Akagi v. Synergy Group (2000) Inc. et al.

[Indexed as: Akagi v. Synergy Group (2000) Inc.]

Ontario Reports

Court of Appeal for Ontario,

Simmons, Blair and Juriansz JJ.A.

May 22, 2015

125 O.R. (3d) 401 | 2015 ONCA 368

Case Summary

Debtor and creditor — Receivers — Applicant investor obtaining default judgment for fraud and obtaining order appointing receiver under s. 101 of Courts of Justice Act — Receivership order greatly expanded on subsequent ex parte applications by receiver in order to permit receiver to carry out broad investigative inquiry to determine whether respondents had defrauded other investors — Other investors' interests not requiring protection in order to preserve applicant's interests — Section 101 of Courts of Justice Act permitting appointment of investigative receiver in appropriate circumstances but receivership put into place by application judge going beyond what is authorized by s. 101 — Orders set aside — Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101.

The applicant contributed funds to a tax program, marketed and sold by Synergy, which was supposed to generate tax loss allocations for him but did not. He sued Synergy and certain individuals associated with it for fraud and obtained default judgment. He then applied successfully for an ex parte order under s. 101 of the Courts of Justice Act appointing a receiver over the assets of Synergy and an additional company, IBC. On subsequent ex parte applications by the receiver, the receivership order morphed into a wide-ranging investigative receivership, freezing and otherwise reaching the assets of 43 additional individuals and entities and authorizing the registration of certificates of pending litigation against their properties. None of the additional targets was a party to the receivership proceeding, and only two were actually judgment debtors. The application judge empowered the receiver to root out the details of the broader tax allocation scheme as it affected a large number of other investors, although there was no pending or intended proceeding on behalf of those investors. The respondents' application to set aside the orders was dismissed. The respondents appealed.

Held, the appeal should be allowed.

The court had jurisdiction to hear the appeal. The initial receivership order was obtained on application. There was nothing more to be disposed of once that relief was granted. The initial order was a final order. The subsequent orders expanding the initial order were subsumed in the order dismissing the respondents' application, which was a final order.

Section 101 of the Courts of Justice Act provides an equitable remedy for the appointment of an investigative receiver in appropriate circumstances. However, the type of receivership envisaged and put into place by the application judge went beyond what is authorized by s. 101. The purpose of appointing a receiver in aid of execution under s. 101 is to protect the interests of the claimant seeking the order where there is a real risk that its recovery would otherwise be in serious jeopardy. The reach of the subsequent orders granting the receiver enhanced powers was beyond the scope of what could be justified in a single-creditor receivership involving an outstanding claim of, at most, perhaps $122,000. Those orders should be vacated. To the extent that the initial order was granted for the same roving purposes as the subsequent orders, that order should also be vacated. Even if the initial order was granted only to aid the execution of the [page402] applicant's judgment, it still had to be set aside. The applicant failed to show that a receivership order freezing and otherwise interfering with the debtors' assets -- and the assets of others as well -- was needed to protect his ability to recover on the judgment debt.

The application judge erred in granting certificates of pending litigation. No action or application had been commenced by the applicant asserting a claim to an interest in land or requesting a certificate of pending litigation. Moreover, there was no indication that either the applicant's claim or the claims sought to be protected on behalf of unnamed investors gave rise to any claims to an interest in land.

Century Services Inc. v. New World Engineering Corp. (July 28, 2006), Toronto, Court File No. 06-CL-6558 (S.C.J.); General Electric Canada Real Estate Financing Holding Co. v. Liberty Assisted Living Inc., [2011] O.J. No. 3632, 2011 ONSC 4704, 282 O.A.C. 345, 81 C.B.R. (5th) 265 (Div. Ct.), affg [2011] O.J. No. 4213, 2011 ONSC 4136 (S.C.J.); Stroh v. Millers Cove Resources Inc., [1995] O.J. No. 1949, 85 O.A.C. 26, 56 A.C.W.S. (3d) 289 (Div. Ct.), affg [1995] O.J. No. 1376 (Gen. Div.); Udayan Pandya v. Courtney Wallis Simpson (November 17, 2005), Toronto, Court File No. 05-CL-6159 (S.C.J.), consd

Loblaw Brands Ltd. v. Thornton, [2009] O.J. No. 1228, 78 C.P.C. (6th) 189, 176 A.C.W.S. (3d) 141 (S.C.J.), distd

Other cases referred to

236523 Ontario Inc. v. Nowack, [2013] O.J. No. 5525, 2013 ONSC 7479 (S.C.J.); Baker v. Paddock Inn Peterborough Ltd. (1977), 16 O.R. (2d) 38, [1977] O.J. No. 2247, 2 B.L.R. 101 (H.C.J.); CanaSea Petrogas Group Holdings Ltd. (Re), [2014] O.J. No. 4984, 2014 ONSC 6116, 18 C.B.R. (6th) 283, 246 A.C.W.S. (3d) 18 (S.C.J.); Chilian v. Augdome Corp. (1991), 2 O.R. (3d) 696, [1991] O.J. No. 414, 78 D.L.R. (4th) 129, 44 O.A.C. 263, 49 C.P.C. (2d) 1, 25 A.C.W.S. (3d) 1234 (C.A.); Degroote v. DC Entertainment Corp., [2013] O.J. No. 5207, 2013 ONSC 7101, 7 C.B.R. (6th) 232 (S.C.J.); East Guardian SPC v. Mazur, [2014] O.J. No. 5377, 2014 ONSC 6403, 19 C.B.R. (6th) 317, 64 C.P.C. (7th) 90, 247 A.C.W.S. (3d) 181 (S.C.J.); Erdman (Re), [2012] O.J. No. 2499, 2012 ONSC 3268, 91 C.B.R. (5th) 82 (S.C.J.); Illidge (Trustee of) v. St. James Securities Inc. (2002), 60 O.R. (3d) 155, [2002] O.J. No. 2174, 159 O.A.C. 311, 34 C.B.R. (4th) 227, 114 A.C.W.S. (3d) 657 (C.A.); Ontario v. Shehrazad Non Profit Housing Inc. (2007), 85 O.R. (3d) 81, [2007] O.J. No. 1388, 2007 ONCA 267, 223 O.A.C. 76, 46 C.P.C. (6th) 195, 156 A.C.W.S. (3d) 523; Pandora Select Partners LP v. Strategy Real Estate Investments Ltd., [2007] O.J. No. 993, 27 B.L.R. (4th) 299, 155 A.C.W.S. (3d) 1014 (S.C.J.); RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, [1994] S.C.J. No. 17, 111 D.L.R. (4th) 385, 164 N.R. 1, J.E. 94-423, 60 Q.A.C. 241, 54 C.P.R. (3d) 114, 46 A.C.W.S. (3d) 40; Romspen Investment Corp. v. Hargate Properties Inc., [2011] A.J. No. 1361, 2011 ABQB 759, 86 C.B.R. (5th) 49, 209 A.C.W.S. (3d) 843; Ryder Truck Rental Canada Ltd. v. 568907 Ontario Ltd. (Trustee of), [1987] O.J. No. 2315, 16 C.P.C. (2d) 130, 3 A.C.W.S. (3d) 426 (H.C.J.)

Statutes referred to

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 [as am.]

Business Corporations Act, R.S.O. 1990, c. B.16 [as am.], ss. 161, 163

Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 229 [as am.], 230 [as am.]

Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 101 [as am.], 103

Securities Act, R.S.O. 1990, c. S.5 [as am.] [page403]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 42.01(2)

APPEAL from the receivership orders of C. Campbell J. of the Superior Court of Justice dated June 14, 2013; June 24, 2013; June 28, 2013; August 2, 2013; and September 16, 2013.

J. Lisus and J. Renihan, for appellants Student Housing Canada and R.V. Inc.

J. Spotswood and W. McDowell, for appellants Integrated Business Concepts Inc. and Vincent Villanti.

D. Magisano and S. Puddister, for appellant Ravendra Chaudhary.

M. Katzman, for appellants Synergy Group (2000) Inc., Shane Smith, Nadine Theresa Smith, David Prentice, and Jean Lucien Breau and 1893700 Ontario Limited.

J. Leon and R. Promislow, for respondent J.P. Graci & Associates (the court-appointed receiver).

T. Corsianos, for respondent Trent Akagi.

The judgment of the court was delivered by

BLAIR J.A.: —

Overview

[1] The appointment of a receiver in a civil proceeding is not tantamount to a criminal investigation or a public inquiry. Regrettably, those responsible for obtaining the appointment in this case thought that it was. As a result, the receivership proceeded on an entirely misguided course.

[2] Mr. Akagi contributed funds to a tax program, marketed and sold by the Synergy Group. It was supposed to generate tax loss allocations for him, but did not. He sued Synergy Group (2000) Inc. ("Synergy") and certain individuals associated with it for fraud and obtained default judgment in the amount of approximately $137,000. On June 14, 2013, Mr. Akagi applied for, and obtained, an ex parte order appointing a receiver over all assets, undertakings and property of Synergy and an additional company, Integrated Business Concepts Inc. ("IBC").

[3] The primary evidence in support of the application consisted of a three-page affidavit sworn by Mr. Akagi and copies of three affidavits from representatives of the Canadian Revenue Agency ("CRA"). The representatives' affidavits outlined the details of a CRA investigation into the tax loss allocation scheme and indicated that, besides Mr. Akagi, there may be as many as [page404] 3,800 other investors who were defrauded. The materials did not disclose that the CRA investigation had been terminated in February 2013 -- some four months before Mr. Agaki brought the ex parte application.

[4] Subsequently, through a series of further ex parte applications, the receivership order morphed into a wide-ranging "investigative receivership", freezing and otherwise reaching the assets of 43 additional individuals and entities (including authorizing the registration of certificates of pending litigation against their properties). None of the additional targets was a party to the receivership proceeding, only three had any connection to the underlying Akagi action and only two were actually judgment debtors.

[5] On September 16, 2013, the appellants moved before the application judge in a "come-back proceeding" to set aside the receivership orders. Their application was dismissed. They now appeal from the September 16 order and the previous ex parte orders.

[6] All of the receivership orders were sought and obtained pursuant to s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, which gives the court broad powers to make such an order "where it appears to a judge of the court to be just or convenient to do so". Accordingly, the appeal does not involve issues that may arise in connection with the appointment of a receiver under the numerous other statutes that contain such powers, or by way of a private appointment by a secured creditor under a security document. Nor does the appeal concern a class proceeding or other form of representative action.

[7] Mr. Akagi is an unsecured judgment creditor. However, it is apparent from the record that the relief sought was intended to reach far beyond his interests in that capacity. It was intended to empower the receiver to root out the details of the broader tax allocation scheme as it affected a large number of other investors beyond Mr. Akagi -- although to what end is unclear, as there is no pending or intended proceeding on behalf of those investors.

[8] For the reasons that follow, I would allow the appeal and set aside all of the contested orders.

Factual Background

The tax loss allocation scheme

[9] Mr. Akagi invested more than $100,000 through Synergy in what he understood were small businesses managed by IBC that would generate legitimate business losses. Synergy's [page405] "tax reduction strategy" program was misrepresented to him as a means of achieving substantial tax savings through the allocation to him of his proportionate share of those losses.

[10] Mr. Akagi made an initial investment of $20,000 in November 2006. He received documentary confirmation that he and Synergy agreed "to explore alternative income tax strategies by purchasing units in small to medium businesses"; that Synergy, as transfer agent, was to act as liaison between Mr. Akagi and IBC "to facilitate the placement of capital into . . . small and medium sized, privately owned businesses"; and that "IBC agree[ed] to execute the purchase on behalf of the Purchaser, provide complete documentation to support the purchase and any related tax benefit and provide all necessary follow-up documentation and service in the event that [the CRA] requests substantiating proof of Purchaser's Participation and any resulting Income Tax Deduction Claims."

[11] In March 2007, Mr. Akagi received a documentary package from Synergy for the purposes of preparing his 2006 tax returns. The business entity in which he had purportedly invested was said to have suffered a total loss of $164,500, of which his proportionate share was $104,000. Mr. Akagi deducted that amount and received a tax credit of $27,262.10.

[12] Having received that benefit, Mr. Akagi invested a further $90,000 with Synergy for the purposes of his 2007 taxation year. He received the same type of documentary confirmation. At the end of February 2008, he received a letter from an entity known as the International Business Consultants Association ("IBCA") enclosing a cheque in the amount of $248.78, purportedly representing his share of IBCA's profits for the 2007 year.

[13] The honeymoon was short-lived, however. On March 19, 2008, Mr. Akagi received a letter from the CRA stating that an audit was being conducted on IBC with respect to the 2006 taxation year. A few days later, Synergy sent a letter advising Mr. Akagi that the CRA did not "approve of [Synergy's] Profit and Loss Business Development Program", and that Synergy would not be issuing tax forms for the 2007 tax year until it had cleared matters with the CRA. Mr. Akagi was given the option of filling in and returning a form to obtain a refund of his investment for 2007. Although he did so, his $90,000 investment was not returned.

[14] In December 2008, the CRA advised Mr. Akagi that it was questioning his loss claim for 2006, and that it was the position of CRA that the IBCA loss arrangement "constitutes a sham or sham transactions". In May 2009, Mr. Agaki received a notice of reassessment for the 2006 taxation year, completely [page406] disallowing his claimed business losses of $104,000. In the end, the CRA waived some penalties and interest, and Mr. Akagi repaid $54,842.58.

The underlying proceedings: the Akagi action

[15] In August 2009, Mr. Akagi commenced an action against Synergy and four individuals connected with it -- Shane Smith, David Prentice, Sandra Delahaye and Jean Lucien Breau (the "Akagi action"). Smith acted and held himself out as the president of Synergy. Prentice acted and held himself out as its vice-president. Delahaye, a chartered accountant, was the salesperson who sold the investment to Mr. Akagi. Breau, according to the corporate records, was the sole shareholder and director of Synergy.

[16] In the action, Mr. Akagi claimed $116,575.98 in damages, representing the monetary losses he had sustained as a result of what he alleged to be an unlawful conspiracy to defraud him. He also claimed punitive damages. The defendants were noted in default (except for Breau, who was never served), and Mr. Akagi moved, without further notice, for default judgment. In May 2010, Cullity J. granted default judgment, awarding Mr. Akagi the claimed compensatory damages plus $25,000 in punitive damages. He dismissed Mr. Agaki's claim for equitable tracing because he had failed to identify any fund or property in the pleadings to which the funds could be traced.

