SUPERIOR COURT OF JUSTICE - ONTARIO

COMMERCIAL LIST

COURT FILE NO.: CV-12-9729-CL
DATE: 20121025

RE: UNIVALOR TRUST S.A.
Plaintiff

LINK RESOURCE PARTNERS INC. and ROY MURAD
Defendants

BEFORE: Justice Newbould

COUNSEL:
Melvyn N. Solmon, for the defendants, Applicants
James Clark, for the plaintiff, Respondent

DATE HEARD: October 23, 2012

E N D O R S E M E N T

[ 1 ] The defendants move to set aside a Mareva injunction which I granted on an ex parte motion on May 24, 2012. The grounds are that there was no basis for an ex parte motion to be brought and that the plaintiff did not make full and fair disclosure of all material facts.

[ 2 ] Rule 39.01(6) provides that on a motion without notice, the moving party shall make full and fair disclosure of all material facts, and failure to do so is itself sufficient ground for setting aside the order obtained.

[ 3 ] The test for a Mareva injunction and what must be disclosed in the material is well settled. See Chittel v. Rothbart (1982), 39 O.R. 2d 513 and United States . v. Friedland, [1996] O.J. No. 4399 . In United States. v. Friedland, Sharpe J. (as he then was) discussed the duty to make full and frank disclosure on an ex parte motion. He said:

31. The duty of full and frank disclosure is, however, not to be imposed in a formal or mechanical manner. Ex parte applications are almost by definition brought quickly and with little time for preparation of material. A plaintiff should not be deprived of a remedy because there are mere imperfections in the affidavit or because inconsequential facts have not been disclosed. There must be some latitude and the defects complained of must be relevant and material to the discretion to be exercised by the Court.

[ 4 ] In Friedland , Sharpe J. stated that failure to make proper disclosure entitled the opposite party to have the injunction set aside and that the right to a Mareva injunction was forfeited. His view on this seems to have softened somewhat, as indicated in his latest text Sharpe, Injunctions and Specific Performance , 4 th ed. (2012) Canada Law Book, in which he stated at para. 2.45 that inflexible application of this rule is to be avoided and failure to make full disclosure is not invariably fatal. He referred to English authority that has held that court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of an ex parte order, nevertheless to continue the order, or to make a new order on the same terms. He also states that if dissolution would result in injustice to the plaintiff, the punitive rationale for dissolving the injunction may be outweighed. Justice Sharpe also referred to opinion that expressed concern that applications to dissolve for non-disclosure were becoming routine, a view which in recent experience in our courts is all too true.

[ 5 ] Harvison Young J. in Two-Tyme Recycling Inc. v. Woods, 2009 Carswell Ont. 7181 also cautioned against interpreting the rules against non-disclosure too strictly as it might encourage unscrupulous defendants to allege material non-disclosure when they have a hopeless case on the merits.

[ 6 ] The test of materiality is an objective one and it is not for the applicant or his advisers to decide the question. See Sharpe J. in Friedland at para. 36.

[ 7 ] The claim in this case boiled down to its essentials is that Univalor holds a $2.2 million debenture from a company named Parkland Energy Services Inc. Under the debenture documentation, Link Resource Partners Inc. is the trustee to receive interest payments from Parkland on behalf of all debenture holders, including Univalor. Univalor claims that Link has received interest payments from Parkland but has failed to pay them to Univalor. Roy Murad is the principal of Link and the allegation giving rise to the Mareva injunction was a fear that he was dissipating his assets.

[ 8 ] The affidavit in support of the injunction was sworn by Mitchell Finklestein, a solicitor for Univalor. David Wollach, the chairman of the board of Univalor, was in Geneva and Mr. Finkelstein swore that due to the pressure of time and the urgency of the matter, Mr. Wollach was unable to attend from Geneva to swear an affidavit.

[ 9 ] The affidavit describes in great detail the attempts to find out from Link and its solicitors what had happened to the interest payments that were to be made by Parkland to Link and by Link to Univalor. It described unsatisfactory responses from Link and its solicitors and threats of litigation by Link’s solicitors against Univalor and its solicitors when requests were made by them of other debenture holders and of Parkland as to the interest payments that were to be made, and of unsatisfactory responses from Parkland. On April 4, 2012 Univalor sued Parkland for repayment of the debenture. On the same day, Parkland issued a press release saying that it had remitted all interest owing under the debentures to Link and assumed that Link had forwarded the interest to the debenture holders.

