Huang v JK Canadian Law Services, 2023 ABKB 112

Court of King’s Bench of Alberta Citation: Huang v JK Canadian Law Services, 2023 ABKB 112 Date: 20230227 Docket: 2203 04909 Registry: Edmonton Between: Yinghua Huang and Xinyx Alberta Technology Inc Plaintiffs - and - JK Canadian Law Services, Dazhi Feng, also known as Jack Feng, E-Clip Consulting Ltd, Fuhua Jia, also known as Fu Jia, also known as Jeff Jia and John Doe Defendants _______________________________________________________ Memorandum of Decision of the Honourable Justice J.M.

Ross _______________________________________________________ [ 1 ] JK Canadian Law Services Inc and Dazhi Feng also known as Jack Feng (the Feng Defendants) were noted in default on May 20, 2022. Judgment was granted against them on May 27, 2022, on the Plaintiffs’ without notice desk application before Master Birkett. [ 2 ] On June 28, 2022, the Feng Defendants filed the within Application “To Set Aside Default/Summary Judgment” pursuant to Rule 9.15(1)(

a) and 9.15(3) of the Alberta Rules of Court . The Application was returnable in morning chambers on August 16, 2022.

[ 3 ] It was clear from counsel’s submissions in chambers that the matter could not be dealt with within the timeframe of morning chambers. Rather than requiring the parties to

schedule a special application, I granted an order reserving decision, providing that the Plaintiffs should file and serve written argument in response to the Application by September 30, 2022, and the Feng Defendants should file and serve written argument in reply on or before October 31, 2022. The Feng Defendants also sought a stay of enforcement of the Judgment, which was denied. [ 4 ] Rule 9.15 Rule 9.15 provides: Setting aside, varying and discharging judgments and orders 9.15(1) On application, the Court may set aside, vary or discharge a judgment or an order, whether final or interlocutory, that was made (

a) without notice to one or more affected persons, or (

b) following a trial or hearing at which an affected person did not appear because of an accident or mistake or because of insufficient notice of the trial or hearing.

(2) Unless the Court otherwise orders, the application must be made within 20 days after the earlier of (

a) the service of the judgment or order on the applicant, and (b)... the date the judgment or order first came to the applicant’s attention.

(3) The Court may, on any terms the Court considers just, (

a) permit a defence to be filed by a party who has been noted in default, (

b) set aside, vary or discharge a judgment granted upon application against a defendant who was noted in default, or whose statement of defence was struck out under rule 3.37 , or (

c) set aside, vary or discharge a judgment entered in default of defence by the plaintiff for the recovery of property under rule 3.38 , or for a debt or liquidated demand under rule 3.39 .

(4) The Court may set aside, vary or discharge an interlocutory order (

a) because information arose or was discovered after the order was made, (

b) with the agreement of every party, or (

c) on other grounds that the Court considers just. AR 124/2010 s9.15;122/2012 [ 5 ] The principles of an application to set aside a default judgment were outlined by the Court of Appeal in Anstar Enterprises Ltd v Transamerica Life Canada, 2009 ABCA 196 , at para 13 : [13] Because a default judgment does not involve an adjudication on the merits of a claim, the plaintiff must act in “the utmost good faith and in strict compliance with the Rules”: William Stevenson and J.E. Côté, Civil Procedure Encyclopedia (Edmonton: Juriliber Limited, 2003) at 17-2.

In other words, a party seeking to hold an opposing party in default must strictly comply with the procedural rules. Accordingly, where there is a flaw in the procedure leading up to default judgment, a defendant, proceeding promptly, is entitled to open up the default judgment as of right.

In the absence of a procedural flaw, the defendant can only rely on the court's indulgence and must then demonstrate that there is an arguable defence, that they did not they deliberately let judgment go by default and have a valid excuse for the default, and that they promptly attempted to open up default judgment: see Stevenson & Côté, Alberta Civil Procedure Handbook , (Edmonton: Juriliber Limited, 2009) at 177 - 78, Graylake Holsteins Ltd. v Kzam Farms Ltd. , 2004 ABQB 828 at paras. 1 & 19 , 49 Alta.

