ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 00-CL-3835

DATE: 20150126

BETWEEN:

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

Applicants

– and –

JAY TIEN CHIANG AND CHRISTINA CHIANG

Respondents

Catherine Francis and Mark A Freake, for the Applicant Mendlowitz and Associates Inc.

Scott C Hutchison and M.R Gourlay, for the Applicant Korea Data Systems (USA), Inc.

J Thomas Curry and C Pauchulo for the Respondent Jay Chiang

Hilary Book, for the Respondent Christina Chiang

HEARD: November 25, 27 & 28, 2014

MARROCCO A.C.J.S.C.:

SANCTION HEARING RULING

The current context for this ruling

[1] The purpose of this motion is to determine whether more jail time for contempt of court is warranted for Jay Chiang and Christina Chiang.

[2] The factual context for this motion has changed dramatically since the release of my trial decision in July 2012.

[3] Prior to the trial decision Korea Data Systems Co. Ltd., Korea Data Systems (USA), Inc. and the Trustee were represented by the same law firm. This law firm had represented them since these matters began in 1998.

[4] Subsequent to the trial decision, the Trustee retained its own counsel; Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. changed counsel.

[5] This ruling neither directly nor indirectly implies any criticism of counsel currently acting.

[6] After the Trustee, among other things, retained its own counsel, it conducted a fresh inquiry into these matters and prepared a Report dated October 17, 2013 which it filed with the court. Attempts by the Trustee’s former counsel to prevent disclosure of information contained in the Report resulted three versions of the Report: the Report itself, a fully redacted Report and a partially redacted Report.

[7] There is one preliminary issue. Korea Data Systems Co. Ltd. no longer appears in the style of cause because it entered into an agreement in 2008 with Korea Data Systems (USA), Inc. pursuant to which Korea Data Systems (USA), Inc. received an assignment of Korea Data Systems Co. Ltd.’s interest in outstanding Jay Chiang litigation after promising to share proceeds from that litigation with Korea Data Systems Co. Ltd.

[8] Subsequent to the assignment, Korea Data Systems Co. Ltd. ceased to be shown as a plaintiff. This has obscured Korea Data Systems Co. Ltd.’s disclosure obligations to the court and the parties. Korea Data Systems Co. Ltd. should from this point forward continue to be recognized as a plaintiff.

[9] The Trustee has advised that “As a result of all of the information which the Trustee has learned, both through the evidence at trial and thereafter, the Trustee has serious concerns as to (a) the nature and bona fides of the underlying claims by Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. against Jay Chiang and other members of his family; (b) the motivation and bona fides of John Hui in prosecuting these actions on behalf of Korea Data Systems (USA), Inc.…(d) the adequacy of the productions and disclosure made by Korea Data Systems (USA), Inc. to the Trustee, the defendants and the Court in the proceedings.”

[10] As a result the Trustee now wishes, pursuant to Rule 37.09(1), to deliver a Notice of Abandonment and withdraw/abandon the contempt motion to which this sanction hearing relates. The Trustee requests leave to do so, if leave is required. Korea Data Systems (USA), Inc. wishes to pursue the motion and in the sanction ruling seeks a jail sentence for Jay Chiang. It concedes that no further jail time for Christina Chiang is warranted.

Do Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. have standing to continue the contempt motion despite the Trustee’s decision to withdraw it?

[1] Despite the fact that there was an issue about the standing of Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. on this motion, I received written and oral submissions from Korea Data Systems (USA), Inc. concerning, among other things, more jail time for Jay Chiang and Christina Chiang.

[2] However, because the Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were represented by the same counsel, different types of claims proceeded without a proper boundary and delineation of claims and rights. Some clarification is required.

[3] Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were given permission to continue proceedings against Jay Chiang on November 1, 1999. The order granting permission is made in the “Superior Court of Justice in Bankruptcy and Insolvency.”

[4] The order recites that it was granted upon a motion brought by Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc.

[5] The order recites that the moving parties sought orders:

• enforcing the order of Mr. Justice Ferrier dated September 28, 1999;

• compelling Michael Pace to attend for examination concerning the affairs of the bankrupt; and

• granting Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. “leave to continue its action against Jay Tien Chiang commenced October 5, 1998 and bearing Court file number 98-CV-16217…” (Emphasis added)

[6] The Court ordered among other things that Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were granted leave to continue “its action against Chiang which was commenced in Ontario on October 15, 1998 and bears Court file number 98-CV-156217 and to enforce the action if judgment is obtained.” (Emphasis added)

[7] Originally, action 98-CV-156217 was an action to enforce the 1998 California judgment of Judge Seymour against Jay Chiang (the “Enforcement Action”). This action was also later used to pursue the claim against Christina Chiang’s home on Cortina Court in Richmond Hill.

[8] Action 98-CV-156217 later became Commercial List Action No. 05-CL-5945.

[9] Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. never requested and never were given leave to commence or otherwise continue with the Fraudulent Conveyances Action which was Commercial List Action Number 00-CL-3835 and which commenced in 2000. This was not an issue in that litigation because the Trustee was a plaintiff in that action and the Trustee was represented by the same counsel as Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. The Trustee, by virtue of s. 30(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”), has power to “institute or defend any action or other legal proceeding relating to the property of the bankrupt.” Section 69(1)(a) provides for a stay of proceedings by creditors against the insolvent person, and s. 69(2) exempts secured creditors. As the Trustee is not a creditor, the automatic stay does not apply and permission to continue or commence and action is not required.

[10] The contempt order of Justice Farley issued July 16, 2003 is an interlocutory order which references Commercial List action 00-CL-3835 (“the Fraudulent Conveyances Action”) and Bankruptcy File 31-352841.

[11] In its submissions on standing Korea Data Systems (USA), Inc. at paragraph 24 (b) acknowledges that the orders with which we are concerned relate to the Fraudulent Conveyances Action. Specifically in distinguishing its claim from another case Korea Data Systems (USA), Inc. makes the following statement: “The court concluded that the contempt proceedings against Mr. Triumbari ‘arise out of his examination in aid of execution of the bankrupt defendant and that the nature of those proceedings are enforcement proceedings in relation to the claim provable in bankruptcy.’ This is distinguishable from the present case in that none of the six orders underlying the contempt order relate to enforcing KDS’s claim provable.” In the same vein, in those same submissions at paragraph 14, Korea Data Systems (USA), Inc. makes the following submission: “In this case, the California judgment debt is a claim provable, as it preceded Mr. Chiang’s September 1998 assignment in bankruptcy. However a large part of the subject matter of the Fraudulent Conveyances Action was in respect of wrongdoing which postdated Mr. Chiang’s bankruptcy. For example, the disappearance of the telecom business, a major subject of the contempt orders and undertakings, postdated the bankruptcy. Similarly Mr. Chiang’s activities in relation to the going public business postdated his bankruptcy.” The statements constitute an acknowledgement of the obvious by Korea Data Systems (USA), Inc.; namely that the orders with which we are concerned relate to the Fraudulent Conveyances Action.

[12] In an affidavit affirmed June 12, 2002 filed in support of the motion for the contempt order, the Trustee Mr. Mendlowitz states at para. 3: “… I wish to say that I bring this contempt motion as a last resort and as part of my primary goal of attempting to collect the assets of the bankrupt for the benefit of his creditors…” (Emphasis added)

[13] Based on the evidence in the proceedings before me I am satisfied that Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. elected to pursue the contempt proceedings within the Fraudulent Conveyances Action and through the Trustee, an officer of the court, which allowed them to take advantage of the traditional weight and deference attached to the Trustee’s opinions and recommendations.

[14] Accordingly I am satisfied that the only party with standing to enforce the contempt order is the Trustee.

Leave is required

[15] In my view, the Trustee requires leave of the court to abandon its motion seeking an order that further incarceration for Jay Chiang is warranted. Contempt, once it is found, is a matter between the court and the person in contempt. It is no longer a matter strictly between the parties. This arises from the two-part structure of contempt proceedings. In the first part, the court determines whether the party is in contempt, which is a final decision. If the party is found in contempt, then the issue of sanction arises (Sabourin v. Laiken, 2013 ONCA 520). Here, the court’s finding that the Chiangs are in contempt constitutes a final order which the court retains power to enforce. Consequently, the Trustee is not able without court permission to abandon a motion at the sanction stage and thereby interfere with the ability of the court to enforce its own orders.

