Court File and Parties
COURT FILE NO.: 15-CV-539572-000 DATE: 20160527 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Wayne Wilson, Trustee of the W&W Fiberglass Tank Co. Profit Sharing Plan, Plaintiff – AND – Gary Bartholomew and Trevor Michael, Defendants
BEFORE: Justice E.M. Morgan
COUNSEL: Ronald G. Chapman, for the Plaintiff John Picone and Dana Carson, for the Defendants
HEARD: May 27, 2016
Endorsement
Background
1The Plaintiff is a Texas-based pension fund and the Defendants are the fund directors and investment managers of a Cayman Islands-based investment fund, Global Innovation SPV 1, Ltd. (“Global”).
2The Plaintiff brings a motion under Rule 20 of the Rules of Civil Procedure for summary judgment in the amount of $1,052,706.31 (U.S.), representing a refund of the amount of the Plaintiff’s investment in Global. The investment was specifically earmarked in Global’s Confidential Offering Memorandum and in the Subscription Agreement between the Plaintiff and Global dated December 9, 2011 (the “Subscription Agreement”) for Global’s purchase of shares in Facebook Inc. in a private transaction prior to Facebook Inc. becoming a publically traded company.
3Under the Subscription Agreement, the Plaintiff’s investment was to be refunded in the event that Global was not able to acquire the Facebook shares. To date, Global has failed to pay the funds back to the Plaintiff despite aborting the Facebook share purchase and despite the written assurances by the Defendants that the repayment was to be made.
4Moreover, in January 2016 the Plaintiff and the Defendants entered into Minutes of Settlement in which the Defendants further agreed to repay the Plaintiff by means of four installment payments, and have failed to make any of the payments specified in those Minutes. The settlement itself does not appear to be enforceable; paragraph 3 of the Minutes of Settlement provides that the settlement is “not agreed or effective” unless the first two payments are made, which they never were. Nevertheless, counsel for the Plaintiff relies on the Minutes as further evidence that the Plaintiff’s investment must be repaid and that the Defendants are aware of and acknowledge the repayment obligation.
The Forum Selection Clause
5None of the facts are contested by the Defendants. They have submitted no affidavit or documentary evidence of their own, and their counsel has not taken the opportunity to cross-examine the Plaintiff’s affiants. Rather, the counsel for the Defendants submits that Ontario is not the proper jurisdiction in which to litigate the matter. He relies on article 3(xx) of the Subscription Agreement, which provides:
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.
6This is a rather thoroughly worded, all-encompassing choice of forum clause. It covers any and all disputes over the Plaintiff’s investment in Global, including a dispute over funds that that ought to have been reimbursed pursuant to the Subscription Agreement.
7In Mobile Mini Inc. v Centreline Equipment Rentals, [2004] OJ No 3659, at para 3, the Court of Appeal observed that our courts “give full force and effect to forum selection clauses.” There has been no inordinate and prejudicial delay on the Defendants’ part in raising the jurisdictional issue – they raised it at the first opportunity after being served with the Statement of Claim, in defense to the present motion: Momentous.ca Corporation v Canadian American Association of Professional Baseball Ltd., 2010 ONCA 722, at para 42. The Plaintiff has not shown any “strong cause” why it should not be bound to the forum selection clause: Z.I. Pompey Industrie v ECU-Line N.V., 2003 SCC 27, [2003] 1 SCR 450, at para 1. There is no allegation that the Plaintiff was fraudulently induced to enter the Subscription Agreement, that it is otherwise unenforceable, or that the Cayman Islands judicial system is not up to the task of adjudicating disputes relating to the investment: Expedition Helicopters Inc. v Honeywell Inc. (2010), 2010 ONCA 351, 100 OR (3d) 241, at para 24 (Ont CA).
The Fiduciary Duty Claim
8Counsel for the Plaintiff points out that the action has been framed as a breach of fiduciary duties rather than as a breach of contract, and to that end is brought against the two individual investment managers rather than against Global itself. Since these Defendants were served in Ontario, the Plaintiff claims that the Ontario courts can assert jurisdiction over them that could not be asserted over Global.
9Counsel for the Defendants responds that the Plaintiff and Global are two arm’s length funds, and that “the special element of trust, loyalty, and confidentiality” that is the hallmark of a fiduciary relationship does not apply to this situation: Hodgkinson v Simms, 1994 SCC 70, [1994] 3 SCR 377, at para 26. Citing Harris v Leikin Group Inc., 2011 ONSC 3556, at para 284, aff’d 2011 ONCA 790, he submits that, “It is often said as a general rule fiduciary relationships do not arise from a commercial contract or between arm’s length independent parties in commercial transactions because such transactions usually derive their utility from the pursuit of self-interest”. Since there is no fiduciary relationship between the Global and the Plaintiff, counsel for the Defendants states that there is equally no fiduciary relationship between the Defendants as Global’s investment managers and the Plaintiff.
