Court File and Parties

COURT FILE NO.: CV-19-621587 DATE: January 2, 2023

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Weiyan Lin v. Guangcheng Zhu also known as Scott Zhu, Geo Roofing Limited, Memel Aluminum Contracting Ltd. and Guru Constrarchit Ltd., CV-19-621587;

RE: Guru Constrarchit Ltd. v. Weiyan Li, CV-19-612066;

BEFORE: ASSOCIATE JUSTICE C. WIEBE

COUNSEL: Jonathan Frustaglio and Gary J. McCallum for Weiyan Li; Elizabeth Scott for Memel Aluminum Contracting Ltd.; Matthew Kim for Geo Roofing Limited; Tyler Morrison for Luxury Home Landscape Construction Inc.; Eddy Battiston for Petra Design Inc; Jane Zhao for Pinnacle Stone Inc.; Asher Honickman for Shian Tiles Ltd.; Rocco Palmieri Sunrise Window & Door Systems Inc.;

SELF-REP.: Mohammed Raza for KMK Plumbing Inc.;

HEARD: October 3, 2022.

Reasons for Default Judgment

1On March 28, 2022 Weiyan Li (“Ms. Li”) brought motions for orders dismissing the claim and striking the defence to counterclaim of Guru Constrarchit Ltd. (“Guru”) in the action CV-19-612066 (“the Guru Lien Action”), and striking the defences of Guru and its principal, Guangcheng Zhu (“Mr. Zhu”), in action CV-19-621587 (“Li Civil Action 1”). The grounds for the motions were that Guru and Mr. Zhu had not hired a lawyer or, in the case of Mr. Zhu, served a notice of intention to act in person pursuant to removal orders I had issued in those actions on October 25, 2021 concerning Guru and Mr. Zhu. I adjourned the motions to May 30, 2022 to give Mr. Zhu and Guru one last chance to take the necessary steps to reengage with these actions.

2They did not do so. Therefore on May 30, 2022, I granted the above noted motions by Ms. Li. I also noted Guru in default on the Li counterclaim in the Guru Lien Action, and Guru and Mr. Zhu in default in the Li Civil Action 1. I scheduled motions by Ms. Li in both the Li Civil Action 1 and the Guru Lien Action for default judgments, returnable October 3, 2022.

3On October 3, 2022 all above noted counsel and Mr. Raza attended. I was advised that the Li claims against Memel Aluminum Contracting Ltd. (“Memel”) and Geo Roofing Limited (“Geo”) in Li Civil Action 1 were dismissed and that neither Memel nor Geo were seeking costs on the crossclaims by Mr. Zhu against them, which crossclaims have been dismissed. The other parties in attendance were defendants in Li Civil Action 2. They all expressed no interest in the motions, and I excused them.

Jurisdiction

4I am mindful that I am acting under two reference orders here. On January 24, 2020 Justice Dow issued a judgment of reference under the Construction Act, R.S.O. 1990, c.C.30 (the “CA”) referring the Guru Lien Action to an associate justice for trial. The old CA applies to this case. On the same day, January 24, 2020 His Honour ordered that the Li Civil Action 1 be referred to an associate justice. In both the judgment and the order, His Honour ordered inter alia that all “findings” of the associate justice were effective upon confirmation of the associate justice’s report.

5In Prasher Steel Ltd. v. Maystar General Contractors Ltd., 2020 ONSC 6598, Justice Corbett overturned a “judgment” of mine issued on a motion to enforce a settlement under Rule 49.09. This rule expressly authorizes the granting of a “judgment” to enforce a settlement. The motion was within a lien reference. I granted judgment in accordance with Rule 49.09. Justice Corbett found that I should have issued a report instead, as I was acting under a judgment of reference. His concern was that there are different avenues of appeal for final orders of associate justices and for reference reports. For final orders of associate justices the appeal is to a single judge of the Divisional Court and thereafter to the Court of Appeal. For a report of an associate justice, the objecting party must oppose confirmation by motion before a single judge of the Superior Court whose decision can then be appealed to a panel of the Divisional Court.

