Court File and Parties
COURT FILE NO.: 03-157/17 DATE: 20210119
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Asha Kumra by her Litigation Guardian The Bank of Nova Scotia Trust Company, Plaintiff AND: Rajiv Kumra, Rashmi Kumra and 2577903 Ontario Inc., Defendants
BEFORE: C. Gilmore, J.
COUNSEL: Jacob B. Kaufman, Counsel for the Plaintiff John Bruggeman, Counsel for the Defendants Rajiv Kumra and 2577903 Ontario Inc. Sheila Morris, Counsel for the Defendant Rashmi Kumra
HEARD: January 15, 2021
ENDORSEMENT on Motion
OVERVIEW
[1] Asha Kumra (“Asha”), the Plaintiff, is represented in this litigation by her litigation guardian, The Bank of Nova Scotia Trust Company (“Scotia”). Scotia brings this motion for an Order approving the sale of 50 Ridgevalley Crescent, Toronto (“the property”). In addition, Scotia seeks an Order that the sale proceeds of the property be held in trust and preserved pending agreement of the parties or further Court Order.
[2] The Defendants oppose the motion (other than approval of the sale) and seek immediate payout of the sale proceeds on closing.
[3] This motion was heard on January 15, 2021. The closing of the sale of the property is on January 20, 2021. By way of endorsement dated January 16, 2021 I ordered that the sale was approved and that the sale proceeds were to be held by the solicitor acting on the sale, Ms. Aida Pasha, pending the release of this endorsement.
BACKGROUND FACTS
[4] Scotia was appointed as Asha’s litigation guardian on September 11, 2019. That judgment found that she was incapable of managing her property. Asha is 81 and widowed. She has two sons, the Defendant Rajiv (“Rajiv”), and Sanjiv. Rajiv is married to the Defendant Rashmi (“Rashmi”). Rajiv and Rashmi control and operate the Defendant corporation 2577903 Ontario Inc. (“257”). Rajiv is the sole director and officer of 257. Rajiv is a licensed physician and Rashmi is a dentist. They live in California.
[5] Asha purchased the property on March 21, 2011. Rajiv submits that Asha purchased the property in trust for him pursuant to a deed of trust dated April 6, 2011.
[6] On May 10, 2017 Asha transferred the property to Rashmi for $36,000. According to Rajiv these funds were used to discharge a construction lien to a roofing company. Rajiv is still dealing with the construction lien issue. Rashmi and Asha were both represented by Mr. Stuart Reddington on that transfer. Rashmi subsequently transferred the property to 257. The property was appraised at $2.4M as of November 4, 2017.
[7] On September 8, 2017 Asha met with Alanna Kaye, a certified capacity assessor. Ms. Kaye’s capacity assessment dated September 22, 2017 found Asha incapable of managing her property. The findings of that assessment are disputed by Rajiv and Rashmi.
[8] On October 6, 2017, Sanjiv commenced an Application seeking a declaration that his mother was incapable. The settlement of that litigation resulted in the September 11, 2019 judgment. A term of the settlement required Rajiv to provide financial disclosure regarding Asha’s finances.
[9] In early 2020 Scotia brought a motion for directions with respect to whether the September 11, 2019 judgment barred it from commencing litigation in relation to the property. Justice Dietrich in her reasons dated March 19, 2020 held that Scotia was not bound by the settlement of Sanjiv’s Application and that Scotia was not barred from commencing a claim on Asha’s behalf with respect to the property.
[10] After the release of that decision, Scotia wrote to counsel for Rajiv asking for an undertaking that neither Rajiv nor 257 would transfer, sell or encumber the property. The undertaking was confirmed by Rajiv’s counsel on March 24, 2020 as follows:
Our client is willing to undertake not to dissipate, transfer, dispose of or otherwise encumber 50 Ridgevalley while the Superior Court remains closed. Once the Superior Court reopens, our client is agreeable to undertake not to dissipate, transfer, dispose of or otherwise encumber 50 Ridgevalley without providing your firm with at least 30 days advance notice.
