ONTARIO SUPERIOR COURT OF JUSTICE
RE: CDW Canada Inc, Plaintiff
-and-
MD Shahenur Ali, Gretchen Avon Cabuyao, and Spacecaps, Defendants
BEFORE: Robert Centa J.
COUNSEL: Ted Frankel and Meghan Rourke, for the plaintiff
Pulat Yanusov, for the defendants
HEARD: July 26, 2022
ENDORSEMENT
1The plaintiff seeks interlocutory injunctive relief in the nature of Mareva and Norwich orders, along with a certificate of pending litigation in respect of property owned by its former employee MD Shahenur Ali, his sole proprietorship Spacecaps, and his wife Gretchen Cabuyao.
2For the reasons that follow, I grant much of the relief sought by the plaintiff. The plaintiff has presented very strong evidence that Mr. Ali committed civil fraud, breached his contractual and common law duties of fidelity and confidence to his employer, and has been unjustly enriched by his misconduct. Indeed, Mr. Ali does not dispute most of the crucial evidence on which the plaintiff relies.
3I find that there is a significant risk that Mr. Ali and Ms. Cabuyao will dissipate their assets and that injunctive relief is warranted. I will, however, tailor the relief to reflect the passage of time since the apparent misconduct and the commencement of this litigation, the legitimate needs of Mr. Ali and Ms. Cabuyao to support their family, and their willingness to cooperate with the plaintiff with respect to some of the banking information it seeks.
Facts
4All of the facts that I describe in this section are undisputed, except where specifically noted.
5CDW Canada Corp. (“CDW”) was formerly known as CDW Canada Inc.1 The company sells computer hardware, software, and peripherals, and provides IT and security services to a wide range of private and public sector clients.
6In January 2012, CDW hired Mr. Ali as an account manager. In March 2013, the company promoted Mr. Ali to the position of Marketing Communications Specialist. His duties included locating companies that could provide marketing services and support to CDW. To discharge his duties, CDW gave Mr. Ali confidential information about CDW’s marketing needs, the prices it paid to various marketing suppliers, and the bids provided to CDW by companies wishing to secure marketing contracts.
7As an employee of CDW, Mr. Ali was subject to the “Road to Success Coworker Handbook” and the CDW Code of Ethics. Both documents addressed conflict of interest and self-dealing.
8CDW became dissatisfied with its print marketing supplier and began to evaluate other options. It was Mr. Ali’s job to nominate and evaluate print marketing suppliers. In January 2014, Mr. Ali introduced a company called Spacecaps to CDW. Mr. Ali stated that Spacecaps could provide print marketing assistance to CDW. Mr. Ali has admitted that:
a. he created Spacecaps as a sole proprietorship;
b. Spacecaps never had any employees or contractors working for it;
c. all of the people purportedly associated with Spacecaps were fictitious and created by Mr. Ali;
d. any messages purportedly sent by anyone at Spacecaps were actually authored and sent by Mr. Ali; and
e. Spacecaps never had any clients other than CDW.
9On January 6, 2014, Mr. Ali sent the following email message to a Spacecaps email address:
Hello,
My Name is Shawn Ali and I am a Marketing Specialist at CDW Canada. CDW Canada is a leading provider of technology products and services for business, government and education.
We are seeking an email marketing list provider who would be able help with our current email marketing strategy.
We are interested in purchasing a list of Emails consisting of Canadian IT decision-makers. I was wondering if you can shed some light of whether this is possible or not.
If Possible, what are the costs? Do we have access to the emails so that we can deploy our marketing pieces.
We are looking for around 2-3k list.
10About four hours later, Mr. Ali used the Spacecaps email account to respond to the earlier message from his CDW email account. This email read as follows:
Hi Shawn,
Thank you for the email and your interest in our company.
Here at Spacecaps we are determined to ensure that we provide the best quality lists resulting in you reaching out to your target audience.
We are a Canadian company and our lists are primarily Canadian companies as well.
I will have a quote sent to you shortly with the parameters specified in your email. To answer your question regarding deployment; in the best interest of the list providers we would need to deploy your marketing piece. Rest assured, we will provide in depth analytics so that you can determine list performance immediately.
If you have any questions in the meantime, please let us know.
We look forward to hearing from you!
11The next day, Mr. Ali used the Spacecaps email account and the fictitious name “Nive M.” to send the quote that Spacecaps had promised to deliver to Mr. Ali’s CDW email account. Mr. Ali then used his CDW email account to send a response to Spacecaps. He copied his supervisor at CDW, Julie Clivio on his response. Mr. Ali asked if Spacecaps would agree to provide a discount if CDW committed to purchasing the customer lists for 10 months. Mr. Ali also asked Nive M. at Spacecaps, “what is your unique value proposition as the pricing seems to be on par amongst most providers?” Mr. Ali knew that he was actually sending both of these questions to himself. Ms. Clivio did not. Mr. Ali did not tell her that Spacecaps was his own business or that Nive M. was a fictitious person.