6Having considered this ruling, I find that it does not apply to the default judgment motions before me. First, the jurisdictions under which these motions are brought expressly authorize the court to grant “judgments.” The motion in Li Civil Action 1 is under Rule 19.05 of the Rules of Civil Procedure. Rule 19.05(3) expressly authorizes the granting of a “judgment.” The motion in the Guru Lien Action is under section 54 of the CA which in section 54(4) expressly authorizes the giving of “judgments” on motions for default judgment.

7Second, and most importantly, there is a good reason for allowing the court, even one acting under a judgment of reference such as this one, to issue “judgments” on motions for default judgment. By the nature of these motions, there is no opposition. The opposing party has been noted in default and is not entitled to participate any further. There are deemed admissions of the pleaded facts. The purpose of the motion is to determine whether the deemed admissions plus any evidence in “support” of the deemed admissions justify a judgment that can be immediately enforced. These are not, in my view, the “findings” contemplated by the judgment or order of reference. The “findings” contemplated by a judgment of reference are those that arise from contested proceedings, such as with the contested motion to enforce a settlement in the Prasher case. Furthermore, as the defaulting party is not entitled to participate in the proceedings, there can be no motion to oppose confirmation of a report. Therefore, preserving avenues of appeal specified for references should not be a concern. The concern should be whether there can be immediate enforcement. For these reasons, the governing statutes, namely Rule 19.05(3) and CA section 54, expressly authorize the granting of “judgments” on such motions. I will proceed accordingly.

Deemed Admitted Facts

8For civil actions Rule 19.02(1) of the Rules of Civil Procedure specifies that a defaulted defendant is deemed to admit the truth of all allegations of fact in the statement of claim. For lien actions, CA section 54(4) also specifies that the defaulted defendant is deemed to admit the allegations of fact in the statement of claim. What are the deemed admissions of facts here?

9Having reviewed the Amended Amended Statement of Claim in the Li Civil Action 1, I find the following facts to be the significant deemed admitted facts in that action. Where I refer to what claims Ms. Li pleads, these are not the deemed facts.

10The Li counterclaim in the Guru Lien Action contains many of same allegations contained in her Amended Amended Statement of Claim in the Li Civil Action 1. Therefore, I will focus on the Li Civil Action 1 as that discussion and the results will apply to the Li counterclaim in the Guru Lien Action.

11Ms. Li owned a residential lot with a municipal address of 458 Glengarry Avenue, North York, Toronto (“the Property”). Ms. Li entered into a construction contract with Guru called a Project Management Agreement. The effective date of this contract was July 11, 2017. Guru was a contractor, and under the contract had the responsibility to demolish an existing structure and build a new, luxury home. Ms. Li pleaded that Guru warranted that its work would be done in a good and workmanlike manner.

12The budgeted costs for the project was $950,000 (HST inclusive). This was based on the cost being about $250 per square foot for the house of 3,800 square feet in size.

13Work commenced on or about October 26, 2017. Guru hired subcontractors to work on the project. It purported to coordinate and manage these parties.

14By September, 2018 there were the following issues: Mr. Zhu informed Ms. Li that the budget would be exceeded by $150,000; there were significant deviations from the architect’s plans, such as the front cladding being precast concrete and not Indiana limestone; there were numerous and significant deficiencies in the work. These deviations and deficiencies are listed in the Amended Amended Statement of Claim.

15Ms. Li pleads that these issues amounted to a contract repudiation by Guru, and that she terminated the contract as a result. She pleads that Guru’s work ended on October 18, 2018, and that she hired another contractor to complete the work.

