COURT FILE NO.: CV-18-598675 DATE: 20190110 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kingston Learning Centres Inc., Plaintiff AND: 2511541 Ontario Inc., Cynthia Sunny, Meghana Sunny and Varghese Sunny, Defendants

BEFORE: Nishikawa J.

COUNSEL: Jonathan Rosenstein, for the Plaintiff Scott Rosen, for the Defendants

HEARD: January 8, 2019

Endorsement

Overview

[1] The Plaintiff, Kingston Learning Centres Inc. (“KLC”) and the Defendant, 2511541 Ontario Inc. (“251”), were parties to an agreement pursuant to which 251 was to purchase a school campus, KLC College Scarborough (the “Scarborough Campus”), from KLC. KLC and 251 also entered into a management agreement which allowed 251 to manage the Scarborough Campus until the closing of the sale (the “Management Agreement”).

[2] In May 2018, KLC commenced an action against the Defendants for fraud and breach of the Management Agreement. KLC seeks, among other things, a declaration that the APS was terminated and the return of records relating to the Scarborough Campus. 251 counterclaims against KLC for repudiation of the APS and Management Agreement and seeks specific performance of the APS.

[3] KLC brings this motion for an interlocutory injunction seeking the following relief:

(a) An order requiring that the Defendants deliver current and past student records;

(b) An order requiring that the Defendants deliver business records relating to the Scarborough Campus; and

(c) An order preventing the Defendant, Meghana Sunny (“Meghana”), from holding herself out as an officer or director of KLC.

[4] The Defendants oppose on the basis that:

(a) they have delivered the student records;

(b) the business records sought by the Plaintiff will be produced in the context of this litigation;

(c) other than a letter sent on December 7, 2017, Meghana has not held herself out as an officer or director of KLC; and

(d) there is no urgency regarding the records KLC seeks and there is no evidence of irreparable harm.

Factual Background

[5] The Plaintiff, KLC, is a corporation incorporated in the province of Ontario and is licensed by the Ministry of Advanced Education and Skills Development to operate private career colleges in Ontario.

[6] The Defendant, 251, is a corporation incorporated in the province of Ontario. The Defendant, Cynthia Sunny, is a manager of 251. The Defendant, Meghana Sunny, is Cynthia’s daughter and is a director and officer of 251.

[7] In May 2016, KLC and 251 entered into the APS for the Scarborough Campus for a price of $75,000.00. The APS originally had a closing date of May 31, 2016. Although the parties dispute whether the closing date was validly extended, it was extended twice, once until December 31, 2017 and again until February 10, 2018. In the meantime, 251 was to obtain the regulatory approvals to operate the Scarborough Campus as a private career college and to have the Ontario Student Assistance Program (“OSAP”) code transferred from KLC to 251.

[8] On June 1, 2016, KLC and 251 entered into the Management Agreement which authorized 251 to manage the Scarborough Campus on KLC’s behalf. The Management Agreement was for a term of four years or until 251 completed the purchase of the Scarborough Campus.

[9] For reasons that are not at issue in this motion, the APS did not close. 251 initially maintained that it was ready, willing and able to close the APS. However, on May 9, 2018, 251 advised that KLC had repudiated both the APS and the Management Agreement and that 251 accepted the repudiation of both agreements. 251 further advised that KLC owed it $50,600.00 “in respect of operations over the last number of months.”

[10] In the meantime, on September 13, 2017, KLC entered into a share purchase agreement with Transpharm Canada Inc. (the “Transpharm Agreement”). There is a dispute as to when 251 became aware of the Transpharm Agreement and when Transpharm knew about the APS and Management Agreement. The Transpharm Agreement referred to the potential sale of the Scarborough Campus and provided for a price adjustment. The only relevance here is that the ownership of KLC changed since the APS and Management Agreement were concluded.

