"You Can Run, But You Can’t Hide": An International Debt Recovery Saga

“Jay Chiang says that he is without resources and has no employment. Nonetheless, he and his wife Christina live in a 10,000 square foot home. He drives an expensive S500V model Mercedes and Christina drives a 2006 Lexus SUV. Their two children attend Upper Canada College. On July 16, 2003, they were found to be in contempt of a series of court orders. They were given the opportunity to purge their contempt by fulfilling a number of undertakings, which required them to disclose and document the transfer of significant amounts of money, failing which they were each to be incarcerated. This proceeding is to determine if they have complied with the undertakings and purged their contempt.”

(Mendlowitz & Associates Inc. v. Chiang, 2007 CanLII 12203 (ON S.C.) per Lax, J.)

So sets the stage for one of Canada’s longest debt recovery efforts against Ontario defendant, Jay Chiang, an undischarged bankrupt with debts over $19 million. Back in May 1994, Korea Data Systems Co. Ltd., aka KDS Korea and Korea Data Systems (USA), Inc. (collectively “KDS”), one of Chiang’s largest creditors , commenced an action against, inter alia, Jay Chiang, his wife, Christina Chiang and Amazing Technologies Inc., alleging a conspiracy involving Jay and Christina Chiang together with related individuals and corporations to defeat the creditors of Jay Chiang and Amazing Technologies Inc. through the fraudulent conveyance of assets. Chiang then voluntarily assigned himself into bankruptcy in September, 1998, with Mendlowitz & Associates Inc. (“Mendlowitz”) appointed Trustee in Bankruptcy. Between 1999 and 2001, Chiang and his wife, Christina Chiang, were examined in his bankruptcy, but refused to be examined over the past five years. (see Chiang, Re, 2006 CanLII 25257 (ON S.C.) per Cumming, J.).

On July 16, 2003, the Chiangs, consented to a finding of contempt and acknowledged that they were in breach of six court orders and were given the opportunity to purge their contempt by each fulfilling each a number of undertakings, which required them to disclose and document the transfer of significant amounts of money. In May 2005, Mr. Justice Farley presided over a five-day trial to determine if Mr. and Mrs. Chiang had fulfilled the undertakings. He concluded and the Chiangs acknowledged that the undertakings went unfulfilled. Although the July 16, 2003 order called for incarceration if they failed to comply, they were not incarcerated, but were given an additional 90 days to comply with the terms of the order and purge their contempt. In August 2005, the Chiangs provided additional information and documents in purported compliance with the contempt order. The plaintiffs disputed their compliance and served a motion for a declaration and finding that the Chiangs had not complied with certain of the undertakings, had failed to disclose and/or provide documentation relating to the various transfers of money, and that they remained in contempt of the six court orders and of the July 16, 2003 order, and that they each be incarcerated for a period of one year, to be served by each consecutively (see, Mendlowitz & Associates Inc. v. Chiang, 2007 CanLII 16820 (ON S.C.) per Lax, J.).

Despite what the Ontario Court of Appeal itself called “one of the worst cases of civil contempt to come before this court”, the Chiangs’ one-year sentence was overturned and substituted with a sentence of seven days imprisonment for each of Jay Chiang and Christina Chiang. In addition, Jay Chiang was entitled to a declaration that he had served this sentence. (Chiang (Re) , 2009 ONCA 3 (CanLII))

In late 2008 and early 2009, while the appeal was pending, KDS hired private investigators who scoured through garbage left outside the Chiangs’ residence pertaining to a Hong Kong and Shanghai Banking Corporation (“HSBC”) account in Hong Kong and an ETrade account in California. The private investigators found evidence that Jay Chiang had moved approximately $10 million through his HSBC account between 2002 and 2009, when a Hong Kong Court issued a Mareva injunction order and a California court froze the ETrade account.

You really have to give the creditors “credit” for tenacity and perseverance.

Like a ‘legal pitbull’ that won’t release its ‘litigious grip’, Mendlowitz and KDS brought an application in Ontario for extra-judicial assistance from the Hong Kong and California courts. In a decision that will assist other plaintiffs in their international debt recovery efforts, Mr. Justice Marrocco, of the Ontario Superior Court of Justice granted the creditors Letters of Request to Hong Kong and California courts, respectively, for judicial assistance in ordering HSBC and ITrade to disclose and produce foreign bank and trade accounts: Mendlowitz & Associates Inc. v. Chiang, 2009 CanLII 48844 (ON S.C.) Marrocco, J. also ordered the defendants’ Internet Service Provider (ISP) and cell phone carrier, Rogers Communications Inc., to hand over all information regarding the defendants’ IP addresses and cell phone records.

