Court File No.: CV-18-00597489 Date: 2019-04-10 Superior Court of Justice - Ontario

RE: RE/MAX REALTRON REALTY INC., Plaintiff

– and –

2458313 ONTARIO INC., 2524991 ONTARIO CORPORATION, QINGXIN SHAO also known as NEWRY SHAO and ZOUBO GU also known as STEVEN GU, Defendants

Before: E.M. Morgan J.

Counsel: Paul Starkman, for the Plaintiff Jordan Goldblatt, for the Defendants

Heard: April 9, 2019

Endorsement

[1] Defendants move under Rule 20.01(3) of the Rules of Civil Procedure for summary judgment dismissing the action.

[2] The dispute centres around a multi-residential property in Toronto. The Plaintiff and the Defendant, 2458313 Ontario Inc. (“245”), entered into a Buyers Representation Agreement dated June 14, 2016. The Defendants, Newry Shao and Steven Gu, were directors and officers of 245. This was known to the Plaintiff.

[3] Also on that date, 245 entered into an Agreement of Purchase and Sale to buy the subject property from a seller, 8159432 Canada Corp. (“815”), who was introduced to them by the Plaintiff. Under this Agreement, 245 was to pay a purchase price of $6.65 million; from this, the Plaintiff was to receive a 2% commission on closing, which would have come to $133,000. That transaction, however, never closed. The Agreement contained a period of time for 245 to conduct due diligence, during which the sale was still conditional; 245 took the position that its due diligence turned up a number of problems with the property that it had not anticipated, and 815 agreed that the Agreement was thereby at an end.

[4] 245 and 815 signed a Mutual Release of the June 14, 2016 Agreement of Purchase and Sale on June 28, 2016. The Plaintiff also signed this Release, relinquishing any right to a commission.

[5] Also on June 28, 2016, a new offer to purchase the Property was made by “Jiayi He, In Trust” to purchase the property for $6.52 million. Ms. He is a representative of the Defendant, 2524991 Ontario Corporation (“252”). The Defendant Steven Gu is a director of both 245 and 252 and the Defendant Newry Shao is an officer of 245 and a director of 252. The two of them are the sole directors of 252.

[6] For the June 28, 2016 transaction, the purchasers used Masters Trust Realty Inc. (“Masters Trust”) as their real estate agent. The sale closed on December 20, 2016, earning Masters Trust a commission of 2% of the purchase price – i.e. $130,000. There is an invoice from Masters Trust to the solicitors for this amount, although it is unclear in the record when (and whether) it was actually paid.

[7] The Plaintiff claims that, pursuant to the Buyers Representation Agreement, it deserves to have been paid commission in respect of the sale to 252. The “holdover provision” in that Agreement provides that “…the Buyer agrees to pay the Brokerage such commission if the Buyer enters into an agreement within 180 days after the expiration of this Agreement (Holdover period) to purchase or lease any real property shown or introduced to the Buyer from any source whatsoever during the term of this Agreement…” It is the Plaintiff’s position that 252, the buyer under the June 28, 2016 Agreement, is effectively the same buyer as under the previous June 14, 2016 Agreement, and that they are both companies owned or controlled by Ms. Shao and Mr. Gu.

[8] The Plaintiff pleads a number of causes of action. These include intentional interference with economic relations, conspiracy, and breach of the duty of good faith in contracting. The Plaintiff also pleads that this is a case for piercing the corporate veil, and submits that the two individual Defendants, Ms. Shao and Mr. Gu, are using the two corporate Defendants, 245 and 252, as their alter egos. On this theory of liability, the two individual Defendants have misused the two corporate Defendants for the purpose of depriving the Plaintiff of commission.

[9] In Yaiguaje v Chevron Corporation, 2018 ONCA 472, at para 65, the Court of Appeal confirmed the three circumstances in which a claim of piercing the corporate veil can succeed: a) when the court is construing a statute, contract or other document; b) when the court is satisfied that a company is a ‘mere façade’ concealing the true facts; and c) when it can be established that the company is an authorized agent of its controllers or its members. It is the second of these circumstances – the ‘mere façade’ situation – which the Plaintiff submits is applicable here.

