Jastram Properties Ltd. v. Tan

2020 BCSC 1610 Jastram Properties Ltd. v. Tan

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Jastram Properties Ltd. v. Tan, 2020 BCSC 1610 Date: 20201001 Docket: S162335 Registry: Vancouver Between: Jastram Properties Ltd. Plaintiff And Virginia Mary Tan, Patrick Eng Tien Tan, Marcus Soon-Keen Tan, Letan Investments Management, Letan 88 Enterprises Inc., TLD Investments Inc., 0994439 BC Ltd., TJ0700 Holdings Ltd. and TJ132 Ventures Ltd. Defendants Before: The Honourable Mr. Justice Gomery Oral Ruling Re Application for an Order to Approve a Settlement Agreement In Chambers Counsel for the Plaintiff: R.J. Bennett M. Mounteer Counsel for the Defendant Marcus Tan: M.B. Funt Place and Date of Hearing: Vancouver, B.C. October 1, 2020 Place and Date of Ruling: Vancouver, B.C. October 1, 2020 Introduction [1] THE COURT: This action was certified as a class proceeding on April 2, 2019. [2] The principal defendants are Virginia Tan, Patrick Tan and Marcus Tan. Virginia and Patrick Tan are wife and husband, and Marcus Tan is their son. Intending no disrespect, for simplicity, I will sometimes refer to them by their first names. [3] The claim against the Tans is that they defrauded the plaintiff class by a Ponzi scheme. The class plaintiff, Jastram Properties Ltd. ("Jastram") is a victim of the scheme. The class is defined as: All persons other than the defendants who have provided funds to invest in the Tan investment scheme

promoted by Virginia Tan and to have received payments from the scheme which are less or in total amount than the total principal amount they invested. [4] The various corporate defendants are companies allegedly used by the Tans to implement the scheme. [5] Jastram has concluded a settlement with the Tans. It applies for court approval of the settlement pursuant to s. 35 of the Class Proceedings Act R.S.B.C. 1996 c. 50 [CPA] Background [6] There are many related actions. I am case managing all of them as the successor to Justice DeWitt‑Van Oosten, formerly of this court. Many properties formerly owned by the Tans have been sold in foreclosure proceedings, and there are substantial proceeds of sale in court. [7] Jastram's action was commenced on March 11, 2016. It began without reference to the CPA. [8] On March 21, 2016, Jastram obtained an injunction freezing Marcus's assets. [9] In April 2016, Virginia and Patrick were petitioned into bankruptcy with a common trustee. The court has ordered that this action may proceed against Virginia and Patrick, notwithstanding the bankruptcies. Jastram is coordinating efforts with the trustee in bankruptcy. [10] On April 10, 2017, Virginia entered into a consent agreement with the executive director of the BC Securities Commission in which she acknowledged perpetrating a fraud on investors. The agreement states: Tan agrees to pay $3

million to the commission in settlement of this matter. The commission will take steps to collect the sum once Tan has paid the amounts owing to investors. [11] In 2017, Jastram began the process to convert this action into a class proceeding, culminating in the certification order of April 2, 2018. [12] Notice of certification was given to the class and the deadline to opt out expired on August 2, 2018. [13] Two related actions involve RanAm Developments Ltd. ("RanAm"), which entered into an arrangement with Marcus to develop properties in Surrey into a townhouse development. This litigation dates back to 2015. The development did not proceed, and the properties have been sold in foreclosure proceedings, leaving net proceeds of sale of approximately $3.6 million in court. RanAm claims 40% of this amount. Its entitlement is disputed by Marcus. Settlement [14] The business terms of the settlement were negotiated between July and November 2019. The process of documenting the agreement took some time. The settlement agreement is dated November 3, 2019, but was not fully executed until June 19, 2020. [15] The essential terms of the settlement are as follows: a) Marcus and Patrick assign for the benefit of the class their interest in the funds held in court from the foreclosure proceedings and the Surrey properties that are the subject of the RanAm actions. b) Marcus assigns for the

benefit of the class his shares and interest in two of the defendant corporations. c) Marcus retains a property in North Vancouver that is his home, subject to a mortgage securing his obligation to pay for the benefit of the class approximately $70,000 withdrawn by him from a bank account in apparent violation of the freezing order made in March 2016. d) Class counsel assumes the defence of the RanAm claims on Marcus's behalf and if and to the extent that RanAm's claim is reduced by more than $100,000, the class will benefit. e) Virginia and Patrick consent to judgment against them for damages to be assessed. [16] Any further claims the class members may have against Marcus will be given up by a covenant not to sue that will be binding upon class members. [17] I am told that Jastram's claim against Virginia and Patrick has uncertain value. It is unclear whether the potential recovery will justify further proceedings against Virginia and Patrick to quantify the class's claim against them. [18] The estimated value of Marcus's assets, excluding the RanAm claim, is approximately $3.3 million. His estimated equity in the North Vancouver home is approximately $575,000 to $600,000. Under the settlement, the class will obtain approximately $2.8 million from Marcus or roughly 82 to 85% of the value of his assets. There is the possibility of further recovery if the RanAm claim is

