Khimji v Khimji, 2022 ABKB 829

Court of King’s Bench of Alberta Citation: Khimji v Khimji, 2022 ABKB 829 Date: 20221208 Docket: 2001 13396 Registry: Calgary Between: Amin Khimji, Roshan Khimji, Al-Karim Khimji and Hussain A. Khimji Applicants - and - Moyez Khimji, Hussain M. Khimji, Alykhan Khimji, Silver Shamrock Investments Ltd, CRC Inns Inc, 264256 Alberta Ltd, Lodginvest Corporation, 978556 Alberta Ltd and Shirin Hospitality Inc. Respondents _______________________________________________________ Reasons for Judgment of the Honourable Justice D.B. Nixon _______________________________________________________ I. Introduction [ 1 ] The Applicants seek the appointment of an inspector under

Part 18 of the Business Corporations Act , RSA 2000 c. B-9 (the “ ABCA ”). As part of this application, the Applicants also seek an investigation of Silver Shamrock Investments Ltd, CRC Inns Inc (“ CRC ”), 264256 Alberta Ltd, Lodginvest Corporation, 978556 Alberta Ltd (“ 978Co ”), and Shirin Hospitality Inc (collectively the “ Shirin Group of Companies ” or the “ Respondent Corporations ”) and any affiliated entities (collectively, the “ Investigation ”).

II. Issues [ 2 ] The issues are as follows: a. Have the Applicants satisfied the bipartite test for the appointment of an inspector to conduct the investigation? b. If the Applicants satisfied the bipartite test for the appointment of an inspector, should Sara Jimenez be appointed as the inspector? III. Facts A. Background [ 3 ] Amin Khimji (“ Amin ”) and Moyez Khimji (“ Moyez ”) are brothers. They went into business together over 40 years ago. [ 4 ] At the outset, Amin was the owner of a single small hotel in Calgary.

He brought Moyez into the business as a partner. [ 5 ] Amin and Moyez expanded their businesses significantly over the decades. They currently operate businesses in Edmonton and Calgary. Their collective asset portfolio includes 10 hotels, an office condominium, and three parcels of land tagged for future development and expansion. [ 6 ] Regrettably, the relationship between Amin and Moyez deteriorated over the last decade. Between 2010 and 2014, Amin alleges that Moyez and his eldest son, Hussain M. Khimji (“ Hussain M. ”), became increasingly secretive.

Amin and his eldest son, Al- Karim Khimji (“ Al-Karim ”) allege that Moyez and Hussain M. kept them out of meetings, corporate governance matters, and operational decisions. [ 7 ] The Applicants allege that the relationships have been irreparably damaged by the oppressive conduct of the Respondents. [ 8 ] In an effort to reach a fair resolution, the Applicants seek to divide the assets, allowing the two sides to go their separate ways. Amin and Al-Karim allege that they have sought the assistance of numerous individuals, including independent accountants, mediators, and community and faith leaders.

The Applicants allege that the Respondents have refused to cooperate in this initiative. [ 9 ] Concerning the records that have been turned over, the Applicants allege that the documents reveal financial misconduct. The Respondents have not offered any explanation concerning this alleged conduct. The Applicants further alleged that the Respondents have refused to provide financial information regarding the various businesses. B. Procedural History [ 10 ] On November 5, 2020, the Applicants filed a Statement of Claim in this Court (the “ November 2020 SOC ”).

The Applicants alleged that the Respondents have behaved in a hostile and oppressive manner by, inter alia : (

a) unilaterally imposing financial and operational decisions; (

b) refusing to provide corporate information to the Applicants; and (

c) carrying out unexplained financial transactions and improperly governing the corporation. [ 11 ] On November 5, 2020, the Applicants also filed an application to appoint an inspector under

Part 18 of the ABCA (the “ Inspector Application ”). They want an inspector to conduct an investigation of the Shirin Group Companies and any affiliated entities. The Inspector Application was subsequently adjourned sine die as the Applicants further attempted to obtain disclosure of certain financial records by consent. [ 12 ] On May 7, 2021, the Applicants triggered an application to compel the disclosure of certain financial records for the Shirin Group Companies. On June 29, 2021, the parties resolved the application to compel disclosure by Consent Order (the “ Disclosure Consent Order ”).

