Court File and Parties

COURT FILE NO.: CV-21-00655815-00CL DATE: 20230804 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST

RE: Jashdeep Riar et al., Plaintiffs AND: Moninder Khudal et al., Defendants

BEFORE: Peter J. Osborne J.

COUNSEL: Bobby Sachdeva and Marie Dusseault, for the Plaintiffs Chris Reed, for the Defendants Ramampreet Khudal (Joshi), Sharanbir Khudal and Yashbir Khudal

HEARD: April 3, 2023

Endorsement

Background and Context

[1] The parties bring competing motions and cross-motions to vary a Mareva injunction order and for other relief.

[2] In this action, the plaintiffs comprise over 200 individuals who are members of the East Indian/Sikh Community in the Greater Toronto Area who allege that they suffered damages resulting from the fraud and misappropriation of approximately $47 million by the defendants.

[3] The plaintiffs allege that the defendant Moninder Khudal (“Khudal”) (who together with his wife Ramampreet Joshi (“Joshi”) and his sons Sharanbir Khudal and Yashbir Khudal are referred to as the “Khudal Defendants”), used his network of associates, employees and/or agents and related corporate entities to solicit the plaintiffs to invest funds in a number of his real estate development projects in the Greater Toronto Area and then misappropriated the money.

[4] For convenience and clarity, and given the commonality of surname of numerous defendants, I may refer in these reasons to specific individuals by their first name.

[5] The allegations are that the plaintiffs received little, if any, information about their investments and nor did they have any real discussions about the appropriateness and risk of the investment or the need to obtain independent legal advice.

[6] When the project began going into default in April, 2020, Khudal became unresponsive to inquiries and has yet to account for tens of millions of dollars in funds the plaintiffs invested in his projects.

[7] The plaintiffs allege in the action that the Khudal Defendants were complicit in attempting to hide the assets of those involved in the fraudulent scheme, knowingly assisted in the breach of trust by Khudal and have misappropriated investor funds to purchase certain properties for their own benefit and to fund their apparently lavish lifestyle.

[8] On September 17, 2020, Myers, J. granted a Mareva injunction order freezing assets of the defendants, noting in his reasons that:

[…] They raised tens of millions of dollars from trusting community members …. They did not account for money received and moved. It is just apparently “gone”. The answer “[I]t’s in the properties” or “I cannot read accounting ledgers” are equally facile and inadequate.

[…] Based on current evidence, I am satisfied that the plaintiffs are very likely to succeed against all of the named Khudal defendants for debt, mortgage fraud, securities fraud, oppression, conspiracy, knowing receipt and knowing assistance, and whatever causes of action may apply to knowingly perpetrating a Ponzi scheme against your own community for personal enrichment.

[9] The Mareva order granted by Myers, J. was amended by the order of Gilmore, J. on December 3, 2020 and again by Koehnen, J. on February 25, 2021 (the Mareva order, as amended, is referred to as “the Order”).

[10] When the original Order was granted by Myers, J. on September 21, 2020, the motions judge acknowledged that what was before him was a motion, and not a trial, but he was satisfied that the plaintiffs were very likely to succeed against all of the named Khudal Defendants in the action. In his reasons, Myers, J. noted that the evidence of the two salespeople who assisted in the soliciting of funds from the plaintiffs, (who may have their own liabilities) gave evidence against their own self-interest, and that evidence pointed directly at Khudal and his wife Joshi. He found the evidence of the bookkeeper, who reviewed the books with Khudal monthly, to be compelling.

[11] I pause to observe that, as would be subsequently noted by Koehnen, J., the original motion proceeded on notice rather than ex parte. Accordingly, all of the Khudal Defendants had an opportunity to defend themselves and refute the allegations made against them before Myers, J. made his findings.

[12] Asking himself the rhetorical question: “where is the money?”, Myers, J. stated at para. 5:

Up to the point that cash is taken from a bank, there are records for every dollar invested into the Khudal companies and every dollar moved out of them. Like peeling layers of an onion, one eventually reaches the flesh. It will be up to the Khudal defendants to decide how expensive and unpleasant the task will be. If they are truly innocent, they should want to quickly produce every bank record for every account that receives money traceable to or from investors. If they continue to feign ignorance, the process will take longer, will be expensive, time-consuming, and stressful. But either way, the financial documents are obtainable, and money will be traced.

[13] Approximately three months later on December 3, 2020, Gilmore, J. amended the Order on the “interim without prejudice consent” of the parties. The effect of those amendments was to vacate the Order against certain accounts specified, authorize the listing for sale of certain properties on specified terms, release $50,000 from frozen funds to be allocated to the costs ordered by Myers, J., authorize funds for ordinary living expenses for the Khudals, and release a further $35,000 for legal expenses.

[14] Approximately three months after that, on February 25, 2021, Koehnen, J. further amended the Order. The Khudal Defendants had moved to vary the Order to increase the amount they were permitted to withdraw for living expenses from $15,000 to $25,000 per month, and to allow access to an additional $140,000 for legal fees and disbursements to take them through to the end of pleadings and preparation of an affidavit of documents (Reasons, para. 1).

[15] The plaintiffs took the position that living expenses should be permitted but only up to a maximum of $8,000 per month, and that funds for legal expenses should be permitted but only up to a maximum of $50,000.

[16] In the result, Koehnen, J. ordered a reduction to $8,000 per month for living expenses and authorized $140,000 for legal fees and disbursements [^1]. In arriving at that figure for living expenses, Koehnen, J. observed that the funds would be tax-free since they were taken from existing assets, and that $8,000 per month equated to a pre-tax income of $192,000 per year, well above the median salary in Toronto. He recognized that this might require a substantial change in the lifestyle of Khudal and his family but that “Mr. Khudal is, however, the author of his own misfortune”.

[17] Koehnen, J. observed that “Justice Myers had pointed out that the injunction may be entirely unnecessary if Mr. Khudal would only disclose what he did with the money. He did not do so before Justice Myers. He has not done so to date” (para. 7). Justice Koehnen went on to observe that the only reason the plaintiffs had not been able to provide a tracing report to date was “because Mr. Khudal has not disclosed what he has done with the plaintiffs’ money”.