[10] Defendants’ counsel submits that 245 and 252 are indeed distinct entities with different a different ownership structure and different shareholders, and that both corporations have shareholders/investors other than Ms. Shao and Mr. Gu. He points out that Ms. Shao in her affidavit identifies the investors in 245 as Xue Sheng Wei, Zong Jiang, Zong Quing He, Jiang He, and Mingxing (Reego) Xue, as well as Mr. Gu and herself. The Defendants have also produced a shareholder record for 252 indicating that the owners of shares in that company are, again, Ms. Shao and Mr. Gu, plus one other individual, Ai Ze Du. Counsel for the Defendants submits that the difference in shareholdings for each of 245 and 252 establishes definitively that those companies are neither alter egos for each other nor a façade for Ms. Shao and Mr. Gu.

[11] If this share structure for the two corporate Defendants was actually established in the evidence, I would be inclined to agree that the two corporate entities are substantively distinct from one another despite their having overlapping directors and officers. However, as Plaintiff’s counsel points out, the evidence in the record before me does not establish that the Defendants’ version of the ownership of 245 and 252 is correct.

[12] The corporate records of 245 show that as of June 14, 2016 – the date of the aborted purchase by 245 – there were no registered shareholders of that company. The company was formally incorporated with Ms. Shao and Mr. Gu as its directors and officers, but the shareholder registry is empty and no resolutions issuing shares in 245 to anyone had been undertaken.

[13] The so-called investors named by Ms. Shao turn out not to have been investors in the property contracted for by 245, but rather what might be termed potential investors. They had not invested and had not acquired shares in June 2016. They were at best people who may have been spoken to about the investment but were “waiting in the wings”, as Plaintiff’s counsel put it. The only two people actually involved with 245 when it entered the agreement to purchase the property and when it terminated that agreement were Ms. Shao and Mr. Gu.

[14] In fact, the first Directors’ resolution issuing shares issuing any shares in 245 is dated August 30, 2018 – well after the transactions in issue and after the commencement of this litigation. The sole shareholder at that point is listed as another corporation, Impression Design Builders Inc., a company revealed by a corporate search to also be controlled by Ms. Shao and Mr. Gu.

[15] As for 252, the shareholders’ register is more complete but, at the same time, even more suspicious. Ai Ze Du is the one shareholder other than the two personal Defendants that appears in the register, but she is recorded as having transferred all of her shares to Steven Gu on December 21, 2016, the very day that the 252 purchase of the property closed. Thus, although 252 had a third shareholder when it entered the contract to purchase the property, by the time it took possession of the property the only owners of the shares in 252 were, once again, Ms. Shao and Mr. Gu.

[16] Ms. Shao and Mr. Gu have not answered any questions about how much money was invested by any of the supposed arm’s length investors. There is, for example, no information in the record about who paid the $200,000 deposit on the purchase of the property by 252, or who paid the balance of the purchase price on closing.

[17] The record does reveal, however, that the 252’s deposit was paid by means of more than one cheque, and that one of those cheques in the amount of $48,000 was written on the account of yet another corporation, 9692541 Canada Inc. A corporate search conducted by Plaintiff’s counsel and adduced into the evidentiary record reveals that this federally incorporated entity has two directors and that they are none other than Ms. Shao and Mr. Gu. During the cross-examination of Ms. Shao, the Defendants refused to disclose where the other $152,000 of the deposit money paid by 252 came from.

[18] Ms. Shou did depose, however, that the balance due on closing of 252’s purchase of the property, after the company took out a mortgage loan, was $2.7 million, and that Ai Ze Du provided more than 50% of the closing funds. No cancelled cheque or other evidence of this contribution by the third shareholder of 252 was produced by the Defendants. However, it does seem odd that Ai Ze Du would contribute something in the range of $1.4 million to the purchase of a property by a corporation in which she gave up her ownership interest that very day by signing her shares over to Mr. Gu. Something is clearly missing from this story.

[19] The purchase price for the June 14, 2016 Agreement of Purchase and Sale by 245 was for $6.65 million. As indicated, that transaction was eventually aborted, presumably because 245 was not satisfied with the due diligence it conducted with respect to the property. Later that same month, on June 28, 2016, 252 purchased the property for $6.52 million, a $130,000 reduction in purchase price.

