Court File and Parties

Court File No.: CV-20-00649470-CL Date: 2023-05-10 Ontario Superior Court of Justice – Commercial List

Between: His Majesty the King in Right of Ontario, Plaintiff – and – SANJAY MADAN (a.k.a. SADANAND MADAN), SHALINI MADAN, CHINMAYA MADAN, UJJAWAL MADAN, INTELLISOURCES INC., NEWGEN SOLUTIONS INC., 10583570 CANADA LTD., 1846932 ONTARIO INC., VIDHAN SINGH, WANG & ASSOCIATES PROFESSIONAL CORPORATION, AVPS HOLDINGS INC., AVPS RECRUITING INC., AVPS INVESTMENTS INC., AVPS PROPERTIES INC., 2305509 ONTARIO INC., 1784357 ONTARIO INC., 6875459 CANADA INC., MANIK WALIA, SHIKHA WALIA, 7307390 CANADA INC., IT AXIS CONSULTING INC., 7298528 CANADA INC., SANDEEP SINGAL, PRORAX CONSULTANTS INC., KOTESWARA CHITTALURI, KOTCH SOFT SOLUTIONS INC., TEHNOCRAT CONSULTANTS INC., SHALINDER CHOPRA, DENDRITECH INC., IGOR VAISMAN, OLYMP TECHNOLOGIES INC., JITENDRA MEHTA, BABITA MEHTA, IT COLLABORATIVE INC., RAJIV KATARY, RS TEC SYSTEMS INC. Defendants

Counsel: Christopher Wayland and James Coristine, for the Plaintiff Christopher Du Vernet and Carlin McGoogan, for the Defendants Sanjay Madan, Shalini Madan, Chinmaya Madan, and Ujjawal Madan

Heard: April 14, 2023

Before: J. Steele J.

[1] This is a motion by the defendants, Sanjay Madan, Shalini Madan, Chinmaya Madan, and Ujjawal Madan (collectively, the “Madan Defendants”), who are subject to a Mareva injunction freezing their worldwide assets, to access certain funds held in trust to pay for legal expenses. Specifically, they seek to either remove the cap that was imposed by Cavanagh J. under the September 21, 2022 order (the “September 2022 Order”) or vary the September 2022 Order to permit them to access an additional $883,682.78 out of the funds presently held in trust for legal fees in connection with this proceeding.

[2] The main action by the plaintiff, His Majesty the King in Right of Ontario (“Ontario”), is for remedies in relation to at least two alleged frauds: the misappropriation of funds from the Support for Families Program (“SFFP”) and kickbacks associated with Ontario’s hiring of IT fee-for-service consultants.

[3] Sanjay Madan has plead guilty to fraud and is now incarcerated. There is a sizable restitution order in place.

[4] The other Madan Defendants (Sanjay Madan’s ex-wife and two sons) deny any involvement in the SFFP fraud or the kickback scheme.

Background

[5] Further to the Court Order, dated January 29, 2021 varying a prior Court order, there is a Mareva injunction freezing all of the assets of the Madan Defendants, wherever in the world they are situated.

[6] Pursuant to the September 2022 Order, the Court ordered the further variance of the Mareva injunction so as to permit the Madan Defendants to sell two properties they owned and to use up to $548,897.50 to pay for legal expenses to be incurred in connection with this proceeding. Certain funds were also released for ongoing living expenses and to pay Sanjay Madan’s criminal counsel. The balance of the funds from the sale of the two properties were ordered to remain frozen and subject to the Mareva injunction. The sale proceeds from the two properties remain in the Madan Defendants’ counsel’s trust account.

