Reasons for Judgment

Court File No.: CV-19-00620000-0000 and CV-20-00636314-0000
Date: 2025-04-28
Ontario Superior Court of Justice

Between:
William Fu, Plaintiff
– and –
Michael Fung, also known as Kam Fung, Defendant
AND BETWEEN:
William Fu, Plaintiff
– and –
John Fung and Castle Kingdom Limited, Defendants

Appearances:
David W. Levangie, for the Plaintiff
No one appearing for the Defendants

Heard: April 23, 2025
Released: April 28, 2025
Judge: L. Brownstone

Introduction

[1] The plaintiff (“William”) seeks judgment for the repayment of funds he advanced to John Fung (“John”), Castle Kingdom Limited (“Castle”), and Michael Fung (“Michael”) for the purpose of an investment in Nigerian crude oil.

[2] The procedural history is as follows.

[3] The defendants initially defended the claims and examinations for discovery were held. On October 24, 2022, Associate Justice Brown ordered that the two actions be tried together or one immediately following the other, in accordance with the discretion of the trial judge.

[4] About a month before trial, the defendants withdrew their statements of defence. They are therefore deemed to have been noted in default: rule 23.06(2). Justice Des Rosiers ordered the matter to proceed as an uncontested trial. Given that the actions result from the same transaction or series of transactions, I heard the two matters together.

[5] In addition to the deemed admissions from the pleadings, the plaintiff filed an affidavit. The court also had available to it portions of the transcripts of the examinations for discovery which the plaintiff treated as “read ins”.

[6] Under rule 19.02, a defendant who has been noted in default is deemed to admit the truth of all allegations of fact made in the statement of claim. Of course, judgment issues only if the facts alleged entitle the plaintiff to judgment: rule 19.06.

[7] The inquiry undertaken by the court on a motion for default judgment is the following: (i) What deemed admissions of fact flow from the facts pleaded in the statement of claim?; (ii) Do those deemed admissions of fact entitle the plaintiffs, as a matter of law, to judgment on the claim?; and (iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim? That is, do the deemed admissions and evidence filed make out the elements of a valid cause of action? (Elekta Ltd. v. Rodkin, 2012 ONSC 2062, para 14).

Facts

[8] The amended statement of claim against John and Castle and the statement of claim against Michael are virtually identical in respect of the salient facts. The deemed admissions that flow from those claims include the following.

[9] William lives in Toronto. John lives in Hong Kong and is the sole chairperson, director, shareholder, and officer of Castle. He was the decision maker in all dealings with Castle, although William did not know this at the time he entered into the investment agreement.

[10] In 2019, William learned that Castle was incorporated pursuant to the laws of the British Virgin Islands with its primary headquarters in Hong Kong.

[11] In 2015, William met Michael socially through a mutual friend and William and Michael developed a friendship. Michael held himself out as well-connected in social circles and introduced William to many prominent community members and civic leaders. Michael also worked as an anchor for Fairchild Group, Canada's premiere multicultural news network, and in particular the Chinese programming group. Michael's community ties and prominent status as an anchor with Fairchild Group gave him credibility as a community member and businessman. As a result of this social status and credibility, together with their apparent friendship, William trusted Michael.

[12] In early 2017, while Michael and William were at William’s house during a social visit, Michael pitched an investment proposal to William. Michael advised William that Michael was the CEO of Castle and that Castle engaged in various commodity investments, including the purchase of light crude oil contracts from Nigeria. Michael advised William that if he invested with Castle Kingdom, William would obtain a significant return (100%) on his investment. Due to his relationship with Michael and Michael's reputation as a civic leader, William agreed to invest an initial $250,000 USD with Castle.

[13] On February 20, 2017, Castle and William executed an investment contract, mistakenly dated March 20, 2017, to purchase an interest in Nigerian light crude oil contracts. The contract included the following terms:

• Fu would invest $250,000 USD in Castle;
• The investment would be used to purchase Nigerian light crude oil contract NNPC/JVO/ARIT.LL.C/TOPS-113/10/16;
• When Castle received its commission from the Nigerian contract, it would direct the return of William’s principal investment of $250,000 USD, together with a $250,000 USD return on investment (equating to $0.25/barrel x 200 million barrels);
• In the event that the Nigerian contract was terminated due to an error incurred by the Nigerian Ministry of Petroleum, the Nigerian Ministry of Petroleum would indemnify Castle for $750,000 USD, and within two days of receipt, Castle would pay William his principal investment of $250,000 USD together with $62,500 USD;
• Castle acknowledged that William's investment could only be used for the Nigerian contracts and could not be misappropriated, loaned, or mortgaged.

