Data & Scientific Inc. v. Oracle Corporation et al.
[Indexed as: Data & Scientific Inc. v. Oracle Corp.]
Ontario Reports
Ontario Superior Court of Justice,
Belobaba J.
July 2, 2015
127 O.R. (3d) 149 | 2015 ONSC 4178
Case Summary
Contracts — Renewal — Contract providing for annual renewal at defendants' sole discretion — Defendants renewing contract annually for 20 years and then refusing to do so without notice to plaintiff — Plaintiff bringing action for damages for failure to give reasonable notice of non-renewal — Defendants' motion to strike claim for failure to disclose reasonable cause of action dismissed as it was not plain and obvious that principle that discretionary contractual powers must be exercised reasonably does not apply in contract renewal situation.
The defendants carried on business through its Oracle partner network conduits. The OPN agreement was renewed annually at the defendants' "sole discretion". The plaintiff was a member of the OPN from 1994 until December 2014, when the defendants informed it that the agreement would not be renewed. The plaintiff brought an action for damages for failure to give reasonable notice of the non-renewal. The defendants brought a motion to strike the claim for failing to disclose a reasonable cause of action.
Held, the motion should be dismissed.
The Supreme Court of Canada has not yet decided that the long-standing principle that discretionary contractual powers must be exercised reasonably can never apply in contract renewal situations where, as here, the contractual agreement bestows a "sole discretion" non-renewal power and requires no notice. It was not plain and obvious that the plaintiff had no cause of action.
Bhasin v. Hrynew, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71, 2014 SCC 71, [2014] 11 W.W.R. 641, 27 B.L.R. (5th) 1, 379 D.L.R. (4th) 385, 4 Alta. L.R. (6th) 219, 464 N.R. 254, 20 C.C.E.L. (4th) 1, 2014EXP-3530, J.E. 2014-1992, EYB 2014-244256, 245 A.C.W.S. (3d) 832, consd
Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1) (b)
Authorities referred to
McCamus, John D., Law of Contracts (Toronto: Irwin Law, 2005)
MOTION to strike a claim.
Peter Ruby and Kellie Hodges, for moving parties.
Richard P. Quance, for responding party.
[1] BELOBABA J.: — Oracle is a multinational computer technology company that carries on business through its Oracle partner network conduits. The OPN agreement is renewed annually at Oracle's "sole discretion". The agreement is clear on this point:
Any renewal of this agreement shall be subject to Oracle's standard terms and fees . . . and shall be at Oracle's sole discretion. You may apply for [page150] renewal of your membership in OPN by on-line electronic acceptance of the terms of the then current OPN agreement and Oracle will notify you if it accepts your application for renewal.
[2] Data & Scientific Inc. ("DS") was a member of Oracle's partner network from 1994 to 2014. DS pleads that every year for 20 years Oracle renewed the annual agreement without interruption or incident. DS's business and reliance on its relationship with Oracle grew over the years.
[3] Oracle renewed the DS agreement every year in November. In the fall of 2014, DS was invited by Oracle to renew the agreement as in previous years. DS tried to do so online but without success. DS requested renewal in a letter to Oracle and received a response dated December 15, 2014 that the OPN agreement would not be renewed. After 20 years as a member of the Oracle partner network and after being invited by Oracle to submit an application for renewal, the OPN agreement was not renewed and no notice was given.
[4] DS has sued Oracle and Oracle Canada claiming damages, including punitive damages, for failing to give reasonable notice of non-renewal. The core complaint, as counsel for DS explained at the hearing, is that Oracle was obliged to exercise its discretionary renewal power reasonably and that Oracle, in effect, terminated a 20-year relationship without notice, let alone reasonable notice.
[5] I asked counsel for DS to tell me what specific notice period would have been reasonable. His answer was that this will be a matter for the trial judge to decide. At this point, DS is saying is that no notice was given and that in itself was unreasonable.
[6] Oracle moves to strike the claim under rule 21.01(1)(b) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] for failing to disclose a reasonable cause of action.
Analysis
[7] Oracle agrees that as a general rule, discretionary contractual powers must be exercised reasonably.1 This is a long-standing "situational" example of the operation of good faith in one particular area or pocket of the common law of contract.2 [page151]
[8] However, says Oracle, this general rule was explicitly curtailed by the Supreme Court in Bhasin v. Hrynew,3 where the court made clear that absent active dishonesty, the reasonable exercise of discretionary contractual powers does not apply in cases of contractual renewal. The defendants point to a sentence in para. 72 of the court's reasons for judgment:
Classifying the decision not to renew the contract as a contractual discretion would constitute a significant expansion of the decided cases under that type of situation.
[9] Oracle submits that Bhasin decided the general principle that the obligation to exercise discretionary contractual powers reasonably does not apply in contract renewal situations -- ever.
[10] I do not accept this submission. This is not what the court said or intended, at least not in this decision. In Bhasin, an obviously important development in the continuing modernization of Canadian contract law, the court in essence, did two things: one, it recognized that the "situational" and "relational" examples or pockets of a judicially recognized good faith doctrine were aspects of a broader organizing principle of good faith -- "that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily";4 and two, the court decided on the facts before it that it was time to recognize a new duty -- "a general duty of honesty in contractual performance".5
[11] The court made clear that this new duty of honesty in contractual performance flowed "directly from" and was an "aspect" (albeit "one of the most widely recognized aspects") of the general organizing principle of good faith.6 In other words, the pre-existing situational and relational aspects or pockets of implied good faith (such as the obligation to exercise discretionary contractual powers reasonably) were not eliminated but were [page152] simply realigned under a broad organizing principle of good faith.7 And the newly established duty of honesty in contractual performance was applied on the facts in Bhasin to confirm that the defendant Can-Am breached this duty by misleading the plaintiff and acting dishonestly in numerous ways leading up to and including the non-renewal of their agreement.
