Corrected decision: The text of the original judgment was corrected on March 14, 2024, and the description of the correction is reported at 2024 ONCA 190.

COURT OF APPEAL FOR ONTARIO

DATE: 20240126 DOCKET: C70898

Roberts J.A., Trotter J.A. and Sossin J.A.

BETWEEN

Buduchnist Credit Union Limited Applicant (Respondent/Appellant by way of cross-appeal)

and

2321197 Ontario Inc., Carlo Demaria, Sandra Demaria, 2321198 Ontario Inc., Sasi Mach Limited, Vicar Homes Ltd. and Trade Capital Finance Corp.* Respondents (Appellant/Respondent by way of cross-appeal*)

Counsel: Peter Carey, Christopher Lee and Kiren Purba, for the appellant/respondent by way of cross-appeal Barbara Grossman and Sara-Ann Wilson, for the respondent/appellant by way of cross-appeal

Heard: June 12, 2023

On appeal from the order of Justice Michael A. Penny of the Superior Court of Justice, dated June 17, 2022, with reasons reported at 2022 ONSC 3414.

Roberts J.A.:

[1] This appeal concerns the breadth of the court’s jurisdiction to respond to a breach of a court order and relieve against an abuse of its process. This question arises in the context of a creditor’s claim for priority and payment that results solely as a consequence of its breach of a Mareva order. The disposition of this appeal allows this court to restate the scope of the court’s jurisdiction and discretion to craft the appropriate order in light of a creditor’s breach of a clear court order. Specifically, this appeal answers the question of whether the court may delay a creditor’s enforcement of its claim that only exists as a result of its breach of a court order.

[2] The appellant, Trade Capital Finance Corp. (“Trade Capital”), appeals the distribution order made by the motion judge in favour of the respondent, Buduchnist Credit Union Limited (“BCU”).

[3] Trade Capital was the victim of an elaborate fraud. On May 6, 2015, Trade Capital obtained a comprehensive Mareva order (“the Mareva Order”) over assets held by named defendants.

[4] Some of the parties to the fraud were significant clients of BCU. BCU continued to make advances to these clients, under mortgages for which it was the mortgagee, in breach of the Mareva Order. BCU then obtained consent judgments against these clients for both pre- and post- Mareva advances and moved for a distribution order before the motion judge. The parties agreed that BCU was entitled to enforce any claim for advances made prior to the Mareva Order, although they disputed the timing of some advances. They also disagreed about whether BCU could enforce its post- Mareva advances.

[5] The motion judge found that BCU had breached the Mareva Order and disallowed BCU’s claim as a secured creditor for the post- Mareva advances. However, the motion judge concluded that BCU was nevertheless entitled to enforce its claim as an unsecured judgment creditor and granted the distribution order over both the pre- and post- Mareva advances.

[6] Trade Capital argues that the motion judge erred by varying the Mareva Order and allowing BCU to immediately enforce its claim as an unsecured creditor for the post- Mareva advances, when that portion of the claim arose from BCU’s breach of the Mareva Order. In particular, Trade Capital maintains that the motion judge should have delayed the enforcement of BCU’s claim until Trade Capital’s action was determined. Trade Capital also argues that the motion judge erred in finding that some of BCU’s advances were made before the Mareva Order when they were in fact post- Mareva advances made in contravention of the Mareva Order.

[7] BCU submits Trade Capital’s appeal should be dismissed. It cross-appeals with respect to the amount of proceeds available for distribution and its loss of priority as a secured creditor, arguing that the motion judge had no jurisdiction to alter its creditor status.

[8] The key issue before the motion judge was whether, in light of BCU’s breach that gave rise to its claim, the Mareva Order should have been varied to permit BCU to enforce its claim against the assets covered by the Mareva Order. As I shall explain, when the motion is properly framed from that perspective, BCU’s creditor status becomes irrelevant. Rather, once the motion judge determined, correctly in my view, that BCU breached the Mareva Order, he had broad jurisdiction to deal with BCU’s abuse of the court’s process because of its breach, regardless of the procedural route chosen by the parties to bring the issues before the court. This broad jurisdiction included the motion judge’s order that BCU lose its priority as a secured creditor for the post- Mareva advances and the further discretion to order, as Trade Capital seeks, that the Mareva Order not be varied and enforcement of BCU’s claim for the post- Mareva advances be delayed until Trade Capital’s action is determined.

A. Factual Background

(i) Fraud Against Trade Capital

[9] Trade Capital was the victim of an elaborate fraud. As indicated in Ricchetti J.’s May 11, 2015 reasons for the Mareva Order, Trade Capital purchases accounts receivable at a discount from face value. Unbeknownst to the company, its then president, Peter Cook, arranged for payment by Trade Capital of approximately $7 million in receivables which were entirely fraudulent. Confronted, Mr. Cook admitted to the fraudulent scheme. Carlo De Maria and various other individuals and corporations also allegedly participated in the fraudulent scheme or received monies obtained from or through the fraudulent scheme.

(ii) De Maria Related Corporations and Properties

[10] A brief summary of the alleged participants and relationships among the alleged participants serves to illustrate the complicated web of the alleged fraudulent scheme and explain the necessarily broad ambit of the Mareva Order. Several corporations controlled or owned by, or otherwise related to, Mr. De Maria were implicated in the transactions relevant to this appeal.

[11] Mr. De Maria was involved in The Cash House Inc. (“The Cash House”), a money services business that Trade Capital alleges was also party to the fraud against it. BCU handled a large portion of The Cash House’s business.

