Court File and Parties

COURT FILE NO.: CV-22-543 DATE: 2024-11-22 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

ZHUO ZUO, Plaintiff Steven Gadbois, Counsel for the Applicant

- and -

CHENG WANG, Defendant David Shiller, Counsel for the Respondent

HEARD: June 25, 2024

Reasons for Judgment

THE HONOURABLE JUSTICE S. ANTONIANI

Overview

[1] The Defendant, Chen Wang, moves to discharge the Certificate of Pending Litigation (the “CPL”) obtained by the Plaintiff, Zhuo Zuo, against the Defendant’s property located at 256 Park Home Avenue, in Toronto, Ontario (the “Property”). The Defendant seeks an order for security for costs, as the Plaintiff is not resident in Canada and has no assets here.

[2] The Plaintiff now also asks the Court for a Mareva injunction. The Defendant opposes the granting of this Mareva injunction.

Background

[3] In 2022, Justice Nightingale refused to grant the Plaintiff a CPL (following a motion brought without notice to the Defendant) as the only evidence of a connection between the alleged debt to the Plaintiff and the Property, was the Plaintiff’s allegation that some of her money was used to acquire the Property.

[4] The CPL was later granted on June 23, 2022, by Justice Broad. The second motion was on notice, and the Defendant appeared, unrepresented.

[5] The evidence before Broad J. was the hearsay evidence of the Plaintiff, who swore that she had reason to believe that her lawful money was used by the Defendant in the purchase of the Property. There was no supporting documentary evidence presented, and thus the order was granted without prejudice to the Defendant to bring a motion to discharge.

Issues

1. Has the Defendant shown cause to discharge the CPL?
2. Has the Plaintiff shown that she is entitled to a Mareva injunction against the Property?
3. Should security for costs be ordered against the Plaintiff?

Decision

[6] The Defendant has shown cause to discharge the CPL.

[7] The Plaintiff has not shown that she is entitled to a Mareva injunction.

[8] There shall be an order for security for costs against the Plaintiff, in the amount of $50,000.

The CPL

[9] The parties agree that the Court must find the Plaintiff has provided some evidence to support the assertion that some of her funds were used in the purchase of the Property, its renovation, or otherwise directly in relation to the Property.

[10] This court described the test for granting a CPL (which also covers the test for discharging a CPL) in Perruzza v. Spatone, 2010 ONSC 841, at para. 20 as follows:

(i) The test on a motion for leave to issue a CPL made on notice to the defendants is the same as the test on a motion to discharge a CPL (Homebuilder Inc. v. Man-Sonic Industries Inc., 1987 CarswellOnt 499 (S.C. – Mast.) (“Homebuilder”) at para. 1);

(ii) The threshold in respect of the “interest in land” issue in a motion respecting a CPL (as that factor is set out at section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C. 43) is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed (1152939 Ontario Ltd. v. 2055835 Ontario Ltd., 2007 CarswellOnt 756 (S.C.J.), as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Gen. Div. – Comm. List) at para. 62);

(iii) The onus is on the party opposing the CPL to demonstrate that there is no triable issue in respect to whether the party seeking the CPL has “a reasonable claim to the interest in the land claimed” (G.P.I. Greenfield Pioneer Inc. v. Moore, 2002 CarswellOnt 219 (C.A.) at para. 20);

(iv) Factors the court can consider on a motion to discharge a CPL include (i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the CPL is or is not removed with or without security (572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (S.C. – Mast.) at paras. 10-18); and

(v) The governing test is that the court must exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted or vacated (931473 Ontario Ltd. v. Coldwell Banker Canada Inc., 1991 CarswellOnt 460 (Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd., 1977 CarswellOnt 1026 (Div. Ct.) at para. 9).

[11] A court may discharge a CPL where the party, in whose favour it was issued, does not have a reasonable claim to any interest in the land, see s. 103(6)(a)(ii) of the Courts of Justice Act, R.S.O. 1990, c. C. 43:

Order discharging certificate

(6) The court may make an Order discharging a certificate,

(a) where the party at whose instance it was issued,

(ii) does not have a reasonable claim to the interest in the land claimed…

[12] The onus is on the person opposing the CPL to show that there is no triable issue about the claimant’s interest in the land: Boal v. International Capital Management Inc., 2018 ONSC 2275, at para. 64 - “On a motion to discharge the certificate, the court should examine the evidence and without deciding disputed issues of fact and credibility, determine whether the plaintiff’s case makes a reasonable claim to an interest in land.”

