ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 00-CL-3835
DATE: 20140429
BETWEEN:
MENDLOWITZ & ASSOCIATES INC.
IN ITS CAPACITY AS TRUSTEE IN BANKRUPTCY OF JAY CHIANG AND KOREA DATA SYSTEMS (USA), INC.
Plaintiffs
– and –
JAY TIEN CHIANG AND CHRISTINA CHIANG
Defendants
Catherine Francis, Mark A. Freake, for the Plaintiff Mendlowitz & Associates Inc.
Aaron Blumenfeld, for the Plaintiff Korea Data Systems (USA), Inc.
J Thomas Curry, for the Defendant Jay Chiang
Hilary Book, for the Defendant Christina Chiang
HEARD: March 20, 2014
Sanction Hearing Disclosure ruling
MARROCCO a.c.J.s.c.:
Introduction
[1] Jay Chiang and Christina Chiang are in contempt of an order dated July 16, 2003 made by Mr. Justice Farley on consent. That order held the Chiangs in contempt of six orders:
- an order from Justice Ferrier (September 28, 1999) under ss. 163(2) and 167 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, requiring, among other things, that Jay Chiang and Christina Chiang attend for examination, produce documents relating to the Chiang’s property, as well as requiring any financial institution holding accounts in the name of Jay Chiang and other entities to produce bank records;
o the moving parties on this ex parte motion were: Korea Data Systems, Co. Ltd., a.k.a. K.D.S. Korea, Korea Data Systems (USA), Inc., and Mendlowitz & Associates Inc. (Jay Chiang’s trustee in bankruptcy)
- an order from Justice Farley (November 1, 1999) to the same effect but in addition ordering a lawyer from Miller Thomson to be examined and produce documents;
o the moving parties on this motion were: Korea Data Systems, Co. Ltd., a.k.a. K.D.S. Korea and Korea Data Systems (USA), Inc.
- a Mareva injunction and Anton Piller Order from Justice Farley (September 22, 2000) which, among other things, froze all of the assets of Jay Chiang and Christina Chiang and required a detailed disclosure of those assets;
o the moving parties on this ex parte motion, heard in camera, were: Korea Data Systems, Co. Ltd., a.k.a. K.D.S. Korea, Korea Data Systems (USA), Inc., and Mendlowitz & Associates Inc.
- an order from Justice Swinton (October 5, 2000) requiring, among other things, that Jay Chiang and Christina Chiang disclose current information about assets and accounts over which they had a power of attorney;
o the moving parties on this motion were: Korea Data Systems, Co. Ltd., a.k.a. K.D.S. Korea, Korea Data Systems (USA), Inc., and Mendlowitz & Associates Inc.
- an order from Justice Farley (May 7, 2003) requiring, among other things, the production by Christina Chiang of all records of transactions greater than $1000 for all accounts at financial institutions which she holds her name or over which she has signing authority in the Republic of China; and
o this order was made on a motion brought by Christina Chiang seeking an anti-suit injunction and a cross-motion brought by Korea Data Systems, Co. Ltd., a.k.a. K.D.S. Korea, Korea Data Systems (USA), Inc., and Mendlowitz & Associates Inc. for a stay of Christina Chiang’s motion and other relief.
- an order from Justice Farley (June 24, 2003) requiring among other things that Christina Chiang disclose documents and information regarding the whereabouts of approximately US$520,000 and that Jay Chiang and Christina Chiang be examined and produce documents and provide authorizations.
o this order was made on consent on a motion brought by Korea Data Systems, Co. Ltd., a.k.a. K.D.S. Korea, Korea Data Systems (USA), Inc., and Mendlowitz & Associates Inc.
[2] The July 16, 2003 contempt order contained 17 undertakings that, if complied with, would purge the Chiangs’ contempt. Compliance with the undertakings was not mandatory; it was an opportunity afforded to Jay Chiang and Christina Chiang (see: Chiang (Trustee of) vs. Chiang (2007), 2007 12203 (ON SC), 31 C.B.R. (5th) 19 (Ont. Sup. Ct.) at para. 47. The Chiangs were determined to have not purged their contempt at two subsequent trials before Justice Lax in 20072007 12203^1 and myself in 2010.2010 ONSC 4804^2 The original penalty given in 2007 was a one year prison sentence for Jay Chiang and an eight month prison sentence for Christina Chiang; both sentences were reduced to seven days on appeal.[^3]
[3] A sanction hearing for Jay Chiang and Christina Chiang from the 2010 finding of contempt is pending. At that hearing this court will have to decide whether further incarceration of Jay Chiang and Christina Chiang is necessary to make them comply with the six court orders.
[4] Korea Data Systems (USA), Inc. is seeking a jail sentence for Jay Chiang in the range of 3 to 5 years and a jail sentence for Christina Chiang in the range of eight months.
[5] Jay Chiang and Christina Chiang move for an order requiring the plaintiffs to produce all information in their possession, power or control that may be relevant to this sanction hearing, notwithstanding claims of privilege. To understand this motion some context is necessary.
Background
[6] John Hui is the operating mind behind Korea Data Systems (USA), Inc. Korea Data Systems (USA), Inc. and John Hui have consistently portrayed themselves and KDS Korea as victims of fraud at the hands of Jay Chiang and his family in the various threads of litigation against the Chiangs. For example, in the Reply submissions of Korea Data Systems (USA), Inc. and Mendlowitz & Associates Inc. filed in April 2012 in the fraudulent conveyances action against the Chiangs, the following appears at paragraph 70:
Mr. Chiang has admitted to having been involved in many fraudulent activities, which is a bad thing. It is bad both for the plaintiffs and for society as a whole, and for any honest businessperson who has the misfortune of being caught in his fraudulent activities.
[7] In plain language the claim in the fraudulent conveyances action alleged in part that Jay Chiang defrauded Korea Data Systems (USA), Inc. of millions of dollars by obtaining computer monitors and not paying for them. It alleged that the assets of Jay Chiang and Christina Chiang were derived from that fraud.2012 ONSC 3922^4
[8] Korea Data Systems (USA), Inc. was incorporated in 1992. In May 1994 Korea Data Systems Co. Ltd., Korea Data Systems (USA), Inc., Jung Koh and Dae Soo Koh (the Koh Brothers) commenced the California proceedings, which resulted in the judgment upon which they have been attempting to realize in proceedings before this Court.
