SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-12-2971-00
DATE: 2015 10 23
RE: 1698496 ONTARIO LIMITED and SEEMA KHAN
- and – KASHIF ZOBERI and 1647297 ONTARIO LIMITED
BEFORE: LeMay J.
COUNSEL: Ethan Rogers, Counsel for the Plaintiffs
Ex parte motion, no one appearing for the Defendants
ENDORSEMENT
[1] This case involves a series of commercial transactions. As a result of these transactions, Ms. Seema Khan and 1698496 Ontario Inc., Ms. Khan’s company, are owed significant monies by the Defendant. The Plaintiffs have sought, and been granted partial default judgment, and the reasons for that decision are set out in my earlier reasons in 1698496 Ontario Ltd. v. Zoberi (2015 ONSC 5267).
[2] In my reasons, I invited counsel for the Plaintiff to make submissions on the question of whether the Defendants owed a fiduciary duty to the Plaintiffs in this case. He has provided those submissions, and has also provided me with further submissions on the issue of whether punitive damages should have been awarded in this case. I will deal with each issue in turn.
The Existence of A Fiduciary Duty
[3] On the basis of my finding that a constructive trust and a purchase money resulting trust existed in this case, Mr. Rogers, on behalf of the Plaintiffs, is seeking a declaration that Mr. Zoberi and his company owed a fiduciary duty to the Plaintiffs.
[4] Mr. Rogers bases his assertion on a passage from Black’s Law Dictionary, which states:
Trustee. Person holding a property in trust. Restatement, Second, Trusts, § 3(3). The person appointed, or required by law, to execute a trust. One in whom an estate, interest, or power is vested, under an express or implied agreement to administer or exercise it for the benefit or to the use of another. One who holds legal title to property “in trust” for the benefit of another person (beneficiary) and who must carry out specific duties with regard to the property. The trustee owes a fiduciary duty to the beneficiary.
[5] Mr. Rogers also directed my attention to this Court’s decision in Garcia v. LIUNA Local 1059 (2014 ONSC 4410). In that decision, Mitchell J. stated (at paragraphs 113 and 114):
113 It is trite law that all trustees have a fiduciary role.
114 As fiduciaries, the duties owed by the trustees to the beneficiaries include the duties of loyalty, good faith and the duty to avoid conflicts of duty and pursuit of self-interest. [FN28]
[6] I have considered the Plaintiffs’ position on the existence of a fiduciary duty, but I am not prepared to accept it. My consideration begins with a passage from Re Indalex Ltd (2013 SCC 6), where Cromwell J. states (at paragraph 185):
However, the conclusion that Indalex as plan administrator had fiduciary duties to the plan beneficiaries is the beginning, not the end of the inquiry. This is because fiduciary duties do not exist at large, but arise from and relate to the specific legal interests at stake: Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, at para. 31. As La Forest J. put it in Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 34 (SCC), [1989] 2 S.C.R. 574:
The obligation imposed [on a fiduciary] may vary in its specific substance depending on the relationship …[N]ot every legal claim arising out of a relationship with fiduciary incidents will give rise to a claim for breach of fiduciary duty…. It is only in relation to breaches of the specific obligations imposed because the relationship is one characterized as fiduciary that a claim for breach of fiduciary duty can be founded. [Emphasis added; pp. 646-47.]
[7] This suggests that we must look at the nature of the relationship between the parties in determining whether a fiduciary duty exists. This analysis starts with the decision in Frame v. Smith (1987 74 (SCC), [1987] 2 S.C.R. 99) where Wilson J. stated (in dissent at p. 136) that relationships where a fiduciary duty has been imposed are marked by the following three characteristics:
a) Scope for the exercise of some discetion or power;
b) That power or discretion can be exercised unilaterally so as to effect the beneficiary’s legal or practical interests; and,
c) A peculiar vulnerability to the exercise of that discretion or power.