[11] On December 7, 2017, Meghana sent a letter to the National Student Loan Centre changing the Scarborough Campus’ bank account information for the direct deposit of Ontario Student Loan and Canada Student Loan tuition fee amounts. The letter was signed by “Meghana Sunny Director” and was on KLC College letterhead. KLC takes the position that this letter was fraudulent and caused loan payments to be made directly to an account held by 251 instead of to KLC.

Issues

[12] The issue on this motion is whether KLC has met the test for an injunction requiring 251 to deliver the student records and business records, and for Meghana to refrain from holding herself out as a director or officer of KLC.

Analysis

Preliminary Issues

[13] In respect of the student records, 251 argues that the motion is moot because all student records have been produced. 251 states that KLC has failed to follow-up after receiving the student records to specify what documents were missing. KLC argues that it cannot identify the missing records because they are in 251’s possession. On cross-examination, KLC’s affiant, Alexander MacGregor, identified certain categories of records as missing, including attendance records and documents regarding transactions between students and the college. On cross-examination, Cynthia Sunny first stated that all student files were produced, but then stated that all relevant student files were produced. Given this ambiguous response, it is possible that certain student records remain outstanding and the motion is not moot.

[14] In respect of the business records, 251 takes the position that they will eventually be produced in the context of this litigation and that the motion is unnecessary. KLC argues that pursuant to the Management Agreement, it is entitled to the business records irrespective of the litigation and it should not have to wait for 251 to produce them. KLC further argues that it is entitled to all of the business records relating to the Scarborough Campus, and not just those that would be covered by the discovery obligations under the Rules of Civil Procedure.

Has KLC Met the Test for an Interlocutory Injunction?

[15] The test for an injunction is the three-part test from RJR-Macdonald v. Canada, [1994] 1 S.C.R. 311, at para. 43:

(i) Is there a serious issue to be tried?

(ii) Will the plaintiff suffer irreparable harm if the injunction is not granted?

(iii) Which party will suffer the greater harm from granting or refusing to grant an injunction pending a decision on the merits of the action?

The Student and Business Records

[16] The Plaintiff seeks an order compelling 251 to provide the student and business records. Where the plaintiff seeks a mandatory order, the higher threshold of a strong prima facie case applies: Bark & Fitz Inc. v. 2139138 Ontario Inc., 2010 ONSC 1793 at para. 12.

[17] In this case, KLC has demonstrated a strong prima facie case in respect of its entitlement to both the student records and the business records. Under the terms of the Management Agreement, the “work product produced in the performance of this Agreement” remains the “exclusive property” of KLC. The Management Agreement also requires that upon termination, 251 must turn over all documents, papers, and other matter in its possession or control that relate to KLC. This would include both the student records and the business records.

[18] KLC, relying on Hargraft Schofield LP v. Schofield, 2007 O.J. No. 4400 (SC), submits that where the subject matter of the injunction is specifically addressed in a contract between the parties, an injunction is appropriate where the moving party shows that it has a strong prima facie case. I do not interpret Schofield as standing for this proposition. While Himel J. noted that some cases involving non-competition clauses did not require a finding of irreparable harm, she specifically found that the plaintiff had demonstrated irreparable harm. Moreover, the nature of the contractual obligation that the plaintiff sought to enforce in Schofield was a negative one, to require the defendant to refrain from competing, unlike this case, where the Plaintiff seeks to compel the Defendants to deliver records. In order to obtain the relief it seeks, KLC must demonstrate irreparable harm.

[19] In my view, KLC’s evidence of irreparable harm falls short of the clear and convincing evidence required to obtain a mandatory interlocutory injunction. KLC argues that it needs the student records to “effectively address student requests.” There is no evidence of student inquiries or requests to which the Plaintiff has been unable to respond. It is also unclear what consequences would arise from an inability to respond. In addition, in his affidavit, Dr. MacGregor states that the Ministry requires that KLC maintain all student files. Accepting this as true, Dr. MacGregor does not state what the consequences of a failure to do so are and how that would constitute irreparable harm. It may be that there are regulatory consequences to failing to maintain proper student files, but KLC has provided no evidence of any such consequences. While the revocation of KLC’s authorization to operate a private career college could potentially constitute irreparable harm, other consequences, such as an audit or fine, might not. In the absence of evidence, the court can only speculate as to the potential consequences. Speculative evidence is insufficient to demonstrate irreparable harm: Energy Efficient Lighting Ltd. v. Chan, 2018 ONSC 2252 at para. 21.

