Court File and Parties
COURT FILE NO. : CV-23-00699284-0000 DATE : 20230801 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
SECURITAS TECHNOLOGY CANADA CORPORATION (F/K/ASTANLEY SECURITY CANADA ULC), FIRST NATIONAL ALARMCAP LP AND MICROTEC ENTERPRISE CORPORATION (CANADA) Plaintiffs – and – NORTH WEST CONSTRUCTION LTD. DOING BUSINESS AS EAGLE SECURITY SOLUTIONS, SATTIE DEVI NARAYAN A.K.A. DEBBIE NARAYAN, ECKMAAM BACCHUS, JOHN DOE 1 A.K.A. ALAN PHILIP AND JOHN DOE 2 A.K.A. ASHIQ RAHMAN Defendants
Counsel: Christopher Selby and Hardeep Dhaliwal, lawyers for the plaintiffs Rhea Mathew, lawyer for North West Construction Ltd. doing business as Eagle Security Solutions, Sattie Narayan and Eckmaam Bacchus John Doe 1 a.k.a. Alan Philip and John Doe 2 a.k.a. Ashiq Rahman, not represented and not served
HEARD by videoconference at Toronto: July 18, 2023 and Written Submissions received July 25, 2023
REASONS FOR DECISION
LEIPER J.
Introduction
1The Plaintiffs (collectively, “Securitas”) issued a claim on May 10, 2023 against the Defendants seeking damages, a declaration of constructive trust over a property owned by the Defendants Sattie Narayan and Eckmaam Bacchus (the “Silkwood” property) and other relief related to allegations of fraud, deceit, conspiracy, knowing assistance, knowing receipt and unjust enrichment.
2Securitas brought a motion for a Mareva injunction, a Certificate of Pending Litigation against the Silkwood property, and a Norwich Order. Although its written material focussed on the Eagle Defendants (comprised of North West Construction, Sattie Narayan and Eckmaam Bacchus), Securitas moved for a Mareva injunction and Norwich order against the Defendants Rahman and Philip, on an ex parte basis.
3For the reasons provided below, I grant an order for disclosure of financial information on consent of the Eagle Defendants. I grant a Norwich order against the Defendants Rahman and Philip. I dismiss the balance of the relief sought on the motion.
The Parties to the Litigation
4The Defendants Sattie Narayan and Eckmaam Bacchus, are spouses. Mr. Bacchus is a Director of the corporate Defendant, North West Construction Ltd doing business as Eagle Security Solutions (“Eagle”).
5The remaining defendants are Alan Philip and Ashiq Rahman. They were not served with notice of this motion and did not appear.
6Securitas operates security and alarm systems for businesses and individuals. The Eagle Defendants operated a construction company and acted as a third party dealer in alarm systems. Between July 2019 and August 2021, Mr. Rahman was employed as a sales representative for the Eagle Defendants. Mr. Philip was a sub-contractor who installed alarm systems for Mr. Rahman. There was no contractual relationship between Mr. Philip and any of the Eagle Defendants.
Background to the Allegations and Chronology
7On April 3, 2019, Eagle and Securitas entered into a Dealer Agreement, for Eagle to sell and install alarm systems on behalf of Securitas in the Greater Toronto Area and southwestern Ontario.
8For every sale made, Eagle would have the customer sign a Subscription Form, which would confirm the sale of the alarm system and then Securitas would carry out the monitoring of the alarm system and receive all revenue related to that work for the customer. Securitas paid an Acquisition Fee to Eagle for every system sold in this way.
9Sales representatives on behalf of Eagle signed up the customers and for every alarm system sold, received payment on a scale that was 8 times greater than the amount received by Eagle per alarm system sold. From that revenue, the sales representatives took delivery of the alarm systems and paid for the systems (ordered by Eagle) before arranging for installation at the customer’s location.
