SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-0883-00
DATE: 2012-11-26

RE: CHLORIDE CANADA LIMITED v. NEW PRINCE TIRES INC., PRINCE TYPE LIMITED, PRINCE TIRE LIMITED, GURJEET KAUR DHILLON, TARVINDER DEOL, RAJA aka RAJAPREET SINGH DEOL, RAJA DEOL aka RAJA DEAL aka RAJPREET DEOL aka RAJPREET SINGH DEOL, HARBHAJAN SINGH, MANJIT KAUR SINGH aka MANJIT DHILLON aka MANJIT SINGH aka MANJIT KAUR DEOL, KAMALJIT KAUR PARMAR, RAKESH ARORA aka RAKISH, JOHN DOE and JANE DOE and OTHER PERSONS, NAMES UNKNOWN WHO ARE RESULTING TRUSTEES FOR THE CORPORATE DEFENDANTS AND CONSTRUCTIVE TRUSTEES FOR THE PLAINTIFF

BEFORE: Justice M.J. Donohue

COUNSEL: Marvin Morten and Roman Botiuk, Counsel for the Plaintiffs

Mark Klaiman, Counsel for New Prince Tires Inc., Harbhajan and Manjit Kaur Singh, Rakish Arora

Joel Levitt, Counsel for Prince Tire Limited, Gurjeet Kaur Dhillon, Tarvinder and Raja Deol

HEARD: October 30 and November 1, 2012

E N D O R S E M E N T

The Motions

[ 1 ] The plaintiffs have brought a motion for summary judgment against all the defendants under Rule 20.01.

[ 2 ] Four of the defendants, being New Prince Tires Inc., Rakish Arora, and Harbhajan and Manjit Kaur Singh, bring a cross motion to vacate the certificate of pending litigation and Mareva injunction that was obtained against them on an ex parte basis on April 26, 2012.

Background

[ 3 ] The plaintiff company sold tires to Prince Tire Limited. Prince Tire defaulted on payment of a number of invoices between October and December 2010 of approximately $243,195.00. In March 2012, the statement of claim was alleged to have been issued. The dates for its service on the various parties were not provided in the motion record. Prince Tire Limited was sold to the defendant Manjit Kaur Singh on March 23, 2012 for $20,000.00.

[ 4 ] The defendants are largely related to one another and the plaintiff is concerned that assets will be disposed of to avoid payment of the monies claimed.

[ 5 ] The evidence shows the defendants are all connected to Mr. Raja Deol. He ran a successful tire business until 2009 called Prince Tyre (spelled with a ‘y’). The official owner was his wife, Tarvinder Deol. When they were going to India, he sold Prince Tyre to his mother-in-law, Gurjeet Kaur Dhillon, and she operated it as Prince Tire Limited (spelled with an ‘i’) and incurred the debt owed to the plaintiff. In March 2012, Mrs. Dhillon, with Mr. Deol’s assistance, arranged to sell the business to Mr. Deol’s sister-in-law, Manjit Kaur Singh. Mrs. Singh and her husband Harbhajan have been running the company as New Prince Tires Inc. Rakish Arora has been an employee of all three tire companies.

Plaintiff’s Summary Judgment Motion

[ 6 ] Plaintiff’s counsel advances two grounds for judgment against some or all of the defendants:

(a) Bulk Sales Act , non-compliance; and

(b) Fraudulent Conveyance Act .

Bulk Sales Act Non-Compliance

[ 7 ] Plaintiff’s counsel argue that they are entitled to summary judgment as against Harbhajan Singh and Manjit Kaur Singh as there was no compliance with the Bulk Sales Act when they purchased the assets of Prince Tire Limited.

[ 8 ] The plaintiff did not plead the Bulk Sales Act in the statement of claim nor did the plaintiff plead to have the sale declared void. It was raised, however, in the affidavit of Robert Ash, dated May 14, 2012, for the summary judgment motion brought originally May 15, 2012.

[ 9 ] Counsel for Mr. and Mrs. Singh argue that, as the pleadings do not allege non-compliance with the Bulk Sales Act, I deny the plaintiff’s claim on that basis.

