ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-115183

DATE: 20130705

BETWEEN:

Daniel Kotzer

– and –

Oran Ackerman, 2096049 Ontario Limited, and 2281823 Ontario Limited

Defendants

Mark S. Hayes and Mitchell Wine, for the Plaintiff

Scott Rosen, for the Defendants

HEARD: June 28, 2013

rEASONS FOR DECISION

EDWARDS J.:

Overview

[1] Two life-long friends from Israel are now embroiled in what will undoubtedly become very costly and protracted litigation. The plaintiff, Daniel Kotzer (“Daniel”) and the defendant, Oran Ackerman (“Oran”) began investing in properties in Ontario sometime in late 2006 or early 2007. As Daniel was residing in Israel, to facilitate his ability to invest with Oran, a bank account was opened at a local branch of The Royal Bank. Later, Daniel opened a brokerage account with Scotia McLeod (the “Account”) over which Oran had a power of attorney. The initial investments made by Daniel and Oran produced moderate returns on their investment. The most recent investment has produced a substantial capital gain over which Daniel asserts an interest, which now has resulted in the motion before this court under Rule 45.02 of the Rules of Civil Procedure (the “Rules”) for the interim preservation property.

The Facts

[2] Between December 2006 and December 2011, there were upwards of twelve cash transactions into the Account, of which eight were arranged by Oran and four by Daniel. These monies were used to purchase three properties – one of which has been described in these proceedings as the Hamilton property.

[3] The Hamilton property was purchased in June 2011 for approximately $6,800,000. Ownership to the Hamilton property was taken in the name of the defendant, 2281823 Ontario Limited (“228”). It would appear that Oran and his wife are the directors of 228.

[4] To fund the purchase of the Hamilton property, Daniel invested $340,000; Oran invested approximately $2,800,000; and 228 assumed a first mortgage on the Hamilton property of approximately $3,700,000. There is a dispute between Daniel and Oran over whether Daniel also invested $30,000 in cash that Daniel alleges he gave Oran on a trip to Israel. What is not disputed is that Daniel did invest at least $340,000 into the purchase of the Hamilton property.

[5] The Hamilton property required extensive renovations which were eventually completed and with those renovations it was sold on March 22, 2013 for approximately $12,600,000. Daniel now claims that he is entitled to his percentage of the equity in the Hamilton property of 11.9 per cent based on the actual monies invested in the Hamilton property by Daniel and Oran. Oran, on the other hand, suggest Daniel is only entitled to approximately 4 per cent of the equity based on Daniel’s investment in the total purchase price of $6,800,000. Ultimately this will be an issue for the trier of fact to decide because as it will become readily apparent Daniel and Oran went about their investing without any form of written agreement.

[6] By his calculation, Daniel now claims that he is entitled to approximately $1,100,000 as his share of the equity arising out of the sale of the Hamilton property. Daniel has now brought a motion under Rule 45.02 to preserve his investment by having $1,100,000 paid into court. Daniel is concerned because he has not received an accounting from Oran of what he is owed and because he had no knowledge of the involvement in the investment of the Hamilton property of 228 and the defendant 2231823 Ontario Limited (“223”). Daniel argues that there is a real concern, from his perspective, that the defendants will dissipate or otherwise deal with the proceeds from the Hamilton property.

[7] This matter came on before me last Friday. The defendants appeared with counsel, having been given very short notice that this motion would be before the court. As the defendants had not had an opportunity to fully respond to the allegations made by Daniel, and as there was no evidence that the defendants were likely to require access to the $1,100,000 now claimed by Daniel, I made an interim interim order that precluded the defendants from dealing with that portion of the proceeds of sale of the Hamilton property.

[8] I have now received from counsel for the defendants his position concerning the proper application of the law, as well as further written submission from Mr. Hayes. As there is urgency to my release of a decision in this matter, I agreed to release reasons today.

The Law

[9] Both counsel agree that the leading case under Rule 45.02 of the Rules is Sadie Moranis Realty Corporation. v. 1667083 Ontario Inc., 2012 ONCA 475. It goes without saying that counsel, however, do not agree on how the facts of this case fit within the direction given by the Court of Appeal in Sadie Moranis.

[10] The test to obtain an order under Rule 45.02 requires Daniel to show the following:

(a) That he has a claim to a specific fund referable to the litigation and that his claim is proprietary in nature;

(b) There is a serious issue to be tried respecting the proprietary claim; and

(c) The balance of convenience favours the granting of the order.

[11] Dealing with the question of whether Daniel’s claim relates to a specific fund that is proprietary in nature, Mr. Hayes argues that Daniel’s claim is not just one arising out of an investment but rather is what he describes as a claim for a proportionate proprietary interest in the Hamilton property. Mr. Hayes acknowledges that a portion of Daniel’s claim is based on an alleged breach of contract but further argues that Daniel relies on a relationship of trust arising from Oran’s fiduciary responsibilities as Daniel’s attorney with respect to the Account.

[12] Mr. Rosen argues that Daniel was nothing more than an investor in the Hamilton property. Mr. Rosen argues that there is no specific fund which Daniel can make a claim against in which he can assert a proprietary interest.

[13] There is no doubt that Daniel may ultimately be able to make a case for the return of his investment – whatever that investment might be found to encompass. The issue before me, however, is whether he has made out a right to claim against a specific fund, such that this court should exercise its jurisdiction under Rule 45.02 of the Rules.

[14] We know that the Hamilton property has been sold. We know that the proceeds of sale are being held in an investment account at Scotiabank. It is very likely that Daniel will make out a claim to some portion of the proceeds of sale of the Hamilton property. However, I do not agree with Mr. Hayes characterization of the claim made by Daniel. Daniel was an investor like any other investor. He may have used a vehicle – the Account – to facilitate his investment with Oran. However, he does not have a proprietary interest in the proceeds of sale being held in the investment account – or what Rule 45.02 would call the fund.

[15] If I am wrong with respect to whether Daniel can satisfy the first or second branch of the test under Rule 45.02, I move to the third branch of the test. I do not believe the balance of convenience favours Daniel. Daniel, like many plaintiffs, has concerns about what the defendants might do to possibly frustrate his ability to execute on any judgment he might ultimately obtain in these proceedings. While Rule 45.02 is not like a Mareva injunction, in my view, to satisfy the balance of convenience test, the moving party has an obligation to put some evidence before the court that would raise concerns that the defendants will in fact take/or has taken steps to make execution impossible. That type of evidence may include evidence that the defendant intends to leave the jurisdiction; intends to take action to frustrate the plaintiff’s recovery, if successful at trial; or is insolvent and will discontinue carrying on business. None of the evidence put forward by Daniel to meet the balance of convenience test comes close to meeting this threshold. Daniel’s motion is dismissed with costs.

[16] If the parties cannot agree upon the quantum of costs, brief written submissions limited to three pages in length can be submitted to the court by July 15, 2013. If written submissions in that regard are not received, the court will assume that the issue of costs had been resolved by the parties.

Justice M.L. Edwards

Released: July 5, 2013