Master Farrington (as he then was) ordered the Respondents to turn over the financial documents requested. [ 13 ] Notwithstanding the Disclosure Consent Order, the Applicants allege that they have not been provided accurate accounting records. In an effort to address this issue, the Applicants retained SG LLP Chartered Professional Accountants (“ SG LLP ”) to examine the records of the Shirin Group of Companies. [ 14 ] SG LLP made a request to Salim Allibhai for financial documentation.

He is an independent accountant who provided services to the Shirin Group of Companies and other clients. [ 15 ] On March 7, 2022, Salim Allibhai sent an email to SG LLP requesting a list of the information required. In that March 2022

communication, Salim Allibhai indicated that he would obtain the directors authorization to release the information. [ 16 ] On July 7, 2022, Sara Jimenez, a Chartered Professional Accountant for SG LLP, indicated that the records turned over by the Respondents in response to the Disclosure Consent Order could not be relied upon as accurate.

In particular, she stated that it was impossible to rely on the records provided to accurately value the Shirin Group of Companies. [ 17 ] SG LLP further asserted that the financial statements for the Shirin Group Companies likely did not accurately reflect the financial position of the companies. It asserted that there are issues with the shareholder loan accounts and that financial record keeping has not been accurate or appropriate. [ 18 ] The Applicants again triggered the Inspector Application on July 26, 2022 to resume their request for the appointment of an inspector.

They indicated that they were striving to put this matter at an end quickly and efficiently. [ 19 ] Bennett Jones LLP represents the Applicants. On August 11, 2022, Bennett Jones LLP acknowledged the information requested by SG LLP. At that time, Bennett Jones LLP advised Salim Allibhai that it had applied to the Court for the appointment of an inspector.

In that August 2022 communication, Bennett Jones LLP further commented that if the Inspector Application was successful, SG LLP should be able to gather the requested information through that judicial mechanism. [ 20 ] The Respondents assert that any financial documents requested by the Applicants or SG LLP have been made available. The Applicants assert that is not the case. IV. Analysis [ 21 ] The Applicants allege that they have no choice but to divide and sell the family business. They assert that the only way a division and sale is possible is if there is reliable financial information available.

The Applicants further alleged that reliable financial statements have not been prepared for years. [ 22 ] As mentioned above, the Inspector Application seeks to appoint an outside accountant as a court-appointed inspector. The purpose of this appointment is to gather financial information concerning each of the corporations so that the family business can be fairly and equitably divided or sold. A. The Law [ 23 ] Pursuant to

Part 18 of the ABCA , a security holder may apply to the Court for an order directing an investigation. Among the powers available to the Court under

Part 18 is the ability to appoint an inspector: see sections 231 and 232 of the ABCA . [ 24 ] While the Court has the power to appoint an inspector, that power must only be employed in cases that warrant the exercise of that authority: Western Canadian Oil Management Services Inc v Arlyn Enterprises Ltd , 2008 ABQB 521 at para 101 .

The judicial guidance concerning the appointment of an inspector indicates that it is a drastic and extraordinary remedy. [ 25 ] The general rule is that courts should not interfere in the affairs of a private corporation by ordering an investigation except in the clearest of cases: Western Canadian at para 101. [ 26 ] The purpose an order appointing an inspector is to allow an applicant access to further information so that it may decide if there is enough information to commence legal proceedings: Archmetal Industries Corp v Jag Flocomponents (North America) Inc , 2004 ABQB 662 at para 13 .

While the legislative framework in the ABCA concerning the appointment of an inspector is broad, those words have been narrowed by the jurisprudence. [ 27 ] Where oppression has been alleged, the following test applies in determining whether an inspector ought to be appointed under

Part 18 of the ABCA : see Kowch v Gibraltar Mortgage Ltd , 2010 ABQB 535 at para 30 . a. There must be an appearance of behaviour that is oppressive, unfairly prejudicial or unfairly disregarding of the applicant’s interests for an investigation to be ordered under

Part 18 of the ABCA . b. Even if there is an appearance of oppression, unfair or prejudicial behaviour, the appointment of an inspector is an extraordinary, discretionary remedy. The appointment of an inspector should be granted only in the clearest of cases. The factors to be considered in deciding whether to grant the order for an inspector include: (

i) do the Applicants still need access to important information; (ii) are there better routes, such as litigation, which can be used to acquire that information; and (iii) is an investigation prohibitively expensive, or will it give a tactical advantage to the applicant because of the financial burden it places on the respondent? B. Application of the Law to the Facts [ 28 ] On a technical front, the Applicants have not articulated the issues necessary for the determination of the current Inspector Application.

