Court File and Parties

COURT FILE NO.: CV-24-00000954 DATE: 2024-04-22 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: KIOSK DESIGN INC., SQUADRAPIU INC. O/A POLIFORM TORONTO, and ROBERT SIDI, Plaintiffs AND: AHMED YASSER EL-RIFFAEY and TRUSTEX CURRENCY TRADING CORPORATION, Defendants

BEFORE: The Honourable Mr. Justice R.E.Charney

COUNSEL: Avi Bourassa and Gordon Vance, Counsel for the Plaintiffs Lea Nebel and Amelia Phillips Robbins, Counsel for the Defendants

HEARD: April 18, 2024

Endorsement

[1] The Plaintiffs have brought this motion, on notice to the Defendants, for a Mareva injunction to restrain the Defendants from selling, removing or dissipating assets. The Plaintiffs also seek a Norwich Order, requiring any bank or other financial institution having knowledge of the Order disclose to the Plaintiffs the Defendants’ financial documentation and records. In the alternative to the Mareva injunction, the Plaintiffs seek an Order granting the Plaintiffs leave to register a Certificate of Pending Litigation (CPL) on the Defendants’ residence in Thornhill, Ontario.

Facts

[2] The Plaintiffs, Kiosk Design Inc. (“Kiosk”) and Squadrapiu Inc. o/a Poliform Toronto (“Poliform”), are Ontario corporations. The Plaintiff, Robert Sidi, is Kiosk’s sole director and officer, and its directing mind. Robert’s son, Paul Sidi, is Poliform’s sole director and officer, and its directing mind.

[3] The Plaintiffs sell luxury furniture out of showrooms in downtown Toronto. They purchase their merchandise from European suppliers using foreign currency (Euros or US Dollars (USD)).

[4] The Defendant, Trustex Currency Trading Corporation (“Trustex”), is an Ontario corporation. The Defendant Ahmed Yasser El-Riffaey is the sole owner, director and officer of Trustex. Trustex sells and purchases currency on behalf of clients. Mr. El-Riffaey has been in the foreign exchange business for approximately 40 years, and has operated Trustex since 1997.

[5] In about 2015, Kiosk became a client of Trustex.

[6] Trustex purchased foreign currency reserves for the Plaintiffs, and wired payments to their suppliers when so instructed. Sometimes the foreign currency was purchased on an as needs basis, sometimes the foreign currency was purchased in advance and held in reserve by Trustex for future payments.

[7] Kiosk and Poliform each had an agreement with Trustex, for Trustex to purchase, hold and send foreign currencies on their behalf, as follows:

a. El-Riffaey would advise Kiosk and Poliform when to purchase Euros and USD based on the rates available to Trustex.

b. Kiosk and Poliform Toronto would send CAD to Trustex to buy Euros and USD on their behalf, at a specific exchange rate agreed upon between the parties.

c. Sometimes, these foreign currencies would be immediately sent to the Plaintiffs’ suppliers. Other times, Trustex would hold a balance of these foreign currencies in reserve, in trust for Kiosk and Poliform’s benefit.

d. These reserves could only be used by Trustex to pay the Plaintiffs’ suppliers, not for any other purpose.

e. From time to time, Kiosk and Poliform would instruct Trustex to pay their suppliers using the foreign currencies reserves Trustex held for them.

f. Trustex would pay Kiosk and Poliform Toronto’s suppliers using their foreign currency reserves, per Kiosk and Poliform Toronto’s instructions.

g. El-Riffaey would send Kiosk and Poliform Toronto written confirmation that the wire payments to their suppliers had been sent and the balance remaining in the reserve fund.

[8] The Kiosk and Poliform reserve funds were not kept in a separate account, but Trustex kept a record of the amount in each reserve fund so that Kiosk and Poliform knew how much was available to make purchases. There is no dispute that the amount in the reserve funds was the property of Kiosk and Poliform respectively.

[9] While there was no written agreement, there is no real dispute that these were the terms of the agreement, and the parties amicably conducted business on this basis for several years.

[10] In his reply affidavit, Mr. El-Riffaey states that between 2015 and 2024, Trustex purchased foreign currencies equivalent to $37,890,656 for the Plaintiffs and sent 1,836 wires to their suppliers.

