ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1268223 ONTARIO LIMITED
Plaintiff
– and –
ESTATE OF PO FUNG, BY ITS TRUSTEE, KENG FAI FONG
Defendant
Justin M. Jakubiak and Sara Hickey, for the Plaintiff
Eduardo F. Lam, for the Defendant
HEARD: November 7, 8 and 9, 2016
Lederer J.
[1]
Background
Sometime during November 1997, Po Fung arranged for the incorporation of the plaintiff. His daughter, Wa-Ying Fung, (referred to through much of the trial as “Pamela”) was made and remains the sole officer, director and shareholder. Subsequent to the incorporation, with the support (particularly the financial contribution) of Po Fung, a commercial property in downtown Toronto (539-541 Parliament Street) was purchased and title was registered in the name of the plaintiff. The purchase price was $1,900,000. Some years later, on or about October 23, 2009, the property was sold. The sale price was $2,980,000. Following the sale, money remained to the credit of the plaintiff. On May 18, 2011, Po Fung wrote and signed a cheque on the bank account of the plaintiff, made out to himself and by this means withdrew $1,070,000.
2The money has never been repaid. On January 18, 2013, the plaintiff commenced this action seeking its return.
3On May 18, 2014, Po Fung died. An order was made on July 15, 2014, amending the style of cause and allowing the action to continue. The plaintiff, as personified by Pamela Fung, says the money belongs to the corporation. It should not have been taken and now should be given back. The defendant (the Estate of Po Fung) says the company was nothing more than a bare trustee. The beneficial owner was Po Fung. The money was his to do with as he wished.
4This is one of too many cases that appear in our courts demonstrating family disputes over what the preceding generation has left behind. In coming to court for resolution, the parties risk any potential for a continuing, friendly or at least cordial relationship among siblings; the present generation. At times the problem is over the failure of the children to acknowledge the intention of their parent as expressed in a will. Here, unhappily, the problem arises from the actions and an apparent change of heart by the father, Po Fung.
5Despite the entreaties of the Court, the parties were unable to settle.
[6]
The Purchase of the Property and Intentions
Po Fung had a history of assisting his children. He provided financial assistance when some of his children immigrated to Canada and helped at least two of his three sons purchase commercial properties once they were here. Pamela Fung testified. Sometime during 1997 her father told her: “I am going to buy you a property.” Pamela Fung was not surprised. She had been told about this by an aunt a month earlier. Her father, Po Fung, gave her the three leases held by tenants of the property. When she protested, saying she had no experience, he told her this was not a problem, he would help her. They went together to the lawyer’s office. Pamela Fung understood the property was being purchased for her. She was told by the lawyer that she would be the only shareholder in the company. She understood that she was going to own the property.
7This perspective was confirmed by the evidence of two of her three brothers.
8Keng Lao Fong is a medical doctor. He is retired and lives in Vancouver. His father had assisted him in the purchase of a shopping centre in North Vancouver. It was sold in 1986 or 1987. Keng Lao Fong kept the proceeds. On the occasion of a visit to Toronto his mother told him that his father had “bought a shopping centre for Pamela”. It was spoken of by his mother as “Pamela’s shopping centre”, “Pamela’s mall” and the tenants as “Pamela’s tenants”. Keng Lao Fong testified that his father never told him directly about the purchase. Certainly, as to the purchase, the evidence is hearsay but not in respect of how the property was referred to.
9King Choi Fung, another son of Po Fung also lives in Vancouver. His father helped him buy a shopping centre. Po Fung contributed $600,000 of the $1,300,000 it cost. The rest was secured by a mortgage. King Choi Fung still owns it. During a visit to Toronto, for his father’s birthday, Po Fung spoke to him about wanting to buy a mall for Pamela. Po Fung expressed the concern that Pamela’s husband was not giving her enough money. He wanted to provide for his daughter’s financial independence. This is not something that King Choi Fung ever discussed with his mother. In a casual conversation, his father would refer to “her [Pamela’s] mall”. King Choi Fung testified that at other times his father referred to it as “Wa-Ying’s [Pamela’s] mall.”
