Ice District Development Partnership v Hahn, 2020 ABQB 786

Court of Queen’s Bench of Alberta Citation: Ice District Development Partnership v Hahn , 2020 ABQB 786 Date: 20201215 Docket: 2003 15921 Registry: Edmonton Between: Ice District Development Partnership, formerly EAD Development Partnership, by its Partners Katz Group Real Estate Inc. and One Properties Corporation; Legends Condo Development Limited Partnership, by its General Partner Legends Condo Development Corp.; Katz Group Properties Inc.; WAM EAD Limited Partnership by its General Partner WAM EAD GP Inc.

Plaintiffs - and - Larry Hahn, 1771354 Alberta Ltd., Michael Smith, 2014154 Alberta Ltd., 9676287 Canada Ltd., Adibi Hahn and Medina Hahn Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice M. J. Lema _______________________________________________________ A. Introduction [ 1 ] A condominium developer seeks a Mareva injunction against a realtor and associated persons, including family members, in the context of missing deposits on condominium-unit sales arranged, in whole or in part, by the realtor.

The developer points to its agency agreement with the realtor as giving him no authority to do anything with the deposits other than arrange for them to be paid to

the developer’s prescribed trustee, to provisions in the standard-form condominium sales agreements requiring deposits to be paid to and held by that trustee (i.e. with no express or implicit right of access for the realtor), and to evidence (obtained via earlier prejudgment relief) showing that certain deposits were routed not to the prescribed trustee but to a corporation wholly controlled by the developer and from there, in part, to members of the realtor’s family (wife and daughter) and in part to points unknown. [ 2 ] The realtor resists, pointing to the absence (until recently) of a filed statement of claim laying out the developer’s allegations, to silence in the agency agreement about deposits, to the realtor’s possible status as a “developer” (or co-developer) under the Condominium Property Act , and to the apparent non- or short payment of commissions, apparently justifying the (possible) redirection of deposits to the realtor. [ 3 ] Per the realtor, this is a garden-variety tug-of-war about unpaid commissions. [ 4 ] The developer also seeks the relief against a now-terminated high-ranking employee of the developer and his associated company, both of whom participated in various “flip transactions” claimed to be at odds with the employee’s fiduciary responsibilities or as otherwise damaging the developer’s interests. [ 5 ] I find that the developer has satisfied the test for a Mareva injunction against the realtor and associated parties (with some adjustments, as discussed below) and to the requested relief against the former employee.

B.

Preliminary note on differential relief as among the respondents [ 6 ] The application on December 8, 2020 focused largely on the relief sought against the realtor (Larry Hahn), two of his corporations (177 and 967), and two family members i.e. a sweeping Mareva injunction and associated relief covering all of them. [ 7 ] The applicants’ subsidiary focus was the relief sought against the former employee (Michael Smith) and his corporation (201) i.e. largely continuation (and clarification) of relief granted by Shelley J. in mid-October 2020, plus a direction that each provide asset and income disclosure under the Civil Enforcement Act process (Forms 13 and 14). [ 8 ] The bulk of the analysis below focuses on the Hahn aspect. [ 9 ] I will return (briefly) to the Smith aspect at the conclusion of the judgment.

C. Evidence [ 10 ] The evidence comes from a number of affidavits put forward by ICE. (I use that term as a collective to embrace the plaintiffs, all associated in one way or another with the ICE District developments in downtown Edmonton.) [ 11 ] The defendants did not cross-examine on any of those affidavits.

Neither did they submit affidavits of their own or any on their behalf, and neither did they ask for more time to prepare or arrange for such affidavits. [ 12 ] This is a key consideration, as our Court of Appeal explored in Tycholis v Teem Energy Ltd [1] : The matrimonial judge gave several reasons for refusing Mr. Tycholis an attachment order. One was the belief “that the applicant barely meets the minimum first branch of the test relating to the reasonable likelihood that his claim will be established at trial.” (para. 5). The matrimonial judge does not really explain this conclusion.

It is surprising, as all the evidence was by Mr. Tycholis. The matrimonial judge quotes some brief cross-examination on the merits of his suit, but we do not read the answers as retracting his claim, nor as conceding that his claim was limited to one written contract. The matrimonial judge merely said that quantum meruit is hard to establish, and so since she had not been able to assess his evidence, she could not state that he had a reasonable likelihood of success (para. 20). With respect, that appears to us to be wrong. The evidence was all one way.

The fact that there might be other evidence later, or that his evidence might be tested at trial, is not enough to displace this evidence. A judge hearing the motion before trial cannot assume that there will be contrary evidence at trial, still less assume that it will be strong evidence. That is not the test in the statute. [emphasis added] [ 13 ] I will proceed accordingly, taking ICE’s evidence at face value. D. Test for a Mareva injunction [ 14 ] I adopt the analysis and test statement of C.

