Executive Summary: Key Legal and Evidentiary Issues

• Application concerned varying a December 30, 2024 consent order so that defendant/applicant Navid Emadzadeh could use proceeds from the sale of Novarc Technologies Inc. shares, held in trust, for the limited purpose of paying his legal fees in this action.

• The consent order directed that funds from any sale of the Novarc shares be held in trust “subject to further order of this Court” and “without prejudice to the parties’ positions and arguments in this proceeding,” allowing the defendant to seek later relief regarding the use of those funds.

• The plaintiff, Saeid Nourifard, claimed to be the beneficial owner of 90,000 of the 100,000 Novarc shares and opposed the application, relying on authority where a party with significant assets was not permitted to continue charging sale proceeds with legal fees.

• The defendant’s evidence, described by the court as unchallenged, was that he had no other assets available to pay expenses, owned no real property, and that the one company he did own was “worse than worthless,” while only a small portion of his 100,000 shares had been sold, leaving many shares that could potentially satisfy any order made against him.

• The defendant argued that limitation issues and a “panoply of unparticularized trust claims” would likely arise at trial and that, in light of appellate comments that such limitation issues involve “inherently factual analyses” and are usually “genuine issues for trial,” it would be unfair for him to be left unrepresented if he could not use the trust funds to pay legal fees.

• The court exercised its inherent jurisdiction to vary the consent order and permitted the defendant to use $166,076.99 held in trust, derived from the sale of approximately 6,400 Novarc shares, solely for payment of his legal fees in this action, subject to further order of the court and without prejudice to the parties’ positions, and left the issue of costs to the trial judge.

Facts and background

The application arises in an action concerning 100,000 common shares of Novarc Technologies Inc. purchased by the defendant, Navid Emadzadeh, on or about December 8, 2016, for $2.50 per subscribed share for an aggregate consideration of $250,000 pursuant to a written subscription agreement dated December 8, 2016. Mr. Emadzadeh stated that he paid for the shares using a combination of his own funds and funds borrowed from his friend, Torug Zolnasr, with the assistance of Mr. Zolnasr’s company, Shad Enterprises. At the time of purchase, he executed a document warranting that he was purchasing the shares as a principal on his own account and “not for the benefit of another pursuant to applicable securities laws.” The articles of Novarc expressly provided that no person would be recognized as holding shares in trust. The plaintiff, Saeid Nourifard, claimed to be the beneficial owner of 90,000 of the shares. The court noted that it was not clear at this time, and that it was hotly disputed, how and when the plaintiff advanced $225,000 to purchase 90,000 Novarc shares. Novarc was originally a defendant but was removed from the litigation after a settlement with the plaintiff, and a consent order dismissing the claim as against Novarc was filed on June 18, 2025.

Procedural history and the consent order

A consent order dated December 30, 2024 directed that funds from any sale of the shares that are the subject of the action be held in trust. The order specified that any such funds were to be held “subject to further order of this Court” and “without prejudice to the parties’ positions and arguments in this proceeding.” Subsequently, approximately 6,400 Novarc shares were sold, generating proceeds of $166,000 (later particularized as $166,076.99) which were held in trust by the defendant’s counsel. The defendant then brought this application, pursuant to the court’s inherent jurisdiction, to vary the December 30, 2024 consent order to permit him to use proceeds from the sale of the shares, held in trust, for the limited purpose of paying his legal fees in this proceeding.

