Court File and Parties

COURT FILE NO.: CV-21-668229 DATE: 2024 07 15

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: WISEWAY GLOBAL CANADA CONSULTING LTD., Plaintiff - and - LU SHEN a.k.a WILSON SHEN, YUERONG WANG and CTBC BANK CORP. (CANADA), Defendants

BEFORE: Associate Justice Todd Robinson

COUNSEL: R. Huang and P. Healy, for the plaintiff (moving party) E. Golden and S. Xia, for the defendant, CTBC Bank Corp. (Canada)

HEARD: February 8, 2024 (by videoconference)

Reasons for Decision (Motion to Amend Statement of Claim)

[1] Wiseway Global Canada Consulting Ltd. (“Wiseway”) seeks leave to further amend its statement of claim following examination for discovery of the representative of CTBC Bank Corp. (Canada) (“CTBC”). CTBC opposes the motion, in part, on the basis that many of the proposed amendments improperly plead evidence and argument, contain unnecessary repetition and inconsistencies, and that proposed new headings are unsupported by the pleading and have been included solely to colour the proceedings.

[2] I agree with CTBC that certain of disputed proposed amendments do offend the rules of pleadings and, in the case of one heading, is unsupported by the pleadings, so I am denying leave for those paragraphs and heading. However, I am rejecting most of CTBC’s challenges. The motion is accordingly granted, in part, with leave granted to Wiseway to further amend its statement of claim without the offending portions.

Analysis

[3] Rule 26.01 of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”) provides that, on motion at any stage of an action, the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. The language of the rule is mandatory, meaning that the court is required to grant leave to amend unless the responding party would suffer non-compensable prejudice; the amended pleading is scandalous, frivolous, vexatious or an abuse of the court's process; or the pleading discloses no reasonable cause of action: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Company, 2017 ONCA 42 at para. 25.

[4] Wiseway’s proposed amendments to the statement of claim are subject to the rules of pleadings outlined in rule 25.06 of the Rules. Notably, subrule 25.06(1) requires that all pleadings, including a statement of claim, must contain a concise statement of the material facts on which a party for the claim or defence, but not the evidence by which those facts are to be proved.

[5] Materials facts and evidence are distinct. The Court of Appeal has affirmed, though, that the difference between pleading material facts and pleading evidence is a “difference in degree and not of kind”. The prohibition against pleading evidence is designed to restrain pleading subordinate facts that merely tend toward proving the truth of material facts. Pleading evidence is sometimes closer to providing particulars, which in most cases is more helpful than harmful. Particulars are not evidence, but rather are additional bits of information, or data, or detail, that flesh out the material facts: Abbasbayli v. Fiera Foods Company, 2021 ONCA 95 at para. 48.

[6] CTBC only opposes the proposed amendments in paras. 55-79 of the draft further amended statement of claim, as well as headings that Wiseway seeks to add around those paragraphs. CTBC has outlined its objections by way of a schedule to its responding factum.

[7] The disputed paragraphs are organized in the draft further amended statement of claim under four headings, as follows:

(a) “The Ponzi Scheme Perpetrated by Lu Shen and Yuerong Wang”, comprising paras. 55-62;

(b) “December 2019: Fraud In Relation to the First Tranche and Wiseway’s Investment of $2,200,000”, comprising paras. 63-65;

(c) “January-March 2020: Fraud In Relation to the Second Tranche and Wiseway’s Investment of $2,800,000”, comprising paras. 66-74; and

(d) “April-June 2020: Fraud In Relation to the Third Tranche and Wiseway’s Investment of $700,000”, comprising paras. 75-79.

[8] Much of Wiseway’s written argument focus on the lack of prejudice to CTBC from Wiseway’s proposed amendments. However, CTBC real opposition to the motion is based on the disputed amendments offending the rules of pleading or being made solely with the intent to colour the proceedings and embarrass CTBC.

[9] One of CTBC’s common challenges to the amendments is that they are already pleaded in Wiseway’s reply and are thereby repetitive and redundant. Some amendments are argued to be inconsistent with the reply. CTBC does not argue that Wiseway is withdrawing any admissions. Rather, CTBC submits that Wiseway is trying to “flip the script” and ensure that the first thing read on a motion or at trial is Wiseway’s characterization of events, including many things that Wiseway has addressed in the reply.