[11] On September 22, 2020 Rajiv’s counsel wrote to Scotia to advise that Rajiv intended to list and sell the property. On September 24, 2020 Rajiv’s counsel wrote to Scotia to advise that an Agreement of Purchase and Sale for $3.3M had been signed on September 20, 2020 with a closing date of January 20, 2021.
[12] On October 26, 2020 Scotia’s counsel wrote to Rajiv’s counsel to advise that they had not received the proper notice as per the undertaking. Scotia agreed to allow the sale to proceed so long as it was bona fide and Scotia could obtain an updated appraisal. Scotia obtained an appraisal of the property on November 18, 2020. The appraisal valued the property at $4.25M. Based on subsequent communication with counsel for the purchaser, Scotia is satisfied that the purchase is bona fide.
[13] Rashmi provided a copy of an email from Rajiv’s realtor dated November 30, 2020 in which the realtor confirms his valuation of the property at $2.9M-$3.3M and that he was able to secure a sale at the high end of the range in the month he was given to sell the property.
[14] Asha has commenced a claim against the Defendants which includes a claim for an interest in the property. She claims that she was not capable of transferring the property at the relevant times, that Rajiv and Rashmi were unjustly enriched by the transfer without juristic reason and that the Defendants hold the property in trust for her. Rajiv filed his Statement of Defence on June 29, 2020. Rashmi filed her Statement of Defence on October 27, 2020.
[15] Scotia is concerned that there will be significant repercussions to Asha’s well-being if the proceeds of sale are distributed to the corporation, Rajiv and Rashmi.
THE POSITIONS OF THE PARTIES
Scotia
[16] Scotia is concerned by Rajiv’s behaviour with respect to the listing and sale of the property. Specifically, Scotia notes that;
a. Rajiv breached his undertaking not to dissipate the property without providing Scotia with 30 days notice. It is clear from the November 30, 2020 email that Rajiv gave instructions to his agent and did not advise Scotia;
b. The appraised value of the property in the November 18, 2020 appraisal is 30% higher than the sale price;
c. Rajiv has not maintained the property and it is not insured;
d. Rajiv has not been transparent during the litigation and failed to provide Scotia, when requested, with motion materials related to the removal of a construction lien from the property.
e. Rajiv failed to provide information about his own valuation of the property until pressed;
f. Rajiv caused delay in Scotia obtaining its own appraisal of the property thereby delaying Scotia taking a position as to whether it would attempt to set aside the sale.
[17] In addition, Scotia raises concerns about the transfer of the property to Rashmi for $36,000, and the flow of millions of dollars in and out of Asha’s accounts without any ability to understand the flow and history of those transfers.
[18] Justice McEwen made it clear in his February 21, 2018 Order that the Order was made without prejudice to Asha’s guardian of property having the ability to pursue allegations related to Asha’s assets. In her Order of March 19, 2020 Justice Dietrich found that, notwithstanding the September 2019 settlement, Scotia was not barred from commencing a claim in relation to the property and it was not bound by the Minutes of Settlement
Rashmi
[19] Rashmi complains that Scotia is pursuing litigation related to the property which Sanjiv abandoned by way of Minutes of Settlement signed in September 2019. Rashmi’s evidence is that Asha has always held the property in trust for Rajiv as evidenced by the 2011 Trust Declaration (“the Trust”). No one, including Scotia, has ever disputed the validity of the Trust.
[20] Asha was capable until September 2017. As such, there can be no dispute about her ability to sign the Trust document in 2011 or transfers of the property earlier in 2017.
[21] Rajiv’s parents and subsequently his mother have a history of holding properties in trust for Rajiv. Rashmi sets out a history of examples in her affidavit sworn January 7, 2021.
[22] Rashmi disputes the appraisal relied upon by Scotia. She submits that it was based on photos and inappropriate comparables. She relies on the agents she retained from Harvey Kalles Real Estate Ltd. who confirmed that the listing and sale prices were reasonable.
[23] Rashmi has not been able to work during the pandemic. She needs the funds from the sale of the property to apply for a working Business Visa in the U.S. which requires that she have access to at least $2M USD. She needs the Visa so she may legally work in the U.S. She also requires the proceeds to pay for food and necessities for her family. If she is unable to obtain the required Visa she will have to return to Canada but has nowhere to live since the property has sold.
