COURT FILE NO.: CV-18-601703
DATE: 20211101
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
PAULINE MPAMUGO
Applicant
-v-
LAWRENCE MPAMUGO and CANADA REVENUE AGENCY
Respondents
Muhammad Zafar, for Pauline Mpamugo
Surya Sasan, for Lawrence Mpamugo
Fozia Chaudary for CRA
HEARD: October 29, 2021
FL Myers J
REASONS FOR JUDGMENT
The Claim
[1] As set out in the applicant’s factum, she seeks:
An order that the CRA took funds from the Respondent [Lawrence Mpamugo]'s account, part of which belongs to the Applicant.
An order that the Respondents refund the amount of money claimed by the Applicant to her.
Convert the Application into Action for fair adjudication.
Allow the Applicant to bring a motion for refusal against the CRA.
Costs of this Applicant on a substantial indemnity basis; and
Any other order that this Court deems appropriate in the circumstances.
[2] I find that this application is misconceived both in law and in fact and must be dismissed. Pauline cannot show that CRA has funds belonging to her.
[3] Pauline Mpamugo inherited some land in Nigeria. She says that her father and uncles sold her land and gave the proceeds to her father Lawrence Mpamugo. He or his brothers deposited the proceeds into his accounts. He treated the funds as his own and, on his own evidence, he intermingled them with his assets, investments, and other funds.
[4] Pauline Mpamugo may have a claim against her uncles and father for taking her inheritance. She has no proprietary claim to any cash paid to CRA under a settlement with her father and mother in 2016 or otherwise.
Background
[5] This matter has a long history. In the 1990’s Lawrence Mpamugo amassed a tax debt to CRA in connection with his fraudulent operation of a business.
[6] In 1999, CIBC sued numerous members of the Mpamugo family and their companies seeking recovery of $4 million that it had loaned to Lawrence Mpamugo or his businesses. By a Mareva injunction order dated November 3, 1999, made by Lissaman J., the court froze assets held in the names of Lawrence Mpamugo, Kathleen Mpamugo, Pauline Mpamugo, Stephen Mpamugo, and Marygold Technologies Incorporated.
[7] The court order also froze the matrimonial home of Lawrence and Kathleen Mpamugo, at which Pauline Mpamugo also lived, at 285 Wallenberg Crescent, Mississauga.
[8] Pauline Mpamugo was a party defendant in CIBC’s action although she was a minor at the time the action commenced. She was sued because Lawrence Mpamugo admitted that he had put $500,000 into his daughter’s name. Pauline Mpamugo remained a party to CIBC’s action after she reached the age of majority until the action was resolved by consent order made by Spence J. dated December 10, 2010. She never ceased being a party as submitted by Mr. Zafar.
[9] There is no evidence that any of the Mpamugos raised any issue concerning their inheritance from Nigeria in the CIBC action.
[10] In 2009, CIBC commenced a separate application against the creditors of Lawrence Mpamugo, including the Province of Ontario, CRA, Citicorp, and RBC. The application was needed to sort out the creditors’ claims to priority to the assets frozen in the CIBC action. By order dated September 22, 2009, Code J. held that CRA had priority to the frozen funds and to the matrimonial home at 285 Wallenberg Crescent, Mississauga.
[11] In 2016, Lawrence Mpamugo sued CRA claiming that the matrimonial home was not bought with funds lent by CIBC and should never have been frozen under the Mareva injunction. The matrimonial home was sold in 2017. The net proceeds of $682,131.08 were paid into court pending the outcome of the legal proceeding.
[12] In the 2016 proceeding, Lawrence Mpamugo adduced evidence that the matrimonial home had been purchased by him in 1993 with funds derived from the sale of land that he had inherited from his father in Nigeria.
[13] Lawrence Mpamugo and CRA settled that proceeding. CRA agreed to share the proceeds of sale of the matrimonial home 50/50 with Kathleen Mpamugo on the basis that she may have had a claim for a spousal interest in the property and its proceeds under the Family Law Act. The parties exchanged full and final releases.
[14] In the 2016 action Mr. Mpamugo did not mention that his daughter had a claim to any of the funds derived from the sale of the matrimonial home. Neither did he advance a claim on behalf of his daughter. Rather, he claimed that he had purchased the matrimonial home with funds derived from the sale of his inherited land and that Kathleen Mpamugo had a claim against the home as his spouse.
This Application
[15] In this proceeding, Pauline Mpamugo claims that some of the funds used to purchase her parents’ matrimonial home or in seized accounts were derived for the sale of land that she inherited in Nigeria from her grandfather. She asks that CRA repay to her some portion of the funds it received from the sale of her parents’ matrimonial home or otherwise that belonged to her.
