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Youyi Group Holdings (Canada) Ltd. v. Brentwood Lanes Canada Ltd., 2020 BCCA 130

reasons for judgment

The British Columbia Court of Appeal agreed with the judge at trial that a $28.8 million contract of purchase and sale should not be enforced, being tainted by the illegality of the purchasers’ fraudulent conduct.   

The Court considered the following conclusions at trial which remained unchallenged on appeal: 

  • That a “rent reduction schedule” and a companion “lease addendum” had been prepared as separate documents to allow the purchaser to conceal them and thereby artificially inflate the revenue for the property in the minds of lenders; and that these documents had, in fact, been deliberately withheld from lenders for this purpose;
  • That the purchaser had, for fraudulent purposes, provided a false purchase and sale agreement, referencing a false deposit and a purchase price falsely inflated by $10 million, to a potential financier as well as a developer;
  • That the realtor, acting on the purchaser’s instructions, proposed what the trial judge characterized as a False Deposit Scheme which was intended to mislead lenders into believing that he had contributed $8 million more in equity towards the purchase of the Brentwood property than he in fact had.   The scheme “was intended to work as follows: the Purchasers would provide a $4 million payment to the Vendors; the Vendors would provide a “receipt’ for $4 million and then return the $4 million amount to the Purchasers; using the funds they had just received back, the Purchasers would pay the Vendors another $4 million in exchange for another $4 million receipt; the Vendors would again return the $4 million back to the Purchasers; and, after the Purchasers obtained financing to purchase the Brentwood property by relying in part on the fictitious additional $8 million in equity, the Vendor would be provided with $8 million in mortgage security over other properties…” The vendor “refused to cooperate with the False Deposit Scheme”.

After considering the law of ex turpi causa,, the Court of Appeal found it unnecessary to look beyond the false “rent reduction schedule” and “lease addendum”.    The case fell into the class of contract that “may be unenforceable in circumstances where it is not per se illegal, but was entered into at least in part, with the object of committing an illegal act. Enforcement of such a contract may be so tainted with illegality that a court is entitled to refuse to enforce it.”

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