[14] William executed the contract on his behalf, and Michael executed the contract as the CEO of Castle. Michael used Castle's name but has no connection to Castle. In order to support the legitimacy of the two contracts (the investment contract with William and the Nigerian contract), Michael provided a "Sales & Purchase Contract Agreement" between Castle and the Nigerian National Petroleum Corporation.

[15] On February 21, 2017, William wired $100,000 USD to "Castle Kingdom" toward his investment. Between February 22 and February 24, 2017, William wired an additional $150,000 USD to Castle to complete his $250,000 USD investment.

[16] Following the transfer of funds and execution of the investment contract, William followed up with Michael regarding the status of the investment, and Michael responded by providing excuses for delays in having the investment mature. In the fall of 2017, William began asking Michael when he could expect a payout on the contract. Michael advised that a payout could be expected shortly, but in order to secure the payout William would need to invest an additional $20,000 USD to cover some unexpected costs, but that he would receive the same return on the additional $20,000 USD.

[17] On December 18, 2017, in order to secure his principal investment and return on investment, William wired an additional $20,000 USD to Castle as requested by Michael. Despite the wire of the additional $20,000 USD to Castle, William has not received payment of any amount. Following the December 18, 2017, wire transfer, William followed up with Michael many times regarding the status of his $270,000 USD investment. William's calls went unanswered and unreturned, and Michael moved without providing a forwarding address.

[18] In June or July 2018, William met Michael at a Tim Hortons to follow up regarding the status of the investment. At the meeting, Michael advised William that the investment had not yet matured and was delayed.

[19] On November 15, 2018, William texted Michael advising that he would start dedicating resources to finding Michael and recovering his funds. On November 16, 2018, Michael responded advising that he was attempting to borrow money from friends to repay William. Over the course of the following months Michael stalled and delayed William by making numerous promises that repayment was forthcoming, that money was being borrowed from friends and family to repay William, and that it would be deposited into William’s account shortly. Despite such promises, William has not received any money.

[20] Castle and John directed Michael in carrying out the conduct described above. Michael and John together were the directing minds of Castle, and they orchestrated for Michael to approach William to invest in Castle with no intention of investing his funds or adhering to the investment contract. Castle, Michael, and John set out to defraud William, as described above.

[21] John provided Michael access to Castle, an inactive shell corporation, to assist in committing the fraud, and executed documents on Castle’s letterhead that he knew to be false to assist in perpetrating, continuing, and concealing the fraud. John received control of the fraudulently obtained funds when they were wired into Castle’s account, and then wired the funds abroad to render them difficult to trace.

[22] The investment contract and the Nigerian contract were part of a fraud perpetrated by Castle, Michael, and John to defraud William of his investment. Castle, Michael, and John absconded with William's money when it was transferred to Castle. The funds were never used to purchase Nigerian light crude oil contracts.

[23] Castle, Michael, and John knew the representations they were making to induce William to send the funds were false, and there was never any intention of investing William's money in accordance with the investment contract. William provided Castle, Michael, and John with funds based on Michael's false representations, which were made with the knowledge and direction of Castle and John. William suffered damages as a result.

[24] William’s affidavit annexes the investment contract. The affidavit also annexes a forged “Sales and Purchase Contract Agreement” between Castle and the Nigerian National Petroleum Corporation provided to William by Michael. The read-ins confirm that Castle is a holding company that does not own any assets or carry on business, and that none of the defendants have any experience in commodities or oil and gas. John never considered Michael to be an employee of Castle. A number of false documents were created in respect of this transaction.

Claims and Legal Principles

[25] William claims damages on the bases of fraud/fraudulent misrepresentation, unjust enrichment, conversion, knowing assistance and receipt, and breach of contract. He also seeks a declaration that the debt or liability has arisen from obtaining property or services by false pretenses or fraudulent misrepresentations.

[26] The tort of civil fraud has four elements: (1) a false representation by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness); (3) the false representation caused the plaintiff to act; (4) the plaintiff’s actions resulted in a loss (Hryniak v. Mauldin, 2014 SCC 7, para 87).

[27] Here, the deemed admissions establish these four elements. The defendants falsely represented that Castle was engaged in the business of purchasing crude oil and other commodities, that Michael was Castle’s CEO, that William’s money would be used to invest in a purchase of crude oil, and that William would receive a significant return on his investment. These representations were all false and known to be false by the three defendants. The representations were designed to and did cause William to act, and his actions resulted in his loss of funds. False representations were also made with respect to the additional $20,000 USD investment, namely that the funds were needed to secure the original investment, that they would be used for this purpose, and that William would receive the same promised return on this portion of his investment. Again, the defendants knew these statements were false, the false representations caused William to act, and he acted by sending a further $20,000 USD, resulting in his loss. The facts establish that all three defendants were involved in orchestrating these statements and events, and that Michael made the statements on behalf of and with the approval of Castle and John.

