In Amphenol Canada Corp v. Sundaram, 2020 ONSC 328 (“Amphenol Canada“), the Ontario Divisional Court confirmed that a prima facie showing of fraud and dissipation in the context of a Mareva injunction may have additional consequences for defendants, including presumed prejudice in terms of that defendant’s ability or inclination to satisfy future cost awards.
In this case, a Mareva injunction was granted against Nandakumar Sundaram (“Nandakumar“), his spouse Devappa Sundaram (“Devappa“) and their corporation Sundev Technologies Inc. (“Sundev”) (collectively, the “Defendants”). It was alleged the Defendants carried out a fraudulent scheme where profits from surreptitious sales of the Plaintiff’s products were diverted to Sundev.
The Plaintiff brought a motion on notice to all of the Defendants to continue the Mareva injunction. Only the defendant Devappa responded, although her counsel acted for all of the Defendants. Devappa attempted to distance herself from the alleged fraud, stating that her funds became comingled with those of Sundev, and submitting that there was no basis for continuing the Mareva injunction against her. If Devappa had succeeded, the relief she sought was an order dismissing the Plaintiff’s motion in its entirety. The motion judge disagreed with Devappa and continued the injunction, reiterating that the Plaintiff had established a strong prima facie case of fraud and the potential dissipation of assets.
When Nandakumar and Sundev moved separately for similar relief, the motions judge found that the Defendants had “by design or otherwise, split their case and [sought] to re-litigate the issues” that had previously been determined. Nandakumar and Sundev appealed the quashing of their motion to set aside the Mareva injunction to the Court of Appeal within the prescribed 30-day appeal period, but beyond the 15-day period to seek leave to appeal to the Divisional Court, arguing that their procedural right to challenge the injunction was denied and it was therefore a final order.
The Court of Appeal disagreed that the motion judge’s decision was final and quashed the appeal. In a final effort to proceed with the appeal, Nandakumar and Sundev brought a motion to extend the time to seek leave to appeal to the Divisional Court. In dismissing Nandakumar and Sundev’s motion to extend the time, the Court considered four factors:
- whether the moving party formed an intention to appeal within the relevant period;
- the length of the delay and the explanation for it;
- prejudice to the responding party; and
- the merits of the appeal.
The Divisional Court found that the intention to appeal was formed early on by the moving parties (1st part of the test). The Divisional Court did not accept the explanation for the delay, holding that it ought to have been clear to counsel that the appeal required leave from the Divisional Court (counsel for the Plaintiff had urged the Defendants’ counsel to direct the appeal to the Divisional Court) (2nd part of the test). The Divisional Court also did not find the proposed appeal particularly meritorious, noting that Devappa’s original attempt to quash the Mareva injunction likely applied to the other defendants and that re-litigating the issue would be an abuse of process (4th part of the test).
On the question of whether the appeal would prejudice the responding party (the 3rd part of the test), the Divisional Court noted that this was a case of alleged fraud and that the Defendants’ ability to pay costs was far from certain. Citing 2092280 Ontario Inc. v. Voralto Group Inc. 2018 ONSC 2305, the Court noted,
Judgments for damages cannot reasonably be expected to be affordable or collectable against fraudsters.
Two previous judges had on earlier motions found that the Plaintiff had established a strong prima facie case of fraud against the Defendants, including a clear risk of dissipation of assets. The action had been outstanding for a year and had been bogged down in costly interlocutory motions, including steps by the Defendants that appeared tactical and abusive. The Divisional Court therefore refused to grant the extension of time to obtain leave to appeal.
Amphenol Canada serves as a good reminder that even a prima facie showing of fraud will have significant implications for the conduct of an action.
* With thanks to Adam Burt for his assistance