Thursday, April 15, 2010

Summary Judgment: Old Wine, New Bottles, Assumed Facts

Aronowicz v. Emtwo Properties Inc., 2010 ONCA 96 (CanLII)

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Plaintiff was a 50% shareholder of a company—“E”.The other 50% shareholder triggered a triggered a shotgun buy-sell. He acquired plaintiff’s shares. Plaintiff found out that acquirer’s financing came in part from his agreement to repay the loan for those acquisition funds by agreeing to transfer three of E’s companies to the lender. Plaintiff sued E et al and alleged breach of fiduciary obligation, bad faith, theft of corporate opportunity, disclosure of confidential information and waiver of tort.

Defendants moved for summary judgment dismissing the action, which was granted. Plaintiff appealed to the Ontario Court of Appeal and the appeal was dismissed.

The Court of Appeal said:

1. The summary judgment test is “whether there is a genuine issue of material fact that needed a trial for its resolution.

2. Saying “no chance of success” is another way of articulating that test—that is to say, where there are no genuine issues of fact requiring a trial for determination and the claim cannot be proved on the basis of the undisputed facts, the action should not be allowed to go to trial.

3. The judge was not in the circumstances barred from assuming the existence of certain facts in order to dispose of the summary judgment motion. A judge can’t assume the existence of critically disputed facts for the purposes of a summary judgment motion where there exist any issues to be tried in which any otherwise assumed facts are germane to the issues and in dispute and where any such assumption would:

a. undermine a party’s ability to present facts in relation to another issue still to be determined; or

b. risk inconsistent factual findings.

4. Here the motions judge accepted the existence of duties of good faith and honesty and the scope of that duty as Plaintiff asserted it. That assumed duty did Plaintiff no good if on the undisputed facts the parties conduct under the shotgun provisions did not give rise to, or attract, such a duty. Here they did not. Here the question of whether the defendant was obliged to disclose the terms of his loan agreement—the issue under which the judge assumed certain facts—was not a triable issue.

5. No fiduciary duty between the parties arose under the triggered shotgun provisions. A shotgun buy sell in a unanimous shareholders’ agreement is a fundamental corporate mechanism for the exercise of corporate self-interest and does not give rise to, attract, fiduciary obligations. Nothing in the relationship between the parties in the context of the shot gun buy sell carried any indicia of a fiduciary obligation.

6. The loan agreement including the companies to be transferred to the lender was not a misappropriation of a corporate opportunity by the defendant. No critical facts were in dispute relating to the disclosure of confidential information to the lender or relating to the disclosure’s impact on E or the parties. The undisputed evidence did not support a finding that Plaintiff had a reasonable expectation that Defendant would keep private E information from third parties. Defendant’s disclosure didn’t breach confidentiality or amount to fiduciary breach or oppression because there was no evidence of any harm or detriment to E or Plaintiff or any profit to Defendant caused by Defendant’s disclosure of confidential information to the lender. The claims of deceit and negligent misrepresentation failed for the same reason—no evidence of harm or detriment to E or the Plaintiff or of profit by Defendant.

Some dicta:

[15] The proper test for summary judgment – as articulated by Morden A.C.J.O. in Irving Ungerman Ltd. v. Galanis
reflex, (1991), 4 O.R. (3d) 545, at pp. 550-551 – is whether there is a genuine issue of material fact that requires a trial for its resolution. Neither Aguonie v. Galion Solid Waste Material Inc. 1998 CanLII 954 (ON C.A.), (1998), 38 O.R. (3d) 161 (C.A.), nor Dawson v. Rexcraft Storage and Warehouse Inc. 1998 CanLII 4831 (ON C.A.), (1998), 164 D.L.R. (4th) 257 (Ont. C.A.) – the two summary judgment authorities most referred to in this Province – alter this test. Indeed, they affirm it. What Augonie and Dawson and their jurisprudential progeny have done is develop a more restricted view of the analytical approach to be adopted by the summary judgment motion judge and of the judge’s role in determining the “genuine issue for trial” question.

17] The motion judge was alive to, and applied, the appropriate test and the approach to such motions mandated by Augonie and Dawson, and more recently by the Supreme Court of Canada in Canada (Attorney General) v. Lameman,
2008 SCC 14 (CanLII), [2008] 1 S.C.R. 372[1] and Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (S.C.C.), [1999] 3 S.C.R. 423. In this respect, the motion judge explained:

The principles applicable to a summary judgment motion are most succinctly set out in Dawson v. Rexcraft Storage and Warehouse Inc.
1998 CanLII 4831 (ON C.A.), (1998), 164 D.L.R. (4th) 257 (Ont. C.A.), in which Borins J.A. states at para. 13 that the essential purpose of summary judgment is to isolate, and then terminate, claims and defences that are factually unsupported. A defendant who seeks to dismiss an action on a summary judgment motion bears the burden of proving that there is no genuine issue of a material fact requiring a trial. On a summary judgment motion, the Court is not to assess credibility, weigh evidence or draw factual inferences. On the other hand, the Court is entitled to assume that the record contains all of the evidence which the parties will present if there is a trial.

