Court File and Parties

COURT FILE NO.: FS-18-9169-0000 DATE: 2018 07 26 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: EKATERINA IVANOVA KARPACHEVA, Applicant AND: VALERY VLADIMIROVICH KARPACHEV, ELINA SAVUSTYANOVA, Respondents

BEFORE: Trimble, J.

COUNSEL: A. Koren, for the Applicant alla@allakoren.com Valery Vladimirovich Karpachev (deceased), Respondent, not represented John Bruggeman, for the added party, Elina Savustyanova kostyniukandbruggeman@gmail.com

HEARD: July 17, 2018

Endorsement

The Motion

[1] The Applicant brings this motion against the Respondent and the added party for an order:

a) That the added party provide full and complete the financial statements detailing all assets in her possession as of January 1, 2014, including the source of all assets; b) Declaring that all assets in the hands of the added party or within her care and control were held in trust for the Applicant, the Respondent and/or his estate; c) For a Mareva injunction prohibiting the sale, transfer, encumbrance, or disposition of any property or assets in her control including but not limited to a condominium in Rappollo Italy.

[2] A similar motion was brought earlier, but was returnable 27 July 2018.

[3] The motion before me was brought urgently because the Respondent died on 29 June, 2018. The only issues argued before me were b) and c). Issue a) is adjourned, sine die.

Facts

[4] The only evidence submitted on this motion was that of the Applicant, or on her behalf. Her Affidavits, and those filed on her behalf, contain some first-hand knowledge of the affiant, the results of the affiant’s own searching, hearsay, and opinion. I accept the evidence of the Applicant or those on her behalf to the extent that the evidence is their direct knowledge. For the purposes of this motion only, I also accept as true the contents of emails the Respondent sent as they are the next best evidence given that the Respondent is deceased.

[5] The Applicant and Respondent are/were in their late 70’s. They were married in Moscow on 28 December, 1963. They emigrated in 1995, and spent time in Canada and the US before settling in Canada. It is not stated when they immigrated to Canada. They had two adult children.

[6] The parties separated in January 2017 when it became obvious to the Applicant that the Respondent was having an extramarital relationship with the added party. As of April 12, 2018, the Respondent was 76 and the added party was 31 years of age.

[7] The parties negotiated a Separation Agreement which they signed on 16 November, 2018. The Agreement was negotiated without legal advice and without financial disclosure. The Agreement was not drafted by counsel. It was prepared in Russian and then translated by the parties’ daughter into English. The language of the translated version indicates it was professionally drafted. Whether it is a stock product (for example from the internet), or something provided by counsel, is unclear. The only evidence is that the parties had no legal representation before it was signed.

[8] Shortly after the Agreement was executed, the Respondent left for Italy to live with the added party.

[9] After the Respondent moved out, the Applicant began the process of organizing and cleaning out the matrimonial home based on the provisions of the Separation Agreement with respect to the division of the property. While doing this, the Applicant discovered that the Respondent had significantly misrepresented his financial affairs before the Separation Agreement was signed. Further, she discovered that for several years before separation he had been diverting family funds. The Applicant’s discoveries were:

a) The Respondent maintained two Swiss bank accounts containing $2,00,000 USD as of January 1, 2014, and a bank account in Hong Kong containing approximately $1.2 million USD as of June 15, 2015. b) Over the two years immediately before the separation date, he transferred €349,820 to the added party from these accounts, €130,000 of which was for the purchase of a “Salon” in Italy. c) The added party, who was without any means of support, obtained a 45 m² workshop in Rappollo, Italy on or about November 18, 2016. d) The Respondent had a pension in the U.S., the value of which was unknown but, in 2007, was valued at $61,000 USD. e) The Respondent provided to the added party approximately €45,500, after the date of separation. f) The Respondent transferred other amounts from other accounts to the added party, before separation, totalling approximately $4000. g) In January 10, 2009, the Respondent sold a property in New York City resulting in a net gain of $342,359.60 USD which, through a series of transfers, he transferred to Europe to purchase the Italian condominium. h) The Italian condominium was originally purchased in the Respondent’s and the added party’s name. Immediately after the Separation Agreement was signed, the Respondent transferred his 50% interest in the Italian condominium to the added party in exchange for a mortgage of $52,000 to be paid without interest in two years. i) On March 20, 2015, alone, the Respondent invested into the Italian condominium €242,018.