The learned judge rejected the Chiangs’ characterization of the application as tantamount to a Norwich order (see my previous blog post: Norwich orders: Ontario Court of Appeal restricts pre-action discovery in GEA Group AG v. Ventra Group Co.) stating, in part:

“[22] The Applicants also rely upon rule 30.04(5) of the Rules of Civil Procedure (“the Rules”), which provides that the court may at any time order production for inspection of documents that are not privileged and are in the possession, control or power of a party.

[23] If the court takes the view that the documents are in possession, control or power of a non-party, namely the Hong Kong and Shanghai Bank Corp., then the Applicants rely on rule 34.07(2) and rule 36.03 of the Rules which they contend permit this court to issue a Letter of Request for the production of the documents in question.

[24] The Respondents rely on Meuwissen (Litigation Guardian of) v. Strathroy Middlesex General Hospital (2006), 40 C.P.C (6th) 6 (Ont.C.A.) (Meuwissen) and Hong Kong (Official Receiver) v. Wing reflex, (1986), 57 O.R. (2d) 216 (Ont. H.C.) (Wing) for the proposition that early production of a document may only be ordered in exceptional circumstances for the purpose of enabling a party to plead to the action.

[25] Meuwissen and Wing can be distinguished on the facts. Those cases involved pre-action discovery, unlike the case before me, where statements of claim and defence have been filed and pleadings are closed. Sharpe J.A.’s comments about discovery of documents apply in the post-commencement of action, pre-pleadings timeframe, and it is unlikely that he intended them to also apply when pleadings are complete. In my view both Meuwissen and Wing stand for the proposition that, prior to pleading, documentary production will only be ordered where the court is satisfied that the documents are essential to enable the party seeking the documents to plead to the action.

[26] Post-commencement of action, when pleadings are closed, as is the case here, it is appropriate to order disclosure when the circumstances warrant. Some indirect support for this view is found in the comments of Mr. Justice Sharpe in Meuwissen at para. 9:

“the order appealed from represents a significant departure from the ordinary procedure laid down by the rules of court relating to pleadings and discovery that is not required in the circumstances of this case” (emphasis added)

[27] Accordingly, the question for the court is whether in this case there exist circumstances which justify a departure from the ordinary procedure.”

With respect to the ETrade account, KDS had served a business records subpoena on ETrade in the California proceeding against Winner International Group Limited, which maintained that it, not Chiang, was the legal and beneficial owner of the HSBC and the ETrade accounts As a result, ETrade produced several hundred pages of records, which KDS wished to authenticate for the purposes of the Ontario proceedings (at para.28).

Furthermore, the ETrade account was accessed on numerous occasions from IP addresses hosted by Rogers Communications Inc., from whom the creditor applicants also sought disclosure of the identities of the corresponding IP address account holder. At paragraphs 37-40, the court concludes:

“[37] Rogers Communications Inc. is not a party to this proceeding. Rule 30.10(1) provides that the court may order production for inspection of a document in possession of a nonparty if the document is relevant to a material issue in the action and it would be unfair to require the moving party to proceed to trial without discovery of the document.

[38] The identity of the persons owning or controlling IP addresses which accessed the ETrade account is helpful in resolving who beneficially owns the account. The ETrade documents produced in California indicate that the ETrade account was accessed using a Rogers Communications Inc. account in Richmond Hill Ontario Canada. Jay Chiang lived in Richmond Hill and had an Internet account with Rogers Communications Inc. It would be unfair to both parties to proceed to trial without discovery of documents establishing who owns the IP addresses.

[39] There is no evidence before the court to suggest documents containing this information are available from other sources. Indeed it is counterintuitive to think that such is the case. The interests of Rogers Communications Inc. do not coincide or conflict with the interests of either KDS or Winner International Group Limited. Finally Rogers Communications Inc. has indicated that it is able to provide documents containing the identity of the persons owning or controlling these IP addresses. There has been no suggestion that production of these documents will be intrusive, costly or time-consuming for Rogers Communications Inc.

[40] Accordingly an order will issue to Rogers Communications Inc. for production of these documents to all parties to this proceeding.

[41] … the Applicants are [also] entitled to seek confirmation of Jay Chiang’s assertion during an examination under the Bankruptcy and Insolvency Act on February 20, 2009 that, excluding cell phones used by Christina Chiang, his wife, and his two sons, he has had only one cell phone since May 2007.”

Finally, in an effort to protect against potential privacy breaches, Marrocco, J. ordered that “… if it becomes apparent to the Applicants when they are reviewing the cell phone records that they are reviewing cell phone records that relate solely to Jay Chiang’s children they are to ensure that those records are not produced in these proceedings or otherwise made public.”

Antonin I. Pribetic

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