[10] There is merit to CTBC’s argument that if Wiseway has already addressed a matter in its reply, then it is redundant to now address the same matter in the statement of claim. However, a statement of claim and a reply serve different purposes. Subrule 25.06(1) of the Rules supports that the statement of claim should contain all the material facts on which Wiseway relies for its claim. The purpose of a reply is different. As set out in rule 25.08, a reply is used to set out the version of facts that Wiseway intends to prove if different from that pleaded in CTBC’s defence (to the extent that it has not already been pleaded in the claim) or to raise something that, if not specifically pleaded, might take the opposite party by surprise or to raise an issue not previously raised by a prior pleading.

[11] The existing pleadings in this action are lengthy. In my view, being practical, it will assist the trial judge more to have all material facts underlying Wiseway’s claim fully framed in the statement of claim.

[12] CTBC points to various inconsistencies between Wiseway’s draft further amended statement of claim and its existing reply. In my view, that is not a concern on this motion. CTBC’s statement of defence is properly responsive to the statement of claim, not the reply. Following further amendment by Wiseway, CTBC will be entitled to amend its statement of defence and counterclaim under rule 26.05 to address any refined or revised positions taken by Wiseway in support of its claim. That includes responding to material facts that were previously only pleaded in Wiseway’s reply, to which CTBC has had no right of response to date, that are now being pleaded as part of the statement of claim.

[13] If CTBC opts to amend its defence, then Wiseway will also be entitled to amend its reply under rule 26.05. Although Wiseway argues there are no inconsistencies, amendment may well see the alleged inconsistencies addressed. If CTBC does not amend, then Wiseway will be faced with either addressing any alleged pleading inconsistencies at trial or bringing a further motion to amend its reply to address them. In either case, given the circumstances of this case and the pleadings as they stand, my view remains that Wiseway’s existing reply pleading is not a factor in deciding this motion.

[14] CTBC submits that such an approach will lead to a vicious circle of further amendments. I am not convinced that will be the case provided that CTBC’s amended statement of defence and counterclaim (if any) responds to the further amended statement of claim (as it should) rather than the reply (as it should not). Any inconsistency between the existing reply and the further amended statement of claim will then be for Wiseway to address. Certainly, though, costs will be an issue if Wiseway seeks to amend its statement of claim yet again prior to trial.

[15] I turn now to dealing with the specific disputed headings and paragraphs in Wiseway’s proposed further amended statement of claim.

[16] With respect to CTBC’s objection to the heading before paras. 55-62, I agree with CTBC that material facts supporting a “Ponzi scheme” have not been pleaded. CTBC submits that a “Ponzi scheme” is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. It has drawn that definition from Oxford Languages. Wiseway did not dispute the definition in either its written or oral submissions. I note that Black’s Law Dictionary (online) defines a “Ponzi scheme” in similar terms: “A scam which is usually carried out on the general public, by making returns of high promises in a shorter time period. It is primarily based upon paying off the early investors.”

[17] I have been directed to no paragraphs in the statement of claim outlining material facts supporting a Ponzi scheme. None of the impugned paras. 55-62 under the disputed heading support it. Wiseway seems to be basing its allegation on comments about Lu Shen and Yuerong Wang made by Myers J. in endorsements made in March 2023 in contempt proceedings. In my view, those comments also do not support a Ponzi scheme.

[18] A scandalous pleading includes those parts of a pleading that are irrelevant, argumentative or inserted for colour, and unfounded and inflammatory attacks on the integrity of a party: Abbasbayli, supra at para. 49. Absent pleaded material facts supporting a Ponzi scheme, I agree with CTBC that the mischaracterizing heading is “scandalous” and cannot be maintained. Without the word “Ponzi”, though, the heading is acceptable since the pleading supports an alleged “scheme”. I am allowing the heading without the word “Ponzi”.

[19] Wiseway submits that paras. 55-62 plead material facts for the complaints of misconduct against CTBC, which Wiseway argues are necessary in advancing its claims.

[20] CTBC challenges paras. 55-58 on the basis that they have already been pleaded in CTBC’s statement of defence and counterclaim and admitted in Wiseways’ reply, or are existing allegations in Wiseway’s reply. CTBC thereby argues that they are redundant and unnecessary. Even if repetitive, I see no concern with permitting the amendments. In my view, the content of the proposed paragraphs is not contrary to any rule of pleading, is not scandalous, frivolous, vexatious or an abuse of the court’s process, and is not prejudicial to CTBC.

