Dai v. Zuo, 2015 ONSC 3008

CITATION: Dai v. Zuo, 2015 ONSC 3008

COURT FILE NO.: CV-14-513766

DATE: 20150612

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RUIFANG DAI

Plaintiff

– and –

QI ZUO and RONG FANG XU

Defendants

Tudor Carsten and Kate Southwell, for the Plaintiff

Michael D. Magonet, for the Defendants

HEARD: January 29, 2015

FAIETA, j

reasons FOR JUDGMENT

[1] The plaintiff’s motion arises from an action for the payment of money allegedly owed by the defendants under an agreement dated November 10, 2013. The plaintiff seeks a Mareva injunction, including an order that requires the defendants to submit to cross-examination on sworn affidavits providing particulars of their world-wide assets, because he is concerned that the defendants will remove their assets from Canada.

[2] Amongst other things, the defendants submit that the plaintiff has not established that there is a real risk that the defendants are about to remove assets from Ontario in order to avoid the possibility of a judgment. For reasons, described below, I have dismissed this motion.

Facts

[3] The plaintiff Ruifang Dai (“Ruifang”) owns a home with his wife, Rong Fang Xu (“Shelly”) in Markham, Ontario. They have resided in Markham for several years. Ruifang resides the majority of the time in the People’s Republic of China. Ruifang has a degree in business administration and has held senior executive management positions. In one position he was responsible for managing 800 people. He has negotiated contracts and invested millions of RMB in other enterprises.

[4] The defendants Qi Zuo (“Charles”) and Rong Fang Xu (“Shelly”) also reside at a home in Markham, Ontario (the “Yorkton Residence”) with their three children. The Yorkton Residence is owned by Charles.

[5] Charles and Shelly are legal and/or beneficial owners of Shanghai Kunya Industrial Co., Ltd. (“SK”). SK obtained a Business License for Enterprise as Legal Person in China and carries on business as an investment company. Charles acted as a fund manager for SK, and Shelly is listed as SK’s legal representative. Both Charles and Shelly hold shares of SK in their names. Charles admits that he arranged for Shelly to be listed as the legal representative for SK so as to conceal the involvement of the people who were actually involved with SK.

Investment Agreement – February 2012

[6] Ruifang signed a two-page agreement, dated February 1, 2012, entitled the “China Gold International United Fund Investment Agreement” with SK (the “Investment Agreement”). The defendant Charles signed the Investment Agreement as a “representative” of SK.

[7] The Investment Agreement states, in part, that:

Investing Party: Dai Ruifang …

Fund Manager: Shanghai Kunya Industrial Co. Ltd.

Form of investment: The investing party invests RMB 10 million to the China Gold International United Growth Fund which is managed by the fund manager for the investment of the Pre-IPO equity reform project of Sichuan Sanzhou Special Steel Pipe Co. Ltd. (hereinafter referred to as “Sanzhou Special Steel Pipe”). The subscription price is RMB 3.3/share.

Performance objectives: Sanzhou Special Steel Pipe project managed by the fund manager estimates to achieve the following performance objectives:

The annual profit of Sanzhou Special Steel Pipe shall be no less than 70% of expected profit;

Sanzhou Special Steel Pipe plans to go public in June of 2012;

Once the investment project is withdrawn, profit distribution shall be conducted and the principal shall be returned to the investor;

In the event that Sanzhou Special Steel Pipe is unable to achieve the performance objectives mentioned above or fails to go public within three years, the company shall buy back all shares owned by the investor with the principal plus 15% as annual returns.

Fund redemption and trading: The first year of the fund investment is a lock-in period; the investor may request redemption from the second year; starting from the second year, the investor may freely transfer the fund shares held by them.

Fund income distribution: In the event that the annual rate of return of Sanzhou Steel Pipe fails to reach 10%, the manager shall not participate in profit sharing. In the event that the annual rate of return of Sanzhou Special Steel Pipe reaches over 10%, the investor shall hold 80% of the income, and the manager shall hold 20% of the income; the manager shall hold income only once, without repetition …

Fund management fee: The annual fund management fee accounts for 2% of the investor’s investment.

Legal jurisdiction: The investment agreement is governed by the laws of the People’s Republic of China.[^1] [emphasis added]

[8] Notable features of the Investment Agreement are that:

• Ruifang could request the redemption of his shares, and thus the repayment of his Investment, after a one-year lock-in period had passed;

• If Steel Pipe fails to become a publicly traded company within three years, the “company” would purchase all of Ruifang’s shares and repay his Investment at an annual interest rate of 15%;

• neither defendant personally guaranteed the performance of SK’s obligations.

[9] On cross-examination the plaintiff admitted that prior to signing the Investment Agreement:

• the plaintiff read the Investment Agreement;

• the plaintiff was given a copy of the investment agreement between China Gold International United Investment Management Co. Ltd (“China Gold Management”) and Sanzhou Special Steel Pipe, dated February 26, 2011. China Gold Management managed the China Gold International United Fund (“February 2011 agreement”);
• the plaintiff was given a copy of an investment agreement between SK and China Gold Management, dated March 18, 2011 (“March 2011 agreement”)

[10] As with the Investment Agreement, the February 2011 agreement and the March 2011 agreement provide that an investing party is not entitled to have its shares bought back should Steel Pipe fails to go public within three years, and that the opportunity for an investor to request redemption would only be permitted after a one year lock-in period had passed.

