SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
COURT FILE NO.: CV-13-10122-00CL
DATE: 20130704
BETWEEN:
ESCARPMENT BIOSPHERE FOUNDATION INC., Applicant
- AND -
WORLD HEALTH INITIATIVES INC., Respondent
BEFORE: C. CAMPBELL J.
COUNSEL:
Saba Ahmad, for the Applicant
David Shiller, for the Respondent
HEARD: June 28, 2013
ENDORSEMENT
[1] This motion by the applicant is for continuance of a Mareva Injunction. The motion is resisted by the Respondent on the basis that there was not disclosure to Mr. Justice Newbould that should have been made at the time the ex-parte Order was made on May 29, 2013.
[2] The respondent World Health Initiatives Inc. (WHI) is in the tax shelter business, which business has been interrupted by an appeal by the Canadian Revenue Agency (CRA) which is effectively brought the business to a halt.
[3] The grounds on which the respondent seeks to have Order set aside for failure to fully disclose are as follows:
That the applicant failed to disclose that the monies which are said to be at risk of dissipation which the respondents have paid to lawyers for the defense of the CRA tax court appeal are part of the business of WHI and legitimately paid to retrieve benefits to the investors in the tax shelter.
That the applicant failed to disclose that it had assigned the security on which its debt claim was based making the undertaking as to damages at best uncertain.
[4] The position of the applicant is that payments to a defense fund on behalf of investors could not be in the ordinary course of the respondent’s business and continuance of payments would in the absence of any other business being carried on or exigible assets of the respondent likely render judgment on their promissory note meaningless.
[5] The applicant asserts that WHI payments in connection with the litigation between CRA and Canadian Donations (which appears to be a related company that is entitled to reimbursement if any is to be had) are not expenses in the ordinary course as provided for in. s.4. 4 all of the General Security Agreement (GSA) between WHI and the applicant Escarpment Biosphere Foundation Inc. (EBF).
[6] The respondent counters with the argument that the GSA contemplated payments of the kind now being made.
[7] The applicant complains that WHI has collateralized an account receivable and turned it into an asset (photographs) being held through a Caribbean company in Shanghai China.
[8] The respondent suggests this was a prudent move as the account receivable was not being held in Canada in the first place and the collateralization will protect it.
[9] The respondent claims a right of set off with respect to the claim of the applicant on the promissory note and asserts that the set off claim whether or not ultimately found to be valid should have been disclosed to Newbould J.
LAW and ANALYSIS
[10] I accept the legal test referred to by counsel for the respondent that a party seeking a Mareva injunction must satisfy the court that there is a strong prima facia case made out that the defendant is depleting its assets “with the aim of making itself judgment proof or beyond the reach of the courts authority.” (See Farah v Sauvageau Holdings Inc. (2011) CarswellOnt 1862 at p. 111).
[11] Counsel for the respondent asks the courts to conclude that there is no evidence to suggest that his client’s actions have been for the purpose of avoiding judgment particularly when the debt claim on the promissory note is challenged.
[12] The entire business relationship between these parties at the present time arises in the context of highly disputed facts in a most unusual and atypical business context where there appears to be very few assets to carry on the litigation and with little prospect in the near future of recovery for anyone.
[13] Based on the material before me and the submissions of counsel I am satisfied that the issue of the hollowness of the undertaking as to damages should have been disclosed to Justice Newbould.
[14] I accept the comments of counsel for the applicant that the question of the assignment of the note was unclear as of May 29 but nevertheless a judge on an ex-parte motion is entitled to know all relevant facts.
[15] On this basis alone I am not satisfied that the Mareva injunction should continue in its present form. Counsel for the applicant has now provided some information to satisfy the undertaking issue.
[16] I am however satisfied that the applicant has made out a case for some relief.
[17] The real issue it seems to me is whether WHI can fund litigation with monies that EBF asserts are subject to be held in trust in its favour.
[18] That issue as well as the companion issue of alleged set off can and should with the affidavits and cross examination already held the dealt with at a short trial of one or two days.
[19] The court has an inherent power under s. 101 of the Courts of Justice Act to preserve the status quo where there is a serious issue be tried and the likelihood of irreparable harm if some restraint is not impose.
[20] Any change to the order of Newbound J. with respect to WHI should permit, to the extent there are assets available, the payment of existing employee salaries, rent and telephone but any further payments out should be subject to agreement or further court order.
[21] Notwithstanding some reservation, the order Newbould J. will continue for a further 10 days during which counsel are to provide a proposal for permitted payments and a timetable for directing the trial of the underlying issue as well as further particulars to provide security for an undertaking as to damages which will form the basis of any order going forward.
[22] The issue of the cost to date will become part of the cost of the trial to be dealt with by the trial judge if counsel agree. If there is no agreement, counsel may make written submissions.
C. CAMPBELL J.
Date: July 4, 2013