CITATION: 2057552 Ontario Inc. v. Dick, 2015 ONSC 3182
COURT FILE NO.: CV-14-511796
COURT FILE NO.: CV-14-517283
DATE: 20150519
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2057552 ONTARIO INC.
Plaintiff
– and –
CHARLES DICK, ESTHER DICK, MEIR DICK, JACQUELINE MILEVSKY (nee DICK), JOEL DICK, 8800383 CANADA INC., ABC VARIETY SERVICES INC., and ABC VARIETY
Defendants
AND BETWEEN:
ESTER KLEIN and WILLY (VILMOS) KLEIN
Plaintiffs
– and –
CHARLES DICK, ESTHER DICK, JOEL DICK, 8800383 CANADA INC., ABC VARIETY SERVICES INC., ABC VARIETY, and JAMARMY FINANCIAL SERVICES
Defendants
Eliezer Karp for the Plaintiffs 2057552 Ontario Inc. and Ester Klein and Willy (Vilmos) Klein
James Clark for the Defendant Charles Dick
James Round for the Defendants Esther Dick, ABC Variety Services Inc. and ABC Variety
Fred Tayar for the Defendant 8800383 Canada Inc.
Joel Dick, self-represented
HEARD: April 28, 2015
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] The Plaintiff, 2057552 Ontario Inc. (the “Finkelstein Corporation”), brings a motion to extend a Mareva injunction granted against: (a) Charles Dick and Esther Dick; (b) ABC Variety Services Inc. and ABC Variety, formerly Jamarmy Financial Services; (c) the Dicks’ adult children, Joel Dick, Meir Dick, and Jacqueline Milevsky; and (d) Joel’s and Jacqueline’s corporation, 8800383 Canada Inc.
[2] The Finkelstein Corporation is also claiming a certificate of pending litigation against the Dick matrimonial home, of which Esther is the registered owner. And, the Finkelstein Corporation seeks a summary judgment to set aside two mortgages on the Dick matrimonial home. Esther Dick granted the mortgages to Ms. Milevsky and to 8800383 Canada Inc., and the Finkelstein Corporation submits that the mortgages are fraudulent conveyances under the Fraudulent Preferences Act, R.S.O. 1990, c. F.29.
[3] In a separate action, the Plaintiffs Ester and Willy Klein bring a summary judgment motion against Esther Dick and Charles Dick for repayment of a $710,000 loan based on unsecured promissory notes. For the Klein motion, the most contentious point is whether Esther is jointly liable with Charles.
[4] The Kleins also seek a summary judgment to set aside those mortgages on the Dick matrimonial home on the grounds that the mortgages were fraudulent conveyances. The Kleins also seek a certificate of pending litigation. In the alternative, the Kleins seek an extension of a Mareva injunction that they obtained against: (a) Charles Dick and Esther Dick; (b) ABC Variety Services Inc., ABC Variety, and Jamarmy Financial Services; (c) Joel Dick; and (d) 8800383 Canada Inc.
[5] The Dicks defend the summary judgment motions, and the Defendants in both actions move to have the Mareva injunctions set aside on a variety of grounds. The Defendants submit that the injunctions should be set aside because of non-disclosure and false disclosure by the Finkelstein Corporation and the Kleins. With respect to the Mareva injunction granted in the Klein action, the Defendants submit that it and the Mareva injunction in the Finkelstein Action should be set aside because the Kleins’ Mareva injunction was obtained in breach of the implied undertaking.
[6] Charles Dick brings a cross-motion to have his dispute with the Kleins transferred to arbitration before a “Beth Din,” a Rabbinical Court, pursuant to an arbitration clause found in some of the promissory notes.
[7] For the reasons that follow, I dissolve the Mareva injunctions and I refuse to grant a certificate of pending litigation. I dismiss the fraudulent conveyance claim. I grant the Kleins a summary judgment for $710,000 plus interest against Charles Dick, Esther Dick, ABC Variety Services Inc., ABC Variety, and Jamarmy Financial Services jointly and severally for repayment of the promissory notes.
[8] These rulings are dispositive of the Klein Action, which makes the issue of referring the Klein Action to arbitration moot. The Finkelstein Corporation’s action against Charles Dick and Esther Dick without its fraudulent conveyance claim shall proceed in the normal course.
B. OVERVIEW
[9] From my review of the factual and procedural background to the various motions in the Finkelstein and Klein Actions, described below, it is not necessary to reach a conclusion on some of the arguments made by the parties.
[10] For example, the Defendants argue that the Mareva injunctions should be discharged because the moving parties did not make proper disclosure when they obtained the injunctions and when the interim orders were repeatedly continued, but it is not necessary to make any finding on the numerous particulars of alleged non-disclosure because, in my opinion, the evidence, such as it is in both actions, is insufficient to satisfy the test for a Mareva injunction, which it needs to be remembered is an extraordinary remedy and not a substitute for a receivership and never an easily obtainable way to obtain pre-judgment execution.