[16] Lawrence Mpamugo supports his daughter’s claim. He has revised his affidavit from his 2016 application to now say that the funds raised in Nigeria came not only from the sale of land that he inherited, but also from the sale of land that Pauline Mpamugo had inherited.
[17] In his affidavit in this proceeding, Lawrence Mpamugo discusses his many requests to his brother Kinsley in Nigeria to sell land to raise funds for him here.
As soon as Kinsley received the funds in his account at Webster Bank, he inadvertently and without notifying me, transferred all the funds from the proceeds of the sale of the landed properties that the applicant had inherited from her grandfather into my personal and business bank accounts that had been frozen by the Mareva order.
I wish to emphasize that while I had directed and authorized the sale of the farmlands in Nigeria and instructed my brothers, Charles Mpamugo and Kingsley Mpamugo to remit the proceeds from the sale of the lands to my various personal and business accounts in Canada, the funds actually belonged to the Pauline Mpamugo, who is the applicant in this matter. As was indicated earlier, the farmlands were inherited by the applicant from her grandfather. The CRA garnished these funds from frozen accounts.
[18] In the corresponding paragraphs in Lawrence Mpamugo’s affidavit in his 2016 proceeding, he swore:
I then contacted my brother, Charles again to sell another parcel of my inherited farmland at Alala Ancestral Farmland Area see Exhibit "P". He sold the property and forwarded the proceeds from the sale to My brother, Kingsley bank account at the Webster Bank in the United States. Attached hereto my affidavit and marked as Exhibits "Y" and "Z" is a copy of Purchase and Sale Document for the property and a copy of the Union Bank of Nigeria that was used to transfer the funds to Webster Bank in the US.
As soon as Kinsley received the funds in his account at Webster Bank, he inadvertently and without notifying me, transferred the funds to some of the bank accounts that I had given him in previous transactions. He transferred US$175,000.00 into my account held at
the CIBC branch at # 5 Dundas St. E, Mississauga, US$125,000.00 into my account held at Bank of Nova Scotia at 3295 Kirwin Ave. Mississauga and US$180,000.00 into my bank account held at the Royal Bank of Canada at 10 Dundas St. W, Mississauga. [Emphasis added.]
[19] Lawrence Mpamugo made no mention of Pauline Mpamugo or her interest in his 2016 testimony. In his new affidavit he adds:
- The CRA officials were fully aware that the funds in those bank accounts including other assets that were frozen by the Mareva order were mixed from funds from the said inheritance and yet they proceeded and garnished funds from those frozen bank accounts.
[20] On this basis, Pauline Mpamugo asserts that CRA is required to pay her money that her father obtained on the sale of land that she inherited in Nigeria that he invested here in his own name.
The Inheritance and Proceeds
[21] In his will dated March 10, 1989, Lawrence Mpamugo’s father bequeathed 10,000 acres of farmland to his seven children and their children. The land was located in four identified areas of Nigeria.
[22] Pauline Mpamugo was bequeathed 405 acres of land in the Oleri and Alala areas. Lawrence was bequeathed 800 acres of land in the Oleri and Alala areas. Bequests of further land in the Oleri area were made to two other sons and one other grandchild of the deceased. Bequests of further land at the Alala area were made to six other beneficiaries. In addition, the executor, who was the brother of the deceased, was bequeathed 300 acres in any of the four areas.
[23] None of the land is identified with any greater specificity. Neither is it made clear how the executor is to identify the specific sections of land within each of the four areas that made up the acreage bequeathed to each beneficiary or how he was to identify the 300 acres he had been bequeathed in any of the areas.
[24] The Mpamugos testify however that in 1999 they went to Nigeria, and Pauline Mpamugo says she was shown her land by her grandmother. It had not been sold by 1999 therefore.
[25] In para. 14 of his new affidavit, Lawrence Mpamugo swears:
It must be noted that for the purposes of this matter, the CRA as one of the respondents garnished the inheritance of the applicant that was bequeathed to her by her grandfather in Nigeria. Sometime in 1993, I used the funds derived from the proceeds of the sale of our inheritance which were farmlands in Nigeria to buy a house, our matrimonial home located at 285 Wallenberg Crescent, Mississauga, Ontario ("The property") and to start my new businesses in Canada. These funds were mixed with the funds that my businesses generated. The funds were later frozen by court order as stated in paragraphs 8, 9 & 10 above. [Emphasis added.]
[26] Mr. Mpamugo testifies to numerous land sales in Nigeria. He says that he intermingled and used the proceeds variously to fund businesses and to make investments. Some sales were made before they saw Pauline Mpamugo’s land in 1999 and some were after that time.
[27] There is not a single piece of real evidence to identify which specific land was inherited by Pauline Mpamugo; when that particular land was sold; or what was done with the money. This is not an issue of credibility. Neither is it an issue on which material facts are in dispute. It is a lack of evidence.
