COURT FILE NO.: 209/12

(Guelph)

DATE: 2012-09-05

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CHRISTINE KINGSTON, RONALD CRUZ, SURUJPAUL SINGH, SAIF MIR, ROBERT LEMIEUX, BALA GILL, AJAIDEEP GREWAL, DORIS COLES, DOUGLAS FLUHMANN and DUC NGUYEN

Plaintiffs

– and –

GMA COVER CORP., GMA HOLDINGS, LLC, GMA COVER, ULC, JOSEPHINE MANAGEMENT COMPANY LIMITED, CASSANDRA MANAGEMENT COMPANY LIMITED, GLENN MAURICE VERKINDT and NICHOLE VERKINDT

Defendants

Donald G. Kidd and Chelsea A. Harron, Counsel for the Plaintiffs

Bonnie Roberts Jones, Counsel for the Defendant GMA Holdings, LLC

No one for the Remaining Defendants

HEARD: August 13, 2012

REASONS FOR JUDGMENT

gray j.

[1] The plaintiffs were formerly employed by a Guelph company, GMA Cover Corp. Their employment was summarily terminated in December, 2011. They were given no notice or compensation.

[2] In June, 2011, there was a reorganization of the business. Any actual business carried on in Ontario had effectively ceased about a year earlier. After the reorganization in June, 2011, business was carried on in Michigan, and, through a complex series of transactions, the ownership of the business was acquired by the Jon and Sara Kutler Family Trust. The plaintiffs claim that the various companies involved in the transactions constitute a common employer, and are thus jointly and severally liable for the plaintiffs’ damages.

[3] There is one remaining asset in Ontario owned by one of the defendants, GMA Cover, ULC. The plaintiffs now move for a Mareva injunction, to prohibit the sale or encumbrance of the property pending the disposition of this action.

[4] For the reasons that follow, the motion for a Mareva injunction is granted.

Background

[5] GMA Cover Corp. is an Ontario corporation which operated a business in Guelph from 1992 until December, 2011. It operated out of a property at 965 York Road, Guelph, and was in the business of manufacturing high technology protection systems, particularly those used in the defence industries.

[6] From time to time, there were associated facilities located in Port Huron, Michigan, as well as an affiliated company located in the Dominican Republic.

[7] The plaintiffs at all times worked out of the Guelph plant, although during the latter part of their employment some of them were assigned to commute to the operation in Port Huron, Michigan.

[8] The plaintiffs held a variety of positions with GMA Cover Corp., some senior and some not. In their Fresh as Amended Statement of Claim, their positions are listed as follows:

(a) Christine Kingston – Vice-President, Sales and Marketing;

(b) Ronaldo Cruz – Prototype Technician;

(c) Surujpaul Singh – Maintenance Management;

(d) Saif Mir – Vice-President, Manufacturing;

(e) Robert Lemieux – Vice-President – Corporate Operations;

(f) Bala Gill – Production Supervisor/Process Coordinator/Project Manager;

(g) Ajaideep Grewal - Process Coordinator;

(h) Doris Coles – Accounts Payable Clerk;

(i) Douglas Fluhmann – Director of Engineering; and

(j) Duc Nguyen – Unstated.

[9] The damages for breach of contract claimed by the plaintiffs total $1,107,500. In addition, they claim aggravated, exemplary and punitive damages.

[10] Sometime in 2010, GMA Cover Corp. closed its manufacturing operations in Guelph and moved them primarily to the Port Huron, Michigan facility. Engineers from Guelph were required to work in Port Huron on an “as needed” basis. In early 2011, most of the engineering employees were advised verbally that they would have to work out of Port Huron on a full-time basis, travelling there Monday mornings and returning to Guelph on Friday evenings. The sales and accounting functions remained in Guelph, with the office remaining open for those functions.

[11] The property out of which the business was operated in Guelph, 965 York Road, was originally acquired by Cassandra Development Corp. in two separate parcels in 1988 and 1989. After some amalgamations in 1992, the property was registered in the name of the Ontario company.

[12] In 2005, the Ontario company mortgaged the property to the Business Development Bank of Canada to secure $3.8 million. In May, 2007, the Ontario company granted a second mortgage to Business Development Bank of Canada to secure an additional $3.8 million.

