Court File and Parties

Citation: MFC v. Mady Collier, 2015 ONSC 2111 Court File Nos.: CV-15-10850-00CL, CV-15-5209, CV-15-521418, CV-15-10882-00CL Date: 2015-04-02 Superior Court of Justice – Ontario (Commercial List)

In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, C. C-36, as amended And in the Matter of a Plan of Compromise or Arrangement of Mady Collier Centre Ltd., Applicant

Court File No.: CV-15-520917-CL Between: MFC Structures Limited, Plaintiff – and – Mady Collier Centre Ltd., Mady Contract Division Ltd., Mady Contract Division (2009) Ltd., Mady Development Corporation, David Mady, Gregory Puklica, Len Rosetto, Marko Juricic, Charles Mady, Jeffrey Slopen also known as Jeffrey Mark Slopen, Dennis Bacon, Randolph Kinat, Matt Jaecklein, Wolf von Teichman, Derek Sorrenti, and Olympia Trust Company in trust for Pasquale Zangari, David W. Yungblut, Sandra E. Erb, Balvinder Kaur, Murray Oliver, Jennifer A. Witzel, Clark Hortsing, Neil Guenther, Lisa Bursey, Mike Redman, Isaac A. Kuepfer, David Paff, Betty Scott, Christopher Mitchell, Kaloutee Ramcharran, Carl Ribey, David Whidden, and David Sorrenti as trustee for David Doublilet, R.T. Consulting Inc., Laura Gina Vettese, Quincy Investments Ltd., Wayne Malott, Pieter van Baaren, Carol van Baaren, Glenn Snider, Carolyn Snider, Ruth Arlin, Nick Simone, Ali Asghar Jussain, 1225697 Ontario Ltd., Donald Paff, Gangia Mangal, Maureen Mearns, Mustak Alt, Sayed Jalees, Ursula Fret, Andrea Hanak, Defendants

Court File No.: CV-15-521418 Between: Dircam Electric Limited, Plaintiff – and – Mady Contract Division Ltd., et al., Defendants

Between: Dircam Electric Limited, Plaintiff

• and - Mady Contract Division Ltd., Jade-Kennedy Development Corporation, 2305992 Ontario Inc., David Mady, Gregory Puklicz also known as Greg Puklicz Len Rosetto, Marko Jurcic, Charles Mady, Jeffrey Slopen also known as Jeffrey Mark Slopen, Dennis Bacon, Randolph Kinat, Matt Jaecklein also known as Matthew Jaecklein, and Wolf Von Teichman, Defendants

Court File No.: CV-15-10882-00CL In the Matter of the Construction Lien Act, R.S.O. 1990, c. C.30, as amended And in the Matter of an Application made by Jade-Kennedy Development Corporation for the Appointment of a Trustee under Section 68(1) of the Construction Lien Act, R.S.O. 1990, c. C.30, as amended

Before: L. A. Pattillo J.

Counsel: Kevin Sherkin and Ryan Wozniak, For the Moving Parties G. Benchetrit for the Respondent, Mady Collier Centre Ltd. Pamela Huff for Grant Thorton Ltd., its capacity as Monitor for Mady Collier Centre Ltd. M. P. Gottlib, A. Winton and L. Epstein for Respondents Charles Mady Sr., David Mady, Greg Puklicz, and Jeffrey Slopen and for proposed Respondents Charles Mady Jr., Pamela Mady, Carrie Mady and Jeffrey Bolton N. Plinyarthi for Hammerschlag & Jaffee, Brian Air Group Systems and Frendell Kitchens Fabio Soccol for Nekison Diana Edmonds for Respondents Mueller and Kersey David Taub and Ellad Gersh, for Vincenzo Petrozza, Jawad Rathore, Olympia Trust and Derek Sorrenti in Trust Evert Van Woudenberg for Miller, Johnson, Penady (Barrie), and Penady (Stoney Creek) J. Rosenstein for Aviva Insurance D. Schatzlter for Tradeworld Realty Nutwha Curen for Johnson Controls Canada LP William Daley for Atlas-Apex Grant Moffat for Laurentian Bank of Canada K. Peterson for Marshall Zehr

Heard: March 31, 2015

Endorsement

Introduction

[1] This is a motion by MFC Structures Limited ("MFC"), Dircam Electric Limited ("Dircam"), Stefcon Construction Inc. ("Stefcon") and Nekison Engineering & Contractors ("Nekison") (collectively the "Moving Parties").