10The reporting letter from the lawyer who acted for the plaintiff in respect of the purchase of the property was addressed to “1268223 ONTARIO LIMITED c/o WA-YING PAMELA FUNG”. He incorporated the plaintiff to be the registered owner of the property. The offer to purchase was from Po Fung “in trust for a company to be incorporated”. The transaction closed on December 17, 1997. There is no documentary demonstration that anything was done such that the beneficial owner of the property was Po Fung. The charge, which was registered at the time of the purchase, was signed on behalf of the plaintiff by Wa-Ying Pamela Fung. There were two guarantors (Po Fung and Wa-Ying Pamela Fung). There is also a promissory note evidencing the loan from the bank. It is signed on behalf of the plaintiff by Wa-Ying Pamela Fung, as is the Special Resolution of the Board of Directors authorizing the execution of the documents necessary to complete the loan. The “Transfer/Deed of Land” is included in the Record. The last page is the “Affidavit of Residence and of Value of the Consideration” (colloquially the “Land Transfer Tax Affidavit”). The affidavit is in the name of WA-YING PAMELA FUNG. The deponent was required to identify himself or herself by checking off one of four choices. The first two refer to the circumstances of a trust: the first to the beneficiary of the sale (“A person in trust for whom the land conveyed in the above described conveyance is being conveyed”) and the second to the trustee who is the buyer (“A trustee named in the above described conveyance to whom the land is being conveyed.”) The first does not apply. Neither of these is checked off suggesting that the second does not either. The third of the four identifications was checked (“A transferee named in the above described conveyance”) The lawyer was called as a witness. He agreed that if it was shares (not land) that were held in trust, this was the correct identification to check. It would also be the correct box to check if the deponent was the actual transferee. (The fourth and only remaining box was for the solicitor or authorized agent for a named principal.) I repeat there is no documentary evidence that points to the purchase having been made in trust to the benefit of Po Fung. The lawyer acknowledged that he was not told that the purchase was in trust for the father (Po Fung). His notes, made at the time, do not reveal any mention of a trust.
[11]
Operation and Sale of the Property
There is no question that during the years that followed, Po Fung was active in the operation of the business of the property but so was Pamela Fung. In some way and in some measure they shared the responsibility. Po Fung and Pamela each had signing authority. She testified that she dealt with the tenants. They sent her their rental cheques. She took them to her father. He recorded and deposited the funds they represented. Bank statements were delivered to him. The day to day operations were also shared. In respect of repairs to the property, she would prepare and sign some cheques; her father signed others. Her father looked after insuring the property. She dealt with the cheques for the alarm system.
12Each year they went together to the office of the corporation’s accountant to review the financial statements of the company that had been prepared. The first year’s financial statements were referred to and exhibited. Not surprisingly, they are addressed to “...the shareholders of 1268223 Ontario Limited” (plural). I repeat, Pamela Fung was the only shareholder. The letter to the accountants, acknowledging the circumstances and conditions under which the engagement was completed, was signed by her, on behalf of the plaintiff. By the time the financial statements for the year ended November 30, 2007, were prepared, they were addressed to “the shareholder” (singular). From the beginning (to the extent the Record contains signed copies) Pamela Fung signed the statements as “approved on behalf of the Board”. She was candid to say that, at least at the outset, she did not understand the financial statements. She “leafed through them.” The accountant testified. From his perspective, Pamela Fung played little if any substantive role in the work he did for the plaintiff corporation. The information and material that was required to prepare the financial statements was, for the most part, brought by Po Fung. The three of them would meet to review the drafts but Pamela Fung was “barely involved.” It was Po Fung who made all the decisions. This changed. Pamela Fung refused to sign the 2011 financial statements (I understand this to refer to the financial statements for the year ended November 30, 2010) She was uncertain about the reference to “due to shareholder” it contained. She refused to sign the statements and made a complaint to the applicable governing body of the accounting profession (referred to in the evidence of the accountant as the “Institute”). At the request of Pamela Fung, a chart was prepared to explain the reporting of shareholder loans. It seems that over time Pamela Fung came to have a better appreciation of the work the accountant had done, to raise questions and express concerns.