[17] Immediately upon learning of the default judgment, the defendants moved to set it aside. Justice Whitaker did so on September 3, 2010. His order was upheld on appeal, subject to the following conditions: (i) the defendants were to pay Mr. Akagi $15,000 in costs thrown away, plus $7,000 for his costs on appeal; and (ii) the defendants were to pay $60,000 to the credit of the action pending the outcome of the proceedings.

[18] The defendants complied with these conditions.

[19] Mr. Akagi subsequently moved for summary judgment against Synergy and the defendants Smith and Prentice.[^1] On May 14, 2012, McEwen J. granted summary judgment in the amount of $90,000, representing Mr. Akagi's outstanding 2007 investment. However, McEwen J. declined to grant summary judgment on the claims for fraud and conspiracy to defraud on the basis that the defendants' materials raised triable issues on [page407] those claims. By agreement of the parties, the $60,000 earlier paid into court to the credit of the action remained in court and was not be applied to the $90,000 judgment.

[20] The saga continued, however. Mr. Akagi moved once again to strike the statements of defence of Synergy, Smith and Prentice, and for an order directing that the $60,000 be paid out to him in partial satisfaction of his $90,000 partial summary judgment. On October 5, 2012, Roberts J. granted that relief. On January 18, 2013, Roberts J. made a further order: (i) directing the registrar to note Synergy, Smith and Prentice in default; and (ii) directing Mr. Akagi to proceed to trial to determine the issues left to be tried by McEwen J.

[21] Justice Chiappetta heard the undefended trial of the remaining issues and, on April 24, 2013 -- on the basis of the fraud and conspiracy to defraud claims in the Akagi action -- awarded Mr. Akagi $116,575.98 in compensatory damages, $30,000 in punitive damages and $17,000 in costs. On January 23, 2015, a different panel of this court dismissed the appeal from this judgment.

[22] I note here that the $90,000 sum awarded by McEwen J. is a component of the $116,575.98 compensatory damages awarded by Chiappeta J. In the end, Mr. Akagi's outstanding claim against Synergy, Smith and Prentice is approximately $182,000, consisting of (i) $116,575.98 in compensatory damages; (ii) $30,000 in punitive damages; and (iii) $36,000 in costs. From this must be subtracted the $60,000 already paid, leaving a balance of approximately $122,000.

[23] It is this claim that spawned the sprawling receivership outlined below.

The initial ex parte receivership application

[24] No steps appear to have been taken to effect recovery on the judgment. Nevertheless, on June 14, 2013 -- less than two months after the judgment was granted -- Mr. Akagi brought an ex parte application before the Commercial List in Toronto, seeking the appointment of J.P. Graci & Associates as receiver of the assets, property and undertakings of Synergy and IBC (IBC had not been made a defendant in the Akagi action).

[25] In support of the initial application, Mr. Akagi filed a three-page affidavit characterizing himself as a victim of fraud perpetrated by Synergy, Smith and Prentice (as set out in the summary judgment materials before McEwen J.), and as a judgment creditor of Synergy, Smith and Prentice (the "debtors") as a result of Chiappetta J.'s judgment awarding him compensatory and punitive damages. [page408]

[26] In addition, without swearing as to his belief in the truth of their contents, Mr. Akagi attached three documents relating to an investigation by the CRA into the affairs of Synergy and IBC: (i) a copy of an information to obtain production order, presented by a CRA officer, Andrew Suga, to a judge five years earlier (in July 2008); (ii) a copy of an affidavit sworn three years earlier (on June 25, 2010) by a CRA officer, Sophie Carswell; and (iii) a copy of a second affidavit sworn by Ms. Carswell on March 2, 2012. Also attached, again without swearing as to his belief in the truth of their contents, were copies of three newspaper articles regarding the execution of search warrants by the RCMP on June 6, 2013 (in a matter unrelated to Mr. Akagi, but purporting to relate to Synergy and Smith).

[27] The thrust of the information contained in the CRA documents was that, at the time the documents were executed, the CRA was conducting a criminal investigation relating to Synergy and IBC's tax allocation program. In particular, CRA officials were investigating the affairs of Synergy, IBC, Smith, Prentice and Breau, as well as those of the appellants Vincent Villanti (the president of IBC) and Ravendra Chaudhary (a chartered accountant working with IBC and Villanti) and various other persons. The tax scheme (defined by Ms. Carswell as the "Tax Plan") was described as follows:

In the Tax Plan, arm's length individuals who purchased "units" as part of the Tax Plan have deducted certain losses in their 2004, 2005 and 2006 T1 individual income Tax Returns ("T1 Returns"), which they were led to believe were partnership losses validly deductible against other income. These losses purportedly originated from the operations of struggling small and medium sized enterprises ("Joint Venture Partners" or "JVPs" hereinafter) who contributed them to a pool of losses by way of signing Joint Venture Partnership Agreements with the Independent Business Consulting Association (hereinafter "IBCA"). No such losses are deductible in the T1 Returns of the Unit Purchasers.

The net result of the Alleged Offenders' activities is that:

a) Purchasers of units in the Tax Plan (hereinafter "Unit Purchasers") were defrauded of the money they had paid to the Allege Offenders, because what they received for the money paid was not deductible in their Income Tax Returns, contrary to what they were led to believe.

b) The Unit Purchasers claimed losses in their respective T1 Returns for the calendar years 2004, 2005 and 2006, resulting in the understatement of their income taxes payable to the Crown, and

c) The Alleged Offenders understated their income from their participation in the promotion and sale of the Tax Plan, thus understating the taxable income and consequent income tax thereon in their own respective income tax returns (corporate and individual) for the taxation years 2004, 2005 and 2006. [page409]

As a result of its findings in the investigation to date, the essence of the CRA's theory of the offences currently is that the individuals cited above as Alleged Offenders . . . acting personally or through corporations or entities which they controlled, participated in the promotion and sale of the Tax Plan which the Affiant believes to be fraudulent because the overwhelming majority of JVPs' losses as shown on their financial statements were fraudulently inflated in arriving at the loss figures shown on the T2124 Statements of Business Activities issued by the Alleged Offenders to the Unit Purchases as part of the Tax Plan.

[28] The Suga information to obtain, referred to above, described a similar tax scheme, although in much greater detail.

[29] As noted, Mr. Akagi did not say what, if any, knowledge he had of the information contained in the Carswell and Suga material or that he believed in the truth of their contents. Nor did he or the receiver -- then or at any time during the subsequent ex parte applications discussed below -- disclose that the CRA had terminated its investigation in February 2013, four months before the receivership application (albeit, as it later turned out, the RCMP was, at the same time, conducting a continuing investigation into the same alleged scheme).

[30] On the basis of this record, on June 14, 2013, the application judge granted the receivership order sought, stating in a brief four-line endorsement that he was "satisfied that the grounds for relief sought have been made out and that a Receiving Order [should] issue in the form filed". The order was made pursuant to s. 101 of the Courts of Justice Act. I shall refer to this order as the "initial order".

[31] Mr. Akagi submits that "the application judge appointed the receiver for the purpose of investigating the Synergy Alternative Tax Investment Program on behalf of all investors therein, and not just on behalf of Mr. Akagi" (emphasis added). However, the initial order makes no mention of the Synergy alternative tax investment program, much less of the power to investigate any such program. That said, the receiver appears to have treated the initial order as entitling it to embark on such an inquiry, and at some point in the evolution of the receivership the application judge appears to have accepted that he had put an "investigative receivership" into place.

[32] What follows is a brief description of how the receivership evolved.