[12] Mr. De Maria was a director and officer of Vicar Homes Ltd. (“Vicar Homes”) and owned Vicar Corporate Holdings Ltd. (“Vicar Corp”). In addition, Mr. De Maria owned and controlled Do You Know Inc. (“DYKI”), a corporation with bank accounts at both BCU and Toronto Dominion Bank (“TD”). Mr. De Maria was also the sole shareholder and director of both 2321197 Ontario Inc. (“197”) and 2321198 Ontario Inc. (“198”).

[13] In his personal capacity and through related corporations, Mr. De Maria owned four properties at the time the Mareva Order was issued that were relevant to BCU’s distribution motion. Mr. De Maria and his wife jointly owned properties in Vaughan (the “Woodland Property”) and Egbert (the “Cottage”). Mr. De Maria’s numbered corporations also owned two Richmond Hill properties: 197 was the registered owner of a property on Elm Grove Avenue (the “Elm Grove Property”), and 198 was the registered owner of a property on Puccini Drive (the “Puccini Property”).

[14] In February 2015, Mr. De Maria sold The Cash House to 2454904 Ontario Inc. (“245”). 245 was purportedly owned by Osman Khan, who was previously Mr. De Maria’s driver. In his June 10, 2015 endorsement dismissing the motion by Mr. De Maria, The Cash House, and another one of his companies to set aside the Mareva Order, Ricchetti J. noted that the transfer of The Cash House to Mr. Khan “has all the indicia of a ‘fake’ transaction.”

(iii) Pre- Mareva Encumbrances

[15] Prior to the Mareva Order, BCU held first mortgages over three of the properties owned by Mr. De Maria and 198.

[16] In August 2010, BCU registered a first mortgage on the Woodland Property in the amount of $1,490,000. In December 2012, BCU registered a second mortgage to secure a line of credit for Vicar Homes in the amount of $3,000,000.

[17] In February 2015, BCU registered a mortgage on the Puccini Property in the principal amount of $2,500,000. This mortgage was personally guaranteed by Mr. De Maria.

[18] When the Mareva Order was issued, the balance on the Puccini mortgage was $1,042,552.15, and the balance on the second Woodland mortgage was $1,003,510.23. [1]

(iv) The Mareva Order

[19] Trade Capital has necessarily expended considerable effort to trace and recover the monies lost through the fraudulent scheme. I highlight summarily the steps relevant to this appeal.

[20] On October 28, 2013, Trade Capital obtained a Norwich order, subsequently amended and extended on several occasions, that permitted it to obtain voluminous documentation regarding the fraudulent scheme and the trail of monies generated by the fraudulent scheme. The fruits of these orders supported its ex parte motion for a Mareva order. Over $4 million of the money stolen from Trade Capital subsequently passed through The Cash House.

[21] On May 6, 2015, Trade Capital obtained, on an ex parte motion, the Mareva Order, which froze any assets owned directly or indirectly by the Mareva defendants, including any assets the defendants controlled through related individuals and corporations. The Cash House and Mr. De Maria were among the named Mareva defendants. Vicar Homes, Vicar Corp, 197, 198, DYKI, Mr. Khan, and 245 were not.

[22] On the Mareva motion, Ricchetti J. was satisfied that Trade Capital had made out a strong prima facie claim of fraud on the basis of the voluminous materials filed that showed the details of the documented fraudulent scheme. He held that “[t]he evidence, which includes Mr. Cook’s confession, is overwhelming that a fraud was carried out against Trade Capital” and that “each of the [Mareva] defendants perpetrated, facilitated or received the proceeds of a fraudulent scheme against Trade Capital”. He characterized the fraudulent scheme as “a very complex fraud”, describing how the Mareva defendants “went to great lengths to perpetrate this fraud” and how “[t]he monies were traced into numerous accounts”. He was persuaded that “unless a Mareva Injunction is granted … there is a very real risk that the proceeds from the fraud would be disposed of or transferred beyond the jurisdiction of this court.”

[23] On May 6, 2015, Trade Capital served the Mareva Order on BCU.

[24] As already noted, Mr. De Maria and The Cash House were unsuccessful in having the Mareva Order set aside. They did not appeal from Ricchetti J.’s June 10, 2015 order dismissing their motion to set aside the Mareva Order.

[25] On January 21, 2016, Mackenzie J. found that The Cash House, 245, and Mr. Khan intentionally breached the Mareva Order by continuing to operate The Cash House’s business after being served with the order. Their appeal was dismissed by this court on April 4, 2017: Trade Capital Finance Corp. v. Cook, 2017 ONCA 281, leave to appeal refused, [2017] S.C.C.A. No. 219.

[26] On March 24, 2016, Emery J. issued an order expanding the Mareva Order to the assets of 245 and Mr. Khan, among others. [2] On September 24, 2019, Penny J. dismissed a second motion by Mr. De Maria and one of his numbered companies to set aside the Mareva Order: Trade Capital Finance Corp. v. Cook, 2019 ONSC 4950.

[27] Prior to BCU’s distribution order, another creditor, Maple Trust Company (“Maple Trust”), sought to vary the Mareva Order: Trade Capital Finance Corp. v. Cook, 2017 ONSC 1857, 137 O.R. (3d) 685, aff’d 2018 ONCA 27, 56 C.B.R. (6th) 1 (“Maple Trust”). As I explain in greater detail below, Maple Trust was successful in varying the Mareva Order to enforce two costs orders obtained against The Cash House.

[28] Based on the record before us, Trade Capital’s claim has not yet gone to trial and is being case managed in the Commercial Court by Emery J.

(v) Post- Mareva Advances

[29] Following receipt of the Mareva Order, BCU made monetary advances to Mr. De Maria and his related corporations on the Puccini, Woodland, and Elm Grove mortgages. [3] Though the Puccini mortgage and the second Woodland mortgage pre-dated the Mareva Order, further advances were made under these mortgages by BCU after the Mareva Order was put into place. The mortgage on the Elm Grove Property was entered into, with advances made, after BCU’s receipt of the Mareva Order. All these mortgages went into default.

