Court File and Parties
COURT FILE NO.: CV-11-417585
DATE: 20210803
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MEGA INTERNATIONAL COMMERCIAL BANK (CANADA)
AND:
JOHN CHIN LEE and MARY NING-SHENG HUANG
BEFORE: Vermette J.
COUNSEL: Deborah Squires and David Goodman, for the Plaintiff
John Chin Lee, self-represented
HEARD: July 30, 2021
ENDORSEMENT
[1] The Plaintiff, Mega International Commercial Bank (Canada) (“Bank”), has brought a motion to dismiss the counterclaim in this action, as well as a counterclaim and a crossclaim in a related action, which were all brought by the Defendant John Chin Lee.
[2] Mr. Lee has brought a cross-motion for the disclosure and production of certain banking information by the Bank, and for an order against the Ministry of Government and Consumer Services to revive the corporation Hing Loong Investments Limited (“Hing Loong”).
Factual Background
a. Loan to Hing Loong and sale of the Property
[3] In May 2004, Hing Loong entered into an agreement with the Bank pursuant to which the Bank loaned it the sum of $5.5 million. The loan was secured by a mortgage registered on title to properties municipally known as 241-247 Spadina Avenue in Toronto (“Property”). Hing Loong was the registered owner of the Property.
[4] The Defendants John Chin Lee and Mary Ning-Shen Huang were directors and officers of Hing Loong and guarantors of the indebtedness of Hing Loong to the Bank. It is alleged in the Statement of Defence and Counterclaim filed in this action that they were equal shareholders of Hing Loong. Ms. Huang has passed away since the beginning of the litigation.
[5] Hing Loong’s certificate of incorporation was cancelled in the spring of 2006 pursuant to section 241 of the Business Corporations Act, R.S.O. 1990, c. B.16 (“Act”) because it was in default of complying with the Corporations Tax Act, R.S.O. 1990, c. C.40. Hing Loong’s corporation profile report indicates that Ms. Huang and Mr. Lee were directors, Ms. Huang was President and Mr. Lee was Treasurer.
[6] Hing Loong’s loan went into default in late 2006 (i.e. after its certificate of incorporation was cancelled). In the fall of 2010, the Bank completed the sale of the Property to third party purchasers under the power of sale contained in the mortgage executed by Hing Loong.
[7] The Bank alleges that after the sale of the Property, there was a deficiency of $1,107,116.45 and that Hing Loong has failed to repay this deficiency. The Bank made demand upon the Defendants as guarantors on their written guarantees, but the Defendants have not paid the Bank.
b. Litigation
[8] The Bank commenced this action against the Defendants for payment of $1,107,116.45 plus interest and costs in January 2011, many years after Hing Loong’s certificate of incorporation was cancelled.
[9] Mr. Lee served a Statement of Defence and Counterclaim in late June 2011. Ms. Huang did not defend the action and was noted in default in December 2017. In his Statement of Defence and Counterclaim, Mr. Lee alleges the following, among other things:
The defendants states [sic] that if default occurred under the mortgage, such default was a direct result of the actions of the plaintiff in reneging on a promise to refinance the property, causing the collapse of the other refinancing arrangement with the third parties and freezing the bank account of the defendants effectively putting them out of business.
The defendants state that if loss occurred on the sale of the property, such loss was occasioned by improvidence [sic] sale of the buildings.
At the date the plaintiff took the possession of the buildings, their market value was $17,780,000 and the buildings were undergoing renovations calculated to increase their values. The Plaintiff mismanaged properties. They failed to put adequate security and property management in place, allow [sic] damage to occur to the buildings and fail [sic] to repair the damage allowing the buildings to deteriorate so as to reduce their values, and refusing or neglecting to collect rents in the amount of $2,000.000 from the existing tenants which rents could have been applied to the mortgage or repair the buildings. The plaintiff failed to apply for property tax vacancy rebate in the amount of $600,000, and fail [sic] to pursue an insurance claim for damages to the basement of 247 Spadina Avenue caused by the main floor supermarket tenant in the amount of $350,000.
The defendants state that the plaintiff has failed to discharge its obligation as a mortgagee in possession to act as a prudent owner.
Despite repeated request by the defendant, the plaintiff has refused or neglected to date to provide a proper accounting its possession and sales of the properties.
As result of these actions by the plaintiff, the defendants’ investments in Hing Loong Investments Ltd., 1703459 Ontario Inc., and other entities carrying on businesses in the buildings has been lost in the amount of $19,453,833, and their liabilities to the subsequent encumbrancers and former tenants remain unpaid.