[11] Thus, as will emerge from the discussion and analysis below, in the cases at bar, I conclude that continuation of the Mareva injunctions is not warranted on substantive grounds. I need not decide whether the interim interlocutory injunctions should be set aside or whether they ought not to have been granted by my judicial colleagues in the first instance because of the alleged failures to make proper disclosure.
[12] I pause here to note that, in any event, during argument, Plaintiffs’ counsel more or less conceded that having regard to the funds remaining in the various bank accounts that were frozen, there was little to be achieved by continuing the injunctions.
[13] With respect to the Mareva injunctions, I also need not decide the matter of whether there was a breach of the implied or deemed undertaking. However, the point was ardently argued, and it raises an important practice point, and, therefore, I have decided to resolve the point in a brief discussion. As I will explain below, there was indeed a breach of the implied undertaking but not of the deemed undertaking, but I would in the circumstances excuse the breach and not treat the breach of the implied undertaking as alternative grounds to set aside or not continue the Mareva injunctions.
[14] Turning to the summary judgment motions, I conclude that there is no genuine issue for trial that there was no fraudulent conveyance and, therefore, these claims should be dismissed.
[15] I conclude that a summary judgment should be granted in the Klein Action against Esther and Charles Dick and their various alter-egos for the principal amount of the unpaid promissory notes plus interest. I conclude that Charles is liable as the signer of the notes and Esther is liable as his business partner.
C. FACTUAL AND PROCEDURAL BACKGROUND
1. The Parties
[16] Charles and Esther Dick are husband and wife. They have three adult children, Meir Dick, Joel Dick, and Jacqueline Milevsky. (There is almost nothing in the record about Meir Dick’s involvement in the circumstances of both the Finkelstein Action and the Klein Action.)
[17] Joel Dick and Ms. Milevsky are the owners of 8800383 Canada Inc., whose role is described below.
[18] Esther Dick is the owner of ABC Variety, formerly Jamarmy Financial Services, which came to be incorporated as ABC Variety Services Inc. ABC Variety is in the ATM business, the nature of which is described below. Esther Dick is an admitted partner with the Finkelstein Corporation (2057552 Ontario Inc.) which operated another ATM business in a partnership known as ESMA.
[19] From her performance on her cross-examination in these proceedings, it appears that Esther Dick is not a sophisticated businesswoman and that it is Charles who manages and administers the ATM businesses and the business affairs of the Dick family. Charles Dick has signing authority for the business’s bank accounts and it appears that he makes the business decisions and is responsible for the routine activities of the business.
[20] The late Josef Finkelstein was a business associate of the Dicks. Josef was married to Haya Finkelstein. Their daughter is Malka Finkelstein. The Finkelstein Corporation is the Plaintiff 2057552 Ontario Inc. and Malka is its sole shareholder.
[21] As already noted, Esther Dick is an admitted partner with the Finkelstein Corporation in a partnership called ESMA, named after Esther Dick and Malka Finkelstein. I foreshadow to say that I find as a fact that Charles Dick is also a partner in ESMA.
[22] Esther Dick is the registered owner of the Dicks’ matrimonial home at 173 Caribou Road, Toronto, which she purchased in 1995. She is the owner of all the assets of the various businesses in which the Dicks are involved. The matrimonial home is encumbered by four mortgages including a $400,000 third mortgage in favour of 8800383 Canada Inc. and a $140,000 fourth mortgage in favour of Ms. Milevsky. The mortgages were registered against 173 Caribou Road in August 2014. The third and the fourth mortgages are the subject of the fraudulent conveyance allegations discussed further below.
[23] Ester Klein and Willy (Vilmos) Klein are husband and wife. In a series of promissory note transactions, they lent $710,000 to ABC Variety, Charles Dick, or Esther Dick. Some of the notes were signed by Charles Dick and some were signed by Mr. Dick as agent for ABC Variety. The loans have not been repaid.
[24] I pause here to note that the Finkelsteins, the Kleins, and the Dicks carried on their business dealings with inadequate formality but with much trust and reliance on the reliability of the words of one another. However, with their falling out, their faith in one another has turned into disbelief and suspicion and the deafness and dumbness of “you did”, “no I didn’t” accusations and reciprocating recriminations.
2. The ATM Business
[25] ATMs, automated teller machines, have become a common feature of modern society, and from their start as a replacement or substitute for a bank teller employed by a bank or similar financial institution, they have grown to be a private sector business connected to, but independent from, the banks.
[26] Manufacturers of ATMs sell the machines to businesses that arrange to place the ATMs in virtually any type of location. Once placed, the machines are electronically linked to an information and financial network. Then, in a variety of ways, the owners of the machines make money when customers use the ATMs to withdraw cash in a transaction that is charged against the customer’s bank accounts.
[27] It is to oversimplify, but the business idea is that the owner of the ATM has or borrows currency (cash) and places the cash in the ATMs and when the cash is withdrawn by a customer, the amount of the withdrawal is debited to the customer’s account at a bank or other financial institution and the bank or financial institution credits the amount of the withdrawal to an account of the owner of the ATM. The financial institution also pays the owner of the ATM a share of the charges or of the fees for the withdrawal of the cash by the customer.
