Executive Summary: Key Legal and Evidentiary Issues

• Dispute centers on whether a Mareva (asset-freezing) injunction should continue to bind CYD Investment Inc. and CY Capital Inc. in a fraud-based lending claim brought by the investor, Tianzhu Li.
• Evidence tracing showed $300,000 of the plaintiff’s funds passed through Mr. Bai to CYD, but none went directly to CY Capital, and all payments to the plaintiff from CY entities were made on Mr. Bai’s directions.
• The plaintiff alleged that Mr. Bai used the CY corporate defendants as vehicles for a mortgage fraud scheme and that he exercised de facto control over those companies, despite not being a director, officer, employee or shareholder.
• On the more developed record, the court found the plaintiff had not shown a strong prima facie case that CYD and CY Capital either committed fraud/misrepresentation or were knowingly dissipating assets to defeat judgment.
• The court accepted that the CY defendants were suffering ongoing commercial harm from the Mareva order but held the evidence did not rise to “real and pervasive” or “irreparable” harm, and instead focused on the collapse of the factual basis for the injunction.
• Balancing the risk of asset dissipation against the extensive security already available on Mr. Bai’s residence and his remaining investments, the court concluded the Mareva order should be dissolved as against CYD and CY Capital, while ordering them to pay $156,158.72 into court and awarding them $20,000 in costs.

Factual background and lending relationship

The case arises from a private lending relationship between the plaintiff, Tianzhu Li, and the individual defendant, Song Bai. Beginning in 2020, Mr. Bai represented to Ms. Li that he owned a mortgage company called Easyline, specializing in private mortgages. He told her that if she advanced funds to him and Easyline, he would lend those monies out through his mortgage business, limiting her funds to primary mortgages only and offering interest in the range of 10–11 percent. Relying on these representations, Ms. Li advanced funds over several years. Between 2020 and 2022, she provided a total of $400,000 to Mr. Bai and received $348,500 back. In 2023 she advanced a further $1,150,000 but was repaid only $450,000; in February 2024 she advanced a final $300,000 which was never repaid. Mr. Bai made monthly interest payments until May 2024 but told her from June 2024 onward that he could not repay the principal. Ms. Li alleges she is still owed $1,051,500.

The statement of claim pleads that Mr. Bai committed fraud and fraudulent misrepresentation and used a number of corporate vehicles, including Easyline Mortgage Inc., CYD Investment Inc. (CYD) and CY Capital Inc. (CY Capital), to execute his scheme. The claim further alleges that Mr. Bai’s wife and mother, defendants Feiyan Gao and Jie Chen, were involved in a fraudulent conveyance scheme designed to protect Mr. Bai from judgment and defraud the plaintiff.

CYD is an Ontario corporation founded in 2016 by Qiang Song, who is its sole director and shareholder. CYD operates as a private lender, facilitating private mortgage transactions. CY Capital, incorporated in 2015, is owned by three shareholders: Qingyong Lian (30%), Jun Zhao (30%), and Mr. Song (40%), and earns fees for brokering and managing private lending transactions, primarily those involving CYD. The evidence was clear that Mr. Bai is not a shareholder, officer, director, or employee of either CYD or CY Capital. Liyun Zhu acts as marketing manager for both CYD and CY Capital.

Between February 2023 and October 2024, Mr. Bai and his mother Ms. Chen invested in six private lending transactions facilitated by CYD, totalling $905,000. By mid-2024, CYD had repaid $650,000 of that amount. As a regular practice, and crucial to this case, Mr. Bai sometimes directed CYD to make repayments not to him but to third parties, including Ms. Li. By November 2024, CYD still owed Mr. Bai and Ms. Chen $255,000 across two remaining loans. After subsequent power-of-sale proceedings on part of that portfolio, the outstanding investment attributable to them was reduced to $156,158.72, a figure the plaintiff did not dispute.

Tracing of funds and the Davenport and Front Street projects

A significant part of the evidentiary record concerned tracing the plaintiff’s funds through Mr. Bai into specific mortgage deals. The court accepted that $300,000 of Ms. Li’s money moved from her to Mr. Bai and then into CYD but that none of her funds went directly to CY Capital.

Two CYD-managed projects were central. On February 27, 2023, Mr. Bai contributed $150,000 to a loan secured on a condominium unit at 2903-397 Front Street in Toronto. The court found that these funds originated from Ms. Li. When that mortgage was later discharged, Mr. Bai instructed CYD to pay the principal to two third parties. Ms. Li did not receive any of the repayment.

