Gunsmoke2 - GS2
06-06-2007, 11:52 PM
This one is hard to follow but if you can its not your standard lawsuit
COURT FILE NO.: 06-CV-323237PD2
COURT FILE NO.: 05-CV-288535PD2
DATE: 20070220
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DIRECTV, INC.
Plaintiff
- and -
MARTYN GILLOTT
Defendant
AND BETWEEN:
MARTYN GILLOTT
Plaintiff
- and
NATIONAL BANK OF CANADA
Defendant
COUNSEL:
Ira Nishisato and Nur Muhammed-Ally for DIRECTV Inc.
Charles Wagman for Martyn Gillott
HEARING DATE: February 14, 2007
REASONS FOR DECISION
PERELL, J.
Introduction
[1] DIRECTV, Inc. is the plaintiff, and Mr. Martyn Gillott is the defendant in what I will call the “Credit Card Action” In the Credit Card Action, DIRECTV moves for an order, amongst other things: (1) requiring the law firm of Wagman, Sherkin to pay $172,475.63 that it is currently holding in trust into court; and (2) consolidating the Credit Card Action with another action in which DIRECTV is the plaintiff and John Doe, Jane Doe, eleven corporations, and 28 individuals, including Mr. Gillott, are the defendants. The short style of cause in this action is DIRECTV, Inc. v. Zed Marketing Inc. et al, but I will call it the “Radiocommunications Action.”
[2] Mr. Gillott is the plaintiff in another action, which I will call the “Chargeback Action.” The defendant in that action is the National Bank of Canada. In the Chargeback Action, Mr. Gillott brings what is described as a cross-motion for an order directing the law firm of Wagman, Sherkin to pay the money that it is currently holding in trust to Mr. Gillott. The National Bank takes no position with respect to this cross-motion and did not appear before me.
[3] As the discussion below will shortly reveal, this will all become quite complicated, quite nasty, and quite extraordinary, but the comparatively minor dispute that I must resolve is whether the Credit Card Action should be consolidated with the Radiocommunications Action, and the major dispute that I must resolve is whether the $172,475.63 currently being held by Wagman, Sherkin is to be paid to their client, Mr. Gillott, or into court.
[4] In asking that the money be paid into court, DIRECTV relies on rule 45.02 (Interim Preservation of Property- Specific Fund), but Mr. Gillott submits that the money belongs to him, and he argues that the prerequisites of rule 45.02 have not been satisfied and that DIRECTV is actually seeking a Mareva injunction, which it is not entitled to obtain.
[5] Rule 45.02 states: “Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.”
[6] Thus, the resolution of the major dispute on the motion and the counter-motion ultimately depends upon whether the $172,475.63 is a “specific fund”. DIRECTV argues that it is a “specific fund” because it is a reasonably identifiable fund earmarked for litigation or that it constitutes the very subject matter of the dispute. Another way of viewing the major dispute is that it is about whether DIRECTV’s claim to the $172,475.63 is proprietary or in personam.
[7] Mr. Gillott argues, however, that the $172,475.63 is not a specific fund and that DIRECTV has no proprietary interest in it. Rather, he submits that all DIRECTV has is a cause of action for the payment of $172,475.63 and the law of Ontario stands against prejudgment execution for this unresolved cause of action.
[8] In my opinion, to determine who is correct about the resolution of the major dispute, it is necessary to examine carefully the nature of DIRECTV’s claim and how it came about that Wagman, Sherkin is holding the $172,475.63. This means that the discussion that follows must examine the factual background to all of the Radiocommunications Action (which came first), the Chargeback Action (which came second), and Credit Card Action (which came last).
[9] Based on that examination and for the reasons that follow, I conclude that DIRECTV’s motion should succeed and Mr. Gillott’s cross-motion should be dismissed.
[10] The result is that there should be an order consolidating the Radiocommunications Action and the Credit Card Action and directing Wagman, Sherkin to pay the sum it is holding in trust in court to the account of the consolidated actions.
Discussion – Factual Background
[11] DIRECTV is the largest provider of satellite-delivered subscription television programming in the United States to customers equipped with specialized receiving equipment capable of decrypting DIRECTV’s broadcast signal.
[12] DIRECTV’s broadcasting signal penetrates Canadian territory, but it is not licensed by Canadian regulatory authorities to provide its programming to persons in Canada.
[13] In the Radiocommunications Action and in the Credit Card Action, it is alleged that Mr. Gillott unlawfully sells devices to decrypt DIRECTV’S broadcast signal in Canada, but, for present purposes, more significant is the nasty allegation that he is a party to a fraudulent scheme by which DIRECTV subscriptions are sold to Canadian residents. This scheme involves deceiving DIRECTV into believing that it is providing services to subscribers in the United States. This allegation is more significant because it concerns the monies now being held in trust by Wagman, Sherkin.
[14] The modus operandi of the alleged fraudulent scheme is that DIRECTV is given U.S. billing addresses for customers who are Canadian residents. This scheme is sometimes described as the gray market. Another scheme is known as “activation fraud,” which involves a false representation that a customer with a full priced subscription for his or her primary television is purchasing a discounted price subscription that is available for a second or third television set in the same customer’s home. The discounted subscription is actually provided to another customer at another home.
[15] Mr. Gillott flatly denies that he is involved in any of these schemes, but this is disputed by DIRECTV, which, as already noted, in the Radiocommunications Action sues Mr. Gillott as one of 41 corporate and individual defendants, and in the Credit Card Action it sues him to recover monies associated with the alleged scheme.
[16] In the Radiocommunications Action, as a remedy for the alleged illegal gray market or activation fraud activities, DIRECTV seeks a lengthy list of injunctive orders and, amongst other things, it seeks: (a) damages in the amount of 10 million dollars for breaches of the Radiocommunications Act, R.S.C. 1985, c. R.2, fraud, conspiracy, conversion, unlawful interference with economic relations and unjust enrichment; (b) an accounting of all profits from the Defendants’ wrongful activities; (c) an equitable tracing of the profits from the Defendants’ wrongful activities into the assets, property, and interests of the Defendants; and (c) a declaration that DIRECTV possesses an equitable interest in the real and personal property of the Defendants, on the basis of a constructive, resulting, implied and/or express trust.
[17] It is important to point out that DIRECTV’s claim for damages is an in personam claim but its claims for equitable tracing, or some form of trust are proprietary in nature. Its claim for unjust enrichment would support a proprietary remedy, and I add that pursuant to the doctrine of waiver of tort, the tort of conversion and perhaps the other torts pleaded would also support a constructive trust. See Serhan Estate v. Johnson & Johnson 2004 CanLII 1533 (ON S.C.), (2004), 72 O.R. (3d) 296 (S.C.J.), affd. [2006] O.J. No. 2421 (Div. Ct.), leave to appeal to the C.A. refused October 16, 2006. A constructive trust may also be available as a remedy for the wrongful appropriation of another’s property: see Soulos v. Korkontzilas 1997 CanLII 346 (S.C.C.), (1997), 146 D.L.R. (4th) 214 (S.C.C.); Bell ExpressVu Limited Partnershhip v. Souphanthong. [2005] O.J. No. 2090 (S.C.J.).
[18] Against these points, however, there is the submission of Mr. Gillott that DIRECTV has lost nothing because it was not entitled to enjoy revenues from Canadian consumers.
[19] In the Radiocommunications Action, five of the corporate defendants, including Zed Marketing Inc., and seven of the individual defendants, including, Mr. Gillott have joined together to deliver a statement of defence and counterclaim. Amongst other things, they deny any illegal activities and they assert that the black market and the gray market are not illegal in Canada. They assert that DIRECTV has no cause for complaint because it does not want subscriptions from Canadians and “to the extent Canadians in Canada subscribe to DIRECTV, DIRECTV is not being defrauded of any income. To the contrary, it is getting income that it would not otherwise be receiving.” (See statement of defence, paragraph 40.)
