Court File and Parties

Court File No.: CV-20-00653970-0000 Date: 2024-12-13 Ontario Superior Court of Justice

Between: Hasan Saleemi and Payvault Inc., Plaintiffs, defendants by counterclaim – and – Michael Jesse Nash and Terrain Strategic Alliance Inc., Defendants, Plaintiffs by counterclaim

Counsel: No one appearing for the Plaintiffs, defendants by counterclaim Emma Chapple, for the defendants, plaintiffs by counterclaim

Heard: December 4, 2024

Before: L. Brownstone J.

Endorsement

[1] The defendants (plaintiffs by counterclaim) move for default judgment against the plaintiffs (defendants by counterclaim), after the plaintiffs’ pleadings were struck without leave to amend by Associate Justice Abrams. On August 14, 2024, Chalmers J. directed that the counterclaim proceed as a motion for default judgment in writing.

[2] Having reviewed the materials, I required counsel to attend to make submissions with respect to the relief requested.

[3] Under rule 19.02 of the Rules of Civil Procedure, RRO 1990, Reg. 194, a defendant who has been noted in default is deemed to admit the truth of all allegations of fact made in the statement of claim (here, counterclaim). Of course, judgment issues only if the facts alleged entitle the plaintiff by counterclaim to judgment: rule 19.06.

[4] The inquiry undertaken by the court on a motion for default judgment is the following: (i) What deemed admissions of fact flow from the facts pleaded in the claim?; (ii) Do those deemed admissions of fact entitled the plaintiffs, as a matter of law, to judgment on the claim?; and (iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim? That is, do the deemed admissions and evidence filed make out the elements of a valid cause of action?: Elekta Ltd. v. Rodkin, 2012 ONSC 2062 at para. 14.

[5] The deemed admissions flowing from the counterclaim, and the affidavit evidence, establish the following.

[6] Payvault is a federally incorporated company which has no issued and outstanding shares. It is authorized to issue only common shares. Hasan Saleemi is the sole director of Payvault.

[7] Michael Nash founded Payvault with Mr. Saleemi and took the required steps to incorporate Payvault. Terrain Strategic Alliance Inc. is a federal corporation of which Mr. Nash is the sole director, officer and shareholder.

[8] Nash and Saleemi founded Payvault together. Payvault was to issue 51% of its common shares to Saleemi (indirectly through 120) and 49% to Nash (indirectly through Terrain).

[9] Prior to founding Payvault together, both Nash and Saleemi were senior and key employees of another e-commerce payment processing company, SmartPay. SmartPay offers similar services to those that Payvault now offers. Nash was the Chief Financial Officer at SmartPay and Saleemi was responsible for sales and customer service. At SmartPay, Nash had a higher base salary than did Saleemi.

[10] In March 2020, both Saleemi and Nash were dismissed from SmartPay. Nash and Saleemi were close friends.

[11] After being dismissed from SmartPay, Nash and Saleemi decided to start a similar payment processing company servicing e-commerce businesses. In the early morning hours of April 22, 2020, they discussed names together over text message and settled on ‘Payvault’. Later that day, Nash incorporated Payvault. Nash filed all Payvault’s corporate forms with Corporations Canada.

[12] Nash commenced an employment claim against SmartPay, claiming, among other things, wrongful dismissal. Saleemi has not brought a claim against SmartPay.

[13] On Payvault’s Articles of Incorporation, Nash listed Saleemi as the sole director. Nash did this because he was concerned that if he listed himself as a director, it would affect his claim against SmartPay. At the time, Nash and Saleemi were friends, and Nash was not concerned that Saleemi was the only registered director on paper.

[14] Nash and Saleemi had an oral agreement that Saleemi would own 51% of the shares of Payvault and Nash would own 49% once they were ready to issue shares of Payvault. At the time of incorporation of Payvault, no shares were issued to anyone.

[15] Saleemi’s father has a business with offices located at 1087 Queen Street West, Toronto, Ontario. Due to the Covid-19 pandemic, few people were coming into Saleemi’s father’s office on a day-to-day basis during the spring and summer of 2020, and Saleemi’s father offered to let Nash and Saleemi work on Payvault at his offices rent-free.

[16] Accordingly, on May 18, 2020, Nash filed the required form to change the registered head office of Payvault to 1087 Queen Street West, Toronto, Ontario.

