An Ontario Superior Court judge has declined to enforce a settlement agreement in a convoluted dispute between former business partners over the ownership and operation of a Paris, Ontario, convenience store and gas station1. The decision means the complex case, replete with conflicting allegations of verbal promises, financial misconduct, and duress, will now proceed to a full trial to untangle the deeply contested facts. The motion, brought by John and Susan Son against their former friend and partner Keun Ik Hwang, sought to finalize a deal that would have recognized their stake in Wright’s Variety, a business they claim to have been wrongfully ousted from.
The conflict traces its roots back to 2018. At that time, the Sons, who were undischarged bankrupts, learned that Wright’s Variety was for sale by a mutual friend, H. Joo. Unable to secure financing on their own, the Sons allege they approached Mr. Hwang, a friend since 1991, to partner in the venture. According to the Sons, the three entered into a detailed verbal agreement to jointly purchase and operate the business through a newly formed corporation. Under this alleged arrangement, Mr. Hwang would be the sole director and shareholder on paper due to the Sons’ financial situation, but the Sons would be beneficial owners in proportion to their financial contributions. The plan, they claimed, was to formalize their ownership in 2021 after their bankruptcies were cleared from their credit reports.
The Sons presented a comprehensive picture of this verbal pact. They claimed Mr. Hwang was to be a passive investor, receiving a fixed annual dividend of 18 percent on his investment, paid in monthly installments. In contrast, the Sons would manage all day to day operations, receive salaries, and retain all remaining profits. They even asserted the agreement extended to their living arrangements, with all three to reside in a leased home under Mr. Hwang’s name, while the Sons paid the rent and provided housekeeping in exchange for a monthly contribution from Mr. Hwang.
The $1.8 million purchase of Wright’s Variety closed on May 17, 2019. The Sons claimed the funding was a mix of a $1.2 million vendor take back mortgage from the seller, two smaller private mortgages, a $495,000 contribution from Mr. Hwang, and a $76,000 payment from themselves. For nearly three years, from May 2019 to January 2022, the Sons state they ran the business as agreed, contributing an additional $236,500 of their own money for capital improvements like a new underground gas tank.
The relationship fractured in early 2022. The Sons’ bankruptcies had been discharged, and after obtaining an appraisal valuing the business at $2.5 million, they began arranging new financing and instructed an accountant to draft a formal shareholders’ agreement. It was at this point, they allege, that Mr. Hwang abruptly fired them, forced them to hand over their keys, and locked them out of the business, its bank accounts, and their shared home. This prompted the Sons to file a lawsuit in February 2022.
A few days later, an attempt at resolution was made. The parties, along with the former owner Mr. Joo, met on March 3, 2022. The Sons allege that after this meeting, a formal settlement was reached and signed on March 4, 2022. The terms of this “Settlement Agreement” supposedly affirmed their status as directors and shareholders. In the months that followed, it appeared the agreement was being honoured. The Sons returned to work, took over the lease for the residential property, and Mr. Hwang began receiving monthly dividend cheques for $6,000.
However, the peace was short lived. By July 2022, Mr. Hwang had retained a new lawyer and reversed his position, denying the existence of a valid settlement and accusing the Sons of misappropriating corporate funds. The dispute escalated dramatically on August 5, 2022, when Mr. Hwang, accompanied by two police officers, one of whom was his son, served the Sons with termination letters. Four days later, Mr. Hwang changed the locks on the business, once again excluding the Sons entirely.
In court, the Sons asked Justice MacNeil to enforce the March 4th settlement. Mr. Hwang, however, presented a starkly different version of events. He contended that he was the sole owner and that the Sons were merely employees who had performed poorly. He claimed to have personally funded the entire down payment of $464,000 and personally guaranteed all mortgages, with his total financial contribution exceeding the purchase price. He denied ever seeing the Sons’ business plan and stated he was unaware of their alleged $76,000 contribution to the purchase price, suggesting this money was in fact loans from the Sons’ relatives that were improperly repaid using business funds.
Mr. Hwang argued the purported settlement was invalid on multiple grounds. He claimed he signed it under duress, stemming from threats by the Sons to sue his police officer son. He asserted that Mr. Son had fraudulently misrepresented the amount of his financial contributions to induce the signing. Furthermore, Mr. Hwang, who primarily communicates in Korean, stated he could not read or understand the English language agreement and did not have a lawyer to advise him, while the Sons did. He also argued that any agreement was contingent on unmet conditions, namely that the Sons had to secure $1.2 million in financing to discharge the vendor take back mortgage and provide proof of their personal financial contributions, which they failed to do. His position was supported by an affidavit from the former owner, Mr. Joo, who corroborated that any deal was conditional on the Sons securing financing.
In his decision, Justice MacNeil found that the matter could not be resolved without a trial. He concluded that the Sons had not proven, on a balance of probabilities, that a valid and binding settlement had been reached. The judge identified “serious factual disputes” between the parties that were impossible to resolve based on the conflicting affidavit evidence. These critical, unresolved questions included whether Mr. Hwang was under duress, whether he truly understood the agreement given the language barrier and lack of legal advice, and whether he was induced to sign by fraudulent misrepresentations.
“A fair and just adjudication of the case on its merits cannot be achieved on this motion given the clear conflict in the evidence of the affiants,” Justice MacNeil wrote, emphasizing the need for a full trial with live testimony where the credibility of the witnesses could be properly assessed.
The judge also denied the Sons’ alternative request for an interlocutory injunction that would have restrained Mr. Hwang from running the business. Applying the standard legal test, Justice MacNeil found that while there was a serious issue to be tried, the Sons would not suffer irreparable harm if the injunction was denied. He reasoned that the business continues to operate, and any financial losses the Sons might prove at trial could be compensated with money.
Finally, the judge determined that the balance of convenience favoured Mr. Hwang. Given Mr. Hwang’s significantly larger financial investment and personal liability, handing control of the business back to the Sons, with whom all trust had been broken, would place him in a vulnerable position. The judge ruled that maintaining the current situation, with Mr. Hwang operating the business, was the most prudent course of action until the matter is decided at trial. The motion was dismissed, sending the parties back to prepare for a trial that will delve deeper into their fractured partnership.
Read more about business cases in Canada here.
