. He is available to testify but has chosen not to do so. In my view, there is no good reason why Saeed did not swear an affidavit. He has insulated himself from questions on the issue. This is exactly what the rule was intended to guard against and why such evidence should be struck.

[23] It was suggested that given the interlocutory nature of this proceeding that the Pharmacy need not have all the evidence in proper form at this stage. I disagree. First, this is a motion for the reinstatement of a lease in circumstances where the Premises is now leased to a third party. The Pharmacy’s requested injunction is not one that maintains the status quo but alters it. The court should have a record it can rely upon, particularly where the source of the information is easily available as it is here. Second, it is fundamentally unfair for the Pharmacy to shelter its key witness in this fashion. The Pharmacy places Tahir’s conduct with Saeed at the centre of its argument yet relies on Akhtar’s hearsay. Tahir has denied the allegation. There is no response by Saeed. This is the very unfairness that the rule seeks to avoid.

[24] Accordingly, I strike the following paragraphs: 14, 15, 27, 28, 29, 30, 40, 41, 42, 43 and 44 of his August 7, 2024 affidavit, paragraphs 3, 7, 8, 11, 12, 16 and 18 of his August 16, 2024 reply affidavit, and any questions on examination that addressed those paragraphs to the extent they support the alleged scheme between Saeed and Tahir, shall be disregarded.

The Injunction

[25] To grant injunctive relief on an interlocutory basis, the Court must determine whether:

(a) There is a serious question to be tried;

(b) There is a risk of irreparable harm; and

(c) The balance of convenience favours granting the injunctive relief: RJR-MacDonald Inc. v. Canada (Attorney General).

[26] In this case, the Pharmacy seeks a mandatory order. As such the Pharmacy must meet the higher threshold of establishing a strong prima facie case. It is argued that this should not involve a deep dive into the evidence. However, where the motion will largely resolve the case, the court is to take a harder look at the evidence. As the Supreme Court said in the RJR case:

Two exceptions apply to the general rule that a judge should not engage in an extensive review of the merits. The first arises when the result of the interlocutory motion will in effect amount to a final determination of the action. This will be the case either when the right which the applicant seeks to protect can only be exercised immediately or not at all, or when the result of the application will impose such hardship on one party as to remove any potential benefit from proceeding to trial.

[27] In this case, as noted, if the Pharmacy succeeds, the Respondent will be prohibited from leasing the Premises to the new tenant and thus would need to renege on the new tenant’s sublease. The issue of the new tenant’s ability to sublease the Premises will effectively be resolved. Moreover, if the Pharmacy is allowed to occupy the Premises while this matter is litigated, that will, in all practical terms, resolve its claim not to be evicted for its default as the current term of the Sublease runs for only another 14 months. It is unlikely that this Application will be resolved in that timeframe. As such, granting the relief sought will mean that the Pharmacy gets to reoccupy the Premises for the balance of the Sublease while the new tenant is evicted. The requested interlocutory injunction would “in effect amount to a final determination”. Accordingly, in my view, a deeper dive to determine if there is a prima facie case is warranted, although not necessary given the exclusion of the contentious evidence of Akhtar.

Serious Issue

[28] On the matter of a serious issue, the Pharmacy says it is entitled to relief from forfeiture. In argument, the Pharmacy asserted that the relief from forfeiture was predicated on Tahir being in a conflict and having used that conflict to have Saeed remove money from the Pharmacy. The factual foundation for this was Akhtar’s evidence that has now been excluded. As such there is no evidence to predicate this forfeiture argument. There is therefore no prima facie case in the absence of the evidence that has been struck.

[29] Had I not struck the hearsay evidence of Akhtar, I would have given it no weight. The allegation was denied by Tahir. I was pointed to no evidence that would allow me to make an adverse credibility finding against Tahir’s evidence of denial. In addition, the Pharmacy’s theory does not account for the money Akhtar has taken. Akhtar appears to have withdrawn as much or more money than Saeed from the Pharmacy. There is no suggestion that Akhtar took the money at Tahir’s insistence. The money taken by Akhtar alone would have meant the Pharmacy was unable to pay both the wholesaler and the landlord.

[30] Where a default is based upon non-payment of rent and the tenant seeks relief from forfeiture, the following criteria are usually considered by the court: (a) whether the tenant comes to court with clean hands; (b) whether there has been an outright refusal to pay rent; (c) whether the rent has been in arrears for a short or long time; and (d) whether the landlord has suffered a serious loss by reason of the moving party's delay in paying rent: National Squash Academy Inc. v. Parc Downsview Park Inc., 2015 ONSC 6967 at para. 9.