12On June 1, 2015, Mr. Ali obtained an Ontario Master Business Licence for Spacecaps, which he registered as a sole proprietorship. The business address was listed as 54 Edengarth Court, Toronto and the email address was Mr. Ali’s personal email address. The registration fee was paid through a credit card in the name of Ms. Cabuyao.
13On June 9, 2015, Mr. Ali wrote to CDW’s internal legal counsel to “start the legal process of getting some sort of agreement in place” with Spacecaps. On July 2, 2015, the CDW legal team sent Mr. Ali a draft master services agreement and a mutual non-disclosure agreement to forward to Spacecaps for its review. On July 22, 2015, Mr. Ali sent the legal team and Ms. Clivio a copy of the NDA that purported to have been signed by “Nive Mahal, Director of Operations” for Spacecaps. Mr. Ali did not tell Ms. Clivio or the legal department that Spacecaps was his own business or that Nive Mahal was a fictitious person.
14CDW subsequently entered into a contract with Spacecaps. Ms. Clivio’s evidence is clear: if she knew that Spacecaps was Mr. Ali’s sole proprietorship, she would not have permitted the contract to proceed. But for Mr. Ali’s misrepresentations, CDW would not have entered into the contract.
15CDW paid Spacecaps approximately $256,225,65 in 2016-2017, $161,321 in 2018, $229,085 in 2019, and $128,384 in 2020. In addition, CDW alleges that paid Spacecaps an as yet undetermined amount of money in 2014-2015.
16In May 2016, CDW incurred an unexpected $10,000 charge from Canada Post for a mailing error. Ms. Clivio raised this error in an email that she sent to Nive Mahal at Spacecaps. On May 25, 2016, Spacecaps responded to Ms. Clivio and included Mr. Ali at his CDW email address. Spacecaps admitted its error and offered a future discount in recognition of the error. Thirty minutes later, Mr. Ali used his CDW email account to respond to “Nive Mahal” at Spacecaps. Mr. Ali sent a copy of his message to Ms. Clivio and others at CDW. Mr. Ali professed his disappointment with Spacecaps’ error, emphasized how such errors could harm CDW, and stated, purportedly to Nive Mahal, that “the clear error is the lack of communication.”
17In 2017, Ms. Clivio asked Mr. Ali to arrange a face-to-face meeting with people at Spacecaps to discuss accuracy concerns and to establish a personal connection. No such meeting took place.
18Mr. Ali continued to have responsibility, even if it was shared responsibility, for managing the Spacecaps relationship on behalf of CDW. For example:
a. in December 2016, he exercised his authority to pay four invoices from Spacecaps using the CDW corporate credit card;
b. in September 2019, he recommended that CDW move its search engine optimization campaigns to Spacecaps; and
c. in late 2019, he reported to Ms. Clivio that Spacecaps provided good value to CDW Canada because he had reviewed other suppliers’ bids and that Spacecaps was charging less per campaign than its competitors.
19In early October 2020, a CDW employee told Ms. Clivio that she had noticed that Spacecaps had used the same idiosyncratic user alias that Mr. Ali used on some of his internal CDW work. Further investigation revealed that the email address and mobile telephone number associated with Spacecaps’ PayPal account appeared to match Mr. Ali’s personal email and mobile telephone numbers.
20CDW commenced a formal investigation. On October 16, 2020, Ms. Clivio emailed several CDW employees, including Mr. Ali, to advise that she was conducting an audit of all key suppliers to CDW that met a billing threshold. On October 19, 2021, Ms. Clivio sent Mr. Ali a set of detailed questions for Spacecaps to answer and asked him to schedule a virtual meeting with Spacecaps and Ms. Clivio in the next three weeks. The questions included an overview of the Spacecaps team working on the CDW projects (including name, title, and contact information), a list of three references.
21On October 26, 2020, Mr. Ali forwarded Ms. Clivio’s message to the Spacecaps email account. He wrote “Hi Nive, hope the weekend was nice. We are currently in the process of an internal business review of our partners. If you can please take a moment and share back some information listed below.” On October 28, 2020, Mr. Ali used Nive Mahal’s name and the Spacecaps email account to send himself an email to his CDW account. He wrote “Hi Shawn, I’m doing well hope your weekend was pleasant. Going to reach out to a couple of members on the team to collect the information you requested.” It is undisputed that Nive Mahal did not exist and that there were no other members of the Spacecaps team.
22On November 2, 2020, Mr. Ali forwarded the October 28 message purportedly from Nive Mahal to Ms. Clivio. Mr. Ali stated, “They sent me an email informing me that they are collecting all of the requested info and should have it to us this week….I’ll send a follow-up email tomorrow to get more details and find some times that work [for the virtual meeting].” On Friday, November 6, 2020, Ms. Clivio asked Mr. Ali for an update.
