Court File and Parties

COURT FILE NO.: CV-14-515654 DATE: 20160415 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Water Matrix Inc., Plaintiff – AND – Anna Maria Carnevale, a.k.a. Anna Carnevale-Cordeiro a.k.a. Anna M. Cordeiro a.k.a. Anna C. Ottorino, Stephen M. Cordeiro, a.k.a.Steve Cordeiro a.k.a. Stephen Cordeiro and Cordeiro Trucking Limited, Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: Stewart Thom, for the Plaintiff Domenic Saverino, for the Defendant

HEARD: April 14, 2016

Endorsement

[1] The Plaintiff brings a motion for judgment in the principal amount of $1,302,377.98, plus interest, representing the amount stated in a Consent to Judgment less the amounts received on account to date. The judgment is sought following the collapse of a settlement that had been reached by the parties, and what the Plaintiff says is a failure to perform by the Defendants.

[2] The underlying action is a civil fraud claim. The Defendant, Anna Maria Carnevale, was the Plaintiff’s corporate comptroller. She is alleged to have engaged in nearly 500 unauthorized transactions in which she fraudulently transferred funds in excess of $1.2 million from the accounts of the Plaintiff to herself and the other Defendants. Ms. Carnevale also faces criminal charges in respect of these transactions. The Defendants are all subject to a Mareva injunction issued on November 17, 2014.

[3] On May 14, 2015, the parties entered into a settlement agreement under Rule 49 of the Rules of Civil Procedure, RRO 1990, Reg 194. That agreement provided that the Defendants pay the Plaintiff a total of $750,000. Among other forms of security, the settlement required the Defendants to sign a Consent to Judgment in the amount of $1,585,515.00 to be held in escrow and filed only in the event the Defendants default in payment of the settlement amount. The Consent to Judgment was signed on May 14, 2015 along with the settlement agreement. The Defendants were represented by counsel all along, and do not deny the settlement.

[4] The parties agreed that the settlement payment was to be made within 90 days of May 14, 2015. The Defendants could request an additional one-time 30 day extension, consent to which could not be unreasonably withheld “if such an extension is required in order to comply with or meet the requirements or conditions of a bona fide arm’s length third party to enable it to advance funds.” The Defendants did ask for such an extension, and presented their request to the Plaintiff on August 11, 2015 – the 89th day of the 90-day term for payment of the settlement amount.

[5] By way of explanation, Defendants’ former lawyer, Kas Marynick, sent a letter stating that “we are in a position to confirm that our client has assembled the necessary funds”, and “invoking” the 30 day extension. Mr. Marynick advised Plaintiff’s counsel that the Defendants were borrowing $450,000, and that the $300,000 balance of the settlement would be paid by Ms. Carnevale through funds to which she personally had access.

[6] It turns out that Mr. Marynick’s letter was a tad overstated. Enclosed with his correspondence was a letter from a mortgage broker, Frank Bennati of “Get a Better Mortgage”, who indicated that he was “in the final stages…in securing commitments” for the loans. In other words, whereas Mr. Marynick’s cover letter said that the Defendants have the funds for the settlement payment, what Mr. Bennati actually said was that the Defendants do not have the funds for the settlement payment but were still working on it. I reiterate that this letter arrived on day 89 of a 90 day payment period.

[7] It is the Plaintiff’s position that, in effect, this correspondence from the representatives of the Defendants terminated the Plaintiff’s obligations under the settlement agreement. Counsel for the Plaintiff submits that having allowed the 90 days to pass without making a payment was a default by the Defendants, which meant that the Plaintiff could move for judgment of the full amount contained in the Consent to Judgment.

[8] Despite the expiry of the 90 day payment period without the Defendants having secured, as the settlement agreement required, “a bona fide arm’s length third party….to advance funds”, the Plaintiff agreed to grant the Defendants a 30 day extension. This extension was granted by the Plaintiff on a number of specific conditions, one of which was that the $300,000 portion of the settlement funds to which Ms. Carvevale had immediate access was to be paid to the Plaintiff within 5 days – i.e. no later than August 17, 2015.

[9] In email correspondence between lawyers, it was made clear the Defendants’ $300,000 payment would be composed of $230,000 held in trust by Mr. Marynick in respect of this action, and a further $70,000 that Ms. Carnevale apparently had in a bank account but that was frozen due to the Mareva injunction. The Plaintiff therefore agreed to provide the Defendants with a signed Consent enabling them to access the funds enjoined under the Mareva for the purpose of transferring them to the Plaintiff.

[10] The Defendants failed to make the entire $300,000 payment on time as set out in the extension agreement. The $230,000 held in trust by Mr. Marynick was transferred to the Plaintiff, but the $70,000 did not arrive although the Plaintiff had promptly provided the required Consent to lift the Mareva for this purpose. Several weeks later, in early September 2015, part of these funds were transferred to the Plaintiff’s lawyers in trust, although to date only $53,137.52 of the $70,000 has ever been received by the Plaintiff or its lawyers.

[11] Not only that, but the Defendants have never produced any evidence that a lender was actually prepared to advance the other $450,000, or even a portion thereof, to the Defendants. Mr. Marynick advised the Plaintiff that the Defendants were in negotiation with four different lenders, but none of them appears to have ever come through.

[12] I note in passing that the letter from the mortgage broker, Mr. Bennati, had indicated that “all lenders wanted firm confirmation [of] the remaining funds of $300,000 prior to any commitments issued…due to the circumstances of this financing”. That may have been the snag in obtaining the financing, since the Defendants have never been able to come up with the full $300,000. In any event, no financing commitment, or even a conditional offer from a lender, was ever produced by the Defendants. In addition, none of the Defendants have sworn an affidavit in this motion or provided evidence in any form indicating that the financing of the settlement payment was actually arranged.

