COURT FILE NO.: CV-19-00620982-0000 DATE: 20240306

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: NSR TORONTO HOLDINGS LTD. Plaintiff

• and - CIM MACKENZIE CREEK LIMITED PARTNERSHIP, CIM HOMES INC., 10184861 CANADA INC., and JIUBIN FENG Defendants

AND BETWEEN: CIM MACKENZIE CREEK LIMITED PARTNERSHIP, CIM HOMES INC., 10184861 CANADA INC. and JIUBIN FENG Plaintiffs by Counterclaim

• and - NSR TORONTO HOLDINGS LTD. and 2728926 ONTARIO INC. Defendants to the Counterclaim

Counsel: Michael D. Schafler and Alexander J. Freedman for the Plaintiff and Defendants to the Counterclaim Harvin Pitch and Matthew Sokolsky for the Defendants and Plaintiffs by Counterclaim

Heard: February 20-21, 2024

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] The Plaintiff and a Defendant to the Counterclaim is NSR Toronto Holdings Ltd. (“NSR”).

[2] The Defendants and Plaintiffs by Counterclaim are CIM Mackenzie Creek Limited Partnership, CIM Homes Inc., and 10184861 Canada Inc. (collectively “CIM”) and Jiubin (Jerry) Feng, who is the CEO of CIM.

[3] 2728926 Ontario Inc. (“Sunny Co.”) is a co-Defendant to CIM’s and Mr. Feng’s Counterclaim against NSR. There is no crossclaim between NSR and Sunny Co.

[4] In the main action, NSR sues Mr. Feng and CIM for breach of contract with respect to a townhouse and residential condominium project in Markham, Ontario known as the Mackenzie Creek Project.

[5] In the Counterclaim, Mr. Feng and CIM sue NSR and Sunny Co. for damages for the allegedly improper and improvident sale of the Mackenzie Creek Project to Sunny Co. CIM also sues Sunny Co. in tort for interference with economic relations.

[6] There are two motions before the court. Both motions are in the Counterclaim and not in the main action. First, CIM and Mr. Feng as Plaintiffs by Counterclaim, seek a Mareva injunction freezing NSR’s assets in Ontario. Second, NSR brings a cross-motion to have CIM and Mr. Feng’s Counterclaim stayed as an abuse of process. NSR argues that because CIM and Mr. Feng did not provide immediate or adequate notice of a settlement of the Counterclaim as against Sunny Co. that the Counterclaim has become an abuse of process.

[7] For the reasons that follow, I stay the Counterclaim, which renders the motion for a Mareva injunction moot. Had I not stayed the Counterclaim I would have, in any event, dismissed the motion for a Mareva injunction.

B. Dramatis Personae

[8] The Plaintiff NSR Toronto Holdings Ltd. (“NSR”) is a British Columbia corporation owned by Chinese corporations, whose head offices are in Hong Kong and Beijing. NSR’s directors and officers are residents of China (British Columbia corporations do not require domestic resident directors). NSR is owned by NSR Canada Development Ltd. (“NSR Canada”), which is a Hong Kong corporation. In turn, NSR Canada is owned by New Silk Road Culturaltainment, (“New Silk Road”), which is a Bermuda corporation with its office in Hong Kong. NSR, NSR Canada, and New Silk Road are part of the MacroLink Group. Paul Ng was NSR’s President and also the CEO of New Silk Road. Sha (Sam) Huang was sent by New Silk Road to assume responsibility for NSR’s interest in the Mackenzie Creek Project. Dapeng Wang, is a former employee and a current consultant to NSR. Mr. Wang was the CFO for the management company for the Mackenzie Creek Project until November 30, 2017. Then he became NSR’s CFO until May 2022. Beginning June 2022, he has acted as a consultant to NSR, including providing litigation support with respect to NSR’s action against CIM and Mr. Feng.

[9] In this action, NSR’s lawyer of record is Dentons Canada LLP.

[10] The Defendants CIM Mackenzie Creek Limited Partnership, CIM Homes Inc., and 10184861 Canada Inc. (collectively “CIM”) are Ontario business entities. CIM is a trade name for companies that are real estate developers. CIM was the promoter and original developer of the Mackenzie Creek Project townhouse and residential condominium project in Markham, Ontario. The Defendant Jiubin (Jerry) Feng is the CEO of CIM.

[11] In this action, in 2019, CIM’s lawyer of record was initially Dickinson Wright LLP. In 2020, CIM changed its lawyers to Teplitsky LLP.

[12] NSR sold the Mackenzie Creek Project to 2728926 Ontario Inc. (“Sunny Co.”), which is an affiliate of Sunny Development Holdings Inc. Bill Chen is the principal of Sunny Co., the Sunny Development Holdings Inc. entity that purchased the Mackenzie Creek Project. Jian (Steven) Zhang of Markham, Ontario is an accountant with a career in finance. He was the CFO for the company that managed the Mackenzie Creek Project, and with the sale of the Project to Sunny Co., he became the CFO and Managing Partner of Sunny Co.

[13] In the Counterclaim, Sunny Co.’s lawyer of record is McCague Borlack LLP.

C. Procedural and Factual Background: Preliminary Observations

[14] In the next section of my Reasons for Decision, I shall describe the factual and the procedural background, which are complex and inextricably intertwined. Before getting underway, I have five preliminary observations.

[15] The first observation is that there are essentially two major factual matters to determine. First, for the motion for the Mareva injunction, the major issue is whether there is a strong prima facie case that NSR perpetrated a fraud on the court by not disclosing the true nature of the sale to Sunny Co. of the Mackenzie Creek Project. Second, for the cross-motion to stay the Counterclaim, the major issue is whether the litigation landscape changed when CIM settled its claim against Sunny Co.

[16] The second observation is that for both major issues, NSR introduced evidence to make Mr. Feng out to be a fraudster or an incredible or unreliable witness because of findings made in other proceedings. Thus, the motion record and the factums included references to the fact that on March 15, 2023, in an unrelated matter, the Capital Markets Tribunal determined that Mr. Feng and CIM International Group Inc. had breached s. 126(1)(1)(b) of the Securities Act. [1]

[17] NSR produced this material in an effort to discredit the credibility of Mr. Feng and in a blatant act of character assassination to deflect his allegations that NSR perpetrated a fraud on the court. However, what happened in an unrelated matter is irrelevant to the immediate claim and counterclaim. CIM International Group Inc., the party in the unrelated matter, is not a party to the immediate action, and Mr. Feng has appealed the Capital Markets Tribunal decision to the Divisional Court. [2]

[18] I shall ultimately determine that NSR did not perpetrate a fraud on the court, but that finding has nothing to do with discrediting Mr. Feng. In all events, save for where I indicate otherwise, I believe Mr. Feng’s evidence, and ironically, ultimately, NSR also must rely on the truth of Mr. Feng’s evidence to make out its case that CIM’s Counterclaim should be stayed.

[19] The third observation is that the first major issue is a substantive legal matter that involves the conduct of NSR and Sunny Co. in the transaction that brought about a sale of the Mackenzie Creek Project. In contrast, the second major issue is a procedural issue about whether the so-called litigation landscape of the main action and the Counterclaim was changed by a settlement agreement between CIM and Sunny Co. The second major issue is a procedural meta-issue, it is about the litigation itself and whether it can fairly be adjudicated.

[20] The fourth observation is that notwithstanding its prominent role for both the motion and the cross-motion, Sunny Co., although served with the motion records, did not make an appearance at the combined hearing for a Mareva injunction or for NSR’s cross motion to stay CIM’s Counterclaim in which Sunny Co. is a co-Defendant.

[21] In other words, although: (a) Sunny Co. is one of the leading actors in this litigation drama; (b) its representative, Mr. Zhang, features prominently in the story; and (c) Sunny Co. to date has not been removed as a party, it did not appear on the motion. In these circumstances, I shall treat Sunny Co. as not opposing either motion but bound by the outcomes.

[22] The fifth observation is that as the detailed description below will reveal, the facts of the dispute between the parties and the facts of the main action and of the Counterclaim are a showcase of what can go wrong when: (a) clients go rogue and there are unsupervised communications among the litigants; (b) there are miscommunications between lawyer and client; and (c) there are miscommunications between the opposing lawyers.

[23] In the end result, while NSR and Sunny Co. are not blameless in the execrable history of the prosecution and defence of the claim and Counterclaim, CIM and Mr. Feng have only themselves and not their lawyers to blame for the dismissal of the Mareva injunction motion and for the staying of the Counterclaim.

D. Procedural and Factual Background

[24] In 2014, CIM purchases a large property at 9900 Markham Road, Markham, Ontario. The project is known as the Mackenzie Creek Project. The plan is to develop the land in two phases. Phase I, which was completed in three years, consists of 195 townhouses. By May 30, 2017, 141 townhouses are presold. Phase II is for high rise residential condominiums and commercial use.

[25] In 2017, NSR invests $31.7 million to acquire a 51% ownership (shares and limited partnership units) in the Mackenzie Creek Project. NSR’s investment includes a “put option” in which NSR can require CIM to repurchase the 51% interest for a price determined by a formula. The put option can be triggered if CIM fails to achieve project milestones.