[9] John Hui testified in these proceedings. Mr. Hui testified that he was a friend of the Koh brothers; he was also, since 1984, in the business of selling computer monitors in California. He had been selling Korea Data Systems Co. Ltd. monitors since late 1987 or early 1988.
[10] John Hui first met Julius Chiang, the brother of the defendant, Jay Chiang, in 1987. He was introduced to Julius Chiang by a mutual friend. In 1989, John Hui, Julius Chiang and another man formed a company called Amazing Technologies Corp. Their purpose was to create a brand-name computer monitor using monitors manufactured by various monitor manufacturers.
[11] Within one year of starting Amazing Technologies Corp., John Hui heard about a company called Aamazing Technologies Inc. when a supplier of monitors refused to supply to companies with which he was associated. The supplier complained that Amazing Technologies Corp. was not paying, or insisting on paying less, than the contract price. Mr. Hui could find no record of the contentious shipments and subsequent investigation revealed that the monitors had been shipped to Canada to a company variously called “Ajay Amazing Technologies Inc.” or “Aamazing Technologies Inc.” The supplier believed this company was controlled by Mr. Hui and, as a result, would not ship to any company controlled by Mr. Hui. Mr. Hui knew nothing of Aamazing Technologies Inc. He eventually found out that it was owned by Julius Chiang's brother, Jay Chiang.
[12] Discovery of this information caused a rift between Mr. Hui and Julius Chiang. According to Mr. Hui, he gave up his shareholding in Amazing Technologies Corp. a short time later.
[13] In 1992, Mr. Hui assisted the Koh brothers in incorporating a company known as Korea Data Systems (USA), Inc. He testified that he had no further involvement with this company from 1992 until 1994.
[14] By 1993, lawsuits had been commenced by Korea Data Systems Co. Ltd., Korea Data Systems (USA), Inc., Jung Koh and Dae Soo Koh against Amazing Technologies Corp., Aamazing Technologies Inc., Julius Chiang and Jay Chiang. The Koh brothers were 50% shareholders of Amazing Technologies Corp.
[15] In September 1993, Korea Data Systems Co. Ltd., Jung Koh, Dae Soo Koh, Amazing Technologies Corp., Ajay Amazing Technologies Inc., Julius Chiang and Jay Chiang entered into an agreement purporting to settle the outstanding litigation. This agreement was handwritten and signed by all the parties. All outstanding litigation ended.
[16] According to Mr. Hui, in 1994, Mr. Hui, who has an MBA and a background in accounting, was asked by the Koh brothers to assist them with an employee theft problem. Mr. Hui did so. As a result of assisting the Koh brothers, Mr. Hui gained a great deal of insight into the business of Korea Data Systems (USA), Inc.
[17] In 1994, it also became clear that the 1993 handwritten Settlement Agreement was not holding. In May 1994, Korea Data Systems Co. Ltd., Korea Data Systems (USA), Inc., Jung Koh and Dae Soo Koh sued Amazing Technologies Corp., Aamazing Technologies Inc., Julius Chiang and Jay Chiang in California.
[18] Mr. Hui testified that he was not directly involved with Korea Data Systems (USA), Inc. at this time. Nevertheless he did give the Koh brothers advice about commencing the litigation.
[19] Mr. Hui testified that in June 1995 he purchased Korea Data Systems (USA), Inc. from the Koh brothers. Mr. Hui continued the litigation.
[20] Julius Chiang defended the California case and testified at the trial. Jay Chiang initially defended the action, but then effectively dropped out of the proceedings.
[21] In the California action, Korea Data Systems Co. Ltd. successfully sued for breach of the handwritten Settlement Agreement. Judge Tully H. Seymour, of the California Superior Court for the County of Orange, found that, pursuant to the terms of the Settlement Agreement, Korea Data Systems Co. Ltd. was owed $8.5 million by Amazing Technologies Corp., Aamazing Technologies Inc. a.k.a. Ajay Amazing Technologies Inc., Julius Chiang personally and Jay Chiang personally. His Honour found that approximately $4 million of this amount had been paid and gave judgment in favour of Korea Data Systems Co. Ltd. in the amount of approximately $4 million. The Judgment provided for simple interest at the rate of 10% from January 1, 1994 to January 31, 1998.
[22] In the same action, Korea Data Systems (USA), Inc. successfully sued Aamazing Technologies Corp. for monitors that it had received but not paid for. Justice Seymour awarded Korea Data Systems (USA), Inc. approximately $2,150,000 in damages. His Honour gave judgment against Jay Chiang personally and Julius Chiang personally for this same amount because they were the alter egos of Amazing Technologies Corp. and, thus, personally responsible for its debts. The Judgment provided for simple interest at the rate of 10% from January 1, 1994 to January 31, 1998.
[23] Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. began the California litigation in 1994 and obtained a judgment from Justice Seymour on April 20, 1998. At some point after this, Jung Koh and Dae Soo Koh, on behalf of Korea Data Systems Co. Ltd., purported to assign its interest in Justice Seymour’s Judgment to Korea Data Systems (USA), Inc. The purported Assignment Agreement is undated and one page in length; the copy produced was only signed by the Koh brothers.
[24] Jay Chiang filed for bankruptcy in Ontario on September 28, 1998. He declared the California judgment to be a liability in his Statement of Affairs.
[25] In Korea, Korea Data Systems Co. Ltd. went bankrupt in November 2001.
[26] On April 8, 2008, Justice Seymour's Judgment was renewed for ten years.
