Nagaki v. Hoppener et al.

IN THE SUPREME COURT OF BRITISH COLUMBIA

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Nagaki v. Hoppener et al., 2005 BCSC 1059 Date: 20050714 Docket: S041449 Registry: Vancouver Between: Kazuhiko Nagaki Plaintiff And Yumiko Tsukui Hoppener Estate of Henk W. Hoppener and Tensho Gallery Ltd. Defendants Before: The Honourable Madam Justice Dillon Reasons for Judgment Counsel for the Plaintiff N. Ganapathi M. Galambos Counsel for the Defendants A. Benson Date and Place of Trial/Hearing: April 19, 20, 21, and 22, 2005 Vancouver, B.C. [1] The plaintiff has claimed damages against the defendants for breach of contract and breach of fiduciary duty and in detinue for the return of certain artworks that were entrusted to the defendants. The defendants, the estate of Henk Hoppener and Tensho Gallery Ltd., did not defend against the action. The defendant, Yumiko Hoppener denied any claim against her and stated that any debt was the debt of the defendant company. [2] The plaintiff, Kazuhiko Nagaki, is an artist resident in Japan. On a visit to Canada in 2000, he met the defendants, Henk and Yumiko Hoppener, who operated an art gallery under the name of Tensho Gallery. The plaintiff's art was shown at an exhibition in Ashcroft, B.C. and the Hoppeners travelled there to view his work. The Hoppeners expressed interest in his work and a desire to enter into an exclusive arrangement with the artist to represent his work in

Canada and the western United States. With the expectation of an agreement, the plaintiff left all of the artworks from his exhibition with Henk and Yumiko Hoppener in Vancouver. [3] Henk and Yumiko Hoppener were experienced gallery operators, having each owned and operated a gallery in Hong Kong and another gallery before opening the Tensho Gallery in Vancouver. Yumiko Hoppener operated her Hong Kong gallery under the corporate name of Yumi Venture Ltd. The Hoppeners had extensive experience with Japanese art and business, acting as dealers and agents for many artists. Henk Hoppener signed the lease for the Tensho Gallery which he said was for Yumiko Hoppener to operate. Yumiko used funds from her father's estate to finance the opening of the gallery in 2000 on the busy, sophisticated gallery row on south Granville Street in Vancouver. In May 2000, Yumiko Hoppener incorporated Tensho Gallery Limited ("Tensho Ltd.") with herself as the sole director and secretary. Henk Hoppener was the president. From the evidence, I conclude that Yumiko Hoppener was the sole shareholder of the company. [4] In June 2000, Henk Hoppener wrote to a mutual friend to thank her for the introduction to the plaintiff's work. The letter described himself and Yumiko Hoppener as successful art dealers of fifteen years experience with business responsibility who usually began " our relationship with an

artist [by]acceptance on consignment of substantial paintings which we give prominent display in our gallery " for six months. Thereafter, he indicated that he and Yumiko Hoppener usually entered into an exclusive representation agreement with the artist wherein prices for the art were set by them and sales split fifty fifty, with the artist receiving his share without deductions. He stated that " we mutually agree to undertake formal representation as the artist's dealer/agent ". No mention was made of Tensho Ltd. or that the representation agreement was to be with anyone other than Henk and Yumiko Hoppener. Henk Hoppener expected that the contents of the letter would be relayed to the plaintiff and they were. [5] Henk and Yumiko Hoppener personally wrote to the plaintiff upon his return to Japan. They advised that there was a positive response to his works and that they were writing up an agreement. They asked for more artworks to be sent to an address in Blaine, Washington, U.S.A. From there, the Hoppeners planned to bring the art to Canada themselves to avoid tax and other duties. Yumiko Hoppener continued personal correspondence with the plaintiff, expressing grand plans for group exhibitions of Japanese art in Canada led by the plaintiff through "our gallery". The plaintiff subsequently sent another eight paintings from Japan. [6] Yumiko Hoppener wrote to the plaintiff on

November 9, 2000 attaching an agreement for his review, which was drafted in English. All defendants knew that the plaintiff does not speak English. The defendant, Yumiko Hoppener, speaks Japanese and wrote to the plaintiff and conducted all relations with the plaintiff in Japanese. She told the plaintiff " if there are areas that you cannot understand, please ask me". She attached a list of artworks and stated: "The attached list shows the amount in Canadian dollars that we can pay you guaranteed I think it is better to set a guaranteed amount payable to the artist. If this is acceptable to you, please sign it and send it back to us". She also advised that she was arranging a bank account for the plaintiff so that remittances on his behalf could be directly deposited to his credit. [7] The plaintiff signed the "representation agreement" which was completely in English and drafted by Henk Hoppener. The agreement was stated to be between the plaintiff and Tensho Ltd., signed by Henk Hoppener, "director". In fact, Henk Hoppener was never a director of Tensho Ltd. The agreement granted Tensho Ltd. sole and exclusive representation of the artist throughout Canada and the western United States with the promise to use best efforts to promote, market, distribute and sell the artists work. Tensho Ltd. had the first right to new uncommitted work of the plaintiff. The artist was

responsible financially for delivery of the works to Canada and Tensho Ltd. was to bear all costs of presentation, promotion, and sale. The agreement further provided: 9. Net prices payable to Artist for his work will be mutually determined from time to time and confirmed by Tensho in agreement with Artist who will receive payment in Canadian currency into an account designated by Artist at the end of the month following the month of sale. Initially these prices are as set out in schedule one attached to this agreement.