[21] CTBC challenges paras. 59 on the basis that it pleads evidence. Wiseway submits that para. 59 pleads the fact that CTBC acted upon instructions to transfer funds from Wiseway, which is argued to be material to the alleged breach by CTBC of its duty of good faith and honesty to Wiseway, which is argued to include the obligation not to lie or mislead Wiseway and an obligation to correct any false impression created through its own actions. Wiseway points to CM Callow Inc. v. Zollinger, 2020 SCC 45 at para. 38. I am convinced by Wiseway’s arguments that the paragraph is not pleading evidence, but rather material facts.

[22] CTBC challenges para. 60 on the basis that the allegation is false and that, even if true, the allegation is irrelevant to the claim, is only relevant to this motion to amend, and has been inserted to colour the proceedings. Wiseway acknowledges that the reference to “June 2022” is a typographical error, which should ready “June 2021”. Otherwise, Wiseway submits that its amended pleading seeks to add two new causes of action against CTBC and the dates on which Wiseway learned of the fraud are material facts to discoverability of those new causes of action.

[23] CTBC submits that it has already agreed that it will not assert a limitations defence with respect to the proposed amendments. However, I was directed to nothing in the record confirming that CTBC has conceded that a limitations defence will not be pleaded in any amended defence.

[24] In my view, the pleaded facts are material to discoverability of the new causes of action. Regardless of whether or not CTBC has agreed that no limitation defence will be advanced, I find no actual or potential prejudice to CTBC from permitting Wiseway to plead when it purportedly learned of the alleged fraudulent scheme.

[25] CTBC challenges paras. 61-62 on the basis that they plead evidence relating to the contempt sentencing hearing of Lu Shen and Yuerong Wong. Wiseway submits that the decisions are relevant background facts and particulars. I agree with CTBC that no material facts are pleaded. The paragraphs are predominantly extracts from Myers J.’s endorsements. They are not material facts or particulars. They are at best evidence or argument raised to support the alleged fraudulent activity by the individual defendants. In my view, these two paragraphs offend the rules of pleadings.

[26] With respect to the heading before paras. 63-65, CTBC argues that the “First Tranche” is defined in Wiseway’s reply as beginning in September 2019, with the “Second Tranche” said to begin in December 2019. CTBC points out that the scope of the “First Tranche” is different in the reply, and Wiseway’s amendments are inconsistent with how those terms are defined in CTBC’s defence. Wiseway disagrees.

[27] I give no effect to CTBC’s arguments. As discussed above, in my view, Wiseway’s existing reply pleading is not relevant to deciding this motion. Wiseway’s reply responds to CTBC’s statement of defence and counterclaim. Wiseway, as plaintiff, is entitled to define the tranches and alleged fraud associated with them in its own originating process. To the extent that the periods are actually being refined or redefined by the amended statement of claim (which Wiseway disputes), CTBC will have the right to amend its statement of defence under rule 26.05 to address the purported changes. CTBC may maintain or amend its own position on the tranches as pleaded in the statement of defence and counterclaim. If Wiseway’s allegations are genuinely inconsistent between its further amended statement of claim and the reply (with which Wiseway disagrees), then it will need to take steps to address that inconsistency.

[28] Wiseway submits that paras. 63-65 plead material facts about CTBC’s conduct in retroactively adding Plaza Inc. as a guarantor to CTBC’s personal loans to the two individual defendants and the failure of CTBC to properly investigate before doing so.

[29] CTBC challenges paras. 63 on the basis that the new allegations are inconsistent with CTBC’s reply. I have already addressed this challenge above in finding that Wiseway’s existing reply is not relevant on this motion. Any alleged inconsistency ought to be addressed in the course of subsequent amendments under rule 26.05 or, if CTBC does not amend its statement of defence and counterclaim, will need to be separately addressed by Wiseway.

[30] CTBC challenges para. 64 on the basis that it repeats other allegations and pleads evidence. In my view, the paragraph as drafted predominantly consists of material facts and particulars. There are two exceptions: (i) the first clause of the second sentence reading, “As confirmed by Aaron Zhong in his email to Mr. Jun Chen on December 9, 2019”; and (ii) the third sentence. The first is pleading evidence and the second is pleading argument, not facts. I would deny leave for those portions of the paragraph.