[13] The history between the Plaintiff and the Defendant is complicated. The Plaintiff alleges that she and the Defendant were involved in an illegal lending arrangement in China, wherein the Plaintiff borrowed money against her real estate, at a rate of interest in the range of 6-8%, and then loaned that money to the Defendant at the highest lawful rate of interest in China, 24%. The Plaintiff’s allegation is that the Defendant thereafter loaned the money at a higher than 24% rate of interest, to third parties. The Plaintiff admits that in this arrangement she was a party to the illegal lending she attributes to the Defendant.

[14] Although the particulars of their business dealings are not for me to untangle in this motion, the Plaintiff’s evidence suggests that the dealings between them may not have been lawful. This impacts the Court’s consideration in granting equitable remedies.

[15] The Defendant flatly denies most of the Plaintiff’s alleged facts, including any participation in an illegal lending scheme and owing any debt whatsoever to the Plaintiff.

[16] Some facts are not in dispute. The Plaintiff and the Defendant were friendly in China.

[17] The Defendant’s son attended university in Canada and the Defendant came to Canada with his wife from time to time to visit their son. The first such visit to Canada was in 2012. After that the Defendant returned to Canada annually.

[18] In March of 2017, during a visit to his son in Canada, the Defendant purchased the Property for a total purchase price of $2,828,000, taking a mortgage of $1,555,400. It is inferred that the Defendant paid the balance of the purchase price of $1,272,600 with non-mortgage funds.

[19] The Defendant has provided evidence that a deposit of $1,485,000 was made to his CIBC account on February 9, 2017, from his wife’s bank account in China. There is no evidence presented as to how his wife obtained these funds.

[20] The Plaintiff claims that she loaned money to the Defendant over a period of time, on the understanding that it was to be used by him in re-loaning to third parties. She alleges that, at some point in 2017, the Defendant had fallen behind in the repayment of loans. The Plaintiff travelled to Canada in October 2017. The Plaintiff claims that the Defendant signed a refunding plan during that visit. Pursuant to that plan the Defendant agreed to pay his debt to the Plaintiff, which had by that point reached $1.958 Million Canadian and was collecting interest at 2% monthly.

[21] The parties agree that in 2018 the Defendant became aware that several of his business associates in China had been arrested. The Defendant’s property was seized, and his wife was detained and restricted from leaving China. The Defendant later learned that his company’s building had been demolished and that many of his assets had been forfeited. The Defendant made the decision not to return to China. Instead, in September 2018, he applied for Refugee status in Canada. In 2022, the Defendant was granted Refugee protection.

[22] Also in 2018, the Plaintiff sued the Defendant in China. That action appears to have resolved in December 2019, wherein the Plaintiff obtained judgment against the Defendant in an amount that is the equivalent of approximately $1.9 Million Canadian.

[23] The Plaintiff now seeks to recover the $1.9 Million Canadian debt from the Defendant and brings an action against him in Ontario.

The CPL lacks support in evidence:

[24] The only evidence available in regard to the CPL is the Plaintiff’s assertion and speculation in respect of what the Defendant did with the money she loaned him. The Plaintiff swore three affidavits in support of these motions, and has not articulated any concrete basis for her speculation that the Plaintiff’s funds were used in the purchase of the Property, its renovation, or that they were used otherwise directly in relation to the Property.

[25] In fact, the Plaintiff’s own description of the illegal lending scheme provides an alternate explanation as to the use she believed, and expected, her funds were put to - the re-loaning of those funds at illegal rates of interest.

[26] The translated decision from the Chinese court action reviews the position the Plaintiff took there. She argued that the Defendant had improperly used the funds she loaned him to pay off business debts, and other debts he had accumulated, rather than for lending, as had been agreed. There is no suggestion within those reasons that the Plaintiff alleged that the Defendant had transferred her funds to Canada to purchase a house.

[27] Neither the Plaintiff’s affidavits, nor her production of the Chinese judgment, support her current contention that any of her money was used directly in relation to the Property. Her position in the Chinese litigation does not accord with the granting of the CPL.

[28] In this motion, the Plaintiff alleges that the Defendant smuggled her funds into Canada, and that he used her funds to purchase the home. She alleges that the funds came from China to Canada via an underground bank, in about February 2017, from the Defendant’s wife’s bank account in China. There is no evidence as to the source of the funds that were in the Defendant’s wife’s account – only the speculation of the Plaintiff that those were the funds she had lent to the Defendant. This does not support the argument in favour of retaining the CPL.

[29] The Plaintiff acknowledges that the Defendant had many other creditors, and she alleges that he was earning money illegally. Upon review and consideration of the entirety of the portions of the record produced in English, including the translated portions of the Chinese record, there is no evidentiary support for the Plaintiff’s contention that the funds she claims to have loaned the Defendant were used in relation to the Property.