Jones J. in Athabasca Minerals Inc v Syncrude Canada Ltd [2] : … I find that an applicant for a Mareva injunction in Alberta must establish (

a) a strong prima facie case for potential success at trial, and (

b) a real risk that the respondent will remove assets from the jurisdiction, or dissipate them, in order to avoid a judgment. Further, the applicant must meet procedural requirements: (

a) full and frank disclosure, (

b) particulars of the claim, (

c) assets within the jurisdiction, and (

d) an undertaking as to damages. Finally, the applicant must satisfy two branches from the tripartite test: irreparable harm and balance of convenience. [emphasis added] [ 15 ] In Secure 2013 Group Inc v Tiger Calcium Services Inc [3] , our Court of Appeal confirmed the core factors:

The requirements for a Mareva injunction are outlined in Cho v Twin Cities Power-Canada , 2012 ABCA 47 at para 5 …: There are a number of procedural requirements, and the usual tripartite test for ordinary injunctions probably also must be satisfied. On the merits, the plaintiff must show a strong prima facie case for his suit, and also that there is a real risk that the respondent will remove assets from the jurisdiction, or dissipate them, in order to avoid execution (enforcement) under a judgment. E.

Issues [ 16 ] The issues are: 1. whether ICE has shown a strong prima facie case against the defendants; 2. whether there is a real risk that the defendants will remove assets from the jurisdiction, or dissipate them, to avoid enforcement under a judgment; 3. whether ICE is likely to suffer irreparable harm and whether the balance of convenience favours granting the injunction; and 4. whether ICE has satisfied the above-noted procedural requirement and, in any case, whether ICE’s conduct of this application, including the only-recent filing of its statement of claim and the absence of an application document, has created procedural unfairness to the defendants or any of them.

F. Analysis 1.

Strong prima facie case? [ 17 ] I find that ICE has made out such a case as against Hahn and his corporations, for the following reasons. [ 18 ] The evidence shows that at least $1 million in deposits on condominium units in the development in question were paid by purchasers, at Hahn’s direction, to a number company (177) solely owned and controlled by him, instead of to a Calgary law firm designated in the standard-form condominium sale agreements as the trustee of deposit monies, all without any advance knowledge by or permission from ICE. [ 19 ] Looking at one sample transaction: Hahn convinced the purchaser (MT), who thought he was making appropriate deposit payments, to pay the deposit to Hahn or his corporation.

The purchaser relied on Hahn to handle the deposit monies appropriately i.e. to route them to ICE’s prescribed trustee or, at minimum, to arrange for the monies to be held in trust, or at least, to hold them in trust himself as a credit toward the condominium purchase price.

Hahn apparently had no intention to route the monies to the prescribed trustee or even to maintain the deposit monies as such, and, in any case, removed the monies beyond his corporation and, by doing so, erased them as a credit for that purchaser – in other words, he appears to have misappropriated those monies. [ 20 ] And that analysis appears to apply generally to all of the ICE-sought deposits here. [ 21 ] Nothing in the ICE-Hahn agency agreement (AA) gives any express right to Hahn to do anything at all with condominium deposits i.e. other than arrange, per the standard-form contract, for deposits to be paid to the Calgary law firm.

Hahn points to this AA clause: “The Reator shall have the following duties and obligations: … (ii) to negotiate, settle and execute , as agent for the Developer without personal liability of the Realtor thereunder, any and all offers to purchase one or more Condominium Units.” But this has no bearing on the holding of or access to deposit monies paid under any such agreements. [ 22 ] Nothing implicit in that agreement signals or points to Hahn having any other right or authority over such deposits. [ 23 ] Hahn points to the trust provisions of the Condimium Property Act , and particularly the definition of “developer”, as authority for him to receive and apparently deal with deposits.

Here are the key CPA elements: Payments held in trust 14(1) For the purposes of this section, (c) “developer ” includes any person who, on behalf of a developer, acts in respect of the sale of a unit … or receives money paid by or on behalf of a purchaser of a unit … pursuant to a purchase agreement; (d) “financial institution” means a bank, treasury branch, credit union or trust corporation;

(3) A developer or prescribed trustee [per regulations – see below], as the case may be, shall hold in trust all money … paid by the purchaser of a unit up to the time that the certificate of title to the unit is issued in the name of the purchaser in accordance with the purchase agreement.

(6) A developer who receives money that is to be held in trust under this

section shall, within 3 days of receiving it … deposit the money into a trust account maintained in a financial institution in Alberta.

(6.1) A trust account referred to in subsection (6) must be maintained by a prescribed trustee.

(7) A developer or prescribed trustee, as the case may be, who is in possession or control of money that is to be held in trust under this

section shall ensure that the money is kept on deposit in Alberta.

(7.1) A developer or prescribed trustee, as the case may be, who is in possession or control of money that is to be held in trust under this

section shall comply with the requirements respecting trust accounts established by the regulations. … Trust money 43.1

(1) Where the corporation or any person is in receipt of money paid to or for the benefit of the corporation, that money and all the proceeds arising from that money are (

a) legally and beneficially owned by the corporation, and (

b) deemed to be held in trust for the performance of the duties and obligations in respect of which the payment was made. … [ 24 ] Here are the applicable parts of the Condominium Property Regulation [4] : Payments Held in Trust 20.3 For the purposes of

section 14 of the Act , a person or partnership that meets the following requirements is prescribed as a trustee: (

a) the person, the professional corporation with which the person is associated or the partnership i. is an active member of the Law Society of Alberta , ii. is a holder of a permit issued under

Part 8 of the Legal Profession Act [ i.e. a member’s professional corporation] or iii. is comprised of partners who are active members of the Law Society of Alberta, as the case may be; (

b) no suspension is in effect under

section 63 of the Legal Profession Act in respect of i. the person, ii. the voting shareholder of the professional corporation, or iii. the partners of the partnership, with the result that no partner is permitted to operate a trust account, as the case may be; (

c) the person or partnership is approved to operate a trust account , under the rules established by the Law Society of Alberta under the Legal Profession Act ; (

d) the person or each partner of the partnership, as the case may be, is in good standing in respect of Assurance Fund requirements under section 89(4) of the Legal Profession Act . Notification by prescribed trustee 20.31(1) Within 10 days of receiving money to be held in trust under

section 14 of the Act , a prescribed trustee shall notify the purchaser, at the purchaser’s address for service, that the purchaser’s deposit is held on deposit in the prescribed trustee’s trust account.

