Court File and Parties

COURT FILE NO.: CV-15-0108-00 DATE: 2019 07 10

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

CAN DUC DIEP Plaintiff

Counsel: Frank Carlone, for the Plaintiff

- and -

HIEN CONG PHAM and HUONG THI DUONG Defendants

Counsel: Mark Fahmy for the defendant Hien Cong Pham Tristen Audet for the defendant, Huong Thi Duong

HEARD: November 14, and December 18, 19, and 20, 2018

REASONS FOR JUDGMENT

Emery J.

“Energy cannot be created or destroyed in an isolated system.” ¹

1In early 2011, Hien Cong Pham met a man by the name of Raad Barnett. Mr. Barnett had purportedly invented a generator that could convert magnetic energy into kinetic energy, and kinetic energy into electricity cheaply, and without producing carbon emissions. This generator had the allure to attract investors, with the potential to capture the imagination of a worldwide market.

2Mr. Pham was a tool and die maker at the time. He owned and operated a fabricating business, JRT Industries. Mr. Barnett engaged Mr. Pham to produce the prototype of this generator by using his skills and his shop in exchange for a share of the profits they expected the generator would generate when mass produced for sale. Mr. Pham and Mr. Barnett incorporated B & P Energy Technologies Inc., (“B & P”) on September 14, 2011 for this venture.

3Prior to 2012, Can Duc Diep and Mr. Pham had been the best of friends for sixteen years. On May 9, 2012, Mr. Diep advanced $500,000 to Mr. Pham at a time when B & P had been issued common shares in Honeycomb Power Systems Corp. Honeycomb had been incorporated on December 12, 2011 by Mr. Barnett and another man by the name of Eaton Donald to raise funds to develop the generator.

4According to Mr. Pham, Mr. Barnett transferred the intellectual property in the generator to B & G, which in turn assigned those rights to Honeycomb.

5As it turns out, the generator was a hoax and Honeycomb was put into receivership and later wound up.

6Mr. Diep brought this action in January, 2015, claiming the advance was a loan. If it is a loan, Mr. Pham has an obligation to repay it. Mr. Pham has defended the action alleging it was an investment. As an investment, he takes the position that Mr. Diep took the risk that he would suffer a loss if the business failed.

Litigation History

7Mr. Diep commenced this action against Mr. Pham as the sole defendant. Mr. Diep subsequently amended the statement of claim to add Mr. Pham’s wife, Huong Thi Duong, as a defendant. He alleged in the amended claim that Ms. Duong had been enriched by the funds he had loaned to Mr. Pham when they were deposited into the joint bank account belonging to both Mr. Pham and Ms. Duong.

8Mr. Diep also alleged that Ms. Duong was a party to a fraudulent conveyance when Mr. Pham conveyed his interest in the matrimonial home at 26 Radial Street in Brampton to her for nominal consideration to avoid Mr. Diep as a creditor, pursuant to the Fraudulent Conveyances Act.

9Mr. Pham and Ms. Duong separated and commenced living apart from one another shortly after Mr. Pham was served with the initial statement of claim. Ms. Duong delivered a separate statement of defence when she was served with the amended statement of claim.

10Ms. Duong subsequently brought a motion for summary judgment to have the action dismissed as against her. On June 14, 2017, Justice Price heard that motion and made an order:

a) dismissing Mr. Diep’s claim as against Ms. Duong for unjust enrichment in the amount of $455,364.53; b) that the portion of the claim made by Mr. Diep against Ms. Duong pursuant to the Fraudulent Conveyances Act in excess of $296,675 be dismissed. Justice Price further ordered that the claim made by Mr. Diep against Ms. Duong pursuant to the Fraudulent Conveyances Act is limited to $296,675 plus interest, and the relief sought in paragraphs 1F to L of the amended amended statement of claim remained a contentious and live issue between those parties; c) that the order shall in no way prejudice any causes of action, defences or rights as between Mr. Diep and the defendant, Mr. Pham; d) costs of the motion for summary judgment were fixed, and the entitlement to those costs were reserved to the trial judge or upon the written consent of Mr. Diep and Ms. Duong; and e) the remainder of the motion for summary judgment was dismissed.

11Mr. Pham now brings a motion for summary judgment to have the action dismissed as against him.