16Ms. Li pleads damages for breach of contract arising from the pleaded Guru contract repudiation, which damages are pleaded as follows:

• As of the date of termination of the contract, Ms. Li pleads that she had paid Guru $967,056.45 and that there was an additional amount of $200,007 worth of unpaid work by subcontractors and trades people for which Ms. Li pleads she was liable. The total of the two figures, $1,167,063.45, exceeds the contract budget of $950,000 by $217,063.45. Ms. Li claims this amount as a damage for breach of contract.
• Ms. Li pleads that only some of the deviations from the plans and deficiencies could be remedied. She pleads that the costs to correct the deficiencies was about $300,000. She claims this amount as an additional damage for breach of contract.
• The total claimed in the prayer for relief for breach of contract damages is $715,000.

17Ms. Li pleads that Guru is liable for to her for conversion. She pleads that she gave Guru funds to pay trades and suppliers, and that Guru misappropriated those funds to its own use. The amount claimed is $62,301.29.

18Ms. Li pleads that Guru is liable to her for negligence in landscaping the backyard in a way that offended her Chinese cultural background. The amount claimed was $79,326.

19Ms. Li pleads that Guru is liable to her for deceit as follows:

• Guru represented to Ms. Li that $55,000 had been paid to Erano Construction Inc. for framing on the house, when such services were provided to other premises.
• Guru represented to Ms. Li that $65,540 had been paid to Bebe Construction for work on the house when that work was done on a different house.
• Guru represented to Ms. Li that $33,900 had been paid to ShianTile for work on the house when that work was done on another house.
• Guru represented to Ms. Li that $1,800 worth of marble had been installed at the front door entrance, when in fact it was $1,180 worth of quartz.

20Ms. Li pleads that Guru and Mr. Zhu are liable to her for breach of trust and oppression. She pleads that she supplied Guru with funds to pay trades and suppliers, that these funds were trust funds to be held for the benefit of these trades and suppliers and residually for Ms. Li, and that Guru and Mr. Zhu misappropriated these funds to their own benefit and use. The amount claimed as damages for breach of trust and oppression is $967,056.45. Other trust related remedies are pleaded.

21Ms. Li pleads that Mr. Zhu is personally liable to her as follows:

• She claims that Mr. Zhu is personally liable to her for the breach of contract damages as he represented to her at the outset that he was the contractor since he did not mention Guru and brought Guru into existence only at the time of the contract signing.
• She claims that Mr. Zhu was negligent in representing himself to her as a competent and experienced builder, representations on which she relied in contracting with Guru and representations that were false.
• She also claims that Mr. Zhu is personally liable to her the above noted allegations of Guru conversion, negligence and deceit, as he was the driver of those acts.

Breach of Contract

22The Li Civil Action 1 is clearly a claim for unliquidated damages. Rule 19.05(2) of the Rules of Civil Procedure, which applies to that action, requires that a motion for default judgment concerning unliquidated damages be “supported” by an affidavit. Rule 19.06 specifies that judgment can only be given if the “facts,” not just the deemed admissions, entitle the plaintiff to judgment.

23As for the Guru Lien Action, we look to the old CA. Old CA section 54 (4) simply states that judgment may be given against the defaulted defendant. Because of the application of CA section 67(3), namely the subsection that specifies that the Rules apply to lien proceedings to the extent they are not inconsistent with the CA, I find that the provisions of Rule 19, including those described above, are not inconsistent with the CA and apply to motions for default judgment in lien proceedings such as the Guru Lien Action.

24The evidence in support of the default judgment motion in this case was an extensive affidavit sworn by one Tina Zhang, a paralegal in Mr. McCallum’s firm. Ms. Zhang describes herself as a friend of Ms. Li and her husband, Yunchang Liu. Ms. Zhang stated that she was involved in the project since Ms. Li purchased the property on June 30, 2017, that Mr. Liu was the one most involved with the project, and that Mr. Liu informed Ms. Zhang of events that Ms. Zhang herself was not aware of. Ms. Zhang’s affidavit contains powers of attorney from Ms. Liu to Ms. Zhang empowering her to liaise with Mr. Zhu throughout the project.