Oral Representations

[11] The plaintiff states:

I told [Charles] that I was only interested in investing in companies that were going to go public. [Charles] assured me that, while the Investment Agreement stated that it was Steel Pipe’s objective to go public within three years, Steel Pipe would in fact go public within one year. Zuo told me that if Steel Pipe did not go public within one year of me signing the Investment Agreement, not only would SK repay the investment funds I had provided, as it was obligated to do under the Redemption Clause, but SK would also pay a compound interest rate of 15% on the repaid investment funds.

I only agreed to sign the Investment Agreement as a result of [Charles’] assurances that Steel Pipe would go public within one year, and that, if Steel Pipe did not go public within one year that SK would buy back my shares and repay my investment at a compound interest rate of 15%.[^2]

[12] On cross-examination, the plaintiff stated that he only met the defendant Charles once prior to signing the Investment Agreement and that the defendant Charles told him that:

• “… after one year, this project will go public, and then with the return of this project, between 30 to 60 per cent”;

• “If it fails to go public after one year, then SK will repay me this investment”;

• Regarding the right of redemption of shares “… yes, terms on the contract … one year after this company go public and if there is no return … if the return is not up to 10 percent, and then the SK will not charge me for the management fees”

[13] The plaintiff states that the defendant Charles offered these inducements because he was under pressure to find a new investor to take over share from an existing investor. His affidavit states:

One of SK’s existing investors … wanted to withdraw from the China Gold Fund. Facing pressure from the Existing Investor, I understood that [Charles] was very motivated to find a new investor to take over the Existing Investor’s interest.

From what [Charles] told me at the time, I understood that he offered me more beneficial terms than those on the face of the Investment Agreement in order to entice me to take over the Existing Investor’s interest in the China Gold Fund. Specifically, [Charles] promised me that if Steel Pipe did not go public within one year of me signing the Investment Agreement, SK would repay the Invested Funds I had provided and would also pay a compound interest rate of 15% on the repaid Invested Funds.[^3]

[14] The defendant Charles denies that he made such assurances to the plaintiff.

[15] The plaintiff delivered RMB 10 million (approximately CDN $2 million) to SK in February 2012 (the “Invested Funds”).

Demand for Repayment – March 2013

[16] According to the plaintiff it appears that Steel Pipe never became a publicly traded company. The defendants do not dispute this assertion.

[17] After one year had passed from the time of making his investment, the plaintiff demanded that the defendant Charles repay the Invested Funds.

[18] In or about March 2013, Ruifang demanded that Charles repay the Invested Funds with interest.

[19] The defendants repaid CDN $70,000[^4] to Shufang in the following increments:

• CDN $5,000 cheque, deposited on July 2, 2013;

• CDN $5,000 cheque, deposited on August 2, 2013;

• CDN $36,000 bank draft, deposited on October 2, 2013;

• CDN $4,000 cash, deposited on October 2, 2013;

• CDN $20,000 cheque, deposited on November 12, 2013.

Harassment and Threats

[20] Various statements were made by the plaintiff and his wife, Shufang, to obtain the return of the Invested Funds. The defendants admit makings some statements and deny making other statements. In any event, the plaintiff and his wife, Shufang, deny that they have ever harassed or physically threatened the defendants or any member of their family.

[21] The plaintiff admits that he and Shufang were persistent in their “…attempts to persuade [Charles] and [Shelly] to repay me. However, at no point did we harass or physically threaten [Charles], [Shelly] or any member of their family.” Similarly Shufang admits that she and the plaintiff began asking the defendants to repay the Invested Funds in March 2013. Shufang states that she became more persistent in her demands but that “at no time did I harass or physically threaten Charles, Shelly, or any member of their family or ‘extort’ money from [Charles]”.

[22] Shufang admits that she told the defendants that she and the plaintiff were facing financial difficulty in an attempt to evoke the defendants’ compassion.

[23] The plaintiff admits that he and Shufang threatened to sue Charles and Shelly if they did not repay him the Invested Funds.

[24] The plaintiff also admits that he threatened to report both Charles and Shelly to the “authorities for investment fraud.” Shufang threatened to report Charles for fraud in China, to report Charles to the U.S. immigration authorities and to report Charles to the police.

[25] Shufang told Shelly that if matters were not resolved, there could be issues as to who would take care of the defendant’s children.

[26] In cross-examination the plaintiff admitted that he called the defendant Shelly’s father, who lives in China, to advise him that the defendants owed money to the plaintiff and that he had been defrauded by the defendant Charles.[^5]

[27] The defendants submit that the following emails amount to a threat of physical harm if the Invested Funds are not repaid:

• If we really have to take further actions, not only you as an individual, but your whole family will be greatly affected, including you children’s future … . Things will get out of control once they get crazy, and the price you will pay will be huge;[^6]

• Make an agreement to promise repayment is the last chance for you. … Remember, don’t think people are idiots, smart people will not put up with it when the idiots get crazy. On this issue, I’ve been doing you a huge favour.[^7]

• …the list of over 30,000 names of those who commit loan frauds has been published in China, I don’t want to put your name on it. … What I am doing here is to minimize the damage on you and your family’s life.[^8]

[28] In a recorded conversation with Shufang, Shelly also expressed concern that Charles could be imprisoned as a result of his conduct.

