Court File and Parties

COURT FILE NO.: CV-23-00693416-00CL DATE: 20230615 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: PPI MANAGEMENT INC., Plaintiff AND: XIAOYU ZHOU, XUE YAO, XIAOYU FINANCIAL GROUP LTD, DAOCARE INC. and TIANRUI LI, Defendants

BEFORE: Kimmel J.

COUNSEL: Eliot N. Kolers and Hamza Mohamadhossen, for the Plaintiff Eileen Liu, for the Defendant Tianrui Li

HEARD: May 31, 2023

Endorsement (Mareva Come-Back Motion)

[1] An ex parte targeted Mareva injunction order (the “Mareva Injunction Order”) was granted on January 25, 2023 against a Guaranteed Investment Certificate (“GIC”) held in the name of the defendant Tianrui Li (“Li”) at the Royal Bank of Canada (“RBC”). The initial come-back hearing was on January 31, 2023. At that time, the parties agreed that the Mareva Injunction Order could remain in place on a without prejudice basis to allow time for Li to respond to the action and to the motion which was adjourned to May 31, 2023.

[2] Since the Mareva Injunction Order was expiring on May 31, 2023, and my decision on this motion was taken under reserve, I made an order on May 31, 2023 further extending the Mareva Injunction Order until the release of this decision.

Summary of Positions and Outcome

a) Li’s Position

[3] Li argues that there was no foundation for the Mareva Injunction Order to be granted in the first place. She argues that it was not sufficient for the court’s conclusions to be based on inferences drawn from facts. Li contends that absent direct evidence of her participation in the fraud and of steps taken by her to dissipate or remove assets from the jurisdiction, the Mareva Injunction Order should not have been granted, and should therefore not be extended.

[4] I will deal with this contention now so it does not distract from the main analysis. Direct concrete evidence of fraud is not required to grant a Mareva order for precisely the reason that direct evidence of fraud is typically not available to a plaintiff without some production and disclosure from the defendants. One of the cases relied upon by Li (for a different point) makes it clear that the findings necessary for a Mareva order to issue can be made based on inferences drawn from the evidence filed: see Walter E. Heller Financial Corp. v. American General Supply of Canada (1969) Ltd. et al. (1986), 56 O.R. (2d) 257 (C.A.), at para. 39.

[5] Li is also critical of the plaintiff PPI Management Inc. (“PPI”) for proceeding ex parte for the Mareva Injunction Order when she could have been easily served with the initial motion, also seemingly based on a misunderstanding of the Mareva process which begins on an ex parte basis, particularly in cases of alleged fraud where there is a concern about the removal or dissipation of assets that might occur after the motion is served and while it is pending. Contrary to Li’s submissions on this motion, the original Mareva Injunction Order was not predicated on any suggestion that Li could not be located.

[6] An ex parte Mareva injunction is to be considered de novo when it comes back before a judge on notice for reconsideration: see Pavao v. Ferreira, 2018 ONSC 1573, 36 E.T.R. (4th) 307, at para 52.

[7] Aside from the criticisms about the Mareva Injunction Order having been granted to begin with, which I consider to be misplaced and based on a lack of a full appreciation of the process, Li also contends that that plaintiff made material non-disclosures that are, in and of themselves, grounds for dissolving (or not extending) the Mareva Injunction Order. She further contends that (1) her evidence explains the circumstances of the events that formed the basis of the court’s findings which led to the initial order and (2) her denial of any knowledge of or involvement in the fraudulent scheme of the other defendants (the “Advisors”) take her outside of that scheme that is alleged against them.

[8] Li maintains that, in the face of her responding evidence, the plaintiff cannot establish a strong prima facie case implicating her in the alleged fraudulent scheme, without which the foundation for the Mareva Injunction Order crumbles. As such, the order should not be extended and should be allowed to lapse. Li also asks for costs of this motion. [1]

b) PPI’s Position

[9] The plaintiff argues that the foundation for the Mareva Injunction Order remains the same or, if anything, has been reinforced by Li’s new evidence. Li’s explanations and alternative narrative attempting to explain the various ways in which she and her husband were involved raise more questions than they answer.

[10] According to PPI, Li has not provided a cogent explanation for: (1) her involvement with the company that is alleged to be one of the vehicles of the fraud (Xtech), (2) the insurance applications that she claims not to have read even though her husband lied to verify false information contained in them, and (3) her acceptance of funds from the Advisors to pay her insurance premiums for two years after which she and her husband cancelled their policies supposedly on their own volition, at the same time that she agreed to become involved in a currency exchange with the defendant Xiaoyu Zhou (“Zhou”) that resulted in her receiving proceeds of the fraudulent scheme which she eventually deposited into the GIC.

[11] The plaintiff also argues that the same factual underpinnings implicating Li in the fraudulent scheme, in that she knowingly or recklessly received the proceeds of the Advisors’ fraud and placed them into the GIC, are now corroborated and supplemented by Li’s own evidence. The combination of the plaintiff’s and Li’s evidence provides the necessary foundation for the court to extend the Mareva Injunction Order until the final adjudication and disposition of the claims on their merits. Li’s bald denials of any knowledge of or involvement in the fraudulent scheme are not sufficient to displace the inferences that the court has drawn from the existing facts when they are considered in the context of the totality of Li’s evidence.

c) Outcome

[12] For the reasons that follow, the plaintiff’s request for an order further extending the Mareva Injunction Order is granted on the terms described at the end of this endorsement.

The Evidence

a) PPI’s Evidence

[13] The claims against Li as pleaded in the statement of claim are for fraud, conspiracy, deceit, knowing receipt, conversion and unjust enrichment.

[14] The following is a summary of certain of the allegations in the statement of claim and supporting facts that were before the court when the ex parte Mareva Injunction Order was originally granted, as detailed in my endorsement dated January 25, 2023 in this matter.

[15] The defendants are alleged (among other things) to have conspired to engage in a fraudulent scheme that resulted in an alleged loss to PPI. It claims damages of approximately $7 million [2] in commissions (including overrides) paid to each of the defendants Zhou and Xiaoyu Financial Group Ltd. (“XFG”) and the defendants Xue Yao (“Yao”) and DAOcare Inc. (“DAOcare”) for life insurance policies placed by them valued at nearly $135 million. Those policies were cancelled but the commissions and overrides that the Advisors received (“chargebacks”) were not repaid as required. The plaintiff asserts that it, as the managing general agent, is directly responsible to the insurance carriers for these chargebacks not repaid by the Advisors.

