Court File and Parties

COURT FILE NO.: CV-20-636746

DATE: 2021-08-30

RE: THE CALBOT GROUP LTD. and 2649106 ONTARIO INC. cob SYNERGY CAPITAL, Plaintiffs

AND:

NSR TORONTO HOLDINGS LTD., NSR CANADA DEVELOPMENT LTD., NEW SILK ROAD CULTURALTAINMENT LTD., DAPENG WANG, SHA HUANG aka SAM HUANG, SUNNY COMMUNITIES (MARKHAM GOLD) INC., PATRICK O’HANLON, CHRISTOPHER O’HANLON, SUNNY DEVELOPMENT HOLDINGS INC., 11105639 CANADA INC., BILL K. CHEN, and WUZHENG ZHANG aka JIAN ZHANG, Defendants

BEFORE: J.E. Ferguson J.

COUNSEL: Antonio Conte, for the plaintiff The Calbot Group Ltd. Anne H. Stevens, for the plaintiff 2649106 Ontario Inc. cob Synergy Capital Howard Borlack, for the defendants Sunny Communities (Markham Gold) Inc., Christopher O’Hanlon, Sunny Development Holdings Inc., 11105639 Canada Inc., Bill K. Chen and Wuzheng Zhang aka Jian Zhang Gary Graham, for the defendant Patrick O’Hanlon Michael Schafler and Kristjan Surko, for the defendants NSR Toronto Holdings Ltd. and Dapeng Wang

HEARD: June 25, 2021

ENDORSEMENT

[1] The defendants, NSR Toronto Holdings Ltd. (“NSR Toronto”) and Dapeng Wang (“Mr. Wang”), bring this motion under Rule 21.01(1)(b) to strike out the allegations against them.

[2] The plaintiff, The Calbot Group Ltd. (“Calbot”), is an Ontario corporation.

[3] The plaintiff, 2649106 Ontario Inc. cob Synergy Capital (“Synergy”) is an Ontario corporation.

[4] The defendant, NSR Toronto, is a British Columbia corporation. It is wholly owned by the defendant, NSR Canada Development Limited (“NSR Canada”), which in turn is wholly owned by the defendant, New Silkroad Culturaltainment Limited (“New Silk Road”).

[5] Mr. Wang was at all material times the sole officer and manager of NSR Toronto.

[6] The defendant, Sha Huang also known as Sam Huang (“Mr. Huang”), was at all material times allegedly employed by the Macrolink Group.

[7] The defendants, Sunny Development Holdings Inc. (“Sunny D”), 11105639 Canada Inc. (“11105639”), Bill K. Chen (“Mr. Chen”), Wuzheng Zhang also known as Jian Zhang (“Mr. Zhang”), and Christopher O’Hanlon (“Mr. O’Hanlon”), are corporations and individuals referred to as the “Sunny Group defendants”.

[8] At the core of this proceeding is an alleged written contract between the plaintiffs and certain entities referred to collectively in the amended statement of claim as “NSR”. The plaintiffs’ definition of plaintiffs does not include Mr. Wang. It includes three separate entities: NSR Canada Development Limited, New Silkroad Culturaltainment Limited, and NSR Toronto. The moving parties’ position is that the submission that each of these companies was a party to the contract is patently incorrect since the contract was signed only by “NSR Inc.” and refers to the “client” as “New Silk Road”.

[9] The moving parties also submit that all other causes of action alleged against Mr. Wang and NSR Toronto are derivative to the breach of contract claim and must fail as well. Further, they submit that the claims against Mr. Wang in his personal capacity cannot possibly succeed in light of the plaintiffs’ admission that he at all times acted in his capacity as an officer of NSR Toronto without any allegation of conduct exhibiting a separate identity or interest from that of NSR Toronto. The remaining submission is that the oppression remedy is not properly before this court as neither NSR Toronto nor any of its alleged “affiliates” are subject to the OBCA.

[10] The moving parties submit that the amended claim is replete with references to “NSR”, which “unless otherwise specified”, refers to NSR Toronto, NSR Canada and New Silk Road, collectively. These same defendants allegedly form part of a common business enterprise known as the “Macrolink Group”.

[11] The amended claim makes numerous references to the “Sunny Group”, defined as Sunny Development Holdings Inc., 1105639 Canada Inc., “along with other corporations and entities”, under the control of Bill K. Chen (“Mr. Chen”).

[12] Mr. O’Hanlon was employed by Compass Hill Developments Inc., an Ontario corporation that was part of Liberty Developments, a Toronto real estate development group.