[18] Applying the test as set out in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business & Technology, 2003 CarswellOnt 35 (ONSC) (“Credit Valley”), Koehnen, J. concluded that the defendants had met the first branch of the test since the Order had frozen all of their assets with the result that they had nothing but frozen assets from which to pay their expenses.

[19] As to the second and third branches of the test, he concluded that they had failed to show that any of the assets caught by the injunction were from a source other than the plaintiffs. All they asserted was that some of their property was purchased before the first investment by the plaintiffs, but as already pointed out by Myers, J., the plaintiffs’ funds were used to pay for those assets. He was satisfied that the defendants had not established on the record before him what the equity in the properties was before the plaintiffs made any investments.

[20] Koehnen, J. went on to apply the fourth branch of the test, the balancing of competing interests. In doing so, he noted that he had only one hesitation with respect to the plaintiffs’ request to limit expenses to $8,000 per month. That involved one of Khudal’s sons, Yashbir, in respect of whom Khudal wanted the sum of $5,500 per month to pay for his son’s tuition at Bond University in Australia (para. 17). At that time, however, and as a result of the pandemic, Yashbir attended virtually due to the pandemic and resided with his father.

[21] Koehnen, J. noted that in light of the monthly expense limit he was setting, it might be necessary for the son to explore other means of financing his education or to seek an education in Ontario where he could pay domestic tuition fees. He recognized the balancing required when potentially depriving a young person of their tuition fees as against “the harsh consequence that the plaintiffs have suffered” from what Myers, J. was satisfied would likely be found to be a fraud perpetrated on them by the defendants.

[22] Finally, while Koehnen, J. approved $140,000 for legal fees and expenses, he did not necessarily accept the breakdown of the fees contained in the budget and directed that the funds be paid to counsel in trust. He stated at para. 18 that “if the defendant[s] [seek] funds for any further legal costs in the future, they would have to satisfy a judge that the $140,000 has been appropriately spent”. In the circumstances, he stated that the first priority for the use of legal fees should be to provide an accounting that allows the plaintiffs to trace the funds that they gave to the defendants.

[23] The accounting was to be a “genuine one” which shows exactly where the money went to, explains precisely what the money was spent for, complete with all supporting documents, and explains, to the extent possible, what the recipient did with those funds. Koehnen, J. clarified that the phrase “to the extent possible” was meant to refer to the distinction between legitimate arm’s-length parties, such as the Canada Revenue Agency, and others.

[24] Accordingly, the Khudal Defendants receive at present $8,000 per month for personal living expenses from the funds frozen by the Order pursuant to the amending order of Koehnen, J. referred to above, which reduced the living expenses from $15,000 per month. They also have already received a total of $175,000 for legal fees from frozen funds and spent an additional $100,000 on professional fees provided to Aswani Datt (a proposed new lawyer for Joshi) by Joshi’s brother by way of loan to her for a retainer, for a total of $275,000.

[25] That is the background against which these motions are now brought.

The Motions, Cross-Motions and Positions of the Parties

[26] Today, there are numerous motions brought by both the defendants on the one hand and the plaintiffs by way of cross-motion on the other hand, to vary the Order. The record is complex and voluminous, totalling on this motion alone some 3,000 pages of materials. I have reviewed everything, albeit with particular emphasis on those materials specifically referred to by counsel for the parties in their written and oral submissions.

[27] The defendants seek an order: a. varying the Order to permit the release of an additional $125,000 from the funds that have been frozen for legal fees ($25,000) and accounting fees ($100,000); b. vacating the Order in its entirety against Khudal’s two sons, Yashbir and Sharanbir; c. vacating the Order with respect to all amounts earned after September 21, 2020 (the date of the original Order) and any proceeds obtained or earned using those post-injunction earnings; d. varying the Order to permit the payment to counsel for the defendants out of frozen funds of $40,000 or such other amount as is necessary for a complete indemnity for its costs on this motion not otherwise recovered by an award of costs against the plaintiffs; e. that if costs of this motion or the cross-motion are awarded against the moving parties to be paid to the plaintiffs, then those costs are to be paid out of the frozen proceeds; and f. dismissing the cross-motions of the plaintiffs.

[28] The plaintiffs seek, by way of cross-motion, an order: a. providing that the defendants should no longer receive monthly payments in any amounts for personal living expenses from the funds frozen by the Order (i.e., a reduction from $8000 to zero); b. leave to amend the Statement of Claim in the form of the draft Amended Amended Statement of Claim filed; c. authorizing substituted service of that Amended Amended Statement of Claim on the defendants Michael Hyman and David Bowen as set out in the Notice of Motion; and d. dismissing the motions of the defendants.

[29] The Khudal Defendants do not oppose the granting of leave to amend the Statement of Claim in the form of the draft Amended Amended Statement of Claim nor the authorization for substituted service on certain defendants in the manner set out in the Notice of Motion of the plaintiffs.

[30] The plaintiffs do not oppose the Khudal Defendants having access to their earnings after the date of the Order, provided that: a. any earnings derived from the properties at issue in this proceeding or earnings of corporate defendants to this proceeding remain subject to the Mareva Order; b. the Khudal Defendants make ongoing disclosure of any such post-Mareva-Order earnings, and where they originated from; c. any such order should not apply to commissions from the sale of a property known as 25 Coastline. It is at issue in this litigation, was subject to the Order, and was sold by the Khudal Defendants on consent of the Plaintiffs, with the proceeds of sale to remain in trust pending further order of the Court; d. the amount of $35,000 being a commission claimed by Sharanbir and disputed by the plaintiffs; and e. all proceeds from the sale of the properties at issue in this litigation should remain subject to the Mareva Order.

[31] With the agreement and indeed at the suggestion of the parties, the motions were all argued together.

[32] Given the consent or non-opposition to certain requested relief as described above, the principal areas of dispute relate to: a. the request by the Khudal Defendants for the release of an additional $125,000 for legal and accounting expenses (with another $40,000 for costs of the motion if necessary); b. the quantum of funds permitted to be accessed for living expenses; and c. the continued application of the Order at all to Yashbir and Sharanbir Khudal.

[33] I will address the legal test and then each of the contested requests for relief in turn, followed by a brief consideration of the relief that is consented to or unopposed.

