In NDrive, Navigation Systems S.A. v. Zhou the Ontario Court of Appeal upheld a partial summary judgment in a fraud case. This is significant because awards of partial summary judgment are rare. This case also matters because the court awarded both punitive damages and full indemnity costs.  

Background to Dispute

The respondent software company NDrive, Navigation Systems (“NDrive”) engaged the applicant Silas Zhou as a consultant through one of Zhou’s companies. Zhou helped to establish a business relationship between NDrive and LG Electronics, leading to NDrive providing software for LG phones. In 2015, NDrive commenced an arbitration against LG who underreported the number of phones the software was installed on. Zhou oversaw the arbitration for NDrive.

NDrive succeeded, obtaining an arbitral award of over $1 million. Zhou directed NDrive’s lawyer to wire the balance of the award  to one of his companies. Months later, NDrive discovered that Zhou had not informed them of the outcome of the appeal and had directed the monies to be paid to Zhou’s company without NDrive’s authorization. NDrive sued Zhou and his associated companies, alleging fraud among other things, and claiming damages of about $1 million, punitive damages of $1 million, and an interlocutory and permanent injunction to restrain Zhou from disposing the assets. NDrive also claimed damages against the lawyer handling the arbitration. Zhou counterclaimed for breach of contract among other things, claiming $5 million in damages, and punitive damages of $1 million. Shortly after filing the claim, NDrive obtained a Mareva injunction to freeze Zhou’s assets.

In March 2021, NDrive moved for and was granted partial summary judgment against Zhou and related parties and the counterclaims were dismissed. The Court found that Zhou was “deliberately lying and attempting to mislead the court”. The judge also awarded full indemnity costs and punitive damages. Zhou appealed the decision.

Ontario Court of Appeal Analysis

Zhou raised four grounds of appeal which were dismissed by the Court of Appeal finding that partial summary judgment was appropriate. In light of the Court of Appeal’s decision in Malik v. Attia, there are three threshold questions whether partial summary judgment is appropriate. The questions relate to the cost for the parties, the efficiency of the court system, and the danger of inconsistent findings by multiple judges determining a divided case.

The Court of Appeal dismissed the arguments that the motion judge had not sufficiently considered these factors. First, the case management judge had adequately performed the triage function of these factors. Second, although the case management conference pre-dated Malik, the motion judge expressly addressed Malik when considering the case management judge’s reasons during the appellant’s motion to set aside the Mareva injunction.

The Court of Appeal found the motion judge’s analysis thorough, as she addressed the key concerns in determining a partial summary judgment. She concluded that an outcome which limits the issues would be proportional, efficient, and cost effective. In spite of the parties remaining in the action, the interest of justice dictated a granting of partial summary judgment. Further, the actions against the Zhou and Hakemi parties could be bifurcated. While litigation against the parties was factually related, the legal questions were dissimilar. Accordingly, the likelihood of inconsistent findings would be “negligible”.

Second, the Court of Appeal found that there was no error in the motion judge’s judgment, as it was based on an extensive evidentiary record and made reasonable findings.

Third, the court clarified that there was no bar to finding a full indemnity cost award in conjunction with punitive damages. Accordingly, it upheld the motion judge’s finding on costs and damages.

Finally, the court held that the argument regarding fraudulent concealment lacked specificity and a sufficient evidentiary foundation.

Takeaway

• Partial summary judgments are rare. Recent appellate case law in Malik and Butera v. Chown, Cairns LLP narrowed the availability of the remedy. This case illustrates the circumstances when partial summary judgment is available.
• Courts rarely award full indemnity costs or punitive damages. In this case, they awarded both. The appellant had argued that these were duplicative penalties for the same misconduct. The court disagreed and clarified that full indemnity costs and punitive damages have different purposes. Accordingly, a finding of full indemnity costs will not preclude a finding of punitive damages and vice versa.

* With thanks to Anton Rizor for his assistance with this post.