[20] In any event, in the Credit Card Action, Mr. Gillott states that he and his business corporations have never been involved, either directly or indirectly, in the sale of DIRECTV programming. The truth of that assertion remains to be determined, but taking him at his word, it makes what took place between August 2004 to April 2005 quite astonishing.
[21] During the nine months between August 2004 and April 2005, Mr. Gillott’s credit card with the National Bank was charged $369,473.05, all of which was paid by Mr. Gillott. Of that sum, $361,931.40 was paid for DIRECTV charges. For reasons that will become apparent later, it is important to note that DIRECTV does not require a signature from customers ordering serves by telephone or over the Internet, which is the way these charges were made against Mr. Gillott’s credit card.
[22] In the Chargeback Action Mr. Gillott admits that his credit card limit was $25,000. To keep his card in good standing, Mr. Gillott made payments several times a month. He made these payments to the National Bank online. He deposes that when he pays credit cards on line, there are no particulars of the various charges given. He says nothing about whether he received written credit card statements.
[23] In his affidavit material delivered for these motions, Mr. Gillott deposes that it was not until February 24, 2005 when he discovered that he had paid for well over $350,000 on unauthorized purchases from DIRECTV and that he paid his credit card charges not knowing that they included these substantial charges from DIRECTV.
[24] In his affidavit material and pleadings, Mr. Gillott provides only one explanation as to how it came about that $369,473.05 of DIRECTV charges were made against his credit card, and it is a nasty allegation. He alleges that DIRECTV obtained his credit card information and unlawfully and without any justification or lawful cause placed charges against his credit card in the amount of $369,473.05. By way of counterclaim in the Credit Card Action, he claims recovery of $197,041.18 of the sums allegedly improperly charged by DIRECTV.
[25] If the discovery of the allegedly unauthorized charges was a surprise to Mr. Gillott, he got another one on February 24, 2004. On that day, DIRECTV executed an Anton Pillar Order and Interim Injunction on him and certain other defendants in the Radiocommunications Action. The order was granted by Farley, J. who concluded that DIRECTV had established “an extremely strong prima facie case of piracy and conspiracy to commit piracy.” Farley, J. also concluded that DIRECTV had made out claims for civil conspiracy, conversion, unlawful interference with economic relations and unjust enrichment against the defendants.
[26] DIRECTV executed the Anton Pillar Order and among the material seized at Mr. Gillott’s home were DIRECTV receivers and numerous decryption devices.
[27] On the same day that his home was being searched under the authority of the Anton Pillar Order, Mr. Gillott reported that his National Bank credit card had been lost and that he had just discovered that numerous unauthorized charges for DIRECTV services had been made to his credit card.
[28] Mr. Gillott demanded that National Bank reimburse him for the unauthorized charges, and when they initially did not do so, on April 28, 2005, he sued the National Bank for $369,473.05. This is the Chargeback Action.
[29] Meanwhile, National Bank initiated what is called a chargeback procedure under its credit card arrangements. It charged back $172,432.87 to DIRECTV and according to the agreement between the National Bank and DIRECTV, the latter had 45 days to contest the chargeback. The chargeback process was initiated on May 6, 2005 and completed on May 9, 2005. DIRECTV did not dispute the chargeback.
[30] At this point in the account of the factual background, it is necessary to pause to make three points about the chargeback procedure. The first point is that the National Bank initiated a chargeback only for the period for January and February 2005 and the chargeback was $172,432.87 for 794 transactions on the credit card that took place during this period. The second point, already noted, is that DIRECTV did not resist the chargeback, which lack of resistance Mr. Gillott relies on as an indication that DIRECTV does not have a claim to those funds. However, the third point is that to resist the chargeback procedure initiated by the National Bank, DIRECTV would have to establish that Mr. Gillott had authorized the charges made on his credit card, but since DIRECTV did not obtain signatures for telephone and Internet purchases and Mr. Gillott was denying that he had had anything to do with DIRECTV, this obviously would be difficult.
[31] In any event, DIRECTV did not contest the chargeback, and without notice to DIRECTV, Mr.Gillott moved for summary judgment in the Chargeback Action as against the National Bank. Technically speaking, DIRECTV was not a party to that action, but the National Bank alerted DIRECTV, which appeared on the return of the motion. DIRECTV requested that the motion for summary judgment be adjourned to permit it to file materials.
[32] The motion for summary judgment, however, went ahead and on October 26, 2006, Klowak, J. made an order which contained the following terms:
1. THIS COURT ORDERS THAT the defendant National Bank of Canada shall pay Messrs. Wagman, Sherkin in Trust, the sum of $172,475.63 (the “chargeback funds”);
2. THIS COURT ORDERS THAT the chargeback funds may be held by Wagman, Sherkin in an interest-bearing account;
3. THIS COURT ORDERS THAT subject to the above payment being made, that the action and counterclaim be dismissed without costs;
4. THIS COURT ORDERS THAT Direct TV shall have until December 1, 2006 to deliver a motion seeking such relief as it deems advisable, with respect to this action and/or the chargeback funds;
5. THIS COURT ORDERS THAT in the event Direct TV fails to deliver a motion by no later than December 1, 2006, Messrs. Wagman, Sherkin shall be at liberty to disperse the chargeback funds;
6. THIS COURT ORDERS THAT if Direct TV delivers a motion in accordance with paragraphs 4 & 5 herein, such motion shall be heard on February 14, 2007, and the chargeback funds in shell not be disbursed until further order of this court or by signed agreement between Messrs. Wagman, Sherkin and counsel for Direct TV. . . .
[33] It is also worth noting that the summary judgment was on consent and was part of a settlement reached between Mr. Gillott and the National Bank in which National Bank neither paid nor received costs.
[34] In the aftermath of the Klowak, J.’s order, on November 30, 2006, DIRECTV commenced the Credit Card Action against Mr. Gillott. In that action, DIRECTV submits that Mr. Gillott’s allegations that he did not know about the DIRECTV charges are not credible. DIRECTV alleges, amongst other things, that Mr. Gillott intentionally used his credit card to subscribe for DIRECTV services for others and that he has falsely asserted that the use of the card was unauthorized. DIRECTV further submits that Mr. Gillott knew that it would be unable to assert its claim to the chargeback funds because DIRECTV does not require a signature from customers ordering services by telephone or over the Internet.
[35] It is worth noting that although Mr. Gillott’s original claim against the National Bank was for $369,473.05, the summary judgment that brought the Chargeback Action to an end was for $172,432.87. It is that sum that DIRECTV seeks in the Credit Card Action. The balance of $197,041.18 is the subject of Mr. Gillott’s counterclaim in the Credit Card Action.
[36] Before moving on to resolve the minor and major issues before me, I pause here to note that: (a) in his statement of defence in the Credit Card Action, Mr. Gillott takes the position that it remains to be determined whether it is unlawful to decode, authorize or facilitate the decoding of DIRECTV’s programming signal in Canada because it is unsettled whether s. 9 of the Radiocommunications Act is inoperative as a result as being contrary to freedom of expression under s. 2 (b) of the Canadian Charter of Rights and Freedoms; and (b) in his cross-motion, Mr. Gillott has filed an affidavit from Mr. Cator, who is the director of the defendant Zed Marketing Inc. in the Radiocommunications Action, and Mr. Cator’s evidence is that DIRECTV was a willing and active participant in the Canadian gray market and profited handsomely from that involvement. It is alleged that DIRECTV has knowingly accepted subscriptions for programming from Canadian retailers including but not limited to Zed Marketing Inc. and enjoyed revenues and paid commissions with respect to those subscriptions.
[37] I will return later to the significance of the allegation that DIRECTV was a knowing participant in the gray market, but Mr. Gillott’s position about the legal status of the gray market is, with respect, a half-truth.
