Court of Appeal for Ontario
Date: 2025-03-12
Docket: COA-23-CV-1312
Panel: Sossin, Favreau and Monahan JJ.A.
Between:
Ly Innovative Group Inc. and Meizhang Zhou
Plaintiffs (Respondents)
and
Facilitate Settlement Corporation, Kai Wu, and Jane Doe
Defendants (Appellants)
Appearances:
David A. Brooker and Daria Krysik, for the appellants
Matthew Kersten, for the respondents
Heard: 2025-02-24
On appeal from the judgment and order of Justice Paul M. Perell of the Superior Court of Justice, dated December 7, 2023, with reasons reported at 2023 ONSC 6932.
Monahan J.A.:
Overview
[1] This is an appeal from a judgment terminating a residential tenancy and awarding the respondent landlords rental arrears of over $300,000 along with $100,000 in punitive damages. The appellants argue that the motion judge erred by refusing to sign a draft order (the “Draft Order”) giving effect to the terms of a binding settlement agreement and then, instead of recusing himself, adjudicating the matter. The appellants also seek to adduce fresh evidence in support of their arguments on appeal.[^1]
[2] While I would admit the fresh evidence, I would dismiss the appeal.
[3] Contrary to the appellants’ submissions, the motion judge did not set aside the settlement agreement or adjudicate its enforceability. He merely adjourned the matter for one week in order to permit the parties to address certain concerns that he identified with the Draft Order. The motion judge had the discretion to adjourn the hearing in this manner as part of his inherent supervisory jurisdiction over the conduct of the litigation.
[4] Nor did the motion judge commit a reviewable error in hearing the contested motions when the matter came back before him a week later. In the interim, the appellants failed to vacate the premises, in breach of the settlement agreement, with the result that the respondents withdrew their consent to the Draft Order. In these circumstances, the fact that the motion judge did not ultimately sign the Draft Order resulted from the appellants’ own conduct in failing to honour the terms of the settlement agreement, rather than the improper exercise of discretion on the part of the motion judge.
[5] The motion judge did not err in proceeding to adjudicate the contested motions, as neither party raised any concerns in this regard and there is no substance to the appellants’ claim that the motion judge displayed a reasonable apprehension of bias against their position. I would therefore dismiss the appeal.
Background Facts
[6] On November 17, 2020, the respondents, as landlords, entered into a lease with the appellant Facilitate Settlement Corporation (“FSC”) as tenant, to rent a residential property in Toronto for a term of one year commencing on February 1, 2021. The appellant Kai Wu (“Wu”) is the sole director and officer of FSC and signed the lease on its behalf.
[7] Key provisions of the lease included the following:
- the monthly rent was $9,500;
- the tenant would pay $28,000 by way of a deposit, as prepayment of the first month and last two months of the tenancy;
- the only permitted use of the premises was single-family residential, and business use was expressly prohibited;
- the premises could not be sublet or used for any short-term hotel, boarding, lodging house, timesharing, or AIRBNB;
- the landlord or his representative had the right to enter the premises for the purpose of inspection on at least 24 hours’ notice; and
- the landlord had the right to enter the premises for non-payment of rent or non-performance of the tenant’s covenants.
[8] Although the lease term did not commence until February 1, 2021, FSC was given the keys to the premises on December 1, 2020 in order to ready it for occupancy, including arranging for utilities and insurance coverage. However, without the respondents’ consent (and therefore contrary to the lease), FSC changed the garage door entry code and the locks and keys for the premises.
[9] In December 2020 and again in late January 2021, representatives of the respondents attended the premises but were refused entry by the occupants. Correspondence from FSC’s then legal counsel, Stefan Juzkiw (“Juzkiw”), described the respondents’ conduct as an illegal entry and harassment of “the pregnant female tenants and infant”. Juzkiw further advised that the respondents would no longer be permitted to enter the premises and, if they attended, the police would be called.
[10] In late March 2021, the respondents’ representatives attempted to gain entry to the premises in order to conduct an inspection and to ensure that the premises were not being used for business purposes. Not only were they refused entry, but further correspondence from Juzkiw accused the landlords of harassment and threatened legal action. The appellants also stopped payments on the post-dated rent cheques they had previously provided, with the result that from March 1, 2021 onward, the appellants occupied the premises without paying rent.
[11] On April 29, 2021, the respondents commenced an application with the Landlord and Tenant Board (“LTB”) seeking an order terminating the lease for non-payment of rent, payment of rental arrears and eviction. However, when 10 months passed without activity by the LTB, the respondents abandoned their proceedings before the LTB and commenced an action against FSC, Wu and “Jane Doe”, the individual who had been described by counsel for the appellants as Wu’s wife.
