COURT FILE NO.: CV-19-00618632-0000
DATE: 2022-06-09
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: BLUEKEY EDUCATION LTD., ONTARIO CORPORATION NUMBER 1908809, Plaintiff
AND:
JIAN WANG aka LIVIA WANG, ZHE LI aka JOY LI, and BLUEKEY EDUCATION LTD. ALBERTA CORPORATION 2021252180, Defendants
AND BETWEEN:
JIAN WANG aka LIVIA WANG, Plaintiff by Counterclaim
AND:
BLUEKEY EDUCATION LTD., ONTARIO CORPORATION NUMBER 1908809 and YIMING SHAO aka PETER SHAO, Defendants by Counterclaim
BEFORE: Koehnen J.
COUNSEL: Shahryar Mazaheri for the Plaintiffs
Justin Necpal for the Defendant Livia Wang
HEARD: June 2, 2020
ENDORSEMENT
[1] This is a motion by the plaintiffs to release funds that are subject to a Mareva injunction. The plaintiffs submit that the record demonstrates that they have a proprietary interest in the funds and that they require the funds to pay legal fees to advance this action and to defend three other related actions.
[2] The defendant Livia Wang submits that she too has a proprietary interest in the funds and that the plaintiffs have not demonstrated that they require the funds to advance this action or defend themselves in other litigation.
[3] For the reasons set out below I order that: the plaintiffs be paid $50,000 out of the amount being held in escrow to be used for legal fees in this or related actions; Ms. Wang pay $39,000 into court to the credit of this action and the escrow agent, Paris and Company pay the balance of the sum it is holding in escrow into court to the credit of this action.
Background of the Motion
[4] The plaintiffs operated seven tutoring schools for Chinese students attending various universities in Ontario. The schools were referred to as campuses, usually designated by the name of the university near which the school is located. In November 2016, the plaintiffs hired the defendant Livia Wang initially as a tutor for their York campus which serviced students at York University. Ms. Wang was later promoted to office manager for the York campus.
[5] In the spring of 2019, the plaintiffs discovered that Ms. Wang had diverted funds from the plaintiffs’ bank accounts to private bank accounts in her name. They obtained a Mareva injunction against Ms. Wang from Justice Kimmel by order dated May 17, 2019. As a result of subsequent proceedings and agreements, approximately $141,478.33 of the funds Ms. Wang diverted is being held in escrow by Paris & Company pursuant to that injunction. The plaintiffs seek payment of those funds to themselves. The plaintiffs have since settled the action against all defendants other than Ms. Wang. Ms. Wang has returned to China since leaving the plaintiffs’ employ.
Analysis
[6] As noted, the plaintiffs submit that they require the funds in order to pay legal fees. Ms. Wang disputes this. She submits that the plaintiffs have appeared on this motion with the assistance of legal counsel, as a result of which she says the claim that the funds are needed to pay for legal fees is disingenuous.
[7] The record before me indicates, on a balance of probabilities, that the plaintiffs do need the funds to prosecute this action and to defend themselves in a number of other actions. Peter Shao, the President, sole director and sole shareholder of both plaintiff corporations has sworn an affidavit to which he has attached a letter from counsel seeking a retainer of $50,000. The letter also notes that total costs of the trial will be upwards of $100,000. Those do not strike me as excessive estimates. Mr. Shao’s affidavit also states that the plaintiffs do not have liquid funds to pay the retainer. Mr. Shao was not cross-examined on his affidavit.
[8] The plaintiffs have been without counsel for approximately a year and a half. Counsel have appeared on this motion relatively late in the day. There are a number of financial arrangements counsel can enter into including contingency fees and acting on a very limited retainer for a fixed fee. Mr. Mazaheri, who appeared for the plaintiffs, advised that he was acting on a contingency basis on only the motion. The fact that the plaintiffs have been able to find a lawyer for this motion does not mean that they have the ability to fund counsel to prosecute this action or to defend the three other related actions.
[9] The plaintiffs say they are entitled to the funds in escrow because they have a proprietary claim to those funds. Ms. Wang has admitted in her responding affidavit to the Mareva injunction and on this motion that the funds in escrow were in fact diverted from bank accounts of the plaintiffs to which she had access as the manager of the York campus. According to Ms. Wang, the plaintiffs had a history of not paying their tutors. Ms. Wang says she became concerned that the plaintiffs would not leave her with sufficient funds in the York campus to pay tutors after Mr. Shao asked her to transfer $20,000 to “headquarters” to fund the University of Toronto campus which did not appear to be doing well financially. Ms. Wang says that if, at the end of the school year, funds had been left over she would have returned those funds to the plaintiffs’ accounts.
