COURT FILE NO. 142/18
DATE: 20200330
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Leeroy Christian-Philip and Anusha Kanagasabai
Plaintiffs
– and –
Varatharajan Rajalingam, Kosalai Annalingam, and Max Crossroads Realty Incorporated
Defendants
Gerald Matlofsky, for the plaintiff
Stephanie Turnham, for the defendants Rajalingam and Annalingam
Heard: February 6, 2020
S.T. BALE J.:
REASONS FOR DECISION
[1] On a motion without notice, the plaintiffs obtained an interim Mareva injunction restraining the defendants Rajalingam and Annalingam[^1] from dissipating, transferring or encumbering their assets. On a motion with notice to continue the injunction, I reduced the scope of the affected assets, but otherwise reserved judgment. The plaintiffs have also moved for an order for security for costs, and subsequent to the hearing of the two motions, they moved for an order permitting them to file fresh evidence.
[2] For the following reasons, the injunction will be continued, but both the motion for the filing of fresh evidence and the motion for security for costs will be dismissed.
Background facts
[3] The plaintiffs, as vendors, and the defendants, as purchasers, entered into an agreement of purchase and sale dated April 4, 2017, with respect to 121 Woodview Drive, Pickering. The sale price was $2,500,000, and the agreement was to be completed on July 26, 2017.
[4] The agreement was conditional upon financing, a home inspection, and approval of the terms of the agreement by the purchasers’ solicitor. On April 13, 2017, the purchasers waived those conditions.
[5] On July 24, 2017, the purchasers requested an extension of the closing date to August 4, 2017. Their request was denied, and on July 26, 2017, they failed to complete the agreement.
[6] On January 22, 2018, Rajalingam and Annalingam commenced an action against Christian-Philip and Kanagasabai. The basis of their claim was that they had entered into the agreement of purchase and sale in reliance on misrepresentations made by Christian-Philip, Kanagasabai and their real estate agent. On February 2, 2018, Christian-Philip and Kanagasabai commenced this action against Rajalingam and Annalingam, based upon their failure to complete the agreement. The two actions were later ordered to be tried together, or one after the other, as the trial judge may direct.
[7] On a motion without notice heard on January 27, 2020, the plaintiffs obtained an interim Mareva injunction. The injunction covered all the defendants’ property. It was registered against the title to two properties owned by Rajalingam and froze the defendants’ bank accounts at Royal Bank of Canada. The order put in jeopardy the closing of a sale of a restaurant, potentially exposing the defendants to litigation, and the freezing of the bank accounts caused automatic debits to be dishonoured. On a motion to continue the injunction heard on February 6, 2020, I reduced the scope of the injunction to cover the real estate, only, without opposition from the plaintiffs.
Analysis
[8] In RJR-MacDonald v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, the court articulated a three-part test for obtaining an interlocutory injunction: (1) whether the plaintiff has presented a serious issue to be tried, or in some cases, a strong prima facie case; (2) whether the plaintiff will suffer irreparable harm if the injunction is not granted; and (3) whether the balance of convenience favours the granting or refusing to grant the injunction.
[9] The test to obtain a Mareva injunction includes several additional factors: the plaintiff must establish: (1) a strong prima facie case; (2) that the defendant has assets in the jurisdiction; (3) that there is a serious risk that the defendant will remove property or dissipate assets before judgment; (4) that the plaintiff will suffer irreparable harm if the injunction is not granted; and (5) that the balance of convenience favours granting the injunction.
[10] The three-part test in RJR-MacDonald is a wholistic set of factors and not three separate and distinct requirements. The three factors relate to each other, and strength on one part of the test ought to be permitted to compensate for weakness on another: Bell Canada v. Rogers Communications, 2009 39481 (ON SC), [2009] O.J. No. 3161 (S.C.J.), at para. 39. In my view, the same wholistic approach is required in the Mareva context where the test includes the additional factors noted above.
Strong prima facie case
[11] The plaintiffs have established a strong prima facie case.
[12] The defendants’ position is that they were induced to enter into the agreement of purchase and sale by misrepresentations made by the plaintiffs’ agent with respect to the value of the property, that the misrepresentations were made in the course of the agent’s employment, and that the plaintiffs are therefore liable for those misrepresentations.[^2]
[13] However, the alleged misrepresentations were made prior to or during the negotiations resulting in the agreement of purchase and sale, and the agreement contained an “entire agreement” clause, the effect of which is to exclude representations made prior to the signing of the agreement.
[14] I also note that the defendants did not provide any evidence in support of their defence, other than to say that they stand by the facts set out in their pleadings.
Assets in the jurisdiction
[15] The defendants have assets in Ontario.
