Habitat for Humanity Canada Habitat Pour L’humanit é Canada Plaintiff v. Hearts and Hands for Homes Society, 2015 BCSC 1182

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Habitat for Humanity Canada v. Hearts and Hands for Homes Society, 2015 BCSC 1182 Date: 20150708 Docket: S138167 Registry: Vancouver Between: Habitat for Humanity Canada Habitat Pour L’humanit é Canada Plaintiff And Hearts and Hands for Homes Society Defendant Before: The Honourable Madam Justice Sharma Reasons for Judgment Counsel for the Plaintiff: M.G. Underhill Counsel for the Defendant: P.M. Pakenham J.M. Duncan Place and Date of Hearing: Vancouver, B.C. November 5 - 6, 2014 January 21 - 22, 2015 Place and Date of Judgment: Vancouver, B.C.

July 08, 2015 Table of Contents I. INTRODUCTION .. 3 II. EVIDENTIARY ISSUES .. 3 A. Objections to Admissibility . 3 B. Characterization of Evidence as Misleading . 8 C. Allegation of Underlying Amalgamation Attempt 9 III. FACTS .. 11 A. Becoming an Affiliate . 11 B. The Affiliation Agreement 14 C. Formation of the Prince George Affiliate . 17 D. The Disaffiliation Process . 19 E. The Disaffiliation of the Defendant 20 IV. ISSUES .. 25 V. ANALYSIS .. 26 A. Suitability for

Summary Trial 26 B. Is the Asset Transfer Clause Enforceable? . 29 1. Contra proferendum does not apply to the affiliation agreement 31

2. The Asset Transfer Clause does not run afoul of any statute . 34 3. The ultra vires doctrine has no application to this case . 35 4. The Asset Transfer Clause is not a penalty clause nor unconscionable . 36 C. Did the Plaintiff Follow its Disaffiliation Process? . 39 D. Is Specific Performance Available? . 43 E. Counterclaim .. 44 VI. CONCLUSION .. 45 VII. COSTS .. 47 I. INTRODUCTION [ 1 ] This

summary trial application involves an unfortunate dispute between two charitable organizations. The plaintiff (“Habitat Canada”) seeks specific performance of a clause in an affiliation agreement it had with the predecessor to the defendant. That clause states that, upon its disaffiliation from the plaintiff, the defendant must transfer all its assets to the plaintiff. The plaintiff asserts the legal issues involve basic principles of contract law.

In the alternative, the plaintiff seeks damages in lieu of specific performance or, in the further alternative, a declaration that the assets of the defendant are being held in trust for the plaintiff. [ 2 ] The defendant submits this case is not suitable for determination as a

summary trial. As to the merits, the defendant does not agree with the plaintiff that this is a simple contract dispute. Instead, the defendant says the facts implicate issues of charitable trusts, trust law and a myriad of other issues, which are deployed in its written argument in a scattergun fashion. It says the clause in the affiliation agreement at issue is unenforceable for a number of reasons, one of which is that the plaintiff itself breached the agreement. [ 3 ] The defendant filed a counterclaim; the issues in that differ little from its response to the plaintiff’s application.

The plaintiff seeks to dismiss the counterclaim. II. EVIDENTIARY ISSUES A. Objections to Admissibility [ 4 ] The defendant objects to the admissibility of some of the plaintiff’s evidence. It also says the affidavits are replete with contradictions. Both objections go to the merits of the trial issues but the defendant emphasizes the latter point in support of its position that a

summary trial is not appropriate. It says many of the contradictions go to credibility on key issues and examinations for discovery and a full trial are required to fairly resolve this case. [ 5 ] Because of the emphasis the defendant placed on these evidentiary issues, I will address them first. The objections are too numerous to analyze individually but they fall into three categories: opinion evidence, facts beyond the knowledge of the affiant and hearsay.

I will refer to examples that I am satisfied are a fair representation of all of the defendant’s admissibility objections. [ 6 ] As a representative example of opinion evidence, I refer to the defendant’s objection to the admissibility of statements in the first affidavit of Kathrin Delutis. Ms. Delutis is the Director of Affiliate Development with Habitat Canada and its main witness. She swore three affidavits in this proceeding. The defendant says the following two paragraphs are inadmissible because “Ms.

Delutis gives her opinion that the Defendant was given its charity status because of its affiliation and will lose it after disaffiliation.” It also says the paragraphs contain information beyond her knowledge because she does not speak for the Canada Revenue Agency (CRA). [ 7 ] The paragraphs at issue are: 12. In these circumstances, the charitable status granted to affiliates is premised upon the affiliate having a mode of operation according to the Habitat model, including the key terms of the mortgages negotiated between the Canada Revenue Agency and Habitat Canada .

All Canada Revenue charity registrations require affiliates to immediately notify the Canada Revenue Agency in the event that it may be disaffiliated from Habitat Canada, in order for the Canada Revenue Agency to consider the effect on the registered status of the affiliate. 13. It is the expectation of Habitat Canada and its members that upon disaffiliation, an affiliate will lose its charitable status. [Emphasis added.] [ 8 ] The paragraph immediately preceding those two paragraphs puts her evidence into context: 11.

For a community interest group to become an affiliate, it must first apply to Habitat Canada, providing proof of being able to meet the requirements for membership, including sustainability. Habitat Canada staff provide guidance and support to the interest group in their application, including the development of a constitution and bylaws, and the submission of their application. Once membership is approved by the National Board, Habitat Canada issues a letter to the affiliate for submission to the Canada Revenue Agency, stating

that they have permission to apply for charity status under the umbrella of Habitat Canada. [Emphasis added.] [ 9 ] The statements in paragraphs 12 and 13 are not opinions. In my view, the defendant’s objection is not based on a fair reading of Ms. Delutis’s affidavit. She does not offer an opinion that the defendant will lose its charitable status after disaffiliation; she states that is her expectation. She is clear that losing charitable status is a decision that the CRA makes. Paragraph 11 provides the foundation for her expectation.

These paragraphs are admissible. [ 10 ] In my view, most, if not all, of the defendant’s evidentiary objections involve a similar misreading of the plaintiff’s evidence. I dismiss those objections on that basis alone. [ 11 ] The defendant says Ms. Delutis’s statement in paragraph 12 that affiliates’ charitable status “is premised upon the affiliate having a mode of operation according to the Habitat model” is both an opinion and outside of her realm of knowledge.

I do not agree. [ 12 ] Paragraph 11 states that CRA negotiates directly with the plaintiff on the availability of charitable status for organizations operating under the Habitat Canada umbrella. That is, in part, the foundation for the statements in the following paragraphs. When viewed in the proper context and giving it a fair reading, her statement in paragraph 12 is not problematic and is admissible. [ 13 ] Also, the first paragraph of Ms.

Delutis’s affidavit confirms that as a result of her position as Director of Affiliate Development, she has “personal knowledge of the facts and matters [in the affidavit that are] deposed to, save and except where same are stated to be made on information and belief, and where so stated, [she] verily believe[s] them to be true.” Those may be standard opening words of affidavits but they are not meaningless. They confirm at the beginning of the affidavit the source of the affiant’s statements which is clearly the work she does for the plaintiff. I do not find any of the preceding statements from Ms.

Delutis’s affidavit to run afoul of that confirmation. The defendant’s position does not give sufficient weight to the effect and importance of those words. [ 14 ] With regard to the hearsay objections, I find none of the objections are well founded. There are two aspects to the defendant’s objection to hearsay. First, the defendant submits many documents are p er se inadmissible, relying on the rule against hearsay. Second, many of the statements which the defendant classifies as hearsay are the basis for contradictions the defendant says exist on the record.

According to the defendant, the contradictions establish that credibility is at issue and a

summary trial is inappropriate. I turn again to an example to explain why I reject both the objections and the assertion that credibility is a key issue in this case. I confirm the example below is illustrative of most, if not all, of the defendant’s submissions relating to hearsay and contractions in the evidence. [ 15 ] Ms. Delutis’s affidavit appended a January 9, 2010 report (the “2010 Report”) that was created after the plaintiff conducted a routine review of the defendant. She did not comment on its contents in her affidavit.

