IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Zhao v. Ai Kang Capital Inc., |
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2019 BCSC 587 |
Date: 20190322
Docket: S1812177
Registry: Vancouver
Between:
Qun Zhao and AQM Investment International Ltd.
Plaintiffs
And
Ai Kang Capital
Inc., Wang Dong,
Aikang Yi Yuan Enterprises Ltd. and Cheng Changzhan
Defendants
And
A2Z Capital Inc.,
TDR International Trading Ltd.,
Ren Fen Zhang, 1113767 B.C. Ltd., and Kang Qing Zhang
Defendants by Counterclaim
Before: The Honourable Mr. Justice Mayer
Oral Reasons for Judgment
In Chambers
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Counsel for the Plaintiffs: |
R.W. Cooper, Q.C. S.J. Foweraker |
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Counsel for the Defendant, Ai Kang Capital Inc.: |
D.A. Byma |
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Counsel for the Defendant, Wang Dong: |
J.D. Shields |
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Counsel for Various Limited Partners of LP 006: |
S.A. Turner |
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Place and Date of Trial/Hearing: |
Vancouver, B.C. March 12, 2019 |
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Place and Date of Judgment: |
Vancouver, B.C. March 22, 2019 |
[1] In the application heard before me on March 12, 2019, the applicant Wang Dong sought the following orders:
1) a declaration that at the AGM of AK GP (006) Management Ltd. held November 20th, 2018, Wang Dong and Huaixuang Xing were validly appointed as Directors;
2) a declaration that as of November 20, 2018, Qun Zhao ceased to be a director of AK GP 006;
3) an interlocutory and/or permanent injunction enjoining Ms. Zhao from giving or purporting to give any instructions on behalf of the general partner, AK GP 006, or conducting any business on its behalf;
4) an interlocutory and/or permanent injunction enjoining Lawson Lundell LLP from taking instructions from Ms. Zhao in relation to AK GP 006;
5) an order directing Ms. Zhao and Lawson Lundell to provide Ai Kang Capital (“AKC”) and/or Wang Dong with the BC OnLine password for AK GP 006;
6) an order directing Ms. Zhao and Lawson Lundell to provide AKC or Wang Dong with an unredacted copy of the agreement for purchase and sale under which AK GP 006 is to sell properties located at 2710 Kaslo Street and 2665 Renfrew Street in Vancouver (the “Properties”);
7) as well the applicant seeks an order for special costs or costs.
[2] Mr. Dong, Ms. Zhao and Mr. Chen each own shares in AKC Investment International (“AKC”). Mr. Dong has a 50 percent interest through a company owned by him. Ms. Zhao has a 40 percent interest through her company AQM. And Mr. Chen owns the remaining 10 percent.
[3] AKC was established in January of 2016 with a purpose of investing in and developing real property. In the summer of 2016, AKC established a limited partnership, Fund 6, with a purpose of investing in and developing the properties which it owns. Fund 6 purchased the Properties for approximately $52 million in 2016.
[4] In addition to the properties owned by Fund 6, AKC is involved in two other real estate projects in Vancouver which are not relevant to the application before me but are relevant to the oppression remedy claim which has been commenced by Ms. Zhao and her company as against the defendants.
[5] The general partner, Fund 6 is AK GP 006, which was incorporated in July of 2016. AKC owns 67 percent of the general partner’s voting shares and 80 percent of its equity shares. The balance of the shares are equally divided between Mr. Bin Chen and Mr. Xing, who each own 16.5 percent of the voting shares and 10 percent of the equity shares. Ms. Zhao was the original sole director of AK GP 006 at the time of its incorporation.
[6] As a result of an ongoing dispute between the owners of AKC, Ms. Zhao was removed as CEO and fired from AKC in March of 2018. She was later removed as a director of AKC in either April of 2018 or June of 2018 by resolutions of its board of directors.
[7] Ms. Zhao alleges that she was removed as CEO and as a director unlawfully and contrary to a shareholders agreement, which is what is referred to as a joint venture agreement, and has commenced this litigation by way of petition in June of 2018, the petition being converted to an action by consent in November of 2018. In the action, Ms. Zhao alleges oppression and other mistreatment by other shareholders of AKC. I am advised by counsel for the applicants that no significant steps have been taken in this litigation at this time.
