Executive Summary: Key Legal and Evidentiary Issues

• Motion judge validly declined to sign the Draft Order, citing unresolved issues and insufficient information.

• Settlement agreement was not enforced because appellants breached its terms by failing to vacate the premises.

• Appellants’ claims regarding procedural unfairness and bias were rejected due to lack of legal or factual foundation.

• Lease violations included unauthorized business use, changing locks, and denying landlord access.

• Appellants lived rent-free for over two and a half years, leading to over $300,000 in arrears.

• Court of Appeal admitted fresh evidence but found no reversible error; appeal was dismissed with $35,000 in costs.

Lease agreement and early issues

On November 17, 2020, Ly Innovative Group Inc. and Meizhang Zhou (the respondents) leased a residential property in Toronto to Facilitate Settlement Corporation (FSC), represented by Kai Wu. The lease was for a one-year term starting February 1, 2021, with monthly rent of $9,500 and a $28,000 deposit covering the first and last two months. Key provisions barred business use, subletting, and short-term rentals, and required landlord access upon notice.

Although the lease began in February, FSC received keys on December 1, 2020, for setup purposes. However, without consent, FSC changed the locks and denied the landlords access. Efforts to inspect the property in December 2020 and January 2021 were blocked, and legal counsel for FSC accused the landlords of harassment, threatening to involve police.

Failure to pay rent and legal proceedings

In March 2021, further inspection attempts were again blocked. FSC then stopped paying rent from March 1, 2021 onward, despite occupying the property. The landlords filed an application with the Landlord and Tenant Board on April 29, 2021, seeking termination and arrears. After ten months of inaction at the Board, they abandoned that route and commenced a civil action against FSC, Wu, and “Jane Doe,” who was alleged to be Wu’s wife.

The appellants were noted in default for failing to file a defence, prompting the landlords to seek default judgment in September 2022. In November 2022, the appellants moved to set aside the default and counterclaimed for breach of quiet enjoyment and emotional distress, though they still failed to properly identify “Jane Doe.”

Settlement attempt and court intervention

A case management conference led to a hearing scheduled for November 14, 2023. The appellants failed to comply with orders to file materials and provide proper identification for Wu and Jane Doe. When parties appeared in court, they claimed to have reached a settlement: the appellants would vacate the property by November 17, 2023, failing which a writ of possession could be issued. The Draft Order, however, lacked critical details, including resolution of Jane Doe’s counterclaim.

Citing insufficient information, the motion judge declined to sign the Draft Order and adjourned the matter to November 20, 2023. By that date, the appellants had not vacated the premises, and Jane Doe’s identity remained unclear. The landlords withdrew consent to the Draft Order and resumed litigation. The motion judge directed the parties to argue the matter on its merits.

Findings of fact and judgment

The motion judge found the appellants’ evidence contradictory and implausible. Although they claimed harassment, Wu admitted he and Jane Doe had never actually occupied the property. The judge deemed Jane Doe’s claim for quiet enjoyment “risible” and described her as a “chameleon stooge” used to game the system. He found FSC used the property in breach of the lease—for housing immigrants or visiting foreign employees—and intentionally delayed litigation to live rent-free.

The tenancy was terminated, and the appellants were ordered to vacate. The judge awarded $304,054 in rental arrears plus interest and $100,000 in punitive damages. Costs were later fixed at $45,842.95 on a substantial indemnity basis.

Grounds of appeal and appellate findings

The appellants raised three main grounds on appeal:

1. That the motion judge erred in refusing to sign the Draft Order.

2. That he should have recused himself due to knowledge of settlement discussions.

3. That his comments created a reasonable apprehension of bias.

They also sought to admit fresh evidence, including affidavits from former counsel alleging the judge was aware of settlement terms and had made biased comments.

The Court of Appeal held that:

• The judge acted within his discretion in adjourning the matter and refusing to sign the Draft Order, particularly since the appellants breached the settlement.

• There was no requirement for recusal, as the judge had not conducted a pre-trial and both parties had compromised their positions.

• Strong language in the judgment did not indicate bias, as it was supported by the evidence and analysis.

• Fresh evidence was admitted, but it did not meet the threshold for establishing a reasonable apprehension of bias.

Conclusion

The Court of Appeal dismissed the appeal in full. The motion judge’s conduct and decisions were upheld, including the refusal to enforce the settlement, adjudication of the motions, and factual findings. The appellants were ordered to pay $35,000 in appeal costs.