Contents of the contempt order of July 16, 2003

[16] Justice Farley’s July 16, 2003 contempt order found that Jay Chiang and Christina Chiang were in contempt of each of the following six interlocutory orders:

September 28, 1999

[17] Justice Ferrier ordered Jay Chiang and Christina Chiang to produce documents relating to Jay Chiang, his property and the administration of his estate in bankruptcy, and to attend for examinations on fixed dates.

[18] The order states that it was made “In the Matter of the Bankruptcy of Jay Tien Chiang” and was issued by the Superior Court of Justice (in Bankruptcy and Insolvency).

[19] The bankruptcy file number for Jay Chiang (31-352841) is the only file number referenced on the order.

[20] The order recites that the motion for this order was brought on notice to the Trustee by Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. It was brought pursuant to sections 163(2) and 167 of the BIA.

[21] Unsecured creditors have standing under the BIA, s. 163(2), to bring motions requiring the bankrupt to attend examinations. That section reads: “on application to the court by the Superintendent, any creditor or interested person and on sufficient cause being shown, an order may be made for the examination under oath… of… the bankrupt… for the purpose of investigating the administration of the estate of any bankrupt, and the court may order any person liable to be so examined to produce any books, documents, correspondence or papers in that person’s possession or power relating in all or in part to the bankrupt, the trustee, or any creditor.”

[22] The key to the provision above is that the examination and disclosure must be conducted for the purpose of administering the estate of the bankrupt. Such examination and disclosure is not to be used for the private purposes of any person, including a creditor: Re Assaf (1976), 23 C.B.R. (N.S.) 14 (Ont. S.C.). According to the court in Re Bradford (2003), 2003 CanLII 64270 (ON SC), 42 C.B.R. (4th) 178 (Ont. S.C.), because an applicant under s. 163(2), who is usually a creditor, “is seeking to exercise a power usually reserved to Trustee, there must be some level of confidence by the Court that the applicant seeks to exercise that power for a proper purpose” (para. 3).

[23] Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. are unsecured creditors whose claims have been approved by the Trustee. The right to seek recovery of Jay Chiang’s assets is, however, vested exclusively in the Trustee. The Trustee has stated that it believes continuing to enforce these orders will not ultimately benefit the estate or aid in recovery of the assets.

[24] According to s. 187(5) of the BIA, the court is may “review, rescind, or vary any order made by it under its bankruptcy jurisdiction.” Relief under s. 187(5) is discretionary. The provision is “designed to permit of a Judge to deal with continuing matters in the bankruptcy so as not to be bound by an earlier decision if faced by changed circumstances” (Ontario (Motor Vehicle Dealers Act, Registrar) v. A. Farber & Partners Inc., 2008 ONCA 390, 293 D.L.R. (4th) 455, at para. 28, quoting Re Catalina at p. 102.

[25] The applicant must bring forward new evidence of a substantial nature that was otherwise not available at the time of the original hearing (Strachen, Re (1980), 34 C.B.R. (N.S.) 136 (Ont. S.C.).

[26] According to the court in Garrity, Re, 2006 ABQB 328, 62 Alta L.R. (4th), such fresh evidence must be “material, substantial in nature, and something that, with reasonable diligence, could not have been known at the time of the original application” (at para. 47). In Re Bryden (1975), 21 C.B.R. (N.S.) 16 (BCSC), Fulton J. observed that this can extend to “facts now known which were not known at the time of the original disposition and which, had they been known, would or should have led to a different result at that time.” Fulton J. went on to comment that, “As I see it, it is precisely because of such a possibility — some change in the circumstances of the bankrupts, perhaps, or some new evidence coming to light which would make it unjust to maintain the original order — that Parliament enacted the provision in question.”

[27] The Trustee’s current position, as a result of the new evidence that has come to light, discussed below, is a material change in circumstance. This new evidence, and the Trustee’s opinion that the ongoing enforcement of these orders does not benefit the estate, make it “unjust to maintain the original order.” As a result, if Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. have standing to continue to enforce this order, then pursuant to s. 187(5), I exercise my discretion and rescind this order.

[28] If I am wrong and the Trustee’s position is not a material change in circumstance then for the reasons set out here I am satisfied that the further incarceration of Jay Chiang is not warranted.

November 1, 1999

[29] When the documents were not produced and Jay Chiang and Christina Chiang did not attend the examinations, Mr. Justice Farley granted a further order that they produce documents and attend for examinations on November 11, 1999.

[30] The order states that it was made in the Superior Court of Justice in Bankruptcy and Insolvency and that it was brought “In the Matter of the Bankruptcy of Jay Tien Chiang.”

[31] The bankruptcy file number for Jay Chiang 31-352841 is the only file number referenced on the order.

[32] The order recites that the motion for this order was brought by Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. My comments relating to s. 187(5) and the order of September 28, 1999 set out above also apply to this order.

September 22, 2000

[33] This order contained both an Anton Piller order and a Mareva order. Paragraph 9 of this order required Jay Chiang, Christina Chiang and all 12 named defendants to hand over to the plaintiffs all documents in their possession or control relating to

• the business and property of Jay Chiang, Christina Chiang and 13 other persons;

• the causes of Jay Chiang’s bankruptcy; and

• the disposition of Jay Chiang’s property.

[34] The motion was brought in the Superior Court of Justice (Commercial List) and the Superior Court of Justice (in Bankruptcy and Insolvency).

[35] The order references the Commercial List Action number for the Fraudulent Conveyances Action (00-CL-3835) and the Jay Chiang Bankruptcy Court File Number (31-352841).

[36] The order recites that the motion for this order is brought by the Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. This recital is not correct; the applicant for this order was the Trustee.

[37] The Mareva and Anton Piller orders were interlocutory orders issued in the Fraudulent Conveyances Action and in the Matter of Jay Chiang’s Bankruptcy. Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were not given leave to proceed with 00-CL-3835.

October 5, 2000

[38] This order continued the Mareva order with some amendments. Specifically, Jay Chiang and Christina Chiang were to disclose, in their affidavit of assets, accounts over which they had a power of attorney.

[39] The motion was brought in the Superior Court of Justice (Commercial List) and the Superior Court of Justice (in Bankruptcy and Insolvency).

[40] The order references the Commercial List Action number for the Fraudulent Conveyances Action (00-CL-3835) and the Jay Chiang Bankruptcy Court File Number (31-352841).

[41] The order recites that the motion for this order was brought by the “plaintiffs” in Commercial List Action Number 00-CL-3835 and by Mendlowitz and Associates Inc. This recital is not correct; the applicant for this order was the Trustee. Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were not given leave to proceed with 00-CL-3835.

May 7, 2003

[42] This order required Christina Chiang to produce Taiwan banking records and to answer questions relating to US $340,507 which she wired from Singapore to Taiwan.

[43] The motion was brought in the Superior Court of Justice (Commercial List) and the Superior Court of Justice (in Bankruptcy and Insolvency).

[44] The order references the Commercial List Action number for the Fraudulent Conveyances Action (00-CL-3835) and the Jay Chiang Bankruptcy Court File Number (31-352841).

[45] The order recites that the motion for this order was bought by the “plaintiffs” in Commercial List Action 00-CL-3835. On the face of the order the plaintiffs are the Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. This recital is not correct; the applicant for this order was the Trustee. Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were not given leave to proceed with 00-CL-3835.

June 24, 2003

[46] This order required Christina Chiang to provide information and documents relating to the whereabouts of three sums of money totaling approximately US $500,000 which had been removed from her accounts. Jay Chiang and Christina Chiang were ordered to answer questions about their contempt of court for use in the pending contempt proceeding.

[47] The motion was brought in the Superior Court of Justice (Commercial List) and the Superior Court of Justice (in Bankruptcy and Insolvency).

[48] The order references the Commercial List Action number for the Fraudulent Conveyances Action (00-CL-3835) and the Jay Chiang Bankruptcy Court File Number (31-352841).

[49] The order recites that the motion for this order was bought by the “plaintiffs” in Commercial List Action 00-CL-3835. On the face of the order the plaintiffs are the Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. This recital is not correct; the applicant for this order was the Trustee. Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were not given leave to proceed with 00-CL-3835.

