Executive Summary: Key Legal and Evidentiary Issues

• Summary judgment was granted under Rule 20.04 after the court found no genuine issue requiring a trial and used its enhanced fact-finding powers to resolve conflicts in the evidence.
   
• CCCI breached the Distribution Agreement by failing to deliver ordered products within the agreed timeframe and failing to fully reimburse FD's advances.
   
• An adverse inference was drawn from CCCI's failure to produce financial statements, which allowed the court to use Babak's own lost-profit estimate as a proxy for Farid's 10% profit share.
   
• Personal liability attached to Babak because the plaintiffs pleaded, and the evidence supported, that he acted dishonestly in taking FD's funds knowing CCCI could not deliver.
   
• No legal basis existed to hold CCOCI liable, as neither agreement was made with it.
   
• Hearsay evidence undermined the defendants' $197,000 counterclaim, which was dismissed.
   

Facts of the case

FD Commerce Ltd. (FD) and its principal, Farid Delaie, sued Céline Claire Cosmetic Inc. [referred to as "Céline Claire Cosmetics Inc." at para. 1 of the reasons] (CCCI), Celine Claire ON Cosmetic Inc. (CCOCI), a company that appears to be related to CCCI, and CCCI's principal, Babak Ghaffari Majdabadi [spelled "Chaffari" in the style of cause], after a failed business relationship between two friends. In September 2022, FD entered into a Distribution Agreement under which CCCI appointed it a nonexclusive distributor of cosmetic products in certain regions. FD agreed to buy at least $30,000.00 of products in the first year.

On September 23, 2022, FD paid CCCI $30,000.00 for products discussed between Farid and Babak. No products were delivered within the 14-day window, although FD had sales prospects waiting. CCCI sent only some marketing samples, many of which FD had not ordered, worth just over $100.00. A written order sent on November 9, 2022, asked for delivery by November 12. On November 30, FD received only two items and three unordered products, collectively worth about $197.50.

Babak told Farid he was having difficulty with his suppliers in China. On November 28, 2022, he asked Farid to place another order and pay a further $50,000.00, which he said would help CCCI obtain delivery of the earlier products. Farid paid that same day, and the order was confirmed in writing on December 4, 2022. According to Farid, he told Babak the money was needed for payments on a pre-construction condominium, which Babak denies. During December, CCCI delivered products worth $10,371.00, some of which were unordered and others of which appeared to be stale dated.

CCCI repaid $20,000.00 on January 19, 2023, in recognition of its failure to deliver products FD had ordered. FD terminated the agreement on February 6, 2023, and sought repayment of $48,431.50. That figure was the balance of its advance of approximately $80,000.00 after deducting the value of delivered products, the repayment, and other reimbursements. No further funds were returned, and the lawsuit followed.

Separately, on or about November 23, 2022, Babak offered Farid the position of Chief Commercial Officer of CCCI in exchange for 10% of CCCI's profits, and an email dated that day announced the appointment. Babak later described the email as "premature" and said no contract was finalized. Farid's uncontradicted evidence, however, was that he worked in the role until February 6, 2023.

The plaintiffs claimed breach of contract, loss of opportunity, profits and expectancy loss, misrepresentation, intentional interference with contractual and economic relations, quantum meruit, unjust enrichment, and negligence. They sought repayment of the funds advanced, lost opportunity profits, and punitive damages. In response, the defendants argued that any liability under the Distribution Agreement lay only with CCCI. They counterclaimed for $197,000.00, alleging that FD's discounted eBay sales, contrary to the Distribution Agreement, led CCCI's exclusive Texas distributor to cancel a contract. They also alleged that the plaintiffs contacted CCCI's Chinese manufacturer to obtain confidential pricing and other information. Babak further said Farid sought to become the exclusive distributor for Quebec, which he described as the cause of the breakdown in their relationship.

Policy and legislative provisions at issue

The Distribution Agreement appointed FD as a "nonexclusive distributor" and required a minimum purchase of $30,000.00 in the first year. For subsequent years, the parties agreed to "consult together in good faith." Section 15(a) required products to be delivered to FD within 14 days.

Procedurally, Rule 20.04(2)(a) of the Rules of Civil Procedure requires the court to grant summary judgment where there is no genuine issue requiring a trial. Rules 20.04(2.1) and (2.2) give motion judges enhanced powers to weigh evidence, evaluate credibility, draw reasonable inferences, and order oral evidence. Interest on the judgment was governed by the Courts of Justice Act.

