SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-10-403208
DATE Heard: June 9, 2015

RE: KRISTINA ZAKHARY PROFESSIONAL CORPORATION and

DR. KRISTINA ZAKHARY Plaintiffs/Judgment Creditors

And

AGE-LESS DERMAL THERAPY INC. Defendant/Judgment Debtor

BEFORE: Master Lou Ann M. Pope

COUNSEL:
Bryan Fromstein, Rosen Fromstein LLP, for moving plaintiffs/Judgment Creditors
Fax: 416-867-9091

Arthur Zeilikmana and Dennis Ovsyannikov, Zeilikman Law Professional Corporation,
for defendant/judgment debtor
Fax: 905-787-2327

REASONS FOR ENDORSEMENT

[1] The plaintiffs, judgment creditors, seek leave to examine in aid of execution Joyce Palmer who is an officer and director of the defendant, Age-Less Dermal Therapy Inc. (“Age-Less”) pursuant to rule 60.18(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The parties reached a settlement and pursuant to minutes of settlement Age-Less agreed to pay $90,000 to be paid in monthly installments plus costs of $40,000. It was also a term that Age-Less consented to judgment in the amount of $145,000 and that the plaintiffs would hold the judgment in abeyance as long as Age-Less complied with the terms of the minutes of settlement.

[2] Age-Less made regular monthly payments until late September 2014 when Joyce Palmer, on behalf of Age-Less, advised the plaintiffs that Age-Less would make no further payments due to financial hardship.

[3] The parties consented to a date for an examination in aid of execution of Joyce Palmer to be held on March 17, 2015. The plaintiffs served the notice of examination on Age-Less on January 19, 2015.

[4] Four days later on January 23, 2015, the plaintiffs commenced a second action against Age-Less, as well as Joyce Palmer and other officers and directors of Age-Less, and the alleged transferee of the business and assets of Age-Less. The plaintiffs allege that the sale of assets and conveyances made by Age-Less contravene the Bulk Sales Act, R.S.O. 1990. C. B.14, the Assignments and Preferences Act, R.S.O. 1990, c. A.33, the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, and that the actions of the officers and directors of Age-Less were oppressive and unfairly prejudiced the interests of the plaintiffs herein, in contravention of the Business Corporations Act, R.S.O. 1990, c. B.16.

[5] On March 5, 2015, Age-Less refused to produce Joyce Palmer for the examination scheduled for March 17, 2015 because she is a defendant in the second action.

[6] On May 21, 2015 the plaintiffs served another notice of examination in aid of execution of Joyce Palmer, on behalf of Age-Less, to be held on June 12, 2015. This motion was served on the Age-Less on May 28, 2015 returnable June 9, 2015.

[7] The plaintiffs rely on rule 60.18 for the relief sought to conduct an examination in aid of execution. Subrule 60.18(2) sets out the scope of examination as follows:

a) The reason for nonpayment or non-performance of the order;

b) The debtor’s income and property;

c) The debts owed to and by the debtor;

d) The disposal the debtor has made or any property either before or after the making of the order;

e) The debtor’s present, past and future means to satisfy the order;

f) Whether the debtor intends to obey the order or has any reason for not doing so; and

g) Any other matter pertinent to the enforcement of the order.

[8] Age-Less opposes the motion on the grounds that the right to an examination is discretionary and not a matter of right. (Chote v. Rowan et al., [1943] O.W.N. 237, para. 3). It argues further that an examination by a judgment creditor of a party to a subsequent action commenced by the judgment creditor covering the same ground is not permitted.

[9] A review of the case law in this area reveals that as early as 1913 in the case of Crucible Steel Co. v. Ffolkes, CarswellOnt 381, 24 O.W.R. 791, the court refused to allow the examination of the alleged transferee of the debtor’s property. The Master in Chambers enunciated that any examination of a debtor should naturally precede an action, as was the case therein where the judgment creditor commenced an action to set aside the transfer of land to the transferees sought to be examined. The Master stated further that “[when] the judgment creditor has issued his writ, it seems idle to have the examination sought for here”.