[38] In Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 (CanLII), [2002] 2 S.C.R. 559, the Supreme Court of Canada ruled that s. 9(1)(c) of the Radiocommunications Act prohibited the decryption of encrypted signals emanating from U.S. and other foreign broadcasters. Because of the absence of an adequate factual record, the Supreme Court of Canada declined to decide whether s. 9(1)(c) of the Radiocommunications Act contravened the Canadian Charter of Rights and Freedoms as an infringement of freedom of expression, whether any infringement could be justified under s. 1 of the Charter, and, if not justified, whether s. 9(1)(c) should be struck out of the statute.
[39] However, the current law in Canada is that the activities of gray marketers are unlawful. That there is an uncertain Charter issue about freedom of expression does not alter that truth. Moreover, Mr. Cator’s affidavit gives an inaccurate account of the current state of the law. As he deposed, it is true that on the day that the Anton Pillar Order was executed, there was a decision of the Court of Quebec that s. 9(1) of the Radiocommunications Act violated freedom of expression under the Charter. See R. v. D’Argy, [2004] J.Q. No. 11142 (C.Q.), and it is also true that after the Anton Pillar Order, the Quebec Superior Court overruled the judgment; see [2005] J.Q. No. 2499 (C.S.Q.) and that leave to appeal to the Quebec Court of Appeal was granted; see [2005] J.Q. No. 7840 (Que. C.A.); however, my research reveals that it is not true that a decision has not yet been reached.
[40] The Court of Appeal of Quebec affirmed the judgment overturning the trial judgment in R. v. D’Argy; see [2006] J.Q. No. 11267 (Que. C.A.), and what is now pending is a motion for leave to appeal to the Supreme Court of Canada; see [2006] C.S.C.R. No. 458. The Quebec appellate courts ruled that given the nature of the charges the trial judge need not have addressed the Charter point at all.
[41] This leaves Mr. Gillott to rely on a 1997 decision of the Nova Scotia Supreme Court, R. v. LeBlanc, [1997] N.S.J. No. 476 (S.C.) where Haliburton, J. made some obiter comments about freedom of expression. However, in paragraph 11 of his judgment he stated: that the Charter issues were not extensively argued; that he did not intend to deal with them; and that the Charter issue need not be decided.
[42] In any event, for present purposes, the relevance of the legality or not of the black or gray markets is somewhat beside the point because Mr. Gillott’s ultimate position is that he was not involved and that the monies held in trust by Wagman, Sherkin belong to him because he did not authorize any purchases of services from DIRECTV.
Analysis
[43] With this factual background, I turn to the minor and major issues that must be determined on the motion and the counter-motion. As for the minor issue, I can be quite brief. In my opinion, it is appropriate pursuant to rule 6.01 of the Rules of Civil Procedure to consolidate the Credit Card Action with the Radiocommunications Action. The actions have common parties and questions of fact and law, and the claims for relief arise out of the same transactions and occurrences. The circumstances of the Credit Card Action are essentially a subset of the circumstances of the Radiocommunications Action.
[44] As for the major issue, as noted in the introduction to these Reasons for Decision, DIRECTV relies on rule 45.02. The case law establishes that the test for granting an order preserving a specific fund is threefold: (1) the plaintiff claims a right to the specific fund; (2) there is a serious issue to be tried regarding the plaintiff’s claim to the fund; and (3) the balance of convenience favours granting the relief sought. See: News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2002] O.J. No. 3705 (S.C.J.); Assante Financial Management Ltd. v. Dixon (2004), 8 C.P.C. (6th) 57 (Ont. S.C.J.); Taribu Holdings Ltd. v. Storage @ccess Technologies Inc., [2002] O.J. No. 3886 (S.C.J.).
[45] There is no doubt that DIRECTV claims the fund now held in the Wagman, Sherkin trust account; however, in my opinion, the decisive element in the case at bar is whether DIRECTV claims a right to a “specific fund” within the meaning of rule 45.02.
[46] This element is decisive because in my opinion there is a serious issue to be tried regarding DIRECTV’S claim to the monies and the balance of convenience favours granting the relief sought.
[47] In my opinion, DIRECTV has a prima facie claim against Mr. Gillott. Although Mr. Gillott denies that he authorized the purchases, over a nine-month period, there is evidence that $369,473.05 of purchases were made using his credit card and now as a result of the chargeback made by the National Bank $172,432.87 of those payments is outstanding. That is a serious claim. In the Credit Card Action, there is at least circumstantial evidence that Mr. Gillott authorized the charges on his credit card or at least have been involved, because it defies common sense that someone would pay $369,473.05 and not know something about what he or she was buying. While Mr. Gillott directly blames DIRECTV for the purchases made on his credit card, he offers no explanation of what else he thought he was paying for when he went on line and paid $369,473.05 to the National Bank.
[48] Mr. Gillott submits that DIRECTV has not presented a strong prima facie case because its only evidence is that Mr. Gillott is a principal of EONME.com Inc., a business corporation that operated a web site that included advertisements from other corporations that sold DIRECTV programming services. I agree that standing alone, the reciprocal Internet banner advertising of a company associated with Mr. Gillott is just a small matter of circumstantial evidence, and I also agree that references to withdrawn criminal charges for an alleged violation of the Radiocommunications Act against Mr. Gillott are no evidence at all, but it is not correct to say that that these are the only evidence to support DIRECTV’s claims against Mr. Gillott. For instance, DIRECTV has evidence from the material seized in the execution of the Anton Pillar Order that connects Mr. Gillott to DIRECTV, but, in any event, DIRECTV’s claim in the Credit Card Action ultimately rests on proving that Mr. Gillott directly or indirectly authorized $369,473.05 of purchases and that seems to me a serious issue to be tried and one in which DIRECTV has established a prima facie case.
[49] Mr. Gillott also says that DIRECTV does not have a case because it did not resist the chargeback procedure. In my opinion, it does not logically follow that because DIRECTV did not make a claim in the chargeback procedure it cannot pursue Mr. Gillott for the purchases that appear to have been made using his credit card. Moreover, it is alleged that it was part of the design of the fraudulent scheme that Mr. Gillott placed himself in a position that he could deny that he authorized the charges.
[50] Further, and in any event, in the Radiocommunications Action, by obtaining an Anton Pillar Order, DIRECTV has shown a prima facie claim for numerous causes of action against Mr. Gillott.
[51] As for the balance of convenience, the evidence on this point is unsubstantial from both sides. I know very little about Mr. Gillott’s financial circumstances save for the fact that he was able to pay $369,473.05 in less than a year on his personal credit card.
[52] He says that he was harmed by the execution of the Anton Pillar Order and says his businesses suffered damages in the hundreds of thousands of dollars, which may be true, but I do not see how that helps me decide the balance of convenience with respect to the treatment of the monies held by Wagman Sherkin that may belong to DIRECTV or Mr. Gillott. Further, DIRECTV gave an undertaking for damages with respect to the Anton Pillar Order, and although it may not be obliged to do so, DIRECTV has given an undertaking as to damages should Mr. Gillott be injured by the payment of $172,475.63 into court.
[53] In essence, Mr. Gillott says not much more than he has now paid a balance of $172,475.63 for services he did not authorize and the money belongs to him. He throws some mud at DIRECTV by relying on Internet and other reports about allegedly offensive billing practices and alleged high handedness as a litigant. This evidence is hearsay and has no probative value to the issues I must decide.
[54] Given its commercial size and presence, I assume that DIRECTV does not need the money held by Wagman Sherkin to carry on its business in the United States. In essence DIRECTV says not much more than that it provided goods and services, was paid for them, and it would be inconvenient and wrong to have $172,475.63 of its paid accounts taken away because Mr. Gillott could dissipate the money.
[55] Based on the paucity of evidence, in my opinion, the balance of convenience favours granting the relief sought provided that DIRECTV establishes that it has a claim to a right to a “specific fund” within the meaning of rule 45.02. If it does, then the potential dissipation of that fund tips the balance of convenience in its favour.
