Executive Summary: Key Legal and Evidentiary Issues

• Whether an ex parte Mareva order should be discharged for failure to make full and frank disclosure was a central issue on the motion.
   
• Evidence that corporate funds paid for the defendant’s personal credit cards, vehicle loan, home upgrades and transfers to family members supported a strong prima facie case of misappropriation.
   
• The defendant’s claimed oral agreement entitling him to the Insurance Division’s profits was found to have no supporting evidence.
   
• Rossi’s authority as president under the company’s by-laws to appoint and instruct counsel on its behalf was accepted.
   
• Because the company is no longer a going concern, the court allowed the claim to be amended to remove it as a plaintiff on a without costs basis.
   
• A worldwide asset freeze of up to $2,550,194.88 was found to far exceed the amount still in dispute, with variation left for further submissions.
   

Facts of the case

Lee Rossi and Davide DeFrancesco are directors and 50/50 shareholders of Lincoln Gate Homes Inc. As treasurer, DeFrancesco oversaw the company’s day-to-day financials. Between 2020 and 2024, Rossi uncovered irregularities. These included payments to third parties unrelated to the company, electronic transfers to DeFrancesco, his wife and other family members, and suspicious transactions tied to DeFrancesco’s personal credit cards. He alleged that DeFrancesco paid himself dividends in much greater proportion than his 50% entitlement allowed. He also alleged that DeFrancesco used company money for personal expenses, including a personal vehicle registered under the corporation and a pool at his home. The total amount allegedly misappropriated is still being determined.

In or around August 2024, Rossi learned that DeFrancesco had listed his primary residence, his only known significant asset, for sale. On November 14, 2024, a statement of claim and a motion for injunctive relief were issued on behalf of both Rossi and the company, without leave to proceed with a derivative action. The claim seeks, among other relief, a declaration that DeFrancesco acted oppressively under s. 248 of the Ontario Business Corporations Act (OBCA). A caution was registered on title to the residence, and after two ex parte attendances, the court granted a Mareva order on December 18, 2024. The caution was later removed on consent. On January 3, 2025, a consent order gave DeFrancesco interim access to funds for ordinary living expenses and legal fees.

DeFrancesco moved under Rule 15 of the Rules of Civil Procedure to strike the claim on the basis that it was commenced without proper corporate authority. He also moved under Rule 39.01(6) to discharge the Mareva order. The motion was heard on July 30, 2026.

Policy and legislative provisions at issue

Rule 40.01 allows a party to obtain an interlocutory injunction under s. 101 of the Courts of Justice Act. Under Rule 39.01(6), a party moving without notice must make full and fair disclosure of all material facts, and failure to do so is itself grounds to set aside the resulting order. Where a lawyer starts a proceeding without the client’s authority, Rule 15.02(4) permits the court to stay or dismiss it and order the lawyer to pay costs.

Section 127(1) of the OBCA lets directors, subject to the articles or by-laws, delegate their powers to a managing director or committee. The company’s By-Law 5.05 makes the president the chief operating officer. Where no managing director has been appointed, and subject to the board’s authority, the president has general supervision of the corporation’s business and affairs. Sections 246 and 248 of the OBCA govern derivative actions and oppression claims respectively.

Reasoning and analysis

Applying the Mareva test drawn from Chitel v. Rothbart, RJR-MacDonald and Sibley & Associates LP v. Ross, the court found a strong prima facie case. The record showed that DeFrancesco took more than half the profits and had unrestricted access to the corporate accounts. He used company funds for personal credit cards, a vehicle loan and home upgrades, and transferred funds to family members. Some of his cheques went to third parties who were not company subcontractors. He also submitted personal receipts for golf memberships, restaurants and the LCBO for reimbursement, and did not disclose these uses to Rossi.

DeFrancesco argued that after the company expanded into insurance restoration work in late 2020, the partners agreed to split the business into two divisions, with each keeping the profits of his own division. He added that withdrawals required cheques signed by both men. The court did not find this compelling. Rossi denied any such agreement, and the court reasoned that a significant change to the profit-sharing arrangement would likely have been addressed formally, not by way of an oral agreement. It added that the plaintiffs did not need to prove their case at this stage, only show they would likely succeed on the material before the court.

On the risk of dissipation, the court noted that despite the withdrawal of substantial funds from the company, DeFrancesco’s only known asset was his home, which he had been trying to sell. Relying on Sibley, the court held that a risk of dissipation can be inferred from all the circumstances, including the circumstances of the fraud itself. Irreparable harm was established because, apart from the secured assets, the plaintiffs did not know what other funds DeFrancesco had, and any judgment could prove hollow. The balance of convenience also favoured the plaintiffs, who had given an undertaking as to damages. That finding was conditional on adjusting the frozen amount so DeFrancesco could keep earning income and his counsel could access some funds for legal fees.

DeFrancesco claimed five non-disclosures:

• a December 3, 2024 letter from his counsel, Miller Thomson LLP, asking for reasonable notice before any steps that might prejudice him;
• the caution already registered on title to 16 Hilltop Drive, Caledon;
• the alleged oral profit-sharing agreement;
• Rossi’s access to all corporate documents and accounts; and
• a $650,000 vendor take-back mortgage Rossi registered against 11A Marion Street, which DeFrancesco called self-dealing.

The court found no failure to disclose material facts that would have affected the outcome. In its view, the caution was adequately referenced in the motion materials, and the order targeted assets beyond the property in any event. It may have been preferable to tell the court that DeFrancesco had counsel who wanted notice, but this would not have made a difference. The motion was clearly being brought ex parte, and notifying his counsel would not have made sense when the objective was to secure the remaining assets from dissipation. Rossi disputed the oral agreement, DeFrancesco had nothing to support it, and Rossi produced documents showing that amounts were owed to other parties for financing the Marion project.

On corporate authority, the officer’s register showed Rossi had been president since March 11, 2018. Given By-Law 5.05, the court was satisfied he had authority to appoint and instruct counsel for the company. Even if he had lacked that authority, the court could grant leave for a derivative claim under s. 246 or simply allow the company to be removed. Either way, Rossi’s oppression claim under s. 248 would remain substantively the same.

DeFrancesco also sought to reduce the frozen amount and gain access to funds for substantial outstanding legal fees, without which he would be unrepresented. The court noted that the party seeking variation must prove it has no other assets available and be candid about its ability to obtain funds from other sources. It cited HMQ v. Madan, Waxman v. Waxman and the four-part test in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology. Under the existing order, DeFrancesco is restrained from dealing with his assets worldwide up to $2,550,194.88, subject to exceptions for current living expenses. In the court’s view, that amount clearly far exceeds the amount still in dispute.

Ruling and overall outcome

Rossi prevailed. The court declined to strike the claim or discharge the Mareva order, finding there is clearly an ongoing basis for the order. Because the company is no longer a going concern, Rossi was granted leave to amend the statement of claim to remove Lincoln Gate Homes Inc. as a plaintiff. Since no additional costs had been incurred, the amendment was permitted on a without costs basis. The action will continue against DeFrancesco on the facts already pleaded, with Rossi as sole plaintiff. Whether to reduce the $2,550,194.88 limit and permit access to frozen funds for legal fees was left for further submissions, to be scheduled through the trial coordinator. No monetary award was made, and costs have not yet been fixed. Rossi may file costs submissions within three weeks of the October 6, 2026 release, and DeFrancesco has two weeks after that to respond.