Court File and Parties

COURT FILE NO.: CV- 23-703216 DATE: 2023 09 21

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: KATHERINE LEE, Plaintiff - and - YUNCHANG LI, YAHONG LI and GARRY ERWIN SHAPIRO, Defendants

BEFORE: Associate Justice Todd Robinson

COUNSEL: R. Finkel and I. Ferreira, for the plaintiff, Katherine Lee A. Chang and H. Shao, for the defendants, Yunchang Li and Yahong Li M. Kestenberg, for the defendant, Garry Erwin Shapiro

HEARD: September 14, 2023 (by videoconference)

REASONS FOR DECISION (Leave for certificate of pending litigation)

[1] This action involves an inter-family dispute over ownership of the property at 111-53 Godstone Road, Toronto. The plaintiff, Katherine Lee, claims a one-half beneficial interest in the property and asserts that her ownership interest was fraudulently conveyed. Ms. Lee claims against Yunchang Li and Yahong Li (the “Li Defendants”), who are Ms. Lee’s elderly father and elder sister, respectively, for an order setting aside the alleged fraudulent conveyance of the property, declarations of trust, rectification of title, and an alternative claim for damages, among other relief. Ms. Lee also claims damages from the defendant lawyer, Garry Shapiro, for his role in the conveyance.

[2] On this motion, Ms. Lee seeks leave to issue a certificate of pending litigation (CPL) against the property, which is currently held in the names of the Li Defendants. The Li Defendants oppose the motion. Garry Shapiro takes no position.

[3] Ms. Lee alleges that she provided funds for the purchase of the property for her father, in return for which he agreed to give her a 50% beneficial ownership interest in it. The property was purchased in 2016 and ownership was put in Mr. Li’s name. The transfer instrument expressly notes his ownership capacity as “Trustee”. A trust agreement was signed by Mr. Li providing that Mr. Li held bare legal title as trustee for Mr. Li and Ms. Lee as the beneficial owners.

[4] In June 2023, Yunchang Li transferred ownership of the property to himself and his elder daughter, Yahong Li. Per the registered transfer instrument, the consideration for the transfer was $2.00. Mr. Li and/or Ms. Li retained Garry Shapiro to effect the transfer of title. The Li Defendants currently hold title as tenants in common, each having a 50% legal ownership interest.

[5] This motion originally came before Rappos A.J. on September 5, 2023. It was brought as an urgent motion due to an expiring caution that Ms. Lee had registered on title and Ms. Lee’s evidence that her father told her that Ms. Li intended to sell the property and move back to China with her parents on a permanent basis. Insufficient time had been booked for the motion, so Rappos A.J. adjourned it to this hearing, which came before me. In adjourning the motion, my colleague issued an interim order prohibiting the Li Defendants from dealing with the property, which he authorized Ms. Lee to register on title. I am advised that the order was registered and remains on title to the property.

[6] After submissions, I advised the parties that I was granting leave to issue a CPL for reasons to follow. I heard the party submissions on costs and reserved my costs decision. I now provide my reasons for granting leave and costs disposition.

Analysis

[7] My authority for granting leave to issue a CPL is found in s. 103 of the Courts of Justice Act, RSO 1990, c C.43 and rule 42.01 of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”), which permits a CPL to be issued in an action in which an interest in land is in question. Granting leave to issue a CPL is discretionary decision.

[8] There are two avenues to obtain a CPL in the case law. One involves demonstrating a triable claim to an interest in land and that the equities favour the granting of CPL. The other, which arises in cases of fraudulent conveyance, essentially involves making out a prima facie case of fraud. Ms. Lee has advanced arguments under both avenues. Her primary argument is for fraudulent conveyance.

[9] An action to set aside a fraudulent conveyance, such as this one, is an action in which an interest in land is brought into question: Fernandes v. Khalid, 2021 ONSC 190 at para. 33; The United States Securities and Exchange Commission v. Boock, 2010 ONSC 2340 at para. 9.

