COURT FILE NO.: CV-13-494002

DATE: 20131220

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Leon Massa, Plaintiff

– AND –

Alex Sualim, Sandra Sualim, Sandra Oluwole-Aina, 2078749 Ontario Ltd., Bauhaus Home Builder Ltd. And Ozili Inc., Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Ruth Promislow, for the Plaintiff

Claudio Aiello, for the Defendants

HEARD: December 20, 2013

ENDORSEMENT

[1] This is a motion by the Defendant, Sandra Sualim, to cap the amount of a Mareva injunction initially issued by Stinson J. on December 5, 2013 and restated on December 12, 2013. Mr. Aiello, on behalf of Ms. Sualim, also seeks to examine Plaintiff’s senior counsel, Jim Patterson, on the pending motion to confirm and extend the injunction. That hearing is returnable on January 24, 2014.

I. Capping the Mareva injunction

[2] For the purposes of today (and, Mr. Aiello stresses, today only), Ms. Sualim does not take issue with the merits of the Mareva injunction. That will be dealt with on January 24, 2014.

[3] The Plaintiff claims a loss of just under $824,000. The allegations are that Mr. Sualim and others ran a transnational fraudulent scheme. Mr. Sualim has been indicted in the United States in respect of the same series of events that underlie this action.

[4] The assets captured by the Mareva injunction have a net value of just over $3.2 million. The Sualims’ matrimonial home alone is worth $1.9 million as confirmed by the Royal Bank in February 2011. One property was sold after Mr. Sualim’s arrest to cover legal fees and a potential bail order in the U.S. proceedings, but the net proceeds of that sale (just over $305,000) are in the TD Bank in Toronto as they have been caught by the injunction. Mr. Aiello advises that apparently the disclosure of the Ontario Mareva injunction forestalled any bail hearing. Mr. Sualim remains in custody in the U.S.

[5] Should assets worth quadruple the amount of the Plaintiff’s claim be tied up in a Mareva injunction?

[6] In Chitel v Rothbart, [1982] OJ No 3520 (Ont CA), it was made clear that the assets against which a Mareva is sought must be identified with as much precision as possible. At paragraph 56 of that judgment, the Court of Appeal noted that we usually do not tie up all of the assets of a person who is a resident of Ontario, as that would be punitive and the Plaintiff’s undertaking as to damages might be insufficient to cover such a prospect.

[7] Further, the Court admonished, at para 61, that the Mareva must not be used “as a weapon in the hands of plaintiffs to force inequitable settlements from defendants who cannot afford to risk ruin by having an asset or assets completely tied up for a lengthy period of time awaiting trial.” Mr. Aiello submits that this is what the current uncapped Mareva injunction threatens to do in that it has put Ms. Sualim, and by extension Mr. Sualim, under enormous financial pressure by freezing all of their assets.

[8] In Aetna Financial Services Ltd. v Feigelman, 1985 55 (SCC), [1985] 1 SCR 2, at para 26, the Supreme Court of Canada stated that “the gist of the Mareva action is the right to freeze exigible assets when found within the jurisdiction… providing, of course, there is a cause between the plaintiff and the defendant which is justiciable in the courts...” Mr. Aiello points out that this refers to the cause by the actual Plaintiff in the action; not to a cause of action by potential claimants who are not a party to the action and who have not commenced any action against the Defendants.

[9] In Z Ltd v A and others, [1982] 1 All ER 556, at 574, the English Court of Appeal reflected similar thinking when it noted that a Mareva must be carefully tailored in order to achieve its objectives. The Court was clear that while the interest of the Plaintiff must be protected, the injunction must not be issued on a theoretical or a punitive basis. Accordingly, Kerr L.J. said, at 575, that he prefers “what have been referred to as ‘maximum sum’ orders, ie injunctions which only freeze the defendant’s assets up to the level of the plaintiff’s prima facie justiciable claim, leaving him free to deal with the balance.”

[10] Lord Denning, concurring in Z Ltd, likewise made it clear, at 565, that, “[t]he maximum amount is the sum claimed by the plaintiff from the defendant. This is done in case it should be that the defendant has assets which exceed the amount of the plaintiff’s claim.” This reinforced Kerr L.J.’s comment that an uncapped Mareva on all of a defendant’s assets in the jurisdiction is only justifiable where “(a) his assets within the jurisdiction are insufficient to meet the claim, and (b) he is neither resident nor carries on business within the jurisdiction.” [at 575]

[11] Neither of these conditions are the case here. The Defendants have more than the value in assets than is sought by the Plaintiff. Ms. Sualim is a resident of Ontario.

