ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-11-105364-00
DATE: 20121231

B E T W E E N:

GOLD STAR RENOVATIONS INC. Plaintiff

Carol A. Bargman, for the Plaintiff

• and -

ALLA VINNIK

Arkadi Bouchelev, for the Defendant

HEARD: November 16, 2012

REASONS FOR DECISION

LAUWERS J.:

[ 1 ] The plaintiff is a corporation owned by Yevgeny John Burdman (“John”). The defendant, Alla Vinnik, was the common-law spouse of the late Semyon Burdman, who was John’s father. Semyon passed away on July 10, 2011. For convenience I will sometimes refer to the Burdmans by their first names.

[ 2 ] On November 23, 2011 Boswell J. made a form of preservation order, as detailed below, against the defendant until the return of a long motion. The plaintiff moves for a continuation of the order until the trial of this action, now likely to be in the spring sitting of 2013. The defendant says that the plaintiff is not entitled to what amounts to a Mareva injunction on the facts of this case and that, accordingly, the order should not be continued.

[ 3 ] At the motion before Boswell J., the plaintiff was represented by Ms. Bargman. The defendant was represented by Ron Shulman who went off the record in July 2012. The action has made little progress despite two intervening trial sittings.

[ 4 ] Mr. Bouchelev has recently begun acting for Ms. Vinnick. He notes that in her affidavit, dated October 8, 2012, Ms. Vinnick states that while she was self-represented Ms. Burdman induced her to sign a consent to the action being placed on the trial list without knowing the consequences under Rule 48.04(1) of the Rules of Civil Procedure . There have been no examinations for discovery in this action and the parties have not exchanged affidavits of documents. Regardless of the outcome of this motion, Mr. Bouchelev seeks directions on getting this case ready for trial.

Boswell J.’s Endorsement

[ 5 ] I set out below Boswell J.’s entire endorsement since it sets out the underlying facts and sets the scene for this motion:

The plaintiff walked in an urgent motion for a Mareva injunction.

In the underlying claim, the plaintiff seeks liquidated damages for (1) an unpaid invoice for construction renovations and (2) a loan to assist with property taxes. The claim is framed as a debtor/creditor proceeding. Though a CPL is sought, the plaintiff does not actually advance a claim for an interest in property.

The defendant owns lands and premises described municipally as 87 Chopin Boulevard, Thornhill. She is selling the property on November 30, 2011. The plaintiff says she has a history of evading creditors. He seeks a Mareva injunction to guard against the dissipation of the equity in the property. The precise amount of equity is not clear. It sold for just over $1 million. It is encumbered by two registered mortgages, the face amounts which total $680,000.00 in the aggregate. The equity is estimated at $300-350,000.00. Last evening the plaintiff received the defendant’s responding materials. They disclosed that the defendant has bought other lands, closing November 30, 2011 – the same day as her sale. She says the new property, 86 Novella Road, Vaughan, is to be registered in her name. She says she needs the sale proceeds from Chopin Boulevard to complete her purchase. She does not provide particulars of how much of the equity in Chopin will be utilized for the purchase of Novella.

The evidence in the defendant’s Affidavit is diametrically opposed to the evidence in the plaintiff’s Affidavit. On a Mareva injunction motion, the merits are a significant issue, as the plaintiff must establish a strong prima facie case. It is not realistic to attempt to assess the merits on the contested Affidavits. The parties have agreed to cross-examinations. They will return February 8, 2012 to fix a long motion date to argue the injunction.

The plaintiff seeks a preservation order in the interim.

Fixing terms over the adjournment period is difficult. I am required to balance a number of competing interests including:

1. The fact that I am unable to say at this stage whether the plaintiff will be successful in the motion;

2. The motion may become moot if a preservation order of some sort is not made;

3. The plaintiff is not entitled, in the usual course, to execution before judgment. It may be unfair to the defendant to tie up her property over the adjournment period.

It is necessary to balance the interests of the parties and to consider the relative prejudice that may be caused by one order or another.

