Court File and Parties

COURT FILE NO.: CV-21-00670555

MOTION HEARD: 20211202

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ADP Direct Poultry Ltd., Plaintiff

AND:

PO Trading Inc. and Junpo Zhang, also known as Kelvin Zhang, Defendants

BEFORE: Associate Justice B. McAfee

COUNSEL: William S.M. McCord, Counsel, for the Moving Party, the Plaintiff

No one else appearing

HEARD: December 2, 2021

REASONS FOR DECISION

[1] This is a motion brought by the plaintiff ADP Direct Poultry Ltd. (ADP) for an order that the sum of $368,575.88 be paid into court to the credit of this action or otherwise preserved or secured on such terms as may be just. ADP relies on Rule 45.02 of the Rules of Civil Procedure.

[2] The notice of motion indicates that the motion is made without notice. The notice of motion also seeks leave to have the motion heard without notice or on short notice.

[3] At the return of the motion ADP took the position that notice of the motion had been given to the defendants PO Trading Inc. (PO) and Junpo Zhang also known as Kelvin Zhang (Zhang).

[4] It is ADP’s position that the motion was properly served on PO by regular mail pursuant to Rule 16.03(6). The corporate profile report lists the registered or head office address as 291 Parliament St., Toronto (the corporate address). As set out in the affidavit of service of Pency Tsai sworn November 5, 2021, on October 28, 2021 P. Tsai attended at the corporate address. According to the Tsai affidavit, PO could not be found at the corporate address. There is no evidence as to what was found at the corporate address or how it was determined that PO was not located at the corporate address. According to the Tsai affidavit, on October 29, 2021 a copy of the statement of claim and motion record were mailed to PO at the corporate address. The affidavit of service of D. Kilbride sworn November 16, 2021 states that the supplementary motion record was served by mail to PO at the corporate address. The affidavit of service of D. Dacunha sworn November 17, 2021, states that the factum was served by mail to PO at the corporate address. I am satisfied that ADP was given proper notice of the motion by serving ADP by mail to the corporate address in accordance with Rule 16.03(6).

[5] I am not satisfied that Zhang was given proper notice of the motion. It does not appear that an affidavit of service of the motion record on Zhang was uploaded to CaseLines or filed electronically. There is an affidavit of service of the supplementary motion record and an affidavit of service of the factum on Zhang by regular mail to the corporate address (see affidavit of service of D. Kilbride sworn November 16, 2021 and affidavit of service of D. Dacunha sworn November 17, 2021). Assuming that the motion record was also served on Zhang by regular mail to the corporate address, the motion material was served on Zhang by regular mail to the corporate address, an address where, according to the evidence before me, the corporation could not be found. Rule 16.03(6) does not apply to service on Zhang in his personal capacity. There is no evidence of any skip trace conducted to confirm Zhang’s location.

[6] On the motion counsel for ADP advised the court that the motion material was also served to the email address: potradinginc@gmail.com. No affidavit of service by email was prepared or filed/uploaded to CaseLines. Moving counsel advises that the statement of claim, motion record and supplementary motion record were emailed on November 16, 2021, the factum was emailed on November 17, 2021, and the CaseLines information was emailed on November 29, 2021. I was not referred to evidence of communications by email. The only reference to the email address is in the underlying service agreement between ADP and PO dated October 1, 2019.

[7] Moving counsel advises that no motion material served by mail was returned and no motion material served by email was undeliverable.

[8] For the purposes of this motion, I am satisfied that PO was served with the motion in accordance with the Rules. I am not satisfied that Zhang was given proper notice of the motion. The specific relief on this motion relates to funds allegedly overpaid in error to PO. I treat the motion as made without notice to Zhang.

[9] On or about October 1, 2019, ADP and PO entered into an agreement whereby PO supplied ADP with staff to perform poultry cutting and processing (PO cutters) for ADP’s poultry processing facilities. Zhang is the sole officer, director, and shareholder of PO.

[10] The work done by the PO cutters was charged and paid for on a piece work basis. PO stopped working for ADP on July 30, 2021. Thereafter new cutters took over from PO.