Reasoning and analysis

Schabas J. applied the framework in Hryniak v. Mauldin, 2014 SCC 7. Under that framework, no trial is required when the process allows the judge to make the necessary findings of fact and apply the law to them, and is a proportionate, more expeditious, and less expensive way to reach a just result. Relying on Toronto-Dominion Bank v. Hylton, 2012 ONCA 614, and Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, he noted that each party must put its best foot forward. The court may also assume the record contains all the evidence available for trial.

Most of the facts raised by the plaintiffs were admitted or undisputed, while the defendants' counterclaim evidence was largely inadmissible hearsay. Where the evidence conflicted, the court could weigh it with confidence because the defendants' assertions were not supported by contemporaneous records that were within their power to produce. The defendants also failed to attend cross-examination despite being served with a notice of examination, and chose not to cross-examine the plaintiffs.

On the Distribution Agreement, the documents supported the plaintiffs' account. CCCI failed to deliver goods and failed to fully reimburse FD, leaving the facts supporting repayment of $48,431.50 essentially beyond dispute.

Farid's claim as Chief Commercial Officer was less straightforward because Babak disputed the appointment. Contemporaneous evidence confirmed it, and the court preferred Farid's detailed and specific evidence. That preference rested on Babak's failure to attend cross-examination or make full production, and on inconsistencies in his position. One example was the timing of wire transfers to China, which were made before the Distribution Agreement was signed and after it was terminated.

There was no evidence of CCCI's profits during Farid's brief tenure, but that gap arose from CCCI's failure to produce its financial statements. Drawing an adverse inference, the court concluded that CCCI had made profits it did not wish to disclose. As a proxy, the court accepted Babak's own evidence that losing the Texas distributor cost CCCI approximately $105,000.00 in lost profit. Farid's 10% entitlement produced an award of $10,500.00.

The counterclaim had no merit. The allegation that CCCI lost the Texas distributor because of FD's discounted eBay listings was based on a letter from the distributor that did not mention FD or eBay, which the court found to be inadmissible hearsay. Any attempt by FD to sell product on eBay was brief and involved very little content. The allegations about FD communicating with Chinese manufacturers were not pleaded and also rested on inadmissible hearsay. Those communications took place after the agreement was terminated, and there was no evidence of any breached legal obligation or resulting harm.

On liability, the court found no basis to hold CCOCI responsible. The Distribution Agreement was between FD and CCCI, and, on Farid's own pleading and evidence, the Chief Commercial Officer arrangement was also with CCCI.

Holding Babak personally liable required the plaintiffs to plead, and the court to find, fraudulent or dishonest conduct by him as a director or officer. Such liability can arise even when the individual is "acting in the line of duty," as stated in General Electric Capital Canada Inc. v. Deloitte & Touche LLP (2002), 29 B.L.R. (3d) 308 (Ont. S.C.), citing ADGA Systems International Ltd. et al. v. Valcom Ltd. et al (1999), 43 O.R. (3d) 101 (Ont. C.A.). The plaintiffs had pleaded that Babak made representations that were untrue or that he knew could not be performed. They also pleaded that he acted in his own self-interest by taking FD's funds knowing CCCI could not deliver. The court found the evidence amply supported this.

Lost opportunity damages were refused because Farid offered no admissible evidence allowing a reliable calculation. Losses tied to the condominium funds had not been pleaded. The reasons do not separately address the claim for punitive damages.

Ruling and overall outcome

Summary judgment was granted in the plaintiffs' favour. FD obtained judgment against CCCI and Babak for $48,431.50, and Farid obtained judgment against CCCI for $10,500.00, both subject to pre- and post-judgment interest under the Courts of Justice Act. The counterclaim was dismissed.

Costs of the motion were fixed on a substantial indemnity basis at $45,000.00, inclusive of disbursements and HST, payable by CCCI and Babak. The court based that scale on the defendants' unnecessary delay, their lack of cooperation leading to unnecessary motions and adjournments, and their dishonest conduct. The figure includes costs thrown away from the adjournment addressed by Shin Doi J. on February 12, 2026. No combined total of these amounts is stated in the decision, and the interest was not quantified.