Shelly: I said [to Charles] ... Why did you hide? If you have done something wrong, then admit you did something wrong. Pay for your mistakes. Why did you hide? He may forgive you, if you have a good attitude. On the court, you may get less years of sentence with a good attitude.

[29] The defendants allege that the plaintiff told the defendant Charles that:

• if he could not come up with arrangements to have the plaintiff’s investment repaid, then harm could come to the defendant Charles’ family who live in China;

• he would be willing to pay someone in China RMB 1 million to hurt the defendants’ parents who live in China.[^9]

[30] Despite these alleged threats of physical harm (made both before and after the signing of the Repayment Agreement):

• the defendants did not report these alleged threats of harm to the police;

• a few days after the alleged threats of harm were made the defendant Charles sent an email to Shufang arguing about the appropriate exchange rate for the Canadian dollar/Chinese Yuan in relation to a payment of made in October 2013;

• their families continued socialize with one another;

• on cross-examination the defendant Charles stated that he was friends with the plaintiff and Shufang until they sued him;

• the defendants have paid a total of only $13,000 towards the approximately CDN $200,000 owed under the Repayment Agreement. The defendant Charles stated that this amount was paid out of compassion because the plaintiff and Shufang were in financial difficulty.

Investment Withdrawal Agreement

[31] The defendant Charles states that, in response to these threats, he provided the plaintiff and Shufang, on November 7, 2013 with a draft Fund Investment Withdrawal Agreement. The draft agreement states, in part, as follows:

Party A: Dai Ruifang

Party B: Shanghai Kunya Industrial Co. Ltd.

Whereas: Shanghai Kunya Industrial Co. Ltd. (Party B) and Party A signed a China Gold International United Fund Investment Agreement on February 1, 2012, Party A and Party B hereby reach, through consultations, the following agreement on the fund investment withdrawal:

Mode of Withdrawal

Party A shall transfer its invested share fund to Party B at a transfer price of RMB 10,000,000, and in accordance with the Fund Investment Agreement, Party A shall pay to Party B a 2% management fee of RMB 200,000;

Party B shall pay RMB 2,000,000 of the transfer fee to Party A prior to December 31,2013 and RMB 3,000,000 of the transfer fee to Party A prior to March 1,2 014; RMB 5,000,000 of the transfer fee shall be paid to Party A prior to June 1, 2014.

After the transfer, all rights and interests of the fund possessed by Party A shall belong entirely to Party B.

[32] On cross-examination, Charles said that he discussed the Investment Withdrawal Agreement with Bin Zhou, who Charles characterized as the “executive controller” or “main leader” of SK. Charles admitted that the leaders of SK were under investigation during the time that he was preparing the Investment Withdrawal Agreement. Charles admitted that Bin Zhou is presently in jail, though he refused to answer if he knows why Mr. Zhou was imprisoned.

[33] The plaintiff did not approve of the draft Investment Withdrawal Agreement.

IOU

[34] On November 8, 2013, the plaintiff’s wife, Shufang, went to the defendant Charles’ office in the Markham area. They worked together to create a second document entitled “IOU.” It provided for the repayment of RMB 12,210,800 with an annual interest rate of 15 percent to the plaintiff in three installments. The plaintiff did not approve of the draft IOU.

Repayment Agreement

[35] On or about November 8, 2013, the plaintiff drafted another document, the “Repayment Agreement.” Unlike all the Investment Agreement or the draft Investment Repayment Agreement or the IOU, the Repayment Agreement made the defendants personally responsible for the repayment of the funds that the plaintiff invested with SK.

[36] The Repayment Agreement identifies the “Debtors” as Charles and Shufang. It states:

Pursuant to the China Gold International United Fund Investment Agreement signed on February 1, 2012, calculated as of November 20, 2013, the total amount owed to Dai Ruifang … is RMB 12,210,800 … of which RMB 420,000 … has been repaid. According to the circumstances at that time, the investment fund was transferred to Shanghai Kunya Industrial Co. Ltd., incorporated by [Charles] and his wife, and was received and handled by [Charles], so the outstanding debt should be repaid to Dai Ruifang by [Charles] and his wife. They have promised to make repayment installments with an annual interest rate of 15% (compound interest) as follows. The interest shall be calculated at the time of the repayment.

RMB 1,580,000 … and the interest thereupon shall be repaid before December 20, 2013;

RMB 3,000,000 … and the interest thereupon shall be repaid before February 20, 2014;

RMB 7,210,000 … and the interest thereupon shall be repaid before June 20, 2014. …

If the aforesaid commitment to the repayment schedule and the amount cannot be fulfilled, the Debtors shall be responsible for all legal liabilities and an overdue fine of 50,000 Yuan per day for each installment (conflict-free with accrued interest). After the total amount is repaid in full, the original Investment Agreement will automatically become invalid.

