Earlier this month, the Supreme Court of British Columbia published a judgement pertaining to a dispute between long-time friends over a real estate investment and development opportunity.
Justice F. Matthew Kirchner's judgment begins with a summation of the case, saying in the very first sentence that "This is a case about a real estate development project gone terribly wrong." He includes other tersely worded declarations, such as "The project was a complete failure" and "The development itself was a disaster."
The plaintiffs in this case were Weihe Wang and his wife Guilian Tian, a Chinese-Canadian couple who invested in real estate through a company called Weihe Investments Ltd. The company was primarily run by Tian and had invested in over 22 condominiums in the presale stage, a number of residential properties in BC, and properties in both Alberta and Toronto.
The defendants are Ying Ping Guo and his wife Yue Chun Xi. The two husbands first met at a conference in Vancouver in 1994 and the two couples became close friends, with the defendants helping the plaintiffs navigate life in BC after they immigrated. In May 2016, Guo would present two investment opportunities to Wang that are at the centre of the lawsuit.
Guo himself was introduced to the opportunity by Jozsef Horvath, a building contractor who does renovation and construction work in the Fraser Valley and is also a listed plaintiff in the case, along with his wife, Katalin. Horvath met Guo in 2013 after Horvath's family moved into a rental property that Guo was managing. He also operated a development company called Vantone Development Group Ltd. along with Yunal Nath, who himself owned a company called Developro Construction Ltd., and all three are also listed as plaintiffs.
The Development
The two investment opportunities entailed two large pieces of undeveloped land in rural parts of British Columbia that the parties believed could be developed into residential subdivisions.
The first was an 143-acre property in Prince George, at the south end of Sylvia Road about 20 kms southwest of downtown Prince George. The second was a 153-acre property at the top of Sumas Mountain in Abbotsford, with no direct road access but in decent proximity to Taggart Road.
Between the aforementioned parties, it was agreed that Weihe Investments Ltd. would buy the two properties and provide the capital needed to develop the properties, with the development work handled by Vantone Development Group Ltd. Guo, who connected the two sides (Wang and Horvath) and would oversee the project and hold decision-making authority. The parties agreed that Guo, Horvath, and Nath would each receive 5% of the project's profits, with the remaining profits going to Weihe. An agreement was also separately reached that would see Guo receive an additional 10% if the project passed certain profit thresholds.
Horvath and Nath would profit before the project even got to the construction stage, however. It would ultimately be discovered that when Horvath brought the investment opportunity to Guo, who then took it to Wang, Horvath and Nath had an agreement already in place for them to purchase the two properties themselves, at a significantly lower price. They would then successfully flip the two properties to Weihe Investments and make a quick profit of $1,450,000.
A Secret Flip and Fake Invoices
Horvath and Nath kept their plan a secret, purchasing the properties through numbered shell companies. Weihe Investments subsequently invested another $2,862,500 towards the development, however only about $812,536 of that truly went towards the project, with the rest being "misappropriated by Mr. Nath and Mr. Horvath for their personal use or to support their other projects," according to Justice Kirchner.
"Vast sums of this money are untraceable," Kirchner said. "Mr. Nath and Mr. Horvath transferred money into a Vantone Construction account (controlled by Mr. Horvath and unrelated to Vantone Developments), a Developro account (controlled by Mr. Nath), or to Mr. Nath and Mr. Horvath personally. From those accounts many hundreds of thousands of dollars were withdrawn as cash. Where expenditures can be traced, [a forensic accountant found] that Weihe money was spent at casinos, car dealerships, jewelry stores, restaurants, clothing stores, and the like. However, most of the expenditures are untraceable because money was taken out in cash."
Several months into the project, to keep the charade going, Jozsef Horvath asked the site manager he hired for the Prince George project, Dennis Voss, to provide an invoice for his services that overstated the real amount, so he could then pass it on to Guo.
"Mr. Voss refused to do this, but did eventually agree to provide Mr. Horvath with a blank V-Ventures invoice," said Justice Kirchner. "Mr. Voss manipulated the formatting on that invoice so he could later distinguish it from a legitimate invoice. Mr. Horvath denied that he asked Mr. Voss for a fake overstated invoice, but I prefer Mr. Voss' evidence on this point. Regardless, Mr. Horvath admitted that he asked Mr. Voss for the blank invoice and that he gave that blank invoice to Mr. Nath, who filled in the amount ($348,867.75)."
Both Horvath and Nath created other fictitious invoices, one for $87,500 and one that overstated a $386,364 charge as $789,144, but Horvath ultimately admitted to Guo that he and Nath had misappropriated much of the funding from Weihe Investments. Guo claimed that he learned of this in January 2017 and immediately informed Wang, but evidence provided during discovery indicated he did not inform Wang until April of that year. Upon discovering the misappropriation of the funds they provided and the true status of the project, the plaintiffs filed suit.