[16] Under this alleged fraudulent scheme, the Advisors used up-front commissions that they were paid (and that they are now obligated to repay) to fund the premiums for life insurance policies (contrary to their contracts which prohibited them from paying commissions for applicants) that they purported to sell to fictitious individual purchasers or others such as Li who were helping them, who then purported to terminate their policies. The premiums paid by the Advisors were less than the up-front commissions and overrides they received. The Advisors have not, however, repaid the chargebacks that they were obligated to refund upon the termination of the policies, and that has left them in a net positive position after accounting for the premiums paid.

[17] Li is said to be implicated in the scheme by documents and a tracing exercise attested to by PPI’s affiant. That evidence alleges that the Advisors deposited monies into Li’s account(s) and used it to pay premiums for insurance policies placed in her and her husband’s name. Her applications for insurance did not disclose her connection to the Advisors as one of their former employees. Nor did it disclose her involvement with their company Xtech (supposedly an air duct company but actually believed to be a front for the fraudulent scheme), or that the Advisors were funding her and her husband’s policy premiums.

[18] The funds used to purchase an $800,000 GIC in Li’s name on deposit at the RBC have been sourced back to the Advisors and/or their affiliates.

[19] Li did not speak directly with PPI or its investigator. When Li’s husband spoke to PPI’s investigator, he denied that he or his wife received any funds from the Advisors. That statement has been demonstrated to be false.

[20] The defendants Zhou and Yao (the “Individual Advisors”) left Canada in the spring of 2022. They are now believed to be in China. The defendant companies XFG and DAOcare (the “Corporate Advisors”) have registered offices in Canada; however, it appears they ceased operating when the Individual Advisors left the country in the spring of 2022.

[21] Li previously was employed as an office assistant for one of the Corporate Advisors. She currently resides in Canada. The $800,000 GIC in Li’s name on deposit with the RBC was originally funded by the Advisors around the time that they were closing down their Canadian operations and the Individual Advisors left the country.

[22] Based on the disclosures obtained pursuant to the Norwich orders [3] and PPI’s ongoing investigation into this matter, PPI commenced an action against the Advisors and their former administrative assistant Li seeking damages and other relief arising out of the alleged frauds they committed. That action was commenced on the regular civil list.

[23] In granting the Norwich orders, certain badges of fraud associated with the scheme engaged in by the Advisors and their co-conspirators were identified. The disclosure received by PPI pursuant to the Norwich orders provides evidence to support the fraudulent scheme that PPI suspected.

[24] With respect to Li in particular, PPI has demonstrated, through the evidence and information obtained pursuant to the Norwich orders and the tracing exercise undertaken based on this evidence and information, that monies flowed from the Advisors (directly or through affiliated companies) to Li to fund premiums for life insurance policies. This was done in a manner consistent with a broader scheme that was employed by the Advisors to fund premiums for the placement of life insurance policies in the names of other individuals who cannot now be identified or located and who are believed to be fictitious.

[25] Li is not fictitious; however, she worked with the Advisors and has been demonstrated to have received significant payments from them, including the funds to purchase the GIC. On this basis, she is alleged to be a co-conspirator in the fraudulent scheme.

[26] Li’s implication in the fraudulent scheme is inferred from the following evidence that PPI has discovered through the documents produced pursuant to the Norwich order and its ongoing investigation:

a. Li was a policyholder of multiple policies sold by the Advisors which were abruptly terminated in April and May 2022;

b. Li failed to disclose that she was the office assistant of the defendant XFG on the applications for these policies,

c. Li received over $80,000 from the Advisors and/or their affiliated companies that was deposited into an RBC account she held in increments and at times that bear the hallmark of rebates or funds to be used in paying policy premiums for herself and/or others; and

d. Li received around $855,000 from the Advisors immediately before they left Canada in the spring of 2022, a significant portion of which was transferred between the RBC and another financial institution and was eventually used to purchase the GIC.

b) Li’s Evidence

[27] In response, Li filed an affidavit dated March 30, 2023. The facts underlying Li’s implication in the Advisors’ fraudulent scheme (detailed in the last two paragraphs above) have been affirmed in Li’s evidence. These facts formed the basis for an inference that she was involved in the fraudulent scheme, which she denies any knowledge of or involvement in. Li offers an alternative narrative and explanations.

[28] She claims that she and her husband accepted a promotion of two years of free policy premiums offered to them by the Advisors and applied for insurance policies that the Advisors recommended. Li and her husband determined that they could not afford to pay the premiums after the two year promotion period and therefore cancelled the insurance policies on their own volition, totally unaware of any fraudulent scheme by the Advisors to receive up front commissions and overrides (in excess of the premiums they paid) and not repay them when the policies were cancelled.

[29] Li thought Xtech, a company that she invested in and had cheque signing and other responsibilities for, was an air duct company. She claims to be unaware of its role in the fraudulent scheme or its involvement in funding the insurance premiums.

[30] The money that Li received from the Advisors starting in May 2022 was only coincidentally received starting around the time of the Advisors’ departure from Canada. She claims it was in furtherance of a currency exchange that she and Zhou had independently agreed to that helped Li to get around the restrictions on the removal of significant sums of money from China (particularly, the foreign exchange laws that limit foreign currency withdrawals from China to $50,000 USD per year). In furtherance of that currency exchange, Li received money from her mother in China and agreed to transfer funds to Zhou in China in exchange for her receipt in Canada of the CAD equivalent of $4,406,500 RMB ($865,000 CAD) from the Advisors. Li then invested those CAD funds in the GIC for safekeeping. Li considers the GIC to represent funds she received from her parents in China.

[31] Li says that she would not have engaged in the currency exchange with Zhou if she had known about the alleged fraudulent scheme that the plaintiff was investigating at that time.

[32] Li makes the following additional assertions in her affidavits.

[33] She has two young children, a husband who has a steady job and income, assets in Ontario, including a house and has made her home in Ontario; she should not be considered a flight risk.

