Breaking Fraud Cases from Canadian Courts
At Canadian Fraud News, we report on decisions issued by Canadian Courts related to fraud, that are not reported in the main stream media, and that contain legal issues the Canadian public and fraud recovery experts should be aware of. The following is one such story.
On November 20, 2017, the Ontario Superior Court released a decision in a civil fraud case in what can only be described as a complex and strange set of circumstances. For his part, the Judge referred to the proceeding before him as “a bizarre case” where “large parts of evidence have the quality of pulp fiction”, concluding that “the Plaintiffs are the victims of their own greed and or stupidity.”
The context of the decision was a motion where various defendants moved to set aside an asset freezing and a search order obtained by the plaintiffs without notice. The Court granted the defendants motion, set aside the asset freezing and seizing orders, and instructed the plaintiffs to move their case forward without any known assets on which to recover.
The Story Line in Brief
In December 2010, the plaintiff Ms. Wang, born in 1977, emigrated to Canada from China pursuant to the immigrant investor program with her husband Mr. Zhang (a non-party born in 1964).
Ms. Wang and Mr. Zhang arrived in Canada with at least six million dollars. The Judge commented that it is unknown how this was so and how they have sustained themselves in Canada, where neither of them has any employment or businesses, apart Mr. Zhang’s gambling and YH-Investments land development projects.
The judge stated “I make no finding other than saying that it is unknown how Ms. Wang and Mr. Zhang acquired their considerable wealth or how they got it out of China for investments in Canada.”
In 2011, the Wang-Zhang family moved into a house at 77 May Avenue, Richmond Hill. The house was purchased for $1,255,000 cash with no financing.
In February 2011 Ms. Wang and Mr. Zhang separated. They signed a separation agreement prepared by the immigration consultant Daniel Woods. Although separated, Ms. Wang and Mr. Zhang remained business partners. On September 1, 2011, they created the plaintiff YH-Investments.
On November 7, 2011, shortly after YH-Investments’ incorporation, it purchased 55 Avenue Rd., Richmond Hill. The property was purchased for $900,000 cash without any financing. The
Property was subsequently severed to become 55 and 57 Avenue Rd. New houses were constructed on both properties. No explanation is provided as to how the improvements were paid for.
On November 11, 2011, YH-Investments purchased a property municipally known as 21 Sunnywood Crescent, Richmond Hill, Ontario for $1,050,000 cash without financing. In 2012, the existing bungalow on the property was demolished, and a new two-storey home was constructed. No explanation is provided as how the improvements were paid for. Ms. Wang believes that the Sunnywood property is now worth between $3.75 million and $4.25 million.
On June 30, 2012, Ms. Wang and Mr. Zhang purchased 45 Parr Place, Thornhill, Ontario for $3.5 million with a $2.3 million mortgage from the Bank of Montreal. The balance of $1.2 million was paid from cash.
In July, 2013 Ms. Wang and Mr. Zhang allegedly divorced. Mr. Zhang produced a copy of the divorce decree purportedly granted by Justice Paisley sitting in Newmarket. The judge stated that “the divorce decree is suspicious, because there is no record of it in Newmarket and Justice Paisley sits in Toronto, not Newmarket.”
Skip forward to March 2016 around this time, Mr. Zhang asked a lawyer to arrange a six-month first mortgage of the Sunnywood property to be personally guaranteed by Mr. Zhang. Mr. Zhang did not explain the purpose of the borrowing, but the lawyer came to understand that the money from the mortgage was to be used to pay his gambling debts to one of the defendants.
It was reported that Mr. Zhang was a prolific high stakes gambler at Casino Rama.
The Judge noted that the Plaintiffs submit that over and above the fact that they denied that YH-Investments ever authorized the $300,000 mortgage, such lending would be illegal as contrary to the Mortgages Act,1 the Interest Act,2 and the Criminal Code3 for charging penalty interest after default and for charging a criminal rate of interest. For present purposes, the judge held that this was an issue that he need not decide for many reasons.
The judge held that in any event, on June 2, 2016, a six-month $300,000 mortgage on the Sunnywood property with interest payable at 8% per annum was apparently granted by YH-Investments and registered against the title of the property. “The evidence with respect to the $300,000 is one of several examples where it would appear that either Mr. Zhang perjured himself or [the defendants] perjured themselves.”
On August 3, 2017, Ms. Wang and YH-Investments commenced an action against their lawyer for professional negligence and for breach of fiduciary duty. They also sued their lawyer and other defendants for conspiracy, fraud, conversion and unjust enrichment.
On August 9, 2017, the Plaintiffs brought motions without notice before Justice Dow and were granted a Mareva injunction, a Norwich Order, and certificates of pending litigation. Ms. Wang deposed that the $300,000 mortgage, and other mortgage transactions for $1,175,000 and $550,000 not described in this story, were frauds and forgeries and that YH-Investments had received no funds from these transactions and rather that the funds had been misappropriated by the Defendants.
On August 18, 2017, the interim orders were continued by me pending cross-examinations and examinations. In September 2017 all of the orders for the asset freezing and seizure against the
lawyer were vacated. In October 2017 the defendants’ motion to have the asset freezing and seizure orders removed was heard. The judge made the following curious comments in this case.
Fraud or Folly
The judge made the following statements under the heading of “Fraud or Folly”:
The evidence before the court gives me the choice of attributing the Plaintiffs’ loss of approximately $1.1 million to fraud or to folly. The above description of the factual background reveals that the Plaintiffs either have a strong prima facie case of being the victims of several frauds and forgeries or that the Defendants have a strong prima facie defence that the Plaintiffs are the victims of their own greed and or stupidity.
For present purposes, I prefer the folly version of the facts. In general, I found Ms. Wang’s, and particularly Mr. Zhang’s evidence, self-serving, implausible, inconsistent, illogical, incredible, unreliable, evasive, and inconsistent with the documentation. That is not to say that the Defendants were in every respect credible and reliable witnesses.
There is the prospect that some witnesses committed perjury or were dishonest, but for the purposes of this motion, it is not necessary for me to make a final determination. For present purposes, I limit myself to saying that the Defendants’ accounts were better collaborated by common sense, by the documents – to the extent that the documents were reliable, and by the non-party witnesses who may have had bad memories but who had no or little motive to prevaricate or to lie or to expose themselves to perjury charges.
I conclude that the Plaintiffs have not shown a strong prima facie case of fraud. For this reason alone, I shall not continue the Mareva injunction, the Norwich Order, and I shall vacate the certificates of pending litigation.
It also seems the judge was not comfortable that the source and legitimacy of the funds used to purchase the various properties was not disclosed. Where does all this money come from?
Full Reasons for Judgment
The take away from this story seems to be that lawyers acting for fraud victims should take a hard look at their clients before bringing motions to seize and freeze assets prior to judgment. The legal costs to the plaintiffs to bring these motions only to have them set aside must have been astounding, only to have a judge declare that he viewed their case as folly, not fraud.
For the full reasons for judgment, see Wang v. Wong, Kesarwani, et al, 2017 ONSC 6821.
Inquiries
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