Kabani v. 1266442 Ontario Inc.

2012 BCSC 1719 Kabani v. 1266442 Ontario Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Kabani v. 1266442 Ontario Inc., 2012 BCSC 1719 Date: 20121120 Docket: S121853 Registry: Vancouver Between: Sadrudin Kabani Plaintiff And 1266442 Ontario Inc., Tajud Kabani, Shamshad Jaffer, Pyrali Pirani also known as P.K. Pirani, and Nile Resorts Development Ltd. Defendants Before: The Honourable Mr. Justice Rogers Reasons for Judgment Counsel for the Plaintiff: J.M. Sullivan R.L. Reinertson Counsel for the Defendants: P.K. Shergill Place and Date of Hearing: Vancouver, B.C. October 22, 23 and 26, 2012 Place and Date of Judgment: Vancouver, B.C. November 20, 2012 Introduction [1] The claimant seeks a Mareva injunction against the corporate defendants. The primary function of the injunction, if granted, would be to prevent the corporate defendants from dealing with approximately $1.56 million, funds that are currently held in a lawyer's trust account. In the alternative, the claimant seeks an order pursuant Rule 10-1 preserving those funds pending resolution of this litigation. [2] The defendants oppose the applications for injunction and preservation. The Evidence [3] The notice of civil claim alleges that by virtue of a series of complicated transactions - transactions allegedly tainted by fraud, deceit, misappropriation, unjust enrichment, or breach of fiduciary duty or trust perpetrated on the claimant by one or more of the

respondents - the respondent Tajud Kabani has, through corporations she controls, obtained control over $1.56 million that ought to accrue to the claimant. The claimant seeks damages and tracing orders as well as orders that the respondents hold any assets to which the claimant has an interest as constructive trustees for the claimant. [4] A brief history of the events leading up to the parties' dispute begins in or around 1980 and 1981. At that time, the claimant was one of several parties who purchased shares in a Netherlands Antilles corporation called Radne Property Corporation NV. The other parties who purchased Radne shares were a Mr. Popat and an entity called "The London Group". [5] Radne's sole asset comprised shares issued by 460657 Ontario Ltd. Radne held 75 percent of 460's shares for itself. Radne held the balance of the 460's shares in trust for 3977357 Ontario Ltd. [6] 460 was a joint venturer in a commercial/residential development at Kings Square in Toronto, Ontario. 460 was entitled to a 25 percent share of the Kings Square venture. 460 held that share in trust for Radne and 397. [7] In or around 1982, the claimant's brother Ashak Kabani began to manage the affairs of Radne and 460. The claimant says that notwithstanding Ashak's control of Radne and 460 and Ashak's managerial input, the claimant retained beneficial ownership of the Radne shares. The claimant

maintains that Ashak was a trustee for the claimant's interest in those shares. The claimant did not put into evidence any documents tending to corroborate the existence of such trust. [8] Ashak managed the affairs of Radne, and through Radne of 460, for several years. In or around 1986 he gave over management of Radne and 460 to his father-in-law, the respondent Mr. Pirani. The claimant says that Mr. Pirani thus became trustee for the claimant of the claimant's shares in Radne. Again, the claimant put no documents into evidence to support the proposition that Mr. Pirani was trustee for the claimant's interest in Radne. [9] In or around 1991, 397 ceased to have an interest in Kings Square and it withdrew from 460. From that point forward, 460's interest in Kings Square was reduced to 18.75 percent and it held that interest in trust for Radne alone. [10] Also in or around 1991 the London Group decided to divest themselves of their Radne shares. The claimant says that the London Group's shares were supposed to have been distributed rateably between the remaining Radne shareholders, being himself and Mr. Popat. The claimant says that this redistribution of Radne shares should have left him as the majority shareholder in Radne and, through 460's interest in Kings Square, the beneficial owner of 12 percent of the Kings Square joint venture. What appears to have actually happened is

