Court File and Parties

COURT FILE NO.: CV-17-1665 MOTION HEARD: 20190502 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: The Regional Municipality of Halton, Plaintiff AND: Nicolas Rewa, Marion Rewa et al., Defendants

BEFORE: Master J. E. Mills

COUNSEL: R. Cuervo-Lorens, Talia Gordner and Meghan Lawson, Counsel, for the Plaintiff M. Polley, Counsel, for the Defendant Marion Rewa and appearing on behalf of Jonathan Rewa M. Wilton, Counsel, for the Defendant Nicolas Rewa

HEARD: May 2, 2019

Reasons for Decision

[1] The plaintiff seeks an order to compel the sale of assets pursuant to Rule 45.01 and Rule 45.02 of the Rules of Civil Procedure. For the reasons that follow, the motion is denied.

Background

[2] This litigation involves serious allegations of fraud and the alleged theft of substantial taxpayer funds. The defendant Nicolas Rewa (“Nicolas”) has pled guilty to criminal charges with an Agreed Statement of Facts wherein he admitted to having engaged in a fraudulent scheme while employed by the plaintiff.

[3] Nicolas admitted receiving in excess of $2,000,000 in fraudulently obtained benefits, both financial and material, which were admitted to have been used to build a substantial renovation to the home he shared with his former wife, the defendant Marion Rewa (now Marion Walker, “Marion”) located at 1259 Mississauga Road (the “Property”), and to purchase various motor vehicles. As part of his criminal plea agreement, Nicolas agreed to forfeit $2,025,000 following the sale of the Property. Restitution and Forfeiture Orders were made to this effect as part of the sentencing conditions imposed with his guilty plea.

[4] For several years, the Property has been registered in Marion’s name alone. Nicolas transferred ownership to Marion on March 13, 2002 purportedly on the advice of an accountant. The transfer occurred prior to the commencement of the fraudulent activity to which Nicolas pled guilty. It was accepted by the Crown that Marion had no knowledge of the fraudulent activities of her former husband, and all criminal charges against her were withdrawn. [1] Marion consented to the terms of the Forfeiture and Restitution Orders. A Certificate of Pending Litigation (“CPL”) was registered against the Property. The plaintiff is to be paid $2,025,000 in restitution from the proceeds following the sale of the Property. The Forfeiture and Restitution Orders do not address the timing of any sale.

[5] Nicolas also purchased rural land on Osprey Heights Rd. in Singhampton, Ontario (“Osprey Heights”) on March 7, 2017 for $146,000. One month later, on April 6, 2017, Nicolas transferred ownership of Osprey Heights to his then 18 year old son Jonathan Rewa (“Jonathan”) for consideration of $2.00. Nicolas was arrested and criminally charged five days later, on April 11, 2017. The plaintiff alleges the transfer constitutes a fraudulent conveyance. Jonathan has provided an undertaking not to encumber, dispose of, or convey the property.

[6] Osprey Heights is not subject to the preservation order issued April 10, 2017 (the “Preservation Order”) and the various continuation orders dated April 13, 2017, May 17, 2017, June 30, 2017, August 21, 2017, October 23, 2017, January 11, 2018, April 5, 2018 and July 4, 2018 (the “Continuation Orders”). Osprey Heights is referenced in the preamble of the April 13, 2017 Continuation Order, but it is not the subject of any injunction or mandatory order as to its preservation. Osprey Heights is protected and preserved by virtue of Jonathan’s undertaking having been registered on title.

[7] Jonathan is not a defendant to this action and no separate civil proceedings have been initiated against him by the plaintiff to set aside the transfer of Osprey Heights. Jonathan was provided notice of this motion as a person who would be affected by the order sought, and he appeared through Marion’s counsel.

[8] A number of motor vehicles, including luxury cars, snowmobiles, watercraft and trailers (collectively the “Vehicles”), were seized and continue to be held in storage under the terms of the Preservation Order and the Continuation Orders which both provide the Vehicles are to be under the custody and control of the plaintiff. The Vehicles are all owned by either Nicolas or Marion. The plaintiff is incurring ongoing storage fees in respect of the Vehicles and alleges the overall valuation of the Vehicles is declining with the passage of time.

[9] The plaintiff submits the Property, Osprey Heights and the Vehicles (collectively the “Assets”) ought to be disposed of at this time. If sold, the plaintiff would receive the first $2,025,000 in accordance with, and in satisfaction of, the Restitution Order. The plaintiff seeks an order to have the balance of any proceeds paid into court pending a final determination of the claims asserted in this action.

