Logithasan v Chawla, 2012 ABQB 368

Court of Queen ’ s Bench of Alberta Citation: Logithasan v Chawla, 2012 ABQB 368 Date: 20120604 Docket: 1203 05054 Registry: Edmonton Between: Chitra Logithasan Respondent/Plaintiff - and - Gurcharan Chawla Applicant/Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Donald Lee _______________________________________________________ [ 1 ] The Applicant Defendant Gurcharan Chawla applies to set aside the Order of the Master granted on March 30, 2012.

The Order reads as follows: – UPON THE EX-PARTE APPLICATION of the PLAINTIFF, AND UPON having heard representations of the PLAINTIFF; AND UPON LOGITHASAN, filed; having read the Affidavit of the Plaintiff, CHITRA Director and Shareholder & JAS VEE CORPORATION, filed;

AND UPON having read the Affidavit of the Plaintiffs General Manager of the FRANCHISE operated by JAS VEE CORPORATION, VISHAL NAYAR filed; AND UPON it appearing appropriate to grant the within Order without notice to any other persons; AND UPON the Plaintiff establishing to the Courts satisfaction that: 1. The Plaintiff has filed an action against the Defendant GURCHARAN CHAWLA (hereinafter ‘ CHAWLA); 2. The Defendant CHAWLA has failed to provide to the Plaintiff LOGITHASAN any accounting of FRANCHISE cash flows or current financial status despite repeated requests; 3.

The Defendant CHAWLA has failed to pay the legitimate debts of the FRANCHISE as the debts become due; 4. The Defendant CHAWLA has fraudulently prepared fictitious creditor invoices and fraudulently prepared, endorsed and cashed third party cheques for his own personal gain; 5. The Defendant CHAWLA has failed to operate the FRANCHISE in accordance with the Royal Bank of Canada ’ s loan covenants; 6. The Defendant CHAWLA has abandoned the FRANCHISE without notice by leaving Canada for India for an undetermined period of time; 7.

As a result of the combined failures, misrepresentations, omissions, intimidations, and other actions of the Defendant CHAWLA, the business and affairs of the FRANCHISE have been carried on and conducted in a manner that is oppressive, unfairly prejudicial to and unfairly disregarded the interests of the Plaintiff LOGITHASAN, the FRANCHISE, its security holders, and its creditors. IT IS HEREBY ORDERED THAT: 1. The Royal Bank of Canada remove the Defendant CHAWLA as an authorized signatory to JAS VEE CORPORATION ’ s bank account numbered ‘ _______ ’ located at the MaGrath Heights Branch, 14155- 23rd ave N.W.

Edmonton AB T6R 0G4 and CHITRA LOGITHISAN is authorized to be the sole signatory of this account. 2. The Defendant CHAWLA and his accountant, shall provide immediate and unimpeded access to all books, records and documents at or of JAS VEE CORPORATION operating as DAIRY QUEEN (hereinafter the ‘ FRANCHISE ’ ) and to produce to the Court or the Plaintiff LOGITHASAN financial statements in the form required by

section 155 or an accounting in any other form the Court may determine. 3. The Defendant CHAWLA shall be restrained from entering upon the FRANCHISE premises and from contacting any of the FRANCHISE employees. 4. The Defendant CHAWLA, or any other interested party is at liberty to apply to set aside or vary the terms of this Order on two clear days notice to Counsel for the Plaintiff.

5. This Order may be approved by facsimile and such approval shall be valid for all purposes. 6. Costs of this application shall be costs in the cause. 7. The Plaintiff undertakes to pay any damages arising from this Order if so ordered by this court. [ 2 ] This dispute involves the JAS VEE Corporation which the Plaintiff and the Defendant are the sole directors and 50-50 shareholders. The Corporation owns the new Dairy Queen Franchise on Whyte Avenue and 104 Street in the City of Edmonton.

The Corporation is also relatively new having been incorporated on July 19, 2010. [ 3 ] Notwithstanding this however, soon after the incorporation the parties descended into a series of disputes involving the management operation, conduct, and direction of the business.

Allegations of fraud, theft, mismanagement, criminal conduct, and arguments with respect to valuation/contribution of the previous business operated in the same premises Death by Chocolate have been made by each party against the other. [ 4 ] Beginning in approximately December 2011 there was communication between counsel for the parties with respect to negotiation and resolution of the ongoing disputes that had arisen, including the possibility of having one party buy out the other party entirely. The Plaintiff retained Mr.

Gillespie who appears to be the third lawyer involved in this matter for the Plaintiff. [ 5 ] On March 30, 2012 a Statement of Claim was filed, and on the same day the Plaintiff applied on an ex parte basis to the Master. The Order that was granted is the Order that is currently sought to be set aside by the Defendant. [ 6 ] On April 4, 2012 then counsel for the Defendant re-attended before the Master to have the ex parte Order set aside.

The Master declined to do so on the basis that there was no filed material before him that was sufficient to overturn the ex parte Order that he had made a few days earlier. [ 7 ] Counsel for the Plaintiff submits that the application had to be made on an ex parte emergent basis before the Master on March 30, 2012 because the Defendant had left for India without notice, and the Plaintiff had to issue cheques to make the payroll and pay the other expenses including rent.