[56] Thus, as already indicated, in my opinion the decisive element in the case at bar is whether DIRECTV claims a right to a “specific fund” within the meaning of rule 45.02. In general, Rule 45 provides the court with authority to preserve a particular piece of property or fund: Taribu Holdings Ltd. v. Storage @ccess Technologies Inc., [2002] O.J. No. 3886 (S.C.J.).
[57] Rotin v. Lechcier-Kimel (1985), 3 C.P.C. (2d) 15 (Ont. H.C.J.) is one of the early cases about what was then the newly enacted rule 45.02. In the Rotin case, White, J. defined “specific fund” to be a reasonable identifiable fund earmarked to the litigation in issue. In Rotin, the defendant Lechcier-Kimel managed the defendant Taur Management with whom the plaintiff Rotin had advanced monies to be invested in syndicated mortgages. Rotin sued the defendants for breach of fiduciary duty and, as it happened, the defendant Taur Management had received the proceeds from the discharge of one of the syndicated mortgages. White, J. held that these proceeds were a “specific fund”. In contrast, the outstanding indebtedness on another mortgage was not a “specific fund”. The Rotin case was applied in 838388 Ontario Ltd. v. Wellington Inc. (1990), 45 C.P.C. (2d) 222 (Ont. H.C.J.) where Honey, L.J.S.C. held that in contrast to a normal deposit a “refundable deposit” was not a specific fund.
[58] The Rotin case demonstrates a theme that will reappear in other cases that I will soon mention. The theme is that rule 45.02 is not to be used simply as a mechanism to obtain security for a debt or potential indebtedness of the defendant. The principle linked to the case of Lister & Co. v. Stubbs (1890), [1886-90] All E.R. 797 (Eng. C.A.) that a plaintiff is not entitled to execution or security for a what is just a potential judgment remains the general rule; however, rule 45.02 is an exception to the general rule and is available if the plaintiff can combine an identifiable fund and a proprietary claim to those funds referable to the litigation. The result in Rotin demonstrates both aspects of the operation of rule 45.02.
[59] That the plaintiff may have a claim against the defendant and that the defendant comes into funds is not enough. To succeed under rule 45.02, the plaintiff must have a proprietary claim against the specific funds beyond their utility to satisfy his or her claim against the defendant. Thus, in Bocian v. Toronto Kitchen Equipment Ltd. 2005 CarswellOnt 6606 (S.C.J.), pursuant to the Repair and Storage Liens Act, the defendant Toronto Kitchen Equipment allegedly wrongfully sold the plaintiff Mr. Bocian’s hot dog stand. Thomas, J. held that Mr. Bocian did not have a claim under rule 45.02 for the proceeds of the sale. The proceeds of sale were not a specific fund earmarked for the litigation.
[60] In Assante Financial Management Ltd. v. Dixon (2004), 8 C.P.C. (6th) 57 (Ont. S.C.J.), defendant Dixon had an agreement to provide services on behalf of the plaintiff Assante Financial to its clients. Assante Financial alleged that Dixon breached the agreement and through his corporation began to treat its clients as his own. Assante Financial brought a motion pursuant to rule 45.02 to claim the accounts receivable that Dixon and his corporation had collected and deposited into a general bank account. Wilton-Siegel, J. held that Assante Financial had not demonstrated any identifiable fund nor even a certain amount that might be owed by the defendants. A similar type of case is Toronto Port Authority v. Canada Auto Parks-Queenspark Ltd. (2000), 3 C.P.C. (5th) 104 (Ont. S.C.J.) where the defendant operated a parking lot for the plaintiff and the plaintiff sought payment of the monthly rental receipts into court. Croll, J. held that the anticipated and unascertained rent revenue was not a specific fund and the motion pursuant to rule 45.02 was an attempt to obtain execution before judgment.
[61] In Miller v. Carley, 2006 CarswellOnt 2802, the defendant Carley won a lottery and received the proceeds only after which the plaintiff Miller claimed that he had an agreement with Carley to pool lottery tickets and to share any winnings. Miller moved pursuant to rule 49.02 for an order that the half of the lottery winnings be paid into court, but Taliano, J. held that Miller had not established a right to a specific fund. Significantly, Taliano, J. held that prior to the payment of the winnings, the lottery constituted a specific fund that was readily available as such and would have been subject to a Rule 45 order.
[62] In Stearns v. Scocchia (2002), 27 C.P.C. (5th) 339 (Ont. S.C.J.), the plaintiff Stearns sold a property to the defendant Cottingham for $120,000. Cottingham resold the property to Kennedy Rentals for $341,617.50. Both sales closed on the same day, but when Stearns found out about the resale, he sued Cottingham and the real estate agents involved in the sale for breach of fiduciary duty. A year after the closing of the transaction, Cottingham received $50,000 from Kennedy Rentals, which was paying down the mortgage that it had granted as part payment of the purchase price. Stearns moved pursuant to rule 45.02 to have the $50,000 paid into court. Smith, J. dismissed the motion and held that the mortgage money payable by Kennedy Rentals was not a specific fund “earmarked for the litigation” and that to have the money paid into court would be to grant execution of judgment before trial.
[63] In my opinion, in the circumstances of the case at bar DIRECTV is not attempting to obtain execution of judgment before trial and the circumstances satisfy the requirement that there be a specific fund. The $172,432.87 that DIRECTV seeks to be paid into court had been DIRECTV’s property. This money (and more) had been paid to it by the National Bank who reclaimed the money as part of the charge back procedure. The $172,432.87 was, in effect, taken away from DIRECTV as a part of its agreement with the National Bank. As it happens, DIRECTV also has proprietary claims and trust claims to this particular money based on unjust enrichment or conversion or perhaps waiver of tort if it is established that Mr. Gillott was a participant in the black market, gray market, or activation fraud schemes.
[64] I appreciate that Mr. Gillott says that DIRECTV has suffered no loss because it was never entitled to earn money in Canada. To my mind that is a matter that may or may not provide a defence to DIRECTV’s claim, but for present purposes, all that DIRECTV need do is establish a serious proprietary claim to these monies. Similarly, it may ultimately be established that Mr. Gillott did not authorize the charges or have any involvement in any of the alleged schemes in which case he would have a defence to DIRECTV’s claim to the money.
[65] Finally, Mr. Gillott says that DIRECTV’s case does not meet the requirements for a Mareva injunction. I need not decide the point because I have concluded that DIRECTV’s case does meet the standard for an order under rule 45.02. While a Mareva injunction and an order under rule 45.02 share several policy concerns about pre-judgment remedies, they are discrete or mutually exclusive interlocutory remedies, and a plaintiff does not have to satisfy the requirements for a Mareva injunction in order to obtain a remedy under rule 45.02. In this regard, see News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2002] O.J. No. 3705 (S.C.J.); Stearns v. Scocchia (2002), 27 C.P.C. (5th) 339 (Ont. S.C.J.); Maybank Foods Inc. Pension Plan v. Gainers Inc. (1988), 63 O.R. 687 (H.C.J.); Mutual Tech Canada Inc. v. Law, [2003] O.J. No. 1015 (Master); Leung Estate v. Leung, [2004] O.J. No. 1477 (S.C.J.).
Conclusion
[66] For the above reasons, there should be an order consolidating the Radiocommunications Action and the Credit Card Action and directing Wagman, Sherkin to pay the sum it is holding in trust in court to the account of the consolidated actions.
[67] If the parties cannot agree as to the matter of costs, they may make submissions to me in writing beginning with submissions from DIRECTV within 20 days of the release of these Reasons with Mr. Gillott’s submissions to follow within 20 days.
____________________
Perell, J.
Released: February 20, 2007
COURT FILE NO.: 06-CV-323237PD2
COURT FILE NO.: 05-CV-288535PD2
DATE: 20070220
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DIRECTV, INC.
Plaintiff
- and -
MARTYN GILLOTT
Defendant
AND BETWEEN:
MARTYN GILLOTT
Plaintiff
- and -
NATIONAL BANK OF CANADA
____________________________________
REASONS FOR DECISION
____________________________________
Perell, J.
