Court File and Parties

Citation: Pugliese v. Arcuri, 2011 ONSC 3157 Divisional Court File No.: 147/11 Court File No.: CV-10-404621 Date: 2011-06-03

Superior Court of Justice – Ontario Divisional Court

Re: Diego Pugliese, Vincenza Pugliese, Stefano Pugliese and Palma Pugliese, a minor by her Litigation Guardian, Diego Pugliese, Plaintiffs And: Diego Arcuri, Defendant

Before: Mr. Justice Lederer

Counsel: Joel P. Freedman, for the Plaintiffs Philip Viater, for the Defendant

Heard: April 20, 2011

Endorsement

[1] This is a motion seeking leave to appeal the granting of a “Mareva injunction”.

[2] A Mareva injunction restrains a defendant from dissipating assets or from conveying away his or her property pending the court’s determination in the proceeding. It is an exception to the general principle that there shall not be execution before judgment. It is an extraordinary remedy.[^1]

[3] On May 27, 2010, the defendant shot the plaintiff, Diego Pugliese. The defendant has been charged with criminal offences arising from this incident. On July 22, 2010, a motion was brought by which the plaintiffs sought to register a Certificate of Pending Litigation on the home owned jointly by the defendant and his wife. No interest in the land was or could be asserted. The material filed with the court refers to the application as being in furtherance of "a low form of Mareva injunction". At the time of the motion, the daughter of the defendant appeared and sought an adjournment to allow her father to file responding material. The adjournment was granted but, as an interim measure, an order was made allowing for the registration of the Certificate of Pending Litigation.

[4] The motion was heard on October 27, 2010. On the following day, the judged endorsed the record. He granted a Mareva injunction preventing the defendant from disposing of the proceeds of a mortgage that had been placed on the home and requiring an accounting of any of the proceeds of the mortgage that had already been "transferred". Nothing was said by the judge with respect to the Certificate of Pending Litigation which, according to counsel, remains in place.

[5] This motion for leave to appeal to the Divisional Court is made pursuant to Rule 62.02 (4)(b) of the Rules of Civil Procedure. To succeed, it must be shown that there is a good reason to doubt the correctness of the order and that the proposed appeal involves a matter of such importance that leave should be granted.

[6] The requirements for the granting of a Mareva injunction in civil actions in Ontario are generally recognized as:

(1) the plaintiff must establish a strong prima facie case on the merits of the main action;

(2) the plaintiff should give some grounds for believing that the defendant has assets in the jurisdiction;

(3) the plaintiff must persuade the court that the defendant is removing or there is a real risk that the defendant is about to remove his or her assets from the jurisdiction or is otherwise disposing of such assets in a manner that is out of the normal course with the aim of making himself or herself judgment proof or beyond the court’s authority; and,

(4) the plaintiff must give an undertaking in damages.[^2]

[7] In this case, the defendant shot the plaintiff with a gun. This is enough to demonstrate a strong prima facie case. The record makes clear that the defendant was an owner of the home. This demonstrates that he has assets within the jurisdiction.

[8] No reference to an undertaking as to damages was made in the order that was issued, the endorsement of the judge or the affidavit of the plaintiff filed in support of the motion seeking the injunction. Rule 40.03 of the Rules of Civil Procedure requires the moving party to undertake to abide by any order concerning damages that the court may make unless the court orders otherwise. The court has not ordered otherwise.

[9] The principal concern, as raised by counsel on the motion for leave to appeal, is with the requirement that it be shown that the assets of the plaintiff were being dissipated to avoid the effect of any judgment the court may make.

[10] The defendant and his wife owned their home “as joint tenants”. The house had been mortgage-free since 2002. The defendant was served with the Statement of Claim commencing this action on June 25, 2010. On July 7, 2010, a mortgage for $211,690 was registered on the title of the property. The defendants say that the mortgage is for only $150,000 and that, in any event, the plaintiff could claim no more than $145,000, which is one-half of the appraised value of the house. The rest would belong to the wife of the defendant. I should say that, as I understood them, submissions were made on the basis the wife was alive. The “Fresh Factum” prepared, on behalf of the plaintiff, for the motion heard in October says she has died. Whether this is so remains unclear, but if she has died, the fact that she and the defendant owned the house as joint tenants suggests that he would own it all, including that part which is not the subject of the mortgage.