Procedural History

[50] The contempt order gave Jay Chiang and Christina Chiang an opportunity to purge their contempt by apologizing to the court and complying with 17 Undertakings within 90 days, failing which each would serve seven days in jail.

[51] The Undertakings were granted as an indulgence to Mr. and Mrs. Chiang. See: Mendlowitz & Associates Inc. v Chiang, 2007 CanLII 12203 (Ont. S.C.), at para. 47.

[52] The order also provided that after serving the seven day sentence Jay Chiang and Christina Chiang would have a further period of time to purge their contempt. If after that period of time their contempt was still not purged, they were to be jailed for a further period of time, if warranted. Whether more jail was warranted was to be determined at a further hearing.

[53] Jay Chiang and Christina Chiang apologized to the court.

[54] Jay Chiang and Christina Chiang provided some information and documents in compliance with their Undertakings in October 2003.

[55] The Trustee, Korea Data Systems (USA), Inc. and Korea Data Systems Co. Ltd. were not satisfied. The Trustee moved for an order that Jay Chiang and Christina Chiang had not complied with their Undertakings.

[56] Jay Chiang and Christina Chiang unsuccessfully moved for an order setting aside the contempt order, claiming their family members would not provide information and otherwise cooperate with them.

[57] Justice Farley presided over a five day trial in May 2005 to determine if Jay Chiang and Christina Chiang had fulfilled the 17 Undertakings. Justice Farley concluded that Jay Chiang and Christina Chiang had not fulfilled each of the Undertakings. Justice Farley ruled that Jay Chiang and Christina Chiang had “made some effort,” but “they have a long way to go.”

[58] Despite the terms of his contempt order, Justice Farley did not put Jay Chiang and Christina Chiang in jail. He gave them a further 90 days to purge their contempt.

[59] Jay Chiang and Christina Chiang provided further information and documents in an attempt to comply with their Undertakings.

[60] The Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were not satisfied with the further information. The Trustee moved for a declaration that Jay Chiang and Christina Chiang had not complied with certain of their Undertakings and should be jailed. At issue were six Undertakings; the balance of the 17 Undertakings had been fulfilled.

[61] A hearing was held. At the conclusion of the hearing, a judge of this court found that the each of the six Undertakings had not been fulfilled and sentenced Jay Chiang and Christina Chiang to jail.

[62] After Jay Chiang and Christina Chiang were released, they provided further information and documents in an attempt to comply with their Undertakings. The Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. were not satisfied with the further information.

[63] The Trustee brought a motion for an order that Jay Chiang and Christina Chiang had failed to comply with their Undertakings and should be sentenced to more jail. This is the contempt motion with which we are now concerned.

[64] I determined in a decision released September 2, 2010 that Jay Chiang and Christina Chiang had not complied with the six outstanding Undertakings, although some aspects of their alleged non-compliance were not proven.

[65] Paragraph 3(c) of the contempt order now requires that I determine if a further period of incarceration was warranted.

Is more jail warranted?

[66] The beginning of this determination is the Mareva and Anton Piller orders of September 22, 2000, which is one of the six orders referenced in the contempt order.

[67] Christina Chiang moves to rescind this order due to the nondisclosure of material facts. Jay Chiang brings a similar motion.

The Mareva and Anton Piller Orders dated September 22, 2000 (extended October 5, 2000)

[68] The motion to obtain this order was made ex parte and in camera.

[69] Affidavits were filed in support of the motion for the Mareva and Anton Piller orders. Those affidavits were from: Benny Mendlowitz affirmed September 1 & 22, 2000; D. Steve Cameron sworn July 28, 2000; John Hui sworn September 1, 2000; Marie Criscione sworn September 6 & 22, 2000.

[70] In his affidavit, Mr. Mendlowitz deposed in part that Korea Data Systems (USA), Inc. and Korea Data Systems Co. Ltd. sued Jay Chiang in California for “recovery of a debt which arose, inter alia, as a result of fraudulent conduct on the part of Chiang…” He also deposed that Judge Seymour found Jay and Julius Chiang “liable for fraud following a trial…”

[71] D. Steve Cameron in his affidavit deposed in para. 9 that “As various bank records are produced, I learn of more and more questionable financial transactions between various Chiang family members and their business entities.”

[72] Mr. Cameron is no stranger to these matters.

[73] Mr. Cameron was called to the bar in California in 1974. Mr. Cameron first became involved in proceedings involving Korea Data Systems Co. Ltd. and Julius Chiang in 1993. He was representing two corporations involved in that litigation, Microdata Distribution and 3G Capital Technology. That case was settled in September 1993. Breach of this settlement was one of the issues in the 1994 case against Jay Chiang in California.

[74] Mr. Cameron then began associating with the law firm representing Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. As a result, Mr. Cameron began assisting Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. By 1996 he was the sole attorney for them in the outstanding litigation against Julius Chiang and Jay Chiang.

[75] When employees or officers of Korea Data Systems (USA), Inc. were deposed in California and admitted to creating false documents in connection with an invoicing fraud involving Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc., Mr. Cameron attended as counsel for the deponents.

[76] I mention the references to fraud and questionable financial transactions in the affidavits to explain my conclusion that fraudulent conduct and questionable financial transactions were central to the request for the Mareva and Anton Piller orders. This reinforces the materiality of that type of conduct to the granting of this order.

[77] Mr. John Hui provided a short affidavit in support of the ex parte Mareva and Anton Piller orders promising to abide by any order concerning damages caused by the Mareva order.

[78] Mr. Hui is no stranger to these matters.

[79] Mr. Hui is the driving force behind Korea Data Systems (USA), Inc. He was in September 2000 completely familiar with its history and business activities.

[80] Mr. Hui testified more than once in these proceedings. Specifically, he testified that he

• Helped Jung Koh and Dae Soo Koh incorporate Korea Data Systems (USA), Inc. in 1992;

• Helped them with an employee theft issue at the company in 1994;

• Advised them concerning the Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. 1994 lawsuits with which we are concerned;

• Bought Korea Data Systems (USA), Inc. in 1995 and is its sole shareholder.

Mr. Cameron’s statements on behalf of Mr. Hui in 2010

[81] In 2010, Mr. Hui was being sued in California by a company called Korea Data Systems America, Inc. Mr. Hui had filed a counterclaim. This litigation is discussed at para. 31 and following in the trial decision (Korea Data Systems Co. v Aamazing Technologies Inc., 2012 ONSC 3922).

[82] I note the following preliminary matters:

• Korea Data Systems America, Inc. was a wholly owned subsidiary of Korea Data Systems Co. Ltd.;

• Korea Data Systems Co. Ltd. went through Korean bankruptcy proceedings in 2001and emerged from bankruptcy protection in 2002 with new ownership which was at arm’s-length from the Koh brothers;

• Korea Data Systems Co. Ltd. then sued Mr. Hui and Mr. Cameron acted for him.

[83] Mr. Cameron, on Mr. Hui’s behalf, filed a Settlement Brief in that litigation dated February 10, 2010.

[84] Mr. Cameron makes many statements in this Settlement Brief; some of which are repeated here:

• Korea Data Systems Co. Ltd. at the relevant times was manufacturing computer monitors;

• The largest shareholder of that company at the relevant times was Jung Koh;

• Jung Koh was a “politically connected individual in Korea;” his uncle was the Mayor of Seoul and Prime Minister of the country.

• Korea Data Systems Co. Ltd. was “running an Enrontype accounting fraud.”

• Notwithstanding the fact that Korea Data Systems Co. Ltd. suffered losses every year starting in 1993, it was able to fool its accountants, the banks and everyone else in Korea and report yearly gains on its audited financials. This was one of a number of financial irregularities taking place at Korea Data Systems Co. Ltd.

• When Korea Data Systems Co. Ltd. received a purchase order from Korea Data Systems (USA), Inc. and did not have insurance coverage available from the Korean Export Import Corporation for sales to Korea Data Systems (USA), Inc., it would prepare duplicate purchase orders showing a purchaser other than Korea Data Systems (USA), Inc. that was eligible for export insurance. All the paperwork in Korea reflected a sale to a straw buyer when in fact the goods were going to Korea Data Systems (USA), Inc. which was the entity responsible for paying for the monitors.

• A settlement was reached between the Korean Export Import Corporation, 10 Korean banks that purchased the fraudulently insured bills of exchange, the California Centre Bank and Korea Data Systems (USA), Inc.

