COURT FILE NO.: CV-21-00659829

DATE: 20210622

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: HUANYU SHI Plaintiff

AND:

JUNXU CHEN and ZHIWEI SUN Defendants

BEFORE: Mr. Justice Chalmers

COUNSEL: P. Neufeld, for the Plaintiff

J. Wang, for the Defendants

HEARD: June 18, 2021

By Videoconference

ENDORSEMENT

Overview

[1] The Plaintiff, Huanyu Shi (Shi) and the Defendant, Junzxu Chen (Chen) were involved in a business venture. The agreement is not set out in a formal document. The only documentary evidence of an agreement is a series of WeChat exchanges. Although not entirely clear from the text messages, Shi states that he agreed to loan the equivalent of CAD $2,384,940 in Chinese Renminbi (RMB) to Chen. In exchange, Chen agreed to repay Shi the sum of CAD $2,384,940 from Chen’s Canadian account at the Canadian Imperial Bank of Commence through post-dated cheques.

[2] In April and May 2020, Shi deposited approximately $2,384,940 in Chinese RMB in Chen’s bank accounts. In cross-examination, Chen admitted that as of May 25, 2020, he owed Shi the sum of CAD $2,220,000. Chen provided post-dated cheques to repay the loan. The cheques were returned non-sufficient funds. Chen states that after the cheques were returned NSF, he repaid the loans through bank drafts, transfers and cash. Chen has not produced any bank statements confirming that this amount was transferred to Shi. Chen states that he personally made deliveries of cash to Shi’s home between May 25, 2020 and June 1, 2020 to pay the amount owing. As proof of this statement, Chen produced two pictures of a paper bag which Chen claims contained $700,000. Chen states that the bags of cash were left at Shi’s door. Shi denies receiving any money in cash and states that the amount of CAD $2,220,000 remains outstanding.

[3] Chen owned a home located at 35 Pheasant Dr. in Richmond Hill. On April 5, 2021, the home was sold for $1,888,000. The transaction is to close on July 2, 2021. Chen has not purchased a new property or entered into a lease agreement. Shi argues that Chen has ties to China and there is a real risk that after the sale of the property, Chen will leave the jurisdiction and dissipate his assets. His wife and children are currently living in China, and Chen owns properties in China. Chen states that he does not intend to return to China.

[4] The Statement of Claim was issued on April 1, 2021. Shi claims damages for fraud, breach of contract, breach of trust, deceit, conversion and unjust enrichment in the amount of $2,384,940. He initially brought an urgent motion without notice, seeking among other relief, a Mareva injunction. The motion was heard in-writing by Justice Myers on April 8, 2021. He dismissed the motion without prejudice to the Plaintiff bringing a further motion on notice to the Defendants. Justice Myers stated that there was insufficient evidence put forward on the motion with respect to the business arrangement between the parties and there was insufficient evidence of fraud or of a dissipation of assets.

[5] Shi prepared new motion materials and took steps to serve the materials on the Defendants. On April 20, 2021, while making efforts to serve the Defendants, counsel for the Plaintiff wrote to the court to request a date for a hearing. In the letter, counsel states that the motion is to be heard “ON NOTICE”. The words were emphasized in capital letters. On April 23, 2021, Jia Wang, counsel for Chen advised Plaintiff’s counsel that she was retained to represent Chen and that she would accept service of the motion material. On April 26, 2021, Plaintiff’s counsel sent an e-mail to the court advising that Chen was now represented by counsel.

[6] The motion was put before Justice Dunphy for an in-writing motion on an unopposed basis. On April 28, 2021, Justice Dunphy released reasons dismissing the Plaintiff’s motion, “with prejudice”. He states that Shi failed to establish a strong prima facie case. On April 28, 2021, Shi’s counsel wrote to the court and explained that the motion was to be on notice and only a hearing date was sought. Counsel asked that Justice Dunphy withdraw his reasons. Justice Dunphy released supplementary reasons on April 30, 2021. He did not withdraw his earlier reasons. He stated that there was evidence of attempts to serve the motion record and that unopposed or ex parte motions will be dealt with in writing unless ordered otherwise. Justice Dunphy’s orders have not been formally entered.

[7] Shi brought this motion by Notice of Motion dated May 14, 2021. The motion was served on counsel for Chen. Affidavits were exchanged. Cross-examinations took place on June 8, 2021. Undertakings have been partially answered. Through the cross-examinations and the delivery of additional material, further evidence with respect to this matter is now before the court. The Plaintiff argues that the new evidence could only have been obtained through the cross-examinations and was not available at the time of the motions before Justices Myers and Dunphy.

