COURT FILE NO.: 299/07
DATE: 20070830
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
GARY HURST
Plaintiff (Respondent)
- and -
ARMSTRONG & QUAILE ASSOCIATES INC.
Defendant (Moving Party)
Joel Vale and Arthur Birnbaum, for the Plaintiff (Respondent)
Joel Wiesenfeld and Frank Cesario, for the Defendant (Moving Party)
(see "Schedule A" for additional moving parties and counsel)
HEARD: August 20, 2007
CHAPNIK J.
[1] Armstrong & Quaile Associates Inc. (the Defendant/Applicant) seeks leave to appeal from the decision of the Honourable Madam Justice Hoy dated June 8, 2007, refusing to strike out the plaintiff's claims for "knowing assistance of breach of fiduciary duty" and "assisting or facilitating breach of contract." The underlying issue in the motion is whether mutual fund dealers or investor advisors owe a duty of care or a fiduciary duty to persons who are not their clients.
[2] The Defendant/Applicant contends that there are conflicting decisions on one of the matters involved in the appeal, that there is good reason to doubt the correctness of the decision, and that the proposed appeal involves matters of such importance that leave to appeal should be granted.
BACKGROUND
[3] The Defendant/Applicant, on its own behalf and on behalf of other defendants as listed in a Schedule, brought a motion to strike out the claims in 31 amended statements of claim.
[4] The claims arose from investments made by the plaintiff, Gary Hurst (Hurst) and other investors in the Portus Alternative Asset Management Inc. (Portus), a hedge fund firm. The Defendant/Applicant and the other defendants are mutual fund dealers who referred their own clients to Portus. The defendants' clients then opened accounts at Portus and invested in Portus funds. Hurst admits in each claim that he was not a client of any of the dealer defendants. Hurst is the proposed representative plaintiff in most of the class action claims.
[5] Hurst and the plaintiffs in the separate actions alleged that the defendants are liable in negligence, breach of contract, breach of fiduciary duty and knowing assistance of breach of fiduciary duty, causing damages to the plaintiffs and other investors in Portus funds.
[6] The Defendant/Applicant, together with the other defendants, brought a motion to strike out the plaintiffs' claims. In the result, the claims for negligence, breach of fiduciary duty, trustee de son tort, knowing assistance of breach of trust, knowing receipt of trust property, breach of contract, inducing breach of contract and a declaration for so-called "deferred fees" were either struck out by the motions judge or abandoned during the hearing of the motion. The only claims that remain are for knowing assistance of fiduciary duty and assisting or facilitating breach of contract. It is the decision of the motions judge not to strike those two claims that forms the basis for the appeal and for this motion for leave.
THE RELEVANT LAW
[7] The test for granting leave to appeal from an interlocutory order of a judge is set out in Rule 62.02(4) of the Rules of Civil Procedure, as follows:
62.02(4) Leave to appeal shall not be granted unless,
(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or
(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.
ASSISTING OR FACILITATING BREACH OF CONTRACT
[8] The Defendant/Applicant contends there are conflicting decisions as to the existence of the tort of "assisting or facilitating breach of contract." Indeed, in her Reasons for Decision, the learned motions judge noted that the two decisions that deal with this alleged tort "might be seen as inconsistent decisions of the Superior Court."
[9] J. J. Phoenix Express Ltd. v. Oliphant, [2001] O.J. No. 1688 (S.C.J.) involved a lease agreement for a truck in circumstances where the defendants had knowledge of another agreement between one of the defendants and a third party who held title to the truck. Justice Trafford found that one defendant assisted the other in the breach of his contract and this amounted to intentional misappropriation of the plaintiff's funds. Accordingly, both of the defendants were held liable to the plaintiff in damages. No authorities were cited by the court nor was there a discussion of the existence of the tort of "assisting or facilitating breach of contract" or the legal principles underlying such a cause of action.
[10] In Semac Industries Ltd. v. 113426 Ontario Ltd. (c.o.b. Bancroft Lumber & Wood Flooring Projects) (2001), 2001 28375 (ON SC), 16 B.L.R. (3d) 88 (S.C.J.), the plaintiff brought an action for damages against the defendant bank based on allegations of negligent management of a numbered company's account, assisting that company in breach of contract, breach of fiduciary duty to the plaintiffs, and punitive damages.
[11] On a Rule 21 motion, Kiteley J. allowed the claim of assisting breach of contract to proceed. However, on a summary judgment motion brought by the bank, Cameron J. allowed the plaintiff's claims in negligence with respect to certain cheques to proceed to trial but dismissed the plaintiff's other claims. In particular, at paragraph 77, Cameron J. stated:
"The plaintiffs offer no legal authority whatsoever for a cause of action based on assisting a breach of contract."