[13] The underlying contract is a two‑page document dated May 30, 2019. On its face, the signatories are an entity called “NSR Inc.”, Calbot and Synergy. There is no reference in the contract to NSR Toronto or Mr. Wang. There are no third party beneficiaries. The contract does indicate that the “client” is “New Silk Road (NSR)”.

[14] The contract contained the following salient terms: (a) New Silk Road (NSR) wished to retain the plaintiffs in connection with the sale or equity financing in relation to the project; (b) New Silk Road (NSR) committed to paying the plaintiffs a combined consulting fee of $5 million plus HST, based on certain enumerated outcomes; (c) NSR agreed not to circumvent any of the terms of the contract by “contacting or completing any transactions with the investors/JV Partners introduced by Synergy and Calbot without express authorization from Synergy Capital”.

[15] The test on a motion to strike is whether, on the facts as pleaded, it is “plain and obvious” that the impugned pleading discloses no cause of action, assuming the facts pleaded to be true, unless they are manifestly incapable of being proven. It is plain and obvious that the pleading discloses no cause of action if it does not plead all elements necessary for a recognized cause of action. Another way of putting the test is that the claim has no reasonable prospect of success. The motions judge is entitled to consider the documents specifically referred to in the pleading. The court may, in appropriate cases, conclude that allegations in the amended claim which are contradicted by the documents incorporated by reference are incapable of proof.

[16] I agree that the amended claim discloses no reasonable cause of action.

[17] A director, officer or employee of a corporation will not be personally liable for actions taken on behalf of the corporation unless some of the personal conduct in itself exhibits a separate identity or interest from that of the corporation. The Court of Appeal set out the test as follows:

The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact‑specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal which had gone sour. […] Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.

[…] A corporation may be liable for contracts that its directors or officers have caused it to sign, or for representations those officers or directors have made in its name, but this is because a corporation can only operate through human agency, that is, through its so-called "directing mind". Considering that a corporation is an inanimate piece of legal machinery incapable of thought or action, the court can only determine its legal liability by assessing the conduct of those who caused the company to act in the way that it did. This does not mean, however, that if the actions of the directing minds are found wanting, that personal liability will flow through the corporation to those who caused it to act as it did. […] [^1]

[18] In TSCC Corporation No 123 v. Times Group Principals, this court described the test, in part, as follows: “[t]he claims against the corporate entity and the officers/directors must be sufficiently differentiated so as to make the claims against the principals independent”.[^2]

[19] In Piedra v. Cooper Mesa Mining Corp., the Court of Appeal held that allegations of personal liability for tortious conduct against directors, officers and employees must withstand a high degree of scrutiny. Otherwise, there is a risk that corporate directors and officers could be driven away from involvement in any respect of corporate business by the potential exposure to ill‑founded litigation.[^3]

[20] I agree that each allegation against Mr. Wang relates entirely to his conduct as an officer of NSR Toronto. The plaintiffs do not allege that Mr. Wang acted outside of his capacity as an officer of NSR Toronto. They apparently have admitted that Mr. Wang and Mr. Huang were “at all material times the operating minds and will of NSR”. I agree that the amended claim does little more than “window dress” the suggestion of a separate identity or interest between Mr. Wang and NSR Toronto.

[21] The plaintiffs plead breach of contract against NSR Toronto and Mr. Wang. A pleading of breach of contract must contain sufficient facts to establish: (a) the nature of the contract; (b) the parties to the contract; (c) privity of contract between the plaintiff and defendant; (d) the relevant terms of the contract; (e) which term was breached; and (f) the damages that flow from the breach. I agree that the plaintiffs have failed to plead sufficient facts to establish elements (b) and (c).

[22] Neither NSR Toronto nor Mr. Wang was a party to the contract. The contract was instead signed by “NSR Inc.” (not NSR Toronto) and identifies the “client” as “New Silk Road”. The contract does not even refer to NSR Toronto or Mr. Wang. The acknowledgement provides that any consulting fees payable to the plaintiffs “are the sole responsibility of the New Silk Road.” The acknowledgement differentiates between “New Silk Road” and “NSR Toronto Holdings Ltd.”, which I agree clearly indicates that they are separate legal entities.

[23] I agree that absent any contractual privity, there can be no successful claim for breach of contract against Mr. Wang or NSR Toronto. On the strength of the contract, the only party against which the plaintiffs may claim breach of contract is the entity referred to in the contract as “New Silk Road”, which is a separate legal entity from NSR Toronto.

