Court File and Parties

COURT FILE NO.: CV-18-00611373-00CL

DATE: 20190802

SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

RE: HZC CAPITAL INC., LALU CANADA INC., BIRCHMOUNT LAWRENCE LIMITED PARTNERSHIP, MSR LALU JACKSON POINT INC., LALU 26 BENSON HOLDINGS INC., LALU 10366 YONGE STREET HOLDINGS INC., 1053 16TH AVENUE DEVELOPMENT INC., MCMURRAY MUSKOKA DEVELOPMENTS INC., and 2603774 ONTARIO INC.

Plaintiffs

AND:

GERARD LEE, TONGFANG (CATHY) JIANG, 1435501 ONTARIO INC., 2505805 ONTARIO INC., MASONIC EAST INC., MICHAEL BOWERING, 1483008 ONTARIO INC., MUTUAL GAIN PROJECT MANAGEMENT INC., DOMENIC DI GIRONIMO, ULTIMATE GOLF CENTERS INC. (c.o.b. ULTIMATE DEVELOPMENTS), ALDO PICHETTI, URBAN VISTA DEVELOPMENTS INC., ANTONIO PIAZZA, 2532298 ONTARIO INC., PHILIP LEFKO and LEFKO LAW PROFESSIONAL CORPORATION

Defendants

BEFORE: PATTILLO J.

COUNSEL: Chris G. Paliare, Kris Borg-Olivier and Hailey Bruckner for the plaintiffs;

Brendon Wong, Ian Matthews, Teagan Markin and Breanna Needham for the defendants Gerard Lee and 2505805 Ontario Inc.;

M. Donsky and S. Green for the defendants Dominic Di Gironimo, Ultimate Golf Centres Inc. (c.o.b. Ultimate Developments) and Urban Vista Developments Inc.;

Justin Necpal for the defendants Tongfang (Cathy) Jiang, 1435501 Ontario Inc. and Masonic East Inc.

HEARD: July 23 and 24, 2019

ENDORSEMENT

Introduction

[1] This is a motion by the plaintiffs for an asset freezing order (Mareva injunction) against the defendants Gerard Lee, 2505805 Ontario Inc., Dominic Di Gironimo, Ultimate Golf Centres Inc. (c.o.b. Ultimate Developments), Urban Vista Developments, Tongfang (Cathy) Jiang, 1435501 Ontario Inc. and Masonic East Inc. (together the “Responding Defendants”) arising out of alleged fraudulent activities by the said defendants against the plaintiffs in respect of some or all of six different development projects (the “Motion”).

[2] On the initial return of the Motion on March 7, 2019, on short notice, the plaintiffs and the Responding Defendants consented to an interim Order prohibiting the Responding Defendants along with their employees, servants, officers and directors from dealing with their assets in any way except as set out in the Order until further order of the court at the return of the Motion. The preamble to the Order notes that the consent was a compromise to give all parties time to respond to the Motion on a mutually acceptable timetable.

[3] Since the March 7, 2019 Order, in addition to the four-volume motion record initially filed by the plaintiffs, in response, the Lee defendants have filed a 10-volume motion record, the DiGeronimo defendants a two-volume motion record and the Jiang defendants a single volume motion record. In total, there are 10 affidavits from the parties and non-parties, transcripts from seven cross-examinations and numerous documents.

[4] At the end of the argument, I dismissed the Motion against the defendants Tongfang (Cathy) Jiang, 1435501 Ontario Inc. and Masonic East Inc. for reasons to follow.

[5] For the following reasons, I also dismiss the plaintiffs’ Motion against all of the remaining Responding Defendants. Simply put, I do not find, on the evidence before me, that the plaintiffs have met the test required for a Mareva injunction to issue.

Background

a) The Parties

[6] The plaintiff HZC Capital Inc. (“HZC”) is a Canada Business Corporations Act (“CBCA”) company and serves as an investment vehicle for monies from China. HZC is owned and controlled by Lei (Eric) Guo (“Guo”), Yanfeng (Kevin) Fan (“Fan”) and Cheng (Chenny) Ming (“Ming”), who have worked together in the investment business in China for years.

[7] The plaintiff Lalu Canada Inc. (“Lalu”) is also a CBCA company which is owned 75% by HZC. Lalu was incorporated by the principals of HZC to invest in the Canadian real estate development industry. The initial directors of Lalu were Guo, Fan, Ming and the defendant Tongfang (Cathy) Jiang (“Jiang”). Jiang was terminated as a director in February 2018.

