Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., carrying on business as Ajay Amazing Technologies Inc., et al. Mendlowitz & Associates Inc. in its capacity as Trustee in bankruptcy of Chiang et al. v. Chiang et al.

[Indexed as: Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc.]

Ontario Reports

Court of Appeal for Ontario,

Watt, Tulloch and Benotto JJ.A.

September 25, 2014

122 O.R. (3d) 177 | 2014 ONCA 652

Case Summary

Civil procedure — Costs — Appeal — Motion judge ordering plaintiff to pay defendant's costs and refusing to allow set-off for amount by which defendant was indebted to plaintiff — Order determining rights that extended beyond entitlement to and quantum of costs — Leave to appeal not required under s. 133(b) of Courts of Justice Act — Courts of Justice Act, R.S.O. 1990, c. C.43, s. 133(b).

The plaintiff obtained judgment against Jay and Julius in California. Jay subsequently declared bankruptcy in Ontario. The plaintiff brought an action in Ontario to enforce the California judgment and obtain a declaration that the judgment debt survived bankruptcy. It subsequently brought another action in Ontario against Jay and his wife, Christina, for conspiracy and fraudulent conveyance. The plaintiff obtained a default judgment in California against Christina on the basis that she had fraudulently conveyed assets to defeat the earlier California judgment. The judge who heard the Ontario fraudulent conveyance action found Jay's estate and the plaintiff to be jointly and severally liable to Christina for the costs of that action. He refused to allow a set-off for the amount by which Christina was indebted to the plaintiff. The plaintiff appealed the trial judgment. It brought a motion to determine the means, if any, by which it could appeal the costs order.

Held, the motion should be granted.

The trial judge's decision not to allow a set-off had a substantive effect on the plaintiff's legal rights. The order determined rights that extended beyond the entitlement to and quantum of costs. The appeal was not "only as to costs", and leave was not required under s. 133(b) of the Courts of Justice Act. The costs appeal and the main appeal should be heard together. It would not be appropriate to require the plaintiff to post security for costs. The appeal was not frivolous or devoid of merit, and Christina had been found in contempt of court and had failed to pay costs awarded against her.

Cases referred to

Jamieson v. Loureiro, [2009] B.C.J. No. 1426, 2009 BCCA 254, 275 B.C.A.C. 3, 179 A.C.W.S. (3d) 496

Statutes referred to

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 178(1)(d) [as am.]

Court of Appeal Act, R.S.B.C. 1996, c. 77, s. 7(2) (b)

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 133(b) [page178]

MOTION for directions.

Scott Hutchison, for moving party Korea Data Systems (USA), Inc. on M44059.

Hilary Book, for moving party Christina Chiang on M43941 and M44015.

Catherine Francis and Mark A. Freake, for moving party Mendlowitz & Associates Inc. on M43880.

J.T. Curry and K.M. Pentney, for moving party Jay Chiang on M44009.

[1] Endorsement BY THE COURT: -- The motions before the court arise out of a proposed appeal by Korea Data Systems (USA), Inc. of an order for costs made in favour of Christina Chiang. A summary of the background is necessary to put the motions in context.

Brief History of Litigation

[2] The parties have been embroiled in a complex commercial dispute since the early 1990s. It has occupied courts in California, Taiwan, Hong Kong and Ontario.

[3] The litigation arose between Aamazing Technologies Inc. and KDS and its affiliates. KDS sued Aamazing and its "alter egos" Jay Chiang and Julius Chiang to enforce a settlement agreement and to obtain damages for computer monitors that were shipped but not paid for. The California Superior Court gave judgment against Aamazing, Jay Chiang personally, and Julius Chiang personally for US$9,678,832. Jay Chiang then filed for bankruptcy in Ontario, declaring the California judgment to be a liability. He is currently an undischarged bankrupt, with his property vested in his trustee. KDS filed proofs of claim in the bankrupt's estate in the amount of the California judgment.

[4] In 1998, KDS started an action in Ontario against Jay Chiang, Julius Chiang and Aamazing to enforce the California judgment and to obtain a declaration that the judgment debt should survive bankruptcy pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.

[5] In 2000, KDS started another action in Ontario against Jay Chiang and his wife, Christina Chiang, as well as some of their relatives and associated corporations, for conspiracy and fraudulent conveyance (the "fraudulent conveyance action"). The trustee later joined this action as a co-plaintiff.

[6] KDS then obtained a default judgment from a California court against Christina Chiang on the basis that she had fraudulently conveyed assets to defeat the earlier California judgment. [page179] In 2006, the Ontario Superior Court of Justice ordered that this judgment of more than US$5 million be enforced (the "enforcement action").