[34] She only worked for Zhou’s company XFG as an office assistant earning $36,000 while she was living in Winnipeg shortly after immigrating to Canada, from January 2018 to February 2020.

[35] She invested $25,000 in Zhou’s start up company, Xtech, in February 2019 and signed a shareholders’ agreement at the time.

[36] She was not involved in the management and daily activities of Xtech. She asked to exit the company in December 2019 and was repaid her investment via two cheques dated December 12 and 18, 2019, totalling $25,000.

[37] She quit her job with XFG in February 2020 and moved to Toronto to her home in Markham, Ontario in July 2020. The home was purchased with $1,560,000 from her parents-in-law and a $1,000,000 loan from the RBC, with monthly mortgage payments of $3,508.

[38] Li’s husband got a job in November 2020 after they moved to Toronto, initially earning $45,000 per year. He now earns $85,000 per year, working at a different job.

[39] In the period from around May to July 2020, while they were moving from Winnipeg to Toronto, the Advisors presented Li and her husband with the opportunity to purchase insurance products with free premiums for a 24-month promotional period. During this period, the Advisors would fund the premiums, and after which Li and her husband understood that they would either have to cancel the insurance policies or start paying the premiums themselves.

[40] Li and her husband, as new immigrants to Canada, relied upon the Advisors with respect to these policies.

[41] The monthly insurance premiums were funded by the Advisors and automatically deposited/withdrawn from Li’s RBC bank account.

[42] Li claims that the Advisors encouraged her and her husband to continue paying the premiums on the insurance policies in April 2020 through WeChat messages. The WeChat messages that have been translated and put into evidence include a statement by Zhou that in addition to the life and health insurance policies that they each had, Li’s husband also has an Equitable Life insurance “to help me make up the number.”

[43] Li claims that she and her husband concluded that, due to the financial pressure they were under to pay their mortgage and education, and other expenses for their children, they were unable to continue to pay the monthly insurance premiums of approximately $3,500 per month. They decided to cancel all their insurance polices, which they did on May 3, 2022.

[44] In and around the same time that the insurance policies were being cancelled, between May and August 2022, Li agreed with Zhou to engage in a currency exchange between China and Canada, for a total of $865,000 CAD, based on a currency exchange rate of 5.1 RMB to CAD funds:

a. She received funds from her mother in China on March 4 and 5, 2022, which were deposited into Li’s account in China.

b. Li received funds from the Advisors that they told her came from the proceeds of the sale of one of their houses and profits made from selling insurance. Li deposited cheques received from the Advisors into her account with the RBC starting in May 2022. The first cheque for $90,000 dated April 18, 2022 bounced, but the remaining cheques dated between April 27 and August 11, 2022 did not bounce and she received a total of $865,000 CAD from them.

c. Once Li received funds from the Advisors in Canada, she then transferred funds from her bank account in China to Zhou’s bank account in China. This was done over a series of transactions in the same time frame starting on May 5, and ending on August 12, 2022 for a total of $4,406,500 RMB.

[45] Li says she was unaware of the fraud that PPI alleges the Advisors were engaged in and that she would not have engaged in the currency exchange with them and put her parents’ money at risk had she known about it.

[46] Li is an only child. Her parents sold their business and used their savings to help Li and her family in Canada. Li’s parents were in Canada helping with childcare and living with Li and her husband from June 2022 to March 2023.

[47] Li planned to use the money from her parents to support her family, but wanted to save some of it so she purchased an $800,000 GIC at HSBC in May 2022. The RBC later persuaded her to transfer the funds back to the RBC and purchase a GIC with a better interest rate in July 2022. Half of the principal and interest was to be paid out in January 2023, which she intended to use for her children’s tuition and other expenses. The other half would be paid out in July 2023. This is the GIC that the Mareva Injunction Order froze.

[48] Li maintains that the money in the GIC belongs to her parents and is intended to pay for the family’s expenses, which total more than $135,000 per year. She is concerned about protecting her parents’ money.

c) Discrepancies in Li’s Evidence

[49] The plaintiff’s reply affidavit attached the insurance applications for each of the two Sun Life Financial insurance policies, two Canada Life insurance policies and one Equitable Life insurance policy that Li mentioned in her affidavit, and which had been generally referred to in the plaintiff’s initial affidavit although not attached as exhibits. The information contained in these applications is consistent with what the plaintiff’s affiant said about them in her first affidavit in support of the Mareva Injunction Order.

[50] Both affiants were cross-examined. Li’s cross-examination gave rise to some discrepancies or gaps in her evidence and explanations.

[51] Li’s affidavit indicates that she only received copies of four insurance policies from the Advisors just before they moved to Ontario in July 2020, two Sun Life Financial and two Canada Life policies (one of each for Li and her husband), and that a fifth policy was placed with Equitable Life after they moved to Toronto. During Li’s cross-examination, it was pointed out that the Equitable Life policy premiums were being paid out of Li’s bank account before she moved to Toronto, which led to the discovery of a sixth policy placed after the move to Toronto.

[52] When the plaintiff located the application for this sixth policy (having appended the other five mentioned in Li’s affidavit to a supplementary affidavit from the plaintiff), Li’s response was to go on the offensive and accuse the plaintiff of not disclosing all the policies and applications involving Li and her husband in its initial motion materials. Li’s evidence is that she never read any of the applications for these insurance polices before they were signed. However, it was disclosed during her cross-examination that she does have copies of these policies in a sealed envelope that she never opened.

[53] Li was unable to explain why the applications that were signed by her and her husband for the insurance policies contained inaccurate information about their employers (including stating in some that they were employed by Xtech) and inflated their annual earnings. She stated they did not read them before signing. Li was also not able to explain why her husband told the private investigator who called him in the spring of 2022 (and who he believed to be a representative of the insurance companies at the time) that he had worked for Xtech (as at least some of his insurance applications falsely stated), despite her insistence that he never did work there.

[54] No cogent explanation was provided as to why Li’s husband told the private investigator who called him pretending to be an insurance company representative that Li had paid the premiums for all the insurance policies without any rebate or discount, whereas Li readily acknowledges that the Advisors paid all the premiums during the first two years, before the policies were cancelled. Li says her husband had simply been careless when responding to the private investigator, whereas the plaintiff argues that it is open to the court to infer that this answer was given because Li and her husband knew that the Advisors’ promotion of paying the premiums was part of a fraudulent scheme that the insurance companies could not be told about.