November 8, 2013.

[37] The Repayment Agreement was signed by the defendants on November 10, 2013 in Markham, Ontario.

Collection Efforts

[38] The defendants have not complied with the Repayment Agreement.

[39] The defendant Charles sent the following email to the plaintiff on December 19, 2013, being the day before the first payment was due under the Repayment Agreement:

Hello CEO Dai!

I’m very sorry for my late reply. I have been working hard to set things up. The IPO restart originally scheduled in December hasn’t started, so the company and all of our projects are in a predicament. There may be some problems with the repayment originally scheduled for December. Can I postpone until January 20th? I will calculate the interest accordingly.

[40] Shufang secretly recorded some of her conversations with the defendants from March 7, 2014 to May 20, 2014 using her cell phone. In cross-examination, Shufang admitted that the recordings were intended to assist with this lawsuit after she had denied this purpose. Shufang also admitted that many of her recorded statements were untruthful because she was prepared to lie if she thought that it would help her collect the money owed.

[41] Several telephone conversations were recorded by Shufang including the following conversation:

Shufang: ... You drafted the repayment agreement, based on your own ability for repayment. Did I force you? I did not force you. I agreed to whatever amount of payment you proposed. Am I right?

Charles: Yeah yeah. I was thinking things can be resolved before the spring.

Shufang: But you made the repayment schedule. I told you, as long as you could write it and obey it, we would all have less trouble.

Charles: I was thinking I would have access to my stuff in China after the spring festival. Being able to access them will allow me to take out the money to return to you ...

Shufang: Listen. Show us your attitudes first. Give me some money first. Then, we can have the rest of the conversation. See you have promised to me many times. Checks have been issued. Everything has been done. Promissory note was signed. You did it yourself. In terms of asking for your repayment, people do this and that to force you, I didn't force you for any bit.

Charles: Laughs.

Shufang: Right? Am I right?

Charles: Yes, yes.

[42] The following conversation occurred between Charles and Shufang on May 20, 2014:

Charles: Or else, well, me. Give me two more days, two more days. I, I will give you some money at the end of the month. I will find a way to give you some money. In this situation, let it be.

[43] Shelly also acknowledged the debt in her WeChat conversations with Shufang:

Shufang:

Good morning. Rongfang! Have you figured out with Zuo Qi [Charles] yet whether or not the money will be in the bank by Tuesday? When is he going to return the money to us?

Shelly:

I checked yesterday evening, the money still wasn’t there. I’ll give him a call again in the afternoon.

Shufang:

I’ll come over in a little bit. Are you there?

Shelly:

I’m at the car shop fixing my car. Shufang, I don’t have any money for you right now.

Zuo Qi [Charles] hasn’t given me living expenses.

[44] Two payments were made by the defendants. On May 20, 2014 a cheque for $3,000 was deposited by Shufang. On June 9, 2014 a cheque for CDN $10,000 was deposited by Shufang. Both cheques were drawn from a joint bank account held by the defendants.

The Defendants Moving to the United States

[45] The plaintiff states that the defendants are planning on selling the bulk of their Canadian assets and moving to the United States for the foreseeable future.

[46] In his affidavit, the defendant Charles states that he has never told anyone that he is moving to the United States and he has no interest in moving there.

[47] The defendant Charles admits that he applied for a Green Card with the US Immigration authorities in August 2013 (which was prior to the Repayment Agreement) in order to permit him to conduct business in the United States. The defendant Charles states that the application process has not been completed. The defendant Charles admits that he is the CEO of a carwash company in San Francisco that he owns in whole or part. He also admits that he has travelled on numerous occasions to the United States including staying there for two months starting in late 2013.

[48] He states that he has no intention of leaving Canada. Neither nor his wife or his children have applied to the US Immigration authorities for permission to reside in the United States.

[49] However, statements by his wife Shelly indicate that Charles told her that he plans to move to the United States and thereafter bring her and their children with him.

Shelly: No, er ..... About the States. If you are not going to apply for the green card, you need to go to USCIS, meaning that after being approved by USCIS, you need to go to USCIS to record your fingerprint. It is the same as an interview. After they have your record, you would receive a notice ... er ... meaning to give you a temporary green card.

Shufang: Ok

Shelly: Have your fingerprint done is equal to passing the interview of the USCIS.

Shufang: Oh, it means the interview of the USCIS is passed.

Shelly: It is similar to the notice of medical check of the Canadian government. As long as there is no problem with your medical check result, (people) can really...

Shufang: Ok

Shufang: Then he started his application long time ago, otherwise it can’t be that fast, within a couple of months.

Shelly: Yes, he did.

Shufang: He had a plan long time ago! So he planned it out long time ago!

Shelly: What he told me is just like what you said. He said to me that I would pick up you guys over later.

Shufang: You tell him to come back, like “I won't go no matter what”. Do not support him anymore, seriously. He will go there if you continue to support him.

Shelly: I won’t go to the States.

Shufang: Tell him. Make it clear.

Shelly: Even if I have to raise three kids here alone, I will live well.