23On Tuesday, November 10, 2020, CDW received a letter on Spacecaps’ letterhead. The letter was in the name of Hamiz Hafiz, the founder. It is undisputed that Mr. Hafiz did not exist, and that Mr. Ali wrote the letter. The letter stated as follows:
It is with a heavy heart that we are writing this message to our Clients today; after nearly 8 strong years we are closing our offices permanently effective November 20th, 2020. As a small but mighty business based out of Toronto, Canada; Spacecaps along with many of our clients have had to endure the economic punches that 2020 has thrown.
Our company would like to thank you for your long-term business relationships, and hope to build upon those ties.
Over the next couple of weeks we will be reviewing our accounting records and paying any outstanding invoices. Please provide documentation to finalize our accounts, including sending any outstanding invoices or statements by November 20th, 2020. We will be in contact with you shortly after that time to arrange for final resolution of our accounts.
In the meantime please contact our head of accounts Nive Mahal at accounts@spacecaps.ca for any questions.
24On December 17, 2020, CDW’s external interviewer met with Mr. Ali. During the interview, Mr. Ali admitted that he owned Spacecaps, Nive Mahal did not exist, Spacecaps had no employees, and CDW was the only customer of Spacecaps. On December 21, 2020, CDW terminated Mr. Ali for just cause.
25On October 18, 2021, CDW issued a statement of claim in this proceeding and prepared a notice of motion seeking a Mareva order, a Norwich order, and certificates of pending litigation. CDW personally served the statement of claim and the motion record on the defendants on October 25, 2021. On November 9, 2021, counsel for the defendants advised that he was retained.
26The parties booked an appointment with civil practice court for November 23, 2021, but due to technical difficulties, the appointment did not proceed that day. The parties appeared at CPC on December 8, 2021, and the hearing of this motion was scheduled for July 26, 2022, which was the first available date for non-urgent motions. Following the CPC attendance, the parties exchanged email messages about preserving the status quo pending the return of the motion. On December 17, 2021, counsel for the defendant confirmed that the defendants “do not intend to dissipate or liquidate their assets to defeat the court process or any future execution or court order.”
The plaintiffs are likely to succeed at trial
27Before assessing each of the plaintiff’s requested forms of interlocutory relief, I will assess whether or not the plaintiff has satisfied me that they have demonstrated a strong prima facie case for relief. CDW has pleaded that Mr. Ali committed the tort of civil fraud, breached his contractual and common law duties of fidelity and confidence to the plaintiff, and has been unjustly enriched by his misconduct.
28This is a motion based on limited evidence. The parties have not yet made documentary production and examinations for discovery have not been conducted. I am required to make findings on the current state of the evidence. A trial judge may reach different conclusions based on the evidence led at trial. Based on the evidence before me, however, I am satisfied that CDW is likely to succeed against Mr. Ali on all of the pleaded causes of action.
Civil fraud
29I find that CDW is likely to establish that Mr. Ali committed the tort of civil fraud. A plaintiff must establish four things to make out a claim in civil fraud: (a) the defendant made a false representation; (b) the defendant had some level of knowledge of that the representation was false; (c) the false representation caused the plaintiff to act; and (d) the plaintiff’s actions resulted in a loss: Bruno Appliance and Furniture v. Hryniak, 2014 SCC 8, at para. 21.
30First, I am satisfied that CDW is very likely to establish that Mr. Ali made a significant number of false representations about Spacecaps to CDW. He did so both in his own name and in the names of the various fictitious persons he created and presented as Spacecaps employees.
31Mr. Ali maintains that he did not make false representations to CDW. For example, on cross-examination he was asked to confirm that he never told CDW that there might be a conflict of interest because he was the sole proprietor of Spacecaps:
Q. Okay. And you didn't make any report that, you know, there might be an issue here because you were the sole owner of a partner of CDW?
A. Everything was public regarding Spacecaps. I did not take any steps to cover my tracks.
32It will be for the trial judge to determine whether or not to accept Mr. Ali’s evidence. For my purposes, Mr. Ali’s evidence does not satisfy me that CDW is unlikely to establish that he made false representations.
33Second, I find that I think it is highly likely that CDW will be able to prove that Mr. Ali knowingly made those false representations. Creating fictitious people, corresponding with them, and then forwarding the chain to your supervisor, for example, is strong evidence that Mr. Ali knowingly made false statements.
34Mr. Ali maintains that he did not knowingly make false representations. For example, he was asked on cross-examination about the chain of introductory emails he exchanged with himself using the CDW and Spacecaps email accounts. He explained that he was not trying to give the impression that Spacecaps was a legitimate and separate company and would not agree that the emails were deceptive:
Q …So you would agree with me, sir, that essentially you wrote this e-mail as your CDW... in your CDW persona, to your Spacecaps persona, correct?
