Wilson, Trustee of the W&W Fiberglass Tank Co. Profit Sharing Plan v. Bartholomew et al.

[Indexed as: W&W Fiberglass Tank Co. Profit Sharing Plan (Trustee of) v. Bartholomew]

Ontario Reports

Court of Appeal for Ontario

Gillese, MacFarland and Pepall JJ.A.

January 5, 2017

136 O.R. (3d) 380 | 2017 ONCA 4

Case Summary

Conflict of laws — Choice of forum — Subscription agreement providing that any action arising "directly, indirectly, or otherwise, in connection with, out of, related to, or from, this Application Form for Subscription or the purchase of the Participating Shares" was to be brought in Cayman Islands — Plaintiff bringing action in Ontario based on misappropriation of funds and breach of fiduciary duty — Choice of forum clause in subscription agreement not applying to action.

The plaintiff sued the defendants for misappropriation of funds and breach of fiduciary duty, alleging that money paid by the plaintiff and earmarked for a specific fund was diverted to third party companies connected to the defendants and not repaid. The plaintiffs brought a motion for summary judgment. The defendants relied on a choice of forum clause in a subscription agreement, which provided that any action arising "directly, indirectly, or otherwise, in connection with, out of, related to, or from, this Application form for Subscription or the purchase of the Participating Shares" was to be brought in the Cayman Islands. The motion judge accepted that argument and dismissed the motion. The plaintiff appealed.

Held, the appeal should be allowed.

The action as pleaded did not arise "directly, indirectly, or otherwise, in connection with, out of, related to, or from, this Application form for Subscription or the purchase of the Participating Shares . . .". The choice of forum clause in the subscription agreement did not apply.

Cases Referred To

• Leggat v. Direct Leverage Ltd. (January 21, 2015), Toronto, CV-12-455116 (Ont. S.C.J.)
• Sable Offshore Energy Inc. v. Ameron International Corp., [2013] 2 S.C.R. 623, [2013] S.C.J. No. 37, 2013 SCC 37, 332 N.S.R. (2d) 1, 37 C.P.C. (7th) 225, 446 N.R. 35, 359 D.L.R. (4th) 381, 22 C.L.R. (4th) 1, 228 A.C.W.S. (3d) 78

Authorities Referred To

Lederman, S.N., A.W. Bryant and M.K. Fuerst, The Law of Evidence in Canada, 4th ed. (Markham, Ont.: LexisNexis, 2014)

Procedural History

APPEAL from the order of E.M. Morgan J., [2016] O.J. No. 2779, 2016 ONSC 3526 (S.C.J.) dismissing a motion for summary judgment.

Ronald G. Chapman, for appellant.

John M. Picone, for respondents.

Decision

[1] Facts and Procedural Background

It is undisputed on this record that the money paid by the appellant, earmarked for a specific fund, and no other, was in fact otherwise invested by the individual respondents and, to date, has not been repaid. The funds were diverted to third party companies connected to the respondents. When the appellant's money was not returned following his lawyer's demand letter dated October 8, 2015, the statement of claim was issued October 30, 2015, and a summary judgment motion was promptly set down. That motion was adjourned at the respondents' request, pending settlement discussions. The respondents do not dispute the facts -- there is no statement of defence, no affidavit evidence filed by either respondent, or on their behalf, and they did not seek to cross-examine the appellant's affiants.

[2] Settlement Minutes

The respondents entered into minutes of settlement with the appellant. That said, they argue that because the minutes provided that the settlement was "not agreed or effective", unless certain stipulated payments were made, they may not be relied upon. On this appeal, there is no need to decide whether the minutes of settlement are enforceable or otherwise admissible into evidence. We do not rely upon them. The case turns on whether the respondents breached their fiduciary duties, misappropriated funds belonging to the appellant, and are obliged to account.

[3] Choice of Forum Clause Defence

The sole ground of defence raised in opposition to the appellant's summary judgment motion was that, although both respondents were served and live in Ontario, the action had to be stayed -- and the motion for summary judgment dismissed -- because of the choice of forum clause contained in the subscription agreement (the "agreement").

[4] Motion Judge's Decision

The motion judge accepted this argument and, by order dated May 27, 2016 (the "order"), dismissed the appellant's motion for summary judgment and stayed the action.

[5] Court of Appeal's Conclusion

In our view, the appeal must be allowed. The motion judge erred in misconstruing the nature of the appellant's claim.