[12] In that case, the bank was a stranger to the agreements between the customer and its suppliers. That parallels the situation in the present case where there was no relationship between the various plaintiffs and the defendant company.
[13] Whether or not the basis for Cameron J.'s ruling was lack of evidence, it is apparent that the court in Semac did not recognize the existence of the tort. The motions judge in the present case, however, relying on Trafford J.'s decision in Phoenix, allowed the claim to proceed. Clearly, there are inconsistent decisions as to the existence of the tort of assisting or facilitating breach of contract, such that the first branch of the test in Rule 62.02(4) has been satisfied.
[14] In a recent endorsement on costs, the motions judge in the present case referred to the alleged tort of "assisting breach of contract." She also noted that "the only two remaining claims face substantial challenges." Hurst contends that the claim, being novel, should proceed to trial. However, even novel claims must be grounded in acceptable, if not established law; and in any event, that issue is not before me. Having found conflicting decisions on an important matter of legal principle, it is, in my opinion, desirable that leave to appeal the motions judge's refusal to strike out the tort of "assisting or facilitating breach of contract" be granted. In my view, it would be desirable to have this issue settled by an appellate court.
KNOWING ASSISTANCE OF BREACH OF FIDUCIARY DUTY
[15] In reviewing this issue, the motions judge pointed out deficiencies in the pleadings and concluded as follows:
"Given, however, that this is a pleadings motion, I am prepared to find, based on para. 12(iii), [of the Statement of Claim] that Mr. Hurst pleads that the Defendant had actual knowledge of, or was willfully blind to, or reckless in his failure to recognize, the fact that the payment of the referral fees was in breach of Portus' fiduciary duty to class members.
Accordingly, I find that it is not plain and obvious that Mr. Hurst's claim for knowing assistance of breach of fiduciary duty cannot succeed."
[16] At the same time, the motions judge found some of the allegations pleaded in the statement of claim to be "unclear and internally inconsistent." In that regard, it appears that the plaintiff did not clearly plead that the defendant "assisted" that is, aided or supported, in Portus' alleged fraudulent or dishonest design.
[17] To succeed in this claim, the plaintiffs must show that the defendants had actual knowledge that Portus had a fiduciary relationship with that individual personally, that Portus was engaged in a dishonest and fraudulent design vis-à-vis the plaintiff Gary Hurst, and that the defendants knowingly assisted Portus in its dishonest and fraudulent design against him.
[18] Hurst explicitly pleaded that he was not a client of the Defendant/Applicant. The materials, therefore, raise the question as to whether the defendants could have knowingly assisted Portus in a fraudulent or dishonest design toward the plaintiff.
[19] In these circumstances, I am of the view that there is good reason to doubt the correctness of the decision. I agree with the submission of the Defendant/Applicant that the claims against the defendants potentially have broad implications for the highly regulated investment industry. The proposed appeal raises an issue of general importance for the development of the law in this area. The issues raised encompass a challenge to the existence of the alleged torts generically and in the context of this case. In my opinion, therefore, the decision raises issues of general importance within the meaning of Rankin v. McLeod, Young, Weir Ltd. et al. (1986), 1986 2749 (ON SC), 57 O.R. (2d) 569 (H.C.J.) and Greslik v. Ontario Legal Aid Plan (1988), 1988 4842 (ON SCDC), 65 O.R. (2d) 110 (Div. Ct.).
CONCLUSION
[20] The application is allowed. Leave to appeal is granted on both issues. Since this matter involves a rather complex and somewhat novel issue, costs are reserved to the panel hearing the appeal.
CHAPNIK J.
DATE: August 30, 2007
SCHEDULE A
Moving Counsel
Scott Kugler, for Candor Financial Group Inc., Farm Mutual Financial Services Incorporated, Independent Accountants' Investment Group Inc., Portfolio Strategies Corporation
Sam R. Sasso, for Interglobe Financial Consulting Group Inc.
Marie I. Palacios-Hardy, for Aegeon Dealer Services Canada Inc. and WFG Securities Canada Inc.
Jeremy Devereux and Marc Kestenberg, for Ten Star Financial Inc.
Kenneth Dekker, for IPC Investment Corporation
Angela Vivolo, for Worldsource Financial Management Inc.
COURT FILE NO.: 299/07
DATE: 20070830
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
GARY HURST
Plaintiff (Respondent)
- and -
ARMSTRONG & QUAILE ASSOCIATES INC.
Defendant (Moving Party)
DECISION ON LEAVE APPLICATION
CHAPNIK J.
Released: August 30, 2007