[27] On August 18, 2008, a further Assignment Agreement was, according to Mr. Hui, entered into between Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. John Hui signed on behalf of Korea Data Systems (USA), Inc.; the signature on behalf of Korea Data Systems Co. Ltd. is in the name of Jung – Hyun Cho. This document is five pages in length. It is more complete than the one-page, undated Assignment to which I previously referred. This document provides that Korea Data Systems (USA), Inc. will continue to pursue the prosecution of certain outstanding lawsuits and collection efforts relating to the judgment of Justice Seymour. The agreement provides that Korea Data Systems (USA), Inc. and Korea Data Systems Co. Ltd. will divide funds derived from the collection efforts of Korea Data Systems (USA), Inc. It provides that Korea Data Systems Co. Ltd. will receive the first $380,000, after which Korea Data Systems (USA), Inc. will recover its legal fees. The agreement provides that any excess will be divided as follows: 2/3 for Korea Data Systems Co. Ltd. and 1/3 for Korea Data Systems (USA), Inc. Obviously Korea Data Systems Co. Ltd. still has a financial interest in these proceedings.
[28] Subsequent to the assignment, the litigation with which we are concerned was continued in the name of Korea Data Systems (USA), Inc., while Korea Data Systems Co. Ltd. ceased to be a named party. It cannot be forgotten, however, that Korea Data Systems Co. Ltd. was a named party in the proceedings with which we are concerned prior to April 2008. As a result, obligations to disclose material facts when seeking ex parte extraordinary remedies rested on Mendlowitz & Associates Inc., Korea Data Systems (USA), Inc. and Korea Data Systems Co. Ltd.
[29] On September 28, 1998 Jay Chiang filed an assignment in bankruptcy naming Mendlowitz & Associates Inc. as Trustee. In his statement of affairs Jay Chiang valued his assets at $1000 and disclosed liabilities in excess of $19 million.
[30] Korea Data Systems Co. Ltd. (“KDS Korea”) filed an accepted claim in the estate in excess of $6 million. The proof of claim was sworn by Jung Koh.
[31] Korea Data Systems (USA), Inc. (“KDS USA”) filed an accepted claim in excess of $3 million.
[32] Both proofs of claim were submitted in and around February 4, 1999. Borden Ladner Gervais acted as counsel for KDS Korea and KDS USA at the time the proofs of claim were filed and they continue to act as counsel to this day for KDS USA in these proceedings. These claims were based on Judge Seymour’s judgment from the California Superior Court.
[33] From 1999 until the end of 2012 Borden Ladner Gervais also acted as counsel to Mendlowitz & Associates Inc. (the “Trustee”). This has led to confusion concerning the identity of the moving party in the particular proceedings between these parties. This confusion was compounded by the fact that the Trustee, KDS Korea and KDS USA were frequently named as parties in the style of cause without regard to their standing in the particular motion or application.
[34] On October 5, 1998 KDS Korea and KDS USA issued a statement of claim (05-CL-5945 formerly 98-CV-156217) against Jay Chiang seeking to enforce the California judgment (the “enforcement action”). By endorsement dated November 1, 1999, Justice Farley granted KDS Korea and KDS USA leave to continue the enforcement action on the basis that the California judgment was grounded in fraud and had not been appealed. Justice Farley saw no reason not to allow the claim to proceed nunc pro tunc, despite the usual bar on claims against a bankrupt.
[35] On July 28, 2000 KDS Korea and KDS USA issued an action (00-CL-3835) against Jay Chiang, Christina Chiang and others alleging $10 million in damages for conspiracy and participating in fraudulent conveyances of property (the “fraudulent conveyances action”). The Trustee was a co-plaintiff in that action. The action was launched despite the fact that the claims of KDS Korea and KDS USA against the bankrupt had been accepted by the Trustee.
[36] This statement of claim alleged Jay Chiang and his brother defrauded Koh brothers, KDS Korea and KDS USA. It alleged that Jay Chiang’s indebtedness to KDS Korea and KDS USA arose out of fraud. It alleged that the fraud took place in 1992 and 1993. It alleged that Christina Chiang purchased her family home at 10 Cortina Court in Richmond Hill using funds obtained through fraudulent conduct which Jay Chiang had directed at KDS Korea and KDS USA. It alleged that Jay Chiang conferred a benefit on a number of defendants through his fraudulent conduct. It alleged that Christina Chiang knew that the funds used to purchase her home on Cortina Court were obtained by fraud and that KDS Korea and KDS USA were therefore entitled to trace those funds into the Cortina property.
[37] This statement of claim was amended four times to add new claims and new parties.
[38] On September 22, 2000 KDS Korea and KDS USA obtained, ex parte, an Anton Piller order and a Mareva injunction against Jay Chiang and others. The President of Mendlowitz & Associates Inc. filed an affidavit in support of this application for ex parte relief in which he in part deposed that the California proceedings had found Jay Chiang liable for fraud following a trial. Specifically, the affidavit references a finding that Jay Chiang colluded with his brother to defraud KDS Korea and KDS USA. Steven Cameron, the California attorney for KDS USA, also provided an affidavit in support of this application for ex parte relief. Mr. Cameron acts for KDS USA in California to this very day. Justice Farley’s endorsement regarding the Anton Piller order and Mareva injunction refers to the Chiangs’ fraud. [^5]
[39] If there has been material nondisclosure in ex parte proceedings, the orders obtained in those proceedings can be rescinded. Because there can be damages caused by such ex parte orders, courts granting such remedies insist on an undertaking to pay damages which can include the cost of the proceedings.
[40] In January 2013, the Trustee changed counsel and began receiving legal advice from its current counsel, Minden Gross LLP. Minden Gross has no other clients in these proceedings. Minden Gross conducted an independent review of the various proceedings that had occurred over the last 14 years and assisted the Trustee in preparing a Trustee’s Report dated October 11, 2013.
[41] It is common practice for a bankruptcy trustee to provide information and evidence by way of reports which, since the trustee is an officer of the court, do not have to be verified by affidavit and are admissible as evidence by the official statements or official documents exception the hearsay rule: Impact Tool & Mould Inc. (Re) (2007), 41 C.B.R. (5th) 112, aff’d 2008 ONCA 187, 41 C.B.R. (5th) 1, leave to appeal refused [2008] S.C.C.A. No. 220 (S.C.C.). Montor Business Corp. (Trustee of) v. Goldfinger, 2011 ONSC 2044, 75 C.B.R. (5th) 170.