[11] In an affidavit sworn prior to the first court appearance, the plaintiff deposed that the home of the defendant had no lights on when it was dark and that he had seen people removing furniture and other personal property from the house. He said:

…In my opinion, [the wife of the defendant] no longer lives in the house and probably now lives with one of her daughters. It is my view that [the wife of the defendant and the defendant] will never again live [in their home] as they require personal care from their daughters on a full-time basis and can no longer look after the house by themselves.

He goes on to say:

Thus far, there is no for sale sign on the lawn of [the home of the defendant and his wife]. I am very concerned that due to their ages and medical conditions the Defendant (and his wife) will sell the house, or die and leave the house to their children by way of Last Will and Testament or an intestacy, or transfer their joint interest in their house to one or both of their daughters. These procedures would avoid Mr. Arcuri having assets with which to pay my Judgment against him pursuant to this lawsuit, thus committing a fraudulent conveyance.

[12] The mortgage was taken out by the daughter of the defendant. She was the holder of a “Continuing Power of Attorney” signed by her father on December 15, 2009. She was the deponent of the responding affidavit. Her affidavit explains that her parents are elderly. Her father is “almost 85 years of age” and her mother is “81 years of age”. It confirms that they are both in poor health. The affidavit acknowledges that the wife of the defendant had moved out of the house because, as a result of her “condition”, she was no longer able to live there alone. The defendant was in jail. The affidavit goes on to explain that the money obtained from the mortgage was to be used to retain counsel to act for the defendant both on the criminal charges and this civil action. While the fee for the criminal charges cannot be accurately calculated, it is “expected to be very substantial, maybe over $100,000”. The fees for defending the civil action are not quantified, but are in addition to the criminal charge and “will be substantial as well”.

[13] The judge explained his reasons for granting the injunction in his endorsement. He said that the dissipation of the home had already begun and was likely to continue. He indicated doubt that the proceeds of the mortgage in their entirety were required for legal fees. The judge acknowledged that the defendant was of “advanced years and ill and perhaps still in custody”. Nonetheless, he drew an adverse inference from the “failure, without further explanation to deliver an affidavit sworn by him”.

[14] There is reason to doubt the correctness of the order made.

[15] I begin with the understanding that the Certificate of Pending Litigation remains in place. It was imposed by the judge who granted the adjournment on July 22, 2010 and was not referred to by the judge who dealt with the motion on October 7, 2010.

[16] So far as I am aware, no case law was provided and no basis presented that suggests that a Certificate of Pending Litigation can be subsumed within the rubric of a Mareva injunction without compliance with the conditions generally required for the granting of this relief. In the terms used by counsel for the plaintiff, there is no "low form of Mareva injunction". To obtain a Certificate of Pending Litigation, it is required that the claim be included in the process or pleading that commenced the proceeding.[^3] Moreover, to obtain such a certificate, there must be a claim to an interest in the land against which the certificate is to be registered or an interest in the land must otherwise be in question.[^4] These pre-conditions are not present in this case. Accordingly, there is reason to doubt the correctness of the issuance of the Certificate of Pending litigation.

[17] I should say that counsel for the defendant indicated that he would consent to the Certificate of Pending Litigation being left in place as a condition of obtaining leave to appeal.

[18] This takes me to the Mareva injunction. It has been called a “drastic and extraordinary remedy”.[^5] It is not the rule; it is the exception to the rule.[^6] The exception comes into play when assets are being moved or dissipated to avoid having to satisfy a judgment that may be forthcoming. In this case, the concern expressed by the plaintiff is that, as a result of the ill-health or death of the defendant, the title to the home may be passed on to or transferred to his children. The evidence provided on behalf of the defendant is that the mortgage was required to pay for legal counsel, both with respect to the criminal charges and the civil action. The judge did not accept this. He has a right to infer dissipation, but the dissipation has to be inferred from the evidence, not his own sense of the cost of counsel. Ill-health and the prospect of death are not demonstrative of dissipation of assets. The granting of this injunction would extend the circumstances in which Mareva injunctions issue.