[8] Although the majority in Frame found that there was no fiduciary obligation in that case, Wilson J.s formulation has been followed as a “rough and ready” guide to identify new cases where a fiduciary duty exists.
[9] The Supreme Court of Canada has provided further guidance on the circumstances in which a fiduciary duty will be found to exist. In Hodgkinson v. Simms ((1994) 70 (SCC), at page 23, LaForest J. (speaking for the majority) stated:
The existence of a fiduciary duty in a given case will depend upon the reasonable expectations of the parties, and these in turn depend on factors such as trust, confidence, complexity of subject matter, and community or industry standards.
[10] A fiduciary obligation is a very high obligation of loyalty and requires the fiduciary to prefer the other party’s interests to his own. As noted in Waters on Law of Trusts in Canada (Third Edition, 2005) at page 885:
The importance of this convergence of opinion is to re-establish the requirement that a fiduciary obligation generally rests on a voluntary relinquishment of self-interest by the fiduciary. The obligation cannot be unilaterally imposed by the expectations or by the reliance of the beneficiary; trust cannot be reposed without the consent of the trusted.
[11] Canadian contract law recognizes a difference between a duty of good faith in the performance of a contract and a fiduciary duty. This difference is explained by Cromwell J. in Bhasin v. Hrynew (2014 SCC 71) at paragraph 65, where he states:
The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith. This general principle has strong conceptual differences from the much higher obligations of a fiduciary. Unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first.
[12] In this case, Mr. Zoberi and his company very likely breached the duty of good faith, although such a finding is not sought from me. However, the larger question is whether Mr. Zoberi and his company owed the Plaintiffs a fiduciary duty.
[13] Cromwell J. notes that a fiduciary duty includes a duty of loyalty and a duty imposed on the fiduciary to prefer the interests of the other party to their own. On the materials I have before me, these duties simply do not exist in the contractual relationship between the parties.
[14] In this case, the Plaintiffs and the Defendants are two independent parties that had entered into a commercial relationship for their mutual profit. There was no expectation, even on the Plaintiff’s pleadings, that Mr. Zoberi would act as a fiduciary.
[15] Indeed, as I note in the section below, the trusts created in this transaction are intended to remedy wrongs such as the ones that the Defendants visited on the Plaintiffs. There is no trust document that was created in advance of the transaction, and there was no expectation that a fiduciary duty would exist between these two independent parties.
[16] The creation of these trusts is an effort to ensure that one party was not unjustly enriched and the other party did not suffer a deprivation. I found that a trust existed in order to protect the interests of the Plaintiffs when the Defendants did not act in good faith. Put another way, the trusts that were found to exist in this case were, in essence, an after the fact creation of equity designed to protect the wronged party. It is not intended to give the party who was wronged more rights than they would have had if the contract had been performed.
[17] Mr. Rogers seeks more rights for his clients. He seeks a declaration that a fiduciary duty exists. The problem is that the existence of a fiduciary duty requires that the person with the duty (Mr. Zoberi) will prefer the interests of the Plaintiff to his own. That simply cannot be the case, as these are arms-length parties that engaged in a business relationship.
[18] This relationship should be contrasted with two of the other cases that Mr. Rogers provided to me. In Garcia, supra, the Court was concerned with a benefit trust run by a local union. A trust document existed, and the Defendants were actually trustees of the benefits plan. In those circumstances, it is trite law that a trustee has a fiduciary duty. However, those facts are clearly distinguishable from this case.
[19] Similarly, in Ramsey v. Proffitt ((2001) 2001 28161 (ON SC), 22 R.F.L. (5th) 393), the Court was concerned with the existence of a resulting trust. The Court found (at paragraph 41) that “the relationship between the trustee and beneficiary is fiduciary” and held Mr. Proffitt liable for a breach of his fiduciary duty. The breach arose because Mr. Proffitt’s employer had declared bankruptcy. He did not notify Ms. Ramsey of the bankruptcy proceedings, even though Ms. Ramsey was entitled to half of Mr. Proffitt’s pension. As a result of Mr. Proffitt’s non-disclosure, Ms. Ramsay lost an opportunity to prove a claim in bankruptcy for half the pension.
