COURT FILE NO.: CV-17-586690 DATE: 2023 0707
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: GARY COMEAU, Plaintiff
AND:
1140398 ONTARIO LTD ., SMP SPECIALITY METAL PRODUCTS INC ., JOHN CUNERTY, MAY ANIS, BNP ADVISORS INC ., 1570859 ONTARIO INC. and BASS LAKE HOLDINGS INC., Defendants
BEFORE: Schabas J.
COUNSEL: Andrew Winton and John Carlo Mastrangelo, counsel for the Plaintiffs Scott Kugler, Rachel McMillan and Adam Cormier, counsel, for May Anis and BNP Advisors Inc. Jeffrey Larry and Mariam Moktar, counsel for the remaining defendants
HEARD: July 7, 2023
Reasons on motion
Overview
[1] I heard this motion for a Mareva injunction and other relief today.
[2] The motion arises in the context of a shareholder and employment dispute. The plaintiff and the two individual defendants, John Cunerty and May Anis, were the shareholders in 1140398 Ontario Ltd. and SMP Specialty Metal Products Inc. (collectively “SMP”). The plaintiff was also an employee of SMP. Cunerty and Anis are husband and wife. The other corporate defendants are holding companies for Anis and Cunerty.
[3] The individual parties established the business in 1995 and signed a unanimous shareholders agreement in that year. In 2017, the plaintiff parted company with SMP. In accordance with the unanimous shareholders agreement the parties sought a valuation of SMP to allow Anis and Cunerty to purchase the plaintiff’s shares. The valuation assessed the fair market value of his shares at $154,591. The plaintiff disagreed with the valuation and commenced this action for a determination of the value by the Court. He also seeks various orders for production of corporate records, a declaration that the defendants have oppressed him in their conduct of the business, and damages for wrongful dismissal, among other things.
[4] Since 2021, there have been three court orders arising from the defendants’ productions and conduct that provide the background for today’s proceedings. The chronology of those events is not in dispute, nor is the wrongdoing of Ms. Anis on behalf of the defendants. In effect, since at least 2021, Ms. Anis has repeatedly produced forged bank records and cheques, and lied about them under oath. Her wrongdoing has only come to light through the diligence of plaintiff’s counsel and the release of information directly from financial institutions.
[5] First, in response to a production order by Myers J. in June 2021, Anis produced forged bank records and then lied about them under oath. She also caused her then counsel to make false statements on her behalf.
[6] Second, after her falsification of many documents, and her lies, came to light, Sanderson J. made orders in February 2023 that, among other things, Cunerty and Anis provide affidavits explaining their falsification of records, including why records were falsified. Sanderson J.’s orders also required further disclosure of records, and required them to disclose any other false information they had provided that had not yet come to light.
[7] Anis then provided an affidavit which, although she admitted the prior falsehoods that had been discovered, was subsequently found to contain a large number of additional falsehoods, which she also maintained when examined under oath on the new information.
[8] On March 31, 2023, Pollak J. signed an order, on consent, that an investigative receiver (the “Receiver”) be appointed to inquire into the true financial state of SMP, among other things. The costs of the investigation, up to $200,000, were to be shared between the plaintiff and the defendants “without prejudice to the right of a funding party to assert, based on the Receiver's findings, that the funding of this Receivership ought to be adjusted.”
[9] Anis then provided the Receiver with more falsified records and false information. When the Receiver learned of this he reported it to the parties in his second interim report on June 7, 2023. This led to this motion being brought by the plaintiff seeking the following:
(a) a Mareva injunction freezing the assets and accounts of Anis and BNP (Anis’s holding company);
(b) a finding that Anis is in contempt of court for breaching court orders, including by repeatedly lying and intentionally misleading the plaintiff and the Receiver;
(c) a variation of the order of Pollak J. to require Anis and BNP to be wholly responsible for the fees of the Receiver.
Mareva Injunction
[10] A Mareva injunction may be granted where it is just or convenient to do so.
[11] Mr. Comeau must show:
(i) a strong prima facie case;
(ii) that he would suffer irreparable harm if the Mareva injunction were not granted; and
(iii) that the balance of convenience favours granting the injunction, including a "real risk that the responding parties will remove their assets from the jurisdiction or dissipate those assets to avoid judgment.".
[12] The test for a strong prima facie case was discussed in R. v. Canadian Broadcasting Corp., 2018 SCC 5 at para.17:
Common to all these formulations is a burden on the applicant to show a case of such merit that it is very likely to succeed at trial. Meaning, that upon a preliminary review of the case, the application judge must be satisfied that there is a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice.
[13] I am satisfied that a Mareva injunction should issue against Anis and BNP.
[14] In my view the plaintiff has a strong prima facie case. He seeks a valuation of his shares at the time he parted company with SMP. There is documentary evidence strongly suggesting that the defendants provided false financial statements to the valuator in 2017, prior to the commencement of this lawsuit. This came to light through the obtaining of financial statements Cunerty and Anis had provided to third parties, including when seeking financial support for SMP several years earlier.