[10] There are two lines of case law dealing with the standard that must be met to obtain a CPL in a fraudulent conveyance action. The first requires that the plaintiff show a prima facie case of fraud. The second requires the plaintiff to meet a higher threshold of demonstrating three criteria: (i) there is a high probability that judgment will be successfully recovered in the action; (ii) the evidence supports that the transfer was made with the intent to defeat or delay creditors (with the burden lightened by evidence that the transfer was for less than fair market value); and (iii) the balance of convenience favours issuing a CPL in the circumstances of the particular case: Fernandes v. Khalid, supra at paras. 34-35.

[11] Ms. Lee has advanced an argument for why the higher standard does not apply in a case like this one where a plaintiff alleges both a fraudulent conveyance and an interest in the subject property. I need not address that argument. I am satisfied that Ms. Lee has met her burden under both standards.

[12] Each of the two standards involves considering the traditional “badges of fraud”. On the higher standard, the presence of badges of fraud may be an indicator of an intent to defeat or delay creditors. However, finding one or more badges of fraud does not mandate that an inference of fraud be drawn; rather, they must be considered in the context of the entire record: Fernandes, supra at para. 37.

[13] Traditional badges of fraud include (i) the donor continued in possession and continued to use the property as his own; (ii) the transaction was secret; (iii) the transfer was made in the face of threatened legal proceedings; (iii) the transfer documents contained false statements as to consideration; (iv) the consideration is grossly inadequate; (v) there is unusual haste in making the transfer; (vi) some benefit is retained under the settlement by the settlor; (vii) embarking on a hazardous venture; and (viii) a close relationship exists between parties to the conveyance: Indcondo v. Sloan, 2014 ONSC 4018 at para. 52 (aff’d 2015 ONCA 752); Fernandes, supra at para. 36.

[14] If the trust agreement is valid, then the effect of the transfer was to remove Yunchang Li as bare trustee, convert Mr. Li’s 50% beneficial ownership into legal ownership, and essentially transfer Katherine Lee’s 50% beneficial ownership to Yahong Li and convert it to legal ownership, all without Ms. Lee’s involvement. Although not dispositive, several badges of fraud are present in the transfer transaction based on the record before me, notably the following:

(a) the transfer occurred without notice to Ms. Lee, notwithstanding the existence of a signed trust agreement (which Mr. Li does not dispute signing) and title being held by Mr. Li as trustee;

(b) as discussed further below, the allegedly fraudulent transfer instrument appears to acknowledge the trust, including statements referring to Mr. Li as a trustee;

(c) the transfer was made at non-arm’s length between a parent and child; and

(d) the consideration for the transfer was only $2.00.

[15] There are also a number of admissions, evidentiary inconsistencies, and evidentiary gaps in the record before me that are material to my decision.

[16] Mr. Li admits in his affidavit that Ms. Lee contributed $130,000 of the purchase price, although denies that Ms. Lee contributed any further funds as she alleges. He says that Ms. Lee contributed the $130,000 as a gift “rooted in filial respect”. That is, of course, not what Ms. Lee says. Mr. Li’s affidavit repeatedly mentions the involvement of his wife, Xuelan Yan, in relevant discussions and shared understandings. However, there is no evidence from Ms. Yan on this motion, despite the fact that such evidence could have corroborated Mr. Li’s otherwise self-serving evidence, which disputes the contemporaneous paper record.

[17] The agreement of purchase and sale was entered into by both Katherine Lee and Yunchang Li. It was signed by both of them. Mr. Li says he only learned that Ms. Lee had “incorporated her name” onto the agreement of purchase and sale from his lawyer. However, he has not directly explained why he signed the agreement of purchase and sale, which plainly names Ms. Lee as a co-purchaser, if that was incorrect. Mr. Li’s affidavit speaks only to signing closing documents, which would be well afterward. Also, the agreement of purchase and sale indicates that the purchasers were represented by a real estate agent. There is no evidence on what, if anything, was discussed with that agent about the agreement of purchase and sale.