The plaintiff’s written submissions do refer to the content of the report by stating: “The 2010 Report identified a number of deficiencies within [the defendant], including, …”; what follows is a list of five items that accurately captures what is contained in the 2010 Report. [ 16 ] The defendant’s Executive Director deposed the following about the January 2010 review: … No major issues were raised as a result of this review. There was some talk about having a Strategic Plan and Operational Plan in place as well as the need to review our protocols yearly.

Otherwise, I was left with the understanding that the Society and its Board were in compliance with Habitat for Humanity Protocols. [ 17 ] The defendant relies on this evidence to say the court cannot resolve the contradiction in this evidence without hearing from the witnesses and assessing their credibility. It also says it should be entitled to conduct an examination for discovery of Ms. Delutis. A conflict in the evidence does not necessarily give rise to a right to cross-examine an affiant: BX Neighbour Pub Ltd. v. British Columbia (Minister of Labour and Consumer Services) , [1990] B.C.J.

No. 2946 at para. 4 (S.C.) . [ 18 ] I have no reason to doubt the sincerity of the defendant’s affiant’s understanding of what happened during the review, but, with respect, it does not contradict Ms. Delutis’s evidence. Ms. Delutis says absolutely nothing about the report except that it was prepared and is attached to her affidavit. The defendant has confused the evidence of Ms. Delutis with the submissions made by the plaintiff in court.

I find almost all of the instances of contradictions the defendant identifies and says implicate findings of credibility suffer the same flaw. [ 19 ] In fact, the defendant objects to the use that the court can make of the report itself. I agree with the defendant that admitting the report into evidence does not, based on that acceptance, establish that its content is true. As I understand the plaintiff’s position, however, it has adduced the report to show it was sent and received and that the information in the report was communicated to the defendant.

The report is not being submitted for the truth of its contents. There is no hearsay problem and the document is admissible. [ 20 ] I believe what the defendant is really objecting to is the use the plaintiff makes of the report in its submissions, but that is not a basis of inadmissibility. One of the issues before me is whether the plaintiff adhered to its disaffiliation process. The plaintiff submits the report is part of the background and context to the disaffiliation process. The plaintiff says it took a course of action under a private legal contract.

It also says whether that course of action was warranted or it was correct to do so is not the issue before me so the truth of the report’s content is not material to its admissibility. I agree with these propositions. The plaintiff is not shying away from the validity of the 2010 Report’s conclusions but, quite properly, asserts that is the subject of argument, not evidence. [ 21 ] The defendant also raises the issue of the plaintiff’s good faith conduct. It says the truth of the contents of the report and other similar documents is relevant to that legal issue.

I do not agree for the reasons identified in the discussion about good faith below (at paras. 117 - 121). [ 22 ] In general, I have found that the defendant’s objections are based on its dissection of sentences in affidavits that are examined in isolation from the rest of the affidavit. I also find that the defendant’s evidentiary objections are based not on the actual evidence on the record, but on the plaintiff’s submissions. With respect, the defendant has not represented the evidence fairly when characterizing what it

says are the evidentiary problems. [ 23 ] I find the plaintiff’s affidavits present the court with the material facts within a narrative of the affiant’s observations, views, beliefs, understanding and perceptions. This type of evidence gives context and background in which to understand the material facts and how they relate to the legal issues. This feature of evidence is no different from a witness testifying. As the trier of fact, I am confident that if Ms.

Delutis testified during a trial and gave the identical evidence contained in her affidavits, I would overrule the preceding objections. [ 24 ] For all those reasons, I dismiss the defendant’s objections to the admissibility of evidence. B. Characterization of Evidence as Misleading [ 25 ] It is convenient at this point to comment on the tenor of some of the defendant’s submissions. There is a tendency in the defendant’s submissions to exaggerate or unfairly state the evidence of the plaintiff.

I also find that the defendant often fails to distinguish between the evidence before the court and the plaintiff’s submissions. [ 26 ] What is more troubling, however, is that on a number of occasions the defendant characterizes the plaintiff’s position or evidence as misleading. There are other points where highly charged phrases are used to describe the plaintiff’s evidence or submissions. As just one example, I refer to the defendant’s reference to a particular chain of emails.

In its written submission, the defendant says if one reads the emails, it is “clear almost immediately … that the Plaintiff’s version of event[s] is highly misleading.” [ 27 ] I have thoroughly reviewed all the evidence in this case. I find no reasonable basis on the record to accuse the plaintiff of misleading the court. The defendant’s allegation is based only on its disagreement about evidence, an ordinary and expected occurrence in litigation. [ 28 ] Unfortunately, I found this theme underlies the defendant’s presentation and most of its evidence.

This is inappropriate; it is also unfortunate because it consumed a great deal of time at the hearing that was not needed to try the case, and in preparation of these reasons. C. Allegation of Underlying Amalgamation Attempt [ 29 ] Another problematic aspect of the defendant’s evidence is the accusation that the plaintiff undertaking disaffiliation was a disguised attempt to amalgamate some affiliates.

The defendant’s Executive Director deposed that she attended Habitat Canada’s national convention in 2010 or 2011 during which a proposal was presented to amalgamate the defendant with the Kamloops and Kelowna affiliates. She deposed that the defendant’s board of directors directed her to oppose the plan and, since the proposal required their approval, the measure failed. [ 30 ] Another of the defendant’s affiants deposed that, from her perspective, this decision on the part of the local board not to amalgamate had dire consequences for the defendant and its relations with the national body.

She stated, “In particular, the local board’s refusal to amalgamate appears to have set off a chain of events intended by members of the national body to either force the proposed amalgamation or lead to our disaffiliation and the accompanying seizure of all assets held by the [defendant].” [ 31 ] In written submissions, the defendant says that in response to the board’s opposition, in early 2012, the plaintiff “embarked on a fault finding mission, as opposed to a fact finding one.” It is the defendant’s position this was done “with a view to ultimately forcing upon the Defendant what they were not prepared to do by agreement” and the fault finding mission inevitably led to the disaffiliation of the defendant in October 2013. [ 32 ] These allegations are based solely on the views of the two affiants discussed above and are unsubstantiated.

The allegations reveal a surprising and unwarranted degree of suspicion on the part of the affiants with no corroborating evidence or circumstances. [ 33 ] The plaintiff’s evidence gives the background to the issue of amalgamation. A consulting group was retained by Habitat Canada in 2011 to prepare a Regionalization Impact Assessment based on their National Strategic Plan; the resulting assessment provided examples of regionalization plans and how such plans might increase and improve the services delivered in particular regions.

Affiliates, including the defendant, were invited to participate in a webinar in October 2011 in which the Impact Assessment was discussed. However, as Ms. Delutis deposed, “At no time did Habitat Canada endorse the potential regionalization explored in the Impact Assessment or any of the examples set out therein. Rather, the conclusions of the third

part consultant were put to the Habitat Canada affiliates for comment.” [ 34 ] In November 2011, the plaintiff’s 2012 - 2016 Draft Strategic Plan was distributed to affiliates. It did not adopt or advance any of the regionalization plans explored in the Impact Assessment, nor did the final version later approved by the affiliates. [ 35 ] I find it is abundantly clear that there was no relationship between the disaffiliation process and the discussion about amalgamation. I find on a balance of probabilities that the affiant’s accusations are unfounded and borne of an unfortunate defensive and suspicious mentality.

That same mentality is prevalent throughout the defendant’s evidence, especially in how they responded to each attempt by the plaintiff to bring HPG into good standing. I find the accusation about amalgamation to be highly inappropriate; it should not have been made on such flimsy grounds. III. FACTS [ 36 ] Habitat for Humanity International Inc. (“Habitat International”) is a well-established and respected charitable organization with an international presence that solicits volunteer time and funds to build housing for families in need. It was established in 1976 with a

goal to provide affordable, low-cost housing as a means of addressing poverty. Habitat International set up a network of local affiliate organizations all over the world, each of whom is committed to building, renovating and repairing houses. Those houses are purchased by partner families through no profit, no interest mortgages or loans or other innovative financing methods. [ 37 ] The plaintiff, Habitat Canada, is the Canadian national organization of Habitat International. It is registered with the CRA as a charity. Ms.