[ 10 ] The affidavit also contains a voice mail message from Mr. Murad to Blake’s, Univalor’s then solicitors, of April 4, 2011, stating that the interest payment for the first quarter of 2011 should be received “in about a few days and will be wired and forwarded on” to Univalor “as per my agreement with them”. No such payment was made by Link to Univalor.

[ 11 ] On April 4, 2012 Univalor sued Parkland for repayment of the debenture. On the same day, Parkland issued a press release saying that it had remitted all interest owing under the debentures to Link and assumed that Link had forwarded the interest to the debenture holders.

[ 12 ] One week later on November 10, 2012 Univalor received a CRA T5 statement of investment income from 2011 for $336,863 from Parkland even though it had never received any cash interest payments. Univalor’s solicitors wrote to Link and Mr. Murad demanding that funds it had received from Parkland be paid over to it. On April 26, 2012, Link’s solicitors wrote saying the T5 was in error and they were investigating the matter. By the time the affidavit in support of the Mareva injunction was sworn on May 22, 2012 no further communications were provided by Link’s solicitors to Univalor.

[ 13 ] On April 20, 2012 the president of Parkland, Ms. Sandy Woitas, provided to Univalor’s solicitors an e-mail dated April 11, 2012 that she had sent to Mr. Murad of Link asking what happened to the interest payments made by Parkland to Link and an e-mail from Mr. Murad of the same date replying that Link had been intentionally withholding funds for Univalor as a means on exerting leverage over Univalor to get Univalor to agree to what Parkland wanted. There was a dispute that was raised that Parkland had not received property from another company in which Mr. Wollach was the principal. Mr. Murad further stated that Link had been using the funds received from Parkland “to support our legal fees and expenses defending Parkland against Forvest/Univalor”. Why Mr. Murad felt Link had to defend Parkland was not explained.

[ 14 ] The notice of application was issued on May 22, 2012. It stated that there was urgency to the matter, not the least of which was that Univalor was faced with serious tax issues by possibly having to pay taxes but never having received the interest that the T5 was based on. The affidavit however did not raise this as a reason for urgency. The affidavit of Mr. Finkelstein stated:

There is a clear urgency to Univalor’s application since Murad has admitted that he and/or Link have used trust funds for their own expenses and I fear that Link and/or Murad are dissipating, and will continue dissipating assets that legally belong to the Univalor and possibly the other Debentureholders. Based on my knowledge of the other proceedings involving Murad and companies that he controls, there is good reason to believe that Murad has personally received some of the funds received in trust for Univalor, or that he has caused such funds to be moved out from Link into other entities that Murad controls, all to the serious detriment of Univalor and possibly the other Debentureholders. These other proceedings are described in further detail later in this affidavit. In addition to this, we have become aware that Roy Murad has sold his matrimonial home and that he has a home in Nice, France and is my fear as well as the belief of Univalor that he will liquidate his corporate and personal interests in Canada and relocate, making it difficult if not impossible to realize on monies owed to Univalor.

[ 15 ] The other proceedings to which Mr. Finkelstein referred were a number of other proceedings involving Mr. Murad described in the affidavit, including bankruptcy proceedings in which Mr. Murad had pleaded guilty to bankruptcy fraud and been imprisoned for 18 months in Vermont.

[ 16 ] On June 6, 2012, an order of Morawetz J. was made on consent setting aside and vacating “on an interim basis” the Mareva injunction ordered on May 24, 2012 “pending the hearing of the motion by the respondents to set it aside” and ordering that the respondents’ bank account at HSBC be unfrozen. The order recited that Parkland had confirmed that the total paid by Parkland to Link on account of Univalor was $104,215.95, subject to verification regarding $20,000 of it. A second order was made that day requiring Mr. Murad to undertake in writing not to sell or further mortgage an office property owned by him in Thornhill.