On balance, I believe that the least prejudice will be caused, and fairness and balance achieved, by the following orders:

1. The title to 86 Novella is to be held in the defendant’s name alone;

2. The defendant shall not transfer the property, 86 Novella – beyond the encumbrances necessary to acquire it, pending the return of the motion. The defendant shall have leave to return the motion to court on 7-days notice if, at any time during the adjournment period, she requires further access to or equity in the property;

3. The parties will conduct cross-examinations on the materials and return for argument on a date to be fixed at the long-motions scheduling court on February 8, 2012.

I make this order largely on the basis that the defendant’s material discloses that she needs the equity from Chopin to purchase Novella and makes no indication that any of the equity is presently required for some other purchase. If that changes, this order – which is meant to temporary only – may be varied on motion as indicated.

Costs of today reserved to the judge hearing the motion.

[ 6 ] The Chopin property was sold and the purchase of the Novella property was completed subject to the conditions in the order. I do not know what the defendant’s equity is in the Novella property.

The Positions of the Parties

[ 7 ] The positions of the parties are diametrically opposed, as Boswell J. noted, and they cannot be sorted out without a full trial. In a nutshell, using the words of counsel, John sees the defendant as a “gold digger” and she sees him as seeking to plunder his father’s estate at her expense. These are not reconcilable positions.

[ 8 ] The plaintiff’s position is set out in the Factum, which I repeat with some sequencing changes and edits:

The plaintiff’s claim is for labour and materials for renovations of the defendant’s property between 2008 and May 2010 and in addition, for a loan for payment of property taxes paid by the plaintiff in respect of the defendant’s property.

In or about August 2011, [after Semyon’s death] the plaintiff commenced the within action claiming, inter alia, payment of an outstanding invoice in the sum of $102,690.00 inclusive of GST, setting out in the Statement of Claim the particulars of that claim.

The defendant induced the plaintiff to provide labour and material to the [Chopin] property between 2008 to and including May 2010, upon the term of the agreement that the payment for the renovations would be deferred and paid out of the proceeds of sale of said [Chopin] property or upon written demand, whichever first occurred.

[The order of Boswell J. permitted the Chopin property to be sold, subject to conditions.]

The plaintiff seeks that prior to trial, the replacement [Novella] property not be further encumbered or sold in order to prevent the defendant from defeating the plaintiff’s claim.

The plaintiff claims an interest in the proceeds of [the eventual] sale [of the Novella property]. The defendant would be unjustly enriched by the labour of the plaintiff and the plaintiff would suffer corresponding loss.

The agreement between the plaintiff and the defendant was that the plaintiff would be paid out of the proceeds of sale of the Chopin property. The defendant has defended the claim and denied any knowledge [that] her “husband” made any promise of payment to the plaintiff. The defendant answered that the plaintiff or her late husband should be asked the question [sic]. In the Statement of Defence the defendant does not deny that the renovations were completed.

[ 9 ] The plaintiff proffers an invoice dated May 19, 2010 justifying a completion date of May 16, 2010 and seeking the amount of $102,690. The invoice is reasonably detailed. There is, however, no back up information or evidence. Mr. Burdman explains the lack of such information or evidence on the fact that on July 11, 2011 there was a break-in at the company’s office. This was a day after Semyon died and the very day of his funeral.

[ 10 ] The defendant tells a rather more complicated story. She claims that although John is the sole shareholder of the plaintiff company, it was in truth a “family company” in which Semyon was the leader. Semyon, John and she took money out of the company as needed and treated it as a family business. Neither he or John took wages but instead they simply took money out of the company to cover their personal expenses from time to time. The plaintiff is a successor to a firm owned and operated by Semyon in a similar fashion called Five Stars Renovation Inc. That company, however, declared bankruptcy in or about 2004-2005.

[ 11 ] John denies this characterization of the operations of the plaintiff. He deposes that the experience with Five Stars Renovation Inc. convinced both him and his father to run the new business in a more business-like fashion and not as a personal cash cow.