[11] According to the evidence of ADP, two weeks after the new cutters began working with ADP the new cutters advised ADP that there appeared to be an accounting error on the part of ADP that resulted in the new cutters having been overpaid on their first two invoices. ADP looked into the accounting error raised by the new cutters and determined that there was an error in ADP’s accounting system that began on April 12, 2021. As a result of this accounting error, it is ADP’s position that it essentially paid double the amount owing to ADP from April 12, 2021 until July 30, 2021. During that time period, ADP paid the sum of $737,603.87 inclusive of HST but ought to have only paid the sum of $369,028.21 inclusive of HST, resulting in an overpayment of the sum of $368,575.88.

[12] When ADP’s president Augo Pinho (Pinho) brought the alleged accounting error to PO and Zhang’s attention, Zhang advised that everything was correct, but Zhang would review their records and get back to Pinho. Zhang never got back to Pinho or ADP. Attempts by ADP’s staff and lawyers to contact representatives of PO were unsuccessful. There has been no further communication from PO and Zhang.

[13] The evidence before me is that cheques tendered by ADP to PO during the time period of the alleged overpayment were deposited by PO to a Toronto-Dominion account.

[14] On October 20, 2021, the within action was commenced. On October 29, 2021, effective on or about November 5, 2021, PO was served with the statement of claim in accordance with Rule 16.03(6). Zhang has not yet been served with the statement of claim.

[15] In the within action ADP claims inter alia a declaration that it is the sole and beneficial owner of a fund in the amount of $368,575.88, being the amount of the alleged overpayment. In the alternative, ADP claims inter alia damages in the amount of the alleged overpayment of $368,575.88.

[16] For the purposes of the relief requested on this motion, ADP has given an undertaking in respect of damages.

[17] Rule 45.02 of the Rules of Civil Procedure 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 terms as are just.

[18] As stated by S.T. Goudge J.A. in Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475 (C.A.) at paras. 17-21:

17 Rule 45.02 is part of Rule 45 which, as its title suggests, provides for the interim preservation of property pending litigation. The Rule is a limited exception to the law’s deep-seated aversion to providing a plaintiff with execution before a trial. The risk of such an order, because of its invasive nature, is well explained by Sharpe J.A. in Injunctions and Specific Performance, looseleaf 3d ed. (Aurora: Canada Law Book, 2012), at para. 2.760:

Clearly, pre-trial execution of any kind poses definitive problems. Attachment of assets or interference with disposition of assets will often constitute a serious interference with the defendant’s affairs. The interference may be more readily justified where the plaintiff’s right is specifically related to the asset in question. However, where the plaintiff asserts a general claim and looks to the assets only as a means of satisfying a likely or possible monetary judgment against the defendant, interference with the defendant’s assets is more difficult to justify.

18 In my view, the policy approach dictated by this caution must inform the test required by rule 45.02. In News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2000] O.J. No. 3705 (S.C.), at para. 14, Nordheimer J. put forward a test which does that, and which I would adopt:

I conclude therefore that the appropriate test for relief under rule 45.02 should require the plaintiff to establish that:

(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;

(c) the balance of convenience favours granting the relief sought by the plaintiff.

19 The first of these requirements, the one under special scrutiny in this appeal, faithfully reflects the language of rule 45.02. It requires that there be a specific fund readily identifiable when the order is sought. It also requires that the plaintiff assert a legal right to the specific fund as a claim in the litigation. While I do not find it to be a helpful descriptor, I think it is in this sense that past jurisprudence has sometimes described the specific fund as “earmarked to the litigation”.

20 The second and third requirements, though not centrally in issue in this case, are equally important in manifesting the policy behind the rule. They ensure that interference with the defendant’s disposition of assets is limited to cases where the plaintiff has a serious prospect of ultimate success, and there is something compelling on the plaintiff’s side of the scales, such as a real concern that the defendant will dissipate the specific fund, that is sufficient to outweigh the defendant’s freedom to deal with his or her property.

21 Framed in this way, the test will not be met where a plaintiff’s claim is for damages. That is so even if a specific fund is identifiable in the factual matrix of the litigation, because a claim for damages is not a claim to a legal right to that fund. In Asante Financial Management Ltd. v. Dixon (2004), 8 C.P.C. (6th) 57 (Ont. S.C.), Wilton-Siegel J. put it this way, at para. 28:

There is a subtle but important difference between an amount that may be owing to the plaintiff and a right of the plaintiff to a fund.

