Luo v. Grigoras

Decision 1: Anchor on Rule 56.01(1)(e) — build the frivolousness branch on the plaintiff’s own document, not on hearsay or speculation

The conventional respondent’s temptation on a Rule 56.01(1)(e) motion is to argue frivolousness on the strength of one’s own narrative of the underlying transaction. That works for the moving party only if the underlying transaction is clear from external evidence. Here we did not need to assemble external evidence: the plaintiff’s own pleading and her own letter of July 28, 2018 supplied everything needed.

Associate Justice Graham accepted the framing at paras. 24–27. He held that there was “no basis at law for the plaintiff’s assertion that simply by receiving the loan proceeds of $200,000.00, the Ouyang defendants became jointly and severally liable to the plaintiff for repayment of that loan. The loan was clearly from Ms. Luo to Atlas Healthcare (Richmond Hill) Ltd. and guaranteed by Mr. Grigoras. Ms. Luo does not allege any contract whereby the Ouyang defendants agreed to repay her, either by way of a guarantee or otherwise.” He further held that the plaintiff’s own July 28, 2018 letter confirmed that Mr. Grigoras and Atlas Healthcare were the persons obliged to repay. Applying the test in Ilitchev v. Yevstigneev, 2004 CanLII 33021, that an action is frivolous and vexatious if it “appears so highly unlikely to succeed that it is apparently devoid of practical merit,” Graham AJ found that the action against the Ouyangs met that threshold.

Decision 2: Use the plaintiff’s own affidavit to support the “insufficient assets” branch

Rule 56.01(1)(e) requires both prongs — frivolousness and insufficient assets in Ontario. Defence counsel’s instinct is often to lead independent searches (PPSA, executions, court file). But here the plaintiff filed an affidavit on the motion to substantiate her residency and her ownership of property at 10 Ferncliffe Crescent in Markham. We used the same affidavit against her on the assets prong.

The plaintiff’s affidavit deposed that “there are no mortgages or charges currently registered on the Property.” The parcel register attached to her own affidavit showed two outstanding charges totalling $571,577 against a 2003 purchase price of $394,976. The affidavit and the exhibit contradicted each other directly. The plaintiff had not provided any evidence of the current status of the charges, the outstanding balances, or her present equity. Graham AJ held at paras. 28–29: “There is therefore no cogent evidence that the plaintiff has sufficient assets in Ontario to pay any costs awarded to the Ouyang defendants.” The internal contradiction in the plaintiff’s own affidavit shifted the evidentiary burden, which she had not met.

Decision 3: Honestly address the Sharma J. cross-reference — do not load-bear on it

We had also referenced the May 31, 2021 ruling of Sharma J. in Canada Grace Park Ltd. v. Grigoras, 2021 ONSC 3934, in which Sharma J. had treated the same $200,000 transferred to Mr. Yongjin Ouyang as part of a $300,000 prepayment by Mr. Grigoras of his loan obligations to Canada Grace Park Ltd. That ruling, on the inverse facts, was substantively favourable to our position on this motion: it confirmed that the $200,000 was characterized as a Grigoras-source obligation, not an Ouyang-source one. But the plaintiff Ms. Luo had not been a party to that proceeding, and the cross-reference was vulnerable to attack on privity grounds. Graham AJ resolved this directly at para. 27: “My ruling in this regard does not rely on Sharma J.’s ruling in Canada Grace Park Ltd. v. Grigoras.” The frivolousness finding stood on the plaintiff’s own pleading and her own July 28, 2018 letter. The Sharma J. cross-reference was preserved without becoming load-bearing.

Decision 4 (honest acknowledgment): the Rule 56.01(1)(a) residence ground was insufficiently supported and was correctly rejected

We also moved on Rule 56.01(1)(a) (plaintiff ordinarily resident outside Ontario). That branch was rejected. Graham AJ held at paras. 8–10 that the supporting affidavit, which stated that Ms. Jenny Ouyang had advised counsel that “the Plaintiff, Shumei Luo may not currently lived in Ontario,” was “vague and speculative and does not even approach the ‘proven facts’ that would satisfy the Court on the balance of probabilities that Ms. Luo is ordinarily resident outside of Ontario.” The plaintiff in turn produced affidavit evidence of an Ontario driver’s licence, residence in Ontario since 1999, and ownership of the Markham property since 2003.

We disclose this candidly. The Rule 56.01(1)(a) ground was insufficiently supported by our motion materials, and Graham AJ’s rejection was correct. He also noted at para. 33 that this unmeritorious position would result in a reduction of the Ouyangs’ costs of the motion. The lesson is that on a security-for-costs motion, the residence branch under Rule 56.01(1)(a) requires “proven facts” (per Shibish v. Scher, 2013 ONSC 4452 at para. 7) — not hearsay from a co-defendant, not speculation, and not the absence of evidence of residence. Either build the residence record properly or do not bring the (a) prong; bringing it under-supported costs the moving party on costs of the motion even when the (e) prong succeeds.

1. Receiving loan proceeds, without more, does not create joint-and-several liability for repayment. A loan creates a contract between lender and borrower; a guarantee creates a separate contract between lender and guarantor. Persons who happen to receive the loan proceeds at the borrower’s direction do not automatically become co-borrowers or co-guarantors. A pleading that asserts joint-and-several liability solely on the basis of receipt of proceeds — without alleging any contract, guarantee, or undertaking running to the lender — appears to lack a doctrinal foundation, and may be vulnerable on a Rule 56.01(1)(e) motion.

2. The plaintiff’s own pleading and contemporaneous correspondence are often the strongest source of frivolousness evidence. Defence counsel reflexively look outward for evidence to support a Rule 56.01(1)(e) motion. The plaintiff’s own pleading should be the first place to look. If the pleaded basis for joint liability is a single paragraph and the pleaded facts do not establish a contractual relationship with the moving defendant, that may be sufficient. Where the plaintiff has also produced contemporaneous correspondence in which she describes the transaction in terms inconsistent with her later pleading, the moving defendant has the makings of a strong frivolousness submission.

3. Either build the Rule 56.01(1)(a) record properly, or do not move on it. The residence branch under Rule 56.01(1)(a) requires “proven facts” — not hearsay from a co-defendant, not speculation. A vague affidavit asserting that the plaintiff “may not currently live in Ontario” will not meet the threshold. Bringing a Rule 56.01(1)(a) motion under-supported costs the moving party on the costs of the motion, even when the Rule 56.01(1)(e) ground succeeds. Where the moving party cannot present cogent evidence of residence outside Ontario at the outset, the better posture is to lead with the (e) ground alone.