COURT FILE NO.: CV-12-107708-00

DATE: 20120516

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Complex Sportivo Inc. and Anthony Paolucci, Plaintiffs

AND:

Dale Maharaj, Hari Venkatacharya, Nexus Strategies Inc., Margaret Degroot and John Doe Group, Defendants

BEFORE: The Honourable Mr. Justice C. Boswell

COUNSEL:
Riaz Ahmed for the Plaintiffs

Scott D. Price for the Defendant, Dale Maharaj

Matthew P. Maurer for the Defendants, Hari Venkatacharya and Nexus Strategies Inc.

HEARD: May 15, 2012

ENDORSEMENT

Overview:

[ 1 ] The Plaintiffs move for a Mareva injunction. In other words, they seek to enjoin the Defendants, Maharaj, Venkatacharya and Nexus, from transferring or dissipating their assets in any way pending trial. They argue that they have a strong prima facie case against the Defendants and have reason to be concerned that the Defendants will dispose of, or otherwise dissipate, their assets before the trial, so that the Plaintiffs will be unable to recover on any judgment they ultimately obtain.

[ 2 ] The motion was served by the Plaintiffs on extremely short notice, returnable in Newmarket on May 10, 2012. By “extremely short notice” I mean the evening of May 9, 2012. Unfortunately there were no judges presiding in Newmarket on May 10, 2012 because virtually all Ontario Superior Court judges were in attendance at an education conference in Ottawa from May 9-11. The matter was dealt with by Gilmore J. on May 11, 2012, essentially on what I would call a “triage” basis. She adjourned the matter to May 15, 2012 so that oral argument could be made. She granted a temporary Mareva injunction in the meantime, essentially to preserve the status quo . Her order expired at 5:00 p.m. on the 15 th , though I extended it until 5:00 p.m. today to permit me to finalize and release this endorsement.

[ 3 ] Counsel made submissions on two issues: (1) the setting of a timetable for the motion to proceed on full materials; and, (2) what should happen in the meantime. The Plaintiffs submit that Justice Gilmore’s order should continue. The Defendants say it should be allowed to lapse, pending full argument of the motion on its merits, which is not expected to occur for about two months.

[ 4 ] May 15, 2012 – the date fixed to argue the motion on an interim interim basis – was a date when I had a full schedule of pre-trials to conduct. I was able to hear the parties for 75 minutes, which permitted only very brief submissions on what is a factually complex case. The Defendants have yet to prepare and file materials. Each of Mr. Maharaj and Mr. Venkatacharya are out of the country presently, making the preparation of responding materials challenging. The matter proceeded on short notice, such that in the circumstances, I consider it to have proceeded on ex parte materials, though obviously I had the benefit of some brief argument from both sides.

[ 5 ] My ruling, like that of Justice Gilmore, is intended to cover a temporary period only – the time between today and when the motion is returned for full argument on complete materials.

A Brief Overview of the Facts:

[ 6 ] The following is a very brief overview of the facts.

[ 7 ] The corporate Plaintiff (“Complex”) has a licensing agreement with Juventus Merchandising S.r.I., which grants Complex the right to use the Juventus name in organizing, promoting and conducting soccer development camps for children in Canada. Juventus Merchandising is the licensee of all trademark rights owned by the Juventus Football Club. Juventus F.C. is a prominent and widely supported Italian soccer club.

[ 8 ] It appears, based on my review of the limited materials now before the Court, that Complex intended to leverage its association with Juventus F.C. to develop a top flight soccer training and development complex in York Region, together with a stadium capable of hosting premier sports and entertainment events. It needed a great deal of money to proceed with its plans.

[ 9 ] The Defendants, Maharaj and Venkatacharya – and arguably Nexus – held themselves out as representing an unidentified foreign investment fund with apparent ties to the royal family of Dubai. They confirmed that financing was in place for a $235 million loan. To finalize the deal, they just needed an up-front payment from Complex of about $77,000 which they characterized as a due diligence fee. The fee was to be returned in the event that the financing did not proceed. The fee was provided by Complex to Maharaj in May 2011.