[28] The cash in the machine is the inventory of the ATM business. The owner of the ATM, not the bank or financial institution, is responsible for replenishing the cash in the machine.
[29] The ATM business may have several bank accounts and the account for recycling cash is called the vault cash account. There is, however, nothing improper about using vault cash to pay expenses, except that, if not replenished, the ATM business will run out of cash inventory.
[30] In the case at bar, the Dicks purchased ATMs and used them in two businesses. One business was ABC Variety and the other business was ESMA, which the Dicks operated with the Finkelsteins.
[31] ABC Variety had two different bank accounts at two different branches of the CIBC. ABC Variety’s two accounts were not used for exclusive, designated purposes, although one was generally referred to as the “vault” account, which was the account from which currency was withdrawn to place into the ATM machines. ESMA used the bank accounts of the Finkelstein Corporation.
[32] The Dicks and the Finkelsteins borrowed money in order to have a cash inventory and replenish the ATMs. In the case at bar, the Kleins were amongst the lenders to the Dicks and to ESMA.
[33] Esther Dick testified that the Finkelsteins also borrowed money from others to provide their portion of the cash inventory for ESMA, including, for example, $100,000 borrowed from Israel Maierovits, repayable with interest at 13%. This money was contributed by the Finkelsteins to ESMA. Esther defends one of the alleged misappropriations of money as her payment of the Finkelstein’s indebtedness. Given the falling out of the parties, the Finkelsteins reject this explanation.
[34] Like any kind of business, the operators of an ATM business have expenses, including the cost of borrowing, the cost of renting space, and salaries for employees. There are also the typical backroom expenses of running a business and keeping financial and business records, etc.
[35] In the case at bar, the Finkelsteins and the Dicks had the expense of purchasing the machines and maintaining them and upgrading them and replacing them as necessary. Mr. Dick was the main employee of ESMA and of ABC Variety and the Finkelsteins admitted that he was entitled to be paid. He submitted that he has a claim for unpaid salary.
3. The Finkelsteins and the Kleins Business Relationship
[36] In 2001, Esther Dick purchased several ATMs, and she, assisted by Charles, carried on business as Jamarmy Financial Services. The working arrangements between Esther and Charles were such that although Jamarmy Financial might technically be Esther’s sole proprietorship, for the reasons discussed below, I find as a fact that it was a business partnership of the Dicks.
[37] As noted above, Esther Dick is an admitted partner with the Finkelstein Corporation in a partnership called ESMA (named after Esther Dick and Malka Finkelstein). The finances and accounting for the ESMA partnership is provided by and through the Finkelstein Corporation. In 2009, the late Josef Finkelstein, through the Finkelstein Corporation and Esther Dick, purchased 44 ATMs to start up ESMA.
[38] Having regard to my finding that Esther is in a partnership relationship with Charles, I conclude that the Finkelstein Corporation carried on business in partnership with both Esther Dick and Charles Dick.
[39] Jamarmy Financial, which later changed its name to ABC Variety, is a separate business from ESMA. I find as a fact that ABC Variety is a partnership of Charles Dick and Esther Dick.
4. The Klein Loans
[40] From 2007 to 2014, in a series of unsecured loan transactions documented by promissory notes, the Kleins lent $710,000 to the Dicks. All the promissory notes were signed by Charles Dick with some of the notes bearing his signature as agent for the Finkelstein Corporation, which it may be recalled is the vehicle used for ESMA’s finances and accounting.
[41] There are notes dated: December 6, 2007; March 25, 2008; January 20, 2009; May 14, 2009; June 1, 2009; June 22, 2009; July 20, 2009; December 11, 2009; December 11, 2010; June 22, 2011; September 20, 2011; September 26, 2011; April 19, 2012; August 1, 2012; August 1, 2014; and August 20, 2014.
[42] The interest rates charged on the loans varied from 11% to 13%. In two of the notes, the Finkelstein Corporation is noted as a borrower.
[43] The principal amount of the loans has not been repaid. Interest payments were made but have now gone into default.
[44] I find as a fact that these unsecured loans are the joint and several liabilities of Charles Dick, Esther Dick, ABC Variety Services Inc., ABC Variety, and Jamarmy Financial Services.
[45] There is no genuine issue for trial that the Kleins are entitled to repayment of the principal amount of the loans plus unpaid interest.
5. The Commencement of the Finkelstein Action
[46] In the fall of 2014, the Finkelstein Corporation commenced an action against Charles Dick, Esther Dick, Meir Dick, Jacqueline Milevsky, Joel Dick, 8800383 Canada Inc., ABC Variety Services Inc. and ABC Variety.
[47] The Finkelstein Corporation alleges that in breach of fiduciary duty, the Dicks misappropriated assets from ESMA, and it seeks an accounting and to trace the misappropriated funds. It claims a constructive trust over the Dick’s family home and a certificate of pending litigation. It seeks to set aside the conveyances of mortgages granted by Esther Dick to 8800383 Canada Inc. and Ms. Milevsky on the grounds that the mortgages are fraudulent conveyances.