[12] The appellants did not file or serve a statement of defence within the timelines prescribed by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Civil Rules”) and were noted in default. In September 2022, the respondents brought a motion for default judgement, payment of rental arrears (at that time totaling approximately $209,000), and an order for possession of the premises.
[13] In November 2022, the appellants moved to set aside the noting in default and prepared a statement of defence and counterclaim asserting that their quiet enjoyment of the premises had been disturbed by the respondents’ attempts to gain entry. Wu and “Jane Doe” also counterclaimed for damages for breach of quiet enjoyment of the rental unit and for emotional distress, pain and suffering.
[14] Following a case management conference on November 18, 2022, a schedule was set for the delivery of the parties’ respective materials, and a hearing of the matter was to take place on November 14, 2023.
Proceedings Before the Motion Judge
[15] In advance of the hearing on November 14, 2023, the motion judge noted that the appellants had not filed any of the materials required by the November 2022 case management order and directed them to comply forthwith with these requirements. He also directed the appellants’ counsel to verify the identity of both Wu and Jane Doe by producing a photocopy of a government-issued photo identification for each of them setting out their full names, addresses, and occupations.
[16] When the parties appeared before the motion judge on November 14, 2023, they advised that they had reached a settlement whereby the appellants would vacate the rented premises by November 17, 2023, if the premises were not vacated by that date the landlords could file a writ of possession with the sheriff, the landlords’ claim would be dismissed, and the appellants would make a payment to the respondents.[^2] They asked the motion judge to sign the Draft Order giving effect to the settlement.
[17] The motion judge declined to sign the Draft Order on the basis that he had not been provided with sufficient details of its terms to exercise his discretion with respect to issuing a writ of possession. He noted that the Draft Order did not finally resolve the matter, as it did not address Jane Doe’s outstanding counterclaim and she still had not been properly identified. He adjourned the matter until November 20, 2023 so that the appellants could identify Jane Doe, as well as to see if the appellants would vacate the rented premises on November 17, 2023, as required by the settlement agreement.
[18] When the matter returned before the motion judge on November 20, 2023, the parties advised that the appellants had not vacated the rented premises. Counsel for the appellants was also unable to identify Jane Doe, other than to indicate that her first name was “Bianca” and that she was Wu’s girlfriend rather than his spouse.
[19] The respondents argued that, in light of the appellants’ breach of their obligation to vacate the leased premises by November 17, 2023, there was no longer a binding settlement for the motion judge to consider. The respondents withdrew their consent to the Draft Order and advised that they wished to proceed with the contested motions.
[20] The appellants argued that they had delayed releasing the premises because they wished to ensure the motions would not go forward and claimed that the court could not proceed with the motions because the matter had been settled.
[21] In the motion judge’s view, if the appellants had not wanted the motions to go forward, all they had to do was identify Jane Doe and honour the terms of the settlement by vacating the premises before the hearing began. He therefore directed the parties to argue the motions on the merits.
Motion Judge’s Decision
[22] The motion judge rejected the evidence and argument advanced by the appellants, finding it to be contradictory, implausible, and without merit. Although Wu had claimed through his lawyer that he and his wife/girlfriend had been harassed and deprived of quiet enjoyment of the premises by the respondents’ various attempts to gain entry, Wu also admitted that neither he nor his wife/girlfriend had ever occupied the premises. In the motion judge’s view, the “notion that Jane Doe, who it pleaded to be a visitor to the premises, has a claim for breach of the covenant for quiet enjoyment is risible.” The motion judge further found that, in fact, FSC had used the premises as temporary accommodation for immigrants who were being settled in Canada, or to house FSC’s visiting foreign employees, contrary to the lease covenant that the premises be used solely for single-family residential purposes.
[23] The motion judge also found that FSC had attempted to delay and frustrate the progress of the litigation so they could continue to occupy the premises rent-free for as long as possible. This strategy resulted in the appellants occupying the premises for over two and a half years without making any rental payments, with the accumulated rental arrears then exceeding $300,000.
[24] Based on these findings, the motion judge terminated the tenancy, ordered the appellants to immediately vacate the premises, and awarded the respondents $304,054 plus interest on account of unpaid rent and $100,000 in punitive damages. In a separate set of reasons, the motion judge ordered costs on a substantial indemnity basis of $45,842.95 to be paid by the appellants or their legal counsel personally.