[55] After admitting that she was a founding investor of Xtech (one of the companies alleged to have been used by the Advisors to perpetuate their fraudulent scheme), Li attempts in her affidavit to distance herself from that company, indicating: that she thought it was an air duct cleaning company; that she was not involved in the management or daily activities of Xtech; that she had only been at the company’s premises twice to pick up cheques when she was bought out; and that she was only a shareholder for nine months. Li subsequently admitted to having carried out certain payroll activities and to signing cheques for Xtech after she says she had already been paid out, and that she may have been to the premises more than she initially stated in her affidavit. She was also unable to substantiate her contention that she received the full payment of her buy-out, which means she may have remained a shareholder of Xtech after December 2019 when she said she was bought out.

[56] Li’s evidence about her intended use of the GIC funds was inconsistent: she stated in her affidavit that she needs the funds to support her family’s lifestyle and expenses but on cross-examination, she stated that the GIC funds were going to be kept for the future benefit of her children.

[57] Despite having testified that her currency exchange agreement was with Zhou, Li claims not to have paid attention to where the money she received was coming from. Specifically, she claims not to have known that much of the funds she received, including the initial bounced cheque for $90,000, were drawn on cheques in the name of DAOcare, a company she claimed not to have heard about before this litigation.

[58] Li also testified that she believed that one of the primary sources for the funds she received from Zhou was the proceeds of the sale of his home, but her WeChat conversation with Zhou discloses that by the date that he told her he sold his house she had already received a substantial proportion of the payments.

[59] Li also testified that the currency exchange agreement first arose when she contacted Zhou about cancelling the insurance policies for herself and her husband; however, the WeChat messages she produced to corroborate this (after denying that they had spoken directly about it beforehand) open on April 14, 2022 with the question: “how much do you want to exchange?” This question cannot reasonably be read to correspond with the very first time that the currency exchange was discussed between Li and Zhou.

[60] This raises questions about how long the discussions between Li and Zhou about the currency exchange had been going on and whether they dated back to earlier significant transfers of funds by Zhou from his bank accounts in Canada to bank accounts in Hong Kong and whether any of those (or other) funds had been previously given by Zhou to Li or her family members in China.

[61] The plaintiff also points out discrepancies in Li’s evidence about her ability to understand written and spoken English. Having not heard her testimony, I am not prepared at this stage to attempt to ascertain the extent to which Li is minimizing her lack of facility with the English language as a way of excusing her conduct. None of the conduct that I am relying on is conduct that Li has attempted to rationalize on the basis of her lack of understanding due to any language barrier.

The Test for a Mareva Order

[62] The test for granting a Mareva injunction is well-established and uncontroversial. The parties agree that it requires the court to consider the following six factors that the plaintiff must demonstrate:

a. the plaintiff has a strong prima facie case;

b. the defendant has assets in the jurisdiction;

c. there is a serious risk of the assets being removed before the judgment or award is satisfied;

d. the plaintiff must give an undertaking as to damages;

e. the moving party will suffer irreparable harm if the injunction is not granted; and

f. the balance of convenience favours the granting of the injunction.

See Borrelli, in his Capacity as Trustee of the SFC Litigation Trust v. Chan, 2017 ONSC 1815, 137 O.R. (3d) 382 (Div. Ct.), at para. 60, citing the leading case of the Court of Appeal, Chitel v. Rothbart (1982), 39 O.R. (2d) 513 (C.A.).

[63] These same factors were considered and determined by the court to have been satisfied when the Mareva Injunction Order was granted, but that determination did not have the benefit of Li’s evidence and her defence to the claims asserted against her, which are now before the court.

[64] There is an obligation under r. 39.01(6) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 on any party seeking an ex parte order to make full and fair disclosure to the court of all material facts. A failure to do so is a sufficient ground for setting aside any order obtained without notice. That is an additional consideration that must be factored into the come-back hearing for a Mareva Injunction Order.

[65] As Li emphasizes, the court needs to be mindful that the Mareva principle is not simply being used to tie up a defendant’s assets because they are involved in litigation, as that would be an abuse of this extraordinary remedy: see Canadian Pacific Airlines Ltd. v. Hind (1981), 32 O.R. (2d) 591 (S.C.), at para. 15. A Mareva order is supposed to preserve assets that are at risk of being dissipated, concealed, or transferred out of the jurisdiction so that the satisfaction of a future judgment is not frustrated by further improper conduct by an alleged fraudster: see Aetna Financial Services v. Feigelman, [1985] 1 S.C.R. 2, at paras. 29-30.

Analysis

[66] The elements of the test for a Mareva order will each be addressed in turn, based on the now expanded evidentiary record.

[67] Ultimately, the plaintiff has the onus to satisfy the test for the Mareva Injunction Order to be continued. The plaintiff can do this based on evidence from which reasonable inferences can be drawn. Li does not have to prove her innocence, but she does have to address the evidence and inferences that the plaintiff relies upon to successfully oppose this motion.

a) Strong Prima Facie Case

[68] PPI must demonstrate that it would be likely to succeed at trial if the court was required to decide the action on its merits based on the materials filed in support of the Mareva injunction: see YMCA v. Burns, 2022 ONSC 3548, at para. 43. Li does not challenge the strength of the case that the plaintiff has demonstrated against the Advisors. The alleged fraudulent scheme that they perpetuated is not disputed for purposes of this motion.

[69] The circumstantial evidence implicating Li in the Advisors’ fraudulent scheme includes many of the same indicia that existed in the YMCA case that also implicated an employee in a fraudulent scheme based on various financial transactions. In this case:

a. Li received payments from the Advisors (one of which is her former employer) in respect of the premiums for her insurance policies and the funds that were used to purchase the GIC when the Advisors were leaving Canada;

b. Li and her husband signed applications for insurance upon the recommendation of the Advisors that contained false information about their employment with Xtech (one of the Advisors’ companies that was used in their fraudulent scheme to fund the premiums for false insurance policies placed for fictitious applicants); and

c. while trying to distance herself from Xtech, Li admits to having been an investor in Xtech and that she was involved with payroll and had signing authority at that company even after she claims to have been bought out.