[20] This case is also distinguishable from the case at bar on the basis of the relationship between the parties, and on the obligations that Mr. Proffitt assumed under the separation agreement. In any event, it is worth noting that the purpose behind the relief granted by McKinnon J. (described in paragraph 45 of the decision) was to prevent Mr. Proffitt from profiting from his non-disclosure. In other words, as I have stated above, the purpose of the remedy was to right a wrong committed by one of the parties and protect the interests of the other party.
[21] In the result, I decline to find that the Defendants owed the Plaintiffs a fiduciary duty, or that the Defendants breached such a duty.
The Further Submissions on Punitive Damages
[22] Mr. Rogers has made further submissions on the question of whether punitive damages should be awarded in this case. I will address two points about those submissions.
[23] First, this is not an area where I invited Mr. Rogers to make further submissions. The further submissions were to be on the existence of a fiduciary duty only. I disposed of the issue of punitive damages, and it is unclear to me that I even have the jurisdiction to revisit this issue or whether the submissions are appropriately made or considered. In any event, with the exception of the submissions that relate directly to the question of whether there is a fiduciary duty in this case, I do not intend to reconsider Mr. Rogers’ submissions.
[24] Second, Mr. Rogers advances two points about the relationship between a fiduciary duty and a finding of punitive damages that require comment, as they relate to both the argument on punitive damages and the argument on fiduciary duties.
[25] First, he asserts that in a normal commercial transaction, one party generally does not hold property in trust for the benefit of the other. I reject that assertion for two reasons. First, there is the purchase money resulting trust, which seems to exist for the express purpose of dealing with, inter alia, commercial transactions where one party does not take title to the property. Second, there are a number of other trusts that have been found to exist in commercial circumstances. Indeed, the Soulos v. Korkontzilas decision I cited in my previous reasons contains a detailed discussion on the types of trusts, and when they have been found to exist. It is a broad, equitable remedy designed to remedy wrongs such as the ones that were committed by the Defendants in this case.
[26] Second, he asserts that the conduct of Mr. Zoberi has to be considered in light of his position as a trustee and a fiduciary. The problem with this submission is that one of the key purposes of a trust remedy is to prevent parties from fraudulently retaining trust properties (see paragraph 19 of the Soulos decision, supra). In other words, the remedy for Mr. Zoberi’s conduct in this case is the finding of a trust, and a stronger remedy is not needed in this case.
Disposition
[27] In the event, I decline to make any further Orders, and there shall not be any amendments to the Order that I approved as set out in my last decision.
[28] In terms of costs, I note that Mr. Rogers originally asked that the costs of the partial summary judgment motion be left to the judge who hears the remainder of the motion, and I was content with that finding. However, I am not prepared to leave the costs of these submissions to be fixed by the judge who hears the remainder of summary judgment motion.
[29] In light of the fact that the Plaintiffs have been unsuccessful in their pursuit of a finding of fiduciary duty, and in light of the fact that the Plaintiffs sought, unsuccessfully, to reopen the issue of punitive damages, I order that there shall be no costs payable to the Plaintiffs for these submissions.
LeMay J.
DATE: October 23, 2015
COURT FILE NO.: CV-12-2971-00
DATE: 2015 10 23
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1698496 ONTARIO LIMITED and SEEMA KHAN
- and – KASHIF ZOBERI and 1647297 ONTARIO LIMITED
BEFORE: LeMay J.
COUNSEL: E. Rogers, Counsel for the Plaintiffs
Ex parte motion, no one appearing for the Defendants
ENDORSEMENT
LeMay J.
DATE: October 23, 2015