Court File and Parties

COURT FILE NO.: cv-22-00681020-0000

DATE: 20221202

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: ZHUO CHENG, Plaintiff/Moving Party

Plaintiff

AND:

QU FEI CHENG also known as QUFEI CHENG also known as SOPHIA CHENG, XIAO SHI CHEN, also known as JEN CHEN and JDC LAW LLP

Defendants/Responding Party

BEFORE: Koehnen J.

COUNSEL: Paul H. Starkman, for the Plaintiff/Appellant

Wei Jiang, for the Defendant/Respondent, Qu Fei Cheng, also known as Qufei Cheng also known as Sophia Cheng

David Silver, the Defendants/Respondents, Xiao Shi Chen, also known as Jen Chen and JDC Law LLP

HEARD: November 23, 2022

ENDORSEMENT

[1] This is an appeal from the order of Associate Justice La Horey dated September 23, 2022. In that order, the Associate Justice discharged two certificates of pending litigation and declined to grant any other form of security based on the plaintiff’s failure to disclose certain facts to the court when it obtained the certificates of pending litigation on an ex parte basis.

[2] As a practical matter, by the time the matter reached the Associate Justice, one of the certificates of pending litigation had already been vacated in exchange for an agreement that the proceeds of sale of the property at issue would be held in trust pending disposition of the set aside motion.

[3] I can find no error of law or fact in the decision of the Associate Justice. The decision to lift a certificate of pending litigation is discretionary. I can see no basis for interfering with he Associate Justice’s exercise of discretion.

[4] The plaintiff also moves for a Mareva injunction. In my view, the plaintiff is entitled to such an injunction over the assets of the respondent Qu Fei Cheng equal to the amount of the value of the condominium at issue in this proceeding.

The Facts

[5] The plaintiff Mr. Cheng is the father of the defendant Ms. Cheng. In March 2011 Mr. Cheng and his wife, Ms. Wang, purchased a condominium at 51 E. Liberty Street in Toronto. In May 2015, before the closing, the plaintiff and Ms. Wang transferred the condominium into Ms. Cheng’s name.

[6] In June 2017, the plaintiff and Ms. Wang separated and divorced shortly thereafter. In connection with that separation and divorce, the plaintiff, Ms. Wang, and Ms. Cheng signed what the parties have referred to as the Separation Agreement. It dealt with two properties: the condominium and a second property at 110 Acton Ave which was owned by the plaintiff and Ms. Wang. The separation agreement provided that the title to the Acton property would be transferred into the name of Ms. Wang and Ms. Cheng. In exchange, Ms. Cheng would transfer title of the condominium into the plaintiff’s name. The plaintiff kept his side of the bargain and transferred title of the Acton property on June 29, 2017. Ms. Cheng did not transfer title of the condominium. She says she tried to do so but was unsuccessful because the existing mortgagee would not accept the plaintiff as a mortgagor.

[7] On March 25, 2022, Ms. Cheng sold the condominium for $835,000. On March 28, 2022, Ms. Cheng, through her lawyers, sent the plaintiff what has been referred to as a Conditional Gift Agreement. The Conditional Gift Agreement provided that the plaintiff would receive the net proceeds of sale on the condominium as a gift over a number of years subject to a number of conditions including that the monies would be used only for his reasonable living expenses, written approval of Ms. Cheng would be required if the monies were to be gifted to anyone else and the plaintiff could not make “inappropriate comments” against Ms. Cheng or Ms. Wang. The plaintiff refused to sign the agreement.

[8] Ms. Cheng also had purchased two other residential properties, which the parties have referred to as the Lindvest and Anndale properties.

[9] After the plaintiff learned that Ms. Cheng was about to sell the Lindvest property, he obtained certificates of pending litigation against both the Lindvest and Anndale properties.

[10] The Associate Justice accepted that the plaintiff had established an interest in the Lindvest and Anndale properties sufficient to warrant a certificate of pending litigation. That interest arose because there was enough evidence before the Associate Justice who granted the ex parte order and Associate Justice La Horey to suggest that Ms. Cheng had taken monies that derived from the condominium and used them to purchase and/or maintain the Lindvest and Anndale properties.

[11] The Associate Justice nevertheless set aside the certificates of pending litigation because of material nondisclosure by the plaintiff when he obtained the ex parte certificates of pending litigation.

[12] The first item of nondisclosure was a letter that the plaintiff had written to CIBC when he transferred the condominium to Ms. Cheng. That letter stated that although the plaintiff and Ms. Wang had paid the deposit on the condominium, they were gifting the deposit to Ms. Cheng and that Ms. Cheng was not required to repay the deposit.