Serious risk that the defendants will remove property or dissipate assets before judgment
[16] A Mareva injunction should issue only if it is shown that the defendant’s purpose in dissipating assets, or removing them from the jurisdiction, is to avoid judgment.
[17] This requirement may be established by inference, as opposed to direct evidence. It is sufficient to show that all the circumstances demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff: Sibley & Associates LP v. Ross, 2011 ONSC 2951, at para. 63.
[18] Evidence of prior fraudulent conduct may support a reasonable inference that there is a real risk that the conduct will continue: Sibley, at para. 64.
[19] The plaintiffs argue that a real risk that the defendants will attempt to dissipate or hide their assets may be inferred from a pattern of asset disposition in the period subsequent to the defendants’ failure to complete the agreement.
[20] Prior to the aborted sale, the defendants owned six properties which I will refer to as Walker, 455 Sheppard, Westgate, Rouge Valley, Tywn River and 622 Sheppard. Four of those properties have since been sold, each for a substantial profit.
[21] Walker had been purchased by Rajalingam in June 2015. He listed it for sale on July 24, 2017 and sold it on October 11, 2017. According to the parcel register, the purchaser mortgaged the property for a sum greater than the sale price. The plaintiffs submit that I should conclude that the sale price was actually higher than the amount shown, that the defendants had attempted to keep the true proceeds of sale secret in order to impede their ability to satisfy a judgment, and that the defendants had obtained a “hidden payment”. This is mere conjecture. There are any number of possible explanations for what appears to be a discrepancy between the sale price and mortgage amount, including the possibility that the purchasers gave further security for the loan.
[22] Four fifty-five Sheppard had been purchased by Rajalingam in November 2016. He listed it for sale on August 3, 2018 and sold it on September 28, 2018.
[23] Annalingam purchased Westgate in December 2015 and sold it in January 2019. She says that a portion of the proceeds of this and other sales was used both to discharge their mortgages on 622 Sheppard and to invest in her restaurant business.
[24] Annalingam purchased Rouge Valley in June 2015 and sold it on May 30, 2019. It was a private sale. The plaintiffs argue that the sale was done privately in order that they would not be aware that she was liquidating her assets and suggest that the defendants may intend to sell other properties by private sale in order to liquidate assets without their knowledge. This again is mere conjecture.
[25] Rajalingam continues to own Twyn River. It is the defendants’ home and he swears that he has no intention of selling it. Similarly, he continues to own 622 Sheppard. It is currently rented and he swears that he has no intention of selling it. He has provided the plaintiffs with a written undertaking not to sell or further encumber the properties pending the final disposition of the action.
[26] Rajalingam incorporated 2407058 Ontario Inc. in February 2014 and in March 2014, the corporation registered the business name “Black Bear Pub & Grill”. In September 2017, the records filed with the Ministry of Government and Consumer Services were changed to show Annalingam’s brother as the principal of the corporation, and in October 2017, the business name used by the corporation was changed to “King’s Castle Bar and Grill”. The plaintiffs suggest that there was something suspicious about the transfer of the corporation to her brother. However, as explained by Rajalingam, after he was charged with trafficking cocaine at the restaurant, the liquor licence prohibited him from being there. The charges were later withdrawn, but on condition that he continue to stay away from the premises.
[27] In February 2018, Annalingam incorporated 2619030 Ontario Inc. and in August 2018, the corporation registered the business name “Queen’s Castle Restaurant and Bar. The plaintiffs say that they believe that some or all the proceeds of sale of Westgate were transferred on a non-arm’s length basis to 2619030 Ontario Inc., in whole or in part to put them beyond the reach of a judgment. However, there is nothing wrong with investing one’s own money in a corporation by which one carries on a business. And the suggestion that it was done in order to defeat any judgment obtained by the plaintiffs is again mere conjecture.
[28] Queen’s Castle Restaurant and Bar was sold on February 14, 2020. Notwithstanding that the restaurant was listed and sold through a business broker, the plaintiffs speculate that the actual sale price exceeded the reported sale price. Annalingam’s explanation for the sale is that the restaurant was losing money and that the sale was not for the purpose of defeating creditors.
[29] In March 2010, Rajalingam was convicted of defrauding CIBC, RBC, TD and Sears Financial of a total of $13,041, and received a one-year conditional sentence. In September 2017, Rajalingam was charged with five counts of trafficking cocaine and three counts of possessing proceeds of property knowing that they had been obtained by the commission of an indictable offence. In March 2018, the charges were stayed. The plaintiffs say that as a result of the fraud conviction and the drug charges they believe that “Rajalingam and Kosalai have the knowledge, experience and proclivity to fraudulently convey assets and to make any judgment that my wife and I may obtain against them of no practical value.” I agree that the fraud conviction shows that Rajalingam is capable of dishonesty; however, I must take into consideration the fact that it was ten years ago. The stayed drug charges are not relevant.
