COURT FILE NO.: CV-18-00597489

DATE: 20200129

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 and Calvin Zhang (student-at-law), for the Plaintiff

Jordan Goldblatt and Michele Valentini, for the Defendants

HEARD: January 13-17, 2020

REASONS FOR JUDGMENT

[1] Does the corporate purchaser of a property owe commission to the real estate agent who introduced a previous corporate purchaser to same property, where the first purchase aborted just before the second purchase agreement was signed?

I. The mini-trial

[2] On April 10, 2019, I issued an endorsement in a summary judgment motion brought by the Defendants move under Rule 20.01(3) of the Rules of Civil Procedure. I ruled that there be a trial of issues which could not be answered on a paper record alone: Re/Max Realtron Realty v 2458313 Ontario Inc., 2019 ONSC 2282 (“Re/Max 2019”).

[3] The issues that are the subject matter of this trial in aid of the summary judgment motion are:

(i) the ownership of the Defendants 2458313 Ontario Inc. (“245”) and 2524991 Ontario Corporation (“252”);

(ii) the intentionality of the Defendants in terminating 245’s Agreement of Purchase and Sale dated June 14, 2016 for the purchase from 8159432 Canada Corp. (“815”) of a property located at 409 Huron Street, Toronto (the “Property”); and

(iii) the decision by 252 to enter into the Agreement of Purchase and Sale dated June 28, 2016 to purchase the Property from 815.

[4] The trial of these issues spanned five days and involved the viva voce evidence of six witnesses. This mini-trial was done in aid of the summary judgment motion. Accordingly, the findings and reasons contained in Re/Max 2019 form an integral part of the current judgment.

II. Ownership of 245

[5] Five of the six witnesses at trial testified that they are owners, to one percentage or another, of 245. Qingxin “Newry” Shao, Zongqing “Cary” He, Zong Jiang “Logan” He, Mingxing “Reego” Xue, and Sheng Wei “John” Xue all testified that they own shares in 245 and were to be investors in the Property. The witnesses indicated that there was one other investor, Newry’s spouse Zoubo “Steven” Gu. He did not testify at trial, although Defendants’ counsel indicated that he was available if needed.

[6] The evidence of the five investor witnesses was that they had formed as an investor group in December 2015 when they together acquired a property at 220 McRae Street, Toronto. 245 remains the owner of the McRae property. Its shareholdings are described by Newry and each of the successive witnesses as divided into four groups of 25% each, as follows:

Cary and Logan – 25%

John – 25%

Reego – 25% (held through 2491498 Ontario Inc.)

Newry and Steven – 25%

[7] There is no question about this distribution of ownership; each of the witnesses confirmed that this 4-part division represents the investment of each of the shareholders in the McRae property. Any confusion over this arises not because the investors in 245 are unsure of their ownership, but because the corporate minute book of 245 is not an easy document to follow. It would seem that although the corporation was in existence since 2015, the directors, officers, and shareholders were not documented properly until sometime in 2018.

[8] Piecing the documentation together, it appears that the first directors of 245 were John and Logan’s spouse, Susan Wong. According to filings with the government of Ontario, the original incorporators of 245 were John, Reego, Susan, and Cary. There has been some jostling of directorships and officer positions over time; Susan’s involvement in the company, for example, came to an end in 2016. At present, the directors of 245 are recorded in the minute book as Newry, Steven, and Cary.

[9] In June 2016, Ming Ren, a real estate agent at the Plaintiff firm, introduced the Property to Newry and Steven, who in turn advised Mr. Ren that they would try to put together an investor group. There is no doubt in the record that Mr. Ren was aware of these efforts to put together other investors; indeed, Mr. Ren was put in touch with the 245 group of shareholders directly. The evidentiary record contains printouts from a WeChat digital messaging group in which Mr. Ren communicated about the Property directly with each of Newry, Steven, John, Cary, Logan, and Reego. Mr. Ren also conceded in discovery that he was cognizant of a broader investment group than just Newry and Steven, the two directors of 245 who he had initially approached.