[30] BCU sought and obtained the appointment of a receiver and obtained judgment against Mr. De Maria and his related companies with the latter’s consent. The Receiver sold the properties and BCU moved for an order directing the Receiver to distribute to it the net proceeds of sale after payment of the Receiver’s fees and expenses.

[31] The parties agreed that BCU should retain its priority for all pre- Mareva advances. However, Trade Capital submitted that BCU should not be paid any amounts that it advanced following its receipt of the Mareva Order in priority to the amounts owing to Trade Capital. Included in those amounts, according to Trade Capital, are advances BCU made post- Mareva Order against the Woodland Property, which was jointly owned by Mr. De Maria and his wife, and against the Puccini Property, which was owned by 198.

(vi) The Distribution Order

[32] The motion judge concluded that BCU breached the Mareva Order and that, as a result, it could not claim priority payment as a secured creditor for the advances made in breach of that order. However, he determined that BCU, in its capacity as a judgment creditor, was still entitled to immediately enforce its judgment against Mr. De Maria and therefore varied the application of the Mareva Order for that limited purpose. He found that some, but not all, of the Woodland Property advances were made before the Mareva Order was in place. He noted that Trade Capital’s action had not yet proceeded to judgment and that there was no evidence about its status. He concluded that he did not have “jurisdiction to order the Receiver to hold proceeds of sale ‘as security’ for Trade Capital’s as yet unproven claims.” He ordered that all the net proceeds of sale be paid by the Receiver to the Sheriff for the benefit of Mr. De Maria’s creditors.

[33] The effect of the motion judge’s order is that BCU can execute on its judgment and recover amounts owed, including the funds advanced contrary to the Mareva Order. If Trade Capital is ultimately successful, those funds will no longer be available to satisfy its claim.

[34] Moreover, at the time of the distribution motion, BCU was the only claimant to the funds, aside from Trade Capital. As a result, if BCU’s post- Mareva Order advances were paid out at that time, there would be insufficient funds remaining to satisfy Trade Capital’s claim.

B. Analysis

[35] The parties raise several grounds on the appeal and cross-appeal. It is necessary to consider only three issues to dispose of the appeal and cross-appeal: 1) whether BCU breached the Mareva Order; 2) if so, the scope of the motion judge’s jurisdiction and discretion to craft an appropriate order in the context of BCU’s claim for a distribution order and its breach of the Mareva Order; and 3) whether BCU’s claim in relation to the Woodland Property represents advances made before or after the Mareva Order was in place.

[36] The motion judge’s interpretation of the Mareva Order is a question of law reviewable on a correctness standard: Onion Lake Cree Nation v. Stick, 2020 SKCA 101; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 8. As explained below, I see no error in the motion judge’s interpretation of the Mareva Order, nor in his determination that BCU breached the Mareva Order.

[37] With respect to the legal issue of the motion judge’s jurisdiction, while he made no error in removing BCU’s priority as a secured creditor, as I shall explain, the motion judge unnecessarily limited the scope of his jurisdiction and discretion in relation to the appropriate order that he could make in response to BCU’s distribution request. This is an error of law that is subject to a correctness standard on appellate review: Housen, at para. 8.

[38] The motion judge’s finding of fact that the Woodland Property advances were made prior to the Mareva Order is subject to deference, absent palpable and overriding error: Housen, at para. 10. However, for the reasons set out below, I agree with Trade Capital that the evidence does not support the motion judge’s finding that the Woodland Property advances were made prior to the Mareva Order.

(a) BCU’s Breach of the Mareva Order

[39] BCU repeats the argument rejected by the motion judge that the assets of 197 and 198 (which were not named Mareva defendants) were not caught by the Mareva Order. Relying on non-binding jurisprudence from other jurisdictions, BCU maintains that the assets of 197 and 198 were not under the direct or indirect control of Mr. De Maria, even though he was the sole shareholder and director of both entities.

[40] I agree with the motion judge’s reasons for distinguishing the U.K. and, on appeal, Australian jurisprudence that has not been followed in Ontario. In particular, I note and accept the motion judge’s highlighted distinguishing factor that:

[I]n any event, on the undisputed facts presented here, it is not ‘merely’ because of Mr. De Maria’s status as sole shareholder and director that the assets are caught. With BCU’s knowledge, and indeed at its request or demand, Mr. De Maria actually exercised that control so as to cause 197 and 198 to encumber their assets to fulfill personal obligations Mr. De Maria owed to BCU.

[41] This issue turns on the motion judge’s interpretation of the following provisions of the Mareva Order:

1. THIS COURT ORDERS that each Mareva Defendant and its servants, employees, agents, assigns, officers, directors, affiliates and anyone else acting on their behalf or in conjunction with any of them, and any and all persons with notice of this injunction, are restrained from directly or indirectly, by any means whatsoever:

(a) selling, removing, dissipating, alienating, transferring, assigning, encumbering, or similarly dealing with any assets of any of the Mareva Defendants, that are located in Canada or the United States, including but not limited to the assets and accounts listed in Schedule “A” hereto;

(b) instructing, requesting, counselling, demanding, or encouraging any other person to do so; and,

(c) facilitating, assisting in, aiding, abetting, or participating in any acts the effect of which is to do so.

2. THIS COURT ORDERS that paragraph 1 applies to all of the assets of each Mareva Defendant whether or not they are in such Defendant’s own name and whether they are solely or jointly owned or whether the assets are held in trust for the Defendant. For the purpose of this order, a Defendant’s assets include any asset which such Defendant has the power, directly or indirectly, to dispose of or deal with as if it were such Defendant’s own. A Defendant is to be regarded as having such power if a third party holds or controls the assets in accordance with such Defendant’s direct or indirect instructions.

