Jin v. Canada Everich Real Estate Group Inc., 2011 ABQB 524

Court of Queen ’ s Bench of Alberta Citation: Jin v. Canada Everich Real Estate Group Inc., 2011 ABQB 524 Date: 20110824 Docket: 0901 12488 Registry: Calgary Between: Hong Jin and Xia Lei In Their Own Capacity and As Representative Plaintiffs Plaintiffs - and - Canada Everich Real Estate Group Inc., Chestermere East Inc., 1465907 Alberta Ltd., Jang Cheung Lee Chu Law Corporation, C.H. William Cheung Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice A.D.

Macleod _______________________________________________________ [ 1 ] The Court is called upon to decide if this case should proceed as a class action and whether the Applicants are appropriate representatives of the class. [ 2 ] This action was commenced by Jin and Lei, two investors, on behalf of a class of claimants who subscribed for Units pursuant to an Offering Memorandum issued by the Defendant Canada Everich Real Estate Group Inc. (Everich) in 2007. The action seeks a return of the Subscription Funds plus additional damages and interest.

The claim, as it currently stands, is against Everich, Chu and Cheung only. [ 3 ] The proposed class invested in approximately 160 acres of land near Chestermere which is adjacent to Calgary and the

Offering Memorandum provided that the Subscription Funds were to be made payable to the Defendant Jang Cheung Lee Chu Law Corporation in trust. [ 4 ] The Offering Memorandum further provided that the offer was subject to a minimum subscription of $9,000,000.00 (plus GST) and that if Everich did not achieve that by August 30, 2007, the funds “will be returned to the subscribers without interest or deduction.” Provided the minimum was achieved, the Memorandum stated that the funds would be released to Everich upon its undertaking to transfer to the investors their undivided interests in the Units.

Although the Applicants were never told this, the minimum was never achieved. [ 5 ] These securities were exempt from the prospectus requirements under the Securities Act , RSA 2000, c S-4 . They were issued pursuant to an Offering Memorandum which is permitted under certain circumstances in this Province. There has been no suggestion that the Offering Memorandum in this case did not comply with the applicable securities laws. [ 6 ] The Plaintiffs seek to bring this action against the Defendants on behalf of everyone who subscribed to Units pursuant to the Offering Memorandum.

This application for certification is brought pursuant to the Class Proceedings Act , S.A. 2003 C-16 .5. Section 5(1) of the Act sets out the following criteria which must be met in order to certify a proceeding under the Act:

a) the pleadings disclose a cause of action;

b) there is an identifiable class of 2 or more persons;

c) the claims of the prospective class members raise a common issue, whether or not the common issue predominates over issues affecting only individual prospective class members;

d) a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues;

e) there is a person eligible to be appointed as a representative plaintiff who, in the opinion of the Court, (

i) will fairly and adequately represent the interests of the class, (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, in respect of the common issues, an interest that is in conflict with the interests of other prospective class members.

Cause of Action [ 7 ] The Amended Statement of Claim alleges that all of the class members purchased Units from the Defendant Everich pursuant to an Offering Memorandum and also that the Defendants Chu and Cheung were solicitors for Everich. The Offering Memorandum provided that the Subscription Funds were to be made payable to Chu “in trust” and that the minimum amount to be raised was $9,000,000.00 plus GST. The Memorandum went on to say: If the corporation has not received the minimum subscription by August 30, 2007 Subscribed Funds will be returned to the subscribers without interest or deduction.

The minimum subscription was never attained and none of the monies were ever returned to the investors. Instead the Defendant Chu released the funds to Cheung whose firm utilized the funds to close the purchase which was subject to a mortgage. The investment failed. The Statement of Claim was issued in August 2009. It discloses a cause of action. An identifiable class [ 8 ] This condition is met. Common Issue [ 9 ] On the face of the Offering Memorandum this condition would appear to be met but note the following. Is a class action a preferable procedure? [ 10 ] The action sounds in breach of trust.

