COURT FILE NO.: CV-21-657170
DATE: 2021 08 11
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: ILYA SACHKOV, Plaintiff
- and -
SVETLANA ILNITSKAYA, Defendant
BEFORE: Master Todd Robinson
COUNSEL: S. Zampini, for the plaintiff
J. Baker, for the defendant
HEARD: August 6, 2021 (by videoconference)
REASONS FOR DECISION
OVERVIEW
[1] Ilya Sachkov is suing his ex-fiancée, Svetlana Ilnitskaya, over a Toronto condominium property. It is legally owned by Ms. Ilnitskaya. Mr. Sachkov seeks a certificate of pending litigation (CPL) on the basis that he is the beneficial owner. He says the condominium was purchased using funds he expressly gave to Ms. Ilnitskaya for buying it as an investment property. It was to be held for his benefit in Ms. Ilnitskaya’s name. All of this is said to have been orally agreed. It was never committed to writing and there are limited corroborating emails, texts, or other documents.
[2] The former couple first met in 2012, while Svetlana Ilnitskaya was attending school in London. She had travelled to Moscow and was introduced to Ilya Sachkov by a mutual friend. Mr. Sachkov was (and still is) a highly successful Russian entrepreneur who runs a multimillion dollar cybersecurity business that he started with several of his peers. A romantic relationship developed, which continued long-distance and culminated in an engagement in June 2015. It is undisputed that the relationship involved Mr. Sachkov giving Ms. Ilnitskaya expensive gifts and funds for her use. By the end of 2016, the romantic relationship had started to fray. It had ended by mid-2017 (if not earlier), although communications continued.
[3] Mr. Sachkov alleges that, around the time of the engagement, Ms. Ilnitskaya suggested exploring investment opportunities in the Greater Toronto Area. He says the Toronto condominium was specifically discussed. Ms. Ilnitskaya denies it. By that time, an agreement of purchase and sale had already been entered and various deposits already paid toward purchasing the condominium.
[4] Shortly after their engagement, Mr. Sachkov began making wire transfers to Ms. Ilnitskaya’s London and Toronto bank accounts. Details of 53 transfers are in evidence. Ms. Ilnitskaya says that these were all gifts, and that there was no agreement for Mr. Sachkov to own the condominium. Mr. Sachkov says that 29 transfers to Ms. Ilnitskaya’s Toronto bank account, totalling USD 129,486, were specifically transferred for purchasing the condominium. He further argues that Ms. Ilnitskaya has acknowledged his beneficial ownership in various WhatsApp text messages.
[5] The purchase transaction closed in November 2019, some 18-19 months after Mr. Sachkov’s last wire transfer to Ms. Ilnitskaya. A mortgage was obtained to finance the majority of the purchase price. The source of the remaining funds is disputed. Mr. Sachkov says it was his money. Ms. Ilnitskaya says it was not.
[6] Neither party lives in Canada. Although a Canadian citizen, Ms. Ilnitskaya lives and works in Los Angeles, California. She currently leases the Toronto condominium. Mr. Sachkov lives in Moscow, Russia. He is not a Canadian citizen, but has a current Canadian visa.
[7] Following consent resolution of Ms. Ilnitskaya’s cross-motion for security for costs, only Mr. Sachkov’s motion for leave to issue a CPL remained. After hearing argument, I held that Mr. Sachkov had met his onus of establishing a triable issue to an interest in the condominium, but that the equities nevertheless favoured denying leave for a CPL in all the circumstances. I dismissed Mr. Sachkov’s motion for reasons to follow, which I now provide.
Analysis
Test on a CPL motion
[8] My authority for granting leave to issue a CPL is found in s. 103 of the Courts of Justice Act, RSO 1990 c C.43 and Rule 42.01 of the Rules of Civil Procedure, RRO 1990, Reg 194. The applicable two-part analysis is not disputed. It is set out in the oft-cited decision of Perruzza v. Spatone, 2010 ONSC 841 (Master) at para. 20. I must first determine if Ilya Sachkov has demonstrated a triable issue regarding his claimed interest in the condominium. Once I am satisfied that threshold requirement has been met, I must then consider whether the equities favour a CPL.
[9] Granting leave for a CPL is discretionary. My discretion is to be exercised having regard to relevant factors in the circumstances of this particular case: Huntjens v. Obradovic, 2019 ONSC 4343 at para. 22. I must consider what are referred to as the Dhunna factors, namely: (i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party from the CPL. These factors are non-exhaustive.
