COURT FILE NO.: CV-19-00625113
DATE: 20210331
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
SHAN SHAN XU and JIAN ZHANG.
Plaintiffs
- and -
CAN-CHENG LAI, LI PING SHAO and A.T. FINANCIAL GROUP INC.
Defendants
Bradley Teplitsky for the Plaintiff/Applicant.
Christopher Statham for the Defendant Liping Shao.
HEARD: March 29, 2021
PERELL, J.
REASONS FOR DECISION
[1] The oddity of a defendant volunteering to have her only asset frozen is now at the centre of an interlocutory dispute between the parties.
[2] In this fraud action, there is also a claim to set aside an allegedly fraudulent conveyance of a house worth $1.6 million.
[3] Not surprisingly, after the Plaintiffs Shan Shan Xu and Jian Zhang did not obtain a certificate of pending litigation, they consented when the defendant, Liping Shao volunteered to submit to what, in effect, was a Mareva injunction.
[4] The result of Ms. Shao’s initiative to freeze her only asset was the consent order of Justice Leiper dated October 26, 2020.
[5] The interlocutory dispute now arises because Ms. Shao has brought a motion for an order that she be allowed to use approximately $150,000 from the proceeds of sale of her former home to pay: (a) her legal expenses to defend the action; (b) her outstanding legal expenses associated with the sale of the house, and (c) her rent and food expenses in order to sustain herself for the next year.
[6] The type of order Ms. Shao seeks is normative when a contested Mareva injunction is granted; however, the Plaintiffs object to the court making the order precisely because the parties consented to Justice Leiper’s order.
[7] The Plaintiffs submit that the court does not have the jurisdiction to grant Ms. Shao’s request, because: (a) Justice Leiper’s order was a consent order; (b) Ms. Shao has not expressly asked that terms be implied into Justice Leiper’s order; and (b) Ms. Shao has not asked that the order be varied.
[8] The Plaintiffs are wrong. The court has the jurisdiction to proceed in the normal fashion and to grant Ms. Shao the relief she requests.
[9] For the reasons that follow, I grant Ms. Shao’s request. I order that she be permitted to use up to $175,000 from the proceeds of sale for legal and living expenses. This order is made without prejudice to requests for similar relief in the future.
[10] The background to this action and to the interlocutory motion now before the court can be described briefly by summarizing the competing stories of the parties.
[11] The Plaintiffs Shan Shan Xu and Jian Zhang, who are spouses, submit as follows:
a. For almost two decades, Mr. Xu’s and Ms. Zhang’s insurance agent and investment adviser was the Defendant Can-Cheng Lai. Mr. Lai is an employee of the Defendant A.T. Financial Group Inc.
b. Mr. Xu and Ms. Zhang submit that Mr. Lai placed their funds in non-existent investment instruments, and they submit that Mr. Lai used the funds and fraudulently conveyed his home to his wife, Ms. Shao.
c. Mr. Xu and Ms. Zhang say that they were defrauded of $2.5 million.
d. After the fraud was discovered, the Plaintiffs sued Mr. Lai, A.T. Financial Group, and Ms. Shao. The action was commenced on August 7, 2019.
e. In the winter of 2020, the Plaintiffs’ lawyers had conversations with Ms. Shao’s lawyers.
f. Mr. Xu and Ms. Zhang say that their lawyers were told that Ms. Shao wished to sell her home. They say that their lawyers told Ms. Shao’s lawyers that if she did so, the Plaintiffs would move for a certificate of pending litigation.
g. Mr. Xu and Ms. Zhang’s lawyers depose that in the fall of 2020, Ms. Shao’s lawyers requested permission to sell the house on terms that the proceeds of sale would be paid into court pending the trial. The result was that on October 28, 2020, Justice Leiper made the order set out below.
h. Ms. Xu and Ms. Zhang’s lawyer Xachary Zhe Zhou deposed that at no time during the discussions with Ms. Shao’s lawyer was there a discussion of the possibility of a portion of the sale proceeds being used by Ms. Shao pending the trial.
i. Mr. Zhou, who was not cross-examined, deposes that his clients, the Plaintiffs, would not have agreed to a payout order before trial, if Ms. Shao’s lawyer had asked.