The defendants states [sic] that their indebtedness is subject to set-offs that are equal to or greater than the amount presently outstanding.
[10] In his counterclaim, Mr. Lee claims the following against the Bank:
a. damages in the amount of $19,453,833;
b. an accounting by the Bank of its occupation and sale of the Property; and
c. set off of the amount recovered in the counterclaim against any judgment recovered by the Bank.
[11] The allegations contained in the counterclaim in support of the relief sought by Mr. Lee relate to Hing Loong’s mortgage with the Bank, subsequent mortgagees of the Property and leases in place at the Property. The counterclaim states that the Defendants “plead and rely on the allegations set out in the statement of defence”, are the beneficiaries of Hing Loong and 1703459 Ontario Inc., and are entitled to share equally in any judgment recovered against the Bank.
[12] In its Statement of Defence to Counterclaim, the Bank pleads, among other things, that if any of its actions caused the damages alleged by Mr. Lee, which it denies, then Mr Lee’s claim is improperly advanced because the claims are those of Hing Loong and/or 1703459 Ontario Inc., not the claims of the Defendants personally.
[13] This action has been ordered to be tried with two other actions that were brought against the Bank by subsequent mortgagees. In one of these actions brought by Edison and Nancy Wu in 2012, Court File No. CV-12-464526 (“Wu Action”), Hing Loong, Mr. Lee and Ms. Huang are also defendants. In the Wu Action, Mr. and Ms. Wu’s claim against the Bank is for “loss and damages arising from the improper and negligent exercise of its rights, and corresponding failures to fulfill its obligations, as mortgagee in possession and in the sale of [the Property]”. The claim against Hing Loong is based on its covenant to pay contained in the mortgages held by Mr. and Ms. Wu, and Mr. Lee and Ms. Huang are sued as guarantors of Hing Loong’s indebtedness.
[14] In January 2013, Mr. Lee served a Statement of Defence, Counterclaim and Crossclaim in the Wu Action, which purports to be on behalf of Ms. Huang and Hing Loong in addition to Mr. Lee. The counterclaim is against both the Bank and the Plaintiffs in the Wu Action and seeks damages in the amount of $19,453,833 (i.e. the same amount as in the counterclaim in this action) and set-off. The allegations in the counterclaim are almost identical to the allegations in the Statement of Defence and Counterclaim in this action.
[15] The crossclaim in the Wu Action is for indemnity and contribution against the Bank. The pleading alleges that the subject matter of the crossclaim is the counterclaim in the action commenced by the Bank (i.e. this action). It states that the Bank “has acted in bad faith as mortgagee and failed to act as a prudent owner as mortgagee in possession pursuant to a power of sale” and that, as a result, the Defendants have suffered the losses claimed by the Plaintiffs in the Wu Action.
c. January 2020 pre-trial conference
[16] In January 2020, the parties participated in a pre-trial conference with Justice Archibald. Justice Archibald made the following orders, among others:
a. By March 1, 2020, Mr. Lee may bring a motion under Rule 15.01(2) seeking leave to represent Hing Loong.
b. By the same date, Mr. Lee may bring a motion under Rule 26 to amend his counterclaim, after first having revived Hing Loong “which company is presently moribund”.
c. The Bank shall use best efforts to provide Mr. Lee with copies of all of his and Hing Loong’s banking statements and documents forthwith.
d. Mr. Lee shall advise the Bank’s solicitors by February 26, 2020 “whether he is willing to consent to dismiss the action and counterclaim as it relates to him and his co-defendant without costs.”
[17] Justice Archibald also wrote the following in the pre-trial report: “If Mr. Lee is still involved, there will be a motion at trial concerning his standing.”
d. Subsequent events
[18] On September 4, 2020, after a number of requests by Mr. Lee and the exchange of many e-mails, the Bank sent to Mr. Lee copies of Hing Loong’s bank statements for the period January 1, 2006 to December 31, 2006. The Bank had first indicated to Mr. Lee that there were no statements available “from 2007”.
[19] Mr. Lee also requested copies of bank statements for other corporations/entities (which I understand to have been tenants at the Property). The Bank’s response in its affidavit evidence is twofold: it does not have bank statements for these entities (either it never had a bank account for the entity or does not have bank statements going back that far) and/or it cannot release the information to Mr. Lee because of banking confidentiality rules. There is no evidence before me that Mr. Lee is or was a director or officer of the other corporations for which he requested bank statements, or that he had signing authority for them.
