Han v. Ham et al., 2017 ONSC 4903
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Guknam Han, Plaintiff
AND:
Yu Jin Ham also known as Yujin Ham, Me Mee Yu also known as Mehee Yu also known as Mi Hee Yu also known as Mihee Yu and Hongku Na also known as James Na, Defendants
BEFORE: Koehnen J.
COUNSEL: Sang Joon Bae, for the Plaintiff
Raffaele Sparano for the Defendants, Yu Jin Ham, Me Mee Yu
No one appearing for Hongku Na
HEARD: August 9, 2017
ENDORSEMENT
Background
1On July 4, 2017 Justice Corbett issued an ex parte Mareva injunction against the defendants Yu Jin Ham (Mr. Ham) Me Hee Yu (Ms. Yu). For ease of reference, I will sometimes refer to Mr. Ham and Ms. you collectively as “the defendants.” In doing so, I exclude the defendant Hongku Na from the reference to “defendants” given that the plaintiff sought no relief against him on the motion before Justice Corbett.
2Among other things the order of Corbett J. required the defendants to provide a sworn statement describing the “nature, value, and location of their assets worldwide, whether in their own name or not and whether solely or jointly owned.”
3There are now 2 motions before the court. The defendants seek an order setting aside the order of Justice Corbett or, in the alternative an order releasing additional funds to Mr. Ham and Ms. Yu for living expenses and legal representation.
4The plaintiff, Mr. Ham, seeks an order compelling further and better financial disclosure from the defendants.
Positions of the Parties
5The defendants argue that the ex parte Mareva injunction should be set aside because Mr. Ham failed to disclose material facts to Justice Corbett on the initial motion. As a result, defendants argue, that the order of Justice Corbett, including the requirement that the defendants provide information about their assets, should be set aside.
6The defendants also point to paragraph 11 of the order of Justice Corbett which allows anyone served with the order to apply at any time to vary or discharge the order on 4 days notice. The defendants argue that this provision also applies to the requirement that the defendants provide information about their assets.
7Mr. Han argues that the motion to set aside the injunction is premature because the defendants have not provided proper information about their assets. He notes that Justice Archibald directed that “full disclosure needs to be done pursuant” to the order of Corbett J. when he set a timetable for the two motions now before me.
8In response, the defendants argue that the requirement for financial disclosure in Justice Corbett’s order and Justice Archibald’s order that the defendants comply with the requirement for financial disclosure are irrelevant if there is no proper injunction on the merits as a result of the plaintiff’s failure to disclose all material facts to Justice Corbett.
Analysis
9The defendants’ position is predicated on the proposition that the failure to disclose all material facts to the judge hearing the ex parte injunction must lead to the dissolution of the injunction.
10They base their position on the well-known statement of Sharpe J. (as he then was) in United States v. Friedland, 2015 ONSC 2021:
“26 It is a well established principle of our law that a party who seeks the extraordinary relief of an ex parte injunction must make full and frank disclosure of the case. The rationale for this rule is obvious. The Judge hearing an ex parte motion and the absent party are literally at the mercy of the party seeking injunctive relief. The ordinary checks and balances of the adversary system are not operative. The opposite party is deprived of the opportunity to challenge the factual and legal contentions advanced by the moving party in support of the injunction. The situation is rife with the danger that an injustice will be done to the absent party. As a British Columbia judge noted recently:
There is no situation more fraught with potential injustice and abuse of the Court’s powers than an application for an ex parte injunction. (Watson v. Slavik, August 23rd, 1996, paragraph 10.)
27 For that reason, the law imposes an exceptional duty on the party who seeks ex parte relief. That party is not entitled to present only its side of the case in the best possible light, as it would if the other side were present. Rather, it is incumbent on the moving party to make a balanced presentation of the facts in law. The moving party must state its own case fairly and must inform the Court of any points of fact or law known to it which favour the other side. The duty of full and frank disclosure is required to mitigate the obvious risk of injustice inherent in any situation where a Judge is asked to grant an order without hearing from the other side.
28 If the party seeking ex parte relief fails to abide by this duty to make full and frank disclosure by omitting or misrepresenting material facts, the opposite party is entitled to have the injunction set aside. That is the price the Plaintiff must pay for failure to live up to the duty imposed by the law. Were it otherwise, the duty would be empty and the law would be powerless to protect the absent party.”
11The principle appears to be more nuanced, however, than this quotation suggests. In the current edition of his text, Injunctions and Specific Performance, loose-leaf (2016-Rel. 25) (Toronto: Thomson Reuters Canada Ltd.) Sharpe J.A. notes at paragraph 2.45 (updated to November 2015) that the “failure to make full disclosure is not invariably fatal.” In the same passage Sharpe J.A. refers to English authorities which hold that, even when an applicant has failed to disclose facts that would justify or even require the immediate discharge of an ex parte order, the court can nevertheless continue the order, make a new order or vary the order.
