Court File and Parties
COURT FILE NO.: CV-23-00706755-0000 DATE: 20240122 ONTARIO SUPERIOR COURT OF JUSTICE
RE: Peel Condominium Corporation No. 49, Plaintiff -and- Bruno Zaffino, Manda Cabraja, New City Property Management Inc., Collossus Home Worx, and 2502511 Ontario Corp., Defendants
BEFORE: L. Brownstone J.
COUNSEL: Pavle Masic, for the Plaintiff Aneal S. Seegobin and Noah G. Aresta, for the Defendants Bruno Zaffino, New City Property Management Inc., and 2502511 Ontario Corp., Defendants Manda Cabraja in person Danny Traikpoulos in person for Collossus Home Worx, a sole proprietorship, Defendant
HEARD: January 19, 2024
Endorsement
1This is the parties’ third attendance before me following the Mareva injunction granted by Koehnen J. on December 7, 2023, and extended by Shin Doi J. on December 18, 2023.
2At the second attendance before me on January 11, 2024, the plaintiff sought to move for the appointment of an interim receiver over the defendant 2502511 Ontario Corp. (“250”). The defendants New City Property Management Inc. (“New City”), Bruno Zaffino (“Mr. Zaffino”) and 250 (collectively the “Zaffino defendants”) sought release of funds and the lifting of the Mareva injunction over 250 so that it could conduct its business.
3Formal notice of the plaintiff’s motion to appoint the receiver had been provided only the day before the return of the motion on January 11, 2024. The defendants requested time to appropriately respond. Therefore, that motion was adjourned on terms until today.
Factual and Procedural Background
4The plaintiff is a condominium corporation that engaged the defendant New City as its property manager. Mr. Zaffino and the defendant Cabraja were the directing minds of, and the plaintiff’s contacts for, New City. Unbeknownst to the condominium corporation’s board, New City's license to act as property manager was revoked.
5New City retained the defendant 250, which carries on business under the name Land Corp., to provide winter maintenance for the condominium. The defendant Zaffino is the sole director of 250. The condominium was unaware of the relationship between New City and 250.
6Danny Traikpoulos is the sole proprietor of the defendant Collossus Home Worx. He is Cabraja’s spouse.
7On December 7, 2023, Koehnen J. granted the plaintiff, among other relief, a Mareva injunction against the defendants. He set out the evidence that was before him that demonstrated that the defendants depleted the plaintiff’s reserve account by issuing forged cheques to themselves or their associates. This resulted in the plaintiff’s reserve account being wrongfully depleted by about $850,000. The plaintiff discovered this when its bank advised it about the deficit in the account. The defendants had provided the plaintiff with counterfeit bank statements to mask their fraud. When Ms. Cabraja was confronted with the allegations, she confessed that she and Mr. Zaffino had taken monies and provided the counterfeit statements.
8Mr. Zaffino’s corporations received about $370,000, and Collossus over $400,000, from the plaintiff’s reserve account. These amounts are far greater than any work performed by the corporations.
9Justice Koehnen was satisfied there was a real risk that the defendants would dispose of or dissipate assets to another jurisdiction or third parties. He noted that Ms. Cabraja admitted to having a gambling addiction and that Mr. Zaffino had promised "to mortgage his house and return the monies” to the plaintiff but did not do so. There was evidence that his house had recently been listed for sale.
10Justice Koehnen found there was clear evidence of fraud and had no doubt that the balance of convenience strongly favoured the plaintiff. He granted the Mareva injunction, and his order contained the usual terms that required the defendants to make sworn disclosure and attend for examinations.
11On December 18, 2023, Shin Doi J. extended the Mareva order until January 2, 2024, and provided for some release of living expenses.
12Examination of Mr. Zaffino was scheduled for December 22, 2023. He did not attend as he was ill. The parties attended before me on January 2, 2024, as required by the order of Shin Doi J. Examinations had been rescheduled to the days following that attendance. Therefore on January 2, 2024, I made various interim orders, ordered the parties to return after the completion of the examinations and fulfillment of undertakings on January 11, 2024, and otherwise extended the Mareva order until that date.