that the London Group's shares in Radne were distributed to Mr. Popat and Mr. Pirani, to the exclusion of the claimant. Mr. Pirani then decided to give his Radne's shares to his daughter, the respondent Tajud Kibani. [11] It is worth noting at this point who is related to whom. As noted, the claimant and Ashak are brothers. Ashak is married to Tajud. Mr. Pirani is Tajud's father. The respondent Shamshad Jaffer is daughter to Mr. Pirani and sister to Tajud. [12] In or around 1997 the Radne shares that Mr. Pirani was managing together with the Radne shares that Tajud had acquired from Mr. Pirani were transferred to 1266442 Ontario Inc. Tajud owned all of the shares of 126. At that point, then, Tajud controlled 126, 126 controlled Radne and Radne owned all of the shares of 460. [13] In or about 1998 Tajud transferred her shares in 126 to Nile Resorts Developments Ltd. Nile was incorporated in the British Virgin Islands. The evidence revealed nothing of its circumstances, ownership, or operations other than that Tajud's brother Liaquat Pirani played some kind of management role in whatever operations Nile may have carried out. Significantly, in her affidavit evidence and in her cross-examination on her affidavits, Tajud was unable to provide any meaningful information about Nile. [14] At all material times Radne's only asset comprised the shares that it owned in 460. At someone's

instigation - the evidence did not show whose - in 2000 a Chartered Accountant named Mr. Pabani generated an opinion of the value of 460. Mr. Pabani based his opinion of 460 on the capital value of its interest in the Kings Square joint venture. Mr. Pabani opined that 460 was worth approximately $2,500. By that time, 460 had received income totaling $375,000 - $400,000 from the Kings Square venture. 460 received $75,000 of that income in the year before Mr. Pabani prepared his valuation opinion. [15] Based on Mr. Pabani's opinion or, possibly, based on some other information, Tajud, acting as signing authority for Radne, caused Radne to sell one half of its shares in 460 to 126. The other half of Radne's shares in 460 were sold to a numbered corporation controlled by Mr. Popat. The total consideration paid to Radne for its interest in 460 was $10,000. After that transaction was complete, Radne was dissolved. Tajud executed the share sale agreement on behalf of Radne. Ashak witnessed her signature on that document. [16] In the result, 126 wound up owning half of the shares of 460. Through 460, 126 could claim a one-half interest of 460's interest in Kings Square. [17] In 2005, Nile transferred its asset comprised of the 126 shares to another British Virgin Islands corporation called Handril International Ltd. Tajud is the sole shareholder of Handril. [18] From 2000 on, 460

received considerable income from Kings Square. That income was transferred to, among other places, a bank account in Ashak's name, to Ashak directly, and to Tajud directly. At no time did any income from Kings Square find its way into the claimant's pocket. The claimant's evidence showed that at no time before September 2011 did he express any interest in his shares in Radne or in the welfare of the operations of Radne, or 460, or of Kings Square. However, the claimant may have been aware of the fact that Kings Square was generating money and that some of that money was going through 460's hands. The evidence for that proposition lies in a November 2010 email from Nizar Gulamhusein to Ashak in which Nizar wrote that he had spoken to the claimant about the tax treatment of the Kings Square income and that in that conversation the parties spoke of the specific sum of $480,000. [19] According to the claimant, his concern about the fate of the Radne shares arose in September 2011 when Nizar contacted him to say that Kings Square's real estate had been sold. The claimant asserts that he then began to investigate what had happened to the Radne shares. Upon learning that Radne's sole asset - its shares in 460 - had been transferred to 126, that Radne had been dissolved, and that Tajud controlled the companies that controlled the fate of 460's portion of the real estate sale price,