[ 10 ] Complex proceeded through the spring and early summer of 2011 to organize and market its Juventus soccer camps for the summer of 2011. It incurred significant costs in doing so – in the neighbourhood, it says, of $400,000. On June 16, 2011, Mr. Paolucci wrote to Mr. Venkatacharya to ask him to provide a 100% assurance that the $235 million funding package would close by July 22, 2011, given the expenses he was incurring. Mr. Venkatacharya responded, on Nexus letterhead, on June 17, 2011 confirming that due diligence would be completed by June 27, 2011 and that loan documents would be delivered by Clifford Chance –the lenders’ U.K. solicitors – by July 11, 2011, to facilitate a closing by July 20, 2011.

[ 11 ] On June 27, 2011, Mr. Venkatacharya confirmed that due diligence was complete and that loan documents would be sent by August 2, 2011. On July 27, 2011, however, Mr. Venkatacharya wrote to the Plaintiffs to advise that funding had been cancelled. Despite cancellation of the funding, and much prodding by the Plaintiffs, the due diligence fee was not returned.

[ 12 ] The Plaintiffs commenced this action on January 10, 2012 seeking over $6 million in damages for breach of contract, negligence and negligent misrepresentation. That said, for the purposes of this motion, the Plaintiffs’ counsel characterized their damages as being in the range of $400,000.

[ 13 ] On March 19, 2012, Mr. Maharaj conveyed his interest in a residential property in Mississauga to Margaret Degroot. The land transfer documentation supports the conclusion that Ms. Degroot assumed the mortgage on the property but otherwise provided no consideration for the transfer. The Plaintiffs obtained a Certificate of Pending Litigation which they registered on title to the property on or about April 4, 2012, based on an allegation that the conveyance to Ms. Degroot was fraudulent.

[ 14 ] On April 25, 2012, the Defendants, Maharaj, Venkatacharya and Nexus consented to a judgment in favour of the Plaintiffs for $80,000 as repayment of the due diligence fee, with interest and costs. That judgment remains unfulfilled.

[ 15 ] In early May, 2012, the Plaintiffs learned that Clifford Chance has had no involvement in the subject financing at all and they consider it to be a scam.

[ 16 ] In addition, the Plaintiffs have discovered that there are a number of other parties who have had similar experiences with the Defendants, Maharaj, Venkatacharya and Nexus, and are suing for non-refunded due diligence payments.

[ 17 ] The Plaintiffs have concluded that they have been the victims of fraud. There are certainly features present here that might very well support such a finding being made, though I am mindful of course that the Court currently has only one side of the story in evidence.

[ 18 ] I understand that the Plaintiffs have filed writs of execution against the judgment debtors but have not conducted examinations in aid of execution nor taken any further enforcement steps. They seek a Mareva injunction on the basis of a concern that the Defendants, whom they believe to have acted fraudulently, will do what they can to dissipate their assets before trial.

The Test for a Mareva Injunction:

[ 19 ] The requirements for a Mareva injunction were recently reviewed by Strathy J. in Sibley & Associates LP v. Ross, 2011 ONSC 2951. At para. 11 of that decision, he outlined the five classic requirements, as first established by the English Court of Appeal in Third Chandris Shipping Corp. v. Unimarine S.A, [1979] Q.B. No. 645 (C.A.), as follows:

(i) The plaintiff must make full and frank disclosure of all material matters within his or her knowledge;

(ii) The plaintiff must give particulars of the claim against the defendant(s), stating the grounds of the claim and the amount thereof, and the points that could be fairly made against it by the defendant(s);

(iii) The plaintiff must give grounds for believing that the defendant has assets in the jurisdiction;

(iv) The plaintiff must give grounds for believing there is a real risk of the assets being removed out of the jurisdiction, or disposed of within the jurisdiction or otherwise dealt with so that the plaintiff will be unable to satisfy a judgment awarded to him or her; and,

(v) The plaintiff must give an undertaking as to damages.

[ 20 ] In addition to the foregoing requirements, it must be remembered that a long standing, general principle of the common law is that a party is not entitled to execution before judgment: see Lister & Co. v. Stubbs (1890), 45 Ch. D. 1 (C.A.) . It appropriately follows then, that a party seeking a Mareva injunction – a form of execution before judgment – must establish that he or she has a strong prima facie case as a condition precedent to the granting of the injunction: Aetna Financial Services Ltd. v. Feigelman, 1985 55 (SCC), [1985] 1 S.C.R. 2.