[ 10 ] I am not prepared to grant summary judgment for a number of reasons:

(a) The Bulk Sales Act contravention has not been pleaded. The issue is not identified in the pleadings and the defendants have not had an opportunity to respond to it. It is, therefore, impossible to fully appreciate the issue to be decided on this part of the motion. ( Combined Air v. Flesch 2011 ONCA 764 );

(b) I am concerned that all the parties that may have an interest in setting aside the transaction have notice of this claim. It may be that there are pre- and post- sale creditors who may have an issue with a declaration that the sale transaction is void;

(c) It is difficult at this stage and based on the limited evidence, to determine what remedy is the appropriate remedy under the Bulk Sales Act . The Bulk Sales Act only provides that the sale is voidable. Should the sale be voided? Should the purchaser remain liable for the debts of the seller? The considerations set out in para 26 of National Trust Co. v. H & R Block Canada Inc. 2003 SCC 66 () , [2003] 3 SCR 160 cannot be effectively dealt with at this stage of the proceeding.

(d) The relief sought by the plaintiff would only set aside the sale. It would not necessarily, by virtue of this fact alone, entitle the plaintiff to the monetary judgment it seeks against any or all of the personal defendants. For example, even by virtue of section16(2) of the Bulk Sales Act , the liability may rest just on Manjit Kaur Singh, the “buyer”, and not necessarily against any of the other personal defendants. On the evidence of the contract only she is the buyer.

Fraudulent Conveyances Act

[ 11 ] Plaintiff’s counsel argued that summary judgment should be granted against the other defendants on the basis that the record demonstrates a fraudulent conveyance.

[ 12 ] Plaintiff’s counsel directed me to the Fraudulent Conveyances Act .

[ 13 ] Section 2 of the Fraudulent Conveyances Act , R.S.O. 1990 provides that every conveyance of real or personal property…made with intent to defraud creditors are void as against such persons.

[ 14 ] Section 3 of the Act states that section 2 does not apply to property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section.

[ 15 ] Plaintiff’s counsel spent a considerable amount of court time posing questions and casting suspicion on the defendants but he had very little evidence. None of the defendants’ affidavits had been cross-examined. The plaintiff relied on an affidavit of Paul Howarth, dated March 28, 2012, which was not well supported on the facts. Statements were made without evidence of how the information was obtained or supported. The amended statement of claim which is intended to define the issues did not even mention fraudulent conveyance. It was framed rather as a breach of constructive trust. Nonetheless, plaintiff’s counsel persevered in arguing that summary judgment be granted based on the Fraudulent Conveyances Act .

[ 16 ] There are a number of difficulties with this part of the plaintiff’s motion:

(i) The evidence is that Prince Tire’s assets were purchased for $20,000.00. There is evidence of the payment. There is an appraisal of the fair market value of the assets for $15,250.00. The plaintiff provided no contrary evidence that the company had a value greater than $20,000.00.

If the business was worth $20,000.00 and it was sold for $20,000.00, then there would be no fraudulent conveyance as there could not be any intention to defeat creditors.

(ii) While the liability for payment of the tires rests with Prince Tires Limited, and there is little doubt of the debt and non-payment, liability on the other defendants cannot be found on the fraudulent conveyance before it is demonstrated that those other defendants have liability to the plaintiff. If not, these other defendants would have been free to deal with their assets as they saw fit and it could not have been done with the intention to defeat creditors, namely, the plaintiff.

No evidence was provided as to how liability rests with the other defendants to the plaintiff for this debt. The evidence provided shows unpaid invoices for goods delivered to Prince Tire Limited.

[ 17 ] It is not possible on the record before me to fully appreciate the facts relating to the issues to be tried. Only a trial will permit all of these issues to be fully canvassed.

Debt Owed

[ 18 ] There was evidence presented of invoices totaling $243,195.00.

[ 19 ] Mr. Raja Deol deposes that Prince Tire Limited paid its accounts by cheques and was current as of November 24, 2010. He states that the company fell behind on payments to the plaintiff but provided blank cheques signed by the owner Gurjeet Kaur Dhillon to hold pending recovery. Notwithstanding the debts on invoices between October and December 2010, the plaintiff continued to do business with Prince Tire on a cash-on-delivery basis between at least April and November 2011.