(2) Nothing in this Regulation precludes a purchaser, with the developer’s agreement, from retaining a prescribed trustee to hold a purchaser’s deposit.

(3) A prescribed trustee retained under subsection (2) shall, within 10 days after depositing a purchaser’s deposit into the prescribed trustee’s trust account, notify the developer of the deposit. Release of trust money 20.32

(1) A prescribed trustee shall not release money that is held in trust under

section 14 of the Act except in accordance with this section.

(2) A prescribed trustee may release money held in trust to a developer where (

a) the money is applied to the purchase price as part of the process of transferring title to the unit for which the deposit money was paid,

(

b) the money is secured by a purchaser’s protection program, as defined in

Part 7, that has been approved by the Minister under section 14(10) of the Act, or (

c) the developer is entitled under section 14(12) of the Act to a reduction in the money held in trust equal to security provided under an enactment referred to in section 14(12) of the Act. …

(4) A prescribed trustee may release money held in trust to a purchaser where the purchase agreement is terminated after (

a) the purchaser exercises a right of rescission under the Act or this Regulation, (

b) a condition imposed by the purchaser or developer has not been removed or satisfied within the time allowed by the purchase agreement, or (

c) the developer exercises a right of termination under the purchase agreement.

(5) A prescribed trustee may release money held in trust (

a) where the parties have mutually agreed to the release, (

b) in accordance with a decision issued by a court ordering the payment of the money, (

c) where the money is required or permitted to be paid into Court, or (

d) subject to subsection (6), to one of the parties, where the other party has breached the purchase agreement in a way that results in a contractual right to treat the agreement as ended. … [emphasis added] Analysis of Hahn’s “access to deposits” arguments [ 25 ] I first reject Hahn’s argument that he should be regarded as a “developer” (or co-developer) of the Development, per the CPA definition. Even if Hahn “acted in respect of the sale of a [condominium unit] on behalf a developer [i.e.

ICE]”, he did not so act – i.e. on behalf of [ICE] – “when receiving money paid by or on behalf of a purchaser.” [ 26 ] It is not enough simply to “receive monies” from a purchaser; that receipt must be in the capacity of someone acting on behalf of the developer (here, ICE).

The combined effect of the agency agreement and the standard-form purchase contracts is that Hahn had no role in receiving, holding, or unilaterally accessing deposit monies. [ 27 ] It would odd indeed if someone apparently moving monies away from the (main) developer (i.e. away from the developer’s designated trustee) should be regarded, because of that apparently unauthorized diversion of deposit monies (i.e. the “receipt” of those monies), as a developer or co-developer of the development. [ 28 ] In any case, even if Hahn warranted the label “developer” per the CPA definition, he did not escape the gravitational pull of the CPA ’s trust provisions.

Per the above provisions, even a “developer” must arrange for deposit monies to be held in trust, by a prescribed trustee, with the release of those monies being governed by the Regulations reproduced above; [ 29 ] The evidence is that the ICE-pursued deposit monies were paid to a bank account of 177, that nothing indicates it was a trust account (let alone one maintained by someone qualifying as a “prescribed trustee” per the Regulations ), and that none of those monies were paid along to or for the benefit of ICE (as the condominium-units seller) or to or for the benefit of the purchasers of those units. [ 30 ] Instead, the evidence shows that approximately $117,000 was paid by Hahn to his spouse, ostensibly as spousal support (December 2019 to September 2020), and a further approximately $20,000 to his adult daughter, ostensibly as rent (December 2019 to September 2020). [ 31 ] It also shows that a portion (approximately $3,000) was transferred to an out-of-Alberta (BC) credit-union account of Hahn’s. [ 32 ] Finally, it shows that 177’s account was closed by the bank in question in mid-September 2020 on account of (per the bank) “questionable transactions” (including 17 NSF cheques) and that, at that time, it had a negative balance i.e. none of the deposit monies are currently held there. [ 33 ] For greater certainty, Hahn appears to derive no greater authority over condominium-purchase deposits under the trust provisions of the Real Estate Act .

Here are the key provisions: 25(1) A licensee who is required by the rules [i.e. per para 1(1)(w), “rules made by an Industry Council”] to keep and operate a trust account shall (

a) keep complete and accurate financial records in which the licensee shall maintain a separate record for each person on whose behalf the licensee is acting of all (

i) money received in trust, (ii) money held in trust, (iii) interest earned on money held in trust, and

(iv) disbursements made from money received or held in trust, in respect of a property management service, dealing or trade for that person, (

b) deposit money received in trust in respect of a property management service, dealing or trade in the business of the licensee within the time prescribed by the regulations, or within any period agreed to in writing by the parties to the property management service, dealing or trade, in an interest-bearing account that is (

i) maintained in a bank, loan corporation, trust corporation, credit union or treasury branch, and (ii) kept in the name of the licensee and designated as a trust account, (

c) keep money received or held in trust in respect of a property management service, dealing or trade in the business of the licensee separate from money that belongs to the licensee or any licensees the licensee employs, and (

d) disburse money received or held in trust in respect of a property management service, dealing or trade in the business of the licensee only in accordance with the rules and with the terms of the trust governing the use of that money.