[7] Notwithstanding its success against Christina Chiang in California, KDS continued to pursue the fraudulent conveyance action against her in Ontario.

[8] The enforcement action and the fraudulent conveyance action were heard together by Marrocco J. in 2011. His judgment was released on July 9, 2012. In a separate ruling, dated May 28, 2014, Marrocco A.C.J.S.C. ordered the estate and KDS jointly and severally liable for the costs of the fraudulent conveyance action to Christina Chiang. He refused to allow a set-off of the costs for the amount by which Christina Chiang was indebted to KDS. The reasons for the May 28, 2014 orders were provided on April 29, 2014.

[9] In August 2012, KDS and the trustee issued a notice of appeal against the trial judgment. The appeal has yet to be perfected. KDS would now like to appeal the costs order against Christina Chiang, which arose from the fraudulent conveyance action. But for costs, KDS has settled the fraudulent conveyance appeal.

[10] After the trial decision was released, the trustee reached an agreement with Jay and Christina Chiang settling all the remaining issues between them. Prior to deciding the costs order, the trial judge was advised by the trustee of its position that Christina Chiang was entitled to reasonable costs. The trustee supports Ms. Chiang's position on the motions.

Motions before this Court

[11] The motions concern the means -- if any -- by which KDS can appeal the costs order.

[12] These are the issues to be determined:

(1) Is leave required to appeal the costs order and, if so, should this court grant leave?

(2) Should the costs appeal be separated from the main appeal?

(3) Should KDS be required to post security for costs?

(4) Costs of the motions.

Is leave required to appeal the costs order?

[13] Christina Chiang and the trustee argue that leave is required for all appeals as to costs, pursuant to s. 133(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43. [page180]

[14] KDS argues that the order goes beyond the usual "quantum and entitlement" determination with respect to costs; the order alters legal rights not related to the costs of the fraudulent conveyance action.

[15] The costs order provides that

(1) Christina Chiang is entitled to her costs fixed in the amount of $665,990.96;

(2) to the extent that the costs are paid by the estate, the trustee is entitled to seek recovery from KDS;

(3) counsel for Christina Chiang is entitled to a solicitor's lien on the costs, which shall have priority over the claims of the estate's unsecured creditors;

(4) all of KDS's reasonable costs arising from KDS's efforts to sell the Chiang's house at [address omitted], and an outstanding costs order for $15,000 made against Christina Chiang, have been satisfied from surplus funds realized from the sale of the house;

(5) outstanding costs orders made against Jay and Christina Chiang are to be satisfied out of funds received by the trustee from Winner International Group Ltd. after the trial decision.

Is the order more than a costs order?

[16] There appear to be few, if any, Ontario cases that consider this question. The British Columbia Court of Appeal considered a similar situation in Jamieson v. Loureiro, [2009] B.C.J. No. 1426, 2009 BCCA 254. There, the costs order specified that the costs would be set-off against a judgment debt. Neilson J.A. found [at para. 9] that "the order for set-off is in effect a variation of the earlier division of family assets". As a result, leave was not required because the costs order was not "an order respecting costs only" under s. 7(2)(b) of the Court of Appeal Act, R.S.B.C. 1996, c. 77.

[17] Here, the trial judge's decision not to allow set-off has a substantive effect on the legal rights of KDS. The decision effectively eliminates the ability of KDS to set-off this debt against the much larger judgment debt owed to it by Christina Chiang.

[18] In our view, the order is not a straightforward determination of who should pay the costs and how much those costs should be. The order determines rights that extend beyond the entitlement to and quantum of the costs. As such, the appeal is not "only as to costs". Thus, leave is not required under s. 133(b) [page181] of the Courts of Justice Act. However, if leave were required, we would have granted leave.

Should the costs appeal be separated from the main appeal?

[19] The complexity of the issues involved and the commonality of the history make it necessary to have the costs appeal heard with the enforcement appeal. In addition, the claim for set-off can only be fully evaluated in the context of the past judgments and costs orders issued against Jay and Christina Chiang. The appeals will be heard together.

[20] KDS will have 45 days to perfect the appeals.

Security for Costs

[21] Christina Chiang asks that KDS be required to pay the costs order, as well as security for costs of the appeal, into this court. She contends that KDS has no assets in Canada.

[22] The appeal is not frivolous or devoid of merit. In addition, it is Ms. Chiang who has been found in contempt of court and who has failed to pay costs ordered against her. This would not be an appropriate case for security for costs.

Costs of this Motion

[23] The parties shall exchange and provide written submissions of no more than three pages. The submissions shall be filed by October 15, 2014.

Motion granted.

End of Document