Court File and Parties

Court File No.: CV-21-00662203 Date: 2021-11-26 Ontario Superior Court of Justice

Re: Yu Liang, Plaintiff/Respondent And: Zhen Wang aka Yuchen Wang, Jian Xu aka Pheonix Xu, 2587830 Ontario Inc., 2599816 Ontario Inc., and 2682062 Ontario Inc., Defendants/Appellants

Before: Justice Mohan D. Sharma

Counsel: Heng (Pandora) Du, for the Plaintiff/Respondent Lou Brzezinski, Stephen Gaudreau and Alexandra Teodorescu, for the Defendants/Appellants

Heard: November 3, 2021

Endorsement

[1] This is an appeal from a decision of Associate Justice Jolley, reported at Liang v Wang, 2021 ONSC 5580, released on August 17, 2021. In her decision, the Associate Judge determined the defendants’/appellants’ motion for the discharge of a number of certificates of pending litigation (“CPLs”). Associate Justice La Horey granted the CPLs following an urgent ex parte motion brought by the plaintiff/respondent on June 16, 2021.

[2] In her decision, Associate Justice Jolley discharged all four CPLs. However, she ordered that the net proceeds from the sale of two of the properties be held in trust by the real estate lawyer with carriage of the closing or, absent the lawyer’s agreement to do so, be paid into court. The appellants only appeal the decision to have the net proceeds of sale held in trust or paid into court.

[3] On this appeal, the appellants argue the Associate Judge:

a. Erred in law, or mixed fact and law, or in the exercise of her discretion, because she:

i. Failed to consider the totality of the plaintiff’s material non-disclosure and misleading statements when he brought his ex parte motion for the CPLs;

ii. Failed to articulate and apply the test to vacate a CPL as set out in 572383 Ontario Inc. v Dhunna, 1987 CarswellOnt 551; and

iii. Ordered that the net proceeds of sale be held in trust or be paid into court without an evidentiary basis to conclude that such an order for security be granted.

[4] The respondent argues that the Associate Judge’s decision was discretionary. As such, it can only be overturned on appeal if a palpable and overriding error was made, and that the Associate Judge’s order was not plainly wrong. The respondent further argues that the appellants are seeking to re-argue this appeal as a de novo motion, and that the proper recourse for the release of funds would be to seek such an order as the Associate Judge authorized, rather than bring this appeal.

Factual Background

[5] There are significant factual disputes as between the parties. I recount the key facts of this case to put this decision into context. It is not necessary to recount all the facts for the purpose of this appeal.

[6] On May 13, 2021, the plaintiff/respondent, Mr. Yu Liang, commenced this action for, among other relief, an accounting, declaration of ownership of property, and damages to recover more than $3,000,000 advanced to the individual defendants, Ms. Jian Xu and Mr. Zhen Wang.

[7] The parties met in 2016. In 2017, there was an agreement to purchase two properties at 176 and 178 Caribou Road (“176” and “178”), to redevelop and sell them for profit. There is a dispute as to whether this was a partnership/joint venture (as alleged by the appellants), or whether the appellants were purchasing the properties in trust for the respondent with funds he provided (as alleged by the respondent). Mr. Liang advanced $3,480,000 for this purpose.

[8] Mr. Liang was not a resident of Canada. For personal reasons, he did not want his name attached to the purchase of the property. He wanted Mr. Wang, Ms. Xu or through a numbered company they registered, the defendant 2587830 Ontario Inc. (“258”), to act on his behalf.

[9] An agreement of purchase and sale was entered into for 176 and 178, which was to close on September 20, 2017.

[10] The appellants state that the vendors of the property (“Vendors”) convinced Mr. Liang, Ms. Xu and Mr. Wang to pay funds upfront for the purchase and redevelopment of the properties, but then absconded with those funds. The sale never closed. The appellants assert they had been victims of a fraud.