[42] I agree with the motion judge’s conclusion that the Mareva Order’s “clear and express terms” speak for themselves. They are broad and plainly extend to unnamed affiliates of each named Mareva defendant, as well as all persons with notice of the Mareva Order, and to the assets each Mareva defendant “has the power, directly or indirectly, to dispose of or deal with” as if they were their own, whether or not they are in the Mareva defendant’s name. There is no question that BCU had the knowledge necessary to determine the relationship between Mr. De Maria and the various companies with which he was affiliated and which he directly or indirectly controlled. The motion judge correctly determined that the words of paragraph 2 of the Mareva Order were intended to catch assets of corporations over which Mr. De Maria exercised complete control, and that properly interpreted, the words of the Mareva Order have that effect. Nor do I see any error in his conclusion that 197 and 198 and their respective assets were covered by the Mareva Order, and that BCU was “well aware of all relevant facts.”

[43] I would therefore reject this ground of appeal.

(b) Jurisdiction and Scope of Discretion

[44] As earlier noted, the parties agree that BCU should be repaid for advances made on the subject properties before the Mareva Order was issued. Trade Capital argues, however, that the motion judge erred in ordering that BCU could immediately collect the amounts it advanced in breach of the Mareva Order from the Sheriff as a judgment creditor. Trade Capital contends that the motion judge should have exercised his jurisdiction to prevent BCU from recovering any monies obtained by breaching the Mareva Order until the final determination of Trade Capital’s action.

(i) Governing Principles

[45] Mareva injunctive orders restrain the defendant and others from improperly disposing of or dealing with their assets in order to prevent them from putting the assets beyond the court’s reach. These orders stand as an exception to the general principle that plaintiffs are not entitled to pre-judgment relief to ensure the enforcement of their claim post-judgment: Sabourin and Sun Group of Companies v. Laiken, 2013 ONCA 530, 116 O.R. (3d) 641, at para. 53, aff’d Carey v. Laiken, 2015 SCC 17, [2015] 2 S.C.R. 79. Mareva orders are not intended to place the plaintiff in the position of a secured creditor, prevent legitimate creditors from enforcing debts, or impede the defendant from meeting “legitimate debt payments accruing in the ordinary course”: Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2, at pp. 25-26; Halifax Plc. v. Chandler, [2001] EWCA Civ. 1750. They are granted only where there is a “genuine risk of disappearance of assets”: Aetna, at p. 25. Although not dependent on the existence of fraud, Mareva orders often restrain the defendant’s dealing with its assets before trial on the basic premise that the defendant “is a rogue bent on flouting the process of the court”: Sabourin, at para. 53.

[46] A Mareva order is a discretionary equitable remedy: Kepis & Pobe Financial Group Inc. v. Timis Corporation, 2018 BCCA 420, 429 D.L.R. (4th) 237, at para. 3. Mareva orders are granted as an exceptional remedy to maintain the integrity of the court’s process and prevent the frustration of the course of justice, objectives that transcend the parties’ interests, by preventing defendants and others from disposing of assets and flouting the court’s process: Sabourin, at paras. 50 and 53; Equustek Solutions Inc. v. Jack, 2014 BCSC 1063, at para. 132, aff’d Equustek Solutions Inc. v. Google Inc., 2015 BCCA 265, 75 B.C.L.R. (5th) 315, aff’d Google Inc. v. Equustek Solutions Inc., 2017 SCC 34, 72 B.C.L.R. (5th) 100, citing Grenzservice Speditions Ges.m.b.h v. Jans (1995), 15 B.C.L.R. (3d) 370 (S.C.), at para. 92; David A. Crerar, Mareva and Anton Piller Preservation Orders in Canada: A Practical Guide (Toronto: Irwin Law, 2017) at p. 35.

[47] The equitable function of Mareva orders to prevent an abuse of the court’s process and to maintain its integrity provides the context in which any request to vary should be considered. Where a party seeks a discretionary exercise of the court’s equitable jurisdiction, the court may deny relief if the party is in default of a court order or has otherwise acted inequitably: Brewster Transport Co. v. Rocky Mountain Tours & Transport Co., [1931] S.C.R. 336; White v. E.B.F. Manufacturing Ltd., 2005 NSCA 103.

[48] A well-established corollary of this principle is that a party cannot take advantage of the existence of a state of affairs produced by its own wrong: see Berlingieri v. DeSantis et al. (1980), 31 O.R. (2d) 1 (C.A.); Barclays Bank PLC v. Devonshire Trust, 2013 ONCA 494, 265 D.L.R. (4th) 15, at paras. 147-61, leave to appeal refused, [2013] S.C.C.A. No. 374; McCallum et al. v. Zivojinovic (1977), 16 O.R. (2d) 721 (C.A.), at p. 726.

[49] As the request to vary a Mareva order involves the exercise of the court’s equitable jurisdiction, applicants must come to the court “with clean hands” with respect to the transaction they base their claim upon: City of Toronto v. Polai, [1970] 1 O.R. 483 (C.A.), aff’d , [1973] S.C.R. 38; BMO Nesbitt Burns Inc. v. Wellington West Capital Inc. (2005), 77 O.R. (3d) 161 (C.A.), at paras. 27 and 28.

[50] Accordingly, the focus of the motion judge’s analysis in this case should have been on whether he should exercise his equitable jurisdiction to permit BCU to vary the Mareva Order for the purpose of enforcing its judgment to recover funds advanced in what the motion judge found was a breach of the Mareva Order. BCU’s status as a secured or unsecured creditor was irrelevant to that analysis.