The Issues

[8] The following issues will be addressed in this endorsement:

i) Should the Orders of Justice Dunphy dated April 28, 2021 and April 30, 2021 be set aside?

ii) Should a Mareva Injunction be granted to the Plaintiff? and

iii) Is the Plaintiff entitled to an order for the preservation of property?

Analysis

Should the Order of Justice Dunphy dated April 28, 2021 and April 30, 2021 be set aside?

[9] Shi brings this motion pursuant to R. 59.06 to set aside Justice Dunphy’s orders on the basis that the motion came before him on an unopposed basis in error. He also states the order ought to be set aside because of facts arising or discovered after the order was made.

[10] Justice Dunphy’s order has not been formally entered. The court has broad discretion to reconsider an order before it is entered: Griffen v. Dell Canada Inc., 2009 CarswellOnt 2085 (SCJ_) at para. 11, affirmed 2010 ONCA 29, leave to appeal refused 2010 CarswellOnt 3417 (SCC). The discretion is to be resorted to “sparingly and with the greatest of care”: Cookish v. Paul Less Associates Professional Corporation, 2013 ONSC 278, at para. 56.

[11] Shi’s counsel contacted the court office and requested a date for a motion on notice. Counsel provided evidence that attempts had been made to serve the Defendant with the motion material. It was appropriate for the court office to provide the motion to Dunphy, J. for a determination of the motion based on the fact the motion was unopposed. As noted by Dunphy, J. in his endorsement, all motions are subject to triage and may be heard in writing by the triage judge. Before his reasons were released, Chen retained counsel. On April 26, 2021, Shi’s counsel sent an e-mail to the court office and advised that Chen was now represented by counsel. It appears that this e-mail was not brought to the attention of Dunphy, J.

[12] An order may be set aside on the basis of facts arising or discovered after the order was made. To set aside an order on the basis of new evidence the moving party must satisfy a two-part test:

a. Would the evidence, if available, at the time of the motion, probably have changed the result?

b. Could the evidence have been obtained before the motion by the exercise of reasonable diligence? Hall v. Powers, 2005 CarswellOnt 2805 (SCJ), at para. 12.

[13] Shi states that Chen’s cross-examination testimony was not available at the time Dunphy, J. considered the motion. He argues that the evidence could only be obtained through the cross examination of Chen and therefore could not be obtained until after Chen responded to the motion and submitted evidence. Shi also argues that the new evidence supports his claim for an injunction.

[14] Chen argues that the issue of the Mareva injunction has been finally decided by Dunphy, J. and that issue estoppel applies. Counsel for Chen argues that Shi is making a third attempt at a Mareva injunction that has already been denied by two Judges.

[15] The test for issue estoppel is whether the same question has been decided, the judicial decision on the issue is final and the parties to the judicial decision are the same as the parties in which the estoppel is raised: Danyluk v. Ainsworth Technologies, [2001] 2 SCR 44, at para. 25. As noted by Binnie, J. in Danyluk, the rules governing issue estoppel should not be mechanically applied. The court has the discretion to determine whether issue estoppel ought to be applied to ensure that justice is done in the facts of a particular case.

[16] It is my view that issue estoppel does not apply in the circumstances of this case. The issue of the entitlement to a Mareva injunction was not argued on its merits with the evidence that was obtained through the cross-examinations. I conclude that it is in the interests of justice to not exercise my discretion to apply issue estoppel in this case.

[17] For the reasons set out below, it is my view that the evidence before Dunphy, J. was not sufficient to establish a strong prima facie case. However, on his cross-examination, Chen testified that as of May 25, 2020 he owed $2,200,000 to Shi. He also testified that there were non-sufficient funds in his account to support the post-dated cheques he provided to Shi. Although Chen testified that he repaid the amount owing by way of bank transfers and cash, I find his testimony on this issue lacks credibility.

[18] I find that Chen’s testimony on cross-examination is new evidence not available at the time of the motion before Dunphy, J. The evidence is relevant to the issue of the Mareva injunction and could have changed the result. I set aside the orders of Dunphy, J. based on the new evidence.

Should a Mareva Injunction be granted to the Plaintiff?