As a result, I will frame the issues as I think appropriate. [ 29 ] For the Applicants to be successful, they must meet a bipartite test. First, have the Applicants established sufficient grounds to order an investigation? Second, should the court refuse to exercise its discretion in favour of the Applicants. I examine these tests below. 1. Have the Applicants established sufficient grounds to order an investigation?

[30] At the first stage of the test, the Applicants must establish sufficient grounds to order an investigation to determine whetherthe affairs of the Respondent Corporations have been carried on or conducted in a manner that is oppressive or unfairly prejudicial or thatunfairly disregards the interests of the Plaintiffs: Western Canadian at para 72, citing Saunders v EcoTemp International Inc, 2007ABQB 136 at para 32. [31] The primary purpose of an investigation is to bring to light facts which otherwise may be inaccessible to shareholders andother security holders: Re First Investors Corp, (ABQB) at para 38.

In this case, the Respondents have satisfied me,on a balance of probabilities, that the Applicants have been provided with access to the information sought. While the Applicants arefrustrated with the promptness of the information supplied and its quality, that is not sufficient to warrant the appointment of an inspectoror an investigation. [32] There are two factors which satisfy me that the Applicants have not exhausted all reasonable avenues to obtain theinformation sought. First, the Applicants could have taken steps to enforce the Disclosure Consent Order.

Based on my review ofmatters, the Applicants have neither alleged a breach of the Disclosure Consent Order nor have they attempted to avail themselves of theterms of the Disclosure Consent Order. Instead, they have brought this Inspector Application, sidestepping both the terms of theDisclosure Consent Order and the usual discovery process in the Action. Second as noted above, on March 7, 2022, Salim Allibhai sentan email to SG LLP requesting a list of the information required.

Instead of addressing the request, on August 11, 2022, counsel for theApplicants acknowledged the list of information requested by SG LLP, but then advised Salim Allibhai that the Applicants had applied tothe Court for the appointment of an inspector. [33] In my view, it was reasonable for the Salim Allibhai to ask for the list of the information required. Insofar as he is an externalaccountant for the Shirin Group of Companies, it was prudent for him to ask and to seek preapproval of the cost for him to collect andprovide the information sought.

In the circumstances of this case, I am of the view that the Applicants should have provided that list toassist the process. Instead, the Applicants triggered the Inspector Application on July 26, 2022 to resume their request for theappointment of an inspector. [34] Insofar as the Applicants’ allegations of oppression are concerned, they must demonstrate an “outward show” of oppression:Western Canadian at para 76, citing Consolidated Enfield Corp v Blair, (ONSC) at para 71 (Ont Ct J (Gen Div)).

Inthis regard, the Applicants’ primary contentions are that they “now have functionally no say over any aspect of the [RespondentCorporations’] …business” and that the Respondents have “repeatedly denied” the Applicants access to financial information about theRespondent Corporations.

However, when these allegations are viewed in light of the evidence before me, I am not convinced, on abalance of probabilities, that conduct equates to a level of oppression or behaviour that is unfairly prejudicial or unfairly disregards theinterests of the Applicants. [35] I make this determination because the evidence indicates that the Applicants have ongoing authority vis-à-vis the businessesof the Respondent Corporations. Indeed, Amin confirmed during his cross-examination that: (

i) he had an ongoing responsibility forsome of the properties which 978Co operated; (ii) he had authorized various purchases for renovations and property improvements forcertain properties operated by the Respondent Corporations; (iii) he had drawn funds for personal expenses from at least some of theRespondent Corporations’ bank accounts; and (iv) there was a blanket understanding that he was entitled to draw funds from CRC’sCIBC bank account for his “personal use”. 2. Should the court refuse to exercise its discretion in favour of the Applicants? [36] In the present case, legal proceedings have already begun.