[ 17 ] The defendants contend that the affidavit in support of the Mareva injunction was misleading about Mr. Murad’s properties and the knowledge of Mr. Wollach and his son about that. Mr. Murad in his responding affidavit swore that he owns a commercial property in Thornhill that is registered in his name, and that Mr. Wollach and his son have been there on many occasions. There is no evidence that Mr. Wollach or his son was aware that Mr. Murad owned the property, and Mr. Wollach in his affidavit denied knowing it, but it is contended that a search of title would have revealed that. In my view, it is drawing too long a bow to require someone to start searching titles to see if an office is owned by someone, and to set aside a Mareva injunction for failing to do so. Mr. Murad swore that the building is appraised for $2.1 million. He did not disclose in that affidavit that it is mortgaged for $1.68 million and that despite the order of Morawetz J. requiring him to undertake that it not be sold, he has listed it for sale, the listing price having been dropped from $2.6 million to $2.2 million.

[ 18 ] Mr. Murad also swears that the matrimonial home was registered in him wife’s name and that it was sold in February 2012. He swears that Mr. Wallach was aware that a replacement property was purchased and that extensive renovations and additions were being made with an intention to move there in August 2012. How he says Mr. Wollach was aware he did not say. He swore that Mr. Wollach and his son went with him to view the new property before his wife purchased it when Mr. Wollach’s son Robert worked with him and that his son was well aware of the plans for the new property. While there is no direct evidence that Mr. Wollach knew that Mr. Murad’s wife had purchased the new property, it is again said that a search of title would have disclosed that fact. Robert Wollach denies going to the property with Mr. Murad. He swears that he worked for Mr. Murad for two months in April and May, 2012 and never was taken to the new property on Mill Street. He denies ever being shown any plans for the new property. The only time he remembers Mr. Murad mentioning Mill Street was indicating there were some new houses there.

[ 19 ] Mr. Murad also says that Mr. Wollach was aware that he had owned his property in France since 2002 and that he vacationed there. He says there is an office there from which he can conduct his business. The affidavit of Mr. Finkelstein did however refer to the home in Nice, France. The fact that it was not disclosed that it had been owned since 2002 I do not think very material.

[ 20 ] I have some concerns that notice was not given to the defendants of the motion for the Mareva injunction. But it was clear from the affidavit of Mr. Finkelstein that the defendants had retained solicitors for the issues raised in the affidavit, and the affidavit disclosed that no clear answers had been received from either Mr. Murad or his solicitors as to what had happened to the interest payments and that Univalor and its solicitors had been met with threats by Mr. Murad’s solicitors for talking to Parkland and other debenture holders, and that inconsistent information from what Univalor had been told by Mr. Murad and his solicitors about not receiving the interest payments had be obtained from Parkland, i.e. that Univalor Link had been using the money to pay its legal fees. In the circumstances it is understandable that Univalor felt it had to stop that from occurring before all of the money was used up. As it turns out, that attempt was not successful. Virtually all of the money received by Link from Parkland has been spent or gone elsewhere. As at May 18, 2012, six days before the Mareva injunction, there was $838.89 in Link’s bank account. There had been large payments made from that account to Mr. Murad, his wife and children.

[ 21 ] The Link bank account statements obtained from HSBC pursuant to the Norwich order made at the same time as the Mareva injunction disclose that Link received 5 payments from Parkland between March 17, 2011 and February 21, 2012 totalling $254,556.90. While Mr. Murad denied receiving two of the payments, the bank statement is clear.

[ 22 ] It is argued that only two of the payments totalling $104,215.95 received by Link from Parkland were intended for Univalor. This is contained in an affidavit of Beverly Broome, the CFO of Parkland, which states this fact based on a payment schedule from Link. The payment schedule was not attached to the affidavit. I do not understand why Link would be deciding how much should be paid by Parkland for Univalor. The loan documentation set out the amounts that should be paid, which was far more than $104,000.

[ 23 ] Ms. Broome said nothing about the other payments recorded in the HSBC Link bank account, and due to difficulties in tracking down Ms. Woitas, the CEO of Parkland, to be cross-examined, and the late arrangement to do so by Skype, counsel for Univalor was unable to get to her documents in time to cross-examine her on this issue. I am not in a position to know whether the information from Ms. Broome is accurate, but in any case it discloses that at least $104,215 was received by Link for Univalor.