25I will deal first with the claim for breach of contract damages. The Zhang affidavit contains the contract that was signed by Guru and Ms. Li on July 11, 2017. I am satisfied that, despite being called a “project management agreement,” this contract was in essence a general contract. The form of the contract was what is commonly called a construction management contract at risk, namely where there is a manager who promises to complete the work in return for his or her cost plus a fee but with a guaranteed maximum price. If the cost exceeds this guaranteed maximum, the manager bears the excess cost. In essence, this form of contract operates as a fixed price general contract, but with the costs being more transparent to the owner. That is the form of contract that Ms. Li signed with Guru. Guru promised to do the work, obtain, contract with and manage subcontractors, and obtain insurance. The contract required that Guru provide a “budget” and that it be paid its costs as long as the costs were within 110% of the budget. There was a schedule of two years and a defined scope. I find as a result that there is supporting evidence of an enforceable contract and that Guru was a “contractor.”

26Ms. Li claims in her pleading that Guru grossly failed to comply with its contractual duties and that Ms. Li was justified in terminating the contract on October 12, 2018. The primary reason given for the contract termination was Guru’s numerous and significant deficiencies. As stated by Justice Perell in D & M Steel Ltd. v. 51 Construction Ltd., 2018 ONSC 2171 at paragraphs 51 and 53, mere bad or defective work will not entitle the owner to terminate a contract. The defects must be so defective as to amount in substance to a failure to carry out the work.

27Ms. Zhang stated in her affidavit that Mr. Liu returned from an extensive trip to China in early September, 2018 and was quite upset by the defects in the construction project. She said that Mr. Liu was particularly upset about the replacement of the specified Indiana limestone front cladding with precast. He also noted mold emanating from a leaking roof and numerous other issues. Ms. Zhang herself said she examined the project herself at this time and found it in “appalling condition.” She noted the leaking roof and the mold. She added that none of the windows and doors opened. She stated that on September 28, 2018 Mr. Liu confirmed with an engineer friend that the front elevation of the house differed from the engineer’s drawings. She said that Mr. Liu confronted Mr. Zhu with this issue by phone and that Mr. Zhu admitted this deviation saying it was done because the design “was too ugly.”

28According to Ms. Zhang, Mr. Liu tried to contact Mr. Zhu from October 1 to 5, 2018 to get the defects fixed, and that Mr. Zhu did not respond. Ms. Zhang stated that this led to the contract termination process. It started with a “constructive termination” when Mr. Liu demanded on October 8, 2018 that Mr. Zhu return the money that had been left with him to pay trades, a demand Mr. Zhu refused. Furthermore, Guru did nothing to correct deficiencies. That led to the formal termination of the contract by letter to Mr. Zhu from Mr. McCallum dated October 12, 2018.

29Whether this termination process conformed to the contract is an open question. Clauses 24 to 26 of the contract specify that Ms. Li could terminate the contract if she first gave Guru seven days written notice of the Guru contract default and then if Guru failed to correct the default in that time period. There is no evidence that such a seven day notice was given. However, those same clauses specify that if the default “is not capable of being rectified,” the owner can terminate without the notice. I find that, as it applies to deficiencies, that contract stipulation dovetails with the common law right of contract termination, namely that the contract right of termination without notice arises when the deficiencies are so extensive as to amount in substance to a failure to carry out the work.

30The question then is: was the problem with the Guru deficiencies sufficient to meet that standard? The evidence in the Zhang affidavit indicates that Ms. Li and her husband became aware of the extent of the deficiencies after the contract termination. The motion contains an affidavit of Martin Gerskup, an architect with Best Consultants Martin Gerskup Inc. The affidavit indicates that Mr. Gerskup was retained by Ms. Li after the contract termination to examine the house for deficiencies, and that Mr. Gerskup examined the house on November 9, 2018 and December 10, 2018. Mr. Gerskup discussed his findings in his Preliminary Review & Assessment dated December 22, 2020. This report shows a shocking number of defects. Mr. Gerskup identified 97 exterior deficiencies, and 225 interior deficiencies. His conclusions were sobering. He stated that he identified numerous problems of incomplete work, improper installation and material substitutions. He stated that the deficiencies could have wide-ranging consequences including “code violations, safety hazards, and ongoing issues of water penetration.” He said that the material substitutions could leave the owners with less durable finishes, thereby increasing future maintenance expenses and undermining the aesthetics and enjoyment of the house. I am satisfied from this report alone that Guru’s performance was indeed so deficient as to amount to a repudiation by Guru of the contract and justification for Ms. Li’s termination of the contract without notice.

