Court File and Parties

COURT FILE NO.: CV-22-00683327-0000 DATE: 20230227 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GIUSEPPE PETIX AND GIUSEPPINA PETIX, Plaintiffs – and – KHURRAHM SHROFF, KHURRAM MIRZA, SALEEM MOOSA, DWAIN PEREIRA, MARC-ANDRE POULETTE, NANJI HEALTH GROUP INC., REZI WORX INC., CANETH GLOBAL LLP, iMINING TECHNOLOGIES INC. and SUBSIDIARY COMPANY CANETH STAKING SERVICES INC., Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Dean Qureshi, for the Plaintiffs Gary Caplan and Aram Simovonian, for the Defendants, Khurram Shroff, Khurram Mirza, Saleem Moosa, Dwaine Pereira, Marc-Andre Poulette, Nanji health Group Inc., Rezi Worx Inc., Caneth Global LLP, and Subsidiary Company Caneth Staking Services Inc. Kevin Sherkin and Jeremy Sacks, for the Defendant, iMining Technologies Inc.

HEARD: February 27, 2023

Endorsement

MOTION for mareva injunction

[1] This motion for a Mareva injunction was first brought by the Plaintiffs on August 2, 2022 on an ex parte basis. The Motion Record at the time contained an affidavit from each of the two Plaintiffs, both sworn July 28, 2022, setting out the factual background to the claim.

[2] The motion came before Justice Vermette, who raised two serious concerns with the evidentiary basis for the injunction sought by the Plaintiffs. In the first place, she did not see sufficient grounds to conclude that the Plaintiffs had a strong prima facie case against the Defendants. Perhaps even more importantly for a Mareva motion, Justice Vermette did not think that the record contained an evidentiary basis for the allegation that the Defendants would dissipate assets.

[3] Instead of dismissing the motion, Vermette J. adjourned the matter. In her endorsement, she granted the Plaintiffs an opportunity to file additional evidence to address these expressed concerns on an urgent basis.

[4] Taking an unusual approach to a Mareva injunction motion, the Plaintiffs waited more than six months before re-filing their motion materials. On February 8, 2023, they once again proceeded on an ex parte basis, using the same two affidavits of the Plaintiffs’ that had been in the record before Justice Vermette. No new evidence was added.

[5] This time the matter came before Justice Chalmers, who did not grant an injunction but rather ordered that the Defendants receive notice of the motion. He also set out a timetable for each side to serve materials filed in the motion. As the Plaintiffs wanted to proceed on an urgent basis, the timetable did not include an opportunity for cross-examinations on affidavits.

[6] It is safe to say that Justice Chalmers was unimpressed with the materials that were before him and the way in which the Plaintiffs had proceeded. As he put it in his endorsement, “The Plaintiffs have not moved promptly with a motion for an injunction. If there was clear evidence that the Defendants were dissipating assets since being served with the Claim, I expect the motion would have been brought sooner.” Nevertheless, in adjourning the motion he did grant the Plaintiffs their request for an expedited hearing date, scheduling the return of the motion, on notice, for just over two weeks later.

[7] On February 10, 2023, the Plaintiffs served on the Defendants their Motion Record and factum. The Motion Record again contained the same two affidavits of the Plaintiffs sworn July 28, 2022. No new evidence was added and no new facts were alleged beyond those that were before Justices Vermette and Chalmers.

[8] It is difficult to understand Plaintiffs’ counsel’s thinking in this regard; both previous judges had concluded that there was an insufficient evidentiary basis for a Mareva injunction and gave the Plaintiffs opportunity to supplement the record. Instead, the Plaintiffs chose to put the Defendants to the effort of responding to an urgent motion, on a short timeline, on the basis of the same record that they had unsuccessfully put before the court on two previous occasions.

[9] Finally, in reply to the Defendants’ Responding Record, the Plaintiffs did submit one new affidavit by Giuseppe Petix dated February 21, 2023. This affidavit takes issue with many of the particular points made by the Defendants and argues that the Defendants are incorrect. It also accentuates how confusing the transactions in issue are and how complicated the financial milieu in which they took place really is. As the Plaintiff affiant states in the first substantive paragraph of his reply affidavit, “The complexity of cryptocurrency at the most basic level is still enough to make your head spin on end for days.”