12In response, Mr. Diep brings a cross-motion for summary judgment against Mr. Pham on his claim.

13Neither Mr. Diep nor Mr. Pham seek relief as against Ms. Duong in their motions. However, Ms. Duong was represented by counsel when the two motions for summary judgment were heard together.

Position of the Parties

14Mr. Diep seeks judgment in the amount of $453,000 based on his claim that the $500,000 advanced to Mr. Pham in May 2012 was a loan. He relies upon a loan agreement in writing that Mr. Pham does not dispute entering. This loan agreement required Mr. Pham to repay the amount of the loan on May 9, 2015. The loan agreement required Mr. Pham to pay interest at 4.75% per year on each anniversary date.

15Mr. Diep also relies upon a notation made on the memo line of the cheque he wrote to advance those funds to Mr. Pham, on which he marked “loan”.

16Mr. Pham repaid $100,000 to Mr. Diep in August 2013. Mr. Diep submits that payment is evidence that Mr. Pham acknowledged his indebtedness to him. Mr. Diep therefore seeks judgment in the amount of the $400,000 for the balance owing, plus interest at the rate agreed upon in the loan agreement.

17Mr. Pham takes the position that the $500,000 Mr. Diep advanced to him in May 2012 was an investment in Honeycomb. It is his evidence that he was prevented from selling shares directly to Mr. Diep until 2015 because of a clause the Shareholders Agreement between shareholders in Honeycomb (the “HSA”). In addition to evidence he has given earlier in this action, Mr. Pham also relies upon the evidence given by his accountant, Dieu Hien Vo. Ms. Vo considered investing in Honeycomb herself at the time Mr. Diep advanced funds, and Ms. Vo actually prepared the loan agreement on which Mr. Diep relies.

18Mr. Pham explains his payment of $100,000 to Mr. Diep in August 2013 as not a repayment of indebtedness, but his purchase of Mr. Diep’s entitlement to shares in Honeycomb after that company failed. Mr. Pham submits that B & P received the intellectual property rights for the generator back from Honeycomb when it was wound up. He states they agreed that Mr. Diep would be entitled to participate in a new business if the generator found a new producer in the future.

19Although neither motion sought relief against her and she has brought no motion of her own, Ms. Duong takes the position that Mr. Diep is not entitled to judgment on the facts. She deposed in an affidavit sworn on August 8, 2016 that she was not aware that Mr. Pham and Mr. Diep purportedly entered a loan agreement until Mr. Diep served her with motion materials.

20Ms. Duong further submits that the court can only grant partial summary judgment to Mr. Diep as all other claims Mr. Diep has made against Mr. Pham and against herself alleging a fraudulent conveyance must go to trial in any event. Ms. Doung therefore supports Mr. Pham’s position that the motion Mr. Diep brings for summary judgment must be dismissed.

Agreed Facts

21There is no dispute that Mr. Diep advanced $500,000 to Mr. Pham on May 9, 2012.

22There is also no dispute that these funds were advanced after Mr. Diep and Mr. Pham signed an agreement where the advance was characterized as a loan. This agreement provided for the repayment of those funds within three years. The agreement also provided for the accrual and payment of interest on those funds.

23The agreement was prepared by Mr. Pham’s accountant. Ms. Vo prepared the agreement on the instructions of Mr. Pham. Although she overheard expressions of interest about the Honeywell shares and their discussion of the financial arrangement when Mr. Pham and Mr. Diep attended her office to sign the agreement, she was not privy to any discussions leading up to their attendance.

24Mr. Pham admits that he paid $100,000 to Mr. Diep on August 3, 2013.

Analysis

25Although Mr. Diep and Mr. Pham both seem content to have the action decided by summary judgment, I also conclude that summary judgment would be a fair and just process to adjudicate the central issue on its merits. I have sufficient evidence and the benefit of submissions from all parties to give me the confidence to find the facts on which to apply the law through the summary judgment process to reach a just result. Agreement between the parties to proceed by summary judgment is not enough; the motions judge must also consider it to be a fair process for the just disposition of a claim or defence: Rule 20 of the Rules of Civil Procedure and Gordashevskiy v. Aharon, 2019 ONCA 297 at paragraph 6.