[18] Mr. Li concedes that he signed the trust agreement. He says that, because he does not read or speak English, he relied on his daughter and signed the document. His evidence is that he had no opportunity to obtain independent legal advice, he did not know he could obtain it, he has no legal knowledge, he does not understand what a trust agreement is, and Ms. Lee never explained the document to him. Mr. Li’s defence is essentially one of non est factum.

[19] The transfer instrument registered in 2016 clearly states that Mr. Li’s ownership interest is as a trustee. In the land transfer tax statements section, the trustee statement has been checked with a statement by Mr. Li representing that he is “a trustee named in the above-described conveyance to whom the land is being conveyed”.

[20] There is no evidence on what discussions, if any, occurred with Garry Shapiro, who acted for the Li Defendants in the allegedly fraudulent conveyance, prior to completing and registering the transfer to the Li Defendants. Notably, on the face of the disputed transfer instrument, the existence of the trust appears to have been known to at least Mr. Shapiro. In the land transfer tax statements section, there are two references to Mr. Li being a trustee: one under a section dealing with explanation for nominal consideration (i.e., the $2.00) and another under statements pertaining to municipal land transfer tax. Both indicate a transfer from trustee to beneficial owner. The Li Defendants have not explained why these statements were included.

[21] The Li Defendants argue that the record does not support that Mr. Li had any intent to defraud Ms. Lee. Rather, his evidence supports that he believed he was making an inter vivos gift to his elder daughter, who had dropped out of school as a teenager to take care of her parents and upon coming to Canada had resumed doing so. However, on this motion, I am not deciding whether the Li Defendants did, in fact, intend to defraud Ms. Lee or hinder or defeat her beneficial ownership interest. That is matter for trial. I am only deciding if there is a prima facie case for fraud.

[22] In my view, taken together, the foregoing facts and evidentiary gaps support a prima facie case of fraud and a reasonable inference on the record before me that the transfer was likely done with the intent to hinder or defeat Ms. Lee’s trust interest. It will be for a trial judge to determine if that is ultimately borne out on the more fulsome evidentiary record available at trial.

[23] With respect to Ms. Lee’s likelihood of success, based on the record before me, I am satisfied that the claim appears to have high probability of success. Although the Li Defendants have advanced a fairly technical argument tracing the source of funds for the purchase price, I need not address that argument. For the purposes of this motion, it is enough that Mr. Li has admitted that Ms. Lee contributed $130,000 and that he willingly signed the trust agreement. Insufficient evidence has been tendered by the Li Defendants to support their position that the admitted contribution was clearly a gift made out of filial piety. Similarly, limited evidence and no case law has been tendered by the Li Defendants supporting a meritorious non est factum defence. Mr. Li’s position on what happened in 2016 is unsupported by any contemporaneous record or evidence from other witnesses, such as his spouse, whereas the contemporaneous records before me are consistent with Ms. Lee’s position and evidence.

[24] I am also satisfied that the equities favour granting a CPL. The Li Defendants’ evidence is that they have no intention of selling the property or leaving the country. They have tendered no evidence of actual prejudice from a CPL, other than arguing their inability to deal with the property. There is a mortgage in favour of Bank of Montreal, but the Li Defendants’ affidavits do not suggest any pending renewal or refinancing that would be impacted by a CPL. In any event, the mortgage was registered one month before the transfer, so that seems unlikely.