[10] The Applicant also said that the Husband is an elderly man with a history of ailments that strongly suggested mental incapacity. He was diagnosed with an unexplained cognitive impairment as early as 2010 which resulted in the loss of his Ontario driver’s licence. She says that the Respondent consumed large quantities of strong antipsychotic drugs and alcohol which may have impaired his capacity. In addition, the Applicant related other instances which suggest incapacity. At the motion, the Applicant did not pursue the question of incapacity.

[11] Notwithstanding these general suggestions of incapacity, drug and alcohol use, there is no evidence that the Respondent lacked capacity to enter into the Separation Agreement, or to perform the transactions of which the Applicant complains.

[12] The Applicant says that written communications between the Respondent and the added party “… clearly evidences the intention of the Respondent husband to gift the property to the third-party Respondent, as does the email communication from the Respondent husband to our children. Moreover, the Respondent husband appears to be suggesting that he will gift the remainder a family property to Elina Savustyanova, including the matrimonial home. ”

[13] In fact, the Respondent’s interest in the matrimonial home was transferred by the Separation Agreement to the Applicant. The Applicant says that the Respondent balked at signing documents giving effect to the transfer, but there is no evidence that the transfer was ever, or never completed.

[14] The Applicant says that through other channels she learned that immediately upon taking complete title to the Italian condominium, the added party changed the locks and refused entry to the Respondent, having moved another man into the condominium, and leaving the Respondent without housing on his arrival in Italy. This is hearsay.

[15] It is the Applicant’s position that the added third-party defrauded the Respondent due to mental incapacity, or the Respondent acted knowingly and deliberately with the goal of transferring family assets outside of her reach to frustrate her equalization claim and her ability to collect amounts owing to her.

[16] In an affidavit dated July 16, 2018, the parties' adult son learned from the manager of a hotel in Cancun, Mexico that his father had died on June 29, 2018.

Status of Proceedings

[17] The added third-party was named and served with the application and the various motions in this matter. She retained and appointed counsel to respond to and appear on the motion to freeze her assets. She has not responded to the application.

[18] The Applicant’s counsel advised that she has commenced proceedings in Italy claiming similar relief to that claimed in this motion and the Ontario Application.

The Positions of the Parties

1) The Applicant

[19] The Applicant says that all the property that the Respondent transferred to the added party, whether before or after the parties' separation, is held in trust for her, the Respondent, or both of them. This Court has jurisdiction to grant against the Respondent and added party:

a. a Mareva injunction pursuant to section 101 of the Courts of Justice Act and Rule 40 of the Rules of Civil Procedure, and b. a non-depletion order pursuant to Rule 1(7) of the Family Rules and section 12 of the Family Law Act

to prevent them from transferring, alienating, assigning, mortgaging, encumbering, pledging, disposing of, or otherwise dealing any property of any kind, located in any jurisdiction worldwide, in which property the Respondent or added party may have a direct or indirect, legal or beneficial interest.

[20] The only authority the Respondent relies on is the decision of Kaufman, J in Benarroch v. Abitbol et al, 2017 ONSC 4604.

2) The Respondent

[21] The Respondent was not represented, filed no evidence, and made no submissions.

3) The Added Party

[22] The added party said that she is neither a citizen of Canada nor a resident of Ontario, and she has no assets here. She and all of her assets are resident in Italy. This court has no jurisdiction over her. Further, she says that this is not an appropriate case for a non-depletion order or Mareva. Further, the added party says that the action against her is derivative of the action against the Respondent, and too is stayed by the Respondent’s death.

Result

[23] For the reasons that follow, the Applicant’s motion for a Mareva injunction and a non-depletion order is dismissed.

Analysis

1) Claims against the Respondent

[24] No order can be issued against the Respondent. The action against him is stayed by operation of Rule 11 of the Rules of Civil Procedure.

[25] The translation of the Death Certificate the family obtained from Mexico confirms that the Respondent died on June 29, 2018 of myocardial infarction.