13The parties returned before me on January 11, 2024. None of Mr. Zaffino’s undertakings had been fulfilled. His examination had proceeded in an unusual way, consistent with Mr. Zaffino’s non-forthcoming approach to the litigation as a whole. When he attended, slightly late, he indicated that he had to leave part way through the day in order to attend an appointment. He then said he was stuck in traffic after the appointment and did not return for his examination that day. When he returned the next morning, he indicated part way through the examination that he expected to be there for only an hour and he had clients and deliveries waiting for him that he had to get to.
14At the January 11, 2024, attendance before me, the plaintiff sought to move for the appointment of an interim receiver over 250 for the limited purpose of collecting, safeguarding and preserving its revenues and paying its business expenses. The Zaffino defendants sought release of funds for living and legal expenses, and the lifting of the Mareva order insofar as it froze 250’s accounts, so that 250 could conduct its business.
15As stated above, because formal notice of the motion to appoint the receiver had been provided only the day before, that motion was adjourned on terms until the third return of the matter on January 19, 2024.
16The terms on which the matter was adjourned on January 11, 2024, were intended to provide the Zaffino defendants with a last opportunity to comply with their disclosure obligations and demonstrate that they could be trusted to operate their business transparently without putting the plaintiff at risk and without external intervention. Those terms were as follows:
a. Freezing of accounts of 2502511 Ontario Corp. to be lifted only for the period from January 12, 2024 - January 19, 2024, on the following terms:
i. Receivables are to be deposited into the account; ii. Employees may be paid from the account; iii. Legitimate business expenses, supported by invoices, may be paid from the account; iv. Mr. Traikpoulos shall be paid by direct deposit to Ms. Cabraja’s account, or by cheque payable to him personally; v. Mr. Zaffino shall disclose every transaction in relation to the account immediately, in real time as each transaction occurs, to his counsel, who shall provide same forthwith to plaintiff’s counsel; vi. The disclosures above are to be accompanied by supporting documentation (invoices, pay stubs, etc.); vii. $20,000 may be released to Mr. Seegobin for legal fees; viii. No further living expenses are to be released to Mr. Zaffino at this time.
b. The freezing of Ms. Cabraja’s account is lifted; c. All undertakings provided at the cross-examinations must be fulfilled no later than January 17, 2024; d. The plaintiff’s motion for an interim receiver is adjourned to January 19, 2024, at 2:00 pm before me.
17There is no dispute between the parties about what has happened since the January 11, 2024, attendance. It is common ground between them that:
Although Counsel for the Zaffino defendants repeatedly advised, at the last attendance and this one, that they had strongly advised Mr. Zaffino to comply with his obligations, fulfill his undertakings and produce his documents, he has failed to do so. He has answered none of the undertakings, despite the court order requiring that this be done by January 17, 2024. His counsel advised that he spoke to him during the course of argument of this motion, on January 19, 2024, and that he is now “prepared to put the documents together.”
Mr. Zaffino has not complied with the requirement of real time financial reporting required by my order of January 11, 2024 and set out above. Rather, counsel for the plaintiff learned for the first time upon receipt of Mr. Zaffino’s affidavit, shortly before the motion was heard, that Mr. Zaffino had sought to deposit a cheque to 250’s bank account in the interim period between the two attendances.
At the return of the motion on January 11, 2024, it was made clear to the Zaffino defendants, through counsel, that failure to comply with the court order would make their position at the return of this motion very difficult to sustain.
There needs to be a mechanism to protect the corporate accounts and assets.
Given the choice between continuing the freezing of 250’s accounts pursuant to the Mareva injunction and appointing the receiver with the limited functions proposed by the plaintiff, it is “better for everybody” to have the receiver appointed and permit the business to operate.