[10] Thirty years later in 1943, in Chote v. Rowan, CarswellOnt 169, [1943] O.W.N. 237, the court dealt with the same relief as sought in the within motion – for leave to examine a transferee from the judgment debtor. The judgment creditor had commenced an action to set aside the mortgage in question. The Assistant Master followed the 1913 decision in Crucible Steel, supra, and dismissed the motion. Of interest is the statement in paragraph 3 regarding the purpose of the rules dealing with examinations in aid of execution and citing Goodeve v. White (1893), 15 P.R. 433 at 436: “The purpose of the Rules dealing with examinations in aid of execution is to afford a judgment creditor an opportunity of confirming or allaying his suspicions before risking the expense and delay of an action”. (emphasis) The Assistant Master went on to conclude that the purpose of the rules has been exhausted once an action has been commenced and all the rights of the creditor are merged in his action. He stated further to an order under Rule 584 was discretionary and not a matter of right, as in the case of the examination of a judgment debtor, who may be examined without an order.

[11] The Assistant Master held that it would not be a proper exercise of discretion to allow an examination in order to impeach the transfer which is the subject matter of the pending action. He further found that the result of such an examination would not only be the obtaining of discovery before pleading in the action, but it would be directly in conflict with the provisions of s. 15(h) of The Judicature Act, R.S.O. 1937, c. 100, designed to avoid multiplicity of proceedings. (para. 3) As an aside, although the wording of that provision was not provided to the court, it is reasonable to assume that it resembles s. 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43, which provides that as far as possible, multiplicity of legal proceedings shall be avoided.

[12] Some 40 years later in 1983, Justice Keenan in Patrons Acceptance Ltd. v. Born, [1983] O.J. No. 2189, followed the principles as enunciated in the earlier cases. The court granted leave to a creditor to examine the transferee of property where an action relating to the same property had not been commenced. The court stated that the creditor had the right with an order under the rule to conduct the examination without giving up any right of action which is either in contemplation before the examination or which emerges from the examination. The court stated further that if, however, the creditor had already started an action relating to the same property, he would not be granted the order. The debtor relied on the decision in Chote, supra, where the court refused to order an examination of one of the defendants in an action pending relating to the property in question.

[13] In a series of decisions in 1987 in Chitel v. Rothbart, CarswellOnt 419, 17 C.P.C. (2d) 276, Master Donkin heard a motion by judgment creditors for leave to compel a non-party to be examined in aid of execution under rule 60.18(6). The facts were that one of the creditors had commenced an action in the State of California against the judgment debtor claiming recognition of the Ontario judgment and the setting aside of a conveyance of property in California to her daughter. The Master applied the general rule against examining a person other than the judgment debtor in aid of execution when the person is a party to an action which will cover the same ground. The Master granted the order on the basis that the non-party was not a party to the new action.

[14] In a subsequent decision in Chitel, 1987 CarswellOnt 429, [1987] O.J. No. 2321, Master Clark upheld a consent order requiring a non-party to submit to an examination in aid of execution. However, he ordered that the examination be limited by excluding any questions that refer to the California action so as to not cross the line into an examination for discovery with respect to the California action.

[15] In a subsequent decision by Master Clark in Chitel, 1987 CarswellOnt 430, 19 C.P.C. (2d) 48 at 54, para. 7, upheld on appeal at 1988 CarswellOnt 415, 28 C.P.C. (2d) 5, that dealt with settling the terms of his prior order, he stated that the intention of the law in this area is to avoid duplication of examination, to keep the judgment creditor from having two examinations in aid of execution or two examinations for discovery, or both. Having reconsidered the matter, the Master concluded that his previous order was too wide and narrowed the exemption to preclude any questions relating to the property which was the subject matter of the action.