Delutis describes the vision of Habitat International and the plaintiff as “to create a world where everyone has a safe and decent place to live.” [ 38 ] The plaintiff was incorporated in 1985 and has over 60 local affiliates across Canada. The plaintiff licenses affiliates, who then get the benefit of using the Habitat for Humanity name.

According to the plaintiff, this allows the affiliates to obtain “a significant amount of local corporate and individual support in the way of volunteer labour and donations.” In 2006, an independent organization valued the Habitat for Humanity brand at $3.1 billion. [ 39 ] Habitat Canada is a not for profit corporation. It is governed by a board of directors. Each affiliate is a not for profit corporation or society registered as a charity with CRA and a member of the plaintiff. A. Becoming an Affiliate [ 40 ] Ms. Delutis describes how an interest group becomes an affiliate: 11.

For a community interest group to become an affiliate, it must first apply to Habitat Canada, providing proof of being able to meet the requirements for membership, including sustainability. Habitat Canada staff provide guidance and support to the interest group in their application, including the development of a constitution and bylaws, and the submission of their application. Once membership is approved by the National Board.

Habitat Canada issues a letter to the affiliate for submission to the Canada Revenue Agency, stating that they have permission to apply for charity status under the umbrella of Habitat Canada. 12. In these circumstances, the charitable status granted to affiliates is premised upon the affiliate having a mode of operation according to the Habitat model, including the key terms of the mortgages negotiated between the Canada Revenue Agency and Habitat Canada.

All Canada Revenue charity registrations require affiliates to immediately notify the Canada Revenue Agency in the event that it may be disaffiliated from Habitat Canada, in order for the Canada Revenue Agency to consider the effect on the registered status of the affiliate. [ 41 ] Membership in the plaintiff is governed by its bylaws and bylaw policies.

There is also an affiliation agreement and standards of excellence. [ 42 ] The defendant asserts in its written submission that the “By-laws represent a contract between the Defendant’s Society’s members and the Defendant Society and not with any other entity” and, further, that “no legal relationship arises between the [plaintiff] and the Defendant simply by virtue of the Defendant’s By-laws.” [ 43 ] This submission does not appear to respond to anything the plaintiff asserts. There is also no evidentiary, legal or logical support for the defendant’s statement.

The bylaws are exactly that; bylaws of the defendant. They are not a contract, nor did the plaintiff suggest that they create the contractual relationship between the parties.

However, they do define some of the responsibilities of the parties under the contract. [ 44 ] The plaintiff’s bylaws and bylaw policies require that its affiliates be in “good-standing” by being in compliance with the bylaws, the affiliation agreement and the standards of excellence of Habitat Canada and Habitat International. [ 45 ] To ensure that affiliates remain in good standing, each one is subjected to a routine review every three years, as well as annual self-assessments. Among the responsibilities placed upon affiliate members by the bylaws and bylaw policies are the following: (

a) to set an example of good stewardship, accountability and governance; (

b) to establish and maintain a Habitat for Humanity housing program within its service area and to operate that program in accordance with the requirements set forth in the covenant, standards of excellence, the affiliation agreement and policies; (

c) to provide Habitat Canada with copies of its key governing documents, minutes of board meetings, annual reports and annual audited financial statements, as well as other documents which would be available to the public or its members upon the request of Habitat Canada; (

d) to participate and cooperate with any audit evaluation or self-evaluation that may be required; (

e) to provide Habitat Canada or its agent with reasonable access to books and records for the purpose of an audit or evaluation; (

f) to negotiate in good faith and in a timely manner to correct any deficiencies in compliance that arise from an audit or evaluation; and (

g) to refer to Habitat Canada all inquiries, requests and proposals from current and prospective donors, sponsors, media representatives and government officials which relate to the work of Habitat for Humanity outside its service area. [ 46 ]

Section 8 of the bylaws stipulates that an affiliate’s membership can be terminated by a vote of the national board of Habitat Canada so long as the disaffiliation policy has been followed. [ 47 ] Each affiliate has had to enter into a covenant agreement with the plaintiff. The defendant signed the covenant agreement on May 17, 2001, and it includes the following:

Mission Statement Habitat for Humanity works in partnership with God and people everywhere, from all walks of life, to develop communities with God’s people in need by building and renovating houses so that there are decent houses in decent communities in which God’s people can live and grow into all that God intended. Method of Operation Habitat for Humanity sponsors projects in habitat development by constructing modest but adequate housing.

Habitat also seeks to associate with other organizations functioning with purposes consistent with those of Habitat for Humanity International and the affiliate, as stated in the Articles of Incorporation of both Habitat organizations. [ 48 ] The preface to that covenant describes that Habitat International and any affiliate work as partners in an ecumenical Christian housing ministry. In furtherance of its Christian mission, Habitat International regards its work to be building, renovating and repairing decent and affordable housing as a global partnership with its affiliates.

Each affiliate is expected to contribute at least 10% of its cash contributions to Habitat International.

It further states that, although Habitat International will assist the affiliate with information, resources, training, publications, prayer support and in other ways, “the affiliate is primarily and directly responsible for the legal, organizational, fund-raising, family selection and nurture, financial and construction aspects of the work.” [ 49 ] Individual members of the defendant signed the covenant agreement which stated, among other things, that the defendant agreed to enhance Habitat International’s mission by “supporting effective communication among affiliates, Habitat for Humanity International and regional offices; sharing annual reports; participating in regional and national training events; and participating in a bi- annual review and planning session between each affiliate and the regional office.” [ 50 ] The defendant was named Habitat for Humanity Prince George Society (“HPG”) and was incorporated and registered under the Society Act , R.S.B.C 1996, c. 433 on May 28, 2001.

HPG received charitable status from CRA on January 31, 2002. B. The Affiliation Agreement [ 51 ] On August 10, 2004, Habitat International and Habitat Canada entered into a national affiliation agreement which required Habitat Canada to enter into formal affiliation agreements with each of its affiliate members. Each agreement is a standard document created after consultation with and feedback from the plaintiff’s member affiliates. Affiliates were given opportunities to provide input by participating in conference calls or attending the 2006 annual general meeting.

No representative of HPG attended that meeting or provided any input. Based on those consultations and member input, the plaintiff finalized the contents of the standard affiliation agreement. In about 2006, Habitat Canada did enter into such agreements with each affiliate. [ 52 ] The agreement between HPG and the plaintiff is dated April 27, 2006. Among other things, it states that Habitat International is the owner of the “Habitat for Humanity” licensed marks and the plaintiff has the exclusive license to use them in Canada.

Affiliates are granted non-exclusive sublicenses allowing them to use the marks in connection with their charitable mission, whose primary purpose is to promote the objectives of Habitat International in accordance with the principles and guidelines established by it in order to meet the need for affordable housing in Canada and abroad. [ 53 ] Other provisions in the affiliation agreement describe the scope of the affiliation (the plaintiff is identified as HFHC in these clauses): 5.01 Definition of Affiliation Relationship.

The parties acknowledge and agree that the Named Affiliate is to operate and continue its activities in an Affiliation Relationship with HFHC and to this end has entered into this Agreement to define and oversee the terms under which the Named Affiliate will pursue its charitable objects in accordance with the charitable objects, By-laws and By-law Policies of HFHC. 5.02 Organizational Integrity.

Notwithstanding the Agreement, both HFHC and the Named Affiliate hereby confirm that they shall remain separate and distinct corporate entities with an independent board of directors that shall remain ultimately responsible for the management and governance of their respective organizations. 5.03 Not a Merger. This Agreement does not constitute a merger or consolidation of the parties. Each entity remains solely responsible and liable for respective claims, debts, obligations, and liabilities.

Except to the limited extent delegated herein or expressly provided for in other agreements, neither entity hereby succeeds to the rights, interest, powers, privileges, assets or liabilities of the other. 5.04 No Partnership or Joint Venture.

