Executive Summary: Key Legal and Evidentiary Issues

• Central question was whether two express trusts over shares and warrants were enforceable.

• Appellants claimed the trusts were designed to avoid creditors and therefore illegal.

• Trial judge found no evidence of harm to creditors or that the trusts were illegal per se.

• Damages for breach of trust were calculated using the highest share price over time.

• Punitive damages were awarded due to deliberate, egregious fiduciary misconduct.

• Court of Appeal upheld all findings, dismissing arguments on illegality, valuation, and punishment.

Facts and procedural history

This appeal arose from a complex dispute between members of two families over ownership and control of shares and investment proceeds held through two express trusts: the “Discounted EVC Units Trust” and the “Unison Trust.” The plaintiffs, Ming Zhang and Xiaoqin Yang (referred to as Myles and Rose), alleged that the defendants, Guang Ning Zhang (Nick) and Ping Hui Lu (Helen), held shares and warrants in trust for them and breached those trusts. The Supreme Court of British Columbia found in the plaintiffs’ favor, awarding substantial compensatory and punitive damages. The defendants appealed.

The appellants did not contest the trial judge’s findings of fact or credibility. Instead, they argued on appeal that the trusts were unenforceable because they had allegedly been created for the improper purpose of avoiding creditors in China. They also challenged the method used to calculate damages and the award of punitive damages.

The trial court’s findings

Justice Weatherill concluded that both the Discounted EVC Units Trust and the Unison Trust were enforceable. While acknowledging that Myles’s debts in China may have been an impetus for creating the trusts, the judge held that this was not sufficient to invalidate them. He emphasized the absence of evidence showing actual harm to any creditors, the absence of illegal activity under Canadian law, and the lack of any connection between the alleged purpose and the fiduciary breaches by the appellants. The judge explicitly rejected the notion that mere intent to avoid creditors, without more, renders a trust unenforceable.

Damages were assessed based on the highest market price of EVC shares during the relevant period. The court found that Nick had wrongfully failed to sell 125,000 shares and warrants as instructed, and that Helen had misappropriated 210,000 shares. The judge concluded that the proper remedy was to assume the assets would have been sold at their maximum value, awarding over CA $6 million in compensatory damages.

Punitive damages of CA $100,000 were awarded on the basis that the appellants engaged in deliberate deception, fabricated evidence, and persisted in misconduct throughout the litigation. The judge found this conduct to be planned, persistent, and carried out with the intent to usurp the plaintiffs’ property.

Issues on appeal and the Court of Appeal’s analysis

The British Columbia Court of Appeal addressed three main issues: the enforceability of the trusts, the assessment of damages, and the justification for punitive damages.

On enforceability, the Court held that while creditor avoidance could make a trust unenforceable in some cases, there was no evidence of harm, illegality, or fraud affecting creditors or immigration authorities. The trusts were not illegal per se, and the trial judge’s conclusion that enforcing them would not undermine the integrity of the legal system was upheld.

On the question of damages, the Court affirmed that in cases of breach of trust involving wrongful retention of assets, it is appropriate to presume that the beneficiary would have obtained the highest possible value. The judge’s use of the highest trading price, even if achieved only on a single day, was supported by case law and reflected a proper balancing of equitable principles, including deterrence.

Regarding punitive damages, the Court upheld the trial judge’s finding that the defendants’ conduct was egregious and met all criteria for a punitive award as outlined in Whiten v. Pilot Insurance Co. The judge had properly considered the planning, persistence, concealment, and profit-seeking nature of the misconduct, as well as the vulnerability of the plaintiffs and the absence of other penalties.

Conclusion and outcome

The British Columbia Court of Appeal dismissed the appeal in its entirety. It found no error in the trial judge’s reasoning regarding the enforceability of the trusts, the assessment of damages using the highest market value, or the award of punitive damages. The decision confirms that courts will enforce express trusts despite questionable motivations if no harm or illegality is shown, and will grant full equitable remedies—including punitive damages—where fiduciaries engage in calculated breaches of duty.