[30] When one looks past the conjecture and speculation in which the plaintiffs have engaged, what one is left with is the sale of four properties following the scheduled closing of the aborted transaction, the transfer of a restaurant business to a relative for nominal value, the sale of a restaurant business which the defendants say was unprofitable, and an unrelated and dated conviction of one of the defendants for fraud.
[31] Although the defendants deny that the sales of the properties were for the purpose of putting assets out of the reach of the plaintiffs, they offer no explanation to rebut any inferences which may be drawn from the timeline.
[32] Whether, based upon this evidence, the risk of removal or dissipation of assets is sufficient to establish “serious risk” will depend upon a consideration of this evidence in the context of the other elements of the test.
Irreparable harm
[33] Irreparable harm is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other: Bell Canada v. Rogers Communications Inc., 2009 39481 (ON SC), [2009] O.J. No. 3161 (S.C.J.), at para. 31. The probability of irreparable harm increases as the probability of recovering damages decreases: HTS Engineering Ltd. v. Marwah, [2019] ONSC 6351, at para. 200.
[34] In the absence of any evidence of a means to satisfy a judgment if the assets identified by the plaintiffs were removed from the jurisdiction or dissipated, it appears that the plaintiffs would suffer irreparable harm if they obtain judgment and those assets were removed or dissipated.
Balance of convenience
[35] The remaining two assets subject to the injunction are the defendants’ home and the Sheppard rental property. The defendants have sworn that they have no intention of selling those properties pending final disposition of this action and have undertaken not to do so. If the defendants do not intend to sell the properties, a continuation of the injunction will not be a cause of inconvenience. The balance of convenience therefore favours the plaintiffs.
Failure to make full disclosure
[36] A Mareva injunction may be set side for failure to disclose all material facts on a motion without notice. Material facts are those that the judge may need to arrive at a decision, nondisclosure of which may affect the outcome: Girsberger v. Kresz, [1998] O.J. No. 911 (Ont. Ct. Gen. Div.), at para. 29; 02 Electronics Inc. v. Sualim, 2014 ONSC 5050, at pars. 71-75.
[37] The defendants argue that the plaintiffs failed to disclose material facts on their motion without notice. They say that the plaintiffs should have disclosed that there were four meetings between the parties prior to the one in which Christian-Philip alleges that Rajalingam made certain admissions, and that they should have disclosed that the lawyer whom they allege had advised the defendants to dissipate their assets was an acquaintance of Christian-Philip. I disagree. I do not see how the fact that the parties had had prior meetings would affect the ex parte motion judge’s consideration. And the fact that the lawyer said to be advising the defendants was an acquaintance of Christian-Philip would be material if the information was said to have come from him, but here, the information was said to have come from Rajalingam himself.
[38] The defendants argue that the plaintiffs should have disclosed that Rajalingam attended the meeting alone, at the request of Christian-Philip, notwithstanding that Annalingam had attended the prior meetings. Again, I do not see how that would have affected the ex parte motion judge’s consideration.
[39] The defendants also argue that in giving his undertaking as to damages, Christian-Philip should have disclosed that he is insolvent. However, the evidence upon which they rely is simply evidence that the plaintiffs have been having a hard time financially since the aborted transaction, with no consideration of the assets that they may have to support the undertaking.
Decision on motion to continue the injunction
[40] Taking the required wholistic approach to the consideration of the evidence relating to each step of the test, I have decided that the interim order I made on February 6, 2020 will be continued, pending final disposition of the action or further order of the court.
Motion to receive fresh evidence
[41] This injunction motion was first made, without notice, on January 24, 2020, at which time Corkery J. adjourned it to February 6, 2020, to be brought on notice. Following the hearing, Christian-Philip arranged to meet with Rajalingam the next day. He then swore a supplementary affidavit in which he attributed a number of admissions to Rajalingam. Counsel then appeared before Corkery J. a second time, again on a without notice basis, and the interim injunction was granted.
[42] In the defendants’ responding materials, Rajalingam denied having made the admissions attributed to him by Christian-Philip. He said that the meeting was just one of a number of meetings in which settlement was discussed. In the result, when I reserved judgment on February 6, 2020, I was left with contradictory evidence on the issue of whether Rajalingam had made the admissions attributed to him.
