Court rules in favour of labour-sponsored venture fund against fund manager

The Ontario Superior Court of Justice has ruled that GrowthWorks WV Management Ltd., which managed the labour-sponsored venture fund GrowthWorks Commercialization Fund Ltd., must repay the $1.4 million that the fund manager paid itself as it stepped down from running the fund earlier this year. However, the court declined to impose punitive damages.

GrowthWorks WV Management took the funds by redeeming a guaranteed investment certificate and directing the proceeds to itself on the basis that the money amounted to “outstanding and unpaid compensation,” which it was entitled to receive, according to the court’s decision. In turn, GrowthWorks Commercialization Fund argued that the firm was not owed the money.

Resolving the issue of whether the firm was entitled to the $1.4 million comes down to interpreting the terms of the management agreement, the court says. Ultimately, it ruled that the fund manager was not entitled to the payment under the terms of that agreement, saying, “The payment to the former manager was unauthorized and illegitimate, and must be repaid to the fund.”

However, the court declined to order punitive damages in the case. The fund had asked the court for an additional $50,000, but the court ruled that the fund manager’s conduct was not egregious enough to warrant punitive damages.

“While the former manager’s conduct bears some of the hallmarks of conduct requiring censure, the fact the former manager did not conceal the fact it had taken the money and disclosed what it had done takes this case out of the narrow range of cases requiring an award of punitive damages,” the decision states.

The court did award GrowthWorks Commercialization Fund $35,000 in costs.

GrowthWorks WV Management has 30 days to appeal the court’s ruling.

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