Nothing in this Agreement shall be construed to create a joint venture or partnership between HFHC and the Named Affiliate, and neither HFHC nor the Named Affiliate shall become bound by any representation, act or omission of the other, nor liable for the debts, liabilities or other obligations of the other, not expressly provided for in this Agreement This Agreement is between HFHC and the Named Affiliate and nothing in this Agreement should be construed as creating any rights in or obligations to any person who is not a party to this Agreement. [ 54 ] The affiliation agreement also requires affiliates to remain in good standing, to establish and maintain their housing programs and to engage in operations, programs and activities in accordance with Habitat Canada’s bylaws and bylaw policies. [ 55 ] Restrictions are placed on the use of licensed marks and the defendant agreed, by signing the affiliation agreement, that it could not use any other trade name or trademark without the prior written consent of the plaintiff to “ensure that the integrity of the Licensed Marks are not prejudiced, including application as part of a domain name or names.” Affiliates are also required to enter into additional agreements as necessary such that the use of any copyrighted material owned by the plaintiff shall be within the terms of a copyright license agreement.

[ 56 ] Clause 13.02 states that the affiliation agreement constitutes the entire agreement between Habitat Canada and the affiliate with respect to the subject matter within it and supersedes all prior and contemporaneous agreements except as specifically provided for in the affiliation agreement.

Clause 13.18 binds the agreement upon the parties and their successors and agents. [ 57 ] Clauses 7.01 and 7.02 obligate affiliates to provide documents and records to the plaintiff as requested and confirm the plaintiff has reasonable access to affiliates’ books and records for audit purposes. [ 58 ] In exchange, affiliates have the right to represent themselves as an affiliate of Habitat Canada and are allowed to use the plaintiff’s licensed marks and copyrighted material. They have the right to operate a housing program consistent with the mission and goals of the plaintiff. They may also establish “ReStores”.

These are a kind of second-hand goods shop operated by affiliates as one means of raising funds. Affiliates are granted these rights within a defined geographical area. Additionally, affiliates are entitled to obtain advice, assistance, resource materials and administrative services from the plaintiff. [ 59 ] The clause at issue in this case is in the

section of the agreement entitled “Termination of Affiliation Relationship”. Clause 10.02 describes what events can cause automatic termination of the affiliation agreement, including an affiliate: no longer being in good standing; becoming insolvent or bankrupt; becoming dissolved or wound up; or losing its charitable status with CRA.

Clause 10.03 obliges the plaintiff to follow the policy on disaffiliation if a deficiency of an affiliate is identified. [ 60 ] Clause 10.04 sets out the consequences of termination, including the cessation of all rights (including membership) and obligations under the agreement; the termination of the trademark and copyright sublicense agreements; and the notification of CRA by the plaintiff that the affiliate is no longer affiliated with it.

The clause at issue is 10.04(vi) which states: (vi) All of the remaining assets of the Named Affiliate (including but not limited to all intellectual property, any and all assets acquired by the Named Affiliate using the Grant Funds, all of the Named Affiliate’s right title and interest in any mortgages and promissory notes held by the Named Affiliate that have been executed by homeowners in connection with the Housing Program, donors’ list subject to compliance with the applicable privacy legislation, and all monies that are being held as part of the Grant Fund for [the Plaintiff], as such term is defined in the Covenant), after first having paid all debts and liabilities of the Named Affiliate, shall be transferred to [the plaintiff] or an Affiliate Member as approved by [the plaintiff] in its reasonable discretion, provided that, if possible, such assets shall only be used by [the plaintiff] or the said Affiliate Member as the case may be within the Service Area; provided further that all applicable federal and provincial laws have been complied with. (the “Asset Transfer Clause”) C.

Formation of the Prince George Affiliate [ 61 ] The plaintiff submits HPG was incorporated with the help and with the permission of the plaintiff for the sole purpose of carrying on the mission of Habitat International. The defendant does not dispute the fact and dates of incorporation, but does not agree with the plaintiff’s description of its role or the purpose of HPG. It suggests the relationship was more of a partnership than the adoption of the plaintiff’s mission by the defendant.

It is difficult to accept that submission given clauses 5.01 and 5.04 of the agreement. [ 62 ] HPG filed a constitution and bylaws dated May 28, 2001, which provided, among other things, that “[t]he purpose of the society is to implement the gospel of Jesus Christ by providing housing for persons whose income is below the ‘poverty line’ or ‘core need income threshold.’” Clause 60 of its bylaws states: Upon dissolution of the corporation and after payment of all debts and liabilities, its remaining property shall be distributed or disbursed of to Habitat for Humanity Canada Inc ., provided it is a charitable organization that carry on their work solely in Canada. [Emphasis added.] [ 63 ] Prior to being formed, the individuals who later formed the defendant’s board of directors participated in a lengthy application process with the plaintiff.

Included in the plaintiff’s evidence is the HPG Affiliation Application Package. It is a document about 250 pages in length that addresses legal matters (including financial safeguards and guidelines), certificate of incorporation, bylaws and constitution, Charter members, board of directors, sample mortgage documents, monitoring, income policy and name approvals. An assessment of the need in Prince George for affordable housing is also included in the package, as well as documents relating to development of fund-raising and public relations. Lastly, there is a document discussing volunteer relations and support.

The plaintiff also provided a 37-page document called a Brand Builder’s Hand Book that prescribes the standards for usage of the Habitat for Humanity logo. [ 64 ] Since 2001, HPG has: (

a) solicited and/or accepted donations, grant funds and goods; (

b) built or renovated eight homes for partner families and the mortgages remain registered in favour of the defendant for six of the properties; (

c) opened a ReStore staffed by paid employees and volunteers, the land upon which it sits owned by HPG; and (

d) purchased two parcels of lands that will be used to build a duplex as its next partner family home. [ 65 ] The defendant also holds various bank accounts and equipment and inventory relating to the ReStore including tools and equipment. [ 66 ] The plaintiff says the reason HPG was able to accomplish the preceding things, and holds the assets described above, is because

of its affiliation with Habitat Canada. This is a point of contention addressed later in these reasons. D. The Disaffiliation Process [ 67 ]

Section 3 of the plaintiff’s bylaws requires an affiliate to remain in good standing which includes its compliance with the bylaws and bylaw policies as they pertain to conditions, rights and responsibilities of membership.

Remaining in good standing also requires affiliates to comply with the minimum standards set out in the standards of excellence established by the plaintiff in conjunction with and as required by Habitat International. [ 68 ] Clause 52 of the bylaws states the affiliate shall be governed and administered with the following types of policies: bylaw policies, board policies and management policies. Bylaw policies supplement the bylaws in defining the structure of the corporation and any principles, programs or policies that are binding on the board of directors and/or the affiliate.

They include policies directed to the rights and obligations of affiliates, a dispute resolution process, as well as processes for disaffiliation, suspension or placing an affiliation on probation. For convenience I will refer to these bylaw policies as policies going forward. [ 69 ] There is a specific policy on the affiliation process. It stipulates four stages of an interest group becoming an affiliate with detailed steps under each stage. [ 70 ] There is also a policy about disaffiliation.

Clause 1 of that policy confirms that disaffiliation is a serious matter and “will only be considered under extreme circumstances and only after due process has been followed to find a less severe remedy whenever possible.” The purpose of the disaffiliation process is to ensure the activities of the affiliates are in compliance with the terms of membership defined in the covenant, bylaws, policies, standards of excellence and affiliation agreement where an affiliate is not, or may not be, in compliance. The disaffiliation process ensures it is given ample opportunity to remedy the non-compliance.

The plaintiff and Habitat International have a keen interest to ensure that the action of any affiliate does not at any time jeopardize the reputation of Habitat International or the work of other affiliates. [ 71 ] There are six stages to disaffiliation which are described in the policy. Stage 1 deals with a complaint identifying an issue or deficiency. Stage 2 encompasses preliminary discussions with an affiliate member if an investigation into the information received at stage 1 is warranted and stage 3 is written notice and request for information or remedy.