[51] I do not agree with BCU’s submissions that the motion judge erred in taking away BCU’s secured creditor status and effectively allowing the Mareva Order to reorder creditor priorities. The motion judge correctly recognized that the Mareva Order could not, by itself, grant Trade Capital creditor priority. But that was not the point of the motion judge’s order. The order was not about granting Trade Capital priority because of the Mareva Order; rather, it was the court’s response to BCU’s breach of a court order.

[52] Nor am I persuaded by BCU’s submission that Trade Capital failed to properly frame its request for relief as a motion for contempt. It was not necessary to do so. Trade Capital was not seeking a declaration that BCU was in contempt of a court order but was resisting BCU’s request for a distribution order and implicit variance of the Mareva Order on the ground that BCU was in breach of a court order. This is an important distinction. As in Maple Trust, BCU was the moving party and the onus was on BCU to demonstrate why the Mareva Order should be varied and the distribution order granted. So long as BCU was given the opportunity to respond to the issues, as it was here, there is no prejudice. Regardless of the procedural framework, the issues of BCU’s breach of the Mareva Order, the appropriate response in the light of that breach, and BCU’s request for a distribution order, were squarely before the court and could have been raised on the court’s own initiative.

[53] The court’s broad jurisdiction to craft an appropriate order in response to a breach of a court order arises from its well-established inherent jurisdiction to prevent an abuse of the court’s process. Section 140(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43, gives the court express power to stay or dismiss a proceeding as an abuse of process. The deliberate breach of court orders strikes at the very heart of the administration of justice and can never be tolerated. It is beyond trite to say that a court order must be followed until it is set aside. Self-help remedies will never be tolerated because they undermine the rule of law. In United Nurses of Alberta v. Alberta (Attorney General), [1992] 1 S.C.R. 901, at p. 931, in the context of civil and criminal contempt, McLachlin J. (as she then was) wrote a strong affirmation of the connection between the rule of law and enforcement of the court’s process, which is apposite here: “The rule of law is at the heart of our society; without it there can be neither peace, nor order nor good government. The rule of law is directly dependent on the ability of the courts to enforce their process and maintain their dignity and respect.”

[54] BCU’s creditor priority arguments ignore the consideration, in light of the motion judge’s finding of its breach, that its claim to the post- Mareva advances would never have arisen but for its breach of a clear court order. And they fail to take into account the court’s broad jurisdiction in response to BCU’s abuse of the court’s process by its breach of the Mareva Order. As this court noted in Paul Magder Furs Ltd. v. Ontario (Attorney General) (1991), 6 O.R. (3d) 188 (C.A.), leave to appeal refused, [1992] S.C.C.A. No. 92: “it is an abuse of process to assert a right to be heard by the court and at the same time refuse to undertake to obey the order of the court so long as it remains in force”.

[55] The court’s broad jurisdiction in the face of a breach of a court order includes the power to dismiss or refuse to entertain a proceeding, strike pleadings, or adjourn a party’s request for relief: see, for example, Thrive Capital Management Ltd. v. Noble 1324, 2021 ONCA 722, 463 D.L.R. (4th) 377, at para. 22; Dickie v. Dickie (2006), 78 O.R. (3d) 1 (C.A.), Laskin J.A. dissenting, aff’d 2007 SCC 8, [2007] 1 S.C.R. 346, at para. 6; Paul Magder Furs Ltd.; First Majestic Silver Corp. v. Davila Santos, 2015 BCCA 452, 391 D.L.R. (4th) 553, at paras. 19-25; Yao v. Li, 2012 BCCA 315, at para 41. The breadth of the court’s jurisdiction that would allow it to dismiss, refuse to entertain or adjourn proceedings in the face of a breach of an order clearly encompasses the jurisdiction to postpone the enforcement of a creditor’s claim arising solely from a breach of a court order.

[56] BCU is not in the same position as the creditor in Maple Trust. In my view, the Maple Trust case is clearly distinguishable from the present case.

[57] In Maple Trust, the moving party successfully moved to vary the Mareva Order to enforce its writs of seizure and sale in relation to costs awards ordered payable to it by The Cash House in an unrelated action. Trade Capital resisted Maple Trust’s motion on the basis that the account against which Maple Trust moved to enforce its cost orders contained funds stolen from Trade Capital through the fraud.

[58] The motion judge in Maple Trust held that Trade Capital’s Mareva Order was not a proprietary injunction that prevented a legitimate creditor from enforcing its judgment, nor had Trade Capital provided any evidence that the funds held in the account for The Cash House came directly or indirectly from any fraud committed against Trade Capital. The motion judge concluded that Maple Trust had met the test to vary the Mareva Order and ordered that Maple Trust could seize the funds in The Cash House’s account.

[59] Unlike Maple Trust, who was truly an unrelated creditor, and who was justifiably permitted to vary the Mareva Order in part to recover its debt, [4] BCU does not have a judgment for debt that arose in the normal course. Rather, the debt owed to BCU only arose because of BCU’s breach of a clear court order.

[60] In the present case, by his removal of BCU’s secured creditor status for the post- Mareva advances, the motion judge properly recognized that BCU should not be permitted to defy a clear court order and obtain relief that would effectively defeat the purpose of the Mareva Order it breached. However, the motion judge mistakenly concluded that he lacked jurisdiction to order that the Receiver hold the proceeds pending the resolution of Trade Capital’s claims, noting that there was no contempt motion before him. In doing so, he unnecessarily and incorrectly fettered the exercise of his discretion.

[61] It therefore falls to this court to undertake the requisite analysis.