[13] On August 26, 2015, Mr. Marynick wrote to Plaintiff’s counsel to request consent to vacate the Mareva injunction from title to Ms. Carnevale’s home. This property was the Defendants’ one known asset, and given the underlying allegations of a large scale fraud perpetrated by the Defendants on the Plaintiff, it was important to the Plaintiff to secure the property with an injunction. Counsel for the Plaintiff points out that the terms of the request to lift the Mareva from Ms. Carnevale’s property were set out in a way that made it impossible for the Plaintiff to prudently agree to. As Plaintiff’s counsel recounts the problems with those terms, they:

a) were not tied to any specified financing transaction; b) were not supported with evidence of a requirement for same from any identified lender; c) did not provide for an order or any direction which would ensure that any lender forward directly to [the Plaintiff] the financing proceeds; and d) would have, if executed, allowed the Defendants to access the equity in their home under circumstances where [Ms. Carnevale] stands accused of criminal fraud, and both Ms. Carnevale and [her spouse] are accused of civil fraud.

[14] Under the circumstances, the Defendants’ request to remove the injunction from the property was untenable. The Plaintiff refused to execute the Consent. Plaintiff’s counsel wrote to the Defendants on August 28, 2015 indicating what would need to be produced if the Plaintiffs were to consider lifting the Mareva injunction from the Defendants’ most substantial property. This included:

…complete disclosure of [Ms. Carnevale’s] dealings re mortgaging the house including binding commitments from reputable mortgagees, proposal to replace [Plaintiff’s] security with no risk to [Plaintiff], and agreement to pay all expenses associated with obtaining security over the house and immediate payment of all expenses including legal costs of all the dealings with you subsequent to the settlement regarding payment of the settled amount.

[15] None of this was ever forthcoming, and none of the Plaintiff’s issues of concern were ever addressed by the Defendants. The Defendants take the position that the Plaintiff’s requests were unreasonable and its concerns unwarranted, but I do not agree. The Plaintiff had serious and justified concerns about the Defendants’ proposal and was under no obligation to accept it.

[16] The Defendants defaulted on the settlement agreement, even with the 30 day extension granted by the Plaintiff.

[17] Under Rule 49.09, where there has been an accepted offer that is not complied with, the disappointed party can move for judgment. That judgment may either be granted by a judge on the motion or the motion court can send it to trial. The Court of Appeal observed in Olivieri v Sherman, 2009 ONCA 772, at para 35, that “…when deciding whether to exercise its discretion and enforce the Settlement Agreement, the court was required to take a broad approach and consider all of the evidence.”

[18] There is no doubt whatsoever that an agreement to settle was reached by the parties. Further, I am convinced that it was reasonable for the Plaintiff to refuse to sign the Consent to free the Defendants’ property from the Mareva injunction. This consent would not have prevented the proceeds of the financing from going into Ms. Carnevale’s hands for her to do with what she wants. Moreover, it did not specify any particular financing, and so the Plaintiff could not be sure that its consent would be used for the purpose of obtaining financing at all. Finally, the Defendants never produced any evidence of an actual commitment by lenders. It appears to me that the Defendants never had a real ability to perform under the settlement agreement.

[19] Accordingly, the settlement was not frustrated by the Plaintiff, as the Defendants contend. Rather, the settlement agreement was breached by the Defendants when they defaulted on the required payment. The Defendants’ position is smoke and mirrors, designed to distract attention from the fact that they never paid the settlement funds as called for in the settlement agreement. They have gone to some lengths to disguise the fact that they were never in a position to make the required payment.

[20] There is nothing in the record to suggest that the settlement was somehow unfair, or that the Plaintiff’s actions were in any way oppressive or unreasonable. The settlement agreement here “is to be enforced unless in all of its circumstances it offends against the court’s ‘sense of justice’”: Dick v McKinnon, [2014] OJ No 203, at para 26 (SCJ), citing Fox Estate v Stelmaszyk (2003), 65 OR (3d) 846, at para 11 (Ont CA). The settlement agreement here is enforceable; the Defendants have defaulted thereunder and the Plaintiff deserves judgment.

[21] The Plaintiff shall have judgment against the Defendants, on a joint and several basis, in the principal amount of $1,302,377.98, plus all applicable interest.

[22] Turning to costs, counsel for the Plaintiff seeks a total of $13,941.38 on a partial indemnity basis. This is about double what counsel for the Defendant advises that he would seek, which is in the $5,000 to $6,000 range. A review of the Bill of Costs provided by Purchaser’s counsel indicates that their investment of time was reasonable. Needless to say, it paid off in the form of a successful motion.

[23] Costs are discretionary under section 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. I am authorized to take into account the amount claimed and recovered: Rule 57.01.01(1)(a). In addition, I am authorized to award costs with a view to the principle of indemnity for the successful party, Rule 57.01(1)(0.a), and the amount of costs that an unsuccessful party could reasonably expect to pay in relation to this motion for judgment: Rule 57.01(1)(0.b). In general, the court is required to consider what is “fair and reasonable” in fixing costs, having regard to the reasonable expectations of the parties: Boucher v Public Accountants Council (Ontario), (2004), 71 OR (3d) 291, at paras 26, 38 (Ont CA).

[24] It could not have taken the Defendants by surprise that the Plaintiff might incur just under $14,000 in securing judgment for over $1.3 million. There is nothing disproportionate about the amount of costs sought by the Plaintiff’s counsel.

[25] The Defendants shall pay the Plaintiff costs in the amount of $13,941.38, inclusive of all tax and disbursements.

Morgan J. Date: April 15, 2016