[20] This matter was scheduled to go to trial on June 7, 2021. On June 4, 2021, the parties were before me for the hearing of the Bank’s motion to dismiss the counterclaim in this action. For the reasons set out in my endorsement dated June 4, 2021, both the trial and the motion were adjourned at that time. The Bank’s motion was made returnable on July 30, 2021, together with two other motions: (a) a motion to be brought by Mr. Lee against the Bank for the production of banking records in relation to his attempt to revive Hing Loong; and (b) a potential motion to be brought by Mr. and Ms. Wu to dismiss the counterclaim against them in the Wu Action. Since Mr. and Ms. Wu did not bring a motion, the only motions before me are the Bank’s motion and Mr. Lee’s motion.
[21] It appears from the evidence that, aside from requesting bank records that he says he needs to prepare Hing Loong’s corporate tax returns, Mr. Lee only started taking formal steps to revive Hing Loong after the attendance before me on June 4, 2021. Mr. Lee has revived at least one corporation in the past and has general knowledge of what is required to be done to revive a corporation. In order to revive Hing Loong, Mr. Lee is required to obtain, among other things, the consent of the Minister of Finance. On June 10, 2021, he sent a letter to the Ministry of Finance and inquired whether they would be willing to issue a consent to revive Hing Loong without first requiring the filing of Hing Loong’s outstanding tax returns. While there is no written response to this letter in the record, Mr. Lee advised at the hearing of the motion that he heard back from the Ministry and that they answered his inquiry in the negative.
[22] On June 14, 2021, Mr. Lee sent an e-mail to a senior examiner at Service Ontario asking whether a court order could waive the requirement of consent from the Minister of Finance, and what wording such an order should have. The person responded that there was no specific wording, but that “the Court Order will have to indicate that they are Ordering the Ministry of Government and Consumer Services, ServiceOntario to Revive the corporation on such and such a date.”
[23] At the hearing, Mr. Lee said that he estimated that, absent a court order, it would take a number of months (more than four) before Hing Loong could be revived.
Discussion
a. Mr. Lee’s motion
[24] Mr. Lee’s motion is for the production of certain banking information by the Bank, and for an order against the Ministry of Government and Consumer Services to revive Hing Loong.
[25] Dealing first with the request for an order to revive Hing Loong, Mr. Lee was unable to point to any statutory or other authority giving the court the jurisdiction to make such an order. Subsection 241(5) of the Act provides that it is the Director appointed under the Act who has the power to make an order revoking a dissolution order made under subsection 241(4) for non-compliance. Under the Act, the court does not have any role to play in this process.
[26] Even if I thought that I could make the type of order requested by Mr. Lee, which I do not, I would decline to make such an order without notice of this motion being given to the Ministry of Finance and in the absence of evidence regarding, among other things, what the Ministry requires to provide its consent to the revival of Hing Loong, and the reasons for which the Ministry is not prepared to provide its consent without first requiring the filing of Hing Loong’s outstanding tax returns.
[27] The fact that an employee of Service Ontario appeared to entertain the idea of a court order of the type sought by Mr. Lee in an e-mail exchange is neither here nor there and does not give me the power to make such an order.
[28] Mr. Lee has been aware since the Bank served its Statement of Defence to Counterclaim in July 2011 that the Bank’s position was that he was improperly advancing claims of Hing Loong. Despite this, Mr. Lee did not take any steps to revive Hing Loong. Further, the issue was expressly discussed at the pre-trial conference with Justice Archibald in January 2020, and Justice Archibald ordered that Mr. Lee “may by [March 1, 2020] bring a motion under Rule 26 to amend his counterclaim, after first having revived Hing Loong Investments Limited which company is presently moribund.” I have no evidence that Mr. Lee took any steps to revive Hing Loong before March 1, 2020. While Justice Archibald’s order uses the word “may” and not “shall”, it does not mean that there would be no consequences if Mr. Lee failed to revive Hing Loong. To the contrary, the pre-trial report indicates that if Mr. Lee were still involved in the action, there would be a motion at trial concerning his standing. It is also noteworthy that after receiving Hing Loong’s bank statements from the Bank in September 2020, Mr. Lee does not appear to have taken any steps to try to revive Hing Loong, even though the basis for his request for bank statements was allegedly the revival of Hing Loong.