[26] No step has been taken to obtain an Order to Continue against the Estate of the Respondent as required by Rule 11.01. No Will has been probated nor an order made appointing a Trustee of the Estate without a Will. Therefore, there is no legal person to sue. No one has moved to appoint a litigation administrator. Therefore, under Rule 11.01, any proceeding by or against the Respondent is stayed until an Order to Continue the proceeding against the Respondent is obtained.

2) Claims Against the Added Party

[27] The Applicant claims against the added party both a Mareva injunction and a non-dissipation order under section 12 of the Family Law Act to prevent the added party from dissipating assets transferred to her.

[28] In the Benarroch case and those cases cited it, the courts have not drawn a distinction between the Mareva and the Family Law Act non-dissipation order. I will deal with them separately.

a. Freezing Assets Before Judgment - The Basic Principle

[29] As a general rule, Courts should issue orders freezing assets, made before judgment against the owner of those assets, rarely. Such orders are an anathema to a property owner’s right to deal with his or her property as he or she sees fit. They are granted in the rarest of circumstances where the claimant has a reasonable and justiciable cause of action and there is serious risk that the assets will be dissipated in order to avoid judgment and execution.

[30] With respect to a Mareva injunction, the Courts are cautious in granting them. In Aetna Financial Services v Feigelman, [1985] 1 SCR 2, the Supreme Court said at para. 8 that “execution cannot be obtained prior to judgment and judgment cannot be recovered before trial.” The Supreme Court of Canada quoted [Barclay-Johnson v. Yuill, [1980] 3 All E.R. 190](Barclay-Johnson v. Yuill, [1980] 3 All E.R. 190), at 193 (Ch Div), which said:

[T]he court will not grant an injunction to restrain the defendant from parting with his assets so that they may be preserved in case the plaintiff’s claim succeeds. The plaintiff, like other creditors of the defendant, must obtain his judgment and then enforce it. He cannot prevent the defendant from disposing of his assets pendente lite merely because he fears that by the time he obtains judgment in his favour the defendant will have no assets against which the judgment can be enforced. Were the law otherwise, the way would lie open to any claimant to paralyse the activities of any person or firm against whom he makes his claim by obtaining an injunction freezing their assets.

[31] Similarly, with non-dissipation orders under section 12 of the Family Law Act, they too are granted rarely, although more available than a Mareva. In Lasch v. Lasch, [1988] O.J. No. 488, 64 OR (2d) 464 (H.C.J.), the court was concerned with the jurisdiction of the Master to make a non-dissipation order, and the breadth of the order made. The court said:

Under the Family Law Act, 1986, the valuation date is the date of separation and the purpose of an order under s. 12 of the Act is to ensure that there are sufficient assets available to satisfy the equalization payment as of the date of trial.

I would be reluctant, in any case, to make an all-encompassing preservation order as it would prevent a spouse from dealing with his or her assets, and could prevent a spouse from paying support from his or her savings or dealing with his or her assets despite the fact that he or she would be the recipient of the equalization payment.

A restraining order [really, a non-depletion order under the Family Law Act] should be restricted to specific assets and there should be an onus on the party seeking the restraining order to prima facie show that he or she is likely to receive an equalization payment equal to the value of the specific assets.

In this case, Mr. Lasch shall be entitled to use the sum of $68,000 to purchase his new home provided that he gives Canada Trust a collateral second mortgage on his new home similar to the collateral mortgage on the matrimonial home. Further, Mr. Lasch shall be responsible for any future interest payments on the sum of $68,000.

b. Mareva Injunction

[32] For the reasons that follow, the Applicant’s request for a Mareva must fail.

[33] In order for the court to impose a Mareva injunction the party seeking the injunction must satisfy the court of the following things:

a) the plaintiff must also show that he or she has a strong prima facie case; b) the plaintiff must make full and fair disclosure of all material matters within his or her knowledge; c) the plaintiff must give particulars of the claim against the defendant, stating the grounds of the claim, the amount thereof, and the points that could be fairly made against it by the defendant; d) the plaintiff must give the basis for believing that the defendant has assets in the jurisdiction; e) the plaintiff must give grounds for believing that there is a real risk of the assets being removed out of the jurisdiction, or disposed of within the jurisdiction, or otherwise dealt with so that the plaintiff will be unable to satisfy a judgment awarded to him or her; and f) the plaintiff must give an undertaking as to damages.