[30] The CPL is ordered discharged.

Mareva Injunction

[31] As per Chitel v. Rothbart (1983), 39 O.R. (2d) 513 (C.A.), to obtain a Mareva injunction, the Plaintiff must establish that they both (1) have a strong prima facie case, and (2) that there is a risk of imminent removal or dissipation of assets. As affirmed by the Supreme Court of Canada in Aetna Financial Services Ltd. v. Feigelman, [1985] S.C.J. No. 1, there are five traditional criteria that must be established to make out a case for a Mareva injunction – these are as follows:

(i) The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.

(ii) The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the defendant.

(iii) The plaintiff should give some grounds for believing that the defendants have assets here.

(iv) The plaintiff should give some grounds for believing that there is risk of the assets being removed before the judgment or award is satisfied.

(v) The plaintiff must give an undertaking as to damages.

[32] Oftentimes, as in Avanew Inc. v. Hossain et. al., 2023 ONSC 3619, the balance of convenience ‘injunction’ question (from RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311), is also considered within the Mareva injunction framework – i.e., does the balance of convenience favour granting a Mareva injunction?

[33] The test for granting a Mareva injunction is onerous, more onerous than that required for granting injunctive relief generally: see Laliberte v. Monteith, 2018 ONSC 7032, at para. 32; and Bradley J. Grant Investments Inc. v. Nestig Inc., 2023 ONSC 4373, at para, 37, citing to Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, [2003] O.T.C. 7, (S.C.). A Mareva injunction is an extraordinary remedy. It is a general principle of common law that there should not be execution before judgment. A Mareva injunction is both an exception to this general principle, and an exceptional exercise of the court’s jurisdiction to grant interlocutory relief: see Salna v. Lotfi-Noushad (2007), 224 O.A.C. 147 (S.C.). A Mareva injunction should be granted sparingly and in the clearest of cases.

[34] As per Justice Perell, in Sherwood Dash Inc. v. Woodview Products Inc., [2005] O.T.C. 1061 (S.C.), at paras. 51-53, an “injunction is an equitable remedy” and is thus “subject to the principles that govern the grant of equitable decrees and orders. One of those principles is the maxim that ‘one who comes to equity must come with clean hands.’”

[35] The clean hands principle, specifically in relation to a Mareva injunction, is better specified in R. v. Consolidated Fastfrate Transport Inc., [1995] O.J. No. 1855 (C.A.), at para. 133:

A Mareva injunction is a discretionary equitable remedy. It will only be granted to a person "who has clean hands". It is on this basis that the requirement for full and frank disclosure rests. See Chitel v. Rothbart, supra, where the application was refused because the plaintiff failed to make the necessary full and frank disclosure. The granting of an injunction also involves weighing the balance of convenience to the parties: Aetna Financial Services Ltd. v. Feigelman, supra, at p. 176. It will be issued in circumstances where the plaintiff demonstrates that he will suffer irreparable harm if the injunction is not issued. Fairness to both sides is a consideration. By contrast, an execution can be issued as of right once a judgment has been obtained against the defendant. If the plaintiff has a valid judgment, considerations such as fairness and the "clean hands" of the plaintiff are irrelevant.

[36] Such a link between the clean hands principle, and the Mareva injunction, is affirmed both in Royal Bank v. Boussoulas, 2012 ONSC 2070 (Div. Ct.) and Buduchnist Credit Union Limited v. 2321197 Ontario Inc., 2024 ONCA 57.

The strength of the Plaintiff’s prima facie case:

[37] There are many factual disputes between the parties on the most basic of issues. The thousands of pages of documents will require further translation, and viva voce evidence to assess and interpret. An assessment of credibility and findings of fact will be required. At this stage, I find that it is impossible to determine that the Plaintiff has a strong prima facie case.

[38] By way of example, the parties dispute whether the Plaintiff loaned funds to the Defendant and whether any debt exists between them. The parties dispute whether the Defendant was aware of the proceedings the Plaintiff brought against him in China and ignored them, or whether he was duped by the Plaintiff as to the nature and intent of those proceedings. The Plaintiff claims that she came to Canada and that the Defendant willingly signed an IOU, agreeing that he owed her the $1.9 Million (Canadian equivalent) plus 24% per annum interest. The Defendant claims that the Plaintiff made him aware that his company and assets were under attack in China, and that she offered to assist him to preserve his assets in China by the bringing of a fictitious lawsuit. The lawsuit would have the result of causing his assets to be frozen, thereby putting them out of reach of the authorities. The Defendant alleges that he signed blank documents so that the Plaintiff could obtain whatever authorizations were necessary to assist him. The Defendant alleges that the IOU was obtained fraudulently and that he does not in fact owe the Plaintiff any money.