[17] Over the summer and fall of 2020, Nash and Saleemi worked on the development of Payvault. Similar to their roles while at SmartPay, Nash was the Chief Financial Officer of Payvault and Saleemi was responsible for acquiring clients and the overall direction of the business. In addition to being the CFO of Payvault, Nash was also responsible for industry compliance documentation and building the back-end technology systems on which Payvault operates. The parties therefore brought different skills to Payvault, but it was by no means Saleemi’s expertise alone that led to its creation and successful operation.

[18] Pursuant to the understanding that Nash was a 49% shareholder of Payvault, he worked on Payvault, as its CFO, financial compliance manager, and back-end technology manager for eight months. Neither Nash nor Terrain received any pay from Payvault (or anyone) for his services.

[19] There was an understanding that both Nash and Saleemi were permitting Payvault to defer paying them while revenues were nominal; however, there was an equally clear understanding that Payvault would pay Nash and Saleemi for their services once it began to generate appropriate revenues. There is some evidence that once Payvault reached a certain level of revenue, Nash and Saleemi would pay themselves salaries.

[20] There were no issues with the work Nash provided Payvault, and none were communicated to him.

[21] Nash expected to ultimately be paid, and to be repaid for his shareholder loan of $5,848.19.

[22] Saleemi expressly referred to Nash as the CFO of Payvault to third parties.

[23] Nash created a Google Workspace account for Payvault. Saleemi opened bank accounts for Payvault at TD Bank and the Bank of Nova Scotia. Saleemi then provided Nash the banking information and online login credentials to the Payvault bank accounts.

[24] During the summer of 2020, Payvault had marginal revenues and both Nash and Saleemi had to contribute several thousand dollars to Payvault to cover its day-to-day expenses. It appears that Nash considered this to be a loan.

[25] In August 2020, Nash prepared a draft Shareholder Agreement for Payvault. The draft Shareholder Agreement reflected Nash and Saleemi’s shareholdings of 49% and 51%, respectively, and noted that they would take their shares through holding companies – Nash would use Terrain and Saleemi would use a numbered company, 12098865 Canada Inc. (“120”). Nash incorporated 120 for Saleemi on June 2, 2020, for this purpose and paid for the incorporation. Nash emailed the Shareholder Agreement to Saleemi several times throughout August and September 2020 asking him to review and sign it.

[26] In September 2020, Nash contacted a lawyer to assist with finalizing the Shareholder Agreement and ancillary documents. The lawyer requested a retainer of $2,500. Saleemi insisted that it was not necessary for Payvault to incur the expense at that time since Nash and Saleemi would have to loan the funds to Payvault. Instead, Saleemi insisted that they wait until Payvault was generating revenues and then they would have Payvault retain counsel to finalize the Shareholder Agreement. Nash decided not to push the issue with Saleemi and chose to keep working on Payvault. At the time, he completely trusted Saleemi and they were working together daily.

[27] The share distribution, being 51% Saleemi and 49% Nash, is clearly set out on the first page of the Shareholder Agreement. Saleemi has never stated – in writing or orally – that he disagrees with any of the terms of the Shareholder Agreement, including the share distribution between him and Nash.

[28] Throughout the spring, summer and fall of 2020, Nash prepared several financial models for Payvault. In each model, Saleemi was noted as a slight majority shareholder, which impacted the distribution of dividends. Nash shared these models with Saleemi, who was his business partner, and they discussed them together. Saleemi never objected to the share split that is clearly set out in the models, or otherwise objected to Nash’s shareholding in Payvault.

[29] In late August or early September 2020, Saleemi and Nash took steps to complete a loan application for Payvault on which they represented that they were partners in Payvault.

[30] Payvault started to generate significant revenues by mid-November 2020. From mid-November to mid-December 2020, Payvault had revenues of approximately $150,000. There is evidence that in 2021 Payvault had annual net income of $644,292.

[31] In mid-November 2020, Saleemi advised Nash that he had determined that Payvault would ‘partner’ with a business called Secure Digital Payments (“SDP”), who would refer Payvault customers and assist with back-end technology and programming functions. Nash perceived this unilateral decision made by Saleemi as somewhat autocratic, but ultimately, Nash agreed that it was in the best interest of Payvault and did not think much more of it.