See: Benarroch, supra; Farah v. Sauvaeau Holdings Inc., 2011 ONSC 1819; [Sibley & Associates v. Ross, (2011) 106 O.R. (3d) 495 (SCJ)](Sibley & Associates v. Ross, (2011) 106 O.R. (3d) 495 (SCJ)); SFC Litigation Trust v. Chan, 2017 ONSC 1815 para. 17 ’ and [Chitel v. Rothbart (1982) O.R. (2d) 513 (CA)](Chitel v. Rothbart (1982) O.R. (2d) 513 (CA)).

[34] The factors outlined above are guidelines for the Court to consider as opposed to rigid criteria each of which must be met before the Mareva will issue. The Court, under Section 101 of the Courts of Justice Act, should ask whether it is just and equitable that a Mareva should issue: see SFC Litigation Trust, supra, para. 22.

[35] This case calls into question items a, b, d, e and f, above.

i. Prima Facie Case and Disclosure (Items a and b):

[36] In this case, the Applicant has made a strong prima facie case that the husband transferred assets both before and after separation, to the added party, although she has not made out any case for the transfer of the whole of the $3.2 million she claimed the Respondent owned or had two years before separation.

[37] The Applicant has also made a strong prima facie case that the Respondent failed to disclose the assets outlined in the Applicant’s affidavit prior to the parties signing the Separation Agreement. Therefore, I conclude that there is a strong prima facie case that the Separation Agreement should be set aside.

ii. Property in the Jurisdiction and Flight of Property (Items d and e).

[38] As indicated above, a Mareva may be granted where the party against whom the Mareva is sought is subject to the jurisdiction of the court personally, or s/he has property within the jurisdiction.

[39] In this case, there is no evidence that the Respondent has any property in the jurisdiction. Indeed, the evidence, such as it is, is that the Respondent was indigent at the end of his life, and perhaps at the time that the application was first brought.

[40] Further, the Applicant has not established that the Respondent was personally subject to the jurisdiction of the Court. The only evidence is that immediately after he signed the Separation Agreement, the Respondent left the jurisdiction to live in Italy, permanently.

[41] As indicated, in order for the Ontario Court to have jurisdiction to grant the Mareva, the person to be subject to the Mareva should have assets in the jurisdiction. The essence of the Mareva is to prevent assets from leaving the jurisdiction.

[42] Those cases cited by the Applicant in support of her position that a world-wide Mareva can be issued ([Oesterlund v. Pursglove [2014] O.J. No. 2313](Oesterlund v. Pursglove [2014] O.J. No. 2313), and Benarroch, supra), are of little assistance. In those cases either the person against whom the Mareva was sought was subject to the jurisdiction of the Court or there were assets in Ontario that were in the process of being moved or were at serious risk of being moved. In the case before this Court, it appears that the assets were already completely dissipated.

iii. Undertaking as to Damages

[43] The Applicant gave no undertaking as to damages. Indeed, the Applicant did not, in her materials, address the Applicant’s undertaking as to damages. Counsel admitted it was her oversight. In any event, she submitted that the undertaking was not necessary. The Applicant says that the court can wave the necessity of the undertaking as to damages. She referred me to, and invited me to look up Ho v. Ho, [2003) O.J. No. 2784. In that case, without analysis, the court held:

The Applicant has not provided an undertaking with regard to damages as the Applicant did not consider this to be injunctive relief. This court has found that the jurisdiction for this relief is injunctive. The Applicant can now provide such an undertaking, but as the court is scaling back the extent of the injunctive relief, such undertaking will not be as serious an issue. On balance, the risk of doing without the order is more significant than the harm of awaiting the undertaking.

[44] In this case, the Applicant specific specifically brought a motion for a Mareva injunction as well as a preserving order under section 12 of the Family Law Act. An undertaking as to damages is normally required. No evidence or authority was provided with respect to whether is appropriate in this case to dispense with the undertaking or whether it is just. In my view, given the breadth of the property to which the Mareva is to attach, an undertaking as to damages is necessary.

iv. The Balance of Convenience

[45] The final criteria for granting a Marina is that the balance of convenience must favour granting the injunction. In this case, the facts do not favour granting the Mareva. The assets over which the injunction is sought are in Italy; there is no evidence to the contrary. The Respondent, regardless of his citizenship, appears to have intended to leave Canada and Ontario, permanently, to join his new partner in Italy. Even though that may have never happened, he never returned to Canada or Ontario before he died.