[42] The Trustee indicated through counsel on March 20, 2014 that from 1998 until recently it believed that Mr. Hui was directly the victim of a fraud. As can be seen from Mr. Hui’s testimony in prior proceedings, he purchased KDS USA in 1995. This was after the California proceedings that led to the California judgment were commenced.[^6] As referred to earlier, Mr. Hui was well aware of this litigation when he purchased KDS USA and presumably took it into account when making his offer to purchase.
[43] Mr. Hui acquired KDS USA after there had been an unsuccessful settlement of the outstanding litigation over the unpaid monitors. This settlement involved the Koh brothers, the Chiang brothers and their companies.
[44] Interestingly in this regard, an article dated April 13, 2009 in Canadian Business magazine entitled “Business fraud: Two bad pennies,” purporting to be an interview with Mr. Hui, portrays him as the victim of a fraud perpetrated by Jay Chiang and Christina Chiang. The Trustee indicated through counsel that this characterization of the relationship is representative of the Trustee’s belief when it applied for, and provided an affidavit in support of, the Anton Piller order and Mareva injunction issued by Justice Farley on September 22, 2000. Counsel for the Trustee indicated that Mr. Mendlowitz did not find out until the 2011 trial of the enforcement and fraudulent conveyances actions that Mr. Hui did not own KDS USA when it was selling monitors to Jay Chiang’s company.
[45] The Court, despite multiple proceedings including three trials for contempt held in 2005, 2007 and 2010 was under the same misapprehension until Mr. Hui testified in early 2011.
[46] In the 14 years that this litigation has been before the Superior Court of Justice there have been multiple interlocutory proceedings including motions for Mareva injunctions, an Anton Piller order, and Letters of Request. In addition, related proceedings have been conducted in California, Taiwan and Hong Kong and Singapore in which reference to and representations concerning the proceedings before this court have been made. In turn, documentation provided to foreign courts has been filed with this court.
[47] There have been multiple examinations of the Chiangs pursuant to section 163 of the Bankruptcy and Insolvency Act. To attach some reality to this observation, I refer to Tab 6 of the Trustee’s Report which contains a list of transcripts in the civil and bankruptcy proceedings in Canada. While it is impossible to be precise without resorting to each transcript, it appears that there are 33 transcripts of examinations or cross examinations of Jay Chiang and 16 transcripts of examinations or cross examinations of Christina Chiang for the period November 8, 1999 to October 11, 2013. While this includes discovery and trial, many of these examinations were pursuant to section 163 of the Bankruptcy and Insolvency Act.
[48] In the Trustee’s Report of October 11, 2013 and in the Trustee’s submissions to this Court on March 20, 2014, counsel for the Trustee has indicated that it wishes to disclose information and documents which came to its attention during its review of the proceedings between the parties. The Trustee’s position is that the materials in question are relevant to the: nature and bona fides of the underlying claims of KDS Korea and KDS USA; motivations and bona fides of John Hui in prosecuting these proceedings; bona fides and enforceability of indemnities and undertakings as to damages given by KDS USA and John Hui to the court; adequacy of the productions and disclosure made by KDS USA to the Trustee, Jay Chiang and Christina Chiang and the court; validity and enforceability of the California judgment obtained by KDS USA against Jay Chiang and Christina Chiang and the enforceability of that judgment in Ontario.
[49] The Trustee reports that it has reason to believe that substantial relevant documentary production has not been made.
[50] The Trustee reports that there has been a failure to make full disclosure of all material facts in support of the ex parte orders in the contempt proceedings.
[51] Counsel for KDS USA, Borden Ladner Gervais, advises that their client contests findings and statements in the Trustee’s Report of October 11, 2013. KDS USA is adverse in interest to the Trustee in this regard.
[52] In addition KDS USA and John Hui are adverse in interest to the Trustee’s wish to disclose all relevant documents in its possession. Broadly speaking, the relationship between the Trustee and KDS USA soured between the winter and fall of 2013 as the Trustee reviewed the file and prepared its Report. This led the Trustee to move for directions from the court on a number of issues and for the removal of Borden Ladner Gervais as counsel for KDS USA. Specifically, the Trustee moved for directions concerning:
• whether motion for the removal of Borden Ladner Gervais should be held in camera
• whether the determination of issues of privilege and confidentiality raised by KDS USA should be in camera
• whether the Trustee could disclose documents and information to Jay and Christina Chiang, relevant to their upcoming sanction hearing
• settlement of outstanding litigation with Winner International Group Ltd.
• the respective roles of the Trustee and KDS USA in the upcoming sanction hearing
• KDS USA’s standing in the various outstanding proceedings
• KDS USA’s application pursuant to section 38 of the Bankruptcy and Insolvency Act
• various trial scheduling matters,
• KDS USA’s garnishment proceedings launched against the Trustee,
• return of Jay Chiang’s travel documents,
• the Trustee’s rights and obligations in relation to an appeal launched by KDS USA from the 2011 trial decision of the enforcement and fraudulent conveyances actions, and
• advice and directions concerning proceedings commenced by the Trustee and KDS USA in Taiwan against Christina Chiang.
[53] After the Trustee had arranged a date for its motion for directions, KDS USA served it with an injunction motion seeking a declaration that various schedules to the Trustee’s Report were privileged and an order directing that the Trustee withhold them. Counsel for KDS USA did not serve its motion materials upon Jay Chiang or Christina Chiang, claiming that Jay Chiang and Christina Chiang had no standing on the injunction motion and that the injunction motion should be heard in camera. Finally, because the motion to disqualify Borden Ladner Gervais was scheduled to be heard by Justice Brown, Borden Ladner Gervais on behalf of KDS USA took the position that Justice Brown could not hear the injunction motion because that would result in Justice Brown reading the privileged documents. As a result the injunction motion and privilege claim were heard by Justice Mesbur on October 28, 2013.
[54] A brief containing 11 parts was filed with Justice Mesbur. This brief contained the material over which privilege was claimed.
[55] Justice Mesbur divided the information into three types: (1) solicitor client communication during the Trustee and KDS USA’s joint retainer of Borden Ladner Gervais, (2) information disclosed while Borden Ladner Gervais and counsel for the Trustee were trying to craft a joint settlement and (3) information protected by common interest privilege.
