Court File and Parties

Court File No.: 06-CL-6558
Date: 20130731
Superior Court of Justice - Ontario

Re: CENTURY SERVICES INC. and CLAIRVEST GROUP INC., Plaintiffs

AND:

NEW WORLD ENGINEERING CORPORATION, FRED W. BAIN, JOHN CHEONG, LAI LI CHONG, JULIA CHEONG a.k.a. IOULIA KLENKINA, ROBERTO BUSTAMANTE, and ROBERT BUSTAMANTE c.o.b. CANADA STAGE DESIGNS, ATIQUE CHOUDRY, HINGSON CORPORATION, HINGSON DEVELOPMENT CORPORATION, HINGSON CAPITAL CORPORATION, HINGSON MEDIA CORPORATION, CIRCA CANADA INCORPORATED, GREENFIELD CAPITAL ENGINEERING INC., IMAGE NIGHTCLUB INCORPORATED, BANZAI RESTAURANTS INC., EIGHT RESTOLOUNGE INCORPORATED, BUSTAMANTE HOLDINGS CORPORATION, 1249492 ONTARIO INC., BLUE GIANT PRODUCTIONS INC. ENGINEERED CONSTRUCTION LIMITED, DANIEL DISTRIBUTION CORPORATION, BORDEN LADNER GERVAIS LLP, GOODMAN & CARR LLP, FOGLER RUBINOFF LLP, MAGNUS VERBRUGGE, GARY KISSACK, BARRY FILLIMORE, TD WATERHOUSE CANADA INC., BULENT PAKDIL, HATICE PAKDIL, ALLEN DEVERA and THE TORONTO-DOMINION BANK, Defendants

BEFORE: STEWART J.

COUNSEL:
J. Patterson, and R. Promislow, for the Plaintiffs

John Cheong, in person and on behalf of

Hingson Corporation, Hingson Capital Corporation, Hingson Development
Corporation, Hingson Media Corporation, Circa Canada Incorporated, Greenfield
Capital Engineering Inc., Image Nightclub Incorporated, Eight Restolounge
Incorporated, Bustamante Holdings Corporation and 1249492 Ontario Inc.

David Mario Farmani for Julia Cheong

HEARD: May 28, and June 27, 2013

ENDORSEMENT

Nature of the Motions

[1] The Plaintiffs brought a motion returnable on May 28, 2013 seeking, among other relief, certain orders empowering the Receiver of New World Engineering Corporation to take immediate possession of 28 Theobalds Circle, Richmond Hill, Ontario (the “Theobalds Property”), to evict all persons there and to take all necessary steps to secure it.

[2] Julia Cheong has responded to that motion and has also brought cross-motions on her own behalf seeking, among other things, a declaration that the Theobalds Property is the matrimonial home of John Cheong and her as defined under the Family Law Act. She seeks a variety of other related relief as set out in her Notice of Cross-Motion and Supplementary Cross-Motion.

[3] After hearing submissions from the parties on May 28, 2013, I requested them to return before me to provide further argument and legal authority as to the impact, if any, the Family Law Act and my findings of fact at trial may have for the just disposition of Julia Cheong’s assertions.

[4] On June 27, 2013, the parties returned to make further argument and submissions on the issues raised on the motion and cross-motion. In addition, facta were provided by the parties for consideration and legal authorities were put before the Court. I now have had an opportunity to review and consider the evidence, arguments and materials submitted.

Positions of the Parties

[5] The Plaintiffs argue that there is no real Family Law Act issue to determine. To avail herself of any potential protection under the Family Law Act, Julia Cheong would be required to prove that she did not sign the mortgage documents involving Bank of Montreal or Vasdev Chanchlani or that she did not consent to the mortgages.

[6] According to the clear and uncontradicted evidence at trial, Julia Cheong signed the mortgage documents as set out in Parcel Register for the Theobalds Property for which funds were obtained from the lenders. These two mortgages, the face amounts of which exceeded any equity in the Theobalds Property, were then discharged by John Cheong using the loan proceeds fraudulently obtained from the Plaintiffs by him, Bain and Bustamante. Accordingly, tracing orders permitting the Plaintiffs to trace all fraudulently obtained funds were granted.