Grounds of Appeal
[25] The appellants argue that the motion judge erred in the following three respects:
- by improperly exercising his discretion in refusing to sign the Draft Order;
- by failing to recuse himself and proceeding to adjudicate the motions on the merits, despite having knowledge of the parties’ prior settlement; and
- by making findings and comments in his reasons which give rise to a reasonable apprehension of bias against Wu.
[26] The appellants seek to adduce fresh evidence in support of these grounds of appeal in the form of affidavits from their prior legal counsel who attended the hearings on November 14 and 20, 2023. In these affidavits, prior legal counsel assert that it was understood at the hearing on November 14, 2023 that the parties had reached a binding settlement of their dispute. Prior legal counsel also claim that on November 14, 2023, the motion judge knew the amount the appellants agreed to pay the respondents to settle the matter. They also describe certain statements which they allege were made by the motion judge and which suggested to the respondents that they would receive more money if the motions proceeded.
[27] The respondents oppose the introduction of the appellants’ fresh evidence on the basis that it fails to satisfy a number of elements of the test in Palmer v. The Queen, [1980] 1 S.C.R. 759, at p. 775. However, in the event that the appellants’ fresh evidence is admitted, they seek to adduce their own fresh evidence in the form of an affidavit from their previous counsel who attended the November 14, 2023 hearing, and who denies that the motion judge was aware of the amount to be paid under the proposed settlement and that he made the statements alleged by the appellants’ former counsel.
[28] As this court recently explained in R. v. Colley, 2024 ONCA 524, paras 62-65, there are two categories of fresh evidence. The first category is evidence that relates to a factual or legal determination made at trial, which is governed by the principles in Palmer. The second category is focused on the validity or fairness of the trial process, including claims of a reasonable apprehension of bias, to which the Palmer criteria are not applicable.
[29] The evidence proposed in this case falls into the second category. Both parties were provided with an opportunity to conduct cross examinations on the affidavits filed by the opposing parties, and I see no principled basis to refuse its admission. I would therefore admit the fresh evidence.
Standard of Review
[30] The motion judge’s refusal to sign the Draft Order, as well as the issue of whether he ought to have recused himself from hearing the motion on the merits, involve the exercise of discretion and give rise to questions of mixed fact and law. As such, they are not to be interfered with absent an error in principle or a palpable and overriding error: James Estate (Re), 2024 ONCA 623, para 47.
Analysis
(1) The motion judge did not err by refusing to sign the Draft Order
[31] The appellants argue that the motion judge erred in refusing to sign the Draft Order on November 14 or 20, 2023. They contend that, in effect, the motion judge adjudicated the enforceability of the settlement agreement as would be applicable on a motion under rule 49.09 of the Civil Rules, without any such motion being before the court. While conceding that a court has discretion to refuse to enforce a settlement agreement, they argue that this discretion is reserved for rare cases where compelling circumstances establish that the settlement is not in the interests of justice, such as where there is unconscionability, fraud, misrepresentation, or misapprehension of material facts. They assert that the motion judge was not asked to determine the enforceability of the settlement agreement, nor did he have sufficient evidence before him to embark on such an analysis.
[32] The simple answer to this first ground of appeal is that the motion judge did not adjudicate the enforceability of the settlement agreement or set it aside. Rather, he merely adjourned the matter for one week in order to permit the parties to address certain concerns he identified with the Draft Order. In particular, the motion judge questioned whether the Draft Order finally resolved all issues in the litigation, including the counterclaim from Jane Doe (whose identity remained unknown), as well as the appropriateness of issuing a writ of possession.
[33] When the matter came back before the court on November 20, 2023, the appellants had failed to vacate the premises by November 17, 2023, as required by the settlement agreement. The appellants were thus simultaneously arguing that there continued to be a binding settlement agreement in place, but that they were free to disregard its provisions.
[34] Considering first the motion judge’s decision to adjourn the matter on November 14, 2023, he did so pursuant to his inherent supervisory jurisdiction over the conduct of the litigation. I see no error in the manner in which he exercised his discretion since he identified legitimate concerns with the provisions of the Draft Order and provided the appellants with an opportunity to address those concerns through a brief adjournment.
[35] The apparent settlement of the matter subsequently collapsed because of the appellants’ failure to comply with its terms, not due to any findings or determinations by the motion judge. In these circumstances, I see no error in the refusal of the motion judge to sign the Draft Order and to require the parties to proceed with the argument of the motions.