[15] The inconsistencies in the financial statements are directly relevant to the valuation of SMP. In addition, at the time the valuation was conducted in 2017, patents which ought to have been included as assets of the company were not included as Cunerty had improperly registered those patents in his name personally, and was licensing them. Only after the 2017 valuation was completed did the defendants register them as belonging to SMP.
[16] Explanations provided by Anis, who was the controller of SMP, can be given no weight. Anis, on behalf of the defendants, has repeatedly lied and forged documents specifically with respect to the valuation issue. She clearly wishes to hide the truth about the financial situation of what appears to have been a very successful business. When her lies and falsification of documents have been discovered, and courts have made orders for her to produce documents and to “come clean” (as counsel aptly put it), she has made up new lies and created new false records. This has occurred over at least the past two years of the litigation including, most recently, last month, in June 2023, when the latest falsehoods were discovered.
[17] The plaintiff reasonably states that Anis may be continuing to lie. Earlier this week she provided a new explanation for some of her actions, including stating that she recently repaid her employer approximately $1.3 million that she says she had embezzled from that employer, an investment company – money she asserts was used to fund alleged shareholder loans by her and her husband to SMP. However, as the plaintiff notes, Anis has not provided any verifiable evidence supporting this latest narrative, and Anis appears, surprisingly, to continue to be employed by the company, from whom there is no evidence.
[18] This case is different from 663309 Ontario Inc. v. Bauman, relied on by the defendants, as here May’s admitted dishonest conduct has been directed towards the plaintiff. Further, her admitted dishonesty was not a one-time lapse of judgment, but was deliberate, extensive, and occurred on a number of occasions over a lengthy period of time. This makes it very difficult to give any credence to explanations proferred by Anis of the discrepancies in the financial statements or why patents were improperly registered in Cunerty’s name and only moved into SMP after the valuation in 2017.
[19] Accordingly, the evidence at this stage supports a conclusion that the plaintiff has “a strong and clear chance of success” in the action. In my view, “on a preliminary review of the case” there is a strong likelihood “on the law and evidence presented” that at trial the plaintiff will establish that the affairs of SMP have been conducted by the defendants in manner oppressive to him, and that, based on accurate financial records, he will obtain a higher valuation of SMP from the Court than was determined in 2017.
[20] The plaintiff has also established a likelihood of irreparable harm if an injunction is not granted.
[21] The defendants Cunerty and Anis have real property worth approximately $2.5 million. Some of it is encumbered. Their liquid assets were approximately $2.5 million until a few days ago when Anis is said to have repaid her employer $1.3 million, or about half the couple’s liquid assets. Anis is an accountant, she works for an investment company with assets offshore. She demonstrated knowledge of how offshore assets work when attempting to justify one of her earlier, fictional explanations for where she and Cunerty had obtained funds to loan money to SMP.
[22] Anis could easily cause the defendants’ assets to go beyond reach of the Ontario courts, or otherwise dissipate them to prevent the plaintiff from collecting on any judgment he may ultimately obtain – a judgment which may well be over $1 million, and which one may reasonably expect would also include a large costs award, especially in light of Anis’ egregious conduct.
[23] Anis has roots in Ontario and there is no current evidence that she is, or will, send money offshore; however, her fraudulent conduct is extremely concerning and heightens the risk of irreparable harm to the plaintiff if a Mareva injunction is not granted. As Strathy J. (as he then was) explained in Sibley & Associates LP v. Ross, 2011 ONSC 2951 at para. 63:
[I]n cases of fraud, as in any case, the Mareva requirement that there be risk of removal or dissipation can be established by inference, as opposed to direct evidence, and that inference can arise from the circumstances of the fraud itself, taken in the context of all the surrounding circumstances. It is not necessary to show that the defendant has bought an air ticket to Switzerland, has sold his house, and has cleared out his bank accounts. 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.
[24] Sibley raised many of the same concerns which exist here. In that case a Mareva injunction was granted despite the absence of direct evidence of dissipation. There, the responding party attempted to hide his tracks by making payments to his mother rather than himself and by destroying evidence. His conduct bore the badges of fraud, including a "pattern of clandestine and deceitful action over a prolonged period of time, including the attempt to avoid detection." The assets at issue were liquid, easily transferrable, and difficult to trace.
[25] Here, Anis was caught forging bank statements after testifying to their authenticity under oath. Undeterred, she did it again after consenting to an order that she explain her fraudulent conduct. She then lied a third time to the Receiver. Her dishonest conduct is extreme and, as chartered accountant with access to several bank accounts from various corporations, including ones with offshore accounts, the risk of dissipation, especially of liquid assets, is high.
[26] Turning to the balance of convenience, Anis will of course be inconvenienced by an injunction freezing her assets, but that is the inevitable consequence of a Mareva injunction. There is no other evidence of inconvenience to her, and she will have the usual ability to seek approval for the release of funds to cover necessary expenses. In addition, the proposed order will not apply to Cunerty, Anis’ husband, who recently underwent surgery for cancer, and has provided the plaintiff with an undertaking which, at this stage, is satisfactory to the plaintiffs.
[27] The defendants also submit that the freezing of all assets is overly broad. I disagree. If successful, the plaintiff may ultimately recover in excess of $1 million, which could exceed the amount of the defendants’ (recently reduced) liquid assets.