[39] The Defendant makes bald denials of many of the Plaintiff’s allegations.

[40] The current state of the documentation, being thousands of pages largely in an unspecified Chinese dialect, much of which is not accompanied by any explanatory evidence, makes it impossible to determine that the Plaintiff has a strong prima facie case. The onus to show as much is on the Plaintiff, and she has not succeeded.

[41] While I need not consider the rest of the Mareva injunction test, having determined I cannot conclude that the Plaintiff has shown a strong prima facie case, the following constitutes a brief overview of my conclusions regarding the balance of the Mareva injunction inquiry, which includes the risk of the Defendant removing assets from the jurisdiction, and the Plaintiff’s undertaking as to damages.

[42] The Defendant is a refugee in Canada. His son is here. He owns at least one property in Canada, which has been subject to the CPL. The materials suggest that he may have acquired other real property in Canada. The Plaintiff alleges that the Defendant was a gang member and criminal in China, and that he had to flee the country. There is no evidence presented to suggest that the Defendant has ties to or assets in any other country. Instead, the evidence supports that all his remaining assets in China were seized by the authorities, and that he would be in danger of arrest and imprisonment were he to return to China. There is some evidence, including the allegations of the Plaintiff, suggesting potential illegal activity, which might in turn suggest a greater likelihood to move or hide assets. However, such is largely supported by bald allegations and therefore cannot support any finding of fact that I might consider in this assessment.

[43] The Plaintiff appears to be of means, notwithstanding her submissions suggesting otherwise. She was borrowing and re-loaning money to the Defendant and her own evidence is that she has since been able to pay back all her debts. It appears she owns several properties in China. She was able to pursue litigation against the Defendant in China, and now in Ontario. She has been able to travel to Canada with some frequency.

[44] Finally, given that she is a foreign national with no property or assets in Canada, and that she claims she is not able to deposit security for costs (see below), there is no other evidence before me that suggests she could make a viable undertaking regarding damages.

[45] A Mareva injunction is an extraordinary remedy that should only be granted in the clearest of cases. I am not satisfied that this standard has been met in all of the circumstances known to me at this stage in the proceedings.

Equitable remedies and the doctrine of clean hands:

[46] I have found that the Plaintiff has not met the test to be granted the extraordinary remedy of a Mareva injunction. Further, even if she had met the test, her own evidence is that the debt came about by way of her involvement in the Defendant’s unlawful lending scheme. As such, I would exercise my discretion and refuse to grant an equitable remedy in the circumstances.

[47] In addition to her position that she borrowed money and loaned it to the Defendant, so that the Defendant could loan the same money at illegal rates of interest, as detailed in para. 20 of her October 18, 2023, affidavit, the Plaintiff swears that it is illegal in China to earn more than 100,000 CNY from the re-loaning of bank money. The Plaintiff’s evidence is that she entered into a fake tenancy agreement with the Defendant as a means to mask excessive earnings (this entire factual explanation is denied by the Defendant). The Plaintiff’s position, if it is accepted, makes her a party to a fraudulent tenancy agreement intended to hide illegally earned interest.

[48] In considering all of the evidence on the motion, alongside the Plaintiff’s sworn evidence as to how the debt arose (i.e., from the loaning of money at illegal rates of interest and hiding the profits made from illegal activities, through to the signing of artificial tenancy agreements), the Plaintiff by her own evidence does not come to the Court with clean hands, and as such, even in the event that she had met the other criteria, she would not be entitled to the exceptional equitable remedy she seeks.

Security for Costs

[49] On a motion for security for costs, the initial onus is on the defendant to establish that the case falls within one of the branches of r. 56.01 of the Rules of Civil Procedure, R.S.O. 1990, C. 43. Once that is established, the onus shifts to the plaintiff to show that ordering security would be unjust by demonstrating: (a) the plaintiff has sufficient assets in Ontario or a reciprocating jurisdiction to satisfy any costs award; (b) the plaintiff is impecunious and the claim is not plainly devoid of merit; or (c) the plaintiff is neither impecunious nor has sufficient assets to post security, but does have a good chance of success on the merits: see 2311888 Ontario Inc. v. Ross, 2017 ONSC 1295, 69 C.L.R. (4th) 40.

[50] The Defendant argues that the Plaintiff should be required to deposit security for costs because she is a Chinese national, she lives in China, and because she does not own any property in Canada.

