CITATION: Kovtun et al v. Sobolyeva et al, 2016 ONSC 2771

NEWMARKET COURT FILE NO.: CV-16-125902-00

DATE: 20160426

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MIKHAIL KOVTUN, ALEKSANDRA KOVTUN and VERONIKA MAZHUGA, Applicants

AND:

MARYNA SOBOLYEVA and VALERIYA SOBOLYEVA, Respondents

BEFORE: THE HON. MADAM JUSTICE M.E. VALLEE

COUNSEL: Mr. A. Bouchelev, Counsel for the Applicants

Ms. A. Abramian, Counsel, for the Respondents

HEARD: March 17, 2016

ENDORSEMENT

[1] The respondents bring this motion to set aside an ex parte order dated March 10, 2016 on the basis that the applicants failed to disclose material facts and provided misleading evidence when they obtained the order. The applicants oppose the motion and state that a full record was before the court when the order was made.

Issues

(1) Did the applicants set out a reasonable statement of the opposing parties’ position that is known or likely to be taken by them?

(2) Did the applicants make full disclosure of all of the material facts when they obtained the ex parte order?

(3) Was the court misled on material facts in the original application?

The Test

[2] The test for setting aside an ex parte order is well known. Rule 39.01(6) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, states that when a motion is made without notice, the moving party shall make full and fair disclosure of all material facts. A failure to do so is itself sufficient grounds for setting aside the order obtained. In Chitel et al. v. Rothbart et al., (1983), 1982 ONCA 1956, 39 O.R. (2d) 513, the court stated that if there is less than full and accurate material disclosure or if the court is misled on material facts in the original application, the court will not exercise its discretion in favour of the plaintiff and continue the ex parte order. A party moving without notice must draw to the court’s attention all important material facts. They cannot be buried in voluminous exhibits. Disclosure must include a reasonable statement of the opposing parties’ position that is known or likely to be taken by them. (Wachsmann v. Zahler, [2002] O.J. No. 4193 par 9 and 10).

The Proceedings

[3] The applicants and the respondents were friends. They had two business ventures. One was a clothing boutique. The other involved a property that they purchased to renovate and sell. Veronika Mazhuga agreed to provide the funds for the renovations. She was not involved in the boutique.

[4] Two disputes arose from the business ventures. The Sobolyevas commenced an action on February 18, 2016 (the “Sobolyeva action”) naming the Kovtuns as defendants and requesting various orders regarding the boutique dispute and the property dispute. On the same day, the Sobolyevas obtained an ex parte order prohibiting Mr. Kovtun from attending at the property on the grounds that he had threatened to damage it. As stated above, Ms. Mazhuga is not a party to this action.

[5] Three weeks later, the Kovtuns and Ms. Mazhuga commenced an application on March 9, 2016 (the “Kovtun application”) naming the Sobolyevas as respondents and alleging that Ms. Mazhuga had provided an additional $50,000 for the renovations at the Sobolyevas’ request; however, the Sobolyevas had spent this money on other items. On March 10, 2016, the plaintiffs obtained an ex parte order requiring the Sobolyevas to pay $50,000 into court and freezing the Sobolyevas’ bank accounts.

The Applicants’ Position

[6] The applicants state that they made full disclosure on their ex parte motion and that the motion judge reviewed the entire record before granting the requested order. This application is not a duplication of the Sobolyeva action because Ms. Mazhuga is not a party in that action. In addition, the plaintiffs obtained an ex parte order in the action to prevent Mr. Kovtun from attending at the property. The statement of claim and the motion materials were also included in the ex parte motion brought in this application. The subject of the motion in the application was urgent. Bringing a different motion to add Ms. Mazhuga to the action would not have been appropriate.

Did the Applicants set out a reasonable statement of the opposing parties’ position that is known or likely to be taken by them?

[7] The Sobolyevas state that Mr. Kovtun’s affidavit does not set out the position that they would likely take on the motion if they could have responded. Their position was well known to the Kovtuns because it is set out in Maryna Sobolyeva’s affidavit sworn February 16, 2016 in support of the motion in the Sobolyeva action. Mr. Kovtun states that the motion record in the application does include the materials from the motion in the Sobolyeva action which set out the Sobolyevas’ position. I note that in her endorsement, the motions judge refers to the Sobolyeva affidavit on the motion in the action and states that Mr. Kovtun’s affidavit can be relied upon, given that there is some corroboration of it in the Sobolyeva affidavit and the exhibits. On this point, I am satisfied that the motions judge was directed to the Sobolyevas’ position even though it was not specifically set out in Mr. Kovtun’s affidavit.

Did the applicants make full disclosure of all of the material facts when they obtained the ex parte order?

[8] There are several statements in Mr. Kovtun’s affidavit in support of the motion on the application that are troubling:

(a) He states in paragraph 31 that, “The Parallel Proceeding [the action] does not name Veronika [Mazhuga] as a party and deals mostly with matters relating to another joint business venture between the Kovtuns and the Soboleves [sic], namely a clothing store called Marso Boutique Inc.”

(b) In paragraph 45, he states, “I verily believe that without urgent Court intervention to dissolve the partnership, [the agreement to purchase, renovate and sell the property] all parties stand to lose significant financial losses.”

