Court File and Parties

COURT FILE NOS.: CV-13484007 DATE: 20160829 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2304347 ONTARIO INC. (Carrying on Business as “DFSIN MISSISSAUGA”) Plaintiff – and – MAHAGANAPATHIKURUKAL KUMARASASARMA, also known as KUMARASASARMA MAHAGANAPATHIKURUKAL and AMANJOT MALHI also known as AMANDOT MALHI also known as MALHI AMANDOT Defendants

Counsel: Gerald Matlofsky, for the Plaintiff Tarunjeet Gujral, for the Defendant, Mahaganapathikurukal Kumarasasarma

HEARD: August 23, 2016

Revised Endorsement

DIAMOND J.:

[1] The defendant Mahaganapathikurukal Kumarasasarma, also known as Kumarasasarma Mahaganapathikurukal (‘the defendant”) moves to set aside a default judgment dated February 6, 2015 wherein the defendant was ordered to pay the plaintiff the sum of $117,383.19 (inclusive of pre-judgment interest) together with costs of the action in the amount of $5,000.00 plus HST.

[2] The defendant is the spouse of the co-defendant Amanjot Malhi also known as Amandot Malhi also known as Malhi Amandot (“Malhi”), although the defendant claims that they have been legally separated since the fall of 2010.

[3] In the original Statement of Claim issued on July 4, 2013, the plaintiff only sued Malhi. The defendant was subsequently added to the plaintiff’s Fresh as Amended Statement of Claim issued over one year later.

[4] In the original Claim, the plaintiff alleged that Malhi was an insurance broker working in the plaintiff’s Mississauga office selling Desjardins Insurance (“Desjardins”) products to the general public under a license set forth in an Association Agreement signed between the plaintiff and Desjardins. The Claim further alleged that the plaintiff was forced to pay a series of charg-backs to Desjardins as a result to Malhi’s refusal to remit payment of those amounts, as Malhi was allegedly obligated to do under her Representation Agreement with the plaintiff.

[5] After being served with the original Claim, it does not appear that Malhi defended this action. Malhi then made a voluntary assignment into bankruptcy on December 13, 2013. She has yet to be discharged from her bankruptcy.

[6] In the Fresh as Amended Statement of Claim, the defendant is alleged to have conspired with Malhi to intentionally cause the plaintiff to incur chargebacks on Malhi’s behalf and knowingly refuse to pay for them, with a view to benefiting, inter alia, the defendant through the use of those funds. The Fresh as Amended Statement of Claim seems to allege that the defendant may have converted some or all of the $117,383.19 to his personal use. There is no contractual relationship pleaded between the plaintiff and the defendant.

[7] In any event, the Fresh as Amended Statement of Claim further alleges that on November 5, 2010 Malhi transferred her interest in a property municipally known as 25 Binder Twine Trail, Brampton, Ontario (“the Binder Twine property”, which was original owned by Malhi and the defendant in joint tenancy) to the defendant. Even though the Binder Twine property was subsequently sold for $457,000.00 on September 28, 2011, the plaintiff requests that the proceeds of sale from the Binder Twine property “be traced to the defendant” pursuant to the provisions of the Assignments and Preferences Act, R.S.O. 1990 c. A33.

[8] The plaintiff also requests a declaratory order that the transfer of Malhi’s interest in the Binder Twine property to the defendant is void as being contrary to section 2 of the Fraudulent Conveyances Act, R.S.O. 1990 c. F29.

[9] In any event, the defendant was served with the Fresh as Amended Statement of Claim pursuant to Rule 16.03(5) by leaving a copy of the pleading with Malhi at the house in which they both apparently resided (and subsequently mailing a copy to the defendant’s attention). Service of the Fresh as Amended Statement of Claim was effective on or about September 28, 2014.

[10] Of note, the defendant has given sworn evidence on this motion that he was never provided with a copy of the Fresh as Amended Statement of Claim, nor advised of its existence by Malhi. There is no evidence from Malhi sworn on this motion.

[11] The defendant never delivered a Statement of Defence, and was subsequently noted in default. The plaintiff then moved for default judgment. In an endorsement dated February 6, 2016, the motions judge confirmed that he was satisfied with the plaintiff having a valid claim against Malhi (as the plaintiff had taken an assignment of the trustee’s cause of action under section 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3).

[12] The motions judge was also satisfied that the defendant “caused, procured, knowingly assisted and benefited from” the conveyance of Malhi’s interest in the Binder Twine property, and declared the conveyance of Malhi’s interest to the defendant as being void against creditors pursuant to the Fraudulent Conveyances Act, as that conveyance was made with “badges of fraud, secrecy and no consideration”.

