Court File and Parties
COURT FILE NO.: CV-14-10684-00CL DATE: 20160725 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)
RE: Cosimo Borelli, in his capacity as trustee of the SFC LITIGATION TRUST, Plaintiff AND: ALLEN TAK YUEN CHAN, Defendant
BEFORE: HAINEY J.
COUNSEL: Robert Staley, Derek J. Bell and Jonathan G. Bell, for the Plaintiff Robert Rueter and Malik Martin, for the Defendant
HEARD: July 13, 2016
Endorsement
[1] This is a motion by the defendant, Allen Tak Yuen Chan (“Chan”), to permit funds and investments held in certain bank accounts in Hong Kong held in the names of Joyce Chan and Grace Chan (“the Hong Kong Bank Accounts”) to be liquidated and transferred to him for the sole purpose of being used to pay his accounts for legal fees and disbursements incurred in defending these proceedings.
[2] In August 2014, I granted a worldwide Mareva injunction prohibiting Chan from dealing with or disposing of any of his assets. Paragraph 4 of the Mareva injunction provides as follows:
THIS COURT ORDERS that the Defendant may apply for an order, on at least twenty-four (24) hours’ notice to the Plaintiff, specifying the amount of funds which the Defendant is entitled to spend on ordinary living expenses and legal advice and representation.
[3] In January 2015, Chan moved for an interim order pursuant to para. 4 of the Mareva injunction permitting him to release funds for living expenses and the payment of outstanding and future legal fees.
[4] At paras. 4 and 5 of my endorsement I concluded as follows:
During the argument of the motion I indicated to counsel that, on the record before me, I was satisfied that Mr. Chan meets the test established by Molloy J., in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, [2003] O.J. No. 40 (S.C.J.).
Accordingly, he is entitled to an order permitting him to release funds that are subject to the worldwide Mareva injunction for his living expenses and for outstanding and expected legal fees not covered by insurance.
[5] The plaintiff did not appeal from my decision. Since then Chan has been permitted to release funds that are subject to my Mareva injunction to pay his outstanding legal fees. The plaintiff consented to these orders.
[6] Chan initially sought permission on this motion to sell a townhome in Kowloon that is subject to my Mareva injunction and to use part of the proceeds from the sale to pay his legal costs of defending this action. He has not pursued this relief and now only seeks permission to use part of the funds held in the Hong Kong Bank Accounts to cover his legal expenses.
[7] The plaintiff opposes Chan’s motion on the grounds that he has not met the evidentiary burden of establishing that he does not have access to other funds to pay his legal fees and that his request for access to the funds in the Hong Kong Bank Accounts is a continuation of his alleged fraudulent conduct.
[8] Mr. Staley, on behalf of the plaintiff, submits that the evidence that is now before the court establishes that Chan improperly transferred $7.5 million of his assets after I granted the Mareva injunction in August 2014. Mr. Staley submits that these funds are available to Chan to pay his legal fees and it is, therefore, not necessary for him to have access to the Hong Kong Bank Accounts for this purpose. The plaintiff makes the following submission at paragraphs 41 – 42 and 60 of its factum:
Even if this Court were to find that Chan needed CAD$4.1 million for his legal fees to the end of trial, which the plaintiff fundamentally denies, from the information available to the plaintiff as provided through the disclosure orders under the Hong Kong Mareva, Joyce and Grace Chan would have sufficient cash resources to advance funds to Chan without the need for the sale of the Town House.
In particular, Joyce and Grace Chan (who propose to cause Shiny Tech to advance funds to Chan) have disclosed cash in their bank accounts that are subject to the undertaking to the Hong Kong Court not to dissipate those funds of CAD$3.475 million. Added to this will be any additional funds they disclose if they finally comply with the orders of the Hong Kong Courts.
The onus is on Chan to establish that he has no other assets available to him and he has clearly not satisfied his burden of proof. In fact, the clear evidence set out above is that there is sufficient cash in Grace and Joyce Chan’s bank accounts coupled with the cash that has been transferred to as of yet undisclosed persons after the issuing of the Ontario and Hong Kong Marevas to far exceed the estimated costs of Chan’s legal fees. There is simply no need to sell the Town House.
