The British Columbia Supreme Court recently issued a decision in a high-net worth divorce. A Chinese businessman with significant assets was seeking to have a family law dispute moved out of B.C. court and into international arbitration. The Court disagreed, finding that there was a connection between the dispute and the province, and ordering the ex-husband to stop any further legal action outside of B.C.
The parties, Lu Hu Rao and Peipei Li, met in August 2015 and became romantically involved. Li is a B.C. resident in her early 30’s. Rao is a resident of China and is in his early 50’s.
The couple got engaged in April 2016, when Rao allegedly travelled to Vancouver and told Li he wanted to get married as soon as possible. They married in Las Vegas a few days later. By November of that year, the couple’s relationship had soured.
In October 2015, when the couple’s relationship was still amicable, they incorporated a real estate investment company. According to the “Capital Increase and Share Expansion Agreement” that the couple executed, Rao invested more than $17 million in the company and became a 50% shareholder. Li invested $1,000 and also became a 50% shareholder. The Agreement included a provision that stated that any disputes between the parties would be resolved at the Chinese International Economic and Trade Arbitration Commission (CIETAC).
Of the $17 million invested by Rao, about $7 million was used to purchase a home, and about $9 million was deposited in a joint bank account.
In December 2016, Rao filed a lawsuit in against Li and the corporation in a B.C court seeking a return of the money he had invested. He also sought a declaration that Li was holding the funds in trust for him. Nowhere in his civil claim did Rao disclose that he was a shareholder in the company, or that he and Li were married. He argued that Li breached the contract and that the dispute between them should be determined by CIETAC, per the Agreement. He also filed a separate claim before CIETAC and then sought to withdraw his original B.C. lawsuit.
In response, Li argued that she should be able to keep 100% of whatever the court decided constituted “family property” in B.C. She also sought an injunction forcing Rao to withdraw any proceedings before CIETAC, or an order preventing him from taking any further steps in that forum.
The Parties’ Positions
Li argued that when the parties met, she understood that Rao had been previously married, but that he had gotten divorced. After they were married, she became suspicious as to whether Rao was actually divorced, and subsequently learned that his previous marriage was not, in fact, over.
At trial, Rao agreed that the parties had met in August 2015, but that they only spent four days together in September 2015 in Vancouver and Seattle, again in April 2016 in Vancouver and Las Vegas, and once more in May and June of 2016 when Li travelled to China to visit her mother. He described his relationship with Li as “brief and intermittent”. He argued that he was usually attending to his business interests in China, and only made infrequent trips to Vancouver. He noted that when Li came to China she did not stay with him.
Rao argued that Li had talked about getting married in Las Vegas but that he “specifically told her that [he] was already married in China. However, she told [him] that a Las Vegas marriage had hardly any effect. He allegedly also told Li that he would never divorce his wife.
Rao did not deny that the parties were married in Vegas in or around April 2016, however, he argued that the property that Li was attempting to stake a claim to was not family property under the Family Law Act, or that, even if the court recognized it as family property, it should be divided in his favour. He also argued that his claim before CIETAC was a separate action and should proceed.
The court disagreed with Rao’s argument that the proceedings in B.C. court and the proceedings before CIETAC were “not parallel actions dealing with the same claims”, noting that the formation, interpretation, and operation of the Agreement when the parties were still together would be a central consideration in determining whether the funds in dispute were family property.
The court went on to note that:
I am also satisfied that Mr. Rao is attempting to achieve an unfair tactical advantage. As noted, he first brought a civil claim without recourse to CIETAC. After a year of litigation, he received leave to withdraw his claim. His petition for arbitration does not refer to the parties’ romantic relationship or the current action (the family law claim before the Court or the civil claim).
The court ordered Rao not to take any further action before CIETAC, noting that Li resides in Vancouver, the corporation was based in B.C., and that all disputed money and property were also in B.C. The Court noted that
…enjoining Mr. Rao from taking further steps in the CIETAC Arbitration or his requiring Ms. Li to take steps in the CIETAC Arbitration, without further leave of this Court, will serve to secure a just and efficient resolution of the matters that have arisen between the parties.
The outstanding dispute over the $17 million will, therefore, play out in a B.C. courtroom. We will continue to follow developments in this matter and will provide updates as they become available.
Financial Litigation‘s family law practice helps high-income clients and business owners through the difficult process of divorce. We can provide guidance on complex asset valuation and property division issues. specifically tailored to the needs of professionals and entrepreneurs. We can help you protect your assets during marriage, and ensure that separation or divorce does not put your hard work at risk. Call 416-769-4107 x1 or contact us online to schedule a consultation.