[ 24 ] Mr. Murad asserts that the debenture loan documentation entitles him to use the funds received for expenses incurred with regard to the debenture. Mr. Solmon contended that the documentation allows Link to deduct expenses not yet incurred, no doubt motivated in part at least by Mr. Murad’s evidence on cross-examination that he felt that if at some point he was going to get into protracted legal battle, Link did not have to lay out costs itself and instead could apply interest payments received to future costs. I do not read the provisions relied on by Mr. Solmon, being section 6.1(b) of the debenture and section 9.3 of the subscription agreement, as permitting this. Nor do I read the documents as permitting Link or Mr. Murad to use that money to pay the costs of defending the current litigation, which is apparently what he has done. Included in payments made by Link from interest payments received from Parkland was U.S. $16,170.81 paid to attorneys in the U.S. who acted for Link and Mr. Murad in an action brought against them for fraud. There is no legal basis for this to have been done.

[ 25 ] In his affidavit, Mr. Murad listed without producing records several expenses he said have been incurred. Since that affidavit, sworn June 26, 2012, he has not produced any records to substantiate the amounts listed. Included in the amounts listed are legal fees owing to Garfinkel, Biderman, his solicitors, of $63,210 and legal fees to Mr. Solmon’s firm of “approximately $50,000”. Both relate to this current litigation, and in my view if paid were improperly paid. Another amount of “approximately $20,000” is for “general services provided by Garfinkle, Biderman related to this Debenture”. What those services were is unknown, and Mr. Solmon acknowledged in argument that no account for that has been sent. Another expense listed is “10,500 for “third party projections”. There is no evidence as to what that is or of any account sent. $35,000 is said to be for audit related matters with regard to Parkland, which will be incurred in 2012. There is no evidence of what that would involve and no account. $6,100 for “due diligence” is not explained, and there is no account. $66,218 is said to have been paid to associates for fees relating to maintaining investor relations and aiding in investment banking activities. What basis there would be for paying this from interest received is not explained, and on the surface would not appear authorized by the loan documentation. $15,924 is listed for plane fare, hotels and other invoices for travel related expenses necessary for work done with regard to the debenture, again with no information or documents to support this. $18,120 is listed with regard “to time spent by me with regard to e-mails”. There is no apparent basis for this to be charged to interest received for Univalor, and the same can be said for the last item in which Mr. Murad says he has spent over 500 hours for which he has charged $500 per hour for over $50,000.

[ 26 ] It is argued that based on the right to be paid for all of this, the plaintiff has not established a strong prima facie case for a Mareva injunction and on that basis, even if it were properly granted in the first place, it should now be set aside. I do not agree. The right of Link and Mr. Murad to be paid for all of these things from interest payments received from Parkland is either not supported by the loan documentation or highly questionable. Link’s role under the debenture was to be a trustee to receive and forward interest payments received from Parkland. Link relies on a provision in the subscription agreement that states that the role of Link was to be “mechanical in nature”. That being the case, I am at a loss to understand how any of these claimed expenses could be legitimate.

[ 27 ] It is argued by the respondents that there is a dispute as to whether Parkland received full consideration for the debenture in the first place, and that this issue was not fully disclosed in the supporting affidavit of Mr. Finkelstein. I do not agree. The consideration for the debenture was of some complexity and was described in some detail in the affidavit (see paras. 19 to 41). The affidavit in paragraph 70 d described a dispute regarding an alleged failure of a company related to Mr. Wollach, not Univalor, to deliver some acreage of property said to be consideration for the issuance of the debenture held by Univalor, with Univalor’s share of the debenture to be reduced accordingly. It was asserted in the affidavit that there was nothing in the allegation as Univalor had no obligation under the financing agreement and was not a party to it. This dispute was disclosed.

[ 28 ] It is also contended that the affidavit of Mr. Finkelstein was misleading regarding the action that had been commenced by Univalor against Parkland. Mr. Finkelstein attached a copy of the statement of claim as exhibit D and then stated that although the statement of claim was served on April 16, 2012, Univalor had not received Parkland’s statement of defence. This was not correct as it had been received by Univalor’s solicitors shortly before the affidavit was sworn. A copy of the statement of defence was in fact included in exhibit D to the affidavit. A responding affidavit of Mr. Wollach states that Ms. Hamilton who drafted the affidavit informed him that the statement of defence was received and she had dictated a change to the affidavit to confirm the receipt of it, and that for some reason the change was not incorporated in the affidavit. That is, it was an unintentional oversight. That explanation makes some sense as in fact the defence was included in the exhibit to the affidavit.