[26] Pursuant to the put option, NSR also has the option of selling the Mackenzie Creek Project to a third-party purchaser if CIM fails to honour its obligation to buy out NSR. On a sale to a third-party, the sale proceeds would be used to pay CIM’s indebtedness to NSR with any surplus being paid to CIM.

[27] On July 1, 2018, CIM does not meet a project milestone. CIM accuses NSR of being the cause of CIM’s inability to meet the project milestone.

[28] In light of the alleged default, NSR exercises the put option. At that time, CIM would have been obliged to pay approximately $41.4 million to redeem NSR’s 51% ownership in the Mackenzie Creek Project.

[29] CIM does not pay the put option price and instead attempts to find a purchaser for the Mackenzie Creek Project. In April 2019, CIM obtains a Letter of Intent (LOI) and an offer from Canada Lanhoa Hotel Management Group Co. Ltd. (“Canada Lanhoa”) to purchase the Project for $56.0 million. NSR rejects the LOI.

[30] Instead on May 30, 2019, NSR commences this action against CIM. In its original iteration, NSR seeks specific performance of the put option. In other words, NSR sues to have CIM repurchase NSR’s interest in the Mackenzie Creek Project.

[31] I pause to note that the 2019 Action was against ten defendants; namely: CIM Development (Markham) LP; CIM Mackenzie Creek Residential GP Inc.; CIM Commercial LP; CIM Mackenzie Creek Limited Partnership; CIM Mackenzie Creek Commercial GP Inc.; CIM Mackenzie Creek Inc.; CIM Homes Inc.; CIM Global Development Inc.; 10184861 Canada Inc.; and Mr. Feng. Later, for reasons that are not pertinent, the number of CIM defendants is reduced to four defendants, i.e., Mr. Feng, CIM Mackenzie Creek Limited Partnership, CIM Homes Inc., and 10184861 Canada Inc. (collectively “CIM”).

[32] On June 27, 2019, NSR delivers its Statement of Claim. On August 16, 2019, CIM and Mr. Feng deliver their Statement of Defence and Counterclaim.

[33] In the late summer and early fall of 2019, NSR changes course. It decides that rather than specific performance, it will exercise its right to sell the entire Mackenzie Creek Project.

[34] On September 18, 2019, Sunny Co. offers to purchase the Mackenzie Creek Project by a share-purchase agreement with a purchase price of $41.7 million.

[35] For reasons that will become apparent below, it should be kept in mind that the purchase price in Sunny Co.’s offer is adjustable. In accordance with Article 2.5 of the Share Purchase Agreement, the price could be adjusted either upward or downward, depending on the available “Closing Working Capital”, the “Target Working Capital” being $9.0 million. Thus, on the face of the Share Purchase Agreement, the purchase price is susceptible to being reduced to as low as $32.7 million.

[36] On October 10, 2019, NSR accepts Sunny Co.’s offer. There is a signing ceremony in Beijing, China. For the signing, Mr. Zhang attends for Sunny Co. The signing of the agreement is reported in a news Release.

[37] At and after the signing ceremony, in discussions between the contracting parties, it emerges that Sunny Co. is not prepared to pay more than $36.7 million for the Mackenzie Creek Project. It hopes to pay only $28.0 million. NSR and Sunny Co. begin negotiations for amendments to be made to the Share Purchase Agreement and the amount to be paid by Sunny Co.

[38] Meanwhile, on October 19, 2019, CIM obtains a second offer from Canada Lanhoa to purchase the Mackenzie Creek Project in an all cash purchase for $50.0 million.

[39] CIM desires to stop the sale of the Mackenzie Creek Project to Sunny Co., and on October 23, 2019, CIM brings a motion for an injunction to prevent the sale on the grounds that the offer by Sunny Co. was not bona fide and was improvident, i.e. below the fair market value for the project. CIM’s motion is supported by the affidavit dated October 23, 2019 of Danny Ip and the affidavit dated October 24, 2019 of Mr. Feng. Mr. Ip is an appraiser with Cushman & Wakefield ULC. He provides an appraisal of the Mackenzie Creek Project lands. His opinion is that the Project has a value of $90.5 million as of July 2019. Mr. Feng deposes that CIM has received an offer to purchase the project for $50.0 million.

[40] In response to CIM’s injunction motion, NSR files an affidavit from Mr. Ng.

[41] On October 25, 2019, Mr. Feng for CIM and Mr. Ng for NSR are cross-examined.

[42] Justice Kimmel hears CIM’s injunction motion on October 29, 2019, and she dismisses the motion on November 1, 2019. [3]

[43] After the dismissal of the injunction motion, NSR and Sunny Co. continue their negotiations to settle the purchase price and other terms of the sale. On November 25, 2019, Sunny Co. waives the conditions to the purchase of the Mackenzie Creek Project, and the parties sign an Amending Agreement.

[44] For present purposes, the following provisions of that November 25, 2019 Amending Agreement are pertinent:

2. Amendment to Section 2

The following sections shall be added after Section 2.2(b) of the SPA:

(c) The Purchase Price shall be satisfied as follows:

(i) on Closing, with the payment to the Vendors of: (A) the Deposits in the amount of $1,250,000.00; and (B) $1,750,000.00;

(ii) on the day which is the fifth (5th) Business Day after construction financing, secured by the Project, is in place for the first phase of the Project (being the 195 townhouses), with the payment to the Vendors of $11,000,000; and

(iii) on the day which is the fifth (5th) Business Day after the second phase of the Project has obtained the rezoning and draft plan approvals required to permit use of that phase for not less than 500 residential condominium units, with the payment to the Vendors of the balance of the Purchase Price.

Notwithstanding the above, the Purchaser shall, on June 30, 2022, pay the Vendors any Purchase Price (regardless of which tranche it is part of) that is outstanding on that date. None of the Purchase Price is to be paid with the assets of the MC Entities, including any financing received by the MC Entities. Prior to June 30, 2022, no interest is payable on the outstanding Purchase Price. After that date, interest at the Agreed Interest Rate will be due and owing.

(d) The obligations of the Purchaser under this Agreement, including the payment of the Purchase Price, shall be secured by a pledge (the “Pledge”) by the Purchaser of 51% of the Mackenzie Creek Securities transferred to the Purchaser on the Closing Date. On Closing the Pledged Securities shall be held by the Vendors or the Vendors’ Counsel on their behalf.”

(e) Any amounts payable by the Vendors to the Purchaser pursuant to the terms hereof, including but not limited to, Section 2.5 and Section 9.1, shall be deducted from the amounts payable by the Purchaser to the Vendors pursuant to Section 2.2(c)(ii) and (iii) if such amounts have not been paid by the Vendors to the Purchaser when due.

5. Amendments to Section 5.2

The following shall be added after Section 5.2(c):

(d) […]

(e) The Vendors shall discontinue the NSR Litigation at their sole cost and expense with respect to the MC Entities and remove the MC Entities from the NSR Litigation as soon as practicable after the Closing Date but, in any event, no later than 90 days after the Closing Date.”

[45] On November 29, 2019, Mr. Ng. for NSR and Mr. Zhang for Sunny Co. sign another Amending Agreement. [4] The November 29, 2019 Agreement is drafted by Mr. Zhang. NSR’s lawyers and Sunny Co.’s lawyers are not told about the November 29, 2019 agreement, which is marked “Confidential” on its face page. The November 29, 2019 Amending Agreement, among other things: fixes the purchase price for the Mackenzie Creek Project at a maximum of $34.0 million; provides for when and how the balance is to be paid and disbursed; and sets up a Litigation Reserve Fund to hold a portion of the sale proceeds from being disbursed on account of NSR’s promise to indemnify Sunny Co. for liabilities incurred by its purchase of the Mackenzie Creek Project. For present purposes, the following provisions of the November 29, 2019 Amending Agreement are pertinent.

2. Adjustment to the Purchase Price

NSR agrees that notwithstanding anything to the contrary in the SPA, if the Purchase Price, as adjusted pursuant to terms of the SPA, is more than $34,000,000, the Purchase Price shall be adjusted to $34,000,000.

3. Indemnification by NSR

NSR agrees to indemnify and save harmless the Purchaser and Sunny Co, their directors, officers, and shareholders (in this section collectively referred to as the “Indemnified Parties”) from and against all claims and disputes which may be made or brought against the Indemnified Parties, or which they may suffer or incur, directly or indirectly as a result of or in connection with:

(a) claims by a buyer under any of the existing agreements of purchase and sale entered into with the Nominee (as seller) in respect of a residential house to be constructed on the Residential Lands, in relation to matters perpetrated by Jiubin Feng on behalf of the CIM Vendors or the MC Entities that occurred prior to the Closing Date and not disclosed to Sunny Co or the Purchaser as of the Closing Date;

(b) […]

(c) to the extent such claims relate to the CIM Vendors or the Project, claims by or relating to Jiubin Feng or Jiubin Feng on behalf of the CIM Vendors or the MC Entities, or any director or officer of the MC Entities prior to the Closing Date.

