Court File and Parties

COURT FILE NO.: CV-22-692317-00CL DATE: 20230111 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: Thomas McNamara, Plaintiff AND: Duane Tough and Karen Ann English, Defendants

BEFORE: Osborne J.

COUNSEL: Wojtek Jaskiewich, for the Plaintiff

HEARD: January 11, 2023

Endorsement

[1] The Plaintiff, Thomas McNamara, moves today ex parte and without notice for a Mareva injunction, an order requiring the Defendants to provide sworn statements within 30 days describing the assets sought to be frozen and describing all payments and transfers made by them to anyone, and to attend for cross-examination.

[2] Finally, the Plaintiff seeks an order requiring CIBC and any other financial institution having knowledge of the order to forthwith freeze and prevent the removal or transfer of funds that the Defendants hold in any account, and a Norwich order for disclosure of banking account information.

[3] In the circumstances, I am satisfied for the reasons set out below that the relief sought should be granted, at least on an interim and short term basis.

The Facts

[4] Unless otherwise indicated, defined terms in this Endorsement have the meaning given to them in the motion materials. The Plaintiff relies in support of this motion on the affidavit of the Plaintiff, Thomas McNamara sworn December 23, 2022.

[5] The Plaintiff brings this motion [and the action within which the motion is brought] in his capacity as Receiver of Zippy Cash LLC and Z Cash LLP [collectively, the “Receivership Entities”]. The Receivership Order was made in a proceeding commenced and pending in the District Court of Clark County, Nevada, United States of America, in a proceeding commenced by 3342962 Nova Scotia Limited and 4043434 Nova Scotia Limited as Plaintiffs.

[6] The Receivership Order specifically directed the Receiver to take custody and possession of all assets of the Receivership Entities.

[7] The evidence of the Plaintiff is that in breach of the Receivership Order, the defendant Duane Tough transferred over USD $4.2 million from an account held by one of the Receivership Entities into his personal accounts, including approximately USD $570,000 into CIBC accounts held by Tough and/or his spouse, the defendant Karen English.

[8] The evidence of the Plaintiff is further to the effect that Tough has taken numerous and extensive steps in an attempt to hide information and prevent or hinder the discovery of these transfers.

[9] The Plaintiff has commenced an action in this Court by Statement of Claim issued on December 30, 2022. In that action, the Plaintiff seeks an order declaring that the sum of USD $583,587.92 transferred by Tough into three CIBC accounts in the names of either or both of the Defendants is the property of Zippy Cash LLC, and an order directing the Defendants to return those funds as well as for tracing and accounting relief related to the same funds.

[10] The allegations in the claim are to the effect that Tough and others induced the Plaintiffs in the Nevada proceeding to form Zippy Cash, which would be jointly owned, directly and indirectly, by Tough and others. The idea was that Zippy Cash would create a new payment processing and e-wallet business.

[11] Tough had control of Zippy Cash and in particular its bank accounts. The statement of claim in this action alleges that, without any justification or authority, Tough transferred over USD $4.2 million from accounts of Zippy Cash at Bank of America into his own Bank of America accounts, and then transferred approximately USD $570,000 into the CIBC accounts held by him and his spouse, English.

[12] The Plaintiff alleges that Tough, and others, have repeatedly and flagrantly breached the Receivership Order by failing to provide documents and information as required. Ultimately, however, the Plaintiff obtained the Bank of America account statements and banking records of Zippy Cash although Tough failed to turn them over to the Receiver.

[13] It is the review by the Plaintiff in its capacity as Receiver, of those Bank of America banking records that disclosed the transfers to the CIBC accounts referred to above.

[14] The specific monthly transfers made by Tough into the three CIBC accounts are summarized fully at paragraph 15 of the factum filed by the Plaintiff.

[15] The banking records themselves are attached as exhibits to Mr. McNamara’s affidavit. On their face, they reflect these transfers, and indicate the recipient or receiver of the funds with the relevant account numbers and account holder names. In particular, the evidence filed today is to the effect that, between January 2021 and May 2022, USD $583,587.92 was transferred by Tough into the three CIBC accounts now sought to be frozen, two of which are in the name of Tough and one of which is in the name of English.