31The fact that this all came to light after the contract termination should not undermine the validity of the termination. In Komorowski v. Van Weel, 1991 CarswellOnt 856 (Gen. Div.) serious deficiencies found by the owner after the cessation of work by the contractor was found by the court to be factors to be considered in determining the rights of parties to the contract.

32What are Ms. Li’s damages for breach of contract? Ms. Zhang’s affidavit indicates that in November, 2018 Ms. Li retained the services of Joe Pendlebury, a quantity surveyor, to value the costs of completing the work as described by Mr. Gerskup. Mr. Pendlebury attended at the site on November 28, 2018. On January 31, 2021 he wrote a report on his findings. It is appended to the Zhang affidavit. Mr. Pendlebury stated that he found that the completion of the deficiencies would cost $740,532. It should be noted that Ms. Li had already paid Guru $967,056.45, which was very close to but just over the budgeted costs in the contract.

33Ms. Zhang’s affidavit indicates, however, that Ms. Li did not correct all of the deficiencies. On August 30, 2019 she hired Watermark Homes Inc. to act as the general contractor in completing the work. But Ms. Zhang herself also assisted in this regard by hiring trades. Ms. Zhang’s affidavit contains a schedule (with backup) of all the costs Ms. Li incurred to complete the work. The total was $409,599.94.

34On August 13, 2020 Ms. Li sold the Property for $3.16 million. Ms. Zhang’s affidavit contains an appraisal of real estate broker, Vicki Zhou. In this appraisal Ms. Zhou states that the Properties sold for $250,000 less that the market value of similar properties at that time. She attributed $100,000 of this loss to poor workmanship and materials, and the remaining $150,000 loss to the absence of four features.

35The basic rule of contract damages is that the innocent party should, as far as reasonably possible, be monetarily put into the same position he or she would have been in had the contract been performed; see Safe Step Building Treatments Inc. v. 1382680 Ontario Inc. at paragraph 58. There are two accepted ways of measuring this loss. The one most commonly used in construction contracts is the costs of curing the defective performance of the contract. In this case, that would be the $740,532 measured by Mr. Pendlebury.

36But there is a second method which in my view is more appropriate to this case. It is the difference in the value of the Property between what was contracted for and what was received; see Safe Step, op. cit., at paragraph 59. This method is called the diminution in value. I find that this method is more appropriate here because Ms. Li decided not to perform all of the correction work described by Mr. Gerskup. I draw the inference from the evidence presented that she did this because she was more interested in selling the Property than in living in it. Therefore, awarding the full cost of performance would be a windfall for Ms. Li. As the court in Safe Step stated in paragraph 66, where the injured party is found not to have a genuine interest in completing all the correction work, the court will choose to award damages by way of the diminution in value to avoid a windfall to the injured party.

37The compensable diminution in value of the Property includes the $409,599.94 Ms. Li had to pay to correct deficiencies. This is money Ms. Li should not have had to pay and represents the Property value she lost due to the Guru deficiencies. The compensable diminution in value also includes the $100,000 Ms. Zhou found to be the loss in the sale price due to poor workmanship and materials. However, I will not award Ms. Li the $150,000 loss in the sale price that Ms. Zhou attributed to Ms. Li’s decision not to install the four features. Such a compensation would also be a windfall.

38I, therefore, find that Guru should pay Ms. Li $509,599.94 in damages for breach of contract.

