THC Lawyers Secured Another Major Victory in Mareva Injunction Amid Financial Fraud Litigation
THC Lawyers successfully represented the plaintiffs in extending an asset-freezing injunction and defeating a cross-motion to discharge it in Xiao v. He, 2025 ONSC 4418. In reasons released on July 29, 2025, Justice Charney found that the plaintiffs had established a strong prima facie case and that the circumstances supported a serious risk of asset dissipation. The Court continued the Mareva injunction in its amended form.
The decision illustrates how documentary acknowledgments of debt, the circumstances of alleged fraud, and unexplained refinancing proceeds can support interim asset preservation. It also addresses the obligation to disclose material facts when seeking relief without notice and the importance of tailoring an injunction as the evidence and circumstances develop.
A currency exchange arrangement followed by repayment commitments
The dispute began with an alleged private currency exchange arrangement. The plaintiffs’ evidence was that Zhiyuan Xiao transferred RMB 9,983,309, equivalent to approximately C$1.86 million, to a designated bank account in China in April 2024, expecting corresponding Canadian funds. The plaintiffs alleged that the promised exchange was not completed and that the defendant instead proposed borrowing the money and repaying it later.
A series of written repayment commitments followed. In May 2024, the defendant signed a commitment acknowledging indebtedness and promising repayment. A further commitment and an August 2024 forbearance agreement addressed the outstanding funds and additional costs. The forbearance agreement recorded total indebtedness of C$1.8 million and contemplated security over three properties.
The plaintiffs alleged that the defendant delayed registering the agreed security and that the most valuable proposed collateral belonged to an unrelated person with the same name. They also alleged that the equity in the defendant’s other properties was insufficient to cover the debt. The defendant denied offering the properties as collateral or claiming ownership of the third property.
The plaintiffs obtained an initial Mareva injunction without notice on April 23, 2025. After several consent amendments, they sought its continuation on a contested hearing. The defendant asked the Court to discharge it.
The evidentiary threshold for freezing assets
A Mareva injunction is an extraordinary remedy that restricts a defendant’s dealings with assets before final judgment. As explained in the decision, the moving party must establish a strong prima facie case, assets in the jurisdiction, and a serious risk of removal or dissipation to avoid judgment. Irreparable harm and the balance of convenience must also support the relief, and an undertaking as to damages is ordinarily required.
The Court found that the plaintiffs’ documentary record met the demanding threshold for a strong prima facie case. The signed repayment documents recorded repeated commitments to repay. They provided substantial support for the plaintiffs’ position even in light of the defendant’s competing account.
The defendant maintained that a third party had handled the transfer and disappeared with the funds. He denied receiving the money and said that his role had been limited to introducing the parties. Although he acknowledged signing the May 2024 commitment, he attributed it to guilt and pressure and said he had not appreciated the legal consequences. Justice Charney concluded that, even accepting the defendant’s assertions, the signed loan documents supported a strong prima facie case.
That conclusion concerned entitlement to interim protection. It did not constitute a final judgment awarding the debt or finally determining liability for fraud.
Risk of dissipation could be inferred from the circumstances
A central issue was whether the evidence justified an inference that assets might be put beyond the plaintiffs’ reach. The Court explained that alleging fraud does not automatically satisfy this requirement. The risk must arise from the particular circumstances, considered in context. Direct evidence of an imminent transfer or asset sale is not always necessary.
For the purposes of the motion, Justice Charney found that the defendant’s pattern of fraudulent actions supported an inference of a serious risk of dissipation. The unexplained borrowing of approximately C$500,000 in surplus funds when refinancing two properties reinforced that conclusion. Under an earlier consent order, the surplus was to remain in the defendant’s lawyer’s trust account, subject to court orders.
The defendant’s materials did not explain why those additional funds had been borrowed or why they were needed. This linked the plaintiffs’ concerns to identifiable funds and financing activity. The reasoning shows the value of evidence connecting the alleged misconduct with a practical risk to recovery.
Disclosure objections turned on materiality
Because the original injunction had been obtained without notice, the plaintiffs were required to make full and fair disclosure of material facts. This obligation enables the judge to assess the application fairly when the opposing party is absent. The defendant argued that errors and omissions in the original materials justified setting the injunction aside.
The Court examined each objection. An incorrect date for the parties’ first meeting did not affect the substance of the claim or the repeated acknowledgments of debt. A naming error in the Chinese versions of the agreements involved two brothers whose names shared the same English rendering. The Court found no real dispute about which brother had dealt with the defendant. Settled family proceedings involving Xiao were also immaterial to the dispute.
Justice Charney concluded that the materials fairly disclosed the material facts and that the identified errors and omissions were not material to the outcome. The decision does not dilute the disclosure obligation. It demonstrates the need to assess the actual significance of an alleged omission, while recognizing the practical circumstances of urgent applications.
A tailored injunction balanced preservation and practical needs
The injunction before the Court had already been substantially narrowed by consent. Amendments allowed access to funds for living expenses, mortgage payments, normal business activities, and legal fees. They also permitted refinancing, removed restrictions from several accounts, and subsequently authorized a further release towards legal expenses.
Justice Charney understood the remaining practical restraint to concern the surplus refinancing funds held in counsel’s trust account. The defendant had not explained how retaining those funds caused prejudice. In those circumstances, the balance of convenience continued to favour the plaintiffs. The Court extended the injunction in its current amended form and dismissed the cross-motion to discharge it.
Practical implications for financial fraud disputes
The case demonstrates the importance of preserving repayment agreements and evidence concerning proposed collateral, refinancing, and the movement of funds. It also shows how an injunction can be adjusted to accommodate legitimate expenses while retaining protection over assets relevant to recovery.
Ran He appeared for the plaintiffs on the successful motion. The result preserved interim protection while the underlying action continued. For clients pursuing financial fraud claims, that protection can be critical to maintaining the prospect of an effective recovery if judgment is ultimately obtained.
Decision discussed
Xiao v. He, 2025 ONSC 4418, Justice R.E. Charney, July 29, 2025.