The subsequent ex parte expansions of the receiver's powers

June 24, 2013

[33] Just ten days after the initial order, the receiver applied ex parte for expanded powers. It sought authorization to direct [page410] financial institutions to disclose information and documentation regarding payments and transfers of funds not only by Synergy and IBC (the only entities subject to the initial order), but also by or at the direction of an expanded list of targets: Independent Business Consulting Association, Independent Business Consultants Association, Integrated Business Consultants Association, 565819 Ontario Ltd., Vincent Villanti, Jean Breau, Larry Haliday, Joe Loshiavo, Shane Smith, David Prentice, Ravendra Kumar Chaudhary and Nadine Smith.

[34] The receiver did not file a notice of motion, notice of application or a factum. The only additional material filed beyond that which informed the initial order was the receiver's first report. In another brief endorsement, the application judge granted the order sought.

[35] As I shall explain later, it is at this point that the receivership truly began to embark on its impermissible voyage. The expanded order was sought on the premise that "[t]he Receivership concerns a tax scheme . . . described by Canada Revenue Agency", as set out in the excerpt from Ms. Carswell's affidavit, set out above. Based on CRA's documents, the "scheme" was described as involving 3,815 "victims", and the list of "Alleged Offenders" in Ms. Carswell's affidavit became the expanded target list outlined above.

June 28, 2013

[36] Still, the receiver was not content.

[37] Four days later, on June 28, the matter was back before the application judge, again ex parte with no notice of motion or application, no further evidence and no factum. This time, there was not even an additional receiver's report. The receiver sought a further expansion of its powers, authorizing it, amongst other things, to examine the financial account statements and related records in the hands of any financial institutions of the debtors and IBC, as well as the others on the expanded target list. The enlarged authority was granted. In another brief endorsement, the application judge stated that "[h]aving heard from counsel [he was] satisfied the relief sought is in the circumstances [was] appropriate and so approved in terms of the draft order signed".

August 2, 2013

[38] On August 2, 2013, the receiver obtained what can only be described as a breathtakingly broad extension of the initial order. Recall that the only judgment debtors of Mr. Akagi were -- and are -- Synergy, Smith and Prentice. The only [page411] respondents on the initial application -- and the only entities made subject to the initial order -- were Synergy and IBC. IBC is not, and never has been, a debtor of Mr. Akagi.

[39] Here is what happened leading up to August 2.

[40] On July 30, 2013, the receiver e-mailed the application judge with a copy of its second report, dated that same date. On July 31, counsel for the receiver appeared before the application judge, but there is nothing in the court file to indicate what submissions were made. On August 1, counsel for the receiver e-mailed the application judge again, attaching a draft order that would become the August 2 order. In the e-mail, counsel offered to make themselves available if the judge "would like a call to discuss the draft order". There is no record of any such discussion. On August 2, the application judge sent an e-mail to counsel for the receiver, stating: "I hereby authorize the attached order to issue." No reasons were provided.

[41] Again, this order was sought and obtained ex parte, without any formal notice of motion or application, and without any evidence other than the filing of the receiver's second report.

[42] The second report summarized the results of the receiver's investigations after serving the June 24 and June 28 "disclosure orders" on various financial institutions. The information received included bank statements of a large number of individuals and corporations named in the earlier orders or in some way associated or affiliated with them. The receiver's conclusion was "that the alleged offenders have set up a complex matrix of companies and bank accounts". It also identified certain properties said to be associated with the appellant Chaudhary and others, and certain information obtained from the appellants Smith and Prentice at their examinations in aid of execution held on July 26, 2013.

[43] What makes the reach of the August 2 order breathtakingly broad is the following:

• It extended the receiver's powers to include and apply to a list of 43 additional individuals and entities identified in Schedule "A" to the order; any affiliates of those individuals or entities (as defined in the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA")); any corporations or other entities directly or indirectly controlled by the individuals listed or of which they were directors or officers; any corporation in respect of which the listed individuals were entitled to conduct financial transactions; and finally, any entity with a registered head office at the premises occupied by Synergy and IBC. [page412]

• The Schedule "A" list was inaccurately defined as comprising "additional debtors". Of those on the list, only Synergy, Smith and Prentice were debtors to Mr. Akagi.

• The order contained sweeping injunctive provisions -- operating on a worldwide scale -- enjoining all of the 45 listed individuals and entities from dealing with their assets, property or undertakings, wherever located, in any way, and freezing their accounts by enjoining any financial institution served with the order from "disbursing, transferring or dealing with any funds or assets deposited in all [their] accounts".

• The order authorized the receiver to register certificates of pending litigation against the properties of not only the Debtors and IBC, but the 41 "additional debtors" listed in Schedule "A", despite no action or application having been commenced seeking such relief.[^2] The court's attention was not drawn to s. 103 of the Courts of Justice Act, which requires the commencement of an action claiming an interest in land as a condition to issuing a certificate of pending litigation.

• Not only did the order freeze the accounts of the debtors and the "additional debtors", it granted the receiver a $500,000 borrowing charge against the frozen funds to fund the receiver's activities.

[44] All of this evolved out of a receivership that could only have been granted in aid of execution of Mr. Akagi's outstanding judgment of, at most, approximately $122,000, against the three judgment debtors -- Synergy, Smith and Prentice. As noted above, Smith and Prentice were not even subject to the initial order, nor were they examined in aid of execution until July 26, 2013, more than a month after the initial order was made. Nor was there any evidence before the application judge on the initial application -- or thereafter for that matter -- indicating that Mr. Akagi had taken any steps to enforce his judgment or that his recovery was likely to be in any jeopardy. As far as the record shows, none of the debtors or "additional debtors" is insolvent. [page413]

[45] I shall refer to the ex parte orders of June 24, June 28 and August 2, 2013 as the "subsequent orders".

The September 16, 2013 "come-back hearing"

[46] Sometime after the August 2 order was granted, the various appellants were notified of the initial and subsequent orders. On August 14, 2013, they applied to the application judge to have the orders set aside. On September 16, 2013, their requests were dealt with by way of a "come-back hearing", and dismissed for written reasons delivered that day. I shall refer to this order as the "come-back hearing order".

[47] At the come-back hearing, the receiver filed its third, fourth and fifth reports dated August 15, September 8 and September 16, 2013. Mr. Akagi filed a responding motion record, as did the appellants.

[48] The application judge dismissed the complaint that the receiver had breached its obligations to the court and to the parties to make full disclosure, by failing to disclose the fact that the CRA had terminated its investigation several months before the application for the initial order. He was satisfied there was no lack of full disclosure. There was evidence on the June 14 application that the RCMP was investigating the matter and, while there was no specific evidence that the CRA had referred the matter to the RCMP, this was implicit in the reference to recent search warrant executions by the RCMP. The application judge concluded that there was "no suggestion that CRA [had] discontinued to pursue what is its concern, namely fraudulent activity in the sale of tax losses to investors which lacked reality".

[49] Secondly, the application judge rejected the appellants' argument that the materials filed did not satisfy the test for injunctive relief (as applied to interim receivers) set out in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, at paras. 47-48. He concluded:

The second ground for setting aside namely, that the RJR MacDonald test was not met, does not in my view succeed on this material. It is conceded that there is a serious issue of fraud alleged and given the large number of investors (over 3800) of relatively small sums ($10-15,000) I conclude it was appropriate that there be an investigative Receiving Order issued. Otherwise many investors would not know of the potential fraud. The irreparable harm on the material clearly extends beyond Mr. Akagi and does extend to a great number of other investors who have not the resources to pursue to judgment as has Mr. Akagi who remains an unsatisfied judgment debtor.