L.R. (4th) 103. [ 6 ] The first issue is whether the Plaintiffs acted in good faith and in compliance with the Rules . This requires a consideration of the proceedings leading up to the without notice

summary judgment application. If they did, it must then be considered whether the Feng Defendants have demonstrated an arguable defence, that they did not deliberately let judgment go by default and have a valid excuse for the default, and that they promptly attempted to open up the default judgment. The Pleadings [ 7 ] The Statement of Claim was filed March 28, 2022, and the Amended Statement of Claim was filed April 19, 2022.

The claim is that the Defendants falsely represented that the Defendant Feng was an Alberta lawyer, and that the Feng Defendants were authorized to make and did make successful applications on behalf of the Plaintiff Huang’s spouse for residency status in Canada. The Plaintiffs paid various sums to the Defendants for purposes of the immigration applications. In fact, the Defendant Feng was not a lawyer nor authorized to make immigration applications, and no such applications were made. It is also alleged that the Feng Defendants converted the monies paid to them by the Plaintiffs to their own use.

The allegations against the remaining Defendants E-Clip Consulting Ltd, Fuhua Jia also known as Fu Jia also known as Jeff Jia (the Jia Defendants) relate to their alleged participation in the fraud. The Jia Defendants have filed a Statement of Defence denying their participation in the fraud. They deny making representations to the

Plaintiffs, and state that they did not know that the representations made were false. Obtaining, review and extension of attachment orders and related orders [ 8 ] The Plaintiffs obtained a number of without notice orders on March 29, 2022 and April 20, 2022, against the Defendants: attaching exigible property, permitting entry to premises, and requiring disclosure by financial institutions ( Norwich orders).

On April 26, 2022, and May 9, 2022, Justice Bercov granted “Order Hearing Review” orders providing that the without notice orders would be reviewed on May 19, 2022 “to determine the date upon which the orders already granted in this action should be extended, terminated or varied.” The May 9, 2022, order provided that “no party shall commence any further steps in this action until the May 19, 2022, hearing … is completed”, except questioning on affidavits.

The May 9 order also provided that “upon written notice to the Plaintiffs signed by a lawyer acting for the Defendants Dazhi Feng and JK Canadian Law Services Inc that the said lawyer is entitled to receive the sum of $10,000” from attached property of the Feng Defendants to be held in trust and disbursed for purposes of representing the Feng Defendants. [ 9 ] On May 19, 2022, the Order Hearing Review was held. Justice Dunlop granted an order varying and extending until July 22, 2022, the attachment orders against the Feng Defendants.

A litigation plan was put in place regarding the Plaintiffs’ application to extend the Jia Attachment Order, to be heard by Justice Dunlop on June 2, 2022. A further litigation plan was put in place for the purposes of “the Plaintiffs’ pending applications other than” the Jia Attachment Order application. This plan provided for any response evidence to be filed and served by June 14, 2022, with questioning and briefs to follow. Justice Mah was seized with these applications, to be heard during the week of July 18, 2022.

Steps leading to noting in default and without notice application for judgment [ 10 ] The Plaintiffs filed an application for

summary judgment against the Feng Defendants on April 15, 2022, seeking to have the application heard on May 19, 2022. The Plaintiffs filed a further application on April 28, 2022, against all of the Defendants, also returnable May 19, 2022, which sought a declaration that the Defendant Dahzi Feng was in civil contempt, as well as orders that existing attachment and Norwich orders be extended. The applications relied on affidavits of the Plaintiff Huang affirmed March 28, April 18, and April 26, 2022. [ 11 ] The May 19, 2022 Order refers in the

preamble to the Plaintiffs’ application for

summary judgment filed April 15, 2022, and the application for civil enforcement orders filed April 28, 2022. The May 19, 2022 Order adjourns the April 28, 2022 application, as it pertains to the Jia Attachment Order, to be heard by Justice Dunlop on June 2, 2022. It adjourns “the balance of the Plaintiffs’ pending applications …to be rescheduled” during the week of July 18, 2022, before Justice Mah. [ 12 ] The pending

summary judgment application did not proceed before Justice Mah during the week of July 18, 2022.