the claimant says that he suddenly appreciated that he had been the victim of conspiracy, fraud, breach of trust and breach of fiduciary duty perpetrated on him at various times by one or all of the respondents. [20] Presently, approximately $1.56 million from the Kings Square sale rests in the trust account of a lawyer named Thompson. Mr. Thompson's practice is in Ontario. Those funds are the net sale proceeds accruing to 460 by virtue of its interest in the Kings Square joint venture. Absent any order or agreement to the contrary, the funds could be paid out at the direction of the controlling mind of 460. That person is Tajud (that is because she controls Handril which owns all the shares of 126 which owns all the shares of 460). [21] The claimant seeks a Mareva injunction against the corporate respondents. He seeks no remedy in the present application against the personal respondents. In the alternative the claimant seeks an order pursuant to Rule 10-1 preserving the funds pending the resolution of this proceeding. Currently, the funds remain in Mr. Thompson's trust account by agreement of the parties. That agreement expires upon the release of these reasons. [22] The respondents oppose the applications. Their position rests on this proposition: in 1982 the claimant transferred his legal and beneficial interest in the Radne shares to Ashak. The respondents say that from

1982 on, the claimant had no interest in Radne, 460, or Kings Square. They say that it is, therefore, not surprising that the claimant knew nothing of what was going on with Radne and 460; it was none of his business. [23] The respondent Tajud avers in her affidavits that for some years before 1982 the claimant and Ashak were involved together in the operation of a company called Hatari. She says a dispute over Hatari's management arose between the claimant and Ashak. The brothers engaged a fellow named Lord Bhatia of London England to act as a mediator in their dispute. According to Tajud, with Lord Bhatia's help the brothers negotiated a resolution of their dispute over Hatari. She says that the resolution involved a share swap: Ashak transferred his Hatari shares to the claimant and in return the claimant transferred his Radne shares to Ashak. [24] Tajud says that what happened after that to the Radne asset and its shares happened as a matter of agreement between Ashak and her in their capacities as husband and wife. She says that the various incorporations and share transfers were done for legitimate tax reasons and on accounting advice. Tajud was unable to adduce any documentary evidence to support those assertions. Tajud did adduce ample evidence to show that when she started a family law proceeding against Ashak in 2010, Ashak consistently took the position that the 126

shares were his property. In none of that evidence did Ashak assert that he was a trustee of the 126 shares for the claimant. [25] As for the alleged share transfer between brothers in 1982, the claimant flatly states that he and Ashak never had a dispute; that there was never a mediation between them over the Hatari company; and that Lord Bhatia never acted as a mediator between them. In response to that, the respondent Jaffer contacted Lord Bhatia and received from him an email stating that he recalled that there had, in fact, been a dispute between the claimant and Ashak; that the dispute occurred in the early 1980s; that Lord Bhatia had assisted in that dispute; and, finally, that a resolution of the dispute was reached. The Applications Mareva Injunction [26] Typically, a Mareva injunction enjoins a party from dealing with or disposing of any of its assets in the court's jurisdiction and the order usually requires the enjoined party to produce to the claimant a list of all of its assets wherever located. The usual purpose of a Mareva injunction is to prevent a party from putting its potentially exigible assets beyond the court's reach and thus rendering any eventual judgment against the party dry. The Mareva injunction is an outstandingly powerful tool in the hands of a plaintiff who has yet to prove his claim and it is potentially outstandingly disruptive for the party

affected. The Test [27] In ICBC v. Patko, 2008 BCCA 65, Finch C.J.B.C., set out the test for a Mareva injunction. After referring to Mooney v. Orr (1994), 100 B.C.L.R. (2d) 335 (Mooney No. 2), the Chief Justice wrote: [25] Under the flexible Mooney No. 2 approach, the fundamental question in each case is whether the granting of an injunction is just and equitable in all the circumstances of the case: Mooney No. 2 at para.

43. In order to obtain an injunction, the applicant must first establish a strong prima facie or good arguable case on the merits. Second, the interests of the two parties must be balanced, having regard to all the relevant factors, to reach a just and convenient result. Two relevant factors are evidence showing the existence of assets within British Columbia or outside, and evidence showing a real risk of their disposal or dissipation, so as to render nugatory any judgment: Mooney No. 2 at para. 44. [26] The root of the Mareva injunction is the risk of harm either through dissipation of assets or removal of assets to a place beyond the court's reach: Tracy at para.

