COURT FILE NO.: CV-20-00643170

DATE: 20210615

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: YIFENG DONG Plaintiff

AND:

ZHIWEI LIU, also known as STEVEN LIU Defendant

BEFORE: Mr. Justice Chalmers

COUNSEL: A. Ostrom, for the Plaintiff

HEARD: In Writing

ENDORSEMENT

Overview

[1] The Plaintiff, Yifeng Dong brings this motion in writing for default judgment.

[2] Mr. Dong states that he entered into a Unanimous Shareholder’s Agreement with the Defendant, Zhiwei Liu dated September 1, 2019 (the “USA”). Pursuant to the USA, Mr. Dong purchased a 7% minority shareholding interest in the shoe-retail business operated by the Mr. Liu known as Sneaker House Inc. for $105,000. Less than two months after advancing the funds, Mr. Liu permanently closed the business and liquidated the assets. The USA contained a rescission clause which provides that if the income of the business decreases by 15% or more per month for more than four consecutive months, Mr. Dong is entitled to a return of the investment.

[3] The Statement of Claim was issued on June 29, 2020. Efforts to serve Mr. Liu were initially unsuccessful. It was determined that Mr Liu was living in the Vancouver area. On July 24, 2020, Mr. Liu was served personally in British Columbia. The Claim was amended to comply with Rule 17.04(1). Efforts to personally serve Mr. Liu with the Amended Statement of Claim were unsuccessful. The Plaintiff delivered the Amended Claim to Mr. Liu by e-mail on March 1, 2021. Master Jolley granted an order dated March 13, 2021 validating service on the Defendant by e mail. The Defendant did not respond to the Claim and was noted in default on April 9, 2021.

[4] This motion came before me in Short Motion Triage. By endorsement dated April 20, 2021, I ordered the Plaintiff to serve the motion record and a copy of my endorsement on the Defendant on or before May 3, 2021. The Defendant had until May 21, 2021 to notify Plaintiff’s counsel that he intends to respond to the Claim. If there was no response, the motion was to proceed in writing the week of May 31, 2021.

[5] The Plaintiff filed the motion record for the motion is writing. By endorsement dated June 2, 2021, I requested proof of service of the Motion record on the Defendant. I stated that service may be by e-mail in accordance with Master Jolley’s order dated March 13, 2021. On June 4, 2021, Plaintiff’s counsel forwarded his Affidavit of Service confirming service of the motion record, factum and my endorsement on the Defendant by e-mail on April 21, 2021. I am satisfied that the Defendant was advised that the Claim is about to be considered by the court: Casa Manila Inc. v. Iannuccilli, 2018 ONSC 7083, at para. 16 and 18. The Defendant chose not to respond to the motion.

Background Facts

[6] In August 2019, there was an advertisement on WeChat seeking an investor to purchase a 10% interest in the Sneaker House. The advertisement had been posted by Mr. Liu. Mr. Dong met with Mr. Liu to discuss the investment. Mr. Liu advised that the Sneaker House had paid up capital of $1,500,00, earned gross revenues of approximately $200,000 per month and the net profits over a six-month period were $100,000. Mr. Dong agreed to invest $105,000 for a 7% interest in the business.

[7] On September 1, 2019, the parties entered into the USA. The USA provides, among other things, that all decisions of the shareholders and directors must be unanimous. The USA also provides that if the net income decreases by 15% or more per month for more than four consecutive months, Mr. Dong may withdraw his investment after deduction of his proportionate share of rent and personnel expenditures.

[8] Mr. Dong made payments to Mr. Lui; $52,500 on September 3, 2019 and $27,500 on September 9, 2019. Mr. Dong arranged for his friend, Qiong Jiang to pay the remaining $25,000 on his behalf on September 13, 2018. On October 19, 2019, Mr. Dong received an e-mail money transfer in the amount of $2,119.32 which was purportedly Mr. Dong’s share of the dividends from the Sneaker House.

[9] In late October or early November 2019, Mr. Liu informed Mr. Dong that the Sneaker House was temporarily closed as the premises were being redecorated. Mr. Dong later learned that the landlord had terminated the lease. Apparently, no rent had been paid after Mr. Dong’s investment.

[10] On November 11, 2019, the parties entered into a subsequent agreement. Mr. Liu agreed to pay Mr. Dong the amount of $1,650 per month to compensate him for the dividends he ought to have earned. The payments were to start in November 2019. The subsequent agreement also provides that Sneaker House will resume operations within three months from a physical retail location, and that if it does not, Mr. Dong shall have the right to request a full refund.

[11] Mr. Liu made payments of $1,650 for three months. No payments were made after January 15, 2020. On February 6, 2020, Mr. Liu advised Mr. Dong that he unilaterally decided to close the business. Mr. Dong had not been consulted and had not agreed to the closure of the business. On February 22, 2020, Mr. Dong invoked the right of rescission set out in the USA. Mr. Liu did not return Mr. Dong’s investment in accordance with the terms of the USA.

The Issue

[12] The following issues are to be determined on this motion:

a. Is the Plaintiff entitled to default judgment?

b. What are the damages?

Analysis

Is the Plaintiff entitled to default judgment?

[13] Pursuant to R. 19.02, a defendant who has been noted in default is deemed to admit the truth of the allegations of fact contained in the Statement of Claim.