[10] The investor group utilized 245 as the corporate vehicle under whose name to submit an offer for the Property through Mr. Ren. As indicated in Re/Max 2019, paras 2-3, on June 14, 2016 a Buyers Representation Agreement (“BRA”) was signed by Newry and Steven on behalf of 245 and Mr. Ren on behalf of the Plaintiff. The BRA, which by its terms was set to expire on December 13, 2016, entitled the Plaintiff to a 2% commission for any purchase of the Property by 245 during currency of the agreement and for 180 days after its expiry.

[11] On the same date as the BRA was signed, 245, in trust, entered into an Agreement of Purchase and Sale to buy the Property from its then owner, 8159432 Canada Corp. (“815”), for $6,650,000 (the “First Agreement”). Under the First Agreement, 245 as trustee purchaser was obliged to pay a deposit of $200,000. The evidence at trial established that the deposit monies came from the 245 investor group, as follows:

TD bank draft of $20,000.00 by Logan, drawn on his personal bank account;

HSBC bank draft of $66,000, from Newry/Steven, borrowed from a friend, Zenhong Wu;

TD bank draft of $80,000 from Reego, Logan and Cary, using funds from their separate company, R&C Energysaving Inc.; and

CIBC bank draft of $34,000, from John

[12] As each of the investors explained it, they had not yet determined on signing the First Agreement and paying the deposit for the Property what percentage ownership each would take in the Property. 245 was a trustee purchaser under the First Agreement for a company that would have been incorporated to take title had the deal proceeded to closing. At that point, the investor group would have determined among itself who was in and who was out, and in what percentages. The financial contribution of each would then have been calculated, taking into account the deposit advanced by the four groups as outlined above.

[13] The 245 investors were entirely transparent about this arrangement with Mr. Ren. In the WeChat messages he sent back and forth to the group, Mr. Ren was advised that some of the 245 shareholders were happier with the Property than others, and that the ones who were not impressed with the investment potential of the Property might ultimately not take part in the purchase.

[14] The testimony at trial and the documentary evidence in the record establishes clearly that everyone involved on the purchaser’s side of this transaction, including the real estate agent Mr. Ren, was aware of the nature and the people involved in the transaction. Mr. Ren understood that the 245 group comprised some or all of Newry, Steven, John, Cary, Logan, and Reego, but that pending the due diligence period and the ultimate closing of the deal the precise configuration of owners had not yet crystallized.

[15] It is Plaintiff’s theory of the case that there were no real investors in 245, and that the company was a hollow shell that Newry and Steven used for their own purposes. The evidence establishes that this was never the case. Indeed, the evidence conclusively demonstrates the fact that 245 was a real company, with a real group of investors beyond just Newry and Steven, and that Mr. Ren was completely aware of this fact.

[16] The WeChat exchanges show Mr. Ren discussing the 801 Agreement and the Property’s features with the entire 245 investor group, and taking direction from Carey, Logan, and others in addition to Newry and Steven. It is obvious that he knew that 245 was not a shell company manipulated by Newry and Steven for their own purposes.

[17] I do acknowledge that 245 was badly documented in its own internal minute book. That sloppy record keeping, however, was not what Mr. Ren relied on in dealing with 245, and it does not counter the knowledge that Mr. Ren had regarding the investors in this group.

[18] It is hard to understand why Plaintiff’s counsel would have contested a trial of this issue. The evidence establishing the real ownership of 245 comes from digital discussions in which Mr. Ren – the real estate agent responsible for the Plaintiff’s claim – was a full participant.

III. Intentionality in terminating the First Agreement

[19] Since Mr. Ren was a participant in the WeChat discussions among the 245 group, there was no hiding from him the purchasers’ intentions in both entering the First Agreement and terminating it.