12Sharpe J.A. also notes that, if the dissolution results in an injustice to the plaintiff, the rationale for dissolving the injunction may be outweighed by the injustice to the plaintiff. Newbould J. adopted similar principles in Univalor Trust S. A. v. Link Resource Partners Inc. 2012 ONSC 6034, (at paragraph 4-5).
13The Rules of Civil Procedure appear to support this more nuanced view. Rule 39.01(6) provides, that the failure to make full and fair disclosure on an ex parte motion, “is in itself sufficient ground for setting aside any order obtained on the motion or application.” The rule does not make setting aside the ex parte order mandatory but merely gives the motions judge the power to do so.
14As a result, even if I assume that the plaintiff failed to disclose material facts to Justice Corbett, I would be required to balance the alleged failure to disclose material facts against the defendants’ compliance or noncompliance with the requirement that they provide information about their assets. For purposes of this analysis I will assume, without making any finding on the point, that the plaintiff failed to disclose material facts to Justice Corbett which would allow me to set aside his order.
Balancing of Interests
15The balancing of interests in light of the plaintiff’s assumed failure to disclose material facts to Justice Corbett begins with his claim.
16One of the plaintiff’s core allegations is that Mr. Ham mis-represented that his business earned at least $10,000 per month in net profit to induce Mr. Han to buy the business. Mr. Ham admits making this representation to at least one real estate agent who listed the business for sale and who included the representation in the listing advertising the business. A second real estate agent that Mr. Ham retained included a similar representation in his listing. Mr. Ham does not deny making the representation to the plaintiff.
17The evidence on Mr. Ham’s cross-examination suggests that profit from the business fell materially short of $10,000 per month.
18On the motion, Mr. Ham’s counsel argued that this was a “situation of caveat emptor”. While it may be true that the purchaser should have conducted far more due diligence than he did, that does not entitle a vendor to make representations which, at least on the limited record before me, do not appear to be true.
19Although the defendants have purported to comply with Justice Corbett’s requirement to “describe the nature, value and location of their assets worldwide,” the record before me indicates that they have not complied, in substance.
20Each of Mr. Ham and Ms. Yu has produced a short affidavit purportedly setting out their assets. In effect they say they have no assets, other than approximately $20,000 remaining from the $130,000 that the plaintiff paid to Mr. Ham for the acquisition of his business.
21That alone is somewhat striking without any further explanation.
22Mr. Ham states that he has been running the business for 25 years and that it makes a profit of $120,000 per year. Even if one takes into account that the business might not have been earning $120,000 for the full 25 years, one might expect to see some assets. While I would not expect an individual with that sort of a business to have a large asset base, one would expect some type of modest savings, especially given the very modest living expenses that the defendants set out in their affidavits.
23Concerns about the reliability of the defendants’ descriptions of their assets are exacerbated by Mr. Ham’s description of what he did with the $130,000 he received from the plaintiff on the sale of the business.
24Mr. Ham states that he paid $83,000 to another individual for repayment of a loan. In support, he has produced a one line handwritten receipt which states “I received $83,000 for the loan,” followed by the signature of the purported lender. Mr. Ham has not produced any loan agreement, nor has he explained any of the circumstances surrounding the loan. The receipt itself does not disclose whether the signatory is the lender or the borrower.
25In addition, Mr. Ham states that he has prepaid 3 months’ rent on his business premises and prepaid 6 months’ rent on his residential apartment. He gives no reason for the prepayments. The remaining $15,000 is described as having been spent on utility bills, donations to church, purchase of medications, living expenses such as food, clothing and gas, travel expenses and other miscellaneous items. He provides no particulars of these expenditures. In his affidavit, Mr. Ham states that living expenses for himself and Ms. Yu are approximately $3,000 per month. The $15,000 in miscellaneous living expenses that he allegedly incurred would, however, have been incurred in a period of just under 3 weeks.
26Concerns about the adequacy of the defendants’ financial disclosure are further exacerbated by the fact that Mr. Ham issued 14 money orders from his bank account after receiving purchase funds from Mr. Han. Mr. Ham has refused to provide copies of the money orders which would indicate to whom they were paid. Several of those money orders were issued from his bank account after Justice Corbett issued his ex parte order. Although the money orders left the account before Mr. Ham was formally served with the order, a total of $93,574 left the bank account on July 6 and 7, 2017. A process server spoke with Mr. Ham at 10:20 AM on July 6, 2017 to make arrangements for service of the order of Justice Corbett. Mr. Ham refused to provide the process server with an address at which he could be served. So far, Mr. Ham has not disclosed whether the money orders that left his account on July 6 did so before or after the process server contacted him. The money orders that left on July 7 certainly left the account after the process server contacted him.