Released: February 20, 2007
GS2
COURT FILE NO.: 06-CV-323237PD2
COURT FILE NO.: 05-CV-288535PD2
DATE: 20070220
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DIRECTV, INC.
Plaintiff
- and -
MARTYN GILLOTT
Defendant
AND BETWEEN:
MARTYN GILLOTT
Plaintiff
- and
NATIONAL BANK OF CANADA
Defendant
COUNSEL:
Ira Nishisato and Nur Muhammed-Ally for DIRECTV Inc.
Charles Wagman for Martyn Gillott
HEARING DATE: February 14, 2007
REASONS FOR DECISION
PERELL, J.
Introduction
[1] DIRECTV, Inc. is the plaintiff, and Mr. Martyn Gillott is the defendant in what I will call the “Credit Card Action” In the Credit Card Action, DIRECTV moves for an order, amongst other things: (1) requiring the law firm of Wagman, Sherkin to pay $172,475.63 that it is currently holding in trust into court; and (2) consolidating the Credit Card Action with another action in which DIRECTV is the plaintiff and John Doe, Jane Doe, eleven corporations, and 28 individuals, including Mr. Gillott, are the defendants. The short style of cause in this action is DIRECTV, Inc. v. Zed Marketing Inc. et al, but I will call it the “Radiocommunications Action.”
[2] Mr. Gillott is the plaintiff in another action, which I will call the “Chargeback Action.” The defendant in that action is the National Bank of Canada. In the Chargeback Action, Mr. Gillott brings what is described as a cross-motion for an order directing the law firm of Wagman, Sherkin to pay the money that it is currently holding in trust to Mr. Gillott. The National Bank takes no position with respect to this cross-motion and did not appear before me.
[3] As the discussion below will shortly reveal, this will all become quite complicated, quite nasty, and quite extraordinary, but the comparatively minor dispute that I must resolve is whether the Credit Card Action should be consolidated with the Radiocommunications Action, and the major dispute that I must resolve is whether the $172,475.63 currently being held by Wagman, Sherkin is to be paid to their client, Mr. Gillott, or into court.
[4] In asking that the money be paid into court, DIRECTV relies on rule 45.02 (Interim Preservation of Property- Specific Fund), but Mr. Gillott submits that the money belongs to him, and he argues that the prerequisites of rule 45.02 have not been satisfied and that DIRECTV is actually seeking a Mareva injunction, which it is not entitled to obtain.
[5] Rule 45.02 states: “Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.”
[6] Thus, the resolution of the major dispute on the motion and the counter-motion ultimately depends upon whether the $172,475.63 is a “specific fund”. DIRECTV argues that it is a “specific fund” because it is a reasonably identifiable fund earmarked for litigation or that it constitutes the very subject matter of the dispute. Another way of viewing the major dispute is that it is about whether DIRECTV’s claim to the $172,475.63 is proprietary or in personam.
[7] Mr. Gillott argues, however, that the $172,475.63 is not a specific fund and that DIRECTV has no proprietary interest in it. Rather, he submits that all DIRECTV has is a cause of action for the payment of $172,475.63 and the law of Ontario stands against prejudgment execution for this unresolved cause of action.
[8] In my opinion, to determine who is correct about the resolution of the major dispute, it is necessary to examine carefully the nature of DIRECTV’s claim and how it came about that Wagman, Sherkin is holding the $172,475.63. This means that the discussion that follows must examine the factual background to all of the Radiocommunications Action (which came first), the Chargeback Action (which came second), and Credit Card Action (which came last).
[9] Based on that examination and for the reasons that follow, I conclude that DIRECTV’s motion should succeed and Mr. Gillott’s cross-motion should be dismissed.
[10] The result is that there should be an order consolidating the Radiocommunications Action and the Credit Card Action and directing Wagman, Sherkin to pay the sum it is holding in trust in court to the account of the consolidated actions.
Discussion – Factual Background
[11] DIRECTV is the largest provider of satellite-delivered subscription television programming in the United States to customers equipped with specialized receiving equipment capable of decrypting DIRECTV’s broadcast signal.
[12] DIRECTV’s broadcasting signal penetrates Canadian territory, but it is not licensed by Canadian regulatory authorities to provide its programming to persons in Canada.
[13] In the Radiocommunications Action and in the Credit Card Action, it is alleged that Mr. Gillott unlawfully sells devices to decrypt DIRECTV’S broadcast signal in Canada, but, for present purposes, more significant is the nasty allegation that he is a party to a fraudulent scheme by which DIRECTV subscriptions are sold to Canadian residents. This scheme involves deceiving DIRECTV into believing that it is providing services to subscribers in the United States. This allegation is more significant because it concerns the monies now being held in trust by Wagman, Sherkin.
[14] The modus operandi of the alleged fraudulent scheme is that DIRECTV is given U.S. billing addresses for customers who are Canadian residents. This scheme is sometimes described as the gray market. Another scheme is known as “activation fraud,” which involves a false representation that a customer with a full priced subscription for his or her primary television is purchasing a discounted price subscription that is available for a second or third television set in the same customer’s home. The discounted subscription is actually provided to another customer at another home.
[15] Mr. Gillott flatly denies that he is involved in any of these schemes, but this is disputed by DIRECTV, which, as already noted, in the Radiocommunications Action sues Mr. Gillott as one of 41 corporate and individual defendants, and in the Credit Card Action it sues him to recover monies associated with the alleged scheme.
[16] In the Radiocommunications Action, as a remedy for the alleged illegal gray market or activation fraud activities, DIRECTV seeks a lengthy list of injunctive orders and, amongst other things, it seeks: (a) damages in the amount of 10 million dollars for breaches of the Radiocommunications Act, R.S.C. 1985, c. R.2, fraud, conspiracy, conversion, unlawful interference with economic relations and unjust enrichment; (b) an accounting of all profits from the Defendants’ wrongful activities; (c) an equitable tracing of the profits from the Defendants’ wrongful activities into the assets, property, and interests of the Defendants; and (c) a declaration that DIRECTV possesses an equitable interest in the real and personal property of the Defendants, on the basis of a constructive, resulting, implied and/or express trust.
[17] It is important to point out that DIRECTV’s claim for damages is an in personam claim but its claims for equitable tracing, or some form of trust are proprietary in nature. Its claim for unjust enrichment would support a proprietary remedy, and I add that pursuant to the doctrine of waiver of tort, the tort of conversion and perhaps the other torts pleaded would also support a constructive trust. See Serhan Estate v. Johnson & Johnson 2004 CanLII 1533 (ON S.C.), (2004), 72 O.R. (3d) 296 (S.C.J.), affd. [2006] O.J. No. 2421 (Div. Ct.), leave to appeal to the C.A. refused October 16, 2006. A constructive trust may also be available as a remedy for the wrongful appropriation of another’s property: see Soulos v. Korkontzilas 1997 CanLII 346 (S.C.C.), (1997), 146 D.L.R. (4th) 214 (S.C.C.); Bell ExpressVu Limited Partnershhip v. Souphanthong. [2005] O.J. No. 2090 (S.C.J.).
[18] Against these points, however, there is the submission of Mr. Gillott that DIRECTV has lost nothing because it was not entitled to enjoy revenues from Canadian consumers.
[19] In the Radiocommunications Action, five of the corporate defendants, including Zed Marketing Inc., and seven of the individual defendants, including, Mr. Gillott have joined together to deliver a statement of defence and counterclaim. Amongst other things, they deny any illegal activities and they assert that the black market and the gray market are not illegal in Canada. They assert that DIRECTV has no cause for complaint because it does not want subscriptions from Canadians and “to the extent Canadians in Canada subscribe to DIRECTV, DIRECTV is not being defrauded of any income. To the contrary, it is getting income that it would not otherwise be receiving.” (See statement of defence, paragraph 40.)