Stage 4 is mediation and stage 5 is probation, with stage 6 being the formal disaffiliation. E. The Disaffiliation of the Defendant [ 72 ] The plaintiff’s position is that it first noticed issues with the defendant’s compliance starting in 2009. The plaintiff says this history is relevant because it provides context to the disaffiliation process that was eventually undertaken. In 2009, the plaintiff conducted a routine review of HPG.

Following that review, the 2010 Report was issued and it identified compliance issues, including lack of a strategic plan, operating plan and budget, concerns with HPG’s family selection process, frequency of safety discussions on building sites, the need to seek board members who possessed particular skill sets and the placement of timelines on agenda items during meetings. The report noted that the most significant deficiency was the lack of a strategic operating plan and an associated budget.

A timeline was agreed upon by HPG for both completion of the strategic plan (end of February 2010) and the operating plan and budget (end of April 2010). [ 73 ] In late 2010, Ms. Delutis was conducting the annual review of affiliates to ensure they were in good standing so they could receive designated funds from Habitat Canada. She sent an email to HPG on October 27, 2010, and again on December 22, 2010, noting that certain documents had not yet been uploaded onto the plaintiff’s ShareNet site, including important financial statements.

This relates to the affiliates’ obligations with regard to financial disclosure. On January 3, 2011, HPG received an email from the plaintiff informing it that it met the criteria of “good standing” status for 2010, however, after reviewing the submitted documents, Ms.

Delutis informed HPG four days later that it had still not submitted their financial statements. [ 74 ] By July and August of 2011, the plaintiff identified remaining and further deficiencies in HPG’s financial disclosure and continued to communicate these deficiencies to HPG. [ 75 ] Affiliates are required to conduct annual self-evaluations and HPG conducted one in the fall of 2011, but Habitat Canada staff were of the view that HPG was still not in compliance. As a result, an action plan was developed in order to assist HPG to remain in good standing.

That action plan identified five issues and set timelines for completion of each one. Included were deadlines for a written communication plan, confirmation that the affiliate complies with all local, provincial and federal legislation, timely filing of tax returns with CRA, a family selection policy that defines criteria used and how they are applied in a non-discriminatory manner and confirmation that 10% of the undesignated funds are submitted to Habitat International. I pause to note that the action plan identified simple but fundamental deficiencies.

The action plan was provided to HPG on November 15, 2011 with deadlines ranging from December 15, 2011 to May 15, 2012. HPG was informed that as long as it was working towards completion and submission of the required documents within the given timelines, it would remain in good standing. [ 76 ] HPG addressed items in the action plan and forwarded it back to the plaintiff in late November 2011. A month later, the plaintiff was still of the view that deficiencies remained. [ 77 ] By January 2012, HPG was due for another routine assessment; three years had passed from the previous one.

The assessment was conducted in September and a report was produced (the “2012 Report”). [ 78 ] The 2012 Report identified a multitude of problems and issues with the defendant’s governance and operations, some of which had carried over from the previous report. The plaintiff’s position is that prior to and culminating in the 2012 Report, it identified a number of issues and deficiencies with the defendant and stage 1 of the disaffiliation process was commenced.

[ 79 ] The deficiencies identified include conflicts of interest with regard to members of the board of directors, a human resources issue in the management of the ReStore, lack of financial transparency and accountability and a failure to meet 34 of the 56 standards of excellence. HPG was asked to immediately address the conflicts of interest issues. Habitat Canada also requested a conference call to discuss the report and to assist HPG in resolving the identified issues.

That call took place on November 14, 2012. [ 80 ] Before the scheduled conference call, however, HPG made changes unilaterally without prior to consultation with Habitat Canada. The HPG board removed the chair of the board of directors. It nominated new directors without addressing issues about board member’s suitability as identified in the 2012 Report. In a November 6, 2012 email to the executive director, Ms.

Delutis raised the pressing issue of HPG’s non-compliance with their own bylaws and provincial society regulations: … in order for your affiliate to be legally conducting any business, according to your by-laws and therefore CRA requirements you must have a minimum of 12 board members. I suspect that is not the case and we will need to talk about how to rectify this on our call. [ 81 ] By this point, Ms. Delutis had come to the conclusion that the defendant’s compliance issues warranted an investigation. In January 2013, three members of Habitat Canada, including Ms.

Delutis, visited the Prince George affiliate to discuss outstanding deficiencies with the board and executive director. The plaintiff says these actions satisfy step 2 of the disaffiliation process. One of the staff members involved in that investigation visited the ReStore and sent an email to the other two visiting Habitat Canada members on January 12, 2013, noting a concern about a lack of volunteers, as well as specific concerns about the manager: He is not able to use a computer which causes many issues.

He has never been engaged in any bi-monthly BC ReStore manager conference calls, he doesn't receive national ReStore related emails and he has never accessed any of the resources available online to the ReStore community (nor attended any training in person or conference call).

More importantly, I saw him interact with staff, predominantly female, and some of his behaviour was out of line. … He was critical of [the plaintiff’s staff]… and mentioned multiple times that it was a mistake for Habitat Canada to "bully" them and we would "get what is coming to us" if we continued down this path. … … It is clear to me that [the manager] is not capable of properly managing a workforce, especially one with female members.

In my time with him he made discriminatory and rude comments about his staff, [plaintiff’s] staff, the aboriginal community and made multiple sexist comments. … [ 82 ] The defendant submits this email is inadmissible hearsay. I find it admissible but not for the truth of its contents, nor did the plaintiff rely on it as such. Instead, it is accepted into evidence for the fact that it was sent to and received by Ms. Delutis. [ 83 ] The plaintiff advised HPG by email to indicate to the manager of the store that his employment status was under review and he was being placed on an immediate paid leave of absence.

His wife, the executive director of HPG, was to be informed of this action after it was taken. HPG was advised by Habitat Canada’s legal counsel that they then had two options: do a complete investigation and determine whether they had cause for termination or refrain from completing the investigation and terminate without cause, negotiating severance pay with the manager. On or about January 15, 2013, the manager was suspended and on or about January 24, 2013, the HPG board terminated the manager’s employment without cause.

Eventually, a settlement was worked out. [ 84 ] A meeting was held with the board in January 2013 at which time Ms. Delutis and Ms. Borowec formally advised the board that it was not in compliance and, because of that, HPG was not in good standing. They also said that HPG could be returned to good standing status if the identified problems were remedied. To that end, after the meeting, a revised action plan was prepared by Ms. Delutis and sent to HPG (the “Action Plan”). This document is six pages and in table format, with the headings: activity/goal, minimum standard, responsible parties and due date.

The plaintiff’s position is that these events constitute stage 3 of the disaffiliation process. [ 85 ] In the coming months, the plaintiff came to the conclusion that the defendant was not communicating nor responding to the Action Plan in a timely manner. As a result, on March 19, 2013, Habitat Canada gave notice to HPG that it was being moved to stage 4 of the disaffiliation process. On March 22, 2013, further details about the basis on which this decision was made were provided to HPG’s board. [ 86 ] A mediation meeting was held on April 16, 2013.

The focus was on governance issues and the plaintiff’s view that the board lacked understanding of its duties and obligations and, therefore, its ability to govern and plan. Despite that, the new executive director of HPG sent a long letter, dated April 17, 2013, in which she stated HPG was “left wondering about Habitat’s expectations for this affiliate”. [ 87 ] The defendant argues that mediation, as defined in the policy, did not occur. It points to the “By-law Policy on Mediation or Arbitration Process for Resolving Disputes” which sets out the details of a mediation or arbitration process.

However, that portion of the by-law has no application in this case because it is restricted to those disputes “other than a dispute with respect to the application of an applicant or the membership of an Affiliate member and whether or not it is in good standing.” The dispute in this case is clearly about the standing of HPG.

Under the disaffiliation process, stage 4 mediation is a meeting between a representative of the Affiliate and of Habitat Canada (and a third person chosen by those two) for the purpose of reaching a resolution or plan of action. [ 88 ] From the plaintiff’s perspective, the defendant took little or no steps in response to the mediation meeting. On May 10, 2013, the national board of Habitat Canada informed HPG that it had moved HPG to stage 5 of the disaffiliation process and placed it on a three-month probation.