[48] The essential allegation is that the Dicks diverted moneys from the accounts of ESMA to accounts controlled by the Dick children and that ESMA’s vault cash, money used for replenishing the ATMs, diminished from about a half a million dollars to zero.
[49] In the Statement of Claim, a few examples of alleged misappropriations are particularized such as cheques totalling $12,000 drawn from ESMA’s accounts and paid to 8800383 Canada Inc.
[50] On September 10, 2014, on the ex parte motion of the Finkelstein Corporation, Justice Sanderson granted a Mareva injunction: (a) freezing 8800383 Canada Inc.’s account #00022-10-1932042; (b) redirecting monies from that account to ESMA’s account #09812-10-9236015 and freezing that account; (c) directing that no funds be removed from any of ESMA’s ATM machines; and (d) ordering all revenues derived from the ATM business be deposited into one of the frozen accounts.
[51] The Finkelstein Corporation’s motion was supported by affidavits of Malka and Haya Finkelstein, sworn on September 3, 2014. The Finkelsteins alleged that the Dicks were diverting funds, keeping information from the Finkelsteins, and failing to account to them about the operation of ESMA.
[52] On September 17, 2014, Esther Dick delivered an affidavit in the Finkelstein Action.
[53] The Dicks submit that the Finkelsteins’ affidavits were disingenuous and that the Finkelsteins did not tell the true story, which would have been known to the Finkelsteins. On September 17, 2014, Esther Dick delivered an affidavit in the Finkelstein Action.
[54] Using the report of Raphi Wisebrod, a forensic accountant, Esther Dick provided the following explanation for ESMA’s financial circumstances. Mr. Wisebrod concluded that, at the time the partnership was formed, Josef Finkelstein had brought in approximately $160,000 in vault cash and this amount was reduced to close to zero because the partnership had to buy hardware and software to meet the new federal requirements of chip cards, new encryption security requirements, and new sensors accommodating polymer bills. Mr. Wisebrod explained that ESMA lost $11,000 due to a break in at Winner Edge ATM. Mr. Wisebrod found that between 2009 and 2012, the Finkelsteins withdrew $164,585 from the partnership and that Esther Dick had withdrawn only $110,401.
[55] Esther Dick provided explanations for various cheques that the Finkelsteins had found suspicious as being cheques properly used for ESMA’s business. For example, Malka Finkelstein disputed a cheque for $2,486 payable to 1610845 Ontario Inc. as money used to pay for repairs to Charles Dick’s own ATMs, but Esther produced an invoice showing that the payment was for hardware for two ATMs belonging to ESMA.
[56] The Finkelstein Corporation does not accept the accuracy of the Wisebrod Report or Esther Dick’s explanations.
[57] On September 19, 2014, Justice Himel varied the Mareva injunction to allow the ATM business to continue without the Dicks’ participation.
[58] On November 3, 2014, Charles Dick was cross-examined in the Finkelstein Action.
[59] Before the end of the month of November, one of the Finkelsteins provided a copy of Mr. Dick’s cross-examination transcript to the Kleins.
6. The Commencement of the Klein Action
[60] After the Finkelstein Corporation’s proceeding was underway, in the fall of 2014, the Kleins commenced an action against Charles Dick, Esther Dick, Joel Dick, 8800383 Canada Inc., ABC Variety Services Inc., ABC Variety, and Jamarmy Financial Services.
[61] The Kleins were represented by the same law firm as the Finkelstein Corporation but the actions were separate actions.
[62] The main claims in the Klein Action are for the recovery of the principal amount of the loans, a determination that Esther Dick, Charles Dick, and ABC Variety are alter-egos of one another and jointly and severally liable for the indebtedness to the Kleins, an accounting and tracing of the sums received by 8800383 Canada Inc., and the setting aside of the third and fourth mortgages as fraudulent conveyances.
[63] On December 3, 2014, the Kleins brought an ex parte motion for a Mareva injunction. The motion was supported by an affidavit from Mr. Klein that referred to and relied on the transcript of Mr. Dick’s cross-examination in the Finkelstein Action.
[64] Mr. Dick was not asked for permission to use his transcript from the Finkelstein Action in the Klein Action and no request was made to the court for relief from the deemed or implied undertaking.
[65] On December 3, 2014, Justice Myers granted a Mareva injunction in the Klein Action.
[66] The Order of December 3, 2014: (a) froze account #03322-010-2716119, belonging to ABC Variety; (b) froze account #00022-001-1932042, belonging to 8800383 Canada Inc.; (c) froze account #02812-010-9330211, belonging to ABC Variety; (d) froze account #68042-828-13468445, belonging to Charles Dick; (e) froze account #01912-010-7818297, belonging to Esther Dick; and (g) froze account #04242-001-034269, belonging to ABC Variety.
[67] As appears, the injunction in the Klein Action is more comprehensive than the injunction granted in the Finkelstein Action.
