COURT FILE NO.: CL-13-10261-00CL

DATE: 20140801

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Petro-Diamond Incorporated, BioUrja Trading, LLC and Kolmar Americas Inc., Plaintiffs

- v -

Verdeo Inc., Bioversel Trading Inc., Great Lakes Biodiesel Inc. (formerly Bioversel Sarnia Inc.), Einer Canada Inc. (formerly Bioversel Inc.), Arie Mazur and Sergey Ptushkin, Defendants

BEFORE: Mr. Justice H. Wilton-Siegel

COUNSEL:
Lou Brzezinski and Catherine MacInnis, for the Moving Parties/Plaintiffs

David E. Lederman and Ryan Cookson, for the Responding Parties/Defendants

HEARD: July 9, 2014

SUPPLEMENTAL ENDORSEMENT

[1] Further to the Court's reasons for decision dated May 23, 2014 (the "Reasons"), the plaintiffs also seek a Mareva injunction in respect of the assets of Arie Mazur ("Mazur"). Defined terms in these reasons have the same meanings as are ascribed thereto in the Reasons. I will address in turn the issues on this motion in respect of the principal requirements for a Mareva injunction as set out in the Reasons, being: (1) a strong prima facie case on the merits; (2) the existence of assets in the jurisdiction; and (3) a real risk of dissipation or removal of the assets out of the jurisdiction.

Strong Prima Facie Case

[2] The plaintiffs make alternative arguments with respect to the existence of a strong prima facie case.

[3] First, the plaintiffs say that Verdeo transferred monies to Mazur totaling $1,189,425 in 2010 and 2011, as described in greater detail below. These transfers are reflected as loans from Verdeo to Mazur in one set of the financial records of Verdeo Inc. produced in the U.S. actions. The plaintiffs acknowledge that these transfers do not appear as loans to Mazur in the second set of records that were produced in the U.S. actions. However, it is not disputed that monies in these amounts were transferred to Mazur in one form or another. The plaintiffs submit that these transfers constituted fraudulent transfers for purposes of the Fraudulent Conveyances Act.

[4] The second submission of the plaintiffs is based on the principle in United States of America v. Levy, 1999 14817 (ON SC), [1999] O.J. No. 1204 (Ont. Ct. J. (Gen. Div.)). In that decision, C. Campbell J. granted an order tracing and freezing funds in Canada in aid of a U.S. civil proceeding for recovery based on restitution on behalf of U.S. citizens. In that decision, C. Campbell J. concluded that the plaintiff had made out a strong prima facie case of probable improper and illegal activity. C. Campbell J. granted the injunctive relief sought notwithstanding that a preliminary injunction had not yet been granted in the U.S. action on the basis that, given his determination of a strong prima facie case on the facts, the applicant had demonstrated to the same standard that such an injunction would be granted by the U.S. court in the U.S. proceedings. It appears that C. Campbell J. addressed this issue in relation to a civil action commenced in Canada in a manner analogous to the action in the present proceedings.

[5] The same issue was also addressed in Barrotti v. Barrotti, [2009] O.J. No. 4877. In that decision, on the basis of Levy, Ferrier J. expressly concluded that he had the power to make an order securing a foreign judgment for civil damages even when that judgment had not yet been rendered, provided that the applicant in that case could make out a strong prima facie case that she would achieve a judgment against the respondent in the foreign jurisdiction.

[6] In this proceeding, the plaintiffs say they have demonstrated a strong prima facie case that Petro-Diamond will obtain judgment in the Petro-Diamond action in California. The respondent argues that there is no certainty that the plaintiffs will obtain a judgment in the Petro-Diamond action or in the present proceeding. Both parties have requested further reasons from the trial judge and Mazur says he intends to appeal the decision, although he cannot do so until a final judgment is issued.

[7] I agree, however, that there is little doubt from the minute of the decision of the California court in the Petro-Diamond action that the applicants will obtain a judgment in that court. There is nothing in the record before me to suggest that the further reasons of the judge will in any way alter the decision. While Mazur intends to appeal, I do not think that affects the issue before the Court on this application. Any request for a stay of proceedings pending an appeal could be addressed at that time.