[9] Grace and Joyce Chan’s bank accounts referred to in these paragraphs of the plaintiff’s factum are the same Hong Kong Bank Accounts that Chan seeks permission to access to pay his legal fees on this motion.
[10] The test that applies on a motion such as this is set out in Molloy J.’s decision in Credit Valley, supra. The test involves the following four factors:
(i) Has the defendant established on the evidence that he has no other assets available to pay his expenses other than those frozen by the injunction?
(ii) If so, has the defendant shown on the evidence that there are assets caught by the injunction that are from a source other than the plaintiff, i.e. assets that are subject to a Mareva injunction, but not a proprietary claim?
(iii) The defendant is entitled to the use of non-proprietary assets frozen by the Mareva injunction to pay his reasonable living expenses, debts and legal costs. Those assets must be exhausted before the defendant is entitled to look to the assets subject to the proprietary claim.
(iv) If the defendant has met the previous three tests and still requires funds for legitimate living expenses and to fund his defence, the court must balance the competing interests of the plaintiff in not permitting the defendant to use plaintiff’s money for his own purposes and of the defendant in ensuring that he has a proper opportunity to present his defence before assets in his name are removed from him without a trial. In weighing the interests of the parties, it is relevant for the court to consider the strength of the plaintiff’s case, as well as the extent to which the defendant has put forward an arguable case to rebut the plaintiff’s claim.
[11] The plaintiff concedes that the funds and investments held in the Hong Kong Bank Accounts are not proprietary assets. This is significant because according to Molloy J.’s decision in Credit Valley, supra, Chan is entitled to use non-proprietary assets frozen by the Mareva injunction to pay for his reasonable legal costs.
[12] On the evidentiary record before me I can find no basis to reverse the conclusion I arrived at in February 2015 when I determined that Chan had met the test in Credit Valley, supra. Mr. Staley’s submission that I should conclude otherwise would require me to engage in improper speculation that Chan has intentionally breached my Mareva injunction and has done “what all fraudsters do” to use Mr. Staley’s words. I am not prepared to make such a finding on the record before me. I am satisfied on a balance of probabilities that Chan requires access to the funds in the Hong Kong Bank Accounts to pay for his legal defence to this action.
[13] For the purpose of the proceedings before this court I am satisfied that Chan has met the Credit Valley test and that he should be permitted to access funds in the Hong Kong Bank Accounts to pay for his reasonable legal fees of defending this action.
[14] This has become very expensive litigation to defend in part because of aggressive positions taken by the plaintiff and the extensive documentation involved. The trial is scheduled to commence in December 2016 and will continue for a number of weeks in Toronto and Hong Kong. I accept as reasonable and realistic the estimates of the legal fees Chan is expected to incur in defending this proceeding as set out in para. 10 of Chan’s factum. I am not, however, able to assess the reasonableness of the estimated fees and disbursements of Chan’s Hong Kong legal counsel because I am not sufficiently familiar with the proceedings being conducted there. I, therefore, defer to the Hong Kong Court to determine the reasonableness of these projected legal fees.
[15] However, that does not end the matter. The Hong Kong Bank Accounts are also subject to a non-dissipation order of the Hong Kong Court that also freezes them. Before Chan is permitted to access these funds to pay for his legal fees, the Hong Kong Court must also be satisfied that the funds should be released under applicable Hong Kong law.
[16] Chan’s motion is, therefore, granted insofar as it relates to my 2014 Mareva injunction and the funds required to be released to pay Chan’s reasonable fees of defending this proceeding in Ontario. I, therefore, make an interim order pursuant to paragraph 4 of my Mareva injunction permitting Chan to access the funds in the Hong Kong Bank Accounts to pay for his reasonable legal fees. However, my order is subject to the Hong Kong Court’s decision as to whether the funds in the Hong Kong Bank Accounts should be made available to Chan for this purpose. I, therefore, defer to the Hong Kong Court on this issue.
[17] If counsel cannot agree on the costs of this motion they may schedule a 9:30 a.m. appointment before me to determine the issue.
HAINEY J. Date: July 25, 2016