13In or about 2007, Pamela Fung determined that the property should be sold. Blockbuster Video was the largest tenant at the property and there was news or information that predicted it would go bankrupt. Pamela Fung testified that without that tenant the plaintiff would have difficulty making its mortgage payments. She thought it best to sell while the tenant was still there. Her father agreed that the property could be sold so long as it was sold at a profit. It was. The transaction closed on October 23, 2009. As noted at the onset of these reasons, the sale price was $2,980,000. The reporting letter from the solicitor, who acted for the plaintiff on the sale, was addressed to “Wa-Ying Pamela Fung”.
[14]
The Dispute and Transfer of Funds
To this point one might wonder how there could be much concern over who was to benefit from the purchase, operation and sale of the property. There is nothing to suggest that the property was purchased in trust or that Po Fung was, in any sense, intended to be or was the beneficial owner. The stated purpose was to assist Pamela Fung. The property was, on the evidence discussed so far in these reasons, purchased for her. She was the only shareholder, officer or director of the corporation that took title. She was involved in the operation of the business albeit with the assistance of her father and over time began to voice concerns about the content if its financial statements.
15At the time the sale was completed, once any associated debts and costs were discharged and paid, there was $1,832,806.57 remaining to the credit of the plaintiff. Po Fung and Pamela Fung went together to the bank to deposit those funds. Once deposited, Po Fung immediately instructed the bank to transfer the money to the account held in the name of another commercial property, “the Brampton Mall”. Evidently this property was owned by Po Fung. The bank was no longer prepared to accept this property as security and had called in the outstanding loan. Po Fung told his daughter, Pamela Fung, that he desperately needed the money. His son, the witness, Keng Lao Fong, testified that in furtherance of his father responding to the demand he had lent his father $4,000,000. As Keng Lao Fong understood it, the remaining $2,000,000 was to come from the proceeds of the sale of the property registered to the plaintiff.
16During February 2011, the situation came up as part of a telephone conversation between Po Fung and another of his sons, the witness, King Choi Fung. On this occasion (and so far as I am aware, for the first time) Po Fung referred to the property that had been purchased and, by this time sold, as “his” mall. When challenged by his son about the change in the identification of ownership, Po Fung was reported, by King Choi Fung, as saying “so what”. When challenged again (“you gave it to her…” “you can’t take it back”) Po Fung responded “so what...I want it back”. King Choi Fung also said that Pamela Fung had asked that the money be returned. Po Fung refused. King Choi Fung testified that Po Fung claimed the money was his.
17Pamela Fung testified that she did not, at first, question the taking of the money. Po Fung was her father. She trusted him. He had always returned any money he had borrowed. She did not raise any concern until January 18, 2011. She asked that the money be repaid. Po Fung became angry. He said he did not have any money. They did not discuss it again. Two of her brothers (I do not recall that she identified which two) advised her not to push back. Their father would only get “more fierce” She should leave it until after he had passed away. Po Fung was, at the time, 93 years old.
18On May 12, 2011, she wrote to the accountant asking for an explanation of the reference in the financial statements to the $1,781,098 owing from “related party” (shown at note 4 of the financial statements for the year ended November 30, 2009 as “...intended to be long term and non-interest bearing”). He provided an explanation but one she professed not to understand. At the time she did not have the bank records of the plaintiff. They were in the hands of Po Fung. After this action had been commenced she obtained copies from the bank. She realized the money had been returned. This was not the end of the matter or this law suit. As noted in the opening paragraph of these reasons, on May 18, 2011, Po Fung wrote a cheque and withdrew $1,070, 000 from the bank account of the plaintiff. This money has not been paid back and it is these funds which are claimed in this action.