[12] Ms. Shao’s version of the events is as follows.
a. She denies any involvement in any fraudulent activities of her ex-spouse, Mr. Lai.
b. Ms. Shao says that: (a) she and Mr. Lai married in 1986 when she was 23 years old; (b) they had a daughter; (c) they purchased a home at 3336 Bethesda Road, Stouffville, as joint owners in 2009; (d) in 2010, they agreed to live together but separate and apart; (e) in 2016, she became the sole owner of the property; and (f) in 2019, they divorced.
c. Ms. Shao denies any involvement in her ex-husband’s dealings with the Plaintiffs.
d. Ms. Shao denies that the conveyance of the former matrimonial home was a fraudulent conveyance.
e. Ms. Shao says that after she was sued and after the pleadings were closed, she could no longer afford to carry the property. Therefore, on September 4, 2020, her lawyer, Lawrence Hansen wrote the Plaintiffs’ lawyers and to the lawyers for the co-Defendants. Mr. Hansen proposed that the property be sold and a specified amount out of the proceeds be held in trust and not distributed unless the parties agreed or by court order.
f. Correspondence between the parties followed with the result that on October 28, 2020, Justice Leiper made the order set out below.
g. The property sold on January 11, 2021. The net proceeds totaled $1,617,094.65.
[13] The evidence of this motion established that Ms. Shao has been unemployed since late 2019. Her employment has never had anything to do with her ex-husband’s business. She has no significant savings accounts. She has guaranteed investment certificates totaling $14,000. The home was her principal asset.
[14] Since November 27, 2020, Ms. Shao’s only source of income has been the Canada Recovery Benefit (“CRB”) in the sum of $900.00 every two weeks. She owes her lawyers $11,587.40. She has other debts associated with the sale of the property not included in her request for approximately $150,000. She also has debts associated with moving to her current residence. She now lives in an apartment with a rent of $2,500 per month.
[15] Justice Leiper made the following order:
ORDER
THIS MOTION, for an order permitting the sale of the property municipally known as 3336 Bethesda Road, Stouffville, described as PT LT 6 CON 5 WHITCHURCH AS IN R743251; WHITCHURCH-STOUFFVILLE, being the lands in PIN 03701-0106 (LT) (the “Property”), was considered this day at a case conference convened in accordance with the order of the Honourable Mr. Justice Myers.
ON BEING ADVISED that the plaintiffs and defendant Li Ping Shao, the registered owner of the Property, consent and that the other parties take no position,
THIS COURT ORDERS that Ms. Shao is authorized to list the Property for sale.
THIS COURT FURTHER ORDERS Ms. Shao is authorized to accept what she considers to be the best offer for the Property, seeking reasonably to maximize the sale price, and to enter into a binding agreement of purchase and sale for the Property.
THIS COURT FURTHER ORDERS that the proceeds of sale of the Property shall be used to pay any mortgage, liens, any outstanding taxes, real estate commission, and any other reasonable and ordinary expenses associated with the sale of the Property.
THIS COURT FURTHER ORDERS that the net proceeds of sale, after payment of the amounts in paragraph (3), above, shall be held by Devry Smith Frank LLP, in trust, in an interest bearing account.
THIS COURT FURTHER ORDERS that the amount held in trust in accordance with paragraph 4, above, shall only be disbursed on the consent of the plaintiffs and Ms. Shao or on further order of the court.
THIS COURT FURTHER ORDERS Ms. Shao to provide to the plaintiffs a copy of the sale listing of the Property and any firm agreement of purchase into which she enters.
THIS COURT FURTHER ORDERS that Ms. Shao and the plaintiffs may, without seeking further orders, agree, in writing, to modify what is set out above.
THIS COURT FURTHER ORDERS that costs of this motion are reserved.
[16] I pause to say that there is a disturbing credibility issue between the lawyers. Mr. Hansen deposes that Mr. Zhou is lying about there having been phone conversations about Ms. Shao’s plans to sell the property and about the terms of what became Justice Leiper’s order. Mr. Hansen deposes that system phone logs confirm Mr. Zhou’s untruthfulness. He says that if Mr. Zhou was listening to Mr. Hansen’s conversations with a junior lawyer in Mr. Zhou’s office this was done secretly.
[17] For present purposes, it shall not be necessary to make any findings with respect to the credibility of Mr. Hansen or Mr. Zhou.
[18] In the action, the pleadings are closed, affidavits of documents have been exchanged, and discoveries are scheduled for late April 2021.