[13] The defendant gave evidence on this motion that he did not learn of the default judgment until May 2015 when he was attempting to refinance one of his properties, and learned of Writs of Execution filed by the plaintiff pursuant to the default judgment. Initially, the plaintiff retained a lawyer named Tahir Majeed (“Majeed”) who wrote to counsel for the plaintiff asking for dates for a motion to set aside the default judgment. Between mid-May and early June 2015, Majeed and counsel for the plaintiff exchanged correspondence ending with a letter dated June 4, 2015 to Majeed asking for dates to schedule his client’s motion. Majeed never responded to that last request.

[14] No further efforts to schedule this motion were undertaken until April 21, 2016 when the current counsel for the defendant was retained and contacted the plaintiff’s counsel with a view to scheduling this motion. The only evidence offered by the defendant to explain this 11 month delay is as follows:

“I was undergoing financial issues as I had Mortgage, 2nd Mortgage and other loans to repay. I could not pay a fee of my lawyer to proceed further expeditiously. It took a while to arrange funds and hire a new lawyer.”

[15] No further evidence or supporting documentation on that issue has been provided by the defendant.

[16] In support of his motion, the defendant has included a draft Statement of Defence which he proposes to file if the default judgment is set aside. This draft pleading denies all allegations and relies upon the lack of any commercial or contractual relationship between the plaintiff and defendant in support of his request to dismiss the action. The draft pleading also states that it was Malhi’s alleged inability to obtain credit which led to the transfer of her interest in the Binder Twine property which needed to be refinanced transactions.

Setting aside a default judgment

[17] It is now well settled that when hearing a motion to set aside a default judgment, the Court must consider the following five factors:

a) whether the motion was brought promptly after the defendant learned of the default judgment;

b) whether there is a plausible excuse or explanation for the defendant’s default in delivering a Statement of Defence;

c) whether the facts establish that the defendant has an arguable defence on the merits;

d) the potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the responding party should the motion be allowed; and

e) the effect of any order the Court might make on the overall integrity of the administration of justice.

[18] As the Court of Appeal held in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, these five factors are not to be treated as rigid rules and as the Court must consider the particular circumstances of each case to decide whether there is just to relieve the defendant for the consequences of his/her default.

[19] I will now address the five factors based upon the record before me.

Was the motion was brought promptly after the defendant learned of the default judgment?

[20] The defendant testified that once he discovered the existence of the plaintiff’s judgment against him, he retained the services of Majeed to bring a motion to set aside the judgment. Unfortunately, that motion was not brought until approximately one year later after the defendant’s current counsel was retained.

[21] Apart from a bald paragraph in his affidavit purportedly accounting for this delay due to “financial issues due to mortgages and loans”, the defendant has not provided any evidence to explain the delay. The onus to satisfy this branch of the governing test lies squarely upon the defendant. There is no evidence from Majeed filed on this motion, and as I held in Frankie Tomatto’s Woodbine Inc. v. De Groot, 2015 ONSC 154, appeal dismissed (2015) ONCA 739, this planned motion to set aside the judgment seemingly evaporated.

[22] The defendant obviously retained Majeed for a singular purpose – to bring the motion to set aside the default judgment. The defendant would have the Court believe that Majeed was only provided with enough funds to write letters advising of an intention to bring the motion, but to stop short of bringing it. This does not have an air of reality to it, as the defendant’s need to refinance his property in order to meet his financial obligations was the purpose of retaining Majeed in the first place.

[23] I am therefore not satisfied that the defendant either moved expeditiously to bring this motion, or explained his undue delay in doing so.

Is there is a plausible excuse or explanation for the defendant’s default in delivering a Statement of Defence?

[24] It is common ground that the defendant was not personally served with the Statement of Claim as service was achieved through an alternative to personal service option under Rule 16.03(5). I adopt the following comments of Justice Chapnik in B. A. Construction v. 2012221 Ontario Ltd., 2014 ONSC 2681:

“The case of Royal Trust Corp. of Canada v. Dunn provides some guidance with respect to service of court documents effected by an alternative to personal service. In that case, where a defendant was served with a statement of claim sent to his previous solicitor and the plaintiff obtained default judgment, the court set it aside on the basis of ineffective service. The court stated as follows, at p. 473-474:

“Although the alternatives to personal service are provided as a convenience, a plaintiff who uses an alternative to personal service takes the risk, which is recognized by subrule 16.07(a), that the statement of claim will not come to the defendant’s notice, in which case any step taken as a result of the default of the defendant will in all probability be set aside due to the absence of due process.”

[25] The issue thus becomes whether the defendant has tendered credible evidence to convince the Court that the Fresh as Amended Statement of Claim never actually came to his attention. There is no evidence from Mahli on this motion confirming or denying whether she advised the defendant of the Claim, or provided him with a copy. The defendant gave evidence that the Claim never came to his attention, and even during the relevant periods when he was residing with Mahli, they were still legally separated.