5. Indemnity by HK NSR and Toronto NSR

NSR agrees to indemnify 50% of any losses or claims that Sunny Co or any of its directors, shareholders or other persons related thereto may suffer as a result of any guarantees, indemnities or obligations assumed or provided by them related to the construction or operation of the Project, including but not limited to, the bank financing, construction financing and Tarion, provided that such guarantees, indemnities or obligations have been approved by NSR in writing and in advance.

[46] Pausing here in the narrative, CIM submits that the November 29, 2019 Amending Agreement is the culmination of the private negotiations between NSR and Sunny Co. that began in Beijing around the time of the signing ceremony. CIM submits that the purport of this secret agreement is that instead of a purchase of the Mackenzie Creek Project by a share purchase agreement, NSR and Sunny Co. have a 50-50 partnership to develop the project. Further, CIM submits that the subsequent conduct of the parties and inferences to be drawn from Mr. Zhang’s correspondence before and after November 29, 2019 confirm that NSR and Sunny Co. had a partnership.

[47] Returning to the narrative, the sale of the Mackenzie Creek Project occurs on November 29, 2019. News of the closing of the transaction with Sunny Co. – without any mention of the November 29, 2019 confidential Amending Agreement – is reported in a press release published by the Hong Kong Stock Exchange on December 4, 2019. The press Release states:

On Closing, the aggregate amount of CAD $3,000,000 (equivalent to approximately HK$l7,760,000), which comprised the First Deposit, the Second Deposit and CAD$ 1,750,000 (equivalent to approximately H.K.$10,360,000), was paid by the New Owner. The next installment of the Consideration, being CAD $11,000,000 (equivalent to approximately HK $65,120,000), will be paid by the New Owner when construction financing for the first phase of the Project is in place. The balance of the Consideration (the exact amount of which will depend on post-closing adjustments in accordance with the terms of the Agreement) will be paid when the second phase of the Project has obtained the rezoning and site plan approvals. If, for any reason, these milestones have not been met by 30 June 2022, all outstanding Consideration will be payable on that date. To secure the New Owner’s obligation to pay the outstanding Consideration, the New Owner has pledged the security interest in 51% of each of the Mackenzie Creek Securities in favour of NSR Toronto.

[48] According to the press release, only $3.0 million was paid on closing. According to the press release, $11.0 million would be paid when construction financing is obtained, and the balance will be paid upon fulfillment of development milestones. According to the press release, Sunny Co. will pay the balance by no later than June 2022. What that balance might be is not specified in the press release. According to the press release, as security for Sunny Co.’s obligation to pay the purchase price, it has pledged (i.e., effectively mortgaged) a 51% interest in the Mackenzie Creek Project to NSR.

[49] As a result of the disclosure of information in the press release - but without knowledge of the secret contract of November 29, 2019 - CIM attends before Justice Kimmel at a case management conference on January 10, 2020. CIM asks Justice Kimmel to reconsider her dismissal of the injunction. CIM’s argument was that the sale agreement is not what it appeared to be when the injunction motion was argued in late October. Justice Kimmel, however, declines revisiting the matter. She is not prepared to disturb her decision, but she is prepared to schedule a motion to unwind the transaction if CIM is inclined to bring the motion.

[50] CIM, however, does not bring any motion. Instead, CIM hires new lawyers, Teplitsky LLP. They will revise CIM’s Counterclaim to add Sunny Co. as a Defendant by Counterclaim.

[51] Pausing here in the narrative, CIM submits that had Justice Kimmel known about the secret November 29, 2019 Amending Agreement, she would have responded differently than she did at the January 2020 case management conference. There is no merit, however, to this submission. There is no reason to believe that Justice Kimmel was misled about the purchase price of the Project or that she was misled about a sale transaction that was an inchoate (to be developed) partnership.

[52] Justice Kimmel knew that on the face of the Share Purchase Agreement, the purchase price was susceptible to being reduced to as low as $32.7 million. The undisclosed November 29, 2019 Amending Agreement capped the selling price at $34.0 million, which is within the range of expected adjustments to the purchase price. Moreover, it would not have been unexpected that there would be further negotiations between the vendor and the purchaser after the dismissal of CIM’s motion to restrain the sale.

[53] As for a partnership, CIM concedes that there is no formal partnership agreement. CIM concedes that there is no evidence that there was a sharing of profits. What there is, is informal correspondence, some of it fawning, about working together and about being partners or associates in co-operative venture to mutual advantage, but I find as a fact that there is no evidence on the record now before the court to substantiate the creation of a partnership. Rather, the evidence is that Sunny Co. had made secured pledges to NSR. Sunny Co. had become dependent and subservient to NSR, which had a right to call on the pledges. In all events, Sunny Co. was indebted to pay the balance of the purchase price for the Mackenzie Creek Project. The relationship between NSR and Sunny Co. remained that of a vendor with security for payment of the balance of the purchase price and a purchaser who remained indebted.

[54] Returning to the narrative, having abandoned the claim for specific performance of the put option, on April 21, 2020, NSR delivers a Fresh as Amended Statement of Claim against CIM to claim damages equal to the difference between: (a) the purchase price it had been entitled to receive from CIM under the put option formula; and (b) what it ultimately received from the sale to Sunny Co.

[55] On June 16, 2020, CIM and Mr. Feng deliver a Fresh as Amended Statement of Defence and Counterclaim. The main branch of the revised Counterclaim, which is against NSR and Sunny Co., is to set aside the sale transaction. In a separate branch of the Counterclaim, CIM claims $20.0 million in damages against Sunny Co. for causing harm to CIM’s reputation. CIM alleges that Sunny Co. had threatened to cancel the Agreements of Purchase and Sale that CIM had entered into with 141 purchasers of townhouses in Phase I of the Project unless those purchasers agreed to increase the purchase prices for those units.

[56] On September 11, 2020, NSR delivers its Reply and Defence to the Fresh as Amended Statement of Defence and Counterclaim. On September 14, 2020, Sunny Co. serves, but does not file, its Statement of Defence to CIM’s Counterclaim.

[57] For the next twenty-two months (from September 2020 to June 2022), the claim in the main action and the claims in the Counterclaim are dormant. However, during this dormant period, NSR and Sunny Co. are being sued by Calbot Group Ltd., whose principal is Cathy Headon, and 2649106 Ontario Inc. (Synergy Capital). Calbot Group alleges that NSR and Sunny Co. owe a $5.0 million finder’s fee with respect to the sale of the Mackenzie Creek Project. Calbot Group sued twelve defendants for the finder’s fee: NSR (Toronto); NSR Canada; New Silk Road; Mr. Wang; Sam Huang; Sunny Communities (Markham Gold) Inc.; Patrick O'Hanlon; [5] Christopher O'Hanlon; Sunny Development Holdings Inc.; 11105639 Canada Inc.; Bill K. Chen; and Mr. Zhang.

[58] On August 30, 2021, on a pleadings motion, Calbot Group’s action is dismissed as against two of the twelve defendants; namely: NSR (Toronto) and Mr. Wang. [6] Justice Ferguson rules that there is no reasonable cause of action as against these defendants. The Calbot Group appeals.

[59] Meanwhile while the NSR 2019 Action and CIM Counterclaim are dormant but there is activity in the Calbot Group litigation, there is a dispute between NSR and Sunny Co. about the management of the Project. NSR alleges that Sunny Co. has breached its obligations and that NSR is entitled to take back control of the Project. This dispute between NSR and Sunny Co. is resolved on October 21, 2021. The parties sign a “Facilitation Agreement,” which, among other things provides for the payment of the balance of the purchase price for the Mackenzie Creek Project by Sunny Co. and for what in effect is a partial holdback from these funds being disbursed to NSR because of its promises to indemnify Sunny Co. from claims arising from its purchase of the Mackenzie Creek Project. For present purposes, the following provisions from the Facilitation Agreement are pertinent:

[RECITALS]:

A. Sunny Holdings together with NSR, on its own behalf and on behalf of CIM Homes Inc., 10184861 Canada Inc., and CIM Mackenzie Creek Limited Partnership entered into a security purchase agreement, dated September 18th, 2019, as amended by an amending agreement, dated November 25th, 2019, (collectively the “SPA”), with respect to all of the limited partnership units issued and outstanding in […] entities that constitute or relate to the Mackenzie Creek Real Estate Project (the “Project”).

B. […]

C. The transaction contemplated in the SPA was completed on November 29th, 2019.

D. The SPA contemplated that, on closing, a balance of purchase price in the amount of $31,112,971.44 would remain owing. Pursuant to a pledge agreement, dated November 29, 2019 (the “Pledge Agreement”), [Sunny Co.] pledged to NSR 51 % of its interest in the securities purchased under the SPA (the “Collateral”) as security for payment of that balance of purchase price. As of the date of this Facilitation Agreement, $20,000,000.00 of that balance remains outstanding.

