Court File and Parties

Court File No.: CV-17-74505 Date: 2025-09-12

Superior Court of Justice - Ontario

Re: 4291425 Canada Inc. v. Michael Scot-Smith, 64 Holdings Ltd., ATF Financial Inc. and Rhonda Niles

Before: The Honourable Justice Kaufman

Heard: September 9, 2025

Counsel:

• Michael R. Kestenberg, for the Plaintiff
• Linda Galessiere, for the Defendant Rhonda Niles

Endorsement

Introduction

[1] The defendant, Rhonda Niles, seeks an order under Rule 42.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to discharge a certificate of pending litigation (CPL) registered against her property. The plaintiff obtained the CPL without notice on December 8, 2017, by order of Justice O'Bonsawin (as she then was). Ms. Niles submits that the CPL should be discharged because the plaintiff failed to provide full and frank disclosure of material facts to the court at the time the order was granted. The plaintiff denies any failure to disclose material facts and opposes the motion. Additionally, the plaintiff argues that the motion should be dismissed because Rule 37.14(1) requires such motions to be brought promptly, and Ms. Niles waited over 7 years before filing this motion.

Background

[2] Ms. Rhonda Niles is married to the defendant, Michael Scot-Smith. The plaintiff, 4291425 Canada Inc., is an investment and holding company incorporated to pursue a business venture with Mr. Scot-Smith. July Bergeron is the sole officer, director, and shareholder of the plaintiff.

[3] In 2004, the plaintiff, Mr. Scot-Smith, and ATF Financial Inc. ("ATF"), a corporation owned and operated by Mr. Scot-Smith, entered into a joint venture to operate a private medical clinic specializing in bariatric surgeries. The plaintiff and ATF each held a 50% share in Sixty Four Prince Arthur Inc., a company incorporated to lease and operate the clinic at 64 Prince Arthur Avenue, Toronto.

[4] The plaintiff alleges that Mr. Scot-Smith orchestrated a concealed leasing and sub-leasing scheme through Sixty Four Prince Arthur Inc. Specifically, the plaintiff claims that Mr. Scot-Smith, as the sole director and shareholder of 64 Holdings Ltd., misrepresented 64 Holdings as the landlord of 64 Prince Arthur Avenue. In reality, 64 Holdings leased the property from the true landlord, 64 Prince Arthur Limited, and sub-leased it to Sixty Four Prince Arthur Inc., which then leased it to the clinic. The plaintiff alleges that 64 Holdings secretly collected $6,449,080 in basic rent and $6,121,554.92 in additional rent from Sixty Four Prince Arthur Inc., exceeding the amount paid to the true landlord. The plaintiff further alleges that Mr. Scot-Smith failed to disclose his dual role as director of both 64 Holdings and Sixty Four Prince Arthur Inc., the true landlord's identity, or the excess rent collected by 64 Holdings.

[5] The plaintiff also alleges that in 2017, the clinic sold accounts receivable valued at $9.3 million, but the payments for these accounts were directed to ATF Financial Inc. instead of the clinic.

Claim Against Ms. Niles

[6] Ms. Niles asserts that she was not involved in the business transactions outlined in the plaintiff's statement of claim. She owns a condominium at 55 Avenue Road, Toronto. Mr. Scot-Smith held an interest in this property since the mid-1990s, initially through a long-term lease and, after its conversion to a condominium in 2001, as an owner. The lease was originally held by Della Holdings Inc., as trustee for Aramis Holding Ltd., and was assigned to Aramis Holding Ltd. in 1998. Mr. Scot-Smith was the beneficial owner of Aramis Holding Ltd., an offshore corporation.

[7] In 2007, the Avenue Road condominium was transferred to Ms. Niles, allegedly to take advantage of the capital gains exemption for primary residences. The purchase price was $1,050,000, with Ms. Niles assuming a $729,000 mortgage as part of the transaction.