26The issues and related evidence coalesce along three avenues of anaylsis: the evidence given by Ms. Vo, the nature of the alleged share sale, and the behaviour of Mr. Pham himself. All roads lead to the conclusion I have reached about whether this advance was a loan or an investment, and that will determine which motion shall succeed, and which must be dismissed.

Ms. Vo

27Ms. Vo has found herself in a difficult spot in this litigation. Ms. Vo was there on May 9, 2012 when Mr. Diep handed over his cheque for $500,000 to Mr. Pham after they had signed the agreement. Not only did she prepare the loan agreement as Mr. Pham’s accountant, she was present when they met at her office.

28The difficulty with Ms. Vo’s position in this litigation was made all the more apparent when both Mr. Carlone and Mr. Fahmy asked her to sign an affidavit they had each drafted with respect to the motion Ms. Duong had brought for summary judgment.

29Ms. Vo declined Mr. Carlone’s invitation to give an affidavit in this action. She ultimately swore an affidavit sworn on April 27, 2015 in the form drafted by Mr. Fahmy. In paragraph 21 of that affidavit, Ms. Vo explains that when Mr. Fahmy impressed upon her the urgency of obtaining her affidavit, she decided to meet with him for that purpose.

30In her affidavit, Ms. Vo describes how she learned from Mr. Pham that he was involved in a project with an inventor of a magnetic generator. Mr. Pham and the investor, whom she later learned to be Mr. Barnett, had incorporated Honeycomb Power Systems Corp. in December 2011. They planned to capitalize the corporation for the purpose of developing the technology and taking the generator to market. Mr. Pham gave Ms. Vo copies of all corporate documents that he had received with respect to Honeycomb, including the HSA.

31Ms. Vo deposes in her affidavit that Mr. Pham had told her how he and Mr. Barnett had made presentations to a network of “angel investors” in March and April, 2012. They anticipated that angel investors would inject millions of dollars into Honeycomb, and projected the total investment from angel investors in the amount of approximately $7,000,000 or $8,000,000. According to Mr. Pham, this investment would theoretically give Honeywell a capitalized value of $38,000,000 at $1.06 a share.

32Mr. Pham also showed Ms. Vo documents that included pictures of the magnetic generator, and pictures of the generator powering a golf cart.

33Ms. Vo states that she ultimately inspected the accounting records of Honeycomb to confirm the amounts that the angel investors had made.

34Mr. Pham provided Ms. Vo with the opportunity to invest $200,000 in Honeycomb, in exchange for 200,000 shares. She states that “Pham agreed to give me that interest since he had approximately 8,000,000 shares in Honeycomb. Mr. Pham considered himself to own those shares as a 50% shareholder in B& P, which had been issued approximately 16,000,000 common shares in Honeywell.

35Around this time, Mr. Pham advised Ms. Vo that his good friend Diep also wanted to acquire 500,000 shares of Honeycomb in exchange for $500,000. Mr. Pham asked Ms. Vo to help him in drafting the paper work “for such a transfer”.

36Mr. Pham relies heavily on the evidence that Ms. Vo has given on these motions. He submits that her evidence is the best evidence to show the true nature of the agreement between the parties.

37Ms. Vo reviewed the HSA not long after that conversation with Mr. Pham. In the course of that review, Ms. Vo detected section 5.2(g) of the HSA that, as she states in her affidavit, “stipulates that Pham could not transfer shares to any third party until January 1, 2015”. She therefore called Mr. Pham to let him know that he could not transfer the shares to herself or to Mr. Diep outright until January 2015.

38Despite advising him about this prohibition clause, Mr. Pham advised her that Mr. Diep was still interested in acquiring Honeycomb shares, and that Mr. Diep had suggested a loan agreement to document the transaction in writing. The loan agreement would specify a term of three years to bridge the time to the date at which Mr. Pham could transfer shares in Honeycomb to Mr. Diep.

39It is an undisputed fact that Ms. Vo had never met Mr. Diep before the meeting at her office on May 9, 2012.

40Ms. Vo did not talk to, or receive instructions from Mr. Diep prior to that meeting. All of the information that she took to be her instructions were received from Mr. Pham.

41The appointment for Mr. Pham and Mr. Diep to meet and sign the loan agreement was scheduled at Ms. Vo’s office on May 9, 2012. She states that Mr. Pham, Mr. Diep and herself met in her conference room for approximately one hour. She describes in her affidavit how Mr. Diep had been very excited about the business and about acquiring an interest in Honeycomb. He spoke excitedly about the magnetic generator, his “silent partner” status in the venture, and mentioned numbers about what his shares would be worth when Honeycomb went public.