defeated. [19] Pursuant to an order I made on August 6, 2020, class members were notified of the terms of settlement and the application to approve it by mail and email. Notices of objection were to be provided prior to the hearing. None were received. [20] The settlement is supported by the trustee in bankruptcy and by RanAm, who take the view that it will move their litigation forward. Legal Test For Approval [21] Section 35 of the CPA provides that a class proceeding may only be settlement with approval of the court. Approval will bind class members who have not opted out to the terms of settlement. [22] The guiding principle is that a settlement must be "fair and reasonable and in the best interests of the class as a whole," Wilson v. Depuy International Ltd., 2018 BCSC 1192, at paragraph 58 quoting Cardozo v. Becton, Dickinson and Company, 2005 BCSC 1612, at paragraph 16. [23] The question is not whether the settlement is perfect. It is whether it is reasonable. The court must consider risks and benefits associated with continuing the litigation. Wilson at paragraph 59, citing Bodnar v. The Cash Store Inc., 2010 BCSC 145, at paragraphs 17 and 18. [24] In Bodnar the court stated at paragraph 59: [20] The recommendation and experience of counsel are significant factors for consideration on an approval application. There is a presumption of fairness when a proposed settlement

is negotiated at arm's length by class counsel and presented to the court for approval ... [25] In Wilson, Justice Branch emphasized the weight to be given to the recommendation of experienced class counsel and added at paragraph 60 that: Public policy favours the settlement of complex litigation. There is a strong presumption of fairness where a settlement has been negotiated at arm's length. Experienced class counsel is in a unique position to assess the risks and rewards of the litigation and his or her recommendations are given considerable weight by the reviewing court: VitaPharm Canada Ltd. v. F. Hoffmann‑La Roche Ltd. (2005), 2005 CanLII 8751 (ON SC), 74 O.R. (3d) 758 (S.C.J.) at paras. 111‑114, 144. [26] In Fakhri v. Alfalfa's Canada, Inc., 2005 BCSC 1123, at paragraph 8, Justice Gerow identified a list of factors to consider in assessing the reasonableness of a settlement. It provides a helpful framework for analysis, Wilson at paragraph 61, and reads as follows: The test for approval is whether the settlement is fair and reasonable and in the best interests of the class as a whole. Factors which courts have considered in making that determination include: 1. The likelihood of recovery, or the likelihood of success; 2. The amount and nature of discovery evidence; 3. Settlement terms and conditions; 4. Recommendations and experience of counsel; 5. Future expense and

likely duration of litigation; 6. Recommendations of neutral parties, if any; 7. Number of objectors and nature of objections; 8. Presence of good faith and absence of collusion; 9. Degree and nature of communications by counsel and the representative plaintiffs with class members during litigation; 10. Information conveying to the court the dynamics of, and the positions taken by the parties during the negotiation. [27] I turn to consider these factors.

1) The Likelihood of Recovery or the Likelihood of Success [28] Jastram could succeed against Marcus in one of two ways: by establishing that Marcus was a party to the Ponzi scheme or by tracing proceeds of the scheme into Marcus's hands. Marcus acknowledges that he purchased properties with funds received from his parents. He denies that he was aware of the scheme, and there is no direct evidence one way or the other. Marcus said that he thought the money he received from his parents was inherited from his grandmother, and he says there is some circumstantial support for his belief in the documents. [29] There is uncertainty as to whether the plaintiff could establish that Marcus participated in the scheme. There may be difficulty in tracing funds from the scheme into Marcus's hands. It would require extensive forensic accounting that has not yet been undertaken. [30] Overall, I find that there is litigation risk in the claim against Marcus. It is probably not enormous, but it is present.

2) The Amount and Nature of Discovery Evidence [31] I am satisfied that the proposed settlement is grounded in evidence disclosed through a reasonably thorough discovery process, for the most part accomplished through bankruptcy procedures rather than the Supreme Court Civil Rules. [32] Virginia and Patrick's documents are in the possession of the trustee, who made them available to class counsel. There are 13 to 15 boxes of documents and a volume of emails. The documents have been examined by a forensic accountant retained by the trusty and class counsel. His report is before the court. [33] In 2017, Marcus was examined under oath for a day by counsel for the trustee at Virginia's bankruptcy. The transcript from that examination is before the court. Marcus delivered a list of documents in this action in August 2019.

