But We Never Had ‘The Talk’ …. – The case of Derakshan v. Narula

Written by: Alexander Swabuk Originally published in our October Newsletter.

Derakhshan v. Narula, 2018 ONCA 658 (CanLII), https://canlii.ca/t/ht4zm

Introduction

Relationships can be complicated. In the beginning, maybe you found everything to be relatively easy and “perfect” — things unfolded pretty well, you (pretended?) to like the same music, sports, restaurants and types of movies. You may have even convinced yourself you were not allergic to her cat.

But, as life has a tendency to do, sooner or later, things get real. No amount of Claritin or Reactin can stop that cat dander from causing you to burst out into an uncontrollable sneezing fit. Eventually…the person you are spending quality time with will also want to know where they stand and/or where ‘this’ is going. Although the dreaded “What are we?” talk may make one party feel vulnerable, it is usually an important step toward developing a romantic relationship with a strong foundation. But what happens if you don’t have “the talk” and one party truly believes they are in a relationship and the other party does not? Are there potential legal ramifications to this “love” conundrum?

Derakshan v. Narula

In the 2018 Ontario Superior Court case of Derakshan v. Narula[1], the Applicant, Farhad Derakhshan (“Farhad“), believed he was in a long term relationship with the Respondent, Seema Narula (“Narula“), which had recently concluded. As such, Farhad attempted to utilize various equitable remedies as he sought a “fair division of assets and constructive trust for unjust enrichment” that reflected his contributions as a co-venturer during the six years during which he was, allegedly, in a spousal relationship with the Narula. Farhad also sought retroactive spousal support from 2012 to 2015, and the return of his 49 shares in Turtle Island Staffing Inc. (“TIS“).

During the 21 day trial, Farhad asserted that he and Narula were in a common-law relationship and that they cohabited from 2006 to 2012 at Narula’s two Ottawa homes. Farhad also claimed that Narula was unjustly enriched by his efforts in assisting her to find, purchase and renovate properties that were then rented or sold. Additionally, Farhad asserted that he and Narula operated as co-venturers and that he “searched for, explored, determined value and desirability and advocated for the purchases of all properties” acquired during his relationship with Narula; that he was responsible for all renovation plans/projects; and was physically involved in the renovations of the properties.

Throughout the proceedings, Farhad contended that Narula was “unjustly enriched, with no juristic reason” by his sacrifice of “time, money and future prospects” and that as a result, a constructive trust existed with respect to all properties and corporations “purchased, developed and sold” during their relationship. At trial, Farhad put a dollar value on his claims of approximately $4.5 million. This amount included: i) the amount Farhad claimed to be owed for the work he performed for the benefit of Narula; ii) his “share” of the net profit or wealth accumulated when he and Narula were in a common-law relationship; and iii) the sum of $1.5 million, which he claimed was the value of the 49 shares in TIS and alleged that Narula fraudulently transferred to herself by forging his name on a share transfer document.

The court relied on the principle that for an Applicant looking to utilize an equitable remedy such as a claim for unjust enrichment, they must be able to establish the following three elements: (i) an enrichment of or benefit to the respondent by the applicant; (ii) a corresponding deprivation of the applicant; and (iii) the absence of a juristic reason for the enrichment. The case law has consistently held that “the courts ‘should exercise flexibility and common sense when applying equitable principles to family law issues with due sensitivity to the special circumstances that can arise in such cases’.”[2] In domestic relationships, the parties often accumulate wealth through joint efforts. When the relationship breaks down, if one party retains a disproportionately large share of the assets that were accumulated through this “joint family venture”, this would constitute unjust enrichment. Fortunately, the courts have identified the following non-exhaustive list of factors to assist in making a determination of whether a joint family venture exists: (i) the mutual effort of the parties and whether they worked collaboratively towards common goals; (ii) economic integration of the couples’ finances; (iii) actual intent or choice of the parties to not have their economic lives intertwined, whether such is expressed or inferred; and (iv) whether the parties have given priority to the family or there is detrimental reliance on the relationship, by one or both of the parties, for the sake of the family.[3]

Section 29 of the Family Law Act[4] defines a spouse as a married couple or “two persons who are not married to each other and have cohabited continuously for a period of not less than three years”, or have “a relationship of some permanence, if they are the parents of a child”. Despite the fact that 24 witnesses were called and 142 documents were entered as exhibits, the Application Judge, the Honourable Justice Sheard, determined that Farhad had failed to prove that he and Narula were in a spousal (or common-law) relationship for three years as required by the provisions in the Family Law Act. Justice Sheard also did not find that there was a joint family venture in the accumulated value of the properties and noted that Narula and Farhad had no children together, were never married and referred to themselves as “single” on their tax returns. Moreover, they largely kept separate bank accounts and Farhad used many different addresses on his driver’s license, car insurance, passport, and income tax returns.

Finding at the ONCA

In September of 2019, Farhad appealed Justice Sheard’s decision claiming that she “made palpable and overriding errors of mixed fact and law.” Farhad also sought an order to set aside the decision and have the case reheard by a new judge as he claimed that Justice Sheard’s reasons were inappropriately copied from the written submissions of the respondent.

On September 23, 2019, the Ontario Court of Appeal determined, inter alia, that there was no pooling of funds/economic integration and that there was ample evidence to justify Justice Sheard’s conclusion that there was no joint family venture. Although the Ontario Court of Appeal noted that there may have been some financial overlap between the Parties, they ultimately upheld Justice Sheard’s decision and determined that her reasons were “measured and comprehensive”. Farhad’s appeal was dismissed and he was ordered to pay Narula $20,000.00 in costs.

While there was clear evidence that Farhad and Narula enjoyed a romantic relationship, and that for approximately one year, from the summer of 2011 to September 2012, Farhad lived at Narula’s house, the evidence fell short of establishing that they were in a spousal relationship. Having failed to establish that he and Narula were spouses, Farhad could not establish any entitlement to spousal support. Further, having failed to establish that he and Narula were in a spousal relationship, Farhad could not show that they were engaged in a “joint family venture”. Although the evidence did show that Farhad was involved in the renovation of properties purchased by Narula, Narula’s evidence, in the form of cancelled cheques and accounting records, supported a finding that Farhad was paid in full for his services. Moreover, the evidence lead to the conclusion that Farhad benefited financially from his relationship with Narula, in that she provided him with a steady stream of well-paying work, allowed him free use of her properties, and paid his way on a number of trips. Accordingly, the court determined that Farhad failed to prove his claim in unjust enrichment.

—

[1] Derakhshan v. Narula, 2018 CarswellOnt 902, 2018 ONSC 537, 291 A.C.W.S. (3d) 579

[2] Kerr v. Baranow, 2011 CarswellBC 240 (S.C.C.); Becker v. Pettkus, [1980] 2 S.C.R. 834 (S.C.C.)

[3] Ibid.

[4] Family Law Act, R.S.O. 1990, c. F.3