[8] In April of 2018, AKC delivered a requisition for a general meeting of the shareholders of AK GP 006 which Mr. Dong contends was not held, that is, the general meeting was not held, within the required 21 days under s. 167 of the Business Corporations Act, S.B.C. 2002, c. 57 [BCA].
[9] Ms. Zhao took the position that the requisition was not properly authorized by AKC and was otherwise not issued in accordance with the requirements of the BCA. Nonetheless, in May of 2018, Ms. Zhao advised the other shareholders that a general meeting for the general partnership would be scheduled in the fall of 2018. General meeting was not scheduled by Ms. Zhao.
[10] At an AGM of AKC in November of 2018, Mr. Dong and Mr. Chen were appointed as directors. Ms. Zhao was not elected as a director. Ms. Zhao takes the position that this is not in accordance with the terms of the AKC shareholders agreement, which provides that each of the shareholders is to be a director.
[11] In November of 2018, after AKC delivered notice, the AGM of AK GP 006 was held, and Mr. Dong and Mr. Xing were elected as directors, replacing Ms. Zhao, who again had previously been the sole director.
[12] Also in November, Ms. Zhao, on behalf of AK GP 006, entered into agreements for the sale of the Properties, and on November 26, 2018 provided AKC with a redacted copy of the agreement leaving out the date of the agreement, the name of the purchaser, the size of the deposit and the closing date. I believe some of that information has since been provided by Ms. Zhao or corporate counsel for the general partnership to Mr. Dong.
[13] In any event, subsequently Mr. Dong sought to obtain the online password required to document changes to the directors of AK GP 006 with the BC Registrar of Companies from both Ms. Zhao and from AK GP 006’s corporate solicitors, Lawson Lundell, but the request for those passwords were refused.
[14] The sale of the Properties is set to close on March 28, 2019, next week. Ms. Zhao negotiated the sale of the Properties for, I believe, $73.5 million on behalf of the general partnership and the fund. She has, I am advised, refused to provide an unredacted copy of the agreement for sale unless Mr. Dong agrees not to interfere with the sale by contacting the purchasers or otherwise seeking to prevent it from proceeding.
[15] Ms. Zhao submits that the dispute which gives rise to this application is really about Mr. Dong’s desire to stop the sale of the Properties from proceeding. In addition, she contended that her removal as a director of, I assume, both AKC and AK GP 006, was improper.
[16] Mr. Dong submits that he is not opposed to the sale of the Properties on the current terms, but reserves all rights to seek other damages as against Ms. Zhao in the main litigation. He also submits that he is prepared to commit not to interfere with the sale of the Properties, but that if the sale does not close on March 28th, that the directors of AK GP 006, that being himself and Mr. Xing, would have the only authority to make decisions on behalf of AK GP 006 with respect to the Properties.
[17] As I have already said, Ms. Zhao submits that the AKC shareholders agreements provide that she and Mr. Dong and Mr. Chen shall act as directors of AKC and that she was improperly removed and therefore that any steps taken afterwards, including the calling of the AK GP 006 AGM in November of 2018 resulting in her not being reappointed as a director, are invalid.
[18] Mr. Dong says that even if there were technical defects in the process leading to Ms. Zhao’s removal as a director of AKC, and later of AK GP 006, that the issue of who are directors of the general partnership, including who has the right to instruct counsel and manage the general partnership, needs to be resolved.
[19] The balance of the respondents to this application, which include a number of parties who either hold partnership units in or are creditors to Fund 6, do not want the sale of the Properties to be delayed. They wish to be paid. In any event, it is clear to me that none of the parties at this point seek to delay the sale of the Properties, so everyone is ad idem on that point.
[20] Therefore, in summary, the issues to be decided are:
1. First of all, with respect to the governance of AK GP 006, who are the current directors; and
2. Second, is there a basis for providing the injunctive relief sought by Mr. Dong, which includes precluding Ms. Zhao from acting on behalf of AK GP 006, which includes the giving of instructions and conducting any business on the company’s behalf.
[21] Clearly, the lack of certainty with respect to who are the directors of AK GP 006, and directly related to that, who can make any decisions and take necessary steps on the company’s behalf, is not helping anyone and is putting the sale of the Properties, which everyone desires to proceed, at risk.
[22] I am advised that the only assets of AK GP 006/Fund 6 are the Properties. I assume that when the Properties are sold and any liabilities paid, including those to shareholders and lenders, that there will be, in effect, no further business activities for that general partnership.