10Securitas was responsible for activating each alarm system by ensuring that its communication centre was able to connect with the alarm systems sold.
11Eagle was authorized to offer promotions to its customers where they would not have to begin paying for monitoring and maintenance in the first 3-6 months of the contract.
12There were no apparent issues with this business arrangement during the first two years of the Dealer Agreement. On April 6, 2021, Ms. Narayan incorporated a company by the name of Eagle Security Solutions Ltd. She was the sole shareholder and director of this company. Her affidavit filed on the motion states that this was done to separate the day to day business of Mr. Bacchus’ construction company, North West from the alarm company, which she ran. Ms. Narayan also attached email correspondence with Securitas at that time in which she provided a copy of the Articles of Incorporation for Eagle Security Solutions Ltd. and explained that she was doing so to keep the alarm business separate from the construction company.
13On April 29, 2021, the Eagle Defendants signed a renewed Dealer Agreement with Securitas to continue selling alarm systems.
Securitas Investigates Eagle’s Accounts
14In July of 2021, Securitas’ accounts receivable staff noticed that many Eagle alarm customers were not paying for their systems after any promotional period. It investigated whether the credit cards and telephone numbers for Eagle customers were valid or operational and whether Securitas’ monitoring centre was able to communicate with the Eagle customers’ alarm panels.
15On August 4, 2021, Securitas halted all payments to Eagle for alarm systems pending the results of its investigation. That investigation revealed the following issues:
a) some of the purported customers of alarm systems installed by Defendant Philips called Securitas to complain that they had not purchased alarm systems for which they were being billed;
b) four businesses shown to have purchased Eagle alarm systems could be seen on Google Streetview as either abandoned or residential addresses which did not match the business information;
c) although these accounts were successfully activated, which was required before payment to Eagle, and from there to its sales agents, the panels were disconnected prior to Securitas receiving payment after the promotional periods had passed, suggesting that the panels had been temporarily connected from locations unknown and then disconnected;
d) identical email addresses were on different Eagle subscription forms for orders that did not seem to be otherwise related;
e) several subscriptions sold by Defendant Rahman and/or installed by Defendant Philips provided the same credit card information; and
f) on November 9, 2020, Bazzi Khadije, a purported customer, spoke to a Securitas collection agent, to say that they had paid Rahman directly, rather than to Securitas. Another caller later that day identified himself as “Alan Philip” and said he was Bazzi’s brother and Rahman’s roommate. He told the Securitas collection agent that he and Rahman were “taking care” of Bazzi’s account. When asked why Bazzi had paid Rahman rather than Securitas, the caller told the collection agent that “its none of your business you’re getting paid either way, where it comes from and where it goes.”
16On August 22, 2021, Counsel for Securitas, Matt Bruno corresponded with Ms. Narayan to advise her that it had discovered evidence of “sham accounts” in Windsor that originated with Philips and Rahman. Counsel sought Eagle’s cooperation and repayment for any of the non-existent accounts. He also requested that Eagle preserve all records connected to sales by Philips and Rahman and to cooperate with Securitas’ investigation.
17Ms. Narayan responded that she shared those concerns and requested information from Securitas. She stated that she called customers and ceased dealing with Mr. Rahman. She asked Securitas to cancel any accounts linked to Mr. Rahman in August of 2021. Ms. Narayan stated that Mr. Rahman acknowledged to her that some of his customers had defaulted on payment but denied any knowledge of impropriety and soon after stopped responding to her attempts to communicate with him.
18Securitas points to the failure of Ms. Narayan and the Eagle Defendants to return any of the funds earned on the sham accounts as a failure to cooperate and evidence of their complicity in the frauds perpetrated by Rahman and Philip.