[36] I would therefore dismiss this ground of appeal.
(2) The motion judge was not required to recuse himself because of his awareness of the parties’ prior settlement
[37] The appellants argue that there is a long-held principle of civil practice that, where a judge has knowledge of exchanged offers to settle or proposed settlement terms, that judge ought not to thereafter decide the merits of the issues in dispute.
[38] Nevertheless, neither party raised a concern over the appropriateness of the motion judge adjudicating the matter despite his knowledge of the earlier settlement. In most cases, the failure to object at trial is fatal to a later complaint on appeal: Marshall v. Watson Wyatt & Co., paras 14-15. This is not a case in which the interests of justice require the court to relieve against the failure to object.
[39] In any event, I see no merit to the appellants’ argument that the motion judge should have recused himself. They rely on r. 50.10 of the Civil Rules, which provides that a judge who conducts a pre-trial conference shall not preside at the trial of an action or the hearing of an application, except with the written consent of all parties.
[40] In Royal Bank of Canada v. Hussain, 2016 ONCA 637, para 12, leave to appeal refused, [2018] S.C.C.A. No. 68, this court explained that the rationale for r. 50.10 is to protect the integrity and usefulness of the pre-trial conference system, in which the court attempts to actively persuade litigants to reach reasonable settlements, and litigants are encouraged to speak freely, negotiate openly, and consider recommendations from the judge without prejudice to their positions in the litigation.
[41] The motion judge in this case did not conduct a pre-trial conference. However, he was made aware of the fact that the appellants were agreeable to vacating the premises and making a payment on account of rental arrears in order to settle the dispute over the lease. The appellants argue that, in these circumstances, their position on the motion was prejudiced since they were arguing that they did not have to leave the premises and were entitled to damages, contrary to what they agreed to in the settlement agreement.
[42] While I accept that there may be circumstances in which a judge who has knowledge of a settlement ought to be precluded from subsequently adjudicating the matter, no such circumstances are present in this case.
[43] Although the motion judge was aware the appellants had been prepared to compromise the position originally set out in their defence and counterclaim, the same could be said of the respondents. The motion judge knew that the respondents had been willing to settle the matter without receiving the full amount of rental arrears, whereas they were arguing on the motion that they were entitled to the entirety of the arrears. Thus, the appellants suffered no greater prejudice than the respondents, since the motion judge was aware that both parties had been prepared to compromise their claims in order to settle the dispute.
[44] In any event, both the Civil Rules and the Law Society of Ontario’s Rules of Professional Conduct encourage parties and their counsel to compromise or settle a dispute wherever reasonably possible, in order to reduce costs and delay and facilitate the early and fair resolution of disputes: see Carinci v. Carinci-Serrao, 2024 ONSC 2955, para 11. It cannot be suggested that mere knowledge on the part of the motion judge that the appellants had been prepared to compromise their claim gives rise to prejudice or bias on his part.
[45] It should also be pointed out that, whereas r. 50.10 expressly prohibits a judge who has conducted a pre-trial from then presiding at the trial, no such prohibition is included in r. 49.06, which merely prohibits parties from disclosing offers to settle in advance of the determination of the issues in dispute. Rule 49.06 applies to individuals who may communicate information to the court, as opposed to establishing a prohibition on the court: Montague v. Bank of Nova Scotia, para 35. This reflects the quite different judicial role in these different contexts.
[46] In a pre-trial conference, the judge takes an active role in attempting to foster a settlement, including making recommendations and engaging the parties in negotiations. The parties must be free to speak openly and accept or reject such recommendations, without fear that this will later compromise their position in the litigation. In contrast, the mere fact that a judge may become aware of the terms of an offer to settle does not necessarily compromise the judge’s required appearance of objectivity and impartiality and their jurisdiction to proceed to adjudicate the matter.
[47] Thus, in Richardson v. Richardson, 2019 ONCA 983, paras 35, 43-44, during the course of a trial the parties negotiated a settlement which, if accepted by the court, would have resolved the dispute. The trial judge refused to accept the proposed settlement and went on to complete the trial. This court found that the trial judge’s awareness of the settlement did not compromise his ability to continue with the trial, since that knowledge did not in itself compromise his ability to decide the matter impartially.[^3] Likewise, in Montague, the trial judge was not precluded from changing her costs order before entering her judgment after becoming aware of the terms of a settlement agreement.