42Mr. Pham talked about the future of the business in a confident way and about how investors were lining up to pour millions into the business. He stated that this was a serious venture and that he was happy to have his good friend “along for the ride to good fortune”.

43Ms. Vo states in her affidavit that she mentioned to Mr. Pham and Mr. Diep that perhaps they should seek advice from “professionals” and a lawyer’s input into this arrangement. She states that they told her to just prepare this loan agreement because “we are good friends” and for her to “not worry about it”.

44Ms. Vo’s affidavit contains the following paragraphs that I find particularly significant because of her evidence when she was cross-examined later:

16. Pham had told Diep that when he was able to transfer shares to him, he will transfer 500,000 shares. Diep did not make any objections to this statement and was agreeing to the transfer of 500,000 shares at the time when Pham was able to do so. I understood this because Pham owned the shares of Honeycomb and he was unable to sell or transfer the shares because of section 5.2(g) of the Shareholders Agreement. The loan agreement was then signed in my absence and I witnessed it.
17. The true purpose of this written agreement was to provide a portion of Pham’s shares to Honeycomb to Diep while avoiding contravening the Shareholders Agreement. Diep’s motivation for transferring this money was for 500,000 shares of Honeycomb. Pham would hold the shares and on January 1, 2015, transfer 500,000 shares to Diep. The securities for the monies advanced to Pham from Diep was for security on the shares of Honeycomb held by Pham for Diep, and not for any other purpose or promise of security on any other asset of Pham.

45On cross examination, Ms. Vo agreed that she had moved in and out of the conference room two or three or more times during the meeting, and was not in the room at all times during discussions between Mr. Diep and Mr. Pham.

46She also admitted under cross examination that she did not recall Mr. Diep asking any questions on May 9, 2012. She cannot recall him asking questions because of the passage of time, and because she was out of the room when preparing the loan agreement for part of the meeting. Nor does she recall Mr. Diep ever saying the word “shares” or “shareholder” at the time.

47Ms. Vo stated on cross examination that neither Mr. Diep or Mr. Pham asked for a security agreement, nor did anyone ask for security on Mr. Pham’s house for this advance. However, she does recall hearing Mr. Pham say to Mr. Diep “if I have to I’ll sell my house” or something to that effect. At questions 149 to 153, Ms. Vo was asked these questions and gave these answers:

149. Q. So, you mentioned there was one time when Mr. Pham had stated that he would sell his house to payback the money and that one time was at the meeting on May 9, 2012, correct? A. Yes
150. Q. And you also stated that there are other conversations going on between Mr. Diep, the plaintiff and Mr. Pham, the defendant while you are making amendments to the agreement, correct? A. When…you mean I back and forth - -
151. Q. Yeah A. - - I run to do – yeah, between them they talk and in the conference rooms, yeah.
152. Q. So, I guess, what I am getting at here is that we got two guys, one guy saying, “hey, if I have to I’ll sell my house.” But then, notwithstanding that conversation, no one asked you to draft a security agreement, correct? A. Yes
153. Q. And we went over that already. I don’t mean to make it an issue, okay. So, but other than that one time, him saying, “yeah, I’d sell my house,” you never heard Mr. Pham say that again? A. No

48Mr. Diep also telephoned Ms. Vo in early March, 2015 and recorded that telephone conversation on his cell phone. His conversation with Ms. Vo was in the Vietnamese language, and he attached a translated transcript of that telephone conversation as exhibit E in his affidavit sworn on May 20, 2015. I do not put any weight on this transcript as the veracity of the translation of that conversation is unknown. Even if the statements apparently made by Ms. Vo are properly translated, I prefer to rely upon evidence that she has given under oath.

49I find Ms. Vo’s evidence supports a finding of credibility against Mr. Pham on the face of the record because of the inconsistency between their stories. Ms. Vo states that Mr. Pham told her on the telephone that his friend wished to invest $500,000 in Honeycomb for 500,000 shares. Yet Mr. Pham has deposed that Mr. Diep was interested in making an investment of $200,000 which he changed to $500,000 at the meeting, to his surprise. Mr. Pham’s credibility on the instructions he actually gave to Ms. Vo, and the purpose of asking her to draft a loan agreement instead of an agreement for the purchase of shares, is diminished as a result.