[29] Mr. Lee has had years to take the necessary steps to revive Hing Loong, with a number of warnings and reminders along the way, but he has not done so. His failure to act diligently cannot constitute an appropriate ground to waive the normal conditions applicable to the revival of a corporation.
[30] I now turn to Mr. Lee’s motion for the production of bank records by the Bank. In his Notice of Motion, Mr. Lee requests an order that the Bank “release the rest of the necessary information as requested by John Chin Lee (And needed by CRA)”. Mr. Lee does not particularize what the “necessary information” is in his Notice of Motion, although the evidence includes e-mails in which Mr. Lee asked the Bank for bank accounts information for a number of entities.
[31] There are problems with Mr. Lee’s request for information from the Bank:
a. There is no evidence before me that the information requested by Mr. Lee is required by CRA, the Minister of Finance or anyone else in order to revive Hing Loong.
b. Mr. Lee has not adduced any evidence that he is entitled to receive banking statements or bank accounts information for entities for which he was neither an officer, director nor signing officer. I am also not satisfied that such statements/information are relevant to the issue of the revival of Hing Loong. Mr. Lee stated during the hearing that he needed to know where the money that was deposited into Hing Loong’s account came from. This is not a valid reason to give to Mr. Lee access to banking information belonging to third parties. It was Hing Loong’s responsibility to maintain proper accounting records.
c. I cannot order the production of documents that do not exist. While my view is that the Bank initially handled Mr. Lee’s request for Hing Loong’s bank statements (which was included in the order made by Justice Archibald at the pre-trial conference) in a way that was far from ideal, and while I can understand Mr. Lee’s concerns given the fact that the Bank ended up producing banking statements for Hing Loong after maintaining the position for a number of months that it did not have such statements, I have before me sworn affidavit evidence by a representative of the Bank that the documents requested do not exist. This is not that surprising given that the relevant events took place many years ago. I am satisfied that the Bank has now done the necessary verifications. There is no evidence before me that existing documents: (a) which were requested by Mr Lee[^1], and (b) which he is entitled to receive, have not been produced to Mr. Lee by the Bank. Mr. Lee argues that the documents should have been preserved given the ongoing litigation. I express no views on this point as whether the documents should have been preserved or not is not an issue on this motion. Again, if the documents no longer exist, they cannot be ordered to be produced.
[32] As a result, Mr. Lee’s motion is dismissed.
b. Bank’s motion to dismiss Mr. Lee’s counterclaim
[33] The Bank argues that Mr. Lee has no standing to advance the counterclaims and crossclaim in this action and the Wu Action as his claims are derivative and for alleged wrongs done to Hing Loong, not Mr. Lee personally. Mr. Lee argues that his claims have merits and should be allowed to proceed.
[34] The Bank relies on the case Re Royal Bank of Canada, 2004 CanLII 26625 (Ont. S.C.J.). In that case, the defendant claimed damages as shareholder, employee, officer and director of a corporation for misappropriation and conversion of corporate assets and negligent realization of those assets. Justice Karakatsanis (as she then was) held that the defendant could not assert as a personal cause of action the claims of the corporation for its losses, nor could she claim those losses that she suffered indirectly as a result of the losses of the corporation. She stated the following:
The law has been well settled since the landmark case of Foss v Harbottle (1843), 2 Hare 461 (Ch): The corporation and its shareholders are separate legal entities and only the company can sue for a wrong done to it. A party cannot assert as a personal cause of action for the claims of a corporation for its losses; only a corporation can bring a claim for a wrong done to it. […] In McGauley v British Columbia, (1989), 1989 CanLII 2809 (BC CA), 39 B.C.L.R. (2d) 223 at para 20, the Court of Appeal formulates the test as follows: “the question which is relevant is whether the shareholder’s loss is the result of some wrong committed against him in his personal capacity or is simply a consequence of the wrong committed against the corporation.” […]
The cases are clear that shareholders, directors, employees and creditors cannot recover losses sustained by them in those capacities that are consequent and secondary to a loss suffered by the company. In Rogers, Rogers and Cornwall v Bank of Montreal et al. (1985), 1985 CanLII 150 (BC SC), the Court struck the claim of the directors and shareholders alleging improper conversion of the company assets by the improper appointment of a receiver. The court denied the claim for loss of salary or earned income following the appointment of a receiver as being derivative. In the Royal Bank of Canada v. Roles, [1991] S.J. No. 660 (Sask Q B) at p. 4, the shareholder’s third party claim against the receiver was struck, as there was no duty owed to the shareholders in the realization of assets of the company.
