Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20220822 DOCKET: C70090

Huscroft, Harvison Young and Sossin JJ.A.

BETWEEN

NDrive, Navigation Systems S.A. Plaintiff (Respondent)

and

Si Zhou (aka Si (Silas) Zhou aka Silas Zhou), Aguazion, Inc., Hakemi & Ridgedale LLP and Tom A. Hakemi Defendants (Appellants)

AND BETWEEN:

Si Zhou (aka Si (Silas) Zhou aka Silas Zhou), Aguazion, Inc. and Aqua Latitude International Limited Plaintiffs by Counterclaim (Appellants)

and

NDrive, Navigation Systems S.A., Joao Filipe Dos Santos Teixera Neto, Andreia Susana Dias and Eduardo Augusto de Sousa Carqueja Defendants by Counterclaim (Respondents)

Counsel: Norm Emblem and Camila Maldi, for the appellants Ryder Gilliland and Corey Groper, for the respondents

Heard: August 15, 2022

On appeal from the judgment of Justice Susan E. Healey of the Superior Court of Justice, dated November 5, 2021, with reasons reported at 2021 ONSC 7366, and from the costs endorsement, dated November 24, 2021, with reasons reported at 2021 ONSC 7772.

Reasons for Decision

[1] This is an appeal from a judgment granting partial summary judgment in favour of the respondents. The appeal raises the question of whether this case was appropriate for partial summary judgment, and if so, whether the motion judge made any palpable or overriding errors in her findings. At the close of oral submissions, we stated that the appeal was dismissed, with reasons to follow. These are those reasons.

Overview

[2] The respondent, NDrive, Navigation Systems S.A. (“NDrive”) is a software company based in Portugal, producing GPS navigation software (the “NDrive software”). The individual respondents are directors of NDrive (collectively, “the NDrive parties”).

[3] The appellant, Silas Zhou (“Zhou”) owns and controls Aqua Latitude International Limited (“Aqua”), a Hong Kong corporation, and is the sole director of the appellant Aguazion Inc., a Canadian corporation (collectively, “the Zhou parties”).

[4] Tom Hakemi is a lawyer and partner at Hakemi & Ridgedale LLP (“H&R”) (collectively, “the Hakemi parties”).

[5] On March 17, 2010, NDrive entered into a consultancy agreement with Aqua’s predecessor (the “consultancy agreement”). Through Aqua, Zhou helped NDrive establish a business relationship with LG Electronics Inc. (“LG”). In September 2010, NDrive and LG signed a licensing agreement, pursuant to which LG had the right to license the NDrive software on its mobile phones.

[6] In 2013, NDrive discovered that LG underreported the number of phones that it installed the NDrive software on. In December 2015, NDrive commenced an arbitration. Zhou oversaw the arbitration on NDrive’s behalf, working with H&R and Stroock & Stroock & Lavan LLP (“Stroock”). The retainer agreement with H&R provided for a success fee arrangement and that H&R would receive instructions from Zhou.

[7] NDrive won an arbitral award of $1,068,085.43 USD, which H&R received in May 2018. On Zhou’s direction, H&R wired the balance of the award totaling $851,315.94 USD to an Ontario account in the name of Aguazion.

[8] NDrive appealed the arbitral decision and Zhou handled the conduct of the appeal. The appeal was not successful.

[9] NDrive’s position was that Zhou hid the conduct and outcome of the appeal, directed the arbitral award balance to Aguazion’s bank account without authorization, and in so doing, defrauded NDrive. NDrive submitted that it first learned the appeal was dismissed in February 2020, over seven months after its further right to appeal had expired. Subsequently, NDrive learned that the arbitral award was held by Zhou.

[10] On March 17, 2020, NDrive delivered a letter to Zhou demanding the return of the $851,315.94 USD. Zhou did not return the funds.

[11] Zhou’s position was that he kept NDrive appraised of the appeal and that NDrive directed him to keep the funds for multiple reasons, including that the parties intended to reconcile money owed to Zhou after the appeal. Zhou also submitted that he was deprived of compensation from the arbitration because of a flaw in the NDrive software, which inhibited a larger award.

[12] On May 4, 2020, NDrive filed a statement of claim, claiming damages of $958,449.75 USD from the Zhou parties for fraud, fraudulent misrepresentation, conversion, deceit, misappropriation of funds, breach of fiduciary duty, unjust enrichment and breach of constructive trust, punitive damages of $1 million, and an interlocutory and permanent injunction restraining them from disposing of their assets. NDrive also claimed damages from the H&R defendants.