[20] In any event, in the Credit Card Action, Mr. Gillott states that he and his business corporations have never been involved, either directly or indirectly, in the sale of DIRECTV programming. The truth of that assertion remains to be determined, but taking him at his word, it makes what took place between August 2004 to April 2005 quite astonishing.
[21] During the nine months between August 2004 and April 2005, Mr. Gillott’s credit card with the National Bank was charged $369,473.05, all of which was paid by Mr. Gillott. Of that sum, $361,931.40 was paid for DIRECTV charges. For reasons that will become apparent later, it is important to note that DIRECTV does not require a signature from customers ordering serves by telephone or over the Internet, which is the way these charges were made against Mr. Gillott’s credit card.
[22] In the Chargeback Action Mr. Gillott admits that his credit card limit was $25,000. To keep his card in good standing, Mr. Gillott made payments several times a month. He made these payments to the National Bank online. He deposes that when he pays credit cards on line, there are no particulars of the various charges given. He says nothing about whether he received written credit card statements.
[23] In his affidavit material delivered for these motions, Mr. Gillott deposes that it was not until February 24, 2005 when he discovered that he had paid for well over $350,000 on unauthorized purchases from DIRECTV and that he paid his credit card charges not knowing that they included these substantial charges from DIRECTV.
[24] In his affidavit material and pleadings, Mr. Gillott provides only one explanation as to how it came about that $369,473.05 of DIRECTV charges were made against his credit card, and it is a nasty allegation. He alleges that DIRECTV obtained his credit card information and unlawfully and without any justification or lawful cause placed charges against his credit card in the amount of $369,473.05. By way of counterclaim in the Credit Card Action, he claims recovery of $197,041.18 of the sums allegedly improperly charged by DIRECTV.
[25] If the discovery of the allegedly unauthorized charges was a surprise to Mr. Gillott, he got another one on February 24, 2004. On that day, DIRECTV executed an Anton Pillar Order and Interim Injunction on him and certain other defendants in the Radiocommunications Action. The order was granted by Farley, J. who concluded that DIRECTV had established “an extremely strong prima facie case of piracy and conspiracy to commit piracy.” Farley, J. also concluded that DIRECTV had made out claims for civil conspiracy, conversion, unlawful interference with economic relations and unjust enrichment against the defendants.
[26] DIRECTV executed the Anton Pillar Order and among the material seized at Mr. Gillott’s home were DIRECTV receivers and numerous decryption devices.
[27] On the same day that his home was being searched under the authority of the Anton Pillar Order, Mr. Gillott reported that his National Bank credit card had been lost and that he had just discovered that numerous unauthorized charges for DIRECTV services had been made to his credit card.
[28] Mr. Gillott demanded that National Bank reimburse him for the unauthorized charges, and when they initially did not do so, on April 28, 2005, he sued the National Bank for $369,473.05. This is the Chargeback Action.
[29] Meanwhile, National Bank initiated what is called a chargeback procedure under its credit card arrangements. It charged back $172,432.87 to DIRECTV and according to the agreement between the National Bank and DIRECTV, the latter had 45 days to contest the chargeback. The chargeback process was initiated on May 6, 2005 and completed on May 9, 2005. DIRECTV did not dispute the chargeback.
[30] At this point in the account of the factual background, it is necessary to pause to make three points about the chargeback procedure. The first point is that the National Bank initiated a chargeback only for the period for January and February 2005 and the chargeback was $172,432.87 for 794 transactions on the credit card that took place during this period. The second point, already noted, is that DIRECTV did not resist the chargeback, which lack of resistance Mr. Gillott relies on as an indication that DIRECTV does not have a claim to those funds. However, the third point is that to resist the chargeback procedure initiated by the National Bank, DIRECTV would have to establish that Mr. Gillott had authorized the charges made on his credit card, but since DIRECTV did not obtain signatures for telephone and Internet purchases and Mr. Gillott was denying that he had had anything to do with DIRECTV, this obviously would be difficult.
[31] In any event, DIRECTV did not contest the chargeback, and without notice to DIRECTV, Mr.Gillott moved for summary judgment in the Chargeback Action as against the National Bank. Technically speaking, DIRECTV was not a party to that action, but the National Bank alerted DIRECTV, which appeared on the return of the motion. DIRECTV requested that the motion for summary judgment be adjourned to permit it to file materials.
[32] The motion for summary judgment, however, went ahead and on October 26, 2006, Klowak, J. made an order which contained the following terms:
1. THIS COURT ORDERS THAT the defendant National Bank of Canada shall pay Messrs. Wagman, Sherkin in Trust, the sum of $172,475.63 (the “chargeback funds”);
2. THIS COURT ORDERS THAT the chargeback funds may be held by Wagman, Sherkin in an interest-bearing account;
3. THIS COURT ORDERS THAT subject to the above payment being made, that the action and counterclaim be dismissed without costs;
4. THIS COURT ORDERS THAT Direct TV shall have until December 1, 2006 to deliver a motion seeking such relief as it deems advisable, with respect to this action and/or the chargeback funds;
5. THIS COURT ORDERS THAT in the event Direct TV fails to deliver a motion by no later than December 1, 2006, Messrs. Wagman, Sherkin shall be at liberty to disperse the chargeback funds;
6. THIS COURT ORDERS THAT if Direct TV delivers a motion in accordance with paragraphs 4 & 5 herein, such motion shall be heard on February 14, 2007, and the chargeback funds in shell not be disbursed until further order of this court or by signed agreement between Messrs. Wagman, Sherkin and counsel for Direct TV. . . .
[33] It is also worth noting that the summary judgment was on consent and was part of a settlement reached between Mr. Gillott and the National Bank in which National Bank neither paid nor received costs.
[34] In the aftermath of the Klowak, J.’s order, on November 30, 2006, DIRECTV commenced the Credit Card Action against Mr. Gillott. In that action, DIRECTV submits that Mr. Gillott’s allegations that he did not know about the DIRECTV charges are not credible. DIRECTV alleges, amongst other things, that Mr. Gillott intentionally used his credit card to subscribe for DIRECTV services for others and that he has falsely asserted that the use of the card was unauthorized. DIRECTV further submits that Mr. Gillott knew that it would be unable to assert its claim to the chargeback funds because DIRECTV does not require a signature from customers ordering services by telephone or over the Internet.
[35] It is worth noting that although Mr. Gillott’s original claim against the National Bank was for $369,473.05, the summary judgment that brought the Chargeback Action to an end was for $172,432.87. It is that sum that DIRECTV seeks in the Credit Card Action. The balance of $197,041.18 is the subject of Mr. Gillott’s counterclaim in the Credit Card Action.
[36] Before moving on to resolve the minor and major issues before me, I pause here to note that: (a) in his statement of defence in the Credit Card Action, Mr. Gillott takes the position that it remains to be determined whether it is unlawful to decode, authorize or facilitate the decoding of DIRECTV’s programming signal in Canada because it is unsettled whether s. 9 of the Radiocommunications Act is inoperative as a result as being contrary to freedom of expression under s. 2 (b) of the Canadian Charter of Rights and Freedoms; and (b) in his cross-motion, Mr. Gillott has filed an affidavit from Mr. Cator, who is the director of the defendant Zed Marketing Inc. in the Radiocommunications Action, and Mr. Cator’s evidence is that DIRECTV was a willing and active participant in the Canadian gray market and profited handsomely from that involvement. It is alleged that DIRECTV has knowingly accepted subscriptions for programming from Canadian retailers including but not limited to Zed Marketing Inc. and enjoyed revenues and paid commissions with respect to those subscriptions.
[37] I will return later to the significance of the allegation that DIRECTV was a knowing participant in the gray market, but Mr. Gillott’s position about the legal status of the gray market is, with respect, a half-truth.