Instead, the Plaintiffs proceeded by a without notice desk application and obtained judgment against the Feng Defendants from Master Birkett on May 27, 2022. [ 13 ] On the without notice desk application the Plaintiffs made the following written submissions: • On April 20, 2022, they obtained an ex parte attachment order over the exigible property of the Feng Defendants. • On April 25, 2022, the Feng Defendants were served with the Amended Statement of Claim. • On May 18, 2022, counsel for the Feng Defendants notified the Plaintiffs that he was retained to represent the Feng Defendants.

Counsel did not request an extension of the time to defend or prior warning before the Feng Defendants were noted in default. • On May 19, 2022, the Feng Defendants and the Jia Defendants and the Plaintiffs attended a hearing to resolve ex parte orders.

The Feng Defendants did not request an extension of time to defend the action. • As of May 20, 2022, the Feng Defendants had failed to file a statement of defence or demand of notice and were noted in default. [ 14 ] The submissions on the desk application went on to note that, by virtue of the Noting in Default, the allegations in the Statement of Claim were deemed to be admitted by the Feng Defendants. The submissions also summarize affidavit evidence of the Plaintiff Huang. She attested that Mr.

Feng represented to her that he was an Alberta lawyer who was willing and able to represent her husband to secure an entrepreneur-class nomination from the Government of Saskatchewan that would support an application to Immigration, Refugees and Citizenship Canada for residency status. He counselled her to create a company, the Plaintiff Xinyx Alberta Technology Inc (Xinyx) and transfer funds to that company which would in turn transfer funds to JK Canadian Law Services Inc (JK), to be held in Mr. Feng’s trust account and used to invest in E-Clip Consulting Inc (E-Clip), a company owned by Mr. Jia. Mr.

Feng presented the Plaintiffs with improper and invalid documents in pursuit of this plan and counselled her to sign them. She believed Mr. Feng and relied on him. Ms. Huang paid Mr. Feng $110,000 in cash as a retainer for legal services. She paid JK $20,000 by cheque. Xinyx paid JK $360,00 by way of several cheques. According to JK’s bank statements, all of the cheques were deposited to JK’s account. [ 15 ] A certificate issued by the Executive Director of the Law Society of Alberta confirms that Mr. Feng’s representations about being a lawyer were false.

Bank statements confirm that the funds were withdrawn in cash, bank drafts and transfers that do not relate to E-Clip.

[ 16 ] The submissions concluded that Ms. Huang’s affidavits were “comprehensive” and proved “beyond any reasonable doubt” that the Feng Defendants defrauded the Plaintiffs and were guilty of deliberate breach of trust of the monies entrusted to them, justifying judgments and the remedies of constructive trust. Aggravating factors relating to the fraud further justified punitive and aggravated damages. [ 17 ] Master Birkett granted judgments against the Feng Defendants in favour of the Plaintiffs and imposed constructive trusts for the benefit of the Plaintiffs. In addition, she ordered punitive damages.

Did the Plaintiffs act in good faith and in compliance with the Rules ? [ 18 ] There is no evidence that the Plaintiffs’ representations on the without notice desk application were inaccurate – the Feng Defendants were served as indicated, there is no evidence or submission that counsel for the Feng Defendants sought an extension of the time to defend from counsel for the Plaintiffs or the Court, and the Feng Defendants failed to file a Statement of Defence and were noted in default on May 20, 2022.

The affidavit evidence was correctly summarized. [ 19 ] The grounds for the application by the Feng Defendants to set aside the judgment and noting in default relate exclusively to the May 9, 2022 Order of Justice Bercov and the May 19, 2022 Order of Justice Dunlop. [ 20 ] In the May 9, 2022 Order, the Feng Defendants refer to paragraph 3, that “no party shall commence any further steps in this action until the May 19, 2022 hearing” except questioning on affidavits, and paragraph 4, that upon written notice to the Plaintiffs signed by a lawyer acting for the Feng Defendants that the lawyer will act as lawyer of record for the Feng Defendants, that lawyer is entitled to receive $10,000 from the attached property of the Feng Defendants. [ 21 ] In my view, neither of these provisions indicate that the steps taken by the Plaintiffs to note the Feng Defendants in default and to seek judgment in a without notice desk application were in any way improper.