[28] First, there is no documentary evidence before the court linking any of the sales of land to Pauline Mpamugo’s inherited land. None of the contemporaneous real estate conveyancing documents identify or mention Pauline Mpamugo. None of the contemporaneous communication disclosed by Lawrence Mpamugo mentions Pauline Mpamugo or her inherited land at all. Lawrence Mpamugo used the same documents in 2016 to say that the sold land belonged to him.
[29] Second, the only evidence that money went into the matrimonial home is Lawrence’s evidence that this happened when the matrimonial home was purchased in 1993. That was six years before Pauline Mpamugo was shown her land intact by her grandmother in 1999.
[30] But even accepting at face value the applicant’s evidence as supported by her father, the court is told that Lawrence Mpamugo caused the executor of his father’s estate to sell Pauline Mpamugo’s land and to pay the proceeds variously to another brother, then into accounts in the US, and ultimately to him.
[31] There is no indication that Lawrence Mpamugo had any right, as trustee or otherwise, to instruct the executor to sell Pauline Mpamugo’s land or to take the proceeds of sale as his own. He did not segregate or purport to receive or hold the funds as trustee for Pauline Mpamugo. He does not say that he was acting for or for the benefit of Pauline Mpamugo at any time in his 2016 affidavit or in his new affidavit. Rather, he treated all funds that he received from Nigeria as his own. He intermingled the funds received from Nigeria with his own investments, assets, and businesses.
[32] Ultimately, Lawrence Mpamugo’s assets were seized for his personal tax debt and he settled with CRA.
Analysis
[33] Accepting the facts in evidence, I am not aware of any legal basis for Pauline Mpamugo to have a proprietary claim against CRA for cash it received or holds. She does not sue for knowing receipt or knowing assistance. Nor can she. There never was a trust. Lawrence Mpamugo treated the funds as his own. He swears that he did not tell Pauline Mpamugo about his misuse of her inheritance until 2018. That may help her with limitation period issues, but it lays bear the baldness of the one line in para. 33 of his new affidavit that CRA knew that the funds seized were inherited funds. He conspicuously does not say that CRA knew that any funds belonged to Pauline Mpamugo.
[34] Nothing in evidence before 2016 or even today shows Lawrence Mpamugo ever holding or acknowledging that he held any identifiable funds for Pauline Mpamugo. There is neither an intent to create a trust nor an identifiable res or trust fund.
[35] In addition, the question of the source of funds might have been relevant to whether CIBC had a right to trace its loan into various assets. Vis-à-vis CRA however, the source of Lawrence Mpamugo’s assets is of no consequence. Mr. Sasan wants an investigation of how CRA obtained the funds seized by CIBC. He says there is no court order authorizing it. However Lawrence Mpamugo provides the answer himself. In para. 32 of his new affidavit he says that between 2001 and 2010, CRA sent statutory requirements to pay to various banks where his funds were held. Code J. held that CRA’’s rights had first priority to those funds and to the matrimonial home. Whether Lawrence Mpamugo initially obtained funds from his business, a loan, an inheritance, or wherever does not impact CRA’s right, as a creditor, to seize his assets to pay his tax debt.
[36] Ms. Chaudary fairly and properly concedes that had Lawrence Mpamugo proved prior to signing his release that he held some of the funds in his name as trustee for Pauline Mpamugo, CRA would not have been entitled to seize those funds as assets of Lawrence Mpamugo. But he made no hint of any such relationship in the CIBC action or in the 2016 action in which he claimed the funds were from his own inheritance, or in this proceeding.
[37] Pauline Mpamugo has not provided any legal basis for a claim against CRA. Mr. Zafar relies on case law regarding joint bank accounts. There were no joint bank accounts seized in this case. There are no assets held in joint title. That case law is of no assistance to Pauline Mpamugo.
[38] As a matter of law, what Pauline Mpamugo has shown is that her father and her uncles might have sold her inheritance unlawfully and given the proceeds to Lawrence Mpamugo who used them as his own. As noted above, there is actually no real evidence that any of Pauline Mpamugo’s land has been sold. If it was sold after 1999, it quite plainly could not have been traced into the matrimonial home. Regardless, all of the money that found its way to Canada from Nigeria, through accounts elsewhere, was treated by Lawrence Mpamugo as his own and hopelessly intermingled his own funds and assets.
