2024 QCCS 240, 2024 QCCS 240

Source: Superior Court of Québec

Date: 2024-01-18

Jurisdiction: Quebec

Citation: 2024 QCCS 240

Opinion

Shah c. Shah 2024 QCCS 240 SUPERIOR COURT CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL N° : 500-11-062902-230 DATE : JANUARY 18, 2024 BY THE HONOURABLE DAVID R. COLLIER, J.S.C. NASIB SHAH and YOUSAF SHAH Plaintiffs v. IBRAR SHAH and MOHSIN SHAH Defendants and LES IMMEUBLES EURO-BEAUTÉ INC. ENTREPRISE SHAH INC PARFUMERIE ÉTERNELLE INC. 6392881 CANADA INC. 6993168 CANADA INC. GROUPE BEAUTÉBAR INC.

Third parties TRANSCRIPT OF REASONS FOR JUDGMENT RENDERED ORALLY ON JANUARY 18, 2024 [ 1 ] The plaintiffs and defendants are four brothers who have carried on business together for many years through the third-party corporations. One of these corporations, Les Immeubles Euro-Beauté Inc. (“Immeubles”), owns eight buildings in Montreal and Laval that are leased out to tenants. Ibrar, Yousaf and Mohsin are listed in the corporate registry as the shareholders and directors of Immeubles.

Nasib’s name does not appear in the registry. [ 2 ] In October 2023 Yousaf and Nasib instituted legal action alleging oppression by the defendants Ibrar and Mohsin and seeking a judicial declaration that the four brothers are all equal shareholders of the third-party corporations.

In their application Yousaf and Nasib request that the corporations be liquidated once their shareholding has been recognized. [ 3 ] Upon instituting their oppression recourse in October, Yousaf and Nasib sought a broad safeguard order dealing with the governance of the third-party corporations, including measures dealing with the directors’ banking authority, the keeping of corporate and accounting records, the calling of shareholders and directors meetings, the appointment of auditors, etc. [ 4 ] In a judgment dated October 23, 2023, Mr Justice Michel Pinsonnault rejected the plaintiffs’ safeguard request, essentially concluding that the relief sought was not intended to preserve the status quo and protect the plaintiffs’ rights, but rather to grant the plaintiffs greater management powers over the third-party corporations.

Justice Pinsonnault was of the view that the plaintiffs’ application did not meet the applicable test for a safeguard order (i.e., an apparent right; serious or irreparable harm; balance of convenience and urgency). [ 5 ] This is the plaintiffs’ second safeguard request in three months. Again, they seek numerous orders from the Court which it useful to reproduce at length: [1] GRANT Plaintiff’s application for safeguard orders; [2] REDUCE the time for service and presentation of this application so that it may be validly presented on January 15, 2024;

[3] TO REMAIN in effect until judgment on the merits of the principal claim; [4] DISPENSE the Applicant from providing security; [5] ORDER provisional execution of the judgment notwithstanding appeal; [6] SUSPEND the proposed January 15, 2024 meeting of shareholders for Les Immeubles Euro-Beauté inc. until ten days following the communication of the information requested by Yousaf Shah, specifically: • Undertaking 1 - to provide the e-mail which was sent to Yousaf Shah with regards to the financial statements showing a loss prior to the BOD; • Undertaking 3 - the breakdown of liabilities payable to the directors / shareholders including all backup documents; • Undertaking 4 - to provide answers in writing to the questions asked by Mr.

Yousaf Shah (namely if the signed Financial Statements were ever given to Mr. Perry Radin. • A copy of the leases for the immovable located at 4429 – 4437, boul. Saint-Martin West; • The name of the contractor executing the work at the building located at 4429 – 4437, boul. Saint-Martin West as well as a copy of the contract covering said work; • A copy of the invoices for the work being performed at 4429 – 4437, boul.

Saint-Martin Ouest as well as an explanation as to the source of the funds used to pay said invoices; • A copy of the rent roll for all the immovables owned by Les immeubles Euro-Beauté inc. for the present and for the months to come. • The banking transactions which Defendants plan on discussing; [7] AUTHORIZE the Applicant to serve the judgment to be rendered on the application outside normal service hours; [8] ORDER that all tenants of Les Immeubles Euro-Beauté Inc. must be advised in writing by Les Immeubles Euro-Beauté Inc. that their rent is payable to their landlord, Les Immeubles Euro-Beauté Inc. and to direct them to pay at the existing account at the TD Bank; [9] ORDER that Yousaf Shah and the Defendants must consult with each other directly or through their respective attorneys and reach a consensus before communicating with any of the tenants of Les Immeubles Euro-Beauté Inc.; [10] ORDER Defendants to deposit all rents payable to Les Immeubles Euro-Beauté Inc. to the latter’s existing bank account at the TD Bank; [11] ORDER that the signing instructions for cheques and other types of withdrawals and transfers from Les Immeubles Euro- Beauté Inc.’s account at the TD Bank be modified to require the signature or authorisation of two people; either one of the Defendants and Yousaf Shah; [12] ORDER Defendants to stop using Les Immeubles Euro-Beauté Inc.’s account at the Royal Bank of Canada and to transfer all sums therein to the TD Bank account; [13] ORDER Defendants and Les Immeubles Euro-Beauté Inc. to provide Yousaf Shah a full rendering of account for all sums deposited into Les Immeubles Euro-Beauté Inc.’s account at the RBC; [14] ORDER Defendants and Les Immeubles Euro-Beauté Inc. to provide Yousaf Shah with: • Undertaking 1 - to provide the e-mail which was sent to Yousaf Shah with regards to the financial statements showing a loss prior to the BOD; • Undertaking 3 - the breakdown of liabilities payable to the directors / shareholders including all backup documents; • Undertaking 4 - to provide answers in writing to the questions asked by Mr.