[8] At the outset of the relationship between HZC and Lee, Lee was granted a 50% interest in what became Lalu and a seat on the Board. Lee directed that the shareholding and director’s position should be held by Jiang. In the end, Jiang, ended up owning 25% of Lalu.

[9] The remaining plaintiffs are either subsidiaries or limited partnerships through which Lalu operates. They own the six real estate developments which the plaintiffs say were victims of the defendants’ alleged fraud.

[10] The defendant Gerard Lee (“Lee”) has lived permanently in Canada since 1981 and is a Canadian citizen. He is married to Jiang and they live in Markham, Ontario with their young son. Lee has a BSC from Western University in London, Ontario, and spent six years with the Canadian Armed Forces after which he began a business career. For the past 10 years he has focused on real estate development in Canada.

[11] Lee became involved with Lalu in or around July 2015. In November 2015, he was named CEO of Lalu and on or about February 16 2016, he and Lalu entered into a Consulting Services Agreement (the “Lee Consulting Agreement”). Lee was terminated from Lalu on February 26, 2018. The defendant 2505805 Ontario Inc. (“250”) is owned and controlled by Lee and is a party to the Lee Consulting Agreement. Lee also owns and controls the defendant 2559037 Ontario Inc. (“255”) which he says was incorporated to receive his acquisition fees.

[12] Jiang, as noted, is Lee’s wife. She is a 25% shareholder in Lalu and was a director of Lalu from 2015 to February 2018. She is also the sole shareholder of the defendant 1435501 Ontario Inc. (“143”), and a director along with her husband. 143 was founded by Lee in 2000. Since approximately 2012, 143’s primary business has been seeking out real estate financing opportunities and then seeking investors for those deals. Jiang is also the sole shareholder and director of the defendant Masonic East Inc. (“Masonic East”) which was originally involved in the apparel importing business.

[13] The defendant Dominic Di Gironimo (“Gironimo”) lives in Maple, Ontario and is a graduate of the Schulich School of Business at York University. He was in the land development business for 32 years prior to joining Lalu at Lee’s request on April 3, 2017 as Chief Operating Officer (COO). Later in April 2017 he was named Acting Chief Financial Officer because Lalu’s CFO had resigned. On June 26, 2017, Di Gironimo and Lalu entered into an Independent Contractor Agreement (the “Di Gironimo Agreement”). Di Gironimo resigned from Lalu on March 12, 2018.

[14] The defendants Ultimate Golf Centers Inc. (“Ultimate Golf”) and Urban Vista Developments Inc. (“Urban Vista”) are owned and controlled by Di Gironimo. Urban Vista was incorporated on July 19, 2017 with the intention that it could provide project management and real estate development services to Lalu and others.

b) Other Individuals/Entities

[15] Shoaib Khan (“Khan”) was a Vice President and the General Manager of Lalu. He caused both 255 and 2560124 Ontario Inc. (“256”) to be incorporated through his sister-in-law, Saira Malik on Lee’s instructions. 256 is owned equally by Lee and Khan. Khan has settled with the plaintiffs and has agreed to cooperate.

[16] Pradeep (Sunny) Matharoo (“Matharoo”) is the owner, a director and the President of MSR Holdings Inc. (“MSR”) which is engaged in the business of commercial real estate investment and development. Matharoo had previously worked with Lee on various real estate development projects before he joined Lalu. On the instructions of Lee, Matharoo was involved in the incorporation of 255. Matharoo has also settled with the plaintiffs and agreed to cooperate.

[17] Crystal Skyline was a sole proprietorship owned by Luanxi Zhang whose father is a friend of Lee’s. It has since been discontinued.

c) The Plaintiffs’ Claims

[18] The plaintiffs claim that they are the victims of a complex commercial fraud perpetrated by the Responding Defendants across six real estate development projects in which the plaintiffs have an ownership interest, specifically: the Lawrence Project; the Jackson’s Point Project, the Yonge/Benson Project, the 16^th Avenue Project, the Muskoka Project and the Vaughan Project. The plaintiffs submit that the defendants misappropriated funds from them by way of wrongly receiving illicit payments in the form of acquisition fees, project management fees and inflating the purchase price of properties.