[32] On December 7, 2020, Saleemi called Nash and advised him that he had made another unilateral decision in that SDP would take over all Payvault’s back-end technological functions. In addition to being the CFO of Payvault, this was a principal function that Nash was responsible for. Saleemi also suggested over the phone that perhaps Nash could get a job at SDP.

[33] This conversation deeply distressed Nash. Now, Nash felt as though Saleemi was taking active steps to cut him out of Payvault.

[34] After the call, Nash immediately attempted to access the Payvault bank account through online banking, only to find that Saleemi had pre-emptively cut off his access.

[35] Nash then checked the accounting system (which he had established as CFO) and saw that Saleemi had withdrawn $14,750 from the Payvault bank account over the course of the preceding month by email transferring money to himself, and that he had used an additional $12,000 of Payvault funds to pay down his personal American Express credit card.

[36] These withdrawals by Saleemi were the first shareholder withdrawals from Payvault.

[37] In October 2020, Saleemi and Nash discussed hiring Saleemi’s cousin as a compliance officer. However, they determined that it was too early to hire someone, especially since neither of them had been paid by Payvault yet. Regulatory compliance was also a role that Nash was responsible for, and at the time, he was able to continue addressing regulatory compliance matters.

[38] Nevertheless, in a December 6, 2020, email, Saleemi, as CEO of Payvault, offered his cousin the position of Compliance Officer, commencing March 7, 2021, despite Saleemi and Nash’s earlier conversation where they agreed that Payvault was not in a position to make that hire.

[39] Only a month after Payvault started generating significant revenues, Saleemi had successfully usurped the entire business as his own and put the pieces in place to replace Nash.

[40] Nash, through Terrain, or otherwise, has never received payment from Payvault, nor has Payvault reimbursed Nash for thousands of dollars of expenses that Nash paid on its behalf.

[41] Saleemi permanently locked Nash out of Payvault’s GoDaddy account.

[42] Nash opened the Google account on behalf of Payvault; he paid for the account out of his pocket; he was the CFO of Payvault; and he is a principal shareholder of Payvault.

[43] In December 2000, Nash noticed that Saleemi had started deleting documents in Payvault’s Google Account, locked Saleemi out of the account for a period and restored the documents.

[44] On the basis of the factual admissions above, Nash and Terrain ask the court to find that Saleemi’s and Payvault’s actions were oppressive to Nash and Terrain. They seek various remedies under s. 241(3) of the Canada Business Corporations Act, R.S.C., 1985, c. C-44.

Did Saleemi and Payvault engage in oppressive conduct?

[45] Nash and Terrain claim they are beneficial owners of 49% of Payvault and therefore fall within the definition of “complainant” in s.238. Nash and Saleemi agreed that Payvault would belong to them in a 49%/51% ownership split. They argue that until Saleemi cut them out of Payvault, they proceeded as business partners.

Are Nash and Terrain complainants under the CBCA?

[46] The materials establish that that Nash, through Terrain, was intended to be a 49 percent shareholder of Payvault, and the parties operated as though this were the arrangement between them. Saleemi advised third parties that they were partners, and that Nash was Payvault’s CFO. Nash took the necessary steps to incorporate the company. They agreed on a name together. They had worked together at SmartPay and planned to operate Payvault together to conduct the same business. They agreed on the ownership split. While they did not execute the shareholder agreement, it was not because there was a disagreement on the percentage split between the parties. Nash had equal access to the banking and google accounts of Payvault.

[47] I find that Nash and Terrain are proper complainants under s. 238(d) of the CBCA.

Was the conduct oppressive?

[48] As set out in detail above, Saleemi and Payvault engaged in the following conduct:

• unilaterally installing SDP to take over Mr. Nash’s responsibilities on December 7, 2020;
• Locking Mr. Nash out of his access to Payvault's bank accounts, online task management platform, accounting software, email accounts, Google Business Account and GoDaddy account;
• Refusing to cause Payvault to issue Mr. Nash 49% of the shares of Payvault, notwithstanding their agreement to do so;
• Permitting Mr. Nash to work as the CFO of Payvault and to develop the business on the pretense that he/Terrain was to be a 49% shareholder and then to cut him out once Payvault began generating revenue; and
• Withdrawing a total of $16,750 in funds from Payvault's bank account to Saleemi’s personal account and to pay his personal credit card.

