



COURT OF APPEAL FOR ONTARIO

CITATION: Business Development Bank of Canada v. Aventura II
    Properties Inc., 2016 ONCA 300

DATE: 20160422

DOCKET: M46240, M46279 M46303 (C61854)

van Rensburg J.A. (In Chambers)

BETWEEN

Business Development Bank of Canada

Applicant

and

Aventura
    II Properties Inc., Pavilion Sports Clubs Inc.,

Pavilion
    Sports Ice Inc., Pavilion Sports Food and Beverage Inc.

and Pavilion Aquatic Club
    Inc.

Respondents

Sean N. Zeitz, for Revital Druckmann and Jean-Jacques
    Myara

Kelli Preston, for the receiver Pollard & Associates
    Inc.

Catherine Francis, for DUCA Financial Services Credit
    Union Ltd.

Heard: April 5, 2016

ENDORSEMENT

A.

The Motions

[1]

There are three motions before the court, in respect of an appeal and
    proposed appeal of the order of Hainey J. dated March 4, 2016 made in the
    context of a court-appointed receivership (the Order). Pollard &
    Associates Inc. is the court-appointed receiver (the Receiver) of the debtor companies
    (the Debtors). A receivership order was granted by McEwen J. on September 8,
    2014 (the Receivership Order).

[2]

The Order at issue on these motions extended a Mareva injunction against
    Revital Druckmann (Revital), who is the spouse of Johny Druckmann, the principal
    of the Debtors. The Order also directed that the Receiver is entitled to
    immediate possession or repatriation of certain monies, which are the
    proceeds of an HST refund paid to one of the Debtors and diverted in contravention
    of the Receivership Order. The Order dismissed the claim by Jean-Jacques Myara (Myara)
    to an interest in the monies.

[3]

Revital seeks leave to appeal the Order under s. 193(e) of the
Bankruptcy
    and Insolvency Act,
R.S.C. 1985, c. B-3 (the 
BIA
). Importantly,
    she asserts no claim of her own to the monies in question and does not oppose
    the repatriation of the funds. Rather, she challenges the procedure followed by
    the Receiver in obtaining, on an
ex parte
motion, the original interim
    Mareva injunction against her.

[4]

In his appeal, Myara claims that the monies are his and resists the
    repatriation of the funds. The Receiver and the secured creditor, DUCA
    Financial Services Credit Union Ltd. (DUCA) each move for security for costs
    of Myaras appeal.

[5]

For the reasons that follow, I dismiss Revitals motion and grant an
    order for security for costs against Myara in favour of the Receiver and DUCA.

B.

Brief History

[6]

The history of this matter is described in some detail in the reasons of
    the motion judge reported at 2016 ONSC 1545. For the purpose of these motions,
    the relevant facts are as follows.

[7]

The Debtors and their representatives failed to advise a court-appointed
    monitor, contrary to its appointment order dated October 24, 2013 and a
    subsequent order dated January 23, 2014, that on December 4, 2013, one of the
    Debtors (Pavilion Sports Clubs Inc. or PSCI) was issued an HST refund by the
    Canada Revenue Agency (the CRA) in the sum of $986,594.96 (the HST Refund).

[8]

In September 2014, pursuant to an order dated August 20, 2014, the
    monitor made inquiries of the CRA and learned that the HST Refund had been
    issued to the Debtors eight months earlier. The monitor was then appointed as
    receiver by order dated September 8, 2014 in a contested receivership
    application. After obtaining an order dated October 28, 2014 requiring the
    Toronto-Dominion Bank (TD) to release certain information, the receiver
    traced the HST Refund from a new TD account opened in the name of PSCI into a
    TD account in the name of S. Stern (Revitals sister), over which Revital had
    power of attorney. That account had been debited by a bank draft issued to S.
    Stern in the amount of $1,016,007.50 on August 26, 2014.

[9]

On April 17, 2015, Pollard & Associates Inc. was substituted as receiver
    of the Debtors. The Receiver learned from TD that the bank draft had been
    cashed on March 6, 2015 and deposited into an unknown account.