[14] It is alleged in the Statement of Claim that Mr. Liu made false representations with respect to the earnings and profits of the Sneaker House. It is also alleged that the representations were made with the intention that Mr. Dong would act on the representations and invest in the company. The USA allows Mr. Dong to withdraw his investment if the net income decreases by more than 15% or more for 4 consecutive months. Sneaker House ceased operations less than 2 months after Mr. Dong made his investment. Although Mr. Dong invoked the recession clause, Mr. Liu has not returned the investment.

[15] I am satisfied that the Plaintiff has established that the USA was breached by Mr. Liu.

[16] The parties entered into the subsequent agreement on November 11, 2019. Mr. Liu agreed to pay the amount of $1,650 per month and to resume operations in a physical retail location within 3 months, failing which Mr. Dong would be entitled to a full refund. The Sneaker House did not resume operations in a physical retail location and instead ceased operations on February 6, 2020. Mr. Liu made the payment of $1,650 for a period of three months. No payments have been made since January 15, 2020.

[17] I am satisfied that the Plaintiff has established that the subsequent agreement was breached by Mr. Liu.

[18] In addition to the claim for breach of contract, Mr. Dong advances a claim for fraudulent misrepresentation. Mr. Liu represented that there was paid up capital of $1,500,000, that it earned gross revenues of $200,000 per month and earned net profits of $100,000 over a six-month period. Based on the deemed admissions in the Statement of Claim, those representations were false. The falsity of the representations is also supported by the fact that the Sneaker House was locked out of its leased premises for non-payment of rent less than two months after Mr. Dong invested in the business.

[19] I find Mr. Liu liable to Mr. Dong in fraudulent misrepresentation. I also find that Mr. Liu acted in a manner that is oppressive, unfairly prejudicial to, or that unfairly disregards the interests of Mr. Dong.

What are the Damages?

[20] Mr. Dong is entitled to damages in the amount of $105,000. This is the amount advanced by Mr. Dong to Mr. Liu pursuant to the USA. There is to be an adjustment in this amount to take into account his proportionate share of the rent and personnel payments. No rental payments were made after Mr. Dong’s investment in September 2019. There is no indication that there were any personnel expenses over this period.

[21] Pursuant to the subsequent agreement, Mr. Liu agreed to remit payment in the amount of $1,650 each month commencing November 2019 and continuing until Sneaker House has resumed operations from a physical store. The payment was made for three months and ceased on January 15, 2020. In the factum, the Plaintiff states that the agreement to pay $1,650 per month pending the resumption of the normal operations, amounts to an agreement on contractual interest to be paid pending the return of Mr. Dong’s investment. In the Statement of Claim, the Plaintiffs seeks an order for payments in the amount of $1,650 per month for the period from January 2020 until the judgment awarded to the Plaintiff has been collected.

[22] The subsequent agreement provides that the monthly payment of $1,650 is in addition to Mr. Dong’s right to a full refund. The subsequent agreement provides as follows:

Shareholder 1, Zhiwei Liu must pay shareholder 2 Yifeng Dong $1650 compensation before 15^th each month (starts from 2019 November). In addition, shareholder 1 Zhiwei Liu promised within 3 months physical store will be normal business. If the physical store cannot report the normal business within three months before February 15, 2020, shareholders 2 Yifeng Dong has the right to request shareholder 1 Zhiewei Liu to withdraw the capital and refund in full. The refund period shall be based on the time of communication between lawyers of both shareholder and shareholder 1 and Zhiwei Liu should fully cooperate. (emphasis added)

[23] I am satisfied that Mr. Dong is entitled to the payment of $1,650 per month. The amount owing from January 15, 2020 to the date of this endorsement is $28,050 (17 x $1,650).

[24] The subsequent agreement does not provide that the payment of $1,650 is contractual interest on the amounts owing to Mr. Dong. The USA and the subsequent agreement do not include a provision for the payment of interest on any amounts owing pursuant to the agreements. I am of the view that the Plaintiff is not entitled to pre-judgment interest on the amounts owing pursuant to the USA and subsequent agreement. The Plaintiff is entitled to post-judgment interest at the rate set out in the Courts of Justice Act.

[25] The Plaintiff seeks partial indemnity costs in the amount of $4,556.16 for fees inclusive of HST and $2,453.93 for disbursements inclusive of HST. I am satisfied that the amount claimed in fees is fair and within the reasonable expectations of the Defendants. The amount claimed in disbursements includes the skip trace fee of $850 which was required to locate Mr. Liu. The disbursements also include additional costs to serve Mr. Liu and to file a motion for substituted service. The additional disbursements were related to the failure of Mr. Liu to accept service of the court documents. I find the amount claimed in disbursements is reasonable. The Plaintiff is entitled to costs fixed in the amount of $7,000, inclusive of counsel fee, HST and disbursements.

Disposition

[26] I make the following order:

a. The Defendant shall pay to the Plaintiff the sum of $105,000, refunding the amount invested pursuant to the USA;

b. The Defendant shall pay to the Plaintiff the sum of $28,050, which is $1,650 per month from January 15, 2020 to June 15, 2021;

c. The Defendant shall pay to the Plaintiff his costs fixed in the amount of $7,000 inclusive of counsel fee, disbursements and HST; and

d. The judgment shall bear post-judgment interest at the rate of 2% per annum commencing on June 15, 2021.

[27] Order to go in accordance with the draft order filed and signed by me.

DATE: JUNE 15, 2021