ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 00-CL-3835 & 05-CL-5945
DATE: 20140429

BETWEEN:

MENDLOWITZ AND ASSOCIATES INC. IN ITS CAPACITY AS TRUSTEE IN BANKRUPTCY OF JAY CHIANG, KOREA DATA SYSTEMS (USA), INC. and KOREA DATA SYSTEMS CO. LTD.

Plaintiffs

– and –

JAY CHIANG, 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: In Writing

Christina Chiang costs endorsement

marrocco a.c.j.s.c.

Introduction

[1] Christina Chiang seeks a cost award arising out of the 2011 trial on the plaintiffs’ fraudulent conveyances action on a substantial indemnity basis in the amount of $665,990.96. Her costs are detailed in a Bill of Costs attached to her counsel’s cost submissions.

[2] Mendlowitz & Associates Inc., the Trustee in this matter, has advised the court that is formed the opinion that Ms. Chang is entitled to reasonable costs.

[3] Korea Data Systems (USA), Inc. (“KDS USA”) opposes Ms. Chiang’s request for costs. Korea Data Systems Co. Ltd.’s (“KDS Korea”) interest in this matter was assigned to KDS USA. KDS USA is adverse in interest to the Trustee on the question of Christina Chiang’s costs.

[4] In this action the court found that Christina Chiang assisted Jay Chiang in his attempts to defeat, hinder, delay and defraud KDS USA. However the court was not satisfied that Ms. Chiang participated in a conspiracy with Jay Chiang to hinder KDS USA’s collection efforts and declined to make any damages award against Ms. Chiang. The plaintiffs failed to demonstrate any damages beyond KDS USA and KDS Korea’s judgment against her. This judgment was already in existence prior to the commencement of this trial. The court declined to grant any other relief against Christina Chiang.

Christina Chiang’s status as a contemnor does not bar a cost award

[5] Christina Chiang is in contempt of court. There are, however, three countervailing considerations to her status as a contemnor.

[6] First, Christina Chiang was a defendant in these proceedings. She did not begin them and she defended herself successfully.

[7] The second consideration is grounded in an affidavit dated April 16, 2003, signed by Mr. Hui and filed with this court. In this affidavit Mr. Hui says:

[I]t is the intention of the plaintiffs to amend their statement of claim in this proceeding against Christina Chiang once default judgment is obtained against her in the California action. Once this occurs the plaintiffs intend to amend their claim to enforce the California judgment against Christina Chiang. The plaintiffs intend to further amend their claim to seek all the relief currently claimed against Christina Chiang in paragraph 1 of their claim in the alternative, only if the Ontario court does not enforce the California judgment for whatever reason.

Mr. Hui’s affidavit was provided on a motion in which Christina Chiang was seeking an anti-suit injunction. Christina Chiang was trying to avoid a situation in which she would be sued in two different jurisdictions for the same thing.

[8] Justice Farley adjourned Christina Chiang’s claim for an anti-suit injunction by order dated May 7, 2003. KDS USA and KDS Korea obtained judgment against Christina Chiang in California. The order of Justice Farley adjourning the anti-suit injunction references Mr. Hui’s affidavit.

[9] Christina Chiang did not resist the fraudulent conveyance proceedings in California nor the proceeding in Ontario to enforce the California judgment.

[10] Mr. Hui did not honour his promise. He litigated the same claim, albeit unsuccessfully, against Christina Chiang in this jurisdiction, despite the fact that he and his counsel must have known that this meant KDS USA and KDS Korea were suing her twice for the same thing – something they had promise not to do. Mr. Hui was asked about this on cross-examination in the 2011 trial and indicated that he left the matter to his lawyers. Mr. Hui also assured the court that he would never try to collect twice on the same judgment. Counsel for KDS USA informed the court that it was proceeding against Christina Chiang despite already having a $6 million judgment against her, and despite the representation in Mr. Hui’s affidavit, but that it was only seeking damages that had occurred after 2004. Counsel’s position was entirely different than the representation made to Justice Farley. No damages subsequent to 2004 were proven.

[11] Third, this court’s Trustee wishes to abandon the parallel contempt proceedings against Christina Chiang. The court recommended to the Trustee in 2011 that it retain independent legal representation. The Trustee accepted the court’s recommendation and eventually retained Minden Gross LLP. Prior to the Trustee’s acceptance of the court’s recommendation, the Trustee, KDS USA and KDS Korea (throughout the time it was a named party) were represented by the same counsel.

[12] The Trustee’s newly retained independent counsel conducted a review of the long history of proceedings between the parties and reported to the court that it has, among other things, very serious concerns about the nature and bona fides of the underlying claims of KDS USA and KDS Korea.

[13] After considering the matters to which I have just referred, as well as the nature and result of the case presented against Christina Chiang, I am satisfied that this is an appropriate case to award costs.