• In Part VII Conclusion to the Brief, Mr. Cameron says Korea Data Systems Co. Ltd. collapsed in 2001 “due to Jung Koh’s criminal activities.”

• The settlement left outstanding money owed by Korea Data Systems (USA), Inc. to Korea Data Systems Co. Ltd. and Korea Data Systems America, Inc. Although disputed, Korea Data Systems Co. Ltd. claimed it was owed $180 million by Korea Data Systems (USA), Inc.

• In 1995, John Hui purchased the stock in Korea Data Systems (USA), Inc. from Konix, an entity under the control of Jung Koh. Mr. Hui paid Konix $100,000 and signed a note for $1 million to pay for the stock. Korea Data Systems (USA), Inc. then entered into an exclusive supply agreement with Korea Data Systems Co. Ltd. for the sale of its monitors in North America. This led to an increase in Korea Data Systems Co. Ltd.’s fraudulent activities with respect to the bills of exchange, but those issues were resolved through the settlement.

• At the conclusion of the narrative of this information, Mr. Cameron makes the following statement: “the above narrative is all but undisputed by the parties.”

[85] It is not disputed that Jung Koh was convicted of fraud and sentenced to 30 months imprisonment by criminal courts of Korea. Mr. Cameron provided a translation of the criminal decision. It is clear from reading the decision that the conviction in part is grounded in the fraudulent invoicing scheme to which Mr. Cameron referred in his Settlement Brief.

[86] When he testified on November 25, 2014, Mr. Cameron disclosed that he actually wrote the 1998 decision of Judge Seymour which Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. are enforcing here and with which we have been concerned in all this litigation. I imply nothing inappropriate in this; it is permitted by the Rules of Procedure of the State Superior Court in California. I mention this to reinforce that Mr. Cameron is very familiar with these matters. Mr. Cameron has direct knowledge of much of the factual underpinnings of this litigation. I also mention it to note in passing that, in the decision that Mr. Cameron wrote for Judge Seymour, Jay Chiang is found to be personally liable in part as the alter ego of a company called Aamazing Technologies Corp. (sometimes referred to as Amazing Technologies Corp.). Interestingly, at page 6 of the Settlement Brief, to which I referred earlier, Mr. Cameron makes the following statement “Under California law one must be a shareholder to be the alter ego.” Jay Chiang was not a shareholder of Aamazing Technologies Corp.

[87] While Mr. Cameron is very familiar with the matters with which we are concerned, he testified that he was not familiar with the scope of the obligation in our Rules of Civil Procedure to make disclosure and produce documents. Apparently, on the production side, under the federal system in the United States you must produce the documents that you intend to use in the proceeding. Mr. Cameron testified that he thought Mr. Blumenfeld was functioning under the same sort of rule. I do not recall Mr. Cameron testifying about the production requirements in state proceedings in California.

[88] I am not prepared to accept Mr. Cameron’s evidence concerning his knowledge of Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc.’s production obligations in our courts. I believe Mr. Cameron is mistaken in this regard.

[89] I say this for two reasons.

[90] First, the proceedings in both jurisdictions have been continuous and interdependent. In California, the 1993 action resulted in the September 1993 settlement. Then, almost immediately, there were proceedings claiming that the September 1993 settlement had been breached. These proceedings started in California in 1994 and continued until 1998 which is the same year that proceedings started here. As well, the Korean Export Import Corporation litigation began in 2002 in California and was still before the courts in February 2010 when Mr. Cameron filed his Settlement Brief. The Undertakings hearing began before me on March 2, 2010.

[91] Second, when the Trustee commenced proceedings against its former counsel, the former counsel retained Ms. Valerie Edwards of Torkin Manes. Ms. Edwards asked counsel for the Trustee to file her letter of August 1, 2014 in these proceedings. Counsel for the Trustee filed that letter. In that letter Ms. Edwards indicates that Mr. Hui, Mr. Cameron and Mr. Blumenfeld exchanged approximately 6000 emails. She indicates that Blumenfeld retained Mr. Cameron on several matters unrelated to this case and that Mr. Cameron retained Mr. Blumenfeld on several matters unrelated to this case.

[92] Mr. Cameron is an intelligent and experienced counsel. Inevitably there must have been discussions concerning production and disclosure in Canadian proceedings.

[93] Regardless of Mr. Cameron’s knowledge of our rules of production, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. knew what they did in connection with the fraudulent invoicing scheme and they had the obligation to make disclosure to the Trustee who was moving ex parte and in camera to obtain Mareva and Anton Piller orders in part upon information provided by them or Mr. Cameron. They chose at their own peril to keep the Trustee in the dark.

[94] It is not disputed that Justice Farley had no knowledge of the information in the Settlement Brief.

[95] Mr. Mendlowitz has indicated repeatedly that he had no knowledge of these matters prior to receipt of the Settlement Brief. For example, at para. 123 of its Submissions dated September 23, 2014, the Trustee summarizes its position as follows: “It is beyond question that the Trustee would not have brought a motion for such extraordinary relief against the Chiangs and others and relied upon the indemnity and Undertaking as to damages of KDS USA, if the trustee had known that KDS Korea and KDS USA were involved in a massive fraud in South Korea and California involving hundreds of millions of dollars and that both companies were on the verge of collapse.” KDS Korea refers to Korea Data Systems Co. Ltd.; KDS USA refers to Korea Data Systems (USA), Inc.

[96] A party applying ex parte for an interim injunction is required to make full and frank disclosure of relevant facts. See Chitel v. Rothbart (1983), 1982 CanLII 1956 (ON CA), 39 O.R. (2d) 513 (C. A.) at p. 519. In Walden Electrical Ltd. v. Lopes et al. (2006), 2006 CanLII 39308 (ON SC), 274 D.L.R. (4th) 545 (Ont. S.J.), at para. 42, the court describes material facts as “… any fact that would have been weighed or considered by the motions judge in deciding the issues, regardless of whether its disclosure would have changed the outcome…” In Factor Gas Liquids Inc. v. Jean, 2010 ONSC 2454 (Div. Ct.), at para. 47, the court suggested materiality involves asking whether the facts in question would have affected the outcome of granting the injunction.

[97] Regardless of the materiality test applied, the facts in the Settlement Brief, which Mr. Cameron says were not in dispute in that case, are material and ought to have been disclosed to Justice Farley when he was considering whether to issue the Mareva and Anton Piller orders. Any judge of our court, apprised of those facts, would want to make sure that our court was not unwittingly used to assist in the fraud or in the laundering of the proceeds from it.

[98] In addition, a judge thinking about issuing the requested Mareva and Anton Piller orders would have to consider the possibility that if the Mareva order froze proceeds from the fraudulent invoicing scheme, Korea Data Systems Co. Ltd., Korea Data Systems (USA), Inc. and Jay Chiang, assuming they were all complicit in the fraudulent invoicing scheme, could agree to divide the frozen proceeds and then consent to a variation of the Mareva order permitting the division of the proceeds of the fraud. Judges of our court may have been disinclined to issue a Mareva order whose purpose was to protect fraudsters from each other.

[99] A Mareva order is an extraordinary remedy because it seizes an opposing party’s assets before trial. It is in essence a form of interlocutory judgment before trial. This Mareva order was issued in camera as well as ex parte; it was an exception to the open courts principle. Mr. Cameron testified that in California ex parte motions, whether in State or Federal Court, can only be brought with notice to the other side. It should be remembered that this Mareva order restrained not only Jay Chiang and Christina Chiang but also Brenda Chang (Jay Chiang’s sister) and her husband Samson Chang as well as Christina Chiang’s mother who lived in Taiwan. Absent a further order of this court, they were prevented from dealing with or otherwise encumbering their assets, issuing cheques and withdrawing money from the bank. In addition, they were to provide a list of assets. They were permitted $250 per week for living expenses. I mention these other persons to reinforce that in the factual context of this proceeding the Mareva order was in fact an extraordinary remedy.

[100] The Mareva order was altered after it was issued for the purpose of extending its application to other persons without disclosure of the information in the Settlement Brief.

[101] Korea Data Systems (USA), Inc.’s undertaking as to damages was hollow and this fact was not known to the court or to the Trustee. It should be noted that to this point Mr. Hui has made certain that Korea Data Systems (USA), Inc. honored any financial obligations that have arisen.