[49] These activities demonstrate a lack of good faith on Saleemi’s part, benefiting Saleemi, the majority shareholder, to the exclusion or to the detriment of Nash and Terrain, the minority shareholder. The conduct resulted into a lack of visibility into or disclosure of material financial and other information to the minority shareholders; and, at bottom, a plan or design to eliminate the minority shareholder: Wright v. Donald S. Montgomery Holdings Ltd. at para. 25.

[50] I find that the business or affairs of the corporation have been conducted, and the powers of the director of the corporation have been exercised, in a manner that is oppressive or unfairly prejudicial to Nash and Terrain, and that disregards their interest as contemplated in s. 241 of the CBCA.

[51] The conduct is clearly attributable to Saleemi personally as director. He has exercised his powers to effect the oppressive conduct (Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 SCR 1037 at para. 47). He has derived personal benefits from his oppressive conduct and has acted in bad faith vis-a-vis Nash and Terrain in so doing.

[52] I therefore find that Saleemi and Payvault’s conduct has been oppressive to Nash and Terrain.

The remedy

[53] The issue of remedy is more complicated. First, Nash and Terrain ask that Saleemi and Payvault be noted in default. The endorsement of Chalmers J. makes it clear that default proceedings are permitted. For the sake of completeness, I grant the relief of noting Saleemi and Payvault in default and grant default judgment. Given that the plaintiffs’ pleading has been struck, I also grant an order dismissing the claim against Nash and Terrain.

[54] At the oral hearing, Nash and Terrain refined the relief they were seeking and withdrew their request for relief for wages and pay in lieu of notice for his position as CFO. But they also advised they believe Payvault is now dormant. They believe Payvault earned funds between 2020 and 2024 and believe that Saleemi took money out of the company in various ways including repayment of shareholder loans, dividends, payment of personal bills, and salary.

[55] The difficulty is that the state of the evidence in the record is such that it is impossible to tell what these amounts are. There is a single financial statement in the record before the court. There is no point to granting orders that Payvault be valued as of the date of judgment without more information into its financial affairs, past and present. Nash does not know whether he is asking for 49% of something, of nothing, or of outstanding liabilities.

[56] Therefore, I am granting interim relief on the issue of remedy without prejudice to Nash and Terrain’s right to seek further remedies once they obtain the production I order below.

[57] I grant Nash and Terrain a tracing order to allow them to obtain a sufficient accounting and documents to determine the assets, liabilities, and income and loss of, and shareholder withdrawals from, Payvault, from its inception until the date of this judgment. Saleemi and Payvault are ordered to provide particulars of any payments made directly or indirectly to Saleemi and/or any entities owned or controlled in whole or in part to Saleemi, and any payments made to Saleemi’s benefit, whether by way of dividends, bill payments, income, options, loans, repayments of loans, or otherwise. I also order Saleemi and Payvault to produce all corporate tax returns and notices of assessment of Payvault. Payvault and Saleemi shall also produce income statements, profit and loss statements, and balance sheets for Payvault for the years 2020-2024 inclusive.

[58] Saleemi shall attend an examination in aid of execution by Nash and Terrain if Nash and Terrain wish to examine him to inquire into the financial affairs set out above.

[59] Once Nash has obtained the information, he may renew his motion before me for appropriate and additional remedies under the CBCA.

Costs

[60] Fixing costs is a discretionary exercise under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. Rule 57.01(1) of the Rules of Civil Procedure outlines, in a non-comprehensive list, factors that guide the exercise of this discretion. Relevant factors include the results of the proceeding, the principle of indemnity, the amount an unsuccessful party could reasonably expect to pay, the complexity of the proceeding, the importance of the issues, and the conduct of any party that tended to lengthen the proceeding.

[61] Ultimately, I must fix an amount of costs that is proportionate, and that is fair and reasonable for the unsuccessful party to pay: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291, at para. 26. A costs award should “reflect what is reasonably predictable and warranted for the type of activity undertaken in the circumstances of the case, rather than the amount of time that a party’s lawyer is willing or permitted to expend”: Apotex Inc. v. Eli Lilly Canada Inc., 2022 ONCA 587, at para. 65.

[62] Nash and Terrain have been put to significant time and expense and will have to continue to expend costs to obtain what should rightfully have been available to them. This expense is being incurred owing to the conduct of Saleemi and Payvault. In considering the factors above, I order Saleemi and Payvault to pay Nash and Terrain costs of $25,000 inclusive of HST and disbursements in respect of the proceedings to date.

L. Brownstone J. Released: December 13, 2024