Thinkeco Power Inc. v. Chong, 2019 BCPC 217

Citation: Thinkeco Power Inc. v. Chong 2019 BCPC 217 Date: 20190913 File No: 1860741 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: FRANCIS CHIN CLAIMANT AND: THINKECO POWER INC and STEPHEN KONG DEFENDANTS AND: BOO JOCK CHONG THIRD PARTY REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE W. LEE Appearing for the Defendants: S. Kong Appearing in person: B. Chong Place of Hearing: Vancouver , B.C. Date of Hearing: September 6, 2019

Date of Judgment: September 13, 2019 INTRODUCTION [ 1 ] On August 30, 2018, Judge Doherty granted judgment in favour of Francis Chin as against Thinkeco Power Inc. (“Thinkeco”) for the sum of $35,000 plus court fees of $156. A claim against the defendant Stephen Kong was adjourned generally. [ 2 ] Thinkeco Power Inc. filed a Third Party claim against Boo Jock Chong seeking an order that the judgment amount owed by Thinkeco Power Inc. to Mr. Chin be paid by Mr. Chong. Mr. Chong opposes the claim. This trial dealt only with the Third Party proceedings.

THE EVIDENCE [ 3 ] Stephen Kong, the principal of Thinkeco, testified that in the years 2014 to 2016, Thinkeco was able to claim research and development tax credits from the Federal Government, totalling about $80,000. In order to be able to claim this tax credit, the wages owed to any employees working in research and development had to be paid. [ 4 ] In 2017, Thinkeco did not have sufficient funds to pay the $80,000 salary of Mr. Kong. In addition, Thinkeco had already filed its tax return. In order to claim the tax credit, an amended T1 tax form had to be filed along with other tax documents.

Initially, Thinkeco was not prepared to apply for the tax credit for the 2017 tax year as Mr. Kong felt it was unlikely to be successful. [ 5 ] Mr. Kong spoke to a person named Peter Yu who said he may be able to help secure a loan to Thinkeco so that the wages could be paid, thus permitting an application for the tax credit. Mr. Yu introduced Mr. Kong to Boo Jock Chong, who assisted in arranging the loan of $40,000 from Mr. Chin to Thinkeco. [ 6 ] In an email dated February 22, 2017, Mr. Kong sent Mr. Chong a loan agreement for Mr. Chin to sign. The email stated that if Mr.

Chin was prepared to proceed, then he should sign the document and send a cheque made payable to Thinkeco. [ 7 ] The loan was evidenced by a promissory note in favour of Mr. Chin dated February 22, 2017 and signed by Mr. Kong on behalf of Thinkeco on March 10, 2017. The loan was repayable 120 days after “the date of hereof”. [ 8 ] A separate document called a “Loan Agreement” dated March 10, 2017 was entered into between Thinkeco and Mr. Chin regarding the $40,000 loan, which was signed by Mr.

Kong on behalf of Thinkeco on March 21, 2017. [ 9 ] I was not told when the $40,000 loan was actually advanced. [ 10 ] Despite securing the loan, Mr. Kong was still wary that if an application for research and development tax credits failed, it might trigger an audit by the Canada Revenue Agency. Thinkeco retained the accounting firm Deloitte to assist in the application for the tax credit. [ 11 ] Because all wages had to be paid, Mr. Kong injected $40,000 of his own money into Thinkeco so that the company had a total of $80,000 cash, $40,000 from the loan and $40,000 from Mr. Kong, to pay wages owed to Mr.

Kong. [ 12 ] Thinkeco applied for tax credits totalling $55,000. The application resulted in Thinkeco receiving from the Canada Revenue Agency a tax refund of $22,799.37 on October 27, 2017 and $9,317.14 on December 11, 2017, a total of $32,116.51. [ 13 ] After arranging the $40,000 loan, Mr. Chong said he could help with having Thinkeco listed on the Toronto Stock Exchange. Mr. Kong said he had not considered this before. He said that this discussion occurred around February 15, 2017, after a meeting with Mr. Chin, and that Mr. Chong “proposed to take us public.” [ 14 ] In an email dated March 3, 2017, Mr.