10While there may be little to suggest a fiduciary relationship per se between the Defendants as investment managers of Global and the Plaintiff, the categories of ad hoc fiduciary relationships are not as easy to exclude. In Galambos v Perez, 2009 SCC 48, [2009] 3 SCR 247, at para 66, Cromwell J. noted that, “it is fundamental to ad hoc fiduciary duties that there be an undertaking by the fiduciary, which may be either express or implied, that the fiduciary will act in the best interests of the other party.” This requires a more careful factual assessment with respect to the relationship between the parties, which is not available on the state of the record in this motion.
11That said, I do not have to conclude one way or the other with respect to the Plaintiff’s allegation that the Defendants have breached duties owed by them to the Plaintiff. However one characterizes the legal claim, it generally arises from the Plaintiff’s investment in Global. Nothing about the Global business or the Plaintiff’s investment took place in Ontario, and even the Defendants, who do have a presence in Ontario, managed the Global investment out of an office in the Cayman Islands according to the address on the Subscription Agreement and the Confidential Offering Memorandum.
12Returning to the broad language of article 3(xx) of the Subscription Agreement, it is virtually impossible to say that the claim against the Defendants, framed as it is in the law of fiduciary obligations rather than the law of contract, does not amount to an “action or proceeding arising, directly, indirectly, or otherwise, in connection with, out of, related to, or from” the Plaintiff’s investment in Global. The Plaintiff wants the investment it made in Global to be returned, and claims that the Defendants – Global’s investment managers – have failed to live up to their obligation to do so. That claim must be adjudicated in the Cayman Islands.
Stay of Proceedings
13Counsel for the Plaintiff points out that the Defendants have not moved to stay the action on jurisdictional grounds. Counsel for the Defendants responds that it is the Defendants’ right to raise the jurisdictional objection as a defense to the motion for summary judgment. In order to give effect to the Defendants’ position, the motion for summary judgment must be dismissed; furthermore, the logic of that dismissal will mean that the action must be stayed. If the motion for summary judgment cannot proceed for lack of Ontario jurisdiction, the action cannot proceed for the same reason.
14In Whalen v Hillier (2001), 53 OR (3d) 550, at para 13, the Court of Appeal made it clear that, “bearing in mind that rule 20.04(2) expressly authorizes a judge to grant summary judgment ‘with respect to a claim or defence’, in my view it was open to the motions judge, as a matter of jurisdiction, to grant summary judgment against the moving party” [emphasis in the original]. Having brought a summary judgment motion in respect of an action that lacks Ontario jurisdiction, the Plaintiff is open not only to having its motion dismissed but to having judgment effectively granted against it. Here, the only logical way to enforce the jurisdiction selection clause in the Subscription Agreement is to dismiss the Plaintiff’s motion for summary judgment and to stay the Plaintiff’s action.
15That said, I expressed concern at the hearing of the motion that, unlike where the Defendants move to stay a proceeding on jurisdictional grounds, here we have no undertaking that they will attorn to Cayman Islands jurisdiction if and when the same or similar claim is brought there. Accordingly, the stay of proceedings here is issued with the caveat that if for some reason the courts of the Cayman Islands will not take jurisdiction over this matter, it will be open to the Plaintiff to move in Ontario to lift the stay in order to proceed with the action.
Disposition
16The motion is therefore dismissed and the action is stayed.
Costs
17In my view, this is not a case where costs should be awarded to the successful party. Costs are, of course, discretionary under section 131 of the Courts of Justice Act, and I am inclined to exercise my discretion by refraining from awarding them here at all.
18In the first place, the Defendants’ costs are doubtless small; as indicated, they did not produce any affidavit evidence, compile any responding record, or cross-examine the Plaintiffs’ deponents. Their factum and legal research was effective, but did not amount to a large quantity of material. Most importantly, the Plaintiff has brought the action in the wrong jurisdiction, but the pensioners that it represents have been deprived of a substantial amount of money. That claim will presumably be adjudicated on the merits in the correct jurisdiction. I would not want to add to the pensioners’ losses by issuing a costs award in this matter.
Morgan J.
Date: May 27, 2016