[ 21 ] An unusual feature of this case is that the Plaintiffs already have partial judgment for $80,000. So to some limited extent, they are not seeking execution before judgment, but rather seek the injunction in aid of execution. A Mareva injunction is, indeed, available as an aid to execution following judgment, provided the requirements for such an injunction are met: Lamont v. Kent (1999), 30 C.P.C. (4 th ) 168 (Gen. Div.) ; Bruno Appliance and Furniture, Inc. v. Cassels Brock & Blackwell LLP, 2011 ONSC 1305 (S.C.J.); O.K. Tire Stores Inc. v. McLaughlin , [2008] O.J. No. 637 (S.C.J.) .

Application of the Test:

[ 22 ] Recall that this is an interim interim motion. The decision today is intended to last for a period of about two months. The Court has evidence and a legal brief from one side and has had the benefit of only (relatively speaking) brief argument.

Strong Prima Facie Case

[ 23 ] Dealing first with the necessary pre-condition of a prima facie case. I am satisfied that the Plaintiffs have met this hurdle. The evidence filed demonstrates several things. First, the Plaintiffs have judgment already for $80,000 against Maharaj, Venkatacharya and Nexus. Second, the entire transaction has the real whiff of fraud about it (though again, I hasten to point out that the Court only has one side of the story). Third, at the very least, there appear to have been clear promises made about funding approval that turned out not to be accurate and certainly were not followed through on. The Plaintiffs have not alleged fraud in the Amended Statement of Claim, as presently constituted. They seek damages for breach of contract, negligence and negligent misrepresentation. I do not have to be satisfied that there is a strong prima facie case about each aspect of the claim. I am satisfied that there is a strong prima facie case with respect to the breach of contract claim, at the very least, and of course there is obviously a strong prima facie case with respect to the amounts already awarded by way of judgment.

[ 24 ] Turning next to the five classic requirements for a Mareva injunction, I can fairly state that there is no issue taken with requirement (v). The Plaintiffs have provided an undertaking in damages. As for the remaining four requirements, the Defendants argue that the Plaintiffs have failed to satisfy any of them. I will review them in turn.

Full and Frank Disclosure

[ 25 ] It is difficult to assess, at this stage, whether full and frank disclosure has been made. The Court has no materials from any of the Defendants, nor has the Plaintiffs’ evidence been tested through cross-examination.

[ 26 ] The Defendants’ assertion, at this stage, is that the Plaintiffs have failed to provide sufficient evidence of damages to satisfy the court that there is a strong prima facie case as to losses caused by the actions of the Defendants, or any of them. In my view, the answer to this assertion, at least at this very preliminary stage, is that the Plaintiffs have clearly established damages of at least $80,000. The Defendants have consented to judgment for that amount.

[ 27 ] I confess that I have some difficulty, as I expressed to the Plaintiffs’ counsel, understanding how the Plaintiffs’ expenditures for the 2011 summer soccer camps comprise losses arising from the actions of the Defendants. But having said that, it appears the Plaintiffs have set out their purported losses. Whether they are all recoverable in law is another matter, for another day. For today’s purposes, it is clear that at least $80,000 in losses are recoverable.

[ 28 ] The vantage point of the Court at this early stage is quite different than it will be once materials are filed by all parties and cross-examinations have been conducted. Further developments may not only weaken the Plaintiffs’ claims, but may expose areas where there has been a failure to make full and frank disclosure. But on the basis of the limited record now before me, I am satisfied that the Plaintiffs have made full and frank disclosure of all material matters within their knowledge.

Particularization of the Claim

[ 29 ] My comment about the Court’s limited vantage point at this stage is equally applicable to the requirement of particularization. The Plaintiffs have provided an indication of the substance of the claim, the amount of losses incurred and how those losses arose. They have set out the Defendants’ position, insofar as they appear to know it, by including the Defendants’ pleadings in their motion record. Beyond that, they are in a difficult position, having received no explanation from the Defendants as to why the financing was cancelled or even the identity of the purported financing group.

[ 30 ] I am satisfied that the Plaintiffs have particularized their claim as well as they might, at this early stage.