10. All Artist's paintings of which Tensho confirms receipt are and shall remain the property of Artist until they have been paid for or returned in good condition. Tensho shall be responsible for damage loss or theft in respect of all consigned work.

11. The essence of this agreement is a mutual desire to collaborate in good faith with respect and fairness and it may be terminated by either party with 60-days' written notice. Any dispute arising from this agreement is to be settled by binding arbitration under the legal provisions of British Columbia. [8] There was no agreement for rental of artworks. [9] The plaintiff delivered thirty eight pieces of art to the defendants. The list of paintings prepared by Yumiko Hoppener contained prices for each as established by herself and Henk Hoppener. This document formed schedule one to the representation agreement. According to the terms agreed between the parties, the plaintiff was to receive fifty percent of the sale price of the art. Pursuant to written representations of Yumiko Hoppener, the prices listed were guaranteed to the artist. [10] In January 2001, Yumiko Hoppener wrote to the plaintiff asking to lower the sale prices for the pieces that they were in possession of. She also said that she could not open a bank account for the plaintiff without his signature and told the plaintiff "I can keep [the money] here in the trust account". The plaintiff agreed to the request. There is no evidence that the defendants ever opened a trust account. [11] On March 2, 2002, Yumiko Hoppener wrote to the plaintiff on Tensho Ltd. letterhead with a summary of sales of the plaintiff's

work. The sale price to the plaintiff included a deduction for framing of $900 with a stated balance payable to the plaintiff of $5,900. In addition, Yumiko Hoppener said that three works were "on loan to the bank". In October 2002, Yumiko Hoppener advised that her husband was ill and unable to participate in the gallery which she was running on her own. The plaintiff received $2,000 of the $5,900 that was payable to him. By January 2003, Yumiko Hoppener was still operating the gallery on her own and continued to reassure the plaintiff that his paintings were popular. [12] Henk Hoppener died on March 8, 2003. About one year later, on February 8, 2004, Yumiko Hoppener wrote to the plaintiff to advise that her husband had died and that she had closed the gallery in October. No prior notice had been given to the plaintiff and he was not told of the location of his art. Yumiko reported that she was in a difficult financial situation and found it "almost impossible to fufill the responsibilities that her husband left behind". She said that she was having difficulty " closing out the company". In fact, Yumiko Hoppener never did close Tensho Ltd. Instead, in June 2004, she incorporated Tensho Gallery (2004) Ltd. for the purpose of starting a gallery to bring in art from Japan whilst "protecting herself" and using the Tensho name and logo to maintain contacts that she had made in the

artworld. Yumiko Hoppener said that she took some of the paintings from the Tensho Gallery into her possession to carry on in the future. She did not keep an inventory and could not even remember whether she might have left artworks at the gallery's rented premises. When asked why she did not call the landlord to find out if she had left art there, she responded "the company owed him money so why should I call ". She did not initially return any of the paintings when asked to do so by the mutual friend. [13] The plaintiff eventually received seventeen artworks back when the mutual friend picked them up from Yumiko Hoppener's residence in December of 2003. Of the twenty-one remaining artworks, nine were accounted for in sales percentages payable to the plaintiff of $5,900 from the summary of March 2002. There is a balance payable on these sales of $3,900. [14] The twelve missing or unaccounted for paintings include the four that were "loaned" to a bank and never accounted for. They were listed as numbers 1, 8, 9, and 10 in Exhibit 2. The other missing paintings are numbers 11, 12, 13, 23, 28, 32, 36, and 37. Number 28 was delivered by Yumiko Hoppener to a customer but she never received payment and apparently never brought any process to obtain return of the artwork. This missing piece is attributed to her and included in the twelve missing artworks. The twelve missing paintings

are presumed to be in the possession of Yumiko Hoppener. Based upon the price to the artist of the missing art, which was half of the value of the paintings, the missing paintings are valued at $19,850. [15] The plaintiff demanded payment of monies owing and offered to enter into binding arbitration pursuant to the terms of the representation agreement. Yumiko Hoppener refused. [16] At all times, the plaintiff regarded Yumiko and Henk Hoppener as the owners and operators of the gallery and was unaware that the gallery was formally owned by Tensho Ltd. He had no recognition that there was any difference between the defendants and it was never pointed out to him that he was apparently contracting with Tensho Ltd. He regarded Yumiko and Henk Hoppener as operators of the gallery and considered that all of his business dealings were with them as dealers and agents. Although Yumiko Hoppener often wrote to the plaintiff on stationary with Tensho Gallery Ltd. at the top, she did not identify herself as an officer or representative of the company in any correspondence and often wrote by hand. There is no suggestion that the personal defendants ever identified themselves to the plaintiff as representatives of a corporation or that they referred to the gallery as anything other than Tensho Gallery. Yumiko Hoppener testified that the plaintiff referred to her husband as the "owner" of the