[19] The plaintiffs’ claims are for breach of contract, breach of fiduciary duty and statutory duties, conspiracy and fraud.

d) The Projects

[20] Although the plaintiffs’ claims relate to the above six mentioned projects, before me they relied on only four: Jackson’s Point, Yonge/Benson, 16^th Avenue and Vaughan.

i. Jackson’s Point

[21] The Jackson Point project involved the purchase of property on Lake Simcoe in the Town of Georgina followed by the subsequent sale of part of the property to the municipality for a marine unit and the development of the remaining portion into a condominium and retail complex.

[22] Lee, through 143, sourced the property and developed the concept before joining Lalu. He began working with MSR in early 2015. On October 14, 2016, 143, on behalf of Lalu, entered into an agreement for the purchase and sale for 20 Bonnie Blvd. at Jackson’s Point for a purchase price of $4,350,000. The purchase closed on January 20, 2017. Lalu paid the acquisition costs, part of which included a $250,000 acquisition fee to MSR which was paid to MSR on January 31, 2017. On Lee’s instructions, on March 2, 2017, MSR paid the $250,000 to 255.

[23] On January 1, 2017, Lalu entered into a management agreement with MSR for Jackson’s Point which provided, among other things, that MSR would receive a fee of $20,000 per month. Matharoo’s evidence is that he had originally agreed with Lee on a fee of $10,000 per month but Lee subsequently told him to charge $20,000 and pay the extra amount back to Lee. From January 2017 to September 2017, MSR paid Lee personally a total of $85,000.

[24] Lee denies that the monies he received were kickbacks. He says the monies were for a design build contract he assigned to MSR as well as a $10,000 commission. Matharoo disagrees.

ii. Yonge/Benson

[25] The Yonge/Benson project involves two adjacent properties located at 26 Benson and 10366 Yonge Street in Toronto.

[26] In early 2017, MSR, which owned 26 Benson through two subsidiaries, approached Lee about selling the property. MSR wanted $4.1 million. Lee’s evidence is that his acquisition fee would be $235,000 which he would split 60/40 with MSR. He told MSR that it could either absorb his fee of $125,000 themselves or add it to the purchase price and pass it along to the purchaser. MSR did the latter.

[27] On April 27, 2017, Lalu entered into an agreement of purchase and sale to purchase 26 Benson for $4.225 million. The increase in the purchase price of $125,000 from $4.1 to $4.225 million represented Lee’s 60% portion of the agreed acquisition fee. The transaction closed on May 11, 2017. On May 17, 2017, MSR paid $141,250 ($125,000 plus HST) to 255.

[28] On May 8, 2017, MSR entered into an agreement of purchase and sale to purchase 10366 Yonge Street for $11,900,000. On December 4, 2017, MSR assigned its agreement of purchase and sale to the plaintiff Lalu 10366 Yonge Street Holdings Inc. in exchange for an assignment fee of $500,000. Lee says the $500,000 was considered an acquisition fee and like 26 Benson, Lee was to receive 60% or $300,000 and MSR 40% or $300,000.

[29] Lalu’s acquisition of 10366 Yonge Street closed on December 20, 2017. On December 22, 2017, Lalu paid MSR the $500,000 assignment fee. Lee’s evidence is he never received the $300,000 from MSR.

[30] On April 1, 2017, Lalu engaged MSR to assist with the planning and development of the Yonge/Benson properties. Once again, Matharoo says that he and Lee had initially agreed on a fee of $10,000 a month, but Lee told him to raise the fee to $30,000 a month, which he did. After the first two months, Lee asked Matharoo to reduce the fee to $20,000 a month as Lalu was concerned about the amount. Matharoo agreed to reduce the fee as requested. Lee’s evidence is that it was Khan who negotiated the management fee, not him.

[31] MSR paid 256 the monies that it received from Lalu in excess of $10,000 per month. Lee denies having received any monies from 256. The evidence establishes that Khan received both directly and through his company Clearoute Ventures Inc. more than $180,000 from 256.

iii. 16^th Avenue

[32] The 16^th Avenue project involved an extensive residential development on property located at 1053 16^th Avenue in Richmond Hill, Ontario.

[33] On March 16, 2017, Jack Zafrani, through his company 1482941 Ontario Inc. (“1482”), entered into an agreement of purchase and sale for the purchase of 16^th Avenue for $31 million with a closing date of August 31, 2017.

[34] In or around July 2017, shortly after Di Gironimo began working at Lalu, he met with Zafrani about the potential development of the 16^th Avenue property. Subsequently, Lalu agreed to enter into a joint venture with Zafrani whereby 1482 would contribute the 16^th Avenue property by assigning its agreement of purchase and sale to the joint venture company. The agreement provided for a $2,500,000 assignment fee of which 50% was to be paid on closing and the balance on obtaining construction financing.