7. The Finkelstein and the Klein Actions
[68] On December 12, 2014, Justice Myers extended the Mareva injunction in the Finkelstein Action, and on consent he extended the Mareva injunction in the Klein Action.
[69] On January 2, 2015, Justice Matheson extended the Mareva injunction in the Finkelstein Action and she extended the Mareva injunction in the Klein Action.
[70] On January 25, 2015, Justice Myers extended the Mareva injunction in the Finkelstein Action.
[71] On January 30, 2015, Esther Dick was cross-examined. Her examination revealed that she heavily relied on Charles to manage and administer the ATM businesses.
[72] On April 16, 2015, Ms. Milevsky delivered an affidavit. In her affidavit, she deposed that between April 2013 and February 2014, she lent $130,400 and that Joel lent $10,000 to keep the ATM business afloat. The loans were in cash. Joel had no evidence of his contribution, but Ms. Milevsky produced bank account records showing some withdrawals from her own bank accounts.
[73] Ms. Milevsky deposed that in February 2014, Esther asked her and Joel for more money for the ATM business. Joel did an analysis of the business, and he and Ms. Milevsky agreed to lend on terms that Esther grant a fourth mortgage on 173 Caribou Road to Ms. Milevsky for the $140,400 already advanced and a third mortgage to a newly incorporated company for a $400,000 infusion of cash.
[74] Further, Ms. Milevsky deposed that they would have a right to monitor and control the payment of money in and out of the ATM business through the bank account of the new corporation.
[75] The mortgages were registered in August 2014, and Ms. Milevsky deposed that she and Joel raised much of the money by 8800383 Canada Inc. borrowing it from third parties. In this regard, Robert Rubenstein lent $50,000, Alexander Weisenfeld lent $82,000, Mark Mandelbaum, through his company Lindifrim Inc., lent $25,000, and Eliya Lunev lent $170,000.
[76] In the aggregate $357,000 was advanced by 8800383 Canada Inc. to Esther and Charles Dick in furtherance of a plan to advance $400,000 to keep the ATM business afloat.
[77] On April 20, 2015, Ms. Haya Finkelstein was cross-examined.
D. DISCUSSION AND ANALYSIS
1. Overview
[78] In Hryniak v. Mauldin, 2014 SCC No. 7, the Supreme Court of Canada held that on a motion for summary judgment, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers enacted when Rule 20 was amended in 2010. The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting a summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and a summary judgment would be a timely, affordable and proportionate procedure.
[79] Under the approach to summary judgment mandated by Hryniak v. Mauldin, if there are genuine issues requiring a trial, then the court should determine if the need for a trial can be avoided by using the powers under rules 20.04(2.1) and (2.2). As a matter of discretion, the motions judge may use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice, if their use will lead to a fair and just result and will serve the goals of timeliness, affordability, and proportionality in light of the litigation as a whole.
[80] As may already appear from the discussion above and as will be further revealed by the discussion below, the various matters before the court can be decided as issues of fact within the context of the motions for summary judgments and the motions to extend or vacate the Mareva injunctions.
2. The Mareva Injunctions
[81] A Mareva injunction is an injunctive order that restrains the defendant from dissipating assets or from conveying away his or her own property pending the court’s determination in the proceedings.
[82] Because procedural law disfavours pre-judgment execution, to obtain a Mareva injunction, a plaintiff must satisfy the normal criteria for an injunction and also several additional criteria. For a Mareva injunction, the moving party must establish: (1) a strong prima facie case; (2) that the defendant has assets in the jurisdiction; and (3) that there is a serious risk that the defendant will remove property or dissipate assets before the judgment. A Mareva injunction should be issued only if it is shown that the defendant’s purpose is to remove his or her assets from the jurisdiction to avoid judgment. The moving party must also establish that he or she would suffer irreparable harm if the injunction were not granted and that the balance of convenience favours granting the injunction. Absent unusual circumstances, the plaintiff must provide the undertaking as to damages normally required for any interlocutory injunction.
[83] See: Chitel v. Rothbart (1982), 1982 1956 (ON CA), 39 O.R. (2d) 513 (C.A.); Aetna Financial Services Ltd. v. Feigelman, 1985 55 (SCC), [1985] 1 S.C.R. 2; DeMenza v. Richardson Greenshields of Canada Ltd. (1989), 1989 4138 (ON SC), 74 O.R. (2d) 172 (Div. Ct.); United States of America v. Yemec (2005), 2005 8709 (ON SCDC), 75 O.R. (3d) 52 (C.A.); Hostman-Steinberg Ltd. v. 2049669 Ont. Inc., [2009] O.J. No. 2380 (S.C.J); Croatian (Toronto) Credit Union Ltd. v. Vinski, 2010 ONSC 1197, [2010] O.J. No. 700 (S.C.J.); Cope v. Skyvision Exploration Corp., [2010] O.J. No. 926 (S.C.J); O2 Electronics Inc. v. Sualim, [2014] O.J. No. 4126 (S.C.J.); Regalcraft Homes Inc. v. Salvadori, 2014 ONSC 6990, [2014] O.J. No. 5972 (S.C.J.).
