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'Terribly wrong': Fraudulent B.C. residential development project leads to $5.1M order

Two investors put their trust in a longtime friend to pitch a real estate development; it turned out the contractors had other ideas for their money, a judge has ruled.
After misappropriating cash from two investors, building contractor Jozsef Horvath bought this Surrey home some time in or after 2016; he's since sold the home to help repay the investors.

Two B.C. building contractors have been ordered to pay over $5.1 million to a Chinese-Canadian couple after what a judge described as “a real estate development project gone terribly wrong.”

Supreme Court of B.C. Justice Matthew Kirchner ordered contractors Yunal Kumar Nath and Jozsef Horvath to return over $5.1 million to Weihe Wang and Guilian Tian, after determining they defrauded the couple after a real estate development pitch brought together by a common friend in 2016.

Tian and Wang are spouses who immigrated to Canada from China in 2005. But Wang kept working in China where he operated a financially successful pharmaceutical business until his retirement. Tian, who described herself in court as a “housewife,” obtained citizenship with their children in 2010 and the couple founded a family-owned real estate investment business called Weihe Investments Ltd. with the income from China.

Weihe, the court heard, had previously invested in 22 condominiums at the pre-sale stage as well as some commercial and stand-alone residential properties in B.C. The couple was described as “experienced” real estate investors but not developers.

Horvath, meanwhile, was a building contractor in the Fraser Valley. He and spouse Katalin Horvath came to Canada in 2001 after fleeing communist Hungary in the 1980s.

Nath was also a contractor but the court did not hear from him as he is now without assets and suffering injuries from a stroke. Nath and Horvath are described as "development partners," according to the ruling.

Tian and Wang and Horvath and Nath were brought together by Ying Ping Guo, a property manager who rented a Pitt Meadows home to Horvath in 2013. Guo was also managing the construction of a mushroom processing facility for which Horvath was contracted to build.

Guo met Wang in 1994 at an international ginseng conference in Vancouver and the two became longstanding friends until the contested investment soured the friendship.

Through Guo, Horvath and Nath pitched the purchase of two empty rural lots near Abbotsford and Prince George, respectively, to the prominent investors.

Kirchner outlined two major elements of fraud and misrepresentations by Horvath and Nath.

First, “unbeknownst to the plaintiffs …Mr. Horvath and Mr. Nath secured for themselves the right to buy the Prince George and Sumas Mountain Properties for substantially less than the purchase price given to Mr. Wang and Mr. Tian.

“Thus, by May 16, 2016 when the parties toasted their new investment relationship, Mr. Horvath and Mr. Nath stood to share (and soon after did share) a secret profit of $1,450,000 by flipping two properties to the plaintiffs,” stated Kirchner in his March 4 decision.

The contractors “represented that the properties could be purchased for $5 million and later refined this to $4.65 million. They actively concealed the fact that they themselves were purchasing the properties for a total of only $3.2 million and earning a $1.45 million profit from flipping them,” added Kirchner.

The second major part of the claim stems from the contractors using the couple’s money for their personal use.

After the properties were flipped, the contractors set off to develop them with $2.86 million in seed funding from Wang and Tian, via Weihe, provided in June 2016. The goal was to get approvals for pre-sale lots by the end of the year in Prince George.

But, “the Prince George project was hopelessly mismanaged,” Kirchner summarized.

“There was a complete failure to conduct any feasibility studies for the project before the land was purchased or before ground was broken on the development. There was no advance planning for the project, and road construction proceeded before essential plans and approvals were completed,” the judge added.

Among the problems was the property’s topography, which posed road construction challenges and excessive costs, leading to the engineer of record to quit when his warnings were ignored.

By fall of 2016, the court heard Nath “had largely backed away from his involvement, although he continued to take Weihe’s money out of the project for his own use.”

In fact, Nath and Horvath “withdrew large sums from those funds and appropriated that money – more than $2 million – to their own use or to other projects they were working on.”

And “vast sums of this money are untraceable,” because money was taken out in cash, noted Kirchner.

“Where expenditures can be traced, [a forensic accountant] finds that Weihe money was spent at casinos, car dealerships, jewelry stores, restaurants, clothing stores, and the like.”

Horvath also used $450,000 from his ill-gotten proceeds to buy a $1.13-million home on 73B Avenue in Surrey. Horvath and his spouse Katalin Horvath then financed the purchase of two properties — one in Surrey and another in Chilliwack — by mortgaging the 73B property.

Those properties were subsequently sold and $367,000 remains in trust with a lien understood to be due to Wang and Tien. Kirchner noted it was not explained by the Horvaths why only $367,000 and not more money remains.

Many subcontractors also went unpaid and Wang and Tien ended up paying one of them $307,000 to settle a claim made against their company.

Meanwhile, the Abbotsford property never advanced, needing variances to the official community plan — a long and tedious prospect.

Kirchner ruled Nath and Horvath committed “unlawful conduct conspiracy.”

“Mr. Horvath admitted that one of his and Mr. Nath’s duties under the First Project Management Agreement was to assess the feasibility of developing the properties. Mr. Nath and Mr. Horvath placed themselves in a conflict of interest (at the latest) once they signed the First Project Management Agreement because, by then, it was in their self-interest to see that the land sales complete even if that put the profitability of the partnership’s enterprise at risk,” wrote Kirchner.

While Guo was supposed to be managing the development, Kirchner did not find that Guo took part in the conspiracy. Nor did Guo make fraudulent representations. However, Guo did make negligent misrepresentations of Horvath’s experience and qualifications to his now former friends.

“I find [Wang and Tian] reasonably relied on these representations and were induced into buying the properties because of them,” noted Kirchner.

As such, Guo was found responsible for the $2.8 million wasted on the project development; however, Kirchner indemnified him under his successful third-party claim against Nath and Horvath.

In sum, Nath and Horvath were ordered to pay back $2.86 million lost to preliminary development costs and misappropriation; the $1.45 million from the flipping; $307,500 from the subcontractor claim; $175,000 from an overpayment of the Prince George property; $187,950 in investment interest; and $100,000 in punitive damages, among other minor costs.

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