27The endorsement of Justice Archibald on the scheduling appointment for these motions made it clear that “full disclosure” pursuant to Justice Corbett’s order needed to be completed. The record before me indicates that, while the defendants may have purported to comply with that requirement in form, they have not done so in substance.
28The nature of the defendants’ disclosure about their assets is also relevant to the relief they seek. A “further and/or alternative” order the defendants seek on their motion is one that varies the amount available to them for living expenses. Whether the order of Justice Corbett should be lifted entirely, in part, or varied, turns in part upon the amount and nature of the defendants’ assets. In Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business & Technology, 2003 CanLII 12916 (ON SC), [2003] O.J. No. 40 (Ont. S.C.J.) Justice Molloy set out three factors for the court to consider when deciding whether to vary a Mareva injunction:
(1) Has the defendant established that he has no other assets other than those frozen by the injunction?
(2) If so, have the defendants shown that there are assets caught by the injunction that are from a source other than the plaintiff [in other words assets that are not subject to a proprietary claim by the plaintiff]?
(3) Has the defendant exhausted non-proprietary assets before looking to proprietary assets to pay expenses?
29Having received information about these three factors, the court must then balance the interest of the plaintiff in not having the defendant spend the plaintiff’s money for personal purposes against the interest of the defendant in ensuring that he has a proper opportunity to present his defence without assets in his name being removed from him without a trial.
30Information about the nature of the defendants’ assets is essential to balance the interests of the plaintiff and the defendants. Disclosure of assets would also go to the appropriate balancing of the defendant’s allegations of material non-disclosure against the need, if any, for an injunction. If, for example, the only assets the defendants had were those obtained from the plaintiff, this might go to maintaining the injunction. If on the other hand, the defendants have assets from sources other than the plaintiff, that might go to varying the injunction and having it apply only to funds that the defendants received from the plaintiff. The defendants’ refusal to provide adequate information about their assets prevents the court from engaging in any such balancing exercise.
31Given that Justice Archibald’s endorsement made it clear that the defendants could not proceed with a motion to lift the injunction until they had complied with the order of Justice Corbett, their motion at this stage is premature. The motion is therefore stayed until the defendants have complied fully with the requirement to disclose their assets.
Miscellaneous Issues
(a) Affidavit of Seungkon Yoo
32During oral argument, the plaintiff sought leave to introduce an affidavit of a law clerk with the plaintiff’s firm. The affidavit contains information that the law clerk received from KEB Hana Bank Canada to the effect that Ms. Yu has four bank accounts with that bank “in the sum of less than $30,000” which were not disclosed in Ms. Yu’s statement of assets. The phrasing of the affidavit to the effect that Ms. Yu has bank accounts “in the sum of less than $30,000” is somewhat unusual. That could refer to bank accounts with a few cents or with materially more. I have not considered this affidavit in reaching my conclusion on this motion. It is, however, a relevant source of further inquiry for the plaintiff to make on any further examinations he wishes to conduct of the defendants. The defendants will have an opportunity to respond to the affidavit. The court can consider the affidavit and determine what, if any, effect it has on further consideration of this matter once the defendant has had an opportunity to respond to it.
(b) Evidence of Dissipation
33During oral argument the defendants suggested that there was no evidence of dissipation of assets and that the injunction should be lifted for that reason. In my view the record before me does create a sufficient concern about dissipation of assets to warrant continuation of the injunction, at least until the defendants make full disclosure about their assets. The defendants’ refusal to disclose the recipients of the 14 money orders in the face of Justice Corbett’s order creates serious concerns about potential dissipation of assets.
34The plaintiff also expressed concern before Justice Corbett that Mr. Ham suggested he would be gambling money away at a casino known as Casino Rama. On cross-examination, Mr. Ham admitted transferring $40,000 to Casino Rama. During oral argument, defendants’ counsel submitted that Mr. Ham transferred only $10,000 to Casino Rama. Whether it was $10,000 or $40,000 is beside the point. The point is that Mr. Ham did transfer funds to Casino Rama which creates further concerns about dissipation. In addition, it would be somewhat unusual for a person who has no assets to transfer even the lesser sum of $10,000 to Casino Rama without some further explanation.
