Ontario Court of Appeal affirms deduction of debtor's contribution to business from amount owed

Equal partnership in business broke down; appellant sought recovery of debt from promissory notes

Ontario Court of Appeal affirms deduction of debtor's contribution to business from amount owed

In a case arising from alleged debts via promissory notes, the Ontario Court of Appeal deferred to the trial judge’s findings upon determining that they lacked any palpable or overriding errors, saying that an appeal should not be a retrial.

The case of Wu v. Chen, 2022 ONCA 664 arose from the breakdown of an equal partnership in a business that supplied goods to restaurants and grocery stores.

The appellant filed a claim seeking the recovery of debts allegedly owed to him through promissory notes signed by the respondent Qixiang Chen or the respondent Bin Chen. Some of the notes set a 1.5-percent monthly interest, while others were silent about interest.

The trial judge ruled largely in favour of the appellant’s debt claim. She provided the respondents with a credit, deducted from the amounts that she otherwise found were owed to the appellant. She held that the promissory notes were genuine, were valid debts of the respondents, and were representing funds that the appellant advanced.

Regarding credibility, the judge found the appellant credible and Qixiang Chen’s evidence neither reliable nor credible. She said that she had to approach Bin Chen’s evidence “with caution” and ultimately determined that he made financial contributions to the business that she should deduct from the appellant’s claim against him.

Regarding the promissory notes providing monthly interest rates, the judge said that s. 4 of the Interest Act limited the amount payable. She awarded five-percent interest from the dates of those notes until the date of the appellant’s demand for payment, as well as pre-judgment interest of 1.5 percent per month from that date.

As for the promissory notes without interest rates, the trial judge awarded five percent annual interest from the notes’ dates until demand, as well as interest after the date of demand at the rate for pre-judgment interest in Ontario’s Courts of Justice Act.

The appellant challenged the judge’s findings relating to credit and interest.

The appellate court rejected the credit ground of appeal, finding that the trial judge thoroughly reviewed the oral and documentary evidence, had the right to wholly or partly accept the evidence of any witness, and provided reasons for accepting Bin Chen’s evidence that he made contributions. The judge found that customs and shipping documents and invoices supported Bin Chen’s evidence, the court noted.

The appellate court also rejected the interest ground of appeal. Regarding the promissory notes with monthly interest rates, the language of s. 4 of the Interest Act was directly applicable. The judge arguably should have limited interest after the date of demand to a maximum of five percent per year, but any errors in this matter would benefit the appellant, the court said.

With respect to the promissory notes with no specified interest rates, the appellate court rejected the appellant’s argument that the judge should have awarded annual interest at 18 percent to give effect to his evidence that 1.5 percent per month was a customary rate in the region of China from which the parties originated.

Even if the judge had found the customary rate to be an implied term of the promissory notes, the appellate court concluded that this customary rate would have the same effect as if it was an express term in the written agreement.

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