[10]

On December 4, 2015, Hainey J. granted the Receivers
ex parte
motion
    for an interim freeze and disclosure order against Revital (the Mareva
    Order). The Mareva Order provided that it would cease to have effect if
    Revital provided security by paying the sum of $1,016,007.50 into court. The Mareva
    Order was later extended on consent to January 29, 2016.

[11]

As a result of obtaining the Mareva Order, the Receiver traced the HST
    Refund through the S. Stern account (the draft had in fact been held and then
    re-deposited into that account on March 6, 2015) to, among other things, two non-registered
    mutual fund accounts with TD and Royal Bank of Canada (RBC), a personal
    account at RBC, and a 2015 Volkswagen Jetta, all in the name of Revital. Some
    funds remained in the S. Stern account.

[12]

The Receiver brought a motion against Revital to repatriate the funds,
    also returnable on January 29, 2016. On January 26, 2016, counsel for Myara
    contacted the Receiver to advise that his client claimed an interest in the
    funds in the S. Stern account, and was seeking an adjournment.

[13]

The motion to extend the Mareva Order and to repatriate the funds was
    heard on February 26, 2016. Myara attended at the motion. He sought intervener
    status, claiming to be a former lender to the Debtors. He claimed a
    beneficial interest in all the funds that were in the S. Stern account and in
    the two mutual fund accounts. He claimed to be an investor in the Debtors and
    referred to loan advancements totalling $1,241,290.01 made between March 2003
    and August 2005 to Aventura II Properties Inc.
[1]
Myara said that after he wanted his money back in 2012, Johny Druckmann had
    promised to pay him the HST Refund, and he had directed it to be deposited into
    the S. Stern account. He had directed Revital to issue a bank draft in the name
    of S. Stern in August 2014, and seven months later to make investments on his
    behalf in her name. He claimed that internal records showing that he had been
    paid back were inaccurate.

[14]

Of course, Revitals dealings with the HST Refund, that Myara claims
    occurred on his behalf, took place after the appointment of the monitor and in
    violation of court orders requiring the disclosure of the HST Refund. At no
    time prior to January 26, 2016 did anyone suggest that the HST Refund had been
    received but belonged to Myara. Revitals affidavit of December 28, 2015 stated
    that the mutual funds were her property.

[15]

On March 4, 2016, Hainey J. granted the Order. He found that the
    diversion of the HST Refund was in breach of the order dated January 23, 2014, which
    required the Debtors to advise the monitor immediately on the receipt of any
    refund from the CRA and prohibited the deposit or disbursement of any refund
    received. The Debtors breached the order and Revital was party to the breach.
    They engaged in deliberate and blatant acts of fraud. Hainey J. also found that
    Revital was in breach of the Receivership Order. He referred to the Receivers powers
    under that order and para. 4, which required anyone with notice of the order to
    advise the Receiver of any property of the Debtors in their possession or
    control and to deliver such property to the Receiver at the Receivers request.
    He rejected Revitals arguments that the Mareva Order was procedurally
    defective.

[16]

Hainey J. rejected Myaras claim, which he characterized as a fraudulent
    attempt to divert the HST Refund away from the Receiver. Even if Myara had a
    claim to the funds, it would be as an unsecured creditor of a bankrupt company,
    and his alleged interest would be subordinate to the Receivers interest in the
    HST funds. He extended the Mareva Order until further order of the court, and
    granted the Receivers motion to repatriate the funds.

C.

REVITALS Motion for Leave to Appeal

[17]

Revital seeks leave to appeal the Order under s. 193(e) of the
BIA
.
    Leave is discretionary and the court must take a flexible and contextual
    approach. In deciding whether to grant leave, the court must consider whether
    the proposed appeal (a) raises an issue that is of general importance to the
    practice in bankruptcy and insolvency matters or to the administration of
    justice as a whole; (b) is
prima facie
meritorious; and (c) would
    unduly hinder the progress of the bankruptcy or insolvency proceedings:
Business
    Development Bank of Canada v. Pine Tree Resorts Inc.
, 2013 ONCA 282, at
    para. 29.