[13] In June, 2011, there was a significant, and somewhat complicated, reorganization of the business, reflected in a Securities Purchase Agreement executed on June 16, 2011. That Agreement is made among GMA Holdings, LLC; Josephine Management Company Limited; GMA Cover, ULC; Cassandra Management Company Limited; and Glenn Maurice Verkindt and Nicole Verkindt.

[14] Affidavits describing the various transactions were filed on behalf of the defendants by Marie-Andrée Beaudry, a tax lawyer with Stikeman Elliott in Montreal, and by Ryan Treleaven, a lawyer with Heenan Blaikie in Toronto.

[15] In substance, the Jon and Sara Kutler Family Trust, which is resident somewhere in the United States, was to acquire the business by assuming the debts of the Ontario company at a discount. Those debts consisted of the mortgages to Business Development Bank of Canada, referred to earlier, and a debt owed to the Bank of Montreal.

[16] According to Mr. Treleaven’s affidavit, at the time of the reorganization, the debt owed to the Bank of Montreal was over $5 million. That indebtedness was purchased for $1,615,000. The indebtedness to the Business Development Bank of Canada was approximately $4.2 million, and that debt was purchased for $2,565,000.

[17] As part of the transactions, the original owners of the Ontario business, Glenn Verkindt and Nicole Verkindt, were given consulting agreements and a “long-term incentive plan”.

[18] Without going through all of the technical details, the resulting corporate structure after the execution of the Securities Purchase Agreement is outlined in a helpful chart attached to Mr. Treleaven’s affidavit, as follows:

Exhibit “B”

Resulting Corporate Structure after the June 16, 2011 Securities Purchase Agreement (the “Reorganization”)

100% 100% 100% 100%

Tiburon, Ltd.

(Bermuda)

“Tiburon”

Cassandra Management

USA, Inc. (Michigan)

“Cassandra”

GMA Cover Corp.

(Michigan)

“Michigan Corp.”

100%

100%

GMA Cover Corp.

(Ontario)

“Ontario Corp.”^ 1

Note 1: In connection with the Reorganization, Ontario Corp was to be dissolved shortly thereafter and all of its remaining assets and liabilities were to be transferred to B.C. Corp.

[19] According to Ms. Beaudry’s affidavit, all of the assets and liabilities of the Ontario corporation were transferred to and assumed by GMA Cover, ULC, the British Columbia company. The transactions themselves are described in para. 4 of Ms. Beaudry’s affidavit, as follows:

4. To the best of my knowledge, the Acquisition and the Reorganisation were implemented as follows:

a) The Kutler Trust formed GMA Holdings, LLC, a limited liability company under Delaware laws (“GMA Holdings”)

b) Josephine Management Company Limited (“Josephine”) formed GMA Cover, LLC, a limited liability company under Delaware laws (“Delaware Corp.”) and GMA Cover, ULC, an unlimited liability company (“BC Corp.”) under British Columbia law.

c) The Debts were purchased by the GMA Holdings at a discount to their face amount.

d) Josephine transferred the shares of Ontario Corp. to BC Corp. for common shares of BC Corp.

e) Josephine transferred the shares of BC Corp. to Delaware Corp. as a contribution to the capital of Delaware Corp.

f) Ontario Corp. was liquidated into BC Corp. pursuant to which all assets and liabilities of Ontario Corp. were transferred and assumed by BC Corp.

g) Intercompany receivables between BC Corp. and Michigan Corp. were set-off and the balance was contributed to the capital of Michigan Corp.

h) Delaware Corp. wrote down the cost of the BMO Debts to its cost of acquisition.

i) Delaware Corp. purchased: (i) the stock of Cassandra Management USA for $1, (ii) the shares of Michigan Corp. for $1 and as an offset against a portion of its outstanding debt from BC Corp. up to the value of the shares of Michigan Corp., (iii) the interests in Delaware Corp for $1, and (iv) a $1,500,000 loan from Josephine to BC Corp. for $1.

[20] Ms. Beaudry swears that the transactions were undertaken in the complex way in which they were structured for tax reasons.

[21] As noted earlier, the property at 965 York Road is currently owned by GMA Cover, ULC, the British Columbia company, and the mortgages, formerly held by the Business Development Bank of Canada, are now held by GMA Holdings, LLC.