[7] The Plaintiffs point out that if the loan proceeds stolen from the Plaintiffs had not been used to pay off these mortgages either Bank of Montreal or Vasdev Chanchlani would have been able to enforce their respective rights upon any default in payment. In that situation, the fact that the Theobalds Property is a matrimonial home would have been irrelevant.

[8] The Plaintiffs further submit that Julia Cheong should not be permitted to challenge evidence at trial at this stage as she declined to attend, participate or call evidence at trial.

[9] It is argued on Julia Cheong’s behalf that the Plaintiffs are entitled only to that portion of the Theobalds Property which can be traceable back to them, and that this amount cannot be greater than the $163,000.00 paid out by John Cheong to Bank of Montreal for the mortgage that she and her husband took out to finance the initial purchase of the Theobalds Property.

[10] Julia Cheong maintains that the characterization by the Plaintiffs of the charge by Vasdev Chanchlani as a “second mortgage” on the Theobalds Property is inaccurate. She claims that the registration of the document on title of Theobalds Property was achieved by various misrepresentations made to her concerning the particulars and the risk-free features of what she describes as being only a “surety”. She asks that this transaction be set aside pursuant to s. 21(1), 21(2) and 22 of the Family Law Act.

[11] She also claims that any amounts sourced from Atique Choudhry to discharge the Bank of Montreal mortgage are not traceable to the Plaintiffs.

[12] Further, Julia Cheong now swears that the transfer of the Theobalds Property to her was not fraudulent. She says that she requested John Cheong to have the title to the Theobalds Property transferred to her as a matter of tradition and security for her children, asserting that she paid the initial purchase costs of the Theobalds Property.

[13] Julia Cheong says that she did not testify at trial because she did not have knowledge of the matters surrounding the loans at issue, the corporate defendants or any business dealings relating to them. The Plaintiffs did not summon her to testify on these issues. If Julia Cheong had had knowledge that the Plaintiffs were setting the stage to take away her home, and “kick her family and children out to the streets”, she says that she would have taken action and challenged the Plaintiffs at trial.

[14] Although John Cheong attended in Court on the return of this motion and was present throughout the submissions made, he did not make any independent submissions in argument. The only evidence he filed was contained in his affidavit of May 27, 2013 in which he stated that the Theobalds Property was not purchased with any proceeds of fraud. He did not adduce evidence with respect to Julia Cheong’s allegations concerning the circumstances surrounding the placement of mortgages on the property that were discharged with proceeds of fraud.

Discussion

[15] In my trial decision, I found that the loan proceeds were used to discharge mortgages on the Theobalds Property and that the Theobalds Property had been transferred to Julia Cheong alone by John Cheong and Julia Cheong as joint owners and for no consideration. This was found to be a fraudulent conveyance designed to defeat creditors and to obfuscate any efforts to trace the loan funds or attach them.

[16] Julia Cheong was aware at the outset of this action of the specific relief the Plaintiffs were seeking, including the fact that they were asking for an order setting aside the transfer to her of the Theobalds Property as being a fraudulent conveyance. This claim was advanced specifically in the pleadings by the Plaintiffs, was responded to on Julia Cheong’s behalf in her Statement of Defence and was the subject of questioning on her examination for discovery.

[17] Julia Cheong did not avail herself of the opportunity at trial to give or call evidence to support her position on this issue. In my view, she should not be permitted at this stage of the proceeding to do so now that the evidence has been heard, potentially interested parties have been released and a final decision has been made. Seeking to re-open this issue falls outside the ambit of any procedural or minor additional orders that might be required as a result of the decision made following a full trial.

[18] Even if Julia Cheong’s request to re-visit the finding of fraudulent conveyance were to be permitted, her evidence on this motion would not result in any change to the ultimate finding that the transfer was fraudulent. The fraudulent conduct of the Defendants Cheong, Bain and Bustamante in carrying out this massive fraud, the discharge of the mortgages on the property which exceeded its value, as well as the timing and nature of John Cheong’s transfer of his share of the Theobalds Property to his wife are such that this conveyance would have been considered to have been fraudulent in any event. Julia Cheong’s evidence offered now as to the supposed motivation for the transfer would not serve to displace or alter this conclusion.

[19] As a result of the finding that the conveyance was fraudulent, title to the Theobalds Property reverts to Julia and John Cheong as joint owners.