[8] I would note that, in the present circumstances, the plaintiffs’ position regarding a strong prima facie case is ultimately the same in respect of both submissions – namely, the alleged existence of fraudulent transfers based on allegations that are substantially the same in both the Petro-Diamond action and the present proceeding, apart from any differences in the applicable statutory requirements which are not in the record on this motion. In other words, in accordance with the approach of C. Campbell J. in Levy, the Court can only conclude that there is a strong prima facie case that judgment will be obtained in the Petro-Diamond action if it is satisfied that there is a strong prima facie case on the merits in that action which is, effectively, the same as concluding that there is a strong prima facie case on the merits in the present proceeding. I have therefore approached the issue of demonstration of a strong prima facie case on the basis that the plaintiffs must demonstrate the existence of fraudulent transfers to Mazur for the purposes of, and on the basis of the evidence in, this action.

[9] The plaintiffs say that Petro-Diamond has made out a strong prima facie case that it will obtain judgment in the Petro-Diamond action against Mazur, among other defendants, in the amount of $2,550,000 based upon findings of fraudulent transfers and the conclusion that each of the defendants, including Mazur, is the alter ego of each other and, in particular, Verdeo Inc. in respect of which judgment has already been obtained in the Petro-Diamond action. I have limited consideration of the alleged fraudulent transfers to the transfers totaling $1,189,488 addressed on this motion. The plaintiffs base their case that such transfers constituted fraudulent conveyances under the Fraudulent Conveyances Act on a number of factors including the following. Mazur controlled Verdeo through the management agreement between BTI and Verdeo and was therefore in a position to cause these transfers to occur. In addition, these transfers were made in and after December 2010, by which time Verdeo had substantial and increasing liabilities that were known to Mazur, including but not limited to the claims of the plaintiffs, which ultimately went unpaid. Further, on Mazur’s own explanation as set out in his disposition in the Petro-Diamond action, the transfers were intended to benefit him personally or to assist him in his relationship with Ptushkin and had no relationship to the affairs of Verdeo.

[10] This motion is proceeding against the backdrop of the Court's determination in the Endorsement that the applicants have established a strong prima facie case of a fraudulent transfer in respect of the Orense Transaction in which Mazur was a knowledgable participant.

[11] The transactions involving Mazur identified in Mazur's deposition clearly benefitted Mazur directly or indirectly insofar as they were part of the settlement of his arrangements with Ptushkin. These transactions were affected at a time when Verdeo had substantial liabilities. The evidence indicates that Verdeo's liabilities exceeded its assets at such time, taking into account the claims of the plaintiffs. These transfers further depleted the assets of Verdeo. It is also relevant that, shortly after the transfers occurred, Verdeo ceased operations in February 2011.

[12] On the basis of the foregoing, I conclude that the applicant has demonstrated a strong prima facie case of one or more fraudulent transfers to Mazur that satisfies the first requirement for a Mareva injunction.

Assets in the Jurisdiction

[13] The evidence regarding assets in the jurisdiction is, however, more problematic. In this case, given the circumstances, I consider that the requirement of demonstration of assets in the jurisdiction and the requirement of demonstration of a real risk of dissipation of assets must be considered together. For the reasons described below, I am of the opinion that it is reasonable to conclude that either Mazur has no material assets or, if he does, that such assets are no longer in Ontario.

The Evidence

[14] The evidence is that Mazur sold his only significant asset in Ontario, being his house in Toronto, in August 2013 and that the proceeds were used to pay off his mortgage and to pay on-going living expenses, including rent at $15,000 per month. As of October 2012, Mazur acknowledged that "a couple of hundred thousand dollars" remained in a joint bank account with his wife at Scotiabank out of these monies.

[15] The only evidence of potential assets is found in Mazur's deposition of October 12, 2012 in the Petro-Diamond action. In that deposition, he answered questions with respect to the transfers totaling $1,189,425 referred to above. Of these transfers, the largest item concerned a loan or loans to a Florida property management firm that he says were transferred to Ptushkin as part of his settlement with Ptushkin. Certain consulting payments were also paid to Mazur's wife. In addition, three payments totaling $150,000 were paid to an entity referred to "Praveen Investing" for unspecified purposes. The last payment to Taylor Limousine appears to have been for expenses.