[22] Sometime in June, 2011, the plaintiffs were advised in writing by Nichole Verkindt that the Ontario company had been sold to a Jon Kutler. The plaintiffs continued to work as they had, and there was no disruption to their usual tasks.

[23] Sometime around December 19, 2011, the plaintiffs were advised that the Ontario company would be shutting down all functions and its business in Guelph.

[24] In late December, 2011, the plaintiffs were presented with an offer of an Employment Separation Agreement, purportedly to be entered into between the British Columbia company and each employee. Employees were to be paid up to and including December 30, 2011. Thereafter, they were offered what was called an Independent Contractor Agreement, under which they were required to release any and all claims against their employer, said to be the British Columbia company, and any related parties, from any claims, and give up their rights to notice or pay on termination. None of the plaintiffs accepted the agreement, and their employment was then terminated at the end of December, 2011. None of the plaintiffs were given any notice of termination or pay in lieu of notice.

[25] In their Statement of Claim, the plaintiffs allege that the defendants are “common employers” and thus liable, jointly and severally, for any damages owing to them.

[26] The York Road property is currently for sale, at a listing price of $2,495,000. It was formerly listed for sale from June 9, 2010 until January 31, 2011, but was taken off the market until recently.

[27] There is no evidence that any of the defendants have any assets in Ontario, other than the York Road property.

Submissions

[28] Mr. Kidd, counsel for the plaintiffs, submits that a Mareva injunction should issue, preventing the sale or encumbrancing of the York Road property until the disposition of this action.

[29] Mr. Kidd submits that, on the merits of the claim that the defendants are common employers, the plaintiffs have a strong prima facie case.

[30] Mr. Kidd submits that, assuming that the complex transactions were undertaken for tax purposes as alleged, the fact remains that the resulting series of corporations are closely held and controlled by the Jon and Sara Kutler Family Trust, and the actual corporate entity that exercises decision-making power over employment matters is unknown to the plaintiffs. After the Ontario manufacturing business was discontinued in 2010, the employment of the plaintiffs carried on as if nothing had happened, although some of them had to travel to Port Huron, Michigan to do their daily work. After June, 2011, they were simply told that the business had been purchased by Jon Kutler. Once again, they carried on their daily work until the end of the year, even though, unknown to them, the assets and liabilities of the Ontario company had been assumed by the British Columbia company.

[31] Mr. Kidd submits that the common employer doctrine was developed by the courts in order to prevent employers from engaging in surreptitious reorganizations, thus frustrating the ability of employees to know who their employer really is, and to prevent injustice when the employment relationship is terminated. Mr. Kidd primarily relies on Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 CanLII 8538 (ON CA), 54 O.R. (3d) 161 (C.A.).

[32] Mr. Kidd submits that this is an appropriate case for the granting of a Mareva injunction.

[33] The only remaining asset in Ontario is the property on York Road in Guelph. That property is for sale. Once it is sold, there will be no assets left in Ontario to satisfy any judgment. The plaintiffs will then be left with the task of trying to trace the money, or chasing the various defendants in several jurisdictions in the United States.

[34] Mr. Kidd relies on Aetna Financial Services Ltd. v. Feigelman, 1985 CanLII 55 (SCC), [1985] S.C.J. No. 1; Bank of Montreal v. Misir (2004), 8 C.P.C. (6th) 91 (Ont. S.C.J.); and Chitel et al v. Rothbart et al (1982), 1982 CanLII 1956 (ON CA), 39 O.R. (2d) 513 (C.A.).

[35] Ms. Roberts Jones, counsel for GMA Holdings, LLC, submits that the motion for a Mareva injunction should be dismissed.

[36] She describes the relief claimed as “extraordinary, harsh, and exceptional.” She submits that the plaintiffs have failed to discharge the stringent evidentiary burden required to support such an exceptional remedy.

[37] Counsel submits that the acquisition of the assets of the Ontario corporation, and the resulting reorganization, were properly done for legitimate tax planning purposes.

[38] Ms. Roberts Jones submits that there is no evidence that there is any intention on the part of any of the defendants to remove assets from Ontario for the purpose of defeating or frustrating the plaintiffs’ claims.