[23] I appreciate that there are a number of other disputes between Ms. Zhao and Mr. Dong which primarily concern AKC and its other real estate projects and perhaps other matters which will remain outstanding and are intended to be resolved at the trial dealing with Ms. Zhao’s oppression remedy claim and Mr. Dong’s counterclaim, but in the application before me, I am only dealing with the question of who are the appropriate directors of AK GP 006 and not the other matters in dispute between the parties which will be resolved in the main action.
[24] With respect to whether or not the November 20, 2018 AGM of the general partnership was appropriately carried out, Ms. Zhao’s position is that the November 9th notice of AGM and the April 23rd requisition which preceded it were invalid on the basis that the requisition was not authorized by a properly constituted meeting of all the directors of AKC and the business stated in the requisition did not relate in a significant way to the business affairs of AK GP 006.
[25] I find that the April 23rd requisition was made generally in compliance with the requirements of s. 167 of the BCA. AKC held more than the required 1/20th of the voting shares of the general partnership. Further, as a director of AKC, Mr. Dong issued the requisition, and there is nothing suggesting that it was not within his power as a director to do so.
[26] In addition, even if a majority vote of the shareholders of AKC was required before such a requisition could be issued, I do note that Mr. Dong and Mr. Chen together held 60 percent of AKC’s shares, and I understand both approved the issuance of the requisition.
[27] I am satisfied that the AKC shareholders agreement provided that decisions, including issuance of a requisition such as the one that was issued, could be made by a vote of a simple majority of the shareholders of AKC.
[28] The business to be transacted, including the special resolution sought to remove Ms. Zhao as a director, was appropriately set out. I do not consider that it appeared that the primary purpose for the requisition concerned enforcing a personal grievance or a personal claim which gives rise to an objection to the requisition that was issued pursuant to s. 167(7)(c) of the BCA.
[29] Section 167(5) of the BCA required the director of AK GP 006, at that time Ms. Zhao, to set a general meeting within four months after the requisition was received and this was not done. Accordingly, I turn to s. 167(8) of the BCA, which provides that the requisitioning shareholder, if a notice of a general meeting is not set within 21 days of receipt of the requisition, may send notice of a general meeting.
[30] In November of 2018, a majority of the shareholders and directors of AKC, being Mr. Dong and Mr. Chen, authorized Mr. Dong to attend AK GP 006’s AGM and to vote on behalf of AKC. Even if Ms. Zhao had been a director of AKC at the time, her vote, in my view, would not have changed the result.
[31] The AKC shareholders agreement provides that decisions such as this can be made by a simple majority. I have already stated that. It did not require unanimous approval of all the shareholders of AKC. If it did, this would have, in effect, provided a veto to any minority shareholder of AKC to prevent a representative from voting at a general meeting of its shareholders. It would have essentially prevented the company from doing any business going forward, and that was not the case.
[32] On November 9, 2018, notice of an annual general meeting of AK GP 006 was issued by Mr. Dong on behalf of the shareholders. At the AGM on November 20th, Mr. Dong and Mr. Xing were unanimously elected as directors and Ms. Zhao was not.
[33] Prior to November of 2018, an AGM had never been called for the general partnership as it should have been pursuant to the company’s articles and the BCA. Eventually, after being pressured to do so, Ms. Zhao committed to set an AGM in the fall of 2018, but she did not take steps to do so.
[34] She clearly received notice of the AGM that was eventually set, and she attended at the AGM with counsel and made submissions. Ms. Zhao did not seek to set aside the notice of AK GP 006’s AGM issued by Mr. Dong and Mr. Chen on November 9, 2018, or to otherwise prevent the AGM from proceeding.
[35] I find that the process for setting the AGM of AK GP 006 was valid and that election of Mr. Dong and Mr. Xing as directors is therefore valid.
[36] Alternatively, even if the process for setting the AGM, including issuance of the required notice, was technically flawed, in the circumstances I still consider it appropriate that the election of the directors for AK GP 006 stand. In this respect, I rely on the authorities referred to me by counsel for Mr. Dong, and that includes Pacific Coast Mines, referring to a decision of Mellish J. in MacDougall v. Gardiner; and as well our BC Court of Appeal in Trans Mountain Pipe Line v. Inland Natural Gas, referring to the decision of Lord Justice Lindley in Isle of Wight Railway Co.