The Legal Test and Analysis: Application of the Test to the Contested Issues

[34] The parties are agreed on the four-part test to be applied on a motion to vary a Mareva injunction as set out in Credit Valley at para. 26, (which was endorsed by the Ontario Court of Appeal in Waxman v. Waxman, 2007 ONCA 326 at para. 37):

(a) The defendants must establish on the evidence that they have no other assets available to pay their expenses other than those frozen by the injunction;

(b) If the defendants have met the first branch of the test, they must show on the evidence that there are assets caught by the injunction that are from a source other than the plaintiffs; i.e., assets that are subject to the Mareva injunction, but that are not proprietary to the plaintiffs;

(c) The defendants must establish that they have exhausted all non-proprietary assets frozen by the Mareva to pay their reasonable living expenses, debts, and legal costs. If they have not, those assets must be exhausted before the defendants are entitled to look to the assets subject to the proprietary claim; and

(d) If the defendants have met the previous three tests and still require funds for legitimate living expenses and to fund their defence, the court must balance the competing interests of the plaintiffs in not permitting the defendants to use the plaintiffs’ money for their own purposes and of the defendants in ensuring that they have a proper opportunity to present their defence before assets in their name are removed from them without a trial. In weighing the interests of the parties, it is relevant for the court to consider the strength of the plaintiffs’ case, as well as the extent to which the defendants have put forward an arguable case to rebut the plaintiffs’ claim.

[35] The party seeking to vary a Mareva injunction has the onus of proving that they have no other assets available for legal fees are living expenses: Waxman v. Waxman, 2007 ONCA 326 at para. 39 and HMQ v. Madan, 2020 ONSC 8093 at para. 16.

[36] As observed by Dietrich, J. in Madan, such a party is required to make full disclosure of all assets and liabilities and is expected to be candid about its ability to obtain funds from various sources. (Madan, at paras. 17 and 18, quoting with approval Trade Capital v. Peter Cook, 2015 ONSC 7776, at para. 41).

[37] In Waxman, the Court of Appeal held the defendant will not meet his onus if he refuses questions related to potential sources of income, and an adverse inference will be drawn if the defendant refuses to answer questions about his or her ability to finance living and legal expenses from other sources (paras. 41–43). If the defendants fail to provide evidence, they cannot discharge their onus: Madan, at para. 17.

[38] Defendants that have not been forthcoming about their ability to draw on the assets of friends and family cannot meet their onus under the first branch of the Credit Valley test, since they have failed to establish on the evidence that they do not have access to assets that can be used to pay for legal fees or living expenses: Royal Bank v. Welton, at para. 35; Li v. Hendren, 2021 ONSC 1692 at paras. 37-38.

Funds for Legal and Accounting Expenses

[39] The Khudal Defendants argue that the additional $125,000 in funds sought for legal and accounting expenses are necessary to complete the forensic accounting that the earlier motions judges directed ought to be a priority. They submit that the opposition of the plaintiffs prevents them from defending the action and amounts to execution before judgment. Through submissions of counsel, they urged me “to focus on evidence, and not innuendo and rumours”.

[40] They submit that all funds available for professionals have already been consumed and exhausted. To be clear, that would include the $175,000 already released from the funds that continue to be frozen, together with the additional $100,000 paid to new counsel for Joshi (Mr. Datt) and advanced by way of a loan to her from her brother, paid to the lawyer on her behalf.

[41] According to the Khudal Defendants, the $100,000 retainer to Mr. Datt covered most (but not all) of his fees. Of the $175,000 released by the Court, $107,372 was spent on lawyers and $67,628 was spent on forensic accounting. Moreover, there are still unpaid invoices for legal fees totaling an additional $44,560, and accounting fees of an additional $25,129. None of that includes invoices for the motions now before the Court. Finally, the Khudal Defendants state that the forensic accounting firm requires a further retainer of $75,000 if it is to complete its accounting work which, they say, it is necessary to enable the firm to properly report on the tracing of the investments (factum, paras. 19 and 20).

[42] The Khudal Defendants submit that they meet the first branch of the Credit Valley test since there are no other assets available.

[43] They argue that they require ongoing legal and accounting assistance, funds previously released for those purposes have been exhausted, and additional forensic accounting work to account for the funds in dispute is required.

[44] The plaintiffs submit that the Khudal Defendants have not in fact met the first branch of the test, since history shows that there are in fact other assets or funding available, most particularly through the support provided by family and friends, and moreover that the failure of the Khudal Defendants to have disclosed this on the earlier motions further disentitles them to the relief sought.

[45] The plaintiffs point to the original request by the Khudal Defendants for significant living expenses, based largely on the basis that a significant proportion of them ($5,500) was needed to fund the Australian law school education for Khudal’s son when in fact such expenses were (and are) being paid by an uncle. They take the position on this motion that the original funding request of the plaintiffs was at best a failure to fully disclose all of the relevant circumstances, or at worst an intentional and deliberate effort to conceal the true source of the funding for the Australian education and to mislead the Court accordingly. This is discussed further below in these reasons.

[46] The plaintiffs also submit that, contrary to the admonition and direction of both Myers, J. and Koehnen, J., the Khudal Defendants still, over two years since the original Order was made, have yet to advise what has happened to the plaintiffs’ funds, notwithstanding that they have exhausted fully the $275,000 already spent on legal fees and disbursements. Their evasiveness and unreliable evidence has exacerbated this evidentiary lacuna.

[47] Perhaps most fundamentally, the plaintiffs argue that there has been no material change in circumstances which would require or justify a further variation of the Order which itself was originally brought on notice and where all of the defendants (specifically including Sharanbir and Yashbir) were represented by counsel. In particular, they argue that notwithstanding that the full $140,000 previously authorized has now been exhausted, the Khudal Defendants have not produced any evidence as to the whereabouts of the plaintiffs’ funds, and that was directed to be the priority for the use of those funds.

[48] With respect to the first branch of the Credit Valley test, I am not satisfied on the record before me that the Khudal Defendants have shown that there are no other assets available nor that there has been material change in circumstances since the matter was first argued before Myers, J.

[49] The Khudal Defendants rely in these motions on the affidavit of Joshi sworn December 2, 2022 together with exhibits thereto, and affidavits from each of Sharanbir and Yashbir sworn on the same date. Those latter two affidavits speak primarily to the issue of the continued application of the Order to those defendants, with the result that it is the evidence of Joshi on which the Khudal Defendants rely for this issue. There is no affidavit from Khudal.