(c) With respect to (a), the statement of claim in the Sobolyeva action does set out the dispute about the clothing boutique; however, approximately half of the paragraphs in it relate to issues regarding the property, its renovations, the work left to be done and the requirement for further funds. In fact, paragraph 1(b) of the claim requests a declaration that Ms. Kovtun holds her interest in the property in trust for Valeriya Sobolyeva. The issues relating to the boutique are intertwined with the issues regarding the property. The statement of claim alleges that there was a proposal that the Kovtuns’ investment of $178,000 in the property be used to partially fund their purchase of Maryna Sobolyeva’s shares in the boutique.

[9] Mr. Kovtun’s evidence that the Sobolyeva action “deals mostly with matters relating to another joint business venture” is incorrect. Mr. Kovtun failed to state that in fact, Ms. Mazhuga is specifically referred to five times in the statement of claim, her role as the investor for the renovations is explicitly set out, and the $50,000 advance is the subject of a paragraph.

[10] While the statement of claim was attached as an exhibit to Mr. Kovtun’s affidavit, the motions judge cannot be expected to read through all of the exhibits which are one inch thick in this case. She must be able to rely on the veracity of the supporting affidavit.

[11] Mr. Kovtun’s evidence that the matter was urgent is also incorrect. The facts do not support that position. In Mr. Kovtun’s affidavit, he states that he had a conversation with the Sobolyevas in October 2015 about moving forward with the renovation work because Ms. Mazhuga had provided the additional $50,000. He states that Maryna Sobolyeva responded by saying that the Sobolyevas had no intention to use the money for construction purposes and that they would need the money to pay litigation counsel if necessary. The implication is that the funds were being dissipated and ought to be preserved. I note that the motions judge referred to Mr. Kovtun’s evidence when she stated that, “From the Aff [affidavit] of the A [applicant] M.K. [Mikhail Kovtun], it appears that the funds may be being used to fund the litigation of the Rs.”

[12] If Mr. Kovtun’s evidence about the Sobolyevas’ response is accurate (which is denied by the Sobolyevas), it is clear that Mr. Kovtun and presumably Ms. Mazhuga knew about the issues relating to the $50,000 five months before they issued the application and brought the ex parte motion.

[13] Paragraph 2(i) in the Notice of Application states, “The Property has been left exposed to the elements over the last four months and is not being heated. Any damage that may be caused to the Property would not be covered by builder’s insurance and there is currently no active construction going on at the Property.” Mr. Kovtun’s affidavit repeats this in paragraphs 43 and 44 where he states that the insurance on the property is at risk. The property is not heated and therefore “there was a real danger that the pipes may have burst and would burst in the near future.” These statements give a sense of urgency to the ex parte motion. Mr. Kovtun failed to explain that these issues had been resolved.

[14] In her responding affidavit, Maryna Sobolyeva states that her counsel provided a new insurance binder to the applicants on February 25, 2016. Justice Sutherland made an order on February 18, 2016 that the parties would agree on an inspector who would determine whether the pipes were at risk. No action was taken by the Kovtuns or Ms. Mazhuga regarding the inspector. Both of these events occurred before Mr. Kovtun swore his affidavit on March 9, 2016. Clearly, the ex parte motion was not urgent.

Are any of the material facts in the original application misleading?

[15] As noted above, the Notice of Action was issued on March 9, 2016. The Sobolyevas’ counsel provided a new insurance binder to the Kovtuns on February 25, 2016. Interestingly, in paragraph 10 of her responding affidavit on the motion in the application, Maryna Sobolyeva states:

Firstly, I deny that the gas was turned off at the Jane Street Property. On March 2, 2016, I personally visited the Jane Street Property together with a contractor from Aspen Renovations who viewed the Jane Street Property and the heat was in perfect order, the Jane Street Property was properly heated and there were no issues with the pipes or any other problems.

Conclusion

[16] The evidence in Mr. Kovtun’s affidavit in support of the ex parte order was misleading and inadequate on material issues. He failed to properly set out the connection between the boutique dispute and the property renovations dispute and instead stated that the action dealt mostly with matters regarding the boutique dispute. He stated that there were problems with insurance and that the pipes were at risk of freezing when he knew that steps had been taken to address those matters before he swore the affidavit. The Notice of Application refers to these problems as well which is misleading. Had the motion judge been aware that:

(a) Ms. Mazhuga is specifically referred to five times in the action;

(b) her role as the investor or the renovations is explicitly set out;

(c) the $50,000 advance is the subject of a paragraph in the action;

(d) the events giving rise to the alleged “urgent” motion were known to the applicants five months before the application was issued; and

(e) paragraph 2(i) of the Notice of Action was misleading.

the motions judge may well have ordered that the ex parte motion be served on the Sobolyevas and heard on its merits.

[17] For the reasons set out above, the ex parte order dated March 10, 2016 is set aside. Nevertheless, because there is some evidence that the Sobolyevas may have spent part of the $50,000 on items other than renovations, the applicants shall have leave to bring the motion again on proper notice to the respondents so that it can be heard on its merits. The Sobolyevas also brought a motion to dismiss the application. It was not heard due to time constraints and remains for adjudication.

Costs

[18] If the parties cannot agree on the amount of costs or who should pay them, they may provide written submissions. The text of the submissions shall be a maximum of 3 pages with 1.5 spacing, regular margins and 12 point font. The parties shall serve and file written submissions within 20 days of the date of this endorsement. They shall file responding submissions, if they wish, within a further 10 days.

VALLEE J.

Date: April 26, 2016