Test for an Injunction

[19] Shi seeks a Mareva injunction to restrict Chen from disposing of his assets, in particular the proceeds from the sale of his home which is expected to close on July 2, 2021. Mareva injunctions are an exception to the general principle that a party cannot obtain execution over another’s assets before judgment. This allows a plaintiff to tie up the assets of a defendant pending the trial of an action that may not be ultimately successful: 663309 Ontario Inc. v. Bauman, 2000 CanLII 22640 (ONSC) at para. 31.

[20] As noted by Myers, J. in his endorsement dated April 8, 2021, in which he dismissed the Plaintiff’s ex parte motion, the following requirements must be satisfied in order to obtain a Mareva injunction:

(1) there must be a strong prima facie 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;

(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. As well, it must be shown that the defendant’s purpose in removing the assets from the jurisdiction is to avoid judgment;

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

(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: Dai v. Zuo, 2015 ONSC 3008, at para. 65.

Strong Prima facie Case

[21] Shi must establish that he has a strong prima facie case. This is a more rigorous requirement than a “serious issue to be tried”. This requires the Plaintiff to establish that he would succeed if the court were required to decide the action on its merits based on the materials filed in support of the motion: 1910878 Ontario Inc. v. 2551204 Ontario Inc., 2020 ONSC 3415, at para. 15.

[22] Both Myers, J., and Dunphy, J. were of the view that Shi had not established a strong prima facie case of debt or fraud. Both noted that the terms of the business arrangement were unclear and not supported by appropriate documentation. Few of the details of the transaction were reduced to writing. The parties did not enter into a formal agreement and instead did business by WeChat text messages. Although translations of the text messages were provided on the motion, the messages are very brief, and it is not entirely clear from a review of the messages what may have been agreed to by the parties, the amounts advanced by Shi or what may have been repaid by Chen. No detail is provided as to the dates of transfers, the amount of the transfers, from where the funds were sent and into what accounts they were deposited. I agree with the comments of both Myers, J. and Dunphy, J. that the documentary evidence that was before them is woefully inadequate to establish a strong prima facie case.

[23] Shi, in his affidavit dated April 7, 2021, states that the agreement involved him paying substantial sums of money in Chinese currency (RMB) into the Chinese bank accounts of Chen and his business partner, Zhiewei Sun. The sums were paid by wire transfer. In exchange, the Defendants would repay those funds from Chen’s Canadian account at the CIBC through post-dated cheques deposited into Shi’s bank account. Shi states that he deposited funds into Chen’s bank account on April 10, 15, 16, 17, 21, 23 (twice), 26 and 27, and May 3 and 8, 2020. The total amount deposited was $1,734,940. On May 5, 7, 8, 9 (twice), and 12, 2020, Shi deposited funds into the bank account of the Defendant, Sun totaling $650,000. Shi states that Chen provided post-dated cheques totaling CAD $2,384,940. When Shi tried to deposit the first cheque it was returned NSF.

[24] Chen denies there was a loan agreement between the parties. He states that the parties agreed to transfer money in Chinese and Canadian currencies. Chen states that in September 2019 he needed to transfer out $60,000 – 80,000 to China. He was introduced to Shi who needed to transfer funds from China to Canada. They made a series of transactions in which Shi transferred funds to Chen’s bank account in China in RMB currency. Chen would give Shi funds of equal or similar value in Canadian dollars in Canada. Chen states that the payments were generally in the amount of $3,000 - $5,000 and were made by e-transfers from his Canadian bank account. Chen states that payments were also made in cash which were accepted by Shi.

[25] Chen was cross-examined on his affidavit on June 8, 2021. He testified that as of May 25, 2020 the amount owing to Shi was $2,220,000.

379. Q. Okay, but you agree that as of May 25, 2020, you owed my client 2.22. million dollars Canadian?

A. Yes.

[26] Chen states that he repaid this amount to Shi by personally delivering large amounts of cash. He states that on May 25, 2020 he left $700,000 in cash in a brown paper bag on the Plaintiff’s doorstep. There was no receipt for this payment. There is no bank statement which shows a withdrawal of this amount from Chen’s bank account before the cash payment was made. Chen states that he took a photo of the bag at Shi’s doorstep and that he waited in his car until he saw Shi pick up the money. Chen states that between May 25, 2020 and June 1, 2020 he paid a total of $2.2 million to the Plaintiff through bank drafts, transfers and cash. He states that by the end of May 2020, he believed he had repaid Shi all amounts owing to him.