[48] In this case, unlike in the case of a pre-trial conference, the motion judge did not participate in the settlement discussions. While the motion judge knew the proposed settlement contemplated the appellants vacating the premises, he also understood that the respondents had been prepared to accept a payment that was less than their full claim for rental arrears.[^4]
[49] In short, during the argument on the merits, both parties were in the same position, in that they were both arguing for a result which differed from the compromise positions they had been prepared to accept under the settlement. It is thus hardly surprising that neither party raised any concern over the appropriateness of the motion judge adjudicating the matter.
[50] Accordingly, this ground of appeal is dismissed.
(3) The motion judge’s criticism of the appellants’ conduct does not give rise to a reasonable apprehension of bias on his part
[51] The appellants argue that various findings and comments in the motion judge’s reasons reflect a lack of impartiality and suggest that he made findings based on a personal dislike for Wu rather than the evidence and the law. They point out in particular statements such as: the appellants had engaged in an abuse of the process of the court by “gaming the system”; Wu “could not keep his story straight or consistent”, which is “[t]ypical of fabricators”; the fact that this action was continued for years without identifying Jane Doe was “[i]mplausible to the point of entry into the Ripley’s Believe It or Not”; and that “Jane Doe was a chameleon stooge of Mr. Wu’s gaming of the administration of justice”.
[52] There is no doubt that the language used by the motion judge was strongly worded, perhaps unnecessarily so. That said, each of the motion judge’s impugned comments was supported by a detailed and reasoned analysis of the evidence. For example, the statement that Wu “could not keep his story straight or consistent” is supported by the motion judge’s analysis of the shifting positions taken by Wu as to whether he or Jane Doe were occupants of the premises. Similar supporting evidence is cited in respect of each of the other impugned statements set out above. Indeed, while the appellants complain about the language used, they do not identify any error in the motion judge’s factual or legal findings.
[53] As aforementioned, the appellants also seek to adduce fresh evidence in the form of affidavits from their former legal counsel, describing comments the motion judge allegedly made during the hearings on November 14 and 20, 2023. The appellants argue that these comments suggested the respondents would be successful if the matter were argued before him.
[54] The test for finding a reasonable apprehension of bias is an objective one applied against the backdrop of a strong presumption of judicial impartiality: Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839, para 133. A reasonable person, before concluding that a reasonable apprehension of bias existed in relation to a judge, would require clear evidence that the judge was not approaching the matter with an open mind fair to all parties: R. v. S. (R.D.), para 49.
[55] Even if I were to accept that the motion judge made the alleged comments the appellants describe in their fresh evidence, such comments fall far short of establishing that the motion judge failed to approach the matter with an open mind. It is commonplace for a judge to express comments on the merits of submissions being made by legal counsel. Indeed, such comments are not only appropriate, but they assist legal counsel in identifying the court’s concerns and thus better enable those concerns to be addressed. Thus, while I would admit the fresh evidence tendered by the appellants, I find that it does not support a finding of a reasonable apprehension of bias on the part of the motion judge.
[56] I would therefore dismiss this ground of appeal.
Disposition
[57] For the above reasons, I would dismiss the appeal. The respondents are entitled to their costs in the amount of $35,000, on an all-inclusive basis. For clarity, this includes costs attributable to services provided by their previous legal counsel.
Released: March 12, 2025
“L.S.”
“P.J. Monahan J.A.”
“I agree. L. Sossin J.A.”
“I agree. L. Favreau J.A.”
[^1]: The appellants originally sought to appeal the motion judge's costs order, but that issue was subsequently resolved and the costs appeal is no longer being pursued.
[^2]: The draft consent order did not provide for any payment by the appellants to the respondents. The parties differ as to whether the motion judge was advised orally as to the amount of the payment that was to be made by the appellants but, as explained below, nothing turns on this issue.
[^3]: It should be noted that this court found the trial judge erred by failing to give adequate reasons for rejecting the proposed settlement. However, in the view of the majority, this error did not compromise his ability to complete the trial, while the dissent would have set aside the trial judge’s order. The further appeal to the Supreme Court of Canada was dismissed when the parties settled the central issue in dispute, namely, the primary residence of the child: see Richardson v. Richardson, 2021 SCC 36.
[^4]: The parties differ on whether the motion judge was aware of the precise amount that the appellants were to pay the respondents as part of the settlement agreement. In my view, nothing turns on this issue since the motion judge was aware that the amount to be paid was less than the full rental arrears owing in any event. In other words, the motion judge was aware that both parties were prepared to compromise their claims with respect to the rental arrears owing, regardless of whether he knew the precise amount of the payment that was to be made.