[31] In any event, the Pharmacy would not have met the first part of the above test. This is really an application by Akhtar and Saeed. They authorised the litigation without consulting Tahir contrary to the USA. Their conduct is relevant, and, in my view, they do not come to this Court with “clean hands” which is the first criteria. Snell’s Equity, (32nd ed.) 2010, at p. 112, sets out the full maxim is “he who comes into equity must come with clean hands”. In Peleshok Motors Ltd. v. General Motors Ltd. (1977), 2 B.L.R. 56 (Ont. H.C.), at para. 26, Goodman J. explains that maxim in this way:

[t]he plaintiff not only must be prepared now to do what is right and fair, but also must show that his past record in the transaction is clean; for “he who has committed Iniquity ... shall not have Equity”.

The clean hands doctrine looks at the conduct of the transaction to determine whether equity should assist the moving party who seeks relief from the admitted breach of the Sublease: see for e.g. Toronto (City) v. Polai (1969), 8 D.L.R. (3d) 689 (Ont. C.A.) aff’d [1973] S.C.R. 38](https://www.canlii.org/en/ca/scc/doc/1972/1972canlii22/1972canlii22.html), at para. 46.

[32] According to Akhtar, he and Saeed have $134,100 of the Pharmacy’s money. The entirety of their case is that Saeed withdrew money without authorization. Nonetheless, Saeed has a significant amount of money which he retains but belongs to the Pharmacy. The same applies to Akhtar. Rather than repay the Pharmacy so that the Pharmacy might pay the rent and the money owed to its wholesaler, they have held on to the money. Akhtar says they will only repay the money if this Court grants the relief requested. In other words, they will only return the money to its rightful owner if they get their way on this Application. This injunction would be unnecessary if they had released the funds to the Pharmacy. They seek the assistance of the court for something that they could have avoided by using the Pharmacy’s money to pay the rent. The Court’s equity ought not to be invoked in these circumstances. Akhtar and Saeed could and should have resolved this problem by returning the money.

[33] Holding on to the $134,100 appears to be their way of ensuring they win either way. If the requested order is granted, the Pharmacy has its lease to the Premises restored which presumably has financial benefit to them. If the order is not granted, they intend to hold on to $134,100 that belongs to the Pharmacy. Returning the money only if they win is not coming to the court with clean hands.

[34] For the above reasons, I do not accept that the Pharmacy has met the serious issue test.

Irreparable Harm

[35] As stated in RJR MacDonald, irreparable harm is harm that "cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other…” Irreparable harm relates to the nature of the harm not its magnitude. While the evidence must be clear and non-speculative, the evidence of irreparable harm need only establish a meaningful risk that damages may not be an adequate remedy. This is not a high threshold.

[36] The Pharmacy states that if the lease is terminated, it will go out of business or suffer irreparable damage to its reputation and patient base: RJR at 59; Bombardier Transportation Canada Inc v. Metrolinx, 2017 ONSC 2372 at para. 64; Propurchaser.com v. Wifidelity Inc., 2017 ONSC 4905 at para. 22.

[37] The Pharmacy says that if it is not allowed to reoccupy the Premises by October 31, 2024, the College of Pharmacy (the “College”) will permanently suspend the Pharmacy, which will result in it going out of business. The Pharmacy had to notify the College that it had closed its doors after it defaulted on the rent and the Respondent took action. The Pharmacy’s licence was suspended temporarily, and the College advised that if the Pharmacy does not regain the Premises that it will consider the Pharmacy permanently closed as of August 31, 2024, which has prompted this urgent motion. However, the Pharmacy may reapply to open the pharmacy in this location or another by filing an application with the College. Processing of an application would take 45 days. Akhtar and Saeed have done nothing to look for an alternate location. As such, it is speculative that the Pharmacy will not survive simply because it needs to find a new premises. It is apparent that the regulatory process to reopen can be completed relatively quickly. In my view, it is not clear that the Pharmacy would necessarily go out of business because of the loss of the Premises.

[38] The more significant harm is said to be the Pharmacy’s loss of reputation and the loss of the patient base from the clinic if it is excluded from the Premises. Clearly the clinic patient base would no longer be readily available if the Pharmacy had to relocate. However, the Pharmacy was in trouble before the Sublease was terminated. Before it failed to pay the rent, it already was unable to obtain medical supplies. The Pharmacy was advising patients to go elsewhere. It is difficult to say that the potential loss of the Pharmacy’s reputation or loss of the patient base would be due to the termination of the Sublease. Nonetheless, I accept that removing the Pharmacy from the Premises would contribute to some loss to its reputation and, as such, may constitute irreparable harm. At the very least, this loss would make the judicial determination of damages more difficult.