The steps were not taken until after the May 19, 2022 hearing, on May 20, 2022 (noting in default) and May 27, 2022 (without notice desk application). The provision for counsel for the Feng Defendants to receive $10,000 from the attached property did not purport to affect the obligations of the Feng Defendants regarding the filing of a statement of defence, or the implications of a failure to defend under the Rules of Court . [ 22 ] As to the May 19, 2022 Order, the first thing to note is that Order did not extend or refer to the May 9, 2022 Order.

Thus paragraph 3 of the May 9, 2022 Order prohibiting the taking of further steps in the action until the May 19, 2022 hearing expired by its own terms on that date.

The May 19, 2022 order did not prohibit the taking of further steps in the action, it simply provided deadlines in the form of a litigation plan for the filing of “any response evidence” to the Plaintiffs’ pending applications, and for questioning and briefs. [ 23 ] Nothing in either the May 9, 2022 or May 19, 2022 orders made it improper for the Plaintiffs to note the Feng Defendants in default on May 20, 2022. [ 24 ] Having noted the Feng Defendants in default, the Plaintiffs were in a different position than previously. They no longer needed to rely on their filed application for

summary judgment. They could proceed, instead, under Rule 3.37, which provides: Application for judgment against defendant noted in default 3.37

(1) The plaintiff may, without notice to any other party, on proof of the plaintiff’s claim, apply to the Court for judgment in respect of a claim for which default judgment has not been entered if (

a) one or more defendants are noted in default, or (

b) the defendant’s statement of defence is struck out.

(2) In the circumstances described in subrule (1) the plaintiff is entitled to a costs award.

(3) The Court may do one or more of the following: (

a) pronounce judgment; (

b) make any necessary order; (

c) direct a determination of damages; (

d) adjourn the application and order additional evidence to be provided; (

e) dismiss the claim or a part of it; (

f) direct that the claim proceed to trial and that notice be served on every other defendant; (

g) make a costs award in favour of the plaintiff. [ 25 ] This is what the Plaintiffs sought against the Feng Defendants in the without notice desk application, and what Master Birkett directed in an order titled “Summary Judgment”. The title of the judgment may be incorrect, but the judgment expressly stated that it was granted pursuant to Rule 3.37(3)(a). The

preamble addresses the exercise of the Court’s discretion under Rule 3.37 in the following

terms: UPON THE WITHOUT NOTICE APPLICATION [LRB] and submissions of the Plaintiffs; AND UPON reading the Amended Statement of Claim and the Affidavit filed on behalf of the Plaintiffs; AND UPON being satisfied that this Application may proceed without notice to any other party [LRB]; [ 26 ] As noted in the square brackets, the Master’s initials appear after the initial words “upon the without notice application” and again at the conclusion of the paragraph. [ 27 ] In my view, this procedure was available to the Plaintiffs and was properly exercised by them.

The litigation plan in the May 19, 2022, Order did not apply to this application. It was not a pending application of the Plaintiffs addressed in the May 19, 2022, hearing. Further, the litigation plan was inapplicable by its terms. An application under Rule 3.37 does not contemplate the filing of a response, or ensuing procedures, unless the Court orders under Rule 3.37(3)(

f) that notice be served on other defendants. The Master did not so order, she was “satisfied that this Application may proceed without notice to any other party.” [ 28 ] I conclude that the Plaintiffs complied with the Rules and acted in good faith. It is not suggested that the submissions on the desk application were incorrect in any way.

They did not refer to the provisions of the May 9, 2022, or May 19, 2022 Orders that are relied on by the Feng Defendants, but they did not need to do so, as those provisions did not prohibit or relate to the application for judgment against defendants who had been noted in default.

There was no procedural flaw. [ 29 ] In the absence of a procedural flaw, the Feng Defendants must demonstrate that there is an arguable defence, that they did not they deliberately let judgment go by default and have a valid excuse for the default, and that they promptly attempted to open up default judgment. [ 30 ] The Feng Defendants submit that they did not deliberately let judgment go by default.