Jurisdiction of a Master

[10] Marion raises a preliminary objection with respect to jurisdiction. It is submitted the relief sought by the plaintiff on this motion is outside of the jurisdiction conveyed on a master by Rule 37.02(2) subrules (a), (b), (c), and (e) which provide as follows:

A master has jurisdiction to hear any motion in a proceeding, and has all the jurisdiction of a judge in respect of a motion, except a motion,

(a) where the power to grant the relief sought is conferred expressly on a judge by a statute or rule;

(b) to set aside, vary or amend an order of a judge;

(c) to abridge or extend a time prescribed by an order that a master could not have made; … and

(e) relating to the liberty of the subject.

[11] In its Amended Amended Notice of Motion (the “Notice of Motion”), the plaintiff seeks an order under Rule 45 to permit ongoing inspections of the Property upon 48 hours’ notice and to order the sale of the Property with the net proceeds (after payment of the restitution order) paid into court, as well as an order to compel the sale of the Vehicles and for the sale of Osprey Heights with the full proceeds paid into court.

[12] Rule 45 provides:

45.01(1) The court may make an interim order for the custody or preservation of any property in question in a proceeding or relevant to an issue in a proceeding, and for that purpose may authorize entry on or into any property in the possession of a party or of a person not a party.

45.01(2) Where the property is of a perishable nature or likely to deteriorate or for any other reason ought to be sold, the court may order its sale in such manner and on such terms as are just.

45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.

[13] The plaintiff seeks the sale of the Assets on the basis their values may deteriorate and, based on the allegations in the Statement of Claim and the Agreed Statement of Facts submitted on Nicolas’ guilty plea, it is appropriate to order their sale under the “any other reason” ground of Rule 45.01(2). It is conceded that none of the Assets are perishable but the plaintiff alleges their valuations may deteriorate with the vagaries of the real estate market and having regard to Marion’s personal financial circumstances.

[14] Once the Assets are sold and the Restitution Order is satisfied, the plaintiff submits the balance of the sale proceeds would constitute a “specific fund” to which Rule 45.02 would apply, warranting a payment of the sale proceeds into court pending a trial or other resolution of the action.

[15] Rule 45 provides for the interim preservation of property. By doing so, it may seriously interfere with a defendant’s assets and affairs. It is not intended to facilitate the execution of judgment before the trial of an action. [2]

[16] The jurisdiction of a master to grant orders pursuant to Rule 45.01 is circumscribed by Rule 32.02(2)(a), Rule 40.01 and section 101(1) of the Courts of Justice Act [3] which reserves to judges the jurisdiction to grant interlocutory injunctions and mandatory orders. As a result, the jurisdiction of the master under Rule 45.01 must be determined on a case-by-case basis, taking into account the nature of the relief sought and the effect it would have upon those who would be subject to the order. [4]

[17] The Rule provides for an extreme remedy. The court’s jurisdiction and its discretion under Rule 45 must be exercised with caution, and an order ought to be granted only in exceptional circumstances. I would adopt the cautionary language of G.P. Smith, J. in Stearns v. Scocchia [5]:

Because of the extreme nature of a rule 45.02 order and/or a Mareva injunction, they are remedies that should be available only when it is necessary to balance the interests of the plaintiff and defendant. Both orders maintain the status quo until trial in a way that is fair to both the plaintiff and defendant and must not place the interests of the plaintiff before those of the defendant. Such orders are not merely procedural in nature and should be granted only in exceptional circumstances because they have potential to injure a defendant before the plaintiff has proven its case at trial. … In short, such an order can appreciably tilt the scales in favour of a plaintiff on the basis of unproven allegations. Judicial discretion is therefore to be carefully exercised when considering a rule 45 order or the granting of a Mareva injunction given the severe prejudicial consequences that can result.

[18] A Mareva injunction was granted by Miller, J. resulting in the Preservation Order and the subsequent Continuation Orders. These Orders continue in full force and effect with respect to the Property and the Vehicles until such date as ordered by the Court or as agreed upon by the parties. The interests of the parties have been balanced and the status quo has been preserved.

[19] The defendants submit that to order a sale of the Property and the Vehicles would amount to setting aside, varying or amending the Preservation Order and the Continuation Order, as well as the Forfeiture and Restitution Orders.

Analysis and Reasons

[20] The Forfeiture and Restitution Orders are not amended or varied in any respect by the relief sought. Both orders are silent as to the timing of a sale of the Property. The orders simply address the requirement of a payment to the plaintiff upon the sale of the Property. Those terms remain unchanged. Any order made to compel a sale would complement or supplement the Restitution and Forfeiture Orders, as opposed to amending or varying either order.