[19] Ms. Shao is requesting at least approximately $151,000 comprised of: (a) $ 71,424.00 for twelve months of living expenses ($5,952.00 monthly); (b) $71,752.75 for a retainer to defend the action; and (c) $7,410.86 for unpaid closing expenses.
A. Discussion
[20] I need not resolve the ugly credibility dispute between the lawyers. The subjective views of the lawyers about what was intended in the run up to Justice Leiper’s order or about their respective subjective interpretations of the court’s order are irrelevant. These subjective intentions are as irrelevant to the interpretation of a court order as they would be irrelevant in a contract interpretation case, where the parol evidence rule governs.
[21] An order is an instrument in writing, and the principles of judicial interpretation that govern the interpretation of statutes are applied to other instruments in writing, including orders, contracts, deeds, and testamentary instruments.[^1]
[22] A consent order is final and binding and can only be amended when it does not express the real intention of the parties or where there is fraud. A consent order is not a judicial determination on the merits but only an agreement elevated to an order on consent.[^2] In other words, a consent judgment can only be rectified on the grounds on which a contract can be rectified.[^3]
[23] In the immediate case, Justice Leiper’s order does not need to be rectified or amended.
[24] The Plaintiffs submit that the order of Justice Leiper does not provide for the release of funds for personal expenses pending the hearing on the grounds of hardship or for any other reason. The Plaintiffs are wrong. Without amendment and without implying terms to the order, paragraphs 5 and 7 are adequate to authorize the relief that Ms. Shao seeks.
[25] Moreover, parties cannot confer jurisdiction on a court where it otherwise lacks subject-matter jurisdiction,[^4] nor can parties oust the court’s jurisdiction to grant injunctions. While arbitration clauses are an exception, it has long been a public policy principle of the law that parties cannot by contract oust courts of their jurisdiction and it is contrary to public policy to deprive persons of their right of resorting to the courts for the purpose of establishing their legal rights.[^5]
[26] Although it is the Plaintiffs’ evidence that their lawyers made it clear as far back as March 2020 that the Plaintiffs would move for a certificate of pending litigation if Ms. Shao wished to sell her home, and notwithstanding that it is the Plaintiffs’ evidence that their lawyers’ threat explains why Ms. Shao took the initiative and volunteered to have the sale proceeds paid into court, nevertheless, the Plaintiffs submit that Justice Leiper’s order was not akin to a Mareva injunction.
[27] However, the authorities establish that a certificate of pending litigation is the equivalent of a freezing order.[^6] Courts recognize that the certificate of pending litigation has the practical effect of an injunction.
[28] Justice Leiper’s order was the equivalent of a Mareva injunction, and she had the court’s common law jurisdiction to grant injunctive relief. To quote from my civil procedure text written with the Honourable John Morden, we state [footnotes omitted][^7]:
¶3.94 After notice is given to the defendant, the court will consider whether to continue the order, and if the Mareva injunction is to be continued, the court will consider modifying the order. For instance, it may be appropriate to vary an extensive original order to permit the defendant to operate its business in the normal course and to maintain his or her normal standard of living, including the payment of ordinary living expenses and reasonable legal expenses to defend the lawsuit.
¶3.95 Typically, the Mareva injunction only freezes assets up to the maximum amount of the plaintiff’s claim exclusive of any claim for punitive damages plus a sum for the forensic accounting and other investigative fees, together with the lawyers’ costs in putting together the plaintiff’s case. It is unfair to freeze assets beyond what is necessary to protect the plaintiff’s claim.
¶3.96 In Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, [2003 12916 (ON SC), [2003] O.J. No. 40 (S.C.J.), approved in Waxman v. Waxman, [2007] O.J. No. 1688 (C.A.)] the Court suggested an approach to determining whether to permit payments to the defendant from assets frozen by an injunction including a Mareva injunction. Under the suggested approach, first, the defendant will have to show that a modification to the order initially granted on a motion without notice is necessary because the defendant has no other assets available to pay expenses other than those frozen by the injunction. If a modification is necessary, the defendant will be permitted to use assets frozen by the Mareva injunction to pay reasonable business expenses in the normal course, living expenses, debts and legal costs. The defendant’s own assets must be exhausted before the defendant is entitled to look to any assets subject to a proprietary claim by the plaintiff. If the defendant still requires funds for legitimate expenses and to fund the defence, the court must balance the interest of the defendant in having the resources to present a defence with the plaintiff’s interest in preventing its property being used by its opponent to thwart the plaintiff’s claim. In weighing the interests of the parties, the court may consider the strength of the plaintiff’s proprietary claim, as well as the extent to which the defendant has put forward an arguable case to rebut the plaintiff’s claim.