agreement between the parties; [16] ORDER Defendants and Les Immeubles Euro-Beauté inc. to communicate to Yousaf Shah, within five days of a request, all information required to perform his duties as director of the corporation. [ 6 ] The plaintiffs’ application for a safeguard order is supported by the affidavit of Yousaf Shah dated January 14, 2024. Yousaf alleges that he has been requesting information from the defendants concerning Immeubles’ rental affairs since at least November 2023, and that he has not yet received all the information requested.

He also alleges that in December the defendants opened a new bank account for Immeubles at RBC, and that they have deposited the tenants’ rental payments into that account in breach of Immeubles’ agreement with TD Bank that all rental income will be deposited into a TD Bank account.

Yousaf alleges that Immeubles’ tenants were directed by the defendants to pay their rent to an account at RBC held by 6993168 Canada Inc., another third-party corporation, suggesting the defendants are attempting to divert funds belonging to Immeubles. [ 7 ] In fact, the defendants admit their error in designating 6993168 Canada Inc.’s account at RBC as the one into which tenants should pay their rent, and they have confirmed to tenants that payments should be made to Immeubles’ RBC bank account. [ 8 ] Immeubles’ three directors, Yousaf, Ibrar and Mohsin, held a meeting on December 29, 2023.

At that meeting, Yousaf repeated his request to see corporate and accounting information. Some of that information was provided to him by the defendants, or by Immeubles, in early January 2024. [ 9 ] At the December meeting, the parties agreed to hold a shareholders’ meeting in January. On Friday, January 12, Yousaf received a notice of a shareholders’ meeting to be held on Monday, January 15.

One of the items on the agenda is: “Discussion of the composition of the Board and removal of Mr Yousaf Shah as Director”. [ 10 ] Yousaf sent his safeguard motion to the defendants and Immeubles by email on Sunday evening, January 14, presentable on Monday morning, January 15. On Monday, the parties agreed to postpone the shareholders’ meeting to Friday, January 19 and to debate the safeguard motion this week. [ 11 ] In their application the plaintiffs essentially ask that

i) all rents be paid to TD Bank, ii) all banking transactions be subject to Yousaf’s approval, iii) Yousaf remain a director of Immeubles and iv) Yousaf receive all corporate and accounting information he requires to fulfill his duties as a director. [ 12 ] The defendants do not object to providing the information requested by Yousaf. They recognize that Yousaf is entitled as a director to receive such information. [ 13 ] However, the defendants object to the other relief requested. In this regard, Ibrar Shah filed an affidavit dated January 16, 2024, in response to Yousaf’s January 14 affidavit.

Ibrar alleges that Immeubles’ RBC bank account was opened in December when the defendants discovered that Yousaf had made several withdrawals from Immeubles’ TD Bank account, and had countermanded the defendants’ instructions to the bank to freeze the account to prevent further withdrawals.

The defendants have asked Yousaf to explain his withdrawals, but he has yet to do so. [ 14 ] The defendants also allege that Yousaf asked one of Immeubles’ tenants to pay rent directly to him through an Interac transfer. [ 15 ] In a reply affidavit dated January 16, 2024, Yousaf argues there is nothing out of the ordinary in withdrawing funds from Immeubles’ TD Bank account, in transferring monies from one account to another, or in borrowing or lending money to the third-party corporations “as circumstances have required.” He adds that is typical to receive rental payments personally, which are then “usually transferred to the corporate account”. [ 16 ] Yousaf appears to acknowledge that Immeubles’ financial affairs have been loosely managed over the years.

Indeed, according to Immeubles’ financial statements, the company owes $665,000 to its directors, however the company accountant cannot say how the debt arose or how much is owed to whom. [ 17 ] Yousaf does not have to meet the test of a safeguard order to receive the corporate and accounting information he is entitled to receive by law as a director of Immeubles [1] . However, the debate does not lie here.