[27] Chen’s evidence from his cross-examination with respect to the repayment of the amount owing was as follows:

380. Q. All right, and in your affidavit, you have said that by the end of May, 2020 you paid my client everything that was owed to him. So how did you pay him back from May 25th to May 31st, 2.22 million dollars Canadian?

A. It should have been paid off before June the 1st. The last payment was 700,000 or over 700,000 dollars in cash. I sent the cash directly to his home.

381. Q. All right. Well, my client disputes that that happened, but even if that did happen, there is still about 1.4 million dollars that you owed him. How did you pay him the other 1.4 million dollars between May 25th and May 31st?

A. I sent him cash.

382. Q. So you're saying that you sent him the $700,000 plus about 1.5 million dollars extra in cash?

A. Anyways, there were transfers as well. Anyways, if I could make transfer I did. Anyways, I'm not sure. The majority of the payment was in cash.

[28] Chen undertook to provide a breakdown of the cash payments made to Shi, including the dates the payments were made and the amounts. Chen failed to provide details of the payments he says he made to Shi in cash. The only detail provided is with respect to the paper bag full of $700,000 cash that he says he left on the doorstep. Shi denies any cash was left on his doorstep. He states that at one-point Chen offered to give him $430,000 in cash. Shi refused to accept such a large amount in cash and the money was returned to Chen.

[29] The evidence put forward by the parties on this motion leaves something to be desired. Although the parties were dealing with significant sums of money, there is virtually no documentation to support the arrangement, or the amounts advanced. Based on the documentary record alone, the Plaintiff has not established a strong prima facie case. However, the evidence from Chen on his cross-examination provides evidence in support of the Plaintiff’s claim. Chen concedes that as of May 25, 2020 he owed $2,220,000 to Shi. His testimony with respect to the repayment of the amount is incomplete and not reliable. It defies belief that he would leave $700,000 in a brown paper bag on the Plaintiff’s doorstep. There are no corresponding bank statements showing this amount was withdrawn from his bank account. There is no evidence of any bank transfers or other cash payments.

[30] The testimony from Chen was not before either Myers, J. or Dunphy, J. It is my view that this evidence is critical to the issue of whether Shi has established a strong prima facie case. It is my view that based on Chen’s own testimony, a strong prima facie case is made out. Chen admits that as of May 25, 2020 he owed the Plaintiff $2,220,000. Although Chen states that the amount was fully repaid by the end of May, there is no credible evidence to support this statement.

Assets in the jurisdiction

[31] There is no dispute in the evidence that Chen owns a property in Richmond Hill. The property was sold in April 2021 and the sale is to close on July 2, 2021.

Real risk property will be removed, or assets dissipated

[32] A Mareva injunction requires the moving party to demonstrate that the assets of the defendant are being or will be dissipated and will not be available for execution after judgment. In cases involving allegations of fraud, the real risk of the removal or dissipation of assets can be established by inference, as opposed to direct evidence: Sibley & Associates LP v. Ross, 2011 ONSC 2851, at para. 63. Here, Shi makes allegations of fraud against Chen.

[33] Chen’s only asset of value is the property at 35 Pheasant Drive in Richmond Hill. The mortgages were registered on the property in late 2020 and early 2021, after Chen stopped communicating with Shi. Chen states that the mortgages were taken out for the business purpose of paying business expenses and for payment of his debts and living expenses. Shi argues that the mortgages are not bona fide, however there is no evidence before the court which would support Shi’s allegation in this regard. Chen advised on cross-examination that he has one chequing account and two savings accounts at CIBC containing a few hundred dollars. He has one chequing account and two savings accounts at TD Bank containing only a few hundred dollars. He has two used vehicles of uncertain value.

[34] Chen owns two apartments in Kunming City, Yunnan province in China. There are no mortgages on the properties in China. Chen states that the units are collectively worth about CAD $100,000. Chen also has a savings account with the Bank of China with the equivalent of a few thousand dollars Canadian, and an account with the Construction Bank of China also containing the equivalent of a few thousand dollars.

[35] Chen states that he is selling his property in Richmond Hill because of a “hot” real estate market and not for the purpose of dissipating his assets. He states he has no intention of leaving Canada because he is a Canadian citizen, has a job in Canada and his children intend to move back to Canada to go to school. Chen’s wife and children are currently living in China and have lived there for many months. The sale of his home closes on July 2, 2021. Chen has not purchased a new property. He has not entered into a lease. He was unable to state on cross-examination where he will be living after the sale of his house closes. He suggests that he may live with his real estate agent. There is no evidence to support his statement that his family is expected to return to Canada.