[10] Much of the February 21st affidavit re-hashes information already addressed in the Plaintiffs’ initial affidavits. The only new evidence, other than editorializing about the matters already in the record, is to further describe the mechanics of the Plaintiffs’ investment – i.e. how the Plaintiffs were instructed to proceed by the Defendants, to whom the cheques were made payable, etc. And I might add, even this is to some extent repetitive of what had come before.

[11] Unfortunately for the Plaintiffs, the third time is not the charm. I am no more inclined to grant the injunctive relief sought in this motion than were either of my predecessors. To make a long story short, the Plaintiffs present a record which goes to some lengths elaborating on the merits of their contract and fraud claims against the Defendants. What the record does not contain, however, is either direct evidence of the dissipation of assets by the Defendants or evidence from which such dissipation can seriously be inferred.

[12] A Mareva injunction does require a moving party to establish a strong case on the merits; in addition, it is a motion that by its very nature is “an extraordinary remedy and…never an easily obtainable way to obtain pre-judgment execution”: 2057552 Ontario Inc. v Dick, 2015 ONSC 3182, at para 10, aff’d 2016 ONCA 7. It is particularly important in this context to provide evidence that there is a risk of the assets being put beyond the reach of the Court such that the Plaintiffs will be unable to realize on any eventual judgment in their favour: Shaw Communications Inc. v. Young, 2021 ONSC 7918, referencing Chitel v. Rothbart.

[13] Instead of supplementing the record with cogent new evidence, Plaintiffs’ counsel has offered more legal argument. His point, made at some length in the Reply Factum and in oral submissions, is that evidence on a Mareva need not be direct but rather can be inferred from known facts. In making this argument, counsel relies on several rulings by this Court to the effect that dissipation of assets may be inferred from a responding party’s attempts to (a) “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”: OPFFA v. Atkinson, 2019 ONSC 3877, at para 8.

[14] After making this legal point, counsel for the Plaintiffs then list the evidence from which he contends the relevant inference can be drawn. As set out in Plaintiffs’ Reply Factum [references omitted]:

a. The Defendants directed the Plaintiffs to write cheques directly to them and to indicate that such cheques were a loan when, in fact, they knew the Plaintiffs were remitting the funds to purchase Ethereum; b. The Defendants failed to transfer ownership of certain bargained for assets to the Plaintiffs despite receiving payment from the Plaintiffs for such assets; c. The Defendants failed to provide any official receipts for any of the funds they received from the Plaintiffs; d. The Defendants failed to provide official investment statements to the Plaintiffs, despite repeated requests by the Plaintiffs for an official accounting of their investments; e. The repeated false assurances by the Defendants that the Plaintiffs would be reimbursed for their various investments; f. The Defendants knowingly accepted payment from the Plaintiffs for crypto assets; g. Mr. Moosa’s creation of a metamask wallet in Giuseppe’s name, without Giuseppe’s knowledge, and failing to provide Giuseppe access to the wallet; h. Mr. Moosa’s false statements in his affidavit, including the claim that the Plaintiffs were sold Mr. Shroff’s personal validators; i. Mr. Moosa’s false statement in his affidavit that the Plaintiff’s made a $30,000.00 advancement; j. The knowingly false representations by the Defendants that they would “make the Plaintiffs whole” in the event the Plaintiff’s investment fell through; and k. The Defendants retention of amounts owing to the Plaintiffs while acknowledging that these amounts were owed.

[15] Even a cursory review of the factors listed by the Plaintiffs reveals that they essentially comprise the factual allegations that underpin the merits of the Plaintiffs’ claim. The Plaintiffs allege that they made an investment that they did not fully comprehend, that they were duped into that investment, that they are owed money by the Defendants on the investment contract, that they expect to be compensated, and that the Defendants are holding onto their funds contrary to their rights. I make no judgment on any of these allegations, except to say that they form the basis of the dispute, not the basis of an extraordinary remedy such as a Mareva.