Shelly: I told him I wouldn’t go. He told me that the reason for him to get the green card is that the status would make it easier for the program. Then he will take us up over. If he doesn’t have the status, then how could he make the program work? Who will believe him? [emphasis added]

[50] Shelly made the following admission during cross-examination:

Q. Did Mr. Zuo [Charles] tell you that in the future he would want you and your kids to join him in the States?

A. We mentioned about that during the normal chat.

Q. But you didn’t want to go to the States?

A. Well, it’s a big decision. It’s just the two of us. We have family, we have kids. Also I have a job here that is going smoothly. It’s not an easy decision.

Q. Because in your conversations with Mrs. Jo, you were pretty clear that you did not want to go to the States.

A. Yes. I did not want to go because of these reasons. [emphasis added]

[51] The plaintiff also submits that the defendant Charles wishes to move to the United States to avoid being captured by Chinese police and mob.

[52] The defendant Charles refused to answer on cross-examination whether he was under investigation in China or whether other people were after him for money. Nevertheless Charles admitted in a telephone conversation with Shufang that his business was being investigated in China and that if he was in the United States, rather than in China, there would be less likelihood that he could be caught by Chinese investigators. He stated:

Shufang: So when they were investigating, you were not even there! How did they investigate?

Charles: They investigated our foundation. Investigated the business. They think it’s better for us not to go back first. Once you go back, they can catch you all of sudden because there is no law in China. In China, you know that they can catch anyone they want.

Shufang: Right. But if you are in the US, and they think you are guilty, wouldn't they still go after you? They would still go after you?

Charles: In terms of the people in the US, it depends on whether you are directly related and if the problem is big enough. If the problem is very big, he will try to catch you. Another advantage is that we all have immigration status of other countries. It’s impossible for them to directly send 2 people over to catch someone in the US. Impossible. But then you see, if they give you some threats, and it’s something important, you will have to go back. People such as Bing Zhou, who initially came out, went back. He came to the US. [emphasis added]

[53] The defendant Charles admitted in another telephone conversation with Shufang that SK was under investigation and that other persons associated with his company had been jailed. He stated:

Shufang: So your company is closed?

Charles: No, no, no, no. They are only investigating my company. And maybe the people.

Shufang: Your company is being investigated.

Charles: Yah, it is said so. Or it’s like you got involved in these things.

Shufang: Which company? Shanghai Kun Ya?

Charles: Yes ... But the next are Houcai Xu and Boxiong Guo who were imprisoned. So it’s very harsh. Then, including the person worked for us in the banks, Bingshan Dong, he got caught. …

[54] The plaintiff also relies on statements by the defendant Shelly who said that Charles was “forced” to move to the States.

Shufang: What I am thinking about is, how did he, how did he come up with the idea of moving to the States?

Shelly: He was forced to... There is no way out! Am I right? So Shanghai. .. When he called me, I said to him that you should explain to me clearly - what is going on in Shanghai? Someone, someone I know, told me that someone is taking ... It sounds very scary you know. “Someone is taking all kinds of actions to find Zuo, Qi [Charles]” “ALL KINDS OF ACTIONS to find Zuo, Qi [Charles]”

Shufang: Oh! Your friend told you this?

Shelly: One cannot stop thinking about it after he hears this. “Both the officers and the mobs are looking for you.”

Shufang: Did he call you about that?

Shelly: I just happened to be looking for him yesterday. It sounds like, like I said, don’t you think it's scary. I said, “You should tell me what happened in Shanghai. The officers and the mobs are looking for you.” Zuo, Qi [Charles] said, “There is nothing wrong. What's the matter? Everything is fine.” I said, “What do you mean by everything is fine. Only that they are not chasing you to the States is fine.” [emphasis added]

Dissipation of Assets

[55] The plaintiff states that the defendant Charles requires funds for a carwash business that he has established in the United States.

[56] On his cross-examination Charles refused to answer whether there was a period of time when he needed funding for his American business. He also refused to answer whether at any point from February 2012 to the present he had been looking to find money to invest in his US business. He further refused to answer whether he had asked Shelly to see if she could ask her family for money to invest in the US business. Finally, he refused to disclose the current financial status of his US business.

[57] The defendant Charles did sell his family’s home at 50 Oxfordshire Street, Markham, Ontario in October 2014 for $990,000. He then took ownership of another home for his family at 4 Yorkton Blvd., Markham, Ontario on June 30, 2014 for $1,160,000.

[58] The defendant Charles purchased a second residential home at 40 Saxony Drive, Markham, Ontario in June 2014. He testified that he purchased the property for investment purposes. The plaintiff states that the defendants attempted to sell their investment property on 40 Saxony Drive, Markham, Ontario in October 2014 after receiving the motion record in this action. The property was taken off the market as a result of without prejudice arrangements made between counsel.

[59] In her conversation with Shufang, Shelly told her that Charles needed money for his US business:

Shelly: He said all his money is in the project, which can’t be taken out. He is still short of money for the project.

Shufang: He is on the top, how come he is on the top?

Shelly: His money is all in the project, which cannot be taken out yet.

Shufang: Did he set up a company? Is it him who set up a company, or...?

Shelly: No, he bought a company. He raised funds to buy a company.

Shufang: Has the company been acquired?