18The parties also agree that the appointment of an interim receiver under s. 101 of the Courts of Justice Act, R.S.O. 1990 c. C-43 is extraordinary, and is only to be granted in the rarest of cases. They both rely on the following framework set out by Strathy J. (as he then was) in Anderson v. Hunking, 2010 ONSC 400:
[15] Section 101 of the Courts of Justice Act provides that the court may appoint a receiver by interlocutory order “where it appears to a judge of the court to be just or convenient to do so.” The following principles govern motions of this kind:
(a) the appointment of a receiver to preserve assets for the purposes of execution is extraordinary relief, which prejudges the conduct of a litigant, and should be granted sparingly: Fisher Investments Ltd. v. Nusbaum (1988), 31 C.P.C. (2d) 158, 71 C.B.R. (N.S.) 185 (Ont. H.C.);
(b) the appointment of a receiver for this purpose is effectively execution before judgment and to justify the appointment there must be strong evidence that the plaintiff’s right to recovery is in serious jeopardy: Ryder Truck Rental Canada Ltd. v. 568907 Ontario Ltd. (Trustee of) (1987), 16 C.P.C. (2d) 130, [1987] O.J. No. 2315 (H.C.);
(c) the appointment of a receiver is very intrusive and should only be used sparingly, with due consideration for the effect on the parties as well as consideration of the conduct of the parties: 1468121 Ontario Limited v. 663789 Ontario Ltd., [2008] O.J. No. 5090, referring to Royal Bank v. Chongsim Investments Ltd. (1997), 32 O.R. (3d) 565, [1997] O.J. No. 1391 (Gen. Div.);
(d) in deciding whether to appoint a receiver, the court must have regard to all the circumstances, but in particular the nature of the property and the rights and interests of all parties in relation thereto: Bank of Nova Scotia v. Freure Village of Clair Creek (1996), 40 C.B.R. (3d) 274;
(e) the test for the appointment of an interlocutory receiver is comparable to the test for interlocutory injunctive relief, as set out in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at paras. 47-48, 62-64, 111 D.L.R. (4th) 385;
(i) a preliminary assessment must be made of the merits of the case to ensure that there is a serious issue to be tried; (ii) it must be determined that the moving party would suffer “irreparable harm” if the motion is refused, and “irreparable” refers to the nature of the harm suffered rather than its magnitude – evidence of irreparable harm must be clear and not speculative: Syntex Inc. v. Novopharm Ltd. (1991), 36 C.P.R. (3d) 129, [1991] F.C.J. No. 424 (C.A.); (iii) an assessment must be made to determine which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits – that is, the “balance of convenience”: See 1754765 Ontario Inc. v. 2069380 Ontario Inc. (2008), 49 C.B.R. (5th) 214 at paras. 7 and 11, [2008] O.J. No. 5172 (S.C.);
(f) where the plaintiff’s claim is based in fraud, a strong case of fraud, coupled with evidence that the plaintiff’s right of recovery is in serious jeopardy, will support the appointment of a receiver of the defendants’ assets: Loblaw Brands Ltd. v. Thornton (2009), 78 C.P.C. (6th) 189, [2009] O.J. No. 1228 (S.C.J.).
16The appointment of a receiver for the purposes of preserving the defendant’s assets as security for a potential judgment in favour of the plaintiff is, like a Mareva injunction, an exception to the general principle that our courts do not grant execution before judgment. As Salhany L.J.S.C. observed in Ryder Truck Rental Canada Ltd. v. 568907 Ontario Ltd. (Trustee of), above, at para. 6:
[T]here is always a risk that a judgment may never be satisfied. It can also probably be said that whenever A claims money from B, it is "just" or "convenient" or both that a receiver be appointed or an interlocutory injunction be issued restraining the debtor from dealing with his assets. The Courts, however, have never been prepared to grant to a creditor such extraordinary relief, which is, in effect, an execution before judgment unless there is strong evidence the creditor's right to recovery is in serious jeopardy…. [referring also to Chitel v. Rothbart (1982), 39 O.R. (2d) 513 at 533, 30 C.P.C. 205 (C.A.)].
19The parties differ on whether this is one of the rare cases in which this extraordinary remedy should be granted.
20Counsel for the plaintiff advised that it did not seek to proceed today with the portion of its motion that sought to appoint the receiver over Mr. Zaffino’s personal real property, situated in Caledon. He acknowledged it would have been inappropriate to do so in the absence of adequate notice to the secured creditors. There is evidence that the first mortgagee on the Caledon property does not intend to renew the mortgage, and the property is likely to be sold in the near future. Discussions about this issue between the plaintiffs and the first mortgagee are ongoing.
21The plaintiff does ask that the receiver be appointed to manage the business of 250.