45. In most cases it will not be just or convenient to tie up a defendant's assets merely on "speculation that the plaintiff will ultimately succeed in its claim and have difficulty collecting on its judgment if the injunction is not granted": Silver Standard at para.

21. Thus, though a party may apply for and obtain an injunction as security for damages sought in the litigation without showing that there is a real risk the defendant will dissipate assets, in most cases a real risk of dissipation must be established before a party will be granted a Mareva injunction in British Columbia. Discussion [28] The point of departure in the analysis of a Mareva injunction application is whether the claimant has made out a strong prima facie or a good arguable case on its merits. A "strong prima facie case" is one that is supported by something more than mere assertions of fact. That evidence is required to bolster the case is made clear by the inclusion in the test of the words: "on its merits"; i.e.: on the evidence adduced in support of the claims advanced. [29] In the present case, the claimant's own evidence is limited to this: In 1982 I owned shares in Radne and I appointed my brother Ashak as my trustee for the purpose of dealing with those shares. This is the sum total of the claimant's evidence with respect to the creation of the trust that bottoms the whole of his many claims against the respondent. In response to the respondent's defence that the claimant transferred the Radne shares to Ashak in settlement of the dispute over Hatari, the claimant says: I never had a dispute with Ashak in the 1980s, there was never a dispute with him over

Hatari, and Lord Bhatia did not mediate a resolution of such a dispute. [30] The difficulty with the claimant's evidence is twofold: it flies in the face of common sense and it is at least partly contradicted by the email from Lord Bhatia. The claimant's evidence offends common sense because: - The claimant paints himself as a competent and experienced man of business, yet he put shares for which he had paid about $1 million in the hands of his brother without bothering to document the arrangement in any way; - If there was a trust agreement, some terms must have been discussed between the brothers about it, yet beyond baldly stating that a trust existed, neither brother averred to any such terms; - for 29 years the claimant evinced no interest whatsoever in the fate of the Radne shares, Radne's ownership of the 460 shares, 460's operations, or any income produced by Kings Square. It might be that the claimant is fabulously wealthy and cared not for the fate of his shares, or that he was completely unworldly and so had no interest in anything so base as money or investments, or that for 29 years his health was so poor that he could not spend time or energy chasing after his Radne investment. The case cries out for some such explanation for the claimant's behavior. He offered none. [31] Further, I have concluded that the claimant's affidavit evidence must be assessed with some

caution. That is because the claimant flatly asserts that he and Ashak had no dispute in 1982, while the email from Lord Bhaiti suggests otherwise. Further, the claimant says that there was no resolution of any dispute between him and his brother, while the email from Lord Bhaiti suggests otherwise. Lord Bhaiti appears to not have any interest in the outcome of this litigation. The evidence comprised of his email does tend to cast doubt on the claimant's affidavit evidence. [32] In addition to this, I find that I can give little weight to Ashak's affidavit evidence. Ashak's evidence suffers from the same offences against common sense as the claimant's. That is to say, beyond simply asserting the existence of a trust, Ashak offered no evidence to support the notion that there was a trust. He did not assert any evidence showing that he had performed trustee-like tasks for his brother. In fact, the evidence demonstrated, at least for the purposes of this interlocutory application, that Ashak behaved in exactly the opposite fashion. For example, he received a substantial amount of money from 460 but appears to have no thought of accounting to the claimant for it. Absent evidence that the alleged trust excepted income from the Radne investment, one can only assume that Ashak had no right to the payments from 460. Yet he seems to have kept them and never told the claimant about them.