[11] 176 and 178 were ultimately sold by the mortgagee through a power of sale proceeding. The properties were sold to a friend of Mr. Xu, Lu Sun, who was only a named purchaser. Again, this was because Mr. Liang did not want his name associated with the transactions. The appellants say, despite their efforts to contact Mr. Liang and obtain the required funds from him, he failed to respond and “ostensibly disappeared”. They had to engage another friend of Ms. Xu, Dongxu Ma, to fund the power of sale purchase of 176 and 178.

[12] Mr. Liang argues that the defendants are liable for breach of contract, breach of trust, breach of fiduciary duties and negligence. He cites several allegations in support of these claims, including:

a. In 2017 or 2018, Ms. Xu and 258 purchased an adjacent property – 174 Caribou Road (“174”) - from the same Vendors of 176 and 178 without advising Mr. Liang.

b. Mr. Liang believes the funds he advanced in trust for 176 and 178 were used for the purchase of 174 by the appellants, without Mr. Liang’s knowledge.

c. The Vendors commenced an action against Ms. Xu and 258 in October of 2018 with respect to 174. Ms. Xu and 258 responded with a counterclaim against the Vendors with respect to 176 and 178. That action settled without Ms. Xu receiving any funds. Mr. Liang states has not been provided with any settlement documents to evidence that this is what occurred.

d. Mr. Liang states he has not been provided with any evidence of the alleged fraud by the Vendors.

e. No accounting has been provided to Mr. Liang with respect to any of the projects.

[13] From the appellants’ perspective, when Mr. Liang failed to provide funding to allow the power of sale of 176 and 178 to close, that was the end of the arrangement they had with him. It is their position they had no further obligations to him. The money, they say, ultimately used to purchase 176 and 178 did not come from Mr. Liang, which money was stolen by the Vendors and is now gone. They say Mr. Liang had no role in this second transaction to purchase 176 and 178 and no entitlement to it, except perhaps for $185,000 he advanced on this second transaction.

[14] Similarly, with respect to 174, the appellants argue that this was a separate transaction in which Mr. Liang had no involvement. The appellants say they spent their own funds to ultimately build and develop 174, 176 and 178. 176 was ultimately severed into two lots – 176 and 176B.

[15] After not receiving information in response to inquiries from his lawyer, Mr. Liang commenced this action. Mr. Liang’s ex parte motion for CPLs for the four properties – 174, 176, 176B and 178 Caribou Road - was granted on June 16, 2021.

[16] Due to a scheduled closing on the sale of 176 on August 18, 2021, the appellants brought an urgent motion to discharge the CPLs, which was heard by Associate Justice Jolley on August 16, 2021, with a decision released on August 17, 2021.

[17] As noted, the Associate Judge discharged all four CPLs. However, she ordered that the net proceeds from the sale of 176 and 174 be held in trust or paid into court. It is only these orders that are the subject of this appeal.

Legislative Authority

[18] Section 103(6) of the Courts of Justice Act (“CJA”) is the statutory authority governing the discharge of a CPL:

(6) The court may make an order discharging a certificate,

(a) where the party at whose instance it was issued,

(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,

(ii) does not have a reasonable claim to the interest in the land claimed, or

(iii) does not prosecute the proceeding with reasonable diligence;

(b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or

(c) on any other ground that is considered just,

and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.

[19] Rule 39.01(6) states what a moving party is expected to disclose on an ex parte motion for a CPL:

(6) Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application.

Standard of Review

[20] The standard of review on an appeal of a decision of an Associate Judge [previously Master] is set out comprehensively by Justice Perell in Bee Vectoring Technology Inc. v. Chitiz Pathak LLP, 2019 ONSC 1714 (footnotes omitted):

[23] A Master's decision will be interfered with on appeal, if the Master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error; where the Master has erred in law, the proper standard of review is correctness.

[24] Zeitoun v. Economical Insurance Group establishes that the standard of appellate review from a master’s order is in accordance with the standards of appellate review set out by the Supreme Court of Canada in Housen v. Nikolaisen, which established that there are different standards of appellate review for issues of law, issues of fact, and issues of mixed fact and law.