Mr. Zhu’s Personal Liability

39Ms. Li claims that Mr. Zhu should be found personally liable for Guru’s damages. The court will “pierce the corporate veil” and make the principal behind the corporation liable for the wrongful acts of the corporation where there is evidence that that the corporation was dominated by that principal and was used as a shield for fraudulent and improper conduct; see Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co..

40The Zhang affidavit contains sufficient evidence that Mr. Zhu dominated Guru. Mr. Zhu established Guru on the eve of the signing of the contract and after Mr. Zhu made numerous misrepresentations to Ms. Li about his personal ability as a contractor. None of these representations mentioned Guru.

41I find that the company was established as a single-purpose entity in relation to this project. The evidence also shows that Mr. Zhu made his girlfriend, Yajie Ju, a Canadian resident, a director only to meet the residence requirements for companies operating in Canada. The evidence shows that Mr. Zhu is a non-resident. Mr. Zhu conducted all of the business of Guru. He clearly dominated it.

42The Zhang affidavit also shows that Mr. Zhu wanted to use Guru to insulate him from liability for improper conduct. The evidence shows that at the time of the contract Mr. Zhu gave Ms. Li misrepresentations about his ability as a contractor in the area of custom, high-end residential construction with the intention to have Ms. Li rely upon them, and that Ms. Li relied upon these representations in contracting with Guru. These representations were grossly inaccurate and negligent. As stated earlier, Ms. Li’s experts found in the end that the deficiencies in the work represented a potential correction cost to Ms. Li that was about ¾ of the contract price. This is an egregious failure.

43There is also evidence that Mr. Zhu caused Guru to convert and misappropriate construction funds, about which more will be said below. In these circumstances it would be unjust to allow Guru, a single-purpose shell company, to insulate Mr. Zhu from liability.

44I find that Mr. Zhu is personally liability for the Guru damages.

Conversion

45Ms. Li alleges that Guru and Mr. Zhu are liable to her for the tort of conversion. This tort requires that the plaintiff prove that the defendant possess personal property of the plaintiff, that the personal property be identifiable and that the defendant used the property in such a way as to deny the plaintiff his or her possession of the personal property; see Mann Engineering Ltd. v. Desai, 2021 ONSC 7580 at paragraph 123. Money is an intangible asset that is subject to such conversion.

46The Zhang affidavit indicates that, due to extended absences of both Ms. Li and her husband and at Mr. Zhu’s insistence, the parties instituted a system of blank cheques and cash payments. Ms. Li would provide Guru and Mr. Zhu with a series of blank cheques and cash to pay subcontractors, suppliers and Guru’s fees for their work on the project, all for the purpose of getting the construction done without significant delay.

47The Zhang affidavit shows sufficient evidence that this money was not used for the project in the following instances, as claimed by Ms. Li: $55,000 was paid by Guru and Mr. Zhu to a company called Erano Construction Inc. when that company did not work on the project; $13,575.58 was held by Guru and Mr. Zhu and was never returned; $6,045 was overpaid by Guru and Mr. Zhu to a company name Guru Ramdas Construction Ltd. for concrete work done by its subcontractor, Abone Cartage. The total of these three items is $74,628.58.

48Ms. Li also claims conversion in relation to $1,500 that Mr. Zhu described in his list of costs as a payment of “lucky money” to a city inspector on May 15, 2018. While I am satisfied that this payment was not authorized and was illegal, it was not money that Guru and Mr. Zhu converted to their own use. I, therefore, deny the conversion claim in relation to this item.

49Under the law of conversion, the liable party must pay the value of the converted goods at the time of conversion. I find that Guru and Mr. Zhu are liable to Ms. Li in conversion for the above-noted $74,628.58.

Breach of Trust

50Ms. Li also alleges that Guru and Mr. Zhu are liable as fiduciaries for breach of trust. A fiduciary relationship is created when the following exists: a person is given unilateral power that affects the beneficiary’s legal or practical interests; the beneficiary is peculiarly at the mercy of the fiduciary; and the fiduciary gives an express or implied undertaking to act in accordance with the duty of loyalty reposed on him or her; Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., 2015 ONCA 465 at paragraph 74.