[50] Having reviewed all of the evidence, I am not satisfied that the Khudal Defendants have made full and frank disclosure about their assets or about the ability to obtain assistance from family or friends to justify the amounts they say are necessary for legal and accounting expenses.

[51] The absence of any evidence from Khudal, the failure to disclose the significant assistance from the uncle with respect to the schooling and living expenses for the two sons (discussed in detail below) and the issues with respect to the evidence of Joshi (also discussed below) leaves me in a position where I cannot conclude that the plaintiffs have met their burden of showing that there are no other assets available. That is far from clear on the basis of the record as it now sits.

[52] A defendant (and certainly one who did not appeal the original Order) cannot get what is effectively a second attempt to relitigate the issue by putting forward relevant information that it could have provided in the first place: Ford Motor Co. v. Quocksister, 2019 ONSC 6496 at paras. 24-26; and Enbridge Gas Distribution Inc. v. Marinaccio, 2011 ONSC 2313 at paras. 40-43.

[53] With respect to the second branch of the Credit Valley test, the Khudal Defendants submit that they have demonstrated that the assets to which they are seeking access are proceeds from the sale of two properties, neither of which is one in which the plaintiffs can establish a proprietary interest in the sense that they can trace the purchase of those properties to funds transferred from the plaintiffs.

[54] Those two properties are 25 Coastline Drive, Brampton, Ontario and 211 Glenview Drive, Mississauga, Ontario. They were authorized to be sold by the order of Gilmore, J. and were in fact subsequently sold, and the net proceeds of approximately $1,400,000 continue to be held in trust as required by the Order.

[55] The Khudal Defendants submit that there is no suggestion or allegation that plaintiffs’ funds went into the purchase of 25 Coastline. They argue that the $300,000 that went into that property was funded entirely from the funds authorized for release by the earlier variations to the Order made by Gilmore, J. and Koehnen, J.

[56] I observe that when the Order was originally made, Myers, J held that there was “ample evidence of investor funds flowing” into the property set out in the Statement of Claim, including these two properties.

[57] With respect to 211 Glenview, where the Khudals reside, it was purchased in 2012 by a numbered company in turn owned by Khudal (2341943 Ontario Inc.), long before, they submit, any funds were transferred or invested by the plaintiffs. The house built on the property was, they submit, funded entirely by mortgage financing, largely from the Bank of Nova Scotia, but again without any funds from the plaintiffs. It was subsequently transferred to Joshi. It was sold in 2021, pursuant to the Order of Gilmore, J., and the net proceeds remain in the trust account of counsel for the Khudal Defendants. [^2] It is a portion of these trust funds that they now seek to have released.

[58] The plaintiffs take the position that the conveyance to Joshi was a transfer at undervalue. The Khudal Defendants submit that whether that is true or not, such is irrelevant to the analysis since it does not change the fact that there is no evidence that the funds used to purchase the land or build the house came from funds transferred by the plaintiffs. Indeed, they submit that there is no evidence that funds from any of the plaintiffs were ever transferred into the numbered company through which Joshi purchased the property at all, let alone evidence that the funds can be traced directly to the property.

[59] I accept the submissions of the plaintiffs with respect to this property for the purposes of this motion. The record does reflect as submitted by the Khudal Defendants that 211 Glenview was purchased in 2012 by the numbered company. The sole officer and director of that company was and is Khudal.

[60] The house on the property was built over the following six years, after which Khudal transferred the property into the name of Joshi. Mortgage financing was provided by Scotiabank, whose appraisal put the value of the property at $4,400,000. Yet the transfer was completed at a stated value of $2.1 million. The evidence of Joshi is that is what was in fact paid. Moreover, her evidence is that the transfer price was based on her own judgment (she was a real estate broker) that the property was worth $2.3 million. Further, that valuation was supported by an appraisal of the property but that was one obtained by Khudal through one of his companies.

[61] There is no evidence as to any reason for the discrepancy between that valuation and the corresponding transfer price, and the valuation obtained by Scotiabank at almost two times that amount.

[62] Moreover, the Scotiabank mortgage registered against title was for the principal amount of $5.5 million, yet the evidence of Joshi is to the effect that only $2.2 million was advanced and some of the funds advanced were used to discharge other debts and existing mortgages on the property, although she was unable to recall any specifics when asked on cross-examination.

[63] The plaintiffs point to other inconsistencies and challenges with the evidence, including: a. the admission by Joshi on cross-examination that the statement in her affidavit to the effect that “all investors in syndicated mortgages registered against 211 Glenview were paid in full” was a statement about which she had no knowledge; b. the general ledgers for the numbered company reflected the capital cost of the home built at 211 Glenview was approximately $3.85 million, though Khudal’s evidence was to the effect that the cost was between $1.5 million and $1.7 million, and that the property was sold at a deficit. He could not explain why, when asked on cross-examination; c. the Scotiabank mortgage application materials submitted by Joshi reflect that she was the owner of the property at 54 Matson Drive when she was not. They reflect that she received an annual income of $487,267 which, according to her tax return information provided to the plaintiffs, she did not. Her evidence was that she did not remember what information or backup documentation she had provided to the bank in connection with the application for the mortgage loan; d. the application materials further reflected that she received $3,500 per month and rental income from 54 Matson Drive, which she did not. She was unable to explain any of these discrepancies on cross-examination and instead stated that she had not provided any such information or documentation to the bank and therefore could not explain why it was in the bank’s file. Joshi suggested that counsel for the plaintiffs should ask the bank where it got the information; and e. when asked on cross-examination about the disbursement of mortgage proceeds for 211 Glenview, and particularly references to various accounts (such as “211 Glenview Private Account”), Joshi denied having any private account nor any knowledge of where the funds in the amount of $500,000 said to be transferred into this account, had gone.

[64] Finally, and even if the Khudal Defendants are correct that the date of the purchase of the 211 Glenview property, and the construction of the home located on it, predated the transfer of any investor funds from the plaintiffs, Joshi made payments to service the mortgage and pay other ongoing expenses for this property throughout the period in which the Khudal Defendants are clearly alleged to have been participating in the fraudulent scheme. There is no evidence that the funds used to make those ongoing payments came from sources other than funds invested by the plaintiffs.