[11] As of December 11, 2023, the Plaintiffs were advised by Trustex that it held the following reserves on behalf of the Plaintiffs:

i. Kiosk €272,656.80, USD $23,367.62

ii. Poliform €231,989.50, USD $7,404.20

iii. Robert Sidi €23,635.24

[12] These reserves were based on CAD funds that the Plaintiffs had given to Trustex to convert into foreign currency reserves. For example, on December 4, 2023, Kiosk paid Trustex $308,000 CAD to purchase € 220,000, to be added to Kiosk’s Euro reserves held by Trustex. Kiosk did not use any of those €220,000 between December 4 and 11, 2023. There is no dispute that these funds were transferred to Trustex, and Trustex provided Kiosk with an invoice confirming the purchase of Euros on Kiosk’s behalf.

[13] In December 2023 and January 2024, Kiosk and Poliform instructed Trustex to make 29 wire payments to their suppliers, totaling €446,944.63, using their respective Euro reserve balances set out above. Trustex sent Kiosk and Poliform confirmations on December 8, 2023, December 11, 2023, December 21, 2023, January 5, 2023 and January 18, 2023 to confirm that these payments were made pursuant to instructions and confirming the balance in the USD and Euro reserve funds.

[14] In late January 2024, Kiosk and Poliform Toronto discovered that 14 payments, totaling €391,853.61, had not been received by their suppliers.

[15] As events unfolded, the Plaintiffs eventually discovered that the payments had not gone through because they were never made: Trustex did not have the funds available to make the payments.

[16] There is a dispute between the parties as to Mr. El-Riffaey’s initial explanation for the non payments. Robert Sidi’s evidence is that when he asked Mr. El-Riffaey why the payments had not gone through, Mr. El-Riffaey initially insisted that the payments had been sent but were delayed by a random government audit relating to anti-money laundering or anti-terrorism. Mr. El-Riffaey’s affidavit states that he informed Robert Sidi that “there were delays for certain wires because of the large size of the transaction and the way it was done”, although he acknowledges that he did not inform Robert Sidi that there was not enough money in the reserve fund to cover the payment because “I knew he would have been extremely angry”. Mr Riffaey also stated that he tried to “resolve the issue” by seeing if Trustex could get a bridge loan to cover the shortcoming, but was unable to do so.

[17] There is not really a significant difference between these two versions. Either way, Mr. El-Riffaey did not disclose to Robert Sidi the fact that the reserve funds did not have enough money to cover the payments. Either way he lied to Robert Sidi and tried to cover up the insufficiency of the reserve funds. Either way it was fraud.

[18] In the last week of January 2024, Robert Sidi became suspicious and asked Mr. El-Riffaey to provide documents from his bank to show that Trustex had tried to wire the funds to the suppliers or some evidence that the funds were being delayed. After a week, Robert Sidi states that he confronted Mr. El-Riffaey on February 1, 2024, and accused him of lying and failing to wire the funds to the suppliers.

[19] Again, there is a dispute between the parties as to Mr. El-Riffaey’s explanation. Robert Sidi states that Mr. El-Riffaey admitted to him that there was no government audit, that he was in financial trouble, and that Trustex had never sent the 14 missing payments. Mr. El-Riffaey told Robert Sidi that those funds were gone, that neither he nor Trustex had the funds, and that he had lost the money trading on the market. Mr. El-Riffaey further admitted that Trustex had depleted all of Plaintiffs reserves of foreign currency.

[20] Mr. El-Riffaey’s evidence is that he had agreed with Robert Sidi that he would purchase the Euros at the currency exchange rate of 1.4, but that the rate had increased to 1.47, so he was not able to purchase as many Euros as he had agreed. Mr. El- Riffaey’s affidavit states: “Trustex provided Robert with the details of the outstanding wires and explained that further funds were lost through speculation and the increase in currency rates resulting in Trustex not being able to honour the extremely low rates originally given to the plaintiffs”. Mr. El-Riffaey further explained:

The money which has been lost in the transactions for the plaintiffs has been lost in similar small increments. There is and was no one transaction in which hundreds of thousands of dollars disappeared.

These transactions had been creating losses for more than two (2) years in the currency exchange rate to the plaintiffs but finally, in 2024, due to the lack of funds, no further transactions could be completed. …The funds were lost in the market due to increased prices for currency which resulted in a shortfall in the amounts that could be purchased to cover the wires.

