COURT FILE NO.: CV-11-9202-00CL
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: LORENZO LONGO, YULING ZHANG AND BENSON HUM, Applicants
AND:
YU PU ZHANG, CHISYN INTERNATIONAL INC. AND CHINA SYNERGIES (N.A.) INC., Respondents
BEFORE: MORAWETZ J.
COUNSEL: Stephen Schwartz, for the Applicants
Howard Wright and Derek Lee, for the Respondent, Yu Pu Zhang
HEARD: MARCH 27, 2012
ENDORSEMENT
1## Introduction and Background
The Applicants brought this motion for interim relief authorizing Chisyn International Inc. (“Chisyn”) to proceed with certain actions approved in a directors’ resolution dated January 5, 2012. In the alternative, they seek to amend the order of Newbould J. dated May 13, 2011 as further amended by the order of C. Campbell J. dated August 23, 2011 to permit the Applicants to solely sign Chisyn cheques to permit payment of certain enumerated expenses, including funding the cost of litigation commenced by Chisyn against CKMAX Technologies Inc. (“CKMAX”) in the amount of $65,000 and to reimburse Lorenzo Longo, the sum of $15,000 for costs incurred to date in respect of the litigation, and to repay a number of purported outstanding shareholder allowances and other expenses.
2This motion is brought in the application which seeks relief pursuant to the oppression provisions of the Ontario Business Corporations Act .
3The Applicants submit they own 60% of the shares of Chisyn and purport to have passed a directors’ resolution authorizing the foregoing actions.
4The motion is opposed by Mr. Yu Pu Zhang. In addition, by way of cross-motion, Mr. Zhang makes a request that he too should be paid for such things as unpaid shareholder allowances and repayment of expenses for the corporation. Alternatively, Mr. Zhang seeks to segregate and preserve the funds owed to him and to either have them paid into his counsel’s trust account or into court, such that the funds cannot be unilaterally accessed by the Applicants.
5## Analysis
Having reviewed the record and having heard submissions, it is clear that the litigants cannot agree on any issue affecting Chisyn. The Applicants blame Mr. Zhang. Mr. Zhang blames the Applicants. The Applicants believe that they have control over Chisyn through a 60% share ownership. Mr. Zhang disputes the Applicants’ position on the basis of the order made by Newbould J. which provides that no payments may be made out of Chisyn unless the signature of Mr. Zhang and one of the Applicants are both present. Mr. Zhang also references the unanimous shareholders’ agreement (“USA”) entered into in 2007 which provides that Mr. Zhang alone was to have the sole signing authority.
6The Applicants wish to proceed with litigation as against CKMAX. The statement of claim was issued September 15, 2011. The statement of defence was filed November 4, 2011.
7In this litigation, the plaintiff claims damages in the amount of $5 million, alleging that CKMAX has wrongfully attempted to replace Chisyn as a supplier of parts to Magna.
8Mr. Zhang does not wish Chisyn to proceed with the litigation.
9Mr. Zhang also complains that the counsel of record for Chisyn in the CKMAX litigation is Mr. Schwartz, who also acts for the Applicants. Mr. Zhang contends that this is a conflict of interest. It appears, however, that this matter has been resolved as Mr. Schwartz has confirmed that if the action is to proceed, it would be handled by another law firm.
10It is clear that no findings can be made today that would determine the main issues involved in this oppression application. Rather, only interim relief can be provided. In my view, it is necessary to ensure that there is an appropriate mechanism by which the CKMAX litigation can proceed, but at the same time, preserve the rights of Mr. Zhang to challenge the actions of the Applicants in moving forward with the CKMAX litigation.
11There is no basis, at this point, to allow one side or the other to gain a significant advantage in the oppression application. This is left for another day.
12## Disposition
Accordingly, at this time, the payment necessary to move forward with the CKMAX litigation, i.e. the payment of $65,000 to fund independent legal counsel on a going-forward basis is to be made. This payment is to be made by Chisyn. However, such payment may be subject to further adjustment in this proceeding. In my view, it is appropriate to leave this issue to the judge hearing the application. A determination can be made as to whether the expense was a proper expense to be paid by Chisyn or whether it should be allocated to one or more of the shareholders of Chisyn.
13It is my understanding that Chisyn has approximately $1.6 million at this point in time. Therefore, the payment of the $65,000 should not create any liquidity issues.
14With respect to the remaining claims of the various shareholders for payment of purported shareholder advances or other monies expended on behalf of the corporation, including Mr. Longo’s request for reimbursement of litigation expenses, it is premature to make any determination on these issues on an interim basis. They can be determined in the application.
15In my view, it is essential to ensure that the assets of Chisyn are not dissipated prior to the determination of the application. In this respect, the order of Newbould J. remains in force. No payments may be made out of Chisyn unless the signature of Mr. Zhang and one of the Applicants are both present.
16## Costs
There has been divided success on this motion. No costs are awarded.
17On a going-forward basis, I do not consider myself to be seized of this matter.
MORAWETZ J.
Date: March 30, 2012