(3) Subject to subsection (4), all money deposited under subsection (1)(

c) shall be kept on deposit in Alberta. [Subsections (4) through (11), not relevant here, not reproduced] [emphasis added] Deposit monies as trust monies [ 34 ] On the trust-monies dimension, I am bolstered by the analysis of Grant J. in 1342205 Ontario Limited (Surplus Freight of Canada) v Summit Real Estate Inc (Prudential Summit Real Estate) [5] , which explored whether a realtor could draw on certain lease deposit monies to pay its commissions (answer: no): In

summary, I find that the deposit was paid in trust to the defendant [realtor], Summit , at the request of the defendant, Ellis Levine, and at the direction of the landlord, Rothesay Rentals Ltd. The terms of the trust were contained in the lease which clearly provided, to the knowledge of the defendants, that the deposit was to be applied to the first and last months’ rent in accordance with the agreement between Surplus Freight and Rothesay Rentals. Rothesay Rentals therefore had no authority, without the consent of Surplus Freight, to direct that the deposit be used to pay the defendants’ commission .

Surplus Freight was not asked for and did not give its consent to the deposit being used for that purpose. As for acting unilaterally, Rothesay Rentals could have only done so once it became beneficially entitled to the deposit. However, I find that it did not, at any time, become the owner of the deposit, nor would it become the owner until the commencement of the term of the lease which did not occur. I therefore find that when it authorized the defendants to use the deposit to pay their commission Rothesay Rentals had no legal authority to do so.

I further find that by accepting the deposit “in trust” the [realtor] defendants were bound by the terms of the trust as agreed between the landlord and tenant and set out in the lease. More particularly, they were required by the Act to pay the money out of their trust account in accordance with the terms on which it was paid into their account, in this case the terms set out in the lease. It follows and I find that the defendants were not, in the absence of the consent of both the landlord and tenant, entitled to pay the deposit monies out of trust for any purpose contrary to the terms of the trust.

They did so and thereby breached their duties to the plaintiff under the Real Estate Agents Act, supra., as trustees of the deposit and they are therefore liable to the plaintiff to repay the deposit to it . [emphasis added] [ 35 ] Same by the analysis, concerning the status of deposits on real estate deals as trust monies, and a realtor’s resulting obligations (in a Saskatchewan setting), in Schweitzer (Re) [6] : The [Saskatchewan Real Estate] Act and the [Saskatchewan Real Estate Commission] Bylaws dictate that a real estate broker must use a trust account for funds accepted as a deposit on real estate transactions .

The reason for that it clear: it will facilitate the segregation of those funds from the money actually belonging to the broker. That is necessary because prospective purchasers of real estate in this Province must be able to place a deposit with the confidence that it will be credited toward the closing on a prospective purchase, or returned to that purchaser if the transaction does not proceed . If they cannot proceed with that confidence, then that would have a chilling effect upon the real estate industry.

This would be significantly harmful to the public, who are served by that industry, and even more so the people that work within the industry - the licensed realtors across this Province. The evidence before us clearly shows that Mr. Schweitzer breached the trust that J.H. relied upon in placing deposit funds with him. The evidence also shows a degree of pre-meditation to the actions of Mr. Schweitzer regarding J.H.'s deposit.

Contrary to the mandated practise of maintaining a segregation of trust monies, we conclude that J.H.'s deposit cheque was deposited not into his trust account but into another account, his business account . This fact is evident in Exhibit P-8 and we conclude, therefrom, that the $50,000.00 received from J.H. was deposited into Mr. Schweitzer’s business account in March of 2014, and those funds permitted Mr. Schweitzer to make a great many cash withdrawals, for unknown purposes. As a result of his using J.H.’s money over the months from March to June of 2014, Mr.

Schweitzer did not have sufficient funds in either his business or his trust account to refund the full deposit . We find the fact that the monies were never deposited into a trust account to evidence Mr. Schweitzer’s intention, upon his receipt of the deposit cheque, to treat this money as his own. In fact, Exhibit P-8 shows that he set about using these funds by way of his cash withdrawals, almost immediately after his receipt of the same . [emphasis added] No general right of set-off

[36] Per his brief, Hahn seems to suggest that underlying any redirection of deposit monies (i.e. away from McLeod Law asprescribed trustee) is a commission dispute with ICE. [37] But with the deposit monies required, per the CPA, to be held in trust, and with the only statutorily or regulatorily recognizedaccess for Hahn being distribution with ICE’s consent, and with no such consent here, Hahn is left arguing for some kind of general set-off (i.e. not anchored in the agency agreement or any other contracts here.) [38] However, in Powermax Energy Inc v Argonauts Group Ltd[7], Chrumka J. held that, absent limited exceptions, a trustee hasno right to access trust funds to pay a debt owed to the trustee personally by the beneficiary: Argonauts argues that it had the right under the operator’s lien to set off outstanding amounts owed by Powermax to the joint account,both with respect to the cost overrun on AFE 70040 and other AFEs.