[6] The Choice of Forum Clause

The choice of forum clause found in the agreement reads [at para. 5]:

(xx) The Subscriber and the Fund agree that any action or proceeding arising, directly, indirectly, or otherwise, in connection with, out of, related to, or from, this Application Form for Subscription or the purchase of the Participating Shares, or any transaction covered hereby, shall be resolved, whether by arbitration or otherwise, exclusively within the Cayman Islands. Accordingly, the parties consent and submit to the exclusive jurisdiction of the courts located within the Cayman Islands. The parties further agree that any such action or proceeding brought by either such party to enforce any right, assert any claim, or obtain any relief whatsoever in connection with this Agreement shall be commenced by such party exclusively in the Cayman Islands.

[7] Interpretation of the Clause

In our view, the appellant's action as pleaded does not arise "directly, indirectly, or otherwise, in connection with, out of, related to, or from, this Application Form for Subscription or the purchase of the Participating Shares . . .".

[8] Nature of the Claim

While the statement of claim is perhaps not a model pleading and does reference breach of contract, it is clear when read generously that the claim advanced is, in its essence, one for misappropriation of funds by the respondents. It is not a claim against Global Innovation SPV 1, Ltd. ("Global SPV"), the other party to the agreement. The action is framed as one for breach of fiduciary duty and for an accounting from the respondents -- who are, on the evidence, responsible for, and who facilitated, the movement of the appellant's money, from Global SPV elsewhere, without authority. The statement of claim alleges that the respondents breached their fiduciary duty to the appellant, by causing the appellant's moneys to be advanced to third parties connected to the respondents.

[9] Liquidation and Non-Repayment

In July 2014, the respondent Gary Bartholomew wrote to the appellant that, as the only authorized investment had not been made, the appellant's investment in Global SVP had been liquidated. The moneys were to have been returned to the appellant at that point, but were not. The statement of claim pleads, at para. 10, that the respondents -- allegedly the fiduciaries of the appellant, in breach of their duties -- were the directors and principals of Global SVP and responsible for the repayment of those moneys to the appellant.

[10] Settlement Privilege and Underlying Contracts

On October 16, 2015, Mr. Bartholomew, in response to the appellant's demand through counsel, for payment, e-mailed the appellant's counsel, attaching three documents from March 2014. Assuming, without deciding, that this covering e-mail is settlement privileged, the three attachments are not. The documents, dated one-and-a-half years before the appellant's formal demand for payment, are not communications written for the purpose of attempting to effect a settlement: Sable Offshore Energy Inc. v. Ameron International Corp., [2013] 2 S.C.R. 623, [2013] S.C.J. No. 37, 2013 SCC 37, at para. 14; S.N. Lederman, A.W. Bryant and M.K. Fuerst, The Law of Evidence in Canada, 4th ed. (Markham, Ont.: LexisNexis, 2014), at p. 1041. Rather, they are the underlying contracts through which, in March 2014, the respondents misappropriated the appellant's funds by diverting them to third party companies connected to the respondents.

[11] Self-Dealing Transactions

The respondents purportedly authorized the transfer of the moneys -- first as a loan from Global SPV to Global Innovation Fund, Ltd., and then, as consideration for convertible promissory notes, to XRM Global Inc., an Ontario company, and Pinpoint Integrity Inc., a Cayman Islands company. Mr. Bartholomew signed as "Director" to Global SPV for the loan agreement. The respondent Trevor Michael signed as "Managing Partner" of Global Innovation Fund, Ltd., for the loan agreement, and "Director" of both Pinpoint Integrity Inc. and XRM Global Inc., for the convertible promissory notes. Although there is no evidence in the record that Mr. Bartholomew was also an operating mind of the borrowers, the respondents did not contest the appellant's assertion that the respondents worked in concert to misappropriate the moneys. The self-dealing aspects of the transactions are readily apparent.

[12] Summary of Claim

The claim as indicated earlier, is for breach of fiduciary duty and an accounting and, in its essence, is one for the return of misappropriated funds.

[13] Comparison to Leggat

Factually, this case has some similarities to the unreported decision of Spence J. in Leggat v. Direct Leverage Ltd. (January 21, 2015), Toronto, CV-12-455116 (Ont. S.C.J.). Unlike Leggat, fraud was not specifically pleaded. However, as mentioned, the claim turns on the respondents' misappropriation of the funds. Moreover, they have filed no materials challenging the appellant's claim.

Disposition

[14] Order

For these reasons, the appeal is allowed, the order set aside and summary judgment granted. The respondents shall pay the appellant the sum of US$1,052,706.31, together with appropriate interest to date. Costs of the appeal to the appellant are fixed in the sum of $5,000, in addition to costs of the summary judgment motion in the sum of $12,500, as agreed by counsel. Both figures are inclusive of disbursements and HST.

Appeal allowed.