[70] Li and her husband are also implicated in helping to cover up the fraudulent scheme, by:

a. Attributing Li’s husband’s lie to the private investigator denying that the Advisors paid their insurance premiums and that he had been employed by Xtech to distraction or lack of attention, while conveniently providing false answers that protected the Advisors. Li admits to knowing about the call from the private investigator (who at the time her husband thought was from one of the insurance companies) and not attempting to correct the information provided by her husband.

b. Engaging in an elaborate (and illegal) currency exchange arrangement with Zhou coincidentally at the same time that the insurance policies were cancelled, and Zhou was leaving Canada to go to China, without producing the origin of the arrangements (only a series of WeChat messages that could not have been the very first time this arrangement was discussed given the context).

[71] The plaintiff contends that Li’s assertion that she had no knowledge of the fraudulent scheme that the Advisors were carrying out is not credible, or that she was at the very least reckless or wilfully blind to what they were up to.

[72] Even if Li did not know all the details or knowingly participate in the fraudulent scheme, she was at the very least reckless in not reading the applications containing false information to be submitted to the insurance companies with her signature and by asking no questions about the two-year policy premium promotion, for example about why the funds had to go through her account rather than being paid directly by the Advisors to the insurance companies.

[73] Li’s willingness to do whatever her former boss asked of her is evident from her blind investment in Xtech, an air duct company she knew nothing about that she apparently continued to have the authority to sign payroll and issue cheques for even after she sold her shares.

[74] This blind trust carried over into the currency exchange arrangements, through which Li received proceeds of the fraudulent scheme. She admits to knowing that they were sourced from either commissions (that PPI has demonstrated the Advisors were obligated to repay) or from the sale of a property that occurred after most of the funds had already been paid to her. She admits to knowing that Zhou was selling his property and leaving for China. She asked no questions. She was at the very least reckless or wilfully blind as to the source of these funds and whether it was legitimate.

[75] Recklessness and wilful blindness can be a basis for a finding of fraud, as can indifference: see Bruno Appliance and Furniture, Inc. v Hryniak, [2014] 1 S.C.R. 126, at para 21; Rajakumar v. Marydel Homes (Beaverton) Inc., 2022 ONSC 4121, at para 31. Li exhibited all these in her dealings with the Advisors. Therefore, the plaintiff has demonstrated a strong prima facie case for the inference to be drawn of her implication in the fraudulent scheme and knowing receipt of the proceeds of that fraud to satisfy the first branch of the Mareva test.

b) Assets in the Jurisdiction

[76] PPI has limited its Mareva Injunction Order to specific assets, in this case, the GIC held at the RBC in Toronto, Ontario only, as it is required to do: see Chitel, at para. 56.

c) Serious Risk of Removal or Dissipation of Assets

[77] Li is correct in her submission that “unless there is a genuine risk of disappearance of assets, either inside or outside the jurisdiction, the [Mareva] injunction will not issue”: Aetna, at para. 26. Li asserts that the plaintiff failed to provide evidence that there was a real risk of her assets being removed from the jurisdiction or otherwise being put out of reach of judgment: see Lee v. Lalu Canada Inc., 2020 ONCA 344, at paras. 13, 39.

[78] Li says this risk is refuted by the fact that she and her family remain in Ontario, have an established life here and do not represent a flight risk.

[79] When the Mareva Injunction Order was granted, the court’s determination that there was a serious risk of dissipation of any payments out of principal and interest under the GIC was closely tied to the court’s determination at that time that the plaintiff had made out a strong prima facie case that Li was part of the alleged fraudulent scheme being perpetuated by the Advisors. The requirement to show a serious risk of dissipation can be satisfied in cases of fraud through inference instead of direct evidence. This inference can arise from the circumstances of the fraud itself, considered in the context of all the surrounding circumstances: see Sibley & Associates LP v. Ross, 2011 ONSC 2951, 106 O.R. (3d) 494, at para. 63; CDW Canada Inc. v. Ali, 2022 ONSC 4520, at paras. 70-71.

[80] This court has previously held that an inference of a risk of dissipation is appropriate where evidence of transfers of misappropriated funds is available: see OPFFA v. Paul Atkinson et al, 2019 ONSC 3877, at para. 24. Further, where a prima facie case of knowing receipt has been established, this court has inferred a serious risk of dissipation: see Kashechewan First Nation v. Kirkland, 2018 ONSC 3014, at paras. 91-100.

[81] Li maintains that her actions regarding the movement of funds between her bank accounts within Canada (and between China and Canada) are all explained by the currency exchange agreement she had with Zhou and her evidence about the financial support she received from her parents in China. The currency exchange agreement leaves many questions unanswered at this time. I am not satisfied that the full picture has been presented as to the origins of that arrangement or as to other financial dealings between Zhou (or his affiliates) and Li (or her family members) in China. Since it is an illegal agreement said to have been entered into so as to circumvent restrictions under Chinese currency laws, the court requires a very high level of transparency and disclosure about it before accepting Li’s counternarrative that the GIC should be traced back to funds given by her parents to Zhou in China to displace the direct and uncontroverted evidence that the funds used to buy the GIC came from the Advisors and were the fruits of their fraudulent scheme.

[82] For example, the banking records of the Advisors previously obtained by the plaintiff disclose two payments of $820,000 each having been made out of accounts held by the Advisors to bank accounts in Hong Kong in the summer of 2021 and in February 2022 respectively. Li has not provided account records or any evidence to counter dispel the inference that she or her family members might have benefited from those transfers. These transfers preceded the later transfers from Li’s mother to accounts in Zhou’s name in China that Li now says were part of the currency exchange agreement in 2022. Li does not want to pay for the cost of translating all the Chinese banking records and argues that the plaintiff should pay for this if it wants them. That particular point may need to be adjudicated, but in the meantime the court does not have the full picture of the financial transactions in China. In the circumstances of this case, with the questions already raised and discrepancies in Li’s evidence previously described, the absence of these records does not assist Li’s position on this motion.