Triable issue to an interest in land
[10] Ms. Ilnitskaya submits that, to properly assess whether the threshold triable issue step has been met, I must analyze Mr. Sachkov’s claim for constructive trust over the condominium and determine if Mr. Sachkov has established a prima facie case. She concedes that a constructive trust associated with a claim for unjust enrichment can support a claim for a CPL, as held in cases such as Huntjens v. Obradovic. Ms. Ilnitskaya further concedes that, in the course of my assessment, I am not to decide disputed issues of fact and credibility. Rather, I am to examine the totality of evidence as it stands after cross-examinations and, without deciding disputed issues, determine if it supports a reasonable claim to an interest in land: Huntjens, supra at para. 21; Waxman v. Waxman, [1991] OJ No 89 (Gen Div) at para. 8.
[11] I have been invited by Ms. Ilnitskaya to take a close look at the evidence when considering the requirements for proving a constructive trust. In both Ms. Ilnitskaya’s factum and oral submissions, a great deal of focus was placed on Mr. Sachkov’s legal requirement to demonstrate unjust enrichment in order to make out his constructive trust claim. Ms. Ilnitskaya acknowledges that Mr. Sachkov’s wire transfers constitute an enrichment to her with a corresponding deprivation to Mr. Sachkov. However, she argues that there is a juristic reason for the deprivation, namely that the funds were gifts. She also argues that the default remedy for a constructive trust claim is damages, not a right or interest in the property.
[12] This is not a summary judgment motion. I agree with Ms. Ilnitskaya that I cannot be blind to the requirements for establishing a constructive trust. However, I am not convinced by Ms. Ilnitskaya’s arguments that the 29 transfers claimed by Mr. Sachkov to have been expressly for purchasing the condominium were clearly gifts.
[13] I was pointed to several WhatsApp text messages from Ms. Ilnitskaya that, on their face, acknowledge that Mr. Sachkov invested money in the condominium. Ms. Ilnitskaya’s statements include the following:
Look, the money that you invested in our apartment covered 37% of its costs. I pay the rest. I can acknowledge that this part of the apartment is yours and I want to return the money to you.
I’ll write to you when I know the closing dates. I would like to keep this apartment for myself and repay your down payment.
The price of the apartment at the time of closing (November 2019) is $606,402.75.
All the money that you gave for the apartment was paid, it is $181,500.
This is 30% of the price of the apartment.
[14] These statements seem contrary to Ms. Ilnitskaya’s unequivocal affidavit statement that she at no time discussed or agreed to Mr. Sachkov having any ownership interest in the condominium. Mr. Sachkov submits that, since the authenticity of the WhatsApp text messages was not contested, these statements are admissions of his ownership interest in the property (either 30% or 37%) and that he contributed $181,500. As I have noted, Mr. Sachkov’s cross-examination evidence is that USD 129,486 of the wire transfers in evidence were sent specifically for use in purchasing the condominium. Although there is no evidence before me on historic currency conversion rates, Mr. Sachkov argues that conversion of that amount to Canadian funds at 2017 rates would be close to CAD 181,500. It is certainly arguable.
[15] Ms. Ilnitskaya argues that she did not acknowledge Mr. Sachkov’s ownership interest in the WhatsApp messages, making three primary arguments: (i) the communications are settlement privileged, (ii) the evidence before me supports that the transfers were gifts, and (iii) read in context of Mr. Sachkov’s other threatening text messages and the overall toxicity of the relationship, I should infer that the statements were made to mollify Mr. Sachkov. I reject these arguments.
[16] With respect to settlement privilege, no supporting case law was provided. The statements in the WhatsApp messages appear to be acknowledgements. They are not offers or other proposals of compromise. The surrounding text messages do not appear to be any kind of settlement negotiation. Nothing in Ms. Ilnitskaya’s own evidence suggests that she was trying to negotiate a resolution at the time. Her affidavit evidence only states generally that she “repeatedly tried to explain to him the circumstances and that [the condominium purchase] did not involve him whatsoever.”
[17] With respect to whether the transfers were gifts, that is a central disputed issue in this litigation. It is not properly decided on this motion.