[31] CTBC challenges paras. 65 on the basis that Wiseway is attempting to reply to CTBC’s allegations in para. 68 of its statement of defence and counterclaim, which has already been addressed in the reply, rather than seeking to amend the reply. I reject these arguments. In my view, the proposed paragraph is not contrary to any rule of pleading, is not scandalous, frivolous, vexatious or an abuse of the court's process, and is not prejudicial to CTBC. In my view, CTBC’s concerns are addressed by its right to amend its own pleading under rule 26.05.

[32] CTBC’s challenges paras. 66-67 and 74 on the basis that Wiseway is repeating allegations from its pleadings. To the extent there is repetition of the allegations, I see no practical concern allowing it. In my view, the proposed paragraphs are not contrary to any rule of pleading, are not scandalous, frivolous, vexatious or an abuse of the court’s process, and are not prejudicial to CTBC.

[33] CTBC challenges paras. 68-73 on the basis that Wiseway is pleading evidence, not material facts. Wiseway submits that all of these paragraphs contain material facts. In my view, although close to the line in how they have been drafted, the paragraphs are acceptable by virtue of subrule 25.06(7). That subrule provides that the effect of a document or the purport of a conversation, if material, shall be pleaded as briefly as possible, but the precise words of the document or conversation need not be pleaded unless those words are themselves material. The impugned paragraphs are pleading the content of documents and conversations material to the position that CTBC knew or ought to have known about the alleged fraud.

[34] Wiseway submits that paras. 75-79 relate to material facts surrounding its advance of $700,000 in June 2020. CTBC’s challenges paras. 75-76 and 78-79 on the basis that Wiseway is repeating allegations. As with my findings above, to the extent there is repetition of the allegations, I see no practical concern allowing it. In my view, the proposed paragraphs are not contrary to any rule of pleading, are not scandalous, frivolous, vexatious or an abuse of the court’s process, and have not been argued to be in any way prejudicial to CTBC.

[35] CTBC challenges para. 77 on the basis that it contains both evidence and argument, contrary to the rules of pleading. I agree that the paragraph is improper argument. The material facts underlying the position taken in para. 77 are pleaded in other paragraphs that I have allowed or that are unopposed. I note that subrule 25.06(2) of the Rules permits conclusions of law to be pleaded provided that the material facts supporting them are also pleaded. However, in para. 77, Wiseway is making arguments of fact not conclusions of law. I accordingly am not granting leave to add this paragraph.

Disposition

[36] For the foregoing reasons, I order as follows:

(a) Leave is hereby granted to Wiseway to amend its statement of claim to add the following aspects of the draft amended amended statement of claim:

(i) on an unopposed basis, paras. 2(a)-(c) and (j), 80-92, 95-104, including the headings before paras. 80, 87, and 95;

(ii) paras. 55-59, 60 (with “June 2022” deleted and substituted by “June 2021”), 63, 64 (except the first clause of the second sentence and the third sentence), 65-76, and 78-79; and

(iii) the new headings before paras. 55 (subject to the word “Ponzi” being removed), 63, 66 and 75.

(b) Leave is denied for the remaining requested amendments and the balance of the motion is hereby dismissed.

[37] Order to go in the form of draft order, with draft amended amended statement of claim, submitted by Wiseway, as amended prior to signing.

Costs

[38] Costs outlines have been exchanged and submitted. Wiseway intended to rely on an offer to settle, so I could not hear costs submissions at the time of the hearing.

[39] Wiseway has been substantially successful in arguments over the disputed paragraphs and headings. Nevertheless, in my view, there has still been divided success on this motion, which includes considering the success of each party at the several case conferences before me since the first return of this motion in July 2023. I am inclined to award neither party their costs of the motion. Nevertheless, I am prepared to consider submissions in light of settlement discussions and the totality of the circumstances should the parties be unable to agree on costs themselves.

[40] The parties should make earnest efforts to agree on costs. If they cannot agree, then costs submissions shall be made in writing. Wiseway shall serve its costs submissions by July 31, 2024. CTBC shall serve its responding costs submissions by August 16, 2024. There shall be no reply submissions absent leave of the court. Costs submissions shall not exceed four (4) pages, excluding any offers to settle and case law.

[41] Once served, all costs submissions shall be submitted by email directly to my Assistant Trial Coordinator, Christine Meditskos, with proof of service. Unless exchanged and submitted in accordance with the above, the parties shall be deemed to have agreed on costs.

ASSOCIATE JUSTICE TODD ROBINSON DATE: July 15, 2024