[65] In short, I am not satisfied that the Khudal Defendants have discharged their onus with respect to the second branch of the Credit Valley test.

[66] The Khudal Defendants then submit that they have exhausted all other non-proprietary assets (and therefore satisfied the third branch of the test). For the reasons discussed above and below, I do not accept the submission. The evidence that other assets have been exhausted is either absent or sufficiently unclear such that I cannot conclude on a balance of probabilities that all other non-proprietary assets have been exhausted.

[67] Finally, the Khudal Defendants submit that the fourth branch of the test, the balancing of interests to be undertaken if the first three branches are satisfied, favours releasing the funds so that Joshi can fund her defence and complete the required accounting work. Indeed, they submit that the balancing of interests favours the release of the funds even if funds used to acquire or build the Glenview property were sourced from funds transferred by the plaintiffs.

[68] I do not agree. Even if the first three branches of the Credit Valley test were satisfied, which they are not, I am not persuaded that the balancing of interests as contemplated by the fourth branch of the test favours the relief sought by the Khudal Defendants.

[69] As noted, Khudal himself did not provide an affidavit on these motions. Counsel for the moving parties (the other Khudal Defendants - his wife and two sons) made submissions effectively for the benefit and on behalf of all of the Khudal Defendants.

[70] Moreover, significant reliance is placed on the First and Second Preliminary Reports of the accounting firm they retained, Crowe Soberman Inc. (Exhibits “V” and “W” respectively to the affidavit of Joshi).

[71] Both of those Preliminary Reports describe at Paragraph 1 the “Assignment” as a mandate “to assist [counsel] on behalf of your clients …(together with Mr. Monindir Khudal, (the “Khudal Family”) and various related corporations”. The Reports are clear that the accounting firm was retained to assist all of the Khudal Defendants together.

[72] Even further, both Reports are expressly clear in the Scope of Review section that the accounting firm reviewed various information and documentation and “had discussions and correspondence with [counsel] and Moninder [Khudal]”. Finally, in the Limitations of Scope of Review section, the Reports are also clear that the accounting firm relied on the documents described as “a Summary of Invested Amounts - Prepared by Moninder Khudal only”.

[73] In other words, Khudal was clearly involved in the preparation of the Reports by providing information and summaries (at least) to the accounting firm. Yet not only did he not put in an affidavit that could be tested on cross-examination, neither did the professional accountants that rely on information obtained from him. Accordingly, the expert reports cannot be tested either.

[74] It is not appropriate to simply append an expert report to the affidavit of a fact witness. The expert should herself or himself swear or affirm an affidavit setting out the opinion of the expert or attaching the expert report and attesting to it. Otherwise, no reliance ought to be placed on the report: Dupont Heating & Air Conditioning Ltd. v. Bank of Montréal, 2009 CarswellOnt 451; Danos v. BMW Group Financial Services Canada, 2014 ONSC 2060 at para. 29, aff’d 2014 ONCA 887; and Narouz v. Desjardins Financial Security, 2014 ONSC 4641.

[75] I observe that in her affidavit, Joshi states that the two Reports including all schedules will be available to all counsel, with arrangements for access to be made upon request (para. 22). That is not sufficient and does not rectify this deficiency.

[76] Beyond that, and even if reliance were placed on the Preliminary Reports, they do not assist the moving parties, given their express limitations. The First Preliminary Report was restricted to review of details of the general ledger and other documents as well as the Summary referred to above prepared by Khudal. It did not involve an audit or verification of the transactions reported in the accounting records, did not include a review of bank statements or trial balances or year-end financial statements (which were not provided) and did not reconcile the general ledger amounts with bank statement balances. The Report is clear that the accountants were unable to trace investor/lender funds and/or related interests/dividends paid with respect to certain entities.

[77] The Second Preliminary Report is also clear that it was based on the limited review of bank transactions and information, was not an audit and that no attempts were made to verify the accuracy or completeness of the financial information provided. It went on to state that where the purpose of certain transactions could not be discerned from a review of bank statements, Khudal had provided additional commentary to assist the accountants in understanding the nature of the transaction.

[78] The Second Preliminary Report states that the tracing exercise undertaken revealed the fact that $160,500 was sent to Joshi from her parents. However, the accountants were unable to determine where the funds originated from, and if any investor funds were indirectly provided to her parents directly or through companies associated with Joshi or Khudal. The Report states that: “a detailed review and analysis of [Joshi’s] records as well as the [Khudal] companies is required in order to ascertain the ultimate source of funds”.

[79] Even Joshi herself states at para. 23 of her affidavit that the Second Preliminary Report indicates that a further reconciliation of the general ledger accounts with bank statement balances, credit card statements, invoices, and lending agreements, etc. is required. While I accept that the Reports are said to be preliminary, and further work and analysis is said to be required, there is no explanation anywhere as to why at least some of this work has not been done to date. In any event, no evidence as to the whereabouts of the plaintiffs’ funds is put forward in support of these motions.

[80] In addition to all of the above, neither the affidavit of Joshi, nor either of the two Preliminary Reports from the accountants, includes a proposed budget for the significant increase in the quantum of funds said to be required for legal and accounting work. Not only is this required for any such motion, but it was specifically required by Koehnen, J. in the course of his reasons supporting his earlier approval of the release of certain funds in which he expressly noted that he did not necessarily accept the breakdown submitted. In short, the moving parties were clearly aware that this was an issue, and yet no budget is provided. The evidence of the plaintiffs amounts to the repeated assertions (primarily in the affidavit of Joshi) that the funds previously authorized have been exhausted and more money is needed.

[81] Further, I am not assisted by any breakdown with particulars as to how the funds already released for legal expenses have been spent. At paras. 14 to 24 of her affidavit, Joshi summarizes the invoices received and professional fees already paid, in very general terms. Significant sums in addition to those already paid are said to be outstanding and even those do not include fees for these motions.

[82] Beyond those broad statements, however, there is no explanation as to how the funds have been spent. The action has not progressed very far. Productions have not been exchanged and examinations for discovery have not taken place. As stated above, the two Preliminary Reports from the accountants do not advance the threshold issue of what has happened to the plaintiffs’ funds.