[102] I am satisfied that material facts were not disclosed to Justice Farley when he issued the Mareva and Anton Piller orders on September 22, 2000. As a result, I will not exercise my discretion and continue the order: see Chitel, at p. 159. Based on the material non-disclosure described in these reasons, the Mareva and Anton Piller orders are rescinded.

The order of October 5, 2000

[103] The portion of this order which purported to continue or vary the Mareva and Anton Piller orders of Justice Farley “until further order of this court” no longer has any application to this penalty hearing.

Compliance Generally

Christina Chiang

The order of September 28, 1999

[104] This order required Christina Chiang to attend an examination on October 7, 1999. Christina Chiang failed to attend this examination. She was subsequently ordered to attend and did attend an examination in November 1999.

The order of November 1, 1999

[105] This order required Christina Chiang to attend an examination on November 11, 1999. It ordered that Christina Chiang answer questions relating to Jay Chiang’s business and property, the causes of his bankruptcy and the disposition of his property.

[106] Christina Chiang attended at this examination.

[107] Christina Chiang was also ordered to produce documents. Of course it is difficult to prove a negative; that is, to prove that you do not have documents and that you are not withholding information. I have now had the benefit of trying the Fraudulent Conveyances Action (00-CL-3835). I decided that Jay Chiang had indeed engaged in a conspiracy to defeat the Trustee’s collection efforts and that the parties to the conspiracy were Jay Chiang, his father Y.C. Chiang and his brother Julius Chiang. I dismissed the Fraudulent Conveyances Action against Christina Chiang because, while her actions may have assisted some of Mr. Chiang’s efforts, she was not part of a conspiracy agreement to defeat, hinder, delay or defraud his creditors. I am satisfied that Christina Chiang was not the custodian of any documents which might be of interest to Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. I am also satisfied that the only information with which she was provided was the information necessary to carry out instructions she received from Jay Chiang.

[108] The order also directed Michael Pace, Jay Chiang’s former lawyer, to attend for an examination relating to Jay Chiang’s business or property, the causes of his bankruptcy and the disposition of his property. It also directed Miller Thompson to produce books, documents, correspondence or papers in its possession or control relating to Jay Chiang, his business or property or the administration of his Estate in bankruptcy which were not privileged.

[109] One of the files produced was a file for Christina Chiang’s purchase of her family home on Cortina Court in Richmond Hill. Information obtained from this file was used in separate proceedings against Christina Chiang which resulted in Korea Data Systems (USA), Inc. seizing and selling her home.

The order of October 5, 2000

[110] This order required Jay Chiang or Christina Chiang to “forthwith provide to the plaintiffs the last known address of the defendant David Cheng.” David Cheng is an alias for Y.C. Chiang (Jay Chiang’s father).

[111] Christina Chiang did provide Y.C. Chiang’s address.

[112] This order also required Christina Chiang to swear an affidavit listing her assets including current information about accounts or assets over which she had a power of attorney.

[113] Christina Chiang swore such an affidavit on October 17, 2000.

The order of May 7, 2003

[114] Christina Chiang was ordered to execute authorizations, produce all account statements and records of transactions greater than $1,000 at financial institutions where there were accounts over which she had signing authority in Taiwan including the Bank of Taiwan and the First Commercial Bank. I decided in my Ruling dealing with Undertakings (Chiang (Trustee of) v. Chiang, 2010 ONSC 4804, 70 C.B.R. (5th) 124) that Christina Chiang produced account statements and records of transactions greater than $1,000 for all accounts at financial institutions which she holds or held in her name or over which she has signing authority in Taiwan.

[115] Christina Chiang’s accounts at the Bank of Taiwan have either been closed or frozen since 2001. Christina Chiang signed an authorization permitting the release of her banking information from the Bank of Taiwan to the plaintiffs on June 5, 2003. Christina Chiang produced a passbook for her account at that bank from March 1997 to September 2000 and a historical statement concerning her account from the bank for the period from January 1, 1999 to April 12, 2001. She also produced correspondence in July and August 2005 between her former counsel and the Bank of Taiwan. In September 2005 she produced through her former counsel copies of Bank of Taiwan records obtained by counsel acting for her in Taiwan.

[116] Christina Chiang’s account at the First Commercial Bank was frozen in 2001. Christina Chiang authorized the plaintiffs to obtain her records from the First Commercial Bank, which they did. Christina Chiang produced her passbook for June 12, 2000 to June 21, 2001 and a list of transactions with the First Commercial Bank over US $1,000. Christina Chiang’s former counsel sent plaintiffs’ counsel numerous First Commercial Bank banking records on June 11, 2003.

[117] Christina Chiang was ordered to answer the questions she had refused to answer at an examination. There was no suggestion she failed to do this.

[118] Jay Chiang and Christina Chiang and their counsel were ordered to account for all money transferred from Taiwan to their Canadian counsel’s trust account since September 25, 2000. There has been no suggestion that counsel for Christina Chiang did not produce the appropriate information from his trust account.

[119] Christina Chiang was ordered to produce all documents relating to a transfer of US $340,507.74 on February 14, 2000 from an account in Singapore to someone named Cheng Y. Chang and answer questions in relation to this transaction. This will be considered elsewhere in these reasons.

[120] Finally, Christina Chiang was ordered to cooperate fully with the plaintiffs in regard to these requirements.

The order dated June 24, 2003

[121] The court ordered that Christina Chiang disclose to the plaintiffs’ counsel within 10 days complete documents and information regarding the whereabouts of the following sums:

• US $340,507.74 wired by Christina Chiang from an account in Singapore to Cheng Y. Chang on February 14, 2000.

• US $161,417.41 withdrawn from the account of Christina Chiang at the Bank of Taiwan on or about September 26, 2000;

• US $17,358.28 withdrawn from an account of Christina Chiang at the Bank of Taiwan in Taipei on or about April 19, 2000.

US $340,507.74

[122] Justice Lax found that this sum of money came from money in Jay Chiang’s accounts in Hong Kong and that it was deposited to Christina Chiang’s account in Singapore in November 1996.

[123] Jay Chiang made an assignment in favour of his creditors on September 28, 1998.

[124] The Mareva injunction was issued September 22, 2000.

[125] These funds were transferred from Christina Chiang’s Singapore HSBC account to Y.C. Chiang on February 14, 2000 prior to the Mareva/Anton Piller order. This transfer was done at the direction of Jay Chiang because Christina Chiang had been sued by Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. in California.

[126] Y.C. Chiang died in January 2010.

[127] Justice Lax found that Jay Chiang, not Christina Chiang, continued to control the money after it was wired to his father.

[128] Christina Chiang consistently maintained that the whereabouts of this sum and other sums that were transferred to Y.C. Chiang were not known to her. At this stage, after having tried the Fraudulent Conveyances Action, I am now satisfied that her evidence in this regard is true.

[129] Christina Chiang’s claim concerning this money is consistent with the evidence of Chun Chun Wu, the sister to Y.C. Chiang. In 1994, Y.C. Chiang convinced Christina to let her name be used in connection with the purchase of a piece of property in order to disguise the fact that the property was owned by Jay Chiang. She was told nothing about the reason the property was to be placed in her name.

[130] Christina Chiang’s claim is consistent with the evidence concerning Y.C. Chiang’s wife, En Fu Chiang, who has been a defendant in these proceedings and those in California. Mr. John Hui testified that En Fu Chiang was examined by Korea Data Systems (USA), Inc. in California. He testified that he concluded from the examination that she was not a businesswoman and that she had no idea what was going on in her bank account. It was his impression that all of the activities allegedly involving her were carried out by her sons. Mr. Hui described her as a nominee. He testified that her examination in California did not result in the location or recovery of any assets.

[131] Christina Chiang’s claim concerning this money is consistent with the way her mother was treated by Y.C. Chiang and Julius Chiang.

[132] Christina Chiang’s claim concerning this sum of money is consistent with a pattern that emerged from the evidence at the conclusion of the trial and as a result I accept her evidence in this regard.

[133] The court ordered Christina Chiang to produce complete banking records concerning the whereabouts of these sums and attend at the offices of her counsel within 10 days and answer questions concerning the transactions involving these sums of money. The attempts by Christina Chiang’s mother to obtain documentation from the Bank of Taiwan were described in the trial judgment. I am satisfied that Christina Chiang is unable through no fault of her own to produce any further documentation from the Bank of Taiwan concerning this money.