51I am satisfied from the evidence that Guru and Mr. Zhu are liable to Ms. Li as fiduciaries in relation to the blank cheques and cash she entrusted them with. The Zhang affidavit makes it clear that Mr. Zhu expressly asked for these blank cheques and cash to give him discretion to make project payments in a timely way to keep the work moving. I find that Guru and Mr. Zhu were fiduciaries in relation to these funds, and that the funds were encrusted with a trust whereby they were to be used only for project costs. I also find that Guru and Mr. Zhu breached their fiduciary duties and breached trust when they misappropriated the above-noted $74,628.58 for purposes other than the project. For this they must account and repay. They must also account for all the monies they were entrusted with.

52Mr. Zhu’s personal liability for breach of trust is also confirmed by the common law doctrine of “knowing assistance.” This doctrine implicates third parties to a trust relationship for any breach of trust where the third party knowingly assists the trustee or fiduciary in a breach of trust through fraudulent or dishonest conduct, namely conduct for which the risk of breach is well-known to be too high; see DBDC Spadina Ltd. v. Walton, 2018 ONCA 60 at paragraph 40. As stated, I find that Guru was a trustee of the blank cheques and cash Ms. Li entrusted it with, and was charged with the duty to use them solely for project costs. Given his dominance of Guru and nature of the conversion of the trust monies I described above, I have no trouble finding Mr. Zhu personally liable for Guru’s breaches of trust concerning the above-noted $74,628.58 under this doctrine.

53However, Ms. Li goes further. She argues that there should be a constructive trust imposed on the damages I have found Guru and Mr. Zhu liable to pay. The argument is that there was an unjust enrichment here that needs to be redressed. I fail to understand the logic of this argument. In Soulos v. Korkontzilas, [1997] 2 SCR 217 at paragraph 45, the Supreme Court of Canada outlined the four prerequisites of constructive trust based on unjust enrichment. These prerequisites are grounded in the notion that the defendants are in possession of assets that have been created under an equitable obligation the defendants have to the plaintiff. In the case before me, I am at a loss as to what assets Guru and Mr. Zhu have in this regard. The evidence is clear that, with the exception of the monies converted or misappropriated as discussed above, Guru and Mr. Zhu used the blank cheques and cash given them by Ms. Li to construct the house. Granted, they did an exceedingly poor job of that. But in the end, they did not retain the house. Ms. Li retained the house, completed it, lived in it and sold it for a considerable amount of money. The court cannot transform one remedy into another without proper foundation. I deny this claim.

Other Remedies

54Ms. Li asserts other claims. She asserts a claim for breach of the contractual warranty that the work would be done in a good and workmanlike manner. As noted above, there is clear evidence that this warranty was breached, but the damages are the same as the damages for breach of contract.

55Ms. Li asserts a claim for the tort of deceit as stated above. The claim requires that the plaintiff prove that the defendant made a false representation to the plaintiff that the defendant knew was false and with the intention that the plaintiff would act on the representation, and that the plaintiff so acted and suffered damage; see Harland v. Fancsali. The Zhang affidavit contains evidence that Guru and Mr. Zhu made the misrepresentations alleged above in paragraph 19 concerning Erano Construction Inc., Bebe Construction, ShianTile and the quartz and did so with the intention of causing Ms. Li to continue funding Guru and Mr. Zhu in advance of the work. However, there is no separate claim for damages concerning this claim, and I will deal with it no further.

56Ms. Li submits that I should find Guru and Mr. Zhu liable for the overall negligent performance of the contract. Unfortunately, this was not pleaded. What was pleaded was the negligent performance of the landscaping work. Why this negligence claim was so limited is not clear, but that is what was pleaded, and this motion is based on what was pleaded. There is also no separate claim for damages concerning this claim.