[28] Having made this determination, I need not consider the other tort bases for liability. Further, I decline to find a breach of contract, as the contractual terms themselves contained conditions. Castle was not required to pay William under the contract until either it received a commission for the oil, or the transaction failed due to errors by the Nigerian National Petroleum Corporation. Of course, neither of those events occurred. The contract did not promise a 100 per cent return rate after a certain period of time passed. It contemplated other events, which never came to pass.

[29] It is not a breach of the contract that caused William’s loss, but the fraudulent misrepresentation that led William to part with his money.

Damages

[30] William is therefore entitled to damages based on the fraudulent misrepresentation. He is entitled to be paid an amount in Canadian currency sufficient to purchase the principal sum of USD $270,000.

[31] William also asks for an award of punitive damages, which are awarded in cases in which there is marked departure from ordinary standards of decent behaviour. Their objective is punitive, not compensatory (Whiten v. Pilot Insurance Co., 2002 SCC 18, paras 36, 94).

[32] I agree that the fraud perpetrated in this case meets the standard of "high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour" (Whiten at para. 94). A simple return of the funds William provided does not adequately accomplish the objectives of retribution, deterrence, and denunciation of such behaviour.

[33] William seeks damages of $100,000, less than a third of the main damages award. The conduct at issue was designed and orchestrated to take William’s money; the “request” for an extra $20,000 USD to secure the return of his funds adds an extra level of malevolence to the conduct. This kind of financial fraud must be deterred. These factors lead me to agree that $100,000 is an appropriate award of punitive damages. The amount is consonant with similar cases provided by William: see, for example, Gennett Lumber Co. v. John Doe a.k.a. Milton Harvey et al., 2019 ONSC 1345.

[34] William asks for a declaration that the damages owed have arisen from obtaining property or services by false pretenses or fraudulent misrepresentations. He relies on The Bank of Nova Scotia v. Rosario Rosado, 2024 ONSC 4395. I adopt the approach of Charney J. in that case at paras. 38-40. Like Charney J., I have found here that William has proven each of the four elements of fraud. I have made a finding that the damages are owed based on fraudulent misrepresentation. However, I am not confirming the existence of any legal rights by issuing a declaration. Should there be a future application under the Bankruptcy and Insolvency Act, RSC 1985, c B-3, my finding is here for any court to refer to and rely upon should it consider it appropriate to do so.

Costs

[35] William seeks costs on a substantial indemnity basis for both actions in the amount of $161,706.60.

[36] Fixing costs is a discretionary exercise under s. 131 of the Courts of Justice Act, RSO 1990, c C.43. Rule 57 outlines, in a non-comprehensive list, factors that guide the exercise of this discretion. Relevant factors include the results of the proceeding, the principle of indemnity, the amount an unsuccessful party could reasonably expect to pay, the complexity of the proceeding and the importance of the issues.

[37] Ultimately, I must fix an amount of costs that is proportionate, and that is fair and reasonable for the unsuccessful party to pay (Boucher v. Public Accountants Council for the Province of Ontario, para 26). A costs award should “reflect what is reasonably predictable and warranted for the type of activity undertaken in the circumstances of the case, rather than the amount of time that a party’s lawyer is willing or permitted to expend” (Apotex Inc. v. Eli Lilly Canada Inc., 2022 ONCA 587, para 65).

[38] Here, the defendants engaged in protracted litigation only to withdraw their statements of defence at the eleventh hour. They advanced a counterclaim. William was required to engage in documentary and oral discovery, responses to undertakings, mediation, pretrial and trial preparation. The fees charged and hours spent are reasonable. Given the high-handed conduct of the defendants, substantial indemnity costs are warranted. The amount claimed should have been in their contemplation when they engaged in protracted litigation that was bound to end badly for them. The costs requested shall be ordered.

Disposition

[39] While the defendant’s draft judgment contained other relief, including an accounting and production of records, these were not addressed in oral or written submissions and appear unnecessary.

[40] Therefore, I order that judgment shall go against all three defendants as follows:

• The defendants shall pay damages, in the amount of Canadian currency sufficient to purchase the principal sum of USD $270,000;
• The defendants shall pay punitive damages in the amount of $100,000;
• The defendants shall pay prejudgment interest at the rate of 1% from December 18, 2017, to April 28, 2025;
• The defendants shall pay costs on a substantial indemnity basis in the amount of $161,706.60 inclusive of fees, taxes and disbursements;
• The judgment shall bear post judgment interest at the rate of commencing April 28, 2025.

[41] I have signed the judgment in accordance with these reasons.

L. Brownstone
Released: April 28, 2025