gallery. She never corrected him. [17] The defendant, Yumiko Hoppener, attempted at trial to paint the plaintiff as an unsuccessful, unprofessional artist who could not otherwise sell his work. This is an irrelevant caricature as the defendants expressed themselves to be successful, knowledgeable, and experienced art dealers with broad critical experience with abstract art. They chose to deal with the plaintiff on their own terms and to sell his works at prices set by them. There is no other evidence of value. [18] The defendant, Yumiko Hoppener, also attempted to portray herself as an unsophisticated underling in the gallery, basically a Japanese translator who did the displays and artistic decoration. I reject this evidence. From correspondence, the history of Tensho Ltd. and other galleries, operations at the gallery, and corporate records, it is clear that Yumiko Hoppener was an active operating mind of the gallery, fully engrossed in its operations and fully aware of the significance of financial transactions, bank accounts and the like. She had no other work and solely directed the affairs of the gallery once Henk Hoppener became ill in August 2002. She is savvy in corporate affairs, incorporating Tensho Gallery (2004) Ltd. in June 2004 for the purpose of continuing a gallery to bring in art from Japan whilst "protecting herself". I conclude that she started the new

company with the intention that she would not have to be responsible for the debts of Tensho Ltd. and to continue her personal operations within another sham company that would have no independent operations. She knowingly used a United States postal address to avoid tax charges in Canada. I reject her evidence that she did not know who owned Yumi Venture Ltd., the corporation that allegedly operated her personal gallery in Hong Kong. She knew that she owed the plaintiff money after her husband died but said "he was not the only creditor" and acknowledged that she paid bills with the plaintiff's money. I do not accept that she was unaware of what trust money was, as it was she who used the language in a letter. She knew about exchange rates, international bank accounts, and Japanese business; however she blamed her dead husband for all of their affairs. I therefore do not find her evidence credible. [19] Yumiko Hoppener is and always was the sole director of Tensho Ltd. She would have been in a position to produce all of the corporate records of the company. In spite of this, no records whatsoever were produced. Nothing was shown to suggest that the company ever operated the gallery or had business dealings in relation to the gallery. In addition, no defence was filed on behalf of the company, and no defence was filed on behalf of the estate of Henk Hoppener, of which Yumiko

Hoppener is the sole executor. Yumiko Hoppener now attempts to tell this court that the company is solely responsible for the affairs of Tensho Gallery. [20] I find that, regardless of the title to the representation agreement or the signatory, the plaintiff contracted with Henk and Yumiko Hoppener as had been represented to him throughout. The Hoppeners operated the gallery as their own at all times. The company was a shell. The bank statements were in the name "Tensho Gallery" and not the company. No financial statements for the company were ever prepared or produced. Personal monies were deposited into the gallery account and personal monies were paid out without accounting. Yumiko Hoppener was the sole director of the company throughout and solely directed the affairs of the gallery at the significant times when money was to be paid or art to be returned. Yumiko and Henk Hoppener breached the agreement and are both liable in damages. [21] Yumiko Hoppener is also liable in trust for the $3,900 that she assured the plaintiff would be placed in trust in his name and was never given to him. [22] The measure of damages in contract is the full value of the missing paintings plus the amount owing from sales. This is because the Hoppeners were only entitled to payment upon sale of a painting. The amount of damages is $19,850 plus $3,900 for total damages of $23,750. [23] The

plaintiff is entitled to damages or, in the alternative, to return of his artworks, at his option. In the event of return of one or more artworks at the plaintiff's option, the value of each painting returned will be double the listed price to the artist in Exhibit 2. That amount will then be deducted from the measure of damages under the contract. In the event of the return of all artworks, Yumiko Hoppener and the estate of Henk Hoppener are liable for $3,900. In the event that the plaintiff pursues the option for return of the art, it is ordered that the Sheriff shall enter upon any premises occupied by Tensho Ltd.,Tensho Gallery (2004) Ltd. or Yumiko Hoppener for purposes of seizure of the detained works of art. [24] It is not necessary to consider further causes of action. [25] The plaintiff requested special costs because of the failure of the defendant to enter into arbitration as provided in the representation agreement. I am not aware of this as a basis for special costs and no legal authority was presented. I decline to order special costs. However, failure to enter into arbitration led to the plaintiff's required attendance at trial. The plaintiff is entitled to costs on scale three and disbursements, including the plaintiff's costs for attendance at trial. "J.R. Dillon, J." The Honourable Madam Justice J.R. Dillon