[50] Thirdly, the application judge rejected the argument that the initial and subsequent orders constituted execution before [page414] judgment, analogous to a Mareva injunction. In his view, the relief sought was simply a "freezing subject to further order in support of an ongoing investigation".

[51] Finally, after recognizing the "powerful and important intrusion" of a receivership order under s. 101 of the Courts of Justice Act, and acknowledging that the test for the appointment of a receiver was "comparable" to the test for interlocutory injunctive relief, the application judge concluded:

Comparable does not mean precisely. This is a case where some 3800 investors on their own would not be able to adequately investigate the activities of their agent (Synergy) in dealing on their behalf with CRA. A Receiver under s. 101 provides an equitable remedy and in circumstances where, as here, its purpose is investigative. For that reason as in Loblaws Brands Limited v. Thornton (CV-09-373422) a Receiver may be appointed to investigate when other means are not available to answer the legitimate concerns of investors.

Final or Interlocutory Order

[52] Counsel for Mr. Akagi advanced two arguments that he submits undermine this court's jurisdiction to hear the current appeal.

[53] First, he argued that the orders under attack are interlocutory and therefore this court does not have jurisdiction to deal with them. In the circumstances here, I disagree.

[54] The initial order was obtained on application. No relief was claimed other than the appointment of a receiver. There was nothing more to be disposed of once that relief was granted. In the context of the proceedings, it was not intended to be interim or interlocutory in nature pending the outcome of a proceeding involving Mr. Akagi or anyone else.

[55] Although Mr. Akagi's counsel refers to the orders as "separate receivership orders", the character of the subsequent orders is unclear because the receiver did not file a notice of motion, notice of application or any formal record on any of the subsequent ex parte proceedings.

[56] In any event, they are subsumed in the September 16, 2013 come-back hearing order, which is a final order. It finally disposes of the receivership issues between the parties to the initial order and between the receiver and the numerous non-parties caught by the subsequent orders. There is no action or application in which any further rights will be determined. There will be no pleadings defining the issues and giving the appellants the opportunity to defend. This conclusion is consistent with decisions of this court, faced with similar circumstances, holding that a receivership order obtained by way of application is a final order from which an appeal lies directly to [page415] this court: see, e.g., Illidge (Trustee of) v. St. James Securities Inc. (2002), 60 O.R. (3d) 155 (C.A.); Ontario v. Shehrazad Non Profit Housing Inc. (2007), 85 O.R. (3d) 81.

[57] Secondly, counsel for Mr. Akagi argued that a direct appeal to this court from the initial and subsequent orders is inappropriate because the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provide for the steps to be taken to set aside an ex parte order. Again, I disagree. This argument overlooks the fact that the come-back hearing effectively provided that very procedure.

[58] For these reasons, an appeal lies to this court from the come-back hearing order.

Discussion and Analysis

[59] It will be apparent from the foregoing narration that, in my view, the receivership orders must be set aside. They stand on a fundamentally flawed premise and are unjustifiably overreaching in the powers they grant. Procedurally, they call for at least a word of caution as well, although it is not necessary to dispose of the appeal on this basis in view of the more substantive issues raised by the orders. The procedural concerns arise out of the ex parte nature of this developing set of extraordinary orders, the somewhat casual manner in which they were processed, and the failure to make full disclosure.

[60] I will return momentarily to these issues, and to the particulars of this case. First, however, it may be useful (i) to revisit the framework of this proceeding; and (ii) to comment briefly on the relatively new notion of an "investigative receiver" -- so named for the powers the receiver is granted -- as it begins to stride across the commercial law landscape.

The framework of this proceeding

[61] The initial order and subsequent orders were sought and obtained by relying on s. 101 of the Courts of Justice Act. Mr. Akagi is an unsecured judgment creditor with a judgment based on fraud.

[62] This is not the case of a secured creditor requesting the appointment of a receiver under its security instrument by court order rather than by private appointment. Nor is it a case involving the appointment of a receiver under insolvency legislation, such as the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA"), or under the Securities Act, R.S.O. 1990, c. S.5 (where the court has the power to appoint a receiver to protect [page416] investors in certain circumstances). As noted earlier, it is not a class proceeding or other form of representative action.

[63] This is a case where a judgment creditor seeks to use an unsatisfied judgment as an entrée to obtain a receivership in order to freeze the assets and investigate the affairs of not only the debtors, but also of a complex mix of related and not-so- related entities and individuals. And to do so not to protect his own interests, but those of some 3,800 other investors who may have been victims of a similar fraud, but who have not sought to assert a similar claim.

[64] This is made clear in the initial notice of application, both in the outline of the factual grounds for the receivership and in the summary of why Mr. Akagi said it was in the interests of justice that the receiver be appointed. Ground 10 in the notice of application states:

It is in the interests of justice that a Receiver be appointed over Synergy and IBC:

(a) Judicial process will ensure that an independent court officer will control the process and address competing claims.

(b) The Court appointed Receiver can investigate and work with authorities to locate and realize upon assets for the benefit of all creditors.

(c) The complex business structure would make litigation by individuals untenable. The Court appointed Receiver can deal with such complexities on behalf of all victims.

(d) The Court appointed Receiver can prevent further wasting of assets and help to preserve assets for the benefit of all victims/creditors.

"Investigative" or "investigatory" receiverships

[65] The idea of appointing a receiver or monitor with investigative powers -- and sometimes, with only those powers -- has emerged in recent years. This court has not previously been asked to consider whether, or in what circumstances, a s. 101 receiver may be empowered in this fashion. For the purposes of this appeal, it is not necessary that the contours of such an appointment be traced in a detailed manner. Suffice it to say that the idea of appointing a receiver to investigate into the affairs of a debtor is not itself unsound. Rather, it is the runaway nature of the use to which the concept has been put in this case that gives rise to the problem.

[66] Indeed, whether it is labelled an "investigative" receivership or not, there is much to be said in favour of such a tool, in my view -- when it is utilized in appropriate circumstances and with appropriate restraints. Clearly, there are situations where the appointment of a receiver to investigate the affairs of [page417] a debtor or to review certain transactions -- including even, in proper circumstances, the affairs of and transactions concerning related non-parties -- will be a proper exercise of the court's "just and convenient" authority under s. 101 of the Courts of Justice Act. See, for example, Stroh v. Millers Cove Resources Inc., [1995] O.J. No. 1376 (Gen. Div.), affd [1995] O.J. No. 1949, 85 O.A.C. 26 (Div. Ct.); Udayan Pandya v. Courtney Wallis Simpson (November 17, 2005), Toronto, Court File No. 05-CL-6159 (S.C.J.); Century Services Inc. v. New World Engineering Corp. (July 28, 2006), Toronto, Court File No. 06-CL-6558 (S.C.J.); Loblaw Brands Ltd. v. Thornton, [2009] O.J. No. 1228, 78 C.P.C. (6th) 189 (S.C.J.); General Electric Canada Real Estate Financing Holding Co. v. Liberty Assisted Living Inc., 2011 ONSC 4136 (S.C.J.), affd 2011 ONSC 4704 (Div. Ct.); Degroote v. DC Entertainment Corp., 2013 ONSC 7101 (S.C.J.); East Guardian SPC v. Mazur, 2014 ONSC 6403 (S.C.J.); 236523 Ontario Inc. v. Nowack, 2013 ONSC 7479 (S.C.J.) (relief denied); Romspen Investment Corp. v. Hargate Properties Inc., 2011 ABQB 759.