[13] The Zhou parties counterclaimed for damages of $5 million from NDrive for breach of contract, deceit, unlawful means and bad faith in its contractual dealings, and punitive, aggravated, and exemplary damages of $1 million, in addition to claiming against the individual directors personally.

[14] On May 6, 2020, NDrive moved for a Mareva injunction, which was granted by McCarthy J. On May 22, 2020, the parties consented to an order pursuant to which the injunction would cease to have effect on payment of security by the Zhou parties.

[15] On June 19, 2020, McCarthy J. granted NDrive’s motion to set aside the May 22, 2020 order and replace it with the original Mareva injunction, finding “fraud was present.”

[16] The Zhou parties’ motion to vacate McCarthy J.’s June 19, 2020 order was dismissed on November 12, 2020. The Zhou parties’ motion for leave to appeal the November 12, 2020 order was subsequently dismissed by the Divisional Court.

[17] On March 12, 2021, NDrive brought a motion for partial summary judgment and to dismiss the Zhou parties’ counterclaim.

[18] On May 20, 2021, Healey J. dismissed the Zhou parties’ motion to vacate the date for the partial summary judgment motion. The Zhou parties’ motion for leave to appeal this order was subsequently dismissed by the Divisional Court.

The Partial Summary Judgment Decision

[19] Healey J. granted NDrive partial summary judgment and dismissed the Zhou parties’ counterclaim.

[20] Healey J. addressed the factors to be considered in determining whether to hear a motion for partial summary judgment. While acknowledging the triage function set out by this court in Malik v. Attia, 2020 ONCA 787 (“Malik”), Healey J. held that this triage role was already undertaken by McCarthy J., who had concluded that the motion should be heard following case conferences in December 2020 and January 2021.

[21] Healey J. held that partial summary judgment was appropriate in this case. She concluded that the issues to be litigated would meet the objectives of proportionality, efficiency, and cost-effectiveness. Further, there was limited risk of duplicative or inconsistent findings as the action against the Zhou parties could be readily bifurcated from the action against the other parties.

[22] Healey J. also found she could rely on a voluminous record from which to find facts, weigh evidence and make any necessary credibility findings.

[23] Based on the record, Healey J. found that Zhou had misled NDrive regarding the payment of the arbitral award, failed to keep NDrive properly informed about the appeal of the arbitral award, and acted on behalf of NDrive in relation to the appeal of the arbitral award without authority to do so.

[24] Healey J. granted partial summary judgment for $881,170.48 USD. Healey J. held that the documentary record proved that Zhou was “deliberately lying and attempting to mislead the court” and was neither credible nor reliable. His evidence, according to Healey J., was often illogical, internally and externally inconsistent, and patently false.

[25] Healey J. rejected the Zhou parties’ defences as well as the counterclaim. Among other findings, Healey J. concluded that Zhou’s breach of fiduciary duty and fraudulent conduct disentitled the Zhou parties to set off for any amounts owing and to compensation under the success fee arrangement. She also found other claims relating to the arbitration to be statute-barred in light of the limitation period.

[26] In addition to general damages, Healey J. awarded punitive damages to the respondents in the amount of $200,000.

[27] In her costs endorsement, Healey J. awarded costs to the NDrive parties in the amount of $230,000 on a full indemnity basis.

[28] Healey J. found that full indemnity costs were appropriate, as all of the factors that attract full indemnity costs existed in this case (relying on Envoy Relocation Services Inc. v. Canada (Attorney General), 2013 ONSC 2622, at para. 125). She found that 1) the litigation should never have had to be commenced; 2) the moving parties should be fully indemnified for their litigation costs; 3) the Zhou parties’ frivolous defences and claims should be discouraged; 4) the Zhou parties’ inappropriate litigation conduct should be discouraged and sanctioned; and 5) early settlements should be encouraged.

Analysis

[29] The appellant raises four grounds of appeal:

Whether the motion judge erred in hearing the motion for partial summary judgment, in light of this court’s decision in Malik?
Whether the motion judge erred in law in granting the partial summary judgment and dismissing the counterclaim?
Whether the motion judge erred in awarding three sets of compensation to NDrive arising out of the same underlying facts, by awarding NDrive punitive damages and full indemnity costs, and finding that Zhou was not entitled to his 18% under the success fee arrangement?
Whether the motion judge erred in appreciating the law of fraudulent concealment and its effect on limitation periods?