[56] Justice Mesbur ruled that there was no privilege as far as the removal motion was concerned. The removal motion has yet to be heard.
[57] Justice Mesbur ruled that with respect to the motion for directions, information in tabs 1, 2, 3, 4, and 8 contained documents which included legal advice given by Borden Ladner Gervais to the Trustee and KDS USA when both had jointly retained that firm. Justice Mesbur ruled that this information could not be disclosed by the Trustee in a motion for directions without the consent of KDS USA. KDS USA did not then and does not now consent to the release of this information.
[58] Justice Mesbur ruled that tab 5 contained an outline of all the fees billed by Borden Ladner Gervais. No particulars of the actual services were provided. Justice Mesbur ruled that this outline was protected by solicitor client privilege.
[59] Justice Mesbur ruled that tab 6 was not protected by common interest privilege except for a portion containing a communication between Mr. Cameron and Minden Gross.
[60] Justice Mesbur ruled that tab 7 which contained emails from Minden Gross to counsel at Borden Ladner Gervais was not privileged.
[61] Justice Mesbur ruled that tab 9 contained excerpted paragraphs of the Trustee’s Report that described information and documents, some of which were privileged. She held that those paragraphs should be redacted accordingly.
[62] Tab 10 contained an email and attachments from Mr. Cameron in California. Attached to the email was a document called a “Confidential Voluntary Settlement Brief” prepared for a conference scheduled for February 17, 2010. This was apparently a settlement brief filed in relation to litigation in California involving Mr. Hui and the Korean Export Insurance Corporation (“KEIC”). Justice Mesbur decided that the communications focused on joint settlement strategies for the Trustee and KDS USA and that privilege attached. The Trustee was not a party to this particular piece of litigation in California.
[63] Tab 11 contained an excerpt from the Trustee’s report quoting from the Confidential Voluntary Settlement Brief referred to in tab 10. Justice Mesbur decided that this excerpt contained privileged information which should be removed from the redacted version of the Trustee’s Report.
[64] As a result of Justice Mesbur’s ruling two versions of the Trustee’s Report exist: an unredacted version which was filed with Justice Brown and a redacted version filed on the motion for directions.
[65] Justice Mesbur was dealing with a claim of privilege in respect of two motions: (1) a motion seeking the removal of Borden Ladner Gervais as counsel and (2) a motion for directions. Justice Mesbur was not asked to consider the admissibility of these documents at the sanction hearing for Jay Chiang and Christina Chiang’s contempt of court. Jay Chiang and Christina Chiang have standing at their sanction hearing because it can result in their incarceration. If the admissibility of these documents at the sanction hearing was a live issue before Justice Mesbur then KDS USA’s position that Jay Chiang and Christina Chiang had no standing on that motion would not have made any sense.
[66] Counsel for the Trustee confirmed that the sanction hearing was not considered by Justice Mesbur. Mr. Gibson, who is not the counsel before me but who did appear for KDS USA on the privilege motion before Justice Mesbur, agreed in an email to counsel for the Trustee that “the Chiangs have a right to raise the issue of privilege at a later date should they choose to raise it.”
[67] The Trustee, who has had access to this information, now wishes to withdraw the contempt proceedings. KDS USA wants the contempt proceedings to continue and wants Jay Chiang and Christina Chiang sentenced to further periods of incarceration (3-5 years for Jay Chiang and 8 months for Christina Chiang). KDS USA is adverse in interest to the Trustee in this regard.
[68] According to submissions from counsel for the Trustee made on March 20, 2014, information has come to its attention which suggests that the Koh brothers and their company KDS Korea were carrying on an invoice fraud from 1993 onwards. KDS Korea manufactured computer monitors and so it is a reasonable inference that the invoices were for computer monitors. The victim apparently was the Korean Export Insurance Corporation or KEIC. There is no evidence concerning the way in which the fraud was committed. Counsel for the Trustee also informed the court that Mr. Cameron had informed her that the Koh brothers were “running… an Enron type accounting fraud starting in 1993…” at KDS Korea. Counsel for the Trustee in a February 21, 2013 email stated that the Koh brothers defrauded the KEIC of hundreds of millions of dollars within a time frame which overlaps the allegations against the Chiangs.
[69] This court was told by Mr. Hui that the failure of Jay Chiang controlled companies to pay approximately $10 million to KDS Korea had a significant impact on the survival of that company. For example, in submissions to this court this year concerning an outstanding costs issue counsel for KDS USA made the following submission, at para. 29:
Korea Data Systems Co. Ltd. had been a substantial manufacturer of computer monitors. Although its financial statements and business activities were not in evidence, its sales to Korea Data Systems (USA), Inc. alone were well into 9 figures in the late 1990s. There can be little doubt but that the Chiang’s wrongdoing indirectly impacted the lives and livelihoods of many people.
In the 2011 trial Mr. Hui testified that the Chiangs’ fraud had a “huge impact” on the survival of KDS Korea:
[T]here was a huge impact on to the business of KDS Korea then, because at the time I think KDS Korea total sales was probably maybe $30, $40 million a year and for someone not paying them back for over $10 million was a huge impact to the survival of the company.
[70] Mr. Hui was cross-examined in the 2011 trial before me. Counsel for Christina Chiang asked Mr. Hui to agree that on its tax returns for the years 1995 to 2002 KDS USA claimed to have imported monitors worth substantially more than the total value of all monitors imported from Korea to the United States during that time. Counsel for Christina Chiang attempted to rely on statistics obtained from the United States International Trade Commission. Mr. Hui refused to accept this suggestion and suggested that counsel did not understand the statistics to which she was referring. Absent expert testimony concerning imports of computer monitors from Korea to the United States, I concluded this line of questioning was not helpful. This was, however, before Mr. Cameron’s statement in his settlement brief that KDS Korea committed an “Enron type accounting fraud” against the KEIC. At this point one can only speculate on how this “Enron type accounting fraud” or “invoice fraud” was committed.