(ii) Disposition of BCU’s Distribution Motion

[62] The variation of the Mareva Order stands as a precondition to the granting of BCU’s distribution motion. Any variation of a Mareva order is an exercise of the court’s equitable jurisdiction and should not, in the ordinary course, “conflict with the purpose for which the order was made in the first place”, namely, to prevent the plaintiff from being cheated out of the proceeds of their action, should it be successful: Break Fast Investments Pty Ltd v. Gravity Ventures Pty Ltd, [2013] VSC 89, at para. 43; Maple Trust, at para 51; First Majestic Silver Corp. v. Santos, 2014 BCSC 1564, at para. 18; Australian Mortgage & Finance Company v. Rome Euro Windows Pty Ltd, [2014] NSWSC 996, at para. 38. Any variation will therefore require the balancing of the parties’ competing interests: see e.g., Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, 2003 ONSC 12916. Having made a Mareva order, a court “should not be quick to reverse it save for good reason and the dictates of justice”: MG Corrosion Consultants Pty Ltd v. Gilmour, [2012] FCA 568, at para. 14. The overarching consideration is whether the justice of the case warrants the variance. [5]

[63] Applying these principles to the present case, does the justice of the case warrant the variance of the Mareva Order in favour of BCU to permit the distribution of the post- Mareva advances, in light of its breach of the Mareva Order? I conclude that it does not.

[64] Considering the motion judge’s finding of breach, BCU does not come to this court with clean hands because BCU’s claim for the post- Mareva advances arises out of its breach of a clear court order. There is no unfairness to BCU if the Mareva Order is not varied and it is not granted immediate enforcement of the entirety of its claim. But for BCU’s breach of the Mareva Order, the indebtedness in issue would not exist.

[65] In balancing the parties’ competing interests, I look at the effect of varying the Mareva Order on Trade Capital. There would be tremendous unfairness to Trade Capital. Trade Capital is the victim of an elaborate fraud and has expended considerable time and expense to obtain the Mareva Order. Recall that Trade Capital met the stringent requirements of a Mareva Order: in granting it, Ricchetti J. was satisfied that Trade Capital had made out a strong prima facie claim of fraud and that the evidence of the fraud perpetrated against Trade Capital was “overwhelming”. Without the Mareva Order, Ricchetti J. held that there was a “very real risk that the proceeds from the fraud would be disposed of or transferred beyond the jurisdiction of this court”. The purpose of the Mareva Order was, and remains, the preservation of assets. Allowing BCU to immediately enforce its judgment would defeat that purpose.

[66] Importantly, allowing BCU to reap the fruits of its improper actions by immediate enforcement would undermine the due administration of justice and offend the rule of law. Although aware of the Mareva Order, BCU did not seek to set it aside prior to making any of the post- Mareva advances. BCU was not entitled to ignore a clear court order. Nor was it open to BCU to engage in “self-help” remedies by encumbering the very assets subject to the Mareva Order in an attempt to obtain further security and payment for past advances.

[67] For these reasons, I would not grant BCU’s distribution motion as requested by BCU. As earlier noted, the motion judge’s removal of BCU’s secured creditor priority was a reasonable exercise of his jurisdiction. However, it did not adequately respond to BCU’s breach in the circumstances of this case where there were no other judgment creditors at the time of the motion and where payment of the amounts owing to BCU would exhaust the funds available to Trade Capital. Allowing BCU to profit from its breach in this way, to Trade Capital’s detriment, would effectively condone its abuse of process.

[68] Trade Capital asks that the enforcement of BCU’s judgment be delayed until it obtains judgment against Mr. De Maria and his related companies. It submits that BCU’s judgment should rank behind Trade Capital’s judgment, alternatively, they should collect on their judgments pari passu.

[69] In my view, in light of BCU’s breach and in response to its motion for a distribution, the appropriate and proportionate order in all the circumstances is to delay the enforcement of BCU’s judgment while the Mareva Order remains in place and until Trade Capital’s action against Mr. De Maria and his related companies is determined. It is not unfair that BCU must wait until Trade Capital’s action is determined. The indebtedness in issue arose only as a result of BCU’s breach of the Mareva Order. That said, there is no question that BCU advanced monies to, and was not fully repaid by, Mr. De Maria and his related corporations. The monies under the judgment are still owing to BCU. The question is the timing of the repayment to BCU considering its breach of the Mareva Order. As a result, if Trade Capital successfully obtains judgment in its action, Trade Capital and BCU should collect on their respective judgments pari passu.

(iii) Conclusion

[70] As a result, I would order that the enforcement of BCU’s judgment for the recovery of monies advanced in breach of the Mareva Order be delayed until Trade Capital obtains judgment or its action is otherwise determined, provided the Mareva Order remains in place. If and once Trade Capital obtains judgment, Trade Capital and BCU should collect on their respective judgments pari passu.

[71] I do not, respectfully, share the motion judge’s concern about the lack of evidence indicating steps taken by Trade Capital in the prosecution of its action to-date. As earlier noted, Trade Capital’s action has serious merit. The record also demonstrates that Trade Capital has not been sitting idle – as already noted, it has expended significant effort to recover and preserve the millions of dollars stolen from it.

[72] I also note that this action is being case managed by an experienced Commercial Court judge. Any concerns about any delay are within his province to deal with, as required. Now that this matter has been disposed of, Trade Capital’s action will undoubtedly move forward with alacrity. If it does not, BCU is not foreclosed in the future from bringing a new motion to seek to vary the Mareva Order and seek a distribution order and from arguing that the interests of justice warrant varying the Mareva Order at that time.

(c) Woodland Property Advances

[73] My disposition of the question of creditor priorities as between Trade Capital and BCU does not resolve the issue raised with respect to the Woodland Property advances: whether the amount owing when BCU was served with the Mareva Order was subsequently advanced in breach of the Mareva Order. The motion judge found that the amount owing on the Woodland mortgage upon service on BCU “was not, and could not have been,” advanced in contravention of the Mareva Order. It is common ground that if this finding is upheld, BCU is entitled to payment of this amount as part of the pre- Mareva advances from the net proceeds of sale in priority to Trade Capital.