[20] The First Agreement contained a conditional clause that gave the purchaser a 10-day grace period in which to satisfy itself with respect to its purchase of the Property. That conditional clause provided:

This Offer is conditional upon the Buyer arranging, at the Buyer’s own expense, due diligence satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provision for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto within ten (10) banking days after acceptance of this Offer, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

[21] As indicated, some of the 245 investors were more interested in the Property than others. The group visited the Property and determined that it was in rundown condition that would need substantial renovation. Reego testified that he was particularly concerned about the state of the Property after visiting it during the due diligence period, and had determined for himself that he would not invest in the acquisition of the Property unless he could study it more carefully and, possibly, get the seller to reduce the purchase price.

[22] The concerns of the 245 group were summarized for all of them and for Mr. Ren in a WeChat message from Logan. On June 22, 2016, Logan wrote to all of them:

(1) due diligence period to be 1 more month;

(2) We are concerned about our further development potential of this land due to this area is University district, and every single development has to adopt University’s opinion/motion. Therefore, it could be harder to develop a higher density then the rest of the city.

(3) Current condition of the building is in bad shape – no need to say this – everyone can see.

(4) Also, we would like to discuss the purchase price a little bit more.

(5) We need to add a few more terms in our APS for closing purposes, for example, we need to do a little TLC, and perhaps we need to install some appliances inside the units.

(6) We need 3 years of financial report.

[23] The various members of the 245 group inspected the Property. They also received from Mr. Ren copies of the rent rolls as well as a survey, financial statement, utility bills, insurance policy, and property tax assessment for the Property. All of this is documented in the record, showing that Mr. Ren sent these materials to all five investors.

[24] It is the Plaintiff’s theory of the case that the reason the transaction did not close and 245 pulled out of the deal before the due diligence period expired had nothing to do with any actual due diligence. Plaintiff’s view of the case is that 245 was a shell company with no real principals, and that Newry and Steven were using it as a vehicle to investigate the Property. Their intention, according to the Plaintiff, was to terminate the First Agreement in order to buy the Property under a different guise and directly from the seller, thereby avoiding payment of commission to the Plaintiff.

[25] As indicated, Reego was the least enthusiastic about the Property among the 245 investors. He testified that when he visited the Property to inspect it, he thought that it looked “broken”. The WeChat messages show him, along with Cary, inquiring whether the due diligence period can be extended. In cross-examination he explained that he was glad to be able to get out of the First Agreement as he did not think the deal would be profitable.

[26] On June 27, 2016, Mr. Ren prepared an amendment to the First Agreement which had an extended due diligence period. As the seller had already indicated that they were unlikely to accept that, he also prepared a Mutual Release for the buyer and the seller to sign. Although it was not necessary since under the conditional clause the First Agreement would expire automatically if 245 did not notify the seller that the condition was waived, Mr. Ren advised the 245 group that a Mutual Release was prudent. On instructions from the 245 group collectively via WeChat, Mr. Ren sent the documents to the seller.

[27] As predicted, the seller did not accept the amendment to the First Agreement, but did execute the Mutual Release. This put an end to the transaction between 245 and 815. The seller ultimately returned the deposit monies to 245.

[28] On examination for discovery, Mr. Ren conceded, as he had to with such a well-documented matter, that he understood that the decision to exit the transaction was not being made solely by Newry and Steven. Moreover, he conceded that the reason for the 245 group wanting to terminate the First Agreement was that the group as a whole was not satisfied with the results of their due diligence:

Q: You understood that Newry and Steven were part of a broader group of investors; right?

A: Mm-hmm.

Q: Yes? You understood that?

A: Yeah.

Q: And you knew that the decision about whether to proceed forward with the transaction was going to be made by that group?

A: Yeah.

Q: And you understood that that group wanted an opportunity to do its due diligence before deciding whether to proceed with the transaction; right?

A: Mm-hmm. Yes.

Q: And you also understood that by June 28th they decided they weren’t satisfied with the due diligence; right?