[16] For their part, the Defendants have provided affidavit evidence in which they give a very different perspective on the factual background for the dispute. They characterize it as a contractual dispute, and essentially as a financial investment gone sour not because of anyone’s fault but because of a downturn in the crypto currency market. They do concede that some monies may be owing to the Plaintiffs, but they submit that there are expenses to be offset against those funds and that this is to be worked out in the context of adjudicating the overall dispute.

[17] In essence, the Defendants relate that the Plaintiffs, of their own free will and fully aware of all of risks, put their money into the volatile world of crypto-asset acquisition. In the Defendants’ view, the Plaintiffs are now disappointed investors who have resorted to litigation to recover their investment, or perhaps even to be awarded their expectation interest. Again, I make no judgment on any of these allegations, except to say that they form the basis of the dispute but do not form the basis for an extraordinary remedy such as a Mareva.

[18] As is evident from these summaries of the parties’ respective positions, the facts of the dispute are themselves deeply disputed. There are binary, conflicting narratives which cannot be resolved on this motion.

[19] More to the point, as the Defendants state in their factum, the sine qua non of a Mareva is an intention to put assets beyond the reach of the court for the purpose of defeating any final judgment. This is a decisive omission here. The Court of Appeal has said that, “it is only if the purpose of the defendant when removing assets from the jurisdiction or the dissipating or disposing of them is for the purpose of avoiding judgment that a Mareva injunction should be issued": R. v. Consolidated Fastfrate Transport Inc. (1995), 125 DLR (4th) 1.

[20] What the Plaintiffs have provided in the Motion Record is evidence that the Defendants owe them money. While they allege that the money is owed to them as a result of fraud, that is far from certain. What the evidence really demonstrates is that there is a financial dispute over a risky investment gone bad. It contains an allegation that the Defendants should not have taken the Plaintiffs’ investment as they did not sufficiently comprehend the financial risk. There are also allegations of a lack of reporting statements and other shortcomings in the Defendants’ management of the investment.

[21] It is worth noting that the Mareva injunction sought by the Plaintiffs is limited in an unusual way – it specifies relatively small amounts as against each of the relevant Defendants. Although the overall claim is a large one covering both financial and emotional harm allegedly inflicted by the Defendants, the supporting affidavit produced by the Plaintiff states as follows [internal references omitted]:

The total prayer for relief sought in the Statement of Claim, Court File No.: CV-22-00683327-0000, is $5,578,651.85 plus court and legal fees, while the total amount sought to be held from the Mareva Order is $209,550.56, broken down in the following manner:

(a) $88,482.12 held from Mr. Shroff for purchased Ethereum, 25% of the unpaid invoices for computer hardware and accessories, and 25% of the Plaintiff’s personal equipment being held by the defendants; (b) $44,615.54 held from Mr. Poulette for undelivered purchased Ethereum; (c) $19,482.12 held from Mr. Moosa for 25% of the unpaid invoices for computer hardware and accessories, and 25% of the Plaintiff’s personal equipment being held by the defendants; (d) $19,482.12 held from Mr. Mirza for 25% of the unpaid invoices for computer hardware and accessories (paragraph 32 and 33 above), and 25% of the Plaintiff’s personal equipment being held by the defendants; (e) $19,482.12 held from Mr. Periera for 25% of the unpaid invoices for computer hardware and accessories, and 25% of the Plaintiff’s personal equipment being held by the defendants; (f) $12,006.56 held from Rezi Worx Inc. for purchased Ethereum; and (g) $10,000.00 held from Nanji Health Group Inc. for the unreimbursed amount from the money order for cash exchange.

[22] Whether the allegations in the Statement of Claim amount to fraud or any other cause of action will be established at another stage of this litigation. But there is nothing here that would suggest that the Defendants are the type of fraudulent actors who are avoiding judicial process or dissipating their assets in advance of a ruling on the merits. What the Plaintiffs appear to be doing is to be quantifying their specific contract claims and seeking to seize funds in advance of trial or judgment.

[23] The closest that the Plaintiffs come to showing any kind of flight from the jurisdiction is to point out that one of the Defendants’ responding affidavits was sworn while the affiant was outside of Canada, and that another of the individual Defendants has, without hiding the fact, apparently moved to Calgary, Alberta. I do not consider that these facts, levelled as they are against parties that are represented by Ontario counsel and are fully participating in the defense of this case, presents a risk of asset flight.