[83] In addition, I have difficulty with the submission that current counsel for the Khudal Defendants cannot continue to act given what they now submit they recognize are conflicts between and among the Khudal Defendants, with the result that $25,000 is required for new counsel for Khudal, and it is in the interests of all parties that he be represented by counsel in this matter to maximize efficiency.

[84] I accept the submission of the plaintiffs that no explanation has been provided for why Khudal and Joshi now require separate counsel or what the irreconcilable conflict is. They observe, and I have noted above, that current counsel for Joshi (counsel on this motion) makes submissions for the benefit of Khudal even though counsel does not act for him, and the accounting reports from the plaintiffs’ expert were expressly stated to be for the assistance of all of the Khudal Defendants with reliance on information from Khudal all as described above.

[85] Without anything more, I cannot conclude that additional funds should be released now for the retention of new, separate, counsel which will inevitably increase costs further.

[86] All of this applies both to the $100,000 said to be required for additional accounting work, and also for legal expenses.

Living Expenses

[87] As noted above, the current terms of the Order permit access to frozen funds to the extent of $8,000 for living expenses for the Khudal Defendants. The Khudal Defendants agree that this amount should be reduced, but submit that access to funds for living expenses should not be reduced to zero, but rather reduced to $5,000 per month since, as they now concede, Sharanbir and Yashbir are not drawing on this amount for school and living expenses. They estimate that is a reasonable reduction and submit that no further changes to the existing terms of the Order should be made.

[88] The plaintiffs rely on the reasons of Myers, J. given when the Order was originally made that point to a prima facie case of fraud. They argue that contrary to what was represented on the motion before Koehnen, J., a significant portion of the living expenses for the Khudal Defendants are currently being covered by friends and family. As a result, they submit that not only should additional funds for living expenses not be released, but in fact the Khudal Defendants should no longer receive monthly payments for living expenses from the funds frozen at all.

[89] They further argue that there has been adequate time since the Order was originally made to allow the Defendants to support themselves in any event since the Khudal Defendants have avenues available to them to pay their living expenses, yet inexplicably, neither Khudal nor his wife Joshi have worked at all since the Order was originally made.

[90] Moreover, they take the position that the Khudal Defendants should be denied any discretionary relief since they have not been forthcoming with respect to access to funds and payment of expenses. The plaintiffs point to submissions made by the Khudal Defendants on the motion before Koehnen, J. to the effect that one of the principal reasons for requesting access to frozen funds was to pay tuition and living expenses for Yashbir at an Australian law school where he (and now Sharanbir also) attend as international students.

[91] Finally, plaintiffs submit that apart entirely from the fact of the non-disclosure, the evidence is to the effect that the Khudal Defendants do in fact have access to funds from friends and/or family members for legal fees, living expenses and school and living expenses abroad for Yashbir and Sharanbir.

[92] The first argument of the Khudal Defendants is that the first branch of the Credit Valley test requires an evaluation of the available assets of the defendants, and the benevolence of relatives or friends, even if very material, is irrelevant to the test. They submit on this motion that Koehnen, J. directed them to find another way to finance that education, and that is exactly what they did in obtaining assistance from the uncle. Accordingly, they submit, the fact of his assistance, whether by way of gift or (undocumented) loan - it is not entirely clear - is not a relevant fact on these motions.

[93] I do not agree, at least in the particular circumstances of this case. I accept that there is an obvious difference between assets or funds to which the defendants own or have a legal right to access, and funds (such as gifts or ongoing support) from family or friends to the defendants but in respect of which they have no legal right to compel continued access.

[94] However, the import of the Credit Valley analysis is the overarching objective of striking a balance, but on an interim or interlocutory basis pending a final determination of the issues (and specifically the legal right to the assets claimed to have been derived from the misappropriated funds). It is intended to ensure that the defendants who are subject to the order have access to at least some assets in order that they can fund living expenses, while at the same time mitigate the risk of further dissipation (through removal or just plain spending) of the assets claimed by the plaintiffs, all on a temporary basis until the issues are determined.

[95] Moreover, in my view the fact of the failure to disclose the very material financial and housing assistance from the uncle is relevant to the Credit Valley test (and particularly the fourth branch of the test - the balancing of interests), as well as to an assessment of the veracity of the evidence on the other branches of the test before one even reaches the fourth branch.

[96] Indeed, that is the law, as summarized above (see Madan, Waxman, Welton and Li above at paras. 35-38). In short, I am not satisfied that the Khudal Defendants have made full disclosure about their ability to access funds, and the inconsistencies in the evidence of Joshi and her inability to explain facts or documents (such as the mortgage financing for 211 Glenview) increase my concern in this regard.

[97] Even if there were evidence in the record (which there is not) to the effect that the uncle had refused to provide any further or additional financial assistance, the result that the Khudal Defendants seek would not be automatic (i.e., that the Order should be varied to permit access to funds to make up for the deficiency in the then-withdrawn financial support from the uncle). As noted by Koehnen, J., alternatives such as domestic schooling may need to be considered. That is for another day.

[98] In my view, however, it is unrealistic and represents a distortion of the Credit Valley test and its objective, to decline to take into account clear evidence of a material contribution to the living expenses of the defendants (here, evidence that is now admitted) because it is said to emanate from a gift of a relative. This is particularly so in circumstances where, as here, the defendants have not been clear and forthcoming about sources of income or support, and have yet to account for the funds claimed in the action or provide any tracing evidence disclosing clearly to whom or to where the funds were transferred (or, perhaps also relevant, to whom they were not transferred).

[99] In addition, it is inappropriate here to ignore that material financial assistance (and particularly to Yashbir and Sharanbir) in circumstances where the Khudal Defendants did not disclose that and indeed led evidence of the financial hardship they were suffering in support of their request for access to additional funds.

[100] I am certainly satisfied that no living expenses for either Yashbir or Sharanbir are required. Their uncle is funding their Australian school expenses. They reside rent-free with him in what is a lavish home. The evidence of Sharanbir was to the effect that if spending money for the brothers were required for anything they needed while there, his uncle would buy it for them.