[18] With respect to the proposed inference that the messages were sent only to mollify Mr. Sachkov, what Ms. Ilnitskaya is asking me to do is precisely what I am not supposed to do on this motion: determine disputed factual issues. Ms. Ilnitskaya made the statements in her WhatsApp messages. They were specifically identified in Mr. Sachkov’s moving affidavit. While there are other messages, later, that make statements denying that anything is owed to Mr. Sachkov, the above messages relied on by Mr. Sachkov have not been specifically disputed or explained by Ms. Ilnitskaya on this motion. Drawing inferences on what was intended by them is, in my view, making a determination on a disputed issue. It will be for a trial judge to hear and weigh evidence on why they were written, what was intended, and whether they constitute an admission or acknowledgement that is material to deciding if there was any oral agreement.
[19] For the purposes of this motion, I am satisfied that the evidence could support Mr. Sachkov’s position that transferred funds were agreed to be used for the purchase of the condominium and that Mr. Sachkov was intended to have at least some ownership interest. Since Ms. Ilnitskaya denies he has any ownership interest, that deprivation could be found to be without juristic reason, which could reasonably support findings that Ms. Ilnitskaya was unjustly enriched and that Mr. Sachkov is entitled to a constructive trust.
[20] For these reasons, I found a triable issue regarding Mr. Sachkov’s interest in the condominium.
Assessment of the equities
[21] Despite my finding that Mr. Sachkov has satisfied the initial threshold, I have nevertheless concluded that the equitable factors favour Ms. Ilnitskaya’s position.
[22] First, Mr. Sachkov’s own evidence is that, for him, the purchase of the condominium was an economic investment. He states unequivocally in his affidavit that his intention was “to purchase an investment property and rent it out.” I was directed to several WhatsApp text messages where Mr. Sachkov expressed his willingness for Ms. Ilnitskaya to pay him in return for ownership of the condominium. Mr. Sachkov’s core claim is about his lost investment of funds to purchase the condominium and the lost investment growth opportunity from being denied the ability to fully purchase it without a mortgage.
[23] Second, the totality of evidence does not support that there is anything genuinely unique or personal about the condominium to Mr. Sachkov. Mr. Sachkov gave some evidence on cross-examination about its unique design features as compared to what he has seen in Moscow, but nothing with any specificity to suggest this condominium unit was materially different than other condominium units in Toronto. Also, although Mr. Sachkov suggested during his cross-examination that the unit may have been a location from which North American expansion of his business operations could have been run, there is nothing in evidence supporting that this specific unit was in any way unique for business expansion purposes.
[24] Third, despite argument to the contrary, my view is that damages are readily calculated and would be an appropriate remedy. If Mr. Sachkov proves an equitable ownership interest, assessing damages would involve determining the extent of Mr. Sachkov’s interest (already at issue in this litigation), the market value increase of the property since purchase, current value of his ownership interest, lost opportunity cost of future potential equity growth in the property, and rental income earned and reasonably anticipated. These types of damages are commonly quantified in litigation through expert evidence. If Mr. Sachkov fails to prove an equitable ownership interest, but establishes that the transferred money should be repaid, the calculation of damages is much more straightforward.
[25] Fourth, the statement of claim includes an alternative claim for damages. Mr. Sachkov argued strenuously that the primary claim is for an ownership interest in the property by constructive trust, and that the CPL is necessary to preserve the property until that interest has been determined. I have already outlined my view that Mr. Sachkov’s claim is, at its core, about investment loss and not genuinely about the condominium itself.
[26] I have also considered Mr. Sachkov’s cross-examination evidence that the condominium would potentially be used as a base of operations to expand his business in North America. Although an issue for determination at trial, it seems that the intended investment may have been on behalf of his business, not for Mr. Sachkov’s own purposes, which further supports the appropriateness of damages as a remedy.
[27] Finally, my view is that the balance of convenience is a neutral factor. Registration of a CPL will be a serious inconvenience to Ms. Ilnitskaya in any sale or required refinancing, particularly in circumstances where it is unclear if a constructive trust over the condominium, as opposed to damages, would be ordered if Mr. Sachkov is successful at trial.
[28] Mr. Sachkov argued that a CPL is necessary to protect against Ms. Ilnitskaya selling or further encumbering the condominium. It is argued to be her only real asset. However, since Mr. Sachkov’s claim is essentially to secure his interest in the fruits of a monetary investment, a CPL would closely resemble pre-judgment execution.
