Inconsistent finding unlikely in fraud case; Ontario Court of Appeal grants partial summary judgment

Consultant accused of fraudulent misrepresentation in arbitration case

Inconsistent finding unlikely in fraud case; Ontario Court of Appeal grants partial summary judgment

The Ontario Court of Appeal has upheld a partial summary judgment ruling in a case alleging fraud and misrepresentation where the trial judge found that the likelihood of an inconsistent finding is negligible.

In NDrive, Navigation Systems S.A. v. Zhou, 2022 ONCA 602, NDrive, Navigation Systems SA (NDrive) is a software company who procured the consulting services of Silas Zhou. Zhou owns and controls Aqua Latitude International Limited (Aqua) and is the sole director of Aguazion Inc.

NDrive signed a licensing agreement with LG Electronics Inc. (LG) through Aqua. However, in 2013, NDrive discovered that LG underreported the number of phones that installed NDrive’s software. NDrive commenced arbitration, which was overseen by Zhou.

In 2018, NDrive won an arbitral award of over US$1 million, which was wired to Aguazion’s account after deducting roughly 20 percent for the lawyer’s fees. NDrive appealed the arbitration decision but was not successful.

NDrive argued that Zhou hid the conduct and outcome of the appeal and arranged to have the funds wired to Aguazion without passing them on to NDrive. Zhou countered that he kept NDrive updated of the appeal and that the funds were kept under NDrive’s instruction for multiple reasons.

In 2020, NDrive sued Zhou for damages amounting to over US$950,000, punitive damages of $1 million, and injunction from disposing of their assets. Zhou counterclaimed for damages of $5 million for breach of contract, deceit, and bad faith, among others, and punitive, aggravated, and exemplary damages of $1 million.

Two days later, NDrive was granted a Mareva injunction. In 2021, NDrive moved for partial summary judgment and to dismiss Zhou’s counterclaim, both of which were granted. The judge found that the documentary record proved that “Zhou was deliberately lying and attempting to mislead the court.” The judge also rejected Zhou’s defences and counterclaim.

Zhou appealed, alleging that the judge erred in granting partial summary judgment and not following the precedent set in Malik v. Attia, 2020 ONCA 787.

The appellate court disagreed.

Likelihood of inconsistent findings ‘negligible’

It was clearly open to the judge to decide whether partial summary judgment was appropriate, said the court. Further, the judge acknowledged that even if she granted the motion, the parties would remain in litigation.

As for Malik, the appellate court noted that the decision pre-dated the Malik case, but the lower court nevertheless found that Malik did not alter concerns on determining whether partial summary judgment should go forward, leave to appeal should be refused, the risk of duplicative or inconsistent findings, and whether the summary judgment would result in disposing of the issues in a proportionate, expeditious, and cost-effective manner, said the court. She also found that the likelihood of inconsistent findings would be “negligible.”

As such, the appellate court dismissed the appeal.

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