[134] The Trustee has released Christina Chiang and has advised that any further explanations concerning this sum of money will not assist the Trustee in its administration of Jay Chiang’s estate.

US $161,417.41

[135] These funds were withdrawn in cash from Christina Chiang’s account at the Bank of Taiwan on September 26, 2000, approximately four days after Justice Farley issued his Mareva order. The Mareva order has now been rescinded; nevertheless, I will briefly summarize the evidence in relation to this withdrawal.

[136] On October 7, 2003 this sum was transferred to the trust account of Gambin RDQ, the Toronto-area law firm that represented Jay Chiang and Christina Chiang at the time relevant to Undertaking 2, given to Justice Farley when he made his contempt order. Christina Chiang testified that the money transferred to the Gambin RDQ trust account was provided by her mother. The funds in the trust account of Gambin RDQ were paid out to Jay Chiang and Christina Chiang in accordance with an order of this court.

[137] Christina Chiang’s mother was questioned about the money that was transferred to Gambin RDQ. She indicated that she told her daughter the money was in a vault safe because her daughter kept asking about it but that she did not have a vault safe. During the trial she became very emotional when talking about the money provided in 2003 to Gambin RDQ. Christina Chiang’s mother indicated that the money had come from Christina Chiang’s deceased father so that she (the mother) would be secure in her old age. She testified that she sent that money to Canada because Mr. Blumenfeld told her that if she failed to transfer the money her daughter would be sent to jail. I am satisfied that a lawyer told her this but I am not persuaded it was Mr. Blumenfeld.

[138] No one asked Christina Chiang’s mother about what happened to the funds between September 26, 2000 and October 7, 2003 despite the fact that she was cross-examined on two consecutive days.

[139] Christina Chiang’s mother testified that she turned over to Canadian counsel all the bank records she had. The attempts by Christina Chiang’s mother to obtain further documentation from the Bank of Taiwan are described in the trial judgment. She also testified that Christina Chiang asked her for bank records and that she turned some over to her.

[140] I am satisfied that Christina Chiang is unable through no fault of her own to produce any further documentation from the Bank of Taiwan concerning the US $161,417.41 removed by her from her bank account on September 26, 2000.

US $17,358.28

[141] These funds were withdrawn from an account at the Bank of Taiwan in Taipei which was in the name of Christina Chiang on April 19, 2000 prior to the issuance of the Mareva injunction. On the same day that these funds were withdrawn $162,220 was deposited into that bank account. Christina Chiang’s mother had the use of this account. She was a defendant in the Fraudulent Conveyances Action and she was cross-examined by the plaintiffs. She was not asked about this withdrawal.

Other provisions in this order

[142] This order also compelled Jay Chiang and Christina Chiang to answer questions about their pending contempt hearing, apparently as some form of pre-contempt discovery. There was no suggestion that this did not take place.

[143] The order required Christina Chiang and Jay Chiang to deliver authorizations granting access to their telephone records and copies of their phone bills commencing September 2000, and to answer questions regarding those phone bills. There was no suggestion that this did not take place.

[144] Although not necessary for this ruling, I do note the court ordered that any financial institution holding a bank account in Christina Chiang’s name or over which Christina Chiang had signing authority to produce its records to the plaintiff. This appears to have been quite effective. In August 2000 the former counsel for the Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. wrote to HSBC thanking them for the “marvellous assistance that you and those who work with you have given us” and expressed gratitude for the thorough manner in which their requests for financial information were addressed. Christina Chiang’s counsel complained that the full extent to which relevant financial institutions provided information to the plaintiffs has never been properly disclosed. I did not pursue this complaint at the time it was made.

10 Cortina Court

[145] This was Christina Chiang’s family home. Christina Chiang acquired the property on July 6, 1992 for $1,028,037.38.

[146] Jay Chiang made an assignment in favour of his creditors more than 6 years after Christina Chiang purchased Cortina Court; namely on September 28, 1998.

[147] The balance of the purchase price payable on the closing was provided by three cheques made out to Garfinkle Biderman, the law firm for the vendor.

[148] At the time of the purchase a collateral mortgage of $1,000,000 was obtained from the Bank of Nova Scotia to finance a $3,000,000 line of credit for Amazing Technologies Inc. Jay Chiang guaranteed the mortgage. This loan was repaid in October 1993.

[149] On October 12, 1999, Christina Chiang borrowed $442,400 from the TD Bank secured by a second mortgage on the Cortina Court property and wired the money to Jay Chiang’s father.

[150] Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. acquired information about Christina Chiang’s purchase her purchase of Cortina Court from Miller Thomson LLP, who provided it in response to the November 1, 1999 Bankruptcy Court order. That order required Jay Chiang’s former solicitor to attend for an examination and answer questions relating to the business or property of Jay Chiang, the causes of Jay Chiang’s bankruptcy and the disposition of Jay Chiang’s property. The solicitor was also ordered to produce all documents relating to Jay Chiang, his business or property, or the administration of his Estate in bankruptcy which were not privileged. Compliance with this order resulted in in production of the information about Christina Chiang’s purchase of Cortina Court. This information was then used against Christina Chiang in a separate proceeding to obtain possession of and ultimately sell her home.

[151] Korea Data Systems (USA), Inc. was incorporated in April 1992, approximately three months before Christina Chiang purchased Cortina Court. This company was incorporated by Jung Koh and Dae Soo Koh with the assistance of John Hui. It was 100% owned by the Koh brothers through a company called Konix until they sold it to John Hui in 1995. No funds from Korea Data Systems (USA), Inc. were used to purchase Cortina Court.

[152] Korea Data Systems Co. Ltd. supplied computer monitors to Aamazing Technologies Corp. (a California Company). Aamazing Technologies Corp. shipped monitors to Ajay Aamazing Technologies Inc. (Amazing Technologies Inc.). Ajay Aamazing Technologies Inc. is the Ontario Company controlled by Jay Chiang.

[153] Korea Data Systems Co. Ltd. did not supply computer monitors directly to Ajay Aamazing Technologies Inc. (Amazing Technologies Inc.).

[154] The following exchange between Mr. Cameron and the current counsel for the Trustee occurred on August 28, 2014 and is helpful in putting the relationships in context:

• Q. Jay Chiang was never an officer, director or shareholder of KDS Korea, right?

• A. To my knowledge he was not.

• Q. Or of KDS USA

• A. To my knowledge he was not.

• Q. And there was no evidence as to any representations that were made by Jay Chiang for the purpose of obtaining product from KDS Korea or KDS USA.

• A. I certainly do not recall any.

[155] KDS Korea refers to Korea Data Systems Co. Ltd.; KDS USA refers to Korea Data Systems (USA), Inc.

The funds used to buy 10 Cortina Court

[156] One of the three cheques to Garfinkle Biderman is in the amount of $300,000. It was written on the account of Ajay Aamazing Technologies Inc. This is the Canadian company; owned 80% by Jay Chiang, 10% by his brother-in-law Sam Chang and 10% by his sister Frances Chiang. The cheque is dated July 3, 1992.

[157] The second of the three cheques to Garfinkle Peterman came from Christina Chiang. It is dated July 3, 1992 and is in the amount of $585,776.61.

[158] Aamazing Technologies Corp. was the source of these funds. Aamazing Technologies Corp. is the California Company. It was originally owned by John Hui and Julius Chiang and one other person. John Hui and Julius Chiang ended their business relationship in September 1992. As a result from that point on Jung Koh and his brother owned 50% and Julius Chiang owned the other 50% of Aamazing Technologies Corp.

[159] Specifically, on June 17, 1992 Julius Chang transferred US $500,000 from the Aamazing Technologies Corp. bank account in California to a bank account in the name of Christina Chiang’s mother in Taiwan. On June 18, 1992 US $500,000 was transferred to Christina Chiang’s bank account in Canada from that bank account in Taiwan. As a result of this transfer Christina Chiang was able to write the $585,776.61 check to Garfinkle Biderman.

[160] The Trustee recently acquired the financial statements for Aamazing Technologies Corp. which show that it was profitable in fiscal year 1992.