[43] On February 10, 2020, while my judgment remained under reserve, I received a letter from counsel for the plaintiffs enclosing an affidavit sworn by Christian-Philip to which was attached a transcript purporting to be a translation and transcription of the meeting held on January 25 (apparently the conversation had been in the Tamil language). In the letter, counsel asked that I consider the transcript as a “further submission”. I declined to do so and referred him to paragraphs 36 and 62 of the Principles of Civility for Advocates published by The Advocates’ Society.[^3]
[44] The plaintiffs then moved for an order permitting the transcript to be filed. I heard the motion on March 11, 2020 and reserved my decision. For the following reasons, the motion is dismissed.
[45] Until judgment is entered, a judge has the discretion to reopen the case after the conclusion of evidence in order to admit further evidence. The overriding consideration is that a miscarriage of justice must be avoided. There is a two-part test: first, would the evidence, if presented at trial, probably have changed the result; and second, could the evidence have been obtained before trial by the exercise of reasonable diligence: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, at para. 20; Scott v. Cook, 1970 331 (ON SC), [1970] 2 O.R. 769 (H.C.J.).
[46] On February 6, 2020, I began by asking counsel for the plaintiffs whether he would be requesting an adjournment to allow cross-examinations or whether he intended that the motion be argued on a final basis. He replied that his intention was to argue the motion on a final basis. Counsel for the defendants was content to proceed in that fashion, and we did.
[47] The first that it was made known to me that there was a recording of the January 25, 2020 meeting was when I received counsel’s letter of February 10 enclosing a copy of the transcript. As I understand it, this was also the first that counsel for the defendants had heard of it.
[48] The meeting was approximately one hour in length. However, the transcript produced by the plaintiffs covers only 22 minutes and 50 seconds. Christian-Philip says that he commenced the recording part way through the meeting.
[49] With respect to the first part of the test, the transcript, when considered in the context of all the evidence presented on the motion, would not have affected my disposition of the motion. Although some of the conversation could be interpreted in the way the plaintiffs suggest, it is difficult to comprehend, appears to contain many gaps, and as previously indicated, covers less than half the conversation.
[50] With respect to the second part of the test, counsel for the plaintiffs argues that the transcript could not have been obtained before the hearing of the motion, by the exercise of reasonable diligence, because it had not then been prepared. I disagree. The defendants knew that they had a recording of at least a part of the meeting. Had they thought that the recording was important to my decision, they could have requested an adjournment for the purpose of obtaining a translation, particularly when they were invited to make such a request. Instead, they failed to disclose the existence of the recording and proceeded with the hearing of the motion.
Security for costs
[51] Christian-Philip and Kanagasabai move for an order for security for costs in the action in which they are defendants. The motion is dismissed. The order that the two actions be tried together also provides that both documentary and oral discovery be common to both actions. The issues in the two actions are identical. The claim of Rajalingam and Annalingam is the same as their defence to the claim of Christian-Philip and Kanagasabai. Defendants have the right to defend without having to post security for costs. Where a counterclaim is in substance a reiteration of the plaintiff by counterclaim’s defence to the main action, the court may exercise its discretion to deny a motion for security for costs: Fairfield Sentry Ltd. v. PricewaterhouseCoopers LLP, 2015 ONSC 4961, at para. 9. The same principles apply in the circumstances of this case.
Disposition
[52] For the reasons given, there will be an order that the interim injunction granted on February 6, 2020 be continued until the final disposition of this action or further order of the court, and an order dismissing the motion for the filing of fresh evidence and the motion for security for costs.
[53] If the parties are unable to agree on costs, I will consider brief written argument provided that it is delivered electronically to my judicial assistant no later than May 10, 2020.
“S.T. Bale J.”
Released: March 30, 2020
CORRECTED DECISION
Corrections made April 17, 2020:
The word “defendants” in paragraph 29 was changed from “defendants” to “plaintiffs” so that the sentence now reads: “The plaintiffs say that as a result of the fraud conviction …”
The word “defendants” in paragraph 30 was changed from “defendants” to “plaintiffs” so that the sentence now reads: “When one looks past the conjecture and speculation in which the plaintiffs have engaged …”
COURT FILE NO. 142/18
DATE: 20200330
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Leeroy Christian-Philip and Anusha Kanagasabai
Plaintiffs
– and –
Varatharajan Rajalingam, Kosalai Annalingam, and Max Crossroads Realty Incorporated
Defendants
REASONS FOR DECISION
S.T. Bale J.
Released: March 30, 2020
[^1]: As Max Crossroads Realty Incorporated is not a party to the motion, I refer to the defendants Rajalingam and Annalingam as “the defendants”. [^2]: See Bank of Nova Scotia v. Villafuerte, [2007] O.J. No. 330 (S.C.J.) at paras. 21f. [^3]: Since replaced by the Principles of Civility and Professionalism for Advocates (February 20, 2020).