[39] However, it is clear that the Pharmacy was in dire trouble prior to the default given the actions of Saeed and Akhtar and the removal of its operating funds. The reputation was already in a downward spiral as evident from telling patients to go elsewhere even before the rental default. Nonetheless, I accept that some loss of reputation and patients will occur if the Pharmacy does not reopen at the Premises. There is a debate as to how speculative or how certain the irreparable harm is required to be to meet this portion of the test or if a loss which makes calculating damages more difficult amounts to irreparable harm: see discussion in Bell Canada v. Rogers Communications Inc., at paras. 31-46. I do not intend to address this debate. In my view, it is sufficient to consider the harm irreparable and to weigh its significance in the balance of convenience analysis.

Balance of Convenience

[40] In determining the balance of convenience, this Court must determine whether the harm suffered by the moving party if an order was not granted would outweigh any harm suffered by the responding party if an order was granted.

[41] In this case, the Premises have already been leased to a third party. The Respondent would lose that tenant. That tenant would undoubtedly have to be compensated or may sue the Respondent. In any event, the new tenant would be significantly disrupted, and the Respondent will suffer a loss in compensating the new tenant. Moreover, the intent has always been to have a pharmacy that can support the medical clinic in the building. The Lease and Sublease make that abundantly clear as the Premises are restricted for use as a pharmacy and clinic only. Having a pharmacy at that location is in the interest of not only the Respondent that runs the clinic but also the public. There was a suggestion by counsel for the Pharmacy that the corporate structure of the new tenant does not accord with the College regulations. The College requires the majority owner of a pharmacy to be a pharmacist whereas the wife, not the husband, is the majority owner of the new tenant. However, there is no evidence or reason to believe that the new tenant will not be able to rectify this and register with the College given it is leasing the Premises to be operated as a pharmacy and the husband is a pharmacist. I accept that the new tenant will be able to operate a pharmacy on the Premises to serve the clinic.

[42] In contrast, the Pharmacy has no funds. It cannot pay its rent or its wholesaler. It has advised the clinic’s patients it cannot service them because it has no medicinal inventory. The root cause of the Pharmacy’s problem is the removal of funds that should have been used to pay the rent and the wholesaler. There is an “undertaking” by Akhtar that he and Saeed will return the money they took from the Pharmacy. The money should have never been taken and the failure to return it in the face of the current difficulties of the Pharmacy speaks volumes as to whether Akhtar and Saeed really care about the survival of the Pharmacy, as opposed to their own financial gain. Even if the money was returned, it would be used to pay past debts. There is insufficient evidence that the Pharmacy has the financial means to buy product to restock the shelves with the necessary medicine such that it can serve the clinic patients or others.

[43] The conduct of Akhtar and Saeed provides little comfort that they will not remove funds from the Pharmacy in the future. The past conduct suggests that the Pharmacy is not a reliable tenant to either pay the rent or operate a pharmacy. In my view, neither the Respondent nor the patients ought to be subject to this uncertainty in the future. Rather, it is in the interest of the clinic and its patients to have a stable and solvent pharmacy to rely upon. This would not be the case if the Pharmacy were reinstated as the tenant. In my view, the harm in granting the injunction to the Respondent, the new tenant and the patients is far greater than the harm to the Pharmacy in denying the injunction.

[44] In my view the balance of convenience is in favour of not granting the injunction.

[45] In addition, the Pharmacy was to have posted an undertaking as to damages as required under Rule 40.03. The Pharmacy was unable to do so and has asked for relief from that obligation. In its factum, an undertaking was given whereby Akhtar and Saeed would agree to deposit sufficient funds in the Pharmacy account to pay the rent and outstanding trade accounts. This is no more than an undertaking to repay the Pharmacy what it is rightfully owed. When asked in argument about the lack of an undertaking, counsel for the Pharmacy offered to obtain an undertaking from Akhtar and Saeed for any damages if this motion was granted. I do not view this as satisfactory. The provision of an undertaking as to damages includes the ability of the opposing side to test whether there is any substance to the undertaking. That is not available after the fact. Such an examination is particularly relevant where shareholders, such as Akhtar and Saeed, have admitted to the unauthorized removal of money from the Pharmacy.

Disposition

[46] For the above reasons, the request for an interlocutory injunction is denied.

Costs

[47] I encourage the parties to agree on costs. If they cannot, I will receive costs submissions as follows:

a. Any party claiming costs shall file written submissions of no more than four pages, plus a bill of costs and any offers to settle, within ten days of the release of these reasons.

b. Any responding submissions shall be limited to three pages, plus a bill of costs and any written offers to settle and shall be delivered within one week of receipt of the other party’s costs submissions.

c. Any reply to submissions shall be delivered within two business days of receipt of responding submissions and shall be no more than one page in length.

d. All submissions shall be uploaded to CaseLines delivered to me by way of email to my assistant from whom you received this decision.

Callaghan J. Date: August 30, 2024