[35] Lee’s evidence is that he negotiated with Zafrani that the assignment fee would be shared 50% for Zafrani and 50% for him, Di Gironimo and Khan. As between Lee, Di Gironimo and Khan, their portion of the acquisition fee was to be split 60% to Lee and 20% to each of Di Gironimo and Khan.

[36] The initial term sheet provided that the $2.5 million assignment fee would be shared 50/50 between Zafrani and Lalu. The final Letter of Intent signed by the parties provided, among other things, that the $2.5 million assignment fee would be paid to Yeda Management Inc. (a Zafrani company) and Urban Vista, as directed by Yeda Management.

[37] At the closing of the purchase of the 16^th Avenue property in mid-October 2017, the joint venture company, the plaintiff 1053 16^th Avenue Developments, paid Yeda Management an assignment fee of $1,250,000 to Yeda Management (the amount agreed to be paid on closing) and, in turn, Yeda Management paid Urban Vista $625,000 or one half of the amount it received.

[38] Lee’s evidence is that the monies paid to Urban Vista had at least two components: an acquisition fee of $500,000 and a broker fee and potentially a “financing fee”. It was agreed that he would receive 60% of the acquisition fee paid to Urban Vista on closing and Khan and Urban Vista would split the remaining 40%. Lee’s $300,000 share of the acquisition fee was subsequently paid by Urban Vista at his request to Crystal Skyline. Urban Vista retained $100,000 and Khan received $100,000.

iv. Vaughan

[39] The Vaughan project involves the development of a mixed-use condominium and commercial property located at 3812 Major MacKenzie Drive in Vaughan, Ontario.

[40] The Vaughan property was owned by Cicchino Holding Limited (“Cicchino”). Lee negotiated the purchase of the property with Cicchino which included the payment to him of an acquisition fee of $500,000 if he were to successfully present the opportunity to an investor.

[41] On August 4, 2017, Lalu and Cicchino entered into an agreement of purchase and sale for the Vaughan property for a purchase price of $58,500,000. The agreement subsequently closed on November 30, 2017.

[42] By agreement between Lee, Di Gironimo and Khan, the acquisition fee of $500,000 was paid to Urban Vista who retained $50,000 to pay actual expenses. The remaining $450,000 was split 60/20/20 between Lee, Di Gironimo and Khan.

[43] As with the 16^th Avenue acquisition fee, Lee directed that his $270,000 share be paid to Crystal Skyline.

Analysis

[44] A Mareva injunction, operating as it does to freeze all the defendant’s assets until judgment, is often referred to as an extraordinary remedy. That is because it is a form of execution before judgment which can have extreme negative consequences on the recipient.

[45] The factors or guidelines which the court must consider in granting a Mareva order are well established. The moving party must establish:

a) A strong prima facie case against the defendants;

b) The defendants have assets in the jurisdiction;

c) There is a risk of the assets being removed from the jurisdiction, or disposed of within the jurisdiction or otherwise put beyond the reach of the court such that the plaintiff will be unable to realize on a judgment in its favour;

d) The moving party would suffer irreparable harm if the order is not made; and

e) The balance of convenience favours the granting of the order.

See: Chitel v. Rothbart (1982), O.R. (2d) 513 (C.A.); SFC Litigation Trust (Trustee of) v. Chan, 2017 ONSC 1815 (Div. Ct.).

[46] In considering the availability of the Mareva order in Canada, Estey J. stated in Aetna Financial Services Ltd. v. Feigelman, 1985 CanLII 55 (SCC), [1985] 1 S.C.R. 2, at para. 25:

…. The overriding consideration qualifying the plaintiff to receive such an order as an exception to the Lister rule is that the defendant threatens to so arrange his assets as to defeat his adversary, should that adversary ultimately prevail and obtain judgment, in any attempt to recover from the defendant on that judgment.

I. Strong Prima Facie Case

[47] The plaintiffs submit that the evidence on the Motion establishes a strong prima facie case in respect of each of the causes of action pleaded. They specifically rely on fraud, however, for reasons discussed shortly.

[48] In response, the Responding Defendants submit that based on the evidence, the plaintiffs have failed to establish a prima facie case, let alone a strong prima facie case against any of them.