[25] Issues of law are about what is the correct legal test. The standard of appellate review for errors of law is correctness. The application of an incorrect legal standard, a failure to consider a required element of a legal test, or an error in principle is an error in law. It is an error in law for a judge or tribunal member to fail to provide an explanation of his or her decision that is sufficiently intelligible to permit appellate review.

[26] Issues of fact are about what events took place between the parties. The standard of review for findings of fact is that factual findings ought not to be reversed unless it is established that the trial judge made a palpable and overriding error. The palpable and overriding error test is met if the findings are clearly wrong or can properly be characterized as unreasonable and unsupported by the evidence. A "palpable" error is one that is obvious, plain to see or clear. An "overriding" error is an error that goes to the root of the finding of fact such that the fact cannot safely stand in the face of that error.

[27] Questions of mixed fact and law are questions about whether the facts satisfy the legal tests. Where the legal principle is not readily extricable, then the matter is one of mixed law and fact. If fact-finding is integral to the ultimate determination of the question, the question is an issue of mixed fact and law. The standard of review for findings of mixed fact and law is on a spectrum between correctness and palpable and overriding error.

Analysis

Issue #1: Did the Associate Judge err in not concluding that the plaintiff failed to meet his obligation of “full and fair disclosure of all material facts”?

[21] The appellants rely on rule 39.01(6) and caselaw for the following propositions:

a. A party who moves without notice must be fair. The duty to make full and fair disclosure replaces the checks and balances of the adversarial system: Moses v Metro Hardware and Maintenance Inc., 2020 ONSC 6684.

b. The scope of the obligation to disclose is broad. All matters which are relevant to the 'weighing operation' that the court has to make in deciding whether or not to grant the order must be disclosed: United States v Friedland, [1996] OJ No. 4399 (Ont Gen Div).

c. If a party seeking an ex parte CPL fails to fulfill its duty to make full and fair disclosure by omitting or misrepresenting material facts and law, the CPL will be set aside on that basis alone: Friedland, supra.

d. It is insufficient for a Plaintiff to simply append a document as an exhibit without highlighting in the body of the affidavit itself any important clauses or portions of the exhibits: Zhao v. 8657181 Canada Inc., 2020 ONSC 2864, para 24(f)

[22] The appellants argue that the Associate Judge erred in law by applying a lesser test of whether the respondent “misled” the court, rather than whether he fulfilled his duty of “full and fair disclosure of all material facts” as required under rule 39.01(6). The appellants argue it was an error in law to apply the latter test.

[23] I am satisfied that the Associate Judge applied the correct test. First, in paragraph 10 of her Reasons, she correctly identified the test in rule 39.01(6). Second, she also referred to Moses, on which the appellants rely on this appeal, as the policy reason behind this rule. That reason is to ensure that, given the ex parte relief being sought by one party, the Court is not misled on material facts adduced by that party when a CPL is issued.

[24] Because the Associate Judge also used the term “misled” in her reasons, does not mean she applied the incorrect test. Whether there is full and fair disclosure is inextricably linked to the concern about the court being misled. In other words, there would not be full and fair disclosure if the effect of the non-disclosure would result in the court being misled.

[25] The appellants further argue that the Associate Judge erred in her application of the legal test to Mr. Liang’s alleged failure to provide full disclosure on multiple material issues. In this respect, this is a question of mixed fact and law, and the standard of review is on a spectrum between correctness and palpable and overriding error. For questions of mixed fact and law, less deference may be appropriate as compared to a review of purely factual issues.

[26] The appellants take issue with the following information that was not disclosed by Mr. Liang in his original affidavit used on the CPL motion:

a. That the ultimate sale of 176 and 178 occurred through the power of sale transaction, that Mr. Liang abandoned that transaction, and the bulk of the funds he advanced were advanced before this transaction. The appellants state it was material for the Associate Judge who granted the CPL to know that there were two transactions.

b. The existence of a “Clarification Letter” sent by Ms. Xu to Mr. Liang around the time of the power of sale transaction on February 13, 2019. In their factum, the appellants say this letter states (1) the power of sale was to be funded by Ms. Xu and Mr. Wang and not Mr. Liang; (2) Mr. Liang disbursed funds directly to the Vendors; (3) Mr. Wang and Mr. Xu told Mr. Liang about the lawsuit and police investigation of the Vendors; and (4) Mr. Liang knew and authorized the power of sale purchase.