[18]

The second part of the test requires the applicant to convince the court
    that there are legitimately arguable points raised so as to create a realistic
    possibility of success on the appeal:
Re Ravelston Corp.
(2005), 24
    C.B.R. (5th) 256 (Ont. C.A.), at paras. 28-29; see also
Osztrovics Estate
    v. Osztrovics Farms Ltd.
, 2015 ONCA 463, at para. 11. Although this is a
    relatively low bar, I am not persuaded that there is any arguable merit to
    Revitals proposed appeal.

[19]

First, Revital does not claim any interest in the HST Refund, or in the funds
    in the S. Stern account, or, even now, the property and investments she
    acquired using such funds. As such, she does not and cannot appeal the
    repatriation part of the Order. Nor does Revital challenge the substantive
    grounds on which the Mareva Order was made and extended. Rather, as her counsel
    acknowledges, Revitals concerns are strictly procedural.

[20]

In her proposed appeal to this court Revital raises the same procedural
    issues she argued before the motion judge. She asserts that the motion judge
    erred in continuing the Mareva injunction against her because there were
    procedural defects in the
ex parte
Mareva Order dated December 4,
    2015.

[21]

Revital says that Hainey J. erred in granting the Order because (a) the
    Receiver had not made full and frank disclosure on the original
ex parte
motion;
    (b) he did not require an undertaking for damages from the moving party or
    grant an order dispensing with that requirement; and (c) the Order could not be
    made against her as a third party where there was no pending or intended proceeding
    against her.

[22]

I do not see any merit to any of Revitals arguments.

[23]

There is no question that the Receiver, in moving for the
ex parte
order,
    was required to make full and frank disclosure of material facts, and to inform
    the court of any material facts or points of law that favoured the other side:
Rules
    of Civil Procedure
, R.R.O. 1990, Reg. 194, r. 39.01(6);
Chitel v.
    Rothbart
(1982), 39 O.R. (2d) 513 (C.A.);
United States of America v.
    Friedland
, [1996] O.J. No. 4399 (Gen. Div.). Revitals complaint is not
    with respect to the
facts
that were put to the court; rather, she says
    that the Receiver ought to have delivered a factum and provided the court with legal
    authorities on Mareva injunctions, in particular referring to the need for an
    undertaking as to damages and a pending legal action against the target of the
    order.

[24]

First, the obligation on a moving party to file a factum in an
    injunction motion applies in contested, but not
ex parte
,

motions:
    see r. 40.04(1). Second, the motion judges granting of the Mareva Order was
    based on the application of settled principles and entirely justified by the
    evidence placed before him. And, as I will explain, the points that Revital raises
    were not in fact impediments to the relief granted by the court in this case.

[25]

As for the failure to require the Receiver to provide an undertaking as
    to damages, the motion judge rejected this argument, on the basis that the
    order was made in a court-appointed receivership. The purpose of such an
    undertaking is to protect the defendant from the risk of granting a remedy
    before the substantive rights of the parties have been determined: Robert J. Sharpe,
Injunctions and Specific Performance
, loose-leaf (2015-Rel. 24), 4th
    ed. (Toronto: Canada Law Book, 2012), at para. 2.470. The Receiver is not a
    self-interested party. A receiver is an officer of the court with a fiduciary
    duty to comply with the powers granted in the receivership order and to act
    honestly and in the best interests of all parties, including the debtor:
Toronto
    Dominion Bank v. Usarco Ltd.
(2001), 196 D.L.R. (4th) 448 (Ont. C.A.), at
    para. 30, leave to appeal refused, [2001] S.C.C.A. No. 217. The Receiver has a
    duty to recover the property of the Debtors, including the HST Refund, and the
    order sought was in aid of powers granted to the Receiver by court order. The motion
    judge, under r. 40.03, was entitled to grant the Mareva Order without requiring
    an undertaking as to damages, and he did so for good reason in this case.