(a) Lee

[49] The plaintiffs submit that Lee, as the CEO of Lalu, was governed by the terms of the Lee Consulting Agreement. As CEO his duties included sourcing and presenting real estate developments to Lalu. While the Lee Agreement provides for compensation, nothing in the Agreement entitles Lee to the acquisition fees which he received. Further, in receiving such fees, Lee took deliberate steps to conceal his receipt of them from Lalu to prevent it from discovering his actions.

[50] The plaintiffs further submit that Lee’s actions in arranging for “kickbacks” from the management agreements signed by MSR in respect of both Jackson’s Point and Yonge/Benson were illegal and fraudulent.

[51] In response, Lee submits that Lee Consulting Agreement entitled him to receive acquisition fees in respect of deals that he brought to Lalu that Lalu accepted. They formed part of his compensation which was otherwise below market. He also says that the Lalu Board, through Guo, was always aware that he was receiving acquisition fees in respect of projects he brought to Lalu.

[52] The Lee Consulting Agreement provides in part:

• Section 1.3 - Lee (defined as the Principal) will serve in the capacity of CEO of Lalu and its other companies mentioned and that the services will comprise “the overall responsibility and management of the day to day operations of each of the Companies and such other services typically provided by persons acting in the capacity of a Chief Executive Officer …”;

• Section 1.5 – The Services of CEO cannot be delegated to anyone other than a senior employee of 250 (defined as the Consultant) with the same experience, knowledge and skills as Lee, without Lalu’s consent;

• Section 2.1 – Lee shall perform the Services in such manner as is in the best interests of each of the Companies and in compliance with all applicable laws;

• Section 3.1 – Compensation, defined as a “Retainer Fee”, for the Services in an aggregate amount of $120,000 per annum, paid monthly, in arrears, to 250;

[53] The Lee Consulting Agreement contains eight recital paragraphs. Of importance is the last paragraph, (h) which provides:

The parties acknowledge that the Retainer Fee payable under this Agreement are [sic] under market for the Services (as defined below) and the parties have entered into this Agreement acknowledging that the Consultant and/or the Principal have the opportunity to make an indirect gain through an equity holding in the Partnership independent of this Agreement and the Consultant and the Principal are relying on the Services of the Consultant to realize such other gains.

[54] Finally, Article 6, Section 6.1, of the Lee Consulting Agreement headed Acknowledgement, provides that both 250 and Lee have informed them that they have interests in real property with others and have opportunities similar to or the same as the business of Lalu and that neither 250 nor Lee have any duty or obligation to bring or refer any such real estate projects or opportunities to Lalu and they may compete with Lalu without it being a conflict of interest. The last two sentences of the Section provide:

For greater certainty, the Consultant and/or Principal may engage in or hold an interest in any other business, venture, investment or activity whether similar to or competitive with the Business of the Companies, or provide services similar to or the same as the Services to any other person or entity and the same shall be deemed not to be a conflict of interest or breach of fiduciary duty or other duty. Each of the Companies hereby consent to any such activities and waive, relinquish, release and renounce any right or claim of participation or accounting or to seek any damages.

[55] Lee submits that the payment of acquisition fees is a standard industry practice and the Lee Consulting Agreement contemplates the receipt of acquisition fees in both Recital (h) by the words: “such other gains” and the above concluding part of Section 6.1.

[56] The interpretation of a contract involves the determination of the intention of the parties to the contract based on the language of the contract. The principles guiding the interpretation of a contract have been summarized by the Supreme Court in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 and by the Court of Appeal, most recently in Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007 at paras. 64 to 68.

[57] Looking at the Lee Consulting Agreement as a whole and also considering the context in which it was executed, I do not agree that it provides for or contemplates the payment of acquisition fees to Lee or 250 in respect of real estate deals that Lee sources for Lalu.

[58] Further, when Recital (h) is read by itself, in my view the words “such other gains” at the end of Recital (h) refer to the equity gains both HZC and Lee, through Jiang, were expecting to realize from the real estate transactions Lee was expected to bring to Lalu. That interpretation is also consistent with the context of the Agreement as Lee’s compensation included not only the Retainer Fee but also any gain in Jiang’s equity stake in Lalu. It did not include acquisition fees for those transactions.

[59] Further, Section 6.1 clearly deals with and permits Lee to enter into any real estate transaction with a third party. It does not speak to the real estate transactions he was required to bring to Lalu or, more specifically, his compensation in respect of such deals. Further, nowhere in the compensation section of the Agreement is there any mention of acquisition fees.