[ 29 ] The statement of defence was not pointed out by counsel for Univalor on the ex parte motion. However, the affidavit of Mr. Finkelstein read by me did refer to a press release of Parkland which stated the Parkland intended to defend the claim.

[ 30 ] Whether the dispute regarding consideration could have been described in more detail, including the fact that Parkland decided to raise it as a defence to the action by Univalor against Parkland, is debatable, but in any event in my view the issue was not material to the injunction ordered. The basis of the injunction was that interest payments received by Link for Univalor had not been paid to Univalor. Whether Parkland had a claim that it had no obligation to pay any further amounts to Link for Univalor, which is what it pleaded in its defence, was not relevant to the obligation of Link having received the payments for interest that it did to pay them to Univalor.

[ 31 ] It is also argued by the respondents that there was an issue as to whether an early interest payment of some $84,000 had, with the agreement of Univalor, been changed to permit payment for it with shares of Parkland, and that Mr. Finkelstein failed to disclose that in his affidavit. I do not agree. The issue was disclosed in Mr. Finkelstein’s affidavit at paras. 45 to 47, and includes the assertion of Mr. Wollach that there was no agreement permitting the change. Mr. Solmon contended that Link had the right to unilaterally make the switch under sections 9.1 and 9.4 of the subscription agreement. It is not necessary to decide that issue, but my view of those sections does not permit Link to unilaterally direct or agree with Parkland to change the interest payments from cash to Parkland shares.

[ 32 ] It is argued that the affidavit of Mr. Finkelstein was misleading because it stated that the amount of interest owing to Univalor was approximately $570,000. That was based on the payments to be made and was set out in a spreadsheet. There is no evidence that Mr. Finkelstein or Mr. Wollach thought otherwise at the time. The contested issue of whether one payment was made in shares of Parkland with the agreement of Univalor was disclosed in the affidavit. In any event, what the total amount owing was of importance but not overly material to the Mareva injunction in light of the evidence that no cash at all had been paid to Univalor.

[ 33 ] In the affidavit, Mr. Finkelstein repeatedly stated that Link owed fiduciary obligations to Univalor and that its failure to pay the interest to Univalor was a breach of its fiduciary obligations. It is contended by the respondents that this was misleading and a failure to disclose the terms of the subscription agreement.

[ 34 ] The subscription agreement provides in section 9.2 that the duties of Link shall be mechanical in nature and that it shall not by reason of the subscription agreement or any other “Loan Documents” have a fiduciary relationship in respect of any subscriber. That is a peculiar provision. Loan Documents is a defined term, and when one reads the various definitions applicable to it, it is by no means clear that it includes a trust agreement made between Link as trustee and the subscribers to the debenture. My reading of the definitions suggests that it does not. The trust agreement provides that Link will hold the debenture together with any funds received by it, as trustee for, and on behalf of, the subscribers, with no beneficial rights of ownership or interest with respect to the debenture. Link further agreed in that agreement that the debenture was not its property and that any dividends on the debentures or any other distributions will belong to the subscribers and not to Link. One hallmark of a trustee is that it owes a fiduciary duty to the beneficiaries of the trust.

[ 35 ] However one describes the obligations of Link, keeping interest payments received by it as trustee for a subscriber is a breach of its obligations as a trustee. The legal assertion in the affidavit that Link owed a fiduciary duty to Univalor is just that, an assertion, and not all that important in this case. The facts driving the Mareva injunction were that Link kept interest payments that it was obliged to pay to Univalor.

[ 36 ] In all of the circumstances, I am not prepared to find any failure of Univalor to make proper disclosures in the affidavit material leading to the Mareva injunction or that there are grounds to now rescind it. The motion of the respondents to set aside the Mareva injunction of May 24, 2012 is dismissed.

Newbould J.

DATE: October 25, 2012