[29] The purpose of a CPL is to protect an interest in land in situations where other remedies would be ineffective. A CPL ought not to be used to achieve pre-judgment execution on what is fundamentally a damages claim if the extraordinary remedy of a Mareva injunction would not be available on the merits: Boal v. International Capital Management Inc, 2018 ONSC 2275 at paras. 94-95. It is not at all clear from the evidence that Mr. Sachkov will be unable to enforce a judgment against Ms. Ilnitskaya, either in this or another jurisdiction. In my view, the relative harm to both parties from granting and not granting the CPL is equivalent.
[30] For these reasons, balancing the relevant equitable considerations in the particular circumstances of this case, I concluded that the equities favoured Ms. Ilnitskaya. I accordingly dismissed Mr. Sachkov’s motion.
Costs
[31] Svetlana Ilnitskaya seeks her substantial indemnity costs of both Mr. Sachkov’s motion and her cross-motion in the amount of $59,353.68, including HST and disbursements. Alternatively, she seeks partial indemnity costs of $39,687.66, including HST and disbursements. In stark contrast, had Mr. Sachkov been successful, he would have sought only partial indemnity costs of $15,059.03, including HST and disbursements.
[32] I have broad discretion under s. 103 of the Courts of Justice Act and Rule 57.01 of the Rules of Civil Procedure to fashion a costs award that I deem fit and just in the circumstances. General principles applicable in determining costs are well settled. Costs are discretionary. Rule 57.01 sets out a non-exhaustive list of factors to be considered by the court in exercising that discretion, which are in addition to considering the result of the motions. Rule 1.04(1.1) also requires that I make orders that are proportionate to the importance and complexity of the issues and to the amount involved in the proceeding.
[33] A costs award in this case should reflect what I view as a fair and reasonable amount payable by Mr. Sachkov rather than any exact measure of Ms. Ilnitskaya’s actual costs: Zesta Engineering Ltd. v. Cloutier, 2002 CanLII 25577 (ON CA), [2002] OJ No. 4495 (CA) at para. 4; Davies v. Clarington (Municipality), 2009 ONCA 722 at para. 52. My overall objective is to fix an amount that is fair and reasonable in this particular proceeding, taking into account the expectations of the parties concerning the quantum of costs: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 OR (3d) 291 (CA) at paras. 26 and 38.
[34] Dealing first with the scale of costs, I have determined that substantial indemnity costs are not warranted. They are only awarded in very narrow circumstances, namely where an offer to settle is engaged or where the court wishes to express its disapproval or condonation of improper conduct or conduct that is scandalous, reprehensible, or improper: Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766 at para. 7; Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 SCR 3 at p. 134. I find no conduct here warranting an elevated scale of costs.
[35] Ms. Ilnitskaya points to Mr. Sachkov’s threatening pre-litigation text messages as relevant conduct. Mr. Sachkov did send messages to Ms. Ilnitskaya saying things such as “It’s not worth going to war with me”, indicating lawsuits would be started in Canada and England, suggesting he would arrange “unpleasant work-related surprises”, and saying he was “warning” Ms. Ilnitskaya of the consequences of not responding to him. However, none of those messages were sent in the context of this motion. They were all sent prior to litigation.
[36] I was directed to no improper conduct by Mr. Sachkov in the course of this motion. Ms. Ilnitskaya’s position is that there was material non-disclosure by Mr. Sachkov on the original ex parte return of this motion, but that issue was rendered effectively moot upon the motion being adjourned to be brought on notice. There is nothing before me to support that Mr. Sachkov attempted to actively mislead the court on any matter, even though cross-examination demonstrated that Mr. Sachkov maintains only 29 of the total wire transfers were expressly intended for the condominium. Evidence before me supports that both parties evidently have a very different view of what happened.
[37] I deal next with the quantum of costs. Mr. Sachkov advances three main challenges to Ms. Ilnitskaya’s costs claim: (i) nearly 100 hours of time on this motion reflects over-lawyering, (ii) the rates claimed are high, and (iii) cross-examination time was exacerbated by long questions that were difficult to answer and, at times, unnecessarily lengthy statements being made on the record.
[38] I agree with Mr. Sachkov that the hours invested appear quite high. Unfortunately, there is no breakdown of the costs incurred for each of the two motions, nor any breakdown by task. Ms. Ilnitskaya’s costs outline divides total hours by the three individuals working on the motions with highly generic work descriptions. The block structure of the costs outline is unhelpful in assessing the reasonableness of Ms. Ilnitskaya’s costs claim. I am unable to ascertain if the time claimed is restricted to motion costs or includes time more properly claimed as costs of the action.