Rajiv and 257
[24] Rajiv deposed that due to the state of the pandemic in California, it has been difficult for he and his wife to earn a living. They need the use of the sale proceeds of the property to buy a home and pay for their personal needs.
[25] Rajiv explained that he had some personal challenges in 1991 due to an addiction to prescription drugs. As a result, his parents held his employment income in trust for him including his bank accounts, investments and real property. This was evidenced by the Trust, addenda to wills and trust receipts. There was never any issue with this arrangement until his brother Sanjiv began to aggressively litigate these issues in 2017.
[26] Scotia has complained of an undecipherable “churn” of funds between Rajiv and his mother’s accounts. Rajiv has already provided disclosure to Scotia in the course of the previous litigation with Sanjiv. However, Scotia as litigation guardian for Asha has access to all of Asha’s accounts. Further, any such accounting is irrelevant to Scotia’s unsubstantiated claims that Asha had a beneficial interest in the property.
[27] There is no medical evidence that Asha did not have capacity when she signed the Trust Declaration in 2011 or the transfer of the property on May 11, 2017. She was assisted with the transfer by an experienced real estate solicitor who raised no issues concerning her capacity. Up until her incapacity in August 2017, Asha paid her own bills and made her own financial decisions. In April 2017 neither Asha’s neurologist nor her family doctor noted any major cognitive decline in Asha. It was only after Asha suffered a stroke in August 2017 that dementia was diagnosed and Asha was no longer permitted to drive.
[28] The assessment of Asha completed by Ms. Kaye on September 8, 2017 was arranged unilaterally by Sanjiv and completed in a clandestine manner under dubious and questionable circumstances. For example, Ms. Kaye was given biased and incorrect information concerning Asha’s personal and financial situation. Scotia has not retained an expert to do a retroactive assessment for the period in 2011 when the Trust was executed or for the April-May 2017 period when the property transfers took place. As such, there is no evidence that Asha was incapable at either time. As well, the manner in which Scotia’s claims are framed would mean that all of the lawyers previously involved with the Trust and the transfer were negligent because they allegedly provided legal services to a person who was incapable.
[29] As the property was empty, Rajiv was concerned to discover he could not renew the home insurance. This led to Rashmi agreeing to a sale before informing Rajiv and a two-day period when Scotia should have been advised of the sale but was not. This did not prejudice Scotia given the closing was four months out.
[30] Any delays in Scotia obtaining an appraisal of the property were not intentional. Rajiv reasonably insisted that he be present for the appraisal given the property was uninsured. When he returned from California, he was required to self-isolate for two weeks before the appraisal could take place. In any event, Rajiv disputes the appraisal obtained by Scotia claiming, as Rashmi does, that improper comparables were used.
[31] Contrary to Scotia’s assertions, Rajiv submits that he has fully complied with the September 2019 judgment and provided all financial disclosure for the relevant periods. Scotia makes allegations of financial “churn” but without any details of what this actually means. Further, Rajiv asserts that financial records have been produced to Scotia which show that Asha did not contribute to the purchase of the property. Neither Sanjiv nor Scotia have produced any evidence that Asha’s funds were used to purchase the property.
[32] Rajiv submits that Scotia is wasting his mother’s money with this litigation which is based on vague and unsubstantiated allegations. It is ignoring a valid Trust for fear of being sued by Sanjiv who has aggressively litigated these same issues in the past. Rajiv asserts that he and his wife will suffer severe prejudice if the proceeds are held without Scotia having produced any evidence to support their position.
THE LEGAL ISSUES
[33] In its Notice of Motion, Scotia sought an approval of the sale of the property. Given the timing of this motion and the closing date, I released an endorsement on January 16, 2021 approving the sale.
[34] The only remaining issue on this motion is whether a preservation Order should be issued in relation to the net sale proceeds of the property.
[35] Scotia seeks a preservation Order because it is concerned that if the proceeds are paid to Rajiv and Rashmi, they will be dissipated and unrecoverable.
[36] Scotia seeks a preservation Order pursuant to Rule 45.01 of the Rules of Civil Procedure. That rule 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.