[74] Trade Capital submits that, after the Mareva Order, all advances on the Woodland Property were paid back to BCU, and BCU subsequently made further advances in contravention of the Mareva Order. It argues that the motion judge erred in finding that the advances made by BCU following the Mareva Order were the product of dishonoured cheques [6] that were reversed or nullified. Rather, according to Trade Capital, the impugned advances now claimed by BCU were made in July 2015, several months before the dishonoured cheques were even tendered.

[75] Trade Capital takes issue with the following factual finding in paragraph 30 of the motion judge’s reasons:

[T]here is the question of whether the full amount in excess of $2.4 million was advanced post-Mareva Order. Trade Capital says yes. This is because the second mortgage account fell to zero during the post-Mareva Order period. I do not agree. Some of the $18 million of dishonoured cheques from Mr. De Maria’s Do You Know account were initially applied to reduce the Woodland Acres second mortgage account. Once those cheques were dishonoured, the paydowns on the Woodland Acres second mortgage were reversed or nullified such that the outstanding balances remained owing: Buduchnist Credit Union v. 2321197 Ontario Inc., Endorsement of Penny J. (January 17, 2020), p. 3. I conclude, on the basis of the evidence, that $1,003,510.23 was owing on the Woodland Acres second mortgage before BCU had notice of the Mareva Order. This amount was not, and could not have been, advanced in contravention of the Mareva Order.

[76] The second mortgage referenced by the motion judge was registered on the Woodland Property in 2012 in the principal amount of $3 million dollars. The Woodland Property was the matrimonial home of Mr. De Maria and his wife. Trade Capital submits that the second mortgage secured the line of credit held by Vicar Homes. The line of credit agreement was signed by Mr. De Maria as principal of Vicar Homes and personally as guarantor of the mortgage to a limit of $1,000,000.

[77] On May 6, 2015, the day the Mareva Order was issued and served on BCU, the balance owing on the Vicar Homes account, secured by the second mortgage, was $1,003,510.23. The BCU transaction history for Vicar Homes indicates that several withdrawals and deposits were made following this date, many of which were in quick succession, and some of which were for tens or hundreds of thousands of dollars.

[78] In some instances, the account balance surpassed zero dollars owing and reached a positive balance. Notably, the Vicar Homes account balance read $350,918.22, $351,050.72, $240,089.72, and $23.566.53 at points on July 13, 14, 15, and 16, 2015, respectively. In this time period, most transactions were deposits to or withdrawals from other accounts associated or previously associated with Mr. De Maria, including CHATS, Vicar Corp, and 198. Instances of positive balance are highlighted in yellow in the excerpt from Vicar Homes’ transaction history with BCU, reproduced below [7]:

13Jul2015 Clearing Cheque Chq -1,469.00 -985,521.78 13Jul2015 Clearing Cheque Chq -13,560.00 -999,081.78 13Jul2015 Deposit Vicar Corp. 50,000.00

• 949,081.78 13Jul2015 Transfer In from CHATS, current sub: 1, CHATS 50,000.00 -899,081.78 13Jul2015 Withdrawal Vicar Corp. -50,000.00 -949,081.78 13Jul2015 Deposit CHATS 500,000.00 -449,081.78 13Jul2015 Deposit CHATS 500,000.00 50,918.22 13Jul2015 Deposit CHATS 300,000.00 350,918.22 13Jul2015 Withdrawal Vicar Corp. -500,000.00 -149,081.78 13Jul2015 Withdrawal Vicar Corp. -500,000.00 -649,081.78 13Jul2015 Withdrawal Vicar Corp. -300,000.00 -949,081.78 13Jul2015 Transfer in from Vicar Corp., current sub: 1 100,000.00 -849,081.78 13Jul2015 Withdrawal Vicar Corp. -150,000.00 -999,081.78 14Jul2015 Clearing Cheque Chq -3,000.00 -1,002,081.78 14Jul2015 Deposit Vicar Corp. 150,000.00 -852,081.78 14Jul2015 Withdrawal Lighthouse -30,000.00 -882,081.78 14Jul2015 Withdrawal Lighthouse -16,867.50 -898,949.28 14Jul2015 Withdrawal Vapz -50,000.00 -948,949.28 14Jul2015 Transfer in from CHATS, current sub: 1 430,000.00 -518,949.28 14Jul2015 Transfer in from CHATS, current sub: 1 430,000.00 -88,949.28 14Jul2015 Transfer in from CHATS, current sub: 1 440,000.00 351,050.72 14Jul2015 Withdrawal Vicar Corp. -430,000.00 -78,949.28 14Jul2015 Withdrawal Vicar Corp. -430,000.00 -508,949.28 14Jul2015 Withdrawal Vicar Corp. -440,000.00 -948,949.28 15Jul2015 Clearing Cheque Chq -10,961.00 -959,910.28 15Jul2015 Deposit 600,000.00 -359,910.28 15Jul2015 Deposit 600,000.00 240,089.72 15Jul2015 Withdrawal Vicar Corp. -530,000.00 -289,910.28 15Jul2015 Withdrawal Vicar Corp. -530,000.00 -819,910.28 15Jul2015 Deposit 400,000.00 -419,910.28 15Jul2015 Withdrawal Vicar Corp. -540,000.00 -959,910.28 16Jul2015 Clearing Cheque Chq -5,278.23 -965,188.51 16Jul2015 Clearing Cheque Chq -1,988.80 -967,177.31 16Jul2015 Clearing Cheque Chq -9,256.16 -976,433.47 16Jul2015 Transfer in from 198, current sub: 1 500,000.00 -476,433.47 16Jul2015 Transfer in from 198, current sub: 1 500,000.00 23,566.53 16Jul2015 Transfer out to Vicar Corp., current sub: 1 -350,000.00 -326,433.47 16Jul2015 Transfer out to Vicar Corp., current sub: 1 -350,000.00 -676,433.47

[79] Similarly, in December 2015 and January 2016, the Vicar Homes line of credit again reached a positive balance on several occasions.