A: Yes.

Q: They wanted to exit the transaction; correct?

A: Yes.

[29] The upshot of this evidence is that the intentionality of terminating the First Agreement was obvious and well-known to Mr. Ren all along: the group of 6 individuals who were going to invest in the purchase under the First Agreement had done due diligence and were unsatisfied with the deal. This was made clear to Mr. Ren verbally and in writing on WeChat, and he acknowledged this fact on discovery.

[30] Again, now that I have seen the complete evidence it is unclear why the Plaintiff needed this issue to be tried. Although I was suspicious that there might have been an intention on the part of 245 to undermine the Plaintiff’s right to a commission under the BRA, it has become apparent that that is not the case. The trial evidence has confirmed what the documentary evidence that was already in Mr. Ren’s possession demonstrated and what the Plaintiff already knew.

IV. Subsequent purchase of the Property

[31] Also in June 2016, another potential purchaser, Jiayi He, was contemplating putting in an offer for the Property through her real estate agent, Bowen Li. Ms. He accompanied Mr. Li to the Property for a number of inspections, once bringing a construction expert to evaluate it. Mr. Li testified that he had met Ms. He in a social context and that he had no dealings with Newry or any of the other 245 investors. Mr. Li explained that he understood Ms. He and her spouse to be experienced real estate investors.

[32] During the course of preparing an offer to purchase on behalf of Ms. He, Mr. Li was advised by the seller’s agent that there was another offer on already on the Property. The agent told Mr. Li that he should in any case proceed with Ms. He’s offer, as the seller had indicated that he “didn’t have a good feeling” about the other offer. The seller and its agent did not reveal the identity of the other offer, and Mr. Li testified that he did now know 245 or its principals.

[33] Mr. Li ultimately presented his client’s offer to the seller on June 28, 2016. The initial purchase price offered by Ms. He was $6,188,888.00. This was signed back and forth between the owner, 815, and Ms. He five different times, resulting in a negotiated contract dated June 28, 2016 for the purchase of the Property by Jiayi He, In Trust, for $6,520,000 (the “Second Agreement”). The Second Agreement contained a clause requiring 815 to obtain a release from the other buyer (i.e. 245).

[34] As already indicated, the 245 investors as a group became uninterested in the Property during the course of their due diligence investigation. Unlike their colleagues, however, Newry and her spouse, Steven, had a more positive impression of the Property and its investment potential. did remain personally interested in acquiring the Property.

[35] In the days before June 28, 2016 when the First Agreement was terminated, Newry was put in touch with Ms. He. The seller knew that Newry and Ms. He were each interested in the Property, and that each were investors looking to put together a group to acquire the Property as an investment. Newry testified that she was prepared to invest jointly with Ms. He if Ms. He was willing to work with her and provide the other half of the funds needed for the investment.

[36] In anticipation of the possibility of going into a new venture, Steven and Ms. He incorporated the Defendant, 2524991 Ontario Corporation (“252”), on June 27, 2016. The percentage ownership and details of the co-investor relationship between Newry/Steven and Ms. He and whatever group she would put together had not yet been finalized, however, and so the Second Agreement was signed in the name of Jiayi He, In Trust.

[37] Ms. He, through Mr. Li, conducted all of the purchase negotiations leading to the Second Agreement. Mr. Li testified that the many iterations of the Second Agreement, and the detailed working out of various clauses and the price sign-backs, were done by him on Ms. He’s instructions. He did not take instructions from Newry or Steven.

[38] Several months later but still over a month before closing, on November 4, 2016, Ms. He and 815 signed an Amendment to the Second Agreement changing the purchaser’s name from Jiayi He, In Trust to 252. At that point, Ms. He and her spouse, Jackie Chen, were registered as directors of 252.