E. In a letter dated June 24, 2021, NSR’s counsel notified Sunny’s counsel of an alleged default by [Sunny Co.] under the Pledge Agreement and asserted that the alleged default entitled NSR to exercise the remedies contemplated by the Pledge Agreement, including voting the Collateral, thereby taking control of the Project.

F. Sunny’s counsel sent NSR’s counsel a letter, dated June 25, 2021, in which Sunny’s counsel disagreed with the interpretation of the Pledge Agreement advanced by NSR’s counsel.

G. By way of this Agreement, the parties wish to set aside these differing views and enact certain measures to facilitate an expedited resolution of the foregoing matters. To effect this result, the Parties have signed this Agreement, with immediate effect as between them (other than the delayed effect on Sunny Holdings contemplated in paragraph 2.3), followed by the Closing on the Funding Date.

NOW THEREFORE THIS AGREEMENT EVIDENCES THAT, in consideration of the respective covenants and agreements contained herein, the validity and sufficiency of which the Parties irrevocably acknowledge, the Parties agree as follows:

[…] ARTICLE 1

INTERPRETATION

ii.4 Definitions

Defined terms, including those below, shall have the meanings provided in this Agreement:

“Calbot Litigation” means the litigation (Court file CV-20-636746-0000) in which the Calbot Group Ltd. and 2649106 Ontario Inc., cob Synergy Capital, are the Plaintiffs and the Defendants are NSR, NSR Canada Development Ltd, New Silk Road Culturaltainment Ltd., Dapeng Wang, Sha (Sam) Huang, Sunny Communities (Markham Gold) Inc., Sunny Holdings, Patrick O’Hanlon, Christopher O’Hanlon, 1105639 Canada Inc., Bill K. Chen, and Jian Zhang.

“CIM Litigation” means the litigation (Court file CV 19-00620982-000) in which, NSR is the Plaintiff and the initial Defendants are CIM Mackenzie Creek Limited Partnership, CIM Homes Inc., 1018486 Canada Inc. and Jiubin Feng, and in which the initial Defendants Counterclaimed against the Plaintiffs and joined Sunny as a third party Defendant.

“Closing” means the moment on the Funding Date at which NSR has met its obligations under Paragraph 2.1 (a) and Sunny has met its obligations under Paragraph 2.2 (a).

“Funding Date” shall be a date on or before November 5, 2021.

“Global King Litigation” means the litigation (Court file CV-19-00617661-0000) in which Global King Inc. is the plaintiff and CIM Development (Markham) LP, CIM Commercial LP, CIM Mackenzie Creek Inc., CIM Investment and Development LP, 9025405 Canada Inc., CIM Global Development LP, CIM Mackenzie Creek Residential GP Inc., CIM Mackenzie Creek Commercial GP Inc., 8989788 Canada Inc., CIM Invests Development Corp., Jiubin Feng, and Xiaoxin Zhang are defendants.

“Mutual Release” means the signed Termination and Release attached here to as Schedule “A”, to be effective on the Closing without the need for any further act or formality by NSR or anyone else.

“Litigation Reserve”

XXXXXXXXXXX Neither the existence of the Litigation Reserve, nor the amount of the Litigation Reserve (at any point) may be shared with any third party, without the written consent of all the Parties.

“Outstanding Amount” is the amount of purchase price under the SPA, which Sunny still owes to NSR, being $20,000,000.00.

“Resolution” means, in the case of any one of Calbot Litigation, the CIM Litigation or the Global King Litigation (a) a court determination that is not appealable or for which the appeal period has expired without an appeal having been made, or (b) a written settlement signed by all the parties to the litigation, including, where applicable, Sunny Holdings or 962Co as a third party Defendant.

1.2 Agreement

The Recitals to this Agreement are an integral part of this Agreement.

ARTICLE 2 – COVENANTS

2.1 Covenants of NSR

(a) Upon confirmation that Sunny has made the advances contemplated in paragraph 2.2(a), NSR will:

(i) provide Sunny with an executed full and final Release of Sunny from the Pledge Agreement;

2.2 Covenants of Sunny

(a) On the Funding Date, Sunny shall advance the Outstanding Amount to the following recipients and in the following tranches:

XXXXXXX

(ii) If, by the earlier of June 30, 2022 or the date on which the Project obtains Phase 2 re-zoning approval (and all applicable appeal periods have expired) (the “Interest Commencement Date”), not all of the Litigation Reserve has been disbursed in conformity with this Agreement, Sunny shall, on a monthly basis, pay NSR interest on that remaining Litigation Reserve at […]

2.4 Account Arrangements

(a) NSR shall instruct its counsel to place the Litigation Reserve in an interest-bearing account, with the interest payable to NSR.

(b) […]

I NSR shall instruct its counsel to pay, from the Litigation Reserve:

(i) to the recipient(s) and in the amount(s) specified in any Resolution of the Calbot Litigation, the CIM Litigation, or the Global King Litigation, as the case may be.

(ii) on June 30, 2023 (t“e "Interest End Date"), to NSR, any amount remaining in the Litigation Reserve.

[60] For present purposes, it can be deduced or inferred from the November 29, 2019 Amending Agreement and from the Facilitation Agreement that the settled purchase price for the Mackenzie Creek Project to be paid by Sunny Co. is $34.0 million, which is comprised of the $3.0 million and the $11.0 million that was revealed in the 2019 press release plus the $20.0 million identified in the Facilitation Agreement. The Facilitation Agreement provides for how and to whom the $20 million is to be paid [the payees are in the redacted portions of the agreement]. The $20.0 million, however, is subject to a Litigation Reserve to protect Sunny Co. from its exposure to claims in the Calbot Group Litigation, the CIM Litigation, (i.e., CIM’s counterclaim in the immediate action) and the Global King Litigation.

[61] Pausing yet again in the narrative, here it may be noted that very little new is added by the Facilitation Agreement apart from some details. In the November 25, 2019 Amending Agreement and in the secret November 29, 2019 Amending Agreement, NSR had already agreed to indemnify Sunny Co. for its exposure in purchasing the Mackenzie Creek Project and there already was a Litigation Reserve. What also needs to be noted, however, is that the Facilitation Agreement is expressly subject to a confidentiality clause. In other words, Mr. Zhang is bound to keep this agreement secret. To foreshadow, later in the story, Mr. Zhang will use what he knows about the Facilitation Agreement to obtain a settlement for Sunny Co. that takes it out of CIM’s Counterclaim.

[62] Returning to the narrative, pursuant to the Facilitation Agreement sometime before November 5, 2021 (the “Funding Date”), Sunny Co. pays NSR the balance of $20.0 million and NSR’s lawyers hold in trust $6.4 million for the Litigation Reserve.

[63] On April 6, 2022, Justice Black dismisses Calbot Group’s action as against three more of the original twelve defendants; namely: NSR Canada, New Silk Road, and Mr. Huang. [7] This means that the NSR group of defendants is taken out of the Calbot Group action. The action continues against the Sunny Co. group of defendants. Justice Black also dismisses Calbot Group’s motion for a certificate of pending litigation, an injunction, or a preservation order with respect to its claim for a $5.0 million finder’s fee.

[64] On May 20, 2022, the Court of Appeal upholds the dismissal of Calbot Group’s action as against NSR (Toronto) and Mr. Wang [8]

[65] It is at this juncture that CIM and Mr. Feng give Teplitsky LLP instructions to reactivate the slumbering Counterclaim against NSR and Sunny Co. On May 30, 2022, CIM, Mr. Feng, and also CIM International Group Inc. commence an action against NSR, NSR Canada, New Silkroad Road, Ng Kwong Chue Paul, Guanyu Hang, Sha Huang, Mr. Wang, and Bo Su for $50.0 million for damages for breach of contract, breach of fiduciary duty, interference with economic relations, negligence, and inducing breach of contract. The pleadings in CIM’s 2022 Action incorporate CIM’s allegations in its Counterclaim in NSR’s 2019 Action. The 2022 Action has the same subject matter and is about the Mackenzie Creek Project. It should be noted that Sunny Co. is not a party to CIM’s 2022 Action because that action was to be consolidated or tried with CIM’s Counterclaim in NSR’s 2019 action.

[66] On June 16, 2022, CIM’s lawyers send Sunny Co.’s lawyer, Howard Borlack, a copy of CIM’s recently commenced action against NSR.

[67] Based on Mr. Zhang’s and Mr. Feng’s evidence on the motions now before the court, the subsequent events, and the conduct of the parties, I find as a fact that Mr. Borlack misunderstood the correspondence from CIM’s lawyers. Misunderstanding the situation, Mr. Borlack phoned Mr. Zhang to congratulate him on Sunny Co. being let out of the Counterclaim. Mr. Borlack was undoubtedly mistaken that he had received notice of a discontinuance from CIM’s lawyers. No notice of discontinuance was ever prepared, and to date at least technically Sunny Co. remains a party to the Counterclaim.

[68] I find that Mr. Zhang without consulting Sunny Co.’s lawyers then spoke to Mr. Feng who also did not consult with CIM’s lawyers. Mr. Zhang’s version of the conversation was that after hearing the good news from Mr. Borlack, he thanked Mr. Feng for letting Sunny Co. out of the litigation. Mr. Feng’s account of his conversation with Mr. Zhang was that Mr. Zhang asked CIM to be let out of the litigation, and Mr. Feng agreed to this request.