Again, this runs counter to common sense. [33] Ashak's evidence is not without its credibility challenges as well. As noted earlier, in the context of the family litigation with Tajud, Ashak has consistently argued that the 126 shares are his property. According to the evidence adduced in this application, Ashak has never asserted that 126 or the assets it owns are impressed with a trust in favour of the claimant. He appears to be saying one thing in that litigation and a different thing in the present proceeding. Further, Ashak denies any knowledge of when or how the shares of 460 were sold by Radne to 126, yet he acted as witness to Tajud's signature on that transfer agreement. [34] Finally, the claimant's position that money from the Kings Square sale is impressed by a trust in his favour suffers by the application of the rule in Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189). Foss v. Harbottle stands for the proposition that harm to a corporate asset is actionable by the corporation and not by its shareholders. The claimant says that Radne's loss of the value of the 460 shares is actually his loss because Radne held its shares of 460 in trust for the Radne shareholders. There was, however, no evidence at all that this was so, or that Radne's shareholders were anything other than simply shareholders in a corporation that owned an asset which was then lost to the

corporation. If the respondents did steal or cheat Radne out of its shares in 460, that loss befell Radne and is Radne's to recover. In short, the claimant's case did not include evidence that he had standing to pursue a claim for Radne's loss. In any event, there was no evidence that 460 held its interest in trust for any entity other than Radne and, more importantly, no evidence suggested that 460 held its interest in the Kings Square joint venture in trust for Radne's shareholders as opposed to Radne alone. Conclusion on Mareva Injunction [35] In my view, the evidence that the claimant has put forward in this application falls short of establishing that he has a "strong prima facie or a good arguable case on its merits". It is an arguable case, certainly, but the evidence supporting it is neither strong nor particularly good. [36] I find that the claimant has not satisfied the first leg of the test for a Mareva injunction. That application must be dismissed. Preservation Order The Test [37] A preservation order pursuant to Rule 10-1(2) has a much narrower scope than a Mareva injunction. Whereas a Mareva injunction can, potentially, tie up all of a party's assets so as to make them available for execution should judgment be granted, a Rule 10-1(2) preservation order is aimed at maintaining the status quo of a specific fund that is in dispute in a proceeding. The preservation

order is, therefore, aimed at tying up the very subject matter of the litigation. [38] A preservation order is a species of injunction. As such, the applicant must satisfy the usual tests for the making of an injunctive order and a couple of others besides. The applicant must show: 1. that there is a serious question to be tried; and, 2. that the balance of convenience favours granting the order. The additional tests for a preservation order arise out of the targeted nature of the injunction: 3. the applicant must show on the evidence that he has a proprietary interest in the very property with respect to which the injunction is sought; and, 4. there is some evidence to render reasonable the applicant's belief that that same property is threatened with disposition or transfer outside the jurisdiction. Discussion of Preservation Order [39] The "serious question to be tried" test has been held to have a relatively low threshold for success. The court need not dwell too long on the evidence, nor should measure the application by the likelihood of the applicant's eventual success at trial: RJR‑McDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311. [40] I have already discussed what I consider to be the frailties of the claimant's case. Despite those problems I cannot say, however, that the claimant is doomed to failure. There is a serious question to be tried and a

serious amount of money is at stake. It may be that the claimant and his brother Ashak will prove to be credible witnesses and their evidence may eventually carry the day for the claimant. To find that there is no serious question to be tried because I have doubts about the likelihood of the claimant obtaining judgment would be to err against the instructions laid down by the Supreme Court of Canada in RJR‑McDonald. I find, therefore, that the first leg of the test has been satisfied. [41] For the moment I will leave aside the second leg and will discuss the third leg of the test next. The respondents have correctly pointed out that the claimant's notice of civil claim does not specify the name of the corporation that they say actually controls the money in issue, vis: Handril International Inc. The respondents also correctly point out that the notice of civil claim does not specifically refer to the funds in Mr. Thompson's trust account. The pleadings do, however, assert a claim for any money in the respondents' control and derived from or arising out of the respondent's alleged misconduct. The claimant's evidence also clearly identifies the money in Mr. Thompson's trust account as money in which he has a beneficial interest. I am therefore satisfied that the claimant has advanced a claim against a specific fund and that the third leg of the test has been met. [42] The fourth