[161] John Hui and Julius Chiang ended their business relationship in part due to the US$500,000 transfer from Aamazing Technologies Corp. John Hui objected to the transfer; Julius Chiang claimed that the transfer repaid monies owed to him. There was litigation over this transfer which settled on a with prejudice basis in September 1992, at the same time Mr. Hui gave up his ownership in Aamazing Technologies Corp.

[162] For the sake of completeness, the third cheque was also from Christina Chiang. It was payable to the Treasurer of Ontario in the amount of $17,062.75. It is dated July 3, 1992.

[163] On November 26, 1999 counsel on behalf of Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. brought an interlocutory motion in the Enforcement Action (98-CV-156217 later 00-CL-5945). This was the Ontario action in which it was attempting to enforce its 1998 California judgment against Jay Chiang. This was the action that the November 1, 1999 order permitted Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. to continue. On November 30, 1999 an interim CPL order was granted pending the hearing of CPL motion.

[164] The notice of motion asked for among other things a certificate of pending litigation (“CPL) against Cortina Court and leave to amend the statement of claim in the Enforcement Action.

[165] The grounds for the motion provide in part as follows at paragraph (c): “Christina Chiang and Jay Chiang were examined on November 9 and 11 respectively. As a result of information obtained from Mr. Pace’s file and the cross examinations of Jay Chiang and Christina Chiang, the plaintiffs believe that Christina Chiang used funds obtained through Jay Chiang’s fraudulent conduct to purchase the Cortina property on July 6, 1992 for $1,028,037.38 and to discharge a collateral mortgage registered thereon in the amount of $1 million on or about October 5, 1993.”

[166] An amended version of the Enforcement Action statement of claim was also filed on the motion. Paragraph 24 of that claim provides as follows: “Christina Chiang knew or ought to have known that the funds used to purchase the Cortina property and to discharge the Bank’s collateral mortgage were obtained by fraud and breach of trust and that the funds belong to the plaintiffs with the result that she is a constructive trustee and of such funds, she is liable to the plaintiffs for the repayment of such funds and she holds the Cortina property in trust for the benefit of the plaintiffs…” The plaintiffs were Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc.

[167] The motion was supported by an affidavit affirmed November 26, 1999 by counsel for Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. In his affidavit counsel stated at para. 6: “it appears that some $300,000 from Amazing Canada was used to purchase a property municipally known as 10 Cortina Court Richmond Hill Ontario (the Cortina property). KDS wishes to amend the within claim, inter alia, to allege that Christina Chiang (Ms. Chiang), the registered owner of the Cortina property and Chiang’s wife is a constructive trustee of the Cortina property and of money owed by Amazing Canada and Chiang to KDS and to plead that the plaintiffs are entitled to trace the proceeds of the fraud perpetrated against them to the Cortina property and to plead an entitlement to a certificate of pending litigation in respect of the Cortina property.” At para. 30 the deponent declared: “as a result of the information obtained from the inspection of Miller Thomson’s file and the cross examinations of Chiang and Ms. Chiang, the plaintiffs wish to amend their statement of claim to add Ms. Chiang as a party, to claim an equitable tracing order of the proceeds of the fraud to the Cortina property and to plead an entitlement to a certificate of pending litigation to preserve their interest in the Cortina property until this action has been finally determined.”

[168] KDS is defined in the affidavit as Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc.

[169] Amazing Canada in the affidavit is Ajay Aamazing Technologies Inc. or Amazing Technologies Inc.

[170] On November 21, 2000 Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. obtained an order granting leave to add Christina Chiang as a party to the Enforcement Action (98-CV-156217 later 00-CL-5945) and for the issuance of a CPL. The certificate was issued January 2, 2001 and registered January 23, 2001.

[171] The statement of claim in the Fraudulent Conveyances Action (00-CL-3835) was amended four times. In all iterations of the statement of claim the same allegation appears; namely that Christina Chiang purchased the Cortina Court property using funds of Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. obtained through the fraudulent conduct and breach of trust of Amazing Technologies Inc. (Jay Chiang’s Canadian company), Jay Chiang himself and Julius Chiang.

[172] The position set out in the statements of claim was detailed in the Opening and Closing Submissions of the plaintiffs as well as in the evidence they called in the Fraudulent Conveyances Action and the Enforcement Action.

[173] In the plaintiffs’ written opening statement entitled “A Legal Framework” submitted at the opening of the Fraudulent Conveyances Action in 2011, the following appears at page 4:

• Aamazing California allegedly transferred US $500,000 Tsai Chen-Cheng Yueh (“Ms. Tsai”) in Taiwan on June 18, 1992 who forwarded the proceeds to a Christina Chiang account in Canada who used the equivalent of $600,000 to fund the balance of the purchase price.

[174] Tsai Chen-Cheng Yueh is Christina Chiang’s mother.

[175] Mr. Cameron testified about the US $500,000 transfer in the Fraudulent Conveyances Action. He remembered that the $500,000 went to an account in Taiwan which had some “tie-in” with Jay Chiang. Mr. Cameron provided no further details.

[176] In the plaintiffs’ closing submissions in the Fraudulent Conveyances Action, reference is made to the “first California complaint” in which it was alleged that Julius Chiang had transferred US $500,000 on or about June 18, 1992 to a personal account controlled by him in Taiwan.

[177] The position of Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. has always been that the Cortina Court property was purchased with funds fraudulently obtained from them and that a collateral mortgage on that property was discharged with fraudulent funds.

[178] No reference was made in the affidavit of November 26, 1999, in the evidence of Mr. Cameron in these proceedings or in the plaintiffs’ opening or closing submissions to the fact that John Hui knew about the $500,000 transfer, commenced litigation concerning the transfer and settled that litigation with prejudice at the same time as the Koh brothers became 50% shareholders in Aamazing Technologies Corp.---facts certainly known to Mr. Cameron and Mr. Hui.

[179] Christina Chiang was restrained from taking any steps to renegotiate her mortgage when it came due with the result that the mortgage went into default.

[180] On July 18, 2008 the law firm representing Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. incorporated 2177361 Ontario Inc. which purchased the Cortina Court mortgage. This company obtained judgment on the mortgage debt and an order for possession of the Cortina Court property. On June 1, 2009, 2177361 Ontario Inc. closed the sale of the Cortina Court property to an arm’s-length purchaser for $1,230,000. The funds were turned over to Korea Data Systems (USA), Inc. and then provided to the Trustee as security for an indemnity which Korea Data Systems (USA), Inc. had given to the Trustee personally against potential damages and legal costs. The net proceeds were not treated as part of Jay Chiang’s Estate in bankruptcy; they were deposited in a trust account outside of the Estate.

[181] The following exchange at the 2010 Undertakings hearing between counsel for Christina Chiang and the Trustee sums up the Trustee’s view of the true ownership of Cortina Court:

• Q. The only basis you had to permit you to allow the property to be sold for the benefit of KDS and not for the benefit of the Estate was because you concluded that the property was my client’s property and therefore could be used by KDS pursuant to its independent judgment that it had against my client?

• A. (Mr. Mendlowitz) “I can’t disagree with you at this point, no.”

[182] I am satisfied after considering the evidence which I have heard in both the Undertakings hearing and the Fraudulent Conveyances Action that Christina Chiang has purged her contempt as found by Justice Farley in his order of July 22, 2003. I am satisfied that Christina Chiang is not engaged in a continuing contempt of that order.

[183] There is no reason to think that further incarceration of Christina Chiang is warranted as a result her actions in mortgaging her family home and sending the proceeds of that mortgage to Jay Chiang’s father even if her intention was to prevent Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. from obtaining it.

[184] I am satisfied that Christina Chiang’s contempt is over. Although perhaps unnecessary given my finding I am also content to grant leave to the Trustee to withdraw this motion against Christina Chiang

Jay Chiang

[185] Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. asked for a further jail term of six months for Jay Chiang. As indicated the Trustee has decided to withdraw this motion. I do not propose to comment extensively about Mr. Chiang.

[186] Jay Chiang asks that the consent contempt order and the underlying orders be set aside. He also asks that the proceeding against him be stayed as an abuse of process. A stay of proceedings should only be ordered in “the clearest of cases.” See Farris v. Staubach Ontario Inc., 2004 CanLII 11325 (Ont. S.C.), at para. 15.