[12] Oracle is right to say that Bhasin began as contract non-renewal case. The commercial agreement between Mr. Bhasin and Can-Am provided for a three-year term that was automatically renewed, unless either party gave the other six months' written notice to the contrary. Can-Am complied with this notice provision and gave Mr. Bhasin the required six months' notice. Bhasin's complaint was not lack of reasonable notice -- this would not have been tenable -- but bad faith (dishonest) conduct by the defendants in the performance of the contractual agreement, including the dishonest exercise of the non-renewal clause. It was Can-Am's deception and dishonest up to and including the non-renewal that attracted the court's attention and that prompted the recognition of a new duty of honest contractual performance.
[13] The court's comment, in para. 72, that "Classifying the decision not to renew the contract as a contractual discretion would constitute a significant expansion of the decided cases under that type of situation" must be understood in context. In other words, in a case such as Bhasin, where the defendant fully complied with the six-month notice of non-renewal requirement (that was available to both sides), it would be difficult if not impossible to argue that the exercise of the discretion not to renew was unreasonable. And trying to do so, to track the language used by the court, "would constitute a significant expansion" of the applicable case law.
[14] The court's concern and focus in Bhasin was dishonesty, not unreasonableness. The court said nothing about the situation that is before me on this motion: there is a long-term 20-year business relationship, no written notice requirement regarding non-renewal and the discretionary power not to renew [page153] is allegedly exercised not dishonestly but unreasonably, i.e., without any notice whatsoever.
[15] I am therefore not persuaded that Bhasin stands for the broadly worded proposition that is being advanced by the defendants. The Supreme Court has not (yet) decided that the long-standing requirement that discretionary contractual power must be exercised reasonably can never apply in contract renewal situations where, as here, the contractual agreement bestows a "sole discretion" non-renewal power and requires no notice of any kind.
[16] I also note that in its reasons for judgment, the court reminds the reader that the list of situations and relationships that can attract good faith obligations "is not closed" and that "[t]he application of the organizing principle of good faith to particular situations should be developed where the existing law is found to be wanting".8 The court notes that good faith can be invoked in "widely varying contexts" and this calls for "a highly context-specific understanding of what honesty and reasonableness in performance require so as to give appropriate consideration to the legitimate interests of both contracting parties".9 For example, continues the court, "the general organizing principle of good faith would likely have different implications in the context of a long-term contract of mutual cooperation than it would in a more transactional exchange".10 In my view, these comments apply to the facts herein.
[17] For all of these reasons, I find that Oracle's motion to strike the DS statement of claim cannot succeed and must be dismissed. In my view, it is not plain and obvious that the plaintiff's claim based as it is on the long-standing principle that discretionary contractual powers must be exercised reasonably is certain to fail and has no chance of success. The Supreme Court's decision in Bhasin v. Hrynew does not stand for the (extreme) proposition that under no circumstances does a "sole discretion" contract renewal power have to be exercised reasonably.
[18] I am not suggesting for a moment that the plaintiff will necessarily prevail at trial or that it would survive a summary judgment motion. Only that it is not plain and obvious that it has no cause of action. [page154]
Disposition
[19] The motion to strike is dismissed with costs.
[20] Oracle would have asked for a costs award on a partial indemnity basis of $9,200. DS would have sought $7,400. Given the amount suggested by Oracle, the DS request is fair and reasonable. Costs are therefore fixed at $7,400, all-inclusive, payable forthwith by the Oracle defendants to the plaintiff, Data & Scientific.
[21] My thanks to counsel for the additional written submissions.
Motion dismissed.
Notes
1 McCamus, Law of Contracts (Toronto: Irwin Law, 2005), at 791, summarized the case law as follows: "Where discretionary powers are conferred by agreement, it is implicitly understood that the powers are to be exercised reasonably."
2 The other two "situational" examples or pockets of good faith, as confirmed by the Supreme Court in Bhasin v Hrynew, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71, 2014 SCC 71, at para. 47, are (2) where the contracting parties must co-operate to achieve the objects of the contract and (3) where one party seeks to evade contractual duties. In addition to these three "situational" pockets, there are three "classes of relationships" where Canadian contract law has implied a duty of good faith: the employment, insurance and tendering contexts (Bhasin, at paras. 53-57).
3 Ibid.
4 Ibid., at para. 63.
5 Ibid., at para. 73.
6 Ibid., at para. 73.
7 The court explains, at para. 68, that just as it did in developing an organizing principle in the area of unjust enrichment "without displacing the existing specific doctrines" so too "with regards to the organizing principle of good faith". Also see para. 66: "The organizing principle of good faith manifests itself through the existing doctrines about the types of situations or relationships in which the law requires in certain respects honest, candid, forthright or reasonable contractual performance" (emphasis added).
8 Ibid., at para. 66.
9 Ibid., at para. 69.
10 Ibid., at para. 69.
End of Document