A. Yes.
Q. Okay. And the reason you did it was to give the impression that Spacecaps was a separate company, correct?
A. No, I see that as a creative shortcut, a practice that CDW encourages.
Q. You see it as a creative shortcut to create this false persona and give the impression that Spacecaps was a company independent of yourself?
A. No.
Q. Okay. But would you agree with me that it is not only creative, it is deceptive?
A. No. It could be misleading.
Q. And you did it for the purpose of giving the impression, again, that these are two totally separate independent entities, you as the CDW marketing specialist, and this Spacecaps entity as a third party vendor?
A. No, the pseudonyms were used to minimize bureaucracies, and I wanted to save CDW time and money.
Q. Okay. But you didn't... and so you didn't think that using personas or fictional people, and signing their names to legal agreements, including the NDA was, in any way, dishonest or deceptive?
A. I see them as creative shortcuts, a practice that CDW encourages with its start-up mentality.
35Mr. Ali’s evidence does not satisfy me that CDW is unlikely to establish that he knowingly made false representations.
36Third, I think it very likely that CDW will be able to prove that it relied on the false representations to enter into the initial contract with Spacecaps and to provide them further projects. The evidence of Ms. Crivello was crystal clear:
I approved Spacecaps as a vendor and approved purchase orders, on the basis that Spacecaps was a traditional vendor. I believed that Spacecaps was a traditional vendor because Ali actively concealed his affiliation with Spacecaps, contrary to CDW Canada's policies. If I had known about Ali's affiliation with Spacecaps, I would not have approved Spacecaps as a vendor or approved the purchase orders.
37The defendants submit that CDW did not rely on Mr. Ali’s representations because CDW has a legal team that is responsible for considering contractors, and the information that CDW eventually found in October 2020 (including the PayPal link between Spacecaps and Mr. Ali, and the business registration form) was publicly available.
38Again, it will be for the trial judge to determine whether or not to accept these submissions. At this stage, they do not persuade me that CDW will not be able to prove that it relied on Mr. Ali’s false representations about Spacecaps when choosing to contract with Spacecaps.
39Fourth, I am satisfied that CDW is likely to prove that it suffered a loss as a result of its reliance on Mr. Ali’s knowingly false statements.
40The defendants submit that CDW will fail to make out civil fraud because they cannot prove that Mr. Ali’s actions caused any damage. The defendants submit that CDW suffered no damage because it would have had to pay more elsewhere for the work that Spacecaps performed and, therefore, CDW suffered no damage. Because damage is a constituent element of the tort of civil fraud, the defendants submit that CDW’s claim will necessarily fail. I do not think this argument can succeed.
41First, there is no documentary evidence before me to support the claim that Spacecaps performed all of the work that CDW paid it to complete. The defendants have not yet filed a statement of defence or provided an affidavit of documents. The fact that Spacecaps cannot, at this point in the litigation, prove that Spacecaps did not complete the work is not the same as Spacecaps proving on this motion that it performed all of the work.
42Second, even if Spacecaps performed the work, CDW is entitled to argue at trial that it lost the entire $675,000 that it paid to Spacecaps because it never intended to contract with Mr. Ali to perform those services. It is important to recall that because Spacecaps was a sole proprietorship. From a legal and practical standpoint, there is no separation between the sole proprietorship business organization and the person who is the sole proprietor. All of the benefits of Spacecaps accrued to Mr. Ali and all of the obligations are his responsibility: Security National Insurance Company v. Markel Insurance Company, 2012 ONCA 683, 112 OR (3d) 1, at para. 61. If CDW never intended to contract with Mr. Ali, it may argue that its damages are every dollar it unwittingly paid to him.
43Third, In the case of Canadian National Railway Company v. Holmes, 2002 ONSC 1682, a CN employee engaged in extensive self-dealing. Mr. Holmes created several corporations of which he was the beneficial shareholder and caused CN to hire them without disclosing his relationship to the companies. Mr. Holmes submitted that he could not be found to have committed a tort because CN suffered no damages due to the favourable pricing provided by the companies he secretly controlled. In rejecting those submissions, Koehnen J. made the following observation at para. 170, which I adopt:
Even if the terms of Holmes’ contracts were truly more advantageous to CN than those of arm’s length suppliers, it was still to CN’s long term detriment to accept those contracts. If word were to get out that CN was manipulating the bidding process by allowing CN employees to underbid others and award contracts to themselves, arm’s length suppliers would quickly stop investing the time, money, and energy into bidding on CN jobs. That would leave CN at the mercy of people like Holmes and would deprive it of the benefit of a competitive market.
44In conclusion, I find that CDW is likely to establish that Mr. Ali committed the tort of civil fraud.