[60] As a result, I am of the view that Lee was not entitled to receive acquisition fees as part of his compensation for real estate transactions he brought to Lalu and which Lalu subsequently entered. His compensation was the Retainer Fee and the increase in Jiang’s equity interest in Lalu, if any. I do not consider that to be unreasonable, given he was also entitled to deal in other real estate transactions with third parties.

[61] Lee further states that Guo and through him the Lalu Board were aware that he was receiving acquisition fees in respect of the transactions that he brought to Lalu and specifically with respect to the four transactions relied upon by Lalu before me. Guo denies that he knew that Lee was receiving any acquisition fees for those transactions.

[62] While I acknowledge that conflict in the evidence between Lee and Guo cannot be determined by me on this Motion, the strength of Lee’s evidence is diminished, in my view, by the evidence of his steps to conceal his receipt of the acquisition fees from Lalu. In every case, Lee’s acquisition fee was not paid to Lee or a company controlled by him directly, such that Lalu would have or could have been aware that the acquisition fee, which was part of the overall costs of each project, was being paid to Lee or a company controlled by him. If he told Guo about the acquisition fees, why cause them to be paid to him indirectly?

[63] Specifically, the Jackson’s Point acquisition fee and the Yonge/Benson acquisition fees were all paid to MSR who then paid them to 155. Similarly, both the 16^th Avenue fee and the Vaughan fee were paid to Urban Vista initially.

[64] Nor do I accept that the acquisition fees were being paid by the vendor and not Lalu thereby not damaging Lalu. In Jackson’s Point, the acquisition fee was paid by Lalu. Further, as occurred with 26 Benson, any acquisition fee paid by the vendor is incorporated into the sale price resulting in Lalu paying it indirectly.

[65] I am also concerned about the evidence regarding Lee’s involvement in the alleged “kickbacks” in respect of the management agreements for both Jackson’s Point and Yonge/Benson. Lee submits that he did not negotiate any such arrangements that he received no monies in respect of Yonge/Benson and that the $85,000 he got from MSR in respect of Jackson’s Point was for a partial payment for a design-build contract he assigned to MSR and a $10,000 commission. MSR disagrees with Lee’s characterization of the payments. Further, while there is no evidence he personally received monies from MSR concerning the Yonge/Benson management contract, 256, in which he was a co-owner, did.

[66] My conclusion that Lee had no right under the Lee Consulting Agreement to acquisition fees together with the evidence of the concealment of the receipt of such fees from Lalu are sufficient, in my view, to establish a strong prima facie case of fraud against Lee. In other words, I consider that Lalu is likely to succeed at trial in respect of its claim against Lee concerning his receipt of acquisition fees.

(b) Jiang

[67] As noted, Jiang is Lee’s spouse and owns 25% of Lalu. The plaintiffs make sweeping allegations of fraud and conspiracy in their statement of claim against the defendants generally which includes Jiang, 143 and Masonic East. However, there is no evidence that Jiang or her companies were involved in any of the dealings concerning the payment of acquisition fees or kickbacks from management fees or that they received any money from those activities.

[68] On the Motion, the plaintiffs’ allegations against Jiang and her companies concern two transactions:

(1) The payment (which is yet to occur) of a financing fee of $105,000 for a $3 million bridge loan made by 143 to Lalu in 2017 for Yonge/Benson; and

(2) The payment (which is yet to occur) on a $4 million promissory note issued in 2016 by Lalu to Masonic East in connection with the Birchmount Lawrence project.

[69] There is evidence before the court to support the finding that the above transactions were legitimate transactions that were known by Lalu and there was no concealment of the Jiang parties’ involvement.

[70] As a result, and as noted at the outset, I dismissed the Motion against Jiang, 143 and Masonic East at the end of the argument. In my view, the plaintiffs failed to establish a strong prima facie case against them.

(c) Di Gironimo

[71] The claim against Di Gironimo and his companies, Urban Vista, and Ultimate Golf concerns only their involvement in the 16^th Avenue and Vaughan projects. They were not involved in and had nothing to do with the Jackson’s Point or Yonge/Benson projects.

[72] The plaintiffs submit that Di Gironimo conspired with Lee to improperly obtain acquisition fees and other amounts in respect of both the 16^th Avenue project and the Vaughan project and took steps to hide their activity from Lalu. In support of their allegations, the plaintiffs rely specifically on the formation of Urban Vista, changes to the 16^th Avenue letter of intent to disguise payment to Urban Vista, Di Gironimo’s failure to bring to the Board’s attention a valuation of the Vaughan lands obtained a few days before closing, which placed the value of the Vaughan lands well below the agreed purchase price, and Di Gironimo’s failure to tell Lalu’s lawyer about his involvement in Urban Vista when asked.