Yousaf’s attorneys admit that the real reason for bringing the safeguard order is to prevent the removal of Yousaf as a director of Immeubles. [ 18 ] The reason behind the safeguard order, according to Yousaf’s attorneys, is to maintain the status quo pending the litigation – in other words to maintain Yousaf’s status as a director of Immeubles and allow him to participate in the management of the company and forestall any possible misappropriation of the company’s revenues pending the litigation. [ 19 ] Finally, Yousaf alleges that there is urgency in requiring all rents to be paid into the TD Bank account in compliance with Immeubles’ mortgage loan agreement with TD Bank (exhibit R-18). [ 20 ] Subject to what the Court has said above respecting Yousaf’s entitlement to receive information as a director of Immeubles, each of the plaintiffs’ safeguard requests must be examined according to the criteria of

i) appearance of right, ii) serious or irreparable harm, iii) balance of inconvenience and iv) urgency. [ 21 ] Given what follows, there is no need to comment on paragraphs [1] to [5] or [7] of the plaintiffs’ prayer for relief. [ 22 ] As regards paragraph [6], the plaintiffs have not explained to the Court why the shareholders’ meeting must be postponed until after Yousaf has received the information requested in that paragraph and in paragraph [14]. There is no clear link between the information requested (some of which has already been transmitted to Yousaf) and the issues to be discussed at the meeting.

More particularly, Yousaf has received Immeubles’ financial statements (agenda item 6) and the agenda item 7 (review of banking transactions) is a review of Yousaf’s recent transactions, not those of the other directors. Consequently, it has not been demonstrated that

Yousaf will suffer a serious or irreparable harm if the shareholders’ meeting goes ahead before all the information he has requested is delivered. The Court is of the view that Yousaf’s information request is a pretext for postponing the meeting. Accordingly, the Court will not order a postponement of the meeting set for January 19. [ 23 ] As regards the relief requested at paragraphs [8], [10] and [12], the Court believes there are grounds to issue a safeguard order.

The defendants have offered no answer to the plaintiffs’ assertion that Immeubles is in breach of its mortgage loan agreement with TD Bank if rental revenues are not paid into the TD Bank account. As a director and shareholder of Immeubles, Yousaf has an apparent right to require Immeubles’ directors to comply with this obligation. A default under the mortgage loan agreement could result in serious and irreparable harm to the company and its shareholders. It is urgent that the situation be corrected.

The directors and shareholders of Immeubles can certainly take measures to ensure that amounts deposited into the TD Bank account are not improperly transferred out of the account. [ 24 ] No other safeguard relief is appropriate. [ 25 ] Paragraph [9] would require a consensus between Yousaf and the defendants before anyone communicates with Immeubles’ tenants. This is a vague and unenforceable prayer for relief. [ 26 ] Paragraph [11] requests an order imposing joint banking authority between Yousaf and the defendants. This is the same relief that was refused by Justice Pinsonnault in October 2023.

There are no new facts which would give the plaintiffs an apparent right to this relief. [ 27 ] Paragraph [13] requests a rendering of account by the defendants. This is not a subject matter for a safeguard order. The plaintiffs have no apparent right to an accounting, there is no evidence of a serious or irreparable harm to the plaintiffs if no accounting is made, and there is no urgency. [ 28 ] In paragraph [15] Yousaf requests an order that he remain a director of Immeubles until final judgment. Under corporate law principles, directors are named by the shareholders of a corporation.

Yousaf has no right to remain a director of Immeubles if the majority of the company’s shareholders decide to replace him. He has even less right if he has not carried out his duties as a director with prudence and diligence, in the best interest of the corporation, without regard to his private interest.

Although Yousaf alleges oppression in the principal action, and points to numerous disagreements between the brothers respecting the running of their companies, including Immeubles, there are no specific allegations that he has been oppressed as a director of Immeubles and should be entitled to remain in that position. [ 29 ] The present safeguard application does not allege oppressive acts by the defendants, other than to allege they have opened an account at RBC and directed rent payments to that account, an action the defendants have explained in Ibrar’s affidavit. [ 30 ] Yousaf is not entitled to remain a director of Immeubles simply because he has instituted legal proceedings against the other directors and wishes to protect his private interest as a litigant during the proceedings.

The Court will not grant this relief. [ 31 ] Finally, with regards to paragraphs [14] and [16], there is no reason to issue a safeguard order in the absence of evidence that the defendants are unjustifiably refusing to provide information to Yousaf that he requires to fulfill his duties as a director.

FOR THESE REASONS, THE COURT : [ 32 ] GRANTS in part the request for a safeguard order; [ 33 ] RENDERS a safeguard order to remain in effect until July 5, 2024; [ 34 ] ORDERS the defendants to maintain at all times throughout the term of the mortgage loan agreement with TD Bank (exhibit R-18), a bank account at TD Bank into which all the income generated from Immeubles’ properties will be deposited; [ 35 ] ORDERS the defendants and Immeubles to direct Immeubles’ tenants to pay their rent to Immeubles’ bank account held at TD Bank; [ 36 ] THE WHOLE , without costs, given the mitigated result. __________________________________ DAVID R.

COLLIER, J.S.C. Mtre Steve Whitter Mtre Costa Saisanas Saisanas Avocats Counsel for plaintiffs Mtre Felipe Morales Semperlex Avocats Counsel for defendants

Mtre Sébastien Servant-Charbonneau NSC Legal inc. Counsel for Enterprises Shah inc, 6993168 Canada Inc and Les Immeubles Euro-Beauté inc. Hearing date : January 17, 2024

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