[13] The second matter of nondisclosure that the Associate Justice found was that the plaintiff was aware of Ms. Cheng’s position that she was the legal and beneficial owner of the condominium but that he did not disclose that information to the court on the ex parte motion. In particular, there were two emails that should have been disclosed, one from Ms. Cheng’s lawyer dated March 28, 2022, and the second one from Ms. Cheng’s lawyer to the plaintiff’s lawyer dated May 4, 2022. In addition, the plaintiff failed to disclose the closing date of the sale of the Lindvest property. The Associate Justice found that this amounted to material nondisclosure. She then recognized that the material nondisclosure did not end the matter but that she was nevertheless to consider the equities because the court had a continuing discretion to act in the interests of justice having regard to the totality of the evidence.

[14] I cannot find any error of law or principle in the Associate Justice’s decision to lift the certificates of pending litigation.

[15] The analysis of the Associate Justice focused on issues surrounding certificates of pending litigation and the requisite interest in property that this remedy requires. She balanced the interests against the nature of the interest in the property and concluded that the certificates of pending litigation should be lifted.

[16] In my view, there was no error in the reasons of the Associate Justice. She considered the appropriate legal tests, considered the appropriate factors to balance and did so. In my view, she committed no error of law and no palpable or overriding error fact. She considered the appropriate factors in exercising her discretion. In those circumstances, there is no basis to interfere with the decision of the Associate Justice.

[17] The Associate Justice went on to note in paragraph 76 of her reasons that if a plaintiff had concerns about the dissipation of assets more generally, it was open to him to seek relief by way of a Mareva injunction. She noted that a certificate of pending litigation is intended only to protect an interest in land where other remedies would be ineffective.

[18] The plaintiff now moves separately for a Mareva injunction. An injunction is a remedy to be sought for a Judge of the Superior Court of Justice, not from an Associate Justice. As a result, it was not a remedy open to the plaintiff to seek when he was before the Associate Justices on the motions for the certificate of pending litigation. In my view, the plaintiff has met the test for a Mareva injunction as it relates to the proceeds of sale from the Lindvest property.

[19] The test for a Mareva injunction is well known:

i. the plaintiff must establish a strong prima facie case.

ii. The plaintiff should provide some ground for believing that the defendants have assets in the jurisdiction.

iii. The plaintiff should provide some ground for believing that there is a risk of the assets being removed before the judgment or award is satisfied. To do so the material must persuade the court that the defendant is about to remove assets from the jurisdiction to avoid judgment or that the defendant is otherwise disposing of assets out of the ordinary course of business so as to render future tracing remote.

iv. The plaintiff must demonstrate irreparable harm if relief is not granted.

v. The plaintiff must demonstrate that the balance of convenience favours granting the injunction.[^1]

[20] I am satisfied that the plaintiff has demonstrated a strong prima facie. Ms. Cheng has in effect admitted that she tried to transfer title to the plaintiff but was unable to do so because the plaintiff could not assume the existing mortgage. This strongly suggests that Ms. Cheng understood that she had an obligation to transfer the condominium to the plaintiff. The Conditional Gift Agreement in my view suggests further that Ms. Cheng knew she had an obligation to transfer the proceeds of sale of the condominium to the plaintiff as a result of the Separation Agreement.

[21] Although on this motion Ms. Cheng takes the position that the Conditional Gift Agreement simply meant that she at one point was prepared to give money to the plaintiff but no longer is, that is a matter to be determined at trial. That position, however, on the limited material before me, strikes me as a substantially weaker case than the plaintiff has with respect to the proceeds of the condominium.

[22] Ms. Cheng admits she has assets in the jurisdiction. As a result, the second branch of the test is easily met.

[23] With respect to the risk of transfer either outside the jurisdiction or within the jurisdiction, Ms. Cheng failed to transfer title to the condominium even though she was obliged to do so by the Separation Agreement. Her attempt to do so demonstrates, in my view, an acknowledgement of the obligation. The imposition of terms on the delivery of any money to her father would appear to be a subsequent development that was not part of the Separation Agreement that Ms. Cheng signed. I appreciate that Ms. Cheng takes the view that she is not bound by the Separation Agreement. That will be a matter for trial.

[24] Ms. Cheng has already disposed of the condominium and the Lindvest property. Although she retains title to the Anndale property, matters take a great deal of time to get to trial in Toronto. There would be ample time to either transfer or encumber that property to put it beyond the reach of the plaintiff if he succeeds in obtaining judgment.

[25] There remains a concern about Ms. Cheng’s intention to leave Canada and return to Hong Kong or China. Although Ms. Cheng says she recently took a new job in Toronto, there is no restriction on anyone’s ability to leave a job, even a new one. Ms. Cheng also dropped her dog off with Mr. Cheng and instructed him to take care of him. She has not explained why she did that. That would certainly be consistent with an intention to leave the country.