[38] In Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 (CanLII), [2002] 2 S.C.R. 559, the Supreme Court of Canada ruled that s. 9(1)(c) of the Radiocommunications Act prohibited the decryption of encrypted signals emanating from U.S. and other foreign broadcasters. Because of the absence of an adequate factual record, the Supreme Court of Canada declined to decide whether s. 9(1)(c) of the Radiocommunications Act contravened the Canadian Charter of Rights and Freedoms as an infringement of freedom of expression, whether any infringement could be justified under s. 1 of the Charter, and, if not justified, whether s. 9(1)(c) should be struck out of the statute.
[39] However, the current law in Canada is that the activities of gray marketers are unlawful. That there is an uncertain Charter issue about freedom of expression does not alter that truth. Moreover, Mr. Cator’s affidavit gives an inaccurate account of the current state of the law. As he deposed, it is true that on the day that the Anton Pillar Order was executed, there was a decision of the Court of Quebec that s. 9(1) of the Radiocommunications Act violated freedom of expression under the Charter. See R. v. D’Argy, [2004] J.Q. No. 11142 (C.Q.), and it is also true that after the Anton Pillar Order, the Quebec Superior Court overruled the judgment; see [2005] J.Q. No. 2499 (C.S.Q.) and that leave to appeal to the Quebec Court of Appeal was granted; see [2005] J.Q. No. 7840 (Que. C.A.); however, my research reveals that it is not true that a decision has not yet been reached.
[40] The Court of Appeal of Quebec affirmed the judgment overturning the trial judgment in R. v. D’Argy; see [2006] J.Q. No. 11267 (Que. C.A.), and what is now pending is a motion for leave to appeal to the Supreme Court of Canada; see [2006] C.S.C.R. No. 458. The Quebec appellate courts ruled that given the nature of the charges the trial judge need not have addressed the Charter point at all.
[41] This leaves Mr. Gillott to rely on a 1997 decision of the Nova Scotia Supreme Court, R. v. LeBlanc, [1997] N.S.J. No. 476 (S.C.) where Haliburton, J. made some obiter comments about freedom of expression. However, in paragraph 11 of his judgment he stated: that the Charter issues were not extensively argued; that he did not intend to deal with them; and that the Charter issue need not be decided.
[42] In any event, for present purposes, the relevance of the legality or not of the black or gray markets is somewhat beside the point because Mr. Gillott’s ultimate position is that he was not involved and that the monies held in trust by Wagman, Sherkin belong to him because he did not authorize any purchases of services from DIRECTV.
Analysis
[43] With this factual background, I turn to the minor and major issues that must be determined on the motion and the counter-motion. As for the minor issue, I can be quite brief. In my opinion, it is appropriate pursuant to rule 6.01 of the Rules of Civil Procedure to consolidate the Credit Card Action with the Radiocommunications Action. The actions have common parties and questions of fact and law, and the claims for relief arise out of the same transactions and occurrences. The circumstances of the Credit Card Action are essentially a subset of the circumstances of the Radiocommunications Action.
[44] As for the major issue, as noted in the introduction to these Reasons for Decision, DIRECTV relies on rule 45.02. The case law establishes that the test for granting an order preserving a specific fund is threefold: (1) the plaintiff claims a right to the specific fund; (2) there is a serious issue to be tried regarding the plaintiff’s claim to the fund; and (3) the balance of convenience favours granting the relief sought. See: News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2002] O.J. No. 3705 (S.C.J.); Assante Financial Management Ltd. v. Dixon (2004), 8 C.P.C. (6th) 57 (Ont. S.C.J.); Taribu Holdings Ltd. v. Storage @ccess Technologies Inc., [2002] O.J. No. 3886 (S.C.J.).
[45] There is no doubt that DIRECTV claims the fund now held in the Wagman, Sherkin trust account; however, in my opinion, the decisive element in the case at bar is whether DIRECTV claims a right to a “specific fund” within the meaning of rule 45.02.
[46] This element is decisive because in my opinion there is a serious issue to be tried regarding DIRECTV’S claim to the monies and the balance of convenience favours granting the relief sought.
[47] In my opinion, DIRECTV has a prima facie claim against Mr. Gillott. Although Mr. Gillott denies that he authorized the purchases, over a nine-month period, there is evidence that $369,473.05 of purchases were made using his credit card and now as a result of the chargeback made by the National Bank $172,432.87 of those payments is outstanding. That is a serious claim. In the Credit Card Action, there is at least circumstantial evidence that Mr. Gillott authorized the charges on his credit card or at least have been involved, because it defies common sense that someone would pay $369,473.05 and not know something about what he or she was buying. While Mr. Gillott directly blames DIRECTV for the purchases made on his credit card, he offers no explanation of what else he thought he was paying for when he went on line and paid $369,473.05 to the National Bank.
[48] Mr. Gillott submits that DIRECTV has not presented a strong prima facie case because its only evidence is that Mr. Gillott is a principal of EONME.com Inc., a business corporation that operated a web site that included advertisements from other corporations that sold DIRECTV programming services. I agree that standing alone, the reciprocal Internet banner advertising of a company associated with Mr. Gillott is just a small matter of circumstantial evidence, and I also agree that references to withdrawn criminal charges for an alleged violation of the Radiocommunications Act against Mr. Gillott are no evidence at all, but it is not correct to say that that these are the only evidence to support DIRECTV’s claims against Mr. Gillott. For instance, DIRECTV has evidence from the material seized in the execution of the Anton Pillar Order that connects Mr. Gillott to DIRECTV, but, in any event, DIRECTV’s claim in the Credit Card Action ultimately rests on proving that Mr. Gillott directly or indirectly authorized $369,473.05 of purchases and that seems to me a serious issue to be tried and one in which DIRECTV has established a prima facie case.
[49] Mr. Gillott also says that DIRECTV does not have a case because it did not resist the chargeback procedure. In my opinion, it does not logically follow that because DIRECTV did not make a claim in the chargeback procedure it cannot pursue Mr. Gillott for the purchases that appear to have been made using his credit card. Moreover, it is alleged that it was part of the design of the fraudulent scheme that Mr. Gillott placed himself in a position that he could deny that he authorized the charges.
[50] Further, and in any event, in the Radiocommunications Action, by obtaining an Anton Pillar Order, DIRECTV has shown a prima facie claim for numerous causes of action against Mr. Gillott.
[51] As for the balance of convenience, the evidence on this point is unsubstantial from both sides. I know very little about Mr. Gillott’s financial circumstances save for the fact that he was able to pay $369,473.05 in less than a year on his personal credit card.
[52] He says that he was harmed by the execution of the Anton Pillar Order and says his businesses suffered damages in the hundreds of thousands of dollars, which may be true, but I do not see how that helps me decide the balance of convenience with respect to the treatment of the monies held by Wagman Sherkin that may belong to DIRECTV or Mr. Gillott. Further, DIRECTV gave an undertaking for damages with respect to the Anton Pillar Order, and although it may not be obliged to do so, DIRECTV has given an undertaking as to damages should Mr. Gillott be injured by the payment of $172,475.63 into court.
[53] In essence, Mr. Gillott says not much more than he has now paid a balance of $172,475.63 for services he did not authorize and the money belongs to him. He throws some mud at DIRECTV by relying on Internet and other reports about allegedly offensive billing practices and alleged high handedness as a litigant. This evidence is hearsay and has no probative value to the issues I must decide.
[54] Given its commercial size and presence, I assume that DIRECTV does not need the money held by Wagman Sherkin to carry on its business in the United States. In essence DIRECTV says not much more than that it provided goods and services, was paid for them, and it would be inconvenient and wrong to have $172,475.63 of its paid accounts taken away because Mr. Gillott could dissipate the money.
[55] Based on the paucity of evidence, in my opinion, the balance of convenience favours granting the relief sought provided that DIRECTV establishes that it has a claim to a right to a “specific fund” within the meaning of rule 45.02. If it does, then the potential dissipation of that fund tips the balance of convenience in its favour.
[56] Thus, as already indicated, in my opinion the decisive element in the case at bar is whether DIRECTV claims a right to a “specific fund” within the meaning of rule 45.02. In general, Rule 45 provides the court with authority to preserve a particular piece of property or fund: Taribu Holdings Ltd. v. Storage @ccess Technologies Inc., [2002] O.J. No. 3886 (S.C.J.).