[39] Ms. Roberts Jones asserts that the sale of the property on York Road is simply in the normal course of business. Indeed, the property had been listed for sale in June, 2010, long before any of the plaintiffs’ claims arose.

[40] Ms. Roberts Jones also asserts that the reorganization was not part of some clandestine plan to defraud the plaintiffs, but rather was undertaken to minimize tax consequences of the acquisition.

[41] Ms. Roberts Jones submits that in order to obtain a Mareva injunction, a plaintiff must demonstrate a strong prima facie case; establish that there is a real risk that the defendants are removing assets from the jurisdiction; and establish that the purpose in removing the assets from the jurisdiction is to avoid payment of a judgment.

[42] Ms. Roberts Jones submits that the plaintiffs do not have a strong prima facie case. She submits that there is little chance that they will be able to establish that the defendants are common employers. It is clear that the plaintiffs were at all times employed by the Ontario company, and the mere fact of inter-corporate control or direction from others is insufficient to establish a common employer relationship.

[43] Ms. Roberts Jones submits that, as noted, the plaintiffs must establish both that there is a risk that the defendants are removing assets from Ontario, and that the intention of the defendants is to defeat the plaintiffs’ rights. There is simply no evidence that the sale of the York Road property is to defeat the plaintiffs’ rights.

[44] Ms. Roberts Jones relies primarily on Dumbrell v. The Regional Group of Companies Inc. (2007), 2007 ONCA 59, 85 O.R. (3d) 616 (C.A.); Colak v. UV Systems Technology Inc., [2007] B.C.J. No. 769 (C.A.); and R. v. Consolidated Fastfrate Transport Inc. (1995), 1995 CanLII 1527 (ON CA), 24 O.R. (3d) 564 (C.A.).

Analysis

Do the plaintiffs have a strong prima facie case on the merits of their claim?

[45] The “common employer” doctrine has a long statutory history.

[46] Section 1(4) of the Labour Relations Act provides as follows:

(4) Where, in the opinion of the [Ontario Labour Relations] Board, associated or related activities or businesses are carried on, whether or not simultaneously, by or through more than one corporation, individual, firm, syndicate or association or any combination thereof, under common control or direction, the Board may, upon the application of any person, trade union or council of trade unions concerned, treat the corporations, individuals, firms, syndicates or associations or any combination thereof as constituting one employer for the purposes of this Act and grant such relief, by way of declaration or otherwise, as it may deem appropriate.

[47] Section 4 of the Employment Standards Act, 2000, provides as follows:

4. (1) Subsection (2) applies if,

(a) associated or related activities or businesses are or were carried on by or through an employer and one or more other persons; and

(b) the intent or effect of their doing so is or has been to directly or indirectly defeat the intent and purpose of this Act.

Same

(2) The employer and the other person or persons described in subsection (1) shall all be treated as one employer for the purposes of this Act.

Businesses need not be carried on at same time

(3) Subsection (2) applies even if the activities or businesses are not carried on at the same time.

Exception, individuals

(4) Subsection (2) does not apply with respect to a corporation and an individual who is a shareholder of the corporation unless the individual is a member of a partnership and the shares are held for the purposes of the partnership.

Joint and several liability

(5) Persons who are treated as one employer under this section are jointly and severally liable for any contravention of this Act and the regulations under it and for any wages owing to an employee of any of them

[48] The forerunners of these provisions were enacted over 40 years ago. The purpose of s. 1(4) of the Labour Relations Act is primarily to prevent the erosion of trade union rights if an employer carries on a business through more than one entity. The purpose of s. 4 of the Employment Standards Act, 2000, is to prevent the intent and purpose of that Act from being defeated if an employer carries on a business through more than one entity. See Canada Machinery Corp., [1988] O.E.S.A.D. No. 2; Zettel Metalcraft Ltd., [2000] O.E.S.A.D. No. 570; and Groupmark Canada Ltd., [2002] O.E.S.A.D. No. 836.

[49] At common law, the development of the common employer doctrine is of more recent origin. The leading case is Downtown Eatery, supra.