Unjust enrichment
45To establish unjust enrichment, a plaintiff must show an enrichment, a corresponding deprivation, and the absence of a juristic reason: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 37; Sirius Concrete Inc. (Re), 2022 ONCA 524, at para. 14.
46The payments from CDW to Mr. Ali, through his sole proprietorship Spacecaps, would meet the requirements of an enrichment (to Mr. Ali) and a corresponding deprivation (to CDW). CDW has established a strong prima facie case that the contract would not constitute a juristic reason for the payments, given the evidence that it was procured by deceit and fraudulent means: Sirius Concrete at para. 18. I rely on my findings above with respect to civil fraud.
47For the purposes of the relief sought by CDW on this motion, it is important to recall that where an unjust enrichment is established, a court may award a proprietary remedy in the form of a constructive trust where a personal remedy is inadequate and the plaintiff’s contribution is linked to the property over which the trust is claimed: Moore, at paras. 90-91.
48I find that CDW is likely to make out its claim of unjust enrichment against Mr. Ali.
Breach of confidence
49In my view, CDW is very likely to establish that Mr. Ali breached his obligations of confidentiality to his employer. An employee breaches the obligation of confidence when: (a) confidential information was conveyed; (b) the information was conveyed in confidence; and (c) the information was misused by the employee to the detriment of the employer: Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574, at p. 635; CTT Pharmaceutical Holdings, Inc. v. Rapid Dose Therapeutics Inc., 2019 ONCA 1018, at paras. 31-32.
50I find that CDW is very likely to establish that it provided Mr. Ali with pricing information and the bids of competitors to Spacecaps. This information was shared in confidence and Mr. Ali was not free to use the information for any purpose that was not authorized by CDW: Lac Minerals, at p. 642. Mr. Ali used this confidential information to submit bids by Spacecaps. Later, he attempted to deflect attention from Spacecaps and to preserve its lucrative contracts by reminding Ms. Clivio that Spacecaps pricing was favourable as compared to the other competitors. This was an unauthorized use of CDW’s confidential information.
51As they did with respect to civil fraud, the defendants submit that CDW cannot make out this tort because it suffered no damages. I disagree. The Court of Appeal for Ontario has held that “disclosure of confidential information is actionable if it results in detriment to the confider or wrongful gain to the confidant”: Rodaro v. Royal Bank of Canada (2002), 2002 CanLII 41834 (ON CA), 59 O.R. (3d) 74 (C.A.), at para 48; ICAM Technologies Corp. v. EBCO Industries Ltd., (1993), 1993 CanLII 2289 (BC CA), 52 C.P.R. (3d) 61 (B.C.C.A.), at p. 63, leave to appeal abandoned [1994] S.C.C.A. No. 23. In this case, CDW has a strong likelihood of demonstrating that the gains of Mr. Ali (through Spacecaps) were wrongful.
52Moreover, even if Spacecaps contracts were priced more favourably than other bids, CDW may still have been damaged. First, it lost the opportunity to have Spacecaps’ work monitored, checked, and improved by an arm’s-length employee who had only CDW’s interests at heart. Second, the unfair competition Spacecaps provided may have discouraged other providers from continuing to bid or to win contracts that might have provided innovation for CDW. This may well have caused the pool of contractors willing to bid on CDW work to shrink, to the detriment of CDW.
53Finally, I rely on the findings above with respect to the defendants’ submissions that the plaintiff suffered no damages.
54For the purposes of the relief sought by CDW on this motion, I note that if CDW can prove that Mr. Ali breached its confidence, the court may order disgorgement of Mr. Ali’s profit, not simply CDW’s loss, as the appropriate remedy: Canadian National Railway Company, at para 446; Lionel D. Smith, “Disgorgement of the Profits of Breach of Contract: Property, Contract, and ‘Efficient Breach’” (1995) 24 Can. Bus. L.J. 121, at p. 122. Disgorgement is a gain-based remedy that focuses denying the wrongdoer the fruits of their misconduct, regardless of the monetary loss to the wronged party: Atlantic Lottery Corp. v. Babstock, 2020 SCC 19, 447 D.L.R. (4th) 543, at paras. 23-24; MacDonald v. BMO Trust Company, 2020 ONSC 93, 150 O.R. (3d) 95, at paras. 50-51, 54, and 62. The disgorgement remedy promotes deterrence of future misconduct by others who are entrusted with confidential information.
55I find that CDW is very likely to establish that Mr. Ali breached his obligations of confidentiality to his employer.
Breach of employment contract
56I find that it is very likely that CDW will establish that Mr. Ali breached express or implied terms of his employment contract.
57It appears on the evidence before me that CDW is very likely to prove that Mr. Ali was subject to the “Road to Success Coworker Handbook” and the CDW Code of Ethics, both of which prohibited his actions. It seems likely that CDW will be able to prove that Mr. Ali was aware of those policies, and knowingly failed to comply with them. Even if Mr. Ali establishes that he was not subjectively aware of the provisions of those policies, CDW is likely to establish that he ought to have been aware of those policies and that it was reasonable for CDW to expect that he would not engage in the self-dealing described above.