As I earlier held, Argonauts did not comply with 1981 CAPLprovisions in giving proper notice and following the required procedure to secure a valid operator’s lien. All revenue received byArgonauts from the sale of Powermax’s production was received by it in trust and it could not be used by Argonauts to set off theoverrun expenses Argonauts incurred without Powermax’s authorization or approval. The position of Argonauts is that it was entitledto set-off the costs of the AFE 70040 overrun against trust funds, that is revenue from sales of Powermax’s production.

This issue was discussed in Commercial Union Life Assurance Co. of Canada v. John Ingle Insurance Group Inc. (2000), (BC CA), 22 C.C.L.I. 221 (Ont. S.C.J.) by Stinson J. at p. 300 paragraph 238: At the heart of this submission is the more fundamental question of whether set-off (legal or equitable) which is typically a proceduralremedy raised as a legal defence, can also function to justify a course of conduct. Put another way, as a matter of trust law, does a trusteehave a right of self-help by which he or she can collect a debt from a beneficiary through set-off against the trust property?

After considering The Law of Set-Off in Canada (Aurora: Canada Law Book Inc., 1993) pages 230-31, where K. Palmer wrote: A potential set-off between a trustee and a beneficiary of the trust would, at first blush, seem to run counter to the very notion ofa trust. The trustee is both empowered and charged with the right and responsibility of holding the trust property on behalf ofthe beneficiary and cannot convert the property to his own personal use.

Accordingly, any debt owed by the beneficiary to thetrustee in his personal capacity could not be set-off from the trust property...[E]xceptions... would include an agreement to allowsuch a set-off, or if the beneficiary is first required to pay into the trust fund before receiving out his share. In some cases, thesatisfaction of the purpose of the trust may then allow set-off between trustee and beneficiary. And the cases, Re McMahon and Canada Permanent Trust Co. (1980) (BC CA), 108 D.L.R.(3d) 71 (B.C.C.A.),Anderson Greene & Co. v. Kickley, (SCC), [1934] S.C.R. 388, and Crown Life Insurance Co. v.

MedipacInternational Inc. [1996] O.J. No. 1633, (1996) 3 O.T.C.62, (Ont. Gen. Div.), Stinson J. at pp. 301-2, paragraph 334 held: Although the foregoing cases have addressed the issue of set-off against a trust in different ways, they confirm that a trustee cannotjustify withholding trust funds in breach of his or her trust obligations on the grounds that the beneficiary is indebted to him orher. Simply stated, a trustee cannot use the concept of set-off, legal or equitable, to justify self-help by breach of trust.

To allow aset-off to operate in this fashion would have the perverse effect of encouraging trustees to deprive beneficiaries of their trustproperty pending a determination of whether the trustee’s claim against the beneficiary is valid. A trustee, by the very nature ofhis or her position, must observe and comply with the trust pending the proper resolution of any disputes that may exist betweentrustee and beneficiary. Set-off is a defence that may be pleaded at the legal stage of a dispute, and may result in the ultimate “nettingout” of entitlements.

It cannot be used to justify a course of conduct by a trustee against a beneficiary in advance of any legal action. Argonauts did not commence a legal action against Powermax to enforce payment of the AFE 70040 overruns. It prior to informingPowermax of the fact of substantial cost overruns, let alone informing it of the total of these very substantial costs, began withholdingproduction revenue and in breach of its duties as a trustee began setting-off its costs.

Argonauts cannot justify this self-help breach oftrust by claiming legal or equitable set-off. [39] Here I find that, whether deposit monies are to be regarded as beneficially owned by the purchaser or by ICE (probably (asbetween them) depending on when the condominium purchase crystallizes i.e. become final and irrevocable), Hahn himself had noequitable stake in any deposits i.e. until (at minimum) ICE authorized any distribution. [40] Accordingly, and in any case, it is not clear how Hahn had any right to redirect and apply to his own purposes any of thedeposit monies in the circumstances here.

Conclusion on “strong prima facie case” [41] I find that, with the only evidence coming from ICE, and in light of the CPA’s trust provisions, and given no apparent roleunder the agency agreement for Mr.

Hahn in respect of handling or accessing deposits, and with no evidence that ICE authorized anydeviation from “all trust monies to McLeod Law”, and with the evidence showing that over $1 million in deposits were routed, at Mr.Hahn’s direction, away from McLeod Law and to the account of 177, and with purchasers banking on having deposits in place to becredited toward their condominium purchases, and given the emptying of that account (including the distribution of some of thedeposited monies to Mr.

Hahn’s family members to clear ostensibly personal expenses (spousal support and rent)), and (in light of noevidence that any of the arm’s-length purchasers acted in bad faith in any respect) with ICE having had to credit those purchasers fordeposit monies paid in good faith by them to Hahn’s corporation, I find that ICE has shown a strong prima facie case for the remedies itseeks for this apparent breach of trust and the other causes of action identified by ICE. 2.

Real risk of asset dissipation? [42] Our Court of Appeal has recognized that, in cases of fraud, the court considering a Mareva injunction application may be ableto infer such a risk. Per Secure 2013 Group Inc v Tiger Calcium Services Inc[8]:

There is no evidence that Hu was dealing with his assets other than in the ordinary course or that he will dispose of, dissipate or conceal his assets. In some cases of alleged fraud, even in the absence of such evidence, courts have been prepared to draw an inference from all of the circumstance, including the circumstance of the fraud itself, that there is a serious risk that a defendant will attempt to dissipate assets or put them beyond the reach of the plaintiffs: 1773907 Alberta Ltd v Davidson , 2016 ABQB 2 at paras 81–83 , [2015] AJ No 1463 (QL) .