HPG was presented with yet another revised work plan which would have allowed it to regain good standing. [ 89 ] In July 2013, Habitat Canada retained an independent party to assess the health of HPG’s governance and operations. This was not a requirement of the bylaws, policies, covenant or agreement.

That assessment concluded “[HPG] is no further ahead with regard to management and governance skills.” The assessment also concluded that “[t]he affiliate is in a crisis from which I do not see the current Board of Directors -- in conjunction with the affiliate’s de facto executive director -- having the skills to extricate it.” [ 90 ] In September 2013, Ms. Delutis and Ms. Borowec flew to Prince George to meet with HPG’s board. Ms. Delutis deposes that, in

her view, HPG’s board was “either not willing or able to muster a meeting during that period.” A teleconference was held on September 18, 2013, but HPG made no commitment to address the outstanding deficiencies. [ 91 ] On September 21, 2013, after consulting with the executive committee of Habitat Canada and Habitat International, and obtaining legal advice, the national board of Habitat Canada passed a resolution with two-thirds vote to disaffiliate HPG effective October 1, 2013. HPG was notified of the disaffiliation on October 1, 2013. Included with the disaffiliation notice was a

schedule listing the deficiencies that had not been rectified. [ 92 ] The plaintiff says the impact of the notice of disaffiliation meant that, as of October 2, 2013, the affiliate’s sublicense was terminated and HPG could no longer use any Habitat Canada trademarks or intellectual property. It also had to cease all activities and work under the Habitat for Humanity name. By letter dated October 18, 2013, HPG confirmed the termination of the affiliate agreement and sublicense. On October 24, 2013, HPG changed its name to Hearts and Hands for Homes Society (the defendant). IV.

ISSUES [ 93 ] The defendant claims this case involves complex and overlapping issues of contract law, charity law and trust law that must be considered. In its written submissions, it identifies nine issues (although each has sub-issues within it). Apart from the argument about the case’s suitability for

summary trial, in reality, the defendant’s position revolves around two propositions:

i) the Asset Transfer Clause cannot and should not be enforced; and ii) if the Asset Transfer Clause can be enforced, specific performance is not an appropriate remedy. If it is, there may be issues relating to exactly what can be ordered. [ 94 ] The following issues will be addressed: 1) Is this a suitable case for a

summary trial application? 2) Is the Asset Transfer Clause enforceable? 3) Did the plaintiff follow its disaffiliation policy? 4) If the Asset Transfer Clause is enforceable, is the remedy of specific performance appropriate? 5) Should the defendant be awarded general and special damages for breach of contract and breach of trust, as outlined in its counterclaim? V. ANALYSIS A. Suitability for

Summary Trial [ 95 ] Rule 9 - 7 of the Supreme Court Civil Rules , B.C. Reg. 168/2009 [ Rules ], stipulates that a proceeding may be decided by

summary trial if a court is able to find the facts necessary to grant judgment and so long as it is not unjust to do so. The factors to consider when deciding if a case is suitable for

summary trial were articulated by the Court of Appeal in Gichuru v. Pallai , 2013 BCCA 60 at paras. 30 and 31 : (

a) the amount involved; (

b) the complexity of the matter; (

c) its urgency; (

d) any prejudice likely to arise because of delay; (

e) the cost of taking the case forward to a conventional trial in relation to the amount involved; (

f) the course of the proceedings; (

g) the costs of the litigation and the time of the

summary trial; (

h) whether credibility is a critical factor in the determination of the dispute; (

i) whether the

summary trial may create a unnecessary complexity in the resolution of the dispute; and (

j) whether the application would result in litigating in slices. [ 96 ] It is imperative that I keep in mind the overarching purpose of the Rules to secure a “just, speedy and inexpensive” determination of every case on its merits and to conduct each proceeding in a way that is proportionate to the amount involved, the importance of the issues and the complexity of the matter. [ 97 ] The Supreme Court of Canada in Hryniak v. Mauldin , 2014 SCC 7 , called for a shift in litigation culture to better utilize available tools, such as a

summary trial, to address the rising costs of litigation. The court found this shift is necessary to ensure access to justice, a modern reality that the Court calls at para. 1 of Hryniak : “the greatest challenge to the rule of law in Canada today.”

[ 98 ] The defendant’s objections to proceeding by way of

summary trial can be summarized into the following propositions: (

a) the affidavit material contains documents and statements that may be inadmissible and rulings must be made on those before turning to the trial issues; (

b) the affidavit material contains numerous conflicts; and (

c) the complexity and number of legal issues makes the case unsuitable for a

summary hearing. [ 99 ] The first issue has been resolved in the plaintiff’s favour (see paras. 4 - 24 in these reasons) and I rely on that reasoning in answer to this ground. [ 100 ] With regard to conflicts in the evidence, that is not an absolute bar to

summary trial. The issue is whether the facts can be resolved or if it would be unjust to do so: Gichuru at para. 30 ; Harrison v. British Columbia (Children and Family Development) , 2010 BCCA 220 at paras. 40 - 41 , leave to appeal ref’d [2010] S.C.C.A. No. 293. [ 101 ] The plaintiff says this case is a breach of contract case and such cases are resolved by construing documents, which makes them suitable for

summary trial: Dahl v. Royal Bank of Canada, 2005 BCSC 1263 at para. 26 , aff’d 2006 BCCA 369 . The defendant, on the other hand, views this case as raising issues well beyond the proper

interpretation of the Asset Transfer Clause and says it is too complex for

summary trial. Among other things, the defendant complains “there are five volumes of affidavit materials to be reviewed and resolved” and it has had to face “myriads of documents”. A profusion of documents does not distinguish this case from many

summary trials. [ 102 ] Furthermore, complexity and voluminous material are not incompatible with a

summary trial being suitable: KCC at para. 24. The concern is always an examination of the issues, and evidence relative to them, to determine whether it would be unjust to proceed in a

summary fashion: Parragh v. Eagle Ridge Hospital and Health Care Centre , 2008 BCSC 1299 at para. 24 . [ 103 ] The defendant claims that there are “substantial credibility issues that must be resolved” and because of that it is “unclear” whether the

summary trial will resolve the case. The defendant argues that, in many cases, the facts presented by the parties directly conflict and an assessment of credibility is the only way to determine which version is correct. But, as I have already found, the contradictions upon which the defendant relies are based on an unfair reading of the plaintiff’s evidence or are contradictions in the legal arguments and not in the evidence. For the reasons I have already explained in dismissing the defendant’s evidentiary objections I do not find that substantial credibility issues arise in this case. Moreover, a case can be suitable for a

summary determination even if there are disputes in the affidavit evidence and even if the trial judge prefers the evidence of one of the affiants over another: KCC 264 Holdings Inc. v. Circadian (Atkins 2010) GP Ltd. , 2014 BCSC 1183 at para. 26 [ KCC ], citing 0722053 B.C. Ltd. v. Malloch Logging Ltd. , 2013 BCSC 1948 at para. 20 . [ 104 ] As to the last point, the defendant insists there are a number of complex issues but its position really boils down to saying the Asset Transfer Clause cannot or should not be enforced because of the nature of the clause and/or contract itself.

As explained below, I have found that none of the numerous issues the defendant has raised are applicable or have merit. [ 105 ] For all those reasons, I find that this case is suitable for

summary trial under Rule 9 - 7 . B. Is the Asset Transfer Clause Enforceable? [ 106 ] The plaintiff’s position is simple. It says the affiliation agreement is a valid contract and the Asset Transfer Clause is clear on its face. It is not ambiguous. Based on the fundamental principles of contract law, it is enforceable. The plaintiff refers to the principles articulated in Group Eight Investments Ltd . v. Taddei , 2005 BCCA 489 at paras. 19 - 22 .

To summarize, the first step in interpreting the provisions of a written contract is always to examine the words themselves and to give those words their plain and ordinary meaning, as interpreted in the context of the whole of the contract. If this examination reveals an unambiguous meaning, it is not necessary or appropriate to go any further. [ 107 ] The court can look beyond the words of a contract only if the terms being examined are capable of two different and reasonable

interpretations which either create an absurdity or reveal an ambiguity. Even in that case, however, the court does not accept or consider evidence of negotiations or the subjective intent of the parties: Li v. Li , 2009 BCSC 1763 at para. 68 . Instead, it considers evidence of facts known to both parties prior to the execution of the agreement. [ 108 ] The plaintiff says there is no ambiguity.