[29] I am satisfied that Ms. Shao has satisfied the test for permitting her to use assets frozen by the order of Justice Leiper to pay for Ms. Shao’s reasonable living expenses, debts, and legal costs.
[30] In short, Justice Leiper had the jurisdiction to make the order that she did. The order was injunctive in nature. Both as a matter of interpreting that order and as a matter of the normal jurisdiction of the court, the court has the jurisdiction to permit Ms. Shao to use the property for living and legal expenses. It remains to be determined whether the Plaintiffs have any interest in these proceeds.
B. Conclusion
[31] For the above reasons, I grant Ms. Shao’s motion as aforesaid.
[32] As for the matter of costs, I heard oral submissions at the hearing on March 29, 2021. Ms. Shao sought costs of $21,700 on a substantial indemnity basis and $16,400 on a partial indemnity basis. Had the Plaintiffs been successful, they were seeking costs of $11,600 on a partial indemnity basis.
[33] The claim for substantial indemnity costs is based on the credibility dispute between the lawyers about which I am making no ruling. I shall therefore award costs on a partial indemnity basis.
[34] In my opinion, Ms. Shao’s costs claim is fair and reasonable and having regard to the other factors that animate the court’s discretion, I award Ms. Shao costs of $16,400, all inclusive.
Perell, J.
Released: March 31, 2021
COURT FILE NO.: CV-19-00625113
DATE: 20210331
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SHAN SHAN XU and JIAN ZHANG
Plaintiffs
- and -
CAN-CHENG LAI, LI PING SHAO and A.T. FINANCIAL GROUP INC.
Defendants
REASONS FOR DECISION
PERELL J.
Released: March 31, 2021
[^1]: Fontaine v. Canada (Attorney General), 2020 ONCA 688; Robichaud, Williamson, Theriault and Johnstone v. Pharmacie Acadienne de Beresford Ltée, 2008 NBCA 12 at paras. 18–22; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533 at para. 45 (C.A.), supp. reasons 2006 13954 (ON CA), [2006] O.J. No. 1729 (C.A.); Manulife Bank of Canada v. Conlin, 1996 182 (SCC), [1996] 3 S.C.R. 415 at para. 40; River Wear Commissioners v. Adamson (1877), 2 App. Cas. 743 at 763–65 (H.L.).
[^2]: D’Onofrio v. Advantage Car & Truck Rentals Ltd., 2017 ONCA 5; Clatney v. Quinn Thiele Mineault Grodzki LLP, 2016 ONCA 377 at para. 92; Rick v. Brandsema, 2009 SCC 10 at para. 64.
[^3]: Royal Bank of Canada v. Futurecom Inc., [2009] O.J. No. 1411 (S.C.J.), revd on other grounds, 2010 ONCA 63 (C.A.); McCowan v. McCowan, (1995), 1995 1085 (ON CA), 24 O.R. (3d) 707 (C.A.); Monarch Construction Ltd. v. Buildevco Ltd., [1988] O.J. No. 332 (C.A.).
[^4]: Christian Medical and Dental Society of Canada v. College of Physicians and Surgeons of Ontario, 2018 ONSC 574 at para. 42 (Div. Ct.); Rothgiesser v. Rothgiesser (2000), 2000 1153 (ON CA), 46 O.R. (3d) 577 at para. 33 (C.A.).
[^5]: Czarnikow v. Roth, Schmidt & Com., [1922] 2 K.B. 478, 491; Re Raven, [1915] 1 Ch. 673.
[^6]: Greenfield Pioneer Inc. v. Moore (2002), 2002 6832 (ON CA), 58 O.R. (3d) 87 (C.A.); Chippewas of Kettle & Stoney Point v. Canada (1994), 1994 7250 (ON SC), 17 O.R. (3d) 831 (Gen. Div.); Queen’s Court Developments v. Duquette, [1989] O.J. No. 3039 (H.C.J.).
[^7]: P.M. Perell and J.W. Morden, The Law of Civil Procedure in Ontario (4th ed) (Toronto: LexisNexis Canada, 2020).