Court File and Parties

BARRIE COURT FILE NO.: CV-20-00000732-0000 DATE: 20200727 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

NDRIVE, NAVIGATION SYSTEMS S.A. Plaintiff – and – SI ZHOU (aka SI (SILAS) ZHOU, aka SILAS ZHOU), AGUAZION, INC., HAKEMI & RIDGEDALE LLP and TOM HAKEMI Defendants

Counsel: Ryder Gilliland and C. Groper, Counsel for the Plaintiffs K. William McKenzie, Counsel for the Defendant, Zhou and Aguazion

HEARD: In writing

COSTS ENDORSEMENT

McCarthy J.:

[1] The Plaintiff seeks costs of $108,445.75 on a substantial indemnity basis against the Defendants Zhou and Aguazion Inc (“the defendants”) in respect of two successful motions brought by it: the first being for a mareva injunction (the first motion) granted on May 6, 2020 and subsequently renewed and extended on May 22, 2020 (the first order); and the second being for a variation of the terms of the first order on account of fraud/misrepresentation on the part of the defendant Zhou. An order varying the first order was granted by the court on June 19, 2020 (the second order). As a result of the partial suspension of court operations during the Covid-19 pandemic, both motions were conducted via teleconference. Costs submissions were made in writing.

[2] The Plaintiff stresses the importance of it seeking the preservation of assets to satisfy a future judgment for funds misappropriated by Zhou; the conduct of Zhou which included perjury and leading false evidence; and the fact that Zhou’s misconduct both unnecessarily lengthened and complicated the proceedings and was the basis for the second motion. Finally, the Defendants must have reasonably expected to face costs of the magnitude sought considering: their own claim for substantial indemnity costs in the counterclaim; the time, effort and expense spent by the Defendants in opposing the two motions; the suggestion that Zhou had incurred $75,000 in responding to the two motions; and his statement that he was incurring legal costs of $2,500 per day.

[3] The Defendants argue that costs should be in the cause; that was the agreement the parties came to when the first order of May 22, 2020 was granted by the court on a consent basis. As well, many of the allegations levelled at Zhou remain to be proven. There is no justification for costs on a substantial indemnity scale for the same reason. Finally, the total amount for the Alternative Payment of Security Option (“the APSO”) under the second order already includes a component for costs incurred and estimated for trial. An award of costs at this preliminary stage would be a form of double counting.

[4] The Plaintiff was successful in achieving most of the relief it was seeking on the motions. It is presumptively entitled to costs of both motions.

[5] It is difficult to overstate the importance of a mareva injunction in civil proceedings. While not all civil actions involve the recovery of money from an opposing party, a great many do. And while many defendants in civil proceedings are entities for which payment of a judgment is, if not routine, then certainly common place (to wit insurance companies, municipalities, banks and large corporations), there are just as many or more entities for which the payment of a judgment might prove ruinous, or at the very least, quite devastating financially. For that reason, making oneself “judgment proof” by putting personal or corporate assets beyond the reach of potential judgment creditors has been a feature of the civil litigation landscape for as long as civil judgments have been rendered.

[6] The mareva injunction is a tool designed to address the problem posed when a defendant utilizes the time lag between a claim being prosecuted and a plaintiff’s attainment and execution upon a judgment to divest itself of assets which would otherwise be available to satisfy that judgment in whole or in part. A preservation of assets order, also known in commercial parlance as a “freezing order”, is thus of great utility. It is often the only means by which to preserve exigible assets where other forms of security for payment of a judgment such as liens, charges, cautions or guarantees are unavailable.

[7] In this case, it is clear from the evidence to date that Zhou was able to transfer funds quickly and fluidly to and from a number of accounts. Some of these accounts were in his name; some were in the name of the corporate entity which he controlled (the defendant Aguazion); some were located outside of this jurisdiction. This landscape was complicated by the fact that both the source and the destination of many of these transfers remained undisclosed. The evidence established that the arbitral award funds (which form the core of the dispute between the parties) were transferred by Zhou in whole or in part out of the account into which they were initially deposited. The ability and propensity on the part of Zhou to transfer funds was central to the court’s ultimate decision to grant the mareva order.