[26] The evidence surrounding the alleged legal separation between the defendant and Mahli is arguably tenuous in key areas. They have since travelled together with their children, and attended social events together. However, I am not prepared at this stage of the litigation to make a definitive finding on the validity of the legal separation, and as such I find this factor to be, at best, a neutral consideration in the exercise of my discretion on this motion.

Do the facts establish that the defendant has an arguable defence on the merits?

[27] As held by the Court of Appeal for Ontario in Mountain View: “… the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part. In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed. The defendant must show that his or her defence has an air of reality.”

[28] Before I assess the merits of the draft defence, it is important to first review the nature of the cause(s) of action pleaded in the Fresh as Amended Statement of Claim against the defendant. The Claim seeks payment of $117,293.74 from the defendant for “payment of the chargebacks” even though there is no contractual relationship between the plaintiff and the defendant. The Claim also seeks an order declaring the transfer of Mahli’s half interest in the Binder Twine property to be declared void and set aside pursuant to the provisions of the Fraudulent Conveyances Act.

[29] As I understand the pleading, the cause(s) of action specifically raised against the defendant include allegations that (a) he and Mahli jointly transferred Mahli’s interest in the Binder Twine property to the defendant and (b) he then sold the Binder Twine property to Mahli’s brother, all with the intention of benefitting from Mahli’s receipt of the chargebacks while divesting Mahli of assets to make her “judgment proof”.

[30] The Claim then seeks a tracing order of the proceeds of sale of Mahli’s interest in the Binder Twine property into a property municipally known as 40 Mountain Ridge Road, Brampton (the “Mountain Ridge property”, currently owned by the defendant). The plaintiff then alleges that it was the victim of a “fraudulent scheme” which was, presumably, a conspiracy to injure although those words are not found anywhere in the pleading.

[31] It is difficult to understand the basis for the plaintiff’s request that the defendant be made jointly and severally liable with Mahli for the full amount of the chargebacks, as the “fraudulent scheme” is not adequately particularized and the claims against the defendant under the Fraudulent Conveyances Act would not result in any monetary award. As held by Justice Myers in Purcaru v Seliverstova, 2015 ONSC 7515, appeal dismissed (2016) ONCA 610:

“However, Mr. Joseph argued that the law does not allow for a remedy in damages under the Fraudulent Conveyances Act. The cases that he argued refer to authority emanating from the Supreme Court of Canada that has been consistently applied and indeed says that damages are not available for breach of the statute. Taylor et al. v. Cummings et al (1897), 27 S.C.R. 589. In Waxman v. Philip Environmental Inc., 1994 CarswellOnt 4666 (Ont. Ct. Gen. Div.) Mr. Justice Lane came to the same conclusion. The statute provides for a declaration that transactions are void and that is all.

In considering whether the statute allows monetary relief, Lane J. wrote, “[t]here is no language of prohibition nor of duty to give rise to a duty of care to anyone.” I am not sure that I would go that far. The statute voids fraudulent conveyances. They are illegal and voidable at the instance of creditors. It is illegal to convey assets in the circumstance set out in s.2 of the statute. Lawyers understand that they are duty-bound not to help clients fraudulently convey assets. In my view, there is an implicit prohibition by necessary intendment. There are cases in western Canada in which creative remedies have been adopted in order to give effect to a declaration under the statute. They rely on Taylor to find that the proper order under the statute is not just that the transaction is void but that the transferee "... do all things necessary to make the property ... available for satisfying the claims of the creditors ...." See for example, HXP Debenture Trust v Guillaume, 2015 SKQB 225.

In Ontario, the Assignments and Preferences Act gives remedies to the creditors where the transferee disposes of the property transferred. But Marina Seliverstova was not a transferee. She was one of the transferors. Even if I to order the transferee Mircea Purcaru to do all things necessary to make the $325,000 available for satisfying claims of creditors of Dan Purcaru, I do not see how that can include ordering Marina Seliverstova to pay damages despite her acting in concert with Dan Purcaru as discussed above. Dan Purcaru himself is not liable for damages under the Fraudulent Conveyances Act. His liability stems for the divorce, corollary relief, and costs orders made against him.

Mr. Justice Lane noted in Waxman that parties are free to join claims for damages with claims under the Fraudulent Conveyances Act But the applicant did not claim in tort against Marina Seliverstova in respect of the mortgage and Dan Purcaru sending $325,000 drawn on the secured debt facility to his brother.

If the court is to order a monetary remedy against Marina Seliverstova for her knowing participation in the fraudulent conveyance, it seems to me that Taylor will have to be reconsidered. I am also loathe to depart from the decision of Lane J. of this court without pleading, full briefing, and argument of this issue. The current state of the law that precludes a monetary remedy strikes me as flowing from a highly technical rather than a purposive reading of the statute. The rules of statutory interpretation have evolved since the late 1800s to be sure. But that is the state of the law pending a determination to the contrary by a higher court or at least a pleading and briefing that allows the court to deal with the issue on its merits.”

