Court File and Parties
CITATION: B & M Handelman Investments Ltd. v. Curreri, 2011 ONCA 395
DATE: 20110520
DOCKET: C51994
COURT OF APPEAL FOR ONTARIO
Feldman, Juriansz and LaForme JJ.A.
BETWEEN
B & M Handelman Investments Ltd., M. Himel Holdings Inc., Brenkids Inc., Sulax Holdings Ltd., Ledmar Investments Limited, Sharjod Holdings Inc., Canadian Jonomi Corp. Ltd., Rabardo Corporation, David Herbert, Flordale Holdings Limited, and Orbach Investments Ltd.
Plaintiffs (Respondent)
and
Fred Salvatore Curreri a.k.a. Fred Anthony Curreri a.k.a. Fred Curreri
Defendant (Appellant)
P. James Zibarras and Kevin D. Toyne, for the appellant
Lisa La Horey, for the respondents
Heard: November 8, 2010
On appeal from the order of Justice Herman Wilton-Siegel of the Superior Court of Justice dated March 24, 2010.
Feldman J.A:
[1] The appellant is a 62 year old man who was induced by an associate to impersonate his father, Fred Curreri Sr., in order to raise significant amounts of money by mortgaging a number of his father’s properties. He understood that the funds were to be invested overseas. Needless to say, the funds have apparently disappeared.
[2] The respondent lenders commenced an action against the appellant and obtained a Mareva injunction, following which just under $250,000 the appellant had won in a lottery was paid into court. The appellant did not defend the action and allowed default judgment for almost $2 million to go against him.
[3] Without moving to set aside the default judgment, the appellant moved for payment out of a large portion of the monies in court to be used for legal expenses to defend the action and to defend related criminal proceedings, and for reasonable living expenses. The motion judge denied the motion because once there was judgment in the action that was not moved to be set aside (nor was it appealed), the injunction was spent and the monies were subject to the Creditors’ Relief Act, R.S.O. 1990, c. C.45. For the reasons that follow, I would dismiss the appeal.
Facts
[4] Although this action has not been defended, nor is there a motion to set aside the default judgment, the factual circumstances surrounding the impugned mortgages come from affidavit evidence filed on the motion under appeal. At the time of the motion the appellant was 62 years old, unemployed and living in a basement apartment. His work history consisted of work in a stationery store from 1967 to 2003, eventually earning $30,000. He lived on savings until June 2005 to January 2006, when he worked in the demolition business, earning $600 per month. From April 2006 until February 2009 he worked in construction earning $400 per week. In February 2009 he quit his job based on advice from his friend and advisor, Tito DiVincenzo, that he would soon begin to receive money from an overseas investment in a project in Belize. He no longer believes this will happen.
[5] The investment was made with money raised from mortgages the appellant gave on a number of properties owned by Fred Curreri Sr., the appellant’s father. Two of those mortgage loans were made by the respondents to this action, one for $1,150,000 and the other for $675,000.
[6] The appellant deposed that Tito arranged for the two mortgages from the respondents, that Tito handled all the money and made the investment in Belize. The appellant claims in his affidavit that when he gave the mortgages, he believed the properties were his to borrow against and that he did not think he was doing anything wrong or illegal. He further deposed that he relied on Tito completely including for his finances. Both the appellant and Tito have been criminally charged with fraud in connection with all of the transactions including the two that are the subject of this action. The appellant deposes that Tito has taken the position that he was employed by the appellant and took all of his instructions from the appellant.
[7] When the respondents’ mortgages went into default, the respondents sued the appellant on the covenants contained in the mortgages and obtained a Mareva injunction by order of Strathy J. dated May 13, 2009. That order contained the usual provision allowing the defendant to apply for release of funds for living and legal expenses.
[8] By further order dated May 29, 2009, Strathy J. ordered a numbered company to pay $250,000 into court to the credit of the action. That money represented the appellant’s winnings in a Keno lottery which he had transferred to the numbered company on the advice of another friend.
[9] On July 6, 2009, a Notice of Intent to Defend was delivered on behalf of the appellant, but he never defended the action. The respondents moved for partial default judgment on notice to the appellant. He did not appear and partial judgment was granted by order of Himel J. dated October 1, 2009.
[10] The appellant was arrested in January, 2010 and charged with 20 counts of fraud over $5,000 in relation to the mortgages he gave of his father’s properties including the two that are the subject of this action.
[11] Once the respondents had obtained default judgment, they moved for an order that the monies in court be paid to the sheriff pursuant to s. 23 of the Creditors’ Relief Act. The appellant responded with a cross- motion seeking an order for $134,500 to be paid to his current lawyers to be held in trust and used to pay for future legal expenses to defend this action, the criminal proceedings referred to, reasonable living expenses and an invoice for legal services for an unrelated matter.
[12] Wilton-Siegel J. found that the evidence is undisputed on the record that the appellant has no income other than approximately $600 per month from Canada Pension Plan, and that he has no assets other than the $250,000 lottery winnings[^1]. The location of the advanced mortgage funds is unclear.