[20] This reduction in purchase price becomes interesting when one realizes that it mirrors the amount of commission that the Plaintiff would have earned had the sale to 245 been completed. It became even more interesting when it was revealed in cross-examination that the individual principals behind the vendor of the property, 815, were also the owners of Masters Trust – i.e. the real estate brokerage for the sale to 252. The commission earned by Masters Trust was also $130,000; however, there is no evidence that it was ever actually paid. That, of course, stands to reason, since it is typically a vendor that pays the real estate commission and there would have been no need for the principals of 815 to pay themselves a commission.

[21] It all suspiciously points to the possibility that Ms. Shao and Mr. Gu backed 245 out of the first transaction and entered into a second transaction in the guise of 252 in order to save $130,000 – that is, to save the real estate commission that would not have to be paid if the Plaintiff were out of the picture. Of course, the Plaintiff has not quite proved this theory at this point, but it has come close; what is clear, however, is that the Defendant has not established in any way that 252 is not a mere façade for 245 and, ultimately, for Ms. Shao and Mr. Gu.

[22] The other causes of action claimed by the Plaintiff – unlawful interference and conspiracy – turn on whether depriving the Plaintiff of its commission was the intentional goal of terminating the 245 contract and replacing it with the 252 contract. The Court of Appeal has stated specifically that intentionality is critical for the tort of unlawful interference: Correia v Canac Kitchens, 2008 ONCA 506. In light of the facts that have now been unearthed regarding the various relationships at play, this intention has not been fully explored.

[23] The same can be said for the tort of conspiracy, where the parties have to be shown to have intended the deprivation that results from the conspiracy: Cement LaFarge v BC Lightweight Aggregate, [1983] 1 SCR 452, 468; Dale v The Toronto Real Estate Board, 2012 ONSC 512, at para 49. Likewise, the success of a claim for breach of the duty of good faith in contracting as it applies to the termination of 245’s Agreement of Purchase and Sale with 815, would turn on the duty being “implied in this case on the basis of the intentions of the parties given the clear terms of an entire agreement”: Bhasin v Hrynew, [2014] 3 SCR 494, at para 72.

[24] In my view, all of the causes of action pleaded by the Plaintiff, whether tort-based or contracts-based, require a more thorough exploration of the Defendants’ intentionality in terminating the 245 Agreement. Further, determination of the Plaintiff’s contract rights under the “holdover” provision in the Buyers Representation Agreement requires a more thorough exploration of the shareholdings/ownership of 245 and 252 at the material times. None of these issues are established definitively one way or another on the record before me.

[25] I therefore cannot conclude that there is no genuine issue requiring a trial. At the very least, the key players must provide viva voce testimony and be cross-examined in a hearing before a judge so that the court can achieve a full appreciation of these issues: Hyrniak v Mauldin, [2014] 1 SCR 87, at para 54.

[26] The Defendants have brought a motion to amend the Statement of Defense to correct several facts that were apparently included in error in the initial version of the Defendants’ pleading. These include facts with respect to the investors in 245, the reason for the termination of 245’s Agreement of Purchase and Sale, and the way in which Jiayi He, the person that signed in trust for 252 on the June 28, 2016 Agreement, found the property in issue. I see no reason not to grant leave to amend as requested by Defendants’ counsel.

[27] Plaintiff’s counsel submits that these amendments amount to withdrawals of admissions, but I do not see them that way. In any case, there will be a trial of the relevant issues in this action, and Plaintiff’s counsel will be free to cross-examine any witness on prior inconsistent statements they may have made relating to the issues addressed in these amendments.

[28] The Defendants have leave to amend the Statement of Defense as proposed in this Motion.

[29] I order that there be a trial of the issues of ownership of 245 and 252 and intentionality of the Defendants in terminating 245’s Agreement of Purchase and Sale and entering into 252’s Agreement of Purchase and Sale. I leave it to both counsel to determine how many and which witnesses they wish to produce in addressing these issues. I would recommend booking 3 or 4 days of trial time in order to provide adequate opportunity to cover the required ground.

[30] As suggested by the Supreme Court of Canada in Hyrniak, at para 71, I will remain seized of this case for the purposes of hearing the mini-trial on these issues. Counsel may be in direct email contact with my assistant in order to schedule a further hearing.

[31] Costs of this motion will be in the cause.

Date: April 10, 2019 Morgan J.