Chong wrote to Mr. Kong and said: I’m in contact with four of my friends with strong connections but not sending them anything for now until they have serious contacts. It’s not simply get you a

schedule because every deal is different but the financial requirement is to get capital n later more capital. [ 15 ] Mr. Kong suggested that this email was evidence that Mr. Chong was assuming some sort of management role with Thinkeco but I reject that argument. At best, Mr. Chong was seeking investors for Thinkeco. There was no evidence that Mr. Chong was assuming any kind of management role for Thinkeco. [ 16 ] By email dated March 5, 2017, Mr. Chong wrote to Mr. Kong and stated: Stephen, I understand your anxiety in how I may proceed with a plan for raising capital.

For us to understand the technology even scratching on the surface I had to meet you four times….so you understand when I contracted my friends and former partners they too might have heard of AI casually, and I’m not privy to send them an NDA yet unless there’s interest. High net worth friends have been approached, as with Consultants who worked with me in successfully launched companies on OTCbb. I shall only contact you when there’s some firm interests and their suggestions as to they or their associates might invest the $3M first stage capital.

Before giving them your power point they have to sign an NDA. So that’s for now, I have contacted six more close friends and former partners. [ 17 ] I understand that “AI” refers to artificial intelligence, a technology that Thinkeco was developing. “NDA” refers to a non- disclosure agreement. “OTCbb” refers to over-the-counter bulletin board and I understand that to be a service that provides stock quotations. [ 18 ] In an email dated March 28, 2017, Mr. Kong wrote to Mr. Chong and stated: Jock, if you want to demonstrate market traction to impress your investors, one quick way is to get someone to sponsor a supplementary

section on AI/loT in a major industry magazine like European Communication that is read by 25K top C-level executives around the world. [ 19 ] Mr. Chong responded by email on March 29, 2017 to say: There’s more to what you suggest. Definitely publicity is good and Ive been there done those in my time. It’s not just to impress but more to attract and give credibility etc but we must have a game plan I suggest to invite investors to invest in a newco for exclusive rights and the applications that can move forward I need to discuss such mandate with you [ 20 ] On April 4, 2017, Mr. Chong emailed Mr.

Kong to say: Just to update I’m still exploring with Craig who was sick with serious allergies two weeks but is fine now. Will pursue with the well connected Chinese techies and discuss till a plan is suggested by them and then I shall involve you to further discuss. As of now I have merely met them briefly but will have a more in depth discussion with their thinking. If they are not suitable or capable of bringing in financing then I’ll not pursue further. [ 21 ] Based on the emails of March 28, March 29 and April 4, 2017, it was clear that Mr.

Chong was making efforts to seek investors for Thinkeco. [ 22 ] On April 13, 2017, Mr. Kong emailed Mr. Chong with what he described as a “standard finder’s fee agreement” prepared by his lawyer and he asked for Mr. Chong’s thoughts. [ 23 ] Mr. Chong replied that same day to say that he would go through the agreement. No actual finder’s fee agreement was ever entered into. [ 24 ] May 3, 2017 was a pivotal day when the relationship between the parties broke down. I will set out portions of emails that were sent that day. [ 25 ] At 7:17 am on May 3, 2017, Mr. Chong sent an email to various parties including Mr.

Kong. The email stated in part: Dear Stephen My apologies for the apparent inactivity but I had followed up with Craig about two weeks ago but his contacts was just leaving for China and may not be back yet but I shall check again. Also another contact was Asian venture capitalists but hv not come back because he’s busy campaigning for the Liberals now. He has the Executive

summary. Yesterday I had a source I contacted but she needs to let me know suitable contacts. Craig has the proposal for an RTO and a listing to set the stage for financing but it’s the chicken and the egg situation. I shall make a few more contacts though I must admit I’ve stalled the past weeks. [ 26 ] At 10:03 am on May 3, 2017, Mr. Kong sent Mr. Chong an email, which read in part: As I told Ken and Peter, we need to now change our approach since investors are not getting it. Or maybe we are getting old school investors who can’t even figure out how to turn on their smartphones?

I hope I am not being too blunt but this has taken a few months and we haven’t t seen any fruits. [ 27 ] At 3:55 pm on May 3, 2017, Mr. Chong replied by email to Mr. Kong: The most suitable financing are the venture capital funds you should be seeking and after all these years have you any inroads with them? Seeking capital is not the easiest feat and I’m doing it on the best effort basis and if there’s any interest then we move ahead. [ 28 ] At 5:47 pm on May 3, 2017, Mr. Kong wrote to Mr. Chong and stated in part: I’m sorry you feel so negative about our company.