[71] The Trustee’s Report referred, at para. 145, to Mr. Hui’s discovery on February 1, 2011. Counsel for Jay Chiang asked Mr. Hui for a “plain language summary of what the KEIC litigation was about.” Before he could answer, Mr. Blumenfeld, counsel for KDS USA, stated “[o]kay, so I am providing you what we have been able to do in that regard.” Suffice to say there was no disclosure (presumably because Mr. Blumenfeld did not know) that KDS Korea had engaged in an invoice or Enron type accounting fraud during the relevant time.
[72] Counsel for the Trustee, during the March 20, 2014 hearing, put the matter succinctly when she informed the court that there was nondisclosure of the fact that the Koh brothers, who were portrayed as victims of the Chiang brothers, were actually “crooks themselves.”
[73] There was nothing in the material put before Justice Farley when he granted the Mareva injunction and Anton Piller order in 2000 disclosing the fact that the Koh brothers and KDS Korea were engaged in a fraudulent invoice scheme an Enron type accounting fraud starting in 1993. Similarly, there was nothing to that effect disclosed to the Court when Justice Farley’s Mareva injunction was amended on an ex parte application to include the E*TRADE account of Winter International Group Limited in 2009.
[74] There was no disclosure of the fact that the KDS USA’s undertaking concerning damages, given to obtain and amend the Mareva injunction order of Justice Farley, had become hollow because that company was no longer in business. When this was disclosed, Mr. Hui provided his personal undertaking which is still in effect.
[75] The penalty for contempt of court involves an element of public law because respect for the role as well as the authority of the court is at issue: Pro Swing Inc. v. Elta Golf Inc., 2006 SCC 52, [2006] 2 S.C.R. 612, at para. 35. The nature and extent of the disclosure obligations in sanction hearings for contempt of court must be decided on a case-by-case basis: Vale Inco Ltd. v. United Steel, Paper and Forestry Rubber, Manufacturing, Energy, Allied Industrial and Service Workers, Local 6500, 2010 ONSC 3039, 320 D.L.R. (4th) 185, at para. 7.
[76] In this proceeding KDS USA seeks a penitentiary sentence for Jay Chiang in the range of 3 to 5 years and an eight-month sentence for Christina Chiang. The Trustee wishes to withdraw the proceedings.
[77] Full disclosure is to be expected in most contempt cases: Vale Inco, at para. 9.
[78] This is an appropriate case to not only require but specifically order full disclosure because there is a genuine question concerning the adequacy of the disclosure to date.
The Chiangs’ disclosure request
[79] I now wish to address the specific contentious documents which were collected in a brief by counsel for KDS USA and filed as Exhibit 1C on this motion. I now propose to refer to the 11 tabs in Exhibit 1C and make specific orders concerning disclosure. Before doing so, I will make certain general observations.
[80] I will first refer to emails authored by Ms. Francis, counsel for the Trustee at this time. Ms. Francis is free to express her views as she chooses. Ms. Francis can express any of the views recorded in her emails to counsel for Jay Chiang and Christina Chiang. It does not matter whether Ms. Francis has expressed those views to Mr. Cameron in the context of settlement discussions. It is not necessary to order disclosure of Ms. Francis’ emails to permit her to express herself as she sees fit. Ms. Francis can express her views to Jay Chiang and Christina Chiang without resorting to her previous emails to Mr. Cameron. Similarly, the Trustee can reflect those views in its Report without the necessity of relying upon an email sent by Ms. Francis to counsel for KDS USA. The Trustee is free to publish Ms. Francis’ emails subject to the exception described in these reasons. The emails simply prove that Ms. Francis expressed the opinions contained in them to Mr. Cameron or Mr. Blumenfeld as the case may be.
[81] When Mr. Cameron was communicating with Ms. Francis it was in the interests of attempting to settle many but not all of the outstanding issues. In Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, [2013] 2 S.C.R. 623, at para. 19, the Supreme Court of Canada stated with respect to settlement privilege:
There are, inevitably, exceptions to the privilege. To come within those exceptions, a defendant must show that, on balance, “a competing public interest outweighs the public interest in encouraging settlement.” [citation omitted]
[82] Exceptions to the privilege were described by Doherty J. (as he then was) in Mueller Canada Inc. v. State Contractors Inc. (1989), 1989 4117 (ON SC), 71 O.R. (2d) 397:
Where documents referable to the settlement negotiations or the settlement document itself have relevance apart from establishing one party's liability for the conduct which is the subject of the negotiations, and apart from showing the weakness of one party's claim in respect of those matters, the privilege does not bar production.
[83] The party asserting privilege bears the burden of proving such privilege. The party relying on an exception to a privilege is similarly burdened.
[84] Counsel for the Trustee has three interests in this litigation: (1) limiting the Trustee’s personal exposure which is and at that time was significant (2) terminating these proceedings by winding up the estate and (3) complying with the Trustee’s obligations under the Rules of Civil Procedure and the Bankruptcy and Insolvency Act.
[85] KDS USA and KDS Korea do not share these objectives. In an email dated February 13, 2013 Mr. Cameron set out the objectives of Mr. Hui and KDS USA: settle with Winner International Group Limited and get money into the estate; settle with the Tsai defendants and Brenda Chang. Mr. Cameron also made it clear that there was no agreement concerning the Taiwan proceedings. The email noted that KDS USA and Mr. Hui wanted “to wrap things up as quickly and cheaply as possible with everyone except Jay.” The Trustee has documented in its Report that, despite the statement in his email, Mr. Cameron on behalf of KDS USA was utterly unhelpful in settling with Winner International Group Limited. As a result of Mr. Cameron’s behaviour, counsel for the Trustee and Mr. Cameron have not spoken since the end of May 2013.
[86] There was never a common interest between the Trustee, KDS USA and KDS Korea. Their interests were quite different. This was confirmed by Mr. Blumenfeld in an email to Ms. Francis dated February 8, 2013 at 3:52 PM:
[W]e must be able to advance positions that are different from your client’s position, and have sought for that purpose a waiver of conflict from your client, which to date you have not provided. We do not accept your apparent position that any position taken by KDS that deviates from your client’s position could result in our removal as counsel of record.