The evidence regarding the misrepresentations alleged to have been made by Hu and his other conduct while a Tiger employee is not sufficient to justify drawing the inference in this case. [ 43 ] 1773907 Alberta Ltd v Davidson (cited in Tiger Calcium ) was appealed (unsuccessfully) [9] . In its decision, the Court of Appeal upheld (among other aspects) Romaine J.’s decision to infer, from fraud-reflecting circumstances, a risk of asset dissipation. The context was a Civil Enforcement Act attachment order, but I find that the “inference analysis” applies equally in a Mareva context.

Here is the key excerpt from the Court of Appeal’s decision on the inference drawn: In the context of whether the fraud exception is applicable in an application for an attachment order, the case management judge [Romaine J.] quoted several passages from the decision of Strathy, J (as he then was) in Sibley& Associates LP v Ross , 2011 ONSC 2951 , 334 DLR (4th) 645 where he attempted to reconcile inconsistent decisions on this issue in the context of a Mareva injunction.

Included in the case management judge’s reasons at para 81 was the following quote from Sibley : [63] Rather than carve out an “exception” for fraud, however, it seems to me that in case of fraud, as in any case, the Mareva requirement that there be risk of removal or dissipation can be established by inference, as opposed to direct evidence and that inference can arise from the circumstances of the fraud itself, taken in the context of all the surrounding circumstances.

It is not necessary to show that the defendant has bought an air ticket to Switzerland or has sold his house and has cleared out his bank accounts. It should be sufficient to show that all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff . [64] The risk of removal or alienation can be inferred by evidence suggestive of the defendant’s fraudulent criminal activity . . .

The case management judge at para 83 adopted the Sibley reasoning: . . . particularly since the requirements for an attachment order are set out in statutory form and not in the common law, and do not provide a statutory “exception” in the case of allegations of fraud. However, consistent with the wording of

Section 17 , the circumstances of the alleged fraud may give rise to an inference that there are reasonable grounds for believing that a defendant is likely to deal with her exigible property otherwise than for the purpose of meeting her reasonable and ordinary business or living expenses, and in a manner that would be likely to seriously hinder the claimant in the enforcement of a judgment it may obtain.

While the case management judge noted at para 84 that Shelley Davidson now does not admit fraud, the case management judge was clearly entitled, when assessing the strength of the allegations against Shelley Davidson, to bear in mind all the evidence that had been placed before her. We conclude that the case management judge did not apply the common law fraud exception in the manner alleged by the appellant; rather, she gave a proper

interpretation to the requirements of section 17(2)(

b) of the Act . No appellate intervention is warranted. [emphasis added] [ 44 ] See also the decision of Sanfilippo J. in Woods v Jahangiri [10] , to the same effect. [ 45 ] So too here. I am prepared to draw, and do draw, an inference of a real risk of a dissipation of assets, anchored primarily on Mr. Hahn’s apparently unauthorized diversion of deposit monies and application of them, in part, to personal purposes, coupled with the emptying of the 177 account and the absence of any evidence from Mr.

Hahn explaining the current whereabouts of the balance of the diverted deposit monies or their application. [ 46 ] Someone who acts as Mr. Hahn has apparently acted is unlikely to suddenly become transparent and cooperative. Instead, his diversion-of-deposits behaviour signals a very material risk of assets being further placed beyond ICE’s reach or placed so as to make collection of any eventual judgment more difficult. [ 47 ] On this theme, I note that Mr.

Hahn’s real estate licence was recently suspended, as reflected in the following announcement by the Alberta Real Estate Council: Calgary, Alberta —On October 13, 2020, the Administrator of the Real Estate Council of Alberta (RECA) suspended the real estate licence of Larry Hahn. Mr. Hahn is not authorized to trade in real estate. RECA determined it is in the public interest to temporarily suspend Mr. Hahn. Allegations against Mr.

Hahn include: • acting dishonestly • making intentional, misleading representations • participating in fraudulent or unlawful activities • engaging in conduct that undermined public confidence in the industry, harmed the integrity of the industry, or brought the industry into disrepute Mr. Hahn’s licence will remain suspended until current proceedings, under

Part 3 of the Real Estate Act concerning his conduct, are concluded.

Mr. Hahn was most recently registered as a real estate associate with Re/Max Real Estate (Edmonton) Ltd. o/a Re/Max Real Estate. 3. Irreparable harm and balance of convenience [ 48 ] On irreparable harm, I draw again on Woods (cited above) (paras 26, 27 and 29); “Irreparable harm” means harm to the moving party that cannot be monetarily quantified, or which cannot be cured, usually because one party cannot collect damages from the other : RJR-MacDonald , at p. 341; Christian-Philip v. Rajalingam , 2020 ONSC 1925 , at para. 33 . In Amphenol Canada Corp v. Sundaram , 2020 ONSC 328 (Div.

Ct.), at paras. 37-39 , F .L. Myers J. stated that “the defendants’ ability to pay is very much a part of the interlocutory injunction calculus”. … … On the evidence in this motion, the Plaintiff submitted that Mr. Jahangiri’s ability to pay a judgment rendered in favour of Ms. Woods is contingent on the net sale proceeds from the Hensall Property. Ms. Woods and Ms. Slenys deposed that they have only been able to identify one other property in Ontario in which Mr. Jahangiri has an interest, and that it has modest value. Ms. Woods submitted that she will be irreparably harmed if Mr.