[50] In my view, the purpose of the common law doctrine is similar to the underlying purpose behind the statutory provisions: to protect the legitimate rights of employees when there is uncertainty as to who the real employer is, or where a business is carried on through more than one entity. Employees have no control over corporate structures, or who makes decisions regarding their employment terms and conditions.

[51] Ms. Roberts Jones submits that the common employer doctrine does not apply simply because a corporate entity is controlled by someone else. In that case, she submits that a parent company would always be a common employer with one of its subsidiaries. She submits that the doctrine applies only where a number of entities operate a business together in a “seamless” manner.

[52] I quite agree that the mere fact that there is a parent/subsidiary relationship between two corporations is insufficient, standing alone, to trigger the common employer doctrine. However, I disagree that the doctrine applies only where a number of entities operate a business in a seamless manner. While the Court of Appeal in Downtown Eatery found that the various companies found to be common employers in that case operated the business in a seamless manner, there is nothing in the reasons of Borins and MacPherson JJ.A. that purports to restrict the doctrine to that situation. As stated at para. 36:

[36] However, although an employer is entitled to establish complex corporate structures and relationships, the law should be vigilant to ensure that permissible complexity in corporate arrangements does not work an injustice in the realm of employment law. At the end of the day, Alouche’s situation is a simple, common and important one – he is a man who had a job, with a salary, benefits and duties. He was fired – wrongfully. His employer must meet its legal responsibility to compensate him for its unlawful conduct. The definition of “employer” in this simple and common scenario should be one that recognizes the complexity of modern corporate structures, but does not permit that complexity to defeat the legitimate entitlements of wrongfully dismissed employees. [Emphasis added]

In my view, to apply this reasoning as narrowly as the defendants suggest would serve to defeat the purpose of the common employer doctrine. There are many corporate structures that can exist, and can form the basis for a common employer determination. I do not agree that such a determination is restricted to the case where a business is run by more than one entity in a “seamless” manner. To the extent that Master Glustein held otherwise in Wood v. C.F.N. Precision Inc., [2008] O.J. No. 5969 (Master), I respectfully disagree.

[53] Fundamentally, the issue boils down to where decision-making about employment matters resides. Control is thus important, but not definitive. Many subsidiary corporations make their own employment decisions. However, where employment decisions are made by the parent company for a number of subsidiary corporations, and they are operated as a business unit, it may be quite appropriate to treat them as one employer. Employees have no control over corporate transactions or relationships, and generally speaking they have no knowledge as to who makes employment decisions.

[54] Dumbrell, and Colak, do not assist the defendants. In each case, there was a written employment contract with a specific corporation. That is not the case here.

[55] In this case, it is quite uncertain as to who the real employer was after June, 2011. According to Ms. Beaudry’s affidavit, the assets of the Ontario company were assumed by the British Columbia company. Apart from the fact that the Kutler Family Trust owns the shares of GMA Holdings, LLC, it is difficult to know who actually made decisions affecting the plaintiffs. Someone made a decision to give them no notice or severance pay. Someone made a decision to offer them work through the British Columbia corporation. Someone provided the funds to pay them until the end of December, 2011.

[56] The plaintiffs would have no way of knowing who made these decisions. The affidavits provided by the defendants shed no light. They are sworn by lawyers who do not know any of the facts, apart from the details of the reorganizations themselves. An attempt to cross-examine Mr. Treleaven was fruitless, as might have been expected.

[57] In my view, it is not open to the defendants to stonewall and say that the plaintiffs have not established who has made employment decisions. Surely they cannot entice the plaintiffs to remain employed until the end of December, 2011, pull the rug out from under them and give them no notice or severance pay, and then claim that none of the defendants, apart from the defunct Ontario company, is the employer.

[58] The plaintiffs’ claims come to more than $1 million. Those claims cannot be allowed to founder on the intricacies of a corporate reorganization of which they have little knowledge.

[59] In my view, the plaintiffs have a strong prima facie case that the defendants, or many of them, are common employers and thus are jointly and severally liable for the plaintiffs’ damages.

Have the plaintiffs satisfied the tests for a Mareva Injunction?