[21] Again, there is not really a significant difference between these two versions. It does not matter whether Trustex lost the Plaintiffs’ money in small increments or in one transaction. Either way, Trustex lost the Plaintiffs’ reserve funds through speculation. Mr. El-Riffaey has been involved in the foreign currency exchange business for 40 years. If he agreed to an exchange rate of 1.4, Trustex was bound to honour it, and any shortcoming was a loss to Trustex, not the Plaintiffs.

[22] What Mr. El-Riffaey describes appears to be a classic Ponzi scheme – he used the Plaintiffs’ reserve funds to cover Trustex’s losses over a period of more than two years. Eventually Trustex’s losses became so great that he could not cover his obligation to the Plaintiffs, and the scheme collapsed.

[23] While Mr. El-Riffaey’s affidavit confirms that Trustex should have been holding approximately $700,000 in foreign reserve funds for the Plaintiffs, he does not really disclose where the money went. The loss of that amount of money cannot be explained by the difference between an exchange rate of 1.4 and a rate of 1.47.

[24] In summary, the evidence in this motion demonstrates that Mr. El-Riffaey lied to the Plaintiffs about the amount of money being held by Trustex in the Plaintiffs’ reserve funds, lied to the Plaintiffs about payments made on their behalf, and misappropriated money from the Plaintiffs’ reserve funds to cover Trustex business losses.

Analysis

Mareva Injunction

[25] The Plaintiffs seek a Mareva injunction to stop the Defendants from dissipating or otherwise dealing with their assets pending the Court’s determination of the proceedings.

[26] Section 101 of the Courts of Justice Act provides the court with the jurisdiction to grant interlocutory injunctions including Mareva injunctions.

[27] For a Mareva injunction to be granted, the plaintiff must satisfy the following criteria: (1) a strong prima facie case; (2) irreparable harm if the remedy for the defendant’s misconduct were left to be granted at trial; (3) the balance of convenience favours granting an interlocutory injunction; (4) the defendant has assets in the jurisdiction; and (5) that there is a serious risk that the defendant will remove property or dissipate assets before judgment. Absent unusual circumstances, the plaintiff must provide the undertaking as to damages normally required for any interlocutory injunction: Neville v. Sovereign Management Group Corp., 2022 ONSC 3466, at para. 30; OPFFA v. Paul Atkinson et al, 2019 ONSC 3877, at para. 6.

[28] A strong prima facie case is one “that will probably prevail at trial or is likely to succeed at trial”: Neville, at para. 33.

[29] The evidence filed on this motion presents a strong prima facie case of fraud: (1) a false statement by the defendant; (2) the defendant knowing that the statement is false or being indifferent to its truth or falsity; (3) the defendant having an intent to deceive the plaintiff; (4) the false statement being material and the plaintiff having been induced to act; and, (5) the plaintiff suffering damages: Neville, at para. 33(a).

[30] In this motion, the evidence filed supports the Plaintiffs’ claim that Mr. El-Riffaey, acting on behalf of Trustex, falsely told the Plaintiffs that Trustex had purchased and was holding reserve funds on behalf of the Plaintiffs, and that Trustex had wired these funds to suppliers on behalf of the Plaintiffs. Mr. El-Riffaey’s affidavit evidence and his cross-examination confirm that Mr. El-Riffaey knew that these statements were not true and intended to deceive the Plaintiffs until he could find the funds to cover the shortfall, but that he was not able to do so. Mr. El-Riffaey’s statements clearly induced the Plaintiffs to provide funds to Trustex to purchase foreign currency, and the Plaintiffs have suffered damages as a result: they have lost approximately $700,000 that was paid to Trustex to purchase foreign currency.

[31] It is significant that this motion proceeded on a with notice basis, and the Defendants were given every opportunity to provide an innocent explanation for the missing funds. They failed to do so.

[32] The evidence demonstrates a strong prima facie case for fraud not just against Trustex, but also against Mr. El-Riffaey personally, as the directing mind and sole owner of Trustex. Trustex is the alter ego of Mr. El-Riffaey, and he cannot hide behind the corporate structure to avoid responsibility for fraud: FNF Enterprises Inc. v. Wag and Train Inc., 2023 ONCA 92, at paras. 17 – 21.

[33] The irreparable harm to the Plaintiff is tied to the balance of convenience and the risk that the defendant will remove property or dissipate assets before judgment: OPFFA, at para. 19. “[U]nless the order is issued, the applicant may lose any ability to ever execute an eventual judgment”: Northeast Electronics Co. Ltd. v. Danis, 2018 ONSC 879, at para. 37.