50I also find that Ms. Vo has conflated her opportunity to invest $200,000 in exchange for $200,000 shares in Honeycomb with the nature of the transaction between Mr. Diep and Mr. Pham.

51Ms. Vo would later decide against making an investment in Honeycomb herself after she had spoken with a lawyer.

52I find as a fact that the evidence given by Ms. Vo in paragraph 16 and 19 of her affidavit was only as good as the opportunity for her to hear the conversation between Mr. Diep and Mr. Pham on May 9, 2012. Ms. Vo was moving in and out of the room and did not hear the entirety of the conversation between the two men. I must also consider the evidence she gave on cross-examination that Mr. Pham stated unequivocally that he would sell his house if he had to repay Mr. Diep.

53I do not consider Ms. Vo’s explanation believable that the loan agreement characterizing Mr. Diep’s advance as a loan was necessary because of the prohibition against transferring shares in the HSA for three years. There was no need for Mr. Pham to require the fiction of a loan agreement to mask the executory promise to transfer shares to any third party. Their transaction was strictly between them as friends. There is no evidence of the nature of any inquiry the loan agreement was designed to avoid, or of the possible consequences that might follow if a breach was detected. Finally, I consider the justification described by Ms. Vo to draft an agreement of a different nature to protect Mr. Pham from contravening paragraph 5.2(g) without basis in fact or in law as Mr. Pham was not even a party to the HSA.

54Mr. Vo’s answers on cross-examination that neither party discussed a security agreement for the $500,000 Mr. Diep advanced is more telling as evidence that the advance was a loan to Mr. Pham than it is evidence in support of Mr. Pham’s position that it was not. If the transaction was intended to be a sale of shares that Mr. Pham could not transfer, Mr. Pham could have given Mr. Diep a trust agreement on behalf of B & P, which he could bind, to transfer shares B & P held in Honeycomb at a later date. There was no evidence of this structuring to the share sale at all before the court. The absence of a trust agreement where B & P would agree to hold shares in trust for Mr. Diep works against finding that Mr. Diep purchased shares of some description by the funds advanced.

55I therefore find that Ms. Vo’s evidence does not alter the true nature of the transaction as a loan.

56Mr. Pham argues that the circumstances surrounding the making and signing of the loan agreement does not exclude the application of the parole evidence rule, and that this court should consider those surrounding circumstances. In Sattva Corporation v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, the Supreme Court of Canada explained at paragraph 60 that:

[60] The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

57I have considered the factual matrix surrounding the making and signing of the loan agreement and the advance of funds by Mr. Diep to Mr. Pham. The contracting intentions of the parties in any case are inherently fact specific: Kentucky Fried Chicken v. Scott’s Food Services Inc, (1998), 41 D.L.R. (2nd) (Ont. C.A.). However, I find on the balance of probabilities that the surrounding circumstances support a finding that the contractual intent amounted to Mr. Diep lending, and Mr. Pham borrowing, the $500,000 at issue. This finding of fact is supported by the documents signed and exchanged that day. The loan agreement confirmed that this advance was a loan for Mr. Pham to repay, with interest, over a three year period. I also refer to the word “loan” on the memo line of the cheque that Mr. Diep gave to Mr. Pham.

58Mr. Pham has argued that, in the alternative, the loan agreement was made by mistake, and is inconsistent in its written form with the prior agreement between the parties to permit rectification. In Performance Industry Ltd. v. Sylvan Lake Golf and Tennis Club Ltd, (2002) 1 S.C.R. 679, the Supreme Court stated that the following four factors must be overcome for a party to successfully claim rectification:

a. The party seeking rectification must prove the “existence and content of the existent prior oral agreement”; b. The party must show that the written agreement is different than the prior agreement period they must also show that the non-mistaken party “knew or ought to have known of the mistake in reducing the oral terms to writing”; c. That party must “show the precise form in which the written instrument can be made to express the prior intention”; d. The party must demonstrate the above on the standard of “convincing proof”.