[60] Prior to the advent of the Mareva injunction in the 1970s, courts showed a strict aversion to anything that smacked of execution before judgment: see Aetna Financial Services, supra, at para. 8, citing Lister & Co. v. Stubbs (1890), 45 Ch. D. 1 (C.A.). While the courts have moved a considerable distance in recent years, nevertheless it is clear that an injunction to prevent the dissipation of assets, before a judgment has been obtained to establish the plaintiff’s entitlement, is the exception rather than the rule. Some stringent requirements must be met.

[61] The availability of a Mareva injunction was first canvassed extensively in Ontario by the Court of Appeal in Chitel, supra. At p. 527, MacKinnon A.C.J.O. referred to the judgment of Lord Denning M.R. in Third Chandris Shipping Corp. et al. v. Unimarine S.A., [1979] 2 All E.R. 972 (C.A.). At p. 528, he reproduced the guidelines articulated by Lord Denning in Third Chandris, as follows:

(i) The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know. . . . (ii) The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the defendant. (iii) The plaintiff should give some grounds for believing that the defendants have assets here. . . . (iv) The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied. . . . (v) The plaintiffs must . . . give an undertaking in damages.

[62] MacKinnon A.C.J.O. referred to guidelines (i), (ii) and (v) as “standard guidelines in this province in considering whether to grant an interlocutory injunction in the ordinary case.” At p. 532, he stated that: “the material under items (i) and (ii) of the guidelines must be such, as I have already said, as persuades the court that the plaintiff has a strong prima facie case on the merits.” At p. 532, MacKinnon A.C.J.O. referred to guidelines (iii) and (iv) as follows:

Guidelines (iii) and (iv) cover areas that are unique to the Mareva injunction. The material under item (iii), which deals with the assets of the defendant within the jurisdiction, should establish those assets with as much precision as possible so that, if a Mareva injunction is warranted, it is directed towards specific assets or bank accounts. It would be unusual and in a sense punitive to tie up all the assets and income of a defendant who is a citizen and resident, within the jurisdiction. Damages, covered by an undertaking as to damages, might be far from compensating for the ramifications and destructive effect of such an order. In the instant case, this was the order sought and initially secured without any attempted identification of assets to which the order would be directed. It may well be that a plaintiff may have no knowledge of any of the defendant’s assets or their location, but that was not stated to be the case in the instant application.

Turning finally to item (iv) of Lord Denning’s guidelines – the risk of removal of these assets before judgment – once again the material must be persuasive to the court. The applicant must persuade the court by his material that the defendant is removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of a judgment, or that the defendant is otherwise dissipating or disposing of his assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law.

[63] In my view, these passages disclose the fundamental concern about the potential abuse that may arise from a Mareva injunction.

[64] First, the Court must be sensitive to the damage that can be inflicted on an ongoing business. If an order of the Court effectively freezes all of the assets of an operating business, there is a serious risk that the business will cease to operate. Thus, it is necessary to selectively target assets so that this will not happen, except in an extraordinary case.

[65] Second, there must be a real risk that assets will be put beyond the reach of the litigant. Any such concern is obviated where, as in Aetna Financial Services, supra, assets are being transferred in the ordinary course of business within Canada, where reciprocal enforcement legislation is universal. Similar concerns may be obviated in the case of a transfer of assets outside Canada to a jurisdiction where reciprocal enforcement legislation also exists. I will return to this issue, as it affects this case, later.

[66] A refinement to guideline (iv) has subsequently been explored in the case law, namely, whether it is necessary for a plaintiff to establish not only that there is a risk that assets may be moved out of the jurisdiction, but that it is the intent of the defendant that the plaintiff’s ability to collect any judgment will be frustrated. Ms. Roberts Jones submits strongly that that is the case.

[67] The case in which that issue was explored in some depth was R. v. Consolidated Fastfrate, supra.

[68] The facts of that case were somewhat unusual. The underlying litigation was a prosecution of a corporation under the Competition Act. On the day the trial began, the Crown applied to a judge of this court (not the trial judge) for an injunction restraining the corporation from disposing of any part of the proceeds of the sale of its assets in order to preserve assets out of which a fine could be paid if the corporation were convicted. The Court of Appeal heard an appeal from an order granting the injunction.