[2] The motion is brought in three separate proceedings all of which involve corporations which are part of a group of companies referred to as the Mady Group of Companies. All three proceedings are subject to court protection. As set out in the notice of motion, the Moving Parties seek, among other things, the following:

1. An order lifting the stay of proceedings in each of the three proceedings;

2. An order amending the statements of claim in each of the three proceedings to add numerous parties as defendants and to assert various claims against them.

3. A Mareva injunction against 16 individuals and 39 corporations listed in schedules to the notice of motion.

[3] At the hearing before me, the Moving Parties reduced the number of defendants against whom they sought the Mareva injunction to seven individuals and three companies – Charles Mady Sr. ("Charles Sr."), Charles Mady Jr. ("Charles Jr."), David Mady ("David"), Greg Puklicz ("Puklicz"), Jeffrey Slopen ("Slopen"), Jawad Rathore ("Rathore") and Vincenzo Petrozza ("Petrozza") along with Mady Contract Division Ltd. ("MCL"), Mady Contract Division (2009) Ltd. and Mady Development Corporation ("MDC") (collectively the "Mareva Defendants").

[4] For the reasons that follow, I dismiss the Moving Parties motion in its entirety.

Background

[5] The Moving Parties are all construction lien creditors of the respondents Mady Collier Centre Ltd. ("MCCL"), Jade-Kennedy Development Corporation ("JKDC") and 144 Park Ltd. ("144 Park").

MFC

[6] MCCL is building a mid-rise residential condominium with 82 units, mezzanine level retail and an 8 story commercial tower in downtown Barrie (the "Barrie Project").

[7] On January 13, 2015, MFC commenced action CV-15-520917-CL against MCCL and others claiming damages of $1,677,997.83 for breach of contract and breach of trust under the Construction Lien Act, R.S.O. 1990, c. C.30, as amended (the "CLA") for failure to pay for structural form and concrete placement work that it supplied to the Barrie Project.

[8] Pursuant to the amended and restated initial order of Newbould J. dated January 30, 2015, MCCL was granted protection under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended ("CCAA") (the "CCAA Order"). Among other things, the CCAA Order appointed Grant Thornton Limited as Monitor (the "Monitor") and granted a stay of proceedings against not only MCCL, its officers and directors but also Mady Development Corporation, Mady Contract Division (2009) Ltd., D. Mady Investments Inc. and David Mady Investments (2008) Inc. until March 31, 2015. The stay has been continued by subsequent orders of this court to April 8, 2015.

[9] By order dated January 22, 2015, Penny J. appointed Collins Barrow as Trustee of property owned by 144 Park Ltd. ("144 Park") pursuant to s. 68(1) of the CLA. The property is located in Waterloo, Ontario and 144 Park was in the process of developing it. 144 Park is a Mady Group company. At the time of the order, there were multiple construction liens filed against the property and actions which had been started.

[10] On February 11, 2015, I issued an order appointing Collins Barrow as Trustee of property owned by Jade-Kennedy Development Corporation ("Jade-Kennedy") pursuant to s. 68(1) of the CLA. The property is located in Markham, Ontario and Jade-Kennedy is constructing a mixed use condominium development called South Union Square on it. Jade-Kennedy is a Mady Group company. At the time of the order there were numerous construction liens filed against the property and actions which had been started.

[11] The moving Parties motion is supported by an affidavit of Frank Calvi, a director of MFC (the "Calvi Affidavit"). The Calvi Affidavit and exhibits encompasses five volumes. It begins with the statement that the motion arises from "the surreptitious, and in my view, ostensibly fraudulent dealings of a multitude of companies (the "Mady Group Companies").." He states that the Mady Group Companies are in the property development business in Ontario. He says that despite evidence that the Mady Group Companies received "massive infusions of cash in excess of $30,000,000.00", …. "some, most or all of which money has, apparently, simply vanished."

[12] Calvi then refers to the applications for court protection and the large amount of lien claims. He states in paragraphs 8 and 9:

8. As I will also explain more fully below, the Mady Group Companies began liquidating and leveraging their assets and obtained millions of dollars immediately prior to the commencement of the Court Protection Proceedings, which information was not, as far as I am aware, disclosed to this Honourable Court by Mady or any of the Mady Group of Companies.

9. Moreover, on or about March 10, 2015, my lawyers learned from the Monitor appointed by the Court in action number CV-15-10850-00CL – i.e, the CCAA Proceeding – that at least $8,000,000.00 of trust funds received by the Mady Group Companies in respect of the foregoing projects remains 'unaccounted for' – i.e., has simply disappeared.