[37] I want to be very clear that nothing in my decision should be taken as binding or being determinative with respect to the appropriateness of Ms. Zhao’s removal as CEO and the director of AKC. Those issues remain outstanding in this litigation. I am only dealing with the issues of the current governance of AK GP 006 and not the governance of its shareholder AKC.
[38] In addition, I also want to be clear that nothing in my decision in any way prevents Ms. Zhao from seeking any remedies, including injunctive relief or other relief, if she considers that the affairs of AK GP 006 are being carried out in a manner oppressive to her rights as a shareholder of AKC.
[39] In the result, I make the following declarations and orders.
[40] First, I declare that at the AGM of AK GP (006) Management Ltd. held on November 20, 2018, Wang Dong and Huaixuang Xing were validly appointed as directors.
[41] Second, I declare that as of November 20, 2018, Qun Zhao ceased to be a director of AK GP 006.
[42] Third, with respect to the application for an injunction, at this time I decline to grant an injunction preventing Ms. Zhao from giving or purporting to give any instructions on behalf of AK GP 006 or conducting any business on its behalf or enjoining Lawson Lundell from taking instructions from Ms. Zhao.
[43] I say this because, given my declaration with respect to the directorships of AK GP 006, it is now clear that Mr. Dong and Mr. Xing have the authority to make decisions on behalf of that company. There is no indication that Ms. Zhao intends to continue or plans to continue to seek to make decisions as a director of AK GP 006.
[44] In addition, I fully expect that Lawson Lundell, corporate counsel for the general partnership, will only take orders from the now confirmed directors of that company. Accordingly, I adjourn this portion of the application.
[45] Now, in an abundance of caution, I do order that Ms. Zhao and Lawson Lundell provide Ai Kang Capital Inc. or Wang Dong with the BC OnLine password for AK GP 006.
[46] Finally, I order that Qun Zhao and Lawson Lundell, if they have not already done so, provide AKC or Wang Dong with an unredacted copy of the agreement for purchase and sale under which AK GP 006 purports to sell the Properties already described.
[47] Now, I will turn to the various orders which all of the parties to this application including the plaintiffs, the defendants and the respondents have consented to. The first order which will go by consent is that no party, including Mr. Dong, or any of the other shareholder or directors of AKC, any of the shareholders or directors of AK GP 006, will seek to interfere with or otherwise prevent the sale of the Properties from completing on March 28, 2019. And as well, by consent, the directors of AK GP 006, being Mr. Dong and Mr. Xing, will take all necessary steps required to perfect the closing of the sale of the Properties pursuant to their current terms and timelines as are required.
[48] The second order which goes by consent with respect to the net proceeds from the sale of the Properties is that subject to their agreement to do so, that the sale proceeds will be paid to MNP to the attention of Jenny Lee to be held.
[49] Third, any of the parties or respondents to the application that was before me are at liberty to apply for further direction from the court with respect to arrangements to be made for payment of funds to MNP or payment of funds out of MNP’s accounts to the court.
[50] Fourth, any of the parties who are respondents to this application are at liberty to apply to the court for further orders should Mr. Dong, Mr. Xing or others not comply with their agreement to not interfere with the sale of the Properties or to otherwise assist by taking necessary steps required so that the sale can close on March 28th as scheduled.
[51] I will remain seized of this matter for the purposes of dealing with the remaining items that I have already set out in my reasons.
[52] Finally, with respect to the manner and timelines under which the net sale proceeds will be held in the accounts of MNP, counsel for AKC, and this is supported by obviously counsel for Mr. Dong, submit that the net sale proceeds should be not held permanently, and that there should be a timeline set with respect to the payment of the portion of those funds due and owing to AKC, essentially so that those funds are not tied up for an indeterminate period of time.
[53] Counsel for AKC and for Mr. Dong submit that, given my ruling with respect to their role as directors of AK GP 006, that it should be within their rights and the court should not interfere with their rights to facilitate payment of the portion of the sale proceeds that are owing to AKC to be paid out. I agree with them, but, given that there are overriding complaints and claims arising through the dispute between the parties and shareholders of AKC and that Ms. Zhao has brought an oppression remedy claim seeking various orders finding that her rights as a minority shareholder in that company are being infringed upon, I think it is appropriate that there be some limitations imposed on AK GP 006’s ability to pay funds up to AKC without any control or oversight.