[21] The Preservation Order and the subsequent Continuation Orders restrain the defendants from directly or indirectly disposing of, dealing with, or diminishing the value of the identified assets. The relief sought on this motion requires Nicolas and Marion to dispose of the Property and the Vehicles, albeit at the direction of the Court. It is no answer to say that a third party as opposed to Nicolas and Marion would be selling the Property and the Vehicles. The effect would be to compel a sale of assets that are subject to the Preservation and Continuation Orders. Such an order would effectively set aside or vary the Preservation and Continuation Orders.

[22] As these Orders were granted by a judge, absent the agreement of all parties, I do not have jurisdiction to make an order that would effectively bring an end to the Preservation and Continuation Orders with the forced liquidation of the Property and the Vehicles, both of which are subject to these orders.

[23] The relief sought is certainly not barred by the Preservation and Continuation Orders, but I am of the view that it is not within my jurisdiction as a master to grant such relief in the face of a judge’s order to preserve the Property and the Vehicles pending further order or agreement of the parties.

[24] If I am wrong in declining jurisdiction, I would not have granted the relief sought in any event. To now order the sale of the assets subject to the Preservation Order would appreciably tilt the scales in favour of the plaintiff in this matter, certainly to the prejudice of Nicolas and Marion. The Preservation Order and Jonathan’s undertaking provide for the interim preservation of the Assets pending trial, thereby adequately protecting any interest the plaintiff may have in the Assets.

[25] The Property is subject to a CPL and the equity is adequately protected for the duration of the litigation. The allegation of a decline in the luxury real estate market is entirely speculative and subject to change at any time, both for the positive and the negative. Further, it is not for the plaintiff to pass judgment on whether Marion can afford to keep and maintain the Property based on her current income and financial circumstances. There is no evidence to suggest the property is in a state of demise or disrepair. The unfinished construction and landscaping existed at the time the Preservation Order was granted. They are not causing the Property to deteriorate or depreciate in value. At the hearing of this motion, counsel advised the property taxes have now been paid.

[26] The plaintiff submitted post hearing fresh evidence (without leave of the court and without the consent of the defendants) to advise of a mortgagee threatening to commence enforcement proceedings as a result of an alleged default in the terms of a mortgage in respect of the Property. This evidence does not alter the status quo between the parties as any rights or interest the plaintiff may have to the Property would be subordinate in any event to a secured interest duly registered on title prior to the transfer to Marion, prior to the alleged fraud, and prior to the granting of the Preservation Order.

[27] The Property is subject to a $300,000 charge, registered in favour of National Bank on January 30, 1997. The plaintiff erroneously believed the mortgage had been discharged. The Parcel Register for the Property (Exhibit 34 to the affidavit of Talia Gordner) confirms the mortgage was duly registered on title from January 30, 1997 with a postponement to The Corporation of the City of Mississauga on July 29, 2004 in respect of an easement granted to the city. The mortgage was then discharged on June 6, 2006 but only with respect to the land comprising the easement. The mortgage remained in full force and effect for the balance of the Property. If the mortgage is now in default, National Bank is well within its rights to exercise enforcement proceedings. This fact does not amount to a deterioration of the Property warranting a forced and immediate sale.

[28] The plaintiff also seeks an order to sell the Vehicles due to their depreciating value and the ongoing storage and insurance expenses. I accept it is generally understood that motor vehicles will typically depreciate as they age. That fact was known to the plaintiff at the time the preservation order was obtained on July 4, 2018 in respect of the Vehicles. The ongoing storage costs is a concern but it is an expense the plaintiff agreed to incur when it took custody and control of the Vehicles. It is the cost for the preservation of the Vehicles pending litigation and is an expense that can be added to any judgment obtained in due course.

[29] As noted above, the status quo and interim preservation of Osprey Heights was effected with Jonathan’s undertaking. Osprey Heights is not subject to the Preservation or Continuation Orders. There is no suggestion in any of the evidence before me that Jonathan has taken any steps to breach his undertaking.

[30] The plaintiff references the Fraudulent Conveyances Act [6] in the Notice of Motion, but does not seek an order to set aside or otherwise void the transfer of Osprey Heights to Jonathan. The plaintiff states the transfer was a fraudulent conveyance and should be voided as a result. The Notice of Motion seeks only to sell the property and pay the proceeds into court pending a final determination of the action against Nicolas and Marion, without regard to any claim Jonathan may assert to the land.

[31] It is submitted the relief sought with respect to Osprey Heights amounts to a mandatory order which, by s. 101(1) of the Courts of Justice Act, is solely within the jurisdiction and at the discretion of a judge.

