Education Invention Centre of Canada v. Algoma University, 2015 ONSC 1200
COURT FILE NO.: CV-11-433568
DATE: 20150224
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
EDUCATION INVENTION CENTRE OF CANADA
Plaintiff
– and –
ALGOMA UNIVERSITY
Defendant
Joseph Markin for the Plaintiff
Paul R. Cassan for the Defendant
HEARD: February 23, 2015
PERELL, J.
REASONS FOR DECISION
[1] This is a motion to set aside a default judgment.
[2] On April 3, 2012, the Education Invention Centre of Canada, which is in the business of student recruitment with an office in Brampton, Ontario, obtained a $163,000 default judgment against Algoma University, which is a chartered university with its primary campus in the City of Sault Ste. Marie in Northeastern Ontario. The default judgment includes the right to set the action down for a trial to determine the Centre’s general damages for what it says is a breach of fiduciary duty claim.
[3] On April 12, 2012, the Centre obtained a writ of execution, and on April 16, 2012, it issued a garnishment notice, from which it recovered $163,000.
[4] The University moves to have the judgment, writ, and garnishment set aside.
[5] On a motion to set aside a default judgment, the court will consider the following five factors: (1) whether the motion to set aside the judgment was brought promptly; (2) whether there is a plausible excuse or explanation for the defendant’s default in complying with the; (3) Rules of Civil Procedure whether the facts establish at least an arguable defence; (4) the competing potential prejudice to the parties of granting or refusing to set aside the default judgment; and (5) the effect of any order on the overall integrity of the administration of justice: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194; Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333; Watkins v. Sosnowski, 2012 ONSC 3836 at paras. 19-20.
[6] These factors, however, are not treated as rigid rules, and the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default: Mountain View Farms Ltd. v. McQueen, supra at para. 50; Morgan v. Toronto (Municipality) Police Services Board, 2003 CanLII 14993 (ON CA), [2003] O.J. No. 1106 (C.A.); Chitel v. Rothbart, [1988] O.J. No. 1197 (C.A.), leave to appeal refused [1988] S.C.C.A. No. 427 (S.C.C.).
[7] In circumstances where the plaintiff has obtained a default judgment, the factor of showing a defence on the merits is particularly important, because it may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part: Chitel v. Rothbart, supra; Morgan v. Toronto (Municipality) Police Services Board, supra. Conversely, the motion to set aside the judgment may be dismissed, if the defendant cannot show a reasonable defence: Bayview Financial, L.P. v. Spartan Collision Corporation, 2007 CanLII 14304 (ON SC), [2007] O.J. No. 1609 (S.C.J.); Bank of Montreal v. Chu, 1994 CanLII 7246 (ON SC), [1994] O.J. No. 388, 17 O.R. (3d) 691 (Gen. Div.); Cherry Central Cooperative Inc. v. D’Angelo (2001), 2001 CanLII 27940 (ON CA), 56 O.R. (3d) 655 (C.A.).
[8] In showing a defence on the merits, the defendant need not show that the defence will inevitably succeed; to set aside a default judgment, the defendant should show that his or her defence has an air of reality and that there is a genuine issue requiring a trial: Bank of Montreal v. Chu, supra; Hunt v. Brantford (City), [1994] O.J. No. 1867 (Gen. Div.); Grieco v. Marquis (1998), 1998 CanLII 14662 (ON SC), 38 O.R. (3d) 314 (Gen. Div.).
[9] In the immediate case, the principal ground of dispute is whether the University has shown an arguable defence. The Centre submits that nothing in the affidavits or in the draft Statement of Defence provides either a legal defence or material facts that would defend against the substance of the action herein, which the Centre submits is a breach of fiduciary duty claim.
[10] The background facts to the dispute between the parties is that the Centre and the University, which is a degree granting institution, signed a Memorandum of Understanding dated February 1, 2006 to establish a satellite campus for the University. Under this arrangement, the Centre would provide the facilities and help in the recruitment of students and the University would offer its educational services to the recruited students. The parties would share the tuition fees.
[11] The venture, which the Centre describes as a joint venture or as a partnership with attendant fiduciary duties, got underway, but the venture was eventually cancelled by the University, which went on to establish a satellite campus in Toronto without the involvement of the Centre. The Centre submits that the acts of the University breached the fiduciary duty it owed to the Centre.
[12] The Centre’s pleadings of breach of fiduciary duty are set out in paragraphs 8, 15, and 16 of the Statement of Claim, which state:
By entering into the joint venture, EICC was entering into a relationship of trust with Algoma. EICC was to use its connection to introduce Algoma to Brampton and its South Asian community. This opportunity was very attractive to Algoma as Peel has a much larger population than Algoma, had greater potential for growth. However, EICC has no degree granting authority and was vulnerable to Algoma continuing with the venture on the unilateral basis once Algoma’s satellite campus was operational and Algoma had developed a presence in, a knowledge of and relationships in Peel Region. EICC had to rely on Algoma acting in good faith in honoring their commitments to EICC.
Despite EICC’s efforts to resolve the situation amicably, Algoma acted in a high-handed manner in utter disregard for the rights of EICC and its reputation with the students. Without legal justification and by abusing their power, and without any notice whatever, Algoma forced EICC out of the joint venture. Rather than being treated as [a] respected joint venture, Algoma treated EICC as if it was an interloper. EICC was humiliated and its reputation with the students and in the community suffered.