[7] The September 2022 Order also required the provision of information to Ontario by counsel for the Madan Defendants, at para. 14:

THIS COURT ORDERS that Du Vernet, Stewart, Chris Sewrattan, and R. Craig Bottomley shall provide an accounting in respect of all funds released to them pursuant to this Order, as follows:

a. No step in this protocol shall oblige any defendant to disclose privileged information to either the plaintiff or to the Court, and no adverse inference should be drawn against any defendant for not having made such disclosure;

b. Du Vernet, Stewart, Chris Sewrattan and R. Craig Bottomley shall, on the 15th day of every second month, beginning on November 15, 2022, provide to the plaintiff a legal budget (the “Budget”) describing in general terms that do not disclose privileged information how the funds held in their trust account with respect to this action are to be spent over the course of the following two months;

c. On the 15th day of each month, beginning on November 15, 2022, Du Vernet, Stewart, Chris Sewrattan, and R. Craig Bottomley shall notify the plaintiff of the amount by which the funds held in their respective trust account with respect to this action and Sanjay and Shalini Madan’s criminal matters were depleted during the preceding month and of the balance of the funds held in their trust account with respect to this action (the “Notification”);

d. If the plaintiff is not satisfied, based on any Statement or Notification, that amounts drawn from the Du Vernet, Stewart, Chris Sewrattan, and R. Craig Bottomley trust accounts with respect to this action or Sanjay and Shalini Madan’s criminal matters have been only applied to payment of reasonable legal fees, disbursements, and HST, the plaintiff is at liberty to move before a judge of the Commercial list for a further Order, on a going forward basis, in relation to funding of legal fees and expenses.

[8] In His Majesty the King in Right of Ontario v. Madan, 2022 ONSC 5355 (the “September 2022 Judgment”), at para. 46, the Court determined that the proceeds of the two properties were not subject to a proprietary claim by Ontario.

[9] The Madan Defendants have exhausted the $548,897.50 that was authorized by the Court in September 2022 on legal expenses. The Madan Defendants have already received significant funds unfrozen to pay for their legal fees since the start of the action. Many of the funds have been released with the consent of Ontario.

[10] This proceeding is still at the pleadings stage.

[11] There are currently approximately 35 defendants in this proceeding. Ontario is bringing a separate motion to amend its claim to add approximately 65 additional defendants. In addition, if Ontario recovers all the money from the SFFP scheme, it will seek to further amend its claim to withdraw the allegations regarding the SFFP scheme. If those amendments proceed, the claim against the defendants will be approximately $75 million.

[12] Further background on this matter is contained in prior decisions, including His Majesty the King in Right of Ontario v. Madan, 2022 ONSC 5355.

Analysis

[13] The issue before the Court is whether to vary the Mareva Order to permit the Madan Defendants to access additional funds held in trust by their counsel to pay legal expenses in connection with their defence of this action.

[14] The criteria for varying a Mareva injunction to release frozen funds for living and legal expenses was set out in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology at para. 26, and were adopted by the Court of Appeal in Waxman v. Waxman, 2007 ONCA 326, 223 OAC 375, at para. 37:

a. Has the defendant established on the evidence that he has no other assets available to pay his expenses other than those frozen by the injunction?

b. If the answer to a. is yes, has the defendant established on the evidence that there are assets caught by the injunction that are from a source other than the plaintiff...?

c. The defendant is entitled to use assets not belonging to the plaintiff to pay reasonable living and legal costs. Such assets must be exhausted before the defendant is entitled to look to the plaintiff’s assets.

d. If the defendant has met the above three tests and still requires funding for legitimate living fees and/or legal fees, the court must balance the competing interests of the plaintiff in not permitting the defendant to use the plaintiff’s money for his own purposes and the defendant in ensuring that he has a proper opportunity to present his defence in the action. In weighing the interests of the parties, the court should consider the strength of the plaintiff’s case, as well as the strength of the defendant’s defence.

[15] The defendant bears the onus of establishing that the Mareva order should be varied. The decision as to whether to vary a Mareva order is discretionary.

[16] With regard to the first Credit Valley criterion, the defendants must establish that they have no other assets from which to pay the legal expenses. As noted above, the Mareva injunction applicable to the Madan Defendants freezes all their assets worldwide.