[ 12 ] Ms. Vinnick denies inducing John Burdman and the plaintiff company to “make extensive renovations by way of labour and material to the Chopin property at any material time,” or that “I promised John Burdman that I would pay for the renovations from the proceeds of sale of the Chopin property.” She asserts instead that the house did not need much renovation:

When I purchased the Chopin property in late 2007, the home was in immaculate condition, and it came with many upgrades and features such as, but not limited to, crown mouldings, pot lights, appliances, custom gourmet kitchen, maple hardwood floors, gas fireplace, spiral oak staircase, with carpet runners from the basement to the second floor, and granite counter tops in the kitchen and the bathrooms.

[ 13 ] The MLS listing for the Chopin property in 2007 states that the home “is upgraded from top to bottom (over $150,000).”

[ 14 ] Ms. Vinnick also asserts that that: “Between the period of November 2007 and May 2008, my late spouse at the time made some minor repairs and renovations to the Chopin property, and in particular he arranged for the installation of a new backsplash in the kitchen, putting hardwood floors on the second floor, and installing carpet in the basement, drywall, pot lights, and painting in the basement.”

[ 15 ] Finally, she says that:

The renovations and work were done as a personal expense, and there was not at any material time any contract, agreement, or promise of any kind between me and John Burdman or the plaintiff to pay for the renovations. The said renovations and work done at the Chopin property by my late spouse (sic).

[ 16 ] For the plaintiff, Ms. Bargman relies on the MLS listing of the Chopin property, which listed it for sale at $1.099 million and claimed “approx. $500,000 spent on renovations”. I am unable to tell if this was mere hyperbole in the listing and do not draw much from it.

[ 17 ] She also relies on her cross-examination of Ms. Vinnick around paragraph 42 of her affidavit of November 22, 2011, which provides:

…I vehemently deny the allegation that I have frequently taken action to defeat creditors and to enable me to collect government assistance, and I put the plaintiff to the strict proof thereof. In particular, I deny the allegation that in 2000/2001, I declared bankruptcy and was discharged from over $62,000 in debt, and put the plaintiff to the strict proof thereof. I further deny that in March 2001, for the bankruptcy, I declared only $1,000 net monthly income while at the same time but for different purpose, I declared an income of $35,000…

[ 18 ] The cross-examination establishes to my satisfaction that Ms. Vinnick did go bankrupt in 2000 and that she then swore to a monthly income of $1,000. That said, that fact that she went bankrupt in 2000 does not lead me to draw the inference that she wishes to defeat creditors or to dissipate the equity in her home. The problem is that challenging Ms. Vinnick’s credibility does not prove that John Burdman is telling the truth about the alleged contract between the plaintiff and defendant.

Discussion

[ 19 ] There are plainly serious credibility issues on both sides, as Boswell J. pointed out. These have only increased with the cross-examinations. There is no written contract; whether an oral contract exists ultimately depends on a trial court’s view of whether it is proven on the live evidence. This is not a case that can be resolved on the basis of affidavit evidence and cross-examinations. To use the language around summary judgment motions, this is a case in which a “full appreciation” of the evidence is necessary and that can only come from a trial.

[ 20 ] In framing this action and the motion before Boswell J., Ms. Bargman used the language of a Mareva injunction in pursuing the preservation order in the statement of claim:

The said [Chopin] property was listed for sale on or about July 20, 2011. Gold has reason to be concerned that Vinnik may not intend to pay the said invoice, nor to make repayment of the loans [for] property taxes and the sale of the property would therefore defeat the possibility of Gold obtaining recovery from the verbally agreed security on the property should Gold obtain judgment and pleads that Vinnik is therefore liable to Gold for the sum of $102,690 and on the $20,404.34 [loan] on the agreement and on the formal demand being made on Vinnik on or about July 21, 2011.

[ 21 ] In this motion Ms. Bargman has shifted her position and now seeks relief under Rule 45.02. She argues that the overall relationship between the parties establishes that the defendant’s equity in the Novella property is traced from the equity in the Chopin property. She submits that the court should treat the defendant’s equity in the Novella property, which replaced the Chopin property, as a sort of “fund” resulting from an investment, joint venture, or loan made by the plaintiff to the defendant. Rule 45.02 of the Rules of Civil Procedure provides:

45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.