(c) Request to Lift Injunction Against Ms. Yu
35The defendants seek to have the injunction lifted against Ms. Yu. They argue that she received no payments from the plaintiff, the plaintiff had no discussions with her and that she was not otherwise involved in the business. On the record before me, I do not believe it would be appropriate to lift the injunction against Ms. Yu at this stage. Ms. Yu is the registered owner of the business that the plaintiff purchased. It was quite appropriate for the plaintiff to join the registered owner of the business as a defendant when making claims arising out of the purchase of the business. It would also be inappropriate to lift the injunction against Ms. Yu when the defendants have failed to disclose particulars concerning the 14 money orders or otherwise make full disclosure about their assets.
Conclusion and Relief Sought
36For the reasons set out above, the defendants’ motion to set aside or vary the order of Justice Corbett is stayed until they have complied with the orders of Justice Corbett and the endorsement of Justice Archibald requiring them to disclose full information about their assets.
37The defendants are authorized to spend a maximum of $3,500 between them on living expenses and legal advice and representation between now and September 20, 2017. I am mindful of the potential need for the defendants to spend money for their defence. I will entertain any further requests in that regard. It would seem relevant to me, however, to know what if any retainer arrangements have been made between the defendants and their lawyers before coming to any conclusion on that matter. To date, the defendants have refused to provide that information. If the parties cannot agree how that $3,500 is to be made available to the defendants, counsel can arrange a 9:30 appointment with me to address the issue.
38The plaintiff is entitled to the following relief on his motion:
(1) Mr. Ham will produce to plaintiff’s counsel, copies of the front and back sides of the 14 money orders drawn from Mr. Ham’s TD bank account bearing account number 669-0531 within 3 business days of the date of the release of this endorsement.
(2) The defendants shall provide to the plaintiff, full particulars about whom the money orders were paid to, the relationship between the defendants and the recipient(s) of the money orders, the reason for transferring funds to the recipient(s) of the money orders and the precise time at which the money orders were obtained, all within 3 business days of the release of this endorsement.
(3) The defendants will provide to the plaintiff, full particulars about whether the funds reflected in the money orders remain in their possession or under their direction or control.
(4) The defendants will make themselves available for a second examination under oath on or before August 31, 2017 or such later date that the parties might agree to.
(5) The defendants shall provide counsel for the plaintiff, a copy of their social insurance cards, their full present address and their date of birth within 3 business days of the release of this endorsement.
(6) Plaintiff’s counsel is to use the information on the social insurance cards only for purposes of providing the social insurance number of the defendants to banks or other financial institutions to more specifically identify any assets the defendants may have on deposit with those institutions. Plaintiff’s counsel may not share the social insurance numbers with the plaintiff.
(7) The defendants will produce to the plaintiff, copies their business and personal tax returns and notices of assessment for the year 2016.
(8) If the plaintiff wishes to bring any motion which must be served personally upon the defendants while the defendants are represented by counsel, the plaintiff is granted leave to serve such motion materials on the defendants’ counsel of record and by attempting to serve the defendants personally at the residential address referred to in sub-paragraph 5 above. If personal service is not successful, the plaintiff may serve by sending a copy of the motion materials to the defendants by ordinary mail and registered mail at the residential address referred to in sub-paragraph 5 above.
(9) If the defendants’ counsel removes himself from the record, the plaintiff may serve any further motion materials on the defendants by attempting to effect personal service on them and by serving them by regular mail and registered mail, all at the residential address referred to in sub-paragraph 5 above.
(10) The banks listed in paragraph 1 of Justice Corbett’s order of July 4, 2017 and KEB Hanna Bank Canada are ordered to produce to the plaintiff’s counsel: (i) any account statements relating to the defendants; (ii) which statements record financial information about the defendants holdings with the bank in question; and (iii) which account statements refer to assets the defendants held at the bank in question between June 14, 2017 and August 15, 2017.
39Given the length of argument before me on the issue of material nondisclosure, the amount of time I have spent reviewing materials and case law on that issue and my familiarity with the facts of the case, it would be a far more economical use of judicial resources for any motion to set aside for material nondisclosure to come back before me. I invite counsel to make a 9:30 am appointment with me in the next week to seek directions on the timing and steps necessary to bring that motion back on.
40I wish to make clear to both parties that, although this endorsement refers to the test for setting aside an ex parte order for failing to disclose material facts, I have made no findings about the adequacy or inadequacy of disclosure to Justice Corbett. This decision is based on the combination of the endorsement of Justice Archibald, the requirement for financial disclosure in Justice Corbett’s order and the need for financial disclosure for the court to consider properly the defendants’ motion to vary or set aside the order of Justice Corbett.
41Costs of these motions will be considered when the defendants have made full disclosure and bring their motion to vary or set aside the order of Justice Corbett. If the defendants decide not to proceed with that order, counsel may schedule 9:30 AM appointment with me to deal with the issue of costs.
Koehnen J.
Date: August 15, 2017