59There is no question that Mr. Pham has the burden of proof to satisfy the first part of the test in Sylvan Lake. From the review of evidence given by Mr. Diep and by Ms. Vo, he has not satisfied the requirement as the party seeking rectification to prove the existence or context of the existing prior oral agreement. Mr. Pham did not even serve a fresh affidavit in response Mr. Diep’s motion to support his argument for rectification.

60In respect of the other factors, the Supreme Court has stated that a court should only intervene and rectify a contract when refusing to so would allow a non-mistaken party to take advantage of that mistake, and that allowing such an advantage would “amount to fraud or the equivalent of fraud, such that it would be unconscientious for person to avail himself of the advantage obtained.” The Court stated that the overall objective of rectification of a contract is to restore the parties to their original bargain. The purpose is not to rectify an error belatedly detected by one party. As the Supreme Court explained, the task in a rectification case is corrective, not speculative in nature.

61There is no element of fraud alleged as against Mr. Diep, let alone evidence of fraud tendered to support this argument. The loan agreement was a written document Mr. Pham entered willingly; there was no mistake about it for him now to seek a corrective remedy.

62It is clear from the evidence given by the parties and by Ms. Vo that the loan agreement was the agreement the parties intended to sign on May 9, 2012. There was no mistake about what the parties had discussed and what they had agreed upon, let alone the form of the agreement they signed. I find there was no error or mistake that requires rectification. On these facts, rectification is not available to Mr. Pham.

Nature of the Transaction

63This court heard argument from Mr. Pham that Mr. Diep was purchasing 500,000 shares in Honeycomb that Mr. Pham was prohibited from transferring for three years pursuant to paragraph 5.2 (g) of the HSA. I conclude that Mr. Pham could not transfer shares in Honeycomb not because he was prohibited by the HSA, but because he never owned those shares at all.

64Mr. Fahmy relied heavily on an affidavit by Eaton Donald sworn on March 8, 2013 that describes how various holding companies formed by angel investors had injected funds into Honeycomb. This affidavit had been filed in support of an application to wind up Honeycomb in a proceeding commenced on February 28, 2013 on the Commercial List Court in Toronto.

65After hearing submissions and reviewing Mr. Donald’s affidavit filed on this motion as a collateral source of evidence, I note the following facts:

a) B & P was incorporated by Mr. Pham and Mr. Barnett just weeks prior to the incorporation of Honeycomb in December 2011. B & P was at all material times the holder of shares in Honeycomb. Mr. Pham was at all materials times a 50 per cent shareholder of B & P. Mr. Pham was never a shareholder in Honeycomb. b) B & P held only common shares in Honeycomb. c) Several of the angel investors who invested approximately $6.8 million in Honeycomb for the short time between its incorporation and the application to wind it up were preferred shareholders, with rights to be paid out in priority to any common shareholders.

66Mr. Pham had no shares to sell to Mr. Diep because he owned no shares in Honeycomb. B & P was the owner the common shares issued by Honeycomb, not Mr. Pham or Mr. Barnett. Although they were the shareholders of B & P, they personally held no property interest in the Honeycomb shares: McClurg v. MNR, [1990] 3 SCR 1020.

67Mr. Pham’s representation to Mr. Diep that he owned shares in Honeycomb that inflated his net worth was naive at best, and patently false at worst. The preferred shareholders who had invested funds in Honeycomb did not inflate the value of the common shares with their capitalization of the company. The value of those preferred shares was locked into the specific classes of those shares and did not inflate the value of common shares held by B & P. Mr. Pham was not an “instant millionaire”; his shares in B & P had exactly the same value they had before the angel investors purchased their preferred shares.

68Had I not found the loan agreement to reflect the true nature of the transaction between Mr. Diep and Mr. Pham, it is because of the nature of the purported sale of shares that I would have found in the alternative that Mr. Pham has been unjustly enriched at Mr. Diep’s expense. There was no juristic reason for Mr. Diep to advance funds in anticipation of purchasing Honeycomb shares from Mr. Pham because Mr. Pham owned no shares in that corporation to sell.

Mr. Pham’s Conduct

69Mr. Diep remains adamant that the loan agreement is evidence of the true nature of the $500,000 he advanced to Mr. Pham. He may have been excited about Mr. Pham’s role in Honeycomb, but Mr. Diep denies that he advanced those funds to purchase shares himself.