In the present motion, the issue for the Court is, for the most part, whether the undisputed facts before the Court support any of the causes of action alleged by the plaintiffs. The issue is not whether a genuine issue for trial exists with respect to facts that are material for one or more causes of action. Rather, the issue is whether, on the record before the Court, any or all of the plaintiffs’ causes of action are so doubtful that the case does not deserve consideration by a trier of fact at a future trial: see Pizza Pizza Ltd. v. Gillespie
1990 CanLII 4023 (ON S.C.), (1990), 75 O.R. (2d) 225 (Gen. Div.) at 238 and Papaschase Indian Band No. 136 v. Canada (Attorney General), 2008 SCC 14 (CanLII), [2008] 1 S.C.R. 372 at para. 10, both of which appear to have involved the same exercise.

On this motion, therefore, the Court is required to give a good hard look at the evidence and to grant summary judgment if it concludes that “the facts do not entitle the plaintiff to some remedy from the defendant”: see Dawson v. Rexcraft at para. 13. In Papaschase at para. 10, the Supreme Court appears to have set the test for summary judgment to be demonstration that the claims “have no chance of success”. I have adopted this standard on this motion.

While similar to a Rule 21 motion, I have therefore approached the issue on this motion as a determination not as to whether the pleadings disclose a reasonable cause of action but as to whether the plaintiffs’ various causes of action have no chance of success based on the undisputed facts before the Court. I should note, as well, that I do not agree with the plaintiffs that the Court is entitled to make only one determination of law pursuant to Rule 20.04(4) on a summary judgment motion. Rule 20.04(4) is sufficiently flexible to be applied separately in respect of each cause of action. A party cannot prevent summary judgment by alleging a multiplicity of unmeritorious causes of action.

19] In Lameman (referred to by the motion judge in the passage cited above as Papaschase), the Supreme Court of Canada summarized its view on summary judgment motions, at paras. 10-11:

This appeal is from an application for summary judgment. The summary judgment rule serves an important purpose in the civil litigation system. It prevents claims or defences that have no chance of success from proceeding to trial. Trying unmeritorious claims imposes a heavy price in terms of time and cost on the parties to the litigation and on the justice system. It is essential to the proper operation of the justice system and beneficial to the parties that claims that have no chance of success be weeded out at an early stage. Conversely, it is essential to justice that claims disclosing real issues that may be successful proceed to trial.

For this reason, the bar on a motion for summary judgment is high. The defendant who seeks summary dismissal bears the evidentiary burden of showing that there is “no genuine issue of material fact requiring trial”: Guarantee Co. of North America v. Gordon Capital Corp.,
1999 CanLII 664 (S.C.C.), [1999] 3 S.C.R. 423, at para. 27. The defendant must prove this; it cannot rely on mere allegations or the pleadings: 1061590 Ontario Ltd. v. Ontario Jockey Club 1995 CanLII 1686 (ON C.A.), (1995), 21 O.R. (3d) 547 (C.A.); Tucson Properties Ltd. v. Sentry Resources Ltd. reflex, (1982), 22 Alta. L.R. (2d) 44 (Q.B. (Master)), at pp. 46-47. If the defendant does prove this, the plaintiff must either refute or counter the defendant's evidence, or risk summary dismissal: Murphy Oil Co. v. Predator Corp. 2004 ABQB 688 (CanLII), (2004), 365 A.R. 326, 2004 ABQB 688, at p. 331, aff'd 2006 ABCA 69 (CanLII), (2006), 55 Alta. L.R. (4th) 1, 2006 ABCA 69. Each side must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried: Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. 1996 CanLII 7979 (ON S.C.), (1996), 28 O.R. (3d) 423 (Gen. Div.), at p. 434; Goudie v. Ottawa (City), 2003 SCC 14 (CanLII), [2003] 1 S.C.R. 141, 2003 SCC 14, at para. 32. The chambers judge may make inferences of fact based on the undisputed facts before the court, as long as the inferences are strongly supported by the facts: Guarantee Co. of North America, at para. 30. [Emphasis added.]

[46] I am not satisfied that the motion judge erred by engaging in an exercise of weighing the evidence and drawing inferences of the type prohibited on motions for summary judgment. Leaving aside the facts underpinning the appellants’ allegation of a duty of honesty and good faith – which were assumed at their highest, in favour of the appellants – the material facts in the action were not in dispute.