[83] This is a fraud case in which an inference of a risk of dissipation can and is being drawn in the absence of a credible and fulsome evidentiary record to support Li’s counternarrative about funds having been transferred to the Individual Advisors in China. Further, while Li says that she has no intention of using the funds in the GIC and wants to preserve them for her children as part of her legitimate financial planning, she has also testified that she needs these funds to pay for day to day expenses for her family. If that occurs, the funds in the GIC will be dissipated.

d) Plaintiff’s Undertaking as to Damages

[84] PPI has said that it is prepared to abide by any order concerning damages that the court may make it if ultimately appears that the granting of the injunction requested causes damage to the defendants for which PPI ought to compensate them. PPI has assets in Canada, including a corporate presence and bank accounts that can sufficiently satisfy this undertaking.

e) Irreparable Harm

[85] The requirement of demonstrating irreparable harm when the Mareva Injunction Order was granted was also closely tied to the court’s determination at that time that the plaintiff had made out a strong prima facie case that Li was part of the alleged fraudulent scheme being perpetuated by the Advisors. The alleged fraud and the conduct of the defendants decreases the probability of PPI being able to recover its damages. The court was influenced at that time by the following considerations:

a. The GIC is the only account or financial instrument identified that can be sourced back to the Advisors and their fraudulent scheme that has not yet been dissipated and removed from the country. At this time, the GIC represents the only identified proceeds of the fraud that remain in Canada.

b. Given the actions of the Advisors and the efforts they appear to have exerted to dispose of their assets before they left the country in the spring of 2022, at the same time as they funded the GIC, it is highly unlikely that PPI will be able to collect on any judgment if the principal and interest on the GIC are not frozen to prevent their removal from the jurisdiction.

c. The Mareva Injunction Order will preserve PPI’s ability to trace and enforce judgment at least against the proceeds of the GIC. While the GIC represents only a fraction of the $7 million loss PPI claims to have suffered, it is still better than PPI recovering nothing.

[86] Irreparable harm is harm which either cannot be quantified in monetary terms, or which cannot be cured, usually because one party cannot collect damages from the other: see RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, at p. 341.

[87] In cases where a strong prima facie case for fraud has been established, it has been recognized that if the known assets of the defendant are not secured, the plaintiff will likely not be able to collect on a money judgment if successful: see CDW, at para. 73.

[88] “[T]he probability of irreparable harm increases as the probability of recovering damages decreases”: HTS Engineering Ltd. v. Marwah, 2019 ONSC 6351, at para. 200.

[89] If the funds from the GIC are spent or removed from Ontario, PPI will face significant difficulty in recovering any of the loss it has suffered since it has not been able to establish any other assets of the Advisors located in Canada. The Mareva injunction will preserve PPI’s ability to trace and enforce judgment against these funds that are the only known proceeds of the fraudulent scheme of the Advisors.

[90] Li’s premise is that the GIC is not the product of the fraud. However, she admits that the funds used to purchase it came from the Advisors. For the GIC not to be the product of the Advisors’ fraudulent scheme, the court would have to accept at face value Li’s explanation about the currency exchange agreement. The plaintiff argues that this should first be tested through various means, not the least of which would be a more thorough review of the complete banking records of Li, her family members and Zhou and his family members in China to understand the full extent and scope of the transfers of funds among and between them (as elaborated upon, above).

[91] Li also tries to suggest that she has assets in the jurisdiction, is not a flight risk and that there is no irreparable harm to the plaintiff in not having access to her GIC when there could be other avenues of recovery from her. However, that does not address the primary issue in this case, which is that the source of the funds in the GIC was from the Advisors. It may not belong to Li at all. So, once it is gone, the plaintiff will have no other recourse to recover funds from the Advisors.

[92] In all these circumstances, the plaintiff has established that it will suffer irreparable harm if the GIC, representing funds that are the only known proceeds of the fraudulent scheme of the Advisors, is not preserved.

f) Balance of Convenience

[93] When the Mareva Injunction Order was granted, the court’s determination at that time that the plaintiff had made out a strong prima facie case that Li was part of the alleged fraudulent scheme being perpetuated by the Advisors was closely tied to the court’s determination that the balance of convenience favoured the plaintiff. The balance was further tipped by the fact that the Mareva Injunction Order was targeted only at the funds used to purchase the GIC that had been inferentially shown to be proceeds of the fraudulent scheme at issue based on the banking records and was therefore minimally intrusive on Li’s affairs.

[94] However, the court also took into consideration in the balance of convenience analysis that Li would have the opportunity to challenge the Mareva Injunction Order if she had evidence to counter the evidence presented by PPI upon which the order was based. She has now done so.

[95] Li argues that the balance of convenience favours her because she needs the funds in the GIC to maintain her family’s lifestyle, pay for her family’s day to day living expenses and her children’s education expenses, as well as her legal fees. But this is contrary to her evidence on cross-examination that she intends to keep the GIC funds for the future benefit of her children. If that latter evidence is accepted, then the prejudice to her in keeping those funds locked up in GIC earning interest (which the plaintiff has agreed to and agreed to allow the GIC to be renewed) is not apparent. If it turns out that these funds belong to Li (or her parents) then they will have been preserved and earning interest in the interim.

[96] Further, insofar as Li is contending that she needs the GIC to support her family’s lifestyle, that contention does not align with her evidence of the past and ongoing support that her family has received from her parents and in-laws to help pay for their house and living expenses since they moved to Canada. For the entire time they have lived here they have lived far above their means based on their household income.

[97] Conversely, the plaintiff continues to assert that the funds in the GIC are the only funds that have been identified in Canada that are traceable to the Advisors’ fraudulent scheme. Li has demonstrated a willingness to assist the Advisors, by her investment in Xtech, participation in the insurance scheme through false applications for her and her husband (or at least willful blindness and recklessness in not reviewing what was stated in them when they were signed), a willingness to verify or not correct the false information when asked about and a willingness to cover up the fact that the Advisors had funded the premiums.

[98] The targeted Mareva Injunction Order that the plaintiff asks the court to extend does not apply to any of Li’s other assets in Canada, just those that are sourced directly from the Advisors, which Li does not contest. It is proportional and does not seek to overreach.