70Mr. Diep has given evidence that Mr. Pham asked for this loan to purchase equipment for Mr. Pham’s business, JRT Industries.

71Mr. Pham denies telling Mr. Diep he required the loan to fund JRT for the production of prototype generators. Mr. Pham states that there was no need to purchase equipment for the JRT shop. Mr. Fahmy made the submission that the evidence shows other investors were funding Honeycomb and meeting all of Honeycomb’s financial requirements to have the generator developed and manufactured.

72Mr. Pham further explained that he had no need of funds, and had no reason to borrow the money from Mr. Diep, because he was a millionaire by virtue of the shares in Honeycomb that B & P held, which he valued at $16 million. He rationalized that since shares in Honeycomb were initially valued at $1.00, half those shares held by B & P in Honeycomb gave him a personal net worth of at least $8 million. That rationalization had no merit, however, as Mr. Pham had no more access to funds than he had on the first day he incorporated B & P with Mr. Barnett.

73Mr. Pham was not a wealthy man. Ms. Duong has previously given evidence that Mr. Pham had encumbered their home by drawing $200,000 in 2007 on a secured line of credit to purchase his business. Ms. Duong also described how Mr. Pham had withdrawn an additional $62,000 from the joint line of credit in 2014.

74There is little, if any, evidence to show that Mr. Pham had any cash flow at the time he was a shareholder of B & P other than the $500,000 he borrowed from Mr. Diep. He spent that money like the millionaire he wasn’t. He purchased a Lamborghini for $299,000. He purchased two Rolex watches for wedding gifts, and a BMW for his daughter to drive. All were purchased with borrowed funds, all on borrowed time.

75Mr. Pham’s behaviour changed after Mr. Diep insisted on receiving payment from him. When Mr. Diep telephoned Ms. Duong to speak with Mr. Pham, she told Mr. Diep “he’s hiding from you.” I find as a fact that Mr. Pham knew that he owed money to Mr. Diep because the $500,000 was a loan, and Mr. Pham had purposely made himself scarce.

76Ultimately, Mr. Pham would sell the Lamborghini to his brother-in-law at a $30,000 discount. I draw the inference from the fact of that sale, the evidence of Mr. Diep’s persistent demands for repayment and the $100,000 Mr. Pham paid to Mr. Diep on August 3, 2013 that the car was sold to raise funds for Mr. Pham to repay Mr. Diep.

77It was incumbent on Mr. Pham to provide evidence that the $100,000 he paid to Mr. Diep in August 2013 was, as he put it, to re-purchase the shares in Honeycomb. He has not provided that evidence because he never owned those shares to sell in the first place, and because Honeycomb had been wound up by the time he repaid Mr. Diep. If he had paid Mr. Diep that lesser amount in full satisfaction of the indebtedness, he should have obtained a release.

The Position of Ms. Duong

78I propose to deal with only one aspect of Ms. Audet’s argument on behalf of Ms. Duong. Ms. Audet states that Mr. Diep’s claim against Ms. Duong and Mr. Pham under the Fraudulent Conveyance Act must go to trial in any event under the orders made by Justice Price. As Mr. Diep’s motion seeks summary judgment on the loan issue, she argues that the court must abide by the direction of the Court of Appeal to take the cautious approach to granting partial summary judgment in Butera v. Chown, Cairns LLP 2017 ONSC 783 and Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450.

79In Butera, the court reviewed its decisions in Baywood and in Canadian Imperial Bank of Commerce v. Deloitte and Touch, 2016 ONCA 922 with respect to the potential risk of duplicative or inconsistent findings at trial if partial judgment was granted, and whether granting partial summary judgment is advisable in the context of the litigation as a whole. In each of those cases, the court held that it was inadvisable to grant partial summary judgment.

80The court in Butera also noted that partial summary judgment raises other problems that run contrary to the stated objectives underlining the availability of summary judgment in Hryniak. I take this to mean those objectives that encourage summary judgment as a fair and just process to allow the court to adjudicate a dispute between the parties on the merits, compared to the fact finding process at a conventional trial. The court in Butera summarized its concern over defeating those objectives if partial summary judgment is not discouraged on the following terms:

1. Such motions cause a resolution of the main action to be delayed;
2. A motion for partial summary judgment may be very expensive;
3. Judges would be required to spend time hearing partial summary judgment motions and writing comprehensive reasons on an issue that does not dispose of the action entirely; and
4. The record available on hearing a motion for a partial summary judgment would likely not be as expansive as the record at trial, therefore increasing the danger of inconsistent findings.

