Chinese firm sues Saskatchewan head of Clean Power Concepts for fraud: company countersues
A Chinese state-owned enterprise and a Regina businessperson who were going to build a sizable canola crushing facility in Regina are suing one another.
Chongqing Red Dragonfly Oil Co. filed a statement of claim with the Court of Queen’s Bench for Saskatchewan that accuses Michael Shenher and the companies he is affiliated with, along with a numbered Manitoba company of fraud.
“This includes, but is not limited to, forged documents purporting to be prepared by a lawyer, unlawfully and without authority removing directors, officers and shareholders from the corporate registry and making substantial misrepresentations in order to compel the plaintiff to enter into agreements and make significant payments,” Chongqing said in its claim.
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Shenher has filed a countersuit, claiming Chongqing has breached its obligations to the joint venture. Shenher’s lawyer said his client was not willing to comment on the lawsuits at this time.
Chongqing Red Dragonfly Oil Co. is a subsidiary of Chongqing Grain Group, one of China’s largest state-owned grain corporations. Chongqing’s lawyer did not respond to an interview request.
According to court documents, the Chinese firm entered into a joint venture agreement with Clean Power Concepts on April 29, 2011, to create Pan Pacific Green Food Inc. Clean Power was incorporated in Nevada and is run by Shenher.
Pan Pacific was created to lease or acquire one or more 200,000 to 300,000 tonne canola crush facilities and build a new 850,000 tonne plant.
Chongqing claims it was vulnerable because of the language barrier and its unfamiliarity with the Canadian business climate.
The firm did not hire a lawyer. Instead, it relied on Shenher to advise and assist it with the negotiations and execution of all agreements between the two parties.
On Aug. 30, 2011, Chongqing bought two Regina properties for $2.8 million each from two numbered companies. Shenher signed off on behalf of both numbered companies. Chongqing paid 95 percent of the purchase price and the seller paid five percent.
On Oct. 28, Pan Pacific Green Food was incorporated with Chongqing holding 95 of the 100 class A shares and Clean Power Concepts holding the remaining five.
Chongqing claims it received a document dated Nov. 11 purporting to be a final draft of due diligence.
“Subsequent investigation revealed that this document is a forgery,” said Chongqing in its statement of claim.
On Feb. 17, 2012, Chongqing paid $3.7 million to Pan Pacific, which then transferred the money to one of the numbered companies. Shenher signed on behalf of the numbered company.
“Red Dragonfly made a significant investment totalling almost $4 million Canadian, and since that time has received nothing of value,” said Chongqing.
On March 24, 2014, Shenher re-moved all corporate directors, officers and shareholders from Pan Pacific’s corporate profile other than himself and Clean Power Concepts.
“(He) took de facto control of Pan Pacific without lawful authority and/or without advising Red Dragonfly,” Chongqing said in the documents.
A few months later, Shenher sold the plant to 2925924 Manitoba Ltd.
Chongqing wants Information Services Corp., the company that handles things such as land titles registry and corporate registry in Saskatchewan, to list it as holding 95 class A shares in Pan Pacific Green Food and to name two individuals to the board of directors and two others as officers of the company.
It wants a court order reversing the sale of the plant to the Manitoba company and it wants the defendants to pay Chongqing no less than $3.7 million.
The only statement of defence was filed by 2925924 Manitoba, a company owned by Morris and Ursula Baziuk, who own and operate a hydro-excavation company in Manitoba.
The company denies it was part of any kind of fraud. The Baziuks say they purchased the Regina property from Pan Pacific for $1.05 million.
“Neither Morris Baziuk nor Ursula Baziuk had ever met or spoken with Mr. Michael Shenher or any other representative of Pan Pacific prior to negotiating the purchase of the Industrial Drive property,” the Baziuks said in their statement of defence.
Clean Power Concepts is counter-suing Chongqing, claiming the Chinese firm breached its obligations to the joint venture.
Clean Power says Chongqing agreed to contribute 95 percent of the capital to finance the Pan Pacific venture and Clean Power the remaining five percent. Each company would own 50 percent of the joint venture.
The five percent contribution was made by transferring goods and services, including crushing equipment, land and buildings to Pan Pacific.
Clean Power claims Chongqing did not contribute its 95 percent capital commitment.
It also claims Chongqing failed to develop canola and soybean projects to generate revenue for the joint venture.
In a Jan. 30 news release, Clean Power said that Chongqing’s negligence caused irreparable and substantial financial harm to the company and its shareholders in costs, lost revenue and lost technology licensing fees.
“The lost market capitalization, share value and opportunity costs are almost incalculable, but we expect to prove damages in the US$70 to $100 million range in court,” said Shenher in the release.
“When Chinese state-owned enterprises come to do business in North America and contract with U.S. public companies like Clean Power with over 1,500 shareholders, they must be held accountable according to North American rule of law.”
Shenher said the Chinese government should help resolve the dispute or companies worldwide will think twice before doing business with Chinese state owned enterprises.
The case was scheduled to be heard by the Court of Queen’s Bench May 26.