[39] Mr. Sasan says that a trial of the issues is required for an accounting. That might be so in an action between Pauline Mpamugo and her uncles and parents. She does not seek that relief in this application. She cannot possibly make a claim against CRA without establishing: (a) that her land was sold; (b) the proceeds of her particular land remained identifiable and were ultimately paid to her father; and (c) a constructive trust is imposed retroactively against the funds that were in her father’s hands that are now long since gone. CRA cannot bear liability in relation to a trust that has not yet been sought or imposed. Its intervening rights probably prevent the imposition of a constructive trust at this late date in any event. Moreover, even if a constructive trust were sought and imposed on Lawrence Mpamugo, it could not attach to funds seized years earlier through statutory requirements to pay, with court ordered priority, and after a release from Lawrence Mpamugo.
[40] Pauline Mpamugo has no proprietary claim to own any particular, fungible cash. If she has a claim at all, it is for breach of trust against the executor(s) and her father.
[41] Mr. Zafar provided no precedent or legal basis in argument to assert liability against CRA. It is not a correct characterization at law to say that it is holding Pauline Mpamugo’s property. On her evidence, her property in Nigeria was sold unlawfully and the proceeds were converted to Lawrence Mpamugo’s use. That gives her claims for breach of trust rather than a proprietary claim.
[42] Mr Zafar is highly critical of the CRA’s evidence because the employee currently in charge of the file did not have much useful information about steps taken earlier in the proceeding by others. Mr. Zafar relies on the legal obligation of a witness produced on behalf of a party for examination for discovery to prepare himself or herself. There were no examinations for discovery in this application. The applicant chose to proceed by application under Rule 14.05. The witness attended as a witness to provide evidence from his own personal knowledge. Moreover, He was not produced as a representative of CRA on discovery. I agree with CRA, that the issues that Pauline Mpamugo tried to raise about historical issues between CRA and Lawrence Mpamugo were not relevant to her claims against CRA such as thet are.
Summary
[43] Pauline Mpamugo seeks an order that CRA holds funds belonging to her. The most she can show is that her uncles and father might have wrongful taken funds derived from sales of land that she inherited. That assumes that a court accepts Lawrence Mpamugo’s evidence that her land was sold at some point despite the fact that there is no basis in the evidence to pinpoint which land was actually hers or that that land was actually sold. Regardless, on the Mpamugos’ evidence, Lawrence Mpamugo did not receive or hold any funds as trustee for Pauline Mpamugo. Between the intermingling of proceeds of sale of various parcels of land in Nigeria, then in the US, then in Lawrence Mpamugo’s assorted business, investment, and personal accounts here, there is absolutely no basis in law to find that any funds held by CRA belong to Pauline Mpamugo.
[44] This application is therefore dismissed.
Costs
[45] CRA incurred costs of approximately $40,000. It seeks indemnity for it costs on a partial indemnity basis of $8,000 - $10,000 from Pauline Mpamugo and Lawrence Mpamugo. CRA asserts that this application was actually brought by Lawrence Mpamugo despite and in face of his release of CRA for which he and his spouse received ample consideration. Ms. Chaudary notes that counsel for Lawrence Mpamugo in the 2016 proceeding was originally counsel for Pauline Mpamugo in this application. Lawrence Mpamugo’s contact details are shown in the initial notice of application despite Pauline Mpamugo being the titular applicant. And Lawrence Mpamugo delivered his new affidavit that contradicted his 2016 affidavit to make this claim.
[46] The normative approach in Ontario is that the successful party in litigation is entitled to its costs on a partial indemnity basis. The amount claimed here is a minimal indemnity. I agree that Lawrence Mpamugo ought to be responsible with Pauline Mpamugo for CRA’s costs. He is a party to the proceeding. He supported the applicant unsuccessfully. Moreover, if Pauline Mpamugo has any claim at law, it is against Lawrence Mpamugo. The fact that she sought to claim through him to CRA and not against him for his alleged wrongdoing exposes their complicity.
[47] Moreover, this application, as wrongly conceived as it was, could not have been brought unless Lawrence Mpamugo altered his 2016 evidence that the funds sent from Nigeria were from his inheritance. While it was not necessary for me to assess witness credibility to resolve this application, in my view, the stark change in Lawrence Mpamugo’s sworn testimony also shows his complicity with Pauline Mpamugo in bringing this unsuccessful application.
[48] I find that it is fair and reasonable under s. 131 of the Court of Justice Act for both Mpamugo parties to be jointly and severally liable to indemnify CRA for costs that I fix in the amount of $10,000 all-inclusive.
[49] CRA asks for an order prohibiting Lawrence Mpamugo from bringing further proceedings against it without leave of the court. That relief requires an application under s. 140 of the Court of Justice Act. It is not before the court today.
FL Myers J
Released: November 1, 2021
COURT FILE NO.: CV-18-601703
DATE: 20211101
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
PAULINE MPAMUGO
Applicant
-v-
LAWRENCE MPAMUGO and CANADA REVENUE AGENCY
Respondents
REASONS FOR JUDGMENT
FL Myers J
Released: November 1, 2021