[24] The plaintiffs further allege that NSR Toronto and Mr. Wang breached the duty of honesty in contractual performance. I agree that this claim is derivative of the plaintiffs’ claim for breach of contract. I agree that to the extent that the plaintiffs did not stand in a contractual relationship with either NSR Toronto or Mr. Wang, their claim for a breach of the implied duty of good faith is also doomed to fail.

[25] In the alternative to their claim for breach of contract, I agree that the plaintiffs make bald and conclusory allegations of unjust enrichment against NSR Toronto and Mr. Wang. In order to allege unjust enrichment, the plaintiffs must plead: (a) that the defendant was enriched; (b) that the plaintiff suffered a corresponding deprivation; and (c) the absence of a juristic reason for the enrichment.[^4]

[26] The plaintiffs have improperly lumped NSR Toronto together with other corporate defendants collectively defined in the amended claim as “NSR”. I agree that it is thus unclear which defendants were allegedly enriched or how each of the three corporate defendants to which “NSR” refers could have been jointly enriched by plaintiffs’ services. Based on the contract, the plaintiffs provided their services only to “New Silk Road”, not NSR Toronto.

[27] Further, the plaintiffs do not plead any “enrichment” on the part of Mr. Wang. In fact, they plead that the value of the plaintiffs’ services was “wrongfully appropriated by NSR and Sam Huang”. In any event, there is no factual underpinning to support an allegation that Mr. Wang was at any time acting outside his capacity as an officer of NSR Toronto.[^5] I agree that these allegations against him plainly and obviously will not succeed.

[28] Further, I agree given that the gravamen of the plaintiffs’ complaint is for breach of contract, it is inconceivable that a claim for unjust enrichment could be made out. The plaintiffs may succeed in their breach of contract claim because the trial judge will find them to have earned the consulting fee on the terms of the contract. Alternatively, the trial judge may dismiss the claim for breach of contract because no consulting fee on the terms of the contract was payable. In those circumstances, the contract will fully occupy the field between the relevant parties with the result that if the claim for breach of contract fails, there will be a juristic reason for not paying the plaintiffs. As the Court of Appeal held in Keachie Jr. v. St. John:

[…] there is no room for the intervention or claim by way of quantum meruit where the parties have reduced their contractual relationships into precise and written language as is the case here […]”[^6]

[29] As against NSR Toronto and Mr. Wang, the plaintiffs plead that “these breaches of the mandate and breaches of duty amount to acts” of oppression.

[30] The plaintiffs’ claim for relief refers to the oppression remedy under Ontario’s Business Corporations Act, RSO 1990, c. B.16 (“OBCA”). The OBCA applies to a “corporation or any of its affiliates”. The OBCA defines a “corporation” as a “body corporate with share capital to which this Act applies”. Pursuant to section 2(1) of the OBCA, which sets out the scope of application, the act does not apply to corporations incorporated under the laws of British Columbia.[^7]

[31] The oppression remedy under British Columbia’s Business Corporations Act, SBC 2002 c. 57 (“BCBCA”), is found at section 227. It provides that a shareholder may apply “to the court” for an order under that section. Section 1 of the BCBCA defines the “court”, for the purposes of section 227, as “the Supreme Court”, which in turn is defined in British Columbia’s Interpretation Act, RSBC 1996, c. 238, as “the Supreme Court of British Columbia”.

[32] NSR Toronto is a British Columbia corporation. None of the other defendants who might be an affiliate of NSR Toronto is alleged to be subject to the OBCA. I agree that the BCBCA applies.

[33] The BCBCA sets out how it is to be enforced and expressly grants jurisdiction to the Supreme Court of British Columbia.[^8] As this court held in Gould v. Western Coal Corporation, “[t]he fact that a court may have territorial jurisdiction over a particular party in relation to a particular cause of action cannot give it jurisdiction over that party in relation to a subject matter that is outside its jurisdiction”.[^9] I agree that it is thus plain and obvious that the allegations of oppression as pleaded will not succeed.

[34] Further, and in any event, the plaintiffs allege that the oppression arises from the “breaches of the [contract] and breaches of duty”. As set out above, neither of these defendants was party to the contract and so could not have breached it.