On June 7, 2023, Mr. Bai contributed another $150,000—again traceable to Ms. Li—to a development project at 418 Davenport Road, Toronto (the “Davenport Project”), which was secured against that property and another property in Vaughan. In November 2023, he added a further $100,000 of his own funds to the same project, not sourced from Ms. Li. In December 2023, the borrower on the Davenport Project repaid $100,000 of principal. Following Mr. Bai’s instructions, CYD disbursed $50,000 of that amount to him in cash. On May 27, 2024, CYD sold the Davenport Project loan to new lenders for $200,000 and, again acting on Mr. Bai’s instructions, paid those proceeds out to third parties. Ms. Li received no repayment on this project.

The evidence also showed that $300,000 of Ms. Li’s money went into a separate loan transaction at 501 Yonge Street, Toronto, through Sino Century Inc., a company owned by Ms. Zhu but not a party to the lawsuit. That mortgage was discharged in October 2023, with Sino paying $301,425 to a third party at Mr. Bai’s direction and only $2,500 being sent to Ms. Li in September 2023.

There was no dispute that CYD made multiple payments to Ms. Li between mid-2023 and mid-2024 and that CY Capital made two payments, all on Mr. Bai’s instructions. CYD also issued a T4A tax slip to Ms. Li in 2023, which it later characterized as an error; it maintained that a T5 (investment income) slip should have been issued instead, treating the payments as interest or referral-related, not as direct investment proceeds from Ms. Li.

Procedural history and the Mareva injunction

On October 23, 2024, Ms. Li obtained an ex parte Mareva injunction from de Sa J., freezing assets of all defendants, including CYD and CY Capital. The order was made on an interim basis and set to return on October 30, 2024. On that return, before Fraser J., the parties consented to a further 14-day extension, and the order was amended to allow CYD to use its RBC operating account and for CY Capital to open and use a new RBC operating account, but only for limited purposes such as salaries, rent, utilities, taxes, software fees, and interest to investors. The amended order also provided that the Mareva injunction would be discharged if $1,051,500 (matching Ms. Li’s claimed shortfall) was paid into court, and that defendants could deal with their Ontario assets so long as their unencumbered value remained above that threshold.

Following some further short extensions by consent, Fraser J. heard a contested motion on November 15, 2024, in which Ms. Gao and Ms. Chen sought to dissolve the Mareva injunction as against them, and Ms. Li sought to extend the order. CYD and CY Capital were served but did not appear or file responding materials. On November 19, 2024, Fraser J. dismissed the motion by Ms. Gao and Ms. Chen and ordered that the Mareva injunction remain in force until further court order.

The motion before Justice Mathai was brought later by CYD and CY Capital (“the CY Defendants”), now actively seeking to vacate the Mareva injunction as against them. They argued that the legal test for dissolving or vacating an interlocutory Mareva order had been met because the factual foundation underpinning the injunction had collapsed on the more complete record. The plaintiff opposed and alternatively suggested that the injunction could be narrowed or varied rather than dissolved entirely.

Legal framework for dissolving a Mareva injunction

The court applied the established test for dissolving or vacating an interlocutory Mareva injunction. The main factors are: whether there has been inordinate delay in advancing the claim; whether there has been harm to the defendant from the injunction; whether the present facts differ materially from those existing when the injunction was first granted or whether the factual underpinnings have ceased to be valid; and the overall balance of convenience. These factors sit against the broader context that both granting and dissolving interlocutory injunctions, especially Mareva orders, are exceptional remedies and involve a heavy burden on the party seeking change.

Justice Mathai also revisited the classic criteria for granting a Mareva injunction in the first place: the need for a strong prima facie case; assets in the jurisdiction; a serious risk of asset removal or dissipation to avoid judgment; irreparable harm if relief is not granted; and a balance of convenience favouring the plaintiff, supported by an undertaking as to damages. In fraud cases, the risk of dissipation can sometimes be inferred from the surrounding circumstances without direct evidence of asset stripping.

When the original order was granted and later extended against the CY Defendants, the plaintiff had relied on three key strands: that CYD and CY Capital made payments to Ms. Li and issued T4A slips, allegedly showing they knew she was an investor; that Mr. Bai, via CYD, funded the Davenport Project with her money and that when this mortgage was partially repaid or sold to new lenders, she received nothing while other investors and Mr. Bai were paid; and that, overall, there was a strong prima facie case that Mr. Bai was effectively the “controlling mind” of the CY Defendants. Because no detailed reasons had been released when the Mareva order was granted ex parte, Justice Mathai reconstructed the likely factual underpinnings supporting the injunction: a strong prima facie case tying CYD and CY Capital to Mr. Bai’s alleged fraud through de facto control or knowledge of the source of funds, and an inference that they were dissipating assets to frustrate any judgment.