[99] Further the plaintiff has indicated that if need is demonstrated, Li can move for use of some of the funds in the GIC for her living and legal expenses.

[100] In all of these circumstances, the balance of convenience favours the continuation of the Mareva Injunction Order.

g) Full and Fair Disclosure of Material Facts on an Ex Parte Motion

[101] Li relies upon Walter, at para. 36, citing Lord Denning in Third Chandris Shipping Corp. et al. v. Unimarine SA, [1979] 2 All. E.R. 972, [1979] Q.B. 645, at pp. 984-85, for the proposition that r. 39.01(6) requires full disclosure on an ex parte motion of:

a. all matters in the plaintiff’s knowledge which are material for the judge to know; and

b. particulars of the plaintiff’s claim against the defendant, stating the ground of its claim and the amount thereof, and fairly stating the points made against it by the defendant.

[102] An ex parte injunction can be set aside for a violation of r. 39.01(6): see D.S.B. Systems Ltd. v. Kastem Security Solutions Ltd., 2019 ONSC 6576, at paras. 15-19.

[103] Materiality in this context encompasses information that is “relevant and material to the discretion to be exercised by the court” in the sense of bearing some significance to the outcome: Boal v. International Capital Management Inc., 2018 ONSC 2275, at para. 61. See also paras. 59-60, 62.

[104] The following are summary descriptions of the main points of non-disclosure that Li raises and why I do not consider them to be relevant, material, or significant to the court’s findings at the time the Mareva Injunction Order was granted.

[105] Li raises the non-disclosure of the existence of a sixth insurance policy paid for by Xtech in Li’s husband’s name, with Li as the beneficiary. This was one of the “several” policies associated with Li and her husband that were generally described in the motion materials supporting the ex parte motion at first instance. The only reason it was specifically singled out was because its existence was established during Li’s cross examination when she talked about a policy that had been purchased after she moved to Toronto that she thought was with Equitable Life.

[106] The application for this policy contained false information about Li’s husband’s annual income (stated to be $145,000). This policy purports to have been signed by Li’s husband in Winnipeg in July 2021 (a year after they had moved to Toronto). Unlike their other policies, the premiums on this one appear to have been paid directly by Xtech to the insurance company. This is an example of a policy that may have been taken out by the Advisors without Li and her husband’s knowledge, although no direct evidence is proffered from Li’s husband about the authenticity of his signature.

[107] There is nothing material about the existence of this sixth policy or the information contained in the application for it; rather, if it was not signed by Li’s husband, it is evidence that corroborates the fraudulent scheme perpetuated by the Advisors. It does not detract from the other applications and policies that implicated Li and her husband. If it was signed by Li’s husband, it is just a further example of those applications and policies that Li and her husband took out that facilitated the fraudulent scheme of the Advisors. Either way, it is not material that this specific policy and application were not included in the record at the time the Mareva Injunction Order was granted. It does not change anything.

[108] Li also misunderstands the legal relationship between the plaintiff and the Advisors which has led to an erroneous suggestion that the plaintiff has an interest (investment) in the Advisors’ business that it failed to disclose. Further, Li’s suggestion that the plaintiff had the right to access the records of the Advisors’ business and, if it had done so, it might have discovered their fraud earlier is not a disclosure concern. It is not suggested by Li that the plaintiff in fact had discovered the fraud earlier than when it reports it did in the motion materials filed.

[109] Li further accuses the plaintiff of benefitting from the fraudulent scheme through commissions it is alleged to have received from the fraudulent insurance policies placed by the Advisors. This accusation is not substantiated. If that was true that would be something that would have been material and should have been disclosed, but there is no evidence of this; the evidence is to the contrary, that the plaintiff is responsible to the insurance companies for the chargebacks and has lost millions of dollars because of the fraudulent scheme.

[110] In addition, Li’s complaint about the lack of disclosure regarding the precise amount of damages suffered by the plaintiff is misplaced. There may be ex parte motions in which the total losses and damages do need to be particularized. However, those particulars are often not available at the outset of litigation, especially in the context of a Mareva Injunction Order in a fraud case. What was important and material for the plaintiff to disclose – and it did disclose this – was that its losses far exceed the amount of the GIC that is the subject of the Mareva Injunction Order. The plaintiff did provide some particulars of its damages. It claimed $7 million in damages in the statement of claim. In an answer to an undertaking, it confirmed its actual losses as of January 2023 to be $5,992,670 and as of May 2023 to be $6.7 million and that the damages are continuing to increase. This level of disclosure of damages and losses at the early stage of a fraud action is more than sufficient.

[111] Lastly, Li criticizes the plaintiff for not disclosing to the court that it could have determined Li’s whereabouts at the time of the ex parte motion. The ex parte nature of a Mareva Injunction Order is not predicated on an inability to find the respondent. Its point is to freeze assets before notice is given to prevent further dissipation or removal of the assets pending the determination of the claims. At the time the ex parte Mareva Injunction Order was granted, it was not material that Li could have been located and given notice. That is the purpose of the requirement for the parties to return within 10 days for the come-back hearing, which must be, and was, on notice to Li and her counsel did appear.

[112] I do not find any of the alleged non-disclosures to be material.

[113] Li is also critical of the plaintiff’s conduct of the litigation.

[114] She criticizes PPI’s unwillingness to explain why they have not pursued others who may be implicated in the fraudulent scheme, or why they have not attempted to pursue the Advisors and their assets more vigorously. The plaintiff has refused to answer privileged questions about its litigation strategy, which is within its right to do. The plaintiff has sued the Advisors, but has stated that it is not aware of assets that they have in Canada to support a preliminary Mareva order or other interim relief against them. In such circumstances, there is no foundation for the plaintiff to seek an interim order to freeze assets when none have been identified within the court’s jurisdiction. Li is not being singled out for more aggressive litigation for any reason other than the fact that she is the holder of the GIC that was purchased with funds traced back to the Advisors and their fraudulent scheme.

[115] Li also criticizes PPI for having accused her of being associated with the Advisors’ fraudulent scheme which is also described as a “ponzi scheme.” Allegations in a pleading are just that. Li’s association with the Advisors and the foundational evidence from which the court inferred that she was implicated in their fraudulent scheme were established through the evidentiary record. The accusations against Li are the result of her involvement and association with the Advisors.