[26]

Finally, Revital says that the Mareva Order should not have been issued
    against her because there was no existing or proposed action in which she was a
    defendant. She relies on cases stating that such orders cannot be made in the
    absence of a law suit or litigation process in which she could assert her
    defences: see e.g.
Standal Estate v. Swecan International Ltd
. (1989),
    26 C.P.R. (3d) 421 (Fed. C.A.). Without commencing proceedings against her,
    Revital says it was impossible for the Receiver to meet the strong
prima
    facie
case requirement for a Mareva order.

[27]

Again, this argument has little merit, and I reject entirely the
    suggestion that the Receiver had an obligation to sue Revital in a separate
    action for recovery of the funds before moving for a Mareva injunction.

[28]

In the typical Mareva case, the moving party seeks security for a future
    judgment, where neither liability nor the amount of the judgment has been
    determined. Here, however, the order granted was contemplated by and expanded
    upon powers granted to the Receiver under the Receivership Order. Those powers authorize
    the Receiver to take possession and control of the Debtors property and proceeds
    from such property, receive and collect all monies owing to the Debtors, and
    apply to the court for assistance in carrying out its duties: see especially
    paras. 2, 3(a), 3(f), 12 and 28 of the Receivership Order. The Receiver had the
    duty and right to collect the HST Refund, and Revital was in breach of the Receivership
    Order when she placed it beyond the Receivers reach and failed to disclose its
    existence. Indeed, the misappropriation of the HST Refund precipitated the
    appointment of the Receiver and part of the Receivers mandate was to find and
    recover the HST Refund.

[29]

The Mareva Order was granted on the basis of overwhelming evidence. The
    Receiver not only had a strong
prima facie
case that Revital had
    misappropriated the HST Refund proceeds, but had directly traced the monies into
    the S. Stern account, the mutual fund accounts, Revitals personal RBC account,
    and the automobile. Revital admitted she had used or disposed of the remaining
    funds. Any requirement for a pending action is met by the fact that the motion
    was brought in the context of the receivership proceedings. This is the
    framework in which the Mareva Order was made, and contrary to Revitals
    assertions, this was the forum in which she could assert any available
    defences.

[30]

While this is sufficient to dispose of Revitals motion for leave to
    appeal, I also note that there is nothing in her proposed appeal that raises
    any issue of general importance to bankruptcy and insolvency practice or the administration
    of justice. Contrary to Revitals submission, the motion judge did not apply a
    new test for the order he granted, exempting receivers from the usual
    requirements for a Mareva injunction. The motion judge applied settled legal
    principles to the facts of the case that demanded the relief he granted.

D.

Security for Costs MotionS

[31]

The Receiver and DUCA are respondents to Myaras appeal and both move
    against him for security for costs of his appeal. Their motions are under r.
    61.06(1)(a). The moving party must establish that there is good reason to
    believe that the appeal is frivolous and vexatious and that the appellant has
    insufficient assets in Ontario to pay the costs of the appeal.

[32]

The second part of the test is not in dispute. Myara lives in Florida
    and apparently owns a casino in Peru. There is no evidence that he has assets
    in Ontario.

[33]

The first part of the test involves a consideration of [t]he apparent
    merits of the appeal, the presence or absence of an oblique motive for the
    launching of the appeal, and the appellants conduct in the prosecution of the
    appeal as well as other factors that may be specific to the case:
Schmidt
    v. Toronto Dominion Bank
(1995), 24 O.R. (3d) 1 (C.A.), at para. 18.