[28] Accordingly, the three-part test for a Mareva injunction is established and shall issue in the form contained at page B-2-1 of the Caselines record, with two changes. First, in the second sentence of paragraph 8, the word “reasonable” shall be inserted before the word “steps. Second, Schedule “A” shall include all joint accounts listed at the TD Bank, as contained in the plaintiff’s draft order.
[29] My order shall be effective immediately upon release of these Reasons. Further, should Anis or BNP wish to seek an order to release funds for living expenses or legal advice and representation pursuant to paragraph 4 of the order, I am not seized with that function, and they should seek an order from a judge through the usual procedures.
Contempt
[30] Anis has clearly committed contempt of court. She has breached clear and unequivocal court orders requiring her to produce truthful records and provide truthful explanations. She did this deliberately, with knowledge of the orders: Carey v. Laiken, 2015 SCC 17 at paras. 32 – 35. Indeed, this is all admitted by her.
[31] However, as the court's contempt power is discretionary and should be used cautiously with great restraint, I can nevertheless decline to make a finding of contempt even where the elements of contempt have been proven beyond a reasonable doubt, as is the case here: see, e.g., York Condominium Corporation No. 188 v. Chaudhry, M. et al, 2021 ONSC 7586 at para. 21.
[32] Counsel for Anis submits that I should decline to hold Anis in contempt since she has now complied with the court orders, and by admitting her wrongdoing she has “purged” her contempt. I do not agree.
[33] This is an extreme case. Ms. Anis’s conduct is egregious, repetitive and flagrant. She has engaged in very deliberate wrongdoing in the face of court orders, doubling down on her dishonest conduct when she was told to do the opposite. Compliance with court orders has only occurred because of discoveries and demands by the plaintiff. While she appears contrite, she has appeared contrite previously, only to breach further orders and engage in more dishonest conduct. Further, an acknowledgement of wrongdoing is not, in my view, a purging of contempt; it is a factor in exercising my discretion, but is not determinative.
[34] In North Elgin Centre Inc. v. McDonald’s Restaurants of Canada Limited, 2021 ONCA 173, Brown J.A. observed at para. 45 that “where an alleged contemnor acted in good faith in taking reasonable steps to comply with the order, the judge entertaining a contempt motion generally retains some discretion to decline to make a finding of contempt.” However, that is not this case. Anis did not act in good faith; to the contrary, she has repeatedly acted in bad faith. There is, therefore, no “injustice” to Anis in the circumstances of this case in making a finding of contempt against her.
[35] Further, Indeed, the lack of independent corroboration of Anis’ very recent transfer of funds to her employer to repay, according to her, funds she embezzled, continues to raise questions about her honesty in these proceedings, heightening the need for rigorous court enforcement of its orders in order to deter such conduct.
[36] I observe as well that Anis’s conduct is far worse than the conduct which led to a contempt finding by Myers J. in 180 University Management Inc. v Khan, 2023 ONSC 1621. But that case is instructive in another way, as Myers J. reminds us, at para. 16, of the “public component of contempt of court.” As he notes, people who choose to ignore or defy court orders “strikes at the rule of law. It undermines the court’s authority and legitimacy.” In my view, the Court must denounce the extreme and repetitive conduct of Ms. Anis, and I find her to be in contempt of court. The parties should confer and contact my assistant to seek an appointment to address sanctions.
Receiver’s Fees
[37] The plaintiff’s request to vary the order to require Anis and BNP to bear all of the costs of the Receiver’s investigation is also well-founded. The plaintiff has the right to seek to vary the order at any time, and the order provides that “based on the Receiver’s findings” the funding may be adjusted.
[38] I appreciate the concern raised by counsel for Anis that arises when parties seek to revisit costs based on an interim report, and that there is merit in interpreting the “Receiver’s findings” to mean the final conclusions. However, the order did not say “final” findings, and contemplated motions to vary. Further, I do not see making an adjustment now will result in what counsel describes as a “ping-pong” situation in which each party returns to court after each interim report. Indeed counsel for Anis suggested the Receiver’s final report may be released within the next two months. Also, the second interim report was extraordinary in that it reported on additional dishonest conduct by Anis in relation to the Receiver’s work.
[39] In these circumstances, I grant the relief sought and vary the order of Pollak J. to provide that Anis and BNP shall forthwith reimburse the plaintiff for any contributions he has made towards the fees of the Receiver, and direct that going forward, all of the Receiver’s fees are to be paid by the defendants.
Costs
[40] The plaintiff has been wholly successful on the motion and should have his costs. Although Anis’ conduct has been shocking, the conduct of this motion by her counsel has been reasonable and costs should be on a partial indemnity basis. It should be left to the trial judge to consider the effect of Anis’s dishonest conduct when fixing the costs of the action, if the plaintiff is successful.
[41] The plaintiff’s claim for costs is reasonable and far less than claimed by counsel for Anis. Accordingly, Anis and BNP shall pay the plaintiff his costs of this motion on a partial indemnity basis in the amount of $46,179.62.
Paul B. Schabas J.
Date: July 7, 2023