[101] As to travel between Australia and Canada, the evidence of Yashbir was to the effect that his parents (i.e., Khudal and Joshi) paid for flights, but that he was not sure where the funds came from. The evidence of Sharanbir on the point was to the effect that his father’s friend, Rajesh Khuranan (the same individual he said pays for his school expenses), paid for the trip.

[102] The Khudal Defendants submit that at least a portion of the funds advanced to them by friends and family are loans. However, they have provided no documentation beyond the bald statements in the affidavits (i.e., loan agreements, promissory notes, etc.) to support this assertion. Nor is there any evidence of any loan terms whatsoever, even if informal (such as principal amount, interest rate and term of the loan). If some of the advances were loans, and particularly loans made in the circumstances of this case where the Order was already in effect, one would expect that there would be evidence of such terms. There is none.

[103] Finally, and perhaps most importantly, Khudal and Joshi have not provided any living expense budget, nor any accounting of current living expenses as against income or available funds (i.e., receipts and disbursements, or any particulars of how the $8,000 per month currently being provided is actually being spent, particularly since it is not required to fund the school or living expenses of their sons). The evidence is to the effect that neither has worked since the Order was originally made. Khudal has not provided any evidence on this motion whatsoever. Joshi’s evidence is largely to the effect that, as set out above, she ought to be entitled to have access to proceeds of sale of her properties.

[104] The Khudal Defendants now propose a reduction of $3,000 (from $8,000 to $5,000) on account of the fact that their sons’ tuition and living expenses at school in Australia are being funded by their uncle. Yet when they were seeking an earlier variation of the Order before Koehnen, J., they submitted that fully $5,500 per month was necessary to fund those school expenses. Given that those expenses are now admitted having been funded by the uncle, the living expenses ought, if consistency is maintained, to be reduced to a maximum of $3,000 per month.

[105] In the circumstances, I am not prepared, as the plaintiffs request, to reduce living expenses for the Khudal Defendants to zero and disallow them entirely, but I am satisfied that they should be reduced to a maximum amount of $3,000 per month (the amount referred to above).

Continued Application of the Order to Sharanbir Khudal and Yashbir Khudal

[106] The defendants Sharanbir and Yashbir ask that the Order be vacated in its entirety as against them. They submit that the plaintiffs have had the relevant financial records for a significant period of time and have not advanced the case, particularly as against these two defendants.

[107] They submit that there is no evidence that any funds from the plaintiffs can be traced to them, there is little or no evidence that they were involved in any alleged wrongdoing, and there is no justification for making them subject to the continued effect of the Order since there was very little property belonging to them that was subject to the Order when it was first made [^3].

[108] In any event, they submit, Sharanbir’s assets consist of a disputed commission payment of $39,612.15 and $66,361 in his professional company. Yashbir is in law school. The only material asset owned by these two defendants is the property referred to above located at 54 Matson Drive, Caledon, Ontario which is in any event protected by a certificate of pending litigation registered against title, such that the continued application of the Order is unnecessary.

[109] They submit that the test to be applied on a motion to continue an injunction is as set out in Canadian National Railway Company v. Holmes, et al., 2015 ONSC 1475 at para. 5: a. whether there has been inordinate delay in advancing the claims against these defendants; b. harm to the defendants; c. the balance of convenience; and d. whether the present facts are substantially different from the facts upon which the original order was given.

[110] While acknowledging the findings made by Myers, J. when the original Order was granted, they allege that the facts now before the Court are different, in that the evidence is to the effect that Yashbir had no involvement in his father’s businesses, and Sharanbir was a junior employee and thereafter acted as a real estate agent for a brokerage, although by that time, the plaintiffs had stopped investing in Khudal’s projects.

[111] The preliminary forensic accounting evidence is to the effect, they submit, that no funds can be traced from their personal bank accounts back to investor deposits and nor can any assets of the plaintiffs be traced to either of them.

[112] I do not place any weight on the Preliminary Reports of the accountants, with respect to the motion to vacate the Order as against the two sons, for the reasons expressed above (principally, that there is no affidavit from the accountant and therefore no ability to test the evidence, and in any event much of the factual basis upon which the conclusions in the Reports are based appears to have come from information and/or materials from Khudal who has likewise not provided affidavit evidence).

[113] Even if I did place weight on the Reports, however, I am not satisfied that they are close to being sufficient to discharge the onus on the moving parties.

[114] Both sons themselves swore affidavits on these motions. Since last year, now both sons are attending law school in Australia.

[115] In his affidavit, Yashbir swears that he is attending law school at Bond University in Australia and states: “I am not employed and have been struggling to meet tuition and living costs.”

[116] In his affidavit, Sharanbir swears that he, also, has been a full-time law student at Bond University in Australia since January, 2022. He states that if he were to withdraw from his own professional corporation the amount of $66,361.03 he says is in the company’s bank accounts, and apply it for personal uses, it would fall short of covering his tuition for school, since, he says, his tuition is AUD$22,000 per trimester and he has three trimesters remaining, excluding postgraduate licensing courses.

[117] Neither affidavit refers to any financial assistance or housing being provided by their uncle or any friends. Indeed, as the above excerpts make clear, they say exactly the opposite.

[118] However, on cross-examination, Yashbir conceded that he and Sharanbir live with their uncle in what is, as the photographs and property descriptions in the evidence clearly show, a very opulent property in Australia. Moreover, he admitted that the uncle is funding his very significant tuition fees of AUD$21,000 incurred as a foreign student in Australia.

[119] For his part, Sharanbir admitted that one of his father’s (Khudal’s) friends (Rajesh Khuranan) has been paying his tuition of approximately $20,000 - $23,000 per annum, also incurred as a foreign student in Australia.

[120] The plaintiffs submit that these facts were not disclosed in the affidavits filed on this motion, and nor was the fact of any assistance from family or friends disclosed on the motion to vary the Order before Koehnen, J. when the evidence of Khudal was to the effect that he and his family were “under severe financial and legal stress” and were “living on the bare minimum level of food and nutrition.”

[121] Again, Khudal himself has not provided any affidavit on this motion. The affidavits of Yashbir and Sharanbir must be regarded with caution, given not only the failure to disclose the financial assistance as described above, but in fact their express statements to the contrary.

[122] In addition, there has been no material change since the original Order was granted, in respect of this aspect of the motions either.