[80] Before the motion judge, Trade Capital argued that these instances of positive balance rendered the entirety of the amount presently claimed by BCU as owing on the second mortgage a post- Mareva advance, including the $1,003,510.23 that was owing when BCU was served with the Mareva Order. Trade Capital argues that the $1,003,510.23 amount was subsequently repaid and re-advanced.

[81] As noted above, the motion judge acknowledged these instances of positive balance. He ultimately concluded that they were the result of the dishonoured TD cheques and that the balance remained owing after the paydowns were nullified.

[82] On appeal, Trade Capital argues that the $1,003,510.23 owing at the time BCU was served with the Mareva Order was subsequently repaid and re-advanced when the Vicar Homes account balance reached a positive balance in July 2015. Trade Capital argues that, because the dishonoured cheques were deposited in December 2015 and January 2016, they could have caused the December 2015 and January 2016 positive balances but not the positive balances recorded months earlier in July 2015.

[83] On this basis, Trade Capital argues that the motion judge erred in his findings of fact with respect to the status of post- Mareva encumbrances of the second mortgage on the Woodland Property. In Trade Capital’s submission, the July 2015 repayment and re-lending meant that all monies owing on Vicar Homes’ line of credit constitute post- Mareva encumbrances, notwithstanding that $1,003,510.23 was owing when the Mareva Order was served on BCU.

[84] BCU contends that the instances of positive balance in July 2015 were due to accounting errors and corrections, but BCU adduced no evidence in support of this contention. The only evidence that monies were still owing are the bald statements from BCU’s President and Chief Executive Officer, Oksana Prociuk, that the account was never paid down.

[85] The issue of the December 2015 and January 2016 transfers was addressed by the motion judge. In his January 17, 2019 endorsement on BCU’s application for the appointment of a receiver over Mr. De Maria’s properties, the motion judge concluded that the transfer of monies to reduce the Vicar Homes line of credit “was really nothing more than an accounting error on the part of BCU” and “[h]ad it waited for the [dishonoured] cheques to clear, no funds would have been transferred and there would never have been a credit of $800,000 to the Vicar account.” He referenced this past finding in the context of the transfers that occurred in December 2015 and January 2016.

[86] It is well-established that the motion judge’s findings of fact based on the evidence before him would be subject to appellate deference absent palpable and overriding error or material legal error: Housen, at para. 10. Here, as the motion judge did not make any legal error, if the evidence supports the motion judge’s finding, there would be no basis to intervene. However, given the evidence set out above, I am persuaded that it does not support the motion judge’s finding that the amount owing at the time the Mareva Order was issued could not have been advanced in contravention of the Mareva Order. Specifically, the dishonoured cheques do not account for the repayment of the Woodland mortgage in July 2015 and the further advances made after the account balance reached zero.

[87] That is not the end of the matter. The difficulty in the present case is that the argument that the Woodland mortgage was repaid by July 2015 does not appear to have been the focus of the motion. There is no real cross-examination on the point, nor was this argument clearly and squarely made to the motion judge. Rather, the parties’ focus was on the dishonoured cheques and the positive balances in December 2015 and January 2016. It was only on appeal that the argument took its present form.

[88] As a result, we lack the record that would permit us to determine this issue. This issue should return to the motion judge or another judge of the Superior Court for adjudication. The parties can canvass how best to address this issue before the case management judge.

Disposition

[89] Accordingly, I would allow the appeal and dismiss the cross-appeal. I would order that the enforcement of BCU’s judgment for funds advanced in breach of the Mareva Order be delayed until Trade Capital’s action is determined, and that, if Trade Capital is successful in obtaining judgment, Trade Capital and BCU shall collect on their respective judgments pari passu.

[90] The issue of the Woodland Property advances is remitted to the Superior Court to be addressed by the parties concerning next steps in a case management conference before the case management judge assigned to this matter.

[91] If the parties cannot agree on the disposition of the costs of the appeal, cross-appeal and before the motion judge, I would permit them to make brief written submissions of no more than two pages, plus a costs outline, within ten days of the release of these reasons.

Released: January 26, 2024 “L.B.R.” “L.B. Roberts J.A.” “I agree. Gary Trotter J.A.” “I agree. L. Sossin J.A.”

Footnotes:

[1] The mortgage on the Cottage Property was also registered prior to the Mareva Order. The motion judge observed that there was “effectively, no dispute about any aspect of the Cottage property or mortgage.”

[2] These parties were not added as defendants but were each referred to in Emery J.’s March 24, 2016 order as a “Mareva Respondent”.

[3] The advances made under the Woodland mortgages are described in detail below under that section of my analysis.

[4] As this court wrote in Trade Capital’s appeal of Maple Trust, “[t]here is no basis for the third party, Maple Trust, to suffer prejudice as a result” of the Mareva Order: Trade Capital Finance Corp. v. Cook, 2018 ONCA 27, at para. 4.

[5] Without limiting the criteria that a court may take into account when determining whether the justice of the case warrants the variance, these criteria may include but are not limited to those considered by the motion judge in Maple Trust, at paras. 43 and 51.

[6] The motion judge found that Mr. De Maria wrote close to $6 million of cheques from DYKI’s TD account to The Cash House’s account at BCU. TD dishonoured these cheques because of the Mareva Order, but the funds were quickly transferred out of The Cash House’s account, leaving BCU short several million dollars.

[7] The account numbers on the clearing cheques have been removed and the account numbers have been replaced with the names of the corporations that own the accounts.