[10] I am somewhat reluctant, on the record before me, to give much weight to Ms. Wang’s explanation about her intention to use the funds only for valid business purposes and then return any excess to the plaintiffs at the end of the semester. My reluctance stems from the order of Justice Kimmel which required Ms. Wang to provide the plaintiffs with a sworn statement “tracing the funds, including where the funds were deposited, transferred and spent.” Ms. Wang’s response to this was contained in paragraph 50 of her affidavit of November 10, 2019, where she attached the relevant account activity at exhibit E to her affidavit and stated that the records demonstrate the funds were used only for legitimate Bluekey business purposes. I am unable to reach that conclusion. Exhibit E consists of a printout of an electronic bank statement which describes withdrawals as electronic transfers or cheques together with the amount of the withdrawal and the remaining balance. The exhibit provides no insight into the purpose of the transfer, nor does it indicate where the funds were transferred to or spent as required by Justice Kimmel’s order.
[11] If Ms. Wang did intend to put the funds into safekeeping, make business expenditures and return the balance to Bluekey at the end of each semester, I would have thought that Ms. Wang would be keeping a careful ledger of all such payments or transfers which would have made complying with Justice Kimmel’s order fairly easy. I have not been pointed to any evidence of such a ledger or any other record that would provide a detailed account of what Ms. Wang did with the plaintiffs’ funds.
[12] Ms. Wang’s explanation about the source of the funds in her accounts appears to give the plaintiffs a proprietary claim to the funds. Ms. Wang admits that the funds are, at least at first blush, property of the plaintiffs. Although she might have been well-intentioned in removing those funds from the plaintiffs’ reach, she had no legal authority or right to do so.
[13] Ms. Wang counters with the submission that she too has a proprietary right to the funds. Ms. Wang alleges that the plaintiffs have failed to pay her amounts owing on account of ordinary salary. In addition, Ms. Wang submits that her employment contract entitled her to “receive 16% of shares (sic) of the gross revenue from York Campus at the end of each school year.” She says she was never paid that 16% bonus.
[14] In argument, Mr. Shao suggested that the employment arrangement had been amended to remove the 16% bonus. Ms. Wang denies this. Mr. Shao could not point to any written notice or agreement in the record to support this submission. Mr. Mazaheri, on behalf of the plaintiffs, submits that schedules to the reply factum support this submission. When I pointed out that this was not evidence, he tried to file a reply affidavit which purportedly attested to the truth of the schedules during the hearing. I disallowed the reply affidavit without reading it myself because Ms. Wang had not had opportunity to see it, respond to it or cross-examine on it. In my view it was also not appropriate to be able to file additional evidence that responds to a weakness that has been discovered in one’s case as a result of questions from the bench.
[15] There is, however, also evidence in the record that is inconsistent with Ms. Wang’s right to a 16% bonus. There is no evidence that Ms. Wang ever asked for the bonus before May 2019 when the Mareva injunction was granted. According to her employment contract, she would have been entitled to a 16% bonus in the spring of 2017 and 2018.
[16] In addition, Ms. Wang says that her relationship with Mr. Shao had broken down by March 2019 as a result of which she advised him by email in April 2019 that she would be graduating soon and would leave her job at Bluekey after graduation to start her own tutoring service. The email was friendly in tone, offered further help to Mr. Shao and made no mention of being owed 16% of revenues of the York campus.
[17] I am also not persuaded on the record before me that Ms. Wang kept all of the funds she diverted, for business purposes. Mr. Shao’s affidavit alleges that Ms. Wang personally withdrew at least $100,000 from the accounts to which she diverted the plaintiffs’ funds. Ms. Wang has not answered that allegation in her affidavits apart from making a general statement to the effect that she used funds for business purposes only.
[18] These limitations in the record prevent me from concluding that Ms. Wang has made out a proprietary claim to the funds in escrow at this stage of the proceeding.
[19] Moreover, as the Court of Appeal noted in Sadie Moranis Realty Corporation v. 1667038 Ontario Inc.,[^1] a party has not met the test to establish a specific fund where it has a claim only for damages. This is so even if the party can identify a specific fund from which damages could or should be paid because a claim for damages is not a claim to a legal right to the specific fund. Put another way, there is a difference between an amount that may be owing and a right of a party to a specific fund.[^2]
[20] The plaintiffs have, however, established a proprietary claim in light of Ms. Wang’s admissions that the funds in escrow belong to the plaintiffs. Does that then entitle them to payment of funds out of court? The test for a payment to the plaintiff of funds that are subject to a Mareva injunction against a defendant was discussed by Pattillo J. in Yan. v. Chen.,[^3]as follows:
While a Mareva injunction does not require the plaintiff to show any ownership interest in the property, where a plaintiff seeks to have the frozen monies released, he or she must first establish a proprietary right to the funds. Further, even when a proprietary right has been established by the plaintiff, in my view the court retains discretion to restrict access to those funds depending on the circumstances. Factors to be considered include why the monies were frozen in the first place; the status of the action; the proposed use of the funds; and any competing claims to the funds.[^4]
[21] As noted, the plaintiff has already established a proprietary claim. The remaining factors that Patillo J. referred to as relevant also favour the plaintiffs. The monies were frozen in the first place to preserve them for the benefit of the plaintiffs. The action has been dormant, apparently because the plaintiffs need funds to advance it. The funds are proposed to be used to finance the claim. With respect to competing claims, Ms. Wang says the money should belong to her because of her claims to unpaid wages and a 16% bonus.