The plain and ordinary meaning of the Asset Transfer Clause is that all assets (including, but not limited to, intellectual property, any and all assets acquired using grant funds and all of the defendant’s right, title and interest in the partner family mortgages) are to be transferred to it upon the defendant being disaffiliated. [ 109 ] The defendant raises a number of issues to establish that the Asset Transfer Clause is not enforceable. Most of these are encapsulated in the following position contained in the defendant’s written submission: To accept the Plaintiff’s proposed

interpretation means that the Defendant is in a position to contract away the charitable purpose trust assets which it holds in trust for a specific purpose given to the assets by the donors. … It would … be a breach of the contract existing between the Defendant and its donors. This cannot be done by the Defendant even if it wishes to do so.

To find otherwise would sanction a violation of the intentions of the donors and may very well frustrate the charitable purposes attaching to these assets. … In short, the Defendant submits that it does not have the power under its bylaws and purposes to agree to alienate trust assets it holds pursuant to a charitable purpose trust. [ 110 ] The preceding passages are wholly dependent upon the submission that the defendant’s purpose is distinct and independent from

the plaintiff’s. Based on the facts discussed above at paras. 36 - 53, I find that HPG never had a purpose independent from the plaintiff.In my view, the evidence is clear on this point. Accordingly, none of the arguments raised in favour of concluding the Asset TransferClause is unenforceable have merit. [111] I also note that the defendant does not appear to appreciate the possible implications of this position. If the defendant’s positionis accepted, then the individuals who formed the defendant would have been agreeing to a term they say is unenforceable.

That couldvery well raise issues of their own good faith, not to mention the possibility of voiding the entire affiliation agreement. In that case, thedefendant would have operated for a period of time in violation of the exclusive right of the plaintiff to control its brand name andlicenced marks and the plaintiff might very well have a claim against the defendant seeking return of any assets gained in violation ofthose rights. I raise these points only to highlight that the defendant’s position has the hallmark of being divined only in hindsight. 1.

Contra proferendum does not apply to the affiliation agreement [112] The defendant explicitly agrees with the “principles of contractual

interpretation relied on by the Plaintiff” but only admits “thepossibility that the words in the contract mean what the Plaintiff says they mean.” The defendant then raises a number of arguments tosay either the affiliation agreement or the Asset Transfer Clause is unenforceable. It relies on some variant of the doctrine of contraproferendum for most of these arguments. For example, the defendant argues the affiliation agreement is a “contract of adhesion” whichmust be interpreted strictly against the plaintiff. [113] There are two fundamental flaws to the defendant’s position.

The first is that contra proferendum only arises where there is anambiguity in the contractual term being examined. I have found there is no ambiguity. [114] The second flaw is that the facts are not consistent with the defendant’s characterizations of the affiliation agreement. First, it asserts that the affiliation agreement is a contract of adhesion. The defendant relies on the Black’s Law Dictionary, 6th edition legaldefinition of “contract of adhesion” applied in Continental Securities v.

McLeod (1995), 10 B.C.L.R. (3d) 307 at para. 37 (S.C.): Standardized contract form offered to consumers of goods and services on essentially "take it or leave it" basis without affordingconsumer realistic opportunity to bargain and under such conditions that consumer cannot obtain desired product or services except byacquiescing in form contract.

Distinctive feature of adhesion contract is that weaker party has no realistic choice as to its terms. [115] It also says the affiliation agreement is similar to a franchise agreement, which, in one Manitoba case, has been characterized asbeing akin to a contract of adhesion: Halligan v. Liberty Tax Service Inc., 2003 MBQB 174 at para. 18. [116] In my view, neither concept is applicable in this case. As noted above, the plaintiff was required by Habitat International toformalize its legal relationship with its affiliates in 2006.

In order to do so, a number of meetings/discussions were held before theplaintiff decided the shape and content of the affiliation agreement. While these were not strictly negotiations, it is clear every affiliatehad opportunity to have input into the wording of the agreement.

The evidence indicates the defendant did not take advantage of anyopportunity to comment on the content of the affiliation agreement. [117] More importantly, a legal concept developed for the protection of consumers who are subjected to a “take it or leave it” choiceabout the terms under which they purchase goods or services simply does not fit this situation. A contract of adhesion assumes asignificant imbalance of power and, on that basis, a court will strictly construe the contract against the dominant party: S.R. PetroleumSales Ltd. v. Canadian Turbo Inc. (1995), (AB KB), 175 A.R. 52 at para. 32 (Q.B.).

The facts of this case are notsimilar to the relationship between, for example, a telecommunications company and someone wanting to purchase a mobile phone plan.Indeed, the defendant’s submissions emphasize the charitable aspect of the parties’ work and dealings and the extent to which it says it is“independent” of the plaintiff. Those positions are incompatible with characterizing the affiliation agreement as a contract of adhesion.These are also the reasons why cases discussing commercial franchise contracts are unhelpful.

At the end of the day, it is the documentsthemselves and the factual matrix in which they exist that will determine whether a contract of adhesion exists or whether a franchiseagreement ought to be considered a contract of adhesion. The facts do not support either conclusion in this case. [118] But the defendant also asserts that such a characterization of the affiliation agreement leads to an implied duty of good faithperformance on the part of the plaintiff, relying on Shelanu Inc. v.

Print Three Franchising Corp. (2003), (ON CA),64 O.R. (3d) 533 at para. 64 - 66 (C.A.). [119] The Supreme Court of Canada has recently clarified that good faith in contract performance is a general organizing principlemeant to incorporate the disparate situations where it had previously been recognized such as in employment contracts, insurancecontracts, tendering contracts and the like: Bhasin v. Hrynew, 2014 SCC 71 at paras. 63 - 66.

Before Bhasin, generally speaking, goodfaith would be found in certain classes of relationship where there is a clear and significant imbalance of power or to reflect the impliedintentions of the parties. Whichever category it had fallen into, however, good faith did not have a consistent definition, leading to theview that it may be “incapable of precise definition”: Wallace v. United Grain Growers Ltd., (SCC), [1997] 3 S.C.R.701 at para. 98 (S.C.C.). [120] The Court did not provide a definition of good faith in Bhasin, but it did establish a duty of honest contractual performance.

Thisduty requires parties not to lie or otherwise knowingly mislead each other on matters related to the performance of the contract: Bhasin atpara. 73. [121] Assuming, without deciding, that the contractual relationship in this case requires good faith and the duty of honest performance,I find the evidence easily establishes beyond doubt that the plaintiff has met that standard. The defendant’s only allegation of dishonestyis that the disaffiliation was motivated by a desire to “force” amalgamation which I have already rejected (at paras. 29 - 35).

In all otherrespects, not only did the plaintiff meet a duty of good faith, I find it surpassed it with its patient approach to the issues raised with HPGand by engaging a third party to review the entire situation. Plainly put, the plaintiff went above and beyond any contractual duty of goodfaith.

[122] I do not find that the doctrine of contra proferendum applies to the affiliation agreement, nor would I characterize it as a contractof adhesion. If a duty of good faith applies, the plaintiff has more than met the standard as articulated by the Court in Bhasin. 2. The Asset Transfer Clause does not run afoul of any statute [123] The defendant raises the International Trusts Act, R.S.B.C. 1996, c. 237 and the Charitable Purposes Preservation Act, S.B.C.2004, c. 59. They protect against the intermingling, misuse or alienation of charitable funds by a trustee.

The defendant suggests theexistence of these statutes raises an issue as to whether the parties were prohibited from agreeing to a contract term for the “alienation” ofassets. The defendant’s argument is circular because it rests entirely on the conclusion that the Asset Transfer Clause results in theimproper “alienation” of assets. That is the very point the defendant has failed to establish because I have rejected the defendant’sargument that HPG’s purpose was distinct and independent of the plaintiff’s.