I tried to change your perception that we are a world class company but obviously we have failed. Contrary to how you feel, we are moving the needle in digital technology, particularly deep learning, and the company is proud to have represented Canada in many major world events, including the most recent MWC2017 show, where we were highlighted as one of the star Canadian companies returning to Barcelona.

[29] At 10:44 pm on May 3, 2017 Mr. Chong replied: You are wrong to think I have been negative but in fact to all my contacts I have highlighted the achievements of the Company and whata cutting edge technology you have. Francis who attended a meeting with my good friend, a former BCSC finance director, can attest tohow I presented the Company to him. I have never been appointed, nor have I sought any contract whatsoever with you or with your esteemed Company. I have volunteered tospend my time meeting people through many contacts to look at ways by which your Company may be structured for financing.

I have decided to move on and cease any further efforts for your company as I do not need any aggravations and have better things to doin life! [30] The $40,000 loan was not repaid to Mr. Chin and he commenced these legal proceedings. On August 30, 2018, Judge Dohertygranted judgment in favour of Francis Chin as against Thinkeco Power Inc. for the sum of $35,000 plus court fees of $156. Court orderedinterest was added to this sum pursuant to the Court Order Interest Act. [31] Mr. Chong testified that he has been retired more than 10 years. He was and currently remains a director and president of theBC

Chapter of the Malaysia

Canada Business Council. In this role, he said he tries to help “ex-Malaysians”, such as Mr. Kong, in theirbusiness dealings. Mr. Chong says he does this pro bono, or without expectation of a fee. [32] Mr. Chong said that in January 2017 he did arrange for a meeting between Mr. Kong and Mr. Chin to discuss the loan of$40,000. [33] Mr. Chong said he also tried to help Mr. Kong seek further investors for Thinkeco. However, Mr.

Chong said he was neverformally retained by way of a written agreement to act for Thinkeco to pursue investors or an “IPO” or initial public offering of companyshares on the stock exchange. [34] Mr. Chong said that he was able to arrange for an IPO for his own company some 20 years previously. He has not assisted anyother company to become listed on the stock exchange. [35] Mr. Kong stated in his submissions that Mr. Chong told him he had 20 years of experience in helping companies become listedon the stock exchange. I do not accept this statement as evidence.

I advised both parties before the trial commenced that their evidencewould only be given as part of their testimony in the witness stand and not when making submissions. This allegation was not madeduring Mr. Kong’s testimony and Mr. Chong was also not given a chance to respond to this statement. ANALYSIS [36] Rule 5 of the Small Claims Rules deals with claims against Third Parties. The Rule states: If a defendant thinks someone else should pay the claim

(1) Subject to Rule 1.1 (35), if a defendant who has filed a reply thinks another person should pay all or part of the claim, the defendantmay make a claim against the other person by (

a) completing a third party notice (Form 3), following the instructions on the form if a settlement conference has not been held, or (

b) applying to a judge for an order permitting a claim to be made against the other person if a settlement conference, mediation sessionor trial conference has been held (see Rule 16 (7)). [37] As the defendant to the claim brought by Mr. Chin, Thinkeco filed a Third Party claim against Mr. Chong. [38] On behalf of Thinkeco, Mr. Kong alleges that Mr. Chong was hired to pursue an IPO for Thinkeco. Mr. Kong did not explicitlystate it, but I presume his argument is that if Mr. Chong had completed his required duties, Thinkeco would have had funds to repay theloan to Mr. Chin. [39] Mr. Kong advances his claim on two legal bases: (

a) Ostensible Authority (

b) Misrepresentation Ostensible Authority [40] Mr. Kong says that Mr. Chong was given the authority to act as an agent for the company and therefore had a fiduciary duty toact in the company’s best interests in pursuing an IPO. [41] The legal principle of “ostensible authority” or the law of agency in general applies if a party claims to have a contract with asecond party, as arranged by an agent acting for the second party. In such circumstances, the claim is by the first party against the secondparty based on an alleged contract.

The claim is not against the agent. [42] On the facts before me, there is no allegation by Thinkeco or by some other party, that there is a contract between Thinkeco andthe other party, as arranged by Mr. Chong. [43] The law of agency does not provide a basis to assess liability against Mr. Chong and Mr. Kong’s understanding of that law iswrong. I refer to the decision D. Fogell Associates Ltd. v. Esprit de Corp

(1980) Ltd., (BC SC) for an explanation of

the law: [24] In the law of agency there are three forms of legal authority whereby an agent's conduct may bind the principal: actual expressauthority, actual implied authority and ostensible authority. [25] Actual express authority can be determined by consensual agreement and/or the contract of employment. Its scope is ascertained byapplying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages ofthe trade, or the course of business between the parties: Freeman and Lockyer (a firm) v.