[69] I find as a fact that in their phone conversation, Mr. Feng may have disagreed that the claim against Sunny Co. had been settled, but in any event, Mr. Zhang suggested that CIM and Sunny Co. should resolve their dispute, and Mr. Feng agreed, and he told Mr. Zhang to have Sunny Co.’s lawyers prepare a Release.

[70] Mr. Feng’s explanation for his agreement to settle with Sunny Co was that with the passage of time, CIM was unlikely to persuade a court to vitiate the sale of the Mackenzie Creek Project and CIM’s damage claim for reputational losses was unwinnable.

[71] However, I infer from all the circumstances, and I find as a fact that there was another reason why Mr. Feng were prepared to settle with Sunny Co. I find as a fact that Mr. Zhang told Mr. Feng about the Litigation Reserve in the Facilitation Agreement. Mr. Feng may have known that fact earlier, perhaps from conversations with Ms. Headon, but I need not make a finding in that regard, because I find that Mr. Feng knew about the Litigation Reserve at the time of his conversations with Mr. Zhang. Mr. Zhang denied providing this information, but I do not believe his evidence. The source of this information could only have come to CIM’s attention from Mr. Zhang, who knew about the marked confidential November 29, 2019 Amending Agreement and who had signed the Facilitation Agreement, which expressly was made a confidential agreement. What Mr. Feng understood from his conversation with Mr. Zhang was that NSR’s lawyers were holding $6.4 million on account of CIM’s Counterclaim against Sunny Co. and that there was little merit in CIM’s continuing to sue Sunny Co. The Litigation Reserve was an inducement for CIM to settle with Sunny Co.

[72] In light of the agreement reached with Mr. Feng, Mr. Zhang then instructed Sunny Co.’s lawyer to prepare the Release. Given Mr. Borlack’s misunderstanding of the purport of CIM’s 2022 Action, McCague Borlack did not discuss the matter of the Release with CIM’s lawyers and McCague Borlack went ahead and prepared the Release.

[73] Then, without advising CIM’s lawyers at Teplitsky LLP, Mr. Feng went to Sunny Co.’s office on June 20 2022, where he and Mr. Zhang signed the Release. More precisely, on June 20, 2022, seven CIM entities and Mr. Feng signed the Release as “Releasor”. Sunny Co. and 14 related non-parties signed the Release as “Releasees”. The Release stated:

MUTUAL AND FINAL RELEASE

IN CONSIDERATION of the payment to the Releasors in the sum of ONE DOLLAR ($1.00) and for other and good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned CIM MACKENZIE CREEK LIMITED PARTNERSHIP, CIM HOMES INC. 10184861 CANADA INC., JIUBIN FENG, CIM HOME MARKETING INC. as well as their affiliates and […] (hereinafter referred to as the “Releasors”)

HEREBY RELEASE, ACQUIT, AND FOREVER DISCHARGE, WITHOUT QUALIFICATION OR LIMITATION: Patrick O’Hanlon, Christopher O’Hanlon, Jian Zhang, Michael Circosta, Bill K. Chen, Jigui Zhang, Lu Chen, 2728926 Ontario Inc., Sunny Mackenzie Creek Commercial GP Inc., Sunny Development (Markham) LP, Sunny Mackenzie Creek Residential GP Inc., Sunny Commercial LP, CIM Global Development Inc., Sunny Communities (Markham Gold) Inc. 2728873 Ontario Inc., Sunny Land Development Holdings Inc. as well as […] (hereinafter collectively referred to as the “Releasee”) of and from all actions, causes of action, suits, complaints, duties, responsibilities, obligations, statutory rights and obligations debts, accounts, bonds, covenants, contracts, claims and demands, in law or equity, for damages, money, compensation, losses, indemnity, restitution, declaratory relief, equitable damages and relief, costs, interest, recompense or injury of any nature whatsoever, presently known or unknown, which the Release ever had, now has or may hereafter have, arising from or in connection with or in consequence of any cause matter or thing, including without limiting the generality of the foregoing, all claims and demands arising from or in connection with an action in the Ontario Superior Court of Justice, commenced in Toronto, Ontario as Court File No. CV-19-00620982-0000/CV-22-00681902-0000 (the “Actions”)

AND IT IS FURTHER UNDERSTOOD AND AGREED that the Releasors will keep the terms and conditions of this Release and settlement completely confidential except as required by law. […]

[74] It should be noted that the Release is mistitled as a mutual Release. It is not, however, a reciprocal Release of Releasors and Releasees. Sunny Co. is released, but CIM and Mr. Feng are not released.

[75] It should also be emphasized that CIM’s lawyers were not involved in the negotiation or preparation of the Release. They only became aware of it after the fact.

[76] Meanwhile, on June 28, 2022, CIM’s lawyers send a letter to NSR’s lawyers and to Sunny Co.’s lawyers. The letter includes copies of the Notice of Action and Statement of Claim in CIM’s 2022 Action. In this correspondence, CIM’s lawyers advise that it is CIM’s intention to have the 2022 Action tried together with CIM’s Counterclaim in NSR’s 2019 action. In this correspondence, CIM’s lawyers demand that NSR and/or Sunny retain in trust the balance of the proceeds from the Mackenzie Creek Project sale, which CIM’s lawyers understand to be $20.0 million. Thus, CIM’s Counsel sends the following letter to NSR’s lawyers and Sunny Co.’s lawyers:

We are writing to you on behalf of our clients who are the Defendants in the NSR Action and the Plaintiffs in the CIM Action. We enclose a copy of the Notice of Action issued in the CIM Action. Our clients have advanced a Counterclaim (“Counterclaim”) in the NSR Action claiming substantial damages against NSR and 2728926 Ontario Inc. (“Sunny”). The Press Release issued by New Silkroad Culturaltainment Limited (“New Silkroad”) dated December 4, 2019 (attached) advised that the balance of the purchase price (“Balance”) from the share sale is to be paid by Sunny to NSR and/or Silkroad by June 30, 2022. We are further advised that the balance is approximately $20M. As NSR is a company incorporated in British Columbia and has no assets in Ontario, we expect that the Balance will leave Ontario making NSR judgment proof in Ontario. […] Therefore, we are writing to insist that your clients retain the Balance in Ontario to abide the outcome of the trial of the Counterclaim. If the Balance is held in trust accounts of the lawyers for NSR and/or Sunny, those funds would not be paid until the Counterclaim is dealt with at trial. In the Counterclaim, our clients alleged that the Purchase Agreement is invalid and should be set aside. Our clients claim an equitable interest in those purchase funds and are putting you on notice of our clients’ equitable interest to ensure that the Balance remains in your respective trust accounts as those funds are impressed with a trust in our clients’ favour.

[77] Pausing here, in the narrative, it may be deduced that in writing the correspondence of June 28, 2022 to NSR’s and Sunny Co.’s lawyers that CIM’s lawyers are not aware that Mr. Feng has settled the litigation with Sunny Co.

[78] On June 30, 2022, NSR’s counsel responds to CIM’s lawyer’s correspondence with the following letter, which is copied to Sunny Co.’s lawyer:

[…] As you may know, of the many defendants named in the just commenced action we currently represent only NSR Toronto Holdings Ltd. We are seeking instructions regarding your question relating to acceptance of service and your proposed consolidation motion. The matter is unfortunately complicated in that this new proceeding, on its face, appears to be duplicative of the existing action commenced by your clients in May 2019. Since all of the facts pleaded in the new action were known to your clients in 2019, this new action appears to be out of time. It also appears to be abusive in that (apart from the apparent duplication), you are attempting to bring in – it appears, former –D&Os against whom no claim lies – the issue of individual D&O liability has, as you may also know, been thoroughly canvassed in the related Calbot proceedings which you can locate on. Even if the pleadings are different, the core issues are the same. […], you have purported to name off-shore entities over which the Ontario Superior Court has already determined it has no jurisdiction. […] It thus seems that you have brought this new action solely to avoid an amendment to your existing pleadings which would not be possible at this stage.

You have asked that the “Balance” (as you have defined it in your letter) be held in trust. Even if our client had been amenable to this suggestion, this is now not possible. In 2021 the parties agreed to accelerate the payment schedule relating to the Mackenzie Creek deal. There is now no “Balance” owing. In any event, your request also appears to collaterally attack Madam Justice Kimmel’s November 2019 decision that confirmed that our clients complied with the Put Option Agreement. […]

We would of course be happy to have a call with you to better understand what is motivating this sudden and seemingly unnecessary flurry of activity. […]

[79] Around July 20, 2022, Mr. Feng finally advises his lawyers that he had settled with Sunny Co. and that he had learned from Mr. Zhang that the outstanding balance for the Mackenzie Creek Project of $20.0 million had been paid and that NSR’s lawyers were holding $6.5 million in escrow.