[22] On the record before me, I have concluded that the most appropriate result is that the plaintiff should be entitled to use the funds in escrow to pay for the legal fees associated with this action. The record before me discloses the need for a $50,000 retainer. I therefore authorize Paris and Company to pay $50,000 directly to the plaintiff, Bluekey or as Mr. Shao may otherwise direct. If the plaintiffs require further funds for legal fees going forward, they can seek a case conference to authorize the release of further fees going forward. Submissions on the case conference should be limited to 10 double spaced pages. Providing such relief at a case conference should be more efficient and less costly than a full-blown motion. The principle underlying such case conferences is that the plaintiffs are in principle entitled to funds to pay for legal fees. In my view, this appropriately balances the interests that Justice Pattillo identified in Yan v. Chan. It recognizes the plaintiff’s proprietary interest in the funds but also gives some recognition to the possibility of a competing claim to those funds. The competing claim means the court should be satisfied that the funds withdrawn from court are used for legal fees as opposed to other purposes.
[23] In addition to payment of the amounts held in escrow, the plaintiffs also seek payment of $39,000 from Ms. Wang’s personal Alipay account into which Ms. Wang diverted funds that belong to the plaintiffs. According to Ms. Wang, certain students wanted to pay their fees in Chinese currency. She facilitated this by having them pay the fees into her personal Alipay account in China. She says she intended to transfer those funds to a Canadian bank account at the end of the year. Ms. Wang says she used her personal account to facilitate these payments because she was not aware that the plaintiffs had their own Alipay account. According to Ms. Wang, she received the equivalent of approximately $39,000 in Chinese currency in this fashion in 2019.
[24] Ms. Wang says she cannot log into her Alipay account because it requires a verification code to be sent to her Canadian phone number but that her Canadian phone is out of service since she returned to China.
[25] Even on that description of events, however, Ms. Wang has simply put the funds beyond the reach of the plaintiffs. That is no excuse for failing to pay the funds into court. Ms. Wang is directed to pay $39,000 into court to the credit of this action. Whether the funds are from the Alipay account or elsewhere is up to her. There is no injustice to Ms. Wang if the Alipay account is in fact inaccessible because she is the one responsible for keeping the $39,000 in what she says is now an inaccessible account.
[26] Paris and Company has also asked that the sum it is holding in escrow be paid into court to the credit of this action. I authorize Paris and Company to do so after paying the first $50,000 to Bluekey either directly or as it otherwise instructs.
Affidavit of Documents
[27] The plaintiffs ask Ms. Wang to produce a further and better affidavit of documents.
[28] Ms. Wang has delivered an affidavit of documents that contains approximately 600 documents. The affidavit of documents does not number the productions and does not contain a description of each document. Instead, most documents are described with a pdf or jpg code such as “04X05. pdf” and “C128jpg”. The plaintiffs seek a numbered list of documents with individual descriptions.
[29] Ms. Wang submits that she has listed the documents and that individual descriptions would merely be a waste of time and energy.
[30] The affidavit of documents that Ms. Wang has produced does not comply with the requirements set out in rule 30.03 (2) of the Rules of Civil Procedure which requires the affidavit to “list and describe” all documents.
[31] The requirements of rule 30.03(2) are more than mere technicalities. They are designed to make documents easily identifiable on discovery and at trial. It is relatively easy to locate a document at an examination for discovery by referring to it by its sequential production number such as production number 62. It is entirely impractical to refer to it as “C128jpg,” without a sequential number to locate it, especially because even the pdf and jpg codes are not listed in numerical order in the affidavit. The only way one could find a reference in the listed documents is to conduct a computer search on the affidavit. Even that would not help much because the documents are not tabbed nor was there any suggestion made to me that the documents were hyperlinked to the affidavit. As a result, the affidavit is impractical to deal with as well as being noncompliant with the Rules.
[32] I therefore require Ms. Wang to produce a further affidavit of documents that contains a number, date, and description for each document. In addition, Ms. Wang will also be required to produce a schedule that lists documents formerly in her possession power or control.
Costs and Disposition
[33] For the reasons set out above I order that:
i. Paris and Company pay to Bluekey directly or as it otherwise instructs the sum of $50,000 to be used for legal fees in this or related actions.
ii. Paris and Company pay the balance of the sum it is holding in escrow into court to the credit of this action.
iii. Ms. Wang pay $39,000 into court to the credit of this action.
iv. The plaintiffs are at liberty to seek the release of further legal fees by payment of monies out of court by way of a case conference the purpose of which will be to satisfy the court that the funds are being used for reasonable legal expenses for this and related actions.
[34] Costs are payable in the cause as the plaintiffs requested.
Koehnen J.
Date: 2022-06-09
[^1]: 2012 ONCA 475
[^2]: Sadie Moranis Realty Corporation v. 1667038 Ontario Inc., 2012 ONCA 475 at para. 21.
[^3]: 2015 ONSC 4149.
[^4]: Ibid. at para. 25.