Shenzhen City Luohu Ind. Dev. v. Yao,

• Jurisdiction: British Columbia
• Judge: Williams
• Neutral Citation: 2000 BCSC 677
• Citation: [2000] B.C.T.C. 93 (SC),2000 BCSC 677
• Date: 04 February 2000
• Court: Supreme Court of British Columbia (Canada)

Shenzhen City Luohu Ind. Dev. v. Yao, [2000] B.C.T.C. 93 (SC)

MLB headnote and full text

Temp. Cite: [2000] B.C.T.C. TBEd. MY.077

Shenzhen City Luohu District Industrial Development Company (plaintiff) v. Jin Sheng Yao, Bon Koo, Kit Ching Chan, Sze Ming Koo, See Chung Koo, Mei Ying Yeung, Kit Ling Chan, Howon Industries Ltd., Brittingham Properties (B.C.) Ltd., Bedford Hotel Ltd., 3728 Investments Ltd., Twickco Investments Ltd., KCC Investments Ltd., LCC Developments Ltd., Golden Bay International Fund Inc., Golden Bay International Fund Management Inc., Chung Kin International Fund Inc., Chung Kin International Fund Management Inc. and 525433 B.C. Ltd. (defendants)

(C975823; 2000 BCSC 677)

Indexed As: Shenzhen City Luohu District Industrial Development Co. v. Yao et al.

British Columbia Supreme Court

Vancouver

Williams, C.J.S.C.

April 25, 2000.

Summary:

Shenzhen City Luohu District Industrial Development Company (SCLIDC) was a government controlled development company in China. Gentwood planned to develop property in Shenzhen City. Bon Koo held 20% of the shares in Gentwood in trust for SCLIDC. In 1993, SCLIDC gave Koo $5.78 million US to invest in the development project. Rather than being directed into the project, the funds were deposited into Koo's son's Hong Kong account and allegedly paid out to Koo's family and corporations owned or controlled by them. Most of the money was traced to assets in British Columbia. SCLIDC alleged that Koo's fraudulent transfer of its funds constituted a breach of trust entitling it to trace the funds. It alleged that Koo's son was liable as a constructive trustee on the basis of knowing assistance and that other family members and a corporation were liable as constructive trustees on the basis of their knowing receipt of trust monies. Koo argued, inter alia, that a share transfer agreement entered into by the parties in 1994 superseded all previous agreements and disputes and, therefore, SCLIDC's claim in fraud and breach of trust did not survive the agreement.

The British Columbia Supreme Court held that SCLIDC and Koo were in a trust relationship with respect to the funds. Koo breached the trust. Koo's son was a constructive trustee because he knew the money was coming into his account. The son was liable for the breach of trust. The court held that the share transfer agreement was not binding on SCLIDC because it was not aware of Koo's fraudulent conduct when it entered into the agreement. Therefore, the agreement did not prevent SCLIDC from proceeding with its action. The court determined the liability of the other defendants. The court granted SCLIDC a tracing order against various assets held by Koo's family members. The court determined SCLIDC's damages.

Contracts - Topic 1503

Formation of contract - Consensus or agreement - What constitutes a consensus necessary for a binding contract - See paragraphs 161 to 191.

Contracts - Topic 1604

Formation of contract - Mistake, misunderstanding or misrepresentation - Misrepresentation - What constitutes - See paragraphs 160 to 191.

Contracts - Topic 4183

Remedies for breach - Rescission - When available - General - See paragraphs 160 to 191.

Family Law - Topic 641

Husband and wife - Marital property - Transfer between spouses - Presumption of gift or advancement - See paragraphs 254, 288 to 300.

Family Law - Topic 642

Husband and wife - Marital property - Transfer by husband to wife - Rebuttal of presumption of gift or advancement - See paragraphs 288 to 300.

Trusts - Topic 361

Creation of trust - Intention - Trust v. creditor and debtor relationship - See paragraphs 102 to 119.

Trusts - Topic 931

Trust property - Doctrine of tracing - General - See paragraphs 307 to 341.

Trusts - Topic 2351

Constructive trusts - Basis for imposition - Where stranger knowingly or dishonestly participates in breach of trust - See paragraphs 102 to 154, 194 to 255.

Trusts - Topic 2768

The beneficiary - Remedies on breach - Tracing - When available - See paragraphs 194 to 217, 248 and 307 to 341.

Trusts - Topic 6086

The trustee - Accounting - Deductible expenses - See paragraph 127.

Trusts - Topic 6153

The trustee - Breach of trust - Liability of stranger to trust - See paragraphs 102 to 154, 194 to 255.

Cases Noticed:

Air Canada v. M & L Travel Ltd., Martin and Valliant, [1993] 3 S.C.R. 787; 159 N.R. 1; 67 O.A.C. 1; 108 D.L.R.(4th) 592; 50 E.T.R. 225, refd to. [para. 114].

Henry v. Hammond, [1913] 2 K.B. 515, refd to. [para. 117].

Hanna (M.A.) Co. v. Provincial Bank, [1935] 1 D.L.R. 545 (S.C.C.), refd to. [para. 117].

R. v. Lowden (1981), 27 A.R. 91; 59 C.C.C.(2d) 1 (C.A.), affd. (1982), 42 N.R. 616; 43 A.R. 374; 68 C.C.C.(2d) 531 (S.C.C.), refd to. [para. 118].