[47] The appellants rely heavily on the well-accepted principle that causes of action involving allegations of fiduciary duties, good faith, oppression and misrepresentation are individually fact-laden. In determining whether, on the specific facts, the duty has been breached, they contend, “there is no substitute … for a meticulous examination of the facts”: Hodgkinson v. Simms,
1994 CanLII 70 (S.C.C.), [1994] 3 S.C.R. 377, at pp 413-414. Here, however, the motion judge had a full and complete record before him and the material facts were not in dispute. On that basis he could conduct the requisite “meticulous examination”, and he did so. The brothers were brothers. Emtwo was a family company founded by the brothers and their father together. Abraham had managed its operations for 20 years. Harry had not. There were differences. Harry wanted out. Abraham would not agree to a winding-up. Harry arranged financing and pulled the Shotgun Provision trigger. He did not reveal the contents of his Loan Agreement, but the particulars of that Loan Agreement were before the motion judge.

[48] Mr. Leon submits that the extent of fiduciary duties owed by Harry to Abraham and to Emtwo, the extent of Harry’s duty of good faith owed to Abraham, and matters relating to the oppression remedy must all be considered in the context of the activities and evolving relationship of the brothers and the company over a period of more than 20 years. I agree. But I do not agree that it was impermissible for the motion judge to make that determination on the record before him.

[49] To support this conclusion, I need not go through the motion judge’s lengthy reasoning and analysis with respect to each of the causes of action asserted, and the myriad ways of asserting those causes of action contained within them (Mr. Lax says there are 23 causes of action asserted, and 30 separate claims within them). I am satisfied on the whole, that he was entitled to reject each of the appellant’s claims on the basis that there were no genuine issues that required a trial for their resolution, having regard to the material undisputed facts before him. However, I will touch on some of the causes of action and claims briefly.

[69] The appellants argue that the motion judge impermissibly “granted summary judgment on the basis of significant legal conclusions on novel or unsettled questions of law without the benefit of a full trial record”. They make this submission in relation to three areas of law: (1) the duties of a shareholder/director in exercising a shotgun clause; (2) the law of fiduciary duty, duty of good faith and oppression, and corporate opportunity in the context of a shotgun clause; and (3) the availability of waiver of tort in respect of an action for deceit or misrepresentation.

70] I would not give effect to this ground of appeal either.

[71] Generally, courts are reluctant to determine unsettled matters of law at a pre-trial stage – including on motions for summary judgment – on the theory that new or important questions of law should not be determined on an incomplete factual record: Société Générale, at para. 51; Romano v. D’Onofrio 2005 CanLII 43288 (ON C.A.), (2005), 77 O.R. (3d) 583, at para. 7 (C.A.): Bendix Foreign Exchange Corp. v. Integrated Payment Systems Canada Inc. (2005), 18 C.P.C. (6th) 15, at para. 6 (Ont. C.A.).[4] However, a court may determine a question of law on a motion for summary judgment if it has the necessary undisputed factual record before it, is in just as good a position as the trial judge would be to do so, and is satisfied the only genuine issue is a question of law: see, for example, Bader v. Rennie 2007 CanLII 37674 (ON S.C.D.C.), (2007), 229 O.A.C. 320 (Div. Ct.), at para. 22; Robinson v. Ottawa (City) (2009), 55 M.P.L.R. (4th) 283 (Ont. S.C.), at paras. 63-64; Alexis v. Toronto Police Services Board, 2009 ONCA 847 (CanLII), 2009 ONCA 847, at para. 19.

[72] Here, the motion judge was justified in determining the legal issues presented to him, in my view. They were not novel or unsettled, for the most part, and to the extent they may be considered “novel” – the claim in waiver of tort comes to mind – the motion judge had a sufficient factual foundation to permit their determination.

[73] Recall again that the relationship between the parties is rooted in contract: Harry exercised his rights under the Shotgun Provision. Abraham says he acted wrongfully in the exercise of those rights. What is essentially a complaint about failing to comply with the provisions of a contract is dressed up in the action as a claim for breach of fiduciary duty, breach of a duty of good faith, breach of confidentiality, oppression, misrepresentation, deceit, conspiracy and – if all else fails – waiver of tort. There are times in litigation when the Shakespearean expression “the lady doth protest too much, methinks” has the ring of truth to it.

[74] The facts underlying all of these claims are the same. And the motion judge was satisfied on the basis of the undisputed facts before him, together with facts that he assumed at their highest in favour of the plaintiffs, that none of these claims were made out. Did he err in doing so because the claims were “novel” or “unsettled”? In my opinion, he did not.