[57] Rotin v. Lechcier-Kimel (1985), 3 C.P.C. (2d) 15 (Ont. H.C.J.) is one of the early cases about what was then the newly enacted rule 45.02. In the Rotin case, White, J. defined “specific fund” to be a reasonable identifiable fund earmarked to the litigation in issue. In Rotin, the defendant Lechcier-Kimel managed the defendant Taur Management with whom the plaintiff Rotin had advanced monies to be invested in syndicated mortgages. Rotin sued the defendants for breach of fiduciary duty and, as it happened, the defendant Taur Management had received the proceeds from the discharge of one of the syndicated mortgages. White, J. held that these proceeds were a “specific fund”. In contrast, the outstanding indebtedness on another mortgage was not a “specific fund”. The Rotin case was applied in 838388 Ontario Ltd. v. Wellington Inc. (1990), 45 C.P.C. (2d) 222 (Ont. H.C.J.) where Honey, L.J.S.C. held that in contrast to a normal deposit a “refundable deposit” was not a specific fund.
[58] The Rotin case demonstrates a theme that will reappear in other cases that I will soon mention. The theme is that rule 45.02 is not to be used simply as a mechanism to obtain security for a debt or potential indebtedness of the defendant. The principle linked to the case of Lister & Co. v. Stubbs (1890), [1886-90] All E.R. 797 (Eng. C.A.) that a plaintiff is not entitled to execution or security for a what is just a potential judgment remains the general rule; however, rule 45.02 is an exception to the general rule and is available if the plaintiff can combine an identifiable fund and a proprietary claim to those funds referable to the litigation. The result in Rotin demonstrates both aspects of the operation of rule 45.02.
[59] That the plaintiff may have a claim against the defendant and that the defendant comes into funds is not enough. To succeed under rule 45.02, the plaintiff must have a proprietary claim against the specific funds beyond their utility to satisfy his or her claim against the defendant. Thus, in Bocian v. Toronto Kitchen Equipment Ltd. 2005 CarswellOnt 6606 (S.C.J.), pursuant to the Repair and Storage Liens Act, the defendant Toronto Kitchen Equipment allegedly wrongfully sold the plaintiff Mr. Bocian’s hot dog stand. Thomas, J. held that Mr. Bocian did not have a claim under rule 45.02 for the proceeds of the sale. The proceeds of sale were not a specific fund earmarked for the litigation.
[60] In Assante Financial Management Ltd. v. Dixon (2004), 8 C.P.C. (6th) 57 (Ont. S.C.J.), defendant Dixon had an agreement to provide services on behalf of the plaintiff Assante Financial to its clients. Assante Financial alleged that Dixon breached the agreement and through his corporation began to treat its clients as his own. Assante Financial brought a motion pursuant to rule 45.02 to claim the accounts receivable that Dixon and his corporation had collected and deposited into a general bank account. Wilton-Siegel, J. held that Assante Financial had not demonstrated any identifiable fund nor even a certain amount that might be owed by the defendants. A similar type of case is Toronto Port Authority v. Canada Auto Parks-Queenspark Ltd. (2000), 3 C.P.C. (5th) 104 (Ont. S.C.J.) where the defendant operated a parking lot for the plaintiff and the plaintiff sought payment of the monthly rental receipts into court. Croll, J. held that the anticipated and unascertained rent revenue was not a specific fund and the motion pursuant to rule 45.02 was an attempt to obtain execution before judgment.
[61] In Miller v. Carley, 2006 CarswellOnt 2802, the defendant Carley won a lottery and received the proceeds only after which the plaintiff Miller claimed that he had an agreement with Carley to pool lottery tickets and to share any winnings. Miller moved pursuant to rule 49.02 for an order that the half of the lottery winnings be paid into court, but Taliano, J. held that Miller had not established a right to a specific fund. Significantly, Taliano, J. held that prior to the payment of the winnings, the lottery constituted a specific fund that was readily available as such and would have been subject to a Rule 45 order.
[62] In Stearns v. Scocchia (2002), 27 C.P.C. (5th) 339 (Ont. S.C.J.), the plaintiff Stearns sold a property to the defendant Cottingham for $120,000. Cottingham resold the property to Kennedy Rentals for $341,617.50. Both sales closed on the same day, but when Stearns found out about the resale, he sued Cottingham and the real estate agents involved in the sale for breach of fiduciary duty. A year after the closing of the transaction, Cottingham received $50,000 from Kennedy Rentals, which was paying down the mortgage that it had granted as part payment of the purchase price. Stearns moved pursuant to rule 45.02 to have the $50,000 paid into court. Smith, J. dismissed the motion and held that the mortgage money payable by Kennedy Rentals was not a specific fund “earmarked for the litigation” and that to have the money paid into court would be to grant execution of judgment before trial.
[63] In my opinion, in the circumstances of the case at bar DIRECTV is not attempting to obtain execution of judgment before trial and the circumstances satisfy the requirement that there be a specific fund. The $172,432.87 that DIRECTV seeks to be paid into court had been DIRECTV’s property. This money (and more) had been paid to it by the National Bank who reclaimed the money as part of the charge back procedure. The $172,432.87 was, in effect, taken away from DIRECTV as a part of its agreement with the National Bank. As it happens, DIRECTV also has proprietary claims and trust claims to this particular money based on unjust enrichment or conversion or perhaps waiver of tort if it is established that Mr. Gillott was a participant in the black market, gray market, or activation fraud schemes.
[64] I appreciate that Mr. Gillott says that DIRECTV has suffered no loss because it was never entitled to earn money in Canada. To my mind that is a matter that may or may not provide a defence to DIRECTV’s claim, but for present purposes, all that DIRECTV need do is establish a serious proprietary claim to these monies. Similarly, it may ultimately be established that Mr. Gillott did not authorize the charges or have any involvement in any of the alleged schemes in which case he would have a defence to DIRECTV’s claim to the money.
[65] Finally, Mr. Gillott says that DIRECTV’s case does not meet the requirements for a Mareva injunction. I need not decide the point because I have concluded that DIRECTV’s case does meet the standard for an order under rule 45.02. While a Mareva injunction and an order under rule 45.02 share several policy concerns about pre-judgment remedies, they are discrete or mutually exclusive interlocutory remedies, and a plaintiff does not have to satisfy the requirements for a Mareva injunction in order to obtain a remedy under rule 45.02. In this regard, see News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2002] O.J. No. 3705 (S.C.J.); Stearns v. Scocchia (2002), 27 C.P.C. (5th) 339 (Ont. S.C.J.); Maybank Foods Inc. Pension Plan v. Gainers Inc. (1988), 63 O.R. 687 (H.C.J.); Mutual Tech Canada Inc. v. Law, [2003] O.J. No. 1015 (Master); Leung Estate v. Leung, [2004] O.J. No. 1477 (S.C.J.).
Conclusion
[66] For the above reasons, there should be an order consolidating the Radiocommunications Action and the Credit Card Action and directing Wagman, Sherkin to pay the sum it is holding in trust in court to the account of the consolidated actions.
[67] If the parties cannot agree as to the matter of costs, they may make submissions to me in writing beginning with submissions from DIRECTV within 20 days of the release of these Reasons with Mr. Gillott’s submissions to follow within 20 days.
____________________
Perell, J.
Released: February 20, 2007
COURT FILE NO.: 06-CV-323237PD2
COURT FILE NO.: 05-CV-288535PD2
DATE: 20070220
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DIRECTV, INC.
Plaintiff
- and -
MARTYN GILLOTT
Defendant
AND BETWEEN:
MARTYN GILLOTT
Plaintiff
- and -
NATIONAL BANK OF CANADA
____________________________________
REASONS FOR DECISION
____________________________________
Perell, J.
Released: February 20, 2007
GS2