58Moreover, even if CDW had never enacted the Handbook or the Code of Ethics, it seems likely that it could establish that it was an implied term of Mr. Ali’s employment contract that he would not engage in undisclosed self-dealing without CDW’s express approval provided with full knowledge of all of the relevant facts.
Claims against Ms. Cabuyao
59CDW submits that Ms. Cabuyao is also responsible for the damages to CDW because she either knew about or was wilfully blind to Mr. Ali’s conduct. In the amended statement of claim, CDW pleads that Ms. Cabuyao is also liable for the torts of knowing assistance (which is concerned with acts in furtherance of a fraud) or knowing receipt (which is concerned with receipt of trust property for one’s own benefit).
60CDW points to Ms. Cabuyao’s knowledge that Mr. Ali set up Spacecaps, that he ran the company entirely by himself, that CDW was a customer of Spacecaps, and of the significant amount of money being received via Spacecaps, particularly when measured against Mr. Ali’s salary for his full-time job at CDW, to support an inference that she could be found to be liable for fraud: Treaty Group Inc. v. Simpson, 2017 ONSC 249, 40 C.C.L.T. (4th) 244.
61The defendants submit that CDW cannot prove any element of any cause of action against Ms. Cabuyao.
62The case against Ms. Cabuyao is weaker than that against Mr. Ali. Nevertheless, CDW has made out a strong prima face case against her, particularly in knowing receipt. Moreover, given the interrelated nature of the family finances and property holdings, and the use of the funds received by Spacecaps to purchase those properties, for a Mareva-type order to be effective, it would need to constrain many of the assets in which Ms. Cabuyao holds an interest.
The Mareva order
63A Mareva injunction is available to freeze the defendants’ assets where there is a risk that the assets will be moved or dissipated to avoid judgment. It has been described as a “drastic and extraordinary”. It is recognized as extraordinary relief because the courts do not generally grant judgment before a determination of the merits of a claim: see Pugliese v. Arcuri, 2011 ONSC 3157 (Div. Ct.), at para. 18; and Furrow Systems International Ltd. v. Island Pools & Landscaping Ltd., 2014 ONSC 1428, at para. 9.
64In O2 Electronics Inc. v. Sualim, 2014 ONSC 5050, at para. 67, Perell J. summarized the law relating to Mareva injunctions as follows:
For a Mareva injunction, the moving party must establish: (1) a strong prima facie case; (2) that the defendant has assets in the jurisdiction; and (3) that there is a serious risk that the defendant will remove property or dissipate assets before the judgment. A Mareva injunction should be issued only if it is shown that the defendant's purpose is to remove his or her assets from the jurisdiction to avoid judgment. The moving party must also establish that he or she would suffer irreparable harm if the injunction were not granted and that the balance of convenience favours granting the injunction.
65CDW has satisfied me that a Mareva injunction should issue.
66First, for the reasons set out above, I am satisfied that CDW has established a strong prima facie case in respect of each of the causes of action it has asserted against Mr. Ali and Ms. Cabuyao.
67Second, I am also satisfied that CDW has established that the defendants have assets in the jurisdiction. The defendants have admitted that they own four properties that were purchased with funds received by Spacecaps. The defendants have also identified 14 different bank accounts that they operate. Each of the accounts contains some funds. On this basis, I am satisfied that the defendants have assets in the jurisdiction.
68Third, I am satisfied there is a serious risk that the defendants will remove property or dissipate assets before the judgment. In Ontario law, there is no broad “fraud exception” to the usual criteria for a Mareva injunction: Sibley & Associates LP v. Ross, 2011 ONSC 2591, at paras. 15 to 63; Noreast Electronics Co. Ltd. v. Danis, 2018 ONSC 879, at para. 51-53. The plaintiff must still demonstrate that there is a serious risk of the dissipation or removal of assets. However, strong proof of fraud is relevant to the assessment of the risk. In Sibley, Strathy J. (as he then was) put it this way:
It should be sufficient to show that all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff.
69In OPFFA v. Atkinson, 2019 ONSC 3877, at para. 8., Diamond J. held that proof of the risk of removal or dissipation of assets may, in the appropriate case, be inferred from the surrounding circumstances of a responding party’s misconduct. The list of relevant factors for the court’s consideration includes (a) a responding party’s attempt to “cover up his/her tracks”, (b) a responding party’s attempt to destroy, hide or alter evidence, and (c) any conduct demonstrating the traditional “badges of fraud.”
70In this case I infer a real risk that the defendants will attempt to dissipate or hide their assets or remove them from the jurisdiction.