[8] The plaintiff alleges that Mr. Scot-Smith used misappropriated funds to purchase the Avenue Road condominium, thereby justifying the certificate of pending litigation (CPL) registered against the property.

Principles Applying to Discharges of CPLs

[9] The parties agree on the relevant principles.

[10] Under Rule 42.01(2), a party may seek a CPL without notice. However, a party choosing to proceed without notice must adhere to the heightened standard of candour required for such motions, as outlined below, and at their own risk.

[11] Rule 39.01(6) of the Rules of Civil Procedure requires a moving party on a motion without notice to provide full and fair disclosure of all material facts. This obligation is stringent. Material facts include any facts that could have influenced the motion's outcome, as determined objectively (Henein v. Alala, 2021 ONSC 5871 at para. 43; Conti v. Duca, 2023 ONSC 6626 at para. 21). Failure to comply with this requirement is sufficient grounds to set aside the order granted on the motion without notice, pursuant to Rule 39.01(6).

[12] The obligation to provide full and fair disclosure under Rule 39.01(6) does not require moving parties to argue against their own case or present both sides of the dispute. Rather, they must fairly present their case and disclose all material facts that may support the opposing party's position: Boal v. International Capital Management Inc., 2018 ONSC 2275, at para 87. The test as to whether full and fair disclosure is made on an ex parte motion turns on whether the omitted disclosure "might" have impacted the original granting of the order: 830356 Ontario Inc. v. 156170 Canada Ltd., [1995] O.J. No. 687 (Ct. J. (Gen. Div.)), at para. 17. See also K.A. v. Mitchell, 2013 ONSC 4051, at para. 20 ("Mitchell").

[13] It is incumbent on the moving party to make a balanced presentation of the facts and law. All facts relevant to the court's assessment of the application must be presented. It is not a valid defence to non-disclosure that the court's decision would have been the same had the facts been disclosed. Materiality is determined by an objective standard, and neither the applicant nor their advisors may decide which facts are relevant. A genuine belief that undisclosed facts were irrelevant or unimportant is no excuse. All facts pertinent to the court's weighing of whether to grant the order must be disclosed: United States v. Friedland, [1996] O.J. No. 4399 (Ont Gen Div).

[14] Finally, a party moving ex parte must highlight relevant facts in the body of the affidavit to ensure that they come to the Court's attention, and it is insufficient to simply append documents as an exhibit: Levy v. Fitzgerald, 2012 ONSC 2105 at para 49.

Analysis

[15] Ms. Niles alleges several instances of material non-disclosure by the plaintiff in obtaining the CPL. Three of these instances are sufficient to conclude that the evidence presented to the court failed to meet the stringent disclosure requirements established by case law.

[16] The motion for the CPL was supported by the affidavit of July Bergeron. As stated above, Ms. Bergeron is the plaintiff's sole shareholder and director. In her affidavit, she stated that she had personal knowledge of the facts to which she deposed. Rule 39.01(4) provides that an affidavit for use on a motion may contain statements of the deponent's information and belief, if the source of the information and the fact of the belief are specified in the affidavit.

[17] Ms. Niles asserts, based on information from Mr. Scot-Smith, that Ms. Bergeron had no direct dealings with the plaintiff corporation, and that all business interactions were between Mr. Scot-Smith and Ms. Bergeron's husband. She claims that Mr. Scot-Smith and Ms. Bergeron's husband made all business decisions together, and that Ms. Bergeron neither attended meetings nor negotiated the terms of any agreements referenced in her affidavit. Ms. Niles further states that she and Mr. Scot-Smith met Ms. Bergeron only a few times at social events and never discussed business matters with her.

[18] Ms. Bergeron acknowledges that her husband primarily communicated with Mr. Scot-Smith and that she became the sole director of the plaintiff, 4291425 Canada Inc., to maintain privacy in their business affairs, as her husband was a professional hockey player. However, she asserts that her husband shared information received from Mr. Scot-Smith with her and that she reviewed emails and documents exchanged between them.