[17] Ontario argues that the Madan Defendants have not spent all of the $548,897.50 released to them in September 2022. The evidence of Chinmaya Madan is that all the authorized funds have been spent. Chinmaya Madan’s evidence is that their counsel has rendered regular, detailed accounts.

[18] Based on the record before me and additional documents provided by the Madan Defendants, I am satisfied that the Madan Defendants have spent all of the $548,897.50 released to them. I note that the confusion on this issue appears to have arisen from the fact that the Madan Defendants had not included with the January 16, 2023 disclosure regarding the trust fund usage the amount that had been depleted during the prior month, including a sizable legal bill on January 3, 2023. The amount that had been spent on legal expenses or living expenses in the prior month was not specified in the January 16, 2023 disclosure. Their reporting letter only included the net change in the trust fund balance (which was an increase due to the sale of the properties) and the current balance.

[19] As the Madan Defendants’ worldwide assets are frozen and they have depleted the funds released to them for legal expenses, the criterion set out in a. of Credit Valley is satisfied.

[20] As noted above, the Court determined that the proceeds from the sales of the two properties are not subject to a proprietary claim by Ontario. As such, the Madan Defendants are entitled to use the assets derived from the sale of their two properties to pay their reasonable living expenses, debts and legal costs: Waxman, at para. 37. In Credit Valley Molloy J. stated the following with regard to payment of expenses with non-proprietary funds, at para. 39:

The Mareva injunction is an extraordinary remedy and is not meant to interfere with the legitimate payment of expenses by the defendant. Provided the expenses are truly legitimate, it is not, in my view, proper to scrutinize their appropriateness too closely. It is, after all, the defendant’s money and, unless he is intending to use it for purposes inconsistent with the purpose of the Mareva, he should be free to choose which expenses he will pay and which he will not. [...]

[21] Ontario is concerned that the Madan Defendants are spending excessively given that this matter is only at the pleadings stage. Ontario also points to the fact that the Madan Defendants have exhausted significant funds that were to last to the discovery stage. However, as noted by the Madan Defendants, fees in this matter have been significantly impacted by numerous unanticipated factors, including the following:

• None of their budgets included sufficient allowance for the four contested funding motions that they have had to bring to access funds to pay legal fees.
• Each time the Madan Defendants have had to bring a contested funding motion, Ontario has conducted extensive cross-examinations. To date, Ontario has conducted ten cross-examinations.
• As Ontario has obtained further information, it has raised additional issues, including repeatedly amending its pleadings after receiving defences from each of the four Madan Defendants. Each time there has been an amendment adding new allegations, the four Madan Defendants have had to amend their defences. Further, these pleading amendments added many additional parties against whom the four Madan Defendants will need to counterclaim. The Madan Defendants state that a large amount of the expenses incurred thus far by them have been spent on repeatedly preparing new pleadings responding to the changing allegations against them.

[22] As noted by the Madan Defendants, there is no risk of dissipation of these assets, as the funds will remain in the solicitors’ trust accounts and released only in respect of the legal fees, disbursements and HST incurred. There is also no evidence that the Madan Defendants have dissipated assets since the Mareva was put in place, unlike in Warner Bros. Entertainment Inc. v. White, 2023 FC 164.

[23] This is a very complex matter, with 35 defendants currently. Ontario is bringing a motion to add an additional 65 defendants. The potential monetary exposure to the Madan Defendants is at least $75 million.

[24] A reporting protocol had been put in place under the September 2022 Judgment, as set out above. The Madan Defendants’ counsel reports to Ontario each month on the extent to which their trust balance was depleted during the preceding month and their monthly trust balance. Further, the Court requires the Madan Defendants’ counsel to provide Ontario bi-monthly legal budgets.