Evidence of harm to the CY defendants from the injunction

On the motion to dissolve, Mr. Song swore that the Mareva order had caused tangible harm to both CY companies. Their bank accounts had been frozen and operating accounts depleted, requiring shareholders to inject additional capital to keep the business running. They alleged inability to release repaid loan principal to investors, exposure to investor complaints and potential litigation, damage to reputation from being associated with fraud allegations and a court-ordered freezing order, difficulty soliciting new investors, and lost business opportunities.

Justice Mathai accepted that the Mareva order had harmed CYD and CY Capital and would likely continue to do so, especially in terms of real commercial constraints and reputational damage. However, the evidence of financial impact was sparse. The record contained no detailed breakdown of how much capital shareholders had injected, the current balances in operating accounts, or quantified lost revenue. Communications with brokers were largely inquiries about potential deals and did not demonstrate transactions that failed solely due to the injunction. The court therefore held that while harm was present, it did not reach the required standard of “real and pervasive” or “irreparable” harm that would, on its own, justify dissolving the injunction. The plaintiff’s undertaking as to damages remained in place, and there was no indication she lacked the means to answer for damages if the action against the CY Defendants ultimately failed.

Collapse of the factual foundation for the Mareva order

The central question was whether, with a fuller record available, the factual underpinnings that originally supported the Mareva order still held. Justice Mathai examined the plaintiff’s theory that Mr. Bai had de facto control of CYD and CY Capital, and that they knowingly participated in or facilitated his fraud by dealing with Ms. Li’s money.

First, Mr. Bai was never a formal insider of the CY Defendants; he had no de jure control. The plaintiff relied on his alleged statements that Ms. Zhu and Mr. Song were his “partners,” WeChat messages in which he spoke of “our” loans, his role as a significant referral source, and his ability to direct how payments were made from CYD and CY Capital. The court found his “partner” language weak and self-serving, insufficient to establish de facto corporate control. In context, it was more consistent with a business associate who brought lending projects and invested in deals than with a hidden principal controlling the companies.

Second, the size of Mr. Bai’s investments did not establish dominance. While $905,000 across six loans is a substantial sum, CYD’s overall loan receivables totalled about $9.7 million secured by more than 20 mortgages, meaning only a relatively small fraction of its lending portfolio was tied to funds from Mr. Bai and Ms. Chen. This undermined the notion that he was a dominant investor whose leverage could realistically amount to de facto control.

Third, the WeChat communications between Mr. Bai and Ms. Zhu, in which he asked whether “we” could do specific loans or whether a client could borrow “from us,” were interpreted as the language of a regular referrer or participant in co-invested mortgage deals, not as proof of control over corporate decision-making. The evidence from Mr. Song and Ms. Zhu consistently portrayed Mr. Bai as a third-party investor and originator of deals rather than part of management. Mr. Bai’s own affidavit (before another judge) stated he was not involved with CYD or CY Capital apart from frequent cooperation on mortgage projects.

Fourth, with respect to the payments to Ms. Li, the court accepted that Mr. Bai could legitimately instruct CYD to redirect interest or principal payments owed to him to third parties, including Ms. Li. As an investor, he was entitled to receive returns and to designate their recipient. That he did so was not, in itself, evidence that he controlled the corporations or that they knowingly assisted in defrauding Ms. Li. The two payments from CY Capital and associated T4A slip were consistent with referral or fee payments rather than recognition of Ms. Li as a direct investor in CY-managed projects.

The strongest piece supporting the plaintiff’s position was the CYD payments to Ms. Li and the T4A issued to her. Justice Mathai acknowledged that this could support an inference that CYD knew she was a source of funds for at least some of the projects, particularly the Davenport Project. Yet when this was weighed against the broader record, including the absence of any direct dealings between Ms. Li and CYD/CY Capital, the lack of any communications from Ms. Li or Mr. Bai to the companies identifying her as the underlying lender, and the consistent evidence that CYD treated Mr. Bai and Ms. Chen as the only investors of record, the court concluded that the overall evidentiary picture no longer supported a strong prima facie case of fraud or de facto control.