[ 20 ] The plaintiff used the blank cheques in December 2011. Mr. Deol states that the dishonoured cheques were all completed and negotiated by someone at the plaintiff company and no one advised Prince Tire that the cheques were about to be cashed. A cursory view of the cheques and documents supports the evidence of Mr. Deol regarding the handwriting.

[ 21 ] Apart from an invoice for $10,000.00, the defendant Prince Tire does not dispute the monies owed. I would have expected the plaintiff to at least seek summary judgment as against Prince Tire Limited for the debt of $243,195.00 less the disputed invoice of $10,000.00. They did not seek this relief but based their entire motion on the Fraudulent Conveyance Act and Bulk Sales Act arguments.

Cross Motion to Set Aside the Certificate of Pending Litigation and Dissolve the Mareva Injunction

[ 22 ] When Justice Sproat made the order without notice to the defendants, he endorsed the record stating that he was prepared to grant one noting it was always open to the defendants to move to set it aside. His order was made April 26, 2012. Four of the defendants moved to set it aside.

(a) Res Judicata Argument

[ 23 ] Plaintiff’s counsel spent a considerable amount of court time arguing that the matter of the certificate of pending litigation and Mareva injunction was res judicata or “something that has clearly been decided”. He argued that four justices had already decided that there was a clear case of fraud and that the certificate of pending litigation and Mareva injunction could not be reviewed.

[ 24 ] I note, however, that Justice Sproat made the original order for the certificate of pending litigation and Mareva injunction without notice to the defendants. In fact, his endorsement on the record stated that it was “not the strongest case for it” but he granted it noting it was open to the defendants to move to set it aside.

[ 25 ] April 14, 2012, Justice Daley ordered, on a motion without notice, leave to amend the statement of claim. The record shows there was no adjudication on the merits of granting the preservations orders of Justice Sproat.

[ 26 ] The defendants served a motion to set aside the order of Justice Sproat, returnable May 15, 2012. The parties at that time consented to adjourn the motion on terms to the week of October 29, 2012. Justice Baltman signed the consent order. The record shows there was no argument on the merits of the preservation order of Justice Sproat before Justice Baltman.

[ 27 ] On July 23, 2012, the parties were back before the court to vary the preservation order so that Mr. and Mrs. Singh and Mr. Arora could access funds in their bank accounts for living expenses. Justice Richetti heard the motion. Both parties renewed all their claims for relief in their motions of May 15, 2012 but Justice Richetti stated that all other relief sought by the parties was properly before this court on October 29, 2012.

[ 28 ] None of the four justices previously dealing with these parties have heard the defendants’ arguments on the merits regarding the lifting of the preservation orders. I find plaintiff’s arguments that this had previously been argued before the courts to be misleading, time consuming and wrong.

(b) Certificate of Pending Litigation

[ 29 ] Defence counsel for Mr. and Mrs. Singh was seeking to discharge the certificate of pending litigation as against their matrimonial home at 365 Faith Drive in Mississauga. This is the home where they have lived with their two disabled children since 1999.

[ 30 ] The evidence of the plaintiff here would have to demonstrate an interest in land is in question in the proceeding. ( Grefford v. Fielding 2004 CarswellOnt 1181 ). There is no interest in the land at issue in this lawsuit. None has been shown by the plaintiff.

[ 31 ] Further, a CPL can also be granted where the non-judgment creditor can satisfy the criteria set out in Grefford v. Fielding ,( 2004 ) 2004 8709 (ON SC) , 70 O.R. (3 rd ) 371 at para 26 .

[ 32 ] On the facts before him, Justice Sproat granted the order on the inference that some money Prince Tire Inc. owed to the plaintiff was finding its way into making mortgage payments via Mr. Singh for the property that he holds in trust for Raja Deol. That property is 8 Nelly Court in Mississauga. The defendant Singh, however, is seeking to have the certificate lifted from his own property at 365 Faith Drive. In argument, plaintiff’s counsel was clearly confusing the two properties.