Scale of cost award

[14] Christina Chiang was wholly successful at the trial of this matter. There is no reason to depart from the rule that a successful party is entitled to costs. Substantial indemnity costs are warranted where unproven allegations of fraud, dishonesty and other improper conduct are made. They are also warranted because the proceeding against Christina Chiang broke a promise made to and relied upon by this court in 2003.

[15] This was a proceeding of some complexity which raised issues of serious importance to Christina Chiang. Numerous defendants were included in one large conspiracy allegation which the plaintiffs were unable to prove.

[16] KDS USA has challenged the amount of costs claimed by Christina Chiang’s counsel but they have declined to produce Borden Ladner Gervais’ dockets or invoices.

[17] Prior to the trial when the plaintiffs were represented by the same counsel, they made two offers to settle dated January 26, 2014 and February 14, 2014; both were refused. In these offers the plaintiffs consented to lifting the Mareva injunction over the Chiangs’ assets but insisted upon the right to continue to pursue Christina Chiang for any activity contrary to the Mareva injunction that had occurred prior to it being lifted. The offers also stipulated that the outstanding contempt order and undertakings would not merge in any dismissal order. In other words, acceptance of the offer to settle would not have ended Christina Chiang’s litigation with the plaintiffs. Christina Chiang achieved a more successful result at the conclusion of the trial.

Past cost awards and the availability of set off

[18] KDS USA takes the position that any costs payable to Christina Chiang should be set off against previous cost orders against her. KDS USA referred the court to cost awards between

July 2006 and February 2011. A number of these awards were made prior to KDS Korea’s formal assignment of its interest in the California litigation to KDS USA in August 2008. I make reference to this fact because the original assignment of interest was an undated assignment by KDS Korea, Jung Koh and Dae Soo Koh. The Trustee has raised a real and substantial question concerning the nondisclosure of material facts by KDS Korea, Jung Koh and Dae Soo Koh. To the extent that KDS USA is attempting to realize on the interest of KDS Korea, Jung Koh and Dae Soo Koh, the material facts that must be disclosed include material facts concerning those persons.

[19] KDS USA has listed at Tab 16 of its cost submissions the cost awards from July 2006 to February 2011. It submits that these cost awards should be set off against any costs payable to Christina Chiang. I do not accept this submission. The cost awards are against Jay Chiang and Christina Chiang with one exception; namely a $15,000 cost award dated September 24, 2008, awarded against Christina Chiang only. The Trustee is in possession of funds from the E*TRADE account of Winner International Group Limited. These funds are more than sufficient to satisfy cost awards against both Jay Chiang and Christina Chiang.

[20] The Trustee is also in possession of the surplus proceeds from the sale of Christina Chiang’s home at 10 Cortina Court in Newmarket, Ontario. These proceeds can be used to satisfy outstanding cost orders. Unfortunately, a brief review of the circumstances surrounding the sale of the Cortina property is required to demonstrate how.

[21] Christina Chiang purchased the Cortina property in her sole name in 1992 for approximately $1 million. Miller Thomson acted for Christina Chiang on the purchase.

[22] Jay Chiang filed an assignment in bankruptcy in 1998.

[23] On November 1, 1999, Justice Farley ordered Miller Thomson to turn over legal files to KDS Korea and KDS USA in the matter of Jay Chiang’s Summary Administration Bankruptcy. In the course of complying with this order Miller Thomson turned over the Cortina property real estate file. Information in that file disclosed that $300,000 towards the purchase price came from Jay Chiang’s company Aamazing Technologies Inc. It does not appear that the Trustee applied for this order.

[24] On November 30, 1999, KDS Korea and KDS USA obtained an order restraining Christina Chiang from taking any steps with respect to the Cortina property. This order was registered against the property.

[25] On July 18, 2008, 2177361 Ontario Inc. (“2177361,” a company incorporated by Borden Ladner Gervais on behalf of KDS USA) purchased the first mortgage held by TD Bank against the Cortina property. On January 26, 2009, 2177361 was granted leave to issue a writ of possession with respect to the Cortina property. On May 5, 2009, 2177361 agreed to sell the Cortina property pursuant to a power of sale for $1,230,000. The sale closed on June 1, 2009. KDS USA sold the property relying upon Christina Chiang’s interest in it and the validity of her mortgage to the TD Bank.

[26] On or about May 20, 2004, KDS USA obtained a default judgment against Christina Chiang in California in the amount of $5 million. On November 28, 2006 KDS USA obtained a default judgment against Christina Chiang in Ontario in an action to enforce that judgment in Ontario. This default judgment was in the amount of approximately $6,100,000. It was pursuant to this judgment that KDS USA kept the surplus proceeds from the sale of the Cortina property.

[27] The fact that surplus funds of approximately $580,000 were paid to KDS USA in partial satisfaction of the monies owed, thereby making these funds unavailable to satisfy outstanding cost orders, does not prevent a determination that the cost orders were satisfied by those funds. The $15,000 cost order is in favour of KDS USA, which of course is the same legal person that received the $580,000. The $15,000 cost order occurred in 05-CL-5739, an action commenced in 2005 by KDS USA against Christina Chiang to enforce the California conspiracy default judgment that Mr. Hui, contrary to his promise, permitted the plaintiffs to proceed with in this proceeding.