[32] The plaintiff relies on Scalamogna v. DiToro [7] in support of the proposition that it is within the jurisdiction of a master under Rule 45.01 to make interim preservation orders respecting real property. That case is distinguishable on the basis the interim order was to preserve the status quo pending the hearing of a motion for a certificate of pending litigation which is a motion clearly within the jurisdiction of a master. It was not to compel the disposition of real property of a non-party pending trial.

[33] The fraudulent conveyance allegations are unproven and the effect of compelling a sale of the land under Rule 45.01(2) would amount to a mandatory order that is injunctive in nature. The practical effect would be to impose an injunction upon Jonathan, restraining him from dealing with his property and divesting him of his ownership. That relief is within the exclusive jurisdiction of a judge.

[34] As a result, I find that I do not have jurisdiction to make an order under Rule 45.01 with respect to Osprey Heights. If however I am wrong in this conclusion, I would not exercise my discretion to do so in any event.

[35] There is no evidence before me to support an inference the equity in the property is diminishing or that the vacant land is deteriorating. With respect to Osprey Heights, to compel a sale at this time would amount to the enforcement of a judgment not yet obtained in respect of an action not even commenced. The balance of convenience favours Jonathan.

[36] The potential injury to Jonathan in the loss of his property would be significant. He is entitled to procedural fairness and the right to defend against any allegations of fraudulent conveyance. The plaintiff’s Fresh as Amended Statement of Claim dated April 10, 2017 does not assert a claim for fraudulent conveyance and the plaintiff has not commenced an action against Jonathan. As the transferee of the property, Jonathan is a necessary party to any claim of fraudulent conveyance which seeks to divest his interest in Osprey Heights. [8]

[37] A proper claim alleging a fraudulent conveyance must first be asserted against Nicolas and Jonathan, and they must be provided the opportunity to defend against the allegation. The plaintiff cannot simply make the statement that the transfer constitutes a fraudulent conveyance as though it were a proven fact in support of the Rule 45.01(2) motion to compel a sale of Osprey Heights. It is an entirely improper procedure by which to divest Jonathan of his ownership interest in the land.

[38] I further conclude that Rule 45.02 has no application to this matter as there presently exists no specific fund readily available to which the plaintiff may claim a right. [9] The plaintiff must assert a legal right to the specific fund in the litigation before being entitled to the protections offered by Rule 45.02.

[39] There is no specific fund in existence at this time to which the plaintiff may assert a claim. Rather, the net proceeds of sale from the Assets are intended to create the specific fund over which the plaintiff will assert a claim. This is not the intention or purpose of the rule. Had the property already been sold by Marion, there may have been a specific fund over which the plaintiff could assert a claim and Rule 45.02 could then have been relied upon to protect that claim [10] however, those are not the facts of this case. Marion has not sold the property and there exists no specific fund to protect or preserve.

[40] The plaintiff has failed to meet the first requirement of the rule and therefore, it is not necessary for me to consider the remaining requirements of there being a serious issue to be tried regarding the plaintiff’s claim to the fund, and an assessment as to the balance of convenience. The protections offered by Rule 45.02 are not available to the plaintiff in the circumstances of this matter.

[41] The motion is dismissed.

[42] Having been successful on this motion, the defendants and Jonathan are entitled to their costs on a partial indemnity basis. If the parties are unable to agree as to quantum, brief written submissions not exceeding two pages with a Costs Outline may be submitted within thirty days of the release of these Reasons.

Master J. E. Mills Date: June 25, 2019

Footnotes

[1] The plaintiff admits that at this early stage of the litigation, it has no evidence of Marion’s involvement with the fraud to which Nicolas pled guilty however, the plaintiff does not concede Marion had no knowledge. The investigation is ongoing.

[2] Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475, at para. 17

[3] R.S.O. 1990, c. C. 43

[4] Treaty Group Inc. v. Simpson, 1999 CarswellOnt 535, at para.6.

[5] [2002] O.J. No. 4244 as quoted by Patillo, J. in American Axle & Manufacturing, Inc. v. Durable Release Coaters Limited, 2007 CarswellOnt 3444.

[6] R.S.O. 1990, c. F.29

[7] 2015 ONSC 4931, at para. 18.

[8] P. Perell, “A Pragmatic Approach to Fraudulent Conveyances”, in The Advocates’ Quarterly (2005: 30 Advoc. Q. 373), at pp. 385-386.

[9] Sadie Moranis Ralty Corp. v. 1667038 Ontario Inc., supra. at paras. 18 and 19, quoting from News Canada Marketing Inc. v. TD Evergreen, [2000] O.J. No. 3705 (Ont. S.C.J.).

[10] Oriental Garden Chinese & Vietnamese Restaurant Inc. et al. v. Nguyen, 2018 ONSC 7538