[32] The default judgment confirms the plaintiff’s claims against Mahli and finds that the defendant assisted with and benefitted from the conveyance of the property from Mahli. It does not find that the defendant benefitted from payment of the chargebacks. Tellingly, the motions judge went on to declare Mahli’s transfer of her interest in the Binder Twine property to be void as a fraudulent conveyance, and yet that relief is not included in the formal Judgment.

[33] The motions judge then granted judgment for $117,383.91 “as set out in the Affidavit of Pavin Chowdry” (the plaintiff’s representative). The endorsement does not explicitly grant judgment for $117,383.91 against the defendant (even though the formal Judgment does).

[34] In my respectful view, the finding of a fraudulent conveyance being void against creditors does not, and cannot, provide a basis for joint and several liability of the underlying debt. In order for the defendant to be held jointly and severally liable for Mahli’s debt owed to the plaintiff, there must be a tenable cause of action pleaded against the defendant. The Fresh as Amended Statement of Claim discloses, at most, a deficient conspiracy claim (again, even though the word “conspiracy” is not used).

[35] The “fraudulent scheme” raised in the Fresh as Amended Statement of Claim seems to be that Mahli and the defendant conspired to defraud the plaintiff of the chargebacks by agreeing to never pay for them and divesting Mahli of any assets against which the plaintiff could recover on a potential judgment. Without commenting upon whether such a theory could result in liability, the defendant has denied every entering into such an alleged (deficiently pleaded) conspiracy and has offered his explanation(s) for the various real estate transactions including the need to transfer Mahli’s interest in the Binder Twine property as a result of her bad credit and the need to refinance the property.

[36] The plaintiff argues that the defendant must do more than simply deny allegations. In addition, the defendant’s story arguably changed by alleging in his supporting affidavit that another reason for the transfer of Mahli’s interest in the Binder Twine property was due to their legal separation. There is some merit in the plaintiff’s arguments, but I find that in the fact of a conspiracy claim, as the defendant need not show that his defence will inevitably succeed, he must only show that his defence has an air of reality. At this stage, I am prepared to find that it does.

The potential prejudice to the moving party should the motion be dismissed, and the potential prejudice to the responding party should the motion be allowed

[37] As I have found that the defendant has an arguable defence on the merits, there is thus some prejudice to the defendant if his motion is dismissed and the default judgment is allowed to stand. While the plaintiff has been unpaid on the chargebacks for over four years, the Claim was only amended to add the defendant in 2014.

[38] In any event, at the conclusion of the hearing the defendant offered his agreement not to pledge, encumber, transfer, sell or otherwise deal with the Mountain Ridge property as a term of any potential order setting aside the default judgment. Accordingly, I find that, on balance, this factor favours the defendant.

The effect of any order the Court might make on the overall integrity of the administration of justice

[39] Given my finding that the draft defence has the required “air of reality”, it is generally in the interests of the administration of justice to have such cases tried on their merits. I therefore find that this fifth factor favours the defendant.

[40] Accordingly, I am granting an Order setting aside the default judgment (and any Writs of Execution or other enforcement steps) but on the following terms:

a) pending further court order or agreement between the parties, the defendant shall not take any steps to pledge, encumber, transfer, sell or otherwise deal with the Mountain Ridge property;

b) the plaintiff shall be at liberty to register a copy of the formal Order codifying this Endorsement against title to the Mountain Ridge property; and,

c) the plaintiff is entitled to payment of its costs thrown away (as a result of obtaining the default judgment) on a substantial indemnity scale and payable forthwith. The parties may address the quantum of those costs as part and parcel of their costs submissions set out below.

Costs

[41] If the parties cannot agree upon the costs thrown away and/or the costs of this motion, the plaintiff may serve and file written costs submissions (including on the issue of the costs thrown away and totaling no more than five pages including a Costs Outline) within 10 business days of the release of this Endorsement.

[42] The defendant shall thereafter serve and file his responding costs submissions (also totaling no more than five pages including a Costs Outline) within 10 business days of the receipt of the plaintiff’s costs submissions.

Diamond J.

Released: August 29, 2016

COURT FILE NOS.: CV-13484007 DATE: 20160829 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2304347 ONTARIO INC. (Carrying on Business as “DFSIN MISSISSAUGA) Plaintiff – and – MAHAGANAPATHIKURUKAL KUMARASASARMA, also known as KUMARASASARMA MAHAGANAPATHIKURUKAL and AMANJOT MALHI also known as AMANDOT MALHI also known as MALHI AMANDOT Defendants

REVISED ENDORSEMENT Diamond J. Released: August 29, 2016