[28] I am satisfied that all reasonable costs arising from the entirety of KDS USA’s efforts to sell the Cortina property are also capable for accounting purposes of being notionally satisfied out of that surplus. This includes the reasonable costs of:

• obtaining the order of Justice Farley dated November 1, 1999;
• the motion for a Certificate of Pending Litigation heard November 30, 1999;
• the order restraining Christina Chiang from taking any steps with respect to the Cortina property dated November 30, 1999;
• the order of Justice Jenkins dated November 21, 2000 for a Certificate of Pending Litigation;
• the Mareva injunction against Christina Chiang restraining her from dealing with the Cortina property;
• enforcing the California default judgment against Christina Chiang in Ontario and;
• realizing on the TD Bank mortgage on the Cortina property.

[29] Accordingly, I conclude that the $15,000 costs award against Christina Chiang was satisfied out of the $580,000 surplus from the sale of her home.

[30] Cost orders against both Jay Chiang and Christina Chiang are to be satisfied out of the funds from the E*TRADE account.

Amount of cost award

[31] I am satisfied that the time spent by counsel for Christina Chiang as disclosed in the Bill of Costs is reasonable. Similarly I am satisfied that the hourly rates disclosed in the Bill of Costs are reasonable.

[32] KDS USA’s arguments for reducing the cost award are rejected:

• The costs of Brenda Chang and Samson Chang and Christina Chiang’s relatives are of very little assistance in evaluating Christina Chiang’s costs. These defendants were involved in an isolated way in aspects of these proceedings. Christina Chiang, either in person or through counsel, was required to participate throughout the entirety of these proceedings.

• It is not appropriate at this point to set off costs against the 2010 trial because an order for costs has not been made for that trial. The Trustee in oral submissions on March 20, 2014 and in its redacted Report of October 11, 2013 has raised matters of fundamental importance which must be resolved before costs in that proceeding can be considered.

[33] The Trustee has suggested that Mr. Hui’s personal undertaking concerning damages is engaged for purposes of Christina Chiang’s costs in this proceeding. I am prepared to consider this submission but not at this time. I wish to give Mr. Hui an opportunity to respond to that specific issue. I also wish to have a clearer view of the troubling issues of material nondisclosure referred to by the Trustee in its Report. Counsel for KDS USA in its costs submissions suggested that the Trustee’s suggestion that Mr. Hui was personally responsible for the cost of these proceedings may have been motivated by the Trustee’s proposed settlement agreement with Jay Chiang and Christina Chiang. KDS USA is adverse in interest to the Trustee with respect to the question of whether Mr. Hui’s personal undertaking concerning damages includes the costs of this proceeding. Should the Trustee raise this matter again, counsel should be advised that I view Mr. Hui’s statement in his April 16, 2003 affidavit as a potentially relevant consideration.

[34] Costs in the amount of $665,990.96 are awarded to Christina Chiang. These costs are payable by the Estate of Jay Chiang jointly and severally with KDS USA and KDS Korea, which was a named party in these proceedings and retains an interest in them pursuant to the August 2008 assignment agreement. To the extent that any payment of costs to Christina Chiang comes out of the Estate of Jay Chiang, the Trustee is entitled to seek recovery of such payments from KDS USA and KDS Korea.

[35] WeirFoulds LLP have proceeded in this matter since 2009 without being paid. I am able to fix that time because 2009 is the first year in which I gave a decision in this matter and counsel from WeirFoulds LLP appeared. WeirFoulds LLP have indicated that they will not charge Christina Chiang more than the costs awarded. Receiving a decision that awards costs after counsel has been providing legal services without pay for four years is not a windfall.

[36] WeirFoulds LLP is entitled to a solicitor’s lien in respect of this costs order. The request for a solicitor’s lien was contained in the submissions filed on behalf of Christina Chiang. All parties were on notice concerning this request. Counsel for KDS USA suggested that the issue should not be determined at this time and alluded to the fact that there were “space considerations” in the materials it was permitted to file. Counsel for KDS USA filed submissions in this matter and “Sur Reply” submissions.

There was no shortage of space. Pursuant to section 136(1)(b)(iii) of the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3, this lien has priority over any claim of the unsecured creditors of Mr. Chiang’s estate in bankruptcy.

MARROCCO A.C.J.S.C.

Released: 20140429

COURT FILE NO.: 00-CL-3835 & 05-CL-5945
DATE: 20140429

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

MENDLOWITZ AND ASSOCIATES INC. IN ITS CAPACITY AS TRUSTEE IN BANKRUPTCY OF JAY CHIANG, KOREA DATA SYSTEMS (USA), INC. and KOREA DATA SYSTEMS CO. LTD.

Plaintiffs

– and –

JAY CHIANG, CHRISTINA CHIANG,

Defendants

REASONS FOR JUDGMENT

MARROCCO A.C.J.S.C.

Released: 20140429