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February 20, 2022 - 7:03 AM
One of the partners behind a failed Osoyoos assisted-living seniors’ residence that was a victim of the 2008 financial crash, has been left on the hook for $9-million after his former business partner took him to court.
Appearing at the Kelowna courthouse via phone from his home in the Bahamas, Farouk Shah, asked the judge for the trial to be adjourned saying he needed more time.
Justice Heather MacNaughton refused, pointing out the trial had already been adjourned three times and he'd plenty of notice as the legal proceedings had started in 2013.
The details of the case are laid out in a Feb. 17 B.C. Supreme Court decision and show that Shah along with William Kujat, and Gordon Hoover, went into a three-way partnership to build Cactus Ridge, a 92-unit, assisted-living, seniors’ residence in Osoyoos.
"Cactus Ridge was not successful," Justice MacNaughton said in the decision. "The partners over-estimated demand in Osoyoos for such a large seniors’ residence and did not anticipate the downturn in the real estate market which made it difficult for seniors to sell their homes and move into Cactus Ridge."
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The decision says, the three businessmen and their companies had partnered in several successful developments before Cactus Ridge and always done so without a formal partnership and on the understanding that they would each contribute a one-third share to the development and operating costs, and would then share the profits.
However, Cactus Ridge wasn't profitable.
The decision says the partners started the project in 2006 and borrowed $10-million from HSBC and began construction.
In 2010, Cactus Ridge opened but struggled to find tenants.
"By October 2012, primarily under Mr. Shah’s supervision, only 19 units of 92 were rented," the decision reads.
The decision goes through the complex finances of the development and how the partners looked at refinancing, and how the bank was eager to get its money back.
In July 2012, HSBC made a demand for payment for $10.5 million.
Instead of letting the loan default, Kujat, with his company, Safeway Holdings, repay HSBC in full, cutting them a cheque for $10,474,764.
The decision says Kujat did this without consulting the other partners, although Hoover appeared to know what was going on.
"By July/August 2012, Mr. Kujat and Mr. Shah were not communicating," Justice MacNaughton said in the decision.
In 2015, Cactus Ridge was sold to a numbered company for $6 million, leaving a shortfall of $5.7-million.
Kujat then sued Hoover and Shah for the shortfall, which was growing due to accruing interest.
By the time of the trial in January 2022, the shortfall had grown to $9.1 million.
The decision says Hoover settled out of court with Kujat.
While Justice MacNaughton had refused Shah an adjournment of the trial he only participated in the trial for one morning and didn't show up the next day.
"The court kept the MS Teams link open throughout the trial, and he never appeared again," the decision reads.
"Because Mr. Shah... decided not to participate in the trial, I heard no evidence with respect to the counterclaim or the third-party claim. All of (Kujat's) evidence was uncontroverted and unchallenged," the Justice said.
With that, the Justice rules that Shah under the guarantee for the mortgage shortfall is on the hook for a little over $9 million.
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