[34]

The moving parties rely on the fact that the motion judge found Myaras
    version of events had no air of reality and did not accord with common sense,
    and that his story was simply another fraudulent attempt to divert the HST Refund
    away from the Receiver. They say there is no merit to his appeal and that its
    purpose is to simply further delay the Receivers recovery of the Debtors
    property.
[2]

[35]

Myara contends that his appeal has merit. He says that, because he was
    not cross-examined on his affidavit, his evidence about his claim to the HST
    Refund was uncontroverted and ought to have been believed by the motion judge. He
    argues that DUCA lacks standing to bring the motion for security for costs.
    Finally, he says that an order for security for costs should not be made
    against him because he was forced into the jurisdiction: see
Diversitel
    Communications Inc. v. Glacier Bay Inc.
(2004), 181 O.A.C. 6, at para. 8
    (C.A.).

[36]

I am satisfied that each of the Receiver and DUCA is entitled to
    security for costs of Myaras appeal. The appeal appears to have little chance
    of success. Myara seeks to overturn the motion judges factual findings, which
    were made on a compelling record with little, if anything, to support Myaras
    claim and much to contradict it.

[37]

The fact that DUCA is a respondent to Myaras appeal and that Myara
    seeks costs of the appeal and of his motion in the court below from DUCA, is
    sufficient to satisfy the standing requirement for its motion for security for
    costs.

[38]

Myaras reliance on the
Diversitel
case is misguided. In that
    case, this court considered a motion for security for costs of an appeal under
    r. 61.06(1)(b), which allows this court to make an order for security for costs
    where it appears that an order for security for costs could be made against
    the appellant under rule 56.01. Interpreting the combined effect of those
    provisions, this court in
Diversitel
held that r. 61.06(1)(b) is
    confined to making an order for security for costs against an appellant who was
    the plaintiff or applicant in the initial proceeding. A respondent on appeal
    may not rely on rule 61.06(1)(b) to obtain an order for security for costs
    against an appellant who was the defendant or respondent in the initial
    proceeding. Armstrong J.A. explained that [t]he policy rationale is not to
    impose security for costs upon foreign or impecunious defendants who are forced
    into court by others. See also
Donaldson International Livestock Ltd. v.
    Znamensky Selekcionno Gibridny Center LLC
, 2010 ONCA 137.

[39]

Here, the motions are brought under r. 61.06(1)(a), which permits
    security for costs to be ordered against an appellant where there is good
    reason to believe that the appeal is frivolous and vexatious and that the
    appellant has insufficient assets in Ontario to pay the costs of the appeal. Application
    of this subrule is not restricted to appeals by appellants who were plaintiffs
    or applicants in the initial proceedings. In any event, Myara was not forced
    into court by anyone. He brought himself into the jurisdiction to assert a claim
    to the HST Refund proceeds, by attempting to intervene in the motion below.

[40]

I fix the amount to be paid by Myara as security for the costs of his
    appeal in the sum of $15,000 for each of the Receiver and DUCA. This is a
    reasonable estimate of the party and party costs each of these respondents
    might expect to recover if successful in responding to Myaras appeal.

E.

DISPOSITION

[41]

For the foregoing reasons, Revitals motion for leave to appeal the
    Order is dismissed and the Receivers and DUCAs motions for security for costs
    are granted. I order Myara to pay into court as security for the costs of his
    appeal the sum of $30,000 on or before May 2, 2015, failing which a judge of
    this court may dismiss the appeal on motion. No assets covered by the
    Receivership Order may be disposed of or pledged in order to post security for
    costs.

[42]

The Receiver and DUCA shall have their costs of responding to Revitals
    motion fixed in the sum of $10,000 each, inclusive of HST and disbursements. The
    Receiver and DUCA shall have their costs of their motions for security for
    costs against Myara fixed in the sum of $5,000 each, inclusive of HST and
    disbursements. These costs amounts are inclusive of the costs of the March 27,
    2016 attendances before Roberts J.A.

K. van Rensburg J.A.





[1]
Myara explained that the loans were recorded on the ledger of Aventura
    Properties Inc., which is not one of the Debtors, but claimed that this
    corporation and Aventura II Properties Inc. are in fact the same corporate
    entity.



[2]
They also contend that Myara has no standing to appeal the repatriation order.
    That issue was directed by Roberts J.A. on consent to be heard by the panel
    hearing the appeal.