Analysis and Conclusion

[16] The evidence with respect to Mr. Mazur’s assets does not demonstrate the existence of assets in Ontario. There is no value to his shares in BTI. He did have income from BTI until a year ago, but he has apparently had no income since that date. A substantial portion of the proceeds of sale of his former home was used to pay the mortgage on the property.

[17] The plaintiffs say that Mazur has a joint account with his wife in Ontario at Scotiabank. However, there is no evidence before the Court of the location of the Scotiabank account or the amount in such account, as the plaintiffs chose not to cross-examine him on this account in January 2014.

[18] The plaintiffs also argue that Mazur ought to have further assets in Ontario arising from the transfers of monies to him described above. It is possible that, apart from the Taylor Limousine expenses, there are assets that remain in the form of investments of some nature. Given the finding in the Endorsement that Mazur participated in a fraudulent transfer in respect of the Orense Transaction, the Court cannot rely on his testimony on cross-examination in this proceeding in the absence of supporting documentary evidence.

[19] There is, however, no evidence that any of the investments, if they still exist, have any value. Nor is there any evidence that these investments generated any returns that would have been received in his Scotiabank account. The only relevant evidence is the fact that, as of his cross-examination in January 2014, he continues to live in a rented home paying rent at $15,000 per month. Such evidence may suggest the existence of assets but it does not evidence the existence of assets in Ontario.

[20] The real issue therefore becomes not whether there Mazur has assets but whether the assets are in Ontario. I conclude that the evidence is insufficient to establish to the reasonable satisfaction of the Court that there are assets in Ontario for the following reasons.

[21] This action was commenced in September 2013. From that time onward, as the applicant notes, the applicant sought a Mareva injunction not only in respect of GLB but also in respect of Mazur. Mazur has therefore had considerable notice of this application. During this time, he has been free to move his assets out of Ontario. The plaintiffs themselves suggest that Mazur sold his house on the eve of the trials in the BioUrja action and the Petro-Diamond action, the implication being to convert fixed real property into mobile funds. I have little doubt that, insofar as Mazur has any remaining assets of any significance, he will have removed these assets from Ontario.

[22] In addition, the applicant's own actions in this proceeding suggest that they also doubt the likelihood that any significant assets remain in Ontario. As mentioned, the applicants did not require any interim consent relief directed toward Mazur in connection with the adjournment of the return of the motion. Moreover, they sought a further adjournment of the return of the motion in January 2014 for the purpose of obtaining answers to refusals and undertakings. The plaintiffs' actions in respect of GLB indicated that the plaintiffs would have aggressively pursued a Mareva injunction with respect to Mazur's assets in Ontario if they were aware of any assets.

[23] In summary, it may have been possible to argue that an imminent risk of dissipation existed at the time of commencement of the proceeding. However, it is no longer reasonable to argue that a Mareva injunction is necessary to protect assets allegedly transferred pursuant to fraudulent transfers from being removed from the jurisdiction. Any risk of dissipation existing at the time of commencement of the proceeding no longer exists for the reasons mentioned above. To succeed on this motion, therefore, the plaintiffs must establish a more recent development that gives rise to such a concern. However, there have been no such recent developments that give rise to an urgent need for a Mareva to protect the plaintiffs. The real purpose of this motion appears to be to give the plaintiffs an immediate means of investigating further whether Mazur has any assets that can be frozen pending enforcement of the judgment in the Petro-Diamond action in Ontario. That is not the purpose of a Mareva injunction.

[24] Accordingly, the applicants cannot satisfy the remaining requirements for a Mareva injunction.

Conclusion

[25] Based on the foregoing, the motion is dismissed. If the parties are unable to agree on the costs of this motion, they will each have thirty days to provide the Court with a costs submission not exceeding five pages in length, together with a costs outline in the form prescribed in the Rules of Civil Procedure.

Wilton-Siegel J.

Date: August 1, 2014