[35] The plaintiffs also allege unlawful conduct conspiracy against NSR Toronto and Mr. Wang. The specific allegations relevant to support this claim are as follows:

The unlawful conduct which was directed at the plaintiffs and which at various times some or all of the defendants undertook with the knowledge and intent that it would injure the plaintiffs, included:

a) meeting, communicating and negotiating directly with each other relating to the Project from August to November 2019 without the prior knowledge or participation of the plaintiffs;

b) concealing the fact of their meetings, communications and negotiations from the plaintiffs;

c) negotiating with the Sunny Development Offer in August and September 2019 without the prior knowledge or participation of the plaintiffs;

d) entering into the Securities Purchase Agreement on October 10th, 2019 without prior knowledge or participation of the plaintiffs;

e) other unlawful acts, the full particulars of which are known to the defendants and not known to the plaintiffs.

[36] In Enerworks Inc. v. Grenbarra Energy Solutions Inc., this court described the elements of unlawful means conspiracy:

The elements of conspiracy to perform an unlawful act are (1) the defendants acted in combination; (2) the defendants committed an unlawful act, i.e. a crime, tort, or breach of statute; (3) the defendants knew or should have known that injury to the plaintiffs was likely to occur from their misconduct; and (4) the defendants’ misconduct in furtherance of the conspiracy caused harm to the plaintiff.[^10]

[37] In Normart Management Ltd. v. West Hill Redevelopment Co., the Court of Appeal described the requirements to plead conspiracy:

The statement of claim should describe who the several parties are and their relationship with each other. It should allege the agreement between the defendants to conspire, and state precisely what the purpose or what were the objects of the alleged conspiracy, and it must then proceed to set forth, with clarity and precision, the overt acts which are alleged to have been done by each of the alleged conspirators in pursuance and in furtherance of the conspiracy; and lastly, it must allege the injury and damage occasioned to the plaintiff thereby.[^11]

[38] As against NSR Toronto and Mr. Wang, I agree that the amended claim lacks the required “clarity and precision” with respect to the overt acts that are alleged to have been done by each conspirator. I agree that saying, as the plaintiffs do in paragraph 57 of their claim, that at various times “some or all of the defendants” undertook unlawful conduct that “included” certain things is simply not sufficient. I agree that it is impossible for any of the defendants to know from the amended claim what each of them allegedly did in furtherance of the alleged conspiracy or what, exactly, the supposed conspiracy entailed – other than an alleged breach of the contract.

[39] In J.G. Young & Son Ltd. v. TEC Park Ltd., this court struck out a similarly poorly drafted allegation of conspiracy:

While there are a number of overt acts alleged, they are not specifically identified to any particular defendant, that is, no specific defendant could know from the statement of claim what it is that the plaintiffs say that that particular defendant did as part of the conspiracy. Rather, all of the defendants, both corporate and individual, are simply lumped into the general allegation that they caused, directed, assented to or acquiesced in the alleged activities.[^12]

[40] As this court stated it in Fasteners & Fittings Inc. v. Wang:

[a] conspirator is not liable vicariously for what somebody else did; he or she is liable for having participated and contributed to the conspiracy. In a conspiracy pleading, it is necessary to set out discretely the particular acts of each co-conspirator so that each defendant can know what he or she is alleged to have done as part of the conspiracy.[^13]

[41] I agree that there is another fatal flaw to the conspiracy pleading. Beyond the alleged breach of contract, the plaintiffs have not identified the “unlawful conduct” element. In Agribrands Purina Canada Inc. v. Kasamekas, the Court of Appeal held:

There is no basis for finding an individual liable for unlawful conduct conspiracy if his or her conduct is lawful or, alternatively, if he or she is the only one of those acting in concert to act unlawfully. The tort is designed to catch unlawful conduct done in concert, not to turn lawful conduct into tortious conduct.[^14]

[42] In that case, the Court of Appeal explained that “unlawful conduct” requires that the defendants engage, in concert, in “acts that are wrong in law, whether actionable at private law or not.” The Court of Appeal added, “[i]n the commercial world, even highly competitive activity, provided it is otherwise lawful, does not qualify as ‘unlawful conduct’ for the purposes of this tort.”[^15]

[43] I agree that the only party that may be susceptible to an allegation of “unlawful conduct” is New Silk Road – not NSR Toronto or Mr. Wang. New Silk Road was the only party obliged to comply with the non-circumvent clause. The alleged conduct allegedly committed by the other co-conspirators does not constitute unlawful conduct for the purpose of the tort. They were not parties to the contract. They owed no independent duties. The absence of “unlawful conduct” serves to underline the core issue with this pleading: it is no more than a dressed up breach of contract claim. Since New Silk Road was the only party to have allegedly engaged in “unlawful conduct”, there can be no conspiracy based on Agribrands, supra.

