2016 MBCA 126, 2016 MBCA 126

Citation: Vitacea Company Ltd et al v The Winning Date: 20161208 Combination Inc et al, 2016 MBCA 126 Docket: AI16-30-08681 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Marc M. Monnin Mr. Justice William J. Burnett Madam Justice Janice L. leMaistre BETWEEN : VITACEA COMPANY LTD. and ) TSI GROUP LTD. ) ) R. C. Roy and (Plaintiffs) Respondents ) S. A. Gabor ) for the Appellants - and - ) ) THE WINNING COMBINATION INC. ) and SHAZAD BUKHARI ) ) (Defendants) Appellants ) ) J. A. Kagan and and BETWEEN : ) A . D. F.

Sain ) for the Respondents THE WINNING COMBINATION INC. ) ) (Plaintiff by Counterclaim) Appellant ) ) - and - ) ) VITACEA COMPANY LTD., TSI GROUP LTD., TSI (USA), INC., DAVID TIFFNEY, JOE ZHOU and RUSSELL SCOTT ) ) ) Appeal heard and Decision pronounced: December 8, 2016 ) (Defendants by Counterclaim) Respondents ) On appeal from 2016 MBQB 180 MONNIN JA (for the Court): [ 1 ] The defendants appeal from a decision of a motion judge denying their application to strike a portion of the amended statement of claim in this action, alleging equitable fraud and unjust enrichment, on the basis that it fails to disclose a reasonable cause of action.

At the hearing of the appeal, the appeal was dismissed with costs with reasons to follow. These are those reasons. [ 2 ] The plaintiffs, TSI Group Ltd. (TSI) and Vitacea Company Ltd. (Vitacea), are corporations incorporated in Hong Kong and are respectively the manufacturer and distributor of a product known as “Vitamints” which are vitamin-enriched mints. They entered into a licensing agreement with the defendant, The Winning Combination Inc. (TWC), a Winnipeg-based company, whereby TWC would distribute Vitamints in Canada. The defendant, Mr. Bukhari, is the CEO of TWC.

The licensing agreement also contained intellectual property provisions relating to Vitamints. [ 3 ] Commercial disputes arose between the parties and the plaintiffs sued for significant damages for breach of contract.

The defendants filed a statement of defence, denying the breach, but also counter-claimed. [4] Some two and one-half years after the filing of the statement of claim, the plaintiffs amended to add claims ofequitable fraud against TWC and Mr. Bukhari, as well as unjust enrichment against Mr. Bukhari personally. The amendments stemfrom allegations that Mr.

Bukhari and TWC acquired and registered trademarks and domain names in the United States on behalf ofVitacea with respect to Vitamints and then, contrary to the terms of the licensing agreement, sold those rights to a third party, knowingfull well that they belonged to the plaintiffs. [5] The defendants moved to have the amendments struck as failing to disclose a reasonable cause of action. Theirposition is that no cause of action lies in equitable fraud given that the relationship between the plaintiffs and the defendants is one ofequal bargaining power governed by contractual terms.

They argue that a claim of equitable fraud only arises in the context of a specialrelationship or special circumstances where a plaintiff is vulnerable but not where only a contractual relationship exists between theparties. [6] The plaintiffs respond that such an

interpretation is too narrow a view of equitable fraud and that more recentdecisions would allow for a broader

interpretation inclusive of the facts alleged. [7] The motion judge, in a lengthy decision, reviewed the law with respect to equitable fraud. He concluded as follows(at para 62): To repeat, given the existing jurisprudence invoked by Vitacea, it is not plain and obvious that its claim in equitable fraud is notsupportable in law or that it is beyond doubt that it will fail.

While the cases cited by Vitacea may not ultimately be accepted as beingpersuasive, rightly decided or fully applicable to the facts as found at trial, they do at this stage, for the purpose of applying thegoverning test on a motion like the present, represent support in law for the claim in equitable fraud which Vitacea wishes to make andwhich, in my view, is sufficiently revealed in the amended statement of claim and further particularized in Vitacea’s response to therequest for particulars. [8] As to the claim against Mr.

Bukhari for equitable fraud and unjust enrichment, the motion judge concluded thatsufficient evidence had been put forward to the effect that it was not plain and obvious that the action against him would necessarily failunder both grounds. Standard of Review [9] As this Court has stated in recent cases, whether a pleading discloses a reasonable cause of action or defence amountsto an exercise of judicial discretion. Therefore, absent reversible error of fact or law or an indication that the decision is so clearly wrongas to amount to an injustice, it is entitled to deference.

See Grant v Winnipeg Regional Health Authority et al, 2015 MBCA 44, 319ManR (2d) 67; and Chrysler Canada Inc v Eastwood Chrysler Dodge Ltd et al, 2010 MBCA 75 at para 24, 262 ManR (2d) 1. Test for Striking out a Pleading [10] As was also stated in Grant, the remedy of striking a pleading is reserved only for the “clearest of cases”. A claimshould not be struck unless the moving party has demonstrated that it is plain and obvious that the cause of action as pleaded is certain tofail. As well, the novelty of the claim or defence is not reason alone to strike the pleading (see Grant at paras 36-37).

Decision [11] In the present case, we are all of the view that the motion judge did not proceed on an erroneous view of the law. Hereviewed the current state of jurisprudence relating to equitable fraud and concluded, correctly in our view, that it did not lead to theinexorable conclusion that the plaintiffs could not succeed on the pleadings as formulated. His conclusion that it was not “plain andobvious” that they did not have a cause of action is reasonable in the circumstances of this case.

In our view, whether a claim based onequitable fraud can only arise in circumstances where a special relationship has existed is very much an open question (see Sun-RypeProducts Ltd et al v Archer Daniels Midland Co et al, 2008 BCCA 278, 257 BCAC 218; Bayerische v Rieder, 2003 BCSC 1031 at para10 (per Lowry J as he then was); and Fairlie Insurance Agency Inc v Benesure Canada Inc, 2012 ONCA 677 ). [12] Given that we will be allowing this cause of action to proceed, we will refrain from a further analysis of the law.

In ourview, it is prudent that such only occur once the matter has been heard and if it becomes necessary to do so. [13] Similarly, as to the causes of action advanced against Mr. Bukhari personally, we are also of the view that the facts, aspleaded, bring him within the ambit of the causes of action raised, and it is not plain and obvious that actions against him for equitablefraud or unjust enrichment, on the facts alleged, would necessarily fail. [14] For these reasons, we dismissed the appeal with costs in favour of the plaintiffs. JA

JA JA