[ 22 ] Although Ms. Bargman asserts that she has established a strong prima facie case, she also states that the plaintiff is not obliged to do so. She submits that this motion involves the simple application of section 101 of the Courts of Justice Act , R.S.O. 1990, c. C.43, in line with the principles in RJR-MacDonald Inc. v. Canada (Attorney General) , 1994 117 (SCC) , [1994] 1 S.C.R. 311. The three step test is whether there is a serious issue to be tried, whether the applicant would suffer irreparable harm if relief is not granted, and the balance of convenience.

[ 23 ] Ms. Bargman submits that, accordingly, that the legal principles followed by the court in Zikman v. 156665 Canada Inc. [2008] O.J. No. 1408 apply. In that case, the court referred to Rule 45.02, per Harris J.:

11 Rule 45.02 provides that where there is a right to a specific fund in question, the court may order the fund to be paid into court ... on such terms as are just. The test for granting an order requires that: (1) the plaintiff claims a right to the specific fund; (2) there is a serious issue to be tried regarding the plaintiffs' claim to the fund; and (3) the balance of convenience favours granting the relief sought. See News Canada Marketing Inc. v. TD Evergreen . [2000] O.J. No. 3705 , para. 5 .

[ 24 ] Mr. Bouchelev for the defendant submits that the plaintiff is seeking pre-judgment execution in the form of a Mareva injunction and must prove a strong prima facie case. He adds that the plaintiff has provided no evidence that the defendant intends to remove assets from the jurisdiction or to dissipate them.

[ 25 ] In his book, Injunctions and Specific Performance , 2d ed. looseleaf (Toronto: Canada Law Book, 2012) , Justice Robert J. Sharpe identified the competing policy thrusts at section 2.760:

Clearly, pre-trial execution of any kind poses definite problems. Attachment of assets or interference with this position of assets will often constitute a serious interference with the defendant's affairs. That interference may be more readily justified where the plaintiff's right is specifically related to the asset in question. However, where the plaintiff asserts a general claim and looks to the assets only as a mean of satisfying a likely or possible monetary judgment against the defendant, interference with the defendant's assets is more difficult to justify. Unless strictly limited to cases where the plaintiff's prospect of ultimate success is strong and to cases where the defendant is bent on flouting the court's process, restraining defendant's freedom to deal with his or her property upon the filing of an unsecured claim could well produce serious injustice.[Emphasis added.]

[ 26 ] He explained at section 2.700:

If the plaintiff sues for specific performance of an agreement of sale, an interlocutory injunction may be granted, restraining the defendant from defeating the plaintiff's claim by disposing of the property in question before trial. Similarly, even where the plaintiff asserts a money claim, an interlocutory injunction may be granted to protect the claim where the plaintiff has some proprietary right in the money or right to trace that particular fund . The basis for injunctive relief here is to prevent dissipation or destruction of the property which is the subject-matter of the suit. Such orders are made in accordance with the usual principles governing interlocutory injunctions and are to be distinguished from Mareva injunctions . [Emphasis added.]

[ 27 ] I discussed Rule 45.02 in Pretty v. Clute at [2011] O.J. No. 248 at paras 43-45 and 47-49 :

43 Rule 45.02 requires the moving party's claim to have a proprietary dimension. In DIRECTV Inc. v. Gillott (2007), 2007 4313 (ON SC) , 84 O.R. (3d) 595 (S.C.J.), Perell J. held:

[44] As for the major issue, as noted in the introduction to these reasons for decision, DIRECTV relies on rule 45.02. The case law establishes that the test for granting an order preserving a specific fund is threefold: (1) the plaintiff claims a right to the specific fund; (2) there is a serious issue to be tried regarding the plaintiff's claim to the fund; and (3) the balance of convenience favours granting the relief sought. See: News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc. , [2000] O.J. No. 3705, 100 A.C.W.S. (3d) 45 (S.C.J.) ; Assante Financial Management Ltd. v. Dixon , [2004] O.J. No. 2237, 8 C.P.C. (6th) 57 (S.C.J.) ; Taribu Holdings Ltd. v. Storage @cess Technologies Inc. , [2002] O.J. No. 3886, 27 C.P.C. (5th) 194 (S.C.J.) .