Jahangiri transfers out of Ontario the net sale proceeds from the sale of the Hensall Property . …In the absence of any evidence of a means to satisfy any judgment if the single asset identified by the Plaintiff of sufficient value to meet her claim is transferred out of Ontario, the Plaintiff has, in my determination established irreparable harm through the serious risk of dissipation of the net sale proceeds from the sale of the Hensall Property. [emphasis added] [ 49 ] Mr. Hahn has not put forward any evidence of his assets, liabilities, income or expenses.

He appears to reside in a rented condominium on Vancouver Island, and his apparently former home in Edmonton is in the sole name of his wife. [ 50 ] Without the assistance of the requested injunction, it is not clear that ICE has any actual way of collecting an eventual judgment. [ 51 ] ICE has cleared the irreparable-harm hurdle. [ 52 ] As for balance of convenience , I emphasize the root phenomenon here i.e. the diversion of deposit monies away from ICE’s earmarked trustee without any apparent authorization and with no explanation or apparent intention to set things right. [ 53 ] In circumstances like this, I am not sure how often the balance of convenience will favour the person who has diverted trust monies (or, more precisely here, diverted monies intended to be held in trust, before they reached the intended trustee).

As the author of the problem, the diverting party should not be particularly surprised, and cannot realistically be held to complain, about the effects of an injunction aimed both at revealing (through the disclosure elements of the proposed order) and freezing his assets i.e. as part of the apparently wronged party’s efforts to trace its property. [ 54 ] On the other hand, withholding the injunction will likely lead to whatever assets are currently reachable being moved out of reach or at least made more difficult to find. [ 55 ] I find that the balance of convenience clearly favours ICE here. [ 56 ] On this aspect, I also note the intended order includes a monthly allowance ($5,000) intended to enable Mr.

Hahn to meet living and other ordinary-course expenses. 4. Procedural requirements satisfied? [ 57 ] ICE has provided the necessary undertaking . [ 58 ] As for making full and fair disclosure of all material facts known to it (both pro and con the application), Mr. Hahn has not pointed to any particular non- or under-disclosure here i.e. something material that ICE neglected or overlooked or failed to mention in its application materials, aside from one thing: his apparent cross-claim for commissions.

However, as explained above, absent authorization from ICE (and no evidence reflects any such authorization here), Hahn had no right to divert or otherwise access deposit monies, even as advances on, or payments, of commissions. Accordingly, ICE did not “under-disclose” at all, or in any material way, in not raising the subject of Mr. Hahn’s commissions, whether in arrears or otherwise. [ 59 ] In any case, this application was brought on notice, in fact many weeks’ notice (with the application (heard December 8th, 2020) having been scheduled on October 28, 2020). And, as noted, Mr.

Hahn did not provide any evidence or cross-examine any of ICE’s affiants. [ 60 ] On “assets in the jurisdiction”, part of ICE’s intended relief is required disclosure by Mr. Hahn of his complete asset, liability, income, and expense picture, as well as accountings of his use of the pursued deposit monies and, more generally, the general “open-booking” of his financial affairs since the perceived or potential start of Mr.

Hahn’s deposit diversions. [11] [ 61 ] I find that, in such circumstances, any “failure” of ICE to identify “assets in the jurisdiction” is not a fatal defect to its application. [ 62 ] Finally, I turn to Mr. Hahn’s frequently stated (per brief) observation that ICE had (at the time of brief filing) not filed a statement of claim laying down its allegations against him and his corporations. [ 63 ] ICE did file, or at least had submitted for filing, its statement of claim shortly before the application, and it had provided an unfiled copy to Mr. Hahn’s counsel shortly before the application.

ICE’s counsel also noted that she had provided an earlier (and I

believe substantially similar) version to Mr. Hahn’s counsel. [ 64 ] Mr. Hahn complained about the vagueness of ICE’s concerns since the deposit issue surfaced in September of this year and about ICE continually “moving the goalposts” over the last few weeks. [ 65 ] However, ICE was crystal-clear in its initial applications for attachment or attachment-like orders before Shelley J. on October 7 and 9, 2020, which orders were granted and which were served on Mr. Hahn shortly afterwards, along with copies of the supporting affidavits.

ICE’s central focus was the perceived misappropriation of condominium-purchase deposit funds away from the prescribed trustee to Mr. Hahn’s own corporation. [ 66 ] When ICE discovered, on executing the Shelley J. orders, that the landing account had been emptied, it (not surprisingly) decided to seek expanded pre-judgment relief, namely, the present Mareva-injunction application, to track down the missing monies. [ 67 ] Mr.

Hahn can have been under no genuine misapprehension of what ICE is litigating about or why i.e. the core problem identified (disappearance of deposits) or the relief sought, at least since ICE filed its brief and in fact earlier (no later than when ICE’s counsel provided an earlier iteration of its draft statement of claim reflecting (as I understand it) the same core relief). [ 68 ] Accordingly, I do not see any procedural unfairness in the only-recent-filing of ICE’s statement of claim. [ 69 ] As for the absence of a formal application, ICE’s counsel pointed to the extremely fulsome affidavits and the focusing provided by its extensive brief has having collectively conveyed to Mr.