Assets in the Jurisdiction

[ 31 ] The Plaintiffs have presented little evidence about assets that the Defendants own in Ontario. Mr. Maharaj was the registered owner of a residence in Mississauga, as I set out above. Though it was transferred, the Plaintiffs obtained a Certificate of Pending Litigation that they have registered to protect their interests. There is, accordingly, no realistic prospect that that property will be dissipated without their further knowledge.

[ 32 ] There is also evidence in the material about a bank account owned by Mr. Maharaj at Royal Bank of Canada, 2 Dundas Street West, Mississauga. There is no evidence about whether there are any funds in the account. It is somewhat remarkable that the Plaintiffs – who are judgment creditors of Mr. Maharaj – seek a Mareva injunction on an urgent basis, but have not issued a notice of garnishment to the Royal Bank.

[ 33 ] The Plaintiffs present no evidence of assets owned by Mr. Venkatacharya in Ontario.

[ 34 ] Evidence has been submitted that indicates Nexus is the registered owner of lands and premises municipally known as 3515 Cherrington Drive, Mississauga, though the parcel is subject to a significant mortgage.

Risk of Disposition

[ 35 ] Apart from the evidence that Mr. Maharaj conveyed his residence to a third party following the commencement of these proceedings, there is a dearth of direct evidence supporting a finding that there is a real risk of the Defendants, or any of them, removing their assets from Ontario, or otherwise dealing with them in Ontario in such a fashion as to frustrate enforcement of any judgment the Plaintiffs obtain against them.

[ 36 ] I am able to infer, as Strathy J. held in Sibley & Associates LP v. Ross , as above, that there is a risk of dissipation by virtue of the participation of the Defendants in what appears to have been a fraudulent scheme. But even making such an inference, the following significant features remain:

(i) There is no real risk of dissipation of Mr. Maharaj’s former residence because it is subject to a Certificate of Pending Litigation;

(ii) While there may be a risk of dissipation of money in Mr. Maharaj’s account at the Royal Bank of Canada, any such dissipation rests on an assumption that there are indeed funds in that account. Moreover, the Plaintiffs could easily and effectively seize, or at least freeze, any funds in that account by issuing a notice of garnishment. Having said that, there is clear evidence in the Plaintiffs’ materials that they provided a payment of more than $77,000 on account of the due diligence fee to Mr. Maharaj’s Royal Bank account and those funds have not been accounted for; and,

(iii) There is no evidence that Mr. Venkatacharya owns any assets in Ontario.

Disposition:

[ 37 ] I am satisfied that Mr. Maharaj and Nexus each own limited assets in the Province of Ontario and that there is, based on the facts and circumstances set out above, a real risk of removal or dissipation of at least some of those assets, namely: (1) the Nexus owned lands; and, (2) any balance in Mr. Maharaj’s Royal Bank account. In the result, I am prepared to grant, on an interim interim basis, a limited Mareva injunction as follows:

(i) Nexus shall not, pending further order of the Court, sell, transfer, assign or encumber in any way, any part of its right, title and interest in lands and premises municipally known as 3515 Cherrington Crescent, Mississauga, Ontario (bearing PIN 13414-0149); and,

(ii) Dale Maharaj shall not, pending further order of the Court, withdraw, transfer, assign or dissipate in any way, any funds on deposit in his name, alone or jointly with any other person, at the Royal Bank of Canada, and without limitation, in or from account number 01062-4527032, save and except in the ordinary course to cover his day-to-day living expenses. Nothing in this order should be construed so as to limit the right of the Plaintiffs to enforce their Judgment in this action dated April 25, 2011 by way of garnishment or otherwise.

[ 38 ] The costs of today’s hearing are reserved to the judge hearing the motion on complete materials.

Timetable Going Forward:

[ 39 ] The Defendants, Maharaj, Venkatacharya and Nexus, shall serve and file any responding materials to the Plaintiffs’ motion by June 5, 2012.

[ 40 ] The Plaintiff shall serve and file any reply materials by June 12, 2012.

[ 41 ] Cross-examinations on affidavits shall be completed by June 30, 2012.

[ 42 ] The motion shall be returnable for argument on July 12, 2012, for one-half day.

Boswell J.

Date: May 16, 2012