[57] Rotin v. Lechcier-Kimel , [1985] O.J. No. 466, 3 C.P.C. (2d) 15 (H.C.J.) is one of the early cases about what was then the newly enacted rule 45.02. ...

[58] The Rotin case demonstrates a theme that will reappear in other cases that I will soon mention. The theme is that rule 45.02 is not to be used simply as a mechanism to obtain security for a debt or potential indebtedness of the defendant. The principle linked to the case of Lister & Co. v. Stubbs , [1886-90] All E.R. 797, 45 Ch. D. 1 (C.A.) that a plaintiff is not entitled to execution or security for a what is just a potential judgment remains the general rule; however, rule 45.02 is an exception to the general rule and is available if the plaintiff can combine an identifiable fund and a proprietary claim to those funds referable to the litigation. The result in Rotin demonstrates both aspects of the operation of rule 45.02.

44 In 167986 Canada Inc. v. GMAC Commercial Finance Corp/Societe Financiere Commerciale GMAC-Canada, (2009), 75 C.P.C. (6th) 265, [2009] O.J. No. 1986 (S.C.J.) , aff'd [2009] O.J. No. 4976 (Div. Ct.) , Morawetz J., at paras. 32-41, relied on DIRECTV Inc. , supra to require a proprietary interest or claim.

45 In DSLC Capital Corp. v. Credifinance Securities Ltd. , [2009] O.J. No. 1568 (S.C.J.) , leave to appeal dismissed [2009] O.J. No. 3143 (Div. Ct.) , Camero J. held:

52 The requirement of a strong prima facie case does not apply to R. 45.02. However, it is an extreme remedy and judicial discretion, including a serious issue to be tried, irreparable harm and balance of convenience favouring the plaintiff, should be exercised before an order is made. American Axle and Manufacturing v. Durable Release Coaters Ltd. (2007), 2007 20094 (ON SC) , 86 O.R. (3d) 53.

47 In Stearns v. Scocchia (2002), 27 C.P.C. (5th) 339, [2002] O.J. No. 4244 (S.C.J.) Smith J. defined "specific fund" at para. 16:

I adopt the reason of White J. in Rotin v. Lechcier-Kimel [ (1985), 3 C.P.C. (2d) 15 (H.C.) ] where he stated that:

In my opinion, "specific fund", in the absence of jurisprudence indicating otherwise, means a reasonably identifiable fund earmarked to the litigation in issue." That which a mortgagor owes on a mortgage is a mere chose in action and in my opinion has not assumed the status of a specific fund.

48 In Zikman v. 156665 Canada Inc. (2008), 64 C.P.C. (6th) 109, [2008] O.J. No. 1408, (S.C.J.) , Harris J. found that proceeds of sale of a property satisfied the first part of the test. The court stated at paras. 13-14 that "the 'fund' is a reasonably identifiable fund earmarked to this law suit" [emphasis in original], and "[t]he amount is readily ascertainable as a function of the sale price on the Elgin property. There is no co-mingling of the funds, the funds exist and are residing in a specific trust available to be paid to this court after trial or settlement."

49 Similarly, in Sinclair v. Henry , [2009] O.J. No. 2300 (S.C.J.) , Howden J. found at para. 13 that "the net funds from the real estate transaction represent a specific fund earmarked for the litigation as the funds from the sale take the place of the property from which the income in dispute was being earned."

[ 28 ] Considering that the elements of necessary interlocutory relief, it seems clear that there is some connection between the proceeds of sale of the Chopin property and the defendant’s equity in the Novella property. That equity is clearly not a tangible fund, but it can form the same function as a fund by analogy.

[ 29 ] Based on the facts in this case, I conclude that there is a serious issue to be tried over whether there is a contract between the plaintiff and the defendant and whether the contract is tied to the defendant’s equity in the Novella property. It also seems to me that the application of the element of irreparable harm needs to be adjusted in the case of a claim to a specific fund, because loss of access to the fund is the very harm that Rule 45.02 seeks to prevent.