Hahn what ICE was seeking and the grounds for it, as well as the applicable law i.e. everything that an application would (formally) convey. [ 70 ] She also offered, as necessary, to prepare, file and serve an application formalizing the application. [ 71 ] I do not recall Mr. Hahn’s counsel (or Mr. Smith’

s) commenting on the incremental utility of an application being filed now. In any case, I am not satisfied that either Mr. Hahn or Mr. Smith was prejudiced in any way by the absence of a formal application. [ 72 ] Concerning Mr. Hahn’s reference to a separate ( Bank-Act -based, I believe) action started against Mr. Hahn and others, apparently based on the same perceived wrongdoing and seeking somewhat overlapping relief, I do not have enough details to decide what to do about that. In any case, I note that Mr.

Hahn’s requested relief on this aspect was limited to seeking consolidation of the actions, and he did not actually apply for such relief. [ 73 ] As for Mr. Hahn’s and Mr. Smith’s argument that ICE’s application was limited to re-hearing whether the attachment (or attachment-like) orders granted by Shelley J. on October 7 and 9, 2020 should be extended, versus seeking expanded relief or, in fact, entirely new ( Mareva injunction) relief, the evidence shows that, as long ago as October 28, 2020, when ACJ Nielsen extended the operation of the Shelley orders, ICE made clear to Messrs.

Hahn and Smith that it would be seeking broader relief, particularly in light of the “empty cupboard” results of those orders. [ 74 ] Nothing would have prevented ICE from applying ex parte for a Mareva injunction, as long as it had disclosed its awareness of counsel acting for the defendants. (The justice hearing that application would then have had to decide whether notice should be provided.) [ 75 ] As it was, ICE did give notice of its application, with sufficient time (at minimum) for Hahn’s counsel to prepare a detailed brief outlining his position (albeit relying solely on the ICE-provided evidence and with no cross-examination of ICE’s affiants).

Conclusion on procedural fairness [ 76 ] For these reasons, I reject Hahn’s arguments (which Smith adopted) about procedural unfairness. Hahn knew what ICE was fundamentally concerned about, and he had sufficient notice of what it was seeking to do about its concerns. G.

Smith aspect [ 77 ] At the application, ICE’s counsel put forward a draft consent order outlining its intended relief against Smith and his corporation. [ 78 ] As I understand it, Smith did not end up consenting to that order. [ 79 ] Nonetheless, I am satisfied, based on the Smith-and-his-corporation-focused elements of ICE’s affidavit evidence, which include Smith’s admission of participation in transactions which appear to have been at odds with his fiduciary responsibilities to ICE, that the requested relief outlined in the draft order is warranted here i.e. continuation and clarification of Shelley-J-ordered relief from October 2020, plus a direction for Smith and 201 to complete certain Civil Enforcement Act asset- and income-disclosure forms (13 and 14), H.

Scope of requested relief against Hahn’s family members [ 80 ] ICE requested relief effectively tying up an Edmonton property apparently solely owned by Mr. Hahn’s spouse and same for a B.C. condominium apparently owned solely by his adult daughter. [ 81 ] ICE’s evidence did not convince me that any of the apparently misappropriated deposits made their way into the equity in either property or that Mr. Hahn has an interest in either one (i.e. beyond potential dower rights in the Edmonton property). As I

understand it, both properties were purchased before the earliest potential deposit diversions here. [ 82 ] I am also not satisfied, on the existing evidence, that any identification-of-any-other-real-or-other-non-financial-property or typing-up-of-such-property relief is presently warranted against Mr. Hahn’s spouse or daughter. [ 83 ] If ICE’s further investigations, whether pursuant to the relief I am authorizing or otherwise, reveal that Mr.

Hahn has a stake in either property (or both) or that some or all of the deposit monies ended up in equity in either one (or both) (e.g. through mortgage payments funded out of traced deposit monies), I give leave to ICE to apply for relief respecting either or both properties. Same if such investigations reveal (via tracing or otherwise) that any of the deposit monies ended up, or appeared to have ended up, in any of Mr.

Hahn’s spouse’s or daughter’s real or non-financial property. [ 84 ] For greater certainty, given the core focus on trying to trace the whereabouts of the deposit monies, all requested relief focusing on bank accounts or other financial assets, i.e. as sketched out in the draft order against the Hahn and Hahn-related defendants, is granted. [ 85 ] For even greater certainty, paragraphs 5(a), 6(a), and 7-15 of the draft order are not granted. In paragraphs 5(

b) and 6(b), the references to Mr. Hahn’s spouse are to be removed (and same for any intended reference to his daughter). [ 86 ] As well, the

preamble reference to the affidavit of Ms. Lussier (not relief on in deciding this matter) should be removed. I. Conclusion and Costs [ 87 ] For all these reasons, I grant the relief requested by ICE against Mr. Hahn and the Hahn-related persons and entities, excluding the elements identified in paragraph 85. [ 88 ] I award costs of the application to ICE against Mr. Hahn, 177 and 967, jointly and severally, payable forthwith. Heard via Webex on the 8 th day of December 2020 in Edmonton, Alberta Dated at Edmonton, Alberta this 15 th day of December, 2020. M. J. Lema J.C.Q.B.A.

Appearances: Sharon Roberts and Alisha Hurley Field LLP for the Plaintiffs/Applicants Roberto Noce and Michael Gibson Miller Thomson LLP for the Hahn and Hahn-related Defendants/Respondents Gary Zimmerman McLennan Ross LLP for the Defendants/Respondents Michael Smith and 2014154 Alberta Ltd