Their excuse for the default is a misunderstanding regarding the impact of the May 9, 2022 and May 19, 2022 Orders, in particular that they understood they had the time provided in the May 19, 2022 litigation plan to respond to the Plaintiffs’ pending application for

summary judgment, and that they were expecting to receive a retainer amount of $10,000. The Plaintiffs submit that the Orders do not provide a valid excuse. The Feng Defendants did not provide evidence that they lack means to retain counsel. The provision in the May 9, 2022 Order for the payment of $10,000 did not provide an expected time during which it should be complied with, as neither the Plaintiffs nor the court clerk had yet received funds. Misinterpreting an order is not a valid excuse. [ 31 ] I accept that the Feng Defendants did not deliberately let judgment go by default.

While I have found that the Orders did not have the effect they submitted, I accept that a mistaken understanding regarding the application of the litigation plan was a valid excuse. I do not accept that the fact that counsel for the Feng Defendants had not yet received the $10,000 payment was a valid excuse. The May 9, 2022 Order did not stay the obligations of the Feng Defendants pending payment, and there is no evidence that the Feng Defendants lacked means to retain counsel. [ 32 ] The Feng Defendants submit that they acted promptly to open up judgment.

Their counsel was provided with a copy of the judgment by counsel for the Plaintiffs on May 27, 2022, and responded by letter dated June 8, 2022, setting out his position regarding the impact of the May 9, 2022 and May 19, 2022 Orders, and advising that he would be bringing an application to set aside the default judgment. However, the application was not filed until June 28, 2022, outside the 20-day period contemplated in Rule 9.15(2). There is no evidence supporting an extension of this time period, other than lack of funds, which I have already found not to be a valid excuse.

The Plaintiffs submit the requirement for prompt action is not met. I make no finding regarding this requirement, given the relatively short period of delay, and given the clear failure to comply with the requirement of demonstrating an arguable defence. [ 33 ] The evidence provided on behalf of the Feng Defendants does not in any way address whether there is an arguable defence to the Plaintiffs’ claims. The Feng Defendants were aware of the nature of the claims in the Amended Statement of Claim and further of the evidence filed in support of attachment orders and other without notice orders.

These Orders were before the Court and counsel for the Feng Defendants was present on April 26, 2022, May 9, 2022, and May 19, 2022. [ 34 ] The Plaintiffs filed four affidavits that comprehensively disclose Ms. Huang’s dealings with the Feng Defendants. Ms. Huang’s affidavits fully support the conclusion that Mr. Feng fraudulently misrepresented himself as an Alberta lawyer to obtain money from the Plaintiffs. He referred to himself as a lawyer on business documents he presented to Ms. Huang, on the business card he gave to Ms. Huang, and on his website.

He applied a stamp to documents that says barrister, solicitor, notary public, Province of Alberta. These documents are exhibits to Ms. Huang’s March 28, 2022 affidavit. The Law Society of Alberta has provided a certificate confirming Mr. Feng’s non-membership. Ms. Huang’s assertions of the monies paid are also documented, including negotiated cheques, bank statements, and receipts signed and stamped by Mr. Feng acknowledging receipt of $110,000 in cash from Ms.

Huang. [ 35 ] Not only have the Feng Defendants failed to provide evidence of an arguable defence, there is every reason to believe that there is no defence. Conclusion [ 36 ] The requirements to set aside judgment granted on default, and to set aside a notation in default, have not been met. The Feng Defendants’ Application is dismissed. [ 37 ] The Plaintiffs are entitled to taxable costs for the contested application in Chambers, and for filing written argument at the

direction of the Court. Heard on the 16 th day of August, 2022. Written Submissions received on September 30, 2022 and October 31, 2022. Dated at the City of Edmonton, Alberta this 27 th day of February, 2023. J.M. Ross J.C.Q.B.A. Appearances: Dale Knisely Knisely Law for the Plaintiff’s Uzo Aghaegbuna Stanley Law for the Defendants JK Canadian Law Services Inc and Dazhi Feng also known as Jack Feng John C. Anderson Mainwood Legal Services for the Defendants E-Clip Consulting Ltd and Fuhua Jia, also known as Fu Jia, also known as Jeff Jia and John Doe