Buckhurst Park Properties (Mangal) Ltd.,[1964] 1 All E.R. 630 at 644 (C.A.). Unless the authority is restricted, the appointment of a person to an executive or director positionclothes that person with the authority which a person in his or her position normally has. [26] Actual implied authority is found to exist where an officer exceeds the authority usually attached to the position and does so withthe knowledge and acquiescence of the corporation. A leading example of implied authority is Hely-Hutchinson v.

Brayhead Ltd., [1967]3 All E.R. 98 (C.A.) where a chairman of a company, without express authority to enter contracts, did in fact through a course of conductenter into contracts for the company. The court (at 102-3) found that the directors knew of and acquiesced in the chairman acting as a defacto managing director of the company, and this course of conduct gave the chairman an implied authority to bind the company by hiscontractual decisions. [27] Ostensible authority is the authority of an agent as it appears to others.

In contrast to actual authority, ostensible authority isconcerned with what the outsider thinks while negotiating with the agent. Diplock L.J.'s

summary of the doctrine in Freeman, supra wasapproved by the Supreme Court of Canada in Canadian Laboratory Supplies Ltd. v. Engelhard Industries of Canada Ltd., (SCC), [1979] 2 S.C.R. 787, 97 D.L.R. (3d) 1 at 23-24. Diplock L.J. stated four conditions that must be fulfilled to entitle a contractorto enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It mustbe shown: (

a) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforcedwas made to the contractor; (

b) that such representation was made by a person or persons who had "actual" authority to manage the business of the company eithergenerally or in respect of those matters to which the contract relates; (

c) that he (the contractor) was induced by such representation to enter into the contract, i.e., that he in fact relied on it; and (

d) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract ofthe kind sought to be enforced or to delegate authority to enter into a contract of the kind to the agent (at 646). [This requirement is not anissue in B.C. since s. 21(1) of the Company Act deems companies to have the powers and capacities of a natural person.] Misrepresentation [44] The decision O’Shaughnessy v Sidhu, 2016 BCPC 308 describes the claim of misrepresentation. [89] Misrepresentation is a false statement of fact, made in the course of negotiations or in an advertisement, that has the effect ofinducing a reasonable person to enter into the contract.

The principal remedy is rescission (discussed below), whereby the contract is setaside and the parties are restored to their original positions. [90] Statements made in the course of negotiations for a contract can be put on an ascending scale of significance, from mere puffery toinnocent misrepresentations, negligent misrepresentations, and fraudulent misrepresentations: Pacific Playground Holdings Ltd. v.Endeavour Developments Ltd., 2002 BCSC 126 . [45] Mr. Kong alleges that Mr. Chong misrepresented his ability to secure investors or to arrange for an IPO for Thinkeco.

As thedecision in O’Shaughnessy v Sidhu states, the effect of any misrepresentation must be to induce Thinkeco into entering into a contract.As with the claim based on the law of agency, Thinkeco is not alleging a contract with another party. As such, there is no basis for aclaim in misrepresentation. [46] The only representation made by Mr. Chong was that he would try to seek investors for the company and that this may allowthe company to make an IPO and be listed on the stock exchange. At no time was any guarantee of success provided. [47] Mr. Kong suggested that Mr. Chong was acting as a stock promoter.

However, Mr. Kong offered to Mr. Chong a finder’s feeagreement in an April 13, 2017 email. This suggests that Mr. Kong was aware that Mr. Chong was only acting to find investors and thata fee would be paid only if he was successful. Such an agreement takes into consideration the possibility that Mr. Chong would not besuccessful in finding investors. The finder’s fee agreement was never executed and there was no binding contract between the parties. [48] I reject the argument that Mr. Chong made any misrepresentation. Mr.

Chong was simply unsuccessful in finding investors andhe never guaranteed that he would be successful. [49] I add that there is no evidence to support a finding that Mr. Chong entered into any contract with Thinkeco. Mr. Kong did tendera finder’s fee agreement but Mr. Chong never executed it. ORDER [50] The claim of Thinkeco Power Inc. against Boo Jock Chong is dismissed.

_____________________________ The Honourable Judge Lee Provincial Court of British Columbia