[13] The appellant’s position before the motion judge was that he always intended to defend the action, and having engaged counsel following the default judgment, he intends to move to set that judgment aside and to defend the action. However, he has not commenced a motion to set aside the default judgment nor has he filed a draft defence. His counsel took the position that being impecunious, he is entitled to access the funds in court without addressing the merits of his defence because those funds are not proprietary funds belonging to the respondents, in accordance with the decisions in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, 2003 CanLII 12916 (ON SC), [2003] O.J. No. 40 (S.C.) and Waxman v. Waxman (2007), 2007 ONCA 326, 42 C.P.C. (6th) 37 (Ont. C.A.).
Reasons of the Motion Judge
[14] The motion judge granted the respondents’ motion to have the monies held in court paid to the sheriff pursuant to s. 23 of the Creditor’s Relief Act, and dismissed the appellant’s motion for payment out to his counsel of some of those funds for legal and personal expenses. He concluded that because default judgment had been granted and there was no motion to set it aside, the order granting the Mareva injunction was spent, and the monies held pursuant to that order were now monies available to judgment creditors through the sheriff under the Creditors’ Relief Act. And because the Mareva order was spent in respect of those funds, it now made no difference whether the funds held pursuant to that order were proprietary to the respondents or not. Finally, he concluded that where default judgment has gone, the defendant must show merit to a potential defence in order to justify taking money that otherwise belongs to the judgment creditors and allowing the defendant to use it for a defence. Before judgment, there is at least a presumption of possible merit. After judgment has been granted, the opposite is true.
Issues
(1) Was the appeal properly brought to the Court of Appeal, or should counsel have sought leave to appeal to the Divisional Court?
(2) Once default judgment has been granted, under what conditions, if any, can a defendant’s funds paid into court pursuant to a Mareva injunction be paid out to the defendant for legal fees and reasonable living expenses?
(3) Should the appellant be entitled to access the funds in order to pay counsel to defend criminal proceedings brought against him?
Analysis
Issue One: Was the appeal properly brought to the Court of Appeal, or should counsel have sought leave to appeal to the Divisional Court?
[15] The respondents took the position on the appeal that the order under appeal goes to the issue of the respondents’ ability to execute on their judgment, which is a procedural matter and therefore interlocutory.
[16] The proper route for the respondents to have taken to challenge the jurisdiction of this court to hear the appeal would have been a motion to quash before the appeal was set down to be heard. In any event, as default judgment was granted and the issue to be decided arises out of that judgment and finally determines the appellant’s entitlement to access his funds that were paid into court to the credit of this action and are now governed by that judgment, the order is a final order and the appeal is properly before this court.
Issue Two: Once default judgment has been granted, under what conditions, if any, can a defendant’s funds paid into court pursuant to a Mareva injunction be paid out to the defendant for legal fees and reasonable living expenses?
[17] The motion judge noted that the parties agreed that there was no case law that addressed the principles to be applied to a motion by a defendant to withdraw funds paid into court to the credit of the action pursuant to a Mareva injunction once default judgment had been granted.
[18] On this appeal, the appellant’s counsel takes the position that this court’s decision in Waxman applied the principles set out by Molloy J. in the Credit Valley case to a post-judgment situation.
[19] In Credit Valley, at para 26, Molloy J. outlined the following four-part test for judges to apply on a motion by a defendant for payment out of monies held under a Mareva injunction for legal and living expenses:
Has the defendant established on the evidence that he has no other assets available to pay his expenses other than those frozen by the injunction?
If so, has the defendant shown on the evidence that there are assets caught by the injunction that are from a source other than the plaintiff, i.e. assets that are subject to a Mareva injunction, but not a proprietary claim?
The defendant is entitled to the use of non-proprietary assets frozen by the Mareva injunction to pay his reasonable living expenses, debts and legal costs. Those assets must be exhausted before the defendant is entitled to look to the assets subject to the proprietary claim.
If the defendant has met the previous three tests and still requires funds for legitimate living expenses and to fund his defence, the court must balance the competing interests of the plaintiff in not permitting the defendant to use the plaintiff’s money for his own purposes and of the defendant in ensuring that he has a proper opportunity to present his defence before assets in his name are removed from him without a trial. In weighing the interests of the parties, it is relevant for the court to consider the strength of the plaintiff’s case, as well as the extent to which the defendant has put forward an arguable case to rebut the plaintiff’s claim.
[20] I agree with the motion judge that it is clear that this test and the rationale behind it are based on the underlying premise that the litigation is ongoing and that final adjudication of the merits has yet to occur. That was factually the case in Credit Valley.
[21] The Waxman case involved hard-fought litigation over business dealings between two brothers, which stretched over many years. Although judgment was granted in favour of Morris Waxman against Chester Waxman, and leave to appeal to the Supreme Court of Canada was dismissed on March 31, 2005, the litigation was in fact ongoing in 2006 in the form of a reference before Master Linton to determine the amount of damages including Morris’s share of the profits and distribution of the equity. Chester’s funds had been frozen following judgment subject to the ability of the court to release funds for legal and living expenses. Chester brought a motion to vary the latter order so that more of his funds could be released for the payment of legal fees and expenses to complete the reference. The motion was granted and Morris appealed.