The accounting evidence around interest payments in early 2024 contained discrepancies, and the plaintiff argued that some payment amounts matched what one would expect on a $1,051,500 loan at 10–11 percent, suggesting the CY Defendants understood they were servicing Mr. Bai’s debt to her. Justice Mathai accepted that there were “warts” in the accounting but ultimately considered them insufficient to displace the CY Defendants’ broader narrative that they were following Mr. Bai’s directions as an investor of record, not participating in his misrepresentations to Ms. Li.

Critically, there was also no allegation or evidence that the CY Defendants themselves made false representations to Ms. Li—a key element of both the tort of civil fraud and fraudulent misrepresentation. The plaintiff’s pleadings did not include doctrines such as knowing receipt, which might have provided an alternate basis to attach liability without direct misrepresentation. On this record, the judge found that it was no longer tenable to maintain there was a strong prima facie case against CYD and CY Capital for fraud or fraudulent misrepresentation.

Re-assessment of the risk of dissipation and balance of convenience

At the time of the earlier extension of the Mareva order, the Davenport Project payout (and to a lesser extent the Front Street payout) had supported an inference that CYD might be dissipating assets to thwart Ms. Li’s recovery, particularly because some funds traceable to her appeared to have passed through Mr. Bai and been paid out elsewhere. On the motion before Justice Mathai, however, the CY Defendants provided a fuller explanation: in both projects, they dealt with investors on record, including Mr. Bai, and distributed funds according to his instructions, believing he was the sole investor.

The court accepted that explanation as credible and found nothing abnormal in CYD’s treatment of those transactions, given that Ms. Li had never directly invested with CYD nor been identified on its records. With the original inference of deliberate dissipation undermined, and in the absence of new evidence of asset flight, the serious risk of dissipation element underpinning the Mareva order was no longer established.

The balance of convenience was then reassessed. Importantly, the existing Mareva injunction already secured substantial assets controlled by Mr. Bai and Ms. Chen, including their interest in the principal residence, where the net equity was over $950,000, and the outstanding investment of $156,158.72 with the CY Defendants. Together, this exceeded Ms. Li’s alleged loss and the $1,051,500 security threshold built into the earlier amendment order. The judge rejected the argument that Ms. Li’s chances of recovery were weak against Ms. Chen; two previous rulings had already found a strong prima facie case against her for Mareva purposes, supporting an inference that Ms. Li might ultimately obtain joint and several liability against both Mr. Bai and Ms. Chen.

Ms. Li proposed a narrowed Mareva order that would preserve mortgage principal assets held by CYD and CY Capital equal to her claim amount but release all other assets. Justice Mathai declined this approach, holding that the balance of convenience cannot justify continuing a Mareva order where the plaintiff has not established the core prerequisites of a strong prima facie case and a real risk of dissipation. Without those elements, even a modified or partial Mareva would be inappropriate.

Outcome of the motion and monetary consequences

In the end, Justice Mathai concluded that the factual foundation for maintaining the Mareva injunction against CYD and CY Capital had collapsed. The more complete evidentiary record showed that they were, at most, mortgage facilitators and investment managers dealing with Mr. Bai and Ms. Chen as the only identified investors, with no proven de facto control by Mr. Bai and no established fraudulent representations to Ms. Li by the CY Defendants themselves. As a result, the court ordered that the Mareva injunction be dissolved as against CYD Investment Inc. and CY Capital Inc.

At the same time, the court recognized that the injunction may have caused the CY Defendants compensable harm. Rather than fixing an amount of damages immediately, Justice Mathai directed that a reference be held to determine the damages suffered by the CY Defendants as a result of the injunction, meaning that any damages will be quantified later by a judicial officer or judge assigned to the reference. Additionally, on consent, the court ordered CYD and CY Capital to pay $156,158.72 into court, representing the outstanding investments of Mr. Bai and Ms. Chen with the CY Defendants. This amount serves as security in the action but is not, at this point, a judgment in favour of the plaintiff.

Finally, the court awarded costs of $20,000, inclusive of HST and disbursements, in favour of CYD Investment Inc. and CY Capital Inc. This quantified award reflects the complexity of the motion, the extent of evidentiary development, and the similarity of the parties’ partial-indemnity costs. Accordingly, on this motion, the successful parties are the CY Defendants, who obtained dissolution of the Mareva injunction against them, an order for a future determination of their damages arising from the injunction, and a present costs award of $20,000 in their favour, while the precise amount of any further damages payable to them has yet to be determined.