



COURT OF APPEAL FOR ONTARIO

CITATION: 6071376 Canada Inc. v. 3966305
    Canada Inc., 2020 ONCA 428

DATE: 20200630

DOCKET: C67237

Feldman, Fairburn and Nordheimer
    JJ.A.

BETWEEN

6071376 Canada Inc.

Plaintiff

(Respondent)

and

3966305 Canada Inc. and Mahmood
    Khedmatgozar

Defendants

(Appellants)

Charles M. Gibson and Ian Houle, for
    the appellants

G. James Thorlakson and David R.
    Ellliott, for the respondent

Heard: In writing

On
    appeal from the order of Justice Wolfram Tausendfreund of the Superior Court of
    Justice, dated June 25, 2019, with reasons reported at 2019 ONSC 3947.

REASONS FOR DECISION

[1]

The personal appellant (the appellant)
    purchased a commercial development project in Gatineau, Quebec, referred to as the
    Hull Project, in trust for a company yet to be incorporated. 3966305 Canada
    Inc. (396) was incorporated for that purpose.

[2]

The appellant needed investors for the Hull
    Project. He found three who lived in California (the principals). Based upon
    representations made in late February 2003 and an agreement reached, the
    principals decided to invest over $230,000 in the Hull Project. They incorporated
    6071376 (607) for this purpose. The appellants brother  Ramin  was named
    the sole director of 607 and was to act as the principals eyes and ears on
    the ground for all matters relating to the project.

[3]

The appellant sold the Hull Project in June
    2006, but never disclosed that fact to the principals. The appellant did not
    provide the principals with a portion of the proceeds. Nor did he reimburse
    them for their original investment. Instead, despite their ongoing efforts to
    determine what was happening with the Hull Project, the principals did not
    discover its sale until about six years later.

[4]

It appears that the appellant used the proceeds
    from the sale of the Hull Project to purchase other properties which provided
    him with good financial gain.

[5]

Two of the three principals eventually came to
    Canada in 2012 to attempt to discover what had happened to their money,
    particularly given that their repeated questions had either gone unanswered or
    were deflected. The appellant obfuscated, among other things, claiming that he
    had lost relevant documents. Importantly, he never disclosed that the Hull
    Project had been sold in 2006. The appellant was later asked for a cost-revenue
    summary for 2008 to 2012 and said that he would forward the documents to the
    principals. Of course, that would have been impossible given that there were no
    such documents, the Hull Project having been gone for over two years before the
    beginning date for which the principals were seeking some financial
    accountability.

[6]

The trial judge concluded that the parties had
    formed an agreement in February 2003. Among other things, in return for their
    investment, the agreement entitled the respondent to 40 percent participation
    in the Hull Project, including the net income and net sale proceeds upon
    disposition. He also concluded that the respondent was owed a fiduciary duty by
    both 396 and the appellant personally.

[7]

Included in the damages award was $515,600 for pre-judgment
    interest and $200,000 payable by the appellant as punitive damages.

[8]

The appellant argues that the trial judge erred
    in five respects. We do not accept any of these arguments.

[9]

First, the appellant argues that the trial judge
    failed to consider the factual matrix underlying the purported agreement. He
    maintains that the fact that a co-tenancy agreement was never signed was an
    important factor informing whether an actual agreement was ever reached.

[10]

This argument overlooks the fact that an
    unsigned co-tenancy agreement was specifically addressed by the trial judge. He
    simply found that it did not undermine the fact that an earlier oral agreement
    had been reached by the parties. It was that oral agreement at the end of
    February that was acted upon and that resulted in the investment made by 607.

[11]

The finding that the oral contract had been formed
    by the end of February turned largely on credibility findings, ones that were
    open to the trial judge to make and to which we owe deference. Specifically,
    the trial judge rejected the appellants evidence that there were matters left
    to be negotiated that extended beyond the end of February. Based upon an
    acceptance of the principals evidence, it was open to the trial judge to reach
    his conclusion that there was a contract reached by the end of February 2003
    and that the appellant breached the terms of that contract.

[12]

Second, the appellant argues that the trial
    judge erred by failing to draw an adverse inference from the respondents
    decision not to call Ramin as a witness at trial. It was under no obligation to
    do so. Ramin was equally available to both parties and was not within the
    exclusive control of the respondent. Indeed, we note that Ramin is the brother
    of the appellant.

[13]

Third, the appellant claims that the trial judge
    failed to give adequate reasons for concluding that he was not a credible
    witness.  We see no error in how the trial judge approached his credibility
    findings. Based upon the factual record, it was entirely open to the trial
    judge to reject the appellants evidence.

[14]

Fourth, the appellant argues that he should not
    have been found personally liable. We do not accept this argument. The trial
    judge was aware of and applied the law correctly:
Shoppers Drug Mart Inc. v
    6470360 Canada Inc. (Energyshop Consulting Inc./Powerhouse Energy Management
    Inc.)
,
2014 ONCA 85, 372
    D.L.R. (4th) 90, at paras. 43-47. The corporate veil can be pierced in exceptional
    circumstances like these, where an individual directs a wrongful act to be done
    and uses a corporation as nothing more than an alter ego:
642947 Ontario
    Ltd. v. Fleischer
(2001), 56 O.R. (3d) 417 (C.A.) at paras. 67-69. The
    trial judge made that finding of fact in this case, a finding that was entirely
    open to him to arrive upon. The appellant used 396 to direct and cause the misappropriation
    of the respondents funds for his own purposes.

[15]

Finally, the appellant maintains that the trial
    judge erred in awarding punitive damages. The findings of fact drove that
    conclusion, findings as to conduct that was particularly egregious, including
    that the appellant had lied to the principals for over eight years and only
    stopped lying once the principals ultimately got to the bottom of what had
    occurred. The trial judge was aware of the high threshold for determining
    whether to impose punitive damages and made no error in applying that standard.

[16]

The appeal is dismissed.

[17]

Costs are awarded to the respondent in the
    amount of $20,000, tax and disbursements included.

K. Feldman J.A.

Fairburn J.A.

I.V.B.
    Nordheimer J.A.