[12] Ms. Promislow points out that Stinson J. found that there is a strong prima facie case against the Defendants, as well as evidence of dissipation of the assets. Those findings, of course, were essential to his issuing a Mareva injunction, whether capped or uncapped.

[13] Sinson J. went further than the usual Mareva injunction when he specifically removed the cap from the standard form of Mareva order. In doing so, Stinson J. noted that “a similar scheme has been used to defraud at least 10 other victims, all in the United States. The total loss exceeds $13 million.” He was of the view that while there is only one victim before the court here, there are others lurking in the wings that will make a claim to the frozen assets. If that transpired, the assets needed to protect the Plaintiff would be greatly reduced because other claimants would lay claim to them.

[14] Attending in court today is Mr. Behnam Carmili, who is identified in the U.S. indictment as “Victim B.C.” He was allegedly defrauded of $5.5 million by Mr. Sualim. As Ms. Promislow indicates, that amount alone is more than the value of the Sualims’ frozen assets.

[15] Mr. Carmili has not issued a Statement of Claim or Norice of Action, and did not file any materials or seek to intervene in the hearing of the motion before me. However, given that he was in the courtroom as a spectator, Ms. Promislow requested permission to call him to testify at the hearing.

[16] Mr. Aiello objected to Mr. Carmili being called as a witness, as this came up last minute and he had difficulty contacting his client for instructions. I allowed Mr. Aiello a short break to try to contact his client and to prepare a cross-examination, after which I allowed Mr. Carmili to testify. I directed that Mr. Carmili’s testimony avoid touching on the merits of any claim that he may have; rather, I required Mr. Carmili’s testimony to be limited to the question of his intention to bring a claim against the Sualims and the other Defendants.

[17] Mr. Carmili testified that he has been speaking with a lawyer to represent him for the past three weeks, and that he retained a lawyer three days ago. He said that he had learned about the planning stages of this Ontario civil claim from the same FBI investigator that Mr. Patterson spoke with in the beginning of November, as described in Part II below.

[18] Mr. Carmili indicated that he intends to commence an action as soon as possible for $5.5 million in damages. Other than indicating that the Plaintiff’s law firm was too expensive for him, he did not provide any explanation as to why he has not done so up until now given that he has known about the Plaintiff’s contemplated proceedings for six weeks and that he started consulting Ontario lawyers three weeks ago. As indicated, he has not even issued a Notice of Action, which is typically only a one-page document.

[19] I do not doubt the credibility of Mr. Carmili’s sworn testimony. I am convinced that he has indeed been discussing his claim with a lawyer, as he testified. However, I do not think it is sufficient to simply testify that a claim is being discussed. In order to justify extending a Mareva injunction to assets well beyond the value of what is claimed by the Plaintiff, I would expect some other claim or legal process to have actually been issued.

[20] I find it problematic that while there are 10 other alleged victims named in the U.S. criminal proceedings against Mr. Sualim, none of them have joined this action or commenced one of their own. It is crucial to the Plaintiff’s argument in favour of an uncapped Mareva injunction that there exist claimants other than the Plaintiff himself. Ms. Promislow concedes that if the Plaintiff were the only victim with a claim or potential claim against the Defendants, there would be no reason not to cap the Mareva at the value of the claim plus whatever is an appropriate figure for investigative and legal expenses.

[21] Stinson J. understandably relied on the U.S. indictment and its reference to the other alleged victims in assuming that more assets needed to be frozen than the amount claimed by the Plaintiff alone. Ms. Promislow submits that having heard Mr. Carmili’s testimony, I now have even more evidence of other claimants than Stinson J. had; however, I am of the contrary view.

[22] The matter came before Stinson J. several weeks ago, without notice, and there may not have been time for more than one plaintiff to commence an action at that point. By now, however, one would have thought that more than one person would come forward as a claimant. The Plaintiff’s claim is now a matter of public record and, if it wasn’t known to other possible claimants before Stinson J.’s order (and Mr. Carmili’s testimony indicates that it was indeed known to him at least), it must have been known to them for the past several weeks. One would think that it would have inspired them to follow suit.

[23] It is unfair to Ms. Sualim to tie up assets that she owns jointly with Mr. Sualim when the value of those assets are well beyond the value sought by the Plaintiff, in circumstances where no one other than the Plaintiff has gone on record making any claim. As Mr. Aiello points out, section 96(1) of the Courts of Justice Act, RSO 1990, c C 43, authorizes this Court to administer all rules of equity and the common law, and the rules of equity in particular are most fundamentally about fairness to both sides of a case. This is true regardless of the far-reaching allegations leveled against Mr. Sualim on both sides of the border.