[123] Specifically with respect to the 54 Matson Drive property, I do not accept the submission of the Khudal Defendants that the position of the plaintiffs with respect to this property, which is clearly at issue in this litigation, is adequately protected by the certificate of pending litigation such that the continued Order is not necessary. Yashbir continues to assert a proprietary claim to that property, flowing from what was (according to the earlier examination of his father, Khudal) the purchase of this property in trust for both sons.

[124] 54 Matson Drive was purchased by Khudal in 2007. It is now in the name of Sharanbir, having been transferred to him for no consideration in May, 2017 on the basis that the transfer was made “to the beneficial owner”. As observed originally by Myers, J., there are, however, no contemporaneous trust documents evidencing same. Those appeared later, long after Khudal swore the land transfer tax affidavit at the time of the purchase of the property, identifying himself as transferee (not trustee). There are no documents in the record dating from the time of the purchase of the property that reference the alleged trust.

[125] The Khudal family lived at this property from the date of purchase in 2007 until 2012, and Khudal and Joshi continue to live there. Subsequent rental income was declared by Khudal. The Scotiabank mortgage application for 211 Glenview Drive described above reflects that Joshi was the owner, a lease from May, 2018 reflects the same thing (i.e., Joshi as landlord), and she made the majority of the mortgage payments for the property. Joshi and Khudal paid for renovations completed in 2020.

[126] In any event, I am not satisfied that the record is such that I can conclude that a certificate of pending litigation, which is effectively a cautionary notice to third parties such as potential mortgagees or subsequent purchasers, is sufficient to protect the interests of the plaintiffs here. All parties concede that beneficial ownership of the property is in issue and has yet to be determined. The effect of the Order clearly has a broader scope than does a certificate of pending litigation. In the circumstances, however, I am not persuaded that the Order should be vacated.

[127] Moreover, I am satisfied that the existing terms of the Order are not working any significant prejudice on either of Yashbir or Sharanbir, for the very reasons fully conceded by the Khudal Defendants: they are attending school in Australia (now, on the evidence, both sons are there), seemingly fully funded as to both tuition and living expenses, by their uncle in whose luxurious home they live while at school.

[128] Accordingly, any balancing of interests or balance of convenience favours the plaintiffs in the circumstances of the alleged fraud and the continued absence of any explanation for what happened to their funds.

[129] I pause to observe that this is not a case where there is an issue as to whether funds of the plaintiffs were taken or received by the defendants at all. On the contrary, there is no issue that the plaintiffs invested tens of millions of dollars in projects of Khudal, and transferred funds accordingly. The issue is what became of those funds.

[130] I decline to vacate the Order as against Yashbir and Sharanbir. To be clear, however, the consent variation of the Order to provide that it does not apply to post-injunction earnings (as further discussed below) applies to these two defendants as well as the others.

Unopposed Relief

[131] As noted above, certain relief sought was not opposed.

[132] An order will go varying the Order to provide that it does not apply to earnings of the Khudal Defendants subsequent to the date of the original Order being September 21, 2020, except for the $35,000 commission claimed by Sharanbir, which shall remain frozen.

[133] The defendants continue to have the obligation to report earnings and, as suggested by counsel, shall do so quarterly (whether there were in fact earnings or not within the quarter being reported on) and through the provision of tax returns and CRA Notices of Assessment.

[134] Quarterly reports are to be made within 15 business days of the quarter end. Tax returns are to be provided within five business days of being filed and Notices of Assessment are to be provided within five business days of receipt (with receipt being actual receipt or availability on the CRA online portal).

[135] An order will go permitting the amendments as reflected in the draft Amended Amended Statement of Claim, and authorizing substituted service in the manner set out in the Notice of Motion of the plaintiffs.

Costs

[136] The parties provided Costs Outlines. The Outline of the plaintiffs reflects substantial indemnity costs of $77,631.27 and partial indemnity costs of $53,362.60. The plaintiffs seek costs on a substantial indemnity basis. The moving party defendants also seek costs. Their Outline does not reflect substantial indemnity costs but rather shows actual costs of $110,055.60 and partial indemnity costs of $70,560.97. All amounts in both Outlines are inclusive of fees, disbursements and HST. As is apparent, the partial indemnity amounts sought by both parties are reasonably close to one another.

[137] In addition, and as noted at the outset of this Endorsement, the moving party defendants seek an order, in the event they are not successful on these motions, that any award of costs made against them be paid from funds currently frozen, together with an order that their own costs be paid from frozen funds.

[138] The plaintiffs have been largely successful on these motions [^4], and they are entitled to their costs. It seems to me that, in the particular circumstances of this case, and given the findings I have made as set out above, it is inconsistent with that substantial success to order that the costs to which they are entitled (or the costs of the moving party defendants) be paid from frozen funds, which may or may not (that remains to be determined) be funds to which the plaintiffs are beneficially entitled in any event.

[139] It is not clear to me why the analysis as to whether funds should be made available for this purpose is any different than the analysis applicable to the merits of the motions, i.e. the Credit Valley test. My conclusions with respect to the four branches of that test as set out above apply equally to the issue of costs.

[140] Accordingly, I am not prepared to provide access to funds currently frozen by the Order for the payment of these costs.

[141] Exercising my discretion pursuant to s. 131 of the Courts of Justice Act, and considering the factors as set out in Rule 57.01, the plaintiffs are entitled to costs in the amount $50,000, all-inclusive and in respect of all motions argued together, payable within 90 days, which amount is, in my view, fair and reasonable in all of the circumstances.

Disposition

[142] Order to go in accordance with these reasons. If further particulars are required to give effect to this order, I may be spoken to.

Osborne J.

[^1]: This brought the total funds released or otherwise made available for legal expenses to $275,000. [^2]: Funds owing pursuant to the mortgage were paid out of sales proceeds. [^3]: One exception in the form of a "potentially supportable claim" against these two defendants relates to the conveyance of 54 Matson Dr., Caledon, Ontario, which the defendants argue the plaintiffs are already protected in respect of by a certificate of pending litigation registered against title to that property. [^4]: The plaintiffs have been largely, although not completely, successful. They sought an order to the effect that permitted living expenses be reduced to zero whereas I have permitted $3,000 per month.