[20] I now turn to the Family Law Act issue raised on behalf of Julia Cheong insofar as it may relate to her present interest in the Theobalds Property. Despite the fact that this issue was not raised by her at trial I am prepared to consider it now to permit a proper and lawful result.

[21] Section 21 of the Family Law Act provides as follows:

21(1) No spouse shall dispose of or encumber an interest in a matrimonial home unless,

(a) the other spouse joins in the instrument or consents to the transaction;

21(2) If a spouse disposes of or encumbers an interest in a matrimonial home in contravention of subsection (1), the transaction may be set aside on an application under section 23, unless the person holding the interest or encumbrance at the time of the application acquired it for value, in good faith and without notice, at the time of acquiring it or making an agreement to acquire it, that the property was a matrimonial home

[22] Under s. 21(1)(a), there is the general requirement that the spouse must consent to the transaction or join in the instrument. In my view, this requirement was complied with in the case of both encumbrances.

[23] Julia Cheong did not suggest in her Statement of Defence or in her affidavit sworn May 27, 2013 that she did not sign the mortgage documents or, that she did not consent to the mortgages registered against the Theobalds Property. She did not allege fraud, misrepresentation or undue influence with respect to these transactions. It is only within the context of this present cross-motion that any such position was advanced by her.

[24] At the return of this motion on June 27, 2013, Julia Cheong was cross-examined by counsel for the Plaintiffs on the affidavits she had filed in support of her present assertions. She admitted on this cross-examination that she had given extensive evidence on her examination for discovery taken on a prior occasion by the Plaintiffs in the action and had provided answers to undertakings given at that time which wholly contradict her present sworn statements. In particular, she previously had stated under oath:

(a) that she attended at the offices of Gary Kissack in the summer of 2005 to arrange a $600,000.000 second mortgage on the Theobalds Property;

(b) that the money raised which was to be secured by this second mortgage was to be used by John Cheong for business development purposes;

(c) that she received information concerning the second mortgage from Gary Kissack and had obtained independent legal advice with respect to this second mortgage from Natalia Angelini, a solicitor;

(d) that she believed she had signed a document acknowledging receipt by her of independent legal advice from Ms Angelini.

[25] These statements directly contradict her evidence given on this motion. Her attempted explanations for these glaring discrepancies, saying that she was “very confused”, are inadequate. I conclude that Julia Cheong’s evidence offered now, that she was somehow hoodwinked into signing documents designed to facilitate the receipt by her husband of $600,000.00 for his business pursuits, is simply not credible. I am satisfied that she was aware of the nature and effect of both mortgage transactions and consented to them.

[26] Further, my conclusions following trial with respect to the Plaintiffs’ allegations against Atique Choudry do not amount to a finding that the funds which flowed through his companies and used at John Cheong’s direction to discharge the Bank of Montreal mortgage on the Theobalds Property were somehow made immune to the tracing remedy granted to the Plaintiffs. The funds used for that purpose were obtained as a result of the fraud perpetrated on the Plaintiffs. The finding following trial was simply that the Plaintiffs had not proven to the required degree that Choudry knew about the fraud. The Plaintiffs are therefore nevertheless entitled to trace the money obtained by fraud into the mortgage discharge and the Theobalds Property.

[27] It was to Julia Cheong’s advantage on both occasions to assist her husband in obtaining financing for his business ventures, and the evidence before me demonstrates that she did so willingly. Similarly, she obtained a distinct benefit when the Plaintiffs’ funds procured by fraud were used to discharge the mortgages. (See: Langston v. Landen, 2008 ONCA 321, [2008] O.J., No. 1582 (Ont. C.A.)

[28] As a result, the Family Law Act considerations have no application to the facts of this case.

Conclusion

[29] For these reasons, the Plaintiffs are entitled to the relief sought on this motion, with the proviso that no steps be taken to enforce the eviction of the occupants of the Theobalds Property before September 30, 2013. The cross-motions are dismissed.

Costs

[30] If the issue of costs cannot be agreed to by the parties written submissions on behalf of the Plaintiffs may be delivered within 20 days of the date of the release of this decision, and on behalf of Julia Cheong within 10 days thereafter.

STEWART J.

Date: July 31, 2013