[69] Galligan J.A., for the majority of the Court, considered the question of whether it was necessary, in the context of that case, for the Crown to show that it was the corporation’s intent to defeat the Crown’s ability to collect a fine before a Mareva injunction could be granted, or whether it was sufficient to show that the disposal of assets would have the effect of defeating the Crown’s ability to collect. At p. 578, he stated that he inclined to the former view, but did not have to reach a firm conclusion in the case of a Mareva injunction in an ordinary civil case. However, in a case where the Court is being asked to exercise its civil jurisdiction in aid of the criminal law, he concluded that it is necessary for the Crown to show improper intent on the part of the accused. He stated:

Acting with the caution required when exercising the jurisdiction to issue a civil injunction in aid of the criminal law, I have concluded that a Mareva type of injunction can only be issued in aid of the criminal law when the court is persuaded that the accused person is arranging its affairs for the improper purpose of preventing its assets from being available to pay a fine should one be imposed.

[70] In the result, Galligan J.A. allowed the appeal and dissolved the injunction.

[71] Weiler J.A., while agreeing with the result, disagreed that it is necessary for the Crown to show that a transfer of assets is motivated by an improper purpose. In that respect, she cited with approval the decision of Southin J. (as she then was) in Gateway Village Investments Ltd. v. Sybra Food Service Ltd. (1987), 1987 CanLII 2737 (BC SC), 12 B.C.L.R. (2d) 234 (B.C.S.C.).

[72] The competing views have been discussed by Justice Sharpe in his text, Injunctions and Specific Performance (loose leaf ed.) at ¶2.880, as follows:

The Ontario Court of Appeal has suggested that the decisive question is the purpose of the defendant and, while hesitating to express a final view on the question, stated that the better view is that “it is only if the purpose of the defendant when removing assets from the jurisdiction or the dissipating or disposing of them is for the purpose of avoiding judgment that a Mareva injunction should be issued”. Similarly, the Manitoba Court of Appeal had held that “the preponderance of authority supports the view that Mareva injunctions are unavailable against defendants who do not evidence an intention to frustrate the plaintiff’s potential judgment”. However, the British Columbia courts have held that there should be no rigid rule and that a Mareva injunction may be granted even where there is no deliberate attempt to flout the process of the court. In Ontario, after conducting a thorough review of the authorities, Strathy J. concluded:

. . .it seems to me that in cases of fraud, as in any case, the Mareva requirement that there be risk of removal or dissipation can be established by inference, as opposed to direct evidence, and that inference can arise from the circumstances of the fraud itself, taken in the context of all the surrounding circumstances. It is not necessary to show that the defendant has bought an air ticket to Switzerland, has sold his house and has cleared out his bank accounts. It should be sufficient to show that all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff. [Sibley & Associates LP v. Ross (2011), 2011 ONSC 2951, 106 O.R. (3d) 494 (S.C.J.)]

[73] It is clear, in my view, that Galligan J.A. restricted his holding in Consolidated Fastfrate to the situation where the Crown seeks a Mareva injunction in support of the criminal law. While he inclined to the view that it would be necessary to show that it was the defendant’s intention to dispose of assets for an improper purpose in all cases, including civil cases, his view, apart from the case involving criminal law, was obiter.

[74] It is unnecessary for me to come down on one side or the other in view of the conclusion I have reached on the evidence, but I must say I find it difficult to understand why it would be necessary to establish the defendant’s motivation as an overriding consideration. While an improper motive would obviously go a long way towards satisfying Lord Denning’s guidelines, I confess to some difficulty in seeing why that would be a necessary ingredient in every case. There may well be situations where assets would be simply untraceable once they have left the jurisdiction, and the plaintiff would be left with no remedy if a Mareva injunction were not granted. Provided the other criteria for a Mareva injunction are met, as a matter of principle it is difficult to understand why an injunction should be refused simply because the defendant’s state of mind cannot be proven.

Should a Mareva injunction be granted?

[75] The plaintiffs have clearly satisfied all of Lord Denning’s guidelines except one.

[76] The plaintiffs have made full and frank disclosure of all matters within their knowledge. Indeed, the defendants do not dispute in any way the facts as outlined in the plaintiffs’ affidavits.

[77] The plaintiffs have a strong prima facie case on the merits.

[78] The plaintiffs have given full particulars of their claim.

[79] The plaintiffs have given an undertaking in damages.