[13] The Calvi Affidavit then goes on to set out MFC's action, MCCL's CCAA proceedings and the evidence from Charles Sr. in support. Calvi also deals with both 144 Park and the South Union Square project. He refers to the Monitor's Reports, information from MCCL and criticizes Charles Sr. in respect of his disclosure to the court. Calvi then goes into detail in respect of certain financial dealings relating to numerous properties owned by other Mady Group companies, which information appears to have been obtained from land registry documents.

[14] In particular, Calvi refers to financial dealings involving Penady (Barrie) Ltd. ("Penady Barrie") and Penady (Stoney Creek) Ltd. ("Penady Stoney Creek"). He also refers to a company called Fortress Real Developments Inc. ("Fortress") and refers to Rathore and Petrozza who are Fortress' CEO and COO respectively.

[15] In response, Charles Sr. has filed an affidavit denying Calvi's allegations. Specifically he denied any money was missing and says it can all be traced into land development projects. He denied that he or any other Mady Group defendant took any money from the companies other than salaries. He denied that any assets had been removed from the jurisdiction except in the ordinary course of business or that he or his companies were dissipating assets or attempting to take them out of creditors reach. Charles Sr. explained the background behind many of the financing and sale transactions raised in the Calvi Affidavit.

[16] Rathore and Petrozza also filed affidavits explaining Fortress, its relationship with the Mady Group of Companies and its lack of involvement in the affairs of the Mady Group. The affidavits also responded directly to Calvi's allegations concerning them and Fortress.

[17] Finally, I received an affidavit from a representative of Penady Barrie and Penady Stoney Creek explaining the make-up and dealings of those companies in response to the statements about them by Calvi.

Discussion

[18] A Mareva injunction is an extraordinary remedy. It operates to restrain a defendant from dissipating assets or conveying away his or her own property by freezing all of their assets prior to judgment. It is Draconian in nature and therefore should only be granted in the clearest of cases.

[19] The test for a Mareva injunction is well settled. The moving party must establish:

1. It has made full and fair disclosure of all material matters within its knowledge;

2. A strong prima facie case on the merits;

3. The defendant has assets in the jurisdiction;

4. That there is a real risk that the defendant will remove his or her assets from the jurisdiction for the purpose of avoiding judgment or that the defendant is dissipating assets outside the normal course of business; and

5. That the balance of convenience favours the granting of the order.

See: Chitel v. Rothbart (1982), 1982 1956 (ON CA), 39 O.R. (2d) 513 (C.A.) at para. 56; Voketel Inc. v. More, [2006] O.J. No. 4781 (SCJ).

a) Full and Fair Disclosure

[20] Full and fair disclosure is required at all times in injunction motions. It is more important, however, when the injunction is sought ex parte. This matter did not proceed ex parte. Counsel for the Moving Parties came to court with its material on Thursday March 26, 2015 seeking a date. Given the relief sought and the allegations, I set March 31, 2015 to hear it. The Defendants and prospective defendants were given notice, but it was short notice. In such circumstances, full and fair disclosure by the moving party remains essential.

[21] Many of the facts in the Calvi Affidavit were taken from the public record and in that regard, they speak for themselves. That said, Calvi's statements concerning Rathore and Petrozza's prior issues with the Ontario Securities Commission were inappropriate in my view and nothing more than an attempt to smear the two gentlemen. While factually right, it was neither necessary nor fair.

[22] I have, however, a larger concern with Calvi's affidavit. It relates to the conclusions he draws from the facts he attests to. They are no more than bald conclusions which are not supported by the facts. His statements that the dealings of the Mady Group are "surreptitious" and "ostensibly fraudulent" (para. 4); that in excess of $30,000,000.00 put into the companies immediately prior to the insolvency, has "apparently, simply vanished." (para. 6); that the Mady Group of Companies began liquidating and leveraging their assets immediately prior to the court proceedings (para. 8) and that at least $8 million of trust funds has disappeared (para. 9) are all not conclusions that can be drawn from the evidence presented by Calvi.

[23] There is no basis, in my view, to say the Mady Group's dealings were surreptitious or fraudulent. Similarly, while Calvi lists certain financing and sale transactions by various Mady companies, there is no information to explain what the companies were engaged in or what happened to the money they received. Nor, for reasons to follow, is the statement that $8 million disappeared supported by the information in the affidavit. In fact it is totally unsupported. While it may be an argument that can be made from the facts presented, it was stated by Calvi as a fact.

[24] Accordingly, I do not consider that the Moving Parties have made full and fair disclosure on the motion as they are required to do.

b) Strong Prima Facie Case

[25] A strong prima facie case is one where the plaintiff has shown that it is almost certain to succeed at trial: Beca v. Sportk, 2009 CarswellOnt 2252 (SCJ) at para. 10.