[19] The evidence contained in Ms. Bergeron's affidavit in support of the CPL is derived not from personal knowledge but from information and belief. She relied on information provided by her husband and her review of documents exchanged with Mr. Scot-Smith. Under Rule 39.01(4), she was required to explicitly state that her evidence was based on information and belief, specify the source of that information, and confirm her belief in its accuracy. By asserting personal knowledge of the facts in her affidavit, Ms. Bergeron created a misleading impression that her evidence warranted greater weight than it deserved.

[20] Secondly, in her affidavit in support of the CPL, Ms. Bergeron stated that Ms. Niles operated a "modest interior design business" from her residence at the relevant times and relied on Mr. Scot-Smith for funds to pay debts or make large purchases. Ms. Niles disputes this, asserting that she never discussed her finances with Ms. Bergeron. She has independently earned income over the past 25 years through her own design company, and had a successful modeling career with a leading New York City agency.

[21] Ms. Bergeron acknowledges that she lacked knowledge of Ms. Niles' other professional endeavours and that Mr. Scot-Smith did not discuss Ms. Niles' work with her. However, she asserts that in her affidavit, under the heading "What the Defendants Niles and Scot-Smith Might Say in Response," she noted the possibility that Ms. Niles might claim she was gainfully employed and not reliant on Mr. Scot-Smith for debt payments.

[22] Ms. Bergeron's affidavit, which supported the CPL, failed to meet the duty of candour under Rule 39.01(6) by not presenting this information in a fair and balanced manner. She asserted, as a fact based on personal knowledge, that Ms. Niles operated a "modest interior design business," implying that Ms. Niles lacked the financial means to purchase the Avenue Road condominium and that she used Mr. Scot-Smith's fraudulently obtained funds for the purchase. The duty of candour required Ms. Bergeron to disclose that she was unaware of Ms. Niles' other sources of income beyond the interior design business and that she lacked knowledge of its financial details.

[23] In her affidavit supporting the certificate of pending litigation, Ms. Bergeron stated that the Avenue Road condominium was transferred to Ms. Niles for $1,050,000. She failed to disclose, however, that title transfer records show Ms. Niles paid $325,000 in cash and assumed a $725,000 mortgage. Additionally, Ms. Bergeron failed to state that Aramis Holding Ltd. acquired the property in 1998, well before any business dealings with the plaintiff, 4291425 Canada Inc., a fact that undermines the claim that the property was purchased with misappropriated funds. These omissions created a misleading impression that Ms. Niles, described as operating a "modest interior design business," could not have acquired a million-dollar property through legitimate means.

[24] Ms. Bergeron acknowledges that she did not include details of the Avenue Road condominium's title transfer in her affidavit because she lacked that information at the time, although she notes that a title search, attached as an exhibit to her affidavit, referenced a $775,000 mortgage in favor of CIBC. However, parties bringing motions without notice must disclose all material facts in the body of their affidavit, not merely in exhibits or appendices.

[25] The court finds that the affidavit supporting the certificate of pending litigation failed to present the facts in a fair and balanced manner, as required by Rule 39.01(6), due to the omissions and misrepresentations identified.

Failure to Bring This Motion in a Timely Way

[26] The plaintiff correctly notes that, under Rule 37.14, a party affected by an order obtained on a motion without notice may move to set it aside by serving a notice of motion promptly after learning of the order and requesting the earliest available hearing date. However, in its motion materials the plaintiff failed to include an affidavit of service to demonstrate that the certificate of pending litigation (CPL) and supporting motion materials were served on Ms. Niles, as required by Rule 42.01(4).

[27] At the hearing, counsel for Ms. Niles asserted that the certificate of pending litigation (CPL) and supporting motion materials were not served on Ms. Niles, that she had to request the materials, that the version she received was incomplete, and that she did not obtain a complete set until sometime in 2024.