[51] The Plaintiff swears that she will be forced to forfeit the litigation if I order her to pay security for costs. Notwithstanding this claim, the Plaintiff’s materials reference the fact that she owns more than one property in China. In her July 6, 2023, Affidavit, she swore to the fact that she had repaid the money that she borrowed against her properties for the loans to the Defendant. She indicated that, prior to repaying the loans, she had been unable to borrow against her properties for four years. I conclude that the Plaintiff is not impecunious and that she does in fact own properties in China.

[52] In 2018 alone, the Plaintiff travelled to Canada four times to meet with the Defendant. These facts further suggest that she is not impecunious.

[53] The issues between the parties appear to have the potential to lead to complex and expensive litigation. I am unable to assess the strength of the Plaintiff’s case. Much of the information the Plaintiff relies on is in not in English and will have to be both certified and translated. This is not a matter which can be heard via simplified procedure. The credibility issues and the factual disputes will mandate a full trial.

[54] The uncontradicted evidence before me is that the Plaintiff is a foreign national, who does not reside in Canada, and who does not own any assets in this country. Further, there is no credible evidence before me that the Plaintiff is impecunious. Rather, the evidence leads to the opposite conclusion. In the circumstances, I consider that it is just to require the Plaintiff to post security for costs.

[55] The Defendant provided a draft bill of costs, estimating after trial costs of $159,567.45 ($113,271.35 on a partial indemnity basis).

[56] It is not necessary to address the full potential for all costs which might be incurred, and the merits of the case may be more easily assessed when the matter is more substantively underway. Rule 56.07 allows for the security for costs amount to be increased or decreased at any time. At this stage, upon a review of the current record before me, I order the Plaintiff to deposit $50,000 as security for costs of the action.

The Materials & Certified Translations

[57] The Defendant further argued that the Plaintiff’s motion materials do not conform with Rules 4.06(1)(e), and 4.06(8) of the Rules of Civil Procedure, or s. 125(2)(b) of the Courts of Justice Act, and that they are therefore inadmissible or should be given no weight. In her answers to undertakings, the Plaintiff admits that the person who swore one of her affidavits, in July of 2023, was not appointed as a commissioner under the Commissioners for Taking Affidavits Act, R.S.O. 1990, c. C. 17.

[58] The Defendant makes an additional argument that the majority of the evidence tendered by the Plaintiff is inadmissible, in that it does not include a certification of translation in the jurat, or that it is not translated from Chinese to English. The Plaintiff, in her submissions, admitted that these allegations are true. The Plaintiff submits that meeting all the translation requirements would be prohibitively expensive, and that the court has the discretion to admit her documents as they are.

[59] I agree with the Defendant, if the Court did not consider the Plaintiff’s evidence that fails to meet the evidentiary requirements for translation, then the court would have concluded that the did not meet her burden regarding either the CPL or the granting of a Mareva injunction. I also agree that the requirements for certification and translation are substantive and not minor procedural requirements. However, given my decision herein, and having taken the Plaintiff’s evidence at its highest, including a consideration of some of the translated materials, it is not necessary to determine this issue of conformity/inadmissibility here.

[60] It may indeed be prohibitive and may not be reasonably required that all documents be translated. If the Plaintiff pursues the action, no doubt the issue of what documentation will be necessary to translate will have to be determined before trial, either by agreement between the parties, or by separate motion to this court.

Order

[61] The CPL shall be discharged.

[62] The motion for a Mareva injunction is dismissed.

[63] The Plaintiff shall deposit $50,000 prior to taking any further steps in this action, and in any event within 90 days of this Order. Upon providing the security, the Plaintiff shall forthwith give notice of compliance pursuant to r. 56.08 of the Rules of Civil Procedure.

Costs

[64] I would urge the parties to agree on costs. If the parties are unable to agree, then costs submissions may be made as follows.

a. Within 15 calendar days of the distribution of these reasons to counsel, the Defendant shall serve and file his written costs submissions, not to exceed three pages, double-spaced, together with a draft bill of costs;

b. The Plaintiff shall serve and file her responding costs submissions of no more than three pages, double-spaced, together with a draft bill of costs within 25 calendar days of the distribution of these reasons;

c. The Defendant’s reply submissions, if any, are to be served and filed within 30 calendar days of the distribution of these reasons, and are not to exceed two pages;

d. If no submissions are received within times allocated by either party, said party shall be deemed to have no submission; and

e. If no submissions are received by either party, the parties will be deemed to have resolved the issue of the costs of these motions, and costs will not be determined by me.

S. Antoniani J.

Released: November 27, 2024