[80] On July 21, 2022, CIM’s lawyers receive without prejudice correspondence from Antonio Conte of A. Conte Professional Corp. This correspondence confirmed that NSR’s lawyers were holding monies in escrow. Mr. Conte had been acting for Calbot Group Ltd. in its action against NSR and Sunny Co. with respect to the finder’s fee.

[81] On August 2, 2022, CIM and Mr. Feng’s counsel writes the following email to NSR’s counsel:

We have received instructions to bring a motion to a Judge to obtain an order freezing the balance of the proceeds of the sale, which we understand is held in an escrow arrangement. The sum being held is approximately $6.5 million. Our client has resolved matters with [Sunny Co.] and they will no longer be defendants in the Counterclaim.

[82] NSR’s counsel immediately responds to ask for disclosure of the basis of the settlement and he requests a copy of the settlement agreement. He asks that the Mareva injunction materials disclose how CIM learned about the escrow funds.

[83] On August 5, 2022, the Mareva injunction motion is scheduled to be heard on January 20, 2023.

[84] On September 21, 2022, both NSR and CIM summon Mr. Zhang for an examination in aid of their respective motions pursuant to Rule 39.03 of the Rules of Civil Procedure.

[85] On September 30, 2022, CIM and Mr. Feng deliver their motion record for a Mareva injunction. In paragraph 68 of Mr. Feng’s affidavit dated September 30, 2022, Mr. Feng does perfunctorily address the matter of the basis of the settlement with Sunny Co. he stated:

68. CIM has now Released Sunny from all claims and in due course will obtain an Order dismissing the Counterclaim on consent against Sunny without costs. There is no Settlement Agreement with Sunny. CIM believes that after three years since the action was started the rescission remedy in its Counterclaim against Sunny is not available and therefore there is no reason to keep Sunny in the action.

[86] Mr. Feng does not attach the Release to his affidavit.

[87] On November 4, 2022, NSR delivers its responding and cross-motion materials, including an affidavit dated November 4, 2022 from Mr. Wang. He deposes that NSR is carrying on business in Toronto and has $20.0 million of assets in Ontario and that NSR has no intention of sending its assets to China or anywhere else. Mr. Wang is very suspicious about circumstances of the settlement between CIM and Sunny Co. NSR believes that there must be more to the settlement than just letting Sunny Co. out of the litigation.

[88] On November 21, 2022, Mr. Feng swears an affidavit responding to Mr. Wang’s affidavit.

[89] On December 19, 2022, Mr. Wang is cross-examined, and Mr. Zhang is cross-examined pursuant to Rule 39.03.

[90] Mr. Zhang’s examination is an unmitigated travesty both in terms of providing evidence and in not complying with the rules governing examinations in aid of a pending motion.

[91] Mr. Zhang had highly relevant evidence about Sunny Co.’s version of the events, which version was not synonymous with NSR’s version of the events. Mr. Zhang was Sunny Co.’s CFO. Mr. Zhang was managing the Mackenzie Creek Project. Mr. Zhang had highly relevant evidence about the settlement between Sunny Co. and CIM, which evidence was not synonymous with CIM’s evidence about the events. Mr. Zhang, however, refused, among many-many refusals, to answer critically relevant questions about the negotiation and the finalization of the sale of the Mackenzie Creek Project to Sunny Co. He refused to answer questions about the settlement between Sunny Co. and CIM. Bizarrely and improperly Sunny Co.’s counsel did not permit Mr. Zhang to answer relevant questions if the question could be answered by NSR’s or CIM’s witnesses. Sunny Co.’s Counsel’s directions given to Mr. Zhang were wrong. Mr. Zhang’s refusals and his failure to honour his summons by bringing relevant documents to the examination made his examination a travesty.

[92] On December 21, 2022, Mr. Feng is cross-examined. He produces a copy of the Release. This is the first time that NSR sees the Release.

[93] Subject to receiving answers to undertakings, the record is now complete for the motion and the cross-motion. In early January 2023, Sunny Co.’s counsel provides CIM’s counsel a copy of the secret Amending Agreement of November 29, 2019. CIM’s Counsel provides a copy to NSR’s counsel, which was not aware of the existence of the secret agreement.

[94] On January 20, 2023, CIM’S Mareva injunction motion is adjourned to allow CIM to bring a motion for an Order requiring Mr. Zhang to reattend a Rule 39.03 examination and to answer the numerous questions he refused to answer. The cross-motion is also adjourned. Both motions are rescheduled for February 20, 2024. Justice Papageorgiou makes the following endorsement:

The defendant brought a motion pursuant to r. 40 which was returnable today. The plaintiff brought a cross motion to dismiss the defendants’ Counterclaim as an abuse of process. While I can appreciate that the initial r. 40 motion was appropriately scheduled, the cross motion added a layer of complexity such that these motions cannot be heard as short motions in two hours which was booked. The motions are related and should be heard together. Therefore, these motions are adjourned to a long motion (full day) to be heard on February 20, 2024.

[95] On June 19, 2023, Associate Justice Rappos orders Mr. Zhang to produce all documents in respect of the negotiation and finalization of the sale of the Mackenzie Creek Project to Sunny Co. and to reattend his cross-examination.

[96] On September 6, 2023, Mr. Zhang is cross-examined pursuant to Rule 39.03. He testifies that Sunny Co. had paid its indebtedness to NSR. He provides some of the evidence that explains the events described above.

[97] On September 7, 2023, CIM’s lawyers ask NSR’s lawyers to confirm by September 12, 2023 that NSR continues to hold assets of $15.0-$20.0 million in Ontario.

[98] On September 22, 2023, NSR advises CIM and Mr. Feng that NSR and Sunny had agreed to terminate the Facilitation Agreement and, as a result, the $6.4 million in escrow for the litigation reserve had been dispersed into NSR's general accounts. NSR advises that the decision to terminate the Facilitation Agreement had nothing to do with the pending motion, but rather was made to resolve matters that had been subject of an arbitration between NSR and Sunny, which arbitrated dispute had settled.

E. Discussion and Analysis: The Mareva Injunction Motion

[99] CIM’s motion for a Mareva injunction should be dismissed. As I shall explain later in these Reasons for Decision, I am staying CIM’s Counterclaim. This makes the Mareva injunction moot. However, as I shall now explain, I would have dismissed the Mareva injunction motion in any event.

[100] The explanation for dismissing the Mareva injunction can be set out relatively briefly.

[101] Since NSR is not removing assets from the jurisdiction, the necessary prerequisite and lynchpin for CIM’s motion for a Mareva injunction is some proof that NSR perpetrated a fraud on the court when it sold the Mackenzie Creek Project to Sunny Co. It is to establish this prerequisite for a Mareva injunction that CIM alleges that NSR misrepresented to the court the nature of the sale to Sunny Co. of the Mackenzie Creek Project both in terms of the selling price and also as to the nature of the transaction, which CIM submits was an inchoate partnership venture.

[102] However, since there is no proof of this fraud on the court and for other reasons, the elements of the test for a Mareva injunction are not satisfied. Justice Kimmel was not deceived about the possible range of values for the purchase price for the Mackenzie Creek Project, and she could not have been deceived about the nature of the transaction being an inchoate partnership venture. In the fall of 2019 and in January 2020, it is fantasy that there was a partnership or an intention to form a partnership between NSR and Sunny Co. based on the negotiations associated with the purchase of the Project.

[103] Justice Kimmel was satisfied that the sale to Sunny Co. was a bona fide transaction, and she did not have to determine whether it was an improvident transaction. CIM could and still to this day can submit that the sale was an improvident sale as a defence to NSR’s action for breach of contract; however, there was no fraud on the court about the bona fides of the sale and thus there is no basis for a Mareva injunction.

[104] The other reasons for dismissing CIM’s motion can be explained in accordance with the test for a Mareva injunction.

[105] Section 101 of the Courts of Justice Act [9] provides the court with the jurisdiction to grant interlocutory injunctions including Mareva injunctions. Section 101 states:

Injunctions and receivers

101 (1) In the Superior Court of Justice, an interlocutory injunction or mandatory Order may be granted or a receiver or receiver and manager may be appointed by an interlocutory Order, where it appears to a judge of the court to be just or convenient to do so.

Terms

(2) An Order under subsection (1) may include such terms as are considered just.

[106] Rule 40 of the Rules of Civil Procedure, [10] provides that an injunction may be obtained on motion. Rule 40 states:

RULE 40 INTERLOCUTORY INJUNCTION OR MANDATORY ORDER HOW OBTAINED

40.01 (1) An interlocutory injunction or mandatory Order under section 101 or 102 of the Courts of Justice Act may be obtained on motion to a judge by a party to a pending or intended proceeding.