Further, these legal proceedings will address many of the issuesthat the inspector would purport to examine. [37] I acknowledge the deficiencies the Applicants are confronted with in this case. However, those deficiencies, and theassociated frustrations, are not unusual. Whatever deficiencies remain with respect to the knowledge between these parties, that can bedealt with during the course of the litigation process by way of discoveries or other remedies: Archmetal at para 14.

As a formercolleague stated over two decades ago: There would be no advantage, on the facts of this application, to appoint an investigator to look into issues that will actually be tried anddetermined in this court. The trial Judge will determine these issues based on the evidence that will be produced in this trial: Storey v420708 Alberta Ltd, 2000 ABQB 848 at paragraph 25. [38] The purpose of appointing inspectors is not to determine fraud, but rather its purpose is to determine facts: Archmetal at para15.

An inspector does not decide questions of law or how the law is to be applied in the particular factual situation: Phoenix ResourcesInc v 617039 Saskatchewan Ltd, (SKQB) at para 16. [39] This litigation is obviously important to the Applicants, and the allegations made by the Applicants against the Respondentsare serious. However, this is not a case which is particularly unusual or complex. [40] The appointment of an inspector should not be used as a tool in a civil action.

The Applicants can retain accounting and otherfinancial experts to assist, but it should not expect an inspector to perform that function at the expense of the Respondents. [41] I reiterate that the appointment of an inspector is a drastic and extraordinary remedy. The court should not intervene in theaffairs of private corporations through the appointment of an Inspector except in the clearest of cases: Archmetal at para 17. [42] In

summary, the jurisprudence is clear on the following six points. a. The appointment of an inspector is a “drastic and extraordinary remedy”. The courts should not interfere in the affairs of privatecorporations by ordering an investigation “except in the clearest of cases”: Western Canadian at para 101. While I can understand thefrustration of the Applicants concerning the information they seek, I am not convinced that this is a clear circumstance where the

extraordinary remedy of appointing an inspector is warranted. b. The appointment of an inspector is improper “when the complainant already possesses enough information to determine whether to take legal proceedings”: Western Canadian at para 114. In this case, the Applicants had already decided that they possessed the necessary information to initiate a lawsuit. Indeed, they have already filed the November 2020 SOC. c. The purpose of appointing an inspector is to allow an applicant access to further information in order to decide if it has enough information to commence proceedings: Western Canadian at para 114.

In this case, the Applicant is beyond that point. d. Even if the Applicants still require some information, an investigation may not be the best route to acquire that information because a court-ordered investigation under the ABCA is an expensive and extraordinary remedy. Litigation is the main alternative route identified in the case-law to acquire the required information: Western Canadian at para 38. That is the method which should be applied in this case. e.

The application to appoint an inspector may be refused if the court finds no additional facts need to be brought out, and that the issues raised in the case are better disposed of in litigation between the parties, where rights can be determined, rather than in an investigation which cannot determine rights: Archmetal at para 12. In my view, that is the circumstance in this case. f. The appointment of an inspector should not be used as a tool in a civil action.

The Applicant can retain accounting and other financial experts to assist, but it should not expect an inspector to perform that function at the expense of the Respondents: Archmetal at para 17. In my view, that practical guideline applies to this case. [ 43 ] Based on my review of the evidence and an analysis of the law, I find that the appointment of an inspector is not warranted in this case. I make this determination because the appointment of an inspector is an extraordinary remedy which should only be used in the clearest of cases.

In this circumstance the Applicants have commenced legal action, and they will be able to obtain information available through the normal litigation channels. To allow the Applicants to obtain information through an inspector at the expense of the Respondents is not warranted: Archmetal at para 18. V.

Conclusions [ 44 ] Based on the evidence before me and my analysis of the law, the Applicants have not satisfied the bipartite test required for the appointment of an inspector to conduct an investigation. [ 45 ] Given the above determination, I do not need to address the question as to whether Sara Jimenez should be appointed as an inspector under

Part 18 of the ABCA . Heard on the 24 th day of November, 2022. Dated at the City of Calgary, Alberta this 8 th day of December, 2022. D.B. Nixon J.C.Q.B.A. Appearances: Justin Duguay for the Applicants

Jeffrey Thom, KC and Jeff Wreschner for the Respondent Moyez Khimji Joshua Sadovnick and Sunny Mann for the Respondent Hussain M. Khimji