[16] The last case cited by the defendant herein is J. G. Young & Sons Ltd. v. Gelleny, 2002 CarswellOnt 3597, [2002] O.J. No. 4203, which involved a motion brought by the plaintiffs to compel answers to questions refused at an examination in aid of execution. In addressing the issue of the scope of an examination in aid of execution, the court cited Srousberg v. Costa Rica (Republic) (1880), 44 L.T.R. 199 (Eng. C.A.), where it was held that such an examination “is not only intended to be an examination, but to be a cross-examination, and that of the severest kind.” The court also cited Beau Monde Ladies’ Tailoring Co. v. Garrett (1925), 1925 369 (ON SC), 57 O.L.R. 256 (Ont. H.C.), wherein Riddell J. determined that such examination “should not be hampered by undue technicality. It is an examination of the strictest character.” Further in Foster v. Van Wormer (1988), 12 P.R. 597 (Ont. H.C.) at page 598: “It is the duty of the defendant to furnish such explanation as will place his dealings in an intelligible shape. It is not to be left to the creditors to find out as best they may, what it is the business of the defendant to make plain.”

Application of Law

[17] The salient point in this motion is that the plaintiffs, judgment creditors, seeks to examine Joyce Palmer, an officer and director of Age-Less, the judgment debtor, after the plaintiffs commenced an action against Age-Less based on allegations that Age-Less transferred all of its assets and property to Joyce Palmer, and other officers and directors of Age-Less, to avoid the interests of the plaintiffs and to avoid paying the judgment. Presumably the statement of claim has been served on the defendants; however, no further steps have occurred in that action. Thus, pleadings are still open. The plaintiffs have the right to conduct examinations for discovery of the defendants in that action.

[18] Rule 60.18(2) is discretionary and the plaintiffs do not have an automatic right to an examination under that rule.

[19] An obvious concern is that if the plaintiffs were permitted to conduct an examination in aid of execution of Joyce Palmer as an officer and director of Age-Less, and who is a defendant in the new action, the plaintiffs would essentially have two examinations for discovery or two examinations in aid of execution. This is so when one considers the scope of an examination in aid of execution set in in rule 60.18(2). The majority of the permitted questions set out in that subrule would inescapably involve the subject matter of the new action. A further concern is that other defendants in the new action would have no standing to attend the examination in aid of execution. This is especially so given Mr. Fromstein’s email of March 16, 2015, at Exhibit “11” to the Affidavit of Lesya Pantus sworn May 26, 2015, wherein he stated: “Finally, directors have obligations under the OBCA. When they breach those allegations they get sued. That is not an abuse of process. Of course, if Joyce Palmer had a good explanation for what appears to be oppressive conduct, she could have made herself available at an examination in aid and explained what happened. If she had a reasonable explanation the entire second action could be at an end. The inference from her refusal to attend is that she does not have a good explanation.”

[20] I concur with the courts before me and follow the long-standing principle that if the person seeking the examination has already commenced his action, then the purpose of the Rule has been exhausted and all the rights of the creditor are merged in the action. (Chote, supra, and Crucible Steel, supra)

[21] In this motion, as the plaintiffs commenced their action, their rights are merged in the action and they are not entitled to conduct an examination in aid of execution of Age-Less, as that company and Joyce Palmer are both named as defendants in the new action. To permit the examination would create an unfair multiplicity of proceedings – unfair to the defendants in the new action, namely, Age-Less and Joyce Palmer, because they would be subjected to two examinations and unfair to the other defendants as they would have no standing to participate in the examination in aid of execution. To permit the examination would also create an unfair advantage to the plaintiffs by allowing them to conduct two examinations on the same matters in issue.

[22] As the plaintiffs have commenced another action that covers the same matters upon which the plaintiffs would be entitled to question on an examination in aid of execution as set out in subrule 60.18(2), the plaintiffs’ rights are merged in the new action and they are not entitled to conduct an examination in aid of execution.

[23] For the above reasons, the motion is dismissed.

[24] The defendants shall be entitled to their costs of the motion on a partial indemnity basis fixed in the amount of $2,500 inclusive of taxes. This amount shall be set off against the balance owing by the defendants on the judgment.

June _____, 2015 ________________

Lou Ann M. Pope