leg requires the claimant to show that there is some evidence to render reasonable the claimant's belief that the fund is threatened with disposition or transfer outside the court's jurisdiction. Tajud maintains that she has no intention of removing the funds to an offshore location or of dissipating the money. Against that assertion are the facts that Tajud controls Handril, Handril controls 126, Handril is incorporated in the B.V.I., and that, other than referring to some nebulous and unexplained accounting advice, Tajud has offered no rationale for organizing her affairs so that the money could be put under her control via an off-shore corporation. In my view, it is unlikely that Tajud would have elected to go to the trouble of incorporating an off-shore company to hold the value of the Kings Square investment were she not prepared to make use of whatever advantages the off-shore incorporation offered. I am therefore satisfied that there is enough evidence to render reasonable the claimant's belief that the fund may be removed from the court's jurisdiction if a preservation order is not made. [43] Returning, then, to the second leg of the Rule 10-1(2) test, the question is whether the balance of convenience favours granting the order. According to her evidence, Tajud requires access to the funds to meet her living expenses. Those expenses include food and shelter, and also

medical treatment for her HIV infection. The parties agreed ahead of this hearing that Tajud should receive $5,500 per month from the fund for those expenses. This Court ratified that agreement by its order of October 1, 2012. That order provided also that Tajud should receive an additional lump sum of $60,000 and that as much as another $27,000 could be paid to her dentist upon presentation of receipts for work done. The parties agreed that if a preservation order were made, those terms of the October 1, 2012 order should continue to be in effect. [44] Tajud submitted that she should be allowed to withdraw a further $200,000 to pay for her legal fees in this matter. [45] Given that the parties have agreed that Tajud's living expenses may be paid out of the fund and that she has had the benefit of additional lump sums, I cannot say that Tajud will be severely prejudiced by an order preserving the fund. I am not inclined to grant her request for a further $200,000. I have come to that conclusion for several reasons. They are: 1. Tajud did not present a detailed litigation budget, so it is difficult to assess whether or not $200,000 is a reasonable pre-estimate of her exposure to legal fees; 2. Tajud did not indicate whether she had sought legal representation on a contingency basis, which would relieve her of an obligation to pay legal fees if her defence does not succeed; 3.

There are four other respondents in this proceeding and Tajud offered no assurance that legal fees expended by her would not accrue to the benefit of the other respondents for whom there is no order for payment of money from the fund; 4. Tajud has commenced a separate tort claim against the claimant and Ashak but she has not offered an assurance that no money from the $200,000 would be used to prosecute that suit; and 5. Tajud proposed no mechanism by which her counsel's invoices could be assessed by the claimant in the event that the fund turns out to belong to him. [46] Turning next to practicalities, the fund is currently in Mr. Thompson's trust account and Mr. Thompson is in Toronto, Ontario. I can see no good reason why Mr. Thompson should be further burdened by having custody of the fund or put to the bother and expense of dealing with letters from lawyers and orders from this court, or of writing of monthly cheques to Tajud. The money should be brought to British Columbia and held locally. Were it not for the continuance of the October 1, 2012 order, I would require the money to be paid into court. However, the court is not set up to disburse a monthly stipend and it would not be fair or reasonable to task the court registry with vetting Tajud's dental bills. For that reason, the funds that are the subject of this application and currently held by Mr. Thompson shall be

transferred by him to Tajud's counsel Ms. Shergill. Ms. Shergill will hold those funds in an interest bearing trust account and shall not release those funds except as permitted by the October 1, 2012 order of this court, by written agreement of all of the parties, or upon further order of this court. Conclusion [47] For the foregoing reasons, I have concluded that the application for a Mareva injunction must be dismissed. Pursuant to Rule 10-1(2), the funds that are the subject of this application and currently held by Mr. Thompson shall be transferred by Mr. Thompson to Ms. Shergill. Ms. Shergill will hold those funds in an interest bearing trust account and shall not release those funds except as permitted by the October 1, 2012 order of this court, by written agreement of all of the parties, or upon further order of this court. [48] The claimant has been successful in his effort to secure the funds pending resolution of his claim. He shall have his costs in the cause. "P.J. Rogers J." The Honourable Mr. Justice Rogers