The Defendants say that whether or not this case can be made out will depend upon whether or not each member of the class can meet the legal and equitable tests required to be a beneficiary of a trust. Each class member will have to be examined because whether or not there is a trust or a breach of trust will depend upon the particular facts that relate to each class member. [ 11 ] For example the Offering Memorandum explicitly states that no subscriptions will be accepted after July 15, 2007. However, the applicants subscribed in November 2007.

Apparently, the applicant paid a different amount for her Units than some of the others. The Applicants did not even see an Offering Memorandum and the Defendants allege that they had no concern about a minimum subscription and instead obtained other assurances from a salesperson on behalf Everich. The Defendants argue that the issue of whether or not there is a breach of trust for which the Defendants are liable is in effect not a common issue but must be determined on the individual facts that relate to each investor. Chu and Cheung argue that they are not parties to any alleged trust and indeed Mr.

Cheung or his law firm are not even referred to in the Offering Memorandum. [ 12 ] However, without determining the merits of these arguments, I think it overlooks the basic assertion of the Plaintiffs. Their position simplistically is that Everich and their lawyers are bound by the Offering Memorandum. This Memorandum is used under securities legislation as a means to raise capital in the marketplace without a prospectus.

Surely, the Plaintiffs say, it is contemplated by the legislation, the regulators, and the public, including the parties to these transactions, that the seller of these Units and those acting on its behalf will be bound by the terms of the Offering Memorandum. It does not matter what was said between the investors and any salesperson or any representative of Everich. It does not matter what the investors thought they were buying or what they thought the terms were. The Subscription Agreement incorporates by reference the Offering Memorandum.

The Subscription Agreement contains a warning to the effect that these are exempt market securities, risky and explicitly states: Read the Offering Memorandum carefully because it has important information about the issuer and its securities. Keep the Offering Memorandum because you have rights based on it. [ 13 ] The Plaintiffs state that the Defendants Everich, Chu and Cheung were acting throughout in accordance with the Offering Memorandum and the Subscription Agreement.

It is the Offering Memorandum which sets out the investors’ rights and if Everich or anyone acting on their behalf knowingly contravenes the Offering Memorandum they are liable to the investors. It does not matter whether there were collateral agreements or that the parties’ understandings differed from the Offering Memorandum. While the Plaintiffs may have rights in addition, they can at least rely upon the Offering Memorandum. [ 14 ] In my view, the Plaintiffs have a viable argument and while it may not succeed in the end that is the basis upon which they are proceeding and that is the main common issue.

[15] While the Applicants did acquire their Units after the middle of July they were never told that the minimum subscription hadnot been achieved by the deadline referred to in the Memorandum.

There is some force to their argument that the fact that thesubscription did not close in a timely way does not mean that they cannot rely upon the terms of the Offering Memorandum. [16] It seems to me that the objectives of class proceedings legislation is to permit investors in a case such as this to have commonissues determined on the basis of one proceeding and that it serves judicial economy and the other goals of access to justice andefficiency to allow the action to proceed in the manner proposed by the Plaintiffs. [17] Moreover, by certifying these proceedings the Defendants are not deprived of making any arguments they wish with respect toany member of the class.

In this particular case, the Defence must know the identity of the class members and the circumstances of theirtransactions. Our Court of Appeal has stated with respect to this legislation in Ayrton v. PRL Financial (Alberta) Ltd. 2006 ABCA 88 atpara 14: The Alberta legislation supports a purposive approach and provides for extensive flexibility in terms of procedures available tocertification judges to deal with class actions as they unfold.

For example, if need be, the judge can decertify proceedings or culminationslater in the proceedings and can draw on many different methods of resolving individual issues on a timely and efficient basis. This mayaddress many of the Appellant’s concerns voiced in this appeal should the need arise in the future. [18] Similarly, it is argued that some of the investors received title documents which obviously puts them in a different positionthan other members of the class. It is not clear just how many this argument applies to but the legislation is flexible enough to deal withthese exceptions at a later time.