[67] It goes without saying that the root principles governing the appointment of any receiver remain in play in this context, however, and in this respect, two "bookend" considerations, are particularly germane. On the one hand, the authority of the court to appoint a receiver under s. 101 of the Courts of Justice Act "where it appears . . . just or convenient to do so" is undoubtedly broad and must be shaped by the circumstances of individual cases. At the same time, however, the appointment of a receiver is an extraordinary and intrusive remedy and one that should be granted only after a careful balancing of the effect of such an order on all of the parties and others who may be affected by the order. In the case of a receivership in aid of execution, at least, the appointment requires evidence that the creditor's right to recovery is in serious jeopardy. It is the tension between these two considerations that defines the parameters of receivership orders in aid of execution.

[68] A review of some of the authorities referred to above will illustrate how these tensions have been resolved in the particular context of a receivership clothed with investigative powers.

Stroh v. Millers Cove Resources Inc.

[69] The first is Stroh v. Millers Cove Resources Inc., supra. Because it involved an oppression remedy claim, the appointment [page418] of an inspector under the OBCA was an available option.[^3] Justice Farley appointed a receiver to take control of the assets of a company and to investigate and conduct an independent review of certain self-dealing transactions by the company's majority shareholder, of which the company's directors were unaware. In affirming his decision, the Divisional Court underlined that "the main thrust" of the order was to ensure that the company's assets and arrangements "[could] be fully examined and considered so that future actions [could] then be planned": para. 7.

[70] It is important to note that in Stroh the defendant corporation was not an operating company and that Farley J. only granted the receivership remedy after giving counsel the opportunity to reattend before him and make further submissions about whether the officer to be appointed should be a receiver/manager, a monitor, an inspector or something else. He ultimately concluded that the only way the investigation stood any chance of success (because of the secrecy of the majority shareholder and the power it exercised) was to appoint a receiver with the authority he granted.

[71] In other words, Farley J. carefully fashioned the remedy to meet the needs of the oppression remedy claimants in the proceeding. [page419]

Udayan Pandya v. Courtney Wallis Simpson and Century Services v. New World Engineering Corp.

[72] A decade later, Ground J. made a similar order in Udayan Pandya v. Courtney Wallis Simpson, supra, as did Morawetz J. in Century Services Inc. v. New World Engineering Corp., supra. Both cases involved the appointment of a receiver for the primary purpose of monitoring and investigating the assets and affairs of defendants.

[73] As Morawetz J. reasoned in Century Services, the appointment of a receiver was "necessary to monitor the affairs of the defendants so that a more fulsome investigation [could] be undertaken". No power was given to seize or freeze assets and the order was very specific that the receiver "shall not operate or unduly interfere with the business of the corporate defendants".

[74] In short, the focus was on investigating the affairs of the defendants in order to protect the rights of the plaintiff. That is, the relief granted was carefully designed to meet the needs of the particular proceeding itself (unlike here, where the investigative receivership reached numerous non-party "alleged offenders" unrelated to the underlying proceedings to protect the interests of thousands of unrelated, non-party "victims").

Loblaw Brands Ltd. v. Thornton and General Electric Canada Real Estate Financing Holding Co. v. Liberty Assisted Living

[75] It appears to have been D.M. Brown J. (as he then was) who adopted the terminology of an "investigative" or, as he called it, an "investigatory" receiver. As far as I can determine from the Canadian, American, British and other common law jurisprudence, his decisions in Loblaw Brands Ltd. v. Thornton, supra, and General Electric Canada Real Estate Financing Holding Co. v. Liberty Assisted Living, supra, are the first to have recognized such a receiver as, in effect, a specific class of receiver. Neither of these authorities assists the respondent in justifying the receivership as it evolved here, however.

[76] Loblaw Brands -- a decision upon which the application judge relied -- is not this case at all. It involved a fraud perpetrated against Loblaw by an employee (Thornton) who diverted about $4.2 million in supplier rebate payments from Loblaw to his own company (IBL). [page420]

[77] Prior to the appointment of the "investigatory receiver", Brown J. had granted a Norwich Pharmacal[^4] order followed by a Mareva injunction against the assets of Thornton and IBL. Based on the investigation following those orders, Loblaw learned that IBL's bank account contained less than $44,000 and Thornton's less than $6,000. On the other hand, the accounts revealed outgoing transfers of over $900,000 for payments to various car dealerships, the purchase of a cottage, mortgage payments, home improvements and cash transfers to Thornton's son.

[78] Based on these facts, Brown J. appointed a receiver "to locate, investigate, and monitor" the property of Thornton and IBL and "to secure access for the Receiver to such books, record, documents and information the Receiver considers necessary to conduct an investigation of transfers of funds by or from Paul Thornton or IBL, or their banks or trust accounts, to the other defendants or other persons": para. 17.

[79] In one sense, this was quite a broad order. However, Loblaw Brands is markedly different from the present case in a number of ways.

[80] First, the Loblaw receivership was grounded in necessity in relation to the collection of the defrauded funds by the claimant Loblaw: given the huge disparity between the amount of money diverted from Loblaw to IBL ($4.2 million) and the value of Thornton and IBL's known assets (approximately $50,000), Brown J. concluded that "without the appointment of a receiver the plaintiff's right to recovery could be seriously jeopardized": para. 16. These circumstances do not apply here. Mr. Akagi is owed approximately $122,000. There is no evidence of any dramatic disparity between the assets of Synergy, Smith and Prentice (much less IBC) and the amount of the outstanding judgment. Nor is there any evidence that Mr. Akagi's right to recover on the judgment is in jeopardy.

[81] Secondly, the Loblaw receivership was very carefully tailored to preserve Loblaw's right to recover without providing the receiver with overreaching powers to interfere with the rights of others. The Loblaw receiver's mandate was "to locate, investigate and monitor" (para. 17); it was not empowered to seize and freeze, as was the receiver here. Nor were the targeted individuals and entities whose assets were encumbered and affairs interfered with anywhere nearly as widespread or tangentially associated with the parties to the proceeding as is the case here. [page421]

[82] Finally, the Loblaw receivership was also very carefully crafted to protect the interests of Loblaw alone. Here, however, the receivership is more concerned -- if not entirely concerned -- with protecting the interests of the 3,800 other investors who are said to have been defrauded in the tax allocation scheme. The assets being chased in this receivership are not those needed to protect Mr. Akagi's interests at all; they relate to the interests of those 3,800 unrelated, non-party individuals who may or may not find themselves in the same situation as Mr. Akagi.

[83] Nor does Brown J.'s decision in General Electric -- a bankruptcy proceeding -- provide a basis for justifying the orders here.

[84] General Electric involved four bankrupt companies and two related non-bankrupt companies that were part of a group of companies called the Liberty Group. The Liberty Group owned and operated a number of retirement homes. Prior to their bankruptcies, the four bankrupt companies defaulted on their secured obligations to General Electric. The receiver subsequently assigned the companies into bankruptcy and became the trustee in bankruptcy under the BIA.