Shelly: He said the deal has been closed. But he still needs more money. Possible more money needs to be raised. That’s why he asked me if I could find a way out.

Shufang: Did he ask you to borrow some money?

Shelly: I said I do not have any. I won’t lend him my family's money. He did not respect me as his wife, he did not even mention the matter to me. I am the last one to know this. It is too late to help him when I knew this. The same occurred to the project. I was the last one informed. Why didn’t you tell me a year ago!

[60] In the same conversation, Shelly continued:

Shelly: I was calling my brother the other day. I said, “Did Qi Zuo [Charles] talk to you?” He said he sent him that project file to read. I said “Help him if you can, but no pressure.” What he can do to help is just to introduce some angel investors, but whether you can get it depends on how you talk to them. However, the money for the project in the States is not yours, certainly not.

Shufang: Ok, not our money, then ...

Shelly: I guess your money. He said, er,... Anyways, I will drag him back here. I can’t explain clearly, since on the phone I...

Shufang: You go ahead. Tell me. You must know something.

Shelly: I don’t know. I don’t even know what the name of that company is. He said something happened to people in charge. Anyway, I can’t really explain well. I went to your place that day. I don’t know the company’s name or location even till today. The project in the States shouldn’t be...

Shufang: Not our money?

Shelly: Not enough either. Not enough.

Shufang: How much does it need?

Shelly: It needs $5 million, which is not enough, either. Your money was far from enough. I guess it is from China.

Shufang: How much is he short of and need you to borrow?

Shelly: He said probably a few hundred thousand. [emphasis added]

[61] In her conversations with Shufang, Shelly admitted that she believed that Charles ran away with money, which he transferred to the States.

Shelly: He never told me not to pay money back. I said to him you should at least call Brother Dai [Ruifang], no matter what. Everybody thought you ran away with money and transferred the money to States.

Shufang: Yes, I really think so.

Shelly: I told him that everybody comes to me. Everybody all has the same thoughts. Even I share the same thoughts with them… [emphasis added]

Law

[62] The general rule is that execution, including judicial orders impounding assets or otherwise restricting the rights of the defendant without a trial, cannot be obtained prior to judgment.[^10] The rationale for this rule is as follows:

In broad terms, this establishes the general proposition that the court will not grant an injunction to restrain the defendant from parting with his assets so that they may be preserved in case the plaintiff’s claim succeeds. The plaintiff, like other creditors of the defendant, must obtain his judgment and then enforce it.

He cannot prevent the defendant from disposing of his assets pendente lite merely because he fears that by the time he obtains judgment in his favour the defendant will have no assets against which the judgment can be enforced. Were the law otherwise, the way would lie open to any claimant to paralyse the activities of any person or firm against whom he makes his claim by obtaining an injunction freezing their assets.[^11]

[63] One exception to that general rule is the Mareva injunction. The Supreme Court of Canada has stated:

The gist of the Mareva action is the right to freeze exigible assets when found within the jurisdiction, wherever the defendant may reside, providing, of course, there is a cause of action between the plaintiff and the defendant which is justiciable in the courts of England. However, unless there is a genuine risk of disappearance of assets, either inside or outside the jurisdiction, the injunction will not issue.[^12] [emphasis added]

[64] In Chitel v. Rothbart,[^13] at para. 57, the Ontario Court of Appeal described the test for a Mareva injunction as follows:

The applicant must persuade the court by his material that the defendant is removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of a judgment, or that the defendant is otherwise dissipating or disposing of his assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law. [emphasis added]

[65] In Ontario, the following requirements must be satisfied in order to obtain a Mareva injunction:

(1) there must be a strong prima face on the merits. If the Court had to decide the matter on the merits on the basis of the material before it, would the plaintiff succeed;[^14]

(2) the defendant has assets within the Court’s territorial jurisdiction;

(3) there is a real risk of the assets being removed before the judgment or award is satisfied.[^15] As well, it must be shown that the defendant’s purpose in removing the assets from the jurisdiction is to avoid judgment;[^16]

(4) the plaintiff must provide full and frank disclosure of all matters in his knowledge that are material for the judge to know;

(5) the plaintiff must, of course, give an undertaking in damages in case he fails in his claim or the injunction turns out to be unjustified. In a suitable case this should be supported by a bond or security, and the injunction only granted on it being given, or undertaking to be given.[^17]

Discussion

Issue #1: Is there a Strong Prima Facie Case?

[66] In my view the plaintiff has demonstrated a strong prima facie case on the underlying action.

[67] The defendants submit that there was no consideration given for the Repayment Agreement. The plaintiff submits that his agreement not to sue SK to recover the Invested Funds was the consideration given to the defendants to sign the Repayment Agreement.

[68] It is the defendants’ position that the plaintiff could not have sued SK under the Investment Agreement on the date that Repayment Agreement was signed because SK was not in default of the Investment Agreement as SK was not obliged to return the Invested Funds to the plaintiff until February 1, 2015, being the third anniversary of the Investment Agreement.