[36] Chen sold his property four days after the Statement of Claim was issued. He has not purchased a new property or entered into a lease. He has assets in China and his family is currently living in China. I am satisfied there is a real risk that Chen will remove the proceeds from the sale of the property to China once the transaction closes on July 2, 2021.

Irreparable Harm

[37] Irreparable harm is harm, “which either cannot be quantified in monetary terms or which cannot be cured”: RJR-Macdonald Inc. v Canada, 1994 CanLII 117 (SCC), [1994] 1 SCR 311 at 64. The probability of irreparable harm increases as the probability of recovering damages decreases: HTS Engineering Ltd. v. Marwah, [2019] ONSC 6351, at para. 200. Shi argues that if successful at trial, he will be left with only a “paper” judgment and will suffer irreparable harm. He states that if an injunction is not granted, Chen will transfer the proceeds from the sale of his property to China and thereby prevent Shi from recovering on a judgment, if successful at trial.

[38] Chen’s only asset in Ontario of any value is the property, the sale of which closes on July 2, 2021. If the proceeds from the sale are transferred to China, the probability of Shi recovering damages will decrease. I am satisfied that Shi will suffer irreparable harm if the injunction is not ordered.

Balance of Convenience

[39] In determining the balance of convenience, I must consider which party will suffer greater harm from the granting or refusal of the injunction. In the circumstances of this case, I am satisfied that the balance of convenience favours granting an injunction.

[40] An injunction which enjoins Chen from disposing of the net proceeds from the sale of his house, will not result in significant prejudice to Chen. He has not purchased a new property. He does not require the proceeds from the sale of the property to be used as a down payment for a new house. He testified that he has a job in Canada. There is no evidence that Chen requires the proceeds of the sale for his personal living expenses or for legal expenses. If the injunction is not granted, there is a risk that the proceeds from the sale of the property will be transferred to China and Chen will not have sufficient assets to satisfy a judgment.

Undertaking as to damages

[41] Absent unusual circumstances, the plaintiff must provide the undertaking as to damages: United States of America v. Yemec (2005), 2005 CanLII 8709 (ON SCDC), 75 O.R. (3d) 52 (C.A.). I am satisfied that there is no basis to dispense with the undertaking in this case.

[42] Shi has not provided an undertaking as to damages. There is no evidence as to Shi’s assets to allow the court to determine if an undertaking as to damages is substantial.

[43] I require Shi to provide an undertaking as to damages and to provide sufficient evidence to support the undertaking.

Is the Plaintiff entitled to an order for the preservation of property?

[44] Rule 45.01 provides that the court may make an interim order for the preservation of any property in question in a proceeding or is relevant to an issue in a proceeding. Here, Shi argues that Chen’s home is a property that is relevant to the proceedings and should be preserved pending trial of this action.

[45] To obtain an order for the interim preservation of property, the moving party must establish the following:

a. The assets sought to be preserved constitute the subject matter of the dispute;

b. There is a serious issue to be tried regarding the claim to that asset; and

c. The balance of convenience favours granting the relief sought: Hadaro v. Patten, 2019 ONSC 4574, at para. 19.

[46] I am unable to conclude on the evidence before me that Chen’s home is the subject matter of the dispute. There is no suggestion that the property was purchased by funds obtained from Shi.

[47] I dismiss the motion for interim preservation of property.

Disposition

[48] I conclude that it is in the interests of justice that the orders of Dunphy, J. be set aside, because of new evidence that was not available at the time he considered the motions in writing.

[49] I find that Shi has established a strong prima facie case and that there is a real risk that Chen will dissipate his assets following the sale of his property on July 2, 2021. I also find that the balance of convenience favours granting an injunction which enjoins Chen from disposing of the net proceeds of the sale of his property. However, before granting an injunction, Shi must provide an undertaking as to damages. I adjourn the motion for a period of up to five days from the date of this endorsement to allow Shi to provide the undertaking as to damages, and to produce evidence to support the undertaking. Counsel for the Plaintiff is directed to contact the court office to schedule a brief attendance before me, on a date convenient to counsel, to deal with this issue.

[50] I remain seized.

DATE: JUNE 22, 2021