[73] Di Gironimo’s evidence is that he was hired by Lee and at all times acted on the basis that Lee had told him the transactions were known to and approved by the Lalu Board. He submits that the Di Gironimo Agreement, which provides for his compensation in part by way of a “Finders Fee” in respect of business he brings forward to Lalu which results in an actual transaction for Lalu, entitles him to the acquisition fees he received.

[74] Di Gironimo further submits there is nothing nefarious or secretive about the incorporation of Urban Vista. It was incorporated to provide project management fees to Lalu in circumstances where Lalu required such services but didn’t want to hire the staff. Urban Vista subsequently hired two qualified employees who worked at Lalu’s office carrying out project management services for Lalu. The employees were paid by Urban Vista who then billed Lalu. Lalu was aware of who Urban Vista was.

[75] Di Gironimo denies that the changes made to the 16^th Avenue letter of intent to remove Urban Vista were done to hide its involvement in the transaction. The changes were requested by Zafrani and his company Yeda Management to establish that it was the lead. Di Gironimo further says that he did not keep the Colliers valuation of the Vaughan property from Guo and the Board. Guo knew about it and provided the name of another appraiser, as he was not satisfied with it. Further, the Colliers valuation was received after Lalu had already entered into an agreement to purchase the Vaughan property and was just days away from closing.

[76] Finally, Di Gironimo denies he failed to tell Lalu’s lawyer about his involvement in Urban Vista. The lawyer’s information about the discussion is in the form of his notes of the meeting. The lawyer did not file an affidavit or provide evidence on the Motion. In such circumstances, I am not prepared to draw any conclusion about the encounter.

[77] There is no question that there is evidence concerning Di Gironimo and Urban Vista’s roles in each of the 16^th Avenue and Vaughan projects which raise credibility issues. In my view, the evidence concerning Di Gironimo and his companies is not sufficient, particularly given Di Gironimo’s responses to Lalu’s allegations, to convince me that the plaintiffs have a strong prima facie case against them. At best, in my view, it is a prima facie case.

II. Assets in the Jurisdiction

[78] There is no issue that the Responding Defendants have assets in the jurisdiction.

III. Real Risk the Responding Defendants Will Dissipate Their Assets

[79] The plaintiffs have provided no evidence that there is a real risk of the Responding Defendants’ assets being removed from the jurisdiction or disposed of in the jurisdiction or otherwise put out of reach. At the hearing, the plaintiffs pointed to the fact that the monies which Lee received as an acquisition fee for both 16^th Avenue and Vaughan and which he directed to Crystal Skyline, were no longer in Crystal Skyline. While that may be the subject of later tracing, it is not evidence of dissipation of assets by Lee.

[80] The plaintiffs submit that based on this court’s decision in Sibley & Associates LP v. Ross, 2011 ONSC 2951; 106 O.R. (3d) 494, dissipation can be inferred from the circumstances and the course of conduct undertaken by the defendants.

[81] In Sibley, the evidence established that the defendant, a former accounting employee of Sibley, had made payments from the company to his mother over a period of several years totaling in excess of $300,000. The motion judge, Strathy J. (as he then was) found that the evidence established “a very strong prima facie case” of fraud, but there was no direct evidence of either the former employee or his mother’s financial circumstances or that they were dissipating their assets or proposing to remove them from the jurisdiction.

[82] After reviewing the cases dealing with the granting of a Mareva injunction, Strathy J. concluded at paragraph 62 of the decision that where all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff, the court may infer dissipation and/or removal of assets.

[83] I do not disagree with Strathy J.’s analysis or his conclusion that the court may infer dissipation of assets where fraud is established based on all of the circumstances. I do not consider, however, that the circumstances of this case, including the fraud, demonstrate a serious risk that the Responding Defendants will dissipate or dispose of their assets such that the requested inference should be drawn. I have reached that conclusion based on the following evidence:

(a) Both Lee and Di Gironimo have strong roots in the jurisdiction, They each were well established in the real estate development business in Ontario before becoming involved with Lalu. Lee for at least 10 years and Di Gironimo for approximately 32 years;

(b) Both the Lee defendants and the Di Gironimo defendants have commenced separate actions against Lalu in respect of monies allegedly owing to them. Lee’s action for wrongful termination and withholding of payments was commenced on April 28, 2018 and Di Gironimo’s on May 28, 2018. In addition, on May 15, 2018, Urban Vista commenced a lien claim against various Lalu entities;