[80] The plaintiffs have given grounds for believing that the defendants have assets here. Indeed, they have identified the only remaining asset in Ontario – the York Road property in Guelph.

[81] The only disputed ground that remains is Lord Denning’s guideline (iv). Is there a risk of assets being removed from Ontario before judgment is granted? Included is the question of whether it is necessary to show that the defendants’ purpose in selling the asset, and removing the proceeds from Ontario, is to defeat the plaintiffs’ ability to collect on a judgment.

[82] There is no question, in my view, that there is a risk that the asset will be dissipated, and will be unavailable to satisfy any judgment. As noted, the York Road property is the only asset remaining in Ontario. Once it is sold, the proceeds will undoubtedly be removed from Ontario. There is no business ongoing in Ontario. There will be no purpose for leaving the funds in Ontario. The defendants, other than the defunct Ontario company, are all incorporated outside Ontario and presumably operate outside Ontario.

Is it necessary to show that the defendants have an improper motive?

[83] As noted earlier, I incline to the view that it is not necessary to show that the defendants have an improper motive, particularly in the circumstances of this case. There is no risk that an injunction will interfere with the running of an ongoing business. Indeed, there is no ongoing business in Ontario. The defendants have offered no evidence to suggest that holding up the sale of the Ontario property will interfere in any way with any business operated by any of the defendants.

[84] In any event, I infer from all of the circumstances that the intent of the defendants is to frustrate the plaintiffs in the pursuit of their claims and the collection of any judgment.

[85] After the reorganization, no suggestion was made to the plaintiffs that their employment was in jeopardy. It was not until the last few days of their employment that they were told that they would no longer be employed as of the end of December, 2011. They were told they had to release any claims as a condition of getting some work as “independent contractors” thereafter.

[86] The plaintiffs could have been given reasonable notice of the termination of their contracts of employment. They were not. They could have been given severance pay. They were not.

[87] No explanation has been offered by the defendants, or any of them, as to why business decisions were made, in relation to the plaintiffs’ employment rights, as they were. No reason has been offered for the stealth and deception.

[88] The plaintiffs’ claims are in excess of $1 million. I draw the inference that the defendants have organized their affairs in order to frustrate the plaintiffs’ claims.

[89] I will deal with one remaining matter before I conclude. Ms. Roberts Jones submits that it is unnecessary to grant a Mareva injunction because there is reciprocal legislation that would entitle the plaintiffs, assuming they obtain judgment, to enforce their judgment in some American jurisdictions. Hawaii and Delaware are mentioned. I reject this submission.

[90] The defendants have given no indication as to where the proceeds of sale will end up. They have given no undertaking to advise the plaintiffs of where the proceeds will be. The simplest solution would have been for the defendants to give an undertaking to satisfy any judgment the plaintiffs obtain. They have not done so.

[91] It is not enough, in my view, to assert that the plaintiffs can search for assets outside Ontario, some of which may be in jurisdictions with reciprocal enforcement legislation.

Disposition

[92] For the foregoing reasons, a Mareva injunction will issue, preventing the disposition or encumbering of the York Road property until further order of the Court. If there is any dispute as to the form of the order, I may be spoken to.

[93] I will entertain brief written submissions with respect to costs, not to exceed three pages, together with a costs outline. Mr. Kidd shall have five days to file his submissions, and Ms. Roberts Jones shall have five days to respond. Mr. Kidd shall have three days to reply.

GRAY J.

Released: September 5, 2012

COURT FILE NO.: 209/12

(Guelph)

DATE: 2012-09-05

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

CHRISTINE KINGSTON, RONALD CRUZ, SURUJPAUL SINGH, SAIF MIR, ROBERT LEMIEUX, BALA GILL, AJAIDEEP GREWAL, DORIS COLES, DOUGLAS FLUHMANN and DUC NGUYEN

Plaintiffs

– and –

GMA COVER CORP., GMA HOLDINGS, LLC, GMA COVER, ULC, JOSEPHINE MANAGEMENT COMPANY LIMITED, CASSANDRA MANAGEMENT COMPANY LIMITED, GLENN MAURICE VERKINDT and NICHOLE VERKINDT

Defendants

REASONS FOR JUDGMENT

GRAY J.

Released: September 5, 2012