Without the ability to unilaterally sign and issue cheques, the Plaintiff argues that the business would have been subject to eviction, and the staff and creditors would not have been paid. [ 8 ] Counsel for the Defendant argues that irrespective of the emergent nature of the application on March 30, 2012 counsel for the Plaintiff should have notified then counsel for the Defendant Ms.

Wanke from Ogilvie LLP, and that the application should not have proceeded without any notice. [ 9 ] Counsel for the Defendant also submits that irrespective of the then emergent nature of the application at the end of March 2012, Affidavit evidence now exists to the effect that the rent went unpaid until May 28, 2012, almost two months later in any event. [ 10 ] Counsel for the Plaintiff argues however that as a result of the ex parte Order matters have now stabilized in the business and it is operating on a profitable, orderly manner.

Counsel points to the Affidavit of the current restaurant manager who is an independent third party employee Vishal Nayar sworn on May 30, 2012 as evidence of the very satisfactory nature of the present business operations.

Accordingly counsel for the Plaintiff submits that the status quo should remain in effect until this matter can be properly resolved through ongoing Questioning, subject only to the proviso that immediate and that regular accounting be given to the Defendant as to the detailed business operations. [ 11 ] I do note however that amongst the Defendant ’ s various Affidavits is an allegation that the restaurant manager in question Mr.

Nayar, who has had full access and control over the day to day operations of the business, allegedly is also responsible for a substantial amount of cash that went missing of over $18,000 in January 2012.

[ 12 ] The Defendant complains that neither the Plaintiff or Mr. Nayar have ever accounted to him for either the missing monies, or have ever reported to him with respect to the business operations. The Defendant submits that they have wrongfully excluded him completely from his business. [ 13 ] The Plaintiff responds by providing more Affidavits as to the very satisfactory nature of the current management from other independent persons. He argues that the Defendant is significantly better off financially with the present management in place.

Conclusion [ 14 ] The Defendant has invested over $180,000 into the Corporation, has personally guaranteed in excess of over $700,000 in loans to RBC, has personally guaranteed the lease obligations which consist of rental payments of approximately $9,000 per month, and has personally guaranteed the obligations of the Corporation as a franchise to the Franchisor.

He is entitled to participate in the business, and know what is going on, on a current basis, beyond that provided by regular reporting. [ 15 ] I conclude that it is improper that the Defendant be completely shut out of the business as a result of the ex parte Order. [ 16 ] The ex parte Order also purports to make the following findings of fact against the Defendant: – 1. The Plaintiff has filed an action against the Defendant GURCHARAN CHAWLA (hereinafter ‘ CHAWLA); 2.

The Defendant CHAWLA has failed to provide to the Plaintiff LOGITHASAN any accounting of FRANCHISE cash flows or current financial status despite repeated requests; 3. The Defendant CHAWLA has failed to pay the legitimate debts of the FRANCHISE as the debts become due; 4. The Defendant CHAWLA has fraudulently prepared fictitious creditor invoices and fraudulently prepared, endorsed and cashed third party cheques for his own personal gain; 5. The Defendant CHAWLA has failed to operate the FRANCHISE in accordance with the Royal Bank of Canada ’ s loan covenants; 6.

The Defendant CHAWLA has abandoned the FRANCHISE without notice by leaving Canada for India for an undetermined period of time; 7.

As a result of the combined failures, misrepresentations, omissions, intimidations, and other actions of the Defendant CHAWLA, the business and affairs of the FRANCHISE have been carried on and conducted in a manner that is oppressive, unfairly prejudicial to and unfairly disregarded the interests of the Plaintiff LOGITHASAN, the FRANCHISE, its security holders, and its creditors. [ 17 ] While this is likely the result of counsel for the Plaintiff incorrectly drafting the Order, the reality is that no trier of fact at this time can be in a position to make any findings of fact with respect to the numerous and serious allegations being made by both parties. [ 18 ] Furthermore the ex parte Order is in the nature of an injunction in that among other things it restrains the Defendant from various conduct, and goes so far as to list the Plaintiff ’ s Undertaking in Damages.

The Master ’ s jurisdiction does not include the ability to

grant injunctive relief of this nature. [ 19 ] The Plaintiff also should have given some notice to the Defendant ’ s then counsel, irrespective of whether or not he had heard from counsel with respect to his prior correspondence because he knew the Defendant had counsel. [ 20 ] The following Order will issue in this matter: – 1. The ex parte Order made on March 30, 2012 is set aside. 2.

The Royal Bank of Canada will return the Defendant as an authorized signatory of JAS VEE Corporation ’ s bank account immediately. [ 21 ] There will be no costs awarded this time, as costs will be determined in the cause for this application. Heard on the 31 st day of May, 2012. Dated at the City of Edmonton, Alberta this 4 th day of June, 2012. Donald Lee J.C.Q.B.A. Appearances: Robert Gillespie for the Plaintiff Jeremiah Kowalchuk Field LLP for the Defendant