(c) Lalu became aware of the alleged fraud in or around February 2018 and commenced this action by statement of claim dated December 20, 2018 but took no steps to commence this Motion until February 14, 2019, almost a year after it was aware of the fraud. Notwithstanding the allegations in the Lalu action, there is no evidence of dissipation or any attempt to dispose of any assets by the Responding Defendants because of it;

(d) Lalu submits that it only seeks to recover what it says the Responding Defendants wrongly took from it. In the case of Lee, the evidence establishes that he received $961,000 in total and Di Gironimo received $210,000 through Urban Vista. The claims by both Lee and Di Gironimo exceed the amounts alleged to have been improperly taken from Lalu.

[84] As Estey J. stated in Aetna, the overriding consideration for a Mareva injunction is the defendants dealing with his or her assets to put them out of the reach of the plaintiff. There is no evidence here that that has or will occur.

IV. Irreparable Harm

[85] The plaintiffs submit that, in the absence of the order sought, they will suffer irreparable harm in that there will be insufficient assets against which the plaintiffs can recover any judgment. In support of that submission, the plaintiffs rely on Rana v. Malik, 2014 ONSC 701 (S.C.J.).

[86] In Malik, the evidence established that while the defendants had some assets in Ontario, they had significant family and business connections in Pakistan, travelled regularly to Pakistan and had transferred significant sums of money from their Ontario bank account to Pakistan. In such circumstances, the court concluded that the plaintiff would suffer irreparable harm in that it would be unable to recover its $2.7 million investment if the defendants’ assets were transferred to Pakistan.

[87] The facts here are significantly different than in Malik. There is no evidence of off shore assets or businesses or any indication the Responding Defendants may move their assets off shore to avoid judgment or that they will not be in a position to pay any judgment ordered. The plaintiffs’ submission that there is a real risk the Responding Defendants will have insufficient assets to satisfy any judgment is not supported by any evidence. It is mere speculation and does not establish irreparable harm.

V. Balance of Convenience

[88] In East Guardian v. Mazur, 2014 ONSC 6403 (S.C.J.), Penny J. at para. 39, described the balance of convenience as a consideration of whether the harm suffered by the applicant if the order is not made exceeds the harm that will be suffered by the respondent if it is.

[89] The plaintiffs submit that the balance of convenience favours granting the order. They submit that if the order is not granted the Responding Defendants will be able to put their assets beyond their reach causing them harm. Further, such harm outweighs any harm to the Responding Defendants arising from the granting of an order preventing them from dealing with their assets. Any “inconvenience” to the Responding Defendants from such order can be offset by the standard Mareva order which permits access to living expenses and legal expenses.

[90] In my view, the balance of convenience does not favour granting the order. Rather, it favours not granting the order.

[91] In the absence of any evidence of the Responding Defendants’ assets, the dissipation or removal of assets or any inference in that regard, it cannot be concluded that the Responding Defendants will not have assets sufficient to satisfy any judgment in respect of the alleged wrongful conduct.

[92] On the other hand, to freeze the assets of the defendants in respect of a claim against Lee for $961,000 and against Di Gironimo for $240,000 strikes me as being unfair and inappropriate given their longstanding connection and ties to the jurisdiction and the absence of any evidence of dissipation. Such an order could and likely would do irreparable damage to both Lee and Di Gironimo which could not be ameliorated by access to living expenses and legal fees.

VI. The Undertaking

[93] The plaintiffs have provided the required undertaking as to damages from HZC. As I have determined that the Motion must be dismissed, I do not have to consider the sufficiency of the undertaking.

[94] That said, the proffered undertaking causes me some concern. The undertaking should be of sufficient substance to ensure any damages found by the court to have resulted from the Mareva being wrongly issued will be honoured by the plaintiff. Here the evidence from HZC’s 2017 tax return is that its liabilities outweigh its assets by several million dollars. Absent better financial information concerning HZC, its undertaking would not be sufficient.

Conclusion

[95] For the above reasons, the Motion is dismissed in its entirety against all the Responding Defendants. The March 7, 2019 interim freezing Order is vacated.

[96] In the absence of an agreement on costs, the Responding Defendants shall each submit brief written submissions (no more than three double spaced pages) together with a Cost Outline and any supporting material within two weeks of today. The plaintiffs shall reply with brief written submissions (same page length) within a further 10 days.

L. A. PATTILLO J.

Date: August 2, 2019