[44] As against Mr. Wang, I agree that the allegations are defective on a further, independent basis. The Court of Appeal has in the past considered this very type of pleading against employees, officers and directors of corporations. In Normart, supra, the Court of Appeal held:

It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity or interest from that of the corporations such as to make the acts or conduct complained of those of the directing minds. […]

It therefore follows that, limiting the acts under review to the directing minds per se, a directing mind of a corporation cannot, by causing the corporation to act in a certain way, be said to have made an agreement with that corporation. The directing mind could make an agreement with another corporation by making an agreement with the directing mind of that other corporation, but if both directing minds are acting on behalf of their respective corporations, the agreement is between the two corporations. To conclude otherwise would be to challenge the recognized separate legal identity afforded to corporations under our law and to conclude that every corporate action which may give rise to a breach, by virtue of the decision making authority of the corporate management, is an action of the directing minds personally. As I will develop, an agreement between two corporations to injure can amount to the tort of conspiracy, but it does not necessarily follow that those who as directing minds caused their respective corporations to enter into the agreement are themselves party to the conspiracy.[^16]

[45] Normart is dispositive. Mr. Wang cannot be liable for unlawful conduct conspiracy in the face of the plaintiffs’ admission that Mr. Wang (and Mr. Huang) were “at all material times the operating minds and will of NSR”. It is plain and obvious that the claim of conspiracy against Mr. Wang has no chance of success.

[46] I agree with the moving parties’ submission that leave to amend should be refused only in the clearest of cases.[^17] This is such a case. The plaintiffs have had ample opportunity to prepare a claim that discloses a reasonable cause of action against these defendants. In response to this motion, they already tried to shore it up once and they have failed. Since the plaintiffs’ case is inextricably tied to and dependent on the contract, to which these defendants were never privy, no further amendment can cure this radical defect

[47] The relief sought is granted. NSR Toronto and Mr. Wang are entitled to an order striking out the allegations against them in the amended claim without leave to amend.

[48] If the parties cannot agree on costs, I am prepared to receive the defendants’ submissions on costs within 20 days (September 20, 2021); the plaintiffs’ submissions within 10 days thereafter (September 30, 2021); and the defendants’ response (if any) within 7 days thereafter (October 7, 2021). The submissions may be emailed to my assistant at lorie.waltenbury@ontario.ca.

J.E. Ferguson J.

Date: August 30, 2021

[^1]: Montreal Trust Co. of Canada v. ScotiaMcLeod Inc., 1995 CanLII 1301 (ON CA), 1995 CarswellOnt 1203 (CA), at paras. 25-26.

[^2]: TSCC Corporation No. 2123 v. Times Group Principals, 2018 ONSC 4799, at para. 57.

[^3]: Piedra v. Cooper Mesa Mining Corp., 2011 ONCA 191, at para. 75.

[^4]: Khursheed v. Venedig Capital SAS, 2019 ONSC 5190, at para. 21, citing Kerr v. Baranow, 2011 SCC 10, at para. 32.

[^5]: Haggan v. Mad Dash Transport Ltd. et al., 2019 ONSC 3654, at paras. 33-34.

[^6]: Keachie Jr. v. St. John et al., 1958 CanLII 368 (ONCA), at p. 23.

[^7]: Stephen N. Adams, Annotated Business Corporations Act (Thomson Reuters Canada Limited, 2021), at ss. OBCA‑2(1):COM:1.

[^8]: CAE Wood Products G.P. v. CAE, 2011 ONSC 1617, at para. 31.

[^9]: Gould v. Western Coal Corporation, 2012 ONSC 5184, at paras. 320-322, 327.

[^10]: EnerWorks Inc. v. Grenbarra Energy Solutions Inc., 2012 ONSC 414, at para. 69.

[^11]: Normart Management Ltd. v. West Hill Redevelopment Co., 1998 CanLII 2447 (ON CA), 1998 CarswellOnt 251, at para. 21.

[^12]: J.G. Young & Son Ltd. v. TEC Park Ltd., 1999 CarswellOnt 3463, at para. 6.

[^13]: Fasteners & Fittings Inc. v. Wang, 2020 ONSC 1649, at para. 156.

[^14]: Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, at para. 28.

[^15]: Agribrands Purina Canada Inc. v. Kasamekas, Ibid. at para. 38.

[^16]: Normart Management Ltd. v. West Hill Redevelopment Co., Supra. at paras. 18-19.

[^17]: Evertz Technologies Limited v. Lawo AG, 2019 ONSC 1355, at para. 40.