[107] A Mareva is an injunctive order that restrains the defendant from dissipating assets or from conveying away his or her own property pending the court’s determination in the proceedings. For a Mareva injunction, the plaintiff must satisfy the requirements for an interlocutory injunction as set out in in RJR-MacDonald Inc. v. Canada (Attorney General) [11] and typically a plaintiff must establish: (1) a strong prima facie case; (2) irreparable harm if the remedy for the defendant’s misconduct were left to be granted at trial; (3) the balance of convenience favours granting an interlocutory injunction; (4) the defendant has assets in the jurisdiction; and (5) that there is a serious risk that the defendant will remove property or dissipate assets before judgment. [12]

[108] A strong prima facie case is one that will probably prevail at trial or is likely to succeed at trial. [13] Upon a preliminary review of the case, the application judge must be satisfied that there is a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice. [14] Absent unusual circumstances, the plaintiff must provide the undertaking as to damages normally required for any interlocutory injunction.

[109] The risk of removal or dissipation of assets can be established by inference and the defendant’s prior fraudulent activities and improper conduct and the circumstances of the fraud itself including concealment, deception, evasion, and clandestine behaviour may support an inference that the defendant will remove or dissipate property. [15]

[110] Since the general principle of the common law is that there shall not be execution before judgment, [16] a Mareva injunction is both an exception to a general rule and an exceptional exercise of the court’s jurisdiction to grant interlocutory relief. A Mareva injunction is granted only sparingly and in the clearest cases. [17] A Mareva injunction is an extraordinary remedy because as a general policy of civil procedure, a remedy that allows prejudgment execution against the defendant’s assets is not favoured, but where there is a strong case that the defendant has defrauded the plaintiff, the law’s reluctance to allow prejudgment execution yields to the more important goal of ensuring that the civil justice system provides a just and enforceable remedy against such serious misconduct. [18]

[111] In the immediate case, CIM has a strong prima facie case that there may have been an improvident sale when NSR sold the Mackenzie Creek Project to Sunny Co.; however, CIM has no case that a fraud was perpetrated on the court and since NSR has assets in the jurisdiction and is not removing them, there is no justification for pre-judgment execution.

[112] Moreover, CIM will suffer no irreparable harm if the remedy, in this case damages, were left to be granted at trial. The balance of convenience does not favour granting an interlocutory injunction because NSR has assets in the jurisdiction and there is not a serious risk that NSR will remove property or dissipate assets before judgment.

[113] It follows that CIM’s motion for a Mareva injunction to support its Counterclaim should be dismissed.

F. Discussion and Analysis: The Abuse of Process Motion

[114] Where only some of the defendants to a proceeding agree to a settlement, the plaintiff may be obliged to disclose the settlement agreement to the non-settling defendants.

[115] In the immediate case, NSR and Sunny Co. are the defendants to CIM’s Counterclaim. CIM has settled with Sunny Co. The issue to be determined is whether CIM gave adequate notice to NSR of the settlement with Sunny Co. If the litigation landscape entirely changed and CIM did not give proper notice, its Counterclaim must – there is no discretion to rule otherwise – be stayed as an abuse of process.

[116] The obligation to disclose a settlement applies to Mary Carter agreements, which are named after the Florida case of Booth v. Mary Carter Paint Co. [19] and to Pierringer agreements, which are named after the Wisconsin case of Pierringer v. Hoger, [20] but the obligation is not limited to these types of agreements, and the obligation applies to other agreements that may impact on the court’s ability to fairly and justly adjudicate. [21] It is an abuse of process to fail to disclose an agreement that substantially changes the adversarial orientation of the proceeding and the court will stay the claim of the non-disclosing party. [22] If prompt and adequate disclosure is made, there is no abuse of process. [23]

[117] If the settlement does not entirely change the adversarial orientation of the proceeding, then the terms of the settlement need not be disclosed. [24] Not every settlement must be immediately disclosed; for example, a settlement in which the only terms and consideration are a standard release and consent dismissal order on a without costs basis may not give rise to the immediate disclosure requirements. That said, the prudent course is to give notice because each case is decided on its own particular facts as to whether the orientation of the litigation has been materially altered by the settlement. The critical issue is whether the litigation landscape has materially changed the dynamics of the litigation, and this depends upon the particular facts of the particular case. [25]

[118] Factors relevant to determining whether the litigation landscape has been changed include: (a) the pleadings in the litigation; (b) the configuration of claims, defences, cross-claims, and third party claims; (c) the relationships between the parties; (d) the terms of the settlement agreement; (e) whether the terms of the settlement agreement are consistent or inconsistent with the position of the parties in the pleadings; (f) whether the settlement agreement changes the adversarial orientation and whether former adversaries become allies or supporters incentivized to co-operate or provide assistance; (g) whether the settlement would impact the litigation strategy of the non-settling parties; (h) whether the terms of the settlement alter the apparent relationships between the parties to the litigation; and (i) whether the terms of the settlement alter what the court might assume from the pleadings. [26]

[119] Both the existence of the settlement agreement and the terms of it, other than terms that do not affect the adversarial orientation of the lawsuit, must be disclosed. [27] The failure to disclose immediately or the failure to disclose the terms of a settlement that change the proceeding’s adversarial orientation is an abuse of process for which the only remedy is the dismissal of the proceeding. [28] If there is a failure to promptly and properly disclose, it is no answer that the non-settling defendant or respondent was not prejudiced by the time that it learned of the settlement. [29]

[120] In the immediate case, the litigation landscape of CIM’s Counterclaim changed on June 20, 2020 when CIM settled its claim against Sunny Co. Up until that point in time, NSR and Sunny Co., were allied in protecting the bona fides of the sale of the Mackenzie Creek Project but now that alliance to protect the sale was no longer a concern to Sunny Co. The sale transaction was not going to be challenged and Sunny Co. also did not need to rely on the indemnification provisions in the sale agreements.

[121] In these circumstances, Sunny Co. was no longer allied in defending the counterclaim and Sunny Co. was even prepared to give information to CIM to use against NSR in advancing a claim for damages. Mr. Zhang provided Mr. Feng and CIM with ammunition in its pursuit of damages as against NSR by disclosing the prize of the Litigation Reserve monies being held by NSR’s lawyers. Mr. Zhang breached the confidentiality provisions of the Facilitation Agreement to feed this information as against NSR.

[122] It is true that not every settlement agreement needs to be disclosed promptly, but the settlement agreement between CIM and Sunny Co. was of the type that did entirely change the litigation landscape. It would appear that CIM’s lawyer appreciated this to be the case because they disclosed the settlement once Mr. Feng finally told them about it.

[123] CIM argues that the case at bar is a simple case where Sunny Co. was simply let out of the action without extracting any terms, such as a co-operation agreement that would change the litigation landscape. It is true that CIM did not extract or impose any terms on its settlement with Sunny Co.; however, it did not need to extract any additional terms, because Sunny Co. had already co-operated as an inducement to being let out of the litigation.

[124] Ironically, as subsequent events developed Sunny Co. did not co-operate with either party. Sunny Co. was out of the litigation, and as noted above Mr. Zhang’s examination was a travesty of non-cooperation.

[125] While NSR does not need to show that it was prejudiced by not knowing about the settlement between CIM and Sunny Co., it appears that if not prejudiced it was at least confused and disoriented about what was going on when CIM after a two-year litigation siesta started a new action about the Mackenzie Creek Project.

[126] The settlement between CIM and Sunny Co. was reached on June 20, 2020, but on June 28, 2020 without being advised of the settlement, NSR is told by CIM’s lawyer (who do not know about the settlement) about CIM’s 2022 Action and CIM’s intent to have the new action tried with NSR’s action. NSR does not know what is motivating this sudden and seemingly unnecessary flurry of activity nor does it know precisely why CIM’s lawyer is inquiring about the balance of the proceeds of sale.

[127] Ultimately, the problem for CIM is that Mr. Feng knew about the settlement on June 20, 2022 but he did not inform his lawyers for over a month and his lawyers did not inform NSR about the settlement until August 2, 2022. There was a settlement that changed the litigation landscape and there was delayed notice of the settlement.

[128] Mr. Feng and CIM cannot blame their lawyers for mishandling notice of the settlement, which has been the usual problem in the cases. CIM gave instructions too late. The case law is extraordinarily strict, and there is the clearest of red lines. Ignorance of the law is not an excuse or an exception for lawyers or for clients. On June 20, 2022, the litigation landscape changed but there was no immediate notice of the settlement.

[129] It is not necessary to say much about the adequacy of the notice given by CIM’s lawyers on August 2, 2022. NSR was sceptical that the settlement had no terms other than letting Sunny Co. out of the litigation, but that in truth was the sum of it. There were no co-operation obligations, or any other obligations imposed on Sunny Co. in exchange for a release and an anticipated Notice of Discontinuance, which has never come. The absence of additional terms, however, does not mean that the litigation landscape had not entirely changed. In these circumstances, the notice was adequate, but it came too late with the result that it was an abuse of process for CIM to prosecute its Counterclaim.

[130] To be clear and this was conceded by NSR during the argument of its cross-motion, it is only the Counterclaim that is being stayed. Although parts of the counterclaim inevitably touch on CIM’s defence to NSR’s action, CIM’s litigation sword, but not its litigation shield, is being stayed. Whether CIM can prosecute its 2022 Action is a matter that is not before me.

G. Conclusion

[131] For the above reasons, the Counterclaim is stayed and the Mareva injunction motion is dismissed.