[ 30 ] I have a bit more trouble about the balance of convenience. It seems to me that the plaintiff was responsible, as the beneficiary of an extraordinary preservation order, to pursue the action vigorously, as Justice Sharpe notes in section 2.940: “ It has been said that a plaintiff who obtains a Mareva order is obliged to proceed as rapidly as possible with the action so that, if the defendant does succeed, the disadvantage will be minimized.” He cites Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc. , [1988] 1 W.L.R. 1337 (C.A.) at p. 1347 (per Glidewell L.J.) .

[ 31 ] That disadvantage and its possibilities for abuse were discussed in the seminal case of Chitel v. Rothbart (1983), 1982 1956 (ON CA) , 39 O.R. (2d) 513 (C.A.), where the court required the moving party to persuade the Court that it has a strong prima facie case. T he court commented on the nature of a Mareva injunction. Because of its extraordinary reach, and the way in which it can tie up the responding party's assets, such an injunction can effectively "become a weapon in the hands of a Plaintiff to force inequitable settlements from Defendants who cannot afford to risk ruin by having an asset or assets completely tied for a lengthy period of time awaiting trial. (para. 62)"

[ 32 ] T he plaintiff has not moved with any sense of urgency in this case. Boswell J.’s preservation order was granted under very specific circumstances of an imminent sale and in the anticipation that the follow-up motion would be heard soon. Had the matter been pursued vigorously by the plaintiff, as it should have been, it could have been tried in the May 2012 sittings or at the latest in the November 2012 sittings. There has, in my view, been a certain complacency on the plaintiff’s part, perhaps because the preservation order gave the plaintiff the upper hand.

[ 33 ] The cross-examinations in June 2012 should have occurred much earlier. In any event their inconclusiveness (and cross-examinations on affidavits are rarely conclusive) should have alerted the plaintiff to the need to get the matter on for trial as soon as possible.

[ 34 ] That said, the defendant has not pushed the action either, and the Order of Boswell J. provides her with a remedy in the event that her interests were being adversely affected. There is no evidence before me that the defendant has been particularly inconvenienced, so I conclude that the balance of convenience is only slightly tilted towards the defendant.

[ 35 ] The plaintiff has not established a strong prima facie case against the defendant, but I find that this motion is not to be judged as closely as a Mareva injunction. The difference is enough to justify continuing the preservation order of Boswell J. until trial with the same conditions attached to it, subject to directions intended to move the action to trial as soon as possible.

[ 36 ] I give leave to plaintiff to amend the statement of claim to change the reference in paragraph 5 from 2009 to 2010.

[ 37 ] I give leave under Rule 48.04 of the Rules of Civil Procedure for the parties to take the following steps:

(i) Affidavits of documents are to be exchanged by January 15 2013;

(ii) Discoveries are to be completed by the end of February 2013;

(iii) Any motions regarding undertakings or refusals are to be completed by April 2, 2013;

(iv) A pre-trial is to be arranged with the trial co-ordinator for April 2013; and

(v) The matter will be listed for trial on the civil list for the Spring Sitting 2013.

The dates are peremptory to the plaintiff.

Costs

[ 38 ] The plaintiff has been successful. I am reluctant to fix costs since I expect that much of what the parties have done will be useful at the trial. While discoveries have been ordered, I expect, for example, that the cross-examinations may obviate or shorten the discoveries. The plaintiff seeks costs in the amount of about $39,000 inclusive of GST plus about $3,300 for disbursements. Ms. Bargman’s hourly rate to her clients is $400 and she has 30 years’ experience. She has charged a partial indemnity rate of $350. In my view the appropriate ratio is set by the definitions in Rule 1.03, which would set her fee at $265 an hour for partial indemnity costs. Mr. Bouchelev sought $10,000 all inclusive for the motion today.

[ 39 ] In my view, as I noted above, this matter should have gone to trial, so I am reluctant to reward the plaintiff unduly for an arguably unnecessary step. I fix costs payable in respect of the motion before Boswell J. and before me in the amount of $15,000, all inclusive, to be paid by the defendant to the plaintiff in the cause, without prejudice to the plaintiff’s right to seek additional indemnity for those elements of the bill of costs that prove useful at the trial.

P.D. Lauwers J.

Released: December 31, 2012