[16] Mr. McNamara has filed an undertaking dated December 23, 2022 to abide by an order of this Court concerning damages if it ultimately appears that the granting of the injunctive relief sought today has caused damage to the Defendants for which the Plaintiff ought to compensate.

Mareva Injunction

[17] The test for a Mareva injunction is well established. This Court has jurisdiction to grant an interlocutory injunction, including a Mareva injunction, pursuant to section 101 of the Courts of Justice Act, where it appears just or convenient to do so. The order may include such terms as are just, and may be sought on motion made without notice for a period not exceeding 10 days.

[18] That said, the relief is extraordinary. As numerous courts have observed, the harshness of such relief, usually issued ex parte, is mitigated or justified in part by the requirement that the defendant have an opportunity to move against the injunction immediately.

[19] The factors to be considered in determining whether to grant Mareva relief include whether the moving party has established the following:

a. a strong prima facie case; b. particulars of its claim against the defendant, setting out the grounds of its claim and the amount thereof, and fairly stating the points that could be made against it by the defendant; c. some grounds for believing that the defendant has assets in Ontario; d. some grounds for believing that there is a serious risk of defendant’s assets being removed from the jurisdiction or dissipated or disposed of before the judgement or award is satisfied; e. proof of irreparable harm if the injunctive relief is not granted; f. the balance of convenience favours the granting of the relief; and g. an undertaking as to damages.

(See Aetna Financial Services Ltd. v Feigelman, [1985] 1 S.C.R. 2 at paras. 26, 30; Chitel v. Rothbart at para. 60; and Lakhani et al v. Gilla Enterprises Inc. et al, 2019 ONSC 1727 at para. 31).

[20] A strong case that a defendant has committed fraud against the Plaintiff can be important evidence in support of the relief sought. The “reluctance” of the common law toward allowing execution before judgment has recognized exceptions, including circumstances where the relief is necessary for the preservation of assets, the very subject matter in dispute, or where to allow the adversarial process to proceed unguided would see their destruction before the resolution of the dispute. (See Aetna, at para. 9).

[21] The test as to whether a strong prima facie case exists has been expressed by the courts as the question of whether the Plaintiff would succeed “if the court had to decide the matter on the merits on the basis of the material before it” (See Petro-Diamond Inc. v. Verdeo Inc., 2014 ONSC 2917 at para. 25).

[22] I am satisfied for the purposes of the relief sought today that the Plaintiff has a strong prima facie case.

[23] The particulars of the claim, setting out the basis for the relief sought, are set out in detail in the materials and described above. They continue to evolve as the investigation being undertaken by the Plaintiff continues. For the purposes of the relief sought today, however, it appears to show unauthorized transfers of the funds, to the accounts in respect of which the relief is sought, which are owned by one or other of the defendants. The unauthorized transfers and payments need to be explained.

[24] The evidence clearly meets the requirement of showing some grounds for the belief of the Plaintiff that the defendants and each of them have assets in Ontario. In this case, those assets are the CIBC accounts domiciled at Ontario branches.

[25] I am satisfied there is a risk of dissipation of assets. Different jurisdictions are, on the face of the evidence, involved. Proof of the risk of removal/dissipation may be inferred from the surrounding circumstances of the responding parties’ misconduct. (See Ontario Professional Fire Fighters Association v. Atkinson et al, 2019 ONSC 3877 at para. 6-8, quoting with approval from Sibley v. Ross 2011 ONSC 2951 at paras. 63, 64 and Amphenol Canada Corp. V. Sunadrum, 2019 ONSC 849). Here, the evidence is to the effect that the defendant Tough did not cooperate with the Receiver and took steps to avoid the discovery of the transfers and the accounts.