81After highlighting these concerns, the Court of Appeal then states at paragraph 34 that a motion for partial summary judgment should be considered a rare procedure and reserved for an issue or issues as follows:

[34] When bringing a motion for partial summary judgment, the moving party should consider these factors in assessing whether the motion is advisable in the context of the litigation as a whole. A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner. Such an approach is consistent with the objectives described by the Supreme Court in Hryniak and with the direction that the Rules be liberally construed to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits.

82The first question to ask in this respect is whether Mr. Diep’s motion is actually a motion for partial summary judgment at all.

83As Ms. Duong was not a party to either the loan agreement between Mr. Diep and Mr. Pham on one hand, or the sale of shares in Honeycomb on the other, the issues for determination on these motions for summary judgment are entirely between those parties. This motion therefore disposes of substantially all of the claims made by Mr. Diep against Mr. Pham. Had Mr. Diep brought this motion against Ms. Duong as well, this argument would have greater weight, but he did not.

84Mr. Diep seeks judgment against Mr. Pham only, leaving those issues limited by the order of Justice Price to another day. Mr. Pham had already transferred his interest in the matrimonial home to Ms. Duong by the time Justice Price heard her motion for summary judgment to have the actions dismissed as against her. It is Ms. Duong who is at risk at a later time when those issues are litigated. Mr. Pham is exposed on those issues that could result in having the transfer set aside, at which time his interest in the property or its proceeds would be subject to any writ of seizure and sale to enforce a judgment. Therefore, the issues reserved by Justice Price in 2017 against Ms. Duong are not inconsistent with Mr. Diep’s current motion for summary judgment for the full amount of his claim against Mr. Pham.

85Second, even if the outcome of this motion can be characterized as partial summary judgment, I consider this motion to be one of those rare occasions where seeking partial summary judgment is appropriate because the issues that relate to the allegation of a fraudulent conveyance are not only identifiably separable and distinct, they have already been bifurcated from the issues relating to the nature of the transaction between Mr. Diep and Mr. Pham. Justice Price dismissed Mr. Diep’s claim against Ms. Duong in unjust enrichment, which removes any legal or equitable claim of indebtedness Mr. Diep could make as against her.

Conclusion

86I am satisfied that Mr. Diep has demonstrated on all the evidence that there is no genuine issue requiring a trial. He has proven on the balance of probabilities that the $500,000 he advanced to Mr. Pham on May 9, 2012 was a loan that Mr. Pham promised to repay him, with interest.

87Once the moving party satisfies the court there is no genuine issue requiring a trial to merit summary judgment, the evidentiary burden shifts to the responding party to show there is a genuine issue requiring a trial after all: Sanzone v. Schechter, 2016 ONCA 566 (Ont. C.A.). I find that Mr. Pham has not discharged that burden as the responding party. See also Kooner v. Augustin and Marsh, 2018 ONSC 7064.

88Mr. Diep is therefore granted summary judgment on his motion against Mr. Pham in the amount of $400,000. He is also granted pre-judgment interest at the rate agreed upon for the loan of 4.75% per year between May 9, 2012 and August 3, 2013 on $500,000 in the amount of $29,565, and interest on $400,000 at 4.75% per year between August 3, 2013 and the date of this judgment in the amount of $112,372.

89The motion for summary judgment that Mr. Pham has brought for the dismissal of this action as against him is dismissed.

90The parties are encouraged to resolve the issue of costs for both motions between them. If the involvement of the court is requested to award costs, the following shall apply:

1. Mr. Diep shall file written submissions by July 24, 2019.
2. Mr. Pham shall then have until August 9, 2019 to file responding submissions.
3. Any written submission shall consist of no more than three double spaced type written pages, not including offers to settle or any bill of costs.
4. No submissions in reply shall be permitted without leave.
5. All written submissions shall be sent by fax or by email to my judicial assistant, Ms. Melanie Powers, at 905-456-4834, or to Melanie.Powers@Ontario.ca in Brampton.

Emery J. Released: July 10, 2019

Footnotes

1. 1The first law of thermodynamics, also known as the Law of Conservation of Energy