19As a result of its investigation, Securitas alleges that 467 Eagle accounts for alarm systems sold in Windsor were not legitimate sales. The Defendants Philip and/or Rahman were involved in 287 of those sales. Securitas alleges that it paid $1,506,543 in acquisition fees to Eagle for the fraudulent Eagle accounts, and a further $47,592 to monitor the alarm systems sold which did not generate any revenue. In its evidence filed on the motion, the Vice President for Sales and Operations of Securitas swore that Philips and/or Rahman originated the “vast majority” of fraudulent sales.
Securitas Reports the Alleged Fraud to the Police
20On August 31, 2021, Securitas made a fraud complaint to the Royal Canadian Mounted Police. In March 2023, Narayan and Bacchus were charged with possession of property obtained by crime and released on undertakings. Those charges remain outstanding.
Securitas Demands Repayment from Eagle under the Dealer Agreement
21On November 11, 2021, Securitas informed Eagle that it had identified 467 fraudulent accounts originated by Eagle. It provided particulars of the acquisition fees paid to Eagle and other out-of-pocket costs incurred relating to the fraudulent accounts, along with a demand that Eagle compensate Securitas for its damages.
22Ms. Narayan swore in her affidavit that Mr. Rahman contacted her in July of 2022, and she informed him that the amounts he had been paid for selling the Windsor accounts which had defaulted would have to be repaid. He proposed a payment plan to her, but shortly after this conversation, his number was disconnected, and she was not able to contact him again.
Securitas Issues its Claim for Damages
23On May 10, 2023, Securitas issued its claim against the Eagle Defendants, Rahman, and Philips. In response to this motion for injunctive and other relief, the Eagle Defendants filed affidavits denying knowledge of the sales of false accounts, providing identification and contact information for Philip and Rahman, and noting that in August of 2021, they were prohibited by Securitas from contacting any customers directly to assist with any investigation into what had happened. They maintain that they had no knowledge of the frauds and were not involved.
Issue #1: Should a Mareva Injunction be Granted Against the Eagle Defendants or the Philip-Rahman defendants?
24A Mareva Injunction is an extraordinary, pre-trial remedy, used to prevent the dissipation of assets pending trial in a civil action. Often referred to as a “freezing order,” it takes its name from the English Court of Appeal case, Mareva Compania Naviera SD v International Bulkcarriers SA [1980] 1 All ER 213 (CA). To obtain this remedy, the moving party must establish:
a) it has a strong prima facie case of theft or fraud;
b) the defendant has assets in the jurisdiction;
c) there is a serious risk that the defendant will remove or dissipate its assets before judgment can be obtained;
d) the plaintiff will suffer irreparable harm if the injunction is not granted, such is it will not be able to enforce any judgment obtained because of the removal or dissipation of assets prior to trial, and;
e) the balance of convenience favours granting the injunction, in the sense that the harm suffered if the injunction is not granted will exceed the harm that will be suffered if it is.
See: 10390160 Canada Ltd. v. Casey, 2022 ONSC 628 at para. 3: Chitel v. Rothbart, 39 O.R. (2d) 513.
Strong Prima Facie Case
25There is evidence that Rahman and his associate Philip engaged in deceitful conduct and the creation of sham accounts to obtain payment of subscription fees from Securitas through Rahman’s employment relationship with Eagle. However, the evidence of knowing assistance, or of intentional fraud or deceit on the part of the Eagle Defendants is less compelling. I find that Securitas has not established that it has a strong prima facie case of fraud against the Eagle Defendants.
26First, Securitas acknowledges that its business dealings with the Eagle Defendants during the first Dealer Agreement did not give rise to concern. At the time of its renewal, Ms. Narayan disclosed her business plan to incorporate Eagle Security Solutions Ltd. as a separate company for the alarm business, separate from Mr. Bacchus’s construction company. Securitas submitted that this was a suspicious and undisclosed step, implying that this was done in furtherance of fraud. The evidence filed by Ms. Narayan reveals that she disclosed this to Securitas at the time and explained her reason for incorporating a security company separate from the construction company. Securitas did not include this material, nor explain why it did not disclose these communications which directly countered its submission on this point.