[54] As a result, I order that with respect to the net proceeds from the sale of the properties to be paid to MNP, that unless the parties otherwise agree no distribution shall be made prior to the date which is 30 days after completion and distribution of the report of Jenny Lee with respect to the various entitlements to a distribution from the net proceeds.
[55] Perhaps it goes without saying, but any party has the ability and is at liberty to apply for a further order from this court seeking to prevent the distribution of such funds prior to the expiry of that 30-day period.
[56] I am prepared to hear an application for release of those funds. It may not be in the parties’ interest to have it heard by me, but I am certainly prepared to hear it if the schedule works out.
[57] Any questions first of all? Mr. Turner.
[58] MR. TURNER: I have one or two questions. First of all, just for the record, it should be MNP Ltd. There are two MNPs. One is an LLP; one is and Ltd.
[59] THE COURT: For the record. Thank you.
[60] MR. TURNER: It will be Ltd.
[61] THE COURT: I am going to leave it to counsel.
[62] MR. TURNER: And with respect to that, just given the last orders, again, there’s liberty to apply, but obviously if MNP refuses to take this on, we’ll have to be back before you seeking further directions as to what to do with the net proceeds. It seems to me that that’s subsumed in the liberty to apply part of the order.
[63] Just in terms of the non-interference –
[64] THE COURT: So on that, let me ask this question. This sale is closing next week. Are the parties prepared to say that if those arrangements have not been made and you have not been before me, that those funds will be paid into one of the solicitors’ trust accounts until those matters are resolved? Or is it necessary?
[65] MR. TURNER: I would hope so. It would just stay in Lawson Lundell’s trust account until further order.
[66] MR. GRIEVE: My Lord, hopefully people take the funds, but yeah, but why don’t we provide in the order the funds will go to MNP unless otherwise agreed by the parties, and then we can agree that they will stay in Lawson’s trust account.
[67] THE COURT: That is fine.
[68] MR. TURNER: Obviously there is going to need to be a little bit of back and forth with pens and paper in terms of the orders that Your Lordship has just made, and we’ll make an effort to get that back in front of you. It occurred to me as I was listening to Your Lordship’s reasons and thinking, that I could ask that in terms of the non-interference and do all necessary things aspect of your order, that there be a qualification – twofold. Lawson Lundell is here as a respondent. That there be a direction that Lawson Lundell also provide a copy of the closing documents to the limited partners through their counsel and me so that I can review them as well, because in anticipation that there may be some issues next week, I’d like to know what they are, and it will be a lot easier if I have access to those documents. And that Lawson Lundell’s – that I be permitted to communicate with Lawson Lundell as to the progress of the closing on behalf of the limited partner.
[69] THE COURT: Well, it seems to be an extraordinary right. I will hear from the other parties as to whether that is appropriate.
[70] MR. GRIEVE: Yes, My Lord, I think I am personally okay. I don’t really have instructions on this because this is new. I’m personally okay with Mr. Turner getting copies of the closing documents on an undertaking as to confidentiality and that he doesn’t speak to the purchaser. I’m fine with him communicating with Lawson Lundell. He needs to know if people are complying with the order, so I suppose that’s the only way he would really find that out.
[71] THE COURT: Do the limited partners have a right to review those documents in any case in terms of their agreement?
[72] MR. TURNER: Yes. Under the Partnership Act, if nothing else, s. 58, they have the right on demand to see any documents that are material to the partnership. I forget the exact language, and unfortunately I don’t have copy of the Act in front of me. But also, I’m sure somewhere buried in that limited partnership agreement there is a right.
[73] THE COURT: All right. So we can add that as a term of the order then. Mr. Cooper, anything from you?
[74] MR. COOPER: No.
[75] MR. SHIELDS: There is nothing. Thank you.
[76] THE COURT: Thank you. Mr. Grieves.
[77] MR. GRIEVES: Well, it’s probably more for Mr. Shields. I know that one of the matters sought was costs, but I think Mr. Shields needs to deal with that. It wasn’t my application.
[78] THE COURT: Well, I am inclined to just provide that costs are in the cause, unless someone feels strongly otherwise. I would have to hear from them on that. Mr. Shields, anything else from you?
[79] MR. SHIELDS: My Lord, thank you for your courtesy throughout.
[DISCUSSION RE SETTING MATTER DOWN]
[80] THE COURT: I will be available on Tuesday the 26th. You will make arrangements through scheduling for that to happen. Thank you.
“Mayer J.”