[39] For example, a block of 83.4 hours of time is claimed for Mr. Baker for “cross-examinations, preparation, factum, case conferences, etc.” That itself is nearly double the total hours claimed in Mr. Sachkov’s costs outline, and it is unclear why that much time was required or how it was spent. There is an additional 5.1 hours is claimed for Josie Ponzo (a paralegal, although not identified as such in the costs outline) and 15.4 hours for Celiat Mustapha (who does not appear to be a lawyer or licensed paralegal, and is not identified as a law clerk, student, or legal assistant). The allocation of work between Mr. Baker and the other two individuals working with him is unclear. It is also unclear why none of the work performed by Mr. Baker could not have been done by the others assisting him (at lower rates). I also have no idea what is meant by “etc.” in the work descriptions.
[40] I also agree with Mr. Sachkov that the claimed rates are generally high. Mr. Baker is a 1995 call, though, so I do not find his claimed partial indemnity rate excessive. A partial indemnity rate of $231 per hour is claimed for Josie Ponzo. That is commensurate with an experienced lawyer, yet there is nothing before me regarding when Ms. Ponzo was licensed or her experience. Similarly, I do not know if Celiat Mustapha (claimed at an actual rate of $150.00 per hour) is a law clerk, student, or legal assistant. I accordingly cannot determine the reasonableness of charging for the work performed and am unable to assess the reasonableness of the partial indemnity rate claimed.
[41] I accept that the issues on the motion were very important to Ms. Ilnitskaya, who vehemently maintains that Mr. Sachkov has no ownership interest in the condominium and wishes to ensure that her ability to encumber, dispose of, and use the property is not inhibited. The motion was of similar importance to Mr. Sachkov, who wished to secure his interest in the property. Although the security for costs motions was ultimately consented to, it was initially opposed, which supports necessity in bringing it.
[42] In my view, Ms. Ilnitskaya overstates the complexity of the motions. The security for costs motion was straightforward, with minimal affidavit evidence and only a small part of Ms. Ilnitskaya’s factum addressing it. Mr. Sachkov filed no responding materials to that motion and ultimately consented to it. The CPL motion was more complex, but nowhere near as complex as it would appear from Ms. Ilnitskaya’s factum. In my view, most of the detailed legal submissions made were not necessary for a proper disposition of this motion (although will assist the parties in the balance of the action).
[43] Although not supporting substantial indemnity costs, Ms. Ilnitskaya convincingly argues that the pre-litigation “threats” of Mr. Sachkov in his WhatsApp text messages are a relevant consideration in assessing the reasonable expectations of the parties. I accept that they support a reasonable expectation by Mr. Sachkov that his CPL motion would be met with a stronger and more forceful response than might otherwise have been the case. However, I also cannot ignore that Mr. Sachkov’s costs outline claims partial indemnity costs that are less than one-half of those claimed by Ms. Ilnitskaya. That is also a relevant consideration in assessing the reasonable expectations of the parties.
[44] Since both sides cross-examined on affidavits, I asked for submissions on operation of Rule 39.02(4), which provides that a party who cross-examines on an affidavit in a motion (except a motion for summary judgment) is presumptively liable to all adverse parties for the costs of transcripts and for those parties’ partial indemnity costs of the cross-examination, regardless of the outcome. On this motion, that rule would operate to make each party liable for the costs of cross-examining the other.
[45] Both parties made similar submissions: generally that each party should bear their own costs of the cross-examinations, that some allocation be made in the cause regarding the extent to which cross-examinations will stand as discovery evidence, or that a reasonable figure be fixed as costs of the motion.
[46] I have read the transcripts. In my view, both parties undertook examinations more akin to discoveries than cross-examinations. The evidence obtained should be and (as confirmed by counsel) will be a base from which examinations for discovery proceed. In my view, since cross-examination evidence will stand as discovery evidence, there should be no costs award relating to the cross-examinations. Each party’s costs of the cross-examinations, including related disbursement costs, are reserved to be claimed in the cause as costs of examinations for discovery.
[47] I have determined that the fair and reasonable amount of partial indemnity costs payable by Mr. Sachkov to Ms. Ilnitskaya for the CPL motion and security for costs cross-motion is $20,000, inclusive of HST, plus $355.62 in disbursements, for a total of $20,355.62, payable within thirty (30) days. Order accordingly.
MASTER TODD ROBINSON
DATE: August 11, 2021