[27] On careful review of paragraphs 11 to 23 of her Reasons, I cannot conclude that the Associate Judge made an error that “can be attributed to the application of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle” (see Housen v. Nikolaisen, 2002 SCC 33 at para 36). Nor can I conclude that the Associate Judge made a palpable and overriding error in her assessment of the evidence.

[28] She considered evidence showing that Mr. Liang did adduce evidence of the power of sale transaction, that there were two transactions, and that from his perspective, the funds he advanced were the funds used for the purchase of the properties (para 16-17).

[29] I accept that the appellants’ position is different – that it was their own funds used for the power of sale transaction, as well as for the purchase of 174, and that Mr. Liang’s funds had been absconded by the Vendors. This is the fundamental underlying factual dispute in this lawsuit. However, it was not the function of Associate Judge who granted the CPL, or the function of Associate Justice Jolley in deciding whether it should be discharged, to make a factual finding on this underlying factual dispute. It was not a rule 20 motion.

[30] With respect to the clarification letter drafted by Ms. Xu, I make the following points: (1) I can see no statement in it which purports to say, as the appellants argue, that the power of sale was to be funded by Ms. Xu and Mr. Wang, and not by Mr. Liang; (2) in paragraph 19 of her Reasons, the Associate Judge considered when Mr. Liang advanced funds and to whom. She found that in his original motion material, this was sufficiently disclosed and that Mr. Liang had not misled the court in this regard; (3) in paragraphs 18 and 20, she noted that the clarification letter was drafted by Ms. Xu and that Ms. Xu has not provided to Mr. Liang any evidence of fraud or the Minutes of Settlement of the lawsuit, and (4) the Associate Judge noted in para 17 of her Reasons that Mr. Liang did disclose in his original affidavit the power of sale transaction, and that he was required to advance a further $185,000 for it to occur. Therefore, the Associate Judge was satisfied there was no material non-disclosure of any of the issues contained in clarification letter.

[31] When the Court is deciding whether to grant a CPL, the threshold issue is whether there is a triable issue as to an interest in land, not whether the plaintiff will likely succeed. See 2526716 Ontario Inc. v. 2014036 Ontario Ltd., 2017 ONSC 1762 at para 46, citing 1152939 Ontario Ltd. v. 2055835 Ontario Ltd., 2007 CarswellOnt 756 (Ont. S.C.J.) (S.C.J.), as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Ont. Gen. Div. [Commercial List]) (Gen. Div. — Comm. List) at para. 62). After carefully reading the Associate Judge’s Reasons, I am satisfied that she properly assessed whether there was a material non-disclosure that would establish there was no triable issue with respect to a reasonable claim to an interest in the land.

[32] For these reasons, I cannot conclude that she erred in law or in mixed fact and law. I am satisfied that the Associate Judge knew and applied the correct legal test on whether to discharge a CPL, that she considered the totality of the non-disclosure in assessing whether the CPLs should be discharged, and that she made no errors in her application of the test.

Issue #2: Did the Associate Judge err in failing to consider all factors in 572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (“Dhunna”)?

[33] The appellants argue that Associate Judge erred in failing to consider the factors set out in Dhunna. In that case, Master Donkin articulated factors that courts have taken into account when deciding whether to discharge a certificate of pending litigation. This list is not exhaustive.

[34] The Dhunna factors are factors the court can consider on a motion to discharge a CPL. However, “the governing test is that the judge must exercise [their] discretion in equity and look at all of the relative matters between the parties in determining whether or not the certificate should be vacated.” See 931473 Ontario Ltd. v. Coldwell Banker Canada Inc., 1991 CarswellOnt 460 (Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd. (1997), 1977 ONSC 1414, 16 O.R. (2d) 671 at para 9. This interpretation is consistent with the statutory language in s. 103(6) of the CJA which uses the term “may”.