[87] Further to this point, Mr. Cameron has sworn an affidavit in which he describes his communications with Ms. Francis as being “for the purpose of attempting to reach a joint settlement position that could be presented separately to Christina Chiang, Mei Huang, and Winner International Group Limited and others.”
[88] I am not persuaded by the evidence that KDS USA and KDS Korea have proven their claim of common interest privilege. I am not persuaded by the evidence that they have proven a united front against a common adversary.
[89] If I am wrong, I am satisfied that any common interest privilege has been lost as a result of the breakdown in the relationship between KDS USA and KDS Korea and the Trustee: Western Canadian Place Ltd. v. Con-Force Products Ltd. (1997), 1997 14770 (AB KB), 50 Alta. L.R. (3d) 131 (Alta. Q.B.), at para. 25; Jetport Inc. v. Global Aerospace Underwriting Managers (Canada) Ltd., 2013 ONSC 235, at para. 33. Alternatively, by suggesting that Mr. Chiang’s fraudulent behaviour had a significant impact on the survival of KDS Korea, the plaintiffs have put the reasons for KDS Korea’s entrance into bankruptcy proceedings directly in issue. In those circumstances information suggesting that KDS Korea’s financial difficulties had other causes cannot be shielded from view.
[90] I turn now to the brief of documents that was before Justice Mesbur.
[91] Tab 1 is an email dated April 6, 2003 from Mr. Blumenfeld to Mr. Hui, Mr. Mendlowitz, Mr. Cameron and an unknown person. Assuming for a moment that the unknown person also represents Mr. Hui (and this is by no means clear) then this document would have been protected by solicitor client privilege, had it not been for the fact that Mr. Cameron forwarded it to Ms. Francis. Disclosure of the letter to Ms. Francis waived solicitor client privilege, assuming solicitor client privilege ever attached to the letter.
[92] If Mr. Cameron disclosed this letter for the purpose of attempting to reach a joint settlement position with Christina Chiang and others, then the letter is protected by settlement privilege. However settlement privilege will give way if there is a competing public interest. No competing public interest is demonstrated with the exception of the reference in the last paragraph of the email to an indemnity from an entity called “KDS Canada.” The indemnity was given to the Trustee to encourage it to continue as a plaintiff in outstanding proceedings. It appears that the indemnity from KDS Canada was worthless. This is consistent with KDS USA’s hollow undertaking concerning damages on the Mareva order. If the court’s Trustee is misled by a party, then there is a risk that the Trustee will mislead the court, resulting in a mistake or a miscarriage of justice. This risk is a competing public interest. Accordingly, the last paragraph of Mr. Blumenfeld’s email which refers to “KDS America” is to be disclosed to Jay Chiang and Christina Chiang for the purpose of the sanction hearing.
[93] The letter from Mr. Blumenfeld to Mr. Hui at Tab 2 was protected by solicitor client privilege until it was disclosed by Mr. Cameron to Ms. Francis. Thereafter the letter was protected by settlement privilege if one assumes that it was disclosed to Ms. Francis so that the Trustee and KDS USA could develop a common position for the purpose of settling some or all outstanding claims. Even if this is true, the last two paragraphs of Mr. Blumenfeld’s letter refer to KDS Canada and will be disclosed on the same basis as the email referred to in Tab 1.
[94] Mr. Cameron’s email of February 13, 2013 at Tab 3 represents his assessment of the various issues referred to in his email. Accepting for a moment that Mr. Cameron expressed his views to Ms. Francis for the purpose of arriving at a joint settlement position, I see no competing public interest demanding the disclosure of this email. The same is true for the letter from Mr. Blumenfeld to Mr. Hui and Mr. Mendlowitz dated February 17, 2011 which Mr. Cameron attached to his email. Emails from Ms. Francis to Mr. Cameron are also included in this tab. Because it may be possible to draw conclusions about Mr. Cameron’s position in these matters from Ms. Francis’ emails, her emails will not be disclosed. Ms. Francis is free, however, to make her views known on these matters to Jay Chiang and Christina Chiang for purposes of the sanction hearing.
[95] Tab 4 is an excerpt from the Trustee’s Report. This excerpt makes reference to the aforementioned indemnity from KDS Canada. This excerpt should be disclosed to Jay Chiang and Christina Chiang for purposes of the sanction hearing.
[96] Tab 5 is a schedule of fees rendered by Borden Ladner Gervais. No particulars are provided. All that is offered in the schedule is the billing date, the invoice number and the billing amount. Christina Chiang made a claim for costs against the Trustee and KDS USA. KDS USA has disputed this claim for costs. Even though this billing information is of a generic nature, lawyer’s billings passed to a client are prima facie covered by solicitor client privilege: Maranda v. Richer, 2003 SCC 67, [2003] 3 S.C.R. 193. The presumption of privilege can be rebutted, however, if disclosure would not violate solicitor client confidentiality by revealing privileged communications: Ontario (Ministry of the Attorney General) v. Ontario (Information and Privacy Commissioner) (2007), 2007 65615 (ON SCDC), 227 O.A.C. 38. Because the billing information is generic in nature, it is unlikely to reveal any privileged communications and can therefore be disclosed. While the relevance of this information at a sanction hearing is not clear, it is premature to determine that now. This information will be disclosed to Jay Chiang and Christina Chiang for purposes of the sanction hearing.
[97] Tab 6 is a reference in the Trustee’s Report to a letter dated February 13, 2013 between Borden Ladner Gervais on behalf of KDS USA and counsel in Taiwan who was also acting for KDS USA. There is nothing confidential in this communication. It simply reports on the status of the matter in Taiwan, which is hardly confidential. The Trustee is a party to the proceeding in Taiwan and was entitled to this information and is entitled to disclose it to Jay Chiang and Christina Chiang. This excerpt is to be provided to Jay Chiang and Christina Chiang for purposes of their sanction hearing.
[98] Tab 7 is composed entirely of emails from Ms. Francis to Mr. Blumenfeld, Mr. Cameron or both. As indicated earlier, Ms. Francis is entitled to make her views on these matters known. To the extent that her views are contained in emails she is entitled to publish them. Copies of these emails will be provided to Jay Chiang and Christina Chiang for purposes of the sanction hearing.