[19] In 3Genius Corp. v. Locationary Inc., 2016 ONSC 4092 (S.C.J.) Belobaba J. states as follows with respect to the first part of the test at paras. 11 and 12:

11 In my view, it makes sense to restate the threshold “specific fund” requirement post-Sadie Moranis by focusing on each of the two sub-questions. I believe that the case law to date can be best understood as saying two things about this threshold requirement: one, there must be a reasonably identifiable fund of money; and two, the plaintiff must be claiming a legal right to that fund and not just making a claim for damages.

12 It is only after the two-part threshold requirement has been satisfied that one goes on to consider the second and third requirements, ‘serious issue to be tried’ and ‘balance of convenience.’

[20] In 3 Genius the following is stated with respect to the first part of the “specific fund” threshold requirement at paras. 14-17:

14 The first part of the “specific fund” requirement can be satisfied if the plaintiff shows that a specified and differentiated sum of money exists under the control of the defendant or a third party. The money in question does not have to be physically separated or segregated from other monies. It does not have to be bound in a rubber band and secured in a safety deposit box, or hidden under a mattress. Most 45.02 claims are for funds that are “sitting in” a bank account. But modern banking does not keep actual funds in a bank account or even trust account. The account holder’s right to the monies in her bank account is based on related and supporting documentation. To accord with modern banking practices, it is enough if the specified amount is sufficiently differentiated by a book-keeping entry or line-item description in an accounting ledger or other related financial documentation. The key requirement is not actual or physical segregation but a sufficient differentiation.

15 A claim to an amount that remains undifferentiated and will simply be paid out of the defendant’s or third party’s corporate bank account is not a specific fund. As Brown J., (as he then was) noted in Deol v. Morcan Financial Inc. which involved a disputed claim for unpaid finder’s fees:

What the plaintiff really seeks is an order compelling the defendants to put to one side general corporate funds to stand as security for a judgment which the plaintiff hopes to secure at trial. That sort of execution before judgment is not available under Rule 45.02.

16 It is important to understand, however, that a specific fund can sometimes be found in a defendant’s or third party’s general corporate funds. This will happen when the claimed fund is, or is likely to be, differentiated by a book-keeping entry or line-item description in a financial ledger. The point is not that the monies are not co-mingled or inter-mingled because they always are – whether trust accounts or general bank accounts. The question is whether the claimed fund is reasonably identifiable (i.e. differentiated) by a book-keeping entry or other line-item descriptor.

17 In my view, this is the best explanation for the case law that has found specific funds in trust accounts, bank accounts, and even in general corporate funds if the fund being claimed for general corporate funds has been differentiated as an undisputed amount that is owning or payable.

[21] In my view ADP has not satisfied the first part of the “specific fund” threshold requirement.

[22] There is evidence before me that the payments made by ADP to PO between April and July 2021, including both the amounts properly paid and the amounts allegedly overpaid, were deposited into a TD account. However, the evidence before me does not satisfy me that a specific fund exists. There is no evidence that any or all of the amounts allegedly overpaid remain in the TD account. There is no evidence that any or all of the alleged specific fund remains in existence. There is no evidence that the claimed fund is reasonably identifiable (i.e. differentiated) by a book-keeping entry or other line-item descriptor in the PO accounts. There is no evidence of a reasonably identifiable fund earmarked for pending litigation.

[23] In 3Genius there was evidence of a specified undisputed hold back ready to be paid out. In 2219287 Ontario Inc. v. Fleetwood Pharmaceuticals Inc., 2021 ONSC 4729 (S.C.J.) and DIRECTV Inc. v. Gillott, 2007 CarswellOnt 883 (S.C.J.) there was evidence of funds held in trust. These are not the circumstances before me on this motion.

[24] I am not satisfied that quantification of an alleged overpayment renders the overpayment an identifiable specific fund of money for the purpose of Rule 45.02. Absent evidence that a specific fund is available I am not satisfied that an order can be made requiring PO to pay other monies into court.

[25] In my view, ADP is seeking an order that PO put aside corporate funds to stand as security for a judgment that ADP hopes to obtain. This is not the purpose of Rule 45.02.

[26] ADP has not satisfied the first part of the “specific fund” threshold. In the circumstances it is not necessary to consider the balance of the test.

[27] The motion is dismissed.

[28] Costs were not specifically sought in the notice of motion but were referenced in the factum. The relief requested not having been granted, there shall be no costs of the motion.

[29] Order to go as follows, PO not appearing, and without notice to Zhang:

1. The motion is dismissed.

2. There shall be no costs of the motion.

Associate Justice B. McAfee

Date: December 20, 2021