[37] While the Defendants argue that this is a Rule 45.02 case and a different test should be applied, Scotia’s position is that it does not really matter as the test is the same for both. Scotia relies on the test in Taribo Holdings Ltd. v. Storage Access Technologies Inc (“Taribo”)., 2002 CarswellOnt 3811 (S.C.J.) at para 5;
The assets sought to be preserved constitute the very subject matter of the dispute;
There is a serious issue to be tried regarding the plaintiffs’ claim to that asset, and;
The balance of convenience favours granting the relief sought by the applicant or moving party.
[38] The Defendants submit that the test above does not apply to this case. It applies to cases where a specific asset is sought to be preserved. They refer to BMW Canada Inc. v. Autoport Ltd., 2019 ONSC 4299 at paras 49-53. In that case the Defendant sought to preserve 2,500 BMW cars. In Taribo, the parties sought to preserve 2 million shares. In cases where preservation of net sale proceeds is sought, the test in Rule 45.02 should be applied.
[39] Rule 45.02 states:
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 as are just.
[40] According to the Defendants, the test to be applied for relief sought under Rule 45.02 is the test in Sadie Moranis Realty Corp. v. 1667038 Ontario Inc. 2012 ONCA 475 at paras 17-18 (Moranis) as follows:
(a) The plaintiff claims a right to a specific fund;
(b) There is a serious issue to be tried regarding the plaintiff’s claim to that fund; and
(c) The balance of convenience favours granting the relief sought by the plaintiff.
[41] The Defendants argue that the test under 45.02 is a higher one to ensure that any interference with the Defendants’ disposition of assets is limited to cases where the Plaintiff has a serious prospect of success. In Moranis at para 20 where the Court of Appeal stated:
The second and third requirements of the test ensure that interference with the defendant’s disposition of assets is limited to cases where the plaintiff has a serious prospect of ultimate success…
[42] The Defendants submit that Scotia must therefore establish a strong prima facie case which it cannot do because of the existence of the Trust deed and because otherwise Scotia would receive execution before trial. However, in the Moranis case, the Plaintiff did not claim a legal right to the specific fund in question, the Plaintiff sought damages for breach of contract for failure by the Defendant company to pay real estate commission. That is different from this case in which Asha is claiming a legal right to the sale proceeds.
[43] As such, I agree with Scotia that it does not make much different which of the two Rules is applied. The property is at the heart of this dispute and there is an issue as to whether the proceeds belong to Asha or the Defendants.
[44] It is this Court’s view that Scotia easily meets the test as to whether there is a serious issue to be tried. It is agreed that Asha is incapable. There are issues about her capacity when she transferred the property for $36,000 to Rashmi.
[45] There are also concerns about the Trust deed. It was stamped by a walk-in notary and there is no evidence that Asha obtained legal advice in relation to the Trust. The Defendants counter with submissions that Scotia has done no investigation with respect to these allegations and in particular has provided no evidence that Asha was incapable in 2011. That may be, but as counsel for Scotia points out, Scotia is not obliged to prove its case at this point. The litigation is not moving quickly. Rashmi only filed her Statement of Defence at the end of October 2020. A discovery plan has not yet been finalized.
[46] There is also the issue of account “churn” alleged by Scotia. It is true that significant disclosure has been provided and that Scotia has access to Asha’s banking information, but the matter does not end there. Scotia does not have satisfactory answers to its many questions about the significant transfers to and from those accounts between Asha and Rajiv. The Defendants claim they have co-operated, yet the matter remains outstanding. Rajiv refers to his mother’s accounts as “his” thus further confusing financial issues which Scotia is attempting to unravel.
[47] It is clear from the principles in Roseglen Village for Seniors Inc. v. Doble 2010 ONSC 3239, affirmed 2010 ONSC 4680 that a claim based on constructive trust principles and a right to trace funds may give rise to an interest in land sufficient to issue a Certificate of Pending Litigation. Scotia submits, and I agree, that they could have pursued a Certificate of Pending Litigation in March 2020 but did not do so based on the undertaking given by Rajiv. That undertaking was breached. It does not now lie in the mouths of the Defendants to claim that Scotia has not met the higher test of a serious issue to be tried, when Scotia finds itself in the current position solely due to the actions of the Defendants. It is clear from the evidence in the record that Rajiv and Rashmi were communicating with their agent a full month before the property was actually sold. They did not inform Scotia of this.