22There is a strong prima facie case of fraud. The case is stronger since Koehnen J. made this finding initially. Ms. Cabraja has provided sworn evidence admitting to fraud. She appears to have gambled away the plaintiff’s funds to which she gained access. She provides evidence that Mr. Zaffino was also engaged in the fraud. The plaintiff has now received from its banks copies of cheques drawn on its reserve account written to Mr. Zaffino personally, his common law spouse, and 250 which were not signed by the plaintiff.
23When considering the effect of the appointment of the receiver on the business, I have considered Mr. Zaffino’s speculative view that the business will be reputationally harmed by the appointment of a receiver, and that it may lose employees or contracts. I do not view this case as similar to 1324789 Ontario Inc. v. Marshall, 2019 ONSC 517, in which the court noted that the appointment of a receiver would have an adverse impact on the marketability of development projects. In this case, the receiver sought to be appointed will have limited powers and will function as, in the words of counsel for the plaintiff, an “expensive bookkeeper.” Counsel for the defendants concedes that nothing will prohibit his client from maintaining customer relationships, which he intends to do. He further concedes that greater harm will come to the business from having the Mareva freezing order continue, and that some oversight of the business is appropriate.
24Without oversight, the plaintiff is likely to suffer irreparable harm. The Zaffino defendants have not made required disclosure. They have failed to comply with court orders. They have provided no explanations for cheques made out to Mr. Zaffino personally from the plaintiff’s account. The transcript of Mr. Zaffino’s evidence on cross-examination demonstrates that the bookkeeping practices of the corporation are, to put it mildly, not fastidious. There is a significant and serious risk of dissipation of the corporation’s funds. The Zaffino defendants suggested that there are other mechanisms available to the plaintiff to secure or monitor 250’s assets, such as monthly reporting obligations. This submission completely overlooks the fact that the Zaffino defendants were given the opportunity to have 250 operate transparently, by providing real-time reporting about the account when I ordered the Mareva injunction to be lifted for a week on terms. They failed to comply with that court order.
25There is no doubt that the balance of convenience favours the plaintiff, a collection of innocent unit-holders whose reserve account was fraudulently and covertly depleted.
Terms of the receiver
26Baigel Corp. has agreed to act as receiver and no objection to the specific proposed receiver was raised by the defendants. Baigel Corp. shall therefore be appointed. The proposed order included terms permitting the receiver to investigate and monitor 250’s affairs and property, and to review and have access to all of the three debtors’ financial information. Counsel for the plaintiff agreed these terms are unnecessary. Counsel shall provide a revised draft order removing these terms as well as the terms related to the Caledon property. The order is to provide the receiver only with those powers necessary for the limited purpose of collecting, safeguarding and preserving 250’s revenues and paying its business expenses. The revised draft order shall be provided to counsel for the Zaffino defendants for approval as to form and content and then for the court’s signature. If the parties have difficulty settling the form of the order, they may arrange an attendance before me through my legal assistant at linda.bunoza@ontario.ca
Expenses for Zaffino
27Zaffino requests that he be permitted the release of $6,000.00 of living expenses monthly from the business. As plaintiff’s counsel pointed out, it is very difficult for the court to assess this request given the complete refusal to provide requested disclosure of his assets and financial position. In the circumstances, I am prepared to authorize the release of $4,000.00 monthly to Mr. Zaffino as employment income from 250.
Collossus
28At the return of the motion, Collossus, which is not represented, requested that the freezing of its accounts be lifted to stop the accounts from being dormant and incurring fees. The implication is that there are no, or little, funds in the account. Counsel for the plaintiff was understandably not prepared to respond to that request today. The parties will communicate and if they are unable to resolve the matter, they may schedule a further attendance before me through my judicial assistant.
The real property
29The parties appear to have agreed that the real property will be sold. It is in all parties’ best interests that the property be sold for as large a sum as possible. The position of the secured creditors on how it will best be sold has not been determined. If any of the parties, on notice to the secured creditors, require an attendance on this issue they may arrange this through my judicial assistant at the address above.
The remainder of the Mareva Injunction
30The Mareva injunction is otherwise extended until further order of the court. The freezing of Ms. Cabraja’s account remains lifted.
L. Brownstone J.
Date: January 22, 2024