Are the Applicants appropriate representatives of the class? [19] Likewise, the Defendants argue that the Applicants are not truly representative because there are facts detracting from theirability to succeed which may not apply to most of the other members of the class. Therefore, they argue that the issues of fact or lawrelated to these Applicants may not be common to all class members. The Supreme Court of Canada dealt with this issue in WesternCanadian Shopping Centres Inc. v. Dutton, 2001 SCC 46 , [2001] 2 S.C.R. 534. In that case the Court said at paragraph 39: ...

The commonality question should be approached purposively. The underlying question is whether allowing the suit to proceed as arepresentative one will avoid duplication of fact-finding or legal analysis. Thus an issue will be “common” only where its resolution isnecessary to the resolution of each class member’s claim. It is not essential that the class members be identically situated vis-a-vis theopposing party. Nor is it necessary that common issues predominate over non-common issues or that the resolution of the common issueswould be determinative of each class member’s claim.

However, the class members’ claims must share a substantial common ingredientto justify a class action. Determining whether the common issues justify a class action may require the court to examine the significanceof the common issues in relation to individual issues. In doing so, the court should remember that it may not always be possible for arepresentative party to plead the claims of each class member with the same particularity as would be required in an individual suit. [20] The Court said further at paragraph 54: The defendants’ contention that there are multiple classes of plaintiffs is unconvincing.

No doubt, differences exist. Different investorsinvested at different times, in different jurisdictions, on the basis of different offering memoranda, through different agents, in differentseries of debentures, and learned about the underlying events through different disclosure documents. Some investors may possessrecissionary rights that others do not. The fact remains, however, that the investors raise essentially the same claims requiring resolutionof the same facts.

While it may eventually emerge that different subgroups of investors have different rights against the defendants, thispossibility does not necessarily defeat the investors’ right to proceed as a class. If material differences emerge, the court can deal withthem when the time comes. [21] If it is later determined that these plaintiffs will not be able to succeed on one of the common questions because of theparticular facts relating to them it may well be that other representative plaintiffs will have to step forward. It may also be that subgroupsor subclasses will have to be designated.

I am satisfied that the legislation is flexible enough to accommodate these concerns and that

given the advantages of judicial economy, access to justice and judicial efficiency this class action should be certified. [ 22 ] I believe that the applicants (for now at least) will fairly represent the class interests. They have produced a plan which is workable subject to minor changes. On the common issues there is no conflict in my view. [ 23 ] I am also satisfied that the factors referred to in s. 5(2) relating to the considerations under s. 5(1) (

d) militate in favour of certification. [ 24 ] It has been suggested that there are members of the class who are opposed to this litigation. Indeed, some members of the class are attempting to salvage the investment and they view this litigation as an impediment to their doing that. [ 25 ] Be that as it may, considering the regulatory context of this transaction, the public interest is served by holding participants to the wording of offering memoranda forming the bases of these transactions which are exempt from prospectus requirements.

Furthermore, it seems to me that this is a classic circumstance where class proceedings should be encouraged. Conclusion [ 26 ] The application is allowed. The class shall be all persons who subscribed for Units pursuant to an Offering Memorandum of the Defendant Everich dated April 25, 2007. Hong Jin and Xia Lei are named Representative Plaintiffs. I direct a further Case Management Meeting with counsel in order to finalize matters including the statement of common issues, the opt-in provisions, the notice to be given to other members of the class etc.

I believe as well that Plaintiffs’ counsel wishes to deal with the Fee Agreement. Heard on the 3 rd day of June, 2011. Dated at the City of Calgary, Alberta this 24 th day of August, 2011. A.D. Macleod J.C.Q.B.A. Appearances: Clint Docken, Q.C. Docken & Company for the Plaintiffs Robert S. Abells, Q.C. Abells Regan LLP

for the Defendant Canada Everich Real Estate Group Inc. E. Halt, Q.C. Peacock Linder & Halt LLP for the Defendant Jang Cheung Lee Chu Law Corporation Daniel A Downe, Q.C. Field LLP for the Defendant C.H. William Cheung