DATE: 20050620

DOCKET: C42797

COURT OF APPEAL FOR ONTARIO

RE:

INSIGHT VENTURE ASSOCIATES III, LLC, attorney in fact and agent for INSIGHT CAPITAL PARTNERS III, L.P., INSIGHT CAPITAL PARTNERS III – CO-INVESTORS, L.P. and INSIGHT CAPITAL PARTNERS (CAYMAN) III, L.P. (Plaintiff (Respondent))

– and –

ERNST & YOUNG INC., in its capacity as trustee in the estate of RAMPART SECURITIES INC., GOVIN MISIR, DEV MISIR, MOLLY MISIR, JOHN ILLIDGE, DAVID CATHCART and NICOLAS TSACONAKOS (Defendants (Appellants))

A N D B E T W E E N:

ERNST & YOUNG INC., in its capacity as trustee in the estate of RAMPART SECURITIES INC. (Plaintiff by Counterclaim)

– and –

SLMSOFT INC., GOVIN MISIR, DEV MISIR, 1237108 ONTARIO LTD., 1237156 ONTARIO LTD., MISIR HOLDINGS LTD., MOLLY MISIR, JOHN ILLIDGE, DAVID CATHCART, PATRICIA McLEAN, NICOLAS TSACONAKOS, ATLAS SECURITIES INC., ST. JAMES SECURITIES INC. and ST. JAMES CAPITAL CORPORATION (Defendants to the Counterclaim)

– and –

JEFFREY HORING (Third Party)

BEFORE:

GOUDGE, MACFARLAND AND LAFORME JJ.A.

COUNSEL:

David S. Steinberg

for the appellants Govin Misir, Dev Misir and Molly Misir

John A. MacDonald and Jean-Marc Leclerc

for the respondents Insight Venture Associates III, L.LC. and Jeffrey Horing

HEARD:

JUNE 16, 2005

On appeal from the order of Justice John D. Ground of the Superior Court of Justice dated November 19, 2004.

E N D O R S E M E N T

[1] This is an appeal and cross-appeal from the order striking the third party claim and the counterclaim, save for the claim alleging tortious conduct of the respondents to usurp corporate control of SLM from the appellants by wrongful means. The appellants seek to maintain this claim in the face of a cross-appeal and restore four other claims, most importantly the claim for breach of an implied term of the Side Agreement. The appellants do not appeal the various other claims struck by the motion judge.

[2] The motion was brought by the respondents pursuant to Rule 21 not Rule 20. There was no evidence and the pleadings must be taken as true for the purposes of the motion. The test to be applied is the plain and obvious test.

[3] We agree with the motion judge that the claim for usurping corporate control should not be struck at this stage. He found that, as pleaded, it is a claim personal to the appellants for a wrong done to them. It is not framed as a claim by them for a wrong done to SLM. It is not therefore caught in the rule in Foss v. Harbottle. We concur with his view.

[4] The appellants seek to restore their claim for breach of an implied term of the Side Agreement. We agree that at this stage the claim must survive. The pleadings allege the Side Agreement, the implied term and the breach. It was not open to the motion judge to rely on an absence of evidence of breach, given that this was a motion under Rule 21. Nor was it open to the motion judge to find no basis for implying a term in the Side Agreement in the face of the clear pleading of an implied term.

[5] As to the other three claims that the appellants seek to restore – the damage claim for loss of reputation, loss of credit and equity and loss of business opportunity flowing from the two causes of action just described; the conspiracy claim; and the third party claim – the respondent fairly acknowledges that if the attack on the claim for usurping control fails, and the claim for breach of the implied term is permitted to proceed, the other three claims should not be struck either.

[6] Thus, while the appellants may well face a Rule 20 motion in due course, we would allow the appeal, dismiss the cross-appeal and change the order appealed from consistent with these reasons, to allow the five claims to proceed.

[7] Success below being divided, we would substitute an order of no costs on the motion. Costs of the appeal to the appellant fixed at $5,000.00 inclusive of disbursements and G.S.T.

“S. T. Goudge J.A.”

“J. MacFarland J.A.”

“H.S. LaForme J.A.”