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Port Moody developer sues partner over housing project

The civil suit filed in B.C. Supreme Court July 23 alleges breach of fiduciary duty.
Development proposal for at 3101-3103 St. Johns St., 3104-3112 St. George St., 123-129 Buller St. | Rendering City of Port Moody website.

Investors in a Port Moody housing development have filed a claim for millions of dollars in damages, arguing they were unfairly dealt with in a financing and partnership arrangement.

In Supreme Court documents filed July 23, Buffalo Megan Holdings Ltd. and William Wang are suing PKT Holdings One, Quad-City Real Estate Group Ltd., Tina Mu and Yanta Chai for breach of fiduciary duty, among other things.

None of the claims have been tested in court and the defendants have 21 days to respond.

The case involves a partnership arrangement to build a development at 3101-3103 St. Johns St., 3104-3112 St. George St., 123-129 Buller St. and a portion of the St. Andrews St. right-of-way.

Plans for the development, according to the City of Port Moody website, include 197 units in two buildings, commercial space and a daycare.

Wang is described as an “experienced and successful” Vancouver developer and well known in the Vancouver Chinese community; he and his ex-wife are described as the “directing minds” of the plaintiffs. They have a number of companies, all with Buffalo in the name.

Mu, meanwhile, is described as a businesswoman, experienced in obtaining financing and a shareholder of PKT while Chai is a “wealthy Chinese developer and businessman.”

None of the parties involved were friends, the lawsuit states. Each wished to have an equal voice in the partnership and development agreement, the details of which were not lived up to, the suit alleges, as the project wound its way through Port Moody city hall.

Good development potential

Wang is credited with first spotting the development potential in the Port Moody property and in 2017 made an offer, which was accepted on July 7.

The lawsuit says Wang approached Mu for financing to pursue the project and both agreed to form a Limited Partnership, estimating that $26 million would be provided by way of investor equity.

The goal was to build a mixed-use commercial and multi-unit residential rental facility, with Buffalo Megan having 40 per cent of the partnership, PKT 25 per cent and a series of other investors owning the rest based on their subscription amounts.

Nine lots were acquired between 2017 and 2018 and by May 2021, Mu raised approximately $14 million, of which Buffalo provided $11 million.

In May and June, the development proceeded through the city’s rezoning process.

However, during the May 27 public hearing, the suit says an issue arose as to “affordable housing/community amenities,” which later was to be addressed by a rent-to-own program.

By August 2021, Wang had submitted the housing and child-care agreements required by the city. Only the rent-to-own agreement awaited approval by the city’s solicitor.

A second public hearing was held, and it was believed that the timeline would enable the project to go ahead and invoices could be paid.

Issues with financing

However, a number of issues regarding financing arose, the lawsuit alleges, with Mu and PKT taking a short-term loan with an interest rate of 9.5 per cent, for the purchase of the city’s laneway lands. It was essential but could have waited until after third reading when construction financing would have been available, the lawsuit states.

The lawsuit further asserts $1.5 million was needed to “meet necessary expenses” to achieve third reading, but that no effort was made to finance the cash injection or any other after Wang refused to cash out two investors.

It was at this point that Mu and PKT “undertook actions to bring about the termination of the partnership, in breach of the development agreement and the limited partnership agreement,” the lawsuit states.

“At some time, unknown to the Plaintiffs, but known Defendants, PKT and Mu also entered into an agreement with Chai to injure Wang and Buffalo Megan, to acquire the Partnerships’s assets for themselves and to complete the development themselves, thereby earning the profit the Partnership would otherwise have earned,” including Buffalo’s 40 per cent interest.

Loss of assets contended

Mu breached her fiduciary duty in a “conspiracy” that included her telling the lenders that the partnership was in serious financial trouble, unable to meet its expenses and the plaintiffs owed contributions to ongoing expenses and were “refusing” to make such payments.

The lawsuit argues that the issues were “deliberately created” in that PKT was “apparently ready able to obtain financing while Wang and Buffalo were “not obligated” under the partnership agreement to contribute any further funds.

“Such conduct, designed to bring about the demise of the partnership and the loss of its assets” was in “breach of Mu’s fiduciary duty” and the partnership and development agreements.

The banks did not commence proceedings, but PKT filed a petition for the appointment of a receiver “founded upon the entirely untrue assertion” that Wang had to provide ongoing funds.

“Mu and PKT were aware of their allegation in that regard was false,” the lawsuit alleges.

Subsequently, Prospera Credit Union commenced proceedings to enforce its security.

The Bowra Group was appointed as receiver, which would be empowered to advance the project, with the lenders providing financing.

However, the receiver decided due to changes in civic policy, and based on advice from consultants, to reconfigure the development, which Buffalo Megan protested.

PKT supported the reconfiguration while Buffalo did not, which Buffalo states is a “further breach” of its fiduciary duty while the receiver cooperated with PKT and Mu while “ignoring the interests” of Buffalo Holdings.

In disagreeing with how the receivership was handled, the lawsuit states that PKT advanced funds on “behalf of Wang’s fictitious obligation” as a repayable loan by the partnership.

Had PKT not breached their duty and obtained the necessary bridge loan and financing, third reading would have been obtained by September 2021, the project would not have been reconfigured, and the development would have proceeded and obtained construction financing or would have been sold “at a higher price and on terms more favourable to the partnership than those offered from PKT and Chai.”

Damages sought include receivership costs of $559,749, real estate commission of $379,250, interest on receiver’s borrowings of $27,600, $4 million in costs on the reconfiguration of the development, and loss of profit estimated to be 40 per cent of $23,750,000.

As well, it wants the former partners’ profits to be given up, as well as additional relief and damages.