[187] I am not satisfied that Jay Chiang has been forthright about his assets. Jay Chiang voluntarily made an assignment in favour of his creditors. He voluntarily availed himself of the protection of the BIA. He then attempted to hide his assets and showed a lack of respect for orders of the Superior Court of Justice. He has not purged his contempt.

[188] I cannot, having regard to these circumstances, set aside either the contempt order or the underlying orders.

[189] It is one of the ironies of this case that an issue has arisen concerning the doctrine of merger. Jay Chiang submits that the orders underlying Justice Farley’s contempt order have merged in the trial judgment. Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. take the position that the doctrine of merger has no application because its purpose is to prevent parties from litigating an issue more than once. As expressed by the Alberta Court of Appeal: “the doctrine of merger prevents a claimant from re-litigating a cause of action that has already been adjudicated. Although the nomenclature ‘merger’ captures the notion of the claim having been merged into the final judgment, a more apt description of the effect of the doctrine is ‘exhaustion’; that is, upon adjudication, the cause of action is exhausted such that it ceases to exist and cannot support re-litigation”(Sherwood Steel Ltd. v. Odyssey Construction Inc., 2014 ABCA 320, at para. 16).

[190] The irony arises because Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. sued Christina Chiang more than once in Ontario and California for the same thing and at the same time.

[191] In light of the fact that the doctrine of merger exists to protect one party from another, it has no application to this case. A party who is found in contempt assumes an obligation to the court and to the administration of justice. The rule of law requires that the court be able to enforce its own processes and maintain its dignity and respect (U.N.A. v. Alberta (Attorney General), 1992 CanLII 99 (SCC), [1992] 1 S.C.R. 901, at p. 931). For that reason, a contempt order is both coercive and punitive. The coercive aspect exists primarily to protect the litigant in whose interest the order has been given, but the only object of the punitive aspect is to vindicate the court’s authority (see: Alridge, Eady & Smith, On Contempt, 4th ed. (London: Sweet & Maxwell, 2011), at 3-82 to 3-84). Even if the litigation between the parties is at an end, the punitive aspect of the contempt order remains as a matter between the individual and the court. The core principle governing the contempt power was stated in R. v. Vermette, 1987 CanLII 51 (SCC), [1987] 1 S.C.R. 577, at para 6: “The power to deal with contempt as part of the inherent and essential jurisdiction of the courts has existed, it is said, as long as the courts themselves … This power was necessary, and remains so, to enable the orderly conduct of the court's business and to prevent interference with the court's proceedings.”

[192] However, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. have not forthright about the disclosure of documents and information within their possession, control or power. They failed to meet their disclosure obligations. Perhaps the final example of this occurred on January 30, 2014 when Korea Data Systems (USA), Inc.’s former counsel produced numerous documents for the first time long after the Fraudulent Conveyances Action and the Enforcement Action were over.

[193] The failure to make proper disclosure as described throughout permitted Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. and Mr. Hui to inaccurately portray themselves as victims of Mr. Chiang’s fraud throughout the Ontario litigation.

[194] The Trustee did not know until 2010 that John Hui was not a victim of Jay Chiang’s fraud. Apparently no one told the Trustee or the court for that matter that Mr. Hui knew about the unpaid monitors and the settlement agreement litigation in 1995 prior to purchasing the shares of Korea Data Systems (USA), Inc.

[195] The Trustee has conducted its own independent investigation. The Trustee has advised that as a result of its investigations it is convinced that the sale of Korea Data Systems (USA), Inc. to John Hui was a “straw sale” arrangement in order to facilitate a public offering of Korea Data Systems Co. Ltd.’s shares on the Korean stock exchange. As part of that investigation the Trustee determined that one S.D. Lee, an employee of a wholly-owned subsidiary of Korea Data Systems Co. Ltd., had, during the time of the invoicing fraud, cheque signing authority for Korea Data Systems (USA), Inc.

[196] The court is not in a position to conduct its own inquiry. It relies upon the parties for its information. Whether the Trustee’s opinion is correct or not, it should not be lightly disregarded. If the Trustee is correct, then Korea Data Systems (USA), Inc. is not owned by Mr. Hui and his interest in pursuing this matter is utterly unknown.

[197] I have already indicated that the Mareva and Anton Piller orders will not be continued. As a result, continuing contempt for those orders is no longer an issue. Contempt for those orders while they was outstanding has been addressed by the previous time Mr. Chiang spent in jail, the restrictions on his travel, adverse publicity and restrictions on his ability to earn a living. The Trustee realized upon an asset of Jay Chiang’s, his 50% beneficial interest in Winner International Group Limited, which came into existence years after his bankruptcy and which would have belonged to him if he had been discharged from bankruptcy. I make these observations because they are germane to whether further incarceration is warranted; they are not made out of sympathy.

[198] To put the matter shortly, Jay Chiang, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. have each attempted to take advantage of our laws while not complying with them.

[199] On a separate note the Trustee has advised in its submissions of April 4, 2014 at paras. 14-15 as follows: “The contempt proceedings do not benefit the estate in any way. Quite to the contrary, the ongoing contempt proceedings are highly detrimental to the estate as well as to the personal interests of the Trustee, whose rights are in priority to the interests of unsecured creditors, in particular KDS USA. The contempt proceedings have been a huge drain on estate resources.”

The money transferred out of the Telecom Business ($6,749,313)

[200] Documents concerning this business were found when the Anton Piller order was executed. The documents reveal that Jay Chiang had been operating businesses in the telecom industry since 1996. Jay Chiang was obliged to disclose and transfer his interest in Asia Connects Technology or Asia Pacific Gateway (H.K.) when he made an assignment in favour of his creditors in September 1998. He did not do that.

[201] Asia Connects Technology (1243723 Ontario Inc.), the predecessor to Asia Pacific Gateway (H.K.), had revenues of $7 million per year from customers.

[202] I found in the trial decision that Jay Chiang, Julius Chiang and Y.C. Chiang owned most of Asia Pacific Gateway (H.K.). I also found that Tsai Su Feng, Christina Chiang’s sister, had a 15% shareholding.

[203] Jay Chiang and Primus, one of the parties he was negotiating with concerning the Telecom business, agreed that Asia Pacific Gateway (H.K.) was worth US$5.5 million. Another company NAG valued Jay Chiang’s interest at US$10 million.

[204] Mr. Mark Berenblut, a forensic accounting expert called by the former counsel for the Trustee, Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc., testified about the Telecom business at the Undertakings hearing. On cross-examination he stated that transfers of money out of the Telecom business were carried out by Y.C. Chiang, Julius Chiang and Julius Chiang’s wife before the Mareva and Anton Piller orders were issued.

[205] Mr. Berenblut testified that he first offered this opinion in proceedings in California in 2003.

[206] Mr. Berenblut did not recall giving this evidence when testified at the second contempt trial in 2007.

[207] We still do not know what happened to this money.

[208] The Trustee points out that its best-case scenario would be establishing a beneficial interest in the shares of the Telecom business and not its assets.

[209] This remains a serious issue, which in my view is better dealt with at Mr. Chiang’s bankruptcy discharge hearing than at a contempt hearing.

[210] Jay Chiang has not purged his contempt. Nevertheless, when I consider the evidence which I have heard on the Undertakings motion, the Enforcement Action, the Fraudulent Conveyances Action as well as the considerations to which I have referred in these reasons, I conclude that this is an appropriate case for the court to accept the view of the Trustee and give leave to withdraw this motion.

[211] If I am wrong and Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. can continue to pursue the contempt proceedings against Jay Chiang I am satisfied for the reasons set out here that further incarceration of Jay Chiang is not warranted.

[212] Accordingly this motion is withdrawn as far as Jay Chiang is concerned.

[213] The Trustee and Christina Chiang are entitled to costs payable by Korea Data Systems Co. Ltd. and Korea Data Systems (USA), Inc. There will be no order for costs in favour of Jay Chiang.

[214] If the parties cannot agree on a schedule for cost submissions the matter can be dealt with by way of a scheduling conference.

MARROCCO A.C.J.S.C.

Released: 20150126

COURT FILE NO.: 00-CL-3835

DATE: 20150126

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

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

Applicants

– and –

JAY TIEN CHIANG AND CHRISTINA CHIANG

Respondents

SANCTION HEARING RULING

MARROCCO A.C.J.S.C.

Released: 20150126