[46] The only evidence provided on this motion (as distinguished from the Respondent’s position) is that the Respondent gave some of the identified assets to the added party. The added party lives in Italy. There is no evidence or allegation that she owns any property in Ontario. There is no undertaking as to damages to offset these factors. Finally, the Applicant advises that she has commenced proceedings in Italy for the same relief (among others) that is sought in this motion.

c. Family Law Act Non-dissipation Order

[47] The Applicant’s claim for a non-depletion order under section 12 of the Family Law Act, R.S.O. 1990, c. F.3, must also fail.

Section 12 says:

In an application under section 7 or 10, if the court considers it necessary for the protection of the other spouse’s interests under this Part, the court may make an interim or final order,

(a) restraining the depletion of a spouse’s property; and

(b) for the possession, delivering up, safekeeping and preservation of the property. (emphasis added).

[48] There are three reasons why the Applicant’s claim for a non-depletion order must fail.

[49] First, the court does not have jurisdiction under section 12 of the Family Law Act to enjoin the property of strangers to the family law action (see Ho v. Ho, supra, para. 11). The section, itself, clearly states that the non-dissipation order can only be made where “… if the court considers it necessary for the protection of the other spouse’s interests under this part ”, it may make an order “ restraining the depletion of a spouse’s property ”.

[50] Second, while the Applicant submits that the property held by the added party is subject to a trust in favour of the Respondent and/or both spouses, based on the limited evidence before me, some or all of that property was a gift. The Applicant has not made out the case on current evidence (whether arguable or prima facie) that the transfer was for the purpose of defeating her equalization claim or was impressed with a trust.

[51] Third, the non-depletion order is too broad (see: Ho v. Ho, supra). It seeks to restrain all of the Respondent’s and added party’s assets world-wide.

d. Derivative Action

[52] The added party’s argument that the action against her is derivative fails. All of the case law that the added party relies on is in the context of Family Law or Worker’s Compensation actions. In those cases, the courts have held that the right of a family member to claim for death or injury to one person is a right derived from the person’s death or injury. Therefore, the right of action of the family member dies with the injured person, unless preserved by statute. That analysis is irrelevant to the issue of a Mareva or non-depletion order.

e. A Note about the Benarroch Case

[53] The Applicant relies, exclusively, on the decision in the Benarroch case, supra. It is distinguishable.

[54] In Benarroch, the Applicant and Respondent separated. The Applicant claimed to be both a Canadian and Venezuelan citizen but his residence was in Caracas, Venezuela. In his financial statement, he claimed to have either actual or constructive interest in real estate exceeding $5 million. He also claimed debts for personal loans of over $6 million.

[55] The Respondent wife sought preservation and restraining orders and a declaration that the added parties held properties in trust for the Applicant in Venezuela and Florida. Initially, Rogers, J. granted the ex-parte Mareva injunction against the Applicant and the parties then to be added. Property in Florida was specifically enjoined as being held in trust for the Applicant. On the return of the motion on notice, Rowsell, J. confirmed the Mareva but said that a further review could be held once the added parties delivered further evidence.

[56] The added parties resided in Florida and Venezuela. The Respondent added the Florida added parties because she alleged that they held properties in Golden Beach and Aventura, Florida in trust for the Applicant. The Respondent also brought litigation in Florida advancing the same trust allegations as advanced in Ontario. The Florida added parties took the position in the Florida proceedings that while they did not agree with the jurisdiction of the Ontario court over the Florida property, they would honour any order from the Ontario court and would not move in Florida to set it aside.

[57] The Venezuelan added parties were added because the Applicant alleged that they held over $6 million in trust for the Applicant. The Applicant’s position was based, in part, on the fact that the Applicant showed over $6 million as in personal debt as listed on his Financial Statement.

[58] One of the added parties in Venezuela, Mr. Avan, however, took the position that the $6 million was money he loaned to the Applicant and others. It was not held in trust for the Applicant’s benefit. In this respect Mr. Avan had commenced an action against the parties and the added parties in the Superior Court of Justice in Toronto claiming return of the $6 million he loaned, plus interest. Most of these loans were oral, originally, and were demand loans. The loans are eventually resolved into a written contract long after the money was advanced.