[22] The appeal concerned whether Chester could access a further $370,000 to pay the legal expenses of the reference, even though by the time the appeal was heard, the reference was complete and the damages he owed had been quantified at approximately $52 million. Based on this circumstantial context, although the motion and the appeal involved a post-judgment situation, the funds being sought for legal fees were for a reference contemplated by the judgment, that was ongoing when the motion was heard and for which the costs had been incurred by the time of the appeal. It was not in respect of future costs of litigation proposed to be undertaken after judgment, as in this case.
[23] In Waxman, the court observed that whether the proprietary or the non-proprietary test was applied, the first issue, before seeking access to funds in court, was whether the applicant had no other assets. The court held that Chester had not met the onus of showing that he and his family had no other assets available to them. The order for access to funds in court was therefore set aside.
[24] As with the motion judge, there is no case to which we have been referred that addresses the issue of payment out of court of funds to a defendant to pursue litigation post-judgment. I also agree with the approach adopted by the motion judge.
[25] Although the appellant claims that he intends to move to set aside the default judgment, no motion has been brought, nor has any statement of defence been delivered. On the basis of the record before the court, there appears to be no defence available to the appellant on the merits. Even if he was duped by Tito, the mortgage funds were advanced to him on his order by the respondents, and he has no access to them, no idea where they are and no ability to repay them. [^2]
[26] In those circumstances, there is no principled reason for the appellant to be able to deplete the funds in court which are subject to the judgment and available to judgment creditors. As the motion judge explained, before judgment, or on a motion to set aside default judgment where potential merit is demonstrated, there is a principled basis to allow the defendant to use his own money for the defence of the action. But once default judgment has been ordered, the findings are the other way on the merits. Without more, the judgment will stand and there is no basis to allow the defendant to deplete the funds that are in court “to the credit of the action.”
[27] In arriving at this decision, I have considered that on this record, it appears that the appellant has some personal limitations that may well have contributed to his legal situation including the default judgment and arguably could lead this court to consider granting him some special consideration. In oral submissions, counsel for the appellant advised that two of his proposed defences are incapacity and non est factum. Counsel has been representing the appellant (without a litigation guardian) since the default judgment. Counsel determined that they would take the legal position that as the funds were not proprietary, they need not show any merit to a proposed defence in order to access the funds in court. They have filed an extensive record including the affidavit of the appellant. They could have chosen to move to set aside the default judgment with a record that disclosed the proposed merit of the appellant’s defence. Their decision not to do so was strategic, and properly forms the basis for this court’s decision on the appeal in respect of funds requested in respect of these civil proceedings.
Issue Three: Should the appellant be entitled to access the funds in order to pay counsel to defend criminal proceedings brought against him?
[28] The motion judge observed that if the appellant were not insolvent, he would have the right to use his own funds to defend criminal proceedings. However, because the appellant is insolvent, he will be eligible for legal aid and therefore he will not be denied counsel because of his financial situation. He concluded that
…balancing the interests of the parties, the interests of the applicants [respondents] must prevail unless and until the respondent [appellant] can establish a meritorious defence to a standard of a serious issue to be tried.
[29] In Credit Valley, Molloy J. observed that “the right to counsel of choice should not be lightly interfered with, particularly where serious criminal charges are involved.” However, again, she was dealing with non-proprietary funds being held before judgment. Where default judgment has been ordered and no motion has been brought to set it aside or statement of defence delivered that contains the alleged merits of such a motion, the funds are no longer the defendant’s funds and the principles to be applied are no longer the same.
[30] It is not necessary in this case to establish a bright line test for how much merit has to be shown in the context of the balancing process, in order to justify an order to access funds for criminal proceedings where there is a motion outstanding to set aside the default judgment. Here, where there is nothing in the record to suggest merit, I would not interfere with the decision of the motion judge. Because the appellant is insolvent, he should qualify for legal aid and as the motion judge said, it is not known whether he may still be able to be represented by his current counsel.
Conclusion
[31] In the result, I would dismiss the appeal. In so doing I have not taken into account decisions by the land titles registrar relating to the properties and the mortgages that were the subject of written submissions following the hearing of the appeal. I agree with the appellant that these were not part of the record below and are not relevant to the appeal. Costs of the appeal to the respondents fixed at $8,500 inclusive of disbursements and H.S.T.
Signature: “K. Feldman J.A.”
“I agree R. G. Juriansz J.A.”
“I agree H. S. LaForme J.A.”
RELEASED: “KF” MAY 20, 2011
[^1]: There is evidence in the record that the appellant will inherit a half interest in the two properties that he mortgaged to the respondents. However, although his father has passed away, the disposition referred to has not yet occurred, nor was its effect on the issues on the appeal part of the record.
[^2]: Subject to his possible inheritance.