3) Settlement Terms and Conditions [34] I have already described the business terms of the settlement. It affords the class full recovery against Virginia and Patrick and recovery against Marcus to the extent of 82% to 85% of his assets. [35] One technical term requires special mention. The Securities Commission holds a charge against the property in North Vancouver that Marcus Tan receives under the settlement. The commission has agreed to release the charge on court approval of the settlement and the parties have content to proceed with court approval on that basis.

4) Recommendations and Experience of Counsel [36] Class counsel are experienced and well known to the court. Mr. Mounteer offers his opinion that the settlement is fair and reasonable and in the best interests of the class considering the litigation uncertainty I have described, the prospect of recovery of 85% of Marcus's assets without the risk and expense of further litigation and avoidance of the need to establish Virginia's liability in this action. As counsel at bar, Mr. Bennett recommends approval.

5) Future Expense and Likely Duration of Litigation [37] Continuing the litigation would necessitate further forensic accounting investigations, as I have described. There would have to be a trial that could not take place before late 2021 at the earliest. The matter could stretch out into 2022 or 2023 taking the possibility of an appeal into account.

6) Recommendation of Neutral Parties If Any [38] As I have noted, the settlement is supported by the trustee in bankruptcy. RanAm believes it will unlock the resolution of its litigation with Marcus.

7) Number of Objectors and Nature of Objections [39] No one is objecting to the settlement.

8) Presence of Good Faith and an Absence of Collusion. [40] Nothing in the evidence before me suggests that the settlement is marred by bad faith in the settlement negotiations, or that it is the product of collusive behaviour. To the contrary, it is the product of arm's length negotiations following lengthy investigations by experienced class counsel. I am satisfied that it is put forward in good faith by class counsel.

9) Degree and Nature of Communications by Counsel and the Representative Plaintiffs with Class Members During the Litigation [41] The class has approximately 150 members. Counsel are unable to be precise because it is difficult to know how to count couples who invested together and who communicate with class counsel through one of them. Counsel advised that they have had extensive communications with class members making up most of the class, answering questions and responding to a certain initial scepticism concerning a settlement under which Marcus retains the North Vancouver property. The absence of objections at the end of the day is particularly significant in that light.

10) Information Conveying to the Court the Dynamics and/or Positions Taken By the Parties During the Negotiation [42] In the early stages of the litigation, Marcus was represented by counsel, who also remitted Virginia and Patrick on the certification application. That counsel withdrew in March 2019, and Marcus retained his present counsel, Mr. Funt. Mr. Funt's arrival triggered the start of the settlement negotiations, and Mr. Funt represented Marcus through the negotiations. [43] I am advised that Jastram took an active role with class counsel in the negotiations. [44] The negotiations initially contemplated a settlement in which Marcus would retain the North Vancouver property outright. In the later stages, class counsel insisted on production by Marcus of his bank statements and learned from the statements that Marcus had withdrawn approximately $70,000 from his bank account in January 2019, apparently in breach of his obligations under the Mareva injunction. This development was resolved in a practical way by Marcus's agreement to provide a promissory note secured by a mortgage over the home as I have described to secure payment of the $70,000. The episode speaks to the diligence of class counsel and the willingness of all parties to work together to achieve a reasonable accommodation. Conclusion [45] Taking all these matters into account, in my view the settlement is

clearly fair and reasonable and should be approved by the court. It is the product of arm's length non‑collusive negotiations following a reasonably thorough discovery process, offers real benefits to the class, avoids time consuming expensive litigation with some associated risk, is supported by neutral third parties and is recommended by experienced class counsel. No one objects to the settlement. [46] Public policy favours the settlement of complex litigation. I am entirely satisfied that this settlement offers a fair, appropriate and reasonable resolution of the claims advanced against Virginia, Patrick and Marcus in this case. Disposition [47] For these reasons, I approve the settlement and order that it is binding on each class member. I grant the plaintiff leave to discontinue this class proceeding against Marcus. I order 0994439 BC Ltd. and TLD Investments Inc. to take whatever corporate steps are necessary to give effect to the transfer of shares mandated by paragraph 5B of the settlement agreement. [48] In consequence of the approval, I grant the unopposed orders sought by Marcus on application in actions S162913 and S163808, in both cases cancelling certificates of pending litigation. These are actions advancing claims subsumed under the certification order, in which no steps have been taken in more than a year. Cancellation is warranted pursuant to s. 252(1) of the Land Title Act R.S.B.C. 1996 c. 250. "Gomery, J."