[69] The defendant relies upon the following passage from Van Kruistum v. Dool[^18]:

It has been held that forbearance from bringing legal action or relinquishing some other legal right, may constitute consideration (See Francis v. Allan (1918), 1918 CanLII 502 (SCC), 57 S.C.R. 373 (S.C.C.) and Stott v. Merit Investment Corp. (1988), 1988 CanLII 192 (ON CA), 63 O.R. (2d) 545 (Ont.C.A.)). As well, willingness to enter into a “compromise” agreement must satisfy the requirement for consideration (See British Columbia (Attorney General) v. Deeks Sand & Gravel Co. 1956 CanLII 55 (SCC), [1956] S.C.R. 336 (S.C.C.)). These principles have no application to the case at bar, however. The plaintiff had legal right to prevent the defendant from harvesting his standing crop of horseradish. Therefore, the plaintiff gave nothing to the defendant which he did not already have, his entitlement to emblements. The plaintiff’s “willingness” or “permission” to allow the defendant to harvest cannot constitute consideration. Neither do the principles of detrimental reliance nor estoppel have application to the facts at bar.[^19] [emphasis added]

[70] In my view, the Dool case is distinguishable. In that case the plaintiff’s land was sublet to the defendant. By the terms of the lease and sub-lease, the defendant was permitted to grow and harvest radishes. Just before harvesting was to occur, the plaintiff refused to allow the defendant to harvest his crop unless the defendant agreed to undertake certain work on the land after harvesting. Not surprisingly, the court found that the promise to allow the defendant to harvest his crop was no consideration as that promise had already been given.

[71] No further cases on this issue were provided by the parties.

[72] In Stott v. Merit Investment Corporation[^20] referenced in Dool above, the Ontario Court of Appeal stated:

It is one thing for a trial judge to say, well after the event, that upon a weighing of the evidence … he does not accept that there was any legal obligation on the part of Stott to answer for the debt of his customer, Guyenot. It is quite another, to transpose that finding back in time and postulate it as a fact current to the then discussion. To put it another way, it is not a question of whether the claim of Kasman as to Stott’s liability would have stood the test of a court proceeding, but whether it was a bona fide claim at the time it was asserted. It is conceded that forbearance of a non-existing claim is not forbearance at all, but this claim was not in that category in the minds of either Kasman or Stott. [emphasis added]

[73] The Court in Stott adopted the following statement from Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd:[^21]

The adequacy of consideration supporting a contract has not been the subject of court scrutiny for several centuries … The comments of the learned authors of Chitty on Contracts, 24th ed. (1977), at p. 82, are directly on point:

But if the validity of the claim is doubtful, forbearance to enforce it can be good consideration. And the same rule applies even if the claim is clearly invalid in law so long as it was in good faith and reasonably believed to be valid by the party forbearing. …

The old authority of Callisher v. Bischoffsheim (1870), L.R. 5 Q.B. 449, is cited in support. Bowen L.J. may be seen to the same effect in Miles v. New Zealand Alford Estate Co. (1866), 32 Ch. D. 266, at p. 291:

It seems to me that if an intending litigant bona fide forbears a right to litigate a question of law or fact which is not vexatious or frivolous to litigate, he does give up something of value. It is a mistake to suppose that it is not an advantage which a suitor is capable of appreciating, to be able to litigate his claim, even if it turns out to be wrong.

[74] In my view, there is a strong prima facie case for the underlying claim on the basis that the plaintiff provided consideration for the Repayment Agreement in that it appears that the plaintiff, as well as the defendants, reasonably believed that the plaintiff had a right to demand repayment of the Invested Funds within one year from the date of the Investment Agreement. Accordingly, the plaintiff gave up something of value, namely, his right to sue SK on the Investment Agreement.

[75] Further, the defendants assert that they entered the Repayment Agreement under duress as a result of the threat of violence against them and their parents.

[76] The following legal principles apply:

• an agreement obtained through duress is voidable at the instance of the party subjected to the duress unless by another agreement or through conduct, either express or implied, he affirms the impugned agreement at a time when he is no longer the victim of duress;[^22]

• duress requires proof of two elements: (1) there must be pressure that the law regards as illegitimate; and (2) the pressure must be applied to such a degree as to amount to a “coercion of the will” of the party relying on this defence;[^23]

• the following considerations apply in determining whether the pressure amounted to a “coercion of the will”: (1) did the party relying on this defence protest?; (2) was there an alternative course open to him?; (3) was he independently advised?; (4) after entering the agreement did he take steps to avoid it?[^24]

[77] Generally, the threat of any form of unlawful action will be regarded as illegitimate. On the other hand, the fact that the threat is lawful does not necessarily make the pressure legitimate.[^25]

[78] In my view the defendants’ conduct does not support the allegation that they signed the Repayment Agreement under duress. While the plaintiff and his spouse may have pestered the defendants for repayment, their conduct did not amount to duress. The defendants’ conduct indicates that they maintained a relationship with the plaintiff and his spouse after the Repayment Agreement was signed. Perhaps more significantly the alleged fear the consequences that might be invited upon them or their family if they did not enter into the Repayment Agreement is inconsistent with their failure to comply with the terms of the Repayment Agreement.

Issue #2: Is there a real risk of the defendants’ assets being removed before the judgment or award is satisfied?