71The evidence establishes that much of the money received by Spacecaps has already been dissipated into consumption (vacations and other lifestyle choices) and the acquisition of the four properties mentioned earlier. In addition, for the reasons set out above, I am satisfied that CDW has established a very strong prima facie case of civil fraud. The defendants’ conduct bears the badges of fraud: a pattern of clandestine and deceitful action over a prolonged period of time (six years), the creation of sole proprietorship to mask the activity, the existence of a significant number of bank accounts, the creation of fictitious persons to write to CDW, having fictitious persons sign legal documents with CDW, the attempts to avoid detection by avoiding face-to-face meetings, and the final letter purportedly announcing the shutdown of Spacecaps, were all designed to avoid detection and to permit the fraud to continue: Sibley; Noreast at paras. 53 to 54; OPFFA v. Atkinson, 2019 ONSC 3877, at para. 8.
72Finally, Mr. Ali’s answers on cross-examination, such as the ones set out above, repeatedly attempted to minimize both the significance and the intentionality of his conduct. This pattern of behaviour is troubling and raises the very real risk of further dissipation of assets.
73Fourth, I am satisfied that CDW has demonstrated that it will suffer irreparable harm if the injunction is not granted. The normal basis for irreparable harm in cases of this kind is that, if the defendant’s assets are not secured, there will be no way for the plaintiff to collect on a money judgment: East Guardian SPC v. Mazur, 2014 ONSC 6403, 64 CPC (7th) 90, at para. 41; OPFFA, at para. 25. This principle applies strongly in this case.
74I find the balance of convenience also favours CDW. With the terms I intend to impose on the Mareva, the defendants have not identified any harm that they will suffer.
75I am prepared to grant an interlocutory order to remain in place until trial that is consistent with paragraphs 1, 2, 3, and 7 of the draft order submitted by the plaintiffs at the hearing, with the following revisions:
a. Sub-paragraph 1(a) should be amended to clarify that the order prohibits the encumbering of assets through a home-equity line of credit or additional mortgage;
b. a new subparagraph 1(a)(vi) that lists the property on Sergio Marchi Street and makes clear that the order is not intended to prevent the parties from renewing (but not enlarging) the existing mortgage;
c. a new subparagraph 1(a)(vii) that lists the two pre-construction properties; and
d. paragraph 3 should be amended to permit the defendants to spend, collectively, up to a maximum of $7200 each month on living expenses and up to $50,000 in each 365-day period on legal fees.
The Norwich order
76CDW seeks a Norwich order to compel certain banks to produce information about bank accounts held by the defendants. The following factors are to be considered when deciding whether or not to issue a Norwich order:
a. whether the applicant has provided evidence sufficient to raise a valid, bona fide or reasonable claim;
b. whether the applicant has established a relationship with the third party from whom the information is sought, such that it establishes that the third party is somehow involved in the acts complained of;
c. whether the third party is the only practicable source of the information available;
d. whether the third party can be indemnified for costs to which the third party may be exposed because of the disclosure; and
e. whether the interests of justice favour obtaining the disclosure.
77The defendants do not object to providing the banking information, but object to the issuance of the Norwich order to the banks.
78I do not think it is appropriate to issue a Norwich order in this case.
79As the Court of Appeal for Ontario stated in GEA Group AG v. Flex-N-Gate Corporation, 2009 ONCA 619, at para. 85, a Norwich order is an equitable, discretionary, and flexible remedy. At the same time, it is an intrusive and extraordinary remedy, to be exercised with caution. An applicant for a Norwich order is required to demonstrate that the pre-action discovery sought is required to permit a prospective action to proceed.
80In my view, a Norwich order is not necessary for this action to proceed, and the third-party banks are not the only practicable source of information, given the defendants willingness to provide this information.
81Instead of a Norwich order directed at the banks, I believe in all of the circumstances it is appropriate to issue an order requiring the defendants to provide a sworn affidavit of assets and submit to examinations on that affidavit. I will issue an order that is consistent with paragraphs 4, 5, and 6 of the draft order provided by the plaintiffs.
82In addition, the defendants are ordered to obtain from their financial institutions and provide to the plaintiff within 30 days copies of any and all records held by the banks concerning the defendants' assets and accounts, including the existence, nature, value and location of any monies or assets or credit, wherever situated, held on behalf of the defendants by the Banks, and including but not limited to the current balances in all accounts, all monthly and/or periodic account statements since January 1, 2014, copies of all cheques, payment instruments, debit vouchers, wire transfer instructions, deposit records, transfer records, or other documents relating to withdrawals, transfers, or deposits since January 1, 2014.
Certificate of Pending Litigation
83CDW seeks a certificate of pending litigation with respect to a condominium owned by Mr. Ali and Ms. Cabuyao in Vaughan, Ontario. The parties agree that the down payment on this condo was completely paid for using the money that Spacecaps received from CDW.