Algoma used its relationship with EICC to establish a presence in the Brampton area, and then excluded EICC from the business opportunity that had been created for their joint benefit. Algoma has damaged the reputation of EICC. Algoma has excluded its partner and appropriated a business opportunity that was created by EICC for their joint benefit by ensuring that it now accrues to the sole benefit of Algoma. Moreover, by this bad faith conduct, Algoma has made it virtually impossible for EICC to include any new partner to compete with Algoma, as Algoma has already established itself in the University of Brampton marketplace thanks to EICC.
[13] In its proposed Statement of Defence, the University denies the allegations contained in paragraphs 8, 15, and 16. The essential defence of the University is that it had cancellation rights under the arrangement if certain levels of recruitment were not achieved or the minimal levels were not reached, and in the summer of 2009, it terminated the agreement with proper notice and in accordance with the provisions of the Memorandum of Understanding.
[14] Further, the University pleads that after the termination of its relationship with the Centre, the University, without the assistance or benefit of the Centre’s work, was able to recruit and establish in Toronto a business program, which program with the Centre had been cancelled in 2009-2010 due to insufficient recruitment of students by the Centre. The University states that it did not take advantage of any benefit conferred by the Centre by offering the business program in the Greater Toronto Area.
[15] Further, although the University admits that is was invoiced $110,000 by the Centre for a course that was cancelled for low enrollment, it says that it was indebted to the Centre for only $52,000.00 and, thus, it has been overbilled.
[16] On this motion to set aside the default judgment, the Centre submits that the University has defended the action as a contractual claim and has failed to address the Centre’s breach of fiduciary duty claim, and, therefore, the University has failed to raise a defence and the default judgment ought not to be set aside. In its factum, the Centre submits as follows:
In this case, the allegations of the Plaintiff constitute a breach of those [fiduciary] obligations. In neither the affidavits nor the draft statement of defence has the defendant denied these allegations, explained why there is no fiduciary duty or set out material facts that will defend the allegations of the Plaintiff. There has been no substantive defence put forward. The request to set aside the default judgment is therefore without merit and should be dismissed.
[17] There are three problems with this submission. First, the judgment that the University seeks to set aside is not based on the Centre’s breach of fiduciary duty claim. Rather, my review of the motion materials reveals that the judgment was based on the Centre’s breach of contract claim for liquidated damages. Thus, save for $52,000, the University has shown a defence for the claim upon which the default judgment was based.
[18] Second, there is a genuine issue for trial about whether the relationship between the parties is fiduciary. For the purposes of this motion to set aside the default judgment, it is sufficient for the University to simply deny paragraphs 8, 15, and 16 of the Statement of Claim and provide an explanation as to why there was no misappropriation of an opportunity.
[19] In my opinion, it is not necessary for the University to plead material facts denying the existence of a fiduciary relationship. It is sufficient to deny such a relationship and, in effect, submit that the relationship was contractual, which is what the University has done. There is a genuine issue for trial about whether the relationship between the parties was fiduciary or contractual in nature.
[20] Third, for the purposes of this motion to set aside the default, it is not necessary for the University to plead the material facts denying the existence of a fiduciary relationship because the Centre has not pleaded the material facts in support of a fiduciary relationship. Rather, the Centre in paragraph 8 baldly pleads or simply argues that the venture was a relationship of trust, vulnerability, and reliance. The Memorandum of Understanding by itself does not suggest a partnership or a fiduciary relationship.
[21] It is an analytical error for a claimant to reason from an alleged breach of a fiduciary duty to the conclusion that there is a fiduciary relationship. This fallacy was noted long ago by Megarry, V.C. in Tito v. Waddell (No. 2), [1977] 3 All E.R. 129, at p. 230:
If there is a fiduciary duty, the equitable rules about self-dealing apply: but self-dealing does not impose the duty. Equity bases its rules about self-dealing upon some pre-existing fiduciary duty: it is a disregard of this pre-existing duty that subjects the self-dealer to the consequences of the self-dealing rules. I do not think that one can take a person who is subject to no pre-existing fiduciary duty and then say that because he self-deals he is thereupon subjected to a fiduciary duty.
See Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574 at para. 31.
[22] In my opinion, the University has satisfied the test for setting aside the default judgment, the writ of execution, and the garnishment. Save for $52,000, the garnished monies should be returned to the University.
[23] An order should be issued accordingly.
[24] As for costs, the parties agreed as to the quantum of costs being $20,000 but disagreed whether costs should be awarded.
[25] The Centre submitted that if it was unsuccessful, there should be no order as to costs, because the court would be granting the University an indulgence in setting aside the default judgment.
[26] I disagree. The University provided an adequate explanation for why it failed to defend in the first instance, and it was the Centre that decided to defend its default judgment with what I regard as a weak argument that no defence to its fiduciary duty claim had been pleaded. The Centre knew or ought to have known that the existence of a fiduciary relationship would be a vigorously contested issue.
[27] In the circumstances of this case, the normal rule that costs follow the event should be applied.
[28] Order accordingly.
Perell, J.
Released: February 24, 2015
COURT FILE NO.: CV-11-433568
DATE: 20150224
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
EDUCATION INVENTION CENTRE OF CANADA
Plaintiff
– and –
ALGOMA UNIVERSITY
Defendant
REASONS FOR DECISION
PERELL J.
Released: February 24, 2015