[35] The appellants acknowledge Associate Justice Jolley considered two of the Dhunna factors – (a) the intent of the parties in acquiring the land; and (b) the presence or absence of another willing purchaser. However, the appellants say she did not consider the other factors in the balancing of equities before she imposed terms when discharging the CPLs.

[36] The Associate Judge referenced Dhunna in her decision, and factors to consider when discharging a CPL (para 9). While she did not repeat each factor listed in Dhunna, in my view, this does not evidence a failure to properly balance the equities in the exercise of her discretion given other language in her Reasons. It must also be remembered that she rendered her decision within one day following the appellant’s urgent motion request.

[37] In my view, the Associate Judge did engage in an appropriate balancing of the equities and considered several Dhunna factors. She acknowledged that there were willing purchasers, and for this reason, she discharged the CPLs, consistent with the parties shared goal of selling the properties. In not demanding that proceeds from the sale of all properties be held in trust or paid into court, she did consider harm to the appellants (another Dhunna factor). She stated it would be preferable to pay some funds out of the sale proceeds to the parties, but absent agreement she was unable to do so. Having been satisfied there was a triable issue, she only ordered the net proceeds of sale of two properties be held in trust. She also left the door open for the appellants to return to court to have further monies paid out. Finally, she did some assessment of the strength of the parties’ case (another Dhunna factor), noting that the clarification statement used the word “entrust” suggesting there was a trust arrangement as Mr. Liang argued, and that the appellants had not disclosed the Minutes of Settlement from the lawsuit.

[38] For these reasons, I find that she provided sufficient reasons as to how she balanced the equities in the exercise of her discretionary power under s. 103(6) of the CJA and was, therefore, not an error in law. I also cannot conclude that the exercise of her discretion was plainly wrong.

Issue 3: Did the Associate Judge err in ordering that the net proceeds of sale of two properties be held in trust or be paid into court without an evidentiary basis to conclude that such an order for security be granted?

[39] The appellants acknowledge in their factum there is no set test for when a Court will order the payment of proceeds of sale as a term when discharging a CPL under s. 103(6) of the CJA. Instead, the Court’s analysis should be closely tied with the balancing of equities analysis: see Asibayan v Adhdashi, 2020 ONSC 1027 at para 15.

[40] They further argue that security cannot be an automatic term when discharging a CPL. Otherwise, a plaintiff would simply seek a CPL regularly and then have security for his or her judgment as a term of discharge: see Seaton v. Bolton, 2007 ONSC 46250 at para 25. This is especially true when a plaintiff, such as the plaintiff in this case, seeks monetary damages as an alternative remedy to a claim in the land and where there is insufficient evidence that a defendant would not pay a judgment: see Asibayan supra at para 12.

[41] While the Associate Judge may have more fully explained the need for security, I cannot conclude that she failed to engage in a balancing of equities in her Reasons. She was satisfied, at para 21, that Mr. Liang may have a trust arrangement connected to an interest in the land. She noted, in para 18, that Mr. Liang had not yet been provided with productions for him to assess the alleged fraud by the Vendors, including the Minutes of Settlement confirming the appellants received no funds in their settlement of their litigation with the Vendors. Whether the appellants had “clean hands” is a relevant consideration when balancing equities. At para 24, she considered the appellants’ objection to having money paid into court as leverage. She also considered the appellants offer to pay only $90,000 into court. She concluded that security to protect Mr. Liang’s interest was necessary, having found there was a triable issue. Accordingly, I cannot conclude that the Associate Judge erred in the exercise of her discretion when imposing terms upon the discharge of the CPLs. I cannot conclude that her exercise of discretion was plainly wrong.

Conclusion

[42] For the reasons noted above, this appeal is dismissed.

Costs

[43] Parties are encouraged to agree on an appropriate cost award. If an agreement cannot be reached, parties may submit a 3-page cost submission with an attached Bill of Costs. The respondent shall have 14 days from the release of this decision to deliver submissions. The appellants shall have 14 days thereafter for any responding submissions. The respondent shall have 7 days thereafter for any reply submissions.

Justice M.D. Sharma

Date: November 26, 2021