[25] Restricting the Li Defendants’ ability to deal with the property is precisely why Ms. Lee seeks a CPL. This is an action concerning Ms. Lee’s claimed beneficial ownership interest in the property. Ms. Lee seeks a declaration setting aside the conveyance under s. 2 of the Fraudulent Conveyances Act, RSO 1990, c F.29. If successful in this action, Ms. Lee’s beneficial ownership interest in the property will be restored. Given the evidentiary gaps in the Li Defendants’ explanations and my finding that there is a prima facie case of fraud, there is a reasonable concern that not granting the CPL would permit the Li Defendants to take further steps to encumber or transfer the property. If that occurs, then it would likely defeat the primary relief sought in this action. Although damages are claimed in the alternative, I am not satisfied that damages are an adequate or appropriate remedy in the circumstances of this case. In my view, considering all the circumstances, the prejudice to Ms. Lee from denying leave for a CPL outweighs any potential prejudice to the Li Defendants from granting it.

[26] The foregoing is sufficient to grant the motion. I thereby need not address in any detail Ms. Lee’s argument that she also has a triable claim to an interest in the property by way of a purchase money resulting trust. I will say briefly that the record amply supports that Ms. Lee has a triable claim to an interest in land and, as discussed above, the equities favour granting leave for a CPL. The very fact of conflicting sworn testimony from the parties on the purpose of the acknowledged $130,000 payment and Mr. Li’s execution of the trust agreement only serves to highlight the triable nature of Ms. Lee’s claim. A trial may well be needed to determine whose version of events is correct.

Costs

[27] Ms. Lee seeks her substantial indemnity costs of the motion in the amount of $34,086.94, including HST and disbursements. Alternatively, Ms. Lee seeks her partial indemnity costs of $25,559.96. The Li Defendants submit that costs should be no more than $10,000.00 on a partial indemnity basis, which is slightly higher than what the Li Defendants would have sought as set out in their own costs outline.

[28] Costs of a motion are discretionary. I am afforded broad discretion in s. 131 of the Courts of Justice Act, RSO 1990, c. C.43 and subrule 57.01(1) of the Rules to fashion a costs award that I deem fit and just in the circumstances of this case. In particular, subrule 57.01(1) sets out a non-exhaustive list of factors to be considered in exercising my discretion. Subrule 1.04(1.1), which is also applicable, requires that I make orders that are proportionate to the importance and complexity of the issues and to the amount involved in the proceeding.

[29] Ultimately, costs awards are to reflect what the court views as a fair and reasonable amount in the particular proceeding that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant: Davies v. Clarington (Municipality), 2009 ONCA 722 at para. 52; Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 OR (3d) 291 (CA) at paras. 26 and 38.

[30] I deal first Ms. Lee’s claim for costs on a substantial indemnity scale. Costs awards on an elevated scale are justified in only narrow circumstances, namely where an offer to settle is engaged or where the losing party has engaged in behaviour worthy of sanction. Substantial indemnity is the elevated scale of costs normally resorted to when the court wishes to express its disapproval of the conduct of a party to the litigation: Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766 at para. 8.

[31] No offer to settle is engaged here. Ms. Lee submits that substantial indemnity costs are warranted by reason of the Li Defendants’ conduct, which is characterized as being “reprehensible and outrageous.” However, the conduct primarily complained about is the conduct giving rise to this action: Yunchang Li transferring to property to himself and Yahong Li as tenants in common, effectively transferring Ms. Lee’s interest to Ms. Li. In my view, it would be unfair to consider the Li Defendants’ pre-litigation conduct when deciding costs of this motion in the absence of final determinations on the merits, which I have not made. In granting leave to issue the CPL, I have not decided whether a fraud was perpetrated on Ms. Lee. That is a matter still to be determined. All I have decided is that Ms. Lee has made out a prima facie case for fraud.

[32] With respect to conduct on the motion, I agree with Ms. Lee’s submission that additional costs were incurred by the manner in which the Li Defendants responded to the motion. However, I am unable to agree that their conduct in responding to this motion rises to the level of warranting sanction by the court. Partial indemnity is the correct scale.

