Court File and Parties

COURT FILE NO.: CV-13-487129 DATE: 20170626 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Chi-Kin Lam and Wing-Fu Hui, Plaintiffs – AND – Jue Chen, Vanith Kandasamy, 2282697 Ontario Inc., Jian Yu Song, and Tian Qing Liu, Defendants

AND RE: Jian Yu Song, Tian Qing Liu, and Jue Chen, Plaintiffs by Counterclaim – AND – Chi-Jin Lam, Wing-Fu Hui, Mansoura Development Inc., and Rebecca Chin, Defendants to the Counterclaim

BEFORE: Justice E.M. Morgan

COUNSEL: Joy Casey, for the Plaintiffs

HEARD: June 26, 2017

Reasons for Judgment

[1] The Plaintiffs, Chi-Kin Lam (“Lam”) and Wig-Fu Hui (“Hui”), move for summary judgment seeking damages and reimbursements flowing from a number of different breaches of agreement by the Defendants. They are both minority shareholders in the Defendant, 2282697 Ontario Inc. (“228”), and claim, among other things, that they have been treated oppressively as defined in s. 248 of the Ontario Business Corporations Act, RSO 1990, C. B-16 (“OBCA”).

[2] The Defendant, Vanitha Kandasamy (“Kandasamy”), is another minority shareholder who supports the Plaintiffs in this motion.

[3] The Defendants, Jue Chen (“Chen”) and Tian Qing Liu (“Liu”), are the other shareholders, and the Defendant, Jian Yu Song (“Song”), is the spouse of Chen and has received monies on her behalf. When this motion was scheduled at CPC court, Chen, Liu, and Song were represented by counsel. However, that counsel has moved to remove itself from the record and so they are not represented. They have, however, been served with all of the motion materials, but have not filed any material in response and have not appeared at the motion.

[4] At an earlier stage of the action, the proceeds of sale of a property owned by 228 were ordered frozen in 228’s Royal Bank of Canada account controlled by Chen and Liu. The Royal Bank has very recently advised counsel for the Plaintiffs that the funds have been withdrawn. The bank is apparently investigating how that could have happened in view of the existing court order.

[5] The affidavit evidence establishes that Chen and Liu caused 228 to sell the property owned by it without the consent of the Plaintiffs and contrary to the shareholders agreement. It also establishes that Chen and Liu caused 228 to disburse funds without properly accounting to the Plaintiffs and in a way that is contrary to the Plaintiffs’ rights as shareholders.

[6] Further, the record shows that the Plaintiffs had agreed to purchase shares from Chen and Liu, and had paid them either the purchase price or deposits toward the purchase of those shares, but Chen and Liu have refused to sign over the shares despite receiving the money. Specifically, the Plaintiffs paid Chen $150,000 for her shares, which would increase the Plaintiffs’ respective holdings from 10% and 20% to 21% and 39%. These funds were paid to Song on Chen’s behalf, as Chen was out of the country at the time the payment for the purchase and sale of her shares was made.

[7] Further Hui paid Liu $10,000 as a deposit for his shares, but Liu has refused to complete the sale transaction or to return the deposit.

[8] In addition to all of that, Hui made some of the mortgage payments on the property formerly owned by 228 out of his personal funds, and he therefore deserves reimbursement for those amounts by 228. Those payments came to a total of $36,249.94.

[9] There is little doubt on the state of the record before me that the Plaintiffs have been treated oppressively within the meaning of that term in s. 248 of the OBCA. That oppressive conduct is even more accentuated now that the funds that were supposed to be held by them in 228’s bank account have disappeared. This shareholder oppression gives rise to Chen and Liu being held, along with 228, jointly and severally liable to the Plaintiffs for any and all amounts owing to the Plaintiffs as a result of their actions.

[10] Further, it is clear to me that Chen and Liu have breached the shareholders agreement, and that the Plaintiffs, as well as Kandasamy, are owed money by 228. All of them deserve their initial investment returned plus their proportionate share of the profit earned by 228 on the sale of its property.