[26] I am satisfied that the plaintiff would suffer irreparable harm if the injunction were not granted. Mr. Cheng is in poor health, can work only part time and earns very little. He has already been deprived of title to a condominium. He does not have the means to pursue aggressive litigation or tracing remedies.

[27] In my view, the balance of convenience favours the plaintiff. Ms. Cheng retained the proceeds of sale of the condominium even though she was party to an agreement requiring her to transfer the condominium to the plaintiff. There is no evidence before me of any prejudice that the plaintiff would suffer if the proceeds of sale from the Lindvest property continue to be held in trust pending disposition of this proceeding. If the proceeds of sale or other assets of Ms. Cheng were encumbered or transferred into other entities, it would not take much in the way of such transfers to render them beyond the grasp of the plaintiff given his very limited financial means.

[28] I appreciate that an undertaking in in from the plaintiff does not amount to much given his earnings of approximately $35,000 per year. The plaintiff admits that his current net worth is approximately $9,500. Rule 40.03 allows the Court to relieve a party seeking an injunction of the obligation to provide an undertaking in damages. In my view is appropriate to relieve the plaintiff from doing so in this case. The fact that the plaintiff has no assets is due in large part to Ms. Cheng’s failure to transfer the condominium to him as she undertook to do in the Separation Agreement. It would be inequitable to allow her to rely on that failure to deprive the plaintiff of the ability to seek an injunction.

[29] The case to relieve the plaintiff of the undertaking and damages is all the more compelling given that Ms. Cheng has not set out what damages she would suffer. To the extent that Ms. Cheng wants to protect her position to the proceeds of sale, it may be possible to fashion a way of investing the proceeds of sale so that Ms. Cheng will continue to earn a return on that money pending completion of the trial without prejudicing the plaintiff with the possibility of a dissipation of funds.

[30] Ms. Cheng also submits that the application for a Mareva injunction at this stage amounts to a collateral attack on the order of the Associate Justice. The doctrine of collateral attack is also ultimately an equitable doctrine. It is aimed at avoiding duplicative litigation. I note that the idea of the Mareva injunction came from the Associate Justice’s reasons. She noted fairly that certificates of pending litigation were intended to protect interests in land. Her balancing of various factors was done in relation to the test specific to a certificate of pending litigation and the test to establish an interest in land. The plaintiff’s claim in an interest in the Lindvest or Anndale properties per se is weaker than his claim to security for the loss of the condominium. That factor would not be taken into account when assessing a certificate of pending litigation but can be considered when assessing a Mareva injunction.

[31] Although I Accept the Associate Justice’s conclusion that the plaintiff committed material nondisclosure on the ex parte certificate of pending litigation motions, the issue of nondisclosure does not arise on the Mareva injunction motion. The motion is on notice and all material facts have been disclosed. Even if the earlier material nondisclosure continues to be relevant here, the nondisclosure does not override the equities as they apply to the loss of the condominium. In this regard, it is important to note that the balancing of factors for a Mareva injunction differs from the balancing required for a certificate of pending litigation.

[32] In my view, the appropriate way of doing justice in this case is to have the proceeds of sale of the Lindvest property either continue to be held in trust or to be paid into court to the credit of this action.

[33] That order will be subject to two potential qualifications. First, if the amount of proceeds from the Lindvest sale exceeds the amount that the plaintiff could realistically claim for the failure to transfer the condominium, Ms. Cheng will be entitled to remove that excess from the funds that are frozen pending the disposition of this action. If the parties cannot agree on that issue, they can approach me for a case conference to resolve it. Second, if Ms. Cheng wishes to invest the frozen funds in a way that does not prejudice the plaintiff’s right to have an easily exigible asset at the end of the day, I can be spoken to make arrangements for that.

[34] Finally, it strikes me that this action should be subject to a very aggressive case timetable to get the matter to a trial as quickly as possible. Either party can approach me for a case conference to impose a litigation timetable if the parties are not able to do so themselves.

[35] With respect to costs, I will fix costs but make them payable in the cause. The plaintiff seeks costs on a partial indemnity scale of $28,000. Ms. Cheng’s partial indemnity costs are $6,686.50. I accept that the plaintiff’s costs would be higher given that they have had to demonstrate their case proactively. That is a more expensive exercise than the one a defendant is required to undertake. It strikes me that $28,000 is nevertheless on the high side. I fix Ms. Cheng’s costs at $6,686.50. I fix the plaintiff’s costs at $14,000. As noted, costs will, however, be payable in the cause.

Koehnen J.

Released: December 2, 2022

[^1]: Chitel v. Rothbart 1982 1956.