[26] The Moving Parties submit that based on the evidence before the court, they have established a strong prima facie case of fraud arising out of the identified respondents breach of the CLA trust either directly or based on knowing assistance or receipt. Specifically they submit that "there is uncontroverted evidence confirming that at least $8,000,000.00 in statutory trust funds received by certain of the Respondents have simply disappeared without explanation."

[27] In support of their submission, the Moving Parties rely on the Second Report of the Monitor concerning MCCL dated March 10, 2015 and specifically the following sub-paragraphs of paragraph 20 at page 12:

(iii) We are advised by [MCCL] that advances to the Project account were transferred to the MDC account at the Royal Bank, where consolidated treasury functions were performed for all projects, including the [Barrie Project] and other Mady projects.

(iv) [MCCL's] records evidence that $7,492,060.00 of Project funds are unaccounted for. [MCCL] subsequently advised that these proceeds are not on deposit and that these funds were consolidated in the MDC account and used in respect of the Project, and other Mady projects. The Monitor has not analyzed the source and use of payments from the MDC account, which is beyond the scope of this report, so it cannot confirm or dispel [MCCL's] explanation of the use of funds in the account of MDC.

[28] It is clear from the above excerpt that it is not accurate to say, as the Moving Parties do, that "at least $8,000,000.00 in statutory trust funds received by certain of the Respondents have simply disappeared without explanation." MCCL has provided an explanation to the Monitor about where the funds went and while the money is not in MCCL's account, it has not disappeared. It is simply premature, at this stage, to say whether the money has "disappeared." Nor is it clear that the monies are "trust funds" as provided by the CLA.

[29] There is no question that if MCCL transferred construction financing funds to MDC for use in "other Mady projects", that would be of concern and may constitute a breach of the CLA trust. But what the source of the funds was or how they were used is unknown at this stage. It cannot be said, based on the above report, which is all Calvi relies on, that MCCL's actions constituted a "prima facie" breach of the CLA trust or that the Moving Parties have established a prima facie case of fraud against the respondents they seek to enjoin.

[30] Accordingly, I find the Moving Parties have failed to establish a strong prima facie case. While that is sufficient to dispose of the motion, I propose to deal briefly with the two remaining requirements to obtain a Mareva injunction.

c) Assets in the Jurisdiction and Risk of Removal or Dissipation of Assets

[31] All of the Mareva Defendants, except for David, reside in Ontario. David resides in Texas and has lived there since 1990. He has no assets in Ontario. I am prepared to infer that the Ontario residents all have assets in the jurisdiction. What is completely missing from the Moving Parties material, however, is any evidence that there is any risk that they are going to remove their assets from the jurisdiction to avoid judgment or that they are otherwise disposing of assets out of the normal course of business.

[32] As noted, the Moving parties point to a number of transactions where companies in the Mady Group have recently sold or mortgaged property. Those companies are separate from MCCL, 144 Park and Jude-Kennedy. There is no indication of what happened to the money that was obtained. The only asset belonging to any of the individual Mareva Defendants which is referred to is a condominium in Toronto that was sold by Charles Sr. But there is no indication as to why it was sold or what happened to the money.

[33] It is simply not sufficient, in my view, to point to various financing or sale transactions involving other companies, many of whom are not Defendants or proposed Defendants, and say that such transactions constitute dissipation of assets or that the monies raised are being removed from the jurisdiction without more information. In my view, there is simply no evidence of either course of action.

[34] My conclusions concerning the strength or lack thereof of the Moving Parties' motion are based solely on the Moving Parties material. I have not taken into account any of facts set out in the responding affidavits. Had I done so, and based on my view of the failure of Calvi to make full and fair disclosure, I would have accepted the responding evidence over that of Calvi. That evidence is sufficient to defeat the Moving Parties' motion.

Conclusion

[35] Accordingly, the Mareva injunction is dismissed in its entirety. In light of that conclusion it follows that I am not prepared to either lift the stays in place in the three court protected proceedings, even to permit the amendment of the statements of claim. I consider that the Moving Parties claims are without merit at this stage and will only serve to detract the principals of the Mady Group from the task of dealing with the Mady Group's financial difficulties. The CLA trust claims will be sorted out in due course as the various court proceedings go forward. I am not advised of any limitation issues.

[36] The Mareva Defendants are entitled to their costs. They shall file brief submissions and Cost Outlines within 15 days. Penady Barrie and Penady Stoney Creek may also make cost submissions within the same time period. The Moving Parties shall respond within 10 days.

L. A. Pattillo J.

Released: April 2, 2015