[26] I am satisfied that the requirement of irreparable harm is also met here. If the assets of the defendants cannot be restrained, there will be no way for the Plaintiff to collect on a money judgment if obtained in the future. Irreparable harm, measured as against the risk that the respondents will remove property or dissipate assets prior to judgment, is established. The evidence here establishes a pattern of the defendant Tough reaching Court orders, refusing or failing to hide information, and moving or transferring assets [funds] between different jurisdictions. I note in particular the facts set out at paragraphs 36-45 of the factum of the Plaintiff.

[27] If the CIBC accounts are not frozen, the assets could very well be transferred or hidden again with the result that the probability of recovering on any damages award will be decreased significantly.

[28] The balance of convenience, or in other words the measurement of the relative harm to be suffered by the Plaintiff if the order is not granted, as against the harm that will be suffered by the defendants if it is granted, favours the Plaintiff, particularly given the short temporal duration of the order sought today. I observe that the draft order sought contemplates that the defendants would be able to obtain a variation of terms or a discharge of the order, and/or to address requirements for ordinary living expenses.

Norwich Order

[29] I am also satisfied that a Norwich order should be granted although I recognize that this relief also, is extraordinary. The Plaintiff seeks this relief against the financial institutions in respect of which the evidence demonstrates specific bank account holdings and transfers by the defendants. I am satisfied that the disclosure of the information sought from these financial institutions is required in order that the Plaintiff can determine where the misappropriated funds went, the extent of the impugned conduct and the identity of those who may be involved.

[30] A Norwich order is equitable in nature and provides for discovery of third parties who, through no fault of their own, have been, in the words of Pattillo, J., “mixed up in the tortious acts of others and who may have information concerning those tortious acts. It is an intrusive, extraordinary remedy which must be exercised with caution.” (See Bluemoon v. Ceridian, 2022 ONSC 301 at para. 28).

[31] Jurisdiction to issue a Norwich order is found in section 96 of the Courts of Justice Act.

[32] In considering whether to grant a Norwich order, the Court should consider whether the moving party has:

a. provided evidence sufficient to raise a valid, bona fide or reasonable claim; b. 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. established whether the third party from whom the information is sought is the only practicable source of the information; d. whether third-party can be indemnified for costs which it may be exposed because of the required disclosure; and e. whether the interests of justice favour the obtaining of the disclosure sought.

(See Isofoton S.A. v. Toronto Dominion Bank (2007), 85 O.R. (3d) 780 at para. 40; Bluemoon v. Ceridian, 2022 ONSC 301 at paras. 28-31).

[33] The claims asserted here are bona fide and reasonable. They are not frivolous or vexatious. That is sufficient. (See Isofoton, supra.)

[34] The parties from whom the information and records are sought are “more than mere witnesses” and the evidence amply connects them to the acts complained of, in this case as reflected in the bank account statements showing the transfers to the CIBC accounts. They are the only practicable sources of that information since they alone have possession or control of the very account and transaction information sought.

[35] The costs which CIBC will incur are, as submitted by the Plaintiff, easily quantifiable and can be reimbursed by the Plaintiff.

[36] I am satisfied that the interests of justice in this case favour the obtaining of the disclosure sought. It is largely bank and investment account information and deposit particulars. The interests of justice include in this case an evaluation of the claims asserted on the basis of a full record which includes, it seems to me, at a minimum the banking, transfer and deposit information sought. The potential prejudice arising from the granting of the relief sought is that to be suffered by the alleged wrongdoers from the disclosure of confidential information. The courts have recognized, however, that the confidentiality of bank records is not absolute and may be subject to disclosure by court order, although limited by the terms of such an order (see Isofoton, supra, at paras. 57-60).

[37] The ancillary relief sought by the Plaintiff, including the injunctive relief prohibiting the transfer, encumbrance and/or dealing with other assets of the Defendants, and the requirement that the Defendants provide sworn statements and submit to examination by the Receiver, is also appropriate.

[38] Order to go in the form signed by me today, which is effective without the necessity of issuing and entering. As expressly provided for in the order, this matter is returnable before me at 9:00 AM on Friday, January 20, 2023.

Osborne, J. Date: January 11, 2023