27Further, the evidence suggests that the sham accounts are linked primarily or perhaps wholly to one sales agent of Eagle, Rahman and his associate, Philip. The high rate of delinquencies, the repetitive use of information connected to Philip and Rahman, the reports from purported customers of Philip and Rahman that they had not purchased alarm systems and the disconnection of the panels on several hundred sales made by Philip and Rahman are all strong indicators of fraudulent or sham accounts originating from their subscriptions.
28When Securitas discovered the sham accounts, Ms. Narayan communicated with Securitas, attempted to investigate certain accounts and questioned Rahman. Her communications are consistent with good faith efforts to uncover the problem and preserve the business relationship and her company’s reputation. These communications do not reveal any attempts to obstruct or deceive Securitas.
29Securitas also relies on the charge of possession of property obtained by crime brought against Ms. Narayan and Mr. Bacchus as some evidence of complicity in the apparent fraudulent actions of Philip and Rahman. These charges have not been adjudicated and both parties are presumed innocent in law until proven guilty.
30While Securitas may have other remedies against Eagle in contract, or in negligence, or may be able to establish wilful blindness or recklessness by the Eagle Defendants relative to the sham accounts, at this stage I would not characterize the case against the Eagle Defendants as a “strong” prima facie case of fraud.
31Civil fraud requires actual knowledge of the wrong, not just constructive knowledge: DBDC Spadina Ltd. v. Walton, 2018 ONCA 60, 419 D.L.R. (4th) 409, rev’d 2019 SCC 30, [2019] 2 S.C.R. 530 at para. 237 of dissent of Van Rensburg, J.A. adopted in full by the SCC.
32I am satisfied that a strong prima facie case of fraud has been made out against Philip and Rahman, but not against the Eagle Defendants. This is sufficient to dismiss the motion for a Mareva injunction against the Eagle Defendants. I will consider the balance of the test relative to the Philip-Rahman defendants.
Assets in the Jurisdiction
33Securitas filed evidence of two assets in the jurisdiction which are linked to the Eagle Defendants: their family home on Silkwood Avenue, purchased in 2014, and the Royal Bank account used during the business relationship for the deposit of subscription fees for alarm systems sold.
34There is no evidence of assets in the jurisdiction which belong to Philip or Rahman. Securitas began its investigation in August of 2021. It has had the names of Philip and Rahman for two years.
35I am not satisfied that this part of the test has been met in relation to either Philip or Rahman. While there may have been bank accounts into which deposits were made, which can be inferred to be in Ontario, given the location of the sales, the passage of time and absence of any up to date evidence as to the whereabouts of Mr. Philip or Mr. Rahman and their assets, leaves this part of the test unfulfilled.
Serious Risk of Dissipation of Assets
36Securitas has waited close to two years post-discovery to initiate this action. It investigated and had evidence of the conduct of Philip and Rahman by November of 2021. There is no evidence as to assets, movement of funds or other information that would support this branch of the test. As a matter of common sense, the funds received from Philip and Rahman from the sales of sham alarm accounts may well have been spent by now. In the absence of any evidence that there are assets which exist now to satisfy judgment, I am not able to conclude that there are assets available that can be said to be at a serious risk of dissipation.
37I am not satisfied that this part of the test has been met in relation to Philip or Rahman.
Irreparable Harm and Balance of Convenience
38As a result of the findings above, I cannot conclude that Securitas will suffer irreparable harm if the injunction is not granted. The balance of convenience weighs against making this extraordinary order. I decline to do so.
Issue #2: Should a Certificate of Pending Litigation be Issued Against the Silkwood Property?
39Section 103(1) of the Courts of Justice Act and Rule 42.01(1) of the Rules of Civil Procedure permit a court to issue certificate of pending litigation (CPL) where there is a triable issue in respect of the moving party’s claim to an interest in property and the order would be “equitable in the circumstances.”