84The defendants object to the plaintiff’s request for a CPL because the plaintiff did not include a request for a CPL in its statement of claim: rule 42.01(2).
85The defendants are correct to point out this omission. In many cases, such an omission would be fatal to the request for a CPL, especially one sought ex parte. However, in all the circumstances, I am prepared to grant the CPL. I do so for the following reasons:
a. the statement of claim did include a description of the land in question that is sufficient for registration: rule 42.01(2);
b. the notice of motion, which was served on the plaintiffs on October 19, 2021, at the same time as the statement of claim, sought a certificate of pending litigation, and the plaintiffs have had notice of this request;
c. the motion to obtain the CPL was brought on notice, not ex parte;
d. there is no doubt that the condominium was purchased with funds that Spacecaps obtained from CDW;
e. the defendants have not yet filed statements of defence and I would grant leave to the plaintiff to amend their statement of claim to include a claim for a CPL; and
f. the plaintiff represented in court that it would amend its statement of claim to include a claim for a CPL.
86A two-part test governs the issuance of a CPL. First, the court must determine whether the plaintiff has a triable claim to an interest in land. Second, the court must consider all relevant factors between the parties, including whether damages would be a satisfactory remedy, and balance the interests of the parties in the exercise of its discretion as to issue a CPL: Shirkhodaeitari v. Farkhondeh, 2022 ONSC 3864 at para. 16; Rahbar v. Parvizi, 2022 ONSC 1104 at para. 20.
87In this case, for the reasons set out above, CDW has demonstrated that they are likely to succeed on their claims against Mr. Ali. It is undisputed that the property in question was purchased with funds obtained through the alleged fraud. Given the potential availability of tracing and other equitable remedies, CDW has a triable claim to an interest in that property.
88Considering all the relevant factors between the parties, and balancing the interests of the parties, I find that it is appropriate to exercise my discretion to grant a CPL over the condominium in Vaughan. In reaching this decision, I rely on the same findings that supported the Mareva order.
89I am prepared to grant a CPL in the terms set out in paragraph 10 of the draft order submitted by the plaintiffs at the hearing. Paragraph 9 should be deleted from the final order.
Other matters
90I am also prepared to grant an interlocutory order that is consistent with the following paragraphs, with the required revisions:
a. Paragraph 11: replace “defendant” with “defendants”;
b. Paragraph 12: revise to have the come-back clause returned before me; and
c. Paragraph 13: the amended statement of claim should include a claim for the CPL over the condominium in Vaughan.
91The defendants took the position that the action should be stayed pursuant to the provisions of the Ontario Business Names Act, R.S.O. 1990, c. B.17, because the name “CDW Canada” is registered to a third party unrelated to CDW.
92The facts that relate to the corporate existence issue are not in dispute in the evidence before me. In 2015 CDW Canada Inc. changed its business name to CDW Canada Corp. In 2020, CDW Canada Corp. amalgamated with Scalar Decisions Inc., and remained CDW Canada Corp. The plaintiff seeks to amend its statement of claim so that the action would proceed under the name CDW Canada Corp. instead of CDW Canada Inc.
93I do not think this action should be barred because of the Business Names Act. No disciplinary purpose would be served in the circumstances here by denying the plaintiff the right to sue the defendants. Second, I see no evidence of an intention to deceive anyone and there is no evidence that the defendants were deceived in any way. Ramey v. Winkleigh Co-operative Housing Corporation, 2010 ONSC 4676, at para 91; Sports Medicine & Rehabilitation Clinics v. Kotick, 2010 ONSC 4676, at paras. 6 and 8; DC Foods (2001) Inc. v. Planway Poultry Inc. (2004), 2004 CanLII 6240 (ON SC), 46 BLR (3d) 148, at paras. 21 and 22; Benjamin v. Paradise Banquet Hall & Restaurant (Concord) Ltd., [2002] O.J. No. 2757 at paras. 27 and 28; and Hurley Corp. v. Canadian IPG Corp., 2010 ONSC 681, at paras. 28, 29 and 34.
94I grant leave to the plaintiff to correct the misnomer and to file the amended statement of claim naming the correct plaintiff. If necessary, I grant leave under s. 7(2) of the Business Names Act to maintain this action.
95The parties are invited to contact my judicial assistant to arrange a case conference if they run into any difficulties finalizing the order.
Costs
96If the parties are not able to resolve costs, the plaintiff may deliver its costs submission of no more than three double-spaced pages to be emailed to my assistant on or before August 9, 2022. The defendants may deliver a single responding submission of no more than three double-spaced pages on or before August 16, 2022. No reply submissions are to be delivered without leave.
Robert Centa J.
Date: August 2, 2022
1 The defendants challenge the ability of CDW Canada Corp. to maintain this action given the provisions of the Business Names Act, R.S.O., c. B.17. I will address those submissions later in these reasons.