Executive Summary: Key Legal and Evidentiary Issues

• The appeal involved a dispute between brothers over funds misappropriated from corporate trustees managing jointly owned real estate.

• A constructive trust was ordered over residential property purchased with misappropriated funds, but it was made subject to a separate accounting process.

• The trial judge found serious breaches of fiduciary duty, including non-disclosure and misrepresentation over several years.

• The constructive trust remedy was challenged as inconsistent with the findings about a prior settlement agreement.

• The trial judge declined to award punitive damages despite recognizing serious misconduct and concealment.

• The Court of Appeal reversed both rulings, setting aside the trust condition and awarding $100,000 in punitive damages.

Facts and procedural history

Won Sok Chung and Jae Hoon Chung are brothers and real estate investors who jointly acquired two apartment buildings in Vancouver through corporate trustee companies. Jae was a passive investor residing in Korea, while Won, based in Vancouver, managed the properties and controlled the trustee corporations. The brothers agreed that Won would receive a 5% management fee and was not authorized to make withdrawals without Jae’s consent.

In 2012 and 2013, Won misappropriated over $1.6 million from the trustee corporations’ accounts without informing Jae. These funds were used to buy GICs, which were later cashed to purchase a residential property on Marine Drive in Vancouver. Jae discovered this only after initiating legal proceedings in 2017. A partial settlement agreement between the brothers resolved claims related to improper expenses and management fees, but explicitly preserved Jae’s right to pursue a constructive trust claim over the Marine Drive property.

At trial, the judge found Won breached fiduciary duties by taking and concealing the funds. A 45% constructive trust was granted to Jae over the Marine Drive property, consistent with his interest in the original investment. However, the judge made the trust subject to possible reduction if an ongoing accounting process—stemming from the settlement agreement—determined that Jae had already received related amounts. The judge also declined to award punitive damages, finding that while the misconduct was serious, it did not meet the required threshold in the context of a family business dispute.

Issues on appeal and Court of Appeal decision

Jae appealed on two grounds: that the constructive trust should not be subject to the accounting process, and that the judge erred in refusing punitive damages. The Court of Appeal agreed with both arguments.

On the first issue, the Court held that the trial judge’s own findings showed that the Marine Drive property claim was explicitly excluded from the settlement’s accounting process. The judgment had already resolved the disgorgement and profit-sharing issues. Allowing the accounting to potentially reduce the constructive trust would undermine those findings and give Won another opportunity to reargue settled issues. The Court set aside the condition and confirmed Jae’s full 45% interest.

On the second issue, the Court found that punitive damages were rationally required. Won’s conduct—misappropriating funds, lying to his brother, concealing transactions, and continuing the deception for years—constituted egregious breaches of fiduciary duty. The Court rejected the trial judge’s rationale that Jae had ultimately benefited from the investments or that the constructive trust itself provided sufficient deterrence. Punitive damages, the Court emphasized, serve to punish and deter outrageous misconduct, regardless of whether the plaintiff was compensated through other remedies. The Court awarded Jae $100,000 in punitive damages.

Conclusion

The appeal was allowed. The Court of Appeal removed the condition from the constructive trust and granted $100,000 in punitive damages against Won Sok Chung. The judgment reinforces the principle that fiduciaries who abuse their power and actively conceal their wrongdoing can face not only restitutionary remedies, but also punitive financial consequences.