[39] A $200,000 deposit for purchase of the Property was required under the Second Agreement. The evidence before me establishes that this deposit was paid in a number of installments, as follows:

HSBC bank draft for $2,000, drawn on Newry and Steven’s HSBC account;

CIBC bank draft for $50,000, paid by 9692541 Canada Inc., a loan from Bowen Li’s wife through her corporation to Jiayi He;

TD bank draft for $148,000, paid by Newry and Steven from their TD account.

[40] The evidence also establishes that further contributions to the purchase price under the Second Agreement came from the following sources:

$150,00 bank transfer from a Vancouver branch of TD Bank (where Ms. He’s mother-in-law, Ai Ze Du, resides) dated September 29, 2016

$150,000 cheque dated October 8, 2016 from Ms. Du to Gary Shapiro, In Trust

$161,100 bank draft dated December 8, 2016 from Ms. Du to Gary Shapiro, In Trust

$1,685,000 cheque dated Dec. 14, 2016 to 252’s lawyer, Gary Shapiro, In Trust, from Ms. Du

$3,796,100 cheque from Brattys LLP to Gary Shapiro, In Trust representing mortgage funds arranged by Steven with Duco Financial

[41] At the time of closing of the Second Agreement, on December 20, 2016, the registered shareholders of 252 were Newry and Ms. Du, with each owing 50% of the shares. Plaintiff’s counsel notes that the corporate minute book of 252 shows that the following day, Ms. Du’s shares were transferred to Steven, and that he held them for some 10 months before transferring them back to Ms. Du on October 11, 2017. It is the Plaintiff’s view that this is a mysterious series of transactions, and that it indicates that 252 is somehow not what it appears to be.

[42] Newry testified that the reason Ms. Du transferred her shares to Steven was to assist Steven in obtaining mortgage financing for the Property. Since Ms. Du does not live in Ontario and Steven is an active real estate investor in Ontario, the two of them agreed that Steven should be in a position to represent himself as an owner of shares when he negotiates with any Ontario-based financial institution.

[43] According to Newry – and there is nothing in the record that contradicts her on this – Ms. Du had invested a substantial amount of her own money in the Property and the share transfer did not represent her giving up her beneficial interest in 50% of 252. This 50-50 shareholding between Newry and Ms. Du is reflected in the 252 corporate minute book and in a Shareholders Agreement with respect to the investment in 252.

[44] The most recent corporate filings for 252 appear to show Steven and Jackie Chen as the two directors of the company. They also show the following officers and titles:

Ai Ze Du - President

Qingxin (Newry) Shao – Secretary

Bing Xu (Jackie) Chen – Chief Executive Officer

Jiayi He – Authorized Signing Officer

[45] Plaintiff’s counsel puts much weight on the coincidence of Newry and Steven, two principals of 245, being heavily involved in 252. However, it is obvious from the corporate records and the flow of payments into 252’s purchase of the Property that they were not alone. It is equally obvious that the ownership and the directorship/management of 252 is shared between the two groups of investors – i.e. Newry/Steven and Ms. He/Ms. Du. Finally, now that all of the corporate and financial details are in the record, it is obvious that while Newry and Steven are involved in 252, none of the other 245 principals are involved in 252 in any way.

V. Piercing the corporate veil

[46] Counsel for the Plaintiff submits that 252 owes commission to the Plaintiff under the BRA signed by 245. In order for that to be the case, the two companies would have to be the same identity in disguise. That analysis, in turn, involves piercing the corporate veil. Otherwise, the two corporations, like all other corporate personalities, are separate legal entities and are not responsible for each other’s contractual obligations.

[47] As the Court of Appeal pointed out in Shoppers Drug Mart Inc. v 6470360 Canada Inc., 2014 ONCA 85, para 43, quoting 642947 Ontario Ltd. v Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 OR (3d) 417, para 68, one must first establish wrongful conduct before the corporate form can be disregarded in an analysis of liability:

Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if and when incorporated ‘those in control expressly direct a wrongful thing to be done’: Clarkson Co. v. Zhelka at p. 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co (1996), 1996 CanLII 7979 (ON SC), 28 OR (3d) 423 at pp. 433-34 (Gen Div), aff’d [1997] OJ No 3754 (CA): ‘the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.’