[116] I do not find the plaintiff’s or its counsel’s conduct of the litigation to have been improper. If it turns out that Li is an innocent victim who has been drawn into the fraudulent scheme by the Advisors, she may have recourse against them and may have recourse in costs or otherwise. Fraud allegations are serious and must be proven. The plaintiff has made out a circumstantial case that meets the requirements for this motion.

Final Disposition and Costs

[117] On May 31, 2023, the Mareva Injunction Order granted on January 25, 2023 and extended on January 31, 2023 was further extended until the release of this decision. For the foregoing reasons, the Mareva Injunction Order will be continued. The specific order that the plaintiff seeks is:

An Order extending this Court’s previously-issued orders dated January 25 and January 31, 2023 until final disposition of the underlying action commenced against Li in Court File No. CV-23-00693588, which restrains Li from selling, removing from Ontario, dissipating, alienating, transferring, assigning, encumbering, accessing or similarly dealing with the RBC GIC bearing plan no. 464110279 and maturing on July 27, 2023, and requiring RBC to hold such proceeds pending the final disposition of the claims in PPI’s underlying action.

[118] This continuation of the Mareva Injunction Order shall be on the same terms as the original Mareva Order and shall include the ability of Li to come back to court request leave of the court to access funds in the GIC if financial hardship or need can be established. It shall remain subject to variation if requested by any party on notice. It shall allow for the reinvestment of the GIC funds.

[119] The plaintiff was successful on this motion that Li opposed and is entitled to costs as a result.

[120] The plaintiff seeks its costs of the original Mareva Injunction Order (the ex parte motion), the first come-back hearing and this motion that Li opposed. Its all-inclusive costs for the three appearances, attendances on cross examinations, follow up to the examinations, and comprehensive materials and written and oral submissions on a partial indemnity scale are $96,352.15. The plaintiff’s all-inclusive costs are $141,964.30 on a substantial indemnity scale. The allegations of fraud are serious, the work to substantiate them was significant and the costs were increased by the allegations of misconduct made by Li against PPI and its counsel.

[121] The plaintiff asks for substantial indemnity costs as a result of Li’s accusations made regarding non-disclosures and litigation misconduct. While allegations such as those should not be made lightly, they appear to come from a misreading of the cases and a failure to distinguish between allegations and evidentiary proof, only the latter of which concerns the court at this time. While allegations of misconduct must be kept in check and are certainly not condoned by the court, I do not consider them to rise to the level of warranting an award of substantial indemnity costs in this case. I am awarding the plaintiff its partial indemnity costs of this motion, and the earlier motion and appearances that preceded it.

[122] While the time spent and the division of responsibility between senior and junior counsel for the plaintiff appears reasonable having regard to the seriousness of the issues and the nature of the allegations, Li and her counsel claim to have been surprised by the amount of the plaintiff’s costs figures. Li’s cost outline (albeit for counsel significantly more junior to the counsel representing the plaintiff and working at a lower rate) indicates all-inclusive partial indemnity costs of $61,152.58 and substantial indemnity costs of $88,478.18. Although not involved in the first appearance, the total hours for Li’s counsel are about the same as the total lawyer hours for the plaintiff’s counsel. It evidences the hard work and effort that Li’s counsel has expended on her behalf. Li too emphasises the seriousness of the issues in her costs outline.

[123] All of that to say that the amount of time spent cannot be surprising or unexpected. It may be that the plaintiff’s lawyers’ hourly rates are more than what Li would have expected. This leads me to evaluate what amount of costs could objectively have been within Li’s reasonable contemplation to pay if she lost this motion. One benchmark for that is the amount of costs claimed in her lawyer’s costs outline.

[124] There is a tension between the principle of indemnity in costs awards to compensate the successful plaintiff for what it has spent, and what Li would reasonably have expected to pay if she lost, which might well have been less than what the plaintiff actually expended. That is where the court’s discretion comes in. In the exercise of my discretion under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and having regard to the relevant factors in r. 57 of the Rules of Civil Procedure, I am fixing the plaintiff’s costs of the Mareva injunction hearing – for all three attendances and the work associated with them – on a partial indemnity scale in the all-inclusive amount of $75,000.

[125] Li’s cost submissions indicate a concern about the ability to pay for her own legal counsel without assistance from her parents and in-laws. Similar concerns would undoubtedly apply to her ability to pay a costs award to the plaintiff. While Li is implicated sufficiently for the court to determine that the Mareva Injunction Order should continue, I do not rule out the possibility that the Advisors, rather than Li, might ultimately be held responsible to pay all the plaintiff’s costs.

[126] I am not at this time ordering that Li pay the costs I have fixed for this motion. I therefore order that these costs be paid to the plaintiff in the cause, and leave open the possibility that they may be ordered to be paid by the Advisors rather than Li.

[127] The plaintiff shall prepare an order that reflects this endorsement and the court’s endorsement of May 31, 2023 and the continuity of the Mareva Order. Counsel shall work co-operatively to finalize a form of order that accurately reflects the orders contained in this endorsement that can be submitted to the court on the basis of an approved form of order. If there they encounter difficulties in settling the form of order a case conference may be scheduled before me through the Commercial List office.

KIMMEL J. Date: June 15, 2023

[1] In addition to costs, Li asks in her factum for $250,000 in punitive damages for alleged misconduct of the litigation against her by the plaintiff. There is no motion or counterclaim and it would not be appropriate for the court to consider this request in the context of this motion. I will not be addressing it, or the allegations made by Li that she says support punitive damages. I will observe that punitive damages are not typically awarded for naming someone as a defendant in a proceeding and seeking interim relief against them, nor for refusing to provide discovery-like disclosure at this stage of the proceeding, irrespective of what level of disclosure Li has had to make to explain her involvement and dealings with the other defendants.

[2] The plaintiff currently estimates its direct losses to be approximately $6.7 million and they are alleged to be increasing.

[3] A Norwich order was granted on June 28, 2022 and a further Norwich order was made on September 22, 2023 to enable the plaintiff to obtain pre-action discovery from third-party banks were identified as financial institutions who had, or might have had, knowledge of facts relating to an apparent fraud or frauds perpetrated by the Advisors.