[34] Given the nature of the alleged fraud, the Defendants’ attempts to cover up the fraud, the Defendants’ admissions of having deceived the Plaintiffs, and the Defendants’ failure to adequately account for or explain where the missing funds have gone, the Court may infer that there is a substantial risk that the Defendants will dissipate their assets to frustrate any future judgment: OPFFA, at paras. 7 and 8.

[35] The Defendant Mr. El-Riffaey has assets in Ontario, including his personal residence in Thornhill, which is jointly owned with his spouse, an RRSP and bank accounts. The residence is also the registered address of Trustex. The Defendant Trustex also has bank accounts in Ontario.

[36] Mr. El-Riffaey tried to take out a $350,000 line of credit on his home after the Plaintiff discovered the shortfall in the reserve funds. Mr. El-Riffaey testified that he did this at the request of the Plaintiffs’ lawyer to cover part of the shortfall owed to the Plaintiff. Mr. El-Riffaey refused, however, to provide assurances that the funds advanced would be delivered to the Plaintiffs. The Plaintiffs therefore put a caution on the residence and the mortgage funds were not advanced. I agree with the Plaintiffs that this is evidence that there is a real risk that the Defendants may dissipate assets to pay off other debts or for some other purpose.

[37] In my view, the risk of harm to the Plaintiffs if the Mareva injunction is not granted outweighs the risk of harm to the Defendants. There is no dispute that substantial sums (approximately $700,000) are owed to the Plaintiffs by the Defendants. In these circumstances, the balance of convenience favours the Plaintiffs.

[38] The Plaintiffs have provided an undertaking with respect to damages. While the undertaking was provided only by the Plaintiff Robert Sidi, counsel for the Plaintiffs advises that all Plaintiffs agree to be bound thereby.

Norwich Order

[39] The Plaintiffs seek a Norwich order requiring financial institutions to disclose information and documents relating to the banking information and assets of the Defendants.

[40] A Norwich order is generally an order granted for “pre-action discovery” against non-parties. In this case, the action has already been commenced, and the Plaintiffs could move for non-party discovery under Rule 31.10 if they are not able to obtain this information directly from the Defendants through the usual discovery process. The Plaintiffs argue that they require this disclosure now to identify assets/accounts into which the misappropriated funds can be traced and to give effect to the Mareva injunction.

[41] A Norwich Order will be granted where:

a. the applicant has raised a bona fide claim;

b. the applicant has established that the third party from whom the information is sought is somehow involved in the wrongful acts;

c. the third party is the only practicable source of the information available;

d. the third party can be indemnified for the costs of the disclosure; and

e. the interests of justice favour the disclosure of the information sought.

GEA Group AG v. Flex-N-Gate Corporation, 2009 ONCA 619, at paras. 51 and 62.

[42] The Plaintiffs have met each element of this test. The Plaintiffs have established more than a bona fide claim – it has established a strong prima facie case.

[43] The Plaintiffs have undertaken to pay reasonable costs of compliance of the banks impacted by the Norwich order.

[44] The information sought through the Norwich order is necessary to trace and preserve assets: GEA Group AG, at para. 91. The Plaintiffs in this case are more than just unsecured creditors, they are the victims of an alleged fraud. The material filed by the Defendants on this motion provides an inadequate account or explanation for where the missing funds have gone. In these circumstances, the Defendants’ banks – although innocent intermediaries - are the only practical source for information that is available to the Plaintiffs to track and possibly preserve its funds.

[45] As Koehnen J. stated in Peel Condominium Corporation No 49 v. Bruno Zaffino et al, 2023 ONSC 6914, at para. 15: “The interests of justice favour disclosure because the plaintiff requires a rapid way of determining where its funds have gone”.

Certificate of Pending Litigation

[46] The Plaintiffs’ claim for a CPL was made in the alternative to the claim for the Mareva injunction. Given my decision to grant the Mareva injunction, it is not necessary to consider this alternative claim for relief.

Conclusion

[47] For the reasons set out above, I grant the Mareva injunction and the Norwich order. I have signed the draft Order with certain amendments as discussed during the hearing.

[48] If the parties cannot agree on costs, the Plaintiffs may file costs submissions of no more than 3 pages plus costs outline and offers to settle within 20 days of the release of this decision, and the Defendants may file responding submissions on the same terms within a further 15 days.

Justice R.E. Charney Date: April 22, 2024