[79] The plaintiff has not satisfied me that the defendants are, or will be, liquidating their assets in Ontario and moving them abroad. The plaintiff has not provided any evidence that such action occurred. The defendant Charles sold his home in Markham in 2014 (after this action was commenced) only to purchase a more expensive home for his family in Markham. The evidence shows that, in June 2014, Charles established and became the President of the Toronto Oriental Lions Club to serve the local Mandarin community. The evidence also shows that, as of July 2014, Shelly is authorized to sell in Ontario insurance for Manulife Financial through a company that she established in December 2013.

[80] The plaintiff submits that there is a real risk that the defendant Charles will remove his assets because he:

(1) he requires money to fund one or more businesses that he has in the United States;

(2) he intends to move to the United States in order to avoid capture by the Chinese police or mob.

[81] There is evidence to suggest that the defendant Charles needs “several hundred thousands of dollars” to fund his business[es]. However, there is no evidence that the defendant will fund that investment from his own personal funds as the evidence is that he has sought investors for these business[es.] The evidence shows that the defendant Charles had listed an investment property in Markham that he purchased in June 2014 for sale several months later. However there is no evidence that the defendant Charles intended to move the proceeds of sale out of Ontario.

[82] In my view, while there is evidence to suggest that the defendant Charles may move to the United States sometime in the future, there is other evidence which his wife, Shelly, and three young children will not follow. The secret telephone recordings indicate that she is unwilling to move and wishes to remain with her three young children in Canada.

[83] Further, the evidence does not support a conclusion that the defendants have moved or are moving assets out of Ontario at all or for the purpose of avoiding judgment.

Conclusion

[84] For the reasons given above I dismiss this motion without prejudice to such motion being brought again based on new evidence. If the parties are unable to agree to costs, the defendants shall serve and file their Costs Outline and written submissions, not to exceed two pages, by June 19. 2015. The plaintiff may respond by serving and filing his written submissions, not to exceed two pages, by July 3, 2015.

Mr. Justice M. Faieta

Released: June 12, 2015

CITATION: Dai v. Zuo, 2015 ONSC 3008

COURT FILE NO.: CV-14-513766

DATE: 20150612

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RUIFANG DAI

Plaintiff

– and –

QI ZUO and RONG FANG XU

Defendants

REASONS FOR JUDGMENT

Mr. Justice M. Faieta

Released: June 12, 2015

[^1]: One Chinese Yuan Renminbi has a value of about CDN $0.20. [^2]: Translated Affidavit of Ruifang Dai, sworn October 8, 2014, paras. 24 and 25. [^3]: Translated Affidavit of Ruifang Dai, sworn November 28, 2014, paras. 5 and 6. [^4]: Ruifang states that he and the defendants agreed that CDN $70,000 was equivalent to RMB 420,000. [^5]: Ruifang transcript, p. 160-161 Q801-812; p. 165 Q832-833 [^6]: Email, September 4, 2013 from the plaintiff to the defendant Charles. [^7]: Email, November 8, 2013 from the plaintiff to the defendant Charles. [^8]: Email, November 8, 2013 from the plaintiff to the defendant Charles. See Ruifang transcript, p. 105-107 Q 525-538 [^9]: First affidavit of Charles, para 14. [^10]: Lister & Co. v. Stubbs [1886-90], All E.R. 797, at p. 799. [^11]: Barclay-Johnson v. Yuill [1980], 3 All E.R. 190, at 193. [^12]: Aetna Financial Services v. Feigelmen, 1985 CanLII 55 (SCC), [1985] 1 S.C.R. 2, at para. 26. [^13]: [1988] O.J. No. 1197 (C.A.) [^14]: Robert J. Sharpe, Injunctions and Specific Performance, loose-leaf, November 2013-Rel.) (Toronto: Canada Law Book, 2013), ch. 2, at pp. 13-14. [^15]: Sibley & Associates LP v Ross et al., 2011 ONSC 2951, 106 O.R. (3d) 494, at para. 11. [^16]: Chitel, at para. 57; R. v. Consolidated Fastfrate Transport Inc. (1995), 1995 CanLII 1527 (ON CA), 24 O.R. (3d) 564 (C.A.), at para. 54. [^17]: Chitel; R. v. Consolidated Fastfrate Transport Inc.); O2 Electronics Inc. v. Sualim, 2014 ONSC 6431. [^18]: (1997), 1997 CanLII 12284 (ON SC), 35 O.R. (3d) 430. [^19]: Paragraph 36. [^20]: Stott v. Merit Investment Corporation (1988), 1988 CanLII 192 (ON CA), 63 O.R. (2d) 545 (C.A.), at para. 38. [^21]: 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726, at 743-744. [^22]: Stott v. Merit Investment Corporation,at para. 49. [^23]: Taber v. Paris Boutique & Bridal Inc. (c.o.b. Paris Boutique), 2010 ONCA 157, at para. 9. [^24]: Gordon v. Roebuck (1992), 1992 CanLII 7443 (ON CA), 9 O.R. (3d) 1 (C.A.), at para. 3. [^25]: R. v. Her Majesty’s Attorney-General for England and Wales (New Zealand), [2003] UKPC 22, at para. 16.