[8] In the second motion, I made a finding that Zhou committed fraud by submitting highly misleading evidence; I found that he deceived the plaintiff and the court in respect of important matters. This justified the second motion being brought; it constituted grounds to vary the mareva order, more specifically the APSO paragraph. This kind of conduct warrants serious costs consequences. Substantial indemnity costs are often appropriate in such circumstances: see Peel Financial Services Ltd. v OMERS Realty Management Corp., 2009 CarswellOnt 6573, at para. 5; Hawley v Bapoo, , [2006] O.J. No. 2938, at para. 19. In respect of the second motion, I find that costs on a substantial indemnity basis are entirely appropriate.

[9] The conduct of Zhou unnecessarily extended and complicated the procedure. I find that the second motion would have been unnecessary had Zhou not mislead the Plaintiff in respect of both his assets and his handling of the arbitral award funds. The Plaintiff would have been content with the first order and the payment of the original APSO in return for the lifting of the order.

[10] Finally, I find that the Defendant must have been aware of the costs consequences both of opposing the motion and providing misleading information to the Plaintiff and to the court. Zhou’s own admission that he was incurring legal costs of $2,500 per day and the suggestion in the Defendants’ factum that Zhou had incurred as much as $75,000 in legal costs on the two motions reveal his understanding of the costs involved in this kind of litigation.

[11] The first order was born out of the consent of the parties; it clearly states that costs of that first motion were to be in the cause. That feature of the order was not varied; nor was it sought to be until now. There is, however, no motion before me to do so. I accept the argument of the Defendants that costs for the first motion should be in the cause. I also find that costs of the first motion should be limited to the partial indemnity rate given that the Defendants’ misconduct has already attracted a costs sanction for the second motion.

[12] The principle of proportionality must also play a factor here: this is high stakes litigation over a significant sum of money. The voluminous materials prepared for the two motions by both sides attest not just to the importance of the injunctive relief sought but also to value of the claim. I have no doubt that counsel for the Plaintiff worked assiduously to marshal the evidence, research the law and prepare the extensive materials for presentation to the court in a digestible format, all the while mindful of the looming spectre of asset dissipation and coping with the new normal of electronic filings and remote hearings during the current pandemic. They are to be commended for their efforts.

[13] I am prepared to order partial indemnity costs to the Plaintiff for the first motion and substantial indemnity costs to the Plaintiff for the second motion. I would fix partial indemnity costs for the first motion at $30,000.00 inclusive of HST. I would add $1,000.00 as the proportional share of the disbursements incurred. The amount of $31,000.00 inclusive of HST and disbursements for the first motion are payable by the Defendant in the cause.

[14] The second motion was not merely a repetition or a rehashing of the first; I note that cross-examinations of affidavits and extensive review and analysis of banking and financial records were essential processes in order to update and complete the evidentiary record. The second motion also involved different legal issues (namely variation of an order in the face of fraud or after acquired information). It resulted in increased disbursements. For the reasons set out above, costs of the second motion should be on a substantial indemnity scale. I would fix costs of the second motion at $50,000.00 inclusive of HST plus disbursements of $2,415.07 for a total costs award of $52,415.07.

[15] This leaves the question of whether those substantial indemnity costs for the second motion should be payable:

a) forthwith by the Defendants to the Plaintiff; or b) out of the second APSO fund.

[16] If the Defendants have opted not to make the second APSO payment, I order that the Defendant shall pay the sum of $52,415.07 to the Plaintiff as costs of the second motion forthwith. However, in the event that the Defendant has made the second APSO payment or does so within 30 days of the date of this order, then payment of the costs shall be made out of the APSO fund in satisfaction of this order.

[17] There shall be an order to accordingly.

Justice J. R. McCarthy Released: July 27, 2020