[30] While the appellants provided written submissions on each of these grounds of appeal, virtually all their oral submissions focused on the first issue.

[31] The appellants argue that while the motion judge referred to Malik, she failed to raise the questions of counsel as required by Malik.

[32] We disagree.

[33] The motion judge set out the three threshold questions from para. 62 of Malik: first, demonstrating that dividing the determination of the case into several parts will prove cheaper for the parties; second, showing how partial summary judgment will get the parties’ case in and out of the court system more quickly; and third, establishing how partial summary judgment will not result in inconsistent findings by the multiple judges who will touch the divided case.

[34] Healey J. did not dwell on those questions, however, as she found the triage function to which these questions are directed was performed in this case by the case management judge. McCarthy J. had considered submissions on whether the partial summary judgment motion should be scheduled and determined that it should be.

[35] The appellants argue that the case management judge did not consider Malik (as his decision pre-dated the release of Malik), and that the subsequent shift in the litigation when the NDrive parties served a notice of motion for summary judgment on the Hakemi parties required fresh consideration of the Malik questions.

[36] We do not accept this argument. The possibility that the NDrive parties would continue litigation against the Hakemi parties was clearly before McCarthy J. at the time of his case management decisions in December 2020 and January 2021. Further, as Healey J. observed in her decision on the motion to vacate, Malik was in fact raised by the appellants at the January 2021 case conference. She expressly addressed Malik when considering McCarthy J.’s analysis of whether the motion should proceed. The appellants were unsuccessful in seeking leave to appeal from Healey J.’s refusal to vacate the motion.

[37] Healey J. emphasized that Malik did not alter the key concerns that inform the determination of whether a partial summary judgment should go forward, relying on Vandenberg v. Wilken, 2019 ONCA 262, 433 D.L.R. (4th) 479, leave to appeal refused, [2019] S.C.C.A. No. 203, Mason v. Perras Mongenais, 2018 ONCA 978, and Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561. She reiterated those concerns, including the risk of duplicative or inconsistent findings, whether the issues in a partial summary judgment can be readily bifurcated from the main action, and, in the context of the litigation as a whole, whether granting partial summary judgment will result in disposing of issues in a proportionate, expeditious, and cost-effective manner.

[38] Healey J. concluded, at para. 182, “[W]hen considering whether partial summary judgment is advisable in the context of the litigation as a whole, I can readily conclude that an outcome which limits or ends the issues that must continue to be litigated between the parties to this motion will result in a savings of time to get to trial, length of trial and corresponding expense—meeting the objectives of proportionality, efficiency and cost-effectiveness.”

[39] Healey J. also addressed the early stage of the litigation. She acknowledged that even if she granted the partial summary judgment motion, the Zhou parties would remain in the action. She compared the case before her to Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, where the interests of justice favoured granting summary judgment even though the defendant in that action would remain in the litigation as well.

[40] Healey J. also found that the potential liability of the Zhou parties could be readily bifurcated from NDrive’s action against the Hakemi parties. She stated that the litigation against the two groups of defendants is “factually interrelated but not legally similar.” She concluded the likelihood of inconsistent findings would be “negligible.”

[41] It was clearly open to Healey J., in deciding on whether partial summary judgment was appropriate, to rely both on McCarthy J.’s decisions and her earlier analysis in the motion to vacate as satisfying the triage role envisioned in Malik. Her analysis was thorough and we see no basis for appellate intervention.

[42] This ground of appeal is dismissed.

[43] With respect to the other grounds of appeal raised, these can be addressed summarily.

[44] The appellant has failed to establish a palpable or overriding error with the motion judge’s granting of judgment in favour of the respondents and dismissal of the counterclaim. The motion judge relied on the extensive record and made findings open to her in support of these conclusions.

[45] The appellant further argues that the motion judge’s imposition of punitive damages, denial of compensation to Zhou under the success fee agreement, and award of full indemnity costs are duplicative penalties for the same misconduct.

[46] We disagree.

[47] The purpose of punitive damages and full indemnity costs differ and there is no bar to a judge deciding that both are appropriate in the circumstances. Similarly, the motion judge’s conclusion that Zhou was ineligible for compensation due to his fraudulent conduct is unrelated both to the punitive damages and to the full indemnity costs.

[48] Finally, the motion judge committed no error in dismissing the appellants’ claim with respect to fraudulent concealment, which lacked specificity and a sufficient foundation in the record.