[20] Moreover, KLC has adduced no evidence to demonstrate irreparable harm if an injunction is not granted requiring 251 to deliver the business records.

[21] At the same time, the Defendants’ position that the business records would be produced within the context of the litigation is not a complete answer. To the extent that there may be a difference between records to which KLC is entitled under the Management Agreement and documents that 251 would be required to produce in the context of this litigation, KLC’s entitlement to the records is not limited by the scope of 251’s discovery obligations.

[22] In any event, since KLC seeks the return of the student records and business records in its Statement of Claim, this issue can be determined on its merits.

Holding Out

[23] In respect of the request for an order preventing Meghana from holding herself out as a director or officer of KLC, KLC admitted that she had not done so since the letter sent in December 2017. However, KLC disputes that she was entitled to do so at that time under the terms of the Management Agreement. 251 relies upon a provision of the Management Agreement providing that a representative of 251 would have signing authority on a bank account to be opened by KLC for 251. The bank account was never opened. It would be a stretch to interpret that provision as permitting Meghana to identify herself as a director of KLC generally.

[24] At the hearing, KLC did not seriously pursue the injunctive relief in relation to Meghana and has not demonstrated irreparable harm. Other than the December 2017 letter, Meghana has not attempted to identify herself as a director of KLC, and it does not appear that she has any intention to do so. 251 is no longer operating the Scarborough Campus. I find it unlikely that Meghana would attempt to hold herself out as a director or officer of KLC. Injunctive relief is “an extraordinary remedy to be granted only in a clear case to preserve the status quo until the legal right asserted can be dealt with by the trial judge.” Bark & Fitz at para. 35, citing RJR Macdonald at p. 406. I am not inclined to order the relief sought.

[25] Given my findings on irreparable harm, it is not necessary to determine where the balance of convenience lies.

Conclusion

[26] Based on the foregoing, the Plaintiff’s motion for an interlocutory injunction is dismissed.

Costs

[27] Counsel for both parties submitted costs outlines at the hearing and agreed that they were for roughly similar amounts. Mr. Rosen’s costs on a partial indemnity basis are $8,149.44, including HST and disbursements.

[28] Pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1), the court has broad discretion when determining the issue of costs. The overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.). Rule 57.01(1) of the Rules of Civil Procedure sets out the factors to be considered by the court when determining the costs issue. I have considered these factors, as well as the proportionality principle in r. 1.04(1.1) of the Rules of Civil Procedure, while keeping in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice.

[29] As noted above, Mr. Rosen takes the position that the motion was not necessary. Mr. Rosenstein submits that the motion was necessitated and was pursued because of the position taken by the Defendants early on that they were entitled to keep the records. He further argues that this court should take into consideration the fact that the Defendants produced the student records and that this was likely because of the motion. While maintaining that the motion was unnecessary, Mr. Rosen required that the motion be scheduled for three hours, which required an attendance at Civil Practice Court.

[30] In this case, both parties became entrenched in positions that required them to proceed with a motion that was largely unnecessary. Irrespective of who breached the APS and Management Agreement, there can be little doubt as to KLC’s entitlement to the records. Counsel could have worked out a reasonable timetable for the return of the student records and the production of the business records. Similarly, a court order should not be required to prevent a party before this court from misrepresenting herself as an officer or director of another entity.

[31] Given the foregoing, I fix costs of the motion on a partial indemnity basis at $5,000.00, inclusive of disbursements and HST, to be paid by the Plaintiff within 30 days of this order.

Nishikawa J. Date: January 10, 2018