[35] I agree with the Bank that the general principles outlined by Justice Karakatsanis in Re Royal Bank of Canada apply in this case.
[36] With respect to the counterclaim in this action, all the alleged wrongs that are pleaded are wrongs against Hing Loong or a related corporation, not wrongs against Mr. Lee personally. As stated above, Mr. Lee pleads that the Defendants “are the beneficiaries of Hing Loong Investments Limited and 1703459 Ontario Inc.” and that “[t]hey are entitled to share equally in any judgement recovered against plaintiff.” Thus, Mr. Lee is suing the Bank personally for wrongs allegedly committed against corporations and for losses sustained by the Defendants as “beneficiaries” of the corporations. These claims are not personal claims – they are claims of the corporations or derivative claims. Such claims cannot be advanced by Mr. Lee. Therefore, the counterclaim in this action is dismissed, except for Mr. Lee’s claim for an accounting by the Bank of its occupation and sale of the Property. The Bank has not shown that Mr. Lee, as a guarantor who is sued for an alleged deficiency after the sale of the Property, does not have standing to ask for an accounting.
[37] With respect to the Wu Action, given that Mr. Lee’s crossclaim is entirely based on the counterclaim in this action, it is dismissed for the same reasons.
[38] Mr. Lee’s counterclaim against the Bank in the Wu Action suffers from the same deficiencies as his counterclaim in this action and is also dismissed for the same reasons. There is no claim for accounting in the counterclaim in the Wu Action; therefore, the counterclaim as against the Bank is dismissed in its entirety. Because Mr. and Ms. Wu did not bring a motion to dismiss the counterclaim as against them, I do not make any order with respect to that part of the counterclaim. However, I point out that the same reasoning would apply to it. The parties may wish to discuss this issue at the next pre-trial conference.
[39] As stated above, the Statement of Defence, Counterclaim and Crossclaim filed by Mr. Lee in the Wu Action purports to be on behalf of Ms. Huang and Hing Loong in addition to Mr. Lee. The issue of the validity of this pleading with respect to Ms. Huang and Hing Loong is not before me. Given that no submissions were made with respect to Hing Loong’s claims set out in the counterclaim and crossclaim in the Wu Action, I only dismiss the counterclaim and the crossclaim as brought by Mr. Lee.[^2] I note, however, that while the claims in the counterclaim and crossclaim relate to wrongs allegedly committed against Hing Loong and are not derivative, such claims were brought many years after Hing Loong’s certificate of incorporation was cancelled and Hing Loong has not been revived.
[40] I have considered making the order to dismiss the counterclaims and crossclaim effective only after a certain period of time so as to give Mr. Lee more time to try to revive Hing Loong. However, given that: (a) the revival process is estimated to take many months, (b) Mr. Lee has failed to act diligently with respect to this issue, even after receiving Hing Loong’s bank statements in September 2020, and (c) the trial of this matter has already been adjourned once, in part because of the issues related to Mr. Lee’s counterclaim, I have come to the conclusion that it would not be in the interest of justice to further delay this matter.
Conclusion
[41] Accordingly, I order the following:
a. Mr. Lee’s counterclaim in this action is dismissed, with the exception of his claim for an accounting by the Bank of its occupation and sale of the Property;
b. Mr. Lee’s counterclaim and crossclaim against the Bank in the Wu Action are dismissed; and
c. Mr. Lee’s motion is dismissed.
[42] If costs cannot be agreed upon, the Bank shall deliver submissions of not more than three pages (double-spaced), excluding the bill of costs/costs outline, within 10 days of the date of this Endorsement. Mr. Lee shall deliver his submissions (with the same page limit) within 10 days of his receipt of the Bank’s submissions. The submissions should be sent by e-mail to my assistant after they are served on the other party.
VERMETTE J.
Date: August 3, 2021
[^1]: It is unclear to me whether the Bank has banking statements for Hing Loong for years other than 2006, and it is also unclear to me from Mr. Lee’s submissions whether the scope of his motion includes banking statements for Hing Loong for other years. While Mr. Lee’s request for bank statements was more general at first, he then restricted his request to 2006, and Hing Loong’s bank statements for 2006 were provided to him. I trust that if Mr. Lee requests bank statements for Hing Loong for years other than 2006, the Bank will do the necessary verifications before responding to him and will provide what is available. I note that Justice Archibald’s order was not limited to 2006.
[^2]: As noted above, Ms. Huang has passed away and, as far as I know, no order to continue has been obtained.