[132] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with NSR’s submissions within twenty days of the release of these Reasons for Decision followed by CIM’s submissions within a further twenty days.

Perell, J.

Released: March 6, 2024

Footnotes

[1] R.S.O. 1990, c. S.5.

[2] On November 14, 2023, the Capital Markets Tribunal sanctioned Mr. Feng and CIM International Group $500,000 and ordered them to disgorge $7.6 million and to pay costs of $206,769.34. On December 14, 2023, Mr. Feng and CIM International Group filed a Notice of Appeal to the Divisional Court from the decisions of the Capital Markets Tribunal.

[3] NSR Toronto Holdings Ltd. v. CIM Development (Markham) LP, 2019 ONSC 6372.

[4] NSR takes the position that the November 29, 2019 Amending Agreement is unenforceable. However, for the purposes of the motions, the parties agree that Court may treat the alleged agreement as valid without prejudice to NSR’s right to argue in this proceeding, or any other matter, that the agreement is not valid or enforceable.

[5] The defendant Patrick O'Hanlon was employed by Compass Hill Developments Inc., an Ontario corporation that was part of the Liberty Group (a Toronto real estate development group that for a brief time was a prospective purchaser of the Project).

[6] Calbot Group Ltd. v. NSR Toronto Holdings Ltd. et al., 2021 ONSC 5813.

[7] Calbot Group Ltd. v. NSR Holdings Ltd. 2022 ONSC 2135.

[8] Calbot Group Ltd. v. NSR Toronto Holdings Ltd., 2022 ONCA 410.

[9] R.S.O. 1990, c. 43.

[10] R.R.O. 1990, Reg. 194.

[11] , [1994] 1 S.C.R. 311.

[12] Woods v. Jahangiri, 2020 ONSC 7404; Ndrive v. Zhou, 2020 ONSC 4568; Crawford v. Standard Building Contractors Limited., 2020 ONSC 687; Voysus Connection Experts Inc. v. Shaikh, 2019 ONSC 6683; 2092280 Ontario Inc. v. Voralto Group Inc., 2018 ONSC 2305 (Div. Ct.); Kashechewan First Nation v. Kirkland, 2018 ONSC 3014; SFC Litigation Trust (Trustee of) v. Chan, 2017 ONSC 1815 (Div Ct.); East Guardian SPC v. Mazur, 2014 ONSC 6403: United States of America v. Yemec (2005), 75 O.R. (3d) 52 (C.A.); DeMenza v. Richardson Greenshields of Canada Ltd. (1989), 74 O.R. (2d) 172 (Div. Ct.); Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2; Chitel v. Rothbart (1982), 39 O.R. (2d) 513 (C.A.).

[13] Woods v. Jahangiri, 2020 ONSC 7404; Kashechewan First Nation v. Kirkland, 2018 ONSC 3014; R. v. Canadian Broadcasting Corp, 2018 SCC 5; Modry v. Alberta Health Services, 2015 ABCA 265.

[14] Woods v. Jahangiri, 2020 ONSC 7404; Kashechewan First Nation v. Kirkland, 2018 ONSC 3014; R. v. Canadian Broadcasting Corp, 2018 SCC 5; Modry v. Alberta Health Services, 2015 ABCA 265.

[15] Riar v. Khudal, 2020 ONSC 6238; Kashechewan First Nation v. Kirkland, 2018 ONSC 3014; Electromart (Ontario) Inc v Fabianiak, 2016 ONSC 5266; Sibley & Associates LP v. Ross, 2011 ONSC 2951.

[16] OSF Industries Ltd. v. Marc-Jay Investments Inc., (1978), 20 O.R. (2d) 566 (H.C.J.); Bedell v. Gefaell (No. 2), [1938] O.R. 718 (C.A.); Lister & Co. v. Stubbs (1890), 45 Ch. D. 1 (C.A.).

[17] Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2.

[18] 2092280 Ontario Inc v. Voralto Group Inc, 2018 ONSC 2305 (Div. Ct); SFC Litigation Trust (Trustee of) v. Chan, 2017 ONSC 1815 (Div. Ct.); Aetna Financial Services Ltd v. Feigelman, [1985] 1 SCR 2.

[19] 202 So. 2d 8 (Fla. 1967).

[20] 124 N.W. 2d 106 (Wis. 1963).

[21] Handley Estate v. DTE Industries Ltd., 2018 ONCA 324, rev’g 2017 ONSC 4349; Moore v. Bertuzzi, 2012 ONSC 3248 at paras. 75–79.

[22] McLaughlin v. 2495048 Ontario Inc., 2023 ONSC 4866; Kingdom Construction Ltd. v. Perma Pipe Inc., 2023 ONSC 4776; Skymark Finance Corporation v. Ontario, 2023 ONCA 234; Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743, aff’g 2021 ONSC 803; Hamilton-Wentworth District School Board v. Zizek, 2022 ONCA 638; Chu de Québec-Université Laval v Tree of Knowledge International Corp., 2022 ONCA 467, aff’g 2021 ONSC 5946; Southside Construction v. City of Windsor, 2022 ONSC 2241; Poirier v Logan, 2022 ONCA 350, aff’g 2021 ONSC 1633; Waxman v. Waxman, 2022 ONCA 311, aff’g 2021 ONSC 2180; Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66; Dussault v. Tong, 2022 ONSC 3866; Caroti v. Vuletic, 2021 ONSC 2778; Handley v. DTE, 2018 ONCA 324; Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, leave to appeal refused [2011] S.C.C.A. No. 84.

[23] Veenstra v. North Middlesex (Municipality of), 2023 ONSC 464; Healthplex Pharmacy Inc. v. Premananda Panda, 2022 ONSC 6986.

[24] Kingdom Construction Ltd. v. Perma Pipe Inc., 2023 ONSC 4776; Bennington Financial Corp. v. Medcap Real Estate Holdings Inc., 2023 ONSC 2742; Veenstra v. North Middlesex (Municipality of), 2023 ONSC 464; iPRO Realty Ltd. v. George Sokkar, 2022 ONSC 6825; Dussault v. Tong, 2022 ONSC 3866; Performance Analytics Corp. v. McNeely, 2021 ONSC 8297, aff’d 2022 ONCA 734; Caroti v. Vuletic, 2021 ONSC 2778; Mann Engineering Ltd. v. Desai, 2021 ONSC 2245.

[25] Kingdom Construction Ltd. v. Perma Pipe Inc., 2023 ONSC 4776; Skymark Finance Corporation v. Ontario, 2023 ONCA 234; Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743, aff’g 2021 ONSC 803.

[26] McLaughlin v. 2495048 Ontario Inc., 2023 ONSC 4866; Bennington Financial Corp. v. Medcap Real Estate Holdings Inc., 2023 ONSC 2742; Moore v. Bertuzzi, 2012 ONSC 3248 at paras. 75–79; Aviaco International Leasing Inc. v. Boeing Canada Inc., [2000] O.J. No. 2420 (S.C.J.).

[27] Poirier v. Logan, 2022 ONCA 350, aff’g 2021 ONSC 1633; Waxman v. Waxman, 2022 ONCA 311, aff’g 2021 ONSC 2180; Tallman Truck Centre Ltd. v. K.S.P. Holdings Inc., 2022 ONCA 66, aff’g 2021 ONSC 984; Stamatopoulos v. Harris, 2014 ONSC 6313 (Div. Ct.); Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37.

[28] Skymark Finance Corporation v. Ontario, 2023 ONCA 234; Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743, aff’g 2021 ONSC 803; CHU de Québec-Université Laval v. Tree of Knowledge International Corp, 2022 ONCA 467, 2022ONCA 467, aff’g 2021 ONSC 5946; Poirier v. Logan, 2022 ONCA 350, aff’g 2021 ONSC 1633; Waxman v. Waxman, 2022 ONCA 311, aff’g 2021 ONSC 2180; Tallman Truck Centre Ltd. v. K.S.P. Holdings Inc., 2022 ONCA 66, aff’g 2021 ONSC 984; Handley Estate v. DTE Industries Ltd., 2018 ONCA 324, rev’g 2017 ONSC 4349; Aecon Buildings, a Division of Aecon Construction Group Inc. v. Brampton (City) 2010 ONCA 898, leave to appeal refused [2011] S.C.C.A. No. 84.

[29] Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743, aff’g 2021 ONSC 803; CHU de Québec-Université Laval v. Tree of Knowledge International Corp, 2022 ONCA 467, aff’g 2021 ONSC 5946; Poirier v. Logan, 2022 ONCA 350, aff’g 2021 ONSC 1633; Waxman v. Waxman, 2022 ONCA 311, aff’g 2021 ONSC 2180; Tallman Truck Centre Ltd. v. K.S.P. Holdings Inc., 2022 ONCA 66, aff’g 2021 ONSC 984; Handley Estate v. DTE Industries Ltd., 2018 ONCA 324, rev’g 2017 ONSC 4349; Aecon Buildings, a Division of Aecon Construction Group Inc. v. Brampton (City) 2010 ONCA 898, leave to appeal refused [2011] S.C.C.A. No. 84.