Therefore, those statutes are irrelevant to this case. [124] Moreover, if the argument is correct, then surely the individuals who signed the affiliation agreement on behalf of HPG mustalso be held responsible for agreeing to a term that violates the statute. Or, given their legal position, it may be that they misled theplaintiff by signing the affiliation agreement knowing the Asset Transfer Clause would alienate assets and run afoul of provinciallegislation.

If that were the case, the defendant may be found to have acted in bad faith, potentially entitling the plaintiff to relief. [125] Additionally, built into clause 10.04 of the affiliation agreement itself is the stipulation that upon its termination, all of theremaining assets of the affiliate will be transferred to Habitat Canada or one of its affiliates to be used within the designated service area,if possible, and “provided further that all applicable federal and provincial laws have been complied with.” I take this to mean HabitatCanada intends to use any asset transferred to it through a disaffiliation process in accordance with the specified charitable purpose of theasset.

Since Habitat Canada and the defendant share a common mission, the defendant’s proposed scenario is virtually impossible.Furthermore, even if I was wrong about there being no difference between the plaintiff’s and HPG’s charitable purposes, clause 10.04preserves the charitable purpose of the affiliate’s asset. 3. The ultra vires doctrine has no application to this case [126] The defendant also relies on ss. 4(1)(

c) and 32(1) of the Society Act, R.S.B.C. 1996, c. 433 to suggest the defendant’s power toagree to the “alienation of trust assets” is ultra vires the defendant. Ultra vires is a doctrine of statutory

interpretation. It refers tosubordinate legislation that enacts powers or limits beyond the authority of its enabling act. It has no application to this case. [127] The defendant says that the Supreme Court of Canada recognized in Communities Economic Development Fund v. CanadianPickles Corp., (SCC), [1991] 3 S.C.R. 388 at 403 - 404 (S.C.C.) that the ultra vires doctrine did apply at one time tocompanies.

In the passage the defendant relies upon, it is also noted that the doctrine has been abolished in most Canadian jurisdictions.The defendant acknowledges that since corporations are granted by statute the powers of a natural person without limit, the ultra viresdoctrine has been abolished in most jurisdictions. [128] But the defendant points to s. 4(1)(

d) of the Society Act, which states a society has the “powers and capacities of a natural personof full capacity as may be required to pursue its purposes” (emphasis added), to argue that the ultra vires doctrine has somehow beenrevived but in the completely different context of the Society Act. No authority is cited for this proposition and I do not think it followslogically from the case law relied upon by the defendant.

In any event, the defendant’s argument only has traction if I were to find thatthe Asset Transfer Clause improperly alienates assets, which I do not. [129] More importantly, the ultra vires doctrine referred to in Communities Economic Development Fund comes from AshburyRailway Carriage & Iron Co. v. Riche (1875), L.R. 7 H.L. 653 which would unlikely have applied to the facts in this case. In that case,the railway company purported to contract with Riche to purchase a railway in Belgium.

This was beyond the company’s memorandumwhich set out its purposes as to carry on business as mechanical engineers and general contractors. In contrast, as I have discussed above,there is nothing on the face of the Asset Transfer Clause which indicates that a transfer of assets to Habitat Canada would be beyond thescope of HPG’s power. On the contrary, the defendant’s own bylaws require return of the assets upon dissolution, provided HabitatCanada is a still a charitable organization carrying on its work solely in Canada (see above at para. 62 where Clause 60 of thedefendant’s bylaws is discussed). 4.

The Asset Transfer Clause is not a penalty clause nor unconscionable [130] The defendant also argues that the Asset Transfer Clause is a penalty clause, results in unjust enrichment or is otherwiseunconscionable. The plaintiff says nothing about the affiliation agreement or clause fits the characteristics of a penalty clause. The caselaw supports the plaintiff’s position. [131] The Asset Transfer Clause does not trigger any payment of money or assessment of damages. It effects a transfer of property.The defendant’s assertion has no merit. [132] In ATM Finance Inc. v.

Gonabady, 2010 BCSC 278, the court adopted Lord Dunedin’s description in Dunlop Pneumatic TyreCo. Ltd. v. New Garage and Motor Co. Ltd., [1915] A.C. 79 at 86 - 88 (H.L.) (as cited in Prudential Insurance Co. of America v. CedarHills Properties Ltd. (1994), (BC CA), 100 B.C.L.R. (2d) 312 at para. 16 (C.A.): 1. Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what theysay, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidateddamages.

This doctrine may be said to be found passim in nearly every case. 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is agenuine covenanted pre-estimate of damages … 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and

inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach… 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may provehelpful, or even conclusive. Such are: (

a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatestloss that could conceivably be proved to have followed from the breach … (

b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater thanthe sum which ought to have been paid ... (

c) There is a presumption (but no more) that it is a penalty when "a single lump sum is made payable by way of compensation, on theoccurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage" ... On the other hand: (

d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as tomake precise pre-estimation almost an impossibility.

On the contrary, that is just the situation when it is probable that pre-estimateddamage was the true bargain between the parties ... (the emphasis is that of the trial judge) [133] The defendant, who raised the issue of the Asset Transfer Clause being a penalty clause in the first place, argues “the plaintiffhas adopted too narrow an approach to the issue raised by the Defendant” and cites and relies on cases that address stipulated remedyclauses, such as Makdessi v. Cavendish Square Holdings BV & Anor, [2013] EWCA Civ. 1539 and 869163 Ontario Ltd. v.

Torrey Springs II Associates Limited Partnership (2005), (ON CA), 256 D.L.R. (4th) 490 (Ont. C.A.). Those cases areunhelpful because they deal with a subset of penal clauses that are invoked upon a breach of a contract as a way of providing “damages”to the other party. [134] The defendant submits its disaffiliation was caused by its breach of paragraph 6.01(

i) of the affiliate agreement and, therefore,the prerequisite of penalty clauses and stipulated remedy clauses is met. The evidence does not support the defendant’s position. [135] Neither party repudiated the contract before disaffiliation. The defendant continued to operate as HPG up until disaffiliation; theplaintiff continued to act in accordance with its disaffiliation process and afforded the defendant opportunities to remedy its status.Throughout the disaffiliation process, and before, the defendant was given many opportunities to bring itself into good standing.

Thedisaffiliation process itself is premised on finding a way to assist affiliates to return to good standing where they are in breach orpotential breach of the affiliate agreement. This is not a penalizing process but one aimed at rehabilitation. The plaintiff identifiedcompliance issues and, rather than declaring HPG to have breached the affiliation agreement, it invoked the disaffiliation process. Oncethat process was in play, the issue of the breach had been overtaken.

I, therefore, reject the defendant’s submission that the disaffiliationwas caused by a breach of the affiliation agreement. [136] Also, the Asset Transfer Clause may be invoked in situations other than disaffiliation, including upon bankruptcy, insolvency ordissolution of the affiliate, loss of the affiliate’s registered CRA status as a charitable organization or written notice of termination by theaffiliate itself.

That demonstrates that a breach of the affiliation agreement is not necessarily a prerequisite to the plaintiff enforcing theAsset Transfer Clause. [137] Even if I were to characterize the Asset Transfer Clause as a penalty clause or a stipulated remedy clause, which I do not, thedefendant admits “the modern trend is to uphold such terms unless they are unconscionable.” [138] As to unconscionability, the test is whether “the transaction, seen as a whole, is sufficiently divergent from community standardsof commercial morality that it should be rescinded”: Hughes v.

Gibson, 2012 BCCA 172 at para. 28, approving of Harry v. Kreutziger(1978), (BC CA), 9 B.C.L.R. 166 (C.A. per Lambert J.A.).

This broad test encompasses the two traditional componentsof unconscionability: inequality in bargaining positions due to the needs and distress of the weaker party leaving them vulnerable to thepower of the stronger, and a substantially unfair bargain to the benefit of the stronger: Hughes at para. 29. [139] As previously mentioned, the affiliation agreement was created by Habitat Canada with the collaborative input of its affiliates.HPG was given the opportunity to provide input into the contents of the agreement, although it di

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