[11] Accordingly, in addition to a Declaration that Chen and Liu have carried on the business of 228 in a manner that is oppressive and unfairly prejudicial to the interests of the Plaintiffs, and a further Declaration that Chen and Liu have breached the terms of the shareholders agreement for 228, the Plaintiffs shall have a number of specific orders, namely:

• that Hui is the owner of 39% of the shares of 228;
• that Lam is the owner of 21% of the shares of 228;
• that Kandasamy is the owner of 10% of the shares of 228;
• that 228 shall pay Hui $35,249.94 to reimburse mortgage payments paid by Hui on behalf of 228, plus prejudgment interest thereon from December 16, 2013 to today;
• that 228 shall pay Hui $212,444.75 to redeem his shares in 228, plus prejudgment interest from December 16, 2013 to today;
• that 228 shall pay Lam $114,393.32 to redeem his shares in 228, plus prejudgment interest from December 16, 2013 to today;
• that 228 shall pay Kandasamy $54,473.01 to redeem her shares in 228, plus prejudgment interest thereon from December 16, 2013 to today;
• that Chen and Liu are jointly and severally liable along with 228 for payment of the above amounts;
• that Liu pay Hui $10,000 as a refund of the deposit paid for Liu’s shares; and
• that the amount of $580,980.08 paid into account number 06462-1008010 at the Royal Bank of Canada Branch Transit Number 06462 to the credit of 228 be paid to counsel for the Plaintiffs, in trust, to be distributed in accordance with the schedule provided by Plaintiffs’ counsel.

[12] The Counterclaim herein is dismissed as against Lam and Hui.

[13] The Plaintiffs also seek punitive damages against Chen and Liu. While I am convinced that Chen and Liu have acted in a way that no court can condone, I am concerned that they have had insufficient notice of the claim for punitive damages and have therefore not had an opportunity to respond or to choose whether or not to respond to that claim. Thus, although the evidence indicates that Chen and Liu are deserving of some badge of the court’s disapproval of their conduct toward the Plaintiffs, I will refrain from awarding the Plaintiffs any punitive damages.

[14] That said, the Plaintiffs are entitled to their costs on a full indemnity basis. They have been treated oppressively and prejudicially by Chen and Liu, who have defended this action despite their having no viable defense on the merits. In addition, funds which the Plaintiffs expected to find in a bank account securing their entitlement to this judgment have apparently gone missing.

[15] Costs are generally discretionary under s. 131 of the Courts of Justice Act, and this kind of oppressive conduct by Chen and Liu trigger the Plaintiff’s entitlement to a costs award on the highest available scale. Rule 57.01(1)(f), (g), and (h) of the Rules of Civil Procedure all speak to a motion court’s authority to take into account a party’s conduct of the litigation in fashioning the costs award.

[16] The Plaintiffs seek costs of this motion and the action to date in the total amount of $40,226.87. That is a reasonable amount considering the fact that the action has proceeded through the discovery stage and summary judgment. Plaintiffs’ counsel has been thorough and successful at each stage, without incurring more costs than necessary in achieving these results.

[17] In addition, Plaintiffs’ counsel asks that I consider supplementing the costs awarded by Firestone J. on April 6, 2014, when he ordered that 228’s funds be preserved in the Royal Bank account. At that stage, a modest amount of costs were awarded the Plaintiffs in respect of an interlocutory order which was conceived as preserving monies for both parties. Now that it is apparent that the funds have disappeared from the account, which was under the control of Chen and Liu, it is clear that the Plaintiffs required Justice Firestone’s order for their financial protection. The Plaintiffs sought full indemnity costs of over $14,000 on that motion, and were awarded roughly 1/3 of what they sought. In calculating the costs of this entire action, I would exercise my discretion to increase the amount awarded in respect of the April 6, 2014 motion by $8,000.

[18] Chen, Liu, and 228 shall jointly and severally be liable to the Plaintiffs for costs in the total amount of $48,226.87, inclusive of all fees, disbursements, and HST.

[19] There shall be a Judgment to go as submitted and amended by me today.

Morgan J. Date: June 26, 2017