Plaintiff’s submissions

The plaintiff relied on Pine Valley Mining Corporation (Re), 2008 BCSC 619, a case decided under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36. In that case, an initial order under the CCAA led to the sale of shares of Falls Mountain Coal Inc. owned by Pine Valley Mining Corporation (PVM). PVM had an inter-company claim of some $27 million against Falls Mountain Coal Inc., and used part of the sale proceeds to pay legal fees associated with that claim. Under a plan of arrangement, the creditors of Falls Mountain Coal Inc., whose claims were approximately $2 million, had their claims extinguished against that company and instead acquired claims against the proceeds of sale. Counsel for the creditors argued that legal fees incurred in negotiating settlement of the inter-company claim should have been paid by PVM itself and that counsel for PVM should repay the fees taken from the sale proceeds. When the matter came before the court, the issue was whether PVM could continue to charge the sale proceeds with its legal fees on the inter-company claim when there was no evidence, going forward, that PVM lacked sufficient funds of its own to advance the litigation. The court concluded that, in balancing the interests of all creditors, the creditors of Falls Mountain Coal Inc. would bear a disproportionate share of legal fees if they continued to be paid from the sale proceeds, and ordered that PVM use its own assets going forward to fund the litigation. The court in the present case described this as a “fundamental distinction” from the matter before it and referred to Xie v. Lai, 2021 BCSC 1768 at para. 22, as well as ICBC v. Dragon Driving School Canada Ltd., 2004 BCSC 1580, and Otal v. Azure Foods Inc., 2019 BCSC 1510 at para. 18, for the principle that defendants seeking release of funds for legal or other expenses must first establish that they have no other assets available to pay those expenses. The court noted that, in this case, the evidence was that Mr. Emadzadeh had no other assets available to pay expenses, he owned no real property, and the one company he did own was described by counsel as “worse than worthless,” and that this evidence was at that point unchallenged. The court contrasted this with Pine Valley Mining Corporation (Re), where PVM had significant assets and was seeking judgment for $27,000,000.

Defendant’s submissions

The defendant applied for permission to use $166,000, now held in trust, derived from the sale of approximately 6,400 Novarc shares, which the court described as a small proportion of the 100,000 Novarc shares purchased in 2016, noting that there were still many shares which could potentially satisfy any order made against him. Defence counsel submitted that the issue of the sale of the shares arose while he was out of town at a legal conference, and that the consent order was agreed to in terms that anticipated further orders, including language such as “subject to further order of this Court” and “without prejudice to the parties…”. Counsel argued that the order now sought would help ensure that the trial was conducted fairly with the available resources. The defendant also submitted that limitations issues were likely to be raised at trial, having already been the subject of an appeal cited as 2024 BCCA 240. The court of appeal in that matter had commented that such limitation arguments involve “inherently factual analyses” and are usually “genuine issues for trial.” The defendant argued that an unrepresented litigant, which he would likely become without sufficient resources to retain counsel, would be ill-prepared or unqualified to conduct litigation at the level required, particularly in the face of what he characterized as a “panoply of unparticularized trust claims” set out in the notice of civil claim at Part 3, Legal Basis, para. 2. On this basis, he submitted that considerations of fairness justified granting an order permitting him access to the sum of $166,076.99, held in trust by his counsel together with accrued interest, if any, for the sole purpose of paying his legal fees.

Court’s reasoning

The court treated the application as one invoking its inherent jurisdiction to vary a consent order that already contemplated further orders regarding the funds held in trust. In considering the plaintiff’s reliance on Pine Valley Mining Corporation (Re) and similar authorities, the court noted the principle articulated in Xie v. Lai and related cases that a defendant who seeks the release of funds for legal or other expenses must first establish that they have no other assets available to pay those expenses, and found that, on the unchallenged evidence, Mr. Emadzadeh met that requirement. The court contrasted the circumstances in Pine Valley Mining Corporation (Re), where the debtor company had significant assets and was pursuing a $27,000,000 claim and where the burden of legal fees falling on creditors was considered disproportionate, with the present case in which Mr. Emadzadeh had no other assets, owned no real property, and held what counsel described as a “worse than worthless” company, while only a small portion of his 100,000 Novarc shares had been sold and many shares remained that could potentially satisfy any order against him. The court also took into account the submissions that limitation issues, previously the subject of an appeal, involved “inherently factual analyses” and were usually “genuine issues for trial,” and the defendant’s position that facing a panoply of unparticularized trust claims without legal representation would be unfair.

Ruling and outcome

The court ordered, pursuant to its inherent jurisdiction, that the consent order entered on December 30, 2024 be varied to permit the applicant, Navid Emadzadeh, to use proceeds from the sale of the shares that are the subject of this proceeding, in the amount of $166,076.99 held in trust, for the sole purpose of paying his legal fees in this action, subject to further order of the court and without prejudice to the parties’ positions and arguments. The court noted that counsel had requested that no further application be reset on the issues discussed until reasons were issued, and, as the court was not aware of any further applications, it found no further order necessary. The court stated that the issue of costs was not argued and left the question of costs for decision by the trial judge.