[24] In my view, the two paragraphs in the standard form of Mareva injunction that place a cap on the value of assets frozen should be reinstated.

[25] Ms. Promislow argues that the amount of the Plaintiff’s claim would not in any case reflect an appropriate cap, since there are substantial investigation and legal costs involved with a fraud claim of this nature. She contends that if a cap were to be imposed, it should reflect not only the $824,000 that the Plaintiff claims in compensatory damages but the further $1 million that he claims in punitive damages.

[26] I would agree that $824,000 is not a sufficient cap, although I do not think that the $1 million in punitive damages claimed by the Plaintiff is relevant to this calculus. I take Ms. Promislow’s point that the forensic accounting and other investigative fees, together with the lawyers’ costs in putting together a case like this one based on allegations of international fraud, are bound to be very high. I would therefore cap the Mareva injunction at $1.6 million – i.e. roughly double the Plaintiff’s compensatory claim. That is still only half of the $3.2 million in assets that Ms. Sualim states that she owns.

[27] Needless to say, capping the Mareva injunction is not to be seen by the Defendants as a license to dispose of or to transfer any unfrozen assets in anticipation of other claims that might be brought against them. The Defendants are aware of testimony of at least one person who states under oath that he intends to bring an action for $5.5 million. While there is no live action to that effect, a transfer of assets in an effort to avoid creditors and known potential creditors could run afoul of various pieces of Ontario legislation designed to protect creditors and potential creditors in these kinds of circumstances.

[28] The Defendants may, however, use their funds above the $1.6 million cap in the ordinary course of their lives and, in fairness, for Mr. Sualim’s bail and legal costs in the United States and in Canada. As indicated, the Mareva injunction here effectively pre-empted Mr. Sualim’s bail hearing.

[29] I take some comfort that a substantial amount of the assets owned by the Defendants are in the form of Ontario real estate. It seems to me appropriate that the real estate owned by the Defendants be left subject to the Mareva capped at $1.6 million, and the other assets covered by Stinson J’s order (various forms of bank and other accounts and vehicles owned by the Defendants) be released from the Order. Real estate is a type of asset that is not as liquid as the other assets owned by the Defendants, and takes some time to sell. Others are likely to have an opportunity to revisit the matter in court should those properties be put on the market in a way which raises any questions.

[30] If more plaintiffs join this action or bring actions of their own against the Sualims and other Defendants, the cap on the Mareva injunction may have to be revisited. That can be done on January 24, 2014 or, presumably, at any other date as this matter proceeds.

II. Examination of Plaintiff’s counsel

[31] Rule 39.03(1) of the Rules of Civil Procedure authorizes examination of a witness on a pending motion. Mr. Aiello concedes that it would be the very rare occasion where counsel for the opposing side could be examined under this rule, but he submits that in the unique circumstances of this case Mr. Patterson, senior counsel to the Plaintiff in this action, is an appropriate witness to be examined.

[32] According to an FBI memorandum produced in the record, on November 5, 2013 Mr. Patterson called an FBI investigator saying that he had obtained a copy of the indictment against Mr. Sualim and that he intended to pursue a Mareva injunction on behalf of the Plaintiff “and other victims of Sualim’s fraud scheme.” According to the same FBI memo, Mr. Patterson also told the investigator that “any information he would uncover during the course of his civil investigation could be turned over to law enforcement agencies.” He also indicated that to the FBI that he has worked with the RCMP on fraud cases.

[33] In the Plaintiff’s motion record for the Mareva injunction, a report by FINTRAC, a Canadian federal agency that tracks suspicious flows of funds through banks and other financial institutions, was produced as an exhibit. This FINTRAC Report indicates that Mr. Sualim is suspected of money laundering, among other things.

[34] The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17, section 55 indicates that the FINTRAC reports should only be released to CSIS or another law enforcement agency. The affidavit in the Plaintiff’s motion from an administrative assistant at the Plaintiff’s counsel’s law firm (i.e. Mr. Patterson’s law firm) states that the FINTRAC Report came to the law firm from the RCMP. This FINTRAC Report was relied on by the Plaintiff in obtaining the Mareva injunction. It is equally relied on by the Plaintiff for continuing that injunction until January 24, 2014, and will presumably be relied on in the upcoming January 24, 2014 hearing.