[99] Tab 8 contains an email from Mr. Steve Cameron to Ms. Francis; it also contains an email from Ms. Francis to Mr. Steve Cameron. Mr. Cameron also attached a letter from Mr. Blumenfeld to Mr. Hui and Mr. Mendlowitz dated February 17, 2011. The letter contains legal advice. The letter was initially protected by solicitor client privilege which was waived when Mr. Cameron disclosed the letter to Ms. Francis. It is clear from Mr. Cameron’s email that he and Ms. Francis were attempting to arrive at a common settlement position with respect to some of the defendants in the fraudulent conveyances action, the litigation in Taiwan, costs, and the upcoming sanction hearing for Christina Chiang. These documents are the same as those documents in tabs 3. I see no competing public interest that displaces settlement privilege. Because it may be possible to draw conclusions about Mr. Cameron’s position in these matters from Ms. Francis’ emails, her emails will not be disclosed to Jay Chiang and Christina Chiang. Ms. Francis is free to make her views on these matters known to Jay Chiang and Christina Chiang.
[100] Tab 9 is an excerpt from the Trustee’s Report. Paragraph 164 of this excerpt will be disclosed to Jay Chiang and Christina Chiang for purposes of the sanction hearing. The first sentence in paragraph 165 will also be disclosed. The balance of that paragraph and paragraph 166 will not be disclosed because it refers to an email of Mr. Cameron’s which I have not ordered disclosed.
[101] Tab 10 contains an email dated February 1, 2013 from Mr. Cameron to Ms. Francis, copied to Mr. Blumenfeld. Mr. Cameron’s email explains to some extent several pieces of litigation involving KDS USA in California, including the KEIC case. Mr. Cameron was attempting to assist Ms. Francis in understanding this California litigation. Mr. Cameron attached an early settlement conference brief. According to Mr. Cameron’s email he attached the settlement conference brief to show that Mr. Hui had a strong defence to that action.
[102] The settlement brief was filed with the Superior Court for the State of California. It is referred to as a “Confidential Voluntary Settlement Brief.” The brief was prepared by Mr. Cameron and in it Mr. Cameron described himself as the attorney for Mr. Hui. This brief states that KDS Korea was running “an Enron type accounting fraud.” This brief was clearly prepared in an attempt to settle in California litigation involving the KEIC. Even if Mr. Cameron was attempting to develop a joint settlement position with the Trustee and the brief is protected by settlement privilege, there is a competing public interest which requires its disclosure. Specifically KDS Korea was granted ex parte remedies in this jurisdiction that required disclosure of all material facts. KDS USA was similarly obligated. The fact that KDS Korea was involved in a huge accounting fraud during or proximate to the period with which we are concerned was never disclosed to the court. The ex parte order granting an Anton Piller order and Mareva injunction is one of the six orders referred to in Justice Farley’s contempt order. Whether ex parte orders of the Superior Court of Justice were issued without the disclosure of all material facts is a competing public interest. Mr. Cameron’s email and the accompanying settlement brief will be disclosed to Jay Chiang and Christina Chiang for the purpose of the sanction hearing.
[103] There is also a further competing public interest. Jay Chiang and Christina Chiang were sentenced to jail by a judge of this court. Those jail sentences were served. The Superior Court of Justice has an ongoing public interest in the integrity of the process that led to that result.
[104] Tab 11 is an excerpt from the Trustee’s Report. This excerpt refers to the matters set out in Tab 10. This excerpt will be provided to Jay Chiang and Christina Chiang for the purpose of their sanction hearing.
[105] Jay Chiang and Christina Chiang have made a very broad document production request. Specifically, Jay Chiang and Christina Chiang move for an order requiring the plaintiffs to produce all information in their possession, power or control that may be relevant to this sanction hearing, notwithstanding claims of privilege.
[106] The Trustee does not oppose the request insofar as it pertains to the Trustee’s Report but is concerned that a broader production order against the plaintiffs “would run the risk of perpetuating the case indefinitely.” The Trustee requests that any disclosure order be restricted to the documents referenced in the Trustee’s Report and any further documents which either the Trustee or KDS USA choose to disclose.
[107] Due to the issues that have arisen concerning the disclosure of material information I have decided to make an order requiring KDS USA to produce all documents relevant to the sanction hearing that are within their possession or control which have not previously been produced. This request includes KDS Korea. The test for relevance is whether withholding a document might reasonably impair Jay Chiang or Christina Chiang’s ability to answer, negate or mitigate Justice Farley’s contempt order of July 16, 2003. Documents in respect of which a claim of privilege is asserted will be preserved, listed on a schedule and appropriately described in a manner consistent with our Rules of Civil Procedure.
[108] In order that proceedings are not endlessly prolonged, the Trustee is not required to wait for production of a schedule to continue carrying out its mandate. The Trustee can apply to me for directions concerning the sanction hearing and issues arising from my production order so that other judges of this court are not required to make orders concerning it.
[109] Jay Chiang and Christina Chiang’s motion is granted in accordance with these reasons.
[110] Partial Indemnity costs, payable by KDS USA and KDS Korea are awarded to Christina Chiang, Jay Chiang and the Trustee. Christina Chiang, Jay Chiang and the Trustee will serve and file written cost submissions not to exceed 5 pages in length within three days after release of these reasons. KDS USA and KDS Korea will serve and file responding written costs submissions not to exceed three pages in length two days after receipt of cost submissions from Christina Chiang, Jay Chiang and the Trustee. Christina Chiang, Jay Chiang and the Trustee may serve and file written reply costs submissions not to exceed one page in length one day after receiving costs submissions from KDS USA and KDS Korea.
MARROCCO A.C.J.S.C.
Released: 20140429
[^3]: 2009 ONCA 3, 93 O.R. (3d) 483
[^5]: (2000) 20 C.B.R. (4th) 264
[^6]: The California judgment became the basis for the enforcement action in Ontario that has led to the contempt proceedings that are still ongoing.