[84] In the case at bar, it would appear that the Finkelstein Corporation obtained an ex parte Mareva injunction by persuading Justice Sanderson that the Dicks may have been misappropriating ESMA’s property.
[85] It remains to be proven whether the Dicks or the Finkelsteins obtained more than their allocated share of the revenues and whether they respectively paid their fair share of the expenses and for the losses of the business, but this accounting that needs to occur between the parties does not justify the imposition of a Mareva injunction.
[86] A Mareva injunction is an extraordinary remedy. There was no evidence that Charles and Esther Dick were moving assets out of the jurisdiction or otherwise seeking to make themselves judgment proof. Rather, the evidence was that Charles and Esther had turned to their children to infuse the ATM business with funds to keep it afloat. The children, sensibly enough, protected themselves by taking security for their loans, which I find as a fact were made as deposed by Ms. Milevsky.
[87] As partners, there was a fiduciary relationship between the Finkelstein Corporation and the Dicks, and after Josef Finkelstein’s death it appears that the Finkelsteins were suspicious that money was being misappropriated or that the Dicks were taking more than their share. Those suspicions may have supported the granting of an ex parte Mareva injunction, but on the record now before the court, those suspicions do not support an extension of the Mareva injunction.
[88] I need not say whether I would have granted an ex parte Mareva injunction in the circumstances of the Finkelstein Action, but, in my opinion, based on the more fulsome and balanced evidentiary record now before the court, the test for a Mareva injunction is not satisfied. Therefore, I dismiss the motion to extend the Mareva injunction and I grant the request to vacate the injunction in the Finkelstein Action.
[89] It would seem that the Kleins used, in whole or in part, the circumstances that lead to an ex parte Mareva injunction in the Finkelstein Action as a springboard to obtain a broader and more comprehensive Mareva injunction of their own. If one, however, removes the springboard, there is very little in the circumstances between the Kleins and the Dicks upon which a freezing order can be justified previously or now.
[90] The Kleins lent money to the Dicks without taking any security and with no documentation apart from rudimentary promissory notes, which do not impose any restraints on how the loan funds may be used. It appears that it was understood that the Klein money was for the Dicks’ ATM business, but that was an understanding not a contractual stipulation.
[91] The coincidence, synergy, or the opportunism that the Kleins came to be represented by the same lawyers as the Finkelstein Corporation does not alter the reality that apart from the laws of bankruptcy and the law of fraudulent preferences and conveyances, the Kleins have no right to restrict how the Dicks used and disposed of the loan proceeds.
[92] The Kleins are and remain unsecured creditors without any general right to obtain pre-judgment execution.
[93] The Kleins have more than a strong prima facie case that their unsecured loans have not been repaid, but they have no case for a pre-judgment freezing order over the Dicks’ assets. The Kleins had no control over how the Dicks were using the loan proceeds and, in any event, on the record now before the court, the most that can be said is that there is a genuine issue for trial that the Dicks may have taken more than their share of the proceeds of ESMA’s business operations, but ESMA is an entity independent of the Kleins.
[94] Further, there is no evidence that the Dicks were moving money out of the country and conversely there is evidence that the Dicks may have an explanation for why the vault cash or other assets of ESMA and ABC Variety were being depleted in the country.
[95] In short, there is no basis for the Kleins to obtain a Mareva injunction. The Kleins’ reliance on the factual circumstances that supported a Mareva injunction in the Finkelstein Action breaks down.
[96] Therefore, I dismiss the motion to extend the Mareva injunction, and I grant the request to vacate the injunction in the Klein Action.
3. The Implied and the Deemed Undertaking
[97] The above is sufficient to decide that the Mareva injunctions should be dissolved and not continued. However, because the point was fully argued, I have decided to discuss briefly whether the alleged breach of the implied undertaking provides an alternative ground to dissolve the injunctions.
[98] This discussion requires a review of the deemed undertaking, which is set out in Rule 30.1.01 of the Rules of Civil Procedure and the implied undertaking, which is an invention of the common law of civil procedure.
[99] Rule 30.1.01 of the Rules of Civil Procedure states:
RULE 30.1 DEEMED UNDERTAKING
APPLICATION
30.1.01 (1) This Rule applies to,
(a) evidence obtained under,
(i) Rule 30 (documentary discovery),
(ii) Rule 31 (examination for discovery),
(iii) Rule 32 (inspection of property),
(iv) Rule 33 (medical examination),
(v) Rule 35 (examination for discovery by written questions); and
(b) information obtained from evidence referred to in clause (a).
(2) This Rule does not apply to evidence or information obtained otherwise than under the rules referred to in subrule (1).
Deemed Undertaking
(3) All parties and their lawyers are deemed to undertake not to use evidence or information to which this Rule applies for any purposes other than those of the proceeding in which the evidence was obtained.
Exceptions
(4) Subrule (3) does not prohibit a use to which the person who disclosed the evidence consents.