[75] There is nothing either novel or unsettled about any of the foregoing causes of action, with the exception of “waiver of tort” (to which I will return). It may be true that there is no specific jurisprudence on the question of the duties of a shareholder/director in the context of exercising a shotgun clause. However, as the motion judge concluded, that alone is not enough to create a genuine issue for trial or to preclude summary judgment on unsettled law grounds, where it is clear there is no chance of success on the factual record, measured against established principles of law. That was the case here.

[76] This was not a pleadings motion. It was a motion for summary judgment. As noted earlier in these Reasons, the motion judge had a very considerable record before him. There had been full examinations for discovery prior to the motion and lengthy cross-examination on the affidavits filed in relation to it. The motion judge thus knew all about the terms of the Unanimous Shareholders’ Agreement and the Loan Agreement, and the facts leading up to their execution. He knew about the business, management and ownership structure of Emtwo. He knew about the business and family relationship between Harry and Abraham, and about all the events that transpired during the relevant period. As Harry’s counsel note in their factum, this was not a case where there were questions crucial to the analysis of the issues that were left unanswered on the record or where expert evidence was required. There was no new evidence to be presented to a trial judge, and the mere prospect that some hoped-for nuance or subtlety might arise in the evidence should the matter go to trial does not turn an application of the facts to well-established legal principles into a “novel” exercise.

[77] The motion judge concluded that:

a) there was no basis for the operation of a fiduciary duty in respect of the exercise of the Shotgun Provision;

b) there was no theft of a corporate opportunity or breach of duty of confidentiality;

c) there was no obligation in relation to the Shotgun Provision that was analogous to the duty “to act reasonably and in good faith” in respect of rights of first refusal;

d) there was no duty of honesty and good faith created by the relationship between Harry and Abraham;

e) there was no genuine issue for trial regarding the extension of the general duty of “honesty and good faith” to include a duty to disclose information such as the Loan Agreement, or to extend that duty to the exercise of the Shotgun Provision; and (having regard to the foregoing)

f) there was no basis for the claims in oppression, misrepresentation, deceit or conspiracy.

[78] These findings were all open to the motion judge based on the undisputed facts and the facts that he chose to accept at their highest in favour of the plaintiffs. They involved no determination of novel or unsettled principles of law.

[79] “Waiver of tort”, on the other hand, qualifies as an uncertain area of the law, but it has no application on the facts of this case, in my view.

[80] Waiver of tort is a restitutionary remedy. There is considerable controversy over whether it exists as an independent cause of action at all or whether it is “parasitic” in the sense that it requires proof of an underlying tort and – since a tort requires damage – proof of harm to the plaintiff. By invoking waiver of tort, a plaintiff gives up the right to sue in tort but seeks to recover on the basis of restitution, claiming the benefits the wrongdoer has derived from the wrongful conduct regardless of whether the plaintiff has suffered damages or not. See, for example, Serhan Estate v. Johnson & Johnson
reflex, (2006), 85 O.R. (3d) 665 (Div. Ct), at paras. 45-69, leave to appeal to S.C.C. dismissed, [2006] S.C.C.A. No. 494.

[81] The claim is not so much “novel” – it has its roots in the ancient action of assumpsit – as it is “mysterious” or “mystical”. In their text, The Law of Restitution, Maddaugh and McCamus describe it in this fashion:

The doctrine known as “waiver of tort” is perhaps one of the lesser appreciated areas within the scope of the law of restitution. From the outset, it seems to have engendered an undue amount of confusion and needless complexity. The almost mystical quality that surrounds the doctrine is attested to by the following famous couplet penned by a pleader of old [J.L. Adolphus, “The Circuiteers – An Eclogue”
(1885) 1 L.Q. Rev. 232, at p. 233]:

Thoughts much too deep for tears subdue the Court

When I assumpsit bring, and god-like waive a tort.

One source of this confusion stems from the doctrine's very name. As one writer has pointed out, not entirely facetiously, it has “nothing whatever to do with waiver and really very little to with tort”. [Emphasis added.]

[82] While waiver of tort appears to be developing new legs in the class action field – see Serhan Estate and Heward v. Eli Lilly & Co.
2008 CanLII 32303 (ON S.C.D.C.), (2008), 91 O.R. (3d) 691 (Div. Ct.), for example – it is of no assistance to the appellants here. Whether the claim exists as an independent cause of action or whether it requires proof of all the elements of an underlying tort aside, at the very least, waiver of tort requires some form of wrongdoing. The motion judge found none here. No breach of contract. No breach of fiduciary duty, or duty of good faith or confidentiality. No oppression. No misrepresentation. No deceit. No conspiracy. As counsel for Mr. Grinshpan put it in their factum, “its eleventh hour insertion into the statement of claim does not provide the appellants’ claim with a new lifeline given that the record discloses no wrongful conduct on the part of the respondents in respect of any of the causes of action pleaded.”

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