Bank of Nova Scotia v. Société Générale (Canada) et al. (1988), 87 A.R. 133; 68 C.B.R.(N.S.) 1 (C.A.), refd to. [para. 118].

McEachern v. Royal Bank of Canada and Dial Mortgage Corp. (Bankrupt) (1990), 111 A.R. 188; 2 C.B.R.(3d) 29 (Q.B.), refd to. [para. 118].

Belmont Finance Corp. v. Williams Furniture Ltd., [1979] 1 All E.R. 118 (C.A.), refd to. [para. 146].

Montague's Settlements, Re; Manchester (Duke) v. National Westminster Bank, [1987] Ch. 264, refd to. [para. 146].

Carl-Zeiss-Stiftung v. Smith (Herbert) & Co. (No. 2), [1969] 2 All E.R. 367 (C.A.), refd to. [para. 146].

R. v. Sansregret, [1985] 1 S.C.R. 570; 58 N.R. 123; 35 Man.R.(2d) 1; 18 C.C.C.(3d) 223, refd to. [para. 152].

Whistler Housing Corp. v. Whistler (Resort Municipality), [1997] B.C.T.C. Uned. 591 (S.C.), refd to. [para. 182].

Sign-O-Lite Plastics Ltd. v. Metropolitan Life Insurance Co. (1990), 49 B.C.L.R.(2d) 183 (C.A.), dist. [para. 183].

Fotini's Restaurant Corp. v. White Spot Ltd., [1998] B.C.T.C. Uned. 323 (S.C.), dist. [para. 183].

Guarantee Co. of North America v. Gordon Capital Corp. (1999), 247 N.R. 97; 126 O.A.C. 1; 178 D.L.R.(4th) 1 (S.C.C.), dist. [para. 183].

Northland Bank v. Walters, [1997] B.C.T.C. Uned. 725 (S.C.), refd to. [para. 187].

White, Fluhman and Eddy v. Central Trust Co. and Smith Estate (1984), 54 N.B.R.(2d) 293; 140 A.P.R. 293; 7 D.L.R.(4th) 236 (C.A.), refd to. [para. 189].

Workers' Compensation Board (B.C.) v. Canadian Imperial Bank of Commerce et al. (1998), 105 B.C.A.C. 20; 171 W.A.C. 20; 48 B.C.L.R.(3d) 27 (C.A.), refd to. [para. 215].

Cohen v. Mahlin (1927), 8 C.B.R. 23 (Alta. C.A.), refd to. [para. 216].

Central Capital Corp. v. Clausi (1993), 13 O.R.(3d) 335 (Gen. Div.), refd to. [para. 250].

McKillop (H.A.) & Co. v. Royal Bank of Canada (1918), 56 S.C.R. 220, refd to. [para. 292].

Longmore v. McArthur (J.D.) Co. (1910), 43 S.C.R. 640, refd to. [para. 293].

Read v. Cole (1915), 52 S.C.R. 176, refd to. [para. 293].

D'Ambrosio v. D'Ambrosio, [1959] O.J. No. 343 (C.A.), refd to. [para. 295].

Smith v. Garbutt et al., [1998] B.C.A.C. Uned. 155 (C.A.), refd to. [para. 298].

Authors and Works Noticed:

Cheshire, Fifoot and Furmston, The Law of Contract (13th Ed. 1996), p. 297 [para. 186].

Fridman, Gerald Henry Louis, The Law of Contract in Canada (4th Ed. 1999), pp. 854 to 857 [para. 185].

Halsbury's Laws of England (1995) (4th Ed. - Reissue), vol. 48, pp. 276 to 283 [para. 106]; para. 785 [para. 127].

Waters, Donovan W.M., The Law of Trusts in Canada (2nd Ed. 1984), pp. 108, 109 [para. 110].

Counsel:

Ronald Josephson, Kevin Guidera and Vladena Hola, for the plaintiff;

Allan Seckel and Simon Coval, for the defendants, Bon Koo and Golden Bay International Fund Management Inc.;

Peter Voith and Robert Brookfield, for the defendants, Sze Ming Koo, Kit Ling Chan and 525433 B.C. Ltd.;

Kenneth McEwan, Robert Anderson and Douglas Muir, for the defendants, Kit Ching Chan, See Chung Koo, Brittingham Properties (B.C.) Ltd., Bedford Hotel Ltd., 3728 Investments Ltd., Twickco Investments Ltd., KCC Investments Ltd. and LCC Developments Ltd.;

Robert Sewell and H. William Veenstra, for the defendants, Mei Ying Yeung and Howon Industries Ltd.;

Stein K. Gudmundseth, for the defendants, Golden Bay International Fund Inc., Chung Kin International Fund Inc. and Chung Kin International Fund Management Inc.

This action was heard at Vancouver, British Columbia, on May 10 to June 18, July 5-16, October 4-15 and 25-29 and December 10 and 13-17, 1999, and January 3-7, 14 and 20 and January 31 to February 4, 2000, before Williams, C.J.S.C., of the British Columbia Supreme Court, who delivered the following reasons for judgment on April 25, 2000.

Please note: The following judgment has not been edited.