[19]
Analysis
There is no basis upon which Po Fung or his estate can claim the ownership of the money taken. There is no evidence that there was any intention that the company or the property it purchased, operated and sold, was for the benefit of anyone other than Pamela Fung. This is demonstrated by the actions taken by Po Fung. The company was incorporated such that Pamela Fung was the only shareholder, officer or director. There is no documentary evidence that would suggest that it was held in trust for Po Fung. There is no evidence that it was operated for the benefit of anyone other than Pamela Fung. The fact that, upon being confronted with a shortfall in respect of the calling of a loan on another property, Po Fung relied on the money held by the plaintiff does not change the original intention. In fact, Po Fung could not and his estate cannot take it back. This is the change of heart which is referred to at the outset of these reasons.
20I say this without as yet having referred to the evidence of the third son of Po Fung, Keng Fai Fong. It is telling that Keng Fai Fong is the only one of Po Fung’s three sons to live in Toronto, where Po Fung lived. He lived nearby his parents and after the death of his mother stayed with his father at night. He is the trustee of the Estate of their father, and his son, the grandson of Po Fung, is its only beneficiary. Like his brothers, he recalls that his mother referred to the property as “Wa-Ying’s mall.” He remembers his mother saying this; his father could have. However, he did not hear this in a “possessive sense.” Moreover, at a time that was within months of the purchase, he was told by his father that “I put it in trust” “...I get Pamela to help me to manage it...” and “I bought it”. There are difficulties with this evidence. The fact that Po Fung “bought it” says nothing about who he bought it for. Neither does the assertion that Pamela would help manage it. Po Fung may have said he put the property in trust but there is no evidence that he actually did so. In any case what Keng Fai Fong said at trial is not consistent with what he said when he was examined for discovery. At that time he recalled the discussion differently. The only thing he attributed to Po Fung was that the property had been purchased. Keng Fai Fong said that at that time Po Fung did not provide any detail of the purchase or discuss Pamela Fung’s involvement.
21It follows that the evidence of Keng Fai Fong does not impact or change the fundamental finding. The company belonged to Pamela Fung. At the time the property was purchased, it was intended for the assistance of Pamela Fung. Po Fung was not the beneficial owner. The money that was taken belonged to the corporation. It should be paid back.
[22]
Disposition
I point out that the claim seeks $1,071,000. The cheque which demonstrates the value of the funds that are the basis of the claim was for $1,070,000. I am unable to account for the additional $1,000.
23Judgment to the plaintiff is in the amount of $1,070,000 plus both prejudgment and post judgment interest at the rate provided in the Courts of Justice Act R.S.O. 1990 c. C.43.
[24]
Costs
No submissions were made as to costs. If the parties are unable to agree I will consider written submissions on the following terms:
On behalf of the plaintiff, no later than 15 days after the release of these reasons. Such submissions to be no longer than 4 pages, double-spaced excluding any Bill of Costs, Cost Outline or case law that may be referred to.
On behalf of the defendant, no later than 10 days thereafter. Such submissions to be no longer than 4 pages, double-spaced excluding any Bill of Costs, Cost Outline or case law that may be referred to.
On behalf of the plaintiff, in reply, if necessary. Such submissions to be no longer than 2 pages double-spaced.
Lederer J.
Released: December 23, 2016
CITATION: 1268223 Ontario Limited v. Fung Estate, 2016 ONSC 8020
COURT FILE NO.: CV-13-472166
DATE: 20161223
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1268223 ONTARIO LIMITED
Plaintiff
– and –
ESTATE OF PO FUNG, BY ITS TRUSTEE, KENG FAI FONG
Defendant
REASONS FOR JUDGMENT
Lederer J.
Released: December 23, 2016