[19] The judge was confirmed in his view of the presence of dissipation by the failure of the defendant to provide an affidavit. He drew an adverse inference from this failure, but did not explain the basis on which he came to this conclusion. Adverse inference is discussed in the well-known text, The Law of Evidence in Canada. It states:

In civil cases, an unfavourable inference can be drawn when, in the absence of an explanation, a party litigant…fails to call a witness who would have knowledge of the facts and would be assumed to be willing to assist that party. In the same vein, an adverse inference may be drawn against a party who does not call a material witness over whom he or she has exclusive control and does not explain it away. Such failure amounts to an implied admission that the evidence of the absent witness would be contrary to the party's case, or at least would not support it.[^7]

[Emphasis added]

[20] In this case, an explanation was provided. The defendant was old, sick and may have been in custody. His daughter had a power of attorney and was the person who negotiated the mortgage. The judge made an adverse inference despite these facts. He is free to do so, but there has to be some rationale for the decision provided beyond the requirement for more explanation.

[21] There is reason to doubt the correctness of the decision to grant the Mareva injunction.

[22] To this point, I have said nothing as to the second requirement of Rule 62.02 (4)(b) of the Rules of Civil Procedure. For leave to be granted, it must be shown that the proposed appeal involves a matter of such importance that leave should be granted. As I have said, the granting of a Mareva injunction is unusual. The granting of this one, if it stands, will expand the substance of the remedy to include a Certificate of Pending Litigation without the requirements for such relief being complied with and in circumstances where it may affect the interests of others – in this case, the wife of the defendant. Finally, it will expand the circumstances in which such an injunction may be granted beyond the dissipation of assets to broader and more general concerns about the ability of the plaintiff, once successful in the action, to realize on the judgment.

[23] Leave to appeal is granted, subject to the Certificate of Pending Litigation remaining in place until further order of this Court.

[24] No submissions were made as to costs.

[25] If the parties are unable to agree, I will consider written submissions on the following terms:

1. On behalf of the defendant, within fifteen days of the release of this endorsement. Such submissions are to be no longer than four pages, double-spaced, not including any Bill of Costs or Costs Outline and case law that may be provided.

2. On behalf of the plaintiff, Diego Pugliese, within ten days thereafter. Such submissions are to be no longer than four pages, double-spaced, not including any Bill of Costs or Costs Outline and case law that may be provided.

3. On behalf of the defendant, in reply, within five days thereafter. Such submissions are to be no longer than two pages, double-spaced.

LEDERER J.

Date: 20110603

[^1]: Morden and Perell, The Law of Civil Procedure in Ontario, First Edition, LexisNexis Canada Inc. 2010 at pp. 169 and 170 [^2]: Morden and Perell, The Law of Civil Procedure in Ontario, First Edition, LexisNexis Canada Inc. 2010 at pp. 169 and 170; and, Archibald, Killeen and Morton, Ontario Superior Court Practice, 2011, LexisNexis Canada Inc. 2010 at pp. 239 and 240 [^3]: Rule 42.01 (2) of the Rules of Civil Procedure. [^4]: Chilian v. Augdome Corp. (1991), 1991 7335 (ON CA), 2 O.R. (3d) 696 (C.A.) [^5]: Croation (Toronto) Credit Union Limited v. Vinski, 2010 ONSC 1197, at para. 4 and [^6]: Chitel v. Rothbart (1982), 1982 1956 (ON CA), 39 O.R. (2d) 513 at 534, as quoted in R. v. Consolidated Fastfrate Transport Inc. 1995 1527 (ON CA), 24 O.R. (3d) 564, [1995] O.J. No. 1885, at para. 34 [^7]: Sopinka, Lederman and Bryant, The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999) at page 297