[85] In the course of the bankruptcy proceeding, it became apparent that, during the bankrupt companies' period of insolvency, there had been a series of intercompany payments from them to the two related but solvent corporations under the Liberty Group umbrella: Liberty Assisted Living Inc. ("Liberty") and 729285 Ontario Limited ("729285"). Liberty had been the manager of the retirement homes and 729285 was a shareholder of the company that held all of the shares of the bankrupt companies. In addition, three retirement residences had been sold in the face of court orders prohibiting such sales.

[86] The trustee tried to obtain financial information regarding these transactions from the bankrupt companies and from Liberty and 729285. In spite of court orders requiring disclosure of the information and requiring the companies' officers to attend for examinations under s. 163 of the BIA, the information was either not provided or, if provided, was inconsistent, unreliable and misleading. Faced with this stonewalling, the trustee sought the appointment of an "investigative receiver" to investigate the affairs of Liberty and 729285.

[87] Justice Brown granted the order with respect to 729285, but declined to do so with respect to Liberty. He concluded there was a strong case that the bankrupt companies had made preference payments to 729285 while insolvent. Because the companies had provided unreliable and inconsistent information on their s. 163 examinations and had compounded that problem by [page422] making misrepresentations to the court about the true state of the transferred proceeds, he was satisfied, at para. 103, that

Those factors point[ed] to the need to allow an independent third party (a) to look into the transactions which took place between the Bankrupt Companies and 729285, (b) to ascertain the true state of 729185's interest in any of the [funds] -- whether they were in trust for others or whether the company enjoyed a beneficial interest in them -- and, (c) to figure out the true state of the affairs regarding those to whom the [funds] were paid.

[88] With respect to Liberty, however, Brown declined to grant such an order. Since Liberty had managed the bankrupt companies, there were contract-based reasons for payments to and from the companies and there was no evidence that the proffered explanations were unreliable.

[89] Again, then, General Electric is a case where the investigative powers granted to the receiver were carefully weighed and carefully tailored to protect the rights of the applicant in relation to the affairs of companies closely related to the bankrupt companies.

[90] Some consistent themes emerge from these authorities:

• The appointment of the investigative receiver is necessary to alleviate a risk posed to the plaintiff's right to recovery: Loblaw Brands, at paras. 10, 14 and 16.

• The primary objective of investigative receivers is to gather information and "ascertain the true state of affairs" concerning the financial dealings and assets of a debtor, or of a debtor and a related network of individuals or corporations: General Electric (Div. Ct.), at para. 15. One authority characterized the investigative receiver as a tool to equalize the "informational imbalance" between debtors and creditors with respect to the debtor's financial dealings: East Guardian SPC v. Mazur, supra, at para. 75.

• Generally, the investigative receiver does not control the debtor's assets or operate its business, leaving the debtor to continue to carry on its business in a manner consistent with the preservation of its business and property: see, e.g., Loblaw Brands, at para. 17; Century Services.

• Finally, in all cases the investigative receivership must be carefully tailored to what is required to assist in the recovery of the claimant's judgment while at the same time protecting the defendant's interests, and to go no further than necessary to achieve these ends. [page423]

[91] An additional theme that is reflected in the authorities relates to the application of the three-part test set out by the Supreme Court of Canada in RJR-MacDonald, at paras. 47-48. The RJR-MacDonald test requires the applicant to demonstrate (i) that there is a serious issue to be tried;[^5] (ii) that the creditor will suffer irreparable harm if the relief is not granted; and (iii) that the balance of convenience favours the creditor. The test is often applied where the receivership order is purely interlocutory and ancillary to the pursuit of other relief claimed -- where it is, in effect, execution before judgment.

[92] Although the application judge applied the test at the time of the come-back hearing -- concluding that it had been met here -- I need not dwell on whether that was so, or on the role of RJR-MacDonald in the receivership context generally, for the purposes of this appeal. The initial order, subsequent orders and come-back hearing order must be set aside in any event, in my view, for the reasons that follow.

The investigative receivership in this case

[93] In spite of the positive features of investigative receivers, as set out above, there are risks as well. This appeal provides a case in point. The receiver, in particular, took a useful concept and ran too far with it. In addition, a number of procedural safeguards were at least obscured in the dust of the chase.

The procedural issues

[94] Because of the substantive frailties undermining the receivership, it is not necessary to determine this appeal based on the procedural issues raised.[^6] It bears noting, however, that if the matter had not proceeded through the numerous steps on an ex parte basis, as it did, it would have been less likely to have gone astray, as it did. The same may be said of the somewhat relaxed procedural approach taken to the proceedings. Had the normally salutary processes of the Commercial List -- carefully designed to permit the parties to get to the merits of a dispute and resolve them in "real time" without trampling their procedural rights -- not been permitted to become overly casual, [page424] as they did, the galloping nature of the receivership may well have been reined in.

[95] Ex parte proceedings are to be taken sparingly, and only then on full disclosure and in circumstances where it is demonstrated that notice to other parties would undermine the purpose of the proceeding. As Penny J. noted recently in CanaSea Petrogas Group Holdings Ltd. (Re), 2014 ONSC 6116 (S.C.J.), at para. 28, applicants are under "high obligations of candor and disclosure on an ex parte application".

[96] At best, the steps taken in pursuit of the orders here sailed very close to this line. There is a reason for requiring a proper record of steps taken, including a notice of motion or application, a motion or application record, a proper evidentiary foundation and adequate judicial reasons: it is otherwise impossible to determine subsequently what was at issue and the basis for the order made. This is particularly so where the relief sought involves the extraordinary, Mareva-like nature of a receivership order, much less a receivership order of the sweep that emerged from these proceedings.

[97] Beyond the receiver's failure to prepare any of the above-listed documents, the appellants place considerable emphasis on the receiver's failure to disclose, during the ex parte steps in the proceeding, that the CRA had discontinued its investigation -- on the particulars of which the applicant relied -- in February 2013, several months before the initial receivership application was made. It was not until almost two weeks after the August 2 order that the termination of the CRA investigation was first brought to the court's attention, and even then, it was raised indirectly: in its third report, dated August 15, 2013, the receiver confirmed that the CRA had referred its investigation to the RCMP.

[98] There was some indication in the materials filed when the initial order was sought, however, that the RCMP was also investigating the matter. Based on this -- despite the absence of evidence that the CRA had referred the matter to the RCMP or that the CRA had itself discontinued its investigation -- the application judge "was satisfied there was no lack of full disclosure".

[99] The application judge was well positioned to determine whether he had been misled by any material non-disclosure, and his decision in that regard is entitled to deference. That said, in my view, the failure to disclose that the very investigation upon which the ex parte receivership application was founded had been discontinued, at the very least, sailed close to the line of failing to make full and fair disclosure. [page425]

The substantive issues

The "roving receivership"

[100] The fundamental flaw underlying the initial and subsequent orders is the faulty premise that the receiver could be appointed in these circumstances to carry out a broad, stand-alone, investigative inquiry -- the civil equivalent of a criminal investigation or public inquiry -- for the purposes of determining whether wrongs were suffered by an unidentified hodgepodge of non-party persons who were not represented by anyone in the proceedings, who had expressed no interest in becoming parties or in having their rights protected in the proceedings, and whose interests did not need to be protected to preserve the interests of the appointing creditor. This flawed premise is compounded by the overreaching nature of the relief granted, namely, the authority to both (i) investigate, without notice, the private financial affairs of a myriad of targets only indirectly, if at all, related to the defendants, as well as further potential targets far beyond the actual debtors and the need to protect Mr. Akagi's interests; and (ii) tie up and freeze the assets and property of those targets, again without notice, pending the termination of the receivership.