[33] The Li Defendants submit that the hours and rates claimed for Ms. Lee are high. Indeed, the total hours claimed for Ms. Lee’s lawyer are approx. 2.5 times higher than those claimed by the Li Defendants. Nearly half of that time was incurred by Ms. Lee’s senior lawyer, who is a 1979 call. That is mitigated somewhat by the reduced rate claimed. Ms. Lee also submits that her actual hours spent are higher than reflected on the costs outline, since the costs outline was not updated following the original return of this motion before Rappos A.J. The rate claimed for Ms. Lee’s senior lawyer is not substantially higher than the rate claimed for both of the Li Defendants’ lawyers, who are a 2020 and 2021 call, despite the significant experience gap by year of call. I thereby find the rates claimed by both sides to be comparable.

[34] I agree with Ms. Lee’s submission that the issues on this motion were very important to Ms. Lee. They were also important to the Li Defendants. Ms. Lee feels that her one-half beneficial interest in the property has been fraudulently transferred to her sister in complete disregard for Ms. Lee’s financial and other contributions to the property and on her parents’ behalf. Conversely, the Li Defendants maintain that the trust agreement relied upon by Ms. Lee is invalid and that the transfer was proper. They deny any fraud. This motion represents the first battleground on whether the conveyance was fraudulent. It is not surprising that both sides dug in their heels.

[35] The issues on the motion were also more complex than many CPL motions, both factually and legally. The parties’ positions are quite factually divergent and contested. Some aspects of the evidence, such as the tracing of purchase funds, were nuanced. Legal arguments about CPL entitlement were well-prepared and supported by helpful research on both sides.

[36] In that context, I accept that the perceived urgency, importance of the issues, and complexity warranted both involvement of senior counsel and heightened hours to prepare appropriate materials and conduct necessary research into the two alternative bases pursued for a CPL. I also accept that additional and avoidable costs were incurred as a result of errors in the responding materials, seemingly raised by Ms. Lee’s lawyers. The Li Defendants appear to have addressed them by serving a fresh responding motion record with fresh, revised affidavits. A supplementary affidavit was also ultimately required to explain the errors as well as explain how the Li Defendants were able to swear affidavits in English when both of their affidavits confirm that they speak and read little to no English.

[37] Nevertheless, taking everything into consideration, I agree with the Li Defendants that Ms. Lee’s total costs claim is still high. In addition, a reduction is appropriate to account for the Li Defendants’ costs thrown away from the last return before Rappos A.J. The adjournment to this hearing resulted from Ms. Lee under-booking the last return for only thirty minutes. That was clearly insufficient time, particularly for a motion of this nature. Frankly, there are few opposed motions that can realistically be argued in thirty minutes, particularly since booked time also includes costs submissions and questions from the bench.

[38] Parties are required to consult with each other on a return date that is convenient to all parties and must book an appropriate amount of time based on a realistic estimate of the time required by all parties for argument. That requirement is expressly set out in para. 15 of Consolidated Practice Direction for Civil Actions, Applications, Motions and Procedural Matters in the Toronto Region. That did not happen here. The resulting adjournment was, in my view, inevitable. Had an appropriate amount of time been booked, neither the adjournment nor the interim order would have been necessary. I acknowledge that the impact is somewhat mitigated by Ms. Lee not seeking any additional costs for the further hearing before me.

[39] For these reasons, having weighed the factors in subrule 57.01(1), I find that the fair and reasonable amount of costs payable by the Li Defendants to Ms. Lee in respect of this motion is $19,500.00, inclusive of HST, plus disbursements of $1,065.85, for a total of $20,565.85.

Disposition

[40] For the foregoing reasons, I granted leave to the plaintiff to issue a CPL against the property. The interim order of Rappos A.J. shall be vacated from title immediately upon the CPL being registered. Costs of the motion are hereby fixed in the amount of $20,565.85, including HST and disbursements, payable by the defendants, Yunchang Li and Yahong Li, to the plaintiff within thirty (30) days. Order accordingly.

ASSOCIATE JUSTICE TODD ROBINSON DATE: September 21, 2023