[ 33 ] The evidence of Mr. Singh is that the co-defendants have never had an interest in the 365 Faith Drive property nor provided any funds towards that property either for mortgage, taxes, insurance, utilities, repairs or maintenance. The property value is $740,000.00 and the mortgages against the property are $469,900.00. There remains significant equity in the property.

[ 34 ] As well, the plaintiff has not made out a case for summary judgment on fraudulent conduct against Mr. and Mrs. Singh.

[ 35 ] When the plaintiff obtained the order without notice from Justice Sproat, they alleged constructive trust, resulting trust and or unjust enrichment. They have not since provided evidence to support these allegations even on a prima facie basis.

[ 36 ] In determining whether a certificate ought to be discharged, the court must exercise its discretion and equity and look at all relevant matters between the parties to determine whether the certificate should be vacated. ( 931473 Ontario Limited v Caldwell Bankers [1992] 5 C.P.C. (3d).

[ 37 ] On a review of all the facts presented in this case, I find it is not appropriate to have the certificate of pending litigation continue on 365 Faith Drive, Mississauga. I order it to be vacated.

(c) Mareva Injunction

[ 38 ] Defence counsel for New Prince Tires (the new tire company), Harbhajan Singh, Marjit Singh (the purchaser and new owner of the tire company), and Rakesh Arora (an employee of the tire company) seek to dissolve the Mareva injunction as against them.

[ 39 ] The plaintiff must establish a strong prima facie case and a real risk of dissipation of assets for the court to order a Mareva injunction. Such an injunction is a “drastic and extraordinary remedy. ( United States v. Yemec 2005 8709 (ON SCDC) , [2005] 75 O.R. (3 rd ) 52 at page 5 . The court should not continue a Mareva injunction obtained without notice where there is no evidence to support the test for such injunctions. PricewaterhouseCoopers LLP v. Phelps , 2010 ONSC 1061 , 2010 CarswellOnt 1061 (WL Can) , at paras. 32-36 , per Granger J.

[ 40 ] As reviewed above, the plaintiff has not provided evidence of fraud or wrong-doing on the part of New Prince Tires, Harbhajan Singh, Marjit Singh or Rakish Arora.

[ 41 ] There is no evidence that Mr. and Mrs. Singh are likely to leave the jurisdiction or dissipate their assets. The evidence is they made a bona fide purchase of a tire company and have been working in that business; they own their matrimonial home and have equity of close to $300,000.00 invested in the home; they care for two disabled children who are in receipt of Ontario disability assistance; they have no intention of leaving the jurisdiction. The last charge on their home was made in July 2010, before the issue arose with these unpaid invoices.

[ 42 ] With respect to the employee, Rakish Arora, there is no prima facie case shown against him for any involvement in the monies owed to the plaintiff or the fraudulent conduct alleged against him. The evidence is that he emigrated from India in 2007. He is married with one child and another expected. He owns a matrimonial home at 72 Gulliver Crescent in Brampton. He has some equity built up in his home. He has worked since 2008 in each of the defendant tire companies but has never had signing authority. He does not make financial decisions pertaining to the operation of the business.

[ 43 ] With the evidence presented by these defendants and no conflicting evidence provided by the plaintiff, I find that there is no basis for the Mareva injunctions to remain in place as against them. I order the Mareva injunction dissolved as against New Prince Tires, Harbhajan Singh, Manjit Singh, and Rakish Arora.

Costs

[ 44 ] If the parties are unable to agree on costs, they may forward written submissions of three pages or less within 14 days of this judgment.

M. J. Donohue J.

DATE: November 23, 2012

COURT FILE NO.: CV-12-0883-00

DATE: 2012-11-26

SUPERIOR COURT OF JUSTICE - ONTARIO RE: Chloride Canada Limited v. New Prince Tires Inc., et a; BEFORE: Justice M. J. Donohue COUNSEL: Marvin Morten and Roman Botiuk, for the Plaintiffs Mark Klaiman, for New Prince Tires Inc., Harbhajan and Manjit Kaur Singh, Rakish Arora Joel Levitt, for Prince Tire Limited, Gurjeet Kaur Dhillon, Tarvinder and Raja Deol ENDORSEMENT M.J. Donohue J.

DATE: November 26, 2012