[59] In addition, the added parties argued that the court had no jurisdiction over them because they were not residents in Ontario and had no assets here. Therefore, any judgment in Ontario could not be enforced against them.

[60] The Mareva arrived before Kaufman, J., after the added parties filed further evidence.

[61] Kaufman, J. upheld the world-wide Mareva.

[62] He held (at para. 44) that the Applicant had commenced an application in Ontario seeking equalization and claimed that the Respondents and her parents held various property in Ontario in trust for him. The Respondent claimed, inter alia, that the added parties held property situated outside of Ontario in trust for the Applicant and/ or the Applicant and Respondent. He noted that applications were commenced in Florida with respect to the Florida resident added parties.

[63] Kaufman, J. commented (at para. 47) that he did not want the Canadian justice system to be used in a manner not available in strictly domestic litigation. He said it was necessary to incorporate flexibility and infuse equity in situations such as this. In applying the test for a Mareva injunction, Kaufman, J. noted that the added parties in Florida had agreed that there were parallel proceedings in Florida and that they would not contest in Florida any finding made in Ontario. Further, he agreed with the Respondent’s claim that the property in Florida and Venezuela was held in trust by the added parties either for her and/or the Applicant, and that no substantial evidence in response was offered by the added parties. He found that there was a real and substantial connection between the disputed assets in Florida and Venezuela to Ontario because they were allegedly being held by the moving parties as trustees in the ongoing litigation. He was satisfied that there was property within the jurisdiction which might leave the jurisdiction.

[64] Benarroch is of little assistance to the Applicant. I say this for the following reasons:

a) In Benarroch, Kaufman J. accepted that there was evidence to support a finding of the trust which the added parties failed to rebut. In this case, while the Applicant argues that the property was transferred from the Respondent to the added party and is impressed with the trust, to the extent they have any evidence about the Respondent animus in transferring property to the added party, that evidence is the transfer was a gift (see, for example Applicant’s affidavit April 12, 2018, para. 14 F, G, para. 22). All other statements in the affidavits with respect to property being taken in order to complete family assets and escape equalization are statements of position, not statements of fact. b) In Benarroch, the Applicant had property located within Ontario. In this case, it appears that by the time that the application was commenced, and certainly by the time the Mareva was sought, the Respondent had no assets remaining in Ontario at risk of moving out, as all of the Respondent’s and added parties' assets were outside Canada. c) In Benarroch, only some assets had been removed from the jurisdiction and/or were in the process of being moved. In this case, all of the Applicant’s assets had already been moved. There was no evidence that the Respondent or the added party had any assets within the jurisdiction. d) In Benarroch, the Court had personal jurisdiction over the Applicant. He had attorned to the jurisdiction by commencing an application here, as had some of the added parties because of litigation ongoing in Ontario. In this case, the Respondent is dead and the action against him, stayed. There is no evidence that the added party has assets in, or any connection to Ontario that would allow Ontario to assert personal jurisdiction over her. e) In Benarroch, there was litigation in Ontario involving all of the added parties concerning the assets which the Respondent alleged was held in trust for the Applicant and/or her. In this case, the added party has not commenced any action in Ontario. The Applicant, however, has commenced an action against the added party in Italy, for similar relief. f) In Benarroch, the Florida added parties agreed in the Florida action that they would not oppose any order issued in Ontario. In this case, there is no such undertaking by the added party. g) In Benarroch (para. 40), Justice Kaufman said that “… it would be unconscionable, unfair and inequitable to allow the husband to systematically stripped his assets out of the reach of the wife to some offshore jurisdiction that would not obey any court order issued elsewhere.” There is no evidence in front of me that the court in Italy would not obey any court order issued elsewhere.

Costs

[65] The added party, having been successful, is presumed entitled to costs. I will decide the matter as to who pays costs to whom and in what amount, in writing. Submissions are limited to three double spaced pages, excluding offers and bills of costs. The added parties submissions are to be served and filed by 4:00 p.m. 17 August, 2018 and the Applicant’s responding submissions by 4:00 p.m. 31 August, 2018.

Trimble, J. Date: July 26, 2018