[24] The Defendants are by all appearances substantial individuals and corporations, one of which, iMining Technologies Inc. (“iMining”), is a public company with publicly available financial statements. It would take more than just hint and suspicion for the Court to infer that these Defendants were trying to dissipate all of their assets in order to avoid a freeze of $209,550.56 collectively. As iMining’s counsel observes, one can only imagine the reputational damage to be suffered by a publicly traded corporation if it is the subject of a Mareva injunction – even if on its face limited in quantity to just over $200,000.

[25] This kind of claim for specific contractual reimbursements – on some counts for as little as $10,000 – will have to await an actual judgment. Justice Vermette, in her endorsement of August 2, 2022, specifically stated that, “the Court needs to be satisfied that the test for a Mareva is met for each Defendant against whom the Order is sought.” There is no evidence in the record to satisfy me on that account. I have nothing at my disposal that would allow me to conclude that, for example, Messrs Mirza and Perriera, do not have some $19,000 each, or that Nanji Health Group Inc. does not have $10,00 available to satisfy any eventual judgment.

[26] This evidence on the merits is itself contested in the Responding Record. More to the point, it does not demonstrate that “the defendant threatens to so arrange his assets as to defeat his adversary”: 10390160 Canada Ltd. et al v Casey et al., 2022 ONSC 628, at para 43, citing Aetna Financial Services Ltd. v Feigelman, [1985] 1 SCR 2. There are no vanishing bank accounts, no movements of funds or assets offshore, and no instability or questionable activity on the Defendants’ part from which a flight of assets could be inferred. Furthermore, there is not the type of strong prima facie case of fraud on the merits – as opposed to a financial/contractual dispute – that would allow one to conclude that the conditions for a Mareva injunction are present.

[27] I should add that the transactions engaged in by the Plaintiffs were with Defendants other than iMining. It is not clear to me what the precise claim against iMining actually is. When asked specifically to state the gist of the argument against iMining in this motion, Plaintiffs’ counsel described that iMining is the parent company of the other corporate Defendant and is itself owned by at least one of the individual Defendants, and so has played a background role in this matter. Counsel also added that the other Defendants have offered shares of iMining as possible compensation to the Plaintiffs.

[28] These allegations barely amount to any kind of claim against iMining. I fail to see how they could possibly support dramatic equitable relief such as a Mareva injunction against iMining.

[29] Two of my judicial colleagues, Justices Vermette and Chalmers, have examined virtually the same record as the one before me, and have concluded that more is needed. The Plaintiff took more than half a year to return to court, but did not take the opportunity to supplement the record with anything but recycled evidence that is no more cogent than the initial record. In my view, my colleagues were right to express their doubts about whether this evidentiary record can support a Mareva injunction. It cannot.

[30] The Plaintiffs’ motion is dismissed.

Costs

[31] The parties made oral submissions on costs at the hearing and have uploaded to Caselines their Bills of Costs. As I indicated at the hearing, the usual principle that costs follow the event applies here. The Defendants deserve their costs.

[32] The Defendants were compelled to respond on an urgent basis to a motion for which the Plaintiffs have now appeared three times and have each successive time failed to adequately improve. Under these circumstances, costs to the Defendants should be on a substantive indemnity scale.

[33] Counsel for the Defendants other than iMining seek costs in the total amount of $27,373.69. Counsel for iMining seek total costs of $19,872.75.

[34] Costs are always discretionary under section 131 of the Courts of Justice Act. In exercising this discretion, Rule 57.01(1)(0.b) of the Rules of Civil Procedure directs me to take into account “the amount of costs that an unsuccessful party could reasonably expect to pay…” Given that Plaintiffs’ counsel has submitted a Bill of Costs in which he would seek $44,160.40 had he been successful, the Defendants’ costs requests seem rather modest. They certainly should not be beyond the Plaintiffs’ reasonable expectations.

[35] Rounding down for convenience, the Plaintiffs shall pay costs in the all-inclusive amounts of $19,000 to iMining and $27,000 to the other Defendants.

Date: February 27, 2023 Morgan J.