[28] As this issue was raised for the first time at the hearing, the court allowed the plaintiff to submit evidence of compliance with Rule 42.01(4). The plaintiff provided a cover letter dated December 11, 2017, from its counsel, addressed to Ms. Niles at the Avenue Road property. The letter attached the plaintiff's motion materials, a copy of Justice O'Bonsawin's endorsement and order, and a copy of the Certificate of Pending Litigation (CPL). Additionally, the plaintiff submitted a letter dated December 22, 2017, from a law firm not yet retained by Ms. Niles (not Camelino Galessiere LLP), acknowledging receipt of the December 11, 2017 letter and requesting three missing pages.

[29] The Court is satisfied that the plaintiff complied with Rule 42.01(4) and notified Ms. Niles of the Certificate of Pending Litigation (CPL) promptly after obtaining it. Counsel for Ms. Niles requested an opportunity to make further submissions regarding the delay, but the Court finds that additional submissions are unnecessary.

[30] The issue is whether Ms. Niles should be denied relief for failing to comply with Rule 37.14, which requires parties affected by an ex parte order to move to set it aside on the earliest available hearing date. Ms. Niles delayed seven years before taking action.

[31] The plaintiff relies on Narciso v. Ferreira, 2024 ONSC 2623. In that case, Associate Justice Wiebe refused to discharge a CPL and rejected the defendant's arguments that the plaintiff failed to make full and frank disclosure. As a final consideration, Associate Justice Wiebe noted the defendant's unexplained 4.5-year delay in bringing the motion after service of the materials.

[32] On a motion to discharge a CPL, the court must exercise its equitable discretion, considering all relevant factors between the parties. While a failure to bring a motion to discharge a CPL promptly upon becoming aware of its existence may, in some cases, be sufficient to deny relief, I would refrain from exercising my discretion to deny relief in the specific circumstances of this case.

[33] First, I take into account that the plaintiff failed to present the evidence in a fair and balanced manner when it obtained the CPL. Although the Court does not find this failure intentional, any failure to make full and frank disclosure is always a serious matter. The plaintiff chose to proceed ex parte and thereby assumed the heightened obligations of candour and disclosure that such motions entail.

[34] Secondly, s. 103(6)(a)(iii) of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that a court may discharge a CPL where the party who obtained it fails to prosecute the action with reasonable diligence. To describe this action as having proceeded at a glacial pace would be an understatement. It was commenced in November 2017 and remains, essentially, at the pleadings stage. The plaintiffs served an unsworn affidavit of documents only one month before the status hearing. On June 27, 2023, Justice Labrosse ordered a timetable for the next steps, which included various motions by the defendants—including the present one.

[35] The plaintiff attributes the significant delay to the time required to assemble records and conduct investigations and to Covid. However, these explanations do not justify a delay of such duration. Nothing exceptional characterizes this proceeding. The defendants were represented by counsel, and the primary responsibility for advancing the action rests with the plaintiff, who could have taken steps to compel disclosure.

[36] Finally, and perhaps most importantly, the allegations of fraud are made against Mr. Scot-Smith and, even after nearly eight years, the evidence tying Ms. Niles' Avenue Road property to the misappropriated funds remains tenuous at best.

[37] The plaintiffs argue that the defendants are U.S. residents whose whereabouts they do not know and that the states in which the defendants reside may lack reciprocal enforcement legislation. I give little weight to this submission. The plaintiffs' own evidence establishes that the defendants possess considerable means, having recently sold real property worth US$14 million. Moreover, the plaintiffs have enjoyed the benefit of the CPL for nearly eight years and have done little to advance the action.

Disposition

[38] The Court orders that the CPL registered on the Avenue Road Property be discharged.

[39] In accordance with the parties' agreement, Ms. Niles, as the successful party, is entitled to costs in the all-inclusive amount of $27,500.

Justice A. Kaufman

Date: September 12, 2025