[48] The Defendants insist that this Court need go no farther than the Trust Declaration given that its authenticity has not been challenged nor is there evidence that Asha did not have capacity when she signed it. They add that the issues raised by Scotia about the walk-in notary are red herrings and are of no consequence in the face of a signed and valid trust document confirming Rajiv’s beneficial ownership in the property. This is the Defendants’ best argument, but it fails for several reasons. First, there is no evidence that Asha had legal advice for this pivotal transaction and second, there is no retroactive evidence (yet) confirming her capacity at that time. This litigation is still in its infancy. Further discovery or expert evidence may turn the tables, but for now it remains a serious issue to be tried in relation to the disposition of a significant asset.
[49] There was much evidence on this motion about Asha’s capacity, or lack thereof, at the time of transferring the property to Rashmi in May 2017. The issue of Asha’s capacity in 2017 is a triable issue. She had Parkinson’s and her cognition was in decline. The Defendants’ argument that the stroke in August was the defining line between her capacity and incapacity must be approached with caution as the date on which Asha became incapable has never actually been determined.
[50] In summary I find that there is a serious issue to be tried and that Scotia has met this part of the test.
[51] Moving on to the balance of convenience, it is clear if the funds are distributed to Rajiv and his wife, they will be dissipated. Their evidence is clear on that point. This is a form of disposition which cannot be ignored. Failing to grant a preservation Order in this case would result in the mischief contemplated in Aetna Financial Services v. Feigelman, 1985 CanLII 55 (SCC), [1985] 1 SCR 2 in that the assets in dispute “would be destroyed before the resolution of the dispute.”
[52] There must also be consideration of the conduct of the Defendants. As already mentioned above, I find that the Defendants’ conduct gives rise to concerns as follows:
a. The undertaking was breached. It was clear that the plan to sell the house was underway well before Scotia was advised.
b. Scotia’s appraisal revealed a significant difference in value from the opinions of the Defendants’ realtors. While claiming to be cooperative with Scotia’s appraisal request, the delays belie that contention. The Defendants state they have their own appraisal but will not disclose it, all the while claiming that Scotia’s appraisal is unreliable. These straightforward matters turned into significant issues when they should not have.
c. The property has been uninsured for months with no plan by the Defendants to rectify that issue.
d. Scotia asked Rajiv for the construction lien motion materials as Scotia was concerned about how this might impact the sale. Rajiv has refused to provide this information.
[53] Scotia has made it clear that it does intend to hold the funds indefinitely but only until the litigation can proceed to a point where, as a fiduciary, it is satisfied that the funds flowing between Rajiv and his mother were gifts or the equivalent.
[54] Given all of the above, I find that Scotia has met the test under both Rule 45.01 and 45.02 and the sale proceeds of the property shall remain in trust until written agreement by the parties or further Order of the Court.
ORDERS AND COSTS
[55] The sale proceeds of 50 Ridgevalley Crescent, Toronto, Ontario (“the property”) shall be held in trust by the solicitor acting on the sale of property, or such other person as the parties may agree pending an agreement of the parties in writing or Court Order.
[56] The parties shall forthwith complete their discovery plan, and in any event by January 31, 2021.
[57] The sale of the property is approved but without prejudice to Scotia’s right to seek damages for the difference between its appraised value and the ultimate sale value of the property.
COSTS
[58] Scotia seeks costs of $17,000 of which they request that $8,000 be paid personally and jointly by the Defendants. Mr. Bruggeman sought partial indemnity costs of $18,000 plus HST if successful. He submitted that many hours were spent preparing significant material given the importance of this issue to his client. Ms. Morris on behalf of Rashmi sought $6,233 in partial indemnity costs. Both Rashmi and Rajiv seek their costs directly from Scotia and not from Asha’s assets.
[59] Scotia has had success on this motion. Despite the Defendants presenting good arguments, in the end their own conduct had much to do with the Court’s concern.
[60] Scotia shall receive its costs of $17,000 all of which shall be paid from Asha’s assets.
C. Gilmore, J.
Date: January 19, 2021