(5) Subrule (3) does not prohibit the use, for any purpose, of,
(a) evidence that is filed with the court;
(b) evidence that is given or referred to during a hearing;
(c) information obtained from evidence referred to in clause (a) or (b).
(6) Subrule (3) does not prohibit the use of evidence obtained in one proceeding, or information obtained from such evidence, to impeach the testimony of a witness in another proceeding.
(7) Subrule (3) does not prohibit the use of evidence or information in accordance with subrule 31.11 (8) (subsequent action).
Order that Undertaking does not Apply
(8) If satisfied that the interest of justice outweighs any prejudice that would result to a party who disclosed evidence, the court may order that subrule (3) does not apply to the evidence or to information obtained from it, and may impose such terms and give such directions as are just.
[100] The deemed undertaking rule found in Rule 30.1.01 is a partial codification of the implied undertaking that exists at common law. I say a partial codification because Rule 30.1.01 applies to evidence obtained under a list of rules, but Rule 30.1.01 does not expressly apply to evidence or information obtained otherwise than under the listed rules. However, there is nothing in the deemed undertaking rule that precludes the operation of the implied undertaking at common law or that overrules the policy rationale that justified the implied undertaking at common law in the first place.
[101] The implied undertaking was designed to protect privacy rights at the same time as encouraging litigants to be forthcoming in answering questions in circumstances where they were under a compulsory obligation to testify. The implied undertaking imposes on parties to civil litigation an undertaking to the court not to use the documents or answers for any purpose other than securing justice in the civil proceedings in which the answers were compelled: Goodman v. Rossi, 1995 1888 (ON CA), [1995] O.J. No. 1906 (C.A.) at paras. 36-37; Juman v. Doucette, 2008 SCC 8, [2008] 1 S.C.R. 157 (S.C.C.) at para. 27. See also: ACI Brands Inc. v. Pow, [2014] O.J. 2175 (S.C.J.); Ontario Psychological Assn. v. Mardonet, [2015] O.J. 925 (S.C.J); R. v. Nedelcu, 2012 SCC 59, 2012 S.C.C 59.
[102] The implied undertaking, but not the deemed undertaking, was breached in the cases at bar.
[103] In the circumstances of this case, I would, however, forgive the breach of the implied undertaking largely because it is likely that had the Finkelsteins asked the court to be relieved of the implied undertaking or had the Kleins asked that the Finkelsteins be relieved of the implied undertaking, it would have been in the interests of justice and without prejudice to the Dicks to grant this relief. The evidence of Esther and Charles was inevitably going to be before the court in both actions.
[104] I would, therefore, not have vacated the Mareva injunctions because of the technical breach of the implied undertaking.
4. The Claim on the Promissory Notes
[105] As already noted above, there is no genuine issue for trial that the Dicks have not repaid the principal amount of the Kleins’ loans and there are arrears of interest payments.
[106] I find as a fact that Charles Dick and Esther Dick were carrying on business in partnership and that they are jointly and severally liable for the repayment of the promissory notes.
[107] That Charles represented to the Kleins that he would be personally responsible for the promissory notes does not diminish the fact that he was carrying on business in partnership with his wife using the names and proprietorships or corporate vehicles Jamarmy Financial Services, ABC Variety, and ABC Variety Services Inc.
[108] In Continental Bank Leasing Corp. v. Canada, 1998 794 (SCC), [1998] 2 S.C.R. 298, the Supreme Court of Canada discussed the nature of doing business as a partnership. Justice Bastarache stated at paragraphs 22-24:
Section 2 of the Partnerships Act defines partnership as “the relation that subsists between persons carrying on a business in common with a view to profit”. This wording, which is common to the majority of partnership statutes in the common law world, discloses three essential ingredients: (1) a business, (2) carried on in common, (3) with a view to profit. I will examine each of the ingredients in turn.
The existence of a partnership is dependent on the facts and circumstances of each particular case. It is also determined by what the parties actually intended. As stated in Lindley & Banks on Partnership (17th ed. 1995), at p. 73: “in determining the existence of a partnership . . . regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case”.
The Partnerships Act does not set out the criteria for determining when a partnership exists. But since most of the case law dealing with partnerships results from disputes where one of the parties claims that a partnership does not exist, a number of criteria that indicate the existence of a partnership have been judicially recognized. The indicia of a partnership include the contribution by the parties of money, property, effort, knowledge, skill or other assets to a common undertaking, a joint property interest in the subject-matter of the adventure, the sharing of profits and losses, a mutual right of control or management of the enterprise, the filing of income tax returns as a partnership and joint bank accounts. (See A. R. Manzer, A Practical Guide to Canadian Partnership Law (1994, loose-leaf), at pp. 2-4 et seq. and the cases cited therein.)
[109] Justice Bastarache’s judgment was a dissenting judgment, but the Supreme Court was unanimous about his conclusion about the legal nature of a partnership.
[110] Charles and Esther Dick submitted that there was a genuine issue for trial as to whether they carried on business as partners. The alternative was that Esther was a sole proprietor and Charles was her manager and her employee.