Punitive Damages

57Ms. Li seeks punitive damages in the amount of $50,000. Punitive damages are an extraordinary remedy meant to punish and deter reprehensible conduct. Guru and Mr. Zhu did engage in reprehensible conduct when they grossly misrepresented their ability to do the construction to Ms. Li to get her to contract with Guru and then insisted on instituting a system of payment that made them trustees of the project money, a system that they then abused. There should be an award of punitive damages.

58$50,000 is about 6% of the total claimed. Given the reduced amount of the judgment and the level of censurable conduct, I think an appropriate amount would be $25,000.

Costs

59Ms. Li filed a bill of costs for her costs of the entire reference. It shows totals of $133,672.18 in partial indemnity costs, $160,158.70 in substantial indemnity costs and $185,645.22 in actual costs. Ms. Li wants the $160,158.70 in substantial indemnity costs. The bill of costs shows disbursements in the total amount of $54,212.62.

60As stated above, I find that Guru and Mr. Zhu engaged in reprehensible conduct when they grossly misrepresented their ability to do the construction to Ms. Li to get her to contract with Guru and then insisted on instituting a system of payment that made them trustees of the project money, a system they then abused.

61In addition, throughout this reference Mr. Zhu has not participated past the pleading stage. The lawyer for Guru and Mr. Zhu obtained an order removing himself from the record on October 25, 2021, and the two, Guru and Mr. Zhu, have not engaged with this reference. This has caused Ms. Li considerable costs. Therefore, Guru and Mr. Zhu should pay substantial indemnity costs.

62Nevertheless, I believe the requested costs are high. I realize that this has been a somewhat complex reference, with two referred lien actions and two referred civil actions involving numerous defendants and eight trial management conferences to date. But there was a motion by Ms. Li for an order amending her pleadings. I view this motion as being a result of deficiencies in the original pleadings of Ms. L and, therefore, should not be paid by Guru and Mr. Zhu.

63I also note that there have been no productions and discoveries to date. These are large amounts of cost for actions that are essentially in their early stages. Also the result needs to be considered. Ms. Li has obtained a judgment that is only 70% of what she claimed.

64I find that a reasonable award of costs in the circumstances is $140,000. That is what I order.

Conclusion

65For these reasons, I find, rule and declare that there be a default judgment as against Guru and Mr. Zhu as follows:

a) Guru and Mr. Zhu must jointly and severally pay Ms. Li $509,599.94 in damages for breach of contract and warranty; b) Guru and Mr. Zhu must jointly and severally pay Ms. Li $74,628.58 in damages for converting the project monies Ms. Li gave them, as described above; c) Guru and Mr. Zhu must jointly and severally account to Ms. Li and pay her for misappropriating the same $74,628.58 in project monies, in breach of trust; d) Guru and Mr. Zhu must jointly and severally account for all the project funds they received from Ms. Li, and there must be a tracing and return of all such funds that were misappropriated by them; e) Guru and Mr. Zhu must jointly and severally pay Ms. Li punitive damages of $25,000; and f) Guru and Mr. Zhu must jointly and severally pay Ms. Li costs in the amount of $140,000.

66As indicated in my trial management directions of May 30, 2022, I want to schedule the next trial management conference in this reference to take place as soon as possible. At this point, I have time on January 30, 2023 at 11 a.m. and February 6, 2023 at 12 noon. The active parties in this reference must confer and advise my Assistant Trial Coordinator as to which time they agree upon.

DATE: January 2, 2023 ASSOCIATE JUSTICE C. WIEBE

COURT FILE NO.: CV-19-621587 DATE: January 2, 2023

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: Weiyan Lin v. Guangcheng Zhu also known as Scott Zhu, Geo Roofing Limited, Memel Aluminum Contracting Ltd. and Guru Constrarchit Ltd., CV-19-621587; -and- Guru Constrarchit Ltd. v. Weiyan Li, CV-19-612066

REASONS FOR JUDGMENT

ASSOCIATE JUSTICE C. WIEBE Released: January 2, 2023