[101] Mr. Akagi sought the appointment of a receiver because he had an unsatisfied judgment against Synergy, Smith and Prentice for approximately $122,000. The purpose of appointing a receiver in aid of execution under s. 101 of the Courts of Justice Act is to protect the interests of the claimant seeking the order where there is a real risk that its recovery would otherwise be in "serious jeopardy": Ryder Truck Rental Canada Ltd. v. 568907 Ontario Ltd (Trustee of), [1987] O.J. No. 2315, 16 C.P.C. (2d) 130 (H.C.J.), at para. 6.

[102] Put simply, the reach of the subsequent orders granting the receiver enhanced powers is beyond the scope of what could be justified in a single-creditor receivership involving an outstanding claim of, at most, perhaps $122,000. To the extent the initial order was granted for the same roving purpose -- as the receiver submits it was -- that order must also be vacated.

[103] That the receivership was intended from the beginning to be -- and certainly became -- an investigation of the affairs of those involved in the broad tax scheme (and of others even beyond that) on behalf of 3,800 non-party investors is apparent from both the position taken by the receiver and the application judge's following comment from his September 16 reasons:

This is a case where some 3800 investors on their own would not be able to adequately investigate the activities of their agent (Synergy) in dealing on [page426] their behalf with CRA. A Receiver under s. 101 provides an equitable remedy and in circumstances where, as here, its purpose is investigative. For that reason as in Loblaw Brands Limited v. Thornton (CV-09-373422) a Receiver may be appointed to investigate when other means are not available to answer legitimate concerns of investors.

[104] As explained above, Loblaw Brands is distinguishable from the present case. While I agree that s. 101 provides an equitable remedy for the appointment of an investigative receiver in appropriate circumstances, the type of receivership envisaged and put into place by the application judge goes beyond what is authorized by that provision.

The initial order of June 14, 2013

[105] Even if the initial order was not granted for the "roving" purpose discussed above, but only to aid the execution of Mr. Akagi's judgment (the only legal or equitable basis upon which it could have been granted pursuant to s. 101 of the Courts of Justice Act), it must still be set aside.

[106] It is true that the judgment against Synergy, Smith and Prentice was based on fraud. However, this is insufficient, by itself, to support such an order, in my view. In this context, Mr. Akagi is a judgment creditor. He was required to show that a receivership order freezing and otherwise interfering with the debtors' assets -- and, in this case, not only the debtors' assets but the assets of others as well -- was needed to protect his ability to recover on the debt.

[107] However, the record reflects no evidence of any attempt by Mr. Akagi to collect on the judgment in any fashion other than to apply for the appointment of the receiver. Nor was there any evidence that Synergy or the other defendants had insufficient assets to satisfy the judgment, much less that it was necessary to reach the assets of IBC (which was not a party to the Akagi action) in order to protect Mr. Akagi's interests. Finally, with respect to the ex parte nature of the application, there was no evidence of urgency or of any reason to believe that, if given notice, Synergy or IBC (or Smith or Prentice, for that matter) would take steps to frustrate the legal process or undermine Mr. Akagi's prospects of recovery.

[108] The initial order must be set aside on this basis as well.

The certificates of pending litigation

[109] The final subsequent order, granted ex parte on August 2, 2013, authorized the receiver to register certificates of pending litigation not only against the property of Synergy and IBC (the original targets of the receivership application) but also [page427] against the property of the 43 "additional debtors" sought to be added to the receivership, only two of which were debtors to the underlying Akagi action.

[110] There are at least two problems with this aspect of the order.

[111] First, no action or application has been commenced by Mr. Akagi, or anyone else, asserting a claim to an interest in land or requesting a certificate of pending litigation. Pursuant to s. 103 of the Courts of Justice Act and rule 42.01(2) [of the Rules of Civil Procedure], these requirements are mandatory before an order authorizing the issuance of a certificate of pending litigation can be made: Chilian v. Augdome Corp. (1991), 2 O.R. (3d) 696 (C.A.), at p. 714 O.R.; Erdman (Re), 2012 ONSC 3268 (S.C.J.), at para. 65. Nor was it asserted before this court that Mr. Akagi, or anyone else, intended to commence such an action.

[112] Second, there is no indication that either Mr. Akagi's claim or the claims sought to be protected on behalf of the 3,800 unnamed investors give rise to any claims to an interest in land. The thrust of the claim is that they were all victims of a fraudulent tax allocation scheme, not a fraudulent land investment scheme. While there may be other ways of immobilizing the lands of targeted entities -- such as the "freezing" orders otherwise attacked in these proceedings -- a certificate of pending litigation cannot be issued in the air against unknown and undescribed lands regarding which no claim is, or could be, asserted.

[113] For these reasons, the August 12 order authorizing the issuance of certificates of pending litigation must be set aside.

Disposition

[114] For the foregoing reasons, I would set aside the initial order dated June 24, 2013; the subsequent orders dated June 24, 2013, June 28, 2013 and August 2, 2013; and the come-back hearing order dated September 16, 2013.

[115] If the parties cannot agree on costs, they may make brief written submissions, not to exceed eight pages in length, within 30 days of the release of these reasons.

Appeal allowed.

Notes

[^1]: The defendant Breau was never served with the proceedings, and by the time of the summary judgment motion, the defendant Delahaye had made an assignment in bankruptcy.

[^2]: The receiver now concedes that an error was made in granting this authorization, but argues that the lands should remain encumbered in some other fashion.

[^3]: Legislation governing the affairs of corporations provides for the appointment of an "an inspector" to carry out "an investigation" into the business and affairs of a corporation or its affiliates: see the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA"), ss. 229 and 230; OBCA, s. 161. In general, this relief is available at the instance of a shareholder where it is apparent that the corporation's books and records are not properly kept or are inaccurate, or where there has been some deceit or oppressive conduct practiced against the shareholders: Baker v. Paddock Inn Peterborough Ltd. (1977), 16 O.R. (2d) 38, [1977] O.J. No. 2247 (H.C.J.), at p. 39 O.R. Its purpose is to ensure that a corporation discharges its core obligation to provide shareholders with an accurate picture of its financial position: Pandora Select Partners, LP. v. Strategy Real Estate Investments Ltd., [2007] O.J. No. 993, 27 B.L.R. (4th) 299 (S.C.J.), at para. 13. The court has broad powers to make any order it thinks fit, but, in particular, is empowered to appoint an inspector to conduct an investigation and to authorize the inspector to enter any premises in which the court is satisfied there might be relevant information, to examine anything and to make copies of any document or record found on the premises, and to require any persons to produce documents or records to the inspector. While this case does not concern this corporate statutory framework, the notion of a receiver with investigative powers appears to have been born in that context. Nothing in these reasons is meant to suggest that an investigative receiver is intended to supplant the appointment of an inspector under the relevant legislation.

[^4]: That is, an order providing for discovery of a non-party prior to trial.

[^5]: It is not necessary to comment here on the debate in the authorities as to whether it is necessary for a creditor seeking the appointment of an investigative receiver to demonstrate fraud. It is accepted in this case that there has been fraud; Mr. Akagi's judgment is based on that finding.

[^6]: I will deal with the issues surrounding the authorization of certificates of pending litigation separately.