[35] Mr. Aiello submits that it is significant that Mr. Patterson advised the FBI that he has worked with the RCMP on fraud cases in the past. Mr. Aiello further submits that if the FINTRAC Report was disclosed to Mr. Patterson illegally, it will be his position at the January 24th hearing that it should be expunged from the record. That issue, he argues, must at the very least be permitted to be explored in an examination pending the January 24th motion.

[36] In considering the request to examine Mr. Patterson on the pending motion, I must be mindful of the judgment in The Queen v 1504413 Ontario Limited (2008), 2008 ONCA 253, 90 OR (3d) 122, at para 13, where the Ontario Court of Appeal admonished that “the practice of calling counsel for the opposing side to testify against his or her client is the exception and should be avoided whenever possible.” The Court specifically stated, at para 15, that this should not be done on the basis of “speculation”.

[37] Ms. Promislow submits that it is entirely speculative to suggest that the FINTRAC Report was improperly obtained. She states that there certainly is not the degree of “high materiality and necessity” to Mr. Patterson’s testimony on this point, as the Court of appeal says in para 17 of its 1504413 Ontario Ltd. ruling. She further relies on the Court of Appeal’s comments in The Queen v Colbourne, 2001 4711, at para 50 that “a possibility [of helpful evidence] is not enough”.

[38] In any case, Ms. Promislow argues, if Mr. Aiello’s point is that the RCMP should not have provided the FINTRAC Report to Mr. Patterson, there is no need for an examination to establish that. An affidavit from Mr. Patterson’s administrative assistant already states that the Report was obtained by the law firm from the RCMP. On the other hand, Ms. Promislow argues, if Mr. Aiello’s point is that the RCMP itself should not have had the FINTRAC Report, it is unlikely that Mr. Patterson will have any evidence to add to that. To suggest that he does is indeed “speculation”.

[39] In Neger v Dalfen, 2009 ONCJ 522, at para 23, Cohen J. provided an illustration of a case where it is absolutely necessary to examine opposing counsel – e.g. when the issue is whether a client has consented to a settlement, and the consent was expressed to his or her own lawyer and to no one else. Here, by contrast, we are talking about examining opposing counsel on his investigation of the merits of the claim by his client. This is a dangerous area to allow examination of counsel. It is so close to areas covered by solicitor-client privilege that it would be virtually impossible to distinguish permissible questions from impermissible ones.

[40] Ms. Promislow has advised that she and Mr. Aiello are in the process of scheduling a date on which Mr Aiello is to cross-examine the administrative assistant at Plaintiff’s counsel’s firm who submitted an affidavit attaching the FINTRAC Report. Accordingly, the record on January 24th will already contain full information as to how Plaintiff’s counsel came to obtain the report from the RCMP. Examining an administrative assistant is not, of course, as dangerous as examining the lawyer, as the administrative assistant is more likely to be able to relay the mechanics of how the FINTRAC Report was obtained, and is less likely to offer any glimpse of the legal advice or legal theory behind obtaining that report.

III. Disposition

[41] The Order of Stinson J. dated December 12, 2013 is amended to contain two paragraphs similar to paragraphs 3 and 10 of the Commercial List’s standard template for Mareva injunctions. Those are the two paragraphs which Stinson J. removed from his Order and which typically set out the cap on the monetary value of the Mareva injunction. The blank space for a dollar amount in those two paragraphs shall be filled in with the amount of $1,600,000.00.

[42] Schedules A and C of Stinson J’s order are removed, as are the references to those two Schedules in paragraph 1 of his order. This leaves only the real estate listed in Schedule B as the assets to which the Mareva pertains. I am aware that the evidence of Ms. Sualim is that the total value of the five properties listed in Schedule B is more than the $1.6 million cap that I have placed on the Mareva, but I find it difficult on the current state of the evidence to arrive at such specific dollar amounts for those properties. The Mareva is capped at $1.6 million, and the properties that are subject to it are those listed in Schedule B. To the extent that it can be established to the court’s satisfaction that one or more of those properties should be excluded from Schedule B because the total net value owned by the Defendants exceeds $1.6 million, it is open to Ms. Sualim or the other Defendants to seek that variance on January 24th or any other time.

[43] That said, I will reiterate what I said in paragraphs 27 and 28 above. The language of paragraphs 3 and 10 of the Commercial List’s template for a Mareva order should not be understood by the Defendants as authorizing wholesale dissipation of their assets above the enjoined $1.6 million.

[44] This endorsement is effective immediately upon its issuance today, regardless of when the formal Order is taken out.

[45] The request to examine Jim Patterson on the pending motion is denied.

[46] Given the mixed results of this motion, there will be no costs ordered for or against either party.

Morgan J.

Date: December 20, 2013