[25] Ontario opposes the Madan Defendants’ request for the removal of any cap on the approximately $2 million of the proceeds remaining in trust. Ontario objects to the release of all these funds without requiring the Madan Defendants to propose a budget and without imposing conditions on their use of these funds. I agree. Justice Cavanagh put in place safeguards on the use of the assets remaining in trust. Granting the Madan Defendants access to the over $2 million held in trust by their counsel without an accompanying budget would undermine those safeguards. Further, it would be contrary to the general practice of requiring the party subject to the Mareva to come to court with a budget for living and legal expenses for the court’s approval: Lieff v. Cohen, 2022 ONSC 799, at para. 20.

[26] Ontario takes the position that the budget filed by the Madan Defendants is unreasonable and asks that their motion be dismissed without prejudice to them bringing another motion. Ontario argues that they budget hundreds of thousands of dollars for several steps that are either moot or premature or for which the Madan Defendants have already been compensated. However, Ontario has not provided any evidence regarding their legal expenses in this complex litigation.

[27] The Madan Defendants’ budget includes approximately $198,000 for a summary judgment motion by Chinmaya and Ujjawal Madan relating to the SFFP fraud allegations. However, Ontario informed the parties at the motion that provided the SFFP forfeited funds, which are currently held by the Accountant of the Superior Court, are paid to Ontario, Ontario intends to withdraw the SFFP fraud allegations against the Madan Defendants, rendering moot the need to bring a summary judgment motion. The Madan Defendants’ budget also includes approximately $64,000 to argue Ontario’s motion for leave to amend its Fresh as Amended Statement of Claim. However, at a recent case conference counsel for the Madan Defendants advised that they will not oppose the motion.

[28] The budget also includes approximately $457,000 to prepare crossclaims, documentary production, and oral discoveries against nine new sets of defendants who have yet to be added to the claim. Ontario’s position is that funding for this step is premature.

[29] The Madan Defendants state that they are not asking the Court to approve the budget. They are requesting access to the funds for the steps set out in the budget, which may change. As noted by Justice Cavanagh, the Court generally does not approve or disapprove of any item or amount in a budget. These are estimates, which are subject to change as this complex litigation evolves.

[30] I have determined that the budgeted expenses in respect of litigation steps that are no longer required are inappropriate to include. Accordingly, I have adjusted the approved budgeted amount to exclude the amounts in respect of the summary judgment motion and Ontario’s motion to amend the statement of claim.

[31] In Caja Paraguaya De Jubilaciones v. Obregon, 2019 ONCA 198, the Court of Appeal granted an order permitting the applicants to have access to certain non-proprietary funds, to be used for reasonable legal costs. The Court of Appeal, at para. 14, required the applicants’ lawyers to account for the expenditure of the allocated funds by providing the respondent’s counsel with “accounts for the fees charged, including details of the work done in support of those fees, summarized in a fashion that does not reveal any privileged material.” Given the multiple funding motions that have already been required in this matter, and the multiple parties and issues involved, in my view a similar reporting may assist the Court and the parties.

Disposition and Costs

[32] The Order of Cavanagh J dated September 21st, 2022 shall be varied to permit Sanjay Madan, Shalini Madan, Chinmaya Madan and Ujjawal Madan to access an additional $587,433.33 out of the funds derived from the sale of 162 Kingsdale Avenue, Toronto, Ontario and 44 St. Joseph Street, Unit 2512, Toronto, Ontario which are presently being held in trust by Du Vernet, Stewart, for purposes of legal fees and expenses to be incurred in connection with this proceeding.

[33] Paragraph 14 of the September 2022 Order shall be varied to include the following additional reporting requirement:

On the 15th day of each month, beginning on June 15, 2023, Du Vernet, Stewart, Chris Sewrattan, and R. Craig Bottomley shall provide a summary of the work done in the prior month in support of the legal fees, summarized in a fashion that does not reveal any privileged material or information.

[34] If the parties are unable to agree on costs, they may make written submissions (of no more than 3 pages each) on a schedule agreed upon by counsel. A copy of any such written submissions shall be sent by e-mail to my judicial assistant.

J. Steele J. Released: May 10, 2023