40The court should look at all matters between the parties. Here the interest in land claimed is based on the submission that the Eagle Defendants contributed to the expense of maintaining their family home, which is also shown as the address for the corporate entities North West Construction and the (now dissolved) Eagle Security Solutions Ltd. The property in question was purchased in 2014, before any business relationship developed between Securitas and the Eagle Defendants. The claim is quantifiable in damages, as it is based on money paid for subscriptions on alarm systems which are documented.
41There is no evidence that the Eagle Defendants are impecunious or are not able to pay an award of damages. Securitas terminated its business relationship with the Eagle Defendants in August of 2021 and waited for close to two years before initiating this action and the motion for a CPL. I am not satisfied that the timing or the other factors surrounding this claim establish that Securitas would suffer irreparable harm if there no CPL is in place.
42I dismiss the motion for a CPL.
Issue #3 Should a Norwich Order be Granted Against the Defendants?
43A Norwich Order is a form of pre-trial discovery against third parties sought before trial, taking its name from Norwich Pharmacal & Others v. Customs and Excise Commissioners, [1974] A.C. 133 (H.L.): GEA Group AG v. Flex-N-Gate Corporation, 2009 ONCA 619. It will be granted where there is:
- a bona fide claim or potential claim against the defendant;
- the party from whom production is sought has a connection to the wrong beyond being a witness; and
- the party from whom production is sought must be the only practical source of the needed information, and
- the interests of justice favour the obtaining the documentation: Carbone v. Boccia, 2023 ONSC 3625 at para. 26.
44During written argument, counsel for Securitas and the Eagle Defendants agreed to resolve this issue with an order for production and a timeline for those productions on behalf of the Eagle Defendants. Such an order replaces Securitas’ request for a Norwich order in relation to the Eagle Defendants, but not for Mr. Philip and Mr. Rahman.
45The proposed production order is reasonable and supported by the record and the consent of the parties. I grant that order in the terms provided by counsel.
46Relative to Mr. Philip and Mr. Rahman, I am satisfied that Securitas has made out a sufficient case for a Norwich order in relation to their involvement in the sales of subscriptions. There is a bona fide case, on these materials, that both individuals were involved in selling false alarm system subscriptions. They are parties to the action. The bank records are the most practical source of information as to the receipt, flow and use of the funds paid by Securitas for the subscription fees. They are not likely to agree to provide this information. Thus, the interests of justice favour making such an order.
47With the benefit of the identification supplied by the Eagle defendants, a copy of this order shall be served on both Mr. Philip and Mr. Rahman at their last known address. They may, within ten days of this order coming to their attention, move to set it aside or move for directions. Securitas will be required to indemnify the banks for their costs associated with complying with this order.
Conclusion
48The motion for a Mareva injunction as against Rahman and Philip is dismissed.
49The motion for a Mareva injunction and Certificate of Pending Litigation against the Eagle Defendants is dismissed.
50In lieu of a Norwich order and on consent of the parties, an order for production in favour of Securitas relative to the Eagle Defendants will be made in these terms:
That North West, Bacchus and Narayan shall prepare and provide to the plaintiffs within fifteen (15) days of the date of service of this Order, a sworn affidavit of assets describing the nature, value, and location of their assets worldwide, whether in their own name or not and whether solely or jointly owned and submit to examinations on that affidavit; and
That North West, Bacchus and Narayan shall within thirty (30) business days of the date of service of this Order disclose and deliver to the plaintiffs any and all records held by the Royal Bank of Canada or any other banking institution they conduct or have conducted business at since December 11, 2019, including but not limited to the current balances in all accounts, all monthly and/or periodic account statements since December 11, 2019, 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 December 11, 2019, if any.
51The motion for a Norwich order as against Rahman and Philip is granted.
52Costs of this motion shall be in the cause.
Leiper J.
Date : August 1, 2023