[48] The requirements for piercing the corporate veil have more recently been elaborated upon in Yaiguaje v Chevron Corp., 2018 ONCA 472, para 70, where the Court of Appeal reiterated the foundational principle that the separate identity of corporations is the rule, not the exception:

The Transamerica test is consistent with the principle reflected in the various business corporation statutes in Canada that corporate separateness is the rule. Where the corporate form is being abused to the point that the corporation is not a truly separate corporation and is being used to facilitate fraudulent or improper conduct, the law recognizes an exception to this rule.

[49] The Court went on to identify those instances where it is likely to look through the corporate form to identify who is behind the corporation. These include, at para 65:

(1) When the court is construing a statute, contract or other document;

(2) When the court is satisfied that a company is a ‘mere façade’ concealing the true facts; and

(3) When it can be established that the company is an authorized agent of its controllers or its members, corporate or human.

[50] These criteria are not met in the case before me. One cannot, on the evidence here, conclude that 252 is a “mere façade” for 245, or that either company is nothing more than the authorized agent of its members. The two companies have overlapping, but not identical shareholders and directors/officers. Newry and Steven are 25% of 245 and 50% of 252, and are not a majority of directors or officers of either company. They do not alone control either company, nor do they represent the directing mind and will of either company.

[51] There was obviously poor record keeping by 245. But that does not create facts that assist the Plaintiff. Piercing the corporate veil is not only inapplicable in these circumstances, but it will do the Plaintiff no good. If we were to pierce through 252, we would not find 245 and would find substantially more than Newry and Steven.

[52] Whatever one wants to make of the testimony and documentation describing the ownership and decision-making structure of 245, it does not include Ms. Du, Ms. He, or Mr. Chen. That is an entirely separate group that contributed half the funds to the 252 acquisition of the Property, has a majority of the corporate officers, owns 50% of the shares, and alone negotiated the Second Agreement on 252’s behalf. The two corporate entities are not the same by any measure.

[53] Likewise, none of the specific causes of action pleaded by the Plaintiff – interference by unlawful means, conspiracy, breach of duty of good faith in contractual performance – are applicable here. They all involve either intentionality or some underlying wrongdoing.

[54] As already indicated, the intention of 245 in terminating the First Agreement was not to save commission on the Second Agreement. For both the intentionality component and the wrongfulness component of these causes of action, the impugned conduct must be wrongful in law and must be “directed toward the respondents” in the sense that it was intended to undermine their rights: Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, para 26, 33. There is no evidence to support the Plaintiff’s theory that the 245 principals acted outside the scope of their rights under the First Agreement or the BRA, or that they, or Newry and Steven in particular, acted out of an intention to procure a breach of contract: see Coorreia v Canac Kitchens, 2008 ONBCA 506, para 105.

[55] As already indicated, 245 was within its rights in terminating the First Agreement, and did so without intending to harm or interfere with the rights of the Plaintiff. Likewise, 252 was within its rights to make an offer and enter the Second Agreement using its own real estate agent and without going through the Plaintiff, and it was a different entity reflecting different economic interests than 245. Under the circumstances, there is no reason to pierce the corporate veil of these two companies, or to find 252 liable for an agreement signed only by 245.

VII. Disposition

[56] The Plaintiff’s action is hereby dismissed.

[57] The parties may make written submissions on costs.

[58] I would ask that Defendants’ counsel provide me with submissions (2 pages maximum) within two weeks of today, and that Plaintiff’s counsel provide me with submissions (2 pages maximum) within two weeks thereafter. Submissions may be sent by email to my assistant. There is no need for a paper book of authorities if full citations are provided for any cases referenced.

Date: January 29, 2020 Morgan J.