[111] However, the evidence on the summary judgment motion and particularly Esther’s and Charles’ cross-examinations reveal that Esther knew and did far too little and Charles knew and did so much more that Esther could not diminish Charles’ role as a partner to that of being just an employee. Charles and Esther Dick were in business together for the purpose of sharing profits and losses. The Dicks did not incorporate their family’s business, as did the Finkelsteins, for instance, but on the facts, Charles and Esther were business partners.
[112] Accordingly, I grant the Kleins summary judgment on the promissory notes against Charles Dick and Esther Dick and their various business entities jointly and severally, save and except ESMA.
[113] This conclusion in the summary judgment motion is dispositive of the Klein Action and there is nothing left to refer to arbitration.
5. The Fraudulent Conveyance Claim
[114] The fraudulent conveyance claims against 8800383 Canada Inc. and Ms. Milevsky can also be determined as issues of fact. There is no genuine issue for trial that these claims cannot succeed.
[115] Sections 2-4 of the Fraudulent Preferences Act state:
Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.
Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section.
Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser.
[116] Based on the evidentiary record, I conclude that 8800383 Canada Inc. and Ms. Milevsky lent money to their mother in order to inject capital or inventory into the ATM business. There was no fraud. No intention to deceive creditors. Good and valuable consideration was given for the mortgages.
[117] Esther Dick on her own behalf and for Charles Dick granted the mortgages for good consideration and without any intent to defeat, hinder, delay or defraud creditors, the Kleins, or any other person or entity.
[118] See: Vereit Inc. v. Panthaky, [1996] O.J. No. 3607 (Gen. Div.); Reliable Life Insurance Co. v. Ingle, [2000] O.J. No. 4075 (S.C.J.); Prudential Securities Credit Corp. v. Cobrand Foods Ltd., [2005] O.J. No. 6344 (S.C.J.); Feher v. Healey, [2006] O.J. No. 3450 (S.C.J.); and Indcondo v. Sloan, 2014 ONSC 4018.
[119] Accordingly, I dismiss the fraudulent conveyance claims.
6. The Claim for a Certificate of Pending Litigation
[120] Pursuant to s. 103 of the Courts of Justice Act, R.S.O. 1990, c. C.43 a certificate of pending litigation may be issued in a proceeding in which title to or an interest in land is in question. An action to set aside a fraudulent conveyance is an action in which title to or interest in land is brought into question: Bank of Montreal v. Ewing (1982), 1982 1794 (ON SC), 35 O.R. (2d) 225 (H.C.J.); Lieba Insurance v. Stuart, [1982] O.J. No. 2281 (H.C.J.); Vettese v. Fleming, [1992] O.J. No. 1013 (Gen. Div.); Nordic Insurance Co. of Canada v. Harkness, [2001] O.J. No. 1123 (S.C.J.).
[121] For the reasons expressed above, the fraudulent conveyance action is dismissed. There is no basis for a certificate of pending litigation in the cases at bar.
E. CONCLUSION
[122] For the above reasons, I dissolve the Mareva injunctions in both actions and I refuse to grant a certificate of pending litigation. I dismiss the fraudulent conveyance claim.
[123] I grant the Kleins a summary judgment for $710,000 plus interest in accordance with the promissory notes against Charles Dick, Esther Dick, Jamarmy Financial Services, ABC Variety, and ABC Variety Services Inc. jointly and severally for repayment of the promissory notes.
[124] If the parties cannot agree as to the calculation of the amount of the indebtedness, the Kleins may bring a motion to calculate the amount of indebtedness. The Kleins are, in any event, entitled to a partial summary judgment for $710,000.
[125] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the successful parties’ submissions within twenty days of the release of these Reasons for Decision followed by the unsuccessful parties’ submissions within a further twenty days.
[126] I note that some parties will both be seeking costs and responding to the costs requests of other parties.
[127] I also note that in the Finkelstein Action, subject to reviewing the submissions of the parties, I am inclined to the make Charles Dick’s, Esther Dick’s, ABC Variety Services Inc.’s and the Finkelstein Corporation’s costs in the cause.
Perell, J.
Released: May 19, 2015
CITATION: 2057552 Ontario Inc. v. Dick, 2015 ONSC 3182
COURT FILE NO.: CV-14-511796
COURT FILE NO.: CV-14-517283
DATE: 20150519
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2057552 ONTARIO INC.
Plaintiff
– and –
CHARLES DICK, ESTHER DICK, MEIR DICK, JACQUELINE MILEVSKY (nee DICK), JOEL DICK, 8800383 CANADA INC., ABC VARIETY SERVICES INC., and ABC VARIETY
Defendants
AND BETWEEN:
ESTER KLEIN and WILLY (VILMOS) KLEIN
Plaintiffs
– and –
CHARLES DICK, ESTHER DICK, JOEL DICK, 8800383 CANADA INC., ABC VARIETY SERVICES INC., ABC VARIETY, and JAMARMY FINANCIAL SERVICES
Defendants
REASONS FOR DECISION
PERELL J.
Released: May 19, 2015