"Significant Problems" With Credibility and Reliability
The trial played out across several months in 2023, concluding in October of that year. In his judgement, published this month, Justice Kirchner said that "Much in this case turns on the credibility of the witnesses."
"There are significant problems with the credibility and reliability of both Mr. Guo's and Mr. Horvath's evidence, which frequently and materially conflicted with evidence they gave on examination for discovery," Kirchner wrote. "Both were impeached countless times during the trial. Mr. Guo often strained to explain inconsistencies between his trial and discovery evidence, but these efforts were unconvincing and only further undermined his credibility."
Kirchner described Guo and Horvath as "patently unreliable," but also called into question some testimony provided by Wang, who appeared to have memory lapses pertaining to several details.
"Some of these memory lapses were innocuous, such as Mr. Wang contemplating building a house for himself on the Prince George Property," noted Kirchner. "However, Mr. Wang's inability to recall certain matters and his emphatic denial of some points that were clearly made out on other more reliable evidence leads me to question how he was able to have a very precise memory events [sic] when it helped the plaintiffs' case but a less reliable memory for matters that go against it."
One particular event that was key to the parties solidifying their partnership, but became a point of contention that illustrated the lack of credibility, was a meeting over dim sum — the traditional Cantonese brunch.
On May 15, 2016, the couples met at the Grand Villa Casino in Burnaby for brunch and to discuss the investment opportunity that Horvath had brought to Guo and Guo had then brought to Wang. After the meeting, the two husbands then traveled to meet Horvath and Nath to go see the Prince George property.
In his judgement, Justice Kirchner was not convinced that the dim sum meeting even occurred.
"I am not persuaded that there was a breakfast meeting on May 15, 2016," Kirchner said. "Mr. Wang and Ms. Tian gave inconsistent evidence on this point as it relates to when the restaurant opened and what they were doing before it opened. Further, [...] Wang, Guo, and Horvath had a full day of viewing properties and I find it improbable that there was time for a dim sum breakfast that lasted until close to 11:00 before they ventured out to Pitt Meadows [to meet Horvath]."
Wang and Tian also testified that at this dim sum meeting, Guo and Xie tried to convince them to make the investment and that Xie went as far as to personally guarantee their investment. Justice Kirchner also questioned whether this occurred, in part because he questions whether the meeting even occurred, but also because it was not clear Wang and Tian asked for Xie's guarantee in writing, as one would reasonably expect in that circumstance.
The End
In the end, Justice Kirchner awarded a grand total of $5,164,950 in damages to Wang and Tian, which includes the $2,862,500 in development funding that was largely misappropriated by Horvath and Nath, the $1,450,000 Horvath and Nath made from secretly flipping the properties, market value overpayment as a result of the Prince George property being misrepresented to them, as well as investment interest, punitive damages, and other fees.
Liability for those damages is shared primarily between Horvath and Nath as well as smaller portions to Horvath's wife, who profited from the flip. The Horvaths' son, Zsolt Horvath, was also named as a defendant because he was employed by Horvath and Nath's company and the plaintiffs alleged that he received some of the flipping profits as well, but Justice Kirchner ultimately dismissed that claim.
Guo was also found to share a significant portion of the liability, but is entitled to be indemnified by Horvath and Nath as a result of a third-party claim for the full amount of his liability to the plaintiffs.
Pertaining to the two development projects, Justice Kirchner found that neither "was ever financially viable or even achievable as planned." The Prince George project would have lost money had it been completed and the Sumas Mountain project was unlikely to even make it to the construction stage, Kirchner said.
"The Prince George project was hopelessly mismanaged by Mr. Nath and Mr. Horvath and not managed at all by Mr. Guo. I find it was doomed to fail and did fail because of that gross mismanagement. However, even if the project had been properly managed, it was likely never going to be viable. Given the inflated amount that the plaintiffs paid for the land, the realistic development costs, and the market for rural residential properties in the area at the time, there was no way the plaintiffs were going to recover their investment costs. That was readily ascertainable before the investment was made if anyone had thought to do a feasibility study before embarking on the project."
Based on appraiser testimony, Kirchner concluded that "there is presently no option to develop the Prince George Property in an economically feasible way" and that "the best use of the land, as [the appraiser] said, is to hold it for some possible future development."
Also now on hold — or is now over, more likely — is the decades-long friendship between the two couples. As Justice Kirchner noted: "This would ultimately prove fatal to their 20-year friendship."
